TIDMHSD
RNS Number : 6998N
Hansard Global plc
26 September 2019
26 September 2019
Hansard Global plc
Results for the year ended 30 June 2019
Hansard Global plc ("Hansard" or "the Group"), the specialist
long-term savings provider, issues its results for the year ended
30 June 2019 ("FY 2019").
Summary
FY 2019 FY 2018
---------------------------- ---------- ----------
New business sales - PVNBP GBP155.9m GBP146.6m
(1) basis
IFRS profit after tax GBP4.6m GBP6.8m
Underlying profit GBP6.1m GBP8.6m
Operating cash surplus GBP20.6m GBP25.0m
Recommended final dividend
per share (2) 2.65p 2.65p
IFRS earnings per share 3.3p 4.9p
---------------------------- ---------- ----------
As at 30 June 30 June
2019 2018
---------------------------- ---------- ----------
Assets under Administration GBP1,080m GBP1,036m
Value of In-Force (3) GBP140m GBP144m
---------------------------- ---------- ----------
(1) Present Value of New Business Premiums
(2) Subject to approval at the AGM
(3) Basis moved from European Embedded Value basis in FY 2018 to
Solvency II equivalent basis in FY 2019
Gordon Marr, Group Chief Executive Officer, commented:
"Our 2019 results reflect a year of change for the Group, as we
have refocused the business to deliver future growth. In
particular, in June 2019 we were granted our Japanese investment
management licence, enabling us to operate in this key market. This
was a major milestone and the culmination of a number of years of
hard work. We also successfully launched our new insurance
subsidiary, Hansard Worldwide Limited and streamlined the number of
markets that we operate in and the distributors we use in those
markets. Together with a major IT project to replace our
back-office administration systems and a focus on cost
efficiencies, we believe this offers a strong base to improve the
profitability of the business in the coming years."
NEW BUSINESS
As previously announced, our new business levels were GBP155.9m
on a Present Value of New Business Premiums ("PVNBP") basis, 6.3%
higher than FY 2018. The primary driver of growth in 2019 was our
successful strategic relationship in the UAE.
Strategy IMPLEMENTATION
The business has focused on a number of key items during the
past year. Successful achievements include:
-- regulatory approval of our investment management licence application in Japan;
-- launch of our new insurance subsidiary in The Bahamas to
serve international and expatriate business;
-- rationalisation of our distribution network with a focus on
closer relationships, quality of business and clear customer
disclosures;
-- rationalisation of regional offices to reduce costs;
-- commencement of project to replace and streamline our
administration systems and IT infrastructure.
TRADING RESULTS
IFRS profit after tax for the year was GBP4.6m (FY 2018:
GBP6.8m). Excluding litigation defence costs and other smaller
one-off items, underlying IFRS profit was GBP6.1m compared with
GBP8.6m in FY 2018.
Fee and commission income was GBP48.5m for the year (2018:
GBP52.6m) with lower income earned in both Hansard International
and Hansard Europe. Hansard International experienced lower
contract surrender levels than in 2018 and as a consequence had
lower releases of deferred income and lower surrender charges.
Hansard Europe income continued to reduce in line with its closure
to new business in 2013.
Administrative expenses, exclusive of litigation and one-off
items, were GBP23.3m (2018: GBP22.1m). Key drivers of this increase
include general salary inflation, project contractor costs and
increased premium collection costs.
As previously disclosed, we elected to rationalise our
supplemental reporting in 2019 and focus on Solvency II equivalent
metrics rather than European Embedded Value ("EEV"). Value of
In-Force ("VIF") represents the present value of expected future
shareholder profits less the present value cost of holding capital
required to support the in-force business. VIF totalled GBP139.9m
as at 30 June 2019, up from GBP134.5m at 31 December 2018. The
equivalent VIF at 30 June 2018 under EEV methodology was
GBP143.9m.
New Business Margin, calculated on an EEV basis, improved
marginally to -0.6% as compared to -0.7% in FY 2018. While margins
benefited from slightly higher sales to support acquisition
expenses, declining interest rates and other assumption changes
have offset most of the improvement.
DIVIDS
The Board has proposed a final dividend of 2.65p per share, the
same level as last year. This dividend, if approved by the
shareholders at the Annual General Meeting on 6 November 2019,
represents a total dividend of 4.45p (2018: 4.45p) per share in
respect of the financial year. Such dividend will be paid on 14
November 2019 to shareholders on the register on 4 October 2019.
The associated ex-dividend date is 3 October 2019.
policyholder LITIGATION
The Group continues to manage carefully its litigation exposures
relating to the legacy operations of Hansard Europe. We continue to
believe we have strong defences against the claims being made.
Exposures from outstanding writs total EUR21.7m (GBP19.4m) at 30
June 2019, up EUR1.6m (GBP1.6m) from 30 June 2018. The primary
driver of the increase has been in relation to litigation in Italy
focused on a range of funds which have been illiquid for a number
of years.
During the year, the Group successfully defended ten cases with
net exposures of approximately EUR0.6m (GBP0.5m), eight of which
have been appealed by the plaintiffs. Our policy is to maintain
contingent liabilities even where we win cases in the court of
first instance if such cases have been subsequently appealed. These
successes continue to affirm confidence in the Group's legal
arguments.
We have also worked closely with our insurers during the year to
clarify large-case coverages where they may be applicable. While we
cannot at this stage place a value on any recoveries and have not
reduced any of the gross exposures above, we are comfortable that a
number of our larger cases will be at least partly covered.
CURRENT TRADING
Sales levels to date for the 2020 financial year are continuing
in line with the trends established in 2019 and we expect to report
year on year growth for Q1 2020 compared to Q1 2019.
DIRECTOR RETIREMENTS
Maurice Dyson, having served on the Board for 13 years, will not
be seeking re-election at the Annual General Meeting ("AGM") on 6
November 2019. Andy Frepp has also advised that he will not be
seeking re-election at the AGM due to work commitments taking him
to the USA.
NEXT TRADING UPDATE
The first trading update in respect of the year ending 30 June
2020 is expected to be published on 7 November 2019.
For further information:
Hansard Global plc +44 (0) 1624 688 000
Gordon Marr, Group Chief Executive Officer
Tim Davies, Chief Financial Officer
Email: investor-relations@hansard.com
Camarco +44 (0) 203 757 4980
Ben Woodford, Kimberley Taylor, Rebecca Noonan
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 via 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 scalable.
-- The principal geographic markets in which the Group currently
services contract holders and financial advisors are the Middle
East & Africa, the Far East and Latin America. These markets
are served by Hansard International Limited and Hansard Worldwide
Limited.
-- Hansard Europe dac previously operated in Western Europe but
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 scalability and flexibility of the Group's
operations allow it to enter or develop new geographic markets and
exploit growth opportunities within existing markets often without
the need for significant further investment.
Forward-looking statements:
This announcement may contain certain forward-looking statements
with respect to certain of Hansard Global plc's plans and its
current goals and expectations relating to future financial
condition, performance and results. By their nature forward-looking
statements involve risk and uncertainties because they relate to
future events and circumstances which are beyond Hansard Global
plc's control. As a result, Hansard Global plc's actual future
condition, performance and results may differ materially from the
plans, goals and expectations set out in Hansard Global plc's
forward-looking statements. Hansard Global plc does not undertake
to update forward-looking statements contained in this announcement
or any other forward-looking statement it may make. No statement in
this announcement is intended to be a profit forecast or be relied
upon as a guide for future performance.
This announcement contains inside information which is disclosed
in accordance with the Market Abuse Regime.
Legal Entity Identifier: 213800ZJ9F2EA3Q24K05
Chairman's Statement
Introduction
2019 has seen the Hansard Group ("Hansard" or "the Group") make
a number of important strategic moves for the future direction of
the business. The receipt of our Japanese investment management
licence in June 2019 was a major milestone and the culmination of a
number of years of hard work. We also successfully launched our new
insurance subsidiary, Hansard Worldwide Limited ("Hansard
Worldwide") and streamlined the number of markets that we operate
in and the distributors we use in those markets. Together with a
major IT project to replace our back-office administration systems
and a focus on cost efficiencies, we believe this offers a strong
base to improve the profitability of the business in the coming
years.
New business
New business for the 2019 financial year improved to GBP155.9m
(in Present Value of New Business Premiums ("PVNBP") terms), up 6%
from the 2018 figure of GBP146.6m.
The highlight of the year was the continuing growth of our
strategic relationship in the UAE. This contributed significantly
to new business in our Middle East and Africa region which
increased 42% from the prior year. It was also pleasing to achieve
a seamless transition of our international distribution to Hansard
Worldwide. The Group is now more flexible and focussed in the
markets and territories from which it sources business.
Financial performance
Our IFRS profit after tax for the year was GBP4.6m, down from
GBP6.8m in 2018. This reflects a number of factors on both the
revenue and cost side.
On the revenue side, fees and commissions were down GBP4.1m to
GBP48.5m for the year (2018: GBP52.6m). Fees and commissions from
Hansard International Limited ("Hansard International") were down
by GBP3.2m primarily due to lower amortisation of income from prior
years and lower surrender fee income as a result of improved
retention levels (a benefit to future income levels). Fees and
commissions from our closed book, Hansard Europe dac ("Hansard
Europe"), continued to fall, as expected, and were GBP0.9m down on
the prior year.
On the cost side, we have implemented a cost savings programme
which will yield annualised savings of approximately GBP1.0m,
primarily in the reduction of professional fees (some of which will
be seen in the 2020 financial year). Offsetting this, however, we
have and continue to incur increased costs for litigation defence,
the operation of Hansard Worldwide, IT costs related to our
administration system upgrade and premium collection costs.
Overall, administrative and other expenses were GBP29.5m for the
year (2018: GBP29.4m).
Further detail and analysis is contained in the Business and
Financial Review.
Capitalisation and solvency
The Group remains well capitalised to meet the requirements of
regulators, contract holders, intermediaries and other
stakeholders. On a risk-based capital basis, total Group Free
Assets in excess of the Solvency Capital Requirements of our
insurance subsidiaries were GBP86.8m (2018: GBP90.5m), a coverage
of 233% (2018: 237%). We have maintained our prudent investment
policy for shareholder assets, which minimises market risk and has
provided a stable and resilient solvency position over many
years.
Dividends
The Board has resolved to pay a final dividend of 2.65p per
share (2018: 2.65p). The Board is of the view that the current net
cash outflow is a temporary position that can be covered in advance
of expected improvements in cash flow.
The dividend is subject to approval at the Annual General
Meeting. If approved, this will represent total dividends for the
financial year of 4.45p per share (2018: 4.45p). The final dividend
will be paid on 14 November 2019. The ex-dividend date will be 3
October 2019 and the record date will be 4 October 2019.
The future
The key to significantly increased new business lies in our
ability to take advantage of the opportunity available to us in
Japan. We are planning to launch a new investment product for the
Japanese market in 2020, distributed by local banks. Whilst the
set-up costs in Japan will reduce the profitability of 2019/20, the
Japanese market has the potential to be a significant source of
future profitability.
Philip Gregory
Chairman
25 September 2019
GROUP CHIEF EXECUTIVE OFFICER'S OVERVIEW
2019 has seen positive progress on our ambition to build on our
traditional international business with additional locally-licenced
operations in highly attractive savings markets.
In June 2019 we announced that Hansard International had been
granted an Investment Management licence in Japan, marking the
first step to enable Hansard to enter the Japanese market with a
new, innovative savings proposition. We have appointed a General
Manager in Tokyo to help build on the opportunity that this licence
presents and lead the development of local resource and
distribution relationships. We believe this presents us with a very
significant opportunity to achieve a step change in Hansard's
future growth potential.
We have also adapted to changes in the regulatory landscape and
split our business into a more flexible model. Hansard
International in the Isle of Man will underwrite and reinsure all
locally-licenced business, while Hansard Worldwide in The Bahamas
will be the hub for our international and expatriate business. We
have successfully launched Hansard Worldwide during the second half
of the 2019 financial year and seamlessly managed the transition of
our broker network and operational model.
During the year, we launched a major IT project to replace our
back-office administration systems. Our current systems have served
us well over the past 30 years but technology never stands still
and we believe our new systems will both better support our next
generation of products whilst also enabling us to implement
significant annual cost savings. We expect the systems to be
implemented in 2020 with savings to be realised from 2021.
We are conscious that our current financial returns do not yet
reflect these positive developments. We remain confident however
that we are taking the right steps to address both the revenue and
expense lines for the long term future of the Group and that we
have the right people and technology to execute upon the
opportunities before us.
RESULTS FOR THE YEAR UNDER REVIEW
We believe that the following areas are the fundamental factors
for the success of the Group:
-- Sourcing significant flows of regular premium new business
flows from diversified target markets;
-- Managing our exposure to business risk;
-- Positioning ourselves to incorporate ever-increasing levels
of regulation into our business model;
-- Leveraging our market-leading technology and systems, and;
-- Managing our cash flows through the cycle to fund the
appropriate balance of investment in new business and
dividends.
I would draw your attention to the following items below.
Additional information is contained in the Business and Financial
Review.
1. New business distribution
The level of new business we earned during the financial year
("FY") was GBP155.9m (using the PVNBP metric), up from the FY 2018
figure of GBP146.6m.
Our Middle East and Africa region has been a highlight, driven
primarily by the continuing growth of our strategic relationship in
the UAE. New business in this region was up 42% for the full
year.
Elsewhere, we have seen a highly competitive market place,
particularly for single premiums where we have chosen not to pursue
business where margins are too low.
2. Operational, Business and Financial Risks
Our business model involves the acceptance of a number of risks
on a managed and controlled basis. The Group's Enterprise Risk
Management ("ERM") Framework provides for the identification,
assessment, management, monitoring and control of current and
emerging risks, recognising that systems of internal control can
only provide reasonable and not absolute assurance against material
misstatement or loss. The Group's internal control and risk
management processes have operated satisfactorily throughout the
year.
2.1 Litigation Risk
As explained more fully in the Business and Financial Review, we
continue to manage complaints and litigation arising from our
closed-book, Hansard Europe, where the performance of assets linked
to a particular contract have suffered or become illiquid. We
continue to maintain that we do not give investment advice and are
not party to the selection of the asset and therefore we believe
that such claims have no merit.
As at 30 June 2019, the Group had been served with cumulative
writs with a net exposure totalling EUR21.7m, or GBP19.4m in
sterling terms (30 June 2018: EUR20.1m / GBP17.8m) arising from
contract holder complaints and other asset performance-related
issues. The primary driver of the increase has been in relation to
additional claims in Italy related to funds which have been
illiquid for a number of years.
During the year, the Group successfully defended 10 cases with
net exposures of approximately EUR0.6m, or GBP0.5m, 8 of which have
been appealed by the plaintiffs. These successes continue to affirm
confidence in the Group's legal arguments.
We have also worked closely with our insurers during the year to
clarify coverages where they may be applicable. While we cannot at
this stage place a value on any recoveries and have not reduced any
of the gross exposures above, we are comfortable that a number of
our larger cases will be at least partly covered.
At this time it is not possible to put a reliable estimate on
the ultimate liability of such writs. They continue to be treated
as contingent liabilities within the Annual Report and
Accounts.
3. Hansard OnLine
Hansard OnLine is a powerful sales and business administration
tool that is used by independent financial advisors ("IFAs") and
clients the world over. It is an integral part of the Group's
operating model and allows us to better service IFAs and clients,
embed process efficiencies and be flexible in operational
deployment.
Hansard OnLine provides IFAs and clients with a reliable online
self-service model which they can access 24/7 from anywhere around
the world with an internet connection. It provides an important
foundation to our strategic goal of delivery of excellent customer
service.
Additional information concerning developments in Hansard OnLine
is set out in the Business and Financial Review.
4. Operating cash flows and dividends
The Group generates operating cash flows to fund investment in
new business and support dividend payments.
As outlined in the Cash Flow analysis section of the Business
and Financial Review, the Group generated GBP2.0m in overall net
cash inflows before dividends (2018: inflows of GBP6.9m), after the
investment of GBP17.5m (2018: GBP18.5m) in acquiring new business
and GBP2.5m (2018: GBP0.9m) in IT software and equipment
expenditure. Operating cash flows declined this year in line with
overall earned fee income. Dividends of GBP6.0m were paid in the
financial year (2018: GBP9.8m), reflecting the previously announced
reduction in dividend rate while we seek to invest in the
business.
A final dividend of 2.65p per share has been proposed by the
Board and will be considered at the Annual General Meeting on 6
November 2019. When the final dividend is paid at this level,
dividends will total 4.45p per share in respect of the full 2019
financial year.
FINANCIAL PERFORMANCE
Results for the year
Financial performance is summarised as follows. A detailed
review of performance is set out in the Business and Financial
Review that follows this report.
FY 2019 FY 2018
GBPm GBPm
-------------------------------------- -------- --------
New business sales - PVNBP 155.9 146.6
IFRS profit after tax 4.6 6.8
Underlying IFRS profit 6.1 8.6
Assets under Administration 1,079.7 1,036.0
Value of In-Force (regulatory basis) 139.9 141.6
-------------------------------------- -------- --------
IFRS results
IFRS profit after tax for the year was GBP4.6m, down from
GBP6.8m in 2018. After eliminating litigation and non-recurring
items, the underlying IFRS profit (a non-GAAP metric used by
management) was GBP6.1m compared to GBP8.6m in 2018.
Fees and commissions were GBP48.5m for the year (2018:
GBP52.6m). Fees from Hansard International were down by GBP3.2m to
GBP44.6m from 2018, primarily due to lower amortisation of income
from prior years and lower surrender fee income as a result of
improved retention levels (a benefit to future income levels).
Income from our closed book, Hansard Europe, has continued to fall,
as expected, and is GBP0.9m down on the prior year.
Administrative and other expenses were GBP29.5m for the year,
broadly in line with the 2018 level of GBP29.4m. During the year we
instigated a number of cost saving initiatives, particularly in
seeking to reduce external professional fees. These were offset by
the additional costs of Hansard Worldwide, higher litigation
defence costs, higher IT costs and increased costs of premium
collection.
Further detail and analysis is contained in the Business and
Financial Review.
Capitalisation and solvency
Our key financial objective is to ensure that the Group's
solvency is managed safely through the economic cycle to meet the
requirements of regulators, contract holders, intermediaries and
shareholders. The Group continues to be well capitalised. Under
risk-based capital methodologies, total Group Free Assets in excess
of the Solvency Capital Requirements of our insurance subsidiaries
were GBP86.8m (2018: GBP90.5m), a coverage of 233% (2018: 237%).
Shareholder assets are typically held in a wide range of deposit
institutions and in highly-rated money market liquidity funds. This
prudent investment policy for shareholder assets minimises market
risk and has provided a stable and resilient solvency position over
recent years.
our people
Our people are critical to our success. We have a dedicated
dynamic workforce across a number of locations around the world.
This year has seen the successful delivery of our licence in Japan
after a number of years of hard work, perseverance and creative
problem solving by many of our team. In the coming year we will
deliver a significant administration system upgrade which will
provide the platform for the next phase of our evolution and
growth. None of this is possible without dedicated and talented
people and I would like to offer my thanks for all their efforts
this year.
Gordon Marr
Group Chief Executive Officer
25 September 2019
BUSINESS AND FINANCIAL REVIEW
Our Business Model and Strategy
Hansard is a specialist long-term savings provider that has been
providing innovative financial solutions for international clients
since 1987. We focus on helping financial advisors and institutions
to provide their clients (individual and corporate investors) with
savings and investment products in secure life assurance wrappers
to meet long-term savings and investment objectives.
We administer assets in excess of GBP1 billion for just under
40,000 client accounts around the world.
Business Model
The Company's head office is in Douglas, Isle of Man, and its
principal subsidiaries operate from the Isle of Man, The Bahamas
and the Republic of Ireland.
Hansard International 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. Through its
relationship with a local insurer in the UAE, Hansard International
reinsures business written in the UAE.
Launched in 2019, Hansard Worldwide underwrites international
and expatriate business around the world. It is regulated by the
Insurance Commission of The Bahamas.
Hansard Europe dac ("Hansard Europe", previously Hansard Europe
Limited) is regulated by the Central Bank of Ireland. Hansard
Europe ceased accepting new business with effect from 30 June
2013.
Our products are designed to appeal to affluent international
investors, institutions and wealth-management groups. They are
distributed exclusively through 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.
Vision and Strategy
Our vision for the Hansard Group is:
"to share success with our clients by providing simple,
understandable and innovative financial solutions".
To deliver this vision it is clear that client outcomes will be
the central focus within our business and, consequently, we will
need to evolve all aspects of our products, processes and
distribution in order to constantly improve.
Our talented people are the foundation of our business. We have
created an empowering culture, which values innovation, quality,
integrity and respect.
Our strategy to improve, grow and future-proof our business will
be delivered through three key areas of strategic focus:
i. Improve our business: We will improve customer outcomes
through the introduction of new disclosures, the provision of new
products and services, focusing on the quality of our IFAs with
whom we work with and continuing to drive up the engagement of our
people within our business.
ii. Grow our business: We have established a new life company in
The Bahamas. We have acquired the necessary licence and approvals
to access the Japanese market and we will continue to drive our
strategic alliance with Union Insurance in the UAE. We hope to
pursue opportunities to replicate this model in other targeted
jurisdictions over the coming years.
iii. Future-proof our business: We are actively testing
innovative technologies, propositions and business models. It
remains critical to support the online and digital needs of our
clients alongside improving organisational efficiency and
scalability.
Strategy DEVELOPMENT
Our strategy team, led by Ollie Byrne our Chief Strategy
Officer, has made significant progress against our strategic goals
this year.
The strategy team has three main aims:
i) to capitalise on near term strategic opportunities;
ii) to ensure the Group is correctly positioned for future
regulatory developments and change; and
iii) to consider and plan for longer term industry and technological evolution.
During the past financial year, we have achieved the following
key strategic steps:
-- successfully launched our new Group insurance company in The
Bahamas. This will service our international and expatriate
customer base in an efficient manner, leveraging existing Group
technology and administration capabilities;
-- secured approval of our licence application in Japan. We are
currently in the process of building out our branch in Japan, led
by our recently recruited General Manger. We intend to bring
products to market during the second half of the 2020 financial
year;
-- commenced a major project to replace and streamline our
systems and IT infrastructure. This will support our next
generation of products and significantly reduce our overall
administration costs;
-- streamlined our distribution network with a focus on closer
relationships, quality of business and clear customer
disclosures;
-- streamlined our branch structure, closing a number of offices
no longer central to our strategy. This saves costs and focusses
our efforts in the right locations;
-- continued to focus on medium term activities which include
our next generation products, fund range offering and use of
technology.
We expect the result of these activities will be to transform
and grow the business through clearly identified onshore and
international channels utilising market leading technology and
systems.
Regulatory change
The Isle of Man Financial Services Authority (the "Authority")
has continued its work to implement significant revisions to the
framework for insurance regulation and supervision in order to
maintain a high level of observance with the International
Association of Insurance Supervisors Insurance Core Principles. The
Authority has sought to develop and implement these revisions in a
way which is appropriate and proportionate for the Island's diverse
insurance sector whilst promoting regulatory best practice and
preserving the continued reputation of the Isle of Man as a stable
and well-regulated jurisdiction. The principal areas of change
include:
-- the development of a more sophisticated risk-based capital and solvency regime;
-- enhanced regulatory reporting;
-- additional conduct of business requirements;
-- enhanced corporate governance, including enterprise risk management requirements;
-- introduction of a Group Supervision framework;
-- the proposed introduction of public disclosure requirements.
Significant milestones in the regulatory change agenda, which
have been delivered during the year ended 30 June 2019 include
implementation of the Insurance (Conduct of Business) (Long Term
Business) Code and implementation of the enhanced Corporate
Governance Code of Practice for Commercial Insurers.
We have continued our pro-active work to adapt the Hansard model
and strategic and business plans in line with the intent and
objectives of the regulatory changes, working transparently with
our regulators to shape the practical implementation of the Roadmap
and develop robust transition plans.
The Group has also successfully concluded the implementation of
its project to achieve and maintain compliance with the provisions,
requirements and obligations arising under the General Data
Protection Regulation, which came into force on 25 May 2018 and
which requires the principles of data protection to be met by
design and by default. The project has further prepared the Group
for continuing compliance with equivalent obligations arising under
applicable local and international regimes.
Products
The Group's products are unit-linked regular or single premium
life assurance and investment contracts which offer access to a
wide range of investment assets. The contracts are flexible, secure
and held within "wrappers" allowing life assurance cover or other
features depending upon the needs of the client. The contract
benefits are directly linked to the value of those assets that are
selected by, or on behalf of, the client and held within the
wrapper. The Group does not offer investment advice. Contract
holders bear the investment risk.
The Group's products do not include any contracts with financial
options and/or guarantees regarding investment performance and,
hence, unlike the situation faced by some other life assurers, the
Group carries no guarantee risk that can cause capital strain.
As a result of high levels of service, the nature of the Group's
products, the functionality of Hansard OnLine, and the ability of
the contract holder to reposition assets within a contract, we aim
to retain the contract holder relationship over the long term.
Contract holder servicing and related activities are performed
by Hansard Administration Services Limited, which is authorised by
the Financial Services Authority of the Isle of Man Government to
act as an Insurance Manager to both Hansard International and
Hansard Europe.
Revenues
The main sources of income for the Group are the fees earned
from the administration of insurance contracts. These fees are
largely fixed in nature and amount. Approximately 30% of the
Group's revenues, under IFRS, are based upon the value of assets
under administration. The new business generated in a particular
year is expected to earn income for an average period of 14 years.
Our business is therefore long term in nature both from a contract
holder perspective and with regards to the income that is
generated.
From this income we meet the overheads of the business, invest
in our business, invest to acquire new insurance contracts and pay
dividends.
Managing Risk
Risk can arise from a combination of macro events and company
specific matters. On the macro side, events such as the UK
referendum result on EU membership, terrorist attacks and
geo-political tensions can cause significant volatility to stock
markets and foreign exchange markets. We therefore continue to
maintain a robust, low risk balance sheet. We believe this prudent
approach to be appropriate to meet the requirements of regulators,
contract holders, intermediaries and shareholders.
We are conscious that managing operational risk is critical to
our business and we are continuously developing our enterprise risk
management system and controls. Further details of our approach to
risk management and the principal risks facing the Group are
outlined in the Risk Management and Internal Control Section.
Hansard OnLine
Hansard OnLine is a powerful and secure tool that is used by our
IFAs around the world. Available in multiple languages, it allows
them to access information about their clients, to generate reports
for their clients, to submit new business applications online, to
place dealing and switch instructions online, to access all client
correspondence and to access a library of forms and literature.
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.
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. 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.
The benefit of Hansard OnLine is recognised by many IFAs as
market leading and our online proposition has been nominated for
and won a number of independent industry awards, including in the
Middle East, one of our most important markets.
Online Accounts
Whilst many of our IFAs are technologically sophisticated and
have been utilising our online offering for years, our client base
has typically lagged behind. However, we are now observing a
growing trend amongst our clients to take more control of their
financial wellbeing by embracing mobile technology to better
monitor and manage their finances.
To support our commitment to delivering 'excellent customer
service', we believe it is vital to provide our clients with a
modern and secure online platform that allows them to access their
finances easily and comprehensively, 24/7. We provide this through
our client-facing version of Hansard OnLine, called Online
Accounts. Similar to our IFA-facing online platform, the client's
Online Account allows them to access all their policy information,
valuation statements, transaction history, premium reports, switch
funds online, access all correspondence, access a library of forms
and literature, and more.
A large and increasing number of clients have signed up for this
service which allows them to view all documentation and
communications relating to their contracts via their Online Account
as well as choosing to receive post electronically, rather than in
hard-copy form. This not only provides a more secure, faster and
cost efficient means of communication with clients but also the
convenience to manage their own contract within a timeframe which
is more suitable.
Continuous Improvements to our Online Proposition
When it comes to improving how we operate and the proposition we
offer, we value the views of our clients and IFAs. This means that
we regularly seek feedback through surveys and office visits in
order to identify ways in which we can improve our systems and
processes to best meet their needs. However, it is not just
functionality that is important, we also have running alongside a
continuous programme to enhance the overall user experience, for
both IFA's and our clients.
Cyber Security
As cyber crime continues to increase and target commercial and
public enterprises alike, Hansard has continued to invest in its
cyber security. This includes continuous upgrades to our firewall
protection, encryption of data, tokenisation of sensitive data and
annual external review and testing.
Excellent Customer Service
We strive to provide excellent customer service and turn-around
times to our clients. Our service levels to IFAs have been
recognised externally by IFAs in Malaysia, where we have won the
International Life Award "Readers' Choice" award in 2017 and
2016.
Key performance indicators
The Group's senior management team monitors a wide range of Key
Performance Indicators, both financial and non-financial, that are
designed to ensure that performance against targets and
expectations across significant areas of activity are monitored and
variances explained.
The following is a summary of the key indicators that were
monitored during the financial year under review.
New Business - The Group's internal indicator of calculating new
business production, Compensation Credit ("CC") reflects the amount
of base commission payable to intermediaries. Incentive arrangements
for intermediaries and the Group's Account Executives incorporate
targets based on CC (weighted where appropriate).
New business levels are reported daily and monitored weekly against
target levels. Modest business growth was achieved this year during
a period of significant regulatory and structural change. Growth
initiatives in 2020 will focus on commercialising the opportunity
in Japan where significant upside exists.
Administrative Expenses (excl. litigation and non-recurring items)
- The Group maintains a rigorous focus on expense levels and the
value gained from such expenditure. The objective is to develop
processes to restrain increases in administrative expenses to the
rates of inflation assumed in the charging structure of the Group's
policies.
The Group's administrative and other expenses for the year (excl.
litigation and non-recurring items) were GBP23.3m compared to GBP22.1m
in the previous year. Further detail is contained in the section
on Administrative and other expenses.
Cash - Bank balances and significant movements on balances are reported
monthly. The Group's liquid funds at the balance sheet date were
GBP65.3m (2018: GBP69.4m). The change is reflective of the level
of dividends paid and the level of new business written during the
year which has an initial cash flow strain.
Business continuity - Maintenance of continual access to data is
critical to the Group's operations. This has been achieved throughout
the year through a robust infrastructure. The Group is pro-active
in its consideration of threats to data, data security and data
integrity. Business continuity and penetration testing is carried
out regularly by internal and external parties.
Risk profile - The factors impacting on the Group's risk profile
are kept under continual review. Senior management review operational
risk issues at least monthly. The significant risks faced by the
Group are summarised later in this Strategic Report.
business AND FINANCIAL REVIEW
NEW BUSINESS PERFORMANCE FOR THE YEARED 30 JUNE 2019
The Group continues to focus on the distribution of regular and
single premium products in a range of jurisdictions around the
world, achieving well diversified new business growth.
New business performance for the year is summarised in the table
below:
2019 2018 %
Basis GBPm GBPm change
------------------------------- ------ ------ -------
Present Value of New Business
Premiums 155.9 146.6 6.3%
Annualised Premium Equivalent 24.7 22.4 10.3%
------------------------------- ------ ------ -------
In Present Value of New Business Premiums ("PVNBP") terms, new
business for the year to 30 June 2019 was GBP155.9m, 6.3% up on the
prior year. The primary driver of growth in 2019 was our strategic
relationship in the UAE.
Annualised Premium Equivalent ("APE") shows a higher growth rate
than PVNBP as the increased level of regular premiums written this
year get a higher proportional credit under the APE metric.
Present Value of New Business Premiums
New business flows on the PVNBP basis for the Group are further
analysed as follows:
2019 2018 %
PVNBP by product type GBPm GBPm change
------------------------ ------ ------ --------
Regular premium 85.5 70.2 21.8%
Single premium 70.4 76.4 (7.9%)
------------------------ ------ ------ --------
Total 155.9 146.6 6.3%
------------------------ ------ ------ --------
2019 2018 %
PVNBP by region GBPm GBPm change
------------------------ ------ ------ --------
Middle East and Africa 57.4 40.5 41.7%
Rest of World 52.7 55.8 (5.6%)
Latin America 25.9 25.8 0.4%
Far East 19.9 24.5 (18.8%)
------------------------ ------ ------ --------
Total 155.9 146.6 6.3%
------------------------ ------ ------ --------
Our Middle East and Africa region continues to outperform,
driven primarily by the continuing growth of our strategic
relationship in the UAE. New business was up 41.7% for the full
year. This business is predominantly regular premium, which can be
seen in the overall regular premium growth of 21.8%.
The Rest of World region was slightly lower than a strong prior
year comparative, primarily due to lower single premium business.
We have seen the market for single premiums become increasingly
competitive and have chosen not to pursue business where margins
are too low.
In Latin America, sales for the full year were slightly up on
the prior year, at GBP25.9m.
Our new business in our Far East region is down this year while
we re-position towards locally licensed business in a similar
manner to that successfully implemented in the Middle East.
We continue to receive business from a diverse range of
financial advisors around the world. There has been no significant
change in the currencies in which contractual premiums were
received, with the majority denominated in US Dollars.
2019 2018
Currency denominations (as a percentage of % %
PVNBP)
-------------------------------------------- ----- -----
US dollar 68 68
Sterling 23 23
Euro 7 6
Other 2 3
-------------------------------------------- ----- -----
100 100
-------------------------------------------- ----- -----
New business margins
New business margins (calculated on a PVNBP basis) are sensitive
to sales levels and product mix (regular premium products and
smaller single premium sizes typically have a higher margin).
During FY 2019, the benefit of slightly higher sales and a higher
proportion of regular premium sales was offset by some updates to
methodology and experience assumptions. We have also seen strong
competition in the marketplace this year with upward pressure on
commission rates to win new business. Overall, our new business
margin was -0.6 % for the year, compared to -0.7% for FY 2018.
Presentation of financial results
Our business is long term in nature. The nature of the Group's
products means that new business flows have a limited immediate
impact on current earnings reported under International Financial
Reporting Standards as adopted by the European Union ("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 sales to fee income levels are felt in future financial
periods, noting also that our newer products have a longer earning
period than our older products.
Results for the year
The following is a summary of key items to allow readers to
better understand the results for the year. A small number of
comparative figures have been restated in this section to ensure
consistency of presentation. IFRS profit after tax for the year was
GBP4.6m (2018: GBP6.8m).
IFRS profit in 2019 was lower than 2018 due to reduced surrender
charge income and associated releases of deferred income, the
on-going run-off of Hansard Europe, increased administration
expenses and increased litigation expenses.
Operating profit prior to litigation and non-recurring items was
GBP6.1m in 2019 compared to GBP8.6m in 2018.
Abridged consolidated income statement
The consolidated statement of comprehensive income presented
under IFRS reflects the financial results of the Group's activities
during the year. This income statement however, as a result of its
method of presentation, incorporates a number of features that
might affect an understanding of the results of the Group's
underlying transactions. This relates principally to:
-- investment gains during the year attributable to contract
holder assets of GBP47.2m (2018: GBP20.4m); and
-- fund management fees paid by the Group to third parties
having a relationship with the underlying contract. In 2019, third
party fund management fees attributable to contract holder assets
were GBP4.7m (2018: GBP5.4). These are reflected in both income and
expenses under the IFRS presentation.
An abridged non-GAAP consolidated income statement in relation
to the Group's own activities is presented below, excluding the
items of income and expenditure indicated above.
2019 2018
GBPm GBPm
------------------------------------------------- ------- -------
Fees and commissions attributable to Group
activities 43.8 47.2
Investment and other income 2.3 1.5
------------------------------------------------- ------- -------
46.1 48.7
Origination costs (16.7) (18.0)
Administrative and other expenses attributable
to the Group, before
litigation and non-recurring items (23.3) (22.1)
------------------------------------------------- ------- -------
Operating profit for the year before litigation
and non-recurring items 6.1 8.6
Litigation and non-recurring expense items (1.5) (1.7)
------------------------------------------------- ------- -------
Profit for the year before taxation 4.6 6.9
Taxation - (0.1)
------------------------------------------------- ------- -------
Profit for the year after taxation 4.6 6.8
------------------------------------------------- ------- -------
Fees and commissions
Fees and commissions for the year attributable to Group
activities were GBP43.8m, down 7% on the 2018 total of
GBP47.2m.
Contract fee income totalled GBP31.3m for the year (2018:
GBP33.3m). Contract fee income includes the amortised element of
up-front income deferred under IFRS and contract-servicing charges.
Such amortisation has been lower than 2018 as the income from more
recent regular premium business is not of a sufficient level to
replace the equivalent income from older higher margin business.
Lower surrender levels this year compared to last have resulted in
lower levels of surrender charges and lower releases of deferred
income to revenue. The continuing run-off of Hansard Europe which
closed to new business in 2013 resulted in lower contract fee
income of GBP0.9m compared to 2018.
Fund management fees accruing to the Group and commissions
receivable from third parties totalling GBP12.5m (2018: GBP13.9m)
are related directly to the value of assets under administration
and are therefore exposed to market movements, currency rates and
valuation judgements. These fees were lower in 2019 primarily due
to the 2018 figure containing an additional quarter of fees (and
matching expenses) due to improved timeliness of external reporting
in 2018. 2019 fees were also lower than 2018 due to declines in
global stock markets in H1 2019.
A summary of fees and commissions is set out below:
2019 2018
GBPm GBPm
-------------------------------------------- --------------- -----
Contract fee income 31.3 33.3
Fund management fees accruing to the Group 7.8 9.0
Commissions receivable 4.7 4.9
-------------------------------------------- --------------- -----
43.8 47.2
-------------------------------------------- --------------- -----
Included in contract fee income is GBP16.9m (2018: GBP17.3m)
representing the amortisation of fees prepaid in previous years, as
can be seen in the analysis set out below:
2019 2018
GBPm GBPm
--------------------------------- ----- -----
Amortisation of deferred income 16.9 17.3
Income earned during the year 14.4 16.0
--------------------------------- ----- -----
Contract fee income 31.3 33.3
--------------------------------- ----- -----
Investment and other income
Whilst interest rates have picked up marginally, historically
low UK interest rates continue to result in relatively modest
levels of interest income earned on the Group's deposits and money
market funds.
2019 2018
GBPm GBPm
---------------------------------------------- ----- -----
Bank interest and other income receivable 2.0 1.5
Foreign exchange gains on revaluation of net 0.3 -
operating assets
---------------------------------------------- ----- -----
2.3 1.5
---------------------------------------------- ----- -----
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 anticipated life of
that contract to match the longer-term income streams expected to
accrue from the contracts issued this year. Typical terms range
between 6 years and 16 years, depending on the nature of the
product. Other elements of the Group's new business costs, for
example recruitment costs, which reflect investment in distribution
resources in line with our strategy, are expensed as incurred.
With increased new business volumes in 2019 compared to 2018,
current year origination costs incurred were similarly higher than
the prior year. Consistent with the lower amortisation of deferred
income, the amortisation of deferred origination costs was also
lower for 2019, resulting in an overall expense to the consolidated
statement of comprehensive income of GBP16.7m compared to GBP18.0m
in 2018.
2019 2018
GBPm GBPm
---------------------------------------------- ------ ------
Origination costs - deferred to match future
income streams 18.0 17.0
Origination costs - expensed as incurred 2.9 3.2
---------------------------------------------- ------ ------
Investment in new business in year 20.9 20.2
Net amortisation of deferred origination
costs (4.2) (2.2)
---------------------------------------------- ------ ------
16.7 18.0
---------------------------------------------- ------ ------
Amounts totalling GBP13.8m (2018: GBP14.8m) have been expensed
to match contract fee income earned this year from contracts issued
in previous financial years, as can be seen in the analysis
below.
Summarised origination costs for the year were:
2019 2018
GBPm GBPm
--------------------------------------------- ----- ------
Amortisation of deferred origination costs 13.8 14.8
Other origination costs incurred during the
year 2.9 3.2
--------------------------------------------- ----- ------
16.7 18.0
--------------------------------------------- ----- ------
Administrative and other expenses
We continue to manage our expense base robustly to control
administrative expenses while supporting our strategic developments
and other new business growth activities with targeted
expenditure.
An analysis of administrative and other expenses is set out in
notes 8 and 9 to the consolidated financial statements under IFRS.
The following summarises some of the expenses attributable to the
Group's own activities.
2019 2018
GBPm GBPm
--------------------------------------------- ----- -----
Salaries and other employment costs 10.5 10.0
Other administrative expenses 7.8 6.8
Professional fees, including audit 3.2 3.3
--------------------------------------------- ----- -----
Recurring administrative and other expenses 21.5 20.1
Growth investment spend 1.8 2.0
--------------------------------------------- ----- -----
Administrative and other expenses, excl.
litigation and non-recurring expense items 23.3 22.1
Litigation defence and settlement costs 1.4 1.2
Provision for branch closures - 0.2
Provision for doubtful debts in respect
of broker balances 0.1 0.3
Total administrative and other expenses 24.8 23.8
--------------------------------------------- ----- -----
Salaries and other employment costs have increased by GBP0.5m or
5% to GBP10.5m, reflecting salary inflation, bonuses and the costs
of short term contractors supporting key project initiatives.
The average Group headcount for the 2019 financial year was 191
people (2018: 196 people).
Other administrative expenses have increased from GBP6.8m to
GBP7.8m primarily as a result of an increase in credit card related
premium collection costs and contract holder reimbursement
costs.
Professional fees including audit are down GBP0.1m as a result
of a savings programme which was commenced during the year and will
continue to be realised into 2020. This total include amounts
totalling GBP0.6m paid to the Group's auditor (2018: GBP0.6m);
GBP0.6m (2018: GBP0.5m) for administration, custody, dealing and
other charges paid under the terms of the investment processing
outsourcing arrangements; recruitment costs of GBP0.3m (2018:
GBP0.1m), costs of investor relations activities of GBP0.3m (2018:
GBP0.3m) and general legal and professional fees of GBP1.4m (2018:
GBP1.8m).
Growth investment spend represents internal and external costs
to generate opportunities for growth. This includes the costs of
our strategy team, the costs associated with acquiring our Japanese
licence and developing our proposition there, and systems
development costs.
Litigation defence and settlement costs represent those costs
incurred in defending Hansard Europe against writs taken against
it, as described more fully in the Contingent Liabilities note to
the consolidated financial statements.
Provision for doubtful debts relate to amounts due from brokers
which are deemed to be irrecoverable.
Cash Flow ANALYSIS
The operational cash surplus (fees deducted from contracts and
commissions received, less operational expenses paid) for the year
was GBP20.6m (2018: GBP25.0m). Operating cash flows have decreased
this year a result of the reduction in fee income levels, movements
in debtors and creditors and the continuing run-off of Hansard
Europe.
Writing new business, particularly regular premium business,
produces a short-term cash strain as a result of the commission and
other costs incurred at the inception of a contract. Annual
management charges offset this strain and produce a positive return
over time.
Future increases in new business levels can be funded where
necessary by the Group's significant cash resources, but over time
as the level of contract holder assets is built up, the annual
management charges that are earned from the Group's newer products
will become sufficient to sustain new business growth and
dividends.
During 2019, the Group invested GBP2.5m as part of a project to
replace its administration systems. These costs are capitalised as
computer software on the Group balance sheet.
The following non-GAAP tables summarise the Group's own cash
flows in the year. Overall cash and deposits have decreased from
GBP69.4 at 30 June 2018 to GBP65.3m at 30 June 2019.
2019 2018
GBPm GBPm
--------------------------------------------- ------- -------
Net cash surplus from operating activities 20.6 25.0
Interest received 1.4 1.3
--------------------------------------------- ------- -------
Net cash inflow from operations 22.0 26.3
Net cash investment in new business (17.5) (18.5)
Purchase of property and computer equipment (2.5) (0.9)
Net cash inflow before dividends 2.0 6.9
Dividends paid (6.0) (9.8)
--------------------------------------------- ------- -------
Net cash outflow after dividends (4.0) (2.9)
--------------------------------------------- ------- -------
2019 2018
GBPm GBPm
--------------------------------------------- ------ ------
Net cash outflow after dividends (4.0) (2.9)
Increase in amounts due to contract holders 0.6 0.9
--------------------------------------------- ------ ------
Net Group cash movements (3.4) (2.0)
Group cash - opening position 69.4 71.6
Effect of exchange rate movements (0.7) (0.2)
Group cash - closing position 65.3 69.4
--------------------------------------------- ------ ------
Bank deposits and money market funds
The Group holds its liquid assets in highly-rated money market
liquidity funds and with a wide range of deposit institutions to
minimise market risk. Deposits totalling GBP25.1m have original
maturity dates typically greater than 3 months and are therefore
excluded from the definition of "cash and cash equivalents" under
IFRS as reflected in note 16 to the consolidated balance sheet
(2018: GBP15.8m). The following table summarises the total
shareholder cash and deposits at the balance sheet date.
2019 2018
GBPm GBPm
----------------------------------------------- ----- -----
Money market funds and immediately available
cash 40.2 48.9
Short-term deposits with credit institutions - 4.7
----------------------------------------------- ----- -----
Cash and cash equivalents under IFRS 40.2 53.6
Longer-term deposits with credit institutions 25.1 15.8
Group cash and deposits 65.3 69.4
----------------------------------------------- ----- -----
Abridged consolidated balance sheet
The consolidated balance sheet presented under IFRS reflects the
financial position of the Group at 30 June 2019. 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 GBP1,079.7m (2018: GBP1,036.0m). 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.
2019 2018
GBPm GBPm
-------------------------------------- ------ ------
Assets
Deferred origination costs 118.0 113.8
Other assets 10.1 8.0
Bank deposits and money market funds 65.3 69.4
-------------------------------------- ------ ------
193.4 191.2
-------------------------------------- ------ ------
Liabilities
Deferred income 133.2 130.3
Other payables 33.0 32.4
-------------------------------------- ------ ------
166.2 162.7
-------------------------------------- ------ ------
Net assets 27.2 28.5
-------------------------------------- ------ ------
Shareholders' equity
Share capital and reserves 27.2 28.5
-------------------------------------- ------ ------
Deferred origination costs
The deferral of origination costs reflects that the Group will
earn fees over the long-term from contracts issued in a given
financial year. These costs are recoverable out of future net
income from the relevant contract and are charged to the
consolidated statement of comprehensive income on a straight-line
basis over the life of each contract.
The movement in value over the financial year is summarised
below.
2019 2018
Carrying value GBPm GBPm
--------------------------------------------- ------- -------
At beginning of financial year 113.8 111.6
Origination costs deferred during the year 18.0 17.0
Origination costs amortised during the year (13.8) (14.8)
--------------------------------------------- ------- -------
118.0 113.8
--------------------------------------------- ------- -------
Deferred income
The treatment of deferred income ensures that contract fees are
taken to the consolidated statement of comprehensive income in
equal installments over the longer-term, reflecting the services to
be provided over the period of the contract. This is consistent
with the treatment of deferred origination costs. Deferred income
at the balance sheet date is the unamortised balance of accumulated
initial amounts received on new business.
The proportion of income deferred in any one year is dependent
upon the mix and volume of new business flows in previous years.
The Group's focus on regular premium business means that these fees
are received over the initial period of the contract, rather than
being received up front, as is often the case with single premium
contracts.
The majority of initial fees collected during the year relates
to charges taken from contracts issued in prior financial years
demonstrating the cash generative nature of the business. Regular
premium contracts issued in this financial year will generate the
majority of their initial fees over the next 18 months on
average.
The movement in value of deferred income over the financial year
is summarised below.
2019 2018
Carrying value GBPm GBPm
------------------------------------------ ------- -------
At beginning of financial year 130.3 129.2
Initial fees collected in the year and
deferred 19.8 18.4
Income amortised during the year to fees
income (16.9) (17.3)
------------------------------------------ ------- -------
133.2 130.3
------------------------------------------ ------- -------
CONTRACT HOLDER Assets under administration
In the following paragraphs, contract holder assets under
administration ("AuA"), refers to net assets held to cover
financial liabilities, as analysed in note 17 to the consolidated
financial statements presented under IFRS.
The Group enjoys a stream of cash flows from the large number of
regular premium contracts administered on behalf of clients around
the world. The Group also acquires assets via lump sum single
premium business which totaled GBP70.4m this year (2018: GBP78.1m).
The majority of premium contributions are designated in currencies
other than sterling, reflecting the wide geographical spread of
those contact holders. Premium contributions during the year also
includes additional contributions of approximately GBP2.9m (2018:
GBP3.3m) relating to single and regular premium contracts issued by
Hansard Europe in prior years.
These flows are offset by charges and withdrawals, by premium
holidays affecting regular premium policies and by market valuation
movements.
The currency composition of AuA at the balance sheet date is
similar to that as at 30 June 2018, with 65% of AuA designated in
US dollar (2018: 63%) and 13% in euro (2018: 14%).
The value of AuA at 30 June 2019 was GBP1,079.7m.
2019 2018
GBPm GBPm
----------------------------------------- -------- --------
Deposits to investment contracts -
regular premiums 80.3 73.9
Deposits to investment contracts -
single premiums 70.4 78.1
Withdrawals from contracts and charges (154.2) (186.1)
Effect of market and currency movements 47.2 20.4
----------------------------------------- -------- --------
Movement in year 43.7 (13.7)
Opening balance 1,036.0 1,049.7
----------------------------------------- -------- --------
Closing balance 1,079.7 1,036.0
----------------------------------------- -------- --------
The analysis of AuA held by each Group subsidiary to cover
financial liabilities is as follows:
2019 2018
Fair value of AuA at 30 June GBPm GBPm
------------------------------ -------- --------
Hansard International 965.4 913.6
Hansard Europe 114.3 122.4
------------------------------ -------- --------
1,079.7 1,036.0
------------------------------ -------- --------
Assets acquired by Hansard Worldwide are administered by Hansard
International and therefore are included within Hansard
International's total AuA.
As expected the level of assets in Hansard Europe continues to
decline after closing to new business in 2013.
DIVIDS
An interim dividend of 1.8p per share was paid in April 2019.
This amounted to GBP2.4m.
The Board has considered the results for the full year ended 30
June 2019, the Group's continued cash flow generation and its
future expectations and has resolved to pay a final dividend of
2.65p per share (2018: 2.65p). This dividend will be paid on 14
November 2019.
complaints and potential litigation
In valuation issues such as those referred to above, financial
services institutions can be drawn into disputes in cases where the
performance of assets selected directly by or on behalf of contract
holders through their advisors fails to meet their expectations.
This is particularly relevant in the case of more complex products
distributed throughout Europe.
Even though the Group does not give any investment advice, as
this is left to the contract holder directly or through an agent,
advisor or an entity appointed at their request or preference, the
Group has been subject to a number of complaints in relation to the
performance of assets linked to contracts.
As at 30 June 2019, the Group had been served with cumulative
writs with a net exposure totalling EUR21.7m, or GBP19.4m in
sterling terms (30 June 2018: EUR20.1m / GBP17.8m) arising from
contract holder complaints and other asset performance-related
issues. The primary driver of the increase has been in relation to
additional claims in Italy related to funds which have been
illiquid for a number of years.
During the year, the Group successfully defended 10 cases with
net exposures of approximately EUR0.6m, or GBP0.5m, 8 of which have
been appealed by the plaintiffs. These successes continue to affirm
confidence in the Group's legal arguments.
Our policy is to maintain contingent liabilities even where we
win cases in the court of first instance if such cases have been
subsequently appealed. This includes our largest single case in
Belgium where the appeal has been deferred pending the outcome of a
separate constitutional court case.
We have also worked closely with our insurers during the year to
clarify coverages where they may be applicable. While we cannot at
this stage place a value on any recoveries and have not reduced any
of the gross exposures above, we are comfortable that a number of
our larger cases will be at least partly covered.
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, 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 26 to the consolidated financial statements.
Net asset value per shaRE
The net asset value per share on an IFRS basis at 30 June 2019
is 19.8p (2018: 21.1p) based on the net assets in the Consolidated
Balance Sheet divided by the number of shares in issue, being
137,557,079 ordinary shares (2018: 137,557,079).
Risk management and internal control
As with all businesses, the Group is exposed to risk in pursuit
of its objectives. The Board of Hansard Global plc ("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. The ERM Programme directs 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.
Approach
The ERM Programme has been designed to be appropriate to the
nature, scale and complexity of the Group's business at both
corporate and subsidiary level. The framework components have been
reviewed and refined during the year ended 30 June 2019 to ensure
that they remain fit for purpose in substance and form and continue
to support the Directors' assessment of the adequacy and
effectiveness of the Group's risk management and internal control
systems. Such assessment depends upon the Board maintaining a
thorough understanding of the Group's risk profile, including the
types, characteristics, interdependencies, sources and potential
impact of those risks on an individual and aggregate basis. The
disciplines of the ERM framework seek to coordinate risk management
in respect of the Group as a whole, including, notably, for the
purpose of ensuring compliance with capital adequacy requirements,
liquidity adequacy requirements and regulatory capital requirements
in line with the transition to a risk-based capital regime under
the Isle of Man Regulatory Roadmap.
The ERM Programme continues to be built upon the 'three lines of
defence' model, which addresses how specific duties relating to
risk management and internal control are assigned and coordinated
between front line management (first line), risk and compliance
monitoring functions (second line) and the independent assurance
services of internal audit (third line). Each of the three lines
plays a distinct role within the Group's overarching governance
framework.
The ERM Programme seeks to add value through embedding risk
management and effective internal control systems as continuous and
developing processes within strategy setting, programme level
functions and day-to-day operating activities. The ERM Programme
also acknowledges the significance of the Group's operating culture
and values in relation to risk management and their impact on the
overall effectiveness of the internal control framework.
The ERM Programme promotes the pursuit of its overarching
performance, information and compliance objectives through focus on
five interrelated elements, which enable the management of risk at
strategic, programme and operational level to be integrated, so
that layers of activity support each other. The five interrelated
elements are defined as:
-- Management oversight and the control culture;
-- Risk recognition and assessment;
-- Control activities and segregation of duties;
-- Information and communication;
-- Monitoring activities and correcting deficiencies.
Risk management processes are undertaken on both a top-down and
bottom-up 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
Executive 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.
Review of risk management and internal control systems
The results of the risk management processes combine to
facilitate identification of the principal business, financial,
operational and compliance risks and any associated key risks at a
subordinate level. Established reporting cycles enable the Board to
maintain oversight of the quality and effectiveness of risk
management and internal control activities throughout the year and
ensure that the entirety of the governance, risk management and
internal control frameworks, which constitute the ERM Programme,
are operating as intended. These processes have been in place
throughout the year under review and up to the date of this
report.
Independently of the quarterly cyclical risk reporting
arrangements and in accordance with provision C.2.1 of the UK
Corporate Governance Code, the Board has conducted its annual
review of the effectiveness of the Company's risk management and
internal control systems including financial, operational and
compliance controls. This review is undertaken in collaboration
with the Audit Committee and is based upon analysis and evaluation
of:
-- attestation reporting from subsidiary companies of the Group
as to the effective functioning of the risk management and internal
control framework and the ongoing identification and evaluation of
risk within each subsidiary;
-- formal compliance declarations from senior managers at
divisional level that key risks are being managed appropriately
within the functional and operational areas falling under their
span of control and that controls have been examined and are
effective;
-- the cumulative results of cyclical risk reporting by senior
and executive management via the Executive Risk Committee, covering
financial, operational and compliance controls;
-- independent assurance work by the Group Internal Audit
Department to identify any areas for enhancements to internal
controls and work with Management to define associated action plans
to deliver them.
The Board has determined that there were no areas for
enhancement which constituted a significant weakness for the year
under review and they are satisfied that the Group's governance,
risk management and internal control systems are operating
effectively and as intended.
Financial reporting process
The Group maintains a process to assist the Board in
understanding the risks to the Group of failing to meet its
objectives. This incorporates a system of planning and sensitivity
analysis incorporating Board approval of forecast financial and
other information. The Board receives regular representations from
the senior executives.
Performance against targets is reported to the Board quarterly
through a review of the Group's and Company's results based on
accounting policies that are applied consistently throughout the
Group. Financial and management information is prepared quarterly
by the Chief Financial Officer ("CFO") and presented to the Board
and Audit Committee. The members of the Audit Committee review the
financial statements for the half year ended 31 December and for
the full financial year and meet with the CFO to discuss and
challenge the presentation and disclosures therein. Once the draft
document is approved by the Audit Committee, it is reviewed by the
Board before final approval at a Board meeting.
Outsourcing
The majority of investment dealing and custody processes in
relation to contract holder assets are outsourced to Capital
International Limited ("CIL"), a company authorised by the Isle of
Man Financial Services Authority and a member of the London Stock
Exchange.
These processes are detailed in a formal contract that
incorporates notice periods and a full exit management plan.
Delivery of services under the contract is monitored by a dedicated
relationship manager against a documented Service Level Agreement
and Key Performance Indicators.
CIL is required to confirm monthly that no material control
issues have been identified in their operations; this is overseen
via the delivery of services monitoring performed by the
relationship manager. Each year CIL are required to confirm and
evidence the adequacy and effectiveness of their internal control
framework through an Assurance report, with an external independent
review performed every second year. The last such report, which
included an external independent review, was issued by CIL on 5
June 2018 and did not reveal any material control deficiencies in
the relevant period.
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
policy benefits are directly linked to the value of the assets in
the funds. These assets are administered in a manner consistent
with the expectations of the 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 3 to the
consolidated financial statements.
The Board believes that the principal risks facing the Group's
earnings and financial position are those risks which are inherent
to the Group's business model and operating environment. The
regulatory landscape continues to evolve at both a local and
international level and the risk management and internal control
frameworks of the Group must remain responsive to developments
which may change the nature, impact or likelihood of such
risks.
Principal Risks
The following table sets out the principal inherent risks that
may impact 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
------------------------------- ------------------------------------------------------------------
Legal and regulatory The scale and pace of change in regulatory
risk attaching to and supervisory standards at an international
the Group's business level continue to drive developments at
model a jurisdictional level. The interpretation
or application of regulation over time
may impact market accessibility, broker
relationships and / or competitive viability.
If the Group fails to monitor the regulatory
environment or adequately integrate the
management of associated obligations within
strategic, business model or business
planning processes there may be material
risk to the achievement of strategic objectives
both in the short 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 short and
longer term.
* Continuous monitoring and review of developments in
international law and regulation and proactive
management of how such developments might shape
jurisdictional specific reaction.
* Active and transparent engagement with regulatory
authorities and industry bodies on a
multi-jurisdictional basis, including active
engagement in and responding to regulatory
consultation exercises.
* Maintenance of robust governance, risk management and
internal control arrangements to ensure that legal
and regulatory obligations are substantively met on a
continuing basis.
------------------------------- ------------------------------------------------------------------
Production and intermediary The business environment in which the
risk arising from international insurance industry operates
market changes, technological is subject to continuous change as new
advancement, or competitor market and competitor forces come into
activity effect and as technology continues to
evolve. Hansard may be unable to maintain
competitive advantage in commercially
significant jurisdictions, or market segments,
or be unable to build and sustain successful
distribution relationships.
How we manage the risk:
* Close monitoring of marketplaces and competitor
activity for signs of threats to forecast new
business levels.
* Revised product and distribution 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 investment in and development of
technology.
------------------------------- ------------------------------------------------------------------
Conduct risk arising Any failure to adequately assess, monitor,
from any failure manage and mitigate risks to the delivery
of the Group's governance, of fair customer outcomes, or to market
risk management and integrity, can be expected to result in
internal control material detriment to the achievement
arrangements of strategic objectives and could incur
regulatory censure, financial penalty,
contract holder litigation and / or reputational
damage.
How we manage the risk:
* Developments in the Group's ERM framework continue to
drive and deliver the integration of conduct risk
management at both a cultural and practical level.
* Business activities designed to manage the volume and
velocity of regulatory change are fundamentally
concerned with ensuring compliance with conduct risk
obligations, managing conflicts of interest,
preventing market abuse and building robust
governance arrangements around new product
development and product suitability processes.
* The Group maintains regular dialogue with its
regulatory authorities and with its advisors in
relation to developments in the regulatory
environment in which we operate.
------------------------------- ------------------------------------------------------------------
Information Systems The increasing digitalisation of business
and cyber risk arising activities incurs an inherent exposure
from the increased to the risk of cybercrime together with
digitalisation of the risk of significant, costly interruptions,
business activities customer dissatisfaction and regulatory
and reliance upon censure in the event of any material failure
technology in our core business systems, or business
processes. 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.
* 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.
------------------------------- ------------------------------------------------------------------
Employee engagement Delivery of the Group's strategy is dependent
and cultural risk on attracting and retaining experienced
arising from any and high-performing management and staff.
failure to drive The knowledge, skills, attitudes and behaviours
and support the right of our employees are central to our success.
corporate culture We must attract, integrate, engage and
and attract, develop, retain the talent required to deliver
engage and retain our strategy and have the appropriate
key personnel processes and culture in place. The inability
to retain key people, and adequately plan
for succession can be expected to negatively
impact 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, which
measures both hard and soft skills.
* 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 risk If the Group does not have sufficient 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 movement
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.
Philip Gregory
Chairman
25 September 2019
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2019
Year ended Year ended
30 June 30 June
2019 2018
Notes GBPm GBPm
------------------------------------------ ------ ----------- -----------
Fees and commissions 5 48.5 52.6
Investment income 6 48.8 21.5
Other operating income 0.7 0.6
98.0 74.7
------------------------------------------ ------ ----------- -----------
Change in provisions for investment
contract liabilities (47.2) (20.4)
Origination costs 7 (16.7) (18.0)
Administrative and other expenses 8 (29.5) (29.4)
------------------------------------------ ------ ----------- -----------
(93.4) (67.8)
------------------------------------------ ------ ----------- -----------
Profit before taxation 4.6 6.9
Taxation 10 - (0.1)
------------------------------------------ ------ ----------- -----------
Profit and total comprehensive income
for the year
after taxation 4.6 6.8
------------------------------------------ ------ ----------- -----------
Earnings per share
2019 2018
Note (p) (p)
--------- ----- ----- -----
Basic 11 3.3 4.9
Diluted 11 3.3 4.9
----------- ----- ----- -----
Consolidated Statement of Changes in Equity
for the year ended 30 June 2019
Share Other Retained
capital reserves earnings Total
GBPm GBPm GBPm GBPm
-------------------------------- -------- --------- --------- ------
At 1 July 2017 68.7 (48.3) 11.3 31.7
Profit and total comprehensive
income for the - - 6.8 6.8
year after taxation
Share based payments reserve - 0.1 - 0.1
Reserve for own shares held
within EBT - (0.4) - (0.4)
Transactions with owners
Shares allotted 0.1 - - 0.1
Dividends paid - - (9.8) (9.8)
--------------------------------- -------- --------- --------- ------
At 30 June 2018 68.8 (48.6) 8.3 28.5
--------------------------------- -------- --------- --------- ------
Share Other Retained
capital reserves earnings Total
GBPm GBPm GBPm GBPm
-------------------------------- -------- --------- --------- ------
At 1 July 2018 68.8 (48.6) 8.3 28.5
Profit and total comprehensive
income for the - - 4.6 4.6
year after taxation
Share based payments reserve - 0.1 - 0.1
Transactions with owners
Dividends paid - - (6.0) (6.0)
--------------------------------- -------- --------- --------- ------
At 30 June 2019 68.8 (48.5) 6.9 27.2
--------------------------------- -------- --------- --------- ------
Consolidated Balance Sheet
As at 30 June 2019
2019 2018
Notes GBPm GBPm
---------------------------------------- ------ -------- --------
Assets
Intangible assets 13 3.0 0.5
Property, plant and equipment 13 0.7 1.0
Deferred origination costs 14 118.0 113.8
Financial investments
Equity securities 30.4 25.3
Investments in collective investment
schemes 928.4 905.8
Fixed income securities 37.5 24.8
Deposits and money market funds 110.2 97.6
Other receivables 15 4.7 4.8
Cash and cash equivalents 16 40.2 53.6
------------------------------------------- ------ -------- --------
Total assets 1,273.1 1,227.2
------------------------------------------- ------ -------- --------
Liabilities
Financial liabilities under investment
contracts 17 1,079.7 1,036.0
Deferred income 18 133.2 130.3
Amounts due to investment contract
holders 24.2 23.7
Other payables 19 8.8 8.7
------------------------------------------- ------ -------- --------
Total liabilities 1,245.9 1,198.7
------------------------------------------- ------ -------- --------
Net assets 27.2 28.5
------------------------------------------- ------ -------- --------
Shareholders' equity
Called up share capital 21 68.8 68.8
Other reserves 22 (48.5) (48.6)
Retained earnings 6.9 8.3
------------------------------------------- ------ -------- --------
Total shareholders' equity 27.2 28.5
------------------------------------------- ------ -------- --------
Consolidated Cash Flow Statement
for the year ended 30 June 2019
2019 2018
GBPm GBPm
--- ---------------------------------------------- ------- -------
Cash flow from operating activities
Profit before tax for the year 4.6 6.9
Adjustments for:
Depreciation 0.4 0.4
Dividends receivable (3.8) (4.3)
Interest receivable (1.4) (1.0)
Movement in share based payments reserve 0.1 -
Foreign exchange gains 0.7 0.2
Changes in operating assets and liabilities
(Increase)/decrease in other receivables (0.1) 0.4
Dividends received 3.8 4.3
Interest received 1.4 0.9
Increase in deferred origination costs (4.2) (2.2)
Increase in deferred income 2.9 1.1
Increase in creditors 0.6 1.5
(Increase)/decrease in financial investments (53.0) 13.0
Increase/(decrease) in financial liabilities 43.7 (13.7)
------------------------------------------------------ ------- -------
Cash flow (used in)/from operations (4.3) 7.5
Corporation tax paid - -
------------------------------------------------------ ------- -------
Cash flow (used in)/from operations after
taxation (4.3) 7.5
------------------------------------------------------ ------- -------
Cash flows from investing activities
Issue of share capital - 0.1
Investment in property, plant and equipment (2.5) (0.9)
Proceeds from sale of investments 0.1 0.2
Purchase of investments - (0.1)
Purchase of own shares - (0.4)
------------------------------------------------------ ------- -------
Cash flows used in investing activities (2.4) (1.1)
------------------------------------------------------ ------- -------
Cash flows from financing activities
Dividends paid (6.0) (9.8)
------------------------------------------------------ ------- -------
Cash flows used in financing activities (6.0) (9.8)
Net decrease in cash and cash equivalents (12.7) (3.4)
Cash and cash equivalents at beginning of
year 53.6 57.2
Effect of exchange rate changes (0.7) (0.2)
------------------------------------------------------ ------- -------
Cash and cash equivalents at year end 40.2 53.6
------------------------------------------------------ ------- -------
Notes to the consolidated financial statements
1 General Information
Hansard Global plc ("the Company") is a limited liability
company, incorporated in the Isle of Man, whose shares are publicly
traded. The principal activity of the Company is to act as the
holding company of the Hansard group of companies. The activities
of the principal operating subsidiaries include the transaction of
life assurance business and related activities.
The registered office of the Company is Harbour Court, Lord
Street, Box 192, Douglas, Isle of Man, IM99 1QL.
The Company has its primary listing on the London Stock
Exchange.
1.1 Principal accounting policies
The principal accounting policies adopted in the preparation of
these consolidated financial statements are set out below or, in
the case of accounting policies that relate to separately disclosed
values in the primary statements, within the relevant note to these
consolidated financial statements. These policies have been
consistently applied, unless otherwise stated.
1.2 Basis of presentation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union ("IFRSs"), International Financial
Reporting Standards Interpretations Committee ("IFRSIC")
interpretations, and with the Isle of Man Companies Acts 1931 to
2004. The financial statements have been prepared under the
historical cost convention as modified by the revaluation of
financial investments and financial liabilities at fair value
through profit or loss. The Group has applied all International
Financial Reporting Standards adopted by the European Union and
effective at 30 June 2019. Certain comparative figures have been
disaggregated to conform with current year's presentation.
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting
year. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the year in which the estimate is revised if the revision affects
only that year or in the year of the revision and future years if
the revision affects both current and future years.
The areas involving a higher degree of judgement or complexity,
or areas where assumptions and estimates are significant to the
consolidated financial statements, are disclosed in note 2.
Except where otherwise stated, the financial statements are
presented in pounds sterling, the functional currency of the
Company, rounded to the nearest one hundred thousand pounds.
The following amended standards, which the Group has adopted as
of 1 July 2018, have not had any material impact on the Group's
reported results:
-- IFRS 9 Financial Instruments
-- IFRS 15 Revenue from Contracts with Customers
-- Classification and Measurement of Share-based Payment
Transactions - Amendments to IFRS 2
-- Annual Improvements 2014-2016 cycle
-- Transfers to Investment Property - Amendments to IAS 40
-- Interpretation 22 Foreign Currency Transactions and Advance Consideration
IFRS 9 'Financial Instruments' incorporates:
-- new classification and measurements requirements for financial assets and liabilities;
-- the introduction of an expected credit loss impairment model;
-- new hedge accounting requirements; and
-- enhanced disclosures in the financial statements.
There have been no reclassification effects on the adoption of
IFRS 9. The Group does not use hedge accounting.
The provisioning methodology for financial assets not held at
fair value through profit and loss has changed from an incurred
loss to an expected loss basis. Moving from an incurred loss to an
expected loss impairment model impacts the assessment of any
impairment provision which may be required in the statement of
financial position, such as amounts due from funds and brokers. The
expected loss model for these amounts has been built based on the
levels of loss experienced, with due consideration given to forward
looking information. Upon transition to IFRS 9, the provision
determined under the expected credit loss model was not materially
different to the provision previously recognised under IAS 32/39
and as such, no adjustment was made to the opening statement of
financial position. The impact to the statement of financial
position and the statement of comprehensive income for the period
ended 30 June 2019 was also not materially different to the
previous accounting policy.
The new accounting policy to reflect this requirement of IFRS 9
is outlined below.
Impairment of Financial Assets
Financial assets held at amortised cost are impaired using an
expected credit loss model. The model splits financial assets into
those which are performing, underperforming and non-performing
based on changes in credit quality since initial recognition. At
initial recognition financial assets are considered to be
performing. They become underperforming where there has been a
significant increase in credit risk since initial recognition, and
non-performing when there is objective evidence of impairment.
Twelve months of expected credit losses are recognised in the
statement of comprehensive income and netted against the financial
asset in the statement of financial position for all performing
financial assets, with lifetime expected credit losses recognised
for underperforming and non-performing financial assets.
Expected credit losses are based on the historic levels of loss
experienced for the relevant financial assets, with due
consideration given to forward looking information.
Trade receivables are designated as having no significant
financing component. The Group applies the IFRS 9 simplified
approach to measuring expected credit losses for trade receivables
by using a lifetime expected loss allowance.
The below table summarises the different classes of assets and
liabilities and their treatment under IFRS 9 compared to IAS
39.
Measurement Category Difference
in Valuation
Original (IAS New (IFRS
39) 9)
Equity securities Fair value Fair value Nil
through profit through profit
or loss or loss
Collective investment Fair value Fair value Nil
schemes through profit through profit
or loss or loss
Fixed Income securities Fair value Fair value Nil
through profit through profit
or loss or loss
Deposits and money Fair value Fair value Nil
market funds through profit through profit
or loss or loss
Other receivables Amortised cost Amortised Nil
cost
Cash and cash equivalents Amortised cost Amortised Nil
cost
Financial liabilities Fair value Fair value Nil
under investment contracts through profit through profit
or loss or loss
Amounts due to investment Amortised cost Amortised Nil
contract holders cost
Other payables Amortised cost Amortised Nil
cost
The adoption of IFRS 15 has not had any impact on the Group as
the way the Group's revenue from contracts with customers was
recognised under the previous accounting standard, IAS 18,
satisfies the requirements of IFRS 15 without modification.
The following new standards and interpretations are in issue but
not yet effective and have not been early adopted by the Group:
-- IFRS 16, 'Leases', effective for accounting periods from 1 July 2019
-- IFRS 17, 'Insurance contracts', not yet endorsed by the EU
Based on the work performed to date, the adoption of the above
standards is not expected to have any material impact on the
Group's results.
IFRS 16 is not expected to result in any material impact on the
Group's statement of comprehensive income or the Group's net
assets, however it is expected to result in the recognition of both
additional assets and liabilities of circa GBP0.9m as at June 2020,
based on current contractual arrangements.
There are no other standards, amendments or interpretations to
existing standards that are not yet effective, that would have a
material impact on the Group's financial statements.
1.3 Basis of consolidation
The consolidated financial statements incorporate the assets,
liabilities and the results of the Company and of its subsidiary
undertakings. Subsidiaries are those entities in which the Company
directly or indirectly has the power to govern the financial and
operating policies generally accompanying a shareholding of more
than one half of the voting rights. The financial statements of
subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control
ceases. Where necessary, accounting policies applied by subsidiary
companies have been adjusted to present consistent disclosures on a
consolidated basis. Intra-group transactions, balances and
unrealised gains and losses arising from intra-group transactions,
are eliminated in preparing these consolidated financial
statements.
1.4 Going concern
The Directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for
the foreseeable future. As shown within the Business and Financial
Review, the Group's capital position is strong and well in excess
of regulatory requirements. The Directors believe that the Group is
well placed to manage its business risks successfully. Thus they
continue to adopt the going concern basis of accounting in
preparing the financial statements.
2 Critical accounting estimates and judgements in applying accounting policies
Estimates, assumptions and judgements are used in the
application of accounting policies in these financial statements.
Critical accounting estimates are those which involve the most
complex or subjective judgements or assessments. Estimates,
assumptions and judgements are evaluated continually and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. Actual outcomes may differ from assumptions and
estimates made by management.
2.1 Accounting estimates and assumptions
The principal areas in which the Group applies accounting
estimates and assumptions are in deciding the type of management
expenses that are treated as origination costs and the period of
amortisation of deferred origination costs and deferred income.
Estimates are also applied in determining the recoverability of
deferred origination costs.
2.1.1 Origination costs
Management expenses have been reviewed to determine the
relationship of such expense to the issue of an investment
contract. Certain expenses vary with the level of new business
production and have been treated as origination costs. Other
expenses are written off as incurred.
2.1.2 Amortisation of deferred origination costs and deferred income
Deferred origination costs and deferred income are amortised on
a straight-line basis over the life of the underlying investment
contract.
2.1.3 Recoverability of deferred origination costs
Formal reviews to assess the recoverability of deferred
origination costs on investment contracts are carried out at each
balance sheet date to determine whether there is any indication of
impairment based on the estimated future income levels.
If, based upon a review of the remaining contracts, there is any
other indication of irrecoverability or impairment, the contract's
recoverable amount is estimated. Impairment losses are reversed
through the consolidated statement of comprehensive income if there
is a change in the estimates used to determine the recoverable
amount. Such losses are reversed only to the extent that the
contract's carrying amount does not exceed the carrying amount that
would have been determined, net of amortisation where applicable,
if no impairment loss had been recognised.
2.2 Judgements
The primary areas in which the Group has applied judgement in
applying accounting policies are as follows:
-- The classification of contracts between insurance and
investment business. All contracts are treated as investment
contracts as they do not transfer significant insurance risk;
-- The fair value of certain financial investments. Where the
Directors determine that there is no active market for a particular
financial instrument, fair value is assessed using valuation
techniques based on available relevant information and an appraisal
of all associated risks. This process requires the exercise of
significant judgement on the part of Directors, as is discussed
further in note 3.5 to these consolidated financial statements
and;
-- To determine whether a provision is required in respect of
any pending or threatened litigation, which is addressed in note
26.
3 Financial risk management
Risk management objectives and risk policies
The Group's objective in the management of financial risk is to
minimise, where practicable, its exposure to such risk, except when
necessary to support other objectives. The Group seeks to manage
risk through the operation of unit-linked business whereby the
contract holder bears the financial risk. In addition, shareholder
assets are invested in highly rated investments.
Overall responsibility for the management of the Group's
exposure to risk is vested in the Board. To support it in this
role, an enterprise risk management framework is in place
comprising risk identification, risk assessment, control and
reporting processes. Additionally, the Board and the Boards of
subsidiary companies have established a number of Committees with
defined terms of reference. These are the Actuarial Review, Audit,
Executive, Investment and Risk Committees. Additional information
concerning the operation of the Board Committees is contained in
the Corporate Governance section of this Annual Report and
Accounts.
The more significant financial risks to which the Group is
exposed are set out below. For each category of risk, the Group
determines its risk appetite and sets its investment, treasury and
associated policies accordingly.
3.1 Market risk
This is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market
prices, analysed between price, interest rate and currency risk.
The Group adopts a risk averse approach to market risk, with a
stated policy of not actively pursuing or accepting market risk
except where necessary to support other objectives. However, the
Group accepts the risk that the fall in equity or other asset
values, whether as a result of price falls or strengthening of
sterling against the currencies in which contract holder assets are
denominated, will reduce the level of annual management charge
income derived from such contract holder assets and the risk of
lower future profits.
Sensitivity analysis to market risk
The Group's business is unit-linked and the direct associated
market risk is therefore borne by contract holders (although there
is a secondary impact as shareholder income is dependent upon the
fair value of contract holder assets). 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
Unit linked funds are exposed to securities price risk as the
investments held are subject to prices in the future which are
uncertain. The fair value of financial assets (designated at fair
value through profit or loss) exposed to price risk at 30 June 2019
was GBP996.3m (2018: GBP956.3m). In the event that investment
income is affected by price risk then there will be an equal and
opposite impact on the value of the changes in provisions for
investment contract liabilities in the same accounting period. The
impact on the profit or loss before taxation in a given financial
year is negligible.
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% per annum, are based on
the market value of contract holder assets under administration.
The approximate impact on the Group's profits and equity of a 10%
change in fund values, either as a result of price, interest rate
or currency fluctuations, is GBP1.5m (2018: GBP1.6m).
(b) Interest rate risk
Interest rate risk is the risk that the Group is exposed to
lower returns or loss as a direct or indirect result of
fluctuations in the value of, or income from, specific assets
arising from changes in underlying interest rates.
The Group is primarily exposed to interest rate risk on the
balances that it holds with credit institutions and in money market
funds. A change of 1% p.a. in interest rates will result in an
increase or decrease of approximately GBP0.6m (2018: GBP0.7m) in
the Group's annual investment income and equity.
A summary of the Group's liquid assets at the balance sheet date
is set out in note 3.2.
(c) Currency risk
Currency risk is the risk that the Group is exposed to higher or
lower returns as a direct or indirect result of fluctuations in the
value of, or income from, specific assets and liabilities arising
from changes in underlying exchange rates.
(c)(i) Group foreign currency exposures
The Group is exposed to currency risk on the foreign currency
denominated bank balances, contract fees receivable and other
liquid assets that it holds to the extent that they do not match
liabilities in those currencies. The impact of currency risk is
minimised by frequent repatriation of excess foreign currency funds
to sterling. The Group does not hedge foreign currency cash flows.
At the balance sheet date the Group had exposures in the following
currencies:
2019 2019 2019 2018 2018 2018
US$m EURm Yenm US$m EURm Yenm
------------------------------- ------- ------ -------- ------- ------ --------
Gross assets 15.3 4.2 234.2 16.3 4.7 191.2
Matching currency liabilities (10.3) (3.8) (204.6) (11.2) (3.3) (175.3)
------------------------------- ------- ------ -------- ------- ------ --------
Uncovered currency exposures 5.0 0.4 29.6 5.1 1.4 15.9
------------------------------- ------- ------ -------- ------- ------ --------
Sterling equivalent (GBPm) 3.9 0.3 0.2 3.9 1.3 0.1
------------------------------- ------- ------ -------- ------- ------ --------
The approximate effect of a 5% change: in the value of US
dollars to sterling is GBP0.2m (2018: GBP0.2m); in the value of the
euro to sterling is less than GBP0.1m (2018: GBP0.1m); and in the
value of the yen to sterling is less than GBP0.1m (2018: 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: 64% (2018:
69%); euro: 13% (2018: 14%); sterling: 22% (2018: 21%); other: 1%
(2018: 2%).
3.2 Credit risk
Credit risk is the risk that the Group is exposed to lower
returns or loss if another party fails to perform its financial
obligations to the Group. The Group has adopted a risk averse
approach to such risk and has a stated policy of not actively
pursuing or accepting credit risk except when necessary to support
other objectives.
The clearing and custody operations for the Group's security
transactions are mainly concentrated with one broker, namely
Capital International Limited, a member of the London Stock
Exchange. At 30 June 2019 and 2018, 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, and
attested periodically by external advisors. Investment risk is
borne by the contract holder.
The Group has an exposure to credit risk in relation to its
deposits with credit institutions and its investments in unitised
money market funds. To manage these risks; deposits are made, in
accordance with established policy, with credit institutions having
a short-term rating of at least F1 and P1 from Fitch IBCA and
Moody's respectively and a long-term rating of at least A and A3.
Investments in unitised money market funds are made only where such
fund is AAA rated. Additionally maximum counterparty exposure
limits are set both at an individual subsidiary company level and
on a Group-wide basis.
These assets are considered to have a high degree of credit
worthiness and no assets of a lower credit worthiness are held.
There have been no changes in the assets in the year ended 30
June 2019 attributable to changes in credit risk (30 June 2018:
nil).
At the balance sheet date, an analysis of the Group's own cash
and cash equivalent balances and liquid investments was as follows
(an analysis by maturity date is provided in note 3.4) In the table
below Investments in money market funds includes all immediately
available cash, other than specific short term deposits:
2019 2018
GBPm GBPm
---------------------- ----- -----
Deposits with credit
institutions 25.1 20.5
Investments in money
market funds 40.2 48.9
---------------------- ----- -----
65.3 69.4
---------------------- ----- -----
3.3 Liquidity risk
Liquidity risk is the risk that the Group, though solvent, does
not have sufficient financial resources to enable it to meet its
obligations as they fall due, or can only secure them at excessive
cost. The Group is averse to liquidity risk and seeks to minimise
this risk by not actively pursuing it except where necessary to
support other objectives.
The Group's objective is to ensure that it has sufficient
liquidity over short- (up to one year) and medium-term time
horizons to meet the needs of the business. This includes liquidity
to cover, amongst other things, new business costs, planned
strategic activities, servicing of equity capital as well as
working capital to fund day-to-day cash flow requirements.
Liquidity risk is principally managed in the following ways:
-- Assets of a suitable marketability are held to meet contract
holder liabilities as they fall due.
-- Forecasts are prepared regularly to predict required
liquidity levels over both the short- and medium-term.
The Group's exposure to liquidity risk is considered to be low
since it maintains a high level of liquid assets to meet its
liabilities.
3.4 Undiscounted contractual maturity analysis
Set out below is a summary of the undiscounted contractual
maturity profile of the Group's assets.
2019 2018
GBPm GBPm
-------------------------------------------------- -------- --------
Maturity within 1 year
Deposits and money market funds 65.3 69.4
Other assets 5.3 2.6
-------------------------------------------------- -------- --------
70.6 72.0
-------------------------------------------------- -------- --------
Maturity from 1 to 5 years
Other assets - -
-------------------------------------------------- -------- --------
- -
-------------------------------------------------- -------- --------
Assets with maturity values 70.6 72.0
Other shareholder assets 121.7 118.0
-------------------------------------------------- -------- --------
Shareholder assets 192.3 190.0
Gross assets held to cover financial liabilities
under investment contracts 1,080.8 1,037.2
-------------------------------------------------- -------- --------
Total assets 1,273.1 1,227.2
-------------------------------------------------- -------- --------
There is no significant difference between the value of the
Group's assets on an undiscounted basis and the balance sheet
values.
Assets held to cover financial liabilities under investment
contracts are deemed to have a maturity of up to one year since the
corresponding unit-linked liabilities are repayable and
transferable on demand. In certain circumstances the contractual
maturities of a portion of the assets may be longer than one year,
but the majority of assets held within the unit-linked funds are
highly liquid. The Group actively monitors fund liquidity.
The contractual maturity analyses of financial and other
liabilities are included in notes 17 and 19 to the consolidated
balance sheet.
3.5 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, for example
where a particular collective investment scheme is suspended from
trading, fair value is assessed using valuation techniques based on
available, relevant, information and an appraisal of all associated
risks. When a collective investment scheme recommences regular
trading, the value would be transferred back to Level 1. 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 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 table analyses the Group's financial assets and
liabilities at fair value through profit or loss, at 30 June
2019:
Level Level Level Total
1 2 3
Financial assets at fair value through GBPm GBPm GBPm GBPm
profit or loss
---------------------------------------- -------- ------ ------ --------
Equity securities 30.4 - - 30.4
Collective investment schemes 901.6 - 26.8 928.4
Fixed income securities 37.5 - - 37.5
Deposits and money market funds 110.2 - - 110.2
Total financial assets at fair value
through profit or loss 1,079.7 - 26.8 1,106.5
---------------------------------------- -------- ------ ------ --------
Transfers into and out of Level 3 in 2019
During this financial year ended 30 June 2019, no assets were
transferred from Level 2 to Level 1. Assets with a fair value of
GBP0.1m were transferred from Level 1 to Level 3, due to the change
in market for the related assets. Assets with a value of GBP2.9m
have been removed from Level 3 as a result of being realised. The
remaining movement in the financial year represents movements in
the valuation of assets.
In total, assets with a fair value of GBP26.8m are classified as
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. The Directors
value these assets at the latest available NAV of the investment
unless there is more appropriate information which indicates a
reduction to the fair value.
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 - 1,079.7 - 1,079.7
-------------------------------------- ------- -------- ------ --------
The following table analyses the Group's financial assets and
liabilities at fair value through profit or loss, at 30 June
2018:
Level Level Level Total
1 2 3
Financial assets at fair value through GBPm GBPm GBPm GBPm
profit or loss
---------------------------------------- -------- ------ ------ --------
Equity securities 25.3 - - 25.3
Collective investment schemes 874.6 - 31.2 905.8
Fixed income securities 24.8 - - 24.8
Deposits and money market funds 97.6 - - 97.6
Total financial assets at fair value
through profit or loss 1,022.3 - 31.2 1,053.5
---------------------------------------- -------- ------ ------ --------
Transfers into and out of Level 3 in 2018
During this financial year ended 30 June 2018, no assets were
transferred from Level 2 to Level 1. Assets with a fair value of
GBP3.2m were transferred from Level 1 to Level 3, due to the change
in market for the related assets.
In total, assets with a fair value of GBP31.2m are classified as
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. During the
year ended 30 June 2018, illiquid assets within this category were
subject to a net reduction of fair value of approximately GBP39.1m
as a result of updated information on the assets in question,
including certain collective investment scheme holdings being
ordered into liquidation. The Directors value these assets at the
latest available NAV of the investment unless there is more
appropriate information which indicates a reduction to the fair
value.
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 - 1,036.0 - 1,036.0
------------------------------------- ------- -------- ------ --------
4 Segmental information
Disclosure of operating segments in these financial statements
is consistent with reports provided to the Chief Operating Decision
Maker ("CODM") which, in the case of the Group, has been identified
as the Executive Committee of Hansard Global plc.
In the opinion of the CODM, the Group operates in a single
reportable segment, that of the distribution and servicing of
long-term investment products. New business development,
distribution and associated activities undertaken by its Irish
subsidiary, Hansard Europe Designated Activity Company, ceased with
effect from 30 June 2013. All other activities of the Group are
continuing.
The Group's Executive Committee uses two principal measures when
appraising the performance of the business: Net Issued Compensation
Credit ("NICC") (weighted where appropriate by product line) and
expenses. NICC is the amount of basic initial commission payable to
intermediaries for business sold in a period and is calculated on
each piece of new business. It excludes override commission paid to
intermediaries over and above the basic level of commission.
The following table analyses NICC geographically and reconciles
NICC to origination costs incurred during the year as set out in
the Business and Operating Review section of this Annual Report and
Accounts.
2019 2018
GBPm GBPm
--------------------------------- ----- -----
Middle East and Africa 4.5 3.5
Rest of World 2.7 3.5
Far East 1.7 1.7
Latin America 2.4 2.3
---------------------------------- ----- -----
Net Issued Compensation Credit 11.3 11.0
Other commission costs paid to
third parties 5.0 4.8
Enhanced unit allocations 1.1 1.2
---------------------------------- ----- -----
Direct origination costs during
the year 17.4 17.0
---------------------------------- ----- -----
Revenues and expenses allocated to geographical locations
contained in sections 4.1 to 4.4 below reflect the revenues and
expenses generated in or incurred by the legal entities in those
locations.
4.1 Geographical analysis of fees and commissions by origin
2019 2018
GBPm GBPm
--------------------- ----- -----
Isle of Man 44.6 47.8
Republic of Ireland 3.9 4.8
The Bahamas - -
--------------------- ----- -----
48.5 52.6
--------------------- ----- -----
4.2 Geographical analysis of profit before taxation
2019 2018
GBPm GBPm
--------------------- ------ ------
Isle of Man 5.1 7.2
Republic of Ireland (0.5) (0.3)
The Bahamas - -
--------------------- ------ ------
4.6 6.9
--------------------- ------ ------
4.3 Geographical analysis of gross assets
2019 2018
GBPm GBPm
--------------------- -------- --------
Isle of Man* 1,131.5 1,077.3
Republic of Ireland 140.9 149.9
The Bahamas 0.7 -
--------------------- -------- --------
1,273.1 1,227.2
--------------------- -------- --------
* Includes assets held in the Isle of Man in connection with
policies written in The Bahamas.
4.4 Geographical analysis of gross liabilities
2019 2018
GBPm GBPm
--------------------- -------- --------
Isle of Man 1,117.1 1,067.7
Republic of Ireland 122.7 131.0
The Bahamas 6.1 -
--------------------- -------- --------
1,245.9 1,198.7
--------------------- -------- --------
5 Fees and commissions
Fees are charged to the contract holders of investment contracts
for contract administration services, investment management
services, payment of benefits and other services related to the
administration of investment contracts. Fees are recognised as
revenue as the services are provided. Initial fees that exceed the
level of recurring fees and relate to the future provision of
services are deferred in the balance sheet and amortised on a
straight-line basis over the life of the relevant contract. These
fees are accounted for on the issue of a contract and on receipt of
incremental premiums on existing single premium contracts.
Regular fees charged to contracts are recognised on a
straight-line basis over the period in which the service is
provided. Transactional fees are recorded when the required action
is complete.
Commissions receivable arise principally from fund houses with
which investments are held. Commissions are recognised on an
accruals basis in accordance with the relevant agreement.
2019 2018
GBPm GBPm
------------------------- ----- -----
Contract fee income 31.3 33.3
Fund management charges 12.5 14.4
Commissions receivable 4.7 4.9
------------------------- ----- -----
48.5 52.6
------------------------- ----- -----
6 Investment income
Investment income comprises dividends, interest and other income
receivable, realised and unrealised gains and losses on
investments. Movements are recognised in the consolidated statement
of comprehensive income in the period in which they arise.
Dividends are accrued on the date notified. Interest is accounted
for on a time proportion basis using the effective interest
method.
2019 2018
GBPm GBPm
--------------------------------------- ----- -------
Interest income 1.2 0.9
Dividend income 3.8 4.3
Gains on realisation of investments 32.6 41.3
Movement in unrealised gains/(losses) 11.2 (25.0)
--------------------------------------- ----- -------
48.8 21.5
--------------------------------------- ----- -------
7 Origination costs
Origination costs include commissions, intermediary incentives
and other distribution-related expenditure. Origination costs which
vary with, and are directly related to, securing new contracts and
incremental premiums on existing single premium contracts are
deferred to the extent that they are recoverable out of future net
income from the relevant contract. Deferred origination costs are
amortised on a straight-line basis over the life of the relevant
contracts. Origination costs that do not meet the criteria for
deferral are expensed as incurred.
2019 2018
GBPm GBPm
-------------------------------------- ----- -----
Amortisation of deferred origination
costs 13.8 14.8
Other origination costs 2.9 3.2
---------------------------------------- ----- -----
16.7 18.0
---------------------------------------- ----- -----
8 Administrative and other expenses
Included in administrative and other expenses are the
following:
2019 2018
GBPm GBPm
---------------------------------------------------- ----- -----
Auditors' remuneration:
- Fees payable for the audit of the
Company's annual accounts 0.1 0.1
* Fees payable for the audit of the Company's
subsidiaries
pursuant to legislation 0.4 0.4
- Other services provided to the Group 0.1 0.1
Employee costs (see note 9) 11.0 11.1
Directors' fees 0.3 0.3
Fund management fees 4.7 4.2
Renewal and other commission 1.2 1.2
Professional and other fees 3.2 3.3
Provision for doubtful debts 0.5 0.3
Litigation fees and settlements 1.4 1.2
Operating lease rentals 0.7 0.7
Licences and maintenance fees 1.4 1.1
Insurance costs 1.3 1.2
Depreciation of property, plant and
equipment 0.4 0.4
Communications 0.4 0.5
----------------------------------------------------- ----- -----
9 Employee costs
The Group provides a range of benefits to employees, including
annual bonus arrangements, paid holiday arrangements and defined
contribution pension plans.
Short term benefits, including holiday pay and other similar
non-monetary benefits, are recognised as an expense in the period
in which the service is received.
The Group pays fixed pension contributions on behalf of its
employees (defined contribution plans). Once the contributions have
been paid the Group has no further payment obligations. The
contributions are recognised as an expense when they are due.
Amounts not paid are shown in accruals in the balance sheet. The
assets of the plan are held separately from the Group in
independently administered funds.
The Group operates an annual bonus plan for employees. An
expense is recognised in the consolidated statement of
comprehensive income when the Group has a legal or constructive
obligation to make payments under the plan as a result of past
events and a reliable estimate of the obligation can be made.
9.1 The aggregate remuneration in respect of employees
(including sales staff and executive Directors) was as follows:
2019 2018
GBPm GBPm
-------------------------- ----- -----
Wages and salaries 10.7 11.1
Social security costs 1.0 1.0
Contributions to pension
plans 0.9 1.0
12.6 13.1
-------------------------- ----- -----
Total salary and other staff costs for the year are incorporated
within the following classifications:
2019 2018
GBPm GBPm
----------------------------------- ----- -----
Administrative and other expenses 11.0 11.1
Origination costs 1.6 2.0
12.6 13.1
----------------------------------- ----- -----
The above information includes Directors' remuneration
(excluding non-executive directors' fees). Details of the
Directors' remuneration, share options, pension entitlements and
interests in shares are disclosed in the Report of the Remuneration
Committee.
9.2 The average number of employees during the year was as follows:
2019 2018
No. No.
---------------------------- ----- -----
Administration 140 137
Distribution and marketing 18 25
IT development 33 34
191 196
---------------------------- ----- -----
10 Taxation
Taxation is based on profits and income for the period as
determined with reference to the relevant tax legislation in the
countries in which the Company and its subsidiaries operate. Tax
payable is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date. Tax is recognised
in the consolidated statement of comprehensive income except to the
extent that it relates to items recognised in equity. Tax on items
relating to equity is recognised in equity.
The corporation tax expense for the Group for 2019 was nil
(2018: GBP0.1m). Corporation tax is charged on any profits arising
at the following rates depending on location of the company or
branch:
Isle of Man 0% (2018: 0%)
Republic of Ireland 12.5% (2018: 12.5%)
Japan branch 23.4% (2018: 23.4%)
Labuan 3% (2018: 3% or MYR 20,000)
The Bahamas 0% (2018: n/a)
No deferred tax asset is currently being recorded in relation to
losses arising in Hansard Europe.
There is no material difference between the current tax charge
in the consolidated statement of comprehensive income and the
current tax charge that would result from applying standard rates
of tax to the profit before tax.
11 Earnings per share
2019 2018
----------------------------------------- ------ ------
Profit after tax (GBPm) 4.6 6.8
Weighted average number of shares
in issue (millions) 137.6 137.6
------------------------------------------ ------ ------
Basic and diluted earnings per share
in pence 3.3 4.9
------------------------------------------ ------ ------
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 3.3p per share (2018: 4.9p).
12 Dividends
Interim dividends payable to shareholders are recognised in the
year in which the dividends are paid. Final dividends payable are
recognised as liabilities when approved by the shareholders at the
Annual General Meeting.
The following dividends have been paid by the Group during the
year:
Per share Total Per share Total
2019 2019 2018 2018
p GBPm p GBPm
-------------------------------- ---------- ------ ---------- ------
Final dividend in respect
of previous
financial year 2.65 3.60 5.30 7.30
Interim dividend in respect
of current
financial year 1.80 2.40 1.80 2.50
4.45 6.00 7.10 9.80
-------------------------------- ---------- ------ ---------- ------
The Board has resolved to pay a final dividend of 2.65p per
share on 14 November 2019, subject to approval at the Annual
General Meeting, based on shareholders on the register on 4 October
2019.
13 Intangible assets and property, plant and equipment
Intangible Assets
The historical cost of computer software is the purchase cost
and the direct cost of internal development. Computer software is
recognised as an intangible asset.
Depreciation is calculated so as to amortise the cost of
intangible assets, less their estimated residual values, on a
straight-line basis over the expected useful economic lives of the
assets concerned and is included in administration and other
expenses in the consolidated statement of comprehensive income.
The carrying amount, residual value and useful life of the
Group's computer software is reviewed annually to determine whether
there is any indication of impairment, or a change in residual
value or expected useful life. If there is any indication of
impairment, the asset's carrying value is revised.
The economic lives used for this purpose are:
Computer software 3 to 10 years
The cost of computer software at 30 June 2019 is GBP3.7m (2018:
GBP1.2m), with a net book value of GBP3.0m (2018: GBP0.5m). In the
30 June 2018 financial statements, these costs were presented
within property, plant and equipment.
The increase in computer software relates to capitalised costs
associated with the development of a replacement policy
administration system. This development is expected to be completed
and put into use in 2020 at which point depreciation will commence
over an expected life of 10 years.
The cost of computer software includes GBP2.7m of externally
generated costs and GBP1.0m of internally generated costs.
Accumulated depreciation at 30 June 2019 is GBP0.7m (2018:
GBP0.7m).
Property, plant and equipment
Property, plant and equipment is stated at historical cost less
depreciation and any impairment. The historical cost of property,
plant and equipment is the purchase cost, together with any
incremental costs directly attributable to the acquisition.
Depreciation is calculated so as to amortise the cost of
tangible assets, less their estimated residual values, on a
straight-line basis over the expected useful economic lives of the
assets concerned and is included in administration and other
expenses in the consolidated statement of comprehensive income.
The carrying amount, residual value and useful life of the
Group's plant and equipment is reviewed annually to determine
whether there is any indication of impairment, or a change in
residual value or expected useful life. If there is any indication
of impairment, the asset's carrying value is revised.
The economic lives used for this purpose are:
Freehold property 50 years
Computer equipment 3 to 5 years
Fixtures & fittings 4 years
-------------------- -------------
The cost of property, plant and equipment at 30 June 2019 is
GBP10.0m (2018: GBP10.0m), with a net book value of GBP0.7m (2018:
GBP1.0m).
Accumulated depreciation at 30 June 2019 is GBP9.3m (2018:
GBP9.0m).
14 Deferred origination costs
Amortisation of deferred origination costs is charged within the
origination costs line in the consolidated statement of
comprehensive income.
Formal reviews to assess the recoverability of deferred
origination costs on investment contracts are carried out at each
balance sheet date to determine whether there is any indication of
impairment. If there is any indication of irrecoverability or
impairment, the asset's recoverable amount is estimated. Impairment
losses are reversed through the consolidated statement of
comprehensive income if there is a change in the estimates used to
determine the recoverable amount. Such losses are reversed only to
the extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of
amortisation where applicable, if no impairment loss had been
recognised.
The movement in value over the financial year is summarised
below.
2019 2018
GBPm GBPm
--------------------------------------------- ------- -------
At beginning of financial year 113.8 111.6
Origination costs incurred during the year 18.0 17.0
Origination costs amortised during the year (13.8) (14.8)
--------------------------------------------- ------- -------
118.0 113.8
--------------------------------------------- ------- -------
2019 2018
Carrying value GBPm GBPm
------------------------------------------ ------ ------
Expected to be amortised within one year 12.2 11.2
Expected to be amortised after one year 105.8 102.6
------------------------------------------ ------ ------
118.0 113.8
------------------------------------------ ------ ------
15 Other receivables
Other receivables are initially recognised at fair value and
subsequently measured at amortised cost, less any provision for
impairment.
2019 2018
GBPm GBPm
----------------------- ----- -----
Commission receivable 1.7 2.7
Other debtors 1.8 1.2
Prepayments 1.2 0.9
4.7 4.8
------------------------ ----- -----
Estimated to be settled within
12 months 4.7 4.7
Estimated to be settled after 12
months - 0.1
----------------------------------- ---- ----
4.7 4.8
---------------------------------- ---- ----
There are no receivables overdue but not impaired (2018:
GBPnil). Due to the short-term nature of these assets the carrying
value is considered to reflect fair value.
16 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at
call with banks, and other short-term highly liquid investments
with a minimal cost to be converted to cash, typically with
original maturities of three months or less, net of short-term
overdraft positions where a right of set-off exists. In the below
table, Money market funds includes all immediately available cash,
other than specific short term deposits.
2019 2018
GBPm GBPm
--------------------------------- ----- -----
Money market funds 40.2 48.9
Short-term deposits with credit
institutions - 4.7
--------------------------------- ----- -----
40.2 53.6
--------------------------------- ----- -----
17 Financial liabilities under investment contracts
17.1 Investment contract liabilities, premiums and benefits
paid
17.1.1 Investment contract liabilities
Investment contracts consist of unit-linked contracts written
through subsidiary companies in the Group. Unit-linked liabilities
are measured at fair value by reference to the underlying net asset
value of the Group's unitised investment funds, determined on a bid
basis, at the balance sheet date.
The decision by the Group to designate its unit-linked
liabilities at fair value through profit or loss reflects the fact
that the liabilities are calculated with reference to the value of
the underlying assets.
17.1.2 Investment contract premiums
Investment contract premiums are not included in the
consolidated statement of comprehensive income but are reported as
deposits to investment contracts and are included in financial
liabilities in the balance sheet. On existing business, a liability
is recognised at the point the premium falls due. The liability for
premiums received on new business is deemed to commence at the
acceptance of risk.
17.1.3 Benefits paid
Withdrawals from policy contracts and other benefits paid are
not included in the consolidated statement of comprehensive income
but are deducted from financial liabilities under investment
contracts in the balance sheet. Benefits are deducted from
financial liabilities and transferred to amounts due to investment
contract holders on the basis of notifications received, when the
benefit falls due for payment or, on the earlier of the date when
paid or when the contract ceases to be included within those
liabilities.
17.2 Movement in financial liabilities under investment
contracts
The following table summarises the movement in liabilities under
investment contracts during the year:
2019 2018
GBPm GBPm
---------------------------------------- -------- --------
Deposits to investment contracts 150.7 152.0
Withdrawals from contracts and charges (154.2) (186.1)
Change in provisions for investment
contract liabilities 47.2 20.4
----------------------------------------- -------- --------
Movement in year 43.7 (13.7)
At beginning of year 1,036.0 1,049.7
----------------------------------------- -------- --------
1,079.7 1,036.0
----------------------------------------- -------- --------
GBPm GBPm
-------------------------------------- -------- --------
Contractually expected to be settled
within 12 months 29.1 30.6
Contractually expected to be settled
after 12 months 1,050.6 1,005.4
-------------------------------------- -------- --------
1,079.7 1,036.0
-------------------------------------- -------- --------
The change in provisions for investment contract liabilities
includes dividend and interest income and net realised and
unrealised gains and losses on financial investments held to cover
financial liabilities. Dividend income, interest income and gains
and losses are accounted for in accordance with note 6.
17.3 Investments held to cover liabilities under investment
contracts
The Group classifies its financial assets into the following
categories: financial investments and loans and receivables.
Financial investments consist of units in collective investment
schemes, equity securities, fixed income securities and deposits
with credit institutions. All financial investments are designated
at fair value through profit or loss.
The decision by the Group to designate its financial investments
at fair value through profit or loss reflects the fact that the
investment portfolio is managed, and its performance evaluated, on
a fair value basis.
The Group recognises purchases and sales of investments on trade
date. Investment transaction costs are written off in
administration expenses as incurred.
All gains and losses derived from financial investments,
realised or unrealised, are recognised within investment income in
the consolidated statement of comprehensive income in the period in
which they arise.
The value of financial assets at fair value through profit or
loss that are traded in active markets (such as trading securities)
is based on quoted market prices at the balance sheet date. The
quoted market price for financial assets held by the Group is the
current bid price. Investments in funds are valued at the latest
available net asset valuation provided by the administrators or
managers of the funds and companies, unless the directors are aware
of good reasons why such valuations would not be the most
appropriate or indicative of fair value. Where necessary, the Group
uses other valuation methods to arrive at the stated fair value of
its financial assets, such as recent arms' length transactions or
reference to similar listed investments.
Loans and receivables are financial assets with fixed or
determinable payments that are not quoted on an active market.
Loans and receivables consist, primarily, of contract fees
receivable, long-term cash deposits (i.e. with an original maturity
duration in excess of three months) and cash and cash
equivalents.
The following investments, cash and cash equivalents, other
assets and liabilities are held to cover financial liabilities
under investment contracts. They are included within the relevant
headings on the consolidated balance sheet.
2019 2018
GBPm GBPm
-------------------------------------- -------- --------
Equity securities 30.4 25.3
Investments in collective investment
schemes 927.8 905.4
Fixed income securities 37.5 24.8
Deposits and money market funds 85.1 81.7
Total assets 1,080.8 1,037.2
Other payables (1.1) (1.2)
----------------------------------------- -------- --------
Financial investments held to cover
financial liabilities 1,079.7 1,036.0
----------------------------------------- -------- --------
The other receivables and other payables fair value approximates
amortised cost.
18 Deferred income
Fees charged for services related to the management of
investment contracts are recognised as revenue as the services are
provided. Initial fees which exceed the level of recurring fees and
relate to the future provision of services are deferred. These are
amortised over the anticipated period in which services will be
provided.
The movement in value of deferred income over the financial year
is summarised below.
2019 2018
GBPm GBPm
-------------------------------------- ------- -------
At beginning of financial year 130.3 129.2
Income received and deferred during
the year 19.8 18.4
Income recognised in contract
fees during the year (16.9) (17.3)
-------------------------------------- ------- -------
133.2 130.3
-------------------------------------- ------- -------
2019 2018
Carrying value GBPm GBPm
---------------------------------- ------ ------
Expected to be amortised within
one year 13.0 12.9
Expected to be amortised after
one year 120.2 117.4
---------------------------------- ------ ------
133.2 130.3
---------------------------------- ------ ------
19 Other payables
Other payables are initially recognised at fair value and
subsequently measured at amortised cost. They are recognised at the
point where service is received but payment is due after the
balance sheet date.
2019 2018
GBPm GBPm
------------------------------ ----- -----
Commission payable 1.9 1.4
Other creditors and accruals 6.9 7.3
8.8 8.7
------------------------------ ----- -----
All payable balances, including amounts due to contract holders,
are deemed to be current. Due to the short-term nature of these
payables the carrying value is considered to reflect fair
value.
20 Capital management
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 meet 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 Company monitors capital on two bases:
-- the total shareholder's equity, as per the balance sheet
-- the capital requirement of the relevant supervisory bodies,
where subsidiaries are regulated.
The Group's policy is for each company to hold the higher
of:
-- the company's internal assessment of the capital required; or
-- the capital requirement of the relevant supervisory body, where applicable.
There has been no material change in the Group's management of
capital during the period and all regulated entities exceed
significantly the minimum solvency requirements at the balance
sheet date.
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 26 are resolved.
21 Share capital
2019 2018
GBPm GBPm
------------------------------------------ ---- ------ ------
Authorised:
200,000,000 ordinary shares of 50p 100.0 100.0
------------------------------------------------ ------ ------
Issued and fully paid:
137,557,079 (2018: 137,557,079) ordinary
shares of 50p 68.8 68.8
------------------------------------------------ ------ ------
No shares (2018: 112,287) were issued in the year under the
terms of the share save scheme.
22 Other reserves
Other reserves comprise the merger reserve arising on the
acquisition by the Company of its subsidiary companies on 1 July
2005, the share premium account and the share save reserve. The
merger reserve represents the difference between the par value of
shares issued by the Company for the acquisition of those
companies, compared to the par value of the share capital and the
share premium of those companies at the date of acquisition.
2019 2018
GBPm GBPm
------------------------------ ------- -------
Merger reserve (48.5) (48.5)
Share premium 0.1 0.1
Share based payments reserve 0.2 0.1
Share save reserve 0.1 0.1
Reserve for own shares held
within EBT (0.4) (0.4)
(48.5) (48.6)
------------------------------ ------- -------
Included within other reserves is an amount representing 585,000
ordinary shares held by the Group's employee benefit trust ('EBT')
which were acquired at a cost of GBP0.4m (see note 23.2). The
ordinary shares held by the trustee of the Group's employee benefit
trust are treated as treasury shares in the consolidated balance
sheet in accordance with IAS 32 "Financial Instruments:
Presentation".
This reserve arose when the Group acquired equity share capital
under its EBT, which is held in trust by the trustee of the Group's
employee benefit trust. Treasury shares cease to be accounted for
as such when they are sold outside the Group or the interest is
transferred in full to the employee pursuant to the terms of the
incentive plan. See note 23.2 for further details.
23 Equity settled share-based payments
The Company has established a number of equity-based payment
programmes for eligible employees. The fair value of expected
equity-settled share-based payments under these programmes is
calculated at date of grant using a standard option-pricing model
and is amortised over the vesting period on a straight-line basis
through the consolidated statement of comprehensive income. A
corresponding amount is credited to equity over the same
period.
At each balance sheet date, the Group reviews its estimate of
the number of options expected to be exercised. The impact of any
revision in the number of such options is recognised in the
consolidated statement of comprehensive income so that the charge
to the consolidated statement of comprehensive income is based on
the number of options that actually vest. A corresponding
adjustment is made to equity.
The estimated fair value of the schemes and the imputed cost for
the period under review is not material to these financial
statements.
23.1 SAYE programme
This is a standard scheme approved by the Revenue authorities in
the Isle of Man that is available to all employees where
individuals may make monthly contributions over three or five years
to purchase shares at a price not less than 80% of the market price
at the date of the invitation to participate.
At the date of this report, the following options remain
outstanding under each tranche:
2019 2018
No. of No. of
Scheme year options Options
------------- -------- ----------
2014 - 21,686
2015 170,731 512,985
2016 10,714 81,848
2017 89,578 134,326
2018 567,173 742,134
-------------- -------- ----------
838,196 1,492,979
------------- -------- ----------
A summary of the transactions in the existing SAYE programmes
during the year is as follows:
2019 2018
Weighted Weighted
average Average
No. of exercise No. of Exercise
options price (p) options price (p)
-------------------------- ---------- ---------- ---------- ----------
Outstanding at the start
of year 1,492,979 67 1,126,193 78
Granted - - 772,617 62
Exercised - - (112,287) 69
Forfeited (654,783) 69 (293,544) 74
-------------------------- ---------- ---------- ---------- ----------
Outstanding at end of
year* 838,196 65 1,492,979 67
-------------------------- ---------- ---------- ---------- ----------
*None of these options are exercisable as at 30 June 2019.
There were no new options granted during the current financial
year.
23.2 Incentive Plan Employee Benefit Trust
An Employee Benefit Trust was established in February 2018 to
hold shares awarded to employees as an incentive on a deferred
basis.
Shares awarded under the scheme are purchased by the Trust in
the open market and held until vesting. Awards made under the
scheme would normally vest after three years. There were no awards
which vested during the year (2018: GBPnil).
The Trust was funded with a loan of GBP446,000 during 2018. At
the date of this Annual Report and Accounts, the loan to the Trust
had an outstanding balance of GBP446,000 (2018: GBP446,000) and the
Trust holds 585,000 shares (2018: 585,000). The shares held by the
Trust as at 30 June 2019 represent awards made which vest in July
2020.
24 Financial commitments
Operating leases are defined as leases in which the lessor
retains a significant proportion of the risks and rewards. Costs in
respect of operating leases, less any incentives received from the
lessor, are charged to the consolidated statement of comprehensive
income on a straight-line basis over the lease term.
The total of future minimum lease payments under non-cancellable
operating leases for property rental is as follows:
2019 2018
GBPm GBPm
---------------------------- ----- -----
Amounts due:
Within one year 0.5 0.6
Between two and five years 0.9 1.0
After five years - -
---------------------------- ----- -----
1.4 1.6
---------------------------- ----- -----
25 Related party transactions
25.1 Intra-group transactions
Various subsidiary companies within the Group perform services
for other Group companies in the normal course of business. The
financial results of these activities are eliminated in the
consolidated financial statements.
25.2 Key management personnel compensation
Key management consists of 12 individuals (2018: 12), being
members of the Group's Executive Committee and executive Directors
of direct subsidiaries of the Company.
The aggregate remuneration paid to key management as at 30 June
2019 is as follows:
2019 2018
GBPm GBPm
----------------------------- ------- -------
Salaries, wages and bonuses 2.2 2.1
----------------------------- ------- -------
The total value of investment contracts issued by the Group and
held by key management is zero (2018: zero).
25.3 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. Except as reported below, there were no significant
transactions between the Group and Dr Polonsky during the year
under review.
-- Up until his retirement from the Company's Board on 26
September 2018, Dr Polonsky received fees for services provided to
the Group under the terms of his service agreement. Such fees
(GBP50,000 per annum) represent the standard arm's length fee paid
to each of the Group's non-executive directors.
-- Dr Polonsky has an investment contract issued by the Group on
terms available to employees in general. As at 30 June 2019 Dr
Polonsky's contract had a fair value of GBP0.9m (30 June 2018:
GBP2.4m).
-- The Employee Benefit Trust ("EBT"), established in November
2011 by way of a number of share contributions from Dr Polonsky,
was dissolved on 28 September 2018 with the 860,820 shares
reverting to the Polonsky Foundation. The EBT was originally
established to reward long serving employees but has since been
replaced by alternative reward schemes.
25.4 Employee Benefit Trust
An Employee Benefit Trust was established in February 2018 to
hold shares awarded to employees as an incentive on a deferred
basis. The Trust was funded with a loan of GBP446,000 during 2018.
At the date of this Annual Report and Accounts, the loan to the
Trust had an outstanding balance of GBP446,000 (2018: GBP446,000)
and the Trust holds 585,000 shares (2018: 585,000). There were no
awards which vested during the year (2018: GBPnil).
25.5 Other related party transactions
The Company entered into a contract in July 2011 with Mr. Gordon
Marr, the Group Chief Executive Officer, to purchase a residential
property for the sum of GBP481,000, exercisable at his discretion.
Mr. Marr purchased the property in July 2011 for GBP501,000. The
contract has not been exercised at the date of this Annual Report
and Accounts.
In the current financial year, the Group entered into a contract
with CCC Consulting for the purposes of professional services. CCC
Consulting is owned by Mr Graham Morrall, a member of the Executive
Committee. The amount paid to CCC Consulting in the current year
was GBP58,330.
26 Contingent liabilities
26.1 Litigation
The Group does not give any investment advice. Investment
decisions are taken either by the contract holder directly or
through a professional intermediary appointed by the contract
holder. Contract holders bear the financial risk relating to the
investments underpinning their contracts, as the policy 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. At
the balance sheet date a number of fund structures remain affected
by liquidity or other issues that hinder their sales or redemptions
on normal terms with a consequent adverse impact on policy
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 30 June 2019, the Group had been served with cumulative
writs with a net exposure totalling EUR21.7m, or GBP19.4m in
sterling terms (30 June 2018: EUR20.1m / GBP17.8m) arising from
contract holder complaints and other asset performance-related
issues. The primary driver of the increase has been in relation to
additional claims in Italy related to funds which have been
illiquid for a number of years.
During the year, the Group successfully defended 10 cases with
net exposures of approximately EUR0.6m, or GBP0.5m, 8 of which have
been appealed by the plaintiffs. These successes continue to affirm
confidence in the Group's legal arguments.
Our policy is to maintain contingent liabilities even where we
win cases in the court of first instance if such cases have been
subsequently appealed. This includes our largest single case in
Belgium where the appeal has been deferred pending the outcome of a
separate constitutional court case.
We have also worked closely with our insurers during the year to
clarify coverages where they may be applicable. While we cannot at
this stage place a value on any recoveries and have not reduced any
of the gross exposures above, we are comfortable that a number of
our larger cases will be at least partly covered.
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 protracted litigation the Board may consider it in the best
interests of the Group and its shareholder to reach a commercial
resolution with regard to certain of these claims. Such cases
totalled less than GBP0.1m (2018: GBP0.2m) during the year. It is
not possible at this time to make any further estimates of
liability.
26.2 Isle of Man Policyholders' Compensation Scheme
The Group's principal subsidiary, Hansard International is a
member of the Isle of Man Policyholders' Compensation Scheme
governed by the Life Assurance (Compensation of Policyholders)
Regulations 1991. The objective of the Scheme is to provide
compensation for policyholders should an authorised insurer be
unable to meet its liabilities to policyholders. In the event of a
levy being charged by the Scheme members, Hansard International
would be obliged to meet the liability arising at the time. The
maximum levy payable in accordance with the regulations of the
Scheme in respect of the insolvency of the insurer is 2% of long
term business liabilities. Hansard International's products include
a clause in their terms and conditions permitting it to recover any
monies paid out under the Scheme from contract holders.
27 Foreign exchange rates
The Group's presentational and functional currency is pounds
sterling, being the currency of the primary economic environment in
which the Group operates.
Foreign currency transactions are translated into sterling using
the applicable exchange rate prevailing at the date of the
transactions. Monetary assets and liabilities denominated in
foreign currencies are translated into sterling at the rates of
exchange prevailing at the balance sheet date, and the gains or
losses on translation are recognised in the consolidated statement
of comprehensive income.
Non-monetary assets and liabilities that are held at historical
cost are translated using exchange rates prevailing at the date of
transaction; those held at fair value are translated using exchange
rates ruling at the date on which the fair value was
determined.
The closing exchange rates used by the Group for the conversion
of significant consolidated balance sheet items to sterling were as
follows:
2019 2018
-------------- ------ ------
US Dollar 1.27 1.32
Japanese Yen 137.0 146.4
Euro 1.12 1.13
-------------- ------ ------
28 Non statutory accounts
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 30 June 2019 or
2018, but is derived from those accounts. The auditor has reported
on those accounts; their report was (i) unqualified, (ii) did not
include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report.
29 Annual report
The Company's annual report and accounts for the year ended 30
June 2019 is expected to be posted to shareholders by 7 October
2019. Copies of both this announcement and the annual report and
accounts will be available to the public at the Company's
registered office at Harbour Court, Lord Street, PO Box 192,
Douglas, Isle of Man, IM99 1QL and through the Company's website at
www.Hansard.com.
Responsibility statement of the directors in respect of the
annual financial report
The Directors confirm to the best of their knowledge that:
-- The financial statements have been prepared in accordance
with International Reporting Financial Standards as adopted by the
EU and give a true and fair view of the assets, liabilities,
financial position and profit for the Company and the undertakings
included in the consolidation as a whole as required by the
Disclosure and Transparency Rules Chapter 4.2.4; and
-- Pursuant to Disclosure and Transparency Rules Chapter 4, the
Directors' report of the Company's annual report and accounts
includes a fair review of the development and performance of the
business and the position of the Company and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties faced by the
business.
On behalf of the Board
G S Marr T N Davies
Director Director
25 September 2019
OTHER INFORMATION
Risk Based Solvency Capital
A) Risk Based Solvency capital position
The Group shareholder Risk Based Solvency surplus at 30 June
2019 was GBP86.8m (30 June 2018: GBP90.5m), before allowing for
payment of the 2019 final ordinary dividend. All Risk Based
Solvency and related data presented in this section is subject to
change prior to submission to regulatory authorities.
30 June 2019 30 June
Group Risk Based Solvency capital position Life subsidiaries Other subsidiaries 2018
Total Total
GBPm GBPm GBPm GBPm
Own Funds 137.4 14.8 152.2 156.6
Solvency Capital Requirement 65.4 - 65.4 66.1
Surplus 72.0 14.8 86.8 90.5
Solvency ratio (%) 210% - 233% 237%
All Own Funds are considered Tier 1 capital.
Own Funds include Value of In-Force ("VIF") of GBP139.9m at 30
June 2019.
VIF calculated under this regulatory basis is similar to the VIF
calculated under the previously disclosed European Embedded Value
("EEV") methodology.
Total Own Funds contain a number of significant differences to
EEV however, namely:
- A reduction to Net Worth for litigation risk. This is assessed
based on probabilistic outcomes with input from external legal
counsel.
- A reduction to Net Worth for required statutory reserves.
- A higher cost of capital within the Risk Margin. Solvency II
mandates a cost of capital of 6% (5% under the Isle of Man regime)
as compared to 2.5% previously used in our EEV calculation.
The following compares Own Funds as at 30 June 2019 and 30 June
2018 to the EEV disclosed within our 30 June 2018 Annual Report
& Accounts:
30 June 30 June 30 June
2019 2018 2018
Own Funds Own Funds EEV
GBPm GBPm GBPm
Value of In-Force 139.9 141.6 143.9
Risk Margin (22.8) (20.6) (8.6)
Net Worth 35.1 35.6 44.5
Total 152.2 156.6 179.8
B) Analysis of movement in Group solvency surplus
A summary of the movement in Group Risk Based Solvency surplus
from GBP90.5m at 30 June 2018 to GBP86.8m at 30 June 2019 is set
out in the table below.
GBPm
Risk Based Solvency surplus at 30 June 2018 90.5
Operating experience (4.3)
Investment performance 2.3
Changes in assumptions 1.6
Dividends paid (6.0)
Foreign exchange 2.7
Risk Based Solvency surplus at 30 June 2019 86.8
The movement in Group Risk Based Solvency surplus in 2019 was
reduced by dividends paid and operating experience, offset by
positive market movements. The primary factor negatively impacting
operating experience was a reduced outlook on our ability to earn
treasury margins due to low long term interest rates.
New business written added GBP5.6m to Own Funds for the
period.
C) Analysis of Group Solvency Capital Requirement
The analysis of the Group's Solvency Capital Requirement ("SCR")
by risk type is as follows:
Split of the Group's Solvency Capital Requirement 30 June 30 June
2019 2018
Risks % of SCR * % of SCR *
Market
Equity 47% 48%
Currency 25% 27%
Insurance
Lapse 46% 46%
Expense 12% 11%
Default 1% 3%
Operational 13% 13%
* Figures are the capital requirements prior to diversification
benefits expressed as a percentage of the final diversified
SCR.
D) Reconciliation of IFRS equity to Group Risk Based Solvency
Shareholder Own Funds
30 June 30 June
2019 2018
GBPm GBPm
IFRS shareholders' equity 27.2 28.5
Elimination of DOC (118.0) (113.8)
Elimination of DIR 133.2 130.3
Value of In-Force 139.9 141.6
Liability valuation differences (7.5) (8.4)
Impact of risk margin (22.8) (20.6)
Other 0.2 (1.0)
Risk Based Solvency Shareholder Own Funds 152.2 156.6
Liability valuation differences relate to additional provisions
made for risk based capital purposes, notably for contingent
liabilities and non-linked reserves.
E) Sensitivity analysis
The sensitivity of the Own Funds related to the Group's life
insurance subsidiaries to significant changes in market conditions
is as follows:
30 June 30 June
2019 2018
GBPm GBPm
Life subsidiary Own Funds 137.4 149.3
Impact of:
10% instantaneous fall in equity markets (6.8) (7.4)
100 basis points increase in interest rates (0.9) (1.1)
10% increase in expenses (4.9) (4.6)
1% increase in expense inflation (3.2) (2.8)
10% strengthening of sterling (5.5) (7.5)
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR MMGZLNKGGLZM
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September 26, 2019 02:01 ET (06:01 GMT)
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