NAHL Group Plc (NAH.L) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the NAHL Group plc investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish responses where it is appropriate to do so. Before we begin, as usual, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from NAHL Group plc, James, Chris, good morning.

Thank you, Jake, and good morning, everyone. I'm James Saralis, the CEO of NAHL Group, and I'd like to welcome you all to NAHL's interim results presentation, and this covers the period from the 1st of January to the 30th of June 2024. We released our interims on the 24th of September, and we're going to provide you an overview of those results today. With me here today is Chris Higham, the Group CFO, and we're going to work through the presentation, which should be on your screen now. It's also available in the Investors section of our website. That's www.nahlgroupplc.co.uk. So I'll begin today by taking you through the highlights from the period. And for those of you who are new to the business, I'll give you a short introduction into who we are and what we do. I'll then hand over to Chris to present more detail on our financial performance and strong cash generation. Then we'll dive into a review of each of our 2 trading divisions, and we'll finish with an outlook. I'm sure there'll be plenty of time for questions at the end. We've also had some questions come through already, actually. So if you want to submit a question, please do so, and we'll try and answer as many as we can. If there are any that we don't get to, then I'll write a written response, and I think that will be added to the meeting on the platform, and you can view that later on. So let's crack on then, and we'll get into the highlights from the first half of this year. Firstly, I'm pleased with the progress that we've made in the first half. And if there were 3 points that I'd like you to take away from today's presentation, they would be, firstly, that we have delivered strong growth in earnings in the period in spite of some challenges in the personal injury market; secondly, we've reduced net debt by another 7% since December; and thirdly, the potential sale of Bush & Co. is progressing well. So if I turn to the financial highlights, our revenue for the half year was GBP 19.4 million. That's 7% lower than last year due to a reduction in the Personal Injury revenues in what was a quite challenging and unusually competitive market in the period. Performance in Critical Care was very strong, and we delivered double-digit growth in this division. Our PBT increased to GBP 0.5 million from a very small loss last year. In fact, that was almost as big as the whole of last year, so a good result. And despite our ongoing investments, we generated free cash flow of GBP 0.7 million in the period, and operating cash conversion was also strong. That enabled us to reduce net debt from GBP 9.7 million at year-end to GBP 9.0 million at 30 June. And this is the sixth consecutive half-on-half reduction in net debt and the eighth since the start of 2020 when our net debt was GBP 21 million. So we've come a long way, and that really demonstrates the strong cash generation of the group. If I look at the operational highlights, well, in Consumer Legal Services, our fully integrated law firm, National Accident Law, or NAL, continues to scale and has performed well in the first half. It's been growing settlements. And as a result, cash from settlements was up 46% in the first half compared to last year. And in line with our strategy to build a higher-margin business, we're continuing to invest in NAL. We added over 3,000 new inquiries into the law firm in the first half, which we estimate should generate almost GBP 3 million in profit and cash when settled. National Accident Helpline, meanwhile, generated a lower number of inquiries than last year. And we talked a bit about the challenges in the Personal Injury market earlier in the year, and we're making some progress, which I'll expand on later in the presentation. In Critical Care, Bush & Co. had an exceptional first half and delivered double-digit growth in revenue and profit. Pleasingly, all service lines performed well, but expert witness delivered a standout performance, growing revenues by 18%. Finally, on this slide, we announced back in April that we were exploring a potential sale of Bush & Co., and I'm pleased to report that the process is going well. Now based on a number of questions we've received already on this theme, I appreciate it's going to be a hot topic, and I hope that you'll understand that there's actually very little I can say about this at the moment. Other than that whilst there's no guarantee of a transaction, I'm pleased to report that we've had strong interest from a wide variety of potential buyers, and we're currently negotiating terms with a select number of those parties. There's still quite a lot of work to do on this, including a shareholder vote on any proposed transaction later in the year. But we're currently aiming to close this out before the end of the year, and we'll update shareholders further as appropriate. As you would expect, now that we've made some progress with Bush & Co., the Board is considering potential strategic options and the future strategy for the remainder of the group in order to maximize value for our shareholders. This includes what the business might look like after a potential sale of Bush, the structure and funding as well as the investment opportunity for NAL, and we're considering all of the options. Now we're at a very early stage of this, but I think it's the right time to be considering this, and we'll update you as appropriate. So I'm not going to be able to elaborate further on these 2 topics today. But as I said, we'll bring you more updates as appropriate. So those are the highlights from the first half of the year. And before I expand on them in more detail, this is the point where I usually take a step back and, for those who aren't familiar with our business, provide a brief introduction into who we are. So NAHL is a leader in the U.K. consumer legal services and catastrophic injury markets, helping people who had an accident or suffered medical negligence that wasn't their fault to get their lives back on track. In our 30-year history, we've helped over 1 million customers access over GBP 1 billion in compensation by providing legal support and rehabilitation services. And we provide services and products to individuals and businesses through our 2 divisions, which we call Consumer Legal Services and Critical Care. In Consumer Legal Services, we're one of the U.K.'s leading providers of personal injury advice, services and support. We've got a strong heritage in this market and have helped more people injured in accidents in the U.K. than anyone else. Through our market-leading brand, National Accident Helpline, we guide accident victims through the steps of making a personal injury claim. We then triage those claims. And for those that we think of legal merit, we either pass them to one of our panel of specialist third-party law firms or to our joint venture for processing. Or increasingly, we process these claims in our own fully integrated law firm, which is called National Accident Law. Now distributing these claims to our panel provides us with access to quick profit and cash flow with terms -- with firms typically pay us in 30 days. But if we process these claims ourselves in National Accident Law, then we achieve much higher levels of profit, but that comes with a longer working capital cycle as the claims take, on average, 2 to 3 years to process. And the joint venture helps us to balance these 2 extremes. Also in this division, we operate a small but profitable property searches company called Searches UK. Now in Critical Care, our Bush & Co. business is a market leader in expert witness reports, immediate needs assessments and case management rehabilitation services in the U.K. We support children, young people and adults following a catastrophic injury or clinical negligence. And these are the most serious injuries often leading to life-changing disabilities and include acquired brain injuries and spinal cord injuries. And claim settlements in this business exceed GBP 500,000, and actually, they're usually into the millions. We also launched a new care proposition in 2021, and this is growing rapidly. This offers nurse-led care management solutions for accident victims. And generally, we help customers after their claim is settled. So those are our 2 trading divisions. And we also have a centralized shared services division, which provides strategic leadership and support with funding governments. Over the years, we've built an inclusive and supportive culture, with a strong focus on employee engagement, which helps us to recruit and retain top talent across the U.K. And we're proud to have been recognized externally for this culture, having been awarded the Gold Standard by Investors and People and included in the Best More Companies list in recent years. So hopefully, you should now have a good overview of who we are and the progress that we've made in the first half. And I'll now hand over to Chris, who's going to take you through a review of the financial results.

Thanks, James. I'll start with the P&L. And so we generated revenues of GBP 19.4 million in the period. This was 7% lower than last year, primarily related to the Personal Injury business, where lower inquiry volumes and softer demand from the panel impacted revenues. As a result, within Consumer Legal Services, revenue was down 17% to GBP 11.4 million. However, this was partially offset by continued growth in the Critical Care business, which grew revenues by 11% to GBP 8 million in the period. Operating profit was in line with last year at GBP 1.8 million, albeit Consumer Legal Services was GBP 0.3 million lower for the inquiry reasons covered previously, with Critical Care up GBP 0.3 million. And due to decisions taken in recent years to place and process more of our own work with NAL and less with the joint ventures, we've managed to reduce noncontrolling interests by GBP 0.4 million or 33% in the period to GBP 0.9 million overall. Whilst interest costs have also fallen by GBP 0.1 million due to lower debt levels, this has resulted in a profit before tax of GBP 0.5 million in the first half compared to broadly breakeven at this time last year and almost matches the GBP 0.6 million generated for the whole of 2023, resulting in an EPS of 0.7p. From a cash perspective, we continue to generate good cash levels in both divisions in the period whilst continuing to invest. We generated cash from operations of GBP 2.4 million at a ratio of 134% and free cash flows of GBP 0.7 million, further reducing our net debt position. Personal Injury remained cash generative after payments to LLP members, generating net of GBP 0.4 million, and this was despite the difficult market conditions in inquiry generations and softer panel demand, which has an impact on our short-term cash. This was offset by continued momentum in cash collection within our own law firm, where we collected GBP 4 million in the period from settled claims, 46% higher than this time last year. Critical Care generated GBP 2.1 million in the period. This was a little lower than envisaged, but we anticipate this improving in the second half. And overall, the GBP 0.7 million of free cash flow allowed us to reduce our net debt to GBP 9 million at the end of the period, 22% lower than the end of H1 2023. Now I'll pass back to James, who will give some further detail on the 2 divisions.

Thank you, Chris. So next, let's dive into a bit more detail on the performance of our 2 divisions, and we'll start with Consumer Legal Services. The focus of this division is our Personal Injury business, where we operate in the U.K. claimant side personal injury market. And over the past 5 years, we've built a fully integrated law firm, National Accident Law, or NAL, which was built from scratch to be capable of scaling efficiently to generate higher returns for shareholders and a great outcome for our customers. And our strategy is to build a more sustainable and profitable business by using our market-leading brand, National Accident Helpline, to help as many accident victims as we can by processing more of those claims in NAL for higher returns and funding our growth through cash generated from claim settlements, our panel relationships and our joint ventures. And market conditions have made progress with that strategy challenging so far this year, but we made progress in a number of areas. I won't repeat the financials that Chris just took you through a moment ago, but over the next couple of pages, I'll try to draw out some of the operational progress that we're seeing. So firstly, National Accident Helpline. And this is where we do our marketing, triage and placement services, and it's been a tough period for NAH. Firstly, the U.K. personal injury market contracted further in the period. According to official figures from the Ministry of Justice and the Official Injury Claim portal, the number of road traffic claims in the 12 months ending 30 June was down 4% year-on-year. And the number of employer liability, public liability and occupier liability claims, which we call non-RTA, that was down 5%. So to start with, there are fewer claims to go after. Then we've also faced significant headwinds in the online search marketplace after Google made changes to their organic search algorithms earlier in the year. Now NAH actually fared really well through these changes. We held our search position, but this caused several competitors to spend very aggressively on paid search, and this led to an extremely competitive paid search environment. As a result, generated leads became really expensive, more so than we've seen in our 30 years in the business. And so we generated fewer leads, and they were more expensive to acquire. Now we've taken lots of actions to improve our performance in this area, and we've seen some progress in paid search, in particular, but organic search remains very challenging, particularly since Google have introduced their AI overview in the second half of the year. Now in light of these challenges, we've implemented certain cost savings in the period. Now these measures are focused on the NAH business and based on our current forecast for volumes, and they will result in GBP 0.9 million of annualized savings, of which GBP 0.4 million will benefit this financial year. Now we've tried to protect the law firm from any cuts as it's performing really well, as you'll hear shortly, and we'll continue to review options to save costs, where appropriate. So certainly, some challenges in the lead generation part of the business, NAH. But as I mentioned, the law firm, NAL, has performed really well during the period, and I'm going to ask Chris to expand a little on that next.

Thanks, James. I'm just going to spend a few minutes updating on the performance of the book of work within National Accident Law. So when we measure the performance of the law firm, we group those cases into cohorts of claims, and the cohort is determined by the year that the claim was started. I'll start with the 2019 cohort of cases, as that's now largely complete and has essentially proven the model for us. In 2019, we placed 2,415 new inquiries into NAL and expected those inquiries to generate revenue and cash of GBP 2.3 million once they settled. You can see this from the first bar on the chart. These claims can take a number of years to conclude, and you can see that from the cash collected relating to these claims in each of the years following the start of the claim. These are the gray bars on the chart. We typically reassess the expected outturn from the cohorts as part of our annual budgeting process. But this time last year, we saw that the cohort was outperforming the original assumptions and revalued the expected outturn for the cohort upwards by GBP 0.8 million, as shown by the green bar. This took the revised expectation for the cohort to GBP 3.1 million overall. Since year-end, we've collected a further GBP 0.2 million of cash from 54 settled claims, taking the total collected to GBP 3.1 million overall and, therefore, meeting that revised expectation set last year. At the half year, we still had 163 claims ongoing. And whilst we don't expect to win all of those claims, there's enough ongoing to give us confidence that this cohort will again exceed those revised expectations. I haven't shown them here, but the charts relating to the cohorts up to 2023 are included in the appendices accompanying this presentation. From those, you'll see that it's a similar picture for 2020, where we have GBP 0.3 million of cash left to collect to meet the cohort assumption, with 335 claims ongoing, a number of which already have admissions of liability, and the remaining cohorts are also progressing well. And then this chart, this is the aggregation of all of the cohorts. So you'll see the GBP 2.3 million of new claims relating to 2019 that I outlined on the previous slide in the pink bar to the far left. The remaining cohorts are also shown by the pink bars on this chart. The gray bars in between, they demonstrate the cash collected from all of the cohorts in that particular year. As mentioned earlier, these claims can take a number of years to settle. And so it took time for the cycle to reach maturity and for cash collected to broadly match the expected value of new claims taken on, but that maturity has now been reached. In terms of the overall picture, we've collected GBP 15.5 million since the law firm was incepted. We have just over 9,000 claims ongoing at half year, which are expected to generate GBP 12.8 million of future cash and GBP 8.7 million of future revenue as those cases settle. And we anticipate that this future revenue will translate into GBP 7.3 million of future gross profit. We continue to invest in the period. We spent GBP 1.1 million on marketing activity to generate and place 3,072 new inquiries into NAL, and we expect those inquiries to generate future revenues and cash of GBP 2.9 million as those cases settle. This was a little lower than the previous period due to lower volumes generated by NAH overall. At the same time, cash collected from settled cases remained strong, with GBP 4 million generated in the period. This was an increase of 46% over the same period last year and compares well to the GBP 6 million collected for the whole of 2023. Overall, we're really pleased with the progression made and the law firm has made over the past couple of years and remain confident about the returns made from inquiries taken on. And I'll pass back to James, who will update on the Critical Care business.

Thanks, Chris. So let's move on to Critical Care then. Now our strategy in this business is to focus on 3 areas in order to continue our strong growth. Firstly, we want to grow share by appealing to a broader customer base. And by investing in marketing and business development over the past few years, we have seen our pipeline of new work grow strongly. Our services are also clearly appreciated by customers, and you'll see that from the extremely strong customer advocacy scores over the next couple of pages. Secondly, we want to extend our competencies and specialisms, meaning the services that we offer and the markets that we operate in. Again, we've made good progress, so far, this year with continued growth in Bush & Co. Care Solutions. And our previous investments in recruitment have really paid dividends, and we've increased the number of expert witness associates that we work with by 13% and case management associates by 9% in the period. We've also added 3 new employed case managers to the team. And this will all help us to unlock growth in our pipeline of work. And finally, we wanted to become more efficient in what we do. And we further increased our margins with operating profit margin increasing from 30% for the last year to almost 32% in the first half. So next, I'd like to dig into each of those service lines in turn, and we'll start with expert witness. Well, 2023 was a record year for expert witness services, and they've started 2024 in the same vein. Revenues grew by 18% in the first half, and that was off the back of 636 reports being issued. Now that was the highest number of reports the business has ever issued in a 6-month period. Pleasingly, the pipeline of future work remains strong, too, with new instructions up 24% on last year. If I turn to case management then, revenues were 5% higher than last year, and this was a great performance as growth in case management has been much more difficult to find in recent years. Now the number of initial needs assessments, or INA, reports that were issued were broadly in line with last year, but we saw an increase in the number of ongoing clients. And it's those ongoing clients that generate monthly recurring revenue for the business. Instruction numbers were down a little compared to last year, but pretty robust overall. Finally, our Bush & Co. Care Solutions service. And this was launched in 2021 and has been rapidly scaling since then, consistently growing in excess of 30% per annum, in fact. And in the first half of this year, revenues grew by 34%. This was off the back of a doubling of the number of ongoing care packages being delivered, which was up to 28 at 30th of June 2024. These also generate recurring revenues for us every month. So it's great to see the progress that the team are having in getting our proposition out there, and it won't be long until this will be GBP 1 million-plus business. It's also worth reminding you that the regulator, the CQC, carried out a periodic inspection in December and rated the business as good, with no areas listed for improvement. That's really a testament to the quality of care provided by our excellent team. So that's a quick canter through the results for the first half, which are summarized then on this slide. So the group performed in line with expectations, the expectations that we set out in the trading update earlier in the year. And in spite of the challenges caused by a volatile and contracting PI market, the group was profitable, cash generative and delivered strong growth in earnings in the first half. We've seen NAL continue to scale and grow cash generation. We're seeing some progress with the challenges faced by NAH. Critical Care had another strong 6 months, delivering double-digit growth in revenue and profit. And these results strengthened the financial position of the group, and we reduced our net debt from GBP 9.7 million at the start of the year to GBP 9 million at 30th of June. Now those results, along with trading in Q3 to date, give the Board confidence that we remain on track to deliver the full year outturn expected by the market. In Consumer Legal Services, trade-in in NAH has so far been broadly in line with Q2, and the cost of acquisition is marginally lower than the peak in June. NAL continues to grow cash from settlements strongly. And in Critical Care, trade-in so far has been encouraging. The number of expert witness reports issued was 19%, ahead of last July and August, with INA reports broadly in line with the same period last year. And cash generation across the group has remained strong, and this has enabled us to further reduce net debt from GBP 9 million at the end of June to GBP 8.2 million at the end of August. So that brings the formal presentation to an end. I'd like to thank all of you for joining us, and we've got time to take some questions. But for the moment, I'm going to hand back to Jake.