Hansard Regulatory News (HSD)

25 September 2014

Hansard Global plc

Results for the year ended 30 June 2014

Hansard Global plc ("Hansard" or "the Group"), the specialist long-term savings provider, issues its results for the year ended 30 June 2014 ("FY 2014").

Summary

*new business levels for FY 2013 have been restated to reflect only Hansard International

** subject to approval at the AGM

Strategy IMPLEMENTATION

Following the launch of our reinvigorated strategy and new products in Q4 2014, market development activities have generated encouraging interest among Independent Financial Advisors and contract holders around the world. As a result we have entered into business relationships with a number of new significant IFA networks and other institutions in our target markets and plans are being implemented which will provide a platform for sustainable diversified new business flows in the medium to long term.

Since we began building the base for our new distribution strategy we have added 33 new Terms of Business with networks.

TRADING RESULTS

The Group has traded profitably during FY 2014, generated strong positive cash flows and, in line with guidance, paid a progressive dividend.

During the year the Group implemented the revised Operating Model for Hansard Europe and has been successful in harnessing process efficiencies and reducing administrative headcount, as planned. The benefits of these savings have been outweighed by a number of non-recurring factors such as the provision of £5.0m in relation to the estimated potential liability and related professional costs for the breaches of Chargeable Event Certificate regulations that were reported in the latter part of the financial year; the effects of litigation settlements of £0.7m (2013: £1.6m) and by the charge of £0.7m (2013: £0.4m) taken in relation to the closure of Hansard Europe to new business. With the successful implementation of the revised Operating Model during the year, and a consequent reduction in headcount and administrative expenses, we do not anticipate a significant level of these closure costs in the future.

Prior to those exceptional items the underlying IFRS profit was £14.7m, compared with an underlying profit of £12.4m in FY 2013. After the exceptional items, the IFRS profit for the year is £8.3m (2013: £10.4m).

The EEV Return for the year is driven largely by reduced new business levels, the provision for exceptional items and deteriorating persistency experience which has led to assumption changes. After recognising the effect of these items, the EEV operating result is a loss of £6.6m compared with a profit of £11.7m in the previous year. Following the payment of dividends of £11.2m during the year, the EEV at 30 June 2014 has reduced to £203.8m (2013: £225.7m).

NEW BUSINESS

As previously reported, following the suspension of activities by a large distributor in Japan and our subsequent decision to cease accepting new business from Japanese residents, new business from the Far East is significantly reduced from the prior year, which was particularly strong. As a consequence, new business sales for FY 2014 on all metrics reported by the Group are approximately half of the levels of the prior year.

Continuing low volumes of new business impact directly on the Group's new business margins. Reduced volumes, coupled with the changed product design and other incentives in operation during the year, have resulted in margins for FY 2014 of approximately 4.0% on the PVNBP basis (2013: 12.0%).

policyholder complaints AND LITIGATION

The Group continues to carefully manage its litigation and other exposures in order to protect regulatory capital holdings and reduce uncertainty.Following recent activity, writs totalling approximately £5.2m remain outstanding against Hansard Europe at the date of this report (30 June 2013: £3.9m). We will continue to defend ourselves vigorously against all claims.

HANSARD ONLINE

Hansard OnLine is a powerful sales and business administration tool that is used by intermediaries the world over. The Group continues to improve Hansard OnLine in order to meet the needs of contract holders and intermediaries and maintain a competitive advantage.

DIVIDENDS

The Board has proposed an increased final dividend of 5.0p per share (2013: 4.75p) which, if approved by the shareholders, represents an increased total dividend of 8.4p (2013: 8.0p) per share in respect of the financial year. The Board intends to maintain a progressive dividend policy.

CURRENT TRADING

New business opportunities and strategic initiatives in our target markets continue to be explored. Relationships have just been established with a number of major IFA networks in target markets in Asia and the Middle East and plans are being implemented to extend the Group's distribution potential. Whilst new distribution continues to be built, recent new business from our existing distribution has been slow despite the introduction of new products. Accordingly we anticipate that the new business results for Q1 2015 will be approximately 30% below Q4 2014.

INTERIM MANAGEMENT STATEMENT

The first Interim Management Statement in respect of the year ending 30 June 2015 is expected to be published on 7 November 2014.

Gordon Marr, Group Chief Executive Officer, commented:

"The Group has traded profitably and generated positive operating cash flows but the results for the financial year were affected by a number of adverse factors. We have put in place additional safeguards to address the control weaknesses identified as part of our review of the Chargeable Event Certificate issue. We have submitted appropriate documentation to HMRC so that we can resolve the outstanding position.

We remain confident that our strategic initiatives and enhanced product offering will be rewarded and the Group will deliver increased levels of new business as the financial year progresses, and diversify our exposure across a range of distributors and countries. The Group is appropriately capitalised to take advantage of the opportunities that we have identified."

For further information:

Hansard Global plc +44 (0) 1624 688000

Gordon Marr, Group Chief Executive Officer

Vince Watkins, Chief Financial Officer

Bell Pottinger +44 (0) 20 3772 2500

Daniel de Belder 

Notes to editors:

· Hansard Global plc is the holding company of the Hansard Group of companies. The Company was listed on the London Stock Exchange in December 2006. The Group is a specialist long-term savings provider, based in the Isle of Man.

· The Group offers a range of flexible and tax-efficient investment products within a life assurance policy wrapper, designed to appeal to affluent, international investors.

· The Group utilises a controlled cost distribution model by selling policies exclusively through a network of independent financial advisors, and the retail operations of certain financial institutions who provide access to their clients in more than 170 countries. The Group's distribution model is supported by Hansard OnLine, a multi-language internet platform, and is scaleable.

· The principal geographic markets in which the Group currently services policyholders and financial advisors are the Far East, Latin America and the Middle East, in the case of Hansard International Limited, and Western Europe in the case of Hansard Europe Limited, the Group's two life assurance companies. Hansard Europe Limited closed to new business with effect from 30 June 2013.

· The Group's objective is to grow by attracting new business and positioning itself to adapt rapidly to market trends and conditions. The scaleability and flexibility of the Group's operations allow it to enter or develop new geographic markets and exploit growth opportunities within existing markets without the need for significant further investment.

· Following the closure of Hansard Europe Limited to new business with effect from 30 June 2013, the Group continues to report new business performance within this document on Hansard International Limited alone. Reporting of Assets under Administration incorporates cash flows relating to insurance policies issued by both Hansard International and Hansard Europe.

Forward-looking statements:

This announcement may contain certain forward-looking statements with respect to certain of Hansard Global plc's plans and its current goals and expectations relating to future financial condition, performance and results. By their nature forward-looking statements involve risk and uncertainties because they relate to future events and circumstances which are beyond Hansard Global plc's control. As a result, Hansard Global plc's actual future condition, performance and results may differ materially from the plans, goals and expectations set out in Hansard Global plc's forward-looking statements. Hansard Global plc does not undertake to update forward-looking statements contained in this announcement or any other forward-looking statement it may make. No statement in this announcement is intended to be a profit forecast or be relied upon as a guide for future performance.

PRESIDENT'S STATEMENT

"The year ended 30 June 2014 has been eventful and one where we continued to strive to deliver on our new strategy. The international backdrop, including the changes in regulatory requirements, poses its own challenges but also opportunities, and these will be an important focus for management in the coming period. I am confident that Hansard has the ability and determination to adapt to these changes.

As previously announced, at the year-end I handed over the Chairmanship to Philip Gregory. I felt the time had come to pass on the role to a new generation, which can continue to exploit the considerable potential of the business. As an ongoing major shareholder and Board member I look forward to working with Philip, the rest of the Board and the executive team, to implement our recently launched revised strategy and move Hansard further forward."

Dr L S Polonsky

24 September 2014

CHAIRMAN'S STATEMENT

The Board's succession plan announced earlier in the year was implemented on 30 June 2014. On that date I was appointed Chairman to succeed Dr Polonsky. Leonard remains a non-executive director and has accepted the position of President of the Group.

I would like to thank Leonard for his huge contribution to the growth of Hansard during his period as Chairman of the Company. As founder of the Group there would be no Hansard if it had not been for his vision and drive. I am certain that we will continue to benefit from his advice and support in the future.

Maurice Dyson has taken over the position of Senior Independent Director. On 1 January 2014 Andy Frepp was appointed a non-executive director to fill the vacancy left by the retirement of Bernard Asher in September 2013.

Strategy

The Group undertook a thorough strategic review during the year. The review was triggered by the change in executive management last year and a concern that our previous strategy needed adjusting in view of changes in the fast moving global investment market. Our objective was to identify opportunities that could enable us to double the new business in five years' time. The conclusions of the review were presented to Stock Market analysts, our supporting Independent Financial Advisors ("IFAs") and our staff during the first half of 2014.

Many aspects of our previous strategy have been reconfirmed by our review. There is a market opportunity for a well-capitalised offshore life assurance company, with strong positive cash flows and an excellent on-line system, concentrating solely on providing wrapper products to IFAsand their clients. Similarly, our previous strategies of reducing the risk to our shareholders by not giving investment advice and not selling in either the USA or the EU remain valid. The review identified growth opportunities that we should take advantage of, particularly with products aimed at intermediaries focused on the expatriate market. In order to be competitive in this market, we launched a number of revised products in the second quarter of 2014. The strategic review also highlighted areas where we can improve our processes, either to be more cost effective or to reduce our risk.

The full benefits of the strategic review will take several years to achieve, due to the time required to attract new IFAs and implement the necessary changes. However, we are confident that we now have a clear view of the changes required to position the Group for future success.

New business

New business during the year has been disappointing, highlighting the necessity of the strategic review. In October of 2013 our largest supporting IFA suspended its new business operations in Japan. Consequently new business sales in FY 2014 are approximately half that of FY2013. Whilst our sales team are working hard to attract new IFAs, this will take time.

Financial performance

The Group has traded profitably during the year and generated strong positive cash flows from the in-force business. The cash flows have been invested in Hansard OnLine, distribution and other infrastructure to support new business activities, and to pay dividends.

During May 2014 we identified weaknesses in the Group's procedures in relation to the issue of Chargeable Events Certificates ("CECs") required by the UK tax authorities. We immediately strengthened our controls over this area of our administration. We have submitted detailed information to the UK tax authorities and are awaiting their response. While we cannot prejudge the response of the UK tax authorities, accounting standards require us to include a provision in FY 2014 for our estimate of the potential liability and our professional costs. After taking professional advice we have made a provision of £5m.

Consequently the Group's profit under International Financial Reporting Standards ("IFRS") has fallen to £8.3m after tax (2013: £10.4m). The European Embedded Value ("EEV") operating loss after tax of £6.6m reflects the significantly lower new business in the year (2013: £11.7m profit).

The EEV of the Group, following the payment of dividends of £11.2m in the year is £203.8m (2013: £226m).

Dividends

In view of the Board's confidence in the long-term future of the Group, it has resolved to pay an increased final dividend of 5.0p per share (2013: 4.75p) despite the fall in profits for the year. The dividend is subject to approval at the Annual General Meeting. If approved, this will represent total dividends for the financial year of 8.4p per share which is in line with our previous commitment to investors. The final dividend will be paid on 13 November 2014.

Capitalisation and solvency

The Group is well capitalised to meet the requirements of regulators, policyholders, intermediaries and other stakeholders. Aggregate minimum solvency margins are covered 12 times by our capital resources. Our prudent investment policy for shareholder assets has removed much of the market risk and provided a stable and resilient solvency position over recent years.

Concluding remarks

The results for 2014 were disappointing, due to the suspension of new sales by our largest IFA and the need for a £5m provision against our administration of CECs. However, in the last year considerable work has been undertaken on the strategic review to ensure that the Group is positioned for future growth and further work will be ongoing into 2015. It will take time for the full benefits of this adjustment to our strategy to emerge in increased sales and longer still for a significant impact on IFRS profits. However, we are confident that the long-term outlook for the Group is strong.

Philip Gregory

Chairman

24 September 2014

GROUP CHIEF EXECUTIVE OFFICER'S OVERVIEW

I reported in the Annual Report and Accounts a year ago that the Group operates in a fast-moving environment. Since then we have seen the rate of change in the regulatory environment increase markedly and we have responded to that by conducting a wide-ranging review of our business and developed a strategic plan which has gained support from the Group's employees, intermediaries, investors and other stakeholders. We have launched a range of new products that will provide better outcomes for clients and intermediaries and have continued to develop the functionality of Hansard OnLine.

Throughout this financial year we have continued to generate positive cash flows to support investment in new business and the payment of a progressive dividend. In this financial year, however, we have seen significant reductions in new business levels, as compared to last year, following the suspension of the new business activities of our largest distributor. Additionally, in the latter part of the year, we discovered that we had not been meeting all the reporting requirements of HM Revenue and Customs in relation to a small number of UK resident contract holders. We have taken steps to prevent a recurrence of this situation and we have set aside £5m in these accounts to meet the estimated liability.

STRATEGY DEVELOPMENT

The business model that the Group successfully operated in the past is becoming more susceptible to increasing regulatory, competitor and other intervention and an increasing barrier to achieving strategic goals at an appropriate level of risk. We recognised that we have to change. The Group's business is well-capitalised and cash-generative and the Strategic plan that we have developed aims to use the Group's financial strength and flexibility to build a business that is diversified, profitable and of increased scale. We are implementing changes which will set our direction for the foreseeable future.

The Group's strategy is to direct its efforts "to be the preferred choice of distributors when recommending international savings and investment products to their clients".

We have developed attractive products and will continue to improve them. We recognise that clients are at the heart of our business and, consequently, we must work harder to build long-term positive relationships with them. We aim to become even better at serving and rewarding our clients and shareholders.

RESULTS FOR THE YEAR UNDER REVIEW

In the Report and Accounts for the year ended 30 June 2013 I commented on a number of key areas of focus in order for us to attract and retain clients and increase the value of the Group to investors and stakeholders. While we have devoted a great deal of our resources to strategy development and related activities during the year, our areas of prime focus are those to which I referred last year. We believe that these areas are fundamental to the success of the Group.

1. Sourcing significant flows of regular premium new business flows from diversified target markets;

2. Managing our exposure to business risk;

3. Leveraging Hansard OnLine developments; and

4. Generating positive cash flows to fund a progressive dividend stream.

I would draw your attention to the following. Additional information is contained in the Business and Financial Review.

1. New Business distribution

Following the closure of Hansard Europe Limited to new business with effect from 30 June 2013, new business performance commentary within this document will relate to Hansard International Limited alone, except where indicated.

The level of new business we earned during the year of £83.0m (using the basis of Present Value of New Business Premiums ("PVNBP") metric) is some 50% below that of FY 2013. This reduction was driven primarily by the fact that a significant introducer network in Japan suspended its new business activities in October 2013. This network introduced £9.5m PVNBP to us in Q1 2014 and £74m PVNBP in FY 2013. We had anticipated an element of regulatory intervention in the relationship and had been in discussions to agree an acceptable way forward at the time of the suspension. As a result of the suspension we no longer accept new business from Japanese residents.

For comparative purposes, if we discount the business introduced by that distributor then new business levels in FY 2014 are some 25% below those of FY 2013, which includes the effect of Hansard Europe closing to new business and the consequent loss of relationships with those intermediaries.

During the year we continued to support intermediaries and other new business activities with incentive arrangements and revised products that we feel will allow us to capture increased levels of new business in future, albeit at lower margins than we have enjoyed in the past. In support of our strategic plans we have increased marketing and distribution resource across the Group to allow us to better pursue a range of distribution opportunities in a number of jurisdictions and with a range of intermediary networks, as reported in the Business and Financial Review.

I would like to record my thanks to all members of the Group's distribution force, in particular to Graham Morrall for his tireless activity in his first year with the Group, and to all those IFAs and intermediaries who have introduced new business to us this year.

2. Operational, Business and Financial Risks

Our business model involves the acceptance of a number of risks. We maintain an enterprise risk management framework to identify, assess, manage, monitor and control current and emerging risks. However the system of internal control can only provide reasonable and not absolute assurance against material misstatement or loss. In general the Group's internal control and risk management processes have operated satisfactorily throughout the year, but we have had to recognise an expense of £5m in this financial year arising from a failure of operational risk management that has persisted for a number of years, as is more fully described below;

2.1 Breach of Chargeable Event Certificate Regulations

During the implementation of the revised Operating Model for Hansard Europe we discovered long-standing breaches in the processing and issue of Chargeable Events Certificates ("CECs") required by Her Majesty's Revenue and Customs ("HMRC") in relation to a limited number of contracts held by UK residents. Upon discovery we immediately strengthened our controls over this area of our administration and initiated a review by external advisors to determine the full extent of any breaches, to estimate the potential liability and to assist us in preventing a recurrence.

We recognise our obligations to clients to accurately process contract transactions and related regulatory requirements. The Board therefore agreed to negotiate a settlement with HMRC on an "estimate of tax lost" basis in order to minimise client inconvenience and defray tax liabilities that might otherwise fall on clients as a direct result of our failure to comply with those requirements of HMRC.

The breach has given rise to a very significant amount of work for our employees and our advisors to allow us to confirm to HMRC that we have adequately investigated our data and have correctly performed a large number of complex calculations to support our estimate of the tax lost and, therefore, the potential liability. All the necessary documentation has been submitted to HMRC. We await the conclusion of their review of our documentation. We cannot prejudge the response of HMRC but we estimate that the cost to the Group, including professional costs, will not exceed £5m and have made a provision for that amount in this financial year.

The Group Audit Committee is tasked with agreeing and monitoring steps taken to improve operational risk awareness and reporting throughout the Group.

2.2 Revised Operating Model for Hansard Europe

Plans to protect the interests of clients and other stakeholders of Hansard Europe and to achieve an orderly run-off have been implemented in full. Contract servicing and related activities have been outsourced to a Group company in the Isle of Man while regulatory control functions and litigation management remain at Hansard Europe's offices in Dublin.

Headcount reductions have been achieved as anticipated and at the date of this report Hansard Europe employs 7 people (2013: 37 people). We have taken a charge of £0.7m in this financial year (FY 2013: £0.4m) representing accelerated redundancy costs, professional fees and other costs arising from the implementation of the plans. With the successful implementation of the revised Operating Model we do not anticipate a significant level of these costs in the future.

As a result of these factors, Hansard Europe remains strongly capitalised although the conditions agreed with the Central Bank of Ireland following approval of the plans will defer dividend distributions from that company for the foreseeable future.

2.3 Complaints and potential litigation

We continue to deal with complaints in circumstances where a contract holder believes that the performance of an asset linked to a particular contract is not satisfactory. We do not give investment advice and are not party to the selection of the asset and therefore we feel that such claims have no merit. Sometimes these complaints progress to threatened litigation with the resulting increase in cost and resource to the Group. In many cases the threatened litigation relates to decisions taken by individuals during, or as a result of, the global financial crisis some 5 years ago.

We have taken action during the year to minimise future exposure to significant complaints by the introduction of an asset universe that provides a wide range of investment assets, but which seeks to minimise access to those asset types that have given rise to significant complaints in the past, and by careful risk management of existing litigation. We believe that this action will be positive for the Group.

At the beginning of this financial year Hansard Europe was facing litigation based on writs totalling €4.6m (approximately £3.9m) as a result of these and related complaints. Each case is considered on its merits and during the year the Board considered it in our best interests to reach a resolution with regard to certain of those claims. Settlements totalling £0.7m (2013: £1.6m) have been agreed. These settlements relate to underlying claims of approximately £1.9m (2013: claims of approximately £7.5m) which demonstrates the disparity between amounts claimed (and therefore reported as contingent liabilities within the Report and Accounts) and amounts subsequently settled following disclosure of the facts of each case.

While these settlements have had a negative impact on reported results, they were agreed, without any admission of liability, in order to avoid the expense and distraction of extended litigation and to allow management to focus fully on the execution of our strategy.

As a result of further writs issued during the year and in the period to the date of this report, writs outstanding against Hansard Europe total €6.5m or approximately £5.2m. We will continue to defend ourselves from all claims but will consider early settlement where there is a clear economic benefit.

3. Leverage Hansard OnLine

Hansard OnLine is a powerful sales and business administration tool that is used by intermediaries and clients the world over. It is an integral part of Group administration systems that allows us to better service intermediaries and clients, embed process efficiencies and be flexible in operational deployment. During the year we continued to extend the reach of Hansard OnLine among those few intermediaries throughout the world who do not currently utilise this powerful tool in their dealings with Hansard.

Our goal is to provide clients with an online 24/7 self-service model and we have continued to improve access, useability and security.  More than 10,000 new business applications have been processed through Hansard OnLine since launch of the facility and over 90% of new business applications are processed online.

Additional information concerning developments in Hansard OnLine is set out in the Business and Financial Review.

4. Positive operating cash flows and progressive dividend stream

The Group generates positive operating cash flows to fund investment in new business and support a progressive dividend payment stream. The Board made a commitment to a dividend of 8.0p per share in respect of FY 2013, and to a progressive dividend policy in subsequent financial years.

Although new business flows (and therefore the investment in new business) are less than anticipated for the reasons discussed above, the Business and Financial Review reflects that the Group generated a net £21.8m in cash flows to support dividend payments in respect of FY 2014 totalling £11.2m (2013: a net £13.8m to support dividend payments totalling £15.5m).

An interim dividend of 3.40p per share was declared on 26 February 2014. A final dividend of 5.0p per share has been proposed by the Board and will be considered at the Annual General Meeting on 6 November 2014. When the final dividend is paid at this level, these dividends will total 8.4p per share in respect of this financial year, in line with our strategic commitment.

FINANCIAL PERFORMANCE

Results for the year

Financial performance is summarised as follows. A detailed review of performance is set out in the Business and Financial Review that follows this report.

IFRS results

Fees and commissions have increased by 4.2% or £2.4m over FY 2013. The increased level of fee income in this financial year is largely as a result of those contracts issued in the last few years which are now contributing to revenue streams for a full financial year. The strengthening of sterling during the year against those foreign currencies in which contract fees are denominated has however restricted the growth of reported fee income.

The Group has been successful in harnessing the results of process efficiencies. Primarily as a result of transferring the administration of Hansard Europe's contract servicing activities to the Isle of Man, at 30 June 2014, administrative headcount is 206, a reduction of 35 people over the last 2 years. The associated expense savings in this financial year have however been outweighed by the effects of a small number of exceptional items; the provisions of £5m against potential liabilities in relation to the settlement of the CEC issues; litigation settlements of £0.7m (2013: £1.6m), and by the charge of £0.7m (2013: £0.4m) taken in relation to the closure of Hansard Europe to new business.

After recognising those exceptional items, which total £6.4m (2013: £2.0m), IFRS profit after tax for the year is £8.3m, a reduction of 20.2% from the profit of £10.4m in FY 2013. Without those exceptional items the underlying IFRS profit after tax was £14.7m (2013: £12.4m).

EEV results

During the year, the Group has invested significant resource in the development and implementation of its new strategy, while at the same time managing the expenses of supporting its existing business. Cash flows have remained strongly positive.

As mentioned above, sales were reduced by approximately 50% as a result of the loss of a key distributor and the closure of Hansard Europe to new business. The planned product redesign (part of the refreshed strategy) was implemented on time, but the nature of the Group's distribution cycle is such that sales of the new product range would never build sufficiently quickly to replace the business lost in this financial year. The result was an EEV new business contribution of £3.3m (2013: £22.5m). In the light of low new business, this year's EEV result has been driven predominantly by the strengthening of sterling against those currencies that are favoured by the Group's contract holders, and deteriorating policy experience that has been incorporated in our expectations of future revenues.

The high level of sterling at 30 June 2014 drove a reduction in EEV of £17.5m (2013: £1.6m increase), more than offsetting investment gains of £9.7m (2013: £6.2m increase). The scale of this impact reinforces the international nature of the Group's business and, for EEV reporting purposes, the impact of foreign exchange rates. Investment return and foreign exchange rates are generally outside the Group's control.

The impact of experience variances and operating assumption changes reduced EEV by £12.7m (2013: £9.7m decrease). The experience variances include the Chargeable Event Certificate provision of £5m referred to above: the assumption changes reflect our decision to subsidise credit card charges for all new regular premium contracts issued during the year and also deteriorating experience of contract holder behaviour. In particular we have considered the recent behaviour of those clients introduced by the Japanese distributor: premiums on this business continue to be received.

Following the payment of dividends of £11.2m (2013: £15.5m), the Group's EEV is £203.8m at 30 June 2014 (30 June 2013: £225.7m).

Capitalisation and solvency

Our key financial objective is to ensure that the Group's solvency is managed safely through the economic cycle to meet the requirements of regulators, contract holders, intermediaries and shareholders. The Group is well capitalised. The required minimum solvency margins are covered 12 times (2013: 12 times) by our capital resources, which are typically held in a wide range of deposit institutions and in highly-rated money market liquidity funds. This prudent investment policy for shareholder assets has removed much of the market risk and provided a stable and resilient solvency position over recent years.

We recognise that Hansard Europe's capital surplus is not available for distribution in the foreseeable future. It is therefore included within the total of Required Capital of £25.1m in the analysis of the Group's EEV balance sheet at 30 June 2014. Allowing for this, the EEV balance sheet reflects that the Group has a free surplus of £28.3m available for investment and distribution, an increase of over 40% since 30 June 2013.

our people

The Group has a dedicated dynamic workforce. We have a commitment to service and quality at the highest level in relation to the development of successful products, servicing, distribution mechanisms and Hansard OnLine. I thank them all for their continued commitment to Hansard. I am sure that our employees will continue to meet the strategic challenges facing us.

G S Marr

Group Chief Executive Officer

24 September 2014

BUSINESS AND FINANCIAL REVIEW

Our Business Model and Strategy

Hansard is a specialist long-term savings provider that has been providing innovative financial solutions for international clients since 1987. We focus on helping financial advisors and institutions to provide their clients (individual and corporate investors) with savings and investment products in secure life assurance wrappers to meet long-term savings and investment objectives.

We administer assets of over $1 billion for 528 financial advisor businesses with over 40,000 client accounts in over 155 countries.

Business

The Company's head office is in Douglas, Isle of Man, and its principal subsidiaries operate from the Isle of Man and the Republic of Ireland. Hansard International Limited is regulated by the Insurance and Pensions Authority of the Isle of Man Government and has a branch in Malaysia, regulated by the Labuan Financial Services Authority, to support business flows from Asian growth economies. Hansard Europe Limited is regulated by the Central Bank of Ireland. Hansard Europe ceased accepting new business with effect from 30 June 2013.

Our products are designed to appeal to affluent international investors, institutions and wealth-management groups. They are distributed exclusively through independent financial advisors ("IFAs") and the retail operations of financial institutions.

Our network of account executives provides local language-based support services to financial advisors in key territories around the world, supported by our multi-language online platform, Hansard OnLine.

Products

The Group's products are unit-linked regular or single premium life assurance and investment contracts which offer access to a wide range of investment assets. Having made a significant change to our pricing model, to the benefit of the client and distributor, a range of new products was launched in Q4 2014.

The contracts are flexible, secure and held within "wrappers" allowing life assurance cover or other features depending upon the needs of the client. The contract benefits are directly linked to the value of those assets that are selected by, or on behalf of, the client and held within the wrapper. The Group does not offer investment advice. Contract holders bear the investment risk.

The Group's products do not include any contracts with financial options and/or guarantees regarding investment performance and, hence, unlike the situation faced by many other life assurers, the Group carries no guarantee risk that can cause capital strain. 

As a result of high levels of service, the nature of the Group's products, the functionality of Hansard OnLine, and the ability of the contract holder to reposition assets within a contract, we expect to retain the contract holder relationship over the long term.

Contract holder servicing and related activities are performed by Hansard Administration Services Limited, which is authorised by the Insurance and Pensions Authority of the Isle of Man Government to act as an Insurance Manager to both Hansard International and Hansard Europe.

Revenues

The main sources of income for the Group are the fees earned from the administration of the insurance contracts. These fees are largely fixed in nature and amount. Less than30% of the Group's revenues, under IFRS, are based upon the value of assets under administration. The new business generated in a particular year is expected to earn income for an average period of 14 years. Accordingly, with careful expense management, this provides a healthy return on the capital invested in that business. Our business is therefore long term in nature both from a contract holder perspective and with regards to the income that is generated.

From this income we meet the overheads of the business, invest in our business, invest to acquire new insurance contracts and pay increasing dividends.

Strategy

Our aim is to bethe preferred choice of distributors when recommending international savings and investment products to their clients.  We have developed attractive products and services and will continue to improve them. We recognise that clients are at the heart of our business and, consequently, we must work hard to build long-term positive relationships with them. We need to become even better at understanding, serving and rewarding our clients and shareholders.

We recognize that our vision encompasses every part of our business. With the support of our management and employees we have identified a range of strategic objectives to meet this target and are working towards them. Through careful execution of our plans in each of the following areas we intend to add significant scale to the business, on a more diversified basis, at acceptable levels of risk and profitability.

· More long-term relationships with distributors;

· Better value for clients;

· A more visible profile in the market;

· Excellent client service;

· A motivated and engaged workforce;

· Market-leading OnLine systems; and

· Progressive dividend policy.

We have developed a range of key performance indicators (KPIs) that will demonstrate progress toward these objectives. Since we have only limited baseline metrics for some of these objectives, we will provide additional appropriate reporting on those objectives in future years.

Managing Risk

Our growth plans will mean that our operational risk profile will increase across our business. We are investing in our system capabilities and business processes to ensure that we meet the expectations of our clients, comply with regulation and mitigate the risks of loss or reputational damage from operational risk events.

We continue to maintain a robust, low risk balance sheet and, while markets have improved over the last few years, we still believe this to be appropriate to meet the requirements of regulators, contract holders, intermediaries and shareholders. This prudent investment policy for shareholder assets has removed much of the market risk and provided a stable and resilient solvency position over recent years.

The principal risks facing the Group are those which are inherent in our business model and to the environment within which we operate. The regulatory environment continues to evolve and our risk framework will have to respond to a number of developments in future, including:

· Solvency II, which is scheduled for implementation on 1 January 2016, will impose additional costs and reporting on Hansard Europe;

· The Insurance and Pensions Authority of the Isle of Man Government has outlined its timetable for significant changes to the regulatory framework, which will impact on Hansard International and;

· The implementation of FATCA and related regulations which will impact on the entire business.

HANSARD ONLINE

Enhancing client service

Our vision is to develop a more intimate and rewarding online experience for our clients and IFAs. We are investing in new developments that increase our ability to provide a better service and to better position the Group to meet our clients' future needs. For example, we are enhancing functionality to allow clients to receive more information and more content in an electronic format. Our goal is to provide clients with an online 24/7 self-service model.

Hansard OnLine ("HOL") is key to our vision. HOL is the Group's online platform providing secure access for intermediaries around the world, around the clock. Key content can be presented in 11 different languages - helping IFAs communicate more effectively with their clients.

HOL is a valuable sales and administration tool that continues to be developed to meet the needs of intermediaries and their clients. This has allowed the Group to reduce its operational expense base and provide better positioning to achieve its long term strategic goals. OnLine Accounts for clients have been refreshed recently to enhance the look and feel. This has improved usability. We plan to further improve usability for both the advisor and client sites. Intermediaries will be supported with more market leading sales and administration tools whilst clients will see enhancements such as the addition of transactional and data maintenance utilities.

Meeting contract holders' requirements

Secure communications 

Through an OnLine Account contract holders can view all the documentation and communications relating to their contracts. Over 15,000 OnLine Accounts are accessed regularly with the number of clients choosing not to receive hard copy post continuing to show a steady increase. Indeed, 60% of client communications are now accessed exclusively online.

Local needs in local languages

OnLine Accounts display content in 11 languages, customisable at log in or at any time during use via a language selection tool.

Payment of premiums

Premium payments can now be better managed online via a credit and debit card payment and reporting system. Work continues to further enhance and build on this valuable functionality.

Supporting intermediaries

Secure information

· Management information

We have increased the number of reports available to the intermediary enabling a more efficient management of their book of business and their workforce.

The traditional "Keyfob" supplied has been supplemented by a "Virtual Keyfob". This can be installed on a laptop or desktop PC, tablet or smartphone ensuring that it is even easier for intermediaries to log in whenever they need to, wherever they are, while retaining secure links to Hansard.

· Investment research functionality

The Unit Fund Centre is an interactive research application that allows an intermediary to filter the entire range of Hansard unit funds, based on a range of specific criteria relevant to a client's objectives. A branded report can then be produced detailing comprehensive fund performance and holdings data for their clients. The enhanced version of the application has increased functionality and more robust underlying data.

Online processing

· Pre-sale illustrations

Our multi-language, feature rich online illustrations systemis designed to allow intermediaries to better demonstrate projected returns to clients. Usage continues to grow with an average of 200 illustrations generated per week.

Planned enhancements will see increased usability, with a goal of streamlining the pre-sales process.

· Online processing of new business applications

Over 90% of all new business applications are received via HOL. Popularity of this functionality continues to increase with Online New Business being seen as a key advantage by new intermediaries.

· Online processing of investment transactions

The majority of fund advisors now submit contract-related investment changes online with over 90% of advisor instructions now being keyed via this mechanism. A facility to allow fund advisors to transact in aggregate throughout their client range has been released.

With the introduction of these new systems the actual number of switches has doubled which shows that our intermediaries find online fund switching to be an efficient and much valued service.

Selected contract holders now have the functionality to perform their own investment changes online allowing them to better meet their investment objectives. This utility will be rolled out to all relevant clients in due course.

Reducing Operational risk

· Straight-through processing

The straight-through processing of investment instructions (whether received from contract holders or through their appointed agents) reduces the Group's operational risk exposures, as does the ability of the Group to communicate electronically with intermediaries and clients, irrespective of geographical boundaries and time zone limitations.

· Administrative efficiencies

Hansard OnLine is a vital component of the revised Operating Model for Hansard Europe, meeting the needs of that company's regulators, clients and intermediaries while allowing more efficient management of operations from the Isle of Man.

Key performance indicators

The Group's senior management team monitors a wide range of Key Performance Indicators, both financial and non-financial, that are designed to ensure that performance against targets and expectations across significant areas of activity are monitored and variances explained. Indicators reflecting operational performance have been enhanced following the launch of the Group's Strategic Plan and will be incorporated in future reporting.

The following is a summary of the key indicators that were monitored during the financial year under review.

New business flows for the year ended 30 June 2014

Strategy DEVELOPMENT

The Group has access to a large portfolio of international distributors who know that our combined efforts can meet the needs of contract holders around the world.

We have completed a thorough review, with the assistance of external professional resources, of the sales and marketing operations of the Group. As a result we have implemented a range of strategic and tactical adjustments to better diversify new business flows and increase the scale of our business.

In Q4 2014 the Group hosted a number of activities in target markets to launch its Strategic Plan and new products. Various launch events took place in Latin America, the Far East, the Middle East and Africa. These events have been supported by other local market development activities which have generated considerable interest among Independent Financial Advisors and contract holders around the world and will provide a platform for sustainable diversified new business flows in the medium term. We have launched a series of promotional initiatives in trade journals in our target markets outlining our strengths and the value of our proposition to intermediaries and their clients.

STRATEGIC INITIATIVES

These initiatives impact upon the whole of the Group's business, its clients and other stakeholders.

· Policyholders and Product

The Group has developed a range of savings and investment products that are designed to allow us to access business more successfully in a number of target markets, having made a significant change to our pricing model, to the benefit of the consumer and distributor.

· Distribution

The Group continued negotiations with a number of well-established distributors, including brokers, expatriate IFAs, insurers and private banks involved in both expatriate and local markets around the world, some of which are drawing to a successful conclusion. Our main aim is to build long-term relationships with our distributors in key markets with growing economies and high concentrations of wealth.  Since we began building the base for our new distribution strategy, we have added 33 new quality terms of business adding well over 200 new brokers to our available distribution in target markets.

· Hansard OnLine

As reported above, we believe that Hansard OnLine is a very powerful resource and have committed to continually increase accessibility and functionality.

· Resources

The Group's proposition is to develop and enhance relationships with policyholders and intermediaries through the use of our people, products and technology in a way that meets shared objectives.

We have already started to restructure and refocus our sales force and have recruited a number of highly experienced Account Executives, primarily to focus on the Far East, the Middle East and the international expatriate market. We are looking to expand further in other regions over the next financial year as opportunities develop and as suitable candidates become available. We have also signed leases on larger offices in Malaysia and Dubai to enable us to provide more extensive training capabilities to support our distributors.

To help further focus our resources we have reorganised our sales management structure into three regions, each headed by a Regional Director; Latin America, Middle East & Africa and Asia.

New Business Flows - year ended 30 june 2014

Following the closure of Hansard Europe to new business with effect from 30 June 2013, the new business performance reported below is that of Hansard International alone. As can be seen, new business sales for FY 2014 on all metrics are approximately half of the levels of the prior year.

Throughout the year the Group has continued to develop relationships with financial advisors in a number of target markets including the Far East, Latin America and the Middle East. Following its product launches the Group has widened the range of target jurisdictions which will extend further as these new jurisdictions start to become established. The Group's activity, supported by the introduction of product-based incentive arrangements, the launch of new products, and by enhancements to Hansard OnLine, has underpinned new business flows in the year under review.

In particular, the Group has further increased its investment in Malaysia to take better advantage of its licensed position and early signs are positive - sales of this year are some 33% above FY 2013. 

Following the suspension of activities by a large distribution network in Japan in Q2 2014, the Group has suspended accepting new business from Japanese residents. As a consequence, new business emanating from the Far East in the current year is significantly reduced from the prior year, which was particularly strong.

· Present Value of New Business Premiums ("PVNBP")

New business flows for Hansard International on the basis of PVNBP are summarised as follows:

We continue toreceive business from a diverse range of financial advisors around the world. Our focus on growth markets is reflected in the proportions of contractual premiums denominated in US dollars while the reduction in Japanese Yen flows in the table below demonstrates the effect of the suspension of Japanese business. Comparative figures in this table have been restated to show only currency flows relating to contracts issued by Hansard International Limited in FY 2013.

· New business margins

Continued low volumes of new business impact directly on the Group's new business margins. Reduced volumes, coupled with the more competitive product design and other incentives in operation during the year, have resulted in margins of approximately 4.0% on the PVNBP basis for FY 2014. We expect these margins to remain at this level for the foreseeable future, although the margin is expected to be volatile in the short-term. The new business margin will reflect sales volumes measured against the marketing function platform costs that we have established as part of our refreshed strategy. As a result, the margin may be negative in the early part of the financial year, moving towards target as the year completes.

Presentation of financial results

Our business is long term in nature. For this reason we present the results on an EEV basis in addition to the statutory IFRS basis. We believe that EEV is a valid measure of profitability and shareholder value. Our embedded value is based on the EEV principles which were set out as an industry standard by the Chief Financial Officers (CFO) Forum in 2004.

The profit that the Group expects to earn from the issue of an insurance contract is the same, irrespective of the basis of measurement, however:

· The EEV result is a discounted cash flow valuation of the future profits expected to emerge from the current book of insurance contracts and provides a more complete recognition of management's activity throughout the financial year. It demonstrates the expected emergence of shareholder cash over the long term, by reflecting the net present value of the expected future cash flows.

· The IFRS methodology smoothes recognition of profit from new business by spreading the initial costs (and revenues) evenly over the life of the business. The IFRS result therefore, reflects neither the future shareholder value added, nor the cash impact of the new business in a particular year.

Results for the year

The following is a summary of key items to allow readers to better understand the results for the year. A small number of comparative figures have been restated in this section to ensure consistency of presentation. After recognising the exceptional items referred to below, IFRS profit after tax for the year is £8.3m (2013: £10.4m).

During the year the Group implemented the revised Operating Model for Hansard Europe and has been successful in harnessing process efficiencies and reducing administrative headcount, as planned. The benefits of these savings have been outweighed by the provision of £5m in relation to potential liability and related professional costs for the breaches of CEC regulations; the effects of litigation settlements of £0.7m (2013: £1.6m) and by the charge of £0.7m (2013: £0.4m) taken in relation to the closure of Hansard Europe to new business.

Prior to those exceptional items totalling £6.4m (2013: £2.0m) the underlying IFRS profit was £14.7m before taxation, compared with an underlying profit of £12.7m in FY 2013, as can be seen below.

Abridged consolidated income statement

The consolidated income statement presented under IFRS reflects the financial results of the Group's activities during the year. This income statement however, as a result of its method of presentation, incorporates a number of features that might affect an understanding of the results of the Group's underlying transactions. This relates principally to:

· Investment income, gains and losses relating to the assets administered by the Group to back its liability to contract holders. These assets are selected by the contract holder or an authorised intermediary and the contract holder bears the investment risk. Investment gains during the year attributable to contract holder assets were £7.3m (2013: £73.4m losses).

· Fund management fees paid by the Group to third parties having a relationship with the underlying contract. While fund management fees paid are properly recorded in the consolidated income statement under IFRS, the disclosure distorts results compared with an understanding of the Group's own entitlement to fund management fees and any requirement to pay such fees for services rendered in respect of the Group's own assets. In the current year third party fund management fees attributable to contract holder assets were £4.3m (2013: £4.3m). These are reflected in both income and expenses under the IFRS presentation.

An abridged consolidated income statement in relation to the Group's own activities is presented below, excluding the items of income and expenditure indicated above.

Fees and commissions

Fees and commissions for the year attributable to Group activities are £55.2m, an increase of 4.6% over the previous year (2013: £52.8m).

Elements of contract fee income are largely fixed in nature, representing both the smoothing of up-front income required under IFRS, and contract-servicing charges. The increase in contract fees over the comparative year shows the effect of increased fee income derived from new business flows in prior financial years, despite the strengthening of sterling against those currencies in which new business premiums are collected. This demonstrates the resilience of the Group's business model as each new contract issued represents a store of value for future years.

Fund management fees and commissions receivable from third parties totalling £14.1m (2013: £14.8m) are related directly to the value of assets under administration and are therefore exposed to market movements, currency rates and valuation judgements. The level of this income, when compared with last year, reflects primarily that the reported level of assets under administration has fallen by approximately 8% over the course of this financial year.

A summary of fees and commissions is set out below:

Included in contract fee income is £21.3m (2013: £20.1m) representing the amortisation of fees prepaid in previous years, as can be seen in the analysis set out below. This increased level of amortised fees incorporates an element of deferred income on contracts that have lapsed during the year.

Investment and other income

Volatility in foreign exchange markets continued throughout the year. Having regard to the geographic spread of the Group's clients and the currencies in which their contracts are denominated, the strengthening of sterling since 30 June 2013 has reduced investment and other income by £0.8m  (2013: gains of £0.6m). With the implementation of the revised Operating Model Hansard Europe has reduced its currency holdings, as can be seen in note 3.1 to the consolidated financial statements under IFRS.

A summary of Investment and other income is set out below:

Origination costs

Under IFRS, new business commissions paid, together with the directly attributable incremental costs incurred on the issue of a contract, are deferred and amortised over the life of that contract to match the longer-term income streams expected to accrue from the contracts issued this year. The life of a regular premium contract is deemed to be its agreed term. Typical terms range between 10 years and 25 years. The expected life of a typical single premium contract is 15 years. Other elements of the Group's new business costs, for example recruitment costs and initial payments to new Account Executives, which reflect investment in distribution resources in line with our strategy, are expensed as incurred.

The reduced new business volumes which the Group has experienced during the year are reflected in a fall in the direct costs of new business to £12.2m from £28.5m in the previous financial year.

Amounts totalling £19.2m (2013: £18.7m) have been expensed to match contract fee income earned this year from contracts issued in previous financial years, as can be seen in the analysis below. This increased level of amortised costs incorporates an element of deferred origination costs on those contracts that have lapsed during the year.

Origination costs in the year are:

Administrative and other expenses

We continue to robustly manage our expense base to control administrative expenses while supporting our strategic developments and other new business activities with targeted expenditure.

The Group has been successful in harnessing process efficiencies and reducing administrative headcount during the year, largely through the full implementation of the revised Operating Model for Hansard Europe. We believe that the headcount reductions and other efficiencies gained from the implementation of the revised Operating Model are a result of our investment in prior years in Hansard OnLine and other systems. These savings will allow continued investment in the Group's strategic developments.

The benefits of these expense reductions in this financial year have been outweighed by three particular exceptional items that have been discussed earlier, being the provision for £5m in relation to a settlement to HMRC and related professional costs for breaches of the CEC Regulations; litigation settlements of £0.7m (2013: £1.6m); and by the charge of £0.7m (2013: £0.4m) taken in respect of professional fees, redundancy payments and related costs following the closure of Hansard Europe to new business on 30 June 2013.

The Group's underlying administrative and other expenses, without taking those exceptional items into account, decreased by 7% over FY 2013 to £19.5m.

An analysis of administrative and other expenses is set out in notes 8 and 9 to the consolidated financial statements under IFRS. The following summarises some of the expenses attributable to the Group's own activities.

Salaries and other employment costs have reduced by 8% to £8.8m. In large part this reflects the targeted reduction of administrative headcount following the implementation of the revised Operating Model for Hansard Europe. To support the Group's strategic development activity we increased distribution, marketing and related resources in the latter part of the financial year as well as targeted expenditure on training and employee engagement. The Group headcount at 30 June 2014 is 206 people (2013: 209 people).

Other administrative expenses have decreased marginally. Depreciation on IT capital spend designed to achieve process efficiencies is £0.6m (2013: £0.6m). Premium collection-related charges increased to £0.4m (2013: £0.3m) following additional incentive arrangements for contract holders. We saw a reduction in activity in relation to distressed assets under administration and were able to reduce provisions against contract fees to £0.2m compared with £0.6m in FY 2013.

Growth investment spend represents internal and external costs to generate opportunities for scale. The Group continues to invest to build its business and to implement product and technological changes to support intermediaries, policyholders and other stakeholders. The amount of expenditure has reduced from the previous year as some external opportunities were not repeated.

Audit and other professional fees in the year include legal fees of £0.9m (2013: £0.5m) incurred to protect the Group's position against complaints; amounts totalling £0.5m paid to the Group's auditor (2013: £0.5m); £0.3m (2013: £0.5m) for administration, custody, dealing and other charges paid under the terms of the investment processing outsourcing arrangements; and costs of Investor Relations activities of £0.4m (2013: £0.4m).

The provision for the estimated cost of the HMRC settlement and related professional costs is in relation to our estimate of potential liabilities flowing from the breaches in Chargeable Event Regulations. The provision is based upon our estimate of tax lost by HMRC. All the necessary documentation has been submitted to HMRC and we await the conclusion of their review of our documentation and will then be in a position to agree the liability.

Included in administrative and other expenses are items totalling £0.7m in respect of professional fees, redundancy and related costs following the closure of Hansard Europe to new business on 30 June 2013 (2013: £0.4m). With the successful implementation of the revised Operating Model we do not anticipate a significant level of these costs in the future.

Litigation settlements. Incorporated above are amounts totalling £0.7m (2013: £1.6m) in full and final settlement of underlying claims of approximately €2.4m (2013: €9.5m) served upon Hansard Europe. These settlements were made, without any admission of liability, in order to avoid the expense and distraction of extended litigation and to allow management to focus fully on execution of the Group's strategy.

Cash Flow ANALYSIS

Operating cash flows continue to be strongly positive. The operational cash surplus (fees deducted from contracts and commissions received, less operational expenses paid) is £37.8m following the litigation settlements and other expenditure referred to above. While the operational cash surplus has been restrained by the strengthening of sterling against those currencies in which the Group's fees are collected, the surplus is sufficient to fund investment in new business in the year of £15.4m (2013: £28.8m which is almost 50% below the anticipated level).

The Group believes that the best use of its capital resources is to invest in new business, recognising that continued investment in profitable regular premium contracts produces a short-term cash strain as a result of the commission and other costs incurred at inception of a contract.

To reduce the risk that the targeted return on investment in new business is jeopardised, the Group withholds a portion of initial commission from certain intermediaries pending completion of the initial period of particular contracts. At the balance sheet date, amounts totalling £2.3m (2013: £5.4m) had been withheld, of which £0.8m (2013: £2.5m) was in relation to the Japanese distributor that suspended its operations during the year. These amounts are reflected within "Other payables" in note 19 to the consolidated balance sheet.

The following table summarises the Group's own cash flows in the year. This analysis demonstrates that the in-force contract book continues to generate the cash required to support the Group's main business objectives of investing in new business, enhancing distribution and other infrastructure and supporting dividend payments. Dividends of £11.2m (2013: £15.5m) paid during the year have been funded by the Group's own resources.

The impact of strongly positive cash flows and reduced new business strain is an increase of £8.4m in the Group's own cash resources which supports the increased shareholder cash and deposits of £78.5m (2013: £67.2m).

Bank deposits and money market funds

The Group holds its liquid assets in highly-rated money market liquidity funds and with a wide range of deposit institutions to minimise market risk. Deposits totalling £20.1m have original maturity dates greater than 3 months and are therefore excluded from the definition of "cash and cash equivalents" under IFRS as reflected in note 16 to the consolidated balance sheet (2013: £20.4m). The following table summarises the total shareholder cash and deposits at the balance sheet date.

The longer-term term deposits have maturity dates between 4 months and 11 months of the balance sheet date.

Abridged consolidated balance sheet

The consolidated balance sheet presented under IFRS reflects the financial position of the Group at 30 June 2014. As a result of its method of presentation, the consolidated balance sheet incorporates the financial assets held to back the Group's liability to contract holders, and also incorporates the net liability to those contract holders of £0.94bn (2013: £1.03bn). Additionally, that portion of the Group's capital that is held in bank deposits is disclosed in "cash and cash equivalents" based on original maturity terms, as noted above. 

The abridged consolidated balance sheet presented below, adjusted for those differences in disclosure, allows a better understanding of the Group's own capital position.

Deferred origination costs

The deferral of origination costs reflects that the Group will earn fees over the long-term from contracts issued in a given financial year. These costs are recoverable out of future net income from the relevant contract and are charged to the income statement on a straight-line basis over the life of each contract. 

The Group has continued to invest in profitable contracts during the year under review but the reduction in the rate of acquisition, as compared with recent years, is reflected in a net decrease in carrying value of deferred origination costs since 30 June 2013.

The movement in value over the financial year is summarised below.

This increased level of costs amortised during the year incorporates an element of deferred origination costs on policies that have lapsed during the year, in order to ensure that the carrying value of deferred origination costs is not impaired by contract holder activity.

Deferred income

The treatment of deferred income ensures that contract fees are taken to the consolidated income statement in equal installments over the longer-term, reflecting the services to be provided over the period of the contract. This is consistent with the treatment of deferred origination costs. Deferred income at the balance sheet date is the unamortised balance of accumulated initial amounts received on new business.

The proportion of income deferred in any one year is dependent upon the mix and volume of new business flows in previous years. The Group's focus on profitable regular premium business means that these fees are received over the initial period of the contract, rather than being received up front, as is typically the case with single premium contracts. 

The majority of initial fees collected during the year relates to charges taken from contracts issued in prior financial years demonstrating the cash generative nature of the business. Regular premium contracts issued in this financial year will generate the majority of their initial fees over the next 18 months on average.

The movement in value of deferred income over the financial year is summarised below.

This increased level of income recognised in contract fees during the year incorporates an element of deferred income on those contracts that have lapsed during the year, in order to ensure that the carrying value of deferred income is not impaired.

CONTRACT holder Assets under administration

In the following paragraphs, contract holder assets under administration ("AuA"), refers to net assets held to cover financial liabilities, as analysed in note 17 to the consolidated financial statements presented under IFRS.

The Group enjoys a stream of cash flows from the large number of regular premium contracts administered on behalf of clients around the world. The majority of premium contributions are designated in currencies other than sterling, reflecting the wide geographical spread of those policyholders. Premium contributions during the year includes additional contributions of approximately £7m (FY 2013: £18m) relating to single and regular premium contracts issued by Hansard Europe in prior years. As a result of the closure of that company to new business with effect from 30 June 2013 the level of single premiums received by the Group in FY 2014 has reduced from the previous year.

These flows are offset by charges and withdrawals, by premium holidays affecting regular premium policies and by market valuation movements. Certain assets held within contracts at the year-end remain impacted by the global financial crisis. While we have seen efforts in this financial year to resolve uncertainty over asset values, we have also seen a small number of funds held within contracts being affected by liquidity or other issues that hinder their sales or redemptions on normal terms. While the directors have exercised their judgement in relation to the fair value of these assets the cumulative impact on the balance sheet is immaterial. Accordingly, the value of AuA at 30 June 2014 is £0.94bn, some 8% below the value at 30 June 2013.

AuA currency composition

The value of AuA is based upon the assets selected by or on behalf of contract holders to meet their needs from time to time. The currency composition of AuA at the balance sheet date is similar to that as at 30 June 2013, with 54% of AuA designated in US dollar (2013: 55%) and 25% in euro (2013: 25%). The strengthening of sterling against those currencies in the year has largely offset market gains of the underlying assets as is reflected in the following table.

An initial response to the closure of Hansard Europe to new business was a number of full surrenders. Taking this into account with the other factors mentioned above, the analysis of AuA held by each Group subsidiary to cover financial liabilities is as follows:

complaints and potential litigation

In valuation issues such as those referred to above, financial services institutions are drawn into disputes in cases where the performance of assets selected directly by or on behalf of contract holders through their advisors fails to meet their expectations. This is particularly relevant in the case of more complex structured products distributed throughout Europe.

Even though the Group does not give any investment advice, as this is left to the contract holder directly or through an agent, advisor or an entity appointed at their request or preference, the Group has been subject to a number of complaints in relation to the performance of assets linked to contracts.

Some of these complaints escalate into litigation, particularly in Europe. At the beginning of this financial year the Group was facing litigation based on writs totalling €4.6m (approximately £3.9m) as a result of these and related complaints.

During the year the Board considered it in the best interests of the Group to reach a resolution with regard to certain of those claims. Settlements totalling £0.7m (2013: £1.6m) have been agreed relating to underlying claims of approximately €2.4m or £1.9m.

While these settlements have had a negative impact on reported results, they were agreed, without any admission of liability, in order to avoid the expense and distraction of extended litigation and to allow management to focus fully on the execution of our strategy.

As a result of further writs issued during the year and in the period to the date of this report, there remains a number of outstanding writs served upon Hansard Europe totalling a net €6.5m or approximately £5.2m. We will continue to defend ourselves from all claims but will consider early settlement where there is a clear economic benefit.

Results for the year under European Embedded Value

During the year, the Group has invested significant resource in the development and implementation of its new strategy, while at the same time managing the expenses of supporting its existing business. Cash flows have remained strongly positive.

Sales were reduced by approximately 50% as a consequence of the closure of Hansard Europe to new business and the loss of a key distributor in Japan that had introduced some 43% of the Group's new business in FY 2013. The planned product redesign (part of the refreshed strategy) was implemented on time, but the nature of the Group's distribution cycle is such that sales of the new product range would never build sufficiently quickly to replace the business lost in this financial year. The result was an EEV new business contribution of £3.3m (2013: £22.5m). Faced with low new business, this year's EEV result has been driven by the strengthening of sterling against those currencies favoured by contract holders and by assumption changes reflecting deteriorating policy experience.

Headline results for the European Embedded Value ("EEV") are shown in the table below:

There was an Operating Loss of £6.6m (2013: £11.7m profit), reflecting a lower new business contribution of £3.3m (2013: £22.5m), experience variances of (£6.7m) (2013: (£5.5m)) and strengthening operating assumptions of (£6.0m) (2013: (£4.2m)). The table shows a 'below the line' impact of (£4.1m) (2013: +£5.2m) which is comprised of positive investment return and economic assumption variances and a negative foreign exchange variance. The EEV has fallen to £203.8m (2013: £225.7m) having paid dividends of £11.2m (2013: £15.5m).

Sales Metrics

New business comparatives are shown below:

New business sales levels reflect the impact of the significant distributor discontinuing its sales operations (sales from this distributor in this year were £9.5m in PVNBP terms - 2013: £74.5m PVNBP) and the closure of Hansard Europe to new business (Hansard Europe recorded new business sales of £16.6m PVNBP in FY 2013 which is included in the comparative figure shown in the table). When sales levels are lower than expected, sales expenses are spread over fewer policies: this has a gearing effect on metrics like the new business margin, the internal rate of return and increases the break-even point of those few cases issued during the year. Until sales volumes recover, we recognise that NBM may remain low for coming quarters.

The EEV has reduced over the year: its high-level components are shown in the table below:

Net Worth has grown from £44.6m to £53.4m as profits are earned from the existing business. Free Surplus, which is available for investment and distribution, has grown by over 40% to £28.3m. At the balance sheet date, the Net Worth of the Group is represented by liquid cash balances. The Required Capital has increased marginally: it currently includes around £9.0m of Hansard Europe capital, the use of which management estimates is constrained for three years.

The change in VFP reflects sterling exchange rates on 30 June 2014, new business levels, the conversion of VFP to Net Worth and the impact of policyholder behaviour. Approximately 9% of the VIF at the reporting date relates to policies introduced by the Japanese distributor. Notably, lower new business means the stock of future profits has fallen.

The Other component of VFP is the reduction for non-market risk and frictional costs, neither of which have changed substantially over the year.

Change in Net Worth

The Net Worth is lower than projected (a variance of £5.4m (2013: (£2.8m)): the primary reason for this is the provision of £5m to cover the Chargeable Event Certificate issue. The Net Worth has grown by £36.7m (2013: £36.5m), of which £16.8m (2013: £26.8m) has been invested in new business (shown as New Business Strain) and £11.2m has been paid in dividends (2013: £15.5m).

EEV (Loss) / Profit after tax

The Group's EEV loss after tax is £10.7m (2013: £17.0m profit). Lower new business and deteriorating policyholder experience drive this result at an operating profit level. Thereafter, the impact of strong sterling more than offsets a positive investment return.

Experience Variances

Experience variances arise when the behaviour of the existing book differs from that assumed. Major contributors to the experience variances this year include one-off expenses (the Chargeable Event Certificate provision, offset by savings on expected legal expenses) and more encashments than projected. Excluding the one-off expenses, expense performance was largely as expected when setting the assumptions at FY 2013.

Operating Assumption Changes

Operating assumption changes reflect the Group's revised view of the drivers of future income and costs. This has resulted in a negative impact of £6.0m (2013: £4.2m). A significant proportion of this (£1.9m) relates to our decision to provide a subsidy for credit card charges borne by a large number of regular premium contract holders. This was a change made as part of our strategic review and, as such, was not envisioned in the assumptions set at FY 2013.

In addition, management has responded to the adverse policyholder behaviour experience in the year by significantly strengthening its assumptions. Given the product structure, this does not change the rate of conversion of VIF to Net Worth: as in previous years over 50% of the VIF is projected to be converted within 5 years.

Investment performance

Investment performance principally reflects the investment choices, by nature and currency, made by policyholders. It is therefore largely outside the Group's control.

The exchange rate movements arise because most premiums are paid, and the greater proportion of policyholder-selected assets are denominated, in currencies other than sterling, yet the reporting is in sterling, based on exchange rates on the last day of the financial year.

Economic assumption changes

There was a positive variance of £4.1m (2013: negative £2.6m) from Economic Assumption Changes.

The Risk Discount Rate and Unit Growth variances arise from the application of the EEV Principles, which require that changes in government bond yields for the currencies in which policyholder assets are denominated are reflected. The other changes reflect changes in policyholder activity margins.

Net asset value per share

On an EEV basis, the net asset value per share at 30 June 2014 is 148.3p (2013: 164.3p) based on the EEV at the balance sheet date divided by the number of shares in issue at that date, being 137,379,634 ordinary shares (2013: 137,379,634 shares).

The net asset value per share at 30 June 2014, on an IFRS basis, is 26.9p (2013: 32.5p).

Risk management and internal control

As with all businesses, the Group is exposed to risk in pursuit of its objectives. The Board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving those objectives. The Board is also responsible for maintaining sound risk management and internal control systems and for reviewing their effectiveness. The Group maintains an enterprise risk management ("ERM") framework to identify, assess, manage, monitor and control current and emerging risks.

During the year the Group has continued to invest in risk management resources to promptly identify, measure, manage, report and monitor risks that affect the achievement of objectives.

The system of internal control is designed to manage rather than eliminate risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.

Review of risk management and internal control systems

The identification and evaluation of risks to key business objectives is conducted on an ongoing and consistent basis as indicated below. These processes are managed and monitored by executive management.

In accordance with provision C.2.1 of the UK Corporate Governance Code, the Board (through the Audit Committee) has conducted an annual review of the systems of internal control including financial, operational and compliance controls and risk management systems. Additional safeguards have been, and are being, implemented and monitored in relation to significant weaknesses identified during the year. Future reviews of the systems' effectiveness will take into account any new controls and processes that are implemented subsequently.

Risk management resources

The Board has established a Management Risk Committee ("MRC") covering the Group's subsidiaries and operations, to supplement the activities of the Audit and Risk Committees operated by the regulated entities within the Group. The members of the Committee comprise a number of the Group's executive and senior management. The Committee is chaired by the Group Chief Executive Officer.

The objective and role of the Management Risk Committee is to:

· report to the Board on all risk matters across the Group;

· assist the Audit Committee and the Board in ensuring an effective system of internal control and compliance, including its obligations under applicable laws and regulations and;

· assist the Board in ensuring the embedding of the Enterprise Risk Management framework across the Group.

The terms of reference of the Committee are published on the Company's website.

Risk management framework

The Group operates a Three Lines of Defence model of risk management, with clearly defined roles and responsibilities for committees and individuals:

First Line: Day-to-day risk management is delegated from the Board to the Group Chief Executive Officer and, through a system of delegated authorities and limits, to business managers.

Second Line: Risk oversight is provided by the Group Chief Risk Officer and established risk management committees. These committees are supported by compliance functions across the Group.

Third Line: Independent verification of the adequacy and effectiveness of the risk management and internal control systems is provided by the Group Audit Committee which is supported by the Group Internal Audit function.

In support of its accountabilities to operate a sound system of internal control the Board has implemented and maintains an enterprise risk management ("ERM") framework. To support the governance process the Group relies on documented policies and guidelines.

The ERM framework recognises the value to be achieved from ensuring that risk management and internal control are embedded as continuous and developing processes within strategy setting and day-to-day operating activities and are not treated as discrete activities, performed at certain points in time.

The systems of internal control which make up the ERM framework are designed to recognise the Board's responsibilities to:

· safeguard assets;

· maintain proper accounting records;

· provide reliable financial information;

· identify and manage business risks;

· maintain compliance with appropriate legislation and regulation and;

· identify and adopt best practice.

The key features of the systems of internal control which make up the ERM framework include:

· Terms of reference for the Board and each of its committees;

· A clear organisational structure, with documented delegation of authority from the Board to executive management;

· Committees of senior managers responsible for reviewing the Group's financial and non-financial risks and;

· Risk management and internal control frameworks for the Group's operations. Each subsidiary company Board is required to attest to its adherence to these control frameworks on a quarterly basis. Additionally each department manager is required to confirm to the MRC that the risk and control framework is effective.

The overarching objectives of the ERM framework combine five interrelated elements, which enable the management of risk at strategic, programme and operational levels to be integrated, so that the levels of activity support each other.

These five elements are defined as:

· Establish business objectives;

· Risk identification and assessment;

· Risk response, including risk mitigation;

· Control monitoring and;

· Reporting.

The result is a risk management strategy, which is led from the top whilst being embedded in the Group's business systems, strategy and policy setting processes and the normal working routines and activities of the organisation. In this way risk management becomes an intrinsic part of the way business is conducted within the Group.

Risk appetite

The Board has established a formal Risk Appetite Statement which specifies the level of risk that may be assumed by the Group's operating subsidiary companies in order to achieve the Group's strategic, operational, financial and compliance objectives.

Risk identification and assessment

The ERM framework requires all business areas to identify and record risks to business objectives. These risks are rated according to the impact and likelihood of risk events, and these ratings are continuously re-assessed in response to changes in the business environment. This aspect of the configuration and integration of the ERM framework ensures that all staff are made aware of the relevance of risk management to the achievement of their individual objectives and accountabilities.

Risk monitoring and management

As well as operational management monitoring activities, the MRC meet on a regular basis to discuss emergent strategic and operational risks.

Risk reporting

The subsidiary company Boards are asked to attest to the effective functioning of the internal control framework and the ongoing identification and evaluation of risk within each subsidiary. These attestations are then presented to give assurance to the Group Board.

Financial reporting process

The Group maintains a process to assist the Board in understanding the risks to the Group failing to meet its objectives. This incorporates a system of planning and sensitivity analysis incorporating Board approval of forecast financial and other information. The Board receives regular representations from the senior executives.

Performance against targets is reported to the Board quarterly through a review of the Group's and Company's results based on accounting policies that are applied consistently throughout the Group. Draft financial statements are prepared quarterly by the Chief Financial Officer ("CFO"). The members of the Audit Committee review the draft financial statements for the half year ended 31 December annually and for the full financial year, and meet with the CFO to discuss and challenge the presentation and disclosures therein. Once the draft document is approved by the Audit Committee, it is reviewed by the Board before final approval at a Board meeting.

Outsourcing

The majority of investment dealing and custody processes in relation to policyholder assets are outsourced to Capital International Limited ("CIL"), a company authorised by the Financial Supervision Commission of the Isle of Man Government and a member of the London Stock Exchange.

These processes are detailed in a formal contract that incorporates notice periods and a full exit management plan. Delivery of services under the contract is monitored by a dedicated relationship manager against a documented Service Level Agreement and Key Performance Indicators.

CIL is required to confirm monthly that no material control issues have been identified in their operations. Each year they are required to confirm and evidence the adequacy and effectiveness of their internal control framework through an Assurance report on their internal controls. The last such report was issued by CIL on 28 April 2014 and did not reveal any material control deficiencies in the period from 1 January 2013 to 31 December 2013. This Assurance report was reviewed by PricewaterhouseCoopers LLC prior to issue. PricewaterhouseCoopers LLC, in noting a small number of minor exceptions (which are being resolved by CIL) confirmed that the control procedures that were tested were operating with sufficient effectiveness to achieve reasonable, but not absolute, assurance that the related control objectives were achieved in the period 1 January 2013 to 31 December 2013.

Risks relating to the Group's financial and other exposures

Hansard's business model involves the controlled acceptance and management of risk exposures. The steps taken to minimise those exposures include the operation of unit-linked insurance business. Under the terms of the unit-linked investment contracts issued by the Group, the policyholder bears the investment risk on the assets in the unit-linked funds, as the policy benefits are directly linked to the value of the assets in the funds. These assets are administered in a manner consistent with the expectations of the policyholders. By definition, there is a precise match between the investment assets and the policyholder liabilities, and so the market risk and credit risk lie with policyholders.

The Group's exposure on this unit-linked business is limited to the extent that income arising from asset management charges and commissions is generally based on the value of assets in the funds, and any sustained falls in value will reduce earnings. In addition, there are certain financial risks (credit, market and liquidity risks) in relation to the investment of shareholders' funds. The Group's exposure to financial risks is explained in note 3 to the consolidated financial statements.

The Board believes that the principal risks facing the Group's earnings and financial position are those risks which are inherent to the Group's business model and to the environment within which the Group operates. The Group's business model has served to minimise the principal risks facing the Group for a number of years but the regulatory environment continues to evolve and the risk framework will have to respond to a number of developments in future, including:

· Solvency II, which is scheduled for implementation on 1 January 2016, will impose additional costs and reporting on Hansard Europe;

· The Insurance and Pensions Authority of the Isle of Man Government ("IPA") has outlined its timetable for significant changes to the regulatory framework, which will impact on Hansard International and;

· The implementation of FATCA and related regulations which will impact on the entire business.

The following table provides examples of the principal inherent risks that may impact on the Group's strategic objectives, profitability or capital and how such risks are managed. Where necessary, the Group will implement controls to mitigate the risks and minimise the potential impact of the risks on the Group as far as possible.

Principal Risks

By order of the Board

Gordon Marr

Group Chief Executive Officer

25 September 2013

Consolidated Statement of Changes in Equity

Notes to the consolidated financial statements

1 Principal accounting policies

Hansard Global plc ("the Company") is a limited liability company, incorporated in the Isle of Man, whose shares are publicly traded. The principal activity of the Company is to act as the holding company of the Hansard group of companies.

These consolidated financial statements incorporate the assets, liabilities and the results of the Company and its subsidiary undertakings ("the Group"). The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below or, in the case of accounting policies that relate to separately disclosed values in the primary statements, within the relevant note to these consolidated financial statements. These policies have been consistently applied, unless otherwise stated.

1.1 Basis of presentation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"), International Financial Reporting Standards Interpretations Committee ("IFRSIC") interpretations, and with the Isle of Man Companies Acts 1931 to 2004. The financial statements have been prepared under the historical cost convention as modified by the revaluation of financial investments and financial liabilities at fair value through profit or loss. The Group has applied all International Financial Reporting Standards adopted by the European Union and effective at 30 June 2014.

The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements.

The following new standards and interpretations are in issue but not yet effective and have not been early adopted by the Group:

· IAS 32, 'Financial Instruments: presentation'

· IAS 36, 'Impairment of Assets'

· IAS 39, 'Financial Instruments' - Amendment to hedge accounting

· IFRS 9, 'Financial Instruments' - classification and measurement

· IFRS 9, 'Financial Instruments' - Amendment to hedge accounting

· IFRS 10, 'Consolidated Financial Statements'

· IFRS 12, 'Disclosures of Interest in Other Entities'

· Annual improvements 2012

· Annual improvements 2013

The adoption of the above standards is not expected to have any material impact on the Group's results.

There are no other standards, amendments or interpretations to existing standards that are not yet effective, that would have a material impact on the Group's financial statements.

The financial statements are presented in pounds sterling rounded to the nearest one hundred thousand pounds.

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting year. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year or in the year of the revision and future years if the revision affects both current and future years.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 2.

1.2 Basis of consolidation

The consolidated financial statements incorporate the assets, liabilities and the results of the Company and of its subsidiary undertakings. Subsidiaries are those entities in which the Company directly or indirectly has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Where necessary, accounting policies applied by subsidiary companies have been adjusted to present consistent disclosures on a consolidated basis.

Intra-group transactions, balances and unrealised gains and losses arising from intra-group transactions, are eliminated in preparing these consolidated financial statements.

2 Critical accounting estimates and judgements in applying accounting policies

Estimates, assumptions and judgements are used in the application of accounting policies in these financial statements. Critical accounting estimates are those which involve the most complex or subjective judgements or assessments. Estimates, assumptions and judgements are evaluated continually and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes may differ from assumptions and estimates made by management.

2.1 Accounting estimates and assumptions

The principal areas in which the Group applies accounting estimates and assumptions are in deciding the type of management expenses that are treated as origination costs and the period of amortisation of deferred origination costs and deferred income. Estimates are also applied in determining the recoverability of deferred origination costs.

2.1.1 Origination costs

Management expenses have been reviewed to determine the relationship of such expense to the issue of an investment contract. Certain expenses vary with the level of new business production and have been treated as origination costs. Other expenses are written off as incurred.

2.1.2 Amortisation of deferred origination costs and deferred income

Deferred origination costs and deferred income are amortised on a straight-line basis over the life of the underlying investment contract. The life of a contract is either the contractual term thereof or the expected life of a single premium contract which is currently estimated at 15 years. This is calculated in a manner consistent with the assumptions used in the calculation of European Embedded Value.

2.1.3 Recoverability of deferred origination costs

Deferred origination costs are tested annually, at product group level, for recoverability by reference to expected future income levels.

2.2 Judgements

The primary areas in which the Group has applied judgement in applying accounting policies are as follows:

· the classification of contracts between insurance and investment business. All contracts are treated as investment contracts as they do not transfer significant insurance risk;

· the Group has elected to treat all assets backing its contracts as fair value through profit or loss although some of the assets in question may ultimately be held to maturity;

· the fair value of certain financial investments. Where the directors determine that there is no active market for a particular financial instrument, fair value is assessed using valuation techniques based on available relevant information and an appraisal of all associated risks. This process requires the exercise of significant judgement on the part of Directors, as is discussed further in note 3.5 to these consolidated financial statements;

· to form an estimate of the potential exposure to Her Majesty's Revenue and Customs in relation to the weaknesses in compliance with the Chargeable Event Certificate regulations as more fully explained in note 27.1 and

· to determine whether a provision is required in respect of any pending or threatened litigation, which is addressed in note 27.2.

 3 Financial risk management

Risk management objectives and risk policies

The Group's objective in the management of financial risk is to minimise, where practicable, its exposure to such risk, except when necessary to support other objectives. The Group seeks to manage risk through the operation of unit-linked business whereby the contract holder bears the financial risk. In addition, shareholder assets are invested in highly rated investments.

Overall responsibility for the management of the Group's exposure to risk is vested in the Board. To support it in this role, an enterprise risk management framework is in place comprising risk identification, risk assessment, control and reporting processes. Additionally, the Board and the Boards of subsidiary companies have established a number of Committees with defined terms of reference. These are the Actuarial Review, Audit, Executive, Investment and Risk Committees. Additional information concerning the operation of the Board Committees is contained in the Corporate Governancesection of the Annual Report and Accounts.

The more significant financial risks to which the Group is exposed are set out below. For each category of risk, the Group determines its risk appetite and sets its investment, treasury and associated policies accordingly.

3.1 Market risk

This is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, analysed between price, interest rate and currency risk.The Group adopts a risk averse approach to market risk, with a stated policy of not actively pursuing or accepting market risk except where necessary to support other objectives. However, the Group accepts the risk that the fall in equity or other asset values, whether as a result of price falls or strengthening of sterling against the currencies in which contract holder assets are denominated, will reduce the level of annual management charge income derived from such contract holder assets and the risk of lower future profits.

Sensitivity analysis to market risk

The Group's business is unit-linked and the direct associated market risk is therefore borne by contract holders (although there is a secondary impact as shareholder income is dependent upon the markets, as mentioned above). Financial assets and liabilities to support Group capital resources held outside unitised funds primarily consist of units in money market funds, cash and cash equivalents, and other assets and liabilities. Cash held in unitised money market funds and at bank is valued at par and is unaffected by movement in interest rates. Other assets and liabilities are similarly unaffected by market movements.

As a result of these combined factors, the Group's financial assets and liabilities held outside unitised funds are not materially subject to market risk, and movements at the reporting date in interest rates and equity values have an immaterial impact on the Group's profit after tax and equity. Future revenues from annual management charges may be affected by movements in interest rates, foreign currencies and equity values.

(a) Price risk

An overall change in the market value of the unit-linked funds would affect the annual management charges accruing to the Group since these charges, which are typically 1% p.a., are based on the market value of contract holder assets under administration. Similarly, due to the fact that these charges are deducted from contracts in contract currency, a change in foreign exchange rates relative to sterling can result in fluctuations in reported fee income and expenses. The approximate impact on the Group's profits and equity of a 10% change in fund values, either as a result of price or currency fluctuations, is £1.5m (2013: £1.5m).

(b) Interest rate risk

Interest rate risk is the risk that the Group is exposed to lower returns or loss as a direct or indirect result of fluctuations in the value of, or income from, specific assets arising from changes in underlying interest rates.

The Group is primarily exposed to interest rate risk on the balances that it holds with credit institutions and in money market funds. A change of 1% p.a. in interest rates will result in an increase or decrease of approximately £0.8m (2013: £0.6m) in the Group's annual investment income and equity.

A summary of the Group's liquid assets at the balance sheet date is set out in note 3.2.

(c) Currency risk

Currency risk is the risk that the Group is exposed to higher or lower returns as a direct or indirect result of fluctuations in the value of, or income from, specific assets and liabilities arising from changes in underlying exchange rates.

(c)(i) Group foreign currency exposures

The Group is exposed to currency risk on the foreign currency denominated bank balances, contract fees receivable and other liquid assets that it holds to the extent that they do not match liabilities in those currencies. The impact of currency risk is minimised by frequent repatriation of excess foreign currency funds to sterling. The Group does not hedge foreign currency cash flows. At the balance sheet date the Group had exposures in the following currencies:

The approximate effect of a 5% change in the value of US dollars to sterling is £0.1m (2013: £0.1m); in the value of the euro to sterling is less than £0.1m (2013: £0.2m); and in the value of the yen to sterling is less than £0.1m (2013: less than £0.1m).

(c)(ii) Financial investments by currency

Certain fees and commissions are earned in currencies other than sterling, based on the value of financial investments held in those currencies from time to time.

The sensitivity of the Group to the currency risk inherent in investments held to cover financial liabilities under investment contracts is incorporated within the analysis set out in (a) above.

At the balance sheet date the analysis of financial investments by currency denomination is as follows:

3.2 Credit risk

Credit risk is the risk that the Group is exposed to lower returns or loss if another party fails to perform its financial obligations to the Group. The Group has adopted a risk averse approach to such risk and has a stated policy of not actively pursuing or accepting credit risk except when necessary to support other objectives.

The clearing and custody operations for the Group's security transactions are mainly concentrated with one broker, namely Capital International Limited, a member of the London Stock Exchange. At 30 June 2014, substantially all contract holder cash and cash equivalents, balances due from broker and financial investments are placed in custody with Capital International Limited.These operations are detailed in a formal contract that incorporates notice periods and a full exit management plan. Delivery of services under the contract is monitored by a dedicated relationship manager against a documented Service Level Agreement and Key Performance Indicators.

The Group has an exposure to credit risk in relation to its deposits with credit institutions and its investments in unitised money market funds. To manage these risks; deposits are made, in accordance with established policy, with credit institutions having a short-term rating of at least F1 and P1 from Fitch IBCA and Moody's respectively and a long term rating of at least A and A3. Investments in unitised money market funds are made only where such fund is AAA rated. Additionally maximum counterparty exposure limits are set both at an individual subsidiary company level and on a Group-wide basis.

At the balance sheet date, an analysis of the Group's own cash and cash equivalent balances and liquid investments was as follows (an analysis by maturity date is provided in note 3.4):

3.3 Liquidity risk

Liquidity risk is the risk that the Group, though solvent, does not have sufficient financial resources to enable it to meet its obligations as they fall due, or can only secure them at excessive cost.The Group is averse to liquidity risk and seeks to minimise this risk by not actively pursuing it except where necessary to support other objectives.

The Group's objective is to ensure that it has sufficient liquidity over short- (up to one year) and medium-term time horizons to meet the needs of the business. This includes liquidity to cover, amongst other things, new business costs, planned strategic activities, servicing of equity capital as well as working capital to fund day-to-day cash flow requirements.

Liquidity risk is principally managed in the following ways:

· Assets of a suitable marketability are held to meet contract holder liabilities as they fall due.

· Forecasts are prepared regularly to predict required liquidity levels over both the short- and medium-term.

The Group's exposure to liquidity risk is considered to be low since it maintains a high level of liquid assets to meet its liabilities.

3.4 Undiscounted contractual maturity analysis

Set out below is a summary of the undiscounted contractual maturity profile of the Group's assets.

There is no significant difference between the value of the Group's assets on an undiscounted basis and the balance sheet values.

Assets held to cover financial liabilities under investment contracts are deemed to have a maturity of up to one year since the corresponding unit-linked liabilities are repayable and transferable on demand. In certain circumstances the contractual maturities of a portion of the assets may be longer than one year, but the majority of assets held within the unit-linked funds are highly liquid. The Group actively monitors fund liquidity.

Maturity analyses of financial and other liabilities are included in the relevant notes to the consolidated balance sheet.

3.5 Fair value estimation

The Group closely monitors the valuation of assets in markets that have become less liquid. Determining whether a market is active requires the exercise of judgement and is determined based upon the facts and circumstances of the market for the instrument being measured. Where the directors determine that there is no active market for a particular financial instrument, fair value is assessed using valuation techniques based on available, relevant, information and an appraisal of all associated risks. This process requires the exercise of significant judgement on the part of Directors.

IFRS 13 requires the Group to classify fair value measurements into a fair value hierarchy by reference to the observability and significance of the inputs used in measuring that fair value. The hierarchy is as follows:

· Level 1: fair value is determined as the unadjusted quoted price for an identical instrument in an active market.

· Level 2: fair value is determined using observable inputs other than unadjusted quoted prices for an identical instrument and that does not use significant unobservable inputs.

· Level 3: fair value is determined using significant unobservable inputs.

The following table analyses the Group's financial assets and liabilities at fair value through profit or loss, at 30 June 2014:

During this financial year, no assets were transferred from Level 2 to Level 1. Assets with a fair value of £8.4m were transferred from Level 1 to Level 2. Assets with a value of £0.3m were reclassified from Level 1 to Level 3 and subsequently valued at zero by the Directors, as they believe this reflects the fair value of these assets at the balance sheet date. No assets were reclassified from Level 3 to Level 1 or Level 2 during the financial year.

The following table analyses the Group's financial assets and liabilities at fair value through profit or loss, at 30 June 2013:

Assets with a fair value of £14.2m were transferred to from Level 1 to Level 2 during the year ended 30 June 2013. Assets with a value of £10.9m were reclassified from Level 1 to Level 3 and subsequently valued at zero.

Due to the unit-linked nature of the contracts administered by the Group's insurance undertakings, any change in the value of financial assets held to cover financial liabilities under those contracts will result in an equal and opposite change in the value of contract liabilities. The separate effect on financial assets and financial liabilities is included in investment income and investment contract benefits, respectively, in the consolidated statement of comprehensive income.

4 Segmental information

Disclosure of operating segments in these financial statements is consistent with reports provided to the Chief Operating Decision Maker ("CODM") which, in the case of the Group, has been identified as the Executive Committee of Hansard Global plc.

In the opinion of the CODM, the Group operates in a single reportable segment, that of the distribution and servicing of long-term investment products. New business development, distribution and associated activities in relation to the Republic of Ireland ceased with effect from 30 June 2013. All other activities of the Group are continuing.

The Group's Executive Committee uses two principal measures when appraising the performance of the business: Net Issued Compensation Credit ("NICC") and expenses. NICC is a measure of the value of new in-force business and top-ups on existing single premium contracts. NICC is the amount of basic initial commission payable to intermediaries for business sold in a period and is calculated on each piece of new business. It excludes override commission paid to intermediaries over and above the basic level of commission. The Group maintains a close control over the margins realised on new business which are consistent across the Group's products and, hence, NICC is a reliable indicator of value.

The following table analyses NICC geographically and reconciles NICC to origination costs incurred during the year as set out in Business and Operating Review section of this Report and Accounts.

The net issued compensation credit figure of £7.8m for the year all relates to continuing operations based in the Isle of Man (2013: £17.8m).

Revenues and expenses allocated to geographical locations contained in sections 4.1 to 4.4 below reflect the revenues and expenses generated in or incurred by the legal entities in those locations.

4.1 Geographical analysis of fees and commissions by origin

4.2 Geographical analysis of profit before taxation

4.3 Geographical analysis of gross assets

4.4 Geographical analysis of gross liabilities