LONDON (Alliance News) - Troubled insurance technology and outsourcing company Quindell PLC Wednesday said its pretax loss for 2014 widened significantly due to impairment charges the group booked following a change to its accounting policies, which had been described as being at the "aggressive end of acceptable" by PricewaterhouseCoopers after the review it conducted into the company's books.
The company posted a pretax loss of GBP238.0 million for 2014, widened significantly from a loss of GBP8.6 million a year before, as it booked GBP157 million in impairment charges, compared to none the year before, related to provisions it had to make as a result of the change in accounting policies. This loss relates to its continuing operations, focused on its telematics, insurance broking and insurance technology businesses.
Quindell said the loss was driven by the change in its accounting policies, which has forced it to review the carrying values of non-cash assets and book impairments on the carried value of acquisitions it made. It said it expects the writedowns it has booked will be exceptional and not recur. It said it will not pay a final dividend.
The company said it will give a full restatement of its 2014 interim results when it publishes its interims for the half year to end-June, though it did not provide any guidance on when these results will be released.
Following the outcome of the PwC review, revealed in May, Quindell said it would adopt "more conservative" accounting policies in future and said that, with the help of its auditor, KPMG, it was reviewing "a number" of its past transactions and acquisitions.
Quindell said in its 2014 report on Wednesday that it has "decided that a more appropriate and conservative approach to accounting for revenues and, therefore, profits would be to recognise revenues at a later stage". As a result, it has changed its policy for revenue recognition in its professional services division, which it agreed to sell for GBP637 million to Australian law firm Slater & Gordon Ltd in May.
The company said the changes in policy meant it has shifted its revenue and profit recognition to a later point in the "client service cycle", saying revenue and profit will now be recognised, in the majority of cases, when liability is admitted by the at-fault insurer.
The revisions it has made have reduced its reported net assets, revenue and profit for 2015 and, as a result, there is only a very limited volume of work in progress in the Quindell Legal Services unit, part of the division that it sold to Slater & Gordon. Quindell said its net assets at the end of 2014 were GBP264.0 million, reduced from GBP446.0 million in 2013.
The financial impact of the change in accounting policy for the professional services division operation, treated as a discontinued operation in Quindell's report, is stark. Revenue using its old accounting policy for 2014 would have been GBP510.3 million, but under the new accounting policy this is reduced to GBP220.5 million. The impact on its profitability is yet more profound, with a GBP175.1 million pretax profit under the old policies swinging to a GBP137.2 million loss under the new ones.
In addition to the huge shift in its reported profit and revenue in the professional services arm, the group has also booked impairment charges on the acquisitions it made over the course of 2013 and 2014. For Himex, the connected car company it bought in January 2014, it has booked a GBP22.6 million impairment on the carrying value of the business, and it has also booked a GBP16.5 million impairment charge on Ingenie, the telematics company it also acquired in January 2014.
Quindell also said it expects to return capital from the sale of the professional services division to shareholders in November this year. It is intending to return up to GBP500 million and will do so after it has conducted a reduction of capital, which will take place once its audited results for the first half of 2015 are published.
The Financial Reporting Council, the UK's accounting watchdog, on Wednesday also published a statement saying it has closed its review into the auditing of Quindell's 2012 and 2013 accounts but said it is conducting a probe into members and two member firms into the company's accounts through to the midway point of 2014.
The FRC said it noted that Quindell and its auditors said it has not been possible, so far, to determine that all the "all material errors and omissions arising from historic transactions have been identified" and said it will keep in close contact with the company and its auditors while this process is completed.
Richard Rose, Quindell's chairman, said a variety of factors had led the business to "become destabilised" over the course of the year. Rose, who is the chairman of online kitchen appliances retailer AO World PLC, amongst other chairmanships with UK-listed companies, joined Quindell earlier this year amid a comprehensive overhaul of its board. David Currie, who had been interim chairman prior to Rose's appointment, is the only surviving member of the company's board from the start of its troubled period during 2014.
Rose's appointment was seen by many observers as an attempt by Quindell to restore its reputation, as was the appointment of Michael Howard, the former leader of the Conservative Party who served in the governments of both Margaret Thatcher and John Major.
The erosion of its reputation started back in April 2014, when the company was the subject of a report from short-seller Gotham City Research, which dubbed the company a "Country Club Built on Quicksand." That led to Quindell's share price plunging lower over the course of 2014, a problem which was then exacerbated when founder and former chairman Rob Terry and former finance director Laurence Moorse became embroiled in controversy surrounding share dealings they were involved in. Terry stepped down in November 2014 following scrutiny of his share dealings, while Moorse remained with the company until he was replaced in May by Rob Williams.
Since then, the Financial Conduct Authority, the City regulator, has begun an investigation into public statements made regarding the company's results during 2013 and 2014, a probe Quindell said it will fully cooperate with. It plans to set up internal structures to separate the FCA investigation from its operating business to ensure it can "deliver shareholder value without the distraction" that past reviews of its business have caused.
"Investor trust in the company and its board was eroded and it became clear that decisive action was necessary to bring stability back to Quindell and rebuild the confidence of employees, investors, regulators, customers and suppliers alike. A great deal has been done in a short space of time to turn the tide, and I am confident in the company's long-term future and the potential of our businesses," Rose said in a statement.
Quindell said it has requested its shares to restored to trading, and expects for trading of its shares to resume Thursday at 0800 BST.
Quindell said trading in its continuing operations in 2015 so far has been "challenging", largely due to a continuation of the corporate reputational issues the business faced in 2014 and, prior to its selling the professional services division, cash constraints.
The group expects its full-year revenue to be broadly flat year-on-year, with revenue in its insurance technology business in line with the year before and revenue from its healthcare, technology and other property services business down a small amount.
It expects to post an adjusted earnings before interest, taxation, depreciation and amortisation loss for the full year and expects its cash position to deteriorate further. Its cost base is also set to rise in 2015 due to additional costs it will incur as it transitions to its new business model and as it deals with historical matters.
Quindell also said it is set to announce the appointment of a new chief executive imminently who will be charged with reviewing its strategic direction.
By Hana Stewart-Smith; hanassmith@alliancenews.com; @HanaSSAllNews and Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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