Nahl Group (LSE:NAH) — Interim results for the six months ended 30 June 2021

0:01 Good morning, ladies and gentlemen. Welcome to the NAHL GROUP PLC Interim Results for the Six Months Ended 06/30/2021 Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated in the right corner of your screen. Just click q and a, scroll to the bottom, type your question, and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today, and we'll publish responses where it's appropriate to do so. These will be available via your investment company dashboard, and you'll be notified once they're ready for your review. I'd also like to remind you this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Tim Aspinall, non executive chairman James Seralis, CEO Chris Haim, CFO, NAHL GROUP PLC.

0:46 Good morning. Hi, everyone. Welcome to today's presentation. I'm Tim Aspinall, and I'll be chairing today's session. James, our new CEO, is going to be taking you through a presentation shortly with Chris, our new CFO. And at the end of the presentation, we've got some pre submitted questions that we'll be answering, And we'd encourage you to submit some questions as we go, and we'll try and cover those off at the end as well. So I'm gonna hand over to James now, and you should be able to see the presentation on screen. And James will turn the pages with you. James. Thank you, Tim, and hello, everyone. As Tim said, I'm James Ceralis. I'm the CEO of NAHL, and we're a leader in The UK consumer legal services market.

1:42 This is our first time on the IMC platform, so thanks to to Paul and the team for hosting us. I'm really excited to see how this goes, actually. This presentation today is taken from our interim results, which we released on Tuesday, but I'm gonna assume that you're watching this with very little knowledge of the company. So for any existing holders or investors that are familiar with our story, you'll see me start off quite slowly to explain the model and then pick up speed, hopefully, as we progress. For those of you who are aware of us, you'll know that we've taken the group through a really significant transformation over the past few years to respond to industry reforms that took quite a lot of value out of the market. We've reinvented ourselves as a law firm that processes personal injury inquiries, and, we also provide a range of specialist services to support clients' rehabilitation needs in the catastrophic and serious injury ends of the market.

2:40 Our transformation is now complete, and we're starting to scale the business. And that's why we're here today, really, for the first time because we think now is a a really good time to tell our story to a broader range of investors. We think NAHL as as a share is good value at the moment, but as we scale the business and we invest in placing new claims into our own law firm, it'll take some time for that investment to be returned in profits because of the long cycle that those claims take to process. But we're confident about the model, and we're making progress all the time. So, to start off then, I suppose talking about our business. Who who are we, I suppose? Well, we're an aim listed business, have enlisted in 2014, and we operate the group through two divisions, which we call consumer legal services and critical care.

3:32 Our consumer legal services business focuses primarily on the £4,000,000,000 personal injury market. And over the past twenty five years, we've developed a highly productive marketing engine powered by the sector's most trusted brand, National Accident Helpline. The reforms that I mentioned earlier on are the civil liability act, which was implemented in May this year, and these reduced compensation tariffs and eliminated cost awards for most RTA claims worth £5,000 or less. And that removed a really significant amount of the value for firms processing RTA cases. Now whilst these changes have no bearing on the number of accidents that occurred, it's had a material impact on the sector. It's affected up to 90% of of RTA claims, and it significantly reduced the law firm's fees on those cases.

4:23 But our business is actually less affected as the majority of the claims that we generate are what I refer to as non RTA. So that's employer's liability, public liability, occupy liability. And these claims are higher in value than road traffic accident and are not materially affected by the reforms, as I said. Nevertheless, over the past five years or so, we've been preparing for the wider impact of these reforms by transforming our business with the aim of becoming one of The UK's leading personal injury firms focused on high volume claims regardless of their size. And when we saw that these reforms were going to change the industry for good, we decided that a new approach was needed. And that's why we launched our own law firm, National Accident Law, or NAHL as I refer to it from now on. And we launched that in April 2019, and that helped us to transition from being a claims management company into being a modern technologically enabled law firm with a market leading brand that's able to process its own inquiries.

5:28 And we created a flexible self funding business model at the same time that's purpose built to generate shareholder returns across the cycle. And that model is built on three pillars. So firstly, as I said, our highly productive marketing engine powered by the sector's most trusted brands, National Accent Helpline. Secondly, our modern purpose built, technology enabled law firm, National Accent Law. And thirdly, a flexible inquiry distribution model, which helps us to balance short and long term returns. And we like to think of this, the business, as as an infinity loop, which constantly converts investments in consumer marketing into robust and highly visible profit and cash flows over time.

6:18 Now building on the strengths of our leading consumer brand, our marketing engine generates leads, which we then triage to identify inquiries with the greatest potential for outcome, both for the consumer and also for ourselves. And to give you an idea of scale, we typically reject about 75% of the leads that come into our contact center as part of that triage process. And last year, we converted those leads to around 36,000 high quality inquiries. And before the pandemic, back in 2019, that number was 56,000. We monetize those inquiries in two ways. We either place them into NAHL, or we send them to be dealt with by one of our specialists in our panel of third party law firms or joint venture firms as well, which are called LawTogether and YourLaw.

7:07 And in general, inquiries processed through NAHL generate the highest but deferred return on investment, while inquiries passed into the panel have the benefit of providing immediate cash flow. And you can see this illustrated at the at the diagram at the top there where we have, at the top of the loop, we have those two exit points, to to realize cash from our activities. And balancing those two exit points is really at the heart of our model. We call our second division critical care, and it's part of the medical reporting and rehabilitation sector. We define catastrophic injury as cases involving the most severe and life changing injuries resulting in settlements of £500,000 or more.

7:55 And our critical care division trades under the name Bush and Co, and it's a leading player in the sector. We've calculated that around six and a half thousand catastrophic claims are made in a typical non pandemic year. Most of these require the services of an expert witness who will assess the claim and write a report for the court in connection with the client's claim. And around half of these these claims will use a case manager as well. And the best way to understand a case manager is to think of them as a project manager for a client's rehab. So they don't do any of the hands on care, but they manage the delivery of the rehab and that care. They organize any adaptations that are needed to a client's life and and the provision of equipment, that sort of thing.

8:44 And at Bush and Co, we primarily focus on these two services, and that means that we operate in a core market that we think is around about a £110,000,000 a year. And we've got a strong track record of top line growth, market share gains, and operating margin expansion. And the complexity of catastrophic injuries results in long case life case life cycles, which makes the market more resilient and predictable. Our case managers are typically engaged about three to four months after an injury, but a case has a life cycle of more than two years. Conversely, our expert witnesses are appointed once the case is well underway, and these are complex cases. So that can be more than three years after the accident itself.

9:31 We deliver these services to clients through our associates, and that's a team of over 200 self employed, highly experienced specialist case managers and expert witnesses. And they're supported by our Bush team providing business development, operations support, and back office services. I'll also talk a little bit later on in the presentation about some really exciting initiatives that we've developed to grow market share further and to expand the business into adjacent markets as well. Now this next slide is taken from our interims. I'm I'm certainly not gonna read through all of these points, but I just wanted to introduce you to some of the themes, which I think will come out over the next thirty minutes or so. And there are two key themes, really, that have shaped our performance in the first half of the year.

10:20 The first is the ongoing challenge of COVID nineteen on our markets and the restrictions that were in place throughout the first half of the year, and these restrictions suppressed accident numbers. This resulted in less work for our consumer legal services and our critical care businesses and inevitably delayed our recovery. I'll talk later about some leading indicators that we use to track the recovery in the market, and these are showing encouraging signs of growth since the June 30. But the growth is slower and probably started later than we previously anticipated. And you'll also see how we generated over 14,000 new personal injury inquiries in the first half of the year. That was less than last year, but we exited the half with a growing trend, and that's been sustained since.

11:10 The second theme you'll see come through the presentation is the progress that we're making with our strategy. In particular, we're processing more claims in our wholly owned law firm, NAHL. Processing more claims ourselves means that we get to keep 100% of the profits of those claims as opposed to sharing them with our partners in the joint venture law firms or by placing them in the panel of third party law firms for lower revenues. And in the first half of twenty twenty one, we put 80% more inquiries into NAHL, and we put far fewer inquiries into our joint ventures, 85% fewer, in fact. So NAHL is now processing all of our road traffic claims and a growing number of the more profitable nonroad traffic claims in the second half of the year.

11:58 And that's brought down the profits that we're paying out to the joint ventures, and it will lead to a a sustainable, higher margin business in the medium term. You'll also heard hear that we have launched several initiatives to support our recovery, including our RTA small claims proposition, which is in response to the legal reforms. This proposition allows us to monetize small claims, albeit at a lower level of profit than before the reforms. And given the challenging markets that we're operating in, we were therefore pleased to deliver a profit to generate positive cash flow and further reduce net debt in the first half of the year. So going on to the financial results then, I won't really dwell on this slide. But those of you who are new to the story, I think this will give you an idea of the size of the business that we are today.

12:52 So revenues for the first half were £19,500,000. Underlying operating profit was 2,500,000. Our profit before tax improved by a million pounds to 600,000. We generated 1,400,000 in free cash flow in the first half, and we reduced our net debt from 16,300,000 at the end of December to 14,900,000 at the end of June. This next page shows our profit loss account for the first half and demonstrates some of the themes that I mentioned earlier on. Our revenue was 4% lower than last year, and that was driven by the lower number of personal injury inquiries that we generated as a result of lower accidents in the market. The third national lockdown extended virtually throughout the period. And if you compare that to last year, if you remember, we had the best part of q one that was unaffected by COVID.

13:47 In line with our strategy, we decided to grow the number of inquiries placed into NAHL by 80% for higher revenues and profits in the medium term, but that results in a delay in recognizing the revenue on those inquiries. And I'm just gonna pause there for a moment and just just talk about our revenue recognition policy because I think it's quite important that everyone understands that. So in personal injury, we recognize revenue on a claim at two points. So first of all, on liability admission, and then secondly, on settlement. So we only recognize revenue when we know we're gonna win the case because the insurer has admitted fault, and that typically happens well, it can happen quite a long way through the claim cycle. We don't recognize all the revenue at that point. We we recognize the rest when the cash that is settled in our accounts.

14:37 RTA claims. Road traffic accident claims can take up to twelve twelve to eighteen months to settle. Less severe RTA claims that are subject to the legal reforms, so whiplash or small claims, maybe even quicker. Non road traffic accident claims, which are really the focus of our business, can take two to three years to settle. So this is a much longer cycle compared to when we place the claim into the panel for lower revenues because we get the cash typically in about thirty days. So whilst the delay we delay the recognition of our revenue, We write off the costs as they're incurred. And probably the biggest cost is our marketing cost to generate that claim, and we write that off as soon as we do the advertising.

15:22 The processing cost is written off in the month incurred. So our accounting policies are quite prudent, but they're designed to avoid any buildup of unrecoverable WIP on the balance sheet. And whilst I'm on this topic, the cash dynamic is also deferred. So in the panel, typically, we get our our cash out, after thirty days terms. But when we process a claim ourselves, we have to wait until that cash is settled, and the customer gets their money. So as I said, for non RTA claims, that could be up to three years. So as we grow NAHL, we're building up an inherent store of value, but it's gonna take some time to mature. So going back to the profit and loss account, our critical care business had a resilient first half of the year. They grew revenues by 4%.

16:11 Our group underlying operating profit was broadly flat at 2,500,000. That reflects the cost of some of the initiatives that we put into fund future growth. We had no exceptional costs in the period. We've had these over the past three years if we as we progress the the personal injury transformation, but that's now complete. And the minority interest line in the in the p and l, that relates to the share of profits that pay we out to our joint venture partners. As you can see, this is quite a significant number, so it was 4,100,000 in 2020, and we've reduced that by 26% in the first half to 1,700,000. And that coincides with us placing 85% fewer inquiries into the joint ventures in the first half.

16:58 Now our joint ventures have a part to play in our flexible inquiry distribution strategy because they help us to share the working capital burden of processing claims. But now that we're scaling NAHL and we we want to keep all the profits from claims being processed in NAHL, the the joint ventures are playing a much smaller part than in the past. Our profit before tax was 600,000. That compares to a loss of 400,000 last year, and underlying EPS was up two thirds to 1p. Now turning to the cash flow, we generated 1,400,000 in free cash flow in the period. And this page really demonstrates the flexibility that we've got in our this sustainable business model and, how we can flex that to generate free cash flow as required.

17:50 Last year, COVID had just hit, and there was a lot of uncertainty around what the impact would be. And I think there was there was clearly a flight to cash across most companies. And at NAHL, we sought to increase our liquidity by channeling more inquiries into our panel for quick cash. And this was very successful. You can see we generated 3,800,000 in the first half of last year and 6,000,000 of free cash flow across the year as a whole. So that was absolutely the right thing to do. But we're very clear, and we were very clear at the time that this came at the expense of future profit growth as we weren't growing NAHL. Now we're invested in NAHL because it generates higher levels of revenue and profit per claim in the medium term. But in the short term, that requires investment in working capital.

18:39 We're growing the number of non RTA inquiries in in NAHL, and we'll continue to do that over the next couple of years. And that will necessitate more working capital over that period. But because of the normal two year cycle, we would expect that to level off after that point in time, plateau, and and start to return a significant amount of cash then as those claims mature. So if I go into each of the divisions and start with consumer legal services and talk about our strategy first of all, on the left hand side of this slide, you can see our strategies generate growth in the medium term, and this is aimed at growing shareholder value. So you can see see there's three parts to that.

19:26 We will profitably process all of our RTA inquiries in NAHL, and that includes small claims. And I've talked already about us growing the the number of non RTA claims in NAHL, which which are more profitable for us. And we've invested a lot over the last few years in technology and operations and process. And as we bring those increased claims online, we're gonna start to to to to leverage those investments and to tune that up effectively to become more and more efficient. And you can see on the right hand side of the slide, we've made really good progress with various elements of this so far this year. We've grown the number of inquiries processed in NAHL, and I'll talk a bit more about that in a coming slide. We're now processing 100% of the RTA inquiries and an increasing number of non RTA inquiries.

20:18 And in the period, in the first half of the year, we placed 20% of our total inquiries into NAHL compared to only 10% last year. We've launched our small claims proposition on May 31 in response to regulatory changes. The focus of the business has always been on non RTA claims, but we've been planning for these changes for several years. And with these claims, the what the the RTA claims, they obviously generate a lower level of profit than before the reforms, but our proposition allows us to monetize these claims, which will continue to attract through our our generic marketing activities. Since launch, NAHL has commenced work on approximately 1,500 of these RTA small claims, and there are varying stages of of progression.

21:04 But we've already received liability admission on around about 30% of those, and we expect that to increase to over 50% as the book matures. And pleasingly, all the key metrics that we we track are currently running in line with our planning assumptions. We also launched a digital customer platform to process straightforward RTA claim claims entirely online. At the moment, only a a relatively small majority of customers go through that journey totally digitally, but we plan to increase that proportion and also look to expand that digital journey into more complex RTA claims and certain non RTA claims in the future. And this should help us to generate further operational efficiencies. Finally, in the year, we launched a process to appraise the potential sale of the group's two smaller businesses, which I haven't spoken about yet, and they're in the residential property sector.

22:01 They're called Homewood Legal and Searches UK. Following a review of the market, we've determined that the current conditions are not conducive to realizing full value from a sale of Searches UK. That market has consolidated a lot over the last few years, and it's dominated by by three big players. And it's actually a matter of public record that the CMA are currently conducting a review into one of those players. Our business, searches UK, is a great profitable business, and we wanna make sure we're getting good value from that if we're gonna sell that asset. So we're gonna keep that situation under review for now. But negotiations regarding the sale of Homewood Legal are ongoing, making good progress with that, and we'll update the market further when when we think that's appropriate. So that's our strategy. And if I turn over onto the next slide, you can see how the business has traded in the first half of twenty twenty one.

22:57 So the division's markets continue to be impacted by the pandemic. Lockdown measures remained in place across England and Wales throughout the majority of the period, as I said, and that's in contrast to last year where we had the first three months of the year largely with the with no COVID impact at all. And we look as a business, we look at a range of external data to help us to model accident numbers in the market. And we found Google mobility data, and in particular, the datasets that show the relative number of people on public transport and in workplaces to be the most relevant. And and that's sort of shown on the right hand side of that page on the chart as the as the two gray lines. This data suggests quite a significant drop off in activity around Christmas twenty twenty and into the start of the year, which corresponded with the third lockdown, and then it shows slow growth thereafter.

23:52 And that data ended h one at about 60 to 70% activity compared to pre pandemic levels. If you look at our inquiry generation, we generated just over 14,000 inquiries in that period. That's the solid pink line on the chart. That was 26% fewer than the first half of last year, and it was 17% fewer than the second half of last year. But you can see on that chart how the recovery in inquiry numbers that we enjoyed over the summer of twenty twenty really stalled once The UK went into the second national lockdown, and then that then continued into the third lockdown at the start of twenty twenty one. And by the end of June this year, we were running at approximately 56% of 2019 levels. But you can see a fairly strong correlation there between our inquiry volumes and the Google data, and you can see it's quite a similar exit trend on that chart.

24:47 So as a result, revenue in the in the division was down 6% in the period to £13,600,000. But and and and and we benefited from previously announced cost savings to bring underlying operating profit in broadly flat at 2,400,000. We continue to focus our marketing spend on digital advertising in the period rather than invest in brand advertising on TV. But we're now exploring the possibility of potentially returning to TV next year to help us grow inquiry numbers, but we'll only do that if the return justifies the investment. It was also pleasing that we experienced improved organic search performance through our website this year, and that follows quite a lot of work we did last year to replatform the website.

25:34 And our residential property business performed well in the period, really benefited from the increased volumes driven by the stamp duty holiday stimulus, and we had several new business wins as well. So we've been really pleased by the recovery in this business following the actions that we took last year. So moving on, this slide, is still on personal injury, but the chart shows how we've allocated our inquiries, in the year between, NAHL, the joint ventures, and the panel. And and the panel here make up, make the the percentages up to a 100%. And this covers all of our inquiries. And if you think about our our total take of inquiries, roughly twenty five percent of those are road traffic accident, and they all go to NAHL now. We've got about 50%, which are the non road traffic accident, the higher margin stuff.

26:29 And then we also have about 25%, which we call specialist inquiries. So these are things like industrial disease. They cover claims in Scotland. So they're not claims that we process ourselves. We don't target those claims. They just come by virtue of our marketing. And we have a specialist panel who who support us in processing those claims. So this slide shows how we flexed our inquiry placement model to drive more volume into NAHL this year because it'll generate more profits in the medium term. And and and and, also, it demonstrates that we are reducing the number of inquiries that we are sharing with our joint venture partners. Because of COVID in 2020, we prioritized the placement of inquiries into the panel to generate cash and improve levels of liquidity during the peak of the pandemic.

27:20 But since the start of this year, you can see the inquiries being placed into NAHL growing. And we still have really strong demand pleasingly from our our panel of third party law firms and and also from our joint venture law firms as well. So whilst they're not the priority for new inquiries, they do remain an important part of our flexible business model as they give us options and they help us to manage our working capital. So this next slide is a slide that is featured a number of times before in our investor presentations, and it demonstrates the growth in our law firms. This time, this slide is is particularly focused on NAHL. There's another slide on our website, a similar slide that shows the picture including our our joint ventures, but I won't I won't touch on that one today.

28:13 On the left hand side of this page, you can see that we distributed 2,807 inquiries into NAHL in the period. That was an increase of 80%, as I said, on the first half of last year and 30% on the second half of last year. We converted 85% of these inquiries into running claims, which was ahead of our target. And if you look at the right hand side, the chart on the on the right of that page, at the end of June twenty twenty one, NAHL was working on 4,268 ongoing claims. That was an increase of 43% on the end of December. And we estimate that the unrecognized profit on these claims after we've deducted all the future processing costs will amount to £4,600,000.

29:01 And at the end of December, that number was £3,500,000. So that's when all the claims are concluded. Now this this this is obviously a more profitable stream for us, and and I think it demonstrates that that £4,600,000 demonstrates a much better quality of earnings for us as a business. Because when we place claims to the panel, generally, have, short term commitment from the panel, and and and we're in NAHL, we've got a much longer visibility of our revenue stream. It takes two to three years for these claims to be processed through the settlement and dropped through into our p and l. So that 4,600,000 is a really good proxy for the growing value that's tied up in the law firm, and that's why it's a really, really important metric for us. And you can see that that 4,600,000 has increased by over a 100% in the last year. In addition to this, we estimate that the unrecognized profits on open cases in our joint venture law firms after we deducted all the cost of processing and the minority interest will amount to a further 2,300,000, and that's gonna be realized over the next two to three years.

30:11 So we'll continue to invest in claims in NAHL, and I expect to see this reservoir value to continue to grow over the next two years. And then I think it'll start to plateau as the book matures and the cash that we generate outweighs the investment. And, of course, we could go on increasing that investment and growing that that that that value of whip, but we're very conscious that our investors wanna see a return in the medium term. And and I think that's the point at which we can start to pay down our debt as well, which is funding this growth. So turning to our strategy in critical care then. To be successful in this market, our business model is built on three pillars. Firstly, strong and diverse customer relationships. We have over 400 clients across the legal, insurance, and clinical, and charity sectors.

31:02 Secondly, we have a wide range of competencies and specialisms, which creates revenue opportunities throughout the rehab process. And thirdly, we're making focused investment in technological innovation and expansion into adjacent segments of the market steered by our innovate, optimize, grow strategic framework. Now on the right hand side, you'll see that the Bush and Co team have continued to make progress with their strategic initiatives, and that will all contribute towards the recovery, from COVID and future growth, and and they made good progress in the first half of the year. To mention a few things, we've completed the build of our proprietary report writing tool, and that's designed to streamline the production of expert witness reports. It features a data capture app app and, and a report production tool that can be used by our associates across multiple devices to support their assessment of injured clients and for the production of their reports.

31:59 And this tool will increase the, capacity of our existing associates, and therefore, it'll facilitate further growth from within our existing resources. Since we rolled that rolled that tool out to associates in April, it's already been used in over 20% of instructions to date, and we expect that to grow over time. We've also made good progress on our plans to expand into adjacent markets. So our differentiated proposition, which we call hubs, is targeted at claims valued between a 100,000 and £500,000. And you you recall that our catastrophic injury is is over £500,000 is the area we focus. So these are still serious claims, but they're less complex.

32:47 It's progressing well. Originally, planned for launch in 2022, the team have made excellent progress and are in discussions with several potential customers. We also recruited two employed case managers to work on this proposition. That will really help us to drive a higher margin. And we can do that because it's less complex work. Already, we're doing some of the, we so we're we're already, making good progress on this, and we plan to conduct a pilot of this proposition, later this year. So finally then, in August 2021, we expanded our existing care proposition, and we launched something called Bushcare Solutions. And that will provide, clients with care packages in conjunction with an associate case manager or deputy rather than referring them to a third party provider.

33:39 We're already doing some of this work, but additional this brings really additional expertise and dedicated resource, and this will enable us to offer more. It'll enable us to free up our case managers, and that, will create additional capacity for growth. So Bush and Co, in terms of trading performance in the first half, delivered another resilient performance, grew revenues by 4% to £6,000,000. On our view of the markets, prior to the pandemic, we we thought target market is about £110,000,000 with about six and a half thousand catastrophic claims in a typical year. And we predict predicted that the reduction in accident numbers resulting from the pandemic would translate into a similar reduction in catastrophic injury claims.

34:28 In case management, we thought that the reduction instructions in year would would would also follow with the recovery in volumes after just a few months after the relaxation of restrictions. And in expert witness, we thought that the impact on instructions would be less pronounced and would be spread over multiple years. And that's because of the delay between an accident occurring and an an expert witness instruction being received, which is often a few years, sometimes three years off after. And these projections do appear to have materialized. And last year, we saw clear evidence, that the reduction in case management instructions that we saw during lockdown was followed relatively quickly by a recovery just a few months later as restrictions were lifted.

35:14 And we're really pleased with the level of instructions that we saw in the first half of twenty twenty one. And expert witness performs, much better than we expected because of, marketing and business development investment that we put in, throughout lockdown. So on case management specifically, our revenues were up 3%. That was despite the number of new instructions being unchanged from, the same period last year, and that benefited last year, of course, from a a pre pandemic period for most of q one. The number of open case management cases grew by 4%. Open case open cases, that that results in recurring revenues. They're really important for us because we bill monthly for ongoing services to support our clients' rehab, and those services can go on for three years on average.

36:03 Expert Witness Services, they had a really strong first half as well. Our revenue grew by 8%, and the number of new instructions increased by 20%. This was achieved, as I said, through sustained marketing and business development. And we do suspect that there's a proportion of those were delayed from last year, but still a very, very strong performance. The number of reports we issued was also up 13%, and that's a strong result. Underlying operating profit was 12% lower at £1,700,000, and that really reflects the investment that we're making in in in those initiatives to fund future growth such as hubs and bush care solutions. And, also, we're doing more remote service delivery in response to COVID, which has been which has been necessary to support our clients, but it's a bit less profitable.

37:00 So to summarize then, in the first half of the year, the group has remained profitable. We generated positive cash flow, and we reduced net debt. We made progress with our strategic priorities, and we successfully launched several really important initiatives that move us closer to achieving our long term objectives. Of course, COVID's still having an impact on our markets, and that's delayed our recovery. And we're hoping there'll be no further lockdowns. But in the last few months, we've seen encouraging signs of growth which have been sustained, albeit at a relatively slow rate. In critical care, we're investing in initiatives to accelerate our recovery from COVID and expand into adjacent markets. Our strategy in consumer legal services is to create a higher margin personal injury business by processing more claims in national accident law.

37:52 This will defer profits and cash for the next couple of years while those cases have progressed, but we believe that this will generate more value for our shareholders in the medium term. And over the next few years, we should see the value of our book of ongoing claims in NAHL continue to build. So that brings the formal presentation to an end. Thank you very much for listening. I appreciate it takes time to get to know a company before you make an investment decision, which is why we're coming to you now to introduce our story. And we'd love to come back in six months' time to talk to you again about the progress that we've made. Fantastic, James. Thank you very much indeed for your presentation there. Ladies and gentlemen, do please continue to submit your questions using the q and a tab situated in the top right hand corner of your screen.

38:38 But just while the team take a few moments to review those investor submitted already, I'd like to remind you that recording this presentation, along with a copy of the slides and published Q and A, can be accessed via your investor dashboard on the Investor Meet company platform. I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide your feedback in order that the team can better understand your views and expectations. Tim, if I may hand back to you just to host the Q and A and read out investor questions where appropriate to do so and just direct them to the team, that would be great. Thank you. Thanks very much. Well, we had some questions submitted beforehand, and I can see, we've also had questions submitted, during the course of James' very thorough presentation. In fact, a lot of the questions have been asked during the presentation are similar to the ones that we've already been asked.

39:28 So I'm gonna try and weave them all together in some themes. So the first question, which I'm gonna ask James to answer, is about looking forward for two or three years. Quite a few people have asked about this. And I think we should assume a return to pre COVID case rates when we're answering answering this question. So if we look forward two to three years, can we forecast where we see revenue and profits within the PI division, particularly, as a result of the increase in volumes of claims handled by NAHL? And there's another question linked to that about the number of non RTA claims that are gonna be handled by NAHL over that time frame.

40:23 Okay. Great. So I'm just making sure I was off mute there. Thanks, Tim. So I suppose I'll repeat myself a little bit just to just to give some context. So we're investing we're we're investing heavily in in non RTA cases in NAHL from the second half of this year. We see that as a great opportunity to build a more profitable, higher margin business. And that's why we're going to be increasing that proportion as as we move over the next two years to really grow that reservoir value in the book. So what's what the 4,600,000 that I referred to earlier on at the end of June. I think at that point, after a couple of years, so probably towards the end of twenty twenty three, we expect to see the the the value level off as the book matures and starts to throw off more cut more cash.

41:11 And at that point, the cash generated should broadly equal the investment that we're putting in. Of course, we could keep growing, like I said earlier on, but but we need to get a balance, I suppose, for our shareholders to make sure that we we can generate a return in the medium term. And we can use our flexible distribution model to fund that growth until we get to maturity, so that should be self funding. And and that's why our panel and our joint venture partners form such an important part of of that strategy and of that balancing act. But in terms think that that part of the question was around specifics about inquiry distribution. I think in terms of the proportion of inquiries being placed in NAHL, I'd say that it's unlikely that we will place more than 50% of all our our inquiries into NAHL in that time frame because we need to place them in the panel as well to generate cash flow to fund that. And on the non RTA side, specifically, I wouldn't see us putting more than 40% of those into NAHL on that basis.

42:13 Hope that answers the question. Thanks very much. So broadly over two to three years, the number of inquiries increases and then starts to plateau in order to allow the value to be realized. Yes. Correct. Excellent. We've got some questions on net debt as well, but I think we'll do those later because there's a there was a pre asked questions about net debt as well. But I just wanna turn to marketing now because we we had some questions about marketing. So looking at marketing over the next couple of years in terms of our focus, and I think our focus is either digital or television. These questions are about what what what is our strategy going to be, and what's the required investment to generate the claims required to support the growth plans you've just identified.

43:16 How much would that say? Yeah, Chris. Sorry. Yeah. Why don't you do that? Yeah. Sure. So I guess there's two aspects to that, really. I guess the first is to cover off the market. So we are we are still quite heavily affected by COVID, and that makes predicting predicting the next kind of six to twelve months in that recovery trajectory quite quite challenging. It's something we've been living with throughout COVID as James has kind of already covered off. If I if I talk about the kind of full recovery of the market, we we gather an anecdotal feedback from from partners and and other firms within the industry. And the consistent view we seem to get at the moment on the RTA side is that there there may not be a full recovery to to pre pandemic levels, not because of the pandemic, but more more more related to the reforms coming in that have come in during the pandemic.

44:02 The reduction the the the range of reduction that that we hear is is around 10 to 20%. As James has already pointed out, that's not that's not the key part of our of the volume we generate. Our focus is is much more on the on the non RTA side. And again, the anecdotal feedback on the on the non RTA side is that there's no reason why that shouldn't return to a full recovery. I guess the the the tricky bit within that is is when, and that's the that's the piece we're navigating all the time as we as we work through this. In terms of marketing itself, so our channel, we have we have a number of levers we can pull in terms of the marketing channels. Predominantly, at at the moment, we're on paid search. That's where we're spending most of our most of our spend. We also invest in organic, which which essentially generates us some free inquiries that helps keep the the the blended cost of a of a claim down for us.

44:52 And it but historically, TV has played an important role in our marketing mix, and we see it play an important role in the future as well. Again, we haven't been on TV since q one twenty twenty, so since just before the the pandemic hit. And but we always keep that under review. We we we would like to get back on TV when the when the time is right, but we'll only do that when the time is right for us to to make the, yeah, the correct return on on those inquiries. I guess the key point to make here is that we we have a number of levers that we put in all the time, and we're and we're looking to manage that around a consistent consistent cost per claim that we generate. That's something we've done over the last over the decades, essentially. It's it's something we always do and we'll always continue to do going forward. That answers the question. Thanks very much, Chris.

45:40 Somebody asked a question. James just linked to that about the competitive environment in the personal injury market right now and where we fit into that. And I just wonder whether you're able to cast some light onto that. Yeah. Sure. It is it is competitive. So I think the the the result result of the reforms that that Chris talked about a little bit there is that I think a lot of a lot of firms focused previously on RTA claims. So we're we're slightly slightly unusual in the market in that we focus on non RTA claims. Most of the firms out there probably focus on RTA claims. And in order to make a profit of RTA claims post reforms, you need to be really efficient. We've got the benefits of having invested a lot in technology, in processes. So we completely redesigned all the processes around RTA small claims proposition and really put the customer at the center of everything we do. We have a digital, platform. We have an online account where people can see, the progress of their claim all the way through, so they don't need to to always just call in to check how their claim is getting on.

46:49 And we don't have any legacy as well. So a lot of law firms out there suffer from legacy systems, and and we don't have that. We've got brand new tech. So we're at an advantage, and we think what's gonna happen in the market is is the the number of firms processing RTA is is gonna contract quite considerably, and and there's gonna be there's gonna be five or six bigger firms, well capitalized firms with technology solutions. They're gonna dominate the the RTA market, and and we're gonna we plan on being one of those firms. So because of that, because of the what's happened to the RTA RTA inquiries, I I think what we've seen in the marketing environment is there's there's been a lot of activity of firms trying to bid on on non RTA claims, and that's caused a bit of volatility in the market and and and and pushed up costs in the short term.

47:41 We expect that to to normalize over the longer term, and we expect the cost of acquisition to fall as a result of as a result of those reforms in order to make the economic model in in the industry work. We're not we're not expecting that to happen overnight. In our models, we've been quite prudent about that, but we do we do think that's gonna reduce over time. So in the short term, it's quite competitive and not too much on TV. So I think a lot of the big players are are recognized the the significant cost of investment on being on TV. But over the longer term, we expect it to become a bit the cost of acquisition and a bit less competitive. James. Another question sort of following on from that, I suppose.

48:29 This question is about ambition ambition to become The UK's leading technology enabled law firm focusing on high volume personal injury claims. And person asking this question wants to know what could prevent us from achieving that goal. Okay. I'll give you one thought, and and maybe Chris can can chip in with his thought as well. So my my one, I'd probably say, possibly, would be capital. So capital could be a constraint on our growth, and that's why our flexible business model is so important to us and why we need to continue to distribute inquiries to the panel as well to to generate cash. So people often ask us, why don't we just place all of our inquiries into NAHL if that's gonna generate a higher margin business? But, of course, we need to manage that that working capital dynamic.

49:17 So it's it's a balancing act. It's something we do day in, day out, and and we want to invest in non RTA claims as we grow, but that takes two to three years to to mature. So capital is something we keep a very close eye on and managing those those sort of debt levels. So that's that's one thing that we need to definitely focus on. What about you, Chris? What do you think? Yeah. Thanks, James. I think I think on the small claims side, customer behavior is something we need to influence as we as we start working through high volumes of small claims claims as they as as they're in train. Revenues have obviously come down quite heavily as James has already pointed out, and we need to we need to make the process as light touch as we possibly can to make to to keep margins as strong as we can on on processing those claims. I think that will drive a benefit over to the non RTA side as well, albeit the the behavior doesn't need to change quite so much on that side for us to to to generate good margins.

50:12 I think there will be a benefit from it. So the way the way we're doing this is to drive as many people down a digital lead group as we can, both from the initial journey from when they first land on our website before they start start their claim through to when they're running their claims. So we have a we have a tool that we've built in preparation for the reforms called My Account, which is a tool that essentially allows the customer to see where where their case is up to, allows them to submit evidence, answer questions, submit any any evidence they need to to progress in the claim, etcetera, and and essentially cuts down that time on the phone, which which is a lot more costly than than that's running it through through this digital led journey. Thanks, Chris. I have a question now about the return on investment we're looking for by placing more cases into NAHL and how that compares with the return expected from cases processed through either the JV or the traditional panel model. So, James, perhaps you can help answer that.

51:15 Yeah. Sure. So I'll I'll I'll probably refer more to non RTA inquiries here. So all all of of our our RTA inquiries are going through our own law firm NAHL at the moment because post reforms, we just don't think is there's a there's there's there's an economic model to sell those inquiries onto onto panel firms. So that's all going through our own law firm. If if we focus on non RTA and the return there and consider, I suppose, the biggest cost, like I said, is is generating that that inquiry. And that's largely marketing cost, but also the cost of triaging that. So if I think about oh, I think there's a bit of echo there. Someone yeah. That's great. So if I think about the return we make on that that that cost to generate an inquiry, probably, we make about a 100%, I'd say, return return on investment if we process that through the panel.

52:09 And if we put that through NAHL, that return on investment increases to probably about a 150 going on for 200%. But you gotta remember in the in the panel, that's all quick cash. So we can generally get that cash out in in thirty days, whereas in NAHL, we need to wait for the settlement, which can be two to three years. So it's it's it's that balancing act. You get a much higher return on investment through NAHL, but you have to wait for the cash, and you balance that with quick cash but a lower return on investment through the panel. So I hope that helps. That's very helpful. Thanks. So we've got about five minutes left. So there's perhaps time for two more questions. So the first one is about net debt and working capital, which you said we'd return to.

52:57 And people are sort of asking, as the number of claims handled by NAHL increases, and obviously investment in working capital follows that, how, how confident are we of our ability to generate cash? And what are our plans and timelines with regard to reducing net debt. So, James oh, no, Chris. I think perhaps you better answer that one. CFO question, I think. Excellent. Okay. So I I guess the first thing to point out is we have a 25,000,000 revolving credit facility with Yorkshire Closedale Bank. We've been in the bank a number of years. They remain very supportive. They're they're fully aware of the strategy that we're embarking on, And so we remain supportive throughout. As James said earlier on in the presentation, we when when COVID hit last year, we we we prioritized placing our inquiries into the panel to generate quick cash and liquidity and bring down our net debt levels. And that was the right thing to do. It was 6,000,000 cash generated last year, and we've we've brought the net debt continuously down to a level of around 15,000,000 as of this half year.

54:01 Our our priorities now have switched. We've we've we've so now is the time the right time to invest in non RTA cases and drive that margin and and and grow the business in the medium term. So as as a result, I wouldn't expect net debt levels to be to be reducing for the next couple of years as we as we go through that growth phase. And as James said, these take a these take a couple of, what, two to three years to mature, and we'll continue to invest in inquiries during that time into the law firm. We now need to trade that balance between keeping that debt net debt levels at a reasonable level whilst we whilst we go through that growth phase. Sorry, Tim. I think you're on mute still. Sorry? That's it. That's it. Great, Chris. Sorry. So I got one last question. So this this question is about the value of the of the group.

54:55 And this person says, it could be argued that the structure of their group is failing to recognize the underlying value of its separate divisions, in particular, the value of the Bush and Co business as well as the percent potential sale of Homewood Legal? Have we considered other ways in which to unlock the underlying value of the business for shareholders such as a spin off of Bush and Co? So I think I think I'll answer this just to finish off. And the first thing I'd I'd like to emphasize is that the board is very focused on creating value for our shareholders. That's our driving principle. And over the last twelve months, we've been implementing our strategy to to maximize value in all the ways that you've heard today.

55:44 It includes the investments that we've made in critical care and, of course, in NAHL. We're putting more and more of these inquiries into NAHL to create that reservoir of value that will be realized when the book matures in a few years' time. We have decided to divest our residential property business, which isn't core, as part of that strategy to maximize value. And I think we all agree that the market isn't currently recognizing the value that we see in our business. That's one reason we wanted to do this today so that so we could share the story with you in some more detail. And it is disappointing, but we don't believe now it's the right time to think about spin off or further divestment.

56:31 But, you know, we'll obviously keep all options under review in the future. But our focus is very much on creating value shareholders. And that's what we've really hopefully covered in the presentation today. So that's it. We're just about out of time. It's 12:29. I think we've got till 12:30. So thank Perfect. You very much for coming along, and I hope you found the presentation and the q and a session helpful. Thank you. Tim. Tim, James, Chris, thanks indeed for addressing those questions from investors. Of course, any further questions that do come through, you will have that ability ability to review those, and we'll publish responses where appropriate to do so on the investor meet company platform. Chris, perhaps before we just before we redirect the investors to give you some feedback, just have a closing snapshot from you, that'd be fantastic. Thank you.

57:23 Yeah. Thank you. So I think in the first half of the year, the group remained profitable. We generated positive cash flow and reduced net debt despite the ongoing impact of COVID nineteen. We made progress with our strategic priorities and successfully launched several important initiatives that bring us closer to achieving our objectives. And we've taken the group through a quite significant transformation over the past few years to respond to industry reforms and reinvented ourselves as a modern technologically enabled law firm that's processing our own personal injury inquiries. We've also got a great business in Bush and Co as well, supporting our clients in their in rehabilitation of catastrophic injuries. We're scaling both of these businesses, and we feel really excited about the opportunities that we see in the future.

58:12 That's fantastic. Tim, James, Chris, thanks again for updating investors. Can I please ask investors not to close the session? Should be automatically redirected for the opportunity to provide your feedback in order the team can better understand your views and expectations. This will only take a few moments to complete and be greatly valued by the company. On behalf of the management team of NAHL GROUP PLC, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you, and good afternoon.