FBH.L Regulatory News (FBH)

4 Mar 2009 08:00



FBD Holdings plc

Preliminary Results Announcement

4 March 2009

FBD HOLDINGS PLC

PRELIMINARY ANNOUNCEMENT

RESULTS FOR THE YEAR ENDED 31ST DECEMBER 2008

*Adjusted to exclude the impact of changes in reserving policy in 2007 and 

restructuring costs in 2008.

OPERATIONAL HIGHLIGHTS

Continued solid trading in difficult market conditions, with adjusted operating profit of €65.8m

Profitable operating contribution from all divisions

Market turmoil impact on investment return leads to loss before tax of €38.6m 

Strong capital base, three times minimum statutory solvency margin, with defensive balance sheet

Growth in market share for eighth successive year

Premium rates beginning to harden across the market

Continuing implementation of cost improvements and claims initiatives

New internet developments provide platform for future growth 

Realignment of local offices to increase focus on sales of agricultural and commercial business

PERFORMANCE OVERVIEW

In a period of unprecedented economic volatility, the Group has produced another solid performance with all divisions delivering operating profit.  At €65.8m, adjusted operating profit is lower than last year principally because of an increase in claims costs and a lower long term investment return.  The increase in claims relates particularly to unusual weather events and higher property related claims. This trend has, in turn, contributed to a hardening of insurance rates across the Irish market.

Average premiums began to show some upward movement late in 2008. Early in the current year, a number of market participants increased rates on certain business lines and further increases are anticipated.  Given FBD's fixed cost base, the Group will benefit from positive operating leverage as prices rise.

Gross premium written in 2008 amounted to €385.6m, down 5.5% in a very competitive market. Rate increases were implemented on certain products at the expense of volume growth. Despite this, FBD continued to outperform the market and its ability to achieve sustainable growth was demonstrated by increasing market share for the eighth consecutive year. Market share in 2008 grew from 11.3% to 11.6%.

The focus on efficiency and productivity improvements was continued and FBD's competitive position was enhanced through further strengthening of the management team, streamlining of processes and reductions in costs.

New e-commerce facilities are providing a platform for future growth, responding to the needs of customers who increasingly wish to purchase personal lines insurance over the internet. The www.fbd.ie facility gives customers greater choice and control.  In addition, NoNonsense.ie provides a "no frills" alternative. Further e-commerce initiatives are planned for the near future.

In response to changing customer behaviour, FBD announced plans to realign its local office network in December 2008, reducing the number of offices from 47 to 34, by merging the activities of certain offices.  This realignment will enable local offices to focus on farming and commercial customers.  Implementing the changes is a significant priority for 2009.

Market conditions for the non-underwriting businesses in Ireland and Spain continued to be very challenging.  Likewise, in a difficult climate for investment products, FBD Life focused its resources on the sale of protection products and FBD Brokers dealt with declining premium levels in the commercial insurance sector.  These businesses have delivered solid results in difficult trading conditions.

Like all other financial institutions, the value of the Group's investments has been impacted by the fall in financial and property markets.  Revaluation adjustments of €126.5m have been booked in 2008 on the basis of mark-to-market accounting principles. The Group's quality portfolio of property assets has been independently valued by professional external valuers.

In relation to the Tranche II lands at La Cala, a parallel planning procedure has been initiated. While this procedure will not deliver the required permissions on all the lands, it will, if approved, result in planning permission on a substantial proportion of the lands. FBD is still dependent on local authorities to deliver permissions on time and is in contact with the purchaser to explore the various scenarios that may emerge.

Given the uncertain outlook for global economies, markets and asset prices, it is in the best interests of all shareholders that the Group maintain a very strong capital position. Consequently, the Board is recommending a 2008 final dividend payment of 10 cent per share, bringing the full 2008 dividend to 40.25 cent per share (2007: 79.5 cent). This equates to a dividend payout ratio of 25% (2007: 26%).

The FBD Group has a strong capital base and balance sheet with total assets of €1,278m. Its underwriting business holds three times the minimum statutory solvency requirement and has a prudent reserving strategy.  Even in the current economic climate, the Group has the people, plans and infrastructure to deliver long-term profitable growth and superior returns to shareholders, particularly in an environment where premium rates are hardening.

Andrew Langford 

Group Chief Executive

  About FBD Holdings plc

FBD is Ireland's third largest non-life insurer looking after the insurance needs of private individuals, farmers and business owners.  The Group has developed complementary financial service businesses and has hotel and leisure property interests that include four hotels in Ireland and two resorts in southern Spain.  The Group was established in the 1960s and is quoted on the Irish and London stock exchanges.

Forward Looking Statements 

Some statements in this announcement are forward-looking. They represent expectations for the Group's business, and involve risks and uncertainties.  These forward-looking statements are based on current expectations and projections about future events.  The Group believes that current expectations and assumptions with respect to these forward-looking statements are reasonable.  However, because they involve known and unknown risks, uncertainties and other factors, which are in some cases beyond the Group's control, actual results or performance may differ materially from those expressed or implied by such forward-looking statements. 

For Reference Telephone

FBD

Andrew Langford, Group Chief Executive 01 4093208

Cathal O'Caoimh, Group Finance Director 01 4093208

Murray Consultants

Joe Murray 01 4980300

These results will be presented to analysts at 10.30 a.m., today, 4th March 2009. A copy of the presentation will be posted on the Group's website, www.fbdgroup.com, at that time.

  FBD HOLDINGS PLC

PRELIMINARY RESULTS STATEMENT

FOR THE YEAR ENDED 31st DECEMBER 2008

OPERATIONS REVIEW

Underwriting

Government claims reforms and intense market competition led to price reductions in the Irish insurance market each year from 2002 through to 2008. As market premiums became unrealistically low and claims frequency deteriorated, the need for premium rates to increase became clear. In 2008, FBD decided not to match uneconomic rates, which some market participants continued to offer and implemented rate increases early in 2008, which restricted growth in policy numbers. Late in 2008 and early this year, there has been evidence of rate increases by a number of market participants. Material benefit will flow through to general insurers in the current year and beyond. 

Recently published industry data shows that FBD continued to perform ahead of the market. In 2008, premium income in the Irish general insurance market as a whole reduced by 7.5%, compared to FBD's 5.5%, resulting in market share increasing to 11.6%.  FBD has increased its market share for eight consecutive years and is the third largest non-life insurer in Ireland.

Over 70% of motor and home insurance customers are now using the internet or telephone to purchase insurance. For customers wishing to use the internet, FBD Insurance has developed new e-commerce propositions designed to meet this need, extend customer reach and enhance customer service levels:

In February 2008 "NoNonsense" car insurance was launched, an internet-only offering, aimed at "no frills" customers. 

In September 2008, FBD launched an on-line car insurance offering on www.fbd.ie, which allows customers to choose the level of cover they require and to pay on-line.

A home insurance product was added to the www.fbd.ie on-line facility in early 2009.

For customers wishing to organise their insurance over the phone, FBD has completed investment in its support centre in Mullingar, established in 2007 and now employing 172 staff. The centre provides the sales and service capacity to grow personal lines business in the most cost efficient and customer focussed manner.

In response to these changes in customer requirements, FBD is realigning its local office network, reducing the number of offices from 47 to 34, by merging the activities of certain offices. The realignment will enable local offices to focus on farming and commercial customers. 

Non-underwriting

Leisure and property interests include the La Cala and Sunset Beach resorts in Spain and the Tower Hotel Group in Ireland. Market conditions were very challenging during 2008 and measures to protect competitiveness and profitability were implemented, including cost savings, short term special offers, additional access to the FBD customer database and developing new markets. In difficult trading conditions, these businesses have delivered a solid result. Sunset Beach resort had another record year.

The Group's financial service businesses include general insurance broking (FBD Brokers), life assurance/pension broking/investment advice (FBD Life) and instalment finance. FBD Brokers, which is ideally placed to benefit from premium rate increases, delivered a solid result. In a difficult investment climate, FBD Life refocused its resources on pension and protection products.

La Cala Tranche II

In 2006, the Group entered into a conditional agreement to sell a major part of the La Cala building development land for total consideration, originally set at €201m. Of this amount, €121m was received in 2006 relating to Tranche I and the balance of €80m in respect of Tranche II is due to the Group subject to receipt of final planning permissions by June 2009. It was originally envisaged that this would be achieved via a Regional Planning process ongoing at the time of signing the contract.  

Given the significant delays that have been experienced in finalising the Regional Planning process, for reasons unrelated to La Cala, the Group has reactivated a parallel planning procedure in conjunction with the local administration. While this procedure will not deliver the required permissions on all of the Tranche II lands, it will, if approved, result in planning permission on a substantial proportion of the lands, which is permissible under the contract. FBD is dependent on the local authorities to approve the planning permission in a timely manner and is in contact with the purchaser to explore the various scenarios that may emerge. 

FINANCIAL REVIEW

Adjusted Operating Profit*

The adjusted operating profit for 2008 amounted to €65.8m. This represents a decline on the comparable figure for 2007 of €127.9m and is principally attributable to lower underwriting margins and a reduction in longer term investment return. 

Gross premium written fell 5.5% to €385.6m and net earned premium fell 2.1% to €343.1m. FBD maintained pricing discipline, pushing up insurance rates early in 2008, with the result that although average personal lines premium increased, policy volume decreased.

Adjusted net claims incurred amounted to €271.2m (2007: €239.1m) comprised of net claims paid of €262.9m (2007: €230.9m) and an increase in net outstanding reserves of €8.3m (2007: €8.2m increase). The adjusted claims ratio for 2008 was 79%, an increase from the 68% reported in 2007. The Irish Insurance market experienced increasing claims frequency in 2008, particularly property claims arising from persistent poor weather. The year's results have been impacted by the severe flooding countrywide in the summer months at a cost of €7.4m net of reinsurance.

Claims reserves provided a positive runoff in 2008, which validates the Group's decision to revise its claims reserving policy in 2007 and demonstrates the strength of the Group's reserving position.

Net operating expenses amounted to €58.5m (2007: €51.9m). A significant element of the increase arose as a result of completion of the investment in the Mullingar service centre. FBD continues to seek and implement increased efficiencies to enable continued, sustainable and profitable growth in market share while delivering better value premiums to customers. 

The Group's non-underwriting activities generated a contribution to adjusted operating profit of €8.5m (2007: €15.2m). Leisure and leisure property development contributed €6.0m (2007: €16.1m). Lower property sales at La Cala and overcapacity in the Irish hotel market were the main factors impacting the 2008 result.

Lower customer appetite for retail investment products at FBD Life and costs incurred by the Holding Company in relation to a preliminary approach in the first half of 2008 resulted in a contribution of €3.3m (2007: €5.9m) from financial services.

The Capital Fund, which was liquidated in 2008 following distributions to shareholders, incurred a loss of €0.9m (2007: loss of €6.8m).

Longer term investment return at €43.9m fell by 18% compared to the previous year. Distributions to shareholders, reduced asset values and a change in asset mix were the contributing factors. 

Pre-tax result

The result before tax was adversely impacted by negative fluctuations in investment return amounting to €92.3m (2007: €69.3m). This reflected the ongoing volatility in equity and property markets and the impact of a weak Sterling exchange rate at the end of 2008.

The 2008 financial statements include a restructuring charge of €7.6m for the cost of realigning the FBD Insurance local office network and implementing cost restructuring in the property and leisure operations. These programmes reflect the Group's commitment to efficiency so as to maintain its competitive cost base and deliver shareholder value. 

After charging finance costs of €4.5m (2007: €4.1m), the Group recorded a loss before taxation of €38.6m (2007:  profit of €162.2m).

Adjusted earnings per share* 

Adjusted operating earnings per share, based on longer term investment returns, amounted to 171.5c, compared to 316.33c the previous year.

Dividends

The Group is committed to efficient capital management and this is evidenced by the repatriation of €546m of funds to shareholders since 2005 (excluding ordinary dividends). The Board is committed to ensuring that the Group's capital position continues to be robust and its balance sheet well-managed. Consequently, in view of the current turbulence in the world financial markets and the uncertain outlook for asset values in the short term, the Board has concluded that it should be prudent at this time. 

The Board is recommending a 2008 final dividend payout of 10 cent per ordinary share bringing the full 2008 dividend to 40.25 cent per share (2007: 79.5 cent).  This equates to a dividend payout ratio of 25% (2007: 26%) and reflects the Board's view that it is in the long-term interests of all shareholders to maintain particularly strong solvency and liquidity margins in the current environment. Subject to approval by shareholders at the Annual General Meeting to be held on 29th April 2009, this final dividend for 2008 will be paid on 1st May 2009 to the holders of shares on the register on 13th March 2009.

The Group paid a special distribution of €1.50 per share amounting to €49.8m to shareholders on 10th October 2008.  This was in keeping with the Group's stated commitment of maximising shareholder returns through efficient capital management. 

Balance Sheet

Despite recent financial and property market turmoil, the Group's balance sheet remains very strong.  Reflecting the distributions to shareholders (€77.3m), the write down of owner occupied property (€34.2m) and negative fluctuations in investment return (€92.3m), total assets at year end amounted to €1,278m (2007: €1,387.1m). Ordinary shareholders' funds amounted to €235.4m (2007: €383.6m) and net assets per share were 707.60c (2007: 1,154.54c).

Since the second quarter of 2007, the Group has reduced its quoted equity and corporate bonds holdings from €330m to €38m at the balance sheet date. During 2008, the Group sold €100m of equities.  The following table shows how our underwriting business has reduced its exposure to property and equity dependent investments from 29% to 16% of total assets during 2008:

Table 1: Underwriting Business - Asset Allocation

In 2008, under mark-to-market accounting principles, the Group booked €92.3m of investment fluctuations through the Income Statement and wrote down a further €34.2m of land and building values directly to reserves.  (These adjustments are detailed in Table 2 below). All properties have been independently valued by professional external valuers at 31 December 2008.  The Group believes that the valuations incorporated in the balance sheet are prudent taking into consideration the quality of the underlying assets. 

Assets available to cover the solvency requirements of FBD Insurance at 31 December 2008 stood at three times the minimum level.  Assets available to cover solvency represent 50% of net premium. With total assets of €1,028m and a prudent reserving policy, the underwriting business has a strong capital base and considerable balance sheet strength. 

Table 2: Group Assets - Valuation Adjustments

OUTLOOK

Underwriting

Ireland, like much of the world, is in a period of unprecedented economic volatility, the severity and duration of which remain uncertain.  The Group's underwriting business, by its defensive nature, will be cushioned from the worst effects of economic volatility. 

Irish insurance rates are hardening and a number of insurers have already increased premiums in 2009.  It is likely that the margins being achieved in the market, the severe weather conditions in January 2009 and lower investment returns will necessitate further increases.  Several commentators have pointed to the potential for an increase in suspect claims during a recessionary period.  Such claims, if successful, will lead to increases in premiums. Resources to counter suspected fraud will be increased.

The Group's focus on cost containment and efficiency will continue.  The realignment of local offices will be completed in 2009 and further opportunities to maximise efficiency have been identified and will be implemented. 

FBD Insurance will focus on profitable growth, maintaining underwriting discipline and constantly evolving its business to reflect customers' needs. 

Non-underwriting

The property and leisure markets in Ireland and Spain are expected to remain difficult through 2009. Over-supply in the marketplace is the key challenge facing the property and leisure businesses, both in Ireland and in Spain and market capacity should reduce in the medium term. New marketing and sales initiatives and operational cost efficiencies are being implemented to achieve targets. 

FBD Brokers is developing new market segments while providing enhanced customer value, and is well positioned to benefit from hardening premium rates. FBD Life continues to provide professional advice to customers in the uncertain environment and to concentrate on the sales of pension and protection products as the market for retail investment products remains weak.

Group

The FBD Group has a strong capital base and balance sheet with total assets of €1,278m.  Its underwriting business has three times the minimum statutory solvency requirement and a prudent reserving strategy.  Despite the difficult environment, the Board is confident that the Group has the people, plans, infrastructure and financial strength to continue to deliver long-term profitable growth and superior returns to shareholders, particularly in an environment where premium rates are hardening.

ENDS

* Adjusted operating profit and adjusted operating earnings per share arrived at by adjusting for the impact of the change in the Group's reserving policy in 2007 and restructuring costs in 2008. Adjusted net claims incurred and adjusted claims ratio are arrived at by adjusting for the impact of the change in the Group's reserving policy in 2007.

FBD HOLDINGS PLC

GROUP INCOME STATEMENT

For year ended 31st December 2008

FBD HOLDINGS PLC

GROUP BALANCE SHEET - ASSETS

As at 31st December 2008

FBD HOLDINGS PLC

GROUP BALANCE SHEET - EQUITY AND LIABILITIES

As at 31st December 2008

FBD HOLDINGS PLC 

 GROUP CASH FLOW STATEMENT 

 For year ended 31st December 2008 

FBD HOLDINGS PLC

GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE 

For year ended 31st December 2008

FBD HOLDINGS PLC

GROUP STATEMENT OF CHANGES IN EQUITY

For year ended 31st December 2008

FBD HOLDINGS PLC

SUPPLEMENTARY INFORMATION

For year ended 31st December 2008

Note 1 - Operating profit by activity

Non underwriting profit is analysed as follows: 

Note 2 - Underwriting result

** Excludes impact of change in reserving policy in 2007.

  FBD HOLDINGS PLC

SUPPLEMENTARY INFORMATION

For year ended 31st December 2008

Note 3 - Dividends

* Special distributions to shareholders also include €30,150,000 (2007: €95,873,000), repatriated via buybacks of "A" 

Ordinary Shares of 1c each

Note 4  - Ordinary share capital

The Company has two classes of ordinary shares which carry no right to fixed income. In the event of the Company being wound up, the holders of the two classes of Non-Cumulative Preference Shares rank ahead of the holders of the ordinary shares.

  FBD HOLDINGS PLC

SUPPLEMENTARY INFORMATION

For the year ended 31st December 2008

Farmer Business Developments plc has a 25.64% shareholding in the Group at 31st December 2008. Included in the financial statements at the year end is €484,170 (2007: €175,714) due from Farmer Business Developments plc.  This balance is made up of recharges for services provided and recoverable costs. Interest is charged on this balance at the market rate. The amount due is payable on demand. No guarantees have been given or received. Included in the financial statements at the year end is €50,335,000 (2007: €nil) due to Farmer Business Developments plc.  This amount is made up of a loan of € 50,000,000 granted during the year and interest outstanding at the year end. Interest is charged on this balance at the market rate. 

During its review of the Group's claims reserving policy at 31st December 2007, the Board concluded that sufficient evidence had emerged through claims settlement, that the positive impact arising from measures on the claims environment including the introduction of penalty points, the Civil Liability and Courts Acts, random breath testing and the establishment of the Personal Injuries Assessment Board, had been maintained and decided to revise its reserving policy to reflect this. No further changes to this policy have been made in the year ended 31st December 2008.

There have been no subsequent events which would have material impact on these accounts.

Note 8 - General information and accounting policies

The financial information set out in this document does not constitute full statutory financial statements for the years ended 31st December 2008 or 2007 but is derived from same.  The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), applicable Irish law and the Listing Rules of the Irish and London Stock Exchanges.  The Group financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore comply with Article 4 of the EU IAS Regulation.

The 2008 and 2007 financial statements have been audited and received unqualified audit reports.  The 2008 financial statements were approved by the Board of Directors on 3rd March 2009.

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial asset investments and financial liabilities (including derivative financial instruments), which are held at fair value.  The Group's accounting policies will be included in the Annual Report & Accounts to be published in March 2009.

ENDS