RNS Number:6249J
Benfield Group Limited
11 March 2005
11 March 2005
BENFIELD GROUP LIMITED
Preliminary Results for the Year Ended 31 December 2004
Benfield Group Limited ("Benfield" or the "Group"), the world's leading
independent reinsurance and risk intermediary, today announces its preliminary
results(1) for the year ended 31 December 2004.
Financial Highlights
* Profit before tax increased by #59.3m to #90.4m (2003: #31.1m)
* Diluted earnings per share increased to 20.81p (2003: 6.26p)
* Special dividend and share buy-back returned #45.6m to shareholders
* Group trading margin(2) increased to 29.1% from 28.7%
* Group trading result(3) increased by 0.7% to #88.8m (2003: #88.1m). At
constant rates of exchange(4) trading result increased by 15.3%
* Group operating revenue decreased to #304.6m (2003: #307.7m). At
constant rates of exchange(4) operating revenue increased by 5.1%
* Profit before tax and exceptional items increased by #8.4m to #68.6m
(2003: #60.2m)
* Diluted adjusted cash earnings per share(5) decreased to 18.85p (2003:
19.05p)
* Final dividend of 7.0p per common share (2003: 6.0p)
* Total dividend of 20.5p per common share (2003: 8.0p), including special
dividend of 10.0p per common share
(1) 2003 comparatives have been restated for the change in accounting policy
required by the implementation of UITF Abstract 38 and UITF Abstract 17 as
described in note 2.
(2) Trading margin represents trading result as a percentage of operating
revenue.
(3) Trading result comprises operating profit from continuing operations before
amortisation of goodwill, depreciation of tangible fixed assets and exceptional
items (see note 3).
(4) Constant rates of exchange assume conversion of 2004 results at the exchange
rates achieved in 2003.
(5) Adjusted for exceptional items and goodwill amortisation.
Grahame Chilton, Chief Executive of Benfield commented: "For Benfield, 2004 has
been a year of progress, achievement and the emergence of significant new
opportunities that pave the way for the next expansion in the scope of our
business.
Financially, our performance has achieved the combination of top line growth at
constant rates of exchange while improving the Group's margins and delivering a
very substantial return of capital to shareholders."
"Our global infrastructure, technical skills and transactional capabilities mean
we are well placed to continue to build on our position as the world's leading
independent reinsurance intermediary while pursuing new prospects for growth in
the corporate risk sector. The 2005 year will be a challenging one for the
business. But it will also be an exciting one, not least because we will
continue to broaden our horizons and expand our capabilities in the risk and
capital management arena."
John Coldman, Chairman of Benfield commented: "Benfield has had another
successful year and has once again delivered on its long-term commitment to
achieve growth, industry leading margins and significant returns for investors.
Our people have unparalleled energy, enthusiasm and appetite for rising to new
challenges. They will find opportunities where many would see problems, and will
come up with solutions where many would believe there were none to be found."
------- -------- -------- -------
Results of Operations
2004 2003
#m (Restated) Growth as Growth Constant
#m reported Currency
------- -------- -------- -------
Operating revenue
International 166.6 168.6 -1.2% +0.6%
US 132.7 129.9 +2.2% +13.8%
Corporate 5.3 9.2
------- --------
Total operating
revenue 304.6 307.7 -1.0% +5.1%
------- --------
Trading result
International 51.5 62.7 -18.0% -15.3%
US 52.3 41.5 +25.9% +46.7%
Corporate (15.0) (16.1)
------- --------
Total trading
result 88.8 88.1 +0.7% +15.3%
------- --------
Trading margin
International 30.9% 37.2%
US 39.4% 32.0%
Total trading
margin 29.1% 28.7%
Contacts:
Grahame Chilton, Chief Executive Benfield +44 (0) 20 7578 7000
John Whiter, Chief Financial Officer Benfield +44 (0) 20 7578 7000
Investors & Analysts
Julianne Jessup Benfield +44 (0)20 7578 7425
Robert Bailhache or Geoffrey
Pelham-Lane Financial Dynamics +44 (0)20 7269 7200
Media
David Bogg Benfield +44 (0)20 7522 4016
David Haggie or Peter Rigby Haggie Financial +44 (0)20 7417 8989
PRELIMINARY STATEMENT
For Benfield, 2004 has been a year of progress, achievement and the emergence of
significant new opportunities that pave the way for the next expansion in the
scope of our business.
Financially, our performance has achieved the combination of top line growth at
constant rates of exchange while improving the Group's margins and delivering a
very substantial return of capital to shareholders.
At constant rates of exchange the Group's revenue rose by 5.1%. The Group's
strong margin continued, with the 2004 results delivering a trading margin of
29.1% (2003: 28.7%). Profit before tax rose to #90.4m from #31.1m in 2003.
Fully diluted adjusted cash earnings per share decreased to 18.9p from 19.1p in
2003.
Strong operating cash flow together with the exceptional gain of #26.1m arising
from the disposal of our holding of warrants in Montpelier Re Holdings Limited
prompted the Group to declare a special dividend of 10.0p per share at the time
of the interim results announcement. At the same time we announced our intention
to allocate up to #40.0m in support of a share buy-back programme over an 18
month period of which #22.5m was utilised in 2004. These actions resulted in the
Group returning #45.6m to shareholders in 2004. In addition the interim and
final dividend for the year total a further #23.8m.
Business review
Looking at the business in more detail, the US Division has delivered consistent
increases in revenues and trading result from 2002 onwards. The division
reported revenue of #132.7m in 2004 (2003: #129.9m), an increase of 13.8% at
constant rates of exchange. This strong revenue growth on a controlled cost base
has resulted in the US trading margin rising to 39.4% (2003: 32.0%).
Following the broker settlement agreements in the State of New York which
prohibit leveraging (using insurance relationships to gain reinsurance
business), the US Division will place particular emphasis in 2005 on developing
our relationships with larger carriers in the insurance market.
The 2005 strategy will also continue the division's customer-led formula,
targeting specific growth segments including large national account and
specialty writers. In 2004, this led to customer gains in both the property
catastrophe and casualty sectors, including such areas as directors and officers
and medical malpractice liability.
Capitalising on the demand for risk solutions providers with real expertise in
the casualty arena will also be a strong focus, so growing Benfield's overall
casualty book through greater penetration in the US.
Key hires during 2004 enhanced the breadth and depth of our US offering and the
division is well positioned to continue to increase market share.
The International Division reported revenue of #166.6m (2003: #168.6m), an
increase of 0.6% at constant rates of exchange. The continued decline in Global
Speciality revenues combined with the additional investment in recruitment and
incentivisation reported at the half year resulted in the International trading
margin declining to 30.9% (2003: 37.2%).
In Europe the Group's operations delivered strong growth in 2004 with revenue
increasing by 13.9% at constant rates of exchange. This reflects the strength of
Benfield's European franchise and the continuing move towards broker dominated,
non proportional treaty placements. The expansion of our German operations has
paved the way for further long-term growth in Germany and Northern Europe.
Benfield's Facultative Solutions team continues to go from strength to strength
achieving business growth in 2004 with revenues up 9.3% at constant rates of
exchange, and is expected to continue to progress. Additions to the unit also
included a major expansion of the Group's casualty capabilities. The team, which
now numbers over 70, operates out of the Group's offices in the UK, the US,
Bermuda, Singapore, Australia, South Africa and Spain.
Benfield's expanding presence in China was demonstrated in 2004 by our placement
of eight treaty programmes for leading companies with our customers including
the country's top four insurers. Asia is a target area for longer term
development, both in China and other major markets in the wider Asian region and
we are well positioned to take advantage of future growth opportunities.
As highlighted in previous reports, our Global Specialty business, which
includes marine, retrocession, and aerospace, saw a reduction in revenue
reflecting customer consolidation and less reinsurance purchased due to market
conditions. At constant rates of exchange revenue decreased by 13.1%.
In areas such as this where the Group has a dominant position, but growth
prospects are less significant due to market dynamics or the size of Benfield's
presence, our strategy is to protect and maintain market share. The Global
Specialty team is well positioned to develop its book in the longer term as
market conditions improve.
Another focus for the Group was its work to ensure Benfield meets the new
intermediary standards in the UK which resulted from the Financial Services
Authority taking on responsibility for the regulation of UK reinsurance and
insurance intermediaries from 14 January this year. Our UK subsidiary, Benfield
Limited, received FSA approval in November 2004.
Market conditions
The general softening of markets has also been a feature of 2004. Cycle shifts
always present challenges and opportunities for the insurance and reinsurance
sector and, here again, Benfield is well positioned.
A high proportion of the Group's revenues come from negotiated commission, so
making those revenues less sensitive to the reinsurance pricing cycle. In
addition, the demand for reinsurance tends to increase in softening markets as
risk carriers seek to lower net retentions. This means any impact on commissions
of decreasing rates is partially offset by rises in volume.
During 2004 the insurance and reinsurance industry incurred record property
losses of an estimated US$50bn from an unprecedented succession of natural
catastrophes. The impact on reinsurers was lessened by the high degree of
retention and disproportionate losses in the primary market. As a result, while
third quarter catastrophe losses mitigated the downward trend in loss affected
areas, property catastrophe rates continued to soften in most territories.
Casualty reinsurance rates remained stable with some exceptions, notably
Directors and Officers liability. Certain specialist lines, particularly
aviation reinsurance, weakened further in the absence of significant loss
activity. Generally, while pricing softened somewhat in many lines, terms and
conditions showed little or no change.
Providing access to contingent capital
Our ability to capitalise on market conditions in all phases of the cycle is a
reflection of the Group's focus on crafting solutions that are driven by
specific customer issues rather than market dynamics.
It is a key part of Benfield's role to structure contingent capital for
customers and, where appropriate, to help customers to access capital markets to
facilitate the creation of additional capacity.
Our founding investment in Montpelier Re in December 2001 brought considerable
new capacity to the market and this year Benfield continued such initiatives by
advising on, and taking a minority stake in, the creation of Swiss-based
reinsurance group, Glacier Re which focuses on niche specialty business.
Intellectual leadership
In the US, we have been at the forefront of innovations in capital provision and
credit risk protection.
For example, since 2003 our corporate investment and financial advisory business
has arranged more than US$800m of subordinated debt funding for more than 60
customers in the US and Europe and led the first pooled insurance funding
vehicle within the European insurance market.
Benfield has also developed an innovative approach to help US customers to
address deterioration in credit quality on reinsurance recoverable. We have
helped customers enhance their own credit ratings and improve liquidity by
advising on specific credit covers and credit default swaps.
These highly creative solutions to market issues illustrate in practice the
intellectual leadership which Benfield customers value so highly.
The Group's superior actuarial and analytical skills are crucial to our ability
to provide value added solutions to our customers and targeted investment took
place in 2004 in the people and the analytical tools to ensure we continue to
lead the pack. Further investment in this area is anticipated in 2005.
In 2004 we released ReMetrica Version 4.0, the latest major upgrade of
Benfield's award winning dynamic financial analysis modelling tool. We also
launched CAPRe, the first generally available underwriting pricing and
management programme that allows reinsurers to price catastrophe programmes
dynamically according to the impact of risks on their own portfolios.
In addition, we also extended our Geographical Analysis Project suite of
regional probabilistic natural peril assessment models. A key benefit of these
models is that they enable the necessary analysis to be carried out to access
previously unavailable reinsurance capacity.
Streamlining market processes
Similarly we are continuously working to create electronic systems which put the
Group at the forefront of promoting greater market efficiency.
In June we announced our global capability to provide all technical
documentation - claim advice, claim settlement, premium credit closing and
treaty balance - in a fully electronic format, so eliminating reinsurance paper
trails. The initiative was an extension of the Group's capabilities in the US
where the facility has been operational for some time and has proved to be very
successful.
Other achievements in 2004 included the creation, in conjunction with various
reinsurers, of a centralised electronic messaging and routing platform which has
standardised and streamlined broking administrative processes. This was followed
by the piloting of a document exchange system. This enables customers and
reinsurers to build a facility into their systems to search for and download
their contract documents from Benfield's Document Management System in the UK.
Foreign exchange
The Group's principal foreign currency exposure is to US dollars, arising from
the results of the US Division, and from revenues earned by the International
Division. Approximately 43% of the International Division's revenues were US
dollar denominated in 2004. These are principally earned in the UK. The Group
results are sensitive to the impact of movements in the US dollar/pounds
sterling exchange rate, with a 1 cent movement equating to approximately a #0.7m
movement in trading result, prior to the impact of any foreign exchange hedging
activity.
The Group has entered into a number of foreign exchange contracts with respect
to the year ending 31 December 2005, with 66% of the US dollar revenue exposure
expected to arise during 2005 being hedged at an average rate of 1.80. For the
year ending 31 December 2006, the Group has not yet entered into hedges in
respect of forecast US dollar exposure.
Liquidity and capital resources
Net cash comprises available corporate funds of #84.7m less borrowings of
#38.6m. Additionally, the Group has access for general corporate purposes to an
undrawn committed revolving facility of #50.0m, until June 2006. Net cash fell
during the year to #46.1m as at 31 December 2004, compared to #60.8m in the
prior year.
International Financial Reporting Standards
The Group will be required to prepare its consolidated accounts in accordance
with International Financial Reporting Standards ("IFRS") for the year ended 31
December 2005 and work is well underway to assess the impact of IFRS on its
operations. The principal areas to be affected are share options, currency
hedging and goodwill amortisation.
The announcement of the interim results for the period ending 30 June 2005 will
be the first time that the Group reports under IFRS.
Dividends
The Board has proposed a final dividend of 7.0p per common share, which together
with the interim dividend of 3.5p per common share and a special dividend of
10.0p per common share makes a total dividend for the year of 20.5p per common
share.
Industry developments
As a leader of industry innovation and change, Benfield has also spent much time
in recent months examining the potential opportunities which will flow to the
Group as a result of the increased regulatory focus on the insurance and
reinsurance sector.
The greater scrutiny of intermediary practices in the US and other markets such
as London has encouraged much discussion about what should be regarded as
appropriate industry behaviour. This has included calls for a 'new broker model'
centred on customer advocacy and transparency.
Benfield has long established principles in favour of transparency to customers.
This means we are extremely well positioned among the market's leading
intermediaries as we do not have to rethink our business approach on these
issues. We are already there.
Independence means customer advocacy
More important, however, is the overarching Benfield philosophy of independence
that these principles embody.
Independence is much more than whether a reinsurance intermediary is owned by an
insurance intermediary. It is about having the freedom of commercial thought to
be able to do what is best for customers. This lies at the heart of the Benfield
approach.
The Group's success in delivering this objective is best measured by the
longevity of our customer relationships and we are proud of our average customer
retention rate of 24 years.
We are also proud of the breadth of that customer base. We act for most of the
world's major insurance and reinsurance companies and are involved with major
government property catastrophe schemes in various countries including the US,
Taiwan, Indonesia, New Zealand and Norway.
This is a clear endorsement of the value our customers judge us to deliver and
of our ethos of building long-term customer relationships based on the concept
that the customer's success is our success.
But we cannot expect to offer our customers such qualities as intellectual
leadership and innovation without being prepared to apply the same rigour and
exploration to our own business.
Balance sheet supports growth
Our strong cash flow and low debt mean the Group is well positioned to invest in
team and strategic acquisitions which complement our core capabilities.
At the same time, increased regulatory pressure in the US and the resulting d
issatisfaction in the corporate risk sector with the practices highlighted has
triggered interest in Benfield's independent approach, so creating an ideal
opportunity for us to develop a new business alternative for customers in that
market.
Extension of existing strategy
The pursuit of opportunities in the corporate risk sector is a natural extension
of our core skills in risk and capital management. The exposures are controlled
by risk professionals and involve transactions where the emphasis is on the
provision of high value-added service and creative solutions which address
complex risk issues.
Consistent with our principle of being customer led, where corporate risk
business falls within Benfield's sustainable margin objectives, we plan to
pursue selected opportunities with vigour so further driving long-term growth.
Critical aspects of our primary business model will be real separation of our
reinsurance and primary business, transparency and the maintenance of our
independent approach based on providing the best result for all customers.
Key developments already include our decision in the first quarter of 2005 to
develop a specialist business in the energy, marine and power sector which will
focus on major corporate customers worldwide. This is a logical extension of our
capabilities given that Benfield already operates successfully in selected areas
of primary business such as space and aviation.
Outlook
Continued organic revenue growth in difficult market conditions, together with
active management of our trading margin, has seen Benfield further demonstrate
its ability to deliver long-term earnings growth. Our global infrastructure,
technical skills and transactional capabilities mean we are well placed to
continue to build on our position as the world's leading independent reinsurance
intermediary while pursuing new prospects for growth in the corporate risk
sector.
The current year will be a challenging one for the core business, with
increasing infrastructure costs coming against the backdrop of a difficult
environment for organic revenue growth. This leads us to anticipate a trading
result for 2005 similar to that for 2004.
It will also be an exciting year as we seek to capitalise on opportunities
arising from changes to our industry and the challenges facing many of our
competitors. Our strong management team and established track record of
successful acquisitions of businesses and teams mean we are more than ready to
take advantage of prospects to expand our business. We have previously stated
that we are prepared to incur short-term impact on profit and margin to improve
our growth prospects and are confident that carefully targeted expansion will
significantly enhance the medium-term outlook for the Group.
--------- ---------
PRELIMINARY RESULTS 2004 - BENFIELD GROUP LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 December 2004
--------- ---------
Notes 2004 2003
#'000 (Restated)
#'000
--------- ---------
Turnover 296,657 300,468
Interest income 7,944 7,194
--------- ---------
Operating revenue 304,601 307,662
--------- ---------
Net operating expenses before exceptional items (232,490) (238,822)
Exceptional items 4 (5,191) (28,207)
--------- ---------
Total net operating expenses (237,681) (267,029)
--------- ---------
Other operating income - exceptional 4 29,183 5,950
--------- ---------
Operating profit before exceptional items 72,111 68,840
Exceptional items 4 23,992 (22,257)
--------- ---------
Group operating profit 96,103 46,583
--------- ---------
Gain on the sale of fixed assets 4 1,124 757
Disposal of subsidiary operations 4 (3,252) (1,486)
Share of losses of associated undertakings (1,840) (3,137)
Other investment income 412 673
--------- ---------
Interest payable and similar charges before
exceptional finance charges (2,122) (6,218)
Exceptional finance charges - (6,050)
--------- ---------
Total interest payable and similar charges (2,122) (12,268)
--------- ---------
Profit on ordinary activities before taxation 90,425 31,122
Taxation on profit on ordinary activities 5 (35,681) (16,025)
--------- ---------
Profit on ordinary activities after taxation 54,744 15,097
Equity minority interests (131) 24
--------- ---------
Profit for the financial year 54,613 15,121
Dividends - including non-equity 6 (49,487) (18,703)
--------- ---------
Retained profit/(loss) for the financial year 5,126 (3,582)
========= =========
Earnings per 1p common share 7
Basic 22.64p 6.78p
Diluted 20.81p 6.26p
========= =========
Adjusted earnings per 1p common share excluding
goodwill amortisation, exceptional items and
non-operating gains and losses 7
Basic 20.40p 21.42p
Diluted 18.85p 19.05p
========= =========
The Group's turnover and expenses all relate to
continuing operations.
CONSOLIDATED BALANCE SHEET
At 31 December 2004
--------- ---------
Notes 2004 2003
#'000 (Restated)
#'000
--------- ---------
Fixed assets
Intangible assets 143,169 158,511
Tangible assets 15,686 17,715
Investments in associated undertakings 32 215
Other investments 18,920 3,648
--------- ---------
177,807 180,089
--------- ---------
Current assets
Debtors - due within one year 9 3,786,707 3,789,448
Debtors - due after one year 9 4,650 3,794
Investments 10 26,918 46,744
Cash at bank and in hand - including
fiduciary funds 226,258 280,584
--------- ---------
4,044,533 4,120,570
Current liabilities
Creditors - amounts falling due within one
year 11 (4,019,438) (4,052,853)
--------- ---------
Net current assets 25,095 67,717
--------- ---------
Total assets less current liabilities 202,902 247,806
Creditors - amounts falling due after more
than one year 12 (16,514) (38,746)
Provisions for liabilities and charges 13 (3,108) (11,499)
--------- ---------
Net assets 183,280 197,561
========= =========
Capital and reserves
Called up share capital 14 2,555 2,622
Share premium 136,585 132,638
Capital redemption reserve 86 -
Other reserves 134,632 134,632
Profit and loss account (90,927) (72,553)
--------- ---------
Total shareholders' funds
--------- ---------
Equity 141,721 156,129
Non-equity 41,210 41,210
--------- ---------
182,931 197,339
Equity minority interest 349 222
--------- ---------
Capital employed 183,280 197,561
========= =========
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 31 December 2004
--------- ---------
Notes 2004 2003
#'000 (Restated)
#'000
--------- ---------
Profit for the financial year 54,613 15,121
Exchange adjustments offset in reserves (4,656) (3,317)
--------- ---------
Total recognised gains relating to the year 49,957 11,804
=========
Prior year adjustment 2 (42)
---------
Total gains recognised since last annual report 49,915
=========
RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS
For the year ended 31 December 2004
--------- ---------
Notes 2004 2003
#'000 (Restated)
#'000
--------- ---------
Profit for the financial year 54,613 15,121
Dividends 6 (49,487) (18,703)
--------- ---------
5,126 (3,582)
Other recognised gains and losses relating to the year (4,656) (3,317)
Provision for deferred share units and share options 5,058 20,938
Net proceeds of common shares issued for cash - 110,499
Repurchase and cancellation of own shares 14 (22,453) -
Common shares issued to employees 607 14,017
Payment of partly paid common shares - 769
Amortisation of issue costs on cumulative
redeemable convertible preference shares 126 126
Proceeds on disposal of own shares 1,784 -
Increase of interest from associate to subsidiary
undertaking - 421
--------- ---------
Net change in shareholders' funds (14,408) 139,871
Shareholders' funds at 1 January 208,243 64,917
Prior year adjustment 2 (10,904) (7,449)
--------- ---------
Shareholders' funds at 31 December 182,931 197,339
========= =========
--------- ---------
CONSOLIDATED CASHFLOW STATEMENT
For the year ended 31 December 2004
--------- ---------
Notes 2004 2003
(Restated)
#'000 #'000
--------- ---------
Net cash inflow from operating activities 15 83,129 85,166
Returns on investments and servicing of finance
Investment income 412 112
Interest paid (1,766) (9,809)
Arrangement fee for credit facilities - (927)
Non-equity dividends paid (2,400) (2,199)
--------- ---------
Net cash outflow from returns on investments and
servicing of finance (3,754) (12,823)
--------- ---------
Taxation (21,717) (5,450)
Capital expenditure and financial investment
Purchase of tangible fixed assets (9,827) (9,489)
Sale of tangible fixed assets 384 2,734
Purchase of fixed asset investments (16,379) (208)
Sale of fixed asset investments 1,964 589
--------- ---------
Net cash outflow from capital expenditure and
financial investment (23,858) (6,374)
--------- ---------
Acquisitions and disposals
Purchase of subsidiary undertakings (194) (2,218)
Disposal of subsidiary undertakings (633) -
Increase in investment in associated undertakings (1,375) -
Disposal of associated undertaking 500 -
Net cash (disposed of)/acquired with subsidiary
undertaking (278) 1,130
--------- ---------
Net cash outflow from acquisitions and disposals (1,980) (1,088)
--------- ---------
Equity dividends paid to shareholders (44,978) (6,667)
--------- ---------
Net cash (outflow)/inflow before use of liquid
resources and financing (13,158) 52,764
Management of liquid resources
Sale of current asset investments 45,314 40,350
Decrease in short term deposits with banks 8,459 85,054
--------- ---------
Net cash inflow from management of liquid 53,773 125,404
resources --------- ---------
Financing
Net proceeds from issue of common shares - 110,499
Sale of own shares 1,784 -
Proceeds from share options exercised and common
shares disposed of on behalf of holders 464 20,015
Proceeds from payment of partly paid common - 769
shares
Repurchase of common shares (22,453) -
Decrease in bank loans (10,567) (117,972)
Loan notes repaid (134) (9,103)
--------- ---------
Net cash (outflow)/inflow from financing (30,906) 4,208
--------- ---------
Increase in cash (excluding fiduciary funds) 9,709 182,376
Fiduciary funds
Movement in fiduciary debtors and creditors (46,723) (11,691)
--------- ---------
(Decrease)/Increase in net cash 15 (37,014) 170,685
========= =========
Reconciliation to net cash
Net cash at 1 January 15 271,092 93,830
(Decrease)/Increase in net cash (37,014) 170,685
Movement in deposits (8,459) (85,054)
Sale of current asset investments (45,314) (40,350)
Movement in borrowings 10,701 128,001
Other non-cash changes 29,417 3,538
Exchange adjustments (5,859) 442
--------- ---------
Net cash at 31 December 15 214,564 271,092
========= =========
NOTES TO THE PRELIMINARY RESULTS
For the year ended 31 December 2004
1. BASIS OF ACCOUNTING
The Company is obliged to prepare its financial statements in accordance with
the Bermuda Companies Act 1981, which permits a company to prepare its financial
statements under UK GAAP. Accordingly, the consolidated financial statements
have been prepared in accordance with Bermuda law, under the historical cost
convention and in accordance with UK GAAP, except for the departure from
Financial Reporting Standard 6 'Acquisitions and Mergers' ("FRS 6") in respect
of the 2002 redomiciliation to Bermuda.
2. CHANGE IN ACCOUNTING POLICY
The Group adopted Urgent Issues Task Force Abstract 38 ("UITF 38") and Abstract
17 (revised) ("UITF 17") during the year to 31 December 2004, which requires the
presentation of the Group's investment in shares of the Company held within the
ESOP trusts to be amended. These shares, in accordance with this Abstract, are
now held at cost and treated as treasury shares and have been deducted from
shareholder funds. Previously they were recognised as an asset at the lower of
cost and net realisable value. In addition, the profit and loss charge for
shares and share options awarded by ESOP trusts to employees has been revised to
reflect the intrinsic value at the date of the awards rather than the average
cost price of the shares. Profit and losses from disposal of shares held by ESOP
trusts have been removed from the profit and loss account and transferred to
reserves. The comparative figures have been restated accordingly.
The effect on continuing operations of implementing UITF 38 and UITF 17 was to
increase net operating expenses and reduce operating profit for the year by
#61,000 (2003: #362,000); to reduce the gain on sale of fixed assets by
#1,207,000 (2003: increase #320,000); to reduce net assets at 31 December 2004
by #10,284,000 (2003: #10,904,000) and to reduce the value of Group reserves at
1 January 2004 by #10,904,000 (2003: #7,449,000).
3. OPERATING SEGMENTS
The analysis of operating revenue and trading result by operating segment set
out below conforms to the manner in which the Group operates its business and
assesses its financial performance. Trading result is a non-statutory measure
and comprises operating profit from continuing operations before amortisation of
goodwill, depreciation of tangible fixed assets and exceptional items.
The Group manages its core reinsurance intermediary business on the basis of two
geographical operating divisions, International and the US.
The International Division incorporates business emanating from customers
located outside of the US together with revenues from certain speciality lines
which operate on a global basis. The US Division encompasses the Group's
business emanating from customers located in mainland US excluding revenues from
those global speciality lines. In 2004, the management of the Group's wholesale
insurance broking team was moved from the International Division to the US
Division. In addition, the Group combined its UK and US corporate financial and
investment advisory businesses into a single global unit, which is also managed
within the US Division. Accordingly, to assist comparison, the divisional
results for 2003 set out below have been restated to reflect the operating
structure in 2004. The Corporate Division reflects certain expenses that are
incurred at the head office level in connection with the provision of central
functions and also the results of the Group's investment portfolio.
Trading results
--------- ----------
2004 2003
#'000 (Restated)
#'000
--------- ----------
International
Operating revenue 166,559 168,573
--------- ----------
Trading result 51,478 62,749
--------- ----------
US
Operating revenue 132,758 129,872
--------- ----------
Trading result 52,271 41,515
--------- ----------
Corporate
Operating revenue 5,284 9,217
--------- ----------
Trading result (14,968) (16,106)
--------- ----------
Total
Operating revenue 304,601 307,662
--------- ----------
Group operating profit 96,103 46,583
Exceptional items (23,992) 22,257
--------- ----------
Operating profit before exceptional items 72,111 68,840
Depreciation 7,643 9,890
Amortisation 9,027 9,428
--------- ----------
Trading result 88,781 88,158
========= ==========
4. EXCEPTIONAL ITEMS
--------- ---------
2004 2003
#'000 (Restated)
#'000
--------- ---------
Other operating income
Gain on sale of current asset investments 29,183 5,950
========= =========
Operating expenses
Bonus paid to employees (3,017) -
Professional fees (1,962) (2,667)
Awards granted to employees (212) (25,540)
--------- ---------
(5,191) (28,207)
========= =========
Non-operating
Loss on disposal of subsidiary operations (3,252) (1,486)
Gain on disposal of investments 1,098 -
Gain on disposal of fixed assets 26 757
--------- ---------
(2,128) (729)
========= =========
Exceptional finance charges - (6,050)
========= =========
Gain on sale of current asset investments
The gain on sale of current asset investments relates predominantly to the sale
in February 2004 of the Group's entire holding of Montpelier Re Holdings Limited
warrants which resulted in a gain of #29,111,000.
In June 2003 the Group sold 947,479 shares in Montpelier Re Holdings Limited,
resulting in a gain of #5,950,000.
Bonus paid to employees
In connection with the gain on disposal of the Group's holding of warrants in
Montpelier Re Holdings Limited, a one-off bonus was paid to all employees.
Professional fees
During 2003 and 2004 the Group incurred one-off professional fees in respect of
certain corporate transactions, including in connection with the Company's
Initial Public Offering.
Awards granted to employees
In March 2003 share based awards were made under the 2002 Incentive Plan to
certain key employees of the Group in respect of services provided prior to the
Company's Initial Public Offering. No previous awards had been made under the
2002 Incentive Plan and the plan ceased to be available for the issue of new
awards with effect from June 2003. The cost of awards granted at less than the
fair value of the underlying common shares has been recognised in full in the
profit and loss account at the date of grant as they relate to prior services
and no performance criteria (other than continued employment with the Group) are
attached to these awards.
On the acquisition of EW Blanch Holdings, Inc. the Group provided share based
awards to certain key employees for which the cost was spread over a 17 to 29
month vesting period from the date of the award, resulting in a charge of
#212,000 and #3,108,000 for the periods ended 31 December 2004 and 31 December
2003 respectively.
Loss on disposal of subsidiary operations
In April 2004 the Group disposed of its interest in Wildnet Group Limited, a
wholly owned subsidiary, resulting in a loss of #1,139,000. As a result of the
Group's intention to dispose of its interest in Wildnet the carrying value of
this interest was written down in 2003 resulting in a charge of #1,486,000.
In November 2004 the Group disposed of its investment in Benfield Premium
Finance Limited, resulting in a loss of #2,113,000.
Gain on disposal of investments
The gain on disposal of investments relates predominantly to the sale in March
2004 of 200,000 ordinary shares in Equity Partnership Limited and 10,618,850
shares in Uni Alliance Insurance Holdings Limited resulting in a gain of
#1,062,000.
Exceptional finance charges
In June 2003 the Group's previous credit facilities were cancelled and repaid
following completion and delivery of proceeds of the Company's Initial Public
Offering. The Group entered into a new credit facilities agreement, with
proceeds from the Initial Public Offering and funds available from the new
credit facilities being used to repay the outstanding borrowings under the
cancelled facilities. On cancellation, charges were incurred in the write off of
prepaid facility arrangement fees and termination of swap and collar interest
rate derivative contracts which related to the cancelled facilities.
5. TAXATION ON PROFIT ON ORDINARY ACTIVITIES
Analysis of charge in year
---------- --------
2004 2003
#'000 #'000
---------- --------
Current tax
UK corporation tax at 30% 18,248 5,542
Double tax relief (869) (1,590)
---------- --------
17,379 3,952
Foreign tax 16,730 13,248
Adjustment in respect of previous periods 840 (1,429)
Share of taxation in associated companies - (545)
---------- --------
Total current tax 34,949 15,226
---------- --------
Deferred tax
Origination and reversal of timing differences
United Kingdom (394) (741)
Overseas 1,126 1,540
---------- --------
Total deferred tax 732 799
---------- --------
Taxation on profit on ordinary activities 35,681 16,025
========== ========
The tax effect of the operating exceptional items and goodwill amortisation was
to increase the tax charge by #7,358,000 (2003: decrease #7,581,000).
The tax effect of the non-operating exceptional items was to increase the tax
charge by #342,000 (2003: decrease #1,815,000).
6. DIVIDENDS
-------- --------
2004 2003
#'000 #'000
-------- --------
Equity
Interim paid - common shares of 1p 8,107 3,233
Final proposed - common shares of 1p 15,691 13,819
Special dividend paid - common shares of 1p 23,163 -
-------- --------
46,961 17,052
Non-equity
Paid - cumulative redeemable convertible preference shares
of 1p 1,190 1,190
Payable - cumulative redeemable convertible preference
shares of 1p 1,210 1,210
Amortisation of issue costs 126 126
Reversal of accrued charge (see note below) - (875)
-------- --------
2,526 1,651
-------- --------
49,487 18,703
======== ========
-------- --------
2004 2003
pence pence
-------- --------
Equity
Interim paid - per common share of 1p 3.5 2.0
Final proposed - per common share of 1p 7.0 6.0
Special dividend paid - per common share of 1p 10.0 -
======== ========
During 2003 the amount accrued in prior periods in respect of the dividend on
the cumulative redeemable convertible preference shares was adjusted to reflect
the dividend rate of 6.0% per annum, which became fixed under the terms of the
shares after the Initial Public Offering. Previously dividends were accrued at
7.7%, being the average dividend rate over the life of the cumulative redeemable
convertible preference shares expected prior to the Initial Public Offering.
7. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the earnings attributable to
common shareholders by the weighted average number of common shares in issue
during the year, excluding those held in the employee share trusts which are
treated as cancelled.
For diluted earnings per share, the weighted average number of common shares in
issue, excluding those held in the employee share trusts, is adjusted to assume
conversion of all dilutive potential common shares. The Company has had the
following three classes of shares which were potentially dilutive during the
years presented:
(i) cumulative redeemable convertible preference shares;
(ii) those share awards granted to employees where the exercise
price is less than the estimated fair value of the Company's common shares
during the relevant year; and
(iii) deferred share units.
Supplementary basic and diluted earnings per share have been calculated to
exclude the effect of exceptional items, non-operating gains and losses and
goodwill amortisation. The adjusted numbers have been provided in order that the
effects of these charges on reported earnings can be fully appreciated.
2004 2003
Weighted Weighted
average Pence Earnings average Pence
number of Per (Restated) number per
#'000 shares Share #'000 of shares share
-------- -------- ------ -------- -------- ------
Unadjusted earnings per
share
Basic earnings per share
Profit attributable
to shareholders 54,613 15,121
Less preference dividends (2,526) (1,651)
Earnings attributable
to common shareholders 52,087 230,110,574 22.64 13,470 198,605,871 6.78
Effect of dilutive
securities:
Share options 12,744,773 (1.19) 11,324,494 (0.36)
Deferred share units 3,571,573 (0.31) 5,141,835 (0.16)
Cumulative redeemable
convertible preference
shares 2,526 16,000,000 (0.33) - - -
Diluted earnings per
share 54,613 262,426,920 20.81 13,470 215,072,200 6.26
Adjusted earnings per
share
Basic earnings
per share 52,087 230,110,574 22.64 13,470 198,605,871 6.78
Exceptional items
(note 4) (21,864) (9.50) 29,036 14.62
Amortisation 9,027 3.92 9,428 4.75
Tax on exceptional
items and amortisation 7,700 3.34 (9,396) (4.73)
Basic earnings per share
excluding exceptional
items and amortisation 46,950 230,110,574 20.40 42,538 198,605,871 21.42
Diluted earnings per
share 54,613 262,426,920 20.81 13,470 215,072,200 6.26
Exceptional items
(note 4) (21,864) (8.33) 29,036 13.50
Amortisation 9,027 3.44 9,428 4.38
Tax on exceptional
items and amortisation 7,700 2.93 (9,396) (4.37)
Effect of previously
anti-dilutive securities:
Cumulative redeemable
convertible preference
shares - - - 1,651 16,935,390 (0.72)
Diluted earnings per
share excluding
exceptional items and
amortisation 49,476 262,426,920 18.85 44,189 232,007,590 19.05
In 2003 potentially dilutive securities totalling 16,935,390 common shares of 1p
each in respect of cumulative redeemable convertible preference shares have not
been included in the determination of unadjusted diluted loss per share as their
inclusion would be anti-dilutive.
8. NET FIDUCIARY ASSETS
The following fiduciary assets and liabilities held by the Group have been
included in net current assets:
-------- --------
2004 2003
#'000 #'000
-------- --------
Insurance broking debtors (note 9) 3,755,370 3,756,026
Fiduciary investments (note 10) 15,615 37,346
Fiduciary cash and deposits 155,793 212,099
Insurance broking creditors (note 11) (3,905,748) (3,953,127)
-------- --------
Net fiduciary assets 21,030 52,344
======== ========
Included within fiduciary cash and deposits are amounts available to the Group
for general corporate purposes of #14,203,000 (2003: #48,553,000).
9. DEBTORS
---------- ---------
2004 2003
#'000 #'000
---------- ---------
Amounts falling due within one year
Insurance broking debtors 3,755,370 3,756,026
Amounts owed by associated undertakings - 1,295
Taxation recoverable 3,142 3,450
Deferred taxation 3,653 5,223
Other debtors 10,061 11,056
Prepayments and accrued income 14,481 12,398
---------- ---------
3,786,707 3,789,448
Amounts falling due after more than one year
Deferred taxation 4,646 3,778
Other debtors 4 16
---------- ---------
4,650 3,794
---------- ---------
3,791,357 3,793,242
========== =========
10. CURRENT ASSET INVESTMENTS
---------- --------
2004 2003
#'000 #'000
---------- --------
Fiduciary investments - unlisted 15,615 37,346
Non-fiduciary investments
Listed investments 6,331 8,538
Unlisted investments 4,972 860
---------- --------
26,918 46,744
========== ========
Fiduciary investments held are liquid instruments and are used for cash
management purposes. Listed investments represent the equity investment in
Montpelier Re Holdings Limited with a carrying value of #6,331,000 (2003:
#6,331,000). During the year the Group sold its entire holding of warrants in
Montpelier Re Holdings Limited which were carried at nil book value, and its
entire holding of shares in BRIT Insurance Holdings PLC, which were carried at
book value of #2,207,000. At 31 December 2004 the market value of listed
investments was #11,058,000 (2003: #79,208,000).
11. CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR
---------- -------
2004 2003
#'000 #'000
---------- -------
Bank and other borrowings 24,987 18,507
Loan notes - 134
Insurance broking creditors 3,905,748 3,953,127
Amounts due to associated undertakings 168 -
Corporation tax 31,735 18,069
Social security payable 3,515 3,536
Other creditors and accruals 36,116 44,294
Dividends accrued and proposed 17,169 15,186
---------- --------
4,019,438 4,052,853
========== ========
12. CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
------- ------
2004 2003
#'000 #'000
------- ------
Bank and other borrowings 13,625 37,595
Other creditors and accruals 2,877 1,151
Deferred tax 12 -
------- ------
16,514 38,746
======= ======
13. PROVISIONS FOR LIABILITIES AND CHARGES
-------- -------- ------ -------
Litigation and Vacant Other Total
disputes properties
#'000 #'000 #'000 #'000
-------- -------- ------ -------
At 1 January 2004 6,702 3,312 1,485 11,499
Exchange adjustments (198) (101) - (299)
Transfer to profit and
accounloss (3,540) (1,201) - (4,741)
Transfer to investments
in associated
undertakings - - (485) (485)
Utilised in year (1,876) (990) - (2,866)
-------- -------- ------ -------
At 31 December
2004 1,088 1,020 1,000 3,108
======== ======== ====== =======
14. CALLED UP SHARE CAPITAL
---------- --------
Number of shares 2004 2003
Number Number
---------- --------
Authorised
Common shares of 1p 500,000,000 500,000,000
Cumulative redeemable convertible preference shares
of 1p 20,000,000 20,000,000
========== =========
Allotted, called up and fully paid
common shares of 1p
At 1 January 242,172,508 35,258,762
Allotted to employees prior to share split - 266,903
Adjustment in respect of 5:1 share split - 142,102,660
---------- ---------
242,172,508 177,628,325
Issued in year - 49,417,988
Repurchased and cancelled (8,545,000) -
Allotted to employees 1,916,196 15,126,195
---------- ---------
At 31 December 235,543,704 242,172,508
========== =========
Cumulative redeemable convertible preference shares
of 1p
At 1 January and 31 December 20,000,000 20,000,000
========== =========
---------- --------
Nominal value 2004 2003
#'000 #'000
---------- --------
Authorised
Common shares of 1p 5,000 5,000
Cumulative redeemable convertible preference shares of 1p 200 200
Allotted, called up and fully paid
common shares of 1p
At 1 January 2,422 227
Issued in year - 494
Transfer from other reserves on redenomination and split - 1,548
Repurchased and cancelled (86) -
Allotted to employees 19 153
---------- --------
At 31 December 2,355 2,422
---------- --------
Cumulative redeemable convertible preference shares of 1p
At 1 January 200 130
Transfer from other reserves on redenomination - 70
---------- --------
At 31 December 200 200
---------- --------
Total share capital 2,555 2,622
========== ========
Changes to share capital during the year to 31 December 2004
During the year, 8,545,000 common shares of 1p each representing 3.5% of the
issued share capital of the Company were repurchased for aggregate
consideration, including expenses, of #22,453,000 and were subsequently
cancelled.
A total of 937,446 common shares of 1p each were allotted to satisfy 937,446
deferred share units which vested and were distributed during the year ended 31
December 2004. A total of 978,750 common shares of 1p each were allotted on the
exercise of options by employees during the year ended 31 December 2004, for an
aggregate consideration of #464,275.
Common shares of 1p
All of the common shares of 1p each in issue at 31 December 2004 and 2003 were
fully paid.
Cumulative redeemable convertible preference shares of 1p
The cumulative redeemable convertible preference shares have certain
preferential rights over and above the Company's common shares of 1p each.
The terms of redemption relating to the cumulative redeemable convertible
preference shares are such that each cumulative redeemable convertible
preference share shall be redeemed by the Company on the seventh anniversary of
its date of issuance, if the holder has not previously issued a conversion
notice in respect of that share. Upon redemption the Company is obliged to
redeem each cumulative redeemable convertible preference share in cash for its
issue price. Should this occur, the Company would be obliged to redeem #20m of
shares on 31 December 2008 and a further #20m on 30 April 2009.
The holders of the cumulative redeemable convertible preference shares are
entitled to a fixed cumulative preferential dividend payable in preference to
any dividend on any other class of share in the Company. Following the Company's
Initial Public Offering in June 2003, this preferential dividend accrues at a
rate of 6% per annum until redemption. Should the Company fail to pay any
instalment of the preferential dividend when due, the dividend rate for all
subsequent financial periods until redemption will be increased to 9% per annum.
The cumulative redeemable convertible preference shares confer a preferential
right over the holders of other classes of share, after payment of the Company's
liabilities, to the return of amounts paid up on those shares and any arrears
and accruals of preferential dividend on any liquidation of the Company or other
return of assets to shareholders.
Except in relation to any variation of the rights attaching to the cumulative
redeemable convertible preference shares or in the case of a failure to redeem
on the due date, the cumulative redeemable convertible preference shares do not
carry any votes at any general meetings of the Company. The cumulative
redeemable convertible preference shares may be converted at the option of the
holder into fully paid common shares of 1p each at a conversion ratio of four
common shares for every five cumulative redeemable convertible preference
shares. In the event of a majority sale of the Company the cumulative redeemable
convertible preference shares convert into a number of common shares dependent
on the price per common share established by that majority sale, subject to a
minimum conversion price per common share of 1p each to be paid on any such
majority sale, subject to a minimum conversion price of #2.20 per common share
of 1p each and a maximum conversion price of #2.64 per common share of 1p each.
15. CASH FLOW
(a) Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating activities:
---------- --------
2004 2003
#'000 #'000
---------- --------
Continuing operations
Operating profit 96,103 46,583
Amortisation of intangible assets 9,027 9,428
Depreciation of tangible fixed assets 7,643 9,890
Gain on disposal of current asset investments (26,167) (5,950)
Cost of shares gifted during the year 143 502
Cost of share options issued 5,542 24,952
(Increase)/Decrease in debtors (4,203) 7,914
Decrease in creditors (6,117) (10,387)
Decrease in provisions for liabilities and charges (7,123) (4,827)
Exchange translation differences 8,281 7,061
---------- --------
Net cash inflow from operating activities 83,129 85,166
========== ========
(b) Reconciliation of movement in net cash
-------- -------- -------- -------- --------
At 1 Other At 31
January non-cash Exchange December
2004 Cashflow changes movements 2004
#'000 #'000 #'000 #'000 #'000
-------- ------- -------- -------- ----------
Cash at bank
and in hand 280,584 (45,473) - (8,853) 226,258
Deposits
classified as
liquid assets (9,128) 8,459 - 669 -
-------- ------- -------- -------- ----------
271,456 (37,014) - (8,184) 226,258
-------- ------- -------- -------- ----------
Debt due after more
than one year
- bank loans 37,595 2,600 (27,587) 1,017 13,625
Debt due within one
year -------- ------- -------- -------- ----------
- bank loans 18,507 (13,167) 24,337 (4,690) 24,987
- loan notes 134 (134) - - -
-------- ------- -------- -------- ----------
18,641 (13,301) 24,337 (4,690) 24,987
-------- ------- -------- -------- ----------
Total debt 56,236 (10,701) (3,250) (3,673) 38,612
Liquid resources 55,872 (53,773) 26,167 (1,348) 26,918
-------- ------- -------- -------- ----------
Net cash including
fiduciary funds 271,092 (80,086) 29,417 (5,859) 214,564
======== ======= ======== ======== ==========
Liquid resources comprise current asset investments and short-term deposits with
banks which mature within 12 months of the date of inception.
The total net cash inflow/(outflow) during the year in respect of the movements
in bank loans includes any arrangement costs paid in respect of credit
facilities.
(c) Movement in borrowings
---------- --------
2004 2003
#'000 #'000
---------- --------
Debt due within one year:
Bank borrowings and loan notes 951 21,082
Repayment of part of borrowings and loan notes (14,252) (55,562)
Debt due after more than one year:
Bank borrowings and loan notes 2,600 58,581
Repayment of part of borrowings and loan notes - (151,175)
---------- --------
Decrease in borrowings (10,701) (127,074)
Arrangements costs of bank loans - (927)
---------- --------
Cash outflow (10,701) (128,001)
========== ========
(d) Cash flow relating to exceptional items
In the year ended 31 December 2004, operating cash flows included cash outflows
of #1,762,000 in respect of professional fees related to exceptional corporate
transactions and #2,409,000 in respect of an exceptional bonus paid to all
employees in connection with the disposal of warrants in Montpelier Re Holdings
Limited, which itself resulted in a cash inflow of #29,111,000.
(e) Analysis of net cash
--------- -------
2004 2003
#'000 #'000
--------- -------
Available corporate cash 84,668 117,038
Total debt (38,612) (56,236)
--------- -------
Net available corporate cash 46,056 60,802
Current asset investments 26,918 46,744
Fiduciary cash and deposits (excluding amount available
for corporate purposes) 141,590 163,546
--------- -------
Net cash 214,564 271,092
========= =======
16. SHAREHOLDER INFORMATION
The financial information contained in this preliminary announcement does not
constitute statutory accounts within the meaning of s240 of the UK Companies Act
1985. Statutory accounts will be posted to shareholders no later than 24 March
2005.
The auditors have reported on the statutory accounts. Their report was
unqualified and did not contain a statement under s237(2) or s237(3) of the UK
Companies Act 1985.
The shareholders entered in the Register of Members on 1 April 2005 will be
entitled to the proposed final dividend of 7.0p per common share which will,
subject to approval at the Annual General Meeting to be held on 26 April 2005,
be payable on 29 April 2005.
Copies of the preliminary press release (and statutory accounts when available)
may be obtained from the Company Secretariat, Benfield Group Limited, 55
Bishopsgate, London, EC2N 3BD
This information is provided by RNS
The company news service from the London Stock Exchange
END
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