A welcome from the CEO

Strategically we have made good progress this year. In April we launched our first wholly-owned law firm, National Accident Law, which is going well. Our joint Alternative Business Structure (ABS) law firms, including our recently launched third ABS, Law Together, continued to scale and are now adding significant value to our business.

We continued to face challenging markets with delays in personal injury reforms causing uncertainty and a housing market that continues to be extremely difficult.  We are navigating these aspects of our markets and continue to be confident that our long-term strategy is correct.

Despite the well-documented challenges in the residential property market, the division did gain some market share during the course of the year, albeit at a higher cost of acquisition.

Our Critical Care division is experiencing significant growth and continues to grow its market share in a mature market.

2020 is presenting a new set of challenges related to the spread of COVID-19. Our number one priority is the safety, wellbeing and health of our people across the business, along with our customers and partners. 

2019 has been a challenging year for NAHL Group plc and 2020 is presenting a new set of challenges related to the spread of COVID-19

During the year, continued political and regulatory uncertainties in our markets have increased the risks faced by the Group. The residential property sector experienced depressed market conditions in 2019 and the personal injury market experienced challenges in both supply and demand. In light of a challenging set of circumstances, management has sought to mitigate operating risks during the year, including the slowing of investment in work in progress, with some success. The Group as a whole has fallen short of the financial targets set by the Board despite good performances from some of our businesses, most notably Critical Care.

In 2019, the Group experienced continued competitive pressure in the market for personal injury enquiries resulting in lower volumes and higher costs to acquire. There has also been declining processing appetite from our panel of law firms alongside a number of commercial challenges in the year that have impacted operational cash flows. This included the previously announced negotiated settlement resulting in receipts of £5m over the next three years.

The resulting 2019 outturn, together with continued regulatory uncertainty, has meant that the financial returns from the transformation of our personal injury business model are taking longer than expected to be realised. As previously announced, in early 2020 the Board took the difficult decision to suspend the dividend and not to propose a final dividend. This decision allows us to reduce net debt and de-risk the balance sheet.

We remain committed to our strategy of maximising the value of the work that we generate through a combination of self-processing and the application of consumer-focused, technological solutions.

Finally, I want to express the Board’s appreciation to all our colleagues working for the Group as we navigate challenging market conditions. Our Group has a strong purpose and I am extremely grateful for the enthusiasm and dedication of our people. My thanks to them and to our shareholders for their ongoing support.

Caroline Brown
Chair
27 April 2020

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Navigating change in complex markets

Overview

2019 was undoubtedly a challenging trading year for the Group. The markets in which we operate were volatile and competitive, while the long-awaited clarification of the timing and nature of the regulatory reforms in the personal injury market failed to materialise. This resulted in continued uncertainty amongst our key customer base. The ongoing funding of work within our Personal Injury business impacts short-term profit recognition and cash conversion and this is clearly reflected in year-on-year comparisons.

However, we made solid strategic progress across the Group successfully implementing several key initiatives including the launch of National Accident Law, our wholly-owned personal injury processing unit, and a new ABS law firm partnership, Law Together.

Additionally, I am delighted with the progress that we have made in Critical Care which has, once again, delivered double-digit revenue and profit growth.

Results

The Group delivered underlying operating profit of £12.2m from revenue of £51.3m for the year. This was lower than the Board’s original expectations caused mainly by the changing business mix and exceptional costs in the Personal Injury division and the Residential Property division returning a modest loss.

Residential Property operates in a UK market dominated by political uncertainty and which contracted in 2019. On a more positive note Critical Care had another strong year of underlying operating profit growth.

Toward the end of the year, as previously announced, the Group reached an agreement to terminate its relationship in respect of National Law Partners, one of its ABS law firm partnerships. As part of this agreement the Group will receive £5m over three years in payment for historic panel enquiries while registering a one-off provision recognised in exceptional costs amounting to £1.2m in the 2019 financial year. This settlement avoided a protracted dispute and the prospect of complex and time-consuming litigation between the parties.

The Group continues to carefully manage its balance sheet and net debt as we re-engineer the Personal Injury business to take advantage of market opportunity and invest in Critical Care to underpin its future growth.

Strategic development

We are happy with the continued progress and delivery of the Group’s wider legal services strategy. Our first and largest ABS, Your Law LLP, continues to perform well and is profitable in its own right. We are also encouraged by the early results from our new partnership, Law Together. These self-processing operations continue to scale-up and we have significantly increased the number of cases we are handling. The Group’s Personal Injury business now comprises the following:

• National Accident Helpline (the UK’s most trusted personal injury brand)
• National Accident Law (wholly-owned ABS law firm)
• Your Law (joint venture ABS law firm)
• Law Together (joint venture ABS law firm)

During 2019 Personal Injury faced a competitively challenging market and continued panel volatility. This required us to manage volumes carefully and optimise placement throughout the year resulting in lower overall volume of enquiries than planned with fewer going into National Accident Law. However, we did grow the overall book of cases by 46.0%. This careful management of working capital to balance risk and reward is a continuing feature of our business as we progress through the transition period.

In Critical Care we are examining the opportunities provided by both our core market and adjacent markets. We can use the skill sets we possess to expand our market share and services in areas such as Court of Protection and care which will underpin our continued growth over future years.

In Residential Property we are conducting a small-scale test on processing our own work in conjunction with a partner. Unlike personal injury claims, conveyancing instructions do not require any significant working capital investment but should enable us, over time, to offer consumers a better end-to-end service which will strengthen our marketing proposition.

Our people, our values

Delivering the transformation agenda across the Group against a backdrop of challenging market conditions requires a talented and committed team who can support our customers with a first-class service. Our Values are central to the way that we do business and we are delighted with the way our people have supported the Group through this period of great change.

Outlook

During March 2020 the emergence of the COVID-19 risk in the UK and its potential impact on our business became our primary focus.

In our Personal Injury business, whilst we have seen a significant reduction in enquiries our ABS law firms continue to process claims and agree settlements. We continue to optimise our cash position by adjusting marketing spend, whilst controlling volume and placement decisions and reducing costs. However, the reduction in volume of new claims placed into our ABS law firms will have an impact on future profits.

Since mid-March, the Group’s Critical Care division has remained resilient with only a modest impact noted to date. The short to medium term impact on our Critical Care division is likely to be less pronounced though face to face assessments for expert witnesses may be impacted in the short- term and adapting to new Government restrictions could also result in lower case management revenue. However, we have been able to utilise our new technology to enable remote working which, when combined with the flexibility of our workforce, will enable us to support our clients through this difficult time.

In Residential Property, market volumes have been significantly impacted with any nascent housing market recovery now unlikely to materialise as property viewings are cancelled, impacting both conveyancing activity and search volumes.

We have already proactively taken measures to reduce our costs and ensure we have sufficient liquidity to run the business through this period and are taking steps to optimise the structure of the business to maximise synergies, reduce our property and lease costs, leverage IT to support broader based home working and delaying capital expenditure. Our aim is to ensure that we will emerge from this with a sustainable business poised to benefit from the recovery in confidence that will follow.

After the initial shock, during which the business has adapted quickly, I expect this recovery will be a gradual process. Our experience in managing change in difficult markets should hold us in good stead.

NAHL Group plc is a strong business with talented and committed people who are working through the impacts of this rapidly changing environment and I am confident that we can navigate the weeks and months ahead.

Russell Atkinson
Chief Executive Officer
April 2020

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Having started 2020 with confidence that the Group’s strategic growth plans were progressing well and early signs of market improvement in Residential Property, we have completely switched our focus on channelling our resources to tackle the business challenges posed by the spread of the COVID-19 virus.

Our number one priority is the safety, wellbeing and health of our people across the business, along with our customers and partners. Since the emergence of the virus in the UK, we have taken various measures to reduce our costs and ensure we have sufficient liquidity to run the business through a prolonged period.

We would like to thank all colleagues for their commitment and flexibility during what will be a testing period. Our experience in navigating change in difficult markets stands us in good stead to emerge from this as a sustainable business poised to benefit from the recovery that will follow.