Nahl Group Regulatory News (NAH)

18 September 2018

NAHL Group plc

("NAHL" or the "Group")

Interim Results

Earnings in line with expectations

NAHL (AIM: NAH), the leading UK consumer marketing business focused on the UK legal services market, announces its Interim Results for the six months ended 30 June 2018.

Financial Highlights

· Revenue of £24.9m (2017 H1: £24.9m)

· Underlying operating profit of £6.4m (2017 H1: £7.3m)

· Profit before tax of £5.3m after exceptional costs relating to the establishment of wholly owned small claims ready law firm or Alternative Business Structure ("ABS") (2017 H1: £5.3m)

· As anticipated, basic earnings per share of 8.2p (2017 H1: 9.0p)

· Interim dividend of 3.2p per share (2017 H1: 5.3p) as Group adopts more prudent dividend policy in light of investment plans

Operational Highlights

· Personal Injury division performing in line with plan, with strong enquiry volumes

· Encouraging performance from two joint venture ABS partnerships, giving Group confidence to launch in H1 2019 a wholly owned small claims ready law firm

· Continued strong progress from Critical Care division, with increased revenue and profit

· Residential Property division performance reflective of continuing difficult wider market conditions

Russell Atkinson, CEO of NAHL, commented:

"We are pleased to have delivered Group earnings in line with expectations, having made good progress in adapting our Personal Injury (PI) division to capture the opportunity to deliver materially enhanced profits over the long-term.

"2018 represents a year of transition for our PI division. The Government's reforms will have no bearing on the number of accidents that occur but it is clear that there is an opportunity for a new type of law firm to help consumers with genuine claims to obtain access to justice. NAH, with its market leading brand and focus on its consumers' experience, is well placed to seize this opportunity. We have been encouraged by the performance of our two joint venture ABS law firms and are excited about the launch of our third, wholly owned law firm in the first half of 2019. This will give us full economic interest in the success of the whole claim, helping to deliver greater value for our shareholders.

"We are pleased with the performance of our Critical Care division, which has continued to win new business and gain market share. The difficulties facing the housing market have been well documented and this has inevitably impacted our Residential Property division. We have made a leadership change and the division remains well placed to benefit from market recovery.

"As we move forward, our focus is on investing in our PI division to deliver long term growth. As previously indicated we anticipate continued challenges with panel demand for enquiries as a result of regulatory change. As an example, we are in discussion with one of our major PLFs about leaving our panel in H1 2019. We have well developed plans for such a situation which involves placement of enquiries through a combination of PLFs and our joint ventures. We expect to deliver full year earnings in line with the Board's expectations."

For further information please call:

Notes to Editors

NAHL Group plc is a leading UK consumer marketing business focused on the UK legal services market. The Group comprises three companies: National Accident Helpline (NAH), Fitzalan Partners (Fitzalan) and Bush & Company Rehabilitation (Bush). NAH provides outsourced marketing services in the personal injury market, Fitzalan, which includes Searches UK a leading conveyancing search provider, provides marketing services in the property market and Bush provides a range of specialist services in the catastrophic injury market.

More information is available at www.nahlgroupplc.co.uk and www.national-accident-helpline.co.uk.

Chairman's Statement

I am pleased to report the Group's results for the six months ended 30 June 2018.

Summary of Financial Performance

NAHL has performed in line with our expectations, with revenue unchanged at £24.9m (2017 H1: £24.9m), delivering underlying operating profit of £6.4m (2017 H1: £7.3m). After exceptional costs, related to the establishment of our third ABS, profit before tax is unchanged at £5.3m (2017 H1: £5.3m, after exceptional brand repositioning costs). In the first half of 2018 we have seen contributions from our first two ABS joint ventures, so consequently have charges for minority interests, meaning that basic earnings per share reduces, as anticipated, to 8.2p (2017 H1: 9.0p).

Trading Review - Personal Injury ("PI")

National Accident Helpline (NAH), part of our PI division, is a leading marketing services business and offers outstanding consumer service. Combining these capabilities with the regulatory changes impacting the sector creates the opportunity for the Group to develop additional earnings streams. So far this has been achieved through joint ventures but in H1 2019 we will launch a wholly owned, modern, digitally enabled, purpose built, small claims ready law firm.

NAH has to date had two options for placement of enquiries. Firstly, its traditional panel law firms (PLFs) who operate on a mix of commercial terms; and, secondly, its joint venture partnerships (technically, an Alternative Business Structure, or ABS), which benefit from working capital and expertise provided by our partners, who share in the ultimate profit of the joint venture. This placement strategy in part reflects reducing PLF appetite, caused by lower operating margins together with increased working capital requirements, compounded by uncertainties surrounding the small claim reforms. These reforms, first announced in November 2015, are now expected to be implemented in April 2020, at the earliest.

We have invested heavily into these partnerships both in terms of finance and know-how and continue to accelerate this investment. With our expertise, we are in the process of setting up a third placement option and, from H1 2019, some enquiries will be placed with a new ABS which will be 100% owned by the Group. The set up of this third ABS (reflected in the exceptional costs as part of our previously announced £4m commitment) is on schedule and on budget. This new ABS will manage the whole cycle of a PI legal case, with marketing and legal processing profits accruing to the Group. This will continue to change the Group's financial profile as both profit recognition and cash realisation are deferred until case settlement. With our passion for customer service, combined with our process and management capabilities, we expect to earn materially enhanced profits and cash flow as the profile of our cases matures, likely to be from 2021.

The PI division has performed in line with plan in H1 2018. Following our 2017 investment in the NAH brand, enquiry volumes remain strong. PI revenue increased by 4.3% to £15.5m, reflecting the consolidation of £1.7m of ABS revenue, which includes revenue from the launch of the Group's second ABS in Q4 2017. Operating profit was 13.9% lower at £4.6m, as a result of the later profit recognition when we invest in PI case processing, and from expensing £0.6m of enquiry origination costs related to our second ABS. We have continued to increase investment in PI cases, through both PLFs and ABSs, with an extra £5.3m invested in net working capital in the first half, and £10.2m in the last 12 months.

Our first ABS, in conjunction with NewLaw, is operating well, and our second ABS, working with Lyons Davidson, is beginning to show comparable levels of processing capability. We will commit further funds to the ABS as we are confident of their execution capability and economic performance.

As previously outlined, we expect to experience decline in PLF demand as a result of forthcoming regulatory changes. As an example, we are in discussion with one of our major PLFs about leaving our panel in H1 2019. We have well developed plans for such a situation which involves placement of enquiries through a combination of PLFs and our joint ventures. The impact on our overall profit per enquiry is unlikely to be material, although this defers an element of profits from 2019.

Trading Review - Critical Care

Bush, our Critical Care division, has made good progress year on year and is has performed in line with our plans. We expect this to continue for the rest of 2018. Revenue increased 7.3% to £6.0m, and operating profit was up 4.4% to £2.1m.

Trading Review - Residential Property

Our Residential Property division has had a disappointing first half delivering revenue of £3.4m, down 24.5%, with operating profit down 27.0% at £0.6m, reflecting continuing difficult market conditions. We have made leadership changes aimed at capitalising on opportunities to grow share in a shrinking market.

Cash Conversion, Balance Sheet and Interim Dividend

As we continue to invest in PI cases and working capital, our cash generation declines, as planned, with underlying cash conversion down at 20.3% compared with 54.8% for H1 2017. We expect a low conversion, albeit improved from the first half, for the rest of 2018, with some recovery in 2019 as our earlier investment in PI cases starts to mature.

We have bank facilities of £25m in place and at 30 June 2018 had net bank borrowings of £17.4m. Our Rolling Credit Facility, which matures in December 2021, supports our investment plans.

As we previously reported, the level of our investment means that we have adopted a more prudent dividend policy until our PI investment cycle matures. Our dividend policy is 2.0x cover, before exceptional costs and non-cash charges.

We are declaring an interim dividend of 3.2p per share payable on 31 October 2018 to ordinary shareholders registered on 28 September 2018.

Current Year Outlook

As expected, 2018 is part of a transitional phase for our PI division as we respond to changing market conditions and evolve our enquiry placement strategies. We continue to invest in our joint ventures and develop our own law firm which are progressing well. We are enthused about building a market leading PI volume law firm to complement our market leading PI marketing services brand, National Accident Helpline.

We expect progress in Critical Care in the second half, although we expect further challenges in Residential Property where market volumes continue to be disappointing.

We currently anticipate 2018 earnings to be in line with the Board's expectations for the Group as a whole.

Steve Halbert

Chairman

18 September 2018

Consolidated statement of comprehensive income

for the 6 months ended 30 June 2018

Consolidated statement of financial position

At 30 June 2018

 Consolidated statement of changes in equity

for the 6 months ended 30 June 2018

Consolidated cash flow statement

for the 6 months ended 30 June 2018

Notes to the financial statements

1. Accounting policies

General Information

The half year results for the current and comparative period to 30 June have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance of Review of Interim Financial Information.

These half year results do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2017 were approved by the Board of Directors on 19 March 2018 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

Having made due enquiries the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the condensed set of financial statements.

The condensed set of financial statements was approved by the Board of Directors on 17 September 2018.

Basis of preparation

Statement of compliance

The half year results for the current and comparative period to 30 June have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the AIM Rules of UK companies. They do not include all of the information required for full annual financial statements and should be read in conjunction with the financial statements of the Group for the year ended 31 December 2017, which have been prepared in accordance with IFRSs as adopted by the European Union.

New and amended standards adopted by the Group

The following new or amended standards became applicable for the current reporting period:

IFRS 9 - Financial Instruments

IFRS 15 - Revenue from Contracts with Customers

The Group has considered its accounting policies with reference to the new or amended standards and concluded that the existing accounting policies adopted by the Group adhere to the new or amended standards. There are therefore no retrospective adjustments to be made to amounts previously reported.

Use of judgements and estimates

The preparation of financial statements in conformity with IFRSs requires management to make judgements and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimates are revised and in any future years affected.

The preparation of the condensed set of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing the condensed set of financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were of the same type as those that applied to the financial statements for the year ended 31 December 2017.

Significant accounting policies

The accounting policies used in the preparation of these interim financial statements for the 6 months ended 30 June 2018 are the accounting policies as applied to the Group's financial statements for the year ended 31 December 2017.

Use of non-GAAP measures

The Directors believe that underlying operating profit, underlying revenue and underlying operating cash provide additional useful information for shareholders on underlying trends and performance. These measures are used by management for performance analysis and are considered useful as they relate to the core underlying trading activities of the Group i.e. they reflect the current ongoing activities of the Group and do not include any items that relate to significant exceptional projects that are not expected to recur or any items that relate to activities that are outside the normal course of trading (e.g. acquisitions or share-based costs that are not directly related to the current operating performance of the Group). Underlying operating profit, underlying revenue and underlying operating cash are not defined by IFRS and therefore may not be directly comparable to other companies' adjusted profit, revenue, cash or debt measures. They are not intended to be a substitute for, or superior to IFRS measurements.

The adjustments made to reported revenue are:

Exceptional revenues - fees related to exceptional revenues in relation to release of the pre-LASPO ATE liability that are not expected to recur and are not related to the continuing core operations of the business.

The adjustments made to reported operating profit are:

IFRS 2 Share-Based Payments - non-cash Group statement of comprehensive income charge for share-based payments and related National Insurance costs. IFRS 2 requires the fair value of equity instruments measured at grant date to be spread over the period during which the employees become unconditionally entitled to the options. This is a non-cash charge and has been excluded from underlying operating profit as it does not reflect the underlying core trading performance of the Group.

IFRS 3 (Revised) Business Combinations - intangible asset amortisation charges and costs arising from acquisitions. Under IFRS 3 intangible assets are required to be amortised on a straight-line basis over their useful economic life and as such this is a non-cash charge that does not reflect the underlying performance of the business acquired. Similarly, the standard requires all acquisition costs to be expensed in the Group Income Statement. Due to their nature, these costs have been excluded from underlying operating profit as they do not reflect the underlying core trading performance of the Group.

Other exceptional costs/income - these relate to certain exceptional costs associated with the Group's acquisition activities including any costs in relation to aborted acquisitions, reorganisation costs associated with exceptional projects that are not related to the core operations of the business, set up costs of new Group entities including new alternative business structures and exceptional income for the release of previously recognised liability for pre-LASPO ATE. These have been excluded from underlying operating profit as they do not reflect the underlying core trading performance of the Group.

Goodwill

Goodwill represents the excess of the fair value of the consideration given over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is not amortised but is tested for impairment annually and again whenever indicators of impairment are detected and is carried at cost less any provision for impairment. Any impairment is recognised in the statement of comprehensive income.

Other intangible assets

Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses.

Amortisation

Intangible assets are amortised on a straight-line basis over their estimated useful lives as follows:

• Technology related intangibles - 5 to 10 years

• Contract related intangibles - 3 to 10 years

• Brand names - 3 to 10 years

• Other intangibles assets - 3 to 5 years

No amortisation is charged on assets under construction as these are not yet in use.

Depreciation

Depreciation is calculated to write off the cost, less estimated residual value, of property, plant and equipment by equal instalments over their estimated useful economic lives as follows:

• Office equipment - 3 to 5 years

• Computers - 3 years

2. Operating segments

1. Pre-LASPO ATE liabilities include the balance of commissions received in advance that are due to be paid back to the insurance provider of £865,000 (June 2017: £2,026,000, December 2017: £676,000 plus associated accrued costs of £50,000).

Geographic information

All revenue and assets of the Group are based in the UK.

Operating segments

The activities of the Group are managed by the Board, which is deemed to be the chief operating decision maker (CODM). The CODM has identified the following segments for the purpose of performance assessment and resource allocation decisions. These segments are split along product lines and consistent with those reported last year.

Personal Injury - Revenue from the provision of enquiries to the PLFs, based on a cost plus margin model, plus commissions received from providers for the sale of additional products by them to the PLFs and in the case of the ABSs, revenue receivable from clients for the provision of legal services.

Pre-LASPO ATE - Revenue is commissions received from the insurance provider for the use of after the event policies by PLFs. From 1 April 2013, this product was no longer available as a result of LASPO regulatory changes. Included in the balance sheet is a liability that has been separately identified due to its material value. This balance is commissions received in advance that are due to be paid back to the insurance provider. No interest is due on this liability.

Critical Care - Revenue from the provision of expert witness reports and case management support within the medico-legal framework for multi-track cases.

Residential Property - Revenue from the provision of online marketing services to target homebuyers and sellers in England and Wales, offering lead generation services to PLFs and surveyors in the conveyancing sector and the provision of conveyancing searches for solicitors and licensed conveyancers.

Group - Costs that are incurred in managing Group activities or not specifically related to a product.

Other items - Costs associated with the acquisition of subsidiary undertakings, reorganisation costs associated with one-off projects that are not related to the core operations of the business, share-based payments and amortisation charges on intangible assets recognised as part of business combinations.

Cash flows from operating activities

A reconciliation of operating profit to cash generation from operations has been presented below separately identifying net cash flows relating to underlying operations (comprising cash flows associated with Personal Injury, Critical Care, Residential Property and other segments), the Pre- LASPO ATE product segment and other items.

Reconciliation of operating profit to net cash flows from operating activities

3. Financial income

4. Financial expense

5. Exceptional items

1. Set up costs for new ABS include legal and professional fees, consultancy fees, IT costs and other directly attributable costs that are wholly necessary to bring the new alternative business structure into operational existence.

2. Personal Injury reorganisation costs relate to costs associated with exceptional projects that are not related to the core operations of the business.

3. Previously recognised liabilities for pre-LASPO ATE commissions received in advance of £875,000 were released in 2017 as a result of more favourable settlements. These have been offset by associated costs of £75,000.

6. Goodwill

7. Intangibles

The intangible assets recognised were acquired as part of the acquisitions of Fitzalan, BVC, Bush and Searches UK.

8. Share capital

9. Transactions with owners, recorded directly in equity

During 2017, 711,461 share options were exercised which resulted in the issue of 711,461 new ordinary shares with a par value of

£0.0025. The exercising of these options raised funds of £1,779 for the Group.

During 2018, 117,626 share options were exercised from the LTIP and SAYE schemes which resulted in the issue of 117,626 new ordinary shares with a par value of £0.0025. The exercising of these options raised funds of £88,356 for the Group and resulted in an increase to the share premium account of £88,062.

10. Earnings per share

The calculation of basic earnings per share at 30 June 2018 is based on profit attributable to ordinary shareholders and a weighted average number of Ordinary Shares outstanding at the end of the period as follows:

Profit attributable to ordinary shareholders (basic)

Weighted average number of Ordinary Shares (basic)

Basic earnings per share (p)

The Company has in place share-based payment schemes to reward employees. The incremental shares available for these schemes included in the diluted earnings per share calculation are 958,388 (June 2017: 602,503; December 2017: 205,303). There are no other diluting items.

Diluted earnings per share (p)

11. Financial risk management

The Group's financial risk management objectives and policies are consistent with those disclosed in the financial statements for the year ended 31 December 2017. At 1 January 2018 and 30 June 2018 the Group held all financial instruments at Level 3 (as defined in IFRS 7 Financial instruments: disclosures) and there have been no transfers of assets or liabilities between levels of the fair value hierarchy.

12. Net debt

Net debt includes cash and cash equivalents, secured bank loans, loan notes and preference shares.

1. Other interest-bearing loans and loan notes are stated after deducting facility arrangement fees of £166,000 (June 2017: £132,000, December 2017: £203,000). These fees are being amortised over the term of the facility.

Set out below is a reconciliation of movements in net debt during the period.

The Group refinanced its bank facilities on the 8 September 2017. During the first half of 2018 the Group made further drawdowns of £5,375,000 on its rolling credit facility. It is the Group's intention to repay the balance on the rolling credit facility in more than 12 months time and hence the gross balance of £18,500,000 is deemed to be a non-current liability.

13. Related parties

Transactions with key management personnel

Key management personnel in situ at 30 June 2018 and their immediate relatives control 3.1 per cent (June 2017: 4.1 per cent, December 2017: 4.5 per cent) of the voting shares of the Company.

Key management personnel are considered to be the Directors of the Company as well as those of National Accident Helpline Limited, Fitzalan Partners Limited, Bush & Company Rehabilitation Limited, Searches UK Limited and any other management serving as part of the executive team.