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NAHL Group PLC Final Results

19/03/2019 7:01am

UK Regulatory (RNS & others)


Nahl Group (LSE:NAH)
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RNS Number : 2226T

NAHL Group PLC

19 March 2019

19 March 2019

NAHL Group plc

("NAHL" or the "Group")

Final Results

NAHL, the leading UK marketing and services business focused on the UK consumer legal market, announces its Final Results for the year ended 31 December 2018.

Financial Highlights

 
 --   Revenue of GBP49.0 million (2017: GBP51.9m) 
 --   Underlying operating profit* down 16.3% to GBP12.1m (2017: GBP14.5m) primarily as a result 
       of our transformation strategy 
 --   As anticipated, profit before tax of GBP9.8m (2017: GBP12.4m) 
 --   Underlying EPS* of 18.2p (2017: 25.0p) 
 --   Recommended final dividend of 5.7p, providing a total dividend for the year of 8.9p (2017: 
       15.9p). 
 

Operational Highlights

 
 --   Continued progress in transforming Personal Injury (PI) division to deliver long-term growth 
 --   Alternative Business Structure ("ABS") strategy developing well, with both firms trading profitably 
 --   Licence granted from Solicitors Regulation Authority ("SRA") to launch wholly owned law firm, 
       National Accident Law, expected to start trading in April 2019 
 --   Strong performance from Critical Care division, delivering double-digit profit growth and 
       increased market share 
 --   New management team in place at Residential Property division, with initiatives in place designed 
       to return the division to growth 
 

Russell Atkinson, CEO of NAHL, commented:

"As we progress through our strategy for the Group, we are pleased to have taken significant steps forward in transforming our core Personal Injury (PI) business to take advantage of the changed regulatory environment and the opportunities ahead.

"Encouragingly, we have made progress in further developing and processing enquiries through our ABS ventures. Moreover, we are excited about the potential for our wholly owned law firm, National Accident Law, which was granted a licence by the Solicitors Regulation Authority and is scheduled to launch in April 2019. This will give us a full economic interest in the success of a whole claim, bringing a state of the art, consumer-focused, technologically enabled volume processing capability as we aim to become the UK's leading volume Pl processer.

"During this transitional period, we are encouraged by the performance of Critical Care business. I am delighted to report double-digit profit growth on the back of increased market share. This business makes a significant contribution to the Group. The challenges within the housing market have been well-documented, however, we continue to trade profitably and with a new management team in place, I feel positive about the future of our Residential Property business.

"Trading in the early part of the new year has improved, albeit our markets remain competitive. Whilst there remains a great deal to do, the strength of our trusted brands, digital capabilities and talented people gives us confidence for the year ahead."

*Underlying operating profit and underlying earnings per share adjust for share-based payments, amortisation of intangible assets on business combinations and exceptional items.

Enquiries:

 
NAHL Group plc                                      via FTI Consulting 
 Russell Atkinson (CEO)                              Tel: +44 (0) 20 3727 1000 
 James Saralis (CFO) 
finnCap Ltd (NOMAD & Broker)                        Tel: +44 (0) 20 7220 0500 
 Julian Blunt / James Thompson (Corporate Finance) 
 Andrew Burdis (Corporate Broking) 
FTI Consulting (Financial PR)                       Tel: +44 (0) 20 3727 1000 
 Alex Beagley 
 James Styles 
 Laura Saraby 
 

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 Your Law and National Law Partners.

-- 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

Chair's Report

This is my first Annual Report with NAHL Group plc having joined the business in December 2018.

We are midway through a significant transition and it is obvious to me that there is a realistic and achievable strategic plan in place against which the management team are executing well and making great progress.

Events in 2018 once again validated the strategic approach we are taking and the regulatory and competitive landscapes are developing as we had anticipated. Our businesses are facing into significant market change but are adapting to this and embracing the opportunity that it brings.

Financial Results and Dividend

As we have previously announced, the Group experienced a challenging fourth quarter's trading. Consequently, our profit before tax fell marginally short of the Board's expectations for the year at GBP9.8m (2017: GBP12.4m).

The Group's strategy requires investment in both working capital and infrastructure and as such, during this transitional period, profits and cash flow will be lower. This deferral in profits will support future earnings and provide the basis for a sustainable and growing earnings stream in our Personal Injury division.

Basic earnings per share declined 33.2% to 14.5p (2017: 21.7p). The Group has continued to carefully manage its balance sheet and net debt at the end of 2018 was GBP15.5m (2017: GBP12.1m).

The Board proposes, subject to the approval of shareholders at the Annual General Meeting to be held on 21 May 2019, a final dividend of 5.7p per share be payable on 31 May 2019 to ordinary shareholders registered on 26 April 2019. This gives a total dividend for the year of 8.9p, which equates to a cover of 2.0x earnings.

Strategic Progress

Our strategy is to become the leading provider in our chosen consumer legal services markets by leveraging our trusted brands; forging strategic partnerships that create mutual value; and embracing developing technologies to reach and interact with our consumers and customers.

As part of this strategy, our Personal Injury business is creating a new type of law firm that will allow us to put the consumer at the centre of the process and take an economic interest in the whole value of the claim. Through a combination of our panel, our joint-venture partnerships and our own market-leading law firm we aim to be the number one personal injury specialist in the UK.

Progress to date has been encouraging with a positive contribution from our ABS partners, and the development of our own law firm, scheduled to launch in April 2019, is on time and on budget.

In Residential Property, our new management team is putting in place strategic initiatives designed to return the business to growth in 2019; in Critical Care our strategy has already delivered double-digit profit growth and market share gains.

Board changes

I'm grateful for the contribution that Steve Halbert has made to the Group over the last nine years. Steve has successfully guided NAHL Group plc through two significant regulatory reforms, four acquisitions and the IPO in 2014.

The Group is now more diverse and resilient and is well positioned to move forward with confidence. I'd like to thank Steve for his efforts and look forward to working with the Board as we continue the Group's exciting strategy for growth.

Our people

Reflecting on my time in the business to date, I can see a team that is driven, and one that is underpinned by its values and its people.

I have seen first-hand the people, the processes and commitment in place to helping the Board achieve its growth ambitions.

I would like to take this opportunity to thank all of our colleagues for their continued support and dedication.

Outlook

Whilst market pressures persist, trading during the early part of 2019 has improved.

We remain confident in our outlook for the remainder of the year.

Caroline Brown

Chair

18 March 2019

Chief Executive's Report

Overview

During 2018 the Group continued to focus on its long-term strategy of re-engineering its core personal injury business. Simultaneously, we sought to further grow our Critical Care division and navigate significant market uncertainty in Residential Property caused by a turbulent housing market.

Overall the Group traded well during the year but had a disappointing fourth quarter as we updated in January.

As we have previously stated, the ongoing funding of work within Personal Injury impacts short-term profit recognition and cash conversion and this is clearly reflected in year on year comparisons. However, we have managed that aspect of our business well and are pleased with the overall contribution from our ABS operations.

We remain confident that the Group is well positioned to capitalise on the forthcoming regulatory changes and that our transformation strategy is progressing well.

Results

We have delivered underlying operating profit of GBP12.1m from revenue of GBP49.0m.

As anticipated, the PI division has seen an ongoing decline in Panel Law Firm demand as a result of the forthcoming regulatory changes. From a marketing perspective, heightened competitor activity depressed enquiry volumes in November and December and a significant Google algorithm change increased consumer acquisition cost. Encouragingly, our ABS operations scaled well and are already making a positive contribution to the Group's results.

Furthermore our Critical Care division continued to perform strongly, growing profits by 16.4% year on year. Strong underlying trading growth was supported by contributions from our commercial relationships with the Spinal Injuries Association and the Child Brain Injuries Trust. Although Residential Property continued to be impacted by a persistently difficult housing market, it continues to trade profitably and in combination with Critical Care, these two divisions make an important contribution to our overall results.

The Group has continued to carefully manage its balance sheet and net debt at the end of 2018 of GBP15.5m was lower than expected.

Market overview

The Group is a leader in the large and fragmented GBP7.0bn consumer legal services market and continues to focus on Personal Injury, Critical Care and Residential Property.

The overall PI market has fallen from its recent level of one million claims per annum with volumes decreasing primarily in RTA. The main claim types that make up the PI division's focus have remained broadly static, with reductions taking place in sectors such as travel sickness claims which are not part of our core personal injury target market. These changes come partly as a result of the cumulative impact on law firms of previous legislation which has led to a reduction in investment in the market.

The effect of previous legislation combined with continued lack of clarity surrounding regulatory reforms has resulted in many smaller and mid-sized firms questioning their ongoing profitability. We remain the UK's leading marketing services provider in the Personal Injury sector but are positioning ourselves to grow into a large scale volume processor opening up opportunities in the wider Personal Injury market.

Critical Care is the brand leader in the catastrophic injury segment of the medical reporting and rehabilitation market, where we provide expert witness and case management services. We estimate the catastrophic injury sector is mature and growing at between 1 and 2% per annum.

Residential Property operates within the context of the wider residential housing market and as such the division has not been immune to the well-documented challenges faced by this sector in recent years. Transaction volumes have declined by 2% in each of the last two years and we have experienced more cancellations than is typical as the uncertainty of the UK's exit from the European Union continues. However, as the market remains sizeable with over one million transactions recorded by HM Land Registry annually and the value of associated property legal services exceeding GBP1.8bn per annum, we are well-placed to grow market share from a small base.

Personal Injury regulatory update

From a regulatory perspective the Civil Liabilities Bill received royal assent on 20 December 2018 with implementation still planned for April 2020. No material alterations were made to the bill and the broad principles were as anticipated, namely increasing the small claims limit to GBP5,000 and GBP2,000 for RTA and non-RTA respectively, as well as a significant reduction in the compensation available to victims of whiplash injuries.

The Group now awaits clarification around the detail of how the legislation will be implemented which will allow us to validate the assumptions in our small claims processing business model.

However, it is already clear that the impact on traditional personal injury law firms is taking hold with a number already announcing that they are withdrawing from the market or moving away from lower value claims. This clearly validates our long-term strategy of developing our own processing capability to run alongside our existing panel model allowing us to capture more value and grow market share.

In addition, preparations continue to transfer regulation of claims management companies from the Ministry of Justice to the Financial Conduct Authority (FCA) from April 2019. This means that, within the Personal Injury division, National Accident Helpline (NAH), our lead generation business, will be regulated by the Financial Conduct Authority (FCA) while our legal services business will be overseen by the Solicitors Regulation Authority (SRA).

Strategic development in Personal Injury

We are midway through our transformation process and during 2018 we accelerated our investment in our ABS initiatives and began the process of establishing our own, wholly owned law firm. This has extended our processing capability and given us the opportunity to re-engineer our business model in order to take advantage of the opportunities provided by regulatory change as well as broadening the market available to us.

Progress in this area has been very encouraging with significant headway made. Our first ABS, Your Law, is trading profitably and reaching scale with GBP9.2 million in damages recovered for non-fault accident victims.

Progress on our own processing capability has also been pleasing. National Accident Law (NAL) has been granted its licence from the SRA and is scheduled to launch in April 2019, at which point we will have a state of the art, consumer focused, technologically enabled volume processing capability which has been designed to enable us to become the UK's leading volume PI processing provider.

The Group has restructured its operations in the PI division, creating two business units: National Accident Helpline, our marketing services business, and Legal Services, which incorporates NAL and the Group's two ABS businesses. Work on the core technology platform is well advanced, recruitment completed and office space secured.

The project is anticipated to launch on time and on budget and this marks a critical milestone in our transformation journey.

As previously announced, this ongoing investment in self-processing means a continuing deferment of profit and cash flow that is realised in future years as cases settle. However, as the model matures both profit and cash flow will normalise, enabling us to absorb the impact of regulatory changes and grow our market share without further significant disruption to the business.

Brand

The successful relaunch of the NAH brand in 2017 enabled us to build on a strong foundation. National Accident Helpline remains the most trusted brand in the personal injury sector and continues to garner excellent customer reviews.

We continued our strategy of using a lower weight of TV advertising supported by enhanced digital marketing activity including SEO and social media activity. We have invested in our in-house marketing team adding significant capability during the year and reducing our dependency on external agencies. This will help us to become more efficient and reactive in future years as we navigate the changing competitive landscape in the run up to the implementation of the reforms.

In response to competitive pressure, we have increased investment in brand recognition and undertaken further digital marketing activity, which has enhanced competitiveness and stimulated enquiry volumes in the early part of 2019. It is likely that the competitor landscape will continue to be challenging until the reforms are implemented but our brand leading proposition positions us well to adapt and respond.

Critical Care has been building on its reputation for clinical excellence and our charity partnership initiatives have further enhanced our brand positioning. During 2018 we conducted a full brand audit and are currently working through a brand refresh which will include upgrading our website. Our centrepiece annual clinical conference was a great success in 2018, bringing together over 210 lawyers, consultants and partners from across the industry and this will be repeated in July 2019.

In Residential Property, our new management team are undertaking a full review of our approach to the brand portfolio and are introducing some exciting initiatives that are designed to return the division to growth in 2019.

Strategic relationships

Whilst much of the focus in our PI division has been on the development of our self-processing capability, the panel remains a central part of our ongoing strategy. As demand has eroded for our existing model we have seen the panel shrink in size. During 2018 we announced the loss of one of our biggest customers who took the decision to focus on higher value PI claims. We also experienced one of our panel firms going into administration and had three further smaller resignations. However, despite the challenging market, we have been able to add new panel firms to our portfolio and are in discussion with several partners about potential new relationships. Additionally, we also have strong panel demand for our medical negligence claims and other specialist enquiry types. As long as demand exists, we will continue to support our panel partners with high quality enquiries.

The addition of two charity partnerships in Critical Care has been supplemented by new business relationships including a contract with a leading insurer. We have continued to invest in business development and seen healthy organic business growth from our existing customer portfolio.

In Residential Property we have experienced a reduction in core conveyancing volumes as a result of market conditions and also seen a reduction in market share as competition for remaining consumers intensifies. In Searches, the number of firms ordering has remained relatively consistent, however the volume of orders has decreased. In September we recruited a new divisional Managing Director who joined us from moneysupermarket.com and he has a remit to increase market share and return the division to growth. We are confident that the initiatives that have been identified will help achieve this objective.

Operations and IT

The establishment of National Accident Law has seen us invest significantly in our operational infrastructure, particularly in IT. We have partnered with Peppermint Technologies to implement its CX Cloud Solution creating a highly flexible and legally focused case and document management system. This is built on the Microsoft Dynamics platform which enables us to integrate with our customer facing processes and systems, thereby creating a unique consumer proposition underpinned by innovative technology. We have identified additional office space next door to our head office in Kettering which will become the initial base for National Accident Law.

In Critical Care we have continued to progress the improvement of our data and MI systems to allow us to better interrogate data and provide information and support to our clients.

People and values

In a time of great change it is critical that we have a well-motivated and capable team who can guide us through the change programme and continue to support our clients and customers with first class service. I am delighted to report that 2018 was a year of great progress in our people agenda with a number of notable achievements including:

-- NAH being recognised by the Sunday Times as one of the 100 best small companies to work in for 2019;

-- Significant improvements in our employee engagement scores across the Group, well ahead of national averages;

-- nine out of ten staff who undertook our Pathway to Leadership development programme gaining promotions or new roles;

   --       21 new staff joining our Group to establish our legal services operation; 

-- Investors in People Gold status awarded to NAH to go alongside our Silver award in Critical Care; and

   --       the establishment of our learning academy in the PI division. 

Our people and values make us who we are and our 233 staff across the Group supported by 190 consultants in Critical Care are the cornerstone of our future growth. We are involved in a number of charitable and CSR initiatives that demonstrate the caring culture that is central to the services that we offer.

Outlook

After an extended period of uncertainty, the regulatory landscape in personal injury is finally becoming clearer. There are still details outstanding surrounding implementation that will help to validate the assumptions on our post reform small claims model and core technology platform but we expect clarity during 2019, giving us better visibility for 2020 and beyond.

What is clear is that the strategy we have followed to re-engineer our PI division is the right one. Without the ability to place enquiries into different distribution models we would undoubtedly have a much smaller and less profitable PI business. Clearly, changing our operating model in the current environment is challenging but it is a challenge that we have adapted to well.

Although we are in the midst of a short-term period of lower returns during this investment cycle, the cash and profits from cases that are processing will begin to return over the next 18 months. The progress we are making with our ABSs, when aligned with our own processing capability and panel, will create one of the UK's leading volume PI processing businesses. Linking that to the strength of the NAH brand, giving us control of the end-to-end process, gives me great confidence that we will be able to navigate the significant regulatory changes in our sector and grow a substantial, sustainably profitable, industry leading Personal Injury business in years to come.

Critical Care has once again performed very strongly increasing its market share and growing profits by continuing to offer clinical excellence. The outlook for this division continues to be good and we will be investing in the technology platform during the next 12 months to create the foundation for further growth.

Whilst the challenges I have already outlined in Residential Property have been difficult to manage, this division remains a profitable part of the Group and the new management team have already instituted a number of initiatives that I am confident will return us to growth.

There still remains a great deal to do but I am confident that we have the strategy and people in place to achieve our aims and I am excited by the challenge of the forthcoming year.

Russell Atkinson

Chief Executive Officer

18 March 2019

Chief Financial Officer's Report

Overview

Whilst the results reflect that 2018 was a year of planned transition for the Group, I am pleased with the progress we have made towards our strategic objectives. We have made great strides in transforming the personal injury business to one that can generate significant value post the regulatory reforms.

We have also delivered double digit profit growth in Critical Care with minimal investment, and made important leadership changes in Residential Property to address the decline in market share we suffered in 2018 and the early signs are encouraging. Throughout the year, we carefully managed our net debt whilst delivering a meaningful dividend to investors that was consistent with our stated dividend policy.

Some commentary in this report uses alternative performance measures, denoted by the prefix "underlying". Definitions and reconciliations to the IFRS measures are included in note 1 to the financial statements.

Statement of comprehensive income review

Revenue

Revenue decreased in the year by 5.7% from GBP51.9m to GBP49.0m. As we anticipated, the Personal Injury division saw an ongoing decline in Panel Law Firm demand as a result of the forthcoming regulatory changes and the Residential Property division saw revenues fall by 23.4% as a result of the well documented challenges in the UK housing market. I was pleased with the performance of the Critical Care division, which, through organic growth, generated an increase in revenue of 12.2% (2017: 6.6%).

I was also pleased with the contribution made by our ABSs in the year, where revenue has only been recognised where a claim has had liability admitted by the defendant. This is consistent with our policy on revenue recognition and our business model. Revenue on successful cases that are yet to reach this milestone will be recognised in future years.

An analysis of revenue by division is set out in the operating segments note. Further commentary on the performance of each division is included in the Chief Executive's Report.

Underlying operating profit

Underlying operating profit decreased in the year by 16.3% from GBP14.5m to GBP12.1m. A temporary reduction in profit levels was anticipated as the Group transitions to its strategy of processing personal injury claims through its ABSs and 2018 also saw us face into a number of headwinds in Personal Injury and a challenging market in Residential Property. This is explained in detail in the Chief Executive's Report. Operating profit decreased by 20.5% from GBP12.6m to GBP10.0m.

I am particularly pleased to see both ABSs return a profit for the year, after deduction of non-controlling interests.

As a result, underlying operating margin - defined as underlying operating profit divided by revenue - decreased from 27.9% in 2017 to 24.8%.

Exceptional and non-underlying items

The Group separately identifies exceptional costs, share-based payment charges and amortisation on intangible assets acquired in business combinations and excludes them from underlying performance measures to provide readers of the financial statements with a consistent basis on which to track the core trading performance.

The Group incurred a number of exceptional credits and costs in the year, set out in note 3, which resulted in a net exceptional cost of GBP0.4m (2017: GBP0.4m). These comprise restructuring costs associated with the strategic transformation of the Personal Injury division, one-off costs associated with changes to the management team in the Residential Property division, and a revaluation of the pre-LASPO ATE liability and associated costs. The latter relates to a legacy product that has not been sold by the Group since its listing on AIM in 2014. Whilst this liability has been very significant in previous years, it has been gradually reducing as previous customers' personal injury claims settle and the Directors anticipate that this will not be material to the Group's results in 2019. Accordingly, it will no longer be shown as an exceptional item.

Taxation

The Group's tax charge of GBP1.4m (2017: GBP2.5m) represents an effective tax rate of 14.2% (2017: 19.9%). The effective tax rate is lower than the standard corporation tax rate of 19.0% for the reasons set out in note 4. 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 3.3% (2017: nil).

Earnings per share and dividend

Basic earnings per share (Basic EPS) for the year was 14.5p (2017: 21.7p) and the diluted EPS was 14.3p (2017: 21.6p). The dilution in EPS derives from a number of share options that the Group has outstanding. This is explained in note 7 to the financial statements.

In order to compare EPS year on year, earnings have been adjusted to exclude exceptional items (net of the standard rate of corporation tax), amortisation of intangible assets acquired on business combinations and share-based payments. This is explained in note 1 to the financial statements. On this basis, underlying EPS was 18.2p (2017: 25.0p).

The Board is recommending a final dividend of 5.7p per share in respect of 2018 (2017: 10.6p). When added to the interim dividend of 3.2p (2017: 5.3p), this gives a total dividend for the year of 8.9p (2017: 15.9p). This equates to a dividend cover of 2.0x the underlying EPS, which is in line with the Board's stated policy. If approved by shareholders at the AGM on 21 May 2019, it will be paid on 31 May 2019 to shareholders on the register on 26 April 2019.

Balance sheet review

I consider the significant balance sheet items are net debt and working capital, defined as trade and other receivables less trade and other payables.

Net debt

The Group had net debt at year-end of GBP15.5m (2017: GBP12.1m), comprised of GBP1.6m of cash (2017: GBP0.9m) offset by borrowings of GBP17.1m (2017: GBP12.9m).

The borrowings represent a balance of GBP17.2m (2017: GBP13.1m) on the revolving credit facility (RCF) less pre-paid loan arrangement fees of GBP0.1m (2017: GBP0.2m), which are being written off over the term of the facility.

The Group has access to a GBP25m RCF with Yorkshire Bank which runs to 31 December 2021.

Working capital

Working Capital increased GBP4.5m during the year. This was primarily as a result of an increase in receivables associated with the Group's transition to self-processing. The total trade and other receivables balance of GBP28.8m (2017: GBP22.3m) includes the following items:

-- GBP3.6m of recoverable disbursements (2017: GBP0.9m) on personal injury claims. These amounts relate to medicals and insurance products and are recoverable from the defendant where cases are won; and from After The Event (ATE) insurance policies where a case is lost. A corresponding liability, payable to the product provider, is within trade and other payables.

   --       Provisions for doubtful debts of GBP0.9m (2017: GBP1.1m). 
   --       GBP8.4m (2017: GBP4.6m) of accrued revenue, comprising the following: 

-- GBP1.4m (2017: GBP0.2m) of work in progress recognised within the ABSs on personal injury claims which have not reached the settlement stage yet. Work in progress and the corresponding revenue is only recognised once the defendant has admitted liability on a claim. There is a significant element of uncertainty in estimating the WIP recognised in the ABSs. The Directors believe that the assumptions adopted are appropriate and based on historical experience of claims processed in our ABSs and by our panel. These assumptions will be updated with actual results as claims settle.

-- GBP3.2m of accrued income (2017: GBP0.0m) of contractually guaranteed revenue on claims processed in the ABSs. A further GBP2.7m (2017: GBP2.2m) is included within trade debtors;

-- GBP1.6m (2017: GBP3.4m) relating to legacy profit share deals with our panel law firms. Of this amount, GBP1.3m is

contractually guaranteed.

Cash flow review

The Group increased cash and cash equivalents by GBP0.7m in the year (2017: reduction of GBP4.0m). The significant items in the consolidated cash flow statement are net cash from operating activities; new and repaid borrowings; dividends paid to shareholders; and non-controlling interest drawings.

Net cash from operating activities is primarily driven by operating profit and working capital movements, both of which are discussed above.

 
                                 2018   2017 
                                 GBPm   GBPm 
 
Underlying operating 
 profit                          12.1   14.5 
Depreciation and amortisation     0.4    0.3 
Working capital movements       (4.5)  (6.9) 
 
Net cash generated from 
 underlying 
operating activities              8.0    7.9 
Underlying cash conversion      65.6%  54.8% 
Cash flows from exceptional 
 items                          (0.8)  (1.8) 
Interest paid                   (0.5)  (0.2) 
Tax paid                        (2.2)  (3.1) 
 
Net cash from operating 
 activities                       4.5    2.8 
 
 

Underlying cash conversion for the year was better than the Board's expectations at 65.6% (2017: 54.8%) due to better than planned collection of receivables in the second half of the year. Prior to 2017, the Group has achieved higher levels and a reduction was planned as the Group invests in self-processing and builds a book of claims as part of its strategic transformation of the Personal Injury division. The Group anticipates returning to higher levels of cash conversion as these claims mature.

The Group made GBP6.4m of dividend payments to shareholders during the year (2017: GBP8.2m), which represented the 2017 final dividend and the 2018 interim dividend. GBP0.9m of drawings were paid to the ABS partners during the year under the terms of our agreements. This was the first year of payments.

The Group drew down GBP4.1m on its RCF during the year.

New accounting standards

The Group has adopted two new accounting standards during the year - IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers.

The adoption of IFRS 15 did not result in any adjustments to the financial statements in either the current or prior years.

The adoption of IFRS 9 required a change in the accounting policy for receivables and a revision to the calculation of provisions for doubtful debts, which are now performed on an expected credit loss basis. As a result of this change, an adjustment of GBP0.8m (net of deferred tax) was made to retained earnings, which is explained in note 10. The resulting provisions for doubtful debts at 31 December 2018 was GBP0.9m (2017: GBP1.1m).

On 1 January 2019, the Group will adopt IFRS 16 Leases. See note 1 to the consolidated financial statements for further details.

In conclusion, the Group's financial position remains robust. We have strengthened the business in 2018 and remain on track to create a sustainable financial model to capitalise on the opportunities available to us.

James Saralis

Chief Financial Officer

18 March 2019 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEARED 31 DECEMBER 2018

 
                                                                   2018      2017 
                                                         Note    GBP000    GBP000 
 
 Revenue                                                         48,957    51,912 
 Cost of sales                                                 (24,254)  (25,224) 
 Gross profit                                                    24,703    26,688 
 Administrative expenses                                       (14,683)  (14,086) 
 
 Underlying operating profit                                     12,132    14,491 
 Share-based payments                                             (457)     (182) 
 Amortisation of intangible assets acquired 
  on business combinations                                      (1,270)   (1,307) 
 Exceptional items                                          3     (385)     (400) 
 
 Operating profit                                                10,020    12,602 
 Financial income                                                   222       150 
 Financial expense                                                (470)     (331) 
 
 Profit before tax                                                9,772    12,421 
 Taxation                                                   4   (1,389)   (2,467) 
 
 Profit and total comprehensive income for 
  the year                                                        8,383     9,954 
 
 Profit and total comprehensive income is attributable 
  to: 
 Owners of the Company                                            6,674     9,876 
 Non-controlling interests                                        1,709        78 
 
                                                                  8,383     9,954 
 
                                                                   2018      2017 
                                                                      p         p 
 
 Earnings per share (p) 
 Basic earnings per share                                   7      14.5      21.7 
 Diluted earnings per share                                 7      14.3      21.6 
 
 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 31 DECEMBER 2018

 
                                                                2018      2017 
                                                      Note    GBP000    GBP000 
 
Non-current assets 
Goodwill                                                      60,362    60,362 
Other intangible assets                                        6,400     7,217 
Property, plant and equipment                                    195       267 
Deferred tax asset                                               177        34 
 
                                                              67,134    67,880 
 
Current assets 
Trade and other receivables (including GBP6,603,000 
 (2017: GBP7,280,000) due in more than one 
year)                                                    5    28,806    22,261 
Cash and cash equivalents                                      1,598       858 
 
                                                              30,404    23,119 
 
Total assets                                                  97,538    90,999 
 
Current liabilities 
Trade and other payables                                 6  (15,111)  (12,415) 
Other payables relating to legacy pre-LASPO ATE 
 product                                                       (301)     (676) 
Current tax liability                                          (975)   (1,513) 
 
                                                            (16,387)  (14,604) 
 
Non-current liabilities 
Other interest-bearing loans and borrowings                 (17,122)  (12,922) 
Deferred tax liability                                       (1,342)   (1,662) 
 
                                                            (18,464)  (14,584) 
 
Total liabilities                                           (34,851)  (29,188) 
 
Net assets                                                    62,687    61,811 
 
Equity 
Share capital                                                    115       115 
Share option reserve                                           2,578     2,121 
Share premium                                                 14,595    14,507 
Merger reserve                                              (66,928)  (66,928) 
Retained earnings                                            111,380   111,893 
 
Capital and reserves attributable to the owners 
 of NAHL Group plc                                            61,740    61,708 
Non-controlling interests                                        947       103 
 
Total equity                                                  62,687    61,811 
 
 

These financial statements were approved by the Board of Directors on 18 March 2019 and were signed on its behalf by:

D Saralis

Director

Company registered number: 08996352

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEARED 31 DECEMBER 2018

 
                                                                                        Capital 
                                                                                            and 
                                                                                       reserves 
                                                                                   attributable 
                                               Share                                         to         Non- 
                                                                                     the owners 
                                      Share   option    Share    Merger  Retained            of  controlling    Total 
                                                                                     NAHL Group 
                                    capital  reserve  premium   reserve  earnings           plc     interest   equity 
                              Note   GBP000   GBP000   GBP000    GBP000    GBP000        GBP000       GBP000   GBP000 
 
Balance at 1 January 2017               113    1,939   14,507  (66,928)   110,188        59,819            -   59,819 
 
Total comprehensive income 
 for the year 
Profit for the year                       -        -        -         -     9,876         9,876           78    9,954 
 
Total comprehensive income                -        -        -         -     9,876         9,876           78    9,954 
 
Transactions with owners, 
recorded directly in equity 
Issue of new Ordinary 
 Shares                                   2        -        -         -         -             2            -        2 
Member capital                            -        -        -         -         -             -           25       25 
Share-based payments                      -      182        -         -         -           182            -      182 
Dividends paid                   8        -        -        -         -   (8,171)       (8,171)            -  (8,171) 
 
Total transactions with 
 owners, recorded 
directly in equity                        2      182        -         -   (8,171)       (7,987)           25  (7,962) 
 
Balance at 31 December 
 2017                                   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                   8        -        -        -         -   (6,373)       (6,373)            -  (6,373) 
 
Total transactions with 
 owners, recorded 
directly in equity                        -      457       88         -   (6,373)       (5,828)        (865)  (6,693) 
 
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 YEARED 31 DECEMBER 2018

 
                                                           2018      2017 
                                                         GBP000    GBP000 
 
Cash flows from operating activities 
Profit for the year                                       8,383     9,954 
Adjustments for: 
Depreciation                                                173       171 
Amortisation of intangible assets (not relating 
 to business combinations)                                  187       130 
Amortisation of intangible assets relating 
 to business combinations                                 1,270     1,307 
IFRS 9 provision movements                                  206         - 
Financial income                                          (222)     (150) 
Financial expense                                           470       331 
Share-based payments                                        457       182 
Taxation                                                  1,389     2,467 
 
                                                         12,313    14,392 
Increase in trade and other receivables                 (7,564)  (11,974) 
Increase in trade and other payables                      2,775     4,963 
Decrease in other payables relating to legacy 
 pre-LASPO ATE product                                    (375)   (1,236) 
 
                                                          7,149     6,145 
Interest paid                                             (474)     (178) 
Tax paid                                                (2,202)   (3,139) 
 
Net cash generated from operating activities              4,473     2,828 
 
Cash flows from investing activities 
Acquisition of property, plant and equipment              (145)     (111) 
Acquisition of intangible assets                          (640)     (305) 
Disposals of property, plant and equipment                   42         - 
Interest received                                            35        12 
Non-controlling interest member capital                       -        25 
 
Net cash used in investing activities                     (708)     (379) 
 
Cash flows from financing activities 
New share issue                                              88         2 
Repayment of borrowings                                       -  (11,250) 
New borrowings                                            4,125    13,125 
Bank arrangement fees for new borrowings                      -     (111) 
Dividends paid                                          (6,373)   (8,171) 
Non-controlling interest drawings                         (865)         - 
 
Net cash used in financing activities                   (3,025)   (6,405) 
 
Net increase/(decrease) in cash and cash equivalents        740   (3,956) 
Cash and cash equivalents at 1 January                      858     4,814 
 
Cash and cash equivalents at 31 December                  1,598       858 
 
 

The above consolidated cash flow statement should be read in conjunction with the accompanying notes.

NOTES TO THE FINANCIAL STATEMENTS

1 Accounting policies

Basis of preparation

Consolidated Financial Statements

The financial information included in the preliminary announcement for year to 31 December 2018 has been audited and an unqualified audit report has been issued.

The preliminary financial statements represent extracts from those audited accounts but do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Group's financial statements have been prepared in accordance with IFRS as adopted by the European Union, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS, under the historical cost convention.

The same accounting policies, presentation and methods of computation are followed in the preliminary financial statements as were applied in the Group's financial statements for the year ended 31 December 2018. Statutory accounts for the year ended 31 December 2017 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2018 will be delivered to the Registrar of Companies after the Company's Annual General Meeting and will also be available on the Company's website from 19 March 2019 (www.nahlgroupplc.co.uk).

The Consolidated Financial Statements for the year ended 31 December 2018 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The consolidated financial information has been prepared on a going concern basis and under the historical cost convention.

New standards and amendments adopted by the Group

The Group has applied the following standards and amendments for the first time for its annual reporting period commencing 1 January 2018:

! IFRS 9 Financial Instruments

! IFRS 15 Revenue from Contracts with Customers

In light of these new standards, the Group revised its accounting policies and made the necessary opening balance adjustments following the adoption of IFRS 9 and IFRS 15. The changes as a result of adopting IFRS 9 are disclosed in note 10. The adoption of IFRS 15 did not have any significant impact on the amounts recognised in prior periods.

New standards, interpretations and amendments not yet effective

The Group has not applied the following new and revised IFRS that have been issued but are not yet effective:

! IFRS 16 Leases - Effective for annual reporting periods beginning on or after 1 January 2019.

A review of IFRS 16 Leases has been conducted to determine its impact on the Group. The standard will affect the accounting for the Group's operating leases. As at 31 December 2018, the Group has non-cancellable operating lease commitments of GBP980,000. In transitioning to IFRS 16 the Group expects to recognise right-of-use assets of approximately GBP0.6m on 1 January 2019 and lease liabilities of approximately GBP0.6m. Overall net current assets will be approximately GBP0.4m lower due to the presentation of a portion of the liability as a current liability. The Group expects that there will be no material impact on the net profit after tax for 2019 as a result of adopting the new rules. Operating cash flows will increase and financing cash flows decrease by approximately GBP0.4m as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities.

The Group will apply the standard from its mandatory adoption date of 1 January 2019. The Group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. Right-of-use assets for property leases will be measured on transition as if the new rules had always been applied.

There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

Statutory and non-statutory measures

The financial statements contain all the statutory measures and disclosures required under IFRS, which is the financial reporting framework adopted by the Group. In addition to these measures, management monitors a number of non-statutory, alternative performance measures (APMs) as part of its internal performance monitoring and when assessing the future impact of operating decisions. The APMs allow a year-on-year comparison of the underlying performance of the business by removing the impact of items occurring either outside the normal course of operations or as a result of intermittent activities, such as acquisitions or strategic projects

The Directors have presented these APMs in the Strategic Report 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 Strategic Report are defined in the table below and the principles to identify adjusting items have been applied on a basis consistent with previous years. The key adjusting items in arriving at the APMs are as follows:

Exceptional revenues - Included within the balance sheet is a liability for upfront commissions received from insurance providers 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. Consequently, the remaining liability is being unwound through revenue as historic cases are settled. Due to the discontinued nature of this revenue stream, the Directors consider it appropriate to identify this revenue separately where it results in a material release during the year in order to allow users of the financial statements to separately identify the revenue generated from the continuing operations of the Group.

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 GBP182,000 and as high as GBP1,052,000. 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 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.

 
Nature        Related        Related 
 of            IFRS           IFRS 
measure       measure        source             Definition                         Use/relevance 
 
Underlying    Operating    Consolidated         Based on the related               Allows management and users 
 operating     profit       income statement     IFRS measure                       of the financial statements 
 profit                                          but excluding exceptional          to assess the underlying 
                                                 items, IFRS                        trading results after removing 
                                                 2 share-based payment              material, non-recurring items 
                                                 charges and                        that are not reflective of 
                                                 amortisation of intangible         the core trading activities 
                                                 assets                             and allows comparability 
                                                 acquired on business               of core trading performance 
                                                 combinations.                      year-on-year. 
 
 
  Underlying 
  operating 
  cash 
  flow 
                                                Based on the related 
                                                 IFRS measure 
                                                 but excluding cash flows 
                                                 in respect of 
              Cash flow                          the items excluded from 
               from        Consolidated          underlying 
               operating    cash flow            operating profit as 
               activities   statement            described above. 
 
Underlying    Not defined  n/a                  Calculated as underlying 
 cash          by IFRS                           operating 
 conversion                                      cash flow divided by 
                                                 underlying 
                                                 operating profit. 
 
Free          Not defined  n/a                  Calculated as net cash             Provides management with 
 cash          by IFRS                           generated                         an indication of the amount 
 flow                                            from operating activities         of cash available for 
                                                 less net cash                     discretionary 
                                                 used in investing activities      investing or financing after 
                                                 less                              removing material non-recurring 
                                                 payments made to non-controlling  expenditure that does not 
                                                 interests.                        reflect the underlying trading 
                                                                                   operations and allows management 
                                                                                   to monitor the conversion 
                                                                                   of underlying profit into 
                                                                                   cash. 
 
 
 
Nature    Related          Related 
 of        IFRS             IFRS 
measure   measure          source         Definition                          Use/relevance 
 
Underlying Basic           Consolidated   Based on the related                Allows management and users 
 EPS                        income         IFRS measure                        of the financial statements 
 EPS                        statement      but calculated using                to assess the underlying 
                                           underlying                          trading results after removing 
                                           Profit after tax.                   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   Movement         Consolidated   Working capital is not              Allows management to assess 
 Capital   in receivables   statement      defined by IFRS. This               the short-term cash flows 
           and movement     of cashflows   is defined by management            from movements in the more 
           in payables                     as being the cash movement          liquid assets. 
                                           in trade and other receivables 
                                           less the cash movement 
                                           in trade and other payables. 
Net debt  Not defined      Consolidated   Net debt is defined                 Allows management to monitor 
           by IFRS          cash flow      as cash and cash                    the overall level of debt 
                            statement      equivalents less interest-bearing   in the business. As stated 
                                           borrowings net of loan              in the strategic report, 
                                           arrangement                         loan funding is key to the 
                                           fees.                               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: 
                                                            2018    2017 
                                                          GBP000  GBP000 
 
IFRS measure - operating profit                           10,020  12,602 
Exceptional items including Pre-LAPSO ATE revenue/costs      385     400 
IFRS 2 share-based payment charge                            457     182 
Amortisation of intangible assets acquired on 
 business combinations                                     1,270   1,307 
 
Underlying operating profit                               12,132  14,491 
 
 

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

 
                                              2018         2018                 2017         2017 
                                        Underlying  Exceptional     2018  Underlying  Exceptional      2017 
                                        operations        items    Total  operations        items     Total 
12 months ended 31 December 
 2018                                       GBP000       GBP000   GBP000      GBP000       GBP000    GBP000 
 
Operating profit                            10,405        (385)   10,020      13,002        (400)    12,602 
Amortisation of intangible assets 
 acquired on business 
combinations                                 1,270            -    1,270       1,307            -     1,307 
Equity-settled share-based payments            457            -      457         182            -       182 
 
Underlying operating profit                 12,132        (385)   11,747      14,491        (400)    14,091 
Depreciation and amortisation                  360            -      360         301            -       301 
IFRS 9 provision movements                     206            -      206           -            -         - 
Increase in trade/other receivables        (7,564)            -  (7,564)    (11,974)            -  (11,974) 
Increase/(Decrease) in trade/other 
 payables                                    2,825         (50)    2,775       5,120        (157)     4,963 
Decrease in liabilities relating 
 to Pre-LASPO ATE product                        -        (375)    (375)           -      (1,236)   (1,236) 
 
Underlying operating cash flow               7,959        (810)    7,149       7,938      (1,793)     6,145 
 
Operating cash conversion                    65.6%                             54.8% 
Interest paid                                                      (474)                              (178) 
Tax paid                                                         (2,202)                            (3,139) 
Net cash generated from operating 
 activities                                                        4,473                              2,828 
Net cash used in investing activities                              (708)                              (379) 
Payments to non-controlling 
 interests                                                         (865)                               (25) 
 
Free cash flow                                                     2,900                              2,424 
 
 
 
Underlying EPS: 
                                                                    2018        2017 
                                                                  GBP000      GBP000 
 
IFRS measure - profit for the year attributable 
 to shareholders                                                   6,674       9,876 
Exceptional items including Pre-LAPSO ATE revenue/costs 
 net of tax                                                          312         323 
IFRS 2 share-based payment charge                                    457         182 
Amortisation of intangible assets acquired on business 
 combinations net of deferred tax                                    950         987 
 
Underlying profit for the year attributable to shareholders        8,393      11,368 
 
Weighted average number of shares                             46,160,172  45,548,243 
Underlying EPS                                                      18.2        25.0 
 
Working capital: 
                                                                    2018        2017 
                                                                  GBP000      GBP000 
 
Movement in trade and other receivables                          (7,564)    (11,974) 
IFRS 9 provision movement                                            206           - 
Movement in trade and other payables                               2,775       4,963 
------------------------------------------------------------  ----------  ---------- 
Working capital                                                  (4,583)     (7,011) 
IFRS 9 opening balance adjustment                                  1,002           - 
Movement in interest accruals                                      (268)       (179) 
 
IFRS measure - movement in trade and other receivables 
 less movement in trade and other payables                       (3,849)     (7,190) 
 
 

Net debt is defined in note 9.

2 Operating segments

 
                          Personal  Critical  Residential           Underlying  Pre-LASPO    Other    Elimi- 
                            Injury      Care     Property    Group  operations        ATE    items   nations     Total 
                            GBP000    GBP000       GBP000   GBP000      GBP000     GBP000   GBP000    GBP000    GBP000 
 
Year 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)     8,4241    4,5201         7281  (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 
 
Year ended 31 December 
 2017 
Revenue                     31,660    11,037        8,340        -      51,037        875        -         -    51,912 
Depreciation and 
 amortisation                (178)      (49)         (74)        -       (301)          -  (1,307)         -   (1,608) 
Operating profit/(loss)    11,0331    3,8821       1,3851  (1,809)      14,491        800  (2,689)         -    12,602 
Financial income               143         5            -        2         150          -        -         -       150 
Financial expenses             (1)       (4)            -    (326)       (331)          -        -         -     (331) 
Profit/(loss) before 
 tax                        11,175     3,883        1,385  (2,133)      14,310        800  (2,689)         -    12,421 
Trade receivables           11,442     4,386          419        -      16,247          -        -         -    16,247 
Total assets3               18,139     4,785          961   79,747     103,632          -        -  (12,633)    90,999 
Segment liabilities3      (10,453)     (806)        (507)    (600)    (12,366)     (726)2        -         -  (13,092) 
Capital expenditure 
 (including 
 intangibles)                   53        47          191        -         291          -        -         -       291 
 
 

1 These are the respective underlying operating 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 GBP301,000 (2017: GBP676,000) and accruals for associated costs of GBPnil (2017: GBP50,000).

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

Significant customers

Revenues of approximately GBP9.0m (2017: GBP9.5m) are derived from a single external customer. These revenues are attributable to the Personal

Injury and Critical Care segments.

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 that has been separately identified due to its material value. This balance is 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 
Exceptional items included in the income statement are 
 summarised below: 
                                                             2018    2017 
                                                           GBP000  GBP000 
 
Release of pre-LASPO ATE liability and associated costs1    (589)   (800) 
Personal Injury reorganisation costs2                         816   1,200 
Residential Property reorganisation costs3                    158       - 
 
                                                              385     400 
 
 

1 Previously recognised liabilities for pre-LASPO ATE commissions received in advance of GBP664,000 (2017: GBP875,000) have been released into revenue in the year as

a result of more favourable settlements. These have been offset by associated costs of GBP75,000 (2017: GBP75,000).

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

   3   Costs of management reorganisation in the Residential Property division. 
 
4 Taxation 
Recognised in the consolidated statement of comprehensive 
 income 
                                                              2018    2017 
                                                            GBP000  GBP000 
 
Current tax expense 
Current tax on income for the year                           1,824   2,690 
Adjustments in respect of prior years                        (160)      25 
 
Total current tax                                            1,664   2,715 
 
Deferred tax expense 
Origination and reversal of timing differences               (275)   (248) 
 
Total deferred tax                                           (275)   (248) 
 
Tax expense in statement of comprehensive income             1,389   2,467 
 
Total tax charge                                             1,389   2,467 
 
Reconciliation of effective tax rate 
                                                              2018    2017 
                                                            GBP000  GBP000 
 
Profit for the year                                          8,383   9,954 
Total tax expense                                            1,389   2,467 
 
Profit before taxation                                       9,772  12,421 
Tax using the UK corporation tax rate of 19.00% (2017: 
 19.25%)                                                     1,856   2,391 
Income disallowable for tax purposes                           (6)     (1) 
Non-deductible expenses                                        100      48 
Adjustments in respect of prior years                        (160)      25 
Share scheme deductions                                       (18)       - 
Non-controlling interest share of tax                        (324)       - 
Short-term timing differences for which no deferred tax 
 is recognised                                                (59)       4 
 
Total tax charge                                             1,389   2,467 
 
 

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 31 December 2018 have been calculated based on these rates.

 
5 Trade and other receivables 
                                               2018    2017 
                                             GBP000  GBP000 
 
Trade receivables: receivable in less than 
 one year                                    13,234   8,967 
Trade receivables: receivable in more than 
 one year                                     2,600   7,280 
Accrued income: receivable in less than 
 one year                                     4,359   4,568 
Accrued income: receivable in more than 
 one year                                     4,003       - 
Other receivables                               308     150 
 
                                             24,504  20,965 
Prepayments                                     673     437 
Recoverable disbursements                     3,629     859 
 
                                             28,806  22,261 
 
 

A provision against trade receivables and accrued income of GBP909,000 (2017: GBP1,115,000) is included in the figures above.

6 Trade and other payables

 
                                                  2018    2017 
                                                GBP000  GBP000 
 
Trade payables                                   6,205   2,808 
Other taxation and social security               1,028   1,059 
Other payables, accruals and deferred revenue    6,907   7,515 
Customer deposits                                  971   1,033 
 
                                                15,111  12,415 
 
 
 

7 Earnings per share

The calculation of basic earnings per share at 31 December 2018 is based on profit attributable to Ordinary Shareholders of the Parent Company of GBP6,674,000 (2017: GBP9,876,000) and a weighted average number of Ordinary Shares outstanding of 46,160,172 (2017: 45,548,243).

Profit attributable to Ordinary Shareholders

 
GBP000                                              2018        2017 
 
Profit for the year attributable to the 
 shareholders                                      6,674       9,876 
                                              ========== 
Weighted average number of Ordinary Shares 
Number                                              2018        2017 
 
Issued Ordinary Shares at 1 January           46,061,090  45,349,629 
Weighted average number of Ordinary Shares 
 at 31 December                               46,160,172  45,548,243 
 
Basic earnings per share (p) 
                                                    2018        2017 
 
Group                                               14.5        21.7 
                                              ========== 
 
 

The Group has in place share-based payment schemes to reward employees. At 31 December 2018, there were potentially dilutive share options under the Group's share option schemes. The total number of options available for these schemes included in the diluted earnings per share calculation is 454,169 (2017: 205,303). There are no other diluting items.

Diluted earnings per share (p)

 
        2018  2017 
 
Group   14.3  21.6 
        ==== 
 
 

8 Dividends

On 31 May 2018 the Group paid final dividends in respect of 2017 of GBP4,895,000 (2017: final dividends in respect of 2016 of GBP5,759,000)

which represented a dividend per share of 10.6p (2017: 12.7p). On 31 October 2017 the Group paid interim dividends in respect of 2018 of

GBP1,478,000 (2017: interim dividends in respect of 2017 of GBP2,412,000) which represented a dividend per share of 3.2p (2017: 5.3p). The directors have recommended a final dividend is respect of 2018 of 5.7p providing a total dividend for the year of 8.9p.

 
 
9 Net debt 
Net debt includes cash and cash equivalents and other 
 interest-bearing loans and borrowings. 
                                                            2018      2017 
                                                          GBP000    GBP000 
 
Cash and cash equivalents                                  1,598       858 
Other interest-bearing loans and borrowings             (17,122)  (12,922) 
 
Net debt                                                (15,524)  (12,064) 
 
Set out below is a reconciliation of movements in 
 net debt during the period. 
                                                            2018      2017 
                                                          GBP000    GBP000 
 
Net increase/(decrease) in cash and cash equivalents         740   (3,956) 
Cash and cash equivalents net inflow from increase 
 in debt and debt financing                              (4,125)   (1,875) 
 
Movement in net borrowings resulting from cash flows     (3,385)   (5,831) 
Non-cash movements (release of)/increase to prepaid 
 loan arrangement fees                                      (75)        42 
Net debt at beginning of period                         (12,064)   (6,275) 
 
Net debt at end of period                               (15,524)  (12,064) 
 
 

10 Changes in accounting policies

This note explains the impact of the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers on the financial statements.

IFRS 9 Financial instruments

IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, de-recognition of financial instruments, impairment of financial assets and hedge accounting.

The adoption of IFRS 9 Financial Instruments from 1 January 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. In accordance with the transitional provisions in IFRS 9(7.2.15) and (7.2.26), comparative figures have not been restated.

 
The total impact on the Group's retained earnings as 
 at 1 January 2018 is as follows: 
                                                             2018 
                                                           GBP000 
 
Closing retained earnings 31 December 2017 - IAS 39/IAS 
 18                                                       111,893 
Increase in provision for trade receivables (net of 
 GBP188,000 deferred tax)                                   (814) 
 
Opening retained earnings 1 January 2018 - IFRS 9         111,079 
 
 
   i)   Reclassification of financial instruments on adoption of IFRS 9 

On the date of initial application, 1 January 2018, the financial instruments of the Group were as follows:

 
                                Measurement Category             Carrying amount 
                            ========================  ========================== 
                               Original    New (IFRS         Original  New (IFRS 
                               (IAS 30)           9)         (IAS 30)         9) 
 
Current Assets 
                              Amortised    Amortised 
Cash                               cost         cost              858        858 
                              Amortised    Amortised 
Trade receivables                  cost         cost           20,815     19,814 
 
Current liabilities 
                              Amortised    Amortised 
Trade payables                     cost         cost            6,205      6,205 
 
Non-current liabilities 
                              Amortised    Amortised 
Revolving credit facility          cost         cost           12,922     12,922 
 
 

ii) Impairment of financial assets

The Group has the following financial assets that are subject to the IFRS 9 new expected credit loss (ECL) model:

a) Trade receivables - the Group applied the simplified approach to measuring ECL which uses a lifetime expected loss allowance

for all trade receivables. This resulted in an increase of the loss allowance on 1 January 2018 of GBP509,000 (net of GBP103,000 deferred

tax) for trade receivables. The loss allowance decreased by GBP200,000 during the current reporting period.

b) Accrued income - as with trade receivables, the Group applied the simplified approach to measuring ECL which uses a lifetime

expected loss allowance for all trade receivables. This resulted in an increase of the loss allowance on 1 January 2018 of GBP493,000

(net of GBP84,000 deferred tax) for trade receivables. The loss allowance decreased by GBP6,000 during the current reporting

period.

IFRS 15 Revenue from Contracts with Customers

The Group has reviewed its revenue recognition policies and determined that there are no adjustments to revenues in either the current or

prior year as a result of adopting IFRS 15. At the end of 2017, in preparation for the implementation of IFRS 15 in 2018, the directors undertook a detailed review of the revenue streams. This involved considering each revenue stream with respect to the five-stage approach as prescribed in IFRS 15. These are: identification of the contract; identification and satisfaction of the performance obligations; determination of the transaction price; and the allocation of the transaction price to the performance obligation. After this review took place, the Executive Directors prepared an IFRS impact assessment paper that documented the proposed revenue recognition policy for each revenue stream under IFRS 15 and compared the new policy to the previous recognition policy, under IAS 18, to determine the overall impact. This paper was reviewed by the Audit Committee and the new policy was adopted.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR GGUBGWUPBPUR

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