RNS Number : 3135G
Redde PLC
01 March 2018
 

News Release

Redde plc

("Redde" or "Group")

 

Issue Date: 1 March 2018

 

Interim Results for the six months ended 31 December 2017

 

Double Digit Growth

 

Financial headlines

·      Turnover £253.3m (2016: £227.1m) - Increase of 11.5%

·      Adjusted* EBIT of £22.0m (2016: £19.8m) - Increase of 11.2%

·      Adjusted* profit before tax of £21.9m (2016: £19.7m) - Increase of 11.2%

·      Statutory profit before tax of £19.9m (2016: £17.5m) - Increase of 13.6%

·      Net operating cash flow/EBITDA 47% (2016: 89%) - ahead of management expectations following new contract

·      Debtor days 97 days (2016: 90 days)

·      Total cash balances £24.4m (2016: £33.6m) - after funding share buybacks and new contract

·      Fleet and lease debt £46.9m (2016: £47.1m)

·      Net debt of £22.5m (2016: £13.5m)

·      Adjusted* basic EPS 6.12 pence (2016: 5.24 pence) - Increase of 16.8%

·      Statutory basic EPS 5.65 pence (2016: 4.58 pence) - Increase of 23.4%

·      Interim dividend 5.50 pence (2016: 5.00 pence) - Increase of 10.0%

 

Operational headlines

·      24.8% growth in number of credit hire cases

·      Total number of hire days increased by 19.5%

·      0.5% increase in total number of repair cases

·      Period end fleet increased to 9,958 (2016: 8,690) - increase of 14.6% to meet increasing demand

·      Revenue generating fleet utilisation maintained above 80% target

 

* Adjusted measures exclude the impact of the amortisation of intangibles and share based payments ("adjustment items") described in Note 5.

 

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

 

"Our focussed GPSii strategy (Growth, Profitability and Sustainability) has continued to deliver strong results, with half year revenue, adjusted operating profits and EPS all seeing double digit growth. We continue to seek attractive opportunities to broaden the scale and scope of our services in ongoing and related markets at the right investment value.

 

The outlook for the full year remains strong, with trading in January and February supporting the board's confidence for the full year. We are delighted to be paying a further £16.7m of dividend (5.50p per share) to our shareholders in March 2018 taking our cumulative returns to shareholders to £121.6m (43.50p per share) since February 2013."  

 

 

For further information, contact:

 

 

Redde plc

Tel: 01225 321134

Martin Ward, Chief Executive Officer


Stephen Oakley, Chief Financial Officer




Cenkos Securities plc (Nominated Adviser and Joint Broker)

Tel: 020 7397 8900

Elizabeth Bowman




N 1 Singer Capital Markets Limited (Joint Broker)

Tel: 0207 496 3000

Mark Taylor




Square1 Consulting

Tel: 020 7929 5599

David Bick

 




 

 

IFRS reconciliation

Management is required to exercise its judgment in the classification of certain items as exceptional and outside of the Group's underlying results. The determination of whether an item should be separately disclosed as an exceptional item or some other adjustment requires judgment on its nature and incidence, as well as whether it provides clarity on the Group's underlying trading performance.

Throughout this report reference is therefore made to adjusted results and measures. The directors believe that the selected adjusted measures allow management and other stakeholders to better compare the normalised performance of the Group between the current and prior year, without the effects of one-off or non-operational items and, given the Group's full distribution dividend policy, better reflects the normalised underlying cash earnings achieved in the year under review to which the directors have regard in determining the amount of any dividend. In exercising this judgment, the directors have taken appropriate regard of IAS 1 "Presentation of financial statements" as well as guidance issued by the European Securities and Markets Authority on the reporting of non-adjusted results.

Adjusted measures exclude the impact of the amortisation of intangibles and share based payments ("adjustment items") described in Note 5. A reconciliation of IFRS to non-IFRS underlying measures is also outlined in the Financial Review and is summarised in a column of the Condensed Consolidated Income Statement.

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 and the Group's activities also encompass a range of legal services designed to assist claimant parties in partnership with leading insurance companies, brokers and other bodies.

 

The Group is one of the market leaders in its fields of business; it delivers accident management solutions to motorists ensuring that they remain mobile until their own vehicles are repaired or until they are put in a position to obtain a replacement and it provides legal services ensuring that they are properly compensated for their injuries and losses. Legal services also include wills and probate, family law and employment law advice.

 

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

 



 

Chairman's Statement

 

I am pleased to be able to report to shareholders that the Group achieved an adjusted profit before taxation for the six months to 31 December 2017 of £21.9 million compared to £19.7 million in the corresponding period last year; an increase of 11.2%.

 

Results

 

Revenues were £253.3m (2016: £227.1m), an increase of £26.2m (11.5%). Sales growth principally reflects a 24.8% growth in the number of credit hires and a 0.5% increase in the total number of repairs undertaken against the corresponding period last year.

 

The adjusted earnings before interest and taxation for the period were £22.0m (2016: £19.8m).

 

There was a net interest charge in the period of £0.1m (2016: £0.1m).

 

Adjusted profit before tax for the period was therefore £21.9m, an increase of 11.2% over the £19.7m achieved in the corresponding period last year.

 

The charge in respect of amortisation of intangible assets acquired by virtue of the purchase of FMG was £1.2m (2016: £1.2m). In addition there was a charge of £0.8m in the period (2016: £1.0m) under IFRS2 in respect of share based payments on incentive share schemes.

 

After the amortisation of intangible assets and share based payments, the statutory profit before tax was £19.9m (2016: £17.5m), an increase of 13.6%. There was a net tax charge of £2.7m (2016: £3.9m) and therefore the statutory profit after tax is £17.2m (2016: £13.6m).

 

Earnings Per Share

 

Statutory basic EPS is 5.65p (2016: 4.58p). Statutory diluted EPS is 5.56p (2016: 4.51p).

 

Adjusted EPS is 6.12p (2016: 5.24p). Adjusted diluted EPS is 6.02p (2016: 5.15p).

 

The adjusted figures exclude the impact of the amortisation of intangible assets and share based payments as described in note 5.

 

Dividends

 

The Board is pleased to declare an interim dividend of 5.50 pence per share payable on Thursday 29 March 2018 to those shareholders on the register on Friday 09 March 2018 (2016: 5.00 pence). The ex-dividend date is Thursday 08 March 2018.

 

Outlook

 

The second half of the year has started well with volumes maintaining the underlying rate of growth seen in the first half and the Group remains well positioned to continue its demonstrable growth.

 

Our people

 

The enthusiasm, energy and commitment of our people has been instrumental in delivering high standards of service and customer satisfaction as demonstrated by the customer feedback we receive. So well done and thank you to all of our colleagues.

 

Avril Palmer-Baunack

Chairman                                             

28 February 2018

Operating and financial review

 

 

Operational review

 

During the period the Group has continued to devote considerable activity towards fully integrating our operations and commercial offerings, with a range of new initiatives. The further investment in our IT systems and infrastructure has continued. This initiative which supports our existing, successful GPSii strategy (Growth, Profitability and Sustainability) by including more focus on improvement and integration, helps to provide both insurance customers and business partners seamless access to the services that the Group provides.

 

Projects to secure synergies from various overlapping aspects of the Group's operations that were initiated last year have continued during the period with particular emphasis on approaches to underlying systems. Other areas of the business will continue to be reviewed to seek further opportunities to optimise efficiency and net contribution whilst at the same time the Group will also expand its infrastructure where necessary to accommodate planned growth.

 

In accordance with the Group's GPSii strategy the Group has continued to focus on sustainability by considering the potential future shape of the market and how to adapt and develop its services to meet its business partners' changing requirements without losing sight of the growing, near-term demand for its services.

 

During the period the Group participated in successful pilots with a number of insurers in helping to manage and reduce those insurers' own indemnity spends including the provision of "fault" claims intervention services and "fault" repairs. The Group is now looking to evolve these pilots as part of its one-stop shop approach which provides the potential to further grow and develop more vehicle incident and accident management services to both business and insurance customers, supporting the Group's position as a leader in vehicle mobility, rapid roadside recovery, repair, legal and other support services.

 

These initiatives, as well as developments in our on-line portals, continue to enhance the Group's image as a leading partner of choice within our industry, have been instrumental in enhancing customers' experiences and have facilitated these new business opportunities with those business partners who share our vision for the customer journey.

 

The good progress made with a number of insurers whose settlement arrangements are supported by protocols is being enhanced by the development of a bespoke, digital, protocol portal link direct to participating insurers which will provide further efficiencies for both insurers and the Group in processing claims. Protocols demonstrably provide better outcomes in net cost terms for both parties including the reduction of associated administrative costs. During the period the Group has also pioneered enhancements to existing protocol arrangements with certain insurers by participating in the use of robotics in the processing of claims for the benefit of both parties. In the last year however the Group did find it necessary to terminate, at the Group's election, a protocol with one large insurer as they sought to take the benefits of the greater discount offered under protocol but failed to adhere to the associated, contracted terms of earlier settlement. Consequently, these cases are now being processed through a non-protocol model which although resulting in slower cash realisation does yield better margins. 

 

Further progress was made during the period within our fleet and incident management business both with the number of vehicles under management increasing by 2.9% and with the provision of additional services. The Group has continued to innovate in order to differentiate its services in the market, successfully launching a same-day non-structural repair service which has seen an 11% uptake, resulting in reduced cycle times and enhancing customer experience. There was also a 5.5% increase in incidents attended to on motorways and major roads on behalf of Highways England. The period also saw increases in the Group's provision of third party claims intervention services to client insurers, reducing the cost of claims on behalf of those insurers, and increased penetration in other areas of the market, in particular in the large commercial brokers market.

 

The Group has also continued to build its range of legal services and an additional 'joint venture' ABS named 'Your Law' which was launched by National Accident Helpline and supported by our NewLaw legal firm started trading on 03 July 2017. Your Law has made an encouraging start and represents an exciting growth potential for the Group. In addition the Group has continued to see further growth in those areas of NewLaw's practice dealing with employers' liability and medical negligence although by their very nature such cases will take longer to settle than personal injury claims arising from road traffic accidents which now represent a reducing proportion of the Groups business in this area.

Technology

 

The period saw continued investment in technology to support the Group's strategic objectives, including further integration of common Group services, productivity improvements within our operational centres and enhancements to existing supply chain integration. Notable business system improvements undertaken have included; mobile optimisation of customer portals, improvements to our repair placement and tracking services, a significant upgrade to our vehicle rental platform and implementation of on-line access for customers and business partners by way of portals relating to both repair and hire operations as well as the digital, protocol portal mentioned previously.

 

In the area of fleet management FMG's driver behaviour telemetry product has gone through a major platform upgrade. This includes an enhanced customer experience where customer fleet managers and drivers can easily monitor and compare their driver behaviour with colleagues as part of their efforts to reduce incident frequency.

 

During the period significant investment continued in the software and infrastructure services supporting the Group's legal businesses to meet anticipated changes in working practices, deliver process efficiencies, and support expanding demand for services. This includes a major project to replace one of NewLaw's core operating systems and associated reporting warehouse which is currently scheduled to go live during 2018.

 

At a more strategic level the Group is assessing opportunities to leverage developments in artificial intelligence, predictive analytics, telematics and robotics, and is actively piloting solutions in a number of these areas.

 

Relationships and customer service

 

Our significant investment in people was again recognised with FMG for the second year running being named in the annual Sunday Times 100 Best Companies to Work For awards. Excellence in customer service was also recognised by FMG being Highly Commended for "Medium Contact Centre of the Year" at the 2017 European Contact Centre and Customer Service Awards and also shortlisted for Broker Claims Team of the Year at the Commercial Insurance Awards 2017.

 

Recognition of the Group for providing outstanding customer service was yet again evident at the prestigious North East Contact Centre Awards where Auxillis was once more shortlisted for an award in the Contact Centre of the Year (over 250 seats) category and achieved runner-up status.

 

The Group remains passionate about customer service delivery and has continued to maintain a strong focus on the resultant net promoter scores. During the period performance feedback on our operational service delivery and customer satisfaction rates have continued to grow in a number of areas and this area is of increasing importance with existing and potentially new business partners who share our vision for the customer journey.

 

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 gives the Group flexibility to dispose of excess fleet in the event of a downturn, balance the total number and the mix of the fleet in response to changes in mix of the insurer car parc and at the same time to maximise fleet, without incurring ownership costs, in both short and in peak periods.

 

The period saw a 19.5% increase in total number of hire days driven by a 24.8% increase in credit hire case volumes compared to the corresponding period last year. The average number of vehicles held during the period was increased by 16.8% to 8,926 from the average of 7,643 held for the corresponding period last year as a result of the need to meet increases in demand arising from additional contracts and general growth in business. Fleet utilisation however was maintained above our 80% target at 80.6% which compared to 80.5% for the same period last year whilst also delivering a greater volume of Marque for Marque replacement car services. The average age of the fleet was reduced slightly to around 10 months across a broad spread of manufacturers and models.

 

The number of vehicles held at 31 December increased to 9,958 vehicles as a result of the increased demand mentioned above and this compares to 8,690 at 31 December 2016 and 8,371 at 30 June 2017.

 

 

Financial review

 

Management is required to exercise its judgment in the classification of certain items such as exceptional and those other items considered to be outside of the Group's underlying results. The determination of whether an item should be separately disclosed as an exceptional item or other adjustments requires judgment on its nature and incidence, as well as whether it provides clarity on the Group's underlying trading performance.

 

Throughout this report reference is therefore made to adjusted results and measures. The directors believe that the selected adjusted measures allow management and other stakeholders to better compare the normalised performance of the Group between the current and prior year, without the effects of one-off or non-operational items and, given the Group's full distribution dividend policy, better reflects the normalised underlying cash earnings earned in the year under review to which the directors have regard in determining the amount of any dividend.

 

In exercising this judgment, the directors have taken appropriate regard of IAS 1 "Presentation of financial statements" as well as guidance issued by the European Securities and Markets Authority on the reporting of non-adjusted results. For the reasons stated above, adjusted measures exclude the impact of the amortisation of intangibles and share based payments ("adjustment items") and are analysed on the face of the Consolidated Income Statement and in Note 5 as well as in this report.

 

Results

 

For the six months ended 31 December 2017, the Group recorded an adjusted EBIT of £22.0m (2016: £19.8m), an adjusted profit before tax of £21.9m (2016: £19.7m) and a statutory profit before tax of £19.9m (2016: £17.5m).

 

A summary of the Group's key performance indicators as used in the business is set out in the table below.

 


6 months ended

6 months ended

12 months ended


31 December 2017

31 December 2016

30 June 2017





Financial KPIs




Revenue (£'000)

253,284

227,145

472,344

Gross profit (£'000)

62,499

55,967

116,007

Gross margin

24.7%

24.6%

24.6%

Profit before taxation (£'000)

19,872

17,486

31,771

Adjusted profit before taxation* (£'000)

21,887

19,676

40,024

EBIT (£'000)

19,960

17,563

31,921

Adjusted EBIT* (£'000)

21,975

19,753

40,174

Adjusted EBIT* margin

8.7%

8.7%

8.5%

EBITDA** (£'000)

27,592

24,934

51,848

EBITDA / Operating cash flow conversion %

47.4%

89.4%

91.1%

Statutory debtor days

97

90

91

 

* Adjusted measures exclude the impact of the amortisation of intangibles and share based payments ("adjustment items") described in Note 5.

** EBITDA calculation is analysed in the consolidated statement of cash flows.

 

Revenues

 

Revenues were £253.3m (2016: £227.1m), an increase of £26.2m (11.5%).

 

Sales growth principally reflects a 24.8% growth in the number of credit hires which include the full period effect of a new contract won in the latter part of 2016. Excluding this the growth in credit hires and sales was 6.2%. There was also a 0.5% increase in the total number of repairs undertaken against the corresponding period last year.  

 

Gross profit, adjusted EBIT

 

Gross profit was £6.5m higher than the corresponding period last year and gross margin was 24.7% (2016: 24.6%).

 

Adjusted administrative expenses were £41.3m (2016 £36.9m), an increase of 12.0% over last year reflecting increased operational cost arising from new business won in 2016 and associated increased investment in underlying infrastructure. Adjusted administrative expenses as a percentage of sales remained unchanged at 16.3%.

 

The adjusted EBIT for the period was £22.0m (2016: £19.8m) and adjusted EBIT margin was maintained at 8.7% (2016: 8.7%).

 

Adjusted EBIT is reconciled to the Income Statement as follows:

 


Unaudited

Unaudited

Audited


6 months ended

6 months ended

12 months ended


31 December 2017

31 December 2016

30 June 2017


£m

£m

£m

Adjusted EBIT

22.0

19.8

40.2

Adjustments




Amortisation of acquired intangible assets

(1.2)

(1.2)

(2.4)

Share based payments

(0.8)

(1.0)

(2.0)

Property lease provisions

-

-

(3.9)

Statutory EBIT

20.0

17.6

31.9

 

EBITDA was £27.6m (2016: £24.9m).

 

Net finance charge

 

There was a net interest charge in the period of £0.1m (2016: £0.1m).

 

Adjusted profit before tax

 

Adjusted profit before tax for the period was £21.9m, an increase of 11.2% over the £19.7m achieved in the corresponding period last year.

 

Amortisation of intangibles and share based payments

 

The charge in respect of amortisation of intangible assets (acquired by virtue of the purchase of FMG in 2015) was £1.2m (2016: £1.2m). In addition there was a charge of £0.8m in the period (2016: £1.0m) under IFRS2 in respect of share based payments on incentive share schemes.

 

Statutory profit before and after taxation

 

After the amortisation of intangible assets and share based payments the statutory profit before tax was £19.9m (2016: £17.5m), an increase of 13.6%. There was a net tax charge of £2.7m (2016: £3.9m). The statutory profit after tax is £17.2m (2016: £13.6m).

 

Earnings per share

 

Statutory basic EPS is 5.65p (2016: 4.58p). Statutory diluted EPS is 5.56p (2016: 4.51p).

 

Adjusted EPS is 6.12p (2016: 5.24p). Adjusted diluted EPS is 6.02p (2016: 5.15p).

 

The adjusted figures exclude the impact of the amortisation of intangible assets and share based payments described in note 5.

 

Dividends

 

The Board has declared an interim dividend of 5.50 pence per share payable on 29 March 2018 to those shareholders on the register on 09 March 2018 (2016: 5.00 pence). The ex-dividend date is 08 March 2018.

 

 

Balance sheet

 

During the period the working capital investment in credit hire claims generated by referrals under a new insurer contract that commenced in the latter part of 2016 matured. This had the effect of increasing receivables without a corresponding increase in payables. The Group would expect that the cash flow benefits of this new contract to start to be realised during 2018 and consequently the Group's ratio of net operating cash flow to EBITDA will be expected to improve to more normal levels.

 

In addition, as stated in the Operating Review, the Group found it necessary to terminate, at the Group's election, at the end of 2016, a protocol arrangement with one large insurer as they sought to take the benefits of the greater discount offered under protocol but failed to adhere to the associated contracted terms of early settlement. Consequently, these cases are now being processed through a non-protocol model which yields better profit returns but balanced by slower cash realisations and this has contributed to the higher debtor days and resultant lower cash balances compared to last year. Statutory debtor days were therefore 97 days and compare to 91 days at 30 June 2017 and 90 days at 31 December 2016.

 

Revenue generated debtors at 31 December 2017 increased to £132.4m, compared to £117.4m at 30 June 2017 and £108.7m at 31 December 2016, increases of 12.8% and 21.9% respectively. The increase of £23.7m from 31 December 2016 mostly reflects the maturing of credit hire claims generated under a new contract as well as the termination of a protocol arrangement mentioned above.

 

Total creditors increased to £139.7m compared to £131.4m at 30 June 2017 and £120.8m at 31 December 2016.

 

Net assets at 31 December 2017 were £158.6m (2016: £159.9m).

 

Net debt, cash and financing

 

Cash balances were £24.4m at 31 December 2017 and compare to cash balances of £36.3m at 30 June 2017 and £33.6m at 31 December 2016. The decrease in cash balances is mostly the result of the increased investment in working capital as a result of the factors influencing an increase in receivables as mentioned above as well as the cash, net cost of share buybacks which were then re-issued to settle exercises made under a maturing SAYE Option scheme in July 2017.

 

As a consequence of the increased investment in working capital, EBITDA/Operating Cash Flow conversion was 47.4% (2016: 89.4%) which is slightly ahead of our own expectations for the period and, as stated above, this is expected to improve back to more normal levels during 2018.

 

As outlined in the operating review during the period the total number of vehicles on the fleet was increased to service the much increased volumes of hire days but a greater proportion of these new vehicles was funded by contract hire arrangements than has been the case in the past which will help mitigate against any potential residual risks and in particular with respect to diesel vehicles.  As a consequence, fleet finance and lease debt was £46.9m at 31 December 2017, an increase of just £0.9m compared to £46.0m at 30 June 2017.

 

Net debt at 31 December 2017 was £22.5m and compares to net debt of £13.5m at 31 December 2016 and net debt of £9.7m at 30 June 2017. The net debt and cash position can be summarised as follows:

 


Unaudited

Unaudited

Audited


6 months ended

6 months ended

12 months ended


31 December 2017

31 December 2016

30 June 2017


£m

£m

£m

Fleet finance leases

(46.9)

(47.0)

(46.0)

Other leases

-

(0.1)

-

Total lease debt

(46.9)

(47.1)

(46.0)





Cash balances

24.4

33.6

36.3

 Net debt

(22.5)

(13.5)

(9.7)



 

Principal risks and uncertainties

 

Principal risks and uncertainties are detailed in Note 22 to this report.

 

 

 

 

Martin Ward                                                                             Stephen Oakley

Chief Executive Officer                                                            Chief Financial Officer

28 February 2018                                                                     28 February 2018

 

The full Interim report will be made available shortly at http://www.redde.com. Printed copies will not be available.

 

 



6 months

ended

31 December

2017

Adjusted*

 

6 months

ended

31 December

2017

Adjustment*

items

6 months
ended

31 December

2017

 

6 months

ended

31 December

2016

Adjusted*

 

6 months
ended

31 December

2016

Adjustment* items

6 months

ended

31 December

2016

 

 

Unaudited  

Note

£'000

£'000

£'000

£'000

£'000

£'000

 

 








 

Revenue

3

253,284

-

253,284

227,145

-

227,145

 

 








 

Cost of sales


(190,785)

-

(190,785)

(171,178)

-

(171,178)

 

 

 







 

Gross profit

 

62,499

-

62,499

55,967

-

55,967

 

 

 







 

Administrative expenses

5

(41,341)

(2,015)

(43,356)

(36,914)

(2,190)

(39,104)

 

 

 







 

Operating profit

 

21,158

(2,015)

19,143

19,053

(2,190)

16,863

 

 

 







 

Share of results of associates

 

817

-

817

700

-

700

 

 

 







 

EBIT

 

21,975

(2,015)

19,960

19,753

(2,190)

17,563

 

 

 







 

Net finance (charge) / income

6

(88)

-

(88)

(77)

-

(77)

 

Profit before taxation

 

21,887

(2,015)

19,872

19,676

(2,190)

17,486

 

 

 







 

Taxation

7

(3,300)

586

(2,714)

(4,126)

239

(3,887)

 

Profit for the period

 

18,587

(1,429)

17,158

15,550

(1,951)

13,599

 

 

 







 

Profit for the period attributable to:







 

Equity holders of the Company

 

18,587

(1,429)

17,158

15,550

(1,951)

13,599

 

Profit for the period

 

18,587

(1,429)

17,158

15,550

(1,951)

13,599

 

 

 







 

Earnings per share (p)

 







 

Basic

8

6.12

(0.47)

5.65

5.24

(0.66)

4.58

 

Diluted

8

6.02

(0.46)

5.56

5.15

(0.64)

4.51

 

 

* Adjusted measures exclude the impact of the amortisation of intangibles and share based payments ("adjustment items") described in Note 5.

 

 

Condensed Consolidated Income Statement

For the six months ended 31 December 2017

 

 

 

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 31 December 2017

 




6 months to

 31 December 2017

6 months to   31 December 2016

Unaudited


£'000

£'000

Profit for the period



17,158

13,599

Other comprehensive income



-

-

Total comprehensive income for the period, attributable to:





     Equity holders of the Company



17,158

13.599

Total comprehensive income for the period



17,158

13.599

 

 



 

 

Condensed Consolidated Statement of Changes in Equity

For the six months ended 31 December 2017

 


 

 

Share

capital

Share premium account

Shares held in Treasury

Retained earnings

Total

Six months ended 31 December 2017 


£'000

£'000

£'000

£'000

£'000








Balance at 1 July 2017


304

73,780

-

84,870

158,954

 







Profit for the period


-

-

-

17,158

17,158

Total comprehensive income for the period


-

-

-

17,158

17,158

 







Issue of Ordinary Shares


-

7

-

-

7

 







Purchase of shares into treasury


-

-

(1)

(1,963)

(1,964)

 







Re-issue of shares from treasury for SAYE exercises


-

-

1

617

618

 







Share based payments


-

-

-

820

820                         

 







Dividends paid


-

-

-

(17,021)

(17,021)

 







Balance at 31 December 2017


304

73,787

-

84,481

158,572

 

 

 

 

 

 

 

 

 



Share

capital

Share premium account

Shares held in Treasury

Retained earnings

Total

Six months ended 31 December 2016 


£'000

£'000

£'000

£'000

£'000








Balance at 1 July 2016


304

73,769

-

86,213

160,286

 







Profit for the period


-

-

-

13,599

13,599

Total comprehensive income for the period


-

-

-

13,599

13,599

 







Issue of Ordinary Shares


-

9

-

-

9

 







Share based payments


-

-

-

995

995

 







Dividends paid


-

-

-

(14,960)

(14,960)

 







Balance at 31 December 2016


304

73,778

-

85,847

159,929

 









 

Condensed Consolidated Statement of Financial Position

As at 31 December 2017

 




Unaudited

31 December 2017

Unaudited

31 December 2016

Audited

30 June

2017



Note 

£'000

£'000

£'000







Non-current assets






Goodwill


10

85,990

85,990

85,990

Intangible assets


11

17,722

20,112

18,917

Property, plant and equipment (including vehicles)


12

57,694

55,483

55,515

Interests in associates


13

1,670

1,105

1,361

Deferred tax asset



4,820

3,867

4,236




167,896

166,557

166,019

 

Current assets






Trade and other receivables


14

160,481

133,486

142,852

Cash and cash equivalents



24,387

33,559

36,344




184,868

167,045

179,196

 

Total assets



352,764

333,602

345,215







Current liabilities






Trade and other payables


15

(139,711)

(120,760)

(131,386)

Obligations under finance leases


16

(22,544)

(25,401)

(20,683)

Provisions



(998)

(603)

(1,318)




(163,253)

(146,764)

(153,387)

 

Net current assets



21,615

20,281

25,809







Non-current liabilities






Obligations under finance leases


16

(24,350)

(21,679)

(25,377)

Deferred tax liability



(4,405)

(5,230)

(4,991)

Long term provisions



(2,184)

-

(2,506)




(30.939)

(26.909)

(32,874)

 

Total liabilities



(194,192)

(173,673)

(186,261)







Net assets



158,572

159,929

158,954







Equity






Share capital


17

304

304

304

Share premium account



73,787

73,778

73,780

Retained earnings



84,481

85,847

84,870

Equity attributable to owners of the Company



158,572

159,929

158,954








 

Company Registration Number: 03120010



 

 

Condensed Consolidated Statement of Cash Flows

For the six months ended 31 December 2017

 




 

 

Unaudited

6 months ended

31 December 2017

 


Unaudited

6 months ended

31 December 2016

 



Note

£'000 

£'000

£'000

£'000 

Cash flows from operating activities






Profit for the period


17,158


13,599


Tax charge

7

2,714


3,887


Share of results of associates

13

(817)


(700)


Net finance costs

6

88


77


Fleet finance lease interest

6

583


725


Depreciation


5,559


5,169


Amortisation of intangible assets

5,11

1,195


1,195


Loss / (profit) on sale of tangible fixed assets


292


(13)


Share-based payment charges

5

820


995


EBITDA


27,592


24,934


Increase in receivables


(17,679)


(3,615)


Increase in payables


6,074


2,879


Decrease in provisions


(643)


(639)


Cash generated from operating activities



15,344


23,559

 






Bank interest received

6

53


62


Fleet finance lease interest

6

(583)


(725)


Interest element of non-fleet finance lease rentals

6

(2)


(8)


 



(532)


(671)

Taxation paid



(1,723)


(588)

Net cash from operating activities



13,089


22,300

        






Cash flows from investing activities






Distributions from associates






508


391


Deposits in escrow


-


(3,000)


Purchase of property, plant and equipment






(1,624)


(1,686)


Proceeds from sale of property, plant and equipment


5,840


8,028


Net cash inflow / (outflow) from investing activities



4,724


3,733







Cash flows from financing activities






Proceeds from issues of new share capital


7


9


Purchase of shares into treasury


(1,964)


-


Proceeds from re-issue of treasury shares


618


-


Dividends paid

9

(17,021)


(14,960)


Finance lease principal repayments


(11,410)


(12,170)


Net cash outflow from financing activities



(29,770)


(27,121)

Net decrease in cash and cash equivalents



(11,957)


(1,088)







Cash and cash equivalents at the beginning of the period



36,344


34,647

Cash and cash equivalents at the end of the period



24,387


33,559







Cash and cash equivalents consisted of:

 



                             


                             

Cash at bank and in hand



24,387


33,559

 

 



 

Notes to the Interim Statements

 

1              Basis of preparation

 

The condensed consolidated financial statements are prepared using accounting policies consistent with International Financial Reporting Standards and in accordance with International Accounting Standard ('IAS') 34, 'Interim Financial Reporting'.

 

The information for the year ended 30 June 2017 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on these accounts was not qualified and did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006.

 

The condensed consolidated financial statements have been prepared under the going concern assumption.

 

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 June 2019. 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 adequate resources to finance its operations for the foreseeable future and accordingly, continue to adopt the going concern basis in preparing the Interim Report.

 

2              Significant accounting policies

 

The condensed consolidated financial statements have been prepared under the historical cost convention. The same accounting policies, presentation and methods of computation have been applied in these condensed consolidated financial statements as were applied in the Group's financial statements for the year ended 30 June 2017.

 

In the application of the Group's accounting policies the directors are required to make judgements, estimates and assumptions about the carrying value of the assets and liabilities that are not readily apparent from the other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

 

The critical judgements affecting the Group's interim financial statements are the valuation of the receivables (see Note 3) and goodwill impairment (see Note 10).

 

3              Revenue

 


Unaudited

6 months ended

31 December

2017

Unaudited

6 months ended

31 December

2016


£'000

£'000




Revenue

253,284

227,145

 

 

As described in Note 15 to the consolidated financial statements for the year ended 30 June 2017, the estimation of the expected adjustment arising on settlement of claims is revised, where necessary, at each balance sheet date to reflect the Group's most recent estimation of amounts ultimately recoverable. Although in principle this is determined by reference to individual cases, in practice the homogenous nature of most claims means that the level of adjustment is calculated by reference to specific categories of claims. Adjustments arising from subsequent revision of the Group's expected adjustment arising on settlement of claims, including amounts received by way of late payment charges, are recorded in revenue in the income statement.

 

4              Segmental information

 

The activities of the Group are managed by the Executive Board, "the 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. IFRS 8 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 has identified operating segments within the main reportable segment, two of which would qualify for separate reporting under IFRS 8 based on their size. These operating segments are aggregated into one reportable segment as permitted under IFRS 8 for reporting purposes where they have similar economic characteristics and where the nature of services and their customer base is similar.

 



 

 

5              Amortisation of intangibles and share based payments

 

Management is required to exercise its judgment in the classification of certain items such as exceptional and those other items considered to be outside of the Group's underlying results. The determination of whether an item should be separately disclosed as an exceptional item or other adjustments requires judgment on its nature and incidence, as well as whether it provides clarity on the Group's underlying trading performance.

                                                                                                                                         

Throughout this report reference is therefore made to adjusted results and measures. The directors believe that the selected adjusted measures allow management and other stakeholders to better compare the performance of the Group between the current and prior year, without the effects of one-off or non-operational items and, given the Group's full distribution dividend policy, better reflects the normalised underlying cash earnings earned in the year under review to which the directors have regard in determining the amount of any dividend.

 

In exercising this judgment, the directors have taken appropriate regard of IAS 1 "Presentation of financial statements" as well as guidance issued by the European Securities and Markets Authority on the reporting of non-adjusted results. Adjusted measures exclude the impact of the amortisation of intangibles and share based payments ("adjustment items") as shown below. A reconciliation of IFRS to non-IFRS underlying measures is also outlined in the Financial Review and the Condensed Consolidated Income Statement.

 




Unaudited

6 months ended

31 December

2017

Unaudited

6 months ended

31 December

2016




£'000

£'000

Administration costs - Amortisation and share based payments:





a) Amortisation of acquired intangible assets



1,195

1,195

b) Share based payments



820

995

Total amortisation of acquired intangible assets and share based payments



2,015

2,190






Total adjustments to operating profits



2,015

2,190

Tax effect of the above



(586)

(239)

Impact on profit after tax for the period



1,429

1,951

 

a) Amortisation of acquired intangible assets

 

The Group recognised the value of customer relationships and acquired software as a result of the acquisition of FMG in 2015 and these assets are being amortised over 10 and 5 years respectively. Such amortisation is included in adjustment items as it relates to the acquisitions of businesses and does not involve ongoing cash expenditure in the normal operations of the Group. The charge for the period amounts to £1.2m (2016: £1.2m) (Note 11), and the tax effect was a credit of £0.6m (2016: £0.2m).

 

b) Share based payments

 

The Group has a number of share incentive schemes. In accordance with IFRS2 the calculated charge in respect of options issued and outstanding amounts to £0.8m for the period (2016: £1.0m). Such charges are included in adjustment items as they do not represent a cash cost of operations, have no effect on the net assets of the Group and given that unissued share options are already included in the statutory diluted earnings per share calculations these costs are removed to avoid double counting in arriving at such diluted earnings per share.

 

 

6              Finance income and finance costs




Unaudited

6 months ended

31 December

2017

Unaudited

6 months ended

31 December

2016




£'000

£'000

a) Finance income





Interest receivable



53

62






b) Finance costs





Interest on obligations under finance leases



(585)

(733)

Bank facility fees and costs charged in the period



(123)

(131)

Unwind of discount on provisions



(16)

-




(724)

(864)

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



583

725

Total finance costs



(141)

(139)






Total net finance expense



(88)

(77)

 



 

 

7              Tax charge

 

The tax charge comprises the following:

 


Unaudited

6 months ended

31 December

2017

Unaudited

6 months ended

31 December

2016


£'000

£'000

Current tax charge

(3,885)

(2,123)

Deferred tax credit / (charge)

1,171

(1,764)

Total tax charge

(2,714)

(3,887)

 

The effective rate of the tax charge of 13.7% (2016: 22.2%) for the period is lower than the effective standard rate of UK corporation tax of 19.00% (2016: 19.75%) due to the impact of future reductions in the UK tax rate on recognised deferred tax liabilities and also the increase in recognition of deferred tax assets consequent upon a further assessment and recognition of the amount and anticipated timing of the future usage of potential tax allowances.

 

8              Earnings per ordinary share

 

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

 





Unaudited

6 months ended

31 December 2017

Unaudited

6 months ended

31 December 2016

Number of shares




Number

Number

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

303,779,382

296,880,858

Effect of 2013 share option scheme shares in issue




-

28,992

Effect of 2016 share option scheme shares in issue




3,210,559

3,618,725

Effect of 2017 share option scheme shares in issue




1,032,773

-

Effect of 2014 SAYE share option scheme shares in issue




203,080

917,265

Effect of 2015 SAYE share option scheme shares in issue




203,972

372,438

Effect of 2016 SAYE share option scheme shares in issue




-

37,331

Effect of 2017 SAYE share option schemes shares in issue




174,320

-

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

308,604,086

301,855,609

 

There were 303,985,812 ordinary shares of 0.1p each in issue as at 31 December 2017 (Note 17).

 

9              Dividends

 

The Board has announced an interim dividend for the year to 30 June 2018 of 5.50 pence per ordinary share and amounting to £16.7m payable on Thursday 29 March 2018 to those shareholders on the register at the close of business on Friday 09 March 2018. The shares will be ex-dividend on Thursday 08 March 2018. Ordinary share dividends paid in the period to 31 December 2017 can be summarised as follows:

 




Unaudited

6 months ended 31 December

2017

£'000

Unaudited

6 months ended 31 December

2016

£'000

Final dividend for 2016 of 5.15 pence paid 3 November 2016

-

14,960

Final dividend for 2017 of 5.60 pence paid 2 November 2017

17,021

-

Total dividends paid in the period



17,021

14,960

 

 

10            Goodwill


£'000

Cost


At 31 December 2016, 01 July 2017 and 31 December 2017

140,308

Accumulated impairment losses


At 31 December 2016, 01 July 2017 and 31 December 2017

(54,318)‌‌

Net book value


At 01 July 2017 and 31 December 2017

85,990

At 31 December 2016

85,990

 

The directors reviewed the carrying value of Goodwill on 30 June 2017 and the key elements of this review are contained in Note 11 to the Annual Report and Accounts for the year to 30 June 2017. No indications of possible additional impairment have been identified as at 31 December 2017. There is therefore no movement in goodwill impairment in the six months ended 31 December 2017 (2016: £nil). The allocation of Goodwill to the Group's CGU's is as follows:

 


31 December 2017


31 December 2016


30 June 2017


£'000


£'000


£'000

Auxillis

18,950


18,950


18,950

NewLaw

40,281


40,281


40,281

FMG

26,759


26,759


26,759


85,990


85,990


85,990

 

 

11            Intangible fixed assets


Customer relationships

£'000


Computer

software

£'000

Total

£'000

Cost





At 01 July 2017

21,900


1,000

22,900

At 31 December 2017

21,900


1,000

22,900

Amortisation





At 01 July 2017

(3,650)


(333)

(3,983)

Charge for period

(1,095)


(100)

(1,195)

At 31 December 2017

(4,745)


(433)

(5,178)

Net book value





At 31 December 2017

17,155


567

17,722

At 30 June 2017

18,250


667

18,917

At 31 December 2016

19,345


767

20,112

 

 

12            Property, plant and equipment (including vehicles)

 

 

 


 

Freehold property

£'000

 

Leasehold improvements

£'000

 

Vehicle hire

fleet

£'000

 

Fixtures and equipment

£'000

 

 

Total

 £'000


Cost

At 01 July 2017


2,725

812

57,942

10,149

71,628

Additions


-

5

12,645

1,220

13,870

Disposals


-

-

(8,415)

(29)

(8,444)

At 31 December 2017


2,725

817

62,172

11,340

77,054


 

Accumulated depreciation and impairment

At 01 July 2017


(176)

(527)

(8,813)

(6,597)

(16,113)

Charge for the period


(31)

(30)

(4,871)

(627)

(5,559)

Disposals


-

-

2,300

12

2,312

At 31 December 2017


(207)

(557)

(11,384)

(7,212)

(19,360)


 

Carrying amounts                                                                                

At 31 December 2017


2,518

260

50,788

4,128

57,694


 

Leased assets included above:

At 30 December 2017


-

-

50,552

33

50,585

 

 

 

 

 


 

Freehold property

£'000

 

Leasehold improvements

£'000

 

Vehicle hire

fleet

£'000

 

Fixtures and equipment

£'000

 

 

Total

 £'000


Cost

At 01 July 2016


2,725

784

49,488

12,097

65,094

Additions


-

-

19,713

1,349

21,062

Disposals


-

-

(10,015)

-

(10,015)

At 31 December 2016


2,725

784

59,186

13,446

76,141


 

Accumulated depreciation and impairment

At 01 July 2016


(115)

(475)

(6,888)

(10,011)

(17,489)

Charge for the period


(31)

(28)

(4,591)

(519)

(5,169)

Disposals


-

-

2,000

-

2,000

At 31 December 2016


(146)

(503)

(9,479)

(10,530)

(20,658)


 

Carrying amounts                                                                                    

At 31 December 2016


2,579

281

49,707

2,916

55,483


 

Leased assets included above:

At 30 December 2016


-

-

49,255

169

49,424

 

 

13            Interests in associates

 

The Group's interest in associates comprises of minority participations in five (2016: four) active 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 but does not control.

 

                               

Unaudited

6 months ended

31 December

2017

£'000

Unaudited

6 months ended 31 December

2016

£'000

Carrying amount of interests in associates

1,670

1,105

 

Group's share of:



Profit from continuing operations

817

700

Other comprehensive income

-

-

Total share of profits

817

700

 

The annual accounting period ends of the associated companies consolidated in these financial statements range from 30 November to 31 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 31 December 2017.



 

14            Trade and other receivables

 

Net trade receivables comprise claims due from insurance companies and self-insuring organisations and amounts invoiced for the provision of services to customers. The Group's debtor days at 31 December 2017 were 97 days (2016: 90 days). This measure is based upon net trade receivables, other receivables and accrued income as a proportion of the related underlying sales revenue for the past 12 months multiplied by 365 days.

 



31 December

2017

£'000

31 December

2016

£'000

Net trade receivables


129,420

105,844

114,637

Other receivables


157

50

198

Accrued income


2,852

2,768

2,577

Total receivables for debtor day calculation purposes


132,429

108,662

117,412

Disbursements recoverable in legal businesses


14,231

13,709

14,267

Amount due from associates


50

50

50

Taxation recoverable


84

-

134

Prepayments


13,687

11,065

10,989



160,481

133,486

142,852

 

 

15            Trade and other payables



31 December


31 December


30 June



2017


2016


2017



£'000


£'000


£'000

Trade payables


72,212


63,251


69,100

Corporation tax payable


3,949


1,830


1,837

Other taxation and social security


5,901


4,491


7,184

Accruals and deferred income


45,989


38,877


40,479

Disbursements payable in legal business


10,506


9,519


10,148

Other creditors


1,154


2,792


2,638



139,711


120,760


131,386

 

 

16            Finance leases and other debt

 

During the period the Group entered into new finance leases with a principal value of £12.2m and made principal repayments of existing finance leases of £11.4m. Finance leases outstanding at 31 December 2017 amounted to £46.9m and compares to £46.0m at 30 June 2017 and £47.1m at 31 December 2016. Finance leases are secured upon the underlying vehicles. The Group has considerable facilities available to it for the provision of its motor fleet both by way of finance leases and contract hire which are considered in aggregate sufficient for its present growth plans.

 

 

17            Share capital and share premium account

 

As at 31 December 2017 the issued share capital of the Company comprised the following:

 



Ordinary shares of 0.1p each



Number

£'000

In issue at 30 June 2017


303,978,408

304

Issue of new shares in respect of exercise of SAYE options


7,404

-

In issue at 31 December 2017 fully paid


303,985,812

304

 

 

 

18            Related party transactions

 

The Group has for many years disposed of some of its surplus vehicles in the normal course of business through British Car Auctions ("BCA"). The Group has also for many years repaired vehicles on behalf of BCA through its repair network. BCA has since 2 April 2016 been part of the BCA Marketplace plc group of companies ("BCAM"), formerly Haversham Holdings plc. BCAM has a Premium Listing on the London Stock Exchange and the Redde Group's non-executive Chairman, Avril Palmer-Baunack, is also BCAM's executive chairman. Accordingly BCAM is regarded as a related party.

 

Fees and commissions in the amount of £59,147 (2016: £6,059) were charged by BCAM during the period ended 31 December 2017 in respect of the disposal of such vehicles of which £nil (2016: £nil) was outstanding at the period end.

 

During the period costs of £11,247 (2016: £13,495) were charged by BCAM in respect of vehicle repair, of which £426 (2016: £96) was outstanding at the period end.

 

During the period costs of £13,200 (2016: £14,428) were charged by BCAM in respect of building rent, of which £7,920 (2016: £7,920) was outstanding at the period end.

 

During the period costs of £37,897 (2016: £44,063) were charged by BCAM in respect of vehicle transport, of which £6,256 (2016: £1,127) was outstanding at the period end.

 

In addition during the period the Group performed repairs to vehicles on behalf of BCAM in the normal course of business and an amount of £482,918 (2016: £331,164) was charged to BCAM of which £199,274 (2016: £159,540) was outstanding at the period end.

 

Details of the Group's interests in associates, who are regarded as related parties, are provided in notes 14 and 32 of the Annual Report and Accounts for the year ended 30 June 2017. During the period the Group made sales and recharges of expenses to these associates amounting to £3.3m (2016: £3.0m) and made purchases of £70,000 (2016: £49,000) from those associates. At the period end the Group was owed £353,000 (2016: £119,000) by these associates of which £303,000 (2016: £69,000) is included in net trade receivables (amounts invoiced for services) under 30 day payment terms and £50,000 (2016: £50,000) is shown as amounts due from associates in note 14 of these statements. In addition at the period end the Group owed £17,000 (2016: £nil) to these associates and these amounts are included in trade payables in note 15.

 

 

19            Cash flow information

 

Analysis and reconciliation of net debt 


Audited

30 June

2017

£'000

 

Cash

 flow

£'000

Other

non-cash changes

£'000

Decrease/

(increase) in net debt

£'000

Unaudited

31 December

2017

£'000







Net cash and cash equivalents

36,344

(11,957)

-

(11,957)

24,387







Debt due within one year

-

-

-

-

-

Debt due after more than one year

-

-

-

-

-


-

-

-

-

-

Finance leases

(46,060)

11,410

(12,244)

(834)

(46,894)


(46,060)

11,410

(12,244)

(834)

(46,894)







Net debt

(9,716)

(547)

(12,244)

(12,791)

(22,507)

 

 

 Analysis and reconciliation of net debt


Audited

30 June

2016

£'000

 

Cash

flow

£'000

Other

non-cash

changes

£'000

Decrease/

(increase) in net debt

£'000

Unaudited

31 December

2016

£'000







Net cash and cash equivalents

34,647

(1,088)

-

(1,088)

33,559








Debt due within one year


-

-

-

-

-

Debt due after more than one year


-

-

-

-

-



-

-

-

-

-

Finance leases


(39,873)

12,170

(19,377)

(7,207)

(47,080)



(39,873)

12,170

(19,377)

(7,207)

(47,080)








Net debt


(5,226)

11,082

(19,377)

(8,295)

(13,521)

 


31 December

2017

£'000

31 December

2016

£'000

Decrease in cash and cash equivalents in the period

(11,957)

(1,088)

Finance lease principal repayments

11,410

12,170

Change in net debt resulting from cash flows

(547)

11,082

New finance leases

(12,244)

(19,377)

Movement in net debt in the period

(12,791)

(8,295)

Net debt at start of the period

(9,716)

(5,226)

Net debt at end of the period

(22,507)

(13,521)

 



 

20            Borrowings

 

The Group has a 5 year £35m unsecured revolving credit facility with HSBC expiring in December 2020 as well as an unsecured overdraft facility of £5m with the same bank. There have been no drawings under either facility since inception but the facility is available to fund growth in the business should the considerable cash balances currently held for this purpose be used for other corporate purposes such as further acquisitions. If and when drawn, related covenants surround a net debt to EBITDA ratio (< 3:1) and the ratio of qualifying trade receivables to amounts drawn under the HSBC facility (> 1.5:1). The margin charged on the revolving credit facility is dependent upon the Group's net debt to EBITDA ratio, ranging from a minimum of 1.25% over LIBOR to a maximum of 2.25% over LIBOR. The margin on the overdraft is 1.25% over Bank of England Base Rate.

 

 

21            Approval of Interim Financial Statements

 

The Interim Financial Statements were approved by the Board of Directors on 28 February 2018.

 

 

22            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 in the Corporate Governance 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 together with the steps that the Board undertakes in order to mitigate these risks. 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 fewer 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.

 

The Group continually monitors government statistics as well as other external data as part of its ongoing financial and operational budgeting and forecasting processes. In addition regular communications take place with the Group's major insurance partners in order to monitor consumer insurance trends so that the Group may plan its response to any potential changes. The Group also communicates with its existing and potential lenders regularly in order to maintain close relationships.

 

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 certainty 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.

 

The Group monitors its competitive position closely with a view to ensuring that it is able to provide its customers with the best overall solution to their requirements taking into account commercial considerations. This is underpinned by a commitment to high quality service of its customers' needs together with regular monitoring and feedback of actual performance against customers' expectations. The monitoring includes performance against agreed service levels with customers and regular meetings are held with referrer partners to discuss performance and requirements.

 

Customer and referrer relationships

Business is referred to the Group from a number of sources including insurance companies, insurance brokers, dealerships, body shops, leasing companies and owners of large fleets. The Group has agreements in place with many of these referrers which govern the flow of hire and repair 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 new business have risen sharply, increasing the costs of acquiring such 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 accident management providers generally or increase their 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.

 

The Group seeks and develops long term relationships with partners and secures these relationships with appropriate, long-term formal contracts. Where possible contracts are structured in such a way as to match income with corresponding costs and regular reviews take place of contribution from contracts in order to ensure that where such contributions become uneconomic a dialogue is opened with the counterparty in an attempt to resolve this.

 



 

Insurance industry protocols

The Group was a subscriber to the voluntary agreement developed by accident management companies and the ABI known as the General Terms of Agreement (GTA) but withdrew from this agreement with effect from 15 August 2015. This decision was taken due to the considerable amount of business conducted by the Group under protocol arrangements that the Group has with insurers and the residual element of business still conducted under the GTA was considered to be less significant. There is no guarantee that non-protocol insurers will continue to conduct their business with the Group on terms (including payment terms) similar to those previously pertaining to the GTA and they may also seek alternative strategies to dealing with claims submitted. The Group takes an active part in discussions within the industry and since the Group's withdrawal from the GTA the Group has continued to undertake a significant amount of its business under protocol arrangements with insurers.

 

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.

 

The Group maintains a legal function and a regulatory risk and compliance function to monitor the management of these risks and compliance with relevant laws and regulations. Reputable external advisors are retained where necessary. Internal policies and practices are reviewed regularly to take account of any changes in obligations. Training and induction programmes ensure that staff receive appropriate training and briefings on the relevant policies and laws.

 

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 a precedent framework which has remained broadly stable for several years. The majority of the Group's claims are now initially pursued under the terms of 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. However fresh challenges may be brought from time to time.

 

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.

 

The Group maintains a legal function and also monitors relevant legal developments and the development and outcome of test cases through its membership of the Credit Hire Organisation. The Group's contracts and documentation are reviewed and amended where appropriate to take into account legal developments and case law.

 

The Group's legal department and the Group's legal businesses monitor such matters and the Group will endeavour to adapt its business model to deal with such changes if and when they are introduced.  The legal businesses have been diversifying and undertaking a greater volume of significant injury cases which would not be affected to the same extent by these reforms.

 

Recovery of receivables

The business of credit hire and repair 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 currently a significant level of the Group's claims are subject to protocol arrangements resulting in 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.

 

The Group manages this risk by ensuring that services are only provided to customers after a full risk assessment process and agreement to an appropriate contract.

 

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.

 

Tax Writing Down Allowances (WDAs) influence the net holding costs of vehicles whether purchased or contract hired. Government strategy and policies on vehicle emissions are often implemented by changes in the rates and deductibility of tax allowances applicable to vehicles generally and their related emissions. There is a risk that changes in government policy and related tax WDAs could mean that the fleet holding costs (net of taxation) and the effective Group tax charge percentage are increased as a result.

 

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 and managing LIBOR risk via fixed interest rate arrangements including interest hedging arrangement where appropriate.

 

 

 

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, or infrastructure from fraud or human error or from external events. The Group's business is dependent on processing a large number of incidents for management, claims, and vehicle hires and repairs. There could be a failure, weakness in, or security breach of, the Group's systems, processes or business continuity arrangements.

 

The Group's systems and processes are designed to ensure that the operational risks associated with its activities are appropriately controlled. Preventative controls and back-up and recovery procedures are in place for key systems and all buildings. Changes to Group systems are considered as part of a wider group business change management process and implemented in phases where possible. The Group has business recovery and business continuity plans in all of its operations.

 

Liquidity and financial

The Group manages its existing cash balances and operational cash flow surpluses to provide day to day working capital headroom. In addition the Group has available to it a £35m 5 year committed revolving capital facility with HSBC and also has a £5m overdraft facility with the same bank. These facilities have not been used since inception in December 2015 but remain available to the Group. The Group also has both committed and uncommitted fleet finance facilities to finance replacement vehicle purchases. In addition the principal financial risks and uncertainties therefore include capital risk, interest rate risk and credit risk.

 

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 sources and levels of working capital resources available including cash balances. The assessment included a review of current financial projections to June 2019, and a review of the financial resources available by way of cash balances and facilities. Recognising the considerable uncertainty 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 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 continues to have 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.

 

 

 

Martin Ward                                                                                       Stephen Oakley

Chief Executive Officer                                                                   Chief Financial Officer

 

Independent Review Report to Redde plc

 

Conclusion

 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly report for the six months ended 31 December 2017 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated statement of financial position, the condensed consolidated statement of cash flows and the related explanatory notes.

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 31 December 2017 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the AIM Rules.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  We read the other information contained in the half-yearly report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

 

Directors' responsibilities

 

The half-yearly report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly report in accordance with the AIM Rules. 

 

The annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the EU.  The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.

 

Our responsibility

 

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly report based on our review.

 

The purpose of our review work and to whom we owe our responsibilities

 

This report is made solely to the company in accordance with the terms of our engagement.  Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.  

 

 

 

 

 

Robert Fitzpatrick

For and on behalf of KPMG LLP

 

Chartered Accountants

66 Queen Square, Bristol, BS1 4BE, United Kingdom

28 February 2018

 

 


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