ANEXO GROUP PLC - Investor Presentation

good morning and welcome to the nexo group PLC investor presentation throughout the recorded presentation investors will be in listen only mode questions are encouraged and will be submitted any time by the Q&A tab situated in the right corner of your screen to Simply type in your questions and press send the company may not be in a position to answer every question it receives dur the meeting itself however the company can review all the questions submitted today and publish responses where it is appropriate to do so before we begin I'd subit the following poll I'd now like to hand over to Alan sers good afternoon you sir good morning everybody I'm Alan salers I'm the chairman of the nxo group we've set out for you on slide three my background but essentially I qualified as a solic in 1985 and subsequently transferred to the bar in 1991 and practiced at the independent bar until we floated in 2018 my background at the bar is primarily civil litigation and professional negligence my wife Sam Moss is managing director of all legal services on Bon Turner and between us we held 34. 4% 48% stake in the enexo group good morning everybody my name is Mark ringow um I'm CFO reappointed to the board in August 2020 3 and full-time CFO from April 24 background is uh charted accountant um businesses you would expect in a number of major accounting firms and I joined the group in 29 2009 so I've now been working with Alan for over 15 years and if we can move on to slide four we set out for you there an overview of the anexo group there are primarily two parts two um company there is Edge which is our credit hire Division and Bon Turner which is the legal services division the credit hire division was established in 1996 and offers a complete solution for the non-fa motorist following a road traffic accident there are three parts to Edge primarily there is dams which is the provision of car and Van hire mams which is the provision of motorcycle hire and cams which is the provision of bicycles we have National coverage in England and Wales and our key route to Market is through approximately 1150 independent body shops and repairers and we have a national sales team the second part of the group is bonna which is an independent Law Firm it primarily deals with the recovery of the high charges and repair charges that the client has incurred following the road traffing accident it will if the client is injured uh pursue a claim for person injury on behalf of the client it also uh acts for uh clients who live in poor quality housing primarily provided by social housing providers and all local care councils and we have as many of you are aware specialist class action team and you know particularly recently we've acted in the emissions Scandal we also have a large catastrophic injury team and a team that specializes in professional negligence claims all of the um work generated by Edge um is primarily dealt with by Bond Turner but the client has obviously a choice to choose an independence list if they don't wish to use Bond and then over the page to slide five so just picking up on some of the key group financial highlights and as we've tried to present um as as best we can uh recognizing that in the first half of 2023 we came to an agreement with Volkswagen in relation to that emissions case and we were only able to put a very simple statement that the business generated a net positive cash position from the settlement of that case of 7. 2 million and and hence you see some um some negative numbers on the slide clearly the uh the net negative of 7.

2 we would have recognized revenues and profits associated with that and they implemented that significant increase that we had in the first half of 23 as you see there revenues at 7 nearly 78 million a decline this time around down to 68 million saying from a profitability perspective we're operating profits on the face of it have fallen from 19. 3 down to 10. 3 we're uh you know exactly where we wanted to be as a group first half of the year we've managed activity within the credit hire business as you can see very positively revenues from credit hire and we've got some other statistics on the foll page around each of the individual business streams but credit High revenues increased by nearly 22% from 29 million to over 35 million and that's vehicle higher activity really we're bringing in more cash as you can see at the bottom of the slide there cash collections increased from 77.

4 million to 83. 7 million an increase of 88. 1% meaning that without the need for any movement really in debt and and net debt stayed flat from December 23 to to June 24 at 67.

9 million we can take on more cases across all of our key divisions whether that be credit higher housing or large loss in the middle of the slide there in the middle of the block you can see Legal Services revenues dropped from 48. 9 million being down to 26. 8 on the face of it a decline of 45% that doesn't really tell you the the whole story and again we've got some key kpis around Legal Services later in the presentation housing continues to be a growing part of the group as you can see their revenues grew by 15% we're investing in more people more cases we write off costs as they are incurred and that's a continuing to grow um a positive part of the business and as we'll describe later a has a positive impact on working capital with the claim settlement cycle associated with that part of our business on this slide we've set out um why we're very different to other players in the market um essentially we provide social justice for impecunious clients IE those who without the existence of our sales um would have nowhere to turn to because of the um demise of legal aid over the last 20 or so years so our clients are able to pursue claims where they've had an onfa accident because they're essentially funded um by an EXO and the same applies to substandard housing accommodation emissions and professional negligence claims virtually all our clients are impecunious um both from car motorbike and cycle perspective and also people that live in in social housing or housing provided by the local Council we also set up approximately 18 years ago the anxo academy that's where basically we've been able to nurture Talent from the age of 16 upwards for people coming out of school at 16 or 18 or university and it enables them to pursue a career path either through the apprenticeship scheme or otherwise to ultimately qualify as a legal executive solic or barister should they so choose we have specific expertise in credit hire personal injury emissions and profession negligence so we're not like the typical High Street generalist solicor we're very specific in what we do we the key to our business as I've always said is effective screening or vetting and we still maintain as we have since 1996 um a success rate of 98% with the 2% failure rate trial where litigation is commence the vast majority of our cases settle prior to any trial and again where we're very different in terms of credit hire we don't accept work from insurance companies it's a direct capture model from a large number of independent body shops um that deal with the impecunious Market market and this network provides particularly from a capital perspective uh barriers to entry and the fact that we've got such a large foothold in the independent Body Shop Market we also have other customers where we acquire them through social media and our existing client base particularly emissions and all the housing dis repair cases that we have so just then turning across to page seven we've just got some key data there around the the real core part of our group credit hire so providing as Alan's described cars motorcycles and more recently taxes to uh people that have found themselves in the need for a replacement vehicle where their insurers either can't or or won't help them we've talked around revenues so revenues increase from just over 28.

8 million to over 35 million between half year 23 and half year one 2024 a significant growth and that's all down to careful vetting of claims bringing in additional cash resources in settlement of claims from Bon Turner and deploying that Capital without the need for increasing levels of debt so a significant growth and half year as I'm sure you're all aware is a is a slower period for us you know the run up to Christmas is a is a very busy time for people parcel and food deliveries and the darker nights that are coming unfortunately in the not too distant future mean that there's uh you know the same number of vehicles on the road tends to lead to more accidents with the with the darker night so second half of for the year we expecting a significant Improvement in profitability across the group not just within the credit higher business not withstanding that profits nearly doubled from 2. 2 million in the first half of 23 to over 4. 1 million in 2024 again a significant growth boid by the number of vehicles that we were deploying on the road at that time and the type and quality of claims that we're accepting our our acceptance rates are below 40% at the minute so our sales teams are generating significant opportunity for us we're picking the best claims that generate value across the group not just for Recovery of credit hire making sure where possible we can ensure that Bon Turner in collecting its cash from the outa insurer for its fees it's collecting the credit hire and it's generating value across the group just some kpis about vehicle numbers down the bottom there settlements weren't up significantly and again that's a seasonality issue really January tends to be slow second half of the Year tends to be much better but with those settling claims at the same number and the cash value growing the teams in Bon Turner are settling individual cases for more value which is a huge positive for us number of new higher cases funded which has helped grow that revenue from 28 up to 35 million grew by over 13% and we've been carefully managing what we're doing with vehicles on the road you know we've been very careful with the level of working capital that we have and we deploy and there's a decline in the number of vehicles that we have on the road between June 23 and June 24 there from 1961 down to 1,772 and that is really the bound to us managing our business sensibly and appropriately as you would expect we set out on the other part of the slide the market opportunity for us we have um a very small market share um of approximately 3% based on government statistics or 22,000 cases the gig economy is I'm sure you're all aware um has increased dramatically over the last few years um 3.

7 million gig workers at the moment involved in driving vehicles and that's forecast to almost double um in the next few years the number of licensed vehicles in the UK is 33. 7 million in q1 of 24 uh in respect to cars and 1. 38 million in respect to motorcycles a large proportion of our Fleet is motorcycles there were approximately 136,000 personal injury cases in 2022 and that's where the police were involved so the figure is probably actually significantly greater the ministry of Justice in 2018 estimated that there were approximately 700,000 rad traffic accidents and the CMA way back in 2014 thought there was a approximately 300,000 credit higher opportunities following road traffic accidents so as you can see we've got a huge Market to go at and we have a very small percentage of 3% so then just turning over on to page eight just got some statistic again there around other legal services and class actions and again I I'll to talk about the market opportunity shortly but as you can see again on the face of it a decline in revenue and profits but just reiterate the point that 2023 first half included that settlement as it says on the right which generated a net cash generation for the group of 7.

2 million so really significantly impacting those numbers in 23 and and no such claim in the first half of 24 orbe it you know as we've got 37 odd thousand claims against other manufacturers and that and we'll talk more in a second you know a significant upside that we're expecting in the future for the group which will uh sign put a significant Dent at that particular point of settlement in our net debt numbers just picking up at the bottom whilst you know the the figures at the top show a decline obviously because of volswagen and the impact in the first half of 23 the business has continued to grow and develop for the future so an increase in headcount from 690 at the end of June 23 to 760 at the end of June 24 an increase of over 10% you know we're continuing to grow and develop and nurture the people across all elements of our business stream you know credit High Remains the most significant in terms of headcount and value to the group the housing is growing large lost teams are growing and we continue to invest in those teams and slightly diversifying away from credit High where there tends to be larger draw for working capital some of these other revenue streams settle cases not to the same type of quantum clearly at the minute but have a um a positive impact on that working capital cycle for the group and I'll I'll talk around working capital more in a second um on the right of the page we set out again the market opportunity in respect of the emissions litigation there were up to 11 million Vehicles affected we've got um approximately 12,000 claims against Mercedes and 25,000 against other manufacturers all our acquisition and legal cost of emissions are expense as incurred we have as I mentioned before a large clinical and professional negligence team um we've dealt with cases such as the Aston Hall child inquiry which was at the time the largest uh child abuse action which we settled successfully we're currently involved in the government public inquiry involving Lucy Le known as the thoral inquiry and we're also part of the group action for doctors in the BMA against long covid so again just turning over the page there to page now just to talk a little more around housing disrepair and as we we've discussed during the presentation it has been a a growing business for us three or four years ago we started the business we' now over 3,800 claims in process you know a significant team of people working these cases and settling as you can see at the bottom of the page more and more cases up 27. 5% up to just over 1,100 in that half year period which had really supported the growth as you can see at the top of the page in revenues growing from 5. 9 million up to 6.

7 million slight decline in profit that's just us writing costs off so more people all of the costs are written off as incurred acquisition of cases you know we pay and generate our own leads associated with the housing disrepair claims taking those claims on you know we're typically incurring costs associated with the surveyors and the generation of that claim so growing from 3,2 91 up to 3,880 all of those cases are now paid for they're on book and that's impacted our profit in the first half of the year and then to the right of that slide we've set out the housing disrepair Market opportunity the homes act 2019 that ensures that rented accommodation is fit for habitation and essentially gave tenants more power to take on landlords Who provided accommodation that is not fit for purpose it's estimated that 25 people 25% of people who rent will make a damp claim resulting in a potential Market size of 200,000 claims per anom 25% of renters will make a housing claim um resulting in potentially 400,000 claims perom and from our perspective the use of our capital is very efficient as there is a much shorter case duration than credit higher and that leads quite nicely over on to onto page 10 and we've talked around a number of these key metrics during the presentation you know the business and the management team have been very focused upon growth without the need for significant increasing the level of debt clearly went through a cycle of huge growth and investment in emissions particular in 2021 and 22 and you can see the sharp increase in debt during that period but since then you know we've come down and we've stabilized at that 6867 million pounds Mark suspect that that number will grow second half of 2024 just because it's just busier for us you know taking on more credit High claims in a busier period means that we will you know purchase more motorcycles support more businesses more people and take on more claims so expect that number to rise slightly in the second half of 2024 but it's very much an absolute key Focus from us as we've described we've got a very small market share we're taking on less than 40% of the claims that we see so we can manage what we're doing from a credit higher perspective very easily very quickly you know today we can turn off a tap tomorrow we can turn that back on again if that's what we choose to do to make sure that we manage the um opportunity the uh the value of the business and the level of working capital that we invest by those very simple levers we talked around a 10% increase in headcount During the period and that really supports the future growth and development of the business collecting more cash up eight just over 8% to 87 million in the first half of the Year from the first half last year is all down to the quality of people that we have within Bon Turner and we'll continue to grow and develop those people Alan's described the training coures an opportunity we have now to take younger people to bring them into the enexo way push things through generate more cash settle more cases and means that we can recirculate that cash into more claims help more people without the need for significant increase in in debt we've talked around slight diversification HDR is a focus for us you know it is a growing part of the business you know over 10% of value now in terms of revenues and that will continue to grow as we uh focus on you know acquiring either teams of people or heads of teams and then the people that follow to really support the settlement of those claims and generation of opportunity for us and whilst credit hire does have a extended working capital cycle averag is somewhere between 18 and 24 months or be it some of the protocol Arrangements that we now have with some major insurers mean that that's helpful you know we have sensible discussions around settlement timings can be shorter but we tend not to generate quite as much fee so there's a balance to be had really between you know what type of level of pro protocol arrangement we want across our book we're generating the right type of value for each of those individual claims and then onto slide 11 we just set out current trading there as Mark alluded to before we care manage the fleet numbers um seeing a rise in the number of vehicles on the road um we've got 1772 vehicles on the road as at the 30th of June the vast majority is in motorcycle Fleet we've seen a growth in our number of 8,000 dist repair claims and settlements we've currently got 37,000 emissions claims and strategy is continue to focus on growth but with cash generation and a reduction or slight increase only in debt and you'll have seen that we've now got significant reduction in the cost of capital following the refinance with cadine and the repayment of Blaze Hill in effect of the dividend obviously that's a decision to be made later in the year but obviously careful consideration will be given to that so that really concludes the presentation we've provided you some additional slides around major shareholders profit loss account income statement for the half year versus 2423 the balance sheet at the time comparative periods and the cash flow statement so more than happy to take any questions I don't propose to go through those in any detail perfect Alan mark thank you very much for presentation ladies and Gentlemen please do continue submit your questions just by using the Q&A tab which is situated on the top right hand corner of your screen but just while the company take a few moments for you the questions that have been submitted today I'd like to remind you the recording of this presentation along with the copy of the slides and the published Q&A can be accessed via your investor dashboard as you can see we have received a number of questions throughout today's presentation and Nick at this point if I could hand over to you to share the Q&A that'd be great and then I'll pick up from you at the end can you can you hear me yes we can can thank you good um okay we've got a number of questions uh this morning covering a number of different topics um firstly could could we give any more details on the on the on the debt refinancing that we that you mentioned in the last slide um so yeah we completed about just over a week ago um it was it's been ongoing for a number of months um across both of our kind of major facilities within the accident management company um secure trust have extended their funding profile from 12 to 18 months providing additional 5 million ahead room to the group EXT the limit stays at was at about 40 million and they've extended their renewal date from December 25 up to July 2027 Blaze Hill would uh number 22 to help develop and grow and acquire cases particularly around the emissions opportunity and continue to drive housing so very positive but quite expensive so we were introduced to a a new funding partner um and secured a deal in the last couple of weeks we've got a facility of just over 30 million we've drawn 20 15 of which has been used to repay um blaz Hill and as Alan described a a much uh lower level of Interest cost associated with that facility of cadine versus play Hill so brings our average cost of capital down we've got 10 million um available for future acquisition or new cases or you know General working capital or whatever we so choose so yeah a a fantastic opportunity for us to continue to develop the business okay thank you um there have been a number of questions on De but I think that broadly covers it all um in terms of housing disrepair uh first question is are the cases mostly against councils to which the answer is yes councils and Housing Association um but a more detailed question is housing disrepair settlements up 27 a half% revenues in the segment up 15. 3% could you help us understand the disparity between growth in uh in settlements and and smaller growth in Revenue it's not horses for Coes presumably it's not no there's there's VAR different stages of cases that we're settling and one of the most significant that has arisen probably over the last 18 months is breach claims so we've had a settlement against a particular Council we've been awarded um in full the council then is prescribed to do the work to that individual's house within typically 28 days and they don't so um the individual gets back in touch and we raise another claim against that individual Council and we win clearly again because we WN first time round and they promised to do the work and they pay our fee and they don't do it and we've had that on multiple occasions and as you would expect the fees associated with that type of business element are less than you would get in a in a full-blown case so that's that's an element of it um and I think people now as they do from a um a credit High perspective they understand what the enexo group is around they know that we're not going to walk away as some other parties do so people are tending and that's supporting our short settlement time they're settling quicker which means that legal fees tend to be a little bit lower okay um generally in terms of the valuation of the company um one of our uh attenders attendees points out that with receivables around 233 million net debt of 67.