TIDMHSD
RNS Number : 5011K
Hansard Global plc
22 September 2016
22 September 2016
Hansard Global plc
Results for the year ended 30 June 2016
Hansard Global plc ("Hansard" or "the Group"), the specialist
long-term savings provider, issues its results for the year ended
30 June 2016 ("FY 2016").
Summary
FY 2016 FY 2015
---------------------------- ---------- ----------
New business sales GBP119.3m GBP60.6m
- PVNBP
Operating cash surplus GBP15.9m GBP24.3m
IFRS underlying profit GBP9.2m GBP12.0m
after tax
IFRS profit after tax GBP8.3m GBP14.9m
EEV operating loss (GBP1.1m) (GBP6.3m)
after tax
Recommended final dividend
per share* 5.3p 5.25p
IFRS earnings per share 6.0p 10.9p
---------------------------- ---------- ----------
As at 30 June 30 June
2016 2015
---------------------------- -------- --------
Assets under Administration GBP923m GBP907m
European Embedded Value GBP196m GBP195m
---------------------------- -------- --------
* subject to approval at the AGM
NEW BUSINESS
As previously announced, our new business levels of GBP119.3m
are up 97% on FY 2015 on a Present Value of New Business Premiums
basis. We achieved significant growth in our 'Middle East &
Africa' and 'Rest of World' regions, consistent with our previously
communicated strategy.
Strategy IMPLEMENTATION
Our priority this year was to leverage the changes made in
previous years to our distribution team, operations and technology
to drive greater levels of new business. This objective has been
successfully achieved with a near doubling of our new business over
the course of the year.
As we continue with our plans for further growth, we have many
distribution relationships still in their infancy and we expect
these to deliver improved sales in coming years. We are continuing
initiatives to secure additional licences and partnerships in a
small number of targeted locations.
We have also delivered significant efficiencies and
customer-focused improvements in FY 2016 as part of a two-year
programme of process reengineering.
TRADING RESULTS
IFRS profit after tax for the year was GBP8.3m (2013: GBP14.9m).
Excluding one-off items, underlying IFRS profit was GBP9.2m
compared with GBP12.0m in FY 2015. The main driver of this
reduction is a reduction in fee and commission income from GBP56.3m
in FY 2015 to GBP51.3m in FY 2016. The primary contributors to this
were reduced income levels as a result of Hansard Europe being
closed to new business, reductions in contract-holder activity
margins and refinements made to the deferred income reserve
(outlined in more detail below).
During the year, the Group's two life insurance subsidiaries
adopted the new UK and Ireland reporting standard, FRS 101 'Reduced
Disclosure Framework'. This standard allows qualifying entities to
adopt the recognition and measurement requirements of EU-adopted
IFRS with certain amendments. As part of preparing for this
adoption, we took the opportunity to review and enhance the
calculation models for deferred income and deferred origination
costs. As a result, a number of refinements have been made to the
consolidated Group's deferred income and cost balances which have
the net effect of reducing the amount of income and consolidated
profit earned in FY 2016 by GBP0.8m. This is a one-off adjustment
where the income will instead be earned in future years.
Excluding the GBP3m exceptional write back of a provision in FY
2015, administrative expenses were managed to a level slightly
below FY 2015 despite the substantially increased new business
levels.
The Group European Embedded Value ("EEV") of GBP196m has
increased marginally from GBP195m last year, after dividends paid
to shareholders during the year of GBP12.2m. An EEV operating loss
of GBP1.1m was incurred (FY 2015: loss of GBP6.3m) as a return to a
positive New Business Contribution of GBP0.2m was offset by
negative experience variances. Positive investment return variances
driven primarily by the weakening of sterling resulted in an EEV
profit of GBP13.1m for the year (FY 2015: GBP2.9m).
DIVIDS
The Board has proposed a final dividend of 5.3p per share (2015:
5.25p) which, if approved by the shareholders, represents an
increased total dividend of 8.9p (2015: 8.75p) per share in respect
of the financial year.
CURRENT TRADING
We are continuing to deliver further new business growth in Q1
FY 2017 compared to Q1 FY 2016 with Middle East & Africa
continuing to outperform.
Following the UK referendum on EU membership in June 2016,
sterling weakened against the US dollar and euro. If exchange rates
remain at their current levels across the course of the 2017
financial year, income from the current level of assets under
administration would increase by approximately GBP1m relative to FY
2016 levels.
contract holder complaints AND LITIGATION
The Group continues to manage carefully its litigation exposures
relating to the legacy operations of Hansard Europe. Outstanding
writs total EUR15.7m (GBP13.1m), up EUR1.6m from the half-year.
Three court decisions in the Group's favour in Belgium and Italy
had reduced outstanding writs at the half-year by EUR1.4m. These
have now been added back as all of these cases have been appealed.
The Group continues to believe it has strong defences against the
claims being made. The claims are recorded as contingent
liabilities in the annual report and accounts.
INTERIM MANAGEMENT STATEMENT
The first Interim Management Statement in respect of the year
ending 30 June 2017 is expected to be published on 10 November
2016.
Gordon Marr, Group Chief Executive Officer, commented:
"We are very pleased with the delivery of sustained new business
growth over the past year. The doubling of our full year business
levels has put us on a strong footing after a year of transition in
2015. We see further opportunities for growth in new and existing
markets and are confident of achieving this in the coming financial
year."
For further information:
Hansard Global plc +44 (0) 1624 688000
Gordon Marr, Group Chief Executive Officer
Tim Davies, Chief Financial Officer
Bell Pottinger +44 (0) 20 3772 2500
Daniel de Belder
Duncan Mayall
Notes to editors:
-- Hansard Global plc is the holding company of the Hansard
Group of companies. The Company was listed on the London Stock
Exchange in December 2006. The Group is a specialist long-term
savings provider, based in the Isle of Man.
-- The Group offers a range of flexible and tax-efficient
investment products within a life assurance policy wrapper,
designed to appeal to affluent, international investors.
-- The Group utilises a controlled cost distribution model by
selling policies exclusively through a network of independent
financial advisors, and the retail operations of certain financial
institutions who provide access to their clients in more than 170
countries. The Group's distribution model is supported by Hansard
OnLine, a multi-language internet platform, and is scaleable.
-- The principal geographic markets in which the Group currently
services contract holders and financial advisors are the Middle
East, the Far East and Latin America, in the case of Hansard
International Limited, and Western Europe in the case of Hansard
Europe Designated Activity Company, the Group's two life assurance
companies. Hansard Europe Designated Activity Company closed to new
business with effect from 30 June 2013.
-- The Group's objective is to grow by attracting new business
and positioning itself to adapt rapidly to market trends and
conditions. The scaleability and flexibility of the Group's
operations allow it to enter or develop new geographic markets and
exploit growth opportunities within existing markets without the
need for significant further investment.s
-- Following the closure of Hansard Europe Designated Activity
Company to new business with effect from 30 June 2013, the Group
continues to report new business performance within this document
on Hansard International Limited alone. Reporting of Assets under
Administration incorporates cash flows relating to insurance
contracts issued by both Hansard International Limited and Hansard
Europe Designated Activity Company.
Forward-looking statements:
This announcement may contain certain forward-looking statements
with respect to certain of Hansard Global plc's plans and its
current goals and expectations relating to future financial
condition, performance and results. By their nature forward-looking
statements involve risk and uncertainties because they relate to
future events and circumstances which are beyond Hansard Global
plc's control. As a result, Hansard Global plc's actual future
condition, performance and results may differ materially from the
plans, goals and expectations set out in Hansard Global plc's
forward-looking statements. Hansard Global plc does not undertake
to update forward-looking statements contained in this announcement
or any other forward-looking statement it may make. No statement in
this announcement is intended to be a profit forecast or be relied
upon as a guide for future performance.
This announcement contains inside information which is disclosed
in accordance with the Market Abuse Regime.
Chairman's Statement
Strategy
I indicated in my two previous Chairman's Statements that the
benefits of the strategic review that we undertook in financial
year 2014 would take several years to be realised. I am pleased to
report that financial year 2016 has been the year when the
strategic changes made to our products, distribution, processes and
executive management started to improve our performance.
New business
The first signs of recovery in our new sales appeared in Q4 of
the 2015 financial year. I am pleased to report that this trend has
continued throughout financial year 2016. On the Present Value of
New Business Premiums metric, our new business of GBP119.3m is 97%
up on the last financial year. As a consequence our new business
activities have made a positive contribution to our EEV in
financial year 2016, after a negative contribution in 2015. The
sales momentum has continued through July and August 2016.
The Group continues to work on a number of new initiatives that
would enable us to sell our products in new markets. Although
obtaining regulatory access to these markets has taken much longer
than we envisioned, we hope that the remaining hurdles should be
surmounted to assist our sales growth in financial year 2018 and
beyond.
Customer service
In financial year 2016, we have undertaken a significant amount
of process re-engineering to improve customer service and
operational efficiency. The initiative has improved the speed,
accuracy and efficiency with which our staff are able to respond to
our customers' needs. We anticipate that this programme will
continue for most of financial year 2017. In addition, we continue
to make improvements to Hansard OnLine in response to contract
holder and Independent Financial Advisor ("IFA") demands.
Financial performance
Our IFRS profit for the year after taxation of GBP8.3m (2015:
GBP14.9m) is, as expected, lower than financial year 2015 which
benefitted from a GBP3.0m release of a provision. In addition, the
continuing run-off of Hansard Europe and the transition in Hansard
International from the older, more profitable in-force policies to
the competitively priced policies sold in the last three years has
reduced income by GBP5.0m. This trend will continue until the level
of income generated by the increasing new business exceeds the loss
of revenue from surrenders and maturity of the in-force
business.
On an EEV basis the profit for the year after taxation was
GBP13.1m (2015: GBP2.9m). The most significant component of the
increase in EEV has been caused by the fall in Sterling against the
US dollar and euro following the UK's Brexit vote. Approximately
three quarters of our income is earned in currencies other than
Sterling, whilst most of our expenses are incurred in Sterling;
consequently the future profitability of our in-force book has
increased.
During the last two financial years, the Group has generated
large amounts of surplus cash, as the cash generated from the
in-force book was much larger than the amounts reinvested in the
acquisition of new business. In financial year 2016 the near
doubling of the new business has meant that the net cash inflow
before dividends was only GBP1.2m (2015: GBP16.7m). Higher new
business in future financial years will result in a net outflow of
cash until such time as the cash generated from the increased new
in-force business is sufficient to cover the new business strain.
The Group had cash and deposits of GBP76.6m on 30 June, 2016 (2015
GBP80.9m) out of which it can finance this anticipated cash
outflow. Your Board will be managing carefully the cash position
over the next few years.
Capitalisation and solvency
The Group remains well capitalised to meet the requirements of
regulators, contract holders, intermediaries and other
stakeholders. Aggregate minimum solvency margins are covered by
GBP35.5m of excess assets. We have maintained our prudent
investment policy for shareholder assets, which minimises market
risk and has provided a stable and resilient solvency position over
recent years.
Dividends
The Board has resolved to pay an increased final dividend of
5.3p per share (2015: 5.25p). The dividend is subject to approval
at the Annual General Meeting. If approved, this will represent
total dividends for the financial year of 8.9p per share. The final
dividend will be paid on 17 November, 2016.
Concluding remarks
Financial year 2016 has been encouraging, with clear evidence
that the strategic changes made by the Group over the last three
years are working. In financial year 2017 we will continue with
those strategic changes, particularly in opening new markets and
completing our process re-engineering initiative.
Philip Gregory
Chairman
21 September 2016
GROUP CHIEF EXECUTIVE OFFICER'S OVERVIEW
The year has been a positive one for the Group as we see the
results of the hard work over the last two years bear fruit. We
have returned to a level of new business that provides a positive
new business margin and are working hard to ensure the momentum in
growth is maintained in the coming year.
Economic and political circumstances in many places across the
world remain uncertain. One example was the unexpected outcome of
the UK referendum on EU membership. While Brexit in itself will not
pose any restrictions for Hansard in terms of our market access,
the vote has provoked significant movements in stock and foreign
exchange markets which affect our assets under management and the
income earned from such assets
While external developments present challenges and volatility,
we remain focused on what is in our control. We continue to see
opportunity and, given our size and flexibility, we believe we are
well positioned to take advantage of those opportunities.
STRATEGY DEVELOPMENT
The Group's strategy is to direct its efforts "to be the
preferred choice of distributors when recommending international
savings and investment products to their clients".
I mentioned last year that having refreshed our product range,
our priority this year was to leverage our distribution team,
infrastructure and technology to drive greater levels of new
business. This objective has been successfully achieved with a near
doubling of our new business over the course of the year.
There is much more to do. We have many distribution
relationships which are still in their infancy and we expect these
to deliver improved sales in the coming year. We continue
initiatives to secure additional licenses and partnerships in a
small number of targeted locations.
In 2016 we have continued to deliver significant process
efficiencies and customer focussed improvements as part of a two
year programme of process reengineering.
We also will need to react to and take account of rapidly
changing regulations at home and abroad. The Isle of Man is
expected to introduce a number of significant changes in the coming
years, including in the area of consumer disclosure and
intermediary regulation.
RESULTS FOR THE YEAR UNDER REVIEW
We believe that the following areas are the fundamental factors
for the success of the Group.
1. Sourcing significant flows of regular premium
new business flows from diversified target markets;
2. Managing our exposure to business risk;
3. Positioning ourselves to incorporate ever-increasing
levels of regulation into our business model;
4. Leveraging Hansard OnLine developments and;
5. 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. Additional
information is contained in the Business and Financial Review.
1. New Business distribution
Following the closure of Hansard Europe DAC (previously Hansard
Europe Limited) to new business with effect from 30 June 2013, new
business performance commentary within this document will relate to
Hansard International Limited alone, except where indicated.
The level of new business we earned during the financial year
("FY") of GBP119.3m (using the basis of Present Value of New
Business Premiums ("PVNBP") metric) is some 97% above the GBP60.6m
from FY 2015.
We experienced very strong growth in the Middle East and Africa
which increased almost four-fold from 2015. This is a strong
endorsement of the time and resources spent on enhancing our
products and distribution network over the past two years.
During the year, we introduced an improved regular premium
proposition and are in the process of doing the same with our
single premium proposition - providing wider choices and better
value for our distributors and customers.
Under the guidance of our Chief Distribution Officer, we have
initiatives planned for all regions during FY 2017 to increase
sales.
2. Operational, Business and Financial Risks
Our business model involves the acceptance of a number of risks.
We maintain an enterprise risk management framework to identify,
assess, manage, monitor and control current and emerging risks.
However the system of internal control can only provide reasonable
and not absolute assurance against material misstatement or loss.
The Group's internal control and risk management processes have
operated satisfactorily throughout the year. There are a number of
areas outlined below which are of significance for understanding
the results and operating environment of the Group.
2.1 Complaints and potential litigation
We continue to deal with complaints in circumstances where a
contract holder believes that the performance of an asset linked to
a particular contract is not satisfactory. We do not give
investment advice and are not party to the selection of the asset
and therefore we believe that such claims have no merit. Sometimes
these complaints progress to litigation with the resulting increase
in cost and resource to the Group. In many cases the litigation
relates to decisions taken by individuals during, or as a result
of, the global financial crisis some years ago.
At the beginning of this financial year Hansard Europe was
facing litigation based on writs totalling EUR12.4m (approximately
GBP8.8m) as a result of these and related complaints. We have seen
some additional contract holders join these group actions which has
increased the overall level of writs outstanding at the end of the
year to EUR15.7m (approximately GBP13.1m).
We have however had some positive developments. During the year
the Group successfully won three cases in Belgium and Italy which
affirms confidence in the Group's legal arguments. The outstanding
writs have not been reduced for these cases (totalling EUR1.4 or
GBP1.1m) however as they have all since been appealed.
In general, each case is considered on its merits and where
appropriate we will consider circumstances where it is in our best
interests to reach a resolution with regard to certain of those
claims (without any admission of liability). At this time it is not
possible to put a reliable estimate on the ultimate liability of
such writs. Such writs continue to be treated as contingent
liabilities within the Annual Report and Accounts.
3. Leverage Hansard OnLine
Hansard OnLine is a powerful sales and business administration
tool that is used by 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.
We have continued to invest in the system over the last year,
extending its functionality and reporting capabilities.
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 positive operating cash flows to fund
investment in new business and support dividend payments.
As highlighted in previous public announcements, our strategy
included a restructure of our product proposition to ensure we are
well placed in the market to increase sales and meet our target
growth. This is reflected in the significant increase in new
business investment reported in the Business and Financial Review
in this Report & Accounts.
The results reflect that the Group generated a net GBP1.2m
(2015: GBP16.7m) in net cash flows before dividends, after the
investment of GBP15.4m (2015: GBP8.6m) in new business. Dividends
of GBP12.2m were paid in the financial year (2015: GBP11.7m),
reflecting the strong cash reserves we have in place while we
return the business to the necessary scale.
An interim dividend of 3.6p per share was declared on 25
February 2016. A final dividend of 5.3p per share has been proposed
by the Board and will be considered at the Annual General Meeting
on 12 November 2016. When the final dividend is paid at this level,
these dividends will total 8.9p per share in respect of this
financial year, in line with our strategic commitment.
FINANCIAL PERFORMANCE
Results for the year
Financial performance is summarised as follows. A detailed
review of performance is set out in the Business and Financial
Review that follows this report.
FY 2016 FY 2015
GBPm GBPm
----------------------------------- -------- --------
New business sales - compensation
credit 10.2 5.5
Underlying IFRS profit after
tax 9.2 12.0
IFRS profit after tax 8.3 14.9
New business contribution 0.2 (3.7)
EEV operating loss after tax (1.1) (6.3)
EEV at 30 June 195.9 195.0
----------------------------------- -------- --------
IFRS results
Fees and commissions were GBP51.3m for the year, down 9% or
GBP5m from 2015. The decreased level of fee income is largely as a
result of the movement from previous product types which had higher
levels of initial income to our newer products which earn fees more
evenly over their life time. The run-off of Hansard Europe,
together with a number of other smaller items, also contributed to
the overall reduction. Further detail and analysis is contained in
the Business and Financial Review.
Administrative and other expenses were GBP25.3m for the year,
increased from GBP22.8m in 2015. However after eliminating the
effect caused by the release of an exceptional provision of GBP3m
in 2015, administrative and other expenses are lower on a like for
like basis.
After eliminating significant, once-off items, the underlying
profit after tax was GBP9.2m compared to GBP12.0m in 2015. This
reduction is primarily driven by the lower fees and commissions
noted above.
EEV results
During the year, the Group has continued to invest in the
development and implementation of its strategic objectives, while
at the same time managing the expenses of supporting its existing
business. Operating cash flows have remained positive.
With distribution levels increasing during the year, New
Business Contribution has recovered to a positive GBP0.2m for the
year (2015: negative GBP3.7m). Together with strong investment
return variances (driven predominantly by favourable foreign
currency movements) an overall EEV profit after tax of GBP13.1m was
produced (2015: GBP2.9m).
The key drivers of these variances were:
FY 2016 FY
2015
GBPm GBPm
---------------------------------------- -------- ------
Exchange rate movements 26.1 0.4
Investment performance of contract
holder funds (7.6) 3.4
Impact of economic changes on contract
holder activity margins (4.7) 1.1
Strengthening of partial encashment
assumption (2.5) 0.2
---------------------------------------- -------- ------
Following the payment of dividends of GBP12.2m (2015: GBP11.7m),
the Group's EEV is GBP195.9m at 30 June 2016 (30 June 2015:
GBP195.0m).
Capitalisation and solvency
Our key financial objective is to ensure that the Group's
solvency is managed safely through the economic cycle to meet the
requirements of regulators, contract holders, intermediaries and
shareholders. The Group is well capitalised. The required minimum
solvency margins are covered by excess assets of GBP35.5m, which
are typically held in a wide range of deposit institutions and in
highly-rated money market liquidity funds. This prudent investment
policy for shareholder assets minimises market risk and has
provided a stable and resilient solvency position over recent
years.
We recognise that Hansard Europe's capital surplus is not
available for distribution in the near future. It is therefore
included within the total of Required Capital of GBP27.4m in the
analysis of the Group's EEV balance sheet at 30 June 2016. Allowing
for this, the EEV balance sheet reflects that the Group has a free
surplus of GBP27.6m (2015: GBP36.5m) available for investment and
distribution.
our people
The Group has a dedicated dynamic workforce across a number of
locations around the world. We recognise that our people are key to
our success. Both the front facing distribution team and the head
office administration and support functions have achieved an
immense amount during the past year. This is seen in our sales
figures but also in the results of our customer service surveys and
in the efficiency gains achieved in the re-engineering of numerous
back office processes. We continue to promote a mix of talent from
within and externally to ensure we have the best possible team to
meet the goals and challenges ahead. I would like to thank all of
our employees for their continued commitment to Hansard.
G S Marr
Group Chief Executive Officer
21 September 2016
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 $1 billion for over 500
financial advisor businesses with over 40,000 client accounts in as
many as 155 countries.
Business
The Company's head office is in Douglas, Isle of Man, and its
principal subsidiaries operate from the Isle of Man and the
Republic of Ireland. Hansard International Limited ("Hansard
International") is regulated by the Isle of Man Financial Services
Authority rnment and has a branch in Malaysia, regulated by the
Labuan Financial Services Authority, to support business flows from
Asian growth economies. 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 independent financial advisors
("IFAs") and the retail operations of financial institutions.
Our network of Account Executives provides local language-based
support services to financial advisors in key territories around
the world, supported by our multi-language online platform, Hansard
OnLine.
Strategy
Our aim is to be the preferred choice of distributors when
recommending international savings and investment products to their
clients.
We have developed attractive products and services and will
continue to improve them. We recognise that clients are at the
heart of our business and, consequently, we must work hard to build
long-term positive relationships with them.
Our vision encompasses every part of our business. Beneath this,
we have identified a range of strategic objectives to meet this
target and continue to work towards them. Through careful execution
of our plans in each of the following areas we intend to add
increased scale to the business, on a diversified basis, at
acceptable levels of risk and profitability.
-- More long-term relationships with distributors;
-- Better value for clients;
-- A more visible profile in the market;
-- Excellent client service;
-- A motivated and engaged workforce; and
-- Market-leading online systems.
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
expect to retain the contract holder relationship over the long
term.
Contract holder servicing and related activities are performed
by Hansard Administration Services Limited, which is authorised by
the Isle of Man Financial Services Authority to act as an Insurance
Manager to both Hansard International and Hansard Europe.
During the past year we successfully leveraged our refreshed
product range, growing business substantially in the Middle East
& Africa and Rest of World regions. We continue to enhance our
products, having recently launched a more flexible version of our
Vantage Platinum product and a number of additional pricing options
for our single premium products.
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.
Accordingly, with careful expense management, this provides a
healthy return on the capital invested in that business. Our
business is therefore long term in nature both from a contract
holder perspective and with regards to the income that is
generated.
From this income we meet the overheads of the business, invest
in our business, invest to acquire new insurance contracts and pay
dividends.
Managing Risk
While markets have substantially emerged from the recent
financial crisis, there remains fragility to global economic and
market growth. Surprise developments, such as the UK referendum
result on EU membership, can cause significant volatility to stock
market 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.
The regulatory environment continues to evolve and our risk
framework will have to respond to a number of developments,
including:
-- The Isle of Man Financial Services Authority has outlined its
timetable for significant changes to the regulatory framework,
which will impact on Hansard International;
-- Solvency II, which became live on 1 January 2016 for Hansard
Europe, fundamentally changes the approach to capital and risk
management for the European insurance industry, together with
enhanced governance and reporting requirements. It is expected that
broadly equivalent requirements will become applicable to Hansard
International over time; and
-- The roll-out of automatic information exchange programmes
through regulations such as FATCA and Common Reporting Standards
will impact on the entire business
Online Systems, Customer Service & Operational
Efficiencies
Hansard OnLine
Hansard OnLine is a powerful tool that is used by our IFAs
around the world. It allows them to access vast amounts of
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.
Over 2 million reports and actions are processed through Hansard
OnLine every year and 85% of new business applications and
dealing/switch instructions are submitted online. In a recent
survey, our IFAs awarded this online platform a 99% satisfaction
rating.
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
their funds online, access all correspondence, access a library of
forms and literature, and much more.
Clients can view all documentation and communications relating
to their contracts via their Online Account and the number of
clients choosing to receive post electronically, rather than in
hard-copy form, has risen to 66%. This provides a more secure,
faster and cost efficient means of communication with clients.
In a recent survey, which received over 5,000 responses, our
clients awarded the Online Account platform a 95% satisfaction
rating.
New Online Functionality
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. Over the last two years alone,
we have implemented 160 changes from such feedback, helping us to
remain useful and relevant.
Last year we provided IFAs with the facility to make a payment
online and we have now extended that facility to allow clients to
pay a premium online by credit card or debit card.
We have also developed a facility for IFAs and clients to
instruct a withdrawal payment online, which was piloted by a small
number of IFAs over the last few months and is expected to be
launched shortly.
Given the trend for clients to manage their finances on their
mobile devices, we have added further smartphone-friendly features
to our client online platform.
Hansard OnLine Lite
This time last year we reported the recent launch of a new
version of our IFA-facing online platform, called Hansard OnLine
Lite, which provides prospective and new 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.
The system has proven to be very popular, with over 500 IFAs
using the system in the year, accessing documents, generating fund
reports, reading company news and even submitting new business
online.
Excellent Customer Service
Given our commitment to providing 'excellent customer service',
last year we undertook a significant restructure of the business in
order to facilitate First Contact Resolution of client queries and
instructions. The re-structure involved a move away from a
hierarchical structure to a more modern and self-organising
organisational structure of highly empowered and connected
multi-disciplinary teams. The restructure has facilitated the
removal of many hand-offs of work, thus improving processing
efficiency and reducing customer waiting times by 50%.
In the customer survey referred to above, which received over
5,000 responses, our clients awarded our customer service a 94%
satisfaction rating.
Within a range -100% to +100%, our customers also awarded
Hansard an impressive Net Promoter Score of +52%, which compares
very favourably against the insurance industry average which is
less than zero.
Process Re-engineering
Last year, Hansard embarked upon a significant programme of
process re-engineering in order to improve customer service levels,
reduce operational waste, improve operational efficiency, improve
productivity and increase scalability.
The initiative now has significant momentum and is proving to be
a huge success. To date, 83 processes have been re-engineered with
an overall average process efficiency savings of 60% being
delivered. This re-engineering work is expected to continue for at
least another year.
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 prime 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. As is reported elsewhere
in this Report and Accounts, new business flows
have recovered significantly this year after a year
of transition in 2015. The Group expects further
recovery of CC levels in future years.
---------------------------------------------------------
Administrative Expenses (excl. exceptional 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. exceptional
items) were GBP21.5m compared to GBP21.9m in the
previous year. Efficiencies were achieved in the
year through an on-going programme of business process
reengineering, reduced executive costs and lower
investment spend. Further detail is contained in
the section on Administrative and other expenses.
---------------------------------------------------------
Cash - Bank balances and significant movements on
balances are reported weekly. The Group's liquid
funds at the balance sheet date were GBP76.6m (2015:
GBP80.9m). The change is reflective of the increased
levels of new business during the year which have
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
weekly. The significant risks faced by the Group
are summarised later in this Strategic Report.
---------------------------------------------------------
business AND FINANCIAL REVIEW
Strategy DEVELOPMENT
We have sought to build distribution relationships for the long
term over a diversified geographical base. With a refreshed product
suite and a number of further additions to our distribution team,
we have been focussed in 2016 in leveraging our proposition across
new and existing distribution channels.
Many of our intermediaries are newly appointed in the last 2-3
years and we are starting to see significant results from a number
of key relationships. In particular we have been pleased with the
progress of the Middle East & Africa and the Rest of World
regions and expect to replicate this success in other regions over
time.
Our strategy takes account of current and future regulatory
developments and we have a target to increase the level of onshore
business written through new licenses or partnerships in a small
number of jurisdictions where we believe attractive levels of
business can be obtained.
STRATEGIC INITIATIVES
These initiatives impact upon the whole of the Group's business,
its clients and other stakeholders.
-- Contract holders and Product
The Group has developed a range of savings and investment
products that are designed to allow the Group to access business
more successfully in a number of target markets, having made a
range of product improvements to the benefit of the consumer and
distributor. In March 2016, we launched the upgraded version of our
regular premium product, Vantage Platinum, which has been well
received in the market.
-- Distribution
The Group continues to build long-term relationships with
distributors in key markets with growing economies and high
concentrations of wealth. We continue to work towards the
acquisition of licenses or partnership arrangements in targeted
locations.
-- Hansard OnLine
As reported in the section on Hansard OnLine above, we believe
that Hansard OnLine is a very powerful resource and have committed
to continually increase accessibility and functionality.
-- Resources
The Group's proposition is to develop and enhance relationships
with contractholders and intermediaries through the use of our
people, products and technology in a way that meets shared
objectives. We have continued to recruit talented and experienced
employees with additions made during the year in particular to our
distribution team and senior management team.
New Business Flows - year ended 30 june 2016
New business performance for the year is summarised in the table
below:
2016 2015 %
Basis GBPm GBPm change
---------------------- ------ ----- -------
85.5
Compensation Credit 10.2 5.5 %
Present Value of New 96.9
Business Premiums 119.3 60.6 %
Annualised Premium 92.8
Equivalent 18.7 9.7 %
---------------------- ------ ----- -------
New business figures were substantially higher than the prior
year as the business continued the roll-out of its refreshed
product proposition through substantially new distribution channels
than that of previous years. The Middle East & Africa and the
Rest of World regions performed particularly well.
-- Present Value of New Business Premiums ("PVNBP")
New business flows for Hansard International on the basis of
PVNBP are summarised as follows:
2016 2015 %
PVNBP by product type GBPm GBPm change
------------------------ -------- ----- -------
78.3
Regular premium 65.6 36.8 %
125.6
Single premium 53.7 23.8 %
------------------------ -------- ----- -------
96.9
Total 119.3 60.6 %
------------------------ -------- ----- -------
2016 2015 %
PVNBP by region GBPm GBPm change
------------------------ -------- ----- -------
390.7
Middle East and Africa 36.8 7.5 %
59.6
Far East 25.7 16.1 %
189.6
Rest of World 44.6 15.4 %
(43.5)
Latin America 12.2 21.6 %
------------------------ -------- ----- -------
96.9
Total 119.3 60.6 %
------------------------ -------- ----- -------
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.
2016 2015
Currency denominations (as a percentage % %
of PVNBP)
----------------------------------------- ------ ------
US dollar 68.4 71.4
Sterling 25.4 22.4
Euro 4.4 3.3
Other 1.8 2.9
----------------------------------------- ------ ------
100.0 100.0
----------------------------------------- ------ ------
-- New business margins
New business margins (calculated on a PVNBP basis) are sensitive
to sales levels and product mix (regular premium products and
smaller premium sizes typically have a higher margin). During 2016,
we experienced significantly higher new business levels than 2015
which was the primary factor in our improved new business margin of
0.2% for the year (2015: negative margin of 6.2%). The percentage
of single premium business and larger case sizes increased during
the year which reduced the overall margin. Our target is to
progress towards a mid single digit level.
Presentation of financial results
Our business is long term in nature. For this reason we present
the results on an EEV basis in addition to the statutory IFRS
basis. We believe that EEV is a valid measure of profitability and
shareholder value. Our embedded value is based on the EEV
principles which were set out as an industry standard by the Chief
Financial Officers (CFO) Forum in 2004 and extended in 2016.
The profit that the Group expects to earn from the issue of an
insurance contract is the same, irrespective of the basis of
measurement, however:
-- The EEV result is a discounted cash flow valuation of the
future profits expected to emerge from the current book of
insurance contracts and provides a more complete recognition of
management's activity throughout the financial year. It
demonstrates the expected emergence of shareholder cash over the
long term, by reflecting the net present value of the expected
future cash flows.
-- The IFRS methodology smoothes recognition of profit from new
business by spreading the initial costs (and revenues) evenly over
the life of the business. The IFRS result therefore, reflects
neither the future shareholder value added, nor the cash impact of
the new business in a particular year.
Results for the year
The following is a summary of key items to allow readers to
better understand the results for the year. A small number of
comparative figures have been restated in this section to ensure
consistency of presentation. IFRS profit after tax for the year is
GBP8.3m (2015: GBP14.9m).
The reduction in IFRS profit in 2016 is driven by reduced income
primarily due to the following factors:
Description GBPm
------------------------------------------ -----
On-going shrinkage of the Hansard Europe
business 1.7
Contract holder driven activity margins 0.7
Refinements to deferred income reserve 0.8
------------------------------------------ -----
3.2
------------------------------------------ -----
Income levels in general from the Group's newer products have
less upfront fees than in the past and as a result have a longer
earning period.
2015 profit benefitted by the one-off release of a provision of
GBP3.0m related to the settlement of a provision for chargeable
event certificates costs provided for in 2014.
Prior to those significant, once-off items totalling a cost of
GBP0.8m (2015: benefit of GBP2.9m), the underlying IFRS profit was
GBP9.2m before taxation, compared with GBP12.0m in 2015.
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 income, gains and losses relating to the assets
administered by the Group to back its liability to contract
holders. These assets are selected by the contract holder or an
authorised intermediary and the contract holder bears the
investment risk. Investment gains during the year attributable to
contract holder assets were GBP60.8m (2015: GBP47.8m).
-- Fund management fees paid by the Group to third parties
having a relationship with the underlying contract. While fund
management fees paid are properly recorded in the consolidated
statement of comprehensive income under IFRS, the disclosure
distorts results compared with an understanding of the Group's own
entitlement to fund management fees and any requirement to pay such
fees for services rendered in respect of the Group's own assets. In
2016, third party fund management fees attributable to contract
holder assets were GBP3.6m (2015: GBP3.8m). 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.
2016 2015
GBPm GBPm
------------------------------------------------ ------- -------
Fees and commissions attributable to
Group activities before one-off items 48.4 52.5
Investment and other income 2.7 1.4
------------------------------------------------ ------- -------
51.1 53.9
Origination costs (20.2) (20.1)
Administrative and other expenses attributable
to the Group, before
exceptional items (21.7) (21.8)
------------------------------------------------ ------- -------
Operating profit for the year before
significant one-off items 9.2 12.0
One-off income adjustments (0.8) -
One-off expense items - 2.9
------------------------------------------------ ------- -------
Profit for the year before taxation 8.4 14.9
Taxation (0.1) -
------------------------------------------------ ------- -------
Profit for the year after taxation 8.3 14.9
------------------------------------------------ ------- -------
Fees and commissions
Fees and commissions for the year attributable to Group
activities were GBP47.6m, a decrease of GBP4.9m or 9% over the
previous year.
Contract fee income totalled GBP34.4m for the year (2015:
GBP38.7m). Contract fee income includes the amortised element of
up-front income deferred under IFRS and contract-servicing charges.
Fee income is falling generally as the Group's newer products have
less upfront income than the Group's older products which are
reducing as time goes by. The reduction in the year is also driven
by the continuing run-off of Hansard Europe which closed to new
business in 2013 (GBP1.7m), reductions in contract holder activity
driven margins (GBP0.7m) and adjustments to the estimate of the
deferred income reserve (GBP0.8m).
Fund management fees accruing to the Group and commissions
receivable from third parties totalling GBP13.2m (2015: GBP13.8m)
are related directly to the value of assets under administration
and are therefore exposed to market movements, currency rates and
valuation judgements.
A summary of fees and commissions is set out below:
2016 2015
GBPm GBPm
---------------------------------- ----- -----
Contract fee income 34.4 38.7
Fund management fees accruing to
the Group 9.1 9.6
Commissions receivable 4.1 4.2
---------------------------------- ----- -----
47.6 52.5
---------------------------------- ----- -----
Included in contract fee income is GBP18.5m (2015: GBP20.0m)
representing the amortisation of fees prepaid in previous years, as
can be seen in the analysis set out below.
2016 2015
GBPm GBPm
--------------------------------- ----- -----
Amortisation of deferred income 18.5 20.0
Income earned during the year 15.9 18.7
--------------------------------- ----- -----
Contract fee income 34.3 38.7
--------------------------------- ----- -----
Investment and other income
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. Volatility in foreign exchange
markets continued during the year. In particular the weakening of
sterling after the UK referendum on EU membership resulted in the
Group benefiting from gains on foreign currency denominated net
assets.
2016 2015
GBPm GBPm
------------------------------------------------ -------------- ---------------
Bank interest 0.9 1.0
Foreign exchange gains/(losses) on revaluation
of net operating assets 1.2 (0.2)
Other operating income 0.6 0.6
------------------------------------------------ -------------- ---------------
2.7 1.4
------------------------------------------------ -------------- ---------------
A summary of Investment and other income is set out below:
Origination costs
Under IFRS, new business commissions paid, together with the
directly attributable incremental costs incurred on the issue of a
contract, are deferred and amortised over the 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 and initial payments to new Account
Executives, which reflect investment in distribution resources in
line with our strategy, are expensed as incurred.
With the significantly increased new business volumes which the
Group experienced during the year, origination costs are
significantly increased from the prior year. While most of these
are deferred, the amortisation of previous years' origination costs
continue to exceed those deferred in the current year. Overall, net
origination costs expensed to the consolidated statement of
comprehensive income were relatively unchanged at GBP20.2m compared
to GBP20.1m in 2015.
2016 2015
GBPm GBPm
------------------------------------------ ----- -----
Origination costs - deferred to match
future income streams 15.1 7.6
Origination costs - expensed as incurred 2.5 2.1
------------------------------------------ ----- -----
Total origination costs incurred in
the year 17.6 9.7
Net amortisation of deferred origination
costs 2.6 10.4
------------------------------------------ ----- -----
20.2 20.1
------------------------------------------ ----- -----
Amounts totalling GBP17.7m (2015: GBP18.0m) 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.
Origination costs in the year were:
2016 2015
GBPm GBPm
----------------------------------------- ----- ------
Amortisation of deferred origination
costs 17.7 18.0
Other origination costs incurred during
the year 2.5 2.1
----------------------------------------- ----- ------
20.2 20.1
----------------------------------------- ----- ------
Administrative and other expenses
We continue to robustly manage our expense base to control
administrative expenses while supporting our strategic developments
and other new business activities with targeted expenditure.
Administrative expenses prior to significant one-off items were
marginally down in 2016, despite the significant increase in
business.
Total administrative expenses in 2015 were reduced by an
exceptional write-back of GBP3m in relation to a provision for
chargeable event certificates costs.
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.
2016 2015
GBPm GBPm
----------------------------------------- ----- ------
Salaries and other employment costs 10.0 9.5
Other administrative expenses 6.6 6.7
Professional fees, including audit 2.8 3.1
----------------------------------------- ----- ------
Recurring administrative and other
expenses 19.3 19.3
Growth investment spend 2.3 2.6
Administrative and other expenses,
excl. significant one-off items 21.7 21.9
Write back of CEC provision - (3.0)
Litigation settlements - 0.1
Total administrative and other expenses 21.7 19.0
----------------------------------------- ----- ------
Salaries and other employment costs have increased by GBP0.5m or
5% to GBP10.0m. Salaries in general have remained relatively flat.
As a result of hitting targets, bonuses of GBP0.3m were payable for
the year which were not payable in 2015. Costs of GBP0.3m were
incurred in recruitment and other handover costs relating to a
number of senior management positions. Management has sought to
offset such increases by continuing its programme of operational
efficiency and business process re-engineering. Administrative
headcount is running at 9 less than at the end of the 2015
financial year.
The average Group headcount for the 2016 financial year was 206
people (2015: 206 people).
Other administrative expenses have decreased slightly, from
GBP6.7m to GBP6.6m, following the reduction of some IT costs.
Growth investment spend represents internal and external costs
to generate opportunities for growth. The Group continues to invest
to build its business and to implement product and technological
changes to support intermediaries, contract holders and other
stakeholders. The amount of expenditure has decreased from the
previous year reflecting reduced external advisory costs in the
financial year.
Professional fees including audit in the year include legal fees
of GBP0.5m (2015: GBP0.9m) incurred to protect the Group's position
against complaints and litigation; amounts totalling GBP0.6m paid
to the Group's auditor (2015: GBP0.5m); GBP0.4m (2015: GBP0.3m) for
administration, custody, dealing and other charges paid under the
terms of the investment processing outsourcing arrangements;
recruitment costs of GBP0.1m (2015: GBP0.3m) and costs of Investor
Relations activities of GBP0.4m (2015: GBP0.4m).
Cash Flow ANALYSIS
Operating cash flows continue to be positive albeit reduced from
previous years as the Group's newer products earn less upfront cash
than its older products and as the Hansard Europe portfolio
continues to reduce after closing to new business in 2013.
The operational cash surplus (fees deducted from contracts and
commissions received, less operational expenses paid) for the year
was GBP15.9m (2015: GBP24.3m). This surplus was sufficient to fund
the significant increase in new business investment in the year of
GBP15.4m (2015: GBP8.6m).
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.
To reduce the risk that the targeted return on investment in new
business is jeopardised, the Group withholds a portion of initial
commission from certain intermediaries pending completion of the
initial period of particular contracts. At the balance sheet date,
amounts totalling GBP1.6m (2015: GBP2.0m) had been withheld. These
amounts are reflected within "Other payables" in note 19 to the
consolidated balance sheet.
The following non-GAAP tables summarise the Group's own cash
flows in the year. This analysis demonstrates that the in-force
contract book generated the cash required to support the Group's
primary business objective of investing in new business whilst
enhancing distribution and other infrastructure. Dividends of
GBP12.2m (2015: GBP11.7m) paid during the year were funded
primarily by the Group's excess cash resources. Overall cash and
deposits have decreased from GBP80.9m at 30 June 2015 to GBP76.6m
at 30 June 2016.
2016 2015
GBPm GBPm
------------------------------------- ------- -------
Net cash surplus from operating
activities 15.9 24.3
Interest received on shareholder
bank deposits 1.0 1.0
------------------------------------- ------- -------
Net cash inflow from operations 16.9 25.3
Net cash investment in new business (15.4) (8.6)
Purchase of property and computer
equipment (0.2) (0.2)
Corporation tax (paid) / received (0.1) 0.2
------------------------------------- ------- -------
Net cash inflow before dividends 1.2 16.7
Dividends paid (12.2) (11.7)
------------------------------------- ------- -------
Net cash (outflow) / inflow (11.0) 5.0
------------------------------------- ------- -------
2016 2015
GBPm GBPm
-------------------------------------- ------- ------
Net cash (outflow) / inflow (11.0) 5.0
Increase / (decrease) in amounts due
to contract holders 3.4 (2.4)
-------------------------------------- ------- ------
Net Group cash movements (7.6) 2.6
Group cash at beginning of year 80.9 78.5
Effect of exchange rate changes 3.3 (0.2)
Group cash and deposits at end of
year 76.6 80.9
-------------------------------------- ------- ------
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 GBP15.6m have original
maturity dates greater than 3 months and are therefore excluded
from the definition of "cash and cash equivalents" under IFRS as
reflected in note 16 to the consolidated balance sheet (2015:
GBP15.5m). The following table summarises the total shareholder
cash and deposits at the balance sheet date.
2016 2015
GBPm GBPm
---------------------------------------------- ----- -----
Money market funds 53.6 56.5
Short-term deposits with credit institutions 7.3 8.9
---------------------------------------------- ----- -----
Cash and cash equivalents under IFRS 60.9 65.4
Shareholders' longer-term deposits
with credit institutions 15.7 15.5
Shareholder cash and deposits 76.6 80.9
---------------------------------------------- ----- -----
The longer-term term deposits have maturity dates of between 4
months and 11 months from the balance sheet date.
Abridged consolidated balance sheet
The consolidated balance sheet on presented under IFRS reflects
the financial position of the Group at 30 June 2016. As a result of
its method of presentation, the consolidated balance sheet
incorporates the financial assets held to back the Group's
liability to contract holders, and also incorporates the net
liability to those contract holders of GBP923.5m (2015: GBP907.1m).
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.
2016 2015
GBPm GBPm
-------------------------------- ------ ------
Assets
Deferred origination costs 110.9 113.5
Other assets 6.5 6.9
Bank deposits and money market
funds 76.6 80.9
-------------------------------- ------ ------
194.0 201.3
-------------------------------- ------ ------
Liabilities
Deferred income 130.5 137.6
Other payables 27.3 23.6
-------------------------------- ------ ------
157.8 161.2
-------------------------------- ------ ------
Net assets 36.2 40.1
-------------------------------- ------ ------
Shareholders' equity
Share capital and reserves 36.2 40.1
-------------------------------- ------ ------
Deferred origination costs
The deferral of origination costs reflects that the Group will
earn fees over the long-term from contracts issued in a given
financial year. These costs are recoverable out of future net
income from the relevant contract and are charged to the income
statement on a straight-line basis over the life of each
contract.
The Group has continued to invest in new business during the
year under review but the reduction in the rate of acquisition, as
compared with recent years, is reflected in a net decrease in
carrying value of deferred origination costs since 30 June
2015.
The movement in value over the financial year is summarised
below.
2016 2015
Carrying value GBPm GBPm
------------------------------------ ------- -------
At beginning of financial year 113.5 123.9
Origination costs incurred during
the year 15.1 7.6
Origination costs amortised during
the year (17.7) (18.0)
------------------------------------ ------- -------
110.9 113.5
------------------------------------ ------- -------
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 typically the case with single
premium contracts.
The majority of initial fees collected during the year relates
to charges taken from contracts issued in prior financial years
demonstrating the cash generative nature of the business. Regular
premium contracts issued in this financial year will generate the
majority of their initial fees over the next 18 months on
average.
The movement in value of deferred income over the financial year
is summarised below.
2016 2015
Carrying value GBPm GBPm
------------------------------------- ------- -------
At beginning of financial year 137.6 141.2
Income received and deferred during
the year 11.4 16.4
Income recognised in contract fees
during the year (18.5) (20.0)
------------------------------------- ------- -------
130.5 137.6
------------------------------------- ------- -------
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 has also built an increasing stream of single
premium business which increased to GBP52m this year (2015:
GBP21.5m). The majority of premium contributions are designated in
currencies other than sterling, reflecting the wide geographical
spread of those contract holders. Premium contributions during the
year also includes additional contributions of approximately
GBP4.3m (2015: GBP5.4m) 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. During the year, the Group benefitted from lower levels
of outflows and from significant currency movements, primarily the
weakening of sterling against the US dollar.
The currency composition of AuA at the balance sheet date is
similar to that as at 30 June 2015, with 69% of AuA designated in
US dollar (2015: 59%) and 12% in euro (2015: 19%).
The value of AuA at 30 June 2016 was GBP923.5m, GBP16.4m above
the value at 30 June 2015.
2016 2015
GBPm GBPm
---------------------------------- -------- --------
Deposits to investment contracts
- regular premiums 71.9 79.4
Deposits to investment contracts
- single premiums 52.0 21.5
Withdrawals from contracts
and charges (168.3) (185.2)
Effect of market movements (48.1) 51.2
Effect of currency movements 108.9 (3.4)
---------------------------------- -------- --------
Movement in year 16.4 (36.5)
At beginning of financial
year 907.1 943.6
---------------------------------- -------- --------
923.5 907.1
---------------------------------- -------- --------
The analysis of AuA held by each Group subsidiary to cover
financial liabilities is as follows:
2016 2015
Fair value of AuA at 30 June GBPm GBPm
------------------------------ ------ ------
Hansard International 749.0 700.3
Hansard Europe 174.5 206.8
------------------------------ ------ ------
923.5 907.1
------------------------------ ------ ------
As expected the level of assets in Hansard Europe continues to
decline after closing to new business in 2013.
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.
Some of these complaints escalate into litigation, particularly
in Europe. At the beginning of this financial year the Group was
facing litigation based on writs totalling EUR12.4m (GBP8.8m).
During the year the Group successfully won three cases in
Belgium and Italy which affirms confidence in the Group's legal
arguments. The outstanding writs have not been reduced for these
cases (totalling EUR1.4 or GBP1.1m) however as they have all since
been appealed. A number of additional complainants have been added
to existing writs which has increased the overall level of writs
outstanding.
The total level of writs outstanding at the end of the year was
EUR15.7m (GBP13.1m).
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.
Results for the year under European Embedded Value
Headline results
During the course of the 2016 financial year, the Group made a
European Embedded Value ("EEV") profit of GBP13.1m (2015: profit of
GBP2.9m), analysed into an EEV operating loss of GBP1.1m (2015:
loss of GBP6.3m) and gains from investment return variances and
economic assumption changes of GBP14.2m (2015: gains of
GBP9.2m).
The EEV operating loss is primarily driven by a negative
experience variance of GBP3.8m. Experience variances arise when
actual experience differs from that assumed in the prior year's
EEV.
Headline results for the EEV are shown in the tables below:
2016 2015
GBPm GBPm
------------------------------------------------------------- ------- -------
EEV operating loss after tax (1.1) (6.3)
Investment return variances and economic assumption changes 14.2 9.2
------------------------------------------------------------- ------- -------
EEV profit 13.1 2.9
------------------------------------------------------------- ------- -------
EEV before dividends 208.1 206.7
Dividends paid during the financial year (12.2) (11.7)
------------------------------------------------------------- ------- -------
Closing Embedded Value 195.9 195.0
------------------------------------------------------------- ------- -------
The EEV at 30 June 2016 has marginally increased to GBP195.9m
from the 30 June 2015 level of GBP195.0m following the payment of
dividends of GBP12.2m for the year (2015: GBP11.7m).
Sales metrics
New business comparatives are shown below:
2016 2015
New business sales ("PVNBP") GBP119.5m GBP60.6m
New Business Contribution ("NBC") GBP0.2m GBP(3.7)m
New Business Margin ("NBM") 0.2 % (6.2)%
----------------------------------- ---------- ----------
The change is primarily due to the increase in new business
volumes over the period and the existence of a greater number of
insurance contracts to spread initial expenses over.
The high-level components of the EEV are shown in the table
below:
2016 2015
GBPm GBPm
--------------------------------- ------ ------
Free Surplus 27.9 36.5
Required Capital 27.6 27.0
--------------------------------- ------ ------
Net Worth 55.5 63.5
--------------------------------- ------ ------
Value of In-Force ("VIF") 147.8 138.6
Other (7.4) (7.1)
--------------------------------- ------ ------
Value of Future Profits ("VFP") 140.4 131.5
--------------------------------- ------ ------
EEV 195.9 195.0
--------------------------------- ------ ------
Net Worth has reduced to GBP55.5m from GBP63.5m as profits are
earned from the existing business offset by the dividend paid. It
is represented by liquid cash balances.
Free Surplus, which is available for investment and
distribution, has reduced by 24% to GBP27.9m from GBP36.5m
reflecting the fact that more of the cash which continues to emerge
from the existing policies was needed to invest in increasing
levels of new business. Required Capital has increased marginally.
It currently includes around GBP20m of Hansard Europe capital, the
use of which management estimates is constrained for up to three
years.
The increase in VFP reflects sterling exchange rates on 30 June
2016, increased new business levels, the conversion of VFP to Net
Worth and the impact of contract holder behaviour and renewal
expenses.
The Other component of VFP is the reduction for non-market risk
and frictional costs, neither of which have changed substantially
over the year.
Change in Net Worth
2016 2015
GBPm GBPm
----------------------------------------------- ------- -------
Opening Net Worth 63.5 53.4
Expected new Net Worth from existing business 24.0 32.8
Time value 0.5 1.0
Net worth variance (1.7) 2.2
----------------------------------------------- ------- -------
Net Worth from Existing Business 22.8 36.0
New Business Strain (18.6) (14.1)
Dividends paid (12.2) (11.7)
Closing Net Worth 55.5 63.5
----------------------------------------------- ------- -------
The Net Worth is lower than projected by GBP1.7m (2015: higher
by GBP2.2m) primarily because of worse than assumed investment
experience during the year. The Net Worth has grown by GBP22.8m
(2015 GBP36.0m), of which GBP18.6m (2015: GBP14.1m) has been
invested in new business (shown as New Business Strain) and
GBP12.2m has been paid in dividends (2015: GBP11.7m).
EEV profit after tax
The Group's EEV profit after tax is GBP13.1m (2015: GBP2.9m).
New business, experience variances, operating assumptions and model
changes drive this result at an operating profit level. Thereafter,
the impact of positive investment return variances and economic
assumption changes more than offset the loss at an operating
level.
2016 2015
GBPm GBPm
------------------------------------------------------------ ------ ------
New Business Contribution 0.2 (3.7)
Experience variances (3.8) 2.6
Operating assumption and model changes 1.0 (7.0)
Expected return on new and existing business and Net Worth 1.5 1.8
EEV operating loss after tax (1.1) (6.3)
Investment return variances 18.8 4.3
Economic assumption changes (4.6) 4.9
------------------------------------------------------------ ------ ------
EEV profit after tax 13.1 2.9
------------------------------------------------------------ ------ ------
Experience variances 2016 2015
-------------------------------------- ------ ------
GBPm GBPm
Ongoing expenses (1.3) (0.7)
Full encashments (1.2) (1.6)
Premium reductions and underpayments (0.8) 1.1
Charges (0.6) (0.6)
One-off expenses (0.3) 1.4
Other 0.4 3.0
-------------------------------------- ------ ------
Experience variances (3.8) 2.6
-------------------------------------- ------ ------
Experience variances arise when the behavior of the existing
book differs from that assumed. Major contributors to the
experience variances this year include a reallocation of the
expense base from initial to recurring expenses and worse than
assumed encashment and premium persistency.
Operating assumption changes 2016 2015
GBPm GBPm
------------------------------ ------ -------
Partial encashment (2.5) 0.2
Ongoing expenses 1.0 (11.2)
Premium persistency 0.9 3.0
Other 0.5 1.9
Operating assumption changes (0.1) (6.1)
------------------------------ ------ -------
The primary change in operating assumption changes during the
year was a strengthening of the assumption for partial encashments
to reflect experience during the year.
Investment return variances
Investment performance principally reflects the investment
choices, by nature and currency, made by contract holders. It is
therefore largely outside the Group's control.
2016 2015
GBPm GBPm
------------------------------------------------- ------ ------
Exchange rate movements 26.1 0.4
Investment performance of contract holder funds (7.6) 3.4
Shareholder return (0.2) (0.1)
Other 0.5 0.6
------------------------------------------------- ------ ------
Investment return variances 18.8 4.3
------------------------------------------------- ------ ------
Economic assumption changes
There was a negative variance of GBP4.6m (2015: positive
GBP4.9m) from economic assumption changes. This reflects changes to
government yields for the currencies to which the Group is exposed
in line with EEV Principles.
2016 2015
GBPm GBPm
------------------------------------- ------ -----
Contract holder activity margins (4.7) 1.1
Risk discount rates and unit growth 0.1 3.8
Economic assumption changes (4.6) 4.9
------------------------------------- ------ -----
Net asset value per share
On an EEV basis, the net asset value per share at 30 June 2016
is 142.5p (2015: 141.9p) based on the EEV at the balance sheet date
divided by the number of shares in issue at that date, being
137,440,456 ordinary shares (2015: 137,388,669 shares).
The net asset value per share at 30 June 2016 on an IFRS basis,
is 26.3p (2015: 29.2p).
Risk management and internal control
As with all businesses, the Group is exposed to risk in pursuit
of its objectives. The Board has overall responsibility for the
Group's system of risk management and internal control and for
reviewing its effectiveness. The schedule of powers reserved to the
Board ensures that the Directors are responsible for determining,
evaluating and controlling the nature and extent of the principal
risks which the Board is willing to take in achieving its strategic
objectives and the Board oversees the strategies for principal
risks that have been identified.
The Executive Management Team works within the risk appetite
established by the Board and the governance, risk management and
internal control arrangements which constitute the Group Enterprise
Risk Management (ERM) Programme and which direct the Group,
including setting the cultural tone and expectations from the top,
delegating authorities and monitoring compliance.
Having regard to the Financial Reporting Council's 'Guidance on
Risk Management, Internal Control and Related Financial and
Business Reporting', the ERM Programme encompasses the policies,
processes, tasks, behaviours and other aspects of the Group's
environment, which cumulatively:
-- Facilitate the effective and efficient operation of the Group
and its subsidiaries by enabling appropriate responses to be made
to significant business, operational, financial, compliance and
other risks to business objectives, so safeguarding the assets of
the Group;
-- Help to ensure the quality of internal and external
reporting. This requires the maintenance of proper records and
processes that generate a flow of timely, relevant and reliable
information from within and outside the Group;
-- Seek to ensure compliance with applicable laws and
regulations and also with internal policies with respect to the
conduct of business.
Approach
The ERM Programme is structured in accordance with the component
elements and supporting principles of the Committee of Sponsoring
Organisations of the Treadway Commission (COSO) Enterprise Risk
Framework and has been designed to be appropriate to the nature,
scale and complexity of the Group's business at both corporate and
subsidiary level.
The ERM Programme is 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 bottom-up and
top-down basis. The top-down aspect involves the Board assessing,
analysing and evaluating what it believes to be the principal risks
facing the Group. The bottom-up approach involves the
identification, review and monitoring of current and
forward-looking risks on a continuous basis at functional and
divisional levels, with analysis and formal reporting to the
Management Risk Committee, established by the Board, on a quarterly
basis and onward analytical reporting to the Board. The terms of
reference of the Committee are published on the Company's
website.
The system of internal control is designed to manage rather than
eliminate risk of failure to achieve business objectives, and can
only provide reasonable and not absolute assurance against material
misstatement or loss.
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 Management 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. Draft financial statements are prepared quarterly by the
Chief Financial Officer ("CFO"). The members of the Audit Committee
review the draft financial statements for the half year ended 31
December annually and for the full financial year, and meet with
the CFO to discuss and challenge the presentation and disclosures
therein. Once the draft document is approved by the Audit
Committee, it is reviewed by the Board before final approval at a
Board meeting.
Outsourcing
The majority of investment dealing and custody processes in
relation to 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. Each year they are
required to confirm and evidence the adequacy and effectiveness of
their internal control framework through an Assurance report on
their internal controls. Every second year, an external independent
review is performed. The last such report, which included an
external independent review, was issued by CIL on 13 May 2016 and
did not reveal any material control deficiencies in the period
reviewed from 1 January 2015 to 31 December 2015.
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 to the environment within which
the Group operates. Whilst the Group's business model has
historically served to minimise the principal risks facing the
Group, the regulatory environment continues to evolve at both a
local and international level and the risk management and internal
control frameworks of the Group will need to remain responsive to a
number of developments, examples of which include:
-- Transformation of the Isle of Man financial
services regulatory regime via the new combined
regulatory body, the Financial Services Authority
(FSA), and its 'Roadmap for Updating the Regulatory
Framework for Insurance Business'. The Roadmap
seeks to ensure that the Isle of Man is operating
a regulatory and supervisory framework for insurers
which conforms to internationally accepted best
practice standards and the proposals therein
will inform future strategic and business development
initiatives;
-- The on-going roll-out of automatic information
exchange programmes through regulations such
as FATCA and Common Reporting Standards, which
will impose additional reporting obligations
and associated costs to the business.
Principal Risks
The following table sets out the principal inherent risks that
may impact on the Group's strategic objectives, profitability or
capital and how such risks are managed or mitigated. The Board
robustly reviews and considers its principal risks on at least an
annual basis.
Risk Risk factors and management
---------------------- -------------------------------------------------------------
Business model Changes and developments in domestic
risk or international regulation,
or the interpretation or application
of regulation over time, may
present material challenge to
the business model and compromise
distribution strategy. Such challenges
could include, but are not limited
to, those which impact commission
models, broker relationships
and market accessibility. If
the Group fails to monitor the
regulatory environment or adequately
integrate the management of associated
risk within strategic, business
model or business planning processes
there may be material risk to
the achievement of strategic
objectives both in the shorter
and longer term.
How we manage the risk:
* Robust strategic planning processes informed by
analytical review of the external environment and
consideration of associated risk in the shorter and
longer term.
* Continuous monitoring and review of developments in
local and international law and regulation.
* Engagement with regulatory authorities, including
responding to regulatory consultations.
---------------------- -------------------------------------------------------------
Distribution The business environment in which
strategy compromised the international insurance industry
as a result of operates is subject to continuous
market changes, change as new market and competitor
technology or forces come into effect and as
competitor activity technology continues to evolve.
Hansard may fail to sufficiently
differentiate itself from its
competitors and global brands
and as a result be unable to
build successful relationships
with targeted brokers and customers.
How we manage the risk:
* Close monitoring of marketplaces and competitor
activity for signs of threats to forecast new
business levels.
* Revised strategies designed to add additional scale
to the business, on a more diversified basis, through
organic growth at acceptable levels of risk and
profitability.
* Continuous development of technology.
---------------------- -------------------------------------------------------------
Compliance risks Any failure to adequately assess
arising from the impacts of and manage compliance
regulation with regulatory obligations,
in particular changes in regulation
which might impact pre-existing
business, imposes the avoidable
risk of regulatory restrictions
to the Group's business, regulatory
censure, financial penalty, contract
holder litigation and / or reputational
damage.
How we manage the risk:
* Dedicated resources are in place to identify emerging
risks arising from regulatory and legislative change
and to monitor the timely implementation of new
requirements.
* The Group maintains regular dialogue with its
regulatory authorities and continual discussions with
its advisors in relation to developments in the
regulatory environment in which we operate.
---------------------- -------------------------------------------------------------
Infrastructure A material failure in our core
failure business systems or business
processes may result in significant,
costly interruptions, customer
dissatisfaction and regulatory
censure.
How we manage the risk:
* Maintenance of detailed and robust Business
Continuity Plans, including full data replication at
an independent recovery centre, which can be invoked
when required.
* Frequent and robust testing of business continuity
and disaster recovery arrangements.
---------------------- -------------------------------------------------------------
Cyber crime As we and our business partners
increasingly digitalise our businesses,
we are unavoidably exposed to
the risk of cybercrime. If the
Group fails to take adequate
and appropriate measures to protect
its systems and data from the
inherent risk of attack, disruption
and/or unauthorised access by
internal or external parties
could arise, resulting in confidential
data being exposed and/or systems
interruption. A significant cybercrime
event could result in reputational
damage, regulatory censure and
financial loss.
How we manage the risk:
* Continuous focus on the maintenance of a robust,
secure and resilient IT environment that protects
customer and corporate data.
* Control techniques deployed to evaluate the security
of systems and proactively address emerging threats
both internally within the organisation and
externally, through regular engagement with internet
and technology providers and through industry forums.
---------------------- -------------------------------------------------------------
Failure to drive Delivery of the Group's strategy
the right corporate is dependent on attracting and
culture and attract, retaining experienced and high-performing
develop, engage management and staff. The performance,
and retain key knowledge and skills of our employees
personnel are central to our success. We
must attract, integrate, engage
and retain the talent required
to deliver our strategy and have
the appropriate processes and
culture in place. The inability
to retain key people, and adequately
plan for succession will negatively
impact on the performance of
the Group.
How we manage the risk:
* Significant resources focussed on communicating
strategy and desired cultural behaviours to all
employees.
* Forums established for employees to provide feedback
for continuous improvement.
* Employee engagement monitored and measured through
periodic employee surveys.
* Group performance management system in place.
* Training and development strategy in place to manage
talent, provide development opportunities and address
any skill gaps.
* Remuneration models and trends monitored closely by
the Group's Human Resources department and the
Remuneration committee.
* Succession planning strategy in place, to manage and
mitigate 'key person' risk.
---------------------- -------------------------------------------------------------
Other Key Risks
In addition to the principal risks identified above, there are
other key risks that the Group is subject to that derive from the
nature of the business it operates. These are outlined below,
together with how they are managed.
Risk Risk factors and management
--------------- ----------------------------------------
Market risk While the Group does not invest
shareholder funds in assets subject
to any significant market risk,
the Group's earnings and profitability
are influenced by the performance
of contract holder assets and
the fees derived from their value.
Significant changes in equity
markets and interest rates can
adversely affect fee income earned.
Extreme market conditions can
influence the purchase of financial
services products and the period
over which business is retained.
How we manage the risk --- These
risks are inherent in the provision
of investment-linked products.
We model our business plans across
a broad range of market and economic
scenarios and take account of
alternative economic outlooks
within our overall business strategy.
--------------- ----------------------------------------
Credit Risk In dealing with financial institutions,
banking, money market and settlement,
custody and other counterparties
the Group is exposed to the risk
of financial loss and operational
disruption of our business processes.
How we manage the risk --- The
Group seeks to limit exposure
to loss from counterparty and
third party failure through selection
criteria, minimum rating agency
limits, pre-defined risk based
limits on concentrations of exposures
and monitoring positions.
--------------- ----------------------------------------
Liquidity 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 strengthening of Sterling
against US Dollars is the most
significant exposure to reported
income levels.
How we manage the risk --- We
seek to match currency assets
and liabilities to mitigate against
currency movements to the extent
possible. As the Group's products
are long term products, over
time currency movements tend
to even out, reducing the need
for active hedging policies.
Long term trends are monitored
however and considered in pricing
models.
--------------- ----------------------------------------
Further detail around financial risks is outlined in Note 3
(Financial Risk Management) to the consolidated financial
statements.
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2016
Year ended Year
ended
30 June 30 June
2016 2015
Notes GBPm GBPm
------------------------------------- ------ ----------- --------
Fees and commissions 5 51.3 56.3
Investment income 6 62.8 48.6
Other operating income 0.6 0.7
114.7 105.6
------------------------------------- ------ ----------- --------
Change in provisions for
investment contract liabilities (60.8) (47.8)
Origination costs 7 (20.2) (20.1)
Administrative and other
expenses 8 (25.3) (22.8)
------------------------------------- ------ ----------- --------
(106.3) (90.7)
------------------------------------- ------ ----------- --------
Profit before taxation 8.4 14.9
Taxation 10 (0.1) -
------------------------------------- ------ ----------- --------
Profit and total comprehensive
income for the year
after taxation 8.3 14.9
------------------------------------- ------ ----------- --------
Earnings per share
2016 2015
Note (p) (p)
--------- ----- ----- -----
Basic 11 6.0 10.9
Diluted 11 6.0 10.9
----------- ----- ----- -----
Consolidated Statement of Changes in Equity
for the year ended 30 June 2016
Share Other Retained
capital reserves earnings Total
GBPm GBPm GBPm GBPm
-------------------------------- -------- --------- --------- -------
At 1 July 2014 68.7 (48.3) 16.5 36.9
Profit and total comprehensive
income for the
year after taxation - - 14.9 14.9
Transactions with owners
Dividends paid - - (11.7) (11.7)
--------------------------------- -------- --------- --------- -------
At 30 June 2015 68.7 (48.3) 19.7 40.1
--------------------------------- -------- --------- --------- -------
Share Other Retained
capital reserves earnings Total
GBPm GBPm GBPm GBPm
-------------------------------- -------- --------- --------- -------
At 1 July 2015 68.7 (48.3) 19.7 40.1
Profit and total comprehensive
income for the
year after taxation - - 8.3 8.3
Transactions with owners
Dividends paid - - (12.2) (12.2)
--------------------------------- -------- --------- --------- -------
At 30 June 2016 68.7 (48.3) 15.8 36.2
--------------------------------- -------- --------- --------- -------
Consolidated Balance Sheet
As at 30 June 2016
2016 2015
Notes GBPm GBPm
------------------------------- -------- -------- --------
Assets
Property, plant and equipment 13 1.0 1.3
Deferred origination costs 14 110.9 113.5
Financial investments
Equity securities 13.0 27.5
Investments in collective
investment schemes 784.5 784.9
Fixed income securities 22.6 18.3
Deposits and money market
funds 120.2 93.3
Other receivables 15 4.4 4.2
Cash and cash equivalents 16 60.9 65.4
---------------------------------- -------- -------- --------
Total assets 1,117.5 1,108.4
---------------------------------- -------- -------- --------
Liabilities
Financial liabilities under
investment contracts 17 923.5 907.1
Deferred income 18 130.5 137.6
Amounts due to investment
contract holders 20.7 17.3
Other payables 19 6.6 6.3
---------------------------------- -------- -------- --------
Total liabilities 1,081.3 1,068.3
---------------------------------- -------- -------- --------
Net assets 36.2 40.1
---------------------------------- -------- -------- --------
Shareholders' equity
Called up share capital 21 68.7 68.7
Other reserves 22 (48.3) (48.3)
Retained earnings 15.8 19.7
---------------------------------- -------- -------- --------
Total shareholders' equity 36.2 40.1
---------------------------------- -------- -------- --------
Consolidated Cash Flow Statement
for the year ended 30 June 2016
2016 2015
GBPm GBPm
-------- ----------------------------------------- ------- -------
Cash flow from operating activities
Profit before tax for the year 8.4 14.9
Adjustments for:
Depreciation 0.5 0.6
Dividends receivable (3.9) (3.9)
Interest receivable (0.6) (1.0)
Foreign exchange gains (3.3) 0.2
Changes in operating assets and
liabilities
Increase in other receivables (0.3) (0.2)
Dividends received 3.9 3.9
Interest received 0.7 1.0
Decrease in deferred origination
costs 2.6 10.4
Decrease in deferred income (7.1) (3.6)
Increase/(decrease) in creditors 3.6 (8.0)
(Increase)/decrease in financial
investments (16.2) 41.2
Increase/(decrease) in financial
liabilities 16.5 (36.6)
------------------------------------------------------ ------- -------
Cash flow from operations 4.8 19.0
Corporation tax (paid)/received (0.1) 0.2
------------------------------------------------------ ------- -------
Cash flow from operations after
taxation 4.7 19.2
------------------------------------------------------ ------- -------
Cash flows from investing activities
Purchase of plant and equipment (0.2) (0.2)
Proceeds from sale of investments - 0.1
Purchase of investments (0.1) (0.2)
------------------------------------------------------ ------- -------
Cash flows used in investing activities (0.3) (0.3)
------------------------------------------------------ ------- -------
Cash flows from financing activities
Dividends paid (12.2) (11.7)
------------------------------------------------------ ------- -------
Cash flows used in financing activities (12.2) (11.7)
Net (decrease)/increase in cash
and cash equivalents (7.8) 7.2
Cash and cash equivalents at beginning
of year 65.4 58.4
Effect of exchange rate changes 3.3 (0.2)
------------------------------------------------------ ------- -------
Cash and cash equivalents at year
end 60.9 65.4
------------------------------------------------------ ------- -------
Notes to the consolidated financial statements
1 Principal accounting policies
Hansard Global plc ("the Company") is a limited liability
company, incorporated in the Isle of Man, whose shares are publicly
traded. The principal activity of the Company is to act as the
holding company of the Hansard group of companies. The registered
office of the company is Harbour Court, Lord Street, Box 192,
Douglas, Isle of Man, IM99 1QL.
These consolidated financial statements incorporate the assets,
liabilities and the results of the Company and its subsidiary
undertakings ("the Group"). The principal accounting policies
adopted in the preparation of these consolidated financial
statements are set out below or, in the case of accounting policies
that relate to separately disclosed values in the primary
statements, within the relevant note to these consolidated
financial statements. These policies have been consistently
applied, unless otherwise stated.
1.1 Basis of presentation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union ("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 2016.
The directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for
the foreseeable future. Thus they continue to adopt the going
concern basis of accounting in preparing the financial
statements.
There has been no significant impact in the financial statements
due to the mandatory application of new accounting standards for
the year ended 30 June 2016.
The following new standards and interpretations are in issue but
not yet effective and have not been early adopted by the Group:
-- Amendment to IAS 16 ,'Property, plant and equipment' and IAS
38,'Intangible assets', on depreciation and amortisation Amendments
to IAS 27, 'Separate financial statements' on equity accounting IAS
39, 'Financial Instruments' - Recognition and measurement
-- IAS7. 'Statement of cash flows in disclosure initiative
-- IFRS 9, 'Financial instruments'
-- IFRS 11, 'Joint arrangements in acquisition of an interest in a joint operation'
-- IFRS 12, 'Disclosures of Interest in Other Entities'
-- IFRS 15 'Revenue from contracts with customers'
-- Annual improvements 2014
-- IFRS 2, 'Share based payments'
-- IFRS 9, 'Financial instruments'
-- IFRS 16, 'Leases'
Amendments to IAS 1,'Presentation of financial statements'
disclosure initiative. The adoption of the above standards is not
expected to have any material impact on the Group's results.
There are no other standards, amendments or interpretations to
existing standards that are not yet effective, that would have a
material impact on the Group's financial statements.
The financial statements are presented in pounds sterling
rounded to the nearest one hundred thousand pounds.
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting
year. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the year in which the estimate is revised if the revision affects
only that year or in the year of the revision and future years if
the revision affects both current and future years.
The areas involving a higher degree of judgement or complexity,
or areas where assumptions and estimates are significant to the
consolidated financial statements, are disclosed in note 2.
1.2 Basis of consolidation
The consolidated financial statements incorporate the assets,
liabilities and the results of the Company and of its subsidiary
undertakings. Subsidiaries are those entities in which the Company
directly or indirectly has the power to govern the financial and
operating policies generally accompanying a shareholding of more
than one half of the voting rights. The financial statements of
subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control
ceases. Where necessary, accounting policies applied by subsidiary
companies have been adjusted to present consistent disclosures on a
consolidated basis. Intra-group transactions, balances and
unrealised gains and losses arising from intra-group transactions,
are eliminated in preparing these consolidated financial
statements.
2 Critical accounting estimates and judgements in applying accounting policies
Estimates, assumptions and judgements are used in the
application of accounting policies in these financial statements.
Critical accounting estimates are those which involve the most
complex or subjective judgements or assessments. Estimates,
assumptions and judgements are evaluated continually and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. Actual outcomes may differ from assumptions and
estimates made by management.
2.1 Accounting estimates and assumptions
The principal areas in which the Group applies accounting
estimates and assumptions are in deciding the type of management
expenses that are treated as origination costs and the period of
amortisation of deferred origination costs and deferred income.
Estimates are also applied in determining the recoverability of
deferred origination costs.
2.1.1 Origination costs
Management expenses have been reviewed to determine the
relationship of such expense to the issue of an investment
contract. Certain expenses vary with the level of new business
production and have been treated as origination costs. Other
expenses are written off as incurred.
2.1.2 Amortisation of deferred origination costs and deferred income
Deferred origination costs and deferred income are amortised on
a straight-line basis over the life of the underlying investment
contract. Deferred origination costs and deferred income are
amortised over the anticipated life of the contract estimated to be
between 6 and 16 years, depending on the product type.
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 by product
family level.
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 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 Group has elected to treat all assets backing its
contracts at fair value through profit or loss although some of the
assets in question may ultimately be held to maturity;
-- the fair value of certain financial investments. Where the
directors determine that there is no active market for a particular
financial instrument, fair value is assessed using valuation
techniques based on available relevant information and an appraisal
of all associated risks. This process requires the exercise of
significant judgement on the part of Directors, as is discussed
further in note 3.5 to these consolidated financial statements
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 Report and Accounts.
The more significant financial risks to which the Group is
exposed are set out below. For each category of risk, the Group
determines its risk appetite and sets its investment, treasury and
associated policies accordingly.
3.1 Market risk
This is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market
prices, analysed between price, interest rate and currency risk.
The Group adopts a risk averse approach to market risk, with a
stated policy of not actively pursuing or accepting market risk
except where necessary to support other objectives. However, the
Group accepts the risk that the fall in equity or other asset
values, whether as a result of price falls or strengthening of
sterling against the currencies in which contract holder assets are
denominated, will reduce the level of annual management charge
income derived from such contract holder assets and the risk of
lower future profits.
Sensitivity analysis to market risk
The Group's business is unit-linked and the direct associated
market risk is therefore borne by contract holders (although there
is a secondary impact as shareholder income is dependent upon the
markets, as mentioned above). Financial assets and liabilities to
support Group capital resources held outside unitised funds
primarily consist of units in money market funds, cash and cash
equivalents, and other assets and liabilities. Cash held in
unitised money market funds and at bank is valued at par and is
unaffected by movement in interest rates. Other assets and
liabilities are similarly unaffected by market movements.
As a result of these combined factors, the Group's financial
assets and liabilities held outside unitised funds are not
materially subject to market risk, and movements at the reporting
date in interest rates and equity values have an immaterial impact
on the Group's profit after tax and equity. Future revenues from
annual management charges may be affected by movements in interest
rates, foreign currencies and equity values.
(a) Price risk
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 2016
was GBP830.7m (2015: GBP862.1). 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 GBP1.3m (2015: GBP1.4m).
(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 GBP0.8m (2015: GBP0.8m) 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:
2016 2016 2016 2015 2015 2015
US$m EURm Yenm US$m EURm Yenm
------------------------------- ------- ------ -------- ------- ------ --------
Gross assets 10.9 7.4 254.0 17.0 5.5 311.4
Matching currency liabilities (13.3) (4.4) (127.7) (12.0) (4.4) (154.7)
------------------------------- ------- ------ -------- ------- ------ --------
Uncovered currency exposures (2.4) 3.0 126.3 5.0 1.1 156.7
------------------------------- ------- ------ -------- ------- ------ --------
Sterling equivalent (GBPm) (1.8) 2.5 0.9 3.2 0.8 0.8
------------------------------- ------- ------ -------- ------- ------ --------
The approximate effect of a 5% change: in the value of US
dollars to sterling is less than GBP0.1m (2015: less than GBP0.1m);
in the value of the euro to sterling is GBP0.1m (2015: GBP0.2m);
and in the value of the yen to sterling is less than GBP0.1m (2015:
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: 69.2% (2015:
59.4%); euro: 11.7% (2015: 18.9%); sterling: 16.3% (2015: 16.3%);
other: 2.8% (2015: 5.4%).
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 2016 and 2015, 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.
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):
2016 2015
GBPm GBPm
----------------------------------- ----- -----
Deposits with credit institutions 21.1 24.4
Investments in money market funds 55.5 56.5
----------------------------------- ----- -----
76.6 80.9
----------------------------------- ----- -----
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.
2016 2015
GBPm GBPm
----------------------------------------- -------- --------
Maturity within 1 year
Deposits and Money Market funds 76.6 80.9
Other assets 1.4 1.5
----------------------------------------- -------- --------
78.0 82.4
----------------------------------------- -------- --------
Maturity from 1 to 5 years
Deposits with credit institutions - -
Other assets 0.1 0.3
----------------------------------------- -------- --------
0.1 0.3
----------------------------------------- -------- --------
Assets with maturity values 78.1 82.7
Other shareholder assets 115.2 117.6
----------------------------------------- -------- --------
Shareholder assets 193.3 200.3
Gross assets held to cover financial
liabilities under investment contracts 924.4 908.1
----------------------------------------- -------- --------
Total assets 1,117.5 1,108.4
----------------------------------------- -------- --------
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.
3.5.1 Fair value estimation
The Group closely monitors the valuation of assets in markets
that have become less liquid. Determining whether a market is
active requires the exercise of judgement and is determined based
upon the facts and circumstances of the market for the instrument
being measured. Where the directors determine that there is no
active market for a particular financial instrument, 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.
If all significant inputs required to fair value an instrument
are observable, the instrument is included in Level 2. If one or
more of the significant inputs is not based on observable market
data, the instrument is included in Level 3.
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
2016:
Level Level Level Total
1 2 3
Financial assets at fair value GBPm GBPm GBPm GBPm
through profit or loss
--------------------------------- ------ ------ ------ ------
Equity securities 13.0 - - 13.0
Collective investment schemes 724.6 - 60.1 784.5
Fixed income securities 22.6 - - 22.6
Deposits and money market funds 120.2 - - 120.2
Total financial assets at fair
value through profit or loss 880.2 - 60.1 940.3
--------------------------------- ------ ------ ------ ------
3.5.2 Transfers into and out of Level 3
During this financial year, no assets were transferred from
Level 2 to Level 1. Assets with a fair value of GBP2.8m were
transferred from Level 1 to Level 3, due to the change in market
for the related assets. Assets with a value of GBP3.3m were
reclassified from Level 1 to Level 3 and subsequently valued at
zero by the Directors, as they believe this reflects the fair value
of these assets at the balance sheet date. Assets with a fair value
of GBP57.3m were transferred from Level 2 to Level 3 during the
year 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.
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 - 923.5 - 923.5
------------------------------- ------- ------ ------ ------
The following table analyses the Group's financial assets and
liabilities at fair value through profit or loss, at 30 June
2015:
Level Level Level Total
1 2 3
Financial assets at fair value GBPm GBPm GBPm GBPm
through profit or loss
--------------------------------- ------ ------ ------ ------
Equity securities 27.5 - - 27.5
Collective investment schemes 732.0 52.9 - 784.9
Fixed income securities 18.3 - - 18.3
Deposits and money market funds 93.3 - - 93.3
Total financial assets at fair
value through profit or loss 871.1 52.9 - 924.0
--------------------------------- ------ ------ ------ ------
During the previous financial year, no assets were transferred
from Level 2 to Level 1. Assets with a fair value of GBP8.4m were
transferred from Level 1 to Level 2. Assets with a value of GBP0.3m
were reclassified from Level 1 to Level 3 and subsequently valued
at zero by the Directors, as they believe this reflects the fair
value of these assets at the balance sheet date. No assets were
reclassified from Level 3 to Level 1 or Level 2 during the previous
financial year.
Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
------------------------------- ------- ------ ------ ------
Financial liabilities at fair
value through profit or loss - 907.1 - 907.1
------------------------------- ------- ------ ------ ------
Due to the unit-linked nature of the contracts administered by
the Group's insurance undertakings, any change in the value of
financial assets held to cover financial liabilities under those
contracts will result in an equal and opposite change in the value
of contract liabilities. The separate effect on financial assets
and financial liabilities is included in investment income and
investment contract benefits, respectively, in the consolidated
statement of comprehensive income.
4 Segmental information
Disclosure of operating segments in these financial statements
is consistent with reports provided to the Chief Operating Decision
Maker ("CODM") which, in the case of the Group, has been identified
as the Executive Committee of Hansard Global plc.
In the opinion of the CODM, the Group operates in a single
reportable segment, that of the distribution and servicing of
long-term investment products. New business development,
distribution and associated activities in relation to the Republic
of Ireland ceased with effect from 30 June 2013. All other
activities of the Group are continuing.
The Group's Executive Committee uses two principal measures when
appraising the performance of the business: Net Issued Compensation
Credit ("NICC") and expenses. NICC is a measure of the value of new
in-force business and top-ups on existing single premium contracts.
NICC is the amount of basic initial commission payable to
intermediaries for business sold in a period and is calculated on
each piece of new business. It excludes override commission paid to
intermediaries over and above the basic level of commission.
The 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 Report and
Accounts.
2016 2015
GBPm GBPm
----------------------------------- ----- -----
Middle East and Africa 4.5 0.6
East Asia 2.1 0.9
Rest of World 1.9 1.2
Latin America 0.9 2.1
------------------------------------ ----- -----
Net Issued Compensation Credit 9.4 4.8
Other commission costs paid to
third parties 4.5 2.2
Enhanced unit allocations 1.2 0.6
------------------------------------ ----- -----
Origination costs incurred during
the year 15.1 7.6
------------------------------------ ----- -----
The net issued compensation credit figure of GBP9.4m for the
year all relates to continuing operations based in the Isle of Man
(2015: GBP4.8m).
Revenues and expenses allocated to geographical locations
contained in sections 4.1 to 4.4 below reflect the revenues and
expenses generated in or incurred by the legal entities in those
locations.
4.1 Geographical analysis of fees and commissions by origin
2016 2015
GBPm GBPm
--------------------- ----- -----
Isle of Man 44.5 47.6
Republic of Ireland 6.8 8.7
---------------------- ----- -----
51.3 56.3
--------------------- ----- -----
4.2 Geographical analysis of profit before taxation
2016 2015
GBPm GBPm
--------------------- ----- -----
Isle of Man 8.3 13.5
Republic of Ireland 0.1 1.4
---------------------- ----- -----
8.4 14.9
--------------------- ----- -----
4.3 Geographical analysis of gross assets
2016 2015
GBPm GBPm
--------------------- -------- --------
Isle of Man 909.7 865.7
Republic of Ireland 207.8 242.7
---------------------- -------- --------
1,117.5 1,108.4
--------------------- -------- --------
4.4 Geographical analysis of gross liabilities
2016 2015
GBPm GBPm
--------------------- -------- --------
Isle of Man 892.6 844.2
Republic of Ireland 188.7 224.1
---------------------- -------- --------
1,081.3 1,068.3
--------------------- -------- --------
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.
2016 2015
GBPm GBPm
------------------------- ----- -----
Contract fee income 34.4 38.7
Fund management charges 12.8 13.4
Commissions receivable 4.1 4.2
------------------------- ----- -----
51.3 56.3
------------------------- ----- -----
6 Investment income
Investment income comprises dividends, interest and other income
receivable, realised gains and losses on investments and unrealised
gains and losses. Movements are recognised in the 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.
2016 2015
GBPm GBPm
------------------------------------- ----- -----
Interest income 0.6 0.8
Dividend income 3.9 3.9
Gains on realisation of investments 30.7 41.0
Movement in unrealised losses 27.6 2.9
------------------------------------- ----- -----
62.8 48.6
------------------------------------- ----- -----
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.
2016 2015
GBPm GBPm
-------------------------------------- ----- -----
Amortisation of deferred origination
costs 17.7 18.1
Other origination costs 2.5 2.1
---------------------------------------- ----- -----
20.2 20.1
---------------------------------------- ----- -----
8 Administrative and other expenses
Included in administrative and other expenses is the
following:
2016 2015
GBPm GBPm
------------------------------------- ----- -------
Auditors' remuneration:
- Fees payable to the Company's
auditor 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 0.3 0.7
- Other services provided to
the Group 0.2 0.1
Employee costs (see note 9) 11.4 10.9
Directors' fees 0.3 0.3
Release of provision for chargeable
event certificates costs - (3.0)
Fund management fees 3.6 3.8
Renewal and other commission 1.3 1.2
Professional and other fees 2.3 2.6
Litigation fees and settlements 0.5 0.6
Operating lease rentals 0.7 0.6
Licences and maintenance fees 0.9 0.9
Insurance costs 0.9 0.9
Depreciation of property, plant
and equipment 0.5 0.6
Communications 0.5 0.3
-------------------------------------- ----- -------
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 company in
independently administered funds.
The Group operates an annual bonus plan for employees. An
expense is recognised in the profit and loss account when the
company 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:
2016 2015
GBPm GBPm
-------------------- ----- -----
Wages and salaries 11.2 10.6
Social security
costs 1.0 1.0
Contributions
to pension plans 1.0 0.9
13.2 12.5
-------------------- ----- -----
Total salary and other staff costs for the year are incorporated
within the following classifications:
2016 2015
GBPm GBPm
----------------------------------- ----- -----
Administrative and other expenses 11.4 10.9
Origination costs 1.8 1.6
13.2 12.5
----------------------------------- ----- -----
The above information includes Directors' remuneration. 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:
2016 2015
No. No.
------------------ ----- -----
Administration 138 144
Distribution and
marketing 31 27
IT development 37 35
206 206
------------------ ----- -----
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 income statement except to the extent that it relates to
items recognised in equity. Tax on items relating to equity is
recognised in equity.
The Group's profits arising from its Isle of Man-based
operations are taxable at zero percent. Profits in the Republic of
Ireland are taxed at 12.5%. Taxation for Hansard Europe dac
includes GBP0.1m representing the recalculation of historic tax
arising from that company's adoption of FRS 101 'Reduced Disclosure
Framework' with effect from 1 July 2014.
There is no material difference between the current tax charge
in the income statement and the current tax charge that would
result from applying standard rates of tax to the profit before
tax.
11 Earnings per share
The calculation for earnings per share is based on the profit
for the year after taxation divided by the average number of shares
in issue throughout the year.
2016 2015
----------------------------------- ------ ------
Profit after tax (GBPm) 8.4 14.9
Weighted average number of shares
in issue (millions) 137.4 137.4
------------------------------------ ------ ------
Basic and diluted earnings per
share in pence 6.0 10.9
------------------------------------ ------ ------
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 6.0p per share (2015: 10.9p).
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
2016 2016 2015 2015
p GBPm p GBPm
--------------------------- ---------- ------ ---------- ------
Final dividend in respect
of previous
financial year 5.25 7.2 5.0 6.9
Interim dividend in
respect of current
financial year 3.6 4.9 3.5 4.8
8.85 12.2 8.5 11.7
--------------------------- ---------- ------ ---------- ------
The Board has resolved to pay a final dividend of 5.3p per share
on 17 November 2016, subject to approval at the Annual General
Meeting, based on shareholders on the register on 30 September
2016.
13 Property, plant and equipment
Property, plant and equipment is stated at historical cost less
depreciation and any impairment. The historical cost of property,
computer equipment and fixtures & fittings is the purchase
cost, together with any incremental costs directly attributable to
the acquisition. The historical cost of computer software is the
purchase cost. Computer software is recognised as an intangible
asset.
Depreciation is calculated so as to amortise the cost of
tangible and 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 income statement.
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 and software 3 to 5 years
Fixtures & fittings 4 years
-------------------------------- -------------
The cost of property, computer equipment and fixtures &
fittings at 30 June 2016 is GBP9.2m (2015: GBP9.6m), with a net
book value of GBP0.9m (2015: GBP1.1m). The cost of computer
software at 30 June 2016 is GBP0.7m (2015: GBP0.6m), with a net
book value of GBP0.1m (2015: GBP0.2m).
Accumulated depreciation at 30 June 2016 is GBP8.9m (2015:
GBP8.3m).
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 income statement 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.
2016 2015
Carrying value GBPm GBPm
--------------------------------------- ------- -------
At beginning of financial year 113.5 123.9
Origination costs incurred during the
year 15.1 7.6
Origination costs amortised during
the year (17.7) (18.0)
--------------------------------------- ------- -------
110.9 113.5
--------------------------------------- ------- -------
2016 2015
Carrying value GBPm GBPm
---------------- ------ -------------
Current 9.5 11.3
Non-current 101.4 102.2
---------------- ------ -------------
110.9 113.5
---------------- ------ -------------
15 Other receivables
Other receivables are initially recognised at fair value and
subsequently measured at amortised cost, less any provision for
impairment.
2016 2015
GBPm GBPm
-------------------------- ----- -----
Contract fees receivable 0.3 0.6
Commission receivable 1.2 1.0
Other debtors 2.9 2.6
4.4 4.2
--------------------------- ----- -----
Estimated to be settled
within 12 months 4.3 3.9
Estimated to be settled
after 12 months 0.1 0.3
-------------------------- ---- ----
4.4 4.2
------------------------- ---- ----
At the balance sheet date there are no receivables overdue but
not impaired (2015: GBPnil) or impaired (2015: 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 original maturities of three months or less, net of short-term
overdraft positions where a right of set-off exists.
2016 2015
GBPm GBPm
---------------------------------------------- ----- -----
Money market funds 53.6 56.5
Short-term deposits with credit institutions 7.3 8.9
---------------------------------------------- ----- -----
60.9 65.4
---------------------------------------------- ----- -----
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 value of 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 income
statement 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 income statement 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:
2016 2015
GBPm GBPm
---------------------------------------- -------- --------
Deposits to investment contracts 123.9 100.9
Withdrawals from contracts and charges (168.3) (185.2)
Change in provisions for investment
contract liabilities 60.8 47.8
----------------------------------------- -------- --------
Movement in year 16.4 (36.5)
At beginning of year 907.1 943.6
----------------------------------------- -------- --------
923.5 907.1
----------------------------------------- -------- --------
GBPm GBPm
-------------------------------------- ------ ------
Contractually expected to be settled
within 12 months 25.0 26.7
Contractually expected to be settled
after 12 months 898.5 880.4
-------------------------------------- ------ ------
923.5 907.1
-------------------------------------- ------ ------
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.
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 income statement 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.
2016 2015
GBPm GBPm
--------------------------------------------------------- ------ ------
Equity securities 13.0 27.5
Investments in collective investment
schemes 784.0 784.4
Fixed income securities 22.6 18.3
Deposits and money market funds 104.8 77.9
Total assets 924.4 908.1
Other payables (0.9) (1.0)
------
Net financial assets held to cover financial liabilities 923.5 907.1
------
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.
2016 2015
Carrying value GBPm GBPm
-------
At beginning of financial year 137.6 141.2
Income received and deferred during the year 11.4 16.4
Income recognised in contract fees during the year (18.5) (20.0)
-------
130.5 137.6
-------
2016 2015
Carrying value GBPm GBPm
Current 12.8 14.1
Non-current 117.7 123.5
130.5 137.6
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.
2016 2015
GBPm GBPm
Commission payable 1.6 2.0
Other creditors and accruals 5.0 4.3
6.6 6.3
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 Group's policy is for each company to hold the higher
of:
-- the company's internal assessment of the capital required; and
-- the capital requirement of the relevant supervisory body plus
a specified margin over this to absorb changes.
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.
Hansard Europe became subject to the new Solvency II regulations
from 1 January 2016. This did not have a material impact in the
level of capital considered necessary to be held by that
company.
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 Called up share capital
2016 2015
GBPm GBPm
Authorised:
200,000,000 ordinary shares of 50p 100.0 100.0
Issued and fully paid:
137,440,456 (2015: 137,388,669) ordinary shares of 50p 68.7 68.7
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.
2016 2015
GBPm GBPm
Merger reserve (48.5) (48.5)
Share premium 0.1 0.1
Share save reserve 0.1 0.1
-------
(48.3) (48.3)
-------
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 income statement. 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 income statement 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:
2016 2015
No. of No. of
Scheme year options options
2011 - 8,366
2013 4,044 266,538
2014 82,114 531,376
2015 783,332 823,919
2016 182,629 -
----------
1,052,119 1,630,199
----------
A summary of the transactions in the existing SAYE programmes
during the year is as follows:
2016 2015
Weighted Weighted
average average
No. of exercise No. of exercise
options price (p) options price (p)
Outstanding at the start of year 1,630,199 78 828,208 88
Granted 182,629 84 823,919 68
Exercised (51,787) 78 (9,035) 88
Forfeited (708,922) 78 (12,893) 88
---------- --------- ---------- ---------
Outstanding at end of year* 1,052,119 79 1,630,199 78
---------- --------- ---------- ---------
*None of these options are exercisable as at 30 June 2016.
Financial assumptions underlying the calculation of fair
value
The fair value expense has been based on the fair value of the
options granted, as calculated using the Black Scholes pricing
model. Expected volatility is based on an analysis of the Group's
share price volatility on the London Stock Exchange.
The fair value of the share options granted during the year has
been calculated using the following assumptions:
2016 award assumptions 3-year 5-year
Date of grant 1 May 2016 1 May 2016
Fair value (pence) 16 13
Exercise price (pence) 84 84
Share price (pence) 106 106
Expected volatility 26% 26%
Expected dividend yield 7.5% 7.5%
Risk-free rate 0.36% 0.47%
2016 award details
Date of grant 1 May 2016
No. of shares awarded 182,629
Vesting conditions 3- or 5-year savings term
Exercise period - 3-year 1 May 2016 - 31 October 2019
Exercise period - 5-year 1 May 2016 - 31 October 2021
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 income statement 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:
2016 2015
GBPm GBPm
-----
Amounts due:
Within one year 0.6 0.6
Between two and five years 1.3 1.4
After five years 0.2 0.5
-----
2.1 2.5
-----
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 9 individuals (2015: 10), 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
2016 is as follows:
2016 2015
GBPm GBPm
----- -----
Salaries, wages and bonuses 1.8 2.4
----- -----
The total value of investment contracts issued by the Group and
held by key management is zero (2015: 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.
-- As reported in the Report of the Remuneration Committee, Dr
Polonsky received fees of GBP50,000 (2015: GBP50,000) for services
provided to the Group under the terms of his service agreement
dated 22 September 2015. This fee represents 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. At 30 June 2016 this
contract had a fair value of GBP17.5m (2015: GBP7.2m), following a
contribution of GBP8.5m in the year.
25.4 Employee Benefit Trust
An Employee Benefit Trust was established in November 2011 with
the transfer to it of 400,000 ordinary shares in Hansard Global plc
by Dr Polonsky. The purpose of the Trust is to use the income
derived from dividends to reward longer serving staff, where sales
targets are met. At the date of this Report and Accounts, the Trust
holds 760,521 shares (2015: 699,910 shares), following the purchase
of 60,611 shares in the year. There were no awards paid by the
Trust during the year as the performance targets were not met
(2015: 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 Report and
Accounts.
26 Contingent liabilities
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
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. Hansard Europe has been served with a
number of writs arising from such complaints and other
asset-related issues.
As at 30 June 2016, there were outstanding writs served upon
Hansard Europe totalling EUR15.7m, or GBP13.1m in sterling terms
(30 June 2015: EUR12.4m, or GBP8.8m). The increase during the year
is primarily as a result of additional contract holders being added
to existing writs.
During the year, the Group successfully won three cases in
Belgium and Italy, which affirms confidence in the Group's legal
arguments. The outstanding writs have not been reduced for these
cases (totalling EUR1.4m or GBP1.1m) however as they have all since
been appealed.
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 Group may consider it in the best
interests of the Group and its shareholders to reach a commercial
resolution with regard to certain of these claims. There were no
such settlements made or provided for during the year (2015:
GBP0.1m). It is not possible at this time to make any further
estimates of liability.
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 income statement.
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 balance sheet items to sterling were as follows:
2016 2015
------
US Dollar 1.33 1.57
Japanese Yen 137.4 192.5
Euro 1.20 1.41
29 Non statutory accounts
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 30 June 2016 or
2015, 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.
30 Annual report
The Company's annual report and accounts for the year ended 30
June 2016 is expected to be posted to shareholders by 12 October
2016. 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;
-- The EEV Information has been prepared in accordance with the EEV Principles 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
On behalf of the Board
21 September 2016
EUROPEAN EMBEDDED VALUE INFORMATION
1 INTRODUCTION
The European Embedded Value ("EEV") measure is an estimate of
the value of the shareholders' interest in the Group. The EEV
covers the entire business of the Group, including its life
assurance companies and subsidiaries providing administration,
distribution and other services.
The European Embedded Value ("EEV") measure is an estimate of
the value of the shareholders' interest in the Group. The EEV
covers the entire business of the Group, including its life
assurance companies and subsidiaries providing administration,
distribution and other services.
The EEV comprises Net Worth and the Value of Future Profits
("VFP") i.e. future profits - from business in-force at the
valuation date, 30 June 2016. It excludes the value of any future
new business that the Group may write after the valuation date. All
results are calculated net of corporation tax.
The Group's EEV methodology complies fully with the set of EEV
Principles published by the CFO Forum in May 2004 and most recently
extended in April 2016. It has been calculated using
market-consistent economic assumptions and best estimate operating
assumptions having regard for the Group's experience and its
assessment of future experience. A description of the EEV
methodology is set out in the Notes to the EEV Information. There
have been no significant changes in the EEV methodology from that
used in the previous financial year.
2 EEV PROFIT PERFORMANCE FOR THE YEAR
2.1 EEV profit / (loss)
EEV profit / (loss) is a measure of the performance over the
year. It is derived as follows:
2016 2015
GBPm GBPm
New Business Contribution 0.2 (3.7)
Experience variances (3.8) 2.6
Operating assumption changes (0.1) (6.1)
Model changes 1.1 (0.9)
Expected return on new and existing business 1.0 1.3
Expected return on Net Worth 0.5 0.5
EEV operating loss after tax (1.1) (6.3)
Investment return variances 18.8 4.3
Economic assumption changes (4.6) 4.9
EEV profit after tax 13.1 2.9
2.1.1 New Business Contribution
New Business Contribution ("NBC") was GBP0.2m (2015: (GBP3.7m)).
The positive NBC reflects the increase in new business volumes
during 2016 and the existence of a greater number of insurance
contracts to spread initial expenses over.
2.1.2 Experience variances
Experience variances arise where actual experience differs from
that assumed in the prior year's EEV. Major contributors to the
experience variances this year include a reallocation of the
expense base from initial to recurring expenses and worse than
assumed encashment and premium persistency.
2016 2015
GBPm GBPm
Ongoing expenses (1.3) (0.7)
Full encashments (1.2) (1.6)
Premium reductions and underpayments (0.8) 1.1
Charges (0.6) (0.6)
One-off expenses (0.3) 1.4
Policies made paid up (0.1) 1.3
Partial encashments (0.1) 0.7
FX and Unit Pricing (0.2) 0.6
Other 0.8 0.4
(3.8) 2.6
2.1.3 Operating assumption changes
The operating assumption changes reflect changes in management's
view of the behaviour of the existing business. These changes
decreased the EEV by GBP0.1m, (2015: (GBP6.1m)), as shown
below.
Operating assumptions are generally management's best estimate,
having regard to recent experience. Management has weakened the
expense, premium persistency and full encashment assumptions, while
strengthening the partial encashment assumptions.
2016 2015
GBPm GBPm
Partial encashment (2.5) 0.2
Ongoing expenses 1.0 (11.2)
Premium persistency 0.9 3.0
Full encashment 0.6 -
Mortality (0.1) 0.5
Contract holder activity margins 0.0 1.4
(0.1) (6.1)
2.1.4 Model changes
The Group continues to develop its modelling functionality. In
particular, this year, a revised approach to unit growth rates and
discounting cashflows was implemented. As a result of these model
changes, the EEV increased by GBP1.1m (2015: (GBP0.9m)).
2.1.5 Expected return on new and existing business
Under EEV methodology, it is a convention to assume that the
value of the business grows at 'start of period' assumptions. The
expected return is therefore based on assumptions determined at 30
June 2015. These assumptions are applied to give the expected
conversion from VFP to Net Worth in the year, and the time value of
both existing business and non-market risk.
No assumptions are made about the level of future new business.
New Business Strain is the initial capital needed to fund new
sales. This is calculated using end of period operating assumptions
(i.e. assumptions determined at 30 June 2016).
2016 2015
EEV Net VIF* EEV Net VIF*
worth worth
GBPm GBPm GBPm GBPm GBPm GBPm
Cash generated from VFP - 24.0 (24.0) - 32.8 (32.8)
New Business Strain - (18.6) 18.6 - (14.1) 14.1
Time value of existing business 1.0 0.5 0.5 1.3 1.0 0.3
Time value of new business - (0.1) 0.1 - - -
1.0 5.8 (4.8) 1.3 19.7 (18.4)
* Value of In-Force
The expected value of cash generated was GBP24.0m (2015:
GBP32.8m). The decrease reflects, both lower levels of new business
in recent years, and a movement towards products with cash
generation weighted towards longer durations. The higher New
Business Strain of GBP18.6m (2015: GBP14.1m) reflects higher new
business during the year. The time value figures use economic
assumptions at 30 June 2015.
2.1.6 Expected return on Net Worth
The expected return on Net Worth of GBP0.5m (2015: GBP0.5m)
reflects the anticipated increase in shareholder assets over the
period due to the time value of money. In line with the EEV, its
calculation is based on the 30 June 2015 year one risk discount for
sterling which was 0.7% (2015: 0.9%).
2.1.7 Investment return variance
Investment performance principally reflects the investment
choices, by nature and currency, made by contract holders. It is
therefore largely outside the Group's control. The weakening of
sterling against other currenices, and US dollars in particular,
has led to an increase in income from non sterling cashflows. The
movement in exchange rate has increased the EEV by GBP26.1m.
2016 2015
GBPm GBPm
------------------------------------------------- ------ ------
Exchange rate movements 26.1 0.4
Investment performance of contract holder funds (7.6) 3.4
Shareholder return (0.2) (0.1)
Other 0.5 0.6
------------------------------------------------- ------ ------
18.8 4.3
2.1.8 Economic assumption changes
There was a negative variance of (GBP4.6m) (2015: GBP4.9m) from
economic assumption changes: this variance follows the application
of the EEV Principles and reflects changes to government bond
yields for the currencies to which the Group is exposed.
2016 2015
GBPm GBPm
------------------------------------- ------ -----
Contract holder activity margins (4.7) 1.1
Risk discount rates and unit growth 0.1 3.8
(4.6) 4.9
2.2 Analysis of EEV profit / (loss) by component
The table below shows a detailed analysis of EEV profit after
tax for the year ended 30 June 2016.
2016 2015
Movement in Movement in
EEV Net VIF EEV Net VIF
Worth Worth
GBPm GBPm GBPm GBPm GBPm GBPm
New Business Contribution 0.2 - 0.2 (3.7) - (3.7)
Experience variances (3.8) (3.0) (0.8) 2.6 1.3 1.3
Operating assumption changes (0.1) - (0.1) (6.1) - (6.1)
Model changes 1.1 - 1.1 (0.9) - (0.9)
Expected return on new and existing business 1.0 5.8 (4.8) 1.3 19.7 (18.4)
Expected return on Net Worth 0.5 0.5 - 0.5 0.5 -
EEV operating profit / (loss) after tax (1.1) 3.3 (4.4) (6.3) 21.5 (27.8)
Investment return variances 18.8 0.8 18.0 4.3 0.3 4.0
Economic assumption changes (4.6) - (4.6) 4.9 - 4.9
EEV profit / (loss) after tax 13.1 4.1 9.0 2.9 21.8 (18.9)
The VIF expected return on new and existing business figure
includes an adjustment of (GBP0.1m) for non-market risk.
3 EMBEDDED VALUE AT 30 JUNE 2016
Following the payment of dividends of GBP12.2m (2015: GBP11.7m),
the Group's EEV has increased to GBP195.9m (2015: GBP195.0m). The
EEV balance sheet is presented below.
2016 2015
GBPm GBPm
Free surplus 27.9 36.5
Required Capital 27.6 27.0
Net Worth 55.5 63.5
VIF 147.8 138.6
Frictional costs (1.2) (1.0)
Reduction for non-market risk (6.2) (6.1)
Value of Future Profits ("VFP") 140.4 131.5
EEV 195.9 195.0
At the balance sheet date, the Net Worth of the Group is
represented by liquid cash balances. Given the uncertainties
inherent in the ultimate outcome of the litigation against Hansard
Europe, we believe the extraction of any capital by the parent
company will be constrained for up to three years.
The VFP is based on the value of contract holder funds under
administration at 30 June 2016.
4 NEW BUSINESS PROFITABILITY
Levels of new business written in 2016 reached sufficient
quantity to cover the marginal and fixed costs of writing such
business. As a result the new business contribution and new
business margin are positive in 2016. The following metrics
illustrate the profitability of the Group's new business.
4.1 New business margin
2016 2015
New business sales ("PVNBP") GBP119.5m GBP60.6m
New business contribution ("NBC") GBP0.2m (GBP3.7m)
New business margin ("NBM") 0.2 % (6.2)%
The New Business Margin for the year is 0.2% (2015: (6.2%)). The
change is primarily due to the increase in new business volumes
over the period and the existence of a greater number of insurance
contracts to spread initial expenses over.
5 EEV SENSITIVITY ANALYSIS
Sensitivities provide an indication of the impact of changes in
particular assumptions on the EEV at 30 June 2016 and the NBC for
the year then ended.
The sensitivities will be affected by the change in the Group's
business mix: different product types are sensitive to different
assumptions in particular. Unless otherwise indicated, the
sensitivities are broadly symmetrical.
The sensitivity analysis indicates that the Group's exposure to
operating factors is limited, largely as a result of product
design. A change in the level of expenses is the main operating
exposure of the Group, although the VIF has become proportionately
less sensitive to the changes in expense assumptions as a result of
Hansard Europe being closed to new business. The largest
sensitivities for the Group are related to economic factors. In
particular, as a result of the diversified portfolio of assets
under administration, it is exposed to movements in exchange rates
and asset values through the impact on the level of future
fund-based management income.
2016
Impact on: EEV NBC
GBPm GBPm
Central assumptions 195.9 0.2
Operating sensitivities
10% decrease in expenses 9.1 0.5
1% increase in expense inflation
(6.5) (0.6)
1% increase in charge inflation 4.3 0.2
1% increase in expense and charge inflation
(2.0) (0.4)
10% decrease in full encashment rates 1.8 0.2
5% decrease in mortality 0.1 -
Economic sensitivities
1% increase in risk discount rate (7.1) (0.7)
1% decrease in investment return rate (6.8) (0.5)
1% increase in risk discount rate and investment return rate
(0.6)
(0.3)
1% decrease in risk discount rate and investment return rate
0.4
0.3
10% decrease in the value of equities and property (9.5) -
10% strengthening of sterling (15.9) (0.8)
In each sensitivity calculation, all other assumptions remain
unchanged, except those being tested. There is a natural
correlation between many of the sensitivity scenarios tested, so
the impact of two occurring together is likely to be different from
the sum of the individual sensitivities.
No changes to statutory valuation bases, pricing bases and
Required Capital have been allowed for. No future management action
has been modelled in reaction to the changing assumptions. For new
business, the sensitivities reflect the impact of a change from
inception of the policy.
NOTES TO THE EUROPEAN EMBEDDED VALUE INFORMATION
1 BASIS OF PREPARATION OF EEV
1.1 EEV Principles
The Group's EEV methodology complies fully with the set of EEV
Principles published by the CFO Forum in May 2004 and extended in
October 2005 April 2016. It has been calculated using
market-consistent economic assumptions and best estimate operating
assumptions having regard for the Group's own past, current and
expected future experience.
1.2 Covered business
EEV covers the entire business of the Group.
1.3 New business premiums
The following premiums are included in the calculation of the
NBC and PVNBP:
-- Premiums arising from the sale of new policies during the period, including:
o Contractual premiums;
o Non-contractual recurrent single premiums where the level of
premium and period of payment is pre-defined and reasonably
predictable.
-- Non-contractual top-up premiums received during the period on existing policies.
1.4 Timing of cash flows
The EEV has been calculated using economic and operating
assumptions as at the end of the financial year (i.e. the valuation
date). The NBC and PVNBP where applicable have been calculated
using economic assumptions as at the start of the year and
operating assumptions as at the end of the year.
1.5 Real world returns
No credit is taken in the calculation of EEV, NBC or PVNBP where
applicable for returns in excess of risk-free returns. This
approach may differ from that used by some of our competitors, who
include an asset risk premium.
2 METHODOLOGY
2.1 Overview
The methodology used to derive the EEV results at the valuation
date is consistent with the IFRS methodology used in relation to
the consolidated financial statements for the year ended 30 June
2016. Under EEV methodology, profit is recognised as margins are
released from policy related balances over the lifetime of each
policy within the Group's in-force business. The total projected
profit recognised over the lifetime of a policy under EEV
methodology is the same as reported under IFRS, but the timing of
recognition is different.
2.2 European Embedded Value
The Group's European Embedded Value is calculated on its covered
business and is shown net of corporation tax. The Group does not
have any debt or financial reinsurance arrangements in place at the
valuation date. The EEV comprises the Net Worth and the Value of
Future Profits, which can be further categorised as shown in the
table below:
Components Of The EEV
Component Sub-component
Net Worth Required Capital
Free Surplus
Value Of Future Profits Value of In-Force
Reduction for Non-market Risk
Frictional Cost of Required Capital
Cost of Financial Options & Guarantees
Each component is determined separately, as follows:
2.2.1 Required Capital
Required Capital is determined by the Board, bearing in mind the
requirements of regulators of the Group's life insurance
subsidiaries and the working capital required by the Boards of
Group's subsidiaries.
Given the uncertainties inherent in the ultimate outcome of the
litigation against Hansard Europe, we believe the extraction of any
capital by the parent company will be constrained for up to three
years.
2.2.2 Free surplus
The Free Surplus is the difference between the Net Worth and the
Required Capital.
2.2.3 Value of In-Force covered business ("VIF")
The VIF is determined by projecting, on a best estimate basis,
the stream of future shareholder cash flows expected to arise from
assets backing the liabilities of the covered business and then
calculating the present value of the cash flows using an
appropriate risk discount rate.
Future shareholder cash flows are deemed to arise when they are
released from contract holder funds, following an actuarial
valuation by the appointed actuary.
VIF is calculated on a 'look through' basis whereby it includes
all net cash flows arising from the products supported by the
subsidiary companies providing administration, distribution and
other services. The projections are performed using a proprietary
actuarial modelling tool called Prophet.
2.2.4 Reduction for non-market Risk
The directors make an annual assessment of the cost of
non-market risks that are not covered in the VIF projections and
determine an allowance to be deducted from VFP to meet these
risks.
This year, the Directors have established an allowance of
GBP6.2m (2015: GBP6.1m). This is equivalent to an increase of 0.8%
in the risk discount rate assumption at the valuation date. The
allowance has been assessed after considering past experience, the
operational characteristics of the business and market
information.
2.2.5 Frictional Cost of Required Capital
The cost of holding the Required Capital is, for the Group, the
cost of tax on interest on the capital retained in Hansard Europe.
The expected interest is projected, the tax calculated and then
discounted to the valuation date.
2.2.6 Cost of financial options and guarantees
The Group's business does not include any policies with material
options and/or guarantees regarding investment performance and,
hence, unlike the situation faced by many other life assurers, the
Group's cost of financial options and guarantees is zero.
3 OPERATING ASSUMPTIONS
The EEV is calculated using best estimate operating assumptions
having regard for the Group's recent experience and management's
best estimate of future behaviour, together with other relevant
data.
The covered business is unit-linked: it comprises mainly
investment-type products with minimal life cover and no financial
options or guarantees. The three main product groups are regular
premium, personal portfolio and recurrent single premium.
Variations in experience between the product groups have been
considered and, where appropriate, separate assumptions have been
used.
The EEV assumptions are based on an assessment of the business
as a going concern.
3.1 Expense assumptions
The allocation of expenses between acquisition and maintenance
and the assumption setting process has changed from prior years to
a more granular approach. Changes to the expense methodology have
been included in the model changes total.
Development costs to enable future new business have been
allocated to new business and are fully reflected in the
calculation of the NBC. Other non-recurring development costs are
generally charged as incurred, and hence will be reflected as a
profit or loss in the year.
The policy count has been falling over the last few years,
partially as a result of the closure to new business of Hansard
Europe in 2013. This trend is expected to continue for a period
before the policy count is assumed to return to the current level.
We have made an allowance for this feature in the EEV calculation.
In quantifying the impact we have assumed significant growth in new
business levels into the future albeit at a lower rate than the
growth actually achieved this year.
Exceptional items are generally charged as incurred and hence
are reflected as a variance in the year. Their value in 2016 was
GBP0.3m (2015: GBP1.4m).
3.2 Demographic & contract holder experience assumptions
The assumption setting process is consistent with prior
years.
3.3 Taxation
Current and expected future tax legislation, regulation and the
Group's own tax position were considered in setting the
assumptions. The tax rate assumptions for this year have remained
unaltered as follows:
Corporation tax rates 2016 2015
------ ------
Isle of Man 0% 0%
Republic of Ireland 12.5% 12.5%
3.4 Other operating assumptions
The process for setting assumptions for the impact of contract
holder activity, such as fund switching, is generally consistent
with prior years.
4 ECONOMIC ASSUMPTIONS
Under EEV principles, the economic assumptions used in the EEV
calculations are actively reviewed at each valuation date and are
internally consistent. The assumption setting process is generally
consistent with prior years.
4.1 Risk discount rate
The risk discount rates are set equal to the risk-free rates
based on the bid-swap yield curve for the applicable currency and
term, sourced from the European Insurance and Occupational Pensions
Authority (EIOPA). The EEV calculation uses the risk-free rates at
the end of the year (i.e. at the valuation date), while the
calculation of NBC and PVNBP uses the risk-free rate at the start
of the year (i.e. at the previous year-end date).
4.2 Investment returns
All investments are assumed to provide a return equal to the
risk-free rate less external fund manager investment charges and
any other investment expenses charged directly against contract
holder funds.
4.3 Risk premium
No credit is taken in the calculation of EEV, NBC or PVNBP for
returns in excess of risk-free returns i.e. a cautious approach is
adopted by assuming an asset risk premium of zero.
4.4 Inflation rates
In setting the expense inflation assumption, consideration is
given to price and salary inflation rates in both the Isle of Man
and the Republic of Ireland, and to the Group's own expense
experience and expectations. Future price inflation is derived from
the yields of UK inflation linked bonds, appropriate for the
duration and nature of the cash flows. For service companies,
expense inflation relates to the underlying expenses rather than
the fees charged to the life assurance companies.
By design, contractual monetary-charge inflation is broadly
matched to expense inflation: in Hansard Europe, the charge
inflation is subject to a minimum increase of 5% per annum. The
correlation between expense inflation and charge inflation dampens
the impact of inflation on the embedded value results.
Inflation assumptions are as follows:
Inflation rates 30 June 30 June
2016 2015
---------- ----------
Expense inflation per annum 2.6% 2.6%
Charge inflation per annum - Hansard Europe 5.0% 5.0%
Charge inflation per annum - Hansard International - Year 1 1.9% 1.9%
Charge inflation per annum - Hansard International - Year 2 2.4% 2.2%
Charge inflation per annum - Hansard International - Year 3+ 2.6% 2.6%
---------- ----------
The 5% charge inflation rate for Hansard Europe reflects the terms of the products. The three-year
stepped approach to charge inflation for Hansard International reflects the terms of the products,
trending towards a long-term inflation rate of 2.6% per annum.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UAOBRNKAKUAR
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