F.b.d.hldgs Regulatory News (FBH)

FBD HOLDINGS PLC

24 August 2011

FBD HOLDINGS PLC

Half Yearly Report

For the Six Months Ended 30 June 2011

OPERATIONAL HIGHLIGHTS

§ Excellent performance with operating profit increasing to €28.7m from €11.3m.

§ Increased operating contribution from both underwriting and non-underwriting divisions.

§ Underwriting performance, driven by an improved loss ratio, is the primary contributor to increase in profitability.

§ Improvement in combined operating ratio from 105.2% to 92.8%.

§ Operating earnings per share of 75.7 cent (2010: 29.6 cent).

§ Significantly reduced level of write downs results in improvement of €28.4m at a pre-tax level.

§ Interim dividend increase to 11.25 cent per share (2010: 10.5 cent).

§ Asset allocation continues to provide protection against turbulent financial markets.

§ Capital base further strengthened with solvency level of 60.4%, up from 54.9% in June 2010.

§ Increase in net asset value to 582 cent per share.

§ Full year operating earnings per share guidance increased to 145 cent to 155 cent.

JOINT VENTURE

The Group today announced a proposal, subject to shareholder approval, to establish a joint venture with Farmer Business Developments plc, a related party, to own and manage the Group's Irish and Spanish Property and Leisure operations.

Commenting on the results, Andrew Langford, Group Chief Executive, said:

"This is an excellent set of results reflecting another strong operational performance and significant progress in advancing FBD's strategic priorities. Building on the progress made in recent years, our core underwriting business has demonstrated its ability to deliver strong profitability in a challenging market."

"Today's announcement of a proposed joint venture for our property and leisure business is a significant strategic step for the Group which will allow us to focus on the core insurance underwriting business, reduce our exposure to fluctuations in property valuations, reduce both the Group's debt and its loan guarantees and enhance the ability of property and leisure to realise value over time."

Note: These results will be presented to analysts at 10.30a.m., today, 24 August 2011. A copy of the presentation will be posted on the Group's website, www.fbdgroup.com, at that time.

ABOUT FBD HOLDINGS PLC

FBD is one of Ireland's largest property and casualty insurers looking after the insurance needs of farmers, private individuals 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.

The following details relate to FBD's ordinary shares of €0.60 each which are publicly traded:

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.

FBD HOLDINGS PLC

Half Yearly Report

For the Six Months Ended 30 June 2011

INTERIM MANAGEMENT REPORT

OVERVIEW

FBD delivered an excellent performance in the first half of 2011, despite the continuing challenges faced by both the Irish economy and the insurance industry. Operating profits before tax increased from €11.3m to €28.7m. While the underwriting and non-underwriting businesses both delivered improved contributions, the most significant contribution came from the former.

The Group has also advanced its key strategic objectives substantially during the period. Most significantly, the Group has reached agreement with Farmer Business Developments plc, subject to approval of the respective shareholders, to enter into a joint venture to share management and ownership of the Group's Irish and Spanish hotel, golf and property development businesses. This proposal, if approved, would enable the Group to focus resources on its core underwriting business, reduce the Group's exposure to fluctuations in property valuations and reduce both the Group's debt and loan guarantees. At the same time, the Group's property and leisure businesses would be provided with a robust financial structure and solid foundations to realise value over the medium term.

Underwriting

The underwriting profit of €10.7m represents a significant turnaround from the €7.8m underwriting loss incurred in the first half of 2010. After allowing for a lower longer term rate of investment return, underwriting operating profit before tax amounted to €26.5m. The improvement in the operating performance of the underwriting business is primarily attributable to an improved loss ratio.

Gross premium written in the first half of 2011 was to €177.5m, down 3.1% on the corresponding period of the previous year. The Board believes that this performance is in line with or slightly ahead of the market. In this challenging market, FBD maintained policy volume, the first half year without a fall in policy volume since the second half of 2008.

Premium rates continued to harden in property insurance while strong competition and discounting in the market limited the positive impact of the rate increases in the motor sector. The benefits of increasing rates were offset by a change in product mix and a continuing reduction in insurable risks and values, in line with economic activity in Ireland. Insurance risk and values have been trending downwards since the start of the economic crisis and, while the trend is still negative, it is beginning to show signs of stabilisation.

Likewise, competition in business insurance has been intense, particularly for larger risks. Rates have been increased but the reduction in insured value and cover continues and, where necessary, FBD has foregone targeted policy growth rather than compromise underwriting discipline.

FBD continued to successfully develop its multi-channel distribution strategy in response to changing customer behaviour. The sales office network has made further progress in developing farmer and business insurance. FBD.ie and NoNonsense.ie continue to be successful in attracting a growing number of customers from their respective target markets, particularly from urban centres. The initiative to develop broker business is progressing well despite increased competition in a challenged business insurance sector.

Net premium earned, at €149.8m, is in line with 2010. The reduction in gross premium written was compensated for by the decision to increase the proportion of our property insurance book that is retained.

Net claims incurred amounted to €103.2m (2010: €124.4m). The net loss ratio, including the cost of the severe weather events, improved from 83.2% in the first half of 2010 to 68.9% in the first half of 2011. The weather experience in the period was relatively benign with freezing conditions in January 2011 costing €2.5m, net of reinsurance, compared to a cost of €12m for the January 2010 event. Both the frequency and the average cost of property and motor claims reduced further during the first half, driven by improved risk selection and claims management, as well as a reduction in economic activity and improved road safety and law enforcement. FBD's actions on rates over the last twelve months also contributed to the improved loss ratio.

The increase in property insurance retention resulted in a fall of €1.6m in reinsurance commission receivable in the first half. This item accounted for 1.0 percentage points of the increase in the net expense ratio from 22.1% to 23.9%.

The Group continued to focus on efficiencies and productivity improvements. During the first half of the year, FBD reached agreement with staff and their representatives, following positive engagement, on a series of changes to the terms and conditions of employment and working practices. The objective of the agreement is to secure and enhance the Group's competitive cost advantage and to enable profitable growth. The Directors appreciate the co-operation of employees in the continuing and necessary challenge to maintain the Group's agility, flexibility and efficiency so as to enable it to meet customers' demands, profitably.

The Group's combined operating ratio for the first half of 2011 was 92.8%, a significant improvement on the 105.2% for the first half of 2010. Long term investment return at €15.7m was lower than the €17.2m booked in the first half of 2010 as the average asset mix in the period was more conservative than the previous year, due to the uncertain market outlook.

Non-underwriting

The non-underwriting operations generated an improved operating profit of €2.2m (2010: €1.9m).

The Group's property and leisure interests include La Cala and Sunset Beach Resorts in Spain and FBD Hotels in Ireland. These businesses recorded an operating loss of €0.5m (2010: loss €0.8m) while generating positive cash flow of €4.5m from operations. The operating result was better than both the prior year and expectations principally because of an improvement in both yield and occupancy in the Irish hotels. The number of foreign visitors has increased and there are early signs of recovery, particularly in the Dublin hotel market. While there are still structural issues in the Irish hotel industry to be resolved, the most recent trends are positive.

Sunset Beach Resort recorded another strong performance. Sales of properties in La Cala were encouraging with 17 unit sales, reducing La Cala property inventory by €5.1m to €12.9m.

Financial services/other includes contributions from general insurance broking (FBD Brokers), life assurance/pension broking/investment advice (FBD Financial Solutions), premium finance and the costs incurred in the holding company. These businesses continued to perform well in a weak environment, delivering a combined contribution of €2.7m (2010: €2.7m).

Pre-tax result

The pre-tax result was adversely affected by investment return fluctuations of €5.6m (2010: credit of €0.2m). These resulted from a combination of foreign exchange movements, equity valuations, low current rates of return on cash and movements in value of investment property values. The revaluation of property, plant and equipment resulted in a charge of €0.6m (2010: €17.9m). After charging finance costs of €1.9m (2010: €1.5m), the Group recorded a profit before tax of €20.6m (2010: loss of €7.9m), which represents a turnaround of €28.4m on the first half of 2010.

Dividends

The Board is committed to ensuring that the Group's capital position continues to be robust and its balance sheet well managed. This reflects the Board's view that it is in the long-term interests of all shareholders to maintain strong solvency and liquidity margins. The Board is also committed to a progressive dividend policy and efficient capital management.

The Board has approved a 2011 interim dividend of 11.25 cent per ordinary share (2010: 10.5 cent). This will be paid on 4 October 2011 to the holders of shares on the register on 2 September 2011. The interim dividend is subject to dividend withholding tax ("DWT") except for shareholders who are exempt from DWT and who have furnished a properly completed declaration of exemption to the Company's Registrar, from whom further details may be obtained.

STATEMENT OF FINANCIAL POSITION

The Group's financial position has further strengthened during the period. Ordinary shareholders' funds have grown to €193.6m (December 2010: €182.1m). Net assets per ordinary share have increased to 582 cent up from 547 cent at December 2010, the first increase in this metric since 2006.

The investment and other assets of the underwriting operations at the beginning and end of the six month period are set out in the following table:

Table 1: Underwriting business - Asset allocation

FBD Insurance maintains a low risk investment policy with 88% of its total investment portfolio invested in sovereign bonds and cash assets. FBD's continued conservative approach is vindicated by the recent exceptional volatility in global investment markets. The only sovereign bonds held by the Group are German Government bonds, with an average term of less than a year, thereby protecting the Group from any significant variation in interest rates. During the first half of 2011, FBD sold three of its investment properties generating €22m, investing the proceeds in more liquid investment classes.

Investment properties are incorporated in the balance sheet at a current yield of 10.65% and secured loans are valued at a level approximating the value of the underlying security. All underwriting property related assets were revalued by independent professional valuers at 30 June 2011. The Directors believe that as a result of the impairments recognised over recent years and the de-risking of our investment book, the potential for further downside from the underwriting investments, has been greatly reduced.

An analysis of the Group's assets at 30 June 2011 and comparatives at 31 December 2010 are set out in Table 2 below:

Table 2: Group assets

The Group's hotel and golf resort assets were valued by independent professional valuers at 30 June 2011 and no further adjustments were required as a result.

Gearing in the Group's property and leisure operations at 30 June 2011 was 74% (2010: 73%) while interest is covered by operating cash flows generated by the business 3.5 times (2010: 4.4 times).

FBD Group has a strong capital base and its balance sheet has further strengthened in the period. FBD Insurance has a solvency level of 60.4% of net premium earned at the end of June 2011, compared with 54.9% at June 2010. FBD also has prudent asset allocation and reserving policies. The reserving ratio (net technical provisions divided by net premiums earned) remains robust at 238%.

OUTLOOK

Underwriting

Irish domestic demand is expected to decline further during the remainder of 2011, albeit at a slower rate than in recent periods. The consequent reduction in insurable risk will offset premium increases by market participants and, as a result, industry revenue is likely to reduce compared to 2010.

In a declining market, the opportunity for FBD premium growth in the remainder of 2011 will be limited. FBD will continue to focus on underwriting discipline, management of claims costs and containment of expenses while delivering profitable growth from key strategic market segments as opportunities arise.

Recent actions on rates, claims and cost management, combined with the first half improvement in profitability, support the Board's expectation of improved profitability from underwriting in the full year.

Non-underwriting

Although structural issues remain in the property and leisure industry, particularly in Ireland, the positive trends in occupancy and yield have continued over the summer months. This will contribute to improved profitability in the property and leisure businesses for the year. Sales of properties in La Cala are expected to continue over the remainder of 2011, generating additional cash flow.

FBD Brokers continues to develop its business and is well positioned to benefit from the relative buoyancy of the agri-business sector. FBD Financial Solutions will continue to focus on customer needs and cost efficiencies to again deliver growth in profitability in 2011. Financial services/other will deliver increased profitability for the full year.

The Board is confident of an improved contribution from the Group's non-underwriting businesses for the full year.

Impact of establishment of Joint Venture with Farmer Business Developments plc

As announced today, subject to shareholder approval, the Group will establish a joint venture with Farmer Business Developments plc to own and manage the Group's Irish and Spanish property, leisure and development operations. The details of the proposed transaction will be set out in a circular to shareholders to be posted within a short period. Should the transaction be approved by shareholders, the Group will, from completion, cease accounting for the results of the businesses on a consolidated basis and will instead account for its interest in the jointly controlled entity under the equity method of accounting.

The Group's share of the future profits or losses of the property and leisure operations will be included in the Group's consolidated income statement and its share of the net assets will be included in the consolidated statement of financial position. The principal changes to the consolidated statement of financial position will be that the existing hotel and golf resort assets of €119.7m, inventories of €40.9m and borrowings of €117.1m will be replaced by a single line, share of assets of joint venture.

The key benefits resulting from the proposed transaction are as follows:

·; The Group will be able to focus resources on its core insurance underwriting business.

·; The Group will be less exposed to fluctuations in property valuations.

·; Operating profit of the Group will reflect the contribution from the core business and will no longer be impacted by the results of the property and leisure portfolio.

·; Both Group debt and Group loan guarantees will be reduced.

·; The property and leisure operations will be provided with solid foundations for realisation of value over time.

The proposed transaction is expected to be marginally earnings enhancing on both a basic and a diluted basis and to lead to a small increase in net asset value per share.

Group

FBD Group retains a strong capital base and balance sheet and a prudent reserving strategy. The underwriting investment policy is appropriately designed to provide protection in turbulent market conditions. The Board reiterates its belief that as a result of the impairment provisions recognised in previous years and the de-risking of the investment book, the potential for further downside from the Group's investment portfolio is limited. The Board is confident that FBD will continue to deliver superior returns to shareholders. FBD has demonstrated its capacity to deliver profits in difficult market conditions and is well positioned to deliver long-term profitable growth.

Barring the occurrence of exceptional adverse weather events over the remainder of 2011, the Board is confident that the Group will deliver full year 2011 operating earnings per share of 145 cent to 155 cent, an increase of approximately 10% on previous guidance.

PRINCIPAL RISKS AND UNCERTAINTIES

Under the Transparency (Directive 2004/109/EC) Regulations 2007 the Group is required to give a description of the principal risks and uncertainties it faces.

The Company has a risk management policy which provides a systematic, effective and efficient way for managing risk in the organisation and ensures it is consistent with the overall business strategy and the risk appetite of the Company.

Risk Appetite is a measure of the amount and type of risks the Group is willing to accept or not accept over a defined period of time in pursuit of its objectives. The Group's risk appetite seeks to encourage measured and appropriate risk taking to ensure that risks are aligned to business strategy and objectives.

The risk appetite in the Group's underwriting subsidiary is driven by an overarching desire to protect the solvency of the company at all times. Through the proactive management of risk the company ensures that it does not have or will not take on an individual risk or combination of risks that could threaten the solvency of the company. This ensures that the company has and will have in the future sufficient capital to pay its policyholders and all other creditors in full as liabilities fall due.

The Board considers that the risks and uncertainties disclosed in the Annual Report for the year ended 31 December 2010 continue to reflect the principal risks and uncertainties of the Group over the remainder of the financial year. In the Annual Report 2010 risk is categorised as general insurance risk, capital management risk, operational risk, liquidity risk, market risk, interest rate risk, credit risk and concentration risk.

Further information on these risks is included in pages 111 to 119 of the Annual Report 2010, which quantifies the sensitivity of parameters such as loss ratio, equity and property values and exchange and interest rates. The risks and uncertainties have not altered and further movement in the parameters described above may be experienced in future periods.

RELATED PARTY TRANSACTIONS

There were no related party transactions in the half year that have materially affected the financial position or performance of the Group in the period.

AUDIT REVIEW

This half yearly financial report has not been audited or reviewed by the auditors of the Group.

FBD HOLDINGS PLC

Condensed Consolidated Income Statement

For the half year ended 30 June 2011

FBD HOLDINGS PLC

Condensed Consolidated Statement of Comprehensive Income

For the half year ended 30 June 2011

FBD HOLDINGS PLC

Pro Forma Reconciliation of Consolidated Operating Profit to PROFIT Before Tax

For the half year ended 30 June 2011

FBD HOLDINGS PLC

Condensed Consolidated Statement of Financial Position

At 30 June 2011

FBD HOLDINGS PLC

Condensed Consolidated Statement of Financial Position

At 30 June 2011

FBD HOLDINGS PLC

Condensed Consolidated Statement of Cash Flows

For the half year ended 30 June 2011

FBD HOLDINGS PLC

Condensed Consolidated Statement of Changes in Equity

For the half year ended 30 June 2011

FBD HOLDINGS PLC

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the half year ended 30 June 2011

Note 1 - General Information

The information for the year ended 31 December 2010 does not constitute statutory accounts as defined in Section 19 of the Companies (Amendment) Act 1986. A copy of the statutory accounts for that year has been delivered to the Register of Companies. The auditors' report on those accounts was not qualified and did not contain any matters to which attention was drawn by way of emphasis.

This half yearly financial report has not been audited or reviewed by the auditors of the Group.

Note 2 - Accounting policies

Basis of preparation

The annual financial statements of FBD Holdings plc are prepared in accordance with International Financial Reporting Standards ("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 Standards 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 twelve months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

Consistency of accounting policy

The accounting policies and methods of computation used by the Group to prepare the interim financial statements for the six month period ended 30 June 2011 are the same as those used to prepare the Group Annual Report for the year ended 31 December 2010 (which is available at www.fbdgroup.com) except as described below.

The following new and revised Standards and Interpretations have been adopted in these financial statements in the current period:

Amendments to IAS 24: Related party disclosures.

Amendments to IAS 32: Classification of rights issue.

IFRIC 19: Extinguishing financial liabilities with equity instruments.

Improvements to IFRSs 2010

The adoption of these Standards has not had any significant impact on the amounts reported in these financial statements.

FBD HOLDINGS PLC

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the half year ended 30 June 2011

Note 3 - Longer term investment return

The rates of investment return underlying the calculation of the longer term investment return are set out below. These rates are reviewed annually and reflect both historical experience and the Directors' current expectations for investment returns.

FBD HOLDINGS PLC

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the half year ended 30 June 2011

Note 4 - Segmental Information

(a) Operating segments

For management purposes, the Group is organised in two operating segments - underwriting and non-underwriting. These two segments are the basis upon which information is reported to the chief operating decision maker, the Group Chief Executive, for the purpose of resource allocation and assessment of segmental performance. Discrete financial information is prepared and reviewed on a regular basis for these two segments. There has been no change in the Group's reportable segments during the period.

The principal activities of the Group are underwriting of general insurance business and non-underwriting operations, including leisure/property and financial services.