RNS Number:6092I
Benfield Group Limited
07 September 2006
7 September 2006
BENFIELD GROUP LIMITED
Interim Results for the Six Months to 30 June 2006
Benfield Group Limited ("Benfield" or "the Group"), the world's leading
independent reinsurance and risk intermediary, today announces its interim
results for the six months ended 30 June 2006.
Financial Highlights
* Group operating revenue #252.1m (H1 2005: #196.2m), an increase of
28.5% - at constant rates of exchange (1) operating revenue increased
by 22.6%
* Group trading result (2) #107.9m (H1 2005: #82.0m), an increase of
31.6% - at constant rates of exchange the trading result increased
by 23.4%
* Group trading margin (3) 42.8% (H1 2005: 41.8%)
* Profit before tax #97.8m (H1 2005: #72.3m), an increase of 35.3%
* Basic earnings per share (4) 28.7p (H1 2005: 20.0p)
* Adjusted diluted earnings per share (4&5) 24.8p (H1 2005: 18.5p)
* 2.2m Common Shares (#8.3m) bought back completing the #40m share
buyback programme that commenced in September 2004
* Further #75m share buyback programme announced in June 2006 to be
implemented over the 12 months to June 2007 with #36.7m utilised at
6 September 2006 to buy back 10.6m Common Shares
* Interim dividend 4.0p per share (H1 2005: 3.5p)
(1) Constant rates of exchange assume conversion of 2006 results at the
exchange rates achieved in 2005
(2) Trading result comprises operating profit from continuing operations before
amortisation of intangible assets, depreciation of tangible fixed assets
and exceptional items
(3) Trading margin represents trading result as a percentage of operating
revenue
(4) Basic and adjusted diluted earnings per share calculated using a weighted
average number of Common Shares of 223,374,698 and 265,109,865 respectively
(5) Adjusted for exceptional items
Operational Highlights
* Exceptional new business development and revenue growth in US Division
* Strong performance from International Division with continued expansion
of areas targeted for growth
* Investment in new teams and people within our reinsurance broking
business now generating profitable revenues
* Significant new business has been won by Benfield Corporate Risk but
it is developing more slowly than anticipated in loss affected markets
* Improving trend in trading margin despite upward pressure on people costs
Grahame Chilton, Chief Executive of Benfield, commented: "We have made
significant investment in people across the Group which has contributed to the
excellent results we are announcing today. Market conditions are challenging in
loss affected areas and given this we have not changed our expectations for the
full year despite the exceptional first half. It is in these conditions that our
intellectual capital and transactional capabilities differentiate our offering
and we look forward to continuing to provide our customers with the innovation
and creativity for which Benfield is globally recognised."
Results of Operations
H1 2006 H1 2005 Growth as Growth Constant
#m #m Reported Currency
Operating revenue
International 127.8 113.4 +12.7% +7.9%
United States 108.3 73.5 +47.3% +40.0%
Benfield Corporate Risk 7.6 3.7 +105.4% +95.3%
Corporate Investment Group 7.9 5.4 +46.3% +40.1%
Group Services 0.5 0.2 n/a n/a
Total operating revenue 252.1 196.2 +28.5% +22.6%
Trading result
International 57.9 53.1 +9.0% 0.0%
United States 60.0 37.0 +62.2% +51.7%
Benfield Corporate Risk (9.4) (3.9) n/a n/a
Corporate Investment Group 2.1 (0.9) n/a n/a
Group Services (2.7) (3.3) n/a n/a
Total trading result 107.9 82.0 +31.6 % +23.4%
Trading margin
International 45.3% 46.8%
United States 55.4% 50.3%
Benfield Corporate Risk n/a n/a
Total trading margin 42.8% 41.8%
Contacts:
Grahame Chilton, Chief Executive Benfield +44 (0) 20 7578 7000
John Whiter, Chief Financial Officer Benfield +44 (0) 20 7578 7000
Analysts & Investors
Julianne Jessup Benfield +44 (0) 20 7578 7425
Rob Bailhache Financial Dynamics +44 (0) 20 7269 7200
Media
David Bogg Benfield +44 (0) 20 7522 4016
Peter Rigby/David Haggie Haggie Financial +44 (0) 20 7417 8989
Benfield is the world's leading independent reinsurance and risk intermediary.
Its customers include many of the world's major insurance and reinsurance
companies as well as government entities and global corporations. Benfield
operates from more than 40 locations worldwide. Benfield is listed on the
London Stock Exchange under the ticker symbol BFD. www.benfieldgroup.com.
Operational Review
Reinsurance market conditions continue to be affected by last year's hurricane
losses, particularly in the US, where demand for catastrophe reinsurance
capacity exceeds supply in loss-affected areas. Benfield's expertise in
property catastrophe reinsurance and Benfield Advisory's capital markets
capabilities have enabled us to develop innovative solutions to create new
capacity, contributing to an exceptionally strong performance from the US
Division. Across the international reinsurance market we continue to see an
increasing demand for catastrophe reinsurance and for specialist peril and
financial modelling, as well as alternative solutions which access the capital
markets. Our focus on developing capabilities in all of these areas stands
Benfield in good stead to meet changing customer needs. Outside the US,
reinsurance pricing has remained generally stable in non loss-affected areas
with single digit price rises in certain markets such as Japan, Australia and
the UK.
As anticipated, the Group's overall trading margin, which was temporarily
depressed by last year's investments, has begun to recover. This reflects
strong revenue growth across all the Group's core reinsurance broking
operations. Expense growth was also impacted by continued investment,
particularly in Benfield Corporate Risk, where expected revenue growth has been
held back by the difficult post-loss market conditions for Gulf of Mexico
exposures.
International Division
International revenue increased by 12.7% to #127.8 million (H1 2005: #113.4
million). At constant rates of exchange revenue increased by 7.9%. Net costs
increased by 15.9% to #69.9 million (H1 2005: #60.3 million), and were 14.7%
higher at constant rates of exchange. The International trading margin
decreased from 46.8% to 45.3%.
Rates for property catastrophe and casualty reinsurance remain stable or
slightly higher in most of the geographical markets covered by the International
Division, with the exception of hurricane loss affected areas in Mexico and the
Caribbean, where rates were generally up between 30% and 100%. Capacity remains
adequate to meet demand except in the retrocession market, where rates for
marine and non-marine retrocession have increased by more than 100% and continue
to move upwards.
Teams in the European region continued to win significant new business and the
Facultative Solutions team again generated strong growth. The investment in
strengthening Benfield's casualty capability is now bearing fruit with the team
generating a number of new accounts in the first half of 2006.
The small reduction in trading margin reflects the cost in 2006 of new hires
made in the latter part of 2005 as part of a planned investment programme to
enhance the capabilities of the International Division, together with ongoing
incentivisation of the current team members. The new hires are now beginning to
make a contribution to revenue growth.
US Division
The US Division's revenue increased by 47.3% to #108.3 million (H1 2005: #73.5
million). At constant rates of exchange US Division revenue increased by 40.0%.
Net costs increased by 32.3% to #48.3 million (H1 2005: #36.5 million), an
increase of 28.1% at constant rates of exchange. The US trading margin
increased from 50.3% to 55.4%.
The US reinsurance market continues to be dominated by the after-effects of the
hurricane losses of 2005, notably hurricane Katrina, which was the largest ever
insured natural catastrophe loss. Since the start of the year, the US property
catastrophe market has continued to harden, with pressure on property
catastrophe capacity and price increases of more than double previous rates in
loss affected areas. At the same time, overall demand for catastrophe
reinsurance has increased. This is due to higher loss frequency and severity
predictions from catastrophe risk models and more stringent capital requirements
from rating agencies and regulators. In loss affected areas, particularly
Florida, demand outstrips supply despite the trend towards larger retentions as
buyers seek to mitigate the higher cost.
As anticipated, this difficult market environment enabled us to demonstrate the
effectiveness of our unique combination of property catastrophe expertise,
strong transactional and analytical capabilities and ability to access capital
markets. This formula meant that Benfield was able to offer customers a range
of innovative solutions to meet their needs which were not available elsewhere.
This included the creation of US$285 million of new capacity for Benfield
customers with South Eastern US exposures through Starbound Re, a reinsurance
vehicle sponsored by Benfield Advisory. Revenues, which include #4.0m for
Benfield Advisory (2005: #4.1m), also benefited from a number of new or expanded
catastrophe programmes for existing customers and from the overall increase in
catastrophe pricing.
The US Division's expense growth was affected by the ongoing costs associated
with the incentivisation of new hires and current team members as part of the
planned programme to enhance and retain the capabilities of the US Division.
Benfield Corporate Risk
Benfield Corporate Risk revenue increased to #7.6 million (H1 2005: #3.7
million). As anticipated, net costs increased to #17.0 million (H1 2005: #7.6
million), reflecting the growth of the business which now comprises 168 staff
operating from 11 offices worldwide. The trading loss for the period was #9.4
million (H1 2005: #3.9 million). Revenue from Space and Aviation, together with
that from Property and Casualty improved marginally. Significant new business
was won by Benfield Corporate Risk in the first half of 2006 across various
markets and territories. However, the severe impact of last year's hurricane
losses on the pricing of and the capacity for Gulf of Mexico energy risks has
lead to less movement of business between brokers and in some cases has
discouraged buyers from entering the market. This has curtailed short term
growth opportunities in this key target market and slowed anticipated revenue
generation. As a result, Benfield Corporate Risk is not expected to break even
in 2006 as anticipated, but we remain confident of the longer term prospects for
the business.
Corporate Investment Group
The role of the Corporate Investment Group (CIG) is to manage the Group's
portfolio of investments in non-core businesses. Following the disposal of Orbit
(an employee benefits company) in April 2006, the principal remaining business
in this category is Paragon (a reinsurance administration and asset recovery
services company). CIG's revenue increased from #5.4 million to #7.9 million
for the period, while expenses fell slightly from #6.3 million to #5.8 million,
generating a trading result of #2.1 million (H1 2005 - loss: #0.9 million).
These results include the benefit of a strong trading period for Orbit prior to
its disposal.
Group Services Division
The Group Services Division represents costs incurred in running the head office
and group related activities. The net costs incurred by the Group Services
Division decreased by 8.6% to #3.2 million (H1 2005: #3.5 million). The loss
reported by this Division reduced to #2.7million (H1 2005: #3.3 million).
Dividend
The Board has declared an interim dividend of 4.0p (H1 2005: 3.5p) to be paid on
15 November 2006 to shareholders on the register on 13 October 2005.
Foreign Exchange
The Group's principal foreign currency exposure is to US dollars, arising from
the results of the US Division, and from foreign currency revenues earned by the
International Division. Approximately 37% of the International Division's
revenues were US dollar denominated in the period. These are principally earned
in the UK. The Group results are sensitive to the impact of movements in the US
dollar/pound sterling exchange rate, with a one cent movement equating to
approximately a #0.7 million movement in trading result, prior to the impact of
any foreign exchange hedging activity.
For the six months ended 30 June 2006, the Group achieved a rate of US$1.73 (H1
2005: US$1.84) in respect of dollars earned in the UK. Income earned in the US
was translated at an average rate of US$1.78 (H1 2005: US$1.88).
In the UK, the Group enters into foreign currency contracts (including
derivative options) to manage the impact of currency risk on trading results.
The Group's policy is to hedge a minimum of 50% of the forecast exposure prior
to each financial year for each of its principal UK trading currencies and at
least 25% of forecast exposure for the following financial year, dependent upon
prevailing market conditions.
Balance Sheet
Net assets increased by #32.3 million to #232.5 million as at 30 June 2006,
demonstrating the continued strength of the Group's balance sheet.
During the period the Group replaced the expiring bank indebtedness with a #100
million revolving loan facility, available until March 2011. Net debt was #2.0
million at 30 June 2006, compared to net cash of #11.0 million at 31 December
2005. Net debt comprises available corporate funds of #67.8 million (2005: #65.0
million) less borrowings of #69.8 million (2005: #54.0 million).
Share Buyback Programme and Employee Share Dealing Facility
During the period, the #40 million share buy-back programme announced in 2004
was completed with the purchase of 2.2 million Common Shares. In June 2006,
Benfield announced the allocation of up to #75 million to enable a further share
buyback programme over a 12 month period, with #36.7 million being utilised by 6
September 2006 to buy back 10.6 million Common Shares.
The final release of Common Shares held by employees, former employees and
Directors from the lock-up restrictions put in place at the time of Benfield's
IPO occurred on 18 June 2006. In connection with this final release, a Common
Share Dealing Facility was offered through Benfield's corporate broker Merrill
Lynch on 20 June 2006 to enable employees to sell their shares. 11.5 million
Common Shares were sold through this facility, of which 7.4 million were bought
back by Benfield for cancellation as part of the new buyback programme.
Outlook
Since the start of 2006, the US dollar exchange rate has fallen against
sterling. Despite this, the Group has achieved and continues to anticipate
substantial overall revenue growth from its core reinsurance business in 2006.
Facultative Solutions and Benfield Advisory are fast developing areas of the
business with relatively volatile revenue streams. We continue to be confident
of the contribution from these business units in the second half of the year.
As already disclosed, Benfield Corporate Risk is now not expected to break even
in 2006 due to slower than expected revenue growth in certain key markets. We
remain positive on the longer term prospects for this business.
Benfield operates in a very competitive environment in which our people are our
greatest asset. Benfield has been a significant net recruiter across the
business for the past two years but we are equally focused on ensuring that we
retain key people as well as continuing to attract talent in areas targeted for
growth. This ongoing investment in consolidating our capabilities puts an
inevitable pressure on costs. We continue to expect a 2006 trading result of at
least the #86.3 million achieved in 2004.
Market conditions remain challenging in loss affected segments. Whether or not
early predictions of another active hurricane season are fulfilled, we expect
further hardening of the US property catastrophe and energy markets to be
evident at year end renewals. Benfield is well positioned to meet customer
needs and the ongoing investment in broadening our capabilities continues to
generate opportunities for new business and longer term growth.
BENFIELD GROUP LIMITED
CONSOLIDATED INCOME STATEMENT
Unaudited results for six months ended 30 June 2006
Notes 6 months to 6 months to
30 June 2006 30 June 2005
#'000 #'000
---------------------------------
Commission and fees 245,739 192,523
Interest income 6,388 3,700
---------------------------------
Total revenue 2 252,127 196,223
Other operating income 511 -
Operating expenses (145,628) (116,728)
Depreciation, amortisation and impairment charges (4,415) (6,028)
---------------------------------
Operating profit 102,595 73,467
---------------------------------
Analysed as:
+--------------------------------+
Trading result 2 | 107,855 81,987|
Depreciation, amortisation and impairment charges | (4,415) (6,028)|
Exceptional items 4 | (845) (2,492)|
+--------------------------------+
Operating profit 102,595 73,467
Finance income 84 1,866
Finance costs (4,844) (2,174)
Share of losses of associated undertakings after taxation (32) (825)
---------------------------------
Profit before taxation 97,803 72,334
Taxation 5 (33,811) (27,419)
---------------------------------
Profit for the period 63,992 44,915
---------------------------------
Attributable to:
Equity holders of the Company 64,003 44,864
Minority interest (11) 51
---------------------------------
63,992 44,915
---------------------------------
Earnings per 1p common share
Basic 7 28.65p 20.01p
Diluted 7 24.62p 17.84p
---------------------------------
Dividends per 1p common share
Final paid 7.0p 7.0p
Interim proposed 4.0p 3.5p
---------------------------------
BENFIELD GROUP LIMITED
CONSOLIDATED BALANCE SHEET
Unaudited as at 30 June 2006
Notes At 30 June At 30 June At 31
2006 2005 December 2005
#'000 #'000 #'000
ASSETS
Non-current assets
Goodwill 156,856 157,349 161,851
Intangible assets 13,084 5,784 11,938
Property, plant and equipment 13,155 9,438 10,670
Investments in associated undertakings - 32 32
Financial assets 39,466 24,411 41,515
Deferred tax assets - 6,177 14,991
-------------------------------------------------
222,561 203,191 240,997
-------------------------------------------------
Current assets
Trade and other receivables 8 139,074 90,870 65,064
Financial assets 3,349 15,037 745
Current tax recoverable 104 - 189
Cash and cash equivalents 67,822 59,219 64,995
-------------------------------------------------
210,349 165,126 130,993
Fiduciary financial assets 16,519 16,625 17,339
Fiduciary cash and cash equivalents 290,903 242,899 184,496
-------------------------------------------------
517,771 424,650 332,828
-------------------------------------------------
LIABILITIES
Current liabilities
Trade and other payables 9 71,819 38,466 72,428
Insurance broking creditors 307,422 259,524 201,835
Financial liabilities 10 30,154 27,433 16,098
Current tax liabilities 40,833 42,265 35,548
Provisions 11 4,628 1,112 4,513
-------------------------------------------------
454,856 368,800 330,422
-------------------------------------------------
Net current assets 62,915 55,850 2,406
-------------------------------------------------
Non-current liabilities
Trade and other payables 9 1,027 3,480 921
Financial liabilities 10 39,685 39,559 39,622
Deferred tax liabilities 10,833 5,555 -
Provisions 11 1,405 1,447 2,590
-------------------------------------------------
52,950 50,041 43,133
-------------------------------------------------
Net assets 232,526 209,000 200,270
-------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 12 2,358 2,343 2,345
Share premium 145,823 137,326 138,181
Treasury shares (6,424) (10,264) (10,252)
Fair value and other reserves 97,973 100,134 103,787
Retained earnings (7,713) (20,939) (34,332)
-------------------------------------------------
Total shareholders' equity 13 232,017 208,600 199,729
Minority interest in equity 509 400 541
-------------------------------------------------
Total equity 232,526 209,000 200,270
-------------------------------------------------
BENFIELD GROUP LIMITED
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSES
Unaudited for the six months ended 30 June 2006
6 months to 6 months to
30 June 2006 30 June 2005
#'000 #'000
----------------------------------
Currency translation adjustments (8,103) 5,409
Fair value losses on revaluation of available-for-sale financial assets (449) (41)
Deferred tax on revaluation of available-for-sale financial assets 135 12
Fair value gains on cash flow hedges 3,553 -
Deferred tax on fair value gains on cash flow hedges (1,066) -
----------------------------------
Net (expense)/income recognised directly in equity (5,930) 5,380
Profit for the period 63,992 44,915
----------------------------------
Total recognised income for the period 58,062 50,295
----------------------------------
Attribute to:
Equity holders of the Company 58,094 50,244
Minority interest (32) 51
----------------------------------
58,062 50,295
----------------------------------
BENFIELD GROUP LIMITED
CONSOLIDATED CASH FLOW STATEMENT
Unaudited for the six months ended 30 June 2006
6 months to 30 June 2006 6 months to 30 June 2005
------------------------------- -------------------------------
Corporate Fiduciary Total Corporate Fiduciary Total
cash cash cash cash
#'000 #'000 #'000 #'000 #'000 #'000
------------------------------- -------------------------------
Cash flows from operating activities
Cash generated from operations (note 14) 32,885 113,295 146,180 17,506 97,819 115,325
Interest received 6,388 - 6,388 3,700 - 3,700
Taxation paid (1,379) - (1,379) (8,291) - (8,291)
------------------------------- -------------------------------
Net cash generated by operating
activities 37,894 113,295 151,189 12,915 97,819 110,734
------------------------------- -------------------------------
Cash flows from investing activities
Increase of investment in subsidiaries (2,429) - (2,429) - - -
Proceeds from disposal of subsidiaries,
net of cash 607 - 607 - - -
Purchases of intangible assets (3,815) - (3,815) (1,156) - (1,156)
Purchases of property, plant and
equipment (4,768) - (4,768) (1,586) - (1,586)
Proceeds from sale of property, plant
and equipment 39 - 39 26 - 26
Increase in investments in associates - - - (925) - (925)
Proceeds from disposal of associate - - - 100 - 100
Purchases of available-for-sale
financial assets (6,239) - (6,239) (4,169) (1,009) (5,178)
Proceeds from sale of available-for-sale
financial assets 4,093 820 4,913 1,064 - 1,064
Dividends received
Net cash (used in)/generated from 84 - 84 1,866 - 1,866
------------------------------- -------------------------------
investing activities (12,428) 820 (11,608) (4,780) (1,009) (5,789)
------------------------------- -------------------------------
Cash flows from financing activities
Net proceeds from issue of common shares 12,872 - 12,872 749 - 749
Proceeds from sale of own shares 918 - 918 - - -
Repurchase of common shares (33,241) - (33,241) (6,356) - (6,356)
Proceeds from borrowings 30,134 - 30,134 - - -
Repayments of borrowings (14,357) - (14,357) (13,306) - (13,306)
Finance costs (1,630) - (1,630) (2,140) - (2,140)
Dividends paid to Company's shareholders (15,801) - (15,801) (15,254) - (15,254)
------------------------------- -------------------------------
Net cash used in financing activities (21,105) - (21,105) (36,307) - (36,307)
------------------------------- -------------------------------
Net increase in cash and cash
equivalents 4,361 114,115 118,476 (28,172) 96,810 68,638
Cash and cash equivalents at 1 January 64,995 184,496 249,491 84,668 141,590 226,258
Exchange (losses)/gains on cash and cash
equivalents (1,534) (7,708) (9,242) 2,723 4,499 7,222
------------------------------- -------------------------------
Cash and cash equivalents at 30 June 67,822 290,903 358,725 59,219 242,899 302,118
------------------------------- -------------------------------
BENFIELD GROUP LIMITED
NOTES TO THE INTERIM FINANCIAL ACCOUNTS
Unaudited for the six months ended 30 June 2006
1. BASIS OF PREPARATION
The financial information for the six months ended 30 June 2006 included in this
interim report (the "interim financial accounts") comprises the consolidated
income statement, the consolidated statement of recognised income and expenses,
the consolidated balance sheet, the consolidated cash flow statement and the
related notes.
The interim financial accounts have been prepared in accordance with the Listing
Rules of the Financial Services Authority, the International Accounting Standard
34, "Interim Financial Reporting", and the principal accounting policies and
methods of valuation set out in the Group's Annual Report and Accounts for the
year ended 31 December 2005.
The interim financial accounts are unaudited but have been reviewed by the
auditors and their review opinion is included in this interim report. The
financial information set out in this report does not constitute financial
statements of the Group for the purposes of section 84 of the Bermuda Companies
Act 1981. Financial information for the year ended 31 December 2005 included
herein has been extracted from the Group's Annual Report and Accounts for that
year, upon which the auditors have given an unqualified report. Copies of the
Annual Report and Accounts can be obtained from the Company Secretary at 55
Bishopsgate, London, EC2N 3BD.
2. SEGMENTAL REPORTING
Primary reporting format - Business segments
Based on risks and returns, the Directors consider that the Group had only one
business segment during the period, which provides reinsurance and insurance
intermediary, risk advisory and related services. Therefore the disclosure for
the primary segment has already been given in these interim financial accounts.
Divisional analysis
The Group manages its core intermediary business on the basis of three operating
divisions: International, US and Benfield Corporate Risk. The International
Division incorporates business emanating from customers located outside of the
US together with revenues from certain specialty 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 specialty lines,
and also includes the Group's corporate finance and investment advisory
businesses. Benfield Corporate Risk incorporates business emanating from
corporate insurance customers globally. This division also includes business
formerly part of the International and US Divisions that also provide
intermediary services to corporate insurance customers. The non-operating areas
of the business include the Corporate Investments Group ("CIG") which manages
the Group's portfolio of investments, and the Group Services Division which
controls expenses incurred in connection with the provision of head office and
group related activities. The analysis of revenue and trading result by division
is presented below by way of additional information:
Divisional analysis for the six months ended 30 June 2006
2006 2006 2005 2005
Revenue Trading Revenue Trading
Result Result
#'000 #'000 #'000 #'000
--------------------------------------------------------------
International 127,829 57,899 113,419 53,099
US 108,276 60,039 73,465 36,971
Benfield Corporate Risk 7,599 (9,469) 3,724 (3,838)
Corporate Investment Group 7,870 2,115 5,446 (926)
Group Services 553 (2,729) 169 (3,319)
--------------------------------------------------------------
252,127 107,855 196,223 81,987
--------------------------------------------------------------
3. SEASONALITY
Reinsurance broking revenue derived from the main property catastrophe markets
in the UK and US has a significant element of seasonality weighted towards the
first half of the year. The Group does however derive increasing amounts of
revenue from areas such as corporate insurance which has a more even pattern,
facultative reinsurance which tends to be weighted toward the second half and
advisory business which due to its one-off nature can fall in any part of the
year.
4. EXCEPTIONAL ITEMS
6 months to 6 months to
30 June 2006 30 June 2005
#'000 #'000
----------------------------------
Operating expenses
Awards granted to employees 845 2,492
----------------------------------
Income or expenditure in relation to a non-recurring event is credited or
charged to operating profit and is classified under the appropriate heading in
the income statement. Such items are disclosed separately as "exceptional" when
they are considered material, in order that the effects of these items on
operating profit can be fully appreciated.
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. In accordance with IFRS, the cost of these
awards is being spread over the 12 to 36 month vesting period from the date of
grant.
5. TAXATION
6 months to 6 months to
30 June 2006 30 June 2005
#'000 #'000
-------------------------------------
Current tax:
UK corporate tax on income for the period 4,459 18,410
Foreign tax on income for the period 4,721 3,770
-------------------------------------
9,180 22,180
Deferred tax:
Relating to the origination and reversal of temporary differences 24,631 5,239
-------------------------------------
Total tax expense 33,811 27,419
-------------------------------------
6. DIVIDENDS
6 months to 6 months to
30 June 2006 30 June 2005
#'000 #'000
-------------------------------------
Final paid in respect of 2005 - 7p (2004: 7p) per common share of 1p 15,801 15,691
-------------------------------------
Dividends amounting to #173,000 (2005: #175,000) in respect of the Company's
common shares held by employee share trusts have been deducted in arriving at
the aggregate of dividends paid.
An interim dividend in respect of 2006 of 4.0p per share (2005: 3.5p) is payable
on 15 November 2006 to shareholders who were registered at the close of business
on 13 October 2006.
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 period, 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 the
following three classes of shares which were potentially dilutive:
(i) cumulative redeemable convertible preference shares;
(ii) those share awards granted to employees where the exercise price is
less than the quoted value of the Company's common shares during the
relevant period; and
(iii) deferred share units.
Supplementary basic and diluted earnings per share have been calculated to
exclude the effect of goodwill impairment and exceptional items. The adjusted
numbers have been provided in order that the effects of these charges on
reported earnings can be fully appreciated.
6 months to 30 June 2006 6 months to 30 June 2005
--------------------------------- ---------------------------------
Weighted Weighted
Earnings average Pence average Pence
number per Earnings number per
#'000 of shares share #'000 of shares share
--------------------------------- ---------------------------------
Unadjusted earnings per share
Basic earnings per share
Earnings attributable to common
shareholders 64,003 223,374,698 28.65 44,864 224,193,565 20.01
Effect of dilutive securities
Share options 20,505,265 (2.41) 15,507,336 (1.29)
Deferred share units 5,229,902 (0.55) 2,887,976 (0.22)
Cumulative redeemable convertible
preference shares 1,263 16,000,000 (1.07) 1,263 16,000,000 (0.66)
--------------------------------- ---------------------------------
Diluted earnings per share 65,266 265,109,865 24.62 46,127 258,588,877 17.84
--------------------------------- ---------------------------------
Adjusted earnings per share
Basic earnings per share 64,003 223,374,698 28.65 44,864 224,193,565 20.01
Exceptional items 845 0.38 2,492 1.11
Tax on exceptional items (254) (0.11) (813) (0.36)
--------------------------------- ---------------------------------
Basic earnings per share excluding
exceptional items 64,594 223,374,698 28.92 46,543 224,193,565 20.76
--------------------------------- ---------------------------------
Diluted earnings per share 65,266 265,109,865 24.62 46,127 258,588,877 17.84
Exceptional items 845 0.32 2,492 0.96
Tax on exceptional items (254) (0.10) (813) (0.31)
--------------------------------- ---------------------------------
Diluted earnings per share excluding
exceptional items 65,857 265,109,865 24.84 47,806 258,588,877 18.49
--------------------------------- ---------------------------------
8. TRADE AND OTHER RECEIVABLES
At 30 June At 30 June At 31 December
2006 2005 2005
#'000 #'000 #'000
----------------------------------------------
Trade debtors 128,737 81,137 52,681
Less provision for bad debts (8,498) (10,376) (8,789)
----------------------------------------------
Trade debtors - net 120,239 70,761 43,892
Amounts due from associated undertakings 389 197 331
Other debtors 8,583 4,214 7,182
Prepayments and accrued income 9,863 15,698 13,659
----------------------------------------------
139,074 90,870 65,064
----------------------------------------------
9. TRADE AND OTHER PAYABLES
At 30 June At 30 June At 31
2006 2005 December 2005
#'000 #'000 #'000
----------------------------------------------
Current liabilities
Trade creditors 13,016 5,892 9,539
Social security payable 16,259 3,462 4,661
Retirement benefit obligations 523 365 523
Other creditors and accruals 42,021 28,747 57,705
----------------------------------------------
71,819 38,466 72,428
----------------------------------------------
Non-current liabilities
Other creditors and accruals 1,027 3,480 921
----------------------------------------------
72,846 41,946 73,349
----------------------------------------------
10. FINANCIAL LIABILITIES
At 31
At 30 June At 30 June December
2006 2005 2005
#'000 #'000 #'000
---------------------------------------------
Current
Unsecured bank loans 30,154 27,433 14,381
Derivative instruments - - 1,717
---------------------------------------------
30,154 27,433 16,098
---------------------------------------------
Non-current
Cumulative redeemable convertible preference shares 39,685 39,559 39,662
Bank loans
The bank loan facilities at 31 December 2005 comprised a #75 million term loan
facility, which was repayable in instalments between 18 December 2003 and 18
June 2006, and a #50 million revolving loan facility, which was also available
until 18 June 2006. These facilities were repaid and cancelled on 31 March 2006,
being replaced by a new #100m multicurrency revolving loan facility agreement at
that date. The new facility is available until 31 March 2011, and loan interest
is payable at the current LIBOR rate, plus a margin.
The fair value of bank loans reflects the loan principals of US$10 million and
#25 million drawn on the new facilities at 30 June 2006 and US$50 million and
US$25 million held at 30 June 2005 and 31 December 2005 respectively, adjusted
for any unamortised arrangement fees.
11. PROVISIONS
Litigation Property
and disputes related Other Total
#'000 #'000 #'000 #'000
-----------------------------------------------------------------
At 1 January 2006 1,013 5,090 1,000 7,103
Exchange adjustments (17) (31) - (48)
Transfer to income statement 645 14 - 659
Utilised in period (458) (223) (1,000) (1,681)
-----------------------------------------------------------------
At 30 June 2006 1,183 4,850 - 6,033
-----------------------------------------------------------------
Provisions have been analysed between current and non-current as follows:
At 30 June At 30 June
2006 2005
#'000 #'000
------------------------------------
Current 4,628 1,112
Non-current 1,405 1,447
------------------------------------
6,033 2,559
------------------------------------
Litigation and disputes
In the ordinary course of the Group's business it can be subject to claims for
alleged errors and omissions made in connection with its broking activities.
The Group has recognised provisions in respect of claims for errors and
omissions and other legal disputes, together with anticipated legal costs to the
extent that any liabilities that arise from such exposures are deemed probable.
Where appropriate, provisions are recorded gross and a separate asset is
established to reflect anticipated recoveries under Group insurance policies.
Due to the differing nature and circumstances of these liabilities it is not
possible to make an overall assessment of when such liabilities are likely to
result in a payment being made, if at all.
Property related
On the acquisition of EW Blanch, the Group inherited certain vacant and partly
sub-let leasehold properties, primarily arising from restructuring undertaken by
EW Blanch prior to the acquisition. These properties are principally located in
the United Kingdom and the United States. In addition, subsequent to its
acquisition of EW Blanch, the Group rationalised and consolidated its property
space. Provision has been made for the residual lease commitments, or early
termination costs, together with any related outgoings, after taking into
account the economic benefits of these commitments to the Group.
Provision has also been made for the estimated costs involved in returning a
leasehold property at the end of the lease into its original state. This
obligation arises under the terms of the lease agreement.
Other
Other provisions comprised of an amount of #1,000,000 in respect of options
granted over 20% of the share capital of the Group's benefits consulting
business. These options were exercised in April 2006.
12. SHARE CAPITAL
At 30 June At 30 June At 30 June At 30 June
2006 2005 2006 2005
Number Number #'000 #'000
--------------------------------------------------------------
Authorised
Common shares of 1p 500,000,000 500,000,000 5,000 5,000
--------------------------------------------------------------
Allotted, called up and fully paid
At 1 January 234,555,001 235,543,704 2,345 2,355
Repurchased and cancelled (9,519,000) (2,425,000) (95) (24)
Allotted to employees 10,809,101 1,172,509 108 12
--------------------------------------------------------------
At 30 June 235,845,102 234,291,213 2,358 2,343
--------------------------------------------------------------
Changes to share capital during the six months to 30 June 2006
During the period, 9,519,000 (2005: 2,425,000) common shares of 1p each
representing 4% (2005: 1%) of the issued share capital of the Company were
repurchased for aggregate consideration, including expenses, of #33,241,000
(2005: #6,356,000) and were subsequently cancelled.
A total of 1,159,372 (2005: 371,078) common shares of 1p each were allotted to
satisfy deferred share units that vested and were distributed during the period.
A total of 9,637,529 (2005: 801,431) common shares of 1p each were allotted on
the exercise of options by employees during the period, for an aggregate
consideration of #7,739,000 (2005: #750,000).
13. STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
Share Share Treasury Fair value Retained Total
capital premium shares and other earnings
reserves
#'000 #'000 #'000 #'000 #'000 #'000
------------------------------------------------------------------------
Balance at 1 January 2005 2,355 136,585 (10,284) 94,730 (50,375) 173,011
Total recognised income for the period - - - 5,380 44,864 50,244
Dividend - - - - (15,666) (15,666)
Provision for share awards - - - - 6,568 6,568
Shares issued to employees 12 741 20 - 26 799
Repurchase and cancellation of own shares (24) - - 24 (6,356) (6,356)
------------------------------------------------------------------------
Balance at 30 June 2005 2,343 137,326 (10,264) 100,134 (20,939) 208,600
Total recognised expense for the period - - - 3,643 (10,150) (6,507)
Dividend - - - - (7,741) (7,741)
Provision for share awards - - - - 7,407 7,407
Shares issued to employees 12 855 12 - 19 898
Repurchase and cancellation of own shares (10) - - 10 (2,928) (2,928)
------------------------------------------------------------------------
Balance at 31 December 2005 2,345 138,181 (10,252) 103,787 (34,332) 199,729
Total recognised income for the period - - - (5,909) 64,003 58,094
Dividend - - - - (15,801) (15,801)
Provision for share awards - - - - 9,376 9,376
Shares issued to employees 108 7,642 3,392 - 1,800 12,942
Repurchase and cancellation of own shares (95) - - 95 (33,241) (33,241)
Proceeds on disposal of own shares - - 436 - 482 918
------------------------------------------------------------------------
Balance at 30 June 2006 2,358 145,823 (6,424) 97,973 (7,713) 232,017
------------------------------------------------------------------------
14. CASH FLOW FROM OPERATING ACTIVITIES
Reconciliation of operating profit to net cash inflow from operating activities:
6 months to 6 months to
30 June 2006 30 June 2005
#'000 #'000
-------------------------------------
Continuing operations
Profit for the period 63,992 44,915
Adjusted for:
Taxation 33,811 27,419
Depreciation, amortisation and impairment charges 4,415 6,028
Fair value (gains)/losses through income statement (1,208) 1,689
Gain on disposal of subsidiary operations (311) -
Gain on sale of available-for-sale financial assets (204) -
Loss on disposal of property, plant and equipment 8 -
Cost of shares gifted during the period 70 50
Cost of share options issued 7,058 6,568
Interest income (6,388) (3,700)
Investment income (84) (1,866)
Finance costs 4,844 2,174
Share of losses of associated undertakings 32 825
Increase in trade and other receivables (73,545) (53,700)
Increase in payables 426 (11,191)
Decrease in provisions (22) (549)
Exchange translation differences (9) (1,156)
-------------------------------------
Corporate cash generated from operations 32,885 17,506
Increase in insurance broking creditors 105,587 102,319
Exchange translation differences 7,708 (4,500)
-------------------------------------
Cash generated from operations 146,180 115,325
-------------------------------------
15. CONTINGENT LIABILITIES
Lloyd's New Central Fund Arbitration
In April 2003, the Society of Lloyd's ("Lloyd's") commenced arbitration
proceedings against six insurers for recovery of claims of approximately #500
million made under an insurance contract to support the New Central Fund ("the
NCF Insurance"). The NCF Insurance was placed by the Company's UK subsidiary,
Benfield Limited, together with another broker, Aon. In August 2005, the
arbitration panel ("the Panel") heard evidence given on behalf of Lloyd's and
one of the insurers, Swiss Re.
In January 2005, the Panel made a partial award in respect of the dispute
between Lloyd's and Swiss Re. It found in favour of Lloyd's on the issue of
proper interpretation of the wording of the policy. However, it was also found
that with respect to the presentation of the risk, Swiss Re was prima facie
entitled to avoid the policy. In March 2005 after the conclusion of the second
part of the hearing of the arbitration Panel, but before the Panel delivered a
final award, Lloyd's reached a settlement with all six insurers. Lloyd's press
announcement dated 14 March 2005 stated that the settlement was on terms that
the insurers pay Lloyd's a total of #152 million.
On 3 February 2006, Lloyd's announced that it would issue proceedings against
Aon and Benfield to recover its insurance shortfall of #325 million. It served
those proceedings on 6 March 2006. The Company served its defense to the Lloyd's
claims on 6 July 2006 and it intends to continue to defend those proceedings
vigorously. The Company has taken advice from leading counsel, and on the basis
of legal advice it has received, the Company takes the view that this matter
will not result in material liability to it.
BENFIELD GROUP LIMITED
INDEPENDENT REVIEW REPORT TO BENFIELD GROUP LIMITED
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2006 which comprises the consolidated interim
balance sheet as at 30 June 2006 and the related consolidated interim statements
of income, cash flows and changes in shareholders' equity for the six months
then ended and related notes. We have read the other information contained in
the interim report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The Listing Rules
of the Financial Services Authority require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.
This interim report has been prepared in accordance with the International
Accounting Standard 34, 'Interim financial reporting'.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, 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.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
London
7 September 2006
Notes:
(a) The maintenance and integrity of the Benfield Group Limited web site is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the web site.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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