Interim Results

RNS Number : 8510B
B.P. Marsh & Partners PLC
13 October 2020
 

13th October 2020

 

B.P. Marsh & Partners Plc  

("B.P. Marsh", "the Company" or "the Group")  

 

Interim Results

 

B.P. Marsh & Partners Plc (AIM: BPM), the specialist investor in early stage financial services businesses, announces its unaudited Group interim results for the six months to 31 July 2020 (the "Period").

 

Highlights:

· Net Asset Value at 31 July 2020 £142.6m (31 July 2019: £130.0m; 31 January 2020: £136.9m)

· Net Asset Value per share 396.2p (31 July 2019: 360.9p; 31 January 2020: 380.1p)

· Total Shareholder return of 4.8 % for the Period including the dividend paid in July 2020

· Group cash availability of £4.2m (including undrawn loan facility of £3m) as at 31 July 2020

· Current cash £2.6m (including £2.0m loan facility)

· Consolidated profit after tax of £6.5m (31 July 2019: £5.6m; 31 January 2020: £12.5m)

· One new investment; SAGE Program Underwriters Inc.

 

Commenting on the results, Brian Marsh OBE, Chairman, said:   "B.P. Marsh's diversified investment portfolio has shown its resilience, delivering NAV growth despite the ongoing market uncertainty. The outlook is positive for the rest of the year, in no small part due to the hard work and dedication of our investee companies and our own employees in the period."

 

Analyst briefing:

An analyst presentation, hosted by the Company, will be held on Tuesday 13th October 2020 at 10:00 a.m. BST.

 

Please contact Tim Pearson at Tavistock Communications on 07983118502 or tim.pearson@tavistock.co.uk should any analyst wish to attend.

 

Note

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

 

For further information, please visit www.bpmarsh.co.uk or contact:  

 

B.P. Marsh & Partners Plc

Brian Marsh OBE

 

+44 (0)20 7233 3112

Panmure Gordon (UK) Limited

Atholl Tweedie / Charles Leigh-Pemberton / Ailsa MacMaster

 

+44 (0)20 78862500

Tavistock

Jos Simson / Simon Hudson / Tim Pearson

bpmarsh@tavistock.co.uk

+44 (0)20 7920 3150

 

Notes to Editors:  

B.P. Marsh's current portfolio contains eighteen companies. More detailed descriptions of the portfolio can be found at  www.bpmarsh.co.uk . 

 

Since formation over 25 years ago, the Company has assembled a management team with considerable experience both in the financial services sector and in managing private equity investments. Many of the Directors have worked with each other in previous roles, and all have worked with each other for approaching ten years. 

 

Statement by the Chairman and Managing Director

 

We are pleased to present the unaudited Consolidated Financial Statements of B.P. Marsh & Partners Plc for the six-month period to 31 July 2020 (the "Period").

 

Results and Dividend

 

During the Period we have seen a 5.1% increase in the valuation of the portfolio from £115.7m to £122.1m, which we are encouraged by, considering the continuing uncertain backdrop of the Covid-19 pandemic. Our portfolio continues to perform in line with management expectations, and the Group aims to be able to deliver Net Asset Value growth at the year end. Our Net Asset Value as at 31 July 2020 was £142.6m or 396.2p per share, up 4.2% over the Period and 9.7% over the prior twelve months.

 

On 31 July 2020 the Company paid a dividend of 2.22p per share to all shareholders on the Register as at 26 June 2020 and continues to seek to balance rewarding loyalty to its shareholders and retaining future investment capital in its considerations regarding future dividend policy.

 

As at 31 July 2020 the Group had a cash balance of £1.2m following the payment of the dividend, in addition to an undrawn loan facility of £3m from Brian Marsh Enterprises Limited.

 

Share Buy-Backs

 

As has been stated previously, the Company has a strategy for undertaking small market buy-backs of its shares at times when the discount to Net Asset Value ("NAV"), based upon the most recently announced NAV, is greater than 15%.

 

For the avoidance of doubt, notwithstanding that the discount to NAV at which the Company's shares are currently trading is greater than 15%, the Company notes that it is currently restricted in its ability to buy back shares since, given that Brian Marsh, together with persons acting in concert with Brian Marsh for the purposes of the City Code on Takeovers and Mergers (the "City Code"), has an interest in approximately 41.85% of the Company's voting rights, any such purchase of shares would result in an obligation for Brian Marsh to make a general offer for the Company in accordance with Rule 9 of the City Code.

 

New Investment

 

In June, the Group announced that it had subscribed for a 30%   Cumulative Preferred Ordinary shareholding in SAGE Program Underwriters, Inc ("SAGE"), an Oregon, US based provider of specialist insurance products to niche industries, initially in the inland delivery and field sport sectors. This continues our track record of investing in experienced insurance professionals, in this case the CEO of SAGE, Chuck Holdren.

 

Follow on Funding & Additional Investments

 

In October 2020, after the Period-end, the Group subscribed for a further 15% stake in EC3 Brokers Group Limited ("EC3"), bringing its shareholding to 35% in a £1.5m injection of further capital. 

 

This follow on funding, along with the refinancing of its bank debt, allows EC3 to bolster its position in pursuing its strategy notwithstanding the impact that Covid-19 has had on a significant area of EC3's business, being event cancellation insurance. 

 

The provision of this follow on funding, demonstrates the Group's investment mantra, being to support its investee companies over the long term.

 

The Group strongly believes that EC3 is well positioned to grow in the future, with EC3 now beginning to see the benefit of a number of new ventures undertaken over the past 12 months.

 

Investee Company Highlights

 

During the Period, XPT, the US based specialty lines distribution company acquired LP Risk, Inc, the Managing General Agency ("MGA") and surplus lines broker, based in Texas, US. In addition, XPT's wholesale broker division, Western Security Surplus acquired Houston Surplus Lines, an excess and surplus lines MGA. This is a continuation of XPT's successful acquisition strategy which we continue to support.

 

Also during the Period, Nexus, the London based MGA, announced that its independent broking arm Xenia completed the acquisition of the trade credit business of Howden UK Group Limited, one of the largest independent trade insurance brokers in the UK. Additionally, Nexus repaid a £2m Revolving Credit Facility to the Group eight months earlier than the rescheduled repayment date of 31 December 2020.

 

Alongside this, we were pleased that Walsingham Motor Insurance Limited ("Walsingham") and MB Prestige Holdings PTY Limited repaid outstanding loans of £0.42m and AUD 0.56m (£0.30m) respectively during the Period, ahead of their repayment schedule.

 

EC3 Brokers Group Limited won the Dubai International Financial Centre (DIFC) Group Health Insurance Master Policy Scheme in June. This will provide health insurance to employees of companies in the DIFC, the leading international financial hub in the Middle East, Africa and South Asia (MEASA) region.

 

We have been particularly pleased with the way in which our investee companies have adapted to the Covid-19 crisis. For example, Walsingham specialises in fleet insurance for public and private taxi fleets and couriers in the UK, which was impacted by Covid-19 and its restrictions. Foreseeing the impact of these restrictions, it provided policyholders the flexibility to deliver food and shopping as well as various NHS support work to be undertaken without the need for policy extensions. This has kept the business running in line with its original budgetary expectations.

 

Financial Performance

 

Overall, the Group has delivered an excellent return for the Period given the various challenges that it has faced due to Covid-19. The Net Asset Value increased by £5.8m, versus a £3.8m increase over the same period last year. At 31 July 2020, the Net Asset Value of the Group was £142.6m, or 396.2p per share which equates to an increase in Net Asset Value of 4.2% for the Period (2019: 3.0%), or 4.8% (2019: 4.4%) including the dividend paid.

 

The Net Asset Value of £142.6m at 31 July 2020 represented a total increase in Net Asset Value of £113.4m since the Group was originally formed in 1990 having adjusted for the original capital investment of £2.5m, the £10.1m net proceeds raised on AIM in 2006 and the £16.6m of net proceeds raised through the Share Placing and Open Offer in July 2018. The Directors note that the Group has delivered an annual compound growth rate of 8.0% in Group Net Asset Value after running costs, realisations, losses, distributions and corporation tax since flotation and 11.6% since 1990.

 

The Group's strategy is to cover expenses from the portfolio yield. On an underlying basis, including treasury returns, but excluding investment activity (unrealised gains on equity, provision against loans receivable from investee companies and all underlying treasury portfolio movement), this was achieved with a pre-tax profit of £0.6m for the Period (H1 2019: £1.5m). The reduction in underlying profit relates to the timing of receipt of dividend income from investee companies. However, overall the Group's current expectation is to achieve a similar level of underlying profit for this financial year as it did for the year ended 31 January 2020 (£0.8m).

 

Liquidity

 

Cash funds at 31 July 2020 were £1.2m (31 January 2020: £0.8m), alongside a £3.0m loan facility with Brian Marsh Enterprises Ltd, a company in which the Chairman, Mr. Brian Marsh, is a director and sole shareholder. Total available cash, including the loan facility, currently stands at £2.6m, following the EC3 investment.

 

Covid-19 Impact Assessment

 

The financial statements to 31 January 2020 did not include any impact of Covid-19 as it was treated as a non-adjusting post balance sheet event. However, the financial statements to 31 July 2020 have taken its impact into account.

 

Covid-19 has had an impact upon the financial performance of the Group, with several of our investee companies being directly affected. However, these companies have each taken steps to manage the risks to their income and to their liquidity, securing additional support and implementing cost reductions where applicable to mitigate any reduction in income and profitability accordingly. The majority are tracking their budgets as a result. In addition, several investee companies have managed to exceed expectations, delivering record results.

 

As a consequence, and notwithstanding the ongoing impact of Covid-19 due to continued restrictions around the world, the Group still managed to achieve Net Asset growth over the Period of 4.8% including the dividend paid in July 2020, which demonstrates that we have a diversified portfolio, both in terms of products and geographically.

 

Whilst we cannot predict when restrictions may be fully lifted, or the duration of Covid-19, the current performance of our portfolio amidst this pandemic is encouraging. The Board continues to monitor the key threats to the business closely.

 

We also continue to monitor Government advice regarding Covid-19, as the health and safety of our staff and those of our investee companies remains our main priority. We continue to support them, as well as our partners during the continuing pandemic.

 

Outlook

 

The Group remains well positioned to carry out new investments, with a number of early stage opportunities in the pipeline, which we hope will develop over the course of the rest of the year.

 

The Group continues to focus on investing in specialist SME sectors in Financial Services, backed by experienced and capable management teams, which will create long term growth and consequential value.

 

Chief Investment Officer's Portfolio Update

 

Our portfolio of investments has performed well during this financial period, with many of our Insurance Intermediary investments delivering very good results.

 

This is a testament to the Group's investment mantra, and carefully assembled portfolio. Whilst we specialise in Insurance Intermediary businesses, our portfolio is well diversified across multiple product areas, operating in various sectors, ensuring resilience through times of economic or social disruption.

 

The Group also has a track record of investing in experienced management teams, all of whom have proved adept at  managing their businesses against a very challenging economic background. 

 

This has resulted in the portfolio as a whole increasing in value over the six-month period by £5.7m to £142.6m, or 4.1%. 

 

These valuations take into account the outbreak and impact of the initial phases of Covid-19. During the pandemic, the Group has focused on supporting our existing portfolio, closely analysing the impact of Covid-19 on each of our investments through an ever-changing environment.

 

The Group remains confident that its investment strategy and sector focus will prove resilient during this period of disruption and that Covid-19 will not have a negative impact on the portfolio as a whole to a material degree.

 

New Investments

 

During the six-month period we made one new investment. In June 2020, the Group acquired a 30% shareholding in SAGE Program Underwriters, Inc ("SAGE"), for an equity consideration of US$ 250,000 (c. £203,000).

 

Sage was established in 2019 by CEO Chuck Holdren and is based in Bend, Oregon, USA. Sage provides Workers Compensation insurance to niche industries, including inland delivery and field sport sectors.

 

Portfolio Update & Activity

 

NAV breakdown by portfolio company

 

The composition of B. P. Marsh's underlying portfolio company exposure can be found here:

http://www.rns-pdf.londonstockexchange.com/rns/8510B_1-2020-10-12.pdf

 

 

The insurance intermediary investments in which the Group holds interests are budgeting in the year to 31 December 2020 to produce, in aggregate, insurance premium ("GWP") of approaching US$ 1.5bn (c.£1.12bn), of which approximately US$581m (c.£450m is attributable to insurance brokers and approximately US$865m (c.£670m) is attributable to MGAs, as set out below:-

http://www.rns-pdf.londonstockexchange.com/rns/8510B_2-2020-10-12.pdf

 

 

 

Insurance Brokers  

Investments:

 

£'000s

 

 

 

 

 

 

 

 

 

 

Broking Investments

 

Jurisdiction

 

% Shareholding as at 31 July 2020

 

Valuation

as at 31 July 2020

 

Cost of

Investment

 

% of Group Net Asset Value 

as at 31 July 2020

Asia Reinsurance Brokers Pte Limited

 

Singapore

 

25.0%

 

706

 

1,551

 

0.5%

CBC UK Limited

 

UK

 

43.7%

 

7,289

 

264

 

5.1%

EC3 Brokers Limited

 

UK

 

20.0%

 

4,659

 

5,000

 

3.2%

Lilley Plummer Risks Limited

 

UK

 

30.0%

 

1,726

 

1,000

 

1.2%

Mark Edward Partners LLC

 

USA

 

30.0%

 

0

 

4,573

 

0%

Summa Insurance Brokerage, S. L

 

Spain

 

77.3%

 

6,932

 

6,096

 

4.9%

 

Our Broking Investments are, in aggregate, budgeting to place over £450m of insurance premium, producing over £37.0m of commission income during 2020, accessing the specialty markets of, inter alia, Lloyd's and London, North America, Asia Pacific and Bermuda.

 

Underwriting Agencies / Managing General Agents ("MGAs")

Investments:

 

£'000s

 

 

 

 

 

 

 

 

 

 

MGA Investments

 

Jurisdiction

 

% Shareholding as at 31 July 2020

 

Valuation as at 31 July 2020

 

Cost of Investment

 

% of Group Net Asset Value

as at 31 July  2020

Ag Guard PTY Limited

 

Australia

 

36.0%

 

1,421

 

1,428

 

1.0%

ATC Insurance Solutions PTY Limited

 

Australia

 

20.0%

 

7,423

 

2,865

 

5.2%

Criterion Underwriting Pte Limited

 

Singapore

 

29.4%

 

0

 

50

 

0.0%

The Fiducia MGA Company Limited

 

UK

 

35.2%

 

2,222

 

228

 

1.6%

MB Prestige Holdings PTY Limited

 

Australia

 

40.0%

 

3,030

 

480

 

2.1%

Nexus Underwriting Management Limited

 

UK

 

18.0%

 

40,313

 

11,126

 

28.3%

SAGE Program Underwriters, Inc

 

USA

 

30.0%

 

190

 

203

 

0.1%

Stewart Specialty Risk Underwriting Limited

 

Canada

 

30.0%

 

3,539

 

-

 

2.5%

Sterling Insurance PTY Limited

 

Australia

 

19.7%

 

2,684

 

1,945

 

1.9%

Walsingham Motor Insurance Limited

 

UK

 

40.5%

 

2,226

 

600

 

1.6%

Walsingham Holdings Limited

 

UK

 

20.0%

 

68

 

-

 

0.0%

XPT Group LLC

 

USA

 

29.9%

 

12,713

 

7,330

 

8.9%

 

Our MGA investments are, in aggregate, budgeting to produce GWP of £670m in 2020, which represents £84.0m of commission income in the year. The Group's MGA investments operate in excess of 30 product areas, on behalf of more than 50 insurers.

 

IFA Investment

Investment:

 

£'000s

 

 

 

 

 

 

 

 

 

 

 

Jurisdiction

 

% Shareholding

as at 31 July 2020

 

Valuation as at 31 July 2020

 

Cost of Investment

 

% of Group

Net Asset Value

as at 31 July 2020

LEBC Holdings Limited

 

UK

 

 

59.3%

 

25,000

 

12,374

 

17.5%

 

LEBC is presently the Group's only non-insurance related investment, although we do continue to see investment opportunities in the financial planning and advisory sector.

 

Portfolio Company Highlights:

 

Ag Guard PTY Limited ("Ag Guard")

( www.agguard.com.au )

In July 2019 the Group subscribed for a 36% holding in Ag Guard PTY Limited, a Managing General Agency, which provides insurance to the Agricultural Sector, based in Sydney, Australia.

 

Ag Guard continues to roll out its niche agricultural product offering across Australia, with the business showing significant traction since it was established.

 

Date of investment: July 2019

31 July 2020 valuation: £1,421,000

Equity stake: 36%

 

Asia Reinsurance Brokers Pte Limited ("ARB")

( www.arbrokers.asia )

In April 2016 the Group invested in Asia Reinsurance Brokers Pte Limited, the Singapore headquartered independent specialist reinsurance and insurance risk solutions provider. ARB was established in 2008, following a management buy-out of the business from AJ Gallagher, led by the CEO, Richard Austen.

 

Despite the Covid-19 pandemic, ARB continues to develop its business portfolio under the direction of Richard Austen and its Managing Director, William Pang. 

 

Date of investment: April 2016

31 July 2020 valuation: £706,000

Equity stake: 25%

 

ATC Insurance Solutions PTY Limited ("ATC")

( www.atcis.com.au )

In July 2018, the Group invested in ATC, an Australia-based MGA and Lloyd's Coverholder, specialising in Accident & Health, Construction & Engineering, Trade Pack and Sports insurance.

 

The Group acquired a 20% shareholding in ATC, which continues to show strong growth and is one of the largest Lloyd's underwriting agencies operating in Australia.

 

ATC finished its 2020 financial year 28% ahead of last year on EBITDA, which demonstrates its resilience in a challenging environment.

 

Since the Group's investment in ATC,  Gross Written Premium has grown from c. AU$ 60m, to budgeting  Gross Written Premium of approaching AU$ 100m in its current year to June 2021.

 

Since investment, the Group's valuation of ATC has increased by AU$ 8.5m (c. £4.7m) to AU$ 13.5m (c. £7.4m), as at 31 July 2020.

 

ATC has also made a number of new hires to expand its product offering in the Construction and Cyber sectors. This includes the appointment of a new underwriter operating in the plant and machinery space. In the Cyber space, ATC has hired a senior underwriter who has a great depth of knowledge and experience in the Australian cyber marketplace. With these appointments, ATC is further developing its expertise in these key growth areas.

 

Date of investment: July 2018

31 July 2020 valuation: £7,423,000

Equity stake: 20%

 

CBC UK Limited ("CBC")

( www.cbcinsurance.co.uk )

Established in 1985, CBC is a Retail and Wholesale Lloyd's Insurance Broker, offering a wide range of services to commercial and personal clients as well as broking solutions to intermediaries. The Group assisted in an MBO of CBC, allowing Management to buy out a major shareholder. 

 

CBC has recently hired a new team dedicated to International Financial products. The team has collectively 145 years of experience in this sector, both underwriting and broking, and is headed up by Adrian Fox. Since they commenced their employment at CBC, this team has made great strides in expanding CBC's international footprint.

 

Date of investment: February 2017

31 July 2020 valuation: £7,289,000

Equity stake: 43.7%

 

Criterion Underwriting Pte Limited ("Criterion")

( www.criterionmga.com )

The Group helped to establish Criterion alongside its Partners in Asiare Holdings (PTE) Limited and Asia Reinsurance Brokers (PTE) Limited in July 2018. Criterion is a start-up Singapore-based Managing General Agency providing specialist insurance products to a variety of clients in the Cyber, Financial Lines and Marine sectors in Far East Asia.

 

Date of investment: July 2018

31 July 2020 valuation: £0

Equity stake: 29.4%

 

EC3 Brokers Limited ("EC3")

( www.ec3brokers.com )

In December 2017, the Group invested in EC3, an independent specialist Lloyd's broker and reinsurance broker. Founded by its current Chief Executive Officer Danny Driscoll, who led a management buyout to acquire EC3's then book of business from AJ Gallagher in 2014, EC3 provides services to a wide array of clients across a number of sectors, including construction, casualty, entertainment and cyber & technology. 

 

Date of investment: December 2017

31 July 2020 valuation: £4,569,000

Equity Stake: 20%

 

The Fiducia MGA Company Limited ("Fiducia")

( www.fiduciamga.co.uk )

Fiducia, founded in November 2016, is a UK Marine Cargo Underwriting Agency, established by its CEO Gerry Sheehy. Fiducia is a Lloyd's Coverholder which specialises in the provision of insurance solutions across a number of Marine risks including, Cargo, Transit Liability, Engineering and Terrorism Insurance.

 

Fiducia, having launched as a start-up MGA in November 2016, with backing from the Group, continues to show strong growth and is on track to secure Gross Written Premium in excess of £20m for the current year.

 

Cumulatively, the Group has invested £228,000 in Fiducia for its 35% shareholding. As at 31 July 2020, the Group's valuation of Fiducia is £2.2m, an increase of £2.0m or 875%.

 

Fiducia has recently expanded its product offering with the establishment of a Fine Art and Specie division. 

 

Fiducia continues to seek out new underserved areas of the marine market, working with brokers and insurance carriers to develop products to support these areas. To this end, Fiducia recently launched new products in the terrorism and marine equipment arenas. 

 

Date of investment: November 2016

31 July 2020 valuation: £2,222,000

Equity stake: 35.2%

 

LEBC Holdings Limited ("LEBC")

( www.lebc-group.com )

In April 2007 the Group invested in LEBC, an Independent Financial Advisory company providing services to individuals, corporates and partnerships, principally in employee benefits, investment and life product areas.

 

Throughout Covid-19 LEBC's centralised investment proposition has provided a degree of stability to clients' portfolios in a time of extreme volatility. Additionally, private client advisors have continued to provide quality advice to individuals faced with unprecedented disruption to their lives. LEBC's corporate division has provided additional support to corporate clients using the furlough scheme and providing assistance in helping them manage variable pay and pension calculations. 

 

As previously announced, the Group was greatly saddened to report on the death in September 2020 of LEBC's founder and Chief Executive, Jack McVitie, who spearheaded LEBC's growth, which has seen the business become one of the largest independently owned national IFAs.

 

The Group is working closely with LEBC's longstanding and continuing Management team, to continue the legacy that Jack McVitie built.

 

Date of investment: April 2007

31 July 2020 valuation: £25,000,000

Equity stake: 59.3%

 

Lilley Plummer Risks Limited  ("LPR")

( www.lprisks.co.uk )  

In October 2019, the Group invested into Lilley Plummer Risks, the newly formed specialist marine Lloyd's broker. Lilley Plummer Risks was established by Stuart Lilley and Dan Plummer in 2019 and provides products across the marine Insurance market. 

 

Since investment LPR has made a number of new hires to bolster its products provision in Marine, Terrorism and War risks. 

 

LPR's core business performance has exceeded expectation since investment, as have the new teams that have joined. 

 

At investment, the Group took a 30% stake for a cash consideration £1m. As at 31 July 2020, and given the strong performance, the Group's valuation of its investment in LPR, for the same shareholding, is £1.7m, an increase of £0.7m or 70%.

 

Date of investment: October 2019 

31 July 2020 valuation: £1,726,000 

Equity stake: 30% 

 

Mark Edward Partners LLC ("MEP")

( www.markedwardpartners.com )

Founded in 2010 by Mark Freitas, its President & Chief Executive Officer, MEP provides core insurance products in Financial & Liability, Property & Casualty, Personal Lines, Life Insurance, Cyber and Affinity Groups. MEP is a national U.S. firm with licenses to operate in all 50 states and has offices in New York, Palm Beach and Los Angeles.

 

Date of investment: October 2017

31 July 2020 valuation: £0

Equity stake: 30%

 

MB Prestige Holdings PTY Limited ("MB Group")

( www.mbinsurance.com.au )

In December 2013 the Group invested in MB Group, the parent Company of MB Insurance Group PTY a Managing General Agent, headquartered in Sydney, Australia. MB Group is recognised as a market leader in respect of prestige motor vehicle insurance in all mainland states of Australia.

 

Over the Period, MB Group has repaid in full its loan from the Group, which was possible due to its solid and consistent performance over the last three years and a healthy cash balance. MB continues to show strong growth with Gross Written Premium up 10% on the previous year at the 6-month year to date position and profitability up nearly 20% over the prior year position.

 

Date of investment: December 2013

31 July 2020 valuation: £3,030,000

Equity stake: 40%

 

Nexus Underwriting Management Limited ("Nexus")

( www.nexusunderwriting.com )

In 2014 the Group invested in Nexus, an independent specialty Managing General Agency, founded in 2008. Through its operating subsidiaries Nexus specialises in the provision of Directors & Officers, Professional Indemnity, Financial Institutions, Accident & Health, Trade Credit, Political Risks Insurance, Surety, Bond and Latent Defect Insurance, both in the UK and internationally. 

 

In March 2020, Nexus established Xenia, uniting all elements of Nexus's independent broking divisions, including Credit Risk Solutions and Credit and Business Finance.

 

Xenia is among the largest independent specialist trade credit and surety brokers in the UK, with a c. 20% market share of trade credit insurance distribution.

 

Xenia have recently appointed a new member of its senior Management Team, to lead its client services division. This will enable Xenia to further develop its strong client relationships, exceeding expectations for service and delivery as the group continues its journey of successful growth.

   

The Nexus Managing General Agency business continues to remain on track to hit its original budget expectation for the year ending 31 December 2020, notwithstanding the challenges that have been posed by the Covid-19 pandemic.

 

In February 2020, Nexus was ranked at number 78 in the 11th annual Sunday Times HSBC International Track 200, which ranks Britain's mid-market private companies with the fastest-growing international sales.

 

Date of investment: August 2014

31 July 2020 valuation: £40,313,000

Equity stake: 18.0%

 

SAGE Program Underwriters, Inc ("SAGE")

( www.sageuw.com )

Based in Bend, Oregon, SAGE provides specialist insurance products to niche industries, initially in the inland delivery and field sport sectors, established in 2019 by CEO Chuck Holdren. Mr. Holdren has three decades of experience in the industry and has prior experience of establishing and managing two national underwriting agencies from start-up to successful trade sale.

 

Since investment, SAGE has performed in line with the Groups expectations, and has strong growth potential going forward. Sage has also made a number of new hires to bolster its product offering, with the aim of becoming a 'one-stop-shop' for the inland delivery and field sport sectors.

 

Date of Investment: June 2020

31 July 2020 Valuation: £190,000

Equity Stake: 30%

 

Stewart Specialty Risk Underwriting Ltd ("SSRU")

( www.ssru.ca )

A Canadian based Managing General Agent, providing insurance solutions to a wide array of clients in the Construction, Manufacturing, Onshore Energy, Public Entity and Transportation sectors. SSRU was established by its CEO Stephen Stewart, who has over 25 years' experience in the insurance industry having had senior management roles at both Ironshore and Lombard in Canada.

 

SSRU, based in Toronto, has secured a new Property offering. As part of this new product it has announced the appointment of Heather Jamieson as Vice President of its Property division.

 

SSRU has grown solidly since formation and was able to exceed its 2020 annual revenue budget before the end of the second quarter of the year.

 

The Group's nominal equity investment of £19 has now grown to a value of £3.5m as at 31 July 2020.

 

Date of investment: January 2017

31 July 2020 valuation: £3,539,000

Equity stake: 30.0%

 

Sterling Insurance PTY Limited

( www.sterlinginsurance.com.au )

In June 2013, in a joint venture enterprise alongside Besso, (Neutral Bay Investments Limited) the Group invested in Sterling Insurance PTY Limited, an Australian specialist underwriting agency offering a range of insurance solutions within the Liability sector, specialising in niche markets including mining, construction and demolition.

 

Sterling continues to report strong financial performance, exceeding its EBITDA budget by c. 11% in the financial year to June 2020.

 

Date of investment: June 2013

31 July 2020 valuation: £2,684,000

Equity stake: 19.7%

 

Summa Insurance Brokerage, S. L.

( www.grupo-summa.com )

In January 2005 the Group provided finance to a Madrid-based Spanish management team with the objective of acquiring and consolidating regional insurance brokers in Spain. Through acquisition Summa is able to achieve synergistic savings, economies of scale and greater collective bargaining thereby increasing overall value.

 

The performance of the business throughout 2020 had been positive and Summa are expecting to outperform their 2019 results. 

 

Date of investment: January 2005

31 July 2020 valuation: £6,932,000

Equity stake: 77.3%

 

Walsingham Motor Insurance Limited

( www.walsinghamunderwriting.com )

In December 2013 the Group invested in Walsingham Motor Insurance Limited, a niche UK fleet motor Managing General Agency, which commenced trading in July 2013. In 2015 the Group acquired a further 10.5% equity, taking its current shareholding to 40.5%.

 

Walsingham's business was impacted by Covid-19 and the lockdown restrictions, with the business believing that their taxi portfolio, which represents c.50% of their book, would be subject to mass cancellations, and the courier portfolio would see increased vehicles and drivers. In light of this, Walsingham recognised the need to allow taxi policyholders flexibility in their work and allowed for food and shopping deliveries as well as various NHS support work to be undertaken without the need for policy extensions. This meant the retention of taxi fleets on the portfolio, which are once again already approaching full capacity.

 

Due to Walsingham's initiative and flexibility, as Covid-19 restrictions eased GWP has increased significantly such that the initial Covid-19 reductions have now reversed, and the business is back on its original budget. At the same time, due to reduced traffic on the road this has resulted in significantly reduced claims frequencies over the last four months.

 

Date of investment: December 2013

31 July 2020 valuation: £2,226,000

Equity stake: 40.5%

 

XPT Group LLC

( www.xptspecialty.com )

In June 2017 the Group backed the ex-Swett & Crawford CEO Tom Ruggieri and a strong management team to develop a New York-based wholesale insurance broking and underwriting agency platform across the U.S. Specialty Insurance Sector.

 

In April 2020, XPT completed its sixth investment acquiring LP Risk, Inc, the MGA and surplus lines Broker headquartered in Houston, Texas. LP Risk specialises in transportation, hospitality, contractors, marine, energy/oil & gas and manufacturing.

 

Additionally, In May 2020 Western Security Surplus ("WSS"), the boutique wholesale broker division of XPT, announced the acquisition of Houston Surplus Lines ("HSL"), which is an excess and surplus lines Managing General Agent based in Houston, Texas. This acquisition represented XPT's seventh investment.

 

W.E. Love & Associates, ("W.E. Love") launched a new trucking program, named Platinum Trucking. This new program has been created for primary truck liability insurance, where W.E. Love have identified that the needs of the market are underserved. The program complements other trucking-related programs written by W.E. Love and is currently available in 20 US states, with the strategy to expand coverage to all 50 US states. 

 

As XPT continues to grow, both organically and via acquisition, it has moved to bolster its Management Team through two senior hires. This includes the hiring of a new Chief Financial Officer and a new Executive Vice President and Director of Business Operations. These hires demonstrate that XPT is building a Management team to enter its next stage of growth.

 

Having acquired 7 businesses across the US, these appointments enhance XPT's capabilities in consolidating and growing their underlying business, and sourcing new acquisition opportunities.

 

Date of investment: June 2017

31 July 2020 valuation: £12,713,000

Equity stake: 29.9%

 

Outlook

 

At the time of our results being announced, the world continues to deal with the Covid-19 pandemic. It is likely that the next 12 - 24 months will be one of the most challenging times for all businesses to produce a strong return.

 

As has been the case throughout the Covid-19 pandemic, the Group will always prioritise the welfare of its staff and the staff at all our portfolio companies. The Group has been impressed by the manner in which our portfolio of investments have adapted to this crisis and it is a testament to the teams we back.

 

The Group remain confident in our portfolio of investments and the management teams we have backed. In light of this, the Group is well set to continue to deliver excellent long-term growth to our shareholders, notwithstanding the current difficulties caused by Covid-19. Our diverse portfolio is well positioned to continue its growth trajectory and we look forward to 2021 with cautious confidence.

 

Whilst the Group has a robust balance sheet, and is under no pressure to realise any of its current investments, there remains strong demand from private equity to enter the financial services and intermediated markets, and this of course produces  exit opportunities for our investee companies.

 

The Group has a strong pipeline of new investment opportunities, within its sector specific niche model, focusing on off-market deals through our own network of contacts. This continues to provide us with promising investment opportunities at fair value with significant growth prospects.

 

 

Interim Consolidated Financial Statements

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

FOR THE PERIOD ENDED 31ST JULY 2020

 

 

 

 

Notes

Unaudited

 

Unaudited

 

Audited

 

 

 

6 months to

 

6 months to

 

Year to

 

 

 

31st July 2020

 

31st July 2019

 

31st January 2020

 

 

 

£'000

£'000

 

£'000

£'000

 

£'000

£'000

GAINS ON INVESTMENT

 

 

 

 

 

 

 

 

 

Provision against equity investments and loans

 

-

 

 

(36)

 

 

(69)

 

Unrealised gains on equity investment revaluation

4

5,922

 

 

4,077

 

 

11,570

 

 

 

 

5,922

 

 

4,041

 

 

11,501

INCOME

 

 

 

 

 

 

 

 

 

Dividends

 

835

 

 

1,879

 

 

2,787

 

Income from loans and receivables

 

657

 

 

615

 

 

1,299

 

Fees receivable

 

642

 

 

600

 

 

1,108

 

 

 

 

2,134

 

 

3,094

 

 

5,194

OPERATING INCOME

 

 

8,056

 

 

7,135

 

 

16,695

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

(1,604)

 

 

(1,706)

 

 

(4,210)

 

 

 

 

 

 

 

 

 

 

OPERATING PROFIT

 

 

6,452

 

 

5,429

 

 

12,485

 

 

 

 

 

 

 

 

 

 

Financial income

 

1

 

 

14

 

 

16

 

Financial expenses

 

(36)

 

 

(38)

 

 

(77)

 

Exchange movements

 

80

 

 

171

 

 

(152)

 

 

 

 

45

 

 

147

 

 

(213)

PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION

 

 

6,497

 

 

5,576

 

 

12,272

 

 

 

 

 

 

 

 

 

 

Income taxes

 

 

-

 

 

18

 

 

258

 

 

 

 

 

 

 

 

 

 

PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION ATTRIBUTABLE TO EQUITY HOLDERS

6

 

£6,497

 

 

£5,594

 

 

£12,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

6

 

£6,497

 

 

£5,594

 

 

£12,530

 

 

 

 

 

 

 

 

 

 

Earnings per share - basic and diluted (pence)

3

 

18.1p

 

 

15.6p

 

 

34.9p

 

 

 

 

 

 

           

 

 

 

The result for the period is wholly attributable to continuing activities.

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

AS AT 31ST JULY 2020

 

(Company Number: 05674962)

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

Notes

31st July 2020

 

31st July 2019

 

31st January 2020

 

 

£'000

£'000

 

£'000

£'000

 

£'000

£'000

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-CURRENT ASSETS

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

137

 

 

150

 

 

151

 

Right-of-use asset

 

1,084

 

 

1,378

 

 

1,286

 

Investments - equity portfolio

4

122,051

 

 

106,969

 

 

115,666

 

Investments - treasury portfolio

5

-

 

 

-

 

 

-

 

Loans and receivables

 

16,483

 

 

16,339

 

 

16,211

 

 

 

 

139,755

 

 

124,836

 

 

133,314

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

Trade and other receivables

 

3,370

 

 

5,626

 

 

5,017

 

Cash and cash equivalents

 

1,171

 

 

1,420

 

 

787

 

 

 

 

4,541

 

 

7,046

 

 

5,804

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

Lease liabilities

 

(1,019)

 

 

(1,289)

 

 

(1,204)

 

Deferred tax liabilities

8

-

 

 

-

 

 

-

 

 

 

 

(1,019)

 

 

(1,289)

 

 

(1,204)

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

Trade and other payables

 

(486)

 

 

(401)

 

 

(876)

 

Lease liabilities

 

(157)

 

 

(163)

 

 

(168)

 

Corporation tax provision

 

-

 

 

(48)

 

 

-

 

 

 

 

(643)

 

 

(612)

 

 

(1,044)

 

 

 

 

 

 

 

 

 

 

NET ASSETS

 

 

£142,634

 

 

£129,981

 

 

£136,870

 

 

 

 

 

 

 

 

 

 

CAPITAL AND RESERVES - EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Called up share capital

 

 

3,747

 

 

3,748

 

 

3,747

Share premium account

 

 

29,358

 

 

29,363

 

 

29,367

Fair value reserve

 

 

63,618

 

 

50,204

 

 

57,696

Reverse acquisition reserve

 

 

393

 

 

393

 

 

393

Capital redemption reserve

 

 

7

 

 

6

 

 

7

Capital contribution reserve

 

 

53

 

 

31

 

 

42

Retained earnings

 

 

45,458

 

 

46,236

 

 

45,618

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' FUNDS - EQUITY

6

 

£142,634

 

 

£129,981

 

 

£136,870

 

 

 

 

 

 

 

 

 

 

Net Asset Value per share (pence)

 

 

396.2p

 

 

360.9p

 

 

380.1p

 

The Interim Consolidated Financial Statements were approved by the Board of Directors and authorised for issue on 12th October 2020

and signed on its behalf by:

 

 

 

 

J.S. Newman & D.J. Topping

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

FOR THE PERIOD ENDED 31ST JULY 2020

 

 

 

 

 

Unaudited

 

Unaudited

 

 

Audited

 

 

 

31st July 2020

 

31st July 2019

 

31st January 2020

 

 

 

£'000

 

£'000

 

£'000

 

Cash from / (used by) operating activities

 

 

 

 

 

 

 

Income from loans to investees

 

657

 

615

 

1,299

 

Dividends

 

835

 

1,879

 

2,787

 

Fees received

 

642

 

600

 

1,108

 

Operating expenses

 

(1,604)

 

(1,706)

 

(4,210)

 

Net corporation tax repaid

 

238

 

310

 

261

 

Purchase of equity investments (Note 4)

 

(463)

 

(945)

 

(2,551)

 

Net proceeds from sale of equity investments

 

-

 

-

 

402

 

Net loan repayments from / (payments to) investee companies

 

1,877

 

(4,711)

 

(4,163)

 

Adjustment for non-cash share incentive plan

 

65

 

70

 

121

 

(Increase) / decrease in receivables

 

(655)

 

(49)

 

58

 

Decrease in payables

 

(390)

 

(664)

 

(189)

 

Depreciation and amortisation

 

105

 

105

 

215

 

Net cash from / (used by) operating activities

 

1,307

 

(4,496)

 

(4,862)

 

 

 

 

 

 

 

 

 

Net cash (used by) / from investing activities

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

(2)

 

(8)

 

(26)

 

Net proceeds from sale of treasury investments (Note 5)

 

-

 

14

 

14

 

Net cash (used by) / from investing activities

 

(2)

 

6

 

(12)

 

 

 

 

 

 

 

 

 

Net cash used by financing activities

 

 

 

 

 

 

Financial income

 

1

 

14

 

16

 

Financial expenses

 

(36)

 

(38)

 

(77)

 

Net decrease in lease liabilities

 

(82)

 

(79)

 

(160)

 

Dividends paid

 

(798)

 

(1,712)

 

(1,712)

 

Payments made to repurchase company shares

 

-

 

(145)

 

(243)

 

Net cash used by financing activities

 

(915)

 

(1,960)

 

(2,176)

 

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

390

 

(6,450)

 

(7,050)

 

Cash and cash equivalents at beginning of the period

 

787

 

7,855

 

7,855

 

Exchange movement

 

(6)

 

15

 

(18)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

£1,171

 

£1,420

 

£787

 

 

 

 

 

 

 

 

All differences between the amounts stated in the Consolidated Statement of Cash Flows and the Consolidated Statement of Comprehensive Income are attributed to non-cash movements.

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

FOR THE PERIOD ENDED 31ST JULY 2020

 

 

 

 

 

 

Unaudited

Unaudited

Audited

 

 

6 months to

6 months to

Year to

 

 

31st July 2020

31st July 2019

31st January 2020

 

 

£'000

£'000

£'000

 

 

 

 

 

Opening total equity

 

136,870

126,174

126,174

Comprehensive income for the period

 

6,497

5,594

12,530

Dividends paid

 

(798)

(1,712)

(1,712)

Repurchase of company shares

 

-

(145)

(243)

Share incentive plan

 

65

70

121

Total equity

 

£142,634

£129,981

£136,870

 

 

Refer to Note 6 for detailed analysis of the changes in the components of equity.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE PERIOD ENDED 31ST JULY 2020

 

 

1.  ACCOUNTING POLICIES

 

Basis of preparation of financial statements

 

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted for use by the European Union ("IFRS"), and in accordance with the Companies Act 2006. 

 

The consolidated financial statements are presented in sterling, the functional currency of the Group, rounded to the nearest thousand pounds (£'000) except where otherwise indicated.

 

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.  The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable in the circumstances, the results of which form the basis of judgements about the carrying amounts of assets and liabilities. Actual results may differ from those amounts. 

 

In the process of applying the Group's accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognised in the financial statements:

 

Assessment as an investment entity

 

Entities that meet the definition of an investment entity within IFRS 10: Consolidated Financial Statements ("IFRS 10") are required to account for their investments in controlled entities, as well as investments in associates at fair value through profit or loss.  Subsidiaries that provide investment related services or engage in permitted investment related activities with investees that relate to the parent investment entity's investment activities continue to be consolidated in the Group results.  The criteria which define an investment entity are currently as follows:

 

a)  an entity that obtains funds from one or more investors for the purpose of providing those investors with investment services;

b)  an entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and

c)  an entity that measures and evaluates the performance of substantially all of its investments on a fair value basis.

 

 

 

The Group's annual and interim consolidated financial statements clearly state its objective of investing directly into portfolio investments and providing investment management services to investors for the purpose of generating returns in the form of investment income and capital appreciation.  The Group has always reported its investment in portfolio investments at fair value. It also produces reports for investors of the funds it manages and its internal management report on a fair value basis.  The exit strategy for all investments held by the Group is assessed, initially, at the time of the first investment and this is documented in the investment paper submitted to the Board for approval.

 

The Board has also concluded that the Company meets the additional characteristics of an investment entity, in that it has more than one investment; the investments are predominantly in the form of equities and similar securities; it has more than one investor and its investors are not related parties.  The Board has concluded that B.P. Marsh & Partners Plc and its three trading subsidiaries, B.P. Marsh & Company Limited, Marsh Insurance Holdings Limited and B.P. Marsh (North America) Limited, which provide investment related services on behalf of B.P. Marsh & Partners Plc, all meet the definition of an investment entity.  These conclusions will be reassessed on an annual basis for changes to any of these criteria or characteristics.

 

Application and significant judgments

 

When it is established that a parent company is an investment entity, its subsidiaries are measured at fair value through profit or loss.  However, if an investment entity has subsidiaries that provide services that relate to the investment entity's investment activities, the exception to the Amendment of IFRS 10 is not applicable as in this case, the parent investment entity still consolidates the results of its subsidiaries. Therefore, the results of B.P. Marsh & Company Limited, Marsh Insurance Holdings Limited and B.P. Marsh (North America) Limited continue to be consolidated into its Group financial statements for the period.

 

The most significant estimates relate to the fair valuation of the equity investment portfolio as detailed in Note 4 to the Financial Statements. The valuation methodology for the investment portfolio is detailed below.  The estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

 

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

 

These interim consolidated financial statements were approved by the Board on 12th October 2020.  They have not been audited nor reviewed by the Group's Auditors, as is the case with the comparatives to 31st July 2019, and do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

 

The financial statements have been prepared using the accounting policies and presentation that were applied in the audited financial statements for the year ended 31st January 2020. Those accounts, upon which the Group's Auditor issued an unqualified opinion, have been filed with the Registrar of Companies and do not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

Basis of consolidation

 

(i)  Subsidiaries

 

Subsidiaries are entities controlled by the Group.  Control, as defined by IFRS 10, is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.  Specifically, the Group controls an investee if and only if the Group has:

 

a)  power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

b)  exposure, or rights, to variable returns from its involvement with the investee; and

c)  the ability to use its power over the investee to affect its returns.

 

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

 

a)  rights arising from other contractual arrangements; and

b)  the Group's voting rights and potential voting rights.

 

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of control.

 

B.P. Marsh & Partners Plc ("the Company"), an investment entity, has three subsidiary investment entities, B.P. Marsh & Company Limited, Marsh Insurance Holdings Limited and B.P. Marsh (North America) Limited, that provide services that relate to the Company's investment activities.  The results of these three subsidiaries, together with other subsidiaries (except for Summa Insurance Brokerage, S.L. ("Summa") and LEBC Holdings Limited ("LEBC")), are consolidated into the Group consolidated financial statements.  The Group has taken advantage of the Amendment to IFRS 10 not to consolidate the results of Summa and LEBC. Instead the investments in Summa and LEBC are valued at fair value through profit or loss.

 

(ii)  Associates

 

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Investments that are held as part of the Group's investment portfolio are carried in the Consolidated Statement of Financial Position at fair value even though the Group may have significant influence over those companies. 

 

Business Combinations

 

The results of subsidiary undertakings are included in the consolidated financial statements from the date that control commences until the date that control ceases.  Control exists where the Group has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.  Accounting policies of the subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 

 

All business combinations are accounted for by using the acquisition accounting method. This involves recognising identifiable assets and liabilities of the acquired business at fair value. Goodwill represents the excess of the fair value of the purchase consideration for the interests in subsidiary undertakings over the fair value to the Group of the net assets and any contingent liabilities acquired. 

 

Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

 

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Investments that are held as part of the Group's investment portfolio are carried in the Consolidated Statement of Financial Position at fair value even though the Group may have significant influence over those companies.  This treatment is permitted by IAS 28: Investment in Associates ("IAS 28"), which requires investments held by venture capital organisations to be excluded from its scope where those investments are designated, upon initial recognition, as at fair value through profit or loss and accounted for in accordance with IAS 39: Financial Instruments ("IAS 39"), with changes in fair value recognised in the profit or loss in the period of the change. The Group has no interests in associates through which it carries on its business.

 

Employee services settled in equity instruments

 

The Group has entered into a joint share ownership plan ("JSOP") with certain employees and directors.  A fair value for the cash settled share awards is measured at the date of grant.  The Group measured the fair value using the Expected Return Methodology which was considered to be the most appropriate valuation technique to value the awards.

 

The fair value of the award is recognised as an expense over the vesting period on a straight-line basis.  The level of vesting is assumed to be 100% and will be reviewed annually and the charge is adjusted to reflect actual or estimated levels of vesting with the corresponding entry to capital contribution.

 

The Group has established an HMRC approved Share Incentive Plan ("SIP"). Ordinary shares in the Company previously repurchased and held in Treasury by the Company have been transferred to The B.P. Marsh SIP Trust ("the SIP Trust"), an employee share trust, in order to be issued to eligible employees.  In addition, new shares were issued and allocated to the SIP Trust during the period.

 

Under the rules of the SIP, eligible employees can each be granted up to £3,600 worth of ordinary shares ("Free Shares") by the SIP Trust in each tax year.  The number of shares granted is dependent on the share price at the date of grant.  In addition, all eligible employees have been invited to take up the opportunity to acquire up to £1,800 worth of ordinary shares ("Partnership Shares") in each tax year and for every Partnership Share that an employee acquires, the SIP Trust will offer two ordinary shares in the Company ("Matching Shares") up to a total of £3,600 worth of shares.  The Free and Matching Shares are subject to a one year forfeiture period, however the awards are not subject to any vesting conditions, hence the related expenses are recognised when the awards are made and are apportioned over the forfeiture period.

 

The fair value of the services received is measured by reference to the listed share price of the parent company's shares listed on the AIM on the date of award of the free and matching shares to the employee.

 

Investments - equity portfolio

 

All equity portfolio investments are designated as "fair value through profit or loss" assets and are initially recognised at the fair value of the consideration.  They are measured at subsequent reporting dates at fair value.

 

The Board conducts the valuations of equity portfolio investments. In valuing equity portfolio investments the Board applies guidelines issued by the International Private Equity and Venture Capital Valuation Committee ("IPEVCV Guidelines"). The following valuation methodologies have been used in reaching fair value of equity portfolio investments, some of which are in early stage companies:

 

a)  at cost, unless there has been a significant round of new equity finance in which case the investment is valued at the price paid by an independent third party. Where subsequent events or changes to circumstances indicate that an impairment may have occurred, the carrying value is reduced to reflect the estimated extent of impairment;

b)  by reference to underlying funds under management;

c)  by applying appropriate multiples to the earnings and revenues and/or premiums of the investee company; or

d)  by reference to expected future cash flow from the investment where a realisation or flotation is imminent.

 

Both realised and unrealised gains and losses arising from changes in fair value are taken to the Consolidated Statement of Comprehensive Income for the period.  In the Consolidated Statement of Financial Position the unrealised gains and losses arising from changes in fair value are shown within a "fair value reserve" separate from retained earnings.  Transaction costs on acquisition or disposal of equity portfolio investments are expensed in the Consolidated Statement of Comprehensive Income.

 

Equity portfolio investments are treated as 'Non-current Assets' within the Consolidated Statement of Financial Position unless the directors have committed to a plan to sell the investment and an active programme to locate a buyer and complete the plan has been initiated.  Where such a commitment exists, and if the carrying amount of the equity portfolio investment will be recovered principally through a sale transaction rather than through continuing use, the investment is classified as a 'Non-current asset as held for sale' under 'Current Assets' within the Consolidated Statement of Financial Position.

 

Income from equity portfolio investments

 

Income from equity portfolio investments comprises:

 

a)  gross interest from loans, which is taken to the Consolidated Statement of Comprehensive Income on an accruals basis;

 

b)  dividends from equity investments are recognised in the Consolidated Statement of Comprehensive Income when the shareholders rights to receive payment have been established; and

 

c)  advisory fees from management services provided to investee companies, which are recognised on an accruals basis in accordance with the substance of the relevant investment advisory agreement.

 

Investments - treasury portfolio

 

All treasury portfolio investments are designated as "fair value through profit or loss" assets and are initially recognised at the fair value of the consideration.  They are measured at subsequent reporting dates at fair market value as determined from the valuation reports provided by the fund investment manager.

 

Both realised and unrealised gains and losses arising from changes in fair market value are taken to the Consolidated Statement of Comprehensive Income for the period.  In the Consolidated Statement of Financial Position the unrealised gains and losses arising from changes in fair value are shown within the retained earnings reserve as these investments are deemed as being easily convertible into cash.  Costs associated with the management of these investments are expensed in the Consolidated Statement of Comprehensive Income.

 

Income from treasury portfolio investments

 

Income from treasury portfolio investments comprises of dividends receivable which are either directly reinvested into the funds or received as cash.

 

Property, plant and equipment

 

Property, plant and equipment are stated at cost less depreciation.  Depreciation is provided at rates calculated to write off the property, plant and equipment cost, less their estimated residual value, over their expected useful lives on the following bases:

 

  Furniture & equipment - 5 years

  Leasehold fixtures and fittings and other costs - over the life of the lease

 

Right-of-use asset

 

IFRS 16 requires leases for use of office space to be recognised as a lease liability, representing the present value of the obligation to make lease payments, and a related right of use ("ROU") asset. The lease liability is calculated based on expected future lease payments, discounted using the relevant incremental borrowing rate. An incremental borrowing rate of 5% was used to discount the future lease payments when measuring the lease liability on adoption of IFRS 16.

 

The ROU asset is recognised at cost less accumulated depreciation and impairment losses, with depreciation charged on a straight-line basis over the life of the lease. In determining the value of the ROU asset and lease liabilities, the Group considers whether any leases contain lease extensions or termination options that the Group is reasonably certain to exercise.

 

Foreign currencies

 

Monetary assets and liabilities denominated in foreign currencies at the reporting period end are translated at the exchange rate ruling at the reporting period end.

 

Transactions in foreign currencies are translated into sterling at the rate ruling at the date of the transaction.

 

Exchange gains and losses are recognised in the Consolidated Statement of Comprehensive Income.

 

Income taxes

 

The tax credit or expense represents the sum of the tax currently recoverable or payable and any deferred tax.  The tax currently recoverable or payable is based on the estimated taxable profit for the year.  Taxable profit differs from net profit as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.  The Group's receivable or liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the date of the Consolidated Statement of Financial Position.

 

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and of liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and it is accounted for using the liability method.  Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.  Such assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

 

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

 

The carrying amount of deferred tax assets is reviewed at each date of the Consolidated Statement of Financial Position and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

 

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised.  Deferred tax is charged or credited to the Consolidated Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current assets and liabilities on a net basis.

 

IFRIC 23 has been adopted and applied to the recognition and measurement of uncertain tax provision during the period. However it is noted that the adoption of IFRIC 23 has had no material impact on the tax position as at the period end.

 

 

2.  SEGMENTAL REPORTING

 

The Group operates in one business segment; the provision of consultancy services to as well as making and trading investments in financial services businesses.

 

Under IFRS 8: Operating Segments ("IFRS 8") the Group identifies its reportable operating segments based on the geographical location in which each of its investments is incorporated and primarily operates.  For management purposes, the Group is organised and reports its performance by two geographic segments: UK and Non-UK.

 

If material to the Group overall (where the segment revenues, reported profit or loss or combined assets exceed the quantitative thresholds prescribed by IFRS 8), the segment information is reported separately. 

 

The Group allocates revenues, expenses, assets and liabilities to the operating segment where directly attributable to that segment.  All indirect items are apportioned based on the percentage proportion of revenue that the operating segment contributes to the total Group revenue (excluding any unrealised gains and losses on the Group's current and non-current investments).

 

Each reportable segment derives its revenues from three main sources from equity portfolio investments as described in further detail in Note 1 under 'Income from equity portfolio investments' and also from treasury portfolio investments as described in Note 1 under 'Income from treasury portfolio investments'.

 

All reportable segments derive their revenues entirely from external clients and there are no inter-segment sales.

 

 

Geographic segment 1:

UK

Geographic segment 2:

Non-UK

Group

 

 

 

 

 

 

 

 

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

 

6 months to 31st July

6 months to 31st July

6 months to 31st July

6 months to 31st July

6 months to 31st July

6 months to 31st July

 

2020

2019

2020

2019

2020

2019

 

 

 

 

 

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

Operating income

1,746

1,339

6,310

5,796

8,056

7,135

Operating expenses

(892)

(1,121)

(712)

(585)

(1,604)

(1,706)

Segment operating profit

854

218

5,598

5,211

6,452

5,429

 

 

 

 

 

 

 

Financial income

1

9

-

5

1

14

Financial expenses

(20)

(25)

(16)

(13)

(36)

(38)

Exchange movements

1

7

79

164

80

171

Profit before tax

836

209

5,661

5,367

6,497

5,576

Income taxes

-

18

-

-

-

18

Profit for the period

£836

£227

£5,661

£5,367

£6,497

£5,594

 

Included within the operating income reported above are the following amounts requiring separate disclosure owing to the fact that they are derived from a single investee company and the total revenues attributable to that investee company are 10% or more of the total realised income generated by the Group during the period:

 

 

Total income attributable to the investee company

(£'000)

% of total realised operating income

Reportable geographic segment

 

 

 

 

 

 

 

 

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

 

6 months to 31st July

6 months to 31st July

6 months to 31st July

6 months to 31st July

6 months to 31st July

6 months to 31st July

 

2020

2019

2020

2019

2020

2019

Investee Company

 

 

 

 

 

 

Nexus Underwriting Management Limited

406

403

19

13

1

1

XPT Group LLC

343

380

16

12

2

2

LEBC Holdings Limited

204

1,103

10

36

1

1

 

 

 

Geographic segment 1:

UK

Geographic segment 2:

Non-UK

Group

 

 

 

 

 

 

 

 

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

 

6 months to 31st July

6 months to 31st July

6 months to 31st July

6 months to 31st July

6 months to 31st July

6 months to 31st July

 

2020

2019

2020

2019

2020

2019

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

Property, plant and equipment

94

109

43

41

137

150

Right-of-use asset

741

1,001

343

377

1,084

1,378

Investments - equity portfolio

83,413

77,737

38,638

29,232

122,051

106,969

Loans and receivables

13,091

13,662

3,392

2,677

16,483

16,339

 

97,339

92,509

42,416

32,327

139,755

124,836

Current assets

 

 

 

 

 

 

Trade and other receivables

2,008

4,233

1,362

1,393

3,370

5,626

Cash and cash equivalents

1,171

1,420

-

-

1,171

1,420

 

3,179

5,653

1,362

1,393

4,541

7,046

 

 

 

 

 

 

 

Total assets

100,518

98,162

43,778

33,720

144,296

131,882

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Lease liabilities

(696)

(937)

(323)

(352)

(1,019)

(1,289)

 

(696)

(937)

(323)

(352)

(1,019)

(1,289)

Current liabilities

 

 

 

 

 

 

Trade and other payables

(475)

(398)

(11)

(3)

(486)

(401)

Lease liabilities

(107)

(119)

(50)

(44)

(157)

(163)

Corporation tax provision

-

(48)

-

-

-

(48)

 

(582)

(565)

(61)

(47)

(643)

(612)

 

 

 

 

 

 

 

Total liabilities

(1,278)

(1,502)

(384)

(399)

(1,662)

(1,901)

 

 

 

 

 

 

 

Net assets

£99,240

£96,660

£43,394

£33,321

£142,634

£129,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

1

 

6

 

1

 

2

 

2

 

8

 

 

 

 

 

 

 

Depreciation and amortisation of property, plant and equipment

 

(72)

 

(76)

 

(33)

 

(29)

 

(105)

 

(105)

 

 

 

 

 

 

 

Impairment of investments and loans

 

-

 

-

 

-

 

(36)

 

-

 

(36)

 

 

 

 

 

 

 

Cash flow arising from:

 

 

 

 

 

 

Operating activities

1,001

(2,539)

306

(1,957)

1,307

(4,496)

Investing activities

(2)

6

-

-

(2)

6

Financing activities

(915)

(1,960)

-

-

(915)

(1,960)

Change in cash and cash equivalents

 

84

 

(4,493)

 

306

 

(1,957)

 

390

 

(6,450)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geographic segment 1:

UK

Geographic segment 2:

Non-UK

Group

 

 

 

 

 

Audited

Audited

Audited

 

31st January

31st January

31st January

 

2020

2020

2020

 

£'000

£'000

£'000

 

 

 

 

Operating income

7,019

9,676

16,695

Operating expenses

(2,800)

(1,410)

(4,210)

Segment operating profit

4,219

8,266

12,485

 

 

 

 

Financial income

11

5

16

Financial expenses

(51)

(26)

(77)

Exchange movements

(33)

(119)

(152)

Profit before tax

4,146

8,126

12,272

Income taxes

258

-

258

Profit for the year

£4,404

£8,126

£12,530

 

Included within the operating income reported above are the following amounts requiring separate disclosure owing to the fact that they are derived from a single investee company and the total revenues attributable to that investee company are 10% or more of the total realised income generated by the Group during the period:

 

 

Total income attributable to the investee company

(£'000)

% of total realised operating income (excluding gains on investments)

Reportable geographic segment

 

 

 

 

 

Audited

Audited

Audited

 

31st January

31st January

31st January

 

2020

2020

2020

Investee Company

 

 

 

 

 

 

Geographic segment 1:

UK

Geographic segment 2:

Non-UK

Group

 

 

 

 

 

Audited

Audited

Audited

 

31st January

31st January

31st January

 

2020

2020

2020

 

£'000

£'000

£'000

Non-current assets

 

 

 

Property, plant and equipment

108

43

151

Right-of-use asset

918

368

1,286

Investments - equity portfolio

82,594

33,072

115,666

Investments - treasury portfolio

-

-

-

Loans and receivables

12,382

3,829

16,211

 

96,002

37,312

133,314

Current assets

 

 

 

Trade and other receivables

4,141

876

5,017

Cash and cash equivalents

787

-

787

 

4,928

876

5,804

 

 

 

 

Total assets

100,930

38,188

139,118

 

 

 

 

Non-current liabilities

 

 

 

Lease liabilities

(860)

(344)

(1,204)

 

(860)

(344)

(1,204)

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

(873)

(3)

(876)

Lease liabilities

(120)

(48)

(168)

 

(993)

(51)

(1,044)

 

 

 

 

Total liabilities

(1,853)

(395)

(2,248)

 

 

 

 

Net assets

£99,077

£37,793

£136,870

 

 

 

 

 

 

 

 

 

 

Geographic segment 1:

UK

Geographic segment 2:

Non-UK

Group

 

 

 

 

 

Audited

Audited

Audited

 

31st January

31st January

31st January

 

2020

2020

2020

 

£'000

£'000

£'000

Additions to property, plant and equipment

18

8

26

 

 

 

 

Depreciation and amortisation of property, plant and equipment

(154)

(61)

(215)

 

 

 

 

Impairment of investments and loans

-

(69)

(69)

 

 

 

 

Cash flow arising from:

 

 

 

Operating activities

(2,861)

(2,001)

(4,862)

Investing activities

(12)

-

(12)

Financing activities

(2,176)

-

(2,176)

Change in cash and cash equivalents

(5,049)

(2,001)

(7,050)

 

As outlined previously, under IFRS 8 the Group reports its operating segments (UK and Non-UK) and associated income, expenses, assets and liabilities based upon the country of domicile of each of its investee companies.

 

In addition to the segmental analysis disclosure reported above, the Group has undertaken a further assessment of each of its investee companies' underlying revenues, specifically focusing on the geographical origin of this revenue.  Geographical analysis of each investee company's 2020 and 2019 revenue budgets was carried out and, based upon this analysis, the directors have determined that on a look-through basis, the Group's portfolio of investee companies can also be analysed as follows:

 

 

 

Unaudited

 

Unaudited

 

Audited

 

 

31st July 2020

 

31st July 2019

 

31st January 2020

 

 

%

 

%

 

%

 

 

 

 

 

 

 

UK

 

47

 

50

 

43

Non-UK

 

53

 

50

 

57

Total

 

100

 

100

 

100

 

 

3.  EARNINGS PER SHARE FROM CONTINUING OPERATIONS ATTRIBUTABLE TO THE EQUITY SHAREHOLDERS

 

 

 

Unaudited

 

Unaudited

 

Audited

 

 

31st July 2020

 

31st July 2019

 

31st January 2020

 

 

£'000

 

£'000

 

£'000

Earnings

 

 

 

 

 

 

Earnings for the period

 

6,497

 

5,594

 

12,530

Earnings for the purposes of basic and diluted earnings per share being total comprehensive income attributable to equity shareholders

 

6,497

 

5,594

 

12,530

Earnings per share - basic and diluted

 

 

 

18.1p

 

 

 

15.6p

 

 

 

34.9p

 

 

 

 

 

 

 

Number of shares

 

Number

 

Number

 

Number

Weighted average number of ordinary shares for the purposes of basic earnings per share

 

 

 

  35,935,192

 

 

 

  35,962,118

 

 

 

35,947,869

 

 

 

 

 

 

 

Number of dilutive shares under option

 

  Nil

 

  Nil

 

 

Nil

 

 

 

 

 

 

 

Weighted average number of ordinary shares for the purposes of dilutive earnings per share

 

 

 

    35,935,192

 

 

    35,962,118

 

 

 

35,947,869

 

 

 

 

 

 

 

 

During the period no share repurchases were undertaken. 

 

During the interim 6 months to 31st July 2019 the Company paid £144,553 in order to repurchase 51,416 ordinary shares at an average price of 281 pence per share.  In the full year to 31st January 2020 the Company paid £243,232 in order to repurchase 87,780 ordinary shares at an average price of 277 pence per share.  As a result, distributable reserves were reduced by £144,553 during the interim 6 months to 31st July 2019 and by £243,232 in the full year to 31st January 2020.

 

  Ordinary shares held by the Company in Treasury

 

Movement of ordinary shares held in Treasury:

Unaudited

Unaudited

Audited

 

31st July 2020

31st July 2019

31st January 2020

 

Number

Number

Number

 

 

 

 

Opening total ordinary shares held in Treasury

85,058

28,573

28,573

 

 

 

 

Ordinary shares repurchased into Treasury during the period

-

51,416

87,780

 

 

 

 

Ordinary shares transferred to the B.P. Marsh SIP Trust during the period

(42,196)

(19,218)

(19,218)

 

 

 

 

Ordinary shares cancelled during the period

-

-

(12,077)

 

 

 

 

Total ordinary shares held in Treasury at period end

42,862

60,771

85,058

 

 

 

 

 

The Treasury shares do not have voting or dividend rights and have therefore been excluded for the purposes of calculating earnings per share.

 

The repurchase of the ordinary shares is borne from the Group's commitment to reduce share price discount to net asset value.  Its policy has been throughout the period (and previously) to be able to buy small parcels of shares when the share price is below a fixed percentage of its published Net Asset Value and place them into Treasury.  The threshold was 20% until 11th October 2018 when the Group announced an updated Share Buy-Back Policy confirming that the threshold had been reduced from 20% to 15%.  Notwithstanding that at the date of this report the discount to Net Asset Value at which the Company's shares are trading at is greater than 15%, the Company is currently restricted in its ability to buy back shares since given that the Chairman, Mr. Brian Marsh, together with persons acting in concert with Mr. Marsh for the purposes of the City Code on Takeovers and Mergers (the "City Code"), has an interest in approximately 41.85% of the Company's voting rights, any such purchase of shares would result in an obligation for Mr. Marsh to make a general offer for the Company in accordance with Rule 9 of the City Code.

 

The weighted average number of shares used for the purposes of calculating the earnings per share, net asset value and net asset value per share of the Group excludes the 1,461,302 shares held under joint share ownership arrangements (Note 9) as these were non-dilutive in the period to 31st July 2020, are subject to performance criteria that have not yet been achieved and are held within an Employee Benefit Trust.  The Group net asset value has therefore also excluded the economic right the Group has to the first 281 pence per share (£4,106,259) on vesting for the same reasons. On this basis the current net asset value per share is 396 pence for the Group. If the joint share ownership arrangements were included, this would increase the Group's net asset value by £4,106,259 and the net asset value per share would be 392 pence.

 

The net decrease to the weighted average number of ordinary shares between the 2019 and 2020 interim periods is mainly attributable to the share repurchases that took place over this period as these ordinary shares were repurchased into Treasury and are therefore are excluded from the weighted average number of shares calculation.

 

The 42,196 ordinary shares transferred from Treasury to the SIP Trust during the period (17,086 ordinary shares transferred in April 2020 and 25,110 ordinary shares transferred in June 2020) have been treated as re-issued for the purposes of calculating earnings per share and have therefore offset the overall decrease to the weighted average number of shares resulting from the share repurchases between the 2019 and 2020 interim periods.

 

21,934 ordinary shares (comprising the 17,086 ordinary shares transferred from Treasury to the SIP Trust in April 2020 together with 4,848 of unallocated ordinary shares forfeited by departing employees during both the current period and 12 months to 31st January 2020) were allocated to the participating employees as Free shares under the share incentive plan arrangement on 23rd April 2020 (Note 9).

 

A further 25,110 ordinary shares (transferred from Treasury to the SIP Trust in June 2020) were allocated to the participating employees as Matching and Partnership shares under the share incentive plan arrangement on 26th June 2020 (Note 9).

 

 

4.  NON-CURRENT INVESTMENTS - EQUITY PORTFOLIO

 

Group Investments

 

 

 

 

 

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

 

 

31st July 2020

 

31st July 2019

 

31st January 2020

 

 

 

Continuing investments

 

 

Continuing investments

 

Continuing investments

 

 

 

£'000

 

£'000

 

£'000

 

At valuation

 

 

 

 

 

 

 

At 1st February

 

115,666

 

101,947

 

101,947

 

Additions

 

463

 

945

 

2,551

 

Disposals

 

  -

 

  -

 

(402)

 

Movement in valuation

 

5,922

 

4,077

 

11,570

 

 

 

 

 

 

 

 

 

At period end

 

£122,051

 

£106,969

 

£115,666

 

 

 

 

 

 

 

 

 

At cost

 

 

 

 

 

 

 

At 1st February

 

57,970

 

55,819

 

55,819

 

Additions

 

463

 

945

 

2,551

 

Disposals

 

  -

 

  -

 

(400)

 

 

 

 

 

 

 

 

 

At period end

 

£58,433

 

£56,764

 

£57,970

 

 

 

 

 

 

 

 

 

 

The principal additions relate to the following transactions in the period:

 

On 5th March 2020 the Group acquired 50,000 ordinary shares (5.5% equity stake) in Paladin Holdings Limited ("Paladin") from a minority shareholder and exiting employee for consideration of £260,000.  These shares are being held by the Group under a call option arrangement which Paladin can call at any time during the next three years and buy-back from the Group at a fixed price of £5.226 per share (£261,300).  This acquisition increased the Group's equity holding in Paladin from 38.2% as at 31st January 2020 to 43.7% at the time of investment.  At 31st July 2020 the Group's equity holding remained at 43.7%.

 

On 25th June 2020 the Group acquired a 30% cumulative preferred equity stake in SAGE Program Underwriters, Inc ("SAGE"), a newly established Oregon based provider of specialist insurance products to niche industries, for consideration of $250,000 (£202,758).

 

The unquoted investee companies, which are registered in England except Summa Insurance Brokerage, S.L. (Spain), MB Prestige Holdings PTY Limited (Australia), Asia Reinsurance Brokers Pte Limited (Singapore), Stewart Specialty Risk Underwriting Ltd (Canada), XPT Group LLC (USA), Mark Edward Partners LLC (USA), ATC Insurance Solutions PTY Limited (Australia), Criterion Underwriting Pte Limited (Singapore), Agri Services Company PTY Limited (Australia) and SAGE Program Underwriters Inc (USA) are as follows:

 

 

% holding

Date

Aggregate

Post tax

 

 

of share

information

capital and

profit/(loss)

 

Name of company

Capital

available to

reserves

for the year

Principal activity

 

 

 

£

£

 

 

 

 

 

 

 

Agri Services Company PTY Limited1

36.00

-

-

-

Holding company for specialist Australian agricultural Managing General Agency

 

 

 

 

 

 

Asia Reinsurance Brokers Pte Limited

25.00

31.05.19

2,159,593

(235,595)

Specialist reinsurance broker

 

 

 

 

 

 

 

 

 

 

% holding

Date

Aggregate

Post tax

 

 

of share

information

capital and

profit/(loss)

 

Name of company

Capital

available to

reserves

for the year

Principal activity

 

 

 

£

£

 

 

 

 

 

 

 

ATC Insurance Solutions PTY Limited

20.00

30.06.19

3,194,781

1,616,147

Specialist Australian Managing General Agency

 

 

 

 

 

 

Criterion Underwriting Pte Limited1

29.40

-

-

-

Specialist Singaporean Managing General Agency

 

 

 

 

 

 

EC3 Brokers Group Limited

20.00

31.12.18

(842,743)

(1,764,893)

Investment holding company

 

 

 

 

 

 

LEBC Holdings Limited

59.34

30.09.19

4,631,046

(357,774)

Independent financial advisor company

 

 

 

 

 

 

Lilley Plummer Risks Limited1

30.00

-

-

-

Specialist Marine broker

 

 

 

 

 

 

MB Prestige Holdings PTY Limited

40.00

31.12.19

2,370,399

946,180

Specialist Australian Motor Managing General Agency

 

 

 

 

 

 

Mark Edward Partners LLC

30.00

31.12.17

5,046,643

3,470,754

Specialty insurance broker

 

 

 

 

 

 

Neutral Bay Investments Limited

49.90

31.03.19

4,039,229

218,014

Investment holding company

 

 

 

 

 

 

Nexus Underwriting Management Limited

18.00

31.12.19

24,002,045

2,055,681

Specialist Managing General Agency

 

 

 

 

 

 

Paladin Holdings Limited

43.71

31.12.19

212,998

106,970

Investment holding company

 

 

 

 

 

 

SAGE Program Underwriters Inc1

30.00

-

-

-

Specialist Managing General Agency

 

 

 

 

 

 

Stewart Specialty Risk Underwriting Ltd

30.00

31.12.19

239,094

303,632

Specialist Canadian Casualty Underwriting Agency

 

 

 

 

 

 

Summa Insurance Brokerage, S.L.

77.25

31.12.19

7,638,345

(55,929)

Consolidator of regional insurance brokers

 

 

 

 

 

 

The Fiducia MGA Company Limited

35.18

31.12.18

(2,128,168)

(962,122)

Specialist UK Marine Cargo Underwriting Agency

 

 

 

 

 

 

Walsingham Holdings Limited

20.00

30.09.19

1,496

516

Investment holding company

 

 

 

 

 

 

Walsingham Motor Insurance Limited

40.50

30.09.19

(223,733)

690,294

Specialist
UK Motor Managing General Agency

 

 

 

 

 

 

XPT Group LLC

29.93

31.12.19

6,435,005

(4,102,293)

USA Specialty lines insurance distribution company

 

 

 

 

 

 

 

1Agri Services Company PTY Limited, Criterion Underwriting Pte Limited, Lilley Plummer Risks Limited and SAGE Program Underwriters, Inc are all newly incorporated companies.  Statutory accounts are not available as these are not yet due.

 

The Group's 35% equity investments in Bastion Reinsurance Brokerage (PTY) Limited and Bulwark Investment Holdings (PTY) Limited and its 42.5% equity investment in Property and Liability Underwriting Managers (PTY) Limited, all of which are based in South Africa, have not been listed above as they were in the process of being wound up as at 31st July 2020 and no recent financial information is available.

 

The aggregate capital and reserves and profit/(loss) for the year shown above are extracted from the relevant local GAAP accounts of the investee companies.

 

 

5.  NON-CURRENT INVESTMENTS - TREASURY PORTFOLIO

 

Group

 

Unaudited

 

Unaudited

 

Audited

At valuation

 

31st July

2020

 

31st July

2019

 

31st January 2020

 

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

Market value at 1st February

 

-

 

14

 

14

Additions at cost

 

-

 

-

 

-

Disposals

 

-

 

(14)

 

(14)

Change in value in the year

 

-

 

-

 

-

 

Market value at period end

 

 

£ -

 

 

£ -

 

 

£ -

 

 

 

 

 

 

 

Investment fund split:

 

 

 

 

 

 

 

 

 

 

 

 

 

GAM London Limited

 

-

 

-

 

-

Rathbone Investment Management Limited

 

 

-

 

 

-

 

 

-

 

Total

 

 

£ -

 

 

£ -

 

 

£ -

 

  All the treasury portfolio was disposed of during the interim 6 months to 31st July 2019.

 

No investment management costs (interim 6 months to 31st July 2019: £22 and full year to 31st January 2020: £22) were charged to the Consolidated Statement of Comprehensive Income during the period.

 

 

6.  RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

 

 

 

 

 

 

 

 

 

 

 

 

Share

 

Reverse

Capital

Capital

 

 

 

Share

premium

Fair value

acquisition

Redemption

contribution

Retained

 

 

capital

account

reserve

reserve

Reserve

reserve

Earnings

Total

 

(£'000)

(£'000)

(£'000)

(£'000)

(£'000)

(£'000)

(£'000)

(£'000)

 

 

 

 

 

 

 

 

 

At 1st February 2020

3,747

29,367

57,696

393

7

42

45,618

136,870

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

5,922

-

-

-

575

6,497

 

 

 

 

 

 

 

 

 

Dividends paid

-

-

-

-

-

-

(798)

(798)

 

 

 

 

 

 

 

 

 

Share Incentive Plan

(Note 9)

-

(9)

-

-

-

11

63

65

 

 

 

 

 

 

 

 

 

At 31st July 2020

£3,747

£29,358

£63,618

£393

£7

£53

£45,458

£142,634

 

 

 

 

 

 

 

 

 

 

 

7.  LOAN AND EQUITY COMMITMENTS

 

On 1st April 2019 the Group entered into an agreement to provide Nexus Underwriting Management Limited ("Nexus"), an investee company, with a £2,000,000 revolving credit facility (in addition to its existing fully drawn down loan facility of £4,000,000 provided by the Group during the year to 31st January 2018), increasing Nexus' total aggregate loan facility to £6,000,000.  As at 31st January 2020 this revolving credit facility had been drawn down in full.  During the current period Nexus repaid its £2,000,000 revolving credit facility in full, however the facility can be reborrowed up until the final repayment date of 31st December 2020.  As at 31st July 2020 £4,000,000 of loans were outstanding, leaving a remaining undrawn facility of £2,000,000.  Any drawdown is subject to satisfying certain agreed criteria.

 

On 27th April 2020 the Group entered into an agreement to provide LEBC Holdings Limited ("LEBC"), an investee company, with a further loan facility of £1,000,000, of which £500,000 was drawn down on 1st May 2020.  This facility is in addition to an existing £1,000,000 loan facility provided to LEBC during the year to 31st January 2020 (which was fully drawn down during that year), increasing LEBC's total aggregate loan facility to £2,000,000.  As at 31st July 2020 £1,500,000 of loans were outstanding, leaving a remaining undrawn facility of £500,000. Any drawdown is subject to satisfying certain agreed criteria.

 

On 22nd May 2020 the Group entered into an agreement to provide Paladin Holdings Limited ("Paladin"), an investee company, with a further loan facility of £500,000, of which £300,000 was drawn down immediately.  This facility is in addition to existing fully drawn down loan facilities of £4,596.500 provided by the Group to Paladin in previous periods and increased Paladin's total aggregate loan facility to £5,096,500.  As at 31st July 2020 £4,896,500 of loans were outstanding, leaving a remaining undrawn facility of £200,000. Any drawdown is subject to satisfying certain agreed criteria.

 

On 26th June 2020 the Group entered into an agreement to provide SAGE Program Underwriters, Inc, an investee company, with a loan facility of USD 250,000.  As at 31st July 2020 no loans had been drawn down, leaving a remaining undrawn facility of USD 250,000. Any drawdown is subject to satisfying certain agreed criteria.

 

 

8.  DEFERRED TAX AND CONTINGENT LIABILITIES

 

The directors estimate that, under the current taxation rules and the current investment profile, if the Group were to dispose of all its investments at the amount stated in the Consolidated Statement of Financial Position, no tax on capital gains (interim 6 months to 31st July 2019: £Nil and full year to 31st January 2020: £Nil) would become payable by the Group.

 

Finance (No.2) Act 2017 introduced significant changes to the Substantial Shareholding Exemption ("SSE") rules in Taxation of Chargeable Gains Act 1992 Sch. 7AC which applied to share disposals on or after 1 April 2017. In general terms, the rule changes relax the conditions for the Group to qualify for SSE on a share disposal. 

 

Having reviewed the Group's current investment portfolio, the directors consider that the Group should benefit from this reform to the SSE rules on all non-US investments and, as a result, the directors anticipate that on a disposal of shares in the Group's current non-US investments, so long as the shares have been held for 12 months, they should qualify for SSE and no corporation tax charge should arise on their disposal.

 

New tax legislation was introduced in the US in 2018 which taxes at source gains on disposal of any foreign partnership interests in US LLCs.  As such, deferred tax will need to be assessed on any potential net gains from the Group's investment interests in the US.

 

Having assessed the current portfolio, the directors anticipate that there should currently be no requirement to provide for deferred tax in respect of unrealised gains on investments under the current requirements of the IFRS as the US investments do not currently show a net gain, and the non-US investments are expected to benefit from the SSE rules.  As such no deferred tax provision has been made as at 31st July 2020. The requirement for a deferred tax provision is subject to continual assessment of each investment to test whether the SSE conditions continue to be met based upon information that is available to the Group and that there is no change to the accounting treatment in this regard under IFRS.  It should also be noted that, until the date of the actual disposal, it will not be possible to ascertain if all the SSE conditions are likely to have been met and, moreover, obtaining agreement of the tax position with HM Revenue & Customs may possibly not be forthcoming until several years after the end of a period of accounts.

 

 

9.  SHARE BASED PAYMENT ARRANGEMENTS

 

Joint Share Ownership Plan

 

During the year to 31st January 2019, B.P. Marsh & Partners Plc entered into joint share ownership agreements ("JSOAs") with certain employees and directors.  The details of the arrangements are described in the following table:

 

Nature of the arrangement

Share appreciation rights (joint beneficial ownership)

 

 

Date of grant

12th June 2018

Number of instruments granted

1,461,302

Exercise price (pence)

N/A

Share price (market value) at grant (pence)

 

281.00

Hurdle rate

3.75% p.a. (simple)

Vesting period (years)

3 years

Vesting conditions

There are no performance conditions other than the  recipient remaining an employee throughout the vesting period.  The awards vest after 3 years or earlier resulting from either:

 

a)  a change of control resulting from a person, or persons acting together, obtaining control of the Company either (i) as a result of a making a Takeover Offer; (ii) pursuant to court sanctioned Scheme of Arrangement; or (iii) in consequence of a Compulsory Acquisition); or

 

b)  a person becoming bound or entitled to acquire shares in the Company pursuant to sections 974 to 991 of the Companies Act 2006; or

 

c)  a winding up.

 

If the employee is a bad leaver the co-owner of the jointly-owned share can buy out the employee's interest for 0.01p

Expected volatility

N/A

Risk free rate

1%

Expected dividends expressed as a dividend yield

1.9%

Settlement

Cash settled on sale of shares

% expected to vest (based upon leavers)

100%

Number expected to vest

1,461,302

Valuation model

Expected Return Methodology (ERM)

ERM value (pence)

36.00

Deduction for carry charge (pence)

31.60

Fair value per granted instrument (pence)

4.40

Charge for period ended 31st July 2020

£10,677

 

On 12th June 2018 1,461,302 new 10p Ordinary shares in the Company were issued and transferred into joint beneficial ownership for 12 employees (4 of whom were directors) under the terms of joint share ownership agreements.  No consideration was paid by the employees for their interests in the jointly-owned shares.

 

The new Ordinary shares have been issued into the name of RBC cees Trustee Limited ("the Trustee") as trustee of the B.P. Marsh Employees' Share Trust ("the Trust") at a subscription price of £2.81, being the mid-market closing price on 12th June 2018.

 

The jointly-owned shares are beneficially owned by (i) each of the 12 participating employees and (ii) the trustee of the Trust upon and subject to the terms of the JSOAs entered into between the participating employee, the Company and the Trustee.

 

Under the terms of the JSOAs, the employees and directors enjoy the growth in value of the shares above a threshold price of £2.81 per share (market value at the date of grant) plus an annual carrying charge of 3.75% per annum (simple interest) to the market value at the date of grant.  The Trust retains the initial market value of the jointly-owned shares plus the carrying cost.

 

Alternatively, on vesting, the participant and the Trustee may exchange their respective interests in the jointly-owned shares such that each becomes the sole owner of a number of Ordinary shares of equal value to their joint interests.

 

Participants will therefore receive value from the jointly-owned shares only if and to the extent that the share value grows above the initial market value plus the carrying cost.

 

The employees and directors received an interest in jointly owned shares and a Joint Share Ownership Plan ("JSOP") is not an option, however the convention for JSOPs is to treat them as if they were options.  The value of the employee's interest for accounting purposes is calculated using the Expected Return Methodology.

 

The risk-free rates are based on the yield on UK Government Gilts of a term consistent with the assumed option life.

 

No jointly-owned shares were sold during the period, however 59,183 jointly-owned shares were forfeited on the departure of an employee (interim 6 months to 31st July 2019: no jointly-owned shares were forfeited and full year to 31st January 2020: 167,465 jointly-owned shares were forfeited on the departure of an executive director).  However, the number of jointly-owned shares expected to vest has not been adjusted on the basis that these shares may be redistributed to other employees of the Company.  In accordance with IFRS 2: Share-based Payment, the fair value of the expected cost of the award (measured at the date of grant) has been spread over the three-year vesting period.

 

There has been no movement during the period in terms of the numbers of shares to be exercised.

 

Share Incentive Plan

 

During the year to 31st January 2017 the Group established an HMRC approved Share Incentive Plan ("SIP"). 

 

During the period a total of 42,196 ordinary shares in the Company, which were held in Treasury as at 31st January 2020 (6 months to 31st July 2019 and also 12 months to 31st January 2020, 19,218 ordinary shares in the Company, which were held in Treasury as at 31st January 2019) were transferred to the B.P. Marsh SIP Trust ("SIP Trust").  As a result, together with 4,848 of unallocated ordinary shares forfeited by departing employees during both the current period and 12 months to 31st January 2020, a total of 47,044 ordinary shares in the Company were available for allocation to the participants of the SIP (6 months to 31st July 2019 and also 12 months to 31st January 2020: 33,330 were available for allocation).

 

On 23rd April 2020, a total of 11 eligible employees (including 3 executive directors of the Company) applied for the 2020-21 SIP and were each granted 1,994 ordinary shares ("20-21 Free Shares"), representing approximately £3,600 at the price of issue. 

 

Additionally, on 26th June 2020, all eligible employees were also invited to take up the opportunity to acquire up to £1,800 worth of ordinary shares ("Partnership Shares").  For every Partnership Share that an employee acquired, the SIP Trust offered two ordinary shares in the Company ("Matching Shares") up to a total of £3,600 worth of shares.  10 of the 11 eligible employees (including 3 executive directors of the Company) took up the offer and acquired the full £1,800 worth of Partnership Shares (837 ordinary shares) and were therefore awarded 1,674 Matching Shares.

 

The 20-21 Free and Matching Shares are subject to a 1 year forfeiture period.

 

A total of 47,044 (6 months to 31st July 2019 and also 12 months to 31st January 2020: 33,330) Free, Matching and Partnership Shares were granted to the 11 (6 months to 31st July 2019 and also 12 months to 31st January 2020: 11) eligible employees during the period, including 13,515 (6 months to 31st July 2019 and also 12 months to 31st January 2020: 12,120) granted to 3 (6 months to 31st July 2019 and also 12 months to 31st January 2020: 4) executive directors of the Company.

 

Following the resignation of an employee during the period, a total of 3,808 (6 months to 31st July 2019: Nil and 12 months to 31st January 2020: 16,143) ordinary shares in the Company were withdrawn from the SIP Trust and transferred into the direct beneficial ownership of that employee.

 

As at 31st July 2020, and after adjusting for a total of 19,951 ordinary shares withdrawn from the SIP Trust by employees on departure and 4,848 ordinary shares forfeited on departure (since inception), a total of 201,812 Free, Matching and Partnership Shares had been granted to 11 eligible employees under the SIP, including 69,216 granted to 3 executive directors of the Company.

 

£36,927 of the IFRS 2 charges (6 months to 31st July 2019: £39,202 and 12 months to 31st January 2020: £79,054) associated with the award of the SIP shares to the 11 (6 months to 31st July 2019 and also 12 months to 31st January 2020: 11) eligible directors and employees of the Company have been recognised in the Statement of Comprehensive Income as employment expenses.

 

The results of the SIP Trust have been fully consolidated within these financial statements on the basis that the SIP Trust is controlled by the Company.

 

 

-Ends-

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