Charles Taylor Regulatory News (CTR)

PRESS RELEASE

Charles Taylor plc

Announcement of results for six months ended 30 June 2012

Consolidated financial highlights

For the six months ended 30 June 2012

Note:

1. The adjusted figures exclude customer relationships amortisation charges of £0.6m (six months to 30 June 2011: £0.9m) and in the prior period only, CEO transition costs of £0.7m and loss on disposal of Crescendo of £0.3m (see note 13).

2. The interim dividend is payable on 30 November 2012 to shareholders on the share register at the close of business on 5 October 2012.

"Charles Taylor has continued to make steady progress in the first half of 2012, although the subdued energy claims environment has affected the performance of our Adjusting Services business. We have taken steps to strengthen the Group's capabilities to create the right conditions for future growth. Our initiative to reduce debt continues to make headway."

Rupert Robson

Non-Executive Chairman

Business Highlights

·; Group adjusted profit before tax slightly down, statutory profit before tax up

·; Small increase in adjusted earnings per share, with statutory earnings per share also up

·; Ongoing initiative to drive down debt has continued to make progress

·; Continued progress in implementing Professional Services growth strategy

·; Interim dividend maintained at 3.25p

Chairman's Statement

Charles Taylor has continued to make steady progress in the first half of 2012, although the subdued energy claims environment has affected the performance of our Adjusting Services business. We have taken steps to strengthen the Group's capabilities to create the right conditions for future growth. Our initiative to reduce debt continues to make headway.

A stronger first half performance by our Management Services business was offset by a lower Adjusting Services result. The Adjusting business was affected by a significant market-wide reduction in the level of larger, more complex insurance losses which resulted in a reduction in the number of high value instructions for our adjusters. We also increased our investment in new senior adjusting staff and opened a new office. The Insurance Support Services business made steady progress.

Results

Revenue in the first half was £53.0m (2011: £49.3m) and Group adjusted profit before tax decreased slightly to £4.4m (2011: £4.5m). Statutory profit before tax was up to £3.8m (2011: £2.6m). Adjusted earnings per share were 9.62p (2011: 9.51p) and statutory earnings per share rose to 8.02p (2011: 4.68p).

Dividend

The interim dividend is being maintained at 3.25p per share (2011: 3.25p) and will be paid on 30 November 2012 to shareholders on the register on 5 October 2012.

Gearing and cash flow

Our initiative to drive down debt has continued to make progress, with a year on year reduction in borrowing. Free cash flow* has shown a marked year on year improvement, largely as a result of the positive impact of our efforts to improve the billing and collection of fees in Adjusting Services.

Board

In June, we announced that George Fitzsimons would be stepping down from the Board. George has made a significant contribution since he joined as Group Finance Director in 2005 and on behalf of the Group we thank him for all his efforts and wish him well for the future. The search for his replacement is well under way.

Current trading and outlook

Our Professional Services businesses are performing steadily, with a good performance from Management Services. The Adjusting Services business delivered a lower first half result owing to an unusual and significant market-wide fall in the number of larger, more complex insured energy losses. The business is well-positioned to benefit from increased claims activity, but the full year result remains dependent on the incidence of insured events. Insurance Support Services is performing steadily. The run-off of our mature life and non-life insurance companies continues satisfactorily.

Rupert Robson

Non-Executive Chairman

30 August 2012

* Free cash flow is net cash from operating activities excluding movement in client monies and deferred consideration payments to third parties, plus interest received, less expenditure on acquisition of tangible and intangible assets, plus disposal proceeds.

Group Chief Executive Officer's Review

The financial performance in the first half of 2012 demonstrates the strength of our business model. We have delivered a steady first half result despite difficult conditions in some of our markets. We are in the early days of delivering our business strategy for growth by investing in new services, building existing teams and opening two new offices.

Business performance

Professional Services

The Group's core Professional Services businesses - Management, Adjusting and Insurance Support Services - delivered increased revenue of £52.0m in the first half (2011: £48.9m), with operating segment profit* down to £5.2m (2011: £5.4m).

As explained in the 2011 Annual Report we moved our investment management, captive management and risk management businesses from Management to Insurance Support Services in January 2012 to ensure that we present the Group's services in a clear and unambiguous manner. We are reporting performance in line with this new structure and have restated the 2011 comparative figures accordingly.

Management Services increased revenue to £18.1m (2011: £15.9m) and operating segment profit to £2.6m (2011: £1.8m). The business has benefited from improved efficiency in the first half.

Adjusting Services' revenue was £25.4m (2011: £25.1m) and operating segment profit was £2.7m, down from £3.8m in 2011. This reduction was largely the result of a downturn in the number of large and complex energy insurance losses across the insurance markets, which led to a fall in the number of high value instructions in our energy business. We also invested in new senior adjusting staff and opened a new office.

Marine has continued the good performance seen last year. Non marine and aviation maintained their revenues.

Insurance Support Services delivered an improved performance with revenue up to £8.5m (2011: £7.9m) and reported a breakeven result after a small loss in 2011. The largest operating entity, Charles Taylor Insurance Services, performed well in the first half with revenues up on the prior year, the main driver being continued work on static claims for the London market.

Insurance Companies Run-off

The Insurance Companies Run-Off business made a small operating segment profit of £0.1m (2011: £0.0m) in the period. We expect there to be positive cash releases and results from the Alico business, acquired in 2011, once it is transferred to our Isle of Man life business, expected in the fourth quarter of this year.

Gearing and Cash Flow

The company's annual debt cycle generally sees a slight increase in debt in the first half reflecting the payment of year-end dividends. This is evident in H1 2012, with net debt up slightly to £34.2m, compared to £34.0m at the year end. In comparison with the corresponding period in in June 2011, debt has fallen by £4.4m and the underlying trend is downwards. Free cash flow for the period was a net inflow of £3.6m compared to a net outflow of £0.5m for the corresponding period in 2011.

Business strategy

We have taken a number of steps to deliver our growth strategy, set out in detail in the 2011 Annual Report. We have launched new products and services to capitalise over time on our areas of strength and have taken important steps to improve the way we lead and manage the Group which is increasing focus and efficiency. An update of our achievements in the year to date is set out on the following pages. I remain excited by the opportunities available to us and by the progress in delivering our new business strategy.

David Marock

Group Chief Executive Officer

30 August 2012

* Operating segment profit is adjusted operating profit, before finance costs and tax.

Our business strategy for long term growth

We introduced our new business strategy in December 2011. We will deliver growth in revenue, profit and shareholder value by focusing on Professional Services. Our business strategy is to achieve leadership positions in all the Group's Professional Services businesses and extend the range of insurance services we provide. In the first half of 2012 we made progress by investing in developing new services and opened two new offices. These initiatives are in their early days, but hold promise for the future. While our focus is on Professional Services, we also see tactical opportunities to acquire offshore life insurance companies in run-off which we believe will provide near-term cash releases.

Our Professional Services business strategy

Charles Taylor has significant competitive advantages in delivering specialist Professional Services to insurers, their clients and advisers on a worldwide basis. Our Professional Services business strategy has three key elements:

* All the initiatives reported were introduced between 1 January and 30 August 2012. Some were also reported in our 2011 Annual Report.

Our Run-off business strategy

Our primary focus is on building our Professional Services business. However we have also adopted a new strategic approach to run-off, which capitalises on opportunities in the offshore life insurance run-off sector while reducing our exposure to the non-life insurance run-off sector.

Operational Review

Professional Services

Management Services

The Management Services business provides end-to-end management of insurance companies. We deliver a complete outsourced management service covering every aspect of the companies' operations from the marketing and the management of underwriting and claims, to the provision of regulatory, accounting and administrative operations.

Adjusting Services

The Adjusting Services business provides loss adjusting services across four main sectors: energy, marine, aviation and non marine along with marine average adjusting and technical support services. The business primarily focuses on larger and more complex commercial losses arising from major insured incidents and claims.

Insurance Support Services

The Insurance Support Services business provides professional services which enable our clients to select the specific stand-alone services they require:

·; Managed claims services

·; Coverholder services

·; Financial reporting service

·; Run-off servicing

·; Investment management

·; Alternative risk services

Professional Services performance 2012 *

* stated before inter-segment eliminations

Management Services business

Key points

·; Revenue up to £18.1m. Operating segment profit up to £2.6m.

·; Growth facilitated for our mutual insurance company clients.

·; New Safety and Run-off Services launched in North America.

·; New insurance covers launched for Standard Club members.

Management Services - UK/International

Our work for the Standard Club delivered positive results for the club. Insured tonnage increased slightly year on year to 124m gt at the February insurance renewal. Free reserves increased to $353m at the February year-end (2011: $350m). We completed a reorganisation of the Standard Club's syndicate structure to ensure that it can continue to deliver the highest standards of service to its members. We also continue to prepare the club for the introduction of Solvency II.

In line with our business plan objectives we have launched on behalf of the club new Kidnap and Ransom, Traders' Transport Liability cover and Professional Liability insurance products for Standard Club members, which have been well received. It is early days for these products, which we anticipate will deliver growth over time for the club once established in the market. We have continued our commitment to training and development, supporting 13 staff through the P&IQ professional qualification, with a high proportion of distinctions achieved.

Management Services - Americas

Our Management Services business has had a busy first half. Nine new members joined Signal Mutual in the membership year from October 2011, taking the membership to 225. Total payroll of the members, which is used as a measure of the size of the mutual, was 24% larger in January 2012 than January 2011.

During the period we developed a new Safety Management Service which offers the highly regarded safety services we provide to Signal members to the commercial market. We also introduced a new Run-off Service, enabling members of Signal to transfer self-insured run-off liabilities to the mutual.

SCALA has delivered steady performance in the first half. In the first half we developed a secure online incident database for the mutual which allows members to enter their incidents directly into the manager's database and provides a single point of reference for incident statistics.

Adjusting Services business

Key points

·; Energy business affected by the market-wide downturn in larger, more complex claims.

·; Increased expenses reflect higher staff costs and investment in a new office.

·; Extending Middle East network by acquisition, opened San Francisco office and broadened service range in Indonesia.

While we continued to attract a good level of new instructions, there was a downturn in the number of large and complex insurance losses in Lloyd's and the London insurance markets. The level of market losses is outside our control, but it led to a reduction in the number of high value instructions we received, particularly in our energy business. We have continued to secure nominations as adjusters on major projects and are confident that our reputation for handling larger, more complex losses will stand us in good stead as such losses occur.

We also invested in staff and a new office during the period in line with our business plan objectives. These initiatives increased our expenditure in the first half, but we are confident they will generate additional revenues and profit in the future. Marine adjusting had another good first half, following a strong performance in Asia. We have also now added a non marine team to our existing marine operations in Indonesia. Aviation has performed satisfactorily with revenues slightly up in the first half but it was held back by higher costs in certain offices. Non marine performed ahead of the first half of 2011.

Our focus on driving down the working capital requirements of the business, by improving the speed of invoicing work and collecting cash, has made progress. Cash collections for the first half were £29.9m, 11.2% up on the same period in 2011 (2011: £26.9m) and the invoicing of £25.1m was up 9.2% (2011: £23.0m).

In line with our business plan, we are focusing on expanding our office network into new territories and regions where there is a demand from global or local insurance markets. In August 2012 we entered an agreement to acquire Noble Inspection and Loss Adjustment Company in Saudi Arabia providing us with a full adjusting licence, together with an established operation and a book of business. We are also actively considering opportunities to expand our office network in Latin America. We continue to seek ways to offer more services from our existing office network, for example, we appointed a senior energy adjuster in Dubai to further develop our onshore and offshore energy loss adjusting capability in the Middle East during the period. Our sales and marketing activity has increased with attendance at major industry events, such as the AIRMIC Conference (the UK association for risk managers) and the Aviation Insurance Association Conference.

Education and training for the next generation of loss adjusters is essential if we are to retain our market leading position. In the first half, eight of our marine adjusters were supported through the Association of Average Adjusters (AAA) examinations and passed their papers. As a result two more of our staff have now become Associates of the AAA.

Insurance Support Services business

Key points

·; Revenue up to £8.5m. Business broke even on operating segment profit following 2011 loss (2011: -£0.2m).

·; Adjusted operating profit up in Charles Taylor Insurance Services business.

·; Steady performance from other Insurance Support Services businesses with non-life run-off costs and captive management results a drag on performance.

·; Launched new products and services and opened up an Insurance Services office in Italy.

Charles Taylor Insurance Services

Charles Taylor Insurance Services which provides outsourced back office insurance services to the Lloyd's, London and international insurance markets, is the largest part of this business. We have had a stronger start to the year in this business, whose principal services are managed claims, financial reporting and non-life run-off services. Its revenue and operating profit were significantly higher than in 2011 and were principally responsible for the progress of Insurance Support Services overall. This improvement includes a contribution over the period from the static claims remit for the Lloyd's market, which commenced in April 2011, together with a strong focus on cost containment. Maintaining this performance in the second half will be dependent on achieving our new business targets.

We launched a new Managing General Agency (MGA) Service in the first half, which provides a complete back office service to these specialist businesses which in turn provide niche insurance products to companies and to the general public. We are also seeking appointments to further extend our insurance claims services on behalf of Lloyd's managing agents with the launch of our Tailored Claims Management service. We have opened a small branch office in Italy to enable us to capitalise on the demand for outsourced services in the Italian insurance market.

Other Insurance Support Services

The offshore life run-off servicing business improved on last year, benefiting from further work following the acquisition of Alico. The investment management business maintained its successful investment performance record for our major clients. It also launched a European Corporate Bond Fund in association with an independent asset manager, Rivage Investment, as our first move to target investment business outside our core client base. Our captive management business lost some revenue as a result of continuing weak market conditions and was therefore less profitable in the first half and our small US risk consulting business delivered a positive result, ahead of the corresponding period last year.

Insurance Companies Run-off

The Insurance Companies Run-off business owns insurance companies which are closed to new business and runs off their liabilities in an orderly manner.

Offshore life run-off: The transfer of the Alico Isle of Man business, acquired by the Group in November 2011, has taken longer to conclude than anticipated. We expect the transfer to be finalised in the fourth quarter, which will provide significant cash releases and additional life run-off servicing business to our Insurance Support Services business. In line with our business plan we continue to explore opportunities to acquire niche offshore life companies in run-off, where we believe the Group has a competitive advantage in the Isle of Man.

Non-life run-off: The three mature non-life run-off companies owned by the Group continue to run off. Although two of the companies suffered adverse claims experience during the period, the results are largely attributable to non-controlling interests and thus only have a minimal impact on the Group. As explained in the Annual Report, we do not plan to make further non-life run-off acquisitions.

Financial Review

Results

The Group's performance in the first half was steady and in line with management's expectations. Our results for the period are summarised in the following table and are explained in more detail in the Operational Review.

The higher adjustment for non-controlling interests in 2012 reflects the adverse claims experience in two of the non-life insurance companies in run-off.

The adjusted financial figures exclude the following items:

* In the six months to 30 June 2011 only, CEO transition costs of £0.7m and loss on disposal of Crescendo of £0.3m (see note 13).

Net debt, cash flow and financing

Net debt increased by £0.2m over the first half, including the £2.7m payment in May of the final dividend for 2011. We are continuing to focus strongly on reducing the working capital requirements of the Adjusting Services business. We increased the speed with which invoices are raised by improving management information systems and devoting more management attention to the issue and we increased our collection of cash. Work in progress represented 5.7 months of production (i.e. the value of time recorded) at 30 June 2012 (2011: 6.3 months) and debtors represented 4.6 months of invoicing (2011: 4.9 months). We anticipate a further reduction in borrowing in the fourth quarter, when the transfer of Alico is expected to be completed, releasing cash.

Movements in debt are outlined in the following table:

Free cash flow for the period was a net inflow of £3.6m (2011: net outflow of £0.5m), with better working capital performance the notable feature.

Retirement benefit schemes

In common with many companies, the retirement benefit obligation in our balance sheet increased in the period under review. The increase from £34.8m to £38.8m was largely as a result of a continued and marked decline in the yields on gilts and fixed interest securities, which are used to measure the Group's long term pension liabilities. Market yields have been significantly impacted by global economic conditions and quantitative easing and are outside the Group's control. We have set in place long term plans to address these obligations in agreement with the pension scheme's trustees.

Dividends

The interim dividend for the period is 3.25p (2011: 3.25p).

Taxation

The effective tax rate on current year adjusted profits for the period is 17.5% (2011: 18.1%), reflecting the expected tax rate for the 2012 full year. The lower rate reflects an expected increase in the proportion of Group profits generated in lower tax regimes and a reduction in the UK corporate tax rate from 26% to 24% effective from 1 April 2012.

Related party transactions

There have been no related party transactions in the period that have materially affected the financial position or performance of the company.

Principal risks and uncertainties

The nature of the principal risks and uncertainties for the first half of 2012 remain unchanged from those types of risks and uncertainties explained in the 2011 annual report and accounts. They include risks and uncertainties relating to revenue concentration, service quality, staff, acquisitions, the Group's geographical spread and range of services, conflicts of interest, insolvency of insurance companies in run-off and a range of information technology, regulatory compliance and financial risks, including liquidity and pensions risks.

The Group's direct and indirect exposure to Eurozone countries is not regarded as a significant risk, since its financial and operational activities in Eurozone countries and currencies are relatively small. However, it is difficult to foresee all the possible consequences of the various potential future outcomes for the Eurozone and the wider global economy so future developments will be monitored carefully.

Going concern

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly they continue to adopt the going concern basis in preparing the condensed financial statements.

Condensed Consolidated Income Statement

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Balance Sheet

The financial statements were approved by the Board of Directors and authorised for issue on 30 August 2012.

George Fitzsimons

Director

30 August 2012

Condensed Consolidated Cash Flow Statement

Condensed Consolidated Statement of Changes in Equity

Own shares comprise 72,420 (30 June 2011: 336,655; 31 December 2011: nil) shares held by the Charles Taylor Employee Share Ownership Plan Trust ("ESOP"). The market value of these shares was £115,510 (30 June 2011: £510,032; 31 December 2011: £nil) at the balance sheet date.

The trustee of the ESOP is the Codan Trust Company Limited, an independent professional trust company registered in Bermuda. 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 incentivisation 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 condensed 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 Condensed Consolidated Financial Statements

1. General information

The information for the year ended 31 December 2011 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

2. Accounting policies

Basis of preparation

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

Going concern

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

Changes in accounting policy

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements, except as set out in note 3 below.

3. 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, non marine and marine (including average) adjusting.

·; Insurance Support Services business - non-life and life insurance support services, including captive management, investment management and risk management.

·; Insurance Companies Run-off business - non-life and life insurance companies closed to new business.

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.

As noted in the Group's latest annual audited financial statements, our investment management, captive management and risk management businesses have moved from Management Services to Insurance Support Services from January 2012. The comparative figures below have been restated to reflect this change.

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 items. Reconciliations of segmental results to the Group profit before tax are set out below.

Information about major customers

The Group derived revenue of £13.3m (to 30 June 2011: £11.4m, full year 2011: £23.3m) from one external customer which accounts for more than 10% of Group revenue, and is included within the Management Services business.