Interim Results
Admiral Group PLC
06 September 2005
Admiral Group plc Results for the six months ended 30 June 2005
6 September 2005
Admiral Group plc ('Admiral', or 'the Group') today announces its results for
the six months ended 30 June 2005.
2005 H1 Highlights
• Core profit* up 17% at £56.9 million (2004 H1: £48.6 million)
• Group turnover up 19% at £319.3 million (2004 H1: £269.3 million)
• Total motor premiums written up 15% at £268.5 million (2004 H1: £233.3
million)
• Net income from products and services not underwritten by the Group up
38% at £36.5 million (2004 H1: £26.5 million)
• Active customers at period-end up 5% to 1,057,000 from 1,008,000 at 31
December 2004 and up 16% from the 911,000 customers at 30 June 2004
• Underwriting ratios:
H1 05 FY 04 H2 04 H1 04
Loss ratio 71.6% 67.0% 69.6% 63.9%
Expense ratio 14.9% 15.0% 16.3% 13.6%
Combined ratio 86.5% 82.0% 85.8% 77.5%
• Interim dividend of 9.7p per share, payable 5 October 2005 - includes
special element of 2.9p per share
* Core profit is operating profit less charges for staff share schemes and
bonuses paid in lieu of dividends. 2004's comparatives exclude £6 million of
profit commission from Great Lakes accounted for in 2004 but relating to
premiums earned in 2003. A reconciliation of this figure to the income statement
is set out below.
Copies of this statement will be sent to all shareholders and will be available
from the registered office and on the corporate website www.admiralgroup.co.uk.
Chief Executive's statement
Not surprisingly, we're very pleased with our results for the first half of
2005. Not only did we make a record core profit (£56.9m) but we did this in an
environment of declining market profitability. Furthermore, we raised our rates
in this period and yet we were still able to grow our premium income and
customer numbers.
As noted in our recent trading statement, this is still a cyclical market and we
are in the poorer part of the cycle. This has been independently reconfirmed by
actuarial analysis of the industry's 2004 regulatory returns. There is nothing
that has occurred since our trading statement that leads us to believe that the
market will not be cyclical or that we are anywhere but in the declining part of
the cycle. We continue to hold the view, however, that the cyclical pattern has
changed and that the cycle will be less volatile and less severe than previous
cycles.
In the short term, we plan to maintain a significant combined ratio advantage
over the market average and continue to grow our book of business. As part of
our longer-term strategy we continue to investigate opportunities for business
outside the UK.
The board has declared a normal interim dividend of 6.8p per share, amounting to
£17.5m, 45% of post tax profits. Also, the board has reviewed the amount of cash
in the business, as we previously said we would do, and as a result of this
review the board has decided to declare a special dividend of 2.9p per share,
amounting to £7.5m, making the total interim dividend £25m, 9.7p per share.
Financial review
Key financial highlights
Core profit increased by 17% from £48.6m in H1 2004 to £56.9m. Core profit is
used by the directors to measure the underlying profitability of the Group, and
a reconciliation of this measure to the income statement is set out later in
this section. Core profit is split into three to reflect the key components of
the Group's business:
Analysis of core profit Six months to Year ended
June 2005 June 2004 Dec 2004
£000 £000 £000
Underwriting profit 14,730 14,452 27,969
Profit commission (*1) 5,666 7,732 15,679
Net other income 36,476 26,462 56,916
------- ------- -------
Core profit 56,872 48,646 100,564
------- ------- -------
*1: 2004 comparatives both adjusted to deduct £5,994,000 of profit commission
recognised in the 2004 results, but relating to premium earned in 2003.
As shown below, the Group increased turnover by 19% in H1 2005, from £269.3m to
£319.3m. All components of turnover achieved double-digit growth and are
reviewed in more detail below.
Analysis of Group turnover Six months to Year ended
June 2005 June 2004 Dec 2004
£000 £000 £000
Total premiums written 268,462 233,297 470,400
Gross other income 44,769 33,180 69,457
Net investment return 6,087 2,792 8,135
------- ------- -------
Group turnover 319,318 269,269 547,992
------- ------- -------
Underwriting business review
Underwriting structure
The Group's underwriting structure is as follows:
65% of the business continues to be taken by Great Lakes under the long-term
co-insurance contract.
35% of the business is underwritten by the Group through Admiral Insurance
(Gibraltar) Limited and Admiral Insurance Company Limited. 10% (of the total
business) is ceded via quota share contracts that qualify for deductions in
required solvency capital.
Of the 10%, 5% is ceded to Axis Re under a contract covering 2005 and 2006 and
5% is ceded to Gen Re for 2005 only.
In accordance with accounting guidelines, the Gen Re contract has not been
accounted for as reinsurance in the financial statements. This has the effect
(for contracts incepted in 2005 only) of grossing-up premiums and claims
retained by the Group to a net 30%.
Underwriting results
As reported previously, The Group decreased the rate of total premium growth
during H1 2005 by implementing premium rate increases. In line with plans, total
premiums written increased by 15% to £268.5m, with average premium rates around
3% higher than at the end of 2004. Market premium rates in the first half of the
year were broadly flat.
The closing policy-count (being the number of active policies on risk) at the
end of June 2005 was 1,057,000, up 5% from 1,008,000 at December 2004 and 16% on
the 911,000 policies at the end of June 2004.
The loss ratio for the half-year (excluding claims handling costs) was 71.6%,
compared to 69.6% in the second half of 2004 and 67.0% in the full financial
year.
Back year claims reserve releases included in the income statement amount to
£5.2m, or 8.1% of net premium revenue. This compares to £5.2m in H1 2004 (10.3%
of net premium revenue) and £9.2m for the full 2004 year (8.5% of net premium
revenue). A table analysing historical reserve release patterns is set out in
note 18 below.
The H1 2005 expense ratio (including claims handling expenses) was 14.9%, up
from 13.6% in H1 2004 and consistent with 15.0% in the full year.
The Group's combined ratio, being the aggregate of the loss and expense ratios
equated to 86.5% in H1 2005, compared to 77.5% in the first half of 2004 and
82.0% for the full year. For comparison, analysis of insurers' regulatory
returns shows the private motor market's combined ratio for 2004 was over 100%.
Profit commission
The Group continues to earn profit commission from both the co-insurance and
reinsurance contracts to which it is party.
Amounts recognised:
Six months to Year ended
June 2005 June 2004 Dec 2004
£000 £000 £000
Total profit commission recognised 5,666 13,725 21,673
Great Lakes 2003 adjustment - (5,993) (5,994)
------ ------- -------
Adjusted profit commission 5,666 7,732 15,679
====== ======= =======
The amounts recognised in the 2005 year to date are lower than for the
comparative period due to the higher loss ratio on the more recent underwriting
years, reflecting the development of the cycle.
Net other income
This can be further analysed as follows:
Six months to Year ended
June 2005 June 2004 Dec 2004
£000 £000 £000
Ancillary contribution 29,630 23,491 48,493
Instalment income 1,657 1,210 2,603
Gladiator Commercial contribution 900 773 1,756
Net Inspop.com Limited contribution 2,314 (140) 1,283
Interest receivable 2,268 1,242 3,348
Other Group overheads (293) (114) (567)
------- ------- -------
Net other income 36,476 26,462 56,916
------- ------- -------
Ancillary contribution continues to comprise the bulk of this source of profit,
showing an increase of 26% between half-years from £23.5m to £29.6m. Gross
ancillary revenue per policy sold was £56 in the first-half of 2005, compared to
£50 in the equivalent period last year and £51 for the full year 2004.
Financial investments and cash
Total cash plus financial investments can be broken down as follows:
Period end:
June 2005 June 2004 Dec 2004
Liquid funds in underwriting companies: £000 £000 £000
Government and sovereign bond holdings 68,188 20,329 42,980
Corporate bonds and similar instruments 179,330 117,263 160,438
Deposits with credit institutions 21,799 25,862 31,070
Cash at bank 46,711 51,109 38,035
------- ------- -------
316,028 214,563 272,523
Liquid funds held outside underwriting
companies:
Cash at bank 50,666 57,718 50,096
------- ------- -------
366,694 272,281 322,619
------- ------- -------
The Group has increased its total cash plus invested funds by 14% since the end
of 2004 and by 35% since the end of the equivalent six-month period in 2004.
This is after distributions to shareholders of £37.8m in the second half of 2004
and £24.0m in 2005 to date.
The Group's net investment return rose sharply in the first half of 2005 - up by
118% from £2.8m in H1 2004 to £6.1m in H1 2005 (£8.1m in the full year 2004).
The increase reflected the positive impact on fixed income securities resulting
from changes in the market's view of future interest rates.
There have been no changes to the Group's investment strategy, with funds
continuing to be invested in government and high quality corporate bonds.
Dividends
The directors have declared an interim dividend of 9.7p per share. This figure
includes a regular interim dividend (based on the established policy of
distributing a minimum of 45% of post-tax profits) of 6.8p along with a special
element of 2.9p per share, reflecting surplus cash available at the balance
sheet date.
The dividend is payable on 5 October 2005, the ex-dividend date being 14
September 2005 and the record date 16 September 2005.
International financial reporting standards (IFRS)
These interim financial statements are the first results published by the Group
under IFRS. As noted in the 2004 Annual Report, the only significant impacts on
the income statement are the cessation of goodwill amortisation, the valuation
of financial investments at bid as opposed to mid-market price, and the
inclusion of dividends in the retained profits of the period in which they were
declared as opposed to allocated.
A section of the financial statements (note 3) is devoted to explaining the
transition and includes reconciliations of profit and equity for the 2004
comparative periods included in the financial statements.
The changes have no impact on the Group's ability to pay dividends.
Reconciliation of profit before tax to core profit
Six months to Year ended
June 2005 June 2004 Dec 2004
£000 £000 £000
Profit before tax 55,587 54,654 104,906
Add back: bonuses paid in lieu of dividends - 3,361 3,345
Add back / (deduct) share scheme charges 125 (4,602) (4,144)
Add back: finance charges 1,160 1,227 2,451
Deduct: 2003 profit commission adjustment - (5,994) (5,994)
------- ------- -------
Core profit 56,872 48,646 100,564
------- ------- -------
Reconciliation of loss ratios reported:
Six months to Year ended
June 2005 June 2004 Dec 2004
£000 £000 £000
Net insurance claims from income statement 47,294 33,357 74,272
Deduct; claims handling costs (*1) (1,611) (1,400) (2,352)
------- ------- -------
Adjusted net insurance claims 45,683 31,957 71,920
Net premium revenue 63,833 50,049 107,501
Loss ratio 71.6% 63.9% 67.0%
------- ------- -------
*1 Claims handling costs are allocated to insurance related expenses in
calculating ratios
Consolidated income statement
6 months ended Year ended
30 June 2005 30 June 2004 31 December
2004
Note £000 £000 £000
Insurance premium revenue 84,865 70,787 151,864
Insurance premium ceded to
reinsurers (21,032) (20,738) (44,363)
--------- --------- ---------
Net insurance premium
revenue 4 63,833 50,049 107,501
Other revenue 7 44,769 33,180 69,457
Investment and interest
income 6 8,355 4,411 11,884
Profit commission 5 5,666 13,725 21,673
--------- --------- ---------
Net revenue 122,623 101,365 210,515
Insurance claims and
claims handling expenses (61,334) (45,845) (102,604)
Insurance claims and
claims handling expenses
recovered from reinsurers 14,040 12,488 28,332
--------- --------- ---------
Net insurance claims (47,294) (33,357) (74,272)
Total operating expenses 8 (18,457) (16,729) (33,030)
Share scheme charges 25 (125) 4,602 4,144
--------- --------- ---------
Total expenses (65,876) (45,484) (103,158)
Operating profit 56,747 55,881 107,357
Finance charges 11 (1,160) (1,227) (2,451)
--------- --------- ---------
Profit before tax 9 55,587 54,654 104,906
Taxation expense 12 (16,316) (16,601) (14,400)
--------- --------- ---------
Profit after tax
attributable to equity
holders of the Company 39,271 38,053 90,506
========= ========= =========
Dividends declared (total) 13 24,049 14,179 51,996
Dividends declared (per
share) 13 9.3p 5.5p 20.1p
Earnings per share: 14
Basic 15.2p 14.7p 35.0p
========= ========= =========
Diluted 15.1p 14.7p 35.0p
========= ========= =========
All results relate to continuing operations.
Refer to notes 1 and 3 for an explanation of the transition from UK GAAP to
IFRS.
Also refer to basis of preparation and significant accounting policies sections
below.
Consolidated balance sheet
As at:
30 June 2005 30 June 2004 31 December
2004
Note £000 £000 £000
ASSETS
Property, plant and
equipment 15 2,986 3,625 3,349
Intangible assets 16 66,754 66,749 66,467
Financial assets 17 366,875 234,240 300,722
Reinsurance assets 18 60,699 61,338 66,137
Trade and other
receivables 20 29,604 27,081 16,739
Cash and cash equivalents 19 119,176 134,689 119,201
--------- --------- ---------
Total assets 646,094 527,722 572,615
========= ========= =========
EQUITY
Share capital 25 259 25 259
Retained earnings 26 146,435 116,269 131,213
Other reserves 26 13,519 15,746 13,162
--------- --------- ---------
Total equity 160,213 132,040 144,634
========= ========= =========
LIABILITIES
Insurance contracts 18 241,628 195,255 216,107
Financial liabilities 21 29,471 33,072 33,122
Provisions for other
liabilities and charges 22 - 7,137 -
Trade and other payables 23 190,066 137,133 164,329
Deferred income tax 24 6,377 2,073 4,838
Corporation tax
liabilities 18,339 21,012 9,585
--------- --------- ---------
Total liabilities 485,881 395,682 427,981
========= ========= =========
Total equity and total
liabilities 646,094 527,722 572,615
========= ========= =========
Refer to notes 1 and 3 for an explanation of the transition from UK GAAP to
IFRS.
Also refer to basis of preparation and significant accounting policies sections
below.
Consolidated statement of recognised income and expense
No separate consolidated statement of recognised income and expense has been
prepared as all recognised income and expenses are included in the income
statement above.
Consolidated cash flow statement
6 months ended Year ended
30 June 2005 30 June 2004 31 December
2004
Note £000 £000 £000
Cash flows from operating
activities, before
movements in investments 27 77,904 61,869 160,870
Net cashflow into
investments held at fair
value 27 (41,624) 5,904 (59,154)
--------- --------- ---------
Cash flows from operating
activities, net of
movements in investments 27 36,280 67,773 101,716
Interest payments (1,144) (1,244) (2,423)
Taxation payments (6,023) (8,600) (15,060)
--------- --------- ---------
Net cash flow from
operating activities 29,113 57,929 84,233
Cash flows from investing
activities:
Purchases of property,
plant and equipment and
software (1,333) (740) (1,394)
Proceeds from sales of
property, plant and
equipment 8 10 16
--------- --------- ---------
Net cash used in investing
activities (1,325) (730) (1,378)
Cash flows from financing
activities:
Issue of shares - - -
Repayments of borrowings (3,667) (2,333) (2,333)
Repayment of finance lease
liabilities (97) (537) (1,510)
Payments of transaction
expenses - - (2,354)
Equity dividends paid (24,049) (14,179) (51,996)
--------- --------- ---------
Net cash used in financing
activities (27,813) (17,049) (58,193)
--------- --------- ---------
Net (decrease) / increase
in cash and cash
equivalents (25) 40,150 24,662
Cash and cash equivalents
at 1 January 119,201 94,539 94,539
Cash and cash equivalents
at end of period 119,176 134,689 119,201
========= ========= =========
Refer to notes 1 and 3 for an explanation of the transition from UK GAAP to
IFRS.
Also refer to basis of preparation and significant accounting policies sections
below.
Notes to the interim financial statements
1. General information and basis of preparation
Admiral Group plc is a Company domiciled in the United Kingdom. Its registered
office is at Capital Tower, Greyfriars Road, Cardiff CF10 3AZ and its shares are
listed on the London Stock Exchange.
The interim financial statements comprise the results and balances of the
Company and its subsidiaries (the Group) for the two six month periods ended 30
June 2004 and 2005 and also the year ended 31 December 2004.
EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidated
financial statements of the Company, for the year ended 31 December 2005, be
prepared in accordance with International Financial Reporting Standards (IFRS)
adopted for use in the EU (adopted IFRS).
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of IFRS in issue that either are
endorsed by the EU and effective (or available for early adoption) at 31
December 2005 or are expected to be endorsed and effective (or available for
early adoption) at 31 December 2005, the Group's first annual reporting date at
which it is required to use adopted IFRS.
Based on these adopted and unadopted IFRSs, the directors have made assumptions
about the accounting policies expected to be applied, which are as set out
below, when the first annual IFRS financial statements are prepared for the year
ended 31 December 2005. In particular, the directors have assumed that the
Amendment to IAS 39 (The Fair Value Option) issued by the International
Accounting Standards Board will be adopted by the EU in sufficient time that it
will be available for use in the annual IFRS financial statements for the year
ended 31 December 2005:
In addition, the adopted IFRS that will be effective (or available for early
adoption) in the annual financial statements for the year ended 31 December 2005
are still subject to change and to additional interpretations and therefore
cannot be determined with certainty. Accordingly, the accounting policies for
that annual period will be determined finally only when the annual financial
statements are prepared for the year ended 31 December 2005.
The comparative figures for the financial year ended 31 December 2004 are not
the Company's statutory accounts for that financial year. Those accounts, which
were prepared under UK Generally Accepted Accounting Practices (UK GAAP), have
been reported on by the Company's auditors and delivered to the registrar of
companies. The report of the auditors was unqualified and did not contain
statements under section 237(2) or (3) of the Companies Act 1985.
The financial statements have also been prepared under the historical cost
accounting convention, as modified for the revaluation of certain financial
assets at fair value.
An explanation of the impact of the transition to IFRS is set out in note 3.
This includes reconciliations of the following:
- profit for the 6 months ended 30 June 2004 and year ended 31 December
2004 under previous GAAP to the comparative figures stated in the
consolidated income statement above reported under IFRS
- equity as at 1 January 2004, 30 June 2004 and 31 December 2004 from
previous GAAP to the comparatives included in the consolidated balance sheet
above reported under IFRS
The preparation of financial statements involves the use of certain critical
accounting estimates. Actual results may differ from these estimates.
2. Significant accounting policies
a) Consolidation
The financial statements of the Company's subsidiaries are consolidated in the
Group financial statements. The Company controls 100% of the voting share
capital of all its subsidiaries.
b) Intangible assets
A) Goodwill
All business combinations are accounted for using the purchase method. Goodwill
has been recognised in acquisitions of subsidiaries, and represents the
difference between the cost of the acquisition and the fair value of the net
identifiable assets acquired.
The classification and accounting treatment of acquisitions occurring before 1
January 2004 have not been reconsidered in preparing the Group's opening IFRS
balance sheet at 1 January 2004.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is
allocated to cash generating units (CGU's) and is no longer amortised, but is
reviewed annually for impairment.
Impairment of goodwill
The annual impairment review involves comparing the carrying amount to the
estimated recoverable amount (by allocating the goodwill to CGU's) and
recognising an impairment loss if the recoverable amount is lower. Impairment
losses are recognised through the income statement.
The recoverable amount is the greater of the net realisable value and the value
in use of the CGU.
B) Deferred acquisition costs
Acquisition costs comprise all direct and indirect costs arising from the
conclusion of insurance contracts. Deferred acquisition costs represent the
proportion of acquisition costs incurred that corresponds to the unearned
premiums provision at the balance sheet date. This balance is held as an
intangible asset.
C) Software
Purchased software is recognised as an intangible asset and amortised over its
expected useful life (generally between two and four years). The carrying value
is reviewed every six months for evidence of impairment, with the value being
written down if any impairment exists.
c) Property, plant and equipment and depreciation
All property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is calculated using the straight-line method to write
off the cost less residual values of the assets over their useful economic
lives. These useful economic lives are as follows:
Motor vehicles - 4 years
Fixtures, fittings and equipment - 4 years
Computer equipment - 2 to 4 years
Improvements to short leasehold properties - 4 years
Impairment of property, plant and equipment
In the case of property plant and equipment, carrying values are reviewed at
each balance sheet date to determine whether there are any indications of
impairment. If any such indications exist, the asset's recoverable amount is
estimated and compared to the carrying value. The carrying value is the higher
of the net realisable value and the asset's value in use.
d) Leased assets
The rental costs relating to assets held under operating leases are charged to
the income statement on a straight-line basis over the life of the lease.
Leases under the terms of which the Group assumes substantially all of the risks
and rewards of ownership are classed as finance leases. Assets acquired under
finance leases are included in property, plant and equipment at fair value on
acquisition and are depreciated in the same manner as equivalent owned assets.
Finance lease and hire purchase obligations are included in creditors, and the
finance costs are spread over the periods of the agreements based on the net
amount outstanding.
e) Financial assets - investments
The Group's investments in quoted fixed income and other debt securities are
classified as financial assets at fair value (based on closing bid prices on the
balance sheet date, or the last trading day before the balance sheet date).
Changes in the fair value of these investments are recognised through the income
statement.
f) Revenue recognition
A) Premiums
Premiums relating to insurance contracts are recognised as revenue
proportionally over the period of cover. The proportion of premium receivable on
in-force policies relating to unexpired risks is reported in insurance contract
liabilities and reinsurance assets as the unearned premium provision - gross and
reinsurers' share respectively.
B) Other income
Income earned on the sale of ancillary products is credited to income over the
period matching the Group's obligations to provide services. Where the Group has
no remaining contractual obligations, the income is recognised immediately. A
provision is made for expected cancellations where the customer may be entitled
to a refund of ancillary amounts charged.
Instalment income is credited to income in line with the earning of the motor
premium to which the instalment income relates. Provision is made for expected
cancellations.
Commission from broking activities is credited to income on the sale of the
underlying insurance policy having regard to the profile of services provided.
C) Profit commission
Under some of the co-insurance and reinsurance contracts to which the Group is
party, profit commission may be earned on a particular year of account, which is
usually subject to performance criteria such as loss ratios and expense ratios.
The commission is dependent on the ultimate outcome of any year, with commission
being recognised based on loss and expense ratios used in the preparation of the
financial statements.
Income is allocated to profit commission in the income statement when the right
to consideration is achieved, and is capable of reliable measurement.
g) Claims
Claims and claims handling expenses are charged as incurred, based on the
estimated direct and indirect costs of settling all liabilities arising on
events occurring up to the balance sheet date.
The provision for claims outstanding comprises provisions for the estimated cost
of settling all claims incurred but unpaid at the balance sheet date, whether
reported or not. Anticipated reinsurance recoveries are disclosed separately as
assets.
Whilst the directors consider that the gross provisions for claims and the
related reinsurance recoveries are fairly stated on the basis of the information
currently available to them, the ultimate liability will vary as a result of
subsequent information and events and may result in significant adjustments to
the amounts provided.
Adjustments to the amounts of claims provisions established in prior years are
reflected in the income statement for the period in which the adjustments are
made and disclosed separately if material. The methods used, and the estimates
made, are reviewed regularly.
h) Reinsurance contracts
Contracts entered into by the Group with reinsurers under which the Group is
compensated for losses on the insurance contracts issued by the Group are
classified as reinsurance contracts. A contract is only accounted for as an
insurance or reinsurance contract where there is material risk transfer between
the insured and the insurer.
The benefits to which the Group is entitled under these contracts are held as
reinsurance assets.
The Group assesses its reinsurance assets for impairment on a regular basis, and
in detail every six months. If there is objective evidence that the asset is
impaired, then the carrying value will be written down to its recoverable
amount.
i) Employee benefits
A) Pensions
The Group contributes to a number of defined contribution personal pension plans
for its employees. The contributions payable to these schemes are charged in the
accounting period to which they relate.
B) Employee share schemes
The Group operates a number of equity settled compensation schemes for its
employees. For schemes commencing 1 January 2004 and after, the fair value of
the employee services received in exchange for the grant of free shares under
the schemes is recognised as an expense, with a corresponding increase in
equity.
The total charge expensed over the vesting period is determined by reference to
the fair value of the free shares granted (excluding the impact of non-market
vesting conditions). Non-market conditions (such as profitability targets) are
included in assumptions over the number of free shares to vest under the
applicable scheme.
At each balance sheet date, the Group revises its assumptions on the number of
shares to be granted with the impact of any change in the assumptions recognised
through income.
Prior to 2005, only one equity based compensation scheme had been operated (the
Employee Share Ownership Trust or ESOT). All benefits due under this scheme were
settled during 2004 at the time of the Company's flotation on the London Stock
Exchange. No further benefits will accrue. In accordance with the exemption
available under IFRS 1, the transactions relating to this scheme have not been
restated in accordance with IFRS 2 (Share based payment).
Refer to note 25 for further details on share schemes.
j) Taxation
Income tax on the profit or loss for the periods presented comprises current and
deferred tax.
A) Current tax
Current tax is the expected tax payable on the taxable income for the period,
using tax rates in effect at the balance sheet date, and includes any adjustment
to tax payable in respect of previous periods.
B) Deferred tax
Deferred tax is provided in full using the balance sheet liability method,
providing for temporary differences arising between the carrying amount of
assets and liabilities for accounting purposes, and the amounts used for
taxation purposes.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be utilised.
3. Explanation of the transition to IFRS
As stated in note 1, these are the first financial statements prepared by the
Group under IFRS and the accounting policies detailed in note 2 have been
applied in preparing the financial statements, comparative data and the IFRS
transition balance sheet at 1 January 2004.
An explanation of the impact of the transition from UK GAAP to IFRS is set out
in the following reconciliations and notes.
A) Reconciliation of equity
There is no difference in equity reported on the transition balance sheet (i.e.
at 1 January 2004) under IFRS and that under previous (UK) GAAP.
The following tables contain summaries of the differences in the balance sheets
at 30 June 2004 and 31 December 2004:
(all £000) At 30 June 2004
Note UK GAAP Impact IFRS
ASSETS
Property, plant and equipment 3,625 - 3,625
Intangible assets (i) 64,796 1,953 66,749
Financial assets 234,240 - 234,240
Reinsurance assets 61,338 - 61,338
Trade and other receivables 27,081 - 27,081
Cash and cash equivalents 134,689 - 134,689
-------- -------- --------
Total assets 525,769 1,953 527,722
======== ======== ========
EQUITY
Share capital 25 - 25
Retained earnings (ii) 76,499 39,770 116,269
Other reserves 15,746 - 15,746
-------- -------- --------
Total equity 92,270 39,770 132,040
======== ======== ========
LIABILITIES
Insurance contracts 195,255 - 195,255
Financial liabilities 33,072 - 33,072
Provisions for other liabilities and
charges 7,137 - 7,137
Trade and other payables (iii) 174,950 (37,817) 137,133
Deferred income tax 2,073 - 2,073
Corporation tax liabilities 21,012 - 21,012
-------- -------- --------
Total liabilities 433,499 (37,817) 395,682
======== ======== ========
Total equity and total liabilities 525,769 1,953 527,722
======== ======== ========
(all £000) At 31 December 2004
Note UK GAAP Impact IFRS
ASSETS
Property, plant and equipment 3,349 - 3,349
Intangible assets (i) 62,561 3,906 66,467
Financial assets 300,722 - 300,722
Reinsurance assets 66,137 - 66,137
Trade and other receivables 16,739 - 16,739
Cash and cash equivalents 119,201 - 119,201
-------- -------- --------
Total assets 568,709 3,906 572,615
======== ======== ========
EQUITY
Share capital 259 - 259
Retained earnings (ii) 103,258 27,955 131,213
Other reserves 13,162 - 13,162
-------- -------- --------
Total equity 116,679 27,955 144,634
======== ======== ========
LIABILITIES
Insurance contracts 216,107 - 216,107
Financial liabilities 33,122 - 33,122
Provisions for other liabilities and
charges - - -
Trade and other payables (iii) 188,378 (24,049) 164,329
Deferred income tax 4,838 - 4,838
Corporation tax liabilities 9,585 - 9,585
-------- -------- --------
Total liabilities 452,030 (24,049) 427,981
======== ======== ========
Total equity and total liabilities 568,709 3,906 572,615
======== ======== ========
Notes on table A:
(i) Intangible assets
The adjustments to goodwill at both balance sheet dates relate to reinstating
goodwill to the balance standing at the transition balance sheet date as
required under the transition provisions of IFRS 3 (Business Combinations).
(ii) Retained earnings
The following table sets out the reconciling items to retained earnings:
30 June 31 December
2004 2004
£000 £000
Retained earnings under UK GAAP 76,499 103,258
Reinstatement of goodwill (see note (i) above) 1,953 3,906
Elimination of dividend liability (see note (iii)
below) 37,817 24,049
-------- --------
Retained earnings under IFRS 116,269 131,213
======== ========
(iii) Trade and other payables
The adjustments to this balance relate to the elimination of dividends for which
liabilities had been recognised under UK GAAP. Under IAS 10 (Events after the
balance sheet date) liabilities for dividends are only recognised when the
dividends are declared. At both balance sheet dates above, liabilities had been
recognised for dividends declared after the balance sheet date. These
liabilities have been eliminated.
B) Reconciliation of profit for 2004 comparatives
The following tables reconcile the differences in profit after tax (but before
distributions to equity shareholders), for the six months to 30 June 2004 and
the year ended 31 December 2004:
(all £000) Six months ended 30 June 2004
Note UK GAAP Impact IFRS
Insurance premium revenue 70,787 - 70,787
Insurance premium ceded to reinsurers (20,738) - (20,738)
-------- -------- --------
Net insurance premium revenue 50,049 - 50,049
Other revenue 33,180 - 33,180
Profit commission 13,725 - 13,725
Investment and interest income 4,411 - 4,411
-------- -------- --------
Net revenue 101,365 - 101,365
Insurance claims and claims handling
expenses (45,845) - (45,845)
Insurance claims and claims handling
expenses recovered from reinsurers 12,488 - 12,488
-------- -------- --------
Net insurance claims (33,357) - (33,357)
Total operating expenses (i) (18,682) 1,953 (16,729)
Share scheme charges 4,602 - 4,602
-------- -------- --------
Total expenses (47,437) 1,953 (45,484)
Operating profit 53,928 1,953 55,881
Finance charges (1,227) - (1,227)
-------- -------- --------
Profit before tax 52,701 1,953 54,654
Taxation expense (16,601) - (16,601)
-------- -------- --------
Profit after tax attributable to equity
holders of the Company 36,100 1,953 38,053
======== ======== ========
(all £000) Year ended 31 December 2004
Note UK GAAP Impact IFRS
Insurance premium revenue 151,864 - 151,864
Insurance premium ceded to reinsurers (44,363) - (44,363)
-------- -------- --------
Net insurance premium revenue 107,501 - 107,501
Other revenue 69,457 - 69,457
Profit commission 21,673 - 21,673
Investment and interest income 11,884 - 11,884
-------- -------- --------
Net revenue 210,515 - 210,515
Insurance claims and claims handling
expenses (102,604) - (102,604)
Insurance claims and claims handling
expenses recovered from reinsurers 28,332 - 28,332
-------- -------- --------
Net insurance claims (74,272) - (74,272)
Total operating expenses (i) (36,936) 3,906 (33,030)
Share scheme charges 4,144 - 4,144
-------- -------- --------
Total expenses (107,064) 3,906 (103,158)
Operating profit 103,451 3,906 107,357
Finance charges (2,451) - (2,451)
-------- -------- --------
Profit before tax 101,000 3,906 104,906
Taxation expense (14,400) - (14,400)
-------- -------- --------
Profit after tax attributable to equity
holders of the Company 86,600 3,906 90,506
======== ======== ========
Notes on table B:
(i) Other operating expenses
Both adjustments relate solely to the reinstatement of goodwill to the
transition date balance. Refer to the reconciliation of equity above.
4. Net insurance premium revenue
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Total motor insurance premiums written (*1) 268,462 233,297 470,400
======== ======== ========
Group gross premiums written 93,962 82,362 165,343
Outwards reinsurance premiums (14,075) (24,453) (48,606)
-------- -------- --------
Net premiums written 79,887 57,909 116,737
Change in gross unearned premium provision (9,097) (11,575) (13,479)
Change in reinsurers' share of unearned
premium provision (6,957) 3,715 4,243
-------- -------- --------
Net insurance premium revenue 63,833 50,049 107,501
======== ======== ========
*1 = before co-insurance and reinsurance
All insurance business written during all periods is direct private motor
insurance written in the United Kingdom. The Group's share of the business was
underwritten by Admiral Insurance (Gibraltar) Limited (AIGL) and Admiral
Insurance Company Limited (AICL). All contracts are short-term in duration,
lasting for 10 or 12 months.
5. Profit commission
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Total profit commission 5,666 13,725 21,673
======== ======== ========
As reported in the 2004 Annual Report, both 2004 comparative figures above
include £5,994,000 attributable to premiums earned in the year to 31 December
2003.
6. Investment and interest income
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Net investment return 6,087 3,169 8,536
Interest receivable 2,268 1,242 3,348
-------- -------- --------
Total investment and interest income 8,355 4,411 11,884
======== ======== ========
7. Other revenue
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Ancillary revenue (*1) 35,954 28,699 59,175
Instalment income earned 1,657 1,210 2,603
Revenue from Gladiator Commercial 2,544 2,141 4,475
Revenue from Inspop.com Limited (*2) 4,614 1,130 3,204
-------- -------- --------
Total other revenue 44,769 33,180 69,457
======== ======== ========
*1 Ancillary revenue:
Ancillary revenue primarily constitutes commission from sales of insurance
products that complement the motor policy, but which are underwritten by
external parties. It also includes revenue not earned from product sales, mainly
administrative fees.
*2 = Net of intra-group consolidation adjustments.
8. Total operating expenses
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Net expenses related to insurance contracts:
Administrative expenses 29,689 25,195 55,827
Expenses recovered from co-insurers (24,354) (21,223) (45,098)
Gross acquisition costs payable 4,331 4,215 8,464
Movement in deferred acquisition costs (117) (591) (688)
Expense contributions from reinsurers (1,653) (2,189) (4,709)
-------- -------- --------
Net expenses related to insurance contracts 7,896 5,407 13,796
Other operating expenses:
Special unit-holder bonus - 3,361 3,345
Expenses associated with ancillary sales 6,324 5,208 10,682
Gladiator Commercial operations expenses 1,644 1,368 2,719
Inspop.com Limited operating expenses 2,300 1,270 1,921
Other expenses 293 115 567
-------- -------- --------
Total other operating expenses 10,561 11,322 19,234
-------- -------- --------
Total operating expenses 18,457 16,729 33,030
======== ======== ========
9. Profit before taxation
Profit before taxation is stated after charging:
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Depreciation charge:
- Owned assets 465 443 915
- Leased assets 878 829 1,641
Operating lease rentals:
- Buildings 1,377 756 1,574
Auditor's remuneration:
- Statutory audit fees 110 80 160
- Other audit fees - - 16
- Other services 84 37 116
Loss on disposal of property, plant
and equipment 504 4 4
======== ======== ========
During 2004, fees of £827,000 were paid to the Group's auditor in respect of
professional services relating to the listing of the Company's shares on the
London Stock Exchange, which were debited against the share premium account.
10. Staff expenses
Analysis of staff expenses:
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Salaries 14,166 13,262 29,046
Social security charges 1,314 1,164 2,406
Pension costs 226 181 399
Share scheme charges (*1) (see note 25) 357 - 308
ESOT credit (see note 25) - (4,602) (4,452)
-------- -------- --------
Total staff expenses 16,063 10,005 27,707
======== ======== ========
*1 The share scheme charge stated here differs from that included in the income
statement. This is because an element of the gross cost is recharged and the net
amount is shown in the income statement.
11. Finance charges
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Term loan interest 896 990 2,020
Finance lease interest 154 144 256
Letter of credit charges 110 93 175
-------- -------- --------
Total finance charges 1,160 1,227 2,451
======== ======== ========
12. Taxation
30 30 31
June June December
2005 2004 2004
£000 £000 £000
UK Corporation tax:
Current charge at 30% 14,777 20,894 31,342
Tax relief in respect of ESOT share provision - - (16,985)
Under provision relating to prior periods -
corporation tax - - 1,571
-------- -------- --------
Current tax charge 14,777 20,894 15,928
Deferred tax:
Current period deferred taxation movement 1,539 (4,293) (651)
(Over) provision relating to prior periods -
deferred tax - - (877)
-------- -------- --------
Total tax charge per income statement 16,316 16,601 14,400
======== ======== ========
Factors affecting the tax charge are:
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Profit on ordinary activities before taxation 55,587 54,654 104,906
Corporation tax thereon at 30% 16,676 16,396 31,472
Exceptional ESOT tax relief - - (16,985)
Utilisation of brought forward tax losses (360) - (582)
Adjustments in respect of prior year insurance
technical provisions - - (216)
Expenses and provisions not deductible for tax
purposes - - 29
Other timing differences - 205 (4)
Impact of using lower tax rate - - (8)
Adjustments relating to prior periods - - 694
-------- -------- --------
Tax charge for the period as above 16,316 16,601 14,400
======== ======== ========
13. Dividends
Dividends were declared and paid as follows.
30 30 31
June June December
2005 2004 2004
£000 £000 £000
January 2004 (5.5p per share, paid
February 2004) (*1) - 14,179 14,179
July 2004 (14.62p per share, paid
August 2004) (*1) - - 37,817
March 2005 (9.3p per share, paid May 2005) 24,049 - -
-------- -------- --------
Total dividends 24,049 14,179 51,996
======== ======== ========
*1 = for comparability, the per-share amounts for these two dividends have been
re-stated to reflect the share capital in issue at the 2004 year-end and 2005
half year-end.
On 5 September 2005 the directors declared a dividend of 9.7p per share to be
paid on 5 October 2005.
14. Earnings per share
30 30 31
June June December
2005 2004 2004
£000 £000 £000
1) Unadjusted EPS
Profit for the financial year after
taxation 39,271 38,053 90,506
Weighted average number of shares -
basic 258,595,400 258,595,400 258,595,400
Unadjusted earnings per share -
basic 15.2p 14.7p 35.0p
Weighted average number of shares -
diluted 259,861,400 258,595,400 258,595,400
Unadjusted earnings per share -
diluted 15.1p 14.7p 5.0p
2) Adjusted EPS
Profit for the financial year after
tax 39,271 38,053 90,506
Deduct exceptional ESOT tax credit - - (16,985)
-------- -------- --------
Adjusted profit after tax 39,271 38,053 73,521
Adjusted earnings per share - basic 15.2p 14.7p 28.4p
Adjusted earnings per share -
diluted 15.1p 14.7p 28.4p
15. Property, plant and equipment
Improvements Computer Office Furniture Motor Total
to short equip- equip- and Vehicles
leasehold ment ment fittings
buildings
£000 £000 £000 £000 £000 £000
Cost:
At 1 January 2004 1,658 6,542 2,785 1,583 - 12,568
Additions 26 468 57 36 7 594
Disposals (5) (6) - - - (11)
------- ------ ------- ------- ------- -------
At 30 June 2004 1,679 7,004 2,842 1,619 7 13,151
------- ------- ------- ------- ------- -------
Depreciation:
At 1 January 2004 1,405 3,729 2,127 1,483 - 8,744
Charge for the year 70 511 167 35 1 784
Disposals - (2) - - - (2)
------- ------- ------- ------- ------- -------
At 30 June 2004 1,475 4,238 2,294 1,518 1 9,526
------- ------- ------- ------- ------- -------
Net book amount:
At 30 June 2004 204 2,766 548 101 6 3,625
======= ======= ======= ======= ======= =======
Cost:
At 1 January 2004 1,658 6,542 2,785 1,583 - 12,568
Additions 278 588 193 44 12 1,115
Disposals (5) (338) - - - (343)
------- ------- ------- ------- ------- -------
At 31 December 2004 1,931 6,792 2,978 1,627 12 13,340
------- ------- ------- ------- ------- -------
Depreciation:
At 1 January 2004 1,405 3,729 2,127 1,483 - 8,744
Charge for the year 149 1,024 340 62 1 1,576
Disposals - (329) - - - (329)
------- ------- ------- ------- ------- -------
At 31 December 2004 1,554 4,424 2,467 1,545 1 9,991
------- ------- ------- ------- ------- -------
Net book amount:
At 31 December 2004 377 2,368 511 82 11 3,349
======= ======= ======= ======= ======= =======
Cost:
At 1 January 2005 1,931 6,792 2,978 1,627 12 13,340
Additions 340 555 71 43 - 1,009
Disposals (1,818) - (512) (404) - (2,734)
------- ------- ------- ------- ------- -------
At 30 June 2005 453 7,347 2,537 1,266 12 11,615
------- ------- ------- ------- ------- -------
Depreciation:
At 1 January 2005 1,554 4,424 2,467 1,545 1 9,991
Charge for the year 122 534 183 26 2 867
Disposals (1,351) (1) (501) (376) - (2,229)
------- ------- ------- ------- ------- -------
At 30 June 2005 325 4,957 2,149 1,195 3 8,629
------- ------- ------- ------- ------- -------
Net book amount:
At 30 June 2005 128 2,390 388 71 9 2,986
======= ======= ======= ======= ======= =======
16. Intangible assets
Goodwill Deferred Software Total
acquisition
costs
£000 £000 £000 £000
Carrying amount:
At 1 January 2004 62,354 2,270 2,025 66,649
Additions - 3,110 143 3,253
Amortisation charge - (2,664) (489) (3,153)
-------- -------- -------- --------
At 30 June 2004 62,354 2,716 1,679 66,749
======== ======== ======== ========
At 1 January 2004 62,354 2,270 2,025 66,649
Additions - 6,271 275 6,546
Amortisation charge - (5,747) (981) (6,728)
-------- -------- -------- --------
At 31 December 2004 62,354 2,794 1,319 66,467
Additions - 3,727 317 4,044
Amortisation charge - (3,281) (476) (3,757)
-------- -------- -------- --------
At 30 June 2005 62,354 3,240 1,160 66,754
======== ======== ======== ========
17. Financial assets
The Group's financial assets can be analysed as follows:
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Investments held at fair value 247,518 137,592 203,418
Receivables - amounts owed by policyholders 119,357 96,648 97,304
-------- -------- --------
Total financial assets 366,875 234,240 300,722
======== ======== ========
All receivables from policyholders are due within 12 months of the balance sheet
date.
Analysis of investments held at fair value:
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Fixed income securities:
Government bonds 68,188 20,329 42,980
Other listed securities 168,640 98,077 139,573
Variable interest securities:
Other listed securities 10,690 19,186 20,865
-------- -------- --------
247,518 137,592 203,418
======== ======== ========
18. Reinsurance assets and insurance contract liabilities
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Gross:
Claims outstanding 159,392 124,019 142,968
Unearned premium provision 82,236 71,236 73,139
-------- -------- --------
Total gross insurance liabilities 241,628 195,255 216,107
======== ======== ========
Recoverable from reinsurers:
Claims outstanding 46,367 40,577 44,848
Unearned premium provision 14,332 20,761 21,289
-------- -------- --------
Total reinsurers' share of insurance
liabilities 60,699 61,338 66,137
======== ======== ========
Net:
Claims outstanding 113,025 83,442 98,120
Unearned premium provision 67,904 50,475 51,850
-------- -------- --------
Total insurance liabilities - net 180,929 133,917 149,970
======== ======== ========
Estimation techniques used in calculation of claims provisions:
Estimation techniques are used in the calculation of the technical provision for
claims outstanding, which represents a projection of the ultimate cost of
settling claims that have occurred prior to the balance sheet date and remain
unsettled at the balance sheet date.
The key area where these techniques are used relates to the ultimate cost of
reported claims. A secondary area relates to the emergence of claims that
occurred prior to the balance sheet date, but had not been reported at that
date.
The estimates of the ultimate cost of reported claims are based on the accurate
setting of claim provisions on a case-by-case basis, for all but the simplest of
claims.
The sum of these provisions are compared with projected ultimate costs using a
variety of different projection techniques (including incurred and paid chain
ladder and an average cost of claim approach) to allow an actuarial assessment
of their likely accuracy and to include allowance for unreported claims.
The most significant sensitivity in the use of the projection techniques arises
from any future step change in claims costs, which would cause future claim cost
inflation to deviate from historic trends. This is most likely to arise from a
change in the regulatory or judicial regime that leads to an increase in awards
or legal costs for bodily injury claims that is significantly above or below the
historical trend.
The claims provisions are subject to independent review by the Group's actuarial
advisors.
Development of claims provisions:
The following table sets out an analysis of the impact of movements in prior
year claims provisions (by underwriting year), in terms of their net value,
and their impact on the reported loss ratio:
Six months ended 30 June: Financial year:
2005 2004 2004 2003 2002 2001
£000 £000 £000 £000 £000 £000
2000 370 740 1,480 5,176 6,188 3,923
2001 1,483 1,978 2,967 7,938 2,490 -
2002 1,937 1,937 3,229 2,975 - -
2003 1,387 518 1,513 - - -
2004 - - - - - -
------- ------- ------- ------- ------- -------
Total net release 5,177 5,173 9,189 16,089 8,678 3,923
Net premium revenue 63,833 50,049 107,501 79,327 81,336 84,135
Release as % of net
premium revenue 8.1% 10.3% 8.5% 20.3% 10.7% 4.7%
Reconciliation of movement in net claims provisions:
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Net claims provision at start of period 98,120 75,549 75,549
Net claims incurred 45,951 31,959 71,919
Net claims paid (31,046) (24,066) (49,348)
-------- -------- --------
Net claims provision at end of period 113,025 83,442 98,120
======== ======== ========
Reconciliation of movement in net unearned premium provision:
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Net unearned premium provision at start
of period 51,850 42,614 42,614
Increase in the period 80,539 58,830 118,102
Released in the period (64,485) (50,969) (108,866)
-------- -------- --------
Net unearned premium provision at end
of period 67,904 50,475 51,850
======== ======== ========
19. Cash and cash equivalents
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Cash at bank and in hand 97,377 108,827 88,131
Cash on short term deposit 21,799 25,862 31,070
-------- -------- --------
Total cash and cash equivalents 119,176 134,689 119,201
======== ======== ========
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, and other short-term deposits with original maturities of three months or
less.
20. Trade and other receivables
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Profit commission due from co-insurers 7,438 11,931 2,434
Profit commission due from reinsurers 1,420 509 804
Other trade debtors 19,097 12,621 11,867
Prepayments and accrued income 1,649 2,020 1,634
-------- -------- --------
Total trade and other receivables 29,604 27,081 16,739
======== ======== ========
21. Financial liabilities
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Interest bearing bank loans 29,471 33,072 33,122
======== ======== ========
Analysis of borrowings:
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Repayments falling due within 12 months 11,471 7,739 11,455
Repayments falling due after 12 months 18,000 25,333 21,667
-------- -------- --------
29,471 33,072 33,122
======== ======== ========
The Company's debt consists of a facility negotiated in 2002 with Lloyds TSB and
Bank of Scotland. This consists of a £40m term loan (paid down during the year
to £33m), along with a £10m revolving credit facility that was cancelled by the
directors during 2004. The term loan is to be repaid according to a set
repayment schedule over six years from October 2002.
Interest is charged on amounts drawn down based on three elements:
a) LIBOR
b) a margin - as set out in the facility agreement, varying between 1.25%
and 2.25%
c) a 'mandatory costs' contribution - currently around 0.01%
Accrued interest is paid off at the end of quarterly interest periods. Security
granted in respect of the facility is in the form of fixed and floating charges
over most Group assets (excluding assets subject to regulatory restriction) and
charges over the shares in some subsidiary companies.
22. Provisions for other liabilities and charges
Employee share trust (ESOT) 30 30 31
June June December
2005 2004 2004
£000 £000 £000
Brought forward at start of period - 11,739 11,739
Movement in period - (4,602) (11,739)
-------- -------- --------
Carried forward at end of period - 7,137 -
======== ======== ========
Notes on ESOT
The ESOT crystallised at the time of the Company's flotation in September 2004,
and the 2004 Annual Report contains significant detail on the scheme. Refer to
this report (available at www.admiralgroup.co.uk or from the Company Secretary
at Capital Tower, Greyfriars Road, Cardiff CF10 3AZ) for further detail.
23. Trade and other payables
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Trade payables 3,475 2,749 3,381
Amounts owed to co-insurers and reinsurers 105,325 63,075 91,347
Finance leases due within 12 months 1,696 2,065 1,543
Finance leases due after 12 months 491 1,190 741
Other taxation and social security liabilities 3,943 3,619 3,236
Other payables 13,294 13,882 12,320
Accruals and deferred income (see below) 61,842 50,553 51,761
-------- -------- --------
Total trade and other payables 190,066 137,133 164,329
======== ======== ========
Analysis of accruals and deferred income:
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Premium receivable in advance of
policy inception 31,626 25,224 23,960
Accrued expenses 22,067 18,143 20,288
Deferred income 8,149 7,186 7,513
-------- -------- --------
Total accruals and deferred income as above 61,842 50,553 51,761
======== ======== ========
24. Deferred income tax liability
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Brought forward at start of period 4,838 6,366 6,366
Movement in period 1,539 (4,293) (1,528)
-------- -------- --------
Carried forward at end of period 6,377 2,073 4,838
======== ======== ========
The net balance provided at the end of the current period is made up of a gross
deferred tax liability of £6,671,000 (June 2004: £2,762,000; December 2004:
£5,132,000) relating to the tax treatment of Lloyd's Syndicates, and a deferred
tax asset of £294,000 (June 2004: £689,000; December 2004: £294,000) in respect
of other timing differences.
There was no unprovided deferred tax at the period-end (June 2004: £782,000
unprovided asset; December 2004: £531,000 unprovided asset; both in respect of
losses carried forward).
25. Share capital
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Authorised:
500,000,000 ordinary shares of 0.1p 500 - 500
132,488 A ordinary shares of 10p - 13 -
60,176 B ordinary shares of 10p - 6 -
27,500 C ordinary shares of 10p - 3 -
29,836 D ordinary shares of 10p - 3 -
20,164 E ordinary shares of 10p - 2 -
-------- -------- --------
500 27 500
======== ======== ========
Issued, called up and fully paid:
258,595,400 ordinary shares of 0.1p 259 - 259
132,488 A ordinary shares of 10p - 13 -
60,176 B ordinary shares of 10p - 6 -
12,042 C ordinary shares of 10p - 1 -
29,836 D ordinary shares of 10p - 3 -
20,164 E ordinary shares of 10p - 2 -
-------- -------- --------
259 25 259
======== ======== ========
All ordinary shares in issue at the period end have the same rights.
Staff share schemes
Analysis of share scheme costs included within other operating expenses (note
8):
30 30 31
June June December
2005 2004 2004
£000 £000 £000
SIP charge (note i) 54 - -
UFSS charge (note ii) 71 - -
ESOT credit (refer to note 22) - (4,602) (4,452)
Non executive director option charges (note
iii below) - - 308
-------- -------- --------
Total share scheme charges 125 (4,602) (4,144)
======== ======== ========
Notes:
(i) The Approved Share Incentive Plan (the SIP)
Eligible employees qualify for awards under the SIP based upon the performance
of the Group in each half-year against budget. The current maximum award for
each half-year amounts to 600,000 shares (or a maximum annual award of £3,000
per employee if smaller).
The maximum award is made if the Group's core profit exceeds budget by 11.5 per
cent. Employees must remain in employment until the vesting date (three years
from the date of award) in order to receive the shares awarded.
The fair value of shares to be awarded is estimated at latest share price
available when drawing up the interim financial statements, and will be adjusted
to reflect the actual share price on the award date. Awards under the SIP are
entitled to receive dividends, and hence no adjustment has been made to this
fair value.
(ii) The Unapproved Free Share Scheme (the UFSS)
This scheme is open to managers within the Group (excluding executive directors)
with variable awards available.
Under the scheme, individuals receive an award of free shares at no charge. 271
employees received awards under this scheme during June 2005. Staff must remain
in employment until the vesting date (in June 2008) to receive any award.
For an award to vest, the total shareholder return (TSR) of Admiral Group plc
shares over the three years 2005 to 2007 must be at least equal to the TSR of
the FTSE 350 index, of which the Company is a constituent. If the Company's TSR
does not meet this target, no awards will vest under the 2005 UFSS scheme.
If this initial hurdle is overcome, individual awards are calculated based on
the growth in the Company's earnings per share (EPS) relative to a risk free
return (RFR), for which LIBOR has been selected as a benchmark. This performance
is measured over the same three-year period.
The range of awards is as follows:
• If the growth in EPS is less than the RFR, no awards vest
• EPS growth is equal to RFR - 10% of maximum award vests
• To achieve the maximum award, EPS growth has to be 36 points higher than
RFR over the three year period
Between 10% and 100% of the maximum awards, a linear relationship exists.
Awards under the UFSS are not eligible for dividends and hence the fair value of
free shares to be awarded under this scheme has been revised downwards to take
account of these distributions. The unadjusted fair value is based on the share
price at the balance sheet date (being £3.62).
Number of free share awards outstanding at 30 June 2005:
Awards Vesting
outstanding date
(*1)
SIP H105 scheme 581,000 September 2008
UFSS 2005 scheme 685,000 June 2008
---------
Total awards outstanding 1,266,000
=========
*1 - being the maximum number of awards expected to be made before accounting
for expected staff attrition.
(iii) Non-executive director option charges:
None of the Group's current directors participate in the new share schemes, and
there were no share options outstanding at any balance sheet date.
In the year-ended 31 December 2004, two non-executive directors within the
Admiral group (one, Keith James, a director of Admiral Group plc) were issued
with share options (during September 2004). Each was granted (free of charge)
options over 56,000 Admiral Group plc 0.1p ordinary shares, and each exercised
their options shortly after grant, also during September 2004. The exercise
price per share was 0.1p, and the fair value of each option at grant and
exercise was £2.75. The full-year 2004 income statement account includes a
charge of £308,000 in respect of these options.
26. Consolidated statement of changes in equity
Share Share Capital Equity Retained Total
capital premium redemp- reserve profit equity
account tion and
reserve loss
£000 £000 £000 £000 £000 £000
At 1 January
2004 - as restated 25 15,746 - - 92,395 108,166
Retained profit
for the period - - - - 38,053 38,053
Dividends - - - - (14,179) (14,179)
------- ------- -------- ------- ------- -------
As at 30 June 2004 25 15,746 - - 116,269 132,040
======= ======= ======== ======= ======= =======
At 1 January
2004 - as restated 25 15,746 - - 92,395 108,166
Retained profit
for the period - - - - 90,506 90,506
Issues of share capital 251 (247) - - - 4
Share issue expenses - (2,354) - - - (2,354)
Dividends - - - - (51,996) (51,996)
Share option charges - - - - 308 308
Cancellation of shares (17) - 17 - - -
------- ------- -------- ------- ------- -------
As at 31 December 2004 259 13,145 17 - 131,213 144,634
Retained profit
for the period - - - - 39,271 39,271
Dividends - - - - (24,049) (24,049)
Share scheme charges - - - 357 - 357
------- ------- -------- ------- ------- -------
As at 30 June 2005 259 13,145 17 357 146,435 160,213
======= ======= ======== ======= ======= =======
*1 - The credit to the equity reserve in respect of share schemes is higher than
the charge shown in the income statement. This is because an element of the
gross cost is recharged whereas the equity reserve above is credited with the
gross amount.
27. Cash flow statement
Reconciliation of profit after tax to cash flow from operating activities
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Profit after tax 39,271 38,053 90,506
Adjustments for non-cash items:
- Depreciation 867 784 1,576
- Amortisation of software 476 489 981
- Unrealised (gains) / losses on investments (2,476) 961 200
- Share option charge - - 308
- Share scheme credit, net of employer's NIC 357 (4,602) (4,452)
Employer's NIC charge on ESOT - - (7,284)
Loss on disposal of property, plant and
equipment and software 504 4 4
Change in gross insurance contract
liabilities 25,521 20,426 41,278
Change in reinsurance assets 5,438 (4,672) (9,471)
Change in trade and other receivables,
including from policyholders (35,364) (41,283) (31,675)
Change in trade and other payables, including
tax and social security 25,834 33,881 62,048
Net change in investments held at fair value (41,624) 5,904 (59,154)
Interest expense 1,160 1,227 2,451
Taxation expense 16,316 16,601 14,400
-------- -------- --------
Cash flow from operating activities 36,280 67,773 101,716
======== ======== ========
28. Financial commitments
The Group was committed to obligations under operating leases on land and
buildings as follows:
Operating leases expiring: 30 30 31
June June December
2005 2004 2004
£000 £000 £000
Within one years 308 - -
Within two to five years 62 484 509
Over five years 1,056 1,184 1,465
-------- -------- --------
Total commitments 1,426 1,668 1,974
======== ======== ========
In addition, the Group had contracted to spend the following on property, plant
and equipment at the end of each period:
30 30 31
June June December
2005 2004 2004
£000 £000 £000
Expenditure contracted to 75 167 373
======== ======== ========
Independent review report to Admiral Group plc
Introduction
We have been engaged by the Company to review the financial information set out
above and we have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the Company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Company for
our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual financial statements except where any changes, and the reasons
for them, are disclosed.
As disclosed in note 1 to the financial information, the next annual financial
statements of the Group will be prepared in accordance with IFRSs adopted for
use in the European Union.
The accounting policies that have been adopted in preparing the financial
information are consistent with those that the directors currently intend to use
in the next annual financial statements. There is, however, a possibility that
the directors may determine that some changes to these policies are necessary
when preparing the full annual financial statements for the first time in
accordance with those IFRSs adopted for use by the European Union. This is
because, as disclosed in note 1, the directors have anticipated that certain
standards, which have yet to be formally adopted for use in the EU, will be so
adopted in time to be applicable to the next annual financial statements.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
Review of interim financial information issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of management and applying analytical procedures to the financial information
and underlying financial data and, based thereon, assessing whether the
accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review is substantially less in scope than an audit
performed in accordance with Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly, we do not express an audit
opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2005.
KPMG Audit Plc, Cardiff, 5 September 2005.
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