Innovation Group (From Edison Group)

Innovation offers a combination of business process outsourcing, supply chain management and technology solutions to the insurance industry. Its focus is on outsourcing claims management for the automotive sector, but it also supplies solutions into the property/casualty segments of the industry.


to build a market leading company through the provision of first-rate BPO and technology to its customers

Positive

deal and pipeline look healthy, a number of major proof of concept trials underway and average deal size increasing up to £5m pa
balance sheet strengthened,

operations substantially rationalised.
rollout of the Enterprise product platform - significant productivity and competitive benefits, should support a return to double-digit margin profile once rollout into all other geographies will completed FY11. more stable revenue profile
Restructuring work is now largely done - £2.5m in annualised cost savings
Significant BPO wins, good pipeline
EV/sales and EV/EBITDA multiples of 0.3x and 2.3x highlight the scope for upside


Negative sensitivities

Lose a significant contract last year as a result of an insurance company moving operations inhouse, so one cannot rule out further losses.

Competition from an in-sourced operation.

Consolidation of the bodyshop market could at some stage pose a threat, in that operations with national bodyshop networks could secure repair contracts directly with insurance companies.
Innovation is currently the subject of a lawsuit brought by Allstate Insurance of Canada, relating to the implementation of a customised policy management system. The claim is for C$75m(approximately £43.5m) and costs.
The company considers the litigation to be speculative in the extreme and without merit and has served a counterclaim for $31m for wrongful repudiation of contract and monies owing for work done.

Currency - only 11% of H1 sales being generated from the UK. I most exposed to movements in the euro, US dollar and South African rand. The exposure is mainly translational, in that operations are serviced by local offices, but there is some transactional exposure given that circa £10m of the operating cost base is UK-based.

Revenue models vary from region to region, but predominantly the company is paid per claim