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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Hansard Global Plc | LSE:HSD | London | Ordinary Share | IM00B1H1XF89 | ORD 50P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 48.30 | 46.80 | 49.80 | 20,070 | 08:05:52 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Ins Agents,brokers & Service | 91.7M | 5.7M | 0.0414 | 11.67 | 66.44M |
From Apr 2019 to Apr 2024
TIDMHSD
RNS Number : 6073X
Hansard Global plc
23 February 2017
23 February 2017
Hansard Global plc
Results for the six months ended 31 December 2016
Hansard Global plc ("Hansard" or "the Group"), the specialist long-term savings provider, issues its results for the six months ended 31 December 2016. All figures refer to the six months ended 31 December 2016 ("H1 2017"), except where indicated.
SUMMARY
Hot Features
Premium
-- As announced in our January new business announcement,
new business levels were GBP74.9m for H1 2017
on a Present Value of New Business Premiums
("PVNBP") basis, up 33% from H1 2016;
-- IFRS profits were GBP4.4m for the period,
down from GBP4.9m in H1 2016. Profits were
reduced by a GBP0.7m provision made for potentially
irrecoverable balances due from a broker;
-- EEV profit after tax was GBP8.5m (H1 2016:
GBP1.2m) as EEV continued to benefit from
favourable stock market and foreign exchange
gains. New business margin has improved to
1.3% positive for H1 2017 (H1 2016: 0.4% negative);
-- Assets under administration have increased
since 30 June 2016 by GBP78m or 8% to GBP1
billion;
-- As announced in our January new business announcement,
we have signed a strategic alliance with Union
Insurance Company PSC ("Union Insurance")
to enable growth in the United Arab Emirates
("UAE"). This proposition was launched at
an event in Dubai on 8 February 2017;
-- The Board has declared an unchanged interim
dividend of 3.6p per share. Whilst the Board
also expects to maintain its final dividend
for H2 2017 at the same level as in 2016 (5.3p
per share), looking further forward, the Group's
new business growth will require additional
cash resources before we see the returns from
this investment. The Board has therefore decided
that, from H1 2018, it will be necessary to
implement a reduction of 50% in the level
of the dividend.
H1 2017 H1 2016
------------------------------ --------- ---------
New business sales - PVNBP GBP74.9m GBP56.4m
IFRS profit after tax GBP4.4m GBP4.9m
EEV profit after tax GBP8.5m GBP1.2m
IFRS basic earnings per share 3.2p 3.5p
Interim dividend - to be 3.6p 3.6p
paid on 30 March 2017
------------------------------ --------- ---------
As at 31 December 30 June
2016 2016
---------------------------- ------------ --------
Assets under Administration GBP1,001m GBP923m
European Embedded Value GBP197m GBP196m
---------------------------- ------------ --------
NEXT TRADING UPDATE
The next trading update in respect of the year ending 30 June 2017 is expected to be published on 11 May 2017.
OUTLOOK
We remain optimistic that we can continue to grow business levels through the on-going delivery of our strategy across the regions in which we operate. We view the new relationship with Union Insurance as an important step towards achieving greater levels of new business in key target markets.
Gordon Marr, Group Chief Executive Officer, commented:
"We are pleased to have maintained our continuing upward trend of well-diversified new business growth. We have stated previously that it is our intention to seek out additional licences or other means of sustainable access to attractive markets and we are delighted to have recently announced a partnership with Union Insurance in the UAE which was launched at an event in Dubai on 8 February 2017."
For further information:
Hansard Global plc +44 (0) 1624 688000
Gordon Marr, Group Chief Executive Officer
Tim Davies, Group Chief Financial Officer
Bell Pottinger +44 (0) 20 3772 2500
Daniel de Belder
Duncan Mayall
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
Limited and Hansard Europe dac.
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.
This announcement contains inside information which is disclosed in accordance with the Market Abuse Regime.
CHAIRMAN'S STATEMENT
New business
In my Chairman's Statement in September 2016, I noted that the strategic changes to our products, distribution, processes and executive management had improved our performance and that we were delivering sustained sales growth momentum. The results for the 2017 financial half year ("H1 2017") show further progress in our goal to build sales levels in a sustainable and diversified way.
In H1 2017 our new business on a like-for-like basis was 33% above the levels of H1 2016 measured on a Present Value of New Business Premiums ("PVNBP") basis. We have seen an increase in new business on this measure in all geographic areas as reported in our 26 January 2017 new business announcement.
Financial performance
The Group's profit after tax under International Financial Reporting Standards ("IFRS") of GBP4.4m is lower than the comparative period of GBP4.9m. The profit has been affected by a provision of GBP0.7m for amounts due from an independent broker which we believe may not be recoverable. The Group also continues to be impacted by the expected reducing levels of fee income from Hansard Europe which closed to new business in 2013.
The European Embedded Value ("EEV") profit after tax was GBP8.5m for H1 2017 (H1 2016: GBP1.2m) which was driven predominantly by stock market and foreign exchange related gains. It is encouraging to see our new business contribution and margin improve as we add additional scale to the business. These figures were GBP1.0m and 1.3% respectively for H1 2017 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 (2016: 3.6p per share).
Since last financial year ("FY"), the Company has paid a dividend in excess of the cash generated by the Group. In light of the increase in new business over the past eighteen months and the expectation of further increases of new business in the current financial year and beyond, and given the increasing front-end cash investment in new business (which in time will generate increases in future profitability and cash flow), the Board has reviewed the level of dividend. Accordingly, we intend to maintain a flat dividend for both interim and final dividends in FY 2017 and to reduce the dividends by 50% from the time of the FY 2018 interim dividend and thereafter.
Capitalisation and solvency
The Group is well capitalised to meet the requirements of regulators, contract holders, intermediaries and other stakeholders. Aggregate minimum solvency margins are covered by GBP38.0m of excess assets. We have maintained our prudent investment policy for shareholder assets, which minimises market risk and has provided a stable and resilient solvency position over recent years.
Outlook
We are very pleased to have announced a new strategic alliance on 19 January 2017 with Union Insurance Company PSC ("Union Insurance"), a major local insurer in the United Arab Emirates ("UAE"). The alliance was formally launched on 8 February 2017 and we expect this to be a strategically important part of our business in the 2018 financial year and beyond.
Philip Gregory
Chairman
22 February 2017
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 Independent Financial Advisor ("IFA") networks in target markets are delivering increased levels of well diversified new business. We continue to deliver an encouraging trend of growth as regional initiatives and new distribution relationships deliver results.
Strategy implementation and new business distribution
During H1 2017 we have seen strong levels of growth in all of our geographical regions. Our main sources of new business continue to be in the Middle East & Africa and Rest of World regions. Recently developed Latin American relationships are also showing positive growth.
Results for the period
IFRS profit for the period was GBP4.4m after tax (H1 2016: GBP4.9m). The decline is primarily as a result of a provision of GBP0.7m taken against debts due from an independent broker which we believe may not be recoverable.
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. The benefit of increasing sales to 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 increased new business levels have continued to drive a positive new business contribution with our new business margin increasing to 1.3% for the period (H1 2016: -0.4%). The EEV profit of GBP8.5m in the period (H1 2016: GBP1.2m) is largely driven by investment and foreign exchange related factors.
As highlighted in previous reports, as we write increasing levels of new business where the payback period to recover initial commission is longer than our older style products, operating cash is not sufficient to cover dividend payments in full. Our Board has assessed this position and future projected scenarios and determined that the prudent course of action is to reallocate cash available for dividends to support additional new business acquisition. While the Group remains strongly capitalised with a current free surplus of GBP23.2m, we expect to reduce the dividend in the 2018 financial year.
The EEV at 31 December 2016 was GBP197.1m (after the deduction of GBP7.3m in dividends paid during the period) as compared to GBP189m at 31 December 2015 and GBP195.9m at 30 June 2016.
A summary of the results for H1 2017 are as follows:
H1 2017 H1 2016
------------------------------- -------- ---------
IFRS profit after tax GBP4.4m GBP4.9m
EEV profit after tax GBP8.5m GBP1.2m
IFRS basic earnings per share 3.2p 3.5p
Interim dividend - to be
paid on 30 March 2017 3.6p 3.6p
------------------------------- -------- ---------
31 December 30 June
As at 2016 2016
---------------------------- ------------ ----------
Assets under Administration GBP1,001m GBP923m
European Embedded Value GBP197.1m GBP195.9m
---------------------------- ------------ ----------
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")
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 policyholder 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 or actual litigation with the resulting increase in cost and resource to the Group. In many cases the 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 2016 that Hansard Europe was facing litigation based on writs totalling EUR15.7m (approximately GBP13.1m) 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 had marginally increased to a total of EUR15.9m (GBP13.6m).
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 are covered by excess assets of GBP38.0m, 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 GBP28.0m in the analysis of the Group's EEV balance sheet at 31 December 2016. Allowing for this, the EEV balance sheet reflects that the Group has a free surplus of GBP23.2m available for investment and distribution, down from GBP31.5m at 31 December 2015, following dividend payments and increased investment in new business.
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 remains strongly capitalised under the new risk based capital rules.
We expect the Isle of Man to implement similar risk based capital requirements in 2018.
Hansard OnLine
We continue to develop additional functionality for Hansard OnLine to allow contract holders and intermediaries to transact with us more efficiently and to meet ever increasing digital 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. We continue to devote significant resources in this area to meet these challenges.
Dividend
The Board has resolved to pay an interim dividend of 3.6p per share (2016: 3.6p). This dividend will be paid on 30 March 2017.
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.
Outlook
We are enthusiastic about the opportunity with our recently announced alliance with Union Insurance PSC in the UAE. This will involve Hansard reinsuring and administering business underwritten by Union Insurance with slightly lower but similar margins to our direct business. As mentioned in the Chairman's Statement, we view this as a strategically important development for the future which affords us licensed access to a substantial local and expatriate market.
The Isle of Man Financial Services Authority recently released a 2017 iteration of its "Roadmap For Updating the Isle of Man's Regulatory Framework for Insurance Business". This will see substantial regulatory change, with significant deliverables and milestones over the next 12 months and beyond as key initiatives are further developed and implemented. These include new conduct of business and policyholder disclosure requirements, a more sophisticated risk based capital and solvency regime, a group supervision framework and enhanced governance and enterprise risk management requirements.
The Group's strategy has been to position itself to take account of these proposed changes. The alliance with Union Insurance in the UAE is an example of this and we continue to assess and pursue plans for other locally-licenced markets.
We will continue to monitor the potential impact from "Brexit" as the UK government develops its positions on exiting the European Union. We do not expect any significant impact to the business we write, but remain subject to potentially significant market and foreign exchange volatility along the way.
Gordon Marr
Chief Executive Officer
22 February 2017
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 GBP1 billion for over 500 financial advisor businesses with over 40,000 client accounts around the world.
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 Financial Services 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 in each of the following areas we intend to add increased scale to the business, on a diversified basis, at acceptable levels of risk and profitability.
-- More long-term relationships with distributors; -- Better value for clients; -- A more visible profile in the market; -- Excellent client service; -- A motivated and engaged workforce; and -- Market-leading on-line systems.
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 13 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 contract holders 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 contract holder 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 contract holders 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 contract holders around the world. The Group's proposition is to develop and enhance relationships with contract holders 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 distribution 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 & Africa is being replicated in other regions where we are experiencing positive growth. Additional resources focussed on Latin America for example are now delivering new business streams.
The results of activities in each region in H1 2017 are reported in the table below.
New business performance for the six months ended 31 December 2016
We have experienced a marked increase in new business for H1 2017 as compared to the previous period, building on the significant growth experienced in the second half of the 2016 financial year.
New business flows for Hansard International for H1 2017 are summarised as follows. Comparisons against the corresponding periods are on an actual currency basis.
Six months Year ended
ended
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
------------------------------- ------ ------ -----------
Present value of New Business
Premiums 74.7 56.4 119.3
Annualised Premium Equivalent 11.7 8.4 18.7
------------------------------- ------ ------ -----------
The following tables show the breakdown of new business flows calculated on the basis of PVNBP.
Year
Six months ended ended
31 December 30
June
2016 2015 2016
By type of contract GBPm GBPm GBPm
--------------------- ---------- --------- -------
Regular premium 42.6 29.9 65.6
Single premium 32.1 26.5 53.7
--------------------- ---------- --------- -------
74.7 56.4 119.3
--------------------- ---------- --------- -------
Year
Six months ended ended
31 December 30
June
2016 2015 2016
By geographical area GBPm GBPm GBPm
------------------------- ----- ----- -------
Rest of World 26.0 22.1 44.6
Middle East and Africa 24.0 15.0 36.8
Far East 15.8 12.8 25.7
Latin America 8.9 6.5 12.2
------------------------- ----- ----- -------
Total 74.7 56.4 119.3
------------------------- ----- ----- -------
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 (61%), with 34% denominated in Sterling, and the remainder in euro or other currencies.
5. IFRS RESULTS FOR THE SIX MONTHSED 31 DECEMBER 2016
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.
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 GBP4.4m (H1 2016: GBP4.9m). The key driver of the reduced profit was a provision of GBP0.7m made against broker balances which may prove not to be recoverable.
Sterling has weakened both against the euro and the US Dollar since year end, resulting in increased IFRS earnings of GBP0.2m in the half year (H1 2016: GBP0.4m 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 gains attributable to contract holder assets were GBP87.5m (H1 2016: GBP15.6m net losses). 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 2017 were GBP2.3m (H1 2016: GBP1.9m). 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.
Year
Six months ended
ended
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
------------------------------ ------- ------- --------
Fees and commissions 24.4 25.3 48.4
Investment and other income 0.9 1.0 2.7
------------------------------ ------- ------- --------
25.3 26.3 51.1
Origination costs (9.5) (10.5) (20.2)
Administrative and other
expenses attributable to
the
Group, before exceptional
items (10.7) (10.9) (21.7)
------------------------------ ------- ------- --------
Operating profit for the
period before significant
one-off items 5.1 4.9 9.2
One-off income adjustments - - (0.8)
One-off expense adjustments (0.7) - -
Profit for the period before
taxation 4.4 4.9 8.4
Taxation - - (0.1)
------------------------------ ------- ------- --------
Profit for the period after
taxation 4.4 4.9 8.3
------------------------------ ------- ------- --------
Fees and commissions
Fees and commissions attributable to Group operations for the half-year are GBP24.4m, a decrease of approximately 3% compared with GBP25.3m in H1 2016. A summary of fees and commissions attributable to Group activities is set out below:
Six months Year
ended ended
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
------------------------ ------ ------ --------
Contract fee income 18.0 18.5 34.4
Fund management fees 4.2 4.7 9.1
Commissions receivable 2.2 2.1 4.1
------------------------ ------ ------ --------
24.4 25.3 47.6
------------------------ ------ ------ --------
Included in income is GBP9.9m (H1 2016: GBP10.4m) representing the amounts prepaid in previous years and amortised to the income statement, as can be seen on page 15 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 2016, is largely as a result of a reduction in servicing income received by Hansard Europe of GBP0.7m over the comparative period.
Net fund management fees, together with commissions receivable, totalling GBP6.4m (H1 2016: GBP6.8m), are related to the value of contract holder Assets under Administration ("AuA") but also have elements amortised from previous periods.
Investment and other income
Six months Year ended
ended
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
----------------------------- ----- ----- -----------
Bank interest and other
income receivable 0.6 0.6 1.5
Foreign exchange gains
/ (losses) on revaluation
of net operating assets 0.3 0.4 1.2
----------------------------- ----- ----- -----------
0.9 1.0 2.7
----------------------------- ----- ----- -----------
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 2016 has increased investment and other income by GBP0.3m (H1 2016: gain of GBP0.4m).
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. Typical terms range between 6 and 16 years, depending on the nature of the product. Other elements of the Group's new business costs, which reflect investment in distribution resources in line with our strategy, are expenses as incurred.
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 2017 is minimal.
Reflecting the long-term nature of the Group's income streams, amounts totaling GBP8.6m (H1 2016: GBP9.2m) have been expensed to match contract fee income of GBP9.9m (H1 2016: GBP10.4m) 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:
Six months Year
ended ended
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
----------------------------- ------ ------ ----------------
Amortisation of deferred
origination costs 7.9 9.2 17.7
Other origination costs
incurred during the period 1.6 1.3 2.5
----------------------------- ------ ------ ----------------
9.5 10.5 20.2
----------------------------- ------ ------ ----------------
The Group's new business levels in H1 2017 are over 30% higher than those of H1 2016, 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:
Six months Year
ended ended
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
------------------------------ -------- ----- --------
Origination costs - deferred
to match
future income streams 8.3 6.9 15.1
Origination costs - expensed
as incurred 1.5 1.3 2.5
------------------------------ -------- ----- --------
Investment in new business
in period 9.8 8.2 17.6
Net amortisation of deferred
origination
costs (0.3) 2.3 2.6
------------------------------ -------- ----- --------
9.5 10.5 20.2
------------------------------ -------- ----- --------
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.
A summary of administrative and other expenses attributable to the Group is set out below:
Six months Year
ended ended
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
------------------------------- ------- ------ --------
Salaries and other employment
costs 4.8 5.0 10.0
Other administrative expenses 3.4 3.3 6.6
Growth investment spend 1.0 1.2 2.3
Professional fees, including
audit 1.5 1.4 2.8
------------------------------- ------- ------ --------
10.7 10.9 21.7
Provision for non-recoverable 0.7 - -
broker balances
------------------------------- ------- ------ --------
11.4 10.9 21.7
------------------------------- ------- ------ --------
Salaries and other employment costs have decreased by GBP0.2m or 4% to GBP4.8m over the comparative period, reflecting the bedding in of the revised senior management structure last year. The average Group headcount for the period is 205 compared to 206 for the full 2016 financial year. Headcount at 31 December 2016 was 205 (30 June 2016: 205).
Other administrative expenses have remained largely consistent at GBP3.4m in this period, with administrative savings offsetting increases in rent and increased customer communications costs in the main.
Growth investment spend represents internal and external costs to generate opportunities for growth. While the Group continues to invest to build its business and to implement product and technological changes to support our business model and customers, we are also looking at new avenues of growing the business that do not have a significant initial outlay, such as the initiative with Union Insurance in the UAE.
Professional fees including audit in the year include legal fees of GBP0.2m (H1 2016: GBP0.2m) incurred to protect the Group's position against complaints; amounts totalling GBP0.3m charged for the Group's audit and half year review work (H1 2016: GBP0.3m); GBP0.2m (H1 2016: GBP0.2m) for administration, custody, dealing and other charges paid under the terms of the investment processing outsourcing arrangements; and costs of Investor Relations activities of GBP0.3m (H1 2016: GBP0.2m).
Provision for non-recoverable broker balances represents amounts due to Hansard International which may prove to be irrecoverable due to the financial position of the brokerage.
6. CASH FLOW ANALYSIS
As previously highlighted, our newer suite of products has a longer cash payback period and this will be reflected in the analysis of future cash flows. We are gradually seeing the positive impact of increased sales levels and improved AuA in our net cash inflow from operations per the table below.
During the period under review, the Group increased significantly its new business which resulted in cash invested of GBP8.7m, against GBP7.1m in the comparative period. The sale of regular premium contracts produces an initial 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:
Six months Year ended
ended
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
--------------------------------- ------- ------ -------------
Net cash surplus from
operating activities 9.3 8.8 15.9
Interest received 0.4 0.5 1.0
---------------------------------- ------- ------ -------------
Net cash inflow from
operations 9.7 9.3 16.9
Net cash investment in
new business (8.7) (7.1) (15.4)
Purchase of computer
equipment and property (0.3) (0.2) (0.2)
Corporation tax received/(paid) - - (0.1)
---------------------------------- ------- ------ -------------
Net cash inflow before
dividends 0.7 2.0 1.2
Dividends paid (7.3) (7.2) (12.2)
---------------------------------- ------- ------ -------------
Net cash (outflow)/inflow
after dividends (6.6) (5.2) (11.0)
---------------------------------- ------- ------ -------------
The factors described above, together with the payment of our final dividend for 2016, led to a net cash outflow of GBP6.6m (H1 2016: GBP5.2m outflow) in the Group's own cash resources since 1 July 2016. The Group 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.
Six months Year
ended ended
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
----------------------------------- ----- ------ ------ --------
Net cash (outflow)/inflow
after dividends (6.6) (5.2) (11.0)
Increase/(decrease) in amounts
due to contract holders 1.0 2.9 3.4
Net Group cash movements (5.6) (2.3) (7.6)
Group cash - opening
position 76.6 80.9 80.9
Effect of exchange rate movements 0.8 1.0 3.3
------------------------------------------ ------ ------ --------
Group cash - closing
position 71.8 79.6 76.6
------------------------------------------ ------ ------ --------
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 GBP18.5m (H1 2016: GBP15.8m) 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.
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
--------------------------- --------- ------------- -------------
Money market funds 46.5 53.9 53.6
Short-term deposits with
credit institutions 7.0 9.9 7.3
Cash and cash equivalents
under IFRS 53.5 63.8 60.9
Longer-term deposits with
credit institutions 18.3 15.8 15.7
---------------------------- --------- ------------- -------------
Group cash and deposits 71.8 79.6 76.6
---------------------------- --------- ------------- -------------
The longer-term term deposits have maturity dates between 4 months and 12 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 2016. 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 GBP1,001m (H1 2016: GBP856m). 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.
As at 31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
---------------------------- ------ ------ --------
Assets
Deferred origination
costs 111.3 111.2 110.9
Other assets 8.6 6.0 6.5
Bank deposits and money
market funds 71.8 79.6 76.6
--------
191.7 196.8 194.0
---------------------------- ------ ------ --------
Liabilities
Deferred income 129.3 132.7 130.5
Other payables 29.1 26.3 27.3
--------
158.4 159.0 157.8
---------------------------- ------ ------ --------
Net assets 33.3 37.8 36.2
----------------------------- ------ ------ --------
Shareholders' equity
Share capital and reserves 33.3 37.8 36.2
----------------------------- ------ ------ --------
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 and the increase in the rate of new business over last year's levels is reflected in the net increase in carrying value of deferred origination costs since 30 June 2016, as per the table below. The amount of origination costs amortised in H1 2016 has fallen from the previous period due to the number of contracts reaching the end of their amortisation period or lapsing.
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
----------------------------- ------ ------ --------
At beginning of financial
year 110.9 113.5 113.5
Origination costs deferred
during the period 8.3 6.9 15.1
Origination costs amortised
during the period (7.9) (9.2) (17.7)
----------------------------- ------ ------ --------
111.3 111.2 110.9
----------------------------- ------ ------ --------
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.
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 and reflects the increase in initial fees and income generated by the book over the period to 31 December 2016:
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
--------------------------- ------ ------- --------
At beginning of financial
year 130.5 137.6 137.6
Initial fees collected in
the period and deferred 8.7 5.5 11.4
Income amortised during
the period to fee income (9.9) (10.4) (18.5)
129.3 132.7 130.5
--------------------------- ------ ------- --------
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 most recently extended in April 2016. 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 written over the period 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 2017 under European Embedded Value
The Group's EEV results primarily reflect the earnings forecast from the value of contract holder assets at 31 December 2016 and dividends paid since 30 June 2016. The EEV profit or loss reported is primarily driven by the levels of new business received and by investment returns.
The level of new business sales has recovered since the previous period to generate a positive New Business Contribution of GBP1.0m for H1 2017 (H1 2016: loss of GBP0.2m).
The EEV operating loss of GBP2.4m (H1 2016: loss of GBP0.6m) reflects negative experience variances of GBP1.8m (H1 2016: negative GBP1.5m) over the period.
A gain from the weakness of sterling in the period against the currencies favoured by our contract holders combined with market valuation gains related to assets under administration to produce an overall EEV profit of GBP8.5m (H1 2016: GBP1.2m).
Headline results for the EEV performance are shown in the table below:
Six-Month Period ended 31 December H1 2017 H1 2016
GBPm GBPm
----------------------------------------------------------- -------- --------
Opening Embedded Value 195.9 195.0
----------------------------------------------------------- -------- --------
EEV Operating Loss After Tax (2.4) (0.6)
Investment Return Variances & Economic Assumption Changes 10.9 1.8
----------------------------------------------------------- -------- --------
EEV Profit After Tax 8.5 1.2
EEV Before Dividends 204.4 196.2
Dividends paid during the financial year (7.3) (7.2)
----------------------------------------------------------- -------- --------
Closing Embedded Value 197.1 189.0
----------------------------------------------------------- -------- --------
There was an operating loss of GBP2.4m for the period (H1 2016: GBP0.6m loss), with the main drivers being a positive new business contribution of GBP1.0m (H1 2016: negative GBP0.2m), operating assumption changes of negative GBP2.2m (H1 2016: negative GBP0.2m) and experience variances of negative GBP1.8m (H1 2016: negative GBP1.5m).
The EEV was GBP197.1m at 31 December 2016, which is GBP1.2m above the EEV at 30 June 2016 of GBP195.9m, having paid dividends of GBP7.3m (31 December 2016: GBP189.0m, after dividends of GBP7.2m).
Sales Metrics
New business comparatives are shown below:
Six-Month Period ended 31 December H1 2017 H1 2016
New Business Sales ("PVNBP" basis) GBP74.9m GBP56.4m
New Business Contribution ("NBC") GBP1.0m (GBP0.2m)
New Business Margin ("NBM") 1.3% (0.4%)
------------------------------------ -------------- ----------
Sales volumes (in PVNBP terms) have increased to GBP74.9m from GBP56.4m in H1 2017 as reported earlier in this Review. The NBC has increased to GBP1.0m (H1 2016: negative GBP0.2m) having allowed for initial expenses.
Regular premium business is 57% (H1 2016: 53%) 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. Lower levels of new business written in prior years have converted from Value of Future Profits ("VFP") to Net Worth at a slower rate than current new business written is being added to the VFP.
Net Worth has been reduced since 31 December 2015 by dividends paid of GBP12.3m.
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:
H1 2017 H1 2016
GBPm GBPm
--------------------------------- -------- --------
Free Surplus 23.2 31.5
Required Capital 28.0 27.2
--------------------------------- -------- --------
Net Worth 51.2 58.7
--------------------------------- -------- --------
VIF 153.1 137.4
Other (7.2) (7.1)
--------------------------------- -------- --------
Value Of Future Profits ('VFP') 145.9 130.3
--------------------------------- -------- --------
EEV 197.1 189.0
--------------------------------- -------- --------
The change in the VFP reflects sterling exchange rates on 31 December 2016, new business, the conversion of VFP to Net Worth and the impact of contract holder behaviour.
Net Worth has reduced to GBP51.2m from GBP55.5m at 30 June 2016, after dividend payments of GBP7.3m (H1 2016: GBP7.2m).
The Required Capital has increased marginally: it includes around GBP20.4m (H1 2016: GBP20.1m) 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. 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.
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 GBP15.1m (H1 2016: GBP12.3m) of which GBP12.1m (H1 2016: GBP9.9m) relates to costs involved in acquiring new business in the period, shown as New Business Strain below.
Six Month Period ended 31 December H1 2017 H1 2016
GBPm GBPm
--------------------------------------------------------- --------------------- --------
Opening Net Worth 55.5 63.5
--------------------------------------------------------- --------------------- --------
Expected conversion to Net Worth from existing business 15.1 13.3
Time value - 0.3
Net Worth Variance - (1.3)
--------------------------------------------------------- --------------------- --------
Cash Generated 15.1 12.3
Dividends paid (7.3) (7.2)
New Business Strain (12.1) (9.9)
--------------------------------------------------------- --------------------- --------
Closing Net Worth 51.2 58.7
--------------------------------------------------------- --------------------- --------
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 higher than last year at GBP8.5m (H1 2016: GBP1.2m). This primarily reflects a higher positive Investment Return Variance of GBP12.1m (H1 2016 GBP1.3m). The components are shown in the table below:
H1 2017 H1 2016
GBPm GBPm
---------------------------------------------- ------------- --------
New Business Contribution 1.0 (0.2)
Expected Return On New And Existing Business 0.3 0.5
Expected Return on Net Worth 0.1 0.2
Model Changes 0.2 0.6
Operating Assumption Changes (2.2) (0.2)
Experience Variances (1.8) (1.5)
---------------------------------------------- ------------- --------
EEV operating loss after tax (2.4) (0.6)
Investment Return Variances 12.1 1.3
Economic Assumption Changes (1.2) 0.5
EEV profit after tax 8.5 1.2
---------------------------------------------- ------------- --------
Experience Variances
H1 2017 H1 2016
GBPm GBPm
---------------------- -------- --------
Full encashments (1.4) (0.6)
Premium persistency (1.3) (0.6)
One-off expenses 0.7 (0.3)
Ongoing expenses (0.5) (0.2)
Partial encashments 0.2 (0.2)
Other 0.5 0.4
Experience Variances (1.8) (1.5)
---------------------- -------- --------
Experience variances arise when the behaviour of the existing book differs from that assumed. The experience variance of negative GBP1.8m is proportionally small and shows that the existing book is behaving overall in line with assumptions.
Operating Assumption Changes
The operating assumption changes reflect changes in management's view of the behaviour of the existing business. These changes decreased the EEV by GBP2.2m, (H1 2016: decrease of GBP0.2m), as shown below.
Operating assumptions are generally management's best estimate, having regard to recent experience. Minor alteratations to expense and full encashment assumptions were made during the period.
H1 2017 H1 2016
GBPm GBPm
------------------------------ -------- --------
Full encashments (1.1) -
Ongoing expenses (1.1) -
Premium persistency - (0.2)
Operating Assumption Changes (2.2) (0.2)
------------------------------ -------- --------
Investment Return Variances
Investment return variances principally reflect the investment choices, by nature and currency, made by contract holders. It is largely outside the Group's control.
H1 2017 H1 2016
GBPm GBPm
------------------------------------------------- -------- --------
Investment performance of contract holder funds 6.1 (6.4)
Exchange rate movements 5.6 7.0
Shareholder return variance 0.3 0.3
Other 0.1 0.4
Investment Return Variances 12.1 1.3
------------------------------------------------- -------- --------
The exchange rate movements arise because most premiums are paid, and the greater proportion of contract holder-selected assets are denominated, in currencies other than sterling, whereas financial reporting is in sterling, based on exchange rates on the last day of the financial period.
Economic Assumption Changes
There was a negative variance of GBP1.2m (H1 2016: positive GBP0.5m) from Economic Assumption Changes reflecting changes in risk free rates for the currencies in which contract holder 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 contract holders.
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 period-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 2017:
31 December 30
June
2016 2015 2016
GBPm GBPm GBPm
---------------------------------- -------- ------- --------
Deposits to investment contracts
- regular premiums 42.2 35.5 71.9
Deposits to investment contracts
- single premiums 30.9 25.4 52.0
Withdrawals from contracts
and charges (83.0) (96.2) (168.3)
Effect of currency movements 42.4 32.5 108.9
Effect of market movements 45.0 (48.0) (48.1)
----------------------------------- -------- ------- --------
Movement in period 77.5 (50.9) 16.4
Opening balance 923.5 907.1 907.1
----------------------------------- -------- ------- --------
Closing balance 1,001.0 856.2 923.5
----------------------------------- -------- ------- --------
We have seen an increase in deposits to investment contracts in both categories over the comparative period, which is evidence of the positive impact of our strategy on the business. The steady growth in regular premiums is particularly important as it is a factor of both new business and persistency within the existing book. At the same time as we are experiencing premium growth, we have also seen a reduction in withdrawals from contracts in H1 2017 compared to H1 2016.
In addition to the improved net capital inflows noted above, positive market and FX movements have contributed to AuA of GBP1,001m as at 31 December 2016, some 8.4% above the position at 30 June 2016.
Since it closed to new business in 2013, Hansard Europe has experienced significant capital outflows, as expected. Recent experience shows that such outflows have reduced to a level which is being offset by market gains.
31 December 30
June
2016 2015 2016
GBPm GBPm GBPm
----------------------- ------------ --------- ------
Hansard International 827.3 682.5 749.0
Hansard Europe 173.7 173.7 174.5
----------------------- ------------ --------- ------
1,001.0 856.2 923.5
----------------------- ------------ --------- ------
The value of AuA is based upon the assets selected by or on behalf of contract holders to meet their needs from time to time. Reflecting the wide geographical spread of the Group's contract holders, the majority of AuA are designated in currencies other than sterling. The currency denomination of AuA is similar to that of H1 2016. At the balance sheet date 61% of AuA is denominated in US Dollars, with a further 19% denominated in euro and 18% 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.
The capital held within Hansard Europe is considered not to be available for dividend to Hansard Global plc until such time as the legal cases referred to in note 17 to the consolidated financial statements are substantially resolved.
11. DIVIDS
A final dividend of 5.3p per share in relation to the previous financial year was paid in November 2016. This amounted to GBP7.3m.
The Board has considered the results for H1 2017, the Group's continued cash flow generation and its future expectations and has resolved to pay an interim dividend of 3.6p per share (2016: 3.6p). This dividend will be paid on 30 March 2017.
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 2016 Annual Report and Accounts, the Group faced litigation based on writs totalling EUR15.7m (GBP13.1m). The corresponding figure as at the report date of the 2016 Interim Report and Accounts was EUR14.1m (GBP10.4m). As at the report date of these Interim Report and Accounts, writs totalled EUR15.9m (GBP13.6m). The total has increased marginally due to a small number of additional writs in Italy and Germany.
While it is not possible to forecast or determine the final results of such litigation, based on the pleadings and advice received from the Group's legal representatives and experience with cases previously successfully defended, we believe we have a strong chance of success in defending these claims. The writs have therefore been treated as contingent liabilities and are disclosed in note 17 to the consolidated financial statements.
13. Net asset value per shaRE
On an EEV basis, the net asset value per share at 31 December 2016 is 143.4p (H1 2016: 137.6p) based on the EEV at the balance sheet date divided by the number of shares in issue at that date, being 137,440,456 ordinary shares (H1 2016: 137,388,669).
The net asset value per share on an IFRS basis at 31 December 2016 is 24.2p (H1 2016: 27.5p) 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 has overall responsibility for the Group's system of risk management and internal control and for reviewing its effectiveness. The schedule of powers reserved to the Board ensures that the Directors are responsible for determining, evaluating and controlling the nature and extent of the principal risks which the Board is willing to take in achieving its strategic objectives and the Board oversees the strategies for principal risks that have been identified.
The Executive Management Team works within the risk appetite established by the Board and the governance, risk management and internal control arrangements which constitute the Group Enterprise Risk Management (ERM) Programme and which direct the Group, including setting the cultural tone and expectations from the top, delegating authorities and monitoring compliance.
Having regard to the Financial Reporting Council's 'Guidance on Risk Management, Internal Control and Related Financial and Business Reporting', the ERM Programme encompasses the policies, processes, tasks, behaviours and other aspects of the Group's environment, which cumulatively:
-- Facilitate the effective and efficient operation of the Group and its subsidiaries by enabling appropriate responses to be made to significant business, operational, financial, compliance and other risks to business objectives, so safeguarding the assets of the Group;
-- Help to ensure the quality of internal and external reporting. This requires the maintenance of proper records and processes that generate a flow of timely, relevant and reliable information from within and outside the Group;
-- Seek to ensure compliance with applicable laws and regulations and also with internal policies with respect to the conduct of business.
Risk management processes are undertaken on both a bottom-up and top-down basis. The top-down aspect involves the Board assessing, analysing and evaluating what it believes to be the principal risks facing the Group. The bottom-up approach involves the identification, review and monitoring of current and forward-looking risks on a continuous basis at functional and divisional levels, with analysis and formal reporting to the Management Risk Committee, established by the Board, on a quarterly basis and onward analytical reporting to the Board. The terms of reference of the Committee are published on the Company's website.
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
Hansard'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 contract 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 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 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, is outlined on pages 29 to 31 of the 2016 Annual Report. These principal risks and uncertainties have not changed materially since the 2016 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. Whilst the Group's business model has historically served to minimise the principal risks facing the Group, the regulatory environment continues to evolve at both a local and international level and the risk management and internal control frameworks of the Group will need to remain responsive to a number of developments, examples of which include:
-- Transformation of the Isle of Man financial services regulatory regime via the new combined regulatory body, the Financial Services Authority (FSA), and its 'Roadmap for Updating the Regulatory Framework for Insurance Business'. The Roadmap seeks to ensure that the Isle of Man is operating a regulatory and supervisory framework for insurers which conforms to internationally accepted best practice standards and the proposals therein will inform future strategic and business development initiatives;
-- The on-going roll-out of automatic information exchange programmes through regulations such as FATCA and Common Reporting Standards, which will impose additional reporting obligations and associated costs to the business.
Principal Risks
The following table sets out the principal inherent risks that may impact on the Group's strategic objectives, profitability or capital and how such risks are managed or mitigated. The Board robustly reviews and considers its principal risks on at least an annual basis.
Risk Risk factors and management
---------------------- ------------------------------------------------------
Business model Changes and developments in domestic or international
risk regulation, or the interpretation or application
of regulation over time, may present material
challenge to the business model and compromise
distribution strategy. Such challenges could
include, but are not limited to, those which
impact commission models, broker relationships
and market accessibility. If the Group fails
to monitor the regulatory environment or
adequately integrate the management of associated
risk within strategic, business model or
business planning processes there may be
material risk to the achievement of strategic
objectives both in the shorter and longer
term.
How we manage the risk:
Robust strategic planning processes informed
by analytical review of the external environment
and consideration of associated risk in the
shorter and longer term.
Continuous monitoring and review of developments
in local and international law and regulation.
Engagement with regulatory authorities,
including responding to regulatory consultations.
---------------------- ------------------------------------------------------
Distribution The business environment in which the international
strategy compromised insurance industry operates is subject to
as a result of continuous change as new market and competitor
market changes, forces come into effect and as technology
technology or continues to evolve. Hansard may fail to
competitor activity sufficiently differentiate itself from its
competitors and global brands and as a result
be unable to build successful relationships
with targeted brokers and customers.
How we manage the risk:
Close monitoring of marketplaces and competitor
activity for signs of threats to forecast
new business levels.
Revised strategies designed to add additional
scale to the business, on a more diversified
basis, through organic growth at acceptable
levels of risk and profitability.
Continuous development of technology.
---------------------- ------------------------------------------------------
Compliance risks Any failure to adequately assess the impacts
arising from of and manage compliance with regulatory
regulation obligations, in particular changes in regulation
which might impact pre-existing business,
imposes the avoidable risk of regulatory
restrictions to the Group's business, regulatory
censure, financial penalty, contract holder
litigation and / or reputational damage.
How we manage the risk:
Dedicated resources are in place to identify
emerging risks arising from regulatory and
legislative change and to monitor the timely
implementation of new requirements.
The Group maintains regular dialogue with
its regulatory authorities and continual
discussions with its advisors in relation
to developments in the regulatory environment
in which we operate.
---------------------- ------------------------------------------------------
Infrastructure A material failure in our core business systems
failure or business processes may result in significant,
costly interruptions, customer dissatisfaction
and regulatory censure.
How we manage the risk:
Maintenance of detailed and robust Business
Continuity Plans, including full data replication
at an independent recovery centre, which
can be invoked when required.
Frequent and robust testing of business
continuity and disaster recovery arrangements.
---------------------- ------------------------------------------------------
Cyber crime As we and our business partners increasingly
digitalise our businesses, we are unavoidably
exposed to the risk of cybercrime. If the
Group fails to take adequate and appropriate
measures to protect its systems and data
from the inherent risk of attack, disruption
and/or unauthorised access by internal or
external parties could arise, resulting in
confidential data being exposed and/or systems
interruption. A significant cybercrime event
could result in reputational damage, regulatory
censure and financial loss.
How we manage the risk:
Continuous focus on the maintenance of a
robust, secure and resilient IT environment
that protects customer and corporate data.
Control techniques deployed to evaluate
the security of systems and proactively address
emerging threats both internally within the
organisation and externally, through regular
engagement with internet and technology providers
and through industry forums.
---------------------- ------------------------------------------------------
Failure to drive Delivery of the Group's strategy is dependent
the right corporate on attracting and retaining experienced and
culture and attract, high-performing management and staff. The
develop, engage performance, knowledge and skills of our
and retain key employees are central to our success. We
personnel must attract, integrate, engage and retain
the talent required to deliver our strategy
and have the appropriate processes and culture
in place. The inability to retain key people,
and adequately plan for succession will negatively
impact on the performance of the Group.
How we manage the risk:
Significant resources focussed on communicating
strategy and desired cultural behaviours
to all employees.
Forums established for employees to provide
feedback for continuous improvement.
Employee engagement monitored and measured
through periodic employee surveys.
Group performance management system in place.
Training and development strategy in place
to manage talent, provide development opportunities
and address any skill gaps.
Remuneration models and trends monitored
closely by the Group's Human Resources department
and the Remuneration committee.
Succession planning strategy in place, to
manage and mitigate 'key person' risk.
---------------------- ------------------------------------------------------
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.
Risk Risk factors and management
-------------- ----------------------------------------
Market risk While the Group does not invest
shareholder funds in assets subject
to any significant market risk,
the Group's earnings and profitability
are influenced by the performance
of contract holder assets and
the fees derived from their value.
Significant changes in equity
markets and interest rates can
adversely affect fee income earned.
Extreme market conditions can
influence the purchase of financial
services products and the period
over which business is retained.
How we manage the risk --- These
risks are inherent in the provision
of investment-linked products.
We model our business plans across
a broad range of market and economic
scenarios and take account of
alternative economic outlooks
within our overall business strategy.
-------------- ----------------------------------------
Credit Risk In dealing with financial institutions,
banking, money market and settlement,
custody and other counterparties
the Group is exposed to the risk
of financial loss and operational
disruption of our business processes.
How we manage the risk --- The
Group seeks to limit exposure
to loss from counterparty and
third party failure through selection
criteria, minimum rating agency
limits, pre-defined risk based
limits on concentrations of exposures
and monitoring positions.
-------------- ----------------------------------------
Liquidity If the Group does not have sufficient
risk liquid assets available to pay
its creditors, the Group may fail
to honour its obligations as they
fall due, or may have to incur
significant loss or cost to do
so.
How we manage the risk --- The
Group maintains highly prudent
positions in accordance with its
risk appetite and investment policies
which ensures a high level of
liquidity is available in the
short term at all times. Generally,
shareholder assets are invested
in cash or money market instruments
with highly rated counterparties.
-------------- ----------------------------------------
Currency risk The Group operates internationally
and earns income in a range of
different currencies. The vast
majority of its operational cost
base is denominated in Sterling.
The strengthening of Sterling
against US Dollars is the most
significant exposure to reported
income levels.
How we manage the risk --- We
seek to match currency assets
and liabilities to mitigate against
currency movements to the extent
possible. As the Group's products
are long term products, over time
currency movements tend to even
out, reducing the need for active
hedging policies. Long term trends
are monitored however and considered
in pricing models.
-------------- ----------------------------------------
Further detail around financial risks is outlined in Note 3 (Financial Risk Management) to the consolidated financial statements.
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.
By order of the Board
P P C Gregory G S Marr
Non-executive Chairman Chief Executive Officer
22 February 2017
Condensed Consolidated Statement of Comprehensive
Income
Year
Six months ended ended
31 December 31 December 30 June
2016 2015 2016
Notes GBPm GBPm GBPm
--- ---------------------------------------- -------- --------- ------------ --------
Fees and commissions 6 26.7 27.2 51.3
Investment and other income 88.3 (14.6) 63.4
---------------------------------------------- -------- --------- ------------ --------
115.0 12.6 114.7
---------------------------------------------- -------- --------- ------------ --------
Change in provisions for
investment contract liabilities (87.4) 15.5 (60.8)
Origination costs (9.5) (10.5) (20.2)
Administrative and other
expenses 7 (13.7) (12.7) (25.3)
---------------------------------------------- -------- --------- ------------ --------
(110.6) (7.7) (106.3)
---------------------------------------------- -------- --------- ------------ --------
Profit on ordinary activities
before taxation 4.4 4.9 8.4
Taxation on profit on ordinary
activities 8 - - (0.1)
---------------------------------------------- -------- --------- ------------ --------
Profit and total comprehensive
income for
the period after taxation 4.4 4.9 8.3
---------------------------------------------- -------- --------- ------------ --------
Earnings Per Share
Year
Six months ended
ended
31 December 31 December 30 June
2016 2015 2016
Note (p) (p) (p)
--------- ------ ----------- ------------ --------
Basic 9 3.2 3.5 6.0
Diluted 9 3.2 3.5 6.0
----------- ------ ----------- ------------ --------
Condensed Consolidated Statement of Changes
in Equity
Share Other Retained
Capital reserves earnings Total
Note GBPm GBPm GBPm GBPm
-------------------------------- --------- -------- --------- --------- ------
Shareholders' equity
at 1 July 2015 68.7 (48.3) 19.7 40.1
Profit and total comprehensive
income for
the period after taxation - - 4.9 4.9
Transactions with
owners
Dividends 10 - - (7.2) (7.2)
--------- ------
Shareholders' equity at
31 December 2015 68.7 (48.3) 17.4 37.8
------------------------------------------- -------- --------- --------- ------
Share Other Retained
Capital reserves earnings Total
Note GBPm GBPm GBPm GBPm
----------------------- ----- -------- --------- --------- ------
Shareholders' equity
at 1 July 2016 68.7 (48.3) 15.8 36.2
Profit and total
comprehensive income
for the period after
taxation - - 4.4 4.4
Transactions with
owners
Dividends 10 - - (7.3) (7.3)
----------------------- ----- -------- --------- --------- ------
Shareholders' equity at
31 December 2016 68.7 (48.3) 12.9 33.3
------------------------------ -------- --------- --------- ------
Condensed Consolidated Balance Sheet
31 December 31 December 30 June
2016 2015 2016
Notes GBPm GBPm GBPm
Assets
Property, plant and
equipment 1.1 1.2 1.0
Deferred origination
costs 11 111.3 111.2 110.9
Financial investments
Equity securities 10.4 18.6 13.0
Collective investment
schemes 861.8 736.6 784.5
Fixed income securities 29.4 17.3 22.6
Deposits and money
market funds 119.3 100.1 120.2
Other receivables 5.9 4.1 4.4
Cash and cash equivalents 53.5 63.8 60.9
------------------------------ ------ ------------ ------------ --------
Total assets 1,192.7 1,052.9 1,117.4
------------------------------ ------ ------------ ------------ --------
Liabilities
Financial liabilities
under investment contracts 12 1,001.0 856.2 923.5
Deferred income 13 129.3 132.7 130.5
Amounts due to investment
contract holders 21.8 20.2 20.7
Other payables 14 7.3 6.0 6.6
------------------------------ ------ ------------ ------------ --------
Total liabilities 1,159.4 1,015.1 1,081.3
------------------------------ ------ ------------ ------------ --------
Net assets 33.3 37.8 36.2
------------------------------ ------ ------------ ------------ --------
Shareholders' equity
Called up share capital 15 68.7 68.7 68.7
Other reserves (48.3) (48.3) (48.3)
Retained earnings 12.9 17.4 15.8
------------------------------ ------ ------------ ------------ --------
Total shareholders'
equity 33.3 37.8 36.2
------------------------------ ------ ------------ ------------ --------
Condensed Consolidated Cash Flow Statement
Six months ended Year
ended
31 December 31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
--- ------------------------------------ ------------ ------------ -----------
Cash flow from operating
activities
Profit before tax for the
period 4.4 4.9 8.4
Adjustments for:
Depreciation 0.2 0.3 0.5
Dividends receivable (2.7) (2.2) (3.9)
Interest receivable (0.2) (0.5) (0.6)
Foreign exchange gain (0.8) (1.0) (3.3)
Changes in operating assets
and liabilities
Increase in receivables (1.5) - (0.3)
Dividends received 2.7 2.2 3.9
Interest received 0.4 0.5 0.7
(Increase)/decrease in deferred
origination costs (0.3) 2.3 2.6
Decrease in deferred income (1.2) (4.9) (7.1)
Increase in payables 1.7 2.6 3.6
(Increase)/decrease in financial
investments (80.6) 51.5 (16.2)
Increase/(decrease) in financial
liabilities 77.4 (50.9) 16.5
------------------------------------------- ------------ ------------ -----------
Cash flow from operations (0.5) 4.8 4.8
Corporation tax paid - - (0.1)
------------------------------------------- ------------ ------------ -----------
Net cash from operations
after taxation (0.5) 4.8 4.7
------------------------------------------- ------------ ------------ -----------
Cash flows from investing
activities
Purchase of property, plant
and equipment (0.3) (0.2) (0.2)
Proceeds from sale of investments 0.1 0.1 -
Purchase of investments (0.2) (0.1) (0.1)
------------------------------------------- ------------ ------------ -----------
Cash flows used in investing
activities (0.4) (0.2) (0.3)
------------------------------------------- ------------ ------------ -----------
Cash flows from financing
activities
Dividends paid (7.3) (7.2) (12.2)
------------------------------------------- ------------ ------------ -----------
Cash flows used in financing
activities (7.3) (7.2) (12.2)
Net (decrease) / increase
in cash and cash
equivalents (8.2) (2.6) (7.8)
Cash and cash equivalents
at beginning of period 60.9 65.4 65.4
Effect of exchange rate
changes 0.8 1.0 3.3
------------------------------------------- ------------ ------------ -----------
Cash and cash equivalents
at period end 53.5 63.8 60.9
------------------------------------------- ------------ ------------ -----------
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 22 February 2017.
The Board of Directors approved the Group's statutory financial statements for the year ended 30 June 2016 on 21 September 2016. 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 2016 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 2016, 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 2016, have not had any material impact on the Group's reported results:
-- Annual improvements 2012-2014
-- IAS 16 Amendment 'Property, plant and equipment' and IAS 38,'Intangible assets', on depreciation and amortisation
-- IAS 1 Amendment Impairment of Assets -- IFRS 39 Amendment 'Presentation of financial statements' disclosure initiative
As at 31 December 2016, 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.
-- IFRS 9, 'Financial instruments' -- IFRS 15 Revenue from Contracts with Customers -- IFRS 16 Leases -- IAS 4 amendments, regarding implementation of IFRS 9 -- Annual improvements 2014-2016 -- IAS 12 amendments, Income taxes -- IAS 7 amendments, Statement of cash flows -- IFRS 15 amendments, Revenue from contracts with customers -- IFRS 2 amendments, Share based payments -- IFRIC 22, Foreign currency transactions and advance consideration
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 2016. The published consolidated financial statements for the year ended 30 June 2016 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 2016, 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 GBP1.2m (H1 2016: GBP1.3m) 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 GBP0.5m (H1 2016: GBP0.6m) 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:
31 December
2016 2016 2016 2015 2015 2015
US$m EURm Yenm US$m EURm Yenm
--------------------- ------- ------ -------- ------- ------ --------
Gross assets 11.8 5.0 193.7 15.3 7.9 192.2
Matching currency
liabilities (11.1) (4.2) (120.2) (13.4) (5.9) (132.1)
--------------------- ------- ------ -------- ------- ------ --------
Uncovered currency
exposures 0.7 0.8 73.5 1.9 2.0 60.1
--------------------- ------- ------ -------- ------- ------ --------
Sterling equivalent
of
exposures (GBPm) 0.6 0.7 0.5 1.4 1.3 0.3
--------------------- ------- ------ -------- ------- ------ --------
The approximate effect of a 5% change in the value of US dollars to sterling is less than GBP0.1m (H1 2016: less than GBP0.1m); in the value of the euro to sterling is less than GBP0.1m (H1 2016: less than GBP0.1m); and in the value of the yen to sterling is less than GBP0.1m (H1 2016: less than GBP0.1m).
(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; US dollars: 61% (H1 2016: 62%); euro: 19% (H1 2016: 18%); sterling: 18% (H1 2016: 17%); other: 2% (H1 2016: 3%).
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.
31 December 30
June
2016 2015 2016
GBPm GBPm GBPm
----------------------------------- ------ ------ ------
Deposits with credit institutions 25.3 25.7 21.1
Money market funds 46.5 53.9 55.5
----------------------------------- ------ ------ ------
71.8 79.6 76.6
----------------------------------- ------ ------ ------
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 contract holder liabilities as they fall due.
-- Forecasts are prepared regularly to predict required liquidity levels over both the short and medium term.
The Group's exposure to liquidity risk is considered to be low since it maintains a high level of liquid assets to meet its liabilities 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 2016:
Level Level Level Total
1 2 3
Financial assets at GBPm GBPm GBPm GBPm
fair value through
profit or loss
------------------------- ------ ------ ------ --------
Equity securities 10.4 - - 10.4
Collective investment
schemes 798.9 - 62.9 861.8
Fixed income securities 29.4 - - 29.4
Deposits and money
market funds 119.3 - - 119.3
958.0 - 62.9 1,020.9
------------------------- ------ ------ ------ --------
During the period under review no assets were transferred from Level 1 to Level 2. Assets with a value of GBP3.2m were transferred from Level 1 to Level 3 as the directors believe that valuations can no longer be obtained for these assets from an observable market price due to suspension in trading or the asset becoming illiquid. There were no other reclassifications of assets between the different Levels in the fair value hierarchy in the period. No assets were transferred from Level 3 to Level 1 or Level 2 during the financial year.
Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
------------------------ ------- -------- ------ --------
Financial liabilities
at fair value
through profit or loss - 1,001.0 - 1,001.0
------------------------ ------- -------- ------ --------
The following tables analyse the Group's financial assets and liabilities at fair value through profit or loss, at 31 December 2015:
Level Level Level Total
1 2 3
Financial assets GBPm GBPm GBPm GBPm
at fair value through
profit or loss
------------------------- ------ ------ ------ ------
Equity securities 18.6 - - 18.6
Collective investment
schemes 683.7 52.9 - 736.6
Fixed income securities 17.3 - - 17.3
Deposits and money
market funds 100.1 - - 100.1
819.7 52.9 - 872.6
------------------------- ------ ------ ------ ------
There were no reclassifications of assets between the different Levels in the fair value hierarchy in the comparative period.
Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
----------------------- ------- ------ ------ ------
Financial liabilities
at fair value
through profit or
loss - 856.2 - 856.2
----------------------- ------- ------ ------ ------
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") (weighted where appropriate by product line) 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 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.
Six months Year
ended ended
31 December 30 June
2016 2015 2015
GBPm GBPm GBPm
--------------------------- ------ ------ --------
Middle East and Africa 1.9 1.4 4.5
Rest of World 1.4 1.3 1.9
Far East 1.2 1.1 2.1
Latin America 0.7 0.5 0.9
Net issued compensation
credit 5.2 4.3 9.4
Other commission costs
paid to third parties 2.4 2.1 4.5
Enhanced unit allocations 0.7 0.5 1.2
--------------------------- ------ ------ --------
Direct origination costs
during the period 8.3 6.9 15.1
--------------------------- ------ ------ --------
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
Six months Year
ended ended
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
--------------------- ------ ------ --------
Isle of Man 23.6 23.4 44.5
Republic of Ireland 3.1 3.8 6.8
--------------------- ------ ------ --------
26.7 27.2 51.3
--------------------- ------ ------ --------
5.2 Geographical analysis of profit before taxation
Six months Year
ended ended
31 December 30
June
2016 2015 2016
GBPm GBPm GBPm
--------------------- ------ ------ -------
Isle of Man 4.1 4.7 8.3
Republic of Ireland 0.3 0.2 0.1
--------------------- ------ ------ -------
4.4 4.9 8.4
--------------------- ------ ------ -------
5.3 Geographical analysis of gross assets
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
--------------------- -------- -------- --------
Isle of Man 986.4 845.5 909.7
Republic of Ireland 206.3 207.4 207.8
--------------------- -------- -------- --------
1,192.7 1,052.9 1,117.5
--------------------- -------- -------- --------
5.4 Geographical analysis of gross liabilities
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
--------------------- -------- -------- --------
Isle of Man 972.4 827.0 892.6
Republic of Ireland 187.0 188.1 188.7
--------------------- -------- -------- --------
1,159.4 1,015.1 1,081.3
--------------------- -------- -------- --------
6 Fees and commissions
Six months Year
ended ended
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
----------------------- ------ ------ --------
Contract fee income 18.0 18.5 34.4
Fund management fees 6.5 6.6 12.8
Commission receivable 2.2 2.1 4.1
----------------------- ------ ------ --------
26.7 27.2 51.3
----------------------- ------ ------ --------
7 Administrative and other expenses
Included in Administrative and other expenses
are the following:
Year
Six months ended
ended
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
--------------------------------- ------- ------ --------
Auditors' remuneration
- Fees payable to the
Company's auditor for the
audit of the Company's
annual accounts - - 0.1
- Fees payable for the
audit of the Company's
subsidiaries pursuant to
legislation 0.2 0.2 0.3
- Other services provided
to the Group - - 0.2
Employee costs 5.4 5.7 11.4
Directors' fees 0.1 0.2 0.3
Fund management fees 1.9 1.9 3.6
Renewal and other commission 0.5 0.5 1.3
Professional and other
fees 1.4 1.6 2.3
Litigation fees and settlements 0.1 - 0.5
Operating lease rentals 0.6 0.4 0.7
Licences and maintenance
fees 0.5 0.5 0.9
Insurance costs 0.5 0.5 0.9
Depreciation of property,
plant and equipment 0.2 0.2 0.5
Communications 0.3 0.2 0.5
--------------------------------- ------- ------ --------
8 Taxation
The Group's profits arising from its Isle of Man-based operations are taxable at zero percent.
Corporation tax for the Republic of Ireland-based operations is based on the effective annual rate for taxable income of 12.5%, applied to the expected taxable profits for the period.
9 Earnings per share
Six months Year
ended ended
31 December 30 June
2016 2015 2016
-------------------------------- ------ ------ --------
Profit after tax (GBPm) 4.4 4.9 8.3
Weighted average number
of shares in issue (millions) 137.4 137.4 137.4
--------------------------------- ------ ------ --------
Earnings per share in pence 3.2p 3.5p 6.0p
--------------------------------- ------ ------ --------
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. Earnings under either measure is 3.2p pence per share.
10 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 period:
Year ended
Six months ended 31 30 June
December
2016 2015 2016
Per share Total Per Total Per Total
share share
p GBPm p GBPm p GBPm
------------------ ---------- ------ ------- ------ ------- ------
Final dividend
paid 5.3 7.3 5.25 7.2 5.25 7.2
Interim dividend
paid - - - - 3.60 5.0
5.3 7.3 5.25 7.2 8.85 12.2
------------------ ---------- ------ ------- ------ ------- ------
The Board have resolved to pay an increased interim dividend of 3.6p per share. This amounts to GBP5.0m and will be paid on 30 March 2017 to shareholders on the register at 3 March 2017.
11 Deferred origination costs
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
----------------------------- ------ ------ --------
At beginning of financial
year 110.9 113.5 113.5
Origination costs incurred
during the year 8.3 6.9 15.1
Origination costs amortised
during the year (7.9) (9.2) (17.7)
------------------------------ ------ ------ --------
111.3 111.2 110.9
------------------------------ ------ ------ --------
31 December 30 June
2016 2015 2016
Carrying value GBPm GBPm GBPm
-------------------------- ------ ------ --------
Expected to be amortised
within one year 10.9 13.2 9.5
Expected to be amortised
after one year 100.4 98.0 101.4
-------------------------- ------ ------ --------
111.3 111.2 110.9
-------------------------- ------ ------ --------
12 Financial investments held to cover liabilities under investment contracts
The following investments, other assets and liabilities are held to cover financial liabilities under investment contracts. They are included within the relevant headings on the condensed consolidated balance sheet.
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
--------------------------- -------- ------ --------
Equity securities 10.4 18.6 13.0
Investment in collective
investment schemes 861.3 736.2 784.0
Fixed income securities 29.4 17.3 22.6
Deposits and money market
funds 100.9 84.2 104.8
Other receivables - 0.8 -
--------------------------- -------- ------ --------
Total assets 1,002.0 857.1 924.4
Other payables (1.0) (0.9) (0.9)
--------------------------- -------- ------ --------
Financial investments
held to cover
liabilities 1,001.0 856.2 923.5
--------------------------- -------- ------ --------
The other receivables and other payables fair value approximates amortised cost.
13 Deferred income
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
------------------------------- ---- ---------- ---------- --------
At beginning of financial
year 130.5 137.6 137.6
Income received and
deferred in period 8.7 5.5 11.4
Income recognised in contract
fees in the period (9.9) (10.4) (18.5)
------------------------------------- ---------- ---------- --------
129.3 132.7 130.5
------------------------------------- ---------- ---------- --------
31 December 30
June
2016 2015 2016
Carrying value GBPm GBPm GBPm
-------------------------- ------ ------ ------
Expected to be amortised
within one year 13.0 13.2 12.8
Expected to be amortised
after one year 116.3 119.5 117.7
-------------------------- ------ ------ ------
129.3 132.7 130.5
-------------------------- ------ ------
14 Other payables
31 December 30
June
2016 2015 2016
GBPm GBPm GBPm
------------------------ ------ ------
Creditors and accruals 7.3 6.0 6.6
------------------------ ------ ------
15 Called up share capital
31 December 30 June
2016 2015 2016
GBPm GBPm GBPm
Authorised:
200,000,000 ordinary shares of 50p 100.0 100.0 100.0
Issued and fully paid:
137,440,456 ordinary shares of 50p
(30 June 2016: 137,440,456 ordinary shares) 68.7 68.7 68.7
16 Related party transactions
Intra-group transactions are eliminated on consolidation and are not disclosed separately here.
There have been no significant related party transactions in the period other than noted in 16.1 below, nor changes to related parties. Related party transactions affecting the results of previous periods and an understanding of the Group's financial position at previous balance sheet dates are as disclosed in the Annual Report & Accounts for the year ended 30 June 2016.
There have been no significant awards during the period under the Save As You Earn (SAYE) share-save programme for employees. The estimated fair value of the schemes and the imputed cost for the period under review is not material to these financial statements.
16.1 Transactions with controlling shareholder
Dr L S Polonsky is regarded as the controlling shareholder of the Group, as defined by the Listing Rules of the Financial Conduct Authority.
Dr Polonsky's letter of appointment reflects his position as a non-executive Director and President. It incorporates the requirements of the Listing Rules of the Financial Conduct Authority in relation to Dr Polonsky as controlling shareholder of the Group in order to maintain effective corporate governance.
-- Dr Polonsky has an investment contract issued by the Group on terms available to employees in general. As at 31 December 2016 Dr Polonsky's contract had a fair value of GBP16.6m (H1 2016: GBP15.7m).
-- The Group established an Employee Benefit Trust in November 2011 with the transfer to it of 400,000 shares in Hansard Global plc by Dr Polonsky. Dr Polonsky made a further donation of 250,000 shares to the Trust in September 2014. Following the purchase of 43,428 shares in December 2016, the Trust holds 803,949 shares (30 June 2016: 760,521) at 31 December 2016.
17 Contingent liabilities
The Group does not give any investment advice and this is left to the contract holder directly or through an agent, advisor or an entity appointed at the contract holder's request or preference. Contract holders bear the financial risk relating to the investments underpinning their contracts, as the contract benefits are linked to the value of the assets.
Notwithstanding the above, financial services institutions are frequently drawn into disputes in cases where the value and performance of assets selected by or on behalf of contract holders fails to meet their expectations. This is particularly true of more complex structured products distributed throughout Europe that have been selected for inclusion in contracts by contract holders and / or their advisors. At the balance sheet date a number of those fund structures remain affected by liquidity or other issues that hinder their sales or redemptions on normal terms with a consequent adverse impact on transactions.
As reported previously, the Group has been subject to a number of complaints in relation to the selection and performance of assets linked to contracts. The company has been served with a number of writs arising from such complaints and other asset-related issues.
As at the report date of the 2016 Annual Report and Accounts, the Group faced litigation based on writs totalling EUR15.7m (GBP13.1m). The corresponding figure as at the report date of the 2015 Interim Report and Accounts was EUR14.1m (GBP10.4m). As at the report date of these Interim Report and Accounts, writs totalled EUR15.9 (GBP13.6m).
While it is not possible to forecast or determine the final results of pending or threatened legal proceedings, based on the pleadings and advice received from the Group's legal representatives, the Directors believe that the Group has strong defences to such claims. Notwithstanding this, there may 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. There were no such settlements made or provided for during the year (H1 2016: GBP0.1m). It is not possible at this time to make any further estimates of liability.
18 Foreign exchange rates
The closing exchange rates used by the Group for the translation of balance sheet items to sterling were as follows:
31 December 30 June
2016 2015 2016
US Dollar 1.23 1.48 1.33
Japanese Yen 144.34 177.77 137.38
Euro 1.17 1.36 1.20
These are consistent with the rates used for the translation of EEV future currency cash flows.
Independent review report to Hansard Global plc
Report on the consolidated financial statements
Our conclusion
We have reviewed Hansard Global plc's consolidated financial statements (the "interim financial statements") in the half-yearly report of Hansard Global plc for the 6 month period ended 31 December 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
the condensed consolidated balance sheet as at 31 December 2016;
the condensed consolidated statement of comprehensive income for the period then ended;
the condensed consolidated cash flow statement for the period then ended;
the condensed consolidated statement of changes in equity for the period then ended; and
the explanatory notes to the interim financial statements.
The interim financial statements included in the half-yearly report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 3 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The half-yearly report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the half-yearly report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the International Assurance Standards Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLC
Chartered Accountants
Douglas, Isle of Man
22 February 2017
EUROPEAN EMBEDDED VALUE INFORMATION
1 INTRODUCTION
The European Embedded Value ("EEV") measure is an estimate of the value of the shareholders' interest in the Group. The EEV covers the entire business of the Group, including its life assurance companies and subsidiaries providing administration, distribution and other services.
The EEV comprises Net Worth and the VFP from business in-force at the valuation date, 31 December 2016. It excludes the value of any future new business that the Group may write after the valuation date. All results are calculated net of corporation tax.
The Group's EEV methodology complies with the EEV Principles published by the CFO Forum in May 2004 and most recently extended in April 2016. It has been calculated using market-consistent economic assumptions and best estimate operating assumptions having regard for the Group's experience and its assessment of future experience. A description of the EEV methodology is set out in the Notes to the EEV Information. There have been no significant changes in the EEV methodology from that used in the previous financial year.
2 EEV PROFIT PERFORMANCE FOR THE PERIOD
2.1 EEV Profit
EEV Profit is a measure of the performance over the period. It is derived as follows:
H1 2017 H1 2016
GBPm GBPm
New Business Contribution 1.0 (0.2)
Expected Return On New And Existing Business 0.3 0.5
Expected Return On Net Worth 0.1 0.2
Operating Assumption And Model Changes (2.0) 0.4
Experience Variances (1.8) (1.5)
EEV Operating (Loss) after Tax (2.4) (0.6)
Investment Return Variances 12.1 1.3
Economic Assumption Changes (1.2) 0.5
EEV Profit after Tax 8.5 1.2
2.1.1 New Business Contribution ("NBC")
New Business Contribution is the value of new business written in the period. It is calculated at point of sale. NBC for the half year is GBP1.0m (H1 2016: negative GBP0.2m).
2.1.2 Expected Return on In Force Business (new and existing)
Under EEV methodology, it is a convention to assume that the value of the business grows at 'start of period' assumptions. The Expected Return is therefore based on assumptions determined at 30 June 2016. These assumptions are applied to give the expected conversion from VFP to Net Worth in the year, and the time value of both existing business and non-market risk.
No assumptions are made about new business written, so the New Business Strain is that incurred in the half year from new sales, using end of period operating and start of period economic assumptions.
H1 2017 H1 2016
EEV Net VFP* EEV Net VFP*
Worth worth
GBPm GBPm GBPm GBPm GBPm GBPm
Cash generated from VFP - 15.1 (15.1) - 13.3 (13.3)
New Business Strain - (12.1) 12.1 - (9.9) 9.9
Time value of existing business 0.3 - 0.3 0.5 0.3 0.2
Time value of new business - - - - - -
0.3 3.0 (2.7) 0.5 3.7 (3.2)
*this includes frictional costs and non-market risk, including its time value.
The expected value of cash generated from existing business of GBP15.1m is higher than the previous period (H1 2016: GBP13.3m). This increase is driven by upfront charges, which are received over an 18 month period, growing as a result of new business levels in the financial year ending June 2016 being higher than in the year ending June 2015. The higher New Business Strain of GBP12.1m (H1 2016: GBP9.9m) reflects higher new business over the period.
The time value figures reflect the economic assumptions at 30 June 2016 and 30 June 2015.
2.1.3 Experience Variances
Experience Variances arise where experience differs from that assumed in the prior year's EEV.
H1 2017 H1 2016
GBPm GBPm
---------------------- -------- --------
Full encashments (1.4) (0.6)
Premium persistency (1.3) (0.6)
One-off expenses 0.7 (0.3)
Ongoing expenses (0.5) (0.2)
Partial encashments 0.2 (0.2)
Other 0.5 0.4
Experience Variances (1.8) (1.5)
---------------------- -------- --------
The sum of experience variances is negative GBP1.8m (H1 2016: negative GBP1.5m), comprising mainly of lapses, premium persistency and expenses.
2.1.4 Operating Assumption Changes
The operating assumption changes reflect changes in management's view of the behaviour of the existing business. These changes decreased the EEV by GBP2.2m (H1 2016: decrease of GBP0.2m), as shown below.
Operating assumptions are generally management's best estimate, having regard to recent experience. Minor alterations to expense and full encashment assumptions were made during the period.
H1 2017 H1 2016
GBPm GBPm
------------------------------ -------- --------
Full encashments (1.1) -
Ongoing expenses (1.1) -
Premium persistency - (0.2)
Operating Assumption Changes (2.2) (0.2)
------------------------------ -------- --------
2.1.5 Model Changes
The model is an approximation of the financial impact of the expected business performance. The Group continues to develop its modelling functionality, seeking to improve its accuracy over time. Model changes made during the period were GBP0.2m (H1 2016: GBP0.6m). This was due to a decrease in the cost of Required Capital.
2.1.6 Expected Return on Net Worth
The Expected Return on Net Worth of GBP0.1m (H1 2016: GBP0.2m) reflects the anticipated increase in shareholder assets over the period due to the time value of money. In line with EEV convention, its calculation is based on the 30 June 2016 year one sterling risk discount rate of 0.4% (30 June 2015: GBP0.7%).
2.1.7 Investment Return Variances
The combined impact of market and economic conditions led to EEV Investment Return Variances of GBP12.1m (H1 2016: GBP1.3m).
H1 2017 H1 2016
GBPm GBPm
Investment performance of contract holder funds 6.1 (6.4)
Exchange rate movements 5.6 7.0
Shareholder return variance 0.3 0.3
Other 0.1 0.4
Investment Return Variances 12.1 1.3
2.1.8 Economic Assumption Changes
Economic Assumption Changes resulted in an EEV reduction of GBP1.2m (H1 2016: increase of GBP0.5m). This reflects changes in risk free rates for the currencies in which the Group is exposed.
2.2 ANALYSIS OF EEV PROFIT BY EEV COMPONENT
The table below shows a detailed analysis of EEV profit after tax for the period.
H1 2017 H1 2016
Movement In Movement In
EEV Net Worth VIF EEV Net Worth VIF
GBPm GBPm GBPm GBPm GBPm GBPm
New Business Contribution 1.0 - 1.0 (0.2) - (0.2)
Expected Return On New And Existing Business 0.3 3.0 (2.7) 0.5 3.7 (3.2)
Expected Return On Net Worth 0.1 0.1 - 0.2 0.2 -
Model Changes 0.2 - 0.2 0.6 - 0.6
Operating Assumption Changes (2.2) - (2.2) (0.2) - (0.2)
Experience Variances (1.8) (0.6) (1.2) (1.5) (1.3) (0.2)
EEV Operating Profit After Tax (2.4) 2.5 (4.9) (0.6) 2.6 (3.2)
Investment Return Variances 12.1 0.5 11.6 1.3 (0.2) 1.5
Economic Assumption Changes (1.2) - (1.2) 0.5 - 0.5
EEV Profit After Tax 8.5 3.0 5.5 1.2 2.4 (1.2)
3 EMBEDDED VALUE AT 31 DECEMBER 2016
3.1 EEV BALANCE SHEET
Following the payment of dividends of GBP7.3m (H1 2016: GBP7.2m), the Group's EEV has increased by GBP1.2m since 30 June 2016 to GBP197.1m (30 June 2016: GBP195.9m, 31 December 2015: GBP189.0m). The EEV balance sheet is presented below.
H1 2017 H1 2016
GBPm GBPm
Free Surplus 23.2 31.5
Required Capital 28.0 27.2
Net Worth 51.2 58.7
VIF 153.1 137.4
Reduction for non-market risk (6.2) (6.1)
Frictional costs (1.0) (1.0)
Value Of Future Profits ("VFP") 145.9 130.3
EEV 197.1 189.0
Net Worth is the market value of shareholder funds on an IFRS basis with adjustments to exclude certain accounting assets and liabilities. At the balance sheet date, the Net Worth of the Group is largely represented by liquid cash balances. The Required Capital has increased marginally due to an increase in 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. 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 Value of Future Profits is the capitalised value of expected future profit allowing for best estimate contract holder behaviour and market consistent economic assumptions (VIF) with adjustments for non-market risk and frictional costs. VIF is based on the value of contract holder funds under administration at 31 December 2016. The reduction for non-market risk represents the capitalised cost of operational risk. Frictional costs are the costs associated with holding Required Capital.
4 NEW BUSINESS PROFITABILITY
The level of new business sales has recovered since the previous period to generate a positive New Business Contribution of GBP1.0m ("NBC") for H1 2017 (H1 2016: loss of GBP0.2m).
4.1 NEW BUSINESS MARGIN
New Business Margin is the New Business Contribution divided by the Present Value of New Business Premiums ("PVNBP"). It is a measure of profitability (not profit), comparing the expected profit with the value of expected premiums.
H1 2017 H1 2016
New Business Sales (PVNBP) GBP74.9m GBP56.4m
New Business Contribution (NBC) GBP1.0m (GBP0.2m)
New Business Margin (NBM) 1.3% (0.4%)
The New Business Margin for the year is 1.3% (H1 2016: negative 0.4%). The margin has increased from the prior period due to the increased new business sales.
NBC and PVNBP have, by convention, been calculated using 30 June 2016 economic assumptions and 31 December 2016 operating assumptions (which are unchanged from those at 30 June). As for the VIF, the NBC does not take credit for possible investment returns in excess of the projected risk-free return. NBC is shown after allowing for the cost of required capital, calculated on the same basis as for in-force business.
5 EEV SENSITIVITY ANALYSIS
Sensitivities provide an indication of the impact of changes in particular assumptions on the EEV at 31 December 2016 and the NBC for the half-year then ended.
The sensitivities will be affected by the change in the Group's business mix: different product types are sensitive to different assumptions in particular. Unless otherwise indicated, the sensitivities are broadly symmetrical.
The sensitivity analysis indicates that the Group's exposure to operating factors is limited, largely as a result of product design. A change in the level of expenses is the main operating exposure of the Group. The largest sensitivities for the Group are related to economic factors. In particular, as a result of the diversified portfolio of assets under administration, it is exposed to movements in exchange rates and asset values through the impact on the level of future fund-based management income.
Impact on EEV NBC
GBPm GBPm
Central assumptions 197.1 1.0
Operating sensitivities
10% decrease in expenses 8.9 0.8
1% decrease in expense inflation 6.0 0.3
1% increase in charge inflation 4.3 0.1
1% increase in expense & charge inflation (2.2) (0.3)
1% decrease in expense & charge inflation 2.5 0.2
10% decrease in full encashment rates 1.8 0.2
Economic sensitivities
1% decrease in risk discount rate 7.8 0.4
1% increase in risk discount rate (7.1) (0.4)
1% increase in investment return rate 7.5 0.3
1% decrease in investment return rate (6.9) (0.3)
1% increase in risk discount rate & investment return rate (0.2) (0.1)
1% decrease in risk discount rate & investment return rate 0.2 0.1
10% increase in the value of equities and property 10.5 -
10% strengthening of sterling (16.3) (0.6)
In each sensitivity calculation, all other assumptions remain unchanged, except where indicated. There is a natural correlation between many of the sensitivity scenarios tested, so the impact of two occurring together is likely to be different from the sum of the individual sensitivities.
Where only one side of a sensitivity is shown, the results are broadly symmetric.
No changes to statutory valuation bases, pricing bases and Required Capital have been allowed for. No future management action has been modelled in reaction to the changing assumptions. For new business, the sensitivities reflect the impact of a change from inception of the policy.
NOTES TO THE EUROPEAN EMBEDDED VALUE INFORMATION
1 ECONOMIC ASSUMPTIONS
Under EEV principles, the economic assumptions used in the EEV calculations are actively reviewed at each valuation date and are internally consistent. The assumption setting process is generally consistent with prior years.
1.1 Risk discount rate
The risk discount rates are set to the risk-free rates for the applicable currency and term, sourced from the European Insurance and Occupational Pensions Authority (EIOPA). The EEV calculation uses the risk-free rates at the end of the period (i.e. at the valuation date), while the calculation of NBC and PVNBP uses the risk-free rate at the start of the year (i.e. at the previous year-end date).
1.2 Investment returns
All investments are assumed to provide a return equal to the risk-free rate less external fund manager investment charges and any other investment expenses charged directly against contract holder funds.
1.3 Risk premium
No credit is taken in the calculation of EEV, NBC or PVNBP for returns in excess of risk-free returns i.e. a cautious approach is adopted by assuming an asset risk premium of zero.
1.4 Inflation rates
In setting the expense inflation assumption, consideration is given to price and salary inflation rates in both the Isle of Man and the Republic of Ireland, and to the Group's own expense experience and expectations. For service companies, expense inflation relates to the underlying expenses rather than the fees charged to the life assurance companies.
By design, contractual monetary charge inflation is broadly matched to expense inflation: in Hansard Europe, the charge inflation is subject to a minimum increase of 5% per annum. The correlation between expense inflation and charge inflation dampens the impact of inflation on the embedded value results.
Inflation assumptions are as follows:
Inflation rates H1 2017 H1 2016 Expense inflation per annum 2.6% 2.6% Charge inflation per annum - Hansard Europe 5.0% 5.0% Charge inflation per annum - Hansard International - Year 1 1.9% 1.9% Charge inflation per annum - Hansard International - Year 2 2.4% 2.2% Charge inflation per annum - Hansard International - Year 3+ 2.6% 2.6% The 5% charge inflation rate for Hansard Europe reflects the terms of the products. The three-year stepped approach to charge inflation for Hansard International reflects the terms of the products, trending towards a long-term inflation rate of 2.6% per annum.
Review of the European Embedded Value ("EEV") of Hansard Global plc for the six-month period ended 31 December 2016
Our role
Deloitte MCS Limited has been engaged by Hansard Global plc to act as Reviewing Actuaries in connection with results on an EEV basis published in sections "European Embedded Value Information" (pages 44 to 49) and "Notes to the European Embedded Value Information" (page 50) within Hansard Global plc's Results for the six-month period ended 31 December 2016.
Responsibilities
The EEV Information and the methodology and assumptions underlying it is the sole responsibility of the directors of Hansard Global plc. It has been prepared by the directors of Hansard Global plc, and the calculations underlying the EEV Information have been performed by Hansard Global plc.
Our limited review was conducted in accordance with generally accepted actuarial practices and processes. It comprised a combination of such reasonableness checks, analytical reviews and checks of clerical accuracy as we considered necessary to provide reasonable assurance that the EEV Information has been compiled free of material error.
The EEV Information necessarily makes numerous assumptions with respect to economic conditions, operating conditions, taxes, and other matters, many of which are beyond the Group's control.
Although the assumptions used represent estimates which the directors believe are together reasonable, actual experience in future may vary from that assumed in the preparation of the EEV Information, and any such variations may be material. Deviations from assumed experience are normal and are to be expected.
The EEV does not purport to be a market valuation of the Group and should not be interpreted in that manner since it does not encompass all of the many factors that may bear upon a market value. For example, it makes no allowance for the value of future new business.
Opinion
On the basis of our limited review, nothing has come to our attention to suggest that:
-- the methodology and assumptions used to prepare the EEV Information do not comply in all material respects with the European Embedded Values Principles set out by the CFO Forum in May 2004, and most recently extended in April 2016 (the "CFO Forum Principles");
-- the EEV Information has not been compiled on the basis of the methodology and assumptions and;
-- the EEV Information does not comply in all material respects with the CFO Forum Principles.
Reliances and limitations
We have relied on data and information, including the value of net assets, management accounting data and solvency information supplied to us by the Group. Further, we have relied on the terms of the contracts, as they have been reported to us, being enforceable.
We have relied on the reported mathematical reserves, the adequacy of those reserves, and of the methods and assumptions used to determine them. We have assumed that all provisions made in the IFRS financial statements for any other liabilities (whether actual, contingent or potential) of whatever nature, are appropriate.
We have also relied on information relating to the current and historical operating experience of the Group's life insurance business, including the results of experience investigations relating to policy persistency, and expense analysis. In forming our opinion, we have considered the assumptions used in the EEV Information in the context of the reported results of those investigations although we have not attempted to predict the impact of potential future changes in competitive forces on the assumptions.
Deloitte MCS Limited
22 February 2017
Deloitte MCS Limited. Registered office: Hill House, 1 Little New Street, London EC4A 3TR, United Kingdom. Registered in England & Wales with registered number 3311052.
Deloitte MCS Limited is a subsidiary of Deloitte LLP, the United Kingdom member firm of Deloitte Touche Tohmatsu Limited ("DTTL"), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
Member of Deloitte Touche Tohmatsu Limited
Contacts and Advisors
Registered Office Media Enquiries
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Financial Calendar
Ex-dividend date for interim dividend 2 March 2017
Record date for interim dividend 3 March 2017
Payment date for interim dividend 30 March 2017
Third quarter trading update 11 May 2017
Announcement of fourth quarter new
business results 27 July 2017
Announcement of full year results 28 September 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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February 23, 2017 02:00 ET (07:00 GMT)
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