Basis of Preparation
As previously reported, Anexo Group Plc was incorporated on 27 March 2018 and acquired its subsidiaries on 15 June 2018, then being admitted to AIM on 20 June 2018 (the ‘IPO’). In order to provide an understanding of the trading performance
of the Group, comparative numbers have been presented on a basis consistent with the Group being fully incorporated throughout 2018 and 2019. Further details are included within the accounting policies.
In addition, to provide comparability across reporting periods, the results within this Financial Review are presented on an “underlying” basis, adjusting for the £1.4 million cost of the IPO transaction, the £0.4 million charge
recorded for share-based payments in 2018 and the £0.7m charge for share-based payments in 2019.
A reconciliation between underlying and reported results is provided at the end of this Financial Review. This Financial Review also incorporates and constitutes the Strategic Report of the Group.
New Accounting Standards
A new accounting standard has been issued, IFRS 16 Leases, which replaced IAS 17 Leases, effective from 1 January 2019. The new standard has fundamentally altered the classification and measurement of operating leases for lessees, removing the distinction
between operating and finance leases. The standard has been adopted in the consolidated financial statements for the first time.
A reconciliation between the reported results for the year ended 31 December 2019, having been adjusted for IFRS 16, and before the adjustment is provided at note 28 of the Annual Report. As the Group has applied the modified retrospective approach
there are no adjustments to the results reported for the year ended 31 December 2018, which continue to be reported under IAS 17.
In 2019 Anexo successfully increased revenues across both its divisions, Credit Hire and Legal Services, resulting in Group revenues of £78.5 million, representing a 38.9% increase over the prior year (2018: £56.5 million).
During 2019 EDGE, the Credit Hire division, provided vehicles to 7,182 individuals (2018: 5,215) an increase of 37.7%. Much of this growth has arisen within the motorcycle division of our business, which operates under the McAMS brand name. Following
the strategic decision to expand this division, the number of motorcycle claims increased from 2,923 in 2018 to 4,475 in 2019, an increase of 1,552 (53.0%). As part of our continued investment in the motorcycle community, our sponsorship of
the McAMS Yamaha team in the British Superbike Championship continued into 2019. The McAMS strategy reflects the fact that, on average, a motorcycle claim has a take-on cost significantly less than that of a car, allowing the Group to deploy
its resources into the most valuable claims, growing revenues whilst preserving working capital.
This strategy resulted in revenues for the Credit Hire division increasing to £48.0 million in 2019, an increase of 40.9% over 2018 (£34.0 million).
Having invested heavily in fleet and infrastructure in 2018, the focus for 2019 has been primarily on cash collection. Investment within the Legal Services division in senior staff and property has had a significant impact on the financial performance
of the division. Revenue growth within the Legal Services division in 2019 reached 35.9%, with revenues rising from £22.5 million in 2018 to £30.5 million.
Expansion of headcount in Bond Turner has been critical to increasing both revenues and cash settlements within the Group and the opening of the Bolton Office in December 2018 provided a crucial platform for growth in both factors. By the end of December
2018, we employed 267 staff in Bond Turner, of which 89 were senior fee earners. This figure rose to 442 staff at the end of December 2019, including 127 senior fee earners (an increase of 42.7%), significantly improving cash collections.
We expect this trend to continue into 2020 reflecting our business model and collection timeline.
Gross profits are reported at £62.8 million (at a margin of 80.0%) in 2019, increasing from £40.3 million in 2018 (at a margin of 71.4%). Of the reported year on year increase (£22.5 million or 55.7%), some £3.5 million is
the result of IFRS 16, where the costs associated with the vehicle fleet are included within cost of sales in 2018 but replaced with a depreciation charge and interest cost in 2019. Excluding this adjustment, the gross profit for 2019 would
have been £59.3 million (at a margin of 75.5%), a level above that of 2018.
It should be noted, furthermore, that staffing costs within Bond Turner are reported within Administrative Expenses. Consequently, gross profit within Bond Turner is in effect being reported at 100%.
Gross profits for the Credit Hire division reached £34.3 million in 2019 (at a margin of 71.4%) rising from £19.9 million in 2018 (at a margin of 58.5%). The increase reflects the impact of IFRS 16 (margin would have been 64.0% pre IFRS
16), reflecting both our strategy for claims acceptance which seeks to maximise value from our available working capital facilities, as well as savings achieved within our fleet insurance premiums.
Administrative expenses before exceptional items increased year-on-year, reaching £31.0 million in 2019 (2018: £21.6 million), an increase of £9.3 million (43.2%). This reflects the continued investment in staffing costs within
Bond Turner to drive settlement of cases and cash collections. Staffing costs increased to £13.5 million (2018: £8.7 million), an increase of £4.8 million. The balance of the increase reflects investment in marketing,
staff and infrastructure to allow the Group to meet its growth aspirations, as well as its requirements and responsibilities as a PLC.
Adjusted EBITDA reached £31.9 million in 2019, increasing from £18.7 million in 2018 (70.6%). The result, as previously announced, was ahead of initial management expectations and in line with recent market forecasts. EBITDA, as
with gross profit, is also impacted by IFRS 16 and in order to provide a direct comparison between 2018 and 2019 we have provided a complete reconciliation of the primary statements in the Annual Report, which highlights the impact of IFRS 16 on the
reported results. Excluding the adjustments for IFRS 16 adjusted EBITDA for 2019 would be £27.6 million.
To provide a better guide to the underlying business performance, adjusted EBITDA excludes share-based payment charges, professional and other costs charged to the profit and loss account along with depreciation, interest and tax from the measure of profit.
The GAAP measure of the profit before interest and tax was £24.6 million (2018: £15.4 million) reflecting the non-cash share-based payment charge of £0.7 million (2018: £0.4 million) as well as the professional and other fees arising
from the listing in 2018 (£1.4 million). Where we have provided adjusted figures, they are after the add-back of these two items and a reconciliation of the underlying and reported results is included on page 22 of the Annual Report.
EPS and Dividend
Statutory basic EPS is 16.4 pence (2018: 10.4 pence). Statutory diluted EPS is 16.0 pence (2018: 10.2 pence). The adjusted EPS is 17.0 pence (2018: 12.0 pence). The adjusted diluted EPS is 16.6 pence (2018: 11.8 pence). The adjusted
figures exclude the effect of share-based payments and the fees associated with the listing in 2018. The detailed calculation in support of the EPS data provided above is included within Note 4.
A final dividend of 0.5p per share has been recommended by the Board (2018: 1.5 pence) giving a total dividend for 2019 of 1.5 pence, having paid a dividend of 1.0 penny on 23 October 2019. This dividend, if approved at the Annual General Meeting
to be held on 22 July 2020, will be paid on 21 August 2020 to those shareholders on the Register at the close of business on 31 July 2020.
Group Statement of Financial Position
The Group’s net assets position is dominated by the balances held within trade and other receivables. These balances include credit hire and credit repair debtors and disbursements paid in advance, and support of ongoing claims. The
value of the receivables totalled £220.5 million in 2019, rising from £165.2 million in 2018. In accordance with our income recognition policies, provision is made to reduce the carrying value to recoverable amounts, being £101.0
million and £76.0 million respectively, an increase of 33.2%. This increase reflects the recent trading activity and strategy of the Group and is in line with management expectations. The increase has been primarily funded from the
significant increase in cash collections seen year on year.
In addition, the Group has a total of £24.4 million reported as accrued income (2018: £22.5 million) which represents the value attributed to those ongoing hires and claims.
Further investment has been made in 2019 into the motorcycle fleet as well as the fit out of the two floors at the new Bolton office, with total fixed asset additions totalling £3.1 million in 2019 (2018: £3.5 million). The fleet continues
to be partly financed with hire purchase. The application of IFRS 16 has impacted the Group’s Statement of Financial Position, resulting in the recognition of right of use assets of £7.8 million at the end of 2019 along with associated
lease liabilities of £8.2 million, the net impact on net assets being £0.3 million.
Trade and other payables, including tax and social security increased to £7.9 million compared to £7.2 million at 31 December 2018, an increase of 9.0% as additional cash receipts have been utilised to reduce short term payables.
Net assets at 31 December 2019 reached £91.7 million (2018: £75.8 million).
During 2018, the Group utilised the funds raised from the AIM listing, alongside increases in debt facilities, to take advantage of the opportunities in the market and increase the number of vehicles on the road. 2019 has seen a shift in focus to
cash generation, as the Group has held back on growth within the Credit Hire division and focussed investment on the Legal Services division where we have seen a significant investment in the number of senior staff engaged to settle cases and recover
cash for the Group. The number of senior fee earners increased from 89 to 127 during 2019 (an increase of 42.7%) and continues to rise. The Group’s success in recruiting high quality staff, which significantly exceeded management
expectations, led to the leasing of a further floor (approximately 10,000 square feet) within the Bolton office in October 2019.
Cash collections for the Group (and excluding settlements for our clients), a key metric for the Group, increased from £58.1 million in 2018 to £84.1 million in 2019, an increase of 44.8%. This is a significant improvement, given the
fact that many of the new recruits will not reach settlement maturity until 2020, at which point it is anticipated that the real financial benefits to the Group will come through.
The number of vehicles on the road was strategically managed during 2019 so as to preserve working capital, the focus being on securing the most attractive and profitable claims for the Group whilst minimising take-on costs. Consequently, the number
of vehicles on the road fell during 2019 from 1,531 to 1,308. Average overall vehicle numbers were, however, higher in 2019, reaching 1,454 (2018: 1,155), contributing to the strong performance of the Credit Hire division.
With the focus firmly on cash collections in 2019, the Group reported a significant reduction in the level of net cash outflow from operating activities, reducing to only £0.8 million (2018: Cash outflow £7.9 million). The investment
made into new cases across both the Credit Hire and Legal Services divisions absorbed a net £26.3 million of funds in 2019 (2018: £20.9 million), this year on year increase being countered by the increased level of cash collections.
With a net cash outflow of £4.8 million resulting from financing activities (2018: new cash inflow of £11.7 million following the listing in that year), the Group has reported a net cash outflow in 2019 of £8.5 million (2018: net cash
inflow of £0.5 million).
The improvement not only improved year on year but during 2019, we have reported a significant reduction in the level of cash absorbed by the Group in the second half versus the first half of the year. This improvement is after an increase in the
number of hire claims invested in during the period, (HY1 2019: 3,392, HY2 2019: 3,567) and further investment in the number of senior fee earners which rose from 89 at the end of 2018 to 109 at the end of HY1 2019 and to 127 at the end of 2019.
Most notably the number of hire cases settled increased during 2019 as our investment in legal staff started to pay dividends (we anticipate further growth in 2020 as the case portfolio of the new recruits matures), rising from 2,066 in HY1 2019 to 2,872
in HY2 2019 (an increase of 39.0%).
These movements have contributed to the significant steps we have made during 2019 and as a result the level of cash absorption reduced from £7.0 million in the first half of the year to £1.5 million in the second half of the year. Cash
collections increased from £36.6 million to £47.5 million, an increase of 30% between the first and second half of 2019. This performance in the second half was even more pleasing as we invested c£935,000 into the VW emissions
scandal case. Excluding this investment, the Group has reached the inflexion point from cash absorption to cash generation, the target we set ourselves for the year.