Interim Results
Admiral Group PLC
05 September 2006
Admiral Group plc Results for the 6 months ended 30 June 2006
5 September 2006
Admiral Group plc ('Admiral' or 'the Group') today announces its results for the
six months ended 30 June 2006.
H1 2006 Highlights
• Profit before tax up 24% at £68.7 million (H1 2005: £55.6 million)
• Group turnover up 12% at £359.2 million (H1 2005: £319.3 million)
• Total motor premiums written up 10% at £294.0 million (H1 2005: £268.5
million)
• Net income from products and services not underwritten by the Group up 30% at
£45.6 million (H1 2005: £35.2 million)
• Combined ratio 87.0% (H1 2005: 86.5%)
• Active customers at period-end up 10% to 1,161,000 from 1,057,000 at
30 June 2005
• Confused.com made a profit of £8.7 million (H1 2005: £2.3 million)
• Interim dividend of 12.1p per share, payable 18 October 2006 - includes
special element of 3.7p per share
Copies of this statement will be sent to all shareholders and will be available
from the registered office.
Comment from Alastair Lyons, Chairman
Our business has continued strongly profitable and cash generative over the last
six months, with profit before tax up 24%. We are, therefore, very pleased to
be able to declare dividends that are 25% higher than at the same point last
year.
As we have previously indicated, we have reviewed our future cash needs against
funds accumulated in the business as at the half year. Accordingly we propose a
further special dividend of 3.7p per share in addition to an 8.4p per share
normal dividend based on 45% of after-tax profits.
Our policy remains only to retain within the business what funds we need to
provide a prudent contingency and support our plans for growth.
Since going public in September 2004 Admiral has declared dividends on four
occasions amounting in total to £119m or 46.0p per share. £67m of normal
dividends have been supplemented by £52m of special dividends, these specials
accounting for 44% of the total amount declared.
Comment from Henry Engelhardt, Chief Executive
We're very pleased with our results for the first half of 2006. We met the
needs of our customers, made money and had fun doing it. In fact, we set a
record for half-year profitability at £68.7m. Despite high levels of
competition in the UK motor insurance market our business continues to grow and
grow profitably. Confused.com, our leading car insurance aggregator, saw
significant growth in both number of quotes and contribution.
Our level of claims releases grew to £9.8m. We are on track to release an
amount at least equal to the amount we released last year, however this year we
believe that the releases will not be weighted towards the second half of the
year.
Going forward, we plan to maintain our combined ratio advantage over the market
while the number of customers we service continues to grow. As part of our
longer-term strategy we will launch our Spanish operation later this year or
early next year and have already begun looking beyond Spain at other
opportunities.
Financial review
Key financial highlights
Group profit before tax rose 24% in the first half of 2006 compared to the same
period in 2005, reaching £68.7m.
Profit can be split into the three key elements of the Group's business: 1)
underwriting, 2) profit commissions and 3) net other income (most notably
ancillary income).
6 months ended: Year ended:
June June December 2005
2006 2005 £000
£000 £000
Underwriting profit 13,474 14,730 32,361
Profit commissions 9,639 5,666 14,735
Net other income 45,593 35,191 72,398
____________________________________________
Profit before tax 68,706 55,587 119,494
============================================
The Group's low risk business model enables it to grow profit significantly in
an environment of worsening loss ratios (both for the Group and the market as a
whole) and in a period of low investment returns. The key features of this
model are:
• Limited risk retention (25% of the book, through co-insurance and
reinsurance arrangements);
• Generation of substantial non-underwriting income from the whole customer
base (ownership of which is retained) - the proportion of the Group's
profits earned from non-underwriting was 80% in the six months to June 2006
compared to 74% in the first half of 2005 (and 73% in 2005 as a whole)
• Strong and growing contribution from other broking activities, primarily
Confused.com
Group turnover (comprising total premiums written before co-insurance, gross
other income and net investment return), which is a measure of the combined size
of the Group's businesses, also showed good growth (+ 12%):
6 months ended: Year ended:
June June December 2005
2006 2005 £000
£000 £000
Total premiums written 293,998 268,462 533,616
Gross other income 61,470 44,769 93,405
Net investment return 3,736 6,087 11,342
____________________________________________
Group turnover 359,204 319,318 638,363
============================================
The increase reflected growth in premiums written and a significant increase in
revenue generated from non-underwriting sources (primarily ancillary products,
Confused.com and Gladiator Commercial).
The key elements of the Group's profits are further analysed below.
Underwriting
Underwriting structure
The Group's underwriting structure is as follows:
65% of the business written continues to be underwritten by Great Lakes (a UK
subsidiary of Munich Re) under a long-term co-insurance contract.
35% of the business is underwritten by the Group through Admiral Insurance
(Gibraltar) Limited (AIGL) and Admiral Insurance Company Limited (AICL). 10%
(of the total business) is ceded via quota share contracts that qualify for
deductions in required solvency capital (5% to Axis Re Europe and 5% to Swiss
Reinsurance Company UK Limited). This means the Group retains 25% of the
underwriting on a net basis.
As well as proportional reinsurance, the Group has also arranged an excess of
loss reinsurance programme with a number of reinsurers to protect itself against
very large claims.
For the 2000 to 2002 underwriting years, the Group's retained share of the motor
business was underwritten through the Group's Syndicate (Syndicate 2004) at
Lloyd's of London. During July 2006, the Group achieved the release of a
significant proportion of the profits earned by the Group's Syndicate -
amounting to around £24m, net of amounts retained to meet corporation tax
liabilities.
Underwriting result
Total premium written increased by 10% to £294m from £268m. With premium rates
largely flat, the growth came from a 10% rise in the number of active customers.
The underwriting result fell to £13.5m from £14.7m in the first half of 2005.
Investment income fell to £3.7m from £6.1m due to adverse conditions in UK bond
markets, whilst the reported combined ratio was consistent at around 87% for
both half years.
The pure year loss ratio has moved to 85% from 80% in the first half of 2005
reflecting the ongoing impact of claims inflation compared to flat premium
rates. However, as shown in note 16 to the interim financial statements, back
years continue to release reserves. The six month results include £9.8m of net
releases (compared to £5.2m in H1 2005). The impact of this is equivalent to a
13 percentage points reduction in the reported loss ratio (8 points in H1 2005)
which was 72.3% (H1 2005: 71.6%).
The expense ratio has maintained its previous low level. The reported ratio for
the first half is 14.7%, down from 14.9% in the first half of 2005 and 15.1% for
2005 as a whole. Excluding regulatory levies, the ratio is consistent between
half years at around 12%.
The expense ratio is reconciled to the figures included in the income statement
in note 6 to the interim financial statements, whilst the underwriting result is
reconciled later in this review.
Combined ratio development
The Group's reported combined ratio (being the aggregation of the loss and
expense ratios above) is 87.0%, up from 86.5% in H1 2005 (84.9% for 2005 as a
whole). This continues to compare very favourably to estimated market levels.
Profit commission
The Group earns profit commission through its co-insurance and reinsurance
arrangements. The amount receivable is dependent on the volume and
profitability of the insurance business, measured by reference to loss and
expense ratios.
Profit commission - co-insurance
The principal source of profit commission is the long-term co-insurance contract
with Great Lakes. £6.2m was recognised in the first half of 2006, up from the
£5.0m recognised in the same period last year.
A further £2.0m of profit commission (H1 05: £0.1m) relating to earlier
underwriting year (2000 - 2002) contracts with Hibernian Re (100% reinsured into
Swiss Re) has also been recognised in these results. No further material
amounts are anticipated relating to these contracts due to the relative maturity
of the underwriting results of these years.
Profit commission - quota share reinsurance
£1.4m of commission has been recognised in respect of quota share arrangements -
up from £0.6m in the first half of 2005.
Net other income
6 months ended: Year ended:
June June December 2005
2006 2005 £000
£000 £000
Ancillary contribution 32,929 29,630 59,092
Confused.com contribution 8,747 2,314 6,882
Aggregate interest receipts 2,066 2,268 4,176
Instalment income 2,459 1,657 3,768
Gladiator contribution 979 900 1,871
Other expenses and share scheme costs (1,587) (1,578) (3,391)
_________________________________________
Net other income 45,593 35,191 72,398
=========================================
Confused.com earns a proportion of its revenue from Group brands from commission charged at
normal commercial rates. Previously an adjustment was made for these intra-group sales. The
impact of this adjustment on the 2005 H1 figures was to decrease Confused contribution by
£0.6m (2005 full year: £1.9m)
Ancillary contribution & instalment income
This primarily involves income earned on sales of insurance products
complementing the motor policy, but which are underwritten by external parties.
Net contribution from these sales grew by 11% in H1 2006 - largely in line with
the growth in premium and policies sold.
Average gross ancillary income per motor policy was consistent across all
periods at £56.
Instalment income represents charges for payment by instalments on motor
policies sold which are paid for over the course of the policy life by direct
debit.
Confused.com
Confused.com has continued to grow and has recorded a contribution of £8.7m in
the first half of the year. Motor quotes rose to 3.8m from 1.7m in H1 2005 (+
124%).
The range of products on which Confused offers prices has increased so that the
site now includes home insurance, travel insurance and a range of other
financial products in addition to the core motor offering. Confused has also
increased its coverage of the motor market.
Overseas expansion
As reported with the announcement of the 2005 results, the Group plans to launch
a direct motor insurance operation in Spain and work has been continuing to this
end during 2006. Good progress has been made in all the critical areas and the
operation now has all key senior managers in place at a permanent location in
Seville. Work is also well progressed on IT systems, and the business plans to
launch late this year or early in 2007.
A long-term quota share reinsurance contract has been signed with Munich Re
(Germany) under which 65% of the Spanish motor insurance business will be ceded.
The contract is effective from when the business commences trading.
Earnings per share (EPS)
Basic EPS has increased by 22% to 18.5p from 15.2p (2005 full year 32.7p). This
is broadly in line with the increase in pre-tax profit (24%) noted above (the
difference relates to a lower effective rate of corporation tax in H1 2005
resulting from utilisation of losses).
Financial investments, cash and investment return
At the end of the period, the Group held a total of £408.4m in cash and
financial investments - up 11% on the £366.7m held at the end of June 2005.
This increase is after distributions to shareholders of £38.7m during the first
half of 2006 (£24.0m in 2005).
The total balance is made up as follows:
6 months ended: Year ended:
June June December 2005
2006 2005 £000
£000 £000
Liquid funds in underwriting companies:
Government and sovereign bond holdings 114,059 68,188 83,071
Corporate bonds and similar instruments 164,922 179,330 172,866
Deposits with credit institutions 17,243 21,799 40,646
Cash at bank 73,606 46,711 39,824
_________________________________________
369,830 316,028 336,407
Liquid funds held outside underwriting
companies:
Cash at bank 38,600 50,666 69,682
_________________________________________
408,430 366,694 406,089
=========================================
Net investment return fell sharply in relative and actual terms during the first
half of 2006 compared to the same period last year. The fall was due to marked
increases in gilt and bond yields resulting from changes in the market's view of
future interest rates and the negative impact such increases have on capital
values of fixed income securities.
Dividends
There has been no change in dividend policy, which is based on the principle of
returning excess cash to shareholders. The Directors expect to make a normal
distribution of at least 45% of post-tax profits each half-year, and will
regularly review the Group's available cash to determine whether it is
appropriate for the Company to pay a further special dividend.
In line with this policy, the Directors have declared an interim dividend for
2006 of 12.1p per share, which is made up of 8.4p per share normal element, plus
3.7p per share special distribution based on the Group's resources at the end of
the period. The ex-dividend date is 20 September 2006, the record date 22
September 2006, with payment following on 18 October 2006.
The interim dividend declared in respect of 2005 was 9.7p, split 6.8p normal,
2.9p special. (Final dividend for 2005: 14.9p - normal 7.8p, special 7.1p)
Reconciliation of underwriting profit
6 months ended: Year ended:
June June December 2005
2006 2005 £000
£000 £000
Net insurance premium revenue 74,863 63,833 139,454
Net insurance claims (55,600) (47,294) (100,526)
Net expenses related to insurance
contracts (9,525) (7,896) (17,909)
Investment return 3,736 6,087 11,342
___________________________________________
Underwriting profit 13,474 14,730 32,361
===========================================
Reconciliation of loss ratios reported
6 months ended: Year ended:
June June December 2005
2006 2005 £000
£000 £000
Net insurance claims from income
statement 55,600 47,294 100,526
Deduct: claims handling costs (1,470) (1,611) (3,202)
___________________________________________
Adjusted net insurance claims 54,130 45,683 97,324
Net premium revenue 74,863 63,833 139,454
Loss ratio 72.3% 71.6% 69.8%
===========================================
Consolidated income statement
6 months ended Year ended
30 June 2006 30 June 2005 31 December 2005
Note £000 £000 £000
Insurance premium revenue 2 92,614 84,865 176,214
Insurance premium ceded to 2
reinsurers (17,751) (21,032) (36,760)
_________________________________________
Net insurance premium revenue 74,863 63,833 139,454
Other revenue 3 61,470 44,769 93,405
Profit commission 4 9,639 5,666 14,735
Investment and interest income 5 5,802 8,355 15,518
_________________________________________
Net revenue 151,774 122,623 263,112
Insurance claims and claims handling
expenses (70,029) (61,334) (121,123)
Insurance claims and claims handling
expenses recovered from reinsurers 14,429 14,040 20,597
_________________________________________
Net insurance claims (55,600) (47,294) (100,526)
Expenses 6 (26,405) (18,457) (40,492)
Share scheme charges 22 (420) (125) (438)
_________________________________________
Total expenses (82,425) (65,876) (141,456)
Operating profit 69,349 56,747 121,656
Finance charges 9 (643) (1,160) (2,162)
_________________________________________
Profit before tax 68,706 55,587 119,494
Taxation expense 10 (20,613) (16,316) (34,774)
_________________________________________
Profit after tax attributable to equity
holders of the Company 48,093 39,271 84,720
=========================================
Earnings per share:
Basic 11 18.5p 15.2p 32.7p
=========================================
Diluted 11 18.4p 15.1p 32.7p
=========================================
________________________________________________________________________________________________________
Dividends paid (total) 12 38,666 24,049 49,190
Dividends paid (per share) 12 14.9p 9.3p 19.0p
________________________________________________________________________________________________________
Consolidated balance sheet
As at:
30 June 2006 30 June 2005 31 December
2005
Note £000 £000 £000
ASSETS
Intangible assets 13 66,192 66,754 66,490
Property, plant and equipment 14 6,741 2,986 4,636
Financial assets 15 415,354 366,875 378,747
Reinsurance assets 16 68,660 60,699 54,166
Trade and other receivables 17 11,749 29,604 9,392
Cash and cash equivalents 18 129,449 119,176 150,152
_______________________________________
Total assets 698,145 646,094 663,583
=======================================
EQUITY
Share capital 22 261 259 260
Share premium account 23 13,145 13,145 13,145
Retained earnings 23 178,617 146,792 167,990
Other reserves 23 17 17 17
_______________________________________
Total equity 192,040 160,213 181,412
=======================================
LIABILITIES
Insurance contracts 16 281,688 241,628 254,130
Financial liabilities 19 - 29,471 22,000
Deferred income tax 20 904 6,377 3,550
Current tax liabilities 23,263 18,339 19,556
Trade and other payables 21 200,250 190,066 182,935
_______________________________________
Total liabilities 506,105 485,881 482,171
=======================================
Total equity and total liabilities 698,145 646,094 663,583
=======================================
Consolidated statement of recognised income and expense
No separate consolidated statement of recognised income and expense has been
prepared. The profit for the period of £48.1m (2005: H1 £39.3m; full year:
£84.7m) represents all recognised income and expenses for all periods.
Consolidated cash flow statement
6 months ended Year ended
30 June 30 June 2005 31 December 2005
2006
Note £000 £000 £000
Profit after tax 48,093 39,271 84,720
Adjustments for non-cash items:
- Depreciation 1,092 867 1,824
- Amortisation of software 234 476 896
- Unrealised losses / (gains) on investments 893 (2,476) 893
- Share scheme charge 1,200 357 1,247
Loss on disposal of property, plant and
equipment and software - 504 503
Change in gross insurance contract liabilities 27,558 25,521 38,023
Change in reinsurance assets (14,494) 5,438 11,971
Change in trade and other receivables,
including from policyholders (15,760) (35,364) (18,693)
Change in trade and other payables, including
tax and social security 17,918 25,834 18,041
Interest expense 643 1,160 2,162
Taxation expense 20,613 16,316 34,774
__________________________________________
Cash flows from operating activities,
before movements in investments 87,990 77,904 176,361
Net cash flow into investments held at fair
value (23,937) (41,624) (53,413)
__________________________________________
Cash flows from operating activities, net of
movements in investments 64,053 36,280 122,948
Interest payments (643) (1,144) (2,617)
Taxation payments (19,551) (6,023) (26,090)
__________________________________________
Net cash flow from operating activities 43,859 29,113 94,241
Cash flows from investing activities:
Purchases of property, plant and equipment
and software (3,293) (1,333) (3,999)
Proceeds from sales of property, plant and
equipment - 8 -
__________________________________________
Net cash used in investing activities (3,293) (1,325) (3,999)
Cash flows from financing activities:
Repayments of borrowings (22,000) (3,667) (10,667)
Capital element of new finance leases 1,789 1,097 1,201
Repayment of finance lease liabilities (2,392) (1,194) (635)
Equity dividends paid (38,666) (24,049) (49,190)
__________________________________________
Net cash used in financing activities (61,269) (27,813) (59,291)
Net decrease in cash and cash
equivalents (20,703) (25) 30,951
Cash and cash equivalents at 1 January 150,152 119,201 119,201
Cash and cash equivalents at end of 18
period 129,449 119,176 150,152
__________________________________________
Notes to the interim financial statements
1. General information and basis of preparation
Admiral Group plc is a Company incorporated in England and Wales. 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 2005 and 2006 and the year ended 31 December 2005. 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. In accordance with IAS 24, transactions or balances between Group
companies that have been eliminated on consolidation are not reported as related
party transactions.
The comparative figures for the financial year ended 31 December 2005 are not
the Group's Report and Accounts for that financial year, but are derived
therefrom. Those accounts 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 include any reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report and
did not contain a statement under section 237(2) or (3) of the Companies Act
1985.
The accounting policies applied by the Group in these consolidated interim
financial statements are the same as those applied by the Group in its
consolidated financial statements as at and for the year ended 31 December 2005.
Significant estimates
Estimation techniques used in calculation of claims provisions:
Estimation techniques are used in the calculation of the provisions 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 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.
2. Net insurance premium revenue
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Total motor insurance premiums before co-
insurance 293,998 268,462 533,616
====================================
Group gross premiums written after co-insurance 102,899 93,962 186,989
Outwards reinsurance premiums (29,966) (14,075) (28,052)
____________________________________
Net insurance premiums written 72,933 79,887 158,937
Change in gross unearned premium provision (10,285) (9,097) (10,775)
Change in reinsurers' share of unearned
premium provision 12,215 (6,957) (8,708)
____________________________________
Net insurance premium revenue 74,863 63,833 139,454
====================================
The insurance business written 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.
3. Other revenue
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Ancillary revenue 40,141 35,954 72,470
Instalment income earned 2,459 1,657 3,768
Revenue from Confused.com 15,840 4,614 12,044
Revenue from Gladiator Commercial 3,030 2,544 5,123
____________________________________
Total other revenue 61,470 44,769 93,405
====================================
Ancillary revenue primarily constitutes income from sales of insurance products
that complement the motor policy, but which are underwritten by external
parties.
4. Profit commission
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Total profit commission 9,639 5,666 14,735
====================================
5. Investment and interest income
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Net investment return 3,736 6,087 11,342
Interest receivable 2,066 2,268 4,176
____________________________________
Total investment and interest income 5,802 8,355 15,518
====================================
6. Expenses
30 June 2006 30 June 2005
Insurance Other Total Insurance Other Total
contracts contracts
£000 £000 £000 £000 £000 £000
Acquisition of
insurance contracts 3,476 - 3,476 3,287 - 3,287
Administration and
marketing costs 6,049 16,880 22,929 4,609 10,561 15,170
___________________________ ______________________________
Sub-total 9,525 16,880 26,405 7,896 10,561 18,457
Share scheme charges - 420 420 - 125 125
___________________________ ______________________________
Total expenses 9,525 17,300 26,825 7,896 10,686 18,582
=========================== ==============================
31 December 2005
Insurance Other Total
contracts
£000 £000 £000
Acquisition of insurance contracts 6,888 - 6,888
Administration and marketing costs 11,021 22,583 33,604
_____________________________
Sub-total 17,909 22,583 40,492
Share scheme charges - 438 438
_____________________________
Total expenses 17,909 23,021 40,930
=============================
The £6,049,000 (2005 H1: £4,609,000; Full year: £11,021,000) administration and
marketing costs allocated to insurance contracts is principally made up of
salary costs.
Analysis of other administration and marketing costs:
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Ancillary sales expenses 7,212 6,324 13,378
Confused.com operating expenses 7,093 2,300 5,162
Gladiator Commercial operating expenses 2,051 1,644 3,252
Central overheads 327 293 791
Costs associated with overseas expansion 197 - -
___________________________________
Total 16,880 10,561 22,583
===================================
Reconciliation of expenses related to insurance contracts to reported expense
ratio:
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Insurance contract expenses from above 9,525 7,896 17,909
Add: claims handling expenses 1,470 1,611 3,202
___________________________________
Adjusted expenses 10,995 9,507 21,111
Net insurance premium revenue 74,863 63,833 139,454
Reported expense ratio 14.7% 14.9% 15.1%
===================================
7. Staff costs and other expenses
Staff costs and other expenses, before co-insurance arrangements are as follows:
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Salaries 17,036 14,166 29,955
Social security charges 1,568 1,314 2,782
Pension costs 253 226 490
Share scheme charges (see note 22) 1,200 357 1,247
___________________________________
Total staff expenses 20,057 16,063 34,474
===================================
Depreciation charge:
- Owned assets 197 306 446
- Leased assets 895 561 1,378
Operating lease rentals:
- Buildings 1,428 1,377 2,969
Auditor's remuneration:
- Statutory audit fees 94 110 210
- Other audit fees - - 18
- Other services 65 84 91
Loss on disposal of property, plant and equipment - 504 503
===================================
Analysis of fees paid to the auditor for other services:
Indirect tax consultancy 13 60 61
Corporate tax services 52 24 24
Other - - 6
___________________________________
Total as above 65 84 91
===================================
8. Staff numbers (including directors)
Average for the period:
30 30 31
June June December
2006 2005 2005
Direct customer contact staff 1,506 1,309 1,377
Support staff 383 320 339
___________________________________
Total 1,889 1,629 1,716
===================================
9. Finance charges
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Term loan interest 150 896 1,520
Finance lease interest 378 154 388
Letter of credit charges 115 110 221
Other - - 33
___________________________________
Total finance charges 643 1,160 2,162
===================================
10. Taxation
30 30 31
June June December
2006 2005 2005
£000 £000 £000
UK Corporation tax
Current charge at 30% 23,259 14,777 36,051
Under provision relating to prior periods -
corporation tax - - 11
__________________________________
Current tax charge 23,259 14,777 36,062
Deferred tax
Current period deferred taxation movement (2,646) 1,539 (654)
Over provision relating to prior periods - deferred
tax - - (634)
__________________________________
Total tax charge per income statement 20,613 16,316 34,774
===================================
Factors affecting the tax charge are:
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Profit before taxation 68,706 55,587 119,494
Corporation tax thereon at 30% 20,613 16,676 35,848
Utilisation of brought forward tax losses - (360) (421)
Adjustments in respect of prior year insurance technical
provisions - - (161)
Expenses and provisions not deductible for tax purposes - - 152
Other timing differences - - (21)
Adjustments relating to prior periods - - (623)
__________________________________
Tax charge for the period as above 20,613 16,316 34,774
===================================
11. Earnings per share
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Profit for the period after taxation 48,093 39,271 84,720
Weighted average number of shares - basic 260,257,778 258,595,400 258,987,515
Earnings per share - basic 18.5p 15.2p 32.7p
=======================================
Weighted average number of shares - diluted 260,698,278 259,861,400 259,387,515
Earnings per share - diluted 18.4p 15.1p 32.7p
=======================================
12. Dividends
Dividends were declared and paid as follows:
30 30 31
June June December
2006 2005 2005
£000 £000 £000
March 2005 (9.3p per share, paid May 2005) - 24,049 24,049
September 2005 (9.7p per share, paid October
2005) - - 25,141
March 2006 (14.9p per share, paid May 2006) 38,666 - -
_____________________________________
Total dividends 38,666 24,049 49,190
=====================================
The dividend declared in March 2005 represents the final dividend paid in
respect of the 2004 financial year (September 2005 - interim payment for 2005).
The dividend declared in March 2006 was the final distribution in respect of
2005.
13. Intangible assets
Goodwill Deferred Software Total
acquisition
costs
£000 £000 £000 £000
Carrying amount:
At 1 January 2005 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
====================================================
At 1 January 2005 62,354 2,794 1,319 66,467
Additions - 7,407 385 7,792
Amortisation charge - (6,873) (896) (7,769)
____________________________________________________
At 31 December 2005 62,354 3,328 808 66,490
Additions - 3,307 96 3,403
Amortisation charge - (3,467) (234) (3,701)
____________________________________________________
At 30 June 2006 62,354 3,168 670 66,192
====================================================
14. Property, plant and equipment
Improvements to Computer Office Furniture Motor Total
short leasehold equipment equipment and fittings vehicles
buildings
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
========================================================================
Cost
At 1 January 2005 1,931 6,792 2,978 1,627 12 13,340
Additions 567 2,742 155 150 - 3,614
Disposals (1,818) - (510) (405) - (2,733)
________________________________________________________________________
At 31 December 2005 680 9,534 2,623 1,372 12 14,221
________________________________________________________________________
Depreciation
At 1 January 2005 1,554 4,424 2,467 1,545 1 9,991
Charge for the year 226 1,179 355 61 3 1,824
Disposals (1,352) - (502) (376) - (2,230)
________________________________________________________________________
At 31 December 2005 428 5,603 2,320 1,230 4 9,585
________________________________________________________________________
Net book amount
At 31 December 2005 252 3,931 303 142 8 4,636
========================================================================
Cost
At 1 January 2006 680 9,534 2,623 1,372 12 14,221
Additions 808 902 1,151 336 - 3,197
Disposals - (5) - - - (5)
________________________________________________________________________
At 30 June 2006 1,488 10,431 3,774 1,708 12 17,413
________________________________________________________________________
Depreciation
At 1 January 2006 428 5,603 2,320 1,230 4 9,585
Charge for the year 34 869 138 49 2 1,092
Disposals - (5) - - - (5)
________________________________________________________________________
At 30 June 2006 462 6,467 2,458 1,279 6 10,672
________________________________________________________________________
Net book amount
At 30 June 2006 1,026 3,964 1,316 429 6 6,741
========================================================================
The net book value of assets held under finance leases is as follows:
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Computer equipment 3,510 2,414 2,380
Office equipment 271 736 767
___________________________________
3,781 3,150 3,147
===================================
15. Financial assets
The Group's financial assets can be analysed as follows:
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Investments held at fair value 278,981 247,518 255,937
Receivables - amounts owed by policyholders 136,373 119,357 122,810
___________________________________
Total financial assets 415,354 366,875 378,747
===================================
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
2006 2005 2005
£000 £000 £000
Fixed income securities:
Government bonds 114,059 68,188 83,071
Other listed securities 151,475 168,640 156,071
Variable interest securities:
Other listed securities 13,447 10,690 16,795
___________________________________
278,981 247,518 255,937
===================================
16. Reinsurance assets and insurance contract liabilities
A) Analysis of recognised amounts:
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Gross:
Claims outstanding 187,490 159,392 170,216
Unearned premium provision 94,198 82,236 83,914
___________________________________
Total gross insurance liabilities 281,688 241,628 254,130
===================================
Recoverable from reinsurers:
Claims outstanding 43,865 46,367 41,585
Unearned premium provision 24,795 14,332 12,581
___________________________________
Total reinsurers' share of insurance liabilities 68,660 60,699 54,166
===================================
Net:
Claims outstanding 143,625 113,025 128,631
Unearned premium provision 69,403 67,904 71,333
___________________________________
Total insurance liabilities - net 213,028 180,929 199,964
===================================
B) Analysis of net claims reserve releases:
The following table analyses the impact of movements in prior year claims
provisions, in terms of their net value, and their impact on the reported loss
ratio. This data is presented on an underwriting year basis.
Six months ended
30 31 December 30
June 2005 June 2006
2005
£000 £000 £000
Underwriting year:
2000 370 - 370
2001 1,483 3,560 692
2002 1,937 3,229 1,937
2003 1,387 3,235 2,311
2004 - 2,076 4,091
2005 - - 437
______________________________
Total net release 5,177 12,100 9,838
Net premium revenue 63,833 75,621 74,863
Release as % of net premium revenue 8.1% 16.0% 13.1%
Financial year ended 31 December
2001 2002 2003 2004 2005
£000 £000 £000 £000 £000
Underwriting year:
2000 3,923 6,188 5,176 1,480 370
2001 - 2,490 7,938 2,967 5,043
2002 - - 2,975 3,229 5,166
2003 - - - 1,513 4,622
2004 - - - - 2,076
__________________________________________________
Total net release 3,923 8,678 16,089 9,189 17,277
Net premium revenue 84,135 81,336 79,327 107,501 139,454
Release as % of net premium revenue 4.7% 10.7% 20.3% 8.5% 12.4%
C) Reconciliation of movement in net claims reserve:
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Net claims reserve at start of period 128,631 98,120 98,120
Net claims incurred 54,130 45,683 97,324
Net claims paid (39,136) (30,778) (66,813)
____________________________________
Net claims reserve at end of period 143,625 113,025 128,631
====================================
D) Reconciliation of movement in net unearned premium provision:
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Net unearned premium provision at start of period 71,333 51,850 51,850
Written in the period 73,499 80,539 160,244
Earned in the period (75,429) (64,485) (140,761)
_____________________________________
Net unearned premium provision at end of period 69,403 67,904 71,333
=====================================
17. Trade and other receivables
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Trade debtors 9,739 27,955 6,905
Prepayments and accrued income 2,010 1,649 2,487
_____________________________________
Total trade and other receivables 11,749 29,604 9,392
=====================================
18. Cash and cash equivalents
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Cash at bank and in hand 112,206 97,377 109,506
Cash on short term deposit 17,243 21,799 40,646
____________________________________
Total cash and cash equivalents 129,449 119,176 150,152
=====================================
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.
19. Financial liabilities
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Interest bearing bank loans - 29,471 22,000
=====================================
Analysis of borrowings:
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Repayments falling due within 12 months - 11,471 -
Repayments falling due after 12 months - 18,000 22,000
_____________________________________
- 29,471 22,000
=====================================
The Group's £30m debt facility is an unsecured revolving credit arrangement.
Interest is charged on amounts drawn down based on LIBOR plus a margin.
The facility was repaid during February 2006, as the funds were not required.
Funds continue to be available under the facility, which expires in 2008.
20. Deferred income tax liability
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Brought forward at start of period 3,550 4,838 4,838
Movement in period (2,646) 1,539 (1,288)
____________________________________
Carried forward at end of period 904 6,377 3,550
====================================
The net balance provided at the end of the current period is made up of a gross
deferred tax liability of £1,170,000 (2005 H1: £6,671,000, full year:
£3,816,000) relating to the tax treatment of Lloyd's Syndicates, and a deferred
tax asset of £266,000 (2005 H1: £294,000, full year; £266,000) in respect of
other timing differences.
21. Trade and other payables
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Trade payables 3,516 3,475 4,423
Amounts owed to co-insurers and reinsurers 111,502 105,325 98,054
Finance leases due within 12 months 1,796 1,696 1,963
Finance leases due after 12 months 450 491 886
Other taxation and social security liabilities 4,809 3,943 4,174
Other payables 11,023 13,294 10,066
Accruals and deferred income (see below) 67,154 61,842 63,369
____________________________________
Total trade and other payables 200,250 190,066 182,935
====================================
Analysis of accruals and deferred income:
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Premium receivable in advance of policy 33,644 31,626 30,471
inception
Accrued expenses 24,949 22,067 24,559
Deferred income 8,561 8,149 8,339
____________________________________
Total accruals and deferred income as above 67,154 61,842 63,369
====================================
Analysis of finance lease liabilities:
At 30 June 2006 At 30 June 2005
Minimum Interest Principal Minimum Interest Principal
lease lease
payments payments
£000 £000 £000 £000 £000 £000
Less than one year 275 20 255 760 34 726
Between one and five
years 2,059 68 1,991 1,754 293 1,461
_______________________________________________________________________
2,334 88 2,246 2,514 327 2,187
=======================================================================
At 31 December 2005
Minimum Interest Principal
lease
payments
£000 £000 £000
Less than one year 2,171 208 1,963
Between one and five years 921 35 886
________________________________
3,092 243 2,849
================================
22. Share capital
30 30 31
June June December
2006 2005 2005
£000 £000 £000
Authorised:
500,000,000 ordinary shares of 0.1p 500 500 500
==================================
Issued, called up and fully paid:
260,720,271 ordinary shares of 0.1p 261 - -
258,595,400 ordinary shares of 0.1p - 259 -
259,861,965 ordinary shares of 0.1p - - 260
__________________________________
261 259 260
==================================
During the first half of 2006, 858,306 new ordinary shares of 0.1p were issued
to the trusts administering the Group's share schemes.
330,306 of these were issued to the Admiral Group Share Incentive Plan Trust for
the purposes of this share scheme. These shares are entitled to receive
dividends.
528,000 were issued to the Admiral Group Employee Benefit Trust for the purposes
of the Admiral Group Senior Executive Restricted Share Plan. The Trustees have
waived the right to dividend payments, other than to the extent of 0.001p per
share, unless and to the extent otherwise directed by the Company from time to
time.
Staff share schemes:
Analysis of share scheme costs (per income statement):
30 30 31
June June December
2006 2005 2005
£000 £000 £000
SIP charge (note i) 217 54 263
UFSS charge (note ii) 203 71 175
_________________________________
Total share scheme charges 420 125 438
=================================
(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
the first half of each year is £1,500 and £3,000 for the full year per employee.
For maximum awards to be made, the Group's profit must exceed budget by 11.5 per
cent. Employees must remain in employment until the vesting date (three years
from the date of award), otherwise the shares will be forfeited (unless they are
classed as a 'good leaver').
The fair value of shares awarded is either the share price at the date of award,
or is estimated at the latest share price available when drawing up the
financial statements for awards not yet made (and later 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)
Employees are eligible to receive an award of shares at no charge. Staff must
remain in employment until the vesting date (which is three years from the award
date) in order for the shares to vest.
For an award to vest under the 2005 scheme, 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. This hurdle has been removed for awards made under the 2006
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 date on which awards were made.
Number of free share awards committed at 30 June 2006:
Awards Vesting
outstanding date
SIP H1 05 scheme 581,565 September 2008
SIP H2 05 scheme 330,306 March 2009
SIP H1 06 scheme (estimated) 440,500 September 2009
UFSS 2005 scheme 759,697 June 2008
UFSS 2006 scheme 603,209 April 2009
__________
Total awards committed 2,715,277
==========
This reflects the maximum number of awards expected to be made before accounting
for staff attrition. Of the 2,715,277 share awards outstanding above, 2,142,871
have been issued to the trusts administering the schemes, and are included in
the issued share capital figures above.
23. Analysis of movements in capital and reserves
Share Share Capital Retained Total equity
capital premium profit and
account redemption loss
reserve
£000 £000 £000 £000 £000
At 1 January 2005 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 17 146,792 160,213
=========================================================
At 1 January 2005 259 13,145 17 131,213 144,634
Retained profit for the period - - - 84,720 84,720
Dividends - - - (49,190) (49,190)
Issues of share capital 1 - - - 1
Share scheme charges - - - 1,247 1,247
_________________________________________________________
As at 31 December 2005 260 13,145 17 167,990 181,412
Retained profit for the period - - - 48,093 48,093
Dividends - - - (38,666) (38,666)
Issues of share capital 1 - - - 1
Share scheme charges - - - 1,200 1,200
_________________________________________________________
As at 30 June 2006 261 13,145 17 178,617 192,040
=========================================================
24. Financial commitments
The Group was committed to obligations under operating leases on land and
buildings as follows:
30 30 31
June June December
Operating leases expiring: 2006 2005 2005
£000 £000 £000
Within one years 22 308 434
Within two to five years 30 62 52
Over five years 2,475 1,056 2,820
___________________________________
Total commitments 2,527 1,426 3,306
===================================
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
2006 2005 2005
£000 £000 £000
Expenditure contracted to 1,021 75 1,342
===================================
Independent review report to Admiral Group plc
Introduction
We have been engaged by the Company to review the financial information for the
six months ended 30 June 2006, which comprise the Group Income Statement, the
Group Balance Sheet, the Group statement of recognised income and expense, the
Group cash flow statement and the related notes. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
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 of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual financial statements except
where any changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
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 excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
International Standards on Auditing (UK and Ireland) 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 2006.
KPMG Audit plc, Cardiff, 4 September 2006.
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