Anexo Group (AIM:ANX) said in its half-year results that it has become cash generative as a result of increased cash collections throughout the six-month period ended 30 June 2020.
The credit hire and legal services firm has achieved its milestone despite the effects of the COVID-19 pandemic which, despite its two core divisions remaining fully operational throughout, had ‘inevitably affected performance’ in the latter part of H1 2020.
As a result of the pandemic and subsequent lockdown, Anexo reported a reduced adjusted operating profit in H1 2020 to £7.8m from £11.8m in H1 2019 (H2 2019: £13.4m), largely down to Anexo’s investment in staff to drive settlements and cash receipts in the 2021.
The group reported an overall net cash inflow, excluding proceeds from its recent £7m placing, of £2.4m representing ‘a significant improvement’ from in H1 2019 where £7m of cash was absorbed, and that of H2 2019, where a further £1.5m of cash was absorbed.
Anexo said it owes reaching its cash generation milestone to its focus on the legal services business, with its efforts and investment driving settlement capacity and cash collections from the recruitment of a significant number of senior litigators across Liverpool and Bolton.
In particular, and driven by the continued investment in legal staff, cash collections from settled cases reached £48m in H1 2020, an increase of 30.9% on H1 2019 (£36.6m) and a slight increase over that seen in H2 2019, which totalled £47.5m, the group told investors.
Shares in Anexo Group have climbed from 119p in the past two weeks and closed at 137.5p on Wednesday.
Despite a decline in activity levels and cash collections in H1 2020, recent activity levels have indicated a strong second half performance for the group’s Credit Hire division.
Similarly, while the number of road vehicles fell sharply and weekly levels of new business fell to around 25% during the lockdown period, the group’s credit hire business has since entered the second half of the year ahead of Anexo’s post-pandemic internal targets.
In May, the group raised £7m to expand its advocacy and litigation team which included recruiting new staff and opening a new office in Leeds. The proceeds are also being used to fund marketing costs for its legal services division, Bond Turner, which is handling about 8,000 potential claims in the emissions lawsuit against German automaker, Volkswagen.
The group further increased its capital base with a £5m drawn from the Government’s CBILS scheme in July, resulting in a significant improvement in cash headroom for the business.
The Board said it expects H2 2020 underlying profit before tax, before its investment in the VW emissions case acquisition, to recover strongly and expects the company’s core credit hire and legal services business to continue to be cash generative throughout H2 2020.
As a result, the Board has proposed an interim dividend of 0.5p per share which will be paid to shareholders on 23 September 2020 which is down from last year’s 1p per share pay-out.
Commenting on the results, Alan Sellers, Executive Chairman of Anexo Group, said:
“As we set out at IPO in 2018, our strategy was to invest and expand the Group's Legal Services division in order to increase the number of cases settled and therefore boost cash collections and maximise the value from the extensive backlog of cases in our portfolio.
Our ability to deliver on the strategy sends a clear message about Anexo's ability to deliver results to our shareholders, and will give confidence in the Group as we look to expand our unique business model and make the most of the significant market opportunity.”
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