Final Results
Hansard Global plc
27 September 2007
Hansard Global PLC
('Hansard Global' or the 'Company')
Preliminary results for the year ended 30 June 2007
Hansard Global plc, the specialist long-term savings provider, today announces
its results for the year ended 30 June 2007.
Financial Highlights
•Profit after tax for the year was £19.7m, an increase of 11.3% over the
previous year (2006: £17.7m)
•EEV operating profit for the year was £38.0m, an increase of 20.3% (2006:
£31.6m)
•EEV operating profit per share was 27.7p, an increase of 20.4% (2006:
23.0p)
•EEV of the Group at 30 June 2007 has risen to £218.0m, an increase of
22.1% (30 June 2006: £178.6m)
• Assets under administration at 30 June 2007 were £1, 130.4m, an increase
of 19.3% (30 June 2006: £947.3m)
• Stable New Business Margins of 8.3% (2006: 8.0%)
• Final Ordinary dividend of 6.0 pence per share, making full year
dividend of 10.0 pence per share for shareholders on the register on the 26
October and payable on the 23 November
• Special dividend of 5.0 pence per share to be paid with the final
dividend
• Current trading: APE of £8.3m for first 12 weeks of year, up 50%
year-on-year
Operational Highlights
• Robust and diversified new business flows, particularly from Europe, Far
East, Scandinavia and Latin America
• New business initiatives providing growth
• Plc status has given Hansard platform to attract and compete for new
business from a wider range of Intermediaries
• Strengthened team with four new non-executive directors and appointment
of Head of Institutional Business
• Hansard Online continues to innovate and differentiate
Dr Leonard Polonsky, Hansard Global's Chairman, commented:
'This is an excellent set of results. We have continued to grow and develop the
business: profits, EEV and new business volumes are all up on the prior year.
We have benefited from the scaleability and flexibility of the Group's
operations, allowing us to enter and develop new markets and exploit growth
opportunities within our existing markets, without the need for significant
further investment.
The long-term trends in our chosen markets will allow intermediaries with whom
we work to capitalise on these opportunities. Whilst short-term fluctuations in
market levels may temporarily disturb growth patterns, we remain positive about
the Group's growth prospects and are enjoying a strong start to the current
year.
Taking into account the strength of the Group's balance sheet together with our
ongoing ability to generate cash I am delighted that the Board has felt able to
declare a special dividend of 5.0p per share taking the overall dividend payout
to 15.0p per share since the IPO last December.'
For further information, please contact
Hansard Global Plc
Dr Leonard Polonsky, Executive Chairman Tel: 01624 688 000
Bell Pottinger Corporate and Financial
Dan de Belder/ Ben Woodford/ Algy Rowe Tel: 020 7861 3232
Chairman's statement
This has been an exceptional year in the history of the Group for a number of
reasons:
• the Company was listed on the main market of the London Stock Exchange
on 18 December 2006;
• the Group achieved a record profit;
• New business results for the year maintained the levels of the prior
year, which were themselves at record levels, and
• Assets under administration exceeded £1 billion.
This is the Company's first preliminary results announcement as a listed
company. It incorporates five and a half months as a privately held company and
the remainder as a public company. In the period since listing we have
experienced significant changes in our reporting requirements and in the Group's
Corporate Governance frameworks. We have taken the opportunity of providing
within this Annual Report a number of sections dealing with how we operate in
this new environment.
Financial performance
The financial results have been presented in accordance with UK Generally
Accepted Accounting Principles ('UK GAAP'). Additionally, certain information
relating to embedded value is presented using the European Embedded Value
('EEV') methodology. The EEV information, read in conjunction with the other
financial information produced by the Group, provides an insight into the
financial performance of the Group, year on year.
I am pleased to report that the strong performance in profits and new business
achieved over the last two years has continued in this financial year. The UK
GAAP profit after tax for the year was £19.7 million (US$40m), an increase of
11.3% over the profit of £17.7m earned in the previous financial year. Earnings
per share are 14.4p (28.9 cents), compared with 12.9p.
EEV profit after tax was £44.9m (US$90.2m) (2006: £36.1m) being a return of
25.1% on the opening EEV. This return is consistent with the prior year. The EEV
of the Group has risen to £218.0m (US$436m), an increase of 22.1% from the value
at 30 June 2006.
New business
Continued strong new business flows were received particularly from Europe, the
Far East, Scandinavia and Latin America. Initiatives to develop intermediary
relationships in each of those areas were successful and we are confident that
further growth in those markets is achievable. Our new business margins remain
well above industry average, principally due to the Group's efficient operating
model and our undeviating focus on value and the maintenance of margins.
New business flows have contributed to the value of the Group policyholders'
funds at 30 June 2007 increasing to £1,130m ($2,270m), an increase of 19.3%
since 30 June 2006. The Group's focus on creating market development
opportunities for Hansard Europe Limited continues to bear fruit. The value of
policyholder funds administered by that company increased by over £100m ($200m)
during the year.
Corporate Governance
The Group is committed to maintaining a strong Corporate Governance environment.
During the year the Group established an Audit Committee, a Nominations
Committee and a Remuneration Committee of the Board.
In preparation for the listing, there were a number of changes in the
composition of the Board. Four non-executive directors (Bernard Asher, Maurice
Dyson, Uwe Eymer and Harvey Krueger) joined the Board prior to the listing to
bring their considerable expertise and to enable the Company to comply with good
Corporate Governance practice.
Significant shareholdings
At the date of this report I have the largest beneficial shareholding in the
Company, as a result of my direct holdings and my holdings in Polar Cap Limited
('Polar Cap'). Polar Cap was the holding company of the Group at time of listing
and is currently the registered holder of 28.8% of the Company's issued share
capital. Polar Cap intends to complete the reorganisation referred to in our
prospectus by 31 December 2007. As a result of that reorganisation, I will hold
a direct interest of 43.2% in the Company. The reorganisation will not affect
the number of the Company's shares in issue.
We are very pleased with the range and quality of institutional shareholders
that we now have.
Dividends
On 4 May 2007 the company paid an interim dividend of 4.0p per share. The Board
intends to pay dividends approximating to 70% of UK GAAP earnings for each
financial year.
Employees
The listing of the Company, coupled with continued growth in profits and new
business, could not have been achieved without the on-going commitment and
dedication of our employees. The progress that we have made, despite the
disruption to business activities caused by the listing process, is a reflection
of their skill and enthusiasm. On behalf of the Board and shareholders I thank
them all.
Strategy and outlook
The Group's objective is to grow by attracting new business and positioning
itself to adapt rapidly to market trends and conditions. In particular we see
that the institutional relationships present greater opportunities following the
listing. The scaleability and flexibility of the Group's operations allow us to
enter and develop new geographic markets and exploit growth opportunities within
our existing markets, without the need for significant further investment.
The long-term trends in our chosen markets will allow intermediaries with whom
we work to capitalise on these opportunities. Whilst short-term fluctuations in
market levels may temporarily disturb growth patterns, we remain positive about
the Group's growth prospects.
Dr Leonard Polonsky
26 September 2007
Business Review
Business
The Group is a specialist long-term savings provider based on the Isle of Man
and the Republic of Ireland. It offers a range of flexible, tax-efficient
investment products within a life assurance policy wrapper, developed to appeal
to affluent international investors.
The Group has designed its products, distribution methods and cost base with a
view to reducing
operational and financial risks. The Group's products are distributed, utilising
its low-cost distribution model, exclusively through financial services
intermediaries, independent financial advisers or the retail operations of
financial institutions (together, ''Intermediaries''), supported by its award
winning, multi-language internet platform, Hansard OnLine. The Group has
established a network of Account Executives providing local language and other
support services to Intermediaries in a number of areas around the world.
The Company's principal office is in Douglas, Isle of Man, and its regulated
life assurance subsidiaries operate out of the Isle of Man, and Dublin, Republic
of Ireland. Its location on the Isle of Man allows the Group freedom to flourish
within a highly-regarded regulatory framework, with a zero rate of Corporation
Tax, and with access to an educated workforce and a robust telecommunications
infrastructure. The Policyholder Protection legislation enacted by the Isle of
Man Government provides additional security upto 90% of the liability to
policyholders. Our operations in Dublin allow the Group's products access to the
European Union marketplace under the 'freedom of services' provisions of the EU
Life Directives.
Dividend Policy
The Directors intend that the Company will pay dividends of 70% of the Group's
profit after tax for each financial year. The Directors intend that interim
dividends, representing 40% of the total dividend expected to be paid in respect
of a financial year, will be paid in May, with a final dividend in respect of
that year to be paid in November after the financial year end.
Key Strengths
The Directors believe that the Group's products are attractive to affluent
international investors and other individuals and institutions. By enabling
access to a wide range of underlying funds, the Group is able to offer the
benefit of economies of scale to Intermediaries and their clients, who might not
otherwise be able to secure access to such a wide range of investment
opportunities in such a convenient and flexible format.
The Group's products generally do not include options or guarantees that are not
fully priced within the products themselves. All policyholder investment choices
are closely matched. The margins on, and the capital efficiency of, the Group's
products mean the Group's operations are both profitable and cash generative.
The Group has a dedicated dynamic workforce whose skills have contributed to our
success.
The senior management team collectively, have an aggregate of over 185 years
experience in the long-term savings and the life assurance industry, including
some 120 years service within the Group.
The Group's internet platform, Hansard OnLine, is pivotal to the success of the
Group's business. It allows Intermediaries 24/7/365 access to real-time
information relating to the investments of policyholders whom they have
introduced to the Group and provides them with an additional sales and
administration tool. Hansard OnLine also reduces the Group's cost base.
The Group is well capitalised, with capital in excess of 17 times its aggregate
minimum solvency requirements as at 30 June 2007. This allows the Group to
absorb financial shocks arising from adverse circumstances whilst enabling it to
continue to deliver its business strategy and to support its stated dividend
policy.
The Group manages its capital to maintain financial strength to support new
business growth, to match the profile of its assets and liabilities, taking
account of the risks inherent in the business, and to satisfy the requirements
of its policyholders and regulators.
The Group's liquid assets are held with a wide-range of deposit institutions and
in AAA-rated money market liquidity funds.
The Group is monitoring the impact of 'Solvency II' and related guidance to
determine the extent of Economic Capital needed to support its activities.
The net asset value per share ('NAV') at 30 June 2007, on a UK GAAP basis, is
37.2p. This represents an increase of 38.3% from the NAV at 30 June 2006. The
NAV is based upon the consolidated shareholders' funds at the balance sheet date
divided by the number of shares in issue at that date, being 137,281,202
ordinary shares.
On the EEV basis, the NAV at 30 June 2007 is 158.8p. This represents an increase
of 22.1% from the NAV at 30 June 2006.
Strategy
The Group continues to operate its existing business model, which is designed to
reduce operational and financial risk, and to grow its business through:
•doubling the number of Account Executives by December 2012;
•developing and enhancing Intermediary relationships;
•developing profitable relationships with institutions and other wealth
management groups; and
•increasing the functionality of Hansard OnLine to continue to meet the
needs of Intermediaries and policyholders.
Key Performance Indicators
The Group has established a range of Key Performance Indicators ('KPIs'), both
financial and non-financial, that are designed to ensure that performance
against targets and expectations is monitored and variances explained.
•Cash - bank balances and significant movements on balances are reported
weekly. The Group's liquid funds at the balance sheet date were £70.8m, an
increase of 22.3% from 30 June 2006.
•Expenses - the Group maintains rigorous focus on expense levels. The
objective is to restrain increases in Administrative expenses to the rates
of inflation incurred across the Group.
•New Business - The Group has developed a measure of calculating new
business production, called Compensation Credit, which is designed to
indicate the relative value of each piece of new business. The Group's
objective is to grow new business at a rate of 10% - 15% per annum over the
medium term on this measure.
•Risk profile - The factors impacting on the Group's Risk profile are kept
under continual review. During the year the Group implemented an
Enterprise-wide Risk Management framework.
•Business continuity - Maintenance of continual access to data is critical
to the Group's operations. At no time during the year was access to data
interrupted.
Risks relating to the Group
The Board believes that the principal risks facing the Group are those relating
to the operation of the Group's business model and to the environment within
which the Group operates. There is in place an ongoing process for managing
significant risks faced by the Company.
Business model risks
Risks that could adversely affect the Group's business and financial condition
arise as a result of the Group's strategy and methods of operation. Principal
risks arising may be:
•The Group may not increase the number of its Account Executives or
Intermediaries in line with expectations, as a result of competition in the
financial intermediary market.
•Changes in policyholder and/or market sentiment may lead to the Group
experiencing a significant change in persistency rates.
•The Group's life assurance companies could be found liable to compensate
policyholders for losses suffered due to negligent investment advice that
they are deemed to have given.
•Loss of reputation or negative publicity arising in those highly
regulated markets in which we operate.
Regulatory and External environment risks
The regulatory and external environment in which the Group operates is subject
to various degrees of risk. Principal risks arising may be:
•Adverse economic, political and market factors, such as a prolonged
economic downturn, significant falls in levels of global capital and other
markets, and continued weakness of major currencies against sterling.
•The regulatory regimes to which the Group's life assurance companies are
subject may change.
•An adverse change in the Company's or the Group life assurance companies'
tax residence, effective tax rate or applicable tax legislation.
•A change in the appetite of policyholders, Intermediaries or their
clients for risk, or for the Group's product range.
•The Group's ability to continue to deliver effectively and to expand
Hansard OnLine is reliant, in part, on the growth and continued functioning
of the internet.
FINANCIAL REVIEW
Results
The financial results summarised below have been presented in accordance with UK
GAAP. Additionally, certain information relating to embedded value is presented
using the EEV methodology. The Board believes that the EEV information provides
more realistic information on the financial position and performance of the
Group than that provided by UK GAAP reporting alone.
The results for the year reflect positive income streams from contracts under
administration, coupled with continued discipline in expense management and
increases in new business production, despite the changes caused by the Group's
listing on the London Stock Exchange and the consequent disruption to our
activities.
Strong positive cashflows being generated from the existing book of business
have contributed to substantial returns on EEV, have funded new business
production, and the payment of a maiden interim dividend.
The Group's net asset value, assets under administration, and solvency margins
continue to increase.
1. UK GAAP Results for the year
The profit for the year is £19.7 million, compared with a profit for the prior
year of £17.7m. This represents an increase of 11.3%. Earnings per share are
14.4p, an increase of 11.6% over the earnings per share of the prior year.
All the costs of listing the Company were met by its then holding company, Polar
Cap. This has had the impact of the Company recovering some £1.47m from its
holding company for services rendered in connection with the listing. This
amount is included in the income statement for the year. Net of the impact of
all amounts received from Polar Cap in the years under review, the Group's
underlying profit for the year reflects growth of 4.6% over the profit of the
prior year.
1.1 Revenues
Fees and commissions for the year are £49.2 million, compared with the prior
year of £44.5m. This represents an increase of 10.6%, caused principally by new
business flows in the current year and the impact of fees received from
contracts that were being administered by the Group at the beginning of the
year.
Certain fees and commissions are earned by the Group in foreign currencies.
Adverse currency movements throughout the year have restrained the growth in
those amounts, when reported in sterling.
The geographical analysis of fees and commissions reflects the growth in revenue
attributable to new business issued by Hansard Europe Limited in the Republic of
Ireland over the year. This is principally single premium business that has
contributed to a growth in assets under administration by Hansard Europe Limited
of over £100m or 44% since 30 June 2006.
1.2 Expenses
New business commissions, together with the directly attributable incremental
costs incurred on the issue of a policy by the Group, are included within
origination costs in the consolidated income statement. All other costs are
reflected within Administrative and other expenses.
A summary of administrative and other expenses is set out below:
+---------------------------------------------+--------------+-------------+
|Year ended 30 June | 2007| 2006|
| | | |
+---------------------------------------------+--------------+-------------+
| | £m| £m|
+---------------------------------------------+--------------+-------------+
|Investment management expenses and other fees| 3.2| 2.6|
+---------------------------------------------+--------------+-------------+
|New business related costs | 3.4| 3.5|
+---------------------------------------------+--------------+-------------+
|Administrative expenses | 11.4| 10.2|
+---------------------------------------------+--------------+-------------+
| | £18.0| £16.3m|
+---------------------------------------------+--------------+-------------+
Investment management expenses and other fees payable by the Group are met from
charges deducted from the contracts administered, and do not impact on the
profit for the period. The increase over the previous year reflects continued
growth in assets subject to investment management arrangements.
New business related costs include all costs of operation of Account Executives,
Intermediary incentives and related expenditure.
Administrative expenses for the year include amounts totalling £0.6m for the
additional professional fees, insurance and other costs of operating in a listed
company environment.
1.3 Financial investments
Assets under administration at 30 June 2007, at £1,130.4 million, have risen by
19.3% since 30 June 2006. The main drivers for this increase have been new
business single premium flows and movements in capital markets. A significant
proportion of new business premiums is denominated in currencies other than
sterling (principally in US$ and €) and, as a result, the value of assets under
administration is sensitive to movements in exchange rates.
At the balance sheet date approximately 37% of the Group's financial investments
were held in dollar-denominated assets; 30% in euro-denominated, and 20% in
sterling assets.
1.4 Cash Flows
Cash flows in the year were strongly positive, allowing the Group to fund its
growth in new business from its own resources and providing sufficient funds to
meet the maiden interim dividend paid on 4 May 2007. Cash and cash equivalent
balances at 30 June 2007 stood at £70.8 million, an increase of almost £13m
since 30 June 2006.
2. EEV Information
EEV is an estimate of the value of the Shareholders' interest in the life
assurance and related businesses of the Group. The methodology used to derive
the EEV is consistent with the methodology used in relation to the EEV
Information published in the Company's prospectus document.
2.1 EEV Profit
The EEV Profit after tax, being the change in EEV over the year adjusted for
dividends, is £44.9m or a return of 25.1% on opening EEV. The return is
consistent with the previous year return of 25.3%.
The EEV Operating Profit remains strong. The EEV Operating Profit for the year
is £38.0 m, compared with £31.6m in the previous year. The New Business
Contribution ('NBC') for the year is £22.9m (2006: £21.6m).
Changes in assumptions were made to reflect the directors' current expectations
about future levels of expenses, mortality, lapses and other operating matters.
These operating assumption changes increased the EEV by £9.7m at 30 June 2007
(2006: £0.4m loss). This is largely driven by changes to reflect improving lapse
and mortality experience and greater margins from policyholder activity than
previously expected. These positive contributions to EEV are partially offset by
allowance for greater than previously expected partial withdrawals and higher
than previously assumed expenses (mainly due to the further additional costs
associated with a listed entity).
During the year, modelling improvements, primarily regarding the modelling of
single premium cases with a premium above £1m, reduced the EEV by £3.0m (2006:
Nil).
Experience variances arise where the Group's actual experience in areas such as
expenses, policy persistency, mortality and fees from policyholder activity
differs during the period from the assumptions used to calculate the EEV at the
previous year-end. Experience variances gave rise to an EEV loss of £0.8m in the
year (2006: £4.0m gain).
The expected return on Net Worth of £2.1m (2006: £1.2m) reflects the anticipated
increase in shareholder assets over the period due to the time value of money.
Investment return variances contributed to a gain of £6.9m in the year (2006:
£5.2m gain). The main elements contributing to the variances are as follows:
•Investment performance of policyholder funds and Marketing allowances
received from external fund managers during the year were higher than
expected, contributing to a gain of £12.8m (2006: £6.8m);
•The strengthening of sterling against the US dollar, in particular,
during the year resulted in a £6.3m loss (2006: £1.5m loss).
Changes to the yields in fixed interest markets caused the risk discount rate to
increase from 4.8% at 30 June 2006 to 5.0% at 30 June 2007, and the projected
unit growth rate to increase from 1.93% to 2.15% over the same period. The
combined effect of these two opposing changes had little impact on the EEV.
In order to better explain the movement in capital flows, the components of EEV
profit for the year are shown separately between the movements in Net Worth and
the present value of in-force business in note 2 to the EEV information. This
analysis demonstrates the realisation of projected future profits into Net Worth
during the year.
2.2 EEV balance sheet
The EEV as at 30 June 2007 was £218.0 m, representing an increase of 22.1% or
£39.4m over the value at 30 June 2006. Throughout the year, new business has
been written by the Group at consistently profitable new business margins. These
factors have contributed to the growth in the Group's EEV.
The table below provides a summarised breakdown of the EEV at the reporting
dates.
+------------------------------------------+----------------+---------------+
| | 30 June 2007| 30 June 2006|
+------------------------------------------+----------------+---------------+
| | £m| £m|
+------------------------------------------+----------------+---------------+
|Net Worth | 56.5| 43.3|
+------------------------------------------+----------------+---------------+
|Value of future profits | 161.5| 135.3|
+------------------------------------------+----------------+---------------+
|EEV | 218.0| 178.6|
+------------------------------------------+----------------+---------------+
Net Worth is the market value of shareholders' funds, adjusted to exclude
certain assets such as deferred origination costs and liabilities such as
deferred income reserve. At the balance sheet date the Net Worth of the Group is
represented by liquid cash balances.
3. New Business
The Group has achieved sustained growth in new business at margins consistently
above those of the Group's competitors. The growth of new business reported in
sterling has been restricted during the year by a combination of adverse
currency movements, timing of new single premium business flows, and the Group's
desire to maintain those new business margins.
Continued strong new business flows in the year were received particularly from
Europe, the Far East, Scandinavia and Latin America. Initiatives to develop
Intermediary relationships in each of those areas were successful, and we are
confident that further growth in those markets is achievable. New business in
Europe was, however, restrained by a combination of regulatory intervention in
product design and competitor activity in certain markets. Initiatives to
develop the Polish market, so far, have borne limited fruit. We have replaced
the country manager with a local Account Executive, who is well known in this
market. The Middle East office will be headed by an experienced Account
Executive, who will bring to the area increased levels of knowledge and hands-on
vigorous activity.
The value of Regular new business premiums has represented the driver for
growth, with Annualised Premium Equivalent ('APE') having increased by £2.1m or
12.6% year-on-year on a constant currency basis. The core Single premium
business performed well, but was impacted by unevenness in the timing of issue
of cases at the top end of the premium range. In Q4 of this year, reported new
business suffered in comparison with a very strong comparative period in which
one EU case alone represented £2m of APE.
A significant proportion of the Group's new business premiums is denominated in
currencies other than sterling. Approximately 50% of new business on an APE
basis in the year was received in US dollars (2006: 42%), with new business
premium flows in Euros and Norwegian Krone providing 22% (2006: 33%) and 13%
(2006: 8%) respectively. The continued growth in APE despite the adverse
currency movements throughout the year against sterling shows the benefits of
the Group having a well-diversified portfolio of new business as shown above.
At the balance sheet date, the Group employed 15 Account Executives to provide
local language and other support services to intermediaries in Eastern Europe,
the Far East, Latin America, Scandinavia, South Africa and Western Europe. We
intend to develop local presence further in target areas over the next few
years, with a view to doubling the number of Account Executives by December
2012.
Immediately following the end of the financial year we recruited an experienced
manager with an impressive track record with a major competitor, to lead our
team to build institutional relationships, an area that presents greater
opportunities for the Group following the listing.
In the period since 1 July, new business premiums have continued to flow at
levels significantly in excess of the results achieved in the comparable period
of the previous financial year.
3.1 New Business Volumes
New business sales volumes are reported to the market on two bases: APE and the
Present Value of future New Business Premiums ('PVNBP'). The calculation of APE
is in accordance with the life assurance industry convention of adding new
regular premiums and one tenth of single premiums. The calculation of PVNBP is
equal to total single premium sales in the year plus the discounted value of
regular premiums expected to be received over the term of new regular premium
policies, and is calculated at the point of sale.
The Group has developed a measure of calculating New Business production that is
designed to indicate the relative value of each piece of New Business. This
measure is called Compensation Credit. The application of this model in
calculations of origination costs protects the Group's margins. The Board
believes that this internal metric is a better representation of New Business
value than APE, or PVNBP.
3.1.1 APE
New business premiums on an APE basis in sterling terms were £35.5m,
representing an increase of 5.3% compared with £33.7m for the prior year
calculated on a constant currency basis.
The continued strengthening of sterling against the US Dollar and other major
currencies has the effect of depressing new business figures reported in
sterling. The presentation of these figures on a constant currency basis
provides an appropriate representation of the activities of the Intermediaries
who introduce business to the Group. New business APE in the previous year, on
the basis of actual exchange rates experienced in that financial year, was
£35.2m.
The following tables provide a summarised breakdown of New Business APE on a
constant currency basis, analysed between single and regular premium cases, and
also by residence of policyholder.
Year ended 30 June 2007 2006
£m £m
Annualised regular premiums 18.8 16.7
Single premiums 16.7 17.0
35.5 33.7
New business premiums on an APE basis by residence of policyholder
Year ended 30 June 2007 2006
£m £m
EU and EEA 13.2 16.3
Rest of world 22.3 17.4
35.5 33.7
3.1.2 PVNBP
New Business premiums on a PVNBP basis were £277.1m compared with £270.2m for
the prior year, an increase of 2.6%.
3.1.3 Compensation Credit
On this internal metric, New Business production for the year ended 30 June 2007
was £18.1 million (2006: £17.7m).
3.2 New business profitability and margin
New Business Margin is the contribution from New Business issued during the year
(NBC) expressed as a percentage of PVNBP.
Throughout the year under review new business has been written by the Group on
profitable terms and has contributed to significant growth in the Group's EEV.
The New Business margin, in sterling terms, was 8.3% for the year as compared to
8.0% in the previous year. This margin is well above industry average,
principally due to the Group's efficient operating model and our focus on the
maintenance of the margin.
Regular premium business is more profitable than single premium business. The
change in the mix of new business compared with the previous year had the impact
of increasing the Group's New Business Margin by 0.6%. The combined impact of
changes in the level of expenses, mortality and other assumptions has been to
reduce the margin by 0.3%.
+----------------------------------------------------------------------------+
|Consolidated income statement |
+----------------------------------------------------------------------------+
| |
+------------------------+------+--------+--------+-------+--------+---------+
|For the year ended 30 | | | | | 2007| 2006|
|June | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
| | | | Notes | | £m| £m|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | |
+-------------------------------+--------+--------+-------+--------+---------+
|Fees and commissions | | 4 | | 49.2| 44.5|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Investment income | | | 5 | | 130.8| 102.6|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Other operating income | | | 6 | | 2.2| 0.8|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | 182.2| 147.9|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Investment contract benefits | | |(128.2) | (99.3)|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Origination costs | | | | |(16.3) | (14.6)|
+------------------------+------+--------+--------+-------+--------+---------+
|Administrative and other expenses | | |(18.0) | (16.3)|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | |(162.5) | (130.2)|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | |
+----------------------------------------+--------+-------+--------+---------+
|Profit on ordinary activities before | 7 | | 19.7| 17.7|
|taxation | | | | |
+----------------------------------------+--------+-------+--------+---------+
| | | | | |
+----------------------------------------+--------+-------+--------+---------+
|Taxation on profit on ordinary | 9 | | -| - |
|activities | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Profit for the year | | | | | 19.7| 17.7|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
All of the activities of the Group are continuing.
The Group has no recognised gains or losses other than those included in the
profits above; therefore no separate statement of total recognised gains and
losses has been prepared.
+--------------------------------------------------------------------------+
|Earnings per share |
+-----------------------+------+-------+--------+-------+--------+---------+
| | | | | | | |
+-----------------------+------+-------+--------+-------+--------+---------+
| | | | | | 2007| 2006|
+-----------------------+------+-------+--------+-------+--------+---------+
| | | | Note | | (p)| (p)|
+-----------------------+------+-------+--------+-------+--------+---------+
| | | | | | | |
+-----------------------+------+-------+--------+-------+--------+---------+
|Basic | | | 10 | | 14.4| 12.9|
+-----------------------+------+-------+--------+-------+--------+---------+
| | | | | | | |
+-----------------------+------+-------+--------+-------+--------+---------+
|Diluted | | | 10 | | 14.4| 12.9|
+-----------------------+------+-------+--------+-------+--------+---------+
| | | | | | | |
+-----------------------+------+-------+--------+-------+--------+---------+
+---------------------------------------------------------------------------+
|Reconciliation of movements in consolidated shareholders' funds |
+--------------------------+----+-------------------------+-------+---------+
| | | | | |
+--------------------------+----+-------+-------+---------+-------+---------+
| | | | | | 2007| 2006|
+--------------------------+----+-------+-------+---------+-------+---------+
| | | | Notes | | £m| £m|
+--------------------------+----+-------+-------+---------+-------+---------+
| | | | | | | |
+--------------------------+----+-------+-------+---------+-------+---------+
|Profit for the year | | | | | 19.7| 17.7|
| | | | | | | |
+--------------------------+----+-------+-------+---------+-------+---------+
| | | | | | | |
| | | | | | | |
+--------------------------+----+-------+-------+---------+-------+---------+
|Less: Interim dividend paid | 11| | (5.5)| -|
+--------------------------+----+-------+-------+---------+-------+---------+
| | | | | | | |
+--------------------------+----+-------+-------+---------+-------+---------+
|Net increase in consolidated | | | 14.2| 17.7|
|shareholders' funds | | | | |
+--------------------------+----+-------+-------+---------+-------+---------+
| | | | | | | |
+--------------------------+----+-------+-------+---------+-------+---------+
|Opening consolidated shareholders' | | | 36.9| 19.2|
|funds | | | | |
+---------------------------------------+-------+---------+-------+---------+
|Closing consolidated shareholders' | | | 51.1| 36.9|
|funds | | | | |
+-----------------------+-------+-------+-------+---------+-------+---------+
| | | | | | | |
+-----------------------+--+----+-------+-------+---------+-------+---------+
+-----------------------+--+----+-------+-------+---------+-------+---------+
+----------------------------------------------------------------------------+
|Consolidated balance sheet |
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|At 30 June 2007 | | | | | 2007| 2006|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | Notes | | £m| £m|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Assets | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Tangible assets | | | 12 | | 0.8| 0.6|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Financial investments | | | 13 | | 1,130.4| 947.3|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Deferred origination costs | 14 | | 94.6| 86.6|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Other receivables | | | 15 | | 11.9| 11.7|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Cash and cash | | | 16 | | 70.8| 57.9|
|equivalents | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Total assets | | | | | 1,308.5| 1,104.1|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | |
| | | | | |
|Liabilities | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|Financial liabilities under investment | 17 | | 1,130.2| 947.2 |
|contracts | | | | |
+----------------------------------------+--------+-------+--------+---------+
| | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Amounts due to | | | | | 12.4| 10.2|
|investment contract | | | | | | |
|holders | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Deferred income reserve | | | | | 109.9| 103.0|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Other payables | 18 | | 4.9| 6.8|
+------------------------+------+--------+--------+-------+--------+---------+
|Total liabilities | | | | | 1,257.4| 1,067.2|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
| | | | | | | |
|Net assets | | | | | 51.1| 36.9|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Shareholders' equity | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Called up share capital | | | 19 | | 68.6| 68.6|
+------------------------+------+--------+--------+-------+--------+---------+
|Other reserves | | | 20 | | (48.5)|(48.5) |
+------------------------+------+--------+--------+-------+--------+---------+
|Retained earnings | | | 21 | | 31.0| 16.8|
+------------------------+------+--------+--------+-------+--------+---------+
| | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
|Total shareholders' | | | | | 51.1| 36.9|
|equity | | | | | | |
+------------------------+------+--------+--------+-------+--------+---------+
The financial statements were approved by the Board on 26 September 2007 and
signed on its behalf by:
R E G Hall G S Marr
Director Director
+------------------------------------------------------------------------------+
|Consolidated cash flow statement |
+------------------------+------+--------------------------+-------------------+
| | | | |
+------------------------+------+--------+--------+--------+---------+---------+
| | | | | | | |
+------------------------+------+--------+--------+--------+---------+---------+
|Year ended 30 June 2007 | | | | | 2007| 2006|
+------------------------+------+--------+--------+--------+---------+---------+
| | | | Notes | | £m| £m|
+------------------------+------+--------+--------+--------+---------+---------+
| | | | | | | |
+------------------------+------+--------+--------+--------+---------+---------+
| | | | | | | |
+------------------------+------+--------+--------+--------+---------+---------+
|Net cash inflow from operating | 22 | | 16.4| 14.4|
|activities | | | | |
+----------------------------------------+--------+--------+---------+---------+
| | | | | |
+----------------------------------------+--------+--------+---------+---------+
|Returns on investments and servicing of | | | | |
|finance | | | | |
+------------------------+------+--------+--------+--------+---------+---------+
|Interest on investments | | | | | 4.0| 2.6|
+------------------------+------+--------+--------+--------+---------+---------+
| | | | | | | |
+------------------------+------+--------+--------+--------+---------+---------+
|Capital expenditure | | | | |
+------------------------+------+--------+--------+--------+---------+---------+
|Purchase of tangible | | | | | (0.6)| (0.2)|
|assets | | | | | | |
+------------------------+------+--------+--------+--------+---------+---------+
| | | | | | 19.8| 16.8|
+------------------------+------+--------+--------+--------+---------+---------+
| | | | | | | |
+------------------------+------+--------+--------+--------+---------+---------+
| | | | | | | |
+------------------------+------+--------+--------+--------+---------+---------+
|Dividend paid | | | | | (5.5| -|
+------------------------+------+--------+--------+--------+---------+---------+
| | | | | | | |
+------------------------+------+--------+--------+--------+---------+---------+
|Net cash inflow | | | | | 14.3| 16.8|
+------------------------+------+--------+--------+--------+---------+---------+
| | | | | | | |
+------------------------+------+--------+--------+--------+---------+---------+
Cash flows were invested as follows:
Increase in cash holdings 14.2 16.9
Net portfolio investments 0.1 (0.1)
14.3 16.8
In accordance with Financial Reporting Standard No.1 the cash flow statement
excludes cash flows relating to the long-term assurance businesses of the Group.
Notes to the financial statements
1. Segmental information
In the opinion of the directors, the Group operates in a single business
segment, that of the distribution and servicing of long-term investment products
through the Group's life assurance subsidiaries.
i) Fees and commissions analysed by type
Year ended 30 June 2007 2006
£m £m
Contract fee income 34.5 31.5
Fund management charges 10.5 9.1
Commission receivable 4.2 3.9
49.2 44.5
ii) Geographical analysis of fees and commissions by origin
Year ended 30 June 2007 2006
£m £m
Isle of Man 39.9 37.6
Republic of Ireland 9.3 6.9
49.2 44.5
iii) Geographical analysis of profit before taxation
Year ended 30 June 2007 2006
£m £m
Isle of Man 18.1 16.8
Republic of Ireland 1.6 0.9
19.7 17.7
iv) Geographical analysis of financial investments
At 30 June 2007 2006
£m £m
Isle of Man 773.0 698.8
Republic of Ireland 357.4 248.5
1,130.4 947.3
The geographical analysis of financial liabilities under investment contracts is
consistent with the analysis of financial investments
v) Geographical analysis of net assets
At 30 June 2007 2006
£m £m
Isle of Man 41.6 30.0
Republic of Ireland 9.5 6.9
51.1 36.9
The following information is provided in relation to new business premiums
received on investment contracts. The application of the Group's accounting
policies require that premiums received on investment contracts are not included
in the income statement but are reported as deposits to investment contract
liabilities in the balance sheet and reflected within note 14.
New business premium income is measured on the basis of Annualised Premium
Equivalent ('APE'). APE reflects the value of annualised new regular premiums
and one-tenth of single premiums received during the year.
vi) New business premiums on an APE basis by residence of policyholder
Year ended 30 June 2007 2006
£m £m
EU and EEA 13.2 16.6
Rest of world 22.3 18.6
Annualised premium equivalent 35.5 35.2
2 Fees and commissions
Year ended 30 June 2007 2006
£m £m
Fees from investment contracts 45.0 40.6
Commissions receivable 4.2 3.9
49.2 44.5
3 Investment income
Year ended 30 June 2007 2006
£m £m
Interest and dividend income receivable 10.1 7.0
Gains on realisation of investments 54.2 54.3
Unrealised gains 66.5 41.3
130.8 102.6
4 Other operating income
Included within other operating income are amounts totalling £1.57m received
from Polar Cap Limited for services rendered by the Group in relation to the
listing of the Company on the London Stock Exchange on 18 December 2006, and
other services. Amounts totalling £0.38m received from Polar Cap Limited for
software development services are reflected within other operating income in the
previous year. This amount was not classified as other operating income in the
consolidated income statement for the year ended 30 June 2006 and was instead
shown as a reduction in 'Administrative and other expenses'. The comparative
figures have been restated to provide more accurate disclosure.
5 Profit on ordinary activities before taxation
Profit on ordinary activities before taxation is after charging / (crediting)
the following:
Year ended 30 June 2007 2006
£m £m
Auditors' remuneration:
- Fees payable to the Company's auditor for
the audit of the Company's annual accounts 0.1 0.1
- Fees payable to the Company's auditor and
its associates for other services:
- Fees payable for the audit of the
company's subsidiaries pursuant to
legislation 0.2 0.1
- Other services provided to the company's
subsidiaries 0.1 .
Depreciation of tangible assets 0.4 0.4
Operating lease rentals 0.6 0.4
Foreign exchange losses/(gains) 1.3 (0.2)
6 Taxation
The Group's profits arising from its Isle of Man-based operations are taxable at
zero percent. No corporation tax liabilities have attached to the Republic of
Ireland-based operations due to tax losses incurred in prior years. Tax losses
incurred and available to offset future profits at the rate of 12.5% at 30 June
2007 total £1.1m (30 June 2006 - £1.7m).
Charges for taxation reflected in the income statements of a number of minor
subsidiary companies are immaterial to an understanding of the Group's taxation
position for the year.
There is no material difference between the current tax charge in the income
statement and the current tax charge that would result from applying standard
rates of tax to the profit before tax.
7 Earnings per share
The earnings per share is based upon the profit for the year after taxation
divided by the average number of shares in issue throughout the year. There is
no difference between basic and diluted earnings per share.
Year ended 30 June 2007 2006
Profit after tax (£m) 19.7 17.7
Weighted average number of shares in issue 137,281,202 137,281,202
Earnings per share in pence 14.4 12.9
8 Interim dividend
A dividend of £5.5m (4.0 pence per share) was paid to shareholders on 4 May 2007
representing an interim dividend out of the profits of the year under review
(2006:£nil).
9 Tangible assets
Fixtures and fittings, computer equipment and software
2007 2006
£m £m
Cost
At 1 July 4.1 3.9
Additions 0.6 0.2
Total 4.7 4.1
Depreciation
At 1 July 3.5 3.1
Charge for year 0.4 0.4
Total 3.9 3.5
Net book value
30 June 2007 0.8 0.6
30 June 2006 0.6 0.8
Included in the additional assets acquired during the year are amounts totalling
£0.3m relating to fixtures, fittings and equipment for new premises occupied by
Hansard Europe Limited in April 2007.
10 Financial investments
2007 2006
£m £m
Equity securities 73.8 106.8
Investment in collective investment schemes 945.5 737.0
Fixed income securities 32.0 28.6
Outstanding trades 8.8 12.8
Accrued investment income 0.2 0.2
Cash and cash equivalents 70.1 61.9
1,130.4 947.3
+-----------------------------------+------+--+------+----------+-------+
|Included above are shareholders' | | | | 0.2| 0.1|
|assets of | | | | | |
+-----------------------------------+------+--+------+----------+-------+
11 Deferred origination costs
2007 2006
Carrying value £m £m
At 1 July 86.6 76.8
Origination costs deferred during the year 24.3 24.4
Origination costs amortized during the year (16.3) (14.6)
At 30 June 94.6 86.6
12 Other receivables
2007 2006
£m £m
Commission and fees 9.3 8.8
Other debtors 2.6 2.9
11.9 11.7
Due to the short-term nature of these receivables the carrying value is
considered to reflect fair value.
13 Cash and cash equivalents
2007 2006
£m £m
Money market funds 29.7 17.8
Deposits with credit 41.1 40.1
institutions
70.8 57.9
14 Financial liabilities under investment contracts
+--------------------------+---+---------+----------+---------+----------+
| | | | | 2007| 2006|
+--------------------------+---+---------+----------+---------+----------+
| | | | | £m| £m|
+--------------------------+---+---------+----------+---------+----------+
|At 1 July | | | | 947.2| 771.2|
+--------------------------+---+---------+----------+---------+----------+
|Deposits to investment | | | 185.4| 196.1|
|contracts | | | | |
+------------------------------+---------+----------+---------+----------+
|Benefits paid | | | (130.6)| (119.4)|
+------------------------------+---------+----------+---------+----------+
|Investment contract benefits | | | 128.2| 99.3|
+--------------------------+---+---------+----------+---------+----------+
|At 30 June | | | | 1,130.2| 947.2|
+--------------------------+---+---------+----------+---------+----------+
+-------------------------------------+--+-------+---+---------+----------+
| | | | | | |
+-------------------------------------+--+-------+---+---------+----------+
|Expected to be settled within 12 | | | | 16.4| 14.8|
|months | | | | | |
+-------------------------------------+--+-------+---+---------+----------+
| | | | | | |
+-------------------------------------+--+-------+---+---------+----------+
|Expected to be settled after 12 months | | 1,113.8| 932.4|
+------------------------------------------------+---+---------+----------+
| | | 1,130.2| 947.2|
+------------------------------------------------+---+---------+----------+
The value of these financial liabilities is determined by the fair value of the
linked assets at the balance sheet date.
+--------------------------+-----------------------+----------+----------+
| | | 2007| 2006|
+--------------------------+-----------------------+----------+----------+
| | | £m| £m|
+--------------------------+-----------------------+----------+----------+
|Commission payable | | 1.7| 1.6|
+--------------------------+-----------------------+----------+----------+
|Taxation and social | | 1.0| 0.7|
|security | | | |
+--------------------------+-----------------------+----------+----------+
|Other creditors and | | 2.2| 2.3|
|accruals | | | |
+--------------------------+-----------------------+----------+----------+
|Amount due to parent | | -| 2.2|
|company | | | |
+--------------------------+-----------------------+----------+----------+
| | | 4.9| 6.8|
+--------------------------+-----------------------+----------+----------+
15 Other payables
Due to the short-term nature of these payables the carrying value is considered
to reflect fair value.
16 Called up share capital
+------------------------------+--------------------+----------+----------+
| | | 2007| 2006|
+---+--------------------------+--------------------+----------+----------+
| | | | £m| £m|
+---+--------------------------+--------------------+----------+----------+
| |Authorised: | | | |
+---+--------------------------+--------------------+----------+----------+
| |200,000,000 ordinary shares of 50p | 100| 100|
+---+--------------------------+--------------------+----------+----------+
| |Issued and fully paid: | | | |
+---+--------------------------+--------------------+----------+----------+
| |137,281,202 ordinary | | 68.6| 68.6|
| |shares of 50p | | | |
+---+--------------------------+--------------------+----------+----------+
+---+--------------------------+--------------------+----------+----------+
The authorised and issued share capital was sub-divided into ordinary shares of
50p each by resolution passed on 13 September 2006.
17 Other reserves
Other reserves comprise the merger reserve arising on the acquisition by the
Company of its subsidiary companies on 1 July 2005. The merger reserve
represents the difference between the par value of shares issued by the Company
for the acquisition of the former subsidiaries of Polar Cap Limited, compared to
the par value of the share capital and the share premium of those companies at
the date of acquisition.
+------------------------------+---------------+----------+----------+
| | | 2007| 2006|
+------------------------------+---------------+----------+----------+
| | | £m| £m|
+------------------------------+---------------+----------+----------+
|Shares issued in consideration| | 68.6| 68.6|
|of acquisition | | | |
+------------------------------+---------------+----------+----------+
|Share capital of subsidiaries | | (12.3)| (12.3)|
|acquired | | | |
+------------------------------+---------------+----------+----------+
|Share premium of subsidiaries | | (7.8)| (7.8)|
|acquired | | | |
+------------------------------+---------------+----------+----------+
| | | 48.5| 48.5|
+------------------------------+---------------+----------+----------+
18 Retained earnings
2007 2006
£m £m
Profit for the financial year 19.7 17.7
Dividend paid (5.5) -
Net increase in retained earnings 14.2 17.7
At 1 July 16.8 (0.9)
At 30 June 31.0 16.8
19 Notes to the consolidated cash flow statement
(i) Reconciliation of profit on ordinary activities before taxation to net cash
inflow from operating activities
+----------------------------------+--+------------+--------+--------+
|Year ended 30 June | | | 2007| 2006|
+----------------------------------+--+------------+--------+--------+
| | | | £m| £m|
+----------------------------------+--+------------+--------+--------+
| | | | | |
+----------------------------------+--+------------+--------+--------+
|Profit on ordinary activities | | | 19.7| 17.7|
|before taxation | | | | |
+----------------------------------+--+------------+--------+--------+
|Depreciation | | | 0.4| 0.4|
+----------------------------------+--+------------+--------+--------+
|Interest on investments | | | (4.0)| (2.6)|
+----------------------------------+--+------------+--------+--------+
|Foreign exchange differences | | | 1.3| (0.2)|
+----------------------------------+--+------------+--------+--------+
|Increase in debtors | | | (0.2)| (4.5)|
+----------------------------------+--+------------+--------+--------+
|Increase in deferred origination costs | (8.0)| (9.8)|
+----------------------------------+--+------------+--------+--------+
|Increase in deferred income | | | 6.9| 8.5|
|reserve | | | | |
+----------------------------------+--+------------+--------+--------+
|Increase in creditors | | 0.3| 4.9|
+-------------------------------------+------------+--------+--------+
|Net cash inflow from operating activities | 16.4| 14.4|
+--------------------------------------------------+--------+--------+
(ii) Movement in opening and closing portfolio investments
+---------------------+--------+-------------------+--------+--------+
| | | | 2007| 2006|
+---------------------+--------+-------------------+--------+--------+
| | | | £m| £m|
+---------------------+--------+-------------------+--------+--------+
| | | | | |
+---------------------+--------+-------------------+--------+--------+
|Cash at bank | | | | |
+---------------------+--------+-------------------+--------+--------+
|At 1 July | | | 57.9| 40.8|
+---------------------+--------+-------------------+--------+--------+
|Foreign exchange differences | (1.3)| 0.2|
+---------------------+--------+-------------------+--------+--------+
|Cash flow | | | 14.2| 16.9|
+---------------------+--------+-------------------+--------+--------+
|At 30 June | | | 70.8| 57.9|
+---------------------+--------+-------------------+--------+--------+
+---------------------+--------+-------------------+--------+--------+
| | | | 2007| 2006|
+---------------------+--------+-------------------+--------+--------+
| | | | £m| £m|
+---------------------+--------+-------------------+--------+--------+
|Shareholder | | | | |
|investments | | | | |
+---------------------+--------+-------------------+--------+--------+
|At 1 July | | | 0.1| 0.2|
+---------------------+--------+-------------------+--------+--------+
|Purchases | 0.1| 0.1|
+--------------------------------------------------+--------+--------+
|Sales | -| (0.2)|
+---------------------+--------+-------------------+--------+--------+
|At 30 June | | | 0.2| 0.1|
+---------------------+--------+-------------------+--------+--------+
20 Capital position statement
The capital position statement sets out the financial strength relating to the
businesses of the Group, measured on the basis of the presentation within the
financial statements of the Company's life assurance subsidiaries. These are
located in the Isle of Man and the Republic of Ireland. As both entities provide
unit-linked contracts only, the majority of surplus can be distributed to
shareholders subject to meeting the capital and other requirements of each
business. Management policy is to hold surplus funds in excess of the minimum
regulatory requirements of each of the life assurance entities.
The capital held within the shareholders' funds is available to meet the
regulatory capital requirements without any restrictions.
+-----------------------------------------+--+------+--------+-------+
| | | | 2007| 2006|
+-----------------------------------------+--+------+--------+-------+
| | | | £m| £m|
+-----------------------------------------+--+------+--------+-------+
|Consolidated shareholders' funds | | | 51.1| 36.9|
+-----------------------------------------+--+------+--------+-------+
|Adjustment arising from adoption of FRS | | | 20.9| 21.6|
|26* | | | | |
+-----------------------------------------+--+------+--------+-------+
| | | | 72.0| 58.5|
+-----------------------------------------+--+------+--------+-------+
| | | | | |
+-----------------------------------------+--+------+--------+-------+
|Comprising shareholders' funds of: | | | | |
+-----------------------------------------+--+------+--------+-------+
|Non-life assurance subsidiary companies | | | 21.1| 9.7|
+-----------------------------------------+--+------+--------+-------+
|Life assurance subsidiary companies | | | 50.9| 48.8|
+-----------------------------------------+--+------+--------+-------+
|Adjustments for admissibility restrictions | -| -|
+---------------------------------------------------+--------+-------+
|Total capital available to meet regulatory capital | 72.0| 58.5|
|requirements | | |
+---------------------------------------------------+--------+-------+
* The consolidated financial statements have been compiled in accordance with
the requirements of FRS 26. The regulatory capital of the life assurance
subsidiaries is calculated based on financial statements that do not comply with
FRS 26 as they are not required to do so.
Regulatory Minimum Solvency Margin
For both the Isle of Man and the Irish businesses, the relevant capital
requirement is the required minimum margin under the locally applicable
regulatory regimes. In practice, both regulators expect a surplus over the
statutory minimum margin to be maintained by regulated entities. The required
minimum margins of the regulated entities at each balance sheet date were as set
out below.
+---------------------+----------------------------+--------+--------+
| | | 2007| 2006|
+---------------------+----------------------------+--------+--------+
| | | £m| £m|
+---------------------+----------------------------+--------+--------+
|Aggregate minimum | | 4.1| 4.0|
|margin | | | |
+---------------------+----------------------------+--------+--------+
As the financial liabilities for unit-linked business held by the Company's
subsidiary companies are based on the fair value of the unit funds backing those
contracts, unit-linked business assets and liabilities move together in line
with changes in investment market conditions.
Other assets held are largely cash and so are not subject to changes in
investment market conditions.
Capital management
The Group's objectives in managing its capital are to:
• match the profile of its assets and liabilities, taking account of the
risks inherent in the business;
• maintain financial strength to support new business growth;
• satisfy the requirements of its policyholders and regulators; and
• retain financial flexibility by maintaining strong liquidity and access
to a range of capital markets.
21 Financial risk management
The Group's operations expose it to a variety of financial risks. The Group's
objective in the management of financial risk is to minimise, where practicable,
its exposure to such risk.
Overall responsibility for the management of the Group's exposure to risk is
vested in the Board. To support it in this role, an enterprise-wide risk
management framework is in place comprising identification, risk assessment,
control and reporting processes. Additionally, the Board and the Boards of
subsidiary companies have established a number of Committees with defined terms
of reference. These are the Audit, Actuarial Review, Credit Control, Executive,
Investment and the Risk and Compliance Committees. The framework provides
assurance that risks are being appropriately identified and managed.
Under the unit-linked investment contracts which are written by the Group,
policyholders bear the financial risks relating to the financial assets and
liabilities arising from such contracts. Such risks are therefore excluded from
this assessment of risks affecting the Group's business. However, an overall
change in the market value of the unit-linked funds would affect the annual
management charges accruing to the Group since these charges, which are
typically 1% pa, are based on the market value of funds under management. The
approximate impact of a 10% change in fund values on shareholder profits and
equity is £1.4m (2006: £1.3m).
Other financial risks to which the Group is exposed are set out below. For each
category of risk, the Group determines its risk appetite and sets its
investment, treasury and associated policies accordingly. Risk policy is
documented for each category of risk, including the actions to mitigate those
risks.
(a) Interest rate risk
Interest rate risk is the risk that the Group is exposed to lower returns or
loss as a direct or indirect result of fluctuations in the value of, or income
from, specific assets arising from changes in underlying interest rates.
The Group is primarily exposed to interest rate risk on the cash balances that
it holds. The Group controls its exposure to interest rate risk by managing its
treasury balances on a short-term basis.
(b) Currency risk
Currency risk is the risk that the Group is exposed to lower returns or loss as
a direct or indirect result of fluctuations in the value of, or income from,
specific assets arising from changes in underlying exchange rates.
(b)(i)
The Group is exposed to currency risk on the foreign currency denominated bank
balances and other liquid assets that it holds to the extent that they do not
match liabilities in those currencies. The impact of the Group's currency risk
is minimized by repatriation of excess foreign currency funds to sterling. At
the balance sheet date the Group had exposures in the following currencies:
2007 2007 2006 2006
US$m €m US$m €m
Gross assets 11.7 24.0 8.1 20.5
Matching currency liabilities (9.4) (4.7) (5.6) (7.3)
Net currency exposure 2.3 19.3 2.5 13.2
Amounts totalling €18.5m held at the balance sheet date (2006: €18.5m) represent
the share capital of Hansard Europe Limited. Disclosures have been enhanced to
include related currency assets and liabilities in the previous financial year.
(b)(ii)
Certain fees and commissions are earned by the Group in foreign currencies,
based on the value of financial investments held in currency from time to time.
At the balance sheet date approximately 37% of investments were in
dollar-denominated assets; 30% in euro-denominated, and 20% in sterling assets.
(c) Credit risk
Credit risk is the risk that the Group is exposed to lower returns or loss if
another party fails to perform its financial obligations to the Group.
The Group's main exposure to credit risk is in relation to deposits with credit
institutions. Deposits are made, in accordance with established policy, with
credit institutions having a short-term rating of at least F1 and P1 from Fitch
IBCA and Moody's respectively and a long term rating of at least A and A3.
Additionally funds are invested in AAA rated unitized money market funds. At the
balance sheet date, an analysis of the Group's cash and cash equivalent balances
was as follows:
2007 2006
£m £m
Deposits with institutions 41.1 40.1
Money market funds 29.7 17.8
70.8 57.9
Maximum counterparty exposure limits are set both at an individual subsidiary
company level and on a Group wide basis. There are no significant concentrations
of credit risk at the balance sheet date.
(d) Liquidity risk
Liquidity risk is the risk that the Group, though solvent, does not have
sufficient financial resources to enable it to meet its obligations as they fall
due, or can only secure them at excessive cost.
The Group's objective is to ensure that there is sufficient liquidity over
short- (up to one year) and medium-term time horizons to meet the needs of the
business. This includes liquidity to cover, amongst other things, new business
costs, planned strategic activities, servicing of equity capital as well as
working capital to fund day-to-day cash flow requirements.
Liquidity risk is principally managed in the following ways:
• Forecasts are prepared regularly to predict required liquidity levels
over both the short and medium term;
• Assets of a suitable marketability are held to meet policyholder
liabilities as they fall due.
The Group's exposure to liquidity risk is considered to be low since it
maintains a high level of liquid assets to meet its liabilities.
22 Financial commitments
At the balance sheet date the Group had annual commitments under non-cancellable
operating leases in respect of office accommodation as follows:
+-------------------------+-------------------+---------+----------+
| | | 2007| 2006|
+-------------------------+-------------------+---------+----------+
| | | £m| £m|
+-------------------------+-------------------+---------+----------+
|Operating leases which expire: | | |
+-------------------------+-------------------+---------+----------+
|Within one year | | -| 0.2|
+-------------------------+-------------------+---------+----------+
|Between one and five | | -| -|
|years | | | |
+-------------------------+-------------------+---------+----------+
|After five years | | 0.5| 0.3|
+-------------------------+-------------------+---------+----------+
| | | 0.5| 0.5|
+-------------------------+-------------------+---------+----------+
23 Related party transactions
i) intra-group transactions
Various subsidiary companies within the Group perform services for other Group
companies in the normal course of business. The financial results of these
activities are eliminated in the consolidated financial statements.
The following balances existed between the Group and Polar Cap, a company
controlled by Dr L S Polonsky.
+----------------+--------------+-----------------+-----------+----------+
| | | | 30 June| 30 June|
+---+------------+--------------+-----------------+-----------+----------+
| | | | | 2007| 2006|
+---+-+----------+--------------+-----------------+-----------+----------+
| | | | | £m| £m|
+-----+----------+--------------+-----------------+-----------+----------+
|Amounts due to related party | --| 2.2|
+---+-+----------+--------------+-----------------+-----------+----------+
+---+-+----------+--------------+-----------------+-----------+----------+
ii) other
There were no material transactions between directors or key managers and the
Group. All transactions between the Group, its directors and key managers are on
commercial terms at rates which are no more favourable than those available to
staff in general.
24 Ultimate controlling party
Throughout the year the ultimate controlling party of the Group was Dr Leonard
Polonsky, a director of the company.
25 Foreign exchange rates
The closing exchange rates used by the Group for the conversion of balance sheet
items from US$ and € to sterling were US$2.01 and €1.48, respectively at 30 June
2007 and US$1.84 and €1.44, respectively, at 30 June 2006.
EUROPEAN EMBEDDED VALUE ('EEV') Information
1. Components of EEV profit
Year ended 30 June 2007 2006
% of % of
£m Opening EEV £m Opening EEV
New business contribution 22.9 21.6
Expected return on existing
business 7.1 5.2
Experience variances (0.8) 4.0
Operating assumption & model
changes 6.7 (0.4)
Expected return on Net Worth 2.1 1.2
EEV operating profit 38.0 21.3% 31.6 22.2%
Investment return variances 6.9 5.2
Economic assumption changes 0.0 (0.7)
EEV profit 44.9 25.1% 36.1 25.3%
Dividend paid (5.5) 0.0
Total change in EEV 39.4 22.1% 36.1 25.3%
2. Detailed analysis of EEV profit
The EEV comprises the value of in-force business (VIF) and the Net Worth of the
Group as at the relevant valuation date, and is calculated net of corporation
tax. The analysis shows the sources of change in VIF and Net Worth. This is a
new requirement, which helps to demonstrate the realisation of projected future
profits into Net Worth during the financial year. As in prior periods, the major
sources of EEV profit are from new business, release of margins in operating
assumptions and from investment performance.
Year ended 30 June 2007 2006
Movement in Movement in
EEV VIF Net EEV VIF Net
Worth Worth
£m £m £m £m £m £m
New business contribution 22.9 22.9 0.0 21.6 21.6 0.0
Expected return on existing
business 7.1 (11.3) 18.4 5.2 (7.9) 13.1
Experience variances (0.8) 1.7 (2.5) 4.0 5.4 (1.4)
Operating assumption & model
changes 6.7 6.7 0.0 (0.4) (0.4) 0.0
Expected return on Net Worth 2.1 0.0 2.1 1.2 0.0 1.2
EEV operating profit 38.0 20.0 18.0 31.6 18.7 12.9
Investment return variances 6.9 6.2 0.7 5.2 4.2 1.0
Economic assumption changes 0.0 0.0 0.0 (0.7) (0.7) 0.0
EEV profit 44.9 26.2 18.7 36.1 22.2 13.9
Dividend paid (5.5) 0.0 (5.5) 0.0 0.0 0.0
Total change in EEV 39.4 26.2 13.2 36.1 22.2 13.9
3. New business profitability and margin
New business margin is defined as New Business Contribution (NBC) divided by
Present Value of New Business Premiums (PVNBP). The calculation of PVNBP is
equal to total single premium sales in the year plus the discounted value of
regular premiums expected to be received over the term of new regular premium
policies, and is calculated at the point of sale.
Year ended 30 June 2007 2006
£m £m
PVNBP 277.1 270.2
NBC 22.9 21.6
New business margin (PVNBP basis) 8.3% 8.0%
4. EEV balance sheet
At 30 June 2007 2006
£m £m
Free Surplus 51.2 38.3
Required Capital 5.3 5.0
Net Worth 56.5 43.3
Value of in-force business 166.8 140.6
Cost of Required Capital (0.3) (0.3)
Reduction for operational risk (5.0) (5.0)
Value of future profits 161.5 135.3
EEV 218.0 178.6
This information is provided by RNS
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