Final Results

RNS Number : 1958I

NAHL Group PLC

20 March 2018

 

20 March 2018

NAHL Group plc

("NAHL" or the "Group")

Final Results

NAHL, the leading UK consumer marketing business focused on the UK legal services market, announces its Final Results for the year ended 31 December 2017.

Financial Highlights

•       Trading performance in line with expectations

•       Revenue up 2.5% to £51.9m (2016: £50.6m)

•       As expected, underlying operating profit down 19.4% to £14.5m (2016: £18.0m)

•       Profit before tax of £12.4m (2016: £15.8m)

•       EPS ahead of expectations at 21.7p (2016: 27.0p)

•       Recommended final dividend of 10.6p, providing a total dividend for the year of 15.9p (2016: 19.05p)

Operational Highlights

•       A year of progress with continued evolution of Personal Injury (PI) division

•       Establishment and operational launch of two Alternative Business Structure ("ABS") ventures, with early signs     encouraging

•       Successful relaunch of National Accident Helpline brand, generating positive results

•       Critical Care division ahead of last year with continued growth in market share

•       Solid trading performance from Residential Property division against a challenging market backdrop

Russell Atkinson, CEO of NAHL, commented:

"2017 was a year of change and progress for NAHL as we continued to evolve our Personal Injury (PI) division. We are particularly pleased to have successfully delivered the key elements of our PI strategy with the launch of two ABS ventures, the relaunch of our brand and the delivery of an improved digital capability. These initiatives have given us the insight and experience to lay out a confident vision for the future.

"Given the success of this first phase, we plan to accelerate our investment by establishing a third ABS to capture the growth opportunity which exists for NAH and further enhancing both our brand and technological capability. Simultaneously we will continue to work closely with our panel law firm partners whilst building in more flexibility into the way we process enquiries helping us to better manage demand.

"The importance of our other divisions should not be overlooked. Critical Care performed ahead of last year securing a number of high profile strategic business development partnerships which we expect will contribute to growth in the year ahead. Residential Property faced difficult market conditions though performed solidly thanks to our focus on margin and cost. 

"We have started the new financial year in line with Board expectations. 2018 will be a year of transition with further investment to accelerate the PI division's evolution. This additional investment necessitates a change to our dividend policy which will enable us to go into the future with confidence about the Group's prospects."

Enquiries:

NAHL Group plc Russell Atkinson (CEO) James Saralis (CFO)	via FTI Consulting Tel: [phone]
finnCap Ltd (NOMAD & Broker) Julian Blunt / James Thompson (Corporate Finance) Andrew Burdis (Corporate Broking)	Tel: [phone]
FTI Consulting (Financial PR) Alex Beagley James Styles	Tel: [phone]

Notes to Editors

NAHL Group

NAHL Group plc is a leading UK consumer marketing business focused on the UK legal services market. The Group comprises three companies: National Accident Helpline (NAH), Fitzalan Partners (Fitzalan) and Bush & Company Rehabilitation (Bush). NAH provides outsourced marketing services in the personal injury market, Fitzalan, which includes Searches UK a leading conveyancing search provider, provides marketing services in the property market and Bush provides a range of specialist services in the catastrophic injury market.

More information is available at www.nahlgroupplc.co.uk and www.national-accident-helpline.co.uk

Chairman's Statement

I am pleased to report the Group's results for the year ended 31 December 2017.

Summary of Financial Performance

2017 has been a year of considerable change for the Group, primarily in our Personal Injury (PI) division. We performed as expected, with 2017 revenue ahead at £51.9m (2016: £50.6m), primarily due to a 5.5% increase in PI revenues. Underlying operating profit declined as expected to £14.5m (2016: £18.0m), reflecting marginal growth in our non PI businesses and significant structural changes in our PI division, as we invested in cases through our newly launched ABSs. Total operating profit was £12.6m, down from £16.2m in 2016, after charges for share-based payments, amortisation of intangible assets acquired on business combinations and exceptional items, with profit before tax of £12.4m (2016: £15.8m). Earnings per share declined 19.6% to 21.7p (2016: 27.0p).

Divisional Review - Personal Injury

During 2017 we made strong progress in preparing for the regulatory changes previously announced by the Ministry of Justice. It is anticipated that these changes will take place no earlier than Q2 2019.

Our preparation for these changes included a brand relaunch for National Accident Helpline and the establishment and operational launch of two ABS ventures.  These ventures involve investment in certain types of PI cases, with a consequential deferral of cash flow, and revenue and profit recognition. We continued to invest in cases with our strategic PLF partners.

Metrics from our brand relaunch in June 2017 have been building and we are pleased with progress, operating under the theme "When it's wrong, make it right".

Investment in cases with PLFs and through our ABS ventures changes our medium-term profit and cash profiles as we build the number of cases in progress, and is the primary reason behind the reduction in Group profits in the current year. PI operating profits are down from £14.1m in 2016 to £11.0m in 2017, with the related deferral of profits intended to support future earnings stability and predictability.  Early indications from our ABS ventures have been positive, moreover we are already identifying ways to improve their returns; supporting our strategy of investing in ABS structures.

Our preparations for regulatory changes continue in 2018, particularly in relation to the consequences of the expected significant change in the small claims limit, and the potential compensation available for low value whiplash injuries in road traffic accidents (RTA). We anticipate a broadly unchanged landscape in terms of the number of accidents, and the number of consumers seeking redress, but expect to experience a progressive reduction in PLF appetite for these smaller value cases.

Our strategy is twofold - namely to continue to work with our PLF partners and ABS ventures on PI cases, whilst establishing processes in house to support consumers who might be unable to access justice through more traditional channels.  Whilst our PLF partners may be less inclined to work with smaller value cases, handled correctly we believe that they still offer NAH a valuable opportunity to leverage its twin attributes of process efficiency and empathic customer focus.  With this in mind, during 2018 we intend to establish a third ABS, incurring set up costs in 2018 and 2019. This ABS will be small claims ready, and will in due course provide digitally enabled consumer advice and support. Set up costs, including capital expenditure, are expected to amount to approximately £4.0m during the next two years and will comprise investment in people, technology and process capability.

Divisional Review - Critical Care

The Group's Critical Care (CC) division has performed ahead of last year, but experienced slightly softer trading in Q4 compared with our expectations. Revenue was up 6.6% to £11.0m (2016: £10.4m), delivering operating profits up 2.5% at £3.9m (2016: £3.8m).

The division has recently secured a number of strategic business development opportunities that we expect to contribute to growth in H2 2018.

Divisional Review - Residential Property

The Group's Residential Property (RP) division has performed solidly in difficult market conditions. Revenue was down 7.5% to £8.3m (2016: £9.0m), with operating profits unchanged at £1.4m. Weakening consumer demand and taxation changes have impacted residential conveyancing volumes across the market. Management has responded to difficult market conditions by focussing on operational efficiency, to good effect.

We expect trading conditions to continue to be difficult reflecting the macro-economic dynamics facing homeowners and consumers generally. 

Balance Sheet and Final Dividend

As previously indicated, cash generation across the Group has been lower than in prior years, with a 54.8% (2016: 79.7%) cash conversion of underlying operating profit from continuing operations into net cash flows from operating activities before interest and tax. This decline reflects the planned investment in PI cases, with a corresponding increase in trade receivables and payables on the balance sheet. We expect this lower level of cash conversion to continue in 2018 as we build a sustainable business model for the new PI regulatory environment.

At the year-end we had adjusted net debt of £12.7m (2016: £8.2m), which includes £0.7m of other payables relating to the legacy pre-LASPO ATE product. During the year we refinanced and significantly increased our banking facilities with a £25.0m Rolling Credit Facility (RCF) maturing in December 2021, which will support our investment in our PI business.

The Board proposes, subject to approval of shareholders at the Annual General Meeting to be held on 23 May 2018, a final dividend of 10.6p per share payable on 31 May 2018 to ordinary shareholders registered on 27 April 2018, making a total of 15.9p per share payable for the year.

Dividend Policy

In 2017, we have invested over £6.5m in PI cases through our ABS ventures and with our PLF partners.  With positive early indications from both ABS structures as well as the identification of ways of enhancing their future returns, we expect to accelerate this investment in 2018. Whilst our internal projections show significant banking facility headroom available we wish to maintain this to preserve maximum operational flexibility and to allow us to take advantage of opportunities which may arise in due course.

Accordingly, the Board intends to fund further ABS investment partly by amending its dividend policy.  With effect from the 2018 interim dividend, dividend cover will be increased from 1.5x to 2.0x EPS though the total dividend will continue to be paid as to one third at the interim stage, with the balance to be paid following full year results. We will review our dividend policy again in 2020, having regard to our rate of cash generation and to our debt levels, both in absolute terms and as compared to our operating profits.

Outlook

Trading during the early part of 2018 has been in line with expectations. The evolution of our PI division is on track and we plan to counter the financial challenges caused by changing regulation. Whilst this necessitates investment in both PI cases and operational structures and processes, we expect to see some payback in 2019, accelerating thereafter. We continue to expect 2018 to be a year of transition and earnings contraction, however, we are enthused by the potential for change in PI. We have a market leading brand and the leadership team to evolve and develop the division to create strong, predictable and sustainable earnings and cash flow.

We anticipate further growth from CC, supported by recent commercial successes. The residential property marketplace is likely to remain challenging in the short term and our focus will be on operational efficiency whilst we engineer market share gains.

2017 has been a challenging year, as 2018 will be. Our businesses have responded to those challenges strongly, and I would like to thank both our business partners and our employees for their continued support.

Steve Halbert

Chairman

19 March 2018

Chief Executive's Review

Overview

2017 was an important year for the Group as we accelerated the process of re-engineering our Personal Injury (PI) division and navigating challenging market conditions in Residential Property (RP). Despite the twin challenges of regulatory uncertainty and market headwinds, the Group traded well during 2017 delivering underlying operating profit in line with expectations.

As we have previously indicated, the funding of work within PI impacts short term profit recognition and cash conversion and this is reflected in year-on-year comparisons.

Having managed that aspect of our business as planned and whilst satisfied with the early contribution of our new ABS ventures, we believe that these structures offer a valuable opportunity to leverage the Group's core skills in the PI Market to drive future returns still further. 

It is encouraging that all the key elements of our strategy are being successfully implemented and we continue to make strong progress as we adapt the business to take advantage of the opportunities provided by change.

Results

We have delivered continuing underlying operating profit of £14.5m from underlying revenue of £51.0m.

The formation of our two ABS ventures, whilst working with a smaller number of more efficient Panel Law Firms (PLFs), has been the main driver of improving our ability to manage demand. Whilst the traditional panel model remains core to our strategy, the increased flexibility provided by our new arrangements has enabled us to invest in the brand with confidence. The initial KPIs from the ABS ventures have been encouraging and we continue to manage and monitor these carefully.

Having reduced investment in the National Accident Helpline brand in 2016 we have been able to successfully relaunch the brand during the year. The new campaign is generating positive results with brand metrics improving strongly.  Research indicates that our trust scores are almost 2.5 times better than our nearest competitor. Additionally, the investment in improving our digital functionality has resulted in growing numbers of enquiries generated via these new capabilities.

Our Critical Care (CC) division made progress in 2017 although the final quarter was slightly more challenging as a result of a slower than expected rollout of some commercial initiatives. However, despite this, we have continued to grow market share and developed a solid pipeline of contract wins. Our credibility as brand leader has been further enhanced by winning Lawyer Monthly magazine Rehabilitation Provider of the Year.

The Group's RP business faced further market headwinds during 2017 with Land Registry figures indicating a decline in annual volume of 25%. However, our focus on website conversion, margin management and cost control enabled us to report profits for this division in line with those of 2016 - a robust performance.

Market overview

The Group continues to operate in the large and fragmented Consumer Legal Services (CLS) market, remaining focused on PI and RP and we are proud to be the UK's leading marketing services provider in the personal injury sector.

The PI market has been broadly static in recent years at just under one million claims per annum. However, we anticipate that there has been a softening in the overall market during 2017 as a result of a reduction in Road Traffic Accident (RTA) claims caused by the cumulative impact of prior legislative change which has resulted in reduced marketing activity. Whilst data from April 2017 onwards is not yet available, our belief is that non-RTA volumes will remain largely unchanged and, coupled with our enquiry rate increasing year-on-year, we will, therefore, have increased our market share. 

The number of Claims Management Companies (CMCs) has dropped from a peak of 2,500 in 2011/12 to approximately 670. The effect of previous legislation combined with a continuing lack of clarity surrounding the timing and impact of regulatory reforms has driven many smaller and mid-sized firms to question ongoing profitability causing uncertainty in decision making about future investment. This has depressed demand in the market as a whole for the traditional panel model and we expect this trend to continue, albeit we plan to mitigate the effect of this through our combined ABS and PLF strategy.

Critical Care focuses exclusively on the catastrophic injury segment of the PI market, where we provide expert witness and case management services. Whilst not directly impacted by the proposed regulatory changes, the contagion effect felt by law firms from lower value claims, as well as the impact on insurers arising from the Ogden Reforms (changes to the discount rate), has resulted in some small changes in solicitor and insurer behaviour.

The Group's third business, RP, is focused on lead origination and survey and search process management in residential property transactions and the challenges in this market are well documented. Poor availability of housing stock, 30 year lows in home ownership, continuing falls in new mortgage approvals and low levels of consumer confidence characterise the current climate. The Government has taken action to stimulate first time buyer transactions but this will take time to feed through. The market overall, therefore, remains challenging.

PI Regulatory update

In February 2017 the Government published its response to the consultation into, amongst other things, PI related soft tissue cases and small claims which it first announced in November 2015. Over a year later, despite the visibility provided by the consultation response, there is currently no definitive timetable for the introduction of legislation. Clearly the political turmoil caused by the 2017 general election combined with the continuing focus of legislation related to Britain's proposed exit from the European Union means that progress has been slow. We anticipate that these changes will be implemented no earlier that Q2 2019.

Strategic development in PI

Our PI division has been making significant preparations in anticipation of regulatory change. In particular we are now processing our own work through ABS ventures. Whilst these are in their early stages, we are encouraged by current levels of settled income from case successes (or accrued income for cases where liability has been admitted, though which remain unsettled).

Our first ABS, now in its eighth month of operation, is already profitable month-on-month and has covered its projected fixed costs for its first full year of operation.  Importantly though, we are also identifying ways of improving ABS profitability through a range of initiatives to improve processes and, ultimately, returns. We have consequently further refined our business models and we are now confident that we understand how to manage the financial impact that changes to the small claims limit and whiplash reform will have on our business.

The success of our 2017 strategy, continued panel demand uncertainty and increased clarity in our post-reform business models lead the Board to conclude that we are best served to accelerate our investment in processing capability. Our strategy will continue to evolve and we plan to focus our investment in the following areas:

·      Extending our ABS capability by creating a third ABS that allows NAH deeper involvement in the process in preparation for small claims;

·      Further developing our commercial models with PLF partners;

·      Evolving the National Accident Helpline brand to build on the impact created by our new campaign; and

·      Building our digital capability to enable a better experience for consumers.

This investment creates a platform for growth that will enable us, over time, to transform the consumer's journey from initial contact to settlement, modernising the experience and offering a more efficient digital proposition combined with the service approach for which we are already acknowledged. We believe that the platform will also enable us to transition into processing small claims on an efficient and cost-effective basis.

Increased investment means a continuing deferment of profit and cash flow that is realised in future years as cases settle. However, as the model matures, both profit and cash flow will normalise enabling us to absorb the impact of regulatory changes and grow our market share without further significant disruption to the business.

Brand

During 2017 we made an exceptional investment of over £1m in relaunching our PI brand, National Accident Helpline. The creative approach has been developed to reposition the brand and broaden its appeal to a wider segment of the market. The campaign has been successful and allowed us to adjust our media strategy to be more efficient using a lower weight of TV advertising than in previous years, enabling us to optimise other elements of our marketing mix.

Our focus on enhancing our digital offering has seen consumers able to start their claim online. This initiative has seen us achieve significant growth in such enquiries. Further investment in this area will be critical to enable us to support small claims and modernise the claims process.

Critical Care, operating under the Bush brand, has always had an enviable reputation for clinical excellence. Throughout 2017 we continued to invest in building this reputation. This has led to significant recognition with four important industry award wins during the year. Once again, our highly successful clinical conference was the centrepiece of our marketing activity positioning us as an industry thought-leader and further underpinning our proposition.

In RP we have continued to evolve our portfolio of brands as they focus on a localised organic search approach. Particularly pleasing, in a challenging market, were the improvements that we made to website conversion. Our ability to plan ahead was demonstrated by the introduction of our First Time Buyers Hub the day after the Government announced changes to Stamp Duty.

Ongoing focus on the brands that underpin our business will always be a core feature of the Group.

Customers

Central to the Group's strategy has been serving a cross section of claimant, defendant and conveyancing law firms with a range of services and products. Our customer base is broad, currently standing at 697 firms.

In PI 2017 has seen us begin the process of supporting consumers directly, through the introduction of Your Law and National Law Partners, our ABS ventures. In this way, we now earn a proportion of our revenue from successfully processing a consumer's claim. Our PLFs however, continue to play a critical role for us and we have evolved our commercial models to provide more flexibility and choice.

In CC we continue to grow our customer base and this has been crucial in supporting our market share growth. Particularly satisfying has been the development of larger more strategic relationships with key insurers and law firms. In addition we have established a contractual relationship with The Child Brain Injury Trust (CBIT). This is an important charity that helps severely injured children and young people and we look forward to supporting them.

In RP we optimised our conveyancing panel and continue to grow our customer base in Searches.

Operations

The Group operates from four offices across the UK and has contact centres in two of these - Kettering and London.

Our PI contact centre added new capability during 2017 in support of our National Law Partners ABS and we now progress the call directly through to verbal retainer for this proportion of our work. Additionally, our ABSs commenced operations from the offices of our partners in Bristol and Cardiff with specific staff seconded to our operations. 35 new jobs were created as a result.

Our Daventry office remains the operational hub of CC, and, once again we have continued to grow our clinical capability through the introduction of new operations managers who support our consultants in their interactions with clients.

Our RP division has focused on sharpening our call handling processes and adjusting our consumer offering to better reflect the nature of the service we provide. The impact of these initiatives will be seen in better conversion from first contact by the consumer, which will be an important part of our growth going forward.

People and values

Our people make us who and what we are and we employ a talented and motivated team of 220 staff across the group. In addition we work with a further 164 Expert Witnesses and Case Managers who form the cornerstone of the service we provide in CC.

Throughout 2017 we have been building our capabilities in our PI contact centres which has resulted in us employing a further 15 staff. Additionally we have strengthened the operational management team in CC where we have been awarded silver status by Investors in People.

The development of our people continues and we have instituted a series of management development days and a group-wide leadership school to supplement the on-the-job training that we have always provided.

We were encouraged by the outputs from our annual employee engagement survey with overall engagement scoring over seven times the UK national average, performing strongly in the areas of trust in leadership, feeling valued and recommending the Group as a great place to work. Additionally staff turnover dropped by 6.8 percentage points year-on-year.

Group and employee support enabled us to contribute over £65,000 to our chosen charities across the business.  This once again reflects the caring culture of our organisation and the high level of engagement from our teams.

Outlook

Within PI the pace of regulatory implementation has been frustratingly slow, causing continued market uncertainty, but we have been very active in adapting and developing our business model in preparation for the changes.

Our policy remains to increase investment in self processing. Whilst this results in some profits and cash being returned over future years as cases settle, it inevitably impacts returns during the next 18 to 24 months as the initial investment continues to be made. However, we remain firmly of the view that the PI market, despite the well-publicised regulatory changes of the last few years, remains a valuable market to operate in, particularly so for NAH with its long history, brand strength and deep understanding of the marketplace. 

Properly served, the PI market is still able to generate attractive returns provided the operating model is cost effective and case screening is rigorous. Increasing our own involvement in the end-to-end economics of a PI case enables us to leverage our know-how to maximum advantage and allows us to absorb the potential impact of the small claims and whiplash reforms without significant disruption to the business.

Critical Care has established an excellent pipeline of business with some significant new contract wins. Whilst work continues to convert the opportunity into instructions we remain confident in the outlook for this division.

Residential Property has managed the headwinds of a downturn in the market well. In the short term, it is difficult to see the market improving, therefore, our focus is on growing market share through a number of business development initiatives.

Due to a lack of opportunities aligned with our business strategy, we paused our acquisition strategy in 2017 but continue to monitor the market for suitable small scale, earnings accretive acquisitions to bolster our existing operations.

Whilst there is undoubtedly much work to do I am confident that we have the strategy and team in place to achieve our aims and I am excited by the challenge of the year ahead.

Russell Atkinson

Chief Executive Officer

19 March 2018

Chief Financial Officer's Report

The Group performed in line with the Board's expectations in 2017, against a backdrop of uncertainty created by regulatory change and continued soft markets experienced by some of our businesses.  It was also a year of progress, as our PI division successfully evolved its business model in response to these challenges and relaunched the National Accident Helpline brand, to good effect.

Revenue increased in 2017 by 2.5% to £51.9m (2016: £50.6m) but the investments made to establish the basis for future growth came with significant cost resulting in a decrease to underlying operating profit of 19.4% to £14.5m (2016: £18.0m).  This was as expected.

The Group continues to maintain a robust balance sheet with modest levels of debt and a prudent capital model.

Financial Results

	2017 £m	2016 £m
Underlying operating profit	14.5	18.0
Share-based payments	(0.2)	(1.1)
Amortisation of intangible assets on business combinations	(1.3)	(1.3)
Exceptional items	(0.4)	0.6
Operating profit	12.6	16.2
Financial income	0.1	-
Financial expense	(0.3)	(0.4)
Profit before tax	12.4	15.8

Underlying operating profit before share-based payments, amortisation of intangible assets acquired on business combinations and exceptional items decreased by £3.5m. The decrease was a consequence of our strategy to invest in our PI division in order to grow future market share and expand our placement strategy ahead of the previously announced regulatory changes. 

Financial results for each division are presented in note 2, Operating segments. Underlying operating profit in the PI division reduced in 2017 by 21.8% to £11.0m (2016: £14.1m) as we invested in the working capital required to fund cases through our two new ABS businesses.  These joint operations with two of our PLFs will deliver profit as their cases begin to settle.

Critical Care had a good year and increased underlying operating profit by 2.5% to £3.9m (2016: £3.8m).  Residential Property delivered a creditable performance, delivering £1.4m of underlying operating profit (2016: £1.4m) at an expanded margin.

Underlying revenue increased by 3.3% to £51.0m. This was mainly a result of the relaunch of the National Accident Helpline brand during the year and we experienced an increase in leads generated year-on-year.  PI underlying revenue increased by £5.5% to £31.7m (2016: £30.0m).  Our CC division experienced 6.6% growth in revenue to £11.0m (2016: £10.4m) and the future outlook for this business is encouraging. 

Residential Property revenues contracted by 7.5% to £8.3m (2016: £9.0m) in a subdued residential property market that continues to lack sales momentum.  The management team is focused on growing market share through optimising our operations and developing a number of business to business (B2B) initiatives.

After allowing for share-based payments, amortisation of intangible assets acquired on business combinations, exceptional costs and financial income and expense, the Group returned a profit before tax of £12.4m, a 21.4% decrease on 2016 (2016: £15.8m).

Exceptional items

The Group incurred £0.4m of exceptional costs during the year (2016: a £0.6m exceptional credit). This comprises £1.2m (2016: £0.5m) of costs associated with the National Accident Helpline brand relaunch and a £0.8m credit relating to releases from the pre-LASPO ATE liability and associated costs (2016: £1.2m). 

Taxation

The Group's tax charge of £2.5m (2016: £3.6m) represents an effective tax rate of 19.9% (2016: 22.6%).

Earnings per share (EPS) and dividend

Basic EPS is calculated on the total profit of the Group and most closely relates to the ongoing cash which will be attributable to shareholders and in turn the Group's ability to fund its dividend programme. The Group also has a number of share options outstanding (see note 21 of the financial statements) which resulted in a Diluted EPS.

Basic EPS for the year was 21.7p (2016: 27.0p) and Diluted EPS was 21.6p (2016: 26.5p) which was ahead of the Board's expectation due to the lower level of exceptional costs and a better than expected level of net debt during the year.

Subject to approval at the AGM on 23 May 2018, the Board has proposed a final dividend of 10.6p (2016: 12.7p) which, when added to the interim dividend of 5.30p (2016: 6.35p) gives a total dividend of 15.90p.  This is a decrease of 16.5% on last year.

For 2018, the Board intends to amend its dividend policy to 2.0x cover of retained earnings, which it will review again in 2020 once our third ABS is fully established.  We believe this to be a prudent solution to funding our new strategy whilst also maintaining sufficient flexibility within our debt facility at a relatively low leverage.

Balance sheet

	2017 £m	2016 £m
Goodwill and intangible assets	67.6	68.8
Other net assets/(liabilities)	6.9	(0.8)
Cash and cash equivalents	0.9	4.8
Borrowings	(12.9)	(11.1)
Net Debt	(12.0)	(6.3)
Other payables relating to legacy pre-LASPO ATE product	(0.7)	(1.9)
Adjusted net debt	(12.7)	(8.2)
Net assets	61.8	59.8

The Group's net assets at 31 December 2017 increased by £2.0m to £61.8m (2016: £59.8m) which reflects the profits for the financial year, less the dividend paid to shareholders.

The significant balance sheet items are goodwill and intangible assets, adjusted net debt and other net assets/(liabilities).

(i)         Goodwill and intangible assets

The Group's goodwill and intangible assets of £67.6m (2016: £68.8m) arise from the past business acquisitions undertaken by the Group. Each year the Board reviews the goodwill value for impairment and, as at 31 December 2017, they have concluded that goodwill is not impaired (see note 13 of the financial statements). Included within the total are £6.6m (2016: £7.9m) of intangible assets identified on business combinations, such as customer contracts, brands and IT related assets.

(ii)        Other net assets/(liabilities)

At 31 December 2017 the Group had other net assets of £6.9m (2016: other net liabilities of £0.8m).  The increase is largely in trade receivables and reflects the Group's decision to fund certain cases in its PI division.

(iii)       Net debt and adjusted net debt

The Group's net debt at 31 December 2018 was £12.0m (2016: £6.3m), being cash and cash equivalents less borrowings.  In addition to this, management monitor adjusted net debt, which the Group defines as net debt less other payables relating to a discontinued pre-LASPO ATE product. At 31 December 2017, adjusted net debt was £12.7m (2016: £8.2m).

Net debt reconciliation

	2017 £m	2016 £m
Net cash flows from underlying operating activities	7.9	14.3
Net cash flows from non-underlying activities	(1.8)	(1.0)
Tax and net interest paid	(3.3)	(4.0)
Net cash from operating activities	2.8	9.3
Dividends paid	(8.2)	(8.5)
Other	(0.3)	(2.4)
	(5.7)	(1.6)
Net debt on 1 January	(6.3)	(4.7)
Net debt on 31 December	(12.0)	(6.3)

Further detail on net cash flows from underlying activities and net cashflows from non-underlying activities is given in Note 2 to the financial statements. The individual elements of net debt and adjusted net debt are as follows:

Cash and cash equivalents

At 31 December 2017 the Group had £0.9m of cash and cash equivalents (2016: £4.8m). All of the Group's cash is held in its trading entities and the Group takes advantage of short-term deposit rates in maximising its interest returns.

Borrowings

During the year the Group renewed its banking facilities with Yorkshire Bank and entered into a new £25.0m RCF which is repayable in full on 31 December 2021. 

The new RCF was used to repay the previous outstanding balance on the term loan of £9.4m and replaces the previous £5.0m RCF. The new facility provides financial flexibility for the Group and can be utilised for general business purposes, including working capital and the payment of dividends, and supports the Group's long-term business strategy.

At 31 December 2017 the Group had a balance of £13.1m on the RCF (2016: £11.3m of other interest-bearing loans and borrowings).  The reported total of £12.9m is net of £0.2m of prepaid bank arrangement fees that are being expensed over the term of the loan. The current rate of interest payable on these borrowings is 1.25% above LIBOR.

The Group has an additional undrawn balance of £11.9m (2016: £5.0m) under this facility which can be utilised for working capital or for acquisitions. The current rate of interest payable on this undrawn facility is 1.0%. Once drawn the interest payable would be a maximum of 1.45% above LIBOR.

Other payables relating to a discontinued pre-LASPO ATE product

At 31 December 2017 the Group had £0.7m of other payables relating to a legacy pre-LASPO ATE product (2016: £1.9m). This amount is payable to Allianz for previously received commissions when certain policies either fail or are abandoned. The liability is calculated using actuarial rates and during 2017 £0.9m was released to exceptional items as a result of more favourable settlements during the year. The balance of £0.7m is likely to be repaid over the next two years.

Cash flow

	2017 £m	2016 £m
Underlying operating profit	14.5	18.0
Depreciation and amortisation	0.3	0.2
Working capital movements	(6.9)	(3.9)
Net cash generated from underlying operating activities	7.9	14.3
Net operating cash generated as a percentage of underlying operating profit	54.8%	79.7%

As indicated in last year's report, the level of operating cash generated on underlying activities as a percentage of underlying operating profit decreased in 2017 to 54.8% (2016: 79.7%).  This was a result of the Group's decision to fund certain cases in its PI division and the investment in its new PI business model.

This rate of conversion is expected to remain at lower levels than traditionally experienced as the Group continues to re-engineer its business and is expected to return to previously experienced levels once the transition is more advanced.

New accounting standards

The Group has not had to apply any new or revised IFRS accounting standards during the year.  IFRS 15: Revenue from Contracts with Customers becomes effective next year.  The Group has undertaken an impact assessment of this new standard and does not foresee a material impact on the financial statements in the year of adoption.

In conclusion, I believe the Group is financially strong and, through the successful execution of our new strategy, is well placed to capitalise on the opportunities ahead of us.

James Saralis

Chief Financial Officer

19 March 2018

Consolidated statement of comprehensive income

for the year ended 31 December 2017

	Note		2017	2016
			£000	£000
Underlying revenue	1, 2	51,037		49,385
Exceptional items	4	875		1,250
Revenue	1,2	51,912		50,635
Cost of sales			(25,224)	(20,809)
Underlying gross profit	1		25,813	28,576
Exceptional items	4		875	1,250
Gross profit			26,688	29,826
Administrative expenses	3		(14,086)	(13,665)
Underlying operating profit	1		14,491	17,985
Share-based payments	20		(182)	(1,052)
Amortisation of intangible assets acquired on business combinations	14		(1,307)	(1,327)
Exceptional items	4		(400)	555
Operating profit	2		12,602	16,161
Financial income	6		150	43
Financial expense	7		(331)	(403)
Profit before tax			12,421	15,801
Taxation	8		(2,467)	(3,577)
Profit for the year and total comprehensive income			9,954	12,224
Profit and total comprehensive income is attributable to:
Owners of the company			9,876	12,224
Non-controlling interests			78	-
			9,954	12,224

		Note	2017	2016
			p	p
Earnings per share (p)
Basic earnings per share		21	21.7	27.0
Diluted earnings per share		21	21.6	26.5

Consolidated statement of financial position

At 31 December 2017

	Note		2017	2016
			£000	£000
Non-current assets
Goodwill	12		60,362	60,362
Intangible assets	14		7,217	8,474
Property, plant and equipment	15		267	327
Deferred tax asset	9		34	38
			67,880	69,201
Current assets
Trade and other receivables	16		22,261	10,287
Cash and cash equivalents			858	4,814
			23,119	15,101
Total assets			90,999	84,302
Current liabilities
Other interest-bearing loans and borrowings	17		-	(3,693)
Trade and other payables	18		(12,415)	(7,631)
Other payables relating to legacy pre-LASPO ATE product	2		(676)	(1,912)
Current tax liability			(1,513)	(1,937)
Deferred tax liability	10		(1,662)	(1,914)
			(16,266)	(17,087)
Non-current liabilities
Other interest-bearing loans and borrowings	17		(12,922)	(7,396)
Total liabilities			(29,188)	(24,483)
Net assets			61,811	59,819
Equity
Share capital	19		115	113
Share option reserve			2,121	1,939
Share premium			14,507	14,507
Merger reserve			(66,928)	(66,928)
Retained earnings			111,893	110,188
Total equity attributable to the owners of NAHL Group plc			61,708	59,819
Non-controlling interests			103	-
Total equity			61,811	59,819

These financial statements were approved by the Board of Directors on 19 March 2018 and were signed on its behalf by:

J R Atkinson

Director                                                                 

Company registered number: 08996352

Consolidated statement of changes in equity

for the year ended 31 December 2017

		Share capital	Share option reserve	Share premium	Merger reserve	Retained earnings	Total	Non-controlling interest	Total equity
	Note	£000	£000	£000	£000	£000	£000	£000	£000
Balance at 1 January 2016		113	1,121	14,262	(66,928)	106,503	55,071	-	55,071
Total comprehensive income for the year
Profit for the year		-	-	-	-	12,224	12,224	-	12,224
Total comprehensive income		-	-	-	-	12,224	12,224	-	12,224
Transactions with owners, recorded directly in equity
Issue of new Ordinary Shares	25	-	-	160	-	-	160	-	160
Exercise of share options	25	-	(85)	85	-	-	-	-	-
Share based payments	20	-	903	-	-	-	903	-	903
Dividends paid		-	-	-	-	(8,539)	(8,539)	-	(8,539)
Balance at 31 December 2016		113	1,939	14,507	(66,928)	110,188	59,819	-	59,819
Total comprehensive income for the year
Profit for the year		-	-	-	-	9,876	9,876	78	9,954
Total comprehensive income		-	-	-	-	9,876	9,876	78	9,954
Transactions with owners, recorded directly in equity
Issue of new Ordinary Shares	25	2	-	-	-	-	2	-	2
Member capital		-	-	-	-	-	-	25	25
Share based payments	20	-	182	-	-	-	182	-	182
Dividends paid		-	-	-	-	(8,171)	(8,171)	-	(8,171)
Balance at 31 December 2017		115	2,121	14,507	(66,928)	111,893	61,708	103	61,811

Consolidated cash flow statement

for the year ended 31 December 2017

	Note	2017	2016
		£000	£000
Cash flows from operating activities
Profit for the year		9,954	12,224
Adjustments for:
Depreciation	15	171	170
Amortisation	14	1,437	1,352
Financial income	6	(150)	(43)
Financial expense	7	331	403
Share based payments	20	182	1,052
Taxation	8	2,467	3,577
		14,392	18,735
Increase in trade and other receivables		(11,974)	(1,876)
Increase/(decrease) in trade and other payables		4,963	(1,868)
Decrease in other payables relating to legacy pre-LASPO ATE product		(1,236)	(1,689)
		6,145	13,302
Interest paid		(178)	(346)
Tax paid		(3,139)	(3,692)
Net cash from operating activities		2,828	9,264
Cash flows from investing activities
Acquisition of property, plant and equipment		(111)	(232)
Acquisition of intangible assets		(305)	(393)
Interest received		12	43
Consideration paid for the acquisition of subsidiaries		-	(2,090)
Cash acquired from business combinations		-	295
Non-controlling interest member capital		25	-
Net cash used in investing activities		(379)	(2,377)
Cash flows from financing activities
New share issue		2	160
Repayment of borrowings		(11,250)	(3,750)
New borrowings		13,125	-
Bank arrangement fees for new borrowings		(111)	-
Dividends paid		(8,171)	(8,539)
Net cash used in financing activities		(6,405)	(12,129)
Net decrease in cash and cash equivalents		(3,956)	(5,242)
Cash and cash equivalents at 1 January		4,814	10,056
Cash and cash equivalents at 31 December		858	4,814

Notes

(forming part of the financial statements)

1              Accounting policies

Basis of preparation

Consolidated Financial Statements

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2017 or 31 December 2016 but is derived from those accounts. Statutory accounts for 31 December 2016 have been delivered to the registrar of companies, and those for 31 December 2017 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The 2017 annual report will be available on the Company's website (see https://www.nahlgroupplc.co.uk/results-a-reports/) for the purposes of AIM rule 26 from today's date and will be despatched to shareholders together with the Notice of AGM in due course.  A further announcement will be made at that time.

The Consolidated Financial Statements for the year ended 31 December 2017 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The consolidated financial information has been prepared on a going concern basis and under the historical cost convention.

The Directors have prepared cash flow forecasts for the period until 31 March 2019. Based on these, the Directors confirm that there are sufficient cash reserves to fund the business for the period under review, and believe that the Group is well placed to manage its business risk successfully. For this reason they continue to adopt the going concern basis in preparing the financial statements.

Basis of consolidation

The financial statements represent a consolidation of the Company and its subsidiary undertakings as at the Statement of Financial Position date and for the year then ended. In accordance with IFRS 10 the definition of control is such that an investor has control over an investee when: a) it has power over the investee, b) it is exposed, or has the rights, to variable returns from its involvement with the investee and c) has the ability to use its power to affect its returns. All three of these criteria must be met for an investor to have control over an investee. All subsidiary undertakings in which the Group has a greater than 50% shareholding have been consolidated in the Group's results.

The consolidated financial information incorporates the results of business combinations using the purchase method. In the Group statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the Group statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases. Acquisition costs are expensed as incurred. This policy does not apply on the acquisition of Consumer Champion Group Limited for which reverse acquisition accounting has been applied. The group recognises any non-controlling interest in the acquired entity on an acquisition by acquisition basis either at fair value or at the non-controlling interest's proportionate share of the acquired entity's net identifiable assets.

Joint arrangements

Under IFRS 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. NAHL Group plc has joint operations only. As the Group has overall control of these joint operations, the results of the joint operations have been consolidated within these financial statements.

Use of judgements and estimates

The preparation of financial statements in conformity with IFRSs requires management to make judgements and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimates are revised and in any future years affected.

Revenue, other than pre and post-LASPO ATE income, is not considered to be a key judgement or estimate.

Judgements

In applying the Group's accounting policies, management has applied judgement in the following areas that have a significant impact on the amounts recognised in the financial statements.

Intangible assets

When the Group makes an acquisition, management determines whether any intangible assets should be recognised separately from goodwill and what value to attribute to those assets.

 Accounting policy choice for non-controlling interests

The group recognises non-controlling interests in an acquired entity either at fair value or at the non-controlling interest's proportionate share of the acquired entity's net identifiable assets. This decision is made on an acquisition by acquisition basis. For the non-controlling interests in Your Law LLP and National Law Associates LLP (trading as National Law Partners), the Group elected to recognise the non-controlling interests at their proportionate share of the acquired net identifiable assets.

Estimates

Discussed below are key assumptions concerning the future, and other key sources of estimation at the reporting date, that have a risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.

Impairment of goodwill

The Group determines, on an annual basis, whether goodwill is impaired. This requires an estimation of the future cash flows of the cash generating units (CGUs) to which the goodwill is allocated; see note 12.

Recoverability of trade receivables

Trade receivables are reflected net of an estimated provision for impairment losses. This provision considers the past payment history and the length of time that the debt has remained unpaid; see notes 16 and 22.

New standards, interpretations and amendments not yet effective

The Group has not applied the following new and revised IFRSs that have been issued but are not yet effective:

•       IFRS 9: Financial Instruments - Effective for annual reporting periods beginning on or after 1 January 2018, with early application permitted.

•       IFRS 15: Revenue from Contracts with Customers - Effective for annual reporting periods beginning on or after 1 January 2018, with early application permitted.

•       IFRS 16: Leases - Effective for annual reporting periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15: Revenue from Contracts with Customers at or before the date of initial application of IFRS 16.

A review of IFRS 16: Leases will be conducted to determine its impact on the Group. The Group has considered the impact of the other standards and revisions above and concluded that these will not have a material impact on the Group's financial statements.

Use of non-GAAP measures

The Directors believe that underlying operating profit, underlying revenue, underlying operating cash and adjusted net debt provide additional useful information for shareholders on underlying trends and performance. These measures are used by management for performance analysis and are considered useful as they relate to the core underlying trading activities of the Group i.e. they reflect the current ongoing activities of the Group and do not include any items that relate to significant exceptional projects that are not expected to recur or any items that relate to activities that are outside the normal course of trading (e.g. acquisitions or share-based costs that are not directly related to the current operating performance of the Group). Underlying operating profit, underlying revenue, underlying operating cash and adjusted net debt are not defined by IFRS and therefore may not be directly comparable to other companies' adjusted profit, revenue, cash or debt measures. They are not intended to be a substitute for, or superior to IFRS measurements.

The adjustments made to reported revenue are:

Exceptional revenues - fees related to exceptional revenues in relation to release of the ATE liability that are not expected to recur and are not related to the continuing core operations of the business.

The adjustments made to reported operating profit are:

IFRS 2 Share-Based Payments - non-cash Group statement of comprehensive income charge for share-based payments and related National Insurance costs. IFRS 2 requires the fair value of equity instruments measured at grant date to be spread over the period during which the employees become unconditionally entitled to the options. This is a non-cash charge and has been excluded from underlying operating profit as it does not reflect the underlying core trading performance of the Group.

IFRS 3 (Revised) Business Combinations - intangible asset amortisation charges and costs arising from acquisitions. Under IFRS 3 intangible assets are required to be amortised on a straight-line basis over their useful economic life and as such this is a non-cash charge that does not reflect the underlying performance of the business acquired. Similarly, the standard requires all acquisition costs to be expensed in the Group Income Statement. Due to their nature, these costs have been excluded from underlying operating profit as they do not reflect the underlying core trading performance of the Group.

Other exceptional costs/income - these relate to certain exceptional costs associated with the Group's acquisition activities including any costs in relation to aborted acquisitions, reorganisation costs associated with exceptional projects that are not related to the core operations of the business and exceptional income for the release of previously recognised liability for pre-LASPO ATE. These have been excluded from underlying operating profit as they do not reflect the underlying core trading performance of the Group.

Going concern

The Group had cash balances of £858,000 (2016: £4,814,000), net assets of £61,811,000 (2016: £59,819,000) and net current assets of £6,853,000 (2016: net current liabilities £1,986,000) as at each year end.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least 12 months from the date of approval of the financial statements. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.  As part of the normal management process, detailed forecasts of future trading, profits and cashflows on a CGU by CGU basis are prepared, which includes the impact for possible changes in market or regulatory conditions. Based on these projections, the Board remains positive about the Group's short and medium-term prospects. 

Accordingly, the Directors continue to adopt the going concern basis in preparing the Annual Report and Financial Statements.

Revenue

Personal Injury - Revenue is from

a) Solicitor income (traditional) - Marketing services resulting in the provision of enquiries to Panel Law Firms, based on a cost-plus margin model with reference to the cost of the marketing resources needed to generate the enquiry. These revenues are recognised when the service is delivered.

b) Solicitor income (variable) - Marketing services resulting in the provision of enquiries to certain Panel Law Firms where we receive variable consideration based on the ultimate case outcome. The revenue recognised on deferral of enquiries is equal to management's best estimate of the future expected cash flows discounted for the time value of money. This is only recognised to the extent that the amount is probable and can be reliably estimated.

c) Product income - Commissions received from product providers for the sale of additional products to the Panel Law Firms. Revenue is recognised on sale of the product to a PLF to the extent that the amount is probable and can be reliably measured.

d) ABS income - Fees receivable from clients for the provision of legal services. Revenue is recognised once it is virtually certain that the case be won.

Pre-LASPO ATE - Revenue from commissions received from the insurance provider for the use of after the event policies by Panel Law Firms. From 1 April 2013, this product was no longer available as a result of LASPO regulatory changes. Consequently, there is a remaining liability which is being unwound through revenue as historic cases are settled.

Critical Care - Revenue from the provision of expert witness reports and case management support within the medico-legal framework for multi-track cases. For expert witness, revenue is recognised on the completion and delivery of reports and for case management revenue is recognised based on the level of services provided on a monthly basis.

Residential Property - Revenue from the provision of online marketing services to target homebuyers and sellers in England and Wales and offering lead generation services to Panel Law Firms and surveyors in the conveyancing sector. Revenue is recognised on a fixed-fee basis on the transfer of instruction to Panel Law Firms or surveyors. Search revenue is recognised as revenue in the period in which the search report is delivered.

All revenue is stated net of Value Added Tax. The entire revenue arose in the United Kingdom.

Goodwill

Goodwill represents the excess of the fair value of the consideration given over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition.  Goodwill is not amortised but is tested for impairment annually and again whenever indicators of impairment are detected and is carried at cost less any provision for impairment. Any impairment is recognised in the statement of comprehensive income.

Other intangible assets

Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses.

Amortisation

Intangible assets are amortised on a straight-line basis over their estimated useful lives as follows:

•       Technology related intangibles               -               5 to 10 years

•       Contract related intangibles                    -               3 to 10 years

•       Brand names                                          -               3 to 10 years

•       Other intangible assets                           -               3 to 5 years

No amortisation is charged on assets under construction as these are not yet in use.

Depreciation

Depreciation is calculated to write off the cost, less estimated residual value, of property, plant and equipment by equal instalments over their estimated useful economic lives as follows:

Fixtures and fittings including:

•       Office equipment                     -               3 to 5 years

•       Computers                               -               3 years

Operating leases

Operating lease rentals are charged to the income statement on a straight-line basis over the period of the lease.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances.

Taxation

Tax on the income statement for the year comprises current and deferred tax. Tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.  Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.  A deferred

tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.

 Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses.

Classification of financial instruments issued by the Group

Financial instruments issued by the Group are treated as equity (i.e. forming part of equity) only to the extent that they meet the following two conditions:

a)   they include no contractual obligations upon the Company (or Group as the case may be) to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company (or Group); and

b)   where the instrument will or may be settled in the Company's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company's own equity instruments or is a derivative that will be settled by the Company's exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

To the extent that this definition is not met, the proceeds of issue are classified as a financial liability.  Where the instrument so classified takes the legal form of the Company's own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares.

Finance payments associated with financial liabilities are dealt with as part of interest payable and similar charges.  Finance payments associated with financial instruments that are classified as part of shareholders' funds are dealt with as appropriations in the reconciliation of movements in equity.

Employee share schemes

The share option plans allow employees of the Group to acquire shares of the Company.  The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option pricing model, taking into account the terms and conditions upon which the options were granted.   The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting.

Impairment

The carrying amounts of the Group's non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment.  If any such indication exists, then the asset's recoverable amount is estimated.  For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell.  In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.  For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the CGU).  The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to CGUs. Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes.  Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in the statement of comprehensive income. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

2              Operating segments

	Personal  Injury	Critical Care	Residential Property	Group	Underlying operations	Pre-LASPO ATE	Other items	Total
	£000	£000	£000	£000	£000	£000	£000	£000
Year ended 31 December 2017
Revenue	31,660	11,037	8,340	-	51,037	875	-	51,912
Depreciation and amortisation	(178)	(49)	(74)	-	(301)	-	(1,307)	(1,608)
Operating profit/(loss)	11,033	3,882	1,385	(1,809)	14,491	800	(2,689)	12,602
Financial income	143	5	-	2	150	-	-	150
Financial expenses	(1)	(4)	-	(326)	(331)	-	-	(331)
Profit/(Loss) before tax	11,175	3,883	1,385	(2,133)	14,310	800	(2,689)	12,421
Trade receivables	11,442	4,386	419	-	16,247	-	-	16,247
Segment liabilities	(10,453)	(806)	(506)	(600)	(12,365)	(726)1	-	(13,091)
Capital expenditure (including intangibles)	53	47	191	-	291	-	-	291
Year ended 31 December 2016
Revenue	30,011	10,353	9,021	-	49,385	1,250	-	50,635
Depreciation and amortisation	(89)	(44)	(147)	-	(280)	-	(1,242)	(1,522)
Operating profit/(loss)	14,112	3,786	1,391	(1,304)	17,985	1,155	(2,979)	16,161
Financial income	14	19	-	10	43	-	-	43
Financial expenses	(1)	(5)	-	(397)	(403)	-	-	(403)
Profit/(Loss) before tax	14,125	3,800	1,391	(1,691)	17,625	1,155	(2,979)	15,801
Trade receivables	1,935	3,929	343	-	6,207	-	-	6,207
Segment liabilities	(5,227)	(1,035)	(765)	(503)	(7,530)	(1,982)1	(31)	(9,543)
Capital expenditure (including intangibles)	608	96	46	-	750	-	-	750

1. Pre-LASPO ATE liabilities include the balance of commissions received in advance that are due to be paid back to the insurance provider of £676,000 (2016: £1,912,000)

and accruals for associated costs of £50,000 (2016: £70,000).

Geographic information

All revenue and assets of the Group are based in the UK.

Operating segments

The activities of the Group are managed by the Board, which is deemed to be the chief operating decision maker (CODM). The CODM has identified the following segments for the purpose of performance assessment and resource allocation decisions. These segments are split along product lines and consistent with those reported last year.

Personal Injury - Revenue from the provision of enquiries to the PLFs, based on a cost plus margin model, plus commissions received from providers for the sale of additional products by them to the PLFs and in the case of the ABSs, revenue receivable from clients for the provision of legal services.

Pre-LASPO ATE - Revenue is commissions received from the insurance provider for the use of after the event policies by PLFs. From 1 April 2013, this product was no longer available as a result of LASPO regulatory changes. Included in the balance sheet is a liability that has been separately identified due to its material value. This balance is commissions received in advance that are due to be paid back to the insurance provider. No interest is due on this liability.

Critical Care - Revenue from the provision of expert witness reports and case management support within the medico-legal framework for multi-track cases.

Residential Property - Revenue from the provision of online marketing services to target homebuyers and sellers in England and Wales, offering lead generation services to PLFs and surveyors in the conveyancing sector and the provision of conveyancing searches for solicitors and licensed conveyancers.

Group - Costs that are incurred in managing Group activities or not specifically related to a product.

Other items - Costs associated with the acquisition of subsidiary undertakings, reorganisation costs associated with exceptional projects that are not related to the core operations of the business, share-based payments and amortisation charges on intangible assets recognised as part of business combinations.

Cash flows from operating activities

A reconciliation of operating profit to cash generation from operations has been presented below separately identifying net cash flows relating to underlying operations (comprising cash flows associated with PI, CC, RP and other segments), the pre-LASPO ATE product segment and other items.

Reconciliation of operating profit to net cash from operating activities

12 months ended 31 December 2017	Underlying operations	Pre-LASPO ATE	Sub-total	Other items	Total
	£000	£000	£000	£000	£000
Operating profit	13,002	800	13,802	(1,200)	12,602
Amortisation of intangible assets acquired on business combinations	1,307	-	1,307	-	1,307
Equity-settled share based payments	182	-	182	-	182
Underlying operating profit	14,491	800	15,291	(1,200)	14,091
Depreciation and amortisation	301	-	301	-	301
Increase in trade/other receivables	(11,974)	-	(11,974)	-	(11,974)
Increase/(decrease) in trade/other payables	5,120	(20)	5,100	(137)	4,963
Decrease in liabilities relating to pre-LASPO ATE product	-	(1,236)	(1,236)	-	(1,236)
Net cash flows from operating activities before interest and tax	7,938	(456)	7,482	(1,337)	6,145
Interest paid	(178)	-	(178)	-	(178)
Tax paid	(3,139)	-	(3,139)	-	(3,139)
Net cash from operating activities	4,621	(456)	4,165	(1,337)	2,828

12 months ended 31 December 2016	Underlying operations	Pre-LASPO ATE	Sub-total	Other items	Total
	£000	£000	£000	£000	£000
Operating profit	15,606	1,155	16,761	(600)	16,161
Amortisation of intangible assets acquired on business combinations	1,327	-	1,327	-	1,327
Equity-settled share based payments	1,052	-	1,052	-	1,052
Underlying operating profit	17,985	1,155	19,140	(600)	18,540
Depreciation	195	-	195	-	195
Increase in trade/other receivables	(1,876)	-	(1,876)	-	(1,876)
Increase in trade/other payables	(1,969)	70	(1,899)	31	(1,868)
Decrease in liabilities relating to pre-LASPO ATE product	-	(1,689)	(1,689)	-	(1,689)
Net cash flows from operating activities before interest and tax	14,335	(464)	13,871	(569)	13,302
Interest Paid	(346)	-	(346)	-	(346)
Tax Paid	(3,692)	-	(3,692)	-	(3,692)
Net cash from operating activities	10,297	(464)	9,833	(569)	9,264

3              Administrative expenses and auditor's remuneration

Included in the consolidated statement of comprehensive income are the following:

		2017	2016
		£000	£000
Depreciation of property, plant and equipment		171	170
Amortisation of intangible assets (not relating to business combinations)		130	25
Amortisation of intangible assets relating to business combinations		1,307	1,327
Operating leases - land and buildings		369	361
Operating leases - other		57	63
Auditor's remuneration		130	95
The analysis of auditor's remuneration is as follows:		2017	2016
		£000	£000
Audit services - statutory audit		111	77
Taxation compliance		19	18
Total non-audit remuneration		19	18

4          Exceptional items

Exceptional items included in the income statement are summarised below:

	2017 Revenue £000	2017 Operating profit £000	2016 Revenue £000	2016 Operating Profit £000
Release of pre-LASPO ATE liability and associated costs1	(875)	(800)	(1,250)	(1,155)
Personal Injury reorganisation costs2	-	1,200	-	522
Legal and professional fees relating to acquisitions 3	-	-	-	78
	(875)	400	(1,250)	(555)

1.     Previously recognised liabilities for pre-LASPO ATE commissions received in advance of £875,000 (2016: £1,250,000) have been released into revenue in the year as a result of more favorable settlements. These have been offset by associated costs of £75,000 (2016: £95,000).

2.     Personal Injury reorganisation costs relate to costs associated with exceptional projects that are not related to the core operations of the business.
 

3.     Legal and professional fees paid in relation to the acquisitions of Searches UK Limited, including due diligence costs and Stamp Duty.

5          Staff numbers and costs

The average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows:

		Number of Employees
		2017	2016
Directors		5	5
Others		201	195
		206	200
The aggregate payroll costs of these persons were as follows:
		2017	2016
		£000	£000
Wages and salaries		7,541	6,821
Share based payments (see note 20)		182	1,052
Social security costs		793	723
Pension costs		80	65
		8,596	8,661

6          Financial income

		2017	2016
		£000	£000
Bank interest income		6	25
Investment income		5	18
Other income		139	-
		150	43

7              Financial expense

		2017	2016
		£000	£000
Interest on bank loans		257	340
Amortisation of facility arrangement fees		74	63
Total finance expense		331	403

8          Taxation

Recognised in the consolidated statement of comprehensive income		2017	2016
		£000	£000
Current tax expense
Current tax on income for the year		2,690	3,582
Adjustments in respect of prior years		25	(35)
Total current tax		2,715	3,547
Deferred tax expense
Origination and reversal of timing differences		(248)	30
Total deferred tax		(248)	30
Tax expense in income statement		2,467	3,577
Total tax charge		2,467	3,577

The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretation of tax law and prior experience.

Reconciliation of effective tax rate		2017	2016
		£000	£000
Profit for the year		9,954	12,224
Total tax expense		2,467	3,577
Profit before taxation		12,421	15,801
Tax using the UK corporation tax rate of 19.25% (2016: 20.00%)		2,391	3,160
Income disallowable for tax purposes		(1)	(3)
Non-deductible expenses		48	455
Adjustments in respect of prior years		25	(35)
Short-term timing differences for which no deferred tax is recognised		4	-
Total tax charge		2,467	3,577

Changes in tax rates and factors affecting the future tax charge

A reduction in the UK corporation tax rate from 21.0% to 20.0% (effective from 1 April 2015 ) was substantively enacted on 2 July 2013. Further reductions to 19.0% (effective from 1 April 2017) and to 18.0% (effective from 1 April 2020) was substantively enacted on 26 October 2015 and an additional reduction to 17.0% (effective from 1 April 2020) was substantively enacted on 6 September 2016.  This will reduce the Group's future current tax charge accordingly.  The deferred tax assets and liabilities at 31 December 2017 have been calculated based on these rates.

9          Deferred tax asset

		2017	2016
		£000	£000
At beginning of year		38	68
Recognised in profit and loss (see note 8)		(4)	(30)
Deferred tax asset at end of year		34	38

  The asset for deferred taxation consists of the tax effect of temporary differences in respect of:

	Property, plant & equipment	Bad debt provisions	Total
	£000	£000	£000
At 1 January 2016	44	24	68
Recognised in profit and loss	(23)	(7)	(30)
At 31 December 2016	21	17	38
Recognised in profit and loss	(8)	4	(4)
At 31 December 2017	13	21	34

10        Deferred tax liability

		2017	2016
		£000	£000
At beginning of year		1,914	1,738
Arising on business combination (see note 11)		-	176
Recognised in profit and loss (see note 8)		(252)	-
Deferred tax liability at end of year		1,662	1,914

11        Acquisitions

Acquisition of Searches UK Limited

On 11 January 2016 the Group acquired the entire share capital of Searches UK Limited (Searches). Searches is a conveyancing search provider in England and Wales predominantly for residential property transactions.

Fair values

The acquisitions had the following effect on the Group's assets and liabilities:

	Searches	Total 2016
	£000	£000
Intangible assets	881	881
Revaluation of intangible assets	-	-
Tangible assets	6	6
Trade and other receivables	369	369
Cash and cash equivalents	295	295
Trade and other payables	(419)	(419)
Deferred tax liability	(176)	(176)
Net assets acquired	956	956
Goodwill arising on acquisition	1,124	1,124
Fair value of net assets acquired and goodwill arising	2,080	2,080
Cash consideration	2,080	2,080
Fair value of deferred consideration	-	-
Fair value of net assets acquired and goodwill arising	2,080	2,080

The Group incurred acquisition related costs of £nil (2016: £78,000) related to professional fees paid for due diligence, general professional fees and legal related costs. These costs have been included in exceptional items in the Group's consolidated statement of comprehensive income.

For all acquisitions made in the year, fair values remain provisional, but will be finalised within 12 months of acquisition.

During 2017, the Group incorporated two new ABSs through joint partnerships with members of its PLFs. This led to the Group acquiring interests in Your Law LLP and National Law Associates LLP. Project Jupiter Limited, a 100% subsidiary of NAHL Group plc, is a member firm of Your Law LLP and National Law Associates LLP. Member capital of £75,000 was advanced to the LLPs. There were no other acquisition costs involved.

12        Goodwill

	Personal Injury	Critical Care	Residential Property	Total
	£000	£000	£000	£000
Cost
At 1 January 2016	39,897	15,592	3,749	59,238
Acquired through business combination	-	-	1,124	1,124
At 31 December 2016	39,897	15,592	4,873	60,362
Acquired through business combination	-	-	-	-
At 31 December 2017	39,897	15,592	4,873	60,362
Impairment
At 1 January 2016	-	-	-	-
At 31 December 2016	-	-	-	-
At 31 December 2017	-	-	-	-
Net book value
At 31 December 2016	39,897	15,592	4.873	60,362
At 31 December 2017	39,897	15,592	4,873	60,362

Where goodwill arose as part of a business acquisition, it forms part of the CGUs asset carrying value which is tested for impairment annually. The Group has determined that for the purposes of impairment testing, each segment i.e. PI, CC and RP, is the appropriate level at which to test. Due to the discontinued nature of the pre-LASPO ATE product, no goodwill is allocated to it.

The recoverable amounts for the CGUs are based on value in use which is calculated on the operating cash flows expected to be generated by the division using the latest budget data for the coming year, extrapolated at a forecast growth rate for four years and no growth into perpetuity, discounted at a range of pre-tax WACCs of between 7.5% - 8.4% (2016: 10.1% - 12.7%). The range of WACCs represents the different risk profiles of each CGU.

For the current year review and going forward, we have added a terminal value onto each forecast which represents the cash flows of the CGU into perpetuity with 0% growth assumed. Previous years have considered a forecast period of 5 years only. This change in basis has arisen due to the evolution of the PI business model. As the ABSs are expected to account for a greater proportion of profits and cash flows going forward we have deemed it appropriate to consider the cash flows over a longer period to reflect the delay and deferment of profits between initial enquiry generation and profit recognition as legal cases in the ABSs can take up to three years or more to settle. This is as permitted under IAS36 Impairment of Assets.

Management consider the key assumptions in the value in use calculation to be the discount rate and operating profit growth rate. The discount rates are based on the Group's pre-tax cost of capital and estimated cost of equity, which the Directors consider equated to market participants rate. The movement in the discount rates compared to the prior year is the result of greater stability in the share price since the announcement in February 2017 of regulatory changes in the PI market. In preparing the formal budget for the next financial period, expected underlying operating profit is based on past experience of the performance of the CGUs adjusted for known changes.

The operating profit compound annual growth rate assumptions for years one to five were as follows:

		2017	2016
Personal Injury		(1.4)%	(3.6)%
Critical Care		7.5%	10.0%
Residential Property		0.0%	10.0%

A negative growth assumption has been applied to personal injury to account for the new ABS models where profit recognition and cash profile are delayed for up to three years until settlement of cases.

Based on the operating performance of the CGUs, no impairment loss was identified in any of the CGUs and there is sufficient headroom (calculated as the difference between value in use and the carrying value of each CGU's goodwill) to indicate that no reasonable change to key assumptions would result in an impairment of this goodwill.

The available headroom for each CGU is as follows:

					2017	2016
Personal Injury					80,592	1,638
Critical Care					41,377	2,580
Residential Property					17,845	5,742

The following table shows the percentage to which the discount rate would need to increase and the percentage by which the budgeted operating cash flows would need to decrease in order for the estimated recoverable amount of the CGUs to be equal to the carrying amount:

		Discount Rate			Cashflows
		2017	2016		2017	2016
Personal Injury		49.6%	14.1%		(66.9)%	(4.0)%
Critical Care		64.5%	19.3%		(72.6)%	(15.4)%
Residential Property		100.3%	88.6%		(78.6)%	(58.6)%

13           Non-controlling interests

The Group has the following investments in joint arrangements:

Name of subsidiary	Country of incorporation and principal place of business	Nature of interest	Principal activity	Ownership 2017        2016
Your Law LLP	United Kingdom	LLP member	Personal injury lawyers	n/a	-
National Law Associates LLP	United Kingdom	LLP member	Personal injury lawyers	n/a	-

Your Law LLP and National Law Associates LLP are both considered to be joint operations as Project Jupiter Limited, a 100% subsidiary of NAHL Group plc, is a member firm of each of the LLPs and National Accident Helpline Limited provides marketing services and supplies instructions to the LLPs. Each member firm of the LLP is required to appoint individuals to the management Board of the LLPs. As Project Jupiter Limited can appoint the majority of individuals to these Boards who are ultimately responsible for the day to day operations, decision making and strategic development of the LLPs then the Group is considered to have overall control of the LLPs. As the Group has overall control then the results of these joint operations have been consolidated within these financial statements.

The Group's interests in individually immaterial joint ventures is analysed, in aggregate, in the below table:

	2017
	£000
Share of net assets of joint ventures	87
Share of:
-       Profit/(Loss) from continuing operations	12
-       Post-tax profit or loss from continuing operations	12
-       Other comprehensive income	-
-       Total comprehensive income	12

The following table summarises the information relating to each of the Group's joint operations with material Non-Controlling Interests (NCI), before intra-group eliminations.

	2017	2017
£'000	Your Law LLP	National Law Associates LLP
NCI share of:
Non-current assets	-	-
Current assets	1,252	32
Current liabilities	(1,042)	(68)
Net assets (100%)	210	(36)
Carrying amount of NCI	113	(10)
Revenue	288	31
Profit/(Loss) after tax	110	(36)
Other comprehensive income	-	-
Total comprehensive income	110	(36)
Profit/(Loss) allocated to NCI	88	(10)
Other comprehensive income allocated to NCI	-	-
Cash flows from operating activities	46	-
Cash flows from investment activities	-	-
Cash flows from financing activities	-	-
Net increase in cash and cash equivalents	46	-

14           Intangible assets

	Technology related	Contract related	Brand names	Other	Assets under construction	Total
	£000	£000	£000	£000	£000	£000
Cost
At 31 December 2016	167	8,466	885	549	20	10,087
Additions	-	-	-	121	59	180
At 31 December 2017	167	8,466	885	670	79	10,267
Amortisation
At 31 December 2016	42	1,286	258	27	-	1,613
Amortisation charge for the year	-	-	-	130	-	130
Amortisation charge on business combinations	20	1,077	210	-	-	1,307
At 31 December 2017	62	2,363	468	157	-	3,050
Net book value
At 31 December 2016	125	7,180	627	522	20	8,474
At 31 December 2017	105	6,103	417	513	79	7,217

	Technology related	Contract related	Brand names	Other	Assets under construction	Total
	£000	£000	£000	£000	£000	£000
Cost
At 31 December 2015	167	7,746	749	47	4	8,713
Revaluation	-	-	(25)	-	-	(25)
Additions	-	-	-	502	16	518
Additions through business combinations	-	720	161	-	-	881
At 31 December 2016	167	8,466	885	549	20	10,087
Amortisation
At 31 December 2015	22	214	23	2	-	261
Amortisation charge for the year	-	-	-	25	-	25
Amortisation charge on business combinations	20	1,072	235	-	-	1,327
At 31 December 2016	42	1,286	258	27	-	1,613
Net book value
At 31 December 2015	145	7,532	726	45	4	8,452
At 31 December 2016	125	7,180	627	522	20	8,474

The intangible assets recognised on business combinations were acquired as part of the acquisition of Searches UK Limited.

15        Property, plant and equipment

			Fixtures & fittings & total
			£000
Cost
At 1 January 2017			1,672
Additions			111
At 31 December 2017			1,783
Depreciation and impairment
At 1 January 2017			1,345
Depreciation charge for the year			171
At 31 December 2017			1,516
Net book value
At 31 December 2016			327
At 31 December 2017			267

 

			Fixtures & fittings & total
			£000
Cost
At 1 January 2015			1,434
Additions			232
Additions through business combinations			6
At 31 December 2016			1,672
Depreciation and impairment
At 1 January 2015			1,175
Depreciation charge for the year			170
At 31 December 2016			1,345
Net book value
At 31 December 2015			259
At 31 December 2016			327

16           Trade and other receivables

	2017	2016
	£000	£000
Trade receivables: due in less than one year	8,967	5,382
Trade receivables: due in more than one year	7,280	825
Accrued income	4,568	3,572
Other receivables	150	140
	20,965	9,919
Prepayments	1,296	368
	22,261	10,287

17           Other interest-bearing loans and borrowings

This note provides information about the contractual terms of the Group's other interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group's exposure to interest rate risk, see note 22.

		2017	2016
		£000	£000
Current liabilities
Current portion of secured bank loans		-	3,750
Less facility arrangement fees		-	(57)
		-	3,693
Non-current liabilities
Secured bank loans		13,125	7,500
Less facility arrangement fees		(203)	(104)
		12,922	7,396
Total other interest-bearing loans and borrowings		12,922	11,089

Terms and debt repayment schedule

	Currency	Nominal interest rate	Year of  maturity	Face value	Carrying amount	Face value	Carrying amount
				2017	2017	2016	2016
				£000	£000	£000	£000
Bank loan1	GBP	1.25% - 1.45% above Libor	2021	13,125	13,125	11,250	11,250
				13,125	13,125	11,250	11,250

1.     The company renewed its banking facilities in September 2017 by taking out a rolling credit facility of £25,000,000 and repaying the outstanding term loan at that date of £9,375,000. This facility is due to terminate on 31 December 2021. Interest is payable at between 1.25% - 1.45% (2016: 1.65%) above LIBOR per annum. A further £111,000 facility arrangement fees were incurred during the year and are being amortised over the term of the facility.

18           Trade and other payables

		2017	2016
		£000	£000
Trade payables		2,808	2,755
Other taxation and social security		1,059	823
Other payables, accruals and deferred revenue		7,515	2,740
Customer deposits		1,033	1,313
		12,415	7,631

19           Share capital

		2017	2016
Number of shares
'A' Ordinary Shares of £0.0025 each		46,061,090	45,349,629
		46,061,090	45,349,629
		£000	£000
Allotted, called up and fully paid
At 31 December 2016: 45,349,629 'A' Ordinary Shares of £0.0025 each		113	113
Issued during the year		2	-
At 31 December 2017: 46,061,090 'A' Ordinary  Shares of £0.0025 each		115	113
Shares classified in equity
At 31 December 2016		113	113
Issued during the year		2	-
At 31 December 2017		115	113

Merger reserve

In 2014 NAHL Group plc declared a bonus issue of a single deferred share of £0.0001 (a "Deferred Share") with a share premium £50,000,000. This transaction resulted in £50,000,000 of the merger reserve being transferred to the share premium account. In 2015 a further amount standing to the credit of the Company's merger reserve in the sum of £16,928,000 was capitalised by way of a bonus issue of newly created Capital Reduction Shares.

20           Share based payments

The Group operates three employee share plans as follows:

SAYE plan

Options may be satisfied by newly issued Ordinary Shares, Ordinary Shares purchased in the market by an employees' trust or by the transfer of Ordinary Shares held in treasury.

EMI Scheme

The EMI Plan provides for the grant, to selected employees of the Group, of rights to acquire (whether by subscription or market purchase) Ordinary Shares in the Company (Options). Options may be granted as tax-favoured enterprise management incentive options (EMI Options) or non-tax favoured Options.

Nominal Cost LTIP

The nominal cost LTIP will enable selected employees (including Executive Directors) to be granted awards in respect of Ordinary Shares. Awards may be granted in the form of nil or nominal cost options to acquire Ordinary Shares; or contingent rights to receive Ordinary Shares. Awards may be satisfied by newly issued Ordinary Shares, Ordinary Shares purchased in the market by an employees' trust or by the transfer of Ordinary Shares held in treasury.

The terms and conditions of grants of share options to employees of the Group, in the shares of NAHL Group plc are as follows:

Grant date/employees entitled/nature of scheme	Number of instruments	Vesting conditions	Contractual life of options
SAYE Equity-settled award to 35 employees granted by the parent company on 29 May 2014	179,436 ordinary shares	Performance -based	Third anniversary of Date of Grant
LTIP Equity-settled award to 1 employee granted by the parent company on 29 May 2014	52,501 ordinary shares	Performance - based	Third anniversary of Date of Grant
EMI Equity-settled award to 3 employees granted by the parent company on 13 April 2015	124,740 ordinary shares	Performance -based	Third anniversary of Date of Grant
EMI Equity-settled award to 1 employee granted by the parent company on 2 December 2015	120,689 ordinary shares	Performance -based	Third anniversary of Date of Grant
EMI Equity-settled award to 1 employee granted by the parent company on 31 October 2016	61,506 ordinary shares	Performance -based	Third anniversary of Date of Grant
EMI Equity-settled award to 1 employee granted by the parent company on 31 October 2016	62,893 ordinary shares	Performance -based	Third anniversary of Date of Grant
EMI Equity-settled award to 12 employees granted by the parent company on 31 October 2017	407,129 ordinary shares	Performance based	On determination of performance criteria (as soon as practicable after 31 December 2019)

The number and weighted average exercise prices of share options are as follows:

	2017	2017	2016	2016
	Weighted average exercise price	Number of options	Weighted average exercise price	Number of options
	£	No.	£	No.
Outstanding at the beginning of the year	1.53	2,310,822	1.69	2,621,842
Exercised during the year	(0.0025)	(711,461)	(1.90)	(84,629)
Granted during the year	0.0025	407,129	1.38	145,363
Cancelled during the year	(3.18)	(157,182)	(1.75)	(141,813)
Lapsed during the year	(2.00)	(708,330)	-	-
Forfeited during the year	(3.64)	(132,084)	(2.89)	(229,941)
Outstanding at the end of the year	1.14	1,008,894	1.53	2,310,822
Exercisable at the end of the year	1.24	231,937	2.00	83,333

A charge of £182,000 (2016: £903,000) has been made through the income statement in the current year in relation to the IFRS 2 share option charge and a further £nil (2016: £149,000) has been charged to the income statement in respect of a provision for Employer's National Insurance contributions that are expected to arise on the exercise of the nominal cost LTIP options.

The fair value of each employee share option has been measured using the Black-Scholes formula where an expected volatility of 65.0% (2016: 65.0%) has been used as well as a risk-free interest rate (based on government bonds) of 1.0% (2016: 1.0%).  Service and non-market performance conditions attached to the arrangements were not taken into account in measuring fair value.

Expected volatility has been based on evaluation of historical volatility of the Company's share price, particularly over the historical period commensurate with the expected term. The expected term of the instruments has been based on historical experience and general option holder behaviour.

21           Earnings per share

The calculation of basic earnings per share at 31 December 2017 is based on profit attributable to ordinary shareholders of the parent company of £9,876,000 (2016: £12,224,000) and a weighted average number of Ordinary Shares outstanding of 45,548,243 (2016: 45,294,877).

Profit attributable to ordinary shareholders

£000		2017	2016
Profit for the year attributable to the shareholders		9,876	12,224

Weighted average number of ordinary shares

Number	Note		2017	2016
Issued Ordinary Shares at 1 January	19		45,349,629	45,265,000
Weighted average number of Ordinary Shares at 31 December			45,548,243	45,294,877

Basic Earnings per share (p)

		2017	2016
Group		21.7	27.0

The Group has in place share-based payment schemes to reward employees. At 31 December 2017, there were potentially dilutive share options under the Group's share option schemes. The total number of options available for these schemes included in the diluted earnings per share calculation is 205,303 (2016: 775,746). There are no other diluting items.

Diluted Earnings per share (p)

		2017	2016
Group		21.6	26.5

22           Financial instruments

(a)  Fair values of financial instruments

The Group's principal financial instruments comprise interest-bearing borrowings, cash and short-term deposits. The main purpose of these financial instruments is to raise finance for the Group's operations. The Group has various other financial instruments such as trade and other receivables and trade and other payables that arise directly from its operations.

The main risks arising from the Group's financial instruments are interest rate risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. There have been no substantive changes in the Group's exposure to financial instrument risks or its objectives, policies and processes for managing and measuring those risks during the periods in this report unless otherwise stated.

Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material.

Trade and other payables

The fair value of trade and other payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material.

Cash and cash equivalents

The fair value of cash and cash equivalents is estimated as its carrying amount where the cash is repayable on demand.  Where it is not repayable on demand then the fair value is estimated at the present value of future cash flows, discounted at the market rate of interest at the balance sheet date.

Interest-bearing borrowings

Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date.

The interest rate used to discount estimated cash flows of 8.4% (2016: 12.7%) is based on market rates.

The fair values of all financial assets and financial liabilities by class, which approximate to their carrying values, shown in the balance sheet are as follows:

	Fair value hierarchy	Carrying amount	Fair value	Carrying amount	Fair value
		2017	2017	2016	2016
		£000	£000	£000	£000
Cash and receivables
Cash and cash equivalents		858	858	4,814	4,814
Trade and other receivables (note 16)		20,965	20,965	9,919	9,919
Total financial assets		21,823	21,823	14,733	14,733
Financial liabilities measured at amortised cost
Other interest-bearing loans and borrowings (note 17)	Level 2	13,125	13,125	11,250	11,250
Trade payables (note 18)		2,808	2,808	2,755	2,755
Total financial liabilities measured at amortised cost		15,933	15,933	14,005	14,005

Fair value hierarchy

IFRS 7 requires fair value measurements to be recognised using a fair value hierarchy that reflects the significance of the inputs used in the value measurements:

Level 1 - inputs are quoted prices in active markets;

Level 2 - a valuation that uses observable inputs for the asset or liability other than quoted prices in active markets; and

Level 3 - a valuation using unobservable inputs, i.e. a valuation technique.

There were no transfers between levels throughout the periods under review.

(b) Credit risk

Financial risk management

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers.

Exposure to credit risk

The maximum exposure to credit risk at the balance sheet date by class of financial instrument was:

	2017	2016
	£000	£000
Trade receivables	16,247	6,207

Management consider the credit risk to be mitigated as a result of a) the holding of deposits for all significant customers and b) only offering significant deferred terms to those PLFs with whom we hold strategic partnerships and after satisfactory credit checks have been obtained. As at 31 December 2017 these deposits reflect 6.4% (2016: 21.2%) of the balance of trade receivables. At each balance sheet date, the amount of deposit held was:

	2017	2016
	£000	£000
Customer deposits	1,033	1,313

Credit quality of financial assets and impairment losses

The aging of trade receivables at the balance sheet date was:

	Gross: Standard Terms	Gross: Deferred Terms	Impair-ment	Total	Gross: Standard Terms	Gross: Deferred Terms	Impair-ment	Total
	2017	2017	2017	2017	2016	2016	2016	2016
	£000	£000	£000	£000	£000	£000	£000	£000
Not past due	5,831	7,960	(114)	13,677	2,111	1,916	(48)	3,979
Past due (1-30 days)	865	34	-	899	679	41	-	720
Past due (30-120 days)	528	32	-	560	862	18	-	880
Past due (over 120 days)	1,079	32	-	1,111	675	9	(56)	628
	8,303	8,058	(114)	16,247	4,327	1,984	(104)	6,207

13.0% of standard terms trade receivables are 120 days or more past due (2016: 15.6%). These receivables arise primarily in Critical Care where our standard credit terms are 30 days. As mentioned in the Strategic Report increasing cost pressures on solicitors mean they often do not settle these balances until interim funds are available or a case has settled. This is often within 12 months and, therefore, formal deferred terms are not utilised. We monitor these debts closely through regular contact with these solicitors and do not consider there to be any significant risks regarding recoverability.

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

	2017	2016
	£000	£000
Balance at 1 January	104	166
Allowance recognised/(released)	10	(62)
Balance at 31 December	114	104

The allowance account for trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amounts considered irrecoverable are written off against the trade receivables directly.

(c) Liquidity risk  

Financial risk management

Liquidity risk arises from the Group's management of working capital and the finance charges on its debt instruments and repayments of principal. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of overdrafts and loans to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due.

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effects of netting agreements:

2017		Secured bank loans	Trade and other payables	Total
		£000	£000	£000
Non-derivative financial instruments
Carrying amount		(13,125)	(2,808)	(15,933)
Contractual cash flows:
1 year or less		(295)	(2,808)	(3,103)
1 to 2 years		(295)	-	(295)
2 to 5 years		(13,420)	-	(13,420)
	(14,010)		(2,808)	(16,818)

 

2016	Secured bank loans	Trade and other payables	Total
	£000	£000	£000
Non-derivative financial instruments
Carrying amount	(11,250)	(2,755)	(14,005)
Contractual cash flows:
1 year or less	(3,977)	(2,755)	(6,732)
1 to 2 years	(3,895)	-	(3,895)
2 to 5 years	(3,812)	-	(3,812)
	(11,684)	(2,755)	(14,439)

 (d) Market risk

Financial risk management

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments.

Market risk - foreign currency risk

The Group has no foreign currency risk as all transactions are in Sterling.

Market risk - interest rate risk

Profile

The Group is exposed to interest rate risk from its use of interest-bearing financial instruments. This is a market risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates.

At the balance sheet dates, there were no interest-bearing financial assets; however, the interest rate profile of the Group's interest-bearing financial liabilities was:

		2017	2016
		£000	£000
Variable rate instruments
Financial liabilities		13,125	11,250
Total interest-bearing financial instruments		13,125	11,250

Sensitivity analysis

A change of 0.5% in interest rates at the balance sheet date would increase/(decrease) profit or loss in the following year by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date.

This analysis assumes that all other variables remain constant and considers the effect of financial instruments with variable interest rates. The analysis is performed on the same basis for the comparative periods.

		2017	2016
		£000	£000
Profit for the year
Increase		(66)	(56)
Decrease		66	56

Market risk - equity price risk

The Group does not have an exposure to equity price risk as it holds no investment in equity securities which are classified as available for sale financial assets or designated at fair value through profit or loss.

 (e) Capital management

Group

The Group's objectives when maintaining capital are to safeguard the entity's ability to continue as a going concern and to provide an adequate return to shareholders.  Capital comprises the Group's equity, i.e. share capital including preference shares, share premium, own shares and retained earnings, as well as bank loans.

23           Operating leases

Non-cancellable operating lease rentals are payable as follows:

		2017	2016
		£000	£000
Less than one year		402	420
Between one and five years		491	936
		893	1,356

The Group leases a number of office buildings under operating leases. During the year £426,000 was recognised as an expense in the income statement in respect of operating leases (2016: £424,000).

24        Commitments

Capital commitments

At 31 December 2017 the Group had no capital commitments (2016: £nil).

25        Transactions with owners, recorded directly in equity

Exercise of share options

During 2016 84,629 share options were exercised which resulted in the issue of 84,629 new Ordinary Shares with a par value of £0.0025. The exercising of these options raised funds of £160,508 for the Group. A charge of £85,093 has been reclassified from the share option reserve to share premium to reflect the crystalisation of previous charges in respect of these options.

During 2017 711,461 share options were exercised which resulted in the issue of 711,461 new Ordinary Shares with a par value of £0.0025. The exercising of these options raised funds of £1,779 for the Group.

26           Related parties

Transactions with key management personnel

Key management personnel in situ at the 31 December 2017 and their immediate relatives control 4.5% (2016: 4.4%) of the voting shares of the Company.

Key management personnel are considered to be the Directors of the Company as well as those of National Accident Helpline Limited, Fitzalan Partners Limited and Bush & Company Rehabilitation Limited and any other management serving as part of the executive team. Detailed below is the total value of transactions with these individuals.

		2017	2016
		£000	£000
Short-term employment benefits		3,291	2,241
Termination benefits		32	56
		3,323	2,297

27           Net debt

Net debt includes cash and cash equivalents and other interest-bearing loans and borrowings.

		2017	2016
		£000	£000
Cash and cash equivalents		858	4,814
Other interest-bearing loans and borrowings		(12,922)	(11,089)
Net debt		(12,064)	(6,275)

Set out below is a reconciliation of movements in net debt during the period.

	2017	2016
	£000	£000
Net decrease in cash and cash equivalents	(3,956)	(5,242)
Cash and cash equivalents net (inflow)/outflow from (increase)/decrease in debt and debt financing	(1,833)	3,693
Movement in net borrowings resulting from cash flows	(5,789)	(1,549)
Net debt at beginning of period	(6,275)	(4,726)
Net debt at end of period	(12,064)	(6,275)

 

 

END

 

 

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