December 7, 2011 1:02 am

Innovation Group seeks acquisitions

Acquisitions will be a top priority for Innovation Group next year, as the insurance software and services company strengthens its position in core markets, its chief executive said on Tuesday.

The software group will be on the look-out for companies to help it expand in the UK, Germany and Australia, where it sees “growth opportunities”, according to Andrew Roberts, chief executive. It also plans to expand into emerging markets such as India and Brazil, with a strategy focusing on “west first, then east”, he adds.

His comments came as Innovation announced the acquisition of Calliden Group, an Australian company that provides outsourcing services for motor and property claims, for £13.1m ($20m) in cash.

Mr Roberts said the acquisition would give the company access to the property claims markets and would increase its market share to between 20 per cent and 25 per cent, making it the largest independent claims handler in Australia.

The news marked a shift in strategy for the company, which said it had completed its two-year turnround with better than expected results for the year to September 30.

Innovation reported a 54 per cent jump in full-year pre-tax profits to £15.1m, on the back of new contract wins and increased demand for its insurance claims outsourcing business from insurers that had been forced to cut back on costs ahead of new Solvency II European capital requirements.

The company this year acquired Wintec in Germany and TJH Financial Services in South Africa for £3.9m in cash.

Mr Roberts said he was confident the company would see more growth in 2012, with more than 85 per cent of orders for next year “in the bag”.

The software group boasted of several “significant contract wins” in 2011, including one with Royal Bank of Scotland Insurance in the UK, which is expected to generate £40m of revenue over three-and-a-half years.

Turnover increased to £175.9m for the year, mainly from business handling claims for companies such as AXA, RSA, Aviva, Toyota and Zurich.

While Innovation’s biggest markets are Germany, South Africa and the UK, the company plans to expand its software arm – which grew by 13 per cent in 2011 – by licensing to companies in Brazil and India.

Innovation shares, which have risen by 15 per cent since the start of the year, fell 0.25p to 17.75p on Tuesday.

FT Comment

Innovation Group has gone through a reincarnation since the days of the dotcom boom when its shares soared above 800p. Since the bursting of the internet bubble, its shares have dropped to slightly below 18p. It trades at 12.8 times forecast 2012 earnings, a discount to its sector average of 13.5 times. Yet, the group still trades a premium compared to some of its UK sector peers, mainly because it is less exposed to cuts in the UK public sector. Investors looking to benefit from the current trend of share buy-backs and rising dividends should look elsewhere though. This company is a longer term bet for those with more patience.

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