Half Yearly Results

AIM: NARS

NATIONWIDE ACCIDENT REPAIR SERVICES PLC

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

Unaudited Half Year Results

for the six months ended 30 June 2014

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 management expectations and show significant year-on-year progress

· Revenue increased by 13.7% to £90.0m (2013: £79.1m)

- Howard Basford and Exway acquisitions performed well, contributing combined revenues of £10.1m (2013: nil)

- insurance and fleet volumes up significantly

· Gross margin up two percentage points to 36.2% (2013: 34.2%)

· Underlying (1) PBT up 86% to £2.5m (2013: £1.4m)

- Statutory PBT after non-recurring costs and amortisation of intangibles of £0.02m (2013: £1.35m)

· Underlying (1) EPS up 91% to 4.4p (2013: 2.3p). Statutory loss per share of 0.4p (2013: EPS of 2.3p)

· Continuing good levels of cash generation

· Interim dividend maintained at 1.0p per share (2013: 1.0p per share)

· Post period end acquisition of Gladwins for £9.5m develops Group's regional presence in the East of England

· Two major contracts agreed with AXA UK (in June 2014) and Allianz Insurance plc (in September 2014)

- worth total of c. £20m pa

· Positive outlook - Group is well placed for continued growth

Notes: 1. 'Underlying' is calculated before non-recurring items and amortisation of intangibles.

Michael Marx, Chairman, commented,

"We are very pleased to report a substantial improvement in the underlying trading results of the Group. These encouraging results show the combined benefits of increased volumes, improved operational efficiencies and economies of scale. The two acquisitions we have made, Exway in July 2013 and Howard Basford in February 2014, have performed well, contributing to both volumes and enhanced efficiencies. We are also very pleased to see continuing progress in fleet sales, which grew by 22% and now comprise 25% of Group revenues.

We are confident that in continuing to develop our regional presence as well as our integrated national range of automotive services, we will not only enhance our customer proposition but also our trading performance. We remain positive about the outlook for the Group over the remainder of the year and beyond as we execute our growth strategy." 

Enquiries:

CHAIRMAN'S & CHIEF EXECUTIVE'S STATEMENT

Introduction

We are very pleased to report a substantial improvement in the underlying trading results of the Group, which show underlying profit before tax up 86% to £2.5m (2013: £1.4m) and underlying earnings per share up 91% to 4.4p (2013: 2.3p).

These encouraging results were helped by the measures we put in place to improve operational efficiencies in the second half of 2013 and from increased volumes in both insurance and fleet business. There was organic growth, especially in fleet revenues which rose 22% over the corresponding period, and our two recent acquisitions made contributions in line with management expectations.

The integration of Exway, the bodyshop chain based in the South West of England which we acquired in July 2013, has been successful. Our second recent acquisition, in February 2014, of Howard Basford Ltd, which operates bodyshops in the North West, also performed well in the period. Last week, we announced the acquisition of Derek Gladwin Ltd ("Gladwins") for a total net cash consideration of £9.5m including freehold properties of £4.0m. Gladwins is a leading provider of crash repair services in the East of England and, like our previous acquisitions, its purchase is in line with our strategy to expand selectively in territories providing competitive advantage for our customers as well as delivering economies of scale and work flow efficiencies alongside our plans to build our presence in the insurance, fleet and retail markets. We are delighted to welcome the Gladwins team to Nationwide and look forward to the positive development opportunities our enlarged presence in the East of England will offer. The acquisition of Gladwins is anticipated to be earnings enhancing in the first full year following the acquisition.

We were pleased to announce two major contract agreements. In June, we signed a contract extension with AXA UK and, in early September, we signed a new contract with Allianz Insurance plc. Each contract is worth an estimated £10m per annum and supports the Group's trading performance in the current financial year and beyond.

We remain focused on generating economies of scale and efficient work flows on a regional and national basis to enhance profitability. The broadening of our complementary automotive service range together with improving economic conditions positions the Group to generate growth both organically and through further acquisitions.

Financial Results

During the six months to 30 June 2014, Group revenue of £90.0m (2013: £79.1m) included £7.1m relating to Howard Basford and approximately £3.0m from Exway. Insurance revenue, which comprises 73% (2013: 74%) of the Group's activities, grew by 12% to £65.5m (2013: £58.3m) with an organic gain in market share being complemented by new and enhanced customer relationships from Howard Basford and Exway. Fleet revenue growth, which was almost entirely organic, of 22% to £22.2m (2013: £18.2m) now represents 25% of the Group's activities (2013: 23%). Retail sales of £2.3m (2013: £2.7m) represent approximately 2% of the Group's activities (2013: 3%) and, although they represent a small component of the Group's revenue, we have plans to extend our presence in this market.

Overall gross margin increased by two percentage points to 36.2% (2013: 34.2%), reflecting the execution of our strategy to balance regional capacity with demand alongside operational efficiencies and economies of scale. The underlying operating profit margin also increased to 3.3% from 2.4%.

Underlying profit before tax increased by 86% to £2.5m (2013: £1.4m), or around 60% excluding the effect of the Howard Basford acquisition. Earnings per share, adjusted for non-recurring items and amortisation of intangibles, grew by 91% to 4.4p (2013: 2.3p).

Non-recurring costs and amortisation of intangibles of £2.5m (2013: nil) were incurred, as anticipated, due to acquisition fees (£0.3m) and amortisation of intangibles (£0.7m) arising from recent acquisitions, together with the closure costs of three sites (£1.3m) and alignment of glass costs (£0.2m). Statutory profit before tax was £0.02m (2013: £1.35m) and the statutory loss per share was 0.4p (2013: earnings per share of 2.3p).

The Group continues to generate good cash flows. Net cash at 30 June 2014 of £3.1m (30 June 2013: £5.0m; 31 December 2013: £6.3m) was in line with our expectations following the net cash outflow of £4.3m relating to the acquisition of Howard Basford, £1.3m of pension deficit contributions and £1.0m of cash expended on sites previously closed.

Dividend

The Board is declaring an interim dividend of 1.0p (2013: 1.0p) per share, which will be paid on 7 November 2014 to shareholders on the register at close of business on 10 October 2014.

Acquisitions

In February 2014, we completed the acquisition of North West based Howard Basford, the eighth largest independent bodyshop chain in the UK, comprising eight fixed sites and also providing mobile repair and mobile tyre services. The initial net cash consideration and fees of £4.3m produced revenue of £7.1m and underlying profit before tax of more than £0.2m during the post-acquisition period to 30 June 2014. Further contingent consideration of up to £1.75m is payable in cash and dependent on the attainment of certain performance criteria. The acquisition, which is performing as anticipated, is highly complementary to the Group's operations and is providing a significantly enhanced presence in this region, with the prospect of economies of scale and efficient work flows as well as other benefits.

We are also pleased to have completed the acquisition of Gladwins on 17 September 2014 for a total net cash consideration of £9.5m including freehold properties with a value of £4.0m. Gladwins operates from eight locations in the East of England and was the eleventh largest independent bodyshop chain in the UK. The acquisition is anticipated to be earnings enhancing during the first full year following the acquisition. It complements Nationwide's existing operations and presents opportunities for economies of scale and efficiencies of work flow that can offer competitive advantage for our customers.

Review of Operations by Business Segment

Nationwide Crash Repair Centres ("NCRC")

NCRC's revenue of £77.1m (2013: £67.6m) includes revenues from Howard Basford and Exway, and represents 76% of the Group's activities. Comprising 74 bodyshops (2013: 60), a mobile repair fleet, a Rapid Repair facility and two Fast Fit Plus vehicle service centres, NCRC provides services to the insurance, fleet and retail markets on a local and national basis.

Gross margins for NCRC strengthened to 38.5% during the period (2013: 36.1%) helped by the continued focus on ensuring that vehicle damage is remedied through repair in preference to parts replacement and by our enhanced ability to balance capacity with demand on a regional basis.

The benefits of successfully integrating the acquired Exway operations continued to flow through in the first half of 2014. Our strategy of balancing capacity with demand has been augmented through the closure of three sites during this period together with the acquisition of Howard Basford's eight sites.

Customer satisfaction is a key objective for NCRC as, of course, it is across all of the Group's operations. During the first six months of 2014 the satisfaction level, as measured by independent telephone surveys, increased to 87.3% (2013: 85.6%) and for our flexible and fast mobile repair service this measure was 95.0%.The average duration of repair has also reduced to 10.06 days (2013: 10.66 days) "key to key" (time taken from receipt of vehicle). Full cycle time from notification of the claim has slowed to 16.77 days (2013: 15.83 days) partially due to the delays caused by parts suppliers and on occasion the delay incurred whilst awaiting clarity over liability.

Network Services

Our accident management services business segment operates a 24 hour call service and deploys vehicle damage work to NCRC and an approved network of repairers. In addition, Network Services receives first notification of loss on vehicles, handles claims, organises replacement vehicles, provides engineering services and facilitates salvage.

As Network Services plays a key role in the control of work flow to NCRC sites, to assist with the balancing of capacity with demand, the mix of their total revenue between that undertaken by NCRC and that by the approved network has a significant effect on Network Services' profitability. During the first half of 2014 revenue generated from sub-contracting to our approved network grew by 14% to £9.6m (2013: £8.4m), while sales generated from work deployed into NCRC decreased by £3.7m to £10.6m (2013: £14.3m). Total revenue for the Network Services business segment therefore reduced to £20.2m (2013: £22.7m) although gross profit increased to £2.2m (2013: £2.0m), reflecting the greater proportion of Network Services activity being generated through the approved network.

Glass Division

Revenue growth of 5% to £3.7m (2013: £3.6m) was achieved by our specialist fleet of vans for automotive glass repair and replacement. However an adverse mix of work away from our overnight deployment service resulted in gross profit being maintained at £0.7m (2013: £0.7m).

Market Overview and Strategy

The economic cycle is beginning to enter a recovery period and private motor vehicle miles travelled is now rising and acting as a counterbalance to factors such as advances in vehicle technology and traffic management systems, which have been behind the secular downward trend in motor claims frequency. While, as we have reported previously, there remains some scope for UK bodyshop capacity to reduce, some regions are already beginning to see a rebalancing of supply in line with demand.

Insurance and fleet customers require solutions which deliver quality, value, service and speed; alongside flexibility and good management information on a national scale with local coverage. Many traditional repairers and 'virtual' facilitators are unable to directly satisfy these markets with a sustainable solution. We have a customer focussed, efficient, transparent and integrated approach supported by strong information technology designed to deliver competitive advantage for our customers on a regional and national basis. We continue to work hard to ensure that our offering and service levels remain market-leading.

The retail market presents a further opportunity for growth as integrity, brand awareness and digital capture progressively become differentiators for successful market participants.

Our strategy is to extend the Group's share of the insurance market, further penetrate the fleet market and increase our retail presence. We aim to provide our customers with a competitive advantage through an expanding range of integrated automotive services on a national scale with regional focus. The fragmented nature of the market participants, the structural challenges faced by many of our competitors and our position as a market leader will continue to present opportunities for the Group to develop, both organically and through acquisitions.

Outlook

Progress during 2014 has been encouraging with the operational initiatives and acquisitions made in the second half of last year and first half of this year continuing to make a positive impact.

We are confident that by continuing to develop our regional presence alongside an integrated national range of automotive services, we will deliver further economies of scale and efficiencies of work flow which will in turn complement our customer proposition and deliver enhanced performance.

The Board remains focused on creating shareholder value through both income and growth, and views prospects for the second half and beyond positively.

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 2014

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 2013.

These unaudited interim statements for the period ended 30 June 2014 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 2013, 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 2013 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.

 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 Glass (which incorporates Motorglass and 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 the Glass segment provides 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

The site closure costs of £1,333k (2013: £2,123k) include additional provision for future rental commitments, dilapidations and costs in relation to closed sites. Three sites were closed in 2014.

The release of £80k of the closure provision to non-recurring items in 2014 (2013: £126k) followed the negotiation of an exit from the lease commitments at the previously closed Wednesbury site.

In 2013, a full fixed asset impairment review of the Voyager 2 system, which is no longer used by Network Services (Nationwide) Limited, was undertaken and an adjustment of £354k made in the year to reflect fair values.

The employee settlements of £93k in 2014 (2013: £229k) arose principally following the integration of acquisitions.

Professional fees in respect of the acquisition of Auto Think Limited in 2014 were £265k (2013: costs associated with the acquisition of Exway were £167k).

The Glass cost adjustments of £181k arose in WICS and relate to the change from cash accounting for this business.

4. Net finance costs

5. Tax expense

6. Earnings per share

Basic earnings per share

Basic earnings per share has been calculated using the net loss attributable to the shareholders of the Company of (£183,000) for the six month period (2013: £1,012,000 net profit) (12 months to 31 December 2013: (£194,000) net loss). The weighted average number of outstanding shares used for the basic earnings per share amounted to 43,197,220 (2013: 43,197,220) (12 months to 31 December 2013: 43,197,220).

Diluted earnings per share

The diluted earnings per share has been calculated using the net loss attributable to the shareholders of the Company of (£183,000) for the six month period (2013: £1,012,000 net profit) (12 months to 31 December 2013: (£194,000) net loss). The weighted average number of outstanding shares used for the basic earnings per share amounted to 43,197,220 (2013: 43,197,220) (12 months to 31 December 2013: 43,197,220).

In the current year due to the average market price of £0.69, the share options are not included in the dilutive earnings per share calculation. In the six month period to 30 June 2013 the average market price was £0.70 (12 months to 31 December 2013: £0.65) 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:

7. Dividends

In June 2014, the Company paid a dividend of £820,700 to its equity shareholders. This comprised a final dividend in respect of 2013 of 1.9p per share. The directors have declared an interim dividend of 1.0p per share (2013:1.0p), which will be paid on 7 November 2014 to shareholders on the register at the close of business on 10 October 2014.

8. Intangible assets

On 15 February 2014 the Group acquired Auto Think Limited, the holding company of Howard Basford Limited ("Howard Basford"). The fair value of consideration for the acquisition was £6,225,000 comprising £4,475,000 cash and £1,750,000 contingent consideration.

9. Property, plant and equipment

10. 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, annual contributions to the Fund since the year beginning 1 January 2013 are £2.6m. This disclosure is in respect of the defined benefit section of the Fund only.

A full actuarial valuation of the scheme was carried out as at 31 December 2012 and has been updated to 30 June 2014 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

10. Pension and other employee assets/obligations (continued)

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:

10. Pension and other employee assets/obligations (continued)

History of scheme assets, obligations and experience adjustments

11. Equity

Share options

All the above options were issued on 4 July 2006 and no additional share options have been issued since this date.

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.

12. Business combinations

Provisional Analysis of assets and liabilities acquired

On 15 February 2014 the Group acquired Auto Think Limited, the holding company of Howard Basford Ltd ("Howard Basford"). The addition of Howard Basford is highly complementary to the Group's existing operations and provides a significantly enhanced presence in the North West region, with the prospect of economies of scale and flow as well as other efficiencies. It also helps to increase the Group's presence in its target markets of insurance, fleet and retail. 100% of the voting rights were acquired. Howard Basford is a leading provider of crash repair services in the North West of England. The fair value of consideration for the acquisition is £6,225,000 comprising £4,475,000 cash and £1,750,000 contingent consideration. Transactions costs associated with the acquisition and expensed to the Consolidated Statement of Comprehensive Income in 2014 were £265,000.

Satisfied by

Net cash flow on acquisition

Fair value adjustments

On acquisition of Auto Think Limited, all assets were fair valued and appropriate intangible assets recognised following the principles of IFRS3. A deferred tax liability related to these intangible assets was also recognised. Management identified the main material intangible asset as customer relationships acquired with Howard Basford. This intangible asset was valued using the excess earnings method at £4,235,000. These customer relationships are being amortised over a period of five years which, in accordance with IAS 38, reflects the pattern of benefits from these relationships. A £726,000 credit to deferred tax has been made to record the liability arising on these intangible assets.

Contingent consideration of £1,750,000 is payable in 2015 subject to certain performance criteria being attained.

Goodwill of £1,942,000 represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The goodwill arising on the acquisition is largely attributable to the synergies anticipated to be associated with being part of the enlarged Group.

13. Distribution to shareholders and further information

The interim report will be available for the public on the Group's website (www.narsplc.com) 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.