Charles Taylor Regulatory News (CTR)

7 Apr 2008 07:01

Charles Taylor Consulting PLC07 April 2008 PRESS RELEASE Contacts: Rupert Robson, Chairman 020 7759 4935 John Rowe, Group Chief Executive Officer 020 7759 4900 Damian Ely, Group Chief Operating Officer 020 7759 4960 George Fitzsimons, Group Finance Director 020 7759 6355 Charles Taylor Consulting plc Announcement of results for year ended 31 December 2007 Consolidated Financial Highlights For the year ended 31 December 2007 Note 2007 2006Revenue £81.5m £79.1mProfit before tax - adjusted 1 £13.6m £13.4mProfit after tax - adjusted 1 £12.9m £12.4mEarnings per share - adjusted 1 31.8p 31.3pEarnings per share - basic 18.5p 28.1pDividend per share - interim 4.80p 4.36p - final 2 8.40p 7.64p ------- ------- 13.20p 12.00p Note: 1. Statutory profit before tax of £8.3m (2006 - £12.2m) and profit after taxof £7.6m (2006 - £11.1m) have been adjusted by £5.3m in total (2006 - £1.2m) inthese financial highlights. This relates to a goodwill charge of £5.0m (2006 -£1.1m) arising under IFRS from the recognition of a deferred tax asset inrespect of tax losses acquired with an insurance company subsidiary and a £0.3m(2006 - £0.1m) charge for amortisation of acquired customer relationshipintangibles. 2. The final dividend is payable on 26 May 2008 to Shareholders on theregister on 18 April 2008. Business Highlights • Revenue up 5% and adjusted profit before tax up 6% (at constant 2006 exchange rates) • Progressive dividend policy maintained, 10% increase • Re-organisation of board and new chairman • Major mutuals achieved record tonnage and payrolls • Strategic review of discretionary mutuals • Significant progress in UK public sector mutuals • Consolidation of adjusting under "Charles Taylor adjusting" brand • Expansion through Allegro acquisition in Bermuda • Better result from insurance company run-off Chairman's Statement This is my first statement as Chairman of Charles Taylor Consulting (CTC) and Iam pleased to report that your company continued to prosper during 2007. Thefact that Charles Taylor Consulting is able to report an increase, albeit small,in earnings speaks to the resilience of the company's underlying business model. The board remains confident about the company's prospects and ability togenerate cash in 2008. I should emphasise that my focus and that of the boardwill remain on increasing shareholder value. 2007 In 2007 revenue rose 3% to £81.5m (2006 - £79.1m) with revenues from theAdjusting division rising satisfactorily whilst revenue from our Management andRun-off divisions was broadly flat. Profit before tax and earnings per share, both on an adjusted basis, rose by 1%to £13.6m (2006 £13.4m) and 31.8p (2006 31.3p), respectively. On a positive note, our two main client mutuals, Standard and Signal, continueto achieve record tonnage and payroll levels respectively and prospects for bothcontinue to be promising. The adjusting business produced particularly goodresults in its Energy, Marine and Non-marine sectors. As satisfactory was thestronger performance from our insurance company operations than in 2006. A combination of factors, however, held back overall performance. The first ofthese was the weakness of the US$ against sterling together with other currencymovements, which cost us £0.6m in profit before tax in the year and £1.7m inrevenue. The second was the fact that, within the Management division, theNon-marine discretionary mutual business failed to produce a satisfactoryresult. The third factor was a very low level of acquisitions in the insurancecompany run-off market, which affected the growth of the Run-off division andalso had an impact on our investment management business. The company continues to generate strong cash flows and during the period netdebt reduced by a further £5m to £31m despite the financing of one newacquisition. Shareholder equity increased further by £10m in the yearprincipally as a result of the profit for the year but also as a result of areduced pensions deficit arising from both a higher discount rate applied toscheme liabilities and strong investment returns. Development of the Business Management division Public sector mutuals The UK government Gershon Initiative was designed to promote cost savingsthrough the encouragement of shared procurement in public sector bodies. Thisled directly to our first venture into the UK public sector, the creation of theLondon Authorities Mutual. I am pleased to be able to report that from 1 Aprilmembership stands at seven London Authorities. We expect this mutual to addfurther members during the year and that the fully capitalised insurance modelthis represents will be replicated by other public sector bodies seeking toachieve cost efficiencies through combining their insurances within a mutualinsurance company. Your company is well placed to win new management contractsin this very promising, if complex, new area of business. Discretionary mutuals We have reviewed the mutual businesses within the Management division andconcluded that in future the concentration should be on managing and creatingfully capitalised and regulated mutual insurance associations. Their superiorrobustness and longevity make them a much more attractive proposition than thosebased on the discretionary mutual model, which often tends to beunder-capitalised and less able to sustain acceptable levels of managementoverhead. Our involvement with discretionary mutuals will be minimised. Adjusting division The completion of the consolidation of all our global adjusting operations intoone operating entity took place during 2007 under the brand of "Charles Tayloradjusting". I expect that the consolidation of all our London based adjustersinto one office by the middle of May should have a number of beneficial effectsfor this division. Run-off division We continue to believe that the Isle of Man remains an attractive location inwhich to base our life insurance consolidation operations. These had anothergood year and we continue to examine prospective expansion opportunities.Although not part of the division for reporting purposes the acquisition ofAllegro has strengthened our presence in the important Bermuda insurance marketand this is already bearing fruit. Strategic Development In his statement last year, John Rowe referred to the fact that CTC now covers awide range of insurance activities. As managers of a range of mutual insurancecompanies, we are deeply involved in all aspects of the running of insurers:marketing, operating, financial and regulatory. Additionally, we manage theinvestment portfolios of these mutuals, which have risen to US$ 1.3billionduring the year. Our adjusting business, which is global in its scope, goes bydefinition to the heart of the insurance process. Finally, the run-off businessgives us insight into ways in which to minimise operating cost and maximise theefficiency of insurance businesses. This range of skills is of course dependent upon our people. CTC has asubstantial pool of highly talented and knowledgeable insurance professionalsoperating around the world. The recruitment, retention and motivation of ourpeople are fundamental to CTC's success as a client-focused organisation and Iwould like to thank all those whose hard work during the year has contributed tothis set of results. Their intelligent and creative deployment is the criticalfactor that will enable us to grow in 2008 and beyond. In this regard, growth has clearly been identified by the board as the keypriority for CTC. In the Management division, the group has a long tradition ofachieving growth by the founding and development of new insurance businesses, ofwhich it has created 10 since 1970, the largest of which has annual premiums ofover $200m. Thus, organic growth across the company plays a central role in thethinking of management and the board. Similarly, CTC has proved its ability to grow by way of acquisition. TheAdjusting division is today a world leader in adjusting large and complexlosses. CTC built this business through nine acquisitions between 1996 and2006. With the wide range of insurance skills that we have within CTC, wecontinue to be active in reviewing acquisition opportunities in the insurancesector. In that regard, we would hope that the current weakness in valuations ofmost financial stocks might assist our endeavours. One area of insurance where valuations remained high throughout 2007 wasrun-off. Substantial amounts of capital have been allocated to this part of theinsurance sector by a large number of insurance companies and special-purposeentities. At the same time, there were fewer vendors of closed insurancebusinesses during the year. Consequently, prices of run-off acquisitionscontinued to rise. Mindful of this, during the year CTC made no acquisitions inthe Run-off division. This was disappointing since the division is in a strongposition to absorb such deals, which would have a fairly immediate impact oncompany profits. Nonetheless, we remain watchful and I am confident that we arewell positioned to move quickly to execute the right deal. Corporate Governance We have decided that a smaller board is better suited to CTC's current stage ofdevelopment and its aspiration to grow in scale and breadth. To that end, fourexecutive directors have recently offered to step down from the board andStephen Matthews, Raymond Wong, John McKay and Andrew Brannon have thereforerelinquished their positions on the plc board with effect from 4 April, reducingthe number of executive directors to five. I thank all of them for theirconsiderable contribution to the board's deliberations over the years. I fullyexpect that they will continue to play vital parts in the development of CTC asthey will all continue with group operational responsibilities. Richard Titley and John Howes, who have been on the board for eight and sixyears respectively, are to retire from the board though they have kindly agreedto stay on until two new non-executive directors are found. Their wise counselduring their period in office, much of which was marked by considerable change,has been highly valued. We are very grateful to them. Shareholder Return and Dividends CTC will continue to strive to maximise total returns to shareholders over thelong term. The share price fell by 14% during 2007, broadly tracking the SmallCap index. This is clearly disappointing both to CTC's shareholders and to themanagement and staff many of whom are participants in the company's shareschemes, and it is of little comfort that most companies quoted on the LondonStock Exchange, particularly those in the financial sector, are experiencingsimilarly difficult stock market conditions. The fact that CTC is able to reportan increase, albeit small, in earnings speaks to the strength of the company'sunderlying business. We continue to be confident about the company's prospects and ability togenerate cash. The board wishes to maintain a progressive dividend policywhilst ensuring a satisfactory level of dividend cover. To that end, it isproposed to raise the final dividend for the year by 10% to 8.40p (2006 -7.64p). Thus, for the full year, CTC's dividend will total 13.20p (2006 -12.00p), an increase of 10% over 2006; on this basis, dividend cover will be 2.4times (2006: 2.6). Subject to approval by shareholders at the AGM, the finaldividend will be paid to those shareholders on the register at the close ofbusiness on 18 April 2008. Current Trading and Outlook Trading since the year-end has been in line with management's expectations. Weremain confident that through a combination of organic growth, new acquisitionsand new initiatives CTC will continue to prosper and grow during 2008. Rupert Robson Chairman 4 April 2008 Business Review Description of the Business Summary CTC provides management and insurance-related services to both buyers ofinsurance and insurance companies. Given that the group's business is almostentirely related to insurance, the group's activities are subject to theinsurance cycle, albeit in different ways, which are explained below followingthe description of the business of each division. Management Division Management and Creation of Mutuals: This is the largest activity of the Management division and involves theprovision of all the day-to-day services needed to run mutual insuranceassociations. Mutuals are generally created by companies or organisations which operate in thesame fields as each other, or similar fields and which accordingly have similarliability exposures. Rather than insure with a commercial profit-making insurer,members of mutual insurance associations collectively self-insure. A mutualinsurance association is owned by its members who also provide the capital, incontrast to the normal relationship between a commercial insurer and a policyholder. Investment Management: Investment management is provided to both client mutuals and group ownedinsurance companies. Captive and Risk Management: These activities include the management of captive insurance companies,principally but not exclusively in Bermuda, and the provision of risk managementand other advice to corporate buyers of insurance on the structure andappropriateness of their insurance arrangements. As far as the insurance cycle is concerned, when insurance is more expensive(hard market), the balance shifts in favour of mutuals, where the aim is toprovide insurance at cost and where there is the ability to absorb high levelsof aggregate risk between the members. By contrast the availability of cheaperinsurance (soft market) may lead to increased competitive pressures and aclimate where the alternative risk transfer mechanisms, such as mutuals, becomeless attractive. In most circumstances, however, once companies have joined amutual, through which they collectively control their own insurance affairs,they tend to remain members irrespective of any shift in the insurance cycle. Adjusting Division This division provides loss adjusting capabilities to the world's insurancemarkets and Average Adjusting to shipowners. The adjusting activities on behalfof insurers, which also include surveying and risk assessment, are concentratedin four principal areas: • Aviation• Energy• Marine• Non-marine (property & casualty) For management and reporting purposes, Average Adjusting is included within themarine business. In respect of the insurance cycle, a softening market tends to result in cheaperinsurance and lower deductibles, something which exposes insurers to the greaterprobability of claims and thus increases the opportunities for the Adjustingdivision. As the market hardens, more expensive insurance and higher deductiblestend to reduce claims but as already indicated these are the conditions thatfavour the creation and expansion of Mutual insurance schemes and captives. Run-off Division The Run-off division is involved with both the orderly management of insuranceand life assurance companies which have ceased underwriting and claims arisingon discontinued books of insurance business. This activity may involveacquisitions in either case. As the insurance cycle moves towards harder insurance markets it tends to createfavourable conditions for the Run-off division, as insurers decide to reallocatecapital or dispose of non-core or unprofitable books of business. Once secured,contracts for managing the run-off of claims typically last for several yearswhatever the cyclical conditions. Business Performance Management Division The group manages two types of mutuals. The majority are authorised insurancecompanies but some others are discretionary mutuals which do not provideinsurance but instead protection to their members at the discretion of therelevant board of directors. During the year the company reviewed itsinvolvement in discretionary mutuals and concluded that this should besubstantially reduced. The profitability of the division is expected to improveas a result. Capitalised Mutuals Shipping Mutuals In spite of the increase in rates at the February 2008 renewal, the Club'stonnage increased to the highest level in its history. There was good growth inthe Asian subsidiary, Standard Asia and in the offshore energy portfolio. Freereserves have also been increased again to a new record high level. Workers' Compensation Mutuals Signal, which covers US maritime employers' liabilities to their employees inrelation to workplace injuries, saw payrolls rise again during the year to newrecord levels. Although the slowing US economy reduced the growth in thestevedore sector, this was offset by the shipyard and offshore sectors.Continued improvements in claims performance led to a small reduction overall inmember rates at the October 2007 renewal. Towards the end of the year twosignificant West Coast stevedore operations joined Signal. SCALA, the mutual that covers the workers' compensation liabilities of themajority of Canadian ship-owners, again performed well. A new IT system wasdeveloped by the group for SCALA which went live soon after the year end. Public Sector Mutuals Significant progress continues to be made in the UK public sector. The LondonAuthorities Mutual Limited increased its membership to seven on 1 April and afurther two members will join in early summer taking the membership to over aquarter of the London Authorities. The Fire and Rescue Authorities MutualLimited increased its membership to nine on 1 April, around 20% of eligibleEnglish and Welsh Fire Authorities. The development of the Council Alternative Risk Mutual Limited (CARML), a mutualfor UK Unitary Authorities, is being led by a Steering Committee of nine UnitaryAuthorities. This is expected to commence operations in early 2009. Discretionary Mutuals The group discontinued its involvement during the year with the NFRN andMarathon mutuals and its involvement with its remaining discretionary mutualshas been reduced further after the year end. Investment Management The group's investment management business produced another good performance forits client mutuals. Funds under management rose by 11% to over US$1.33bn,following a 9% increase in 2006. However, the overall results of the investmentmanagement business was impacted by the lack of new acquisitions being made bythe run-off division. Captive Management The group's existing captive business was combined with the Allegro businessacquired in July to form CTC Allegro. This business performed well and isexpected to make further progress in the coming year. Risk Management The US risk management business continued to expand its business and range ofclients. Adjusting Division Revenues increased in 2007, despite there being relatively few major losses. Thesoft insurance market together with the high levels of energy explorationactivity and continued growth in both Asian aviation and global shipping werepositive factors for the business. However, the weakness of the dollar andperformance of aviation, particularly in US light aviation, had a negativeimpact on the result for the year. Aviation: 24% of Adjusting Revenue (2006 - 25%) Aviation revenues grew more slowly than in 2006, with the US general lightaviation adjusting business seeing less activity. The Miami office however,which handles Latin American losses, continued to make good progress. The Asianbusiness also continued to develop with a further strengthening of the liabilityteam taking place. Energy: 42% of Adjusting Revenue (2006 - 41%) The energy business increased revenues particularly in the UK. The US andAustralian businesses also had a good year and the Mexican operation wasinstructed on significant rig damage and environmental clean-up losses. Marine: 22% of Adjusting Revenue (2006 - 23%) Overall the marine business performed well during 2007 and in particular thiswas due to the results achieved in Shanghai, Taiwan, Jakarta, Tokyo and HongKong. Non-marine: 12% of Adjusting Revenue (2006 - 11%) Non-marine produced a good result, particularly in London, the largest office,as well as in Miami. Expansion in the Arabian peninsular continued with anoffice being opened in Qatar. Run-off Division For the Run-off business, a market background of insurance companies reportingstrong profits and new entrants to the run-off sector led to a drop in thenumber of run-off opportunities in the market and an increase in the pricedemanded by sellers. As a result, a very low level of acquisitions across therun-off market were completed during the year. Run-off Services Non-Life Business On the non-life business, LCL considered a significant number of potentialacquisitions during the year, none of which have been completed to date, asituation which reflects the general market background. The division intends topursue opportunities aggressively where a deal satisfactory to all parties canbe achieved. LCL also provided run-off consultancy advice to a major reinsurerduring the year. Life Business The group is the largest provider of run-off services to the life insurancesector on the Isle of Man. During the year, LCL Services (IOM) Limited wasawarded the management contract for a new life reinsurer being established onthe island. Insurance Companies Property & Casualty Business Bestpark International Limited had a better year than in 2006. Although thebusiness incurred a small underwriting loss in the year and investment incomewas lower than in 2006 (as assets have been reduced in order to pay claims),there were favourable premium adjustments and expenses were significantly lowerthan in 2006. Associated International Insurance (Bermuda) Limited paid a dividend of £1.1mduring the year, representing a return of surplus capital. This business made asmaller contribution to group results than in 2006 as large commutationsachieved in that year have not been repeated. Life Business LCL International Life Assurance Company Limited, a closed book consolidator ofinternational life assurance portfolios, did not acquire any further blocks ofbusiness during 2007 but did produce dividends for the group of £5.5m, a 14%increase on 2006. The life insurance result for 2007 was £0.7m less than 2006 not only as anatural result of policies running off, but also because the prior yearbenefited from the consolidation of several closed books into LCL InternationalLife Assurance. The result was none the less better than expected, mainly as aresult of positive investment experience and its impact on management fees. Segmental information is provided on the activities of the Management, Adjustingand Run-off divisions in note 2 to the financial statements. Results In 2007, turnover rose from £79.1m to £81.5m. Adjusted profit before tax rosefrom £13.4m to £13.6m. Total Shareholder Return Total shareholder return was an unsatisfactory negative 10.7% in 2007, with theshare price at 337p at 31 December 2007 compared to 391p at 29 December 2006 anddividends paid in 2007 of 12.44p compared to 10.40p in 2006. Small cap stockshave generally underperformed the market during the year and the group's totalshareholder return has been similar to that of the overall small cap index. Thegroup's three-year total shareholder return is 60% (2006 - 65%). Dividends and Earnings per Share The proposed final dividend for 2007 is 8.40p (2006 - 7.64p) so that the totaldividend for the year is 13.20p. This represents a year-on-year increase of 10%.It remains the intention of the board to maintain a progressive dividend policy,while retaining sufficient cash in the business to fund organic and acquisitiongrowth. Adjusted dividend cover of 2.4 times compares to 2.6 times the previousyear. Adjusted earnings per share rose from 31.3p to 31.8p, an increase of 1%. There are 1.7m shares under option at the end of the year, which produce anadjusted diluted earnings per share of 31.6p. Of the outstanding share options,0.7m had exercise prices below the company's share price at the close ofbusiness on 31 December 2007 - 337p. Of these 0.4m are exercisable during 2008. Key Performance Indicators The board uses a range of key performance indicators to measure past performanceand as a basis for future business planning. At a corporate level, theseindicators are all financial measures. Note 2007 2006Earnings per share (p) 1 31.8 31.3Revenue growth (%) 2 5.5 17.4Operating margin (%) 3 18.5 19.5Total shareholder return (%) - one year 4 (10.7) 27.6Total shareholder return (%) - three year 5 60.2 65.0Interest cover (times) 6 5.5 5.3Dividend cover (times) 7 2.4 2.6Free cash flow (£m) 8 11.4 17.8 Notes: 1. Adjusted earnings divided by weighted average number of shares. 2. Annual growth at constant exchange rates. 3. Adjusted profit from operations as a percentage of revenue. 4. Annual movement in share price plus dividends paid (assuming reinvested)divided by share price at beginning of year. 5. Three-year movement in share price plus dividends paid (assuming reinvested)divided by share price at beginning of period. 6. Total profit from operations adjusted for amortisation of goodwill andacquired intangible assets plus investment and other income from non-insuranceactivities divided by finance costs. 7. Adjusted profit for the year divided by dividends paid and declared for theyear. 8. Net cash from operating activities excluding movement in client monies plusinterest received less expenditure on acquisition of tangible and intangibleassets plus disposal proceeds. Note: 2007 figures have been adjusted to exclude a goodwill charge of £4,961,000(2006 - £1,100,000) and amortisation of acquired customer relationshipintangibles of £307,000 (2006 - £139,000). There are 1.7m shares under option at the end of the year, which produce anadjusted diluted earnings per share of 31.6p. Of the outstanding share options,0.7m were exercisable below the company's share price at the close of businesson 31 December 2007 - 337p. Treasury The group manages its exposure to foreign currency fluctuations by the use offorward foreign exchange contracts and options to sell currency in the future.The contracts open during the year and at the year-end were all to protect thegroup's exposure to movements in the US$: £ sterling rate. Over recent years, the US$ has weakened significantly against £ sterling. In2003, the US$ profits of the group were translated at 1.63 to £1 and this ratemoved to 1.85 by 2006 and almost 2.01 by 2007. If 2006 average exchange rateshad prevailed during 2007, revenue would have been £1.7m higher than reportedand profit before tax would have been £0.6m higher. In addition, the group uses working capital overdrafts in billing currenciesother than the functional currency in order to manage the exposure to currencyfluctuations. Although interest rates remain at historically low levels, so that a significantproportion of borrowings are at floating interest rates, the group's interestrate cap has been an effective hedge against 2007 interest rate increases andprovides helpful support to the group against an uncertain future interest rateoutlook. At year end, the cap covered a principal of £14.75m (reducing asborrowings are repaid) and caps three-month LIBOR at 5.5% until the end of 2008. The borrowings in £ sterling and US$ are principally at rates that are linked toLIBOR plus margins of 1.25-1.75%. Interest cover has increased to 5.5 times (2006 - 5.3 times). The level of coverremains satisfactory. Taxation During 2007, the effective tax rate on profits was 8.0% (2006 - 8.6%). Thegroup's tax charge for the year consists of three principal elements: the taxcharge on UK and overseas profits, the UK tax charge on dividends remitted fromoffshore companies (especially the Isle of Man) and deferred taxation relatingto the use of deferred tax assets by group companies and the minority owner ofBestpark International Limited. UK tax relief is expected to continue to beavailable from Bestpark International Limited's losses during 2008. Financing During the year, £11.4m of free cash flow was generated (representing 85% ofadjusted profit from operations, compared to 123% in 2006 and 60% in 2005) andloan repayments of £8.4m were made. Net debt reduced by £4.8m to £30.7m, with areduction of £6.4m in borrowings, an increase of £5.9m in client funds and anincrease of £4.3m in cash and cash equivalents. The group has issued share capital (including share premium) of £30.2m at 31December 2007. During the year, a number of executive and share scheme options were exercisedproducing cash of £0.9m. During 2008, 0.4 million options are exercisable atbelow the market price at 31 December 2007. If they were all exercised theywould generate £1.1m in cash for the group. Acquisitions In July 2007, the group acquired the Allegro group of companies, which managescaptive insurance companies in Bermuda. The consideration was £2.8m in cashincluding £0.5m deferred and subject to profitability targets being achieved. Retirement Benefit Schemes The group has four defined benefit pension schemes, two of which haveliabilities which exceed their assets by a material amount. Strong investmentreturns and lower bond yields have reduced net deficits significantly during2007, although this has been moderated by higher inflation assumptions and moreprudent longevity assumptions following a new valuation of one scheme. Futurebalance sheet valuations of pension assets and liabilities are difficult topredict as they depend of uncertain variables which are outside the group'scontrol and may fluctuate. The company intends to address its fundingobligations fully, while balancing the various requirements of scheme members,shareholders and other stakeholders. Principal Risks and Uncertainties The principal risks facing the group and the processes by which they aremanaged, together with the financial risks and uncertainties are explained inthe Annual Report and Financial Statements. John Rowe Chief Executive Damian Ely Chief Operating Officer George Fitzsimons Finance Director 4 April 2008 Consolidated Income Statement For the year ended 31 December 2007 Year to 31 Year to December 31 December 2007 2006 Note £000 £000Continuing operations Revenue 75,884 73,581 Revenue from insurance contracts acquired 7,844 8,059Outward reinsurance premiums (2,224) (2,527) ------- --------Net revenue from insurance contracts acquired 5,620 5,532 Total revenue 2 81,504 79,113 Claims from insurance contracts acquired (17,400) (31,999)Reinsurance recoveries 3,342 9,128Expenses of managing insurance companies (5,908) (10,614)Investment and other income from insurance activities 16,020 28,952 ------- --------Net expenses and other income from insurance contracts acquired (3,946) (4,533) Amounts written off goodwill (4,961) (1,100)Administrative expenses (63,008) (59,567)Share of results of associates 116 127Share of results of joint ventures 129 139 ------- -------Profit from operations 9,834 14,179 Investment and other income from non-insurance activities 1,503 1,091Finance costs (3,039) (3,114) ------- -------Profit before tax 8,298 12,156 Income tax expense (667) (1,041) ------- -------Profit for the year from continuing operations 7,631 11,115 ------- ------- Attributable to:Equity holders of the parent 7,370 11,027Minority interest 261 88 ------- ------- 7,631 11,115 ------- ------- Earnings per share from continuing operations Basic (p) 3 18.52 28.14 ------- -------Diluted (p) 3 18.43 27.96 ------- -------Basic adjusted (p) 3 31.76 31.30 ------- -------Diluted adjusted (p) 3 31.60 31.10 ------- ------- Consolidated Balance Sheet At 31 December 2007 At At 31 December 31 December 2007 2006 Note £000 £000Non-current assets Goodwill 34,713 38,742Intangible assets 11,276 10,617Property, plant and equipment 4,023 4,160Interests in associates 936 926Interests in joint ventures 633 543Investments 30 31Deferred tax assets 3,208 6,299 ------- ------- 54,819 61,318 ------- -------Current assetsTotal assets in insurance businesses 284,261 324,976Trade and other receivables 4 48,013 44,834Cash and cash equivalents 35,254 30,922 ------- ------- 367,528 400,732 ------- -------Total assets 422,347 462,050 ------- -------Current liabilitiesTotal liabilities in insurance businesses 275,120 312,048Trade and other payables 5 15,662 17,221Tax liabilities 3,566 2,153Obligations under finance leases 242 149Bank overdrafts and loans 17,914 18,888Client funds 26,701 20,790 ------- ------- 339,205 371,249 ------- -------Net current assets 28,323 29,483 ------- -------Non-current liabilitiesBank loans 20,471 26,282Retirement benefit obligation 9,572 19,609Provisions 456 2,597Obligations under finance leases 575 280Deferred consideration - LCL acquisition 6,185 6,174Deferred consideration - other 337 430 ------- ------- 37,596 55,372 ------- -------Total liabilities 376,801 426,621 ------- ------- Net assets 45,546 35,429 ------- -------EquityShare capital 400 397Share premium account 29,769 28,824Merger reserve 6,872 6,872Capital reserve 662 662Own shares (309) (211)Retained earnings 7,316 (1,804) ------- -------Equity attributable to equity holders of the parent 44,710 34,740Minority interest 836 689 ------- -------Total equity 45,546 35,429 ------- ------- The financial statements were approved by the board of directors and authorisedfor issue on 4 April 2008. George Fitzsimons Director 4 April 2008 Consolidated Cash Flow Statement For the year ended 31 December 2007 Year to Year to 31 December 31 December 2007 2006 Note £000 £000 Net cash from operating activities 7 17,453 14,623 Investing activities Interest received 718 681Proceeds on disposal of property, plant and equipment 111 240Purchases of property, plant and equipment (509) (1,273)Acquisition of intangible assets (371) (782)Purchases of investments (97) (77)Proceeds from sale of investments - 1,568Acquisition of subsidiaries (2,255) (2,562)Disposal of subsidiary 545 -Payment of deferred consideration (228) (2,926)Net cash acquired with subsidiary 527 155Net cash disposed of with subsidiary (178) - ------- -------Net cash used in investing activities (1,737) (4,976) ------- ------- Financing activities Proceeds from issue of shares 878 375Dividends paid (4,952) (4,083)Repayments of borrowings (8,396) (11,666)Repayments of obligations under finance leases (317) (154)New bank loans raised 2,259 1,468(Decrease)/increase in bank overdrafts (800) 4,466 ------- -------Net cash used in financing activities (11,328) (9,594) ------- -------Net increase in cash and cash equivalents 4,388 53 Cash and cash equivalents at beginning of year 30,922 31,828Effect of foreign exchange rate changes (56) (959) ------- -------Cash and cash equivalents at end of year 35,254 30,922 ------- ------- Consolidated Statement of Recognised Income and ExpenseFor the year ended 31 December 2007 Year to Year to 31 December 31 December 2007 2006 £000 £000 Gains/(losses) on revaluation of available-for-sale investments 490 (1,069)taken to equityExchange differences on translation of foreign operations (98) 1,308Actuarial gains on defined benefit pension schemes 8,539 4,107Tax on items taken directly to equity (2,806) (1,371) ------- -------Net income recognised directly in equity 6,125 2,975Profit for the year 7,631 11,115 ------- -------Total recognised income and expense for the year 13,756 14,090 ------- -------Attributable to:Equity holders of the parent 13,495 14,002Minority interests 261 88 ------- ------- 13,756 14,090 ------- ------- Notes to the Financial Statements For the year ended 31 December 2007 1. Basis of preparation The financial information set out above does not constitute the company'sstatutory accounts for the years ended 31 December 2007 or 2006, but is derivedfrom those accounts. Statutory accounts for 2006 have been delivered to theRegistrar of Companies and those for 2007 will be delivered following thecompany's annual general meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under s. 237 (2)or (3) Companies Act 1985. 2. Segmental information For management purposes, the group is currently organised into three operatingdivisions - Management, Adjusting and Run-off Services. Principal activities are as follows: Management - Mutual management, captive management, investment management andrisk management. Adjusting - Energy, Aviation, Non-marine and Marine (including Average)adjusting. Run-off Services - Insurance company acquisition and run-off services. Theresults of insurance companies have been shown separately in the segmentalinformation so as to reconcile to the Income Statement. Segmental information about these businesses is presented below: Year to Year to 31 31 December December 2007 2006 £000 £000Revenue Management 36,088 35,420Adjusting 37,533 35,449Run-off Services 6,152 8,359Insurance companies - life and non-life 5,620 5,532Intercompany eliminations (3,889) (5,647) ------- ------- 81,504 79,113 ------- ------- Year to Year to 31 31 December December 2007 2006 £000 £000Result Management 6,766 7,959Adjusting 5,044 5,024Run-off Services 781 1,042Insurance companies - life and non-life 1,675 999 ------- ------- 14,266 15,024Amounts written off goodwill (4,961) (1,100)Unallocated foreign exchange 284 (11)Share of results of associates and joint ventures 245 266 ------- -------Profit from operations 9,834 14,179Investment income 1,503 1,091Finance costs (3,039) (3,114) ------- -------Profit before tax 8,298 12,156Tax (667) (1,041) ------- -------Profit after tax 7,631 11,115 ------- ------- Year to Year to 31 31 December December 2007 2006 £000 £000Capital additions Management 71 430Adjusting 249 617Run-off Services 71 40Unallocated corporate assets 803 186 ------- ------- 1,194 1,273 ------- -------Depreciation and amortisationManagement 314 265Adjusting 575 606Run-off Services 99 214Unallocated corporate assets 327 190 ------- ------- 1,315 1,275 ------- ------- At At 31 31 December December 2007 2006 £000 £000Assets Management 68,657 66,578Adjusting 109,175 100,653Run-off Services 35,064 29,453Insurance companies - life and non-life 292,295 333,713Unallocated corporate assets and eliminations (82,844) (68,347) ------- ------- 422,347 462,050 ------- ------- Liabilities Management 52,894 42,403Adjusting 86,666 80,058Run-off Services 24,464 25,495Insurance companies - life and non-life 275,140 314,219Unallocated corporate liabilities and eliminations (62,363) (35,554) ------- ------- 376,801 426,621 ------- -------Segmental information on a geographical basis is shown below: Year to Year to 31 31 December December 2007 2006Revenue United Kingdom 25,783 24,951Other Europe 6,533 6,893North America 12,357 11,551Asia Pacific 8,353 7,796Bermuda 28,478 27,922 ------- ------- 81,504 79,113 ------- ------- Year to Year to 31 31 December December 2007 2006Capital additions United Kingdom 868 389Other Europe 78 66North America 161 296Asia Pacific 80 511Bermuda 7 11 ------- ------- 1,194 1,273 ------- ------- At At 31 31 December December 2007 2006 £000 £000Assets United Kingdom 369,830 360,726Other Europe 231,512 250,785North America 45,194 38,732Asia Pacific 23,341 18,061Bermuda 32,423 32,922Eliminations (279,953) (239,176) ------- ------- 422,347 462,050 ------- ------- 3. Earnings per share Earnings per ordinary share have been calculated by dividing the profit onordinary activities after taxation and minority interests for each period by theweighted average number of shares in issue. The shares held by the ESOP havebeen excluded from the calculation because the trustees have waived the right todividends on these shares. The calculation of the basic and diluted earnings per share is based on thefollowing data: Year to Year to 31 31 December December 2007 2006 £000 £000Earnings Earnings for the purposes of adjusted earnings per share being 12,638 12,266adjusted profit after tax attributable to equity holders of theparentAmounts written off goodwill (4,961) (1,100)Amortisation of acquired customer relationship intangible assets (307) (139) ------- -------Earnings for the purposes of basic and diluted earnings per share 7,370 11,027being net profit attributable to equity holders of the parent ------- ------- Number NumberNumber of shares Weighted average number of ordinary shares for the purposes of 39,789,213 39,196,810basic earnings per shareEffect of dilutive potential ordinary shares:Share options 198,402 248,255 ------- -------Weighted average number of ordinary shares for the purposes of 39,987,615 39,445,065diluted earnings per share ------- ------- 4. Trade and other receivables At At 31 31 December December 2007 2006 £000 £000 Trade debtors 18,050 18,907Amounts owed by associates 229 4Other debtors 3,163 3,806Prepayments 2,253 1,761Accrued income 24,165 20,280Corporation tax 153 76 ------- ------- 48,013 44,834 ------- ------- 5. Trade and other payables At At 31 31 December December 2007 2006 £000 £000 'C' Loan stock 74 79Other loans 2,696 4,681Trade creditors 3,624 3,282Amounts owed to associates 214 203Other taxation and social security 1,393 1,103Other creditors 1,107 1,454Accruals and deferred income 5,882 6,149Deferred consideration 672 270 ------- ------- 15,662 17,221 ------- ------- Included in other loans are amounts owed to insurance businesses of £2,296,000(2006 - £4,219,000). A corresponding asset is included in the balance sheetwithin 'total assets in insurance businesses'. 6. Net interest bearing liabilities At At 31 31 December December 2007 2006 £000 £000 Cash and cash equivalents 35,254 30,922Bank overdrafts and current loans (17,914) (18,888)Non-current bank loans (20,471) (26,282)Loan stock (74) (79)Finance leases (817) (429) ------- ------- (4,022) (14,756)Client funds (26,701) (20,790) ------- ------- (30,723) (35,546) ------- ------- 7. Notes to the cash flow statement Year to Year to 31 31 December December 2007 2006 £000 £000Profit from operations 9,834 14,179Profit from insurance companies (1,674) (999) ------- -------Profit from operations (excluding insurance companies) 8,160 13,180Adjustments for:Depreciation of property, plant and equipment 1,315 1,275Amortisation of intangibles 5,674 1,428Other non-cash items 171 103Decrease in provisions (1,488) (608)Share of results of associates and joint ventures (245) (266) ------- -------Operating cash flows before movements in working capital 13,587 15,112(Increase)/decrease in receivables (2,844) 2,429(Decrease)/increase in payables (2,089) 499 ------- -------Cash generated by operations 8,654 18,040Income taxes (paid)/recovered (759) (839)Interest paid (3,034) (3,078)Dividends from insurance companies 6,596 4,810 ------- -------Net cash before movement in client monies 11,457 18,933Movement in client monies 5,996 (4,310) ------- -------Net cash from operating activities 17,453 14,623 ------- ------- Additions to tangible fixed assets during the period amounting to £685,000 (2006- £315,000) were financed by new finance leases. Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-termhighly-liquid investments with a maturity of three months or less. The cash flowstatements exclude the cash flows within the group's insurance companies. Cash includes client monies of £26,701,000 (2006 - £20,790,000). This Press Release contains certain forward-looking statements. By their nature,forward-looking statements involve risks and uncertainties because they relateto events and depend on circumstances that will or may occur in the future.Actual results may differ from those expressed in such statements, depending ona variety of factors, including demand and pricing; operational problems;general economic conditions; political stability and economic growth in relevantareas of the world; changes in laws and governmental regulations; exchange ratefluctuations and other changes in business conditions; the actions ofcompetitors and other factors. This information is provided by RNS The company news service from the London Stock Exchange