TIDMQPP
RNS Number : 5494D
Quindell PLC
31 March 2014
RNS Release Embargoed until 7.00 am 31 March 2014
Quindell Plc
("Quindell", the "Company" or the "Group")
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013
Quindell Plc (AIM: QPP.L), the provider of sector leading
expertise in software, consultancy and technology enabled
outsourcing in its key markets, being insurance, telecommunications
and their related sectors is pleased to announce results for the
year ended 31 December 2013.
FINANCIAL HIGHLIGHTS:
-- Revenue increased by 133% to GBP380.1 million (2012: GBP163.0 million)
-- Gross sales(1) increased by 134% to GBP398.7 million (2012: GBP170.2 million)
-- Basic EPS of 1.98 pence (2012: 1.00 pence), an increase of 98%
-- Adjusted EPS(1) of 2.54 pence (2012: 1.45 pence), an increase of 75%
Adjusted EBITDA(1)
-- Adjusted EBITDA increased by 164% to GBP137.7 million (2012: GBP52.2m)
-- Adjusted EBITDA margin of 36% (2012: 32%) based on Revenue
-- Adjusted EBITDA margin of 35% (2012: 31%) based on Gross Sales
Profit Before Tax
-- Profit Before Tax increased by 202% to GBP107.0 million (2012: GBP35.4 million)
-- Adjusted Profit Before Tax(1) increased by 172% to GBP133.7 million (2012: GBP49.2 million)
Full Listing Preparation progressing to Plan
-- Prospectus will be submitted to UKLA by mid April, with
listing targeted before the FTSE indices review in early June
-- Success of Quindell original strategy validated with margins
increasing now operations are fully integrated
-- Last two years results now fully validated - no fundamental
changes to Accounting Policies or KPI's
-- Significant Organic Growth now delivered with market
expectations being exceeded for twelve quarters in succession
-- Longer term Adjusted EBITDA margin guidance increased to 30%+ from 25%+
-- All 2013 KPI's (except Gross Sales, due to success in driving
down claims costs) exceeded market expectations
2012 Statutory reported numbers updated to reflect early
adoption of IFRS 10 in preparation for Full Listing
-- IFRS 10 changes definition of control which has resulted in
earlier consolidation of acquired legal services businesses
-- Revenue increased by GBP25.4 million, Profit after tax
reduced by GBP3.7 million and Net assets increased by GBP21.0
million
-- Operating Cash flow lower with earlier consolidation and
elimination of pre-acquisition loans but Net Cash increased by
GBP0.8 million
2013 Cash flow and Debtors
-- Adjusted operating cash inflow(1) of GBP20.1 million during
period of funding significant organic growth (2012: GBP38.8
million)
-- Operating cash inflow(2) of GBP3.2 million (2012: GBP18.4 million)
-- Cash collection across the business according to or ahead of
plan in all key areas during 2013 and in Q1 2014
-- Cash generation of business model validated during 2013 with
over GBP270 million of cash collected - circa 185% of the value of
total trade related receivables (including accrued income) as at 31
December 2012
-- Trade receivable days at December 2013 reduced to circa 4.7
months (December 2012: 6.5 months, June 2013: 4.8 months)
-- Trade receivables over 12 months reduced by GBP6m (20%)
during 2013 with Collaboration model adoption and by litigating as
required
-- Cash at December 2013 GBP199.6 million (2012: GBP48.1
million); Net Funds of GBP140.2 million (2012: GBP17.4 million)
Laurence Moorse, Group Finance Director of Quindell said "2013
has been another year of significant progress for Quindell, having
completed the majority of our acquisitions in 2012 creating a
market leading technology enabled outsourcing platform for the
servicing of claims for the UK insurance industry. It has been a
year for delivery of new customer wins and organic growth with only
11% of revenue coming from acquired businesses in the year.
At the same time, the Group's Solutions Division has exceeded
all market expectations, and has been developing its market leading
position in Connected Car solutions (telematics) providing a
platform for significant growth in this emerging global market.
Already, almost as much Solutions revenue is derived from North
America as is achieved in Europe. The Group's financial strength,
and the opportunities that it has to capitalise on its market
position leads us to increase our longer term Adjusted EBITDA
margin guidance by five percentage points for the second time in
six months to 30%+ as the strength of our business model is
demonstrated."
Notes
1. See note 4 for adjusted measures.
2. Operating cash flow after exceptional costs and before net
finance costs and taxation
OPERATING HIGHLIGHTS:
-- Focus on organic growth and earnings enhancing acquisitions throughout 2013
-- Three material acquisition groups: Legal, Health and Claims
with all core functions integrated
-- Integrated management team in place with two divisional Group CEO's,
-- Proven record in earning enhancing acquisitions supported by Advisory Board
-- Further earning enhancing vertical integration opportunities exist
Services Division
-- Significant contract wins announced throughout 2013 driven by
regulatory changes c.GBP450 million per annum additional
revenue
-- Gross sales increased by 125% year on year to GBP318.3
million (2012: GBP140.1m) at an Adjusted EBITDA margin of 29%
-- Over 60 independent outsourcing and referral partners
providing significant volume to the Group
-- Margin continues to increase due to technology enablement and scale of business
Solutions Division
-- Software & consultancy revenue increased 168% to GBP80.4m
significantly exceeding market expectations (2012: GBP30.1m)
-- Recognised as joint market leader for European claims by Celent
-- Now believed to be clear market leader for European claims technology by substantial margin
-- Signed multiple new technology contracts and extensions across key markets and geographies
-- Sales to North America of GBP33.8 million now almost match
those to Europe of GBP39.5 million
Connected Car and Telematics
-- Independent study by Ptolemus confirms Quindell/Himex as
global leader in all three segments: black box, OBD dongle,
smartphone
-- Our position in insurance telematics well advanced in the UK
with brands representing 80% of 2013 growth using Quindell
solutions
-- Group already in telematics roll out with three of the top
twenty US insurance providers, and pilots conducted with another
four
Recent news and Outlook
-- Q1 2014 anticipated to deliver over GBP50m Adjusted EBITDA up 100% on Q1 2013
-- All KPIs to date ahead of market expectations being
profitability, cash generation and EBITDA margin
-- Organic growth represents an increasing percentage of overall strategy
-- Over GBP450 million of outsourcing revenue per annum wins announced in Q1
-- Market expectations for technology revenues likely to be significantly exceeded in 2014
-- Criteria for acquisition remains but with any shares issued
at greater of 20% premium or 50p (2012: 17.5p)
-- Progressive dividend policy being adopted with maiden dividend of 0.1 pence announced today
Rob Terry, Founder and Executive Chairman of Quindell said: "Our
strategy, set at the time of our listing on AIM in May 2011, needed
to be proven to the market, to our industry and to all other
stakeholders during 2013. By doing so, Quindell has the potential
to be rewarded with a market rating that is more appropriate for
the growth and high quality revenue visibility that it provides for
any investor. So in summary, 2013 was a year to provide "proof". We
delivered on our goal of significantly exceeding market
expectations with 168% growth in technology solutions revenue, our
highest margin and most cash generative segment.
I am therefore pleased to be able to present today to
shareholders, employees and other stakeholders a very positive
picture of our strategy being reality, and being able to confirm
that as a Group, we have established the scale and substance from
which we will be able to grow further on a global basis and create
additional significant value for all stakeholders.
Trading in 2014 has also been ahead of plan for all key
performance indicators, being profitability, cash generation and
EBITDA margin. We are determined to ensure we achieve the optimum
valuation for the Company's shareholders, the best and most
innovative services and technology for our clients, and a great
place to work for our staff. All of this gives me and our team,
immense confidence in our ability to grow from this platform and
continue the success in 2014 and beyond exceeding current market
expectations."
For further information:
Quindell Plc
Rob Terry, Founder & Executive Chairman Tel: 01489 864201
terryr@quindell.com
Laurence Moorse, Group Finance Director Tel: 01489 864205
moorsel@quindell.com
Cenkos Securities plc
Joint Broker and Nominated Adviser Tel: 020 7397 8900
Stephen Keys/Bobby Hilliam
Canaccord Genuity Limited Tel: 020 7523 8000
Joint Broker and Financial Advisor
Simon Bridges/Bruce Garrow
Media Enquiries
Redleaf Polhill Limited Tel: 020 7382 4730
Rebecca Sanders-Hewett/Jenny Bahr quindell@redleafpr.com
EXECUTIVE CHAIRMAN'S REVIEW
Introduction
Our strategy, set at the time of our listing on AIM in May 2011,
needed to be proven to the market, to our industry and to all other
stakeholders during 2013. By doing so, Quindell has the potential
to be rewarded with a market rating that is more appropriate for
the growth and high quality revenue visibility that it provides for
any investor. So in summary, 2013 was a year to provide
"proof".
It was also a year for delivery, a year in which key decisions
were taken with shareholders and one of achieving our major
objectives for the year. These objectives included signing new
contracts representing significant organic growth. We delivered,
with over GBP550 million per annum of business announced in the
period up to the end of 2013 (subject as always to future claims
frequencies). Together with new business wins announced so far in
2014, this figure now stands at approaching GBP1 billion per annum,
with multiple material contract wins being achieved by both of the
Group's two divisions. We have also delivered on our objective of
particularly strong growth in legal, health and rehabilitation
services which are the highest generators of margin within our
technology enabled outsourcing business. In addition, we delivered
on our goal of significantly exceeding market expectations with
168% growth in technology solutions revenue, our highest margin and
most cash generative segment.
Connected Car Solutions
Most importantly, and a key objective for the Board, circa 50%
of technology solutions revenue growth came from Connected Car
Solutions, approximately GBP15 million of which was in relation to
our work in partnership with Himex in the US and GBP9.4 million of
which was in relation to our work with ingenie and its underwriting
partners in the UK, Canada and the US. Included within these
revenues in relation to Himex and ingenie is approximately GBP6
million for the provision of telematics devices on a
correspondingly lower margin than the remainder of our business in
this area. In Connected Car Solutions, Quindell is recognised as a
global market leader in black box, OBD dongle and smart phone based
telematics. Independent analysis as recently as December 2013
confirmed Quindell (including Himex) as the only vendor in the top
three globally in all three categories, but, announcements made by
the Group during 2014 should, we believe, ensure the market is in
no doubt that we are the clear number one telematics service
provider globally.
The confirmation of our leading position in Connected Car
Solutions could not come at a better time for the Group with
certain key patents in the US that previously prohibited growth in
the insurance sector now being dismissed by the US Government. This
opens the way for mass market adoption in a region that already
generates nearly as much technology solutions revenue for Quindell
as our home territory Europe and where the Group is already rolling
out with three of the top twenty insurance providers in the US, and
pilots have been conducted with another four. Our pipelines are
also growing beyond all prior expectations.
We enter 2014 with massive growth potential in a segment that is
supported by predictions from all independent analysts covering the
space. The Board recognises the scale of this opportunity and proof
of this is provided by the recent contracts announced, the recent
distribution deal announced for Asia and the Middle East, and our
prediction that the business can grow to 10 million subscribers for
which we will be paid recurring revenues in the medium to longer
term. This area of the business will be a focus of future
investment for the Group to enable it to make further upgrades to
the subscription targets and to maximise on the significant growth
potential during this period of global land grab.
Working capital vs growth
During 2013 a key decision had to be made. Should we focus on
delivering the best operating cash generation we could, as we did
to prove the sceptics wrong at our half year results for 2013, or
should we reinvest our cash generated from both divisions to
deliver even more sustainable EPS growth for our investors over the
long term? We canvassed opinion of the key influencers of the
business. Our customers, who wanted us to continue to win business
to help drive down the cost of claims for the industry, our
internal stakeholders that are key to delivering our success, and
our existing investors as the owners of the Company. They left us
in no doubt. They all wanted growth, with major brand wins in the
mix, to ensure we had long term contracts and clear independent
industry references supporting the success of our strategy. We
acted, delivering a major contract with Direct Line Group and
contracts with numerous other key brands. But our investors wanted
more, and our 100% success in converting pilots into long term
contracts indicated we could deliver it. So in November 2013, with
very good support from our existing and key new shareholders, we
raised a further GBP200 million (net of expenses) to provide the
capital to underpin continued significant organic growth during
2014, and set ourselves a target for more contract wins that would
represent a further GBP450 million of outsourcing revenue per
annum. Since then, we have again delivered on our promise, signing
all the contracts needed within fourteen weeks of the fundraise,
thus ensuring we can exceed the growth objective set at the time of
raising the capital. Since which time our share price has more than
doubled, providing a good level of return for those that supported
the fundraise.
We continue to have sufficient working capital resources
available including cash at bank, cash generation and debt
facilities to deliver over 4p of EPS in 2014. Our last objective in
this area was that post the fundraise in November the Group should
not need to raise any more capital to support its expectations of
organic growth within the Services Division in 2014 and beyond.
This of course can only be achieved by continuing to be selective
in terms of the work and the amount of growth we take on and
therefore by turning away business, for internal processing, beyond
the 16,000 cases per month that our legal services operation has
budgeted for where it incurs an upfront cost of acquisition of up
to GBP800 per case (in aggregate being circa GBP12 million per
month). This is sustainable due to the significant cash generation
that is already being achieved from historic cases and through the
cash generation and working capital available within the rest of
the Group. This level of case acquisition within legal services
remains our internal budget for 2014 and beyond and would represent
a run rate of circa GBP650 million per annum of legal services
revenues on this volume of cases. This would imply circa GBP110
million in health and rehabilitation services and with a budgeted
GBP130 to GBP150 million of non-fault hire and repair on run rate.
These run rate levels would all be expected to be achieved prior to
the end of June 2014 and by taking into consideration the
announcements the Group has already made. The Solutions Division is
already generating significant operating cash inflows for the
Group, so clearly has no need for additional funds to meet its
ongoing cash commitments and has in fact been a major support to
the cash requirements of the Services Division during this period
of significant growth.
We would not have achieved the level of support for the
fundraise, which was significantly over subscribed, in November if
we had not met another key objective for 2013 which was to make it
clear that our business model today is already generating
significant amounts of cash. Cash generated by the Group during
2013 was significant with over GBP270 million collected from
customers. This represents circa 185% of the value of total trade
related receivables (including accrued income) as at 31 December
2012, demonstrating our ability to convert our profit into cash.
Ongoing improvements also continue to be made in trade receivable
days, which at December 2013 has reduced to circa 4.7 months
(December 2012: 6.5 months, June 2013: 4.8 months) and with
significant further progress expected during 2014. The small
proportion of our total receivables, all of which were inherited
with our acquisitions, and that are over 12 months at year end
reduced, with debts past due over a year old reducing by a further
GBP6.0 million (a 20% reduction) during 2013. This has been
achieved in part by adoption of the Collaboration model for hire
and repair contracts and associated block settlements without
write-downs, and more recently, post our acquisition of Compass
Cost, by litigating if required. These actions in combination are
proving very successful in ensuring earlier debt collections. We
have rigorous enforced provisions in place across all categories of
our trade receivables which of course have now also been
audited.
Organic growth
We set out to demonstrate that the majority of our growth would
be delivered organically. Of the circa GBP400 million of gross
sales for 2013, which included growth of GBP228 million, only GBP40
million of this revenue was associated with businesses acquired in
the year and in reality more than a third of the revenue that was
earned by these businesses would not have been possible had they
not been acquired by Quindell. So only circa 10% of our revenue
came from acquired or synergistic revenue during 2013 and 90% was
delivered organically. Clearly the quantum of organic growth that
will be delivered during 2014 having announced new contracts of
circa GBP1 billion per annum even with the timing of the roll out
of these contracts across the year, it is clear that the growth in
2014 will significantly dwarf that of 2013. This provides further
proof of our organic growth delivery.
Industry contribution
Another objective was to not only be recognised for our
financial success but also our contribution we made to the
industries that we serve. The Group has won numerous awards during
2013 and already in 2014 has been shortlisted for a significant
number of awards to be concluded over the next few months. So now,
Quindell is recognised by both financial and trade analysts as
number one in insurance technology in Europe and a leader in Usage
and Behaviour Based Insurance globally. It is the largest
technology-enabled claims outsourcing business for the UK insurance
industry, and the only organisation ethically addressing the total
cost of claims including personal injury and rehabilitation.
Quindell is recognised as being committed to an ethical and open
approach delivering a wide range of professional services to both
telecoms and insurance customers. Through our services, we
carefully manage the total cost of ownership of our solutions and
the settlement of claims to the benefit of the insurance market and
its associated service providers, delivering 20%+ saving through
programs such as our collaboration protocol with at-fault insurers.
These in turn drive down turnover for the Group whilst maintaining
or improving the Group's margins.
Fulfilling on the Group's strategy to date has provided a
platform to deliver disruptive business transformation solutions
that improve efficiency and effectiveness in our core markets,
whilst driving down costs. At the same time, this strategy is
enabling us to use this platform to develop combined propositions
that are compelling beyond traditional silo offerings, for the
marketplace to achieve significant organic growth through extension
of their brands in this period of major technology and regulatory
change. This approach was all a core part of Quindell's original
brand extension strategy when we listed the business in 2011.
More broadly, our ambition is to build the number one technology
and outsource supplier to the Global P&C (property and
casualty) insurance industry along with its related sectors. We
believe that our unique combination of services and technology,
including our Connect Car solutions, expressed in our collaboration
protocols and other industry initiatives will halt and then reverse
the trend of declining underwriting results for our insurer
customers. Quindell's original ambition to deliver a business of
over GBP1 billion of revenue is clearly within our grasp, but this
ambition no longer seems relevant when it is clear that the market
opportunity now exists to comfortably double this goal within the
medium to longer term.
I am therefore pleased to be able to present today to
shareholders, employees and other stakeholders a very positive
picture of our strategy being reality, and being able to confirm
that as a Group, we have established the scale and substance from
which we will be able to grow further on a global basis and create
additional significant value for all stakeholders.
Progressive dividend policy
In light of the confidence we have with the Group's position and
future prospects, I am pleased to be able to confirm the Board's
decision to declare a maiden dividend to shareholders at a value of
0.1 pence per share and that payment will be made on 2 May 2014 to
shareholders on the register as at 11 April 2014. The Company will
also be adopting a progressive dividend policy from this day
forward. Further proof that we once again deliver on the promises
that we make to shareholders. It is clear that the Company has the
potential to pay a much higher dividend, but we have paid exactly
what we indicated we said we would as at this time as we can best
serve shareholders by continuing to leverage the capital within the
Company so they can continue to enjoy the return on capital that we
have delivered, being an average of 22% over the last two years
provided that our strategy continues to deliver, which the Board
has every confidence it will, as it has since our listing in May
2011.
Full Listing and potential dual listing
Our final proof was to prepare the business for a UK full
Listing and a potential North American listing post the
announcement of our 2013 audited results. The Board is pleased to
report that its Full Listing is progressing to plan. We now have
each of our last two years results fully validated with no
fundamental changes to accounting policies or Key performance
indicators resulting from that review other than to reflect as
needed the adoption of new accounting standards that have come in
force since last year. Our prospectus will be submitted to UKLA by
mid April, with Listing targeted for early June in order that we
are Listed in time for the reviews which takes place at the end of
June. At which time, as a Premium listed company with a market cap
of our scale (subject to share price movement), we would expect to
join either the FTSE250 or if appropriate the FTSE100. The business
is required to show a three year track record following its
original strategy and under the guidance of materially the same
board and management team. Quindell has followed the same strategy
since its inception, has completed a number of acquisitions but
none of which are material compared to the significant organic
growth which has now been delivered. Our strategy is clearly
working with market expectations being exceeded by the Group for
twelve quarters in succession.
Important steps have been made both during 2013 and since the
year end as part of the preparation process for the move to Premium
UK Listing. These steps have been across a number of areas to
ensure that in each case, the Group's resultant position is
commensurate with it's intended standing as a FTSE250 or FTSE100
main market participant, or equivalent company.
Development of the Group's management team structure has
progressed as my role was confirmed as Executive Chairman, and was
supported as such long term by the majority of the Group's major
shareholders. The role of Group Chief Executive Officer was
separated and two new divisional Group Chief Executive Officers,
Tim Scurry (Digital Solutions Division) and Robert Fielding
(Services Division) have been appointed. Robert Thomson, who was
previously Group Chief Executive Officer for the Digital Solutions
Division is now deputy Group Chief Executive Officer for the
Services Division to ensure breadth of management is in place as we
start to scale this part of the business internationally and since
this area of the business represents close to two-thirds of the
profit of the Group.
During the year, the Company increased the independent
non-executive representation on the Board and we were delighted
that in September 2013, Robert Bright and Bob Cooling agreed to
join the Board having both been members of our Strategy Integration
and Advisory Board since 2012. The Group has grown significantly in
the last two years and these changes reflect this, with the
appointment of two new independent non-executive directors who
between them have significant experience, particularly in regards
to the international insurance sector and the management and
development of large people-based organisations.
Also, the Board's senior non-executive role was developed to
that of non-executive Vice-Chairman. I was and remain personally
delighted that Tony agreed to broaden his role as senior
independent non-executive director. Tony's experience, challenge
and input is very much valued and in this new role, he has already
been able to provide further contribution to the Group's overall
leadership and governance. The contribution of our non-executive
board and advisory board has also been invaluable in helping to
define and deliver on our unique selling points for insurance and
to ensure compliance with our overall governance objectives and
acquisition criteria.
In July 2013, the Board appointed Canaccord Genuity Limited as
joint broker and financial advisor and since this date has been
working alongside the Group's existing Nomad and broker, Cenkos
Securities plc. and both supported the fundraise in November 2013.
Further key appointments have been made in 2014 in relation to
corporate development and investor relations, adding in both cases
people that have significant experience working at blue chip
investment banks. Additional potential non-executive directors are
having applications prepared for review by the Solicitors
Regulation Authority before we can confirm their appointment.
Subsequent announcements are expected to be made confirming these
appointments in due course as we progress on our Full Listing
process.
In further preparation for this event, we have been advised to
consider future changes to accounting standards and have chosen to
take early adoption of IFRS 10 so that for listing, our published
results already reflect the required presentation of the business
now that the standard has become mandatory in 2014. IFRS 10 changes
the definition of control. This has resulted in earlier
consolidation of our acquired legal services businesses for both
2012 and 2013, and has changed a number of statutory reported
numbers for 2012. Revenue has increased by GBP25.4 million, Profit
after tax has reduced by GBP3.7 million, Net assets have increased
by GBP21.0 million and the operating Cash flow during 2012 is now
lower due to the earlier consolidation and elimination on
consolidation of loans provided to these businesses
pre-acquisition. However, the ultimate net effect of this is at the
2012 year end there is actually an increase in net cash of GBP0.8
million on the balance sheet.
Future margins and working capital
The success of the Quindell original strategy has also been
further validated in both 2012 and 2013 with margin guidance being
increased now that our operations are fully integrated and the mix
of our long term business established. I am pleased to confirm that
the Board has agreed to once again increase its longer term
Adjusted EBITDA margin guidance to 30%+ from its current guidance
of 25%+. The background to which is further detailed in Laurence's
Financial Review. I would like to take this opportunity to thank
our two divisional Group Chief Executive Officers, their teams and
the Group's finance teams on the hard work that has gone into
delivering this fantastic development of our business.
Lastly, demonstrating the Group's future working capital needs
is also a key component of the listing process. Our working capital
model demonstrates that our needs are fully covered and in fact
with any reduction in volume or cessation of significant growth,
the business very quickly becomes significantly more cash
generative. I am pleased to report that the Group's performance in
Q1 in relation to cash generation is significantly ahead of the
guidance we gave at the time of our fundraise. In fact, all 2013
KPI's as well as KPIs in Q1 2014 (except Gross sales, due to our
success in driving down claims costs) have significantly exceeded
market expectations yet again. With regards to the potential dual
or North American listing, we are conducting an investor roadshow
in late April with a major US based investment bank following our
2013 results roadshow to confirm appetite and demand for any
potential dual listing in the US market. We are also attending
technology conferences in the US with two leading investment banks
during the summer. Once the business has been fully listed in the
UK the Board will review the appropriateness of pursuing a second
listing taking into consideration the results of these prior
activities.
Financial Review
Revenues in the year increased by 133% to GBP380.1 million
(2012: GBP163.0 million). Gross Sales, which reflects the full
scale of business in our legal services operation increased by 134%
to GBP398.7 million (2012: GBP170.2 million). Within this,
Solutions revenues were GBP80.4 million (2012: GBP30.1 million) and
the technology enabled outsourcing Services revenues were GBP299.7
million (2012: GBP132.9 million).
Adjusted EBITDA for the year (profit before tax excluding
amortisation, IFRS 10 adjustment, share based payments,
depreciation, interest and the exceptional costs as described in
note 2 increased by 164% to GBP137.7 million (2012: GBP52.2
million) despite the regulatory changes that came into effect on 1
April 2013 and the subsequent reduction in portal fees for legal
services. Adjusted EBITDA margin for the Group at approximately 36%
of revenue (34% based on gross sales) are still ahead of the
Group's longer term guidance as the Group has continued to drive
through efficiencies, integration savings and economies of scale.
Note 4 describes the Group's key performance indicators as well as
the Group's key performance indicators including the IFRS 10
adjustment.
Profit before tax for the year increased by 204% to GBP107.0
million (2012: GBP35.4 million) and Adjusted profit before tax for
the period increased by 183% to GBP133.7 million (2012: GBP49.2
million). Profit after tax for the period increased by 203% to
GBP82.7 million (2012: GBP27.4 million).
Basic EPS for the period was 1.97 pence per share a 96% increase
(2012: 1.00 pence), and Adjusted Basic EPS was 2.54 pence per share
(2012: 1.45 pence), an increase of 75%.
Operating cash flow after exceptional items before interest and
tax was an inflow of GBP3.2 million (2012: GBP18.4 million).
Adjusted operating cash flow, which excludes exceptional costs,
interest, tax and adjustments arising from the adoption of IFRS 10
was GBP20.1 million for 2013, significantly ahead of market
expectations (2012: GBP38.8 million). Both of these measures
reflect a strong performance in a business that is delivering
significant, sustainable organic growth.
The Group's cash balance at 31 December 2013 was GBP199.6
million and total borrowings were GBP59.4 million, leading to net
funds of GBP140.2 million (2012: GBP17.4 million). The Group's year
end balance sheet position for 2013, which recorded net current
assets of GBP330.7 million (2012: 100.2 million), is the strongest
in the Group's history.
The Group's operating cash inflow for the final quarter for 2013
was ahead of market expectations despite some block settlements
with at-fault insurers being completed in Q1 and Q2 2014. This over
performance was due to strong cash management and debtor controls
and in particular, performance ahead of plan regarding cash
collection from the Solutions Division.
Collaboration protocols
The Group's new and innovative collaboration protocols were
launched during the year enabling Quindell and at-fault insurers to
work together and for both parties to benefit in the reduction of
costs. In the case of collaboration within car hire, benefits
include reduced car hire durations, and the offering of initiatives
such as cash alternatives to car hire in certain cases. From
Quindell's perspective, it also provides the opportunity for
continued significant block settlements of debt, as well as a
providing a fundamental change to the cash profile of a significant
part of the Group's Services Division as insurer debt is settled
within up to one month of presentation of an agreed invoice. During
the year, meetings were held with most of the major UK insurers,
and the Group communicated its expectations that the proportion of
take-up of collaboration protocols would ultimately increase to
approximately 75% to 80% of the market. Momentum in the pace of
adoption of the Model grew throughout the second half of 2013 and
has continued to increase into 2014 providing confidence that this
guidance will be met or exceeded during the first half of 2014.
A second collaboration protocol, for legal services leading to
the prepayment of legal costs is also continuing to be developed by
the Group. Significant interest continues to be expressed by some
major insurers in this protocol with the expectation that this will
result in a change in the model for the industry that will reduce
costs for insurers and accelerate payment of fees to Quindell
without any net loss of profitability whilst maintaining protection
for consumers. The Group expects that ultimately up to 75-80% of
insurers will be operating under this protocol by the end of the
financial year 2014, but that roll out will not commence until the
collaboration protocol for hire has been completed as ultimately it
is the same teams within insurers that will engage on both.
Services Division
The Group's Services division increased revenues by
approximately 126% year on year to GBP299.7 million (2012:
GBP132.9m), and gross sales by 127% to GBP318.3 million (2012:
GBP140.1 million) at an Adjusted EBITDA of GBP91.0 million and 29%
margin based on gross sales. Quindell's Services Division is the
largest technology enabled claims outsourcing business for the UK
P&C insurance industry handling some element of between 25 to
30% of all auto claims, and is the only UK outsourcing organisation
ethically addressing the total cost of claims including personal
injury and rehabilitation.
At the start of the year prospective customers were needing to
address the impacts of regulatory change that were coming into
force within the UK insurance market on 1 April 2013. This led to
accelerated sales cycles and further contract wins throughout the
year for the Group's end to end proposition of a complete supply
chain offering for personal injury claims, medical reporting, multi
disciplined rehabilitation plus auto accident repair including
vehicle hire services and other brand extension services. The Group
was successful in converting 100% of pilot programs to contract,
and the already accelerated sales cycles were also subsequently
assisted by new clients taking references from existing clients
rather than initiating further pilots.
Throughout the year the Group has announced a series of
significant contract wins. These included a 5 year contract with
the RAC, enabling it to provide an offering to its members that own
vehicles representing circa 10% of the UK auto market, a material
contract with one of the UK's largest insurance brokers with over
1.2 million auto policy holders worth up to GBP100 million per
annum in revenue, and a GBP20 million contract with one of UK's
largest direct insurers.
In September 2013 the Group confirmed its expansion into North
America with its 26% investment and option to acquire PT Healthcare
Solutions Corp ("PT Health"), a leading provider of healthcare and
rehabilitation services with over 100 physiotherapy and
rehabilitation clinics across Canada. Motor vehicle accidents are
not one of its key sources of work currently, and this provides the
opportunity for Quindell to enter the market and to bring volume
from its own partners, including the Insurance Broker Association
of Ontario ("IBAO"), with whom Quindell has been building a
relationship during 2013,.thereby assisting the industry within
Canada to stamp down the cost of claims in this important area of
claims leakage.
In September 2013 the Group also announced the acquisition of
25.3% of the issued share capital of Nationwide Accident Repair
Services plc, the largest dedicated provider of accident repair
services in the UK. Ultimately, having a direct ownership stake in
a repair services network will enable us to take advantage of the
volume we manage for our clients and broaden our overall
proposition in insurance and motor related outsourcing.
In October 2013, we announced that the Group has reached
agreement with 10 key brands of varying sizes for over GBP150
million of revenue per annum as well as a GBP50 million per annum
contract win with Direct Line Group the largest retail general
insurer in the UK. This new hire contract was significant from day
one, being worth over GBP150 million during its three year period
and followed a competitive market evaluation, rigorous due
diligence and selection process by Direct Line Group. Of these
GBP200 million additional annual run rate revenues, circa GBP150
million per annum commenced in Q4 2013 and circa GBP50 million
commenced as from Q1 2014.
Solutions Division
The Group's Solutions Division has similarly experienced a
positive year. Revenues totalled GBP80.4 million during 2013 (2012:
GBP30.1) with GBP39.5 million, GBP33.8 million and GBP7.1 million
coming from Europe, North America and the Rest of the World
respectively. Adjusted EBITDA was GBP51.4 million, a margin of 64%
(2012: GBP24 million at 80%) representing a contribution of
approximately 37% of the Group's Adjusted EBITDA in the year, and
with a particularly strong cash generation profile.
Quindell's Solutions Division is recognised in the industry by
both financial and trade analysts as number one in P&C
insurance claims technology in Europe. Quindell is a global
technology supplier of P&C complete insurance ERP solutions, a
global technology supplier in telecoms with expertise in OSS/BSS,
and have unique expertise in online/social media sales and service.
In addition we are seen as the global leader for 'Black Box
Telematics' Usage and Behaviour Based Insurance. As a result, the
Division has experienced rapid expansion in North America with
acquisition of iter8 and establishment of Quindell Solutions Inc.,
and signed multiple new technology contracts and extensions across
key markets and geographies including major contracts in
telematics.
Quindell was recognised among the leading European providers of
Insurance Claims Systems in Celent Claims Systems Vendors: European
General Insurance 2012 and we now believe the Group, with its
market leading ICE Challenger software suite of Policy, Claims,
Analytics and Napier cloud based rating engine, is the clear market
leader for European insurance technology by a significant margin,
having delivered more deals in the first six months of 2013,
including SaaS implementations, than Guidewire, SAP and Accenture
together are accredited by Celent to have won in claims software
over the last two years. Significant new deals with the RAC, Ageas,
and one other of the top ten UK motor insurers, being amongst the
highlights for Quindell.
In April 2013, the Group marked its expansion into the North
American Insurance market and the formation of Quindell Solutions
Inc with its acquisition of Iter8 Inc, a company specialising in
providing SaaS based solutions to the direct insurance and broker
channels. At the time of the acquisition of Iter8, the Board stated
its confidence that Quindell would be able to replicate its UK
growth rate in insurance technology sales in North America, and
performance to date, together with the growing sales pipelines in
this region, particularly for telematics based solutions, for the
Group continue to justify the Board's confidence that the Group's
technology market leadership, already proven in Europe, is
replicable in the North American market.
In May 2013, the Group acquired Quindell Property Services, a
newly formed group bringing together a number of businesses owned
by the vendors, related to the supply of outsourced property
services and SaaS based enabling technologies. This transaction
also enabled the Group to increase its shareholding in 360GlobalNet
Limited from 19% to 60%. The Group's SaaS based technology and
outsourcing property solution 'with you in five' was recently
highlighted in the financial results presentation of one of the
largest, innovative and influential direct insurers in the UK
market. The Group is also now starting to develop what we expect
will soon become a significant pipeline of opportunities in a
number of the largest insurance markets around the world for this
solution.
Connected Car and Telematics
The Board believes that the scale of the opportunity of this
Division is not fully reflected in current market expectations,
particularly with regard to telematics led contracts which in 2013
already represented approaching GBP40 million of high margin, cash
generative revenue for the Group and with more than half from North
America.
For Quindell, our charter clients for telematics, including our
associate ingenie, were more than simply car insurance for young
drivers and represented more than 'niche' segments of the market.
Rather, they represented a whole new approach to motor insurance,
and one that in time has the potential to become mainstream as a
result of the superior underwriting results it offers to insurers
and the access to reduced premiums that insured drivers can enjoy.
Telematics and the concept of a learning solution which enables the
insurer to offer reducing premiums is revolutionary for car
insurance, but the technique is now accepted, and a tipping point
in its application is being reached. This change, we feel, is as
significant as telephone sales were for the insurance industry and
the resultant success of Direct Line Group.
Globally, the Group's strong positioning is supported by the
findings of Ptolemus Consulting, which in its 2013 Global Study
into Usage Based Insurance the Quindell/Himex proposition was the
only solution out of the 77 providers surveyed that was listed in
the top three in all categories: black box, OBD dongle and
smartphone. The Group has previously highlighted the opportunity to
build a 10 million subscriber base each paying between $5 to $15
per month, equating to $600 million to $1.8 billion per annum in
high margin recurring technology revenues in the medium to long
term. This is led by the Group's telematics insurance and its other
Connected Car initiatives.
The Group's position in insurance based telematics is already
well advanced in the UK where Quindell currently enjoys a dominant
market share. Over the last year, the UK market has seen a growth
in the number of telematics policies sold by circa 116,000, with
ingenie representing approximately 20% of black box insurance
growth. Further, in combination with its other clients, the Group
is providing technology to leading brands in the telematics space
that in combination represent approximately 80% of the growth over
the last year in the UK.
In July 2013, the Group announced its 19% investment in Himex
Limited, a business focused on delivering disruptive insurance
technology solutions enabling game changing usage based insurance
propositions that leverage the full insurance value chain. Himex is
primarily focused on the US market and this provides significant
synergies with Quindell as each business can cross fertilise use of
both sets of their technologies to maximise on the global
opportunities during this period of land grab and as telematics
reaches a critical tipping point in its adoption cycle for
insurance. Quindell had been working with Himex to implement an
outsourced support service centre in Canada and on certain
telematics related supply arrangements supporting the current and
future implementations for a number of top-twenty US insurers.
Quindell was also appointed during 2013 as Himex's sole and
exclusive distributor of Himex's gamification UBI products in the
UK, Canada, Brazil and across South America. Leveraging its unique
market position in telematics, the Group negotiated a number of
significant contracts for its usage and behavioral based insurance
solutions in combination with Himex technology in our exclusive
territories.
Of particular significance was the agreement that was reached
with the Insurance Brokers Association of Ontario ("IBAO") for
telematics technology. Quindell will provide the technology for all
of the IBAO's telematics initiatives to its membership base
representing circa 12,000 brokers who directly or indirectly along
with their insurance partners provide approximately 60% of auto
insurance policies in Ontario, representing over 6 million
policies. The agreement is valued at over C$6 million by the end of
2014 and implies more than C$20 million of technology revenues over
the minimum five year exclusive contract term, although the full
potential from this agreement to Quindell could be substantially in
excess of the C$20 million.
At the end of October 2013, we announced that RSA and Gore
Mutual are first movers for broker-owned telematics in Canada. RSA
and Gore Mutual are amongst first movers to the Insurance Brokers
Association of Ontario broker-owned telematics offering which is
supported by Quindell's technology and outsourcing solutions.
In November 2013 we announced a telematics and outsourcing win
with CAA and CAA Insurance, covering circa 1.9 million members in
Southern Ontario and with sister organisations across Canada
covering a combined 5.8 million members. The contract represented
the second of several contracts for Quindell's telematics offering
and to date the largest North American deal for Quindell. Based on
a 10% to 30% telematics take-up in Canada with automobile
association members, there is revenue potential of C$79m to C$237m
per annum. CAA South Central Ontario (CAA SCO), has also contracted
with Quindell to provide their auto club members and insurance
customers with new telematics technology and services.
Acquisitions and Strategic Investments
Acquisitions represent a smaller part of the Group's growth
strategy in 2014 than in any prior period when compared to the size
of the enlarged Group, with any acquisitions during the remainder
of the financial year typically being small relative to the size of
the Group and likely to be of a tactical or in-fill nature. As
previously announced the Group's criteria for acquisitions
continues to be as follows:
-- The Group remains focused on only making acquisitions that
would be earnings enhancing on a standalone basis, before taking
into account additional earnings that can be generated by the
'waterfall effect' of using the acquired companies for the Group's
existing volumes.
-- Only pursuing earnings enhancing opportunities that have
already been de-risked by working closely with the business prior
to acquisition, and where significant synergistic growth is
available.
-- Typically paying five to seven times profit after tax with a
12 month future warranted profit and cash generation targets, with
claw backs if these warranted targets are not met.
-- Only issuing stock in respect of acquisitions at the greater
of a 20% premium to current trading price or 17.5 pence, now
upgraded to 50 pence per share, with the consideration stock
locked-in for between 12 and 36 months and subject to orderly
market restrictions.
During the year, the Group also increased its investment in
ingenie to circa 43%. Along with this the Group has supported the
development of the ingenie brand into Canada along with the over
25's demographic in the UK by a direct 40% investment in two of its
new subsidiaries. The Group has high confidence that ingenie will
continue to achieve rapid and sustainable growth in both the UK and
Canada as a result of its success to date in building its brand and
its performance in terms of the underwriting result it is
delivering. Prospective partnership discussions have already
started with major brands in the UK who in combination represent
over 25% of drivers in the UK as well as a number of discussions
with core industry participants in the Canadian market, including
the IBAO, who directly or indirectly cover over 60% of insurance in
Ontario. These partnerships look set to deliver significant volumes
to ingenie within a relatively short time frame from launch.
Integration
The initial integration of the business has now been completed
with further consolidation of the Group's outsourcing teams, such
as those involved in call centre and debt collection. These changes
provided integration benefits to the Group including those from the
integration of businesses within Quindell Health Services (part of
its Services Division) in the second half of the year. All
significant acquired businesses delivered in line with or
significantly ahead of warranted targets.
By leveraging Quindell's Champion and Challenger technology to
reengineer its own business processes the Group achieved close to
100% overall efficiency gain in cases per fee earner over the year
whilst still seeing an increase in the average recoverable costs
settled and a significant reduction from 6.5 to as low as 5 months
in the average case settlement period for MOJ portal cases. The
volume growth that has been achieved within the legal services
business is typically delayed by six weeks before it provides a
waterfall effect of additional instructions for the Group's
rehabilitation and medical reporting services which have also
benefitted significantly from reengineering and volume benefits
with the average cost per transaction to process in this business
area reducing by approximately 60%. Within Quindell Business
Process Services the Group has also seen a circa 100% increase in
revenue per capita and a significant improvement in margin now that
the business' hire and repair volumes are more evenly matched.
All these significant achievements could not be possible without
the benefit of the Group's technology platform, the quality of our
people, consultancy led business process reengineering techniques
and the fully integrated business model unique to Quindell.
Reflective of the Group's completed integration of its acquired
businesses, the Company removed the word 'Portfolio' from its name,
becoming "Quindell Plc" in December 2013.
Recent news
Trading in the first quarter of 2014 has continued in an
extremely positive manner. The Board believe that current market
expectations for its technology revenues are likely to be
significantly exceeded in 2014, and that these revenues are
expected to grow significantly towards the second half of 2014 as
the telematics subscriber base grows within client implementations.
Both the growth in the Group's technology business and the nature
of the broking business conducted by ingenie have a very favourable
cash profile compared to that of the improving profile of the
Group's Services Division, and this is expected to provide further
support to the growth in the Services Division, further reducing
overall Group trade debtor days.
In January 2014, the Group acquired 100% of ACH Manchester and
associated companies. The terms of the acquisition were satisfied
by the issue of 117,812,500 shares in January 2014 and the payment
of GBP5,000,000 in cash . Prior to acquisition by the Group, ACH
Manchester was a referral source to Quindell's Legal Services
businesses, with specific sector expertise. Also in January,
following receipt of FCA approval for the acquisition of the
Crusader Group, 34,285,714 shares were issued together with the
payment of GBP1 million cash to satisfy the terms of this
acquisition (100%). Two further payments of GBP1 million after the
end of each of the two annual warranted profit periods will also be
payable. The primary reason for the acquisition was to enable the
group to increase its rate of organic growth in full claims
management services for a number of UK insurance brokers.
In February 2014, following an analyst and institutional
investor teach-in held to explore the strong growth trends being
experienced by the Group's Solutions Division, and profiling
telematics contracts and the expansion of ingenie into North
America, the Group announced the acquisition of a controlling
interest in the Himex Group ("Himex"), and a further investment and
option over all remaining shares in ingenie Limited. The Group's
rationale for acquiring a significant controlling interest in Himex
is that it is in live implementations with three out of the top 20
US insurers and in pilots with a further four, as well as being in
joint work in the UK and in Canada and seeing initial successes in
continental Europe.
The Group increased its investment in Himex in total by 66% to
circa 85% by the immediate payment of GBP23 million in cash and the
issue of 325 million Quindell shares, being approximately 5% of the
fully diluted share capital of the Company. The transaction ensured
that the Group can fully leverage the unique market lead it has
been establishing in the UK, Canada and the US. It also helps
maximise the potential from the significant traction that the Group
is seeing in continental Europe. It addition, it ensures it
possesses all the key components to support the distribution
arrangement for key territories within Asia and the Middle East
which has also now been completed and which it is anticipated will
provide a significant first mover advantage in these markets.
Quindell increased its investment in ingenie Limited by 6% to
circa 49% and was granted an option from shareholders over all its
remaining shares. The terms of the option, which can be exercised
up to 31 January 2015, would result in the Group issuing a maximum
of 190 million shares to achieve 100% ownership. Since announcing
the ingenie option in February 2014, the Group has already accessed
new opportunities for Quindell and ingenie to consider that could
significantly accelerate the level of growth planned in the US and
in Continental Europe beyond previous expectations. These
opportunities for major growth, in partnership with leading
insurance related brands, will be fully investigated in due course,
but are likely to further encourage the activation of the ingenie
Option by the end of H1 2014.
On 26 September 2013 the Group acquired a 26% stake in PT
Healthcare Solutions Corp ("PT Health") with an option to acquire
the remaining 74% of business in exchange for the issue of
242,000,000 shares in the Company. As at 31 December 2013, the
Directors concluded that the Group controlled PT Health by virtue
of the put and call options (the "Initial Option") that existed
regarding the acquisition of the remaining equity shares in PT
Health by the Group, and by virtue of the funding that the Group
had provided to PT Health since it took its 26% investment. On 28
March 2014, without either party having exercised the Initial
Option, the Group and PT Health amended their agreement. On 28
March 2014, the Company issued 100,000,000 shares, acquiring a
further 23.9% stake in PT Health as part of a share-for-share
exchange. A put and call option was also agreed, expiring on 30
June 2014, enabling the acquisition of the remaining equity shares
in PT Health by the Group in exchange for 142,000,000 of the
Company's shares.
Outlook
The Services Division, and the Solutions Division across all key
markets, particularly North America, are experiencing record levels
of potential sales pipeline contract value and quantities. These
factors, the Group's existing run rate revenues and profits across
both divisions, improved cash collection, and the other
opportunities that we are signing in the market, underpin the
Board's confidence in the Group's future success.
The total quantum of additional new business confirmed since
December 2013 is in excess of GBP480 million, ahead of the target
of GBP450 million per annum set at the time of the fundraise in
November 2013, and with margins ahead of guidance. These new
contracts are expected to reach full run rate during the first half
of 2014. The Board is pleased that the Group has now achieved the
organic growth potential previously indicated. This growth has been
achieved whilst being selective about the type of new business we
have contracted to ensure the best quality of work, margin
potential and cash performance for the Group whilst maintaining our
focus on driving down the cost of claims, protecting consumer
rights and ensuring the best possible customer experience.
The mix of business that has now been contracted and that can be
generated through our own direct and indirect consumer channels
ensures that the Group shall have no reliance on any single segment
of the market, type of work or referral partner to deliver on its
longer term growth potential. Trading in 2014 to date has also been
ahead of plan for all key performance indicators, being
profitability, cash generation and EBITDA margin. We are determined
to ensure we achieve the optimum valuation for the Company's
shareholders, the best and most innovative services and technology
for our clients, and a great place to work for our staff. All of
this gives me and our team, immense confidence in our ability to
grow from this platform and continue the success in 2014 and beyond
exceeding current market expectations.
Robert Terry
Founder and Executive Chairman
Financial review
Overview
2013 has been another year of significant progress for Quindell,
having completed the majority of our acquisitions in 2012 creating
a market leading technology enabled outsourcing platform for the
servicing of claims for the UK insurance industry. It has been a
year for delivery of new customer wins and organic growth with only
11% of revenue coming from acquired businesses in the year. At the
same time, the Group's Solutions Division has exceeded all market
expectations, and has been developing its market leading position
in Connected Car solutions (telematics) providing a platform for
significant growth in this emerging global market. Already, almost
as much Solutions revenue is derived from North America as is
achieved in Europe. The Group's financial strength, and the
opportunities that it has to capitalise on its market position
leads us to increase our longer term Adjusted EBITDA margin
guidance by five percentage points for the second time in six
months to 30%+ as the strength of our business model is
demonstrated.
Revenue 2013 2012 Growth
GBPm GBPm %
Solutions Division 80.4 30.1 168
Services Division 299.7 132.9 126
-------------------------- ------ ------ -------
Group Revenue 380.1 163.0 133
-------------------------- ------ ------ -------
18.6 7.2 158
-------------------------- ------ ------ -------
Gross sales (See Note 4) 398.7 170.2 134
-------------------------- ------ ------ -------
Total revenues in the year were GBP380.1 million compared with
GBP163.0 million for the prior year. Gross sales, which includes
disbursements transacted by the Group's legal services business
that are provided by non-Group parties, and invoiced on to at fault
insurers, increased by 134% from GBP170.2 million in 2012 to
GBP398.7 million in 2013. The Solutions Division recorded revenues
of GBP80.4 million (21% of Group revenue) during the year,
significantly ahead of market expectation and representing year on
year growth of 168%. Approximately GBP39.5 million of this was
sales to Europe, GBP33.8 million sales into North America, a strong
area of growth during the year and almost as much as was sold
within Europe, and GBP7.1 million to the rest of the world. The
proportion of the Group's Solutions revenues that related to
telematics increased significantly during the year to approximately
GBP40 million. This included sales to Himex of GBP15.1 million,
including licencing for onward US distribution of telematics sales
and the supply of telematics devices for joint opportunities and
sales to the ingenie group of GBP9.4 million which again included
licences, services and devices associated with its supply to
underwriters of its telematics insurance solutions. Other
significant clients in this area included insurethebox (together
with Drive like a girl), the Canadian Automobile Association, the
RAC and Insurance Brokers Association of Ontario as well as Himex
led opportunities in the USA. The Services Division, achieved
revenues of GBP299.7 million (79% of Group revenue), an increase of
126% on 2012. GBP290.3 million of sales were within the UK and
GBP9.4 million was in Canada. The amount of organic new business
generated across the Services Division was signficant at GBP157.3
million, including major contracts with the RAC, Direct Line Group,
and over 60 other referal sources including one of the UK's largest
direct insurers, one of the UK's largest accident management
companies and the UK's largest insurance broker.
Profit and margin for the year
2013 2012 Growth
GBPm GBPm %
------------------------- ------ ------ -------
Group Operating Profit 108.7 36.4 199
Adjusted EBITDA 137.7 52.2 164
------------------------- ------ ------ -------
Adjusted EBITDA Margins
Solutions Division 64% 80% (16)
Services Division 30% 24% 6
------------------------- ------ ------ -------
Group 35% 31% 4
------------------------- ------ ------ -------
Group operating profit was GBP108.7 million for the year (2012:
GBP36.4 million). Adjusted EBITDA, being Profit before tax,
excluding interest, depreciation, amortisation, IFRS 10 adjustment,
share based payments and exceptional costs, totalled GBP137.7
million compared to GBP52.2 million for the prior year. Overall
Adjusted EBITDA margins at 35% were ahead of long term guidance of
25+% and prior year of 31%. Within the Solutions Division, blended
margins reduced to 64%, but across the main areas of Initial
licence fees, SaaS and other and Consulting margins remained strong
at 77% and 60% respectively. From an onward guidance viewpoint,
these margins for the Solutions Division are now at a long term
sustainable position considering the broader geographic and revenue
mix of the division. Margins achieved within the Services Division
increased by 6 percentage points to 30%, due to increased volumes
being handled by the Group's legal services and health operations,
where the Division's margins are strongest. The Group's tax charge
represents 22.7% of profit before tax compared to the standard rate
of UK corporation tax of 23.25%. The tax charge benefitted from the
lower rate of overseas tax and a reduction in respect of deferred
tax rates. Profit after tax for the year was GBP82.7 million
compared to GBP27.4 million for the prior year.
Application of new accounting standards
At the start of 2013, IFRS 10, the accounting standard relating
to Consolidated Financial Statements became effective for the first
time. Even though it was not mandatory this year, it was considered
prudent to adopt this new standard as part of the Group's
preparation for Full Listing with advisors and the need to provide
a three year review as part of the listing requirements. The impact
of the new standard was primarily in relation to 2012 legal
services based acquisitions and the assessment as to the point at
which the Group had control over these businesses. In each case,
this was from an earlier date than we had originally applied, but
in some cases was after the date that the Group's partnering
agreement had commenced, being the basis of the results previously
presented for 2012. The resultant changes, which also include the
consolidation of Accident Advice Helpline in 2012, rather than in
2013 when it legally completed, are described in detail in note 2.
Application of this new standard has resulted in no changes to any
of our key performance indicators, however the Group's statutory
reported numbers for 2012 have changed for the Group, increasing
revenue by GBP25.4 million from GBP137.6 million to GBP163.0
million, whilst reducing profit after tax for that year from
GBP31.9 million to GBP27.4 million. Net assets at 31 December 2012
increased from GBP253.7 million to GBP272.2 million and the Group's
operating cash flow before interest and tax reduced by GBP18.3
million to GBP18.4 million, reflecting the working capital cycle of
these business that are now consolidated, and reducing what was
largely previously shown as Loans to investments and other
parties.
Full analysis of these changes, including our adjusted KPI
measures pre and post the IFRS 10 adjustment, is shown in notes 2
and 4.
Exceptional costs and share based payments
Exceptional costs for 2013 totalled GBP13.7 million. Of these,
acquisition costs were GBP3.0 million and the non-cash loss
recorded on the Equity Swap, which was exited by the Group in July
2013, was GBP5.1 million. Having exited the swap, the Group will
has no further exposure to its performance and will therefore not
be required to take any further exceptional non-cash charges
through its Income Statement. A further GBP1.0 million related to
the acquisition costs of IT Freedom (acquired in 2012), which under
IFRS is required to be treated as post combination vendor
remuneration rather than cost of acquisition as the vendors agreed
to 'bad leaver' clauses as part of this acquisition. Share based
payments within exceptional costs were GBP5.5 million. Of this,
GBP4.6 million related to a one-off cost of the warrants issued to
the RAC in June 2013. Other share based payment charges comprised
of IFRS2 costs in respect of post combination vendor consideration
of GBP2.5 million (2012: GBP0.3m) and costs in respect of options
of GBP0.3 million (2012: GBPnil).
Earnings per share and return on capital employed
Basic EPS was 1.97 pence per share. Adjusted Basic EPS, as
defined in note 8, was 2.54 pence per share, growth of 97% and 75%
respectively (2012: Basic EPS 1.00 pence and Adjusted Basic EPS
1.45 pence). The Group's return on average capital employed was
strong at 23.1% (2012: 22.3%). Before exceptional costs and share
based payments, the return was 26.7% and 26.0% for 2013 and 2012
respectively.
Dividends
No dividends were paid during 2013. However, as has been
previously stated, the Board is pleased confirm its decision to pay
a maiden dividend to shareholders at a value of 0.1 pence per
share. Payment will be made on 2 May 2014 to shareholders on the
register as at 11 April 2014. Whilst the Board intends to continue
to devote the majority of its cash resources to its operations
during this period of continued growth, as previously guided, it
also expects to be implementing a progressive dividend policy from
2015 onwards as the Group's operating EBITDA to cash flow ratio
normalises following its period of rapid organic growth within the
Services Division, and consistent with the long-term earnings
potential of the Group.
Acquisitions and investments
Expansion of the Group's product range and extending its sales
and service capabilities through acquisition, including extending
more significantly into Canada, continued to be an integral part of
the Group's medium to long growth strategy during 2013. In total,
the consideration for the Group's acquisitions during the year was
GBP128 million. The Group took investments in Himex and Nationwide
Accident Repair Group plc, and made investments in new subsidiaries
within the ingenie group addressing further telematics insurance
markets in the UK, US and Canada. Importantly, the Group also
increased its shareholding in ingenie Limited, the parent company
of the ingenie group, from 19% to 43% during the year. ingenie has
developed significantly both as a brand and as a leading telematics
broker during 2013. With this has come a commensurate increase in
its value, leading to the Group recognising a net gain on
re-measurement within Other income of GBP4.2 million in 2013 (2012:
GBP0.3 million) as the investment became an associate. This
progress at ingenie has been led by typical 49% savings for ingenie
customers by renewal and the improvement in underwriting result
that can be offered through telematics. The success of their
proposition's influence on driver behaviour was also recently
recognised, with ingenie being awarded the prestigious Prince
Michael International Road Safety Award for 2013.
Goodwill recorded in the Statement of Financial Position at the
end of December 2013 totalled GBP235.6 million of which GBP181.4
million was in relation to the Group's Services Division and
GBP54.2 million in relation to the Solutions Division. Deferred and
contingent payments still to be made in relation to acquisitions as
at December 2013 totalled GBP79.0 million, of which up to GBP74.5
million of issue value is payable by way of new share issues (up to
a fixed 494.4 million new shares over the next three years) and
deferred cash of GBP4.5 million payable between now and July
2015.
Financing and cash flow
The Group has delivered strong growth during 2013 across both
Divisions and, as expected, this has required investment in working
capital for the Services Division, where cash cycles are
traditionally longer. This investment unwinds in subsequent periods
as evidenced by cash collections during 2013 of over GBP270
million, circa 185% of the value of total trade related receivables
for the Group as at 31 December 2012.
The Group has maintained its focus on managing its working
capital, targeting the generation of strong operating cash flow
within the business areas that can support the needs of those other
areas where the growth profile places demands on working capital in
the short term.
The Group's operating cash inflow for the final quarter for 2013
was ahead of market expectations despite some block settlements
with at-fault insurers being completed in the first half of 2014.
This over performance was due to strong cash management and debtor
controls and in particular, performance ahead of plan regarding
cash collection from the Solutions Division. The Group's momentum
in operating cash flow generation increased in the second half of
2013 as anticipated with much of the collection now being
undertaken by the Group's own specialist debt recovery team,
"Compass Law".
2013 2012 Change
GBPm GBPm %
----------------------------------------- ------ ------ -------
Cash generated from operations
before exceptional costs and IFRS
10 adjustment (see note 2) 20.1 38.8 (48)
Adjusted EBITDA to cash flow conversion 15% 74% (59)
----------------------------------------- ------ ------ -------
For 2013 as a whole, the Group's operating cash flow was an
inflow of GBP20.1 million before exceptional costs, IFRS 10
adjustment, tax and net finance costs (2012: an inflow of GBP38.8
million). The Adjusted EBITDA to operating cash flow conversion
ratio being 15%, ahead of expectations in a period of very strong
growth.
Purchases of intangible and tangible fixed assets totalled
GBP23.8 million (2012: GBP4.2 million) and the net cash
consideration of subsidiaries and investments was GBP31.6 million
(2012: GBP53.2 million). The issue of shares during the year gave
rise to an inflow of GBP200.4 million (2012: GBP91.0 million).
During the year, the Group made loans to investments and other
parties of GBP4.9 million.
The Group's cash balance at the end of 31 December 2013 was
GBP199.6 million. During the year to 31 December 2013, net funds
increased from a position of net funds of GBP17.4 million to
GBP140.2 million.
Debtors management
Trade related receivables: 2013 2012
GBPm GBPm
Trade receivables 85.6 73.7
Legal disbursements 57.5 26.5
Accrued income 151.7 47.9
---------------------------- ------ ------
Total 294.8 148.1
---------------------------- ------ ------
Total trade related receivables increased by circa 100% during
the year to GBP294.8 million compared to gross sales growth of
134%, demonstrating our significant progress in cash collection,
with over 70% of the increase being in accrued income. This
increase during the year was attributable to the growth in revenue,
primarily in relation to legal services, and was particularly
pronounced in the second half of the year, in line with the ramp up
of new contracts signed throughout this period.
Trade receivables increased by only 16% year on year despite the
strong sales growth of 134%. Cash collected by the Services
Division during 2013, the part of the business with longest cash
cycles, represented 155% of the total value of trade related
receivables for that division as at 31 December 2012. Continued
strong cash collection also led to average trade receivables days
at 31 December 2013 for the Group being maintained at 4.7 months,
compared to 4.8 months as at 30 June 2013, which itself had
improved from 6.5 months as at 31 December 2012. This remains
exceptionally good for our industry and is only possible due to the
strong relationships the Group has with its insurance clients and
the ethical stance it takes by lowering the cost of claims for the
industry as a whole, targeting over 20% saving compared to industry
norms. The percentage of trade receivables aged one year or over
decreased both in quantum and percentage from GBP30.3 million
(43.5%) to GBP24.3 million (33.2%) year on year as the Group has
continued to address these older balances through normal collection
processes, block settlements as insurers entered into our
collaboration model and in certain instances, as the Group started
to take a litigated approach via Compass Costs to collect amounts
from the small percentage of the UK insurance market that are not
engaging in the Group's collaboration model. The Group's
collaboration model for hire and repair continues to moves towards
the Group's expected take up of 75% and the Board remains extremely
confident of reaching this target. Due to the nature of the Group's
business, the majority of its debts are due from UK insurers, and
the concentration of debt due from any one counterparty is
proportionally low.
Accrued income increased from GBP47.9 million as at 31 December
2012 to GBP93.0 million by 30 June 2013 and to GBP151.7 million as
at 31 December 2013. This year on year 216% increase was again in
line with expectations and against a backdrop of dramatically
increased legal services case intake but with overall Total trade
related receivables increasing by only 100% during the year
compared to gross sales gowth of 134%. As with other professional
services firms, almost all the Group's legal services revenues
remain in accrued income until billed, where upon they are
typically settled by the at-fault insurer promptly within 15-30
days. Consistent with industry standards, approximately 55% of
accrued income as at 31 December 2013 was within 6 months of
initiation of work, and over 80% within 12 months. Legal
disbursements relating to incidental costs incurred on a case,
which are recovered at the same time as our fee settlement
increased by 117% to GBP57.5 million year on year, again in line
with the growth in volumes handled by the Group. The Group
continues to have arrangements in place with external suppliers
relating to disbursements incurred, where it is not performing the
work itself which broadly mirror the settlement period on its own
cases. The disbursement creditor at 31 December 2013 amounted to
GBP44.8 million, 78% of the related disbursement debtor
balance.
Capital management and going concern
The Group's capital management objective is to maintain a
balance sheet structure that is efficient in terms of providing
long term returns to shareholders and safeguards the Group's
financial position through economic cycles.
The Group has available to it considerable financial resources,
and a robust balance sheet. As at 31 December 2013, the Group had
cash of approximately GBP200 million, and undrawn banking
facilities taking the total working capital available to the Group
to approximately GBP220 million. In combination, the Group has
sufficient working capital resources available to it to comfortably
exceed 4p earnings per share in 2014. During 2013, the Group
successfully renewed and extended two of its core banking
facilities to April 2015, and extended its third to December 2015.
The Group is continuing to work closely with each of its primary
providers of debt finance, as well as engaging with other
prospective providers of finance to ensure that the Group continues
to have the appropriate sources of working capital for the business
that are consistent with its plans for the future.
In terms of the assessing the Group's resiliance, whilst it has
no need to, ultimately if required the Group can choose to adjust
its capital structure by varying the scale and mix of its trading
activities to reduce any requirement to fund working capital. It
can also seek to liquidate receivables at a faster rate than normal
if it chose to through payment protocols and additional block
settlements of debt, although there would likely be a cost in the
form of a discount to this. As a result, the Directors have a
reasonable expectation that the Group has adequate resources and
business demand drivers to continue in operational existence for
the foreseeable future. No material uncertainties related to events
or conditions that may cast significant doubt about the ability of
the Group to continue as a going concern have been identified by
the directors. Thus they continue to adopt the going concern basis
of accounting in preparing the financial statements.
Principal risks and uncertainties
The Group is exposed to a number of risks and uncertainties
which could have a material impact on its long term performance.
The directors have identified those which they regard as being the
principal risks and these are set out below.
Strategic risk
The take up rate of telematics by consumers globally over the
next three to five years, influenced by factors such as end-user
perceptions, rate of adoption of new technologies, regulatory
drivers and the economic climate could put at risk the Group's
ability to meet its strategic objectives in the areas of telematics
and connected car solutions. The Group may fail to execute its
ongoing strategic plan in relation to connected car and the
expected benefits of that plan may not be achieved at the time or
to the extent expected. The Group monitors local and global trends
alongside other market commentators and analysts. Through its
activities within the industry, the Group aims to be at the
forefront of connected car intitiatives globally. As a result of
these, the Group believes that its solutions are ahead of the rest
of the market by a number of years, that the likely adoption rate
of telematics and readiness of the market for connected car
solutions is strong and that the Group's market position will
enable it to maximise on the opportunity.
Technological change
The markets for the Group's services can be affected by
technological changes, resulting in the introduction of new
products and services, evolving industry standards and changes to
consumer behaviour and expectations. The Group regularly monitors
trends in technological advancement so as to anticipate and plan
for future changes and maintains close relationships with
businesses and organisations which it believes will keep it to the
forefront of product and service development on a sustained
basis.
Key personnel and resources
The success of the Group depends to a large extent upon its
current executive management team and its ability to recruit and
retain high calibre individuals at all relevant levels within the
organisation. The Group will continue to seek to mitigate this
resource risk by investing in and developing staff training
programmes, competitive reward and compensation packages, incentive
schemes and succession planning.
Regulatory and reputational risks
The Group operates in regulated environments, including parts of
the Group that are regulated in the UK by the Financial Conduct
Authority and Solicitors Regulation Authority. As a data controller
and a business that provides services on behalf of its customers to
consumers and individuals, the Group is also subject to risks
related to matters such as data processing and security, data and
service integrity. In the event of a breach, these risks may give
rise to reputational, financial or other sanctions against some or
all of the Group. The Group considers these risks seriously and
designs, maintains and reviews its policies and processes so as to
mitigate or avoid these risks.
The pricing of products and services, the activities of major
industry organisations, and the Group's ability to operate and
contract in the manner that it has done so in the past or expects
to do so in the future, may be affected by the actions of
regulatory bodies both in the UK and internationally. Such action
could affect the Group's profitability either directly or
indirectly. The Group continually monitors and assesses the
likelihood, potential impact and opportunity provided by regulatory
change, and adapts is plans and activities accordingly.
The Competition Commission ("CC") is currently reviewing certain
aspects of the UK Private Motor Insurance market and is due to
report in final form by September 2014. The CC released their
provisional findings in December 2013 and is currently in
discussion with insurers, claims management companies and other
interested parties about their findings. The Group is participating
fully in these discussions and assisting the CC in its ongoing
evidence gathering. The Group does not currently believe there are
grounds for any fundamental change to the present legal basis and
functioning of the UK motor insurance market and is taking
appropriate steps to respond to any risks and maximise on
opportunities, such as developing its collaboration protocols which
it sees as being even more successful in light of the CC's review,
leading up to and following the publication of the CC's final
report.
Liquidity risk
The Group borrows to principally fund its working capital needs.
The timing of receipts from the parties from whom the Group seeks
to recover its charges is uncertain and can be protracted. The
Group actively forecasts, manages and reports its working capital
requirements, including sensitivity analysis on a regular basis to
ensure that it has sufficient funds for its operations. The Group
is also actively pursuing its collaboration settlement protocol to
both speed up and bring greater certainty to the timing of
receipts.
Management of growth
The Group's plans to continue its growth will place further
demands on its management, administrative processes and deal
sourcing resources. In order to minimise this risk, the Group
formed its Strategy and Integration Advisory Board, one of the
purposes of which is to support business integration, drawing upon
the specific skills and experience of its members. The Group has
continued to appoint experienced staff across its business into
senior roles in order that this risk is managed effectively.
Market conditions
Market conditions, including general economic conditions and
their affect on exchange rates, interest rates and inflation rates,
may impact the ultimate value of the Group regardless of its
operating performance. The Group also faces competition from other
organisations, some of which may have greater resources than the
Group, or be more established in a particular territory or product
area. The Group's strategy is to target a balance of markets,
offering a range of tailored or specialised products and
services.
Laurence Moorse
Group Finance Director
Consolidated Income Statement
Restated
See Note
2
2013 2012
Note GBP'000 GBP'000
Revenue
- Solutions 80,441 30,068
- Services 299,690 132,936
-------------------------------- ---- --------- --------
380,131 163,004
-------------------------------- ---- --------- --------
Cost of sales (197,815) (91,216)
Gross profit 182,316 71,788
Administrative expenses
- Normal (61,441) (29,591)
- Share based payments (2,819) (272)
- Exceptional costs 6 (13,744) (5,803)
-------------------------------- ---- --------- --------
- Total administrative
expenses (78,004) (35,666)
Other income 4,186 336
Share of results of associates 242 (19)
Group operating
profit 108,740 36,439
Finance income 383 153
Finance expense (2,077) (1,233)
Profit before taxation 107,046 35,359
Taxation 7 (24,350) (7,964)
-------------------------------- ---- --------- --------
Profit for the year 82,696 27,395
-------------------------------- ---- --------- --------
Attributable to:
Equity holders of
the parent 82,949 27,302
Non-controlling
interests (253) 93
-------------------------------- ---- --------- --------
82,696 27,395
------------------------------- ---- --------- --------
pence pence
Basic earnings per
share 8 1.971 1.005
========= ========
Diluted earnings
per share 8 1.952 0.998
========= ========
Consolidated Statement of Comprehensive Income
Restated
See Note
2
2013 2012
GBP'000 GBP'000
Profit after taxation 82,696 27,395
Items that may be reclassified in the Consolidated
Income Statement:
Exchange differences on translation of foreign
operations (4,237) (1)
Fair value movements on available for sale assets:
Fair value increase on available for sale assets 4,186 336
Fair value movements on available for sale assets
taken to the Consolidated Income Statement:
Previous fair value gain recognised in the Consolidated
Income Statement in respect of an investment becoming
an associate on a stepped acquisition (4,186) -
Previous fair value gain recognised in the Consolidated
Income Statement in respect of an associate becoming
a subsidiary on a stepped acquisition - (336)
Total comprehensive income for the year 78,459 27,394
------------------------------------------------------------ -------- ---------
Attributable
to:
Equity holders of the
parent 78,712 27,301
Non-controlling
interests (253) 93
------------------------------------------------------------ -------- ---------
78,459 27,394
----------------------------------------------------------- -------- ---------
Consolidated Statement of Changes in Equity
Foreign
==================================
Share Shares currency Non-
Share premium Merger to be Other translation controlling Retained
capital account reserve Issued reserves reserve interest earnings
==================================
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
==================================
At 1 January 2013 Restated(1) 36,216 102,026 74,318 30,178 (1,188) (1) 275 30,336
Profit for the year - - - - - - (253) 82,949
Other comprehensive income - - - - - (4,237) - -
========
Issue of share capital 20,484 226,744 50,381 (30,178) - - - -
Directly attributable
costs incurred in issuing
of equity shares - (10,593) - - - - - -
Shares to be issued - - - 54,151 - - - -
Shares treated as held
in treasury - - - - (5,209) - - -
Share based payments - - - - 7,395 - - -
Transfer of prior year
gain on sale of shares
held in treasury - 3,231 - - - - - (3,231)
Non-controlling interest
at acquisition - - - - - - 3,838 -
Cost of acquiring non-controlling
interest - - - - - - (114) -
At 31 December 2013 56,700 321,408 124,699 54,151 998 (4,238) 3,746 110,054
---------------------------------- ------- -------- ------- -------- -------- ----------- ----------- --------
At 1 January 2012 20,041 8,145 25,825 106 54 - (3) 307
Profit for the year - - - - - - 93 27,302
Other comprehensive income - - - - - (1) - -
Issue of share capital 16,175 98,878 48,493 (106) (1,514) - - -
Shares to be issued - - - 30,178 - - - -
Directly attributable
costs incurred in issuing
of equity shares - (4,997) - - - - - -
Gain on sale of shares
held in treasury - - - - - - - 3,231
Cancellation of share
options in subsidiary - - - - - - - (624)
Share-based payments - - - - 272 - - 120
Non-controlling interest
at acquisition - - - - - - 3,276 -
Cost of acquiring non-controlling
interest - - - - - - (3,091) -
---------------------------------- ------- -------- ------- -------- -------- ----------- ----------- --------
At 31 December 2012 Restated(1) 36,216 102,026 74,318 30,178 (1,188) (1) 275 30,336
---------------------------------- ------- -------- ------- -------- -------- ----------- ----------- --------
Note 1: Restated - See Note 2
Consolidated Statement of Financial Position
Restated
See Note
2
2013 2012
Note GBP'000 GBP'000
Non-current assets
Goodwill 235,621 144,570
Other intangible assets 55,659 29,639
Property, plant and equipment 9,357 7,296
Interests in associates 49,869 -
Investments 3,188 7,143
--------------------------------------- ----- ---------- ----------
353,694 188,648
--------------------------------------- ----- ---------- ----------
Current assets
Inventories 318 160
Trade and other receivables 9 327,873 177,871
Cash 199,596 48,050
--------------------------------------- ----- ---------- ----------
527,787 226,081
--------------------------------------- ----- ---------- ----------
Total assets 881,481 414,729
--------------------------------------- ----- ---------- ----------
Current liabilities
Bank overdraft (19,642) (15,871)
Borrowings (26,501) (6,280)
Trade and other payables 10 (125,942) (95,238)
Corporation tax (24,346) (7,460)
Obligations under finance leases (610) (479)
Deferred tax liabilities (56) (533)
--------------------------------------- ----- ---------- ----------
(197,097) (125,861)
--------------------------------------- ----- ---------- ----------
Non-current liabilities
Borrowings (11,961) (7,475)
Trade and other payables 10 (1,896) (6,032)
Obligations under finance leases (661) (568)
Deferred tax liabilities (2,348) (2,633)
--------------------------------------- ----- ---------- ----------
(16,866) (16,708)
--------------------------------------- ----- ---------- ----------
Total liabilities (213,963) (142,569)
--------------------------------------- ----- ---------- ----------
Net assets 667,518 272,160
--------------------------------------- ----- ---------- ----------
Equity
Share capital 56,700 36,216
Share premium account 321,408 102,026
Merger reserve 124,699 74,318
Shares to be issued 54,151 30,178
Other reserves 998 (1,188)
Foreign currency translation reserve (4,238) (1)
Retained earnings 110,054 30,336
--------------------------------------- ----- ---------- ----------
Equity attributable to equity holders
of the parent 663,772 271,885
Non-controlling interests 3,746 275
--------------------------------------- ----- ---------- ----------
Total equity 667,518 272,160
--------------------------------------- ----- ---------- ----------
The results were approved by the Board of Directors on 29 March
2014.
Consolidated Cash Flow Statement
Restated
See Note
2
2013 2012
Note GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations before
exceptional costs, net finance expense
and tax 12 10,433 20,459
Cash outflow from exceptional costs (7,268) (2,101)
---------------------------------------------- ----- --------- ---------
Cash generated from operations before
net finance expense and tax 3,165 18,358
Net finance expense paid (1,694) (1,235)
Corporation tax paid (10,409) (2,514)
Net cash (used by)/generated from operating
activities (8,938) 14,609
---------------------------------------------- ----- --------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (2,484) (1,317)
Purchase of intangible fixed assets (21,359) (2,899)
Proceeds on disposal of property, plant
and equipment 360 36
Proceeds from sale of subsidiary undertaking
and sale of operations 2,480 -
Acquisition of subsidiaries net of cash
acquired (11,533) (49,072)
Purchase of associated undertakings (20,068) -
Purchase of fixed asset investments - (4,101)
Deposits held in escrow (1,500) -
Loans to investments and other parties (4,898) -
Dividends received from associates 109 -
Net cash used in investing activities (58,893) (57,353)
---------------------------------------------- ----- --------- ---------
Cash flows from financing activities
Issue of share capital 200,406 90,953
Finance lease repayments (635) (888)
Additional/(repayment of) secured loans 12,125 (3,790)
Additional unsecured loan monies received 518 520
Receipts/(payments) on Equity Swap 3,192 (15,583)
---------------------------------------------- ----- --------- ---------
Net cash generated from financing activities 215,606 71,212
---------------------------------------------- ----- --------- ---------
Net increase in cash and cash equivalents 12 147,775 28,468
Cash and cash equivalents at the beginning
of the year 32,179 3,711
---------------------------------------------- ----- --------- ---------
Cash and cash equivalents at the end of
the year 179,954 32,179
---------------------------------------------- ----- --------- ---------
1. General information
The Annual Report announcement was approved by the Board of
Directors on 29 March 2014. The financial information set out in
this Annual Report does not constitute the Group's statutory
accounts for the years ended 31 December 2013 or 2012 but is
derived from those accounts. Statutory accounts for 2012 have been
delivered to the Registrar of Companies, and those for 2013 will be
delivered in due course. The auditor has reported on those
accounts; their reports were (i) unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention by
way of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
The Group's consolidated financial statements have been prepared
in accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union ("EU"). The accounting
policies have been consistently applied to all periods
presented.
2. Impact of prior year adjustment ("PYA") together with new and revised Standards
A package of five standards on consolidation, joint
arrangements, associates and disclosures was issued by the
International Accounting Standards Board in May 2011. Four of these
have been been identified as being applicable to the Group (IFRS
10, IFRS 11, IFRS 12 and IAS 28 (as revised in 2011)) and the
other, IAS 27 (as revised in 2011) Separate Financial Statements,
is not applicable to the Group as it deals only with separate
financial statements. Subsequently, amendments to IFRS 10, IFRS 11
and IFRS 12 were also issued to clarify certain transitional
guidance on the first-time application of the standards. The
standards are effective for periods beginning on after 1 January
2014 but are available for early adoption.
Accordingly, the Group has adopted these standards for the first
time in the current year. IFRS 11 and IAS 28 (as revised in 2011)
have had no material impact on the financial result or financial
position. The impact of the remaining new standards is discussed
below.
Application of IFRS 10 Consolidated Financial Statements
(2011)
IFRS 10 replaces the parts of IAS 27 Consolidated and Separate
Financial Statements that deal with consolidated financial
statements and SIC-12 Consolidation - Special Purpose Entities.
IFRS 10 changes the definition of control such that an investor has
control over an investee when a) it has power over the investee, b)
it is exposed, or has the rights, to variable returns from its
involvement with the investee and c) has the ability to use its
power to affect its returns. All three of these criteria must be
met for an investor to have control over an investee. Previously,
control was defined as the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities.
The Group, through its subsidiary Quindell Legal Services
Limited, was granted permission to operate as an Alternative
Business Structure with effect from 21 December 2012. Prior to
being permitted to perform legal based services in its own right,
the Group entered into partnering agreements with four businesses
operating in the legal sector, the equity of three of which it
acquired during December 2012 (Silverbeck Rymer, Pinto Potts and
The Compensation Lawyers), with the equity of the remainder
acquired in April 2013 (Accident Advice Helpline ("AAH")). Under
IAS 27, the group accounted for the businesses as subsidiaries from
the date at which it acquired their equity.
Following their assessment of these partnering agreements, the
Board has determined that under IFRS 10, the point at which control
passed in each of these acquisitions was earlier than the date on
which it acquired their equity but, in some cases, later than the
date that the partnering agreement commenced. On that basis, the
acquisition date of AAH under IFRS 10 has been determined to be 24
July 2012 rather than 9 April 2013. The acquisition date for the
remaining three legal businesses has been changed to be earlier in
2012 than was the case when applying IAS 27 (as set out in note
11).
The comparative amounts for 2012 have been re-stated to reflect
the earlier date of acquisition of these subsidiaries. The effect
of the restatement is to: remove the previously recorded net income
from the partnering arrangement for the period in which they are
controlled under IFRS 10; remove the investment in AAH recorded in
the balance sheet at 31 December 2012; consolidate the income
statements of the subsidiaries for the period in which they were
controlled under IFRS 10; consolidate the balance sheet of AAH at
31 Decembet 2012; and restate the acquisition accounting for the
subsidiaries at their revised acquisition date. The effect of the
restatement is set out in notes 2a to 2d.
Prior Year Adjustment - Share based payments for acquisition
consideration treated as vendor remuneration
A portion of contingent consideration previously treated as a
cost of acquisition (and shown within Goodwill) in respect of the
of IT Freedom Limited acquisition on 24 May 2012 was payable only
if certain employees remained in employment with the Group post
acquisition. In accordance with IFRS 3, the prior year acquisition,
has been re-stated to reflect that the consideration should be
treated as post combination vendor remuneration.
As a consequence Goodwill arising in 2012 has been reduced by
GBP4.8 million and GBP0.8m of adminstrative cost charges have been
recognised in 2012 (GBP0.3 million of which relates to share based
payments and the balance to cash remuneration) and GBP1.4m in 2013
(GBP0.4 million of which relates to share based payments and the
balance to cash remuneration). Future administrative cost charges
are expected to be recorded in 2014 and 2015.
The financial statement line items impacted by this prior year
adjustment can be seen in notes 2a to 2c on the following pages.
There is no impact on the 2012 Consolidated Cash Flow statement
from this adjustment other than reclassification of share based
payments between operating profit and cash generated from
operations.
Prior Year Adjustment - Fair value of consideration
In accordance with IFRS 3, the consideration transferred in a
business combination is stated at its fair value at the acquisition
date. In the prior period, shares were issued in respect of the
Accident Advice Helpline, Legal Services and Quintica acquisitions
that were subject to certain restrictions. The fair value of those
shares used in the acquisition accounting in the prior year did not
take into account those restrictions. The prior year acquisitions
have therefore been restated to reduce the fair value of
consideration paid for those acquisitions to its fair value at the
acquisition date. This adjustment reduces Goodwill (via reduced
consideration) and Share Premium by GBP12.0m at 31 December 2012.
There is no other impact of this re-statement. Note 2c below
includes GBP11.5 million of this adjustment in relation to the
acquisitions of Accident Advice Helpline and the Legal Services
businesses in their restated acquisition accounting in the IFRS 10
adjustment column with the remaining GBP0.5 million included in the
IFRS 3 column.
Prior Year Adjustment - Cash Flow Statement of treatment of
Equity Swap
In the prior year the cash flows associated with the Equity Swap
were treated as an investing activity. As disclosed in the current
year Strategic Report and in the 2012 financial statements, the
Equity Swap entered into by the Group was linked to the acquisition
of Accident Advice Helpline ("AAH"). As a consequence the cash
flows associated with the swap have been treated as financing
activities in the current year and the comparative cash flow
statement has been restated accordingly. There is no overall net
impact on the 2012 Consolidated Cash Flow Statement.
Application of IFRS 12 Disclosure of Interests in Other
Entities
IFRS 12 is a new disclosure standard and is applicable to
entities that have interests in subsidiaries, joint arrangements,
associates and/or unconsolidated structured entities. In general,
the application of IFRS 12 has resulted in some further extensive
disclosures in the consolidated financial statements.
2a Impact of new and revised Standards: Consolidated Income Statement
IFRS IFRS Restated
3 10
2013 2012 adjustment adjustment 2012
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 380,131 137,558 - 25,446 163,004
------------------------- --------------- ----------- ---------- ------------ --------------- ----------
Analysed as:
- Solutions 80,441 30,068 - - 30,068
- Services 299,690 107,490 - 25,446 132,936
------------ --------------- ----------
Cost of
sales (197,815) (69,562) - (21,654) (91,216)
------------ --------------- ----------
Gross profit 182,316 67,996 - 3,792 71,788
Administrative expenses
- Normal (61,441) (20,702) - (8,889) (29,591)
- Share based payments (2,819) - (272) - (272)
- Exceptional costs (13,744) (5,265) (538) - (5,803)
----------- ---------- ------------ --------------- ----------
- Total administrative
expenses (78,004) (25,967) (810) (8,889) (35,666)
----------- ---------- ------------ --------------- ----------
Other income 4,186 336 - - 336
Share of results of associates 242 (19) - - (19)
Group operating
profit 108,740 42,346 (810) (5,097) 36,439
Finance income 383 127 - 26 153
Finance expense (2,077) (1,232) - (1) (1,233)
Profit before taxation 107,046 41,241 (810) (5,072) 35,359
Taxation (24,350) (9,339) - 1,375 (7,964)
--------------- ------------------------ ----------- ---------- ------------ --------------- ----------
Profit for the year 82,696 31,902 (810) [1] (3,697) 27,395
------------------------- --------------- ----------- ---------- ------------ --------------- ----------
Attributable to:
Equity holders of
the parent 82,949 31,809 (810) (3,697) 27,302
Non-controlling
interests (253) 93 - - 93
------------------------- --------------- ----------- ---------- ------------ --------------- ----------
82,696 31,902 (810) (3,697) 27,395
------------------------- --------------- ----------- ---------- ------------ --------------- ----------
Adjusted Profit before taxation
excluding IFRS 10 adjustment and
Adjusted EBITDA excluding IFRS
10 adjustment:
Profit before taxation 107,046 41,241 (810) [1] (5,072) 35,359
Depreciation 2,220 1,976 - - 1,976
Amortisation 7,265 2,649 - 571 1,220
Exceptional costs 13,744 5,265 538 - 5,803
Share based payments 2,819 - 272 - 272
Net finance expense 1,694 1,105 - (25) 1,080
----------- ---------- ---------------- ----------- ---------
Adjusted EBITDA including IFRS
10 adjustment 134,788 52,236 - (4,526) 47,710
IFRS 10 adjustment 2,863 - - 4,526 4,526
----------- ---------- ---------------- ----------- ---------
Adjusted EBITDA excluding
IFRS 10 adjustment 137,651 52,236 - - 52,236
----------- ---------- ---------------- ----------- ---------
Profit before taxation 107,046 41,241 (810) [1] (5,072) 35,359
Amortisation 7,265 2,649 - 571 3,220
Exceptional costs 13,744 5,265 538 - 5,803
Share based payments 2,819 - 272 - 272
----------- ---------- ---------------- ----------- ---------
Adjusted Profit before taxaxtion
including IFRS 10 adjustment 130,874 49,155 - (4,501) 44,654
IFRS 10 adjustment 2,857 - - 4,501 4,501
----------- ---------- ---------------- ----------- ---------
Adjusted Profit before taxation
excluding IFRS 10 adjustment 133,731 49,155 - - 49,155
----------- ---------- ---------------- ----------- ---------
Note
1: The net impact on the Consolidated Income Statement for 2012
represents the impact of certain companies being determined to have
been consolidated from earlier dates which were after the date the
Group's partnering arrangements had commenced for those
acquisitions. Consequently the pre-existing relationship before the
date of effective control have been settled in accordance with IFRS
3, resulting in an adjustment to the accounting for the business
combinations and profit before tax of GBP5.1m.
2b Impact of new and revised Standards: Consolidated Statement of Comprehensive Income
IFRS
3 & 10 Restated
2013 2012 adjustmentss 2012
GBP'000 GBP'000 GBP'000 GBP'000
Profit after taxation 82,696 31,902 (4,507) 27,395
Items that may be recognised in the Consolidated
Income Statement:
Exchange differences on translation
of foreign operations (4,237) (1) - (1)
Fair value movements on available
for sale assets:
Net gain on re-measurement of
investments on becoming associates
and associates on acquisition
of control 4,186 336 - 336
Fair value movements on available for
sale assets taken to the Consolidated
Income Statement:
Net gain on re-measurement of
investments on becoming associates
and associates on acquisition
of control (4,186) (336) - (336)
-------------------------------------------------------------- ------- ---------- -------- ------------ ---------
Total comprehensive income
for the year 78,459 31,901 (4,507) 27,394
---------------------------------------------------- ---------------- ---------- -------- ------------ ---------
Attributable to:
Equity holders of the
parent 78,712 31,808 (4,507) 27,301
Non-controlling interests (253) 93 - 93
------------------------------------------ ------------------------ ---------- -------- ------------ ---------
78,459 31,901 (4,507) 27,394
--------------- -------------------------------------------------- ---------- -------- ------------ ---------
The impact of the IFRS 10 adjustment on the Consolidated
Statement of Comprehensive Income and Consolidated Statement of
Changes in Equity is limited to a GBP3,697,000 Profit After Tax
reduction figure for 2012. The impact of the IFRS3 adjustment on
the same statements is limited to a GBP810,000 Profit After Tax
reduction figure for 2012.
The impact of the IFRS 10 restatement on basic and diluted
earnings per share in 2012 was to decrease basic earnings per share
by 0.136 pence to 1.035 pence and decrease diluted earnings per
share by 0.135 pence to 1.027 pence.
The impact of the IFRS3 restatement on basic and diluted
earnings per share in 2012 was to decrease basic earnings per share
by a further 0.030 pence to 1.005 pence and decrease diluted
earnings per share by a further 0.029 pence to 0.998 pence.
The combined impact of the IFRS 10 and IFRS3 restatements on
basic and diluted earnings per share in 2012 was to decrease basic
earnings per share by 0.166 pence to 1.005 pence and decrease
diluted earnings per share by 0.164 pence to 0.998 pence.
2c Impact of new and revised Standards: Consolidated Statement of Financial Position
IFRS
3 IFRS 10 Restated
2013 2012 adjustment adjustment 2012
========== =========== ==========
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========== =========== ==========
Non-current assets
Intangible assets 291,280 142,640 4 (5,316) 2 36,885 174,209
==========
Property, plant and
equipment 9,357 7,224 - 72 7,296
Interests in associates
and investments 53,057 7,143 - - 7,143
------------------------------- ---------- ---------- ---------- ----------- ----------
353,694 157,007 (5,316) 36,957 188,648
------------------------------- ---------- ---------- ---------- ----------- ----------
Current assets
Inventories 318 160 - - 160
Trade and other receivables 327,873 202,340 - (24,469) 177,871
Cash 199,596 47,230 - 820 48,050
------------------------------- ---------- ---------- ---------- ----------- ----------
527,787 249,730 - (23,649) 226,081
------------------------------- ---------- ---------- ---------- ----------- ----------
Total
assets 881,481 406,737 (5,316) 13,308 414,729
------------------------------- ---------- ---------- ---------- ----------- ----------
Current liabilities
Bank overdraft (19,642) (15,871) - - (15,871)
Borrowings (26,501) (6,280) - - (6,280)
Trade and other
payables (125,942) (102,836) 783 6,815 (95,238)
Corporation tax (24,346) (7,457) - (3) (7,460)
Obligations under
finance leases (610) (479) - - (479)
Deferred tax liabilities (56) (533) - - (533)
------------------------------- ---------- ---------- ---------- ----------- ----------
(197,097) (133,456) 783 6,812 (125,861)
------------------------------- ---------- ---------- ---------- ----------- ----------
Non-current liabilities
Borrowings (11,961) (7,475) - - (7,475)
Trade and other payables (1,896) (8,032) 2,000 - (6,032)
Obligations under
finance leases (661) (568) - - (568)
Deferred tax liabilities (2,348) (3,473) - 840 (2,633)
------------------------------- ---------- ---------- ---------- ----------- ----------
(16,866) (19,548) 2,000 840 (16,708)
------------------------------- ---------- ---------- ---------- ----------- ----------
Total liabilities (213,963) (153,004) 2,783 7,652 (142,569)
------------------------------- ---------- ---------- ---------- ----------- ----------
Net assets 667,518 253,733 (2,533) 3 20,960 272,160
------------------------------- ---------- ---------- ---------- ----------- ----------
Equity
Share capital 56,700 36,216 - - 36,216
Share premium account 321,408 102,026 - - 102,026
Merger reserve 124,699 80,320 (802) (5,200) 74,318
Shares to be issued 54,151 - 321 29,857 30,178
========== ========== ===========
Other reserves 998 54 (1,242) - (1,188)
Foreign currency translation
reserve (4,238) (1) - - (1)
Retained earnings 110,054 34,843 (810) (3,697) 30,336
------------------------------- ---------- ---------- ---------- ----------- ----------
Equity attributable to equity
holders of the parent 663,772 253,458 (2,533) 20,960 271,885
Non-controlling
interests 3,746 275 - - 275
------------------------------- ---------- ---------- ---------- ----------- ----------
Total
equity 667,518 253,733 (2,533) 20,960 272,160
------------------------------- ---------- ---------- ---------- ----------- ----------
Notes
2: The IFRS 10 movement in intangible assets in 2012 was an
increase of GBP36.9 million. This represents additional intangible
assets of GBP5.0 million identified on the acquisition of AAH, now
consolidated from an earlier date, net of GBP0.6 million additional
amortisation charged in the year. Goodwill increased by GBP32.5
million, representing GBP39.3 million of Goodwill on the
acquisition of AAH and a GBP6.8 million reduction to the Goodwill
previously recognised on the acquisition of the Legal Services
businesses (GBP5.2 million of which relates to the adjustment to
the value of the consideration shares which has been discounted by
the Group's cost of equity to take account of the time value of the
consideration and GBP1.8m in respect of a reduction in the fair
value of the deferred tax liability arising on acquistion). See
further information in note 11.
3: The movement in the remaining aspects of the composition of
the balance sheet for the restatement is the consequence of ALH
being consolidated from an earlier date during 2012. The major
impact being that the 2012 deposit of GBP19.9 million in relation
to the ALH acquisition previously shown in Prepayments at the
year-end has been amended and included in the acquisition and
Goodwill calculation. Likewise the GBP29.9 million of deferred
share consideration in respect of the AAH acquisition is now
included in 2012 in the Shares to be issued reserve. Also see note
11.
4: Included in the GBP5.3m adjustment to intangible assets is a
decrease of GBP4.8m related to the prior year adjustment in respect
of post business combination remuneration as set out in note 2. The
remaining GBP0.5m decrease is in relation to part of the fair value
of consideration adjustment as set out in Note 2, for acquisitions
where the date of consolidation has not been reassessed. The
remaining GBP5.2m in relation to the fair value of consideration
adjustment has been included in the IFRS 10 column as noted in note
2 above as this relates to acquisitions where the date of
consolidation has been reassessed.
2d Impact of new and revised Standards: Consolidated Cash Flow Statement
IFRS
10 Restated
2013 2012 Reclassification adjustment 2012
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash flows from operating
activities
Cash generated from/(used by) operations
before exceptional costs, net finance
expense and tax 10,433 38,798 - (5) (18,339) 20,459
Cash outflow from
exceptional
costs (7,268) (2,101) - - (2,101)
--------------------------- ---------- ------------ --------- --------- ---------------- ------------- ---------
Cash generated from operations before
net finance expense and tax 3,165 36,697 - (18,339) 18,358
Net finance expense paid (1,694) (1,105) - (130) (1,235)
Corporation tax paid (10,409) (1,477) - (1,037) (2,514)
Net cash (used by)/generated from
operating activities (8,938) 34,115 - (19,506) 14,609
------------------------------------------------------- --------- --------- ---------------- ------------- ---------
Cash flows from investing
activities
Purchase of property, plant
and equipment (2,484) (1,289) - (28) (1,317)
Purchase of intangible
fixed assets (21,359) (2,899) - - (2,899)
Proceeds on disposal of property,
plant and equipment 360 36 - - 36
Proceeds on sale of subsidiary undertaking
and sale of operations 2,480 - - - -
Acquisition of subsidiaries
net of cash acquired (11,533) (54,319) - 5,247 (49,072)
Purchase of associated
undertakings (18,261) - - - -
Purchase of fixed asset
investments (1,807) (4,101) - - (4,101)
Deposits held in escrow (1,500) - - - -
Loans to investments and
other parties (4,898) (15,107) - (5) 15,107 -
Dividends received from
associates 109 - - - -
Receipts/(payments) on
Equity Swap - (15,583) (6) 15,583 - -
------------------------------- ---------- -------- --------- --------- ---------------- ------------- ---------
Net cash used in investing
activities (58,893) (93,262) 15,583 (7) 20,326 (57,353)
----------------------------------- ---------- ----- --------- --------- ---------------- ------------- ---------
Cash flows from financing
activities
Issue of share
capital 200,406 90,953 - - 90,953
Finance lease
repayments (635) (888) - - (888)
Additional/(repayment of) secured
loans received 12,125 (3,790) - - (3,790)
Additional unsecured
loan monies received 518 520 - - 520
Receipts/(payments) on
Equity Swap 3,192 - (6) (15,583) - (15,583)
----------------------------------- ---------- ----- --------- --------- ---------------- ------------- ---------
Net cash generated from
financing activities 215,606 86,795 (15,583) - 71,212
----------------------------------- ---------- ----- --------- --------- ---------------- ------------- ---------
Net increase in cash and
cash equivalents 147,775 27,648 - 7 820 28,468
Cash and cash equivalents at the
beginning of the year 32,179 3,711 - - 3,711
--------------------------------------------------- --------- --------- ---------------- ------------- ---------
Cash and cash equivalents
at the end of the year 179,954 31,359 - 820 32,179
--------------------------------------- ---------- --------- --------- ---------------- ------------- ---------
Adjusted Operating cash flow (before exceptional
costs, tax and net finance expense):
Adjusted Operating cash flow (as
defined above) including IFRS 10
adjustment 10,433 38,798 - (18,339) 20,459
IFRS 10 adjustment 9,645 - - 18,339 18,339
---------
Adjusted Operating cash flow (as
defined above) excluding
IFRS 10 adjustment 20,078 38,798 - - 38,798
------------------------------------------------------- --------- --------- ---------------- ------------- ---------
Notes
5: The impact on Operating cash flow and conversley on Investing
activities is a consequence of the change in treatment of the
Group's acquisitions with certain acquisitions under the
application of IFRS 10, with each business being consolidated from
an earlier date, requiring that certain cash flows being re-stated
as intra-group rather than external, as previously recorded.
6: As described earlier in this note 2.
7: The net movement in the Consolidated Cash Flow Statement
represents cash held by ALH at the 2012 year-end. ALH was
previously deteremind to have been acquired at the contractual
acquisition date of 9 April 2013.
3. Significant accounting policies
Business combinations
The acquisition of subsidiaries is accounted for using the
purchase method. On acquisition, the assets and liabilities and
contingent liabilities of a subsidiary are measured at their fair
values at the date of acquisition. Any excess of the cost of
acquisition over fair values of the identifiable net assets
acquired is recognised as goodwill. Any deficiency of the cost of
acquisition below the fair values of the identifiable net assets
acquired (i.e. discount on acquisition) is credited to the Income
Statement in the year of acquisition. Where consideration is locked
in for future periods, due to performance conditions, the value of
this consideration is discounted by the group's cost of equity for
the time value of money. Where the group acquires a business with
which it had a previous relationship, to the extent that is
necessary, any settlement of a pre-existing relationship is
separated from the business combination accounting.
Revenue recognition
The Group derives its revenues from the provision of services
through its Services and Solutions divisions. Material income
streams arising within those divisions are described below.
Revenue earned by the Services Division
Revenue is measured at the fair value of the consideration
received and represents amounts receivables for services provided
in the ordinary course of business, net of discounts and sales
taxes.
The Group earns revenue either as principal or agent,
differentiated by the extent to which the Group is at risk for the
transaction, and whether it is acting in its capacity as broker or
as agent. Where the Group retains the liability for the delivery or
settlement of some, or all, of the contract, revenue is accounted
for gross. Where the Group acts as broker or agent, the Group's
revenue is recorded solely as the fee relating to the provision of
services provided by the Group on that transaction.
The material revenue streams of the Services Division relates
ultimately to the servicing of parties involved in Road Traffic
Accidents (RTA's) or non RTA related personal injury cases. RTA
cases typically comprise the provision of all or some of the
following services: replacement vehicle hire, vehicle repair,
management of personal injury cases, provision of medical reports
and rehabilitation. Claims are typically presented to insurers,
acting for the not at fault or fault party. Amounts are set aside
for settlement adjustments which insurers, in certain limited
circumstances (e.g. administrative delays or when facts about a
case change) seek to negotiate. Such amounts are recognised within
revenue as they relate to revisions of income estimates, not
collectability (credit risk).
Replacement vehicle charges are recognised on a daily basis in
accordance with charges under the General Tariff Agreement of the
Association of British Insurers ("GTA") or in line with specific
contractual terms. The hire cost is known, generally being based on
prices agreed with third party hirers.
Repair revenue is recognised based on the estimated stage of
completion at the period end date. The repair work is conducted by
third parties and the stage of completion is estimated based on
information provided by these suppliers. Repair revenue can be
reliably estimated based on prices agreed with insurers. Repair
costs can likewise be reliably measured and are either based on the
(third party repairer supplied) estimated cost to repair the
vehicle concerned or, if the service is complete, the repairer's
invoice.
Revenue from legal services is recognised based on the estimated
stage of completion at the period end date. Income can be reliably
estimated based on fixed fees established by the Civil Procedures
Rules used by the courts in England and Wales and estimates of any
fixed and variable fees agreed with clients.
Individual case life may span a number of months. Revenue is
recognised across the expected life of each case, in line with the
typical level of effort expended in relation to that case type,
taking into account the total income expected to be earned on that
case type. This will include an assessment of fees for cases that
are anticipated to be concluded successfully. Costs incurred during
the life of a case can be reliably estimated based on contractual
terms with suppliers and estimates of internal resource. Such costs
are recognised in the income statement across the expected life of
the case, on the same basis as the revenue is recognised.
Amounts incurred by the Group with third parties in relation to
legal disbursements are recorded within Trade and other payables.
To the extent that these are recoverable from third parties, an
asset is recorded within Other debtors.
Income arising from medical and rehabilitation services is
recognised on delivery of service. Income can be reliably estimated
based on agreed charges with customers or instructing parties.
Where services are delivered by external parties costs can be
reliably estimated based on contractual charges agreed with those
suppliers.
Where the Group acts as a broker or agent for the sale of a
product on behalf of another party, revenue represents brokerage
fees and is recognised as services are rendered and in accordance
with agreed contractual terms. Where services are subject to a claw
back of revenue during the duration of a contract, an initial
estimate of claw back is made based on historical data and
adjustment made to revenue initially recognised.
Revenue earned by the Solutions Division
The Solutions Division receives its income through Software ILF
(Initial Licence Fee), SaaS (Software as a Service), consulting
fees, management charges, membership fees, e-commerce revenues,
click fees and other success based one-time fees. Intellectual
property rights ("IPR") or distribution rights to IPR are sold and
recognised on the delivery of IPR or granting of the rights to the
customer.
When selling software, new solution sales typically involve
software licences being sold together with Post Customer Support
(PCS) services and/or implementation services. Where the commercial
substance of such a combination is that the individual components
operate independently of each other and fair values can be
attributed to each of the components, each are then recognised in
accordance with their respective policies described below. Where it
is not possible to attribute reliable fair values to two or more
components, these are viewed as a combination and revenue is
recognised on the combined revenue streams as the combined service
is delivered using the percentage of completion method. Provisions
for estimated losses on uncompleted contracts are recorded in the
year in which such losses become probable, based on contract cost
estimates.
When selling products such as telematics devices, a sale is
recognised when legal title has passed to the customer. This may be
under bill and hold style arrangements when agreed with the
customer.
The revenue recognition policies for separately identifiable
revenue streams are as follows:
Initial licence fees, SaaS and other success based one-time
fees
Revenues are recognised when pervasive evidence of an
arrangement exists, delivery has occurred, the licence or other
one-time fee is fixed or determinable, the collection of the fee is
reasonably assured, no significant obligations with regard to
success, installation or implementation of the software or service
remain, and customer acceptance, when applicable, has been
obtained. On certain SaaS contracts where there are fixed and
contracted term lengths and no other services are required to be
performed during the remainder of the contract, receivables under
the contracts are recognised at the point of sale.
Maintenance, Hosting and other PCS Services
Maintenance, Hosting and PCS services are billed on a periodic
basis in advance. The Group recognises revenue on these services
evenly over the period of the contract.
Solution Delivery Implementation Services
Revenues for all fixed fee contracts are recognised on a
percentage complete basis. The Group calculates the percentage to
complete by comparing the number of man days utilised at the period
end with the total number of man days required to complete the
project. Project plans are reviewed on a regular basis with any
losses recognised immediately in the period in which such losses
become probable based on contract cost estimates.
Share-based payments
Warrants
The Company issued warrants in connection with its acquisition
of Quindell Limited in May 2011, the fair value of which was
calculated at the time of issue and charged immediately to the
Income Statement. Similarly, on 17 June 2013 the Company issued
warrants to the RAC. The Group has adopted a Black-Scholes model to
calculate the fair value of warrants.
Options
The fair value of options granted to individuals is recognised
as an expense, with a corresponding increase in equity, over the
period in which the unconditional entitlement occurs. The fair
value of the options granted is measured using an option valuation
model, taking into account the terms and conditions upon which the
options were granted. The amount recognised as an expense is
adjusted to reflect the actual number of share options expected to
vest. Upon the exercise of share options, the proceeds received net
of attributable transaction costs are credited to share capital,
and where appropriate share premium.
The Group adopted a Black Scholes model to calculate the fair
value of options granted. Costs relating to employees of
subsidiaries has been accounted for by increasing the Company's
cost of investment of those subsidiaries.
Post combination vendor remuneration
Where consideration towards an acquisition is linked to ongoing
employment within the Group this consideration is not treated as a
cost of the acquisition. It is treated as post combination
remuneration and is recognised in the Income Statement over the
period in which the employment services are delivered. The
valuation of such amounts, where the form of the payment is in
shares, uses an option valuation model. Where such costs relate to
employees of subsidiaries, this has been accounted for by
increasing the Company's cost of investment of those
subsidiaries.
4. Key performance indicators
Restated
See Note
2
2013 2012
GBP'000 GBP'000
Adjusted Revenue:
Solutions Division revenue 80,441 30,068
-------------------------------------------------------- -------- --------
Services Division revenue 299,690 132,936
Legal Services related sales(1) 18,605 7,154
-------------------------------------------------------- -------- --------
Services Division Gross sales 318,295 140,090
-------------------------------------------------------- -------- --------
Total Gross Sales 398,736 170,158
-------------------------------------------------------- -------- --------
Adjusted EBITDA:
Profit before taxation 107,046 35,359
Depreciation 2,220 1,976
Amortisation 7,265 3,220
Exceptional costs 13,744 5,803
Share based payments 2,819 272
Net finance expense 1,694 1,080
Adjusted EBITDA including IFRS 10 adjustment 134,788 47,710
IFRS 10 adjustment(2) 2,863 4,526
Adjusted EBITDA excluding IFRS 10 adjustment 137,651 52,236
-------------------------------------------------- -------- -------- --------
Adjusted Profit before taxation:
Profit before taxation 107,046 35,359
Amortisation 7,265 3,220
Exceptional costs 13,744 5,803
Share based payments 2,819 272
Adjusted Profit before taxation including IFRS
10 adjustment 130,874 44,654
IFRS 10 adjustment(2) 2,857 4,501
Adjusted Profit before taxation excluding IFRS
10 adjustment 133,731 49,155
-------------------------------------------------- -------- -------- --------
Adjusted Operating cash flow (before exceptional
costs, tax and net finance expense):
Adjusted Operating cash flow (as defined above)
including IFRS 10 adjustment 10,433 20,459
IFRS 10 adjustment 9,645 18,339
Adjusted Operating cash flow (as defined above)
excluding IFRS 10 adjustment 20,078 38,798
-------------------------------------------------- -------- -------- --------
Adjusted EPS (See Note 8):
Profit for the year attributable to equity
holders of the parent 82,949 27,302
Adjusted basic profit for the year (See Note
8) 106,700 39,474
==================================================
Basic earnings per share 1.971 1.005
Diluted earnings per share 1.952 0.998
Adjusted basic earnings per share 2.535 1.453
Adjusted diluted earnings per share 2.511 1.442
-------------------------------------------------- -------- -------- --------
Notes
1: The adjustment to obtain Gross sales is the inclusion of
disbursements transacted by the Group's legal services business
that are provided by non-Group parties, incurred by the Group and
invoiced on to at-fault insurers.
2: Adjusted profit before taxation and Adjusted EBITDA excludes
the impact of the first time application of IFRS 10 which, as
outlined in Note 2, has changed the treatment of a number of
acquisitions that the Group entered into in 2012 and 2013.
5. Business and geographical segments
Operating segments
For management purposes, the Group is organised into two
operating divisions: Solutions and Services. These divisions are
supported by a group cost centre. These two divisions are the basis
on which the Group reports its primary segment information.
The principal activities of each segment are as follows. The
Solutions division provides software, business and technology
consulting services, administration and management services, white
labelled solutions, e-commerce, membership services, SaaS solutions
and other services. The Services division provides technology
enabled sales and service related outsourcing services.
Segment information about these businesses is presented below.
Segment profit represents the profit earned by each segment before
the allocation of specific central head office and research and
development costs, exceptional costs, share based payments, finance
costs and income tax expense and is a measure reported to the
Executive Chairman and the Board for the purpose of resource
allocation and assessment of segment performance. Intra-segmental
transactions have been eliminated in analysis below.
Solutions Services Central Total
GBP'000 GBP'000 GBP'000 GBP'000
2013
Software and consulting (management
and one time fees, e-commerce
and click fees) revenue 80,441 - - 80,441
Technology enabled outsourcing
(sales, service, other) revenue - 299,690 - 299,690
-------------------------------------- ---------- --------- --------- ---------
Total revenue 80,441 299,690 - 380,131
-------------------------------------- ---------- --------- --------- ---------
Adjusted EBITDA(1) before central
costs
Software and consulting 51,387 - - 51,387
Technology enabled outsourcing - 90,780 - 90,780
-------------------------------------- ---------- --------- --------- ---------
Adjusted EBITDA(1) before central
costs 51,387 90,780 - 142,167
-------------------------------------- ---------- --------- --------- ---------
Group costs - - (8,944) (8,944)
Other income and share of results
of associate - 183 4,245 4,428
-------------------------------------- ---------- --------- --------- ---------
Adjusted EBITDA(1) 51,387 90,963 (4,699) 137,651
-------------------------------------- ---------- --------- --------- ---------
Exceptional costs and share based
payments (3,557) (959) (12,047) (16,563)
IFRS 10 adjustments(1) - (2,863) - (2,863)
Depreciation and amortisation (1,498) (2,310) (5,677) (9,485)
Net finance expense (84) (2,096) 486 (1,694)
-------------------------------------- ---------- --------- --------- ---------
Profit/(loss) before taxation 46,248 82,735 (21,937) 107,046
Taxation (10,520) (18,820) 4,990 (24,350)
-------------------------------------- ---------- --------- --------- ---------
Profit/(loss) after taxation 35,728 63,915 (16,947) 82,696
-------------------------------------- ---------- --------- --------- ---------
2012 Restated - See Note 2
Software and consulting (management
and one time fees, e-commerce
and click fees) revenue 30,068 - - 30,068
Technology enabled outsourcing
(sales, service, other) revenue - 132,936 - 132,936
-------------------------------------- ---------- --------- --------- ---------
Total revenue 30,068 132,936 - 163,004
-------------------------------------- ---------- --------- --------- ---------
Adjusted EBITDA(1) before central
costs
Software and consulting 24,042 - - 24,042
Technology enabled outsourcing - 32,176 - 32,176
-------------------------------------- ---------- --------- --------- ---------
Adjusted EBITDA(1) before central
costs 24,042 32,176 - 56,218
-------------------------------------- ---------- --------- --------- ---------
Group costs - - (4,299) (4,299)
Other income and share of results
of associate - (19) 336 317
-------------------------------------- ---------- --------- --------- ---------
Adjusted EBITDA(1) 24,042 32,157 (3,963) 52,236
-------------------------------------- ---------- --------- --------- ---------
Exceptional costs and share based
payments (1,077) (2,162) (2,836) (6,075)
IFRS 10 adjustments(1) - (4,526) - (4,526)
Depreciation and amortisation (2,093) (1,654) (1,449) (5,196)
Net finance expense (60) (1,045) 25 (1,080)
-------------------------------------- ---------- --------- --------- ---------
Profit/(loss) before taxation 20,812 22,770 (8,223) 35,359
Taxation (4,250) (3,443) (271) (7,964)
-------------------------------------- ---------- --------- --------- ---------
Profit/(loss) after taxation 16,562 19,327 (8,494) 27,395
-------------------------------------- ---------- --------- --------- ---------
Note: (1) Adjusted EBITDA in the tables above excludes exceptional
costs, share based payments and the impact of the first time application
of IFRS 10 which, as outlined in Note 2, has changed the treatment
of a number of acquisitions that the Group entered into in 2012
and 2013.
Other information:
Unallocated
corporate
Solutions Services assets Total
GBP'000 GBP'000 GBP'000 GBP'000
2013
Capital additions 30,865 103,308 1,864 136,037
============ =========== ============ ==========
Statement of financial position
Assets 121,727 562,962 196,792 881,481
============ =========== ============ ==========
Liabilities (19,939) (169,506) (24,518) (213,963)
--------------------------------- ============ =========== ============ ==========
2012 Restated - See Note 2
Capital additions 23,524 107,733 1,303 132,560
Statement of financial position
Assets 57,704 275,189 81,836 414,729
Liabilities (15,875) (109,003) (17,691) (142,569)
--------------------------------- ------------ ----------- ------------ ----------
Segment assets and liabilities are those assets and liabilities
that are employed by a division in its operating activities.
Segment assets include intangible assets, property, plant and
equipment, inventories, trade and other receivables, cash and cash
equivalents. Segment liabilities include borrowings, trade and
other payables. Unallocated assets and liabilities include cash
balances and property, plant and equipment, trade payables and
deferred tax liabilities.
Geographical segments
United Rest of
Kingdom World Total
GBP'000 GBP'000 GBP'000
2013
Revenue 321,576 58,555 380,131
---------------------------- ========= ========== ========
Other segment information
Assets 551,510 38,691 590,201
========= ========== ========
Intangible assets 226,334 64,946 291,280
---------------------------- ========= ========== ========
Total assets 777,844 103,637 881,481
---------------------------- ========= ========== ========
Capital expenditure
Tangible assets 3,241 3,698 6,939
========= ========== ========
Intangible assets 64,763 64,335 129,098
---------------------------- ========= ========== ========
2012 Restated - See Note 2
Revenue 152,271 10,733 163,004
---------------------------- --------- ---------- --------
Other segment information
Assets 233,589 6,931 240,520
Intangible assets 168,144 6,065 174,209
---------------------------- --------- ---------- --------
Total assets 401,733 12,996 414,729
---------------------------- --------- ---------- --------
Capital expenditure
Tangible assets 5,725 696 6,421
Intangible assets 120,131 6,008 126,139
---------------------------- --------- ---------- --------
6. Exceptional costs
Restated
See Note
2
2013
2013 2012
GBP'000 GBP'000
Acquisition costs:
Acquisition related
fees 1,889 1,837
Costs of integration and associated
redundancies 1,084 782
Post combination vendor remuneration (cash element) 962 538
Share based payments: share options of a subsidiary - 120
Cost of raising finance, including loss on Equity
Swap 5,233 2,526
-------------------------------------------------------------------------------- -------- ---------
Exceptional costs excluding share
based payments 9,168 5,803
Exceptional share based payments: warrants granted
in respect of a customer agreement 4,576 -
Total exceptional costs 13,744 5,803
---------------------------------------------- ------------------------------- -------- ---------
7. Taxation
Restated
See Note
2
2013 2012
GBP'000 GBP'000
The taxation charge/(credit)
comprises:
Current tax:
- Current year 27,190 7,833
- Adjustments in respect
of prior year (387) 14
------------------------------ -------- ---------
Total current
tax 26,803 7,847
------------------------------ -------- ---------
Deferred tax:
- Current year (1,496) 117
- Adjustments in respect
of prior year (957) -
------------------------------ -------- ---------
Total deferred tax (2,453) 117
------------------------------ -------- ---------
Taxation 24,350 7,964
------------------------------ -------- ---------
Income tax for the UK is calculated at the standard rate of UK
corporation tax of 23.25% (2012: 24.50%) on the estimated
assessable profit for the year. The total charge for the year can
be reconciled to the accounting profit as follows:
Restated
See Note
2
2013 2012
GBP'000 GBP'000
Profit on ordinary activities before tax 107,046 35,359
------------------------------------------------------------ ------------ -------- ---------
Tax at 23.25% (2012: 24.50%) thereon 24,888 8,663
Effect of:
Expenses not deductible for tax purposes 2,231 268
Effect of lower rate tax overseas (1,082) -
Research and development tax credit claim (161) (981)
Reduction in rate of deferred tax (182) -
Adjustments to tax charge in respect of prior
periods (1,344) 14
Total tax charge for the year 24,350 7,964
------------------------------------------------------------ ------------ -------- ---------
8. Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the year.
For diluted earnings per share the weighted average number of
ordinary shares is adjusted to assume conversion of all dilutive
potential ordinary shares where, on warrants or options, exercise
price is less than the average market price of the Company's
ordinary shares during the year.
The calculation of the basic and diluted earnings per share is
based on the following data:
Restated
See Note
2
2013 2012
GBP'000 GBP'000
Profit for the year 82,949 27,302
------------------------------------ -------- ---------
Adjustments:
- exceptional costs 13,744 5,803
- share based payments 2,819 272
- amortisation 7,265 3,220
- IFRS 10 adjustment(1) 2,857 4,501
- tax effect on the above (2,934) (1,624)
------------------------------------ -------- ---------
Adjusted basic profit for the year 106,700 39,474
------------------------------------ -------- ---------
2013 2012
Number Number
'000s '000s
Weighted average number of shares in
issue in the year 4,209,532 2,716,720
Dilutive potential ordinary shares
- Deferred consideration shares 15,500 3,205
- Share based payments 11,147 -
- Warrants 12,996 16,779
-------------------------------------- --------- ----------
Shares used to calculate diluted and
adjusted diluted earnings per share 4,249,175 2,736,704
-------------------------------------- --------- ----------
Restated
See Note
2
2013 2012
Pence Pence
Basic earnings per share 1.971 1.005
Diluted earnings per share 1.952 0.998
Adjusted basic earnings per share 2.535 1.453
Adjusted diluted earnings per share 2.511 1.442
-------------------------------------- --------- ----------
Note
(1) Adjusted basic profit for the year excludes exceptional
costs, share based payments, amortisation and the impact of the
first time application of IFRS 10 which, as outlined in Note 2, has
changed the treatment of a number of acquisitions that the Group
entered into in 2012 and 2013.
9. Trade and other receivables
Restated
See Note
2
2013 2012
GBP'000 GBP'000
Trade receivables (net of impairment
provision) 85,632 73,694
========
Other receivables:
- relating to legal disbursements
due from insurance companies 57,473 26,549
======== =========
- other 20,120 7,977
========
Prepayments 12,955 8,426
======== =========
Accrued income 151,693 47,928
========
Derivative financial instruments - 13,297
-------------------------------------- ======== =========
327,873 177,871
-------------------------------------- ======== ---------
10. Trade and other payables
Restated
See Note
2
2013 2012
GBP'000 GBP'000
Current liabilities
Trade payables 21,346 12,166
========
Payroll and other taxes including
social security 13,518 17,557
========
Accruals 33,153 21,722
========
Deferred income 4,978 2,180
========
Other liabilities:
- relating to legal disbursements 44,811 28,692
======== =========
- other 8,136 12,921
------------------------------------ ======== =========
125,942 95,238
------------------------------------ ======== ---------
Non-current liabilities
Other liabilities 1,896 6,032
1,896 6,032
------------------------------------ ======== ---------
11. Acquisitions
2013
The Group made three significant acquisitions during the year,
and three smaller acquisitions. In each case, the acquirer obtained
control through a combination of control over voting rights,
positions on the board or by virtue of put and call options that
were entered into and which are then accounted for under the
anticipated acquistion method for accounting for business
combinations. Where the Company's own shares formed part of the
consideration of an acquisition, these have been been valued
according to the opening bid price (as recorded by AIM) on the day
legal title passed or, where the anticipated acquistion method for
accounting for business combinations has been elected to be used,
the day the Group concluded that it controlled the acquired entity,
discounted by the Group's cost of equity to factor in the time
value of the consideration.
For all acquisitions in the current year, where contingent or
deferred consideration (cash or shares) that is linked to future
performance conditions is included in the cost of acquisition, the
maximum amount, be that in cash or by way of issuing shares has
been included based on a current assessment of performance of each
business against those future performance conditions. In the event
that any performance conditions are not met then these contingent
elements are subject to clawback provisions. The range of potential
outcomes that could arise is as shown in the table below, whereby
an amount up to the full value of the contingent or deferred
consideration could be recovered. However, consistent with the
current judgement noted above, no amounts are currently expected to
be clawed back and as a result, no indemnification asset has been
recognised.
Iter8 Inc ("iter8")
On 18 April 2013 the Group acquired the entire issued share
capital of iter8, a leading Software as a Service ("SaaS") provider
to the North American insurance broker and agent market. The
provisional fair value of the identifiable assets and liabilities
of iter8 at acquisition date are set out below:
Carrying
value Fair value
GBP'000 GBP'000
======== ==========
Tangible fixed assets 168 168
======== ==========
Intangible assets 3,983 2,256
======== ==========
Trade and other receivables 1,614 1,614
======== ==========
Cash and cash equivalents 9 9
======== ==========
Trade and other payables (4,518) (4,518)
=================================== ========
Deferred tax asset - 397
======== ==========
Net assets/(liabilities) acquired 1,256 (74)
=================================== ======== ==========
Consideration:
- Cash 2,500
==========
- Deferred cash 2,500
==========
- Deferred shares (19,004,571 out
of 90,285,713) 2,052
=================================== -------- ==========
Total consideration 7,052
==========
Goodwill arising from acquisition 7,126
=================================== -------- ==========
The deferred shares are issuable over three years from the date
of acquisition and are subject to lock in conditions. The value of
the shares has been discounted by the Group's cost of equity to
take account of the time value of the consideration. The discount
amount was GBP418,000. Of the 90,285,713 deferred shares,
19,004,571 have been treated as consideration for the acquisition
(as above). The remaining 71,281,142 shares have been treated as
linked to post combination vendor remuneration as entitlement to
these shares, issued as consideration to three of the vendors was
linked to their ongoing employment with the Group. The 71,281,142
shares have been valued under share based payment rules and a share
based payment charge recognised for the charge to the Consolidated
Income Statement in the current year.
The resultant goodwill of GBP7.1 million represents the value to
the Group that can be driven from these underlying assets over the
life of the acquired business and comprises the value of expected
synergies arising from the acquisition together with the workforce,
which is not separately recognised. Acquired receivables are
included within the Trade and other receivables balances above and
the carrying value of these is considered to be their fair value.
No significant trade receivable provision was acquired, nor
adjusted. Included within the fair value adjustments above is a
GBP3.9 million adjustment to revalue licence and distribution
agreements previously capitalised in the acquired entity. Prior to
the acquisition, the Group had supplied to iter8 a licence and
software with a value of GBP3.9m. This pre-existing relationship
was settled on acquisition. The underlying software acquired was
then separately valued at fair value at the date of
acquisition.
Acquisition costs of GBP306,000 were incurred and included as
exceptional costs within administrative expenses. The deferred cash
is due to be paid in April 2014, and the additional share
consideration of 19,004,571 shares is due to be issued in three
equal annual instalments commencing April 2014.
PT Healthcare Solutions Corp ("PT Health")
On 26 September 2013 the Group acquired a 26% stake in PT
Healthcare Solutions Corp (via a share-for-share exchange) with an
option to acquire the remaining 74% of business. Whilst the Group's
shareholding in PT Health is only 26% as at 31 December 2013, the
Directors have concluded that the Group controls PT Health by
virtue of the put and call options that exist regarding the
acquisition of the remaining equity shares in PT Health by the
Group, and by virtue of the funding that the Group had provided to
PT Health since it took its 26% investment. The terms of the put
and call option include the unconditional ability to exercise the
call option, expiring 31 March 2014. As a consequence, PT Health
has been consolidated as a subsidiary undertaking using the
anticipated acquisition method, consistent with IFRS 3, on the
basis that the put and call option provides substantive potential
voting rights in accordance with IFRS 10. PT Health is a leading
provider of healthcare and rehabilitation services in Canada. The
primary reason for acquisition was to enable the Group to enhance
the range of products that it could offer to customers.
The provisional fair value of the identifiable assets and
liabilities of PT Health at acquisition date are set out below:
Carrying
value Fair value
GBP'000 GBP'000
Tangible fixed assets 3,213 3,213
Intangible assets 1,232 1,593
Inventories 252 252
Trade and other receivables 5,014 5,014
Cash and cash equivalents 113 113
Other secured loans (5,875) (5,875)
Unsecured loans (498) (498)
Cumulative redeemable preference shares (5,939) (5,939)
Finance leases (5) (5)
Trade and other payables (4,995) (5,085)
Deferred tax liabilities - (72)
Net liabilities acquired (7,488) (7,289)
Consideration:
- Fair value of non-controlling interest 716
- Deferred shares (242,000,000) 33,924
------------------------------------------ -------- ----------
Total consideration 34,640
Goodwill arising from acquisition 41,929
------------------------------------------ -------- ----------
The deferred shares included in consideration in the table above
relates to the put and call option shares. The Company's shares
issued for the share-for-share exchange on acquisition have been
accounted for as if they treasury shares. The value of the shares
has been discounted by the Group's cost of equity to take account
of the time value of the consideration. The discount amount was
GBP6,914,000. The goodwill of GBP41.9 million represents the value
to the Group that can be driven from these underlying assets over
the life of the acquired business and comprises the value of
expected synergies arising from the acquisition together with the
workforce, which is not separately recognised. Acquired receivables
are included within the trade and other receivables balances above
and the carrying value of them is considered to be their fair
value. No significant trade receivable provision was acquired, nor
adjusted. The non-controlling interest recognised on acquisition is
in respect of PT Health's cumulative redeemable preference shares.
Acquisition costs of GBP104,000 were incurred and included as
exceptional costs within administrative expenses.
Quindell Property Services Limited
On 3 May 2013 the Group acquired the entire share capital of
Quindell Property Services, a newly formed group bringing together
a number of businesses, related to the supply of outsourced
property services and SaaS based technology solutions including the
disruptive use of video within the insurance property supply chain.
The services provided by Quindell Property Serviceswill enable
Quindell to accelerate the development of new products and
propositions in the property claims sector, with the opportunity to
build on Quindell Property Services' capabilities using Quindell's
existing insurance and affiliate clients, help clients to create
further differentiation in product offering, improve customer
retention and drive down the cost of property claims.
The provisional fair value of the identifiable assets and
liabilities of Quindell Property Servicesat acquisition date are
set out below:
Carrying
value Fair value
GBP'000 GBP'000
======== ==========
Tangible fixed assets 153 153
======== ==========
Intangible assets 1,451 2,811
======== ==========
Trade and other receivables 3,270 3,270
======== ==========
Cash and cash equivalents (38) (38)
======== ==========
Trade and other payables (2,752) (2,793)
============================================ ======== ==========
Deferred tax liabilities - (313)
======== ==========
Net assets acquired 2,084 3,090
============================================ ======== ==========
Consideration:
- Cash 1,375
==========
- Shares (97,274,047) 11,846
==========
- Deferred contingent shares (162,066,225) 18,175
============================================ ==========
- Fair value of non-controlling interest 3,122
============================================ ==========
- Revaluation of initial investment
at the point of gaining control (880)
============================================ -------- ==========
Total consideration 33,638
==========
Goodwill arising from acquisition 30,548
============================================ -------- ==========
The fair value of non-controlling interest included in the table
above relates to an acquired subsidiary of Quindell Property
Services.
The shares already issued are subject to lock in conditions over
three years from the date of acquisition. The deferred shares are
issuable over three years from the date of acquisition and are then
also subject to lock in conditions. The value of the deferred
shares and shares already issued has been discounted by the Group's
cost of equity to take account of the time value of the
consideration. The discount amount was GBP4,423,000. The goodwill
of GBP30.5 million represents the value to the Group that can be
driven from these underlying assets over the life of the acquired
business and comprises the value of expected synergies arising from
the acquisition together with the workforce, which is not
separately recognised. Acquired receivables are included within the
trade and other receivables balances above and the carrying value
of them is considered to be their fair value. No significant trade
receivable provision was acquired, nor adjusted. The
non-controlling interest recognised on acquisition is in respect of
a subsidiary in the Quindell Property Services group. Acquisition
costs of GBP245,000 were incurred and included as exceptional costs
within administrative expenses.
Other acquisitions
During the year, the Group also made a series of smaller
acquisitions of companies as follows:
Consideration
Date of acquisition Shares Cash Total
Company (2013) GBP'000 GBP'000 GBP'000
Compass Costs Consultants
Limited ("Compass Costs") 6 February 6,978 - 6,978
iSaaS Technology Limited ("iSaaS") 25 March 3,715 1,340 5,055
React & Recover Medical Group
Limited ("R&R") 25 March 6,608 625 7,233
------------------------------------ --------------------- -------- -------- --------
17,301 1,965 19,266
---------------------------------------------------------- -------- -------- --------
The primary reasons for the acquisitions was to enable the Group
to enhance the range of products that it could offer to customers,
and to increase its outsourcing and solutions capabilities. The
provisional fair value of the combined identifiable assets and
liabilities of these acquisitions at their respective acquisition
dates are set out below:
Carrying
value Fair value
GBP'000 GBP'000
Tangible fixed assets 177 177
Intangible assets - 7,405
Trade and other receivables 5,960 5,960
Cash and cash equivalents (14) (14)
Finance leases (19) (19)
Trade and other payables (4,895) (4,895)
Deferred tax liabilities (3) (1,703)
Net assets acquired 1,206 6,911
Consideration:
- Shares (188,771,429 in total) 17,301
- Cash 1,965
Total consideration 19,266
Goodwill arising from acquisitions 12,355
----------------------------------- -------- ----------
Included in goodwill of GBP12.4 million is GBP4.9 million in
respect of the Compass Costs, GBP3.0 million in respect of iSaaS
and GBP4.5 million in respect of R&R. This represents the value
to the Group that can be driven from these underlying assets over
the life of the acquired business and comprises the value of
expected synergies arising from the acquisitions together with the
workforce, which is not separately recognised. Acquired receivables
are included within the trade and other receivables balances above
and the carrying value of them is considered to be their fair
value. Included within Trade and other receivable balances acquired
with R&R of GBP3.2 million which represents gross trade
receivables of GBP4.4 million offset by a provision of GBP1.2
million. Other than this, no significant trade receivable provision
was acquired, nor adjusted. Acquisition costs of GBP413,000 were
incurred and included as exceptional costs within administrative
expenses.
All shares issued as part of the above acquisitions are subject
to lock in arrangements over three years, and have been discounted
by the Group's cost of equity to factor in the time value of the
consideration. The discount amount was GBP3,526,000. This is split
across the above acquisitions as follows: Compass Costs
GBP1,422,000, iSaaS GBP757,000 and R&R GBP1,347,000
million.
2012 Restated (See Note 2)
The Company made six significant acquisitions during the year
and eight smaller acquisitions. In each case, the acquirer obtained
control through a combination of control over voting rights and
positions on the board. As disclosed in note 2, consistent with the
treatment of 2013 acquisitions, prior year acquisitions have been
restated to recognise the time value of money where consideration
was locked in to future conditions. The total adjustment was
GBP12.0 million and further information is included below showing
the split of this across the relevant acquisitions.
Abstract Legal Holdings Limited ("AAH") - Restated (See Note
2)
On 8 April 2013 the Group acquired the entire issued share
capital of Abstract Legal Holdings Limited the parent company of
Accident Advice Helpline Limited. AAH is a leading ethical online
consumer brand providing access to justice victims of non-fault
accidents under a no-win, no-fee agreement. The primary reason for
the acquisition was to enable the Group to enhance the range of
products that it could offer to customers.
As disclosed in note 2, the acquisition date for AAH is now
determined to be earlier under IFRS 10 and, therefore has been
assessed as 24 July 2012. The table below sets out the revised fair
value of the identifiable assets and liabilities of AAH at the
revised acquisition date rather than the contractual acquisition
date of 9 April 2013:
Carrying
value Fair value
GBP'000 GBP'000
Tangible fixed assets 44 44
Intangible assets - 5,000
Trade and other receivables 7,237 7,237
Cash and cash equivalents 5,247 5,247
Trade and other payables (9,074) (9,074)
Deferred tax liabilities - (1,150)
Net assets acquired 3,454 7,304
Consideration:
- Shares (296,371,429) 34,817
- Cash 16,513
- Settlement of pre-existing partnering
agreement (4,716)
----------------------------------------- -------- ----------
Total consideration 46,614
Goodwill arising from acquisition 39,310
----------------------------------------- -------- ----------
The value of the shares has been discounted by the Group's cost
of equity to take account of the time value of the consideration.
The discount amount was GBP6,300,000. The goodwill of GBP39.3
million represents the value to the Group that can be driven from
these underlying assets over the life of the acquired business and
comprises the value of expected synergies arising from the
acquisition together with the workforce, which is not separately
recognised.
Legal Services businesses - Restated (See Note 2)
On 21 December 2012 and 31 December 2012, the Group acquired the
trade and certain assets and liabilities of three legal service
businesses: Silverbeck Rymer, Pinto Potts and The Compensation
Lawyers. Each of these businesses were providers of legal services
in relation to personal injury. The primary reason for the
acquisition was to enable the Group to enhance the range of
products that it could offer to customers.
As disclosed in note 2, the acquisition date for these
businesses, aggregated to form Quindell Legal Services is now
considered to be earlier under IFRS 10. These acquisitions are now
consolidated into the group results from the following dates:
Silverbeck Rymer: 1 July 2012, Pinto Potts: 17 August 2012 and The
Compensation Lawyers: 24 July 2012. Below sets out the revised fair
value of the identifiable assets and liabilities of Quindell Legal
Services at the revised acquisition dates:
Carrying
value Fair value
GBP'000 GBP'000
Tangible fixed assets 360 360
Intangible assets - 7,997
Trade and other receivables 34,626 34,626
Cash and cash equivalents 3,680 3,680
Trade and other payables (28,818) (28,818)
Net assets acquired 9,848 17,845
Consideration:
- Shares (187,166,666 in stages) 24,968
- Cash 13,530
- Deferred cash 1,500
- Settlement of pre-existing partnering
agreement (281)
----------------------------------------- -------- ----------
Total consideration 39,717
Goodwill arising from acquisition 21,872
----------------------------------------- -------- ----------
The net impact of the restatement under IFRS 10 on Quindell
Legal Services is that the net assets acquired were GBP0.2 million
lower than previously estimated which was offset by a GBP1.8
million decrease in the provisional fair value of the deferred tax
liabilities arising on the acquisition. In addition, the fair value
of the consideration shares has been reviewed to take account of
the time value of the it by discounting by the Group's cost of
equity - the discount amount was GBP5,200,000 which has reduced
goodwill accordingly. The timing impact of IFRS 10 was
insignificant due to the partnering agreement dates and revised
acquisition dates being closely aligned. The goodwill of GBP21.9
million represents the value to the Group that can be driven from
these underlying assets over the life of the acquired business and
comprises the value of expected synergies arising from the
acquisition together with the workforce, which is not separately
recognised.
IT Freedom Limited - Restated (See Note 2)
On 24 May 2012, the Group acquired the entire issued share
capital IT Freedom Limited ("IT Freedom"), a software solutions
delivery company. The primary reason for the acquisition was for IT
Freedom to provide delivery capacity to cope with the significant
pipelines already established by the Group.
As explained in note 2 above, a restatement has taken place as
33,031,533 (out of 49,713,669) shares and GBP3,000,000 deferred
cash consideration previously treated as consideration for the
acquisition have now been treated as linked to post combination
vendor remuneration as entitlement to certain shares issued as
consideration to two of key vendors was linked to their ongoing
employment with the Group. Removing the 33,031,533 shares and
GBP3,000,000 cash from the acquisition accounting has reduced
goodwill by GBP4.8 million. The 33,031,533 shares have been valued
under share based payment rules and a share based payment charge
recognised in the Consolidated Income Statement in the current and
prior year. The GBP3,000,000 cash is being recognised as an
exceptional cost across the three year period with a GBP962,000
charge in the current year (2012: GBP538,000).
Below sets out the revised acquisition note for IT Freedom at
the acquisition date amending for the reduced consideration.The
resultant reduction in goodwill was GBP4,816,000.
Carrying
value Fair value
GBP'000 GBP'000
======== ==========
Tangible fixed assets 4 4
============================================= ======== ==========
Intangible assets 1,669 2,630
============================================= ======== ==========
Trade and other receivables 277 277
============================================= ======== ==========
Cash and cash equivalents 70 70
============================================= ======== ==========
Other secured loans (181) (181)
============================================= ======== ==========
Trade and other payables (2,229) (2,229)
============================================= ======== ==========
Deferred tax liabilities (376) (597)
============================================= ======== ==========
Net assets acquired (766) (26)
============================================= ======== ==========
Consideration:
=============================================
- Shares (16,682,136 previously 49,713,669)
- re-stated 918
============================================= ==========
- Cash 500
============================================= ==========
- Deferred cash - re-stated (previously
GBP3,000,000) -
--------------------------------------------- -------- ==========
Total consideration - re-stated (previously
GBP6,234,000) 1,418
============================================= ==========
Goodwill arising from acquisition -
re-stated (previously GBP6,260,000) 1,444
============================================= -------- ==========
Quindell Business Process Services Limited (formerly Ai Claims
Solutions plc)
On 25 January 2012 the Group acquired a 29.9% stake in Quindell
Business Process Services. On 2 April 2012 the Group acquired a
further 47.7% and announced a public offer for the remaining 22.4%,
which resulted in the Group owning circa 98.4% of Quindell Business
Process Services. The group's effective control date over Quindell
Business Process Services was 2 April 2012 and the business was
consolidated into the group's results from that date. In the first
year since acquisition, the Directors have reviewed and amended the
provisional fair values reported in 2012 of the identifiable assets
and liabilities of Quindell Business Process Services acquired and
the goodwill thereon. The effect of this change is to reduce the
value of trade and other receivables acquired on acquisition by
GBP1,295,000 which has had a corresponding increase to the goodwill
associated with the Quindell Business Process Servicesacquisition
from GBP3.2 million (as previously stated) to GBP4.5 million. This
increase to goodwill has been reported as a 2013 goodwill addition
in note.
Quintica Holdings Limited ("Quintica")
On 18 September 2012 the Group acquired a 100% shareholding in
Quintica. Within the first year post-acquisition, the Directors
have reviewed and amended the provisional fair values reported in
2012 of the identifiable assets and liabilities of Quintica
acquired and the goodwill thereon. In addition, the value of the
consideration shares has been discounted by the Group's cost of
equity to take account of the time value of the consideration - the
discount amount was GBP500,000. The effect of this change is to
increase the value of trade and other payables assumed on
acquisition by GBP609,000 and increase the goodwill associated with
the Quintica acquistion by GBP109,000 from GBP5.7 million (as
previously stated) to GBP5.8 million. This increase to goodwill has
been reported as a 2013 goodwill addition.
Other acquisitions
The fair value of the identifiable assets and liabilities of the
remaining entities acquired in 2012 in aggregate at acquisition
date totalled net assets of GBP1.2 million, with consideration of
GBP31.5 million resulting in goodwill of GBP30.3 million.
12. Cash flow
Restated
See Note
2
2013 2012
GBP'000 GBP'000
Operating profit 108,740 36,439
Adjustments for:
Exceptional costs 7,268 2,101
==========
Loss on Equity Swap 5,140 2,286
==========
Share based payments 8,357 930
==========
Depreciation of property, plant and equipment 2,220 1,976
Amortisation of intangible fixed assets 7,265 3,220
Share of (profit)/loss of associates (242) 19
Net gain on re-measurement of investments
on becoming associates and associates
on acquisition of control (4,186) (336)
Negative goodwill released to income - (1,049)
Loss on disposal of plant, property and
equipment 34 -
Profit on disposal of interests in property, subsidiary
undertaking and operation (37) -
----------------------------------------------------------- ---------- -----------
Operating cash flows before movements
in working capital and provisions 134,559 45,586
==========
Decrease/(increase) in inventories 94 (45)
==========
Increase in trade and other receivables (137,605) (965)
==========
Increase/(decrease) in trade and other
payables 13,385 (24,117)
----------------------------------------------------------- ========== -----------
Cash generated from operations before
exceptional costs 10,433 20,459
----------------------------------------------------------- ========== -----------
Reconciliation of net cash flow to movement in net funds
Cash flow Non-cash
1 January Acquisitions movements movements 31 December
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2013
Cash 48,050 1,085 150,461 - 199,596
============ ========= ========= ===========
Overdrafts and bank loans (15,871) (1,015) (2,756) - (19,642)
--------------------------------- --------- ============ ========= ========= ===========
Cash and cash equivalents 32,179 70 147,705 - 179,954
============ ========= ========= ===========
Other secured loans < 1
year (6,052) (5,875) (13,157) (61) (25,145)
============ ========= ========= ===========
Other secured loans > 1
year (7,171) - 1,032 - (6,139)
============ ========= ========= ===========
Cumulative redeemable preference
shares < 1 year - (540) - (64) (604)
============ ========= ========= ===========
Cumulative redeemable preference
shares > 1 year - (5,399) - 373 (5,026)
============ ========= ========= ===========
Unsecured loans < 1 year (228) (498) (26) - (752)
============ ========= ========= ===========
Unsecured loans > 1 year (304) - (492) - (796)
============ ========= ========= ===========
Finance leases < 1 year (479) (24) 636 (743) (610)
============ ========= ========= ===========
Finance leases > 1 year (568) - - (93) (661)
--------------------------------- --------- ============ ========= ========= ===========
Net funds 17,377 (12,266) 135,698 (588) 140,221
--------------------------------- --------- ============ ========= ========= ===========
2012 Restated
Cash 3,711 6,367 37,972 - 48,050
Overdrafts and bank loans - (18,959) 3,088 - (15,871)
--------------------------------- --------- ------------ --------- --------- -----------
Cash and cash equivalents 3,711 (12,592) 41,060 - 32,179
Other secured loans < 1
year (5,874) (183) 5 - (6,052)
Other secured loans > 1
year (10,223) (745) 3,797 - (7,171)
Unsecured loans < 1 year - - (228) - (228)
Unsecured loans > 1 year - - (304) - (304)
Finance leases < 1 year (291) (241) 888 (835) (479)
Finance leases > 1 year (684) (75) - 191 (568)
--------------------------------- --------- ------------ --------- --------- -----------
Net (debt)/funds (13,361) (13,836) 45,218 (644) 17,377
--------------------------------- --------- ------------ --------- --------- -----------
13. Post balance sheet events
Since 31 December 2013, the following events have occurred:
Issue of ordinary shares
Date of Shares
Reason for issue issue Issue price issued
(2014) Pence Number
Acquisitions:
ACH Manchester and associated companies 14 January 22.125 117,812,500
Crusader Group of companies 14 January 22.125 34,285,714
Enzyme International Limited (deferred
consideration) 14 January 22.125 20,500,000
Himex Group of companies 17 February 39.625 325,000,000
============
PT Healthcare Solutions Corp. 28 March 38.75 100,000,000
Investments and associates:
ingenie Limited 4 February 31.125 15,348,836
Exercise of warrants 4 February 2.470 4,048,583
616,995,633
------------------------------------------------------- ------------ ------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UROURSKAOOUR
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