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Charles Taylor PLC   -  CTR   

Final Results

Released 07:00 13-Mar-2019

RNS Number : 7089S
Charles Taylor PLC
13 March 2019
 

PRESS RELEASE embargoed until 7am 13 March 2019

Contacts:

David Marock, Group Chief Executive Officer

020 3320 8988

 

Mark Keogh, Group Chief Financial Officer

020 3320 2241

 

Charles Taylor plc

Announcement of unaudited results for year ended 31 December 2018

 

Business highlights

·     Refined and clarified our growth strategy, making it more understandable to all stakeholders

·     Consolidated existing claims services related capabilities to create an integrated claims services business with global scale and material growth prospects

Achieved material organic growth, through the recruitment of top talent and significant client wins

Acquired claims services businesses, thereby extending our global footprint

·     Built a sizeable, sustainable InsureTech business with rapid growth prospects

Won substantial insurance technology contracts, building enhanced credibility in the market

Acquired an insurance technology business, thereby strengthening our owned IP and extending our client base globally

·     Delivered substantial growth in top line and adjusted bottom-line financial results

·     Managed pro-actively financial leverage through a significantly oversubscribed share placing

 

David Marock, Group Chief Executive Office, Charles Taylor plc said:

"I am pleased to report significant progress on executing our strategic objectives.  This year, we have refined and clarified our growth strategy, making it more understandable to all stakeholders. 

We have consolidated our existing claims services related capabilities to create a joined-up claims services business with global scale and material growth prospects. 

We have also seen Charles Taylor InsureTech come of age as a sizeable, sustainable business with rapid growth prospects. 

Our Insurance management business has continued to support the sustainable growth of its clients. The mutuals we manage are in strong financial positions, attracting and retaining a well-diversified underlying client base. 

We are taking forward numerous growth initiatives and our investments are delivering good results overall.  We are confident that our strategy will deliver further growth and returns to shareholders."

Edward Creasy, Chairman, Charles Taylor plc said:

"Charles Taylor delivered sizeable growth in revenue and adjusted profit before tax.  We benefitted from organic and acquired growth in many of our business lines.

Our growth in adjusted profit before tax is not reflected in our statutory profits before tax, which unfortunately shows a loss.  We adjusted the statutory result to present a clear picture of the underlying performance of Charles Taylor over the year."

 

Performance record

 

2014

2018

% growth

CAGR

Revenue

£122.5m

£263.6m

115.2%

21.1%

Adjusted EBITDA

£16.0m

£31.5m

96.8%

18.4%

Adjusted PBT

£11.4m

£22.3m

95.6%

18.3%

Adjusted EPS

16.32p

26.22p

60.6%

12.6%

 

 

 

 

 

Consolidated financial highlights

For the year ended 31 December 2018

 

Revenue

£263.6m increased by 25%

(2017: £210.8m)

Adjusted EBITDA1

£31.5m increased by 38%

(2017: £22.9m)

Adjusted profit before tax

£22.3m increased by 48%

(2017: £15.3m)

Statutory (loss)/profit before tax

-£3.3m decreased by 144%

(2017: £7.4m)

Annual average net debt

£58.9m increased by 49%

(2017: £39.5m)

Adjusted earnings per share 2

26.22p increased by 6%

(2017: 24.73p)

Basic (loss)/earnings per share

-4.94p decreased by 138%

(2016: 13.14p)

Dividend per share

11.56p increased by 5%

(2017: 11.01p)

 

ADJUSTMENTS 3

The adjustments set out below, largely relate to investments and initiatives to support our growth strategy.

£m

2018 Group

2017 Group

 

Total

Total

Statutory loss/profit before tax

-3.3

7.4

Executing selected larger investments as part of our strategy to develop new capabilities and build our businesses

14.7

5.9

 

Refining our business operations and building capabilities to underpin growth

 

6.3

 

2.1

 

Developing new products and services - associated one-off provisions, losses and profits

 

2.5

 

0.1

 

Other non-recurring costs which primarily includes Owned Life Insurers' business goodwill impairment

 

3.1

 

0

 

Impact of non-controlling interests

-1.0

-0.3

 

Adjusted profit before tax

22.3

15.3

Note: Small rounding differences arise in the total amounts above

 

Notes:

1.         Adjusted EBITDA is adjusted profit before tax plus depreciation, amortisation and net finance costs, before pre-tax non-controlling interests.

2.         Adjusted earnings per share is calculated by dividing the adjusted earnings by the weighted average number of ordinary shares.

3.         Adjustments include costs considered non-recurring and expenses related to amortisation of acquired intangible assets and post acquisition 'earn-outs'. See the Group Chief Executive Officer's Report and Group Chief Financial Officer's Report for details of adjustments.

This announcement contains inside information within the meaning of article 7 of the EU Market Abuse Regulation (MAR).

 

 

Chairman's Statement

Charles Taylor delivered sizeable growth in revenue and adjusted profit before tax.  We benefitted from organic and acquired growth in many of our business lines.

Our growth in adjusted profit before tax is not reflected in our statutory profits before tax, which unfortunately shows a loss.  We adjusted the statutory result to present a clear picture of the underlying performance of Charles Taylor over the year. These adjustments largely relate to the execution of the Group's key strategic objectives as explained in the Group Chief Executive Officer's report.  Further details of the adjustments are set out in the Chief Financial Officer's report.  We are confident that our growth strategy continues to offer shareholders the greatest potential for medium to long-term growth in the Group's value, along with rising, sustainable income. 

Accessed capital markets:  We undertook a successful share placing in May 2018 to partially fund the acquisition of Inworx with gross proceeds of £17.6m.  The placing was significantly oversubscribed.  We believe this demonstrates our shareholders' confidence in the Group's long-term strategy.

Rising dividend: The Directors recommend a final dividend of 8.08pp (2017: 7.7p) per share be put to shareholders at the Annual General Meeting on 8 May 2019.  Together with the interim dividend of 3.48p paid in November the total proposed dividend for the year is therefore 11.56p (2017: 11.01p).  Subject to shareholder approval at the Annual General Meeting, the final dividend will be paid on 24 May 2019 to all shareholders on the register on 26 April 2019.

Enhanced corporate governance:  We have reviewed our corporate governance framework in the light of the 2018 UK Corporate Governance Code.  We have adopted new measures from the Code and enhanced our governance reporting particularly on stakeholder engagement, culture, diversity and remuneration.  Further details are set out in the Strategic and Corporate Governance reports.

Our work is focused on enabling our clients to do their business fundamentally better and transforming the global insurance market as a result. This could not be achieved without the full commitment of our highly professional team. I would like to thank all our colleagues for their hard work and dedication throughout the year.

Edward Creasy

Chairman

13 March 2019

 

 

Group Chief Executive Officer's Report

I am pleased to report significant progress on executing our strategic objectives.  This year, we have refined and clarified our growth strategy, making it more understandable to all stakeholders.  By doing so, we expect over time to achieve greater collaboration, further operational efficiencies, and improved growth prospects.

We consolidated our existing claims services related capabilities to create a joined-up claims services business with global scale and material growth prospects.  This was achieved through material organic growth, driven by the recruitment of top talent and significant client wins, along with the acquisition of two claims services businesses, FGR in Latin America and Aasgard Summit in the USA, thereby extending our global footprint.

We have also seen Charles Taylor InsureTech come of age as a sizeable, sustainable business with rapid growth prospects.  We won substantial insurance technology contracts notably with Seguros Sura and Lloyd's of London, building credibility in the market, and acquired Inworx, an insurance technology business, thereby strengthening our owned IP and broadening our client base globally.

Our Insurance management business has continued to support the sustainable growth of its clients. The mutuals we manage continue to be in strong financial positions, attracting and retaining a well-diversified underlying client base.  Our efforts to establish new products for our clients, such as Safeshore Edge, and to build distribution, such as the relationship with Ping An, have proved positive.  However, The Standard Syndicate has not achieved its goals and has been placed into run-off.

We have reported substantial growth in the Group's underlying top-line and bottom-line results as set out in the table below.  Around 40% of our adjusted profit before tax growth was delivered through organic growth and around 60% from our acquisitions.  At the same time, we have managed pro-actively our financial leverage through a significantly oversubscribed share placing.

Group results 2018

 

2017

2018

%

Revenue (£m)

210.8

263.6

25%

Adjusted EBITDA

22.9

31.5

38%

Adjusted profit before tax (£m)

15.3

22.3

47%

Adjusted earnings per share (p)

24.73

26.22

6%

Basic (loss)/earnings per share

13.14

-4.94

-138%

Dividend (p)

11.01

11.56

5%

Annual average net debt (£m)

39.5

58.9

+49%

Refocused business strategy:  From 1 January 2019 we have refocused our business structure and strategy.  The new model presents our proposition for clients as spanning three areas: Charles Taylor Claims Services, Charles Taylor Insurance Management, and Charles Taylor InsureTech.

On the new model basis, our performance is as follows:

£m

2017

2018

Revenue

Adjusted segmental operating profit/(loss)

Revenue

Adjusted segmental operating profit/(loss)

Claims Management

122.8

7.7

154.2

12.6

Insurance Management

84.0

13.8

92.1

12.3

InsureTech

4.0

-3.2

17.3

0.1

Total

210.8

18.3

263.6

25.0

I am pleased to report that our approach to business strategy was recognised at the European Business Awards 2018, where we won The Elite Award for Growth Strategy of the Year.  We also won the Intermediary of the Year Award at the 2019 Commercial Insurance Awards.

We have made important progress in delivering our growth strategy, which is summarised below:

Grow materially our Claims Services business across the world.  Charles Taylor Claims Services brings together the Group's claims capabilities into a single business with global scale.  It delivered a strong performance for the year.

Charles Taylor Adjusting is executing its strategy to move into higher margin adjusting lines with lower working capital requirements.  It increased its revenue and continued its recent improvement in margins.  In line with our strategy we recruited leading adjusters and technical experts with established market followings

Our Claims Programme Management business increased its revenue and profit contribution, through winning material new contracts from leading insurers and insureds.  We, together with Signal Mutual, established Sage as the premier provider of US Longshore workers' compensation claims management, through the amalgamation of the Charles Taylor's Longshore workers' compensation team with three other major existing providers of this service.  We have adjusted for the one-off profit resulting from this transaction.

We are delivering on our strategy to execute selected 'bolt-on' acquisitions with attractive risk-return characteristics.  We acquired the FGR group, a loss adjusting and claims programme management business, headquartered in Chile and across Latin America.  By combining this with our existing Latin American operations, we created one of the region's leading international loss adjusters.  We also acquired Aasgard Summit, a provider of marine claims programme management services focusing on the US West Coast states.

We have adjusted for the acquisition costs relating to these transactions,for acquired customer amortisation and deferred consideration relating to the previous years' acquisitions.  These include the successful acquisitions of Criterion Adjusting and Metro Risk Management in 2017 and the acquisition of CEGA in 2016 which is performing ahead of expectations.

Support the sustainable growth of our Insurance Management clients. Charles Taylor Insurance Management performed well overall, increasing revenue as a result of delivering more services to our clients.  The business reported a small fall in profits, which largely relates to a 2017 profit on the acquisition of a closed book of life assurance business that did not repeat.

In line with our strategy of supporting our clients' sustainable growth, we worked to grow the membership and scale of our existing clients' businesses.  Signal Mutual grew its projected payroll, on which the mutual's insurance premiums are based by nearly 3% to USD4.4 bn.  The Standard Club's tonnage reduced slightly on renewal in difficult market conditions, having grown throughout the previous policy year.

We have introduced new products and services for these clients and their members.  These include supporting The Standard Club to enter a cooperation agreement with Ping An, China's largest insurer and establishing Safeshore Edge, a Longshore workers' compensation programme for Signal Mutual.

The Group's Lloyd's managing agency business and Charles Taylor's corporate name have been impacted by The Standard Syndicate being placed into run-off.  We have adjusted for the loss on this investment.

We have made a provision for work incurred in developing a new client proposition for our life business that may not come to fruition.  We have also adjusted for the impairment in the value of the goodwill of the life business.

Accelerate the development of our InsureTech business.  Charles Taylor InsureTech delivered a strong increase in revenue and is achieving material scale, just three years after it was launched in 2015.

We are delivering business transformation projects for Seguros Sura in Latin America and for the Lloyd's market globally.  We are also leveraging our technology IP, delivering a SaaS solution to Make It Cheaper, the UK's No. 1 utility switching service for SMEs.

We are building our insurance technology ecosystem and acquired Inworx, an insurance-focused technology consultancy and software provider.  This was funded by a share placing which was heavily oversubscribed.  We have adjusted for the acquisition costs relating to this transaction.

Our investment in Fadata has given us access to the business's highly-rated INSIS software, which is gaining global traction through Charles Taylor InsureTech.  We have invested in further funding rounds for the business. We adjusted the carrying value for the adoption of a new accounting standard relating to the treatment of credit risk provisions.

Optimise business operations and develop capabilities.  We have invested in standardising, consolidating and automating our finance and human resources activities.  We believe this will significantly improve the efficiency of the Group and our core operational capabilities.  We have adjusted for investment in delivering this programme.

We are driving Group-wide business development capabilities and efforts.  We held two Business Development forums for client-facing staff in 2018, to increase cross referrals and improved our management of the new business pipeline.

We consolidated our three London-based operations into a new office which offers greater operational efficiency and wrote down the value of our Bournemouth office ahead of relocating it.  We have adjusted for the investment involved in delivering this rationalisation.

Further details of the performance of our businesses is set out on the following pages.

Current trading and outlook:

Charles Taylor has had a good start to 2019.  We anticipate that our full year performance will be in-line with market expectations.

·     Charles Taylor Claims Services is performing well.  It offers the potential for growth from new claims programme management contracts and further growth in our loss adjusting capability.  We anticipate a slight moderation in recent margin growth in the near term following the integration of FGR.

·     Charles Taylor Insurance Management has longstanding, mutually-beneficial client relationships and the potential for steady growth.  The business is performing steadily.

·     Charles Taylor InsureTech has had a good start to the year, securing a major contract win.  The business offers the potential for strong revenue growth as the benefits of recent contract wins and the Inworx acquisition flow through.

We are pleased with the strong performance of the Group and remain very positive about the long-term prospects for Charles Taylor.  We are taking forward numerous growth initiatives and our investments are delivering good results overall.  We are confident that our strategy will deliver further growth and returns to shareholders.

 

David Marock

Group Chief Executive Officer

13 March 2019

 

 

 

Business Review

Charles Taylor Claims Services

The business delivered a strong performance.  Charles Taylor Adjusting increased revenue and continued its recent improvement in margin.  Our Claims Programme Management business increased its revenue and adjusted profit contribution following business wins from leading insurers and insureds.  We, together with Signal Mutual, established Sage as the premier provider of US Longshore workers' compensation claims management, through the amalgamation of the Charles Taylor team with three other major existing providers of this service.

The business' capabilities were recognised by our winning significant industry awards in 2018.  We won the Claims Management Team of the Year at the British Claims Awards, and the Assistance Company of the Year Award at the ITIJ Awards.

Increased scale and improved performance of Charles Taylor Adjusting:  Charles Taylor Adjusting provides loss adjusting services across the aviation, natural resources, marine, property and casualty sectors, with a focus on managing more complex and losses.

We are executing our strategy to maintain our market leading position in these sectors and are growing our capabilities in niche property and casualty (P&C) sectors.  These niche P&C sectors are less capital intensive than in other lines, and typically offer recurring income and attractive margins.

This strategy is delivering results.  The business performed well in 2018, increasing its revenue and operating segment profit and continued to improve its operating margin:

·     Grew loss adjusting capability in Latin America:  In October 2018, we acquired the FGR group, a loss adjusting business, headquartered in Chile.  By combining this with our existing Latin American operations, we created one of the region's leading international loss adjusters, with the capability to support local and international insurers with complex claims and CAT losses. FGR also has a well-established claims programme management business, handling over 3 million claims per year, adding to our capabilities in the region. The integration of FGR is progressing well.  The acquisition is expected to be earnings enhancing in 2019 and thereafter.

·     Recruited high-performing loss adjusters:  We focus on recruiting high-performing loss adjusters with established track records and the ability to build long term relationships with insurers and brokers around the world to support them with their handling of complex claims. In 2018 and early 2019, we strengthened our teams in the UK, USA, Middle East, Far East and Continental Europe.  These appointments resulted in additional case work and revenue, which we expect to be repeatable.  Alongside the recruitment of established loss adjusting talent, we are also recruiting, training and developing the next generation of loss adjusters, many of whom join with established technical capabilities.

·     Focused on reducing working capital:  We have recently restructured our working capital team, which we believe will enable us to continue this long-term improvement.  In the short-term, this has slowed progress as the team becomes established.  Working capital months are unchanged year-on-year at 8.2 months.

Grew Claims Programme Management capabilities:  Charles Taylor has extensive claims programme management capabilities across the Group.  This enables us to offer the end-to-end handling of a claims programme for insurers and insureds, from first notification of loss to claim settlement, data analysis and all activities in between

We offer our clients deep industry experience across a variety of business lines.  These include liability, travel, heath, ports and terminals, catastrophe and workers' compensation claims, many of which require specialist, multi-year management.  We currently handle in excess of 3.6 million claims a year for clients across the world.

We see opportunities to further develop our Claims Programme Management capabilities by drawing on our claims handling expertise from across the Group to offer a single coordinated proposition to clients.  We made good progress in delivering this strategic initiative in 2018, including the following:

·     Grew UK travel and assistance claims management portfolio:  Charles Taylor is a market-leading provider of assistance and travel claims programme management services to UK insurers. We secured a contract to provide medical assistance services to a top three UK insurer which commenced in January 2018.  This is now embedded and operating effectively. The win has contributed to a c. 10% uplift in the number of assistance cases we handle, which now exceeds 45,000 annually.

·     Built specialist claims handling capability in the USA:  In March 2018, we acquired Aasgard Summit, a provider of marine claims programme management services focusing on the US West Coast states.  This strategic move secures our position as one of the largest US providers of claims services to the maritime community.  Aasgard Summit has added to our strong and growing presence in the strategic West Coast states, home to some of the US's largest ports and marine operators.

Two significant Claims Programme Management wins were achieved in the maritime sector, including for the Blue & Gold fleet in San Francisco and Maersk Lines in Norfolk.

·     Created the USA's largest Longshore claims business:  We have collaborated with our largest US client, Signal Mutual, to create Sage, a new claims programme management business, focused on Longshore workers' compensation claims.  Signal Mutual's four largest independent third-party claims management providers firms were acquired to establish Sage, which is now the largest provider of these services in the US.  Sage operates as a single entity aligned with and controlled by Signal Mutual.

 

Charles Taylor Insurance Management

The business performed well overall, increasing revenue as a result of delivering more services to our mutual clients and reporting a small fall in profits, which largely relates to a non-repeating 2017 profit on the acquisition of a life assurance business.  We delivered a good performance for our major mutual insurance company clients.  The Group's managing agency business has been impacted by The Standard Syndicate being placed into run-off and we are conducting a strategic review of that business.

The business's capabilities were recognised by our winning the MGA Initiative of the Year Award at the Insurance Day Awards 2018.

Delivered growth for our mutual insurance clients:  Charles Taylor manages mutual insurance companies.  Our principal clients are The Standard Club, the world's fourth largest marine liability insurer and Signal Mutual, the leading provider of Longshore workers' compensation insurance to employees of USA ports and terminals.

The Standard Club: The club provides protection and indemnity (P&I) insurance to around 10% of the world's shipping fleet.  Our work enabled it to, extend its global reach and deliver high quality services to its members.

At the annual P&I insurance renewal in February 2019, the club renewed over 96% of its members. Total premium income was USD290m and the club's estimated free reserves, a measure of its financial strength, were USD436m.

Our work was focused on supporting the club with the following:

·     Extending its global reach:  We supported the club to make its P&I insurance covers available to more ship owners in China by entering into a cooperation agreement with Ping An, China's largest insurer.  We also established a locally regulated underwriting capability in Hong Kong.

·     Offering additional insurance covers:  We worked with the boards of The Standard Club and The Strike Club, a mutual marine delay insurer also managed by Charles Taylor, to merge the entities, with The Strike Club becoming a class of The Standard Club.

·     Withdrew from underwriting at Lloyd's: The club withdrew from underwriting at Lloyd's from January 2019.  It concluded that current overcapacity and a weak pricing environment made Lloyd's a challenging market for it to develop a profitable underwriting business with enough scale.  As a result, The Standard Syndicate was placed into run-off.

·     Preparing for Brexit:  We secured approval from the Irish regulator to set up a new insurance entity in Dublin.  This will enable the club to insure European members post-Brexit.

Signal Mutual: Signal Mutual ('Signal') is the largest provider of longshore workers' compensation insurance to the US maritime industry.  Charles Taylor has been the manager of Signal since it was founded in 1986.  Our work helped ensure a very strong year for Signal.

Signal enjoyed a very successful 2018/19 renewal in October 2018, with nearly 99% of members renewed.  Member payroll, on which insurance premiums are based, are projected to exceed USD4.4 bn up nearly 3% on the prior year.  This resulted in a projected advance call (premium income) of USD209m for Signal.

We worked to deliver Signal's strategic objectives:

·     Delivering effective safety solutions.  Our work to reduce the incidence of injuries in the workplace and insurance claims delivered positive results for members.  This meant that Signal was able to reduce projected premium rates by over 1.5%, continuing the 16+ year record of year-on-year average rate decreases delivered to the membership.

·     Extended insurance solutions Longshore employers:  We established Safeshore, a Longshoreman Workers' Compensation Small Account Programme, for Signal in 2014.  The program currently has over 200 covered employers and generates around USD6m in premiums.  This year, we established a new program, SafeShore Edge for Signal.  This is designed to cover employers in the middle market that do not qualify for entry into Signal Mutual.  Four employers are already covered by SafeShore Edge and we have plans to expand significantly in the next year.  

Undertaking strategic review of Charles Taylor Managing Agency:  The Standard Club's decision to withdraw from underwriting at Lloyd's has impacted the Group's Lloyd's managing agency business, which is jointly owned with The Standard Club.  We are planning to conduct a strategic review of the managing agency.

Grew Charles Taylor Life Insurance Management:  The Group's end-to-end life company management business performed steadily.  We simplified operations and increased efficiency with all acquired life businesses now running on the core systems.

Charles Taylor InsureTech

Charles Taylor InsureTech was established to help insurance businesses drive change through the delivery of technology-enabled solutions.  It owns or licences the intellectual property in a range of software solutions required by insurers, brokers and other market participants across their business operations, which we believe gives the business a significant competitive advantage.

In 2018, Charles Taylor InsureTech won substantial global insurance technology contracts and acquired Inworx, an insurance-focused technology consultancy and software provider.  The business is achieving scale and delivered a strong increase in revenue but made a statutory loss.  Some key developments include:

·     Delivering market-wide delegated authority solution: We won a long-term contract with Lloyd's to deliver a delegated authority solution to the Lloyd's and related London company insurance markets. The solution, which is powered by Charles Taylor InsureTech's Tide software, has been taken up by all Lloyd's managing agents involved in live delegated authority business. By the year-end, users had processed nearly 2,000 completed contracts using Tide.

·     Delivering core operating platform for leading insurers:  Our major contract win to implement a core operating platform for Seguros SURA, a top four life, general and health insurer in Latin America, is being delivered. Seguros SURA awarded us a five-country contract with the option for a further five countries.

·     After the year-end, we secured a contract with Dutch funeral, savings and life insurer, Coöperatie Dela to implement a new cloud-based core operating platform. The new platform will provide Coöperatie Dela with greater scalability, better customer insights and will free-up time to enable it to focus on meeting its customer needs and providing service excellence.

·     Extending global reach and product suite:  The acquisition of Inworx, an insurance-focused technology consultancy and software provider based in Latin America, has significantly broadened our technology capabilities on a global basis.  The integration of the business is in an advanced stage and is close to completion.

As planned, we are successfully transferring Inworx's software solutions to UK clients.  After the year-end, we secured a contract to implement the Smartix quote and bind solution for a UK MGA.

·     Capitalising on our investment in Fadata:  Our investment in Fadata, the specialist insurance policy administration business, acquired by Charles Taylor and The Riverside Company in 2015, has given us access to its highly-rated INSIS software.  We are using INSIS to power our solutions for both Seguros Sura and Coöperatie Dela and was a significant factor in us securing both contracts.

The business unfortunately made a loss in 2018 and we are working closely with Fadata management and The Riverside Company, our co-investor, to improve the business's operational performance.  A new CEO and management team have been appointed and costs have already been stripped out of the business.  Fadata's INSIS solution is gaining traction through Charles Taylor InsureTech; in addition, Fadata is developing a new business pipeline through other channels, with two other client wins post year-end. We participated in funding rounds for the business in March and September 2018 and in January 2019 with a further round expected over the Summer of 2019. 

·     Won industry award:  Charles Taylor InsureTech's capabilities were recognised at London Market Forums Market People Awards, where we won the Technology Supplier of the Year Award.

 

 

Group Chief Financial Officer's Report

The results for the year are summarised in the table below.

 

Professional Services businesses

Owned Life Insurers

 

2018 Group

2017 Group

 

Management Services

Adjusting Services

Insurance Support Services

Total

Insurance Companies

Eliminations/
Other

Total

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

Revenue

60.4

86.9

112.2

259.5

8.5

-4.4

263.6

210.8

Other expenses

-49.00

-78.7

-100.3

-227.9

-8.2

4.4

-231.7

-186.2

Depreciation and amortisation

-0.4

-0.8

-5.5

-6.7

-0.2

-

-6.9

-6.3

Adjusted segmental operating profit

11.0

7.4

6.4

24.9

0.1

-

25.0

18.3

Depreciation and amortisation

0.4

0.8

5.5

6.7

0.2

 

6.9

6.3

Share of loss of associates

 

 

 

 

 

-0.4

-0.4

-1.7

Adjusted EBITDA

11.4

8.2

11.9

31.6

0.3

-0.4

31.5

22.9

Depreciation and amortisation

 

 

 

 

 

 

-6.9

-6.3

Finance costs

 

 

 

 

 

 

-1.2

-1.1

Non-controlling interests

 

 

 

 

 

 

-1.1

-0.3

Adjusted profit before tax

11.4

8.2

11.9

31.6

0.3

-0.4

22.3

15.3

Note: Small rounding differences arise in the total amounts above.

Eliminations relate to inter-segment fees between business lines

The Group Chief Executive Officer's report sets out that we have refocused our business structure and strategy from 1 January 2019.  The new model presents our proposition for clients as spanning three areas: Charles Taylor Claims Services, Charles Taylor Insurance Management, and Charles Taylor InsureTech.

We are adopting this new model for our financial reporting with effect from 1 January 2019, so the 2018 financial statements are presented using the previous model of Management Services, Adjusting Services, Insurance Support Services and Owned Life insurers.

The Group's results on the new and old model are set out below

NEW MODEL

£m

2017

2018

Revenue

Adjusted segmental operating profit/loss

Revenue

Adjusted segmental operating profit

Claims Management

122.8

7.7

154.2

12.6

Insurance Management

84.0

13.8

92.1

12.3

InsureTech

4.0

-3.2

17.3

0.1

Total

210.8

18.3

                   263.6

25.0

 

OLD MODEL

£m

2017

2018

Revenue

Adjusted segmental operating profit

Revenue

Adjusted segmental operating profit

Management Services

58.3

10.1

60.4

11.0

Adjusting Services

74.9

4.5

86.9

7.4

Insurance Support Services

78.0

3.1

112.2

6.4

Owned Life Insurers

4.6

0.6

8.5

0.1

Eliminations

-5.0

0.0

-4.4

0.0

Total

210.8

18.3

263.6

25.0

To provide a clear year on year comparison, we have set out below a narrative summary of our businesses' performance on the old model:

Management Services performed well overall, increasing revenue as a result of growing the membership and scale of our existing client's businesses and delivering more services to our mutual clients.

Adjusting Services delivered a strong performance.  Charles Taylor Adjusting is executing its strategy to move into higher margin adjusting lines with lower working capital requirements.  In line with our strategy we executed a 'bolt-on' acquisition of the FGR group, a loss adjusting and claims programme management business headquartered in Chile that operates across Latin America. 

Insurance Support Services delivered a strong performance, resulting in an increased revenue and profit contribution following business wins from leading insurers and insureds.  The Group's Lloyd's managing agency business has been impacted by The Standard Syndicate being placed into run-off further details of which are included under the 'Adjustments and eliminations' section below.  We are building our insurance technology ecosystem and acquired Inworx, an insurance-focused technology consultancy and software provider.  This was funded by a share placing which was heavily oversubscribed.  We have adjusted for the acquisition costs relating to this transaction.  We also acquired Aasgard Summit, a provider of marine claims programme management services focusing on the US West Coast states.

Owned Life Insurance Companies: reported a fall in profits, which largely relates to a profit on the acquisition of a closed book of life assurance business in 2017 that did not repeat. 

Adjustments

Our strong growth in adjusted profits before tax to £22.3m (2017: £15.3m) is not reflected in our statutory profits before tax, which unfortunately shows a loss -£3.3m (2017: £7.4m).  Consistent with prior years we adjusted the statutory result to present a clear picture of the underlying performance of Charles Taylor over the year.  This includes adjustments and eliminations relating to acquisitions, refining business operations, developing new products and services and implementing new accounting standards. The adjustments are made up as follows:

Executing selected larger investments as part of our strategy to develop new capabilities and build our businesses (£14.7m): in line with our growth strategy we completed acquisitions during the year and benefited from prior year acquisitions.  We have adjusted for acquisition-related costs made up of legal costs and fees (£2.5m), earnout (£4.5m) and amortisation relating to intangibles acquired (£7.8m).  These acquisitions are performing well and making a material contribution to our growth strategy.

Refining our business operations and building capabilities to underpin growth (£6.3m): In line with our strategy we have invested in strengthening the Group's core capabilities and support services to underpin growth.  We consolidated our three London-based operations into a new office which offers greater operational efficiency. We have adjusted (£4.6m) for the investment involved in delivering this rationalisation. In addition to which, we have started to consolidate support and non-core activities which cost £1.7m across our support services.

Developing new products and services - associated one off provisions, losses and profits (£2.5m):  We continue to invest in creating new services for our clients and have adjusted for one-off profits and have made provisions for losses on projects which have not gone to plan.  We have adjusted for losses associated with our investment in developing a Lloyd's managing agency (£4.6m loss) as the Standard Syndicate is now in run-off as well as a new client proposition (£2.0m loss) which is now no longer expected to occur.  There was also a one-off profit associated with the creation of a longshoreman workers compensation claims programme management business (£4.1m profit).

Other non-recurring costs which primarily includes Owned Life Insurers' business goodwill impairment (£3.1m): This principally relates to the impairment of goodwill in the Owned life insurers' business (£2.4m).

Non-controlling interests: (£-1.0m) Profits attributable to non-controlling interests primarily in Insurance Support Services.

Net debt, cash flow and financing

Annual average net debt, which best reflects the Group's borrowing levels given the cash profile of the Group, was £58.9m (2017: £39.5m). Net debt was £73.7m as at 31 December 2018 (2017: £57.2m).  Year on year increases arise from additional revenue growth related adjusting working capital, an increase in capital expenditure, acquisitions and investments (FGR £5.6m, Fadata £2.3m and Aasgard Summit £2.1m). The Inworx acquisition was funded by means of an equity raise with gross proceeds of £17.6m and the issue of shares to the vendors. We expect a positive earnings contribution from these acquisitions in 2019.

The Groups senior banking facilities comprise a Revolving Credit Facility (RCF), which during the year has been increased to £83m and extended by one year to October 2023, and an Acquisition facility of £25m. The increase in the RCF replaces the Citizens USD facility.  In February 2019, the RCF was increased to £87m by accessing £5m of the Acquisition Facility to fund anticipated investments.

The board is focused on maintaining an efficient and sustainable capital structure and is comfortable with the current level of financial leverage and by implication net debt.

Retirement benefit schemes

The Group's pension deficit as at 31 December 2018 was £34.3m (2017: £44.7m), net of deferred tax £28.4m (2017: £37.1m).  The principal factors leading to the reduction in the net liability are the payment of deficit funding contributions by the Company and the reduction in the value placed on the liabilities resulting from an increase in the discount rate.

Foreign exchange

The Group manages its exposure to foreign currency fluctuations by using forward foreign exchange contracts and options to sell currency in the future.  The contracts open during the year and at the year-end were put in place to protect the Group's exposure to movements between US $ and Sterling. The US$ profits of the Group were translated at US$1.33 in 2018 (2017: US$1.30).  The sensitivity of the Group's results to movements in exchange rates is explained in note 28 to the Financial Statements.

Taxation

During 2018, the effective tax rate on adjusted profit was 13.5% reflecting the tax rates in the jurisdiction's that the Group operates within. In 2017 taxation benefited from a credit arising from the recognition of a deferred tax asset relating to unutilised tax losses.  The Group's average effective tax rate trends toward the UK tax rate within a range reflecting the global nature of the Group's operations.

 

Mark Keogh

Group Chief Financial Officer

13 March 2019

 

Consolidated Income Statement

 

 

 

Year to 31 December

 

Note

Unaudited

2018
£000

2017
£000

Continuing operations

 

 

 

Revenue from Professional Services

 

255,037

206,237

 

 

 

 

Revenue from Owned Insurance Companies

 

 

 

Gross revenue

 

9,287

5,609

Outward reinsurance premiums

 

(763)

(1,026)

Net revenue from Owned Insurance Companies

 

8,524

4,583

Total revenue

2

263,561

210,820

 

 

 

 

Expenses from Owned Insurance Companies

 

 

 

Claims recovered/(incurred)

 

43,364

(52,779)

Reinsurance recoveries

 

393

915

Other (losses)/gains from insurance activities

 

(43,561)

55,455

Net operating expenses

 

(7,702)

(7,160)

Net expenses

 

(7,506)

(3,569)

 

 

 

 

Administrative expenses

 

(256,697)

(197,905)

Gain on Disposal/Acquisition

 

4,107

926

Net impairment losses on non-current and current assets

 

(5,097)

-

Share of loss of associates

 

(386)

(1,780)

Operating (loss)/profit

 

(2,018)

8,492

 

 

 

 

Investment and other income

 

1,635

903

Finance costs

 

(2,886)

(2,022)

(Loss)/profit before tax

 

(3,269)

7,373

Income tax expense

 

603

1,758

(Loss)/profit for the year from continuing operations

 

(2,666)

9,131

 

 

 

 

Attributable to:

 

 

 

Owners of the Company

 

(3,652)

8,901

Non controlling interests

 

986

221

 

 

(2,666)

9,131

 

 

 

 

Earnings per share from continuing operations

 

 

 

Basic earnings per share (p)

3

(4.94)

13.14

Diluted earnings per share (p)

3

(4.90)

13.01

 

 

Consolidated Statement of Comprehensive Income

 

 

 

Year to 31 December

 

 

Unaudited

2018

£000

2017

£000

(Loss)/profit for the year

 

(2,666)

9,131

Items that will not be reclassified subsequently to profit or loss

 

 

 

Actuarial gains on defined benefit pension schemes

 

4,940

4,740

Tax on items taken directly to equity

 

(1,780)

(1,310)

 

 

3,160

3,430

Items that may be reclassified subsequently to profit or loss

 

 

 

Exchange differences on translation of foreign operations

 

2,027

(1,909)

(Losses)/gains on cash flow hedges

 

(472)

709

 

 

1,555

(1,200)

Other comprehensive income for the year, net of tax

 

4,715

2,230

Total comprehensive income for the year

 

2,049

11,361

Attributable to:

 

 

 

Owners of the Company

 

993

11,283

Non controlling interests

 

1,056

78

 

 

2,049

11,361

 

 

Consolidated Balance Sheet

 

At 31 December

 

Note

Unaudited

2018

£000

2017

(Restated)1,2

£000

Non current assets

 

 

 

Goodwill

 

70,212

57,773

Other intangible assets

 

55,323

42,979

Property, plant and equipment

 

16,394

8,793

Investments

 

2,320

1,547

Financial assets

 

10,615

8,492

Deferred tax assets

 

10,950

11,909

Total non current assets

 

165,814

131,493

Current assets

 

 

 

Total assets in insurance businesses

 

913,942

1,103,032

Trade and other receivables

5

107,239

82,655

Cash and cash equivalents

 

169,974

146,057

Total current assets

 

1,191,155

1,331,744

Total assets

 

1,356,969

1,463,237

Current liabilities

 

 

 

Total liabilities in insurance businesses

 

899,660

1,089,039

Provisions

 

1,931

-

Trade and other payables

6

57,493

37,627

Deferred consideration

 

1,558

2,688

Current tax liabilities

 

2,544

1,934

Borrowings

7

17,075

15,708

Client funds

 

145,721

121,395

Total current liabilities

 

1,125,982

1,268,391

Net current assets

 

65,173

63,353

Non current liabilities

 

 

 

Borrowings

7

80,909

66,153

Deferred tax liabilities

 

7,911

3,697

Retirement benefit obligation

 

34,277

44,738

Provisions

 

275

435

Trade and other payables

6

13,503

-

Obligations under finance leases

 

-

28

Deferred consideration

 

5,135

1,648

Total non current liabilities

 

142,010

116,699

Total liabilities

 

1,267,992

1,385,090

Net assets

 

88,977

78,147

Equity

 

 

 

Share capital

 

776

689

Share premium account1

 

89,702

71,458

Merger reserve1

 

11,721

9,195

Capital reserve

 

662

662

Own shares

 

(567)

(369)

Accumulated losses

 

(16,085)

(5,269)

Equity attributable to owners of the Company

 

86,209

76,366

Non controlling interests

 

2,768

1,781

Total equity

 

88,977

78,147

 

1.         £2.3m has been reclassified to the Merger Reserve from Share Premium to reflect that the fair value of the shares issued over and above the par value in respect of the acquisitions of Knowles Loss Adjusters in May 2014 and CEGA in August 2016, both qualified for merger relief in accordance with the Section 612 of the Companies Act 2006.

2.         The non-current assets, non-current liabilities and accumulated losses have been restated as a result of the remeasurement of assets acquired and liabilities assumed as part of the Criterion acquisition as permitted under IFRS 3 (revised) (see note 4).

The financial statements were approved by the Board of Directors and signed on its behalf by

Mark Keogh

Director

13 March 2019                                                                                                                                                                Company number: 03194476

 

Group Cash Flow Statement

 

 

 

Year to 31 December

 

Note

Unaudited

2018

£000

2017

£000

Group

 

 

 

Net cash generated from operating activities

8

44,046

7,697

 

 

 

 

Investing activities

 

 

 

Interest received

 

921

420

Purchases of property, plant and equipment

 

(10,497)

(2,645)

Purchases of other intangible assets

 

(6,034)

(5,102)

Purchase of investments and own shares

 

(6,496)

(3,739)

Proceeds from sale of investments

 

745

-

Acquisition of subsidiaries - net of cash acquired

 

(21,531)

(7,146)

Payment of deferred consideration

 

(2,437)

(6,027)

Net cash used in investing activities

 

(45,329)

(24,094)

 

 

 

 

Financing activities

 

17,123

760

Net proceeds from issue of shares

 

Dividends paid

 

(7,969)

(7,232)

Repayments of obligations under finance leases

 

(28)

-

Borrowing under existing facility

 

16,985

25,500

(Decrease)/increase in bank overdrafts

 

(593)

3,140

Net cash generated from financing activities

 

25,518

22,168

Net increase in cash and cash equivalents

 

26,078

5,771

Cash and cash equivalents at beginning of year

 

146,057

141,436

Effect of foreign exchange

 

(318)

(1,150)

Cash and cash equivalents at end of year

 

169,974

146,057

 

 

 

 

 

 

 

Consolidated Statement of Changes in Equity

 

 

Unaudited

 

Called up

share capital

£000

Share

 premium account

£000

Merger

reserve

£000

Capital

 reserve

£000

 

Own shares

£000

Accumulated

losses

£000

Non controlling interests

£000

Total equity

£000

At 1 January 2018 as previously reported

689

73,781

6,872

662

(369)

(5,136)

1,781

78,280

Restatements (1,2)

-

(2,323)

2,323

-

-

(133)

-

(133)

At 1 January 2018 restated

689

71,458

9,195

662

(369)

(5,269)

1,781

78,147

Adoption of IFRS9

-

-

-

-

-

(1,761)

-

(1,761)

Adoption of IFRS15

-

-

-

-

-

(2,353)

-

(2,353)

At 1 January 2018 adjusted

689

71,458

9,195

662

(369)

(9,383)

1,781

74,033

Issue of share capital

87

-

-

-

-

-

-

87

Share premium arising on placing

-

17,100

-

-

-

-

-

17,100

Share premium arising on issue of shares in respect of acquisitions / deferred consideration

-

3,670

-

-

-

-

-

3,670

Merger reserve arising on acquisition

-

(2,526)

2,526

-

-

-

-

-

Loss for the financial year

-

-

-

-

-

(3,652)

986

(2,666)

Dividends paid

-

-

-

-

-

(7,969)

-

(7,969)

Actuarial gains on defined benefit pension schemes

-

-

-

-

-

4,940

-

4,940

Tax on items taken to equity

-

-

-

-

-

(1,780)

-

(1,780)

Losses on cash flow hedges

-

-

-

-

-

(472)

-

(472)

Foreign currency exchange differences

-

-

-

-

-

1,957

70

2,027

Movement in share based payments

-

-

-

-

-

1,205

-

1,205

Movement in own shares

-

-

-

-

(198)

-

-

(198)

Other movements

-

-

-

-

-

(931)

(69)

(1,000)

At 31 December 2018

776

89,702

11,721

662

(567)

(16,085)

2,768

88,977

 

 

 

 

 

 

 

 

 

At 1 January 2017

674

72,372

6,872

662

(430)

(12,126)

2,138

70,162

 

 

 

 

 

 

 

 

 

Issue of share capital

15

-

-

-

-

-

-

15

Share premium arising on issue of share capital

-

1,409

-

-

-

-

-

1,409

Profit for the financial year

-

-

-

-

-

8,910

221

9,131

Dividends paid

-

-

-

-

-

(7,232)

-

(7,232)

Actuarial gains on defined benefit pension schemes

-

-

-

-

-

4,740

-

4,740

Tax on items taken to equity

-

-

-

-

-

(1,310)

-

(1,310)

Gains on cash flow hedges

-

-

-

-

-

709

-

709

Foreign currency exchange differences

-

-

-

-

-

(1,766)

(143)

(1,909)

Movement in share based payments

-

-

-

-

-

1,999

-

1,999

Movement in own shares

-

-

-

-

61

-

-

61

Other movements

-

-

-

-

-

940

(435)

505

At 31 December 2017

689

73,781

6,872

662

(369)

(5,136)

1,781

78,280

 

1.         £2.3m has been reclassified to the Merger Reserve from Share Premium to reflect that the fair value of the shares issued over and above the par value in respect of the acquisitions of Knowles Loss Adjusters in May 2014 and CEGA in August 2016, both qualified for merger relief in accordance with the Section 612 of the Companies Act 2006.

2.         The accumulated losses have been restated as a result of the remeasurement of assets acquired and liabilities assumed as part of the Criterion acquisition as permitted under IFRS 3 (revised) (see note 4).

The capital reserve and a portion of the merger reserve arose on formation of the Group and are non distributable capital reserves. £4.8m of the merger reserve relates to merger relief in respect of acquisitions. 

Own shares comprise 949,645 (2017: 324,247) shares held by the Charles Taylor Employee Share Ownership Plan Trust (ESOP). The market value of these shares was £2.1m (2017: £0.9m) at the balance sheet date.

The trustee of the ESOP is Summit Trust International SA, an independent professional trust company registered in Switzerland. The ESOP is a discretionary trust for the benefit of employees of the Group and provides a source of shares to distribute to the Group's employees (including Executive Directors and officers) under the Group's various bonus and incentive schemes, at the discretion of the trustee acting on the recommendation of a committee of the Board. The assets, liabilities, income and costs of the ESOP are incorporated into the consolidated financial statements.

There are no significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances other than company law requirements dealing with distributable profits, and in the case of the insurance companies, regulatory permissions and solvency limits.

 

Notes to the Financial Statements

 

1. Basis of accounting

The unaudited financial information set out above does not constitute the statutory accounts of Charles Taylor plc for the year ended 31 December 2018, but is derived from those statutory accounts, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union and therefore they comply with Article 4 of the EU IAS Regulation. Statutory financial statements for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's Annual General Meeting.

 

Certain key accounting policies have been set out below, please note that this is not an exhaustive list of accounting policies applied by the Group.

 

Prior year restatements

As presented within the Half Year Report, the Group has restated the prior year financial statements, as at 31 December 2017, in two areas:

 

Merger Reserve

An amount of £2.3m has been reclassified to the Merger Reserve from Share Premium to reflect that the fair value of the shares issued over and above the par value in respect of the acquisitions of Knowles Loss Adjusters in May 2014 and CEGA in August 2016, both qualified for merger relief in accordance with the Section 612 of the Companies Act 2006.

 

Acquisition accounting: Criterion

The analysis of assets acquired and liabilities assumed on acquisition, which was reported in the financial statements for the year ended 31 December 2017, was a provisional analysis. This has been restated within the remeasurement period being 12 months of the date of recognition which is permitted under IFRS 3 (revised). An estimated £5.6m remains payable in three instalments from September 2019, subject to the executive shareholders remaining actively engaged in the business over a period of at least five years and certain targets being met. As required by IFRS 3 (revised) these payments will be expensed to the income statement over the relevant period of active engagement. The discounted value of this restatement is included as Revaluation within Deferred consideration.

 

New and amended standards adopted by the Group

The following standards and interpretations apply for the first time to financial reporting periods commencing on or after 1 January 2018:

 

IFRS 9 'Financial instruments'

IFRS 9 'Financial instruments' addresses the classification, measurement and recognition of financial assets and financial liabilities. The Group has applied the requirements of IFRS 9 to financial instruments as at 1 January 2018 and has not applied the requirements to instruments that had already been derecognised prior to 1 January 2018, and no comparative amounts have been restated. There is no impact on the accounting for financial liabilities held by the Group.

 

Impairment of financial assets

The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39. Under the

impairment approach under IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses, which will be updated at each reporting date. As at 1 January 2018, the Group reviewed and assessed existing financial assets for impairment using reasonable and supportable information that is available without undue cost or effort in accordance with the requirements of IFRS 9 to determine the credit risk. An additional credit allowance of £1.8m has been recognised against retained earnings.

 

 

 

 

2018

£000

Amount restated through retained earnings in respect of trade and other receivables

 

 

500

Amount restated through retained earnings in respect of financial assets

 

 

1,261

Movement in reserves

 

 

1,761

 

The additional loss allowance recognised upon the initial application of IFRS 9 as disclosed above resulted entirely from a change in the measurement attribute of the loss allowance relating to the financial assets. In determining the expected credit losses for these assets, the Group has taken into account the historical default experience and the financial position of the relevant counterparties.

 

IFRS 15 'Revenue from Contracts with Customers'

The Group has adopted IFRS 15 'Revenue from Contracts with Customers' using the cumulative effect method from 1 January 2018. Upon adoption, the Group identified that the revenue recognised from the Signal Mutual contract, within the Management Services business, should be recognised on a straight line basis over the contract period, as the performance obligation is to be recognised straight line over time. This was previously accounted for as 40% in the fourth quarter followed by 20% in each subsequent quarter. The overall impact on the full year ended 31 December 2018 revenue is immaterial, however an adjustment of £2.4m has been accounted for in the Consolidated Statement of Changes in Equity.

 

2. Segmental Information

 

Identification of segments

For management and internal reporting purposes during 2018 the Group is organised into four operating businesses whose principal activities are as follows:

-         Management Services - provides end to end management services to insurance companies, mutuals and associations.

-         Adjusting Services - provides loss adjusting services across the aviation, energy, marine, property and casualty, and special risks sectors.

-         Insurance Support Services - provides a wide range of professional, technology and support services, enabling our clients to select the specific services they require.

-         Owned Life Insurers - consolidates life insurance businesses which are primarily in run off, creating value through targeted acquisitions and operational efficiency.

 

Management information about these businesses was regularly provided to the Group's chief operating decision maker to assess their performance and to make decisions about the allocation of resources. Accordingly, these businesses correspond with the Group's operating segments under IFRS 8 Operating Segments. Businesses forming part of each business which might otherwise qualify as reportable operating segments have been aggregated where they share similar economic characteristics and meet the other aggregation criteria in IFRS 8.

 

In the Management Services business, a higher proportion of revenue arises in the second half of the financial year. There is no significant seasonality or cyclicality in the other businesses.

From 1 January 2019 we have simplified our business structure and strategy and the presentation of our strategy to make it easier for clients, colleagues, shareholders and other stakeholders to understand. Our proposition for segmentation spans three areas:

-              Charles Taylor Claims Services - loss adjusting, end-to-end claims programme management and related technical services

-              Charles Taylor Insurance Management - provides end-to-end management of mutuals, syndicates, MGAs, captives, life                 insurers and other insurance programmes for capital providers under a model of long-term partnership

-              Charles Taylor InsureTech - technological solutions for insurers, brokers, MGAs, and affinity players.

 

The 2019 half year results will be reported on this new segmentation.

 

Measurement of segmental results and assets

Transactions between reportable segments are accounted for on the basis of the contractual arrangements in place for the provision of goods or services between segments and in accordance with the Group's accounting policies. Reportable segment results and assets are also measured on a basis consistent with the Group's accounting policies. Operating profit for the individual segments includes an allocation of central costs. The adjustments column includes elimination of inter segment revenue, share of results of associates and the adjustments set out in the Financial Review. Reconciliations of segmental results to the Group profit before tax are set out below.

Information about major customers

The Group derived revenue, within its Management Services business, of £39.4m (31 December 2017: £36.1m) from one external customer which accounts for more than 10% of Group revenue.

 

Professional Services businesses

Owned
Insurance Companies

Adjustments

Group

Year to 31 December 2018
Continuing operations

Management Services
£000

Adjusting Services
£000

Insurance Support Services

£000

Unallocated

£000

 

Total

£000

Insurance Companies

£000

Eliminations/ other

£000

Total

£000

Revenue from external clients

                    60,356                    107,775-                     255,037                    8,524                    -                     263,561

86,906

107,775

-

255,037

8,524

-

263,561

Revenue from other operating segments

-

-

4,430

-

4,430

-

(4,430)

-

Total revenue

60,356

86,906

112,205

-

259,467

8,524

(4,430)

263,561

Depreciation and amortisation

(357)

(789)

(5,519)

-

(6,665)

(236)

-

(6,901)

Other expenses

(52,221)

(83,671)

(109,612)

-

(245,504)

(8,482)

(4,693)

(258,679)

Operating profit/(loss)

7,778

2,446

(2,926)

-

7,298

(193)

(9,124)

(2,018)

Investment and other income

 

 

 

 

 

 

 

1,635

Finance costs

 

 

 

 

 

 

 

(2,886)

Loss before tax

 

 

 

 

 

 

 

(3,269)

 

 

 

Professional Services businesses

Owned Insurance Companies

Adjustments

Group

Year to 31 December 2017
Continuing operations

Management Services
£000

Adjusting Services
£000

Insurance Support Services

£000

Unallocated

£000

 

Total

£000

Insurance Companies

£000

Eliminations/ other

£000

Total

£000

Revenue from external clients

58,345

74,929

72,957

6

206,237

4,583

-

210,820

Revenue from other operating segments

-

-

5,004

-

5,004

-

(5,004)

-

Total revenue

58,345

74,929

77,961

6

211,241

4,583

(5,004)

210,820

Depreciation and amortisation

(262)

(700)

(5,029)

-

(5,991)

(268)

-

(6,259)

Other expenses

(47,954)

(69,738)

(69,820)

(6)

(187,518)

(3,701)

(4,850)

(196,069)

Operating profit/(loss)

10,129

4,491

3,112

-

17,732

614

(9,854)

8,492

Investment and other income

 

 

 

 

 

 

 

903

Finance costs

 

 

 

 

 

 

 

(2,022)

Profit before tax

 

 

 

 

 

 

 

7,373

 

 

At 31 December 2018

£000

At 31 December 2017 (Restated)

£000

 

Professional Services businesses

Owned

Insurance

Companies

Group

Professional Services businesses

Owned

Insurance

Companies

Group

Management Services business

2,312

-

2,312

2,890

-

2,890

Adjusting Services business

258,863

-

258,863

213,010

-

213,010

Insurance Support Services business

156,276

-

156,276

120,083

-

120,083

Unallocated assets and eliminations

24,088

-

24,088

22,514

-

22,514

Owned Insurance Companies business

-

915,432

915,432

-

1,104,740

1,104,740

Total assets

441,538

915,432

1,356,970

358,497

1,104,740

1,463,237

- Non current assets

164,325

1,489

165,814

129,785

1,708

131,493

- Current assets

277,213

913,942

1,191,155

228,712

1,103,032

1,381,744

Total assets

441,538

915,432

1,356,970

358,497

1,104,740

1,463,237

Current liabilities

(224,765)

(899,660)

(1,124,424)

(176,664)

(1,089,039)

(1,265,703)

Deferred consideration

(1,558)

-

(1,558)

(2,688)

-

(2,688)

Net current assets

50,891

14,283

65,173

49,360

13,993

63,353

Non current liabilities

(136,875)

-

(136,875)

(115,051)

-

(115,051)

Deferred considerations

(5,135)

-

(5,135)

(1,648)

-

(1,648)

Total liabilities

(368,333)

(899,660)

(1,267,992)

(296,051)

(1,089,039)

(1,385,090)

Net assets

73,206

15,772

88,978

62,446

15,701

78,147

Non controlling interests

(2,768)

-

(2,768)

(1,781)

-

(1,781)

Equity attributable to owners of the Company

70,438

15,772

86,210

60,665

15,701

76,366

 

 

 

Group

At 31 December

Geographical information continuing operations

 

 

2018

£000

2017

£000

United Kingdom

 

 

116,151

111,646

Other Europe

 

 

21,022

4,870

Middle East

 

 

5,120

132

North America

 

 

24,369

7,673

Central and South America

 

 

19,078

146

Asia Pacific

 

 

17,541

1,507

Bermuda

 

 

60,280

838

 

 

 

263,561

126,812

 

 

3. Earnings per share

The earnings and weighted average number of shares used in the calculation of earnings per share are as shown below. The shares held by the ESOP have been excluded from the calculation because the trustees have waived the right to dividends on these shares.

 

 

Year to 31 December

 

2018

£000

2017

£000

Earnings

 

 

Earnings for the purposes of basic and diluted earnings per share from continuing operations

(3,652)

8,910

 

 

 

 

Number

Number

Number of shares

 

 

Weighted average number of ordinary shares for the purposes of basic earnings per share

73,978,128

67,824,263

Effect of dilutive potential ordinary shares:

 

 

Share options

566,669

654,371

Weighted average number of ordinary shares for the purposes of diluted earnings per share

74,544,797

68,478,634

 

4. Acquisition of subsidiaries

 

Aasgard

On 2 March 2018 the Group acquired 100% of the equity of Bowditch Marine Inc (Washington) (BMI), 100% of the equity of Aasgard Summit Management Services Inc (Washington) (ASMS) and 51% of the equity of Employers Medical Review Services LLC (Washington) (EMNI). Collectively, these companies are described as "Aasgard".

 

Aasgard is a provider of marine claims management and related technical services focusing on the US West Coast states.

 

 

Aasgard

 

Carrying

amount before acquisition

£000

Adjustments

£000

Amount

recognised at acquisition

£000

Identifiable intangible assets

-

1,836

1,836

Trade and other receivables

264

-

264

Cash and cash equivalents

77

-

77

Trade and other payables

(56)

-

(56)

Identifiable assets and liabilities

285

1,836

2,121

Consideration

 

 

2,121

Satisfied by:

 

 

 

Cash

 

 

2,121

Consideration

 

 

2,121

 

A further estimated £2.4m is payable in three instalments from March 2019, subject to the executive shareholders remaining actively engaged in the business and certain targets being met, over a period of at least three years, which will be recognised in the income statement.

 

Inworx

On 2 May 2018 Charles Taylor Insuretech Limited and Charles Taylor Insurance Services Limited acquired 95% and 5% respectively of Inworx Argentina S.A, Softseg S.A (the "Argentinian entities") and Inworx Peru SAC. Separately, CTI Mexico SA de CV, a newly incorporated entity which is wholly owned by Charles Taylor Holdings BV, acquired the Mexican and US trade of the Argentinian entities. These acquisitions are described collectively as "Inworx".

 

Inworx is an insurance-focused technology software provider, selling primarily to insurance brokers, insurers and other corporates in Latin America.

 

 

 

 

Inworx (Provisional)

 

Carrying

amount before acquisition

£000

Adjustments

£000

Amount

recognised at acquisition

£000

Identifiable intangible assets

-

12,344

12,344

Deferred tax liability recognised on intangible assets

-

(4,320)

(4,320)

Trade and other receivables

1,848

-

1,848

Cash and cash equivalents

490

-

490

Trade and other payables

(678)

-

(678)

Bank loan

(128)

-

(128)

Corporation tax liabilities

(124)

-

(124)

Dividends

(489)

-

(489)

Identifiable assets and liabilities

919

8,024

8,943

Goodwill

 

 

12,759

Consideration

 

 

21,702

Satisfied by:

 

 

 

Cash

 

 

14,663

Ordinary shares of the Company

 

 

2,650

Deferred consideration

 

 

4,389

Consideration

 

 

21,702

 

A further estimated £16.5m is payable in four instalments from May 2019, subject to the executive shareholders meeting their targets and remaining actively engaged in the business for a period of at least four years which will be recognised in the income statement. A merger reserve of £2.5m was created in respect of these acquisitions in line with section 612 of the Companies Act 2006.

 

The balance sheet remains "provisional" until the 12 months anniversary of acquisition, at which point it will be finalised.

 

FGR

On 4 October 2018 Charles Taylor Adjusting Limited acquired all of the equity of FGR S.A (Chile), FGR Affinity Limitada (Chile), FGR Peru Adjustadores de Seguros S.A (Peru), FGR Affinity Peru S.A.C (Peru) and FGR Hanna Limitada (Chile). These five companies are described collectively as "FGR". FGR is a claims management and loss adjusting group with activities in Chile, Peru and Colombia. FGR is known for a high-quality offering, technical knowledge, expertise and delivery, particularly in respect of catastrophic events.

 

This acquisition will significantly increase the Group's network and reach across Latin America, building on its momentum in the region. The Group will support FGR's growth by providing access to the London and international markets and by leveraging the Group's existing client relationships and reputation.

 

The assets acquired are as follows:

 

FGR (Provisional)

 

Carrying

 amount before acquisition

 £000

Adjustments

£000

Amount

recognised at acquisition

 £000

Identifiable intangible assets

459

4,002

4,461

Deferred tax liability recognised on intangible assets

-

(1,401)

(1,401)

Trade and other receivables

1,168

-

1,168

Cash and cash equivalents

919

-

919

Trade and other payables

(661)

-

(661)

Property, Plant and Equipment

245

-

245

Deferred tax asset

85

-

85

Identifiable assets and liabilities

2,215

2,601

4,816

Goodwill

 

 

1,282

Consideration

 

 

6,098

Satisfied by:

 

 

 

Cash

 

 

5,616

Deferred consideration

 

 

482

Consideration

 

 

6,098

 

A further estimated £4.1m is payable in three instalments from October 2019, subject to the executive shareholders remaining actively engaged in the business for a period of at least three years and certain targets being met, which will be recognised in the income statement. The balance sheet remains "provisional" until finalised which will be prior to the 12 month anniversary of acquisition.

 

Acquisition related costs including legal and professional fees for Inworx, FGR and Aasgard of £2.5m are included in administrative expenses in the consolidated income statement and in the operating cash flows in the cash flow statements.

 

Deferred consideration

Acquisitions include Inworx, Aasgard and FGR as described above. £1.6m of the total deferred consideration is due within one year.

 

 

Deferred consideration

£000

At 1 January 2018 (restated)

4,336

Acquisitions

4,871

Amounts paid(1)

(2,989)

Interest unwind

311

Foreign exchange

164

At 31 December 2018

6,693

 

 

Current

1,558

Non-current

5,135

 

6,693

 

(1)   Includes £0.6m settled in shares in relation to CEGA.

 

If Inworx, FGR and Aasgard had been completed on the first day of the period the combined revenue and statutory profit before tax would have been £29.1m and £7.1m respectively.

 

Gain on Disposal/Acquisition

In 2018 Sage Adjusting LLC, "Sage," a Delaware limited liability company, was set up by Charles Taylor ("the Group") at the request of Signal (the Group's second largest client globally, based in the US). In a series of transactions, the Group sold its US-based Longshore adjusting business to Sage for £2.9m in cash, plus 30% of the equity of Sage which was valued at £1.2m at the date of acquisition, total recorded consideration of £4.1m. The Group had no net assets recorded for this business, so the disposal proceeds have been recorded as a profit on disposal.

 

In 2017 the Group completed the acquisition of the closed book of Zurich International Portfolio Bonds (the "Book") from Zurich International Life Limited and 100% of the equity of Allied Dunbar International Fund Managers Limited (ADIFM) from Zurich Insurance Company Ltd, which resulted in a profit on acquisition of £0.9m.

 

Prior Year Restatement - Criterion

The acquisition of assets acquired and liabilities assumed on acquisition, which was reported in the financial statements for the year ended 31 December 2017, was a provisional analysis. As set out within the Half Year Report, this was restated within the remeasurement period being 12 months of the date of recognition which is permitted under IFRS 3 (revised).

 

5. Trade and Other Receivables

 

 

Group

At 31 December

Company

 At 31 December

 

2018

£000

2017

£000

2018

£000

2017

£000

Trade debtors

51,305

37,874

-

-

Amounts due from subsidiaries

-

-

170,300

199,084

Amounts due from associates

2,273

1

-

-

Other debtors

5,698

3,954

-

312

Prepayments

10,346

10,448

-

-

Contract assets (Accrued income)

36,995

29,830

-

41

Corporation tax

622

548

-

-

 

107,239

82,655

170,300

199,437

 

Trade debtors are presented net of provisions totalling £1.2m (2017: £1.4m). Amounts due from or owed to subsidiaries are unsecured, interest free and repayable on demand.

 

 

6. Trade and Other Payables

 

 

Group

At 31 December

Company

At 31 December

 

2018

£000

2017

£000

2018

£000

2017

£000

Current

 

 

 

 

Trade creditors

5,050

4,521

-

-

Amounts owed to subsidiaries

-

-

92,898

159,939

Other taxation and social security

4,722

3,173

-

-

Other creditors

6,306

4,970

113

3

Accruals and contract liabilities (Deferred income)

41,415

24,963

573

427

 

57,493

37,627

93,584

160,369

Non-current

 

 

 

 

Deferred lease liability

11,528

-

-

-

Other creditors

1,975

-

-

-

 

13,503

-

-

-

 

7. Borrowings

 

 

 

2018

£000

2017

£000

Total borrowings:

 

 

 

 

Amount due for settlement within 12 months

 

 

17,075

15,708

Amount due for settlement after 12 months

 

 

80,909

66,153

 

 

 

97,984

81,861

 

Bank loans and overdrafts are secured by charges on and cross guarantees between Group companies.

 

8. Notes to the Cash Flow Statements

 

 

 

Group

At 31 December

 

 

2018

£000

2017

£000

Operating (loss)/profit

 

(2,018)

8,492

Adjustments for:

 

 

 

Depreciation of property, plant and equipment

 

2,552

2,007

Amortisation of intangibles

 

12,126

9,718

Other non cash items

 

624

(1,195)

Increase/(decrease) in provisions

 

1,772

(3,014)

Share of loss of associates and joint ventures

 

386

1,780

Operating cash flow before movements in working capital

 

15,442

17,788

(Increase) in receivables

 

(21,304)

(3,415)

Increase in payables

 

29,497

57

Decrease/(increase) in insurance company assets

 

189,090

(123,314)

(Increase)/decrease in insurance company liabilities

 

(189,380)

123,440

Cash generated from operations

 

23,345

14,556

Income taxes paid

 

(739)

(1,398)

Interest paid

 

(2,886)

(1,658)

Net cash before movement in client funds

 

19,720

11,500

Movement in client funds

 

24,326

(3,803)

Net cash generated from operating activities

 

44,046

7,697

 

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short term highly liquid investments with a maturity of three months or less. Cash includes client funds of £145.7m (2017: £121.4m).

 


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