17th Nov 2008 07:00
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FOR IMMEDIATE RELEASE |
17 November 2008 |
Accident Exchange Group Plc
("Accident Exchange" or the "Group")
PERIOD-END TRADING UPDATE
The Board of Accident Exchange Group Plc announces the following trading update for the six months ended 31 October 2008.
Trading
Since we last commented on our trading performance in the Group's Interim Management Statement of 6th August 2008, there has been a marked deterioration in the outlook for the UK economy. After a strong first quarter, business conditions for the Group were challenging, especially in August and September, reflecting the destabilising issues which have been discussed at length in the media in recent months. The increasing probability of an economic recession has clearly impacted customer confidence and commercial morale amongst our predominantly automotive referral base. Reports have cited consumers faced with materially increased fuel costs leading to increased use of public transport, reduced traffic volumes and, consequently, reduced accident volumes. Our recent experiences are consistent with this, with claims activity through the second quarter being lower than both our expectations and the levels seen in the first quarter.
As we enter the seasonally stronger second half of the year, referral levels have broadly returned to the levels experienced last year, albeit with rental lengths being shorter than both those for the first quarter of the current year and for the whole of the prior year. We attribute this shorter rental length to improved efficiency in the speed of vehicle repairs arising from greater capacity within the repair industry, which itself has arisen from reduced accident volumes. It is unclear whether the repair industry will retain this excess capacity in the light of current recessionary pressures and, therefore, whether the trend of shorter rental lengths will continue. It is also unclear if lower traffic volumes will persist and to what extent this may affect the usually stronger trading during the autumn and winter months.
Overall rental days for the first half were up by 11% to 570,000 (H1 2008 : 514,000). Rental days in Q1 were 307,000 (Q1 2008 : 251,000) and were 263,000 in Q2 (Q2 2008 : 263,000). Whilst Q2 was below expectations, rental days in October recovered and were 12% up on September at 93,000 (October 2007 : 91,000 ).
As a consequence of the slowdown in referrals and shorter rental periods experienced in the second quarter, profitability for the six months ended 31 October 2008 will be significantly below management expectations. As we are only two weeks into the seasonally busier second half it is too early to assess whether the reduced rental days experienced in the first half of the year will continue in the second half of the year.
Costs
A large proportion of the Group's costs are either fixed in the short term or are driven by the number of rental cases rather than rental days.
While the Group's cost base has increased in the expectation of maintaining customer service quality through the busier autumn and winter period, we are now implementing a number of specific cost reduction projects, commercial relationship changes and cash management initiatives in order to better position the Group in these more uncertain economic conditions. One of these key initiatives relates to fleet costs and the annualised saving as a result of this is expected to be at least £7.0 million.
Fleet, Residual Values and Impairment
The economic downturn has had a significant impact on new car registrations this year and the used car market has also been more difficult. As previously reported, the business has a continuing exposure to the residual value of its fleet and, in the current climate, has taken action to reduce both that level of exposure and the level of risk. Renegotiation of contract terms with a number of our referral partners over the last six months has reduced our vehicle purchase commitments by approximately £34.7 million. While these actions will result in higher referral commissions payable in respect of contracts where fleet purchase commitments have been reduced, this is more than compensated for by corresponding reductions in the amount of fleet related depreciation and interest costs. They also reduce the Group's ongoing exposure to residual values as a result of an overall reduction in the size of our fleet. Fleet-related finance lease debt will also be reduced from levels that would otherwise have been the case.
The extent of potential losses on anticipated vehicle disposals in the second half of the year will depend on many factors including revenue levels (higher revenue drives higher fleet utilisation and reduces the pressure to sell unutilised fleet), market conditions and the flexibility that may exist to extend the ownership period of the fleet.
It has been widely reported that retail car sales volumes generally have become increasingly depressed over recent months and this has a clear impact on the appetite of the vehicle trade to purchase the Group's maturing rental fleet. Activity levels on the Group's trade auction website (www.aecarauction.com) have helped the Group weather part of the reduction in demand. Since the website was launched in January 2008, 1,058 vehicles have been sold to trade buyers for £16.1 million. Other disposal channels include a direct-to-trade route and the use of conventional auction houses and we will continue to dispose of vehicles where market conditions permit on the best available terms.
The Group uses software provided by CAP Motor Research ("CAP") to help predict future residual values on its vehicle fleet. CAP has very recently stated that they believe residual values in the current used car market will continue to reduce during the coming months and are unlikely to stabilise until early summer 2009. CAP's re-forecast is already partially reflected in relation to 'heavy' vehicles such as 4x4s but CAP has indicated a potentially significant adjustment to market values for other vehicles in December. In light of this, and in line with other large fleet operators, the Group believes it is now appropriate and prudent to make an exceptional charge to reflect an immediate reduction in the carrying value of its fleet. At this stage we are anticipating that this charge could be in the order of 10% of the cost value of our fleet and would therefore be in the region of £12.5 million. The Group expects that CAP will be releasing its realigned market data after 28 November and we will use this data to assist in the quantification of the impairment charge and will be recognising it in the results for the six months ended 31 October 2008 as an exceptional cost.
Outcome for Year Ending 30 April 2009
As a result of the trading and fleet issues referred to above both adjusted* profit and statutory profit or loss before tax for both the six months ended 31 October 2008 and the full year ending 30 April 2009 will be below both the figures reported for the comparative periods last year and below current market expectations.
Working Capital
The Group has complied with and expects to continue to fully comply with its banking covenants.
Cash collections from the litigation process continue to improve, leading to in-house settlement discussions with certain insurers continuing beyond the expiry of the 90 day GTA period and litigation only being used where all reasonable avenues of compromise and negotiation have failed. Litigation will therefore remain a core part of the Group's collection strategy in order to drive cash flow, which is the Group's primary objective. Cash collected through the litigation process increased by 41% in the six months ended 31 October 2008 compared with the prior period. Total cash collected in the period was a record £80.9 million.
Working capital related net debt** at 31 October 2008 (excluding finance leases, property loan and convertible loan notes) was £17.4 million (31 October 2007 : £36.3 million; 30 April 2008 : £3.0 million) giving the Group current working capital headroom of £22.6 million (31 October 2007 : £8.7 million; 30 April 2008 : £37.0 million).
The Group's interim results statement for the six months ended 31 October 2008 is expected to be released on Monday 8 December 2008.
* Adjusted profit tax is stated before amortisation of acquired intangible assets, cost
of share based payments, change in fair value of derivative financial liability and
exceptional costs (including the exceptional fleet impairment charge referred to
above).
** Net debt is stated before the set-off of unamortised debt issue costs.
ENDS
CONTACTS:
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Accident Exchange Group Plc |
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Steve Evans, Chief Executive |
08700-116 719 |
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Martin Andrews, Group Finance Director |
08700-053 649 |
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Teathers Ltd |
020-7426-9000 |
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Shaun Dobson or Tom Hulme |
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Bankside |
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Steve Liebmann or Simon Bloomfield |
020-7367-8888 |
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.
Forward-looking statements
This announcement may contain certain forward-looking statements with regard to the financial condition and business operations of Accident Exchange. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Many of these risks and uncertainties relate to factors beyond Accident Exchange's control or which cannot be precisely estimated, such as future market conditions and the behaviour of third parties. Actual outcomes and results may therefore differ materially from any outcomes or results expressed or implied by any such 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 has no obligation to update any forward-looking statements or to correct any inaccuracies in them.
Related Shares:
ACE.L