Hansard Regulatory News (HSD)

Hansard Global plc

Results for the year ended 30 June 2013

Hansard Global plc ("Hansard" or "the Group"), the specialist long-term savings provider, issues its results for the year ended 30 June 2013 ("FY 2013").

Summary

NEW BUSINESS

The performance of the Group during the financial year demonstrates success from the Group's investment in distribution infrastructure and its focus on regular premium business sourced from growth economies. Regular premium new business flows are at a record level of £156.2m (2012: £124.4m) which has contributed to industry-leading new business margins of 12.0%. Almost 90% of regular premium business has been introduced electronically through Hansard OnLine.

Based on PVNBP, new business is 7.4% above last year despite reduced single premiums and the closure of Hansard Europe Limited to new business. The initial costs of acquiring this new business have been funded by positive operating cash flows of £41.4m (2012: £36.7m) generated from the existing policy book.

HANSARD EUROPE LIMITED

As previously announced, the Group concluded that it is in its long-term interests to reduce its exposure to Europe and therefore Hansard Europe was closed to new business with effect from 30 June 2013. Plans to achieve an orderly run-off of the company's activities were developed with regulators and stakeholders and approved by the Central Bank of Ireland on 1 August 2013. Implementation of the plans has commenced.

We have taken a charge of £0.4m in FY 2013 (FY 2012: £nil) as a result of redundancy costs, professional fees and other costs arising from the implementation of the first stage of the plans.

We anticipate an expense saving of £0.4m annually from FY 2015, although the conditions imposed by the Central Bank of Ireland following approval of the plans will defer dividend distributions from Hansard Europe for an estimated three years.

Litigation

Reflected within the results under both IFRS and EEV are litigation settlements totalling £1.6m (€1.9m) (FY 2012: £nil) relating to underlying legal claims of approximately €9.5m served on Hansard Europe in prior financial years. Although the cost of these settlements has had a negative impact on profits for the year, they were made without any admission of liability, so as to avoid the expense and distraction of extended litigation and to allow us to focus fully on our strategy of driving growth in regular premium products in fast growing markets.

There remains a number of writs served upon Hansard Europe totalling €4.6m or approximately £3.9m. The Group does not provide investment advice and, accordingly, the Board is of the view that these complaints have no merit and have not made any provision against them. 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. It is an integral part of Group administration systems that allows us to service those intermediaries in a way that suits them best, embed process efficiencies and be flexible in operational deployment. Throughout FY 2013 we continued to develop and implement functionality to meet the needs of policyholders and intermediaries. We will continue to extend the reach of Hansard OnLine among those few intermediaries throughout the world who do not currently utilise it.

Hansard OnLine will also be a key support tool for the future administration of the Hansard Europe book of business that will allow the Group to meet the requirements of that company's policyholders, regulators and stakeholders while processing transactions efficiently from the Group's offices in the Isle of Man.

Trading Results

The Group has traded profitably during the year and generated strong positive cashflows. The Group has successfully made its operations more efficient, enabling it to remove certain costs as well as reducing headcount during the year from 243 to 209. For the year reported, the benefits of these savings have been outweighed by the effects of those litigation settlements of £1.6m, and by the charge of £0.4m taken in relation to the closure of Hansard Europe to new business.

Prior to those exceptional items the IFRS profit before tax would have been £12.7m, an increase of £1.6m or 14.4% over the pre-tax profit of £11.1m in FY 2012. After recognising the exceptional items referred to above, IFRS profit after tax is £10.4m (2012: £11.2m).

EEV profit for the year is £17.0m, compared with a loss of £13.7m in the previous year driven by increased new business profits and investment returns.

Dividends

The Board has proposed a final dividend of 4.75p per share which, if approved by the shareholders, represents a total dividend of 8.0p per share in respect of the financial year. This is in line with the commitment given at the time of announcing the results for FY 2012 of adjusting the dividend to a level commensurate with the surplus cash generated by the business.

The Board intends to maintain a progressive dividend policy going forward.

Current Trading

Following the closure of Hansard Europe to new business the Group will focus future reporting of new business performance on Hansard International and provide comparatives for that company.

In the first two months of FY 2014 new business levels are marginally above the level of the new business earned by Hansard International in the corresponding period in the prior year. The Board expects new business to gather momentum in the third quarter as a result of product initiatives and following a restructure of the Group's sales force.

The Group intends to present its refreshed new business strategies to the market in H2 2014.

Interim Management Statement

The first Interim Management Statement in respect of the year ending 30 June 2014 is expected to be published on 8 November 2013.

Gordon Marr, Group Chief Executive Officer, commented:

"We achieved a record level of regular premium new business of £156.2m PVNBP in FY 2013. This demonstrates the success of our strategy of focusing on regular premium business in growth markets.

We plan to refresh certain aspects of the Group's new business strategies with our new Chief Distribution Officer, Graham Morrall, in order to further diversify new business flows, reduce risk and increase the scale of our business.

Whilst wider market conditions are uncertain, we are confident that our strategy of focusing on regular premium business in growth markets will maintain growth in new business and that our investments in terms of recruitment, Hansard OnLine and infrastructure will continue to bear fruit."

For further information:

Hansard Global plc +44 (0)1624 688000 

Gordon Marr, Group Chief Executive Officer

Vince Watkins, Chief Financial Officer

Bell Pottinger LLP +44 (0)20 7861 3232

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 low-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 financial advisors and policyholders 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.

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

I am pleased to present the Report and Accounts of Hansard Global plc for the financial year ended 30 June 2013.  This has been a year of great change for the Group, which has seen us close Hansard Europe Limited to new business and settle some of the litigation that has been hanging over us for a number of years.

As the profile of the Group continues to change, so does the Board. I was delighted that Gordon Marr was appointed as Group Chief Executive Officer with effect from 1 January 2013. This development will enable Gordon to focus on the execution of our strategy, and I remain committed to supporting Gordon and the Board in my capacity of non-executive Chairman.

During the year we bade farewell to directors Joe Kanarek and Harvey Krueger and Bernard Asher retired from the Board on 16 September 2013. On behalf of the Board, I thank them all for their valued contributions over the years and wish them every success for the future.

Hansard Europe

With the success of the Group's strategy to build relationships with intermediaries in growth markets and the reduced prospects in the Eurozone, we concluded that it is in the long-term interests of the Group to reduce our exposure to Europe. Consequently, Hansard Europe was closed to new business with effect from 30 June 2013.

Plans to protect the interests of policyholders and other stakeholders and to achieve an orderly run-off have been agreed with the relevant regulators and are being implemented as described elsewhere within this Report and Accounts.

Litigation

Reflected within the Report and Accounts are litigation settlements totalling €1.9m (£1.6m, $2.5m) (FY 2012: £nil) relating to underlying legal claims of approximately €9.5m served on Hansard Europe in prior financial years. Although the cost of these settlements has had a negative impact on profits for the year, they were made, without any admission of liability, so as to avoid the expense and distraction of extended litigation and to allow us to focus fully on our strategy of driving growth in regular premium products in fast growing markets.

While these particular claims have been settled, we will continue to defend ourselves against all claims, unless there is a clear economic benefit to consider an alternative course of action.

New business

The performance of the Group during the financial yeardemonstrates continued success from the Group's investment in distribution infrastructure and its focus on regular premium business sourced from the growth economies of the Far East and Latin America. Over 90% of regular premium new business is currently introduced electronically through Hansard OnLine compared to 60% in the previous financial year.

New business flows are almost 15% greater than those of the previous financial year, on the Group's internal measure. This represents a record level of new business for the Group since our listing in December 2006.

Financial performance for the year ended 30 June 2013

· International Financial Reporting Standards ("IFRS")

Reflecting the strength of our portfolio of in-force business, continued investment in new business, and the litigation settlements referred to above, IFRS profit after tax for the year is £10.4 million (US$15.8m), compared with the profit of £11.2m (US$17.0m) earned in the previous financial year. Earnings per share for the year are 7.6p (US 11.6 cents), compared with 8.2p (US 12.5c).

· European Embedded Value ("EEV")

EEV profit after tax has increased to £17.0m (US$25.8m) (2012: loss of £13.7m (US$20.8m)). Increased new business profits arising from increased regular premium new business flows, positive investment returns and changes in our assumptions of future policyholder behaviour have been incorporated in our expectations of value.

Following the payment of dividends totalling £15.5m (US$23.6m) during the year, the Group's embedded value at 30 June 2013 is £225.7m (US$343m), (2012: £224.3m, US$341m).

· Capitalisation and solvency

The Group is well capitalised to meet the requirements of regulators, policyholders and intermediaries. The minimum solvency margins are covered 12 times (2012: 13 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.

Dividends

The Board has resolved to pay a final dividend of 4.75p (US 7.2c) per share on 13 November 2013 which is subject to approval at the Annual General Meeting. If approved, this will represent total dividends for the financial year of 8.0p per share (US 12.2c) which is in line with our commitment at time of publishing the results of FY 2012.

Corporate Governance

Hansard is committed to achieving high standards of corporate governance. The Group has adhered to the principles of the UK Corporate Governance Code throughout the financial year, as is reported elsewhere in this Report and Accounts.

During the year we have refreshed Board and Committee structures and composition throughout the Group.

The burden of increasing regulatory and governance requirements has increased costs for all financial services institutions. This trend shows no sign of abating and, indeed, timetables for implementation continue to be extended. I expect the implementation of Solvency II, FATCA and other legislation proposed throughout the EU to occupy a significant amount of the Group's resources over the next few years.

Outlook

Whilst wider market conditions continue to be uncertain, we are confident that our strategy of focusing on regular premium business in growth markets will drive growth in new business and that our investments in terms of recruitment and infrastructure will continue to bear fruit.

Dr. L S Polonsky CBE

Chairman

 25 September 2013

REPORT OF THE GROUP CHIEF EXECUTIVE OFFICER

Having been appointed Group Chief Executive Officer with effect from 1 January 2013, this is my first report in that capacity in the annual Report and Accounts. The performance of the Group during this financial year demonstrates the success of our strategy and I set out below my summary of the Group's strategic direction, together with some of the high-level results in the year ("FY 2013").

Our success in FY 2013 is demonstrated by a record level of regular premium new business; in increasing utilisation of Hansard OnLine amongst IFAs and other intermediaries in our target markets, in the progress being made in managing business risk and in the level of positive cashflows.

While we have been successful we know that we cannot stand still. We operate in a fast-moving environment that requires us to be open to change and have begun to consider strategic and tactical adjustments to better diversify new business flows, further reduce risk and increase the scale of our business.

Subsequent to the closure of Hansard Europe to new business we intend to complete a review of the sales and marketing operations of the Group. Graham Morrall, who commenced employment as Chief Distribution Officer in July 2013, has been tasked with leading the review and I anticipate that we will provide details of any significant changes in early 2014.

STRATEGY

Hansard's strategic aims are to attract and retain policyholders and increase the value of the Group, principally by:

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

2. Leveraging Hansard OnLine developments;

3. Reducing our exposure to business risk and;

4. Generating positive cashflows to fund a progressive dividend stream.

1. New Business distribution 

Strategy. We will continue to focus our distribution activities in order to gain a substantial proportion of regular premium flows from growth marketsat an acceptable return on capital. We expect to achieve this through enhanced service levels; innovative support to intermediaries; improvements to our product range, and by extending the breadth of our proposition. We intend to diversify market exposures by developing opportunities in other markets.

I anticipate that the first few of a range of tactical steps will be introduced to intermediaries and their clients by November 2013.

I believe that the growth of our new business this year is recognition of our ability to develop a proposition that meets the needs of policyholders and intermediaries, and of the efforts of those intermediaries. I would like to record my thanks to all members of the Group's distribution force and to all those IFAs and intermediaries who have introduced new business to us this year.

2. Leverage Hansard OnLine

Strategy. Hansard OnLine is a powerful sales and business administration tool that is used by intermediaries the world over. It is an integral part of Group administration systems that allows us to better service those intermediaries, embed process efficiencies and be flexible in operational deployment. We will continue 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. In keeping with the nature of our business, Hansard OnLine is available in 11 different languages, enabling us to provide a tailored service to those fast-growing international markets where our efforts are focused.

Hansard OnLine will be a key support tool for the future administration of the Hansard Europe book of business that will allow the Group to meet the requirements of that company's policyholders, regulators and stakeholders while processing transactions efficiently from the Group's offices in the Isle of Man.

3. Reduction of Business and Financial Risks

Strategy. Our business model is such that the assets linked to policies, and which determine the policy values, are selected by policyholders or their advisors yet, as has been reported in the past, a majority of the complaints we receive relate to the selection and performance of assets. This is particularly true of more complex structured products distributed throughout Europe that have been selected by policyholders and / or their advisors for inclusion in policies.

We intend to minimise future exposure to significant policyholder complaints and to those jurisdictions where we have been subject to legal challenge. This will be achieved, in large part, by the action taken to close Hansard Europe to new business with effect from 30 June 2013; by the introduction of an asset universe that provides a wide range of investment exposures to policyholders, but which seeks to minimise access to those assets that have given rise to significant policyholder complaints in the past, and by careful risk management of existing litigation.

Our risk management framework is continually refreshed to better support our objectives and to recognise regulatory and legislative change. During the year the Group restructured its Compliance functions and also appointed a new Chief Risk Officer.

A summary of the Group's risk management framework, and the principal risks faced by the Group, is set out in the Corporate Governance Report.

4. Positive operating cashflows and progressive dividend stream

Strategy. The Board has committed to generating positive operating cash flows to fund new business strain and support a progressive dividend payment stream.

FINANCIAL PERFORMANCE

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

IFRS results

Fees and commissions have increased by 4.8% over FY 2012, or £2.6m. The increased level of fee income in this financial year is largely as a result of those new business policies issued in the last few years which are now contributing to revenue streams for a full financial year, and by strengthening of foreign currencies against sterling.

While the Group has been successful in harnessing process efficiencies and reducing headcount during the year from 243 to 209, the benefits of these savings have been outweighed by the effects of those litigation settlements of £1.6m, and by the charge of £0.4m taken in relation to the closure of Hansard Europe to new business.

After recognising the exceptional items referred to above totalling £2.0m (2012: £nil), IFRS profit after tax for the year is £10.4m, a reduction of 7.1% from the profit of £11.2m in FY 2012. Without those exceptional items the IFRS profit after tax would have been £12.4m.

EEV results

The EEV result is primarily driven by the current year new business, retention, expenses and investment returns. Additional factors that have a negative impact upon the EEV result in FY 2013 are the litigation settlements and the closure of Hansard Europe to new business.

The EEV new business profit of £22.5m has increased by 34% over the previous year (FY 2012: £16.8m). This growth reflects the increase in new business volumes, a more favourable business mix and continued expense management.

The EEV operating profit for the year was £11.7m which is some £6.9m higher than the £4.8 m for FY 2012. In addition to the contribution from the new business profit, the litigation settlements of £1.6m and other negative experience variances of £3.9m, the processes for setting best estimate assumptions have been extensively reviewed in the year. In particular, the process for determining future recurring expenses has been tightened and changes in policyholder behaviour are being recognised more quickly, rather than being smoothed.

Following the payment of dividends totalling £15.5m (2012: £19.1m), the Group's EEV has increased by £1.4m to £225.7m at 30 June 2013 (2012: £224.3m). The composition of the EEV balance sheet at 30 June 2013 reflects the conditions imposed by the Central Bank of Ireland on the ability of Hansard Europe to distribute its excess capital.

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, administration, distribution mechanisms and Hansard OnLine. It is the expertise and experience of our staff that has ensured our success in a wide range of international growth markets.

The strength and continued growth of the business is due in no small part to the hard work and dedication of everyone connected to Hansard. I thank them all for their continued commitment to Hansard's success. I am sure that our employees will continue to meet the challenges facing us as we pursue the successful integration of Hansard Europe's administrative requirements into the Isle of Man operations.

G S Marr

Group Chief Executive Officer

25 September 2013

BUSINESS AND OPERATING REVIEW

Business

Hansard is a specialist long-term savings provider that began trading internationally from the Isle of Man in 1987. The Company's head office is in Douglas, Isle of Man, and its principal subsidiaries operate from the Isle of Man (including a regulated insurer, Hansard International Limited), and Dublin, Republic of Ireland (Hansard Europe). Hansard International has established a branch in Malaysia to support business flows from Asian growth economies.

The Group offers a range of flexible, tax-efficient investment products within life assurance or capital redemption bond policy wrappers, developed to appeal to affluent international investors and distributed by Independent Financial Advisors ("IFAs") and other intermediaries acting for the clients they introduce. These IFAs are supported by the Group's distribution company, Hansard Development Services Limited, and by Hansard OnLine, the Group's multi-language internet platform.

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

Closure of Hansard Europe to new business

Following a strategic review of the operations of Hansard Europe that company was closed to new business with effect from 30 June 2013, as a result of which the Group now focuses its new business activities on target markets such as the Far East and Latin America, while continuing to service those policy contracts introduced by IFAs throughout the world prior to 30 June 2013.

A plan to protect the interests of policyholders and other stakeholders of Hansard Europe achieve an orderly run-off, reduce operational risks and protect capital was developed with the relevant regulators and submitted to the Central Bank of Ireland in May 2013. The plan involved the redundancy in June and July 2013 of 7 roles linked to new business activities, followed by the implementation of a revised Operating Model for the remaining activities of Hansard Europe. Approval to commence the implementation of the revised Operating Model was given by the Central Bank of Ireland on 1 August 2013.

The Operating Model also allows the capture of process efficiencies by centralising the servicing of policy contracts and other administrative operations at the Group's head office on the Isle of Man, through an outsourcing agreement with Hansard Administration Services Limited. Under the Operating Model, regulatory control functions and litigation management will continue to be exercised from Dublin for the foreseeable future. The embedding of the Operating Model and the outcome of litigation management will drive the timing of the release of excess capital from Hansard Europe.

We expect that the implementation of the Operating Model will be completed by Christmas 2013 and will result in a net reduction in Group administrative and other headcount of a further 6 people over the course of FY 2014.

Products

The Group's products are unit-linked regular or single premium life assurance contracts, which offer access to a wide range of investment assets. The contract benefits are directly linked to the value of those assets that are selected by, or on behalf of, the policyholder. The Group does not offer investment advice. Policyholders bear the investment risk.

These contracts are distributed exclusively through IFAs and other intermediaries, supported by our multi-language internet platform, Hansard OnLine. 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 policyholder to reposition assets within a policy, we expect to retain the policyholder relationship over the long term.

The Group's products do not include any policies 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. 

Revenues

The main source of income for the Group is the fees earned from the administration of the insurance contracts. These fees are largely fixed in nature and amount. Only approximately 30% of the Group's revenues 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 and so, with careful expense management, provides a healthy return on the investment that is in excess of our competitors. In the year under review we have seen growth of over 25% in regular premium new business flows (based on PVNBP), which will provide an income stream for the future. Our business is therefore long term in nature both from a policyholder perspective and with regards to the income that is generated.

From this income we meet the overheads of the business, invest in our business and invest to acquire new insurance contracts. Capital invested in new business earns a return in excess of 15% p.a. and, depending upon the mix of products sold, is typically returned in two years. A large proportion of the annual cash generated each year from the policies under administration is re-invested in growing the business, with the aim of increasing future returns for shareholders.

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, policyholders, intermediaries and shareholders. The Group is well capitalised. The required minimum solvency margins are covered 12 times (2012: 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. 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.

Additionally, as mentioned above, the Group's products do not include any policies with financial options and/or guarantees regarding investment performance. Therefore, the Group carries no guarantee risk that can cause capital strain, further insulating it against volatile investment markets.

We are well advanced in our preparation for the adoption of the new EU Solvency II requirements that are now not expected to be implemented before 2015. As noted previously, we do not believe the Group will be adversely impacted by the new requirements.

Hansard OnLine

Hansard OnLine is the Group's multi-language internet platform. It is a secure extranet platform hosting all information about the policies administered by the Group. We provide access to relevant portions of this information to Intermediaries and their clients around the world, around the clock, to allow them to better manage their objectives. Content may be presented in any of 11 different languages - helping IFAs communicate more effectively with their clients and reinforcing their brand.

Hansard OnLine is a valuable sales and administration toolthat continues to be developed to meet the needs of intermediaries and policyholders. Functionality introduced recently aims to improve data access; increase security and; reduce operational risks, which, in turn, has allowed the Group to reduce its expense base.

Meeting policyholders' requirements

Local needs in local languages

Policy information (policy valuations, premium collection, unit fund and investment performance information) is available OnLine to policyholders and intermediaries with content presented in11 different languages.

Secure communications 

Through an OnLine account policyholders can view all the documentation relating to their policy. Over 13,000 OnLine accounts are used regularly. The number of clients choosing not to receive hard copy post continues to show a steady increase.

Payment of premiums

Enhanced functionality to allow flexibility in payment of premiums by credit card is to be launched in the next few months.

Supporting intermediaries' business models

OnLine processing

· Pre-sale policy illustrations

During the year a new, multi-language, feature rich OnLine policy illustrations system was launched to allow intermediaries to better demonstrate projected returns to policyholders. An average of 170 illustrations are generated per week.

· OnLine processing of new business applications

Over 8,000 new business applications have been received OnLine since launch. Over 90% of all new business applications are now received OnLine. In particular over 3,600 (FY 2012: 2,100) policies were introduced electronically this year by those financial advisors in international markets using Hansard OnLine.

· OnLine processing of policy investment transactions

The majority of Fund Advisors now transact policy-related investment dealing OnLine. Almost 90% of all available transactions are now processed OnLine. A facility to allow Fund Advisors to transact in aggregate throughout their client range has been released. A project to allow policyholders to transact OnLine is underway.

Up to date analytical information

· Unit Fund Centre

The Unit Fund Centre is an interactive research application that allows an intermediary to filter the entire range of Hansard unit funds available, based on a range of specific criteria, and create bespoke, personalised reports for their clients.

· Personal Investment Review ("PIR")

Significant enhancements have been made to the popular PIR tool, accessed via Hansard OnLine. The PIR is a tool used by intermediaries in Hansard's key markets, enabling them to produce branded reports detailing comprehensive fund performance and holdings data for their clients. The enhanced version of the application has increased functionality and more robust underlying data, and also 'plugs in' as a new tool to the recently launched Unit Fund Centre.

Reducing Operational risk

· Straight-through processing

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 intermediaries and policyholders, irrespective of geographical boundaries.

· Administrative efficiencies

Hansard OnLine will be a vital resource as the Group implements the revised Operating Model for Hansard Europe, allowing more efficient management of operations from the Isle of Man while meeting the needs of regulators, intermediaries and policyholders.

Key performance indicators

We intend to grow our business in our preferred markets and at an acceptable return on capital. To support this the Group's senior management team monitors a 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 is monitored and variances explained.

The following is a summary of the key indicators.

New business flows for the year ended 30 June 2013

Hansard's strategy to acquire increased levels of more profitable regular premium new business from growth markets continues to be rewarded, driven by continued development of relationships with financial advisors, establishment of new relationships, and introduction of new product initiatives in the early part of this financial year. This activity has been particularly successful in those areas of the Far East targeted by the Group.

The success of the Group's new business strategies is demonstrated by an increased level of regular premium volumes and by increased new business profits over FY 2012. New business sales for FY 2013 are 14.6% ahead of FY 2012, on the Group's internal metric, Compensation Credit ("CC").

Increased levels of CC over last year demonstrate that the Group continues to grow new business levels profitably. This is a measure of the quality of our proposition and of increased levels of interest among IFAs and their clients throughout the world. Since June 2009, following the global financial crisis, the Group's new business sales have increased by an average of 15% annually, on that basis.

Our focus on regular premium products from growth markets has driven increased new business margins, when compared to FY 2012, and speedier return of capital invested by the Group in these products. Capital is returned within 2 years (2012: 2.6 years).

We have achieved a record performance in regular premium new business sales in spite of the fact that economic conditions and other factors in Latin American markets have restricted the volume of new business from those markets.

The volumes of regular premium new business from those target markets has been partially offset by a reduction in single premium flows caused by the announcement in February this year of our intention to close Hansard Europe to new business.

The results for the year that are summarised below reflect the successful implementation of the decisions taken by the Group to:

· develop and enhance profitable relationships with IFAs, intermediaries and their clients and;

· increase the functionality of Hansard OnLine to continue to meet the needs of IFAs and policyholders.

New business performance

Present Value of New Business Premiums

On the basis of the Present Value of New Business Premiums ("PVNBP"), regular premium flows for the year are at a record level of £156.2m, and over 25% ahead of FY 2012, as we continue to develop markets in the Far East.

Single premiums have however fallen from £51.3m in FY 2012 to £32.5m, reflecting uncertainty and other economic factors in the Eurozone and the announcement in February this year of our intention to close Hansard Europe to new business. Hansard Europe contributed less than 10% of the Group's new business flows in FY 2013 on all metrics reported by the Group.

The record level of regular premium new business levels in the year of £156.2m constitutes some 83% of total new business (FY 2012: 71%).

New business profits

Despite market conditions, we have retained our focus on profitability. Increased regular premium flows, which earn higher margins than single premium business, have contributed to the growth in the new business margin to 12.0% on the PVNBP basis (FY 2012: 9.6%).

The underlying profitability of the Group's new business remains consistently above those levels enjoyed by competitors, reflecting the efficiency of the Group's product design. The Internal Rate of Return of new business written in the year remains in excess of 15% p.a., reflecting the product design which sees initial capital invested in new business being returned, on average, in two years.

Developing and enhancing relationships

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

We continue to look to better position our market development resources to provide local language and other support to IFAs in the Group's target markets. During the financial year we continued to increase our exposure to the growth markets of South-East Asia and North Africa together with adding resource to East Africa. While distribution resources have been withdrawn from certain areas in Western Europe we continue to service intermediaries, including those focused on an expatriate market.

To help focus our efforts we have reorganised our sales management structure into three regions headed by a Regional Director, Latin America, Middle East & Africa and Asia. In addition we have added a Head of International Business Development to the management team.

Selective recruitment of distribution resources will continue, in line with our policy of expanding our reach amongst suitable financial advisors in the Group's target markets. Throughout the next financial year we intend to continue to develop relationships through targeted expansion of resources in the Far East, in more countries in Latin America, Middle East and Africa.

Through our network of Account Executives we continue toreceive business from a range of financial advisors around the world. The growth in regular premium new business flows from target markets is reflected in the proportions of contractual premiums denominated in Japanese yen and US dollars. Some 75% of this year's PVNBP is denominated in those currencies (2012: 62%). Reduced receipts in euro reflect reduced single premiums in the year.

Presentation of financial results

As noted above, our business is long term in nature, and 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 as our products are designed to minimise capital strain.

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 embedded value profit reported in one year will emerge as cash in future years.

· 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 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 of strategy implementation, as represented under accounting disclosures affecting the consolidated income statement, an analysis of cashflows and the consolidated balance sheet. A small number of comparative figures have been restated in this section.

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 policyholders. These assets are selected by the policyholder or an authorised intermediary and the policyholder bears the investment risk. Investment gains during the year attributable to policyholder assets were £73.4m (2012: £146.5m 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 policyholder assets were £4.3m (2012: £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.

While the Group has been successful in harnessing process efficiencies and reducing administrative headcount during the year, the benefits of these savings have been outweighed by the effects of litigation settlements of £1.6m and by the charge of £0.4m taken in relation to the closure of Hansard Europe to new business.

Prior to those exceptional items the IFRS profit before tax would have been £12.7m, an increase of £1.6m or 14.4% over the pre-tax profit of £11.1m in FY 2012, as can be seen below.

After recognising the exceptional items referred to above, IFRS profit after tax for the year is £10.4m.

Fees and commissions

Fees and commissions for the year attributable to Group activities are £52.8m, an increase of 5.2% over the previous year (2012: £50.2m).

Through product design, elements of contract fee income are largely fixed in nature, representing both the smoothing of up-front income required under IFRS, and policy-servicing charges applied to the relevant policy annually or as required by the policy terms and conditions. The effect of recent new business growth on the Group's income can be seen in the increase in fees and commissions over the comparative year. This demonstrates the resilience of the Group's business model and supports our strategy of focussing on more profitable regular premium sales. The impact on current year income of policy contracts issued this year is minimal.

Approximately 30% of the Group's fees and commissions, being fund management fees and commissions receivable from third parties, are related directly to the value of assets under administration and exposed to market movements and valuation judgements. The level of fund management fees and commissions receivable, when compared with last year, reflects primarily that levels of assets under administration have not moved significantly over the course of the financial year.

A summary of fees and commissions is set out below:

Included in contract fee income is £20.1m (2012: £19.1m) representing the amounts prepaid in previous years, as can be seen below in the reconciliation of deferred income.

Investment and other income

A summary of Investment and other income is set out below. Foreign exchange gains of £0.6m have been recognised as a result of the strengthening of currencies against sterling during the financial year (2012: losses of £1.0m). The Group's own assets are held predominantly in Sterling but Hansard Europe is required to hold euro currency balances to support its regulatory capital requirements.

You can find further information about the Group's foreign currency exposures in note 22 to the IFRS section of this Report and Accounts.

Origination costs

Our target is to grow new business through profitable relationships with intermediaries. Under IFRS, new business commissions paid, together with the directly attributable incremental costs incurred on the issue of a policy contract, are deferred and amortised over the life of that policy. This accounting policy reflects that the Group will continue to earn income over the long-term from policies issued in a given financial year, as mentioned above.

The growth in new business volumes, on the Group's internal metric, over last year is reflected in an increase of 14% in these direct costs of new business to £28.5m. This is deferred to match the longer-term income streams expected to accrue from the policies issued this year.

Amounts totalling £18.7m (2012: £16.9m) have been expensed to match contract fee income earned this year from policies issued in previous financial years, as can be seen below in the reconciliation of Deferred Origination Costs. The expected life of a typical single premium contract is 15 years. The life of a regular premium contract is deemed to be the term of the individual policy. Typical terms range between 10 years and 25 years.

Other elements of the Group's new business costs, for example recruitment costs and initial payments to new Account Executives, are expensed as incurred.

Origination costs in the year are:

Administrative and other expenses

We continue to robustly manage administrative and other expenses and support new business developments with targeted expenditure.

The Group has been successful in harnessing process efficiencies and reducing administrative headcount during the year but the benefits of these expense reductions in this financial year have been outweighed by two particular exceptional items, being the effects of litigation settlements of £1.6m, and by the charge of £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 (2012: £nil).

The Group's underlying administration and other expenses, without taking those two exceptional items into account, increased by only £0.1m over FY 2012. A summary of administrative and other expenses attributable to the Group is set out below:

Salaries and other employment costs have remained relatively flat over the two periods reflecting the harnessing of process efficiencies and targeted reduction of administrative headcount. A number of positions were made redundant in the year as management implemented the decision to close Hansard Europe to new business.

Other administrative expenses have increased reflecting primarily depreciation on IT capital spend designed to achieve process efficiencies of £0.6m (2012: £0.5m) and provisions of £0.6m for policy fees that are not expected to be collected due to reductions in asset values (2012: £nil).

Growth investment spend. The Group continues to invest in order to generate opportunities to build scale in its business and to roll out product and technological changes to support intermediaries, policyholders and other stakeholders. This expenditure will continue into the new financial year with a focus on Hansard OnLine and ensuring both that it remains a key part of our proposition to IFAs and policyholders and that it continues to give Hansard a competitive edge in its target markets. In addition to the above, we recognise that we will need to ensure future developments are targeted to support any strategic plans for sales expansion whether through new products, fund offerings or markets.

Audit and other professional fees in the year include amounts totalling £0.5m paid to the Group's auditor (2012: £0.5m), £0.5m (2012: £0.5m) for administration, custody, dealing and other charges paid under the terms of the investment processing outsourcing arrangements, costs of Investor Relations activities of £0.4m (2012: £0.3m) and recruitment fees of £0.2m (2012: £nil) in respect of the Chief Distribution Officer position.

Included in administrative and other expenses are items totalling £0.4m in respect of professional fees, redundancy and related costs following the closure of Hansard Europe to new business on 30 June 2013 (2012: £nil).

Litigation settlements. Incorporated above are amounts totalling £1.6m (2012: £nil) in full and final settlement of underlying claims of approximately €9.5m served upon Hansard Europe in previous financial years. 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 our strategy of driving growth in regular premium products in fast growing markets.

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) of £41.4m has grown by £4.7m or 12.8% over FY 2012 despite the litigation settlements and other increased expenditure referred to above. The cash surplus has funded increased investment in new business in the year, which has increased by almost 14% in line with the increased new business levels reported elsewhere in this Report and Accounts.

Investment in new business earns a return of at least 15% annually. While the construction of the Group's products means that this investment will be recouped within 3 years, 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 policy contracts. At the balance sheet date, amounts totalling £5.4m (2012: £3.0m) had been withheld. These amounts are reflected within "Other payables" in note 17 to the consolidated balance sheet. The cash invested in new business, after adjusting for amounts due to intermediaries, is £28.8m, an increase of £2.7m over the previous year.

The following table summarises the Group's own cash flows in the year. This analysis demonstrates that the in-force policy 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 £15.5m (2012: £19.1m) paid during the year have been funded by the Group's own resources - the reduction in the dividend during this financial year in order to retain cash to fund new business and strategic developments is reflected in the reduced net cash outflows relative to last year.

Available cash balances - allowing for regulatory restrictions on distributions

Having regard to the conditions imposed by the Central Bank of Ireland as a result of the implementation of the revised Operating Model for Hansard Europe, dividends or other distributions from that company to the holding company will be delayed until such time as the Operating Model is fully embedded and the legal cases referred to in note 25.2 to the consolidated balance sheet are concluded. No conditions have been placed on the use of that company's resources to manage its own business.

Under those circumstances the Group cash available for investment and distribution can be summarised as:

Abridged consolidated balance sheet

The consolidated balance sheet presented under IFRS reflects the financial position of the Group at 30 June 2013. As a result of its method of presentation, the consolidated balance sheet incorporates the financial assets held to back the Group's liability to policyholders, and also incorporates the equivalent liability to policyholders of £1.03bn (2012: £1.03bn). Additionally, the Group's capital that is held in bank deposits and money market funds is disclosed based on maturity dates.

The abridged consolidated balance sheet presented below, excluding those assets and liabilities, allows a better understanding of the Group's own capital position and demonstrates continued investment in profitable new business.

The successful implementation of the Group's strategy to invest in a higher proportion of regular premium new business results in an increase of deferred origination costs ("DOC"). The fee income derived from policies to cover origination costs specifically, is recognised in deferred income as premiums are applied to those policies in the initial period. This results in a lag between capitalising the origination cost and applying the pertinent income to the deferred income reserve ("DIR"). Given the Group's new business performance, DIR therefore increases at a slower rate than DOC.

Deferred origination costs

As mentioned above, deferral of origination costsreflects that the Group will continue to earn income over the long-term from policies issued in a given financial year. The increase in value since 30 June 2012 reflects the continued acquisition of profitable contracts, at a growth rate higher than prior years.

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

Deferred income reserve

The treatment of deferred income ensures that up-front 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.

The deferred income reserve represents 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 business flows in previous years; the Group's focus on more profitable regular premium business means that the future value of DIR will not necessarily move in line with the value of DOC.

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

Assets under administration

In the following paragraphs, assets under administration ("AuA"), refers to net assets held to cover financial liabilities as analysed in note 16 to the consolidated financial statements presented under IFRS.

The Group has retained positive cash flows from the large number of regular premium contracts administered on behalf of policyholders around the world but these flows are offset by policy charges and withdrawals, by premium holidays affecting regular premium policies and by market valuation reductions. Accordingly, the value of AuA at 30 June 2013 is £1.03bn, and marginally below the value at 30 June 2012.

AuA currency composition

The Group administers a diverse range of assets linked to contracts held by policyholders around the world. The currency composition of AuA at 30 June 2013 is similar to that of the previous year, with 55% designated in US dollar (2012: 53%) and 25% in euro (2012: 26%). The Group's AuA is therefore subject to currency rate fluctuations when reported in sterling, as reflected above.

AuA Valuation

Certain assets selected by policyholders and held within policy contracts at the year-end remain impacted by the global financial crisis. While we have seen an increase in efforts to resolve uncertainty over asset values in this financial year, we have also seen an increase in announcements by regulators concerning the suitability of certain asset types held by retail investors. This has resulted in a further small number of funds held within policy contracts being affected by liquidity or other issues that hinder their sales or redemptions on normal terms with a consequent adverse impact on policy transactions.This caused us to apply a prudent valuation by writing down those assets by £16m (2012: £41m) and by reducing the corresponding linked liability, in accordance with our normal practice.

The write-downs in this financial year, as well as prudent valuations on other assets similarly affected, have reduced asset-based fees in the current financial year and impacted profits under IFRS and EEV. Any continued reductions in AuA will cause declines in the Group's future asset-based income streams but will not affect the Group's capital position.

The net effect of these particular valuation issues under IFRS is a write-down of £12m (2012: £26m) that is incorporated in "Effect of market movements" shown in the table.

Contingent liabilities

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 policyholders through their advisors fails to meet their expectations. This is particularly relevant in the case of more complex structured products distributed throughout Europe that have been selected for inclusion in policies.

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

At the beginning of this financial year writs totalling €14m (approximately £11m) had been served on Hansard Europe as a result of these and related complaints. The Group made no provision for settlement as the Group does not provide investment advice and the Board remains of the view that these complaints have no merit.

However, consistent with the closure of Hansard Europe to new business the Board considered the economic and other options available to the Group to better manage legal claims served upon that company, in order to reduce uncertainty and protect regulatory capital. The Board considered it in the best interests of the Group and its shareholders to reach a resolution with regard to certain of those claims. Settlements totalling £1.6m (€1.9m) have been agreed relating to underlying claims of approximately €9.5m issued in Norway and Italy in prior years. Of these amounts, £1.3m was paid in May 2013 and the balance, although agreed, remains unpaid at the date of this report as formalities have not been concluded.

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 our strategy of driving growth in regular premium products in fast growing markets.

At the date of this report, there remains a number of writs served upon Hansard Europe totalling €4.6m or approximately £3.9m. We will continue to defend ourselves from all claims but will consider early settlement where there is a clear economic benefit.

Based on the pleadings and advice received to date from legal counsel the Group has not made any provision in respect of any complaints, other than that referred to above.

Results for the year under European Embedded Value

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

The EEV has grown slightly over the year to £225.7m (2012: £224.3m) having paid dividends of £15.5m (2012: £19.1m). Operating Profit has improved significantly, at £11.7m (2012: £4.8m) and the Investment Return Variance - generally outside the Group's control - has been relatively benign at +£5.2m (2012: £(18.5m)).

The contribution from new business has been significant:

The EEV results show the consequences of the Group's strategy to increase the proportion of regular premium new business, the closure of Hansard Europe to new business and the settlement of some long-standing legal issues.

As reported above, the Group announced in February 2013 that HEL would close to new business on 30 June 2013. This, together with a review of the assumption methodologies in some cases, led to a number of significant assumption changes in the year. The combined impact of these changes on the EEV was a reduction of £(6.9)m in EEV profit which is reflected as (£(4.2)m for operating assumption changes and £(2.7)m for economic assumption changes.

During the year, regular premium business PVNBP has increased to 83% (2012: 71%) of total PVNBP. Regular premium business tends to be more profitable and more capital efficient, as seen in the increase in NBM and shorter BEP. Overall, the IRR for new business remains well in excess of 15% per annum, the NBM has increased to 12.0% (2012: 9.6%) and the BEP has shortened to 2.0 years (2012: 2.6 years). The Group's profitability remains above that reported by competitors.

The change in the Net Worth over the year shows the use of cash:

The business has generated net cash of £34.7m (2012: £31.9m), of which £26.8m (2012: £22.6m) has been invested in new business (shown as New Business Strain).

The value of the EEV has changed marginally over the year.

The Required Capital has increased significantly by some £9.3m following the decision to close Hansard Europe to new business. One consequence of the closure is that the Group has given undertakings not to release capital from that business until its new Operating Model has stabilised and other regulatory requirements have been satisfied. The Group estimates that this additional required capital will be constrained for three years.

EEV Profit after tax

The Group's EEV Profit after tax is higher than last year at £17.0m (2012: £(13.7)m). The most significant component is the New Business Contribution, which is higher by £5.7m (2013: £22.5m, 2012: £16.8m) reflecting increased sales and a change in sales mix. 

The Investment Return Variance, Experience Variances and Operating Assumption Changes also contribute, as shown in the table below:

Experience Variances

The experience variances appear relatively unchanged at £(5.5m) (2012: £(6.0m)); however this masks the one-off expenses of £(3.3m) (2012: £(0.8m)) largely incurred in the resolution of pending litigation. Of the £(5.5m) total experience variance, the reduction in Net Worth is £(5.1m) and in Value of Future Profits is £(0.4m).

Operating Assumption Changes

The processes for setting best estimate assumptions have been extensively reviewed in the year.

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 of premiums paid in and policyholder-selected assets denominated in currencies other than sterling, and the relative exchange rate movements of those currencies. The shareholder return has reduced in line with earnings on shareholder cash.

EEV balance sheet

Following the payment of dividends totalling £15.5m (2012: £19.1m), the Group's EEV has increased by £1.4m to £225.7m (2012: £224.3m).

The reduction in Net Worth reflects the netting off effects of cash released from the Value of In-Force, increased investment of cash in new business and cash paid as dividend.

The increase in VFP reflects the value of policyholder funds at 30 June 2013, the conversion of expected future profit to cash (or Net Worth) and the addition of new 'future profits' from this year's sales. The conversion from future profits to Net Worth is rapid: over 50% of the VFP is expected to be converted into Net Worth within 5 years.

Net asset value per share

On an EEV basis, the net asset value per share at 30 June 2013 is 164.3p (2012: 163.3p) 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 (2012: 137,372,255 shares).

The net asset value per share at 30 June 2013 on an IFRS basis, is 32.5p (2012: 32.7p).

Risk management and internal control

The Board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. The Board is also responsible for maintaining sound risk management and internal control systems and for reviewing their effectiveness.

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.

Effectiveness of risk management and internal control

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 Code, the Board has reviewed the risk management and internal control systems operated throughout the Group and is satisfied that they are functioning effectively.

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. The ERM framework has been in place throughout the year and up to the date of this report. 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.

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:

· Management oversight and the control culture;

· Risk recognition and assessment;

· Control activities and segregation of duties;

· Information and communication and;

· Monitoring activities and correcting deficiencies.

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 subsidiary companies to identify and record risks to business objectives. All Risk Register content is rated according to the impact and likelihood of risk events, and these ratings are continuously re-assessed in response to 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 monthly 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 the Board of the Company in order 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. Operational management reports monthly to the Executive Committee on a wide range of key performance indicators and other significant matters. 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

Certain investment dealing and custody processes 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 and their delivery is monitored by a dedicated relationship manager against a documented Service Level Agreement and Key Performance Indicators.

The outsourced service provider 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 1 June 2013 and did not reveal any material control deficiencies in the period from 1 April 2012 to 31 December 2012.

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 22 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. While the Group's business model has served to minimise the principal risks facing the Group, the responses to the extreme financial and market circumstances that continue to be encountered may impact on the Group's strategic objectives, profitability or capital requirements.

The following table provides examples of the principal inherent risks that may impact on the Group's strategic objectives, profitability or capital. 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.

By order of the Board

Gordon Marr

Group Chief Executive Officer

25 September 2013

Consolidated Statement of Changes in Equity

L S Polonsky G S Marr

Director Director

Notes to the financial statements

1 Principal accounting policies

These consolidated financial statements incorporate the assets, liabilities and the results of Hansard Global plc ("the Company") and of 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 IFRS standards adopted by the European Union and effective at 30 June 2013.

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

· IAS 1, 'Financial statement presentation'

· IAS 12, 'Income taxes'.

· IFRS 9, 'Financial Instruments'

· IFRS 10, 'Consolidated financial statements'

· IFRS 12, 'Disclosures of interest in other entities'

· IFRS 13, 'Fair value measurement'

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 millions of 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.

1.3 Product classification

The Directors have determined that the products issued by the Company's subsidiaries are classified for accounting purposes as investment contracts, as they do not transfer significant insurance risk. 

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 amount of management expenses that are treated as origination costs and the period of amortisation of deferred origination costs ("DOC") and deferred income ("DIR"). 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 DOC and DIR

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 DOC

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:

· to determine whether a provision is required in respect of pending or threatened litigation and;

· 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. Where significant inputs to the valuation technique are observable, the instrument is categorised as Level 2. Otherwise, it is categorised as Level 3. This is discussed further in note 22 to these consolidated financial statements.

3 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 through the Group's subsidiaries.

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 (note 13):

Revenues and expenses allocated to geographical locations contained in sections 3.1 to 3.4 below, reflect the revenues and expenses generated in or incurred by the legal entities in those locations.

Revenues and expenses allocated to geographical locations contained in section 3.5 below, using a number of the new business measurement bases used by the Group, reflect the forecast revenues and expenses expected to be generated in or incurred by the legal entities in those locations.

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.

3.1 Geographical analysis of fees and commissions by origin

3.2 Geographical analysis of profit before taxation

3.3 Geographical analysis of gross assets

3.4 Geographical analysis of gross liabilities

3.5 Geographical analysis of new business results

4 Fees and commissions

Fees are charged to investment contracts for policy administration services, investment management services, payment of benefits and other services related to the administration of investment contracts. Fees are recognised as revenue as the services are provided. Initial fees that exceed the level of recurring fees and relate to the future provision of services are deferred in the balance sheet and amortised on a straight-line basis over the life of the relevant contract. These fees are accounted for on the issue of a contract and on receipt of incremental premiums on existing single premium contracts.

Regular fees charged to contracts are recognised on a straight-line basis over the period in which the service is provided. Transactional fees are recorded when the required action is complete.

Commissions receivable arise principally from fund houses with which investments are held. Commissions are recognised on an accruals basis in accordance with the relevant agreement.

5 Investment income

Investment income comprises dividends, interest and other income receivable, realised gains and losses on investments and unrealised gains and losses. Dividends are accrued on the date notified. Interest is accounted for on a time proportion basis using the effective interest method.

6 Origination costs

Origination costs include commissions, intermediary incentives and other distribution-related expenditure. Origination costs which vary with, and are directly related to, securing new contracts and incremental premiums on existing single premium contracts are deferred to the extent that they are recoverable out of future net income from the relevant contract. Deferred origination costs are amortised on a straight-line basis over the life of the relevant contracts. Origination costs that do not meet the criteria for deferral are expensed as incurred.

7 Administrative and other expenses

Included in administrative and other expenses is the following:

In administrative and other expenses above are items totalling £0.4m in respect of professional fees, redundancy and related costs following the closure of Hansard Europe Limited to new business on 30 June 2013 (2012: £nil).

8 Employee costs

8.1 The aggregate remuneration in respect of employees (including sales staff and executive Directors) was as follows:

Included in aggregate remuneration above are items totalling £0.2m in respect of redundancy and related costs following the closure of Hansard Europe Limited to new business on 30 June 2013 (2012: £nil).

The Group operates a defined contribution group personal pension scheme that is open to all Group employees based on the Isle of Man aged between 25 and 65 years of age, with two years of service with the Group. Employees based in the Republic of Ireland with one year of service are eligible to be members of a personal retirement savings account scheme.

Group companies contribute to employees' individual defined contribution pension plans. Contributions are charged to the income statement as they become payable under the terms of the relevant employment contract. The Group has no further payment obligations once pension contribution requirements have been met.

8.2 The average number of employees during the year, including executive directors, was as follows:

8.3 Share-based payments

The costs attributed to the share-based payments programmes implemented by the Company are immaterial in the year under review. Details of the programmes can be found in note 19.

9 Taxation

Taxation is based on profits and income for the period as determined with reference to the relevant tax legislation in the countries in which the Company and its subsidiaries operate. Tax payable is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Tax is recognised in the income statement except to the extent that it relates to items recognised in equity. Tax on items relating to equity is recognised in equity. 

The Group's profits arising from its Isle of Man-based operations are taxable at zero percent. Profits in the Republic of Ireland are taxed at 12.5%.

There is no material difference between the current tax charge in the income statement and the current tax charge that would result from applying standard rates of tax to the profit before tax.

10 Earnings per share

The calculation for earnings per share is based on the profit for the year after taxation divided by the average number of shares in issue throughout the year.

The Directors believe that there is no material difference between the weighted average number of shares in issue for the purposes of calculating either basic or diluted earnings per share. The figure under both measures is 7.6 pence per share (2012; 8.2p).

11 Dividends

Interim dividends payable to shareholders are recognised in the year in which the dividends are paid. Final dividends payable are recognised as liabilities when approved by the shareholders at the Annual General Meeting.

The following dividends have been paid by the Group during the year: