Credit hire firm makes miscalculation and writedown amid tough market conditions
Credit hire company Helphire was squeezed on all sides during its most recent financial year, as a £29m calculation blunder, tough market conditions and a £26m goodwill writedown resulted in a £35.5m loss.
But Helphire group managing director Martin Ward said the forthcoming ban on referral fees should have a negligible impact on the group’s income. The government announced in September that it would ban referral fees, but has not given further details or a time frame.
“We effectively pass on the referral fees that we get from the non-fault accidents to our partners,” said Ward. “What we take out of the referral fee is fairly marginal and slim. Most insurers declare their referral fees position. Our part is pretty small on that scale.”
But Ward said it was too early to predict the impact of a ban on Helphire’s business in general.
“Personal injury cases might be handled differently in future,” he said. “To give an assessment of any impact - whether that’s an opportunity or a risk - would be premature at this stage.”
Ward acknowledged that there may need to be a rethink on how insurance services in general are provided to personal injury claimants if the market structure is overhauled to compensate for the loss of referral fees.
“When and if the market changes around referral fees, it will require a different perspective in terms of how you provide services,” he said. “You have to look at the business models and structures and say which is going to be the most effective and sustainable. That is a discussion we are having with our partners.”
Helphire’s £35.5m loss for the year ended 30 June 2011 followed a £12.4m loss the previous financial year. The company was hit by £28.8m of exceptional costs, the bulk of which came from a £25.7m writedown in goodwill.
The company also incurred £6.2m in restructuring expenses as part of the change programme it started in 2009.
If the market changes around referral fees, it will require a different perspective on how you provide services”
Martin Ward, Helphire
On top of this, as previously announced, the company discovered after a KPMG review that it had overstated prior-year receivables from the ABI GTA scheme by £29.2m. The company attributed the blunder to an erroneous calculation made at 31 December 2008 to estimate the settlement value of the receivables.
Some £26.8m of the overstatement was related to credit hire and £2.4m to credit repair. Of the £29.2m total, £21.7m related to the 2008/09 financial year, while the £7.5m balance was from 2009/10.
The hit was recognised in Helphire’s balance sheet. But the company took a £4.3m charge in 2010/11 to strengthen its settlement provision for the error.
While the bulk of Helphire’s woes were caused by exceptional items, the underlying performance also deteriorated. Operating profit adjusted for exceptional charges fell 37% to £3.4m in 2010/11 from £5.4m in 2009/10.
The company attributed this to tough market conditions. Higher petrol prices in 2010 pushed down road miles, and thus accidents. In turn, the lower accident rate meant body shops could repair cars more quickly, reducing hire times - a key driver of Helphire’s profit margins - to an average of 18.7 days in 2010/11 from an average of 21.5 days in 2009/10.
Ward acknowledged that the 2010/11 result “is not where we want to be”. But he added that the 2009 restructuring, which included staff cuts and office merging, helped steel Helphire for the difficult market.
“Because we have been ahead of that curve in that sense, the company has been in a good position to deal with the downward pressure on hire length,” he said.