RNS Number : 7775Q
Redde PLC
04 September 2014
 



News Release

Redde plc

("Redde" or "Group")

(formerly Helphire Group plc)

 

Issue Date: 4 September 2014

 

Results for the Year ended 30 June 2014

 

A year of strong growth, cash generation and increased dividend

 

Current year started well

 

Highlights

 

·     Adjusted* operating profit of £11.6m (2013: £8.0m)

·     Adjusted* profit before taxation of £11.9m (2013: £4.3m)

·     Adjusted* basic EPS of 7.47p (2013: 12.54p)

·     Recommended final dividend for 2014 of 3.50 pence and payable on 06 November 2014

·     Total dividends for year of 6.85 pence (2013: 1.65 pence)

·     Net cash inflow from operating activities of £24.8m (2013: £31.2m)

·     Net cash inflow to EBITDA ratio of 153% (2013: 198%)

·     Statutory debtor days further reduced to 108 days from 126 days

·     Total cash balances of £58.3m (2013: £21.2m)

·     Net cash of £41.6m (2013: £1.1m)

·     Open hire case count reduced by a further 7,000 cases to 32,000 cases

·     Growing pipeline of business at recent acquisition NewLaw

·     Revenue generating fleet utilisation improved to 82.1% (2013: 80.7%)

·     Protocol case settlement agreements with insurers continuing to grow for mutual benefit

 

*Adjusted measures exclude the impact of those items described as exceptional in Note 6.

 

Commenting on the Group's results and prospects, Martin Ward, Chief Executive Officer, said:

 

"The results have exceeded our earlier expectations and cash flow has been strong. Redde has a robust, profitable, cash generative business capable of sustaining attractive dividends.  We continue to make excellent progress in developing the business; Redde is very well positioned within an evolving marketplace and we have funds to support growth. The current trading prospects look promising and our new 'GPS' strategy (Growth, Profitability and Sustainability), launched in 2013, is gaining momentum."                                                     

Enquiries



 

Redde  plc

Tel: 01225 321134

 

Martin Ward - Chief Executive Officer

 

 

Steve Oakley - Chief Financial Officer

 

 

 

 

 

Cenkos Securities plc (Nominated Adviser and Joint Broker)

Tel: 020 7397 8925

 

Ian Soanes

 

 

Max Hartley

 

 

 

 

 

N 1 Singer Capital Markets Limited (Joint Broker)

Tel: 0207 496 3000

 

Jonny Franklin-Adams

 

 

Alex Wright

 

 

 

Square1 Consulting

Tel: 020 7929 5599

 

David Bick

 

 

Mark Longson

 

 

 

Notes for Editors:

 

About Redde  plc:

 

Founded in 1992 and working predominantly with insurance companies, insurance brokers and prestige motor dealerships, the Group provides a range of accident management and legal services. The Group also deals directly with large national fleets providing incident management and mobility continuity. In February 2014 the Group acquired the NewLaw group of companies, primarily based in Cardiff and Bristol, and the Group's activities now encompass a range of legal services designed to assist claimant parties in partnership with leading insurance companies, brokers and other bodies.

 

The Redde group of companies is one of the market leaders in its fields of business; it delivered accident management solutions to over 115,000 motorists in 2014, ensuring that they remained mobile until their own vehicles were repaired or until they were put in a position to obtain a replacement and it provides legal services to over 30,000 claimants a year, ensuring they are properly compensated for their injuries and losses.

 

The name Redde is associated, in Latin, with the concept of restoration.



Chairman's statement

 

The year to 30 June 2014 has seen significant further progress in the Group and the establishment of a record of strong profitability and cash flow. In December 2013 the Group raised £57.5 million net of expenses to fund its strategic development, including acquisitions, and in February 2014 acquired NewLaw which has further expanded the scope of the Group's activities in legal services. Following this acquisition the Group changed its name in May 2014 from Helphire Group plc to Redde plc. The Board considers that this new name, which is associated, in Latin, with the concept of restoration, more appropriately describes the Group's enlarged field of activities and now better reflects the strategic aims and wider business focus of the Group. At the same time the Group consolidated its ordinary share capital into 0.1p ordinary shares by way of a 1 for 10 consolidation. The Group has further developed its business model offering to facilitate sustainability in the light of impending regulatory changes. As a consequence of these activities and progress with its strategic plan, the Group ended the year with new, record low debtor days and significant cash balances. The strategy of the Board is to focus on Growth, Profitability and Sustainability whilst maintaining the significant progress made on key deliverables such as cash generation and debtor day reduction.

 

I am pleased to be able to report to shareholders that the improvement in the Group's results has continued and that the Group achieved an adjusted profit before taxation of £11.9 million compared to £4.3 million last year: an increase of 176%.

 

Results

 

Revenue was £197.4m (2013: £204.8m) including £8.9m from four months' trading by NewLaw which was acquired on 28 February 2014. Revenue for last year included £13.9m of non-recurring referral fees in respect of personal injury cases, which ceased from 1 April 2013  as a result of the effects of the ban on the receipt and payment of such fees that came into effect on that date. Excluding this revenue, on a like-for-like basis, turnover shows a reduction of £2.4m (1.3%) which is mostly due to the previously reported planned reduction in low margin, direct hire business, which was largely offset by increases in revenue from core credit hires, (reflecting improvements in components of the mix of business) and also greater throughput in our repair services.

 

The adjusted operating profit for the year was £11.6m, which includes a £2.1m contribution from 4 months' trading by NewLaw. Overall the Group has been able to achieve a much improved total adjusted operating margin of 5.9% (2013: 3.9%). This increase principally reflects enhancement in the mix of hire cases handled, a number of improvements in our supply chain, a further 9.1% reduction in like-for-like Group overhead costs compared to last year and a maiden contribution from NewLaw. Excluding NewLaw, the adjusted operating margin was 5.1%.

 

There was a net interest credit in the year of £0.2m compared to an adjusted net charge of £3.7m last year. The improvement is due to the restructuring and elimination of much of the Group's bank debt in March 2013, interest earned on residual placing monies and strong cash generation in the year.

 

Adjusted profit before tax for the year was therefore £11.9m (2013: £4.3m), an increase of 176%.

 

A pre-tax exceptional net charge of £1.4m (2013: credit of £28.1m) was recorded in the year and is detailed in note 6 and after these exceptional items the statutory profit before tax was £10.5m (2013: £32.4m).

 

There was a net tax credit of £4.2m, (2013: £3.9m) which was principally in respect of the further recognition of a deferred tax asset relating to prior years' losses and unused allowances but also includes a tax rebate in respect of prior years of £0.4m, and therefore the statutory profit after tax is £14.7m (2013: £36.3m).

 

Earnings Per Share

 

Statutory basic EPS is 6.84p (2013: 55.55p). Statutory diluted EPS is 5.93p (2013: 46.56p).

 

The adjusted EPS is 7.47p (2013: 12.54p). The adjusted diluted EPS is 6.48p (2013: 10.51p).

 

The adjusted figures exclude the impact of those items described as exceptional in Note 6 and the 2013 comparatives have been adjusted to take into account the effects of the 1 for 10 share consolidation that was completed on 23 May 2014.

 

Dividends

 

The Board is pleased to propose a final dividend of 3.50 pence per share, which if approved at the Annual General Meeting to be held on Thursday 30 October 2014 will be paid on Thursday 6 November 2014 to those shareholders on the register at the close of business on Friday 17 October 2014. Under the new Stock Exchange calendar the shares will be ex-dividend on Thursday 16 October 2014.

 

Three interim dividends in respect of the year ended 30 June 2014 were paid in the year:

 

1.   - 1.10 pence per share paid on 25 October 2013.

2.   - 1.71 pence per share paid on 10 January 2014. 

3.   - 0.54 pence per share paid on 27 March 2014.

 

These dividends make a total of 3.35 pence paid for the year to date.

 

I am pleased to note that dividends declared or paid in respect of the 12 months to 30 June 2014 amount to 6.85 pence per share and total net dividends of £15.7 million.

 

As previously announced, the Group intends to return to a more normal dividend calendar with any interim dividend for the year to 30 June 2015 being declared in February 2015 and paid in March 2015. The Group's dividend policy remains, in the absence of unforeseen circumstances, or other requirements or commitments to which the Directors should have regard, to distribute as much of the profits by way of dividend as it reasonably and legitimately can, provided sufficient cash is available to pay such dividends.

 

Where appropriate, dividends already paid have been adjusted to take into account the effects of the 1 for 10 share consolidation that was completed on 23 May 2014.

 

 

Receivables

 

Trade and other receivables reduced to £63.8m, an improvement of £10.0m from 30 June 2013 after adjusting for the £2.8m trade receivables acquired with NewLaw. Statutory debtor days excluding NewLaw were a new record low of 118 days and compare to 126 days last year. Including the NewLaw group of companies statutory debtor days were 108 days based upon the past 12 months' turnover of the combined Group.

 

Cash and Debt

 

The Group has continued to over-deliver on its targets for cash collections and improving cash inflow. Excluding the residual net proceeds from the placing that was completed on 24 December 2013, net working capital cash, (net of financing loans), has been increased by £15.7m since 30 June 2013 to £16.8m notwithstanding dividends of £8.5m being paid during the year.

 

Outlook

 

On 12 June 2014 the Competition and Markets Authority ("CMA"), formerly the Competition Commission, issued its Provisional Decision on Remedies ("PDR") in respect of its investigation into the Private Motor Insurance Market. The Group has made changes to its business model in recent years in anticipation of market reforms and does not expect the CMA investigation to have a material financial impact on the Group.

 

On 24 December 2013, the Group completed a share placing raising £60 million before expenses in order to fund its strategic growth plans and £24.8m of these monies remain available for investment and we are reviewing opportunities in this regard.

 

Our aims are

 

(i)    to develop a top tier UK personal injury legal services business that can provide a comprehensive range of services to our referral partners;

(ii)   to build our base as one of the largest, longest established, replacement vehicle providers; and

(iii) to take opportunities for organic growth within our existing businesses as well as acquisitions that materially increase the Group's presence in those areas in which we operate.

 

The new financial year has started well with performance in the first two months in line with our expectations. The combination of strategic acquisitions as demonstrated above, as well as continuing to deliver organic growth and further improvements in operational efficiency from our new business model, gives the Board great encouragement for the future.

 

Our people

 

 

Once again we thank our employees for their support, hard work and loyalty during the year.

 

Annual General Meeting

 

The Group's Annual General Meeting will be held on Thursday 30 October 2014.

 

Avril Palmer-Baunack

Chairman

03 September 2014

Operating and Financial Review

 

 

Market and Business Model

 

Following the significant progress made in evolving its business model over the last few years, the Group has now embarked on a strategy to Grow its business Profitably and Sustainably - we call, this our 'GPS Strategy' which was launched at the end of 2013. This strategy was supported by raising funds to support acquisitions that were both strategic and complementary. The first part of this was the purchase of NewLaw. This also supported our strategy to offer an effective and market-ready solution in anticipation of further regulatory changes. We intend to add to this acquisition with opportunities that offer a quality strategic fit and offer enhanced skill sets to our own. This process is well developed and we expect to make further progress in the current year. 

  

In accordance with our GPS strategy, our focus is on sustainable, profitable, cash generative business, if necessary at the expense of volume and we avoid low-margin, high-volume business which relies principally upon price in priority to service quality. Consequently, we have continued to employ our assets more effectively and improve our gross margin.

 

The continued improvement in the Group's operational practices and systems has facilitated excellent working relationships with many insurers. This includes fitting 100% of our vehicle fleet with telematic technology so we can improve operational efficiency as well as reduce fraud and improve security of the asset.  In turn, the improvement in our operational efficiency has led to lower costs, higher fleet utilisation, and reduced leakage of hire days. This has contributed to a growing number of bi-lateral protocol agreements with insurers who have confidence in the representations made on claims to be settled. These in turn have lowered frictional costs and minimised handling costs. The protocol arrangements with Insurers are effective ways to reduce their combined operating ratios which is a key performance measure for them. This activity has supported the improvements in cash collection cycles as well as benefitting all parties in reduced costs. This has contributed to debtor days in the historical Helphire business being reduced to a new record low of 118 days compared with 126 days last year. Including NewLaw statutory debtor days were 108 days based upon the past 12 months turnover of the combined Group.

 

 

Competition and Markets Authority Investigation

 

On 12 June 2014 the CMA issued its PDR in respect of its investigation into the Private Motor Insurance Market.

 

Almost from the outset of the CMA investigation the Group anticipated changes that may be made to the regulatory framework in the industry and planned for them accordingly. Whilst the proposed changes, if ultimately adopted, are likely to take some time to be implemented, the Group has already adjusted its business model to reflect this new environment. Consequently, it is not expected that these changes will have a material impact on the Group's business. The present position is that motorists who have non-fault accidents have a legal entitlement to restitution and can utilise the services offered by the Group and the PDR does not change this position. The PDR is subject to further consultation between the CMA and the industry.

 

Our analysis points to more opportunities to provide services on a broader basis that would significantly improve the customer journey; we have always been flexible as to the exact mechanism for supplying a replacement vehicle so long as there is an appropriate balance between the risk assumed and successful recovery.

 

 

 

Settlement provision and hire case management

 

The total number of open hire cases has been further reduced by 17% in the year to 32,000 cases (2013: 38,600 cases). Cases >120 days reduced by 29% to 15,500 cases (2013: 21,900 cases). The number of cases with solicitors has also been reduced by 28% to 4,600 cases (2013: 6,400 cases) reflecting (inter alia) the benefits of an increasing number of claims that are subject to non-frictional protocol arrangements with insurers.

 

Recoveries during the year have been increasingly encouraging with an improvement from over 70% to over 75% of new claims being settled within 90 days of request. This is continued testament to the better working relationships with at-fault insurers and improvements in procedures and processes that have been achieved over recent years, which has in turn facilitated the increasing number of settlement protocols that have been put in place with certain insurers to remove frictional costs and accelerate settlement. At the end of the period, over 50% of the Group's business was subject to bilateral protocol arrangements and this is likely to increase in future months providing further anticipated savings in frictional costs for both insurers and ourselves and further improvements to cash collections profiles.

 

Autofocus

 

In June 2014 the Group was finally given access to further data as granted by the High Court order nearly two years previously. Obtaining this information has been a slow process and has seen a series of objections and challenges by solicitors acting for the two intervening insurers. The Group is now evaluating the evidence provided that potentially supports the several thousand cases that have been identified that may have been compromised as a result of unreliable evidence used by defendant insurers.

 

Despite these delays, and subject to being satisfied that we have identified the full extent of our losses, we still expect to begin settlement negotiations with insurers over the coming months and have recently concluded numerous settlements with certain self-insured organisations liable for a small number of claims by value. Our discussions with larger insurers are now commencing and we still intend, where possible, to resolve matters with insurers without litigation.

 

It would not be appropriate to speculate on the outcome of any negotiations at this stage, but we will provide an update when we are able to do so.

 

Vehicle fleet

 

The Group continues to operate highly effective fleet services through a hybrid solution of ownership, contract hire and, during peak periods, cross-hiring from daily rental companies. This combination allows flexibility to dispose of excess fleet in the lower volume summer months or in the event of a downturn and to maximise fleet, without incurring ownership costs, in short peak periods.

 

The average age of the fleet continues to be maintained at less than 12 months with a broad spread of manufacturers and models. Our efforts to better balance the mix of the fleet to meet a changing demand profile continued and the average number of vehicles held was reduced by 8.5% from 6,488 to 5,938. This enabled fleet utilisation to be increased to 82.1% (2013: 80.7%) which is considered by the Board to be an excellent performance. Our fleet comprised 5,428 vehicles at 30 June 2014 compared to 5,836 at 30 June 2013.

 

 



 

Legal Services Acquisition

 

NewLaw has made an encouraging start during the four months since acquisition, contributing £8.9m by way of turnover and £2.1m by way of profits including income from associates. This acquisition has been well received in the marketplace in which the Group operates and has given rise to a number of potential additional opportunities for the Group to pursue which gives the Board confidence for the future in this area. Partnerships with four insurer related brands have been established via ABS structures and more are in the pipeline.

 

Principia Law, our other legal services business, has made good progress during its start-up phase in the area of personal injury cases and has also provided the Group with additional opportunities in relation to credit hire recoveries, particularly those cases requiring more specialist attention.

 

 

 



 

Financial Review

 

Performance

 

Certain items have been reported and disclosed as exceptional on the face of the Income Statement and these items are commented on separately as appropriate further in this Financial Review. The Income Statement captions excluding these exceptional items more properly reflect the comparable operating performance of the business and for ease of reference are referred to as 'adjusted'.

 

For the year, the Group recorded an adjusted operating profit of £11.6m (2013: £8.0m) together with an adjusted profit before tax of £11.9m (2013: £4.3m) and a statutory profit before tax of £11.5m (2013: £32.4m).

 

The financial results for the year to 30 June 2014 also reflect:

 






12 months ended

12 months ended

Change


30 June 2014

30 June 2013

%

Operational KPIs




Hire cases

108,896

128,739

(15.4)

Credit hire

95,851

100,373

(4.5)

Standard hire

13,045

28,366

(54.0)

Repair cases

42,357

41,419

2.3

% of credit hire cases

44.2%

41.3%

2.9pt

Personal Injury Claims processed

10,548

-

n/a

Hire days

1,877,349

2,113,439

(11.2)

Average days hire

17.2

16.4

0.8

Average fleet revenue generating utilisation

82.1%

80.7%

1.4pt





Financial KPIs




Revenue (£'000)

197,419

204,767

(3.6)

Gross profit (£'000)

52,192

46,131

13.1

Gross margin

26.4%

22.5%

3.9pt

Adjusted profit before taxation

11,878

4,310

175.6

Adjusted operating profit* (£'000)

11,608

7,961

45.8

Adjusted operating margin*

5.9%

3.9%

2.0pt

EBITDA

16,215

15,761

2.9

EBITDA/Operating cash flow conversion %

153.0%

197.7%

(44.7)

Debtor days

108

126

18

 

* Adjusted measures exclude the impact of the items described as exceptional in Note 6.

 

Revenue

 

Group revenue was £197.4m (2013: £204.8m) including £8.9m from NewLaw which was acquired on 28 February 2014. Revenue for last year included £13.9m of non recurring referral fees in respect of personal injury cases and other associated income, which ceased from 1 April 2013 as a result of the effects of the ban on the receipt and payment of such fees that came into effect on that date. Excluding this revenue, on a like-for-like basis, turnover shows a reduction of £2.4m (1.3%) which is mostly due to the previously reported planned reduction in low margin direct hire business offset by increases in revenue from core credit hires reflecting improvements in components of the mix of business and also greater throughput in our repair services which also saw revenue improvements.

 

The total number of hire cases was 15.4% lower at 108,896 cases; a reduction of 19,843 cases of which 15,323 was in relation to the planned reduction in lower margin direct hire business. Hires in respect or our core credit hire business reduced by 4,522 cases, a reduction of 4.5% on last year's credit hires reflecting falls in national accident rates during 2013 although traffic volumes and accident frequency have increased during the 6 months to 30 June 2014.

 

As a result of changes in the mix of claims handled including the planned reduction in the number of short hire length direct hires, hire length, which is a major driver in the Group's profitability, increased to an average of 17.2 days for the year, compared to the average of 16.4 days reported for last year and an industry average of 19 days.

 

Gross profit and adjusted operating profit

 

Gross profit was £6.1m higher than the corresponding period last year and overall a gross margin of 26.4% (2013: 22.5%) was achieved. Excluding NewLaw gross margin was 23.5%. On a like-for-like basis the improved margin percentage principally reflects the cessation of the low margin personal injury referral fee activity from 1 April 2013, better margins flowing from the changes in the mix of cases handled and a number of improvements seen in our supply chain.

 

Adjusted operating profit of £11.6m (2013: £8.0m) increased by £3.6m or 45% versus the corresponding period last year including a maiden contribution of £2.1m from NewLaw.

 

Adjusted operating profit margin was 5.9% and was 5.1% excluding NewLaw (2013: 3.9%).

 

EBITDA was £16.2m (2013: £15.8m), a pleasing increase despite the downward effect of the  increased ratio of vehicles acquired under finance leases to those supplied under contract hire arrangements particularly during the first half. The reduction in fleet depreciation and fleet finance lease interest from 2013 amounted to approximately £4.0m compared to an increase in the charges for contract hired vehicles compared to the same period last year of approximately £2.4m.

 

Adjusted operating profit is reconciled to the Income Statement as follows:

 



Audited

Audited



12 months ended

12 months ended



30 June 2014

30 June 2013



£m

£m

Adjusted operating  profit - continuing operations

11.6

8.0

Adjustments




Operational restructuring costs


-

(0.3)

Surplus property restructuring costs


0.4

(4.2)

Acquisition costs


(0.9)

-

Financial and share restructuring costs


-

(0.4)

Share based payments


(0.9)

(0.1)

Statutory operating profit


10.2

3.0

 

The adjusted operating profit margin was 5.9% (2013: 3.9%).

 

Income from associates

 

Income from associates represents the Group's share of the profits in relation to NewLaw's  membership of several Limited Liability Partnerships operating legal services in association with certain business Partners under the authority of the Solicitors Regulation Authority and amounted to £0.1m (2013: nil).

 



 

Net finance income

 

There was net finance income for the year of £0.2m (2013: charge of £3.7m) reflecting the full year effect of the elimination of all of the corporate debt during 2013 as well as interest receivable on cash balances generated from operating cash flow and un-invested placing monies.

 

Adjusted profit before tax

 

Adjusted profit before tax of £11.9m (2013: £4.3m) is an increase of £7.6m (176%) over the  prior year and is due to the improvement of £3.6m in adjusted operating profit together with £0.1m income from associates and a £3.9m reduction in the net interest charge as detailed above.

 

Exceptional items

 

A pre-tax exceptional net charge of £1.4m was recorded in the year (2013: credit of £28.1m) reflecting:

 

·      A credit of £0.4m in respect of the net benefits of the exit from certain onerous leases;

·      Costs of acquisitions in the year and amounting to £0.9m that have been charged to profits in accordance with IFRS3; and

·      A charge of £0.9m recorded under IFRS2  under share based payments on executive incentive share schemes.

 

The net credit of £28.1m in 2013 was principally in respect of a credit of £33.7m in accordance with IFRIC19 in relation to the difference in the fair value of shares issued to the Group's then lenders as part of the refinancing mentioned above compared to the associated debt extinguished partially offset by a charge of £4.9m in respect to the exit from surplus properties and a share based payment charge of £0.1m.

 

Statutory profit before and after taxation

 

After the exceptional items above and a net credit of £0.2m (2013: charge of £4.3m) in relation to interest receivable on cash balances of, the statutory profit before tax was £10.5m (2013: £32.4m).

 

There was a net tax credit of £4.2m, (2013: £3.9m) which was principally in respect of the further recognition of a deferred tax asset relating to prior years' losses and unused allowances but also includes a tax rebate in respect of prior years of £0.4m and therefore the statutory profit after tax is £14.7m (2013: £36.3m).

 

Earnings per share - Basic and Diluted

 

Statutory basic EPS is 6.84p (2013: 55.55p). Statutory diluted EPS is 5.93p (2013: 46.56p).

 

The adjusted EPS is 7.47p (2013: 12.54p). The adjusted diluted EPS is 6.48p (2013: 10.51p).

 

Adjusted figures exclude the effect of those items described as exceptional in Note 6 and the 2013 comparatives have been adjusted to take into account the effects of the 1 for 10 share consolidation that was completed on 23 May 2014.

 

Dividends

 

Three interim dividends were declared on 27 September 2013 (1.10 pence per share paid on 25 October 2013), 28 November 2013 (1.71 pence per share paid on 10 January 2014) and 27 February 2014 (0.54 pence per share paid on 27 March 2014). These dividends make a total of 3.35 pence paid for the year to date.

 

A final dividend of 3.50 pence per share has been recommended by the Board, which if approved at the Annual General Meeting to be held on 30 October 2014 will be paid on Thursday 06 November 2014 to those shareholders on the register at the close of business on Friday 17 October 2014 making a total dividend of 6.85 pence per share for the year as a whole.

 

Where appropriate dividends already paid have been adjusted to take into account the effects of the 1 for 10 share consolidation that was completed on 23 May 2014.

 

Balance sheet

 

The Group has continued its focus on the reduction of working capital. During the year  trade and other receivables have reduced by £10.0m to £63.8m adjusting for the inclusion on acquisition of £2.8m of receivables in respect of NewLaw. Debtor days within the historical Helphire businesses have continued to be reduced as a result of improved settlement levels and associated cash collection following an increase in the number of protocol arrangements and now stand at a record low of 118 days (2013: 126 days). Including NewLaw statutory debtor days were 108 days based upon the past 12 months turnover of the combined group.

 

Net assets at 30 June 2014 were £142.1m.

 

Net cash and financing

 

Total net cash at 30 June 2014 (net of financing loans but excluding residual £24.8m net proceeds of the placing that was completed on 24 December 2013) was £16.8m (2013: net cash of £1.1m). Including the £24.8m residual cash representing un-invested net proceeds of the placing that was completed on 24 December 2013 total cash balances were £58.5m and total net cash balances were £41.6m. Net cash is analysed as follows:

 



Audited

Audited



12 months ended

12 months ended



30 June 2014

30 June 2013



£m

£m

Fleet




Finance leases


(16.0)

(12.3)

Fleet facility


-

(2.6)

Total fleet financing debt


(16.0)

(14.9)

Corporate




Working capital loans


-

-

Mortgages


-

(5.1)

Other unsecured loans


(0.4)

-

Finance leases


(0.5)

(0.1)

Total corporate financing debt


(0.9)

(5.2)

Total debt


(16.9)

(20.1)

Working capital cash


33.7

21.2

Net working capital cash


16.8

1.1

Net cash balances from placing


24.8

-

Net cash


41.6

1.1

 

 



 

Cash flow

 

Cash generated from operating activities was £25.4m (2013: £35.4m). This is significantly ahead of profits, reflecting improvements in working capital management, albeit somewhat lower than last year, principally due to the exceptionally high levels of collection of outstanding receivables last year. After other net operating outflows of interest and taxation, net cash flow from operating activities was £24.8m (2013: £31.2m).

 

Net cash flow to EBITDA was 153% (2013: 197%).

 

Principal risks and uncertainties

 

The principal risks and uncertainties facing the Group are set out in note 17 to this announcement.

 

 

 

 

 

Martin Ward                                                                                       Stephen Oakley

 

Chief Executive Officer                                                                       Chief Financial Officer

03 September 2014                                                                            03 September 2014

 

 



 

Consolidated income statement

For the year ended 30 June 2014

 



Year ended

30 June

2014

Adjusted*

 

Year ended

30 June

2014

Exceptional

items*

Year ended

30 June

2014

 

Year ended

30 June

2013

Adjusted *

 

Year ended

30 June

2013

Exceptional items*

Year ended

30 June

2013

 

 

 


Note 

£'000

£'000

£'000

£'000

£'000

£'000

 

 








 

Total Revenue


197,419

-

197,419

204,767

-

204,767

 

 








 

Cost of sales


(145,227)

-

(145,227)

(158,636)

-

(158,636)

 

 

 







 

Gross profit

 

52,192

-

52,192

46,131

-

46,131

 

 

 







 

Administrative expenses

6

(40,584)

(1,360)

(41,944)

(38,170)

(4,925)

(43,095)

 

 

 







 

Operating profit - continuing operations

 

11,608

(1,360)

10,248

7,961

(4,925)

3,036

 

 

 







 

Income from associates

11

53

-

53

-

-

-

 

 

 







 

Trading profit

 

11,661

(1,360)

10,301

7,961

(4,925)

3,036

 

 

 







 

Other income

6

-

-

-


33,738

33,738

 

 

 







 

Net finance income /(costs)

7

217

-

217

(3,651)

(697)

(4,348)

 

Profit before taxation

 

11,878

(1,360)

10,518

4,310

28,116

32,426

 

 

 







 

Taxation

8

4,232

-

4,232

3,891

-

3,891

 

Profit for the period

 

16,110

(1,360)

14,750

8,201

28,116

36,317

 

 

 







 

Profit for the period attributable to:







 

Equity holders of the Company

 

16,179

(1,360)

14,819

8,201

28,116

36,317

 

 

 







 

Non Controlling Interests

 

(69)

-

(69)

-

-

-

 

 

 







 

Profit  for the period

 

16,110

(1,360)

14,750

8,201

28,116

36,317

 

 

 







 

Earnings per share (pence)

 







 

Basic

1

7.47

(0.63)

6.84

12.54

43.01

55.55

 

Diluted

1

6.48

(0.55)

5.93

10.51

36.05

46.56

 

 

* Adjusted profit excludes the impact of those items described as exceptional, namely restructuring costs. See Note 6 for further details.

 

 

 

 

Condensed Consolidated Statement of Comprehensive Income

For the year ended 30 June 2014

 




Year ended

31 December 2014

Year Ended

 31 December 2013

Unaudited


£'000

£'000






Profit for the period



14,750

36,317






Other comprehensive income



-

-

Total comprehensive income for the period, attributable to:





Equity holders of the Company



14,819

36,317

Non-controlling interests



(69)

-

Total comprehensive income for the period



14,750

36,317

 

 

 

Consolidated Statement of Changes in Equity

For the year ended 30 June 2014

 

 

Share

Capital

 

£'000

Share

Premium

Account

£'000

Retained

Earnings

 

£'000

Total

 

 

£'000

Non Controlling Interests

£'000

Total

 

 

£'000

Balance at 01 July 2012

16,567

107,103

(113,164)

10,506

 

10,506


 

 

 

 

 

 

Profit for the year

-

-

36,317

36,317

-

36,317

Other comprehensive income for the year

-

-

-

-

-

-

Total comprehensive income for the year

-

-

36,317

36,317

-

36,317

 

 

 

 

 

 

 

Issue of Ordinary Shares

123

33,736

-

33,859

-

33,859

 

 


 

 

 

 

Issue of B Shares

10

-

 

10

-

10

 

 

 

 

 

 

 

Expenses on issue of Ordinary Shares

 

(3,808)

 

(3,808)

-

(3,808)

 

 

 

 

 

 

 

Transfer on exchange of debt for equity

-

33,738

(33,738)

-

-

-

 

 

 

 

 

 

 

Cancellation of Deferred Shares

(16,534)

-

16,534

-

-

-

 

 



 

 

 

Cancellation of Share Premium Account

-

(170,769)

170,769

-

-

-

 

 

 

 

 

-

 

Credit to equity for settled Share-Based Payments

 

-

 

-

 

124

 

124

-

 

124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 30 June 2013

166

-

76,842

77,008

-

77,008

 

 

 

 

 

 

 

Profit for the year

-

-

14,819

14,819

(69)

14,750

Other comprehensive income for the year

-

-

-

-

-

-

Total comprehensive income for the year

-

-

14,819

14,819

(69)

14,750

 

 

 

 

 

 

 

Issue of Ordinary Shares

117

60,253

-

60,370

-

60,370

 

 

 

 

 

 

 

Expenses on issue of Ordinary Shares

-

(2,449)

-

(2,449)

-

(2,449)

 

 

 

 

 

 

 

Dividends paid in the year

-

-

(8,468)

(8,468)

-

(8,468)

 

 

 

 

 

 

 

Credit to equity for settled Share-Based Payments

 

-

 

-

 

883

 

883

 

-

 

883

 

 

 

 

 

 

 

Balance at 30 June 2014

283

57,804

84,076

142,163

(69)

142,094

 

 



 

 

Consolidated Statement of Financial Position

as at 30 June 2014

 

 

 

 

 

Note 

 2014

 

£'000

2013

 

£'000

Non-current assets

 

 

 

 

 

 

Goodwill

 

 

 

 

59,231

18,950

Property, plant and equipment (including vehicles)

 

 

20,075

16,811

Interest in associates

 

11

56

-

Deferred tax asset

 

 

 

 

9,200

5,150

 

 

 

 

 

88,562

40,911

 

Current assets

 

 

 

 

 

 

Trade and other receivables

 

 

 

12

82,766

77,561

Assets held for sale

 

 

 

 

 

4,830

Cash and cash equivalents

 

 

 

 

58,338

21,199

 

 

 

 

 

141,104

103,590

 

Total assets

 

 

 

 

229,666

144,501

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

 

 

13

(56,939)

(40,529)

Deferred consideration

 

 

 

 

(6,679)

-

Obligations under finance leases

 

 

 

 

(7,912)

(7,329)

Short-term borrowings

 

 

 

(350)

(2,919)

Provisions

 

 

 

(2,447)

(2,005)

 

 

 

 

 

(74,327)

(52,782)

 

Net current assets

 

 

 

 

66,777

50,808

 

Non-current liabilities

 

 

 

Deferred consideration

 

 

 

 

(3,200)

-

Long-term borrowings

 

 

 

 

-

(4,712)

Obligations under finance leases

 

 

 

 

(8,519)

(5,108)

Deferred tax liability

 

 

 

 

(297)

-

Long-term provisions

 

 

 

 

(1,229)

(4,891)

 

(13,245)

(14,711)

Total liabilities

 

 

(87,572)

(67,493)

 

Net assets

 

 

142,094

77,008

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Share capital

 

 

 

14

283

166

Share premium account

 

 

 

14

57,804

-

Retained earnings

 

 

 

 

84,076

76,842

Equity attributable to owners of the company

 

 

 

142,163

77,008

Non Controlling Interests

 

 

 

 

(69)

-

Total Equity

 

 

 

 

142,094

77,008

 

 

 

 



          Consolidated statement of cash flows

          for the year ended 30 June 2014

 

 

Note

 

£'000 

2014

 

£'000

 

 

 

£'000

2013

 

£'000

Cash flows from operating activities

 

 

 

 

 

Profit for the year

 

 

14,750

 

36,317

 

Tax (credit)

 

 

(4,232)

 

(3,891)

 

Income from associates

 

 

(53)

 

-

 

Exceptional credit arising on debt for equity swap

 

6

-

 

(33,738)

 

Finance (income) / costs

 

7

(217)

 

4,348

 

Fleet finance lease interest

7

772

 

1,835

 

Depreciation, amortisation and impairment charges

16

3,898

 

10,496

 

Losses on sale of property, plant and equipment

414

 

270

 

Share-based payment charge

 

6

883

 

124

 

EBITDA

 

 

16,215

 

15,761

 

Decrease in receivables

 

 

10,522

 

30,349

 

Increase /(decrease) in payables

 

 

1,847

 

(8,955)

 

Decrease in provisions

 

 

(3,220)

 

(1,751)

 

Cash generated from
operating activities

 

 

 

25,364

 

35,404

 

 

 

 

 

 

 

Bank interest received


292


20


Bank and loan interest paid


(93)


(2,315)


Fleet finance lease interest


(733)


(1,835)


Interest element of non-fleet finance lease rentals


(22)


(38)






(556)


(4,168)








Taxation received /(paid)




-


(78)

Net cash from operating activities

 

 

24,808

 

31,158

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Acquisitions of business combinations

 

 

(23,479)

 

-

 

Distributions from associates

 

 

42

 

-

 

Purchase of property, plant and equipment

 

 

(852)

 

(2,511)

 

Proceeds from sale of plant and equipment

 

 

13,183

 

31,502

 

Net cash from investing activities

 

 

 

(11,106)

 

28,991

 

 

 

 

 

 

 

Cash flows from financing activities


 

 

 

 

 

Proceeds from issue of share capital

 

 

60,370

 

25,648

 

Expenses of share issue

 

 

(2,449)

 

(3,373)

 

Dividends paid

 

 

(8,468)

 

-

 

Repayment of borrowings

 

16

(15,416)

 

(25,776)

 

Loan issue costs

 

 

-

 

(984)

 

Finance lease principal repayments

 

16

(10,600)

 

(36,547)

 

Net cash used in financing activities

 

 

 

23,437

 

(41,032)

Net increase in cash and cash equivalents

 

37,139

 

19,117

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

 

21,199

 

2,082

Cash and cash equivalents at end of year

 

 

 

58,338

 

21,199

 

 

 

 

 

 

 

Cash and cash equivalents consist of:

 

 

 

 

 

 

Cash at bank and in hand

 

 

 

58,338

 

21,199

Bank Overdrafts

 

 

-

 

-

Total

 

 

58,338

 

21,199

 

 

 



Notes to the Financial Information

 

1          Earnings per share

The calculation of the basic and diluted earnings per share is based on the following share volume information:

 

 

 

 

 

2014

Number

2013

Number

Number of shares


 

 

 


Weighted average number of ordinary shares for the purposes of earnings per share


 

 

216,727,173

65,380,834

 


 

 

 

Effect of share options scheme shares


 

 

4,853,739

Effect of SAYE scheme


 

 

1,501,810

Effect of B shares in issue


 

 

10,409,036

Effect of shares to be issued in satisfaction fees


 

 

-

Effect of shares to be issued as deferred consideration


 

 

16,242,390

 


 

 

 

 

Weighted average number of ordinary shares for the purposes of diluted earnings per share


 

 

249,734,148

78,007,839

 

 

There were 272,663,740 ordinary shares of 0.1p each in issue as at 30 June 2014. On 29 July 2014 a further 8,425,860 ordinary shares of 0.1p each were issued in satisfaction of the first tranche of deferred consideration due to the vendors of the NewLaw group of companies. There are 281,089,600 ordinary shares of 0.1p each in issue at 03 September 2014. The above information for 2013 has been adjusted to take into account the 1 for 10 share consolidation that took effect on 23 May 2014.

 

2          Segmental information

The activities of the Group are managed by the executive board (which is deemed to be the Chief Operating Decision Maker)  as a single operating platform. The entities within the Group contribute as part of the whole operation of the Group to provide services for the core business. The Board of Redde plc   considers the performance of the business by reference to contributions from all activities of the Group as a whole, and reviews requirements of the total Group when determining allocations of resources. IFRS8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Board in order to allocate resources to the segment and to assess its performance. The Group continues to identify that there is a single operating, and therefore reportable, segment being that of accident management and consequential related services, conducted in the United Kingdom.

 

3          Status of audit

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2014 or 2013 but is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

 

4          Basis of preparation

The financial statements have been prepared on the historical cost basis in accordance with International Financial Reporting Standards (IFRSs) adopted in compliance with Article 4 of the  EU IAS Regulation.

 

There are no newly adopted standards that have a material impact upon the accounts.

 

 

5          Going concern

The consolidated financial statements have been prepared on a going concern basis, which assumes that the Group has adequate resources to continue in operational existence for the foreseeable future.

 

6          Exceptional items

Exceptional items are items which due to their size, incidence or non recurring nature have been classified separately in order to draw them to the attention of the reader of the accounts and, in the opinion of the Board, to show more accurately the underlying results of the Group. Such items are disclosed separately on the face of the consolidated income statement.

 

Adjusted profit

 

As discussed in the Operational and Financial Review, in order to provide a comparable view of the underlying performance of the Group, the adjusted profit has been presented in the condensed consolidated income statement. Adjusted profit excludes the impact of those items described as exceptional, as discussed in more detail below.

 

 

 

 

2014

£'000

2013

£'000

Exceptional items comprise the following:


 

 


a) Surplus property restructuring credit / (costs)


 

462

(4,210)

b) Acquisition and other capital costs

 

 

(939)

-

c) Share based payments

 

 

(883)

(124)

d) Financial and share restructuring expenses


 

-

(342)

e) Operational restructuring costs


 

-

(249)

Impact on operating profit


 

(1,360)

(4,925)

f) Other income - gain arising on debt for equity swap


 

-

33,738

g) Finance costs


 

-

(697)

Impact on profit before tax


 

(1,360)

28,116

Tax effect of exceptional items


 

-

-

Impact on profit for the financial year


 

(1,360)

28,116

 

a) Surplus property restructuring costs

The net credit for 2014 of £0.4m is in respect of the reassessment of the liability and related provisions for onerous leases net of provisions no longer required in respect of leases disposed of during the year.  In 2013 a charge of £4.2m was made to reflect the actual or anticipated costs of exit by way of disposal of a total of 5 freehold properties together with certain adjustments in respect of provisions for onerous leases. Freehold properties unsold at the 2013 year end were shown under the heading "Assets held for sale" in current assets on the statement of financial position. The tax effect of this exceptional charge is £nil (2013: £nil).

 

b) Acquisition costs

In accordance with the requirements of IFRS3, acquisition costs, mostly relating to legal and professional fees incurred during the acquisition of the NewLaw group of companies and amounting to £0.9m have been expensed. 

 

c) Share based payments

Ancillary to the share placing completed on 28 March 2013 certain new share incentive schemes were subsequently approved by shareholders and new options issued to certain directors and staff in April 2014 and July 2014 respectively. In accordance with IFRS2 the calculated charge in respect of these options amounts to £0.9m for the year (2013: £0.1m).

 

 

d) Financial and share restructuring costs in 2013

The charge of £0.4m for last year  represents certain legal and professional costs and ancillary expenses incurred in respect of the share placing that was completed on 28 March 2013 that under the Companies Act could not be charged against share premium account and have consequently been expensed.

 

e) Operational restructuring costs in 2013

The charge for last year of £0.2m was in respect of rationalisation of certain of the Group's operations and  consequential redundancy costs.

 

f) Credit on capital restructuring in 2013

In 2013 the Company raised equity finance and used the net proceeds, together with an issue of new shares to settle in full the Group's senior debt facilities. As required by accounting standards (IFRIC19) a credit of £33.7m was recognised in the income statement as the difference between the carrying value of the bank debt extinguished as a result of the share placing and debt conversion announced on 28 February 2013 and the fair value of the shares issued to the banks as part of these arrangements.

 

g) Bank loans restructuring costs in 2013

The elimination of much of the historical corporate debt of the Group consequential upon the completion of the share placing in March 2013 necessitated the write off in 2013 of bank fees paid and unamortised and amounting to £0.7m in relation to facilities that otherwise would have had expired after 30 June 2013.

 

The tax effect of this net exceptional charge (2013: net credit) for the year is £nil (2013:  £nil).

 

7          Finance income and finance costs

 

2014

£'000

2013

£'000

a) Finance income

 

 

Interest receivable

(292)

(20)

 

 

 

b) Finance costs

 

 

Interest on bank overdrafts and loans

58

2,888

Interest on obligations under finance leases

755

1,873

Loan issue costs charged in the year

34

745

 

847

5,506

Transfer of interest on obligations under finance leases and fleet loans  to cost of sales

(772)

(1,835)

Finance costs payable before exceptional costs

75

3,671

 

Net finance (income) / costs before exceptional costs

(217)

3,651


 

 

c) Exceptional Finance Costs

 

 

Bank loan arrangement fees written off (note 6)

-

697

Total net finance (income) / costs

(217)

4,348



 

8          Tax

 

2014

£'000

2013

£'000

Current tax

 

 

UK corporation tax on profit for the year

-

-

Adjustments in respect of prior years

438

270

Total current tax credit

438

270

Deferred tax

 

 

Previously unrecognised tax losses

4,722

3,652

Origination and reversal of temporary differences

(256)

68

Adjustments in respect of prior years

-

-

Impact of change in tax rate

(672)

(99)

Tax credit on profit on ordinary activities

4,232

3,891

 

The weighted average tax rate of 22.5% reflects the reduction in the UK main corporation tax rate to 21.00% from 01 April 2014. The tax credit for the year arises due to an increased recognition of the deferred tax asset relating to prior period losses and a reduction in the tax creditor in relation to prior period issues.

 

At the balance sheet date the Group has unused trading losses and other timing differences of £106.9m (2013: £108.2m) available for offset against future trading profits. A deferred tax asset has been recognised in respect of £46.0m (2013: £22.4m) of this amount to reflect the foreseeable forecast utilisation of tax losses and capital allowances carried forward. No deferred tax asset has been recognised in respect of the remaining £60.9m (2013: £85.8m) due to the risks associated with future taxable profits.

 

Deferred tax asset/(liability) not provided in full on temporary differences under the liability method using a tax rate of 20.0% (2013: 23%).

 

 

Asset/(Liability)

Tax losses

Carried forward

£'000

Asset/(Liability)

Accelerated tax

depreciation

£'000

Asset/(Liability)

Other Timing

 differences

£'000

(Liability)

Total

£'000

Asset

Total

£'000

At 30 June 2013

2,485

17,254

-

-

19,739

At 30 June 2014

3,532

8,638

-

-

12,170

 

9          Dividends

 

Ordinary share dividends paid in the year to 30 June 2014 can be summarised as follows:

 

 

 

 

2014

£'000

2013

£'000

 


 

 


Special dividend for 2013 of 1.65 pence paid on 24 July 2013

2,577

-

1st interim dividend for 2014 of 1.10 pence paid on 25 October 2013

1,729

-

2nd Interim dividend for 2014 of 1.71 pence paid on 10 January 2014

2,690

-

3rd Interim dividend for 2014 of 0.54 pence paid on 27 March 2014

1,472

-

 


 

 

 

Total dividends paid in the year


 

8,468

-

 

 

Where appropriate dividends per share already paid have been adjusted to take into account the effects of the 1 for 10 share consolidation that was completed on 23 May 2014.

 

The above does not include the recommended final dividend of 3.50 pence per share which if approved will be paid on 06 November 2014 making a total of 6.85 pence per share for the year as a whole.

 

10        Goodwill

 

£'000

Cost

 

At 01 July 2012, 30 June 2013 and 01 July 2013

73,268

Additions on acquisitions of business combinations (note 15)

40,281

At 30 June 2014

113,549

Accumulated impairment losses

 

At 01 July 2012, 30 June 2013 and 30 June 2014

(54,318)‌‌

Net book value

 

At 30 June 2014

59,231

At 30 June 2013

18,950

 

 

11        Investments in associates

The Group's interest in associates comprises of minority participations in four Limited Liability Partnerships ("LLP'") registered and situated in the United Kingdom. All of the LLPs are engaged in the processing of legal claims and are regulated by the Solicitors Regulation Authority. The LLPs are businesses over which the Group is deemed to have significant influence over but does not control.

           

 

2014

£'000

2013

£'000

Carrying amount of interests in associates

56

-

 

Group's share of:

 

 

Profit from continuing operations

53

-

Other Comprehensive income

-

-

Total profits

53

-

 

The accounting period ends of the associated companies consolidated in these financial statements range from September to December. The accounting period end dates of the associates are different from the Group as they are more aligned to the accounting reference dates of the majority partners. The above information has been obtained from management accounts of the entities concerned as at 30 June 2014.

12        Trade and other receivables

 

Net trade receivables comprise claims due from insurance companies and self insuring organisations and amounts invoices for the provision of services to customers. The Group's debtor days at 30 June 2014 in the historical Helphire group of companies was 118 days (2013: 126 days). Including the NewLaw group of companies, statutory debtor days were 108 days based upon the past 12 months turnover of the combined group. This measure is based upon net trade receivables, other receivables and accrued income as a proportion of the related sales revenue multiplied by 365 days.

 

 

 

 

2014

£'000

2013

£'000

Net trade receivables


 

62,637

69,160

Other receivables


 

177

87

Accrued income


 

999

1,713

Total receivables for debtor day calculation purposes


 

63,813

70,960

Disbursements recoverable in Legal Businesses


 

11,964

-

Amounts due from associates


 

24

-

Taxation recoverable


 

214

-

Prepayments


 

6,751

6,601

 


 

82,766

77,561

 

 

13        Trade and other payables


2014

£'000

2013

£'000

Trade payables

20,893

21,033

Other taxation and social security

3,003

3,889

Accruals and deferred income

22,482

15,344

Disbursements payable  in Legal Businesses

9,876

-

Other creditors

685

263


56,939

40,529

 

 

14        Share capital and share premium account

 

Changes in the share capital or share premium account during the year are summarised in the Consolidated Statement of Changes in net Equity and reflect:

 

a)         The issue on 4 October 2013 of a total of 10,200,000 ordinary shares of 0.01p at a value of 3.38p per share in respect of placing fees payable to the company's brokers under the terms of the March 2013 placing agreement.

 

b)         On 4 November 2013 and 11 November 2013 a total of 636,579 and 318.290 Ordinary shares of 0.01p were issued for cash at an average of 2.65p per share respectively as a result of the exercise of options by certain members of staff under the terms of the 2013 executive share option schemes.

 

c)         On 24 December 2013 following a general meeting of the company a total of 1,153,846,160 ordinary shares of 0.01p were then issued for cash of 5.2p per share to fund the strategic growth plans of the Company.

 

e)         On 12 May 2014 a total of 7 ordinary shares of 0.01p were issued at 6.16p per share and on 22 May 2014 a total of 9 B shares of 0.01p were issued for a total consideration of 2p in order to eliminate fractions resulting from the imminent share consolidation

 

e)         On 23 May 2014 the entire ordinary share capital comprising of 2,726,637,400 ordinary shares of 0.01pence each were converted into 272,663,740 ordinary shares of 0.1 pence each and the entire issued B shares comprising 104,109,100 B shares of 0.01 were converted into 10,410,910 B shares of 0.1 pence each.

 

15        Acquisitions

 

On 26 February 2014 the Group agreed to acquire the entire share capital of NewLaw Legal Limited ("NewLaw") and various associated companies and partnership interests (together "the NewLaw group") and completion took effect on 28 February 2014. The NewLaw group is a group of high quality legal services firms operating primarily in the area of road traffic personal injury and providing other consumer-related services including wills and probate. The NewLaw group also includes companies involved in costs drafting and advice in relation to employment law. NewLaw has entered into a number of ABS arrangements with various insurance and fleet management partners and the Group intends that this part of the business model will continue to be expanded in conjunction with its own strategy to develop its legal services offering to a larger customer group. The aggregated provisional fair value of the identifiable assets and liabilities of the NewLaw group at the acquisition date are set out below:


Carrying

Value

£'000

Fair

 Value

£'000

Tangible fixed assets

898

898

Intangible assets (including acquired Goodwill)

23,158

0

Investment in associates

45

45

Trade and other receivables

15,581

15,526

Cash and cash equivalents

523

523

Trade and other payables

(14,555)

(14,569)

Unsecured Loans

(8,135)

(8,135)

Finance leases

(415)

(415)

Deferred tax liabilities

(272)

(272)

Net assets acquired

16,828

(6,399)

Consideration:



Cash paid on completion


21,950

Deferred consideration payable in cash


2,053

Deferred consideration payable in shares


9,879

Net consideration


33,882

Goodwill arising from the acquisition


40,281

 

The deferred share consideration is subject to the achievement of certain performance related conditions and the amounts shown represent the maximum additional consideration that might be payable. Deferred cash is held in escrow by a third party primarily as a retention against possible warranty claims. In addition the Group incurred acquisition costs of £915,000 and these have expensed as exceptional costs within administrative expenses.

 

The deferred consideration payable in shares in two tranches and is due as follows:



 


2014

£'000

2013

£'000

Within 12 months

6,679

-

After 12 months but before 24 months

3,200

-


9,879

-

 

The first tranche amounting to £5,131,000 before discount was satisfied by the issue on 29 July 2014 of a total of 8,425,860 ordinary shares at a price of 60.9 pence each. The second tranche is subject to the attainment of warranted profits for the 12 months ended 31 December 2014 and, subject to certain conditions, is payable in nine equal instalments commencing in April 2015.

 

16        Cash flow information

 

a) Analysis and reconciliation of net debt


01 July

2013

£'000

Acquisitions

in year

£'000

Cash

flow

£'000

Non cash

changes

£'000

30 June

2014

£'000


Net cash and cash equivalents

21,199

523

36,616

-

58,338


Debt due within one year

(2,919)

(8,135)

10,704

-

(350)


Debt due after more than one year

(4,712)

-

4,712

-

-



(7,631)

(8,135)

15,416

-

(350)


Finance leases

(12,437)

(415)

10,600

(14,179)

(16,431)



(20,068)

(8,550)

26,016

(14,179)

(16,781)


Net cash / (debt)

1,131

(8,027)

62,632

(14,179)

41,557






2014

£'000

2013

£'000

Increase in cash and cash equivalents in the year

37,139

19,117

Cash inflow from decrease in borrowings and lease financing

26,016

63,307

Change in net cash / debt  resulting from cash flows

63,155

82,424

New finance leases

(14,179)

(9,617)

Debt on acquisitions

(8,550)

-

Bank indebtedness converted to equity

-

41,524

Amortisation of loan issue costs

-

(2,374)

Movement in net cash / debt in the year

40,426

111,957

Net cash /(debt) at start of the year

1,131

(110,826)

Net cash at end of the year

41,557

1,131




b) Depreciation, amortisation and impairment charges

2014

£'000

2013

£'000

Depreciation of property, plant and equipment

3,898

7,050

Impairment of property, plant and equipment

-

3,446


3,898

10,496



c) Cash impact of exceptional items

The cash flow impact of the exceptional items explained in Note 6 was a cash outflow of £0.9m comprising of acquisition costs; (2013: £1.2m, comprising redundancy severance payments of £0.2m, financial and share restructuring expenses of £0.3m and finance costs of £0.7m).

 

17.       Principal risks and uncertainties

 

The Group faces a range of risks and uncertainties. The processes that the Board has established to safeguard both shareholder value and the assets of the Group are described more fully in the Directors' Report in the Annual Report and Accounts. Set out here are those specific risks and uncertainties that the directors believe could have the most significant adverse impact on the Group's business. The risks and uncertainties described below are not intended to be an exhaustive list.

 

Economic conditions

The Group's operating and financial performance is affected by the economic conditions in the United Kingdom. Adverse changes in economic conditions in the United Kingdom and globally and the volatility of international markets could result in continued or further changes to driving patterns, car usage and ownership and this may result in lower miles driven and lower numbers of accidents and therefore reduced business volumes. Any such adverse effects on the Group's business might affect its relationships and/or terms of business with, and ultimately even the loss of, some key business partners. Economic uncertainty might also affect its key business partners and referrers and/or generally have an adverse impact on the insurance or other industries in which the Group's key trading partners operate. This in turn could lead to more onerous terms of business or the inability of the Group's debtors to pay monies due. Economic uncertainty may also have an adverse effect on the banking industry generally which may affect the Group's ability to obtain or maintain finance on suitable terms when needed.

 

Competition

Barriers to entry into the general credit hire and credit repair markets at a local level are low. Although barriers to establishing a national or specialist business in this sector are higher, there is no guarantee that these barriers will remain or will deter new entrants or existing competitors. In addition, there is the potential for local operators to overcome these barriers and establish national networks by forming alliances. Furthermore, competition could be intensified due to the activity of the Group's competitors or if insurance companies, brokers and/or providers of services to motorists or other consumer groups entered the market, either alone or in collaboration with existing providers. Increased competitive pressures such as these could result in a fall in the Group's revenues, margins and/or market share which could cause an adverse impact on its business, financial condition and operating results.

 

Customer and referrer relationships

Business is referred to the Group from a number of sources including insurance companies, insurance brokers, dealerships and body shops. The Group has agreements in place with many of these referrers which govern the flow of credit hire cases and the terms and commissions on which such cases are introduced. These agreements are subject to periodic review, and once out of initial term can be terminated with short notice periods of typically 3 to 6 months. In the past, commission rates for such new business have risen sharply increasing the costs of acquiring new business. Commission increases could adversely affect the Group's business and operating results. A significant proportion of the Group's business is referred from insurance companies. If insurance companies were to withhold business from the Group or credit hire providers generally or increase their credit hire referral commissions, whether alone or on a concerted basis, the operating results, business and prospects of the Group could be adversely impacted. Based upon profit contribution analysis, the Group may decide that renewal terms for certain existing contracts are uneconomic for the Group and consequently gross revenues may decline.

 

Insurance industry protocols

The Group is a subscriber to voluntary protocols developed by accident management companies and the ABI known as the General Terms of Agreement (GTA). There is no guarantee that insurers and accident management companies will continue to subscribe to the GTA and they may seek alternative arrangements.

 

 

Regulation

Certain of the Group's activities and arrangements are subject to regulation. Whilst the Group seeks to conduct its business in compliance with all applicable regulations, there remains a residual risk that regulators will find that the Group has not complied fully with all such regulations. Failure by the Group to comply with regulations may adversely affect its reputation (which could in turn lead to fewer referrals), may result in the imposition of fines or an obligation to pay compensation or may prevent the Group from carrying on a part of its business and could have a materially adverse effect on the Group's business, financial condition and operating results.

 

Legal

In the past, legal challenges have been brought on various grounds (mainly by insurance companies) seeking weaknesses in the legality of credit hire agreements and the hire rates and the periods of hire that can be recovered by credit hire companies. A number of historical legal cases relating to the provision of credit hire and related services have provided clarity and precedent. The majority of the Group's claims are now initially pursued under the terms of the GTA or bilateral protocols with individual insurers and the Group believes that it operates its business within the parameters laid down by the reported decisions of the courts such that its credit hire and repair arrangements are enforceable. Insurance companies may however bring further challenges to the legality of credit hire and repair arrangements or the rates payable.

 

The government  continues to look at the overall costs of litigation. It may bring in legislation or amend or create new rules of court which further reduce the costs recoverable in certain types of actions and/or changing the criteria for litigation to fall within the small claims track (where legal costs (except the most basic) are not generally recoverable) which might have an impact on the profit costs of the Group's legal businesses and/or increase the cost of recovering credit charges

 

Recovery of receivables

The business of credit hire involves the provision of goods and services on credit. The Group generally receives payment for the goods and services it has provided after a claim has been pursued against the party at fault (and the relevant third party insurer). This can mean that the Group can endure a long period before payment is received. Whilst significant progress has been made recently in obtaining prompt settlement of claims there is a risk that the Group will not be able to improve or maintain the pace of settlement of claims. In addition, third party insurers may seek to delay payments further in an attempt to achieve more favourable settlement terms for outstanding claims or, ultimately, to force the Group and other credit-hire providers out of the market. If the Group is unable to maintain existing settlement periods, if there are further delays in the receipt of payments or if settlement terms with insurers worsen, its business, financial condition and operating results could be adversely impacted.

 

Fleet costs and residual values

The cost to the Group of holding vehicles for hire is dependent upon a number of factors, including the availability of vehicle finance, the purchase price of those vehicles, the level of discounts available from dealers and manufacturers, financing costs (represented by LIBOR and applicable margins), and the expected residual value at the date of disposal. There is a risk that changes in any of these factors could mean that the Group's fleet costs are increased. The Group's fleet management system enables the business to manage the fleet effectively and maximise the utilisation of its vehicles in order to minimise the cost to the business of holding vehicles. Risk is further mitigated by managing vehicle holding periods.

 

Operational risks and systems

Operational risks are present in all of the Group's businesses, including the risk of direct and/or indirect loss resulting from inadequate or failed internal and external processes, systems, from fraud or human error or from external events. The Group's business is dependent on processing a large number of claims and vehicle hires across the country. The Group's systems and processes are designed to ensure that the operational risks associated with its activities are appropriately controlled. If there is any failure, weakness in or security breach of systems, processes or business continuity arrangements, the Group's business, financial condition and operating results could be materially affected.

 

Liquidity and Financial

The Group has made the decision not to have any significant committed working capital facilities at the present time and therefore manages its existing cash balances and operational cash flow surpluses to provide working capital headroom. The Group is also dependent upon the continued availability of both committed and uncommitted fleet finance facilities to finance replacement vehicle purchases. In addition the principal financial risks and uncertainties include capital risk, interest rate risk and credit risk.

 

CMA investigation into the private motor car insurance industry

The CMA is currently investigating the UK private motor insurance market, following a market referral by the OFT which was prompted by rising car insurance premiums over the last few years. On 12 June 2014 the CMA published its PDR which suggested  a number of proposed changes to be made in the private car insurance market. The PDR is subject to further consultations (and possible amendments) with the industry and will be made final in September 2014. The CMA recognised the valuable role that credit hire provides to UK consumers and has sought to ensure sufficient incentives are retained to maintain the availability of credit hire services to consumers.

 

From the outset of the CMA investigation the Group anticipated changes that may be made to the regulatory framework in the industry and planned for them accordingly. Whilst the proposed changes, if ultimately adopted, are likely to be implemented in early 2015, the Group has already adjusted its business model to reflect this new environment. Consequently, it is not expected that there will be a material impact from these changes to the operating of our business. However until such time as the final report is published and the precise detail is known there is no guarantee that any changes that do appear in the final report will not affect the way in which the Group supplies its credit hire services in the future. The CMA is seeking  proposed remedies that will drive down the costs of providing replacement vehicles, particularly referral fees, which may have an impact on the Group's commercial offering. The present situation is that motorists who have a non-fault accident have a legal entitlement to restitution and can utilise the services offered by the Group and the PDR does not change this legal position. However, the CMA may seek to control certain aspects of the service provision by way of an Enforcement Order to remove any identified inefficiencies that it finds have an adverse effect on competition.

 

Going concern

The Group's business activities, analysis of its financial performance and position, and factors likely to affect its future development, are set out in the Operational and Financial Review above. The financial resources available to the Group are also discussed in detail in the Operational and Financial Review above. The forward risks faced by the Group are also discussed in the section on principal risks and uncertainties above.

 

The directors have assessed the future funding requirement of the Group and the Company, and have compared them to the levels of available cash and funding resources. The assessment included a review of current financial projections to 2016. Recognising the potential uncertainties surrounding financial projections in the current economic environment, in particular with regard to the demand for the Group's services and the cash collection profiles from insurers, the directors have considered a number of scenarios and the mitigating actions the Group could take to limit any adverse consequences.

 

Having undertaken this work, the directors are of the opinion that the Group has access to adequate resources to fund its operations for the foreseeable future and so determine that it is appropriate for the financial statements to be prepared on a going concern basis.

 

18. Full financial statements

 

The Group's full financial statements for the year ended 30 June 2014 will be posted to shareholders shortly and will be delivered to the Registrar of Companies in due course.  A copy is available from today  from the Group's website:  http://www.redde.com/investors/reports-and-presentations.aspx

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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