Towergate yet to realise its potential

Mark Hodges has put a brave face on Towergate’s full-year results.

Leaving aside the large statutory net loss and the arguments for and against using EBITDA (earnings before interest, tax, depreciation and amortisation) as a performance measure, the company failed in its aim of growing EBITDA in 2011.

On a pro-forma basis, which strips out the distorting effects of adding CCV, PowerPlace and Countrywide to the group in 2011, EBITDA was slightly down at £152.4m. While by no means a terrible result, it is hardly a resounding success either.

As a good chief executive should, Hodges has accentuated the positives: 2011 was full of both internal and external distractions; Towergate overhauled its financing and organisational structure against a background of a tough economic climate. A stellar result was not to be expected in such a year.

Also, Hodges has pointed to the fourth-quarter EBITDA growth as a sign that, while the overall year was flat, the fruits of Towergate’s labours started to show through as the year drew to a close, and should continue to do so as 2012 rolls on.

This growth could well indicate momentum, but it is too early to call. Individual quarters are a poor proxy for a company’s performance, partly because income flows are rarely consistent quarter to quarter.

This, coupled with the noise generated by Towergate’s 2011 transformation, means it is going to be at least a year before we can truly see whether the plan is working.

Towergate clearly has a lot of potential, which is why Hodges is upbeat. The company has multiple business lines, a good competitive position, strong cash generation and an all-star management team. Its potential, however, has yet to be fully realised.

Legal Aid Bill gets the royal nod

After much ping-ponging between the Lords and the Commons, the Legal Aid Bill should get signed off by royal assent next week.

The bill has proved to be one of the most hotly debated pieces of recent legislation, both inside and outside parliament, but – with parliamentary haggling over – the shape of the legislation is now clear.

From an insurance industry point of view, the most important part of the incoming legislation is Lord Jackson’s original recommendations on civil litigation costs and the addition of Jack Straw’s recommendations on referral fees. In addition, the bill has been extended to include clauses on preventing metal theft and the creation of a new offence for causing serious injury by dangerous driving, among others.

One of the most recent changes was to spare mesothelioma cases from the wider ban on recovering success fees, for now at least. The reason for the delay is that justice minister Jonathan Djanogly wants to know more about how the bill will affect mesothelioma sufferers. The government needs to commission and publish a report on the issue before the legislation is extended, and Djanogly has not yet set a date for this.

The next step will come in April 2013 when the act comes into effect. The Ministry of Justice originally delayed the implementation date from October 2012 to give itself more time to prepare for the changes, but some believe that even this delay might not be enough. The industry and specialist insurance lawyers will no doubt be watching closely.