RNS Number : 8182A
Benfield Group Limited
07 August 2008
7 August 2008
BENFIELD GROUP LIMITED
Interim results for the six months to 30 June 2008
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 2008.
Financial Summary
* Group revenue �233.0m (2007: �242.7m), a decrease of 4.0%
* Group operating expenses (1) �133.9m (2007: �141.3m), a decrease of 5.2%
* Group trading result (2) �101.6m (2007: �102.0m), a decrease of 0.4%
* Group trading margin (3) increased to 43.6% (2007: 42.0%)
* Profit before tax �87.7m (2007: �92.3m), a decrease of 5.0%
* Basic earnings per share 28.3p (2007: 28.8p)
* Adjusted diluted earnings per share (1) 25.8p (2007: 26.1p)
* Interim dividend 4p per share (2007: 4p)
(1) Adjusted for exceptional items
(2) Trading result comprises operating profit from continuing operations before depreciation, amortisation and impairment charges and
exceptional items
(3) Trading margin represents trading result as a percentage of operating revenue
Highlights
* International Division demonstrating continued growth in difficult markets - strong performance from European, Global Facultative
and ReMetrics teams
* US Division continuing to lead the market in capital markets catastrophe solutions through Benfield Advisory
* Benfield Corporate Risk increased Marine, Energy and Power revenues by a further 30%
* Significant progress made towards annualised �15m cost savings target for 2009
* During the period, the Group returned �31.2m to shareholders by way of the share buy-back programme announced in December 2007
Grahame Chilton, Chief Executive of Benfield, commented, "As expected, adverse trends in reinsurance and insurance pricing continued in
the first half of the year. Despite this, the International Division produced an excellent result and Benfield Corporate Risk maintained
its strong new business growth. We have made good progress with our cost savings initiative and continue to expect our reported trading
result for the full year to be marginally below that achieved in 2007. We remain committed to delivering value to shareholders through our
long-term goal of growth across cycles and I am confident of the Group's prospects for future progress."
Trading result
2008 2007 Growth
�m �m %
Revenue
International 127.9 120.4 +6.2%
US 85.2 102.5 -16.9%
Benfield Corporate Risk 15.5 14.2 +9.2%
Corporate Investment Group 4.0 4.9 -18.4%
Group Services 0.4 0.7 -42.9%
Group revenue 233.0 242.7 -4.0%
Trading result
International 63.2 53.6 +17.9%
US 43.2 56.2 -23.1%
Benfield Corporate Risk (3.0) (4.6) +34.8%
Corporate Investment Group (0.8) (1.0) +20.0%
Group Services (1.0) (2.2) +54.5%
Group trading result 101.6 102.0 -0.4%
Trading margin
International 49.4% 44.5%
US 50.7% 54.8%
Group trading margin 43.6% 42.0%
Earnings per share - basic 28.3p 28.8p
- diluted 25.3p 25.8p
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
David Haggie Haggie Financial +44 (0) 20 7417 8989
Benfield is the world's leading specialist 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 50 locations worldwide.
Benfield is listed on the London Stock Exchange under the ticker symbol BFD. www.benfieldgroup.com.
Review of performance
During the first half of 2008, reinsurance market conditions continued to soften, as anticipated, with insurance and reinsurance pricing
declining further. Sterling remained strong against the US dollar but the weakening of sterling against the Euro, Yen and other currencies
provided some benefit to the Group result. Lower interest rates had an adverse impact on income earned on both corporate and fiduciary
funds.
New business growth, particularly in Europe and Global Facultative Solutions, gave rise to a very pleasing increase of over 6% in
revenue for the International Division. In the US Division, first half revenues were significantly impacted by a number of multi-year
contracts where the majority of revenue was recognised in earlier accounting periods, together with a slower start to the year by Benfield
Advisory. Benfield Corporate Risk (BCR) continues to grow its revenues and within the Marine, Energy and Power sector, revenue grew by a
further 30%.
All of these factors contributed to a 4.0% reduction in revenue from �242.7m in 2007 to �233.0m in 2008, which represented a 5.8%
reduction on a constant currency basis.
Management remains focused on cost control and for the first half of the year Group operating expenses decreased from �141.3m to
�133.9m, a reduction of 5.2%, or 4.4% on a constant currency basis. This produced a trading result of �101.6m, marginally below the prior
year, and an improvement in trading margin from 42.0% to 43.6%.
Benfield has experienced little direct impact from the global credit crunch. As observed in the year end statement, the sub-prime crisis
appears to have confirmed to investors the attraction of high yielding, uncorrelated reinsurance risk within an investment portfolio.
Benfield continues to develop innovative approaches to create catastrophe capacity via the expanding interface between reinsurance and
the capital markets. In the first half of 2008, Benfield Advisory acted as adviser on the launch of Globe Re, a new limited-life
reinsurance vehicle that will participate in a portfolio of US property catastrophe risks sponsored by Hannover Re. During the period under
review, Benfield Advisory also acted as adviser to the formation of Juniperus Insurance Opportunity Fund (Juniperus), a fund focused on
collateralised reinsurance and insurance-linked securities markets.
The Group continues to review the membership of its Board in order to meet its strategic objectives and corporate governance
responsibilities. In this regard, on 25 June 2008 the Group announced the appointment of Bill Riker as a Non-Executive Director with effect
from 1 September 2008. Bill's extensive experience in the converging reinsurance and capital markets will be a great asset to the business.
International Division
2008 2007 Growth
�m �m %
Revenue 127.9 120.4 +6.2%
Trading result 63.2 53.6 +17.9%
Trading margin 49.4% 44.5%
During the period under review, International Division revenues increased by 6.2% to �127.9m, an increase of 2.2% on a constant currency
basis. Cost control contributed to a significantly improved trading result of �63.2m, an increase of 17.9%, and an improved trading margin
of 49.4%, up from 44.5% in the prior year.
Reinsurance rates in most territories and in Specialty and Facultative lines continued to fall, but in most areas have yet to reach a
level which encourages significant additional reinsurance purchasing. Following January 1 renewals, when rates fell by between 5% and 20%
depending on sector, the other principal International Division renewal during the first half of 2008 was the Japanese market, where rates
fell by between 0% and 5% overall.
Despite the continued downward trend in rates, the International Division achieved a strong overall result with a particularly good
performance from the European team, reflecting substantial additional business from both new and existing customers, notably Benfield's
appointment as sole broker on one of the largest property catastrophe programmes in the European market.
Global Facultative Solutions also performed well with new business in Europe, Australia and Bermuda contributing to revenue growth of more
than 40%.
During the first half of 2008, Benfield further expanded its Latin American presence with a new office in Puerto Rico. Furthermore, Latin
American and Caribbean revenues continued to grow, and the Caribbean Catastrophe Risk Insurance Facility, which Benfield helped to establish
and reinsure on behalf of CARICOM under the guidance of the World Bank in 2007, expanded its scope to encompass two more Caribbean islands
in addition to the original 16.
The Brazilian market officially opened to external reinsurers in April 2008. Benfield has had an office in Brazil since 1999 and is
already broker to three of the top four Brazilian insurers. This long-awaited liberalisation greatly enhances Benfield's growth
opportunities in this market. In Asia, Benfield continued to expand its network with the opening of a Malaysian office.
Global Specialty revenues were down slightly, reflecting continued softness in the marine market and lower demand for retrocessional
reinsurance.
The performance of ReMetrics was impressive with strong growth in sales of Benfield's proprietary ReMetrica* software and continued
expansion of the customer base to include non-(re)insurance entities.
US Division
2008 2007 Growth
�m �m %
Revenue 85.2 102.5 -16.9%
Trading result 43.2 56.2 -23.1%
Trading margin 50.7% 54.8%
US Division revenue decreased to �85.2m in the period, a reduction of 16.9% on the prior period, or 16.1% on a constant currency basis.
While weaker reinsurance pricing had some impact on the level of underlying brokerage, reinsurance broking revenue was significantly reduced
due to a number of multi-year contracts where the brokerage was earned in prior periods. A reduction in Benfield Advisory's revenues also
contributed to the shortfall against last year, as did the significant reduction in US interest rates which adversely affected interest
income. These factors contributed to a reduction in trading result to �43.2m from �56.2m in the prior year, and a lower trading margin of
50.7%.
Reinsurance pricing softened further and high levels of risk retention remained a feature of the market, although demand for peak
catastrophe coverage continued to increase. Mid-year property catastrophe renewals showed price falls of approximately 10% to 15% overall,
with capacity readily available. Casualty renewals showed price decreases of 5% to 10% for general casualty business including Workers'
Compensation, and the casualty reinsurance market continued to soften, although at a slower pace than the primary market. Capacity remained
abundant for all lines of casualty business with increased competition for regional and specialty carriers.
Benfield further strengthened its leading position in the Florida and South-Eastern US property catastrophe market with several
substantial new business wins including two state-supported government entities, Louisiana Citizens Property Insurance Corp. and Citizens
Property Insurance Corp. in Florida. These two placements combined required almost US$1 billion of capacity, much of which Benfield
Advisory sourced in the capital markets.
Benfield Advisory's revenues for the first half of 2008 were significantly lower than for the same period last year at �1.6 million
(2007: �8.1 million). The first half last year benefited from a major corporate finance transaction and revenue generated by Benfield
Advisory's leading position in the provision of trust-preferred funding for insurers. This revenue stream was adversely affected by a
reduction in activity due to the global credit crisis. In addition to the Globe Re and Juniperus transactions previously mentioned, Benfield
Advisory worked closely with the reinsurance broking teams on risk transfer and capital provision for a range of Benfield customers. The
timing of completion of transactions within Benfield Advisory is difficult to predict, but despite the slow first half, the Group continues
to expect a satisfactory result from Benfield Advisory for the full year.
Benfield Corporate Risk
2008 2007 Growth
�m �m %
Revenue 15.5 14.2 +9.2%
Trading result (3.0) (4.6) +34.8%
Trading margin -19.4% -32.4%
BCR continued to demonstrate growth in revenue, which increased by 9.2% to �15.5m in the period, or 6.3% on a constant currency basis.
The trading loss reduced to �3.0m for the first half from �4.6m in the prior period.
BCR's business sectors comprise Marine, Energy and Power (MEP), Aviation, Space and Property and Casualty wholesale. In most of the
areas targeted by BCR, insurance market pricing declined amid plentiful capacity. Benfield estimates that capacity in the marine, energy
and power markets is at its highest and premiums at their lowest since 2001.
Strong new business growth in MEP in the first half of the year was reflected in revenue growth of over 30%. BCR had already
established a strong position in the oil Exploration and Production (E&P) sector and benefited from increased E&P and construction activity
due to the higher oil price. Major shipping companies continued to select BCR as their broker and the customer base expanded to include oil
field services companies in Norway, Houston and London. BCR secured a number of significant new mainstream marine and energy accounts in
the first half of 2008, in particular strengthening its position in the Korean shipping market and winning new business in the Indian energy
market.
Retention of existing business at renewal remained high throughout BCR's portfolio and this underpinned revenue growth. The ability to
access the specialist expertise in Benfield's reinsurance broking business, particularly the ReMetrics and Global Facultative teams, remains
an important differentiator for BCR which continues to contribute to new business development.
The overall performance of BCR was affected by a weaker than expected performance from the Aviation and Space segments. Aviation
revenues were down relative to last year's first half, reflecting further weakness in pricing. Revenue from the Space business was held
back by delays to two satellite launches planned for early 2008, which are now expected to take place in the second half of the year. The
property and casualty wholesale business was adversely affected by increased retention of risk in the US market.
Corporate Investment Group
2008 2007 Growth
�m �m %
Revenue 4.0 4.9 -18.4%
Trading result (0.8) (1.0) +20.0%
Trading margin -20.0% -20.4%
The role of the Corporate Investment Group (CIG) is to manage the Group's portfolio of non-core businesses and investments, although CIG
results consist solely of Paragon (a reinsurance administration and asset recovery services company).
CIG's revenue decreased from �4.9m to �4.0m for the period, while the trading loss decreased from �1.0m in 2007 to �0.8m in 2008.
Benfield's capital markets capabilities create unique investment opportunities for the Group. Benfield's strategy is to make selected
investments managed by the CIG where, through Benfield Advisory's lead role in transactions, Benfield can generate superior returns. In
accordance with this strategy, in May 2008 Benfield invested US$50m into Juniperus and in June 2008 invested US$20.5m into Globe Re.
Operating expenses
2008 2007 Growth
�m �m %
General and administrative expenses (1)
Staff costs 98.6 102.3 -3.6%
Travel and entertaining 9.5 9.5 0.0%
Premises 9.3 8.4 +10.7%
Other 16.5 21.1 -21.8%
Total 133.9 141.3 -5.2%
(1) Excluding exceptional items
Overall operating expenses reduced by 5.2% (4.4% on a constant currency basis) from �141.3m in 2007 to �133.9m in 2008. The 3.6%
reduction in staff costs during the first half of 2008 reflects the continued focus on cost control in the period and the phasing of staff
incentives. The reductions made in the area of travel and entertaining were maintained in the period and further reductions are anticipated
in the second half. Premises costs increased as a result of the expansion into new territories within the International Division, while the
reduction in other costs reflects the benefit of procurement savings and positive foreign exchange movements.
During the period, the Group made significant progress towards the target of annualised savings of �15 million in 2009, which was
announced at the time of the Preliminary Results in March 2008. To date, savings have been achieved by further staff rationalisation, a
review of pension benefits in the UK and more efficient procurement.
Benfield is currently undertaking a feasibility study regarding the outsourcing of some of its service provision in line with the
Group's goal of delivering high quality services as efficiently as possible. The study is scheduled to conclude towards the end of the
year.
Dividend
The Board has declared an interim dividend of 4p (H1 2007: 4p) to be paid on 26 September 2008 to shareholders on the register on 29
August 2008.
Foreign exchange
The Group's principal foreign currency exposure is to US dollars, Euro and Yen, arising from results of overseas operations and from
revenues earned in the UK. These currencies represented 60%, 17% and 5% respectively of the Group's revenues in the period.
For the six months ended 30 June 2008, the Group achieved a rate of US$1.98 (2007: US$1.85) in respect of dollars earned in the UK.
Income in the US was translated at an average rate of US$1.97 (2007: US$1.97). For Euro the respective rates were EUR1.33 (2007: EUR1.49)
for UK earned revenue and EUR1.29 (2007: EUR1.48) for the translation of overseas income. For Yen the respective rates were Yen197 (2007:
Yen222) for UK earned revenue and Yen207 (2007: Yen236) for the translation of overseas income.
In the UK, the Group enters into foreign exchange 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 trading currencies and at least 25% of forecast exposure for the following financial year, dependent upon prevailing market
conditions.
Liquidity and capital resources
Net assets increased by 12.1% from �149.8m as at 31 December 2007 to �167.9m as at 30 June 2008. Net debt rose to �130.8m as at 30 June
2008 compared to �76.2m as at 31 December 2007. Net debt comprises available corporate funds of �49.8m, less borrowings of �180.6m.
During the period, the Group successfully completed the syndication of its new five year �300m multi-currency credit facility maturing
December 2012.
The Group has continued with the two year �150m share buy-back programme announced in December 2007. During the period under review, a
further 11.9 million shares were bought back at a cost, excluding commission, of �31.2m. The Group has bought back �38.0m of shares since
commencing this latest programme.
Outlook
The strong performance from International and BCR against a background of difficult market conditions, combined with a focus on cost
control, enable us to reaffirm our expectation that reported trading profit for the full year will be marginally below that achieved in
2007. Our longer term focus remains on positioning the Group at the forefront of the changes taking place in our marketplace in order to
maximise the many opportunities for innovation and profitable growth.
CONSOLIDATED INCOME STATEMENT
Unaudited results for the six months ended 30 June 2008
Notes 6 months to 30 June 6 months to 30 June 2007
2008 �'000
�'000
Commission and fees 227,941 236,206
Interest income 5,011 6,474
Total revenue 2 232,952 242,680
Other operating income 2,494 10,240
Operating expenses (135,727) (152,122)
Depreciation, amortisation and (5,673) (4,928)
impairment charges
Operating profit 94,046 95,870
Analysed as:
Trading result 2 101,571 101,975
Depreciation, amortisation and (5,673) (4,928)
impairment charges
Exceptional items 4 (1,852) (1,177)
Operating profit 94,046 95,870
Finance income - 5
Finance costs (6,393) (3,587)
Profit before taxation 87,653 92,288
Taxation 5 (29,802) (29,921)
Profit for the period 57,851 62,367
Attributable to:
Equity holders of the Company 57,659 62,281
Minority interest 192 86
57,851 62,367
Earnings per 1p common share
Basic 6 28.31p 28.81p
Diluted 6 25.29p 25.80p
Dividends per 1p common share
Final paid 7 9p 8p
Interim proposed 7 4p 4p
13p 12p
CONSOLIDATED BALANCE SHEET
Unaudited as at 30 June 2008
ASSETS Notes At 30 June 2008 At 30 June 2007 At 31 December 2007
�'000 �'000 �'000
Non-current assets
Goodwill 156,642 154,151 155,862
Intangible assets 20,131 21,371 21,753
Property, plant and equipment 12,154 12,725 12,414
Investment in associated 8 25,144 - -
undertakings
Assets held-for-sale 9 76,712 - -
Financial assets 30,207 31,743 31,497
Deferred tax assets 1,116 2,219 2,716
322,106 222,209 224,242
Current assets
Trade and other receivables 10 149,973 145,699 78,830
Financial assets 859 4,473 945
Cash and cash equivalents 49,823 48,592 41,822
200,655 198,764 121,597
Fiduciary financial assets 15,086 14,992 15,032
Fiduciary cash and cash 276,518 272,312 162,767
equivalents
492,259 486,068 299,396
LIABILITIES
Current liabilities
Trade and other payables 11 55,380 54,212 42,624
Insurance broking creditors 291,604 287,304 177,799
Financial liabilities 12 41,104 218 20,946
Current tax liabilities 41,280 47,854 23,132
Provisions 13 1,482 3,016 2,280
430,850 392,604 266,781
Net current assets 61,409 93,464 32,615
Non-current liabilities
Trade and other payables 11 3,786 1,449 940
Financial liabilities 12 142,435 114,503 98,282
Liabilities directly 9 60,091 - -
associated with assets
held-for-sale
Deferred tax liabilities 4,863 - 2,560
Provisions 13 4,454 5,458 5,279
215,629 121,410 107,061
Net assets 167,886 194,263 149,796
SHAREHOLDERS' EQUITY
Share capital 14 2,107 2,254 2,204
Share premium 147,636 147,337 147,586
Treasury shares (16,136) (16,976) (16,357)
Fair value and other reserves 89,412 89,608 90,206
Retained earnings (61,992) (28,401) (74,346)
Total shareholders' equity 15 161,027 193,822 149,293
Minority interest in equity 6,859 441 503
Total equity 167,886 194,263 149,796
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSES
Unaudited for the six months ended 30 June 2008
6 months to 30 June 6 months to 30 June
2008 2007
�'000 �'000
Currency translation 988 (1,696)
adjustments
Fair value (loss)/gain on (1,240) 267
revaluation of
available-for-sale financial
assets
Deferred tax on revaluation of 372 (80)
available-for-sale financial
assets
Fair value losses on cash flow (1,550) (2,976)
hedges
Deferred tax on fair value 488 893
losses on cash flow hedges
Net loss recognised directly (942) (3,592)
in equity
Profit for the period 57,851 62,367
Total recognised income for 56,909 58,775
the period
Attributable to:
Equity holders of the Company 56,865 58,698
Minority interest 44 77
56,909 58,775
CONSOLIDATED CASH FLOW STATEMENT
Unaudited for the six months ended 30 June 2008
6 months to 30 June 2008 6 months to 30 June 2007
Corporate Fiduciary Total Corporate Fiduciary Total
�'000 �'000 �'000 �'000 �'000 �'000
Cash flows from operating
activities
Cash generated from operations 37,755 109,240 146,995 27,325 71,350 98,675
(note 16)
Interest received 4,996 - 4,996 6,474 - 6,474
Taxation paid (7,173) - (7,173) (8,834) - (8,834)
Net cash generated by 35,578 109,240 144,818 24,965 71,350 96,315
operating activities
Cash flows from investing
activities
Acquisition of subsidiaries, (10,309) - (10,309) (478) - (478)
net of cash acquired
Proceeds from disposal of - - - 210 - 210
subsidiaries, net of cash
Purchase of investment in (25,144) - (25,144) - - -
associated undertakings
Purchases of intangible assets (1,366) - (1,366) (3,658) - (3,658)
Purchases of property, plant (2,457) - (2,457) (1,912) - (1,912)
and equipment
Proceeds from sale of 37 - 37 1,283 - 1,283
property, plant and equipment
Purchases of financial assets (101) - (101) (7,688) - (7,688)
Proceeds from sale of 2,357 - 2,357 4,732 321 5,053
financial assets
Dividends received 577 - 577 5 - 5
Net (cash used in)/generated (36,406) - (36,406) (7,506) 321 (7,185)
by investing activities
Cash flows from financing
activities
Net proceeds from issue of 168 - 168 557 - 557
common shares
Repurchase of common shares (31,287) - (31,287) (15,076) - (15,076)
Proceeds from borrowings 61,796 - 61,796 24,990 - 24,990
Finance costs (4,730) - (4,730) (3,489) - (3,489)
Dividends paid to Company's (18,297) - (18,297) (17,140) - (17,140)
shareholders
Net cash used in financing 7,650 - 7,650 (10,158) - (10,158)
activities
Net increase in cash and cash 6,822 109,240 116,062 7,301 71,671 78,972
equivalents
Cash and cash equivalents at 1 41,822 162,767 204,589 43,261 200,968 244,229
January
Exchange gains/(losses) on 1,179 4,511 5,690 (1,970) (327) (2,297)
cash and cash equivalents
Cash and cash equivalents at 49,823 276,518 326,341 48,592 272,312 320,904
30 June
NOTES TO THE INTERIM FINANCIAL ACCOUNTS
Unaudited for the six months ended 30 June 2008
1. BASIS OF PREPARATION
The financial information for the six months ended 30 June 2008 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 Disclosure and Transparency Rules and the Listing Rules of the
Financial Services Authority, 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 2007 with the addition of IFRS 5,
"Non-current assets held-for-sale and discontinued operations", which is applicable to the Group for the first time in the current financial
period.
Non-current assets held-for-sale
Non-current assets classified as assets held-for-sale are stated at the lower of carrying amount and fair value less costs to sell if
their carrying amount is to be recovered principally through a sale transaction rather than through continuing use.
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 2007 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
Division structure
Benfield*s principal business is insurance and reinsurance broking. The Group manages its core intermediary business on the basis of
three operating divisions: International, US and Benfield Corporate Risk (BCR).The International Division incorporates reinsurance business
from customers located outside the US together with revenue from certain specialty teams which operate on a global basis. The US Division
encompasses the Group*s reinsurance business from customers located in mainland US, excluding revenue from those global specialty lines. The
US Division also includes Benfield Advisory, the Group*s corporate finance and investment advisory business. BCR incorporates business from
corporate insurance customers globally.
The non-intermediary areas of the business include the Corporate Investment Group (CIG), which manages the Group's portfolio of non-core
businesses and investments, and the Group Services Division which controls expenses incurred in connection with the provision of head office
and Group related support activities.
Division results analysis:
6 months to 30 June 2008 6 months to 30 June 2007
Revenue Trading result Revenue Trading result
�'000 �'000 �'000 �'000
International 127,870 63,232 120,421 53,642
US 85,181 43,205 102,541 56,159
BCR 15,485 (2,989) 14,160 (4,592)
CIG 3,950 (890) 4,887 (1,050)
Group Services 466 (987) 671 (2,184)
232,952 101,571 242,680 101,975
The measurement of revenue for divisional analysis is consistent with that in the income statement.
6 months to 30 June 2008 6 months to 30 June 2007
�'000 �'000
Revenue by category
Reinsurance broking 207,480 209,660
Corporate insurance broking 14,873 13,783
Corporate finance and 1,617 8,092
investment advisory services
Other 3,971 4,671
Total commission and fees 227,941 236,206
Interest income 5,011 6,474
Total revenue 232,952 242,680
The Group uses 'Trading result' to assess the financial performance of each Division. Trading result comprises operating profit from
continuing operations before goodwill impairment, amortisation of intangible assets, depreciation of property plant and equipment and
exceptional items. Finance income and costs are not allocated to Divisions as liquidity and capital resources are managed by the Group's
central treasury function.
Interest income, which is included within total revenue, depreciation and amortisation and exceptional items are allocated to the
Divisions as follows:
6 months to 30 June 2008 6 months to 30 June 2007
Interest income Depreciation and Exceptional items Interest income Depreciation and Exceptional items
�'000 amortisation �'000 �'000 amortisation �'000
�'000 �'000
International 2,765 3,307 (1,051) 3,810 2,383 (2,507)
US 1,190 931 (151) 1,400 1,428 -
BCR 611 1,006 (3) 377 614 (206)
CIG 97 419 (53) 216 490 -
Group Services 348 10 (594) 671 13 1,536
5,011 5,673 (1,852) 6,474 4,928 (1,177)
Depreciation and amortisation charges have been allocated to each Division without a corresponding allocation of the related assets.
Property, plant and equipment and software are allocated solely to the Group Services Division as it is responsible for their maintenance
and the control of capital expenditure on those assets. The charge is allocated based on estimated utilisation of those assets. Customer
relationships, intangible assets and related amortisation charges are allocated to the Division of the acquired business.
Division assets analysis
At 30 June 2008 At 30 June 2007
�'000 �'000
International 284,870 247,707
US 275,301 305,189
BCR 32,465 27,033
CIG 137,366 36,744
Group Services 82,355 86,277
812,357 702,950
The measurement of total assets for Division analysis is consistent with that in the Group balance sheet. Assets are allocated based on
the operations of the Division. Derivative financial instruments are not allocated to Divisions and are excluded from the analysis above as
these are managed by the Group's central treasury function.
Reconciliation of Divisional total assets:
At 30 June 2008 At 30 June 2007
�'000 �'000
Divisional total 812,357 702,950
Unallocated assets:
Deferred tax assets 1,116 2,219
Derivative instruments 892 3,108
Total assets 814,365 708,277
Geographical analysis
The Company is incorporated in Bermuda; however central management and control reside in the UK, and the Company is therefore domiciled
in that country. Commission and fees and non-current assets attributed to the UK and other locations are given below. Commission and fees
are allocated based on customer location. Non-current assets attributed to each location exclude financial instruments and deferred tax and
are allocated on the basis of their location.
Commission and fees Non-current assets
6 months to 30 June 6 months to 30 June At 30 June 2008 At 30 June 2007
2008 2007 �'000 �'000
�'000 �'000
UK 35,447 35,472 16,618 19,222
US 92,061 110,348 255,633 152,485
Continental Europe 53,897 51,155 12,954 12,226
Other 46,536 39,231 5,578 4,314
227,941 236,206 290,783 188,247
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 30 June 2008 6 months to 30 June 2007
�'000 �'000
Other operating income
Facultative settlement - 9,689
Operating expenses
Litigation settlement - (8,153)
Restructuring costs (1,852) (2,713)
(1,852) (10,866)
Exceptional items (net) (1,852) (1,177)
Facultative settlement
In October 2006, the Group announced the resignation of a number of senior members of its Facultative Solutions team. As a result of
these resignations, the Group found it necessary to initiate processes to protect its business interests, including legal proceedings and
the enforcement of employee contractual obligations. In March 2007, the Group entered an agreement to withdraw from the legal proceedings
and release the former employees from their contractual obligations in consideration for a payment of �9,525,000. This consideration,
together with the release of associated costs previously provided for, is recorded as other operating income in 2007.
Litigation settlement
In June 2007, the Group reached a settlement with Lloyd's in relation to the New Central Fund dispute, details of which were given in
the accounts for the year ended 31 December 2006. The charge in 2007 represents the gross consideration payable to Lloyd's offset by
recoveries under the Group's Errors and Omissions insurance policies.
Restructuring costs
In 2007, the Group initiated a restructuring programme, which included the termination of a number of roles in certain areas of the
business. This expense represents the costs arising from this programme during the period.
5. TAXATION
Major components of tax expense
6 months to 30 June 6 months to 30 June 2007
2008 �'000
�'000
Current tax:
UK corporate tax on income for 15,565 15,318
the period
Foreign tax on income for the 12,583 14,352
period
Adjustments in respect of (2,809) (2,200)
previous periods
25,339 27,470
Deferred tax:
Relating to the origination 4,463 2,451
and reversal of temporary
differences
Total tax expense 29,802 29,921
6. 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 price 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 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 2008 6 months to 30 June 2007
Earnings Weighted average Pence per share Earnings Weighted average Pence per share
�'000 number of shares �'000 number of shares
Unadjusted earnings per share
Basic earnings per share
Earnings attributable to 57,659 203,660,623 28.31 62,281 216,189,443 28.81
common shareholders
Effect of dilutive securities:
Share options 9,102,753 (1.21) 10,496,278 (1.33)
Deferred share units 4,273,753 (0.53) 3,616,252 (0.43)
Cumulative redeemable 1,270 16,000,000 (1.28) 1,263 16,000,000 (1.25)
convertible preference shares
Diluted earnings per share 58,929 233,037,129 25.29 63,544 246,301,973 25.80
Adjusted earnings per share
Basic earnings per share 57,659 203,660,623 28.31 62,281 216,189,443 28.81
Exceptional items 1,852 0.91 1,177 0.54
Tax on exceptional items (599) (0.29) (389) (0.18)
Basic earnings per share 58,912 203,660,623 28.93 63,069 216,189,443 29.17
excluding exceptional items
Diluted earnings per share 58,929 233,037,129 25.29 63,544 246,301,973 25.80
Exceptional items 1,852 0.79 1,177 0.48
Tax on exceptional items (599) (0.25) (389) (0.16)
Diluted earnings per share 60,182 233,037,129 25.83 64,332 246,301,973 26.12
excluding exceptional items
7. DIVIDENDS
6 months to 30 June 6 months to 30 June 2007
2008 �'000
�'000
Final paid in respect of 2007 18,297 17,140
- 9p (2006: 8p) per common
share of 1p
Dividends amounting to �196,000 (2007: �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 2008 of 4p per share (2007: 4p) has been declared by the Directors and will be paid on 26 September
2008 to shareholders who were registered at the close of business on 29 August 2008.
8. INVESTMENT IN ASSOCIATED UNDERTAKINGS
At 30 June 2008 At 30 June 2007 At 31 December 2007
�'000 �'000 �'000
At 1 January - - -
Additions 25,144 - -
25,144 - -
In May 2008, the Group invested �25.1m into Juniperus Insurance Opportunity Fund ("the Fund"). This investment is treated as an
associate as the Group has significant influence over the fund manager, Juniperus Capital Holdings Limited, by virtue of the level of its
current equity investment.
9. NON-CURRENT ASSETS HELD-FOR-SALE
In June 2008, the Group acquired 62% of the issued share capital of Globe Re Limited, a new Bermuda based limited-life reinsurance
vehicle. The gross assets and liabilities of Globe Re Limited have been presented on the Group's balance sheet as held-for-sale in
accordance with IFRS 5 as the Group is committed to reduce its holding below 50%.
10. TRADE AND OTHER RECEIVABLES
At 30 June 2008 At 30 June 2007 At 31 December 2007
�'000 �'000 �'000
Trade debtors 124,342 125,850 63,350
Less provision for bad debts (6,020) (6,529) (6,506)
Trade debtors - net 118,322 119,321 56,844
Amounts due from associated 1,533 - -
undertakings
Other debtors 12,677 16,408 13,243
Prepayments and accrued income 17,441 9,970 8,743
149,973 145,699 78,830
11. TRADE AND OTHER PAYABLES
At 30 June 2008 At 30 June 2007 At 31 December 2007
�'000 �'000 �'000
Current liabilities
Trade creditors 25,164 22,175 9,119
Social security payable 3,271 3,639 3,605
Retirement benefit obligations - 611 -
Other creditors and accruals 26,945 27,787 29,900
55,380 54,212 42,624
Non-current liabilities
Other creditors and accruals 3,786 1,449 940
59,166 55,661 43,564
12. FINANCIAL LIABILITIES
At 30 June 2008 At 30 June 2007 At 31 December 2007
�'000 �'000 �'000
Current
Derivative instruments 1,167 218 1,040
Cumulative redeemable 39,937 - 19,906
convertible preference shares
41,104 218 20,946
Non-current
Derivative instruments 1,780 - 169
Unsecured bank loan 140,655 74,692 78,144
Cumulative redeemable - 39,811 19,969
convertible preference shares
142,435 114,503 98,282
Bank loans
Unsecured bank loans are drawn from a �300m multi-currency credit facility, which is available until 7 December 2012. This facility
consists of a �175m term loan and a �125m revolving credit facility. The rate of interest payable on any loans drawn fluctuates in line with
the current LIBOR rate, plus a margin.
The fair value of bank loans reflects the loan principals drawn at 30 June 2008 (�82m Pounds sterling; and $125m US dollars), 30 June
2007 (�15m Pounds sterling; and $120m US dollars) and 31 December 2007 (�20m Pounds sterling; and $125m US dollars) respectively, adjusted
for any unamortised arrangement fees.
13. PROVISIONS
Litigation and Property related Other Total
disputes �'000 �'000 �'000
�'000
At 1 January 2008 380 5,971 1,208 7,559
Exchange adjustments - 3 - 3
Transfer from income statement 145 180 - 325
Transfer from fixed assets - (650) - (650)
Utilised in period (74) (470) (757) (1,301)
At 30 June 2008 451 5,034 451 5,936
Provisions have been analysed between current and non-current as follows:
At 30 June 2008 At 30 June 2007 At 31 December 2007
�'000 �'000 �'000
Current 1,482 3,016 2,280
Non-current 4,454 5,458 5,279
5,936 8,474 7,559
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.
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 comprise termination benefits and residual salary costs the Group is committed to paying in association with
restructuring activities (see note 4).
14. CALLED UP SHARE CAPITAL
At 30 June 2008 At 30 June 2007 At 30 June 2008 At 30 June 2007
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 220,419,341 227,696,802 2,204 2,277
Repurchased and cancelled (11,862,753) (4,615,000) (119) (46)
Allotted to employees 2,161,079 2,274,707 22 23
At 30 June 210,717,667 225,356,509 2,107 2,254
Changes to share capital during the six months to 30 June 2008
During the period, 11,862,753 (2007: 4,615,000) common shares of 1p each, representing 6% (2007: 2%) of the issued share capital of the
Company, were repurchased for an aggregate consideration, including expenses, of �31,287,000 (2007: �15,076,000) and were subsequently
cancelled.
A total of 1,725,880 (2007: 1,505,584) common shares of 1p each were allotted on the exercise of options by employees during the period
for an aggregate consideration of �67,000 (2007: �493,000). A total of 435,199 (2007: 769,123) common shares of 1p each were allotted to
satisfy deferred share units that vested and were distributed to employees during the period.
15. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Share capital Share premium Treasury shares Fair value and other Retained earnings Total
�'000 �'000 �'000 reserves �'000 �'000
�'000
At 1 January 2007 2,277 146,859 (17,605) 93,145 (65,951) 158,725
Total recognised income for - - - (3,583) 62,281 58,698
the period
Dividend - - - - (17,140) (17,140)
Provision for share awards - - - - 7,251 7,251
Share based payment for BEE - - - - 773 773
transaction in respect of
Benfield (South Africa) (Pty)
Limited
Shares issued to employees 23 478 629 - (539) 591
Repurchase and cancellation of (46) - - 46 (15,076) (15,076)
own shares
At 30 June 2007 2,254 147,337 (16,976) 89,608 (28,401) 193,822
Total recognised income for - - - 958 (25,705) (24,747)
the period
Dividend - - - - (8,589) (8,589)
Provision for share awards - - - - 4,864 4,864
Share based payment for BEE - - - - (773) (773)
transaction in respect of
Benfield (South Africa) (Pty)
Limited
Shares issued to employees 8 249 619 - (30) 846
Repurchase and cancellation of (58) - - - (15,712) (15,770)
own shares
Purchase of treasury shares - - (360) - (360)
At 31 December 2007 2,204 147,586 (16,357) 90,206 (74,346) 149,293
Total recognised income for - - - (794) 57,659 56,865
the period
Dividend - - - - (18,297) (18,297)
Provision for share awards - - - - 4,259 4,259
Shares issued to employees 22 50 221 - (99) 194
Repurchase and cancellation of (119) - - - (31,168) (31,287)
own shares
At 30 June 2008 2,107 147,636 (16,136) 89,412 (61,992) 161,027
16. CASH FLOW FROM OPERATING ACTIVITIES
Reconciliation of profit to net cash inflow from operating activities:
6 months to 30 June 6 months to 30 June 2007
2008 �'000
�'000
Continuing operations
Profit for the financial 57,851 62,367
period
Adjusted for:
Taxation 29,802 29,921
Depreciation, amortisation and 5,673 4,928
impairment charges
Fair value (gains)/losses (279) 97
through income statement
Loss on disposal of subsidiary - 135
operations
Gain on sale of (1,532) -
available-for-sale financial
assets
Loss/(gain) on disposal of 18 (440)
property, plant and equipment
Loss on disposal of intangible - 5
assets
Cost of shares gifted during 26 34
the period
Cost of share options issued 4,541 7,652
Interest income (5,011) (6,474)
Investment income - (5)
Finance costs 6,393 3,587
Dividend income from (577) -
available-for-sale financial
assets
Increase in trade and other (71,143) (53,744)
receivables
Increase/(decrease) in 14,643 (21,032)
payables
Decrease in provisions (1,132) (1,415)
Exchange translation (1,518) 1,709
differences
Corporate cash generated from 37,755 27,325
operations
Increase in insurance broking 113,805 71,023
creditors
Exchange translation (4,565) 327
differences
Cash generated from operations 146,995 98,675
17. RELATED PARTY TRANSACTIONS
During the period, unsecured loans totalling US$3m were advanced to the Group's associated undertakings. US$1m of these loans carries
interest at LIBOR plus a margin and is available until 31 December 2008. The remaining US$2m of the loans carries interest at 6% and is
available until 31 December 2009.
The outstanding balance on these loans is disclosed in note 10 and includes the accrued interest receivable. No provision is required on
these loans.
18. RISKS AND UNCERTAINTIES
As set out in note 8 and 9, during the period the Group has made investments in Juniperus and Globe Re.
The principal risks and uncertainties faced by the business are unchanged from those described in the section "Principal Risks and
Uncertainties" on pages 52 to 54 of the Annual Report 2007. They are: cyclical nature of insurance and reinsurance markets; competition;
retention of key customers; errors and omissions; regulation; retention of key staff; operational risks; and financial risks.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the
European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8,
namely:
* An indication of important events that have occurred during the first six months and their impact on the interim report, and a
description of the principal risks and uncertainties for the remaining six months of the financial year; and
* Material related party transactions in the first six months and any material changes in the related party transactions described
in the last annual report.
The Directors of Benfield Group Limited are listed in the Benfield Group Limited Annual Report for the year ended 31 December 2007. The
only change in Directors since the year end is the resignation of Robert Bredahl on 2 June 2008.
By order of the Board
Grahame Chilton John Whiter
Chief Executive Officer Chief Financial Officer
6 August 2008
INDEPENDENT REVIEW REPORT
Introduction
We have been engaged by the Company to review the financial information in the interim report for the six months ended 30 June 2008,
which comprises the consolidated interim balance sheet as at 30 June 2008 and the related consolidated interim statements of income,
recognised income and expense, cash flows 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 is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the
interim report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union. The financial information included in this interim report has been prepared in accordance with International
Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the financial information in the interim report based on our review.
This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency
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.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United
Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the financial information in the interim report
for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as
adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
London
6 August 2008
Notes:
(a) The maintenance and integrity of the Benfield Group Limited website 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 financial statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
COMPANY INFORMATION
Directors Auditors
John Coldman (Chairman) PricewaterhouseCoopers LLP
Grahame Chilton (Chief Executive Chartered Accountants
Officer) Hay's Galleria
Dominic Christian 1 Hay's Lane
Paul Karon London
John Whiter (Chief Financial SE1 2RD
Officer)
Rt Honourable Francis Maude MP
(Deputy Chairman and Senior Registrars
Non-Executive) Capita IRG (Offshore) Ltd
Andrew Fisher (Non-Executive) Victoria Chambers
Dr Keith Harris (Non-Executive) Liberation Square
Paul Roy (Non-Executive) 1/3 The Esplanade
Frank Wilkinson (Non-Executive) St Helier
Jersey
Registered Office
Clarendon House
2 Church Street
Hamilton HM11
Bermuda
Registered Number
31639
Registrars Transfer Office
Capita Registrars
The Registry
34 Beckenham Road
Kent
BR3 4TU
Registered Company Secretary Enquiries should be addressed to:
Scott Davis Derek Walsh
Group Legal Counsel
Benfield Group Limited
Head Office 55 Bishopsgate
55 Bishopsgate London
London EC2N 3BD
EC2N 3BD
FINANCIAL CALENDAR
Key Dates
7 August 2008
Interim results announcement
26 September 2008
Payment of interim dividend
March 2009
Final results announcement
April 2009
Annual General Meeting
May 2009
Payment of final dividend
This information is provided by RNS
The company news service from the London Stock Exchange
END
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