Half Year Results

NARS

NATIONWIDE ACCIDENT REPAIR SERVICES PLC

("Nationwide", "the Company" or "the Group")

Unaudited Half Year Results

for the six months ended 30 June 2012

Nationwide provides automotive crash repair and accident administration services to the UK insurance industry, fleet and retail customers. With a national network of accident repair centres located across England, Scotland and Wales it is the largest dedicated provider of accident repair services in the UK. 

Key Points

·; Robust performance in tough market conditions - in line with management expectations

·; Revenue down 12.9% to £80.7m (2011: £92.6m) - principally reflecting site closures in 2011

Revenue on a like-for-like1 basis, down by 4.7%:

- insurance like-for-like1 revenue down 12.7% to £61.1m

- strong growth in fleet like-for-like1 revenue, up 29.1% to £17.0m

- encouraging progress with retail like-for-like1 revenue up 71.7% to £2.6m

·; Gross profit margin increased to 36.3% (2011: 35.5%)

·; Underlying2 profit before tax down to £2.8m (2011: £3.5m)

Statutory profit before tax of £2.1m (2011: £3.0m)

·; Non-recurring items of £0.6m (2011: £0.5m)

·; Underlying2 earnings per share down to 5.0p (2011: 6.1p)

Statutory earnings per share of 3.9p (2011: 5.1p)

·; Net cash at 30 June 2012 increased to £8.0m (2011: £7.3m)

·; Interim dividend maintained at 1.9p (2011: 1.9p)

·; Significant long term growth opportunities

Notes: 1. Like-for-like revenue calculated as this period's revenue compared to the corresponding period last year for all sites that are at least 12 months old at the beginning of our financial year. Bodyshops closed during the period are excluded from both periods.

2. 'Underlying' is calculated before non-recurring items.

Michael Marx, Chairman, commented,

"Set against the tough conditions in our core insurance marketplace, I am pleased with Nationwide's performance for the first six months of the year and results are in line with management expectations.

While the challenges in our core insurance market are evident in these results overall the management has responded robustly to market conditions. We have made progress with our initiatives to develop our non-insurance funded revenues and sales from fleet customers has increased by 27% over the period and now represents 21% of Group revenue compared to very modest levels four years ago. We have strengthened the overall competitive position of the Group whilst providing a platform to grow market share.

With an overall market share of less than 5% we remain confident that, as the market leader, we can continue to successfully develop a complementary range of services and grow market share in both our traditional insurance market and the emerging sectors."

Enquiries:

CHAIRMAN'S & CHIEF EXECUTIVE'S STATEMENT

Introduction

Set against the tough conditions in our core insurance marketplace, we are pleased with Nationwide's performance for the first six months of the year and results are in line with management expectations.

While the challenges in our core insurance market are evident in these results, with insurance-related revenues showing a decline in line with the market trend, overall the management has responded robustly to market conditions. We have made progress with our initiatives to develop our non-insurance funded revenues and sales from fleet customers has increased by 27% over the period and now represents 21% of Group revenue compared to very modest levels four years ago. We have strengthened the overall competitive position of the Group whilst providing a platform to grow market share.

During the first half, customer satisfaction was at record levels across the business. We continue to develop our integrated management information system in order to deliver economies of flow to the Group alongside enhanced customer service levels. The growth in our mobile repair and glass activities has also provided customers with additional convenient and integrated solutions.

Strong cost control remains a focus and we have made further progress in this area through the continuous improvement of working practices. We have also strengthened our management team.

Financial Results

Group revenue for the six months to 30 June 2012 of £80.7m (2011: £92.6m) is down 12.9%. On a like-for-like basis, excluding sites closed, Group revenue is down by only 4.7%. The like-for-like reduction reflects the 12.7% decrease in revenue from insurance customers, which was partly compensated for by the 29.1% like-for-like growth in fleet sales and the 71.7% like-for-like increase in retail sales. Effective control of costs has enabled the Group to improve its gross margin to 36.3% (2011: 35.5%).

Underlying profit before tax of £2.8m (2011: £3.5m) is lower than the corresponding period mainly due to the effect of the decrease in revenue. Underlying earnings per share is 5.0p (2011: 6.1p).

The net non-recurring costs for the first six months of this year amounted to £0.6m (2011: £0.5m). This reflects the £0.6m release of 2011 closure provisions which partly offset the £1.2m of costs incurred largely relating to the closure of one site during the period. The £0.5m non-recurring cost in 2011 related principally to the centralisation of Group finance and administration functions to one site in Bristol and the closure of a non-core site in Bournemouth. The statutory profit before tax was £2.1m (2011: £3.0m) and statutory earnings per share was 3.9p (2011: 5.1p).

During the first half of 2012 net payments of £1.0m were made against the provisions for site closures announced last year. One of these sites has already been sub-let and further negotiations are ongoing with a view to completion before the end of this year.

The cash position of the Group remains strong, having increased by 9.2% to £8.0m at the 30 June 2012 (2011: £7.3m).

Pension

The Group is required to adopt IAS 19 (revised) for reporting periods commencing no later than 1 January 2013 and this will have the effect of removing the 'corridor approach' as well as applying the same discount factor to both defined obligations and pension asset returns. The principal effect is that the pension deficit of £27.8m will be recognised on the consolidated balance sheet. The pension deficit of £27.8m has increased by £1.7m against £26.1m at 31 December 2011, largely because of the effect of declining bond yields on the discount rate applicable to the value of defined benefit obligations. In addition, in the consequent restatement of results to 30 June 2012, the adoption of IAS 19 (revised) will have the effect of increasing profit before tax by £0.2m and reducing consolidated retained earnings by £30.0m. The Company's distributable reserves will also be affected by IAS 19 (revised) and the pro-forma balance as at 30 June 2012 is likely to be approximately £5.1m, providing a robust base in support of the dividend policy.

Dividend

The Board is pleased to declare an interim dividend of 1.9p (2011: 1.9p) which will be paid on 5 November 2012 to shareholders on the register at the close of business on 12 October 2012.

Trading Overview

The Group traded in line with management expectations during the first half of our financial year. Nationwide's progress was particularly encouraging in the fleet market where all of our business segments delivered revenue growth. Our Motorglass and mobile crash repair operations also advanced significantly.

Nationwide Crash Repair Centres ("NCRC"), our largest business segment, generated revenue of £71.0m during the six months to 30 June 2012. Like-for-like revenue was 5.3% lower than the corresponding period in 2011 due to a 12.0% decline in insurance revenue, which we believe is broadly in line with the market trend and reflects declining claims frequency. Fleet revenues of £11.8m now represent almost 17% of NCRC's overall activity and have grown on a like-for-like basis by 28% during the past year. Retail sales of £2.6m have grown by 75% like-for-like and further growth is planned for this area. Following the closure of nine sites last year and one this year, we are pleased to see that our gross margin of 38% for this segment is one percentage point ahead of the corresponding period as greater volumes per site were experienced alongside flexible working practices. Customer satisfaction levels advanced to 86.1% in the period (2011: 84.3%) and results for both "full cycle" times (time taken for a repair job measured from the point of claim) and "key to key" repair times (time taken for a repair job measured from receipt of vehicle) have improved (i.e. reduced) to 15.68 days (2011: 23.95 days) and 10.97 days (2011: 12.76 days) respectively. The continuing growth of our mobile repair solution, now integrated within the fixed site operations, has contributed towards the improvement of these key performance indicators and we will continue to build upon this success.

Network Services, our accident management business, deployed more than 40,000 claims during the six months to 30 June 2012; an increase of 15% over the corresponding period last year, with 83% of the work being deployed into Nationwide Crash Repair Centres. We were pleased to see increased demand from our fleet customers and this market now represents 52% of Network Services' revenue, compared to 37% this time last year. An increasing number of customers are enjoying the integrated range of services that we can provide including first notification of loss, deployment, claims handling, courtesy vehicle organisation, network management, fixed and mobile repair and salvage. The management information systems are common to those of our other business segments and this provides both customers and our own operations team enhanced visibility and efficiencies of work flow.

We are pleased that our vehicle glass repair and replacement business, Motorglass, has continued its successful growth. Revenue of £3.0m (2011: £2.5m) was 20% up on the corresponding period. The operation completed almost 28,000 jobs and achieved an average customer satisfaction index of 89.5% (2011: 88.5%). Fleet customers accounted for approximately 54% of Motorglass' revenue and we are pleased to have a number of customers who have initially experienced our glass services and subsequently extended the relationship to other business areas. 

Strategy

The Group strategy is to develop an integrated range of automotive support service solutions for insurance, fleet and retail customers.

The insurance-funded accident repair services market is estimated at £2.1bn and, as we have previously reported, is under structural pressure evident in the pattern of reducing insurance claims. The reduction in both the volume and frequency of claims is partially cyclical and reflects the difficult economic environment, with reduced car usage and fewer claims for light cosmetic repairs. This pattern is more pronounced in the private motor market than the commercial sector. Improved vehicle technology, traffic management initiatives, etc. are part of a longer term trend that will continue to reduce accident frequency. As the UK's largest provider of accident repair and management services to the insurance sector, with market-leading systems, we believe that we are well placed to use our efficiencies of scale to gain market share.

The fleet market represents a growth opportunity for Nationwide, as demonstrated by our growth from very modest sales four years ago to revenue of £17.0m during the first half of 2012. Our industry leading integrated I.T. platform assists our ability to deliver economies of flow to fleet customers across a growing range of complementary services currently encompassing accident management, repair and glass. We are developing further competitive advantage through initiatives such as fleet orientated equipment in our sites and mobile services which improve repair cycle times and therefore the productivity of our customers' fleet. We believe that there are substantial opportunities for growth in this £0.9bn sector.

Retail sales, currently small, also offer growth potential. Through the development of appropriate pricing structures, I.T. platforms and marketing opportunities we believe that significant growth can be delivered in this £0.5bn market.

Outlook 

We operate in a large market, conservatively estimated at £3.5bn. This offers the Group significant long term growth opportunities. With an overall market share of less than 5% we remain confident that, as the market leader, we can continue to successfully develop a complementary range of services and grow market share in both our traditional insurance market and the emerging sectors.

All activities of the Group are classed as continuing.

The accompanying notes form an integral part of these financial statements.

The accompanying notes form an integral part of these financial statements.

Company Number 966807

The accompanying notes form an integral part of these financial statements.

The accompanying notes form an integral part of these financial statements.

Notes to the Unaudited Interim Statement

For the six months ended 30 June 2012

1. Basis of preparation

The unaudited interim accounts have been prepared on the same basis and using the same accounting policies as used in the audited financial statements for the year ended 31 December 2011, except as noted below.

The Group recategorised certain items of income and expense from distribution costs and administration expenses to revenue and cost of sales. The consolidated statement of comprehensive income has been restated accordingly for the six months to 30 June 2011 and the twelve months to 31 December 2011 as follows.

These unaudited interim statements for the period ended 30 June 2012 have been prepared in accordance with IAS 34, Interim Financial Reporting. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2011, which have been prepared in accordance with IFRS.

The financial information set out in these interim accounts does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The figures for the year ended 31 December 2011 have been extracted from the statutory financial statements which have been filed with the Registrar of Companies. The auditor's report on those financial statements was unmodified.

There are a number of other accounting standards that have become effective in the current period. However, there is no material impact on the financial statements for the interim period.

2. Segment analysis

The chief operating decision maker, as defined by IFRS 8, has been identified as the Board of Directors of Nationwide Accident Repair Services plc. The information reported below is consistent with the reports regularly provided to the Board of Directors. The Group operates three main operating segments, Nationwide Crash Repair Centres ("NCRC" which incorporates Mobile Repairs), Network Services and Motorglass (which incorporates Windscreen Invoice Control Service "WICS"). The segments are identified by their distinct functions within the Group, being site-based repairs, supported by mobile vehicle repairs, accident administration and glass services respectively. NCRC is the core business and comprises a dedicated network of repair centres across England, Scotland and Wales. Network Services provides accident administration services to insurance companies and fleet operators, in the main deploying work to Nationwide Crash Repair Centres Limited, while Motorglass and WICS provide glass, air conditioning and auto-electronic services to the automotive industry. The income and costs of the holding company are shown within NCRC, which acts as the support function for the Nationwide Crash Repair Centres bodyshops.

Intra-group transactions with Network Services are accounted for including VAT, as the segment is within a separate VAT group. All intra-group transactions are invoiced or recharged at cost.

The revenues and net result generated by the three business segments are summarised as follows:

3. Non-recurring items

Eight sites were closed in December 2011 and one site in June 2011. In addition, one further site was closed in April 2012. The site closure costs of £379k include an additional provision of £933k for future rental commitments, dilapidations and costs in relation to the 2012 closure, less a reassessment of the provision for sites closed in 2011 of £554k.

The employee settlement of £244k in 2012 arose due to a change in the senior management of the Group.

The redundancy costs relate to amounts paid in 2011 in relation to the 2011 closures as well as costs in relation to the centralisation of the Group's finance and administration staff in Bristol. The site closure costs include £471k of asset loss on disposals and impairments, operating losses since the date of the closure announcement of £800k and provisions made for future rental commitments, dilapidations and closure costs of £4.3m. The future rental commitments have been subject to a discounted cash flow calculation using a rate of 5%.

Goodwill relating to the closed sites was impaired in 2011 by £1,274k. In addition, following an assessment of the work provision at the Gravesend site, which was acquired in February 2008, the goodwill was impaired by the full carrying amount of £228k.

4. Finance income and finance costs

5. Tax expense/(credit)

6. Earnings per share

Basic earnings per share

The basic earnings per share has been calculated using the net profit attributable to the shareholders of the Company of £1,684,000 for the six month period (2011: £2,206,000) (12 months to 31 December 2011: net loss £2,382,000).

The weighted average number of outstanding shares used for the basic earnings per share amounted to 43,197,220 (2011: 43,197,220) (12 months to 31 December 2011: 43,197,220).

Diluted earnings per share

The diluted earnings per share has been calculated using the net profit attributable to the shareholders of the Company of £1,684,000 (2011: £2,206,000) (12 months to 31 December 2011: net loss £2,382,000).

The weighted average number of outstanding shares used for the diluted earnings per share amounted to 43,197,220 (2011: 43,197,220) (12 months to 31 December 2011: 43,197,220) and assumes the exercise of all the share options detailed in note 10 since the date they were granted and the average market price of £0.64. Due to the share options being anti-dilutive, the diluted earnings per share is the same as the basic earnings per share.

Underlying earnings per share

The underlying earnings per share has been calculated as follows:

7. Dividends

In June 2012, the Company paid a dividend of £1,555,100 to its equity shareholders. This comprised a final dividend in respect of 2011 of 3.6p per share. The directors have declared an interim dividend of 1.9p per share (2011:1.9p), which will be paid on 5 November 2012 to shareholders on the register at the close of business on 12 October 2012.

8. Property, plant and equipment

9. Pension and other employee assets/obligations

The Company operates a funded pension scheme in the UK. The Fund has both defined benefit and defined contribution sections. Since 1 January 2002 the Fund has been closed to new members. Active members of the Fund ceased to accrue further benefits in the defined benefit section on 31 July 2006. Under the current Schedule of Contributions, contributions to the Fund for the year beginning 1 January 2012 will be £2.6m. This disclosure is in respect of the defined benefit section of the Fund only. The Company made contributions of £1,300,000 (2011: £1,300,000) to the defined benefit scheme during the six month period to 30 June 2012 and £2,600,000 in the year to 31 December 2011. The defined benefit scheme was closed for future accruals on 31 July 2006 with active members transferred to a new defined contribution section of the scheme.

The Company has opted to amortise all actuarial gains and losses above the corridor (10% of the greater of assets and liabilities) over a term of 15 years.

A full actuarial valuation of the scheme was carried out as at 31 December 2011 and has been updated to 30 June 2012 by a qualified independent actuary.

The pre- and post-retirement mortality assumptions use the AC00 and the S1PA tables respectively. The AC00 tables are based on the mortality experience of life assurance policyholders. The S1PA mortality tables were published by the Continuous Mortality Investigation and are based on the mortality experience of members of self-administered pension schemes over the years 2000 to 2006. The Company applies an adjustment to the S1PA tables to reflect the scheme's membership characteristics and assumes future mortality improvements in line with the medium cohort effect subject to minimum rates of improvement of 1% per annum.

Reconciliation of opening and closing balances of the present value of the defined benefit obligations

Reconciliation of opening and closing balances of the fair value of plan assets

The amounts recognised in the statement of comprehensive income are:

History of scheme assets, obligations and experience adjustments

10. Equity

Share options

All the above options were issued on 4 July 2006 and no additional share options have been issued since this date. In total, £nil of employee compensation expense has been included in the consolidated statement of comprehensive income for the six month period to 30 June 2012 and £49,000 in the year to 31 December 2011. The corresponding credit is taken to shareholders' funds. No liabilities were recognised due to share based transactions.

2,131,430 TSR options lapsed in 2011 and all share options for D J Loftus lapsed on 10 April 2012, in conjunction with his resignation as a director.

Each Director has been granted two tranches of options. The first tranche is not subject to any vesting conditions and the second tranche is subject to achievement of a Total Shareholder Return performance condition. Under both tranches, vested options can be exercised at any time between the third and tenth anniversary of the date of the grant.

11. Distribution to shareholders and further information

The interim report will be distributed to all shareholders and will be available for the public on the Group's website (www.narsplc.com) and from the Group's registered office, 17a Thorney Leys Park, Witney, Oxon, OX28 4GE. Further information regarding the activities of the Group, including a copy of the interim presentation, is available on the Group's website www.narsplc.com.