Half Yearly Report

RNS Number : 9291X
Hansard Global plc
23 February 2012
 



23 February 2012

 

Hansard Global plc

 

Results for the six months ended 31 December 2011

Hansard Global plc ("Hansard" or "the Group"), the specialist long-term savings provider, issues its results for the six months ended 31 December 2011 ("H1 2012").

The Group has had a positive start to the financial year that is reflected in improved regular premium new business flows, increased contribution from new business and continued positive operating cash flows. The level of assets under administration and IFRS profits have been adversely impacted by global economic uncertainty.

Summary

 

Six months ended 31 December

2011

2010

New business sales - regular premiums (PVNBP)

£67.6m

£47.9m

New business sales - single premiums (PVNBP)

£22.1m

£66.6m

New business margin after tax

10.4 %

7.4 %

EEV operating profit after tax

£10.2m

£9.7m

IFRS profit after tax

£5.2m

£8.4m

IFRS basic earnings per share

3.8p

6.1p

Interim dividend per share

5.90p*

5.75p

 

As at

31 December

30 June


2011

2011

Assets under Administration

£1,051m

£1,230m

European Embedded Value

£243m

£257m

 

* Payment date - 29 March 2012

Leonard Polonsky, Chairman of Hansard Global plc, commented:

"Our continued investment in distribution infrastructure and focus on particular markets such as the Far East and Latin America has delivered strong growth in regular premium business and increased new business margins, despite volatile economic conditions.

The Group's confidence in its future prospects is reflected in the Board's decision to increase the interim dividend by 2.6% to 5.9p per share.

Even though we face economic uncertainty, we aim to continue to deliver excellent service to Independent Financial Advisors and their clients, maintain profitable growth and generate value for our shareholders."

 

For further information

 

Hansard Global

+44 (0)1624 688000

Leonard Polonsky, Chairman


Gordon Marr, Managing Director


Vince Watkins, Chief Financial Officer




Pelham Bell Pottinger

+44 (0)20 7861 3232

Daniel de Belder


 

 

Chairman's Statement

I am pleased to report that Hansard's performance in the first six months of the financial year (H1 2012) demonstrates success from the Group's investment in distribution infrastructure and its focus on regular premium business sourced from growth markets.

Despite turmoil in all major stock markets in the period, new business flows are 8.9% higher than those of H1 2011, on the Group's internal measure. We are pleased that a large number of intermediaries have used Hansard OnLine functionality to introduce business to us electronically and that we have continued to generate positive operating cash flows to fund new business.

While the Group's business is resilient and new business profitability has increased, we are not immune from market forces. Results under both EEV and IFRS reflect the impact of market falls during the period and reactions to the uncertainties in the Eurozone.

NEW BUSINESS

Continued investment in Hansard OnLine and distribution infrastructure, investment in fast-growing markets in the Far East and Latin America, and the growing level of interest in Hansard's products among independent financial advisors and their clients have contributed to an increased flow of regular premium new business sales, despite prolonged market volatility in the period. New business flows in H1 2012 are 8.9% higher than those of H1 2011, on the Group's internal metric, Compensation Credit.

New business margins for H1 2012 of 10.4% (H1 2011: 7.4%) on the Present Value of New Business Premiums ("PVNBP") basis are market leading.

New business flows are summarised as follows:

 

Six months ended


31 December


2011

2010


Basis

£m

£m

% change

Compensation Credit

8.6

7.9

8.9 %

Present Value of New Business Premiums

89.7

114.5

(21.7)%

Annualised Premium Equivalent

13.5

15.0

(10.0)%

The Group's market-driven focus is producing results. Regular premium flows, particularly from the Far East and Latin America, have increased by 41%, compared with H1 2011. The flow of single premium new business is however constrained by market conditions and current regulatory complexity. Total single premium business sales have fallen by £44m from H1 2011, mainly as a result of a small number of large single premium cases in that period.

The Group's investment in strategic projects to develop Hansard OnLine, including the implementation of new business initiatives, is bearing fruit. Over 1,000 policies were introduced electronically in the period, which represents almost 76% of regular premium policies.

FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED 31 DECEMBER 2011

Throughout the period we have continued to generate positive operating cash flows to fund new business flows and have increased Embedded Value Operating profit after tax by 5.2% to £10.2m (H1 2011: £9.7m). Despite this growth, the combined impact of market falls and economic assumption changes has led to an EEV loss of £2.6m in the period (H1 2011: £27.0m gain).

The EEV of the Group, following the payment of a dividend of £11m in November 2011, is £243.4m, a decrease of £13.6m from the value at 30 June 2011.

The growth of the Group's profits under IFRS has been dampened by market falls, weaknesses in the Euro exchange rate against sterling, continued investment in infrastructure and new business strain. Under these circumstances IFRS profits have reduced to £5.2m after tax (H1 2011: £8.4m).

ASSETS UNDER ADMINISTRATION

Despite continued regular premium flows, the value of assets under administration has been impacted adversely by declines in capital market levels. As at 31 December 2011, assets under administration were £1.1bn, having fallen by 14.6% since 30 June 2011.

CAPITALISATION AND SOLVENCY

The Group continues to be substantially capitalised to satisfy operational, regulatory and policyholder expectations.

 

The Group's capital is held with a wide range of deposit institutions and in highly-rated money market liquidity funds to protect against capital market volatility. The Group had cash of £67.4m at the balance sheet date.

DIVIDENDS

The Board has resolved to increase the interim dividend by 2.6% to 5.90p per share (31 March 2011: 5.75p). This will be paid on 29 March 2012. On 18 November 2011 the Company paid a final dividend of 8.0p per share. Including the interim dividend referred to above, this will result in amounts totaling 13.90p per share, or £19m being paid as dividends during this financial year.

DIRECTORATE

I was pleased to welcome Philip Gregory to the Board with effect from 1 October 2011, and saddened that we will lose the benefit of Uwe Eymer's wise counsel as he has retired. Uwe left the Board on 31 December 2011.

EMPLOYEES AND INTERMEDIARIES

The continued development of the Group's proposition and the improved level of new business are a tribute to head office and field staff and the independent financial advisors who introduce that business to us.  On behalf of the Board and shareholders I thank everyone connected with Hansard for their dedication and contribution during these turbulent times.

OUTLOOK

We continue to face economic uncertainty and we remain determined to grow in volume and profitability.

 

 

 

 

Dr L S Polonsky

Chairman

22 February 2012

 

MANAGING DIRECTOR'S REPORT

STRATEGY

Throughout the period Hansard has continued to invest in distribution infrastructure; to improve support to Independent Financial Advisors (IFAs) in our target markets, and to reduce our exposure to operational and business model risk. I believe that the success of our strategy is reflected in an increased flow of new business and in increasing development of functionality for Hansard OnLine.

RESULTS

New business flows in the period ended 31 December 2011 (H1 2012) have increased by approximately 9% over the levels of H1 2011 in Compensation Credit terms. Regular premium sales continue to drive growth in profitability and the Group's new business profits have increased by 9.4% over H1 2011, under EEV. Commentary on new business is contained in the report of the Chief Distribution Officer.

We are pleased, particularly, with the progress of increased functionality developed for Hansard OnLine to allow intermediaries and policyholders to more efficiently transact with us, and which demonstrates further the value of the insurance wrapper. As is reported in section 3, below, a large number of regular premium policies are delivered to us electronically, as are instructions for investment transactions within policy wrappers.

Despite the volatile economic conditions enduring throughout the period, the Group has continued to:

·      Generate positive cashflows to fund new business and dividends;

·      Invest in distribution infrastructure, Hansard OnLine and other IT developments, and

·      Enhance its risk management frameworks.

 

These and other factors are disclosed in this interim management report.

 

RISKS

As I have reported in the past, there are many impacts of the extreme financial and market circumstances encountered over the last few years that will continue to have a disproportionate effect on our activities. Like other financial service institutions, we continue to adapt to this.

The principal risks that impact on our strategy and results, and which are set out in section 4 below, are those flowing from regulatory interpretation, policyholder and intermediary behaviour and economic conditions. Our business model is such that the assets linked to policies, and which determine the policy values, are selected by policyholders or their advisors yet, as has been reported in the past, a significant portion of the complaints received by the Group relate to the selection and performance of assets. This is particularly true of more complex structured products distributed throughout Europe that have been selected by policyholders and / or their advisors for inclusion in policies.

As is reported in note 15 to the financial statements, a Group company has been served with writs totalling approximately £7m arising from such complaints and other asset-related issues. The Group does not provide investment advice and, accordingly, the Board is of the view that these complaints have no merit. The Group intends to defend itself against all such claims strenuously. An initial hearing in relation to the majority of these claims is scheduled for the latter part of April 2012.

FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED 31 DECEMBER 2011

The success of our endeavours is not immediately apparent under IFRS reporting. New business flows will contribute to income streams over many years, but continued investment in systems and other resources will outweigh the initial growth in income. Our business is long term in nature, and for this reason we present the results on an EEV basis, which better reflects the true profitability of new business, in addition to the statutory IFRS basis, which are set out later in the report.

To provide additional clarity on the financial performance of the Group, we have again presented abridged financial information. An abridged consolidated income statement, balance sheet and cash flow statement is set out below, together with commentary on salient figures.

1.            IFRS Results

The performance of the Group under IFRS for H1 2012 remained resilient in difficult economic conditions. Fees and commissions receivable have increased marginally despite significant falls in asset values that have restrained the flow of asset-based income. The continued investment in new business, in Hansard OnLine and other functionality has contributed to increased expenses.

The IFRS results reflect continuing investment of the Group's capital in profitable contracts, funded by positive cashflows. During the period, £13.8m (H1 2011: £12.3m) was invested in the acquisition of new business with a value (under EEV) of £21.6m (H1 2011: £19.4m). 

Volatility in foreign exchange markets as a result of the Eurozone crisis has contributed to unrealised losses of £0.7m on translation of net operating assets held in Euro (principally regulatory capital of Hansard Europe Limited). This compares with a gain of a similar amount in H1 2011.

The Group's profits arising from its Isle of Man-based operations continue to be taxable at zero percent. Profit after taxation for the period is £5.2m (H1 2011: £8.4m). Earnings per share are 3.8p (H1 2011: 6.1p).

1.1   Abridged consolidated income statement

The consolidated income statement presented under IFRS which is presented within these half-year results reflects the financial results of the Group's activities during the period. This income statement however, as a result of its method of presentation, incorporates a number of features that might affect a clearer understanding of the results of the Group's underlying transactions. This relates principally to:

 

·      investment income, gains and losses relating to the assets administered by the Group to back its liability to policyholders. These assets are selected by the policyholder or an authorised intermediary and the policyholder bears the investment risk arising from the performance of the asset. As a result of the market corrections in the summer months, investment losses during the period attributable to policyholder assets were £152.5m (H1 2011: gains of £152.2m; FY 2011: gains of £109.2m).

·      fund management fees paid by the Group to third parties having a relationship with the underlying contract. While fund management fees paid are properly recorded in the Group's income statement under IFRS, this distorts results compared with an understanding of the Group's own entitlement to fund management fees and any requirement to pay such fees for services rendered in respect of the Group's own assets. In the current year third party fund management fees attributable to policyholder assets was £2.1m (H1 2011: £2.3m; FY 2011: £4.8m). These are reflected in both income and expenses under the IFRS presentation.

 

An abridged consolidated income statement is presented below, excluding the items of income and expenditure indicated above.

 

 

 

 

 

 

 

Six months ended

Year ended


31 December

30 June


2011

2010

2011


£m

£m

£m

Fees and commissions

25.2

25.1

50.8

Investment and other income

1.2

1.3

2.3


26.4

26.4

53.1

Origination costs

(9.8)

(9.0)

(18.2)

Administrative and other expenses

(10.7)

(9.5)

(19.7)


5.9

7.9

15.2

Foreign exchange (losses) / gains

(0.7)

0.7

1.5

 Profit for the period before taxation

5.2

8.6

16.7

Taxation

-

(0.2)

(0.2)

Profit for the period after taxation

5.2

8.4

16.5

 

 

1.1.1 Fees and commissions

A summary of fees and commissions attributable to Group activities is set out below:

 

Six months ended

Year ended


31 December

30 June


2011

2010

2011


£m

£m

£m

Contract fee income

18.1

18.1

35.5

Fund management fees

5.0

4.9

10.8

Commissions receivable

2.1

2.1

4.5

Fees and commissions

25.2

25.1

50.8

 

Fees and commissions for the half-year have increased marginally to £25.2m, compared to £25.1m in H1 2011.

Elements of contract fee income are largely fixed in nature, representing both the smoothing of up-front income required under IFRS, and policy servicing charges applied to the policy book annually or as required by the policy terms and conditions. Consistent levels of contract fee income reflects the strength of the existing book of business, as the significantly increased levels of new business in this financial year will be reflected in fee income in future financial years.

 

The composition of contract fee income in the period under review reflects both the continued acquisition of profitable new business and policyholder concerns over economic conditions. Contract fees based on policyholder activity, such as transaction charges, lapse and surrender profits are all below those of H1 2011 while deferred fees, such as actuarial funding, have increased and will be amortised to income over the life of the contract, as can be seen in Section 1.3.3.

Approximately 30% of the Group's fees and commissions, being fund management fees and commissions receivable from third parties, are related directly to the value of assets under administration ("AuA") and are thus exposed to market movements and valuation judgements.

 

The Group's own fund management fee income, which is based on the level of AuA has reduced by 14% since H1 2011 as AuA has reduced by just over £250m (19.4%) since 31 December 2010.

1.1.2 Investment income attributable to the Group

An analysis of investment income is set out below:

 

 

                  Six months ended

Year ended


31 December

30 June


2011

2010

2011


£m

£m

£m

Income from investments

1.0

1.1

2.2

Currency (losses) / gains on net operating assets

(0.7)

0.7

1.5


0.3

1.8

3.7

 

Volatility in foreign exchange markets has contributed to unrealised losses on translation of net operating assets held in Euro (principally regulatory capital of Hansard Europe Limited) and unrealised gains on translation of assets held in US dollar (principally contract fee debtors). A summary of the currency exposures at the balance sheet date is set out in note 14 to the condensed consolidated financial statements. Any continued strengthening of Sterling against these currencies over the remainder of this financial year will cause additional losses.

1.1.3 Origination costs

Origination costs represent the Group's investment in acquiring new business in the period and include new business commissions, intermediary incentives and other distribution-related expenditure.

Origination costs and other directly attributable incremental costs incurred on the issue of a policy are deferred and amortised over the life of the relevant contract. This accounting policy reflects that the Group will continue to earn income over the long term from policies issued in a given financial year. The impact on current year earnings of contracts issued this year is minimal.

Other origination costs incurred, for example recruitment costs and initial payments to new Account Executives, which reflect investment in distribution resources in line with our strategy are expensed as incurred.

 

Six months ended

Year ended


31 December

30 June


2011

2010

2011

Origination costs

£m

£m

£m

Deferred to match future income streams

12.3

10.8

23.4

Expensed as incurred

1.5

1.5

2.3

Investment in new business in period

13.8

12.3

25.7

Net amortisation of deferred origination costs

(4.0)

(3.3)

(7.5)


9.8

9.0

18.2

 

The continuation of the Group's strategy to increase profitable new business volumes is reflected in an increase of 13.9% in the direct costs of new business to £12.3m. This is principally commissions and other payments to advisors and is deferred to match the longer-term income streams expected to accrue from those policies issued this year. Amounts totalling £8.3m (H1 2011: £7.5m) have been expensed to match contract fee income earned this year from policies issued in previous financial years.

 

 

 

 

1.1.4 Administrative expenses

We continue to invest in the Group's sales and distribution infrastructure, responding to increasing regulatory requirements and better linking employee incentives with investor interests.

The Group is continuing to invest for future growth in the business. Strategic projects to develop Hansard OnLine, develop new business initiatives,streamline administrative processes and reduce operational risk have continued in the period. Progress on these key developments is discussed in detail in section 3.

The Group continues to focus on maintaining high levels of customer service while addressing regulatory and other complexities brought about, in large part, by the global financial crisis. Although there is no significant increase in net headcount from 30 June 2011, recent recruitment has focused on senior people to help cope with the changing nature of our business landscape.

Professional fees have increased by £0.2m over the comparative period, mainly legal fees as discussed elsewhere, and also include amounts totalling £0.3m (H1 2011: £0.3m) for administration, custody, dealing and other charges paid to Capital International Limited under the terms of the outsourcing arrangement that commenced in November 2009.

Reflecting the issues referred to above, administrative and other expenses attributable to Group activities are £10.7m, an increase of £1.2m from H1 2011.

A summary of administrative and other expenses attributable to the Group is set out below:

 

 

Six months ended

Year ended


31 December

30 June


2011

2010

2011


£m

£m

£m

Salaries and other employment costs

5.2

4.3

8.8

Other administrative expenses

2.9

2.8

5.5


8.1

7.1

14.3

Professional fees

1.3

1.1

3.0

Growth investment spend

1.3

1.3

2.4


10.7

9.5

19.7

1.1.5     Taxation

As a result of the uncertain economic environment the stability of the tax regimes and rates that impact directly upon the Group's profitability have been challenged from many directions. We were pleased to note that steps taken by the Isle of Man Government to clarify its taxation regime to the EU have proven successful and therefore the Group's profits arising from its Isle of Man-based operations remain taxable at zero percent.

Similarly, the rate of corporation tax for the Republic of Ireland is expected to be retained at 12.5%.

1.2   Abridged consolidated cash flow statement

Operating cash flows in the year continue to be strongly positive. The operational surplus of £16.3m (fees deducted from contracts and commissions received, less operational expenses) has reduced by £1.1m over the comparative period. The change in the mix of new business has changed the profile of the income collected from policies, with initial fees taken as premiums are received on regular premium policies, rather than upfront as with single premium contracts.

 

Cash inflow has increased over the comparative period as explained below and has funded the increased investment in new business in the period.

 

This demonstrates that the in-force policy book continues to generate the cash required to support the Group's main business objectives of investing in new business, and enhancing distribution and other infrastructure.

 

Positive operating cash flows in the period allowed the Group to fund new business from its own resources and continue to invest in its sales force and support teams.

The following summarises the Group's own cash flows in the period:


 

Six months ended

Year ended



31 December

30 June



2011

2010

2011



£m

£m

£m

Net cash inflow from existing business


16.3

17.4

35.2

Movement on policyholder fees due


-

(2.1)

(2.1)

Movement on expense creditors


0.8

0.6

2.7

Net cash inflow from operating activities


17.1

15.9

35.8

Interest received


0.6

1.1

0.5

Cash inflow


17.7

17.0

36.3

Investment in new business


(12.3)

(10.8)

(25.7)

Purchase of plant and equipment


(0.1)

(0.3)

(0.6)

Corporation tax paid


-

-

(0.2)

Net cash inflow before dividends


5.3

5.9

9.8

Dividends paid


(11.0)

(10.6)

(18.5)

Net cash flow after dividends


(5.7)

(4.7)

(8.7)

 

The continued application of the Group's progressive dividend record, given the significantly increased investment in new business in the year, has reduced the Group's own cash and deposits since 30 June 2011.


 

Six months ended

Year ended



31 December

30 June



2011

2010

2011



£m

£m

£m

Group cash and deposits at 1 July


73.1

81.8

81.8

Net cash flow after dividends


(5.7)

(4.7)

(8.7)

Group cash and deposits


67.4

77.1

73.1

1.3   Abridged consolidated balance sheet

The condensed consolidated balance sheet presented under IFRS elsewhere in this report reflects the financial position of the Group at 31 December 2011. As a result of its method of presentation, the consolidated balance sheet incorporates the value of assets under administration held to back the Group's liability to policyholders, and also incorporates the equivalent liability to policyholders of £1.1bn (31 December 2010: £1.3bn; 30 June 2011: £1.2bn). Additionally, some elements of the Group's own capital resources of £67.4m are disclosed in different positions based on maturity date of bank deposits.

The abridged consolidated balance sheet presented below, excluding those assets and liabilities, allows a better understanding of the Group's own capital position and reflects continued investment in profitable new business. The successful implementation of the Group's strategy to focus on regular premium new business results in an increase of deferred origination costs ("DOC"), and a smaller  increase in the deferred income reserve ("DIR") since 30 June 2011.

 

The continued application of the Group's progressive dividend record, given recent reductions in IFRS profit, has resulted in the dividend of £11.0m paid during the period exceeding IFRS profit, and has therefore caused a reduction in Shareholders' equity since 30 June 2011.

 

As at


31 December

30 June



2011

2010

2011



£m

£m

£m

Assets





Deferred origination costs


117.1

108.9

113.1

Other assets


9.1

11.6

12.1

Cash and bank deposits


67.4

77.1

73.1



193.6

197.6

198.3

Liabilities





Deferred income reserve


127.1

124.9

125.3

Other payables


19.6

20.3

20.4



146.7

145.2

145.7

Net assets


46.9

52.4

52.6

Shareholders' equity





Share capital and reserves


46.9

52.4

52.6

 

1.3.1 Deferred origination costs

As mentioned above, deferral of origination costs reflect that the Group will continue to earn income over the long-term from policies issued in a given financial year. These costs are recoverable out of future net income from the relevant contract and are charged to the income statement on a straight-line basis over the life of each contract.

The increase of £4m in value since 30 June 2011 reflects continuing investment of the Group's capital in profitable policy contracts funded by positive cashflows, net of amounts amortised. Direct distribution costs of £13.8m (H1 2011: £12.3m) were invested in the acquisition of new business in the period.

The movement in value of DOC over the period is summarized below.

 

31 December

30 June


2011

2010

2011


£m

£m

£m

At 1 July

113.1

105.6

105.6

Origination costs incurred during the period

12.3

10.8

23.4


125.4

116.4

129.0

Origination costs amortised during the period

8.3

7.5

15.9


117.1

108.9

113.1

1.3.2 Cash and bank deposits

In the current low interest rate environment the Group feels that the best use of its capital is to ensure continued investment in profitable regular premium contracts. These investments earn a return of at least 15% p.a. As can be seen above, the Group invested £12.3m in new business during the year which was funded by cash flows from the existing policy book. While the construction of the Group's products means that this investment will be recouped within 3 years, continued investment in profitable regular premium contracts produces a short term cash strain as a result of the commission and other costs incurred at inception of a contract.

 

Following this investment in new business and a continuation of the Group's progressive dividend record, cash at 31 December 2011 stood at £67.4m. This is a decrease of £5.7m from the value of £73.1m reported at 30 June 2011, despite the payment of a dividend of £11m during the period. This further reflects the Group's continued cash generative capability.

 

Despite this reduction, the Group is well capitalized to meet the requirements of regulators, intermediaries, policyholders and other stakeholders. 

 

The Group's liquid assets at the balance sheet date are held with a wide range of deposit institutions and in highly-rated money market liquidity funds.

 

1.3.3 Deferred income reserve

Consistent with the treatment of deferred origination costs, the treatment of deferred income ensures that initial fees are taken to the consolidated income statement in equal instalments over the longer-term, reflecting the services provided over the period of the contract. The deferred income reserve represents the unamortised balance of accumulated initial fees collected on new business.

The proportion of income deferred in any one year is dependent upon the mix and volume of business flows; the Group's focus on profitable regular premium business over the last 2 years means that these fees are received over the initial period of the contract, rather than being received up front, as is typically the case with single premium contracts.

The majority of initial fees collected during the period relates to charges taken from policies issued in prior financial years demonstrating the cash generative nature of the business. Policies issued in this financial period will generate the majority of their initial fees over the next 18 months on average. The movement in value of DIR over the period is summarized below:

 

31 December

30 June


2011

2010

2011


£m

£m

£m

At 1 July

125.3

125.9

125.9

Initial fees collected in the period

11.2

8.6

19.6


136.5

134.5

145.5

Income amortised during the period

9.4

9.6

20.2

At 31 December

127.1

124.9

125.3

 

1.4   Dividends

A final dividend of 8.0p per share in relation to the previous financial year was paid in November 2011. This amounted to £11.0m.

The Board has considered the results for H1 2012 and the Group's continued cash flow generation and has resolved to increase the interim dividend by 2.6% to 5.90p per share (31 March 2011: 5.75p). This will be paid on 29 March 2012.

1.5   Assets under Administration

In the following paragraphs, assets under administration ("AuA") refers to net assets held to cover financial liabilities as analysed in note 10 to the condensed consolidated financial statements presented under IFRS.

 

Despite market conditions, the Group has retained positive cash flows from the large number of regular premium contracts that the Group administers on behalf of policyholders around the world. Notwithstanding this cash flow, the value of AuA has been eroded by the market falls in Q1 2012. While positioning of policyholder assets and reduced confidence in timing of investment decisions have meant that AuA levels have not benefitted from the market recovery in Q2, the level of £1.1bn at 31 December 2011 remains only marginally below the level reported at 30 September 2011. This represents a decrease of 14.6% since 30 June 2011.

 

Although the changing mix of business towards regular premium contracts has significantly affected the value of net policyholder cash flows in H1 2012, when compared with H1 2011, we believe that increasing the level of regular premium contracts (with more stable, recurring cash inflows) will be value enhancing in the longer term.

The flexible nature of our products, allowing policyholders the ability to determine the investment mix held within policy contracts has, we believe, helped maintain benefits paid out on those contracts at the previous year's levels and further emphasises the value of the insurance wrapper.


31 December

30 June



2011

2010

2011



£m

£m

£m

Deposits to investment contracts

66.0

106.9

186.4

Deductions from investment contracts

(94.0)

(90.5)

(200.7)

Effect of market and currency movements

(152.5)

152.2

109.2

Movement in period

(180.5)

168.6

94.9

Opening balance

1,229.6

1,134.7

1,134.7

Closing balance

1,049.1

1,303.3

1,229.6

 

Included in the market movements for H1 2012 are amounts totalling £21m representing the book value of a number of assets that ceased trading on normal terms in the period and have therefore been written down in accordance with our normal practice. In common with assets similarly treated in prior periods, this write-down results in a reduction in the Group's asset-based fee income. Any continued reductions in AuA will cause declines in the Group's future asset-based income streams but will not affect the Group's capital position.

Deposits to investment contracts in H1 2011 included 3 large single premium cases, totalling £20m, reported previously.

1.6   Policyholder complaints

The assets linked to policies, and which determine the policy values, are selected by policyholders or their advisors. Under the terms of the unit-linked contracts issued by the Group, the policyholder bears the financial risk attaching to assets to which the contracts are linked.

Notwithstanding the above, financial services institutions are increasingly drawn into disputes in cases where the value and performance of assets selected by or on behalf of policyholders fails to meet their expectations. This is particularly true of more complex structured products distributed throughout Europe that have been selected for inclusion in policies. At the balance sheet date a number of those fund structures remain affected by liquidity or other issues that hinder their sales or redemptions on normal terms with a consequent adverse impact on policy transactions. 

A Group company has been served with a number of writs arising from such disputes and other asset-related issues, and believes that other writs might be served in the next few months. Claims under writs served to date total approximately £7m.

The Group does not provide investment advice and, accordingly, the Board is of the view that these complaints have no merit and no provisions have been made. The Group intends to defend all claims strenuously. Any court hearings linked to these writs are not anticipated to take place before April 2012.

1.7   Capitalisation and Solvency

The Group continues to be substantially capitalised to satisfy the requirements of regulators, intermediaries and policyholders.  The required minimum solvency margins are covered 13.9 times (31 December 2010: 13.4 times; 30 June 2011: 13.4 times) by the Group's capital resources.

The solvency position is well insulated against the difficult investment markets, as the Group invests its excess capital resources in a wide range of deposit institutions and in highly-rated money market liquidity funds. The in-force portfolio has no material investment options or guarantees that could cause capital strain. This policy continues to immunise the Group's capital base from stock market falls.

The relatively low minimum solvency requirement reflects the fact that the Group does not have options or guarantees on its investment portfolio, is not exposed to longevity risk through an annuity book and uses a prudent reassurance programme to manage the mortality and morbidity risks of the life businesses.

The introduction of Solvency II will see a fundamental change in the way EU-based insurers assess their capital requirements and risk management standards. Based on current guidance we do not expect additional capital requirements as a result of these legislative changes. While it seems possible that the implementation of Solvency II may be deferred beyond 1 January 2013, the Group will have developed its requirements by that date.

2.            Embedded Value Results

EEV results for the period reflect the fact that the Group has increased the level of new business over that of H1 2011 by 8.9% as measured by its internal metric, Compensation Credit (CC) and, reflecting the strategy to source increased levels of more profitable regular premium new business, has grown the contribution from new business by 9.4% to £9.3m (H1 2011: £8.5m). Although new business as measured by PVNBP has fallen in H1 2012 as a result of fewer single premium cases the increase in the new business margin has more than compensated for the fall in this metric.

New business margins of 10.4% are market-leading and are the highest level earned by the Group since its listing. The Group continuesto generate positive cash flows to fund new business.   

The operating profit performance of the Group in H1 2012 has improved relative to H1 2011, despite volatile markets and the uncertain economic outlook.  EEV operating profit after tax has increased by 5.2% to £10.2m (H1 2011: £9.7m).

Falls in major stock market levels since 30 June 2011, which will impact on future asset-based income streams, gave rise to EEV investment return losses of £15.0m in the period (H1 2011: £17.8m profit).

The EEV at 31 December 2011 is £243.4m, a decrease of £13.6m or 5.3% since 30 June 2011 following a dividend payment of £11.0m in the period.

2.1   EEV Profit

EEV profit provides a measure of the Group's performance over the period.  While EEV operating profit has grown by 5.2% over H1 2011, there was an EEV loss for the period of £2.6m (H1 2011: £27.0m profit) largely due to the negative investment return variance.

 

 

The components of EEV profit after tax are as follows. 



Year

           

            Six months ended

ended


            31 December      

30 June


2011

2010

2011


£m

£m

£m

New business contribution

            9.3

8.5

18.5

Expected return

2.7

2.3

4.9

Experience variances

(2.4)

(1.3)

(3.0)

Operating assumption changes

(0.2)

(2.7)

(11.3)

Expected return on net worth

0.8

0.8

1.7

Model changes

0.0

2.1

4.1

EEV operating profit after tax

10.2

9.7

14.9

Investment return variances

(15.0)

17.8

12.0

Economic assumption changes

2.2

(0.5)

1.6

EEV profit after tax

(2.6)

27.0

28.5

 

2.1.1 Operating profit performance - new business

Despite market conditions the Group has retained its focus on profitability and has earned £9.3m from new business activities in the period (H1 2011: £8.5m).

The new business margin for the period, calculated as being the contribution from new business expressed as a percentage of PVNBP, has increased to 10.4%, as compared to 7.4% in H1 2011. This is primarily as a result of increased volumes of regular premium (RP) business, which typically have a higher margin than single premium products.




Year


     Six months ended

ended


        31 December

30 June


2011

2010

2011

New business sales - PVNBP

£89.7m

£114.5m

£221.1m

New business contribution

£9.3m

£8.5m

£18.5m

New business margin after tax

10.4 %

7.4 %

8.3 %

 

As a result of the introduction of Hansard OnLine new business functionality for regular premium products and the relative scaleability of the Group's systems, the increase in RP new business volumes in the period has been achieved without sacrificing new business margin.The underlying profitability of new business written by the Group remains consistently above levels enjoyed by a majority of competitors. The Internal Rate of Return of new business written during the period remains in excess of 15% per annum, while initial capital invested in underwriting new business is returned, on average, within three years.

2.1.2 Operating profit performance - in-force business

Operating profit for in-force business in the period was £0.9m (H1 2011: £1.2m) which was lower than expected. This was influenced, primarily, by changes in the behaviour of policyholders, and higher than expected expenses. 

Throughout the period the Group experienced a lower rate of partial surrenders, a higher proportion of policyholders requesting premium reductions and a higher rate of regular premium policies ceasing their premiums.  As mentioned earlier in this document, there was also a lower rate of other policyholder activity that has adversely affected the transaction-based charges.  The net effect has reduced EEV operating profit by £1.7m (H1 2011: £0.2m profit). 

The Group incurred expenses of £0.9m higher than expected.  A portion of these costs related to continued additional investment in governance, risk management and administration resources. There were no material changes in operating assumptions over the period.

2.1.3 Investment returns

Investment performance is a key driver of the EEV profit as it reflects income from charges during the period and future expectations of asset-based income streams. Falling markets leading to disappointing investment returns on policyholder assets under administration have contributed to an EEV loss of £15.1m (H1 2011: £16.1m profit). Assets under administration have reduced by 14.6% since 30 June 2011 to £1.1bn. The components of the investment return variances are shown below.

Six months ended

Year ended


        31 December

30 June


2011

2010

2011


£m

£m

£m

Market Movements

(15.1)

16.1

11.5

Currency Movement

0.6

1.3

0.2

Other

(0.5)

0.4

0.3

Experience variances

(15.0)

17.8

12.0

2.2   EEV balance sheet

Despite the growth in EEV operating profit, the Group's embedded value has been significantly impacted by the negative investment returns over the period. The EEV balance sheet reflects the EEV profit and dividends in the period.

The following table provides a summarised breakdown of the EEV at the reporting dates:

As at

          31 December

30 June


2011

2010

2011


£m

£m

£m

Net worth

52.8

62.5

59.8

Value of future profits ("VIF")

190.6

200.9

197.2


243.4

263.4

257.0

Net worth is the market value of shareholders' funds, determined on an IFRS basis, adjusted to exclude certain assets recognised in the value of future profits. At the balance sheet date the net worth of the Group is represented by liquid cash balances.

2.3   Profit emergence

In general, the faster that future cash flows (recognised in the VIF) are expected to emerge into net worth, the more confidence there is that those cash flows will be received at their anticipated levels and hence the more confidence there is about the EEV itself.

As at 31 December 2011, the VIF is £190.6m. Over a quarter of these profits are expected to convert into net worth within 2 years, half within 5 years and three quarters within 9 years. Relative to most life insurance companies, this reflects a fast conversion of future cash flows to net worth, as required by the Group's pricing methodology.

2.4   Net Asset Value per share

The net asset value per share ("NAV") at 31 December 2011, on the EEV basis, is 177.3p. This represents a fall of 5.3% from the NAV at 30 June 2011. The NAV is based upon the EEV at the balance sheet date divided by the number of shares in issue at that date.

 

3.         Online Systems

Since its launch in 1999, the Group has continued to invest in Hansard OnLine, client sites and other functionality to support intermediaries who introduce business to us. By extending and refining function based on observation and user feedback, this has resulted in a platform that is, today, widely and independently regarded as the best in class.

 

3.1   Hansard OnLine

Functionally rich and backed by a wide and comprehensive data set, Hansard OnLine has been designed from the ground up to provide first-class service and sales support to the intermediary user base that use it every day to conduct their business activities around the world. Always up-to-date and available 24/7, Hansard OnLine is a secure and reliable cloud-based platform that serves intermediaries with a wide range of client reports, alerts, reviews and information at any time of the day, in any part of the world and in any of the 11 languages currently supported.

 

The Group's strategic decision to build its own systems has been a major contributing factor to the success of Hansard OnLine. A deep understanding of both the technical and business goals of the organization, developed and refined over time, has created a highly efficient development resource capable of delivering sophisticated and targeted systems much more quickly and cost effectively than would otherwise have been possible.

 

The scope and quality of the data set that underlies Hansard Online has made it possible to build applications that not only provide intermediaries with accurate and up-to-the-minute reports but also capture and validate incoming instructions with a high degree of accuracy and confidence resulting in a faster, more streamlined service for the intermediary and corresponding reduction in manual processing and operational risk at head office.

 

Investment in Hansard OnLine, the Group's cloud based platform for intermediaries and fund advisors, has continued throughout this financial period resulting in significant advances in servicing speed and efficiencies, and a corresponding reduction in operational risk.

Foremost among these advancements is the continued development of the online new business application to include both personal portfolio and Hansard Europe product ranges, following the introduction of this functionality for regular premium contracts in the last financial year.

Over 1,000 policies were introduced electronically to the Group in H1 2012, representing some 76% of regular premium policies.

Online new business ensures clean and speedy submission of business while limiting the requirement for paper and allows speedier conclusion to all sales made.

A closely related development that also continues to evolve is the secure document upload service that allows intermediaries and administrators to upload documents that would otherwise need to have been sent by post. Documents submitted through this service arrive at head office almost instantly and are transferred into back office systems, ready for processing. The speed and efficiency savings, coupled with a reduction in administration and postal costs are significant with over 51,000 documents having been processed through this service in the last 12 months alone.

For the most part, Hansard OnLine has served as a critical communications hub, securely relaying information, alerts and reports to intermediaries to support their day-to-day business needs in a timely manner. Over the past 12 months development activity has focused on building robust systems infrastructure, controls and applications to facilitate the movement of core back office functions to the Internet.

The first two Internet-capable processes to emerge from this activity are fund switching, which facilitates the reconfiguration of contract asset exposures, and personal portfolio dealing, which allows authorised fund advisors to place deal instructions on personal portfolio contracts.

By design, switch and dealing instructions will be processed 'straight-through', with a full audit trail allowing progress to be tracked in real time.

All contract fund switching is now carried out using the Hansard OnLine functionality, with the original back office system having now effectively been retired. A pilot scheme is currently underway to extend this facility beyond head office to selected fund advisors.

Another recent change to Hansard Online that is currently being piloted extends the reach of the platform through the addition of configurable SMS and email alerts that keep intermediaries informed of important changes to the status of their clients' contracts. It is anticipated that this will be a popular feature so the choice of triggers for alerting is being thoroughly reviewed before wider release.

3.2   Client sites

Client sites are personalised sites designed for policyholder access that deliver up-to-date information and communications relating to the product or products in which the client has invested. The sites are hosted by Hansard, but made available to the client by the intermediary who has control over the branding and range of features each client has access to.

Client sites are typically issued when new business is first received, but can be set up at any time subsequent to this.

Intermediaries are informed when a client visits their Client site and, through a dashboard built around Google Maps, are able to drill down to see how each client has been interacting with their Client site, including the location of each logged-in session and the reports and policies they have been viewing. The activity information places the intermediary in a better position to provide relevant and time-sensitive support to his clients.

There are currently over 10,000 active Client sites.Work to support the Group's plans to extend the reach, functionality and penetration of Client sites continues to make good progress. Recent developments in this area include the ability for a client to sign up for a Client site online, manage their logon credentials and keep their contact details up to date.

4.            Risks relating to the Group's financial and other exposures

Hansard's business model involves the controlled acceptance and management of risk exposures. The steps taken to minimise those exposures include the operation of unit-linked insurance business by Group subsidiary companies. Under the terms of the unit-linked investment contracts issued by the Group, the policyholder bears the investment risk on the assets in the unit-linked funds, as the policy benefits are directly linked to the value of the assets in those funds.

The Group's exposure on this unit-linked business is limited to the extent that income arising from asset management charges and commissions is generally based on the value of assets in the funds, and any sustained falls in value will reduce earnings. The Group's exposure to financial risks is addressed within note 14 of these condensed consolidated financial statements. Additionally, the EEV Information includes a summary of the sensitivity of the Group's EEV results to economic and other factors.

 

The Board believes that the principal risks facing the Group are those relating to the operation of the Group's business model and to the environment within which the Group operates. The Group has designed its products, distribution methods and cost base with a view to reducing operational and financial risk, and has in place a risk management framework that is continually being refreshed to better support our objectives and to recognise regulatory and legislative change.

 

While the Group's business model has served to minimise the principal risks facing the Group, the responses to the extreme financial and market circumstances encountered over the last few years continues to impact on the Group's strategic objectives, profitability or capital requirements.

A comprehensive review of the principal risks and uncertainties facing the business, and the Group's approach to managing these risks and uncertainties, are outlined on pages 38 to 41 of the 2011 Annual Report. These principal risks and uncertainties have not changed materially since the 2011 Annual Report was published.

A summary of those principal key risks and uncertainties which could impact the Group for the remainder of the current financial year are outlined below. Where necessary the Group will develop alternative strategies to minimise the impact of any changes to its risk profile.

Risk event examples

Risk factors and uncertainties

Group profitability affected by financial market and economic conditions

The Group's earnings and profitability are influenced by a broad range of factors including the performance and liquidity of investment markets, interest rate movements and inflation. Extreme market conditions can influence the purchase of financial services products and the period over which business is retained.

 

Distribution strategy compromised as a result of  market changes or competitor activity

A major and successful entrant to any of the Group's target markets may have an impact on the success of the Group's new business strategy by preventing the development of relationships of the appropriate quality with intermediaries.

 

Non-compliance with regulations

Sudden changes in legislation without prior consultation, or the differing interpretation and application of regulations over time, may have a detrimental effect on the Group's strategy, profitability and risk profile.

 

Advice given by an intermediary is deemed unsuitable

If any advice given by an intermediary is deemed unsuitable this may lead to regulatory censure, redress costs and potential reputational damage.

 

Hansard OnLine

development and

availability

Any prolonged failure in internet capacity preventing the Group from delivering Hansard OnLine might impact on the Group's reputation and strategic objectives.

 

Outsourcing

The Group's dependence on outsourced activities comes under threat should business partners decide to revise strategy or fail.

 

Fraud

 

Any fraudulent activities by intermediaries, employees or other individuals may have an adverse impact on the Group's business.

 

 

 

 

 

G S Marr

Managing Director

 

 

22 February 2012

 

Report of the Chief Distribution Officer 

The growing level of interest in Hansard's products among Independent Financial Advisors and their clients, together with our continued investment in Hansard OnLine and distribution infrastructure, has contributed to an increased flow of new business.  I believe that this is a recognition, in uncertain market conditions, of our ability to develop a proposition that meets the needs of policyholders and intermediaries, and of the efforts of those intermediaries. I would like to record my thanks to all members of the Group's distribution force and to all those IFAs and intermediaries who have introduced business to us.

Through the continued application of our strategy to develop increased flows of more profitable regular premium new business, particularly in the growth markets of the Far East and Latin America, the Group has harnessed momentum leading to increased profitability. This is demonstrated in increased new business margins of 10.4% that are market-leading.

New business levels in H1 2012 have increased by 8.9%, on the Group's internal metric, over H1 2011. We are confident that our strategy to source regular premium new business is appropriate in the prevailing economic conditions, and this is reflected in a growth of 41% in regular premium new business flows.

New business for the six months ended 31 December 2011

New business sales volumes are expressed in terms of the Group's internal metric, Compensation Credit ("CC"), and two bases generally made available to the market, Present Value of New Business Premiums ("PVNBP") and  Annualised Premium Equivalent ("APE").

 

A summary of new business flows on each metric is set out below. Comparisons against the corresponding period are on an actual currency basis. 

 

Six months ended

Year ended


31 December

30 June


2011

2010

Change

2011


£m

£m

%

£m

CC

8.6

7.9

8.9 %

16.5

PVNBP

89.7

114.5

(21.7)%

221.1

APE

13.5

15.0

(10.0)%

30.1

 

 

At first glance, the indicated fall in total new business levels under PVNBP and APE would appear problematic, however we are well aware that one impact of the uncertain market conditions that we continue to experience is to cause deferrals in certain financial planning and, therefore, in single premium business.

To allow better comparison with results published by other companies the following commentary relates to new business flows calculated on the basis of PVNBP.

 

Six months ended

Year ended


31 December

30 June


2011

2010

Change

2011

By type of contract

£m

£m

%

£m

Regular premium

67.6

47.9

41.1 %

112.0

Single premiums

22.1

66.6

(66.8) %

109.1

PVNBP

89.7

114.5

(21.7) %

221.1

 

Six months ended

Year ended


31 December

30 June


2011

2010

Change

2011

By geographical area

£m

£m

%

£m

Far East

35.6

25.0

42.4 %

60.7

Latin America

23.1

24.7

(6.5) %

51.4

EU and EEA

21.0

29.9

(29.8) %

64.0

Rest of World

10.0

34.9

(71.3) %

45.0

PVNBP

89.7

114.5

(21.7) %

221.1

Throughout the period we continued to direct our market development and other resources to attract sources of regular premium new business flows. This is reflected in regular premiums of £67.6m which is 41.1% above the flows of H1 2011 and represents some 75% of total new business premiums (H1 2011: 42%). More particularly, this is reflected in the continuing growth in flows from the Far East and Latin America regions which, at £58.7m, are approximately 18% above the combined total for those regions for H1 2011.

The flow of single premium business in certain parts of the EU and EEA regions remains restrained as a result of volatile market conditions and current regulatory complexity. Single premium flows of £22.1m have fallen by £44.5m from H1 2011, (although the comparative reflects some exceptionally large cases from the Rest of the World regions in Q1 2011. Five contracts accounted for approximately £20m.)

We receive business from a well-diversified network of financial advisors around the world, which results in new business being received in a range of currencies. Approximately 37% (as a percentage of PVNBP) of new business premiums in the period were denominated in US Dollar, 27% in Japanese Yen, 19% in Euro and 13% in Sterling.

New business margins

The Group continues to issue new business on terms that meet target returns and contribute to profit. The new business margin is sensitive to volumes and the product mix: as a result of the substantial value of regular premium business issued, which is more profitable to the Group than single premium business, the overall new business margin for H1 2012 is 10.4% (H1 2011: 7.4%).

Hansard OnLine

The Group continues to invest in Hansard OnLine to allow financial advisors to provide a better service to their clients.

A wide range of financial advisors use online new business functionality that we have developed. Since the launch of the facility in November 2009, some 3,000 regular premium policies have been introduced electronically by financial advisors using the online new business facilities. This allows a significant reduction in paper flows and in turnaround time, and a significant increase in data security and efficiency. These facilities continue to be enhanced and are being extended to allow online delivery of certain types of single premium contracts.

We believe that all aspects of the lifecycle of a Hansard policy should be capable of online transaction (although we conduct rigorous due diligence as required) and we are currently piloting functionality to support OnLine investment transactions.

Market development

We continue to look to position market development resource in our target markets. In the first half of this financial year the Group increased its exposure to the growth markets of South-East Asia and to North Africa.While we continue to develop new business opportunities in Western Europe, we do not believe that we need to increase distribution resource at this time.

Selective recruitment of distribution resourcescontinues, in line with the Group's policy of expanding its reach amongst suitable financial advisorsin the Group's target markets, and we look to extend the management pool.

It is generally accepted that a regular premium-based investment approach is appropriate in uncertain economic conditions. We believe that extending the Group's proposition will allow a continued flow of regular premium business from growth markets, barring dramatic changes in economic circumstances through the remainder of this financial year.

 

 

 

Joseph Kanarek

22 February 2012

 

 

 

 

 

Condensed consolidated financial statements for the half-year ended 31 December 2011

 

(Unaudited)

 

Consolidated Income Statement





Year




Six months ended

ended




31 December

31 December

30 June




2011

2010

2011




Notes

£m

£m

£m








Fees and commissions


5

27.3

27.4

55.6







Investment income



(152.2)

154.0

112.9







Other operating income



0.3

0.2

0.1




(124.6)

181.6

168.6







Investment contract benefits


152.5

(152.2)

(109.2)







Origination costs



(9.8)

(9.0)

(18.2)







Administrative and other expenses

6

(12.9)

(11.8)

(24.5)




129.8

(173.0)

(151.9)






Profit on ordinary activities before taxation


 

5.2

 

8.6

 

16.7

Taxation on profit on ordinary activities

7

-

(0.2)

(0.2)

Profit for the period after taxation


5.2

8.4

16.5

Total comprehensive income


5.2

8.4

16.5

 

 

The Group has no other items of Comprehensive Income and as such has not presented a separate consolidated Statement of Comprehensive Income.

 

Earnings Per Share






Year





Six months ended

Ended





31 December

31 December

30 June





2011

2010

2011




Note

(p)

(p)

(p)








Basic



8

3.8

6.1

12.0








Diluted



8

3.8

6.1

12.0

 

 

 

The notes on pages 26 to 34 form an integral part of these condensed consolidated half-yearly financial statements.

 

 

Consolidated Statement of Changes in Equity





Share

Other

Retained





Capital

reserves

earnings

Total


Note

£m

£m

£m

£m








Shareholders' equity at 30 June 2010



68.6

(48.4)

34.4

54.6








Total comprehensive income



-

-

8.4

8.4








Transactions with owners







Dividends

9

-

-

(10.6)

(10.6)

Shareholders' equity at 31 December 2010

68.6

(48.4)

32.2

52.4

 

 

 

 


Share

Other

Retained




Capital

reserves

earnings

Total


Note

£m

£m

£m

£m







Shareholders' equity at 30 June 2011


68.6

(48.4)

32.4

52.6







Total comprehensive income


-

-

5.2

5.2

Increase in share save reserve


-

0.1

-

0.1

Transactions with owners






Dividends

9

-

-

(11.0)

(11.0)

Shareholders' equity at 31 December 2011

68.6

(48.3)

26.6

46.9

 

 

 

The notes on pages 26 to 34 form an integral part of these condensed consolidated half-yearly financial statements.

 

 

Consolidated Balance Sheet





31 December

31 December

30 June





2011

2010

2011




Notes

£m

£m

£m

Assets





















Plant and equipment




0.8

0.8

0.9








Deferred origination costs




117.1

108.9

113.1








Financial investments







Equity securities




122.4

222.8

164.3

Collective investment schemes




757.1

897.6

868.2

Fixed income securities




21.5

43.4

47.1

Deposits and money market funds




163.8

165.4

162.1





1,064.8

1,329.2

1,241.7








Other receivables




7.9

9.5

12.9








Cash and cash equivalents




53.8

52.4

59.3

Total assets




1,244.4

1,500.8

1,427.9








Liabilities










Financial liabilities under investment





contracts

10

1,049.1

1,303.3

1,229.6

  





Deferred income reserve


127.1

124.9

125.3






Amounts due to investment contract





holders


13.9

14.4

13.9






Other payables


7.4

5.8

6.5

Total liabilities




1,197.5

1,448.4

1,375.3

Net assets




46.9

52.4

52.6















Shareholders' equity







Called up share capital

11

68.6

68.6

68.6

Other reserves




(48.3)

(48.4)

(48.4)

Retained earnings




26.6

32.2

32.4

Total shareholders' equity




46.9

52.4

52.6

 

 

 

The notes on pages 26 to 34 form an integral part of these condensed consolidated half-yearly financial statements.

 

Consolidated Cash Flow Statement










Six months ended

Year ended





31 December

31 December

30 June




2011

2010

2011





£m

£m

£m





Cash flow from operating activities




Profit before tax for the period

5.2

8.6

16.7

Adjustments for:




Depreciation

0.2

0.3

0.5

Dividends receivable

(1.6)

(1.3)

(4.6)

Interest receivable

(0.9)

(1.0)

(1.9)

Foreign exchange loss / (gain)

1.3

(0.6)

1.5





Changes in operating assets and liabilities




Decrease in debtors

5.4

1.4

2.5

Dividends received

1.6

1.3

4.6

Interest received

0.6

0.3

0.5

Increase in deferred origination costs

(4.0)

(3.3)

(7.5)

Increase / (decrease) in deferred income reserve

1.8

(1.0)

(0.6)

Increase in creditors

0.9

2.6

2.7

Decrease / (increase) in financial investments

176.9

(168.7)

(84.3)

(Decrease) / increase in financial liabilities

(180.5)

168.7

92.5

Cash generated by operations

6.9

7.3

22.6

Corporation tax paid

-

-

(0.2)

Net cash generated by operations

6.9

7.3

22.4

Cash flows from investing activities




Purchase of plant and equipment

(0.1)

(0.3)

(0.6)

Proceeds from sale of investments

-

0.1

0.2

Purchase of investments

-

-

(0.1)

Net cash flows from investing activities

(0.1)

(0.2)

(0.5)

Cash flows from financing activities






Dividends paid




(11.0)

(10.6)

(18.5)

Net (decrease) / increase in cash and cash




equivalents

(4.2)

(3.5)

3.4

Cash and cash equivalents at beginning of period

59.3

55.3

55.3

Effect of exchange rate changes


(1.3)

0.6

0.6

Cash and cash equivalents at period end


53.8

52.4

59.3

 

 

 

The notes on pages 26 to 34 form an integral part of these condensed consolidated half-yearly financial statements.

 

 

 

 Notes to the Condensed Consolidated Financial Statements

 

1          General information

The principal activity of the Company is to act as the holding company of the Hansard Group of companies. The activities of the principal operating subsidiaries include the transaction of life assurance business and related activities.

The Company has its primary listing on the London Stock Exchange.

These condensed consolidated half-yearly financial statements were approved for issue on 22 February 2012.

These condensed consolidated half-yearly financial statements do not comprise statutory financial statements and are unaudited. The board of directors approved the statutory financial statements for the year ended 30 June 2011 on 21 September 2011. The report of the auditor on those financial statements was unqualified and did not contain an emphasis of matter paragraph.

2          Basis of presentation

These condensed consolidated half-yearly financial statements for the half-year ended 31 December 2011 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority ("DTR") and with IAS 34 "Interim Financial Reporting" as adopted by the European Union ("EU"). The condensed consolidated half-yearly financial statements should be read in conjunction with the annual financial statements for the year ended 30 June 2011, which were prepared in accordance with International Financial Reporting Standards as adopted by the EU.

Except where otherwise stated, all figures included in the condensed consolidated half-yearly financial statements are stated in pounds sterling, which is also the functional currency of the Company, rounded to the nearest hundred thousand pounds.

3          Accounting policies

The significant accounting policies applied are consistent with those of the annual financial statements for the year ended 30 June 2011 and can be accessed on the Company's website: www.hansard.com.

4          Segmental information

In the opinion of the Group's Executive Committee, deemed to be the Chief Operating Decision Maker (CODM), the Group operates in a single reportable segment, that of the distribution and servicing of long-term investment products through the Group's subsidiaries.

The Group's Executive Committee uses two principal measures when appraising the performance of the business: net issued compensation credit (NICC) and expenses. NICC is a measure of the value of new in-force business and top-ups on existing single premium contracts. NICC is the total amount of basic initial commission payable to intermediaries for business sold in a period and is calculated on each piece of new business. It excludes override commission paid to intermediaries over and above the basic level of commission. The Group maintains a close control over the margins realised on new business, which are consistent across the Group's products and, hence, NICC is a reliable indicator of income.

The following table analyses NICC geographically and reconciles NICC to origination costs during the period:

Six months ended

Year ended


31 December

30 June


2011

2010

2011


£m

£m

£m

Far East

3.7

2.1

5.2

Latin America

2.2

2.5

5.2

EU and EEA

1.2

2.5

3.5

Rest of World

0.9

0.6

1.8

Other commission costs paid to third parties

3.4

2.5

6.3

Enhanced unit allocations

0.9

0.6

1.4

Direct origination costs during the period

12.3

10.8

23.4

Other distribution-related expenditure

1.5

1.5

2.3

Total origination costs incurred in the period

13.8

12.3

25.7

 

 

Revenues and expenses allocated to geographical locations contained in sections 4.1 to 4.4 below reflect the revenues and expenses generated in or incurred by the legal entities in those locations.

            4.1 Geographical analysis of fees and commissions by origin

Six months ended

Year ended


31 December

30 June


2011

2010

2011


£m

£m

£m

Isle of Man

20.9

21.2

42.5

Republic of Ireland

6.4

6.2

13.1


27.3

27.4

55.6

 

 

 

 

 

4.2 Geographical analysis of profit before taxation

Six months ended

Year ended


31 December

30 June


2011

2010

2011


£m

£m

£m

Isle of Man

5.5

7.1

14.1

Republic of Ireland

(0.3)

1.5

2.6


5.2

8.6

16.7

 

 

 

 

 

4.3 Geographical analysis of gross assets

31 December

30 June


2011

2010

2011


£m

£m

£m

Isle of Man

885.4

1,034.3

989.0

Republic of Ireland

359.2

466.5

438.9


1,244.4

1,500.8

1,427.9

 

 

 

4.4 Geographical analysis of gross liabilities

31 December

30 June


2011

2010

2011


£m

£m

£m

Isle of Man

856.3

999.2

956.4

Republic of Ireland

341.2

449.2

418.9


1,197.5

1,448.4

1,375.3

 

 

 

 

 

5          Fees and commissions


Six months ended

Year ended


31 December

30 June


2011

2010

2011


£m

£m

£m

Contract fee income

18.1

18.1

35.5

Fund management charges

7.1

7.2

15.6

Commission receivable

2.1

2.1

4.5


27.3

27.4

55.6

 






6          Administrative and other expenses

Included in Administrative and other expenses are the following:





 

Six months ended

Year ended


31 December

30 June


2011

2010

2011


£m

£m

£m

Auditors' remuneration




 - Fees payable to the Company's auditor for the audit of the Company's annual accounts

-

 

-

0.1

 - Fees payable for the audit of the Company's subsidiaries pursuant to legislation

0.1

 

0.1

0.4

Employee costs

6.1

5.4

10.9

Investment management fees

2.1

2.3

4.8

Professional and other fees

1.3

1.1

2.5

Renewal and other commission

0.5

0.8

1.6

Operating lease rentals

0.4

0.4

0.7

Licences and maintenance fees

0.3

0.3

0.7

Insurance costs

0.4

0.3

0.7

Depreciation of plant and equipment

0.2

0.3

0.5

Communications

0.2

0.2

0.4

Directors' fees

0.1

0.1

0.3

7          Taxation

The Group's profits arising from its Isle of Man-based operations are taxable at zero percent.

Corporation tax for the Republic of Ireland-based operations is based on the effective annual rate for taxable income of 12.5%, applied to the expected taxable profits for the period.

8          Earnings per share

Earnings per share is based upon the profit for the period after taxation divided by the average number of shares in issue throughout the period. There is no significant difference between earnings per share and fully-diluted earnings per share.

 

 


Six months ended

Year ended



31 December

30 June



2011

2010

2011

Profit after tax (£m)


5.2

8.4

16.5

Weighted average number of shares in issue (millions)

137.3

137.3

137.3

Earnings per share in pence

3.8p

6.1p

12.0p





Weighted average number of shares in issue (millions)

137.3

137.3

137.3

Dilution of shares due to share save scheme (millions)

0.1

0.1

0.1

Weighted average number of shares

137.4

137.4

137.4

Diluted earnings per share in pence

3.8p

6.1p

12.0p

 

 

9          Dividends

Six months ended

Year ended


31 December

30 June


2011

2010

2011


           £m

£m

£m

Final dividend of 8.0p per share paid on

18 November 2011

11.0

-

-

Interim dividend of 5.75p per share paid on

31 March 2011

-

-

7.9

Final dividend of 7.7p per share paid on

19 November 2010

 

-

 

10.6

 

10.6


11.0

10.6

18.5

 

The Board have resolved to pay an interim dividend of 5.90p per share. This amounts to £8.1m and will be paid on 29 March 2012 to shareholders on the register at 2 March 2012.

 

10         Financial investments held to cover liabilities under investment contracts

The following investments, other assets and liabilities are held to cover financial liabilities under investment contracts. They are included within the relevant headings on the consolidated balance sheet.

31 December

30 June


2011

2010

2011


£m

£m

£m

Equity securities

122.4

222.8

164.3

Investment in collective investment schemes

757.0

897.5

868.2

Fixed income securities

21.5

43.4

47.1

Deposits

150.1

140.7

148.3

Other receivables

-

1.0

3.9

Total assets

1,051.0

1,305.4

1,231.8

Other payables

(1.9)

(2.1)

(2.2)

Financial investments held to cover liabilities

1,049.1

1,303.3

1,229.6

 

 

11         Called up share capital          


31 December

30 June


2011

2010

2011


£m

£m

£m

Authorised:




200,000,000 ordinary shares of 50p

100

100

100

Issued and fully paid:




137,301,422 ordinary shares of 50p (30 June 2011: 137,291,385 ordinary shares)

68.6

68.6

68.6

 

 

12         Foreign exchange rates

The closing exchange rates used by the Group for the translation of balance sheet items from US$ and € to Sterling were as follows:

 

31 December

30 June


2011

2010

2011

US Dollar

1.55

1.55

1.61

Euro

1.20

1.16

1.11

 

 

13         Related party transactions

Intra-Group transactions are eliminated on consolidation and are not disclosed separately here.

There have been no significant related party transactions in the period nor changes to related parties. Related party transactions affecting the results of previous periods and an understanding of the Group's financial position at previous balance sheet dates are as disclosed in the Annual Report & Accounts for the year ended 30 June 2011.

There have been no significant awards during the period under the Save As You Earn (SAYE) share-save programme for employees, nor the long-term incentive plans in existence at the balance sheet date. The estimated fair value of the schemes and the imputed cost for the period under review is not material to these financial statements.

14         Financial risk management

The Group's operations expose it to a variety of financial risks. The Group's objective in the management of financial risk is to minimise, where practicable, its exposure to such risk, except when necessary to support other objectives. The principal method by which the Group seeks to manage risk is through the operation of unit-linked business, whereby the policyholder bears the financial risk relating to the financial assets and liabilities arising from such contracts.

Under the unit-linked investment contracts that are written by the Group, policyholders bear the investment risk on the assets in the unit-linked funds, as the policy benefits are directly linked to the fair value of the assets. These assets are managed consistent with the expectations of the policyholders. By definition, there is a precise match between the investment assets and the policyholder liabilities, and so the market risk and credit risk lie with policyholders.

The Group's exposure is limited to the extent that certain fees and commission income are based on the value of assets in the unit-linked funds.

Information concerning the operation of the frameworks to manage financial and other risks is contained within the Report & Accounts for the year ended 30 June 2011, and particularly in note 22 thereto, "Financial risk management". There have been no significant changes to the frameworks in the period to 31 December 2011.

 

The more significant financial risks to which the Group is exposed, and an estimate of the potential financial impact of each on the Group's IFRS earnings, are set out below. For each category of risk, the Group determines its risk appetite and sets its investment, treasury and associated policies accordingly.

 

14.1 Market risk

This is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, analysed between price, interest rate and currency risk.

 

(a) Price risk

An overall change in the market value of the unit-linked funds would affect the annual management charges accruing to the Group since these charges, which are typically 1% pa, are based on the market value of assets under administration. Similarly, due to the fact that some of these charges may be deducted from policies in foreign currency, a change in foreign exchange rates relative to Sterling can result in fluctuations in management fee income and expenses reflected in these financial statements. The approximate impact on the Group's profits and equity of a 10% change in unit-linked fund values, either as a result of price or currency fluctuations, is £1.6m (H1 2011: £1.6m) in a financial year.

(b) Interest rate risk

Interest rate risk is the risk that the Group is exposed to lower returns or loss as a direct or indirect result of fluctuations in the value of, or income from, specific assets arising from changes in underlying interest rates.

The Group is primarily exposed to interest rate risk on the balances that it holds with credit institutions and in Money market funds. The Group has mitigated its exposure to cash flow interest rate risk by placing a proportion of its cash holdings on longer-term fixed deposits.

Taking into account the proportion of Group funds held on longer-term, fixed-rate deposits, a change of 1% p.a. in interest rates will result in an increase or decrease of approximately £0.7m (H1 2011: £0.8m) in the Group's equity and annual investment income.

(c) Currency risk

Currency risk is the risk that the Group is exposed to higher or lower returns as a direct or indirect result of fluctuations in the value of, or income from, specific assets and liabilities arising from changes in underlying exchange rates.

 

The sensitivity of the Group to the currency risk inherent in investments held to cover financial liabilities under investment contracts is incorporated within the analysis set out in (a) above.

 

(c) (i) Group foreign currency exposures

The Group is exposed to currency risk on the foreign currency denominated bank balances and other net operating assets that it holds to the extent that they do not match liabilities in those currencies. The Group's currency risk is minimised by frequent repatriation of excess foreign currency funds to sterling. At the balance sheet date the Group had exposures in the following currencies:

 

 

31 December


2011

2011

2010

2010


US$m

€m

US$m

€m

Gross assets

12.8

9.9

11.1

19.9

Matching currency liabilities

(8.9)

(2.6)

(7.7)

(3.6)


3.9

7.3

3.4

16.3

 

 (c) (ii) Financial investments by currency

Certain fees and commissions are earned in currencies other than sterling, based on the value of financial investments held in those currencies from time to time.

At the balance sheet date the analysis of financial investments by currency denomination is as follows:

 

31 December

30 June


2011

2010

2011

Currency

%

%

%

US Dollars

51

46

50

Euro

26

29

28

Sterling

17

15

16

Others

6

10

6


100

100

100

14.2 Credit risk

Credit risk is the risk that the Group is exposed to lower returns or loss if another party fails to perform its financial obligations to the Group.

The Group's main exposure to credit risk is in relation to deposits with credit institutions and investments in highly-rated Money market funds. These investments are made in accordance with established policy regarding minimum credit rating profile.

An analysis of the Group's cash and cash equivalent balances and liquid investments is as follows:

31 December

30 June


2011

2010

2011


£m

£m

£m

Deposits with credit institutions

49.5

63.3

49.8

Money market funds

17.9

13.8

23.3


67.4

77.1

73.1

 

 

 

Maximum counterparty exposure limits are set both at an individual subsidiary company level and on a Group wide basis. There are no significant concentrations of credit risk at the balance sheet date.

14.3 Liquidity risk

Liquidity risk is the risk that the Group, though solvent, does not have sufficient financial resources to enable it to meet its obligations as they fall due, or can only secure them at excessive cost.

The Group's objective is to ensure that it has sufficient liquidity over short- (up to one year) and medium-term time horizons to meet the needs of the business. This includes liquidity to cover, amongst other things, new business costs, planned strategic activities, servicing of equity capital as well as working capital to fund day-to-day cash flow requirements.

 

Liquidity risk is principally managed in the following ways:

•           Assets of a suitable marketability are held to meet policyholder liabilities as they fall due.

•           Forecasts are prepared regularly to predict required liquidity levels over both the short and medium term.

 

The Group's exposure to liquidity risk is considered to be low since it maintains a high level of liquid assets to meet its liabilities.

 

15         Contingent Liabilities

The Group does not give any investment advice and this is left to the policyholder directly or through an agent, advisor or an entity appointed at the policyholder's request or preference. As such policyholders bear the financial risk relating to the investments underpinning their contracts, as the policy benefits are linked to the value of the assets.

 

Notwithstanding the above financial services institutions are increasingly drawn into disputes in cases where the value and performance of assets selected by or on behalf of policyholders fails to meet their expectations. This is particularly true of more complex structured products distributed throughout Europe that have been selected for inclusion in policies. At the balance sheet date a number of those fund structures remain affected by liquidity or other issues that hinder their sales or redemptions on normal terms with a consequent adverse impact on policy transactions.

 

A Group company has received a large number of complaints in relation to assets, from policyholders who claim to have incurred a loss on their policies. The company has been served with a number of writs arising from such complaints and other asset-related issues, and believes that other writs might be served in the next few months. Claims under writs served to date total approximately £7m.

 

The Group intends to defend all claims strenuously. Any court hearings linked to these writs are not anticipated to take place before April 2012.

 

While it is not possible to forecast or determine the final results of pending or threatened legal proceedings, based on the pleadings and advice received from the company's legal representatives, the Directors believe that the Group company will be successful in its defence of these claims. Accordingly no provisions have been made.

 

 

 

Statement of directors' responsibilities

The directors, whose names are reflected on the company's website, www.hansard.com, confirm that, to the best of their knowledge, this condensed set of consolidated half-yearly financial statements has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

 

·      An indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      Material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

 

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

By order of the Board

 

 

 

 

 

 

L S Polonsky

Chairman

 

 

 

 

 

G S Marr

Managing Director

 

22 February 2012

 

 

Independent review report to Hansard Global plc

 

Introduction

We have been engaged by the company to review the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 31 December 2011, which comprises the consolidated income statement, the consolidated statement of changes in equity, the consolidated balance sheet, the consolidated cash flow statement and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed consolidated set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the International Auditing and Assurance Standards Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 31 December 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

 

PricewaterhouseCoopers LLC
Chartered Accountants

Douglas, Isle of Man
                       

22 February 2012

 

 

 

 

 

 

 

Results of operations on the European Embedded Value Basis

for the six months ended

 

31 December 2011

(Unaudited)

 

 

 

 

 

EUROPEAN EMBEDDED VALUE INFORMATION

 

1.            BASIS OF PREPARATION

The results of the Group's operations for the six months ended 31 December 2011 as measured on a European Embedded Value (EEV) basis are set out below. For interim reporting purposes certain disclosures have been reduced from those which would be required under the EEV Principles.

 

The results are measured on a basis determined in accordance with the EEV Principles published by the CFO Forum in May 2004 and extended in October 2005.

 

2.            METHODOLOGY AND ASSUMPTIONS

The methodology used to derive the EEV results at the valuation date is consistent with the EEV methodology used in relation to the consolidated financial statements for the year ended 30 June 2011. Under EEV methodology, profit is recognised as margins are released from policy-related balances over the lifetime of each policy within the Group's in-force covered business. The total profit recognised over the lifetime of a policy under EEV methodology is the same as reported under IFRS, but the timing of recognition is different.

 

The EEV is an estimate of the value of the shareholders' interest in the Group based on the in-force portfolio at the valuation date, 31 December 2011. It excludes the value of any future new business that the Group may write after that date. EEV comprises net worth and the value of future profits ("VIF") from business in-force at the valuation date. Net worth is the market value of shareholder funds, determined on an IFRS basis, adjusted to exclude deferred origination costs and deferred income reserve. VIF is the present value of profits expected to arise from assets backing the liabilities of the covered business, beingthe entire business of the Group, including its life assurance companies and subsidiaries providing administration, distribution and other services. All results are calculated net of corporation tax.

2.1 Operating assumptions

The EEV was calculated using best estimate operating assumptions (e.g. expenses, mortality, lapses, premium persistency, partial withdrawals and policyholder activity) having regard for the Group's own past, current and expected future experience, together with other relevant data. All assumptions are based on the business being part of a going concern.

 

There have been no material changes to assumptions from those used for the year ended 30 June 2011 and set out in detail in the 2011 Report and Accounts.

 

2.2 Economic assumptions

The principal economic assumptions used in the EEV calculations are actively reviewed at each reporting date and are internally consistent. The principal economic assumptions used are set out below.

Rates per annum





31 December

30 June

As at

 2011

2010

2011

Risk discount rate (VIF calculation)

1.8%

2.7%

2.7%

Risk discount rate (NBC calculation)

2.7%

2.5%

2.5%

Future expense inflation

5.0%

5.0%

5.0%

Corporation Tax - Isle of Man

0%

0%

0%

Corporation Tax - Republic of Ireland

12.5%

12.5%

12.5%

 

 

 

3.            EEV PROFIT PERFORMANCE FOR THE PERIOD

The operating profit of the Group measured under EEV, at £10.2m has improved by 5.2% relative to the corresponding period of the previous financial year. Regular premium new business sales volumes have improved from levels in the prior year leading to an increase in new business margin, as can be seen in 3.1.1 below. The current policyholder book continues to generate positive cash flows to fund new business and pay dividends.

3.1 EEV profit

The components of EEV profit after tax are set out in the table below.

Six months ended

Year ended


31 December

30 June


2011

2010

2011


£m

£m

£m

New business contribution

9.3

8.5

18.5

Expected return

2.7

2.3

4.9

Experience variances

(2.4)

(1.3)

(3.0)

Operating assumption changes

(0.2)

(2.7)

(11.3)

Expected return on net worth

0.8

0.8

1.7

Model changes

0.0

2.1

4.1

EEV operating profit after tax

10.2

9.7

14.9

Investment return variances

   (15.0)

17.8

12.0

Economic assumption changes

2.2

(0.5)

1.6

EEV profit after tax

(2.6)

27.0

28.5

3.1.1 New Business Contribution (NBC)

New Business Contribution represents the value of new business written in the period. It is calculated at point of sale, including any acquisition expense overrun, and is net of corporation tax. NBC for the period was £9.3m (H1 2011: £8.5m).

The new business margin for the period, being the contribution from new business expressed as a percentage of PVNBP, has increased to 10.4% (H1 2011: 7.4%). This is primarily as a result of increased volumes and action taken by the Group to increase the proportion of sales attributable to regular premium products, which typically have a higher margin than single premium products.

3.1.2 Expected cash flow generated

The table below provides valuable insight into cashflows generated by the business relating to both new and existing business.

The expected return of £2.7m (H1 2011: £2.3m) represents, in large part, the Group's view of the factors impacting upon VIF over the period and on new business between the point of sale and the end of the period due to the time value of money. It is based on the 2.7% assumption for the risk discount rate at the previous financial year-end, (H1 2011: 2.5%).

H1 2012

H1 2011

EEV

£m

Net Worth

£m

VIF

£m

EEV

£m

Net Worth

£m

VIF

£m

Cash flows  generated by existing business

0.0

21.2

(21.2)

0.0

19.0

(19.0)

New business strain     

0.0

(13.7)

13.7

0.0

(11.6)

11.6

Time value of existing business

2.7

0.2

2.5

2.3

0.1

2.2

Time value of new business

0.1

(0.1)

0.2

0.1

(0.1)

0.2

Time value of non-market risk

(0.1)

0.0

(0.1)

(0.1)

0.0

(0.1)


2.7

7.6

(4.9)

7.4

(5.1)

3.1.3 Experience variances

Experience variances arise where the Group's actual experience during the period in areas such as expenses, policy persistency, premium persistency, mortality and fees from policyholder activity differ from the assumptions used to calculate the EEV at the previous year-end.

The most significant variances for the period were due to expenses being higher than expected and more customers than expected reducing premiums, or making their policies paid up, rather than lapsing their policies.

Experience variances are summarised in the following table.

 

Six months ended

Year ended


31 December

30 June


2011

2010

2011


£m

£m

£m

Premium changes

(0.4)

(0.4)

(0.3)

Expenses

(0.9)

(0.5)

(1.6)

Paid-up policies

(1.0)

(0.0)

(0.0)

Other

(0.1)

(0.4)

(1.1)

Experience variances

(2.4)

(1.3)

(3.0)

3.1.4 Operating assumption changes

No material changes were made to the EEV operating assumptions over the period.

Six months ended

Year ended


31 December

30 June


2011

2010

2011


£m

£m

£m

Expenses

(0.2)

(1.9)

(10.9)

Mortality

(0.0)

(0.3)

(0.3)

Other

(0.0)

(0.5)

(0.1)


(0.2)

(2.7)

(11.3)

3.1.5 Expected return on net worth

The expected return on net worth of £0.8m (H1 2011: £0.8m) reflects the anticipated increase to shareholder assets over the period due to the time value of money and its calculation is based on the 2.7% risk discount rate at the previous financial year-end (2011: 2.5%).

3.1.6 Model changes 

There were no material changes to the Model over the period.

3.1.7 Investment return variances

The impact of market and other external conditions gave rise to EEV investment return losses of £15.0m in the period (H1 2011: £17.8m profit).

 

 

The main elements contributing to these results are as follows:

Six months ended

Year ended


31 December

30 June


2011

2010

2011


£m

£m

£m

Investment performance of policyholder funds

(15.1)

16.1

11.5

Exchange rate movements

0.6

1.3

0.2

Treasury Margins

(0.1)

0.1

0.2

Commissions receivable

 0.0

 0.1

0.0

Other

(0.4)

0.2

0.1


(15.0)

17.8

12.0

3.1.8 Economic assumption changes

Economic assumption changes resulted in an EEV profit of £2.2m (H1 2011: £0.5m loss). Lower interest rates have led to a reduction in the investment growth assumption rate and the risk discount rate.

3.2 Analysis of EEV profit

The table below shows an analysis of EEV profit after tax split between net worth and the value of in-force covered business (VIF). Movements during the period due to non-market risk and frictional costs are immaterial.

 

This analysis, when combined with the reconciliation of net worth in section 5 below, provides a reconciliation of EEV profit and IFRS profit. While the total profit recognised over the lifetime of a policy under EEV methodology is the same as reported under IFRS, the timing of recognition is different.

 

Six months ended 31 December 2011

Movement in

Six months ended 31 December 2010

Movement in

EEV

Net Worth

VIF

EEV

Net Worth

VIF

£m

£m

£m

£m

£m

£m

New business contribution

9.3

0.0

9.3

8.5

0.0

8.5

Expected return

2.7

7.7

(5.0)

2.3

7.4

(5.1)

Experience variances

(2.4)

(2.7)

0.3

(1.3)

(3.7)

2.4

Operating assumption changes

(0.2)

0.0

(0.2)

(2.7)

0.0

(2.7)

Expected return on net worth

0.8

0.8

0.0

0.8

0.8

0.0

Model changes

0.0

0.0

0.0

2.1

0.0

2.1

EEV Operating profit after tax

10.2

5.8

4.4

9.7

4.5

5.2

Investment return variances

(15.0)

(1.9)

(13.1)

17.8

0.6

17.2

Economic assumption changes

2.2

0.0

2.2

(0.5)

0.0

(0.5)

EEV profit after tax

(2.6)

3.9

(6.5)

27.0

5.1

21.9

 

4.            EMBEDDED VALUE AT 31 DECEMBER 2011

4.1 EEV balance sheet

 

The EEV balance sheet is presented below.

As at

31 December

30 June


2011

2010

2011


£m

£m

£m

Free surplus

37.5

45.2

44.5

Required capital

15.3

17.3

15.3

Net worth

52.8

62.5

59.8

VIF

197.4

207.6

203.9

Reduction for non-market risk

(5.9)

(5.8)

(5.8)

Frictional costs

(0.9)

(0.9)

(0.9)

Value of future profits

190.6

200.9

197.2

EEV

243.4

263.4

257.0

EEV net worth at 31 December 2011 is after the payment of £11m in dividends to shareholders in November 2011.

4.2 Reconciliation of EEV

The following table provides a reconciliation of the opening and closing EEV for each of the principal components.

H1 2012

H1 2011

EEV

Net Worth

VIF

EEV

Net Worth

VIF

£m

£m

£m

£m

£m

£m

Opening EEV

257.0

59.8

197.2

247.0

68.0

179.0

EEV Profit after Tax

(2.6)

4.0

(6.6)

27.0

5.1

21.9

Dividends paid

(11.0)

(11.0)

0.0

(10.6)

(10.6)

0.0

Closing EEV

243.4

52.8

190.6

263.4

62.5

200.9

5.            RECONCILIATION OF NET WORTH

The following table provides a link between the EEV net worth and consolidated shareholders' equity presented under IFRS.

EEV net worth is the market value of the shareholders' funds, determined on an IFRS basis, adjusted to exclude certain items which affect the timing of IFRS profit but do not have any economic value at the valuation date. These items are typically assets such as the deferred origination costs and other debtor assets recognised in the VIF, and certain liabilities such as the deferred income reserve.

31 December

30 June


2011

2010

2011


£m

£m

£m

Consolidated shareholders' equity

46.9

52.4

52.6

Adjusted for:




IFRS deferred origination costs

(117.1)

(108.9)

(113.1)

IFRS deferred income reserve

127.1

124.9

125.3

IFRS debtor recognised in VIF

(4.1)

(5.9)

(5.0)

EEV net worth

52.8

62.5

59.8

6.         NEW BUSINESS PROFITABILITY

The Group continues to write profitable new business. The following metrics illustrate an indication of the profitability of the new business written in the period.

6.1 New business margin

New business margin is defined as New Business Contribution (NBC) divided by Present Value of New Business Premiums (PVNBP).

The new business margin for the half-year is 10.4%, an increase from 7.4% for the half-year ended 31 December 2010. This is primarily as a result of increased volumes of RP new business, which typically have a higher margin than single premium products.




Year


Six months ended

ended


31 December

30 June


2011

2010

2011

New business - PVNBP

£89.7m

£114.5m

£221.1m

New business contribution (net of corporation tax)

£9.3m

£8.5m

£18.5m

New business margin after tax

10.4 %

7.4 %

8.3 %

 

NBC and PVNBP have been calculated using the same economic assumptions as those used to determine the EEV as at the start of the year and the same operating assumptions used to determine the EEV as at the Valuation date. No credit is taken in the calculation of NBC for returns in excess of risk-free returns. NBC is shown after allowing for the cost of required capital, calculated on the same basis as for in-force business.

6.2 Internal Rate of Return (IRR)

New business requires initial capital investment to cover set-up costs, commission payments, statutory reserves and solvency capital requirements. IRR is a measure of the post-tax shareholder return on this initial capital invested. It is defined as the discount rate at which the present value of expected cash flows over the life of the new business written in the period is equal to the total capital invested to support the writing of that business.

The average IRR on new business written during the period continues to be in excess of 15% per annum.

6.3 Breakeven point (BEP)

BEP indicates how quickly shareholders can expect new business to repay its capital support. In effect, it is defined as the point at which initial capital invested to support the writing of new business in the year (including its share of overhead expenses) is recouped from revenue from that same business. BEP is calculated ignoring the time-value of money.

The breakeven point for new business written during the period was within 3 years.

6.4 Profit emergence

As at 31 December 2011, the expected value of future profits is £190.6m. Over a quarter of these profits are expected to convert into net worth within 2 years, half within 5 years and three quarters within 9 years. Relative to most life insurance companies, this illustrates a fast conversion of future cash flows to net worth, as required by the Group's pricing methodology.



7.            EEV SENSITIVITY ANALYSIS

Sensitivities provide an indication of the impact of changes in particular assumptions on the EEV at 31 December 2011 and the NBC for the period. The sensitivity analysis indicates that the Group's exposure to operating factors is limited largely as a result of product design, with expenses being the main operating exposure. The Group is primarily exposed to economic factors. In particular, as a result of the diversified portfolio of assets under administration, it is exposed to movements in exchange rates and asset values, through the impact on the level of expected future fund-based management income.

 

Impact on:




EEV

NBC





£m

£m

Central assumptions




243.4

9.3







Operating sensitivities






10% increase in maintenance expenses




(7.7)

(0.6)

100bp increase in expense inflation




(6.6)

(0.7)

100bp decrease in charge inflation




(4.3)

(0.5)

100bp increase in expense & charge inflation




(0.8)

(0.1)

10% increase in lapse rates




(2.7)

(0.2)

10% increase in paid-up rates




(1.4)

(0.3)

10% increase in mortality rates




(0.3)

0.0

10% increase in partial withdrawals




(1.9)

(0.1)

10% increase in premium reductions




(0.7)

(0.2)

10% increase in premium holidays




(0.5)

(0.0)

10% corporation tax in Isle of Man (currently zero)




(19.8)

(1.0)







Economic sensitivities






100bp increase in risk discount rate




(9.8)

(1.0)

100bp decrease in investment return rate




(7.4)

(0.5)

100bp increase in risk discount rate & investment return rate




(2.6)

(0.6)

10% decrease in the value of equities and property




(8.8)

0.0

10% increase in sterling exchange rates




(17.8)

(1.6)

10% decrease in commissions receivable




(3.2)

(0.2)

Reduce required capital to minimum requirement




0.0

0.0

 

 

In each sensitivity calculation, all other assumptions remain unchanged, except where indicated. There is a natural correlation between many of the sensitivity scenarios tested, so the impact of two occurring together is likely to be different from the sum of the individual sensitivities. No changes to statutory valuation bases, pricing bases and required capital have been included. No future management action has been modelled in reaction to the changing assumptions. For new business, the sensitivities reflect the impact of a change from inception of the policy.

 

 

REPORT OF THE REVIEWING ACTUARIES

 

Review of the European Embedded Value ("EEV") of Hansard Global plc for the six months ended 31 December 2011.

 

Our role

Deloitte MCS Limited has been engaged by Hansard Global plc ("the Group") to act as Reviewing Actuaries in connection with results on an EEV basis published in sections within Hansard Global plc's Results for the six months ended 31 December 2011.

 

Responsibilities

The EEV Information (and the methodology and assumptions underlying it) is the sole responsibility of the Directors of Hansard Global plc.  It has been prepared by and the calculations underlying the EEV information have been performed by Hansard Global plc.

 

Our review was conducted in accordance with generally accepted actuarial practices and processes.  It comprised a combination of such reasonableness checks, analytical reviews and checks of clerical accuracy as we considered necessary to provide reasonable assurance that the EEV Information has been compiled free of material error. The review of the Interim Results is substantially less detailed than for the full year.

 

The EEV Information necessarily makes numerous assumptions with respect to economic conditions, operating conditions, taxes, and other matters, many of which are beyond the Group's control.  Although the assumptions used represent estimates which the Directors believe are together reasonable, actual experience in future may vary from that assumed in the preparation of the EEV Information, and any such variations may be material.  Deviations from assumed experience are normal, and are to be expected. 

 

The EEV does not purport to be a market valuation of the Group and should not be interpreted in that manner since it does not encompass all of the many factors that may bear upon a market value.  For example, it makes no allowance for the value of future new business.

 

Opinion

On the basis of our limited review, nothing has come to our attention that causes us to retract our opinion that:

·      the methodology and assumptions used to prepare the EEV Information comply in all material respects with the European Embedded Values Principles set out by the CFO Forum in May 2004, and additional guidance released in October 2005 (the "CFO Forum Principles"); and

·      the EEV Information has been compiled on the basis of the methodology and assumptions, and complies in all material respects with the CFO Forum Principles.

 

Reliances and Limitations

We have relied on data and information, including the value of net assets, management accounting data and solvency information supplied to us by the Group. Further, we have relied on the terms of the contracts, as they have been reported to us, being enforceable.

 

We have relied on the reported mathematical reserves, the adequacy of those reserves, and on the methods and assumptions used to determine them.  We have assumed that all provisions made in the financial statements for any other liabilities (whether actual, contingent or potential) of whatever nature, are appropriate.

 

We have relied on information relating to the current and historical operating experience of the Group's life insurance business, including the results of experience investigations relating to policy persistency, and expense analysis.  In forming our opinion, we have considered the assumptions used in the EEV Information in the context of the reported results of those investigations although we have not attempted to predict the impact of potential future changes in competitive forces on the assumptions.

 

 

Yours faithfully

 

 

 

Deloitte MCS Limited

22 February 2012

 

Deloitte MCS Limited.  Registered in England & Wales with registered number 3311052.  Registered office: Hill House, 1 Little New Street, London EC4A 3TR, United Kingdom.

Deloitte MCS Limited is a subsidiary of Deloitte LLP, which is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited ("DTTL"), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

Member of Deloitte Touche Tohmatsu Limited

Contacts and Advisors

 

Registered Office

   Harbour Court

   Lord Street

   Box 192

   Douglas

   Isle of Man

   IM99 1QL

   Tel: +44 (0)1624 688000

   Fax: +44 (0)1624 688008

   www.hansard.com

Media Enquiries

Pelham Bell Pottinger
6th Floor, Holborn Gate

330 High Holborn

London

WC1V 7QD
Tel: +44 (0)20 7861 3232
Fax: +44 (0)20 7861 3233
 

   Chairman & Chief Executive

   Dr L S Polonsky

   Dr.polonsky@hansard.com

Broker

Panmure Gordon (UK) Limited

Moorgate Hall
155 Moorgate
London
EC2M 6XB

Tel. +44 (0)20 7459 3600

Fax. +44 (0)20 7459 3609

  Financial Advisor

  Lazard & Co. Limited

  50 Stratton Street

  London

  W1J 8LL

 

 Tel. +44 (0)20 7187 2000

Broker

Macquarie Capital (Europe) Limited

 

28 Ropemaker Street

London

EC2Y 9HD

Tel: +44 (0)20 3037 2000

Fax: +44 (0)20 3037 1371

   Auditor

   PricewaterhouseCoopers LLC

   Sixty Circular Road

   Douglas

   Isle of Man

   IM1 1SA

 

   Tel: +44 (0)1624 689689

   Fax: +44 (0)1624 689690

Registrar

Chamberlain Fund Services Limited

3rd Floor Exchange House

54-62 Athol Street

Douglas

Isle of Man

IM1 1JD

Tel:  + 44 (0)1624 641560

Fax:  +44 (0)1624 641561

   Reviewing Actuaries

   Deloitte MCS Limited

   Hill House

   1 Little New Street

   London

   EC4A 3TR

 

   Tel: +44 (0)20 7936 3000
   Fax: +44 (0)20 7583 1198

UK Transfer Agent

Capita IRG Limited

The Registry

34 Beckenham Road

Beckenham

Kent

BR3 4TU

Tel (UK): 0871 6640300*

Tel: +44 (0)20 8639 3399
Fax: +44 (0)20 8639 2279


* Nb: 0871 Number - calls cost 10p per minute plus network extras.

Financial Calendar


   Ex-dividend date for interim dividend

   Record date for interim dividend

   Payment date for interim dividend

Interim Management Statement

   Announcement of 4th quarter new business

   results

   Announcement of full year results

29 February 2012

2 March 2012

29 March 2012

8 May 2012

31 July 2012

 

27 September 2012

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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