10 Mar 2016 07:17
Contacts: | David Marock, Group Chief Executive Officer | 020 3320 8988 |
| Mark Keogh, Group Chief Financial Officer | 020 3320 2241 |
Charles Taylor plc
Announcement of results for year ended 31 December 2015
Consolidated financial highlights
For the year ended 31 December 2015
Revenue | £143.4m increased by 17.1% | (2014: £122.4m) |
Adjusted profit before tax 1 | £14.2m increased by 24.4% | (2014: £11.4m) |
Statutory profit before tax | £12.8m increased by 31.6% | (2014: £9.7m) |
Net debt | £9.9m reduced by 69.6% | (2014: £32.6m) |
Adjusted earnings per share 1, 2 | 19.98p increased by 22.4% | (2014: 16.32p) |
Statutory earnings per share 3 | 18.61p increased by 4.8% | (2014: 17.75p) |
Dividend per share 3 | 7.00p increased by 6.5% | (2014: 6.57p) |
Notes:
Movements are calculated using unrounded numbers so minor rounding differences may exist.
1. The adjusted figures exclude the following:
2015 2014
£m £m
Acquired intangible amortisation 1.6 1.5
Non-recurring costs 0.1 0.2
Non-controlling interests - profit before tax (0.3) (0.1)
Adjustments to profit before tax 1.4 1.6
Tax on adjustments (0.1) (0.1)
Adjustments to earnings 1.3 1.5
2. Adjusted EPS figures have an adjustment applied to share capital to allow for the full effect of the Rights Issue in both 2015 and 2014.
3. 2014 figures rebased to allow for the increased shares in circulation following the Rights Issue in April 2015.
4. Figures are based on continuing operations.
"Charles Taylor achieved particularly strong growth in 2015. Revenue and profit before tax increased strongly as we delivered a wide range of growth initiatives."
David Marock
Group Chief Executive Officer
Business highlights
Continuing business
· Increased revenue
· Increased adjusted profit before tax
· Increased statutory profit before tax
· Delivered strong Professional Services' performance
· Reduced net debt significantly
· Rights Issue proceeds to be fully invested
· Delivered a wide range of growth initiatives
· Increased total dividend per share year on year3.
Discontinued business
· Exiting the non-life Owned Insurance Companies and thereby releasing cash in 2016
Group Chief Executive Officer's Report
Charles Taylor achieved particularly strong growth in 2015. Revenue and profit before tax increased strongly as we delivered numerous growth initiatives. These included launching the Group's turn-key managing agency business, focusing on the development of our insurance technology business and securing a new management contract from a marine mutual insurer. We also completed a Rights Issue to enable further acquisitions, joint ventures and business investments. We acquired an international life insurer along with a stake in a specialist provider of software solutions to the global insurance industry. We also reached agreements to exit the Group's owned non-life insurance companies businesses, thereby delivering on this strand of the Group's strategy.
Our performance demonstrated the strength of our diversified business model. The Management Services and Insurance Support Services businesses performed particularly well. These more than compensated for the impact of the weaker trading conditions experienced by our Adjusting Services business.
Group results 2015 - continuing business
| 2015 | 2014 | % |
Revenue (£m) | 143.4 | 122.4 | +17.1% |
Adjusted profit before tax (£m) | 14.2 | 11.41. | +24.4% |
Statutory profit before tax (£m) | 12.8 | 9.71. | +31.6% |
Adjusted earnings per share (p) | 19.98 | 16.322. | +22.4% |
Statutory earnings per share (p) | 18.61 | 17.751. | +4.8% |
Dividend (p) | 10.00 | 9.422. | +6.2% |
Net debt (£m) | 9.9 | 32.6 | Reduced by 69.6% |
1. Restated to show continuing business.
2. Rebased to reflect Right Issue.
Professional Services performance
(£m) | Revenue | Operating segment profit | ||
| 2015 | 2014 | 2015 | 2014 |
Management Services | 50.7 | 43.9 | 8.8 | 7.7 |
Adjusting Services | 59.0 | 56.1 | 1.7 | 2.2 |
Insurance Support Services | 32.1 | 21.8 | 4.5 | 2.0 |
Unallocated | - | - | 0.2 | 0.3 |
Total | 141.9 | 121.8 | 15.2 | 12.2 |
Owned Insurance Companies performance
(£m) | Revenue | Operating segment profit | ||
| 2015 | 20141. | 2015 | 20141. |
Owned Insurance Companies | 4.8 | 3.9 | 0.2 | 0.7 |
1. Restated to show continuing business.
Professional Services
· The performance of our Management Services business was strong. The mutual insurance company clients managed by the Group performed well overall on behalf of their members. We introduced new services for our clients and were appointed manager of The Strike Club, a marine mutual insurance company.
· The Adjusting Services business increased revenues, partially through recruiting additional senior loss adjusters and opening new offices. Much to the surprise of the global insurance market, the claims environment continued to be benign. This, combined with the investment for growth, reduced the business' profitability. Adjusting Services is well positioned to benefit as and when global insurance claims activity returns to more normal levels.
· The Insurance Support Services business performed well, making a greatly improved contribution to the Group's revenues and profit. The underlying businesses delivered a sustained, improved performance.
Owned Insurance Companies
· The Group's owned life insurance companies performed steadily overall.
· We reached agreements to dispose or transfer the business of the Group's owned non-life insurance companies. Whilst generating an accounting loss, the transactions will give rise to a significant cash release. Once complete, this will also deliver a key element of our Owned Insurance Companies' business strategy.
Rights Issue
We completed a successful Rights Issue, raising £28.9 m after expenses in April 2015. Our first investment with the proceeds was to acquire a stake in the owner of Fadata AD, a specialist provider of software to the global insurance industry. The Group is now well-positioned to make further investments. We are actively considering a number of opportunities, but will only invest should these meet our strict criteria of being a good fit strategically, culturally and financially.
Balance sheet
Following the Rights Issue, the Group ended 2015 with net debt of £9.9m (2014: net debt £32.6m). Free cash flow increased to £8.6m (2014: £3.8m). We are focused on managing the Group's cash while investing for growth.
The Group's pension deficit fell during the year. The reduction has been driven largely by changes in corporate bond yields. The Group's net pension liabilities were £39.6m at the year end, compared to £41.5m in 2014.
The Board
As announced in the Half Year report, Rupert Robson retired as Chairman on 28 August 2015 and was succeeded by Edward Creasy, who has been an independent Non-executive Director of Charles Taylor since 1 January 2014. Edward Creasy has had a long career in the London Market insurance industry and was formerly Chief Executive Officer of Kiln plc and latterly Chairman of the Kiln Group from 2001 to 2010. He currently holds various other senior non-executive directorships. He is a Member of the Council of Lloyd's Market Supervision and Review Committee and was previously a Director of the Lloyd's Franchise Board. The Board would also like to thank Rupert for his contribution to the progress and development of Charles Taylor during his time as Chairman.
Dividend
A final dividend of 7.00p per share (2014 second interim dividend: 6.57p1.), will be paid on 6 May 2016 to shareholders on the register on 8 April 2016. When added to the interim dividend of 3.00p per share (2014 first interim dividend: 2.85p1.), this results in the total dividends per share for the year being 10.00p (2014: 9.42p1.).
1. Rebased to reflect Right Issue.
Management Services
The Management Services business provides end-to-end management services to insurance companies and associations. We deliver a complete outsourced management and operational service to our insurance company clients, reporting directly to the clients' boards of directors. Our services cover every aspect of those companies' operations from underwriting, claims management and delivery of safety services to regulatory, technology solutions, accounting and administrative operations, investment management, customer service, corporate governance and company secretarial services. We manage four mutual insurance companies - The Standard Club, Signal Mutual, The Strike Club and SCALA. We also provide administration services to the Offshore Pollution Liability Association.
The Management Services business earns fees from our mutual insurance company and association clients. Growth in the business of the mutuals and the number and extent of services we deliver, leads to growth in our management activities and ultimately to the level of management fees.
The performance of the managed mutual insurance companies is strong overall - providing a positive long-term indicator of the performance of the Management Services business. The business also seeks to grow by developing new insurance ventures and by tendering for the management contracts of other existing mutual insurance companies and associations.
Management Services - UK & International
Our Management Services - UK and International business - performed strongly in 2015. We delivered high quality professional services to our established clients, secured a new client and launched new products and services.
Delivered services to existing clients
· The Standard Club. Charles Taylor has managed The Standard Club since it was founded in 1884. The club provides protection and indemnity (P&I) and legal defence costs insurance to approximately 10% of the world shipping market. Our work continues to deliver positive results for the club. The club achieved a stable 'breakeven' underwriting performance in 2014-15, combined with conservative, selective growth in its membership. Free reserves at 20 February 2015, the club's year-end, grew by 3% to US$380 million, in line with the growth in tonnage. In June 2015 ratings agency, Standard & Poor's (S&P), reaffirmed the club's 'A' (Strong) credit rating. It revised its outlook from negative to stable to reflect the club's improved underwriting performance and capital strength.
· The Offshore Pollution Liability Association (OPOL). We provide financial, administrative and IT support to OPOL. OPOL is a mutual association, established to manage offshore pollution claims. OPOL provides information to the UK Government to demonstrate that its members can meet their 'financial responsibility' obligations to respond to a pollution incident. In 2015, we advised OPOL on amendments to its rules to improve the quality of this information.
Secured new Client
· The Strike Club. In early 2015, we were appointed manager of the Strike Club, the only dedicated mutual insurer covering the running costs of vessels delayed by strikes, shore delays, collisions, groundings and other incidents outside an owner's or charterer's control. In 2015, we enhanced the club's business development and marketing functions, revised the club's management operations and assisted with the preparations for the club to meet the EU's Solvency II regulations.
Developed new products and services
· We supported The Standard Club in setting up a new Lloyd's syndicate, which commenced underwriting in April 2015. We helped the syndicate to develop its distribution capability by establishing a Lloyd's service company in Singapore and appointing a Lloyd's Coverholder in Scandinavia. The syndicate's launch was well received by the market.
· We supported the establishment of the Singapore War Risks Mutual. The mutual insures shipowners against war and related risks and started underwriting in February 2015. The mutual has been well supported by the Singaporean shipping community.
Management Services - Americas
The Management Services - Americas business also had a successful year. We supported the further growth of Signal Mutual and built up the membership of SafeShore.
Secured growth for our clients
· Signal Mutual: Charles Taylor has been the manager of Signal Mutual, the largest provider of Longshore workers' compensation insurance to the US maritime industry, since it was founded in 1986. Eleven new members joined the mutual in 2014-15 bringing the total membership to 245 companies. The payroll of the member companies, on which calls (premiums) are calculated, reached US$4.1 billion at the end of the 2014-15 membership year, an increase of 7.3%. Signal saw a 4.1% fall in the number of claims in the 2014-15 membership year despite an increase in payroll and total man-hours worked for the year. This improvement provides strong evidence of the quality of our underwriting and loss prevention programmes. In 2015, we also helped the mutual to drive down the cost of its medical bills by a further 4.1%, by introducing new pharmacy and physical therapy management programmes.
· SafeShore: The new Longshoreman Workers' Compensation Small Account programme, backed by Signal Mutual and which we helped develop and launch in 2014, has established itself well; 100 employers had joined the programme by early 2016.
· SCALA: Charles Taylor has managed SCALA, which provides marine workers compensation insurance to the majority of Canada's ship owners since 1978. SCALA continued to perform well for its members with a new member entering nine vessels in 2015.
Adjusting Services
The Adjusting Services business provides loss adjusting services across the aviation, energy, marine, property & casualty and special risks sectors. We provide marine average adjusting and technical support services. The business specialises in the settlement of larger and more complex losses arising from major insured incidents and claims. We also offer a general claims service.
The Adjusting Services business continued to face challenging trading conditions in 2015. Although this resulted in fewer large and complex losses for our adjusters to handle, we received good overall volumes of instructions across the majority of our business lines and our international office network. This, combined with a full year's contribution from Knowles Loss Adjusters, acquired in 2014, enabled the business to increase its revenue for the year.
We invested in Adjusting Services to broaden its offering, recruiting senior adjusters with a strong market following, expanding the office network and strengthened internal operations:
· Opened offices: We opened a loss adjusting office in Rome, Italy to offer local and international insurers access to a locally-based international adjusting capability. We also opened an office in Montreal, Canada to meet the growing demand by the Ontario insurance market for bilingual loss adjusting services on large and complex losses. We established a presence in Johannesburg, South Africa in early 2015 and opened an office in Cape Town, South Africa in early 2016.
· Strengthened teams: We strengthened our Property, Casualty & Specialty Risks loss adjusting capability in London with the appointment of a forensic accountant and a director with extensive loss adjusting experience, gained on large-scale losses worldwide. We appointed a new director in Singapore to build our capabilities in handling property, engineering, construction, casualty and financial lines losses.
In London, we appointed three senior aviation engineers and loss adjusters, as well as recruiting an aviation loss adjuster in Dubai. We also appointed two aviation surveyors in Johannesburg and relocated a loss adjuster to Cape Town.
Our Yacht Practice, which provides a loss adjusting and claims management service to insurers and owners of luxury yachts worldwide, appointed a senior practice manager to support growth in the business.
We believe these investments will enable the business to perform all the more strongly when claims patterns return to more normal levels. We continue to make targeted investments where there is a strong business case, while focusing on managing the business' overall cost base effectively and efficiently.
The benign claims environment, combined with our investments for long-term growth, reduced Adjusting Services' overall profitability in 2015.
Continuing benign claims environment
Figures reported by major insurers and brokers show that insured losses from natural disasters are continuing to run well below the average for recent years. Statistics also show that the long term trend in economic and insured losses is upwards.
Developed new products and services
· Cyber-attacks on business are increasing, so we have established a Cyber Risks Claims service to provide insurers and their policyholders with a full service, covering all claims arising from cyber incidents, handling the end-to-end process from initial notification through to final resolution.
· We established a catastrophe response committee and enhanced our major loss response plan to coordinate Adjusting Services' approach to major natural disasters and other catastrophic insurance losses. The plan will ensure that the business continues to be well-positioned to secure claims instructions following any major incident.
Optimised business operations
· As announced at the Half Year, Damian Ely was to be appointed as Chief Executive Officer of Adjusting Services on 1 January 2016, in succession to Arthur Clarke, who retired from the business at the end of 2015. Damian is focusing Adjusting Services' business plan on growth, people development, productivity and cost management.
· Adjusting Services is dedicated to delivering a high quality professional and technical service to its clients. We undertook a client satisfaction survey with our UK clients in the second half of 2015, to ensure we were meeting our clients' expectations and to identify areas where we can further improve our service. Nine out of ten respondents rated our service as good or excellent. We intend to undertake further surveys of our clients served by our international offices in 2016.
· We also focused on further improving our invoicing and cash collection processes. The Head of Working Capital, appointed in 2015, has established a Fee Processing and Cash Collection team within Adjusting Services.
Insurance Support Services
The Insurance Support Services business provides a range of professional and technology services, enabling our clients to select the specific stand-alone services they require. These include turn-key managing agency services and technical services for clients in the Lloyd's, London and international insurance markets. It provides insurance technology services designed, developed and delivered by insurance technology experts. The business manages life and non-life insurance run-off from London, Dublin and the Isle of Man. It is also a leading provider of third-party insurance administration services to international life insurers. Insurance Support Services includes our investment management, third-party claims administration, captive management, risk consulting and specialty risks business lines. The Insurance Support Services business also acts as the Group's business incubator where we can develop and test new business initiatives.
The Insurance Support Services business performed very well, making a greatly improved contribution to Group revenue and profit. The underlying businesses performed steadily, supported by a significantly increased contribution from the new business initiatives introduced as part of the Group's growth strategy.
Insurance Support Services - Non-life
The Non-life Insurance Support Services business includes Charles Taylor Insurance Services (CTIS), Charles Taylor Managing Agency, Charles Taylor InsureTech and the Group's captive management, and risk consulting business lines.
Charles Taylor Insurance Services provides outsourced back-office insurance services to the Lloyd's, London and international insurance markets. The business performed steadily in 2015, building on the progress made in 2014.
Charles Taylor Managing Agency, the Group's Lloyd's turn-key managing agency secured the management of its first syndicate, Syndicate 1884, which commenced underwriting on 1 April 2015. We are marketing our syndicate management services actively to entities wishing to establish syndicates at Lloyd's.
Charles Taylor InsureTech draws together the Group's specialist and bespoke technology solutions, systems development and implementation solutions into a single client-focused business and brings together the Group's technology expertise, experience and knowledge of global insurance markets.
Other non-life business lines: The Group's other non-life insurance business lines performed solidly in 2015. Charles Taylor Third Party Administration had a good year. It was appointed by a major U.S. port and terminal to provide Third Party Administration services to manage workers' compensation insurance claims. The Group's Risk Consulting, Captive Management and Investment Management businesses performed steadily.
Developed new products and services
· Charles Taylor participated in a Lloyd's market wide initiative to integrate claims management software services into Electronic Claims Files; over half of all early adopters were users of Charles Taylor's TRAX claims management software.
· Our static claims service, which enables Lloyd's Managing Agents to manage insurance claims which have not progressed in the previous 12 months, is evolving to provide additional services. Since the service was launched four years ago, we have closed out or have under management in excess of 180,000 claims.
· We obtained a Lloyd's broker licence for Charles Taylor Broking Services, which provides a range of services to our clients. These include sourcing MGA clients, assisting broker start-ups and providing broker replacement services.
· The London Market Expert's database, established on behalf of the Lloyd's Market Association in 2013 continues to grow and now includes records of over 150 Third Party Administrators.
· We developed a Claims Audit and Review Management service for Lloyd's and London market insurers. This draws upon the Group's extensive expertise of conducting class of business and loss specific claims audits.
Optimised business operations
· We appointed a new Chief Executive Officer of Charles Taylor Insurance Services to lead the business into its next stage of growth.
Insurance Support Services - Life
Charles Taylor Insurance Services in the Isle of Man administers retail life insurance and protection products for open and run-off insurers. The business performed well in 2015. We were appointed to administer specialist protection products for a Caribbean life insurer and commenced operations for that client in 2015.
Owned Insurance Companies
The Owned Insurance Companies business owns and consolidates life insurance businesses which are primarily in run-off, creating value through targeted acquisitions and the achievement of operational efficiencies. In line with the Group's business strategy, we are disposing or transferring the business of our non-life insurance companies, which have been in run-off for some time.
The Owned Insurance Companies business made good progress overall.
Life insurance
In line with our strategy to seek targeted acquisitions in the international life insurance sector, we completed the acquisition of Scottish Widows International life business in April 2015. The Scottish Widows International business was re-domiciled to the Isle of Man in July 2015. We anticipate that we will receive court approval to transfer two life companies, acquired in 2014 and 2015, into our wholly-owned life insurance business during 2016.
Non-life run-off insurance
We made the decision in early 2012 to review our strategic options and concluded that the ownership of non-life run-off insurance companies should no longer be a core activity for the Group. In October 2015, we announced that LCL Acquisitions Limited had entered into an agreement to sell its holding in Bestpark International Limited, to Ashbrooke Financial Group Limited. This disposal was completed in February 2016. We also announced that Cardrow Insurance Limited and Beech Hill Insurance Limited, had entered agreements to transfer their insurance businesses to Tenecom Limited, a subsidiary of Berkshire Hathaway Inc. Once these transactions are completed and the latter two companies are liquidated, Charles Taylor will not own any non-life run-off insurance companies and will have successfully fulfilled this objective of our overall business strategy.
Cash release: Selling and closing the non-life insurance businesses will deliver a cash release of £1.75m to the Group in 2016. The loss on these transactions, post non-controlling interests, is £2.8m and is considered exceptional, one-off in nature, and is not included in adjusted earnings. In accordance with IFRS 5, the results of this business activity have been separately disclosed and the comparative results re-presented on this basis. During the year, the discontinued activities generated an operating segment loss before non-controlling interest, of £5.7m (2014: £0.2m loss).
Other business strategy initiatives:
In addition to the initiatives to optimise business operations already highlighted, we also took a number of steps to further strengthen and increase the efficiency of our Global Business Services:
· We appointed a Group Corporate Development Director, a new role, which replaces the role of Group Chief Operating Officer. The Group Corporate Development Director is responsible for driving business results, the further development and delivery of the Group's growth strategy and supporting the Group when undertaking acquisitions, joint ventures, and business investments.
· We appointed a Director of Compliance and Risk to oversee and advise on compliance monitoring, compliance-related projects and broader risk management across the Group
· Charles Taylor offers a wide range of professional insurance services to clients across North America. In 2015, we focused on developing an integrated approach to sales and marketing activities and appointed a Vice President, Strategy & Performance and a Vice President, Business Development & Sales to lead these initiatives.
· In early 2015, we undertook a group-wide staff engagement survey. This reported that nine out of ten Charles Taylor staff would recommend the Group as a great place to work. This is an excellent result, which compares particularly well with other organisations and demonstrates that the overwhelming majority of staff are fully committed to the businesses and the work we deliver to our clients.
· We launched a Learning and Development core curriculum, to put more emphasis on training and personal development of the Group's staff.
Current trading and outlook
Charles Taylor has had a steady start to 2016. Management Services is performing well. Insurance Support Services is consolidating on its improved 2015 performance and Adjusting Services is well positioned to capitalise as and when claims patterns return to normal levels. We have completed both the disposal of Bestpark International Limited and the business transfers of one of our other two non-life insurers; we are, however, continuing to seek actively new acquisitions in the international life insurance sector.
We are focused on building our professional services businesses organically and through targeted acquisitions, joint ventures and business investments. Following the Rights Issue, we are well prepared to develop new professional services business lines through such means. We are actively considering a number of opportunities, but will only invest if these meet our strict criteria of being a good fit strategically, culturally and financially.
Charles Taylor achieved particularly strong growth in 2015. We view 2016 as being a period to consolidate our gains while putting further building blocks in place for future growth.
Our result has been achieved thanks to the commitment of our highly professional team and I would like to thank all our staff for their hard work throughout the year.
David Marock
Group Chief Executive Officer
9 March 2016
Financial review
The results for the year, which exclude the non-life insurance businesses which we have sold or are in the process of transferring, are summarised in the table below and explained in more detail in the Group Chief Executive Officer's review.
| 2015
| 2014
|
Revenue (£m) | 143.4 | 122.5 |
Operating segment profit (£m) | 15.5 | 12.9 |
Finance costs/other (£m) | (0.9) | (1.4) |
Non-controlling interests before tax (£m) | (0.3) | (0.1) |
Adjusted profit before tax (£m) | 14.2 | 11.4 |
Tax (£m) | (1.2) | (1.3) |
Adjusted earnings (£m) | 13.0 | 10.1 |
Adjusted earnings per share (p) | 19.98 | 16.32 |
Note: Small rounding differences arise in the total amounts above.
The above financial measures are adjusted as set out in the table below:
| 2015 (£m) | 2014 (£m) |
Statutory profit before tax | 12.8 | 9.7 |
Amortisation of acquired intangible assets Non-recurring items - restructuring cost | 1.6 0.1 | 1.5 0.2 |
Non-controlling interests before tax | (0.3) | (0.1) |
Adjusted profit before tax | 14.2 | 11.4 |
Note: Small rounding differences arise in the total amounts above.
Adjusted profit before tax was £14.2m (2014: £11.4m1.) as a result of the Management Services and Insurance Support Services businesses performing particularly well. This more than compensated for the impact of the weaker trading conditions experienced by our Adjusting Services business.
Net debt, cash flow and financing
Following the Rights Issue in April 2015, the Group ended 2015 with net debt of £9.9m (2014: £32.6m) and free cash flow increased to £8.6m (2014: £3.8m). We are continuing to focus on managing our debt while investing for growth.
The Group's senior banking facilities comprise an amortising senior term loan of £10.0m and a £30.0m revolving credit facility. In addition, the Group has £5.0m uncommitted overdraft facilities in the UK, uncommitted overseas facilities of the local currency equivalent of £3.4m and committed overseas facilities of the local currency equivalent of £3.4m. Interest rates are mostly linked to 3 month Libor plus margins of 2.25-2.75%. The senior term loan and revolving credit facility are available until 7 November 2018. The other facilities are renewed on an annual basis.
Retirement benefit schemes
The retirement benefit obligation in the Group balance sheet at 31 December 2015 was £39.6m, compared with £41.5m at the previous year-end. The decrease in net obligation has been driven by a change in discount rates driven by a rise in corporate bond yields. There are multi-year programmes in place to recover pension scheme deficits fully on a regulatory funding basis and funding costs are reflected in management fees charged by the Group where appropriate.
Dividend
The final dividend for 2015 is 7.0p (2014 second interim dividend: 6.57p2.) making the total dividend for the year 10.00p.
Foreign exchange
The Group manages its exposure to foreign currency fluctuations by use of forward foreign exchange contracts and options to sell currency in the future. The contracts open during the year and at the year-end were to protect the Group's exposure to movements between the US$ and sterling. The US$ profits of the Group were translated at US$1.53 in 2015 (2014: US$1.65). The sensitivity of the Group's results to movements in exchange rates is explained in note 29 to the Financial Statements. Results were not materially affected by movements in exchange rates between 2014 and 2015.
Taxation
During 2015, the effective tax rate on statutory profit was 8.1% compared to 12.0% in 2014. The statutory tax rate in 2015 is lower than 2014 because a larger proportion of profits were generated in lower tax countries, and because the Group utilised unrecognised brought forward UK tax losses.
Mark Keogh
Group Chief Financial Officer
9 March 2016
1. Restated to show continuing business.
2. Rebased to reflect Right Issue.
How we manage risk
The Group's risk management processes are designed to identify, evaluate and manage the risk of the Group not achieving its business objectives.
Our internal control functions, which include risk management, compliance, legal and internal audit, report to the plc Board through the Audit Committee.
The Board, Executive Committee and senior management of the Group's businesses review the risks and controls set out in the Group Risk Register on a regular basis. They are supported by the internal audit function, which undertakes regular reviews of the risks highlighted in the risk register and inspects systems, controls, processes and practices across the Group's offices on an on-going basis, through a rolling programme of specific reviews agreed by the Audit Committee. The Board requires risk mitigation actions to be completed appropriately and in a timely manner.
The Group's risks reflect the fact that our activities are primarily based around providing professional services to clients in the global insurance market. The material risks identified at Group level fall into the three categories of business, financial and legal/regulatory risk.
Type of risk | Risk description | Management action |
1. Business risks | ||
Service Commitment risks | The Group has a large number of business units, business lines and widespread office locations.
There is a risk that we could fail to provide the service product that we are committed to provide or to properly and consistently manage all parts of our business.
Business development can sometimes make additional demands on key staff outside their day-to-day job specification.
Failing to meet the high standards our clients demand in the delivery of our services could expose us to the loss of clients, or claims for damages. It could also expose the Group and our clients to reputational damage which could adversely affect our competitive position.
| · We have comprehensive policies and procedures in place in our main business areas to ensure that we maintain service standards and monitor compliance through peer review and our internal audit function. In addition, we carry out training to ensure that our service commitments are fulfilled. · Our Management Services clients monitor service levels through their boards and corporate governance processes. The long-term relationship and deep connections we have with them enables any potential issues to be identified and addressed swiftly · Contracts are in place for our major client relationships and standard terms and conditions are widely used across our businesses. · Periodic client surveys provide important feedback to senior management and careful business planning, performance management and peer review reduce this risk further. · We maintain professional indemnity insurance to mitigate the financial impact should we suffer a claim against the Group.
|
Concentration of revenue risks | The Management Services business is a material part of the Group; Management Services is reliant upon three high-value and growing client relationships.
Where a small number of key clients purchase an increasing number of services, the risk of conflicts of interests arising, and the impact of those conflicts, may be higher. | · We invest significant senior time and resource in client relationship management to ensure that we maintain the standards of service that these important clients expect. Senior management takes responsibility for ensuring that high standards of service can be set for new clients and ventures, without reducing the quality of existing commitments. · Diversification of the business and the client base is a key objective of the Group, which has been achieved through the establishment of Charles Taylor Managing Agency, Charles Taylor TPA, Charles Taylor InsureTech, the management of the Strike Club, the investment in Fadata and the expansion of the Adjusting business. We have completed, and will continue to consider, organic growth initiatives and targeted acquisitions to further diversify our sources of revenue. · Mutual management involves a long-term relationship with deep connections between the manager and the mutual, through the mutual's board, which provides opportunities to identify and address satisfactorily, any potential issues whether of service, conflict or otherwise, at an early stage.
|
Failure to deliver growth initiative risks | There are both external and internal drivers for Charles Taylor to achieve sustainable growth in the business. These drivers put potential added pressure on the Group to develop and market new services and initiatives and consider M&A deals and joint ventures. By their very nature, the latter are likely to be more risky than simply growing the existing businesses as the new acquisition or venture could fail leading to loss of investment or reputational damage. | · The Board sets the overall direction and approves major initiatives. · The Group's strategy is to pursue growth through multiple initiatives, rather than a small number of 'big bets', reducing the potential impact of failure of any one initiative. · The proceeds of the Rights Issue in 2015 provide additional resource to fund profitable growth. · Thorough due diligence on a target or potential joint venture partner is conducted prior to commitment and contractual protections set out in documentation for the benefit of the Group. · The Group's financial forecast processes have been further developed over the last year. · Acquisitions and joint ventures are monitored regularly during the course of the year. · Various discussions are held throughout the year with M&A advisors together with potential targets, partners and clients in an effort to identify opportunities for further growth.
|
External Events risks | The Group is at risk that external events which are unanticipated, or the ramifications of which cannot be foreseen have an adverse effect on the business of Charles Taylor. These could be either sudden or gradual in nature. | · The Group has a diversified business model within its sector. This allows it to spread the risk of the impact of an external event on one area of the business. · The Group actively monitors industry trends that may impact its main areas of business and, where appropriate, assists its clients with lobbying on behalf of their respective clients. · It is more likely that there will be some warning of a risk materialising allowing time to plan mitigation.
|
People risks | As a service business which relies on the skill and expertise of its people, the Group faces various staff-related risks. These include the failure to attract and retain suitable personnel and risks that they do not perform their duties as required. Such risks could damage our ability to manage the business effectively. Loss of key staff could impact service levels and might lead to loss of revenue or clients.
| · We aim to attract and retain high quality staff by providing competitive remuneration and benefits packages and offering career development. · Our working conditions and recruitment processes are carefully planned and implemented and our procedures are reviewed regularly. · The implementation of the Group HR strategy has improved the control environment (for example, through enhancements to compensation, talent management, learning and development and the Group engagement survey). |
Material Errors risks | Our business is complex, operates in a number of countries and offers a diverse range of insurance services. As a result, the Group presents a number of management and technical challenges, and relies on consistently competent performance of staff at all levels. There are risks of material errors associated with controlling and monitoring the number of business units across various time zones. | · The organisation structure is planned to ensure oversight and control is maintained and business units are managed by personnel of suitable quality and experience. · We embed procedures to reduce the risk of failure to provide services to a high standard. Compliance with procedures is monitored through management oversight, peer review and internal audit reviews, as appropriate. · Where possible, the Group's standard business terms are used as the basis for contracting; these include contractual protections. · Financial control processes, including budgetary control and financial reports, are designed to produce timely and accurate financial information from across the Group businesses. · Care is taken in placing and renewing insurance cover to ensure appropriate coverage and limits. |
2. Financial risks | ||
Poor operational cash flow risk | In the event of a material fall in revenues, there is a risk that such fall is not matched by an immediate, proportionate reduction in costs with a consequent impact on earnings.
| · We have clearly defined procedures for the management and monitoring of financial risks. · Senior management is focused on containing/reducing costs and on making the cost base more flexible (e.g., through its purchasing of services and through remuneration structures) without adversely affecting either the delivery of services or participation in opportunities for growth. · The Group has made improving WIP and debtor ageing a key priority and significant resources are being dedicated to improving the Group's credit control processes. · We have established relevant performance indicators which are monitored regularly.
|
Pensions funds deficit risks | The Group operates four defined benefit pension schemes.
We face the risk that outstanding pension scheme deficits may need to be funded within a short time scale.
| · The financial position of the Group's defined benefit pension schemes is regularly monitored. · There is a regular dialogue between the Trustees and their investment managers covering investment policy and assessment of asset and liability risks. · All the defined benefit pension schemes are closed to new members. The largest scheme has been closed to future accruals. · We have an agreed programme of deficit funding. We monitor pension regulations to ensure compliance with the latest requirements.
|
Banking covenant breaches, cash cover and liquidity risks | The Group maintains banking facilities. These contain financial covenants and restrictions on conduct.
Banking facilities might be withdrawn or not renewed.
Refinancing may not be secured for amounts outstanding when a facility expires.
Cash inflow may be insufficient to cover outgoings or outgoings may be planned at an unaffordable level.
Facility headroom may be insufficient.
| · The funding position has materially improved over the last few years as the Group has grown, providing much greater financial flexibility and covenant headroom. In addition, the Rights Issue in 2015 has ameliorated the position which will continue until such time as the proceeds of the Rights Issue have been deployed in driving further growth. · We manage working capital and monitor relevant performance indicators in order to identify and take appropriate management steps to mitigate the risk. Covenant compliance is reported to and considered by the Board. · There are regular cash flow forecasts to project the future funding position and to monitor expected headroom against banking facilities and covenants. · The Group maintains an open and regular dialogue with a small number of relationship banks.
|
3. Legal and Regulatory risks | ||
Legal and Regulatory risks | The Group has to comply with a wide range of legal and regulatory requirements across its businesses and has an indirect obligation to ensure its mutual clients comply with their legal and regulatory requirements. Breach of these requirements could affect adversely the Group's relationship with regulators and clients and expose us to additional risks including reputational damage, loss of client confidence, financial penalties or the withdrawal of the regulatory approvals we require to conduct our business.
| · The Group Assurance and Compliance and Risk Committees monitor compliance and risk activities. This includes ensuring that the Group's regulated subsidiaries and functions performed on behalf of clients which are regulated entities continue to meet the relevant regulatory requirements. · The legal, compliance and risk functions across the Group have been bolstered during the course of 2015. · The Group regularly reviews its policies and procedures in relation to regulatory matters and to ensure appropriate training is conducted. · The Audit Committee oversees the Group's assurance, risk management and compliance activities. This includes challenge and recommendation, where appropriate. It reports to the Board.
|
Consolidated Income Statement
|
| Year to 31 December | |
|
| 2015 | 2014 |
| Note | £000 | £000 |
Continuing operations |
|
|
|
Revenue from Professional Services |
| 138,640 | 118,607 |
|
|
|
|
Revenue from Owned Insurance Companies |
|
|
|
Gross revenue |
| 5,615 | 4,688 |
Outward reinsurance premiums |
| (813) | (818) |
Net revenue | 2 | 4,802 | 3,870 |
Total revenue |
| 143,442 | 122,477 |
|
|
|
|
Expenses from Owned Insurance Companies |
|
|
|
Claims incurred |
| (22,281) | (6,801) |
Reinsurance recoveries |
| 363 | 645 |
Other gains from insurance activities |
| 23,072 | 6,710 |
Net operating expenses |
| (5,136) | (3,345) |
Net expenses |
| (3,982) | (2,791) |
|
|
|
|
Administrative expenses |
| (127,998) | (108,531) |
Gain on acquisition |
| 2,291 | - |
Share of results of associates |
| 131 | 121 |
Operating profit |
| 13,884 | 11,276 |
|
|
|
|
Investment and other income |
| 164 | 64 |
Finance costs |
| (1,230) | (1,601) |
Profit before tax |
| 12,818 | 9,739 |
Income tax expense |
| (1,044) | (1,165) |
Profit for the year from continuing operations |
| 11,774 | 8,574 |
Discontinued operations |
|
|
|
Loss for the year from discontinued operations |
| (5,741) | (173) |
Profit for the year |
| 6,033 | 8,401 |
|
|
|
|
Attributable to: |
|
|
|
Owners of the Company |
| 8,724 | 8,211 |
Non-controlling interests |
| (2,691) | 190 |
|
| 6,033 | 8,401 |
|
|
|
|
Earnings per share |
|
|
|
From continuing and discontinued operations |
|
|
|
Statutory basic (p) | 3 | 14.14 | 17.06 |
Statutory diluted (p) | 3 | 14.04 | 16.93 |
From continuing operations |
|
|
|
Statutory basic (p) | 3 | 18.61 | 17.75 |
Statutory diluted (p) | 3 | 18.48 | 17.62 |
|
|
|
|
Consolidated Statement of Comprehensive Income
|
|
| Year to 31 December | |
|
|
| 2015 | 2014 |
| Note |
| £000 | £000 |
Profit for the year |
|
| 6,033 | 8,401 |
Items that will not be reclassified subsequently to profit or loss |
|
|
|
|
Actuarial losses on defined benefit pension schemes |
|
| (618) | (16,936) |
Tax on items taken directly to equity |
|
| (1,188) | 2,978 |
|
|
| (1,806) | (13,958) |
Items that may be reclassified subsequently to profit or loss |
|
|
|
|
Exchange differences on translation of foreign operations |
|
| (412) | 450 |
Losses on cash flow hedges |
|
| (7) | (135) |
|
|
| (419) | 315 |
Other comprehensive loss for the year, net of tax |
|
| (2,225) | (13,643) |
Total comprehensive income/(loss) for the year |
|
| 3,808 | (5,242) |
Attributable to: |
|
|
|
|
Owners of the Company |
|
| 6,487 | (5,473) |
Non-controlling interests |
|
| (2,679) | 231 |
|
|
| 3,808 | (5,242) |
Consolidated Balance Sheet
|
|
| At 31 December | |
|
|
| 2015 | 2014 |
| Note |
| £000 | £000 |
Non-current assets |
|
|
|
|
Goodwill |
|
| 44,844 | 42,196 |
Other intangible assets |
|
| 17,428 | 12,898 |
Property, plant and equipment |
|
| 3,559 | 4,011 |
Investments |
|
| 1,905 | 748 |
Financial assets |
|
| 5,095 | - |
Deferred tax assets |
|
| 7,282 | 8,613 |
Total non-current assets |
|
| 80,113 | 68,466 |
Current assets |
|
|
|
|
Total assets in insurance businesses |
|
| 1,087,198 | 795,628 |
Trade and other receivables | 6 |
| 65,545 | 60,061 |
Cash and cash equivalents |
|
| 80,170 | 52,185 |
Assets classified as held for sale |
|
| 48,161 | - |
Total current assets |
|
| 1,281,074 | 907,874 |
Total assets |
|
| 1,361,187 | 976,340 |
Current liabilities |
|
|
|
|
Total liabilities in insurance businesses |
|
| 1,066,765 | 756,057 |
Trade and other payables | 7 |
| 29,327 | 24,097 |
Deferred consideration |
|
| 8,213 | 4,032 |
Current tax liabilities |
|
| 1,018 | 326 |
Obligations under finance leases |
|
| - | 112 |
Borrowings |
|
| 6,579 | 5,345 |
Client funds |
|
| 68,406 | 41,886 |
Liabilities directly associated with assets classified as held for sale |
|
| 28,843 | - |
Total current liabilities |
|
| 1,209,151 | 831,855 |
Net current assets |
|
| 71,923 | 76,019 |
Non-current liabilities |
|
|
|
|
Borrowings |
|
| 15,057 | 37,402 |
Retirement benefit obligation |
|
| 39,555 | 41,534 |
Provisions |
|
| 321 | 308 |
Obligations under finance leases |
|
| 50 | 60 |
Deferred consideration |
|
| 7,569 | 10,505 |
Total non-current liabilities |
|
| 62,552 | 89,809 |
Total liabilities |
|
| 1,271,703 | 921,664 |
Net assets |
|
| 89,484 | 54,676 |
Equity |
|
|
|
|
Share capital |
|
| 665 | 434 |
Share premium account |
|
| 71,239 | 35,650 |
Merger reserve |
|
| 6,872 | 6,872 |
Capital reserve |
|
| 662 | 662 |
Own shares |
|
| (489) | (223) |
Retained earnings |
|
| (8,869) | (10,699) |
Equity attributable to owners of the Company |
|
| 70,080 | 32,696 |
Non-controlling interests |
|
| 19,404 | 21,980 |
Total equity |
|
| 89,484 | 54,676 |
|
|
|
|
|
The financial statements were approved by the Board of Directors and authorised for issue on 9 March 2016.Mark KeoghDirector9 March 2016
Cash Flow Statement
|
| Year to 31 December | |
| Note | 2015£000 | 2014£000 |
Net cash from operating activities | 9 | 41,741 | 9,835 |
|
|
|
|
Investing activities |
|
|
|
Interest received |
| 117 | 30 |
Proceeds on disposal of property, plant and equipment |
| 112 | 91 |
Purchases of property, plant and equipment |
| (2,700) | (1,534) |
Acquisition of other intangible assets |
| (4,192) | (2,774) |
Purchase of investments |
| (7,424) | (957) |
Acquisition of subsidiaries |
| (2,239) | - |
Payment of deferred consideration |
| (3,251) | - |
Net cash acquired with subsidiary |
| 3,831 | 440 |
Net cash used in investing activities |
| (15,746) | (4,704) |
|
|
|
|
Financing activities |
|
|
|
Proceeds from issue of shares |
| 29,533 | 487 |
Dividends paid |
| (5,405) | (4,167) |
Repayments of borrowings |
| (33,128) | (29,125) |
Repayments of obligations under finance leases |
| (119) | (477) |
New bank loans raised |
| 11,063 | 31,061 |
Increase in bank overdrafts |
| 783 | 48 |
Net cash from/(used in) financing activities |
| 2,727 | (2,173) |
Net increase in cash and cash equivalents |
| 28,722 | 2,958 |
Cash and cash equivalents at beginning of year |
| 52,185 | 48,757 |
Effect of foreign exchange rate changes |
| (737) | 470 |
Cash and cash equivalents at end of year |
| 80,170 | 52,185 |
Consolidated Statement of Changes in Equity
| Sharecapital £000 | Sharepremiumaccount £000 | Mergerreserve £000 | Capitalreserve £000 | Ownshares £000 | Retained earnings £000 | Non-controlling interests £000 | Total £000 |
At 1 January 2015 | 434 | 35,650 | 6,872 | 662 | (223) | (10,699) | 21,980 | 54,676 |
|
|
|
|
|
|
|
|
|
Issue of share capital | 231 | - | - | - | - | - | - | 231 |
Share premium arising on issue of share capital | - | 35,589 | - | - | - | - | - | 35,589 |
Profit for the financial year | - | - | - | - | - | 8,724 | (2,691) | 6,033 |
Dividends paid | - | - | - | - | - | (5,405) | - | (5,405) |
Actuarial losses on defined benefit pension schemes | - | - | - | - | - | (618) | - | (618) |
Tax on items taken to equity | - | - | - | - | - | (1,188) | - | (1,188) |
Foreign currency exchange differences | - | - | - | - | - | (425) | 13 | (412) |
Movement in own shares | - | - | - | - | (266) | - | - | (266) |
Movement in share-based payments | - | - | - | - | - | 803 | - | 803 |
Losses on cash flow hedges | - | - | - | - | - | (7) | - | (7) |
Other movements | - | - | - | - | - | (54) | 102 | 48 |
At 31 December 2015 | 665 | 71,239 | 6,872 | 662 | (489) | (8,869) | 19,404 | 89,484 |
|
|
|
|
|
|
|
|
|
At 1 January 2014 | 415 | 32,704 | 6,872 | 662 | (433) | (1,378) | 21,831 | 60,673 |
|
|
|
|
|
|
|
|
|
Issue of share capital | 19 | - | - | - | - | - | - | 19 |
Share premium arising on issue of share capital | - | 2,946 | - | - | - | - | - | 2,946 |
Profit for the financial year | - | - | - | - | - | 8,211 | 190 | 8,401 |
Dividends paid | - | - | - | - | - | (4,167) | - | (4,167) |
Actuarial losses on defined benefit pension schemes | - | - | - | - | - | (16,936) | - | (16,936) |
Tax on items taken to equity | - | - | - | - | - | 2,978 | - | 2,978 |
Foreign currency exchange differences | - | - | - | - | - | 410 | 40 | 450 |
Movement in own shares | - | - | - | - | 210 | - | - | 210 |
Movement in share-based payments | - | - | - | - | - | 371 | - | 371 |
Losses on cash flow hedges | - | - | - | - | - | (135) | - | (135) |
Other movements | - | - | - | - | - | (53) | (81) | (134) |
At 31 December 2014 | 434 | 35,650 | 6,872 | 662 | (223) | (10,699) | 21,980 | 54,676 |
|
|
|
|
|
|
|
|
|
The capital reserve and merger reserve arose on formation of the Group and are non-distributable capital reserves.
Own shares comprise 571,990 (2014: 299,123) shares held by the Charles Taylor Employee Share Ownership Plan Trust (ESOP). The market value of these shares was £1.5m (2014: £0.7m) at the balance sheet date.
The trustee of the ESOP is Summit Trust International SA, an independent professional trust company registered in Switzerland.
The ESOP is a discretionary trust for the benefit of employees of the Group and provides a source of shares to distribute to the Group's employees (including executive directors and officers) under the Group's various bonus and incentive schemes, at the discretion of the trustee acting on the recommendation of a committee of the Board.
The assets, liabilities, income and costs of the ESOP are incorporated into the consolidated financial statements.
There are no significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances other than company law requirements dealing with distributable profits, and in the case of the insurance companies, regulatory permissions and solvency limits.
Notes to the Financial Statements
Basis of accounting
The financial information set out above does not constitute the statutory accounts of Charles Taylor plc for the year ended 31 December 2015, but is derived from those statutory accounts, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) and also in accordance with IFRSs adopted by the European Union and therefore they comply with Article 4 of the EU IAS Regulation.
Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 will be delivered following the Company's Annual General Meeting.
The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498 (2) or (3) Companies Act 2006.
2. Segmental information
Identification of segments
For management and internal reporting purposes the Group is currently organised into four operating businesses whose principal activities are as follows:
· Management Services business - mutual management service.
· Adjusting Services business - energy, aviation, property & casualty and marine (including average) adjusting.
· Insurance Support Services business - insurance support services, including Lloyds' turn-key managing agent, captive management, investment management, insurance technology services and risk management.
· Owned Insurance Companies business - life insurance companies.
Management information about these businesses is regularly provided to the Group's chief operating decision maker to assess their performance and to make decisions about the allocation of resources. Accordingly, these businesses correspond with the Group's operating segments under IFRS 8 Operating Segments. Businesses forming part of each business which might otherwise qualify as reportable operating segments have been aggregated where they share similar economic characteristics and meet the other aggregation criteria in IFRS 8.
In the Management Services business, a higher proportion of revenue arises in the second half of the financial year. There is no significant seasonality or cyclicality in the other businesses.
Measurement of segmental results and assets
Transactions between reportable segments are accounted for on the basis of the contractual arrangements in place for the provision of goods or services between segments and in accordance with the Group's accounting policies. Reportable segment results and assets are also measured on a basis consistent with the Group's accounting policies. Operating segment profit includes an allocation of central costs across the four businesses and excludes non-recurring adjusting costs. The prior year operating segment profits and assets have been adjusted to conform to the current year's presentation, and excludes amounts for operations discontinued in the current year, described in more detail in note 5. Reconciliations of segmental results to the group profit before tax are set out below.
Information about major customers
The Group derived revenue of £38.5m (31 December 2014: £35.4m) from one external customer which accounts for more than 10% of group revenue, and is included within both the Management Services and Insurance Support Services businesses.
| Professional Services businesses |
| OwnedInsuranceCompanies |
| Other |
| Group | ||||
Year to 31 December 2015Continuing operations | ManagementServices£000 | AdjustingServices£000 | InsuranceSupportServices£000 | Unallocated£000 | Total£000 | InsuranceCompanies£000 | Inter-segmenteliminations£000 | Total£000 | |||
Revenue from external clients | 50,718 | 59,016 | 28,903 | 3 | 138,640 | 4,802 | - | 143,442 | |||
Revenue from other operating segments | - | - | 3,229 | - | 3,229 | - | (3,229) | - | |||
Total revenue | 50,718 | 59,016 | 32,132 | 3 | 141,869 | 4,802 | (3,229) | 143,442 | |||
Depreciation and amortisation | (1,348) | (1,689) | (623) | - | (3,660) | (385) | - | (4,045) | |||
Other expenses | (40,545) | (55,631) | (27,018) | 205 | (122,989) | (4,183) | 3,229 | (123,943) | |||
Operating segment profit | 8,825 | 1,696 | 4,491 | 208 | 15,220 | 234 | - | 15,454 | |||
Share of results of associates |
|
|
|
|
|
|
| 131 | |||
Amortisation of acquired intangible assets |
|
|
|
|
|
|
| (1,629) | |||
Non-recurring costs |
|
|
|
|
|
|
| (72) | |||
Operating profit |
|
|
|
|
|
|
| 13,884 | |||
Investment and other income |
|
|
|
|
|
|
| 164 | |||
Finance costs |
|
|
|
|
|
|
| (1,230) | |||
Profit before tax |
|
|
|
|
|
|
| 12,818 | |||
Amortisation of acquired intangible assets |
|
|
|
|
|
|
| 1,629 | |||
Non-recurring costs |
|
|
|
|
|
|
| 72 | |||
Non-controlling interests before tax |
|
|
|
|
|
|
| (324) | |||
Profit before tax - adjusted |
|
|
|
|
|
|
| 14,195 | |||
Loss for the year from discontinued operations was £5.7m (2014: £0.2m).
| Professional Services businesses |
| OwnedInsuranceCompanies |
| Other |
| Group | ||||||
Year to 31 December 2014Continuing operations | ManagementServices£000 | AdjustingServices£000 | InsuranceSupportServices£000 | Unallocated£000 | Total£000 | InsuranceCompanies£000 | Inter-segmenteliminations£000 | Total£000 | |||||
Revenue from external clients | 43,864 | 56,067 | 18,655 | 21 | 118,607 | 3,870 | - | 122,477 | |||||
Revenue from other operating segments | - | - | 3,147 | - | 3,147 | - | (3,147) | - | |||||
Total revenue | 43,864 | 56,067 | 21,802 | 21 | 121,754 | 3,870 | (3,147) | 122,477 | |||||
Depreciation and amortisation | (984) | (1,160) | (536) | - | (2,680) | (329) | - | (3,009) | |||||
Other expenses | (35,145) | (52,678) | (19,286) | 224 | (106,885) | (2,837) | 3,147 | (106,575) | |||||
Operating segment profit | 7,735 | 2,229 | 1,980 | 245 | 12,189 | 704 | - | 12,893 | |||||
Share of results of associates |
|
|
|
|
|
|
| 121 | |||||
Amortisation of acquired intangible assets |
|
|
|
|
|
|
| (1,527) | |||||
Non-recurring costs |
|
|
|
|
|
|
| (211) | |||||
Operating profit |
|
|
|
|
|
|
| 11,276 | |||||
Investment and other income |
|
|
|
|
|
|
| 64 | |||||
Finance costs |
|
|
|
|
|
|
| (1,601) | |||||
Profit before tax |
|
|
|
|
|
|
| 9,739 | |||||
Amortisation of acquired intangible assets |
|
|
|
|
|
|
| 1,527 | |||||
Non-recurring costs |
|
|
|
|
|
|
| 211 | |||||
Non-controlling interests before tax |
|
|
|
|
|
|
| (65) | |||||
Profit before tax - adjusted |
|
|
|
|
|
|
| 11,412 | |||||
| At 31 December 2015£000 |
| At 31 December 2014£000 | ||||
Continuing operations | ProfessionalServicesbusinesses | OwnedInsuranceCompanies | Group | ProfessionalServicesbusinesses | OwnedInsuranceCompanies | Group | |
Management Services business | 5,380 | - | 5,380 | 2,961 | - | 2,961 | |
Adjusting Services business | 149,606 | - | 149,606 | 121,278 | - | 121,278 | |
Insurance Support Services business | 46,528 | - | 46,528 | 31,651 | - | 31,651 | |
Unallocated assets and eliminations | 21,963 | - | 21,963 | 22,140 | - | 22,140 | |
Owned Insurance Companies business | - | 1,089,549 | 1,089,549 | - | 798,310 | 798,310 | |
Assets classified as held for sale | - | 48,161 | 48,161 | - | - | - | |
Total assets | 223,477 | 1,137,710 | 1,361,187 | 178,030 | 798,310 | 976,340 | |
- Non-current assets | 77,762 | 2,351 | 80,113 | 65,784 | 2,682 | 68,466 | |
- Current assets | 145,715 | 1,135,359 | 1,281,074 | 112,246 | 795,628 | 907,874 | |
Total assets | 223,477 | 1,137,710 | 1,361,187 | 178,030 | 798,310 | 976,340 | |
Current liabilities | (105,330) | (1,066,765) | (1,172,095) | (71,766) | (756,057) | (827,823) | |
Deferred consideration payable within 1 year | (875) | (7,338) | (8,213) | (646) | (3,386) | (4,032) | |
Liabilities directly associated with assets classified as held for sale | - | (28,843) | (28,843) | - | - | - | |
Net current assets | 39,510 | 32,413 | 71,923 | 39,834 | 36,185 | 76,019 | |
Non-current liabilities | (54,983) | - | (54,983) | (79,304) | - | (79,304) | |
Deferred consideration payable in more than 1 year | (2,537) | (5,032) | (7,569) | (1,758) | (8,747) | (10,505) | |
Total liabilities | (163,725) | (1,107,978) | (1,271,703) | (153,474) | (768,190) | (921,664) | |
Net assets | 59,752 | 29,732 | 89,484 | 24,556 | 30,120 | 54,676 | |
Non-controlling interests | (1,450) | (17,954) | (19,404) | (1,046) | (20,934) | (21,980) | |
Equity attributable to owners of the Company | 58,302 | 11,778 | 70,080 | 23,510 | 9,186 | 32,696 | |
| RevenueYear to 31 December |
| Non-current assets1At 31 December | ||
Geographical informationContinuing operations | 2015£000 | 2014£000 | 2015£000 | 2014£000 | |
United Kingdom | 44,718 | 33,925 | 60,231 | 48,310 | |
Other Europe | 9,856 | 6,814 | 3,746 | 2,954 | |
Middle East | 3,720 | 2,955 | 114 | 65 | |
North America | 12,249 | 11,342 | 6,254 | 5,974 | |
Central and South America | 4,404 | 4,236 | 183 | 192 | |
Asia Pacific | 15,037 | 15,137 | 1,480 | 1,540 | |
Bermuda | 53,458 | 48,068 | 823 | 818 | |
| 143,442 | 122,477 | 72,831 | 59,853 | |
1 Excluding deferred tax.
3. Earnings per share
| Year to 31 December | |
| 2015 | 2014 |
| pence | pence |
Adjusted earnings per share |
|
|
from continuing operations | 19.98 | 16.32 |
from discontinued operations | (4.23) | (0.53) |
| 15.75 | 15.79 |
Basic earnings per share |
|
|
from continuing operations | 18.61 | 17.75 |
from discontinued operations | (4.47) | (0.69) |
| 14.14 | 17.06 |
Diluted earnings per share |
|
|
from continuing operations | 18.48 | 17.62 |
from discontinued operations | (4.44) | (0.69) |
| 14.04 | 16.93 |
The earnings and weighted average number of shares used in the calculation of earnings per share are as shown below. The shares held by the ESOP have been excluded from the calculation because the trustees have waived the right to dividends on these shares.
| Year to 31 December | |
| 2015 | 2014 |
| £000 | £000 |
Earnings |
|
|
Earnings for the purposes of adjusted earnings per share being adjusted profit after tax attributable to owners of the Company | 10,287 | 9,765 |
Amortisation of acquired intangible assets | (1,629) | (1,527) |
Non-recurring costs | (72) | (211) |
Tax on non-recurring costs | 138 | 183 |
Earnings for the purposes of statutory basic and diluted earnings per share being net profit attributable to owners of the Company | 8,724 | 8,210 |
Loss for the year from discontinued operations | 2,761 | 333 |
Earnings for the purposes of statutory basic and diluted earnings per share from continuing operations | 11,485 | 8,543 |
Earnings for the purposes of adjusted earning per share from continuing operations | 13,048 | 10,098 |
| Number | Number |
Number of shares |
|
|
Weighted average number of ordinary shares for the purposes of adjusted earnings per share | 65,308,762 | 61,862,033 |
Rebase adjustment1 | (3,608,860) | (13,743,511) |
Weighted average number of ordinary shares for the purposes of statutory basic earnings per share | 61,699,902 | 48,118,522 |
Effect of dilutive potential ordinary shares: |
|
|
Share options | 440,598 | 380,219 |
Weighted average number of ordinary shares for the purposes of statutory diluted earnings per share | 62,140,500 | 48,498,741 |
1. The rebase adjustment allows for the full effect of the Rights Issue in each period.
4. Acquisition of subsidiaries
Vesta Group
On 26 February 2015 the Group acquired the entire issued share capital of SC Management SAM, SC Services (Monaco) SARL and S.C. Management (Luxembourg) S.A. (collectively "Vesta"). Vesta provides management services to The Strike Club, a marine mutual that insures ship owners and ship charterers against delays due to strikes and other incidents.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
| Vesta Group | ||
| Carrying |
| Amount |
| amount before |
| recognised at |
| acquisition | Adjustments | acquisition |
| £000 | £000 | £000 |
Identifiable intangible assets | - | 1,414 | 1,414 |
Property, plant and equipment | 43 | - | 43 |
Trade and other receivables | 108 | - | 108 |
Cash and cash equivalents | 327 | - | 327 |
Trade and other payables | (225) | - | (225) |
Identifiable assets and liabilities | 253 | 1,414 | 1,667 |
Consideration |
|
| 1,667 |
Satisfied by: |
|
|
|
Initial cash consideration |
|
| 253 |
Deferred consideration |
|
| 1,414 |
Consideration |
|
| 1,667 |
Almond One Limited (renamed Charles Taylor Managing Agency Holdings Limited ("CTMAH") and Almond Two Limited
On 19 February 2015, the Group acquired 50.1% of the issued share capital of CTMAH and 100% of the issued share capital of Almond Two Limited from The Standard Club. These acquisitions have enabled the Group to provide managing agency services to new syndicates at Lloyd's on a "turn-key" basis.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
| Carrying amountbefore acquisition |
| Amount | |
| Almond Two |
|
| recognised at |
| Limited | CTMAH | Adjustments | acquisition |
| £000 | £000 | £000 | £000 |
Trade and other receivables | - | 166 | - | 166 |
Cash and cash equivalents | 3,000 | 252 | - | 3,252 |
Identifiable assets and liabilities | 3,000 | 418 | - | 3,418 |
Goodwill |
|
|
| 2,869 |
Consideration |
|
|
| 6,287 |
Satisfied by: |
|
|
|
|
Ordinary shares of the Company |
|
|
| 6,287 |
Consideration |
|
|
| 6,287 |
LCL Assurance Limited
On 1 April 2015, the Group acquired 100% of the issued share capital of Scottish Widows International Limited, a Jersey registered life insurer which is closed to new business. Existing business comprises personalised and unit linked life insurance products primarily for UK residents. Scottish Widows International Limited was renamed LCL Assurance Limited ("LCLAL") on 1 April 2015 immediately after acquisition. On 2 July 2015, LCLAL was redomiciled to the Isle of Man.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below. During 2015, as a result of a review of the identifiable assets acquired and liabilities assumed, the value of the identifiable net assets acquired increased by £2.7m from the estimate of £11.6m at 30 June 2015. As a result, the Group ceased to recognise goodwill on the LCLAL acquisition of £0.5m and instead recognised a gain on acquisition of £2.3m. These values are still preliminary and may be revised as additional information about the value of assets acquired, liabilities assumed and contingent consideration becomes available.
| LCL Assurance Limited | ||
| Carrying |
| Amount |
| amount before |
| recognised at |
| acquisition | Adjustments | acquisition |
| £000 | £000 | £000 |
Investment contract assets | 77,645 | - | 77,645 |
Life Insurance contracts assets | 8,950 | - | 8,950 |
Cash and cash equivalents | 9,480 | - | 9,480 |
Prepayments and accrued income | 12 | - | 12 |
Loans and receivables | 451 | - | 451 |
Insurance technical balances | (11,881) | - | (11,881) |
Investment contracts unit linked liabilities | (70,062) | - | (70,062) |
Other creditors | (204) | - | (204) |
Identifiable assets and liabilities | 14,391 | - | 14,391 |
Gain on acquisition |
|
| (2,291) |
Consideration |
|
| 12,100 |
Satisfied by: |
|
|
|
Initial cash consideration |
|
| 1,986 |
Deferred consideration |
|
| 10,114 |
Consideration |
|
| 12,100 |
The three acquisitions together contributed £13.2m revenue and £0.6m profit before tax to the Group since their acquisition dates. If the three acquisitions had been completed on the first day of the financial year the combined revenue for the Group and statutory profit before tax would have been £146.8m and £12.9m respectively.
5. Discontinued operations
Sale and closing of non-life operations
The sale and closing of the non-life operations detailed below are consistent with the Group's business strategy to reduce its exposure to the ownership of non-life insurance companies in run-off.
Bestpark International Limited
On 5 October 2015 the Group entered into an agreement with Ashbrooke Financial Limited to sell its holding in Bestpark International Limited, subject to regulatory approval. The disposal completed on 22 February 2016.
Beech Hill Insurance Limited and Cardrow Insurance Limited
On 19 October 2015 the Group's subsidiaries Cardrow Insurance Limited and Beech Hill Insurance Limited entered into agreements to transfer their insurance portfolios to Tenecom Limited, a subsidiary of Berkshire Hathaway Inc., subject to regulatory approval. The transfer of the insurance business of Beech Hill Insurance Limited to Tenecom Limited became effective 29 February 2016. The transfer of Cardrow Insurance Limited will complete during 2016.
Captive cells
On 18 December 2015, the directors committed to dispose of the Group's captive cell business. These disposals will be effected by commutations which are expected to complete during 2016.
The combined results of the discontinued operations included in the profit for the year and cash flow, are set out below, together with details of the assets and liabilities disposed of and the calculation of the loss on disposal. There was no tax impact relating to this disposal. The sale and closing the non-life insurance businesses will deliver a cash release of £1.75m to the Group in 2016.
| Year to 31 December | |
| 2015 | 2014 |
| £000 | £000 |
Revenue | (123) | 282 |
Expenses | 1,280 | (455) |
Profit / (loss) for the year from discontinued operations before disposal costs | 1,157 | (173) |
Costs of disposal | (6,898) | - |
Loss for the year from discontinued operations | (5,741) | (173) |
Attributable to: |
|
|
Owners of the Company | (2,761) | (333) |
Non-controlling interests | (2,980) | 160 |
| (5,741) | (173) |
|
|
|
Cash flows from discontinued operations |
|
|
Net cash inflows from operating activities | (107) | (184) |
Assets classified as held for sale |
|
|
Amounts receivable under reinsurance contracts | 2,472 | - |
Cash and cash equivalents in insurance businesses | 43,470 | - |
Debtors arising from insurance and reinsurance operations | 2,150 | - |
Other assets | 69 | - |
Total assets in disposal group | 48,161 | - |
Liabilities classified as held for sale |
|
|
Insurance technical balances - non-life insurance contracts | 14,180 | - |
Creditors arising from insurance and reinsurance operations | 2,991 | - |
Deferred consideration | 6,705 | - |
Provisions | 563 | - |
Other creditors | 4,404 | - |
Total liabilities in disposal group | 28,843 | - |
|
|
|
Net assets in disposal group | 19,318 | - |
Non-controlling interest in equity | 17,954 | - |
6. Trade and other receivables
| At 31 December |
| |
| 2015 | 2014 |
|
| £000 | £000 |
|
Trade debtors | 29,633 | 26,203 |
|
Amounts due from associates | 2 | 2 |
|
Other debtors | 5,950 | 2,920 |
|
Prepayments | 5,093 | 7,121 |
|
Accrued income | 23,551 | 23,500 |
|
Corporation tax | 1,316 | 315 |
|
| 65,545 | 60,061 |
|
Included within prepayments are IT assets of £nil (2014: £2.9m) in the course of construction.
7. Trade and other payables
| At 31 December | |
| 2015 | 2014 |
| £000 | £000 |
Trade creditors | 4,616 | 4,335 |
Other taxation and social security | 2,631 | 2,452 |
Other creditors | 1,466 | 1,396 |
Accruals and deferred income | 20,614 | 15,914 |
| 29,327 | 24,097 |
8. Borrowings |
|
|
| At 31 December | |
| 2015 | 2014 |
| £000 | £000 |
Total borrowings: |
|
|
Amount due for settlement within 12 months | 6,579 | 5,345 |
Amount due for settlement after 12 months | 15,057 | 37,402 |
| 21,636 | 42,747 |
9. Note to the Cash Flow Statement
| Year to 31 December | |
| 2015 | 2014 |
| £000 | £000 |
Operating profit | 13,884 | 11,276 |
Adjustments for: |
|
|
Depreciation of property, plant and equipment | 1,780 | 1,660 |
Amortisation of intangibles | 3,904 | 2,913 |
Other non-cash items | 446 | 982 |
Decrease in provisions | (2,582) | (2,178) |
Share of results of associates and joint ventures | (131) | (121) |
Operating cash flow before movements in working capital | 17,301 | 14,532 |
Increase in receivables | (6,894) | (5,595) |
Increase in payables | 3,409 | 2,684 |
(Increase)/decrease in insurance company assets | (243,193) | 109,444 |
Increase/(decrease) in insurance company liabilities | 246,626 | (110,881) |
Cash generated by operations | 17,249 | 10,184 |
Contributed by: |
|
|
- Professional Services | 12,820 | 10,524 |
- Owned Insurance Companies | 4,429 | (340) |
Cash generated by operations | 17,249 | 10,184 |
Income taxes paid | (1,176) | (1,133) |
Interest paid | (852) | (1,112) |
Net cash before movement in client funds | 15,221 | 7,939 |
Movement in client funds | 26,520 | 1,896 |
Net cash from operating activities | 41,741 | 9,835 |
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly-liquid investments with a maturity of three months or less. Cash includes client funds of £68.4m (2014: £41.9m).
Cash flow relating to discontinued operations is shown in note 5.