Hansard Regulatory News (HSD)

25 February 2016

Hansard Global plc

Results for the six months ended 31 December 2015

Hansard Global plc ("Hansard" or "the Group"), the specialist long-term savings provider, issues its results for the six months ended 31 December 2015. All figures refer to the six months ended 31 December 2015 ("H1 2016"), except where indicated.

SUMMARY

· As announced in our January new business announcement, new business levels are £56.4m on a PVNBP basis, up 92% from the previous financial period as success in the Middle East & Africa is starting to be replicated across other regions;

· IFRS profits were £4.9m for the period, down from £6.6m in H1 2015. Most of this reduction is due to lower fee income from Hansard Europe which was closed to new business in 2013. Global stock market declines in the period have also reduced annual management charges earned across the Group;

· EEV profit after tax was £1.2m (H1 2015: £6.6m). Both 2016 and 2015 figures are predominantly driven by stock market and foreign exchange market changes;

· New business contribution and margin have improved from the levels of last year to be profitable in Q2 and we expect to see further positive progression over time;

· The Board has declared an increased interim dividend of 3.6p per share;

· Litigation against Hansard Europe has increased by a net £1m since the date of release of our full year 2015 results, primarily due to additional complainants adding to existing actions. We have however had some important successes with two cases in Belgium and one case in Italy being ruled fully in our favour (removing £1m of exposure).

INTERIM MANAGEMENT STATEMENT

The second Interim Management Statement in respect of the year ending 30 June 2016 is expected to be published on 12 May 2016.

OUTLOOK

As the implementation of the Group's strategic investment in product and people continues to mature, we expect the current run-rate of new business levels (excluding the one-off related party transaction) to continue into the second half of our financial year.

Gordon Marr, Group Chief Executive Officer, commented:

"It is very pleasing to see the roll-out of our strategy delivering encouraging results and we expect this trend to continue through the second half of the year. We have a growing, well-diversified business and continue to work hard to deliver on the further opportunities that we have identified."

For further information:

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 Middle East & Africa, the Far East and Latin America, in the case of Hansard International Limited, and Western Europe in the case of Hansard Europe dac, the Group's two life assurance companies. Hansard Europe dac 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 dac to new business with effect from 30 June 2013, the Group continues to report new business performance of Hansard International Limited alone within this document. 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.

CHAIRMAN'S STATEMENT

New business

In my Chairman's Statement in September 2015, I noted that the benefits of the Group's revised strategy were starting to deliver increased levels of new business. The results for H1 of the 2016 financial year ("FY") show further progress in our goal to build sales levels in a sustainable and diversified way.

In H1 2016 our new business on a like-for-like basis was 64% above the levels of H1 2015 measured on a Present Value of New Business Premiums ("PVNBP") basis (or a 92% increase when an investment into a Hansard product by the Group President on arm's length terms is included). The Middle East and Africa region continued to be the main source of new business growth but we are now seeing replication of this success in the Far East and Rest of World regions.

Financial performance

The Group's profit after tax under International Financial Reporting Standards ("IFRS") of £4.9m is lower than the comparative period of £6.6m. This is driven by the following factors:

· lower fees earned from Hansard Europe, which closed to new business in 2013, resulting in a declining number of customers and assets under management;

· our newer products in Hansard International having a lengthier earning period than older products;

· lower annual management charges due to market value declines in line with global stock markets in the period and;

· continued investment in the distribution network and new market opportunities.

The European Embedded Value ("EEV") profit after tax of £1.2m (H1 2015: £6.6m) is driven predominantly by investment-related drivers in the period, in particular the strengthening of the US dollar against Sterling. Encouragingly, our new business contribution and margin have improved from the levels of last year to be profitable in Q2 and we expect to see further positive progression over time.

Dividends

The Board has resolved to pay an interim dividend of 3.6p per share (2015: 3.5p per share).

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 13 times by our capital resources. Our prudent investment policy for shareholder assets minimises market risk and provides a stable and resilient solvency position.

Outlook

As the implementation of the Group's strategic investment in product and people continues to mature, we expect the current run-rate of new business levels (excluding the one-off related party transaction) to continue into the second half of our financial year. However, further stock-market declines in 2016 could erode investor confidence levels for new contributions, as well as the level of income earned from existing assets under administration.

New licencing opportunities continue to be pursued within a timeframe that remains primarily under the control of foreign regulatory authorities. We believe that these opportunities will be a significant source of future new business and expect them to start to deliver in the next financial year.

Philip Gregory

Chairman

24 February 2016

INTERIM MANAGEMENT REPORT

REPORT OF THE GROUP CHIEF EXECUTIVE OFFICER

GORDON MARR

The Group continues to focus on the distribution of regular and single premium products in a range of jurisdictions around the world. As planned, our new relationships with a number of IFA networks in target markets are delivering increased levels of new business. We have established an encouraging trend of growth as regional initiatives and new distribution relationships start to deliver results.

Strategy implementation

Throughout the first half of this financial year we have continued to make progress in increasing the scale of our business, better diversifying new business flows and pursuing longer term licensing opportunities in targeted locations.

The initial success of our strategic roll-out in the Middle East and Africa is now being replicated in other regions, resulting in strong initial growth. A further three Account Executives have been added to the team in the past quarter to drive growth in Latin America and Asia.

New business distribution

During H1 2016 we have seen strong levels of growth in all but one of our geographical regions. The Middle East and Africa continued to perform extremely well with £15.0m PVNBP sold. The Rest of World region includes an investment into a Hansard product by the Group President on arm's length terms of £8.3m, but the underlying sales of £13.8m showed a 92% increase on the prior period with markets such as the Caribbean and Europe (non-EU) having performed well. The Far East yielded £12.8m of new business, an increase of 80%.

Latin America was the only region where increased sales were not achieved. We expect to see some recovery later in the year however following the recent recruitment of a new Account Executive for that region.

Results for the period

Changes in new business flows have a limited immediate impact on current earnings reported under IFRS, as initial fees and acquisition costs from the contracts sold are mostly deferred and amortised over the life of the contract. IFRS profit for the period is £4.9m after tax (H1 2015: £6.6m). The decline is primarily due to the expected contraction of Hansard Europe's book of business which closed to new business in 2013. The benefit of increasing sales within Hansard International to Group fee income levels will be felt in future financial periods, noting however that our newer products have a longer earning period than our older products.

The increase in new business levels has resulted in the Group recovering to a position where new business contribution and margin are close to a breakeven level for EEV purposes (and were marginally positive in the second quarter of the year). The EEV profit of £1.2m in the period and the prior period equivalent of £6.6m are largely driven by fluctuating investment and economic related factors which can vary quite significantly each year.

The Group has continued to generate positive cash flows to fund new business. However as initial fee periods on our older style products come to an end, cash generating levels are now lower than that experienced in previous years. Accordingly there will be a period as we rebuild new business levels, where operating cash inflows will not be sufficient to cover dividend payments in full. We are monitoring this expected cash strain against our current free surplus of £31.5m.

The EEV at 31 December 2015 is £189m as compared to £203.5m at 31 December 2014. The reduction is as a result of dividends paid out.

A summary of the results for H1 FY 2016 are as follows:

Details of the results for the period, under both IFRS and EEV reporting, are contained in the Business and Financial Review.

Hansard Europe dac ("Hansard Europe", previously Hansard Europe Limited)

Hansard Europe remains profitable and strongly capitalised. We continue to meet the requirements of the company's policyholders, regulators and stakeholders while gaining operational efficiencies through the use of Hansard OnLine. The servicing of policy contracts and other administrative operations are performed at the Group's head office on the Isle of Man. Regulatory control and management of outsourced activities are exercised from the company's offices in Dublin.

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 we are justified in robustly defending each complaint. 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 in 2007/2008.

We reported in our annual report for 2015 that Hansard Europe was facing litigation based on writs totalling €13.3m (approximately £9.4m) as a result of these and related complaints. We will continue to defend ourselves from all claims, considering early settlement (without admission of liability) only where there is a clear economic benefit.

As at the report date of these Interim Report and Accounts, writs totalled €14.1m (£10.4m). The total has increased primarily as a result of further claimants adding to a group action taken in Belgium which forms €7.2m (£5.3m) of the total. We believe this case to be highly speculative and will robustly defend against it. Offsetting this, the Group has had three cases successfully ruled in its favour in Belgium and Italy (with no liability attributed to the Group), reducing writs outstanding by €1.3m (£1.0m). We believe these rulings set helpful precedents in these jurisdictions and expect them to be useful for resolving a number of similar cases.

Capitalisation and solvency

A 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 remains well capitalised. The required minimum solvency margins remain covered 13 times by our capital resources, which are typically held in a wide range of deposit institutions and in highly-rated money market liquidity funds.

Hansard Europe's capital surplus is not available for distribution until there is better clarity over the expected outcome of the litigation against the company. It is therefore included within the total of Required Capital of £27.2m in the analysis of the Group's EEV balance sheet at 31 December 2015. Allowing for this, the EEV balance sheet reflects that the Group has a free surplus of £31.5m available for investment and distribution, consistent with that of 31 December 2014.

The new European Directive "Solvency II" came into effect for Hansard Europe on 1 January 2016. Solvency II sets regulatory standards around the valuation of assets and liabilities, capital requirements, governance and risk management, and reporting and disclosure requirements. Hansard Europe has developed the necessary capabilities to fully implement Solvency II and remains strongly capitalised under the new capital rules.

Hansard OnLine

We continue to develop additional functionality for Hansard OnLine to allow policyholders and intermediaries to transact with us more efficiently and to allow us to meet their expectations.

As is reported in the Business and Financial Review, over 95% of policy investment transactions are processed electronically by intermediaries using Hansard OnLine and over 90% of all new business applications were submitted via the platform during the period.

Risk management

As the pace, scale, and complexity of regulatory change continues to increase, it is vital for us to understand and manage the impact of these changes both on our clients and on ourselves as a business. This is a core objective of our strategic planning.

Dividend

The Board has resolved to pay an interim dividend of 3.6p per share (2015: 3.5p). This dividend will be paid on 31 March 2016.

Our people

The Group has a dedicated dynamic workforce. We have a commitment to service and quality at the highest level in relation to servicing contract holders and intermediaries, the development of successful products and Hansard OnLine. We also have a strong commitment to performance improvement in all areas of the business. I thank all our employees for their continued contribution to Hansard and the successes achieved in this period.

Gordon Marr

Chief Executive Officer

24 February 2016

BUSINESS AND FINANCIAL REVIEW

1. BUSINESS MODEL

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 in excess of $1 billion for over 500 financial advisor businesses with over 40,000 client accounts in as many as 155 countries.

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 Finance Services Authority (previously 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 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.

2. STRATEGY

Our aim is to be the 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.

Our vision encompasses every part of our business. Beneath this, we have identified a range of strategic objectives to meet this target and continue to work towards them. Through careful execution of our plans we intend to add increased scale to the business, on a diversified basis, at acceptable levels of risk and profitability. Some of this activity, and the subsequent results, is summarised in section 4.

3. HANSARD ONLINE

Hansard OnLine is the Group's online platform, providing essential functionality and information for our contract holders and intermediaries around the world. Available 24/7, in multiple languages, Hansard OnLine provides users with the tools needed to better manage their objectives.

Almost all investment transactions are processed electronically by intermediaries, on behalf of their clients, using Hansard OnLine and over 90% of all new business applications are submitted via the platform.

Meeting contractholders' requirements

We appreciate that our contract holders' savings and investments are important to them, and that they want to monitor the performance of their Hansard contracts when and where it suits them. Through a secure OnLine Account contract holders can view the key documentation and investment information relating to their policy with content presented in 11 different languages.

Contract holders have access to our Unit Fund Centre which provides all of the information that they need in order to make informed investment decisions. The Unit Fund Centre can be used as a resource to research potential new unit funds, and also as a tool to monitor the performance of existing choices.

Certain contract holders have the functionality to perform their own policy investment transactions, via their OnLine Accounts, to better meet their objectives.

Over 15,000 OnLine Accounts are used regularly. However, it remains a key objective of the Group to increase OnLine Account take up and we continue to look at new ways to keep policyholders informed of new online developments in order to achieve this.

Supporting intermediaries

Hansard OnLine allows intermediaries to perform key tasks seamlessly online. Pre-sale illustrations, new business proposals and policy investment transactions are handled electronically and a range of analytical tools such as the Personal Investment Review are available through the Unit Fund Centre.

Placing this functionality online means the intermediaries can access it when they need it, and allows for an improved user-centric experience compared to using paper forms. Data validation happens in real-time to ensure there are no delays to the investment of client funds.

Hansard OnLine Lite provides prospective IFAs with easy access to a subset of the online system. Its purpose is to showcase our online proposition to prospective and new IFAs and to allow easy access to non-sensitive documents and functionality. Users can access our online document library, the Unit Fund Centre, company news and submit new business online.

Reducing Operational risk

The straight-through processing of policyholder instructions (whether received directly or through their appointed agents) reduces the Group's operational risk exposures, as does the ability of the Group to communicate electronically with policyholders and intermediaries, irrespective of geographical boundaries.

4. New business

Strategy Implementation

The Group has access to an increasing portfolio of distributors who know that our combined efforts can meet the needs of policyholders around the world. 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. 

The Group continues to invest in its distribution resources, Hansard OnLine, and other infrastructure to support its strategic plans. We continue to pursue our longer term plans to establish additional locally-licenced branches in a small number of target markets.

Initiatives over the past number of years to update our product range and salesforce are now delivering increased new business flows across a more diversified distribution base. New relationships with a number of IFA networks in target markets are maturing and delivering increased levels of new business.

The initial success of our strategic roll-out in the Middle East has started to be replicated in other regions this period where we are experiencing strong initial growth. Further resources have recently been added to the sales team to further drive growth in Latin America and Asia in future periods.

The results of activities in each region in H1 2016 are reported in the table below.

New business performance for the six months ended 31 December 2015

We have experienced a marked increase in new business for H1 2016 as compared to the previous period, building on the growth experienced in the second half of the 2015 financial year.

New business flows for Hansard International for H1 2016 are summarised as follows. Comparisons against the corresponding periods are on an actual currency basis.

* Included within these figures is a transaction which took place during the period whereby the Group President invested the Sterling equivalent of £8.3m as a lump sum top-up to a Hansard savings product on arm's-length terms. The transaction resulted in £0.1m Compensation Credit, £8.3m PVNBP and £0.8m Annualised Premium Equivalent being included in the figures above.

The following tables show the breakdown of new business flows calculated on the basis of PVNBP.

We continue to receive new business from a diverse range of financial advisors around the world. The majority of new business premiums are denominated in US dollars (71%), with 21% denominated in Sterling, and the remainder in euro or other currencies.

5. IFRS RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2015

The Group administers and earns fees from a portfolio of unit-linked investment contracts distributed to contract holders around the world.

The design of the Group's products means that new business flows will contribute to income streams over many years. Increasing new business levels therefore takes time for the profit to be realised under IFRS. The Group also continues to invest strategically for the future, particularly in relation to new markets and new licensing opportunities.

As a result of these factors, and the run-off of Hansard Europe which closed to new business in 2013, the IFRS profits for the Group are lower than in prior periods.

Results under IFRS

Fee and commission income received underpins the expenditure necessary to support the Group's longer-term objectives and ultimately to pay dividends over the long term.

The Group continues to invest for future growth in the business through targeted expenditure, particularly in our sales team and in connection with licence and similar business development initiatives. Projects to enhance Hansard OnLine; streamline administrative processes and reduce operational risk have continued in the period, while professional fees continue to be incurred in order to protect the Group's position in relation to actual and potential litigation against Hansard Europe.

Consolidated profit after taxation for the period is £4.9m primarily as a result in reduced fee income from Hansard Europe.

Sterling has weakened both against the euro and the US Dollar since year end, resulting in increased IFRS earnings of £0.4m in the half year (H1 2015: £0.1m increase).

The following is a summary of key items to allow readers to better understand the results of strategy implementation, as represented under accounting disclosures affecting the income statement, an analysis of cash flows and the consolidated balance sheet.

Abridged income STATEMENT

The IFRS condensed consolidated statement of comprehensive income which is presented within these half-year results reflects the financial results of the Group's activities during the period under IFRS. This statement however, as a result of its method of presentation, incorporates a number of features that might affect a clearer understanding of the results of the Group's underlying transactions. This relates principally to:

· Net valuation losses attributable to contract holder assets were £15.5m (H1 2015: £33.2m net gains). These assets are selected by the contract holder or an authorised intermediary and the contract holder bears the investment risk.

· Third party fund management fees in H1 2016 were £1.9m (H1 2015: £1.8m). While fund management fees paid are properly recorded in the Group's income statement under IFRS, this 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.

An abridged consolidated income statement is presented below, excluding the items of income and expenditure indicated above. 

Fees and commissions

Fees and commissions attributable to Group operations for the half-year are £25.3m, a decrease of approximately 5% compared with £26.7m in H1 2015. A summary of fees and commissions attributable to Group activities is set out below:

Elements of contract fee income are largely fixed in nature, representing both the smoothing of up-front (or deferred) income required under IFRS and contract servicing charges. Included in contract fee income is £10.4m (H1 2015: £10.3m) representing the amounts prepaid in previous years and amortised to the income statement, as can be seen below in the reconciliation of deferred income. This demonstrates the strength of the regular premium book of business. The reduction in contract fee income for the period, when compared with H1 2015, is largely as a result of reduced servicing income received by Hansard Europe. This is driven by surrenders of contracts in previous periods where all deferred income is credited to the income statement.

Fund management fees, together with commissions receivable, totalling £6.8m (H1 2015: £6.9m), are related directly to the value of contract holder Assets under Administration ("AuA") and are therefore exposed to market movements, currency rates and valuation judgements. The level of this income, when compared with the period ended 31 December 2014, reflects primarily that the level of AuA has fallen by approximately 7.4% since that date, driven largely by outflows of AuA from Hansard Europe as referred to above.

Investment and other income

The Group's own liquid assets are held predominantly in sterling and invested in highly rated money market funds and bank deposits.

Volatility in foreign exchange markets continued throughout the period. Having regard to the geographic spread of the Group's contract holders, the range of currencies in which AuA are denominated, and the composition of the net assets of Hansard Europe, the strengthening of the US dollar and the euro, against sterling since 30 June 2015 has increased investment and other income by £0.4m (H1 2015: gain of £0.1m).

Further information about the Group's foreign currency exposures is disclosed in note 4.1 to these condensed consolidated financial statements.

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 it. The life of a regular premium contract is its term, which is typically between 10 years and 25 years. The life of a typical single premium contract is 15 years.This accounting policy reflects that the Group will continue to earn income over the long-term from contracts issued in a given financial year. The impact on current year fee income of contracts issued in H1 2016 is minimal.

Reflecting the long-term nature of the Group's income streams, amounts totalling £9.2m (H1 2015: £9.4m) have been expensed to match contract fee income of £10.4m (H1 2015: £10.3m) earned this year from contracts issued in previous financial years. This reflects the profitability of the existing book.

Summarised origination costs in the period are:

The Group's new business levels in H1 2016 are over 60% higher than those of H1 2015, as reported above. This is reflected in the table below (in the category origination costs - deferred to match future income streams) and also in the net amortisation of deferred origination costs. 

Origination costs in the period are:

Administrative and other expenses

The Group continues to invest for future growth in the business through planned expenditure in front facing systems and targeted licence applications. Projects to streamline administrative processes and reduce operational risk have also continued in the period.

The Group has increased its sales and marketing capacity in the period, centralised the Hansard Europe legal function to the Isle of Man and expanded its administrative branch in Japan. Headcount at 31 December 2015 is 215 people, an increase from the 211 people employed at 30 June 2015.

A summary of administrative and other expenses attributable to the Group is set out below:

While salaries and other employment costs have increased by £0.3m or 6.4% to £5.0m over the comparative period, this is primarily as a result of one-off costs related to senior management restructuring and the above mentioned transfer of our legal function from Dublin. The average Group headcount for the period is 215 compared to 206 for the full 2015 financial year. Headcount at 31 December 2015 is 215 (30 June 2015: 211).

Other administrative expenses have increased marginally from £3.2m to £3.3m in this period, following increases in rent and investment in our brand and communications with policyholders.

Growth investment spend represents internal and external costs to generate opportunities for growth. The Group continues to invest to build its business and to implement product and technological changes to support our business model and customers.

Professional fees including audit in the year include legal fees of £0.2m (2015: £0.2m) incurred to protect the Group's position against complaints; amounts totalling £0.3m charged for the Group's audit and half year review work (2015: £0.3m); £0.2m (2015: £0.2m) for administration, custody, dealing and other charges paid under the terms of the investment processing outsourcing arrangements; recruitment costs of £0.1m (2015: £0.1m); costs of Investor Relations activities of £0.2m (2015: £0.2m); and subscriptions to professional reference services of £0.1m (2015: £0.1m) for investment and Compliance monitoring purposes.

6. CASH FLOW ANALYSIS

Historically, capital invested in the acquisition of new business contracts has been recouped, on average, within two years of issue. The capital efficiency of those products has underpinned the generation of strongly positive cash flows to support the Group's main business objectives of investing in new business, enhancing distribution and other infrastructure, and paying dividends. Our new suite of products has a longer cash payback period and this will be reflected in the analysis of future cash flows.

As can be seen below, the net cash surplus from operating activities (gross fees received less operational expenses paid) reduced significantly against the comparative period, primarily due to the expiration of the periods of initial fees earned from sales in previous financial years when sales levels were higher, particularly 2013. During the period under review, the Group increased significantly its new business which had an acquisition cost of £7.1m, against £3.8m in the comparative period. The sale of regular premium contracts produces a short-term cash strain as a result of the commission and other costs incurred at inception of a contract.

The following summarises the Group's own cash flows in the period:

The factors described above, together with the payment of our final dividend for 2015, led to a net cash outflow of £5.2m (2015: £3.4m increase) in the Group's own cash resources since 1 July 2015. The Group's has built up significant cash reserves to cover this planned situation but management are monitoring cash generation and usage closely as we continue to deliver upon increased levels of new business. 

Bank deposits and money market funds

The Group's liquid assets at the balance sheet date are held in highly-rated money market liquidity funds and with a wide range of deposit institutions, predominantly in sterling. This approach protects the Group's capital base from stock market falls.

Deposits totalling £15.8m (H1 2015: £26.1m) have original maturity dates greater than 3 months and are therefore excluded from the definition of "cash and cash equivalents" under IFRS. 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.

7. Abridged consolidated balance sheet

The condensed consolidated balance sheet presented under IFRS reflects the financial position of the Group at 31 December 2015. 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 £856m (H1 2015: £924m). 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. Additional factors impacting upon the Group's capital position at the balance sheet date are summarised in section 10 of this Review.

Deferred origination costs

The deferral of origination costs ("DOC") 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 consolidated statement of comprehensive income 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 2015.

The movement in value of DOC over the period is summarized below:

Deferred income

The treatment of deferred income ensures that initial fees are taken to the consolidated statement of comprehensive income in equal instalments 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. At the balance sheet date deferred income represents the unamortised balance of accumulated initial fees received on new business.

The proportion of income deferred in any one year is dependent upon the mix and volume of business flows. 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 period relate 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 period is summarised below.

8. Embedded Value Results

Our business is long term in nature and therefore we present our results on a European Embedded Value ("EEV") basis as well as a statutory IFRS basis. Our EEV is determined on the EEV principles published by the Chief Financial Officers ("CFO") Forum in 2004 and subsequently updated. The EEV is the Net Worth plus the discounted valuation of the future profits expected on best estimate assumptions, with proper allowance for the timing of receipt of those profits.

EEV and IFRS are different approaches to recognising the (same) ultimate profit from an insurance contract:

· The EEV approach recognises profit from new insurance contracts as a lump sum addition to the Value of In-force ("VIF") equal to the discounted value of future profits (called the New Business Contribution or "NBC"). The VIF is converted to cash (then included in "Net Worth") as the business progresses. The NBC reflects the shareholder value added from new business at point of sale. The change in EEV reflects the cash impact of writing new business as well as other changes within the business and its environment.

· The IFRS approach smoothes the recognition of profit from new insurance contracts by spreading the initial revenues and corresponding costs evenly over their expected lives. The IFRS new business result therefore reflects neither the shareholder value added from writing new business, nor its cash impact.

Results for H1 2016 under European Embedded Value

The Group's EEV results primarily reflect the earnings forecast from the value of policyholder assets at 31 December 2015 and dividends paid since 30 June 2015. The EEV profit or loss reported is primarily driven by the levels of new business received, and by investment returns.

Although increased from a low base, the level of new business volumes and the overall numbers of policies in-force have not yet recovered sufficiently to generate a positive New Business Contribution. 

The EEV operating loss of £0.6m (H1 2015: loss of £0.4m) also reflects experience variances of (£1.5m) (H1 2015: (£0.2m)) over the period.

A gain from the weakness of sterling in the period against the currencies favoured by our policyholders was partially offset with market valuation losses related to assets under administration to produce an overall EEV profit of £1.2m (H1 2015: £6.6m).

Headline results for the EEV performance are shown in the table below:

There was an Operating Loss of £0.6m (H1 2015: £0.4m loss), reflecting a negative new business contribution of (£0.2m) (H1 2015: (£1.1m)), expected return of £0.7m (H1 2015: £0.9m) and experience variances of (£1.5m) (H1 2015: (£0.2m)).

The EEV is £189.0m which is £6.0m below the EEV at 30 June 2015 of £195.0m having paid dividends of £7.2m (H1 2015: £203.5m after dividends of £6.9m).

Sales Metrics

New business comparatives are shown below:

Sales volumes for Hansard International (in PVNBP terms) have increased to £56.4m from £29.4m in H1 2015 as reported earlier in this Review. The NBC has increased to (£0.2m) (H1 2015: (£1.1m)) having allowed for initial expenses.

Regular premium business is 53% (H1 2015: 60%) of total PVNBP.

EEV balance sheet

The composition of the EEV has changed compared to the previous half year. The Value of Future Profits converts to cash, or Net Worth, to repay the capital invested in prior periods. Higher levels of new business written in prior years has converted from Value of Future Profits ("VFP") to Net Worth at a quicker rate than current new business written is being added to the VFP.

Net Worth has been reduced since 31 December 2014 by dividends paid of £12.0m.

Net Worth is typically held in a wide range of deposit institutions and in highly-rated money market liquidity funds. This prudent investment policy has removed much of the market risk and provided a stable and resilient solvency position over recent years.

The high-level components of EEV are shown in the table below:

The change in the VFP reflects sterling exchange rates on 31 December 2015, new business, the conversion of VFP to Net Worth and the impact of policyholder behaviour.

Net Worth has reduced to £58.7m from £63.5m at 30 June 2015, after dividend payments of £7.2m (H1 2015: £6.9m).

The Required Capital has increased marginally: it includes around £12.6m (H1 2015: £11.6m) of Hansard Europe capital. The Group has given regulatory undertakings not to release capital from that business until there is greater clarity over the litigation currently being taken against it. Some recent positive developments may allow for a partial release of excess capital in a shorter timescale, but the Group continues to estimate that much of this additional Required Capital will be constrained for three years.

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

Change in Net Worth

The change in the Net Worth over the year shows the cash-generative capacity of the Group's operations and its use of cash in the period. The business has generated net cash of £12.3m (H1 2015: £18.4m) of which £9.9m (H1 2015: £7.0m) relates to costs involved in acquiring new business in the period shown as New Business Strain below.

The conversion to Net Worth from existing business is progressing as expected: this conversion has two aspects: the receipt of charges to meet initial expenses and the receipt of charges to meet continuing expenses.

EEV Profit after tax

The Group's EEV Profit after tax is lower than last year at £1.2m (H1 2015: £6.6m). This primarily reflects a lower positive Investment Return Variance of £1.3m (H1 2015 £4.6m). The components are shown in the table below:

Experience Variances

Experience variances arise when the behaviour of the existing book differs from that assumed. The experience variance at (£1.5m) is small and shows that the existing book is behaving overall as assumed.

Operating Assumption Changes

There was one minor operating assumption change of (£0.2m) in the period, to reflect expenses charged to unit funds. Management has the view that the experience variances do not indicate any further need for assumptions to change at this time. A review of operating assumptions is conducted annually towards the year-end.

Investment Performance

Investment performance principally reflects the investment choices, by nature and currency, made by policyholders. It is 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 period.

Economic Assumption Changes

There was a positive variance of £0.5m (H1 2015: £2.4m) from Economic Assumption Changes reflecting changes in government bond yields for the currencies in which policyholder assets are denominated.

9. Assets under administration

In the following paragraphs, assets under administration ("AuA") refers to net assets held to cover financial liabilities as analysed in note 12 to the condensed 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.

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.

The following table summarises Group AuA performance for H1 2016. Deposits to single premium investment contracts includes the £8.3m invested by our Group President into his pre-existing contract with one of our insurance subsidiaries:

AuA of £856m as at 31 December 2015 is some 5.6% below the position at 30 June 2015, as a result of market falls since year end and net policyholder cash outflows. This is primarily driven by outflows from Hansard Europe which closed to new business in 2013.

The value of AuA is based upon the assets selected by or on behalf of policyholders to meet their needs from time to time. Reflecting the wide geographical spread of the Group's policyholders, the majority of AuA are designated in currencies other than sterling. The currency denomination of AuA is similar to that of H1 2015. At the balance sheet date 62% of AuA is denominated in US Dollars, with a further 18% denominated in euro and 17% in sterling, as reflected in note 4 to the condensed consolidated financial statements.

10. CAPITALISATION AND SOLVENCY

The Group's authorised life insurance subsidiaries continue to be well capitalised with free assets well in excess of the regulatory requirements in each relevant jurisdiction. There has been no material change in the Group's management of capital during the period.

Solvency capital is a combination of future margins, where permitted by regulation, and capital. Where future margins are denominated in non-sterling currencies, it is vulnerable to the weakening of those currencies relative to sterling. All of the Group's excess capital is invested in a wide range of deposit institutions and highly-rated money market liquidity funds, predominantly in sterling. This approach immunises the Group's capital base from stock market falls.

The in-force portfolio has no material investment options or guarantees that could cause capital strain and retains very little of the mortality risk that it has accepted (the balance being reinsured with premium reinsurers). There is no longevity risk exposure.

Policy on capital maintenance

It is the Group's policy to maintain a strong capital base in order to:

· satisfy the requirements of its contract holders, creditors and regulators;

· maintain financial strength to support new business growth and create shareholder value;

· match the profile of its assets and liabilities, taking account of the risks inherent in the business and;

· generate operating cash flows to fund dividend requirements.

Within the Group each subsidiary company manages its own capital. Capital generated in excess of planned requirements is returned to the Company by way of dividends. Group capital requirements are monitored by the Board.

Capital position at the balance sheet date

The Group is strongly capitalised to meet the requirements of contract holders, intermediaries, regulators and other stakeholders. The aggregate required minimum margin of the regulated entities at each balance sheet date remains covered 13 times by surplus net assets.

Except in relation to Deferred Acquisition Cost ("DAC") assets held by Hansard Europe Limited of less than £0.1m (H1 2015: £0.2m), the capital, defined as total shareholders' funds, is available to meet the regulatory capital requirements without any restrictions. The Group's other assets are largely cash and cash equivalents, deposits with credit institutions and money market funds.

* The condensed consolidated financial statements have been prepared in accordance with the requirements of IFRS whilst the regulatory capital of the life assurance subsidiaries is calculated based on local regulatory requirements. The financial statements of these subsidiary undertakings are prepared under the insurance accounting requirements of the relevant jurisdiction. The adjustment referred to arises out of the treatment of initial fees and costs relating to new business under the different accounting codes. Under IFRS these fees and costs are amortised to the income statement over the life of the relevant contracts, whereas under the local Regulatory requirements for the subsidiary undertakings, fees are recognised when received and the relevant costs of new business are deferred, where applicable, to match these income streams.

Required regulatory capital

Our agreement with the Central Bank of Ireland as a result of the implementation of the revised Operating Model for Hansard Europe has the effect of delaying dividends or other distributions from that company until such time as there is more certainty over the legal cases referred to in note 17 to the condensed consolidated financial statements. That company's total shareholders' funds at 31 December 2015, which are incorporated within the table above, is £16.0m (H1 2015: £15.0m).

Solvency II

The introduction of Solvency II from 1 January 2016 has seen a fundamental change in the way EU-based insurers assess their capital requirements and risk management standards. We do not expect additional capital requirements in Hansard Europe as a result of these legislative changes. 

11. DIVIDENDS

A final dividend of 5.0p per share in relation to the previous financial year was paid in November 2015. This amounted to £7.2m.

The Board has considered the results for H1 2016, the Group's continued cash flow generation and its future expectations and has resolved to pay an increased interim dividend of 3.6p per share (2015: 3.5p). This dividend will be paid on 31 March 2016.

12. complaints and potential litigation

The Group continues to deal with policyholder complaints, principally in relation to asset performance issues arising from policyholders resident in 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. As at the report date of the 2015 Annual Report and Accounts, the Group faced litigation based on writs totalling €13.3m (£9.4m). The corresponding figure as at the report date of the 2015 Interim Report and Accounts was €6.9m (£5.4m). As at the report date of these Interim Report and Accounts, writs totalled €14.1m (£10.4m). The total has increased primarily as a result of further claimants adding to a group action taken in Belgium which forms €7.2m (£5.3m) of the total. We believe this case to be highly speculative and will robustly defend against it. Offsetting this, the Group has had three cases successfully ruled in its favour in Belgium and Italy (with no liability attributed to the Group), reducing writs outstanding by €1.3m (£1.0m). We believe these rulings set helpful precedents in these jurisdictions and expect them to be helpful case law for resolving a number of similar cases.

There may also be circumstances where in order to avoid the expense and distraction of extended litigation, the Group may consider it to be in the best interests of the Group and its shareholders to reach a resolution with regard to certain of these claims. Provisions totalling less than £0.1m (30 June 2015: £0.1m) have been established in relation to a small number of those writs following a decision to pursue settlement.

13. Net asset value per shaRE

On an EEV basis, the net asset value per share at 31 December 2015 is 137.6p (H1 2015: 148.2p) based on the EEV at the balance sheet date divided by the number of shares in issue at that date, being 137,388,669 ordinary shares (H1 2015: 137,383,850).

The net asset value per share on an IFRS basis at 31 December 2015 is 27.5p (H1 2015: 26.6p) based on the net assets in the Consolidated Balance Sheet divided by the number of shares in issue.

14. Risk Management

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.

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.

Risks relating to the Group's financial and other exposures

The Group's business model involves the controlled acceptance and management of risk exposures. Under the terms of the unit-linked investment contracts issued by the Group, the contract holder bears the investment risk on the assets in the unit-linked funds, as the benefits of the contract 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 contract holders. By definition, there is a precise match between the investment assets and the contract holder liabilities, and so the market risk and credit risk lie with contract holders.

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 4 to the condensed consolidated financial statements. Additionally, the EEV Information includes a summary of the sensitivity of the Group's EEV results to economic and other factors.

A comprehensive review of the principal risks and uncertainties facing the business, and the Group's approach to managing these risks and uncertainties, are outlined on pages 26 to 31 of the 2015 Annual Report. These principal risks and uncertainties have not changed materially since the 2015 Annual Report was published.

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 went live on 1 January 2016, will impose additional governance and detailed reporting requirements on Hansard Europe;

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

· The roll-out of automatic information exchange programmes through regulations such as FATCA and Common Reporting Standards will impact on the entire business.

In order to respond to the changing regulatory environment the Group has established a Governance, Risk and Compliance ("GRC") Department. This department will consider and analyse new regulations to determine the impact on the Group, as well as monitoring adherence to existing regulations.

The Board reviews and considers its principal risks on an annual basis. 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

Other Key Risks

In addition to the principal risks identified above, there are other key risks that the Group is subject to that derive from the nature of the business it operates. These are outlined below, together with how they are managed.

Statement of Directors' responsibilities

The Directors, whose names are reflected on the Company's website, www.hansard.com, confirm that, to the best of their knowledge, this condensed set of consolidated half-yearly financial statements has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

• An indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year and;

• Material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Notes to the Condensed Consolidated Financial Statements

1 General information

The principal activity of the Company is to act as the holding company of the Hansard Group of companies. The activities of the principal operating subsidiaries include the transaction of life assurance business and related activities.

The Company has its primary listing on the London Stock Exchange.

These condensed consolidated half-yearly financial statements are unaudited and do not comprise statutory financial statements. The condensed consolidated half-yearly financial statements were approved by the board of directors on 24 February 2016.

The board of directors approved the Group's statutory financial statements for the year ended 30 June 2015 on 22 September 2015. The report of the independent auditor on those financial statements was unqualified and did not contain an emphasis of matter paragraph.

2 Basis of presentation

These condensed consolidated half-yearly financial statements for the half-year ended 31 December 2015 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority ("DTR") and with IAS 34 "Interim Financial Reporting" as adopted by the European Union ("EU"). The condensed consolidated half-yearly financial statements should be read in conjunction with the annual financial statements for the year ended 30 June 2015, which were prepared in accordance with International Financial Reporting Standards as adopted by the EU.

Except where otherwise stated, all figures included in the condensed consolidated half-yearly financial statements are stated in pounds sterling, which is also the functional currency of the Company, rounded to the nearest hundred thousand pounds.

The following amended standards, which the Group have adopted as of 1 July 2015, have not had any material impact on the Group's reported results:

• IFRIC 21, Levies

• Annual improvements 2012

• Annual improvements 2013

• IAS 32 Amendment - Financial Instruments: Presentation

• IAS 36 Amendment - Impairment of Assets

• IFRS 39 Amendment - Financial Instruments Recognition and Measurement

As at 31 December 2015, the following new and amended standards are in issue but not yet effective, and have not been early adopted by the Group. The adoption of these new and amended standards is not expected to have any material impact on the Group's results.

• IAS 1 amendment, 'Presentation of financial statements'

• IAS 16 amendments, 'Presentation of financial statements' and IAS 38, Intangible assets'

• IAS 27 amendments, 'Separate financial statements'

• IFRS 9 Financial instruments

• IFRS 10 amendments Consolidated financial statements and IAS 28 amendments, 'Investments in associates and joint ventures

• IFRS 11 amendments - Joint arrangements

• IFRS 15 Revenue from Contracts with Customers

• Annual Improvements to IFRSs 2014

Going Concern

As shown within the Business and Financial Review, the Group's capital position is strong and well in excess of regulatory requirements. The long-term nature of the Group's business results in considerable positive cash flows arising from existing business. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.

The Directors are satisfied that the Company and the Group have adequate resources to continue to operate as a going concern for the foreseeable future and have prepared the condensed consolidated financial statements on that basis.

3 Principal accounting policies

As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, this condensed set of consolidated financial statements has been prepared applying the accounting policies and standards that were applied, and the critical accounting estimates and judgements in applying them, in the preparation of the Group's published consolidated financial statements for the year ended 30 June 2015. The published consolidated financial statements for the year ended 30 June 2015 can be accessed on the Company's website: www.hansard.com.

4 Financial risk management

Risk management objectives and risk policies

The Group's operations expose it to a variety of financial risks. 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. The Group's exposure is limited to the extent that certain fees and commission income are based on the value of assets in the unit-linked funds. 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 ("ERM") framework is in place comprising risk identification, risk assessment, control and reporting processes. Information concerning the operation of the Enterprise Risk Management framework to manage financial and other risks is contained within the Report and Accounts for the year ended 30 June 2015, and particularly in note 3 thereto, "Financial risk management".

The more significant financial risks to which the Group is exposed, and an estimate of the potential financial impact of each on the Group's IFRS earnings, are set out below. For each category of risk, the Group determines its risk appetite and sets its investment, treasury and associated policies accordingly.

4.1 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 assets under administration. Similarly, due to the fact that some of these charges are deducted from policies in contract currency, a change in foreign exchange rates relative to sterling can result in fluctuations in fee income and expenses. The approximate impact on the Group's profits and equity of a 10% change in unit-linked fund values, either as a result of price or currency fluctuations, is £1.3m (H1 2015: £1.4m) in a financial year.

(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. The Group has mitigated its exposure to cash flow interest rate risk by placing a proportion of its cash holdings on longer-term, fixed-rate deposits.

Taking into account the proportion of Group funds held on longer-term, fixed-rate deposits, a change of 1% p.a. in interest rates will result in an increase or decrease of approximately £0.6m (H1 2016: £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 4.2.

(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 less than £0.1m (2015: less than £0.3m); in the value of the euro to sterling is less than £0.1m (2015: less than £0.1m); and in the value of the yen to sterling is less than £0.1m (2015: 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:

4.2 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 the balance sheet date, 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 respectively. 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.

Maximum counterparty exposure limits are set both at an individual subsidiary company level and on a Group wide basis.

4.3 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'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 policyholder 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 and estimates of new business investment requirements.

4.4 Fair value of financial assets and liabilities

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.

Due to the 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 condensed consolidated statement of comprehensive income.

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 tables analyse the Group's financial assets and liabilities at fair value through profit or loss, at 31 December 2015:

During the period under review no assets were transferred from Level 1 to Level 2. There were no other reclassifications of assets between the different Levels in the fair value hierarchy in the period.

The following tables analyse the Group's financial assets and liabilities at fair value through profit or loss, at 31 December 2014:

There were no reclassifications of assets between the different Levels in the fair value hierarchy in the comparative period.

5 Segmental information

Disclosure of operating segments in these condensed consolidated 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.

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 total amount of basic initial commission payable by Hansard International Limited 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 a majority of the Group's products and, hence, NICC is a reliable indicator of value.

The following table analyses NICC geographically and reconciles NICC to direct origination costs during the period as set out in section 5 of the Business and Financial Review.

Revenues and expenses allocated to geographical locations contained in sections 5.1 to 5.4 below, reflect the revenues and expenses generated in or incurred by the legal entities in those locations.

5.1 Geographical analysis of fees and commissions by origin

5.2 Geographical analysis of profit before taxation

5.3 Geographical analysis of gross assets

5.4 Geographical analysis of gross liabilities

6 Fees and commissions

7 Administrative and other expenses