Nahl Group Regulatory News (NAH)

23 September 2015

NAHL Group Plc

("NAHL" or the "Group")

Interim Results

NAHL, the leading UK consumer marketing business focused on the UK legal services market, announces its interim results for the six months ended 30 June 2015.

Financial Highlights

· Continued revenue growth - up 15.0% to £25.4m (2014 H1: £22.1m)

· Strong performance from Fitzalan acquisition - contributing £1.5m of total Group revenue (H1 2014: £nil)

· Operating profit - £6.5m up 21.1% (2014 H1: £5.4m)

· Basic and diluted earnings per share of 12.5p and 12.3p respectively (2014 H1: 8.5p and 8.2p)

· Robust balance sheet - £1.2m of adjusted net debt at 30 June 2015 (2014 H1: £2.0m)

· Highly cash generative - 95.5% operating cash conversion (2014 H1: 94.4%)

· Interim dividend of 6.25p per share (2014 H1: 5.0p)

Operational Highlights

· Enquiry growth up 9.4% in the period driven by higher margin non-RTA and medical negligence cases

· Continuing product income impacted in short term by introduction of Medco but expected to return to growth during 2016 through further development of product offering to Panel Law Firms

· Successful integration of Fitzalan with ongoing investment in people, brand & infrastructure

· Launched "Ethical Marketing Charter" to stamp out nuisance marketing in the personal injury sector

Russell Atkinson, CEO of NAHL, commented:

"We are pleased to report another strong set of interim results, reflecting the ongoing progress made as the Group continues to grow. We have delivered a good performance within the core business driven by further growth of enquiry numbers illustrating the strength of our brand and the Group's market leading position.

"We have been very encouraged by the performance of Fitzalan since our acquisition. We have invested in the brand and infrastructure as well as increased staff numbers reflecting not only the growing demand from customers but also the potential to grow market share in the second half through further operational improvement and enhancing digital marketing.

"The second half has started positively. The Group remains highly cash generative, has a strong balance sheet and we are well positioned to take advantage of opportunities for further growth across a fragmented legal services market."

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Notes to Editors

NAHL Group

NAHL is a leading UK consumer marketing business focused on the UK legal services market. The core brand - National Accident Helpline ("NAH") was established in 1993 and since then the Group's business has grown to an industry leading position as an outsourced marketing services provider. As the nation's most searched for and trusted personal injury brand NAH, supported by its Underdog character, attracts around 240,000 consumer contacts per annum. The acquisition of Fitzalan Partners allows the Group to extend its reach into the conveyancing market using its skill set from its NAH business.

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 2015.

Summary of Financial Performance

NAHL has performed well, with revenue from continuing operations of £25.4m, up 15.0% (2014 H1: £22.1m), of which £1.5m relates to Fitzalan, our residential conveyancing lead generation business acquired in February 2015.

Revenue growth translates into an increase in underlying operating profit from continuing operations of 16.1%, up from £6.1m to £7.0m, with operating profit up 21.1% to £6.5m. Earnings per share from continuing operations were 12.5p, up 14.7%.

NAHL operates within the personal injury (PI) sector, through National Accident Helpline (NAH), and in the residential conveyancing sector through Fitzalan. Our model is highly cash generative, with a 95.5% (2014 H1: 94.4%) conversion of operating profit from continuing operations into cash.

Our balance sheet is robust and at the period end we had net cash of £3.4m (2014 H1: £6.9m), after paying cash consideration for Fitzalan, together with a small infill acquisition called Best Value Conveyancing, of £3.7m (out of a total acquisition price of £4.5m). Our balance sheet also shows non-interest bearing liabilities of £4.6m (2014 H1: £8.9m) relating to a legacy pre-LASPO ATE product, giving an effective adjusted net debt position of £1.2m (2014 H1: £2.0m) at 30 June 2015.

Interim Dividend

The Board has declared an interim dividend of 6.25p per share payable on 30 October 2015 to ordinary shareholders registered on 2 October 2015.

Business Review

NAH continues to deliver a strong operational performance, with enquiry growth up 9.4% in the period, with core PI enquiries up 5.8% and medical negligence enquiries up 23.9%, resulting in solicitor income increasing by 10.5%. These volume increases are pleasing, although we have experienced some increase in marketing costs, primarily driven by advertising rates and increased online bidding in a competitive marketplace which has resulted in cost per enquiry (CPE) rising by 1.0%.

NAH has gained further market share in the period reflecting the continued strength of our brand, and we continue to adapt well to changing consumer behaviours such as an increasing trend towards enquiries driven by social media. Whilst this type of case can be more challenging to convert into a running case for our Panel Law Firms (PLFs), coping with emerging trends is one of NAH's strengths and our conversion rate of clean leads to enquiries remains above 70%.

Our market continues to evolve, and law firms operating in the PI space are adapting to the maturing post LASPO marketplace. The financial robustness of our PLFs is critical to us and we monitor CPE very carefully. Where appropriate, we work closely with firms on case conversion so that the effective cost per running case is optimised.

Within NAH, we have responded to rising CPE by focusing on lead quality, the efficiency of our marketing commitments, and by building stronger PLF relationships. We have continued to enhance the number of key strategic long-term relationships we have within our panel with some of the larger players in the PI market, whilst managing carefully our concentration risk. We now operate with 56 PLFs of which 40 deal with core PI or medical negligence cases.

Our NAH brand continues to rank as the most trusted and recognised in the PI sector. Approximately 76% of enquiries are derived from higher margin non-RTA and medical negligence cases, which are more valuable to PLFs.

Revenue from the sale of products (medicals, insurance and costs), which are related to the various services required by PLFs to run a case efficiently, decreased by 8.2% in the period. This decline primarily relates to the Ministry of Justice led introduction of Medco in April 2015 which changes the way medical reports are sourced for soft tissue injuries in lower value RTA cases. However we are encouraged by the market penetration of our recently launched non-medical negligence ATE product. Thanks to our continued focus on new products we can offer to our PLFs and ability to adapt to changes in the market, we expect continuing product revenues to stabilise in the second half of 2015 and return to growth during 2016.

Turning to Fitzalan, which provides residential conveyancing lead generation services to law firms and surveyors, we have been pleased with the progress since acquiring the business. We delivered a 21.4% operating margin on revenue of £1.5m. We expect this contribution to grow in the second half, as the leadership changes we introduced at the point of acquisition mature, and additional staff resources, coupled with new products, become established.

Outlook

The Group's second half trading has commenced well, and we expect to see further profits growth at NAH. We are managing closely the growth in enquiry volume, as external marketing costs per enquiry remain higher than previous norms.

We expect Fitzalan to contribute to the Group's results at an accelerating rate, and we are pleased with the acquisition and the performance of the conveyancing sector as a whole.

We continue to see and assess potential further complementary acquisitions in both PI and Conveyancing and believe the strength of our balance sheet alongside our market leading positions means the Group is well positioned to take advantage of opportunities.  

We enjoyed a strong first half, and for 2015 as a whole, we intend to deliver results at least in line with market expectations.

Steve Halbert

Chairman

23 September 2015

Management Report

NAHL is a leading UK consumer marketing business focused on the UK legal services market. The core brand National Accident Helpline was established in 1993 and since then the business has grown to an industry leading position as an outsourced marketing services provider. As the nations most searched for and trusted personal injury brand, NAH, supported by its Underdog character, attracts around 300,000 consumer contacts per annum. The acquisition of Fitzalan in February 2015 allows the Group to extend its reach in the conveyancing market using many of the skill set from its NAH business.

NAHL has continued to show good growth in the core NAH business and has enjoyed strong performance from the Fitzalan acquisition which utilises our core competencies to extend the reach of the Group into broader legal markets.

Financial Overview

Revenue

Revenue from continuing operations increased by 15.0% to £25.4m (2014 H1: £22.1m). Within this, the Fitzalan acquisition, completed in the first half, has added £1.5m of revenue (H1 2014: £nil).

Profitability

Underlying operating profit increased by 16.1% to £7.0m (2014 H1: £6.1m). There has been a 21.1% increase in solicitor income profitability to £5.1m (2014 H1: £4.2m) supported by continued growth in the targeted enquiry sectors of medical negligence and non RTA.

Product income profitability saw a 9.5% decrease to £2.4m (2014 H1: £2.6m). In addition to declining products reducing in the post LASPO environment, continuing products saw a 7.6% decrease to £2.0m (2014 H1: £2.1m). Whilst the business continues to see the impact of new Medco legislation on its medical commissions, the Group has introduced a new ATE proposition which should reverse the medical income declines in 2016.

Fitzalan made an impressive start delivering £0.3m of operating profit in H1 for the 20 weeks of trading. The business has increased its staff numbers and has new office facilities in order to benefit from increased demand from its customers. The Group is confident of the ability to continue growing market share in the highly fragmented conveyancing sector through operational improvement and enhancing digital marketing.

The Group remains committed to maintaining cost controls and has delivered an improvement in the operating profit margin from 27.4% to 27.7%. The Group remains on track to achieve its annual target of c.30% operating profit margin.

One off items in H1 2015 of £0.2m are for costs relating to the acquisitions of Fitzalan and BVC, with share based payments of £0.4m the total of £0.6m compares to £0.7m in H1 2014.

Earnings Per Share

Basic and diluted earnings per share for the period were 12.5p and 12.3p respectively, (2014 H1: 8.5p and 8.2p or for continuing operations only: 10.9p and 10.6p).

Dividend

The Board has declared an interim dividend of 6.25p per ordinary share (2014 H1: 5.0p) which will be paid on 30 October 2015 to ordinary shareholders registered at the close of business on 2 October 2015. The policy to pay two thirds of its retained earnings each year, with one third of this at the interim stage, as a dividend remains the board's objective. The final payment is expected to be announced in March 2016 for payment in May 2016.

Cash and Balance Sheet

The Group had £1.2m of adjusted net debt at 30 June 2015 (2014 H1: £2.0m). This comprised the following:

The net debt position is after £3.7m of cash paid relating to acquisitions. The improvement in the net debt position is as a result of continued strong cash flow performance from operating activities which delivered an operating cash conversion from continuing products of 95.5% (H1 2014: 94.4%) resulting in £6.7m of net cash inflows from operating activities (H1 2014: £5.7m). The Group would expect to continue to generate in excess of 90% of operating profit as operating cash flow.

Russell Atkinson

Chief Executive Officer

Steve Dolton

Chief Financial Officer

23 September 2015

Consolidated statement of comprehensive income

for the 6 months ended 30 June 2015

All profits and losses and total comprehensive income are attributable to the owners of the Company.

Consolidated statement of financial position

At 30 June 2015

Consolidated statement of changes in equity

for the 6 months ended 30 June 2015

Consolidated cash flow statement

for the period ended 30 June 2015

1 Net cash from operating activities, discontinued operations, includes operating cashflows of £nil (6 months to June 2014: £444,000, 12 months to December 2014: £444,000) from discontinued operations and £nil (6 months to June 2014: £210,000, 12 months to 31 December 2014: £210,000) of costs borne by the Group

Notes to the financial statements

1. Accounting policies

Basis of preparation

Statement of compliance

The condensed set of financial statements for the six months ended 30 June 2015 has been prepared in accordance with IAS 34 Interim financial reporting as adopted by the EU and the AIM Rules of UK companies. It does 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 2014.

This condensed consolidated half year financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2014 were approved by the Board of Directors on 23 March 2015 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.

The half year condensed consolidated financial statements for the 6 months ended 30 June 2015 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

The condensed set of financial statements was approved by the Board of directors on 22 September 2015.

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 2014.

Significant accounting policies

The accounting policies used in the preparation of these interim financial statements for the 6 months ended 30 June 2015 are the accounting policies as applied to the Group's financial statements for the year ended 31 December 2014.

Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The Group measures goodwill as the acquisition-date fair value of the consideration transferred, less the net of the acquisition-date fair values of the identifiable assets acquired and liabilities assumed, including contingent liabilities as required by IFRS 3.

Consideration transferred includes the fair values of assets transferred, liabilities incurred by the Group to the previous owners of the acquiree, equity interests issued by the Group, contingent consideration, and share-based payment awards of the acquiree that are replaced in the business combination. Any contingent consideration payable is recognised at fair value at the acquisition date. Subsequent changes to the fair value of contingent consideration that is not classified as equity are recognised in the income statement.

Transaction costs that the Group incurs in connection with a business combination, such as finder's fees, legal fees, due diligence fees, and other professional and consulting fees, are expensed as incurred.

Intangibles

Intangible assets are carried at cost or valuation, less accumulated amortisation and impairment losses.

Cost or valuation

Intangible assets arising from a business combination are recognised at fair value, amortised over their estimated useful lives and subject to impairment testing.

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 - 5 to 10 years

• Brand names - 5 to 10 years

2. Operating segments

Geographic information

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

Operating segments

The segments used in reporting by the Chief Operating Decision Maker (CODM), being the Board, and considered relevant to the business are segmented on a product basis. These segments are:

PI Solicitor income

Revenue from the provision of enquiries to the Panel Law Firms (PLFs), based on a cost plus margin model.

Products

Commissions received from providers for the sale of additional products by them to the PLFs.

Pre-LASPO ATE

Commissions received from the insurance provider for the use of ATE 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.

Conveyancing

Revenue from the provision of lead generation services to law firms and surveyors in the conveyancing sector. Conveyancing revenue and operating profit relate to the amounts Fitzalan Partners Limited has contributed to the Group since the acquisition date.

Other segments

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

One-off items and share based payments

Costs relating to the acquisitions of Fitzalan Partners Limited, Best Value Conveyancing and share-based payments (2014: Costs for the payment of employee bonuses relating to admission of the company to AIM and share-based payments).

PPI Claimline (discontinued)

Provision of claims management services focused on recovery of mis-sold payment protection insurance. This business was sold on 15 May 2014.

2. Operating segments continued

Cash flows from operating activities - continuing operations

A reconciliation of operating profit to cash generation from operations for continuing operations has been presented below separately identifying net cash flows relating to continuing products (comprising cash flows associated with PI solicitor income, products, conveyancing and other segments), the pre-LASPO ATE product segment and cash flows within continuing operations that related to the PPI Claimline division, which is now discontinued.

One-off items have been separately identified for all periods.

Reconciliation of operating profit to net cash flows from operating activities - continued operations

3. Financial income*

* Information given excludes that of discontinued operations.

4. Financial expense*

* Information given excludes that of discontinued operations.

5. One-off items

1. Costs directly related to the acquisition of Fitzalan, professional fees paid for due diligence, general professional fees and legal costs.

2. Costs directly related to the acquisition of BVC, general professional fees and legal costs.

3. Fees paid to former senior management of Fitzalan for consultancy services provided in the business post acquisition.

6. Acquisitions

Acquisition of Fitzalan Partners Limited

On 17 February 2015 the Group acquired the entire share capital of Fitzalan Partners Limited (Fitzalan). The company is an online marketing specialist servicing home buyers and sellers in England and Wales. The acquisition of Fitzalan represents the Group's first move into an adjacent consumer legal services market.

Acquisition of Best Value Conveyancing

On 30 June 2015 the Group acquired the trading assets of Best Value Conveyancing (BVC). BVC provides lead generation services to law firms in the conveyancing sector.

Fair values

The acquisitions had the following effect on the Group's assets and liabilities:

The Group incurred acquisition related costs of £146,000 related to professional fees paid for due diligence, general professional fees and legal related costs. These costs have been included in one off items in the Group's consolidated income statement.

For all acquisitions made in the year, fair values remain provisional, but will be finalised within 12 months of acquisition.

7. Goodwill

8. Intangibles

The intangible assets recognised were acquired as part of the acquisitions of Fitzalan and BVC.

9. Share capital

10. Transactions with owners, recorded directly in equity

On 18 June 2015, NAHL Group plc carried out a capital reduction exercise. The steps required to complete the capital reduction have been included within the condensed consolidated statement of changes in equity and have been further explained below:

Bonus issue of Capital reduction shares

The amount standing to the credit of the Company's merger reserve in the sum of £16,928,000 was capitalised by way of a bonus issue of newly created Capital Reduction Shares with a nominal value of £0.41 each; and

Capital reduction shares cancelled

The newly created Capital Reduction Shares were cancelled; the amount standing to the credit of the Company's share capital account in the sum of £16,928,000 was cancelled and recognised in retained earnings.

Capital reduction

The amount standing to the credit of Company's share premium account in the sum of £49,532,649 was cancelled in full and the amount was recognised in retained earnings.

Following the approval by the company's shareholders of the resolutions in the Capital Reduction and the subsequent approval by the Court, the company's distributable reserves were increased by £66,461,000.

11. Share-based payments

The Group operates three employee share plans.

SAYE plan

The SAYE plan is available to all employees. Options may be satisfied by newly issued Ordinary Shares, Ordinary Shares purchased in the market by an employees' trust or by the transfer of Ordinary Shares held in treasury.

EMI Scheme

The EMI Plan provides for the grant, to selected employees of the Group, of rights to acquire (whether by subscription or market purchase) Ordinary Shares in the Company (Options). Options may be granted as tax-favoured enterprise management incentive options (EMI Options) or non-tax favoured Options.

LTIP

The LTIP will enable selected employees (including Executive Directors) to be granted awards in respect of Ordinary Shares. Awards may be granted in the form of nil or nominal cost options to acquire Ordinary Shares; or contingent rights to receive Ordinary Shares. Awards may be satisfied by newly issued Ordinary Shares, Ordinary Shares purchased in the market by an employees' trust or by the transfer of Ordinary Shares held in treasury.

The terms and conditions of grants of share options to employees of the Group, in the shares of NAHL Group plc are as follows:

Grant date/employees entitled/nature of scheme Number of instruments Vesting conditions Contractual life of options

During the 6 months to June 2015, 403,668 share options were awarded under the EMI Scheme.

A charge of £374,000 (6 months to June 2014: £47,000, 12 months to December 2014: £288,000) has been recognised through the income statement for the 6 months ended 30 June 2015.

12. Basic earnings per share

The calculation of basic earnings per share at 30 June 2015 is based on profit attributable to ordinary shareholders of £5,144,000 (6 months to June 2014: £3,474,000, 12 months to December 2014: £8,473,000) and a weighted average number of Ordinary Shares outstanding of 41,150,000.

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. At the 30 June 2015, the LTIP, EMI and SAYE schemes are at a value that would reasonably result in the options being exercised. The bonus element of the shares available for these schemes, included in the diluted earnings per share calculation, is 693,609 (6 months to June 2014: 259,984, 12 months to December 2014: 361,821). There are no other diluting items.

Diluted earnings per share (p)

13. 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 2014. At 1 January 2015 and 30 June 2015 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.

14. Net cash

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

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

15. Related parties

Transactions with key management personnel

Key management personnel in situ at the 30 June 2015 and their immediate relatives control 6.3 per cent (2014 H1 and December 2014: 13.7 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 and any other management serving as part of the Executive team.