TIDMHSD
RNS Number : 1530A
Hansard Global plc
25 September 2020
The Company notes that the announcement released at 7.00 am on
24 September 2020 under reference 9288Z contained an error. The
ex-dividend date for the proposed final dividend is 1 October 2020,
and not 30 September 2020 as stated in the original
announcement.
All other details in the announcement remain correct.
25 September 2020
Hansard Global plc
Results for the year ended 30 June 2020
Resilient performance; dividend maintained
Hansard Global plc ("Hansard" or "the Group"), the specialist
long-term savings provider, issues its results for the year ended
30 June 2020 ("FY 2020").
Summary
FY 2020 FY 2019
---------------------------------- ---------------- ----------------
New business sales - PVNBP GBP159.8m GBP155.9m
(1) basis
IFRS profit before tax GBP4.7m GBP4.6m
Underlying profit GBP6.2m GBP6.1m
Operating cash surplus GBP22.7m GBP20.6m
Recommended final dividend
per share (2) 2.65p 2.65p
IFRS earnings per share 3.2p 3.3p
---------------------------------- ---------------- ----------------
As at 30 June 30 June
2020 2019
---------------------------------- ---------------- ----------------
Assets under Administration GBP1,081m GBP1,080m
Value of In-Force (3) GBP148m GBP145m
---------------------------------- ---------------- ----------------
(1) Present Value of New Business Premiums
(2) Subject to approval at the AGM
(3) New b asis of calculation implemented in FY 2020 to reflect
implementation of Group Solvency in the Isle of Man. The prior year
comparative has been restated for consistency (previously
GBP140m).
Gordon Marr, Group Chief Executive Officer, commented:
"This has been a year of resilient progress given the challenges
presented by Covid-19. After starting the first eight months of our
financial year with strong new business growth, the impact of the
global pandemic naturally dampened results in the latter part of
the year. Despite this, new business, assets under administration
and profit before tax were all slightly higher than 2019 . Given
this resilience and our current financial outlook with new business
levels for Q1 2021 only slightly behind that of Q1 2020, we are
delighted to be in a position to maintain our dividend in line with
last year."
NEW BUSINESS
As previously announced, our new business levels were GBP159.8m
on a Present Value of New Business Premiums ("PVNBP") basis, 2.5%
higher than FY 2019. The primary driver of growth in 2020 was our
Latin American region, up 44% for the year.
Strategy IMPLEMENTATION
During the past financial year, the primary focus has been on
delivering our two most significant near-term strategic initiatives
:
-- Bringing to market our locally-licensed investment product in Japan; and
-- Upgrading and streamlining our administration systems and IT infrastructure.
While the circumstances of Covid-19 have presented challenges
and some delays, we continue to work closely with a targeted number
of prospective distribution partners in Japan to conclude
distribution agreements and seek to launch the proposition in the
third quarter of our current financial year.
TRADING RESULTS
IFRS profit before tax for the year was GBP4.7m (FY 2019:
GBP4.6m). Excluding litigation defence costs and other
non-recurring provisions, underlying IFRS profit was GBP6.2m
compared with GBP6.1m in FY 2019.
Fee and commission income was GBP49.5m for the year (2019:
GBP48.5m) as increased fee income in Hansard International offset
lower fee income in Hansard Europe which continues to run-off since
closing to new business in 2013.
Administrative expenses, exclusive of litigation and one-off
items, were GBP23.0m (2019: GBP23.3m). Investment in our Japanese
branch was offset by prudent cost management across a range of
areas. No Covid-19 related government support was sought or
required during the year.
During the year we implemented the Isle of Man's Group Solvency
regime which has meant that we have incorporated the Group's
non-insurance companies into the calculation of Value of In-Force
("VIF") and Own Funds. VIF represents the present value of expected
future shareholder profits less the present value cost of holding
capital required to support the in-force business. VIF totalled
GBP148m as at 30 June 2020, up from GBP140m at 30 June 2019. The
equivalent VIF at 30 June 2019 under the revised methodology was
GBP145m.
New Business Margin, calculated on an EEV basis, improved
marginally to -0.1% as compared to -0.6% in FY 2019. The
improvement was primarily due to lower initial expenses. We expect
the primary catalyst for margin improvement to be a successful
launch of our new product into the Japanese market in the 2021
financial year.
DIVIDS
The Board has proposed a final dividend of 2.65p per share, the
same level as last year. In making this proposal, the Board has
carefully considered its current financial position and future
outcomes under a range of plausible adverse scenarios taking into
account Covid-19.
This dividend, if approved by the shareholders at the Annual
General Meeting on 4 November 2020, represents a total dividend of
4.45p (2019: 4.45p) per share in respect of the financial year.
Such dividend will be paid on 12 November 2020 to shareholders on
the register on 2 October 2020. The associated ex-dividend date is
1 October 2020.
policyholder LITIGATION
The Group continues to manage carefully its litigation exposures
relating to the legacy operations of Hansard Europe. We continue to
believe we have strong defences against the claims being made.
Exposures from o utstanding writs totalled EUR25.8m (GBP23.4m) at
30 June 2020, up EUR4.1m (GBP4.0m) from 30 June 2019. The primary
drivers of the increase have been a combination of additional cases
being added in Italy and Belgium and a reduction in the fair value
of investment assets backing the claims.
During the year, the Group successfully defended nine cases with
net exposures of approximately EUR0.7m (GBP0.6m), three of which
have been appealed by the plaintiffs. Our policy is to maintain
contingent liabilities even where we win cases in the court of
first instance if such cases have been subsequently appealed. These
successes continue to affirm confidence in the Group's legal
arguments.
We received our first insurance recovery for one of our larger
cases during the year, with GBP0.5m in recoveries recognised. We
expect such recoveries to continue during the course of that
litigation.
CURRENT TRADING
With the external environment remaining a challenge, new
business levels for Q1 2021 are currently running slightly behind
that of Q1 2020. We are maintaining flexibility with our customers
with respect to their ability to pay recurring premiums, but have
not otherwise seen any major persistency issues. Our assets under
management remain strong at similar levels to the year-end.
NEXT TRADING UPDATE
The first trading update in respect of the year ending 30 June
2021 is expected to be published on 5 November 2020.
For further information:
Hansard Global plc +44 (0) 1624 688 000
Gordon Marr, Group Chief Executive Officer
Tim Davies, Chief Financial Officer
Email: investor-relations@hansard.com
Camarco +44 (0) 203 757 4980
Ben Woodford, Rebecca Noonan
Notes to editors:
-- Hansard Global plc is the holding company of the Hansard
Group of companies. The Company was listed on the London Stock
Exchange in December 2006. The Group is a specialist long-term
savings provider, based in the Isle of Man.
-- The Group offers a range of flexible and tax-efficient
investment products within a life assurance policy wrapper,
designed to appeal to affluent, international investors.
-- The Group utilises a controlled cost distribution model via a
network of independent financial advisors, and the retail
operations of certain financial institutions who provide access to
their clients in more than 170 countries. The Group's distribution
model is supported by Hansard OnLine, a multi-language internet
platform, and is scalable.
-- The principal geographic markets in which the Group currently
services contract holders and financial advisors are the Middle
East & Africa, the Far East and Latin America. These markets
are served by Hansard International Limited and Hansard Worldwide
Limited.
-- Hansard Europe dac previously operated in Western Europe but
closed to new business with effect from 30 June 2013.
-- The Group's objective is to grow by attracting new business
and positioning itself to adapt rapidly to market trends and
conditions. The scalability and flexibility of the Group's
operations allow it to enter or develop new geographic markets and
exploit growth opportunities within existing markets often without
the need for significant further investment.
Forward-looking statements:
This announcement may contain certain forward-looking statements
with respect to certain of Hansard Global plc's plans and its
current goals and expectations relating to future financial
condition, performance and results. By their nature forward-looking
statements involve risk and uncertainties because they relate to
future events and circumstances which are beyond Hansard Global
plc's control. As a result, Hansard Global plc's actual future
condition, performance and results may differ materially from the
plans, goals and expectations set out in Hansard Global plc's
forward-looking statements. Hansard Global plc does not undertake
to update forward-looking statements contained in this announcement
or any other forward-looking statement it may make. No statement in
this announcement is intended to be a profit forecast or be relied
upon as a guide for future performance.
This announcement contains inside information which is disclosed
in accordance with the Market Abuse Regime.
Legal Entity Identifier: 213800ZJ9F2EA3Q24K05
Chairman's Statement
Introduction
As with many businesses, the Covid-19 global pandemic presented
significant challenges to our operations. I am pleased to report
that Hansard Global plc ("Hansard") adapted well to those
challenges. In late March, almost all of our staff moved to working
from home, with no discernible impact on our customer service or
efficiency. Similarly, virtually all of our staff returned to the
office in June when the Isle of Man became Covid-19 free. During
this period our award-winning technology was able to provide
flexible solutions to both internal operations and outward-facing
new business activities. Under the circumstances we have delivered
a resilient new business and profit result for the year. However,
the wider effects of Covid-19 on the world economy and investor
confidence are likely to continue into 2021.
New business
New business for the 2020 financial year ("FY 2020") improved to
GBP159.8m (in Present Value of New Business Premiums ("PVNBP")
terms), up 2.5% from the FY 2019 figure of GBP155.9m.
Until early March 2020 we were expecting a much higher growth in
new business, but the effects of Covid-19 and national lockdowns
inevitably had a negative impact on our new business generation in
our fourth quarter. Covid-19 presented difficult challenges for our
distribution network to meet clients and conclude sales activity at
a time when many people were uncertain about their future financial
position.
Our Latin American region was the highlight for new business
growth over the course of FY 2020, finishing up 44% compared to FY
2019.
Financial performance
Our IFRS profit before tax for the year was GBP4.7m, slightly
higher than 2019. This reflects a number of factors on both the
revenue and cost side.
On the revenue side, fees and commissions were up GBP1.0m to
GBP49.5m for the year (2019: GBP48.5m). Fees and commissions from
Hansard International Limited ("Hansard International") were up
GBP1.6m, whilst fees and commissions from our closed book, Hansard
Europe dac ("Hansard Europe"), continued to fall, as expected, and
were GBP0.6m down on the prior year.
On the cost side, we have continued to invest in our Japanese
branch and in our project to replace our policy administration
systems. Notwithstanding this we have kept our overall costs in
check, seeking to make savings where we can and taking a prudent
approach to variable employee reward in light of Covid-19
uncertainties. Overall, administrative and other expenses were
GBP29.3m for the year (2019: GBP29.5m).
Further detail and analysis is contained in the Business and
Financial Review.
Japan
As noted in our 2019 Annual Report, the key to significantly
increased new business lies in our ability to take advantage of the
opportunity we have developed in Japan. While the circumstances of
Covid-19 have presented challenges and resulted in delays, we
continue to work closely with a targeted number of prospective
distribution partners to conclude distribution agreements and seek
to launch the proposition in the third quarter of our current
financial year.
Capitalisation and solvency
The Group remains well capitalised to meet the requirements of
regulators, contract holders, intermediaries and other
stakeholders. We have not required any government-backed financial
support as a result of Covid-19, nor placed any staff on furlough.
On a risk-based capital basis, total Group Free Assets in excess of
the Solvency Capital Requirements of the Group were GBP66.5m (2019:
GBP86.8m or GBP65.4m on the current year basis), a coverage of 180%
(2019: 233% or 178% on the current year basis). We have maintained
our prudent investment policy for shareholder assets, which
minimises market risk and has provided a stable and resilient
solvency position over many years and economic cycles.
Dividends
The Board has resolved to pay a final dividend of 2.65p per
share (2019: 2.65p). In making this decision, the Board has
carefully considered its current and future cash flows, the risks
and potential variabilities introduced by Covid-19, the outlook for
future growth and profitability and the views of key stakeholders,
including regulators and shareholders.
The dividend is subject to approval at the Annual General
Meeting. If approved, this will represent total dividends for the
financial year of 4.45p per share (2019: 4.45p). Upon approval, the
final dividend will be paid on 12 November 2020. The ex-dividend
date will be 1 October 2020 and the record date will be 2 October
2020.
Board membership
During the year we appointed a number of new independent
Directors to our Board to replace the retirements of Maurice Dyson
and Andy Frepp. We welcomed Graeme Easton, Jose Ribeiro and Philip
Kay to the Board who bring a wealth of international financial
services experience. I would also like to thank Maurice and Andy
for their many valued years of service to Hansard.
The future
While national lockdowns related to Covid-19 have been relaxed
to varying degrees around the world, the threat of a second wave
remains clear and the economic environment remains uncertain and
fragile. Whilst our technology-driven platform and processes offer
significant advantages, it remains challenging for our distributors
to sell international savings and investment products without face
to face meetings, especially when many customers have concerns over
their personal financial prospects. The outlook for new business in
financial year 2021 is therefore difficult to forecast.
Importantly, our strong back-book and assets-driven income streams
provide offsetting stability and cash flow.
We are continuing to invest for the future through the on-going
development of our Japanese proposition and the upgrade of our
systems environment.
Philip Gregory
Chairman
23 September 2020
GROUP CHIEF EXECUTIVE OFFICER'S OVERVIEW
Our financial year this year has been a year of resilient
progress amidst significant challenges. After starting the first
eight months of our financial year with strong new business growth,
Covid-19 unfortunately dampened results in the latter part of the
year. Overall we ended the financial year with new business up 2.5%
and with assets under administration and profit before tax broadly
in line with 2019.
Our longer-term focus remains on our two key strategic
projects:
-- launching our new locally-licenced investment product in Japan, and
-- replacing our policy administration systems to support our
next generation of products and secure cost and efficiency
gains.
Both of these projects have made steady and positive
progress.
Our objective is to supplement our existing international
markets and attain the additional scale necessary to deliver
greater returns to our shareholders.
COVID-19
The global spread of the Covid-19 virus has presented
unprecedented challenges to public health and businesses. The
well-being and safety of our employees has been paramount and it is
to their great credit in these difficult times that our business
continued without significant disruption.
In March 2020 almost our entire workforce moved to working
remotely. Our technology and strong business continuity plans
allowed us to achieve this with minimal disruption. Our back-office
systems and infrastructure served us well. We were able to operate
all our client servicing and processing activities remotely with
little impact to turn-around times.
The Isle of Man had significant success in containing and
eradicating all known cases of the Covid-19 virus and this allowed
a return of our Isle of Man based employees to our head-office in
June. We implemented this cautiously ensuring that enhanced office
cleaning procedures were in place and appropriate PPE and hand gel
available to employees. We also accommodated any vulnerable or
higher risk employees through additional working-from-home
flexibility.
For our Independent Financial Advisor ("IFA") network around the
world, the difficulties in meeting clients, providing advice and
concluding sales were, and in many cases remain, challenging. We
took a number of key actions to facilitate the on-boarding of new
business, for example rolling out additional tools to allow
customers and IFAs to provide and sign documentation
electronically.
We are committed to supporting and working with our customers
where they may be experiencing personal financial difficulties, for
example by allowing for premium holidays without incurring any
additional charges or penalties.
We also sought to ensure any creditors or suppliers were paid on
a timely basis throughout the working-from-home period.
We have not to date seen any significant spikes in redemptions
or lapses, but expect to see some element of adverse impact to
persistency in 2021. We have therefore taken a prudent approach to
our actuarial assumptions and projections and also provided GBP0.2m
for anticipated irrecoverable broker balances.
RESULTS FOR THE YEAR UNDER REVIEW
We believe that the following areas are the fundamental factors
for the success of the Group:
-- Sourcing significant flows of new business from diversified target markets;
-- Managing our exposure to business risk;
-- Positioning ourselves to incorporate ever-increasing levels
of regulation into our business model;
-- Leveraging our market-leading technology and systems; and
-- Managing our cash flows through the cycle to fund the
appropriate balance of investment in new business and
dividends.
I would draw your attention to the following items below.
Additional information is contained in the Business and Financial
Review.
1. New business distribution
Despite a challenging final quarter due to Covid-19, the level
of new business earned during the full year was GBP159.8m (using
the PVNBP metric), up 2.5% from GBP155.9m in FY 2019.
Our Latin American region was the key driver of growth with new
business up 44% for the full year. Our largest region, Middle East
& Africa, proved resilient despite the challenges of Covid-19
with new business up 10.3%.
2. Operational, Business and Financial Risks
Our business model involves the acceptance of a number of risks
on a managed and controlled basis. The Group's Enterprise Risk
Management ("ERM") Framework provides for the identification,
assessment, management, monitoring and control of current and
emerging risks, recognising that systems of internal control can
only provide reasonable and not absolute assurance against material
misstatement or loss. The Group's internal control and risk
management processes have operated satisfactorily throughout the
year under review.
2.1 Litigation Risk
As explained more fully in the Business and Financial Review, we
continue to manage complaints and litigation arising from our
closed-book, Hansard Europe, where the performance of assets linked
to a particular contract have suffered or become illiquid. We
continue to maintain that we do not give investment advice and are
not party to the selection of the asset and therefore we believe
that such claims have no merit.
As at 30 June 2020, the Group had been served with cumulative
writs with a net exposure totalling EUR25.8m, or GBP23.4m in
sterling terms, arising from contract holder complaints and other
asset performance-related issues.
During the year, the Group successfully defended nine cases with
net exposures of approximately EUR0.7m, or GBP0.6m, three of which
have been appealed by the plaintiffs. These successes continue to
affirm confidence in the Group's legal arguments.
We have previously noted that we expect a number of our larger
claims to ultimately be covered by our Group insurance cover.
During FY 2020 we received our first insurance payment on account
for legal expenditure in Italy and recorded GBP0.5m in total
recoveries during the year. We expect such reimbursement to
continue during the course of that litigation.
As a result we also expect that a significant amount of the
GBP23.4m of contingent liabilities referred to above would be
covered by insurance should those cases be ruled against us. We
continue to estimate insurance coverage to be in the range of GBP6m
to GBP13m.
3. Hansard OnLine
Our award-winning IT systems and online customer platform are
key aspects of our proposition. Hansard OnLine is a powerful sales
and business administration tool that is used by independent
financial advisors ("IFAs") and clients the world over. It is an
integral part of the Group's operating model and allows us to
better service IFAs and clients, embed process efficiencies and be
flexible in operational deployment.
Hansard OnLine provides IFAs and clients with a reliable online
self-service model which they can access 24/7 from anywhere around
the world with an internet connection. It provides an important
foundation to our strategic goal of delivery of excellent customer
service.
As noted in 2019, we have embarked on a project to replace our
core administration systems and ensure our infrastructure remains
fit for purpose for our next generation of products and strategic
development. Phase One of this project will deliver functionality
for our Japanese product in the second quarter of this financial
year, with migration of existing products scheduled for the end of
the financial year.
Additional information concerning Hansard OnLine is set out in
the Business and Financial Review.
4. Operating cash flows and dividends
The Group generates operating cash flows to fund investment in
new business and support dividend payments.
As outlined in the Cash Flow analysis section of the Business
and Financial Review, t he Group generated GBP2.1m in overall net
cash inflows before dividends (2019: inflows of GBP2.0m), after the
investment of GBP19.1m (2019: GBP17.5m) in acquiring new business
and GBP3.0m (2019: GBP2.5m) in IT software and equipment
expenditure. Dividends of GBP6.0m were paid in the financial year
(2019: GBP6.0m).
A final dividend of 2.65p per share has been proposed by the
Board and will be considered at the Annual General Meeting on 4
November 2020. When the final dividend is paid at this level,
dividends will total 4.45p per share in respect of the full 2020
financial year.
FINANCIAL PERFORMANCE
Results for the year
Financial performance is summarised as follows. A detailed
review of performance is set out in the Business and Financial
Review that follows this report.
FY 2020 FY 2019
GBPm GBPm
-------------------------------------- -------- --------
New business sales - PVNBP 159.8 155.9
IFRS profit before tax 4.7 4.6
Underlying IFRS profit 6.2 6.1
Assets under Administration 1,080.5 1,079.7
Value of In-Force (regulatory basis) 147.9 139.9*
-------------------------------------- -------- --------
* GBP145.4m on the current year basis.
IFRS results
IFRS profit before tax for the year was GBP4.7m, slightly higher
than 2019. After eliminating litigation and non-recurring items,
the underlying IFRS profit (a non-GAAP metric used by management)
was GBP6.2m, again slightly above 2019.
Fees and commissions were GBP49.5m for the year (2019:
GBP48.5m). Fees from Hansard International were up GBP1.6m to
GBP46.2m from 2019, primarily due to higher surrender fee income
than the prior year. Income from our closed book, Hansard Europe,
has continued to fall, as expected, and is GBP0.6m down on the
prior year.
Administrative and other expenses were GBP29.3m for the year,
just under the 2019 level of GBP29.5m. We have continued to invest
in our Japanese branch and in our project to replace our policy
administration systems. Notwithstanding this we have kept our
overall costs in check, seeking to make savings where we can and
taking a prudent approach to variable employee reward in light of
Covid-19 uncertainties.
Further detail and analysis is contained in the Business and
Financial Review.
Capitalisation and solvency
Our key financial objective is to ensure that the Group's
solvency is managed safely through the economic cycle to meet the
requirements of regulators, contract holders, intermediaries and
shareholders. The Group continues to be well capitalised. Under
risk-based capital methodologies, total Group Free Assets in excess
of the Solvency Capital Requirements of our insurance subsidiaries
were GBP66.5m (2019: GBP86.8m or GBP65.4m on the current year
basis), a coverage of 180% (2019: 233% or 178% on the current year
basis). Shareholder assets are typically held in a wide range of
deposit institutions and in highly-rated money market liquidity
funds. This prudent investment policy for shareholder assets
minimises market risk and has provided a stable and resilient
solvency position over recent years.
our people
Our people are critical to our success. We have a dedicated
dynamic workforce across a number of locations around the world. It
was only through their commitment, flexibility and resilience that
we were able to successfully navigate our way through the
operational challenges of Covid-19 and I thank them enormously for
that.
We have a strong commitment to service and quality in relation
to servicing contract holders and intermediaries. It was therefore
pleasing to have been recognised externally for our customer
service. In October 2019 we won 'Excellence in Customer Service'
from International Investor for both the Latin American region and
as overall global winner. We also maintained our five-star rating
for customer service by AKG Financial Analytics in their 2019
review.
Gordon Marr
Group Chief Executive Officer
23 September 2020
BUSINESS AND FINANCIAL REVIEW
Our Business Model and Strategy
Hansard is a specialist long-term savings provider that has been
providing innovative financial solutions for international clients
since 1987 . We focus on helping financial advisors and
institutions to provide their clients (individual and corporate
investors) with savings and investment products in secure life
assurance wrappers to meet long-term savings and investment
objectives.
We administer assets in excess of GBP1 billion for just under
40,000 client accounts around the world.
Business Model
The Company's head office is in Douglas, Isle of Man, and its
principal subsidiaries operate from the Isle of Man, The Bahamas
and the Republic of Ireland.
Hansard International is regulated by the Isle of Man Financial
Services Authority and has a branch in Malaysia, regulated by the
Labuan Financial Services Authority, to support business flows from
Asian growth economies. Through its relationship with a local
insurer in the UAE, Hansard International reinsures business
written in the UAE.
Launched in 2019, Hansard Worldwide underwrites international
and expatriate business around the world. It is regulated by the
Insurance Commission of The Bahamas.
Hansard Europe is regulated by the Central Bank of Ireland.
Hansard Europe ceased accepting new business with effect from 30
June 2013.
Our products are designed to appeal to affluent international
investors, institutions and wealth-management groups. They are
distributed exclusively through IFAs and the retail operations of
financial institutions.
Our network of Account Executives provides local language-based
support services to financial advisors in key territories around
the world, supported by our multi-language online platform, Hansard
OnLine.
Vision and Strategy
Our vision for the Hansard Group is:
"to share success with our clients by providing simple,
understandable and innovative financial solutions" .
To deliver this vision it is clear that client outcomes will be
the central focus within our business and, consequently, we will
need to evolve all aspects of our products, processes and
distribution in order to constantly improve.
Our talented people are the foundation of our business. We have
created an empowering culture, which values innovation, quality,
integrity and respect.
Our strategy to improve, grow and future-proof our business will
be delivered through three key areas of strategic focus:
i. Improve our business: We will improve customer outcomes
through the introduction of new disclosures, the provision of new
products and services, focusing on the quality of our IFAs with
whom we work with and continuing to drive up the engagement of our
people within our business.
ii. Grow our business: We established a new life company in The
Bahamas in 2018. We have acquired the necessary licence and
approvals to access the Japanese market in the 2021 financial year.
We will continue to drive our strategic alliance with Union
Insurance in the UAE and hope to pursue opportunities to replicate
this model in other targeted jurisdictions over the coming
years.
iii. Future-proof our business: We are actively testing
innovative technologies, propositions and business models. It
remains critical to support the online and digital needs of our
clients alongside improving organisational efficiency and
scalability.
Strategy DEVELOPMENT
Our strategy team, led by Ollie Byrne our Chief Strategy
Officer, has three main aims:
i) to capitalise on near term strategic opportunities;
ii) to ensure the Group is correctly positioned for future
regulatory developments and change; and
iii) to consider and plan for longer term industry and technological evolution.
During the past financial year the primary focus has been on
delivering our two most significant near-term strategic
initiatives:
-- bringing to market our locally-licensed investment product in Japan; and
-- upgrading and streamlining our systems and IT infrastructure.
We plan to launch with our first distribution partner in Japan
on the new policy administration system during this financial year.
Completion of the IT implementation and migration is scheduled for
the end of the financial year.
Regulatory change
The Isle of Man Financial Services Authority (the "Authority")
has continued its work to revise the framework for insurance
regulation and supervision and maintain a high level of observance
with the International Association of Insurance Supervisors
Insurance Core Principles. The Authority has sought to develop and
implement these revisions in a way which is appropriate and
proportionate for the Isle of Man's diverse insurance sector whilst
promoting regulatory best practice and preserving the continued
reputation of the Isle of Man as a stable and well-regulated
jurisdiction.
Major milestones have been reached over the course of the last
two years with the implementation of both the updated risk-based
capital and solvency regime and the Conduct of Business Code. A new
Corporate Governance Code of Practice for Commercial Insurers has
also come into force and the Group Supervision regime for long-term
insurers took effect from 1 July 2019.
We have continued our pro-active work to adapt the Hansard model
and strategic and business plans in line with the intent and
objectives of the regulatory changes, working transparently with
our regulators to shape the practical implementation of the Roadmap
and develop robust transition plans.
Products
The Group's products are unit-linked regular or single premium
life assurance and investment contracts which offer access to a
wide range of investment assets. The contracts are flexible, secure
and held within "wrappers" allowing life assurance cover or other
features depending upon the needs of the client. The contract
benefits are directly linked to the value of those assets that are
selected by, or on behalf of, the client and held within the
wrapper. The Group does not offer investment advice. Contract
holders bear the investment risk.
The Group's products do not include any contracts with financial
options and/or guarantees regarding investment performance and,
hence, unlike the situation faced by some other life assurers, the
Group carries no guarantee risk that can cause capital strain.
As a result of high levels of service, the nature of the Group's
products, the functionality of Hansard OnLine, and the ability of
the contract holder to reposition assets within a contract, we aim
to retain the contract holder relationship over the long term.
Contract holder servicing and related activities are performed
by Hansard Administration Services Limited, which is authorised by
the Financial Services Authority of the Isle of Man Government to
act as an Insurance Manager to insurance subsidiaries of the
Group.
Revenues
The main sources of income for the Group are the fees earned
from the administration of insurance contracts. These fees are
largely fixed in nature and amount. Approximately 30% of the
Group's revenues, under IFRS, are based upon the value of assets
under administration. The new business generated in a particular
year is expected to earn income for an average period of 14 years.
Our business is therefore long term in nature both from a contract
holder perspective and with regards to the income that is
generated.
From this income we meet the overheads of the business, invest
in our business, remunerate our distribution network and pay
dividends.
Managing Risk
Risk can arise from a combination of macro events and company
specific matters. On the macro side, events such as the UK
referendum result on EU membership, terrorist attacks, pandemics
and geo-political tensions can cause significant volatility to
stock markets and foreign exchange markets. We therefore continue
to maintain a robust, low risk balance sheet. We believe this
prudent approach to be appropriate to meet the requirements of
regulators, contract holders, intermediaries and shareholders.
We are conscious that managing operational risk is critical to
our business and we are continuously developing our enterprise risk
management system and controls. Further details of our approach to
risk management and the principal risks facing the Group are
outlined in the Risk Management and Internal Control Section.
Hansard OnLine
Hansard OnLine is a powerful and secure tool that is used by our
IFAs around the world. Available in multiple languages, it allows
them to access information about their clients, to generate reports
for their clients, to submit new business applications online, to
place dealing and switch instructions online, to access all client
correspondence and to access a library of forms and literature.
Almost all investment transactions are processed electronically
by intermediaries, on behalf of their clients, using Hansard OnLine
and over 90% of all new business applications are submitted via the
platform.
The straight-through processing of contract holder instructions
(whether received directly or through their appointed agents)
reduces the Group's operational risk exposures, as does the ability
of the Group to communicate electronically with contract holders
and intermediaries, irrespective of geographical boundaries. Data
validation happens in real-time to ensure there are no delays to
the investment of client funds.
Hansard Online Lite provides prospective IFAs with easy access
to a subset of the online system. Its purpose is to showcase our
online proposition to prospective and new IFAs and to allow easy
access to non-sensitive documents and functionality. Users can
access our online document library, the Unit Fund Centre, company
news and submit new business online.
The benefit of Hansard OnLine is recognised by many IFAs as
market leading and our online proposition has been nominated for
and won a number of independent industry awards, including in the
Middle East, one of our most important markets.
Online Accounts
Whilst many of our IFAs are technologically sophisticated and
have been utilising our online offering for years, our client base
has typically lagged behind. However, we are now observing a
growing trend amongst our clients to take more control of their
financial wellbeing by embracing mobile technology to better
monitor and manage their finances.
To support our commitment to delivering 'excellent customer
service', we believe it is vital to provide our clients with a
modern and secure online platform that allows them to access their
finances easily and comprehensively, 24/7. We provide this through
our client-facing version of Hansard OnLine, called Online
Accounts.
Similar to our IFA-facing online platform, the client's Online
Account allows them to access all their policy information,
valuation statements, transaction history, premium reports, switch
funds online, access all correspondence, access a library of forms
and literature, and more.
A large and increasing number of clients have signed up for this
service which allows them to view all documentation and
communications relating to their contracts via their Online Account
as well as choosing to receive post electronically, rather than in
hard-copy form. This not only provides a more secure, faster and
cost-efficient means of communication with clients but also the
convenience to manage their own contract within a timeframe which
is more suitable.
Continuous Improvements to our Online Proposition
When it comes to improving how we operate and the proposition we
offer, we value the views of our clients and IFAs. This means that
we regularly seek feedback through surveys and office visits in
order to identify ways in which we can improve our systems and
processes to best meet their needs. However, it is not just
functionality that is important, we also have running alongside a
continuous programme to enhance the overall user experience, for
both IFA's and our clients.
Cyber Security
As cyber crime continues to increase and target commercial and
public enterprises alike, Hansard has continued to invest in its
cyber security. This includes continuous upgrades to our firewall
protection, encryption of data, tokenisation of sensitive data and
annual external review and testing.
Excellent Customer Service
We strive to provide excellent customer service and turn-around
times to our clients and our IFA community. We have won a number of
external awards in this area over the years, most recently i n
October 2019 when we won 'Excellence in Customer Service' from
International Investor for both the Latin American region and as
overall global winner. We also maintained our five-star rating for
customer service by AKG Financial Analytics in their 2019
review.
Key performance indicators
The Group's senior management team monitors a wide range of Key
Performance Indicators, both financial and non-financial, that are
designed to ensure that performance against targets and
expectations across significant areas of activity are monitored and
variances explained.
The following is a summary of the key indicators that were
monitored during the financial year under review.
New Business - The Group's internal indicator of calculating new
business production, Compensation Credit ("CC") reflects the amount
of base commission payable to intermediaries. Incentive arrangements
for intermediaries and the Group's Account Executives incorporate
targets based on CC (weighted where appropriate).
New business levels are reported daily and monitored weekly against
target levels. Modest business growth was achieved this year during
a period of significant challenge due to Covid-19. Growth i nitiatives
in 2021 will focus on commercialising the opportunity in Japan where
significant upside exists.
Administrative Expenses (excl. litigation and non-recurring items)
- The Group maintains a rigorous focus on expense levels and the
value gained from such expenditure. The objective is to develop
processes to restrain increases in administrative expenses to the
rates of inflation assumed in the charging structure of the Group's
policies.
The Group's administrative and other expenses for the year (excl.
litigation and non-recurring items) were GBP23.0m compared to GBP23.3m
in the previous year. Further detail is contained in the section
on Administrative and other expenses.
Cash - Bank balances and significant movements on balances are
reported monthly. The Group's liquid funds at the balance sheet
date were GBP60.8m (2019: GBP65.3m). The change is reflective of
the level of dividends paid and the level of new business written
during the year which has an initial cash flow strain.
Business continuity - Maintenance of continual access to data is
critical to the Group's operations. This has been achieved throughout
the year through a robust infrastructure. The Group is pro-active
in its consideration of threats to data, data security and data
integrity. Business continuity and penetration testing is carried
out regularly by internal and external parties. Business continuity
was further evidenced by a successful switch to remote-working in
March 2020 due to the Covid-19 pandemic.
Risk profile - The factors impacting on the Group's risk profile
are kept under continual review. Senior management review operational
risk issues at least monthly. The significant risks faced by the
Group are summarised later in this Strategic Report.
business AND FINANCIAL REVIEW
NEW BUSINESS PERFORMANCE FOR THE YEARED 30 JUNE 2020
The Group continues to focus on the distribution of regular and
single premium products in a range of jurisdictions around the
world, achieving well diversified new business growth.
New business performance for the year is summarised in the table
below:
2020 2019 %
Basis GBPm GBPm change
------------------------------- ------ ------ -------
Present Value of New Business
Premiums 159.8 155.9 2.5%
Annualised Premium Equivalent 24.0 24.7 (2.8%)
------------------------------- ------ ------ -------
In Present Value of New Business Premiums ("PVNBP") terms, new
business for the year to 30 June 2020 was GBP159.8m, 2.5% up on the
prior year. The primary area of growth during the year came from
increased sales of regular savings products in Latin America.
Annualised Premium Equivalent ("APE") shows a slightly different
year on year change as it does not take into account the more
detailed experience assumptions for regular premiums that are
accounted for within the PVNBP methodology.
Present Value of New Business Premiums
New business flows on the PVNBP basis for the Group are further
analysed as follows:
2020 2019 %
PVNBP by product type GBPm GBPm change
------------------------ ------ ------ --------
Regular premium 102.0 85.5 19.3%
Single premium 57.8 70.4 (17.9%)
------------------------ ------ ------ --------
Total 159.8 155.9 2.5%
------------------------ ------ ------ --------
2020 2019 %
PVNBP by region GBPm GBPm change
------------------------ ------ ------ --------
Middle East and Africa 63.3 57.4 10.3%
Rest of World 48.5 52.7 (8.0%)
Latin America 37.3 25.9 44.0%
Far East 10.7 19.9 (46.2%)
------------------------ ------ ------ --------
Total 159.8 155.9 2.5%
------------------------ ------ ------ --------
Our largest region, Middle East & Africa, proved resilient
despite the challenges of Covid-19 restrictions. New business was
up 10.3% for the year.
The Rest of World region was down 8.0% for the year. The
reduction was primarily due to a lower number of high value single
premium cases.
New business in Latin America was up 44.0% for the year despite
being hit particularly hard by Covid-19 in the fourth quarter. Our
subsidiary in The Bahamas, Hansard Worldwide Limited, continues to
be well received since its launch in 2019 and has allowed us to
build on our key distribution relationships and deploy targeted
initiatives to encourage adoption.
As previously communicated, our current focus in the Far East
region is to develop and bring our new Japanese proposition to
market. We are also working with our existing distribution network
to develop additional new business via our licence in Labuan,
Malaysia.
In terms of business mix, we continue to focus on higher margin
regular premium savings while selectively pursuing single premiums
where the margin is acceptable. This has resulted in our regular
premiums rising 19.3% and single premiums falling 17.9% for the
year.
We continue to receive business from a diverse range of
financial advisors around the world. The increase in new business
derived from Latin America and Middle East and Africa is reflected
in an increase in the percentage of the contractual premium
denominated in US Dollars.
2020 2019
Currency denominations (as a percentage of % %
PVNBP)
-------------------------------------------- ----- -----
US dollar 82 68
Sterling 15 23
Euro 2 7
Other 1 2
-------------------------------------------- ----- -----
100 100
-------------------------------------------- ----- -----
New business margins
New business margins (calculated on a PVNBP basis) are sensitive
to sales levels and product mix (regular premium products and
smaller single premium sizes typically have a higher margin). Our
new business margin was -0.1% for the year, compared to -0.6% for
2019 . The improvement was primarily due to lower initial expenses.
We expect the primary catalyst for margin improvement to be a
successful launch of our new product into the Japanese market in
the 2021 financial year.
Presentation of financial results
Our business is long term in nature. The nature of the Group's
products means that new business flows have a limited immediate
impact on current earnings reported under International Financial
Reporting Standards as adopted by the European Union ("IFRS"), as
initial fees and acquisition costs from the contracts sold are
mostly deferred and amortised over the life of the contract. The
benefit of sales to fee income levels are felt in future financial
periods, noting also that our newer products have a longer earning
period than our older products.
Results for the year
The following is a summary of key items to allow readers to
better understand the results for the year. IFRS profit before tax
for the year was GBP4.7m, slightly higher than 2019.
Operating profit prior to litigation and non-recurring items was
GBP6.2m in 2020, also slightly higher than 2019.
Abridged consolidated income statement
The consolidated statement of comprehensive income presented
under IFRS reflects the financial results of the Group's activities
during the year. This income statement however, as a result of its
method of presentation, incorporates a number of features that
might affect an understanding of the results of the Group's
underlying transactions. This relates principally to:
-- investment gains during the year attributable to contract
holder assets of GBP0.1m (2019: GBP47.2m); and
-- fund management fees paid by the Group to third parties
having a relationship with the underlying contract. In 2020, third
party fund management fees attributable to contract holder assets
were GBP4.8m (2019: GBP4.7m). These are reflected in both income
and expenses under the IFRS presentation.
An abridged non-GAAP consolidated income statement in relation
to the Group's own activities is presented below, excluding the
items of income and expenditure indicated above.
2020 2019
GBPm GBPm
------------------------------------------------- ------- -------
Fees and commissions attributable to Group
activities 44.7 43.8
Investment and other income 2.5 2.3
------------------------------------------------- ------- -------
47.2 46.1
Origination costs (18.0) (16.7)
Administrative and other expenses attributable
to the Group, before
litigation and non-recurring items (23.0) (23.3)
------------------------------------------------- ------- -------
Operating profit for the year before litigation
and non-recurring items 6.2 6.1
Litigation and non-recurring expense items (1.5) (1.5)
------------------------------------------------- ------- -------
Profit for the year before taxation 4.7 4.6
Taxation (0.2) -
------------------------------------------------- ------- -------
Profit for the year after taxation 4.5 4.6
------------------------------------------------- ------- -------
Fees and commissions
Fees and commissions for the year attributable to Group
activities were GBP44.7m, up 2.1% on the 2019 total of
GBP43.8m.
Contract fee income totalled GBP32.2m for the year (2019:
GBP31.3m). C ontract fee income includes the amortised element of
up-front income deferred under IFRS and contract-servicing charges.
Amortisation of deferred income was broadly similar to the prior
year, whilst immediately recognised fees, including surrender
charges, have increased compared to the prior year. The continuing
run-off of Hansard Europe which closed to new business in 2013
resulted in lower contract fee income of GBP0.6m compared to
2019.
Fund management fees accruing to the Group and commissions
receivable from third parties totalling GBP12.5m (2019: GBP12.5m)
are related directly to the value of assets under administration
and are therefore exposed to market movements, currency rates and
valuation judgements. Average assets under management for 2020 were
mostly higher than 2019, however were offset by the significant
drop in the markets in March 2020 when Covid-19 related lockdowns
started taking place.
A summary of fees and commissions is set out below:
2020 2019
GBPm GBPm
-------------------------------------------- --------------- -----
Contract fee income 32.2 31.3
Fund management fees accruing to the Group 7.9 7.8
Commissions receivable 4.6 4.7
-------------------------------------------- --------------- -----
44.7 43.8
-------------------------------------------- --------------- -----
Included in contract fee income is GBP17.0m (2019: GBP16.9m)
representing the amortisation of fees prepaid in previous years, as
can be seen in the analysis set out below:
2020 2019
GBPm GBPm
--------------------------------- ----- -----
Amortisation of deferred income 17.0 16.9
Income earned during the year 15.2 14.4
--------------------------------- ----- -----
Contract fee income 32.2 31.3
--------------------------------- ----- -----
Investment and other income
Historically low UK and US interest rates continue to result in
relatively modest levels of interest income earned on the Group's
deposits and money market funds.
2020 2019
GBPm GBPm
---------------------------------------------- ----- -----
Bank interest and other income receivable 2.3 2.0
Foreign exchange gains on revaluation of net
operating assets 0.2 0.3
---------------------------------------------- ----- -----
2.5 2.3
---------------------------------------------- ----- -----
Origination costs
Under IFRS, new business commissions paid, together with the
directly attributable incremental costs incurred on the issue of a
contract, are deferred and amortised over the anticipated life of
that contract to match the longer-term income streams expected to
accrue from the contracts issued this year. Typical terms range
between 6 years and 16 years, depending on the nature of the
product. Other elements of the Group's new business costs, for
example recruitment costs, which reflect investment in distribution
resources in line with our strategy, are expensed as incurred.
Origination costs incurred in 2020 have increased as a result of
the increased level of new business, increased sales incentive
schemes and a higher mix of business reinsured from the UAE which
has a higher cost of acquisition. The increased costs of sales
incentive schemes were generally funded from reduced international
travel and events.
2020 2019
GBPm GBPm
---------------------------------------------- ------ ------
Origination costs - deferred to match future
income streams 18.9 18.0
Origination costs - expensed as incurred 3.4 2.9
---------------------------------------------- ------ ------
Investment in new business in year 22.3 20.9
Net amortisation of deferred origination
costs (4.3) (4.2)
---------------------------------------------- ------ ------
18.0 16.7
---------------------------------------------- ------ ------
Amounts totalling GBP14.6m (2019: GBP13.8m) have been expensed
to match contract fee income earned this year from contracts issued
in previous financial years, as can be seen in the analysis
below.
Summarised origination costs for the year were:
2020 2019
GBPm GBPm
--------------------------------------------- ----- ------
Amortisation of deferred origination costs 14.6 13.8
Other origination costs incurred during the
year 3.4 2.9
--------------------------------------------- ----- ------
18.0 16.7
--------------------------------------------- ----- ------
Administrative and other expenses
We continue to manage our expense base robustly to control
administrative expenses while supporting our strategic developments
and other new business growth activities with targeted
expenditure.
An analysis of administrative and other expenses is set out in
notes 8 and 9 to the consolidated financial statements under IFRS.
The following summarises some of the expenses attributable to the
Group's own activities.
2020 2019
GBPm GBPm
--------------------------------------------- ----- -----
Salaries and other employment costs 10.6 10.5
Other administrative expenses 7.7 7.8
Professional fees, including audit 2.9 3.2
--------------------------------------------- ----- -----
Recurring administrative and other expenses 21.2 21.5
Growth investment spend 1.8 1.8
--------------------------------------------- ----- -----
Administrative and other expenses, excl.
litigation and non-recurring expense items 23.0 23.3
Litigation defence and settlement costs 1.3 1.4
Provision for doubtful debts in respect
of broker balances 0.2 0.1
Total administrative and other expenses 24.5 24.8
--------------------------------------------- ----- -----
Salaries and other employment costs have increased by GBP0.1m or
1% to GBP10.6m, reflecting costs from the expansion of headcount in
our Japan branch, the costs of short-term contractors supporting
our systems project and general salary inflation. Costs were offset
by annual bonuses not being accrued for the 2020 year-end due to
corporate targets not being met and uncertainty over the impact of
Covid-19.
The average Group headcount for the 2020 financial year was 192
people (2019: 191 people).
Other administrative expenses have reduced from GBP7.8m to
GBP7.7m.
Professional fees including audit are down a further GBP0.3m
(2019: GBP0.1m) as a result of a savings programme which was
commenced in 2019 and will continue to be realised into 2021. These
costs include amounts totalling GBP0.5m paid to the Group's auditor
(2019: GBP0.6m); GBP0.6m (2019: GBP0.6m) for administration,
custody, dealing and other charges paid under the terms of the
investment processing outsourcing arrangements; recruitment costs
of GBP0.2m (2019: GBP0.3m), costs of investor relations activities
of GBP0.2m (2019: GBP0.3m) and general legal and professional fees
of GBP1.3m (2019: GBP1.4m).
Growth investment spend represents internal and external
strategic costs to generate opportunities for growth. This includes
the costs of our strategy team and costs associated with developing
our Japanese proposition.
Litigation defence and settlement costs represent those costs
(net of insurance recoveries) incurred in defending Hansard Europe
against writs taken against it, as described more fully in the
Contingent Liabilities note to the consolidated financial
statements. During 2020 we recorded a credit for expense recoveries
accepted by our insurers totalling GBP0.5m.
Provision for doubtful debts relate to amounts due from brokers
which are deemed to be irrecoverable. The GBP0.2m provided for in
2020 represents an estimate due to increased risk perceived for
brokers who may not be in a financial position to repay upfront
commissions on lapsed business due to Covid-19.
Cash Flow ANALYSIS
The operational cash surplus (fees deducted from contracts and
commissions received, less operational expenses paid) for the year
was GBP22.7m (2019: GBP20.6m). Operating cash flows have increased
this year as a result of the increase in fee income levels.
Writing new business, particularly regular premium business,
produces a short-term cash strain as a result of the commission and
other costs incurred at the inception of a contract. Annual
management charges offset this strain and produce a positive return
over time.
Future increases in new business levels can be funded where
necessary by the Group's significant cash resources, but over time
as the level of contract holder assets is built up, the annual
management charges that are earned from the Group's newer products
will become sufficient to sustain new business growth and
dividends.
During 2020, the Group invested GBP2.9m (2019: GBP2.5m) as part
of a project to replace its administration systems. These costs are
capitalised as computer software on the Group's consolidated
balance sheet.
The following non-GAAP tables summarise the Group's own cash
flows in the year. Overall cash and deposits have decreased from
GBP65.3m at 30 June 2019 to GBP60.8m at 30 June 2020.
2020 2019
GBPm GBPm
--------------------------------------------- ------- -------
Net cash surplus from operating activities 22.7 20.6
Interest received 1.6 1.4
--------------------------------------------- ------- -------
Net cash inflow from operations 24.3 22.0
Net cash investment in new business (19.1) (17.5)
Purchase of property and computer equipment (3.0) (2.5)
Corporation tax paid (0.1) -
Net cash inflow before dividends 2.1 2.0
Dividends paid (6.0) (6.0)
--------------------------------------------- ------- -------
Net cash outflow after dividends (3.9) (4.0)
--------------------------------------------- ------- -------
2020 2019
GBPm GBPm
------------------------------------------------ ------- ------
Net cash outflow after dividends (3.9) (4.0)
(Decrease)/increase in amounts due to contract
holders (0.2) 0.6
------------------------------------------------ ------- ------
Net Group cash movements (4.1) (3.4)
Group cash - opening position 65.3 69.4
Effect of exchange rate movements (0.4) (0.7)
Group cash - closing position 60.8 65.3
------------------------------------------------ ------- ------
Bank deposits and money market funds
The Group holds its liquid assets in highly-rated money market
liquidity funds and with a wide range of deposit institutions to
minimise market risk. Deposits totalling GBP21.2m (2019: GBP25.1m)
have original maturity dates typically greater than 3 months and
are therefore excluded from the definition of "cash and cash
equivalents" under IFRS as reflected in note 16 to the consolidated
balance sheet. The following table summarises the total shareholder
cash and deposits at the balance sheet date.
2020 2019
GBPm GBPm
----------------------------------------------- ----- -----
Money market funds and immediately available
cash 35.0 40.2
Short-term deposits with credit institutions 4.6 -
----------------------------------------------- ----- -----
Cash and cash equivalents under IFRS 39.6 40.2
Longer-term deposits with credit institutions 21.2 25.1
Group cash and deposits 60.8 65.3
----------------------------------------------- ----- -----
Abridged consolidated balance sheet
The consolidated balance sheet presented under IFRS reflects the
financial position of the Group at 30 June 2020. As a result of its
method of presentation, the consolidated balance sheet incorporates
the financial assets held to back the Group's liability to contract
holders, and also incorporates the net liability to those contract
holders of GBP1,080.5m (2019: GBP1,079.7m). Additionally, that
portion of the Group's capital that is held in bank deposits is
disclosed in "cash and cash equivalents" based on original maturity
terms, as noted above.
The abridged consolidated balance sheet presented below,
adjusted for those differences in disclosure, allows a better
understanding of the Group's own capital position.
2020 2019
GBPm GBPm
-------------------------------------- ------ ------
Assets
Deferred origination costs 122.3 118.0
Other assets 15.0 10.1
Bank deposits and money market funds 60.8 65.3
-------------------------------------- ------ ------
198.1 193.4
-------------------------------------- ------ ------
Liabilities
Deferred income 137.8 133.2
Other payables 34.4 33.0
-------------------------------------- ------ ------
172.2 166.2
-------------------------------------- ------ ------
Net assets 25.9 27.2
-------------------------------------- ------ ------
Shareholders' equity
Share capital and reserves 25.9 27.2
-------------------------------------- ------ ------
Deferred origination costs
The deferral of origination costs reflects that the Group will
earn fees over the long-term from contracts issued in a given
financial year. These costs are recoverable out of future net
income from the relevant contract and are charged to the
consolidated statement of comprehensive income on a straight-line
basis over the life of each contract.
The movement in value over the financial year is summarised
below.
2020 2019
Carrying value GBPm GBPm
--------------------------------------------- ------- -------
At beginning of financial year 118.0 113.8
Origination costs deferred during the year 18.9 18.0
Origination costs amortised during the year (14.6) (13.8)
--------------------------------------------- ------- -------
122.3 118.0
--------------------------------------------- ------- -------
Deferred income
The treatment of deferred income ensures that contract fees are
taken to the consolidated statement of comprehensive income in
equal instalments over the longer-term, reflecting the services to
be provided over the period of the contract. This is consistent
with the treatment of deferred origination costs. Deferred income
at the balance sheet date is the unamortised balance of accumulated
initial amounts received on new business.
The proportion of income deferred in any one year is dependent
upon the mix and volume of new business flows in previous years.
The Group's focus on regular premium business means that these fees
are received over the initial period of the contract, rather than
being received up front, as is often the case with single premium
contracts.
The majority of initial fees collected during the year relates
to charges taken from contracts issued in prior financial years
demonstrating the cash generative nature of the business. Regular
premium contracts issued in this financial year will generate the
majority of their initial fees over the next 18 months on
average.
The movement in value of deferred income over the financial year
is summarised below.
2020 2019
Carrying value GBPm GBPm
------------------------------------------ ------- -------
At beginning of financial year 133.2 130.3
Initial fees collected in the year and
deferred 21.6 19.8
Income amortised during the year to fees
income (17.0) (16.9)
------------------------------------------ ------- -------
137.8 133.2
------------------------------------------ ------- -------
CONTRACT HOLDER Assets under administration
In the following paragraphs, contract holder assets under
administration ("AuA"), refers to net assets held to cover
financial liabilities, as analysed in note 17 to the consolidated
financial statements presented under IFRS.
The Group enjoys a stream of cash flows from the large number of
regular premium contracts administered on behalf of clients around
the world. The Group also acquires assets via lump sum single
premium business which totalled GBP57.2m this year (2019:
GBP70.4m). The majority of premium contributions are designated in
currencies other than sterling, reflecting the wide geographical
spread of those contact holders. Premium contributions during the
year also includes additional contributions of approximately
GBP2.6m (2019: GBP2.9m) relating to single and regular premium
contracts issued by Hansard Europe in prior years.
These flows are offset by charges and withdrawals, by premium
holidays affecting regular premium policies and by market valuation
movements.
The currency composition of AuA at the balance sheet date is
similar to that as at 30 June 2019, with 67% of AuA designated in
US dollar (2019: 65%) and 11% in euro (2019: 13%).
The value of AuA at 30 June 2020 was GBP1,080.5m.
2020 2019
GBPm GBPm
----------------------------------------- --------------------------------- --------
Deposits to investment contracts -
regular premiums 85.8 80.3
Deposits to investment contracts -
single premiums 57.2 70.4
Withdrawals from contracts and charges (142.3) (154.2)
Effect of market and currency movements 0.1 47.2
----------------------------------------- --------------------------------- --------
Movement in year 0.8 43.7
Opening balance 1,079.7 1,036.0
----------------------------------------- --------------------------------- --------
Closing balance 1,080.5 1,079.7
----------------------------------------- --------------------------------- --------
The analysis of AuA held by each Group subsidiary to cover
financial liabilities is as follows:
2020 2019
Fair value of AuA at 30 June GBPm GBPm
------------------------------ -------- --------
Hansard International 986.5 965.4
Hansard Europe 94.0 114.3
------------------------------ -------- --------
1,080.5 1,079.7
------------------------------ -------- --------
Assets acquired by Hansard Worldwide are administered by Hansard
International and therefore are included within Hansard
International's total AuA.
Since it closed to new business in 2013, Hansard Europe's AuA
has been declining broadly in line with expectations as contracts
are surrendered or mature.
DIVIDS
An interim dividend of 1.8p per share was paid in April 2020.
This amounted to GBP2.4m.
The Board has considered the results for the full year ended 30
June 2020, the Group's continued cash flow generation and its
future expectations and has resolved to pay a final dividend of
2.65p per share (2019: 2.65p). Subject to approval at the AGM, this
dividend will be paid on 12 November 2020.
complaints and potential litigation
In valuation issues such as those referred to above, financial
services institutions can be drawn into disputes in cases where the
performance of assets selected directly by or on behalf of contract
holders through their advisors fails to meet their expectations.
This is particularly relevant in the case of more complex products
distributed throughout Europe.
Even though the Group does not give any investment advice, as
this is left to the contract holder directly or through an agent,
advisor or an entity appointed at their request or preference, the
Group has been subject to a number of complaints in relation to the
performance of assets linked to contracts.
As at 30 June 2020, the Group had been served with cumulative
writs with a net exposure totalling EUR25.8m, or GBP23.4m in
sterling terms (30 June 2019: EUR21.7m / GBP19.4m) arising from
contract holder complaints and other asset performance-related
issues. All such writs relate to historic business written by
Hansard Europe prior to its closure to new business in 2013. The
increase since 30 June 2019 was driven by a combination of
additional cases being added in Italy and Belgium and a reduction
in the fair value of investment assets backing the claims.
During the year, the Group successfully defended nine cases with
net exposures of approximately EUR0.7m, or GBP0.6m, three of which
have been appealed by the plaintiffs. These successes continue to
affirm confidence in the Group's legal arguments.
Our policy is to maintain contingent liabilities even where we
win cases in the court of first instance if such cases have been
subsequently appealed. This includes our largest single case in
Belgium where the appeal has been deferred pending the outcome of a
separate constitutional court case.
We have previously noted that we expect a number of our larger
claims to ultimately be covered by our Group insurance cover.
During FY 2020 we received our first insurance payment on account
for legal expenditure in Italy and have recorded GBP0.5m in total
recoveries during the year. We expect such reimbursement to
continue during the course of that litigation.
As a result we also expect that a significant amount of the
GBP23.4m of contingent liabilities referred to above would be
covered by insurance should those cases be ruled against us. We
continue to estimate insurance coverage to be in the range of GBP6m
to GBP13m.
While it is not possible to forecast or determine the final
results of such litigation, based on the pleadings and advice
received from the Group's legal representatives, we believe we have
a strong chance of success in defending these claims. The writs
have therefore been treated as contingent liabilities and are
disclosed in note 25 to the consolidated financial statements.
Net asset value per shaRE
The net asset value per share on an IFRS basis at 30 June 2020
is 18.8p (2019: 19.8p) based on the net assets in the Consolidated
Balance Sheet divided by the number of shares in issue, being
137,557,079 ordinary shares (2019: 137,557,079).
Risk management and internal control
The Group is naturally exposed to both existing and emerging
internal and external risks as it pursues its strategic and
business objectives. All such risks, are managed as part of the
corporate model via the governance, risk management and internal
control arrangements which constitute the ERM Framework. This has
never been more clearly demonstrated than via the unprecedented
circumstances and associated challenges presented by the Covid-19
pandemic, which emerged in the third quarter of our reporting
period and escalated rapidly in terms of the societal, economic and
corporate level impacts, manifesting at macro and micro levels
around the world.
The Group ERM Framework enabled the Board to take swift,
decisive and informed decisions in response to the immediate risks
which the pandemic presented to the Group, its employees, customers
and wider stakeholder groups. The early invocation of
pandemic-specific business continuity planning and the inherent
strength of the Group's systems infrastructure supported a smooth
and stable transition to remote working, which have remained robust
and resilient throughout the period of 'lockdown' measures
introduced at local and international levels.
Established ERM protocols enabled targeted risk metrics and key
performance indicators to be rapidly invoked, addressing both
prudential and conduct elements of the principal and subordinate
risk spectrum. These metrics have supported continuous monitoring
of operational performance, customer and intermediary impacts and
the potential consequences of market volatilities and related
stresses to global economies. Operational and Executive Risk
Committee Meetings have maintained close scrutiny of these
monitoring activities with formal reporting to both the Board and
the Group's regulators.
Approach
Having regard to the Financial Reporting Council's 'Guidance on
Risk Management, Internal Control and Related Financial and
Business Reporting', the ERM Framework encompasses the policies,
processes, tasks, behaviours and other aspects of the Group's
environment, which cumulatively:
-- Facilitate the effective and efficient operation of the Group
and its subsidiaries by enabling appropriate responses to be made
to significant business, operational, financial, compliance and
other risks to business objectives, so safeguarding the assets of
the Group;
-- Help to ensure the quality of internal and external
reporting. This requires the maintenance of proper records and
processes that generate a flow of timely, relevant and reliable
information from within and outside the Group;
-- Seek to ensure continuous compliance with applicable laws and
regulations as well as with internal policies governing the conduct
of business; and
-- Drive the cultural tone and expectations of the Board in
respect of governance, risk management and internal control
arrangements and the delegation of associated authorities and
accountabilities.
The Board of Hansard Global plc ("the Board") has overall
responsibility for the effective operation of the ERM Framework and
the Directors retain responsibility for determining, evaluating and
controlling the nature and extent of the risks which the Board is
willing to accept across the spectrum of risk types, taking account
of varying levels of strategic, financial and operational stress
and emerging as well as existing risks. This approach ensures that
risk appetite remains an integral element of decision-making by
both the Board and the Executive Management Team, including in the
setting of strategy, ongoing business planning and business change
initiatives.
The ERM Framework has been designed to be appropriate to the
nature, scale and complexity of the Group's business at both
corporate and subsidiary level. The Framework components are
reviewed on at least an annual basis and refined, if necessary, to
ensure they remain fit for purpose in substance and form and
continue to support the Directors' assessment of the adequacy and
effectiveness of the Group's risk management and internal control
systems. Such assessment depends upon the Board maintaining a
thorough understanding of the Group's risk profile, including the
types, characteristics, interdependencies, sources and potential
impact of both existing and emerging risks on an individual and
aggregate basis. The disciplines of the ERM Framework seek to
coordinate risk management in respect of the Group as a whole,
including for the purpose of ensuring compliance with capital
adequacy requirements, liquidity adequacy requirements and
regulatory capital requirements, in line with the Isle of Man
Financial Services Authority risk-based capital regime.
Governance, risk management and internal control protocols
remain structured upon the 'three lines of defence' model, which
addresses how specific duties and responsibilities are assigned and
coordinated. Front line management are responsible for identifying
risks, executing effective controls and escalating risk issues and
events to the Group's Control Functions. The Group Risk and
Compliance Teams oversee the First Line, ensuring that functions
and operations are consistent with rules, limits and risk appetite
constraints. The Group Internal Audit Department provides
independent assurance services to the Board and Executive
Management Team on the adequacy and effectiveness of the Group's
governance, risk management and internal control arrangements.
The ERM Framework seeks to add value through embedding risk
management and effective internal control systems as continuous and
developing processes within strategy setting, programme level
functions and day-to-day operating activities. The ERM Framework
also acknowledges the significance of the Group's operating culture
and values in relation to risk management and their impact on the
overall effectiveness of the internal control framework.
Emerging Risks
The ERM Framework promotes the pursuit of its overarching
performance, information and compliance objectives through focus on
five interrelated elements, which enable the management of risk at
strategic, programme and operational level to be integrated, so
that layers of activity support each other. The five interrelated
elements are defined as:
-- Management oversight and the control culture
-- Risk recognition and assessment
-- Control activities and segregation of duties
-- Information and communication
-- Monitoring activities and correcting deficiencies
Risk management processes are undertaken on both a top-down and
bottom-up basis. The top-down aspect involves the Board assessing,
analysing and evaluating what it believes to be the principal
existing and emerging risks facing the Group. The bottom-up
approach involves the identification, review and monitoring of
current and forward-looking risks on a continuous basis at
functional and divisional levels, with analysis and formal
reporting to the Executive Risk Committee, established by the
Board, on a quarterly basis and onward analytical reporting to the
Board. The terms of reference of the Committee are published on the
Company's website.
Stress and scenario tests are used to identify emerging risks as
well as to analyse and assess any changes in existing aspects of
the 'Universe of Risks', which are monitored via the ERM Framework.
Such analysis uses both quantitative tests and qualitative
assessments to consider reasonably plausible scenario tests,
approximated to the range of impact types which can be envisaged,
for formal consideration by the Operational and Executive Risk
Committees, the Audit and Risk Committee and the Board, as
necessary and appropriate.
The system of internal control is designed to understand and
manage rather than eliminate risk of failure to achieve business
objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss.
Review of risk management and internal control systems
The results of the risk management processes combine to
facilitate identification of the principal business, financial,
operational and compliance risks and any associated key risks at a
subordinate level. Established reporting cycles enable the Board to
maintain oversight of the quality and effectiveness of risk
management and internal control activities throughout the year and
ensure that the entirety of the governance, risk management and
internal control frameworks, which constitute the ERM Framework,
are operating as intended. These processes have been in place
throughout the year under review and up to the date of this
report.
Independently of its quarterly and ad hoc risk reporting
arrangements the Board has conducted its annual review of the
effectiveness of the Company's risk management and internal control
systems including financial, operational and compliance controls.
This review is undertaken in collaboration with the Audit Committee
and is based upon analysis and evaluation of:
-- Attestation reporting from the key subsidiary companies of
the Group as to the effective functioning of the risk management
and internal control frameworks and the ongoing identification and
evaluation of risk within each key subsidiary;
-- Formal compliance declarations from senior managers at
divisional level that key risks are being managed appropriately
within the functional and operational areas falling under their
span of control and that controls have been examined and are
effective;
-- The cumulative results of cyclical risk reporting by senior
and executive management via the Operational Risk Committee and the
Executive Risk Committee, covering financial, operational and
compliance controls; and
-- Independent assurance work by the Group Internal Audit
Department to identify any areas for enhancements to internal
controls and work with management to define associated action plans
to deliver them.
The Board has determined that there were no areas for
enhancement which constituted a significant weakness for the year
under review and they are satisfied that the Group's governance,
risk management and internal control systems are operating
effectively and as intended, having particular regard to the
disruptions and risks arising from the Covid-19 pandemic.
Financial reporting process
The Group maintains a process to assist the Board in
understanding the risks to the Group of failing to meet its
objectives. This incorporates a system of planning and sensitivity
analysis incorporating Board approval of forecast financial and
other information. The Board receives regular representations from
the senior executives.
Performance against targets is reported to the Board quarterly
through a review of Group and subsidiary company results based on
accounting policies that are applied consistently throughout the
Group. Financial and management information is prepared quarterly
by the Chief Financial Officer ("CFO") and presented to the Board
and Audit Committee. The members of the Audit Committee review the
financial statements for the half year ended 31 December and for
the full financial year and meet with the CFO to discuss and
challenge the presentation and disclosures therein. Once the draft
document is approved by the Audit Committee, it is reviewed by the
Board before final approval at a Board meeting.
Outsourcing
The majority of investment dealing and custody processes in
relation to contract holder assets are outsourced to Capital
International Limited ("CIL"), a company authorised by the Isle of
Man Financial Services Authority and a member of the London Stock
Exchange.
These processes are detailed in a formal contract that
incorporates notice periods and a full exit management plan.
Delivery of services under the contract is monitored by a dedicated
relationship manager against a documented Service Level Agreement
and Key Performance Indicators.
CIL is required to confirm monthly that no material control
issues have been identified in their operations; this is overseen
via the delivery of services monitoring performed by the
relationship manager. Each year CIL are required to confirm and
evidence the adequacy and effectiveness of their internal control
framework through an Assurance report, with an external independent
review performed every second year. The last such report, which
included an external independent review, was issued by CIL on 5
June 2018 and did not reveal any material control deficiencies in
the relevant period. For 2020, it was agreed that CIL's Internal
Audit department conduct the 2020 review due to difficulties in
completing an external review on a timely basis due to Covid-19.
This report did not reveal any material control deficiencies in the
period. An external independent review will be conducted in
2021.
Risks relating to the Group's financial and other exposures
Hansard's business model involves the controlled acceptance and
management of risk exposures. Under the terms of the unit-linked
investment contracts issued by the Group, the contract holder bears
the investment risk on the assets in the unit-linked funds, as the
policy benefits are directly linked to the value of the assets in
the funds. These assets are administered in a manner consistent
with the expectations of the contract holders. By definition, there
is a precise match between the investment assets and the contract
holder liabilities, and so the market risk and credit risk lie with
contract holders.
The Group's exposure on this unit-linked business is limited to
the extent that income arising from asset management charges and
commissions is generally based on the value of assets in the funds,
and any sustained falls in value will reduce earnings. In addition,
there are certain financial risks (credit, market and liquidity
risks) in relation to the investment of shareholders' funds. The
Group's exposure to financial risks is explained in note 3 to the
consolidated financial statements.
The Board believes that the principal risks facing the Group's
earnings and financial position are those risks which are inherent
to the Group's business model and operating environment. The
regulatory landscape continues to evolve at both a local and
international level and the risk management and internal control
frameworks of the Group must remain responsive to developments
which may change the nature, impact or likelihood of such
risks.
Principal Risks
The following table sets out the principal inherent risks that
may impact the Group's strategic objectives, profitability or
capital and provides an overview of how such risks are managed or
mitigated. The Board robustly reviews and considers its principal
risks on at least an annual basis and for the year ended 30 June
2020 have specifically considered the impacts, uncertainties and
any emerging risks generated by the Covid-19 pandemic (see also
Risk Management and Internal Control section ).
Risk Risk Factors and Management
-------------------------------- ------------------------------------------------------------------
Market Risk: While the Group does not invest shareholder
funds in assets subject to any significant
Arising from major market risk, the Group's earnings and
market stresses, or profitability are influenced by the performance
fluctuation in market of contract holder assets and the fees
variables, resulting derived from their value. Significant
in falls in equity changes in equity markets and interest
or other asset values, rates can adversely affect fee income
currency movements earned.
or a combined scenario
manifesting In addition, the Group operates internationally
and earns income in a range of different
currencies. The vast majority of its operational
cost base is denominated in Sterling.
The movement of Sterling against US Dollars
is the most significant exposure to reported
income levels.
Extreme market conditions also have the
capacity to influence the purchase of
financial services products and the period
over which business is retained.
How we manage the risk:
The Board recognise that market volatilities
and currency movements are unpredictable
and driven by a diverse range of factors
and these risks are inherent in the provision
of investment-linked products.
Business plans are modelled across a broad
range of market and economic scenarios
and take account of alternative economic
outlooks within overall business strategy,
which provide for a greater understanding
of market and currency risk, the limits
of the Company's resilience and the range
of possible mitigating options.
Stress testing during the year ended 30
June 2020 considered the impacts of both
market and currency shocks, having regard
to the risks inherent to the Company's
unit-linked business and macroeconomic
environment generated by an extreme and
aggressive event, such as the Covid-19
pandemic.
The long-term nature of the Group's products
serves to smooth currency movements over
time reducing the need for active hedging
policies. However, long term trends are
monitored and considered in pricing models.
-------------------------------- ------------------------------------------------------------------
Credit Risk: In dealing with third party financial
institutions, including banking, money
Arising from the failure market and settlement, custody and other
of a counterparty counterparties, the Group is exposed to
the risk of financial loss and potential
disruption of core business functional
and operational processes.
How we manage the risk:
The Group seeks to limit exposure to loss
or detriment via counterparty failure
through robust selection criteria, minimum
rating agency limits, pre-defined risk-based
limits on concentrations of exposures
and continuous review of positions to
identify, evaluate, restrict and monitor
various forms of exposure on an individual
and aggregate basis.
-------------------------------- ------------------------------------------------------------------
Liquidity Risk: If the Group does not have sufficient
levels of liquid assets to support business
Arising from a failure activities or settle its obligations as
to maintain an adequate they fall due, the Group may be in default
level of liquidity of its obligations and may incur significant
to meet financial obligations sanction, loss or cost to rectify the
under both planned position.
and stressed conditions
How we manage the risk:
The Group maintains highly prudent positions
in accordance with its risk appetite and
investment policies which ensures a high
level of liquidity is available in the
short term at all times. Generally, shareholder
assets are invested in cash or money market
instruments with highly rated counterparties.
-------------------------------- ------------------------------------------------------------------
Legal and Regulatory The scale and pace of change in regulatory
Risk: and supervisory standards at an international
level continue to drive developments at
Arising from changes a jurisdictional level. The interpretation
in the regulatory landscape, or application of regulation over time
which adversely impact may impact market accessibility, broker
the Group's business relationships and / or competitive viability.
model, or from a failure If the Group fails to monitor the regulatory
by the Group, or one environment or adequately integrate the
of its subsidiary entities, management of associated obligations within
to meet its legal, strategic, business model or business
regulatory or contractual planning processes there may be material
obligations, resulting risk to the achievement of strategic objectives
in the risk of loss both in the short and longer term.
or the imposition of
penalties, damages How we manage the risk:
or fines * Robust strategic planning processes informed by
analytical review of the external environment and
consideration of associated risk in the short and
longer term.
* Continuous monitoring and review of developments in
international law and regulation and proactive
management of how such developments might shape
jurisdictional specific reaction.
* Active and transparent engagement with regulatory
authorities and industry bodies on a
multi-jurisdictional basis, including active
engagement in and responding to regulatory
consultation exercises.
* Maintenance of robust governance, risk management and
internal control arrangements to ensure that legal
and regulatory obligations are substantively met on a
continuing basis.
-------------------------------- ------------------------------------------------------------------
Distribution Risk: The business environment in which the
international insurance industry operates
Arising from market is subject to continuous change as new
changes, technological market and competitor forces come into
advancement, loss of effect and as technology continues to
key intermediary relationships evolve. Hansard may be unable to maintain
or competitor activity competitive advantage in commercially
significant jurisdictions, or market segments,
or be unable to build and sustain successful
distribution relationships, particularly
in the event of any prolonged uncertainties
consequent to the pandemic environment.
How we manage the risk:
* Close monitoring of marketplaces and competitor
activity for signs of threats to forecast new
business levels.
* Stress and scenario modelling considers the
consequences of production falling materially above
or below target and enable the Board to ensure that
forecasting and planning activities are sufficiently
robust and revised product and distribution
strategies are designed to add additional scale to
the business, on a more diversified basis, through
organic growth at acceptable levels of risk and
profitability.
* Continuous investment in and development of
technology.
-------------------------------- ------------------------------------------------------------------
Conduct Risk: Any failure to adequately assess, monitor,
manage and mitigate risks to the delivery
Arising from any failure of fair customer outcomes, or to market
of the Group's governance, integrity, can be expected to result in
risk management and material detriment to the achievement
internal control arrangements of strategic objectives and could incur
regulatory censure, financial penalty,
contract holder litigation and / or reputational
damage.
How we manage the risk:
* Developments in the Group's ERM framework continue to
drive and deliver the integration of conduct risk
management at both a cultural and practical level.
* Business activities designed to manage the volume and
velocity of regulatory change are fundamentally
concerned with ensuring compliance with conduct risk
obligations, managing conflicts of interest,
preventing market abuse and building robust
governance arrangements around new product
development and product suitability processes.
* The Group maintains regular dialogue with its
regulatory authorities and with its advisors in
relation to developments in the regulatory
environment in which we operate.
-------------------------------- ------------------------------------------------------------------
Information Systems The increasing digitalisation of business
and Cyber Risk: activities incurs an inherent exposure
to the risk of cybercrime together with
Arising from the increased the risk of significant, costly interruptions,
digitalisation of business customer dissatisfaction and regulatory
activities and reliance censure.
upon technology
In the event of any material failure in
our core business systems, or business
processes, or if the Group fails to take
adequate and appropriate measures to protect
its systems and data from the inherent
risk of attack, disruption and/or unauthorised
access by internal or external parties,
then this could result in confidential
data being exposed and/or systems interruption.
A significant cybercrime event could result
in reputational damage, regulatory censure
and financial loss.
How we manage the risk:
* Continuous focus on the maintenance of a robust,
secure and resilient IT environment that protects
customer and corporate data.
* Control techniques deployed to evaluate the security
of systems and proactively address emerging threats
both internally within the organisation and
externally, through regular engagement with internet
and technology providers and through industry forums.
* Maintenance of detailed and robust Business
Continuity Plans, including full data replication at
an independent recovery centre, which can be invoked
when required.
* Frequent and robust testing of business continuity
and disaster recovery arrangements.
-------------------------------- ------------------------------------------------------------------
Employee Engagement Delivery of the Group's strategy is dependent
and Cultural Risk: on attracting and retaining experienced
and high-performing management and staff.
Arising from any failure The knowledge, skills, attitudes and behaviours
to drive and support of our employees are central to our success.
the right corporate We must attract, integrate, engage and
culture and attract, retain the talent required to deliver
develop, engage and our strategy and have the appropriate
retain key personnel processes and culture in place. The inability
to retain key people, and adequately plan
for succession can be expected to negatively
impact the performance of the Group.
How we manage the risk:
* Significant resources focussed on communicating
strategy and desired cultural behaviours to all
employees.
* Forums established for employees to provide feedback
for continuous improvement.
* Employee engagement monitored and measured through
periodic employee surveys.
* Group performance management system in place, which
measures both hard and soft skills.
* Training and development strategy in place to manage
talent, provide development opportunities and address
any skill gaps.
* Remuneration models and trends monitored closely by
the Group's Human Resources Department and the
Remuneration Committee.
* Succession planning strategy in place, to manage and
mitigate 'key person' risk.
-------------------------------- ------------------------------------------------------------------
Further detail around financial risks is outlined in note 3
(Financial Risk Management) to the consolidated financial
statements.
Philip Gregory
Chairman
23 September 2020
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2020
Year ended Year ended
30 June 30 June
2020 2019
Notes GBPm GBPm
------------------------------------------ ------ ----------- -----------
Fees and commissions 5 49.5 48.5
Investment income 6 1.9 48.8
Other operating income 0.7 0.7
52.1 98.0
------------------------------------------ ------ ----------- -----------
Change in provisions for investment
contract liabilities (0.1) (47.2)
Origination costs 7 (18.0) (16.7)
Administrative and other expenses 8 (29.3) (29.5)
------------------------------------------ ------ ----------- -----------
(47.4) (93.4)
------------------------------------------ ------ ----------- -----------
Profit before taxation 4.7 4.6
Taxation 10 (0.2) -
------------------------------------------ ------ ----------- -----------
Profit and total comprehensive income
for the year
after taxation 4.5 4.6
------------------------------------------ ------ ----------- -----------
Earnings per share
2020 2019
Note (p) (p)
--------- ----- ----- -----
Basic 11 3.2 3.3
Diluted 11 3.2 3.3
----------- ----- ----- -----
Consolidated Statement of Changes in Equity
for the year ended 30 June 2020
Share Other Retained
capital reserves earnings Total
GBPm GBPm GBPm GBPm
-------------------------------- -------- --------- --------- ------
At 1 July 2018 68.8 (48.6) 8.3 28.5
Profit and total comprehensive
income for the - - 4.6 4.6
year after taxation
Share based payments reserve - 0.1 - 0.1
Transactions with owners
Dividends paid - - (6.0) (6.0)
--------------------------------- -------- --------- --------- ------
At 30 June 2019 68.8 (48.5) 6.9 27.2
--------------------------------- -------- --------- --------- ------
Share Other Retained
capital reserves earnings Total
GBPm GBPm GBPm GBPm
-------------------------------- -------- --------- --------- ------
At 1 July 2019 68.8 (48.5) 6.9 27.2
Profit and total comprehensive
income for the - - 4.5 4.5
year after taxation
Share based payments reserve - 0.2 - 0.2
Transactions with owners
Dividends paid - - (6.0) (6.0)
--------------------------------- -------- --------- --------- ------
At 30 June 2020 68.8 (48.3) 5.4 25.9
--------------------------------- -------- --------- --------- ------
Consolidated Balance Sheet
As at 30 June 2020
30 June 30 June
2020 2019
Notes GBPm GBPm
---------------------------------------- -------- -------- --------
Assets
Intangible assets 13 5.9 3.0
Property, plant and equipment 13 3.6 0.7
Deferred origination costs 14 122.3 118.0
Financial investments
Equity securities 40.7 30.4
Investments in collective investment
schemes 883.5 928.4
Fixed income securities 52.6 37.5
Deposits and money market funds 126.6 110.2
Other receivables 15 5.2 4.7
Cash and cash equivalents 16 39.6 40.2
------------------------------------------- -------- -------- --------
Total assets 1,280.0 1,273.1
------------------------------------------- -------- -------- --------
Liabilities
Financial liabilities under investment
contracts 17 1,080.5 1,079.7
Deferred income 18 137.8 133.2
Amounts due to investment contract
holders 23.9 24.2
Other payables 19 11.9 8.8
------------------------------------------- -------- -------- --------
Total liabilities 1,254.1 1,245.9
------------------------------------------- -------- -------- --------
Net assets 25.9 27.2
------------------------------------------- -------- -------- --------
Shareholders' equity
Called up share capital 21 68.8 68.8
Other reserves 22 (48.3) (48.5)
Retained earnings 5.4 6.9
------------------------------------------- -------- -------- --------
Total shareholders' equity 25.9 27.2
------------------------------------------- -------- -------- --------
Consolidated Cash Flow Statement
for the year ended 30 June 2020
2020 2019
GBPm GBPm
--- ---------------------------------------------- ------------------- -------
Cash flow from operating activities
Profit before tax for the year 4.7 4.6
Adjustments for:
Depreciation 0.7 0.4
Dividends receivable (4.9) (3.8)
Interest receivable (1.9) (1.4)
Movement in share based payments reserve 0.2 0.1
Foreign exchange losses 0.4 0.7
Changes in operating assets and liabilities
Increase in other receivables (0.5) (0.1)
Dividends received 4.9 3.8
Interest received 1.6 1.4
Increase in deferred origination costs (4.3) (4.2)
Increase in deferred income 4.6 2.9
(Decrease)/increase in creditors (0.2) 0.6
Decrease/(increase) in financial investments 3.1 (53.0)
Increase in financial liabilities 0.8 43.7
------------------------------------------------------ ------------------- -------
Cash flow from/(used in) operations 9.2 (4.3)
Corporation tax paid (0.1) -
------------------------------------------------------ ------------------- -------
Cash flow from/(used in) operations after
taxation 9.1 (4.3)
------------------------------------------------------ ------------------- -------
Cash flows from investing activities
Investment in property, plant and equipment (3.0) (2.5)
Proceeds from sale of investments 0.2 0.1
------------------------------------------------------ ------------------- -------
Cash flows used in investing activities (2.8) (2.4)
------------------------------------------------------ ------------------- -------
Cash flows from financing activities
Dividends paid (6.0) (6.0)
Principal elements of leased liabilities (0.5) -
------------------------------------------------------ ------------------- -------
Cash flows used in financing activities (6.5) (6.0)
Net decrease in cash and cash equivalents (0.2) (12.7)
Cash and cash equivalents at beginning of
year 40.2 53.6
Effect of exchange rate movements (0.4) (0.7)
------------------------------------------------------ ------------------- -------
Cash and cash equivalents at year end 39.6 40.2
------------------------------------------------------ ------------------- -------
Notes to the consolidated financial statements
1 General Information
Hansard Global plc ("the Company") is a limited liability
company, incorporated in the Isle of Man, whose shares are publicly
traded. The principal activity of the Company is to act as the
holding company of the Hansard group of companies. The activities
of the principal operating subsidiaries include the transaction of
life assurance business and related activities.
The registered office of the Company is Harbour Court, Lord
Street, Box 192, Douglas, Isle of Man, IM99 1QL.
The Company has its primary listing on the London Stock
Exchange.
1.1 Principal accounting policies
The principal accounting policies adopted in the preparation of
these consolidated financial statements are set out below or, in
the case of accounting policies that relate to separately disclosed
values in the primary statements, within the relevant note to these
consolidated financial statements. These policies have been
consistently applied, unless otherwise stated.
1.2 Basis of presentation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union ("IFRSs"), International Financial
Reporting Standards Interpretations Committee ("IFRSIC")
interpretations, and with the Isle of Man Companies Acts 1931 to
2004. The financial statements have been prepared under the
historical cost convention as modified by the revaluation of
financial investments and financial liabilities at fair value
through profit or loss. The Group has applied all International
Financial Reporting Standards adopted by the European Union and
effective at 30 June 2020.
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting
year. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the year in which the estimate is revised if the revision affects
only that year or in the year of the revision and future years if
the revision affects both current and future years.
The areas involving a higher degree of judgement or complexity,
or areas where assumptions and estimates are significant to the
consolidated financial statements, are disclosed in note 2.
Except where otherwise stated, the financial statements are
presented in pounds sterling, the functional currency of the
Company, rounded to the nearest one hundred thousand pounds.
IFRS 16 Leases
The Group has adopted IFRS 16 retrospectively from 1 July 2019,
but has not restated comparatives for the reporting period ending
30 June 2019, as permitted under the specific transitional
provisions in the standard. The reclassifications and the
adjustments arising from the new leasing rules are therefore
recognised in the opening balance sheet on 1 July 2019. IFRS 16 has
not had a material impact on the Group's Statement of Comprehensive
Income or the Group's Net Assets, however it has resulted in the
recognition of both additional assets and liabilities of GBP3.0m on
the Group's Consolidated Balance Sheet as at 30 June 2020, based on
current contractual arrangements. The full impact of the adoption
of the leasing standard is disclosed in note 13.
The following new standards, amendments and interpretations are
in issue but not yet effective and have not been early adopted by
the Group and are not expected to have a significant impact;
-- Amendment to IFRS 3 - definition of a business, effective for
accounting periods beginning on or after 1 January 2020
-- Amendments to IAS 1 and IAS 8 - the definition of material,
effective for accounting periods beginning on or after 1 January
2020
-- Amendments to IFRS 9, IAS 39 and IFRS 7 - interest rate
benchmark reform, effective for accounting periods beginning on or
after 1 January 2020
-- Amendments to IFRS 16 - Covid-19 related rent concessions,
effective for accounting periods beginning on or after 1 June
2020
-- Amendment to IAS 1 - classification of liabilities, effective
for accounting periods beginning on or after 1 January 2020
-- Amendments to IFRS 3, IAS 16, IAS 17 and annual improvements
to IFRS 1, IFRS 9, IAS 41 and IFRS 16, effective for accounting
periods beginning on or after 1 January 2022.
There are no other standards, amendments or interpretations to
existing standards that are not yet effective, that would have a
material impact on the Group's financial statements.
1.3 Basis of consolidation
The consolidated financial statements incorporate the assets,
liabilities and the results of the Company and of its subsidiary
undertakings. Subsidiaries are those entities in which the Company
directly or indirectly has the power to govern the financial and
operating policies generally accompanying a shareholding of more
than one half of the voting rights . The financial statements of
subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control
ceases. Where necessary, accounting policies applied by subsidiary
companies have been adjusted to present consistent disclosures on a
consolidated basis. Intra-group transactions, balances and
unrealised gains and losses arising from intra-group transactions,
are eliminated in preparing these consolidated financial
statements.
1.4 Going concern
The Directors have, at the date of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to operate as a going concern for the
foreseeable future, being a period of 12 months from the approval
of the Annual Report and Accounts, and have prepared the financial
statements on that basis.
In making this statement, the Directors have given specific
consideration to the impact of the Covid-19 pandemic on the
business. They have reviewed financial forecasts that include
plausible downside scenarios as a result of Covid-19 and its impact
on the global economy. These show the Group continuing to generate
profit in FY 2021 and that the Group has sufficient cash reserves
to enable it to meet its obligations as they fall due.
The Group has not placed any of its staff on furlough schemes
nor taken any other form of government financial assistance.
The Directors expect the acquisition of new business will
continue to be challenging throughout some or all of FY 2021. The
impact of this however is not immediate to the Group's profit and
cash flows and therefore allows for longer term adjustments to
operations and the cost base. Long periods of lower new business or
indeed lower AuA would be addressed by reducing the cost base and
where necessary, the dividend paid.
The following factors are considered as supportive to the
Group's resilience to Covid-19:
-- The Group's business model focuses on long term savings
products, a majority of which are regular premium paying products
which continue to receive cash inflows regardless of the amount of
new business sold.
-- The Group earns approximately a third of its revenues from
asset-based income which is not immediately dependent on sourcing
new business.
-- New business channels are geographically dispersed and
therefore less exposed to specific regional lock-downs.
-- The largest expense associated with new business is
commission expenditure which reduces directly in line with reduced
sales.
-- The Group has, and continues to the date of this report to
have, a strong capital position with significant levels of
liquidity and cash (as outlined in the Business and Financial
Review).
-- The business has demonstrated operational resilience in being
able to operate remotely from its offices during government-imposed
lock-down without any material impact to processing and servicing
levels. Its control environment continued to operate effectively
during this time.
-- The Group places its shareholder assets into conservative,
highly-liquid, highly-rated bank deposits and money market funds.
These are typically not subject to price fluctuation and protect
the Group's assets against potential market volatility.
-- The Group has no borrowings.
2 C ritical a ccounting e stimates and j udgements in a pplying a ccounting p olicies
Estimates, assumptions and judgements are used in the
application of accounting policies in these financial statements.
Critical accounting estimates are those which involve the most
complex or subjective judgements or assessments. Estimates,
assumptions and judgements are evaluated continually and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. Actual outcomes may differ from assumptions and
estimates made by management.
2.1 Accounting estimates and assumptions
The principal areas in which the Group applies accounting
estimates and assumptions are in deciding the type of management
expenses that are treated as origination costs and the period of
amortisation of deferred origination costs and deferred income.
Estimates are also applied in determining the recoverability of
deferred origination costs.
2.1.1 Origination costs
Management expenses have been reviewed to determine the
relationship of such expense to the issue of an investment
contract. Certain expenses vary with the level of new business
production and have been treated as origination costs. Other
expenses are written off as incurred.
2.1.2 Amortisation of deferred origination costs and deferred income
Deferred origination costs and deferred income are amortised on
a straight-line basis over the estimated life of the underlying
investment contract.
2.1.3 Recoverability of deferred origination costs
Formal reviews to assess the recoverability of deferred
origination costs on investment contracts are carried out at each
balance sheet date to determine whether there is any indication of
impairment based on the estimated future income levels.
If, based upon a review of the remaining contracts, there is any
other indication of irrecoverability or impairment, the contract's
recoverable amount is estimated. Impairment losses are reversed
through the consolidated statement of comprehensive income if there
is a change in the estimates used to determine the recoverable
amount. Such losses are reversed only to the extent that the
contract's carrying amount does not exceed the carrying amount that
would have been determined, net of amortisation where applicable,
if no impairment loss had been recognised.
2.2 Judgements
The primary areas in which the Group has applied judgement in
applying accounting policies are as follows:
-- The classification of contracts between insurance and
investment business. All contracts are treated as investment
contracts as they do not transfer significant insurance risk;
-- The fair value of certain financial investments. Where the
Directors determine that there is no active market for a particular
financial instrument, fair value is assessed using valuation
techniques based on available relevant information and an appraisal
of all associated risks. This process requires the exercise of
significant judgement on the part of Directors, as is discussed
further in note 3.5 to these consolidated financial statements;
and
-- To determine whether a provision is required in respect of
any pending or threatened litigation, which is addressed in note
25.
3 Financial risk management
Risk management objectives and risk policies
The Group's objective in the management of financial risk is to
minimise, where practicable, its exposure to such risk, except when
necessary to support other objectives. The Group seeks to manage
risk through the operation of unit-linked business whereby the
contract holder bears the financial risk. In addition, shareholder
assets are invested in highly rated investments.
Overall responsibility for the management of the Group's
exposure to risk is vested in the Board. To support it in this
role, an enterprise risk management framework is in place
comprising risk identification, risk assessment, control and
reporting processes. Additionally, the Board and the Boards of
subsidiary companies have established a number of Committees with
defined terms of reference. These are the Audit, Risk, Actuarial
Review, Executive, Investment and Broker Monitoring Committees.
Additional information concerning the operation of the Board
Committees is contained in the Corporate Governance section of this
Annual Report and Accounts.
The more significant financial risks to which the Group is
exposed are set out below. For each category of risk, the Group
determines its risk appetite and sets its investment, treasury and
associated policies accordingly.
3.1 Market risk
This is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market
prices, analysed between price, interest rate and currency risk.
The Group adopts a risk averse approach to market risk, with a
stated policy of not actively pursuing or accepting market risk
except where necessary to support other objectives. However, the
Group accepts the risk that the fall in equity or other asset
values, whether as a result of price falls or strengthening of
sterling against the currencies in which contract holder assets are
denominated, will reduce the level of annual management charge
income derived from such contract holder assets and the risk of
lower future profits.
Sensitivity analysis to market risk
The Group's business is unit-linked and the direct associated
market risk is therefore borne by contract holders (although there
is a secondary impact as shareholder income is dependent upon the
fair value of contract holder assets). Financial assets and
liabilities to support Group capital resources held outside
unitised funds primarily consist of units in money market funds,
cash and cash equivalents, and other assets and liabilities. Cash
held in unitised money market funds and at bank is valued at par
and is unaffected by movement in interest rates. Other assets and
liabilities are similarly unaffected by market movements.
As a result of these combined factors, the Group's financial
assets and liabilities held outside unitised funds are not
materially subject to market risk, and movements at the reporting
date in interest rates and equity values have an immaterial impact
on the Group's profit after tax and equity. Future revenues from
annual management charges may be affected by movements in interest
rates, foreign currencies and equity values.
(a) Price risk
Unit linked funds are exposed to securities price risk as the
investments held are subject to prices in the future which are
uncertain. The fair value of financial assets (designated at fair
value through profit or loss) exposed to price risk at 30 June 2020
was GBP976.8m (2019: GBP996.3m). In the event that investment
income is affected by price risk then there will be an equal and
opposite impact on the value of the changes in provisions for
investment contract liabilities in the same accounting period. The
impact on the profit or loss before taxation in a given financial
year is negligible.
An overall change in the market value of the unit-linked funds
would affect the annual management charges accruing to the Group
since these charges, which are typically 1% per annum, are based on
the market value of contract holder assets under administration.
The approximate impact on the Group's profits and equity of a 10%
change in fund values, either as a result of price, interest rate
or currency fluctuations, is GBP1.2m (2019: GBP1.5m).
(b) Interest rate risk
Interest rate risk is the risk that the Group is exposed to
lower returns or loss as a direct or indirect result of
fluctuations in the value of, or income from, specific assets
arising from changes in underlying interest rates.
The Group is primarily exposed to interest rate risk on the
balances that it holds with credit institutions and in money market
funds. A change of 1% per annum in interest rates will result in an
increase or decrease of approximately GBP0.6m (2019: GBP0.6m) in
the Group's annual investment income and equity.
A summary of the Group's liquid assets at the balance sheet date
is set out in note 3.2.
(c) Currency risk
Currency risk is the risk that the Group is exposed to higher or
lower returns as a direct or indirect result of fluctuations in the
value of, or income from, specific assets and liabilities arising
from changes in underlying exchange rates.
(c)(i) Group foreign currency exposures
The Group is exposed to currency risk on the foreign currency
denominated bank balances, contract fees receivable and other
liquid assets that it holds to the extent that they do not match
liabilities in those currencies. The impact of currency risk is
minimised by regular conversion of excess foreign currency funds to
sterling. The Group does not hedge foreign currency cash flows. At
the balance sheet date the Group had exposures in the following
currencies:
2020 2020 2020 2019 2019 2019
US$m EURm Yen US$m EURm Yen m
m
------------------------------- ------- ------ -------- ------- ------ --------
Gross assets 13.8 5.2 145.8 15.3 4.2 234.2
Matching currency liabilities (13.0) (4.2) (120.2) (10.3) (3.8) (204.6)
------------------------------- ------- ------ -------- ------- ------ --------
Uncovered currency
exposures 0.8 1.0 25.6 5.0 0.4 29.6
------------------------------- ------- ------ -------- ------- ------ --------
Sterling equivalent
(GBPm) 0.6 0.9 0.2 3.9 0.3 0.2
------------------------------- ------- ------ -------- ------- ------ --------
The approximate effect of a 5% change: in the value of US
dollars to sterling is less than GBP0.1m (2019: GBP0.2m); in the
value of the euro to sterling is less than GBP0.1m (2019: less than
GBP0.1m); and in the value of the yen to sterling is less than
GBP0.1m (2019: less than GBP0.1m).
(c)(ii) Financial investments by currency
Certain fees and commissions are earned in currencies other than
sterling, based on the value of financial investments held in those
currencies from time to time.
The sensitivity of the Group to the currency risk inherent in
investments held to cover financial liabilities under investment
contracts is incorporated within the analysis set out in (a)
above.
At the balance sheet date the analysis of financial investments
by currency denomination is as follows, US dollars: 67% (2019:
64%); euro: 11% (2019: 13%); sterling: 21% (2019: 22%); other: 1%
(2019: 1%).
3.2 Credit risk
Credit risk is the risk that the Group is exposed to lower
returns or loss if another party fails to perform its financial
obligations to the Group . The Group has adopted a risk averse
approach to such risk and has a stated policy of not actively
pursuing or accepting credit risk except when necessary to support
other objectives.
The clearing and custody operations for the Group's security
transactions are mainly concentrated with one broker, namely
Capital International Limited, a member of the London Stock
Exchange. At 30 June 2020 and 2019, substantially all contract
holder cash and cash equivalents, balances due from broker and
financial investments are placed in custody with Capital
International Limited. These operations are detailed in a formal
contract that incorporates notice periods and a full exit
management plan. Delivery of services under the contract is
monitored by a dedicated relationship manager against a documented
Service Level Agreement and Key Performance Indicators, and
attested periodically by external advisors. Investment risk is
borne by the contract holder.
The Group has an exposure to credit risk in relation to its
deposits with credit institutions and its investments in unitised
money market funds. To manage these risks; deposits are made, in
accordance with established policy, with credit institutions having
a short-term rating of at least F1 or P1 from Fitch IBCA and
Moody's respectively and a long-term rating of at least A or A3.
Investments in unitised money market funds are made only where such
fund is AAA rated. Additionally, maximum counterparty exposure
limits are set both at an individual subsidiary company level and
on a Group-wide basis.
These assets are considered to have a high degree of credit
worthiness and no assets of a lower credit worthiness are held.
Financial assets held at amortised cost are impaired using an
expected credit loss model. The model splits financial assets into
those which are performing, underperforming and non-performing
based on changes in credit quality since initial recognition. At
initial recognition financial assets are considered to be
performing. They become underperforming where there has been a
significant increase in credit risk since initial recognition, and
non-performing when there is objective evidence of impairment.
Twelve months of expected credit losses are recognised in the
statement of comprehensive income and netted against the financial
asset in the statement of financial position for all performing
financial assets, with lifetime expected credit losses recognised
for underperforming and non-performing financial assets.
Expected credit losses are based on the historic levels of loss
experienced for the relevant financial assets, with due
consideration given to forward looking information.
Trade receivables are designated as having no significant
financing component. The Group applies the IFRS 9 simplified
approach to measuring expected credit losses for trade receivables
by using a lifetime expected loss allowance.
There have been no changes in the assets in the year ended 30
June 2020 attributable to changes in credit risk (30 June 2019:
nil).
At the balance sheet date, an analysis of the Group's own cash
and cash equivalent balances and liquid investments was as follows
(an analysis by maturity date is provided in note 3.4). In the
table below Investments in money market funds includes all
immediately available cash, other than specific short term
deposits:
2020 2019
GBPm GBPm
---------------------- ----- -----
Deposits with credit
institutions 21.2 25.1
Investments in money
market funds 39.6 40.2
---------------------- ----- -----
60.8 65.3
---------------------- ----- -----
3.3 Liquidity risk
Liquidity risk is the risk that the Group, though solvent, does
not have sufficient financial resources to enable it to meet its
obligations as they fall due, or can only secure them at excessive
cost. The Group is averse to liquidity risk and seeks to minimise
this risk by not actively pursuing it except where necessary to
support other objectives.
The Group's objective is to ensure that it has sufficient
liquidity over short-term (up to one year) and medium-term time
horizons to meet the needs of the business. This includes liquidity
to cover, amongst other things, new business costs, planned
strategic activities, servicing of equity capital as well as
working capital to fund day-to-day cash flow requirements.
Liquidity risk is principally managed in the following ways:
-- Assets of a suitable marketability are held to meet contract
holder liabilities as they fall due.
-- Forecasts are prepared regularly to predict required
liquidity levels over both the short-term and medium-term.
The Group's exposure to liquidity risk is considered to be low
since it maintains a high level of liquid assets to meet its
liabilities.
3.4 Undiscounted contractual maturity analysis
Set out below is a summary of the undiscounted contractual
maturity profile of the Group's assets.
2020 2019
GBPm GBPm
-------------------------------------------------- -------- --------
Maturity within 1 year
Deposits and money market funds 60.8 65.3
Other assets 6.9 5.3
-------------------------------------------------- -------- --------
67.7 70.6
-------------------------------------------------- -------- --------
Maturity from 1 to 5 years
Other assets - -
-------------------------------------------------- -------- --------
- -
-------------------------------------------------- -------- --------
Assets with maturity values 67.7 70.6
Other shareholder assets 130.4 121.7
-------------------------------------------------- -------- --------
Shareholder assets 198.1 192.3
Gross assets held to cover financial liabilities
under investment contracts 1,081.9 1,080.8
-------------------------------------------------- -------- --------
Total assets 1,280.0 1,273.1
-------------------------------------------------- -------- --------
There is no significant difference between the value of the
Group's assets on an undiscounted basis and the balance sheet
values.
Assets held to cover financial liabilities under investment
contracts are deemed to have a maturity of up to one year since the
corresponding unit-linked liabilities are repayable and
transferable on demand. In certain circumstances the contractual
maturities of a portion of the assets may be longer than one year,
but the majority of assets held within the unit-linked funds are
highly liquid. The Group actively monitors fund liquidity.
The contractual maturity analyses of financial and other
liabilities are included in notes 17 and 19 to the consolidated
balance sheet.
3.5 Fair value of financial assets and liabilities
The Group closely monitors the valuation of assets in markets
that have become less liquid. Determining whether a market is
active requires the exercise of judgement and is determined based
upon the facts and circumstances of the market for the instrument
being measured . Where the Directors determine that there is no
active market for a particular financial instrument, for example
where a particular collective investment scheme is suspended from
trading, fair value is assessed using valuation techniques based on
available, relevant, information and an appraisal of all associated
risks. When a collective investment scheme recommences regular
trading, the value would be transferred back to Level 1. This
process requires the exercise of significant judgement on the part
of Directors.
Due to the linked nature of the contracts administered by the
Group's insurance undertakings, any change in the value of
financial assets held to cover financial liabilities under those
contracts will result in an equal and opposite change in the value
of contract liabilities. The separate effect on financial assets
and financial liabilities is included in investment income and
investment contract benefits, respectively, in the consolidated
statement of comprehensive income.
IFRS 13 requires the Group to classify fair value measurements
into a fair value hierarchy by reference to the observability and
significance of the inputs used in measuring that fair value. The
hierarchy is as follows:
-- Level 1: fair value is determined as the unadjusted quoted
price for an identical instrument in an active market.
-- Level 2: fair value is determined using observable inputs
other than unadjusted quoted prices for an identical instrument and
that does not use significant unobservable inputs.
-- Level 3: fair value is determined using significant unobservable inputs.
The following table analyses the Group's financial assets and
liabilities at fair value through profit or loss, at 30 June
2020:
Level Level Level Total
1 2 3
Financial assets at fair value through GBPm GBPm GBPm GBPm
profit or loss
---------------------------------------- -------- ------ ------ --------
Equity securities 40.7 - - 40.7
Collective investment schemes 866.9 - 16.6 883.5
Fixed income securities 52.6 - - 52.6
Deposits and money market funds 126.6 - - 126.6
Total financial assets at fair value
through profit or loss 1,086.8 - 16.6 1,103.4
---------------------------------------- -------- ------ ------ --------
Transfers into and out of Level 3 in 2020
During the year ended 30 June 2020, no assets were transferred
from Level 2 to Level 1. Assets with a fair value of GBP0.8m were
transferred from Level 1 to Level 3, due to the change in market
for the related assets. During the year ended 30 June 2020,
specific illiquid assets within this category were written down by
approximately GBP13.7m as a result of updated information on
certain fund holdings in liquidation, whilst other specific assets
had their fair value increased by GBP3.9m. The remaining movement
in the financial year represents a combination of payments made to
contract holders and other movements in the valuation of
assets.
In total, assets with a fair value of GBP16.6m are classified as
Level 3 as the Directors believe that valuations can no longer be
obtained for these assets from an observable market price due to
suspension in trading or the asset becoming illiquid. The Directors
value these assets at the latest available NAV of the investment
unless there is more appropriate information which indicates a
reduction to the fair value.
No assets were transferred from Level 3 to Level 1 or Level 2
during the financial year.
Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
------------------------------- ------- -------- ------ --------
Financial liabilities at fair
value through profit or loss - 1,080.5 - 1,080.5
-------------------------------- ------ -------- ------ --------
The following table analyses the Group's financial assets and
liabilities at fair value through profit or loss, at 30 June
2019:
Level Level Level Total
1 2 3
Financial assets at fair value through GBPm GBPm GBPm GBPm
profit or loss
---------------------------------------- -------- ------ ------ --------
Equity securities 30.4 - - 30.4
Collective investment schemes 901.6 - 26.8 928.4
Fixed income securities 37.5 - - 37.5
Deposits and money market funds 110.2 - - 110.2
Total financial assets at fair value
through profit or loss 1,079.7 - 26.8 1,106.5
---------------------------------------- -------- ------ ------ --------
Transfers into and out of Level 3 in 2019
During the year ended 30 June 2019, no assets were transferred
from Level 2 to Level 1. Assets with a fair value of GBP0.1m were
transferred from Level 1 to Level 3, due to the change in market
for the related assets.
In total, assets with a fair value of GBP26.8m are classified as
Level 3 as the Directors believe that valuations can no longer be
obtained for these assets from an observable market price due to
suspension in trading or the asset becoming illiquid. The Directors
value these assets at the latest available NAV of the investment
unless there is more appropriate information which indicates a
reduction to the fair value.
No assets were transferred from Level 3 to Level 1 or Level 2
during the financial year.
Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
------------------------------------- ------- -------- ------ --------
Financial liabilities at fair value
through profit or loss - 1,079.7 - 1,079.7
------------------------------------- ------- -------- ------ --------
4 Segmental information
Disclosure of operating segments in these financial statements
is consistent with reports provided to the Chief Operating Decision
Maker ("CODM") which, in the case of the Group, has been identified
as the Executive Committee of Hansard Global plc.
In the opinion of the CODM, the Group operates in a single
reportable segment, that of the distribution and servicing of
long-term investment products. New business development,
distribution and associated activities undertaken by its Irish
subsidiary, Hansard Europe Designated Activity Company, ceased with
effect from 30 June 2013. All other activities of the Group are
continuing.
The Group's Executive Committee uses two principal measures when
appraising the performance of the business: Net Issued Compensation
Credit ("NICC") (weighted where appropriate by product line) and
expenses. NI CC is the amount of basic initial commission payable
to intermediaries for business sold in a period and is calculated
on each piece of new business . It excludes override commission
paid to intermediaries over and above the basic level of
commission.
The following table analyses NICC geographically and reconciles
NICC to origination costs incurred during the year as set out in
the Business and Operating Review section of this Annual Report and
Accounts.
2020 2019
GBPm GBPm
----------------------------------- ---------------------- -----
Middle East and Africa 5.1 4.5
Latin America 4.3 2.4
Rest of World 1.6 2.7
Far East 0.8 1.7
Net Issued Compensation Credit 11.8 11.3
Other commission costs paid to
third parties 6.6 5.0
Enhanced unit allocations 1.5 1.1
------------------------------------ ---------------------- -----
Direct origination costs incurred
during the year 19.9 17.4
------------------------------------ ---------------------- -----
Revenues and expenses allocated to geographical locations
contained in sections 4.1 to 4.4 below reflect the revenues and
expenses generated in or incurred by the legal entities in those
locations.
4.1 Geographical analysis of fees and commissions by origin
2020 2019
GBPm GBPm
--------------------- ----- -----
Isle of Man 46.2 44.6
Republic of Ireland 3.3 3.9
The Bahamas* - -
--------------------- ----- -----
49.5 48.5
--------------------- ----- -----
* Fees and commissions in Hansard Worldwide are fully reinsured
to Hansard International and are therefore presented within the
Isle of Man category.
4.2 Geographical analysis of profit before taxation
2020 2019
GBPm GBPm
--------------------- ------ ------
Isle of Man 5.0 5.1
Republic of Ireland (0.9) (0.5)
The Bahamas 0.6 -
--------------------- ------ ------
4.7 4.6
--------------------- ------ ------
4.3 Geographical analysis of gross assets
2020 2019
GBPm GBPm
--------------------- -------- --------
Isle of Man* 1,158.7 1,131.5
Republic of Ireland 120.0 140.9
The Bahamas 1.3 0.7
---------------------- -------- --------
1,280.0 1,273.1
--------------------- -------- --------
* Includes assets held in the Isle of Man in connection with
policies written in The Bahamas.
4.4 Geographical analysis of gross liabilities
2020 2019
GBPm GBPm
--------------------- -------- --------
Isle of Man 1,100.3 1,117.1
Republic of Ireland 102.6 122.7
The Bahamas 51.2 6.1
---------------------- -------- --------
1,254.1 1,245.9
--------------------- -------- --------
5 Fees and commissions
Fees are charged to the contract holders of investment contracts
for contract administration services, investment management
services, payment of benefits and other services related to the
administration of investment contracts. Fees are recognised as
revenue as the services are provided. Initial fees that exceed the
level of recurring fees and relate to the future provision of
services are deferred in the balance sheet and amortised on a
straight-line basis over the life of the relevant contract. These
fees are accounted for on the issue of a contract and on receipt of
incremental premiums on existing single premium contracts.
Regular fees charged to contracts are recognised on a
straight-line basis over the period in which the service is
provided. Transactional fees are recorded when the required action
is complete.
Commissions receivable arise principally from fund houses with
which investments are held. Commissions are recognised on an
accruals basis in accordance with the relevant agreement.
2020 2019
GBPm GBPm
------------------------- ----- -----
Contract fee income 32.2 31.3
Fund management charges 12.7 12.5
Commissions receivable 4.6 4.7
------------------------- ----- -----
49.5 48.5
------------------------- ----- -----
6 Investment income
Investment income comprises dividends, interest and other income
receivable, realised and unrealised gains and losses on
investments. Movements are recognised in the consolidated statement
of comprehensive income in the period in which they arise.
Dividends are accrued on the date notified. Interest is accounted
for on a time proportion basis using the effective interest
method.
2020 2019
GBPm GBPm
--------------------------------------- ------- -----
Interest income 1.3 1.2
Dividend income 4.9 3.8
Gains on realisation of investments 25.7 32.6
Movement in unrealised (losses)/gains (30.0) 11.2
--------------------------------------- ------- -----
1.9 48.8
--------------------------------------- ------- -----
7 Origination costs
Origination costs include commissions, intermediary incentives
and other distribution-related expenditure. Origination costs which
vary with, and are directly related to, securing new contracts and
incremental premiums on existing single premium contracts are
deferred to the extent that they are recoverable out of future net
income from the relevant contract. Deferred origination costs are
amortised on a straight-line basis over the life of the relevant
contracts. Origination costs that do not meet the criteria for
deferral are expensed as incurred.
2020 2019
GBPm GBPm
-------------------------------------- ----- -----
Amortisation of deferred origination
costs 14.6 13.8
Other origination costs 3.4 2.9
---------------------------------------- ----- -----
18.0 16.7
---------------------------------------- ----- -----
8 Administrative and other expenses
Included in administrative and other expenses are the
following:
2020 2019
GBPm GBPm
---------------------------------------------------- ----- -----
Auditors' remuneration:
- Fees payable for the audit of the
Company's annual accounts 0.1 0.1
* Fees payable for the audit of the Company's
subsidiaries
pursuant to legislation 0.4 0.4
- Other services provided to the Group 0.1 0.1
Employee costs (see note 9) 11.1 11.0
Directors' fees 0.4 0.3
Fund management fees 4.8 4.7
Renewal and other commission 0.8 1.2
Professional and other fees 2.8 3.2
Provision for doubtful debts 0.9 0.5
Litigation fees and settlements 1.3 1.4
Operating lease rentals - 0.7
Licences and maintenance fees 1.7 1.4
Insurance costs 1.4 1.3
Depreciation of property, plant and
equipment 0.7 0.4
Communications 0.3 0.4
----------------------------------------------------- ----- -----
9 Employee costs
The Group provides a range of benefits to employees, including
annual bonus arrangements, paid holiday arrangements and defined
contribution pension plans.
Short term benefits, including holiday pay and other similar
non-monetary benefits, are recognised as an expense in the period
in which the service is received.
The Group pays fixed pension contributions on behalf of its
employees (defined contribution plans). Once the contributions have
been paid the Group has no further payment obligations. The
contributions are recognised as an expense when they are due.
Amounts not paid are shown in accruals in the balance sheet. The
assets of the plan are held separately from the Group in
independently administered funds.
The Group operates an annual bonus plan for employees. An
expense is recognised in the consolidated statement of
comprehensive income when the Group has a legal or constructive
obligation to make payments under the plan as a result of past
events and a reliable estimate of the obligation can be made.
9 .1 The aggregate remuneration in respect of employees
(including sales staff and executive Directors) was as follows:
2020 2019
GBPm GBPm
-------------------------- ----- -----
Wages and salaries 10.7 10.7
Social security costs 1.0 1.0
Contributions to pension
plans 1.0 0.9
12.7 12.6
-------------------------- ----- -----
Total salary and other staff costs for the year are incorporated
within the following classifications:
2020 2019
GBPm GBPm
----------------------------------- ----- -----
Administrative and other expenses 11.1 11.0
Origination costs 1.6 1.6
12.7 12.6
----------------------------------- ----- -----
The above information includes Directors' remuneration
(excluding non-executive directors' fees). Details of the
Directors' remuneration, share options, pension entitlements and
interests in shares are disclosed in the Report of the Remuneration
Committee.
9.2 The average number of employees during the year was as follows:
2020 2019
No. No.
---------------------------- ----- -----
Administration 144 140
Distribution and marketing 15 18
IT development 33 33
192 191
---------------------------- ----- -----
10 Taxation
Taxation is based on profits and income for the period as
determined with reference to the relevant tax legislation in the
countries in which the Company and its subsidiaries operate. Tax
payable is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date. Tax is recognised
in the consolidated statement of comprehensive income except to the
extent that it relates to items recognised in equity. Tax on items
relating to equity is recognised in equity.
The corporation tax expense for the Group for 2020 was GBP0.2m
(2019: nil). The increase in taxation arose from increased activity
in our Japan branch and an increased tax rate in Labuan.
Corporation tax is charged on any profits arising at the following
rates depending on location of the company or branch:
Isle of Man 0% (2019: 0%)
Republic of Ireland 12.5% (2019: 12.5%)
Japan branch 23.4% (2019: 23.4%)
Labuan 24% (2019: 3%)
The Bahamas 0% (2019: 0%)
The taxation rate for Labuan has changed in the current
financial year due to amendments to the corporation tax
arrangements in Labuan and the way in which the Group's activities
in that jurisdiction are classified.
2020 2019
GBPm GBPm
---- ---------------------------------------- ----- -----
Current year tax provisions 0.1 -
Adjustment to prior year tax provisions 0.1 -
---------------------------------------------- ----- -----
0.2 -
-------------------------------------------- ----- -----
No deferred tax asset is currently being recorded in relation to
losses arising in Hansard Europe.
There is no material difference between the current tax charge
in the consolidated statement of comprehensive income and the
current tax charge that would result from applying standard rates
of tax to the profit before tax.
11 Earnings per share
2020 2019
----------------------------------------- ------ ------
Profit after tax (GBPm) 4.5 4.6
Weighted average number of shares
in issue (millions) 137.6 137.6
------------------------------------------ ------ ------
Basic and diluted earnings per share
in pence 3.2 3.3
------------------------------------------ ------ ------
The Directors believe that there is no material difference
between the weighted average number of shares in issue for the
purposes of calculating either basic or diluted earnings per share.
Earnings under either measure is 3.2p per share (2019: 3.3p).
12 Dividends
Interim dividends payable to shareholders are recognised in the
year in which the dividends are paid. Final dividends payable are
recognised as liabilities when approved by the shareholders at the
Annual General Meeting.
The following dividends have been paid by the Group during the
year:
Per share Total Per share Total
2020 2020 2019 2019
p GBPm p GBPm
-------------------------------- ---------- ------ ---------- ------
Final dividend in respect
of previous
financial year 2.65 3.6 2.65 3.6
Interim dividend in respect
of current
financial year 1.80 2.4 1.80 2.4
4.45 6.0 4.45 6.0
-------------------------------- ---------- ------ ---------- ------
The Board has resolved to pay a final dividend of 2.65p per
share on 12 November 2020, subject to approval at the Annual
General Meeting, based on shareholders on the register on 2 October
2020.
13 Intangible assets and property, plant and equipment
Intangible Assets
The historical cost of computer software is the purchase cost
and the direct cost of internal development. Computer software is
recognised as an intangible asset.
2020 2019
GBPm GBPm
------------------- ----- -----
Intangible assets 5.9 3.0
------------------- ----- -----
Amortisation is calculated so as to amortise the cost of
intangible assets, less their estimated residual values, on a
straight-line basis over the expected useful economic lives of the
assets concerned and is included in administration and other
expenses in the consolidated statement of comprehensive income.
The carrying amount, residual value and useful life of the
Group's computer software is reviewed annually to determine whether
there is any indication of impairment, or a change in residual
value or expected useful life. If there is any indication of
impairment, the asset's carrying value is revised.
The economic lives used for this purpose are:
Computer software 3 to 10 years
------------------ --------------
The increase in computer software relates to capitalised costs
associated with the development of a replacement policy
administration system. This development is expected to be completed
and put into use during the financial year ending 30 June 2021, at
which point amortisation will commence over an expected life of 10
years.
The cost of computer software at 30 June 2020 is GBP6.6m (2019:
GBP3.7m), with a net book value of GBP5.9m (2019: GBP3.0m).
Accumulated amortisation at 30 June 2020 is GBP0.7m (2019:
GBP0.7m), all amortisation currently relates to externally
generated costs.
The cost of computer software includes GBP4.1m of externally
generated costs (2019: GBP2.7m) and GBP2.5m of internally generated
costs (2019: GBP1.0m).
Property, plant and equipment
Property, plant and equipment includes both tangible fixed
assets and 'right of use assets' recognised in accordance with IFRS
16 'Leases'.
2020 2019
GBPm GBPm
------------------------------- ----- -----
Property, plant and equipment 0.6 0.7
Right of use assets 3.0 -
3.6 0.7
------------------------------- ----- -----
Property, plant and equipment is stated at historical cost less
depreciation and any impairment. The historical cost of property,
plant and equipment is the purchase cost, together with any
incremental costs directly attributable to the acquisition.
Depreciation is calculated so as to amortise the cost of
tangible assets, less their estimated residual values, on a
straight-line basis over the expected useful economic lives of the
assets concerned and is included in administration and other
expenses in the consolidated statement of comprehensive income.
The carrying amount, residual value and useful life of the
Group's plant and equipment is reviewed annually to determine
whether there is any indication of impairment, or a change in
residual value or expected useful life. If there is any indication
of impairment, the asset's carrying value is revised.
The economic lives used for this purpose are:
Freehold property 50 years
Computer equipment 3 to 5 years
Fixtures & fittings 4 years
-------------------- -------------
Right of use assets are depreciated over the useful life of the
lease.
The cost of property, plant and equipment at 30 June 2020 is
GBP10.1m (2019: GBP10.0m), with a net book value of GBP0.6m (2019:
GBP0.7m).
Accumulated depreciation at 30 June 2020 is GBP9.5m (2019:
GBP9.3m).
IFRS 16 - Leases
On adoption of IFRS 16, the Group recognised right-of-use assets
and associated lease liabilities in relation to property rental
leases which had previously been classified as 'operating leases'
under the principles of IAS 17 Leases. The right-of-use assets for
property leases were measured at an amount equal to the lease
liability adjusted by the amount of any prepaid or accrued lease
payments recognised immediately before the date of initial
application, being the later of the date of transition or
commencement date. There were no onerous lease contracts that would
have required an adjustment to the right-of-use assets at the date
of initial application. The liabilities were measured at the
present value of the remaining lease payments, discounted using an
incremental borrowing rate as of 1 July 2019. The weighted average
incremental borrowing rate applied to the lease liabilities on 1
July 2019 was 3%.
The Group leases various offices around the world to service its
clients and operations. Rental contracts are typically made for
periods of 1 to 10 years, incorporating break clauses where
applicable. Lease terms are negotiated on an individual basis and
contain differing terms and conditions. The lease agreements do not
impose any covenants.
In determining the lease terms utilised in assessing the
position under IFRS 16, management considers break clauses in
leases, where appropriate. Potential future outflows exist on two
leases beyond break clauses of GBP3.3m. These have not been
included in the lease liability but which would be payable in the
event that the relevant lease clauses were not exercised. The
current position assumes that these break clauses will be
exercised.
Until the current financial year, beginning on 1 July 2019,
leases of property were classified as operating leases. Payments
made under operating leases were charged on a straight-line basis
over the period of the lease.
From 1 July 2019, leases (other than those classified as
short-term leases or leases of low-value assets) are recognised as
a right-of-use asset and a corresponding liability at the date at
which the leased asset is available for use by the Group. Each
lease payment is allocated between the liability and a finance
cost. The finance cost is charged over the lease period so as to
produce a constant periodic rate of interest on the remaining
balance of the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset's useful life and the
lease term on a straight-line basis.
Short-term leases (those with a lease term or useful life of
less than 12 months at inception) and leases of low value assets
(comprising IT-equipment and small items of office furniture) are
recognised on a straight-line basis as an expense in administration
and other expenses in the consolidated statement of comprehensive
income.
During the 2020 financial year, the Group entered into new
leases and recognised these under IFRS 16 accordingly. The weighted
average borrowing rate applied to the lease liabilities at 30 June
2020 was 4%.
The recognition of the right-of-use asset represents an increase
in the property, plant and equipment figure of GBP3.0m (1 July
2019: GBP0.9m). Lease liabilities relating to the right-of-use
asset are included within other payables.
GBPm
------------------------------------------------- ------
Right of use asset recognised 1 July
2019 0.9
Additions during the period 2.6
Depreciation (0.5)
--------------------------------------------------- --------
Net book value of right of use asset as at
30 June 2020 3.0
--------------------------------------------------- --------
Operating lease commitments disclosed at
30 June 2019 1.4
Less leases signed after 1 July 2019 and
short term leases (0.4)
--------------------------------------------------- --------
Discounted amount using incremental borrowing
rate of 3% at the date of initial applications 0.9
Lease liability recognised as at 1 July 2019 0.9
--------------------------------------------------- --------
Of which are:
Current lease liabilities 0.3
Non-current lease liabilities 0.6
--------------------------------------------------- --------
Additions during the period 2.6
Lease payments made during the period (0.5)
--------------------------------------------------- --------
Lease liability recognised as at 30 June
2020 3.0
--------------------------------------------------- --------
Of which are:
Current lease liabilities 0.4
Non-current lease liabilities 2.6
--------------------------------------------------- --------
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
-- reliance on previous assessments on whether leases are onerous;
-- the accounting for operating leases with a remaining lease
term of less than 12 months as at 1 July 2019 as short-term
leases.
The effect on the brought forward retained earnings of the Group
was nil.
14 Deferred origination costs
Amortisation of deferred origination costs is charged within the
origination costs line in the consolidated statement of
comprehensive income.
Formal reviews to assess the recoverability of deferred
origination costs on investment contracts are carried out at each
balance sheet date to determine whether there is any indication of
impairment. If there is any indication of irrecoverability or
impairment, the asset's recoverable amount is estimated. Impairment
losses are reversed through the consolidated statement of
comprehensive income if there is a change in the estimates used to
determine the recoverable amount. Such losses are reversed only to
the extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of
amortisation where applicable, if no impairment loss had been
recognised.
The movement in value over the financial year is summarised
below.
2020 2019
GBPm GBPm
--------------------------------------------- ------- -------
At beginning of financial year 118.0 113.8
Origination costs incurred and deferred
during the year 18.9 18.0
Origination costs amortised during the year (14.6) (13.8)
--------------------------------------------- ------- -------
122.3 118.0
--------------------------------------------- ------- -------
2020 2019
Carrying value GBPm GBPm
------------------------------------------ ------ ------
Expected to be amortised within one year 11.4 12.2
Expected to be amortised after one year 110.9 105.8
------------------------------------------ ------ ------
122.3 118.0
------------------------------------------ ------ ------
15 Other receivables
Other receivables are initially recognised at fair value and
subsequently measured at amortised cost, less any provision for
impairment.
2020 2019
GBPm GBPm
----------------------- ----- -----
Commission receivable 1.7 1.7
Other debtors 2.3 1.8
Prepayments 1.2 1.2
5.2 4.7
------------------------ ----- -----
Estimated to be settled within
12 months 5.2 4.7
Estimated to be settled after 12 - -
months
----------------------------------- ---- ----
5.2 4.7
---------------------------------- ---- ----
There are no receivables overdue but not impaired (2019:
GBPnil). Due to the short-term nature of these assets the carrying
value is considered to reflect fair value.
16 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at
call with banks, and other short-term highly liquid investments
with a minimal cost to be converted to cash, typically with
original maturities of three months or less, net of short-term
overdraft positions where a right of set-off exists. In the below
table, Money market funds includes all immediately available cash,
other than specific short term deposits.
2020 2019
GBPm GBPm
--------------------------------- ----- -----
Money market funds 35.0 40.2
Short-term deposits with credit 4.6 -
institutions
--------------------------------- ----- -----
39.6 40.2
--------------------------------- ----- -----
17 Financial liabilities under investment contracts
17.1 Investment contract liabilities, premiums and benefits
paid
17.1.1 Investment contract liabilities
Investment contracts consist of unit-linked contracts written
through subsidiary companies in the Group. Unit-linked liabilities
are measured at fair value by reference to the underlying net asset
value of the Group's unitised investment funds, determined on a bid
basis, at the balance sheet date.
The decision by the Group to designate its unit-linked
liabilities at fair value through profit or loss reflects the fact
that the liabilities are calculated with reference to the value of
the underlying assets.
17.1.2 Investment contract premiums
Investment contract premiums are not included in the
consolidated statement of comprehensive income but are reported as
deposits to investment contracts and are included in financial
liabilities in the balance sheet. On existing business, a liability
is recognised at the point the premium falls due. The liability for
premiums received on new business is deemed to commence at the
acceptance of risk.
17.1.3 Benefits paid
Withdrawals from policy contracts and other benefits paid are
not included in the consolidated statement of comprehensive income
but are deducted from financial liabilities under investment
contracts in the balance sheet. Benefits are deducted from
financial liabilities and transferred to amounts due to investment
contract holders on the basis of notifications received, when the
benefit falls due for payment or, on the earlier of the date when
paid or when the contract ceases to be included within those
liabilities.
17.2 Movement in financial liabilities under investment
contracts
The following table summarises the movement in liabilities under
investment contracts during the year:
2020 2019
GBPm GBPm
---------------------------------------- -------- --------
Deposits to investment contracts 143.0 150.7
Withdrawals from contracts and charges (142.3) (154.2)
Change in provisions for investment
contract liabilities 0.1 47.2
----------------------------------------- -------- --------
Movement in year 0.8 43.7
At beginning of year 1,079.7 1,036.0
----------------------------------------- -------- --------
1,080.5 1,079.7
----------------------------------------- -------- --------
2020 2019
GBPm GBPm
-------------------------------------- -------- --------
Contractually expected to be settled
within 12 months 36.7 29.1
Contractually expected to be settled
after 12 months 1,043.8 1,050.6
-------------------------------------- -------- --------
1,080.5 1,079.7
-------------------------------------- -------- --------
The change in provisions for investment contract liabilities
includes dividend and interest income and net realised and
unrealised gains and losses on financial investments held to cover
financial liabilities. Dividend income, interest income and gains
and losses are accounted for in accordance with note 6.
17.3 Investments held to cover liabilities under investment
contracts
The Group classifies its financial assets into the following
categories: financial investments and loans and receivables.
Financial investments consist of units in collective investment
schemes, equity securities, fixed income securities and deposits
with credit institutions. All financial investments are designated
at fair value through profit or loss.
The decision by the Group to designate its financial investments
at fair value through profit or loss reflects the fact that the
investment portfolio is managed, and its performance evaluated, on
a fair value basis.
The Group recognises purchases and sales of investments on trade
date. Investment transaction costs are written off in
administration expenses as incurred.
All gains and losses derived from financial investments,
realised or unrealised, are recognised within investment income in
the consolidated statement of comprehensive income in the period in
which they arise.
The value of financial assets at fair value through profit or
loss that are traded in active markets (such as trading securities)
is based on quoted market prices at the balance sheet date. The
quoted market price for financial assets held by the Group is the
current bid price. Investments in funds are valued at the latest
available net asset valuation provided by the administrators or
managers of the funds and companies, unless the Directors are aware
of good reasons why such valuations would not be the most
appropriate or indicative of fair value. Where necessary, the Group
uses other valuation methods to arrive at the stated fair value of
its financial assets, such as recent arms' length transactions or
reference to similar listed investments.
Loans and receivables are financial assets with fixed or
determinable payments that are not quoted on an active market.
Loans and receivables consist, primarily, of contract fees
receivable, long-term cash deposits (i.e. with an original maturity
duration in excess of three months) and cash and cash
equivalents.
The following investments, cash and cash equivalents, other
assets and liabilities are held to cover financial liabilities
under investment contracts. They are included within the relevant
headings on the consolidated balance sheet.
2020 2019
GBPm GBPm
-------------------------------------- -------- --------
Equity securities 40.7 30.4
Investments in collective investment
schemes 883.5 927.8
Fixed income securities 52.6 37.5
Deposits and money market funds 105.1 85.1
Total assets 1,081.9 1,080.8
Other payables (1.4) (1.1)
----------------------------------------- -------- --------
Financial investments held to cover
financial liabilities 1,080.5 1,079.7
----------------------------------------- -------- --------
The other receivables and other payables fair value approximates
amortised cost.
18 Deferred income
Fees charged for services related to the management of
investment contracts are recognised as revenue as the services are
provided. Initial fees which exceed the level of recurring fees and
relate to the future provision of services are deferred. These are
amortised over the anticipated period in which services will be
provided.
The movement in value of deferred income over the financial year
is summarised below.
2020 2019
GBPm GBPm
-------------------------------------- ------- -------
At beginning of financial year 133.2 130.3
Income received and deferred during
the year 21.6 19.8
Income amortised and recognised
in contract fees during the year (17.0) (16.9)
-------------------------------------- ------- -------
137.8 133.2
-------------------------------------- ------- -------
2020 2019
Carrying value GBPm GBPm
------------------------------------- ------ ------
Expected to be amortised within
one year 13.0 13.0
Expected to be amortised after one
year 124.8 120.2
------------------------------------- ------ ------
137.8 133.2
------------------------------------- ------ ------
19 Other payables
Other payables are initially recognised at fair value and
subsequently measured at amortised cost. They are recognised at the
point where service is received but payment is due after the
balance sheet date.
2020 2019
GBPm GBPm
------------------------------ ----- -----
Commission payable 1.8 1.9
Other creditors and accruals 7.1 6.9
Lease liabilities 3.0 -
11.9 8.8
------------------------------ ----- -----
With the exception of the lease liabilities shown in note 13,
all other payable balances, including amounts due to contract
holders, are deemed to be current. Due to the short-term nature of
these payables the carrying value is considered to reflect fair
value.
20 Capital management
It is the Group's policy to maintain a strong capital base in
order to:
-- satisfy the requirements of its contract holders, creditors and regulators;
-- maintain financial strength to support new business growth and create shareholder value;
-- match the profile of its assets and liabilities, taking
account of the risks inherent in the business and;
-- generate operating cash flows to meet dividend requirements.
Within the Group each subsidiary company manages its own
capital. Capital generated in excess of planned requirements is
returned to the Company by way of dividends. Group capital
requirements are monitored by the Board.
The Company monitors capital on two bases:
-- the total shareholder's equity, as per the balance sheet
-- the capital requirement of the relevant supervisory bodies,
where subsidiaries are regulated.
The Group's policy is for each company to hold the higher
of:
-- the Company's internal assessment of the capital required; or
-- the capital requirement of the relevant supervisory body, where applicable.
There has been no material change in the Group's management of
capital during the period, other than to perform additional
modelling around risks arising from the Covid-19 pandemic and to
give consideration to emerging market practice and regulatory
expectations around capital conservation. All regulated entities
within the Group exceed significantly the minimum solvency
requirements at the balance sheet date.
The capital held within Hansard Europe is considered not to be
available for dividend to Hansard Global plc until such time as the
legal cases referred to in note 25 are resolved.
21 Share capital
2020 2019
GBPm GBPm
------------------------------------------ ---- ------ ------
Authorised:
200,000,000 ordinary shares of 50p 100.0 100.0
------------------------------------------------ ------ ------
Issued and fully paid:
137,557,079 (2019: 137,557,079) ordinary
shares of 50p 68.8 68.8
------------------------------------------------ ------ ------
No shares (2019: nil) were issued or bought back in the
year.
22 Other reserves
Other reserves comprise the merger reserve arising on the
acquisition by the Company of its subsidiary companies on 1 July
2005, the share premium account and the share save reserve. The
merger reserve represents the difference between the par value of
shares issued by the Company for the acquisition of those
companies, compared to the par value of the share capital and the
share premium of those companies at the date of acquisition.
2020 2019
GBPm GBPm
------------------------------ ------- -------
Merger reserve (48.5) (48.5)
Share premium 0.1 0.1
Share based payments reserve 0.4 0.2
Share save reserve 0.1 0.1
Reserve for own shares held
within EBT (0.4) (0.4)
(48.3) (48.5)
------------------------------ ------- -------
Included within other reserves is an amount representing 510,000
(2019: 585,000) ordinary shares held by the Group's employee
benefit trust ('EBT') which were acquired at a cost of GBP0.4m (see
note 23.2). The ordinary shares held by the trustee of the Group's
employee benefit trust are treated as treasury shares in the
consolidated balance sheet in accordance with IAS 32 "Financial
Instruments: Presentation".
This reserve arose when the Group acquired equity share capital
under its EBT, which is held in trust by the trustee of the Group's
employee benefit trust. Treasury shares cease to be accounted for
as such when they are sold outside the Group or the interest is
transferred in full to the employee pursuant to the terms of the
incentive plan. 498,000 shares vested on 1 July 2020 in line with
the terms of the EBT and were subsequently sold or transferred from
the EBT, leaving 12,000 remaining in the EBT. See note 23.2 for
further details.
23 Equity settled share-based payments
The Company has established a number of equity-based payment
programmes for eligible employees. The fair value of expected
equity-settled share-based payments under these programmes is
calculated at date of grant using a standard option-pricing model
and is amortised over the vesting period on a straight-line basis
through the consolidated statement of comprehensive income. A
corresponding amount is credited to equity over the same
period.
At each balance sheet date, the Group reviews its estimate of
the number of options expected to be exercised. The impact of any
revision in the number of such options is recognised in the
consolidated statement of comprehensive income so that the charge
to the consolidated statement of comprehensive income is based on
the number of options that actually vest. A corresponding
adjustment is made to equity.
The estimated fair value of the schemes and the imputed cost for
the period under review is not material to these financial
statements.
23.1 SAYE programme
This is a standard scheme approved by the Revenue authorities in
the Isle of Man that is available to all employees where
individuals may make monthly contributions over three or five years
to purchase shares at a price not less than 80% of the market price
at the date of the invitation to participate.
At the date of this report, the following options remain
outstanding under each tranche:
2020 2019
No. of No. of
Scheme year options Options
------------- -------- --------
2015 61,763 170,731
2016 - 10,714
2017 62,730 89,578
2018 384,083 567,173
-------------- -------- --------
508,576 838,196
------------- -------- --------
A summary of the transactions in the existing SAYE programmes
during the year is as follows:
2020 2019
Weighted Weighted
average Average
No. of exercise No. of Exercise
options price (p) options price (p)
----------------------------- ---------- ---------- ---------- ----------
Outstanding at the start
of year 838,196 65 1,492,979 67
Granted - - - -
Exercised - - - -
Forfeited (329,620) 66 (654,783) 69
----------------------------- ---------- ---------- ---------- ----------
Outstanding at end of year* 508,576 64 838,196 65
----------------------------- ---------- ---------- ---------- ----------
*None of these options are exercisable as at 30 June 2020.
There were no new options granted during the current financial
year.
23.2 Incentive Plan Employee Benefit Trust
An Employee Benefit Trust was established in February 2018 to
hold shares awarded to employees as an incentive on a deferred
basis.
Shares awarded under the scheme are purchased by the Trust in
the open market and held until vesting. Awards made under the
scheme would normally vest after three years. There were 75,000
share awards which vested during the year (2019: nil).
The Trust was funded with a loan of GBP446,000 during 2018 and
as at 30 June 2020 the Trust held 510,000 shares (2019: 585,000).
Awards totalling 75,000 shares vested during the year (2019: nil).
Subsequent to the year end, on 1 July 2020, 498,000 shares vested
in line with the terms of the EBT and were subsequently sold or
transferred from the EBT, leaving 12,000 remaining in the EBT.
24 Related party transactions
24.1 Intra-group transactions
Various subsidiary companies within the Group perform services
for other Group companies in the normal course of business. The
financial results of these activities are eliminated in the
consolidated financial statements.
24.2 Key management personnel compensation
Key management consists of 10 individuals (2019: 12), being
members of the Group's Executive Committee and executive Directors
of direct subsidiaries of the Company.
The aggregate remuneration paid to key management as at 30 June
2020 is as follows:
2020 2019
GBPm GBPm
------------------------------ ------- -------
Short-term employee benefits 1.9 1.9
Post-employment benefits 0.3 0.3
------------------------------ ------- -------
Total 2.2 2.2
------------------------------ ------- -------
The total value of investment contracts issued by the Group and
held by key management is zero (2019: zero).
24.3 Transactions with controlling shareholder
Dr L S Polonsky is regarded as the controlling shareholder of
the Group, as defined by the Listing Rules of the Financial Conduct
Authority. Except as reported below, there were no significant
transactions between the Group and Dr Polonsky during the year
under review.
-- Dr Polonsky has an investment contract issued by the Group on
terms available to employees in general. As at 30 June 2020 Dr
Polonsky's contract had a fair value of GBP1.0m (30 June 2019:
GBP0.9m).
24.4 Incentive Plan Employee Benefit Trust
An Employee Benefit Trust was established in February 2018 to
hold shares awarded to employees as an incentive on a deferred
basis. The Trust was funded with a loan of GBP446,000 during 2018
and as at 30 June 2020 the Trust held 510,000 shares (2019:
585,000). Awards totalling 75,000 shares vested during the year
(2019: nil). Subsequent to the year end, on 1 July 2020, 498,000
shares vested in line with the terms of the EBT and were
subsequently sold or transferred from the EBT, leaving 12,000
remaining in the EBT.
24.5 Other related party transactions
The Company entered into a contract in July 2011 with Mr. Gordon
Marr, the Group Chief Executive Officer, to purchase a residential
property for the sum of GBP481,000, exercisable at his discretion.
Mr. Marr purchased the property in July 2011 for GBP501,000. The
contract has not been exercised at the date of this Annual Report
and Accounts.
The Group had a contract with CCC Consulting for the purposes of
professional services. CCC Consulting was owned by Mr Graham
Morrall, a member of the Executive Committee. With effect from 1
April 2020, Hansard Development Services Limited purchased CCC
Consulting for a par value of AED 5,000 (GBP1,081). The amount paid
to CCC Consulting in the current year, prior to acquisition, was
GBP59,526 (2019: GBP58,330).
25 Contingent liabilities
25.1 Litigation
The Group does not give any investment advice. Investment
decisions are taken either by the contract holder directly or
through a professional intermediary appointed by the contract
holder. Contract holders bear the financial risk relating to the
investments underpinning their contracts, as the policy benefits
are linked to the value of the assets. Notwithstanding the above,
financial services institutions are frequently drawn into disputes
in cases where the value and performance of assets selected by or
on behalf of contract holders fails to meet their expectations. At
the balance sheet date a number of fund structures remain affected
by liquidity or other issues that hinder their sales or redemptions
on normal terms with a consequent adverse impact on policy
transactions.
As reported previously, the Group has been subject to a number
of complaints in relation to the selection and performance of
assets linked to contracts. The Group has been served with a number
of writs arising from such complaints and other asset-related
issues. All such writs relate to historic business written by
Hansard Europe prior to its closure to new business in 2013.
As at 30 June 2020, the Group had been served with cumulative
writs with a net exposure totalling EUR25.8m, or GBP23.4m in
sterling terms (30 June 2019: EUR21.7m / GBP19.4m) arising from
contract holder complaints and other asset performance-related
issues. The increase since 30 June 2019 was driven by a combination
of additional cases being added in Italy and Belgium and a
reduction in the fair value of investment assets backing the
claims.
During the year, the Group successfully defended nine cases with
net exposures of approximately EUR0.7m, or GBP0.6m, three of which
have been appealed by the plaintiffs. These successes continue to
affirm confidence in the Group's legal arguments.
Our policy is to maintain contingent liabilities even where we
win cases in the court of first instance if such cases have been
subsequently appealed. This includes our largest single case in
Belgium where the appeal has been deferred pending the outcome of a
separate constitutional court case.
We have previously noted that we expect a number of our larger
claims to ultimately be covered by our Group insurance cover.
During 2020 we received our first insurance payment on account for
legal expenditure in Italy and recorded GBP0.5m in total recoveries
during the year. We expect such reimbursement to continue during
the course of that litigation.
As a result, we also expect that a significant amount of the
GBP23.4m of contingent liabilities referred to above would be
covered by insurance should those cases be ruled against us. We
continue to estimate insurance coverage to be in the range of GBP6m
to GBP13m.
While it is not possible to forecast or determine the final
results of pending or threatened legal proceedings, based on the
pleadings and advice received from the Group's legal
representatives, the Directors believe that the Group has strong
defences to such claims. Notwithstanding this, there may be
circumstances where in order to avoid the expense and distraction
of protracted litigation the Board may consider it in the best
interests of the Group and its shareholders to reach a commercial
resolution with regard to certain of these claims. Such cases
totalled less than GBP0.1m (2019: GBP0.1m) during the year.
It is not possible at this time to make any further estimates of
liability.
Between 30 June 2020 and the date of this report, there have
been no material developments.
25.2 Isle of Man Policyholders' Compensation Scheme
The Group's principal subsidiary, Hansard International is a
member of the Isle of Man Policyholders' Compensation Scheme
governed by the Life Assurance (Compensation of Policyholders)
Regulations 1991. The objective of the Scheme is to provide
compensation for policyholders should an authorised insurer be
unable to meet its liabilities to policyholders. In the event of a
levy being charged by the Scheme members, Hansard International
would be obliged to meet the liability arising at the time. The
maximum levy payable in accordance with the regulations of the
Scheme in respect of the insolvency of the insurer is 2% of long
term business liabilities. Hansard International's products include
a clause in their terms and conditions permitting it to recover any
monies paid out under the Scheme from contract holders.
26 Foreign exchange rates
The Group's presentational and functional currency is pounds
sterling, being the currency of the primary economic environment in
which the Group operates.
Foreign currency transactions are translated into sterling using
the applicable exchange rate prevailing at the date of the
transactions. Monetary assets and liabilities denominated in
foreign currencies are translated into sterling at the rates of
exchange prevailing at the balance sheet date, and the gains or
losses on translation are recognised in the consolidated statement
of comprehensive income.
Non-monetary assets and liabilities that are held at historical
cost are translated using exchange rates prevailing at the date of
transaction; those held at fair value are translated using exchange
rates ruling at the date on which the fair value was
determined.
The closing exchange rates used by the Group for the conversion
of significant consolidated balance sheet items to sterling were as
follows:
2020 2019
-------------
US Dollar 1.24 1.27
Japanese Yen 134 137
Euro 1.10 1.12
27 Non statutory accounts
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 30 June 2020 or
2019, but is derived from those accounts. The auditor has reported
on those accounts; their report was (i) unqualified, (ii) did not
include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report.
28 Annual report
The Company's annual report and accounts for the year ended 30
June 2020 is expected to be posted to shareholders by 6 October
2020. Copies of both this announcement and the annual report and
accounts will be available to the public at the Company's
registered office at Harbour Court, Lord Street, PO Box 192,
Douglas, Isle of Man, IM99 1QL and through the Company's website at
www.Hansard.com .
Responsibility statement of the directors in respect of the
annual financial report
The Directors confirm to the best of their knowledge that:
-- The financial statements have been prepared in accordance
with International Reporting Financial Standards as adopted by the
EU and give a true and fair view of the assets, liabilities,
financial position and profit for the Company and the undertakings
included in the consolidation as a whole as required by the
Disclosure and Transparency Rules Chapter 4.2.4; and
-- Pursuant to Disclosure and Transparency Rules Chapter 4, the
Directors' report of the Company's annual report and accounts
includes a fair review of the development and performance of the
business and the position of the Company and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties faced by the
business.
On behalf of the Board
G S Marr T N Davies
Director Director
23 September 2019
OTHER INFORMATION
Risk Based Solvency Capital
A) Risk Based Solvency capital position
The Group is now subject to the Isle of Man (Insurance Group)
Supervision Regulations 2019.
It has adopted the default consolidated accounts method ("Method
1") to calculate the Group Solvency Capital Requirement ("SCR") and
Own Funds as required by these regulations. The solvency position
as 30 June 2020 has been reported below on this basis. Previously,
only the life companies within the Group were subject to a risk
based solvency regime.
Therefore, the Group solvency position at 30 June 2019 has also
been shown on the Method 1 basis in order to allow comparison with
this year's results.
The inclusion of the Group's non-insurance subsidiaries has had
the effect of increasing the total Value of In-Force, Risk Margin
and SCR.
The Group Risk Based Solvency free assets at 30 June 2020 were
GBP66.5m (30 June 2019: GBP86.8m; GBP65.4m on a comparable
reporting basis), before allowing for payment of the 2020 final
ordinary dividend.
All Risk Based Solvency and related data presented in this
section is subject to change prior to submission to regulatory
authorities.
30 June 30 June 30 June
Group Risk Based Solvency 2020 2019 2019
capital position Total Total* Total
GBPm GBPm GBPm
Own Funds 149.1 148.9 152.2
Solvency Capital Requirement 82.6 83.6 65.4
Free assets 66.5 65.4 86.8
Solvency ratio (%) 180% 178% 233%
*30 June 2019 equivalent on a consolidated accounts basis.
All Own Funds are considered Tier 1 capital.
The following compares Own Funds as at 30 June 2020 and 30 June
2019:
30 June 30 June 30 June
2020 2019 2019
Own Funds Own Funds* Own Funds**
GBPm GBPm GBPm
Value of In-Force 147.9 145.4 139.9
Risk Margin (29.5) (30.7) (22.8)
Net Worth 30.7 34.2 35.1
Total 149.1 148.9 152.2
* on an equivalent basis to June 2020.
** VIF and risk margins for life companies only.
B) Analysis of movement in Group Free Assets
A summary of the movement in Group Risk Based Free assets from
GBP86.8m at 30 June 2019 to GBP66.5m at 30 June 2020 is set out in
the table below.
GBPm
Risk Based Solvency surplus at 30 June 2019 86.8
Risk Based Solvency surplus at 30 June 2019 (on Method 1) 65.4
Operating experience 2.7
Investment performance 0.2
Changes in assumptions 2.2
Dividends paid (6.0)
Foreign exchange 2.0
Risk Based Solvency surplus at 30 June 2020 66.5
The movement in Group Risk Based Solvency surplus in 2020 was
reduced by dividends paid offset by positive market movements,
operating experience and assumption changes.
New business written had a GBP(0.9)m impact on Own Funds for the
period.
C) Analysis of Group Solvency Capital Requirement
The analysis of the Group's Solvency Capital Requirement ("SCR")
by risk type is as follows:
Split of the Group's Solvency Capital Requirement * 30 June 30 June 2019 30 June
2020 % of SCR** 2019
Risks % of SCR % of SCR
Market
Equity 48% 51% 47%
Currency 12% 14% 25%
Insurance
Lapse 48% 46% 46%
Expense 21% 20% 12%
Default 1% 1% 1%
Operational 15% 16% 13%
* Figures are the capital requirements prior to diversification
benefits expressed as a percentage of the final diversified
SCR.
** New basis for reporting Group Solvency.
D) Reconciliation of IFRS equity to Group Risk Based Solvency
Shareholder Own Funds
30 June 30 June 2019 30 June
2020 2019
GBPm GBPm*** GBPm
IFRS shareholders' equity 25.9 27.2 27.2
Elimination of DOC (122.3) (118.0) (118.0)
Elimination of DIR 137.8 133.2 133.2
Value of In-Force 147.9 145.4 139.9
Liability valuation differences* (4.7) (4.9) (7.5)
Impact of risk margin (29.5) (30.7) (22.8)
Other** (6.0) (3.3) 0.2
Risk Based Solvency Shareholder Own Funds 149.1 148.9 152.2
* Liability valuation differences relate to additional
provisions made for risk based capital purposes, notably for
contingent liabilities.
** Other is related to Intangible Assets not recognised on the
solvency balance sheet and some other accounting changes for IFRS
16.
*** On the consolidated accounting basis for reporting Group
Solvency.
E) Sensitivity analysis
The sensitivity of the Own Funds of the Group and of the Group's
life insurance subsidiaries to significant changes in market
conditions is as follows:
30 June 30 June 30 June
2020 2020 2019
Group Life Companies Life Companies
GBPm GBPm GBPm
Own Funds 149.1 136.3 137.4
Impact of:
10% instantaneous fall in equity markets (9.2) (6.6) (6.8)
100 basis points decrease in interest rates (1.3) 1.0 0.9
10% increase in expenses (9.0) (4.8) (4.9)
1% increase in expense inflation (6.8) (3.4) (3.2)
10% strengthening of sterling (9.2) (6.2) (5.5)
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