NAHL : Interim Results September 2023

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information for the purposes of Regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the publication of this announcement, this information is now considered to be in the public domain.

26 September 2023

NAHL Group plc

("NAHL", the "Company" or the "Group")

Interim Results

Continued reduction in net debt and trading in line with expectations

NAHL (AIM: NAH), a leading marketing and services business focused on the UK consumer legal market, announces its interim results for the six months ended 30 June 2023 (the "Period").

Financial Highlights

• In line with expectations, revenue increased to £21.0m (H1 2022: £20.7m)
• Cash received from settled claims in the Group's fully integrated law firm, National Accident Law ("NAL"), increased by 77% to £2.7m during the Period
• Operating profit decreased by 19% to £1.8m reflecting planned investment in scaling NAL
• Profit before tax was broadly breakeven, in line with expectations (H1 2022: £0.1m)
• Net debt further reduced by £1.8m to £11.5m from £13.3m at 31 December 2022

Operational Highlights

Consumer Legal Services

• Demonstrated maturity and momentum in Personal Injury business and continued execution against our strategy of creating a higher margin, integrated law firm underpinned by a flexible business model which will drive higher returns in the medium and long-term
• NAL settled 178% more claims (1,738) than H1 2022 and almost as many as all of 2022, demonstrating the rapid scale-up of operations within the firm
• 4,555 new enquiries placed into NAL (H1 2022: 4,531)
• NAL had a book of 10,611 ongoing claims at 30 June 2023, 7% ahead of 30 June 2022
• Ongoing claims in NAL expected to convert over coming years into £9.9m of future revenue and future gross profit of £8.6m
• Recently upgraded the value of NAL's ongoing book of claims mitigating the stagnation in the personal injury market
• The Group's market-leading brand, National Accident Helpline, continued to grow market share in a contracting personal injury claims market, generating 17,559 new enquiries
• Independent research in March 2023 revealed that the National Accident Helpline brand continues to be the "first choice for people who have had an accident and want legal representation"

Critical Care

• Critical Care went from strength to strength growing the number of expert witness reports it issued by 15% and Initial Needs Assessment ("INA") reports by 5%
• Strong pipeline of new work within the business with the number of new instructions generated increasing by 2% in expert witness services
• Growing demand in the area of medical negligence with recent data suggesting that the market is 27% larger than in 2018/19
• Bush & Co Care Solutions generated revenues of £248k, a 41% increase on H1 2022
• Critical Care recruited 40 new associates in key specialisms and now works with 117 case managers and 146 expert witnesses across the UK

Outlook

• The Group continues to trade in line and is on track to meet full year market expectations

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• In Consumer Legal Services, in July and August:

1. The division delivered an encouraging 9% growth in personal injury enquiry numbers

compared to last year

• 1. NAL collected £1m of cash from settlements, 67% more than last year. Year to date collections as at 31 August 2023 was £3.7m (2022 full year: £3.5m)
• In Critical Care, in July and August:
• 1. The number of expert witness reports issued was 53% ahead of last year and the number of instructions was 35% ahead

• 1. The number of INA reports issued was 45% lower than last year and instructions were 15% lower, albeit the run-rates returned to normal in August after a slow July
• The Group remains committed to managing net debt and anticipates it reducing further this year

James Saralis, CEO of NAHL, commented:

"We are very pleased with the performance of the Group in the first half of the year both from a financial and operational perspective. Trading was in line with our expectations and we made great strides in both of our divisions. In Consumer Legal Services, NAL settled 1,738 claims in the Period, an increase of 178% against last year and generated £2.7m in cash, a 77% progression on H1 2022. These numbers clearly illustrate the growing maturity of the firm and are materially contributing to the significant progress we have made on reducing our net debt. Further, we are pleased our market leading brand, National Accident Helpline, continues to grow market share in a stagnated personal injury market.

Our Critical Care division had its strongest year since the pandemic, growing revenues 9% to £7.3m and operating profit by 39% to £2.3m. Pleasingly, alongside the top line growth we have seen margin expansion within the business from 24.5% in H1 2022 to 31.2% during the Period. We continue to see good results from our business development initiatives and have significantly grown our team to support the increased workload.

Based on our performance in H1, and early indications in H2, the Board believes that it will deliver a full year outturn in line with market expectations."

Notes to Editors

NAHL Group plc (AIM: NAH) is a leader in the Consumer Legal Services market. The Group provides services and products to individuals and businesses in the through its two divisions:

• Consumer Legal Services provides outsourced marketing services to law firms through National Accident Helpline and claims processing services to individuals through National Accident Law, Law Together and Your Law. In addition, it also provides property searches through Searches UK.
• Critical Care provides a range of specialist services in the catastrophic and serious injury market to both claimants and defendants through Bush & Co.

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Interim Management Statement

I am pleased to report NAHL's Interim Results for the six months ended 30 June 2023.

Overview

NAHL has continued to make good progress with its strategic priorities in the first half of the year and its results were in line with the board of Directors' (the "Board") expectations.

The Group has grown revenues in some challenging markets, further strengthened its balance sheet and continued to carefully invest to build a more profitable and sustainable business in the medium-term. We have seen growing evidence of our stated strategy paying off. Notable examples include a 178% growth in settlements in our wholly owned law firm, National Accident Law ("NAL"), and a 39% growth in profits in Critical Care, whilst we have simultaneously reduced the Group's net debt by £1.8m in the Period.

Looking ahead, the Group started the second half of the year positively and notwithstanding the difficult macroeconomic environment, we are seeing growing resilience in our businesses. Accordingly, the Board expects the Group to meet market expectations for the full year.

Group results

Revenue for the Period was £21.0m, which was 1% higher than the first half of last year (H1 2022: £20.7m). Growth primarily came from the Critical Care division which increased its revenues by 9%, and whilst revenues in the Consumer Legal Services division fell slightly, it made good progress in transitioning revenue generation into our own consumer-focused law firm, NAL, from our joint venture partnerships. This transitioning of revenue into NAL will ultimately be more profitable for the Group.

The Group returned an operating profit of £1.8m, which was 19% lower than last year (H1 2022: £2.3m). Operating profits in Critical Care grew by 39%, as the business benefitted from ongoing investments in people, business development and systems. Within Consumer Legal Services, operating profit fell by 48% due to a combination of a change in the mix of personal injury enquiries generated in the first half, our investment in TV advertising to enhance the National Accident Helpline brand, and a reduction in profits from the division's Residential Property businesses. In this respect, we also disposed of Homeward Legal Limited in the Period and further details can be found below.

Due to our strategic decision to prioritise enquiry placement into NAL and our panel, the profit attributable to members' non-controlling interests in our joint venture LLPs was 30% lower than last year at £1.4m (H1 2022: £1.9m).

Borrowing costs on the Group's £20.0m revolving credit facility increased, due to higher UK interest rates. We accrue interest at a rate of 2.25% over the Sterling Overnight Index Average (SONIA), and SONIA has been rising in line with the Bank of England base rate. As a result, and as we anticipated, our financial expenses grew from £0.3m in H1 2022 to £0.6m in the Period.

As planned, profit before tax was broadly breakeven at £0.0m (H1 2022: £0.1m) and basic earnings per share

on continuing operations (EPS) were (0.1)p (H1 2022: (0.2)p).

The Group delivered strong growth in cash generation in the Period, growing free cash flow2 ("FCF") by 74% from £1.0m in H1 2022 to £1.8m. Operating cash conversion3 was very strong at 270% (H1 2022: 152%). Cash generated by our Critical Care division increased by 94% in the Period as we leveraged the benefits of our investment in a new finance system and added additional credit control resource. Consumer Legal Services also increased cash generation, which included a 77% increase in cash received from settlements to £2.7m (H1 2022: £1.5m).

One of the Group's strategic priorities for 2023 was to reduce net debt whilst balancing investment in both divisions to enable future growth, and I am pleased to report excellent progress in the first half. Net debt at 30 June 2023 was £11.5m, down 13% from £13.3m at 31 December 2022 and down 20% from £14.5m at 30 June 2022.

Consumer Legal Services

In our Consumer Legal Services division, revenue fell by 3% from £14.1m to £13.7m in the Period. This was due to a 34% reduction in revenues from the division's Residential Property businesses, part of which was disposed of in April 2023. The Personal Injury business grew its revenues by 4%.

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Operating profit for the Period fell by 48% to £1.1m (H1 2022: £2.1m). Approximately a quarter of this reduction was due to the contraction in the Residential Property business, which delivered a breakeven operating profit in the Period, with the remainder arising in the Personal Injury business.

The division generated £3.0m of cash from operations in the Period (H1 2022: £2.7m), and after deduction of drawings paid to LLP partners both the Personal Injury (£0.7m) and Residential Property (£0.2m) businesses were cash generative. Cash conversion was 274% (H1 2022: 148%), although this measure is before drawings paid to LLP members.

The personal injury market showed no growth in the Period, and in fact, external data from the Compensation Recovery Unit ("CRU") and Official Injury Claim ("OIC") portal shows that the number of new UK personal injury claims registered in the 12 months to 30 June 2023 fell by 1% compared to 31 December 2022. We continue to believe that the stagnation we have seen in the market since 2020 is due to three factors. Firstly, there are fewer accidents due to changes in consumer behaviour that emerged during the COVID-19 pandemic which have now become embedded in working patterns; secondly, the introduction of the Civil Liability Act 2018, which reduced compensation levels for customers with low value road traffic injury claims ("RTAs"); and finally a significant reduction in victims' appetite to make a claim due to stigma and a lack of understanding of the process, exacerbated by a reduction in advertising by law firms since the pandemic.

Our strategy to grow in the personal injury market is to increase the number of customer enquiries that we attract with our National Accident Helpline brand and process more of those enquiries through our own integrated law firm, NAL. By doing this we will create a higher margin, sustainable business and we can fund our growth through our agile and scalable placement model. This is designed to balance the work we place with our panel of third-party law firms, and joint venture partners for in-year profit and cash, with the work we process ourselves for greater, but deferred profit and cash.

In the first half of 2023, we continued to build momentum in delivering this strategy and made good progress in reducing the revenues generated in our joint-venture partnerships, in favour of those generated in NAL, which generate higher returns in the medium-term.

National Accident Helpline generated 17,559 enquiries in the Period, which was in line with last year on a like- for-like basis1 (H1 2022: 17,630). Within this total, we attracted a higher mix of RTA enquiries than last year, with RTA making up 25% of all enquiries, non-RTA 48% and the remaining 27% being specialist enquiries. Non-RTA comprises employers', public and occupier liability claims. This mix compares to 22% RTA, 49% non-RTA and 29% specialist in H1 2022.

In March 2023, independent research revealed that the National Accident Helpline brand continues to be the "first choice for people who have had an accident and want legal representation". We invested £0.5m in TV advertising in the first half of the year to strengthen our brand position, which contributed to a 3% increase in our overall share of the personal injury market at 30 June 2023, measured on a trailing 12-month basis. We continue to review the return on investment generated by our TV advertising and, as part of our strategic development, we continue to look at new ways of both engaging with and educating potential customers.

Our website performed well during the Period and the share of enquiries generated through organic (unpaid) leads grew by 3% compared to last year.

We placed 4,555 new enquiries into NAL in the Period, which was slightly more than last year (H1 2022: 4,531), and this cost us £1.4m in marketing spend (H1 2022: £1.4m). Many of these enquiries will not translate into winning claims this year but go towards building the embedded value of NAL's book of claims, which will lead to future profits and cash. We estimate that these enquiries will be worth £3.4m in future revenues and cash by the time they are mature.

Since the Group stopped processing the lowest value RTA claims (so called "tariff-only" official injury claims (OIC) portal claims) in February last year, our average revenue on RTA claims is now significantly higher and not materially different to a typical non-RTA claim, although RTA claims usually settle earlier. In the first half of the year, the division did not have any placement options on its panel for RTA enquiries and, hence, all RTA enquiries were put into NAL which took up almost all the available capacity. Since then, we have started to distribute some RTA enquiries to panel firms which provides further flexibility for the business.

NAL settled 1,738 claims in the Period, which was 178% more than last year (H1 2022: 626) and almost as many as in whole of 2022, demonstrating the rapid scale-up of operations within the firm. These settled claims generated £2.7m of cash for NAL, which was 77% more than last year (H1 2022: £1.5m) and contributed to the strong net debt reduction.

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