Nahl Group (LSE:NAH) — Interim Results

0:01 Good morning, ladies and gentlemen, and welcome to the NAHL GROUP PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's situated on the right hand corner of your screen. Please just simply type in your questions and press send. 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 those responses where it is appropriate to do so. Before we begin, as usual, we would just like

0:32 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 Sorayes, 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 January 1 to the 06/30/2024. We released our interims on the September 24 and we're going to provide you an overview of those results today. With me here today is Chris Hyam, 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.

1:23 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 two trading divisions and we'll finish with 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. 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.

2:06 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 three 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 and Co. Is progressing well. So if I turn to the financial highlights, our revenue for the half year was GBP 19,400,000, that's 7% lower than last year due to a reduction in the personal injury revenues in what was quite a challenging and unusually competitive market in the period.

2:55 Performance in Critical Care was very strong, and we delivered double digit growth in this division. Our PBT increased to 500,000 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 700,000 in the period, and operating cash conversion was also strong. That enabled us to reduce net debt from GBP 9,700,000 at year end to GBP 9,000,000 at June 30. 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 21,000,000. So we've come a long way and that really demonstrates the strong cash generation of the group.

3:44 If I look at the operational highlights, well, in Consumer Legal Services, our fully integrated law firm, National Accident Law or NAHL, 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 NAHL. We added over 3,000 new inquiries into the law firm in the first half, which we estimate should generate almost GBP 3,000,000 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.

4:34 In Critical Care, Bush and 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 the standout performance, growing revenues by 18%. Finally, on this slide, we announced back in April that we were exploring a potential sale of Bush and 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.

5:23 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 made some progress with Bush and 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 NAHL, 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.

6:10 So I'm not gonna be able to elaborate further on these two topics today, but as I said, we'll bring you more updates as appropriate.

6:21 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 UK 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 thirty year history, we've helped over a million customers access over a billion pounds in compensation by providing legal support and rehabilitation services. And we provide services and products to individuals and businesses through our two divisions, which we call Consumer Legal Services and Critical Care.

7:07 In Consumer Legal Services, we're one of The UK'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 UK than anyone else. Through our market leading brand, NAHL GROUP 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 thirty 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 an average two to three years to process and the joint venture helps us to balance these two extremes.

8:11 Also in this division, we operate a small but profitable property searches company called Searches UK. Now in Critical Care, our Bush and Co business is a market leader in expert witness reports, immediate needs assessments and case management rehabilitation services in The UK.

8:29 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 the claim settlements in this business exceed £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 two trading divisions and we also have a centralized shared services division which provides strategic leadership and support with funding governments.

9:17 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 UK. 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 and L. So we generated revenues of GBP 19,400,000 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.

10:08 As a result, within Consumer Legal Services, revenue was down 17% to GBP 11,400,000. However, this was partially offset by continued growth in the Critical Care business, which grew revenues by 11% to 8,000,000 in the period. Operating profit was in line with last year at GBP 1,800,000, albeit Consumer Legal Services was 300,000 lower for the inquiry reasons covered previously, with Critical Care up £300,000 And due to decisions taken in recent years to place and process more of our own work with NAHL and less with the joint ventures, we've managed to reduce noncontrolling interests by £400,000 or 33% in the period to £900,000 overall, whilst interest costs have also fallen by £100,000 due to lower debt levels.

10:50 This has resulted in a profit before tax of £500,000 in the first half compared to broadly breakeven this time last year and almost matches the £600,000 generated for the whole of 2023, resulting in an EPS of 0.7p.

11:06 From a cash perspective, we've continued to generate good cash levels in both divisions in the period whilst continuing to invest. We generated cash from operations of GBP 2,400,000 at a ratio of 134 and free cash flows of 700,000, further reducing our net debt position. Personal injury remained cash generative after payments to LLP members generating a net of GBP 400,000. And this was despite the difficult market conditions, 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, but reflected GBP 4,000,000 in the period from settled claims, 46% higher than this time last year. Critical Care generated GBP 2,100,000 in the period. This was a little lower than envisaged, but we anticipate this improving in the second half.

11:54 And overall, the GBP 700,000 of free cash flow allowed us to reduce our net debt to GBP 9,000,000 at the end of the period, twenty two percent lower than the end of H1 twenty twenty three. I'll now pass back to James, who'll give some further detail on the two divisions. Thank you, Chris. So next, let's dive into a bit more detail on the performance of our two divisions and we'll start with Consumer Legal Services.

12:21 The focus of this division is our personal injury business where we operate in The UK claimant side personal injury market. And over the past five years, we've built a fully integrated law firm, National Accident Law or NAHL, 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. Our market conditions have made progress with that strategy challenging so far this year, but we made progress in a number of areas.

13:10 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.

13:21 So firstly, National Accent Helpline, And this is where we do our marketing, triage and placement services. And it's been a tough period for NAH. Firstly, The UK 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 twelve months ending June 30 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.

13:58 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 thirty 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.

14:51 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 of volumes. And they will result in GBP 900,000 of annualized savings, of which GBP 400,000 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, NAHL, has performed really well during the period and I'm going to ask Chris to expand a little on that next.

15:37 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, 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 an AL and expected those inquiries to generate revenue and cash of GBP 2,300,000 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 outcome from the cohorts as part of our annual budgeting process.

16:25 For this time last year, we saw that the cohort was outperforming the original assumptions and revalued the expected outturn for the cohort upwards by $800,000 as shown by the green bar. This took the revised expectation for the cohort to $3,100,000 overall. Since year end, we've collected a further £200,000 of cash from 54 settled claims, taking the total collected to £3,100,000 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 nothing there's enough ongoing to give us confidence that this cohort would again exceed those revised expectations. I haven't shown them here, but the charts relating to the cohorts up to twenty twenty three are included in the appendices accompanying this presentation.

17:12 From those, you'll see that a similar it's a similar picture for 2020, where we have £300,000 of cash left to collect to meet the cohort assumption of three thirty five claims ongoing, a number of which already have admissions of liability. And the remaining cohort is also progressing well.

17:31 And then this chart, this is the aggregation of all of the cohorts. So you'll see the £2,300,000 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 £15,500,000 since the law firm was accepted. We had just over 9,000 claims ongoing at half year, which are expected to generate £12,800,000 of future cash and £8,700,000 of future revenue as those cases settle.

18:21 And we anticipate that this future revenue will translate into £7,300,000 of future gross profit. We continue to invest in the period. We spent 1,100,000 on marketing activity to generate and place 3,072 new inquiries into NAHL, and we expect those inquiries to generate future revenues of cash of GBP 2,900,000 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 £4,000,000 generated in the period. This was an increase of 46% over the same period last year and compares well to the £6,000,000 collected for the whole of 2023. Overall, we're really pleased with the progression made the law firm has made over the past couple of years and remain confident about the returns made from inquiries taken on.

19:09 Now 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. Our strategy in this business is to focus on three 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 and Co Care solutions.

19:59 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 three 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. I will start with Expert Witness.

20:43 Well, '23 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 six thirty six reports being issued. Now that was the highest number of reports the business has ever issued in a six 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.

21:38 Instruction numbers were down a little compared to last year, but pretty robust overall.

21:47 Finally, our Bush and Co care solution 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 06/30/2024. 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 a million pound 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.

22:35 That's really testament to the quality of care provided by our excellent team.

22:42 So that's a quick canter through the results for the first half, which is 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 NAHL continue to scale and grow cash generation. We're seeing some progress with the challenges faced by NAH. Critical Care had another strong six 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 9,700,000 at the start of the year to GBP 9,000,000 at June 30.

23:35 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, trading in NAH has so far been broadly in line with Q2 and the cost of acquisition is marginally lower than the peak in June.

23:55 NAHL continues to grow cash from settlements strongly and in critical care, 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 9,000,000 at the end of June to GBP 8,200,000 at the end of August.

24:29 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. Perfect. James, Chris, that's great. Thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the top right hand corner of your screen. But just while the company take a few moments to review those questions that were submitted already, I'd just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can all be accessed via your investor dashboard. Chris, James, as you can see there, we have received a number of questions from investors. And thank you to all of those on the call for taking the time to submit their questions. But guys, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And then I'll pick up from you at the end. Thank you. Yes. Thanks, Jake.

25:22 So firstly then, well, we've received a number of questions both before and during the presentation regarding progress with the potential Bush and Co sale and also the potential future strategy of the remaining business. And I'd just like to reiterate what I said earlier on. So on the potential sale of Bush and Co, we're in the middle of a process at the moment and there can be no guarantees that it will lead to transaction, but I'm pleased with the progress that we've made so far and I'm optimistic that we can continue to make progress. We've had strong interest from a range of potential buyers, and we've received several bids, and we're in discussion with a number of parties regarding those bids at the moment. There's still a lot of work to be done, but I'd hope that we can get to a point where we can recommend the deal to shareholders before the end of the year.

26:09 Now as I'm sure you would expect, under the circumstances, we've we're considering what the remainder of the group might look like after any sale and we're considering the potential strategic options and the future strategy for the group. Our objective is to maximize value for shareholders and we'll consider all the options to help us achieve this. But just to say this project is at a very early stage, I think it's the right time for us to be considering this and we'll update everyone in the future as appropriate. So next question is about the acquisition cost. So the acquisition cost per inquiry increased significantly due to changes in Google's organic search algorithm. How are you planning to reduce reliance on paid search or mitigate the impact of such external factors in the future?

27:00 So yes, that's a good question. What we try to do is we try to attract claims from a wide variety of channels. So we advertise on Google. We try to optimize our website so that users can find us organically through Google. We have partners that we work with to help us generate claims. We also we're also on social media and a range of different mediums as well to try and attract inbound leads. This I mean, to be honest, the challenge with Google is I don't think you can avoid Google. I think it's an important channel for us and for a lot of other businesses out there. So we've been working really hard to try and optimize the results that we've been getting through Google search, both paid and organic.

27:55 So some of those are including looking at our Google account and how can we rationalize that, how can we optimize the keywords that we're attracting and also look at the keywords that we don't want to attract planes on and they're called negative keywords. So we're doing a lot of work around our accounts and working with Google. We're also uploading a lot of data into our bidding tool on inquiry conversion. So we're looking at not just the type of search terms that come through to our website, but we're looking at which ones of those go on to result in successful claims and then we're trying to optimize our search criteria around that.

28:41 We're also looking at our landing pages from an organic perspective and trying to optimize those. So lots and lots of work going on around that and we'll continue to do that. I mean, is kind of our day job, this is what we've done for decades really. But I think it's just a really unusual period at the moment and I anticipate that competitive pressure to ease over time. Thank you for the question. The next question, what are the main influences on the growth rates of the markets in which you operate? So I think really, the business is focused on personal injury whether that is in our personal injury business or in critical care which is the higher end of claim types.

29:31 And I think so we look at things like the number of accidents that are out there so you can get all sorts of statistics from, for example, the Department of Transport for the number of road traffic accidents and ovarian severity as well. We look at data from NHS resolution on clinical negligence and that tells us the type of claims and the quantum of claims every year that are being made and we use that data to try and adapt our business to optimize our business so that we're in the best possible place to respond to those opportunities. So to give you an example of that, within critical care, we spend a lot of time analyzing the NHS resolution data and that helps us to drive our recruitment and the types of specialisms that we're looking for in say expert witness associates and in that way we can market for those particular injuries and then try and have the associates and the resource in place to take the opportunity of those leads as well.

30:38 So that's the way we kind of approach that. The next question is around that's around Expert Witness actually. Expert Witness services saw an 18% revenue growth and a 24% increase in new instructions. Do you anticipate further expansion in this segment? How are you managing capacity to meet rising demand? So yes, Expert Witness Services has had a fantastic, not just a fantastic first half but a fantastic few years. It's grown considerably. It used to be probably about 30% of our revenue in Bush and Co. Now it accounts for more or less half of the revenue of Bush and Co. So it's made great progress and that's not been through accident.

31:27 We saw an opportunity in the marketplace there that leads to Expert Witness. We're growing. We invested quite substantially in marketing, business development and our systems as well. So you may recall a little while ago, we talked about an IT investment that we made for a report writing tool. So we've got some proprietary software that we've developed to make our expert witness report writing more efficient. And also, as I've just said in the last question, we try and target our recruitment around the growth areas that we foresee in expert witness. So that's been working really well for us. I think that, that market is continuing to be very buoyant, and I hope to see further growth in Expert Witness over the next coming years, and we'll continue to invest to support that growth as well.

32:23 Thanks for the question. So we don't have any more questions at the moment, Jake. So should I hand back to you? Absolutely. James, Chris, if I may just jump back in there. Thank you very much indeed for being so generous for your time then addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended and just for you to review to then add any additional responses and, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But James, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great. We're pleased with the performance of the group in the first half.

33:08 Despite the challenges presented by a volatile personal injury market, NAHL was profitable, cash generative and we made further progress in reducing our net debt. We're also making encouraging progress with the potential sale of Bush and Co, and the Board has given careful consideration to the potential strategic options and future strategy for the remainder of the group. Thank you. Perfect, James. That's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations? This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of NAHL GROUP PLC, we would like to thank you for attending today's presentation.

33:56 That now concludes today's session. So good morning to you all.