Source - RNS
RNS Number : 5925I
Redde PLC
01 September 2016
 

News Release

Redde plc

("Redde" or "Group")

 

Issue Date: 1 September 2016

 

Results for the Year ended 30 June 2016

 

Another Year of Strong Growth

 

Financial headlines

 

·     Turnover £379.2m (2015: £248.7m) - Increase of 53% including LFL increase of 28%

·     Adjusted* EBIT of £34.5m (2015: £22.3m) - Increase of 55%

·     Adjusted* EBIT of £30.5m excluding acquisitions (2015: £22.3m) - Increase of 37%

·     Adjusted* profit before taxation of £34.6m (2015: £22.7m) - Increase of 52%

·     Tax charge of £6.0m (2015: tax credit of £1.0m)

·     Adjusted* basic EPS of 9.64p (2015: 8.40p) - Increase of 14.8%

·     Statutory basic EPS of 8.66p (2015: 8.97p) - Decrease of 3.5%

·     Net operating cash inflow from operating activities of £42.1m (2015: £36.8m)

·     Net operating cash inflow to EBITDA ratio of 98% (2015: 116%)

·     Debtor days further reduced to 94 days from 100 days

·     Total cash balances of £34.6m (2015: £27.6m adjusted for £41.0m cash spent on acquisition)

·     Net debt of £5.2m (2015: £1.3m adjusted for £41.0m cash spent on acquisition)

·     Recommended final dividend for 2016 of 5.15p (2015: 4.25p) - increase of 21.2%

·     Total dividends for year of 9.65p (2015: 8.25p excluding special dividend) - Increase of 17.0%

 

Operational headlines

 

·     14.3% like for like growth in credit hire cases

·     Total number of hire days increased by 15.6%

·     71.7% increase in number of all repair cases (excluding FMG)

·     Revenue generating fleet utilisation increased to 83% from 82%

·     Increase in number of contracts and range of services

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

·     Growing volumes through a combination of new business wins and existing customer growth

·     FMG post acquisition performance exceeding expectations

 

 

*Adjusted measures exclude the impact of amortisation of intangibles and exceptional items ('adjustment items') described in Note 6.

 

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

 

"This is a strong set of results driven through the delivery of our Growth, Profitability and Sustainability ("GPS") strategy which continues to be our focus.  We have seen good levels of LFL growth and the performance of FMG, acquired in October 2015, has been solid. The new period has started well and together with the pipeline of opportunities the board remains confident on the prospects of the Group."

 

 

 

 

 

 

                                               

Enquiries

 

 

 

Redde plc

Tel: 01225 321134

 

Martin Ward - Chief Executive Officer

 

 

Steve Oakley - Chief Financial Officer

 

 

 

 

 

Cenkos Securities plc (Nominated Adviser and Joint Broker)

Tel: 0207 397 8900

 

Liz Bowman

 

 

 

 

 

N+1 Singer Capital Markets Limited (Joint Broker)

Tel: 0207 496 3000

 

Nic Hellyer

 

 

 

Square1 Consulting

Tel: 0207 929 5599

 

David Bick

 

 

Brian Alexander

 

 

 

 

Notes for Editors:

 

About Redde plc:

 

Founded in 1992 and working predominantly with insurance companies, insurance brokers, prestige motor dealerships, and large national fleet owners the Group provides a range of accident management, incident management and legal services.

 

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

 

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

 



Chairman's statement

 

The year to 30 June 2016 has seen significant further progress in the Group strategy of focus on Growth, Profitability and Sustainability. The year saw an expansion in the range of services provided by the Group by virtue of an acquisition, new contract wins and increases in the volume of business handled with existing customers. The resultant diversification into related but complementary services has consequently enabled the Group to reduce its reliance on, and exposure to, traditional insurance market sources of revenue.

 

Consequently, I am pleased to be able to report to shareholders that the Group achieved an adjusted profit before taxation of £34.6 million compared to £22.7 million last year, an increase of 52.4%.

 

Results

 

Revenues were £379.2m (2015: £248.7m), an increase of £130.5m (52.5%). Revenues include an amount of £61.2m in respect of the FMG group of companies ("FMG") which was acquired on 27 October 2015. Excluding FMG, like for like ("LFL") sales growth was 27.9% driven by a 14.3% growth in credit hires and a 71.7% increase in the total number of repairs undertaken.

 

The adjusted earnings before interest and taxation ("EBIT") for the year was £34.5m, an increase of 54.8% over the £22.3m achieved last year and included £4.0m in respect of FMG. Adjusted operating margin was unchanged at 8.8% (2015: 8.8%). Excluding FMG, adjusted operating margins improved to 9.2% reflecting the increased sales mentioned above as well as changes in the mix of business handled, improvements in our supply chain and the close control of costs.

 

There was a net adjusted interest credit of £0.1m (2015: £0.4m) reflecting lower average cash balances following the payment of £41.0m for FMG in October 2015 and the costs of committed but unutilised bank facilities available to the Group.

 

Adjusted profit before tax for the year was therefore £34.6m (2015: £22.7m), an increase of 52.4%.

 

A charge of £1.6m in respect of amortisation of intangible assets (acquired by virtue of the purchase of FMG), was incurred in the year. In addition there was a pre-tax exceptional net charge of £1.8m (2015: credit of £1.6m) in the period reflecting:

 

·     a £0.7m cost (2015: £0.4m) recorded under IFRS2 in respect of the charge under share based payments on incentive share schemes;

·     a charge of £0.3m (2015: £nil) in respect of reorganisation costs and integration costs on acquisitions.

·     a charge of £0.1m (2015: £nil) in respect of the unwind of discount charges on certain provisions; 

·     acquisition costs of £0.7m (2015: £0.4m on aborted acquisitions) charged as an expense as required by IFRS3.

 

An exceptional credit of £2.9m was also recorded last year in respect of settlements received in respect of the Group's claims for damages against insurers relating to Autofocus.

 

After the amortisation of intangible assets and the charge (2015: credit) for exceptional items above, statutory profit before tax was £31.3m (2015: £24.3m) an increase of 28.6%.

 

There was a net tax charge of £6.0m which is mostly in respect of the reversal of deferred tax assets relating to the use of tax losses and allowances from prior years and represents an effective tax rate of 19.1%. In 2015 there was a net credit of £1.0m principally in respect of the further recognition of a deferred tax asset relating to prior years' losses and unused allowances. The statutory profit after tax is unchanged from last year at £25.3m.

 

Earnings Per Share ("EPS")

 

Statutory basic EPS is 8.66p (2015: 8.97p). Statutory diluted EPS is 8.26p (2015: 8.46p).

 

The adjusted EPS is 9.64p (2015: 8.40p). The adjusted diluted EPS is 9.20p (2015: 7.92p).

 

The adjusted figures exclude the impact of amortisation of intangibles and exceptional items ('adjustment items') described in Note 6.

 

Dividends

 

The Board is pleased to propose a final dividend of 5.15 pence per share, which if approved at the Annual General Meeting to be held on Wednesday 26 October 2016 will be paid on Thursday 3 November 2016 to those shareholders on the register at the close of business on Friday 07 October 2016. The shares will become ex-dividend on Thursday 06 October 2016.

 

An interim dividend of 4.50 pence per share was paid on 24 March 2016 and including this the total dividend for the year is 9.65 pence compared to a total of 8.25 pence for the interim and final dividends last year, an increase of 17.0%.

 

The comparison above excludes the Special Dividend of 1.00 pence per share paid on 30 July 2015 in respect of the year ended 30 June 2015 principally reflecting collections made in 2015 in respect of the settlement of past claims against insurers and others in relation to Autofocus.

 

Outlook

 

The new financial year has started well with performance in this short period since the year end being  ahead of our expectations and the corresponding period last year. Volumes are increasing through a combination of new business wins and existing customer growth. These developments, together with the combination of our recent strategic acquisition, organic growth and further planned improvements in operational and administrative efficiency, continues to give the Board encouragement for the future.

 

Our people

 

 

Our people have been instrumental in winning and integrating new business during the period whilst at the same time maintaining the high standards of customer service for which the Group is increasingly known. Once again we thank our employees for their support, hard work and dedication during the year and say to them "well done".

 

Annual General Meeting

 

The Group's Annual General Meeting will be held on Wednesday 26 October 2016.

 

 

 

Avril Palmer-Baunack

Chairman

31 August 2016

Operating and Financial Review

 

 

Market and Business Models

 

The Group continues its focus on the pursuit of sustainable, profitable, cash generative business and the acquisition of businesses that meet these criteria and will provide cross fertilisation of business opportunities in new markets within the sectors in which the Group operates.

 

The year saw the Group expand into new but complementary markets with the acquisition of FMG at the end of October 2015, which has added related but diversified revenue. As a consequence the Group has been able to reduce its reliance on, and exposure to, traditional insurance market sources of revenue. The potential to grow and develop more vehicle incident and accident management services to both business and insurance customers supports the Group's position as a leader in vehicle mobility, rapid roadside recovery, repair, legal and other support services.

 

This broader reach also enables the Group to expand its proposals to existing as well as new customers, so the opportunity exists for further organic growth in addition to the expansion of services with existing partners. During the year the Group's services were expanded and additional contracts were awarded to the Group to include managing fault repairs on insurers' behalf.

 

The vast majority of the Group's non-fault accident management operations are now subject to bilateral protocol arrangements with insurers regarding claims settlements and payment. This has contributed to the reduction in debtor days seen over recent periods. Agreeing protocol arrangements with insurers is an effective way to help them reduce their combined operating ratio which is a key performance measure for them. As a direct consequence of this successful business model the Group took the decision to withdraw from the Association of British Insurers General Terms of Agreement ('ABI GTA') with effect from 15 August 2015 and the volume of business now conducted under bilateral protocol arrangements has since increased.

 

The Group has continued to increase focus on providing a complete customer journey and during the year  the Group's delivery of outstanding customer service was recognised at the prestigious North East Contact Centre Awards 2015 where, against strong competition and a formidable shortlist including Axa Insurance, Virgin Money and Virgin Media, it won the "Customer Experience Champion Award". In addition FMG won the Fleet News "Fleet Supplier of the Year Award" in recognition of FMG's "excellent customer retention, commitment to innovation and proactive approach to incident prevention" and also the Claims Media "Claims Management Company - Team of the Year" award.

 

The Group continues to be a leading partner of choice within our industry with additional contracts being awarded both during the year and since the year end. This is due in large part to the improvements achieved in both operational efficiency and the customer journey experienced whilst using the Group's services, as well as the Group's use of telematics and web-based portals accessible by our partners and our customers.

 

The strategy of Growth, Profit and Sustainability has been a key focus as we continue to develop the Group. The Group is particularly focussed on sustainability and how to adapt and develop its services by thinking ahead on how the market will shape, and planning to meet its partners' future requirements without losing sight of the growing near-term demand for its services. At the same time the Group is continuing to build its traditional market penetration and presence within its existing distribution channels as well as diversifying its revenue streams to include new but allied areas.

 

 

The Group operates wholly within the UK and its revenues and costs are solely in sterling. The process and consequences of "Brexit" is not expected to pose any additional risks to the business beyond those normal risks which have been disclosed in the past and are summarised in note 20.

 

 

Vehicle fleet

 

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

 

Our efforts to balance the mix of our operational fleet to meet changes in the mix of demand and a core LFL 15.6% increase in total hire days was again assisted by attractive funding and procurement programmes. The average number of vehicles held during the year was increased by 12.6% from 6,043 to 6,805. The average age of the fleet has at the same time been maintained at between 9 and 12 months across a broad spread of manufacturers and models. Fleet utilisation was therefore maintained above our 80% target with supply and operational efficiencies enabling this to be increased to 82.9% compared to 81.9% for last year.

 

Our operational fleet comprised 7,238 vehicles at 30 June 2016 compared to 6,041 at 30 June 2015.

 

Legal services

 

NewLaw has continued to build its range of services and pursue the additional opportunities available to it as the Group expands its reach into the marketplace. During the period to date NewLaw has been successful in pursuing applications to set up further Alternative Business Structures (ABSs) with additional Partners. The most recent of these is in partnership with The Royal College of Nursing which commenced on 1 April 2016. This is in addition to the ABS arrangements entered into with the British Medical Association shortly before the last year end. NewLaw continues to pursue other opportunities for partnerships with insurers, trade associations and other related brands via ABSs. Following the acquisition of FMG, one of NewLaw's ABSs, namely FMG Legal LLP, has become 100% controlled by the Group.

 

Principia Law, our other legal services business, has continued to build its business making an increased contribution to the Group as well as attracting new corporate clients whilst also continuing to provide the Group with expertise in relation to credit hire recoveries, particularly those cases requiring more specialist attention. On 30 June 2016 the Group acquired the minority 25% shareholding in Principia for a cash consideration of £275,000.

 

Acquisition

 

On 27 October 2015 in support of its strategy of widening its range of services, the Group completed the acquisition of FMG, a leading fleet accident management group.  The results for the year include turnover of £61.2m and an EBIT of £4.0m for the period since acquisition.

 

FMG is widely recognised as the leading provider of fleet incident management and specialist recovery services to the fleet leasing, fleet insurance and direct fleet sectors and has over 300,000 vehicles under management, whilst at the same time providing roadside recovery services under long term contracts to the Highways Agency for broken down vehicles and accidents on a range of motorways and A roads in the northern part of England and Scotland. Similar services are also provided to police and other "blue light" authorities primarily in those areas.

 

In the period since acquisition FMG has delivered results above our initial expectations and has successfully secured new business whilst also achieving an outstanding customer retention rate.

 

FMG was acquired for a consideration of £22.5 million and the settlement of loan notes of £23.5m at completion. The consideration for the acquisition of all the shares and other vendor interests in FMG was accordingly £46.0 million and comprised a number of elements, the effect of which was the payment at completion of approximately £41.0 million in cash and the issue of 3,048,220 new Redde shares with a total value of £5.0 million.

 

FMG holders of new Redde Shares have waived their entitlement to any dividends with a record date during the 12 months following completion. The new Redde Shares are subject to a 24 month lock in (subject to the customary exemptions) followed by an orderly market arrangement.

 

 

Financial Review

 

Performance

 

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

 

For the year, the Group recorded an adjusted EBIT of £34.5m (2015: £22.3m) together with an adjusted profit before tax of £34.6m (2015: £22.7m) and a statutory profit before tax of £31.3m (2015: £24.3m).

 

A summary of the key performance indicators is set out in the table below:






12 months ended

12 months ended

Change


30 June 2016

30 June 2015


Financial KPIs




Revenue (£'000)

379,244

248,671

52.5%

Gross profit (£'000)

98,276

76,588

28.3%

Gross margin

25.9%

30.8%

(4.9)pt

Profit before taxation (£'000)

31,305

24,345

28.6

EBIT (£'000)

31,261

24,406

28.1

Adjusted profit before taxation*

34,627

22,727

52.4%

Adjusted EBIT* (£'000)

34,500

22,286

54.8%

Adjusted EBIT margin*

9.1%

9.0%

0.1pt

Adjusted operating margin*

8.8%

8.8%

0.0pt

EBITDA (£'000)

43,013

31,585

36.2%

EBITDA/Operating cash flow conversion %

98%

116%

(18)pt

Statutory debtor days

94

100

(6) days

 

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

 

Revenue

 

Revenues were £379.2m (2015: £248.7m), an increase of £130.5m (52.5%). Revenues include an amount of £61.2m in respect of FMG which was acquired on 27 October 2015. LFL sales growth was therefore 27.9% representing a 14.3% growth in credit hires and a 154.1% increase in the total number of repairs undertaken.

 

The 154.1% increase in the volume of repair business arose mainly as a result of contract wins including a 28.9% increase in the number of credit repairs. Excluding FMG the increase in the total number of repairs was 71.7%.

 

Gross profit, adjusted operating profit and adjusted EBIT

 

Gross profit was £21.7m higher than last year and overall a gross margin of 25.9% was achieved compared to 30.8% last year reflecting the increase in the volume of repairs which attract lower margins and also the acquisition of FMG. Excluding FMG, gross margin was 26.5%.

 

The Group's adjusted net operating margin of was unchanged at 8.8% (2015: 8.8%) and earnings before interest, tax, depreciation and amortisation ("EBITDA") was £43.0m (2015: £31.6m).

 

Income from associates

 

Income from associates represents the Group's share of the profits in relation to NewLaw's membership of several Limited Liability Partnerships providing legal services in association with certain business partners (subject to regulation by the Solicitors Regulation Authority) and amounted to £1.3m (2015: £0.3m).

 

Earnings before interest and taxation

 

Adjusted EBIT for the period was £34.5m (2015: £22.3m) which includes an amount of £4.0m in respect of FMG which was acquired on 27 October 2015. Adjusted EBIT margin was 9.1% (2015: 9.0%) and was 9.6% excluding FMG, reflecting the increased sales mentioned above as well as changes in the mix of business handled, improved returns from our ABS partnerships, improvements in our supply chain and overall LFL overheads being contained to an increase of just 0.9%.

 

Adjusted EBIT is reconciled to the Income Statement as follows:

 



Audited

Audited



year ended

Year ended



30 June 2016

30 June 2015



£m

£m

Adjusted EBIT - continuing operations

34.5

22.3

Adjustments:




Autofocus settlements


-

2.9

Restructuring costs following acquisition


(0.3)

-

Amortisation of acquired intangible assets


(1.6)

-

Acquisition and abortive acquisition costs


(0.7)

(0.4)

Share based payments


(0.7)

(0.4)

Statutory EBIT


31.2

24.4

 

 

Net finance income

 

There was a net adjusted interest credit of £0.1m (2015: £0.4m) reflecting lower average cash balances following the payment of £41.0m for FMG in October 2015 and the costs of committed but unutilised bank facilities available to the Group.

 

Adjusted profit before tax

 

Adjusted profit before tax of £34.6m (2015: £22.7m) is an increase of £11.9m (52.4%) over last year.

 

 

 

Amortisation of intangibles and exceptional items

 

A charge of £1.6m in respect of amortisation of intangible assets (acquired by virtue of the purchase of FMG), was incurred. In addition there was a pre-tax exceptional net charge of £1.8m (2015: credit of £1.6m) in the period reflecting:

 

·     a £0.7m cost (2015: £0.4m) recorded under IFRS2 in respect of the charge under share based payments on incentive share schemes;

·     a charge of £0.1m (2015: £nil) in respect of the unwind of discount charges on certain provisions;

·     a charge of £0.3m (2015: £nil) in respect of reorganisation and integration costs following the acquisition of the FMG group of companies; 

·     acquisition costs of £0.7m (2015: £0.4m on aborted acquisitions) charged as an expense as required by IFRS3;

 

An exceptional credit of £2.9m was also recorded last year in respect of settlements received to date in respect of claims for damages relating to Autofocus.

 

The tax effect of all of the above was a credit of £0.5m (2015: £nil).

 

Profit before and after taxation

 

After the amortisation of intangible assets and the charge (2015: credit) for exceptional items above, the statutory profit before tax was £31.3m (2015: £24.3m), an increase of 28.6%.

 

There was a net tax charge of £6.0m which is mostly in respect of the reversal of deferred tax assets relating to the use of tax losses and allowances from prior years and represents an effective tax rate of 19.1%. In 2015 there was a net credit of £1.0m principally in respect of the further recognition of a deferred tax asset relating to prior years' losses and unused allowances.

 

The statutory profit after tax is therefore unchanged from last year at £25.3m.

 

Earnings per share - Basic and Diluted

 

Statutory basic EPS is 8.66p (2015: 8.97p). Statutory diluted EPS is 8.26p (2015: 8.46p).

 

The adjusted EPS is 9.64p (2015: 8.40p). The adjusted diluted EPS is 9.20p (2015: 7.92p).

 

The adjusted figures exclude the effect of the amortisation of intangibles and exceptional items ('adjustment items') described in note 6.

 

Dividends

 

An interim dividend of 4.50 pence per share was paid on 24 March 2016. 

 

A final dividend of 5.15 pence per share has been recommended by the Board (2015: 4.25 pence), an increase of 21.2%. This dividend, if approved at the Annual General Meeting to be held on Wednesday 26 October 2016, will be paid on Thursday 3 November 2016 to those shareholders on the register at the close of business on Friday 07 October 2016 making a total dividend for the year of 9.65 pence compared to a total of 8.25 pence for the interim and final dividends last year, an increase of 17.0%.

 

The comparison above excludes the Special Dividend of 1.00 pence per share paid on 30 July 2015 in respect of the year ended 30 June 2015 principally reflecting collections made in 2015 relating to the settlement of past claims against insurers and others in relation to Autofocus.

 

Balance sheet

 

Statutory debtor days now stand at 94 days and compare to 100 days at 30 June 2015. Revenue generated debtors at 30 June 2016 were £105.8m (including £12.6m in respect of FMG) and compare to £68.4m at 30 June 2015. Excluding FMG this represents an increase of 36%; it is volume related and in particular relates to repairs whereby the recovery process is more straightforward.

 

Trade creditors increased to £60.7m (including £14.1m in respect of FMG) compared to £24.9m at 30 June 2015.  Excluding FMG this represents an increase of 87.1% and is volume related and in particular relates to the increase in the number of repairs undertaken.

 

The Group also increased its investment in fleet numbers in response to both seasonality and underlying increased demand. Together with a greater use of attractively priced hire purchase ('HP') vehicle leasing finance arrangements during the period, this resulted in an increase of £12.5m in the net value of vehicles held as fixed assets under finance leases compared to 30 June 2015.

 

Net assets at 30 June 2016 were £160.3m (2015: £157.4m).

 

Cash flow

 

Cash generated from operating activities was £44.1m (2015: £37.2m). After other net operating outflows of interest and taxation, net cash flow from operating activities was £42.1m (2015: £36.8m).

 

Net operating cash flow to EBITDA was 98% (2015: 116%).

 

Net debt, cash and financing

 

Net debt at 30 June 2016 was £5.2m and compares with equivalent net debt of £1.3m at 30 June 2015 (adjusted for the £41.0m subsequently expended in relation to the acquisition of FMG).

 

Cash balances were £34.6m at 30 June 2016 and compare to equivalent cash balances of £27.6m at 30 June 2015 (again adjusted for the £41.0m subsequently expended in relation to the acquisition of FMG).

 

As outlined above during the period the total number of vehicles on the fleet was increased to service the much increased volumes of hire days and a greater mix of HP funding versus contract hire was used in financing these vehicles. As a consequence fleet finance debt was £39.6m at 30 June 2016, an increase of £10.8m compared to £28.8m at 30 June 2015.

 



The net debt and cash position can be summarised as follows:

 



Audited

Audited



30 June 2016

30 June 2015



£m

£m

Fleet finance leases


(39.6)

(28.8)

Other leases and borrowings


(0.2)

(0.1)

Total debt


(39.8)

(28.9)





Working capital cash balances


34.6

27.6

Working capital net debt


(5.2)

(1.3)

Cash balances subsequently used on acquisitions

-

41.0

 Net (debt) / cash


(5.2)

39.7





Total cash balances


34.6

68.6

 

During the year, in anticipation of future expansion, the Group put in place a 5 year £35m unsecured revolving credit facility with HSBC expiring in December 2020 as well as an unsecured overdraft facility of £5m with the same bank. There have been no drawings under either facility since inception but the facility is available to fund growth in the business should the considerable cash balances currently held for this purpose be used for other corporate purposes such as further acquisitions.

 

If and when drawn, related covenants surround a net debt to EBITDA ratio (< 3:1) and the ratio of qualifying trade receivables to amounts drawn under the HSBC facility (> 1.5:1). The margin charged on the revolving credit facility is dependent upon the Group's net debt to EBITDA ratio, ranging from a minimum of 1.25% over LIBOR to a maximum of 2.25% over LIBOR. The margin on the overdraft is 1.25% over Bank of England Base Rate.

 

 

Principal risks and uncertainties

 

The principal risks and uncertainties facing the Group are set out in note 20 to this announcement.

 

 

 

 

 

 

Martin Ward                                                                                       Stephen Oakley

Chief Executive Officer                                                                       Chief Financial Officer

31 August 2016                                                                                   31 August 2016



Consolidated income statement

For the year ended 30 June 2016

 



Year

ended

30 June

2016

Adjusted*

 

Year

ended

30 June

2016

Adjustment

items*

Year ended

30 June

2016

 

Year

 ended

30 June

2015

Adjusted *

 

Year

ended

30 June

2015

Adjustment items*

Year

ended

30 June

2015

 

 

 


Note 

£'000

£'000

£'000

£'000

£'000

£'000

 

 








 

Revenue


379,244

-

379,244

248,671

-

248,671

 

 








 

Cost of sales


(280,968)

-

(280,968)

(172,083)

-

(172,083)

 

 

 







 

Gross profit

 

98,276

-

98,276

76,588

-

76,588

 

 

 







 

Administrative expenses

6

(65,057)

(3,239)

(68,296)

(54,616)

(770)

(55,386)

 

 

 







 

Operating profit - continuing operations

 

33,219

(3,239)

29,980

21,972

(770)

21,202

 

 

 







 

Other income

 

-

-

-

-

2,890

2,890

 

 

 







 

Share of results of associates

12

1,281

-

1,281

314

-

314

 

 

 







 

EBIT

 

34,500

(3,239)

31,261

22,286

2,120

24,406

 

 

 







 

Net finance income / (costs)

7

127

(83)

44

441

(502)

(61)

 

Profit before taxation

 

34,627

(3,322)

31,305

22,727

1,618

24,345

 

 

 







 

Tax (charge) / credit

8

(6,455)

460

(5,995)

957

-

957

 

Profit for the year

 

28,172

(2,862)

25,310

23,684

1,618

25,302

 

 

 







 

Profit for the year attributable to:







 

Equity holders of the Company

 

28,056

(2,862)

25,194

23,622

1,618

25,240

 

 

 







 

Non Controlling Interests

 

116

-

116

62

-

62

 

 

 







 

Profit for the year

 

28,172

(2,862)

25,310

23,684

1,618

25,302

 

 

 







 

Earnings per share (pence)

 







 

Basic

1

9.64

(0.98)

8.66

8.40

0.57

8.97

 

Diluted

1

9.20

(0.94)

8.26

7.92

0.54

8.46

 

 

* Adjusted measures exclude the impact of amortisation of intangibles and exceptional items ('adjustment items') described in Note 6.

 

 

 

Condensed Consolidated Statement of Comprehensive Income

For the year ended 30 June 2016




Year ended

30 June 2016

Year Ended

 30 June 2015

Unaudited


£'000

£'000






Profit for the year



25,310

25,302






Other comprehensive income



-

-

Total comprehensive income for the year, attributable to:





Equity holders of the Company



25,194

25,240

Non-controlling interests



116

62

Total comprehensive income for the year



25,310

25,302

 

 

 

Consolidated Statement of Changes in Equity

For the year ended 30 June 2016

 


Share

Capital

 

£'000

Share

Premium

Account

£'000

Shares

To be

issued

£'000

Retained

Earnings

 

£'000

Total

 

 

£'000

Non Controlling Interests

£'000

Total

 

 

£'000

Balance at 01 July 2014

283

57,804

-

84,076

142,163

(69)

142,094









Profit for the year

-

-

-

25,240

25,240

62

25,302

Total comprehensive income for the year

-

-

-

25,240

25,240

62

25,302









Issue of Ordinary Shares

13

7,299

(1,716)

-

5,596

-

5,596









Shares to be issued

-

-

5,155

-

5,155

-

5,155









Dividends paid in the year

-

-

-

(21,109)

(21,109)

-

(21,109)

 

Credit to equity for settled Share-Based Payments

 

-

 

-

 

-

 

408

 

408

 

-

 

408









Balance at 30 June 2015

296

65,103

3,439

88,615

157,453

(7)

157,446









Profit for the year

-

-

-

25,194

25,194

116

25,310

Total comprehensive income for the year

-

-

-

25,194

25,194

116

25,310









Issue of Ordinary Shares

8

8,666

(3,439)

-

5,235

-

5,235









Dividends paid in the year

-

-

-

(28,114)

(28,114)

-

(28,114)









Changes in non-controlling interest

-

-

-

(166)

(166)

(109)

(275)

Credit to equity for settled Share-Based Payments

 

-

 

-

 

-

 

684

 

684

 

-

 

684









Balance at 30 June 2016

304

73,769

-

86,213

160,286

-

160,286

 

 



 

 

Consolidated Statement of Financial Position

as at 30 June 2016

 

 

 

 

 

Note 

 2016

 

£'000

2015

 

£'000

Non-current assets

 

 

 

 

 

 

Goodwill

 

 

 

 

85,990

59,231

Intangible assets

 

11

21,307

-

Property, plant and equipment (including vehicles)

 

13

47,605

31,682

Interests in associates

 

12

796

232

Deferred tax asset

 

 

 

 

5,871

10,850

 

 

 

 

 

161,569

101,995

 

Current assets

 

 

 

 

 

 

Trade and other receivables

 

 

 

14

126,872

84,331

Cash and cash equivalents

 

 

 

 

34,647

68,626

 

 

 

 

 

161,519

152,957

 

Total assets

 

 

 

 

323,088

254,952

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

 

 

15

(116,218)

(65,025)

Obligations under finance leases

 

 

 

 

(21,242)

(14,663)

Provisions

 

 

 

(1,242)

(1,689)

 

 

 

 

 

(138,702)

(81,377)

 

Net current assets

 

 

 

 

22,817

71,580

 

Non-current liabilities

 

 

 

Obligations under finance leases

 

 

 

 

(18,631)

(14,288)

Deferred tax liability

 

 

 

 

(5,469)

(1,022)

Long-term provisions

 

 

 

 

-

(819)

 

(24,100)

(16,129)

Total liabilities

 

 

(162,802)

(97,506)

 

Net assets

 

 

160,286

157,446

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Share capital

 

 

 

16

304

296

Share premium account

 

 

 

16

73,769

65,103

Shares to be issued

 

 

 

16

-

3,439

Retained earnings

 

 

 

 

86,213

88,615

Equity attributable to owners of the company

 

 

 

160,286

157,453

Non Controlling Interests

 

 

 

 

-

(7)

Total Equity

 

 

 

 

160,286

157,446

 

 

 

 



          Consolidated statement of cash flows

          for the year ended 30 June 2016

 

 

Note

 

£'000 

2016

 

£'000

 

 

 

£'000

2015

 

£'000

Cash flows from operating activities

 

 

 

 

 

Profit for the year

 

 

25,310

 

25,302

 

Tax charge /(credit)

 

 

5,995

 

(957)

 


 

 

31,305

 

24,345

 

Income from associates

 

12

(1,281)

 

(314)

 

Finance income

 

7

(127)

 

(441)

 

Fleet finance lease interest

7

1,474

 

1,054

 

Depreciation of tangible fixed assets

13

8,650

 

6,109

 

Amortisation of intangible assets

11

1,593

 

-

 

Losses on sale of property, plant and equipment

715

 

424

 

Share-based payment charges

 

6

684

 

408

 

EBITDA

 

 

43,013

 

31,585

 

Increase in receivables

 

 

(31,539)

 

(1,947)

 

Increase in payables

 

 

33,871

 

8,695

 

Decrease in provisions

 

 

(1,265)

 

(1,168)

 

Cash generated from
operating activities

 

 

 

44,080

 

37,165

 

 

 

 

 

 

 

Bank interest received


275


490


Bank and loan interest paid


-


(27)


Fleet finance lease interest


(1,474)


(1,054)


Interest element of non-fleet finance lease rentals


(12)


(22)






(1,211)


(613)








Taxation (paid) / received




(796)


241

Net cash from operating activities

 

 

42,073

 

36,793

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Acquisitions of business combinations net of cash acquired

 

 

(13,383)

 

-

 

Distributions from associates

 

 

492

 

138

 

Purchase of property, plant and equipment

 

 

(2,032)

 

(1,503)

 

Proceeds from sale of plant and equipment

 

 

16,407

 

7,386

 

Net cash inflow from investing activities

 

 

 

1,484

 

6,021

 

 

 

 

 

 

 

Cash flows from financing activities


 

 

 

 

 

Proceeds from issue of share capital

 

16

236

 

465

 

Dividends paid

 

9

(28,114)

 

(21,109)

 

Loan issue costs

 

 

(235)

 

-

 

Repayment of borrowings

 

18

(23,505)

 

(350)

 

Finance lease principal repayments

 

18

(25,918)

 

(11,532)

 

Net cash used in financing activities

 

 

 

(77,536)

 

(32,526)

Net (decrease) / increase in cash and cash equivalents

 

(33,979)

 

10,288

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

 

68,626

 

58,338

Cash and cash equivalents at end of year

 

 

 

34,647

 

68,626

 

 

 

 

 

 

 

Cash and cash equivalents consist of:

 

 

 

 

 

 

Cash at bank and in hand

 

 

 

34,647

 

68,626

Total

 

 

34,647

 

68,626

 



Notes to the Financial Information

 

1          Earnings per share

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

 

 

 

 

 

2016

Number

2015

Number

Number of shares


 

 

 


Weighted average number of shares for the purposes of EPS


 

 

290,809,792

281,330,456

Effect of 2013 executive share options scheme shares


 

 

28,946

2,163,239

Effect of 2016 executive share option scheme shares


 

 

2,420,052

-

Effect of 2014 SAYE scheme


 

 

1,072,726

1,506,053

Effect of 2015 SAYE scheme


 

 

316,165

-

Effect of B shares in issue


 

 

10,410,910

10,409,785

Effect of shares to be issued as deferred consideration


 

 

-

2,885,544

Weighted average number of shares for the purposes of diluted EPS

 

305,058,591

298,295,077

 

There were 293,536,715 ordinary shares of 0.1p each in issue as at 30 June 2016.

 

2          Segmental information

The activities of the Group are managed by the executive board (which is deemed to be the Chief Operating Decision Maker) as a single operating platform. The entities within the Group contribute as part of the whole operation of the Group to provide services for the core business. The Board of Redde plc considers the performance of the business by reference to contributions from all activities of the Group as a whole, and reviews requirements of the total Group when determining allocations of resources. IFRS8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Board in order to allocate resources to the segment and to assess its performance. The Group has identified three operating segments within the main reportable segment. These are aggregated into one reportable segment as permitted under IFRS8 for reporting purposes where they have similar economic characteristics and where the nature of services and their customer base is similar.

 

3          Status of audit

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2016 or 2015 but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

 

4          Basis of preparation

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

 

There are no newly adopted standards in force and applying to the year that have a material impact upon these financial statements. 

 

The following standards have not been applied in preparing these consolidated Financial Statements:

 

·     IFRS 15 - Revenue from contracts with customers. This is effective for year ended 30 June 2019. The Group is currently assessing the impact of IFRS 15 but it is not expected to have any material impact on the Group. 

 

·     IFRS 16 - Leases. This is effective for year ended 30 June 2020. The Group is assessing the impact of IFRS 16. 

 

5          Going concern

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

 

6          Amortisation of Intangibles and Exceptional items

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

 

Adjusted profit

 

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

 

 

 

 

 

2016

 

2015

 

 

 

£'000

£'000

Administration costs - Amortisation of acquired intangible assets:


 

 

 

a) Amortisation of acquired intangible assets


 

(1,593)

-

Impact of amortisation of acquired intangible assets on operating profit

(1,593)

-

 


 


Exceptional items comprise the following:


 

 


b) Share based payments

 

 

(684)

(408)

c) Reorganisation and integration costs

 

 

(311)

-

d) Acquisition costs

 

 

(651)

(362)

Impact of exceptional items on operating profit


 

(1,646)

(770)

e) Other income - Autofocus and similar settlements


 

-

2,890

f) Finance costs - Discount on provisions and deferred consideration

(83)

(502)

Total exceptional items


 

(1,729)

1,618

 


 

 

 

Total adjustments to profits


 

(3,322)

1,618

Tax effect of the above


 

460

-

Impact on profit after tax for the period


 

(2,862)

1,618

 

a) Amortisation of acquired intangible assets

The Group recognised the value of customer relationships and acquired software amounting to £22.9m in total (note 11) as a result of the acquisition of FMG (note 17) and these assets are being amortised over 10 and 5 years respectively. The charge for the period amounts to £1.6m (note 11) and the tax effect was a credit of £0.5m.

 

b) Share-based payments

The Group has a number of share incentive schemes. In accordance with IFRS2 the calculated charge in respect of options issued and outstanding amounts to £0.7m for the year (2015: £0.4m).

 

c) Reorganisation and integration costs

During the period the Group integrated the operations of Total Accident Management Limited with that of the FMG group of companies. This restructuring gave rise to a redundancy costs and other costs associated with the restructuring including the impairment of any associated assets totalling £0.3m for the year.

 

d) Acquisition costs

The charge for this year is in accordance with the requirements of IFRS3, acquisition costs, and relate to legal and professional fees incurred during the acquisition of the FMG group of companies, and amounts to £0.7m. During last year the Group evaluated a number of potential acquisitions and a charge of £0.4m was incurred and principally reflects fees and costs incurred during these processes.

 

e) Other Income - Autofocus settlements

Last year saw activity in pursuing claims for damages against insurers and other parties in respect of Autofocus and other historical claims and a considerable number of negotiated settlements were achieved. An amount of £2.9m was accordingly recorded as non recurring other income.

 

f) Finance Costs - Unwind of discount on Deferred Consideration and provisions

The carrying amount of provisions against properties are included in the balance sheet net of the appropriate discount reflecting the cost of relevant capital or funding. The charge of £0.1m represents the unwinding of this discount during the year. The prior year charge of £0.5m represented the unwinding of provisions against properties as well as deferred consideration.

 

7          Finance income and finance costs

 

2016

£'000

2015

£'000

a) Finance income

 

 

Interest receivable

(275)

(490)

 

 

 

b) Finance costs

 

 

Interest on obligations under finance leases

1,487

1,076

Loan facility arrangement costs amortised/charged in the year

135

27

 

1,622

1,103

 

 

 

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

(1,474)

(1,054)

Finance costs payable before exceptional costs

148

49

 

Net finance income before exceptional costs

(127)

(441)


 

 

c) Exceptional Finance Costs

 

 

Unwind of discount on provisions and deferred consideration (note 6 (f))

83

502

Total net finance (income) / cost

(44)

61

 



 

8          Tax

 

2016

£'000

2015

£'000

Current tax

 

 

UK corporation tax on profit for the year

1,006

-

Adjustments in respect of prior years

(39)

(92)

Total current tax charge / (credit)

967

(92)

Deferred tax

 

 

Previously unrecognised tax losses

(208)

(2,180)

Origination and reversal of temporary differences

5,113

1,284

Adjustments in respect of prior years

27

31

Impact of change in tax rate

96

-

Tax charge / (credit) on profit on ordinary activities

5,995

(957)

 

The tax charge for the year arises principally from the use of prior period losses and the reversal of the associated deferred tax asset set up in recognition of these losses in prior periods.

 

At the balance sheet date the Group had unused trading losses and other timing differences of £62.7m (2015: £88.2m) available for offset against future trading profits. A deferred tax asset has been recognised in respect of £30.2m (2015: £54.0m) of this amount to reflect the foreseeable forecast utilisation of tax losses and capital allowances carried forward. No deferred tax asset has been recognised in respect of the remaining £32.5m (2015: £34.2m) due to the risks associated with future taxable profits.

 

Deferred tax asset not provided in full on temporary differences under the liability method using a tax rate of 20.0% (2015: 20.0%).

 

Asset

Tax losses

Carried forward

£'000

Asset

Accelerated tax

depreciation

£'000

Asset

Total

£'000

At 30 June 2016

1,238

5,298

6,536

At 30 June 2015

1,648

5,195

6,843

 

9          Dividends

 

Ordinary share dividends paid in the year to 30 June 2016 can be summarised as follows:

 

 

 

 

2016

£'000

2015

£'000

 


 

 


Final dividend for 2014 of 3.50 pence paid on 06 November 2014

-

9,838

Interim dividend for 2015 of 4.00 pence paid on 26 March 2015

-

11,271

Special dividend in respect of Autofocus of 1.00 pence paid on 30 July 2015

2,854

-

Final dividend for 2015 of 4.25 pence paid on 05 November 2015

12,193

-

Interim dividend for 2016 of 4.50 pence paid on 24 March 2016

13,067

-

Total dividends paid in the year


 

28,114

21,109

 

 

The above does not include the recommended final dividend of 5.15 pence per share for 2016 which if approved at the AGM to be held on 26 October 2016 will be paid on 03 November 2016.

 

 

10        Goodwill

               

£'000

Cost

 

At 01 July 2014 and 30 June 2015

113,549

On acquisition (note 17)

26,759

At 30 June 2016

140,308

Accumulated impairment losses

 

At 01 July 2014, 30 June 2015 and 30 June 2016

(54,318)‌‌

Net book value

 

At 30 June 2016

85,990

At 30 June 2015

59,231

 

The Directors last reviewed the carrying value of Goodwill on 30 June 2015 and the key elements of this review are contained in Note 11 to the Annual Report and Accounts for the year to 30 June 2015. The Directors have undertaken a further review of the carrying value of Goodwill including that relating to FMG on substantially the same basis and have concluded that no adjustment is necessary.

 

The allocation of Goodwill to the Group's CGU's is as follows:

 

 

 

 

30 June

 2016

 

30 June 2015

 

 

 

£'000

 

£'000

Helphire

 

18,950

 

18,950

NewLaw

 

 

40,281

 

40,281

FMG

 

 

26,759

 

-

 

 

 

85,990

 

59,231

 

 

11        Intangible assets

 

Customer relationships

£'000

 

Computer

software

£'000

Total

£'000

Cost

 

 

 

 

At 01 July 2015

-

 

-

-

On acquisition (note 17)

21,900

 

1,000

22,900

At 30 June 2016

21,900

 

1,000

22,900

Amortisation

 

 

 

 

Charge for period

(1,460)‌‌

 

(133)‌‌

(1,593)

At 30 June 2016

(1,460)

 

(133)‌‌

(1,593)

Net book value

 

 

 

 

At 30 June 2016

20,440

 

867

21,307

 

The fair values of intangible assets resulting from the acquisition of FMG is considered to be provisional given the time that FMG has been part of the Group and is expected to be presented as final as part of the Group's 2017 interim financial statements.

 

 

12        Interests in associates

The Group's interest in associates comprises of minority participations in four (2015: four) Limited Liability Partnerships ("LLP'") registered and situated in the United Kingdom. All of the LLPs are engaged in the processing of legal claims and are regulated by the Solicitors Regulation Authority. The LLPs are businesses over which the Group is deemed to have significant influence over but does not control.

                       

2016

£'000

2015

£'000

Carrying amount of interests in associates

796

232

 

Group's share of:

 

 

Profit from continuing operations

1,281

314

Other Comprehensive income

-

-

Total share of profits

1,281

314

 

The accounting period ends of the associated companies consolidated in these financial statements range from 30 November to 31 December. The accounting period end dates of the associates are different from the Group as they are more aligned to the accounting reference dates of the majority partners. The above Information has been obtained from management accounts of the entities concerned as at 30 June 2016.

13        Property, plant and equipment (including vehicles)

 

 

 


 

Freehold property

£'000

 

Leasehold improve-

ments

£'000

 

Vehicle hire

fleet

£'000

 

Fixtures and equipment

£'000

 

 

Total

£'000


Cost

At 01 July 2015


438

 780

35,803

14,095

51,116

Additions


-

 46

37,494

1,229

38,769

Disposals


-

              (42)

(23,809)

         (3,865)

(27,716)

On acquisition (note 17)


    2,287

               -

              -

638

2,925

At 30 June 2016


         2,725

784

49,488

12,097

65,094


 

Accumulated depreciation and impairment

At 01 July 2015


(71)

(445)

(5,963)

(12,955)

(19,434)

Charge for the period


(44))

(63)

(7,706)

(837)

(8,650)

Disposals


-

33

6,781

3,781

10,595

On acquisition (note 17)


-

-

-

-

-

At 30 June 2016


(115)

(475)

(6,888)

(10,011)

(17,489)


 

Carrying amounts                                                        

At 30 June 2016


2,610

309

42,600

2,086

47,605


 

Leased assets included above:

At 30 June 2016


-

-

41,412

229

41,604

 



 

 

14        Trade and other receivables

 

Net trade receivables comprise claims due from insurance companies and self insuring organisations as well as amounts invoiced for the provision of services to customers. The Group's debtor days at 30 June 2016 were 94 days (2015: 100 days). This measure is based on net trade receivables, other receivables and accrued income as a proportion of the related underlying revenue multiplied by 365 days.

 

 

 

 

2016

£'000

2015

£'000

Net trade receivables


 

102,904

67,229

Other receivables


 

119

144

Accrued income


 

2,790

1,047

Total receivables for debtor day calculation purposes


 

105,813

68,420

Disbursements recoverable in Legal Businesses


 

13,423

10,924

Amounts due from associates


 

21

13

Taxation recoverable


 

-

13

Prepayments


 

7,615

4,961

 


 

126,872

84,331

 

 

15        Trade and other payables

 

 

 

 

2016

£'000

2015

£'000

Trade payables


 

60,707

24,938

Other taxation and social security


 

7,023

3,164

Accruals and deferred income


 

35,210

27,297

Disbursements payable in Legal Businesses


 

9,685

7,926

Other creditors


 

3,297

1,700

Corporation tax


 

296

-

 


 

116,218

65,025

 

Trade payables represent amounts payable for goods and services. The directors consider that the carrying amount of trade payables approximates to their fair value.

 

16        Share capital and share premium account

 

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

 


Ordinary shares of 0.1p each

B shares of 0.1p each


Number

£'000

Number

£'000

In issue at 30 June 2015

285,390,229

286

10,410,910

10

Issued for deferred consideration

2,889,874

3

-

-

Issued for acquisitions

3,048,220

3

-

-

Exercise of SAYE share options

6,832

-

-

-

Exercise of executive share options

2,201,560

2

-

-

In issue at 30 June 2016 fully paid

293,536,715

 294

10,410,910

10

 

 



 

 

 

Date

 

Reason

 

Number

 

Average

price

 

Total

£'000

Share

Capital

£'000

Share

Premium

£'000








31 July 2015

NewLaw deferred consideration

480,924

118.99p

572

-

572

31 August 2015

NewLaw deferred consideration

480,924

118.99p

573

1

572

30 September 2015

NewLaw deferred consideration

480,924

118.99p

572

-

572

31 October 2015

NewLaw deferred consideration

480,923

118.99p

573

1

572

30 November 2015

NewLaw deferred consideration

480,923

118.99p

572

-

572

31 December 2015

NewLaw deferred consideration

485,256

118.99p

577

1

576


Total deferred consideration

2,889,874


3,439

3

3,436








27 October 2015

Issued for acquisition of FMG

3,048,220

164.03p

5,000

3

4,997








04 August 2015

Exercise of Executive Share Options

63,656

15.74p

10

-

10

07 August 2015

Exercise of SAYE Options

6,832

48.30p

3

-

3

02 November 2015

Exercise of Executive Share Options

254,630

11.49p

29

-

29

06 November 2015

Exercise of Executive Share Options

567,998

11.34p

65

1

64

10 November 2015

Exercise of Executive Share Options

524,346

  7.76p

42

1

41

16 November 2015

Exercise of Executive Share Options

95,489

11.49p

11

-

11

09 December 2015

Exercise of Executive Share Options

190,973

11.49p

22

-

22

17 December 2015

Exercise of Executive Share Options

124,917

11.16p

14

-

14

22 December 2015

Exercise of Executive Share Options

127,318

11.49p

15

-

15

01 March 2016

Exercise of Executive Share Options

124,917

11.16p

14

-

14

10 March 2016

Exercise of Executive Share Options

33,500

7.25p

2

-

2

26 April 2016

Exercise of Executive Share Options

61,986

9.28p

6

-

6

28 April 2016

Exercise of Executive Share Options

31,830

6.99p

2

-

2


   Total shares issued for cash

2,208,392


235

2

233









   Total shares issued

8,146,486


8,674

8

8,666

 

 



 

17        Acquisitions in the year

 

FMG was acquired on 27 October 2015 for £22.5 million in aggregate on a debt-free basis and assuming a normalised level of working capital. Loan notes of £23.5m were also settled at completion. The total consideration for the acquisition of all the shares and other vendor interests in FMG was therefore £46.0 million and comprised a number of elements, satisfied by the payment at completion of approximately £41.0 million in cash and also the issue of 3,048,220 new ordinary Redde shares with a total value of £5.0 million in respect of the FMG shares and loan notes. Included in the above cash payment was a cash payment of £2.5 million in respect of additional working capital balances on completion.

 



Fair

 Value

£'000

Tangible fixed assets


2,925

Intangible assets - Customer relationships


21,900

Intangible assets - Software


1,000

Deferred tax asset


182

Trade and other receivables


9,818

Cash and cash equivalents


4,470

Trade and other payables


(16,385)

Loan notes


(23,505)

Finance leases


(129)

Deferred tax liability


(4,580)

Net assets acquired


(4,304)

Consideration:



Cash paid on completion

 

17,455

Consideration paid in shares

 

5,000

Net consideration


22,455

Goodwill arising from the acquisition


26,759

 

 

The fair values of the assets and liabilities are stated as at 31 October 2015 being the nearest practical date to completion and are considered to be provisional given the time that FMG has been part of the Group and is expected to be presented as final as part of the Group's 2017 interim financial statements.

 

Goodwill has arisen on the acquisition due to the value of the assembled workforce, the value associated with any new software which is yet to be developed and the value associated with new customer contracts and relationships to be generated in the future that are not capable of being individually identified and/or separately recognised under the terms of IFRS 3(R). The value of customer relationships and acquired software that have been recognised will be amortised over 10 and 5 years respectively.

 



18        Cash flow information

 

a) Analysis and reconciliation of net debt


01 July

2015

£'000

Acquisitions

in year

£'000

Cash

flow

£'000

Non cash

changes

£'000

30 June

2016

£'000


Net cash and cash equivalents

68,626

4,470

(38,449)

-

34,647


Debt due within one year

-

-

-

-

-


Debt due after more than one year

-

(23,505)

23,505

-

-



-

(23,505)

23,505

-

-


Finance leases

(28,951)

(129)

25,918

(36,711)

(39,873)



(28,951)

(23,634)

49,423

(36,711)

(39,873)


Net cash / (debt)

39,675

(19,164)

10,974

(36,711)

(5,226)





 


2016

£'000

2015

£'000

 

(Decrease) / increase in cash and cash equivalents in the year

(33,979)

10,288

 

Cash inflow from decrease in borrowings and lease financing

49,423

11,882

 

Change in net cash / debt resulting from cash flows

15,444

22,170

 

New finance leases

(36,711)

(24,052)

 

Net debt acquired on acquisitions

(23,634)

-

 

Movement in net cash / debt in the year

(44,901)

(1,882)

 

Net cash at start of the year

39,675

41,557

 

Net (debt) / cash at end of the year

(5,226)

39,675

 

 

 

b) Cash impact of exceptional items

The net cash flow impact of the exceptional items explained in Note 6 was a net cash outflow of £1.0m comprising of an outflow in respect of the costs of acquisitions and restructuring and integration costs (2015 net cash inflow of £2.5m comprising of an outflow in respect of the costs of evaluating acquisitions and a cash inflow in respect of other income).

 

19.       Borrowings

 

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

 

 

20.       Principal risks and uncertainties

 

The Group faces a range of risks and uncertainties. The processes that the Board has established to safeguard both shareholder value and the assets of the Group are described in the Corporate Governance report. Set out here are those specific risks and uncertainties that the directors believe could have the most significant adverse impact on the Group's business together with the steps that the Board undertakes in order to mitigate against these risks. The risks and uncertainties described below are not intended to be an exhaustive list.

 

Economic conditions

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

 

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

 

Competition

Barriers to entry into the general credit hire and credit repair markets at a local level are low. Although barriers to establishing a national or specialist business in this sector are higher, there is no certainty that these barriers will remain or will deter new entrants or existing competitors. In addition, there is the potential for local operators to overcome these barriers and establish national networks by forming alliances. Furthermore, competition could be intensified due to the activity of the Group's competitors or if insurance companies, brokers and/or providers of services to motorists or other consumer groups entered the market, either alone or in collaboration with existing providers.

 

Increased competitive pressures such as these could result in a fall in the Group's revenues, margins and/or market share which could cause an adverse impact on its business, financial condition and operating results.

 

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

The monitoring includes performance against agreed service levels with customers and regular meetings are held with referrer customers to discuss performance and requirements.

 

Customer and referrer relationships

Business is referred to the Group from a number of sources including insurance companies, insurance brokers, dealerships, body shops and owners of large fleets. The Group has agreements in place with many of these referrers which govern the flow of hire and repair cases and the terms and commissions on which such cases are introduced. These agreements are subject to periodic review, and once out of initial term can be terminated with short notice periods of typically 3 to 6 months. In the past, commission rates for new business have risen sharply, increasing the costs of acquiring such new business. Commission increases could adversely affect the Group's business and operating results.

 

A significant proportion of the Group's business is referred from insurance companies. If insurance companies were to withhold business from the Group or accident management providers generally or increase their referral commissions, whether alone or on a concerted basis, the operating results, business and prospects of the Group could be adversely impacted. Based upon profit contribution analysis, the Group may decide that renewal terms for certain existing contracts are uneconomic for the Group and consequently gross revenues may decline.

 

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

 

Insurance industry protocols

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

 

Regulation

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

 

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

 

Legal

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

 

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

 

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

 

The Group's legal department and the Group's legal businesses monitor such matters and the Group will endeavour to adapt its business model to deal with such changes if and when they are introduced.

 

Recovery of receivables

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

 

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

 

Fleet costs and residual values

The cost to the Group of holding vehicles for hire is dependent upon a number of factors, including the availability of vehicle finance, the purchase price of those vehicles, the level of discounts available from dealers and manufacturers, financing costs (represented by LIBOR and applicable margins) and the expected residual value at the date of disposal. There is a risk that changes in any of these factors could mean that the Group's fleet costs are increased.

 

The Group's fleet management system enables the business to manage the fleet effectively and maximise the utilisation of its vehicles in order to minimise the cost to the business of holding vehicles. Risk is further mitigated by managing vehicle holding periods and note 24 to the consolidated financial statements details the steps that are taken in managing LIBOR risk.

 

Operational risks and systems

Operational risks are present in all of the Group's businesses, including the risk of direct and/or indirect loss resulting from inadequate or failed internal and external processes, systems, or infrastructure from fraud or human error or from external events. The Group's business is dependent on processing a large number of incidents for management, claims, and vehicle hires and repairs. There could be a failure, weakness in, or security breach of, the Group's systems, processes or business continuity arrangements.

 

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

 

Liquidity and Financial

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

 

Going concern

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

 

The directors have assessed the future funding requirement of the Group and the Company, and have compared them to the sources and levels of working capital resources available including cash balances. The assessment included a review of current financial projections to June 2018, and a review of the financial resources available by way of cash balances and facilities. Recognising the considerable uncertainty surrounding financial projections in the current economic environment, in particular with regard to the demand for the Group's services and the cash collection profiles from insurers, the directors considered a number of scenarios and the mitigating actions the Group could take to limit any adverse consequences.

 

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

 

21. Full financial statements

 

The Group's full financial statements for the year ended 30 June 2016 will be posted to shareholders shortly and will be delivered to the Registrar of Companies in due course. A copy will be available shortly on the Group's website:  http://www.redde.com/investors/reports-and-presentations.aspx

 

 


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