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Abbey Protection PLC (ABB)

  Print          Annual reports

Tuesday 26 March, 2013

Abbey Protection PLC

Final Results

RNS Number : 8328A
Abbey Protection PLC
26 March 2013
 



 

Abbey Protection PLC


26 March 2013

Preliminary Results for the year ended 31 December 2012

Abbey Protection plc ("Abbey Protection" or the "Group"), the specialist supplier of legal and professional fees insurance products and services to UK small-to-medium sized enterprises, today announces preliminary results for the twelve months ended 31 December 2012.

 

Highlights

 

·      3% growth in pre-tax profits to £10.3m 

·      Total revenue up 7% to £38.7m

·      2% increase in EBITDA to £10.9m

·      Claims ratio of 69.0% (2011: 65.2%)

·      Cash and financial investment balances of £42.6m (2011: £39.4m)

·      Balance sheet remains strong with shareholders' funds up 12% to £32.3m

·      Second dividend of 2.8p, with total dividend for the year up 11% at 4.9p per share (2011: 4.4p)

·      Outlook positive, with significant opportunities for specialist legal and tax services

 

 

Colin Davison, Chief Executive Officer, commented:

"The resilience of our business model has once again stood the Group in good stead against some expected strong headwinds in 2012 and I'm delighted to report another year of revenue and profit growth, driven by a robust performance from our core legal and tax divisions.

 

"The granting of an Alternative Business Structure (ABS) Licence at the start of 2013 and the subsequent acquisition of Lewis Hymanson Small Solicitors LLP (LHS) will finally enable us to provide a wider range of legal services to our SME clients. This, combined with the on-going development of our specialist tax services, our balance sheet strength and continued risk management focus, means we enter 2013 well positioned to deliver further profitable growth."

 

Tony Shearer, Chairman, commented:

"The underlying performance of the Group and the exciting opportunities available from the freeing up of the legal service market give us renewed confidence for the year ahead. Our shareholders continue to benefit from the progressive distribution policy, with the second interim dividend, payable on 11 April 2013, making a total distribution in respect of 2012 of 4.9p a share, representing an increase of 11% over 2011."

 

 

Financial Highlights


Year ended
31 December 2012

Year ended
31 December 2011

Growth

Total revenue

£38.7m

£36.2m

7%

Profit before tax

£10.3m

£10.1m

3%

EBITDA*

£10.9m

£10.7m

2%

Profit after tax

£7.9m

£7.6m

4%

Basic earnings per share

7.93p

7.60p

4%

Dividend Per Share

4.9p

4.4p

11%

 

*Earnings before interest payable, taxation, depreciation and amortisation charges

 

Analyst Presentation

 

There will be an analyst presentation to discuss the results at 9.30am today at FTI Consulting, 26 Southampton Buildings, London WC2A 1PB.

Those analysts wishing to attend and who have not already registered are asked to contact Tom Willetts on +44 020 7269 7175 [email protected]   

Abbey Protection's annual report for the year ended 31 December 2012 can be viewed and downloaded from Abbey Protection's website www.abbeyprotectionplc.com

Enquiries

Abbey Protection plc

Minories House
2-5 Minories
London
EC3N 1BJ

 

Colin Davison
Chris Ward
Adrian Green

+44 (0)845 217 8293

 

 

 

 

 

 

 

 

Shore Capital (Nomad & Joint Broker)

Bidhi Bhoma
Toby Gibbs

 

+44 (0)20 7408 4090

 

Numis (Joint Broker)

Charles Farquhar

 

FTI Consulting

Ed Berry
Tom Willetts

+44 (0)20 7260 1233

 

 

+44 (0)20 7269 7297 / 7175

Notes to Editors

About Abbey Protection PLC

 

Abbey Protection plc is an integrated specialist insurance and consultancy group, and the UK's leading supplier of legal and professional fees insurance products and services to small-to-medium sized enterprises. The Group's principal products provide protection against costs incurred as a result of legal actions and HM Revenue & Customs investigations.

 

Founded in 1992, the Group operates from offices in London, Rugby, Croydon, Milton Keynes and Chester and had 235 employees as at 31 December 2012. Abbey Protection distributes its products and services through the following businesses: Abbey Legal Protection, Abbey Legal Services, Abbey Tax Protection, Abbey HR, Accountax, After The Event Services, Abbey Property Facilities and Lewis Hymanson Small Solicitors.

 

Visit the Abbey Protection website at www.abbeyprotectionplc.com for more information.

 

Chairman's statement

Our results for 2012 show a 3% increase in profits to £10.3m, reflecting what we predicted a year ago - namely that 2012 was likely to prove a challenging year, with an expectation of a modest increase in profits.

This "modest" increase in profits in fact masks a strong underlying performance from the business, which was facing strong headwinds from the anticipated lower profits from our captive reinsurance vehicle, Ibex; and the loss of revenue in the legal division from a significant corporate client as that client ceased trading. Of our core trading divisions, the Tax division in particular put in a very strong performance during the year, whilst the legal divisions delivered a solid set of results in challenging circumstances. The smaller divisions produced mixed results for the year and we invested in the establishment of our new property facilities division.  

Our biggest disappointment was that, despite all our efforts, we had to wait until January 2013 to obtain a licence to become an Alternative Business Structure (ABS) following the de-regulation of the legal services market; we had originally thought that we would obtain the licence towards the end of 2011 and then in 2012, but at last we now have the licence and at the end of February we were also able to complete the acquisition of Lewis Hymanson Small Solicitors LLP (LHS), a law firm that we have known well for many years. This acquisition will enable us to provide a wider range of legal services, not only to our traditional SME clients but also to larger businesses. We shall focus on our traditional strengths of a reputation for excellence of service and the ability to provide customised and pragmatic solutions to the issues faced by the modern business. We believe that there is a real opportunity for us to grow in this sector through the combination of the "freeing up" of the legal services market together with the financial difficulties that many law firms, with whom we are now able to compete on a level playing field, face with downward pressure on their fees and their high overhead costs.  

Our balance sheet remains strong, with shareholders' funds up 12% to £32.3m and this underpins the 11% increase in the total dividend for the year.

We expect that 2013 will also present challenges, partly as we invest in and integrate our new law firm, and also due to the continuing pressure that many of our traditional clients continue to experience in a very weak economy. However, the Group is soundly capitalised and the Board believes we are strongly placed, and so we look forward to 2013 with confidence.

As always, I am grateful to our management team and staff for their continuing hard work and sterling efforts which ensure the continued success of our business.

 

 

Tony Shearer

Chairman

25 March 2013

 

Chief Executive's statement

2012 was always going to be a tough year for the Group, so I am delighted to be able to report a 7% increase in revenue to £38.7m and a 3% increase in pre-tax profits to £10.3m.

 

A year ago our expectation was that we were facing two specific headwinds, namely a reduction in revenue within the legal division following the loss of a significant corporate client as it wound down and ceased trading together with an increase in incurred claims levels in Ibex, our reinsurance company. In addition, we anticipated the prevailing generally weak macro-economic conditions. Unfortunately, these issues were exacerbated as the expected licencing to expand our legal services offering did not materialise in 2012.

 

Consequently, we are very pleased with these results as they show that the underlying trading from our core legal and tax divisions remains strong and again demonstrates that our business model is robust. I believe that our emphasis on risk management controls and excellence of service has and will continue to stand us in good stead in continuing difficult market conditions.

 

Review of the Year

 

Profits from the two core trading divisions of Abbey Legal and Abbey Tax Protection were up 13% at £6.3m, with combined total revenues increasing by 7% to £19.1m.

These two divisions generate the majority of the premium throughput into Ibex and the results from these three core divisions continues to underpin the performance of the Group; total revenue at £34.7m forms 90% (90% in 2011) of the Group total; whilst the combined profit contribution at £10.0m was 97% (99% in 2011) of overall Group profits.  

The strongest performance for 2012 came from Abbey Tax where total revenues were up 15% to £8.8m and profits rose by 21% to £3.5m. The drivers for this result were, again, the specialist consultancy services and tax planning insurance products where revenues increased by 29%.

 

Our fee protection insurance schemes are at the core of the Abbey Tax business and these accountancy relationships enabled the division to achieve its goal of providing complementary products through its client base. In a market place that continues to be competitive, renewal retention rates were again strong with renewal premium revenues at 96% of 2011 written values and new business sales for the year totalled £0.7m.

 

Although both the revenue and profits were broadly flat at £10.3m and £2.8m respectively, 2012 represented a solid performance from the Abbey Legal division. The employment litigation fee earning unit had to face a significant loss of revenue resulting from one of the Group's largest corporate clients going into administration at the end of 2011.

 

Renewal retention premium from our schemes and affinity group accounts exceeded 100% in £'s terms for 2012, with a number of clients producing increased income from their membership. With new business sales exceeding £1m for the year we are well placed to grow the account again and take advantage of opportunities available in the legal services market.  

 

The profits in our reinsurance company, Ibex, were down for the year at £3.8m (2011: £4.4m). This was as a result of some larger one-off claims costs from earlier underwriting years impacting the account, but we remain delighted with the overall stability of the underwriting results and a claims ratio of 69.0% (2011: 65.2%).

 

Group investment income remained depressed at £0.8m, but we remain committed to our policy of capital preservation, with investments consisting of cash and short term certificates of deposit.

 

The After the Event division had a strong year with sales from its Law Society backed Accident Line scheme up 9% - the predicted end of this injury compensation scheme failed to materialise in 2012 as the implementation of the "Jackson reforms" was delayed until 2013. Gross premium sales from our commercial ATE policies exceeded £1.3m.  

 

I was particularly pleased with Abbey HR, where a 27% increase in revenues helped the division make a positive profit contribution to the Group for the first time.

 

Accountax had a difficult year with the consulting division suffering from revenue reductions, some of which has been the result of clients converting to annual retainer contracts with a consequent short term impact on accounted for revenue. More pleasing was the stabilisation of the revenue produced by the tele-marketing team, where the initiatives we pushed through 12 months ago are now beginning to bear fruit. 

 

Our new venture, Abbey Property Facilities, contributed a loss for the year, reflecting their start-up costs. This new venture is 60% owned by the Group and markets and administers services to assist owners of vacant properties mitigate their rates liabilities.  

 

Dividend

We recently announced a second interim dividend of 2.8p, which together with the dividend paid in October 2012, results in a total dividend for the year of 4.9p (2011: 4.4p), an increase of 11%. This is in line with our progressive and sustainable dividend policy and reflects not only our strong balance sheet and cash generation, but our confidence in the long term future for the business.  

 

Current Trading and Outlook

 

We are cautiously optimistic for the year ahead. We have our challenges - the macro-economic climate remains subdued, which will undoubtedly have an impact on our core SME clients. The Jackson reforms are likely to be implemented in the spring of 2013, which will necessitate a product re-launch and some revenue reduction for the ATE division.

However, our underlying business model is sound and we are confident in the continued growth in sales of our core insurance products in both the Tax and Legal divisions and the stability in the results of our reinsurance vehicle, Ibex. We anticipate that the investments we made in our ReCap product (capital allowances surveying service) and Abbey Property Facilities will bear fruit in 2013 and help us drive profits forward.

We have at long last been awarded our Alternative Business Structure (ABS) licence from 1 January 2013 and this will enable us to deliver our long mooted plans of expanding the range of legal services we offer to our SME clients. This will be achieved by an investment in our own in-house Abbey Legal Services team and also by the acquisition of a law firm, Lewis Hymanson Small Solicitors LLP, a transaction which we completed on 28 February 2013.

Directors

I would like to thank my fellow main board directors for their input and guidance, as well as my fellow executive directors on our trading company boards whose contribution has been invaluable.

 

Staff and Shareholders

 

My thanks, yet again to our staff, whose dedication and professionalism are the backbone of our Company - their efforts are appreciated not only by our clients but especially by our Executive board. I would also like to acknowledge the support of our shareholders, both institutional investors and private client investors alike for their continued interest and investment in our business.  

 

Colin Davison

Chief Executive

25 March 2013

Financial review

As presented in note 5 to the financial statements, the Group has four principal operating segments, (Abbey Legal Protection, Abbey Tax Protection, Accountax and Insurance Underwriting) with the aggregate results of Abbey HR, ATE services and Abbey Property Facilities presented as "Other". 

 

Revenue, Expenses and Claims costs

 

Total Group revenue for 2012 at £38.7m was up nearly £2.5m over 2011 representing an increase of nearly 6.8%.

 

Investment income at £0.8m was marginally ahead of prior year experience and consistent with the low interest rate environment which has persisted throughout the year. The 2012 return was flattered by £127,000 of unrealised gains (2011: unrealised loss of £69,000) on the portfolio of certificates of deposit, which given our investment approach, are likely to reverse over successive periods. We now expect investment returns to remain low for an extended period but we continue to follow our low risk investment strategy of holding cash, short term deposits and certificates of deposit.

 

Acquisition costs (associated with Ibex Reinsurance Limited) increased by £0.5m due to higher profit commission liabilities whilst other operating and administrative expenses increased by 3.7% to £16.7m (2011: £16.1m). Average headcount was broadly level at 235 (2011: 236) but staff costs have increased by 3.2% recognising the need to maintain a fair and focused remuneration strategy. Staff costs including associated expenses represent circa 74% (2011: 75%) of operating and administration expenses. An analysis of average headcount by division is included in note 11 to the financial statements.

 

Claims incurred, including provision for claims "Incurred But Not Reported" ("IBNR") across all underwriting years represented 69.0% (2011: 65.2%) of net earned premiums. The underwriting business (comprising a quotashare reinsurance treaty covering business administered by Abbey Legal Protection and Abbey Tax protection) has continued to grow since the formation of Ibex Reinsurance Limited, the Group's Guernsey based captive reinsurance subsidiary, in 2003. This growth has been supplemented by the increased participation in the inward quotashare reinsurance treaty to 90% (formerly 80%) from 1 January 2008. A summary of the development of each underwriting year is shown in the tables within note 4 to the financial statements. 

 

Profit and EBITDA

 

2012 profit before taxation was up 2.6% to £10.3m and EBITDA (profits adjusted for tax, depreciation and amortisation charges) at £10.9m was up 2.3% from £10.7m in 2011. 

Taxation

 

The effective rate of corporation tax for the year was lower at 23.7% (2011: 24.8%) reflecting the reduction of corporation tax rates in the UK. UK tax has been provided on the profits of Ibex Reinsurance Company Limited as they arise.

 

Cash flow

 

Cash generated from operating activities was again strong at £9.9m (2011: £8.9m) and as expected, net cash from operating activities exceeded profit after tax for the year. After the payment of dividends, cash and financial investment balances increased by £3.2m to £42.6m (2011: £39.4m). 

 

Dividends

 

A total dividend of 4.9 pence per share has been declared for 2012 (2011: 4.4 pence per share) representing a payout ratio of 62% (dividend cover of 1.6 times) and growth of 11%. The Group is pursuing a progressive dividend policy. 

 

Balance sheet

 

The increase in trade receivables during the year is partly attributable to further growth in the After the Event account (where premiums are deferred) and partly to an increase in revenues. The Group manages receivables closely and as a result, the incidence of bad debt is low. The increase in trade payables is predominantly due to insurer participation in the increased trade receivables balances.

 

During the year, the Company has remained debt free. Whilst debt funding remains an option, the Company has sufficient cash resources for its immediate needs. 


Risk Management

A comprehensive summary of the risks facing the business and how those risks are managed is disclosed within note 4 to the financial statements.

 

Regulatory Solvency Requirements

 

Details of the regulatory solvency requirements associated with the Group's activities are disclosed in note 35 to the financial statements. As at 31 December 2012 the Group had circa twenty-two times the minimum required eligible assets available to support its UK intermediation activities and over five times the minimum required eligible assets available to support its Guernsey based reinsurance activities.

 

Treasury policy

 

The Company has adopted a prudent treasury policy for its cash and investments. Counterparty exposure is limited and credit quality monitored to ensure a low risk of default. 

 

A successful growth story

 

The table below demonstrates the growth and consistent profitability of the business over the last five years: 

 



2008

2009

2010

2011

2012








Revenue


£30.251m

£32.945m

£34.914m

£36.220m

£38.679m

Profit before taxation


£8.267m

£8.745m

£9.553m

£10.054m

£10.311m

Profit after taxation


£6.040m

£6.383m

£6.908m

£7.563m

£7.922m

Incurred claims ratio


63.92%

63.22%

62.56%

65.21%

69.01%

Cash & investments


£33.631m

£37.134m

£38.333m

£39.419m

£42.551m

Shareholders' funds


£19.368m

£22.400m

£25.722m

£28.954

£32.349m

 

*attributable to owners of the Company.

Despite the uncertainties in the wider economy, the business remains well placed to continue to deliver positive returns for shareholders and to take advantage of opportunities as they present themselves. 

 

 

Adrian Green

Group Finance Director

25 March 2013

Consolidated income statement

For the year ended 31 December 2012


Note



2012


2011






£000


£000


£000


£000

Revenue























Intermediary, advisory and other income

6





22,861




21,465













Gross and net premiums written




15,179




14,122



Gross and net change in provision for unearned premiums




(118)




177



Gross and net premiums earned






15,061




14,299













Net investment return

7





757




456













Total revenue






38,679




36,220













Expenses























Claims and change in insurance liabilities

8



(10,393)




(9,325)



Acquisition costs

9



(1,286)




(744)



Other operating and administrative expenses

10



(16,689)




(16,097)















Total operating expenses






(28,368)




(26,166)













Profit before tax

 






10,311




10,054













Tax expense

13





(2,443)




(2,491)













Profit for the period






7,868




7,563













Attributable to:

 











Owners of the company






7,922




7,563

Non-controlling interests






(54)




-







7,868




7,563

Earnings per share











From continuing operations






Pence per share




Pence per share













Basic

15





7.93




7.60













Diluted

15





7.87




7.53













There were no discontinued operations.











 

There was no other comprehensive income.

 

Consolidated statement of changes in equity

For the year ended 31 December 2012

 


Share capital

Share premium

Merger reserve

Equity

settled share incentive reserve

Capital

redemption reserve

Reverse takeover reserve

Own shares

Retained earnings

Total

Non-controlling interest

Total Equity


£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000













Shareholders' equity at 1 January 2011

1,000

3,558

282

553

557

188

(394)

19,978

25,772

-

25,772

Equity settled share-based payments

-

-

-

(315)

-

-

-

(91)

(406)

-

(406)

Ordinary dividend paid

-

-

-

-

-

-

-

(4,184)

(4,184)

-

(4,184)

Acquisition of treasury shares

-

-

-

-

-

-

(698)

-

(698)

-

(698)

Own shares released on vesting of share options

-

5

-

-

-

-

952

-

957

-

957

Profit for the year

-

-

-

-

-

-

-

7,563

7,563

-

7,563

Shareholders' equity at 31 December 2011

1,000

3,563

282

238

557

188

(140)

23,266

28,954

-

28,954

 

Equity settled share-based payments

-

-

-

(43)

-

-

-

(47)

(90)

-

(90)

Ordinary dividend paid

-

-

-

-

-

-

-

(4,593)

(4,593)

-

(4,593)

Acquisition of treasury shares

-

-

-

-

-

-

(138)

-

(138)

-

(138)

Own shares released on vesting of share options

-

21

-

-

-

-

273

-

294

-

294

Profit for the year

-

-

-

-

-

-

-

7,922

7,922

(54)

7,868

Shareholders' equity at 31 December 2012

1,000

3,584

282

195

557

188

(5)

26,548

32,349

(54)

32,295

Consolidated balance sheet

At 31 December 2012



Note



2012


2011





£000


£000

Assets







Goodwill

16



4,618


4,618

Other intangible assets

17



872


1,191

Property, plant and equipment

18



1,380


1,484

Financial investments

20



20,375


21,840

Deferred tax asset

21



16


-

Trade and other receivables

22



32,101


26,202

Cash and cash equivalents

23



21,816


17,579









Total assets




81,538


72,914


 

 

 

 

 

 

 

Liabilities







Insurance contract provisions

24



18,037


18,457

Finance lease obligations

25



44


101

Deferred tax liabilities

21



-


87

Current tax liabilities




1,185


1,144

Accruals and deferred income

26



9,260


8,899

Trade and other payables

27



20,717


15,272













Total liabilities




49,243


43,960









Equity







Share capital

28



1,000


1,000

Share premium

29



3,584


3,563

Own shares




(5)


(140)

Retained earnings




26,548


23,266

Merger reserves




282


282

Reverse takeover reserve




188


188

Capital redemption reserve




557


557

Equity settled share incentive reserve




195


238

Equity attributable to the owners of the Company




32,349


28,954













Non-controlling interests




(54)


-













Total shareholders' equity




32,295


28,954

 

The financial statements were approved by the Board of directors and authorised for issue on 25 March 2013. They were signed on its behalf by:

 

Colin Davison                                                Chris Ward

Group Chief Executive                                   Group Managing Director

 

Consolidated cash flow statement

For the year ended 31 December 2012








Note



2012


2011





£000


£000








Profit before tax




10,311


10,054








Adjusted for:







Interest receivable




(630)


(525)

(Profit)/loss on disposal of assets




(2)


5

Amortisation of intangible assets

17



398


397

Depreciation of property, plant and equipment

18



217


232

Equity settled share-based payments




121


136

Increase in receivables




(5,898)


(2,536)

Increase in payables




5,364


1,137

Cash generated by operations




9,881


8,900








Interest received




629


473

Tax paid




(2,505)


(3,672)

Net cash from operating activities




8,005


5,701








Investing activities







Sales/(purchases) of financial investments




1,105


(2,386)

Purchases of intangible assets

17



(79)


(43)

Purchases of property, plant and equipment

18



(146)


(105)

Net cash generated/(used) in investing activities




(880)


(2,534)








Financing activities







Equity dividend paid

14



(4,593)


(4,184)

Purchase of own shares




(92)


(698)

Receipts on exercise of share options




37


415

Net cash used in financing activities




(4,648)


(4,467)








Net increase/(decrease) in cash and cash equivalents




4,237


(1,300)

Cash and cash equivalents at beginning of the period




17,579


18,879

Cash and cash equivalents at the end of the period




21,816


17,579

 

Notes to the financial statements
1 General information

Abbey Protection Limited was incorporated on 24 August 2007 as a shell company to facilitate the acquisition and listing on the Alternative Investment Market of the London Stock exchange (AIM) of Abbey Protection Group Limited. On 14 November 2007, Abbey Protection Limited was re-registered as Abbey Protection plc and then acquired Abbey Protection Group Limited under a share for share exchange agreement. On 29 November 2007, Abbey Protection plc was admitted to trading on AIM.

 

In order to appropriately reflect the substance of the transaction outlined above, the new holding company was accounted for using the reverse acquisition principles outlined in IFRS3 Business Combinations. Consequently, Abbey Protection Group Limited was deemed to be the acquirer for accounting purposes and the legal parent, Abbey Protection plc, was treated as the subsidiary whose identifiable assets and liabilities are incorporated into the Group at fair value.

 

2 Significant accounting policies

 

The principal accounting policies adopted in preparing the International Financial Reporting Standards (IFRS) consolidated financial statements of Abbey Protection plc and its subsidiaries (the "AP Group") are set out below and have been applied consistently to all periods presented.

 

(a) Statement of compliance

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations issued by the International Accounting Standards Board (IASB) as adopted by the European Union (EU).

 

In accordance with IFRS 4, Insurance Contracts, the AP Group has applied existing accounting practices for insurance and participating investment contracts, modified as appropriate to comply with the IFRS framework and applicable standards.

 

The AP Group presents its Balance Sheet in order of liquidity in accordance with IAS 1, Presentation of Financial Statements. For each asset and liability line item in the Balance Sheet that combines amounts expected to be recovered or settled within twelve months, or more than twelve months after the balance sheet date, a classification at the balance sheet date is included within the notes.

 

(b) Basis of preparation

 

(i) Basis of consolidation

 

The consolidated financial statements are presented in Pounds Sterling and are rounded to the nearest thousand unless otherwise stated. They are prepared on the historical cost basis except that financial investments (see accounting policy m) are classified as fair value through profit and loss account and stated at their fair value.

 

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

 

The results and cash flows relating to subsidiaries acquired or disposed of in the year are included in the consolidated income statement and the consolidated cash flow statement from the effective date of acquisition or up to the date of disposal. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All inter-Group transactions, balances, income and expenses are eliminated on consolidation.

 

(ii) Parent company

 

The financial statements for the Parent Company have been prepared in accordance with UK Generally Accepted Accounting Principles. Advantage was taken of the merger relief provisions within S131 Companies Act 1985 for the acquisition of Abbey Protection Group Limited by Abbey Protection plc. Accordingly, the initial investment in subsidiary undertakings has been recorded at the nominal value of the shares issued to acquire the subsidiary.

 


(iii) Use of estimates

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. 

                                                                                               

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.

 

Judgements made by management in the application of IFRS that have a significant effect on the financial statements, and estimates with a significant risk of material adjustment in the next year, are discussed in note 3.

 

(iv) Going concern

 

The financial statements are prepared on the going concern basis as explained within the Directors' Report

 

(v) Business combinations

 

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS5 Non-Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

 

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit and loss.

 

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed.

 

Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date.

 


(c) Recognition and measurement

Intermediation, advisory and other income

Intermediation, advisory and other income comprises:

·      intermediation commission receivable (excluding legal and technical advisory services income recognised separately) from clients in respect of the arrangement of legal, professional fees insurance and "after the event" policies is recognised at the date of inception of the contract;

·      fees for the provision of advisory helpline services which are recognised over the contract periods;

·      fees for legal advice and tax representation work which are recognised on a proportional basis as the work is completed;

·      fees for legal, tax and HR consultancy services which are recognised on a proportional basis as the work is completed;

·      subscriptions receivable from members of the Accident Line panel of solicitors for their participation in the Accident Line personal injury scheme which are recognised over the subscription year;

·      fees and commissions for the provision of telemarketing services which are recognised when earned;

·      fees for the provision of national non-domestic rates mitigation services which are recognised over the contract periods; and

·      management and claims handling fees arising from claims run-off contracts which are recognised over the lives of the contracts having regard to the average periods required to settle claims.


Where contractual obligations exist for the performance of post placement activities, a relevant proportion of revenue recognised on placement is deferred and recognised over the period during which these activities are performed.
 

 

Insurance premiums

 

Gross premiums written comprise the premiums on contracts entered into during the year, irrespective of whether they relate in whole or in part to a later accounting period. Premiums are disclosed gross of acquisition costs and exclude taxes and levies based on premiums. Premiums written include adjustments to premiums written in prior accounting periods and estimates for pipeline premiums. An estimate is made at the balance sheet date to recognise retrospective adjustments to premiums. The earned portion of premiums received, is recognised as revenue. Those proportions of premiums written in a year which relate to periods of risk extending beyond the end of the year are carried forward as unearned premiums. Any outward reinsurance premiums are recognised as a deduction from net insurance revenue in accordance with the contractual arrangements with reinsurers.

 

Unearned premium provision

 

The provision for unearned premiums comprises the proportion of gross premiums written which is estimated to be earned in the following or subsequent financial years, computed separately for each insurance contract using the monthly pro rata method.

 

Claims

 

Claims incurred consist of claims paid during the financial year, together with the movement in the provision for outstanding claims.

 

Claims outstanding comprise provisions for the AP Group's estimate of the ultimate cost of settling all claims incurred but unpaid at the balance sheet date whether reported or not, and related internal and external claims handling expenses. Claims outstanding are assessed by reviewing individual claims and making allowance for claims incurred but not yet reported, adjusted for the effect of both internal and external foreseeable events, such as changes in claims handling procedures, inflation, judicial trends, legislative changes and past experience.

 

Any anticipated reinsurance recoveries are presented separately as assets. Reinsurance and other recoveries are assessed in a manner similar to the assessment of claims outstanding.

 

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 financial statements for the period in which the adjustments are made, and disclosed separately if material. The methods used, and the estimates made, are reviewed regularly.

 

Unexpired risk provision

 

Provision is made for unexpired risks arising from business where the expected value of claims and expenses attributable to the unexpired periods of policies in force at the balance sheet date exceeds the unearned premiums provision in relation to such policies after the deduction of any deferred acquisition costs. The provision for unexpired risks is calculated separately by reference to classes of business which are managed together, after taking into account the relevant investment return.

 

Claims liabilities

 

The provision represents the estimated ultimate cost of settling all claims including direct and indirect settlement costs, arising from events that occurred up to the balance sheet date. Unpaid losses consist of estimates for reported losses and provisions for losses incurred but not reported.

 

Acquisition costs

 

Acquisition costs which are incurred for acquiring insurance business that is primarily related to the production of that business are deferred (see accounting policy l). Such deferred acquisition costs are finite and are amortised by reference to the basis on which the related premiums are earned which is generally one year or less.

 

(d) Investment income

 

Investment income comprises interest income and net gains/losses from financial assets designated as fair value through profit and loss earned in the period (see note 7).

 

(e) Expenses

 

(i) Operating lease payments

 

Payments made under operating leases are recognised in the Income Statement on a straight-line basis over the term of the lease. 

 

(ii) Finance lease payments

 

Leases, under the terms of which the AP Group assumes substantially all the risks and rewards of ownership, are classified as finance leases. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each year during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

 

(iii) Finance costs

 

Finance costs comprise interest payable on borrowings calculated using the effective interest rate method and are expensed in the Income Statement in the period to which they relate. No finance costs are capitalised.

 

(f) Employee benefits

 

Defined contribution plans

 

Obligations for contributions to defined contribution pension plans are recognised as an expense in the Income Statement as incurred.

 

 (g) Income tax

 

Income tax comprises current and deferred tax. Income tax is recognised in the Income Statement.

 

Current tax is the expected tax payable on the taxable profit for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

 

Deferred tax is provided in full, using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and the amounts used for taxation purposes. Temporary differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future are not provided for. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

 

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. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and liabilities are not discounted.

 

(h) Foreign currency translation

 

Transactions in foreign currencies are translated at the foreign exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the presentational currency (pounds sterling) at the foreign exchange rate prevailing at that date. Foreign exchange differences arising on translation are recognised in the Income Statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to pounds sterling at foreign exchange rates prevailing at the dates the fair value was determined.

 

(i) Segment reporting

 

A business segment is an operation that provides products or services that are subject to risks and returns that are different from other business segments and represents more than 10% of the Group's turnover or profit before tax. A geographical segment provides products or services within a particular economic environment that are subject to risks and returns that are different from other geographical segments.

 

(j) Other intangible assets

 

Depreciation is charged to the Income Statement on a straight-line basis over the estimated useful lives of each part of an item of other intangible assets.

 

The estimated useful lives are as follows:

Computer software         Over 4 years

Brands                             Over 15 years

Customer relationships    Over 5 to 7 years

 

There are no internally generated intangible assets.                     

 

(k) Property, plant and equipment

 

(i) Owned assets

 

Items of property, plant and equipment are stated at cost (or deemed cost) less accumulated depreciation (see below) and impairment losses (see accounting policy p). Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

 

(ii) Leased assets

 

Assets acquired under finance leases are capitalised at fair value as property, plant and equipment and depreciated in accordance with the AP Group's accounting policy k (iii). Lease payments are accounted for as described in accounting policy e (ii). Other leases are classified as operating leases and are not recognised on the AP Group's balance sheet.

 

 (iii) Depreciation

 

Depreciation is charged to the Income Statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated.

 

The estimated useful lives are as follows:

Freehold property                        Over 50 years

Leasehold improvements            Over the duration of the lease

Equipment and motor vehicles     Over 3 to 5 years

IT equipment                                 Over 4 years

 

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset and is recognised in income. The residual value, if not insignificant, is reassessed annually.

 

(l) Deferred acquisition costs

 

Acquisition costs comprise the reinsurance commission arising from entering into reinsurance contracts. Deferred acquisition costs represent the proportion of acquisition costs incurred which corresponds to the unearned premiums provision and are disclosed within trade and other receivables. Acquisition costs are not deferred to the extent that available future margins are not expected to cover such deferred costs.

 

(m) Financial investments

 

The Group classifies its investments as financial assets designated at fair value through profit and loss.

 

Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the assets, at their fair values less transaction costs. Investments classified at fair value through the profit and loss are subsequently carried at fair value, with changes in fair value included in the Income Statement in the period in which they arise. The fair values of investments are based on quoted bid prices.

 

Loans receivable that have fixed or determinable payments that are not quoted in an active market are measured at amortised cost using the effective interest method, less any impairment.

 

(n) Other receivables

 

Other receivables are stated at their cost less impairment losses (see accounting policy p).

 

(o) Cash and cash equivalents

 

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short term highly liquid investments with maturities of three months or less.

 

(p) Impairment

 

The carrying amounts of the AP Group's assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the carrying value is reduced to the estimated recoverable amount by means of a charge to the Income Statement.

 

(q) Dividends

 

Dividends payable on ordinary shares are recognised when they are declared. 

 

(r) Provisions and contingent liabilities

 

Provisions are recognised when the Group has a present legal or constructive obligation, as a result of past events, and it is probable that an outflow of resources, embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is more probable than not.

 

 

The Group recognises a provision for onerous contracts when the expected benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract.

 

Contingent liabilities are disclosed if the future obligation is probable but the amount cannot be reliably estimated.

 

(s) Share-based payments

 

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 30.

 

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

 

SAYE share options granted to employees are treated as cancelled when employees cease to contribute to the scheme. This results in accelerated recognition of the expense that would have arisen over the remainder of the original vesting period.

 

(t) Accounting developments

 

In the current year, the AP Group has adopted the following new Standards and Interpretations that are relevant to its operations, none of which had any significant impact on the financial statements:

 

IAS 12 (Revised 2010) Income Taxes (effective for periods beginning on or after 1st July 2011)

Amendments to IAS 12 (December 2010) Deferred tax: recovery of underlying assets (effective for periods beginning on or after 1st January 2012)

IFRS 7 (Revised 2010) Financial Instruments: Disclosures (effective for periods beginning on or after 1st July 2011)

 

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

 

IFRS 9 (new standard) Financial Instruments (effective for periods beginning on or after 1st January 2013)

IFRS 10 (new standard) Consolidated Financial Statements (effective for periods beginning on or after 1st January 2013)

IFRS 11 (new standard) Joint Arrangements (effective for periods beginning on or after 1st January 2013)

IFRS 12 (new standard) Disclosure of Interests in Other Entities (effective for periods beginning on or after 1st January 2013)

IFRS 13 (new standard) Fair Value Measurement (effective for periods beginning on or after 1st January 2013)

IAS 27 (Revised 2011) Separate Financial Statements (effective for periods beginning on or after 1st January 2013)

IAS 28 (Revised 2011) Investments in Associates and Joint Ventures (effective for periods beginning on or after 1st January 2013)

Amendments to IFRS 1 (December 2010) Severe Hyperinflation and Removal of Fixed Dates for First Time Adopters (effective for periods beginning on or after 1st July 2012)

Amendments to IAS 1 (June 2011) Presentation of Items of Other Comprehensive Income (effective for periods beginning on or after 1st July 2012)

Amendments to IAS 19 (June 2011) Employee Benefits (effective for periods beginning on or after 1st January 2013)

 

The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

 

3 Critical accounting estimates, and judgements in applying accounting policies

 

The AP Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are regularly reviewed and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

The most critical judgements and estimates made by the AP Group are those regarding reported and unreported losses in respect of insurance contracts. The ultimate settlement cost of incurred general insurance claims is inherently uncertain.

 

Such uncertainty includes:

i)   whether a claim event has occurred or not and how much it will ultimately settle for;

ii) variability in the speed with which claims are notified and in the time taken to settle them, especially complex cases resolved through the courts;

iii)  changes in the portfolio affecting factors such as the number of claims and their typical settlement costs, which may differ significantly from past patterns;

iv)  new types of claim, including latent claims, which arise from time to time; and

v)   changes in legislation and court attitudes to compensation, which may apply retrospectively.

 

Outstanding claims and provisions

 

The AP Group establishes reserves in respect of the anticipated losses incurred in respect of insurance business it has written. These reserves reflect the expected ultimate cost of settling claims occurring prior to the balance sheet date, but remaining unsettled at that time, and take into account any related reinsurance recoveries. Such reserves are established separately for each line of business written by the AP Group and fall into two categories - reserves for reported losses and reserves for losses incurred but not reported as at the balance sheet date.

 

Reserves for reported losses are established on a case-by-case basis and are based largely on past experience of settlements on similar claims. The reserves are set on an undiscounted basis and reflect the anticipated cost of settlement, taking into account inflation and other factors which might influence the outcome. Such reserves are reviewed on a regular basis to take account of changing circumstances, such as changes in the law and changes in costs relating to settlement.

 

Reserves for losses incurred but not reported as of the balance sheet date are also established on an undiscounted basis. They are estimated based on historical data using various actuarial techniques and statistical modelling methodologies. As with case reserves, reserves for losses incurred but not reported are calculated separately for each line of business written and take into account trends in settlement costs in arriving at the final estimates.

 

For further details on loss reserves see note 24.

 

4 Risk management

 

Objectives and policies for mitigating business risk

 

The AP Group provides advice, consultancy and management services and also arranges and underwrites insurance. The AP Group places its underwriting liabilities in the UK. Ibex Reinsurance Company Limited, the AP Group's captive reinsurer broadly writes a ninety percent quota share reinsurance of the business placed by the AP Group (eighty percent for risks incepting before 1 January 2008).

 

As such it is itself exposed to a number of risks, including insurance risk, financial risk, market risk, credit risk and liquidity risk.

 

The AP Group has various procedures in place to manage these exposures. These include an overall risk management framework, together with a set of clearly defined risk policies which articulate the AP Group's risk appetite. The AP Group also maintains a comprehensive risk register which identifies the individual risks faced in each area of the business and the controls in place to mitigate these. The AP Group's Risk Committee meets regularly to review both the risk policies and the risk register, to ensure they are up-to-date, reflecting the risks currently facing the business, and that corresponding control issues and risk mitigation actions are being addressed in a timely manner. The findings of the Risk Committee are reported to the AP Group's Board.

 

Looking at the main areas of risk faced by the AP Group, and the strategies in place to manage these:

 

(a) Insurance risk

 

The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty and timing of the amount of the resulting claim. By the very nature of an insurance contract, this risk is unpredictable and difficult to quantify with certainty.

 

The principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities, which may occur if the frequency or severity of claims and benefits are greater than estimated. Insurance events are unpredictable and the actual level of claims and benefits may vary from year to year from the estimate established using statistical techniques.

 

Experience shows that the larger and more diversified the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. The Group's insurance underwriting strategy aims to diversify the client base by managing the distribution of its products to reduce the aggregation of exposure to any particular type or client or industry. Factors that typically aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical spread and type of customer covered. 

                                               

The AP Group's management of insurance risk is a critical aspect of the business. It manages this through various policies and procedures including underwriting limits, approval procedures for transactions that involve new products or that exceed set limits, pricing guidelines and the close monitoring of emerging issues.

 

The main types of policy reinsured by the AP Group are as follows:

 

·       Commercial Legal Expenses which predominantly compensates the policyholder for legal fees incurred, e.g. employment or contract disputes; and

 

·       Professional Fee Protection which predominantly compensates the policyholder for costs incurred in respect of professional accountants' fees arising from an enquiry instigated by Her Majesty's Revenue & Customs.

 

The AP Group uses several methods to assess and monitor the risk exposures associated with each of these for the individual types of risks insured including internal risk measurement models.

 

The theory of probability is applied to the pricing and provisioning for a portfolio of insurance contracts.

 

(b) Concentrations of insurance risk

 

The AP Group has regard for potential concentration of insurance risk, which may exist where a particular event or series of events could impact significantly upon the AP Group's liabilities. Such concentrations may arise from a single insurance contract or through a small number of related contracts, and relate to circumstances where significant liabilities could arise. This risk is managed by ensuring the AP Group operates a robust underwriting approach through limiting the exposure to any one type of distributor and maintaining policy exposure limits to acceptable levels together with a proactive claims handling methodology.

 

(c) Changes to legislation

 

The AP Group is exposed to changes in legislation which could result in insurance claims arising which were not contemplated by underwriters' pricing models. The AP Group addresses this risk by ensuring that developments in the legislative arena are closely monitored and ensuring that policy wordings are regularly reviewed.

 

Changes to legislation could also impact on other areas of the business. Where legislation is substantially simplified, the need for qualified advice and consultancy support may reduce. Additionally, wholesale reform may impact the viability of certain products. Conversely, if new or more complex legislation is introduced, the need for qualified advice and consultancy support may increase requiring careful pricing of products and services. The AP Group manages this risk by monitoring changes to legislation closely and innovating new products when opportunities allow.

 

(d) Economic downturns

 

The AP Group's insurance portfolio exposes it to correlations and interdependencies to different types of risks arising in the event of an economic recession. In particular an economic downturn may lead to an increased incidence of claims in respect of commercial legal expenses insurance. The AP Group's initial strategy in response to a recession would be to address the above risks in order to reduce any excess losses. This would be performed by increasing premium rates in order to cover the anticipated losses. Where an increase in the premium rates is not achievable then alternative options include a reduction in the level of activity in the market.

 

An economic downturn could also impact on other areas of the AP Group. In particular, where general business activity is reduced or there are fewer businesses operating in the market place, the AP Group could see reduced demand for its products and services. The AP Group manages this risk by diversifying its product offerings and distributing these products through a number of channels.

 

(e) Financial risk

 

The AP Group is exposed to financial risk through its financial assets and financial liabilities. In particular the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance contracts and other liabilities. The most important components of financial risk affecting the AP Group are interest rate risk and credit risk.

 

The AP Group actively manages its assets using an approach that balances quality, diversification, liquidity and investment return. The goal of the investment process is to optimise the net of taxes, risk-adjusted investment income and risk-adjusted total return, whilst ensuring that the assets and liabilities are managed on a cash flow and duration basis and capital is preserved. The AP Group's Board reviews the portfolios on a periodic basis, establishing investment guidelines and limits, and provides oversight of the asset/liability management process which is regularly reported. 

                                                                                               

(f) Interest rate risk

 

The AP Group's exposure to market risk for changes in interest rates is primarily concentrated in its investment portfolio. Changes in investment values attributable to interest rate changes are mitigated by investment parameters which mandate the average duration of the portfolio cannot exceed set limits and no individual holding can exceed two years.

 

The AP Group is also exposed to the risk of changes in future cash flows from fixed income securities arising from changes in market interest rates.

 

The effective interest rate at the balance sheet dates on investments and cash equivalents was:

 

2012                 2011

 

Financial investments                 1.74%               1.69%

 

Cash and cash equivalents         1.04%               1.27%

 

If interest rates were to change by 1%, the expected change in investment income would be £418,000 (2011: £389,000).

 

(g) Credit risk

 

The AP Group's portfolio of fixed income securities and, to a lesser extent, other investments and debtors and receivables, are subject to credit risk. This risk is defined as the potential loss in market value resulting from adverse changes in a debtor's ability to repay. The risk is managed based on the AP Group's investment strategy which clearly articulates its risk appetite in terms of the debt ratings of securities held and maximum counterparty exposure. The investment policy of the AP Group requires that investments are rated by Standard and Poor's (or equivalent) with a minimum counterparty rating of A-. Short-term deposits are placed with credit institutions that are rated at least P2 or equivalent. This is monitored on a quarterly basis by the Board. Debtor balances are age analysed and reviewed monthly with an active credit control process in place to ensure payments are received within agreed terms.

 

The AP Group is exposed to potential credit risks through its reinsurance underwriting, where amounts due may not be paid. The AP Group manages this risk through dealing with only A or better grade insurers, based on Standard and Poor's (or equivalent) ratings which are regularly monitored.

 

With respect to credit risk arising from the other financial assets of the AP Group, which comprise cash and cash equivalents and other receivables, the AP Group's exposure to credit risk arises from default by the counterparty, with a maximum exposure equal to the carrying amount of these assets. Since the AP Group trades only with recognised and creditworthy third parties, there is no requirement for collateral.

 

With the exception of deposits with the Group's primary bankers, Coutts & Co there are no significant concentrations of credit risk within the AP Group which are not offset by liabilities. Bank balances held with Coutts & Co as at 31 December 2012 amounted to £8,051,000 (2011: £3,631,000).

 

(h) Liquidity risk

 

The AP Group is exposed to daily calls on its available cash resources mainly from operating expenses and claims arising from insurance contracts. Liquidity risk is the risk that funds may not be available to pay obligations when due. The AP Group has robust processes in place to manage liquidity risk and has adequate access to funding in case of need. Sources of funding include available cash balances and other readily marketable assets.

 

The maturity profile of finance lease obligations are set out in note 25.

 

(i) Claims development

 

Claims development information is disclosed in order to illustrate the insurance risk inherent within the AP Group. The tables compare the claims paid on an underwriting year basis with the provisions established for these claims. The tables provide a review of current estimates of cumulative claims gross and net of reinsurance and demonstrate how the estimated claims have changed at subsequent reporting or underwriting year-ends. The estimate is increased or decreased as losses are paid and more information becomes known about the frequency and severity of unpaid claims. As the AP Group uses underwriting year accounting, the premiums exposed to each year of account typically develop over a three year period and ultimate incurred claims have a similar initial development pattern. Under or over provision for ultimate losses generally becomes apparent from year three.

                     

While the information in the table provides a historical perspective on the adequacy of unpaid claims estimates established in previous years, readers of these financial statements are cautioned against extrapolating redundancies or deficiencies of the past on current unpaid loss balances. The AP Group believes that the estimate of total claims outstanding as of the end of the period are adequate. However, due to the inherent uncertainties in the provisioning process, it cannot be assured that such balances will ultimately prove to be adequate.

 

Analysis of gross earned premiums and claims development

 

Gross earned premiums 





Underwriting year



2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Total

 



£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

 

At end of underwriting year


2,956

3,236

3,101

3,539

3,650

4,155

4,397

5,214

5,312

5,545

41,105

 

- one year later


4,689

4,922

5,969

6,784

7,045

7,804

7,931

8,094

8,932

-

62,170

 

- two years later


259

815

948

871

945

887

885

601

-

-

6,211

 

- three years later

(7)

3

3

26

17

7

(3)

-

-

-

46

 

- four years later

-

(35)

-

-

1

(10)

-

-

-

-

(44)

 

- five years later

-

-

-

(2)

(2)

-

-

-

-

-

(4)

 

 

 

7,897

8,941

10,021

11,218

11,656

12,843

13,210

13,909

14,244

5,545

109,484

 













 

 

Estimate of cumulative claims












 




Underwriting year


2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Total

 


£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

 

At end of underwriting year

2,582

2,823

2,636

3,014

3,103

3,535

3,452

4,067

4,144

4,325

33,681

 

- one year later

3,534

3,418

3,947

4,485

4,651

5,180

5,794

5,915

6,539

-

43,463

 

- two years later

(860)

(94)

302

187

278

(505)

3

728

-

-

39

 

- three years later

(123)

(44)

(557)

(372)

(455)

(483)

(398)

-

-

-

(2,432)

 

- four years later

(229)

(113)

(300)

(112)

(116)

(159)

-

-

-

-

(1,029)

 

- five years later

(56)

(89)

(100)

(336)

(117)

-

-

-

-

-

(698)

 

Estimate of cumulative claims

4,848

5,901

5,928

6,866

7,344

7,568

8,851

10,710

10,683

4,325

73,024

 

Cumulative payments to date

(4,817)

(5,858)

(5,708)

(6,697)

(7,125)

(7,278)

(8,071)

(9,259)

(7,368)

(1,156)

(63,337)

 

Gross & net outstanding claims liabilities

31

43

220

169

219

290

780

1,451

3,315

3,169

9,687

 


 

There were no reinsurance recoverables during the periods presented within these financial statements.

 

 

 

 

 

          Gross earned premiums less claims costs

 

 

 

 

 



Underwriting year

 


2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Total

 


£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

 

                  At end of underwriting year

374

413

465

525

547

620

945

1,147

1,168

1,220

7,424

 

                  - one year later

1,155

1,504

2,022

2,299

2,394

2,624

2,137

2,179

2,393

-

18,707

 

                 - two years later

1,119

909

646

684

667

1,392

882

(127)

-

-

6,172

 

                 - three years later

116

47

560

398

472

490

395

-

-

-

2,478

 

                 - four years later

229

78

300

112

117

149

-

-

-

-

985

 

                 -  five years later

56

89

100

334

115

-

-

-

-

-

694

 


3,049

3,040

4,093

4,352

4,312

5,275

4,359

3,199

3,561

1,220

36,460

 

 

5 Segment information

 

(a) Primary reporting format - business segments

 

Abbey Protection plc's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different skill sets, technology and marketing strategies.

 

Abbey Protection plc has four reportable segments: Abbey Legal Protection, Abbey Tax Protection, Accountax and Insurance Underwriting. Abbey Legal Protection comprises the intermediation of legal expenses insurance together with the provision of related advice and consultancy. Abbey Tax Protection comprises the intermediation of professional fee protection insurance together with the provision of related advice and consultancy. Accountax comprises of the provision of tax consultancy and marketing services. Insurance Underwriting comprises reinsuring a proportion of the business the Group introduces to underwriting partners.

 

Other segments represent business units whose operations fall below the quantitative disclosure thresholds. These businesses offer human resources consultancy, after the event insurance intermediation, insurance run-off services and commercial rates mitigation services.

 

The accounting policies applied in preparing operating segment disclosures are the same as those described in the summary of significant accounting policies. Abbey Protection plc evaluates performance on the basis of profit from operations before tax expense.

 

Year ended 31 December 2012

Abbey Legal Protection

Abbey Tax Protection

Accountax

Insurance Underwriting

Other segments

Total



£000

£000

£000

£000

£000

£000

Revenue from external customers

10,166

8,704

1,543

15,061

2,448

37,922

Interest revenue

126

96

-

507

28

757

Depreciation and amortisation

141

67

350

-

57

615

Reportable segment profit

2,772

3,510

(52)

3,763

318

10,311

Expenditures for reportable segment non-current assets

108

55

18

-

44

225

 

Year ended 31 December 2011

Abbey Legal Protection

Abbey Tax Protection

Accountax

Insurance Underwriting

Other segments

Total



£000

£000

£000

£000

£000

£000

Revenue from external customers

10,181

7,565

1,771

14,299

1,948

35,764

Interest revenue

89

61

13

277

16

456

Depreciation and amortisation

163

72

351

-

43

629

Reportable segment profit

2,646

2,899

104

4,380

25

10,054

Expenditures for reportable segment non-current assets

82

37

21

-

8

148

 

(b) Information about major customers

 

Revenues from one customer represent approximately £5,619,000 of the Group's total revenue (2011: £5,382,000). Revenue from this customer is recorded in segmental revenue for Abbey Legal Protection, Abbey Tax Protection and Insurance Underwriting.

 

(c) Secondary segment information - geographical analysis

 

All of the Group's revenues, costs, assets and liabilities are derived from providing its services in the United Kingdom. 

 

6 Intermediary, advisory and other income



2012


2011



£000


£000

Income from intermediation


10,983


9,839

Advisory fees


4,326


4,387

Legal advice and representation


3,196


3,140

Consultancy


3,693


3,409

Other income


663


690

Total intermediary, advisory and other income


22,861


21,465

 

Other income comprises subscriptions, marketing services, commercial rates mitigation services, claims handling and management services.

 

7 Net investment return



2012


2011



£000


£000

Investment at fair value through profit and loss:





- certificates of deposit


376


337

Other investments:





- cash and cash equivalents income


254


188

Interest investment income


630


525

Net gain/(loss) on investments at fair value through profit and loss


127


(69)

Net investment return


757


456

 

8 Claims and change in insurance liabilities



2012


2011



£000


£000

Gross claims paid


(10,931)


(9,905)

Gross change in the provision for claims


538


580

Claims and change in insurance liabilities


(10,393)


(9,325)

 

 

9 Acquisition costs



2012


2011



£000


£000

Commission payable


(1,242)


(733)

Changes in deferred acquisition costs


(44)


(11)

Total acquisition costs


(1,286)


(744)

 

10 Profit before tax



2012


2011



£000


£000

 

Other operating and administrative expenses and operating profit

have been arrived at after charging/(crediting):





 

Depreciation of property, plant and equipment


217


232

 

Amortisation of intangible assets


398


397

 

Personnel expenses





 

- wages and salaries


9,907


9,620

 

- social security costs


1,156


1,103

 

  - pension costs


414


396

 

Operating lease rentals


485


444

 

Auditors' remuneration:





 

    - fees for statutory audit services


21


21

 

    - fees for auditing accounts of subsidiaries pursuant to legislation


71


65

 

Share-based payment charges


121


136

 

(Profit)/loss on disposal of property, plant and equipment


(2)


5

 

Impairment (gain)/loss recognised on trade receivables


(1)


23


Deloitte LLP acted as auditors to the Group during the current and previous financial years.

 

11 Staff costs


The average monthly number of employees employed by the Group (including executive directors) during the period, analysed by category was:



2012


2011



No.


No.

Abbey legal protection


27


27

Legal services centre


84


92

Tax protection & consultancy


68


64

Accountax

15

12

ATE services


11


12

Abbey HR


8


9

Abbey property facilities


2


-

Central services


20


20



235


236








2012


2011



£000


£000

Their aggregate remuneration comprised:





Wages and salaries


9,907


9,620

Social security costs


1,516


1,103

Pension costs - defined contribution plans


414


396



11,477


11,119

 

12 Directors' remuneration



2012


2011



£000


£000

Directors' emoluments


698


685

Post-employment benefits - defined contribution plans


77


76



775


761






Three directors (2011: three directors) are members of defined contribution plans.






Highest paid director





-emoluments


195


188

-post employment benefit - defined contribution plans


56


55



251


243






Full details of directors' emoluments are disclosed within the Remuneration Report.

 

13 Tax expense

 

Recognised in the Income Statement



2012


2011



£000


£000

Current tax expense





Current year - operations


2,603


2,624

Adjustments for prior years


(57)


(160)



2,546


2,464

Deferred tax expense





Origination and reversal of temporary differences


(110)


18

Changes in tax rate


(8)


(6)

Prior year adjustments


15


15



(103)


27






Total tax expense


2,443


2,491

 

Reconciliation of effective tax rate





The rate of taxation on the AP Group's profit differs from the United Kingdom standard rate of corporation tax for the reasons set out in the following reconciliation:

 



2012


2011



£000


£000

Profit before tax


10,311


10,054

Income tax calculated at the UK standard rate of tax of 46.5% (2011: 26.5%)


2,526


2,664

Factors affecting charge for the year:





Non-deductible expenses and provisions


(39)


(22)

Adjustments to tax in respect of prior periods


(42)


(145)

Changes in the rate of corporation tax


(2)


(6)

Total tax expense


2,443


2,491

Reconciliation of deferred tax balances







2012


2011



£000


£000

Balance brought forward


(87)


(60)

Transfer to profit & loss account


103


(27)

Balance carried forward


16


(87)

 

Deferred tax is provided at 23% (2011: 25%)

 

14 Dividends

 



2012


2011



£000


£000

Amounts recognised as distributions to equity holders in the period:





Dividends on ordinary shares


4,593


4,184

Net appropriation for the year


4,593


4,184

 

 

On 28 March 2012 a dividend of £2,493,000 (net of £7,000 receivable by a group ESOP trust) was paid representing 2.5 pence per Abbey Protection plc share.

 

On 9 October 2012 a dividend of £2,100,000 was paid representing 2.1 pence per Abbey Protection plc share.

 

On 5 March 2013 a dividend of £2,800,000 was declared representing 2.8 pence per Abbey Protection plc share and has not been included as a liability in these financial statements.

 

15 Earnings per share

 

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Parent Company by the weighted average number of shares in issue during the year, excluding ordinary shares purchased by the Group and held as treasury shares. Diluted earnings per share is calculated adjusting for the assumed conversion of all dilutive potential ordinary shares. The Group has one category of dilutive potential ordinary shares, share options. For the share options, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares thus calculated is compared with the number of shares that would have been issued assuming the exercise of the share options. The calculation of the basic and diluted earnings per share is based on the following data: 



2012


2011



£000


£000






Profit attributable to equity holders of the parent


7,922


7,563

Effect of dilutive potential ordinary shares


-


-

Earnings for the purposes of diluted earnings per share


7,922


7,563








2012


2011



No. of shares


No. of shares






Weighted average number of ordinary shares in issue


99,883,987


99,550,908

Effect of dilutive potential ordinary shares (share options)


772,437


953,319

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


100,656,424


100,504,227

 

16 Goodwill

 



2012


2011



£000


£000

Cost





At beginning of the year


4,618


4,618

At the end of the year


4,618


4,618

 

 

The AP Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired using the value in use basis for determining recoverability. There has been no impairment throughout the periods presented.

 

On 21 October 2008 the Group acquired Accountax Consulting Limited, Accountax UK Limited and Accountax Law Limited (collectively "Accountax"). Accountax is considered a single cash generating unit ("CGU"). At 31 December 2012 the carrying value of goodwill allocated to Accountax was £3,590,000 (2011: £3,590,000).

 

The value in use has been quantified using management estimates for cash-flows arising from Accountax taking into account historical values, budgets and forecasts together with growth opportunities and integration benefits. Management have considered ultimate cash-flows as these represent the most appropriate surrogate for the value of the business to the Group.

 

Key assumptions incorporated within the cash-flow forecast include an average increase in income of 1.0% in excess of cost increases, a constant rate of corporation tax of 23% and a pre-tax discount rate of 8.2% (2011: 10.1%). In determining the applicable discount rate, management applied judgement in respect of several factors, which included assessing the risk attached to future cash flows and making reference to the capital asset pricing model (the "CAPM"). Management gave consideration to the selection of appropriate inputs to the CAPM, which included the risk free rate, the equity risk premium and a measure of systematic risk. Utilising these assumptions the recoverable amount exceeded the total carrying value by £4,665,000. A sensitivity analysis was performed on the total carrying value of the CGU. For the recoverable amount to be equal to the carrying value then the discount rate would need to be increased by 6.3%.

 

Remaining goodwill of £1,028,000 is allocated across multiple CGUs. The amount allocated to each CGU Is not significant in comparison with the Group's total goodwill balance. The value in use has been quantified using forecasts by the individual CGUs based on cash-flows derived from budgets for 2013, reflecting past experience and current market conditions. Key assumptions incorporated within these forecasts include, the discount rate, the assumed income growth rate and tax rate. Management believe these to be reasonably achievable.

 

17 Other intangible assets

 

 



Computer

software


Brands


Customer

relationships


Total



2012


2012


2012


2012



£000


£000


£000


£000

Cost









At 1 January 2012


864


384


1,599


2,847

Acquisitions


79


-


-


79

Disposals


-


-


-


-

At 31 December 2012


943


384


1,599


2,926










Amortisation









At 1 January 2012


696


81


879


1,656

Charge for the year


95


26


277


398

Disposals


-


-


-


-

At 31 December 2012


791


107


1,156


2,054










Net book value at 31 December 2012


152


277


443


872

 

 

 

 

 

 


Computer

software


Brands


Customer

relationships


Total



2011


2011


2011


2011



£000


£000


£000


£000

Cost









At 1 January 2011


821


384


1,599


2,804

Acquisitions


43


-


-


43

Disposals


-


-


-


-

At 31 December 2011


864


384


1,599


2,847










Amortisation









At 1 January 2011


602


56


601


1,259

Charge for the year


94


25


278


397

Disposals


-


-


-


-

At 31 December 2011


696


81


879


1,656










Net book value at 31 December 2011


168


303


720


1,191

 

 

 

 

18 Property, plant and equipment

 


Freehold Land

Freehold property

Leasehold property

Equipment and motor vehicles

IT

equipment

Total


£000

£000

£000

£000

£000

£000

Cost







At 1 January 2012

335

750

158

860

879

2,982

Acquisitions

-

-

-

29

117

146

Disposals

-

-

-

(95)

-

(95)

At 31 December 2012

335

750

158

794

996

3,033

 

Depreciation

At 1 January 2012

-

49

100

697

652

1,498

Charge for the year

-

15

22

50

130

217

Disposals

-

-

-

(62)

-

(62)

At 31 December 2012

-

64

122

685

782

1,653








Net book value at 31 December 2012

335

686

36

109

214

1,380

 


Freehold Land

Freehold property

Leasehold property

Equipment and motor vehicles

IT

equipment

Total


£000

£000

£000

£000

£000

£000

Cost







At 1 January 2011

335

750

158

902

794

2,939

Acquisitions

-

-

-

20

85

105

Disposals

-

-

-

(62)

-

(62)

At 31 December 2011

335

750

158

860

879

2,982

 

Depreciation







At 1 January 2011

-

34

78

656

529

1,297

Charge for the year

-

15

22

72

123

232

Disposals

-

-

-

(31)

-

(31)

At 31 December 2011

-

49

100

697

652

1,498








Net book value at 31 December 2011

335

701

58

163

227

1,484

 

Included within net book value of motor vehicles is £47,000 (2011: £105,000) in respect of assets held under finance leases.

 

19 Group companies

 

 

The consolidated financial statements present the financial records of the AP Group for the years ended 31 December 2012 and 31 December 2011. A list of all investments in AP Group subsidiaries, including the name and country of incorporation is given below: 

 

Company

Country of

incorporation

Activity

Portion of

ownership interests

Basis of

consolidation

Abbey Protection Group Limited

United Kingdom

Insurance Intermediary/

Consultancy

100%

100% Consolidation

Abbey Tax & Consultancy Services Limited

United Kingdom

Insurance Intermediary/

Consultancy

100%

100% Consolidation

Ibex Reinsurance Company

Guernsey

Reinsurance company

100%

100% Consolidation

Abbey Property Facilities Limited

United Kingdom

Consultancy

60%

100% Consolidation

Abbey Legal Holdings Limited

United Kingdom

Dormant

100%

100% Consolidation

Abbey Legal Protection Limited

United Kingdom

Dormant

100%

100% Consolidation

Abbey Tax Protection Limited

United Kingdom

Dormant

100%

100% Consolidation

Accountax Consulting Limited

United Kingdom

Dormant

100%

100% Consolidation

Accountax UK Limited

United Kingdom

Dormant

100%

100% Consolidation

Accountax Law Limited

United Kingdom

Dormant

100%

100% Consolidation

 

The AP Group has not suffered any impairment in the value of its investments in its subsidiaries. Abbey Property Facilities Limited was incorporated on 11 January 2012 and Abbey Tax & Consultancy Services Limited was incorporated on 9 October 2012. The dormant subsidiaries have remained dormant throughout the year. 

 

20 Financial investments



2012


2011



£000


£000

Financial investments at fair value through profit and loss - certificates of deposit


19,985


21,340

Loan receivable


750


500



20,735


21,840

 

The fair values of the Group's financial investments at fair value through profit and loss have been arrived at by reference to readily available market prices and are considered level one financial investments as defined in the fair value hierarchy within IFRS 7 Financial Instrument Disclosures. There have been no transfers between level 1 and level 2 financial investments. 

 

 

21 Deferred tax

 

Recognised deferred tax

 

Deferred tax balances which are provided at 23% (2011: 25%) are attributable to the following:



2012


2011



£000


£000

Other intangible assets


(166)


(256)

Property, plant and equipment


88


82

Equity settled share incentive reserve


65


38

Other timing differences


29


49

Total deferred tax


16


(87)

 

 

Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:



2012


2011



£000


£000

Deferred tax liabilities


(166)


(256)

Deferred tax assets


182


169



16


(87)

 

There are no unrecognised deferred tax assets or liabilities.

 

 

22 Trade and other receivables



2012


2011



£000


£000

Receivables arising from insurance and reinsurance contracts:





- premiums due from insurers


8,261


6,260

Trade debtors


22,262


18,186

Other receivables:





- other prepayments and accrued income


982


1,081

- amounts due from related parties


204


377

- other debtors


392


298

Total insurance and other receivables


32,101


26,202






Due within one year


32,101


26,202

 

The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

 

Impairment loss recognised on trade receivables:

 



2012


2011



£000


£000

Provision for impairment losses at the beginning of the period


440


417

Amounts provided for/provision reversed in the year


35


40

Amounts written off in the period


(36)


(17)

Provision for impairment losses at the end of the period


439


440

 

 

Ageing of impaired trade receivables:

 



2012


2011



£000


£000

Current


-


-

1 - 30 days overdue


31


25

31 - 60 days overdue


62


6

61 - 90 days overdue


44


64

91 + days overdue


302


345

Total


439


440

 

 

Ageing of past due but not impaired receivables:

 

Included within the Group's trade receivables are debtors with a carrying value of £1,310,000 (2011: £1,606,000) which are past due as at 31 December 2012 for which no allowance has been made. The Group is not aware of any deterioration in the credit quality of these customers and considers that the amounts are fully recoverable. 

 



2012


2011



£000


£000

1 - 30 days overdue


848


1,121

31 - 60 days overdue


250


238

61 - 90 days overdue


68


88

91 + days overdue


144


159

Total


1,310


1,606

 

 

23 Cash and cash equivalents

 



2012


2011



£000


£000

Cash at bank and in hand


21,816


17,579

Cash and cash equivalents


21,816


17,579






The effective interest rate on cash and cash equivalents was:


1.38%


1.25%

 

Included in cash and cash equivalents held by the AP Group are balances totalling £1,694,000 not available for use by the AP Group (2011: £1,143,000). Of this amount, £1,000,000 (2011: £1,000,000) was held in trust to guarantee claims liabilities and £694,000 (2011: £143,000) constituted client money in relation to regulated activities. 

 

24 Insurance contract provisions and reinsurance assets

 

(i) Insurance contract provisions (gross and net)

 



2012


2011



£000


£000

Unearned premiums


8,350


8,232

Claims reported by policyholders


7,376


7,052

Claims incurred but not reported


2,311


3,173

Total insurance contract provisions


18,037


18,457






Expected to be settled within 12 months of the balance sheet date


14,557


14,162

Expected to be settled more than 12 months after the balance sheet date


3,480


4,295



18,037


18,457

 

 

(ii) Analysis of movements in insurance provisions (gross and net)



2012


2011



£000


£000

Balance at the beginning of the period


18,457


19,214

Claims paid


(10,931)


(9,905)

Movement in claims incurred but not reported


(862)


(364)

Claims reported in the period


11,255


9,689

Change in provision for unearned premiums


118


(177)

Balance at the end of the period


18,037


18,457

 

 

 

(iii) Analysis of movements in provision for unearned premium (gross and net)



2012


2011



£000


£000

Balance at the beginning of the period


8,232


8,409

Premiums written during the period


15,179


14,122

Less: premiums earned during the year


(15,061)


(14,299)

Balance at the end of the period


8,350


8,232

 

(iv) Analysis of movements in outstanding claims (gross and net)



2012


2011



£000


£000

Balance at the beginning of the period


10,225


10,805

Cash paid for claims settled in the year


(10,931)


(9,905)

Change in liabilities:





- arising from current year claims


3,169


3,218

- arising from prior year claims


7,224


6,107

Balance at the end of the period


9,687


10,225

 

 

(v) Assumptions and sensitivities

 

Process used to determine the assumptions

 

The sources of data used as inputs for the assumptions behind insurance provisions are internal, using detailed studies that are carried out annually by external advisors. The assumptions are checked to ensure that they are consistent with observable market trends or other published information with more emphasis placed on current trends.

The nature of insurance business makes it very difficult to predict with certainty the likely outcome of any particular claim and the ultimate cost of notified claims. Each notified claim is assessed on a separate, case by case basis with due regard to the claim circumstances and historical evidence of the size of similar claims. Case estimates are reviewed regularly and are updated as and when new information arises. The provisions are based on information currently available. However, the ultimate liabilities may vary as a result of subsequent developments. The impact of many of the items affecting the ultimate costs of the loss is difficult to estimate. The degree of complexity involved will also differ by book of business due to differences in the underlying insurance contract, claim complexity, the volume of claims and the individual severity of claims, determining the occurrence date of a claim, and reporting lags.

The value of outstanding claims and the IBNR provisions are estimated using various statistical methods. Such methods extrapolate the development of paid and incurred claims, average cost per claim and ultimate claim numbers for each underwriting year based upon observed development of earlier years and expected loss ratios. 

The key methods, which remain unchanged from prior years, are:

 

·      chain ladder methods, which use historical data to estimate the paid and incurred to date proportions of the ultimate claim cost;

·      expected loss ratio methods, which use the AP Group's expectation of the loss ratio for a class of business; and

·      benchmarking methods, which use the experience of comparable, more mature, classes to estimate the cost of claims.

The actual method or blend of methods used varies by underwriting year being considered and for observed historical claims development.

 

To the extent that these methods use historical claims development information they assume that the historical claims development pattern will occur again in the future. There are reasons why this may not be the case, which, in so far as they can be identified, have been allowed for by modifying the methods. Such reasons include:

 

·      changes in processes that affect the development / recording of claims paid and incurred (such as changes in claim reserving procedures);

·      economic, legal, political and social trends (resulting in, for example, a difference in expected levels of inflation);

·      changes in mix of business; and

·      random fluctuations, including the impact of large losses.

 

IBNR provisions are estimated at a gross level and a separate calculation is carried out to estimate the size of any reinsurance recoveries.

 

Assumptions

 

The assumptions that have the greatest effect on the measurement of insurance contract provisions are the expected loss ratios for the most recent underwriting years excluding the current underwriting year which will be significantly underdeveloped. The expected loss ratios assumed for the underwriting years 2010 and 2011 are 77% and 75% respectively. 

 

Changes in assumptions and sensitivities to changes in key variables

 

The Group believes that the liability for claims reported in the Balance Sheet is adequate. However, it recognises that the process of estimation is based upon certain variables and assumptions, which could differ when claims arise.

 

The impact of a 1% change in the loss ratio across the last five underwriting years (2008 to 2012) would equate to a £598,000 pre-tax change in the reported income (2011: £563,000). 

 

 

25 Finance lease obligations



2012


2011



£000


£000

Minimum lease obligations payable:





Within 1 year


34


62

Within 2 to 5 years


11


45



45


107

Less future finance charges


(1)


(6)

Present value of finance lease obligations


44


101

The present value of minimum lease obligations payable:





Within 1 year


33


57

Within 2 to 5 years


11


44



44


101

 

 

It is the Group's policy to lease certain of its motor vehicles under finance lease arrangements. The leases have a typical term of three years and are on a fixed repayment basis with a final lump sum component at the end of each agreement should the Group decide to acquire ownership of the vehicle. Interest rates are fixed at the contract commencement date. Finance lease obligations are effectively secured as the rights to the leased assets revert to the lessor in the event of default. The carrying value of finance obligations equates to fair value. 

 

 

26 Accruals and deferred income



2012


2011



£000


£000

Accruals


2,159


1,775

Deferred income


7,101


7,124

Total accruals and deferred income


9,260


8,899

 

27 Trade and other payables



2012


2011



£000


£000

Other trade payables


19,425


14,193

Other taxes and social security


700


711

Other payables


592


368

Total trade and other payables


20,717


15,272

 

Trade and other payables are all expected to be settled within twelve months of the balance sheet date.

 

28 Share capital

 

a) Authorised share capital

 



2012


2011



Number of shares


Nominal value


Number of shares


Nominal value





£000




£000

Ordinary shares of 1p each


150,000,000


1,500


150,000,000


1,500



150,000,000


1,500


150,000,000


1,500

 

b) Issued share capital

 

Allotted, called up and fully paid

 



2012


2011



Number of shares


Nominal value


Number of shares


Nominal value





£000




£000

Ordinary shares of 1p each


99,994,773


1,000


99,994,773


1,000



99,994,773


1,000


99,994,773


1,000

c) Treasury shares

 

At 31 December 2012, the Group's investment in its own shares comprised 9,044 (2011: 272,377) ordinary shares of 1p each. The market value of these shares at 31 December 2012, was £10,000 (2011: £214,000). The maximum number of ordinary shares held at any time during the year was 435,342 (2011: 788,127), which represented 0.44% (2011: 0.79%) of the called up share capital of Abbey Protection plc. 

 

 



2012


2011



Number of shares


Nominal value


Number of shares


Nominal value





£000




£000

At beginning of period


272,377


3


788,127


8

Purchase of own shares


173,913


2


891,831


9

Sale of own shares


(60,519)


(1)


-


-

Own shares released on vesting of share options


(376,727)



(1,407,581)


(14)

At end of period


9,044


-


272,377


3

 

 

29 Share premium

 



2012


2011



£000


£000

At the beginning of the period


3,563


3,558

Gain on own shares sold/released on vesting of share options


21


5

At the end of the period


3,584


3,563

 

30 Share option schemes

 

The Directors believe that equity incentives are and will continue to be an important means of retaining, attracting and motivating employees. The AP Group operates three share options schemes:

 

a) The Abbey Protection plc Savings Related Share Option Scheme (SAYE Scheme)

 

The SAYE Scheme is approved by HMRC. The scheme enables directors and employees to acquire options over ordinary shares of the Company at a discount of up to 20% of their market price using the proceeds of a related SAYE contract. All employees who have worked for the minimum qualifying period on an invitation date are eligible to join the scheme. Options granted under the SAYE scheme are not subject to performance conditions but beneficiaries must ordinarily be employees of the Group for the options to vest. In relation to such invitations, eligible employees may apply to save an amount between £5 and £250 per month in accordance with the rules of the SAYE Scheme under a three or five year savings contract selected by the Company. 

 

b) The Abbey Protection plc Company Share Option Plan (CSOP)

 

The CSOP is approved by HMRC. The scheme enables directors and employees to acquire options over ordinary shares of the Company at their market price. Individuals are selected at the discretion of the Remuneration Committee. Options granted under the scheme are not subject to performance conditions but beneficiaries must ordinarily be employees of the Group for the options to vest. Each individual's participation in the CSOP is restricted by HMRC limits so that the aggregate market value of Ordinary Shares subject to all options (calculated at the date of grant of each option), held by that individual and granted under the CSOP or any other HMRC company share option plan operated by the Company or any associated company shall not exceed £30,000. 

c) The Abbey Protection plc Long Term Incentive Plan (LTIP)

 

The LTIP is not approved by HMRC. The scheme enables directors and employees to acquire nil cost options over ordinary shares of the Company. Individuals are selected at the discretion of the Remuneration Committee. Awards are capped at a maximum of twice the annual salary of any individual in any financial year. Ordinarily, in order for options to vest, the individual must be an employee of the Group and the performance conditions must be met.

 

Performance conditions vary and where appropriate comprise of individualised targets. If events occur which cause the Remuneration Committee to reasonably consider that a different or amended target would be a fairer measure of performance, the Remuneration Committee may recommend that the Trustee waives or amends the original performance target, provided that any such amended target is not materially more difficult to achieve than the original performance target. 

 

Options granted

During the year ended 31 December 2012, the following options were granted or were outstanding at the balance sheet date:

 

Save as your earn (SAYE)







Date of grant


24/07/2008


27/05/2010


26/05/2011

Options outstanding at 1 January 2012


7,014


210,016


601,142

Options granted during the year


-


-


-

Options forfeited during the year


-


(29,216)


(53,618)

Options exercised during the year


(7,014)


(3,313)


(1,630)

Options outstanding at 31 December 2012


-


177,487


545,894








Exercise price


£0.54


£0.64


£0.64

Share price at date of grant


£0.67


£0.79


£0.80

Contractual life (years)


3.5


3.5


3.5

Vesting Date


01/09/2011


01/07/2013


01/07/2014

Settlement


Shares


Shares


Shares

Expected volatility


35%


20%


11%

Expected option life at date of grant


Three Years


Three Years


Three Years

Risk free interest rate


5.00%


1.30%


1.57%

Expected dividend yield


5.00%


5.00%


5.36%

Expected annual departures


2.75%


3.00%


3.00%

Probability of meeting performance criteria at date of grant


100%


100%


100%

Fair value per option at date of grant


£0.20


£0.13


£0.11

 

Company Share Ownership Plan (CSOP)








Date of grant


29/04/2009


30/04/2010


27/04/2011

11/04/2012

Options outstanding at 1 January 2012


51,724


37,735


317,755

-

Options granted during the year


-


-


-

77,168

Options forfeited during the year


-


-


(62,305)

-

Options exercised during the year


(51,724)


-


-

-

Options outstanding at 31 December 2012


-


37,735


255,450

77,168









Exercise price


£0.58


£0.80


£0.80

£0.78

Share price at date of grant


£0.58


£0.80


£0.80

£0.78

Contractual life (years)


10


10


10

10

Vesting Date


30/04/2012


01/05/2013


30/04/2014

30/04/2015

Settlement


Shares


Shares


Shares

Shares

Expected volatility


35%


20%


11%

7%

Expected option life at date of grant


Three Years


Three Years


Three Years

Three Years

Risk free interest rate


2.00%


3.50%


3.48%

2.16%

Expected dividend yield


6.20%


5.00%


5.36%

5.66%

Expected annual departures


0.00%


0.00%


0.00%

0.00%

Probability of meeting performance criteria at date of grant


100%


100%


100%

100%

Fair value per option at date of grant


£0.13


£0.12


£0.05

£0.01

 

Long Term Investment Plan (LTIP)










Date of grant


29/04/2009


30/04/2010


27/04/2011


02/09/2011

11/04/2012

Options outstanding at 1 January 2012


330,437


146,666


49,844


20,000

-

Options granted during the year


-


-


-


-

289,385

Options forfeited during the year


(17,391)


(40,000)


(12,461)


-

(57,877)

Options exercised during the year


(313,046)


-


-


-

-

Options outstanding at 31 December 2012


-


106,666


37,383


20,000

231,508











Exercise price


£0.00


£0.00


£0.00


£0.00

£0.00

Share price at date of grant


£0.58


£0.80


£0.80


£0.81

£0.78

Contractual life (years)


10


10


10


10

10

Vesting Date


30/04/2012


01/05/2013


01/05/2014


03/09/2014

30/04/2015

Settlement


Shares


Shares


Shares


Shares

Shares

Expected volatility


35%


20%


11%


9%

7%

Expected option life at date of grant


Three Years


Three Years


Three Years


Three Years

Three Years

Risk free interest rate


2.00%


3.50%


3.48%


2.33%

2.16%

Expected dividend yield


6.20%


5.00%


5.36%


5.40%

5.66%

Expected annual departures


0.00%


0.00%


0.00%


0.00%

0.00%

Probability of meeting performance criteria at date of grant


96.1%


96.8%


100.0%


100.0%

100.0%

Fair value per option at date of grant


£0.48


£0.68


£0.68


£0.69

£0.66

 


All share options are fair valued at the date of grant using a binomial valuation model.

 

All share options require a minimum of three years' service for the share options to vest. The Save as You Earn scheme requires beneficiaries to make regular savings which are deposited in a designated account. The grants made under the Long Term Incentive Plan contain performance conditions linked to growth in earnings per share and/or individual performance.

 

The weighted average share price at the date of exercise for SAYE share options exercised during the year was £0.79. The weighted average share price at the date of exercise for CSOP share options exercised during the year was £0.78. The weighted average share price at the date of exercise for LTIP share options exercised during the year was £0.78.

 

The aggregate fair value of CSOP share options granted during the year was £803. The aggregate fair value of LTIP share options granted during the year was £190,329.

 

The Company has calculated expected volatility with reference to the share price of the Group and comparable companies.

 

At the balance sheet date 2,484 SAYE share options were exercisable at £0.64 per share. 

 

31 Operating leases

 

The aggregate minimum lease payments required by the Group under non-cancellable operating leases, over the expected lease terms, are as follows:

 



2012


2011



£000


£000

Less than one year


409


432

Between one and five years


466


352

More than five years


-


-

Total


875


784

 

The AP Group's property leases are short leases and typically run for a period of less than ten years without the transfer of substantially all risks and rewards incidental to ownership of the properties. As a result these property leases are treated as operating leases and there is no need to split out the land component. 

 

32 Related party transactions

 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The AP Group has a related party relationship with its key management personnel who are also shareholders of the AP Group. 

 

Remuneration of directors

The remuneration of the directors, who are key management personnel of the Group is set out in note 12 of these financial statements and disclosed in the Remuneration Report.   

 

Share and loan transactions with members of key management

On 30 April 2007, the Group made equity shares available to Adrian Green, Group Finance Director, on a deferred payment basis via the ESOP trust. At the balance sheet date there was no amount outstanding (2011: £111,391). The loan outstanding at the end of the prior period is disclosed within other assets in the accounts of the ESOP trust and the consolidated accounts. 

 

 

Transactions with post-employment benefit plans

The Group leases a property owned by the pension funds of two of the Group's directors, Colin Davison and Liz Grace. The lease has been entered into on arm's length commercial terms. The annual lease and service charges fees paid by the Group for the property are £75,700 (excluding VAT) and £3,034 respectively. 

 

33 Capital commitments

 

The AP Group had no capital expenditure contracted for at the balance sheet date.

 

34 Contingent liabilities

 

Barclays Bank PLC has issued an irrevocable standby letter of credit in respect of Riverstone Insurance Limited for £1,000,000 in connection with the insurance activities of Ibex Reinsurance Company Limited. This is secured on its bank balances and has been in force throughout all reporting periods. 

 

35 Capital management

 

Abbey Protection Group Limited

The AP Group manages its capital to ensure that entities in the AP Group will be able to continue as a going concern whilst having regard to the implications of potential changes to the legislative arena and economic conditions generally.

 

The capital structure of the AP Group consists of ordinary shares, share premium account, capital reserves and retained earnings.

 

The AP Group Board reviews the capital structure on an annual basis. As part of this review the AP Group Board considers the cost of capital and the risks associated with each class of capital. Based on decisions made by the AP Group Board, the Group will balance its overall capital structure through the payment of dividends. The AP Group's overall strategy remains unchanged.

 

In January 2005 the Financial Services Authority assumed responsibility for the regulation of the insurance intermediation industry. The Financial Services Authority requires Abbey Protection Group Limited to maintain a minimum level of capital and reserves to enable Abbey Protection Group Limited to carry out its insurance intermediation activities. The amount of capital and reserves held by Abbey Protection Group Limited in respect of the Financial Services Authority requirement is set out below: 



2012


2011



£000


£000

Minimum capital and reserve requirement


535


480

Available assets held by the Company


11,733


7,631

Available assets held by the Company in excess of the minimum capital and reserves requirement


11,198


7,151

 

Ibex Reinsurance Company Limited

Ibex Reinsurance Company Limited ("Ibex"), the AP Group's Guernsey based reinsurance subsidiary manages its capital to ensure that it will be able to continue as a going concern whilst having regard to the implications of potential changes to the legislative arena and economic conditions generally. 

 

The capital structure of Ibex consists of ordinary shares, share premium account and retained earnings.

 

The Ibex Board reviews the capital structure on an annual basis. As part of this review the Ibex Board considers the cost of capital and the risks associated with each class of capital. Based on the recommendations of the Ibex Board, Ibex will seek to balance its overall capital structure through the payment of dividends. The Ibex overall strategy remains unchanged.

 

Ibex Reinsurance Company Limited is required to maintain a minimum level of capital and reserves by the Guernsey Financial Services Commission ("GFSC"). The amount of capital and reserves held by Ibex in respect of the GFSC requirements is set out below:

 

 

 

 

 

 

 

 

 

 

 


2012


2011



£000


£000

Minimum capital and reserves requirement


2,304


2,269

Available assets held by the Company


12,142


12,947

Available assets held by the Company in excess of the minimum capital and reserves requirement


9,838


10,678

 

36 Post balance sheet events

 

On 1 January 2013, Abbey Protection Group Limited was granted an Alternative Business Structure Licence (ABS Licence) by the Solicitors Regulation Authority. As a requirement of this licence, the Group restructured its operations. On 1 January 2013 the Abbey Tax and Accountax divisions of Abbey Protection Group Limited were transferred to a new 100% subsidiary company of Abbey Protection Group Limited called Abbey Tax and Consultancy Services Limited.

On 28 February 2013, Abbey Protection Group Limited acquired the business of Lewis Hymanson Small Solicitors LLP, a solicitors practice based in Manchester. Abbey Protection Group Limited has acquired approximately £1.6m of goodwill and intangibles in respect of this transaction.


Parent company balance sheet

 

At 31 December 2012


Note



2012


2011





£000


£000

Assets







Investment in subsidiaries

38



4,730


4,620

Trade and other receivables

39



94


1,263

Cash and cash equivalents

40



8,610


6,109








Total assets




13,434


11,992








Liabilities







Trade and other creditors

41



1,132


64








Total liabilities




1,132


64

 







Equity







Share capital

28



1,000


1,000

Share premium

42



3,539


3,539

Own Shares

42



(1)


(10)

Retained earnings

42



7,519


7,111

Capital redemption reserve

42



50


50

Equity settled share incentive reserve

42



195


238








Total shareholders' equity




12,302


11,928

 

 

The financial statements of Abbey Protection plc (registered number 06352358) were approved by the Board of directors and authorised for issue on 25 March 2013. They were signed on its behalf by:

 

 

 

Colin Davison                                                                                      Chris Ward

Group Chief Executive                                                                        Group Managing Director

 


37 Significant accounting policies

Basis of preparation

The separate financial statements for the Parent Company are presented as required by the Companies Act 2006. They have been prepared under the historical cost convention and in accordance with UK Generally Accepted Accounting Principles. As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own profit and loss account for the year. The profit after taxation for the year of the Parent Company was £4,984,000 (2011: £4,438,000).

 

The accounting policies that are used in preparation of these financial statements are consistent with the accounting policies used in the preparation of the consolidated financial statements of the Group as set out in those financial statements. The additional accounting policies which are specific to the separate financial statements of the Company are set out below:

 

Investment in subsidiaries

Investments in subsidiary undertakings are stated at cost and in respect of Abbey Protection Group Limited, the nominal value of the shares issued to acquire the subsidiary. Investments in subsidiary undertakings are reviewed for impairment when events, or changes in circumstances, indicate the carrying value may be impaired.

 

Dividend income

Dividend income from investments in subsidiaries is recognised when the right to receive payment is established.

 

Cash flow statement

The Company has utilised the exemptions provided under FRS 1 (Revised) and has not presented a cash flow statement. A consolidated cash flow statement has been presented for the Group.

 

38 Investment in subsidiaries

 

The principal undertakings of Abbey Protection plc at 31 December 2012 are:

 

Company

Country of incorporation


Activity


Portion of ownership interests







Abbey Protection Group Limited

United Kingdom


Insurance intermediation / Consultancy intermediary


100%

Abbey Tax & Consultancy Services Limited

United Kingdom


Insurance intermediation / consultancy


100%

Ibex Reinsurance Company Limited

Guernsey


Reinsurance company


100%

Abbey Property Facilities Limited

United Kingdom


Consultancy


60%

Abbey Legal Holdings Limited

United Kingdom


Dormant


100%

Abbey Legal Protection Limited

United Kingdom


Dormant


100%

Abbey Tax Protection Limited

United Kingdom


Dormant


100%

Accountax Consulting Limited

United Kingdom


Dormant


100%

Accountax UK Limited

United Kingdom


Dormant


100%

Accountax Law Limited

United Kingdom


Dormant


100%

 

The AP Group has not suffered any impairment in the value of its investments in its subsidiaries. Abbey Property Facilities Limited was incorporated on 11 January 2012 and Abbey Tax & Consultancy Services Limited was incorporated on 9 October 2012. The dormant sub-sidiaries have remained dormant throughout the year.

 

 

39 Trade and other receivables                                                                                                 

 

 


2012


2011



£000


£000

 









Prepayments and accrued income


50


41

Amounts due from subsidiary undertakings


-


1,193

Corporation tax


44


10

Deferred tax


-


19



94


1,263

 

 

 

 

40 Cash and cash equivalents



2012


2011



£000


£000






Cash at bank and in hand


8,610


6,109

Cash and cash equivalents


8,610


6,109






The effective interest rate on short term bank deposits was:


1.70%


1.24%

 

41 Trade and other creditors



2012


2011



£000


£000






Other taxes and social security


7


7

Amounts due to subsidiary undertakings


1,083


-

Accruals



57



1,132


64

 

42 Share premium, retained earnings and other reserves

 


Share

Premium


Equity

settled share incentive reserve


Capital redemption reserve


Own shares


Retained

earnings


Total


£000


£000


£000


£000


£000


£000













Balance at 1 January 2011

3,539


553


50


-


6,714


10,856

Equity settled share-based payments

-


(315)


-


-


158


(157)

Ordinary dividend paid

-


-


-


-


(4,199)


(4,199)

Acquisition of treasury shares

-


-


-


(698)


-


(698)

Own shares released on vesting of share options

-


-


-


688


-


688

Profit for the year

-


-


-


-


4,438


4,438

Balance at 31 December 2011

3,539


238


50


(10)


7,111


10,928













Equity settled share-based payments

-


(43)


-


-


23


(20)

Ordinary dividend paid

-


-


-


-


(4,599)


(4,599)

Acquisition of treasury shares

-


-


-


(138)


-


(138)

Own shares released on vesting of share options

-


-


-


147


-


147

Profit for the year

-


-


-


-


4,984


4,984

Balance at 31 December 2012

3,539


195


50


(1)


7,519


11,302

 

 

43 Reconciliation of movement in shareholders' equity



2012


2011



£000


£000






Profit for the year


4,984


4,438

Equity settled share-based payments


(20)


(157)

Acquisition of treasury shares


(138)


(698)

Own shares released on vesting of share options


147


688

Ordinary dividend paid


(4,599)


(4,199)

Net addition to shareholders' funds


374


72

Opening shareholders' equity


11,928


11,856

Closing shareholders' equity


12,302


11,928

 

44 Related party transactions

 

Details of related party transactions are provided in note 32 to the consolidated financial statements.

 

 

45 Share-based payments

 

Details of share-based payment plans are provided in note 30 to the consolidated financial statements.

Shareholder information and advisers

The ordinary shares of Abbey Protection plc (Company No 06352358) are traded on the Alternative Investment Market of the London Stock Exchange (AIM) and information on the share price and the Company can be accessed via the Company's website, www.abbeyprotectionplc.com or at www.londonstockexchange.com - code: ABB. The ISIN number is GB00B293ZK84 and the SEDOL code is B293ZK8.

 

Company Secretary and registered office

Adrian Green, Abbey Protection plc, Minories House, 2-5 Minories, London, EC3N 1BJ.

 

Registrar

Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 7NH.

 

Computershare looks after the Shareholder database and is responsible for maintaining Shareholder records and the mailing out of related information. Computershare Investor Centre gives access to view your holdings online via their website www.computershare.com. To register click on Investor Centre on the Computershare home page www.computershare.com and follow the instructions. You will be able to:

 

•      View all your holding details for companies registered with Computershare

•      Update your contact address and personal details online

•      Access current and historical market prices

 

You may contact Computershare Investor Services PLC via the dedicated Shareholder helpline, 0870 707 1682.

 

Key dates

The annual general meeting will be held on 3 May 2013 at the Company's offices, 1 Mitchell Court, Castle Mound Way, Rugby, CV23 0UY.

 

26 March 2013 - preliminary results for the year ended 31 December 2012 announced

4 September 2013 - results for half year to 30 June 2013 announced

11 September 2013 - ex-dividend date for interim dividend

13 September 2013 - record date for interim dividend

10 October 2013 - interim dividend payment

 

Auditors

Deloitte LLP, 2 New Street Square, London, EC4A 3BZ.

 

Nominated adviser

Shore Capital and Corporate Ltd, Bond Street House, 14 Clifford Street, London, W1S 4JU.

 

Broker

Numis Securities, 10 Paternoster Square, London, EC4M 7LT.

Shore Capital Stockbrokers Ltd, Bond Street House, 14 Clifford Street, London, W1S 4JU.

 

Solicitors

Eversheds LLP, 115 Colmore Row, Birmingham, B3 3AL.

 

Bankers

Coutts & Co, 440 Strand, London, WC2R 0QS.

 

Public Relations

FTI Consulting, Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB.

 

Charity share donations

Sharegift, an independent charity share-donation scheme, accepts donations of small parcels of shares where their value makes them uneconomic to sell. If you wish to donate your shares in this way, see www.sharegift.org (tel: 020 7337 0501) or contact the Company's Registrars.

 

Notice of annual general meeting

Notice is hereby given that the sixth annual general meeting of Abbey Protection plc (the "Company") will be held at the offices of Abbey Protection plc, 1 Mitchell Court, Castle Mound Way, Rugby, CV23 0UY at 11am on Friday 3 May 2013.

 

Resolutions

To consider and, if thought fit, to pass the following resolutions of which resolutions 1 to 7 will be proposed as ordinary resolutions and resolutions 8 and 9 will be proposed as special resolutions.

 

The Directors consider that all the resolutions of the annual general meeting are in the best interests of the Company and recommend that shareholders vote in favour of them. 

 

Ordinary business

1          To receive and adopt the financial statements for the year ended 31 December 2012, together with the reports of the directors and auditors thereon.

 

The Directors are required to present the directors' report and the financial statements of the Company for adoption by the shareholders at the annual general meeting of the Company. Accordingly, resolution 1 presents the financial statements for the year ended 31 December 2012 together with the reports of the directors and auditors thereon and proposes the accounts for adoption.

 

2          To approve the directors' remuneration report for the year ended 31 December 2012.

 

Resolution 2 presents the remuneration report for the financial year ended 31 December 2012 to the shareholders for approval. This resolution is an advisory resolution only and, as permitted by law, no entitlement to remuneration is made conditional on this resolution being passed. The remuneration report can be found on pages 18 to 20 of the 2012 Annual Report.

 

3          To re-elect Tony Shearer as a director of the Company.

 

4          To re-elect Colin Davison as a director of the Company.

           

            Under Article 111 of the Company's Articles of Association each director is required to retire and offer themselves for re-election at the third annual general meeting after the annual general meeting at which he was last elected subject to one third of directors retiring and offering themselves for re-election. Profiles for each of the directors standing for re-election are set out in the 2012 Annual report.

 

5          To re-appoint Deloitte LLP as auditors of the Company to hold office until the conclusion of the next general meeting at which accounts are laid before the Company.

 

6          To authorise the Directors to set the remuneration of the auditors of the Company.

 

The Company's auditors must be appointed in relation to each financial year of the Company. Accordingly, resolution 5 seeks to approve the appointment of Deloitte LLP as the Company's auditors for the financial year ending 31 December 2013. Resolution 6 authorises the Directors to agree the remuneration of Deloitte LLP for their services as auditors.

 

Special business

7    (i)    That the Directors be and are hereby generally and unconditionally authorised for the purposes of section 551 of the Companies Act 2006 (the "Act") to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for or convert any security into shares in the Company up to an aggregate nominal amount of £329,953 (being 33% of the issued share capital (excluding treasury shares) of the Company as at 25 March 2013, the latest practicable date before publication of this notice) provided that such authority shall expire at the conclusion of the Company's annual general meeting to be held in 2014 save that the Company may before such expiry make any offer or agreement which would or might require such shares to be allotted or rights to subscribe for or convert securities into shares to be granted after such expiry and the Directors may allot shares and grant rights to subscribe or convert securities into shares in pursuance of any offer or agreement as if the authority conferred hereby had not expired. This authority shall be in substitution for and shall replace any existing authority pursuant to section 551 of the Act, to the extent not utilised at the date this resolution is passed;

 

            and further

 

 (ii)    That the Directors be and are hereby generally and unconditionally authorised to exercise all the powers of the Company to allot equity securities (within the meaning of section 560 of the Act) in connection with a rights issue in favour of ordinary shareholders where the equity securities respectively attributable to the interests of all ordinary shareholders are proportionate (as nearly as may be) to the respective numbers of ordinary shares held by them up to an aggregate nominal amount of £329,953 (being 33% of the issued share capital (excluding treasury shares) of the Company as at 25 March 2013, the latest practicable date before

publication of this notice) provided that this authority shall expire at the conclusion of the Company's annual general meeting to be held in 2014, save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired.

 

Under the Act, the Directors may not allot unissued shares in the Company without the authority of shareholders in general meeting, except for the issue of shares under the Company's share or share option plans. The authorities contained in resolution 7 would permit the Directors to issue securities up to an aggregate nominal amount of £329,953 on a non pre-emptive basis and issue securities up to a further aggregate nominal amount of £329,953 pursuant to a rights issue on a pre-emptive basis, in accordance with ABI guidance.

 

8          That in accordance with Article 17 of the Company's Articles of Association, the Directors be and are hereby empowered pursuant to section 570 of the Act:

 

(a) subject to the passing of resolution 7 above, to allot equity securities (as defined in section 560 of the Act) for cash pursuant to the general authority conferred by resolution 7 above as if section 561(1) of the Act did not apply to any such allotment; and

 

(b) to sell ordinary shares (as defined in section 560 of the Act) in the Company if, immediately before the sale such shares are held by the Company as treasury shares (as defined in section 724 of the Act) for cash, as if section 561 of the Act did not apply to any such sale,

 

provided that this power shall be limited to the allotment of equity securities and the sale of treasury shares:

 

(i) in connection with or pursuant to an offer by way of a rights, open offer or any other pre-emptive offer in favour of ordinary shareholders who are entitled to participate therein in proportion (as nearly as practicable) to the respective number of ordinary shares held by such holders but subject to such exclusions or other arrangements as the Directors may deem necessary or desirable in relation to fractional entitlements or legal or practical problems arising in, or pursuant to, the laws of any territory, or the requirements of any regulatory body or stock exchange in any territory; and

 

(ii)         otherwise than pursuant to sub-paragraph (i) above, up to an aggregate nominal amount of £49,997 (being approximately 5% of the issued share capital of the Company as at 25 March 2013, the latest practicable date before publication of this notice),      

 

and this power shall expire at the conclusion of the Company's annual general meeting to be held in 2014, save that the Company may before such expiry make an offer or enter into any agreement which would or might require equity securities to be allotted or treasury shares to be sold, after such expiry and the Directors may allot equity securities or sell treasury shares in pursuance of such offer or agreement as if the power conferred hereby had not expired. This authority shall be in substitution for and shall replace any existing power pursuant to section 570 of the Act to the extent not utilised at the date this resolution is passed.

 

Resolution 8 empowers the Directors to allot ordinary shares, otherwise than on a pre-emptive basis to existing shareholders in connection with any future rights issue or grant rights over shares or sell treasury shares for cash, up to an aggregate nominal amount of £49,997 (being approximately 5% of the issued share capital of the Company as at 25 March 2013, the latest practicable date before publication of this notice). It is not intended that the Company will allot in this way more than 7.5% of the issued share capital in any rolling three-year period.

 

The authorities in resolutions 7 and 8 will last until the conclusion of the Company's next annual general meeting, in accordance with institutional guidelines. The Directors have no present intention of exercising these authorities. It is normal for boards of quoted companies to have these authorities in order to take advantage of market opportunities as they arise.

 

9          That the Company be and is hereby generally and unconditionally authorised, pursuant to and in accordance with Article 9 of the Company's Articles of Association and section 701 of the Act to make market purchases (as defined in section 693(4) of the Act) of any of its own ordinary shares on such terms and in such manner as the directors may from time to time determine subject to the following:

 

(a) the maximum number of ordinary shares in the Company hereby authorised to be acquired is 9,999,477;

(b) the minimum price, exclusive of expenses, which may be paid for each such ordinary share is an amount equal to the nominal value of each ordinary share;

(c) the maximum price, exclusive of expenses, which may be paid for each such ordinary share is an amount equal to 105% of the average of the middle market quotations for the ordinary shares in the Company taken from taken from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which such ordinary share is contracted to be purchased, provided that the authority hereby conferred shall expire at the conclusion of the Company's annual general meeting to be held in 2014, save that the Company may enter into a contract for the

purchase of ordinary shares before the expiry of this authority which would or might be completed wholly or partly after its expiry.

 

Resolution 9 empowers the Company to purchase its own ordinary shares by market purchases not exceeding approximately 10% of the issued share capital of the Company as at 25 March 2013. The maximum and minimum prices are stated in the resolution. The Directors believe that it is advantageous for the Company to have this flexibility to make market purchases of its own ordinary shares. In the event that ordinary shares are purchased, they would either be cancelled (and the number of ordinary shares in issue would be reduced accordingly) or retained as treasury shares with a view to possible re-sale at a future date. The Company would consider holding repurchased ordinary shares pursuant to the authority conferred by this resolution as treasury shares. This would give the Company the ability to re-issue treasury shares quickly and cost effectively and would provide the Company with additional flexibility in the management of its capital base.

 

            By order of the board                              Registered office

            Adrian Green                                         Minories House, 2-5 Minories

            Group Company Secretary                      London

            25 March 2013                                       EC3N 1BJ

 

Notes

 

1     Transfer

       If you have sold or transferred all of your shares, you should pass this documentation and the form of proxy to the person through whom the sale or transfer was effected for transmission to the purchaser or transferee.

2     Appointment of proxies

       A member entitled to attend and vote at the annual general meeting may appoint a proxy or proxies (who need not be a member of the Company) to attend and to vote instead of him or her. Forms of proxy must be returned so as to be received by the Company's registrars Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 7NH, not later than 11.00am on Wednesday, 1 May 2013 (being not more than two business days before the time fixed for the meeting). Appointing a proxy will not preclude a member attending and voting in person at the meeting.

 

3     Right to attend and vote

       Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies that in order to have the right to attend and vote at the meeting (and also for the purpose of calculating how many votes a person entitled to attend and vote may cast) a person must be entered on the register of holders of the ordinary shares of the Company by not later than 11.00am on Wednesday 1 May 2013 (being not more than two business days before the time fixed for the meeting). Changes to entries on the register after this time shall be disregarded in determining the rights of any person to attend or vote at the meeting and the number of shares on which they can vote.

 

4     Documents on display

      

Copies of the service agreements under which directors of the Company are employed and copies of the letters of appointment of non-executive directors, are available for inspection at all times at the Company's registered office during normal business hours from the date of this notice until the date of the annual general meeting, and will be available for inspection at the place of the annual general meeting for at least 15 minutes prior to and during the meeting.

 


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