REG - Hansard Global plc - Results for the six months ended 31 December 2017 <Origin Href="QuoteRef">HSD.L</Origin> - Part 3
22/02/2018 07:05
- Part 3: For the preceding part double click ID:nRSV5859Fb
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 in relation to
the Republic of Ireland 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. NICC is a measure
of the value of new in-force business and top-ups on existing single premium
contracts. NICC is the total amount of basic initial commission payable by
Hansard International Limited 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 direct
origination costs during the period as set out in section 5 of the Business
and Financial Review.
Six months ended Year ended
31 December 30 June
2017 2016 2016
£m £m £m
Middle East and Africa 1.7 1.9 3.0
Rest of World 1.9 1.4 3.0
Far East 1.2 1.2 2.9
Latin America 1.2 0.7 1.6
Net issued compensation credit 6.0 5.2 10.5
Other commission costs paid to third parties 2.6 2.4 4.9
Enhanced unit allocations 0.7 0.7 1.4
Direct origination costs during the period 9.3 8.3 16.8
Revenues and expenses allocated to geographical locations contained in
sections 5.1 to 5.4 below, reflect the revenues and expenses generated in or
incurred by the legal entities in those locations.
5.1 Geographical analysis of fees and commissions by origin
Six months ended Year ended
31 December 30 June
2017 2016 2017
£m £m £m
Isle of Man 23.3 23.6 46.9
Republic of Ireland 2.4 3.1 5.7
25.7 26.7 52.6
5.2 Geographical analysis of profit before taxation
Six months ended Year ended
31 December 30 June
2017 2016 2017
£m £m £m
Isle of Man 3.7 4.1 7.8
Republic of Ireland (0.2) 0.3 (0.1)
3.5 4.4 7.7
5.3 Geographical analysis of gross assets
31 December 30 June
2017 2016 2017
£m £m £m
Isle of Man 1,087.7 986.4 1,038.6
Republic of Ireland 189.7 206.3 202.9
1,277.4 1,192.7 1,241.5
5.4 Geographical analysis of gross liabilities
31 December 30 June
2017 2016 2017
£m £m £m
Isle of Man 1,078.6 972.4 1,025.8
Republic of Ireland 170.8 187.0 184.0
1,249.4 1,159.4 1,209.8
6 Fees and commissions
Six months ended Year ended
31 December 30 June
2017 2016 2017
£m £m £m
Contract fee income 16.2 18.0 34.6
Fund management fees 7.0 6.5 13.4
Commission receivable 2.5 2.2 4.6
25.7 26.7 52.6
7 Administrative and other expenses
Included in Administrative and other expenses are the following:
Year ended
Six months ended
31 December 30 June
2017 2016 2017
£m £m £m
Auditors' remuneration
- Fees payable to the Company's auditor for the audit of the Company's - - 0.1
annual accounts
- Fees payable for the audit of the Company's subsidiaries pursuant to 0.2 0.2 0.3
legislation
- Other services provided to the Group - - 0.1
Employee costs 5.8 5.4 10.6
Directors' fees 0.1 0.1 0.3
Fund management fees 2.3 1.9 4.7
Renewal and other commission 0.4 0.5 1.4
Professional and other fees 1.6 1.4 2.8
Impairment of broker balances receivable - 0.7 1.1
Litigation settlements - 0.1 1.0
Operating lease rentals 0.4 0.6 0.9
Licences and maintenance fees 0.6 0.5 1.0
Insurance costs 0.6 0.5 1.1
Depreciation of property, plant and equipment 0.2 0.2 0.4
Communications 0.2 0.3 0.6
8 Taxation
The Group's profits arising from its Isle of Man-based operations are taxable
at zero percent.
Corporation tax for the Republic of Ireland-based operations is based on the
effective annual rate for taxable income of 12.5%, applied to the expected
taxable profits for the period.
9 Earnings per share
Six months ended Year ended
31 December 30 June
2017 2016 2017
Profit after tax (£m) 3.5 4.4 7.7
Weighted average number of shares in issue (millions) 137.4 137.4 137.4
Earnings per share in pence 2.5p 3.2p 5.6p
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
2.5p pence per share.
10 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
period:
Year ended
Six months ended 31 December 30 June
2017 2016 2017
Per share Total Per share Total Per share Total
p £m p £m p £m
Final dividend paid 5.3 7.2 5.3 7.3 5.3 7.3
Interim dividend paid - - - - 3.6 4.9
5.2 7.2 5.3 7.3 8.9 12.2
The Board have resolved to pay an increased interim dividend of 1.8p per
share. This amounts to £2.5m and will be paid on 10 April 2018 to
shareholders on the register at 2 March 2018.
11 Deferred origination costs
31 December 30 June
2017 2016 2017
£m £m £m
At beginning of financial year 111.6 110.9 110.9
Origination costs incurred during the period 9.3 8.3 16.8
Origination costs amortised during the period (7.6) (7.9) (16.1)
113.3 111.3 111.6
31 December 30 June
2017 2016 2017
Carrying value £m £m £m
Expected to be amortised within one year 11.1 10.9 11.0
Expected to be amortised after one year 102.2 100.4 100.6
113.3 111.3 111.6
12 Financial investments held to cover liabilities under
investment contracts
The following investments, other assets and liabilities are held to cover
financial liabilities under investment contracts. They are included within the
relevant headings on the condensed consolidated balance sheet.
31 December 30 June
2017 2016 2017
£m £m £m
Equity securities 25.4 10.4 20.5
Investment in collective investment schemes 969.2 861.3 920.4
Fixed income securities 21.3 29.4 22.0
Deposits and money market funds 72.7 100.9 88.8
Total assets 1,088.6 1,002.0 1,051.7
Other payables (1.2) (1.0) (2.0)
Financial investments held to cover
liabilities 1,087.4 1,001.0 1,049.7
The other receivables and other payables fair value approximates amortised
cost.
13 Deferred income
31 December 30 June
2017 2016 2017
£m £m £m
At beginning of financial year 129.2 130.5 130.5
Income received and deferred in period 9.1 8.7 16.8
Income recognised in contract fees in the period (9.0) (9.9) (18.1)
129.3 129.3 129.2
31 December 30 June
2017 2016 2017
Carrying value £m £m £m
Expected to be amortised within one year 12.9 13.0 13.0
Expected to be amortised after one year 116.4 116.3 116.2
129.3 129.3 129.2
14 Other payables
31 December 30 June
2017 2016 2017
£m £m £m
Creditors and accruals 8.9 7.3 8.1
15 Called up share capital
31 December 30 June
2017 2016 2017
£m £m £m
Authorised:
200,000,000 ordinary shares of 50p 100.0 100.0 100.0
Issued and fully paid:
137,449,611 ordinary shares of 50p
(30 June 2017: 137,444,792 ordinary shares) 68.7 68.7 68.7
16 Related party transactions
Intra-group transactions are eliminated on consolidation and are not disclosed
separately here.
There have been no significant related party transactions in the period other
than noted in 16.1 below, nor changes to related parties. Related party
transactions affecting the results of previous periods and an understanding of
the Group's financial position at previous balance sheet dates are as
disclosed in the Annual Report & Accounts for the year ended 30 June 2017.
There have been no significant awards during the period under the Save As You
Earn (SAYE) share-save programme for employees. The estimated fair value of
the schemes and the imputed cost for the period under review is not material
to these financial statements.
16.1 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.
Dr Polonsky's letter of appointment reflects his position as a non-executive
Director and President. It incorporates the requirements of the Listing Rules
of the Financial Conduct Authority in relation to Dr Polonsky as controlling
shareholder of the Group in order to maintain effective corporate governance.
· Dr Polonsky has an investment contract issued by the Group on
terms available to employees in general. As at 31 December 2017 Dr Polonsky's
contract had a fair value of £4.7m (30 June 2017: £15.7m). A withdrawal of
£10.8m was made during July 2017.
· The Group established an Employee Benefit Trust in November 2011
with the transfer to it of 400,000 shares in Hansard Global plc by Dr
Polonsky. Dr Polonsky made a further donation of 250,000 shares to the Trust
in September 2014. Following the purchase of 56,871 shares in December 2017,
the Trust holds 860,820 shares (30 June 2017: 803,949) at 31 December 2017.
17 Contingent liabilities
The Group does not give any investment advice and this is left to the contract
holder directly or through an agent, advisor or an entity appointed at the
contract holder's request or preference. Contract holders bear the financial
risk relating to the investments underpinning their contracts, as the contract
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 those fund structures remain affected by
liquidity or other issues that hinder their sales or redemptions on normal
terms with a consequent adverse impact on 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.
Hansard Europe has been served with a number of writs arising from such
complaints and other asset-related issues.
As at the report date of the 2017 Annual Report and Accounts, the Group faced
litigation based on writs totalling €16.9m or £14.8m). The corresponding
figure as at 31 December 2017 was €16.4m or £14.6m (31 December 2016:
€15.9m or £13.6m). The total has decreased marginally since the date of
the Annual Report due to fluctuations in the market value of underlying
contract holder assets. Between 31 December 2017 and the date of this
report, two significant appeal court cases in Belgium totalling just under
€1m were ruled in the Group's favour.
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 extended
litigation, the Group may consider it to be in the best interests of the Group
and its shareholders to reach a resolution with regard to certain of these
claims. There were no such settlements made or provided for during the period
(H1 2017: nil). It is not possible at this time to make any further estimates
of liability.
18 Foreign exchange rates
The closing exchange rates used by the Group for the translation of balance
sheet items to sterling were as follows:
31 December 30 June
2017 2016 2017
US Dollar 1.35 1.23 1.30
Japanese Yen 152.13 144.34 146.50
Euro 1.12 1.17 1.14
These are consistent with the rates used for the translation of EEV future
currency cash flows.
Independent review report to Hansard Global plc
Report on the condensed consolidated financial statements
Our conclusion
We have reviewed Hansard Global plc's condensed consolidated financial
statements (the "interim financial statements") in the half-yearly report of
Hansard Global plc for the 6 month period ended 31 December 2017. Based on our
review, nothing has come to our attention that causes us to believe that the
interim financial statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
What we have reviewed
The interim financial statements comprise:
the condensed consolidated balance sheet as at 31 December 2017;
the condensed consolidated statement of comprehensive income for the period
then ended;
the condensed consolidated cash flow statement for the period then ended;
the condensed consolidated statement of changes in equity for the period then
ended; and
the explanatory notes to the interim financial statements.
The interim financial statements included in the half-yearly report have been
prepared in accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 3 to the interim financial statements, the financial
reporting framework that has been applied in the preparation of the full
annual financial statements of the Group is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The half-yearly report, including the interim financial statements, is the
responsibility of, and has been approved by, the directors. The directors are
responsible for preparing the half-yearly report in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial
statements in the half-yearly report based on our review. This report,
including the conclusion, has been prepared for and only for the company for
the purpose of complying with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority and for no
other purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom this
report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review
Engagements 2410, 'Review of Interim Financial Information Performed by the
Independent Auditor of the Entity' issued by the International Assurance
Standards Board. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing and, consequently, does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the half-yearly report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLC
Chartered Accountants
Douglas, Isle of Man
21 February 2018
EUROPEAN EMBEDDED VALUE INFORMATION
1 INTRODUCTION
The European Embedded Value ("EEV") measure is an estimate of the value of the
shareholders' interest in the Group. The EEV covers the entire business of the
Group, including its life assurance companies and subsidiaries providing
administration, distribution and other services.
The EEV comprises Net Worth and the Value of Future Profits ("VFP") from
business in-force at the valuation date, 31 December 2017. It excludes the
value of any future new business that the Group may write after the valuation
date. All results are calculated net of corporation tax.
The Group's EEV methodology complies with the EEV Principles published by the
CFO Forum in May 2004 and most recently extended in April 2016. It has been
calculated using market-consistent economic assumptions and best estimate
operating assumptions having regard for the Group's experience and its
assessment of future experience. A description of the EEV methodology is set
out in the Notes to the EEV Information. There have been no significant
changes in the EEV methodology from that used in the previous financial year.
2 EEV PROFIT PERFORMANCE FOR THE PERIOD
2.1 EEV Profit / (Loss)
EEV profit is a measure of the performance over the period. It is derived as
follows:
H1 2018 H1 2017
£m £m
New Business Contribution 0.1 1.0
Expected return on new and existing business 0.3 0.3
Expected return on Net Worth 0.1 0.1
Operating assumption and model changes (0.6) (2.0)
Experience variances (1.8) (1.8)
EEV operating loss after tax (1.9) (2.4)
Investment return variances 6.3 12.1
Economic assumption changes (0.5) (1.2)
EEV profit after tax 3.9 8.5
2.1.1 New Business Contribution ("NBC")
New Business Contribution is the value of new business written in the period.
It is calculated at point of sale. NBC for the half year was £0.1m (H1 2017:
£1.0m).
2.1.2 Expected Return on In Force Business (new and existing)
Under EEV methodology, it is a convention to assume that the value of the
business grows at 'start of period' assumptions. The Expected Return is
therefore based on assumptions determined at 30 June 2017. These assumptions
are applied to give the expected conversion from VFP to Net Worth in the year,
and the time value of both existing business and non-market risk.
No assumptions are made about new business written, so the New Business
Cashflows is that incurred in the half year from new sales, using end of
period operating and start of period economic assumptions.
H1 2018 H1 2017
EEV Net VFP* EEV Net VFP*
Worth worth
£m £m £m £m £m £m
Cash generated from VFP - 17.2 (17.2) - 15.1 (15.1)
New business cashflows - (12.5) 12.5 - (12.1) 12.1
Time value of existing business 0.3 (0.5) 0.8 0.3 - 0.3
Time value of new business - - - - - -
0.3 4.2 (3.9) 0.3 3.0 (2.7)
*this includes frictional costs and non-market risk, including its time value.
The expected value of cash generated from existing business of £17.2m is
higher than the previous period (H1 2017: £15.1m). This increase is driven by
upfront charges, which are received over an 18 month period, growing as a
result of new business levels in H1 2018 being higher than H1 2017. The higher
new business cashflows of £12.5m (H1 2017: £12.1m) reflects higher levels of
new business written over the period.
The time value figures reflect the economic assumptions at 31 December 2017
and 31 December 2016.
2.1.3 Experience Variances
Experience variances arise where experience differs from that assumed in the
prior year's EEV.
H1 2018 H1 2017
£m £m
Ongoing expenses (0.5) (0.5)
Foreign exchange and unit pricing (0.5) 0.2
Full encashments (0.3) (1.4)
Premium persistency (0.1) (1.5)
One-off expenses - 0.7
Other (0.4) 0.7
Experience Variances (1.8) (1.8)
The sum of experience variances is negative £1.8m (H1 2017: negative £1.8m),
comprising mainly of foreign exchange and unit pricing margins and expenses.
2.1.4 Operating Assumption Changes
The operating assumption changes reflect changes in management's view of the
behaviour of the existing business. These changes decreased the EEV by £0.2m
(H1 2017: decrease of £2.2m), as shown below.
Operating assumptions are generally management's best estimate, having regard
to recent experience.
H1 2018 H1 2017
£m £m
Full encashments - (1.1)
Ongoing expenses - (1.1)
Other (0.2) -
Operating Assumption Changes (0.2) (2.2)
2.1.5 Model Changes
The model is an approximation of the financial impact of the expected business
performance. The Group continues to develop its modelling functionality,
seeking to improve its accuracy over time. Model changes made during the
period were negative £0.4m (H1 2017: positive £0.2m). This was due to a
methodology change involving the payment of future trail commissions.
2.1.6 Expected Return on Net Worth
The expected return on Net Worth of £0.1m (H1 2017: £0.1m) reflects the
anticipated increase in shareholder assets over the period due to the time
value of money. In line with EEV convention, its calculation is based on the
30 June 2017 year one sterling risk free rate of 0.4% (30 June 2016: 0.4%).
2.1.7 Investment Return Variances
The combined impact of market and economic conditions led to EEV investment
return variances of £6.3m (H1 2017: £12.1m).
H1 2018 H1 2017
£m £m
Investment performance of contract holder funds 10.4 6.1
Exchange rate movements (4.8) 5.6
Shareholder return 0.6 0.3
Other 0.1 0.1
Investment Return Variances 6.3 12.1
2.1.8 Economic Assumption Changes
Economic assumption changes resulted in an EEV reduction of £0.5m (H1 2017:
decrease of £1.2m). This reflects changes in risk free rates for the
currencies to which the Group is exposed.
2.2 ANALYSIS OF EEV PROFIT BY EEV COMPONENT
The table below shows a detailed analysis of EEV profit after tax for the
period.
H1 2018 H1 2017
Movement In Movement In
EEV Net Worth VIF EEV Net Worth VIF
£m £m £m £m £m £m
New Business Contribution 0.1 (12.9) 13.0 1.0 (12.3) 13.3
Expected return on new and existing business 0.3 17.2 (16.9) 0.3 15.3 (15.0)
Expected return on Net Worth 0.1 0.1 - 0.1 0.1 -
Model changes (0.4) - (0.4) 0.2 - 0.2
Operating assumption changes (0.2) - (0.2) (2.2) - (2.2)
Experience variances (1.8) (2.9) 1.1 (1.8) (0.6) (1.2)
EEV operating profit after tax (1.9) 1.5 (3.4) (2.4) 2.5 (4.9)
Investment return variances 6.3 0.5 5.8 12.1 0.5 11.6
Economic assumption changes (0.5) - (0.5) (1.2) - (1.2)
EEV profit after tax 3.9 2.0 1.9 8.5 3.0 5.5
New Business Strain has been presented as part of New Business Contribution
rather than within the Expected Return on New and Existing Business line as
was presented in previous years. The H1 2017 analysis has been re-analysed for
the purposes of consistency.
3 EMBEDDED VALUE AT 31 DECEMBER 2017
3.1 EEV BALANCE SHEET
Following the payment of dividends of £7.2m (H1 2017: £7.3m), the Group's
EEV has decreased by £3.3m since 30 June 2017 to £192.2m (30 June 2017:
£195.5m, 31 December 2016: £197.1m). The EEV balance sheet is presented
below.
H1 2018 H1 2017
£m £m
Free Surplus 16.3 23.2
Required Capital 27.7 28.0
Net Worth 44.0 51.2
VIF 154.5 153.1
Reduction for non-market risk (6.2) (6.2)
Frictional costs (0.1) (1.0)
Value Of Future Profits ("VFP") 148.2 145.9
EEV 192.2 197.1
Net Worth is the market value of shareholder funds on an IFRS basis with
adjustments to exclude certain accounting assets and liabilities. At the
balance sheet date, the Net Worth of the Group is largely represented by
liquid cash balances. Given the uncertainties inherent in the ultimate
outcome of the litigation against Hansard Europe, shareholder funds of Hansard
Europe are treated as Required Capital. Management estimate this capital may
be constrained for up to three years.
The Value of Future Profits is the capitalised value of expected future profit
allowing for best estimate contract holder behaviour and market consistent
economic assumptions (VIF) with adjustments for non-market risk and frictional
costs. VIF is based on the value of contract holder funds under administration
at 31 December 2017. The reduction for non-market risk represents the
capitalised cost of operational risk. Frictional costs are the costs
associated with holding Required Capital.
4 NEW BUSINESS PROFITABILITY
At the current level and mix of new business sales, new business contribution
and margin has remained marginally positive. New Business Contribution was
£0.1m for H1 2018 (H1 2017: £1.0m).
4.1 NEW BUSINESS MARGIN
New Business Margin is the New Business Contribution divided by the Present
Value of New Business Premiums ("PVNBP"). It is a measure of profitability
(not profit), comparing the expected profit with the value of expected
premiums.
H1 2018 H1 2017
New Business Sales ("PVNBP") £77.1m £74.9m
New Business Contribution ("NBC") £0.1m £1.0m
New Business Margin ("NBM") 0.1% 1.3%
The New Business Margin for the period was 0.1% (H1 2017: 1.3%). The reduction
from the prior period is driven primarily by increased initial expenses
relative to levels of new business received. An increased proportion of
single premium business has also reduced overall margins.
NBC and PVNBP have, by convention, been calculated using 30 June 2017 economic
assumptions and 31 December 2017 operating assumptions (which are unchanged
from those at 30 June). As for the VIF, the NBC does not take credit for
possible investment returns in excess of the projected risk-free return. NBC
is shown after allowing for the cost of required capital, calculated on the
same basis as for in-force business.
5 EEV SENSITIVITY ANALYSIS
Sensitivities provide an indication of the impact of changes in particular
assumptions on the EEV at 31 December 2017 and the NBC for the half-year then
ended.
The sensitivities will be affected by the change in the Group's business mix:
different product types are sensitive to different assumptions in particular.
Unless otherwise indicated, the sensitivities are broadly symmetrical.
The sensitivity analysis indicates that the Group's exposure to operating
factors is limited, largely as a result of product design. A change in the
level of expenses is the main operating exposure of the Group. The largest
sensitivities for the Group are related to economic factors. In particular, as
a result of the diversified portfolio of assets under administration, it is
exposed to movements in exchange rates and asset values through the impact on
the level of future fund-based management income.
Impact on EEV NBC
£m £m
Central assumptions 192.2 0.1
Operating sensitivities
10% decrease in expenses 9.3 0.9
1% decrease in expense inflation 5.9 0.3
1% increase in charge inflation 3.9 0.1
1% increase in expense & charge inflation (2.6) (0.3)
10% decrease in full encashment rates 1.7 0.2
Economic sensitivities
1% decrease in risk discount rate 7.5 0.4
1% increase in risk discount rate (6.8) (0.3)
1% increase in investment return rate 7.7 0.3
1% decrease in investment return rate (7.1) (0.3)
1% increase in risk discount rate & investment return rate 0.2 (0.1)
1% decrease in risk discount rate & investment return rate (0.3) 0.1
10% increase in the value of equities and property 12.1 -
10% strengthening of sterling (16.9) (0.6)
In each sensitivity calculation, all other assumptions remain unchanged,
except where indicated. There is a natural correlation between many of the
sensitivity scenarios tested, so the impact of two occurring together is
likely to be different from the sum of the individual sensitivities.
Where only one side of a sensitivity is shown, the results are broadly
symmetric.
No changes to statutory valuation bases, pricing bases and Required Capital
have been allowed for. No future management action has been modelled in
reaction to the changing assumptions. For new business, the sensitivities
reflect the impact of a change from inception of the policy.
NOTES TO THE EUROPEAN EMBEDDED VALUE INFORMATION
1 ECONOMIC ASSUMPTIONS
Under EEV principles, the economic assumptions used in the EEV calculations
are actively reviewed at each valuation date and are internally consistent.
The assumption setting process is generally consistent with prior years.
1.1 Risk discount rate
The risk discount rates are set to the risk-free rates for the applicable
currency and term, sourced from the European Insurance and Occupational
Pensions Authority (EIOPA). The EEV calculation uses the risk-free rates at
the end of the period (i.e. at the valuation date), while the calculation of
NBC and PVNBP uses the risk-free rate at the start of the year (i.e. at the
previous year-end date).
1.2 Investment returns
All investments are assumed to provide a return equal to the risk-free rate
less external fund manager investment charges and any other investment
expenses charged directly against contract holder funds.
1.3 Risk premium
No credit is taken in the calculation of EEV, NBC or PVNBP for returns in
excess of risk-free returns i.e. a cautious approach is adopted by assuming an
asset risk premium of zero.
1.4 Inflation rates
In setting the expense inflation assumption, consideration is given to price
and salary inflation rates in both the Isle of Man and the Republic of
Ireland, and to the Group's own expense experience and expectations. For
service companies, expense inflation relates to the underlying expenses rather
than the fees charged to the life assurance companies.
By design, contractual monetary charge inflation is broadly matched to expense
inflation: in Hansard Europe, the charge inflation is subject to a minimum
increase of 5% per annum. The correlation between expense inflation and charge
inflation dampens the impact of inflation on the embedded value results.
Inflation assumptions are as follows:
Inflation rates H1 2018 H1 2017
Expense inflation per annum 2.9% 2.6%
Charge inflation per annum - Hansard Europe 5.0% 5.0%
Charge inflation per annum - Hansard International - Year 1 2.4% 1.9%
Charge inflation per annum - Hansard International - Year 2 2.6% 2.4%
Charge inflation per annum - Hansard International - Year 3+ 2.9% 2.6%
The 5% charge inflation rate for Hansard Europe reflects the terms of the
products. The three-year stepped approach to charge inflation for Hansard
International reflects the terms of the products, trending towards a long-term
inflation rate of 2.9% per annum.
Review of the European Embedded Value ("EEV") of Hansard Global plc for the
six-month period ended 31 December 2017
Our role
Deloitte MCS Limited has been engaged by Hansard Global plc to act as
Reviewing Actuaries in connection with results on an EEV basis published in
sections "European Embedded Value Information" (pages 44 to 49) and "Notes to
the European Embedded Value Information" (page 50) within Hansard Global plc's
Results for the six-month period ended 31 December 2017.
Responsibilities
The EEV Information and the methodology and assumptions underlying it is the
sole responsibility of the directors of Hansard Global plc. It has been
prepared by the directors of Hansard Global plc, and the calculations
underlying the EEV Information have been performed by Hansard Global plc.
Our limited review was conducted in accordance with generally accepted
actuarial practices and processes. It comprised a combination of such
reasonableness checks, analytical reviews and checks of clerical accuracy as
we considered necessary to provide reasonable assurance that the EEV
Information has been compiled free of material error.
The EEV Information necessarily makes numerous assumptions with respect to
economic conditions, operating conditions, taxes, and other matters, many of
which are beyond the Group's control.
Although the assumptions used represent estimates which the directors believe
are together reasonable, actual experience in future may vary from that
assumed in the preparation of the EEV Information, and any such variations may
be material. Deviations from assumed experience are normal and are to be
expected.
The EEV does not purport to be a market valuation of the Group and should not
be interpreted in that manner since it does not encompass all of the many
factors that may bear upon a market value. For example, it makes no allowance
for the value of future new business.
Opinion
On the basis of our limited review, nothing has come to our attention to
suggest that:
• the methodology and assumptions used to prepare the EEV Information do not
comply in all material respects with the European Embedded Values Principles
set out by the CFO Forum in May 2004, and most recently extended in April 2016
(the "CFO Forum Principles");
• the EEV Information has not been compiled on the basis of the methodology
and assumptions and;
• the EEV Information does not comply in all material respects with the CFO
Forum Principles.
Reliances and limitations
We have relied on data and information, including the value of net assets,
management accounting data and solvency information supplied to us by the
Group. Further, we have relied on the terms of the contracts, as they have
been reported to us, being enforceable.
We have relied on the reported mathematical reserves, the adequacy of those
reserves, and of the methods and assumptions used to determine them. We have
assumed that all provisions made in the IFRS financial statements for any
other liabilities (whether actual, contingent or potential) of whatever
nature, are appropriate.
We have also relied on information relating to the current and historical
operating experience of the Group's life insurance business, including the
results of experience investigations relating to policy persistency, and
expense analysis. In forming our opinion, we have considered the assumptions
used in the EEV Information in the context of the reported results of those
investigations although we have not attempted to predict the impact of
potential future changes in competitive forces on the assumptions.
Deloitte MCS Limited
21 February 2018
Deloitte MCS Limited. Registered office: Hill House, 1 Little New Street,
London EC4A 3TR, United Kingdom. Registered in England & Wales with
registered number 3311052.
Deloitte MCS Limited is a subsidiary of Deloitte LLP, the United Kingdom
member firm of Deloitte Touche Tohmatsu Limited ("DTTL"), a UK private company
limited by guarantee, whose member firms are legally separate and independent
entities. Please see www.deloitte.co.uk/about for a detailed description of
the legal structure of DTTL and its member firms.
Member of Deloitte Touche Tohmatsu Limited
Contacts and Advisors
Registered Office Media Enquiries
Harbour Court Camarco
Lord Street 107 Cheapside
Box 192 London
Douglas EC2V 6DN
Isle of Man Tel: +44 (0)20 3757 4980
IM99 1QL
Tel: +44 (0)1624 688000
Fax: +44 (0)1624 688008
www.hansard.com (http://www.hansard.com)
President Broker
Dr L S Polonsky, CBE Panmure Gordon (UK) Limited
Leonard.Polonsky@hansard.com One New Change
London
Non-executive Chairman EC4M 9AF
PPC Gregory Tel. +44 (0)20 7886 2500
Philip.Gregory@hansard.com
Financial Advisor Broker
Macquarie Capital (Europe) Limited Macquarie Capital (Europe) Limited
28 Ropemaker Street 28 Ropemaker Street
London London
EC2Y 9HD EC2Y 9HD
Tel: +44 (0)20 3037 2000 Tel: +44 (0)20 3037 2000
Independent Auditor Registrar
PricewaterhouseCoopers LLC Link Market Services (Isle of Man) Limited
Sixty Circular Road Clinch's House
Douglas Lord Street
Isle of Man Douglas
IM1 1SA Isle of Man
Tel: +44 (0)1624 689689 IM99 1RZ
Tel (UK): 0871 664 0300*
Tel: +44 (0)20 8639 3399
Reviewing Actuaries UK Transfer Agent
Deloitte MCS Limited Link Market Services Trustees Limited
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London Beckenham
EC4A 3TR Kent
Tel: +44 (0)20 7936 3000 BR3 4TU
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Tel: +44 (0)20 8639 3399
NB: 0871 Number - calls cost 12p per minute plus network extras. If you are
outside the United Kingdom, please call +44 371 664 0300. Calls outside the
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holidays in England and Wales.
Financial Calendar
Ex-dividend date for interim dividend 1 March 2018
Record date for interim dividend 2 March 2018
Payment date for interim dividend 10 April 2018
Third quarter trading update 10 May 2018
Announcement of fourth quarter new
business results 26 July 2018
Announcement of full year results 27 September 2018
This information is provided by RNS
The company news service from the London Stock Exchange
0.4 0.5 1.4
Professional and other fees 1.6 1.4 2.8
Impairment of broker balances receivable - 0.7 1.1
Litigation settlements - 0.1 1.0
Operating lease rentals 0.4 0.6 0.9
Licences and maintenance fees 0.6 0.5 1.0
Insurance costs 0.6 0.5 1.1
Depreciation of property, plant and equipment 0.2 0.2 0.4
Communications 0.2 0.3 0.6
8 Taxation
The Group's profits arising from its Isle of Man-based operations are taxable at zero percent.
Corporation tax for the Republic of Ireland-based operations is based on the effective annual rate for taxable income of
12.5%, applied to the expected taxable profits for the period.
9 Earnings per share
Six months ended Year ended
31 December 30 June
2017 2016 2017
Profit after tax (£m) 3.5 4.4 7.7
Weighted average number of shares in issue (millions) 137.4 137.4 137.4
Earnings per share in pence 2.5p 3.2p 5.6p
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 2.5p pence per share.
10 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 period:
Six months ended 31 December Year ended30 June
2017 2016 2017
Per share Total Per share Total Per share Total
p £m p £m p £m
Final dividend paid 5.3 7.2 5.3 7.3 5.3 7.3
Interim dividend paid - - - - 3.6 4.9
5.2 7.2 5.3 7.3 8.9 12.2
The Board have resolved to pay an increased interim dividend of 1.8p per share. This amounts to £2.5m and will be paid on
10 April 2018 to shareholders on the register at 2 March 2018.
11 Deferred origination costs
31 December 30 June
2017 2016 2017
£m £m £m
At beginning of financial year 111.6 110.9 110.9
Origination costs incurred during the period 9.3 8.3 16.8
Origination costs amortised during the period (7.6) (7.9) (16.1)
113.3 111.3 111.6
31 December 30 June
2017 2016 2017
Carrying value £m £m £m
Expected to be amortised within one year 11.1 10.9 11.0
Expected to be amortised after one year 102.2 100.4 100.6
113.3 111.3 111.6
12 Financial investments held to cover liabilities under investment contracts
The following investments, other assets and liabilities are held to cover financial liabilities under investment contracts.
They are included within the relevant headings on the condensed consolidated balance sheet.
31 December 30 June
2017 2016 2017
£m £m £m
Equity securities 25.4 10.4 20.5
Investment in collective investment schemes 969.2 861.3 920.4
Fixed income securities 21.3 29.4 22.0
Deposits and money market funds 72.7 100.9 88.8
Total assets 1,088.6 1,002.0 1,051.7
Other payables (1.2) (1.0) (2.0)
Financial investments held to cover
liabilities 1,087.4 1,001.0 1,049.7
The other receivables and other payables fair value approximates amortised cost.
13 Deferred income
31 December 30 June
2017£m 2016£m 2017£m
At beginning of financial year 129.2 130.5 130.5
Income received and deferred in period 9.1 8.7 16.8
Income recognised in contract fees in the period (9.0) (9.9) (18.1)
129.3 129.3 129.2
31 December 30 June
2017 2016 2017
Carrying value £m £m £m
Expected to be amortised within one year 12.9 13.0 13.0
Expected to be amortised after one year 116.4 116.3 116.2
129.3 129.3 129.2
14 Other payables
31 December 30 June
2017 2016 2017
£m £m £m
Creditors and accruals 8.9 7.3 8.1
15 Called up share capital
31 December 30 June
2017 2016 2017
£m £m £m
Authorised:
200,000,000 ordinary shares of 50p 100.0 100.0 100.0
Issued and fully paid:
137,449,611 ordinary shares of 50p
(30 June 2017: 137,444,792 ordinary shares) 68.7 68.7 68.7
16 Related party transactions
Intra-group transactions are eliminated on consolidation and are not disclosed separately here.
There have been no significant related party transactions in the period other than noted in 16.1 below, nor changes to
related parties. Related party transactions affecting the results of previous periods and an understanding of the Group's
financial position at previous balance sheet dates are as disclosed in the Annual Report & Accounts for the year ended 30
June 2017.
There have been no significant awards during the period under the Save As You Earn (SAYE) share-save programme for
employees. The estimated fair value of the schemes and the imputed cost for the period under review is not material to
these financial statements.
16.1 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.
Dr Polonsky's letter of appointment reflects his position as a non-executive Director and President. It incorporates the
requirements of the Listing Rules of the Financial Conduct Authority in relation to Dr Polonsky as controlling shareholder
of the Group in order to maintain effective corporate governance.
· Dr Polonsky has an investment contract issued by the Group on terms available to employees in general. As at 31
December 2017 Dr Polonsky's contract had a fair value of £4.7m (30 June 2017: £15.7m). A withdrawal of £10.8m was made
during July 2017.
· The Group established an Employee Benefit Trust in November 2011 with the transfer to it of 400,000 shares in
Hansard Global plc by Dr Polonsky. Dr Polonsky made a further donation of 250,000 shares to the Trust in September 2014.
Following the purchase of 56,871 shares in December 2017, the Trust holds 860,820 shares (30 June 2017: 803,949) at 31
December 2017.
17 Contingent liabilities
The Group does not give any investment advice and this is left to the contract holder directly or through an agent, advisor
or an entity appointed at the contract holder's request or preference. Contract holders bear the financial risk relating to
the investments underpinning their contracts, as the contract 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 those fund structures remain affected by liquidity or other issues that hinder their sales or redemptions
on normal terms with a consequent adverse impact on 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. Hansard Europe has been served with a number of writs arising from such complaints and other
asset-related issues.
As at the report date of the 2017 Annual Report and Accounts, the Group faced litigation based on writs totalling E16.9m or
£14.8m). The corresponding figure as at 31 December 2017 was E16.4m or £14.6m (31 December 2016: E15.9m or £13.6m). The
total has decreased marginally since the date of the Annual Report due to fluctuations in the market value of underlying
contract holder assets. Between 31 December 2017 and the date of this report, two significant appeal court cases in
Belgium totalling just under E1m were ruled in the Group's favour.
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 extended litigation, the Group may consider it to be in the best interests of the Group and its shareholders
to reach a resolution with regard to certain of these claims. There were no such settlements made or provided for during
the period (H1 2017: nil). It is not possible at this time to make any further estimates of liability.
18 Foreign exchange rates
The closing exchange rates used by the Group for the translation of balance sheet items to sterling were as follows:
31 December 30 June
2017 2016 2017
US Dollar 1.35 1.23 1.30
Japanese Yen 152.13 144.34 146.50
Euro 1.12 1.17 1.14
These are consistent with the rates used for the translation of EEV future currency cash flows.
Independent review report to Hansard Global plc
Report on the condensed consolidated financial statements
Our conclusion
We have reviewed Hansard Global plc's condensed consolidated financial statements (the "interim financial statements") in
the half-yearly report of Hansard Global plc for the 6 month period ended 31 December 2017. Based on our review, nothing
has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material
respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
What we have reviewed
The interim financial statements comprise:
the condensed consolidated balance sheet as at 31 December 2017;
the condensed consolidated statement of comprehensive income for the period then ended;
the condensed consolidated cash flow statement for the period then ended;
the condensed consolidated statement of changes in equity for the period then ended; and
the explanatory notes to the interim financial statements.
The interim financial statements included in the half-yearly report have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 3 to the interim financial statements, the financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The half-yearly report, including the interim financial statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the half-yearly report in accordance with the Disclosure Guidance
and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the half-yearly report based on our
review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for
no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any
other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent
in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial
Information Performed by the Independent Auditor of the Entity' issued by the International Assurance Standards Board. A
review of interim financial information consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and,
consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half-yearly report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLC
Chartered Accountants
Douglas, Isle of Man
21 February 2018
EUROPEAN EMBEDDED VALUE INFORMATION
1 INTRODUCTION
The European Embedded Value ("EEV") measure is an estimate of the value of the shareholders' interest in the Group. The EEV
covers the entire business of the Group, including its life assurance companies and subsidiaries providing administration,
distribution and other services.
The EEV comprises Net Worth and the Value of Future Profits ("VFP") from business in-force at the valuation date, 31
December 2017. It excludes the value of any future new business that the Group may write after the valuation date. All
results are calculated net of corporation tax.
The Group's EEV methodology complies with the EEV Principles published by the CFO Forum in May 2004 and most recently
extended in April 2016. It has been calculated using market-consistent economic assumptions and best estimate operating
assumptions having regard for the Group's experience and its assessment of future experience. A description of the EEV
methodology is set out in the Notes to the EEV Information. There have been no significant changes in the EEV methodology
from that used in the previous financial year.
2 EEV PROFIT PERFORMANCE FOR THE PERIOD
2.1 EEV Profit / (Loss)
EEV profit is a measure of the performance over the period. It is derived as follows:
H1 2018 H1 2017
£m £m
New Business Contribution 0.1 1.0
Expected return on new and existing business 0.3 0.3
Expected return on Net Worth 0.1 0.1
Operating assumption and model changes (0.6) (2.0)
Experience variances (1.8) (1.8)
EEV operating loss after tax (1.9) (2.4)
Investment return variances 6.3 12.1
Economic assumption changes (0.5) (1.2)
EEV profit after tax 3.9 8.5
2.1.1 New Business Contribution ("NBC")
New Business Contribution is the value of new business written in the period. It is calculated at point of sale. NBC for
the half year was £0.1m (H1 2017: £1.0m).
2.1.2 Expected Return on In Force Business (new and existing)
Under EEV methodology, it is a convention to assume that the value of the business grows at 'start of period' assumptions.
The Expected Return is therefore based on assumptions determined at 30 June 2017. These assumptions are applied to give the
expected conversion from VFP to Net Worth in the year, and the time value of both existing business and non-market risk.
No assumptions are made about new business written, so the New Business Cashflows is that incurred in the half year from
new sales, using end of period operating and start of period economic assumptions.
H1 2018 H1 2017
EEV Net VFP* EEV Net VFP*
Worth worth
£m £m £m £m £m £m
Cash generated from VFP - 17.2 (17.2) - 15.1 (15.1)
New business cashflows - (12.5) 12.5 - (12.1) 12.1
Time value of existing business 0.3 (0.5) 0.8 0.3 - 0.3
Time value of new business - - - - - -
0.3 4.2 (3.9) 0.3 3.0 (2.7)
*this includes frictional costs and non-market risk, including its time value.
The expected value of cash generated from existing business of £17.2m is higher than the previous period (H1 2017: £15.1m).
This increase is driven by upfront charges, which are received over an 18 month period, growing as a result of new business
levels in H1 2018 being higher than H1 2017. The higher new business cashflows of £12.5m (H1 2017: £12.1m) reflects higher
levels of new business written over the period.
The time value figures reflect the economic assumptions at 31 December 2017 and 31 December 2016.
2.1.3 Experience Variances
Experience variances arise where experience differs from that assumed in the prior year's EEV.
H1 2018 H1 2017
£m £m
Ongoing expenses (0.5) (0.5)
Foreign exchange and unit pricing (0.5) 0.2
Full encashments (0.3) (1.4)
Premium persistency (0.1) (1.5)
One-off expenses - 0.7
Other (0.4) 0.7
Experience Variances (1.8) (1.8)
The sum of experience variances is negative £1.8m (H1 2017: negative £1.8m), comprising mainly of foreign exchange and unit
pricing margins and expenses.
2.1.4 Operating Assumption Changes
The operating assumption changes reflect changes in management's view of the behaviour of the existing business. These
changes decreased the EEV by £0.2m (H1 2017: decrease of £2.2m), as shown below.
Operating assumptions are generally management's best estimate, having regard to recent experience.
H1 2018 H1 2017
£m £m
Full encashments - (1.1)
Ongoing expenses - (1.1)
Other (0.2) -
Operating Assumption Changes (0.2) (2.2)
2.1.5 Model Changes
The model is an approximation of the financial impact of the expected business performance. The Group continues to develop
its modelling functionality, seeking to improve its accuracy over time. Model changes made during the period were negative
£0.4m (H1 2017: positive £0.2m). This was due to a methodology change involving the payment of future trail commissions.
2.1.6 Expected Return on Net Worth
The expected return on Net Worth of £0.1m (H1 2017: £0.1m) reflects the anticipated increase in shareholder assets over the
period due to the time value of money. In line with EEV convention, its calculation is based on the 30 June 2017 year one
sterling risk free rate of 0.4% (30 June 2016: 0.4%).
2.1.7 Investment Return Variances
The combined impact of market and economic conditions led to EEV investment return variances of £6.3m (H1 2017: £12.1m).
H1 2018 H1 2017
£m £m
Investment performance of contract holder funds 10.4 6.1
Exchange rate movements (4.8) 5.6
Shareholder return 0.6 0.3
Other 0.1 0.1
Investment Return Variances 6.3 12.1
2.1.8 Economic Assumption Changes
Economic assumption changes resulted in an EEV reduction of £0.5m (H1 2017: decrease of £1.2m). This reflects changes in
risk free rates for the currencies to which the Group is exposed.
2.2 ANALYSIS OF EEV PROFIT BY EEV COMPONENT
The table below shows a detailed analysis of EEV profit after tax for the period.
H1 2018 H1 2017
Movement In Movement In
EEV Net Worth VIF EEV Net Worth VIF
£m £m £m £m £m £m
New Business Contribution 0.1 (12.9) 13.0 1.0 (12.3) 13.3
Expected return on new and existing business 0.3 17.2 (16.9) 0.3 15.3 (15.0)
Expected return on Net Worth 0.1 0.1 - 0.1 0.1 -
Model changes (0.4) - (0.4) 0.2 - 0.2
Operating assumption changes (0.2) - (0.2) (2.2) - (2.2)
Experience variances (1.8) (2.9) 1.1 (1.8) (0.6) (1.2)
EEV operating profit after tax (1.9) 1.5 (3.4) (2.4) 2.5 (4.9)
Investment return variances 6.3 0.5 5.8 12.1 0.5 11.6
Economic assumption changes (0.5) - (0.5) (1.2) - (1.2)
EEV profit after tax 3.9 2.0 1.9 8.5 3.0 5.5
New Business Strain has been presented as part of New Business Contribution rather than within the Expected Return on New
and Existing Business line as was presented in previous years. The H1 2017 analysis has been re-analysed for the purposes
of consistency.
3 EMBEDDED VALUE AT 31 DECEMBER 2017
3.1 EEV BALANCE SHEET
Following the payment of dividends of £7.2m (H1 2017: £7.3m), the Group's EEV has decreased by £3.3m since 30 June 2017 to
£192.2m (30 June 2017: £195.5m, 31 December 2016: £197.1m). The EEV balance sheet is presented below.
H1 2018 H1 2017
£m £m
Free Surplus 16.3 23.2
Required Capital 27.7 28.0
Net Worth 44.0 51.2
VIF 154.5 153.1
Reduction for non-market risk (6.2) (6.2)
Frictional costs (0.1) (1.0)
Value Of Future Profits ("VFP") 148.2 145.9
EEV 192.2 197.1
Net Worth is the market value of shareholder funds on an IFRS basis with adjustments to exclude certain accounting assets
and liabilities. At the balance sheet date, the Net Worth of the Group is largely represented by liquid cash balances.
Given the uncertainties inherent in the ultimate outcome of the litigation against Hansard Europe, shareholder funds of
Hansard Europe are treated as Required Capital. Management estimate this capital may be constrained for up to three
years.
The Value of Future Profits is the capitalised value of expected future profit allowing for best estimate contract holder
behaviour and market consistent economic assumptions (VIF) with adjustments for non-market risk and frictional costs. VIF
is based on the value of contract holder funds under administration at 31 December 2017. The reduction for non-market risk
represents the capitalised cost of operational risk. Frictional costs are the costs associated with holding Required
Capital.
4 NEW BUSINESS PROFITABILITY
At the current level and mix of new business sales, new business contribution and margin has remained marginally positive.
New Business Contribution was £0.1m for H1 2018 (H1 2017: £1.0m).
4.1 NEW BUSINESS MARGIN
New Business Margin is the New Business Contribution divided by the Present Value of New Business Premiums ("PVNBP"). It is
a measure of profitability (not profit), comparing the expected profit with the value of expected premiums.
H1 2018 H1 2017
New Business Sales ("PVNBP") £77.1m £74.9m
New Business Contribution ("NBC") £0.1m £1.0m
New Business Margin ("NBM") 0.1% 1.3%
The New Business Margin for the period was 0.1% (H1 2017: 1.3%). The reduction from the prior period is driven primarily by
increased initial expenses relative to levels of new business received. An increased proportion of single premium business
has also reduced overall margins.
NBC and PVNBP have, by convention, been calculated using 30 June 2017 economic assumptions and 31 December 2017 operating
assumptions (which are unchanged from those at 30 June). As for the VIF, the NBC does not take credit for possible
investment returns in excess of the projected risk-free return. NBC is shown after allowing for the cost of required
capital, calculated on the same basis as for in-force business.
5 EEV SENSITIVITY ANALYSIS
Sensitivities provide an indication of the impact of changes in particular assumptions on the EEV at 31 December 2017 and
the NBC for the half-year then ended.
The sensitivities will be affected by the change in the Group's business mix: different product types are sensitive to
different assumptions in particular. Unless otherwise indicated, the sensitivities are broadly symmetrical.
The sensitivity analysis indicates that the Group's exposure to operating factors is limited, largely as a result of
product design. A change in the level of expenses is the main operating exposure of the Group. The largest sensitivities
for the Group are related to economic factors. In particular, as a result of the diversified portfolio of assets under
administration, it is exposed to movements in exchange rates and asset values through the impact on the level of future
fund-based management income.
Impact on EEV NBC
£m £m
Central assumptions 192.2 0.1
Operating sensitivities
10% decrease in expenses 9.3 0.9
1% decrease in expense inflation 5.9 0.3
1% increase in charge inflation 3.9 0.1
1% increase in expense & charge inflation (2.6) (0.3)
10% decrease in full encashment rates 1.7 0.2
Economic sensitivities
1% decrease in risk discount rate 7.5 0.4
1% increase in risk discount rate (6.8) (0.3)
1% increase in investment return rate 7.7 0.3
1% decrease in investment return rate (7.1) (0.3)
1% increase in risk discount rate & investment return rate 0.2 (0.1)
1% decrease in risk discount rate & investment return rate (0.3) 0.1
10% increase in the value of equities and property 12.1 -
10% strengthening of sterling (16.9) (0.6)
In each sensitivity calculation, all other assumptions remain unchanged, except where indicated. There is a natural
correlation between many of the sensitivity scenarios tested, so the impact of two occurring together is likely to be
different from the sum of the individual sensitivities.
Where only one side of a sensitivity is shown, the results are broadly symmetric.
No changes to statutory valuation bases, pricing bases and Required Capital have been allowed for. No future management
action has been modelled in reaction to the changing assumptions. For new business, the sensitivities reflect the impact of
a change from inception of the policy.
NOTES TO THE EUROPEAN EMBEDDED VALUE INFORMATION
1 ECONOMIC ASSUMPTIONS
Under EEV principles, the economic assumptions used in the EEV calculations are actively reviewed at each valuation date
and are internally consistent. The assumption setting process is generally consistent with prior years.
1.1 Risk discount rate
The risk discount rates are set to the risk-free rates for the applicable currency and term, sourced from the European
Insurance and Occupational Pensions Authority (EIOPA). The EEV calculation uses the risk-free rates at the end of the
period (i.e. at the valuation date), while the calculation of NBC and PVNBP uses the risk-free rate at the start of the
year (i.e. at the previous year-end date).
1.2 Investment returns
All investments are assumed to provide a return equal to the risk-free rate less external fund manager investment charges
and any other investment expenses charged directly against contract holder funds.
1.3 Risk premium
No credit is taken in the calculation of EEV, NBC or PVNBP for returns in excess of risk-free returns i.e. a cautious
approach is adopted by assuming an asset risk premium of zero.
1.4 Inflation rates
In setting the expense inflation assumption, consideration is given to price and salary inflation rates in both the Isle of
Man and the Republic of Ireland, and to the Group's own expense experience and expectations. For service companies, expense
inflation relates to the underlying expenses rather than the fees charged to the life assurance companies.
By design, contractual monetary charge inflation is broadly matched to expense inflation: in Hansard Europe, the charge
inflation is subject to a minimum increase of 5% per annum. The correlation between expense inflation and charge inflation
dampens the impact of inflation on the embedded value results.
Inflation assumptions are as follows:
Inflation rates H1 2018 H1 2017
Expense inflation per annum 2.9% 2.6%
Charge inflation per annum - Hansard Europe 5.0% 5.0%
Charge inflation per annum - Hansard International - Year 1 2.4% 1.9%
Charge inflation per annum - Hansard International - Year 2 2.6% 2.4%
Charge inflation per annum - Hansard International - Year 3+ 2.9% 2.6%
The 5% charge inflation rate for Hansard Europe reflects the terms of the products. The three-year stepped approach to charge inflation for Hansard International reflects the terms of the products, trending towards a long-term inflation rate of 2.9% per annum.
Review of the European Embedded Value ("EEV") of Hansard Global plc for the six-month period ended 31 December 2017
Our role
Deloitte MCS Limited has been engaged by Hansard Global plc to act as Reviewing Actuaries in connection with results on an
EEV basis published in sections "European Embedded Value Information" (pages 44 to 49) and "Notes to the European Embedded
Value Information" (page 50) within Hansard Global plc's Results for the six-month period ended 31 December 2017.
Responsibilities
The EEV Information and the methodology and assumptions underlying it is the sole responsibility of the directors of
Hansard Global plc. It has been prepared by the directors of Hansard Global plc, and the calculations underlying the EEV
Information have been performed by Hansard Global plc.
Our limited review was conducted in accordance with generally accepted actuarial practices and processes. It comprised a
combination of such reasonableness checks, analytical reviews and checks of clerical accuracy as we considered necessary to
provide reasonable assurance that the EEV Information has been compiled free of material error.
The EEV Information necessarily makes numerous assumptions with respect to economic conditions, operating conditions,
taxes, and other matters, many of which are beyond the Group's control.
Although the assumptions used represent estimates which the directors believe are together reasonable, actual experience in
future may vary from that assumed in the preparation of the EEV Information, and any such variations may be material.
Deviations from assumed experience are normal and are to be expected.
The EEV does not purport to be a market valuation of the Group and should not be interpreted in that manner since it does
not encompass all of the many factors that may bear upon a market value. For example, it makes no allowance for the value
of future new business.
Opinion
On the basis of our limited review, nothing has come to our attention to suggest that:
• the methodology and assumptions used to prepare the EEV Information do not comply in all material respects with the
European Embedded Values Principles set out by the CFO Forum in May 2004, and most recently extended in April 2016 (the
"CFO Forum Principles");
• the EEV Information has not been compiled on the basis of the methodology and assumptions and;
• the EEV Information does not comply in all material respects with the CFO Forum Principles.
Reliances and limitations
We have relied on data and information, including the value of net assets, management accounting data and solvency
information supplied to us by the Group. Further, we have relied on the terms of the contracts, as they have been reported
to us, being enforceable.
We have relied on the reported mathematical reserves, the adequacy of those reserves, and of the methods and assumptions
used to determine them. We have assumed that all provisions made in the IFRS financial statements for any other liabilities
(whether actual, contingent or potential) of whatever nature, are appropriate.
We have also relied on information relating to the current and historical operating experience of the Group's life
insurance business, including the results of experience investigations relating to policy persistency, and expense
analysis. In forming our opinion, we have considered the assumptions used in the EEV Information in the context of the
reported results of those investigations although we have not attempted to predict the impact of potential future changes
in competitive forces on the assumptions.
Deloitte MCS Limited
21 February 2018
Deloitte MCS Limited. Registered office: Hill House, 1 Little New Street, London EC4A 3TR, United Kingdom. Registered in
England & Wales with registered number 3311052.
Deloitte MCS Limited is a subsidiary of Deloitte LLP, the United Kingdom member firm of Deloitte Touche Tohmatsu Limited
("DTTL"), a UK private company limited by guarantee, whose member firms are legally separate and independent entities.
Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
Member of Deloitte Touche Tohmatsu Limited
Contacts and Advisors
Registered OfficeHarbour CourtLord StreetBox 192DouglasIsle of ManIM99 1QLTel: +44 (0)1624 688000Fax: +44 (0)1624 688008www.hansard.com Media EnquiriesCamarco107 CheapsideLondon EC2V 6DNTel: +44 (0)20 3757 4980
PresidentDr L S Polonsky, CBELeonard.Polonsky@hansard.com Non-executive ChairmanPPC GregoryPhilip.Gregory@hansard.com BrokerPanmure Gordon (UK) LimitedOne New ChangeLondonEC4M 9AFTel. +44 (0)20 7886 2500
Financial AdvisorMacquarie Capital (Europe) Limited28 Ropemaker StreetLondon EC2Y 9HDTel: +44 (0)20 3037 2000 BrokerMacquarie Capital (Europe) Limited28 Ropemaker StreetLondonEC2Y 9HDTel: +44 (0)20 3037 2000
Independent AuditorPricewaterhouseCoopers LLCSixty Circular RoadDouglasIsle of ManIM1 1SATel: +44 (0)1624 689689 RegistrarLink Market Services (Isle of Man) LimitedClinch's House Lord StreetDouglasIsle of ManIM99 1RZTel (UK): 0871 664 0300*Tel: +44 (0)20 8639 3399
Reviewing ActuariesDeloitte MCS LimitedHill House1 Little New StreetLondon EC4A 3TRTel: +44 (0)20 7936 3000 UK Transfer AgentLink Market Services Trustees LimitedThe Registry34 Beckenham RoadBeckenhamKentBR3 4TUTel (UK): 0871 664 0300*Tel: +44 (0)20 8639 3399
NB: 0871 Number - calls cost 12p per minute plus network extras. If you are outside the United Kingdom, please call +44 371 664 0300. Calls outside the United Kingdom will be charged at the applicable international rate. The helpline is open between 9.00 am - 5.30 pm, Monday to Friday excluding public holidays in England and Wales.
Financial Calendar
Ex-dividend date for interim dividendRecord date for interim dividendPayment date for interim dividendThird quarter trading update Announcement of fourth quarter newbusiness resultsAnnouncement of full year results 1 March 20182 March 2018 10 April 201810 May 2018 26 July 201827 September 2018
This information is provided by RNS
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