Interim Results

Personal Group Holdings PLC 24 September 2007 24 September 2007 Enquiries: Personal Group Holdings Plc Tel: 0207 367 8888(on 24/9/07) Christopher Johnston, Chairman 01908 605000 ext 235 (thereafter) Ken Rooney, Managing Director John Barber, Finance Director Bankside Consultants Simon Rothschild Tel: 0207 367 8888 Interim statement for the six months to 30 June 2007 Personal Group Holdings Plc is one of the UK's leading providers of employee benefits insurance and consultancy. The directors have today declared a dividend of 2.5p per share (2006: 2.3p) payable on 24 October 2007 to shareholders on the register at the close of business on 5 October 2007. Shares will be marked ex-dividend on 3 October 2007. Highlights 2007 2006 % £m £m Profit before tax 4.2 4.2 - Total revenue 13.2 13.8 -4 2007 2006 % pence pence Earnings per share (basic) 9.8 9.7 - Dividends per share paid in 2007 9.5 8.8 + 8 2007 2006 % pence pence Dividend per share payable October 2007 2.5 2.3 + 9 Ken Rooney, Chief Executive, commented: 'It was pleasing to establish eight new benefit programmes in the first half of 2007 and, whilst all programmes do not offer the same potential, some such as Somerfields with 50,000 employees and Intercontinental Hotels with 7,500 employees, have been especially welcome. Our Perflex software continues to develop and the number of companies using it now totals 69 with 292,000 employees having access to the programme.' CHAIRMAN'S STATEMENT Group profit before tax (PBT) for the period, now prepared under IFRS, was £4.24m (2006: £4.22m), a marginal increase. This was achieved despite revenue and profits for the first half of 2007 being impacted, as expected, by the lower new business production generated in 2006 and a fall in revenue and profits from the death benefit (DB) scheme and some of our Berkeley Morgan subsidiaries. Personal Assurance net premium income was £0.09m lower at £7.91m compared with £8.00m for the same period last year, but contributed an increase of £0.13m PBT. Our Personal Hospital Plan (PHP) and DB new business production is significantly ahead of the corresponding period last year. New business production for the first half of 2007 was close to the all time record of 2005, and is on target to exceed the amounts written for the full year of 2006 by the end of September 2007. The first two Voluntary Group Income Protection (VGIP) programmes were launched in the second quarter and another four are due to start in the coming months. VGIP has been very well received by employers and our forward order book is filling. In common with our PHP and DB business, the VGIP costs more money to sell than the revenue generated to the group in the first year. After this initial new business 'strain' has been absorbed, however, the contribution to group profit is expected to follow a similar pattern to that experienced with PHP and DB. Other insurance related income, mostly contributed by the Berkeley Morgan subsidiaries and the death benefit scheme, was £0.65m lower and made £0.61m less PBT than in the corresponding period in the previous year. Non-insurance related income which includes, among other things, revenues from our Perflex flexible benefits software and booklet based employee benefit programmes was £0.22m higher and delivered a reduced loss of £0.06m compared with a loss of £0.35m in the first half of 2006. Net investment income was £0.51m (2006: £0.35m), much of the increase coming from unrealised gains from our shareholding in Lighthouse Group Plc, the market value of which increased by £0.22m since 31 December 2006. After provision for taxation there is a surplus for the period of £2.97m (£2006: £2.92m) which has been added to equity. Shareholders funds at 30 June 2007 were £24.04m (2006: £20.96m) which is 79p per share (2006: 69p per share), and include net cash balances of approximately £9.20m in addition to £3m of 4% treasury loan stock 2009 (market value £2.92m on 30 June 2007). Berkeley Morgan Limited financial advisers have had a good first half year for both revenue and profits. The fall in revenue and profit produced by Universal Provident and Rapidinsure experienced in 2006 and the first half of 2007 has now slowed and our programme to integrate administration and marketing in Milton Keynes is progressing well. On 18 September we informed staff of the closure of the Blackburn office and removal of all the functions based there to Milton Keynes by 31 December 2007. We anticipate savings of approximately £0.35m from this rationalisation in 2008. Current trading continues in line with expectations. The directors have today declared a dividend of 2.5p per share (2006: 2.3p) payable on 24 October 2007 to shareholders on the register at the close of business on 5 October 2007. My thanks to all employees, agents, consultants and brokers for their ongoing service and support. Christopher W T Johnston Chairman 24 September 2007 Note 6 months 6 months 12 months ended 30 ended 30 ended 31 June 2007 June 2006 December 2006 Unaudited Unaudited Unaudited (Restated) (Restated) £000 £000 £000 Gross premiums written 7,946 7,854 15,933 Change in unearned premiums (31) 148 20 Net premiums written 7,915 8,002 15,953 Other income 4,798 5,450 10,729 Investment income 512 347 867 Revenue 13,225 13,799 27,549 Claims incurred (1,658) (1,668) (2,908) Insurance operating expenses (3,492) (3,700) (7,328) Other expenses (3,605) (3,914) (7,503) Charitable donations (40) (70) (80) Expenses (8,795) (9,352) (17,819) Results of operating activities 4,430 4,447 9,730 Finance costs (189) (223) (424) Profit before tax 4,241 4,224 9,306 Tax (1,275) (1,309) (2,667) Profit for the period 2,966 2,915 6,639 The profit for the period is attributable to shareholders of Personal Group Holdings Plc Earnings per share as arising from total and Pence Pence Pence continuing operations Basic 5 9.8 9.7 22.0 Diluted 5 9.8 9.6 21.8 At 30 At 30 At 31 June 2007 June 2006 December 2006 Unaudited Unaudited Unaudited (Restated) (Restated) Note £000 £000 £000 ASSETS Non-current assets 9,247 9,247 9,247 Goodwill Property, plant and equipment 6 6,612 6,664 6,654 Investment property 2,073 2,073 2,073 Long term financial assets 6,266 6,146 6,238 24,198 24,130 24,212 Current assets 3,414 3,657 4,089 Trade and other receivables Cash and cash equivalents 9,204 9,034 9,486 12,618 12,691 13,575 Total assets 36,816 36,821 37,787 EQUITY Equity attributable to shareholders of Personal Group Holdings Plc Share capital 1,528 1,528 1,528 Shares to be issued - 298 298 Other reserve (535) (727) (669) Treasury shares reserve (2) - (298) Retained earnings 23,053 19,858 22,916 Total equity 24,044 20,957 23,775 LIABILITIES Non-current liabilities Deferred tax liabilities 147 169 147 Current liabilities Provisions 294 212 256 Trade and other payables 5,043 5,830 5,969 Current tax liabilities 1,159 1,322 1,355 Borrowings 6,129 8,331 6,285 12,625 15,695 13,865 Total liabilities 12,772 15,864 14,012 Total equity and liabilities 36,816 36,821 37,787 Equity attributable to equity holders of Personal Group Holdings Plc. Share Shares to Other Treasury Profit & Total capital be issued reserve shares loss equity reserve reserve £000 £000 £000 £000 £000 £000 Balance as at 1 January 2007 1,528 298 (669) (298) 22,916 23,775 Available for sale investments: Transfer to income statement - - (9) - - (9) Valuation changes taken to equity - - 35 - - 35 Shares issued from treasury - (298) - 296 (2) (4) Proceeds of AESOP share sales - - - - 523 523 Cost of AESOP shares sold - - 509 - (509) - Cost of AESOP shares purchased - - (401) - - (401) Net income recognised directly into equity - (298) 134 296 12 144 Profit for the period - - - - 2,966 2,966 Total recognised income and expense for the period - (298) 134 296 2,978 3,110 Employee share based compensation - - - - 27 27 Dividends - - - - (2,868) (2,868) Balance as at 30 June 2007 1,528 - (535) (2) 23,053 24,044 Equity attributable to equity holders of Personal Group Holdings Plc. Share Shares to Other Treasury Profit & Total capital be issued reserve shares loss equity reserve reserve £000 £000 £000 £000 £000 £000 Balance as at 1 January 2006 1,528 298 (763) - 19,468 20,531 Cost of purchase of treasury shares - - - (298) - (298) Available for sale investments: Transfer to income statement - - (15) - - (15) Valuation changes taken to equity - - 53 - - 53 Proceeds of AESOP share sales - - - - 135 135 Cost of AESOP shares sold - - 85 - (85) - Cost of AESOP shares purchased - - (29) - - (29) Net income recognised directly into equity - - 94 (298) 50 (154) Profit for the period - - - - 6,639 6,639 Total recognised income and expense for the period - - 94 (298) 6,689 6,485 Employee share based compensation - - - - 106 106 Dividends - - - - (3,347) (3,347) Balance as at 31 December 2006 1,528 298 (669) (298) 22,916 23,775 Equity attributable to equity holders of Personal Group Holdings Plc. Shares Profit & Share to be Other loss Total capital issued reserve reserve equity £000 £000 £000 £000 £000 Balance as at 1 January 2006 1,528 298 (763) 19,468 20,531 Available for sale investments: Transfer to income statement - - (14) - (14) Valuation changes taken to equity - - 23 - 23 Proceeds of AESOP share sales - - - 72 72 Cost of AESOP shares sold - - 31 (31) - Cost of AESOP shares purchased - - (4) - (4) Net income recognised directly into equity - - 36 41 77 Profit for the period - - - 2,915 2,915 Total recognised income and expense for the period - - 36 2,956 2,992 Employee share based compensation - - - 86 86 Dividends - - - (2,652) (2,652) Balance as at 30 June 2006 1,528 298 (727) 19,858 20,957 At 30 At 30 At 31 June 2007 June 2006 December 2006 Unaudited Unaudited Unaudited (Restated) (Restated) Note £000 £000 £000 Operating activities Profit after tax 2,966 2,915 6,639 Adjustments for 213 213 416 - Depreciation - Profit on disposal of fixed assets (4) (3) (19) - Realised and unrealised net investment (93) 34 (118) gains - Interest received (410) (378) (716) - Dividends received (11) (36) (40) - Interest paid 189 119 430 - Share based payments 27 86 106 - Proceeds of AESOP share sales 523 72 135 - Cost of AESOP shares sold (509) (31) (85) - Loss on disposal of subsidiary undertaking - - 30 - Taxation expense recognised in income statement 1,275 1,309 2,667 Changes in working capital - debtors 675 732 317 - creditors (868) (714) (515) Taxes paid (1,471) (1,439) (2,805) 2,502 2,879 6,442 (221) (141) (364) Investing activities Additions to property, plant and equipment Proceeds from disposal of property plant 34 27 68 and equipment Purchase of own shares (401) (4) (29) Proceeds from disposal of own shares 509 31 85 Purchase of treasury shares - - (298) Disposal (net of cash) of subsidiary - - (40) undertaking Purchase of financial assets - (99) (230) Proceeds from disposal of financial assets 87 238 459 Interest received 410 378 716 Dividends received 11 36 40 429 466 407 Financing activities Proceeds from bank loans 402 4 28 Repayment of bank loans (558) (108) (2,178) Interest paid (189) (119) (430) Dividends paid (2,868) (2,652) (3,347) (3,213) (2,875) (5,927) Net change in cash and cash equivalents (282) 470 922 Cash and cash equivalents, beginning of period 9,486 8,564 8,564 Cash and cash equivalents, end of period 9,204 9,034 9,486 1 General information The principal activities of Personal Group Holdings Plc ('the company') and subsidiaries ('the group') include transacting short-term accident and health insurance, and providing employee benefits related business and financial services in the UK. The company is a limited liability company incorporated and domiciled in England. The address of its registered office is John Ormond House, 899 Silbury Boulevard, Milton Keynes MK9 3XL. The company has its primary listing on the Alternative Investment Market of the London Stock Exchange. The condensed consolidated financial statements do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the group as at and for the year ended 31 December 2006. The financial information set out in this interim report does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The group's statutory financial statements for the year ended 31 December 2006, prepared under UK GAAP, have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 237 (2) of the Companies Act 1985.28. These consolidated interim financial statements have been approved for issue by the board of directors on 21 September 2007. 2 Accounting policies and changes thereto These June 2007 condensed consolidated financial statements of Personal Group Holdings Plc are for the six months ended 30 June 2007. They have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and the requirements of International Financial Reporting Standard 1 First-time Adoption of International Financial Reporting Standards relevant to interim reports. These financial statements have been prepared on the basis of the recognition and measurement requirements of those IFRS standards and IFRIC interpretations as adopted by the EU, issued and effective or issued and early adopted as at 31 December 2007. Personal Group Holdings plc's consolidated financial statements were prepared in accordance with UK Generally Accepted Accounting Principles (UK GAAP) until 31 December 2006. UK GAAP differs in some areas from International Financial Reporting Standards (IFRS). In preparing Personal Group Holdings Plc's 2007 consolidated interim financial statements, management has amended certain accounting methods applied in the UK GAAP financial statements to comply with IFRS. The comparative figures in respect of 2006 were restated to reflect these adjustments. The significant changes to accounting methods that have an effect on the group's results are as follows: i) Intangible assets and goodwill Under UK GAAP goodwill is required to be amortised over its expected useful life and that life should not be greater than 20 years. However, under IAS 38: Intangible assets, amortisation of goodwill is not permitted. Instead goodwill should be reviewed annually for any impairment. As required in IFRS 1: First time adoption of IFRS, the group has elected to adopt the net book value of the goodwill in its balance sheet at 31 December 2005 as the deemed value of goodwill for transition to IFRS. Under UK GAAP, amortisation of £515,000 and £1,028,000 was charged in the periods to 30 June 2006 and 31 December 2006. Upon transition to IFRS, these charges have been reversed. ii) Investments Up to and including 31 December 2006 the group's accounting policy for the valuation of quoted investments was mid-market value at the balance sheet date. This has been changed to the market bid value at the balance sheet date. Unquoted investments are stated at the lower of cost or estimated net realisable value at the balance sheet date. Loans to the joint venture are stated at historical cost. All investments are now classified as long term financial assets and consist of: loans to the joint venture; fair value through profit and loss; and available for sale assets. iii) Investment property Up to and including 31 December 2006 the group's financial statements incorporated the joint venture under the gross equity method of accounting. The joint venture is now incorporated under the proportionate method of accounting. Prior year results have been restated. The remaining group accounting policies used in the interim financial statements are consistent with those applied in its most recent annual financial statements. The accounting policies are listed in full below. Reconciliations and descriptions of the effect of the transition from UK GAAP to IFRS on the group's equity and its net income and cash flows are provided in note 3. 2.1 Basis of preparation The financial statements have been prepared in accordance with International Accounting Standards to the extent that they are applicable to insurance companies. 2.2 Basis of consolidation The group financial statements consolidate those of the company and all of its subsidiary undertakings drawn up to 30 June 2007. Subsidiaries are entities over which the group has the power to control the financial and operating policies so as to obtain benefits from its activities. The group obtains and exercises control through voting rights. Unrealised gains on transactions between the group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the group. Acquisitions of subsidiaries are dealt with by the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with the group accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition. 2.3 Business combinations completed prior to date of transition to IFRS The group has elected not to apply IFRS 3 Business Combinations retrospectively to business combinations prior to 1 January 2006. Accordingly the classification of the combination remains unchanged from that used under UK GAAP. Assets and liabilities are recognised at date of transition if they would be recognised under IFRS, and are measured using their UK GAAP carrying amount immediately post-acquisition as deemed cost under IFRS, unless IFRS requires fair value measurement. Deferred tax and minority interest are adjusted for the impact of any consequential adjustments after taking advantage of the transitional provisions. The transitional provisions used for past business combinations apply equally to past acquisitions of interest in associates and joint ventures. 2.4 Joint ventures Entities whose economic activities are controlled jointly by the group and by other ventures independent of the group are accounted for using proportionate consolidation. 2.5 Goodwill Goodwill representing the excess of the cost of acquisition over the fair value of the group's share of the identifiable net assets acquired, is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Negative goodwill is recognised immediately after acquisition in the income statement. Goodwill written off to reserves prior to date of transition to IFRS remains in reserves. There is no re-instatement of goodwill that was amortised prior to transition to IFRS. Goodwill previously written off to reserves is not written back to profit or loss on subsequent disposal. 2.6 Revenue Revenue is measured by reference to the fair value of consideration received or receivable by the group for goods supplied and services provided, excluding VAT and trade discounts. Revenue is recognised upon the performance of services or transfer of risk to the customer. Premium recognition Premium income is recognised on a receivable basis. A proportion of premiums written in the current year relating to cover provided in the following year is carried forward as a provision for unearned premiums, calculated on a daily pro rata basis. Written premiums exclude insurance premium tax. Investment income and expenses Interest income is recognised on an accruals basis, as are investment expenses. Dividends are recognised when declared. Other income Other income, including property rental income is recognised on a receivable basis when the right to receive consideration has been established. Commission on insurance product sales is recognised when the policy goes on risk; in the case of indemnity commission provision is made for estimated future lapses. Investments Unrealised investment gains and losses are calculated as the difference between the valuation at the balance sheet date and their valuation at the last balance sheet date or purchase price, if acquired during the year. Unrealised investment gains and losses include adjustments in respect of unrealised gains and losses recorded in prior years which have been realised during the year and are reported as realised gains and losses in the current income statement. The group owns a portfolio of UK shares that are held, and managed on a discretionary basis, by an independent fund manager. These assets are reported as long term financial assets classified as available for sale. Unrealised gains or losses on these assets are recognised directly into equity. Other investments include UK treasury loan stock, quoted and unquoted equity shares and the loan to the joint venture. These assets are not considered to be current assets and have been classified as long term financial assets and are carried at fair value through profit or loss. Unrealised gains or losses on those assets are recognised as income or expense in the income statement. 2.7 Deferred acquisition expenses A proportion of underwriting expenses regarded as acquisition expenses is deferred to a subsequent accounting period to match the deferral to a subsequent accounting period of the proportion of the written premiums to which the acquisition expenses relate. The deferral of acquisition expenses is calculated by applying the ratio of unearned premiums to written premiums. 2.8 Claims recognition The provision for claims outstanding comprises the estimated cost of claims incurred but not settled at the balance sheet date, whether reported or not. Provision is made at the end of an accounting period for claims handling expenses to cover the anticipated costs of negotiating and settling claims which have occurred, whether notified or not, by that date. The provision includes the anticipated costs of the general claims administration relating to such claims. Adjustments to the amounts of claims provisions established in prior years are reflected in the financial statements for the period in which the adjustments are made, and are disclosed separately if material. The liability adequacy test (IFRS 4 paragraph 16) is performed at each reported balance sheet date. 2.9 Property, plant and equipment Property, plant and equipment is stated at cost or valuation, net of depreciation and any provision for impairment. No depreciation is charged during the period of construction. Borrowing costs on property, plant and equipment under construction are capitalised during the period of construction. Disposal of assets The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the income statement. Depreciation Depreciation is calculated to write down the cost or valuation less estimated residual value of all property, plant and equipment other than freehold land excluding investment properties by equal annual instalments over their estimated useful economic lives. The rates generally applicable are: Freehold properties 50 years Motor vehicles 4 years Computer equipment 2 - 4 years Furniture, fixtures and fittings 5 - 10 years 2.10 Impairment testing of goodwill, other intangible assets and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the group at which management monitors the related cash flows. Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 2.11 Leased assets All leases are operating leases as the lessor bears substantially all the risks and rewards related to the ownership of the leased asset. The payments made under them are charged to the income statement on a straight line basis over the lease term. Lease incentives are spread over the term of the lease. 2.12 Investment properties Investment properties are properties held to earn rentals and/or for capital appreciation. The group measures all of its investment property in accordance with IAS 16's requirements for the cost model. 2.13 Taxation Current tax is the tax currently payable based on taxable profit for the year. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the group and it is probably that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity (such as the revaluation of land) in which case the related deferred tax is also charged or credited directly to equity. 2.14 Financial assets Financial assets are divided into the following categories: trade and other receivables; financial assets at fair value through profit or loss; and available for sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which they were acquired. The designation of financial assets is re-evaluated at every reporting date at which a choice of classification or accounting treatment is available. All financial assets are recognised when the group becomes a party to the contractual provisions of the instrument. Financial assets other than those categorised as at fair value through profit or loss are recognised at fair value plus transaction costs. Financial assets categorised as at fair value through profit or loss are recognised initially at fair value with transaction costs expensed through the income statement. Financial assets at fair value through profit or loss include financial assets that are designated by the entity as at fair value through profit or loss upon initial recognition. Subsequent to initial recognition, the financial assets included in this category are measured at fair value with changes in fair value recognised in the income statement. Financial assets originally designated as financial assets at fair value through profit or loss may not be reclassified subsequently. Financial assets are designated as at fair value through profit or loss where they are managed and their performance evaluated on a fair value basis in accordance with the group's documented investment strategy. Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade and other receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the income statement. Provision against trade receivables is made when there is objective evidence that the group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows. Available for sale financial assets include non-derivative financial assets that are either designated as such or do not qualify for inclusion in any of the other categories of financial assets. All financial assets within this category are measured subsequently at fair value, with changes in value recognised in equity, through the statement of changes in equity. Gains and losses arising from investments classified as available for sale are recognised in the income statement when they are sold or when the investment is impaired. An assessment for impairment is undertaken at least at each balance sheet date. A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the group transfers substantially all the risks and rewards of ownership of the asset, or if the group neither retains nor transfers substantially all the risks and rewards if ownership but does transfer control of that asset. 2.15 Financial liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the group becomes a party to the contractual provisions of the instrument. Financial liabilities categorised as at fair value through profit or loss are recorded initially at fair value, all transaction costs are recognised immediately in the income statement. All other financial liabilities are recorded initially at fair value, net of direct issue costs. Financial liabilities categorised as at fair value through profit or loss are remeasured at each reporting date at fair value, with changes in fair value being recognised in the income statement. All other financial liabilities are recorded at amortised cost using the effective interest method, with interest related charges recognised as an expense in finance cost in the income statement. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Financial liabilities are categorised as at fair value through profit or loss where they are classified as held for trading or designated as at fair value thought profit or loss on initial recognition. Financial liabilities are designated as at fair value through profit or loss where they are managed and their performance evaluated on a fair value basis in accordance with the group's documented risk management strategy. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. 2.16 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. 2.17 Equity Equity comprises the following: • 'Share capital' represents the nominal value of equity shares. • 'Shares to be issued' represents shares to be issued as contingent consideration on acquisition. • 'Other reserve' represents the investment in own company shares by the employee benefit trust plus the change in market value of available for sale investments. • 'Treasury shares reserve' represents the cost of treasury shares purchased to satisfy the contingent consideration for acquisition. • 'Profit and loss reserve' represents retained profits. 2.18 Employee benefits Defined contribution executive and group personal schemes pension scheme The pension costs charged against profits are the contributions payable to the schemes in respect of the accounting period. 2.19 Share-based payment Equity settled share-based payment All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2006 are recognised in the financial statements. All goods and services received in exchange for the grant of any share based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. All equity-settled share-based payments are ultimately recognised as an expense in the income statement with a corresponding credit to 'other reserve'. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. 2.20 Employee benefit trust The assets and liabilities of the Employee Benefit Trust (EBT) have been included in the group accounts. Any assets held by the EBT cease to be recognised on the group balance sheet when the assets vest unconditionally in identified beneficiaries. The costs of purchasing own shares held by the EBT are shown as a deduction against equity. The proceeds from the sale of own shares held increase equity. Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the group income statement. At present the company operates a plan whereby all employees, excluding controlling shareholders, are entitled to make monthly payments to the trust via payroll deductions. The current allocation period is six months and shares are allocated to employees at the end of each allocation period. The shares are allocated at the lower of the mid market price at the beginning and end of the allocation period. The trust company has not waived its right to dividends on unallocated shares. Dividend income receivable on unallocated shares and any profit or loss on allocation of shares to individuals is taken directly to a reserve within equity. 2.21 Treasury shares Shares purchased by the company and held as treasury shares are shown as a deduction against equity. 3 Transition to IFRS 3.1 Basis of transition to IFRS 3.1.1 Application of IFRS 1 The group's financial statements for the year ending 31 December 2007 will be the first annual financial statements that comply with IFRS. These interim financial statements have been prepared as described in note 2. The group has applied IFRS 1 in preparing these consolidated interim financial statements. Personal Group Holdings Plc's transition date is 1 January 2006. The group prepared its opening IFRS balance sheet at that date. The reporting date of these interim consolidated financial statements is 30 June 2007. In preparing these interim consolidated financial statements in accordance with IFRS 1, the group has applied the mandatory exceptions and certain of the optional exemptions from full retrospective application of IFRS. 3.1.2 Exemptions from full retrospective application elected by the group Personal Group Holdings plc has elected to apply the following optional exemption from full retrospective application. (a) Business combinations exemption Personal Group Holdings Plc has applied the business combinations exemption in IFRS 1. It has not restated business combinations that took place prior to the 1 January 2006 transition date. (b) Share-based payment transactions Personal Group Holdings Plc has applied the share-based payment transaction exemption in IFRS 1. It has not applied IFRS 2 to equity instruments that were granted after 7 November 2002 and had vested on or before the 1 January 2006 transition date. (c ) Estimates Personal Group Holdings Plc has adopted the estimates exemption in IFRS 1. Estimates at the date of transition are consistent with estimates made under UK GAAP as there is no objective evidence that those estimates were in error. 3.2 Reconciliations between IFRS and UK GAAP The following reconciliations provide a quantification of the effect of the transition to IFRS, with notes to the reconciliations contained at note 3.2.6: - net income at 30 June 2006 - net income at 31 December 2006 - equity at 1 January 2006 - equity at 30 June 2006 - equity at 31 December 2006 3.2.1 Reconciliation of net income for the six months ended 30 June 2006 Effect of transition to UK GAAP IFRS IFRS £000 £000 £000 Gross premiums written 7,854 - 7,854 Change in unearned premiums 148 - 148 Net premiums written 8,002 - 8,002 Other income 5,450 - 5,450 Investment income 346 1 347 Revenue 13,798 1 13,799 Claims incurred (1,668) - (1,668) Insurance operating expenses (3,700) - (3,700) Other expenses (4,440) 526 (3,914) Charitable donations (70) - (70) Expenses (9,878) 526 (9,352) Results of operating activities 3,920 527 4,447 Finance costs (223) - (223) Profit before tax 3,697 527 4,224 Tax (1,309) - (1,309) Profit for the period 2,388 527 2,915 3.2.2 Reconciliation of net income for the year ended 31 December 2006 Effect of transition to UK GAAP IFRS IFRS £000 £000 £000 Gross premiums written 15,933 - 15,933 Change in unearned premiums 20 - 20 Net premiums written 15,953 - 15,953 Other income 10,729 - 10,729 Investment income 890 (23) 867 Revenue 27,572 (23) 27,549 Claims incurred (2,908) - (2,908) Insurance operating expenses (7,328) - (7,328) Other expenses (8,522) 1,019 (7,503) Charitable donations (80) - (80) Expenses (18,838) 1,019 (17,819) Results of operating activities 8,734 996 9,730 Finance costs (424) - (424) Profit before tax 8,310 996 9,306 Tax (2,667) - (2,667) Profit for the year 5,643 996 6,639 3.2.3 Reconciliation of equity at 1 January 2006 Effect of transition to UK GAAP IFRS IFRS Note £000 £000 £000 ASSETS Non-current assets 9,247 - 9,247 Goodwill Property, plant and equipment 6,638 127 6,765 Investment in joint venture (36) 36 - Investment property - 2,073 2,073 Long term financial assets 8,564 (2,252) 6,312 24,413 (16) 24,397 Current assets 4,374 14 4,388 Trade and other receivables Cash and cash equivalents 8,564 - 8,564 12,938 14 12,952 Total assets 37,351 (2) 37,349 EQUITY Equity attributable to shareholders of Personal Group Holdings Plc Share capital 1,528 - 1,528 Shares to be issued 298 - 298 Other reserve (763) - (763) Retained earnings 19,498 (30) 19,468 Total equity 20,561 (30) 20,531 LIABILITIES Non-current liabilities Deferred tax liabilities 169 - 169 Current liabilities Provisions 253 - 253 Trade and other payables 6,481 28 6,509 Current tax liabilities 1,452 - 1,452 Borrowings 8,435 - 8,435 16,621 28 16,649 Total liabilities 16,790 28 16,818 Total equity and liabilities 37,351 (2) 37,349 3.2.4 Reconciliation of equity at 30 June 2006 Effect of transition to UK GAAP IFRS IFRS Note £000 £000 £000 ASSETS Non-current assets 8,732 515 9,247 Goodwill Property, plant and equipment 6,551 113 6,664 Investment in joint venture (21) 21 - Investment property - 2,073 2,073 Long term financial assets 8,390 (2,244) 6,146 23,652 478 24,130 Current assets 3,636 21 3,657 Trade and other receivables Cash and cash equivalents 9,034 - 9,034 12,670 21 12,691 Total assets 36,322 499 36,821 EQUITY Equity attributable to shareholders of Personal Group Holdings Plc Share capital 1,528 - 1,528 Shares to be issued 309 (11) 298 Other reserve (736) 9 (727) Retained earnings 19,361 497 19,858 Total equity 20,462 495 20,957 LIABILITIES Non-current liabilities Deferred tax liabilities 169 - 169 Current liabilities Provisions 212 - 212 Trade and other payables 5,826 4 5,830 Current tax liabilities 1,322 - 1,322 Borrowings 8,331 - 8,331 15,691 4 15,695 Total liabilities 15,860 4 15,864 Total equity and liabilities 36,322 499 36,821 3.2.5 Reconciliation of equity at 31 December 2006 Effect of transition to UK GAAP IFRS IFRS Note £000 £000 £000 ASSETS Non-current assets 8,219 1,028 9,247 Goodwill Property, plant and equipment 6,555 99 6,654 Investment in joint venture (6) 6 - Investment property - 2,073 2,073 Long term financial assets 8,446 (2,208) 6,238 23,214 998 24,212 Current assets 4,057 32 4,089 Trade and other receivables Cash and cash equivalents 9,486 - 9,486 13,543 32 13,575 Total assets 36,757 1,030 37,787 EQUITY Equity attributable to shareholders of Personal Group Holdings Plc Share capital 1,528 - 1,528 Shares to be issued 289 9 298 Other reserve (707) 38 (669) Treasury shares reserve (298) - (298) Retained earnings 21,950 966 22,916 Total equity 22,762 1,013 23,775 LIABILITIES Non-current liabilities Deferred tax liabilities 147 - 147 Current liabilities Provisions 256 - 256 Trade and other payables 5,952 17 5,969 Current tax liabilities 1,355 - 1,355 Borrowings 6,285 - 6,285 13,848 17 13,865 Total liabilities 13,995 17 14,012 Total equity and liabilities 36,757 1,030 37,787 3.2.6 Notes to the reconciliations See note 2. 4 Segment analysis The group operates three main trading business segments, insurance underwriting, insurance and financial services related business, and non-insurance related business. In addition investment income (net of finance costs) is classified as a separate business segment. Personal Assurance Plc, a subsidiary within the group is an FSA regulated general insurance company and is authorised to transact accident and sickness insurance. Insurance and financial services related business income includes insurance brokerage commissions generated from insurance underwriting agencies, general insurance and reinsurance brokerage commission and the provision of financial services. All of this income is generated from subsidiary companies that are also regulated by the FSA. Non-insurance related business consists of income derived from the sale of benefit books, non-FSA regulated commission and property rental income. The revenue and net result generated by each of the group's business segments are summarised as follows: Business segments Non- Net Insurance Insurance insurance investment underwriting related related income Group £000 £000 £000 £000 £000 6 months to June 2007 Revenue 7,915 3,987 811 512 13,225 Net result for the period 2,765 1,209 (56) 323 4,241 before tax 6 months to June 2006 Revenue 8,002 4,860 590 347 13,799 Net result for the period 2,634 1,819 (353) 124 4,224 before tax 5 Earnings per share and dividends The weighted average numbers of outstanding shares used for basic and diluted earnings per share are as follows: 30 June 2007 30 June 2006 31 December 2006 Basic 30,227,184 30,172,248 30,182,627 Diluted 30,261,956 30,393,591 30,400,618 During the first six months of 2007, Personal Group Holdings Plc paid dividends of £2,902,000 to its equity shareholders (30 June 2006: £2,652,000, 31 December 2006: £3,347,000). This represents a payment of 9.5p per share (30 June 2006: 8.8p, 31 December 2006: 11.1p). In the statement of changes in equity and the cash flow statement dividends are stated net of amounts paid on treasury shares and unallocated shares held by Personal Group Trustees Limited. 6 Additions and disposals of property, plant and equipment For the six months period ended 30 June 2007 Furniture Freehold land Motor Computer fixtures & and properties vehicles equipment fittings Total £000 £000 £000 £000 £000 Cost At 1 January 2007 6,365 477 406 1,915 9,163 Additions - 120 77 4 201 Disposals - (94) (1) (1) (96) 6,365 503 482 1,918 9,268 Depreciation At 1 January 2007 616 204 290 1,399 2,509 Provided in the period 56 62 42 53 213 Eliminated on disposals - (64) (1) (1) (66) At 30 June 2007 672 202 331 1,451 2,656 Net book amount at 30 June 2007 5,693 301 151 467 6,612 Net book amount at 1 January 2007 5,749 273 116 516 6,654 For the year ended 31 December 2006 Furniture Freehold land Motor Computer fixtures & and properties vehicles equipment fittings Total £000 £000 £000 £000 £000 Cost At 1 January 2006 6,365 507 351 1,994 9,217 Additions - 195 133 22 350 Disposal of subsidiary - - (4) (100) (104) Disposals - (225) (74) (1) (300) At 31 December 2006 6,365 477 406 1,915 9,163 Depreciation At 1 January 2006 502 270 290 1,390 2,452 Provided in the year 114 116 76 110 416 Disposal of subsidiary - - (2) (100) (102) Eliminated on disposals - (182) (74) (1) (257) At 31 December 2006 616 204 290 1,399 2,509 Net book amount at 31 December 2006 5,749 273 116 516 6,654 Net book amount at 1 January 2006 5,863 237 61 604 6,765 For the six months period ended 30 June 2006 Furniture Freehold land Motor Computer fixtures & and properties vehicles equipment fittings Total £000 £000 £000 £000 £000 Cost At 1 January 2006 6,365 507 351 1,994 9,217 Additions - 60 57 17 134 Disposals - (101) - - (101) At 30 June 2006 6,365 466 408 2,011 9,250 Depreciation At 1 January 2006 502 270 290 1,390 2,452 Provided in the period 47 60 45 61 213 Eliminated on disposals - (79) - - (79) At 30 June 2006 549 251 335 1,451 2,586 Net book amount at 30 June 2006 5,816 215 73 560 6,664 Net book amount at 1 January 2006 5,863 237 61 604 6,765 Financial calendar for the year ending 31 December 2007 The company announces the following dates in its financial calendar for the year ending 31 December 2007: • Payment of next dividend - 24 October 2007 • Preliminary results for the year ending 31 December 2007 - March 2008 • Publication of Report and Accounts for 2007 - March 2008 • AGM - April 2008 This information is provided by RNS The company news service from the London Stock Exchange

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