Nationwide Accident Repair Services : Final Results

NARS

NATIONWIDE ACCIDENT REPAIR SERVICES PLC

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

Preliminary Results

For the 12 months to 31 December 2013

Nationwide provides integrated automotive accident repair management services to the UK insurance industry, fleet and retail customers.  It is the largest dedicated provider of accident repair services in the UK.

Key Points

·     Results in line with revised expectations - significant improvement in H2 performance

·     Revenue of £156.6m (2012: £155.9m)

-     insurance revenues down 3.9% to £111.5m - market share up

-     good sales growth in fleet market - up 14.7% to £40.4m (now 26% of Group revenue)

-     stable retail sales at £4.7m 

·     Underlying (1) PBT of £3.1m (2012: £5.5m) / Statutory PBT of £0.1m (2012: £5.1m)

-       H2 profitability up 29.8% over H1 - helped by measures to improve operational efficiency

-       non-recurring costs and amortisation of intangibles of £3.0m (2012: £0.4m)

•     Underlying (1) EPS of 5.1p (2012: 9.9p) / Statutory EPS of (0.5)p (2012: 9.2p)

·     Good cash flows - net cash up to £6.3m (2012: £5.1m)

·     Proposed final dividend per share of 1.9p for total of 2.9p (2012: 3.6p, total 5.5p)

·     Strategy of expansion into complementary services continues to progress

·     Two acquisitions (one post period end) - Exway in South West and Howard Basford in North West

-    enhance operational efficiencies in these regions

-    represent templates for further regional acquisitions

·     Bank facilities of £20m in place - supports growth plans

·     Encouraging start to new financial year - Group is well placed with enhanced growth opportunities

Notes:    1. 'Underlying' is calculated before non-recurring items and amortisation of intangibles.

Michael Marx, Chairman, commented,

"The Group's performance in the second half of the year showed a marked improvement, as expected, against a disappointing first half performance.  Underlying profitability in the second half increased by 29.8% and the gross margin for the full year was ahead of last year's result.  This positive turnaround largely reflects the measures we put in place to improve operational efficiencies.  The Group also continues to generate good cash flows and net cash at £6.3m at the year end is higher than at the end of the prior year.

The Group has made an encouraging start to 2014. Nationwide is well-positioned and there are opportunities to build the business both organically and by further strategic acquisitions.  

We are confident that the operational, strategic and financing measures that we have adopted are the catalyst for positive growth during 2014 and beyond."

Enquiries:

CHAIRMAN'S STATEMENT

Introduction

The Group's performance in the second half of the year showed a marked improvement, as expected, against a disappointing first half performance.  Underlying profitability (i.e. excluding non-recurring items and amortisation of intangibles) in the second half increased by 29.8% and the gross margin for the full year was ahead of last year's result.  This positive turnaround largely reflects the measures we put in place to improve operational efficiencies.  The Group also continues to generate good cash flows and net cash at £6.3m at the year end is higher than at the end of the prior year (2012: £5.1m). 

Nationwide's strategy of expansion into complementary services continues to make progress, with further growth in fleet sales, mobile repairs and specialist glass replacement services.  While trading conditions remained tough for operators across the industry, with motor claims frequency reduced, we have continued to increase our share of the insurance market. As the market leader we see clear growth opportunities which include acquisitions as well as additional strategic initiatives that should increase Group earnings and enhance our position.  Our two recent acquisitions of vehicle accident repair specialist groups, Exway based in the South West of England and Howard Basford in the North West of England, help to increase Nationwide's presence in its target markets and to enhance operational efficiencies in these regions, improving return on capital. They represent templates that the Group will look to replicate in other regions across the UK. This is in addition to organic initiatives to balance capacity with demand and generate economies of scale and enhanced efficiency of work flows.

Looking ahead, the new financial year has started well and our operational cash flow remains strong. We view ongoing prospects for growth positively and are encouraged by the opportunities available to Nationwide. 

Financial Results

Group revenue for the year to 31 December 2013 was £156.6m (2012: £155.9m) with growth in fleet sales more than offsetting pressures in the insurance market.  Insurance revenues decreased by 3.9% to £111.5m (2012: £116.0m) which was a strong performance against other operators and represented a gain in market share.  Fleet sales grew by 14.7% to £40.4m (2012: £35.2m) and now represent almost 26% of Group revenue. Retail sales were maintained at £4.7m (2012: £4.7m).

The enhancements to operational efficiency during the second half of 2013 resulted in an improvement in the gross margin to 35.8% for the full year (2012: 35.5%) after a gross margin of 34.2% in the first half. Overhead costs were £3.3m higher at £51.8m (2012: £48.5m) and included both increased expenses associated with operating the bodyshops acquired with Exway during the second half of 2013 and investment in resources. This resource investment enables us to position our sales, operations and support functions for the market consolidation and growth opportunities that are available to the Group. The overhead cost of the corresponding period was also net of customer payments which did not subsist during 2013.

Underlying operating profit was £4.2m (2012: £6.8m), with £1.7m of the decline attributable to the first six months (prior to operational efficiencies implemented in the second half of the year). Improved returns on pension scheme assets contributed to a £0.2m favourable variance in net finance costs following which underlying profit before tax was £3.1m (2012: £5.5m).  Earnings per share, adjusted fornon-recurring items, amortisation of intangibles and adjusted tax rate were 5.1p (2012: 9.9p).

Non-recurring costs and amortisation of intangibles of £3.0m (2012: £0.4m) were incurred, as anticipated, and mainly related to the reorganisation of our network in the South West following the Exway acquisition to create a more efficient regional hub.  Eight locations were closed and some I.T. assets were impaired.  Statutory profit before tax for the year to 31 December 2013 was £0.1m (2012: £5.1m) and the statutory loss per share was 0.5p (2012: earnings per share of 9.2p).

Net cash at 31 December 2013 stood at £6.3m (2012: £5.1m) and reflects the Group's strong control of working capital. A net cash inflow for the year of £1.2m was generated even after the £1.7m cash outflow relating to the acquisition of Exway, £2.6m of pension deficit contributions and a £1.6m cash impact of non-recurring items.

Dividend

In line with our review of the level of dividend payments, announced in August 2013, the Board is recommending a final dividend of 1.9p per share (2012: 3.6p per share) which, subject to shareholder approval at the Annual General Meeting on 27 June 2014, will be paid on 2 July 2014 to shareholders on the register at the close of business on 6 June 2014. Together with the interim dividend paid of 1.0p, this takes the total dividend for the year to 2.9p per share (2012: 5.5p per share).

Strategy

Our target markets remain those of insurance, fleet and retail and we see a significant opportunity to develop a broader and deeper range of solutions for our customers. As we extend our services and increase penetration in our target markets, there is the opportunity for Nationwide to become the UK's leading integrated automotive support service group.

Economies of scale and efficiency in the flow of work across the Group are key drivers which will help to enhance returns. We plan to deliver this through a combination of organic growth and selective acquisitions. By balancing capacity with demand on a geographical basis in the UK there are also opportunities for Nationwide to facilitate competitive advantages for our customers.

Acquisitions

The acquisition of Exway, purchased in July 2013, has enhanced our operational efficiency in the South West and I am pleased to report that Exway has performed in line with our original expectations. The integration of this business has gone well and it experiences high levels of customer satisfaction.

In February 2014, we completed the acquisition of North West based Howard Basford Ltd, the eighth largest independent bodyshop chain in the UK, comprising eight fixed sites and also providing mobile repair and mobile tyre services. The acquisition is highly complementary to the Group's existing operations and provides a significantly enhanced presence in this region, with the prospect of economies of scale and efficient work flows as well as other benefits.

Both these acquisitions have helped to increase Nationwide's presence in its target markets and improve operational efficiencies in these regions, enhancing return on capital. They represent templates that the Group will look to replicate in other regions across the UK.

Outlook

The Group has made an encouraging start to 2014. There are some early indications that the economic cycle is beginning to enter a recovery period. Although there is additional scope for UK bodyshop capacity to reduce, some regions are already beginning to see a rebalancing of supply in line with demand. Nationwide is well-positioned and there are opportunities to build the business both organically and by further strategic acquisitions.  

We are confident that the operational, strategic and financing measures that we have adopted are the catalyst for positive growth during 2014 and beyond.

Michael Marx

Chairman

15 April 2014

CHIEF EXECUTIVE'S STATEMENT & OPERATING REVIEW

Introduction

In recent years operators in our industry have experienced significant pressures and reflecting this, the number of providers continues to fall. We have not been immune to these factors however our work to improve our long term prospects, including the progressive development of complementary services, together with our strong focus on driving efficiencies, leaves the Group well positioned for future growth.

We put in place a number of measures in the second half of 2013 to enhance Nationwide's performance and are pleased to see that they contributed to significantly improved second half results.  The impact of these initiatives and actions are also evident within the encouraging start made by the Group in 2014.

Our acquisition of Exway in July 2013 and subsequent purchase of Howard Basford in February 2014 further strengthen our operations and I would like to welcome both teams to the Group. 

Market Overview

Our estimate of the size of the UK automotive repair market is £3.5bn, which is a more conservative assessment than independent research sources. Of this total, we estimate that approximately 60% (£2.1bn) of the market is insurance funded, 26% (£0.9bn) is fleet funded and 14% (£0.5bn) is retail funded.

As we have previously reported, the insurance funded vehicle repair market has been declining in size for more than ten years, with the reduction in motor claims frequency reflecting factors such as advances in vehicle technology.  The more recent economic and financial downturn has exacerbated the trend. Reflecting these challenging trading conditions, the number of operators has diminished over recent years.  Those operating in the non-fault claims sector (not an area where Nationwide has sought to build a presence) have also experienced additional regulation creating further pressures.  While there is still an oversupply of repair capacity, some regions in the UK are already beginning to see a rebalancing of supply in line with demand.

It is our view that the worst effects of the economic cycle are behind us now and the slowing rate of decline in insurance-funded repairs is evidence of this.  The increase in new vehicle registrations and the growth of the UK car parc (i.e. the total number of vehicles) as well as the rise in miles travelled are all positive indicators and many industry analysts are predicting work volumes to stabilise in the near term.  Nationwide's insurance market positioning, with the strategic introduction of a wider range of services including new solutions catering, for instance, for the increase in the average age of vehicles on our roads, is designed to ensure that we remain at the forefront of our industry and can deliver commercial advantage to our customers.  

Typically our insurance customers require a solution which delivers quality, value, service and speed. In order to satisfy this market demand, operators need to have a customer focused, efficient, consistent, transparent and integrated approach supported by strong information technology.  We continue to work hard to ensure that our offering and service levels remain market-leading.

Fleet customers include vehicle hire companies, corporates and SMEs. The fleet market represents a growth opportunity as customers become increasingly proactive in deciding who they wish to partner with in order to keep their vehicles on the road. Fleets will also experience growth as the economic cycle moves into recovery. To support their own business success, fleet customers require a service which offers speed, flexibility, good management information, value and a national coverage with local presence. For this market an integrated automotive support service is particularly attractive. Many traditional repairers are unable to directly satisfy this market and larger 'virtual' facilitators increasingly struggle to provide a sustainable solution which offers competitive value and quality. It is our intention to continue to penetrate this marketplace and the continued broadening of our services helps to support our growth plans.

The retail market for vehicle repair during the past few years has been affected by suppressed disposable incomes and at the same time growing insurance claims policy excesses which have in part derived from the growth in policy placement through web-based aggregators. Trust, value and convenience have been the key attributes of successful operators in this market. We anticipate that the retail market will continue to present a growth opportunity for Nationwide as transparency, brand awareness and digital capture progressively become differentiators for successful market participants.

Review of Operations by Business Segment

Nationwide Crash Repair Centres ('NCRC')

With external revenue of £133.8m (2012: £136.2m) NCRC is the Group's largest business segment and has almost a 4% share of the vehicle repair market. Year-on-year insurance revenue declined by 7.6% to £98.0m (2012: £106.1m) albeit this represented a very robust performance in our sector and we increased the Group's market share. Fleet sales grew by 22.8% to £31.2m (2012: £25.4m) as we continued to penetrate this market. Our mobile repair service, commercial ovens, integrated technology and broadening range of mobility solutions help to provide the speed, flexibility and information that fleet customers require. Retail sales were maintained at £4.7m (2012: £4.7m).

NCRC's gross margin has increased from 36.6% to 37.3% year- on-year. We addressed the first half performance pressures and adverse work flow mix such that in the second half we delivered a significant improvement. An important focus has been on ensuring that damage is remedied through repair in preference to parts replacement. A key performance indicator in this respect is that our parts revenue exceeded labour sales by 18% in the first half of 2013 and this improved to 2% below labour sales for the second half.

Managing economies of scale and flow of work across NCRC's sites is critical and, in line with this, we announced the acquisition of Exway in July 2013.  Based in the South West, the business generates annualised sales of around £6m. Over the remaining months of 2013, we integrated Exway's sales volumes and workforce with our remaining operational sites to create a more effective solution for the region. As part of the reorganisation, we closed six locations in the region, the costs of which are reported as non-recurring items.

Following the successful integration of the Exway business and after arranging appropriate bank facilities we acquired Howard Basford, a leading operator in the North West region at the beginning of the new financial year. The acquisition of Howard Basford gives us a significant presence in the North West and is consistent with our strategy to increase Nationwide's presence in the target markets of insurance, fleet and retail whilst balancing capacity with demand on a regional basis.

Customer satisfaction levels, as measured by independent telephone surveys which rate the overall NCRC quality of repair, increased during 2013 to 85.39% (2012: 85.26%) for our fixed sites and to 94.29% (2012: 92.37%) for mobile repairs. The speed of our repair process has also improved further with a 'key to key' repair time (time taken from receipt of vehicle) of 10.36 days (2012: 11.05 days) and a comparable 'full cycle' time (time taken from the notification of claim) of 15.88 days (2012: 15.80 days). These results include vehicles where the repair process is delayed by contested liability cases or by lead time issues with parts suppliers so extending repair times.

Network Services

Network Services is our 'upstream' accident management service for insurance companies and fleets. Operating a 24 hour call centre facility, the business is responsible for a number of services.  It receives first notification of loss on vehicles, deploys vehicle damage work to NCRC and an approved network of repairers, handles claims, organises courtesy and hire vehicles, provides engineering services and facilitates salvage. Network Services' engineering team bring additional value to the wider Group as does this business's lead role in balancing deployments between NCRC and the approved network of repairers.

Total revenue generated was £42.5m (2012: £39.1m).  Work undertaken by NCRC accounted for £26.2m (2012: £24.5m) of this total and external revenue accounted for £16.3m (2012: £14.6m). Overall insurance income has grown by 16.7% to £31.4m (2012: £26.9m) as new customers took up our services assisted by expansion of our capacity for call handling, engineering and deployment. Fleet sales income decreased by 9.0% to £11.1m (2012: £12.2m) which was a disappointment and followed reduced activity levels with some customers.  We currently manage the vehicle repairs for only three of the top one hundred motor fleets by size in the UK and our fleet sales team is focussed on developing relationships across this market. Some of our success in this relationship building is increasingly being reflected within our insurance revenue growth as corporates direct their insured claims to preferred repairers.

Network Services' gross margin varies in relation to the transaction mix of its range of services, with profitability increasing year-on-year to £4.6m (2012: £4.2m).

Motorglass

Motorglass operates a fleet of specialist vans for automotive glass repair and replacement which is coordinated using the Group's common I.T. platform.

Revenue grew by 20% to £7.2m (2012: £6.0m) helped by insurance sales up by 37.9% and fleet sales showing a smaller improvement of 3.2%. Gross profit increased by 16.6% to £1.4m (2012: £1.2m) although our use of subcontractors slightly suppressed gross margin to 19.3% (2012: 20.0%). We look forward to continued growth from our efficient and integrated operating platform.

Strategy and Outlook

The outlook for the Group is improving and the long term opportunity is to significantly increase Group revenues through growing our market share across the chosen markets of insurance, fleet and retail. Our economies of scale and efficient management of work flows provides competitive advantages for customers and there is scope to augment these through carefully targeted acquisitions.

Within the insurance market, we still only satisfy around 4% of the overall UK demand and we see clear opportunities to enhance our position.  As repair capacity realigns against demand we are identifying both regional and national opportunities to accelerate the pace of consolidation in this market. This strategy is supported by our stronger balance sheet and available funding.  Also, we remain focused on our industry-leading technology and integrated service approach.  These all contribute towards enhanced economies of scale and flow of work and also bring significant benefits to customers.  

Our fleet sales account for 4% of the UK market share and the Group's ongoing focus is to extend its mobile repair capability and mobile glass operations to support our fixed site repair capability and so provide a more flexible solution than many of our competitors. Additionally, we plan to widen our complementary service offering through a combination of organic developments and acquisitions.

In the retail market, where our market share is less than 1%, we have to date mainly sold to consumers whose vehicles have entered our repair process as a result of an insurance-funded claim. We are continuing to build and communicate our brand, develop matrix pricing and extend our flexible serviceoffering, including mobile repair and glass solutions. We have done well to establish a presence in this market and now set our strategic targets at a level to reflect the initiatives which we have already commenced.

2014 has started well with the organic and acquisitive steps taken last year continuing to make a positive impact. We remain focused on generating further economies of scale and improved flow of work benefiting both customers and the Group.  Our combined approach of organic development and acquisitions will help to increase the Group's market share on both a regional and national scale.  We also intend to continue to extend our range of services to support our growth plans. Whilst insurance market pressures remain, we are confident that Nationwide will make increasing progress in the short term, with the potential for considerable additional growth.

Michael Wilmshurst

Chief Executive

15 April 2014

NATIONWIDE ACCIDENT REPAIR SERVICES PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2013

The accompanying notes form an integral part of these financial statements.

NATIONWIDE ACCIDENT REPAIR SERVICES PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 December 2013

NATIONWIDE ACCIDENT REPAIR SERVICES PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2013

NATIONWIDE ACCIDENT REPAIR SERVICES PLC

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 December 2013

NOTES TO THE PRELIMINARY STATEMENT

1.         BASIS OF PREPARATION

The financial information set out in this report does not constitute the Company's statutory accounts for the years ended 31 December 2013 or 2012 but is derived from those accounts. Statutory accounts for 2012 have been delivered to the registrar of companies, and those for 2013 will be delivered in due course.  The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include reference to any matters to which the auditors 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.

This preliminary statement has been prepared under the historical cost convention. The accounting policies have remained unchanged from the previous year.

2.         Segment analysis

The chief operating decision maker, as defined by IFRS 8, has been identified as the Executive Directors of Nationwide Accident Repair Services plc. The information reported below is consistent with the reports regularly provided to the Board of Directors. The Group operates three main operating segments, Nationwide Crash Repair Centres ("NCRC" which incorporates Mobile Repairs), Network Services and Motorglass (which incorporates Windscreen Invoice Control Service "WICS"). The segments are identified by their distinct functions within the Group, being site-based repairs, supported by mobile vehicle repairs, accident administration and glass services respectively. NCRC comprises a dedicated network of repair centres across England, Scotland and Wales. Network Services provides accident administration services to insurance companies and fleet operators, including deploying work to Nationwide Crash Repair Centres Limited, while Motorglass and WICS provide glass, air conditioning and auto-electronic services to the automotive industry. The income and costs of the holding company are shown within NCRC, which acts as the support function for the Nationwide Crash Repair Centres bodyshops.

Intra-Group transactions with Network Services are accounted for including VAT, as the segment is within a separate VAT group. All intra-Group transactions are invoiced or recharged at cost.

The revenues and net result generated by the three business segments are summarised as follows:

2.         Segment analysis (continued)

The Group is involved within three main areas of the market, insurance, fleet and retail work. The revenues attributable to each area are summarised as follows:

3.         Non-Recurring Administrative costs

The site closure costs of £2,123k (2012: £933k) include additional provision for future rental commitments, dilapidations and costs in relation to closed sites; provision against future rental commitments, dilapidations and costs for three sites which were closed following the acquisition of Exway; in October 2013 the Kettering and Gravesend sites were mothballed and closed; property provisions relating to two sites which were substantially vacant during 2013; the relocation of the Network Services operations to two new sites during the year.

The release of £126k of the closure provision to non-recurring items in 2013 (2012: £848k) followed the negotiation of an exit from the lease commitments at the previously closed Matlock site.

A full fixed asset impairment review of the Voyager 2 system, which is no longer used by Network Services (Nationwide) Limited, was undertaken and an adjustment of £354k made in the year to reflect fair values.

The employee settlements of £229k in 2013 (2012: £291k) arose due to changes in the senior management of the Group and the payment of compensation for loss of office.

Legal costs for the acquisition of Exway were £167k.

4.         Finance Costs

5.         Tax expense

6.         EARNINGS PER SHARE

Basic earnings per share

Basic earnings per share has been calculated using the net loss attributable to the shareholders of the Company of £194,000 (2012: £3,984,000 profit). The weighted average number of outstanding shares used for basic earnings per share amounted to 43,197,220 (2012: 43,197,220).

Diluted earnings per share

Diluted earnings per share has been calculated using the net loss attributable to the shareholders of the Company of £194,000 (2012: £3,984,000 profit). The weighted average number of outstanding shares used for diluted earnings per share amounted to 43,197,220 (2012: 43,197,220).

In the current year due to the average market price of £0.65, the share options are not included in the dilutive earnings per share calculation. In 2012, the average market price was £0.63 and similarly, due to the share options being anti-dilutive, the diluted earnings per share is the same as the basic earnings per share.

Underlying earnings per share

The underlying earnings per share has been calculated as follows:

7.         DIVIDENDS

During 2013, the Group paid dividends of £1,987,100 (2012: £2,376,100) to its equity shareholders.

These comprised:

·   a final dividend in respect of 2012 of 3.6p per share paid in June 2013 (£1,555,100); and

·   an interim dividend in respect of 2013 of 1.0p per share paid in November 2013 (£432,000).

The Board is proposing a final dividend in respect of the results for the year ended 31 December 2013 of 1.9p per share.

8.         PENSION and other employee assets/obligations

The Company operates a funded pension scheme in the UK. The Fund has both defined benefit and defined contribution sections. Since 1 January 2002 the Fund has been closed to new members. Active members of the Fund ceased to accrue further benefits in the defined benefit section on 31 July 2006. Under the current Schedule of Contributions, contributions to the Fund for the year beginning 1 January 2013 will be £2.6m. These contributions are included within the Company cashflow and pension deficit. This disclosure is in respect of the defined benefit section of the Fund only.

In November 2012, the Group implemented a stated policy of allocation of the pension liability across the Group. The liability recognised by the Company at 31 December 2013 was £299,000 (2012: £363,000).

A full actuarial valuation of the scheme was carried out as at 31 December 2011 by a qualified independent actuary. The major assumptions used by the actuary were (in nominal terms) as follows:

8.         PENSION and other employee assets/obligations (continued)

Reconciliation of opening and closing balances of the present value of the defined benefit obligations

8.         PENSION and other employee assets/obligations (continued)

Reconciliation of opening and closing balances of the fair value of plan assets

The amounts recognised in the statement of comprehensive income are:

Remeasurements recognised in the statement of comprehensive income are:

8.         PENSION and other employee assets/obligations (continued)

History of scheme assets, obligations and experience adjustments

This disclosure is in respect of the defined benefit section of the Fund only.

Characteristics of the Fund and the risks associated with the Fund

a) Information about the characteristics of the Fund

i . The Fund provides pensions in retirement and death benefits to members. Pension benefits are linked to a member's final salary at retirement (or leaving if earlier) and their length of service. Since 31 July 2006 the Fund has been closed to future accrual.

ii. The Fund is a registered scheme under UK legislation and is contracted out of the State Second Pension. The Fund is subject to the scheme funding requirements outlined in UK legislation. The last scheme funding valuation of the Fund was as at 31 December 2008 and revealed a deficit of £25.4m. In the recovery plan dated 22 March 2010 the Company agreed to pay contributions of £2.6m each year with the view to eliminating the shortfall by 31 December 2018.

iii. The Fund was established from 1 April 1973 under trust and is currently governed by the Fund's trust deed and rules dated 11 October 2011. The Trustees are responsible for the operation and the governance of the Fund, including making decisions regarding the Fund's funding and investment strategy in conjunction with the Company.

b) Information about the risks of the Fund to the Company

The ultimate cost of the Fund to the Company will depend upon actual future events rather than the assumptions made. Many of the assumptions made are unlikely to be borne out in practice and as such the cost of the Fund may be higher (or lower) than disclosed In general, the risk to the Company is that the assumptions underlying the disclosures, or the calculation of contribution requirements are not borne out in practice and the cost to the Company is higher than expected. This could result in higher contributions required from the Company and a higher deficit disclosed. This may also impact the Company's ability to grant discretionary benefits or other enhancements to members.

More specifically, the assumptions not being borne out in practice could include:

i. The return on the Fund's assets being lower than assumed, resulting in an unaffordable increase in the required Company contributions.

ii. Falls in asset values (particularly equities) not being matched by similar falls in the value of liabilities.

iii. Unanticipated future changes in mortality patterns leading to an increase in the Fund's liabilities. Future mortality rates cannot be predicted with certainty. This is especially so bearing in mind that the youngest Fund members could be expected to still be alive in 60 years or more and it is not possible to reliably predict what medical advances may or may not have occurred by this time.

iv. The potential exercise (by members or others) of options against the Fund, for example taking early retirement or exchanging a portion of pension for a cash lump sum.

8.         PENSION and other employee assets/obligations (continued)

c) Information about any amendments, curtailments and settlements

There were no Fund amendments, curtailments or settlements during the reporting period.

Expected future cashflows to and from the Fund

In accordance with the schedule of contributions and recovery plan both dated 22 March 2010 the Company is expected to pay contributions of £2.6m over the next accounting period. In addition, the Company is expected to meet the cost of administrative expenses and insurance premiums for the Fund. The Fund's Pension Protection Levies are met from the Fund's assets.

The liabilities of the Fund are based on the current value of expected benefit payment cashflows to members of the Fund over the next 60 to 70 years. The average duration of the liabilities is approximately 19 years.

The Fund's investment strategy

The Fund's investment strategy is to invest broadly 75% in return seeking assets (equities and property) and 25% in matching assets (corporate bonds). This strategy reflects the Fund's liability profile and the Trustees' and Company's attitude to risk. As the Fund matures, the Trustees and the Company expect to gradually reduce the proportion allocated to return seeking assets and increase the proportion allocated to matching assets.

Sensitivity analysis

The results in these disclosures are inherently volatile, particularly the figures shown on the balance sheet. The results disclosures are dependent on the assumptions chosen by the Directors. The table below shows the sensitivity of the balance sheet position to changes in assumptions to illustrate this volatility:

9.         BUSINESS COMBINATIONS

Provisional analysis of assets and liabilities acquired

On 23 July 2013 the Group acquired a 100% interest in the business and assets of Exway Coachworks Limited ("Exway"). The acquisition of Exway, which is a vehicle accident repair specialist group headquartered in Torbay, allowed the Group to manage economies of scale and flow of work across NCRC sites within the South West. Of the original seven repair centres purchased, three were subsequently closed or merged with existing NCRC sites. A full impairment review was undertaken and the carrying value of fixed assets adjusted accordingly. The fair value of consideration for the acquisition was £1,732,000 comprising £1,732,000 in cash.

Satisfied by

Transaction costs relating to the acquisition included within the income statement were £167,000.

The goodwill of £118,000 arising from the acquisition is attributable to the expected synergistic benefits expected from combining the operations of Nationwide and Exway.

Due to the Exway business being integrated into the South West region of Nationwide, it is not possible to separately identify the trading results for 2013.

Fair value adjustments

On acquisition of Exway, all assets were fair valued and appropriate intangible assets recognised following the principles of IFRS3. A deferred tax liability related to these intangible assets was also recognised. Management identified the main material intangible asset as customer relationships acquired with Exway. This intangible asset was valued using the excess earnings method at £482,000. These customer relationships are being amortised over a period of 12 months.

A £193,000 credit to deferred tax has been made to record the liability arising on these intangible assets.

There were no contractual amounts receivable included within the trade and other receivables balance of £170,000.

10.       FINANCIAL STATEMENTS

The audited financial statements will be posted to shareholders on 30 April 2014. This announcement and the preliminary results presentation are available from the registered office of Nationwide Accident Repair Services plc at 17 Thorney Leys Park, Witney, Oxfordshire, OX28 4GE and on the Company's website, www.nationwiderepairs.co.uk

END