RNS Number:5678W
Benfield Group Limited
16 March 2004
16 March 2004
BENFIELD GROUP LIMITED
Preliminary Results for the Year Ended 31 December 2003
Benfield Group Limited ("Benfield" or the "Group"), the reinsurance
intermediary, today announces its preliminary results for the year ended 31
December 2003.
Financial Highlights
* Group trading result (1) increased by 29.8% to #88.5m (2002: #68.2m)
* Group trading margin (2) increased to 28.8% from 23.4%
* Group operating revenue increased by 5.8% to #307.7m (2002: #290.9m). At
constant rates of exchange the increase in operating revenue was 11.8%
* Profit before tax and exceptional items increased by #33.5m to #60.6m
(2002: #27.1m)
* Profit before tax increased by #21.4m to #31.2m (2002: #9.8m)
* Diluted earnings per share (before exceptional items and goodwill
amortisation) increased to 19.2p (2002: 12.72p)
* Diluted earnings per share increased to 6.28p (2002: a loss of 0.74p)
* Final dividend of 6p per common share
(1) Trading result comprises operating profit before amortisation of
goodwill, depreciation of tangible fixed assets and exceptional items (see
note 3)
(2) Trading margin represents trading result as a percentage of operating
revenue
The comparative financial information for 2002 has been restated to take account
of an amendment to FRS 5 (see note 2).
John Coldman, Chairman of Benfield, commented: "I am delighted to report a
strong Group performance in 2003, a year that saw us float on the London Stock
Exchange. Our revenue increased to #308m, an increase of 11.8% at constant rates
of exchange. We achieved this whilst increasingour trading margin from 23.4% to
28.8%. Consistent with the policy stated at the IPO, the Board is proposing a
final dividend of 6p per common share".
Grahame Chilton, Chief Executive of Benfield commented: "We see many trends in
our market as favourable for Benfield, particularly the growth of the
broker-orientated markets of Bermuda and Lloyd's, which have attracted most of
the new reinsurance capital raised since 2001.
"Consolidation and restructuring continue to be features of the reinsurance
market for underwriters and intermediaries alike. Our position as the largest
independent reinsurance broker enhances our ability to attract quality teams and
individuals and the Group is well positioned overall to exploit the many
opportunities for further profitable growth across the reinsurance market," he
added.
Result of Operations
--------- ---------- --------- ----------
2002 Growth
2003 (Restated) Growth as constant
#m #m reported currency
--------- ---------- --------- ----------
Operating revenue
International 173.1 168.3 2.9% 6.4%
US 126.1 120.4 4.7% 14.5%
Corporate 8.5 2.2
--------- ----------
Total operating
revenue 307.7 290.9 5.8% 11.8%
--------- ----------
Trading result
International 60.7 58.4 3.9% 15.5%
US 40.2 23.0 74.6% 95.0%
Corporate (12.4) (13.2)
--------- ----------
Total trading
result 88.5 68.2 29.8% 45.0%
========= ==========
Trading margin
International 35.0% 34.7%
US 31.9% 19.1%
Group 28.8% 23.4%
Contact details:
Grahame Chilton, Chief Executive Benfield +44 (0) 20 7578 7000
John Whiter, Chief Financial Officer Benfield
Investors
Julianne Jessup, Investor Relations Benfield +44 (0) 20 7578 7425
Alex Child-Villiers Financial Dynamics +44 (0) 20 7831 3113
or Robert Bailhache
Media
David Bogg or Alison Burgess Benfield +44 (0) 20 7578 7000
David Haggie or Peter Rigby Haggie Financial +44 (0) 20 7417 8989
PRELIMINARY STATEMENT
Overview
Benfield had a successful yearin 2003 and we are pleased to report strong
progress through the period that saw us make the transition from private to a
listed company. Profit before exceptional items and taxation increased by 123.6%
to #60.6m (2002: #27.1m) and profit before taxhas increased to #31.2m in 2003
(2002: #9.8m).
The overall performance reflects the benefits of investment in new areas within
our International Division, the realisation in our US Division of benefits
following the successful integration of EW Blanch and continued organic growth
across many areas of our business.
With our two main operating Divisions each generating growth in both revenue and
margin, combined with continued discipline over costs, the Group trading margin
increased substantially, improving to 28.8% (2002: 23.4%).
Operating revenue increased by 5.8% to #307.7m from #290.9m in the previous
year. Approximately 88% of turnover was generated from existing customers (2002:
85%), with the remainder being in respect of newcustomer wins and non-recurring
business. Revenue from one-off transactions represented 5.5% of turnover (2002:
8.0%). Reported revenue growth in both Divisions was impacted by the
depreciation of the US dollar and after removing the effect of movements in
currency exchange rates, operating revenue increased by 11.8%.
The Group trading result increased by 29.8% to #88.5m from #68.2m in the
previous year. Underlying this increase was growth across both operating
Divisions, most significantly in the US.
Excluding exceptional items and goodwill amortisation, diluted earnings per
share improved by 50.9% to 19.2p.
During the year the Group incurred a net exceptional charge of #29.4m,
predominantly arising from events relating to the Group's Initial Public
Offering. Diluted earnings per share increased to 6.28p from a loss per share of
0.74p.
Throughout 2003, rates for most classes of property reinsurance remained firm
and casualty lines continued to harden. Improved underlying profitability
encouraged increased retentions by cedants, although this was offset in a number
of areas by demand for larger limits of protection against catastrophic events.
International Division
Our International Division operates in all of the world's major markets for
reinsurance and this diversity underpinned a solid performance for the year.
Strong revenue growth in several key areas targeted for expansion more than
offset the performance of certain parts of the business where market conditions
rendered revenue increases more difficult.
Operating revenue grew to #173.1m from #168.3m, a rise of 2.9% over the previous
year. Approximately 51% of the Division's revenues are in US dollars and
consequently the depreciation of the US dollar had an adverse impact on the
reported increase. At constant rates of exchange, operating revenue increased by
6.4%. The closure or disposal during the year of certain lower margin lines of
business also adversely impacted the reported year on year revenue growth.
Trading result increased by 3.9% to #60.7m for the year. Trading margin also
improved to 35.0% from 34.7%. This reflected the achievement of revenue growth
whilst maintaining a disciplined approach to managing costs.
Demand for the specialist modelling and analytical skills of the ReMetrics team
has continued to grow. The ability to utilise this expertise to create
innovative solutions remains a key competitive advantage. In May 2003, we
launched a new software tool enabling insurers to monitor concentrations of
terrorism risk on their property portfolios. In addition, ongoing investment in
developing regional catastrophe models, such as Czech Flood and Turkey
Earthquake, has further enhanced our ability to win and retain customers.
Strong revenue growth was achieved by the European business unit. Offices in
Prague, Bratislava, Paris and Brussels worked successfully with our London-based
team and achieved considerable progress. This included growth in casualty
classes and in Eastern Europe, both areas that had been identified as targets
for expansion. The scaling back of quota share capacity traditionally provided
by reinsurers on a direct basis is creating opportunities to develop further our
relationship with cedants. Following recent corporate restructuring within the
insurance industry we also see expansion opportunities across many classes of
business throughout Europe.
The Latin America, Canada & Caribbean business unit continued to develop
strongly, with the integration of the Chile and Argentina operations of EW
Blanch now completed. The Canadian operation also experienced good growth.
In addition, the Asia Pacific business reported solid growth. Whilst
consolidation in the Japanese market restricted prospects for growth,
opportunities did arise as the demand for reinsurance increased as a consequence
of companies buying reinsurance for the first time. Progress was also reported
in the Australia, Singapore and New Zealand operations. The Chinese reinsurance
market remains an area for longer term growth and in 2003 we opened an office in
Shanghai to develop opportunities arising in this area.
Results of the Global Specialty business unit were mixed. We established a
global centre for facultative reinsurance in London and this expertise, combined
with market knowledge provided by our global office network, produced good
opportunities in the year. We anticipate this trend continuing in 2004 as we
benefit further from this structure and undertake new hires in this area. In
contrast, the hard market led to decreased spending on certain specialty classes
of reinsurance as insurers restructured their programmes and retentions
increased. Particularly affected was our Aviation reinsurance business in the
second half of 2003, putting pressure on the Division's margins as a whole in
that period. We expect the market trend of higher retention by customers to
continue and consequently do not anticipate a return to growth in this area in
2004.
US Division
The US Division's growth strategy is to focus on three business segments: large
national account writers, large regional insurance companies and specialty
writers. Success in all these areas contributed to the US Division's strong
revenue growth in 2003. For the second year running, the Division achieved
substantial new business growth from both existing and new customers, including
some of the largest insurers in the US. In 2003, the US Division continued to
improve its trading margin through disciplined spending and the full integration
of the acquired EW Blanch business.
Operating revenues increased by 4.7% to #126.1m from #120.4m. At constant rates
of exchange, revenues rose by 14.5%. This strong revenue growth combined with
disciplined management of the cost base saw the trading result improve by #17.2m
to #40.2m, a year on year increase of 74.6%. Trading margins improved to 31.9%
from 19.1%.
Demand for the analytical skills and diagnostic tools of our Solutions team has
continued to grow. The combination of casualty, property and financial expertise
to create innovative solutions remains a strong competitive advantage. This
advantage translated into several key wins during 2003, including the
development of specialised solutions to manage customers' risk related to
adverse reserve development and innovative capital solutions for our small and
midsize clients. In addition, by further leveraging our expertise and
independence, the Division won several new accounts that had previously been
written by direct writers. Programme renewals also provided revenue growth due
to the continued firming of premium rates during 2003, particularly in casualty
lines of business. The Asset Recovery and Reinsurance Administration portion of
the US Division also experienced several large key wins, which contributed to
the overall revenue growth in 2003.
Looking ahead, our relatively low market share in the largest market for
reinsurance in the world provides continued opportunity for growth and customer
gains. Casualty is a particular product opportunity where we are able to utilise
our considerable analytical and technology skills to continue to create
customised innovative solutions in areas such as professional liability, medical
malpractice, errors and omissions and directors and officers coverage.
Foreign Exchange
The Group's main foreign exchange exposure is to US dollars and the impact of a
1 cent movement in the US$/# sterling exchange rate equates approximately to a
#0.6m movement in trading result, prior to the impact of any foreign exchange
hedging activity.
Foreign currency contracts are arranged in order to manage the impact of
currency transaction risk on trading results. The Group's policy is to hedge a
minimum of 50% of the forecast transaction exposure prior to each financial year
for each of its principal currencies and at least 25% of forecast exposure for
the following financial year. The results of overseas subsidiaries are not
actively hedged.
The Group has entered into a number of foreign exchange contracts with respect
to the year ending 31 December 2004, with all of the US dollar revenue
transaction exposure expected to arise during 2004 being hedged at an average
worst case rate of US$1.73 (2003: US$1.60). With respect to the year ending 31
December 2005, we have hedged 32% of the forecast US dollar transaction
exposure, at an average worst case rate of US$1.83.
Exceptional Items
The Group incurred a net exceptional charge of #29.4m, predominantly arising
from events relating to the Initial Public Offering. This included #22.4m
relating to share based awards made to certain key employees for services
provided prior to the Initial Public Offering, #2.7m of professional fees and
#6.1m of exceptional finance charges relating to cancellation of a credit
facilities agreement which was repaid at the time of the Initial Public
Offering. These chargesare not expected to recur. Offsetting the exceptional
charges was a gain of #6.0m resulting from disposal of part of the Group's
interest in Montpelier Re Holdings Ltd.
Liquidity and Capital Resources
The Initial Public Offering in June 2003 raised #131.4m from the sale of new
shares and proceeds from the exercise of share options, and these funds were
used to repay borrowings. There have been significant changes in the Group
balance sheet profile during the year with the Group reporting net assets of
#208.5m at 31 December 2003 (2002: #65.2m). Net tangible assets increased to
#50.0m, from net tangible liabilities of #108.8m at 31 December 2002. At 31
December 2003, the Group had net cash of #60.8m.
The Group committed to sell its holding of warrants in Montpelier Re Holdings
Limited on 15 March 2004. This resulted in the Group receiving gross proceeds of
approximately US$54.1m.
Dividend
In line with the policy stated at the time of the Initial Public Offering, the
Boardhas recommended a final dividend of 6p per common share for the year ended
31 December 2003.
This dividend, which is the first to be declared since the Initial Public
Offering, is subject to shareholder approval and is intended to be paid on 14
May 2004 to shareholders on the register at 26 March 2004.
Outlook
Many of the trends in our marketplace are favourable for Benfield. The broker
orientated markets of Bermuda and Lloyd's have been the strongest recent
performers and most of the new reinsurance capacity created since 2001 has been
in these markets.
Both our International and US Divisions are focussed on growth and margin
improvement, whilst we remain realistic about the current impact of a weak US
dollar. We expect furthergood growth in the US during 2004 and some progress in
the International Division, which continues to be affected by market conditions
in certain specialty classes.
We anticipate further consolidation in the insurance broking industry and we
believe this will bring us opportunities to enhance the growth of our business.
CONSOLIDATED PROFIT & LOSS ACCOUNT
For the year ended 31 December 2003
--------- ---------
Notes Year ended Year ended
31 December 31 December
2003 2002
#'000 (Restated)
#'000
--------- ---------
Turnover 300,468 283,918
Interest income 7,194 6,950
--------- ---------
Operating revenue 307,662 290,868
--------- ---------
Net operating expenses before exceptional
items (238,460) (244,801)
Exceptionalitems 4 (22,257) (18,750)
--------- ---------
Total net operating expenses (260,717) (263,551)
--------- ---------
Operating profit before exceptional items 69,202 46,067
Exceptional items 4 (22,257) (18,750)
--------- ---------
Group operating profit 46,945 27,317
--------- ---------
Share of operating profit/(losses) of
associated undertakings (3,137) (5,273)
Gain on the sale of fixed assets 4 437 1,405
Provision for impairment of operations to be
discontinued 4 (1,486) -
Other investment income 673 -
Interest payable and similar charges before
exceptional finance charges (6,218) (13,637)
Exceptional finance charges 4 (6,050) -
--------- ---------
Total interest payable and similar charges (12,268) (13,637)
--------- ---------
Profit on ordinary activities before taxation 31,164 9,812
Taxation on profit on ordinary activities 5 (16,025)(8,305)
--------- ---------
Profit on ordinary activities after taxation 15,139 1,507
Equity minority interests 24 (57)
--------- ---------
Profit for the financial year 15,163 1,450
Dividends - including non-equity 6 (18,703) (12,483)
--------- ---------
Retained loss for the financial year (3,540) (11,033)
========= =========
Earnings per 1p common share 7
Basic 6.80p (0.74p)
Diluted 6.28p (0.74p)
========= =========
Adjusted earnings per 1p common share
excluding goodwill amortisation, exceptional
items and non-operating gains and losses 7
Basic 21.60p 14.07p
Diluted 19.20p 12.72p
========= =========
The Group's turnover and expenses all relate to continuing operations.
CONSOLIDATED BALANCE SHEET
At 31 December 2003
---------- ----------
Notes 31 December 31 December
2003 2002
#'000 (Restated)
#'000
---------- ----------
Fixed assets
Intangible assets 158,511 173,987
Tangible assets 17,715 21,087
Investments in associated undertakings 215 5,506
Investment in own shares 10,904 7,449
Other long-term investments 3,648 5,572
---------- ----------
190,993 213,601
---------- ----------
Current assets
Debtors - due within one year 9 3,789,448 3,911,364
Debtors - due after one year 9 3,794 7,981
Investments 10 46,744 80,294
Cash at bank and in hand - including
fiduciary funds 280,584 203,474
---------- ----------
4,120,570 4,203,113
Current liabilities
Creditors - amounts falling due within one
year 11 (4,052,853) (4,160,978)
---------- ----------
Net current assets 67,717 42,135
---------- ----------
Total assets less current liabilities 258,710 255,736
Creditors - amounts falling due after more
than one year 12 (38,746) (162,562)
Provisions for liabilities and charges 13 (11,499) (27,951)
---------- ----------
Net assets 208,465 65,223
========== ==========
Capital and reserves
Called up share capital 14 2,622 357
Share premium 132,638 -
Merger reserve 130,132 131,750
Other reserves 4,500 4,500
Profit and loss account (61,649) (71,690)
---------- ----------
Total shareholders' funds
---------- ----------
Equity 167,033 23,034
Non-equity 41,210 41,883
---------- ----------
208,243 64,917
Equity minority interest 222 306
---------- ----------
Capital employed 208,465 65,223
========== ==========
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 31 December 2003
--------- ---------
Notes Year ended Year ended
31 December 31 December
2003 2002
#'000 (Restated)
#'000
--------- ---------
Profit for the financial year 15,163 1,450
Exchange adjustments offset in reserves (3,317) (2,658)
--------- ---------
Total recognised gains/(losses)relating to the year 11,846 (1,208)
=========
Prior year adjustment 2 4,960
---------
Total gains/(losses) recognised since
last annual report 16,806
=========
RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS
For the year ended 31 December 2003
--------- ---------
Notes Year ended Year ended
31 December 31 December
2003 2002
#'000 (Restated)
#'000
--------- ---------
Profit for the financial year 15,163 1,450
Dividends 6 (18,703) (12,483)
--------- ---------
(3,540) (11,033)
Other recognised gains and losses
relating to the year (3,317) (2,658)
Provision for deferred share units
and share options 24,952 5,637
Net proceeds of common shares issued
for cash 14 110,499 -
Common shares issued to employees 14 13,416 1,068
Payment of partly paid common shares 14 769 807
Net proceeds of cumulative redeemable
convertible preference shares issued
for cash - 19,139
Amortisation of issue costs on
cumulative redeemable convertible
preference shares 126 -
Increase of interest from associate
to subsidiary undertaking 421 -
--------- ---------
Net change in shareholders' funds 143,326 12,960
Shareholders' funds at 1 January as
previously reported 59,957 46,414
Prior year adjustment 2 4,960 5,543
--------- ---------
Shareholders' funds at 31 December 208,243 64,917
========= =========
CONSOLIDATED CASHFLOW STATEMENT
For the year ended 31 December 2003
--------- ---------
Notes Year ended Year ended
31 December 31 December
2003 2002
#'000 (Restated)
#'000
--------- ---------
Net cash inflow from operating activities 15 85,166 42,740
Dividends received from associated undertakings - 322
Returns on investments and servicing of finance
Investment income 112 -
Interest paid (9,809) (13,019)
Arrangement fee for credit facilities (927) (1,867)
Non-equity dividends paid (2,199) (772)
--------- ---------
Net cash outflow from returns on
investments and servicing of finance (12,823) (15,658)
--------- ---------
Taxation (5,450) (7,813)
Capital expenditure and financial investment
Purchase of tangible fixed assets (9,489) (9,701)
Sale of tangible fixed assets 2,734 7,347
Purchase of fixed asset investments (208) (634)
Sale of fixed asset investments 589 24,117
Purchase of own shares - (27)
--------- ---------
Net cash (outflow)/inflow from
capital expenditure and financial
investment (6,374) 21,102
--------- ---------
Acquisitions and disposals
Purchase of subsidiary undertaking (2,162) -
Increase in investment in subsidiary
undertakings (56) (154)
Increase in investment in associated
undertakings - (7,302)
Net cash acquired with subsidiary
undertaking 1,130 -
--------- ---------
Net cash outflow from acquisitions
and disposals (1,088) (7,456)
--------- ---------
Equity dividends paid to shareholders (6,667) (12,849)
--------- ---------
Net cash inflow before use of liquid
resources and financing 52,764 20,388
Management of liquid resources
Net decrease/(increase) in current
asset investments 40,350 (35,136)
Decrease/(increase) in short term
deposits with banks 85,054 (37,876)
--------- ---------
Net cash inflow/(outflow) from
management of liquid resources 125,404 (73,012)
--------- ---------
Financing
Net proceeds from issue of cumulative
redeemable convertible preference shares - 19,600
Net proceeds from issue of common shares 110,499 294
Proceeds from share options exercised and
common shares disposed of on behalf of holders 20,015 2,110
Proceeds from payment of partly paid
common shares 769 807
Decrease in bank loans (117,972) (32,845)
Loan notes repaid (9,103) (5,888)
--------- ---------
Net cash inflow/(outflow) from financing 4,208 (15,922)
--------- ---------
Increase/(decrease) in cash
(excluding fiduciary funds) 182,376 (68,546)
Fiduciary funds
Movement in fiduciary debtors and creditors (11,691) 29,031
--------- ---------
Increase/(decrease) in net cash 15 170,685 (39,515)
========= =========
Reconciliation to net cash
Net cash at 1 January 15 93,830 3,505
Increase in net cash 170,685 (39,515)
Movement in deposits (85,054) 37,876
Movement in current asset investments (40,350) 35,136
Movement in borrowings 128,001 40,599
Other non-cash changes 3,538 1,817
Exchange adjustments 442 14,412
--------- ---------
Net Cash at 31 December 15 271,092 93,830
========= =========
NOTES TO THE PRELIMINARY RESULTS
For the year ended 31 December 2003
1. BASIS OF ACCOUNTING
The Company is obliged to prepare its financial statements in accordance with
the Bermuda Companies Act 1981, which permits a company to prepare its financial
statements under UK GAAP. Accordingly, the consolidated financial statements
have been prepared in accordance with Bermuda law, under the historical cost
convention and in accordance with UK GAAP, except for a departure from Financial
Reporting Standard 6 'Acquisitions and Mergers' in respect of the 2002
redomiciliation to Bermuda.
The financial information for the year ended 31 December 2002 included inthe
financial statements is based on the Accountants Report prepared for inclusion
in the listing particulars dated 13 June 2003 of the Company, restated as set
out below.
2. CHANGE IN ACCOUNTING POLICY
During the year the Group has adopted Amendment to Financial Reporting Standard
5, 'Reporting the substance of Transactions' ("FRS 5 Application Note G"). The
effect of the adoption has been to accelerate revenue on fixed or minimum
premium instalments to the point when placement services are completed.
Previously such revenues were recognised as the instalment premiums were billed.
To the extent that future revenues from existing policies are not expected to
meet the cost of fulfilling future contractual obligations arising in respect of
such placements, a proportion of placement revenue is deferred. Previously no
such deferral was made.
The effect on continuing operations of implementing FRS 5 Application Note G was
to reduce revenue and operating profits for the year by #1,028,000 (2002:
#584,000) and to reduce the tax charge by #410,000 (2002: #1,000), to increase
net assets at 31 December 2003 by #4,343,000 (2002: #4,960,000) and to increase
the value of Group reserves at 1 January 2003 by #4,960,000 (2002: #5,543,000).
The seasonality of the Group's operating revenue is such that a greater
proportion of placements occur in the first half of the year. Consequently, had
FRS 5 Application Note G been adopted at the time of reporting the Group's
interim financial information, then the effect would have been to recognise
approximately two thirds of the Group's revenue in the first half of the year.
3. OPERATING SEGMENTS
The analysis of operating revenue and trading result by operating segmentset
out below conforms to the manner in which the Group operates its business and
assesses its financial performance. Trading result is a non-statutory measure
and comprises operating profit from continuing operations before amortisation of
goodwill, depreciation of tangible fixed assets and exceptional items.
The Group manages its core reinsurance intermediary business on the basis of two
geographical operating Divisions, International and the US.
The US Division encompasses the Group's reinsurance intermediary business in
mainland US plus a team based in London which places reinsurance for US based
customers in the London Market. The International Division incorporates the
Group's reinsurance intermediary business outside the US. The Corporate Division
reflects certain expenses that are incurred at the head office level in
connection with the provision of central functions and also the results of the
Group's investment portfolio.
Trading results
2003 2002
#'000 (Restated)
#'000
International
Operating revenue 173,086 168,244
Operating profit before exceptional items 54,383 51,594
Depreciation 6,269 6,784
Trading result 60,652 58,378
US
Operating revenue 126,078 120,401
Operating profit before exceptional items 37,377 18,179
Depreciation 2,856 4,869
Trading result 40,233 23,048
Corporate
Operating revenue 8,498 2,223
Operating loss before exceptional items (22,558) (23,706)
Depreciation 765 505
Amortisation 9,428 9,968
Trading result (12,365) (13,233)
Total
Operating revenue 307,662 290,868
Operating profit 46,945 27,317
Exceptional items 22,257 18,750
Operating profit before exceptional items 69,202 46,067
Depreciation 9,890 12,158
Amortisation 9,428 9,968
Trading result 88,520 68,193
4. EXCEPTIONAL ITEMS
-------- --------
2003 2002
#'000 #'000
-------- --------
Operating
Granting of awards under the 2002 Incentive Plan 22,432 -
Awards granted as part of acquisitions 3,108 5,451
Professional fees 2,667 6,545
Gain on sale of current asset investments (5,950) -
Costs in respect of the integration of EW Blanch - 6,754
-------- --------
22,257 18,750
======== ========
Non-operating
Gain on disposal of fixed assets (437) (1,405)
Provision for impairment of operations to be discontinued 1,486 -
Exceptional finance charges 6,050 -
======== ========
Granting of awards under the 2002 Incentive Plan
Share based awards were made under the 2002Incentive 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 it is not intended that any further awards will be made
under that Plan. The cost of awards granted at less than the fair value of the
underlying common shares has been recognised in full in the profit and loss
account at the date of grant as they relate to prior services and no performance
criteria (other than continued employment with the Group) are attached to those
awards.
Awards granted as part of acquisitions
On the acquisition of E.W. Blanch Holdings, Inc. ("EW Blanch") in May 2001 the
Group provided share based awards to certainkey employees for which the cost is
being spread over a 17 to 29 month vesting period from the date of acquisition,
resulting in a charge of #3,108,000 and #5,451,000 for the years ended 31
December 2003 and 2002 respectively.
Professional fees
Professional fees of #2,667,000 related to the Initial Public Offering were
charged to the profit and loss account in the year to 31 December 2003.
Professional fees of #6,545,000 in respect of the redomiciliation from the
United Kingdom to Bermudain October 2002 and the initial intention to register
the securities in the United States were charged in the year to 31 December
2002.
Gain on sale of current asset investment
In 2003 the Group sold 947,479 shares in Montpelier Re Holdings Limited,
resulting in an operating exceptional gain of #5,950,000.
Costs in respect of the integration of EW Blanch
During the year ended 31 December 2002, the Group incurred costs in connection
with the EW Blanch acquisition which took place in May 2001, comprising
#4,470,000 of property rationalisation costs, #921,000 of redundancy payments
and #1,363,000 in relation to the termination of a defined benefit pension
scheme.
Provision for impairment of operations to be discontinued
It is the intention of the Group to dispose of its interest in Wildnet Group
Limited, a wholly owned subsidiary, in the first quarter of 2004. As a result
the carrying value of the Group's interest in Wildnet Group Limited has been
written down to the expected recoverable amount.
Exceptional finance charges
On completion and delivery of proceeds of the Company's Initial Public Offering,
the Group entered into a new credit facilities agreement. At the same date, the
Group's previous credit facilities were cancelled and repaid. Proceeds from the
Initial Public Offering, and funds available from the new credit facilities,
were used to repay the outstanding borrowings under the cancelled facilities. On
cancellation, charges were incurred in the write off of prepaid facility
arrangement fees and termination of swap and collar interest rate derivative
contracts which related to the cancelled facilities.
5. TAXATION ON PROFIT ON ORDINARY ACTIVITIES
Analysis of charge in year
-------- --------
2003 2002
#'000 (Restated)
#'000
-------- --------
Based on profit for the year
Current tax
UK corporation tax at 30% 5,542 9,801
Double tax relief (1,590) (1,680)
-------- --------
3,952 8,121
Foreign tax 13,248 3,396
Adjustment in respect of previous periods (1,429) (971)
Share of taxation in associated companies (545) 222
-------- --------
Total current tax 15,226 10,768
-------- --------
Deferred tax
Origination and reversal of timing differences
United Kingdom (741) (3,521)
Overseas 1,540 1,058
-------- --------
Total deferred tax 799 (2,463)
-------- --------
Taxation on profit on ordinary activities 16,025 8,305
======== ========
The tax effect of the operating exceptional items and goodwill amortisation was
to reduce the tax charge by #7,581,000 (2002: #3,256,000).
The tax effect of the non-operating exceptional items was to reduce the tax
charge by #1,815,000 (2002: #nil).
6. DIVIDENDS
-------- --------
2003 2002
#'000 #'000
-------- --------
Equity
Interim paid - common shares of 1p (2002: US$0.01) 3,233 6,512
Final proposed - common shares of 1p (2002: US$0.01) 13,819 3,316
Non-equity
Paid - cumulative redeemable convertible preference shares
of 1p (2002 : US$0.01) 1,190 710
Payable - cumulative redeemable convertible preference
shares of 1p (2002 : US$0.01) 1,210 1,839
Amortisation of issue costs 126 106
Reversal of accrued charge (see note below) (875) -
-------- --------
18,703 12,483
======== ========
-------- --------
2003 2002
pence pence
-------- --------
Equity
Interim paid - per common share of 1p (2002: US$0.01) 2.0 4.0
Final proposed - per common share of 1p (2002: US$0.01) 6.0 2.0
======== ========
The amount accrued in prior periods in respect of the dividend on the cumulative
redeemable convertible preference shares has been adjusted to reflect the
dividend rate of 6% per annum, which became fixed under the terms of the shares
after the Initial Public Offering. Previously dividends were accrued at 7.7%,
being the average dividend rate over the life of the cumulative redeemable
convertible preference shares expected prior to the Initial Public Offering.
7. EARNINGS PER SHARE
During the year the common shares of US$0.01 each of the Company were divided
into five common shares of 1p each. Prior year earningsper share have been
restated to take account of the share split.
Basic earnings per share is calculated by dividing the earnings attributable to
common shareholders by the weighted average number of common shares in issue
during the year, excludingthose held in the employee share trusts which are
treated as cancelled.
For diluted earnings per share, the weighted average number of common shares in
issue, excluding those held in the employee share trusts, is adjusted to assume
conversion of all dilutive potential common shares. The Company has had the
following four classes of shares which were potentially dilutive during the
periods presented:
(i) cumulative redeemable convertible preference shares;
(ii) those share options granted to employees where the exercise price is
less than the estimated fair value of the Company's common shares
during the relevant year;
(iii) deferred share units; and
(iv) convertible shares.
Supplementary basic and diluted earnings per share have been calculated to
exclude the effect of exceptional items, non-operating gains and losses and
goodwill amortisation. The adjusted numbers have been provided in order that the
effects of these charges on reported earnings can be fully appreciated.
2002
2003 (Restated)
------- -------- ------ ------- -------------
Weighted Weighted
average Pence average Pence
Earnings number of per Earnings number of per
#'000 shares share #'000 shares share
Unadjusted
earnings per share
Basic earnings
per share
Profit attributable
to shareholders 15,163 1,450
Less preference
dividends (1,651) (2,655)
Earnings/(loss
) attributable
to ordinary
shareholders 13,512 198,605,871 6.80 (1,205) 162,429,191 (0.74)
Effect of dilutive
securities:
Share options 11,324,494 (0.36) - -
Deferred share units 5,141,835 (0.16) - -
Diluted earnings/
(loss) per share 13,512215,072,200 6.28 (1,205) 162,429,191 (0.74)
Adjusted earnings per
share
Basic
earnings/(loss)
per share 13,512 198,605,871 6.80 (1,205) 162,429,191 (0.74)
Exceptional
items (note 4) 29,356 14.78 17,345 10.67
Amortisation 9,428 4.75 9,968 - 6.14
Tax on exceptional
items and
amortisation (9,396) (4.73) (3,256) (2.00)
Basic earnings
per share excluding
exceptional items
and amortisation 42,900 198,605,871 21.60 22,852 162,429,191 14.07
Diluted earnings/
(loss) per share 13,512 215,072,200 6.28 (1,205) 162,429,191 (0.74)
Exceptional items
(note 4) 29,356 - 13.65 17,345 10.67
Amortisation 9,428 - 4.38 9,968 6.14
Tax on exceptional
items and
amortisation (9,396) - (4.37) (3,256) (2.00)
Effect of
previously
anti-dilutive
securities:
Share options - - 11,925,709 (0.93)
Deferred share
units - - 5,347,572 (0.42)
Cumulative
redeemable
convertible
preference
shares 1,651 16,935,390 (0.74) - - -
Diluted
earnings per
share excluding
exceptional items
and amortisation 44,551 232,007,590 19.20 22,852 179,702,472 12.72
In 2003 potentially dilutive securities totalling 16,935,390 common shares of 1p
each in respect of cumulative redeemable convertible preference share have not
been included in the determination of unadjusted diluted earnings per share as
their inclusion would be anti-dilutive.
In 2002 potentially dilutive securities totalling 32,491,214 common shares of 1p
each in respect of share options, deferred share units and cumulative redeemable
convertible preference shares have not been included in the determination of
unadjusted diluted loss per share as their inclusion would be anti-dilutive.
Potentially dilutive securities totalling 15,217,933 common shares of 1p each in
respect of cumulative redeemable convertible preference shares have not been
included in the determination of adjusted diluted net loss per share as their
inclusion would be anti-dilutive in the year ended 31 December 2002.
8. NET FIDUCIARY ASSETS
The following fiduciary assets and liabilities held by the Group have been
included in net current assets:
-------- --------
Group 2003 2002
#'000 (Restated)
#'000
-------- --------
Insurance broking debtors (note 9) 3,756,026 3,853,234
Fiduciary investments (note 10) 37,346 60,891
Fiduciary cash and deposits 212,099 167,694
Insurance broking creditors (note 11) (3,953,127) (4,062,026)
-------- --------
Net fiduciary assets 52,344 19,793
======== ========
Included within fiduciary cash and deposits are amounts which are available to
the Group for general corporate purposes of #48,553,000 (2002: #8,541,000).
9. DEBTORS
-------- --------
2003 2002
#'000 (Restated)
#'000
-------- --------
Amounts falling due within one year
Insurance broking debtors 3,756,026 3,853,234
Amounts owed by associated undertakings 1,295 134
Taxation recoverable 3,450 11,051
Deferred taxation 5,223 1,759
Other debtors 11,056 29,996
Prepayments and accrued income 12,398 15,190
-------- --------
3,789,448 3,911,364
Amounts falling due after more than one year
Deferred taxation 3,778 7,981
Other debtors 16 -
-------- --------
3,794 7,981
-------- --------
3,793,242 3,919,345
======== ========
10. CURRENT ASSET INVESTMENTS
-------- --------
Group 2003 2002
#'000 #'000
-------- --------
Fiduciary investments - unlisted 37,346 60,891
Non-fiduciary investments
Listed investments 8,538 19,395
Unlisted investments 860 8
-------- --------
46,744 80,294
======== ========
Listed investments principally represents an equity investment in shares and
warrants of Montpelier Re Holdings Limited with a carrying value of #6,331,000
(2002: #17,188,000). At 31 December 2003 the market value of listed investments
was #79,208,000 (2002: #90,208,000). The unlisted investments are shown at the
lower of cost and Director's valuation.
11. CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR
-------- --------
2003 2002
#'000 (Restated)
#'000
-------- --------
Bank and other borrowings 18,507 19,379
Loan notes 134 9,037
Insurance broking creditors 3,953,127 4,062,026
Corporation tax 18,069 15,613
Social security payable 3,536 3,146
Other creditors and accruals 44,294 46,302
Dividends accrued and proposed 15,186 5,475
-------- --------
4,052,853 4,160,978
======== ========
12. CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
-------- --------
2003 2002
#'000 #'000
-------- --------
Bank and other borrowings 37,595 161,322
Loan notes - 200
Other creditors and accruals 1,151 1,040
-------- --------
38,746 162,562
======== ========
13. PROVISIONS FOR LIABILITIES AND CHARGES
------- ------- ------ -------
Vacant Litigation and Other Total
properties disputes
#'000 #'000 #'000 #'000
-------- -------- ------ -------
At 1 January 2003 4,527 22,424 1,000 27,951
Exchange adjustments (235) (767) - (1,002)
Transfer (to)/from the
profit and loss account 438 (152) - 286
Transfer from
investments in
associated undertakings - - 485 485
Utilised in year (1,418) (14,803) - (16,221)
-------- -------- ------ -------
At 31 December 20033,312 6,702 1,485 11,499
======== ======== ====== =======
14. CALLED UP SHARE CAPITAL
--------- ---------
Number of shares 2003 2002
Number Number
--------- ---------
Allotted, called up and fully paid
Common shares of 1p (2002: US$0.01)
At 1 January 35,258,762 35,161,560
Allotted to employees prior to share split 266,903 -
Adjustment in respect of 5:1 share split 142,102,660 -
--------- ---------
177,628,325 35,161,560
Issued in year 49,417,988 -
Allotted to employees subsequent to share split 15,126,195 97,202
--------- ---------
At 31 December 242,172,508 35,258,762
========= =========
Cumulative redeemable convertible preference shares of
1p (2002: US$0.01)
At 1 January 20,000,000 10,000,001
Allotted - 9,999,999
--------- ---------
At 31 December 20,000,000 20,000,000
========= =========
--------- ---------
Nominal value 2003 2002
#000 #000
--------- ---------
Allotted, called up and fully paid
Common shares of 1p (2002: US$0.01)
At 1 January 227 226
Issued in year 494 -
Transfer from other reserves on redenomination and split 1,548 -
Allotted to employees 153 1
--------- ---------
At 31 December 2,422 227
--------- ---------
Cumulative redeemable convertible preference shares of 1p
(2002: US$0.01)
At 1 January 130 65
Transfer from other reserves on redenomination 70 -
Allotted - 65
--------- ---------
At 31 December 200 130
--------- ---------
Total share capital 2,622 357
========= =========
Changes to share capital during the year to 31 December 2003
On 30 April 2003, 266,903 common shares of US$0.01 each were allotted to satisfy
266,903 deferred share units which vested on that date.
On 27 May 2003 the share capital of the Company was restructured such that:
i) the authorised common shares and certain of the authorised but unissued
common shares of US$0.01 each were sub-divided into five common shares
each with a nominal value of US$0.002;
ii) the remaining authorised but unissued commonshares of US$0.01 were
cancelled and the Company's share capital was reduced accordingly;
iii) the currency denomination of the resulting common shares of US$0.002
was changed to #0.00124, and the currency denomination of the cumulative
redeemable convertible preference shares of US$0.01 was changed to
#0.00620, both using an exchange rate of #1 to US$1.611, rounded to five
decimal places;
iv) the nominal value of each of the common shares of #0.00124 waschanged
to 1p and the nominal value of the cumulative redeemable convertible
preference shares of #0.00620 was changed to 1p;
v) each of the 12,000 founder shares of US$1 each were cancelled and the
Company's share capital reduced accordingly; and
vi) each of the 40,000,000 preference shares of US$0.01 each were cancelled
and the Company's share capital reduced accordingly;
As a consequence of the restructuring sums of #1,547,000 and #71,000 were
debited from the Company's contributed surplus account and used to pay
up in full the unpaid balance of the nominal value of the issued common
shares of 1p each and the cumulative redeemable convertible preference
shares of 1p each respectively.
Subsequent to the capital restructuring and prior to the Initial Public
Offering, 200,370 common shares of 1p each were issued for consideration of
#147,000 on the exercise of options by employees.
On 18 June 2003 as part of the Initial Public Offering, 49,417,988 common shares
of 1p each were issued for consideration of #123,545,000. In addition,
12,069,985 common shares of 1p each were issued for consideration of #8,293,000
on the exercise of options by employees.
Subsequent to the Initial PublicOffering, the Company allotted 2,695,425 common
shares of 1p each to satisfy 2,695,425 deferred share units which vested during
that period and 160,415 common shares of 1p each for consideration of #167,000
on the exercise of options by employees.
Common shares of 1p (2002: US$0.01)
All of the common shares of 1p each in issue at 31 December 2003 were fully
paid. At 31 December 2002, all of the common shares of US$0.01 each in issue
were fully paid except for 187,500 common shares of US$0.01 each that were
issued partly paid. These partly paid common shares of US$0.01 each were issued
at #4.20 per share of which #4.10 was payable when called by the Company. This
amount was called by the Company and fully settled in June 2003.
Cumulative redeemable convertible preference shares of 1p (2002: US$0.01)
The cumulative redeemable convertible preference shares have certain
preferential rights over and above the Company's common shares of 1p each. These
shares will be redeemed on the seventh anniversary of their issue, but are
convertible into common shares of 1p each or redeemable in certain circumstances
prior to that date.
The holders of the cumulative redeemable convertible preference shares are
entitled to a fixed cumulative preferential dividend payable in preference to
any divided on any other class of share in the Company. Following the Company's
Initial Public Offering this preferential dividend accrues at a rate of 6% per
annum until redemption. Should the Company fail to pay any instalment of the
preferential dividend when due, the dividend rate for all subsequent financial
periods until redemption will be increased to 9% per annum. Prior to the date of
the Initial Public Offering, the preferential dividend on the cumulative
redeemable convertible preference shares increased annually at a rate of 1% per
annum, up to a maximum of 9%.
The cumulative redeemable convertible preference shares confer a preferential
right over the holders of other classes of share, after payment of the Company's
liabilities, to the return of amounts paid up on those shares and any arrears
and accruals of preferential dividend on any liquidation of the Company or other
return of assets to shareholders.
Except in relation to any variation of the rights attaching to the cumulative
redeemable convertible preference shares or in the case of a failure to redeem
on the due date, the cumulative redeemable convertible preference shares do not
carry any votes at any general meetings of the Company. The cumulative
redeemable convertible preference shares may be converted at the option of the
holder into fully paid common shares of 1p each at a conversion price equal to
the price per share at which the Company's common shares of 1p each were
admitted to the official list of the UK Listing Authority on the Initial Public
Offering, being #2.50 per common share of 1p each. Prior to the date of the
Initial Public Offering this conversion right was dependant on the fair market
price for the Company's shares, subject to a minimum conversion price of #2.20
per common share of 1p each and a maximum commission price of #2.64 per common
share of 1p each. The cumulative redeemable convertible preference shares are
also convertible into common shares of 1p each on the happening of a majority
sale of the Company at the price per common share of 1p each to be paid on any
such majority sale, subject to a minimum conversion price of #2.20 per common
share of 1p each and a maximum conversion price of #2.64 per common share of 1p
each.
15. CASH FLOW
(a) Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating activities:
-------- --------
2003 2002
#'000 (Restated)
#'000
-------- --------
Operating profit 46,945 27,317
Amortisation of intangible assets 9,426 9,968
Depreciation of tangible fixed assets 9,890 12,158
Gain on disposal of current asset investments (5,950) -
Cost of shares gifted during the year 140 361
Cost of share options issued 24,952 4,927
Decrease/(increase) in debtors 7,914 (11,624)
Decrease in creditors (10,387) (6,070)
(Decrease)/increase in provisions for liabilities and
charges (4,827) 8,890
Translation differences on working capital items 7,063 (3,187)
-------- --------
Net cash inflow from operating activities 85,166 42,740
======== ========
(b) Reconciliation of movement in net cash
-------- -------- -------- -------- --------
At 1 January Cashflow Other Exchange At 31 December
2003 movements 2003
#'000 #'000 non-cash #'000 #'000
changes
#'000
-------- ------- ------- -------- ----------
Cash at bank
and in hand 203,474 85,632 - (8,522) 280,584
Deposits
classified as
liquid assets (103,001) 85,053 - 8,820 (9,128)
-------- ------- ------- -------- ----------
100,473 170,685 - 298 271,456
-------- ------- ------- -------- ----------
Debt due after more
than 1 year
- bank loans 161,322 (92,454) (22,308) (8,965) 37,595
- loan notes 200 (200) - - -
-------- ------- ------- -------- ----------
161,522 (92,654) (22,308) (8,965) 37,595
Debt due within 1
year
- bank loans 19,379 (26,444) 25,571 1 18,507
- loan notes 9,037 (8,903) - - 134
-------- ------- ------- -------- ----------
28,416 (35,347) 25,571 1 18,641
-------- ------- ------- -------- ----------
189,938 (128,001) 3,263 (8,964) 56,236
Liquid
resources 183,295 (125,404) 6,801 (8,820) 55,872
-------- ------- ------- -------- ----------
Net cash
including
fiduciary
funds 93,830 173,282 3,538 442 271,092
======== ======= ======= ======== ==========
Liquid resources comprise current asset investments and short-term deposits with
banks which mature within 12 months of the date of inception.
The total net cash inflow/(outflow) during the year in respect of the movements
in bank loans includes any arrangement costs paid in respect of new facilities.
(c) Movement in borrowings
-------- --------
2003 2002
#'000 #'000
-------- --------
Debt due within one year:
New secured bank loan and loan notes 21,082 -
Repayment of part of borrowings and loan notes (55,562) (31,632)
Debt due after more than one year:
New secured bank loan 58,581 70,669
Repayment of part of borrowings and loan notes (151,175) (77,769)
-------- --------
Decrease in borrowings (127,074) (38,732)
Arrangements costs of bank loans (927) (1,867)
-------- --------
Cash outflow (128,001) (40,599)
======== ========
16. SHAREHOLDER INFORMATION
The financial information contained in this preliminary announcement does not
constitute statutory accounts within the meaning of s240 of the Companies Act
1985. Statutory accounts have not yet been delivered to the Registrar of
Companies.
They will be posted to shareholders no later than 26 March 2004 and delivered to
the Registrar of Companies following the Annual General Meeting on 27 April
2004.
The auditors have reported on the statutory accounts. Their report was
unqualified and did not contain a statement under s237(2) or s237(3) of the
Companies Act 1985.
The shareholders entered in the Register of Members on 26 March 2004 will be
entitled to the proposed final dividend of 6p per common share which will,
subject to approval at the Annual General Meeting to be held on 27 April 2004,
be payable on 14 May 2004.
Copies of the preliminary press release (and statutory accounts when available)
may be obtained from the Company Secretariat, Benfield Group Limited, 55
Bishopsgate, London, EC2N 3BD.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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