17th Sep 2009 07:00
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FOR IMMEDIATE RELEASE |
17 September 2009 |
Accident Exchange Group Plc
("Accident Exchange" or the "Group")
INTERIM MANAGEMENT STATEMENT
and
ANNUAL GENERAL MEETING CHAIRMAN'S STATEMENT
Accident Exchange has today released its Interim Management Statement and a short address to be made by the Chairman to the Annual General Meeting today.
Included within this Interim Management Statement are details of the recent discovery of evidence offered in Court against the Group which, the Board believes, may not be honest and which it now considers also had a material influence on the magnitude of the exceptional settlement adjustment provision in the previously reported results for the year ended 30 April 2009.
Key points:
Over recent months, through a process of litigation, Accident Exchange has been successful in obtaining many judgements in their favour in respect of outstanding car hire claims, but some of the recoveries have been at recovery rates materially below those originally claimed by the Group.
Accident Exchange has recently discovered and obtained direct independent evidence that the lower rates awarded by the Courts were, in some cases, based on the defendant producing evidence on spot hire rate from Autofocus Ltd. ("Autofocus") which, the Board believes, may either have been factually incorrect or dishonest.
The findings of the investigation have been communicated to the insurers and solicitors of the 'at fault' driver (the defendant in these Court cases) and is expected to form the basis of an action for damages against Autofocus.
CONTACTS:
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Accident Exchange Group Plc |
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Steve Evans, Chief Executive |
08703-009 781 |
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Martin Andrews, Group Finance Director |
08703-009 781 |
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Singer Capital Markets Limited |
020-3205-7500 |
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Shaun Dobson, Joint Head of Corporate Finance |
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Bankside |
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Steve Liebmann or Simon Bloomfield |
020-7367-8888 |
Forward Looking Statements
This IMS contains certain forward-looking statements with respect to the financial condition, results of operations, and businesses of Accident Exchange Group Plc. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by law, Accident Exchange Group Plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein.
About Accident Exchange
Based in the West Midlands and with regional depots in Glasgow, Belfast, Warrington and Dartford, Accident Exchange delivers accident management and other solutions to automotive and insurance related sectors. Fully listed, the stock code is LSE: ACE.
INTERIM MANAGEMENT STATEMENT
The Board of Directors ("Board") of Accident Exchange is today releasing its Interim Management Statement for the trading period from 1 May 2009 to date.
Settlement Activity
As stated previously, the key priority for the Group is to improve cash collections to break-even levels. We have yet to reach that point. However, the Board has very recently obtained direct evidence that supports a conclusion that certain evidence presented to the Courts by Autofocus on behalf of some defendant insurers, in cases brought by our clients for the recovery of hire charges, is untrue.
In the Board's view, this has been a material factor in the difficulties and delay experienced by the Group in reaching cash flow break even.
The results of the investigation have now been filed with the Court in a number of cases which involve the recovery of hire charges from the insurers of the 'at fault' driver. These results also give rise to a separate action for damages currently being formulated against Autofocus
Our concerns have been raised very recently with a number of UK motor insurers and with a number of solicitors acting on behalf of those insurers.
Background
Hire claims which are litigated will, if the claim is decided in our client's favour, result in an award for hire charges. The awarded hire charges are usually calculated at our commercial rate in instances where the client is impecunious or, if he is not, calculated at the market 'spot rate'.
Evidence of the spot hire rate is usually gathered by surveying local rental companies to determine whether they have an equivalent vehicle to that hired on fleet, whether it was available at the relevant time and at what rate it would be charged at including all additional charges.
For many of the rental vehicles operated by the Group (particularly prestige vehicles) and/or in many geographical locations there is a limited available market for the rental of vehicles. This makes the spot hire rate for equivalent available vehicles difficult or even impossible to ascertain.
Over the last nine months, insurers and a large number of solicitors acting for insurers, have increasingly used Autofocus to submit reports as to the spot rates in individual cases in an attempt to challenge the commercial rates charged by credit hire companies such as us. Typically, these reports are transformed into witness statements supported by a declaration of truth and are submitted to the Courts as evidence of the spot hire rate which the insurer of the 'at fault' driver alleges the Court should award. It is right to expect that any such report properly identifies a number of suppliers locally who were in existence at the material time, had the vehicles available to hire from their fleet at the relevant time and who were capable of hiring the vehicle in question to a retail customer at an identified rate. If diligence has not been applied to the enquiries carried out in the market survey, there is a risk that evidence before the Courts will be unreliable.
Testimony given by employees of Autofocus on spot rates has been accepted by the Courts with increasing frequency over the past nine months. At the same time, the acceptance of that evidence has impacted the percentage recovery level of the Group's commercial hire charges arising from claims settled in litigation. The Board now believes that this issue was a contributory factor to both the exceptional settlement adjustment reported in the financial statements for the year ended 30 April 2009 and to the slower payment profiles arising with certain insurers.
The investigation and evidence on spot hire rates
For some time the Group has undertaken its own review of the hire rates available from traditional rental companies to ensure that our charges are in line with those spot hire rates. Whilst it was clear to us that the Autofocus reports did not always compare 'like-with-like' in terms of the rates applicable for drivers with points on their licence, younger drivers and the various insurance excess and waiver charges that might be applicable from a traditional hire company, it was also clear that many traditional hire companies simply could not supply certain categories of vehicles (for example, prestige models) or that the rates quoted were in marked contrast to those quoted in Autofocus reports. This led us to question the accuracy of the Autofocus submissions.
Following a rapid investigation which commenced on 27 August 2009, the Board has obtained a substantial amount of direct evidence which supports the conclusion that some of the evidence submitted on behalf of defendant insurers in order to challenge the Group's hire charges is, at best, factually incorrect and, at worst, dishonest. These are very grave allegations which were first made before the Court in the case of Glossop vs. Christian Salvesen Logistics on 8 September 2009. The allegations, supported by further evidence obtained by the Group as a result of its ongoing investigation, are being deployed on a case by case basis where there are concerns about the veracity of the submissions made by Autofocus.
The Group is now also in the process of taking more formal steps in the High Court to secure pre-action disclosure from Autofocus as part of an action for damages. The action may be extended to a number of individuals employed by Autofocus.
Commercial Actions
Very recently the Group has communicated its concerns around these issues to a number of insurance companies who engaged Autofocus. The Group is in discussion with one leading insurer as to how they intend to react to the Board's concerns and is awaiting a response from several others.
The Group has also communicated its concerns to a number of solicitors acting for insurers, three of whom have now had full disclosure of the evidence obtained as a result of our investigation in respect of specific cases in which they are instructed by the insurer of the 'at fault' driver.
In addition, the Group continues to make enquiries in respect of evidence adduced by Autofocus in other cases currently in litigation and will also be investigating the extent of previously closed cases which were closed with an under-recovery and where Autofocus rate evidence can be demonstrated to have influenced negatively the recovery of hire charges.
Working Capital
The Group continued to report covenant compliance at the last quarterly testing date of 31 July 2009. In addition, the Board continues to manage its working capital in the face of the issues set out above and to engage in discussions with its bankers and fleet finance providers, to seek to ensure that the facilities available to it are sufficient to support the ongoing operations of the Group.
Given the issues set out above and, although the Board has financial projections that show the Group can continue to operate within its currently available facilities, as narrated in the year end results announcement, there continues to exist a material uncertainty that collection and settlement levels may be higher or lower than the Board currently anticipates and to the extent they are lower, further uncertainty would arise as to the Group's ability to meet the covenants set out in and operate within its current working capital facilities.
Trading
Rental day information
Rental days for the four months ended 31 August 2009 were in line with the comparative period at 396,000 and were 15% higher than the preceding four months ended 30 April 2009 (344,000 days).
The trend of increasing mainstream rental days (which are of lower value and lower margin) as a proportion of the total continued over the period such that mainstream rental days comprised 58% of the total as compared to 45% in the comparative period and 53% in the preceding four months ended 30 April 2009.
ANNUAL GENERAL MEETING CHAIRMAN'S STATEMENT
At the Annual General Meeting being held today, David Galloway, will also make the following statement.
"We have stated previously that improvement to cash collections is our biggest priority. We did not expect that challenge to include having to deal with the considerable issues outlined above but we expect insurers and solicitors who have been inadvertently exposed to this situation to react with the integrity and affirmative action which their stakeholders would expect of their brand.
"The Board retains an unremitting determination to see justice prevail and for the Group to emerge from these considerable issues and to continue to operate within available working capital facilities."
ENDS
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