RNS Release Embargoed until 7.00 am 21 August 2014

Quindell Plc

("Quindell" or the "Group")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2014

Quindell Plc (AIM: QPP.L), a market leading global provider of professional services and digital solutions, announces its interim results for the six months ended 30 June 2014.

Highlights

·      Gross sales of £364.2 million increased by 118% (H1 2013: £167.3m)

·      Revenue of £357.3 million increased by 119% (H1 2013: £163.3m) due primarily to strong organic and synergistic growth; businesses acquired in the last 12 months represented less than 10% of revenue

o Professional Services revenue of £293.3 million increased by 108% (H1 2013: £140.8 m) driven by major organic contract wins announced during H2 2013 and H1 2014

o Digital Solutions revenue of £64.1 million increased by 185% (H1 2013: £22.5 m)

·      Adjusted EBITDA^1,3 of £156.0 million increased by 189% (H1 2013: £54.0m) due to H1 2014 mix having an increased proportion of Digital Solutions revenue and growth of Legal Services revenue

·      Adjusted EBITDA^1,3 margin of 44% (FY 2013: 36%)  based on Revenue

·      Adjusted EBITDA^1,3 margin of 43% (FY 2013: 35%) based on Gross Sales

·      Profit Before Tax¹ of £153.7 million increased by 292% (H1 2013: £39.2m)

·      Adjusted Profit Before Tax^1,4 of £153.6 million increased by 193% (H1 2013: £52.5m)

·      Basic EPS¹ of 30.1 pence increased by 155% (H1 2013: 11.8 pence)

·      Adjusted EPS^1,2 of 29.6 pence increased by 79% (H1 2013: 16.5 pence)

·      Unadjusted statutory measures are all ahead of Adjusted KPIs primarily due to £14.5 million statutory gain on re-measurement of acquisitions

Cash flow and Debtor Management

·      Adjusted operating cash flow^1,5 for the half year significantly ahead of expectations and guidance with £51.2 million outflow compared to original guidance of £60 million outflow during planned significant growth in H1

·      Operating cash outflow (post exceptional costs) of £53.3 million

·      Cash generation increasing with over £220 million of cash collected in H1 2014 - circa 80% of the value of total trade related receivables (including accrued income, excluding noise induced hearing loss cases which recently commenced in volume) as at December 2013

o Cash generation represents circa £1.8 million of cash received per business day with Legal Services on track collecting circa £0.5 million per business day by the end of the period, targeted to rise to £0.75 million and £1 million by Q3 and Q4 respectively underpinning H2 cash guidance

o Legal Services cash collection targets viable due to circa 110,000 cases in progress as at 30 June 2014

·      Average Group trade receivable days at June 2014 reduced to circa 4.6 months (H1 2013: 4.8 months)

·     Cash at 30 June 2014 also significantly ahead of plan at £85.0 million and net funds increased further in July

Outlook: on track to meet 2014 targets

·      Board remains confident of meeting all of its KPIs for FY2014 (cash conversion, adjusted EBITDA and adjusted EPS) on FY revenue guidance of £800 to £900m

·      Continue to deliver on strategy

o Driving down cost of insurance claims and maintaining or improving cash margins reduces turnover without volume reduction but increasing EBITDA margin

o Control growth and optimise cash flow, through being selective and limiting business volume

o EBITDA margin range guidance increasing to 35% to 45% (from 35% to 40%)

·      Track record of consistent cash collection: circa 80% of trade related receivables (including accrued income, excluding noise induced hearing loss cases which recently commenced in volume) collected over each of the last three six month periods combined with Group cash flow turning positive in July

o  Underpins H2 operating cash flow guidance of circa £30 to £40 million, and H1 2015 guidance of up to £100 million inflow

·      Strategic priorities remain: focus on integration, delivery and cash generation

·      Reaffirmed commitment to strengthening management and further enhancing corporate governance

·      All core business relationships remain strong

·      Certain contracts being restructured to ensure optimum return on cash resource - profit and cash expectations not dependent on any upside from these initiatives 

Notes

1. Comparative amounts have been restated to reflect recent 15:1 share consolidation and items in the 2013 Financial Results, note 2A, Notes to the Consolidated Financial Statements

2. Adjusted EPS is Profit after tax, excluding exceptional costs, share based payments, gain on re-measurement of acquisitions/investments and amortisation, divided by the weighted average number of shares in issue

3. Adjusted EBITDA is Profit before interest, tax, depreciation, amortisation, share based payments, gain on re-measurement of acquisitions/investments and exceptional costs

4. Adjusted Profit before tax is Profit before tax, amortisation, share based payments, gain on re-measurement of acquisitions/investments and exceptional costs

5. Adjusted operating cash flow is cash generated by the operation before exceptional costs, tax and interest

Robert Terry, Chairman of Quindell commented: "I am delighted to announce Quindell's strong results for the first half of this year. We have performed well against all of our KPIs and have delivered the expected growth, as evidenced by the Group turning cash flow positive in July. As part of Quindell's continued growth and confidence in future prospects, a maiden dividend of 0.15p was paid in May, as part of our progressive dividend policy, which the Board remains committed to. 

Another key focus has been to enhance corporate governance and strengthen the management and therefore we were delighted to announce the recent appointments to the Board and Executive team."

Robert Fielding, Group Chief Executive Officer, added: "We continue to strengthen our position as a market leading, global provider of professional services and digital solutions. Our strategic priorities remain integration, delivery and cash generation whilst also focusing on improving cash margins. This year we have seen strong organic growth and our objective is to continue to improve the Group's revenue mix which will be driven by growing digital solutions in second half of the year."

For further information:

For further information, please visit www.quindell.com

INTERIM RESULTS STATEMENT 2014

Chairman's Introduction

I am pleased to report strong delivery against all key performance indicators during the first half with the Group on track to meet its targets for 2014. The Group's historical EPS growth has validated our "Buy and Build" strategy, having now established Quindell as a market leading and global provider of professional services (primarily in legal services, health services and business process services in relation to the car and the home) and digital solutions (led by our business transformational teams with strategies in insurance, telecoms and connected car, home and health).

The Group has achieved significant growth with approximately 90% of revenue in the last six months being organic, and only 10% being from acquisitions made over the previous 12 months. I am particularly proud of the team who, together have built a market leading and award winning platform for growth in a number of markets globally. With approaching 3,000 staff in the UK and more than a further 1,000 staff globally, the Group is now servicing over 600,000 consumers each year. We have strengthened our Board, with David Currie joining as an additional non-executive director, and, having worked with Robert Fielding now for a number of years at Quindell, I was pleased recently to report his appointment as Group Chief Executive Officer. The Board reaffirms its commitment to strengthening management and further enhancing corporate governance as appropriate for a business of our scale. We have also continued to strengthen our core management team which has included Michael Bancroft as head of Corporate Development, Stephen Joseph as Head of Investor Relations, and as announced today, Stefan Borson as Group Chief Legal & Communications Officer.

Within our Professional Services Division, Quindell Legal Services is the largest personal injury legal business in the UK, winning "COLP (compliance officer legal practice) of the Year" for 2013 and is also the largest public company law firm globally. Quindell Business Process Services is one of the top three credit hire and repair network managers in the UK and is now growing its presence in the property services space. Quindell Health Services is amongst the top three personal injury related health businesses in both the UK and Canada and in which, to give some indication to the size of this operation, during 2014 we anticipate handling over one million physio sessions within the networks we manage and our own operations.

Our Digital Solutions Division is similarly leading the way on an international stage. Quindell Digital in business transformation is recognised as number one in European Claims Technology by Celent, and Quindell Digital in Connected Car is recognised by Ptolemus as a global market leader. Furthermore, in Connected Car, Quindell's ingenie brand recently won "Insurance Startup of the Year" and won the "Prince Michael of Kent Award for Road Safety" for 2013. New initiatives are now underway for 2014 and 2015 in relation to Connected Home, and Connected Health as part of our own 'internet of things' strategy.

As a Group, we have a consistent track record of meeting market expectations. As we continue to progress, the Board will continue to focus on earnings per share and Return on Capital Employed, balanced against a disciplined approach to cash flow over growth. The Group has achieved a compound aggregated EPS growth rate of 78% between 2011 and 2013, with this trend expected to continue into 2014, The Group's average return on capital (annualised) for the six months ended June 2014 was 37.3% compared to 26.7% for 2013, with an ongoing target of 25% to 30% per annum. With growth in professional services still significant but deliberately constrained due to its working capital cycle, the primary focus for the coming quarters in terms of growing the business is growth in digital solutions.

Beyond EPS and ROCE, three additional key performance indicators are Adjusted EBITDA, EBITDA margin and cash flow. Adjusted EBITDA has grown to £156 million in the first half of 2014 at a 44% margin, prompting the Board to increase its full year guidance today from its previous range of 35% to 40% to now 35% to 45% on full year revenue guidance of £800 to £900 million.

Lastly but most importantly cash collection, where looking to the second half of 2014, our operational teams have provided confirmation to the Board of their confidence in once again collecting cash to the value of circa 80% of the trade related receivables held as at June 2014. This confirmation provides comfort to the Board, along with having turned cash positive in July 2014, so the Board can once again confirm its expectation of being at least breakeven for the third quarter of 2014 and achieving a significant operating cash inflow for Q4.

Financial Review

The Group has had another strong half year with gross sales of £364.2 million, increased by 118% (H1 2013: £167.3 million). Revenue growth was similarly positive at £357.3 million, increased by 119% (H1 2013: £163.3 million).  The growth in gross sales and revenue was due primarily to strong organic and synergistic growth, with businesses acquired in the last 12 months representing less than 10% of revenue.

Professional Services Division revenue was £293.3 million, up 108% (H1 2013: £140.8 million). Growth in this division was driven by major organic contract wins announced during H2 2013 and H1 2014. Revenue for the Digital Solutions Division increased 185% to £64.1 million (H1 2013: £22.5 million), in line with the profile achieved in H2 2013). 

Adjusted EBITDA for the six months to 30 June 2014 was £156.0 million (excluding exceptional costs totalling £2.4 million, share based payments totaling £6.6 million, gain on re-measurement of acquisitions/investments totaling £14.5 million and depreciation, amortisation and net finance expense). This represents an increase of 189% on H1 2013: £54.0 million. This is due to an increased proportion of Digital Solutions revenue and the growth of Legal Services revenue. These factors were key contributors to the Adjusted EBITDA margin of 44% increasing over 10 percentage points relative to the comparative six months (H1 2013: 33%).

In addition to significant growth in Adjusted KPI's, unadjusted statutory measures are all ahead of Adjusted numbers due to £14.5 million statutory gain on re-measurement of acquisitions offsetting exceptional costs and share based payments.

Profit before tax for the period was £153.7 million (H1 2013: £39.2 million) and adjusted profit before tax for the period was £153.6 million (H1 2013: £52.5 million). Profit after tax for the period was £123.0 million (H1 2013: £30.1 million).

Basic EPS for the period was 30.1 pence per share (H1 2013: 11.8 pence) and Adjusted Basic EPS was 29.6 pence per share (H1 2013: 16.5 pence), up 79%.

At the Group's full year results the Board stated its intention to adopt a progressive dividend policy. As a result of the Board's confidence in the Group's position and future prospects, a maiden dividend was paid to shareholders in May 2014 at a value of 0.15 pence per share (adjusted for the share consolidation). The Board is committed to maintaining this progressive dividend policy and delivering value for shareholders.

Cash Flow and Debtor Management

The Group's cash balance at 30 June 2014 was ahead of expectations at £85.0 million (H1 2013: £35.2 million). Bank borrowings and other trade finance was £60.3 million. The Group's adjusted operating cash outflow (pre-exceptional costs) for the first half of 2014 was circa £9 million ahead of expectations and guidance with £51.2 million outflow (H1 2013: inflow £2.3 million)compared to original guidance of £60 million outflow during planned significant growth in H1. Net funds were £18.9 million (H1 2013: debt £14.1 million), and net funds of £24.0 million excluding preference shares due after more than one year.

Continued strong cash management and debtor controls as well as another period of good performance from the Digital Solutions Division, contributed to this strong performance, despite the growth in case acquisition costs.

Cash collections during the first half of 2014 totaled over £220 million compared to circa £270 million for the whole of 2013. Cash collected in the first half of 2014 represented approximately 80% of the value of total trade related receivables (including accrued income, excluding noise induced hearing loss cases which recently commenced in volume) as at 31 December 2013. This level of cash generation represented circa £1.8 million of cash received per business day. The Legal Services business was on track collecting circa £0.5 million per business day by the end of the period and is targeted to rise to £0.75 million and £1 million by Q3 and Q4 respectively underpinning overall H2 cash expectations. These cash collection targets being viable due to the circa 110,000 cases in work in progress as at 30 June 2014.

The Group's ongoing commitment to the collection of cash led to an improving trend of shortening the average trade receivable days to 4.6 months (30 June 2013: 4.8 months). The full year target for the aging of trade receivables is for them to be approaching circa 4 months. The Board remains confident that quarter on quarter operating cash flow has reached its minimum and that the Group will meet full year expectations for adjusted operating cash flow. This is a result of the combined benefit of receipts now coming through from the Group's recent period of significant growth as well as from at fault insurers now in the Group's collaboration model for hire and repair.

The amount that has been prepaid on legal cases at the end of June 2014 (and which for the first time is being shown as a separate line in the analysis of Trade and other receivables), was £23.3 million, an increase of £16.0 million on the amount as at December 2013. This is representative of the cash outflow incurred in the current period, the benefit of which as work is continued to be performed on these cases from a revenue point of view will largely be recognised over the coming year. 

Tax paid in the period was £23.4 million (H1 2013: £5.6 million). Cash used in investing activities was £42.9 million (H1 2013: £15.7 million), including purchase of intangible assets of £16.9 million and acquisition of subsidiaries of £15.8 million). The sale of shares by PT Health in the period realised £5.4 million, the majority of the proceeds of which have been used by PT Health to repay the Group after it had replaced PT Health's lender following the investment by Quindell in 2013. 

Focus on Fundamental Cash Dynamics

The fundamental dynamics of the business are clearly demonstrated, with the business consistently collecting the revenue it has earned and recognised. Since January 2013, the business has consistently collected cash (at each six month collection period) of circa 80% of trade related receivables at the start of the period (including accrued income; excluding that relating to noise induced hearing loss cases which were only proposed in volume at the end of 2013.) Over 12-month collection periods, on the same basis, the figure has been in the region of 180%.

At the same time as delivering consistent cash collection, the business has also invested in its future growth, consistent with the strategy outlined when the Group raised £210 million in November 2013.

Following this investment in the growth of the business, and as previously guided, the Group has now reported an operating cash outflow for both Q1 and Q2 2014. The Board is confident that the Group will be breakeven on a quarterly basis by Q3 2014 and will generate significant cash in Q4 2014 and beyond.

Throughout this period of growth, the fundamental dynamics of the business have remained clear: the Group has never written down any significant amount of receivables since it came to the market over three years ago, it has settled blocks of debt with insurers ahead of their book value and has collecting circa £1.8 million per business day in the first half of the year.

None of the Board's cash targets for 2014 are dependent on cash inflow from noise induced hearing loss cases (NIHL). However the Group expects a relatively small number of NIHL cases to be settled in Q4 2014 and early 2015, in line with guidance for this class of legal case.

If accrued income related to NIHL is excluded, the total value of trade related receivables as at 30 June 2014 was circa £357 million. Based on the Group's historic collection rates for trade related receivables for this type, this would lead to cash receipts of circa £285 million during the second half of 2014. This is £65 million more than that for the first half of 2014 where cash receipts totalled over £220 million.

As of June 2014, the Group has successfully reduced its monthly spend on case intake by over £2 million per month, a saving of over £12 million for the second half of the year.

The increased cash collection of £65 million, combined with reduced case intake costs of £12 million and assuming that the level of other costs in the second half of 2014 remain broadly the same as for the first half of the year, would improve the Group's cash operating cash outflow from £51.2 million in the first half (which was circa £9 million ahead of prior guidance) to an inflow of circa £25.8 million for the second half.

The Board is confident of meeting the market's expectations of an operating cash inflow (pre exceptional costs, capex, tax and interest) of circa £30-£40 million in the second half of 2014. The Board's confidence is increased by:

·      the Group becoming operating cash flow positive in July 2014;

·      the £25.8 million inflow described above; and

·      the improvements in cash collection being experienced by insurers paying within the collaboration protocol target timescales agreed with insurers (in return for driving down industry claims costs) combined with other initiatives ongoing across the business to improve cash generation. These initatives have been targeted to increase cash inflow by a further £10 million to £15 million.

Looking ahead to 2015, based on the same historic collection rates, and similar analysis as provided above, this would give an operating cash inflow of up to £100 million in the first half of 2015.  It is these factors, combined with the upside cash collection from noise induced hearing loss cases, that provide the Board with confidence that market expectations for 2015 operating cash flow will be achieved.

Operating Review

Professional Services Division

The first half of 2014 was a period of significant growth for the Group's Professional Services Division with Gross Sales for in the period of £300.2 million (H1 2013: £144.8 million).  Revenue was £293.3 million (H1 2013: £140.8 million). EBITDA was £120.7 million at a margin of  41% (H1 2013: £40.6 million at a margin of 29%).

Within this, Legal Services recorded revenues of £179.6 million (H1 2013: £75.1 million) and EBITDA of £101.0 million (H1 2013: £31.2 million), Business Process Services, which includes revenues in relation to brand extension into Connected Home and other initiatives, were £73.7 million (H1 2013: £44.1 million) and EBITDA of £5.4 million (H1 2013: £2.3 million) and Health Services revenues of £40.0 million (H1 2013: £21.6 million) and EBITDA of £14.2 million (H1 2013: £7.0 million).  

EBITDA margins for each of the business areas were Legal Services: 56% (H1 2013: 42%), Business Process Services: 7% (H1 2013: 5%) and Health Services: 36% (H1 2013: 33%).

Digital Solutions Division

The Group's Digital Solutions Division has similarly experienced a positive first half of the year. Revenues totaled £64.1 million for the period (H1 2013: £22.5 million). EBITDA was £45.0 million at a margin of 70% (H1 2013: £16.4 million at a margin of 73%).

Within this Business Transformation recorded revenues of £25.1 million (H1 2013: £12.3 million) and EBITDA of £17.4 million (H1 2013: £8.6 million), and Connected Car (Home and Health) recorded revenues of £39.0 million (H1 2013: £10.2 million) and EBITDA of £27.6 million (H1 2013: £7.8 million).  

EBITDA margins for each of the business areas were Business Transformation: 69% (H1 2013:   70%), and Connected Car: 71% (H1 2013: 76%).

Integration of the Group's Telematics Businesses

In February, the Group announced that it had increased its investment in Himex Limited (to circa 85%) and ingenie Limited (to circa 49%). Following the end of the half year, the Group is pleased to be able to confirm that its ownership of these two businesses has now been increased to 99.9% and 100% respectively.

Together, these transactions ensure that the Group can fully benefit and leverage the unique market lead it has been establishing in the UK, Canada and the US. It also helps maximise the potential from the significant traction that the Group is seeing in continental Europe. Recent industry validation of the success of ingenie in particular has also been demonstrated with ingenie having won the Prince Michael of Kent Award for Road Safety for 2013 and the Insurance Start Up Award at the British Insurance Awards this month.

Both the Himex investment and ingenie acquisition have been completed at favourable valuations compared with current and historic share performance due to belief in the underlying value of Quindell by the independent shareholders in these businesses. Both are also anticipated to be earnings enhancing in 2015 and beyond. 

At the end of June 2014, the put and call option that was in place enabling the Group to acquire the remaining 51% of PT Healthcare Solutions Corp ("PT Health") in return for the issue of circa 9.47 million new shares (post consolidation) was exercised. The contractual process of concluding this Canadian acquisition, which due to the options in place the Group has consolidated in its results since September 2013, has now commenced and is expected to be completed in the latter part of the second half of 2014. 

Outlook: on track to meet 2014 targets

The Board remains confident that the Group will meet all of its KPIs for the full year 2014 of cash conversion, adjusted EBITDA and adjusted EPS on full year revenue guidance of £800 to £900 million. Throughout the rest of the year, the Group will continue to deliver on its strategy of driving down the cost of insurance claims whilst maintaining or improving its cash margins, which will reduce turnover without volume reduction but increase the Group's EBITDA margin. This, together with the margin levels being achieved by the Group have enabled the Board to increase its guidance on EBITDA margin increasing it to a range of 35% to 45% from the previous range of 35% to 40%.

The Board will continue its strategy in the short to medium term to control growth and optimise cash flow through being selective and limiting business volumes. This includes certain contracts being restructured to ensure the optimum return on cash resource -however profit and cash guidance is not dependent on any upside from these initiatives. Also as a Board we reaffirm our commitment to strengthening the management and further enhancing corporate governance as appropriate for a business of our size and scale.

The Group's track record of consistent cash collection of circa 80% of trade receivables (including accrued income, excluding noise induced hearing loss cases which recently commenced in volume) collected over each of the last three six month periods, combined with Group's operating cash flow turning positive in July underpins the Group's operating cash flow expectations for the second half of an inflow of circa £30 to £40 million, and its first half 2015 expectations of an inflow of up to £100 million.

Finally, with all core business relationships remaining strong, the Group's strategic priorities remain: focus on integration, delivery and cash generation.

Condensed Consolidated Income Statement

for the six months ended 30 June 2014

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2014

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 June 2014

Condensed Consolidated Statement of Financial Position

as at 30 June 2014

Condensed Consolidated Cash Flow Statement

for the six months ended 30 June 2014