RNS Number:7176C
Benfield Group Limited
08 September 2004
8 September 2004
Benfield Group Limited
INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2004
Benfield Group Limited ("Benfield"), the reinsurance intermediary, today
announces interim results(1) for the six months ended 30 June 2004.
Financial Highlights
* Group operating revenue increased to #206.1m from #205.3m(2). At constant
rates of exchange(3) the increase in operating revenue was 6.9%
* Group trading result(4) increased to #97.3m from #96.0m. At constant rates
of exchange the trading result increased by 12.8%. Group trading margin(5)
improved to 47.2% from 46.8%
* Profit before tax increased by #60.1m to #113.1m from #53.0m. Profit
before tax and exceptional items increased to #86.9m from #79.4m
* Basic earnings per share increased to 30.72p from 17.58p. Diluted
earnings per share increased to 27.57p from 14.82p
* Interim dividend per share of 3.5p (2003: 2.0p) and a special dividend per
share of 10.0p
* A further amount of up to #40m to be returned to shareholders by way of a
share buy-back programme over the next 18 months
Divisional Highlights
* Excellent US growth driven by new business and expansion of existing
accounts, with revenue up 15.2% at constant rates of exchange
* International division reported 2.4% revenue growth at constant rates of
exchange driven by robust expansion in Europe
(1) The results for the six months to 30 June 2004 reflect the adoption of
new accounting standards as detailed in note 1. The results for the six
months to 30 June 2003 have been restated accordingly.
(2) All comparatives are for the 6 months ended 30 June 2003 unless
otherwise stated.
(3) Calculated by translating 2004 operating revenue and trading results at
2003 rates of exchange.
(4) Trading result comprises operating profit from continuing operations
before amortisation of goodwill, depreciation of tangible fixed assets and
exceptional items. A reconciliation of the trading result to the statutory
format profit and loss account is shown in note 2.
(5) Trading margin represents trading result as a percentage of operating
revenue.
Grahame Chilton, Chief Executive of Benfield, commented: "I am pleased to
announce positive growth in our business. Whilst unfavourable foreign currency
movements affected the reported result the underlying growth remains strong,
with the performance of our US and European business particularly encouraging.
Benfield's leading market position, strong cash flow and potential for further
growth leave the Group well placed to deliver value to its shareholders."
John Coldman, Chairman of Benfield, commented: "Our strong trading and cash
position enables us to declare a special dividend of 10p per share in addition
to an increased interim dividend of 3.5p per share. I am also delighted to
announce the appointment of two additional executive directors to the Group
Board. The appointments of Paul Karon and Dominic Christian recognise the
significance of our US operation and Global Specialty business respectively."
Six months to 30 June
2004 2003 Change Change
#'000 #'000 as constant
reported currency
Operating revenue
International 122,474 122,721 -0.2% +2.4%
United States 80,721 78,891 +2.3% +15.2%
Corporate 2,902 3,646
Total operating revenue 206,097 205,258 +0.4% +6.9%
Trading result
International 64,226 70,485 -8.9% -5.2%
United States 41,215 33,716 +22.3% +41.6%
Corporate (8,107) (8,184)
Total trading result 97,334 96,017 +1.4% +12.8%
Trading Margin
International 52.4% 57.4%
United States 51.1% 42.7%
Total trading margin 47.2% 46.8%
Contacts:
Investors & Analysts
Julianne Jessup Benfield +44 (0)20 7578 7425
Robert Bailhache or Geoffrey Pelham-Lane Financial Dynamics +44 (0)20 7269 7200
Media
David Bogg or Alison Burgess Benfield +44 (0)20 7578 7000
David Haggie or Peter Rigby Haggie Financial +44 (0)20 7417 8989
NEWSWIRES: There will be a conference call today for wire services at 7.40am
(BST) on UK dial in +44 (0)845 245 0224 and international dial in +44 145 254
2309.
Password: 985 884#
ANALYSTS: A presentation to analysts will take place at 9.45am (BST) at
Benfield, 55 Bishopsgate, London EC2N 3BD. The analysts' presentation is being
audio webcast later in the day and can be replayed on Benfield's website
www.benfieldgroup.com. The presentation slides will also be available on the
website.
INTERIM STATEMENT
Overview
Benfield's focus on growth and margin enhancement resulted in an improvement to
the Group's trading result, which increased to #97.3m (H1 2003: #96.0m) in the
six months ended 30 June 2004, despite more challenging market conditions and
the impact of US dollar depreciation.
Profit before tax increased to #113.1m (H1 2003: #53.0m), enhanced by an
exceptional net gain of #26.1m on the disposal of warrants held in Montpelier Re
Holdings Ltd. This gain together with cash earnings generated in the first half
of the year, led to a significant improvement in the Group's net cash position
to #89.6m after deducting gross debt of #57.3m. This has prompted the Group to
declare a special dividend of 10p per share in addition to the distribution of
an interim dividend of 3.5p per share in line with our stated dividend policy.
Furthermore, Benfield intends to utilise up to #40m of this cash in support of a
programme of share buy-back over the next 18 months.
At constant rates of exchange, revenue growth for the Group was 6.9%, driven
primarily by the US division which saw an increase in operating revenue of 15.2%
on this basis. Operating revenue for the International division grew by 2.4% at
constant rates of exchange. Reported revenue growth for the Group also remains
positive, despite the effect of the US dollar, having increased by 0.4% to
#206.1m (H1 2003: #205.3m). US reported revenue growth was 2.3% whilst
International reported revenue fell slightly by 0.2%.
Net operating expenses before exceptional items reduced by #1.8m to #117.3m (H1
2003: #119.1m). Net operating expenses before exceptional items at constant
rates of exchange increased marginally by 0.8%.
Diluted earnings per share increased to 27.57p (H1 2003:14.82p). As
anticipated, after excluding amortisation of goodwill and exceptional items,
diluted earnings per share decreased by 4.44p to 22.28p, reflecting the increase
in issued share capital following the Initial Public Offering in June 2003.
The interim results, together with prior year comparatives have been reported in
accordance with the amendment to Financial Reporting Standard 5 (FRS 5). The
effect of FRS 5 is to accelerate the recognition of revenues into the first half
of the year, thereby improving the trading margin in this period to the
detriment of the second half of the year.
International Division
Our European business continues to grow strongly generating an approximate
increase of 25% in reported revenue, in part reflecting the move by customers
within the region from direct reinsurers to broker markets. We are continuing to
expand our influence within Europe and recently acquired a new team to increase
our presence in Germany. The Latin American business benefited from
consolidation within the local market achieving reported revenue growth of over
5%.
Our Asia Pacific business unit revenue levels were maintained. At the start of
the year we acquired AIRS Re Pty Limited, an Australian based reinsurance
broker, with a view to regaining market share in this region. We continued to
benefit from our investment in emerging markets, with Benfield acting as the
broker in the placement of the first ever reinsurance treaty for a Chinese
government agency.
Reported revenue from our Global Insurance and Facultative business unit
increased by over 40%. Our global centre for facultative reinsurance in London
continues to provide excellent opportunities for the Group and we expect strong
growth in this area throughout the remainder of the year. We also benefited from
our acquisition of a controlling stake in International Space Brokers,
previously an associate investment, which compliments our existing Aerospace
Insurance business.
As anticipated market conditions for certain specialist classes of business
remain difficult, with insurers generally buying less coverage due to the market
trend for higher retentions. Whilst maintaining market share, our Global
Specialty business was affected by these adverse market conditions and has seen
a decrease in reported revenue of approximately 9%, approximately 6% at constant
rates of exchange.
Overall, the International division experienced a small reduction in reported
operating revenue of 0.2% decreasing from #122.7m in 2003 to #122.5m in 2004.
However, adjusting for the negative impact of the US dollar reveals underlying
growth for the division of 2.4%, calculated at constant rates of exchange.
Net operating expenses before exceptional items increased by 9.8% to #60.5m (H1
2003: #55.1m). At constant rates of exchange net operating expenses before
exceptional items increased by 10.9%. Excluding the effect of additional
investment in staff recruitment and incentivisation, expense levels were stable.
Whilst this investment in people has impacted margins in the short term, the
results of the expenditure are expected to benefit trading margins in subsequent
periods.
US Division
The division made good progress in its targeted growth segments including large
national account writers and specialty writers. New customers were gained in
areas such as property catastrophe, directors and officers, and medical
malpractice by focusing on the creation of coverage through customised
innovative solutions. Programme renewals provided additional growth,
particularly in casualty lines, which experienced continued improvements in
rates and conditions.
As a dedicated reinsurance broker our US division continues to provide an
attractive proposition to customers in the world's largest market for
reinsurance. The current market and regulatory focus on the way in which brokers
conduct their business in relation to certain fee arrangements should provide
further opportunities for new business wins as customers increasingly value our
independent approach.
Operating revenue increased 2.3% to #80.7m (H1: 2003 #78.9m) despite the
depreciation of the US dollar. At constant rates of exchange US operating
revenue increased 15.2% over the first half of 2003 predominantly due to net new
business growth and the expansion of existing accounts, brought about by added
coverage for existing customers and premium increases.
Net operating expenses before exceptional items decreased by 13.2% to #40.6m (H1
2003: #46.8m). Decreases in reported expenses were due to the weakening of the
US dollar and management of expenses as part of a continued focus on margin
enhancement. At constant rates of exchange, net operating expenses before
exceptional items decreased by 5.1%.
The US division trading result increased by 22.3% to #41.2m (H1 2003: #33.7m)
and increased by 41.6% at constant rates of exchange. Trading margin increased
to 51.1% from 42.7%.
Corporate Division
Corporate division revenues fell from #3.6m to #2.9m following the disposal of
Wildnet Group Limited in April 2004. Expense levels within this division, which
mainly consist of central costs, were reduced by 5.8% to #16.2m in 2004.
Foreign Exchange
The Group's main foreign exchange exposure is to the US dollar, arising from the
results of translation and transaction exposure from revenues denominated in
that currency.
The Group enters into foreign currency contracts to manage the impact of
currency risk. The Group has a policy of hedging a minimum of 50% of the
expected currency exposure for the following 12 months for each of the principal
revenue currencies and at least 25% of forecast exposure for the following
financial year. The results of overseas subsidiaries are not actively hedged.
The Group entered into a number of foreign exchange contracts with respect to
the year ended 31 December 2004. A rate of US$1.76 was achieved for the six
months ended 30 June 2004 and the Group expects to achieve a rate of US$1.73
overall for the year ended 31 December 2004. With respect to the year ending 31
December 2005, the Group has hedged 50% of the forecast US dollar transaction
exposure at an average worst case rate of US$1.80.
Balance Sheet
At 30 June 2004 the Group's net assets (excluding goodwill) amounted to #86.4m
up from #39.1m at 31 December 2003. The Group's net cash position stood at
#89.6m at 30 June 2004 (31 December 2003: #60.8m). The Group's gross debt at 30
June 2004 was #57.3m (31 December 2003: #56.2m).
Interim and Special Dividend
An interim dividend of 3.5p per common share is payable on 15 November 2004 to
shareholders on the register on 17 September 2004. Benfield's dividend policy is
to target a payout ratio of approximately 50% of cash earnings before
exceptional items and goodwill amortisation, with approximately a third of this
paid as an interim dividend and the remainder as a final dividend.
As a result of the Group's strong cash position, which has been further enhanced
by the net exceptional gain of #26.1m from the sale of the Group's holding of
warrants in Montpelier Re Holdings Limited, The Board has declared a special
dividend of 10p per share. This will be payable on 15 November to shareholders
on the register on 17 September 2004.
Share buy-back programme
In addition to the Special Dividend announced today the Group intends to set
aside approximately #40m of available free cash to support a share buyback
programme which will be implemented during the next 18 months.
To the extent that future employee lock up releases provide liquidity in
Benfield shares which is not taken up by institutional investors, the Board may
consider purchasing available shares for cancellation as part of the buy-back
programme. The next employee lock-up release is December 18th 2004 and as
permitted in the Company's bye-laws the Board is contemplating bringing forward
the release date in order to avoid the need to implement a stock market
transaction so near to the Christmas holidays. An announcement will be made if
such a decision is taken.
Outlook
The insured losses projected from Hurricanes Charley and Frances are significant
and should contribute to the maintenance of a disciplined approach to
catastrophe reinsurance pricing. The reinsurance market overall remains stable,
with some softening in areas which have seen substantial rate increases coupled
with good loss experience. We continue to see an increasing demand for
non-proportional reinsurance, particularly in European markets where Benfield is
well positioned to expand its market share. Both our International and US
divisions continue to benefit from increased demand from both insurers and
reinsurers for specialist analytical and modelling expertise combined with
transactional capability. We continue to invest in new teams and strategic
acquisitions to enhance our ability to meet customer needs and to exploit growth
opportunities. While the weak dollar and market conditions in some specialty
lines will continue to affect reported results, the outlook for further growth
from both established and new areas of the business remains positive.
We are pleased to announce that Paul Karon and Dominic Christian have been
invited to join the Group Board. Paul is the President of our US operations and
Dominic leads our Global Speciality business unit. Both are experienced market
professionals and we look forward to their valuable contribution at Board level.
Current trading conditions enable the Directors to anticipate that the full year
results will be in line with expectations. Benfield's leading market position
and the increasing demand for reinsurance provide a strong platform for further
revenue growth and market enhancement.
Grahame Chilton John Coldman
Chief Executive Chairman
8 September 2004
Note to Editors:
Benfield is the world's leading independent reinsurance intermediary and risk
advisory business. Its customers include many of the world's major insurance and
reinsurance companies as well as Government entities and global corporations.
Benfield operates from over 30 locations worldwide. The company is listed on the
London Stock Exchange under the ticker symbol BFD.
See www.benfieldgroup.com.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Unaudited results for the six months ended 30 June 2004
6 months to 6 months to
30 June 2004 30 June 2003
(Restated)
Notes #'000 #'000
Turnover 2 202,288 201,620
Interest income 3,809 3,638
Operating Revenue 206,097 205,258
Net operating expenses before exceptional items (117,271) (119,063)
Exceptional items 3 (3,235) (26,427)
Total Net Operating Expenses (120,506) (145,490)
Other Operating Income - exceptional 3 29,492 5,950
Operating profit before exceptional items 88,826 86,195
Exceptional items 3 26,257 (20,477)
Group Operating Profit 115,083 65,718
Share of net operating losses of associated undertakings (985) (1,608)
(Loss)/gain on the sale of fixed assets 3 (51) 36
Other Investment Income 103 -
Interest payable and similar charges before exceptional
finance charges (1,059) (5,145)
Exceptional finance charges 3 - (6,050)
Total interest payable and similar charges (1,059) (11,195)
Profit on ordinary activities before taxation 2 113,091 52,951
Tax on profit on ordinary activities 4 (40,918) (22,890)
Profit on ordinary activities after taxation 72,173 30,061
Equity minority interests (64) 11
Profit for the financial period 72,109 30,072
Dividends - including non-equity 5 (32,533) (3,719)
Retained profit for the financial period 39,576 26,353
Earnings per 1p common share
Basic 6 30.72p 17.58p
Diluted 6 27.57p 14.82p
Adjusted earnings per 1p common share excluding goodwill
amortisation, exceptional items and non-operating gains and
losses
Basic 6 24.72p 31.88p
Diluted 6 22.28p 26.72p
CONSOLIDATED BALANCE SHEET
Unaudited as at 30 June 2004
At 31
At 30 June At 30 June December
2004 2003 2003
(Restated) (Restated)
Notes #'000 #'000 #'000
Fixed Assets
Intangible assets 152,976 166,540 158,511
Tangible assets 16,738 20,144 17,715
Investments in associated undertakings 451 3,245 215
Other long term investments 3,091 4,996 3,648
173,256 194,925 180,089
Current Assets
Debtors - due within one year 8 4,733,796 5,420,944 3,789,448
Debtors - due after one year 8 3,210 6,431 3,794
Investments 34,545 49,352 46,744
Cash at bank and in hand - including fiduciary funds 366,560 264,821 280,584
5,138,111 5,741,548 4,120,570
Current Liabilities
Creditors - amounts falling due within one year 9 (5,029,444) (5,625,502) (4,052,853)
Net Current Assets 108,667 116,046 67,717
Total Assets less Current Liabilities 281,923 310,971 247,806
Creditors - amounts falling due after more than one year 10 (32,374) (57,132) (38,746)
Provisions for liabilities and charges 11 (10,146) (25,627) (11,499)
Net Assets 239,403 228,212 197,561
Capital and Reserves
Called up share capital 2,629 2,596 2,622
Share premium 133,697 128,325 132,638
Other reserves 134,632 134,632 134,632
Profit and loss account (31,837) (37,512) (72,553)
Total Shareholders' Funds
Equity 197,921 186,841 156,129
Non-equity 41,200 41,200 41,210
239,121 228,041 197,339
Equity minority interest 282 171 222
Capital Employed 239,403 228,212 197,561
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited for the six months ended 30 June 2004
6 months to 6 months to
30 June 2004 30 June 2003
(Restated)
#'000 #'000
Profit for the financial period 72,109 30,072
Exchange adjustments offset in reserves (936) (907)
Total recognised gains relating to the period 71,173 29,165
Prior year adjustment (2,560)
Total gains recognised since last annual report 68,613
RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS
Unaudited for the six months ended 30 June 2004
6 months to 6 months to
30 June 2004 30 June 2003
(Restated)
#'000 #'000
Profit for the financial period 72,109 30,072
Dividends (32,533) (3,719)
39,576 26,353
Other recognised gains and losses relating to the period (936) (907)
Provision for deferred share units and share options 963 23,490
Net proceeds of common shares issued for cash - 111,310
Common shares issued to employees 963 13,359
Payment of partly paid common shares - 769
Amortisation of issue costs on cumulative redeemable
convertible preference shares 63 63
Gain/(loss) on disposal of own shares 1,153 (3,864)
Net change in shareholders' funds 41,782 170,573
Shareholders' funds as at 1 January 208,243 64,917
Prior year adjustment (10,904) (7,449)
Shareholders' funds as at 30 June 239,121 228,041
CONSOLIDATED CASHFLOW STATEMENT
Unaudited for the six months ended 30 June 2004
6 months to 6 months to
30 June 2004 30 June 2003
(Restated)
Notes #'000 #'000
Net cash inflow from operating activities 12 89,844 91,917
Returns on investments and servicing of finance
Investment Income 103 -
Interest paid (862) (8,085)
Arrangement fee for new credit facilities - (981)
Non-equity dividends paid to shareholders (1,210) (1,008)
Net cash outflow from servicing of finance (1,969) (10,074)
Taxation (7,299) (3,683)
Capital expenditure and financial investment
Purchase of tangible fixed assets (3,494) (4,876)
Sale of tangible fixed assets 214 853
Purchase of fixed asset investments - (5)
Sale of fixed asset investments 1,560 494
Sale of own shares 1,705 -
Net cash outflow from capital expenditure and financial investment (15) (3,534)
Acquisitions and disposals
Purchase of subsidiary undertakings (183) -
Disposal of subsidiary undertakings (537) -
Net cash disposed of with sale of subsidiary undertaking (2) -
Disposal of associated undertakings - 651
Net cash (outflow)/inflow from acquisitions (722) 651
Equity dividends paid to shareholders (13,689) (3,162)
Net cash inflow before use of liquid resources and financing 66,150 72,115
Management of liquid resources
Sale of current asset investments 41,549 20,084
Increase in short term deposits with banks (2,074) (26,784)
Net cash inflow/(outflow) from management of liquid resources 39,475 (6,700)
Financing
Net proceeds from issue of common shares - 111,310
Proceeds from share options exercised and common shares
disposed of on behalf of holders 412 18,779
Increase/(decrease) in bank loans 1,951 (103,308)
Loan notes repaid (134) (8,703)
Net cash inflow from financing 2,229 18,078
Increase in cash (excluding fiduciary funds) 107,854 83,493
Fiduciary funds
Movement in fiduciary debtor and creditor balances (19,493) (48,223)
Increase in cash 12 88,361 35,270
Reconciliation to net cash
Net cash at 1 January 271,092 93,830
Increase in cash 88,361 35,270
Movement in deposits 2,074 26,784
Sale of current asset investments (41,549) (20,084)
Movement in borrowings (1,817) 112,992
Other non-cash changes 29,342 (13,967)
Exchange adjustments (3,746) 3,295
Net Cash at 30 June 12 343,757 238,120
NOTES TO THE INTERIM REPORT
For the six months ended 30 June 2004
1. Basis of accounting
The unaudited results for the six months ended 30 June 2004 have been prepared
under the historical cost convention and in accordance with the accounting
policies described in the Group's 2003 Annual Report and Accounts with the
exception of the adoption of Urgent Issues Task Force abstract 38 and abstract
17 (revised).
The financial information for the year ended 31 December 2003 included in this
interim report has been extracted from the Group's Annual Report and Accounts.
Copies of these accounts, upon which the auditors have given an unqualified
report, can be obtained from the Company Secretary at 55 Bishopsgate, London,
EC2N 3BD.
Change in accounting policy
The Group adopted Urgent Issues Task Force abstract 38 ("UITF 38") and abstract
17 (revised) ("UITF 17") during the 6 months to 30 June 2004, which requires the
presentation of the Group's investment in own shares held within the ESOP trusts
to be amended. These shares, in accordance with this abstract, have been
deducted from shareholder funds whereas previously they were recognised as an
asset. In addition, the profit and loss charge for shares and share options
awarded by ESOP trusts to employees has been revised to reflect the share price
at the date of the awards rather than the average cost price of the shares.
Profit and losses from disposal of shares held by ESOP trusts have been removed
from the profit and loss account and transferred to reserves. The comparative
period has been restated accordingly.
During the second half of 2003 the Group adopted Amendment to Financial
Reporting Standard 5, 'Reporting the Substance of Transactions' ("FRS 5
Application Note G"). The effect of the adoption was to accelerate revenue on
fixed or minimum premium instalments to the point when placement services are
substantially 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
comparative period to 30 June 2003 included within this interim report has been
restated accordingly.
The impact on the six months to 30 June 2004 and the comparative periods from
the adoption of UITF 38, UITF 17 and FRS 5 Application Note G is summarised
below:
Adoption of
Prior Adoption of FRS 5 Revised
accounting UITF 38 and Application accounting
basis UITF 17 Note G basis
#000 #000 #000 #000
Six months ended 30 June 2004
Operating revenue 154,137 - 51,960 206,097
Total net operating expenses (120,506) - - (120,506)
Group operating profit 63,123 - 51,960 115,083
Other investment income 1,256 (1,153) - 103
Profit on ordinary activities before taxation 62,284 (1,153) 51,960 113,091
Taxation (23,981) - (16,937) (40,918)
Retained profit for the financial period 5,706 (1,153) 35,023 39,576
Fixed assets - Investment in own shares 10,353 (10,353) - -
Debtors - due within one year 2,865,869 - 1,867,927 4,733,796
Creditors - due within one year (3,200,883) - (1,828,561) (5,029,444)
Total Shareholders' Funds 210,108 (10,353) 39,366 239,121
Year ended 31 December 2003
Fixed assets - Investment in own shares 10,904 (10,904) - -
Debtors - due within one year 3,294,858 - 494,590 3,789,448
Creditors - due within one year (3,562,606) - (490,247) (4,052,853)
Total Shareholders' Funds 203,900 (10,904) 4,343 197,339
Adoption of
Prior Adoption of FRS 5 Revised
accounting UITF 38 and Application accounting
basis UITF 17 Note G basis
#000 #000 #000 #000
Six months ended 30 June 2003
Operating revenue 153,679 - 51,579 205,258
Total net operating expenses (145,340) (150) - (145,490)
Group operating profit 14,289 (150) 51,579 65,718
Profit on ordinary activities before taxation 1,522 (150) 51,579 52,951
Taxation (5,550) - (17,340) (22,890)
Retained (loss)/profit for the financial (7,736) (150) 34,239 26,353
period
Fixed assets - Investment in own shares 11,354 (11,354) - -
Debtors - due within one year 3,533,689 - 1,887,255 5,420,944
Creditors - due within one year (3,777,445) - (1,848,057) (5,625,502)
Total Shareholders' Funds 200,197 (11,354) 39,198 228,041
2. Segmental information
Analysis by originating office location:
Turnover Operating Operating Share of Non-operating Profit
profit before exceptionals associates exceptionals before tax
exceptionals
2004 2004 2004 2004 2004 2004
#'000 #'000 #'000 #'000 #'000 #'000
Geographical analysis
United Kingdom 115,198 46,872 26,469 (985) (79) 72,277
North America 71,509 34,645 (212) - 11 34,444
Continental Europe 7,651 4,929 - - 16 4,945
Other 7,930 2,380 - - 1 2,381
202,288 88,826 26,257 (985) (51) 114,047
Investment income 103
Interest payable and similar items (1,059)
Profit on ordinary activities before 113,091
taxation
2003 2003 2003 2003 2003 2003
(Restated) (Restated) (Restated)
#'000 #'000 #'000 #'000 #'000 #'000
Geographical analysis
United Kingdom 116,677 48,766 (18,415) (1,352) 52 29,051
North America 71,111 30,483 (1,577) (256) (15) 28,635
Continental Europe 6,475 3,244 (484) - - 2,760
Other 7,357 3,702 (1) - (1) 3,700
201,620 86,195 (20,477) (1,608) 36 64,146
Investment income 0
Interest payable and similar items (11,195)
Profit on ordinary activities before 52,951
taxation
Operating segments
The analysis of operating revenue and trading result by operating segment set
out below is different from the analysis provided above which has been produced
in accordance with the requirements of Statement of Standard Accounting Practice
25, 'Segmental Reporting'. 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. This
measure and the analysis by operating segment are presented by way of additional
information which conforms more closely to the manner in which the Group
operates its business and assesses its financial performance.
Trading result
6 months to 6 months to
30 June 2004 30 June 2003
(Restated)
#'000 #'000
International
Operating revenue 122,474 122,721
Operating profit before exceptionals 61,993 67,651
Depreciation 2,233 2,834
Trading result 64,226 70,485
United States
Operating revenue 80,721 78,891
Operating profit before exceptionals 40,088 32,093
Depreciation 1,127 1,623
Trading result 41,215 33,716
Corporate
Operating revenue 2,902 3,646
Operating loss before exceptionals (13,255) (13,549)
Depreciation 611 597
Amortisation 4,537 4,768
Trading result (8,107) (8,184)
Total
Operating revenue 206,097 205,258
Operating profit before exceptionals 88,826 86,195
Depreciation 3,971 5,054
Amortisation 4,537 4,768
Trading result 97,334 96,017
3. Exceptional items
6 months to 6 months to
30 June 2004 30 June 2003
#'000 #'000
Operating Income
Disposal of current asset investments 29,492 5,950
Operating expenses
Granting of awards under the 2002 Incentive Plan - (22,432)
Awards granted as part of acquisitions (212) (1,817)
Professional fees - (2,178)
Bonus paid to employees (3,023) -
(3,235) (26,427)
Non-operating
Gain on disposal of fixed assets 28 36
Gain on disposal of investments 1,062 -
Loss on disposal of subsidiary (1,141) -
(51) 36
Exceptional finance charges - (6,050)
Gain on sale of current asset investments
In January 2004 the Group sold its entire holding of shares in BRiT Insurance
Holdings PLC, resulting in an operating exceptional gain of #387,000. In
February 2004 the Group sold its entire holding of Montpelier Re Holdings
Limited warrants resulting in an operating exceptional gain of #29,105,000. In
June 2003 the Group sold 947,479 shares in Montpelier Re Holdings Limited,
resulting in an operating exceptional gain of #5,950,000.
Granting of awards under the 2002 Incentive Plan
In March 2003 share based awards were made under the 2002 Incentive Plan to
certain key employees of the Group in respect of services provided prior to the
Company's Initial Public Offering. No previous awards had been made under the
2002 incentive plan, and it is not intended that any further awards will be made
under this 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. in May 2001 the Group provided
share based awards to certain key employees for which the cost is being spread
over a 17 to 29 month vesting period from the date of award, resulting in a
charge of #212,000 and #1,817,000 for the periods ended 30 June 2004 and 30
June 2003 respectively.
Professional fees
Professional fees of #2,178,000 related to the Company's Initial Public Offering
in 2003 were charged to the profit and loss account in the six months to 30 June
2003.
Bonus paid to employees
In connection with the gain on disposal of the Group's holding of warrants in
Montpelier Re Holdings Limited a one off bonus was paid to employees. This
resulted in a charge of #3,023,000 in the six months to June 2004.
Gain on disposal of investments
In March 2003 the Group sold 200,000 ordinary shares in Equity Partnership
Limited and sold 10,618,850 shares in Uni Alliance Insurance Holdings Limited
resulting in non-operating exceptional gains of #998,000 and #64,000
respectively.
Loss on disposal of subsidiary
In April 2004 the Group disposed of its interest in Wildnet Group Limited, a
wholly owned subsidiary, resulting in a non operating loss of #1,141,000.
Exceptional finance charges
In May 2003 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.
4. Taxation on profit on ordinary activities
6 months to 6 months to
30 June 2004 30 June 2003
(Restated)
#'000 #'000
UK corporation tax
Current tax on income for the period 22,778 9,375
Deferred taxation 322 1,457
Foreign tax
Current tax on income for the period 10,866 4,925
Deferred taxation 6,794 7,131
Tax on share of net operating losses of associates
Current tax on income for the period 158 2
40,918 22,890
33,080 30,003
Taxation on profit before exceptional items
Taxation on exceptional items 7,838 (7,113)
40,918 22,890
5. Dividends
6 months to 6 months to
30 June 2004 30 June 2003
#'000 #'000
Equity
Interim payable - common shares of 1p 8,107 3,331
Special dividend payable - common shares of 1p 23,163 -
Non-equity
Payable - cumulative redeemable convertible preference shares of 1p 1,200 1,200
Amortisation of issue costs 63 63
Reversal of accrued charge (see note below) - (875)
32,533 3,719
The interim dividend of 3.5p per share (2003: 2p) and special dividend of 10p
per share (2003: nil) are payable in November 2004 to shareholders who were
registered at the close of business on 17 September 2004.
Dividends amounting to #343,000 for the six months ended 30 June 2004 (2003:
#55,000) in respect of the Company's common shares held by employee share trusts
have been deducted in arising at the aggregate of dividends proposed.
The amount accrued in prior periods in respect of the dividend on the cumulative
redeemable convertible preference shares was adjusted in 2003 to reflect the
fixed future dividend rate of 6% per annum, which resulted from the Initial
Public Offering in the United Kingdom.
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 had the
following three 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 period; and
(iii) deferred share units.
Supplementary basic and diluted earnings per share have been calculated to
exclude the effect of exceptional items, non-operating gains and losses and
goodwill amortisation. The adjusted numbers have been provided in order that the
effects of these charges on reported earnings can be fully appreciated.
6 months to 30 June 2004 6 months to 30 June 2003
Earnings Weighted Weighted
average Pence Earnings average Pence
number of Per (Restated) number of per
#'000 shares share #'000 shares share
Unadjusted earnings per share
Basic earnings per share
Profit attributable to 72,109 30,072
shareholders
Less preference dividends (1,263) (388)
Earnings attributable to
common shareholders 70,846 230,642,839 30.72 29,684 168,876,031 17.58
Effect of dilutive securities:
Share options 11,450,685 (1.45) 11,145,667 (1.09)
Deferred share units 3,474,469 (0.42) 4,911,815 (0.44)
Cumulative redeemable
convertible preference shares 1,263 16,000,000 (1.28) 388 18,005,471 (1.23)
Diluted earnings per share 72,109 261,567,993 27.57 30,072 202,938,984 14.82
Adjusted earnings per share
Basic earnings per share 70,846 230,642,839 30.72 29,684 168,876,031 17.58
Exceptional items (26,206) (11.36) 26,491 15.69
Amortisation 4,537 1.96 4,768 2.82
Tax on exceptional items
and amortisation 7,838 3.40 (7,113) (4.21)
Basic earnings per share
excluding exceptional items
and amortisation 57,015 230,642,839 24.72 53,830 168,876,031 31.88
Diluted earnings per share 72,109 261,567,993 27.57 30,072 202,938,984 14.82
Exceptional items (26,206) (10.02) 26,491 13.05
Amortisation 4,537 1.73 4,768 2.35
Tax on exceptional items
and amortisation 7,838 3.00 (7,113) (3.50)
Diluted earnings per share
excluding exceptional items
and amortisation 58,278 261,567,993 22.28 54,218 202,938,984 26.72
7. Net fiduciary assets
The following fiduciary assets and liabilities held by the Group have been
included in net current assets:
At 30 At 30 At 31
June 2004 June 2003 December 2003
(Restated)
#'000 #'000 #'000
Insurance broking debtors 4,708,804 5,366,230 3,756,026
Fiduciary investments 27,656 41,061 37,346
Fiduciary cash and deposits 227,538 198,958 212,099
Insurance broking creditors (4,886,412) (5,526,799) (3,953,127)
Net fiduciary assets 77,586 79,450 52,344
Included within fiduciary cash and deposits are amounts which are available to
the Group for general corporate purposes of #7,902,000, #16,403,000, and
#48,543,000 at 30 June 2004, 30 June 2003 and 31 December 2003 respectively.
8. Debtors
At 30 At 30 At 31
June 2004 June 2003 December 2003
(Restated)
#'000 #'000 #'000
Due within one year
Insurance broking debtors 4,708,804 5,366,230 3,756,026
Amounts owed by associated undertakings 1,572 605 1,295
Taxation recoverable 27 6,293 3,450
Deferred taxation 2,669 600 5,223
Other debtors 13,416 38,811 11,056
Prepayments and accrued income 7,308 8,405 12,398
4,733,796 5,420,944 3,789,448
Due after one year
Deferred taxation 3,210 6,431 3,778
Other debtors - - 16
3,210 6,431 3,794
4,737,006 5,427,375 3,793,242
9. Creditors - amounts falling due within one year
At 30 At 30 At 31
June 2004 June 2003 December 2003
(Restated)
#'000 #'000 #'000
Bank and other borrowings 30,124 19,453 18,507
Loan notes - 334 134
Insurance broking creditors 4,886,412 5,526,799 3,953,127
Corporation tax 41,933 18,050 18,069
Deferred Taxation - 9,304 -
Social security payable 3,313 12,669 3,536
Other creditors and accruals 34,905 33,932 44,294
Dividends accrued and proposed 32,757 4,961 15,186
5,029,444 5,625,502 4,052,853
10. Creditors - amounts falling due after more than one year
At 30 At 30 At 31
June 2004 June 2003 December 2003
#'000 #'000 #'000
Bank and other borrowings 27,225 56,066 37,595
Loan notes - 200 -
Deferred Taxation 3,934 - -
Other creditors and accruals 1,215 866 1,151
32,374 57,132 38,746
11. Provisions for liabilities and charges
Vacant Litigation
properties and disputes Other Total
#'000 #'000 #'000 #'000
At 1 January 2004 3,312 6,702 1,485 11,499
Exchange adjustments (21) (38) - (59)
Charged/(released) to the profit
and loss account 169 (986) 1,324 507
Utilised in the period (677) (1,124) - (1,801)
At 30 June 2004 2,783 4,554 2,809 10,146
12. Cash Flow
(a) Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating activities:
6 months to 6 months to
30 June 2004 30 June 2003
(Restated)
#'000 #'000
Continuing operations
Operating profit 115,083 65,718
Amortisation of intangible assets 4,537 4,768
Depreciation of tangible fixed assets 3,971 5,054
Gain on sale of current asset investments (29,492) (5,950)
Cost of shares gifted during the period - 109
Cost of share options issued 1,447 24,399
Decrease in debtors excluding fiduciary balances 1,771 12,817
Decrease in creditors excluding fiduciary balances (9,509) (11,204)
Decrease in provisions for liabilities and charges (2,575) (2,324)
Exchange translation differences 4,611 (1,470)
Net cash inflow from operating activities 89,844 91,917
(b) Reconciliation of movements in net cash
At 1 Other At
January Cash non-cash Exchange 30 June
2004 flow changes movements 2004
#'000 #'000 #'000 #'000 #'000
Cash at bank and in hand 280,584 90,435 - (4,459) 366,560
Deposits classified as liquid (9,128) (2,074) - 139 (11,063)
assets
271,456 88,361 - (4,320) 355,497
Debt due after more than 1 year
- bank loans 37,595 - (13,600) 3,230 27,225
Debt due within 1 year
- bank loans 18,507 1,951 13,750 (4,084) 30,124
- loan notes 134 (134) - - -
18,641 1,817 13,750 (4,084) 30,124
56,236 1,817 150 (854) 57,349
Liquid resources 55,872 (39,475) 29,492 (280) 45,609
Net cash including fiduciary funds 271,092 47,069 29,342 (3,746) 343,757
(c) Movement in borrowings
6 months to 6 months to
30 June 2004 30 June 2003
#'000 #'000
Debt due within 1 year:
Bank borrowings and loan notes 1,951 20,388
Repayment of part of borrowings (134) (40,004)
Debt due after 1 year:
Bank borrowings and loan notes - 58,580
Repayment of part of borrowings - (150,975)
Decrease in borrowings 1,817 (112,011)
Arrangement costs of bank loans - (981)
Cash inflow/(outflow) 1,817 (112,992)
13. Contingent liabilities
The Group's 2003 Annual Report and Accounts disclosed details of two contingent
liabilities, one relating to potential tax liabilities in connection with a
Funded Unapproved Retirement Benefit Scheme ("FURBS") and the other relating to
arbitration proceedings (to which the Group is not a party) including a former
client of E W Blanch Holdings Inc., Superior National Insurance Company.
In relation to the FURBS matter, having taken professional advice, the Directors
do not consider that this will result in any material liability to the Group. In
relation to the Superior National matter, the Group could be pursued for return
of reinsurance brokerage of up to $16m or for damages in connection with an
errors and omissions claim, but no claims or threats of claims against any
member of the Group have been made to date.
There has been no significant change in the status of these contingencies
between the Group's 2003 Annual Report and Accounts and these interim financial
statements.
Introduction
We have been instructed by the company to review the financial information which
comprises the profit and loss account, the balance sheet, the cashflow
statement, the statement of total recognised gains and losses and the related
notes. We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the Directors. The Directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not express
an audit opinion on the financial information. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
the Listing Rules of the Financial Services Authority and for no other purpose.
We do not, in producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2004.
PricewaterhouseCoopers LLP
Chartered Accountants
London
8 September 2004
Notes:
(a) The maintenance and integrity of Benfield Group Limited's 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 interim report
since it was initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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