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 2013

Nationwide provides integrated automotive accident repair management services to the UK insurance industry, fleet and retail customers. It is the largest dedicated provider of accident repair services in the UK. 

Key Points

· Results in line with revised expectations

· Revenue decreased by 2.0% to £79.1m (2012: £80.7m)

- insurance revenue decreased by 4.6% to £58.3m (2012: £61.1m) however market share increased

- good growth in fleet revenue, up by 7.1% to £18.2m (2012: £17.0m)

- retail revenue increased to £2.7m (2012: £2.6m)

· Underlying1 operating profit of £1.9m (2012: £3.6m)

· Underlying1 profit before tax of £1.4m (2012: £3.0m)

Statutory profit before tax of £1.4m (2012: £2.4m)

· Underlying1 earnings per share of 2.3p (2012: 5.6p)

Statutory earnings per share of 2.3p (2012: 4.5p)

· Interim dividend of 1.0p (2012: 1.9p) per share - see comment on dividend

· Post period, completed the strategic acquisition of vehicle accident repair specialist group, Exway, in the South West

· Cash at 30 June 2013 remains strong at £5.0m (30 June 2012: £8.0m; 31 December 2012: £5.1m)

· Board expects an improved performance in the second half and beyond

Notes: 1 . 'Underlying' is calculated before non-recurring items of £nil in 2013 (2012: £0.6m operating cost before tax).

Michael Marx, Chairman, commented,

"Half year results are in line with the revised Board expectations after the trading update announced on 5 August and reflect the ongoing difficult trading environment, which is affecting the automotive repair industry as a whole. Nationwide's performance is strong relative to many operators in the industry nonetheless profitability was affected by both margin pressures and an adverse workflow mix. We are confident that the measures already adopted to enhance operational efficiency and sales performance will help to deliver an improved performance in the second half of 2013 and beyond.

While the current environment is tough, there are strategic growth opportunities available and our goal is to continue to broaden the Group's range of complementary automotive related services to develop our presence in the core insurance market and newer fleet and retail markets."

Enquiries:

CHAIRMAN'S & CHIEF EXECUTIVE'S STATEMENT

Introduction

Half year results are in line with the revised Board expectations after the trading update announced on 5 August and reflect the ongoing difficult trading environment, which is affecting the automotive repair industry as a whole. Nationwide's performance is strong relative to many operators in the industry, nonetheless, as previously reported, the Group's underlying pre-tax profit reduced to £1.4m (2012: £3.0m) over the first half as a result of both margin pressures and an adverse workflow mix. However, we expect to see an improved performance in the second half. This will be partly driven by the strategic acquisition we made in the South West region after the period end, which we comment on further in this Statement and by measures which have been adopted to enhance operational efficiency and sales performance.

Our share of the insurance funded market, where capacity exceeds demand, continues to increase alongside good growth in fleet sales and a further rise in retail volumes. Further growth has also been delivered by our mobile repair and glass activities.

While the current environment is tough, there are strategic growth opportunities available and our goal is to continue to broaden the Group's range of complementary automotive related services to develop our presence in the core insurance market and newer fleet and retail markets.

Financial Results

Group revenue for the six months to 30 June 2013 of £79.1m (2012: £80.7m) is down by 2.0%. We are pleased with the continuing growth in fleet revenue which increased by 7.1% to £18.2m (2012: £17.0m) and retail sales at £2.7m (2012: £2.6m) have increased in challenging economic conditions. The decline in Group revenue arises wholly from a 4.6% reduction in insurance revenue to £58.3m (2012: £61.1m), however we have continued to increase our share of this market.

Margin pressures and an adverse workflow mix are reflected in the gross margin of 34.2% (2012: 36.3%), with the performance of Nationwide Crash Repair Centres ("NCRC") in the South West being particularly impacted through a shortfall in repair volumes whilst in some other parts of the UK surges in workflow resulted in higher volume but lower margin work. Throughout the period we continued to deliver high levels of customer satisfaction.

Underlying profit before tax of £1.4m (2012: £3.0m) is lower than the corresponding period mainly due to margin pressures and an adverse workflow mix. Underlying earnings per share for the period was 2.3p (2012: 5.6p). Statutory profit before tax for the six months to 30 June 2013 was £1.4m (2012: £2.4m, after non-recurring costs of £0.6m) resulting in statutory earnings per share of 2.3p (2012: 4.5p).

The Group's cash position of £5.0m (30 June 2012: £8.0m; 31 December 2012: £5.1m) remains strong. Further working capital improvements have been attained through enhanced back office processing and effective cash collection procedures.

Review of Operations by Business Segment

Good revenue growth was delivered by both Network Services and Motorglass, however from a Group perspective the effects of these were more than offset by the shortfall in NCRC's insurance revenue and the margin pressures which were experienced throughout our Group.

Network Services is our "upstream" accident management service for insurance companies and fleets. Operating a 24 hour call centre facility, the business receives first notification of loss, deploys vehicle damage work to NCRC and an approved network of repairers, handles claims, organises courtesy and hire vehicles, provides engineering services and facilitates salvage.

During the six months to 30 June 2013 Network Services increased revenue by 14.1% to £22.7m (2012: £19.9m) of which £14.3m (63%) was deployed for repair into the Group's NCRC sites. External revenue of £8.4m (2012: £7.4m) grew by 13.5% due to increased work volumes from existing insurance customers.

As a greater proportion of repair activity was deployed into NCRC, who enjoy intra-group discounts, Network Services gross margin was lower year-on-year at 8.8% (2012: 10.1%).

NCRC comprises our national network of 60 bodyshops, our mobile repair fleet and three Fast Fit Plus vehicle service centres which undertake maintenance, MOT, tyre replacement and other work. NCRC is our largest revenue generating business segment and sales for the half year totalled £67.6m (2012: £70.7m).

Revenue generated by NCRC from insurance customers of £51.5m (2012: £56.3m) was down by 8.5%, albeit that this represents an increased share of this market which continues to be adversely impacted by declining motor claims frequency. We are pleased with the 13.6% growth in NCRC's sales to fleet customers which, at £13.4m (2012: £11.8m), represent 20% of NCRC's revenue. Retail sales increased to £2.7m (2012: £2.6m).

Margin pressures and an adverse workflow mix are reflected in the lower NCRC gross margin of 36.1% (2012: 37.8%), with the performance in the South West being particularly impacted through a shortfall in repair volumes following the non-renewal of a significant contract with Aviva last year. The acquisition of Exway in July 2013 (see below) should have a significantly beneficial impact on NCRC's performance in this geographical region. In some other parts of the UK, surges in workflow resulted in higher volume but lower margin work. In order to improve the flow and mix of work across our network, we have made further enhancements to the Group's industry leading I.T. platform and have increased the collaboration between Network Services and NCRC. We are already experiencing the benefits of these actions which will help to improve future performance.

Overall customer satisfaction levels, as measured by independent telephone surveys which rate the overall NCRC quality of repair, remain high at 85.6% (2012: 86.1%). The speed of repair has also improved further with a "key-to-key" repair time (time taken from receipt of vehicle) of 10.66 days (2012: 10.97 days) and a "full cycle" time (time taken from the notification of claim) of 15.83 days (2012: 15.68 days).

Motorglass operates a fleet of specialist vans for automotive glass repair and replacement which is coordinated from a call centre using the Group's common I.T. platform. For the six months to 30 June 2013 revenue increased by 20.0% to £3.6m (2012: £3.0m) with strong growth in insurance sales and good growth in fleet sales. The increased demand was met partially through the use of subcontractors and this resulted in a lower gross margin at 19.4% (2012: 20.0%). We are currently identifying areas for the geographical expansion of our own technicians.

Acquisition

Managing economies of scale and flow of work across the Group's sites are key. In line with this, and as previously announced, in July 2013 we completed a strategic acquisition in the South West region. The purchase of the business of Exway Coachworks Ltd ("Exway"), the vehicle accident repair specialist group which is headquartered in Torbay and operates from seven sites, is expected to generate annualised sales of around £6m and will enhance operational efficiency in the region. The consideration, paid wholly in cash, has been largely funded from the Group's enhanced working capital position and is not anticipated to significantly impact on the current management expectation for year end cash. Exway also helps to increase the Group's presence in its target markets of insurance, fleet and retail. The acquisition will result in an exceptional cost in the current financial year and is expected to represent an above average Group return on investment.

Market Overview and Strategy

The cyclical and structural pressures in our market, on which we have commented in past reports, remain evident, with motor claims frequency still trending downwards and supply exceeding demand in the insurance marketplace. However the downward claims trend appears to be flattening and, while there is still overcapacity, we are seeing an acceleration in the rate at which bodyshop operators are facing distress. Market headwinds are clearly affecting the Group's performance however, as the largest dedicated provider of accident repair services in the UK, we believe that the acceleration of market pressures also provides us with opportunities.

The Group strategy is focused on extending the range of our automotive support service solutions for insurance, fleet and retail customers and we strongly believe that we can deliver competitive advantage to our customers through a complementary range of integrated services. The Group's IT platform plays a major role here as it provides industry-leading data with significant commercial and operational advantages.

We aim to continue to increase our presence in the insurance market. As well as seeking to secure additional volumes from insurers, we see attractive strategic acquisition opportunities in localised areas, such as that which we have done in the South West through the acquisition of Exway. In addition, we will continue to target economies of scale and flow of work in order to deliver competitive advantage for our customers.

We remain focused on building revenues from our newer markets of fleet and retail. We have an encouraging pipeline of opportunities with new and existing customers which can be further enhanced by recent selective sales and operational appointments. The integrated range of our services covering fixed and mobile repair, glass and accident management allows Nationwide to offer a coordinated 'one-stop-shop' solution for customers and also provide the operational delivery and visibility for fleet managers and retail consumers. The fleet and retail accident repair market in the UK is estimated at £1.4 billion, representing 40% of the total market. Nationwide's share of this market is around 3% with fleet and retail sales representing 26% of the Group's overall activity.

As we look to further extend the range of the Group's automotive support related services, we are building on a firm platform. We already have expertise in the management of our courtesy vehicle fleet, the development of progressive technological solutions, the management of networks and we are one of the UK's largest consumers of after market automotive parts. By leveraging our expertise in these areas we plan to expand the range of services available to support our customers with a vision to develop Nationwide as the UK's leading integrated, automotive support service group.

Dividend

As previously indicated, in the light of both the trading environment and the strategic growth opportunities that have been identified, the Board considers it prudent to reassess the level of the Group's dividend payments. The Board is very aware of the importance of the dividend to shareholders and is adopting an appropriate dividend policy taking into consideration a payout ratio which reflects this importance whilst allowing the Group to exploit growth opportunities.

The Board is therefore declaring an interim dividend of 1.0p (2012: 1.9p) per share, which will be paid on 5 November 2013 to shareholders on the register at the close of business on 11 October 2013.

Outlook 

The Board remains focused on creating shareholder value through both income and growth.

We are confident that the measures already adopted to enhance operational efficiency and sales performance will help to deliver an improved performance in the second half of 2013 and beyond.

(1) See Note 1

All activities of the Group are classed as continuing.

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

(1) See Note 1

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.

(1) See Note 1

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

Notes to the Unaudited Interim Statement

For the six months ended 30 June 2013

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 2012.

These unaudited interim statements for the period ended 30 June 2013 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 2012, 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 2012 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.

Change in accounting policy

During 2012, the Group early-adopted IAS 19 (Employee Benefits, revised). The amendment no longer allows the "corridor" approach and so all actuarial gains and losses will be recognised in the period in which they arise. The amendment has had a material impact on the Consolidated Statement of Financial Position. The revised standard also requires interest income or expense to be calculated on the net balance recognised, with the rate used to discount the defined-benefit obligation.

The tables below show the impact of the change in accounting policy:

2. Segment analysis

The chief operating decision maker, as defined by IFRS 8, has been identified as the Executive 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 comprises a dedicated network of repair centres across England, Scotland and Wales. Network Services provides accident administration services to insurance companies and fleet operators, including 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 £933k in 2012 include an additional provision for future rental commitments, dilapidations and costs in relation to the 2012 closure. The release of £848k of the closure provision to non-recurring items followed a reassessment of the provision for the sites closed in 2011.

The employee settlements in 2012 arose due to a change in the senior management of the Group.

4. Net finance costs

(1) See note 1

5. Tax expense

6. Earnings per share

Basic earnings per share

Basic earnings per share has been calculated using the net profit attributable to the shareholders of the Company of £1,012,000 for the six month period (2012: £1,948,000) (12 months to 31 December 2012: £3,984,000). The weighted average number of outstanding shares used for the basic earnings per share amounted to 43,197,220 (2012: 43,197,220) (12 months to 31 December 2012: 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 £1,012,000 for the six month period (2012: £1,948,000) (12 months to 31 December 2012: £3,984,000). The weighted average number of outstanding shares used for diluted earnings per share amounted to 43,197,220 (2012: 43,197,220) (12 months to 31 December 2012: 43,197,220).

In the current year due to the average market price of £0.70, the share options are not included in the diluted earnings per share calculation. In the six month period to 30 June 2012 the average market price was £0.64 (12 months to 31 December 2012: £0.63) and similarly, 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:

(1) See note 1

7. Dividends

In June 2013, the Company paid a dividend of £1,555,100 to its equity shareholders. This comprised a final dividend in respect of 2012 of 3.6p per share. The directors have declared an interim dividend of 1.0p per share (2012:1.9p), which will be paid on 05 November 2013 to shareholders on the register at the close of business on 11 October 2013.

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 2013 will be £2.6m. This disclosure is in respect of the defined benefit section of the Fund only.

The Group chose to early-adopt IAS 19 (Employee benefits, revised) during 2012.

A full actuarial valuation of the scheme was carried out as at 31 December 2012 and has been updated to 30 June 2013 by a qualified independent actuary. The major assumptions used by the actuary were (in nominal terms) as follows:

The assets in the scheme were:

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: 

Remeasurements 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, in relation to the incentive arrangement, has been included in the consolidated statement of comprehensive income for 2013 (2012: £nil) (12 months to 31 December 2012: £13,000). The corresponding credit is taken to shareholders' funds. No liabilities were recognised due to share based transactions.

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.

In 2011, the Company entered into incentive arrangements with M A Wilmshurst and S D G Thompson providing for contingent cash bonuses of up to £1,033,835 and £403,096 respectively, subject to continued employment, in the event of a change of control of the Company prior to 31 December 2014, linked to the price at which any change of control occurred. These arrangements formed part of a review of strategic options which has now been completed. No consideration was given for the grant of these arrangements.

11. Distribution to shareholders and further information

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