Annual Report • Jun 30, 2015
Annual Report
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Annual Report and Accounts 2015
Financial Solutions for International Clients
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.
Hansard Global plc Report and Accounts For the year ended 30 June 2015
| Chairman's Statement The Chairman reviews our performance, and the relevant issues affecting our business and how we operate. |
Chairman's Statement | 2 |
|---|---|---|
| Strategic Report | ||
| A narrative review of the Group's performance that includes an | Group Chief Executive Officer's Overview | 4 |
| overview from the Chief Executive and details of our business. You can also find out about our approach to risk management. |
Our Business Model and Strategy | 10 |
| Key Performance Indicators | 13 | |
| Business and Financial Review | 14 | |
| Risk Management and Internal Control | 26 | |
| Governance Information | ||
| In this section you can find out more on our Directors' | Board of Directors | 32 |
| background and experience, their specific responsibilities in | Directors' Report | 34 |
| relation to the Annual Report and Accounts, the key parts of our governance framework and how it was implemented during the |
Directors' Responsibilities | 37 |
| Corporate Governance Report | 38 | |
| year as well as reports from the various Board committees. | Report of the Audit Committee | 44 |
| Report of the Nominations Committee | 46 | |
| Report of the Remuneration Committee | 48 | |
| Financial Information The Group's IFRS financial statements which include detailed |
Independent Auditor's Report | 53 |
| analysis of the Group's performance, assets and liabilities. You | Consolidated Statement of Comprehensive Income | 54 |
| will also find the Company financial statements in this section. | Consolidated Statement of Changes in Equity | 55 |
| Consolidated Balance Sheet | 56 | |
| Consolidated Cash Flow Statement | 57 | |
| Notes to the Consolidated Financial Statements | 58 | |
| Parent Company Balance Sheet | 79 | |
| Notes to the Parent Company Financial Statements | 80 | |
| European Embedded Value | ||
| The Group's EEV Information which includes detailed analysis | European Embedded Value Information | 83 |
| of the Group's performance. | Notes to the European Embedded Value Information | 89 |
| Report of the Reviewing Actuaries | 92 |
Further information for shareholders such as our financial calendar and how to get in touch.
| Glossary | 93 |
|---|---|
| Financial Calendar | 96 |
| Contacts and Advisors | 97 |
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Last year, I explained that the Group had undertaken a thorough strategic review to position itself for a successful future in a competitive and fast moving global investment market. We saw opportunity then and we continue to see that opportunity now.
Much has been achieved in rolling-out our revised strategy. We have refreshed our entire product range, making it more competitive, and launched it over the course of the year to our distribution networks. We have worked hard to establish many new relationships with Independent Financial Advisors ("IFAs") who we anticipate will develop and build sustainable business levels for the future. We have made changes to our top executive team and its structure. We have continued to invest in and
2 Hansard Global plc Report and Accounts 2015
improve our market leading
technology, Hansard Online.
I said last year that the full benefits of what we're implementing will take several years to achieve and this remains the case. It takes time to attract and develop new IFAs in new countries and to secure the necessary regulatory licenses to be able to pursue the opportunities identified. We are confident that we have a clear view of what's required to deliver successful business levels and are starting to see increased levels of activity come through.
New business during the year has been below our expectations and the level needed to cover our sales costs. Over the past two years, our two largest markets have been effectively closed by changing regulatory views. This has required us to open new markets and apply for new licences. Such fundamental change takes time, but we have started to see business levels increase during Q4 and these levels have been sustained in Q1 of the 2016 financial year.
The Group remains profitable and generated strong positive cash flows from its in-force business. Cash earned is allocated in a balanced manner between new business acquisition, long term strategic initiatives and dividends. During the year we continued to invest in our distribution network and in particular in pursuing opportunities to secure additional regulatory licenses in target jurisdictions.
During Q4 of our financial year, we made a full and final settlement with HMRC for the weaknesses in the Group's procedures in issuing Chargeable Events Certificates ("CECs") required by the UK tax authorities. The amount paid of £1.4m was significantly less than the original provision made of £5.0m. After taking into account advisory and professional fees, we have recorded a credit of £3.0m to profit before taxation under International Financial Reporting Standards ("IFRS"). Consequently the Group's IFRS profit has increased to £14.9m after tax (2014: £8.3m).
Our European Embedded Value ("EEV") operating loss after tax of £6.3m (2014: loss of £6.6m) reflects the fact that insufficient sales income is being generated to cover the fixed and variable costs of writing such business. The Board expect this position to be reversed over the coming financial year through additional sales volumes and tight management of costs.
The EEV of the Group, following the payment of dividends of £11.7m in the year, is £195.0m (2014: £203.8m).
In view of the Board's continuing confidence in the long-term future of the Group, it has resolved to pay an increased final dividend of 5.25p per share (2014: 5.0p). The dividend is subject to approval at the Annual General Meeting. If approved, this will represent total dividends for the financial year of 8.75p per share which is in line with our previous commitment to investors. The final dividend will be paid on 19 November 2015.
The Group is well capitalised to meet the requirements of regulators, policyholders, intermediaries and other stakeholders. Aggregate minimum solvency margins continue to be covered 14 times by our capital resources. 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.
To secure the continued financial success of the Group, significantly greater sales levels are required in 2016 and beyond. This will require at least one new licence to be obtained. Given the groundwork undertaken, we are confident that the Group is well placed to deliver this increase in sales.
Philip Gregory Chairman 22 September 2015
The past financial year has seen the Group continue the execution of our strategic plan. We have completed the refresh of our product range and pricing and have built many new distributor relationships as we seek to replace and diversify the significant distribution channel lost in East Asia during the previous financial year. We have a business model that is highly scaleable and we expect to leverage upon that as we rebuild business levels back to a more sustainable level for the long term.
We are developing our presence in targeted locations where we believe that new licences could offer significant opportunities in the future. The Group remains profitable and well capitalised to take advantage of these opportunities.
The Group has traded profitably during the year and generated strong positive cash flows
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".
Now that we have completed the refresh of our product range and pricing which aims to provide enhanced value for money for those customers looking to save and invest for the long term, our key priority is to leverage our distribution team, infrastructure and technology to drive greater levels of new business.
This has been reflected in encouraging new business levels in Q4 of the past financial year and we expect to see this trend continue and grow during 2016. We believe the key to significantly greater levels of new business lies in securing additional licenses to operate in a number of targeted locations. While the time frames for receiving regulatory approvals for these initiatives grow increasingly longer as many countries around the globe implement ever expanding regulations, we are hopeful of launching in at least one such jurisdiction during the second half of the coming financial year.
Behind the scenes we have continued to do a lot of positive things – making our back office more efficient and continuously looking to improve our customer service and turnaround times. We have also continued to invest in our governance, risk and compliance function with a number of additional appointments made during the year.
The business remains highly cash generative and we continue to reflect this in the dividend that we pay to our shareholders.
As referenced in previous years, we believe that the following areas are the fundamental factors for the success of the Group.
I would draw your attention to the following. Additional information is contained in the Business and Financial Review on pages 14 to 25.
Following the closure of 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 year of £60.6m (using the basis of Present Value of New Business Premiums ("PVNBP") metric) is some 27% below the £83.0m from FY 2014. This reduction was driven primarily by the fact that a significant introducer network in Japan suspended its new business activities in October 2013. This network introduced £10m PVNBP to us in FY 2014.
We have experienced positive growth in some areas: the Middle East and Africa for example has shown encouraging growth with PVNBP increasing from £3.4m in FY 2014 to £7.5m in FY 2015.
Under the guidance of our Chief Distribution Officer, we have initiatives planned for all regions during FY 2016 to increase sales and the Board is committed to maintaining the necessary development cost to do so. It is our view that to make cuts in this area at this point in time would be counterproductive and not allow for the fruits of the hard work performed over the past two years to be realised. We are of course very conscious of overall costs and have sought to contain or reduce costs in other areas of the business through operational efficiencies and automation.
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.
Last year, we announced that we had discovered long-standing breaches in the processing and issue of Chargeable Events Certificates ("CECs") required by Her Majesty's Revenue and Customs ("HMRC") in relation to a limited number of contracts held by UK residents. We also confirmed that controls had since been enhanced and external advisors brought in to assist us with resolving the matter and in preventing a recurrence.
We are pleased to have reached a positive conclusion to this matter, having made a full and final settlement with HMRC of £1.4m on an estimate of tax lost basis. This was significantly below our initial prudent estimate of £5.0m made last year which, after taking into account professional advisory costs, has resulted in a write back to our profit and loss account of £3.0m.
Last year, we advised that plans to protect the interests of clients and other stakeholders of Hansard Europe and to achieve an orderly run-off have been implemented in full. We have continued to identify areas where we can make the run-off activities more efficient and cost effective. A number of additional activities have been outsourced and consolidated to Group's head office in the Isle of Man.
Hansard Europe remains strongly capitalised although the conditions agreed with the Central Bank of Ireland following approval of the run-off plans will defer dividend distributions from that company for the foreseeable future.
We continue to deal with complaints in circumstances where a contract holder believes that the performance of an asset linked to a particular contract is not satisfactory. We do not give investment advice and are not party to the selection of the asset and therefore we feel that such claims have no merit. Sometimes these complaints progress to threatened litigation with the resulting increase in cost and resource to the Group. In many cases the threatened litigation relates to decisions taken by individuals during, or as a result of, the global financial crisis some 5 or more years ago.
At the beginning of this financial year Hansard Europe was facing litigation based on writs totalling €6.5m (approximately £5.2m) as a result of these and related complaints. As a result of further writs issued during the year and in the period to the date of this report, writs outstanding against Hansard Europe currently total €13.3m or approximately £9.4m. The primary driver of the increase is a claim for €6.3m (£4.5m) from a group of Belgian policyholders which challenges the right of Hansard Europe to have operated under the European Union's principle of Free Movement of Services. We believe this to be highly speculative and will robustly defend against it.
In general, each case is considered on its merits and where appropriate the Board 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). This approach can help avoid the expense and distraction of extended litigation and to allow management to focus fully on the execution of our strategy. Settlements typically are only a fraction of the original amounts claimed and as a result it is not possible to put a reliable estimate of the ultimate liability of such writs. Such writs therefore continue to be treated as contingent liabilities within the Annual Report and Accounts.
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 allow 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, making it even easier to use and access, keeping it up-to-date with mobile technologies and extending its functionality and reporting capabilities.
Additional information concerning developments in Hansard OnLine is set out in the Business and Financial Review.
The Group generates positive operating cash flows to fund investment in new business and support a progressive dividend payment stream. The Board remains committed to a progressive dividend policy.
Although new business flows (and therefore the investment in new business) are less than anticipated for the reasons discussed earlier in this report, the Business and Financial Review reflects that the Group generated a net £16.7m in cash flows to support dividend payments in respect of FY 2015 totalling £11.7m (2014: a net £21.8m to support dividend payments totalling £11.2m).
An interim dividend of 3.5p per share was declared on 25 February 2015. A final dividend of 5.25p per share has been proposed by the Board and will be considered at the Annual General Meeting on 12 November 2015. When the final dividend is paid at this level, these dividends will total 8.75p per share in respect of this financial year, in line with our strategic commitment.
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 2015 £m |
FY 2014 £m |
|
|---|---|---|
| New business sales – Compensation Credit | 5.5 | 9.3 |
| Underlying IFRS profit after tax | 12.0 | 14.7 |
| IFRS profit after tax | 14.9 | 8.3 |
| EEV operating loss after tax | (6.3) | (6.6) |
| EEV at 30 June | 195.0 | 203.8 |
Fees and commissions were £56.3m for FY 2015, down 5.4% or £3.2m from FY 2014. The decreased level of fee income is largely as a result of lower business volumes in recent years but also due to the strengthening of sterling against US dollars during FY 2015.
Administrative and other expenses were £22.8m for FY 2015, down from £30.2m in FY 2014. After eliminating the effect caused by the CEC provision in the 2015 and 2014 results, expenses were broadly consistent year on year. This is also reflective of the headcount of the Group which averaged 206 for FY 2015 compared to 204 in FY 2014.
The write-back of the CEC provision is also the key movement in IFRS profit after tax compared to the previous year, as the Group earned £14.9m profit after tax (2014: £8.3m). After eliminating exceptional items, the underlying profit after tax was £12.0m compared to £14.7m in 2014. This reduction is primarily driven by the lower fees and commissions of £3.2m noted above.
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. Cash flows have remained strongly positive.
With distribution levels being below the necessary level for new business income to cover new business expenses, New Business Contribution is a negative £3.7m for the year (2014: positive £3.3m). Other positive variances and experience has however offset this loss and produced an overall EEV Profit after Tax of £2.9m (2014: loss of £10.7m).
The key drivers of these variances were:
| FY 2015 £m |
FY 2014 £m |
|
|---|---|---|
| Investment performance of policyholder funds |
3.9 | 9.7 |
| One-off items including the impact of the CEC provision |
1.4 | (4.5) |
| Improved premium persistency | 2.4 | 0.8 |
| Changes in yields | 3.8 | 3.5 |
| Strengthening of expense assumptions to reflect a lower amount of policies |
||
| to spread expenses over | (11.2) | 2.2 |
Following the payment of dividends of £11.7m (2014: £11.2m), the Group's EEV is £195.0m at 30 June 2015 (30 June 2014: £203.8m).
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 14 times (2014: 12 times) by our capital resources, which are typically held in a wide range of deposit institutions and in highly-rated money market liquidity funds. This prudent investment policy for shareholder assets 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 foreseeable future. It is therefore included within the total of Required Capital of £27.0m in the analysis of the Group's EEV balance sheet at 30 June 2015. Allowing for this, the EEV balance sheet reflects that the Group has a free surplus of £36.5m (2014: £28.3m) available for investment and distribution.
The Group has a dedicated dynamic workforce across a number of locations around the world. During the year, there have been substantial changes to how we organise our administration and customer service teams which has delivered substantial efficiencies and improved further our top-class customer service and turnaround times. We have also refreshed the composition of our top management team and I'm confident that we are well positioned to meet the strategic challenges and deliver a successful future for the Group. I thank all of our employees for their continued commitment to Hansard.
G S Marr Group Chief Executive Officer 22 September 2015
Hansard is a specialist long-term savings provider that has been providing innovative financial solutions for international clients since 1987. We focus on helping financial advisors and institutions to provide their clients (individual and corporate investors) with savings and investment products in secure life assurance wrappers to meet long-term savings and investment objectives.
We administer assets in excess of \$1 billion for over 500 financial advisor businesses with over 40,000 client accounts in as many as 155 countries.
The Company's head office is in Douglas, Isle of Man, and its principal subsidiaries operate from the Isle of Man and the Republic of Ireland. Hansard International Limited is regulated by the Insurance and Pensions Authority of the Isle of Man Government and has a branch in Malaysia, regulated by the Labuan Financial Services Authority, to support business flows from Asian growth economies. Hansard Europe 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.
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 longterm 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.
We administer assets exceeding \$1 billion for over 500 financial advisor businesses with over 40,000 client accounts in as many as 155 countries
STRATEGIC REPORT
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 many 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 Insurance and Pensions Authority of the Isle of Man Government to act as an Insurance Manager to both Hansard International and Hansard Europe.
During the past year we have completed a refresh of our product range and pricing, to the benefit of the client and distributor, and have entered into a number of new business arrangements with IFAs. We expect these actions to provide a solid base for future growth.
The main sources of income for the Group are the fees earned from the administration of the 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 increasing dividends.
While markets have substantially emerged from the recent financial crisis, there remains fragility to global economic and market growth, and 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. During the past year, we invested further in our risk and compliance functions, making a number of new appointments. 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 on pages 26 to 31.
The regulatory environment continues to evolve and our risk framework will have to respond to a number of developments in future, including:
Our vision is to develop a more intimate and rewarding online experience for our clients and IFAs. Hansard OnLine ("HOL") is key to that vision. HOL is the Group's online platform providing secure, 24/7 access for intermediaries anywhere around the world. Key content can be presented in a wide range of different languages – helping IFAs communicate more effectively with their clients.
We have continued to invest in the system over the last year, making it even easier to use and access, keeping it up-to-date with mobile technologies and extending its functionality and reporting capabilities.
Hansard OnLine is an important tool for our IFAs with the vast majority of new business applications, over 90%, being submitted online. Such submissions are validated online and arrive 'clean'. Supporting due diligence documentation can also be uploaded securely via Hansard OnLine, which means new business can be received and processed quickly and efficiently.
Almost all fund switches and Personal Portfolio asset deals placed by IFAs are submitted online. IFAs can place fund switches at an individual client level or across various aggregations of their client base, with fund switches placed online being free of charge. IFAs can also place Personal Portfolio deals online straight-through to our stockbroker.
Our client online offering has been significantly revamped to give it a fresher, smartphone-friendly and more modern feel. It has been extended to allow clients to place fund switches online, free of charge. Client can also now manage their address and other personal details online, and the system provides clients with extensive reporting of their fund choices and fund performance.
During the year, numerous new reports have been added and existing functionality enhanced.
For example, the Unit Fund Centre has been extended to provide IFAs with comprehensive reporting of various fund choices for both existing and prospective portfolios, together with sector analyses, benchmark comparisons and past performance graphs. The Unit Fund Centre was made available to clients during the year.
IFAs have been provided with an enhanced Illustrations facility, together with various reports which allow them to analyse and aggregate their client portfolios. Last year we provided IFAs with the ability to make payments online by credit or debit card, and we have since extended the premium payment reporting available to them in order to allow them to better view and manage their clients' payment status, activity and history.
Hansard OnLine presents key content to IFAs and clients in many different languages. We are constantly adding to the range of languages available, with our client proposition being extended during year to include Russian and Mandarin.
A new version of our online proposition, called Hansard OnLine Lite, was launched during the year 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. Users can access our online document library, the Unit Fund Centre, company news and even submit new business online.
We continually provide dedicated resource to proactively train IFAs and clients on how to get the most out of our online propositions. Training takes place through online Webinars, video-com, Skype, over the telephone and, in some cases, face-to-face with IFAs in their offices.
Through our online systems, clients can view all documentation and communications relating to their contracts. The number of clients choosing to receive post electronically, rather than in hard-copy form, continues to show a steady increase. Indeed, 60% of client communications are now accessed exclusively online. This provides a more secure, faster and cost efficient means of communication with clients. IFAs can also view client correspondence electronically via Hansard OnLine.
As well as being a valuable sales tool, Hansard OnLine is an important administration tool for both IFAs and the Group. It allows both parties to provide better customer service and to reduce operational costs.
The straight-through processing of investment instructions (whether received from IFAs or clients) reduces the Group's operational risk exposures, as does the ability of the Group to communicate electronically with IFAs and clients, irrespective of geographical boundaries and time zone limitations.
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 indicator of calculating new business production, Compensation Credit ("CC"), indicates the relative value of each piece of new business and is used, therefore, in the calculation of commission payable to intermediaries. Incentive arrangements for intermediaries and the Group's Account Executives incorporate targets based on CC.
New business levels are reported daily. The Group's objective is to recover CC levels to a more sustainable level by the end of FY 2016 and to grow new business at a rate of 10% – 15% per annum on this measure over the medium term. As is reported elsewhere in this Report and Accounts, new business flows have fallen by approximately 40% since the prior year. Strategic plans implemented during the year are intended to support sales growth.
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 £21.9m compared to £19.5m in the previous year. The increased expenses are driven by increased levels of strategic spend to develop new business, changes to senior management and increased resources in the Group's legal, compliance and risk functions. Further detail is contained in the section on Administrative and other expenses on page 19.
Cash – Bank balances and significant movements on balances are reported weekly. The Group's liquid funds at the balance sheet date were £80.9m (2014: £78.5m). The change demonstrates predominantly that the Value of In-force Business ("VIF") continues to be recouped in cash, although reduced new business levels have prevented profitable investment of the surplus during the year.
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.
After conducting a thorough review of the sales and marketing operations of the Group last year, we have now completed a product and pricing refresh that was an important part of making our product range more competitive and attractive to customers and advisors.
We have sought to build distribution relationships for the long term over a diversified geographical base and are working hard to pursue new licenses in a small number of targeted jurisdictions where we believe significantly increased levels of business can be obtained in the future.
We are conscious that the business levels of the 2015 financial year are not of the scale necessary for the long term and that the recovery from the loss of our largest distribution network has taken longer than expected. We have however started to see encouraging levels of growth in a number of areas in the last quarter of the 2015 financial year, particularly in East Asia, the Middle East and Africa, and expect this to continue in the 2016 financial year.
We are confident that our newly-introduced products are welltailored to the requirements of our target clients and believe that our new products, augmented sales team and an increasing pool of distribution relationships will provide a platform for sustainable diversified new business flows going forward.
These initiatives impact upon the whole of the Group's business, its clients and other stakeholders.
The Group has developed a range of savings and investment products that are designed to allow us to access business more successfully in a number of target markets, having made a significant change to our pricing model, to the benefit of the consumer and distributor.
The Group has continued negotiations with a number of wellestablished distributors, including brokers, expatriate IFAs, insurers and private banks involved in both expatriate and local markets around the world. Our main aim is to build long-term relationships with our distributors in key markets with growing economies and high concentrations of wealth. During the course of the 2015 financial year, we have added 43 new quality terms of business adding well over 200 new brokers to our available distribution in target markets.
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.
The Group's proposition is to develop and enhance relationships with policyholders and intermediaries through the use of our people, products and technology in a way that meets shared objectives.
We have completed a restructure and refocus of our sales force and have recruited a number of new, highly experienced Account Executives in key regions around the world, primarily to focus on East Asia, the Middle East and the international expatriate market.
Following the closure of Hansard Europe to new business with effect from 30 June 2013, the new business performance reported below is that of Hansard International alone.
| 2015 | 2014 | % | |
|---|---|---|---|
| Basis | £m | £m | change |
| Compensation Credit | 5.5 | 9.3 | (40.9)% |
| Present Value of | |||
| New Business Premiums | 60.6 | 83.0 | (27.0)% |
| Annualised Premium Equivalent | 9.7 | 14.3 | (32.2)% |
New business figures were lower than the prior year as the last remaining effects of the loss of the Group's largest distributor work their way through. We are actively seeking to replace this business, and have seen encouraging signs of growth towards the end of the 2015 financial year in North Asia, the Middle East and Africa.
New business flows for Hansard International on the basis of PVNBP are summarised as follows:
| 2015 | 2014 | % | |
|---|---|---|---|
| PVNBP by product type | £m | £m | change |
| Regular premium | 36.8 | 63.7 | (42.2)% |
| Single premium | 23.8 | 19.3 | 23.3% |
| Total | 60.6 | 83.0 | (27.0)% |
| PVNBP by region | 2015 £m |
2014 £m |
% change |
|---|---|---|---|
| Latin America | 21.6 | 27.0 | (20.0)% |
| East Asia | 16.1 | 35.9 | (55.2)% |
| Rest of World | 12.2 | 9.5 | 28.4% |
| Middle East and Africa | 7.5 | 3.4 | 120.6% |
| Europe | 3.2 | 7.2 | (55.6)% |
| Total | 60.6 | 83.0 | (27.0)% |
| STRATEGIC REPORT | |||
|---|---|---|---|
| We continue to receive business from a diverse range of financial advisors around the world. Our focus on growth markets is reflected in the proportions of contractual premiums denominated in US dollars while the reduction in Japanese Yen flows in the table below demonstrates the effect of the loss of Japanese business. Currency denominations (as a percentage of PVNBP) |
2015 % |
2014 % |
|
| US dollar | 71.4 | 50.8 | |
| Sterling | 22.4 | 13.3 | |
| Euro | 3.3 | 9.1 | |
| Japanese Yen | 0.2 | 25.2 | |
| Other | 2.7 100.0 |
1.6 100.0 |
|
| the more competitive product design and continuing investment in channel development, have resulted in a negative new business margin of approximately 6.2% on the PVNBP basis for FY 2015. As business volumes recover to sustainable levels, the cost base is highly scaleable and we plan to target a blended margin at mid single digit levels over the medium term. |
|||
| Hansard Global plc Report and Accounts 2015 | 15 |
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 2005.
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 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. After recognising the exceptional items referred to below, IFRS profit after tax for the year is £14.9m (2014: £8.3m).
During the 2015 financial year the most significant one-off item affecting profit was the settlement of the CEC provision at a level significantly below that provided for in 2014. This resulted in a benefit of £3.0m in 2015 (charge of £5.0m in 2014). Cost of litigation settlements were £0.1m (2014: £0.7m). There was also a charge taken in 2014 of £0.7m in relation to the closure of Hansard Europe to new business.
Prior to those exceptional items totalling a benefit of £2.9m (2014: charge of £6.4m), the underlying IFRS profit was £12.0m before taxation, compared with an underlying profit of £14.7m in FY 2014.
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:
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.
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Fees and commissions attributable | ||
| to Group activities | 52.5 | 55.2 |
| Investment and other income | 1.4 | 0.2 |
| 53.9 | 55.4 | |
| Origination costs | (20.1) | (21.2) |
| Administrative and other expenses | ||
| attributable to the Group, before | ||
| compensation, litigation settlements | ||
| and discontinued activities | (21.8) | (19.5) |
| Operating profit for the year before | ||
| compensation, litigation settlements | ||
| and discontinued activities | 12.0 | 14.7 |
| Compensation, litigation settlements | ||
| and discontinued activities | 2.9 | (6.4) |
| Profit for the year before taxation | 14.9 | 8.3 |
| Taxation | – | – |
| Profit for the year after taxation | 14.9 | 8.3 |
| STRATEGIC REPORT | |||
|---|---|---|---|
| A summary of fees and commissions is set out below: | |||
| 2015 £m |
2014 £m |
||
| Contract fee income Fund management fees accruing |
38.7 | 41.1 | |
| to the Group Commissions receivable |
9.6 4.2 52.5 |
9.9 4.2 55.2 |
|
| Included in contract fee income is £21.9m (2014: £21.3m) representing the amortisation of fees prepaid in previous years, as can be seen in the analysis set out below. This increased level of amortised fees incorporates an element of deferred income on contracts that have lapsed during the year. |
|||
| 2015 £m |
2014 £m |
||
| Amortisation of deferred income | 21.9 | 21.3 | |
| Income earned during the year | 16.8 | 19.8 | |
| Contract fee income | 38.7 | 41.1 | |
| Hansard Global plc Report and Accounts 2015 | 17 | ||
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Amortisation of deferred income | 21.9 | 21.3 |
| Income earned during the year | 16.8 | 19.8 |
| Contract fee income | 38.7 | 41.1 |
Fees and commissions for the year attributable to Group activities are £52.5m, a decrease of 4.7% over the previous year.
Contract fee income totalled £38.7m for the year (2014: £41.1m). Elements of contract fee income are largely fixed in nature, representing both the smoothing of up-front income required under IFRS, and contract-servicing charges. The reduction in the year is largely due to the run-off of the Dublin-based book since its closure to new business.
Fund management fees accruing to the Group and commissions receivable from third parties totalling £13.8m (2014: £14.1m) are related directly to the value of assets under administration and are therefore exposed to market movements, currency rates and valuation judgements. The level of this income, when compared with last year, reflects primarily that the reported level of assets under administration has fallen by approximately 4% over the course of this financial year.
Volatility in foreign exchange markets continued throughout the year. Having regard to the geographic spread of the Group's clients and the currencies in which their contracts are denominated, the fluctuations in sterling since 30 June 2014 has reduced investment and other income by £0.2m (2014: reduction of £0.8m).
A summary of Investment and other income is set out below:
| 2015 £m |
2014 £m |
|
|---|---|---|
| Bank interest | 1.0 | 0.9 |
| Foreign exchange losses on revaluation of net operating assets |
(0.2) | (0.8) |
| Other operating income | 0.6 | 0.1 |
| 1.4 | 0.2 |
Origination costs
Under IFRS, new business commissions paid, together with the directly attributable incremental costs incurred on the issue of a contract, are deferred and amortised over the life of that contract to match the longer-term income streams expected to accrue from the contracts issued this year. The life of a regular premium contract is deemed to be its agreed term. Typical terms range between 10 years and 25 years. The expected life of a typical single premium contract is 15 years. 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.
The continued reduced new business volumes which the Group has experienced during the year are reflected in a fall in the direct costs of new business to £7.6m from £12.2m in the previous financial year.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Origination costs – deferred to match future income streams |
7.6 | 12.2 |
| Origination costs – expensed as incurred | 2.1 | 1.9 |
| Total origination costs incurred in the yea r | 9.7 | 14.1 |
| Net amortisation of deferred | ||
| origination cost | 10.4 | 7.1 |
| 20.1 | 21.2 |
Amounts totalling £18.0m (2014: £19.2m) 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. These amortised costs incorporate an element of deferred origination costs on those contracts that have lapsed during the year.
Origination costs in the year are:
| 2015 £m |
2014 £m |
|
|---|---|---|
| Amortisation of deferred origination costs |
18.0 | 19.2 |
| Other origination costs incurred | ||
| during the year | 2.1 | 2.0 |
| 20.1 | 21.2 |
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.
The largest impact to total administrative and other expenses this year is from the settlement of the CEC provision at a level significantly below that provided for in 2014. This resulted in a benefit of £3.0m in 2015 (charge of £5.0m in 2014). There were a number of other exceptional items in 2014 affecting 2014's administrative and other expenses, namely the cost of litigation settlements of £0.7m and a charge of £0.7m taken in relation to the closure of Hansard Europe to new business. These costs were modest in 2015 (£0.1m relating to litigation settlements).
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.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Salaries and other employment costs | 9.5 | 8.8 |
| Other administrative expenses | 6.7 | 6.1 |
| Professional fees, including audit | 3.1 | 3.0 |
| Recurring administrative and | ||
| other expenses | 19.3 | 17.9 |
| Growth investment spend | 2.6 | 1.6 |
| Administrative and other expenses, | ||
| excl. exceptional items | 21.9 | 19.5 |
| (Write back)/cost of CEC provision | (3.0) | 5.0 |
| Costs relating to the closure of | ||
| Hansard Europe to new business | – | 0.7 |
| Litigation settlements | 0.1 | 0.7 |
| Total administrative and other expenses | 19.0 | 25.9 |
Salaries and other employment costs have increased by £0.7m or 8% to £9.5m. This is primarily as a result of changes in the management structure, increased resources in the Legal, Compliance and Risk functions and low single digit salary inflation. The average Group headcount for the 2015 financial year was 206 people (2014: 204 people).
Management have sought to offset such increases by harnessing process efficiencies. A reorganisation of the Group's policy administration function was successfully implemented during the year, substantially reducing processing times and improving customer and broker service. It is expected that this will allow for lower levels of like-for-like headcount in this area going forward.
Other administrative expenses have increased by 10% to £6.7m. This increase is driven by a number of items including provisions against balances due from IFAs and various brand related sponsorships and events.
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, policyholders and other stakeholders. The amount of expenditure has increased from the previous year reflecting our commitment to pursue additional licences in target markets, including £0.3m in audit fees.
Hansard Global plc Report and Accounts 2015 19 STRATEGIC REPORT Professional fees including audit in the year include legal fees of £0.5m (2014: £0.9m) incurred to protect the Group's position against complaints; amounts totalling £0.6m paid to the Group's auditor (2014: £0.5m); £0.4m (2014: £0.3m) for administration, custody, dealing and other charges paid under the terms of the investment processing outsourcing arrangements; recruitment costs of £0.3m (2014: £0.1m) and costs of Investor Relations activities of £0.4m (2014: £0.4m).
Operating cash flows continue to be strongly positive. The operational cash surplus (fees deducted from contracts and commissions received, less operational expenses paid) is £24.3m (2014: £37.8m). This surplus was more than sufficient to fund investment in new business in the year of £8.6m (2014: £15.4m).
The Group believes that the best use of its capital resources is to invest in new business, recognising that continued investment in profitable regular premium contracts produces a short-term cash strain as a result of the commission and other costs incurred at inception of a contract.
To reduce the risk that the targeted return on investment in new business is jeopardised, the Group withholds a portion of initial commission from certain intermediaries pending completion of the initial period of particular contracts. At the balance sheet date, amounts totalling £1.2m (2014: £2.3m) 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. Group cash and deposits are presented as the total of cash and cash equivalents of £65.4m (2014: £58.4m) plus the shareholder portion of deposits of £15.5m (2014: £20.1m) contained within the total £93.3m (2014: £103.0m) of Deposits and money market funds on the Consolidated Balance Sheet of the Group. The remainder of the £93.3m Deposits and money market funds form part of contract holder unit linked funds.
This analysis demonstrates that the in-force contract book continues to generate the cash required to support the Group's main business objectives of investing in new business, enhancing distribution and other infrastructure and supporting dividend payments. Dividends of £11.7m (2014: £11.2m) paid during the year have been funded by the Group's own resources. Overall cash and deposits have increased from £78.5m at 30 June 2014 to £80.9m at 30 June 2015.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Net cash surplus from operating activities | 24.3 | 37.8 |
| Interest received on shareholder | ||
| bank deposits | 1.0 | 1.0 |
| Net cash inflow from operations | 25.3 | 38.8 |
| Net cash investment in new business | (8.6) | (15.4) |
| Purchase of property and | ||
| computer equipment | (0.2) | (1.4) |
| Corporation tax received / (paid) | 0.2 | (0.2) |
| Net cash inflow before dividends | 16.7 | 21.8 |
| Dividends paid | (11.7) | (11.2) |
| Net cash inflow | 5.0 | 10.6 |
| 2015 £m |
2014 £m |
|
|---|---|---|
| Net cash inflow | 5.0 | 10.6 |
| (Decrease) / increase in amounts due to contract holders |
(2.4) | 2.9 |
| Net Group cash movements | 2.6 | 13.5 |
| Group cash at beginning of year | 78.5 | 67.2 |
| Effect of exchange rate changes | (0.2) | (2.2) |
| Group cash and deposits at end | ||
| of year | 80.9 | 78.5 |
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 £15.5m 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 (2014: £20.1m). The following table summarises the total shareholder cash and deposits at the balance sheet date.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Money market funds | 56.5 | 45.1 |
| Short-term deposits with credit institutions | 8.9 | 13.3 |
| Cash and cash equivalents under IFRS | 65.4 | 58.4 |
| Shareholders' longer-term deposits with | ||
| credit institutions | 15.5 | 20.1 |
| Shareholder cash and deposits | 80.9 | 78.5 |
The longer-term term deposits have maturity dates of between 4 months and 11 months from the balance sheet date.
The consolidated balance sheet on page 56 presented under IFRS reflects the financial position of the Group at 30 June 2015. As a result of its method of presentation, the consolidated balance sheet incorporates the financial assets held to back the Group's liability to contract holders, and also incorporates the net liability to those contract holders of £907.1m (2014: £943.6m). 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 non-GAAP abridged consolidated balance sheet presented below, adjusted for those differences in disclosure, allows a better understanding of the Group's own capital position.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Assets | ||
| Deferred origination costs | 113.5 | 123.9 |
| Other assets | 6.9 | 7.3 |
| Bank deposits and money market funds | 80.9 | 78.5 |
| 201.3 | 209.7 | |
| Liabilities | ||
| Deferred income | 137.6 | 141.2 |
| Other payables | 23.6 | 31.6 |
| 161.2 | 172.8 | |
| Net assets | 40.1 | 36.9 |
| Shareholders' equity | ||
| Share capital and reserves | 40.1 | 36.9 |
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 2014.
The movement in value over the financial year is summarised below.
| Carrying value | 2015 £m |
2014 £m |
|---|---|---|
| At beginning of financial year | 123.9 | 131.0 |
| Origination costs incurred during the year | 7.6 | 12.1 |
| Origination costs amortised during the year | (18.0) | (19.2) |
| 113.5 | 123.9 |
The level of costs amortised during the year incorporates an element of deferred origination costs on policies that have lapsed during the year, in order to ensure that the carrying value of deferred origination costs is not impaired by contract holder activity.
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.
| 2015 | 2014 | |
|---|---|---|
| Carrying value | £m | £m |
| At beginning of financial year | 141.2 | 137.6 |
| Income received and deferred | ||
| during the year | 18.3 | 24.9 |
| Income recognised in contract fees | ||
| during the year | (21.9) | (21.3) |
| 137.6 | 141.2 |
The level of income recognised in contract fees during the year incorporates an element of deferred income on those contracts that have lapsed during the year, in order to ensure that the carrying value of deferred income is not impaired.
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 majority of premium contributions are designated in currencies other than sterling, reflecting the wide geographical spread of those policyholders. Premium contributions during the year includes additional contributions of approximately £5.4m (FY 2014: £7m) 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. Certain assets held within contracts at the year-end remain impacted by the global financial crisis. While we have seen efforts in this financial year to resolve uncertainty over asset values, we have also seen a small number of funds held within contracts being affected by liquidity or other issues that hinder their sales or redemptions on normal terms. While the directors have exercised their judgement in relation to the fair value of these assets the cumulative impact on the balance sheet is immaterial. Accordingly, the value of AuA at 30 June 2015 is £907.1m, some 4% below the value at 30 June 2014.
The value of AuA is based upon the assets selected by or on behalf of contract holders to meet their needs from time to time. The currency composition of AuA at the balance sheet date is similar to that as at 30 June 2014, with 59% of AuA designated in US dollar (2014: 54%) and 19% in euro (2014: 25%). The reduction in assets held in the euro has been caused in part by the closure of Hansard Europe to new business and the natural reduction of that book. 2015 saw £51.2m of market increases compared to relatively stable currency movements as reflected in the following table.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Deposits to investment contracts – regular premiums |
79.4 | 85.1 |
| Deposits to investment contracts – single premiums |
21.5 | 19.6 |
| Withdrawals from contracts and charges | (185.2) | (196.5) |
| Effect of market movements | 51.2 | 87.7 |
| Effect of currency movements | (3.4) | (80.4) |
| Movement in year | (36.5) | (84.5) |
| At beginning of financial year | 943.6 | 1,028.1 |
| 907.1 | 943.6 |
The analysis of AuA held by each Group subsidiary to cover financial liabilities is as follows:
| 2015 | 2014 | |
|---|---|---|
| Fair value of AuA at 30 June | £m | £m |
| Hansard International | 700.3 | 704.6 |
| Hansard Europe | 206.8 | 239.0 |
| 907.1 | 943.6 |
In valuation issues such as those referred to above, financial services institutions are drawn into disputes in cases where the performance of assets selected directly by or on behalf of contract holders through their advisors fails to meet their expectations. This is particularly relevant in the case of more complex structured 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 €6.5m (£5.2m) as a result of these and related complaints. As a result of further writs issued during the year and in the period to the date of this report, there remains outstanding writs served upon Hansard Europe totalling a net €13.3m or approximately £9.4m. The primary reason for the increase relates to a group of Belgian policyholders who have brought a net claim for €6.3m (£4.5m) which is based on a challenge to the European Union's principle of Free Movement of Services. We believe this to be highly speculative and intend to robustly defend.
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 high chance of success in defending these claims. The writs have therefore been treated as contingent liabilities and are disclosed in note 27 to the consolidated financial statements.
Notwithstanding the above, there may be circumstances where in order to avoid the expense and distraction of extended litigation, the Group may consider it in the best interests of it and its shareholders to reach a settled resolution. Such settlements totalled £0.1m for 2015 (2014: £0.7m).
| 2015 £m |
2014 £m |
|
|---|---|---|
| EEV Operating loss after tax | (6.3) | (6.6) |
| Investment Return Variances & Economic Assumption Changes |
9.2 | (4.1) |
| EEV profit/(loss) | 2.9 | (10.7) |
| STRATEGIC REPORT | |||
|---|---|---|---|
| Results for the year under European Embedded Value Headline Results During the course of the 2015 financial year, the Group made a European Embedded Value ("EEV") profit of £2.9m (2014: loss of £10.7m), analysed into an EEV operating loss of £6.3m (2014: loss of £6.6m) and gains from investment return variances and economic assumption changes of £9.2m (2014: losses of £4.1m). The EEV operating loss is primarily driven by a negative new business contribution of £3.7m. The contribution is negative because levels of new business were not at sufficient levels to offset |
|||
| the costs of new business. Headline results for the EEV are shown in the tables below: |
|||
| 2015 £m |
2014 £m |
||
| EEV Operating loss after tax | (6.3) | (6.6) | |
| Investment Return Variances & Economic Assumption Changes |
9.2 | (4.1) | |
| EEV profit/(loss) | 2.9 | (10.7) | |
| 2015 £m |
2014 £m |
||
| EEV before dividends Dividends paid during the financial year |
206.7 (11.7) |
215.0 (11.2) |
|
| Closing Embedded Value | 195.0 | 203.8 | |
| The EEV at 30 June 2015 has fallen to £195.0m from the 30 June 2014 level of £203.8m following the payment of dividends of £11.7m for the year (2014: £11.2m). |
|||
| Hansard Global plc Report and Accounts 2015 | 23 |
New business comparatives are shown below:
| 2015 | 2014 | |
|---|---|---|
| New business sales (PVNBP basis) | £60.6m | £83.0m |
| New Business Contribution ("NBC") | (£3.7m) | £3.3m |
| New Business Margin ("NBM") | (6.2%) | 4.0% |
The negative NBC reflects the reduction in new business volumes and the spreading of initial expenses over fewer policies sold and to a lesser extent lower charges on the newer products.
The EEV has reduced over the year: its high-level components are shown in the table below:
| 2015 £m |
2014 £m |
|
|---|---|---|
| Free Surplus | 36.5 | 28.3 |
| Required Capital | 27.0 | 25.1 |
| Net Worth | 63.5 | 53.4 |
| Value of In-Force ("VIF") | 138.6 | 157.5 |
| Other | (7.1) | (7.1) |
| Value of Future Profits ("VFP") | 131.5 | 150.4 |
| EEV | 195.0 | 203.8 |
Net Worth has grown to £63.5m from £53.4m as profits are earned from the existing business. Free Surplus, which is available for investment and distribution, has grown by 29% to £36.5m from £28.3m reflecting the fact that less of the cash which continues to emerge from the existing policies was needed to invest in setting up new policies. At the balance sheet date, the Net Worth of the Group is represented by liquid cash balances. The Required Capital has increased: it currently includes around £12.5m of Hansard Europe capital, the use of which management estimates is constrained for three years.
The change in VFP reflects sterling exchange rates on 30 June 2015, new business levels, the conversion of VFP to Net Worth, the impact of policyholder behaviour and renewal expenses. Notably, lower new business means the stock of future profits has fallen.
The Other component of VFP is the reduction for non-market risk and frictional costs, neither of which have changed substantially over the year.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Opening Net Worth | 53.4 | 44.6 |
| Expected new Net Worth from existing business |
32.8 | 41.5 |
| Time value | 1.0 | 0.6 |
| Net worth variance | 2.2 | (5.4) |
| Net Worth from Existing Business | 36.0 | 36.7 |
| New Business Strain | (14.1) | (16.8) |
| Dividends paid | (11.7) | (11.2) |
| Closing Net Worth | 63.5 | 53.4 |
The Net Worth is higher than projected by £2.2m (2014: lower by £5.4m): the primary reason for this is the favourable settlement of the Chargeable Event Certificate issue during the year. The Net Worth has grown by £36.0m (2014: £36.7m), of which £14.1m (2014: £16.8m) has been invested in new business (shown as New Business Strain) and £11.7m has been paid in dividends (2014: £11.2m).
The Group's EEV profit after tax is £2.9m (2014: loss of £10.7m). Lower new business, operating assumption 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.
| 2015 £m |
2014 £m |
|
|---|---|---|
| New Business Contribution | (3.7) | 3.3 |
| Experience Variances | 2.6 | (6.7) |
| Operating Assumption & Model Changes | (7.0) | (4.7) |
| Expected Return on new, existing | ||
| business and Net Worth | 1.8 | 1.5 |
| EEV operating loss after tax | (6.3) | (6.6) |
| Investment Return Variances | 4.3 | (8.2) |
| Economic Assumption Changes | 4.9 | 4.1 |
| EEV profit/(loss) after tax | 2.9 | (10.7) |
| STRATEGIC REPORT | |||
|---|---|---|---|
| As a result of the fall in new business levels, management have strengthened the expense assumptions to reflect the fact that there are fewer policies to support on-going expenses. |
|||
| Investment Return Variances | |||
| Investment performance principally reflects the investment choices, by nature and currency, made by policyholders. It is therefore largely outside the Group's control. |
|||
| 2015 £m |
2014 £m |
||
| Investment performance | |||
| of policyholder funds | 3.9 | 9.7 | |
| Exchange rate movements | 0.4 | (17.5) | |
| Other Investment Return Variances |
0.0 4.3 |
(0.4) (8.2) |
|
| Economic Assumption Changes There was a positive variance of £4.9m (2014: £4.1m) from Economic Assumption Changes. |
|||
| 2015 £m |
2014 £m |
||
| Risk Discount Rates & Unit Growth | 3.8 | 3.5 | |
| Marketing Allowances | 0.5 | 1.5 | |
| Treasury Margin | 0.6 | (0.9) | |
| Economic Assumption Changes | 4.9 | 4.1 | |
| The Risk Discount Rate and Unit Growth variances arise from the application of the EEV Principles, which require that changes in risk-free rates for the currencies in which policyholder assets are denominated are reflected. The other changes reflect changes in policyholder activity margins. |
|||
| Net asset value per share | |||
| On an EEV basis, the net asset value per share at 30 June 2015 is 141.9p (2014: 148.6p) based on the EEV at the balance sheet date divided by the number of shares in issue at that date, being 137,388,669 ordinary shares (2014: 137,379,634 shares). |
|||
| The net asset value per share at 30 June 2015 on an IFRS basis, is 29.2p (2014: 26.9p). |
|||
| Hansard Global plc Report and Accounts 2015 | 25 |
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Risk Discount Rates & Unit Growth | 3.8 | 3.5 |
| Marketing Allowances | 0.5 | 1.5 |
| Treasury Margin | 0.6 | (0.9) |
| Economic Assumption Changes | 4.9 | 4.1 |
| 2015 £m |
2014 £m |
|
|---|---|---|
| Premium Persistency | 2.4 | 0.8 |
| One-off expenses | 1.4 | (4.5) |
| Full encashments | (1.6) | (3.5) |
| Other | 0.4 | 0.5 |
| Experience variances | 2.6 | (6.7) |
Experience variances arise when the behaviour of the existing book differs from that assumed. Major contributors to the experience variances this year include positive premium persistency and the release of the Chargeable Event Certificate overprovision offset by more encashments than projected.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Ongoing expenses | (11.2) | 2.2 |
| Premium Persistency | 3.0 | (4.6) |
| Full encashment | 0.0 | (6.2) |
| Other | 2.1 | 2.6 |
| Operating Assumption Changes | (6.1) | (6.0) |
As with all businesses, the Group is exposed to risk in pursuit of its objectives. The Board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving those objectives. The Board is also responsible for maintaining sound risk management and internal control systems and for reviewing their effectiveness. The Group maintains an enterprise risk management ("ERM") framework to identify, assess, manage, monitor and control current and emerging risks.
During the year the Group has continued to invest in risk management resources to promptly identify, measure, manage, report and monitor risks that affect the achievement of objectives. In particular, we have brought together our Governance, Risk and Compliance staff into one department and invested in additional resources.
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.
The identification and evaluation of risks to key business objectives is conducted on an ongoing and consistent basis as indicated below. These processes are managed and monitored by executive management.
In accordance with provision C.2.1 of the UK Corporate Governance Code, the Board (through the Audit Committee) has conducted a review of the effectiveness of the company's risk management and internal control systems including financial, operational and compliance controls. There has been significant investment in the risk management and internal control systems in order to reduce the possibility of loss events such as that experienced last year with the Chargeable Event Certificates issue. We continue to develop our ERM Framework and to introduce further improvements as appropriate.
The Board has established a Management Risk Committee ("MRC") covering the Group's subsidiaries and operations, to supplement the activities of the Audit and Risk Committees operated by the regulated entities within the Group. The members of the Committee comprise a number of the Group's executive and senior management. The Committee is chaired by the Group Chief Executive Officer.
The objective and role of the Management Risk Committee is to:
The terms of reference of the Committee are published on the Company's website.
The Group operates a Three Lines of Defence model of risk management, with clearly defined roles and responsibilities for committees and individuals:
First Line: Day-to-day risk management is delegated from the Board to the Group Chief Executive Officer and, through a system of delegated authorities and limits, to business managers.
Second Line Risk oversight is provided by the Group Chief Risk Officer, who is now responsible for the new Governance, Risk and Compliance Department, and by the established risk management committees.
Third Line: Independent verification of the adequacy and effectiveness of the risk management and internal control systems is provided by the Group Internal Audit function.
In support of its accountabilities to operate a sound system of internal control the Board has implemented and maintains an enterprise risk management ("ERM") framework. To support the governance process the Group relies on documented policies and guidelines.
The ERM framework recognises the value to be achieved from ensuring that risk management and internal control are embedded as continuous and developing processes within strategy setting and day-to-day operating activities and are not treated as discrete activities, performed at certain points in time.
The key features of the systems of internal control which make up the ERM framework include:
The overarching objectives of the ERM framework combine five interrelated elements, which enable the management of risk at strategic, programme and operational levels to be integrated, so that the levels of activity support each other.
These five elements are defined as:
Hansard Global plc Report and Accounts 2015 27 STRATEGIC REPORT The result is a risk management strategy, which is led from the top whilst being embedded in the Group's business systems, strategy and policy setting processes and the normal working routines and activities of the organisation. In this way risk management becomes an intrinsic part of the way business is conducted within the Group.
The Board has established a formal Risk Appetite Statement which specifies the level of risk that may be assumed by the Group's operating subsidiary companies in order to achieve the Group's strategic, operational, financial and compliance objectives.
The ERM framework requires all business areas to identify and record risks to business objectives. These risks are rated according to the impact and likelihood of risk events, and these ratings are continuously re-assessed in response to changes in the business environment. This aspect of the configuration and integration of the ERM framework ensures that all staff are made aware of the relevance of risk management to the achievement of their individual objectives and accountabilities.
As well as operational management monitoring activities, the MRC meet on a regular basis to discuss emergent strategic and operational risks.
The subsidiary company Boards are asked to attest to the effective functioning of the risk management and internal control framework and the ongoing identification and evaluation of risk within each subsidiary. These attestations are then presented to give assurance to the Group Board.
The Group maintains a process to assist the Board in understanding the risks to the Group failing to meet its objectives. This incorporates a system of planning and sensitivity analysis incorporating Board approval of forecast financial and other information. 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.
The majority of investment dealing and custody processes in relation to policyholder assets are outsourced to Capital International Limited ("CIL"), a company authorised by the Financial Supervision Commission of the Isle of Man Government and a member of the London Stock Exchange.
These processes are detailed in a formal contract 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. The last such report was issued by CIL on 20 May 2015 and did not reveal any material control deficiencies in the period from 1 January 2014 to 31 December 2014. Every second year, an external independent review is performed. The next scheduled independent review will take place in early 2016 in relation to the year 1 January 2015 to 31 December 2015.
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 policyholder bears the investment risk on the assets in the unit-linked funds, as the policy benefits are directly linked to the value of the assets in the funds. These assets are administered in a manner consistent with the expectations of the policyholders. By definition, there is a precise match between the investment assets and the policyholder liabilities, and so the market risk and credit risk lie with policyholders.
The Group's exposure on this unit-linked business is limited to the extent that income arising from asset management charges and commissions is generally based on the value of assets in the funds, and any sustained falls in value will reduce earnings. In addition, there are certain financial risks (credit, market and liquidity risks) in relation to the investment of shareholders' funds. The Group's exposure to financial risks is explained in note 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. The Group's business model has served to minimise the principal risks facing the Group for a number of years but the regulatory environment continues to evolve and the risk framework will have to respond to a number of developments in future, including:
The Board reviews and considers its principal risks on an annual basis. The following table provides examples of the principal inherent risks that may impact on the Group's strategic objectives, profitability or capital and how such risks are managed. Where necessary, the Group will implement controls to mitigate the risks and minimise the potential impact of the risks on the Group as far as possible.
| Risk | Risk factors and management |
|---|---|
| Distribution strategy compromised as a result of market changes or competitor activity |
The business environment in which the international insurance industry operates is subject to continuous change as new regulatory and market forces come into effect. These include commission models, broker regulation, licensing for specific markets and use of technology/ platforms. There is a risk the Group fails to refine and transition its business model to take account of these changes. Hansard may also 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 – The Group closely monitors marketplaces and competitor activity for signs of threats to forecast new business levels. Revised strategies have been designed to add additional scale to the business, on a more diversified basis, through organic growth at acceptable levels of risk and profitability. |
| Compliance risks arising from | A failure to adhere to existing regulations or to properly assess and implement new regulations could |
| regulation | result in regulatory restrictions to the Group's business, censure or financial fines. Sudden changes in legislation without prior consultation, or the differing interpretation and application of regulations over time, may have a detrimental effect on the Group's strategy, profitability and risk profile and may incur the possibility of litigation risk, for example where responsibilities for independent advice on products and assets selected are attributed to the insurer. |
| How we manage the risk – The Group has dedicated resources and processes in place to identify emerging risks from regulatory and legislative change and to monitor the timely implementation of new requirements. The Group maintains dialogue with the IPA and other regulatory and legislative authorities. In addition to this, we have continual discussions with our advisors in relation to developments in the regulatory environment in which we operate. |
|
| Infrastructure failure | A material failure in our core business systems or business processes may result in significant, costly |
| interruptions and customer dissatisfaction. How we manage the risk – Business Continuity Plans, including full data replication at an independent recovery centre, can be invoked when required. Testing is conducted frequently. |
|
| Cyber crime | As we and our business partners increasingly digitise our businesses, we are inherently exposed to the risk that third parties may seek to disrupt our OnLine business operations, steal customer data or perpetrate acts of fraud. A significant cyber event could result in reputational damage and financial loss. How we manage the risk – We're focused on maintaining a robust and secure IT environment that protects our customer and corporate data. We deploy control techniques to evaluate the security of our systems and proactively address emerging threats both internally within the organisation and externally, |
| through regular engagement with our internet and technology providers and through industry forums. | |
| Failure to drive the right corporate culture and attract and retain high performing employees |
Delivery of the Group's strategy is dependent on attracting and retaining experienced and high performing management and staff. Failure of the Board to emphasise the importance of the right corporate culture or to provide appropriate incentive schemes could lead to inappropriate behaviours, an unmotivated workforce and a higher turnover of employees. |
| If the remuneration model for the salesforce is not attractive to the salesforce compared to competitors, key personnel may be lost and lead to sales levels below plan. |
|
| How we manage the risk – The Board has focussed significant resources in recent years in communicating its strategy and desired cultural behaviours to all employees. The Group has a number of forums for employees to provide feedback for continuous improvement and employee engagement is monitored through periodic employee surveys. Remuneration models and trends are monitored closely by the Group's human resources department and the Remuneration committee. |
In addition to the principal risks identified, 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 policyholder 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.
We recognise our obligations to adopt a responsible attitude towards our stakeholders. The Board believes that the Group continues to demonstrate such an attitude but recognises that the Group is a relatively small organisation.
The Directors serving at the date of approval of this Report and
Non-executive Chairman Chairman of Nominations Committee. Member of Audit and
Remuneration Committees. Philip was appointed Chairman of the Board with effect from 30
June 2014. He was appointed an independent non-executive Director with effect from 1 October 2011. He is also an Independent non-executive Director of CFC Capital Limited and has no other significant commitments.
Philip is a chartered accountant. He has been CEO of HSBC Insurance Brokers Limited; Tullett & Tokyo Liberty plc; Municipal Mutual Insurance Limited; and CFO of Marsh – Europe, Middle East and Africa and Sema Group plc.
Gordon was appointed Group Chief Executive Officer with effect from 1 January 2013. Gordon has previously served as Managing Director and Group Counsel. Gordon joined the Group in 1988. He is a Solicitor and a member of the Law Society.
Dr Polonsky founded the Group in 1970 and served as Chairman for many years. He accepted the honorary title of President with effect from 30 June 2014. Previously he was a partner of Associated Investors (Investment Brokers) and had roles with Life Assurance
Company of Pennsylvania. He taught languages in Heidelberg following postgraduate studies at Oxford and the Sorbonne.
Senior Independent non-executive Director
Chairman of Audit and Remuneration Committees. Member of Nominations Committee.
Maurice was appointed the Senior Independent Director with effect from 30 June 2014, having been
Hansard Global plc Report and Accounts 2015 33 GOVERNANCE appointed an independent non-executive Director on 24 November 2006. Maurice is currently a Director and Trustee of several companies and trusts involved with corporate re-construction, investment and pensions. He is a Fellow of the Institute of Actuaries, and an Associate of the CFA Society of the UK. Previously he was Deputy Chairman and Managing Director of Aon's consulting division in the UK, was the Head of the Actuarial Practice at Alexander Clay & Partners and a Partner in the actuarial firm, Clay & Partners.
Member of Audit, Nominations and Remuneration Committees.
Andy was appointed an independent non-executive Director with effect from 1 January 2014. He is a Fellow of the Faculty of Actuaries and is currently Managing Director
responsible for Moody's Analytics software business. Having joined Barrie & Hibbert in 2007, Andy was the Chief Executive Officer until Barrie & Hibbert was acquired by Moody's in 2012.
Prior to Barrie & Hibbert, Andy held numerous roles within Scottish Widows from 1988 to 2007. From 2003 to 2007 he was the Director of Sales and Marketing for Scottish Widows Investment Partnership, the asset management company of Scottish Widows.
The Directors have pleasure in submitting their Annual Report on the affairs of the Company and the Group together with the financial statements and the auditor's report for the year ended 30 June 2015. Where the context requires "the Group" means Hansard Global plc and its wholly owned subsidiaries.
Hansard Global plc is the holding company of the Group and has a Premium Listing on the London Stock Exchange. The Company is a limited liability company incorporated and domiciled in the Isle of Man.
The principal activity of the Company is to act as the holding company of the Hansard Group of companies. The activities of the principal operating subsidiaries include the transaction of life assurance business and related activities.
The following companies are wholly-owned subsidiaries of the Company and represent its principal operating subsidiaries at the balance sheet date and at the date of this report. All companies are incorporated in the Isle of Man with the exception of Hansard Europe, which is incorporated in the Republic of Ireland. Hansard Europe was closed to new business with effect from 30 June 2013.
| Company | Business |
|---|---|
| Hansard International Limited |
Life Assurance |
| Hansard Europe Limited | Life Assurance |
| Hansard Administration Services Limited |
Administration services |
| Hansard Development Services Limited |
Marketing and development services |
The results of trading of the Group for the year under IFRS are set out in the consolidated statement of comprehensive income on page 54. The consolidated financial statements have been prepared under International Financial Reporting Standards as adopted by the European Union ("IFRS"). The financial statements of the parent company have been prepared under UK Generally Accepted Accounting Practice ("UK GAAP").
Additionally, certain information relating to embedded value is presented using the European Embedded Value ("EEV") methodology. The Board believes that EEV Information provides additionally meaningful information on the financial position and performance of the Group in a particular financial year than that
provided by IFRS reporting alone. The results of trading of the Group for the year on an EEV basis are set out in the EEV Information on pages 83 to 91.
Results under both IFRS and EEV are significantly affected in both the current and prior years by costs associated with resolving weaknesses in the Group's procedures in relation to the issuance of Chargeable Events certificates required by Her Majesty's Revenue and Customs ("HMRC"). Having established and expensed a provision of £5.0m in 2014, subsequent detailed work and analysis resulted in the Group being able to conclude in full and final settlement a payment of £1.4m to HMRC. After accounting for professional fees and expenses, this resulted in a net credit to the consolidated statement of comprehensive income of £3.0m in 2015.
Further information is contained in the Business and Financial Review.
Having regard to the issues noted above, the profit after tax is £14.9m, compared with a profit for the prior year of £8.3m.
Dividends totalling £11.7m were paid during the year (2014: £11.2m).
Following a significant reduction in new business flows in the year, and with expenses generally of a fixed nature, EEV profits were reduced by a negative New Business Contribution of £3.7m (2014: positive £3.3m). After taking into account favourable economic and investment experience over the year however, an overall EEV profit after tax was earned of £2.9m (2014: loss of £10.7m). After payment of the dividends of £11.7m during the year, the EEV of the Group as at 30 June 2015 is £195.0m (2014: £203.8m).
The Board has resolved to pay a final dividend of 5.25p per share on 19 November 2015, subject to approval at the Annual General Meeting, to shareholders on the register on 2 October 2015. If approved, this would bring the total dividends in respect of the year ended 30 June 2015 to 8.75p per share.
A full review of the Group's activities during the year, recent events and future developments is contained in the Chairman's Statement on pages 2 and 3, the Chief Executive Officer's Review on pages 4 to 9, and the Business and Financial Review on pages 14 to 25.
The Board has established a process for identifying, evaluating and managing the significant risks the Group faces. A summary of the principal risks and uncertainties can be found on pages 30 and 31.
Hansard is committed to achieving high standards of Corporate Governance throughout the Group. The Company continues to adhere to the principles of the UK Corporate Governance Code. The Group is compliant with the requirements of the Code at the date of this report.
The Corporate Governance Report on pages 38 to 43 provides full details on the efforts made by the Group in the areas of corporate governance and corporate social responsibility within the business.
Details of Directors' remuneration for the year can be found in the Report of the Remuneration Committee on pages 48 to 51.
Details of Board members at the date of this report, together with their biographical details, are set out in the previous section of this Report and Accounts. All Board members served throughout the financial year and to the date of this report.
All of the Directors will retire at the Annual General Meeting and, being eligible, seek re-election.
Details of the authorised and issued share capital together with details of movements in share capital during the year are included in Note 21 to the consolidated financial statements. The Company has one class of share in issue, ordinary shares of 50 pence each, all of which are fully paid.
Each ordinary share in issue carries equal rights including one vote per share on a poll at general meetings of the Company, subject to the terms of the Company's Articles of Association and applicable laws. Votes may be exercised by shareholders attending or otherwise duly represented at general meetings. Deadlines for the exercise of voting rights by proxy on a poll at a general meeting are detailed in the notice of meeting and proxy cards issued in connection with the relevant meeting. There are no restrictions on the transfer of shares.
At 30 June 2015 the Company had been notified of the following holdings in its share capital. There have been no significant changes in these holdings between the balance sheet date and the date of this report.
| Name | Shares (millions) | % holding |
|---|---|---|
| Dr L S Polonsky CBE * | 51.1 | 37.2 |
| Aberforth Partners LLP | 16.9 | 12.3 |
| The Polonsky Foundation | 7.7 | 5.6 |
| Mr M A Polonsky * | 7.5 | 5.5 |
*Including holdings of spouse
An Employee Benefit Trust ("EBT") was established in November 2011 with a gift of 400,000 Hansard Global plc shares from Dr Polonsky. At 30 June 2015, following a further gift of 250,000 shares in September 2014, the EBT holds 699,910 shares (2014: 434,500 shares).
A Save As You Earn share save programme allows eligible employees to have the opportunity of acquiring an equity interest in the Company.
At the balance sheet date 1,630,199 options remain outstanding (2014: 828,208), details of which can be found in the Report of the Remuneration Committee.
Directors' interests in shares in the Company, in options granted under the Save As You Earn programme and in options granted under a previous Long Term Incentive Plan are disclosed in the Report of the Remuneration Committee on pages 48 to 51 together with details of their contractual arrangements with the Group.
Hansard Global plc Report and Accounts 2015 35 GOVERNANCE Dr Polonsky is a controlling shareholder of the Group, as defined by the Listing Rules of the Financial Conduct Authority. A summary of the most recent agreement, dated 22 September 2014, governing his relationship with the Group is set out in the Report of the Remuneration Committee on pages 48 to 51. Other than as mentioned below, there were no significant transactions between the Group and Dr Polonsky during the year.
The Company Secretary at 30 June 2015 and throughout the year then ended was Manoj Patel.
The Chairman's statement, the Group Chief Executive Officer's overview, the Business and Financial Review and other sections of this Report and Accounts may contain forward-looking statements about the Group's current plans, goals and expectations on future financial conditions, performance, results, strategy and objectives. Statements containing the words: 'believes', 'intends', 'expects', 'plans', 'seeks', 'anticipates' and other words of similar meaning are forward-looking. All forward-looking statements involve risk and uncertainty. This is because they relate to future events and circumstances that are beyond the Group's control.
As a result, the Group's future financial condition, performance and results may differ materially from the plans, goals and expectations set out in the forward-looking statements. The Company will not undertake any obligation to update any of the forward-looking statements in this Report and Accounts.
The Annual General Meeting ("the meeting") of the Company will be held on 12 November 2015 at the Company's registered office. All Directors are expected to be present at the meeting.
A copy of the notice of the meeting, with each separate issue presented as a separate resolution, is contained within this Report and Accounts. As well as the business normally conducted at such a meeting, shareholders will be asked to:-
The Directors consider that all the resolutions to be put to the meeting are in the best interests of the Company and its shareholders as a whole and will be voting in favour of them. The Board undertakes to apply the Listing Rules in relation to the re-appointment of the independent non-executive directors. This requires that re-election is by majority of votes cast by independent shareholders as well as by majority of all shareholders. The Company further confirms, as required by the Listing Rules, that it has an agreement in place with Dr Polonsky, as the controlling shareholder.
The notice of the meeting and the Report and Accounts are also available at www.hansard.com. As required by the UK Corporate Governance Code, copies of the Company's Articles of Association, the Service Agreement for Gordon Marr, Letters of Appointment for the non-executive Directors, the Relationship Agreement between the Company and Dr Polonsky, the revised Articles of Association and the exiting Articles of Association are available for inspection at the Company's registered office until the conclusion of the meeting.
In accordance with the Group's normal practice, the total number of proxy votes lodged at the meeting on each resolution (categorised as for; against; and votes withheld) will be made available both at the meeting and subsequently on the Company's website.
The Group did not make any political donations during the year (2014: £nil).
The Directors who held office at the date of approval of this Directors' Report confirm that, so far as each is aware, there is no relevant audit information of which the Company's auditor is unaware, and; each Director has taken all steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
The Company's auditor, PricewaterhouseCoopers LLC, has indicated its willingness to continue in office. The Audit Committee has recommended that PricewaterhouseCoopers LLC be reappointed as the Company's auditor. Accordingly, a resolution to reappoint PricewaterhouseCoopers LLC as auditor to the Company, and to authorise the Directors to fix its remuneration, will be proposed at the Annual General Meeting.
As shown within the Business and Financial Review, the Group's capital position is strong and well in excess of regulatory requirements. The long-term nature of the Group's business results in considerable positive cash flows arising from existing business. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic environment.
The Directors are satisfied that the Company and the Group have adequate resources to continue to operate as a going concern for the foreseeable future, being a period of 12 months from the approval of the Report and Accounts, and have prepared the financial statements on that basis.
The Directors are responsible for preparing the Report and Accounts, the Report of the Remuneration Committee and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with IFRS as adopted by the European Union, and the Parent Company financial statements in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). The financial statements are required by law to give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.
In preparing these financial statements, the Directors are required to:
The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements comply with the Isle of Man Companies Acts 1931 to 2004 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing the Directors' Report, the Report of the Remuneration Committee and a Corporate Governance Report that comply with that law and those regulations.
The Directors have chosen to present supplementary information in accordance with the European Embedded Value Principles issued in May 2004 by the Chief Financial Officers Forum, as supplemented by the Additional Guidance on European Embedded
Hansard Global plc Report and Accounts 2015 37 GOVERNANCE Value Disclosures issued in October 2005 ('the EEV Principles'). When compliance with the EEV Principles is stated, those principles require supplementary information to be prepared in accordance with the Embedded Value methodology contained in the EEV Principles and to disclose and explain any non-compliance with the EEV Guidance included in the EEV Principles.
In preparing the EEV supplementary information, the Directors have had:
The Directors are responsible for the maintenance and integrity of the company's website. Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed in the Board of Directors section of the Report and Accounts confirm that, to the best of their knowledge:
By Order of the Board
Manoj B Patel Company Secretary 22 September 2015
As an Isle of Man incorporated company, the Company's primary obligation is to comply with the Isle of Man Companies Acts 1931 to 2004. The Board confirms that the Company is in compliance with the relevant provisions of the Companies Acts.
The Board believes high standards of corporate governance are integral to the delivery of the Group strategy and so the Board maintains a strong commitment to achieving the highest standards of corporate governance with the application of the provisions of the Code to the business. A copy of the Code is available on the website of the Financial Reporting Council at www.frc.org.uk.
Details on how we have applied the principles of the Code to our activities throughout the financial year and to the date of this report (as well as any exceptions to the Code) are set out in this Corporate Governance Report, in the Directors' Report on pages 34 to 37 and/or in the Remuneration Committee Report on pages 48 to 51.
The Board is of the opinion that the Board composition and governance frameworks are sufficient to maintain compliance with the principles of the Code.
The primary role of the Board is to provide leadership of the Company. The Company is directed and controlled both by its Board of Directors and through systems of delegation and escalation, in order to achieve its business objectives in accordance with high standards of transparency, probity and accountability.
It achieves these goals by making decisions relating to a number of key areas for the business, by overseeing the activities of the executive management team, and by delegating certain matters for resolution through the principal Board Committees, namely the Audit Committee, the Executive Committee, the Management Risk Committee, the Remuneration Committee and the Nominations Committee.
The specific duties of the Board are clearly set out in a Board Procedures Manual that addresses a wide range of corporate governance issues and lists those items that are specifically reserved for decision by the Board.
The primary responsibilities of the Board include, but are not limited to:
The duties of the principal Board Committees are detailed in the relevant written terms of reference, which are reviewed annually and are available on the Company's website, www.hansard.com.
The memberships of each of the principal Board Committees are detailed on page 40.
At the date of this report the Board comprises the non-executive Chairman, two independent non-executive Directors, one nonexecutive director and the Group Chief Executive Officer.
The Code requires that at least half the Board, excluding the Chairman, should comprise independent non-executive Directors as determined by the Board. Having considered the matter carefully the Board confirms that it is in compliance with the Code in this respect.
As required by the Code, the full Board offer themselves for reelection at the Annual General Meeting ("AGM").
The Board supports greater transparency in regard to the election and re-election of independent non-executive directors. In compliance with the Listing Rules, the Company, at its forthcoming and future Annual General Meetings, will operate a dual voting structure for any such resolutions. The results from the AGM votes on any such resolutions, together with other information normally circulated following the conclusion of the meeting, will be disclosed through the Regulatory Information Services following the conclusion of the Meeting. In the event that the majority of independent shareholders are shown to have voted against these resolutions, a further vote will be called after 90 days.
Philip Gregory was appointed the Company's non-executive Chairman with effect from 30 June 2014. He leads the Board within a solid corporate governance framework, and he ensures that the Board provides effective leadership for the Group including strategy and direction. As part of the appointment process the time commitments required for this role were considered.
Gordon Marr was appointed the Group Chief Executive Officer ("CEO") with effect from 1 January 2013. As CEO, he leads the senior executive team in the day to day running of the Group's business, including execution of the Group's business plans and objectives and communicating its decisions and recommendations to the Board.
The division of responsibilities between the Chairman and the CEO is clearly defined and has been approved by the Board. The Chairman has no day-to-day involvement in the management of the Group. The CEO has direct charge of the Group on a day-today basis and is accountable to the Board for the financial and operational performance of the Group.
Under the Code the Board appoints one of the independent nonexecutive Directors to act as Senior Independent Director. Maurice Dyson was appointed Senior Independent Director on 30 June 2014.
Maurice Dyson and Andy Frepp are considered by the Board to be independent non-executive directors in accordance with the Code definition. Philip Gregory as Chairman and Dr Polonsky are nonexecutive directors but not considered to be independent for the purposes of the Code.
The non-executive Directors fulfil a critical role to constructively challenge all recommendations presented to the Board for approval and to provide the benefit of their experience and expertise to manage risk within the Group and enhance delivery of the overall strategy.
The Board's policy is to appoint and retain independent nonexecutive Directors who can apply their wider knowledge and experiences to their understanding of the Group. The process for appointing new Directors is conducted by the Nominations Committee.
It is the Board's view that an independent non-executive Director also needs to be able to present an objective, rigorous and constructive challenge to management. To be effective, an independent non-executive Director needs to acquire a sound understanding of the industry and the Company so as to be able to evaluate properly the information provided.
Hansard Global plc Report and Accounts 2015 39 GOVERNANCE Each independent non-executive Director serves for a fixed term not exceeding three years that may be renewed by mutual agreement. The term of appointment of Maurice Dyson was renewed for a further three years from November 2012. A review of the current arrangements affecting all non-executive directors covering the current term of appointment and review of their independence (where relevant) will be undertaken at the November 2015 Board and Committee meetings.
Subject to the Board being satisfied with a Director's performance, independence and commitment, there is no specified limit regarding the number of terms an independent non-executive Director may serve, subject to any explanation, if required under the provisions of B1.1 of the Code.
The Board meets regularly to determine the Company's strategic direction, to review the Company's operating and financial performance and to provide oversight that the Company is adequately resourced and effectively controlled.
The Company requires Directors to devote sufficient time to the Company in order to perform their duties. If Directors are not able to attend a meeting they have the opportunity to submit their comments in advance to the Chairman or the Company Secretary. If necessary, they can follow up with the Chairman of the meeting.
The attendance of the Directors at the Board and Committee meetings held during the year (and the maximum number of meetings that each Director could have attended) was as follows:
| Board | Audit | Nominations Remuneration | ||
|---|---|---|---|---|
| Number of meetings | 6 | 4 | 4 | 4 |
| Dr Leonard Polonsky* 6/6 | n/a | n/a | n/a | |
| Maurice Dyson^ | 6/6 | 4/4 | 4/4 | 4/4 |
| Andy Frepp* | 6/6 | 4/4 | 4/4 | 4/4 |
| Philip Gregory> | 6/6 | 4/4 | 4/4 | 4/4 |
| Marc Polonsky~ | 6/6 | n/a | n/a | n/a |
| Gordon Marr | 6/6 | n/a | n/a | n/a |
^ Chairman of the Audit and Remuneration Committees throughout the year
Chairman of the Nominations Committee throughout the year
The Board has established a number of standing committees to oversee important issues of policy and maintain such oversight outside the main Board meetings. Each committee operates within defined terms of reference, which can be accessed on the Company's website.
Throughout the year, the Chairman of each Committee provided the Board with a summary of the key issues considered at the meetings of the Committees and the minutes of the meetings were circulated to the Board.
Board Committees are authorised to engage the services of external advisers as they deem necessary in the furtherance of their duties, at the Company's expense.
Reports from the Audit, Nominations and Remuneration Committees are set out later in this Report and Accounts, together with a summary of their activities during the year. The activities of the Management Risk Committee are summarised in the Risk Management and Internal Control Report on pages 26 to 31.
The Executive Committee is chaired by the Group Chief Executive Officer and currently meets weekly. The Executive Committee has responsibility for the day-to-day management of the Group, and other items as delegated from time to time by the Board. In addition to Gordon Marr, the Executive Committee is currently comprised of Ollie Byrne (Chief Operating Officer); Karen Corran (Head of Human Resources); Tim Davies (Chief Financial Officer); Graham Morrall (Global Sales and Marketing Director); Ian Townsend (Chief Risk Officer) and Leslie Wong (Operations Director, Hansard Development Services Limited).
The agenda for each Board and Committee meeting is considered by the Chairman or Committee Chairman and the papers for each meeting are distributed by the Company Secretary to the Board or Committee members beforehand. As a standard agenda item during the scheduled Board meetings, the Chairman and non-executive Directors meet without the executives present. The Chairman maintains regular contact with the CEO and with the non-executive Directors, outside of Board meetings or calls, in order to discuss specific issues.
The effectiveness of the Board is vital to the success of the Group. The Company undertakes an evaluation each year in order to assess the performance of the Board, its Committees, the Directors and the Chairman. The aim is to improve the effectiveness of the Board and its committees and the Group's performance. The process is led by the Chairman and supported by the Company Secretary through the use of a questionnaire by way of a self-evaluation. The analysis and summary of responses in the year under review did not identify any significant issues.
As part of the Chairman's evaluation the independent non-executive Directors meet separately under the chairmanship of the Senior Independent Director who, in turn, engages in reviews with the Chairman.
Following these reviews, the Directors have concluded that the Board and its Committees operate effectively and have agreed actions in respect of certain processes identified for improvement. Additionally, the Chairman and the Senior Independent Director have concluded that each Director contributes effectively and demonstrates full commitment to his duties.
The principles and details of Directors' remuneration, as well as the composition and working of the Remuneration Committee, are contained in the Report of the Remuneration Committee on pages 48 to 51.
The Company maintains insurance cover with respect to the liabilities of Directors and Officers within the Group. In addition, qualifying third party indemnity arrangements are in force for the benefit of the Directors within the Group and were in force for the benefit of former Directors of the Group during the year under review.
Directors are fully briefed in advance of Board and Committee meetings on all matters to be discussed. The Company Secretary is responsible for following Board procedures and advising the Board, through the Chairman, on governance matters. All Directors have access to his advice and services.
The Board has adopted a procedure whereby Directors may, in the performance of their duties, seek independent professional advice at the Company's expense if considered appropriate.
The primary responsibility for developing and implementing internal control and risk management procedures covering all aspects of the business lies with the executive management team. As part of the reporting processes from the Group's Enterprise Risk Management ("ERM") framework, the Board regularly receives written reports covering all such aspects. The Board plays a direct role in the development of the Group's internal controls and risk management systems in addition to overseeing controls and risk management procedures via the Audit Committee.
Individual managers are responsible for ensuring compliance within their departments which includes the identification, evaluation and mitigation of risks within their areas of responsibility. The application and consistency of these policies and procedures are regularly reviewed by the Group's Internal Audit function, and are then overseen and reported to the Audit Committee, which is ultimately responsible for reporting on the same to the Board.
In accordance with provision C.2.1 of the UK Corporate Governance Code, the Board (through the Audit Committee) has conducted a review of the effectiveness of the company's risk management and internal control systems including financial, operational and compliance controls. There has been significant investment in the risk management and internal control systems in order to reduce the possibility of loss events such as that experienced last year with the Chargeable Event Certificates issue. We continue to develop our ERM Framework and to introduce further improvements as appropriate.
Additional information on the principal risks and uncertainties faced by the Group, together with steps taken to manage them, can be found on pages 30 and 31.
The Group maintains a process to assist the Board in understanding the risks to the Group failing to meet its objectives. This incorporates a system of planning and sensitivity analysis incorporating Board approval of forecast financial and other information. Operational management reports monthly to the Executive Committee on a wide range of key performance indicators and other significant matters. The Board receives regular representations from the senior executives. Performance against targets is reported to the Board quarterly through a review of the Group's and Company's results based on accounting policies that are applied consistently throughout the Group. Draft management 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.
The statement on the responsibilities of the Directors in relation to the preparation of the accounts and the Directors' evaluation of the business as a going concern is contained in the Directors' Report on pages 34 to 37.
The Directors as at the date of this report consider that the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
We recognise our obligations to adopt a responsible attitude towards our stakeholders. The Board believes that the Group continues to demonstrate such an attitude but recognises that the Group is a relatively small organisation.
The Board believes that Hansard's policies and actions fulfil the Group's obligations.
The Group's principal administrative operations are performed in the Isle of Man. Management of Hansard Europe Limited and certain support functions are located in the Republic of Ireland. Account Executives and related market development resources are based in local markets to support Independent Financial Advisors and other intermediaries that introduce business to the Group. The principal locations at 30 June 2015 are East Asia, the Middle East and Latin America.
At 30 June 2015, the number of the Group's employees by location was as follows:
| Number | Number | |
|---|---|---|
| Location | 2015 | 2014 |
| Isle of Man | 169 | 166 |
| Republic of Ireland | 21 | 22 |
| Other | 22 | 18 |
| 212 | 206 |
The gender profile of the Group at 30 June 2015 is split with a total of 113 male and 99 female employees (2014: 114 male and 92 female). Within the executive management team, there are six male executives and one female executive.
The Group continues its efforts to reduce and restrain our carbon footprint both in relation to daily operations, and in our communications. At the Group's locations we have regard to energy efficiency and ensure that appropriate waste is recycled. Whenever possible we conduct meetings using video conferencing facilities installed at the Group's offices to reduce travel requirements.
OnLine propositions provide increasing electronic access to information and allow us to be more creative with printing requirements, including deliberately keeping the print runs to a bare minimum. Provision of an electronic version of the Annual Report and Accounts, where shareholders have chosen this option, and other market information has reduced the need to publish and distribute copies. In order to support this shareholders are asked to contact the Registrars and elect the electronic option for future receipt of the Annual Report and Accounts.
The Group encourages employees in their efforts to support local causes, through collections in the office or through active participation in fund raising events. The Group has also supported a number of initiatives to support young people in education. Examples include providing work experience placements and internships and providing experts to deliver presentations on specific topics to students, particularly in the IT space. Hansard was one of the founder members of the ICT University in the Isle of Man which will specialise in the provision of leading information and communication technology for business use. We also recognise the importance of supporting our employees who volunteer in other areas which support our community.
During the year the Company matched donations made by employees in support of a number of registered charities, primarily in the Isle of Man and the Republic of Ireland. This has resulted in a total of approximately £24,700 (2014: £13,100) being donated to various charities in those locations during the financial year. The majority of these donations were to support Cancer research.
The Group seeks to act fairly, responsibly and transparently in its operations and relationships with stakeholders. For example:
The Board is accountable to the shareholders for creating and delivering value through the effective governance of the business. The Group places considerable importance on developing its relationships with our shareholders and it aims to achieve this by way of the following regular communication activities:
There have been regular meetings with the investor community, major shareholders and analysts during the financial year. This included formal meetings with investors, analysts and media at various points throughout the year.
In addition the Chairman is available to meet with and has met major shareholders to discuss any areas of concern not resolved through normal channels of investor communication. Arrangements can be made to meet with the Chairman through the Company Secretary.
Hansard Global plc Report and Accounts 2015 43 GOVERNANCE The Board is equally interested in communications with private shareholders and the Company Secretary oversees communication with these investors. All information reported to the regulatory news services is simultaneously published on the Company's website, affording the widest possible access to Company announcements.
The Board receives regular feedback on the views of shareholders on the Company from its executive management team after meetings with those shareholders, as well as from reports from the Company's corporate brokers and the Chairman.
By Order of the Board
Manoj B Patel Company Secretary 22 September 2015
This report provides details of the role of the Group Audit Committee and the work it has undertaken during the year. The role, responsibilities and work of the Committee can best be understood by reference to its written terms of reference. These are published on the Company's website, www.hansard.com.
A summary is set out below:
During the year the members of the Committee were the Group Chairman, Philip Gregory, and the Group's independent nonexecutive Directors who have considerable recent and relevant financial experience, being Maurice Dyson and Andy Frepp. All members served on the Committee throughout the year and to the date of this report. Maurice Dyson is the Chairman of the Committee.
The Company Secretary acts as the secretary to the Committee. The Chairman of the Committee reports to each subsequent meeting of the Board on the Committee's work and the Board receives a copy of the minutes of each meeting of the Committee.
The Committee met on four occasions during the year. The members' attendance record is set out in the Corporate Governance Report.
During the year, the Chairman invited the Chief Financial Officer, representatives from internal audit and PricewaterhouseCoopers LLC (the external auditor) to attend all meetings of the Committee. Other members of senior management, including the Group Chief Executive Officer, were also invited to attend as appropriate.
It is the Committee's practice to meet separately, at least once a year, with both the head of internal audit and with the engagement partner of the external auditor, without any members of management being present. In addition, outside the structure of formal meetings, Maurice Dyson (as Chairman of the Committee) has had separate meetings throughout the year directly with the external auditor, the head of internal audit and the Group's reviewing actuaries. He
also meets and has regular contact with the Group Chief Executive Officer, the Chief Financial Officer, the Chief Actuary and the Chief Risk Officer.
In performing its duties, the Committee has access to the services of the head of internal audit, the Company Secretary and, if required, external professional advisers.
Each of the Group's life assurance subsidiaries has established an audit committee that provides an oversight role for its own business. The chairman of each of those committees is an independent non-executive director of the relevant company. Each committee operated throughout the financial year and considered specifically the reporting of outsourced services and the valuation of policyholder liabilities, having regard to the opinion of the independent Appointed Actuary.
The minutes of the meetings of those committees are circulated to the Group Audit Committee which monitors in particular the adherence of the subsidiaries to regulatory requirements.
During the financial year the Committee:
Whilst reviewing the annual and half yearly report and accounts, the Committee focussed on the following areas where significant financial judgements were required:
The Group's internal audit function reports to the Audit Committee on the effectiveness of the Group's systems of internal controls, the adequacy of those systems to manage business risk and to safeguard the Group's assets and resources. The internal audit function provides objective assurance on risks and controls to the Committee.
The plans, the level of resources and the budget of the internal audit function are reviewed at least annually by the Committee. During the financial year the Committee monitored and reviewed the effectiveness of the internal audit function, including consideration of the internal audit plan (including changes thereof) and results from completed audits and concluded that the function was fit for purpose.
PricewaterhouseCoopers LLC is the appointed external auditor for the Group. The Group has in place a policy to ensure the independence and objectivity of the external auditor.
During the year, the Committee performed its annual review of the independence, effectiveness and objectivity of the external auditor, assessing the audit firm, the audit partner and audit teams. In relation to the independence of the external auditor, the Committee considered confirmations concerning rotation of the auditor's senior management and of the engagement partners. The Committee considered auditor rotation and was satisfied in regards to its compliance with the Code. The current audit partner will be rotated for the 2016 financial year audit.
Based on this review and with input from Group management and Internal audit, the Committee concluded that the audit service of PricewaterhouseCoopers LLC was fit for purpose and provided a robust overall examination of the Group's business and the risks involved.
The Audit Committee has therefore recommended to the Board that PricewaterhouseCoopers LLC be re-appointed as the Group's auditor.
Hansard Global plc Report and Accounts 2015 45 GOVERNANCE The Committee monitored compliance with the Group policy for the provision of non-audit services by the external auditor. This policy aims to ensure that external auditor objectivity and independence is safeguarded and sets out the categories of non-audit services which the external auditor is allowed to provide to the Group. Financial limits for non-audit related advice and consultancy work by the external audit firm apply to each company in the Group with a limit of £25,000 per company per year. Non-audit assignments exceeding the agreed limits, either individually or cumulatively, must have the prior approval of the Group Audit Committee.
The Committee also considered additional audit-related services which were necessary to meet local regulatory requirements in East Asia. The Committee was satisfied with the classification of such services and that the services did not impair the independence of the external auditor.
Details of the amount paid to the external auditors during the year for audit and non-audit related services are set out in note 8 to the consolidated financial statements.
The Committee has reported to the Board regarding the review of the Group's risk management and internal control systems in accordance with provision C.2.1 of the UK Corporate Governance Code.
The Committee took into account events during the year and to the date of signing of the Accounts, including internal reporting structures together with reporting from internal audit, external audit and the Group's reporting actuaries.
In line with the Code requirements, the Board undertook a review of the effectiveness of all its committees during the year, including the Audit Committee. In addition, the Committee also carried out a self-evaluation of its effectiveness. No significant issues were identified. The self-evaluation was carried out through response to a questionnaire and analysing the responses compared to prior years' responses and other factors.
For the Board
Maurice Dyson Chairman of the Audit Committee 22 September 2015
This report provides details of the role of the Nominations Committee and the work it has undertaken during the year.
The role, responsibilities and work of the Committee can best be understood by reference to its written terms of reference. These are published on the Company's website. A summary is set out below:
The Committee keeps under review the balance of skills on the Board and the knowledge, experience, length of service and performance of the Directors. It also reviews their external interests with a view to identifying any actual, perceived or potential conflicts of interests, including the time available to commit to their duties to the Company.
The Group ensures that each of its companies is compliant with relevant applicable legislation relating to Health and Safety, employment legislation including sex, race and other discrimination rules, and strives to be an equal opportunity employer. The Group's recruitment process seeks to find candidates most suited for the job.
The Group respects the dignity of individuals and their beliefs and does not tolerate any sexual, racial, physical or mental harassment of staff or tolerate any discrimination in the workplace.
During the year the members of the Committee were the Group Chairman, Phillip Gregory, and the Group's independent nonexecutive Directors being Maurice Dyson and Andy Frepp. All members served on the Committee throughout the year and to the date of this report. Philip Gregory is Chairman of the Committee.
The Company Secretary acts as the secretary to the Committee. The Chairman of the Committee reports to each subsequent meeting of the Board on the Committee's work and the Board receives a copy of the minutes of each meeting of the Committee.
The Committee met on four occasions during the year. The members' attendance record is set out in the Corporate Governance Report.
During the year the Committee addressed a number of issues concerning the Board structure and division of responsibilities, in particular the Committee:
In line with the Code requirement the Board undertook a review of the effectiveness of all its committees during the year, including the Nominations Committee. The Board will keep the process under review to ensure that analysis of the data obtained from this and future evaluations is utilised by the Board, the Chairman and the Committee.
Philip Gregory had regular meetings during the year with the Group Chief Executive Officer and the non-executive Directors. In addition, after each Board meeting, the Chairman held an informal session with the full Board members (without management or the Company Secretary being present) and one with only the independent non-executive Directors, which includes an evaluation of the performance of the Chairman.
For the Board
Philip Gregory Chairman of the Nominations Committee 22 September 2015
This report provides details of the role of the Remuneration Committee and the work it has undertaken during the year.
The main purpose of the Committee is to determine the overall remuneration policy and the remuneration packages and service contracts of the executive Director, the Company Secretary and such other members of the executive management as it considers appropriate, including the operation of incentive schemes. The Committee aims to set remuneration at an appropriate level to attract, retain and motivate executives of the necessary calibre.
As such the remuneration policy is designed to:
The role, responsibilities and work of the Committee can best be understood by reference to its terms of reference. These are published on the Company's website.
During the year the members of the Committee were the Group Chairman, Philip Gregory, and the Group's independent nonexecutive Directors being Maurice Dyson and Andy Frepp. All members served on the Committee throughout the year and to the date of this report.
Maurice Dyson was Chairman of the Committee throughout the year.
The Company Secretary acts as the secretary to the Committee. The Chairman of the Committee reports to each subsequent meeting of the Board on the Committee's work and the Board receives a copy of the minutes of each meeting of the Committee.
During the year there were four meetings of the Committee. The members' attendance record is set out in the Corporate Governance Report.
At the request of the Committee, Gordon Marr, the Group Chief Executive Officer, also attends meetings and makes recommendations to the Committee regarding changes to particular remuneration packages (excluding himself) or to policy generally. Such recommendations are discussed by the Committee and adopted or amended as it sees fit. The Head of HR provides all necessary support to the Remuneration Committee in executing its duties.
During the year the Committee addressed a number of issues concerning remuneration and incentive schemes implemented by the Group, in particular:
The Committee approved the continuation of a bonus scheme for all employees. The terms of the scheme that are effective from 1 July 2015 incorporate targets of new business production and on achievement of individual performance objectives. Bonuses earned will be paid in the October following the end of the financial year.
The 2015 financial year scheme did not generate an award for any participant (2014: nil).
This incentive scheme was in operation in previous years, but has since ceased with no replacement in place at this time. There were no options under this scheme granted during the year or outstanding at the balance sheet date. Options over 1,200,000 shares lapsed with no value in the previous financial year in light of the minimum performance criteria not being met over the period of the scheme.
9,035 options over shares were exercised under the Scheme rules during the year (2014: no shares).
At the date of this report, the following options remain outstanding under each tranche:
| 2015 No. of |
2014 No. of |
|
|---|---|---|
| Scheme year | options | options |
| 2011 | 8,366 | 30,294 |
| 2013 | 266,538 | 266,538 |
| 2014 | 531,376 | 531,376 |
| 2015 | 823,919 | – |
| 1,630,199 | 828,208 |
An Employee Benefit Trust ("EBT") was established in November 2011 with a gift of 400,000 Hansard Global plc shares from Dr Polonsky. At 30 June 2015, following a further gift of 250,000 shares in September 2014, the EBT holds 699,910 shares (2014: 434,500 shares). Further shares will be purchased with the interim and final dividends given that the performance target for release of a bonus under the EBT were not met. No distributions were made from the EBT during the year (2014: £21,000).
In accordance with the UK Corporate Governance Code all Directors are subject to annual re-election. All Directors serving on 6 November 2014 were re-elected at the Annual General Meeting held at that date.
The key terms and benefits of the contractual arrangements between each Director and the Company are as follows:
Dr Leonard Polonsky – Non-executive director – President. The letter of appointment effective from 22 September 2014 reflects Dr Polonsky's appointment as a non-executive Director and President and incorporates the requirements of the Listing Rules of the Financial Conduct Authority in relation to Dr Polonsky as controlling shareholder of the Group.
Hansard Global plc Report and Accounts 2015 49 GOVERNANCE A summary of the agreement, dated 22 September 2014, governing his relationship with the Group is available for inspection at the Company's registered office and will be made available to shareholders at the Annual General Meeting to be held on 12 November 2015. In order to maintain effective corporate governance the agreement contains the following terms:
Consistent with other non-executive directors, Dr Polonsky is entitled to a fee for his participation on the Board of £50,000 for the 2015 financial year, compared the previous nominal arrangement of £1.
There were no significant transactions between the Group and Dr Polonsky during the year under review, except as noted in the Directors' Report.
Gordon Marr – Group Chief Executive Officer. Housing allowance; company contribution into personal pension arrangements; private health insurance for himself, his spouse and dependent children; permanent health insurance; life assurance; full-pay sick leave for a maximum of eight weeks of absence, whether or not consecutive, in any 12-month period due to illness or injury and 30 days annual leave in addition to public holidays. Other than the right to receive a payment in lieu of notice upon termination, his service agreement dated 24 November 2006 does not provide for any benefits upon termination of employment. The notice period (by either party) is 12 months.
Mr Marr was appointed to the Board on 27 April 2005 and last re-elected on 6 November 2014.
Mr Marr is a member of a cash-settled bonus scheme which is based upon targets of new business production and individual performance objectives agreed with the Board. Mr Marr's potential earnings under the scheme range from £30,000 to £75,000 depending upon results and performance He is also entitled to receive benefits under the Employee Benefit Trust in the same manner as all employees. Additionally he has been granted an option to require the Company to acquire a residential property from him for the sum of £481,000. Mr. Marr purchased the property in July 2011 for £501,000.
Non-executive Directors. The appointment of each non-executive Director has been confirmed by an individual letter of appointment which includes a one month notice provision. The non-executive Directors do not have service contracts or any benefits-in-kind arrangements and do not participate in any of the Group's pension or long-term incentive arrangements.
It is the policy of the Committee to pay base salaries to the Executive Director at broadly market rates (taking account of the Isle of Man location where relevant) compared with those of executives of companies of a similar size and international scope, whilst also taking into account the executives' personal performance and the performance of the Group. In addition reliance is placed on the Human Resource function to give local data and the initial recommendation from the Management
It is our policy to set the fees for each non-executive Director so that they reflect the time commitment in preparing for and attending meetings, the responsibility and duties of the position and the contribution that is expected from them. Our policy is to pay a market rate which is set annually by the Board.
The following table, which has been prepared in accordance with regulatory requirements, sets out the elements of aggregate emoluments for the year ended 30 June 2015 for each Director who served during that year.
| Name | Salary and fees 2015 £ |
Pension 2015 £ |
Bonus 2015 £ |
Other 6 2015 £ |
Aggregate 2015 £ |
Aggregate 2014 £ |
|---|---|---|---|---|---|---|
| Executive director | ||||||
| Gordon Marr | 325,000 | 45,500 | – | 42,356 | 412,856 | 481,327 |
| Non-executive Directors | ||||||
| Maurice Dyson 1 | 68,000 | – | – | – | 68,000 | 68,000 |
| Andy Frepp 2 | 50,000 | – | – | – | 50,000 | 25,000 |
| Philip Gregory 3 | 65,000 | – | – | – | 65,000 | 50,000 |
| Dr L S Polonsky | 50,000 | 50,000 | 1 | |||
| Marc Polonsky 4 | – | – | – | – | – | – |
| Bernard Asher 5 | – | – | – | – | – | 12,500 |
| Total | 558,000 | 45,500 | – | 42,356 | 645,856 | 636,828 |
1 Mr Dyson receives additional fees in relation to his position as Chairman of the Board of Hansard International Limited, and of that company's Audit Committee.
4 Appointed alternate Director to Dr Polonsky on 26 September 2013.
5 Retired 16 September 2013.
6 "Other" includes contractual benefits for Mr Marr relating to accommodation costs of £36,000 per annum.
3 For the year Mr Gregory's fee as Chairman was agreed at £85,000 but Mr Gregory agreed to waive £20,000 of his fees.
2 Appointed 1 January 2014.
The following table sets out the elements of estimated aggregate emoluments for the year ending 30 June 2016 for each Director, as agreed by the Board.
| Name | Salary | ||||
|---|---|---|---|---|---|
| and fees | Pension | Bonus | Other 4 | Aggregate | |
| 2016 | 2016 | 2016 | 2016 | 2016 | |
| £ | £ | £ | £ | £ | |
| Executive Director | |||||
| Gordon Marr | 325,000 | 45,500 | – | 42,356 | 412,856 |
| Non-executive Directors | |||||
| Maurice Dyson 1 | 68,000 | – | – | – | 68,000 |
| Andy Frepp | 50,000 | – | – | – | 50,000 |
| Philip Gregory 2 | 75,000 | – | – | – | 75,000 |
| Dr L S Polonsky | 50,000 | – | – | – | 50,000 |
| Marc Polonsky 3 | – | – | – | – | – |
| Total | 568,000 | 45,500 | – | 42,356 | 655,856 |
1 Mr Dyson receives additional fees in relation to his position as Chairman of the Board of Hansard International Limited, and of that company's Audit Committee.
3 Alternate Director.
4 "Other" includes contractual benefits for Mr Marr relating to accommodation costs of £36,000 per annum.
2 Chairman of the Group Board. Mr Gregory's fee for the year as Chairman is £85,000 but he has agreed to waive £10,000 of his fee.
At 30 June 2015 and at the date of this report Dr Polonsky held 50,675,319 shares in the Company's share capital, or 36.9% (2014: 37.7%) and an additional 400,000 shares are held by his wife. The Polonsky Foundation (a UK Registered Charity of which Dr Polonsky and Mr Marc Polonsky are among the trustees) has a beneficial interest in 7,686,888 shares in the Company's share capital, or 5.6% (2014: 5.6%).
The table set out below shows the beneficial interests of other Directors and their families in the Company's share capital, at 30 June 2015 and at 30 June 2014.
| Number of shares | Direct | Indirect 1 | Total 2015 | Direct | Indirect1 | Total 2014 |
|---|---|---|---|---|---|---|
| Executive Director | ||||||
| Gordon Marr | 300,000 | 305,494 | 605,494 | 300,000 | 258,994 | 558,994 |
| Non-executive Directors | ||||||
| Maurice Dyson | 32,500 | – | 32,500 | 32,500 | – | 32,500 |
| Philip Gregory | 13,913 | – | 13,913 | 11,070 | – | 11,070 |
| Marc Polonsky 2 | 7,500,000 | – | 7,500,000 | 7,500,000 | – | 7,500,000 |
1 Held by self-invested pension plan where Mr Marr is a trustee for the relevant scheme.
2 Alternate Director to Dr Polonsky
There have been no significant changes in these holdings between the balance sheet date and the date of this report.
For the Board
Maurice Dyson Chairman of the Remuneration Committee 22 September 2015
| Financials | Page |
|---|---|
| Independent Auditor's Report | 53 |
| Consolidated Statement of Comprehensive Income | 54 |
| Consolidated Statement of Changes in Equity | 55 |
| Consolidated Balance Sheet | 56 |
| Consolidated Cash Flow Statement | 57 |
| Notes to the Consolidated Financial Statements | 58 |
| Parent Company Balance Sheet | 79 |
| Notes to the Parent Company Financial Statements | 80 |
| EEV | Page |
|---|---|
| European Embedded Value Information | 83 |
| Notes to the European Embedded Value Information | 89 |
| Report of the Reviewing Actuaries | 92 |
We have audited the accompanying consolidated and parent company financial statements ('the financial statements') of Hansard Global plc and its subsidiaries (the 'Group') which comprise the consolidated and parent company balance sheets as at 30 June 2015 and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes.
The directors are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with applicable Isle of Man law and International Financial Reporting Standards as adopted by the European Union and the parent company financial statements in accordance with applicable Isle of Man law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), and for such internal control as the directors determine is necessary to enable the preparation of consolidated and parent company financial statements that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these financial statements based on our audit. This report, including the opinion, has been prepared for and only for the company's members as a body in accordance with Section 15 of the Isle of Man Companies Act 1982 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion:
We have nothing to report on the following:
The Isle of Man Companies Acts 1931 to 2004 require us to report to you if, in our opinion:
Under the Listing Rules we are required to review:
| Year ended 30 June 2015 |
Year ended 30 June 2014 |
||
|---|---|---|---|
| Notes | £m | £m | |
| Fees and commissions | 5 | 56.3 | 59.5 |
| Investment income | 6 | 48.6 | 7.4 |
| Other operating income | 0.7 | 0.1 | |
| 105.6 | 67.0 | ||
| Change in provisions for investment contract liabilities | (47.8) | (7.3) | |
| Origination costs | 7 | (20.1) | (21.2) |
| Administrative and other expenses | 8 | (22.8) | (30.2) |
| (90.7) | (58.7) | ||
| Profit before taxation | 14.9 | 8.3 | |
| Taxation | 10 | - | - |
| Profit and total comprehensive income for the year after taxation | 14.9 | 8.3 |
| 2015 | 2014 | ||
|---|---|---|---|
| Note | (p) | (p) | |
| Basic | 11 | 10.9 | 6.0 |
| Diluted | 11 | 10.9 | 6.0 |
The notes on pages 58 to 78 form an integral part of these financial statements.
| FINANCIALS | |
|---|---|
| Share capital £m |
Other reserves £m |
Retained earnings £m |
Total £m |
|
|---|---|---|---|---|
| At 1 July 2013 | 68.7 | (48.3) | 19.4 | 39.8 |
| Profit and total comprehensive income for the year after taxation | - | - | 8.3 | 8.3 |
| Transactions with owners | ||||
| Dividends paid | - | - | (11.2) | (11.2) |
| At 30 June 2014 | 68.7 | (48.3) | 16.5 | 36.9 |
| Share capital £m |
Other reserves £m |
Retained earnings £m |
Total £m |
|
|---|---|---|---|---|
| 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 |
The notes on pages 58 to 78 form an integral part of these financial statements.
| 30 June 2015 |
30 June 2014 |
||
|---|---|---|---|
| Notes | £m | £m | |
| Assets | |||
| Property, plant and equipment | 13 | 1.3 | 1.8 |
| Deferred origination costs | 14 | 113.5 | 123.9 |
| Financial investments | |||
| Equity securities Investments in collective investment schemes Fixed income securities Deposits and money market funds |
27.5 784.9 18.3 93.3 |
35.3 802.7 24.1 103.0 |
|
| Other receivables | 15 | 4.2 | 4.1 |
| Cash and cash equivalents | 16 | 65.4 | 58.4 |
| Total assets | 1,108.4 | 1,153.3 | |
| Liabilities | |||
| Financial liabilities under investment contracts | 17 | 907.1 | 943.6 |
| Deferred income | 18 | 137.6 | 141.2 |
| Amounts due to investment contract holders | 17.3 | 19.7 | |
| Other payables | 19 | 6.3 | 11.9 |
| Total liabilities | 1,068.3 | 1,116.4 | |
| Net assets | 40.1 | 36.9 | |
| Shareholders' equity | |||
| Called up share capital | 21 | 68.7 | 68.7 |
| Other reserves | 22 | (48.3) | (48.3) |
| Retained earnings | 19.7 | 16.5 | |
| Total shareholders' equity | 40.1 | 36.9 |
The notes on pages 58 to 78 form an integral part of these financial statements.
The financial statements on pages 54 to 78 were approved by the Board on 22 September 2015 and signed on its behalf by:
P P C Gregory G S Marr Director Director
| Year ended 30 June 2015 £m |
Year ended 30 June 2014 £m |
|
|---|---|---|
| Cash flow from operating activities | ||
| Profit before tax for the year | 14.9 | 8.3 |
| Adjustments for: | ||
| Depreciation | 0.6 | 0.6 |
| Dividends receivable | (3.9) | (4.4) |
| Interest receivable | (1.0) | (0.7) |
| Foreign exchange gains | 0.2 | 2.2 |
| Changes in operating assets and liabilities | ||
| (Increase)/decrease in debtors | (0.2) | 0.9 |
| Dividends received | 3.9 | 4.4 |
| Interest received | 1.0 | 1.0 |
| Decrease in deferred origination costs | 10.4 | 7.1 |
| (Decrease)/increase in deferred income | (3.6) | 3.6 |
| (Decrease)/increase in creditors | (8.0) | 3.1 |
| Decrease in financial investments | 41.2 | 85.2 |
| Decrease in financial liabilities | (36.5) | (84.5) |
| Cash flow from operations | 19.0 | 26.8 |
| Corporation tax received/(paid) | 0.2 | (0.2) |
| Cash flow from operations after taxation | 19.2 | 26.6 |
| Cash flows from investing activities | ||
| Purchase of plant and equipment | (0.2) | (1.4) |
| Proceeds from sale of investments | 0.1 | 0.1 |
| Purchase of investments | (0.2) | (0.3) |
| Cash flows from investing activities | (0.3) | (1.6) |
| Cash flows from financing activities | ||
| Dividends paid | (11.7) | (11.2) |
| Cash flows from financing activities | (11.7) | (11.2) |
| Net increase in cash and cash equivalents | 7.2 | 13.8 |
| Cash and cash equivalents at beginning of year | 58.4 | 46.8 |
| Effect of exchange rate changes | (0.2) | (2.2) |
| Cash and cash equivalents at year end | 65.4 | 58.4 |
The notes on pages 58 to 78 form an integral part of these financial statements.
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.
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.
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 2015. 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 2015. The following new standards and interpretations are in issue but not yet effective and have not been early adopted by the Group:
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.
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.
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.
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.
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.
Deferred origination costs and deferred income are amortised on a straight-line basis over the life of the underlying investment contract. For those contracts with a contractual policy term, this is the period used for amortisation, as there is a high persistency and the expected average life of these contracts approximates to the contract term. For the contracts that do not have a contractual policy term, deferred origination costs and deferred income are amortised over the expected life of the contract estimated to be 15 years. If a policyholder surrenders before the end of the policy term or expected life, the remaining balance of the deferred origination costs and deferred income attributable to that contract are written off immediately to crystallise the income and the related expense.
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.
The primary areas in which the Group has applied judgement in applying accounting policies are as follows:
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.
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.
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.
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 2015 was £830.7m (2014: £862.1). 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 change 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 £1.4m (2014: £1.5m).
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 £0.8m (2014: £0.8m) 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.
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.
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:
| 2015 US\$m |
2015 €m |
2015 ¥m |
2014 US\$m |
2014 €m |
2014 ¥m |
|
|---|---|---|---|---|---|---|
| Gross assets | 17.0 | 5.5 | 311.4 | 16.5 | 4.5 | 337.6 |
| Matching currency liabilities | (12.0) | (4.4) | (154.7) | (13.9) | (3.9) | (288.2) |
| Uncovered currency exposures | 5.0 | 1.1 | 156.7 | 2.6 | 0.6 | 49.4 |
| Sterling equivalent (£m) | 3.2 | 0.8 | 0.8 | 1.5 | 0.5 | 0.3 |
The approximate effect of a 5% change: in the value of US dollars to sterling is less than £0.1m (2014: £0.1m); in the value of the euro to sterling is £0.2m (2014: less than £0.1m); and in the value of the yen to sterling is less than £0.1m (2014: less than £0.1m).
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: 59.4% (2014: 54.0%); euro: 18.9% (2014: 25.0%); sterling: 16.3% (2014: 16.0%); other: 5.4% (2014: 5.0%).
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 main concentration to which the Group is exposed arises from the Group's investments in unit-linked investments. The Group is also exposed to counterparty credit risk on cash and cash equivalents.
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 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 periodically attested by external advisors.
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):
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Deposits with credit institutions | 24.5 | 33.4 |
| Investments in money market funds | 56.4 | 45.1 |
| 80.9 | 78.5 |
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:
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.
Set out below is a summary of the undiscounted contractual maturity profile of the Group's assets.
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Maturity within 1 year | ||
| Deposits and money market funds | 80.9 | 78.5 |
| Other assets | 1.5 | 1.5 |
| 82.4 | 80.0 | |
| Maturity from 1 to 5 years | ||
| Deposits with credit institutions | - | - |
| Other assets | 0.3 | 0.3 |
| 0.3 | 0.3 | |
| Assets with maturity values | 82.7 | 80.3 |
| Other shareholder assets | 117.6 | 128.4 |
| Shareholder assets | 200.3 | 208.7 |
| Gross assets held to cover financial liabilities under investment contracts | 908.1 | 944.6 |
| Total assets | 1,108.4 | 1,153.3 |
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.
The Group closely monitors the valuation of assets in markets that have become less liquid. Determining whether a market is active requires the exercise of judgement and is determined based upon the facts and circumstances of the market for the instrument being measured. Where the directors determine that there is no active market for a particular financial instrument, fair value is assessed using valuation techniques based on available, relevant, information and an appraisal of all associated risks. This process requires the exercise of significant judgement on the part of Directors.
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:
The following table analyses the Group's financial assets and liabilities at fair value through profit or loss, at 30 June 2015:
| Financial assets at fair value through profit or loss | Level 1 £m |
Level 2 £m |
Level 3 £m |
Total £m |
|---|---|---|---|---|
| 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 this financial year, no assets were transferred from Level 2 to Level 1. Assets with a fair value of £31.4m were transferred from Level 1 to Level 2, due to the change in market for the related assets. No assets were reclassified from Level 1 to Level 3 during the year. No assets were reclassified from Level 3 to Level 1 or Level 2 during the financial year.
| Level 1 | Level 2 | Level 3 | Total | |
|---|---|---|---|---|
| £m | £m | £m | £m | |
| Financial liabilities at fair value through profit or loss | - | 907.1 | - | 907.1 |
The following table analyses the Group's financial assets and liabilities at fair value through profit or loss, at 30 June 2014:
| Financial assets at fair value through profit or loss | Level 1 £m |
Level 2 £m |
Level 3 £m |
Total £m |
|---|---|---|---|---|
| Equity securities | 35.3 | - | - | 35.3 |
| Collective investment schemes | 779.9 | 22.8 | - | 802.7 |
| Fixed income securities | 24.1 | - | - | 24.1 |
| Deposits and money market funds | 103.0 | - | - | 103.0 |
| Total financial assets at fair value through profit or loss | 942.3 | 22.8 | - | 965.1 |
During the previous financial year, no assets were transferred from Level 2 to Level 1. Assets with a fair value of £8.4m were transferred from Level 1 to Level 2. Assets with a value of £0.3m 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 1 | Level 2 | Level 3 | Total | |
|---|---|---|---|---|
| £m | £m | £m | £m | |
| Financial liabilities at fair value through profit or loss | - | 943.6 | - | 943.6 |
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.
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 Group maintains a close control over the margins realised on new business which are consistent across the Group's products and, hence, NICC is a reliable indicator of value.
The following table analyses NICC geographically and reconciles NICC to origination costs incurred during the year as set out in the Business and Financial Review section of this Report and Accounts.
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Latin America | 2.1 | 3.2 |
| East Asia | 0.9 | 3.0 |
| Middle East and Africa | 0.6 | 0.2 |
| EU and EEA | 0.2 | 0.4 |
| Rest of World | 1.0 | 1.0 |
| Net Issued Compensation Credit | 4.8 | 7.8 |
| Other commission costs paid to third parties | 2.2 | 3.5 |
| Enhanced unit allocations | 0.6 | 0.9 |
| Origination costs incurred during the year | 7.6 | 12.2 |
The net issued compensation credit figure of £4.8m for the year all relates to continuing operations based in the Isle of Man (2014: £7.8m).
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.
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Isle of Man | 47.6 | 47.6 |
| Republic of Ireland | 8.7 | 11.9 |
| 56.3 | 59.5 |
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Isle of Man | 13.5 | 9.3 |
| Republic of Ireland | 1.4 | (1.0) |
| 14.9 | 8.3 |
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Isle of Man | 865.7 | 876.5 |
| Republic of Ireland | 242.7 | 276.8 |
| 1,108.4 | 1,153.3 |
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Isle of Man | 844.2 | 856.5 |
| Republic of Ireland | 224.1 | 259.9 |
| 1,068.3 | 1,116.4 |
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.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Contract fee income | 38.7 | 41.1 |
| Fund management charges | 13.4 | 14.2 |
| Commissions receivable | 4.2 | 4.2 |
| 56.3 | 59.5 |
Investment income comprises dividends, interest and other income receivable, realised gains and losses on investments and unrealised gains and losses. Dividends are accrued on the date notified. Interest is accounted for on a time proportion basis using the effective interest method.
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Interest income | 0.8 | 0.8 |
| Dividend income | 3.9 | 4.4 |
| Gains on realisation of investments | 41.0 | 5.4 |
| Movement in unrealised gains /(losses) | 2.9 | (3.2) |
| 48.6 | 7.4 |
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.
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Amortisation of deferred origination costs | 18.0 | 19.2 |
| Other origination costs | 2.1 | 2.0 |
| 20.1 | 21.2 |
Included in administrative and other expenses is the following:
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| 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 | 0.7 | 0.3 |
| - Other services provided to the Group | 0.1 | 0.1 |
| Employee costs (see note 9) | 10.9 | 10.8 |
| Directors' fees | 0.3 | 0.3 |
| Estimated impact of HMRC settlement, including related professional fees | (3.0) | 5.0 |
| Fund management fees | 3.8 | 4.3 |
| Renewal and other commission | 1.2 | 1.2 |
| Professional and other fees | 2.6 | 2.2 |
| Litigation fees and settlements | 0.6 | 1.1 |
| Operating lease rentals | 0.6 | 0.6 |
| Licences and maintenance fees | 0.9 | 0.9 |
| Insurance costs | 0.9 | 0.9 |
| Depreciation of property, plant and equipment | 0.6 | 0.6 |
| Communications | 0.3 | 0.4 |
9.1 The aggregate remuneration in respect of employees (including sales staff and executive Directors) was as follows:
| 2015 £m |
2014 £m |
|
|---|---|---|
| Wages and salaries | 10.6 | 11.0 |
| Social security costs | 1.0 | 0.9 |
| Contributions to pension plans | 0.9 | 0.9 |
| 12.5 | 12.8 |
| 2015 £m |
2014 £m |
|
|---|---|---|
| Administrative salaries and other staff costs | 10.9 | 10.8 |
| Origination costs | 1.6 | 2.0 |
| 12.5 | 12.8 |
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 on pages 48 to 51.
Group companies contribute to employees' individual defined contribution pension plans. Contributions are charged to the income statement as they become payable under the terms of the relevant employment contract. The Group has no further payment obligations once pension contribution requirements have been met.
| 2015 No. |
2014 No. |
|
|---|---|---|
| Administration | 144 | 145 |
| Distribution and marketing | 27 | 25 |
| IT development | 35 | 34 |
| 206 | 204 |
Taxation is based on profits and income for the period as determined with reference to the relevant tax legislation in the countries in which the Company and its subsidiaries operate. Tax payable is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Tax is recognised in the income statement except to the extent that it relates to items recognised in equity. Tax on items relating to equity is recognised in equity.
The Group's profits arising from its Isle of Man-based operations are taxable at zero percent. Profits in the Republic of Ireland are taxed at 12.5%.
There is no material difference between the current tax charge in the income statement and the current tax charge that would result from applying standard rates of tax to the profit before tax.
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.
| 2015 | 2014 | |
|---|---|---|
| Profit after tax (£m) | 14.9 | 8.3 |
| Weighted average number of shares in issue (millions) | 137.4 | 137.4 |
| Basic earnings per share in pence | 10.9 | 6.0 |
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 10.9p per share (2014: 6.0p).
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 2015 |
Total 2015 |
Per share 2014 |
Total 2014 |
|
|---|---|---|---|---|
| p | £m | p | £m | |
| Final dividend in respect of previous financial year | 5.0 | 6.9 | 4.75 | 6.5 |
| Interim dividend in respect of current financial year | 3.5 | 4.8 | 3.4 | 4.7 |
| 8.5 | 11.7 | 8.15 | 11.2 |
The Board has resolved to pay a final dividend of 5.25p per share on 19 November 2015, subject to approval at the Annual General Meeting, based on shareholders on the register on 2 October 2015.
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 2015 is £9.6m (2014: £9.4m), with a net book value of £1.1m (2014: £1.5m). The cost of computer software at 30 June 2015 is £0.6m (2014: £0.5m), with a net book value of £0.2m (2014: £0.3m). Accumulated depreciation at 30 June 2015 is £8.3m (2014: £7.7m).
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.
| Carrying value | 2015 £m |
2014 £m |
|---|---|---|
| At beginning of financial year | 123.9 | 131.0 |
| Origination costs incurred during the year | 7.6 | 12.1 |
| Origination costs amortised during the year | (18.0) | (19.2) |
| 113.5 | 123.9 |
| Carrying value | 2015 £m |
2014 £m |
|---|---|---|
| Current | 11.3 | 12.8 |
| Non-current | 102.2 | 111.1 |
| 113.5 | 123.9 |
Other receivables are initially recognised at fair value and subsequently measured at amortised cost.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Contract fees receivable | 0.6 | 0.8 |
| Commission receivable | 1.0 | 1.0 |
| Corporation tax recoverable | - | 0.2 |
| Other debtors | 2.6 | 2.1 |
| 4.2 | 4.1 | |
| Expected to be settled within 12 months | 3.9 | 3.8 |
| Expected to be settled after 12 months | 0.3 | 0.3 |
| 4.2 | 4.1 |
At the balance sheet date there are no receivables overdue but not impaired (2014: £nil) or impaired (2014: £nil). Due to the short-term nature of these assets the carrying value is considered to reflect fair value.
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.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Money market funds | 56.5 | 45.1 |
| Short-term deposits with credit institutions | 8.9 | 13.3 |
| 65.4 | 58.4 |
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.
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.
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.
The following table summarises the movement in liabilities under investment contracts during the year:
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Deposits to investment contracts | 100.9 | 104.7 |
| Withdrawals from contracts and charges | (185.2) | (196.5) |
| Change in provisions for investment contract liabilities | 47.8 | 7.3 |
| Movement in year | (36.5) | (84.5) |
| At beginning of year | 943.6 | 1,028.1 |
| 907.1 | 943.6 | |
| £m | £m | |
| Expected to be settled within 12 months | 26.7 | 25.8 |
| Expected to be settled after 12 months | 880.4 | 917.8 |
| 907.1 | 943.6 |
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.
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 and certain other unquoted securities 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.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Equity securities | 27.5 | 35.2 |
| Investments in collective investment schemes | 784.4 | 802.4 |
| Fixed income securities | 18.3 | 24.1 |
| Deposits and money market funds | 77.9 | 82.9 |
| Total assets | 908.1 | 944.6 |
| Other payables | (1.0) | (1.0) |
| Net financial assets held to cover financial liabilities | 907.1 | 943.6 |
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.
| 2015 | 2014 | |
|---|---|---|
| Carrying value | £m | £m |
| At beginning of financial year | 141.2 | 137.6 |
| Income received and deferred during the year | 18.3 | 24.9 |
| Income recognised in contract fees during the year | (21.9) | (21.3) |
| 137.6 | 141.2 | |
| 2015 | 2014 | |
|---|---|---|
| Carrying value | £m | £m |
| Current | 14.1 | 15.6 |
| Non-current | 123.5 | 125.6 |
| 137.6 | 141.2 |
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.
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Commission payable | 2.0 | 3.0 |
| Provisions for HMRC settlement and related costs | - | 4.8 |
| Other creditors and accruals | 4.3 | 3.9 |
| Other provisions | - | 0.2 |
| 6.3 | 11.9 |
As noted elsewhere in these accounts, the Group reached a settlement with HMRC this year in connection with Chargeable Event Certificates liabilities, resulting in a write back of £3.0m of the provision held in the accounts at 30 June 2014.
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.
It is the Group's policy to maintain a strong capital base in order to:
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:
There has been no material change in the Group's management of capital during the period and all regulated entities exceed the minimum solvency requirements at the balance sheet date.
The capital position statement sets out the financial strength of the businesses of the Group, measured on the basis of the presentation within the financial statements of the Company's regulated life assurance subsidiaries. These are located in the Isle of Man (Hansard International Limited) and the Republic of Ireland (Hansard Europe Limited). The Group and its individually regulated operations have complied with all externally and internally imposed capital requirements throughout the period.
Except in relation to Deferred Acquisition Cost ("DAC") assets held by Hansard Europe Limited, the capital, defined as total shareholders' funds, is available to meet the regulatory capital requirements without any restrictions. The Group's other assets are largely cash and cash equivalents, deposits with credit institutions and money market funds.
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Consolidated shareholders' funds | 40.1 | 36.9 |
| Adjustment arising from change in GAAP basis (*) | 21.7 | 22.7 |
| Total shareholders' funds | 61.8 | 59.6 |
| Comprising shareholders' funds of: | ||
| Non-life assurance Group companies | 18.6 | 19.0 |
| Life assurance subsidiary companies | 43.2 | 40.6 |
| 61.8 | 59.6 | |
| Less: DAC asset inadmissible for solvency purposes | (0.1) | (0.6) |
| Total capital available to meet regulatory capital requirements | 61.7 | 59.0 |
*These consolidated financial statements have been prepared in accordance with the requirements of IFRS whilst the regulatory capital of the life assurance subsidiaries is calculated based on local regulatory requirements under applicable GAAP. The financial statements of these subsidiary undertakings are prepared under the insurance accounting requirements of the relevant jurisdiction. The adjustment referred to arises out of the treatment of initial fees and costs relating to new business under the different accounting codes. IFRS smoothes these fees and costs over the life of the relevant contracts, whereas under the GAAP applicable to the subsidiary undertakings, fees are recognised when received and the relevant costs of new business are deferred, where applicable, to match these income streams.
The aggregate required minimum margin of the regulated entities at each balance sheet date was as set out below.
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Aggregate minimum margin | 4.6 | 4.8 |
Our agreement with the Central Bank of Ireland as a result of the implementation of the revised Operating Model for Hansard Europe Limited has the effect of delaying dividends or other distributions from that company until such time as the Operating Model is fully embedded and the legal cases referred to in note 27 are concluded.
That company's capital available to meet regulatory capital requirements at 30 June 2015, which is incorporated within the table in note 20.1 above, is £15.4m (2014: £13.4m).
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Authorised: | ||
| 200,000,000 ordinary shares of 50p | 100.0 | 100.0 |
| Issued and fully paid: | ||
| 137,388,669 (2014: 137,379,634) ordinary shares of 50p | 68.7 | 68.7 |
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.
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Merger reserve | (48.5) | (48.5) |
| Share premium | 0.1 | 0.1 |
| Share save reserve | 0.1 | 0.1 |
| (48.3) | (48.3) |
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.
This is a standard HMRC approved scheme 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:
| 2015 | 2014 | |
|---|---|---|
| Scheme year | No. of options | No. of options |
| 2011 | 8,366 | 30,294 |
| 2013 | 266,538 | 266,538 |
| 2014 | 531,376 | 531,376 |
| 2015 | 823,919 | - |
| 1,630,199 | 828,208 |
A summary of the transactions in the existing SAYE programmes during the year is as follows:
| 2015 | 2014 | |||
|---|---|---|---|---|
| Weighted | Weighted | |||
| average | average | |||
| No. of | exercise | No. of | exercise | |
| options | price (p) | options | price (p) | |
| Outstanding at the start of year | 828,208 | 88 | 473,024 | 97 |
| Granted | 823,919 | 68 | 531,376 | 83 |
| Exercised | (9,035) | 88 | - | - |
| Forfeited | (12,893) | 88 | (176,192) | 127 |
| Outstanding at end of year* | 1,630,199 | 78 | 828,208 | 88 |
*66,098 of these options are exercisable as at 30 June 2015, with a weighted average price of 126p
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:
| 2015 award assumptions | 3-year | 5-year |
|---|---|---|
| Date of grant | 1 May 2015 | 1 May 2015 |
| Fair value (pence) | 16 | 15 |
| Exercise price (pence) | 68 | 68 |
| Share price (pence) | 88 | 88 |
| Expected volatility | 30 % | 30 % |
| Expected dividend yield | 7.9 % | 7.9 % |
| Risk-free rate | 1.3 % | 1.6 % |
| 2015 award details | |
|---|---|
| Date of grant | 1 May 2015 |
| No. of shares awarded | 823,919 |
| Vesting conditions | 3- or 5-year savings term |
| Exercise period - 3-year | 1 May 2015 - 31 October 2018 |
| Exercise period - 5-year | 1 May 2015 - 31 October 2020 |
The Company previously had a LTIP for the Executive and senior management based on EEV performance over the 3 years ended 30 June 2014. The minimum condition required under the plan was not achieved in the year ended 30 June 2014, therefore there was no charge in the Consolidated Statement of Comprehensive Income. There was no LTIP scheme in place for the current financial year.
Items that are material either because of their size or their nature are presented within a relevant category in the consolidated statement of comprehensive income, but highlighted separately in the notes to the financial statements. The separate reporting of exceptional items helps provide a better picture of the Group's underlying performance.
Exceptional items affecting the results for the year were a credit of £2.9m (2014: a charge of £6.4m). An analysis of the nature of the relevant expenses is as follows:
In the prior year, a provision of £5.0m was made for estimated liabilities arising from weaknesses in the Group's procedures in relation to the processing and issue of Chargeable Event Certificates. The Group concluded its work in this area during the year and agreed a full and final settlement with HMRC on an "estimate of tax lost" basis of £1.4m. After taking into account associated professional and advisory fees, we were ultimately able to write back £3.0m to the Consolidated Statement of Comprehensive Income.
In the prior year, we took a charge of £0.7m, representing accelerated redundancy costs, professional fees and other costs arising from the closure of Hansard Europe to new business and the restructure of the Group's contract servicing and related activities. With the successful implementation of the revised Operating Model, the costs for the current year are not significant.
At the beginning of this financial year Hansard Europe was facing litigation based on writs totalling €6.5m (approximately £5.2m) as a result of asset performance and related complaints. Each case is considered on its merits and the Board considered it in our best interests to reach a resolution with regard to certain of those claims. Settlements totalling £0.2m have been agreed during the financial year (2014: £0.5m). Other claims are for the most part considered to be speculative and will be robustly defended.
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:
| 2015 £m |
2014 £m |
|
|---|---|---|
| Amounts due: | ||
| Within one year | 0.6 | 0.6 |
| Between two and five years | 1.4 | 1.7 |
| After five years | 0.5 | 0.8 |
| 2.5 | 3.1 |
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.
Key management consists of 10 individuals (2014: 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 2015 is as follows:
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Salaries, wages and bonuses | 2.4 | 2.5 |
The total value of investment contracts issued by the Group and held by key management is zero (2014: less than £0.1m).
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.
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. During the year under review Dr Polonsky donated a further 250,000 ordinary shares in Hansard Global plc to the Trust. At the date of this Report and Accounts, the Trust holds 699,910 shares (2014: 434,500 shares). There were no awards paid by the Trust during the year as the performance targets were not met (2014: £21,000).
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 £481,000, exercisable at his discretion. Mr. Marr purchased the property in July 2011 for £501,000. The contract has not been exercised at the date of this Report and Accounts.
The Group does not give any investment advice and this is left to the contract holder directly or through an agent, advisor or an entity appointed at the contract holder's request or preference. Contract holders bear the financial risk relating to the investments underpinning their contracts, as the contract benefits are linked to the value of the assets.
Notwithstanding the above, financial services institutions are frequently drawn into disputes in cases where the value and performance of assets selected by or on behalf of contract holders fails to meet their expectations. This is particularly true of more complex structured products distributed throughout Europe that have been selected for inclusion in contracts by contract holders and / or their agents. At the balance sheet date a number of those fund structures remain affected by liquidity or other issues that hinder their sales or redemptions on normal terms with a consequent adverse impact on transactions.
As reported previously, the Group has been subject to a number of complaints in relation to the selection and performance of assets linked to contracts. The company has been served with a number of writs arising from such complaints and other asset-related issues.
As at 30 June 2015, there were outstanding writs served upon Hansard Europe Limited totalling €12.4m or £8.8m (2014: €6.5m or £5.2m). Several additional contract holders were since added to one writ which has increased the total outstanding writs to €13.3m (£9.4m) as at the date of this report. The increase from the previous year is primarily caused by one claim for €6.3m (£4.5m) from a group of Belgian policyholders which challenges the right of Hansard Europe to have operated under the European Union's principle of Free Movement of Services. We believe this to be highly speculative and will robustly defend against it.
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 or extended litigation, the Group may consider it to be in the best interests of the Group and its shareholders to reach a resolution with regard to certain of these claims. Provisions totalling £0.1m have been established in relation to a small number of those writs following a decision to pursue settlement. It is not possible at this time to make any further estimates of liability.
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:
| 2015 | 2014 | |
|---|---|---|
| US Dollar | 1.57 | 1.72 |
| Japanese Yen | 192.49 | 173.32 |
| Euro | 1.41 | 1.25 |
| 30 June | 30 June | ||
|---|---|---|---|
| Notes | 2015 £m |
2014 £m |
|
| Assets | |||
| Fixed assets | |||
| Tangible assets | 0.5 | 0.5 | |
| Investment in subsidiary companies | 2 | 71.8 | 71.8 |
| Long-term deposits with credit institutions | 3 | - | 5.0 |
| Current assets | |||
| Cash and cash equivalents | 9.1 | 8.5 | |
| Amounts due from subsidiary companies | 4 | 8.2 | 2.7 |
| Other receivables | 0.4 | 0.6 | |
| Total assets | 90.0 | 89.1 | |
| Liabilities | |||
| Other payables | 0.9 | 0.5 | |
| Total liabilities | 0.9 | 0.5 | |
| Net assets | 89.1 | 88.6 | |
| Shareholders' equity | |||
| Called up share capital | 5 | 68.7 | 68.7 |
| Share premium | 0.1 | 0.1 | |
| Retained earnings | 6 | 20.2 | 19.7 |
| Share save reserve | 0.1 | 0.1 | |
| Total shareholders' equity | 7 | 89.1 | 88.6 |
The notes on pages 80 to 82 form an integral part of these financial statements.
The parent company financial statements on pages 79 to 82 were approved by the Board on 22 September 2015 and signed on its behalf by:
P P C Gregory G S Marr Director Director
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 Group").
The financial statements have been prepared in accordance with UK GAAP and the Isle of Man Companies Acts 1931 to 2004 and under the historical cost convention. In accordance with the provisions of the Isle of Man Companies Act 1982 the Company has not presented its own profit and loss account. The Company's profit for the year ended 30 June 2015, including dividends received from subsidiaries, is £12.2m (2014: £10.8m).
The going concern basis has been adopted in preparing these financial statements, as discussed in the Directors' Report.
The Company is exempt from the requirement to prepare a cash flow statement on the grounds that its cash flows are included in the consolidated financial statements, which are presented elsewhere within this Report and Accounts.
Investment income includes interest and dividends. Interest is accounted for on an accruals basis. Dividends are accrued on an ex-dividend basis.
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.
Taxation is based on profit for the period as determined in accordance with relevant Isle of Man tax legislation and therefore profits arising are taxable at zero percent.
Investments in subsidiary companies are included in the Company balance sheet at cost less provision for any impairment.
The Company's presentational and functional currency is pounds sterling, being the currency of the primary economic environment in which the Company operates.
Foreign currency transactions are translated into sterling using the approximate 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 profit and loss account.
The cost of tangible assets is their purchase cost, together with any incidental costs of acquisition. Depreciation is calculated so as to write off the cost of the assets, less their estimated residual values, on a straight-line basis over the expected useful economic lives of the assets concerned.
The economic lives used for this purpose are:
| Freehold property | 50 years |
|---|---|
| Computer equipment | 3 years |
| Fixtures and fittings | 4 years |
The following schedule reflects the Company's subsidiary companies at the balance sheet date and at the date of this report. All companies are wholly owned and incorporated in the Isle of Man, except where indicated.
Hansard International Limited Hansard Europe Limited (incorporated in the Republic of Ireland) Hansard Development Services Limited Hansard Administration Services Limited
Long term deposits with credit institutions are redeemable within one year of the balance sheet date.
The Company and various subsidiary companies within the Group perform services for other Group companies in the normal course of business. All balances are unsecured, interest free and repayable on demand.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Authorised: | ||
| 200,000,000 ordinary shares of 50p | 100.0 | 100.0 |
| Issued and fully paid: | ||
| 137,388,669 (2014:137,379,634) ordinary shares of 50p | 68.7 | 68.7 |
During the year 9,035 shares were issued (2014: no shares) under the terms of the Save as You Earn (SAYE) share save programme approved by the shareholders.
The Company has received clearance from the London Stock Exchange to list a maximum of 500,000 shares necessary to meet its obligations to employees under the terms of the scheme.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Profit for the financial year | 12.2 | 10.8 |
| Dividends paid | (11.7) | (11.2) |
| Net increase / (decrease) in retained earnings | 0.5 | (0.4) |
| At beginning of year | 19.7 | 20.1 |
| 20.2 | 19.7 |
continued
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Profit for the financial year | 12.2 | 10.8 |
| Dividends paid | (11.7) | (11.2) |
| Net increase/(decrease) in shareholders' equity | 0.5 | (0.4) |
| At beginning of year | 88.6 | 89.0 |
| 89.1 | 88.6 |
The Company has taken advantage of the exemption in FRS 8 'Related Party Disclosures' not to disclose transactions entered into between two or more members of a group, provided that any subsidiary undertaking which is a party to the transaction is wholly owned by a member of that group.
During the year fees totalling £0.2m (2014: £0.1m) were paid to non-executive Directors.
The Company entered into a contract with Mr. Gordon Marr in July 2011 to purchase a residential property for the sum of £481,000, exercisable at his discretion. Mr. Marr purchased the property in July 2011 for £501,000. The contract has not been exercised at the date of this Report and Accounts.
Shareholders have approved a Save as You Earn (SAYE) share save programme for employees. The scheme is a standard SAYE plan, approved by the Revenue Authorities in the Isle of Man and is available to eligible employees. Under the terms of the scheme, individuals can invest up to £500 per month for a three- or five-year period to purchase shares at a price not less than 80% of the market price on the date of the invitation to participate.
The scheme is operated annually, with the option price and awards criteria normally being established in February. The estimated fair value of the schemes and the imputed cost for the period under review is not material to these financial statements.
At the balance sheet date, all remaining options (including all options granted in the year ending 30 June 2015) relate to Isle of Man based staff; at 30 June 2014 813,699 of the then remaining options of 828,208 related to Isle of Man staff. Details are available in Note 23 to the consolidated financial statements
The Company previously had a LTIP for the Group's Executive and senior management based on EEV performance over the 3 years ended 30 June 2014. The minimum conditions required under the plan were not achieved in the year ended 30 June 2014 and therefore there was no charge in the Income Statement. There was no LTIP scheme in place for the current financial year.
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.
European Embedded Value Information
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 2015. 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 extended in October 2005. 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.
EEV Profit /(Loss) is a measure of the performance over the year. It is derived as follows:
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| New Business Contribution | (3.7) | 3.3 |
| Experience Variances | 2.6 | (6.7) |
| Operating Assumption Changes | (6.1) | (6.0) |
| Model Changes | (0.9) | 1.3 |
| Expected Return on new and existing business | 1.3 | 1.2 |
| Expected Return on Net Worth | 0.5 | 0.3 |
| EEV Operating Profit/(loss) after tax | (6.3) | (6.6) |
| Investment Return Variances | 4.3 | (8.2) |
| Economic Assumption Changes | 4.9 | 4.1 |
| EEV profit/(loss) after tax | 2.9 | (10.7) |
2.1.1 New Business Contribution
New Business Contribution ("NBC") was (£3.7m) (2014: £3.3m). The negative NBC reflects the reduction in new business volumes and the spreading of initial expenses over fewer policies sold and to a lesser extent lower charges on the newer products.
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 the reversal of one-off expense provisions (related to Chargeable Event Certificates), improved premium persistency, partially offset by more full encashments.
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| One-off expenses | 1.4 | (4.5) |
| Premium persistency | 2.4 | 0.8 |
| Full encashments | (1.6) | (3.5) |
| Partial encashments | 0.7 | 0.4 |
| Ongoing expenses | (0.7) | (0.1) |
| Charges | (0.6) | (1.1) |
| Policyholder activity margins | 0.6 | 0.6 |
| Other | 0.4 | 0.7 |
| 2.6 | (6.7) |
The Operating Assumption Changes reflect changes in management's view of the behaviour of the existing business. The EEV changed by (£6.1m) (2014: (£6.0m)), as shown below.
Operating assumptions are generally management's best estimate, having regard to recent experience. Management has strengthened the expense assumptions to allow for the reduction in the number of policies due to the low volumes of new business.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Ongoing expenses | (11.2) | 2.2 |
| Premium persistency | 3.0 | (4.6) |
| Policyholder activity margins | 1.3 | 1.9 |
| Mortality | 0.5 | - |
| Partial encashment | 0.2 | 0.7 |
| Changes to charge & expense inflation | 0.1 | 0.0 |
| Full encashment | - | (6.2) |
| (6.1) | (6.0) |
The Group continues to develop its modelling functionality. In particular, this year, a revised approach to modelling policyholder activity margins was implemented. As a result of these model changes, the EEV changed by (£0.9m) (2014: £1.3m).
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 2014. 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, so the New Business Strain is that incurred in the year from new sales, using end of period assumptions (i.e. assumptions determined at 30 June 2015).
| EEV | 2015 Net Worth |
VIF | EEV | 2014 Net Worth |
VIF | |
|---|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | £m | |
| Cash generated from VFP | 0.0 | 32.8 | (32.8) | 0.0 | 41.5 | (41.5) |
| New Business Strain | 0.0 | (14.1) | 14.1 | 0.0 | (16.8) | 16.8 |
| Time value of existing business | 1.3 | 1.0 | 0.3 | 1.2 | 0.6 | 0.6 |
| Time value of new business | 0.0 | 0.0 | 0.0 | 0.0 | (0.1) | 0.1 |
| 1.3 | 19.7 | (18.4) | 1.2 | 25.2 | (24.0) |
The VIF time value of existing business includes an adjustment of (£0.1) for non-Market risk.
The expected value of cash generated was £32.8m (2014: £41.5m). The decrease reflects the lower levels of new business in 2014 being capitalised in the year. The lower New Business Strain of £14.1m (2014: £16.8m) reflects lower new business. The time value figures use economic assumptions at 30 June 2014.
The Expected Return on Net Worth of £0.5m (2014: £0.3m) reflects the anticipated increase in shareholder assets over the period due to the time value of money. In line with EEV convention, its calculation is based on the 30 June 2014 year one discount rate for sterling which was 0.9% (30 June 2014: 0.7%).
Investment performance principally reflects the investment choices, by nature and currency, made by policyholders. It is therefore largely outside the Group's control.
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Investment performance of policyholder funds | 3.9 | 9.7 |
| Exchange rate movements | 0.4 | (17.5) |
| Shareholder return | (0.1) | (0.4) |
| Other | 0.1 | 0.0 |
| 4.3 | (8.2) |
There was a positive variance of £4.9m (2014: £4.1m) 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.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Risk Discount Rates & Unit Growth | 3.8 | 3.5 |
| Treasury Margin | 0.6 | (0.9) |
| Marketing Allowances | 0.5 | 1.5 |
| 4.9 | 4.1 |
The table below shows a detailed analysis of EEV profit after tax for the year ended 30 June 2015.
| 2015 Movement in |
2014 Movement in |
|||||
|---|---|---|---|---|---|---|
| EEV Net Worth |
VIF | Net Worth |
VIF | |||
| £m | £m | £m | £m | £m | £m | |
| New Business Contribution | (3.7) | 0.0 | (3.7) | 3.3 | 0.0 | 3.3 |
| Experience Variances | 2.6 | 1.3 | 1.3 | (6.7) | (2.9) | (3.8) |
| Operating Assumption Changes | (6.1) | 0.0 | (6.1) | (6.0) | (0.3) | (5.7) |
| Model Changes | (0.9) | 0.0 | (0.9) | 1.3 | 0.0 | 1.3 |
| Expected Return on New and Existing Business | 1.3 | 19.7 | (18.4) | 1.2 | 25.2 | (24.0) |
| Expected Return on Net Worth | 0.5 | 0.5 | 0.0 | 0.3 | 0.3 | 0.0 |
| EEV Operating Profit/(Loss) after tax | (6.3) | 21.5 | (27.8) | (6.6) | 22.4 | (29.0) |
| Investment Return Variances | 4.3 | 0.3 | 4.0 | (8.2) | (2.4) | (5.8) |
| Economic Assumption Changes | 4.9 | 0.0 | 4.9 | 4.1 | 0.0 | 4.1 |
| EEV Profit/(Loss) after tax | 2.9 | 21.8 | (18.9) | (10.7) | 20.0 | (30.7) |
Following the payment of dividends of £11.7m (2014: £11.2m), the Group's EEV has decreased to £195.0m (2014: £203.8m). The EEV balance sheet is presented below.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Free surplus | 36.5 | 28.3 |
| Required Capital | 27.0 | 25.1 |
| Net Worth | 63.5 | 53.4 |
| VIF | 138.6 | 157.5 |
| Frictional costs | (1.0) | (1.0) |
| Reduction for non-market risk | (6.1) | (6.1) |
| Value of Future Profits ("VFP") | 131.5 | 150.4 |
| EEV | 195.0 | 203.8 |
At the balance sheet date, the Net Worth of the Group is represented by liquid cash balances. Following the decision to close Hansard Europe to new business, the Group has given undertakings not to release capital from that business until its new operating model has stabilised and other regulatory requirements have been satisfied. Currently, the Group estimates that this additional required capital of £12.5m (2014: £9.0m) will be constrained for three years.
The VFP is based on the value of policyholder funds under administration at 30 June 2015.
Levels of new business written in 2015 were not of sufficient quantity to cover the fixed and variable costs of writing such business. As a result the new business contribution and new business margin are negative. The following metrics illustrate the profitability of the Group's new business.
| 2015 | 2014 | |
|---|---|---|
| New business sales (PVNBP basis) | £60.6m | £83.0m |
| New business contribution ("NBC") | (£3.7m) | £3.3m |
| New business margin ("NBM") | (6.2%) | 4.0% |
The New Business Margin for the year is (6.2%) (2014: 4.0%). The change is primarily due to the reduction in new business volumes over the period and the spreading of initial expenses over fewer policies sold and to a lesser extent lower charges on the newer products.
An IRR cannot be calculated where the return on new business is negative (2014: 6.7%).
A BEP cannot be calculated where the return on new business is negative (2014: 9.1 years).
Sensitivities provide an indication of the impact of changes in particular assumptions on the EEV at 30 June 2015 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 Limited 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.
| Impact on: | EEV £m |
NBC £m |
|---|---|---|
| Central assumptions | 195.0 | (3.7) |
| Operating sensitivities | ||
| 10% decrease in expenses | 6.7 | 1.1 |
| 1% increase in expense inflation | (4.7) | (0.2) |
| 1% increase in charge inflation | 3.6 | 0.1 |
| 1% increase in expense & charge inflation | (0.9) | (0.1) |
| 10% decrease in full encashment rates | 1.6 | 0.1 |
| 5% decrease in mortality | 0.1 | 0.0 |
| Economic sensitivities | ||
| 1% increase in risk discount rate | (6.6) | (0.4) |
| 1% decrease in investment return rate | (5.8) | (0.2) |
| 1% increase in risk discount rate & investment return rate | (1.0) | (0.2) |
| 1% decrease in risk discount rate & investment return rate | (0.2) | 0.1 |
| 10% decrease in the value of equities and property | (9.0) | 0.0 |
| 10% strengthening of sterling | (13.1) | (0.5) |
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.
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. 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.
EEV covers the entire business of the Group.
The following premiums are included in the calculation of the NBC, PVNBP, IRR and BEP:
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, PVNBP, IRR and BEP 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.
No credit is taken in the calculation of EEV, NBC, PVNBP, IRR or BEP where applicable for returns in excess of risk-free returns. This approach may differ, particularly with regards to the calculation of IRR and BEP, from that used by some of our competitors, who include an asset risk premium.
The methodology used to derive the EEV results at the valuation date is consistent with the EEV methodology used in relation to the consolidated financial statements for the year ended 30 June 2014. 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.
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:
| 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:
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.
The Free Surplus is the difference between the Net Worth and the Required Capital.
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 policyholder 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.
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 £6.1m (2014: £6.1m). This is equivalent to an increase of 0.9% in the risk discount rate assumption at the valuation date. The allowance has been assessed after considering past experience (including the Chargeable Event Certificate issue), the operational characteristics of the business and market information.
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.
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.
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.
The allocation of expenses between acquisition and maintenance and the assumption setting process are generally consistent with prior years.
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.
Exceptional items are generally charged as incurred and hence are reflected as a variance in the year. Their value in 2015 was a gain of £1.4m which includes a £3.0m release in the provision for Chargeable Event Certificates (2014: negative £4.5m).
The assumption setting process is consistent with prior years.
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 | 2015 | 2014 |
|---|---|---|
| Isle of Man | 0% | 0% |
| Republic of Ireland | 12.5% | 12.5% |
90 Hansard Global plc Report and Accounts 2015
The process for setting assumptions for the impact of policyholder activity, such as fund switching, is generally consistent with prior years.
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.
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. 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 riskfree rate at the start of the year (i.e. at the previous year-end date).
| Aggregate weighted risk discount rate | Year ended 30 June 2015 | Year ended 30 June 2014 | ||
|---|---|---|---|---|
| EEV | NBC | EEV | NBC | |
| per annum | 2.0% | 1.9% | 1.9% | 2.2% |
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 policyholder funds. The rate is calculated based on the aggregate weighted discount rate.
No credit is taken in the calculation of EEV, NBC, PVNBP, IRR or BEP for returns in excess of risk-free returns i.e. a cautious approach is adopted by assuming an asset risk premium of zero.
In setting the expense inflation assumption, consideration is given to price and salary inflation rates in both the Isle of Man and the Republic of Ireland, and to the Group's own expense experience and expectations. For service companies, expense inflation relates to the underlying expenses rather than the fees charged to the life assurance companies.
By design, contractual monetary-charge inflation is broadly matched to expense inflation: in Hansard Europe, the charge inflation is subject to a minimum increase of 5% per annum. The correlation between expense inflation and charge inflation dampens the impact of inflation on the embedded value results.
Inflation assumptions are as follows:
| Inflation rates | 2015 | 2014 |
|---|---|---|
| Expense inflation per annum | 2.6% | 3.0% |
| Charge inflation per annum – Hansard Europe | 5.0% | 5.0% |
| Charge inflation per annum – Hansard International – Year 1 | 1.9% | 2.4% |
| Charge inflation per annum – Hansard International – Year 2 | 2.2% | 2.7% |
| Charge inflation per annum – Hansard International – Year 3+ | 2.6% | 3.0% |
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 3% per annum.
Deloitte MCS Limited has been engaged by Hansard Global plc to act as Reviewing Actuaries in connection with results on an EEV basis published in sections within Hansard Global plc's Results for the year ended 30 June 2015.
The EEV Information and the methodology and assumptions underlying it is the sole responsibility of the directors of Hansard Global plc. It has been prepared by the directors of Hansard Global plc, and the calculations underlying the EEV Information have been performed by Hansard Global plc.
Our review was conducted in accordance with generally accepted actuarial practices and processes. It comprised a combination of such reasonableness checks, analytical reviews and checks of clerical accuracy as we considered necessary to provide reasonable assurance that the EEV Information has been compiled free of material error.
The EEV Information necessarily makes numerous assumptions with respect to economic conditions, operating conditions, taxes, and other matters, many of which are beyond the Group's control.
Although the assumptions used represent estimates which the directors believe are together reasonable, actual experience in future may vary from that assumed in the preparation of the EEV Information, and any such variations may be material. Deviations from assumed experience are normal and are to be expected.
The EEV does not purport to be a market valuation of the Group and should not be interpreted in that manner since it does not encompass all of the many factors that may bear upon a market value. For example, it makes no allowance for the value of future new business.
In our opinion, on the basis of our review:
We have relied on data and information, including the value of net assets, management accounting data and solvency information supplied to us by the Group. Further, we have relied on the terms of the contracts, as they have been reported to us, being enforceable.
We have relied on the reported mathematical reserves, the adequacy of those reserves, and of the methods and assumptions used to determine them. We have assumed that all provisions made in the audited financial statements for any other liabilities (whether actual, contingent or potential) of whatever nature, are appropriate.
We have also relied on information relating to the current and historical operating experience of the Group's life insurance business, including the results of experience investigations relating to policy persistency, and expense analysis. In forming our opinion, we have considered the assumptions used in the EEV Information in the context of the reported results of those investigations although we have not attempted to predict the impact of potential future changes in competitive forces on the assumptions.
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Individuals employed by the Group to develop markets and support Independent Financial Advisors (IFAs).
An industry measure of insurance new business sales. It is calculated as the sum of regular premiums and 10% of single premiums written in the year.
A measure of the total assets that the Group administers on behalf of policyholders, who have selected an external third party investment manager.
A measure of cash payback on new business. It indicates how quickly shareholders can expect new business to repay its initial capital investment. It is the point at which the initial capital invested is recouped from profit from that business. BEP is calculated ignoring the time-value of money.
The Group's prime indicator of calculating new business production. This indicates the relative value of each piece of new business and is used, therefore, in the calculation of commission payable.
The UK Corporate Governance Code sets out guidance in the form of principles and provisions on how companies should be directed and controlled to follow good governance practice. The Financial Reporting Council requires companies listed in the UK to disclose how they have applied principles of the Code and whether they have complied with its provisions throughout the accounting year. Where the provisions have not been complied with, companies must provide an explanation for this.
The business covered by the EEV methodology. For the Company, this covers the entire in-force business of the Group, including all contracts issued by the Group's life insurance subsidiaries and subsidiaries providing administration, distribution and other services, as at the valuation date. It excludes the value of any future new business that the Group may write after the valuation date.
The method of accounting whereby origination costs of long-term business are deferred in the balance sheet as an asset and amortised over the life of those contracts. This leads to a smoothed recognition of up front expenses instead of the full cost in the year of sale.
The method of accounting whereby front end fees that relate to services to be provided in future periods are deferred in the balance sheet as a liability and amortised over the life of those contracts. This leads to a smoothed recognition of up front income instead of the full income in the year of sale.
The reduction to present value at a given date of a future cash transaction at an assumed rate, using a discount factor reflecting the time value of money.
EPS is a commonly used financial metric which can be used to measure the profitability and strength of a company over time. EPS is calculated by dividing profit by the number of ordinary shares. Basic EPS uses the weighted average number of ordinary shares outstanding during the year. Diluted EPS adjusts the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares, for example share awards and share options awarded to employees.
Assumptions in relation to future interest rates, investment returns, inflation and tax. These assumptions, and variances in relation to these assumptions, are treated as non-operating profits / (losses) under EEV.
The programme implemented by the Group to promote identification, monitoring and management of risks.
A measure of the value of the shareholders' interest in a life and/or related businesses, represented by the total of the Net Worth and the Value of Future Profits from the covered business as at the relevant valuation date. It ignores the value of any future new business.
An embedded value prepared in accordance with the EEV Principles.
EEV Information is the material set out in sections "European Embedded Value Information" (pages 83 to 88) and "Notes to the European Embedded Value Information" (pages 89 to 91) of the Report and Accounts.
An assessment of the value generated by the Group during the year. It represents profit generated from new business sales and the in-force book of business, based on closing non-economic and opening economic assumptions.
A set of principles published by the CFO Forum which provide a consistent basis for European insurers to prepare their Embedded Value reports. Along with additional guidance published by the CFO Forum, the principles describe how companies should prepare their supplementary embedded value reporting on the performance of their life insurance operations.
Current period differences between the actual experience incurred over the period and the assumptions used in the calculation of the embedded value, excluding new business non-economic experience variances which are captured in new business contribution.
The Foreign Account Tax Compliance Act is a US law aimed at foreign financial institutions and other financial intermediaries to prevent tax evasion by US citizens and residents through use of offshore accounts.
The market value of assets allocated to, but not required to support, the in-force covered business at the valuation date. In effect, it is the excess of Net Worth over Required Capital.
The additional taxation and investment costs incurred by shareholders through investing the Required Capital in the Company rather than directly. EEV calculations assume that any surplus projected capital in excess of the Group's requirements is transferred to shareholders. However, some surplus is not immediately transferable as it is needed to satisfy regulatory capital requirements and provide working capital. An allowance is made for the frictional cost of retaining this capital in the business (to reflect the cost to shareholders of delaying its distribution, for example, via taxation on any interest that it might earn). This cost is explicitly deducted from the VIF.
Hansard Global plc and its subsidiaries.
Costs we incur investing in the future of our business, including technology to support our growth.
A person or organisation authorised to give advice on financial matters and to sell the products of financial service providers. Outside the UK IFAs may be referred to by other names.
A measure of the post-tax shareholder return on the capital invested in new business, and so is an indicator of capital efficiency. It is defined as the discount rate at which the present value of expected cash flows over the life of the new business written in the year is equal to the total capital invested to support the writing of that business. IRR is a profitability, rather than a profit measure.
International Financial Reporting Standards are accounting standards issued by the International Accounting Standards Board ("IASB"). The Group's consolidated financial statements are required to be prepared in accordance with IFRS as adopted by the European Union to allow comparable reporting between companies.
Total IFRS equity divided by the diluted number of issued shares at the end of the period.
This is one of a number of measures by reference to which the development, performance or position of the business can be measured effectively.
Expenses related to the servicing of the in-force book of business (including investment and termination expenses and a share of overheads).
The market value of the shareholders' funds, determined on an IFRS basis, adjusted to exclude certain assets such as the deferred origination costs and liabilities such as deferred income and to add back any non-admissible assets. The Net Worth consists of Required Capital and Free surplus.
The expected present value of all future cash flows attributable to shareholders from new business, as included within EEV operating profit. NBC is calculated after the effect of any frictional costs. Unless otherwise stated, it is also quoted net of tax. It is calculated at point of sale. NBC is shown after allowing for the cost of required capital, calculated on the same basis as for in-force business.
NBC expressed as a percentage of PVNBP. This measures whether new business written is adding value or eroding value. It is a measure of profitability (not profit), comparing the expected profit (or losses) with the value of expected premiums.
Costs involved in acquiring new business (such as commission payments to intermediaries, expenses and reserves) affecting the insurance company's financial position at that point and where all of the income from that new business (including premiums and investment income) has not yet been received and will not be received until a point in the future. To begin with, therefore, a strain may be created where cash outflows exceed inflows.
Assumptions in relation to future levels of mortality, morbidity, persistency and expenses. These assumptions, and variances in relation to these assumptions, are included as operating profits / (losses) under EEV.
Allowance in the EEV for the cost of risks not already covered by the VIF. The main risks covered are mortality, persistency, expense and other operating risks. In choosing best estimate assumptions, directors have already made some allowance for risk. However, best estimate assumptions may fail to represent the full impact on shareholder value where adverse experience has a higher impact on shareholder value than favourable experience.
Expenses related to the procurement and processing of new business written including a share of overheads. Sometimes known as acquisition costs.
The industry measure of insurance new business sales under the EEV methodology. It is calculated as 100% of single premiums plus the expected present value of new regular premiums.
A regular premium contract (as opposed to a single premium contract), is one where the policyholder agrees at inception to make regular payments throughout the term of the contract.
The amount of assets, over and above the value placed on liabilities in respect of covered business, whose distribution to shareholders is restricted.
The present value of a future cash amount depends on its currency and the time until it will become available. The present value is determined using a discount rate that reflects currency and timing. Discount rates are set based on swap rates for the relevant currency determined at year-long intervals for amounts in GBP, JPY, EUR and USD up to year 30, and the year 30 rate thereafter. This covers over 95% of the future expected cash amounts by funds under management: other currencies are assumed to be subject to the GBP rate. Year 1 rates are used to unwind the existing business and are shown separately in the disclosures.
A single premium contract (as opposed to a regular premium contract (see above)), involves the payment of one premium at inception with no obligation for the policyholder to make subsequent additional payments.
The EU-wide regulatory regime which aims to more closely align solvency capital to an insurer's risk profile. It comes into force on 1 January 2016.
A policy where the benefits are determined by reference to the investment performance of a specified pool of assets referred to as the unit-linked fund.
The present value of expected future shareholder profits less the present value cost of holding capital required to support the in-force business.
| Annual General Meeting | 12 November 2015 |
|---|---|
| Publication of first Interim Management Statement | 13 November 2015 |
| Payment date for final dividend | 19 November 2015 |
| Announcement of 2nd quarter new business results | 28 January 2016 |
| Publication of half-yearly results | 25 February 2016 |
| Declaration of interim dividend | 25 February 2016 |
| Ex-dividend date for interim dividend | 3 March 2016 |
| Record date for interim dividend | 4 March 2016 |
| Payment of interim dividend | 31 March 2016 |
| Publication of second Interim Management Statement | 12 May 2016 |
| Announcement of 4th quarter new business results | 28 July 2016 |
| Announcement of results for the year ended 30 June 2016 | 22 September 2016 |
| Declaration of final dividend | 22 September 2016 |
| Ex-dividend date for final dividend | 29 September 2016 |
| Record date for final dividend | 30 September 2016 |
| Annual General Meeting | 9 November 2016 |
| Payment date for final dividend | 17 November 2016 |
Harbour Court Lord Street Box 192 Douglas Isle of Man IM99 1QL Tel: +44 (0)1624 688000 Fax: +44 (0)1624 688008 www.hansard.com
Dr L S Polonsky, CBE [email protected]
Non-executive chairman PPC Gregory [email protected]
Lazard & Co. Limited 50 Stratton Street London W1J 8LL Tel: +44 (0)20 7187 2000
PricewaterhouseCoopers LLC Sixty Circular Road Douglas Isle of Man IM1 1SA Tel: +44 (0)1624 689689
Deloitte MCS Limited Hill House 1 Little New Street London EC4A 3TR Tel: +44 (0)20 7936 3000
Bell Pottinger LLP 6th Floor, Holborn Gate 330 High Holborn London WC1V 7QD Tel: +44 (0)20 3772 2500
Panmure Gordon (UK) Limited 3rd Floor One New Change London EC4M 9AF Tel: +44 (0)20 7886 2500
Macquarie Capital (Europe) Limited 28 Ropemaker Street London EC2Y 9HD Tel: +44 (0)20 3037 2000
Capita Registrars (Isle of Man) Limited Clinch's House Lord Street Douglas Isle of Man IM99 1RZ Tel (UK): 0871 664 0300* Tel (Overseas): +44 208 639 3399
Capita IRG Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel (UK): 0871 664 0300* Tel (Overseas): +44 208 639 3399
*Nb: 0871 Number - calls cost 10p per minute plus network extras.
Hansard Global plc Harbour Court Lord Street Box 192 Douglas Isle of Man IM99 1QL
Tel: +44 (0)1624 688000 Fax: +44 (0)1624 688008
E: [email protected] www.hansard.com
www.hansard.com
Hansard Global plc Annual Report & Accounts 2015
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