ACE.L Regulatory News (ACE)

17 Mar 2008 07:02

Accident Exchange Group PLC17 March 2008 FOR IMMEDIATE RELEASE 17 March 2008 Accident Exchange Group Plc INTERIM MANAGEMENT STATEMENT The Board of Accident Exchange Group Plc ("Accident Exchange" or the "Group") istoday releasing its Interim Management Statement for the trading period to 14 March 2008. The Group's priorities for the current financial year, as announced in July 2007, were: • to defeat the Enforceability Challenge (see previous announcements) and to implement a robust day-to-day litigation process to drive improved cash flows; and • to consolidate the Group's position in the vertical market of automotive sector credit hire referrals, to improve the volume and profitability of existing accounts, thereby restoring the ratio of sales and profitability per employee and to deliver reduced fleet ownership costs. Having defeated the Enforceability Challenge and, having also established a strong solicitor panel to actively manage those claims which insurers fail to settle within the 90 days allowed within the General Terms of Agreement ("GTA"),the first of these priorities is now progressing well. It is only since the issue of £50.0 million 5.5% Convertible Loan Notes on 8 January 2008 that the Group has had the flexibility to allow management to refocus its energy on normal business activities. The Board feels that progress has been made in a number of areas and is continuing to focus on the opportunity of improving profitability ratios in the retail automotive credit hire referral sector where the Group has a market-leading position. Trading Since November 2006 the Group has focused on three principal referral channels for credit hire: automotive dealers, contract hire and leasing companies and insurers. More recently, the automotive manufacturer distribution channel has been added and is now being targeted actively. Approximately 94% of annual revenues currently originate from credit hire and accident management solution referrals from the longstanding contractual relationships the Group has established with its retail automotive referral partners. Commission rates for this sector have been stable since we last reported although there is evidence of some upward pressure on commission rates from competitors. This commission challenge is usually counter-balanced by the strength and quality of our service levels, proven over time, and the acknowledgement of the synergistic and differentiated value we bring to commercial relationships. The remaining Group credit hire revenues are generated primarily from our contractual relationships with 17 contract hire or leasing companies and 15 automotive brokers where we continue to add rental volume Because of the Enforceability Challenge faced by the Group in 2007 limited progress was made in expanding the distribution relationships with insurers beyond the two relationships that originated in 2007. That said, the volume and mix of credit hire claims generated by one of those referral sources has grown to such a level as to have altered the overall ratio of rental transactions between mainstream and prestige fleet rentals by 3% since the referral arrangement commenced. Whilst this will reflect through to reduced margins in the short term, the incremental volume is profitable and progress in realigning the fleet (referred to below) will help offset this margin reduction in the future. Overall, Q3 rental day activity grew by 11.9% over Q2. Fleet and Fleet Utilisation Stronger control has being exercised over the rental fleet in Q3 and Q4 which has reduced in size to 4,952 today from 5,116 at 31 January 2008 and 4,999 vehicles at 31 October 2007. There has been a continuous effort to align the rental fleet to provide a bettermatch against expected rental demand. Since November 2007, improved planning hasallowed greater visibility of the fleet mix and alignment of fleet acquisitions and disposals with the vehicle profile required by the referral base. Good progress has also been made with overall rental fleet utilisation improving from 52% to 63% between 1 November 2007 and 14 March 2008. Improvement is evident in 6 of our 7 key fleet segments and, in particular, in prestige saloon - our largest segment. In November 2007 the Group developed and launched a Business-to-Business internet based vehicle re-marketing programme (www.aecarauction.com) with the aim of improving the flexibility around the disposal of the rental fleet, reducing the cost associated with vehicle disposals and maximising the proceeds from those disposals. Whilst the conventional physical auction process remains the main disposal channel by volume, the electronic auction web site has become an increasingly important part of the disposal strategy. The Group now has 638 dealers registered to bid on the site; 405 vehicles with a disposal value of more than £7.3 million have been sold through this channel in the last three months. The quality of the site has been recognised by the Institute of Transport Management which has presented the Group with the award for Innovationin Vehicle Remarketing 2008. Cash collection Daily cash receipts from insurers have improved materially since defeating the Enforceability Challenge in October 2007 and average daily cash receipts of £476,000 through Q3 have risen to an average of £588,000 per day to date in Q4. Claims continue to be agreed within the Company's usual provision for settlementdiscounts. Progressing claim files that remain unpaid after the 90 days allowed under the GTA through solicitor led action has been a crucial operational and financial target for the business since September 2006, although progress was held back until the resolution of the Enforceability Challenge in October 2007. The Board believes that the improvement in the management of files allocated to solicitors, the focus on reducing processing delays and the large volumes of files now being propelled towards a trial date are all factors at the heart of the recent increase in average daily cash receipts. The Group intends to continue this strategy whilst still encouraging an ongoing dialogue with insurers during the first 90 days from the claim being submitted for payment. The Group considers both the threat of litigation and the use of civil litigation to be a normal part of the settlement process where insurers have failed to settle claims within (or soon after) the time allowed by the GTA. It is important to note that because the aggregate value of the majority of claims pursued on behalf of clients are above the minimum level at which solicitor costs can be recovered as part of the litigation process, insurers risk significantly increased costs of settling a claim if they choose not to settle it within the 90 day period provided for within the GTA. To improve interaction with the solicitor panel, the Group has now completed itsdevelopment of "Egress", an electronic platform which links the Group's softwareplatform to the respective software systems for each of its panel solicitors. This allows rapid electronic data interchange and the real time management and reporting of solicitor activity. Good progress has been made in processing claims to and through solicitor led recovery processes. Of 6,121 cases that have now been progressed to conclusion through solicitor ledaction, the data indicates that insurers are reluctant to see the majority of cases proceed to trial; 75% of these cases were settled before a date for a hearing was even set: • 42% were settled after the third party insurer had been notified that a solicitor had accepted instructions to act for our client, but prior to the issue of proceedings against the negligent driver; • 27% were settled after proceedings were issued but before the third party filed a defence; and • 6% were settled after the third party filed a defence but before notification of a court hearing date. The ABI hire rate is the initial discounted rate available to insurers if the claim is settled by them within 30 days. Claims concluded within the litigationprocess in the period from 1 November 2007 to 14 March 2008 have done so at rates which were either agreed with the parties or awarded by the Courts at an average of 134% of the ABI rate plus an award for costs against the third party insurer. The Group currently has 9,263 cases with solicitors with a total claim value of £53.7 million (31 October 2007: 8,778 cases totalling £47.9 million). Proceedings have been issued in 58.9% of these current cases accounting for a total claim value of £30.3 million (31 October 2007: 41.5% with a claim value of£18.4 million). The significance of the number of cases where proceedings have been issued is that those cases are subject to a defined timeline and a series of procedural triggers against which the case will be managed by the Court to conclusion. The further a file progresses through the process of litigation, the higher the risk of increased settlement costs faced by insurers and the nearer we get to a court hearing date, the absolute long stop date for receipt of cash. This delivery of operational efficiency in the management of claims outside the 90 day GTA process is at the heart of the Groups expectations for improved cash flows. Net debt Fleet related finance leases have increased slightly from £88.1 million at 31 October 2007 to £92.8 million at 31 January 2008. Headroom against working capital facilities has improved from £8.7 million at 31 October 2007 to £43.5 million at 31 January 2008. Incorporating Convertible Loan Note debt of £50.0 million, total net debt has grown in the same period from £125.3 million to £140.1 million. DCML DCML continues to perform in line with expectations. Outlook The Board retains a strong focus on the task of continuing to improve margins, restoring revenue growth following the difficult trading conditions for the Group in 2007 and on continuing to improve cash flows. In the short time since the issue of the Convertible Loan Notes in January 2008, good progress has been made on a number of fronts and the Board is optimistic that the performance indicators will continue to improve. January 2008 was a key milestone for the Group, releasing management to dedicate its energy to normal business activitiesfollowing the uncertainty surrounding the business in 2007. The Board expects the benefits of the release of that management energy to flow through in the future. The Board will issue a 'pre close' trading update for the year ending 30 April 2008 in early May. ENDS CONTACTS: Accident Exchange Group PlcSteve Evans, Chief Executive 08700-116 719Martin Andrews, Group Finance Director 08700-053 649 Numis Securities Ltd 020-7260-1000Chris Wilkinson, Corporate Broking BanksideSteve Liebmann or Simon Bloomfield 020-7367-8888 About Accident Exchange Based in Coleshill, West Midlands, Accident Exchange delivers accident management and other solutions to automotive and insurance related sectors. Fully listed, the stock code is LSE: ACE. For further information on Accident Exchange, please visit the company's website: www.accidentexchange.com. This information is provided by RNS The company news service from the London Stock Exchange