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B.P. Marsh &Partners (BPM)

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Tuesday 11 June, 2019

B.P. Marsh &Partners

Final Results

RNS Number : 7436B
B.P. Marsh & Partners PLC
11 June 2019
 

 

 

 

Date:                              11th June 2019

On behalf of:                 B.P. Marsh & Partners Plc

Embargoed until:           0700hrs

B.P. Marsh & Partners Plc

("B.P. Marsh", the "Company" or the "Group")

 

FINAL RESULTS FOR THE YEAR TO 31 JANUARY 2019

B.P. Marsh & Partners Plc (AIM: BPM), the specialist investor in early stage financial services businesses, announces its audited Group final results for the year to 31 January 2019.

The highlights of the results are:

·   Net Asset Value of £126.2m (31 January 2018: £98.9m), a 10.0% increase, net of Dividend and £16.6m net cash raised through the Placing and Open Offer in July 2018

·   Total Shareholder return of 11.7% for the year including the Dividend paid in July 2018

·   Net Asset Value per share increased to 350p (31 January 2018: 339p)

·   Net Asset Value average annual compound growth rate of 11.9% since 1990 (net of Dividends and Placing cash)

·  Consolidated profit after tax of £12.5m (31 January 2018: £20.2m, or £10.8m excluding one-off items). Up 16% excluding one-off items

·   Increase in the Equity Value of the portfolio of 16.1% to £101.9m (31 January 2018 £79.1m)

·   Final Dividend of 4.76p per share declared (31 January 2018: 4.76p), payable in July 2019

·   Cash and treasury funds balance of £7.9m at year end, of which £1.5m remains uncommitted

·   New investment in Australia, ATC Insurance Solutions PTY Ltd

·   Additional investments in Nexus and XPT and provision of follow-on funding to Nexus

·   Continued strong opportunity pipeline

·   Share price increase of c.11% in the year and c.113% over five years

 

"We are pleased to have produced a good overall performance in an uncertain macro environment, which is testament to our developing investment portfolio and the tenacity of our team."

 

Brian Marsh OBE, Chairman

 

Analyst Briefing

 

An analyst presentation, hosted by the Company, will be held on Tuesday 11 June 2019 at 10:00 a.m. at the offices of B.P. Marsh & Partners Plc, 4 Matthew Parker Street, SW1H 9NP.

 

Please contact Elisabeth Cowell at Newgate Communications on 020 3757 6888 or [email protected] if you wish to attend.

 

For further information:

 

B.P. Marsh & Partners Plc                                                             www.bpmarsh.co.uk

Brian Marsh OBE / Camilla Kenyon                                                 +44 (0)20 7233 3112

 

Nominated Adviser & Broker

Panmure Gordon

Atholl Tweedie / Charles Leigh-Pemberton / Ailsa MacMaster         +44 (0)20 7886 2500

 

Financial PR

Newgate Communications                                                              [email protected]

Emma Kane / Elisabeth Cowell                                                        +44 (0)20 3757 6888

 

Note

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

 

Chairman's Statement

 

I am pleased to present the audited Consolidated Financial Statements of B.P. Marsh & Partners Plc for the year ended 31 January 2019.

 

We have concluded the year with a 10.0% increase in Net Asset Value (net of dividend and £16.6m net cash raised through the Placing and Open Offer in July 2018) during that period and an increase in the equity value of the portfolio from £79.1m to £101.9m, or 16.1% adjusting for acquisitions. Our Net Asset Value now stands at £126.2m or 350p per share.

 

There have been some excellent investee company performances within the portfolio both in the UK and overseas and across broking and Managing General Agents.

 

Nexus continues to grow strongly, driven by its determined management team and its ambition to achieve the Company's strategy. Nexus has made several acquisitions during the year and we acquired a further interest in Nexus in October 2018, as well as providing them with loan funding in April 2019.

 

XPT meanwhile announced its latest acquisition in January 2019, alongside which we provided further funding of US $3.22m.

 

In the London insurance market both Walsingham and CBC are making good progress, whilst in Australia our most recent investment, ATC Insurance Solutions, has already proved itself to be a strong performer that we consider shows great promise.

 

As is customary in our business, there are always investee companies experiencing more difficult times in their territory or market. Our investee company in Singapore is accordingly undergoing some internal restructuring and one of our operations in the USA has not achieved its objectives.

 

In the UK, LEBC was affected by market turbulence from October onwards, driven by Brexit uncertainty. This has had a temporary impact, however our confidence in the business and its prospects remains unchanged.

 

During the year we completed a Placing that saw PSC Insurance Group, the Australian listed insurance intermediary investor, take a 19.8% shareholding in the Group. This relationship is progressing well and we view their investment as long-term and supportive. Meanwhile we continue to be interested in Australia as a territory for further potential investment.

 

The Placing and accompanying Open Offer raised £16.6m in cash for the Group and this is now nearly fully invested.

 

At the conclusion of the year, we have maintained our objective of consistent compound annual growth. This has been achieved despite the challenges provided by various political and market uncertainties and we are pleased in the period under review to have delivered a total shareholder return of 11.7%.

 

Business Update

 

Summary of Developments in the Portfolio

 

During and subsequent to the financial year ended 31 January 2019, the following developments have taken place:

 

New Investments - ATC Insurance Solutions PTY Limited ("ATC")

 

On 10 July 2018 the Group announced an investment into the Australian based company ATC, taking a 20% equity stake for a total cash consideration of AUD $5.1m (£2.9m).

 

ATC is a Managing General Agency ("MGA") which provides insurance underwriting services to a wide array of clients across a number of sectors, including Accident & Health, Construction & Engineering, Plant & Equipment and Sports Liability.

 

Chief Executive Officer, Chris Anderson and Director, Shane Sheppard established ATC as a Lloyd's Coverholder in 2009. ATC is headquartered in Melbourne, with offices in Sydney and Brisbane, employing approximately 30 people.

 

 

Follow-on Investments

 

XPT Group LLC ("XPT")

 

On 11 January 2019, the Group invested $3.22m into XPT by way of redeemable preference shares. XPT used these funds to acquire 100% of New York based MGA and Lloyd's Coverholder, SVA Underwriting Services Inc ("SVA").

 

SVA was founded in August 2013 by its President, Steven Vallejo. SVA specialises in Physical Damage and Cargo cover for the Trucking Insurance sector and will provide geographic expansion for XPT into the Northeast and Midwest.

 

Nexus Underwriting Management Ltd ("Nexus")

 

On 29 October 2018 the Company purchased a further 1.9% in Nexus for cash consideration of £2.6m, taking our shareholding to 18.5%.

 

Portfolio Update

 

UK

 

Nexus Underwriting Management Ltd

 

In April 2019 the Group provided Nexus with a £2m revolving credit facility, as part of Nexus' wider debt fundraising exercise in order to undertake M&A activity.

 

In addition to the facility from the Company, Nexus has secured an additional £14m loan facility from funds managed by HPS Investment Partners, LLC ("HPS"). HPS is a leading global investment firm.

 

The funding provided by both B.P. Marsh and HPS resulted in Nexus securing a total of £16m in additional loan facilities, alongside the £30m of funding secured from both B.P. Marsh and HPS in July 2017.

 

In April of this year, Nexus utilised a proportion of these funds to acquire Credit & Business Finance Limited ("CBF"), a specialist trade credit broker, and Capital Risks MGA Limited, a Warranty and Indemnity MGA.

 

Following the acquisition of CBF, Nexus is now the leading independent UK trade credit broker, fulfilling one of its strategic goals and uniting the two biggest producers of 'new to market' business, and will hold a share in excess of 10% of the estimated £350m Gross Written Premium for the UK trade credit broking market.

 

LEBC Holdings Ltd

LEBC was impacted by a combination of market volatility and Brexit uncertainty in Q4 2018 and announced in February 2019 that it would be postponing seeking a public listing due to market uncertainties.

Jack McVitie, the Chief Executive said: "We will secure a better result, should we continue to pursue an IPO, if we give the market time to normalise. LEBC has been built patiently through primarily organic growth over the last 19 years. In that time, we have seen many different market events and we know we will see many more in the future."

Notwithstanding the difficult trading conditions LEBC continues to make progress in its key areas, including developing its digital offering, Hummingbird.

 

CBC UK Ltd

 

On 2 July 2018 CBC completed its first acquisition since the Group invested in 2017. CBC acquired 100% of Jersey based general insurance broker PBS Insurance Limited. In doing so, PBS Managing Director Si Aziz joined Paladin Holdings Limited (CBC's parent company) as a shareholder.

 

CBC continues to demonstrate strong growth and for the year ended 31 December 2018 has reported draft audited revenue of £5.69m and Operating Profit of £0.95m. This is an increase of 5% in Revenue and 29% in Operating Profit over the prior year.

 

EC3 Brokers Limited ("EC3")

 

Since the Group's investment in December 2017, EC3 has continued to perform in line with expectations.

 

Walsingham Motor Insurance Ltd ("WMIL")

 

WMIL continued to deliver good progress in the year ended 30 September 2018, reporting draft audited Total Income of £2.51m and Profit before Tax of £0.52m, up 11.3% over the prior year.

 

This growth has continued in 2019, with the business trading significantly ahead of expectations at the current time.

 

USA

 

XPT Group LLC ("XPT")

 

On 18 January 2019 the Group announced that XPT, in which the Group owns a 35% shareholding, has acquired 100% of a New York City based MGA and Lloyd's Coverholder, SVA Underwriting Services Inc ("SVA").

 

As part of the acquisition, the Company agreed to provide XPT with further funding of $3.22m (£2.54m) by way of newly issued redeemable preference shares.

 

XPT's acquisition of SVA is its third since it was established in June 2017, following Western Security Surplus Insurance Brokers, Inc. ("WSS") in November 2017 and trucking specialist WE Love & Associates, Inc in January 2018.

 

XPT's strategy is to develop a wholesale insurance broking and underwriting agency platform across the U.S. Specialty Insurance Sector. The acquisition of SVA continues to demonstrate that XPT can take advantage of the consolidation opportunities in the small-to-medium-sized wholesale space in the U.S. while adding operational expertise to organically grow the businesses at high rates.

 

Mark Edward Partners LLC ("MEP")

 

MEP has found it difficult to make headway in recent months. Some of its specialist insurance products have been impacted by political changes and revenues have suffered as a result. The Group has taken its customary prudent approach to valuation and notes that, whilst this is a disappointing outcome, the business is still in operation and Management are making every effort to stabilise current trading.

 

Canada

 

Stewart Specialty Risk Underwriting Ltd ("SSRU")

 

SSRU, the Toronto- based provider of specialty insurance products to a wide array of clients in the Construction, Manufacturing, Onshore Energy, Public Entity and Transportation sectors, commenced operations in February 2017.

 

For the year ended 31 December 2018 SSRU wrote Gross Written Premium of CAD$5.67m and is primed to enter its next stage of growth.

 

This growth will come via the continued organic development of its existing product offerings and expansion into new lines of business. Additionally, SSRU continues to explore M&A opportunities as they arise.

 

 

Australia

 

ATC Insurance Solutions PTY Limited

 

The Group's third and most recent venture in Australia, ATC, has performed well since B.P. Marsh's investment, in July 2018.

 

ATC continues to show strong growth, with gross written premium expected to grow by 25% year on year and underlying EBITDA expected to grow by 22% year on year.      

 

Dividend

 

The Board is pleased to declare a dividend of 4.76p per share, payable in July 2019, to be put to the Group's shareholders at its Annual General Meeting.

 

The Board continues to strike a balance between investing cash into new opportunities for long-term capital growth and providing shareholders with a sustainable yield.

 

Share Buy-Backs

 

The Board has a stated policy, regularly reviewed, of undertaking low volume share buy-backs at times when the Group's Share Price represents a 15% or greater discount to Net Asset Value. The Board considers this is a useful stabilising mechanism during periods of market or share price volatility.

 

During the year to 31 January 2019, the Company undertook a number of buy-backs purchasing an aggregate of 28,573 shares at an average price of 278p per share.

 

 

New Business Opportunities and Outlook

 

The Group received 64 new opportunities during the financial year. Of the 64, the majority were in the insurance sector, with 37 insurance intermediary enquiries, or 58%.

 

To compare with previous years, the Group received 77 proposals in 2018, 84 in 2017 and 71 in 2016.

 

The Board is pleased to receive a continuing flow of new investment enquiries commensurate with prior years and discussions are ongoing with a number of these proposals.

 

Australia continues to be a territory of interest to the Group, with three current investments and a significant shareholder based there.

 

Cash Balance

 

At 31 January 2019 the cash balance was £7.9m, with current uncommitted cash of £1.5m net of the dividend payable in July 2019. The Board notes the current level of uncommitted cash and has several options available to it in this respect.

 

Financial Performance

 

At 31st January 2019, the Net Asset Value of the Group was £126.2m, or 350p per share (2018: £98.9m, or 339p per share) including a provision for deferred tax where relevant. This equates to an increase in Net Asset Value of 10.0% (2018: 24.1%) for the year.

 

The Group increased its dividend payment to £1.7m (or 4.76p per share) during the year, as announced previously (2018: £1.1m or 3.76p per share).  Total Shareholder return for the year was therefore 11.7% (2018: 25.5%) including the dividend payment and the Net Asset Value increase.

 

The Group's investment portfolio movement during the year was as follows:

 

31st January 2018 valuation

Acquisitions at cost

Disposal proceeds

Adjusted 31st January 2018 valuation

31st January 2019 valuation

£79.1m

£8.7m

£Nil

£87.8m

£101.9m

 

This equates to an increase in the portfolio valuation of 16.1% (2018: 31.3%).

 

The Net Asset Value of £126.2m at 31st January 2019 represented a total increase in Net Asset Value of £97.0m since the Group was originally formed in 1990 having adjusted for the £10.1m net proceeds raised on AIM in 2006, the original capital investment of £2.5m and the £16.6m of net proceeds raised through the Share Placing and Open Offer in July 2018. The directors note that the Group has delivered an annual compound growth rate of 11.9% in Group net asset value after running costs, realisations, losses, distributions and corporation tax since 1990.

 

The consolidated profit on ordinary activities after taxation decreased by 38% to £12.5m (2018: profit of £20.2m) however, the 2018 consolidated profit on ordinary activities included two significant one-off items.  Firstly, an unrealised gain of £5.7m relating to the Group's investment in LEBC Holdings Limited ("LEBC") which arose on a change in valuation methodology.  Secondly, a write-back of deferred tax resulting from the changes to the Substantial Shareholding Exemption rules in 2017, which resulted in a net tax credit to the Consolidated Statement of Comprehensive Income of £3.7m.  Excluding these one-off items, the consolidated profit after taxation actually increased by £1.7m (16%) over 2018.

 

The consolidated profit on ordinary activities before taxation was £12.2m (2018: profit of £16.5m), of which £14.1m was derived from unrealised gains on revaluing the equity investment portfolio in line with current market conditions, a decrease of 22% on the previous year (2018: net unrealised gains of £18.1m).  As noted above, the unrealised gains in 2018 included £5.7m specifically relating to a change in valuation methodology for LEBC and if this were excluded as a one-off item, the true increase in the equity portfolio from unrealised gains was 14% over the year. 

 

The Group's strategy is to cover expenses from the portfolio yield.  On an underlying basis, including treasury returns, but excluding investment activity (unrealised gains on equity, a provision against loans receivable from investee companies and all underlying treasury portfolio movement), this was achieved with a pre-tax profit of £0.7m for the year (2018: £0.7m).

 

The Group invested £8.7m during the year - £2.9m in new equity investments and £5.8m for follow-on equity financing to its existing portfolio.  In addition, the Group provided new loans for working capital to the portfolio of £3.8m.  Repayment of loans by the portfolio amounted to £1.8m in the year.  Cash funds (including treasury funds) at 31st January 2019 were £7.9m.

 

Overall, income from investments increased by 19.9% to £4.6m (2018: £3.9m).  Dividend income increased by 74.5% over the year due to the strengthening performance of the portfolio companies, whilst income from loans fell by 7.8%, which was largely the result of the portfolio repaying debt in accordance with agreed repayment schedules.  Fees were 24.8% lower mainly due to a number of one-off transaction fees received in 2018.

 

Whilst the Group did not realise any of its investments during the year, it was successful in raising £16.6m of net proceeds from a Share Placing and Open Offer which took place in July 2018.  The cash received from this fundraising enabled the Group to invest in a number of new and existing opportunities throughout the year.

 

Operating expenses, including costs of making new investments, decreased by 4.0% during the year to £4.0m (2018: £4.1m).  This decrease was largely due to several atypical expenses which were included within the 2018 operating costs, including £0.3m of enhanced bonuses awarded to directors and staff which were linked to the successful realisation of investments in that year as well as £0.2m of costs incurred in making new investments which were expensed under IFRS and £0.1m of one-off costs incurred in the prior year office move.  After excluding these atypical expenses, as well as an exceptional bad debt write-back of £0.1m from the 2018 operating costs, and after excluding £0.1m of atypical expenses incurred in 2019 relating to making new investments and the establishment of the Joint Share Ownership Plan, underlying operating expenses actually increased by £0.3m (7%) over 2018, in line with managing a growing portfolio.

 

Due to favourable market conditions, the Group's treasury funds increased by 5.6% over the year (net of fund management charges) (2018: 4.1%), however the Group sold down the majority of its remaining treasury portfolio during the year to fund further investments.

 

 

Net Asset Value per share

 

In 2018 the Group entered into joint share ownership arrangements with certain employees and directors and issued 1,461,302 shares (3.9% of the current total issued shares) which were transferred into an Employee Benefit Trust. The employees and directors will only receive the growth in value of the shares above the market price of 281 pence per share on the date of issue, plus a 3.75% per annum carrying value after 3 years from the date of issue.

 

Although these shares are potentially dilutive, if the performance criteria are met then the Group would then receive the economic right to the first 281 pence per share, or £4.1m. The net asset value per share of the Group currently excludes these 1,461,302 shares as these were non-dilutive in the year to 31 January 2019, are subject to performance criteria that have not yet been achieved and are held within an Employee Benefit Trust.  The Group net asset value has therefore also excluded the economic right the Group has to £4.1m on vesting for the same reasons. On this basis the current net asset value per share is 350 pence for the Group. If the performance criteria for vesting is eventually met, the diluted net asset value per share based upon the current net asset value would be 348 pence.

 

Outlook

 

The Group has produced a good overall performance in the year. The Group's strategy is to generate long-term value and the Board is confident in the Group's ability to do so, notwithstanding short-term market uncertainties.

  

 

Brian Marsh OBE, Chairman

10 June 2019

 

 

Investments

 

As at 31 January 2019 the Group's equity interests were as follows:

 

ATC Insurance Solutions PTY Limited

(www.atcis.com.au)

In July 2018 the Group invested in ATC, an Australian-based MGA and Lloyd's Coverholder, specialising in Accident & Health, Construction & Engineering, Trade Pack and Sports insurance.

Date of investment: July 2018

Equity stake: 20%

31 January 2019 valuation: £5,420,000

 

Asia Reinsurance Brokers Pte Limited

(www.arbrokers.asia)

In April 2016 the Group invested in Asia Reinsurance Brokers Pte Limited ("ARB"), the Singapore headquartered independent specialist reinsurance and insurance risk solutions provider. ARB was established in 2008, following a management buy-out of the business from AJ Gallagher, led by the CEO, Richard Austen.

Date of investment: April 2016

Equity stake: 25%

31 January 2019 valuation: £764,000

 

Bastion Reinsurance Brokerage (PTY) Limited

(www.bastionre.co.za)

In December 2014 the Group invested in Bastion Reinsurance Brokerage (PTY) Limited ("Bastion"), a start-up Reinsurance Broker based in South Africa. Established in May 2013 by its CEO and Chairman, Bastion specialises in the provision of reinsurance solutions over a number of complex issues, engaged by various insurance companies and managing general agents.

Date of investment: December 2014

Equity stake: 35%

31 January 2019 valuation: £0

 

Bulwark Investment Holdings (PTY) Limited

In April 2015 the Group, alongside its existing South African Partners, established a new venture, Bulwark Investment Holdings (PTY) Limited ("Bulwark"), a South African based holding company which establishes Managing General Agents in South Africa. To date Bulwark has established two new Managing General Agents: Preferred Liability Underwriting Managers (PTY) Limited and Mid-Market Risk Acceptances (PTY) Limited.

Date of investment: April 2015

Equity stake: 35%

31 January 2019 valuation: £0

 

CBC UK Limited

(www.cbcinsurance.co.uk)

Established in 1985, CBC is a Retail and Wholesale Lloyd's Insurance Broker, offering a wide range of services to commercial and personal clients as well as broking solutions to intermediaries. The Group assisted in an MBO of CBC allowing Management to buy out a major shareholder via parent company Paladin Holdings Limited.

Date of investment: February 2017

Equity stake: 44.3%

31 January 2019 valuation: £4,907,000

 

Criterion Underwriting Pte Limited

Group helped establish Criterion alongside its Partners in Asiare Holdings Pte Limited and Asia Reinsurance Brokers Pte Limited in July 2018. Criterion is a start-up Singapore-based Managing General Agency providing specialist insurance products to a variety of clients in the Cyber, Financial Lines and Marine sectors in Far East Asia.

Date of investment: July 2018

Equity stake: 29.4%

31 January 2019 valuation: £50,000

 

EC3 Brokers Limited

(www.ec3brokers.com)

In December 2017, the Group invested in EC3 Brokers Limited, an independent specialist Lloyd's broker and reinsurance broker, via a newly established NewCo, EC3 Brokers Group Limited. Founded by its current Chief Executive Officer Danny Driscoll, who led a management buyout to acquire EC3's then book of business from AJ Gallagher in 2014, EC3 provides services to a wide array of clients across a number of sectors, including construction, casualty, entertainment and cyber & technology.  

Date of investment: December 2017

Equity Stake: 20%

31 January 2019 valuation: £6,011,000

 

The Fiducia MGA Company Limited

(www.fiduciamga.co.uk)

Fiducia is a recently established UK Marine Cargo Underwriting Agency, established by its CEO Gerry Sheehy. Fiducia is a Lloyd's Coverholder which specialises in the provision of insurance solutions across a number of Marine risks including, Cargo, Transit Liability, Engineering and Terrorism Insurance.

Date of investment: November 2016

Equity stake: 35%

31 January 2019 valuation: £390,000

 

LEBC Holdings Limited

(www.lebc-group.com)

In April 2007 the Group invested in LEBC, an Independent Financial Advisory company providing services to individuals, corporates and partnerships, principally in employee benefits, investment and life product areas.

Date of investment: April 2007

Equity stake: 59.3%

31 January 2019 valuation: £35,485,000

 

Mark Edward Partners LLC

(www.markedwardpartners.com)

Founded in 2010 by Mark Freitas, its President & Chief Executive Officer, Mark Edward Partners LLC ("MEP") provides core insurance products in Financial & Liability, Property & Casualty, Personal Lines, Life Insurance, Cyber and Affinity Groups. MEP is a national U.S. firm with licenses to operate in all 50 states and has offices in New York, Palm Beach and Los Angeles.

Date of investment: October 2017

Equity stake: 30%

31 January 2019 valuation: £0

 

MB Prestige Holdings PTY Limited

(www.mbinsurance.com.au)

In December 2013 the Group invested in MB Prestige Holdings PTY Ltd ("MB Group"), the parent Company of MB Insurance Group PTY a Managing General Agent, headquartered in Sydney, Australia. MB Group is recognised as a market leader in respect of prestige motor vehicle insurance in all mainland states of Australia.

Date of investment: December 2013

Equity stake: 40%

31 January 2019 valuation: £2,474,000

 

Nexus Underwriting Management Limited

(www.nexusunderwriting.com)

In 2014 the Group invested in Nexus Underwriting Management Limited ("Nexus"), an independent specialty Managing General Agency, founded in 2008. Through its operating subsidiaries Nexus specialises in the provision of Directors & Officers, Professional Indemnity, Financial Institutions, Accident & Health, Trade Credit, Political Risks Insurance, Surety, Bond and Latent Defect Insurance, both in the UK and globally.

Date of investment: August 2014

Equity stake: 18.14%

31 January 2019 valuation: £30,125,000

 

Property & Liability Underwriting Managers (PTY) Limited

(www.plumsa.co.za)

In June 2015 the Group completed an investment in Property And Liability Underwriting Managers (PTY) Limited ("PLUM"), a Managing General Agent based in Johannesburg, South Africa. PLUM specialises in large corporate property insurance risks in South Africa and is supported by both domestic South African insurance capacity and A-rated international reinsurance capacity.

Date of investment: June 2015

Equity stake: 42.5%

31 January 2019 valuation: £0

 

Stewart Specialty Risk Underwriting Ltd

(www.ssru.ca)

A Canadian based Managing General Agent, providing insurance solutions to a wide array of clients in the Construction, Manufacturing, Onshore Energy, Public Entity and Transportation sectors. SSRU was established by its CEO Stephen Stewart, who has over 25 years' experience in the insurance industry having had senior management roles at both Ironshore and Lombard in Canada.

Date of investment: January 2017

Equity stake: 30%

31 January 2019 valuation: £733,000

 

Sterling Insurance PTY Limited

(www.sterlinginsurance.com.au)

In June 2013, in a joint venture enterprise alongside Besso, (Neutral Bay Investments Limited) the Group invested in Sterling Insurance PTY Limited, an Australian specialist underwriting agency offering a range of insurance solutions within the Liability sector, specialising in niche markets including mining, construction and demolition.

Date of investment: June 2013

Equity stake: 19.7%

31 January 2019 valuation: £2,414,000

 

Summa Insurance Brokerage, S. L.

(www.grupo-summa.com)

In January 2005 the Group provided finance to a Madrid-based Spanish management team with the objective of acquiring and consolidating regional insurance brokers in Spain. Through acquisition Summa is able to achieve synergistic savings, economies of scale and greater collective bargaining thereby increasing overall value.

Date of investment: January 2005

Equity stake: 77.3%

31 January 2019 valuation: £4,078,000

 

Walsingham Motor Insurance Limited

(www.walsinghamunderwriting.com)

In December 2013 the Group invested in Walsingham Motor Insurance Limited, a niche UK fleet motor Managing General Agency, which commenced trading in July 2013. In 2015 the Group acquired a further 10.5% equity, taking the current shareholding to 40.5%.

Date of investment: December 2013

Equity stake: 40.5%

31 January 2019 valuation: £1,372,000

 

Walsingham Holdings Limited

(www.walsinghamunderwriting.com)

In May 2018, the Group acquired a 20% shareholding in Walsingham Holdings Limited, a previously dormant company, which in turn purchased an 11.7% equity holding in Walsingham Motor Insurance Limited from an exiting shareholder.

Date of investment: May 2018

Equity stake: 20%

31 January 2019 valuation: £19,000

 

XPT Group LLC

(www.xptspecialty.com)

In June 2017 the Group backed the ex-Swett & Crawford CEO Tom Ruggieri and a strong management team to develop a New York-based wholesale insurance broking and underwriting agency platform across the U.S. Specialty Insurance Sector.

Date of investment: June 2017

Equity stake: 35%

31 January 2019 valuation: £7,705,000

 

These investments have been valued in accordance with the accounting policies on Investments set out in note 1 of the Consolidated Financial Statements.

 

 

Consolidated Financial Statements

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

FOR THE YEAR ENDED 31ST JANUARY 2019

 

 

 

Notes

2019

2018

 

 

£'000

£'000

£'000

£'000

 

 

 

 

 

 

GAINS ON INVESTMENTS

1

 

 

 

 

Realised gains on disposal of equity investments (net of costs)

 

12,14

 

-

 

 

718

 

Provision against equity investments and loans

15

(2,595)

 

(2,122)

 

Unrealised gains on equity investment revaluation

 

12

 

14,106

 

 

18,119

 

 

 

 

11,511

 

16,715

INCOME

 

 

 

 

 

Dividends

1,25

2,684

 

1,538

 

Income from loans and receivables

1,25

1,079

 

1,170

 

Fees receivable

1,25

868

 

1,154

 

 

 

 

4,631

 

3,862

 

 

 

 

 

 

OPERATING INCOME

2

 

16,142

 

20,577

 

 

 

 

 

 

Operating expenses

 

(3,982)

 

(4,147)

 

Provision against deferred consideration

 

-

 

(341)

 

 

2

 

(3,982)

 

(4,488)

 

 

 

 

 

 

OPERATING PROFIT

 

 

12,160

 

16,089

 

 

 

 

 

 

Financial income

2,4

108

 

582

 

Financial expenses

2,3

(4)

 

(111)

 

Exchange movements

2,8

(25)

 

(42)

 

 

 

 

79

 

429

 

 

 

 

 

 

PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION

8

 

 

12,239

 

 

16,518

 

 

 

 

 

 

Income taxes

9

 

232

 

3,731

 

 

 

 

 

 

PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION ATTRIBUTABLE TO EQUITY HOLDERS

 

 

20

 

 

 

£12,471

 

 

 

£20,249

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

20

 

 

£12,471

 

 

£20,249

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - basic and diluted (pence)

 

10

 

 

37.7p

 

 

69.3p

 

 

 

 

 

 

 

 

The result for the year is wholly attributable to continuing activities.

 

 

 

CONSOLIDATED AND PARENT COMPANY STATEMENTS OF FINANCIAL POSITION

 

31ST JANUARY 2019

 

(Company Number: 05674962)

 

 

 

Group

 

 

Company

 

 

 

 

 

 

 

 

 

Notes

2019

2018

 

2019

2018

 

 

£'000

£'000

 

£'000

£'000

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-CURRENT ASSETS

 

 

 

 

 

 

Property, plant and equipment

11

158

167

 

-

-

Investments - equity portfolio

12

101,947

79,122

 

99,278

88,540

Investments - subsidiaries

12

-

-

 

27,328

10,320

Investments - treasury portfolio

13

14

2,756

 

-

-

Loans and receivables

15

14,509

14,421

 

3,860

-

Deferred tax assets

17

-

32

 

-

-

 

 

116,628

96,498

 

130,466

98,860

CURRENT ASSETS

 

 

 

 

 

 

Trade and other receivables

16

2,867

2,393

 

-

-

Cash and cash equivalents

 

7,855

2,648

 

8

8

TOTAL CURRENT ASSETS

 

10,722

5,041

 

8

8

TOTAL ASSETS

 

127,350

101,539

 

130,474

98,868

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Trade and other payables

18

(1,064)

(1,472)

 

(3)

(1)

Corporation tax provision

18

(48)

(1,200)

 

(48)

-

TOTAL CURRENT LIABILITIES

18

(1,112)

(2,672)

 

(51)

(1)

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

(1,112)

(2,672)

 

(51)

(1)

 

 

 

 

 

 

 

NET ASSETS

 

£126,238

£98,867

 

£130,423

£98,867

 

 

 

 

 

 

 

CAPITAL AND RESERVES - EQUITY

 

 

 

 

 

 

Called up share capital

19

3,748

2,923

 

3,748

2,923

Share premium account

20

29,358

9,398

 

29,358

9,398

Fair value reserve

20

46,128

32,022

 

97,135

86,397

Reverse acquisition reserve

20

393

393

 

-

-

Capital redemption reserve

20

6

6

 

6

6

Capital contribution reserve

20

21

7

 

-

-

Retained earnings

20

46,584

54,118

 

176

143

SHAREHOLDERS' FUNDS - EQUITY

 

20

 

£126,238

 

£98,867

 

 

£130,423

 

£98,867

 

 

 

 

 

 

 

Net asset value per share (pence)

10

350p

339p

 

348p

339p

 

The Financial Statements were approved by the Board of Directors and authorised for issue on 10th June 2019

and signed on its behalf by:

 

 

 

 

B.P. Marsh & J.S. Newman

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

FOR THE YEAR ENDED 31ST JANUARY 2019

 

 

 

Notes

 

2019

 

2018

 

 

 

£'000

 

£'000

Cash used by operating activities

 

 

 

 

 

Income from loans to investees

 

 

1,079

 

1,170

Dividends

 

 

2,684

 

1,538

Fees received

 

 

868

 

1,154

Operating expenses

 

 

(3,982)

 

(4,488)

Net corporation tax paid

 

 

(1,170)

 

(3,076)

Purchase of equity investments

12

 

(8,719)

 

(21,653)

Net proceeds from sale of equity investments

12,14

 

-

 

24,935

Net payment of loans to investee companies

 

 

(1,953)

 

(6,695)

Adjustment for non-cash share incentive plan

 

 

104

 

88

Increase in receivables

 

 

(954)

 

(7)

(Decrease) / increase in payables

 

 

(406)

 

752

Depreciation and amortisation

11

 

29

 

27

Net cash used by operating activities

 

 

 

(12,420)

 

 

(6,255)

 

 

 

 

 

 

Net cash from investing activities

 

 

 

 

 

Purchase of property, plant and equipment

11

 

(20)

 

(179)

Purchase of treasury investments

13

 

(27)

 

(35,858)

Net proceeds from sale of treasury investments

13

 

2,828

 

38,784

Net cash from investing activities

 

 

 

2,781

 

 

2,747

 

 

 

 

 

 

Net cash from / (used by) financing activities

 

 

 

 

 

Financial income

4

 

45

 

19

Dividends paid

7

 

(1,714)

 

(1,098)

Net proceeds on issue of company shares

10,19

 

16,589

 

-

Payments made to repurchase company shares

19,20

 

(79)

 

(54)

Net cash from / (used by) financing activities

 

 

 

14,841

 

 

(1,133)

 

 

 

 

 

 

Change in cash and cash equivalents

 

 

5,202

 

(4,641)

Cash and cash equivalents at beginning of the year

 

 

 

2,648

 

 

7,327

Exchange movement

 

 

5

 

(38)

 

 

 

 

 

 

 

Cash and cash equivalents at end of year†

 

 

 

£7,855

 

 

£2,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PARENT COMPANY STATEMENT OF CASH FLOWS

 

FOR THE YEAR ENDED 31ST JANUARY 2019

 

 

 

Notes

 

2019

 

2018

 

 

 

£'000

 

£'000

Cash from operating activities

 

 

 

 

 

Dividends received from subsidiary undertakings

 

 

1,794

 

1,154

Increase in payables

 

 

3

 

-

Net cash from operating activities

 

 

1,797

 

1,154

 

 

 

 

 

 

Net cash used by financing activities

 

 

 

 

 

(Increase) / decrease in amounts owed by group undertakings

 

 

 

(17,008)

 

 

5

Adjustment relating to non-cash items

 

 

415

 

-

Dividends paid

7

 

(1,714)

 

(1,098)

Payments made to repurchase company shares

19,20

 

(79)

 

(54)

Net proceeds on issue of company shares

10,19

 

16,589

 

-

Net cash used by financing activities

 

 

(1,797)

 

(1,147)

 

 

 

 

 

 

Change in cash and cash equivalents

 

 

-

 

7

Cash and cash equivalents at beginning of the year

 

 

8

 

1

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

 

 

£  8

 

 

£  8

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED AND PARENT COMPANY STATEMENTS OF CHANGES IN EQUITY

 

FOR THE YEAR ENDED 31ST JANUARY 2019

 

 

 

Group

Company

 

2019

2018

2019

2018

 

 

 

 

 

 

£'000

£'000

£'000

£'000

 

 

 

 

 

Opening total equity

98,867

79,682

98,867

79,682

Comprehensive income for the year

12,471

20,249

12,485

20,252

Dividends paid

(1,714)

(1,098)

(1,714)

(1,098)

Repurchase of company shares

(79)

(54)

(79)

(54)

Share incentive plan

104

88

95

85

New shares issued (net funds raised)

16,589

-

16,589

-

New shares issued to SIP and JSOP

-

-

4,180

-

TOTAL EQUITY

£126,238

£98,867

£130,423

£98,867

 

 

Refer to Note 20 for detailed analysis of the changes in the components of equity.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED 31ST JANUARY 2019

 

 

1.       ACCOUNTING POLICIES

 

B.P. Marsh & Partners Plc is a public limited company incorporated in England and Wales under the Companies Act 2006 and domiciled in the United Kingdom. The address of the Company's registered office is 5th Floor, 4 Matthew Parker Street, London SW1H 9NP.  The consolidated financial statements for the year ended 31st January 2019 comprise the financial statements of the Parent Company and its consolidated subsidiaries (collectively "the Group").

 

Basis of preparation of financial statements

 

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted for use by the European Union ("IFRS"), and in accordance with the Companies Act 2006.

 

The consolidated financial statements are presented in sterling, the functional currency of the Group, rounded to the nearest thousand pounds (£'000) except where otherwise indicated.

 

The preparation of financial statements in conformity with IFRS requires management to make judgments, 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 in the circumstances, the results of which form the basis of judgements about the carrying amounts of assets and liabilities. Actual results may differ from those amounts. 

 

In the process of applying the Group's accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognised in the financial statements:

 

Assessment as an investment entity

 

Entities that meet the definition of an investment entity within IFRS 10: Consolidated Financial Statements ("IFRS 10") are required to account for their investments in controlled entities, as well as investments in associates at fair value through profit or loss.  Subsidiaries that provide investment related services or engage in permitted investment related activities with investees that relate to the parent investment entity's investment activities continue to be consolidated in the Group results.  The criteria which define an investment entity are currently as follows:

 

a)   an entity that obtains funds from one or more investors for the purpose of providing those investors with investment services;

b)   an entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and

c)   an entity that measures and evaluates the performance of substantially all of its investments on a fair value basis.

 

The Group's annual and interim consolidated financial statements clearly state its objective of investing directly into portfolio investments and providing investment management services to investors for the purpose of generating returns in the form of investment income and capital appreciation.  The Group has always reported its investment in portfolio investments at fair value. It also produces reports for investors of the funds it manages and its internal management report on a fair value basis.  The exit strategy for all investments held by the Group is assessed, initially, at the time of the first investment and this is documented in the investment paper submitted to the Board for approval.

 

The Board has also concluded that the Company meets the additional characteristics of an investment entity, in that it has more than one investment; the investments are predominantly in the form of equities and similar securities; it has more than one investor and its investors are not related parties.  The Board has concluded that B.P. Marsh & Partners Plc and its three trading subsidiaries, B.P. Marsh & Company Limited, Marsh Insurance Holdings Limited and B.P. Marsh (North America) Limited, which provide investment related services on behalf of B.P. Marsh & Partners Plc, all meet the definition of an investment entity.  These conclusions will be reassessed on an annual basis for changes to any of these criteria or characteristics.

 

Application and significant judgments

 

When it is established that a parent company is an investment entity, its subsidiaries are measured at fair value through profit or loss.  However, if an investment entity has subsidiaries that provide services that relate to the investment entity's investment activities, the exception to the Amendment of IFRS 10 is not applicable as in this case, the parent investment entity still consolidates the results of its subsidiaries. Therefore, the results of B.P. Marsh & Company Limited, Marsh Insurance Holdings Limited and B.P. Marsh (North America) Limited continue to be consolidated into its Group financial statements for the year.

 

The most significant estimates relate to the fair valuation of the equity investment portfolio as detailed in Note 12 to the Financial Statements. The valuation methodology for the investment portfolio is detailed below.  The estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

 

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

 

New Accounting Standards

 

None of the new standards, interpretations or amendments, which are effective for the first time in these consolidated financial statements, has had a material impact on these consolidated financial statements.

 

Standards that have been issued, but are not yet effective for the year ended 31st January 2019 include:

 

IFRS 16: Leases - effective 1st January 2019

 

IFRS 16 was issued on 13th January 2016 and replaces IAS 17: Leases. The standard is effective for annual periods beginning on or after 1st January 2019 with early adoption permitted.

 

IFRS 16 requires all operating leases in excess of one year, where the Group is the lessee, to be included in the Group's Statement of Financial Position and recognised as a right-to-use asset and a related lease liability representing the obligation to make lease payments. The right-of-use asset will be amortised on a straight-line basis with the lease liability being amortised using the effective interest method.

 

On adoption of IFRS 16 at 1st February 2019 the Group will recognise an additional £1,468,202 right-of-use asset and a £1,538,710 lease liability, and as such it is not anticipated to have a material impact on net assets or total return.

 

Basis of consolidation

 

          (i)  Subsidiaries

 

Subsidiaries are entities controlled by the Group.  Control, as defined by IFRS 10, is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.  Specifically, the Group controls an investee if and only if the Group has:

 

a)   power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

b)   exposure, or rights, to variable returns from its involvement with the investee; and

c)   the ability to use its power over the investee to affect its returns.

 

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

 

a)   rights arising from other contractual arrangements; and

b)   the Group's voting rights and potential voting rights.

 

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of control.

 

B.P. Marsh & Partners Plc ("the Company"), an investment entity, has three subsidiary investment entities, B.P. Marsh & Company Limited, Marsh Insurance Holdings Limited and B.P. Marsh (North America) Limited, that provide services that relate to the Company's investment activities.  The results of these three subsidiaries, together with other subsidiaries (except for Summa Insurance Brokerage, S.L. ("Summa") and LEBC Holdings Limited ("LEBC")), are consolidated into the Group consolidated financial statements.  The Group has taken advantage of the Amendment to IFRS 10 not to consolidate the results of Summa and LEBC. Instead the investments in Summa and LEBC are valued at fair value through profit or loss.

 

(ii)  Associates

 

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Investments that are held as part of the Group's investment portfolio are carried in the statement of financial position at fair value even though the Group may have significant influence over those companies.

 

Business combinations

 

The results of subsidiary undertakings are included in the consolidated financial statements from the date that control commences until the date that control ceases.  Control exists where the Group has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.  Accounting policies of the subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 

 

All business combinations are accounted for by using the acquisition accounting method. This involves recognising identifiable assets and liabilities of the acquired business at fair value. Goodwill represents the excess of the fair value of the purchase consideration for the interests in subsidiary undertakings over the fair value to the Group of the net assets and any contingent liabilities acquired.  The one exception to the use of the acquisition accounting method was in 2006 when B.P. Marsh & Partners Plc became the legal parent company of B.P. Marsh & Company Limited in a share for share exchange transaction.  This was accounted for as a reverse acquisition, such that no goodwill arose, and a merger reserve was created reflecting the difference between the book value of the shares issued by B.P. Marsh & Partners Plc as consideration for the acquisition of the share capital of B.P. Marsh & Company Limited.  This compliance with IFRS 3: Business Combinations ("IFRS 3") also represented a departure from the Companies Act.

 

Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

 

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Investments that are held as part of the Group's investment portfolio are carried in the Consolidated Statement of Financial Position at fair value even though the Group may have significant influence over those companies.  This treatment is permitted by IAS 28: Investment in Associates ("IAS 28"), which requires investments held by venture capital organisations to be excluded from its scope where those investments are designated, upon initial recognition, as at fair value through profit or loss and accounted for in accordance with IAS 39: Financial Instruments ("IAS 39"), with changes in fair value recognised in the profit or loss in the period of the change. The Group has no interests in associates through which it carries on its business.

 

No Statement of Comprehensive Income is prepared for the Company, as permitted by Section 408 of the Companies Act 2006.  The Company made a profit for the year of £12,484,488, prior to a dividend distribution of £1,714,418 (2018: profit of £20,251,651 prior to a dividend distribution of £1,098,109).

 

Employee services settled in equity instruments

 

The Group has entered into a joint share ownership plan ("JSOP") with certain employees and directors.  A fair value for the cash settled share awards is measured at the date of grant.  The Group measured the fair value using the Expected Return Methodology which was considered to be the most appropriate valuation technique to value the awards.

 

The fair value of the award is recognised as an expense over the vesting period on a straight-line basis.  The level of vesting is assumed to be 100% and will be reviewed annually and the charge is adjusted to reflect actual or estimated levels of vesting with the corresponding entry to capital contribution.

 

The Group has established an HMRC approved Share Incentive Plan ("SIP"). Ordinary shares in the Company, previously repurchased and held in Treasury by the Company, have been transferred to The B.P. Marsh SIP Trust ("the SIP Trust"), an employee share trust, in order to be issued to eligible employees.  In addition, new shares were issued and allocated to the SIP Trust during the year.

 

Under the rules of the SIP, eligible employees can each be granted up to £3,600 worth of ordinary shares ("Free Shares") by the SIP Trust in each tax year.  The number of shares granted is dependent on the share price at the date of grant.  In addition, all eligible employees have been invited to take up the opportunity to acquire up to £1,800 worth of ordinary shares ("Partnership Shares") in each tax year and for every Partnership Share that an employee acquires, the SIP Trust will offer two ordinary shares in the Company ("Matching Shares") up to a total of £3,600 worth of shares.  The Free and Matching Shares are subject to a one year forfeiture period, however the awards are not subject to any vesting conditions, hence the related expenses are recognised when the awards are made and are apportioned over the forfeiture period.

 

The fair value of the services received is measured by reference to the listed share price of the parent company's shares listed on the AIM on the date of award of the free and matching shares to the employee.

 

Investments - equity portfolio

 

All equity portfolio investments are designated as "fair value through profit or loss" assets and are initially recognised at the fair value of the consideration.  They are measured at subsequent reporting dates at fair value.

 

The Board conducts the valuations of equity portfolio investments.  In valuing equity portfolio investments, the Board applies guidelines issued by the International Private Equity and Venture Capital Valuation Committee ("IPEVCV Guidelines").  The following valuation methodologies have been used in reaching the fair value of equity portfolio investments, some of which are in early stage companies:

 

a)   at cost, unless there has been a significant round of new equity finance in which case the investment is valued at the price paid by an independent third party. Where subsequent events or changes to circumstances indicate that an impairment may have occurred, the carrying value is reduced to reflect the estimated extent of impairment;

b)   by reference to underlying funds under management;

c)   by applying appropriate multiples to the earnings and revenues and/or premiums of the investee company; or

d)   by reference to expected future cash flow from the investment where a realisation or flotation is imminent.

 

Both realised and unrealised gains and losses arising from changes in fair value are taken to the Consolidated Statement of Comprehensive Income for the year.  In the Consolidated Statement of Financial Position the unrealised gains and losses arising from changes in fair value are shown within a "fair value reserve" separate from retained earnings.  Transaction costs on acquisition or disposal of equity portfolio investments are expensed in the Consolidated Statement of Comprehensive Income.

 

Equity portfolio investments are treated as 'Non-current Assets' within the Consolidated Statement of Financial Position unless the directors have committed to a plan to sell the investment and an active programme to locate a buyer and complete the plan has been initiated.  Where such a commitment exists, and if the carrying amount of the equity portfolio investment will be recovered principally through a sale transaction rather than through continuing use, the investment is classified as a 'Non-current asset as held for sale' under 'Current Assets' within the Consolidated Statement of Financial Position.

 

Income from equity portfolio investments

 

Income from equity portfolio investments comprises:

 

a)    gross interest from loans, which is taken to the Consolidated Statement of Comprehensive Income on an accruals basis;

 

b)   dividends from equity investments are recognised in the Consolidated Statement of Comprehensive Income when the shareholders rights to receive payment have been established; and

 

c)    advisory fees from management services provided to investee companies, which are recognised on an accruals basis in accordance with the substance of the relevant investment advisory agreement.

 

Investments - treasury portfolio

 

All treasury portfolio investments are designated as "fair value through profit or loss" assets and are initially recognised at the fair value of the consideration.  They are measured at subsequent reporting dates at fair market value as determined from the valuation reports provided by the fund investment manager.

 

Both realised and unrealised gains and losses arising from changes in fair market value are taken to the Consolidated Statement of Comprehensive Income for the year.  In the Consolidated Statement of Financial Position the unrealised gains and losses arising from changes in fair value are shown within the retained earnings reserve as these investments are deemed as being easily convertible into cash.  Costs associated with the management of these investments are expensed in the Consolidated Statement of Comprehensive Income.

 

Income from treasury portfolio investments

 

Income from treasury portfolio investments comprises of dividends receivable which are either directly reinvested into the funds or received as cash. 

 

Property, plant and equipment

 

Property, plant and equipment are stated at cost less depreciation.  Depreciation is provided at rates calculated to write off the property, plant and equipment cost less their estimated residual value, over their expected useful lives on the following bases:

 

        Furniture & equipment - 5 years

        Leasehold fixtures and fittings and other costs - over the life of the lease

 

Foreign currencies

 

Monetary assets and liabilities denominated in foreign currencies at the reporting period are translated at the exchange rate ruling at the reporting period.

 

Transactions in foreign currencies are translated into sterling at the foreign exchange rate ruling at the date of the transaction.

 

Exchange gains and losses are recognised in the Consolidated Statement of Comprehensive Income.

 

Income taxes

 

The tax expense represents the sum of the tax currently payable and any deferred tax.  The tax currently payable is based on the estimated taxable profit for the year.  Taxable profit differs from net profit as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.  The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the date of the Consolidated Statement of Financial Position.

 

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and of liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and it is accounted for using the liability method.  Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.  Such assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

 

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

 

The carrying amount of deferred tax assets is reviewed at each date of the Consolidated Statement of Financial Position and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

 

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised.  Deferred tax is charged or credited to the Consolidated Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current assets and liabilities on a net basis.

 

Pension costs

 

The Group operates a defined contribution scheme for some of its employees.  The contributions payable to the scheme during the period are charged to the Consolidated Statement of Comprehensive Income.

 

Operating leases

 

Rentals under operating leases are charged on a straight-line basis over the lease term.

 

Benefits received and receivable as an incentive to sign an operating lease are recognised on a straight- line basis over the period of the lease.

 

Financial assets and liabilities

 

Financial instruments are recognised in the Consolidated Statement of Financial Position when the Group becomes party to the contractual provisions of the instrument.  De-recognition occurs when rights to cash flows from a financial asset expire, or when a liability is extinguished.

 

Loans and receivables

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.  They are included in current assets, except for maturities greater than 12 months after the reporting period which are classified as non-current assets.  They are stated at their cost less impairment losses. 

 

Loans and borrowings

 

All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowings. After initial recognition, these are subsequently measured at

amortised cost using the effective interest method, which is the rate that exactly discounts the estimated future cash flows through the expected life of the liabilities. Amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement.

 

Trade and other receivables

 

Trade and other receivables in the Consolidated Statement of Financial Position are initially measured at original invoice amount and subsequently measured after deducting any provision for impairment.

 

Cash and cash equivalents

 

Cash and cash equivalents in the Consolidated Statement of Financial Position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents comprise cash and short-term deposits as defined above and other short-term highly liquid investments that are readily convertible into cash and are subject to insignificant risk of changes in value, net of bank overdrafts.

 

Trade and other payables

 

Trade and other payables are stated based on the amounts which are considered to be payable in respect of goods or services received up to the date of the Consolidated Statement of Financial Position.

 

 

2.       SEGMENTAL REPORTING

 

The Group operates in one business segment, provision of consultancy services to, as well as making and trading investments in, financial services businesses.

 

Under IFRS 8: Operating Segments ("IFRS 8") the Group identifies its reportable operating segments based on the geographical location in which each of its investments is incorporated and primarily operates.  For management purposes, the Group is organised and reports its performance by two geographic segments: UK and Non-UK. 

 

If material to the Group overall (where the segment revenues, reported profit or loss or combined assets exceed the quantitative thresholds prescribed by IFRS 8), the segment information is reported separately. 

 

The Group allocates revenues, expenses, assets and liabilities to the operating segment where directly attributable to that segment.  All indirect items are apportioned based on the percentage proportion of revenue that the operating segment contributes to the total Group revenue (excluding any realised and unrealised gains and losses on the Group's current and non-current investments).

 

Each reportable segment derives its revenues from three main sources from equity portfolio investments as described in further detail in Note 1 under 'Income from equity portfolio investments' and also from treasury portfolio investments as described in Note 1 under 'Income from treasury portfolio investments'.

 

All reportable segments derive their revenues entirely from external clients and there are no inter-segment sales.

 

 

 

 

Geographic segment 1:

UK

Geographic segment 2:

Non-UK

Group

 

 

 

 

 

 

 

 

2019

2018

2019

2018

2019

2018

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Operating income

16,882

25,650

(740)

(5,073)

16,142

20,577

Operating expenses

(2,926)

(3,046)

(1,056)

(1,442)

(3,982)

(4,488)

Segment operating profit / (loss)

 

13,956

 

22,604

 

(1,796)

 

(6,515)

 

12,160

 

16,089

 

 

 

 

 

 

 

Financial income

79

395

29

187

108

582

Financial expenses

(3)

(75)

(1)

(36)

(4)

(111)

Exchange movements

8

(4)

(33)

(38)

(25)

(42)

 

 

 

 

 

 

 

Profit / (loss) before tax

14,040

22,920

(1,801)

(6,402)

12,239

16,518

Income taxes

232

2,515

-

1,216

232

3,731

Profit / (loss) for the year

£14,272

£25,435

£(1,801) 

£(5,186) 

£12,471

£20,249

 

Included within the operating income reported above are the following amounts requiring separate disclosure owing to the fact that they are derived from a single investee company and the total revenues attributable to that investee company are 10% or more of the total realised income generated by the Group during the period:

 

 

 

 

 

Investee Company

Total income attributable to the investee company

£'000

 

 

% of total realised operating income

 

 

Reportable geographic segment

 

 

 

 

 

 

 

 

2019

2018

2019

2018

2019

2018

LEBC Holdings Limited

1,464

836

32

22

1

1

Nexus Underwriting Management Limited

 

788

 

749

 

17

 

19

 

1

 

1

Paladin Holdings Limited1

449

-

10

-

1

-

 

1There are no disclosures shown for Paladin Holdings Limited in the prior year as the income derived from this investee company did not exceed the 10% threshold prescribed by IFRS 8 in that year.

 

 

 

 

 

 

 

 

Geographic segment 1:

UK

Geographic segment 2:

Non-UK

Group

 

2019

2018

2019

2018

2019

2018

 

£'000

£'000

£'000

£'000

£'000

£'000

Non-current assets

 

 

 

 

 

 

Property, plant and equipment

121

131

37

36

158

167

Investments - equity portfolio

78,309

61,849

23,638

17,273

101,947

79,122

Investments - treasury portfolio

14

2,756

-

-

14

2,756

Loans and receivables

11,856

11,770

2,653

2,651

14,509

14,421

Deferred tax assets

-

32

-

-

-

32

 

90,300

76,538

26,328

19,960

116,628

96,498

Current assets

 

 

 

 

 

 

Trade and other receivables

1,575

1,441

1,292

952

2,867

2,393

Cash and cash equivalents

7,855

2,648

-

-

7,855

2,648

 

9,430

4,089

1,292

952

10,722

5,041

 

 

 

 

 

 

 

Total assets

99,730

80,627

27,620

20,912

127,350

101,539

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

(1,061)

(1,472)

(3)

-

(1,064)

(1,472)

Corporation tax provision

(48)

(1,200)

-

-

(48)

(1,200)

Total liabilities

(1,109)

(2,672)

(3)

-

(1,112)

(2,672)

 

 

 

 

 

 

 

Net assets

£98,621

£77,955

£27,617

£20,912

£126,238

£98,867

 

Additions to property, plant and equipment

 

15

 

140

 

5

 

39

 

20

 

179

 

Depreciation and amortisation of property, plant and equipment

 

(22)

 

(21)

 

(7)

 

(6)

 

(29)

 

(27)

 

 

 

 

 

 

 

Impairment of investments and loans

-

 

-

 

(2,595)

(2,122)

(2,595)

(2,122)

 

 

 

 

 

 

 

Cash flow arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

(4,024)

4,383

(8,396)

(10,638)

(12,420)

(6,255)

Investing activities

2,781

2,747

-

-

2,781

2,747

Financing activities

14,841

(1,133)

-

-

14,841

(1,133)

Change in cash and cash equivalents

 

13,598

 

5,997

 

(8,396)

 

(10,638)

 

5,202

 

(4,641)

 

As outlined previously, under IFRS 8 the Group reports its operating segments (UK and Non-UK) and associated income, expenses, assets and liabilities based upon the country of domicile of each of its investee companies.

 

In addition to the segmental analysis disclosure reported above, the Group has undertaken a further assessment of each of its investee companies' underlying revenues, specifically focusing on the geographical origin of this revenue.  Geographical analysis of each investee company's 2019 and 2018 revenue budgets was carried out and, based upon this analysis, the directors have determined that on a look-through basis, the Group's portfolio of investee companies can also be analysed as follows:

 

 

 

2019

 

2018

 

%

%

 

 

 

UK

51

49

Non-UK

49

51

Total

100

100

 

 

 

 

 

3.       FINANCIAL EXPENSES

2019

2018

 

£'000

£'000

 

 

 

Investment management costs (Note 13)

     4

     111

 

£      4

£    111

 

 

4.       FINANCIAL INCOME

2019

2018

 

£'000

£'000

 

 

 

Bank and similar interest

45

19

Income from treasury portfolio investments - dividend and similar income (Note 13)

63

844

Income from treasury portfolio investments - net unrealised gains / (losses) on revaluation (Note 13)

-

(281)

 

£    108

£    582

 

 

5.       STAFF COSTS

 

The average number of employees, including all directors (executive and non-executive), employed by the Group during the year was 19 (2018: 19); 6 of those are in a management role (2018: 6) and 13 of those are in a support role (2018: 13).  All remuneration was paid by B.P. Marsh & Company Limited.

 

The related staff costs were:

2019

2018

 

£'000

£'000

 

 

 

Wages and salaries

2,222

2,308

Social security costs

297

298

Pension costs

118

105

Other employment costs (Note 24)

90

72

 

£2,727

£2,783

 

During the year to 31st January 2017 the Group also established a Share Incentive Plan ("SIP") under which certain eligible directors and employees were granted Ordinary shares in the Company.  These shares are being held on behalf of these directors and employees within the B.P. Marsh SIP Trust.  Refer to Note 24 for further details.

 

During the year, Joint Share Ownership Agreements were also entered into between certain directors and employees and the Company. Refer to Note 24 for further details. 

 

Charges of £76,470 (2018: £69,315) relating to the SIP and £13,728 (2018: £2,576) relating to the Joint Share Ownership Agreements are included within 'Other employment costs' above.

 

 

6.       DIRECTORS' EMOLUMENTS

 

 

2019

2018

The aggregate emoluments of the directors were:

£'000

£'000

 

 

 

Management services - remuneration

1,257

1,264

Fees

72

75

Pension contributions - remuneration

61

56

 

£    1,390

£    1,395

 

669,860 of the 1,461,302 shares, in respect of which joint interests were granted during the year, were issued to directors.  Refer to Note 24 for further details. 

 

Of the total 35,222 (2018: 37,935) Free, Matching and Partnership Shares granted under the SIP during the year, 12,808 (2018: 16,860) were granted to directors of the Company. 

 

Of the £13,728 (2018: £2,576) charge relating to the Joint Share Ownership Plan and the £76,470 (2018: £69,315) charge relating to the SIP, £6,293 (2018: £1,958) and £27,807 (2018: £30,807) related to the directors respectively.

 

Refer to Note 24 for further details.

 

 

2019

2018

 

£'000

£'000

Highest paid director

 

 

Emoluments

304

318

Pension contribution

18

18

 

£   322

£   336

 

The highest paid director also has a beneficial interest in 16,124 shares held within the Company's SIP and 167,465 shares held within the Joint Share Ownership Plan.  Refer to Note 24 for further details.

 

The Company contributes into defined contribution pension schemes on behalf of certain employees and directors.  Contributions payable are charged to the Consolidated Statement of Comprehensive Income in the period to which they relate.

 

During the year, 4 directors (2018: 4) accrued benefits under these defined contribution pension schemes.

 

The key management personnel comprise of the directors.

 

 

7.       DIVIDENDS

2019

2018

 

£'000

£'000

Ordinary dividends

 

 

 

 

 

Dividend paid:

 

 

 

 

 

4.76 pence each on 36,016,775 Ordinary shares (2018: 3.76 pence each on 29,226,040 Ordinary shares)

1,714

1,098

 

 

 

 

£        1,714

£        1,098

 

 

 

 

In the current year a total dividend of £6,961 (2018: £4,174) was payable on the 146,237 (2018: 111,015) ordinary shares held by the B.P. Marsh SIP Trust ("SIP Trust").

 

No dividend was payable on the 1,461,302 ordinary shares held by the B.P. Marsh Employees' Share Trust ("Share Trust") under the Joint Share Ownership Plan.

 

 

8.       PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION

2019

2018

 

£'000

£'000

The profit for the year is arrived at after charging:

 

 

 

 

 

Depreciation and amortisation of owned tangible and intangible fixed assets

 

29

 

27

Auditor's remuneration :-

 

 

      Audit fees for the Company

29

28

      Other services:

 

 

-Audit of subsidiaries' accounts

17

13

-Taxation

14

9

-Other advisory*

2

30

Exchange loss

25

42

Operating lease rentals of land and buildings

236

256

 

*Charges relating to the prior year included additional review work relating to the change in the Substantial Shareholding Exemption regulations and the impact on the Group's deferred tax position (Note 17).

 

 

 

 

 

9.       INCOME TAX EXPENSE

2019

2018

 

£'000

£'000

Current tax:

 

 

Current tax on profits for the year

48

3,047

Adjustments in respect of prior years

(312)

(18)

 

 

 

Total current tax

(264)

3,029

 

 

 

Deferred tax (Note 17):

 

 

Origination and reversal of temporary differences

32

(6,758)

Re-measurement upon change in tax rate

-

(2)

 

 

 

Total deferred tax

32

(6,760)

 

 

 

Total income taxes credited in the Consolidated Statement of Comprehensive Income

 

£     (232)

 

£     (3,731)

 

The tax assessed for the year is lower (2018: lower) than the standard rate of corporation tax in the UK.  The differences are explained below:

 

 

2019

2018

 

£'000

£'000

 

 

 

Profit before tax

12,239

16,518

 

 

 

Profit on ordinary activities at the standard rate of corporation tax in the UK of 19.00% (2018: 19.17%)

2,325

3,166

Tax effects of:

 

 

Expenses not deductible for tax purposes

56

145

Prior year current tax overprovision

(312)

(18)

Re-measurement of deferred tax upon change in tax rate

-

(2)

Capital gains on disposal of investments

-

3,449

Release of deferred tax provision on investment disposals and current equity investment valuation (Note 17)

 

-

 

(6,758)

Other adjustments

48

-

Other effects:

 

 

Deferred tax movement on unrealised loss on treasury portfolio

32

(40)

Non-taxable income (dividends received)

(510)

(295)

Non-taxable income (unrealised gains on equity portfolio revaluation)

(2,680)

(3,378)

Management expenses unutilised

809

-

 

 

 

Total income taxes credited in the Consolidated Statement of Comprehensive Income

 

£     (232)    

 

£     (3,731)

 

There are no factors which may affect future tax charges.

 

 

 

 

10.     EARNINGS PER SHARE FROM CONTINUING OPERATIONS ATTRIBUTABLE TO THE EQUITY SHAREHOLDERS AND NET ASSET VALUE PER SHARE

 

 

2019

 

£'000

2018

 

£'000

Earnings

 

 

Earnings for the purpose of basic and diluted earnings per share being total comprehensive income attributable to equity shareholders

 

12,471

 

20,249

 

 

 

Earnings per share - basic and diluted

37.7p

69.3p

 

 

 

Number of shares

Number

Number

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

 

33,065,228

 

29,202,716

 

 

 

Number of dilutive shares under option

Nil

Nil

 

 

 

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

 

33,065,228

 

29,202,716

 

During the year the Company issued a total of 8,252,037 new ordinary shares.

 

On 12th June 2018 the Company made a Placing Announcement to the market outlining details of a proposed placing of 6,169,194 new ordinary shares (the "Placing") to a new investor, an entity within the PSC Insurance Group ("PSC Group"), at a price of 252 pence per share ("Issue Price").  In addition, in order to provide existing shareholders with an opportunity to participate in the issue of new ordinary shares, the Company launched an open offer (the "Open Offer") to all qualifying shareholders to subscribe for an aggregate of up to 595,238 new ordinary shares at the Issue Price (on the basis of 1 open offer share for every 21 existing ordinary shares held).  All new open offer shares were fully subscribed for.

 

In addition,1,461,302 new ordinary shares of 10 pence each were issued and allotted as part of a new joint share ownership plan ("2018 JSOP"), representing 5.00% of the existing issued share capital at the time the awards were made. This was to provide eligible employees of the Group with a joint beneficial ownership in and opportunity to benefit from any possible appreciation in the value of ordinary shares in the Company subject to a hurdle rate.  The new ordinary shares have been issued in the name of RBC cees Trustee Limited ("RBC") as trustee of the B.P. Marsh Employees' Share Trust ("Share Trust") at a subscription price of 281 pence, being the mid-market closing price on 12th June 2018. The ordinary shares issued to the Share Trust were partly paid for via a loan from the Company to RBC to cover the subscription cost of the aggregate nominal value of the shares, amounting to £146,130.  Refer to Note 24 for further details of the joint share ownership plan.

 

26,303 new ordinary shares, representing 0.09% of the existing issued share capital, were also issued and allotted to the participants of the Company's Share Incentive Plan ("SIP").  Refer to Note 24 for further details.

 

Both the 1,461,302 and the 26,303 new ordinary shares issued respectively for the purposes of the 2018 JSOP and the SIP were admitted to trading on AIM on 19th June 2018.

 

On 5th July 2018, at a General Meeting of the Company, all resolutions set out in a Circular dated 13th June 2018 outlining the conditions of the Placing and Open Offer were duly passed.

 

Both the Placing and the Open Offer raised total gross proceeds of £17,046,369 (net proceeds of £16,580,674 after costs) and 6,764,432 new ordinary shares were admitted to trading on AIM on 9th July 2018.

 

Following admission of the aforementioned new ordinary shares, the Company's issued share capital increased from 29,226,040 as at 31st January 2018 to 37,478,077 as at 31st January 2019.

 

The weighted average number of ordinary shares at 31st January 2019 has been calculated by proportioning the Placing and Open Offer shares over the period. 

 

During the year the Company paid £79,310 (2018: £53,967) in order to repurchase 28,573 (2018: 28,646) ordinary shares at an average price of 278 pence per share (2018: 188 pence per share). Distributable reserves were reduced by £79,310 (2018: £53,967) as a result during the year.

 

Ordinary shares held by the Company in Treasury

 

Movement of ordinary shares held in Treasury:

 

 

 

2019

2018

 

Number

Number

 

 

 

Opening total ordinary shares held in Treasury at 1st February

21,009

5,726

 

 

 

Ordinary shares repurchased into Treasury during the year

28,573

28,646

 

 

 

Ordinary shares transferred to the B.P. Marsh SIP Trust during the year

(21,009)

(13,363)

 

 

 

Total ordinary shares held in Treasury at 31st January

28,573

21,009

 

 

 

 

The Treasury shares do not have voting or dividend rights and have therefore been excluded for the purposes of calculating earnings per share.

 

The repurchase of the ordinary shares is borne from the Group's commitment to reduce share price discount to net asset value.  Its policy has been throughout the year (and previously) to be able to buy small parcels of shares when the share price is below a fixed percentage of its published Net Asset Value (or adjusted Net Asset Value following the Placing and Open Offer referred to above) and place them into Treasury. From 1st February 2018 (and throughout the previous financial year) this threshold was 20%.  On 11th October 2018 the Group announced an updated Share Buy-Back Policy confirming that the threshold had been reduced from 20% to 15%.

 

The weighted average number of shares used for the purposes of calculating the earnings per share, net asset value and net asset value per share of the Group excludes the 1,461,302 shares held under joint share ownership arrangements (Note 24) as these were non-dilutive in the year to 31st January 2019, are subject to performance criteria that have not yet been achieved and are held within an Employee Benefit Trust.  The Group net asset value has therefore also excluded the economic right the Group has to the first 281 pence per share (£4,106,259) on vesting for the same reasons. On this basis the current net asset value per share is 350 pence for the Group.

 

However, as these shares have been issued, the Company accounts for these shares and has therefore included the 1,461,302 shares and the economic right the Company has of £4,106,259 within the net asset value per share calculation. On this basis the net asset value per share is 348 pence for the Company.

 

The 21,009 ordinary shares transferred from Treasury to the SIP Trust in June 2018 have been treated as re-issued for the purposes of calculating earnings per share and have therefore also contributed to the increase to the weighted average number of shares in the current year. 

 

35,222 ordinary shares (comprising the 21,009 ordinary shares transferred from Treasury to the SIP Trust during the period together with 14,213 of the 26,303 unallocated ordinary shares acquired by the SIP Trust as part of the new issue of shares by the Company during the year) were allocated to the participating employees as Free, Matching and Partnership shares under the share incentive plan arrangement in June 2018 (Note 24).

 

The decrease to the weighted average number of shares in the year to 31st January 2018 was attributable to the buy-back of 28,646 ordinary shares in the Company during that year.  13,363 ordinary shares were also transferred from Treasury to the SIP Trust during that year and these shares were therefore treated as re-issued for the purposes of earnings per share.  37,935 ordinary shares (comprising the 13,363 ordinary shares transferred from Treasury to the SIP Trust during that year together with 24,572 unallocated ordinary shares already held by the SIP Trust at the start of that year) were subsequently allocated to the participating employees as Free, Matching and Partnership shares under the share incentive plan arrangement in that year.

 

 

 

11.     PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

Furniture and Equipment

£'000

Leasehold Fixtures and Fittings and Others

£'000

 

 

 

Total

£'000

 

 

 

 

Group

 

 

 

 

 

 

 

Cost

 

 

 

At 1st February 2017

72

51

123

Additions

32

147

179

Disposals

-

(46)

(46)

At 31st January 2018

104

152

256

 

 

 

 

At 1st February 2018

104

152

256

Additions

20

-

20

Disposals

(5)

-

(5)

At 31st January 2019

119

152

271

 

 

 

 

Depreciation

 

 

 

At 1st February 2017

57

51

108

Eliminated on disposal

-

(46)

(46)

Charge for the year

13

14

27

At 31st January 2018

70

19

89

 

 

 

 

At 1st February 2018

70

19

89

Eliminated on disposal

(5)

-

(5)

Charge for the year

14

15

29

At 31st January 2019

79

34

113

 

 

 

 

Net book value

 

 

 

At 31st January 2019

£       40

£       118

£       158

At 31st January 2018

£       34

£       133

£       167

At 31st January 2017

£       15

£            -

£         15

 

 

 

 

12.     INVESTMENTS - EQUITY PORTFOLIO

 

 

 

 

 

Group

Shares in investee companies

 

Continuing investments

Non-current investments as held for sale

Total

 

£'000

£'000

£'000

At valuation

 

 

 

 

 

 

 

At 1st February 2017

39,350

24,217

63,567

Additions

21,653

-

21,653

Disposals

-

(24,217)

(24,217)

Provisions

-

-

-

Unrealised gains in this period

18,119

-

18,119

At 31st January 2018

£79,122

£          -

£79,122

 

 

 

 

At 1st February 2018

79,122

-

79,122

Additions

8,719

-

8,719

Disposals

-

-

-

Provisions

-

-

-

Unrealised gains in this period

14,106

-

14,106

At 31st January 2019

£101,947

£          -

£101,947

 

 

 

 

At cost

 

 

 

 

 

 

 

At 1st February 2017

25,447

5,240

30,687

Additions

21,653

-

21,653

Disposals

-

(5,240)

(5,240)

Provisions

-

-

-

At 31st January 2018

£47,100

£          -

£47,100

 

 

 

 

At 1st February 2018

47,100

-

47,100

Additions

8,719

-

8,719

Disposals

-

-

-

Provisions

-

-

-

At 31st January 2019

£55,819

£          -

£55,819

 

The additions relate to the following transactions in the year:

 

On 9th April 2018 the Group subscribed for a further 10% equity in The Fiducia MGA Company Limited for consideration of £30,000, increasing the Group's holding from 25% as at 31st January 2018 to 35% as at 31st January 2019.

 

On 18th April 2018 the Group acquired 100,000 ordinary shares (10% equity stake) in Paladin Holdings Limited ("Paladin") from a minority shareholder and director for consideration of £400,000.  These shares are being held by the Group under a call option arrangement which Paladin can call at any time during the next three years and buy-back from the Group at a fixed price of £4.02 per share (£402,000).  This acquisition increased the Group's equity holding in Paladin from 35% as at 31st January 2018 to 45% at the time of investment.  Following a small amount of dilution (resulting from the issue of new shares following an acquisition made by Paladin) the Group's holding stood at 44.3% as at 31st January 2019.

 

On 14th May 2018 the Group subscribed, alongside other Walsingham Motor Insurance Limited ("Walsingham") shareholders, for 299 (of a total 1,498) new ordinary shares in Walsingham Holdings Limited ("Walsingham Holdings") for consideration of £300.  Following this share reorganisation, the Group's equity holding in Walsingham Holdings reduced from 50% as at 31st January 2018 to 20% at 31st January 2019, however the Group retained its 40.5% holding in Walsingham.  On the same date the Group also provided a £300,000 loan facility to Walsingham Holdings which was provided to allow Walsingham Holdings, a previously dormant company, to acquire an 11.7% equity holding in Walsingham from an exiting shareholder.  The loan from the Group is secured on the acquired Walsingham shares via a debenture containing a cross guarantee with Walsingham. 

 

On 3rd July 2018 the Group subscribed for a further 5% equity stake in Asia Reinsurance Brokers Pte Limited ("ARB") for consideration of SGD 500,000 (£282,747), increasing the Group's equity holding from 20% as at 31st January 2018 to 25% as at 31st January 2019.

 

On 10th July 2018 the Group acquired a 20% equity stake in ATC Insurance Solutions PTY Limited ("ATC"), for total cash consideration of AUD 5,080,000 (£2,865,523).  ATC, headquartered in Melbourne, Australia, is a Managing General Agency which provides insurance services to a wide array of clients across a number of sectors, including Accident & Health, Construction & Engineering, Plant & Equipment and Sports Liability.

 

On 11th July 2018 the Group acquired a 29.4% equity stake in Criterion Underwriting Pte Limited ("Criterion"), a start-up Singapore-based Financial Lines, Cyber and Marine Managing General Agency, for total consideration of SGD 88,200 (£49,935).

 

On 29th October 2018 the Group acquired a further 1.9% equity stake in Nexus Underwriting Management Limited ("Nexus") for consideration of £2,551,082, increasing the Group's equity holding to 18.5% at that time.  As at 31st January 2019 the Group's fully diluted equity stake in Nexus stood at 18.14%.

 

On 11th January 2019 the Group subscribed, through its wholly-owned subsidiary company B.P. Marsh (North America) Limited, for $3,220,000 (£2,539,632) of redeemable preference shares in XPT Group LLC ("XPT").  The funding provided by the Group was to allow XPT to acquire SVA Underwriting Services Inc, a New York based Managing General Agency and Lloyd's coverholder.  Following this investment, and as at 31st January 2019, the Group's investment remained at 35%.

 

The unquoted investee companies, which are registered in England except Summa Insurance Brokerage S.L. (Spain), MB Prestige Holdings PTY Limited (Australia), Bastion Reinsurance Brokerage (PTY) Limited (South Africa), Bulwark Investment Holdings (PTY) Limited (South Africa), Property and Liability Underwriting Managers (PTY) Limited (South Africa), Asia Reinsurance Brokers Pte Limited (Singapore), Stewart Specialty Risk Underwriting Limited (Canada), XPT Group LLC (USA), Mark Edward Partners LLC (USA), ATC Insurance Solutions PTY Limited (Australia) and Criterion Underwriting Pte Limited (Singapore) are as follows:

 

 

% holding

Date

Aggregate

Post tax

 

 

of share

information

capital and

profit/(loss)

 

Name of company

capital

available to

reserves

for the year

Principal activity

 

 

 

£

£

 

 

 

 

 

 

 

Asia Reinsurance Brokers Pte Limited

25.00

31.12.17

2,377,299

(227,666)

Specialist reinsurance broker

 

 

 

 

 

 

ATC Insurance Solutions PTY Limited

20.00

30.06.18

1,690,468

1,065,772

Specialist Australian Managing General Agency

 

 

 

 

 

 

Bastion Reinsurance Brokerage (PTY) Limited

35.00

31.12.17

(618,839)

(292,069)

Reinsurance broker

 

 

 

 

 

 

Bulwark Investment Holdings (PTY) Limited

35.00

31.12.16

(466,434)

(354,827)

Holding company for South African Managing General Agents

 

 

 

 

 

 

Criterion Underwriting Pte Limited1

29.40

-

-

-

Specialist Singaporean Managing General Agency

 

 

 

 

 

 

EC3 Brokers Group Limited

20.00

31.12.17

893,851

(7,695)

Investment holding company

 

 

 

 

 

 

LEBC Holdings Limited

59.34

30.09.18

7,423,355

3,560,187

Independent financial advisor company

 

 

 

 

 

 

MB Prestige Holdings PTY Limited

40.00

31.12.18

1,884,343

630,641

Specialist Australian Motor Managing General Agency

 

 

 

 

 

 

Mark Edward Partners LLC

30.00

31.12.17

5,046,643

3,470,754

Specialty insurance broker

 

 

 

 

 

 

Neutral Bay Investments Limited

49.90

31.03.18

4,014,882

86,330

Investment holding company

 

 

 

 

 

 

 

Nexus Underwriting Management Limited

18.14

31.12.17

20,664,585

3,715,665

Specialist Managing General Agency

 

 

 

 

 

 

Paladin Holdings Limited

44.33

31.12.17

68,396

140,334

Investment holding company

 

 

 

 

 

 

Property and Liability Underwriting Managers (PTY) Limited

42.50

31.12.17

(306,965)

(255,986)

Specialist South African Property Managing General Agency

 

 

 

 

 

 

Stewart Specialty Risk Underwriting Limited

30.00

31.12.18

(58,072)

35,352

Specialist Canadian Casualty Underwriting Agency

 

 

 

 

 

 

Summa Insurance Brokerage, S.L.

77.25

31.12.17

8,718,704

(445,306)

Consolidator of regional insurance brokers

 

 

 

 

 

 

The Fiducia MGA Company Limited

35.00

31.12.17

(1,196,046)

(1,098,549)

Specialist UK Marine Cargo Underwriting Agency

 

 

 

 

 

 

Walsingham Holdings Limited1

20.00

-

-

-

Investment holding company

 

 

 

 

 

 

Walsingham Motor Insurance Limited

40.50

30.09.17

(1,328,977)

375,268

Specialist
UK Motor Managing General Agency

 

 

 

 

 

 

XPT Group LLC

35.00

31.12.17

4,538,143

(1,495,402)

USA Specialty lines insurance distribution company

 

 

 

 

 

 

 

1Criterion Underwriting Pte Limited and Walsingham Holdings Limited are both newly incorporated companies.  Statutory accounts are not available as these are not yet due.

 

The aggregate capital and reserves and profit/(loss) for the year shown above are extracted from the relevant local GAAP accounts of the investee companies.

 

 

Shares in

Company

group

 

undertakings

 

£'000

At valuation

 

 

 

At 1st February 2017

69,442

Additions

-

Unrealised gains in this period

19,098

At 31st January 2018

 £     88,540

 

 

At 1st February 2018

88,540

Additions

-

Unrealised gains in this period

10,738

At 31st January 2019

 £     99,278

 

 

At cost

 

 

 

At 1st February 2017

2,143

Additions

-

At 31st January 2018

 £       2,143

 

 

At 1st February 2018

2,143

Additions

-

At 31st January 2019

 £       2,143

 

 

 

Shares in group undertakings

 

All group undertakings are registered in England and Wales.  The details and results of group undertakings held throughout the year, which are extracted from the IFRS accounts of B.P. Marsh & Company Limited, Marsh Insurance Holdings Limited, B.P. Marsh Asset Management Limited, B.P. Marsh (North America) Limited and the UK GAAP accounts for the other companies, are as follows:

 

 

 

Aggregate

Profit/(loss)

 

 

%

capital and

for the

 

 

Holding

reserves at

year to

 

 

of share

31st January

31st January

 

Name of company

Capital

2019

2019

Principal activity

 

 

£

£

 

 

 

 

 

 

B.P. Marsh &

   Company Limited

100

126,285,560

 12,518,260

Consulting services and investment holding company

 

 

 

 

 

Marsh Insurance

   Holdings Limited

100

6,099,974

(421,900)

Investment

holding company

 

 

 

 

 

B.P. Marsh Asset

   Management Limited

100

23,485

-

Consulting services

 

 

 

 

 

B.P. Marsh (North America)

   Limited*

100

(5,850,793)

(4,960,935)

Investment holding company

 

 

 

 

 

B.P. Marsh & Co. Trustee

   Company Limited

100

1,000

-

Dormant

 

 

 

 

 

Marsh Development

   Capital Limited

100

1

-

Dormant

 

 

 

 

 

Bastion London Limited

100

1

-

Dormant

 

 

 

 

 

           

 

*At the year end B.P. Marsh (North America) Limited held a 100% economic interest in RHS Midco I LLC, a US registered entity incorporated during the year to 31st January 2018 for the purpose of holding the Group's equity investment in XPT Group LLC.  In addition, at the year end, B.P. Marsh (North America) Limited also held a 100% economic interest in B.P. Marsh US LLC, a US registered entity, which was incorporated during the year to 31st January 2018 for the purpose of holding the Group's equity investment in Mark Edward Partners LLC.  There were no profit or loss transactions in either of these two US registered entities during the current or prior year.

 

In addition, the Group also controls the B.P. Marsh SIP Trust and the B.P. Marsh Employees' Share Trust (Note 24).

 

Loans to the subsidiaries of £27,327,910 (2018: £10,319,626) are treated as capital contributions.

 

 

13.     NON-CURRENT INVESTMENTS - TREASURY PORTFOLIO

 

Group

 

 

 

 

 

2019

2018

At valuation

 

£'000

£'000

 

 

 

 

Market value at 1st February

 

2,756

5,230

Additions at cost

 

27

35,858

Disposals

 

(2,828)

(38,784)

Change in value in the year (Note 3 & Note 4)

 

59

452

Market value at 31st January

 

£   14  

£   2,756

 

 

 

 

Investment fund split:

 

 

 

 

 

 

 

GAM London Limited

 

2

1,517

Rathbone Investment Management Limited

 

12

1,239

Total

 

 

The treasury portfolio comprises of investment funds managed and valued by the Group's investment managers, GAM London Limited and Rathbone Investment Management Limited.  All investments in securities are included at year end market value.

 

The purpose of the funds is to hold (and grow) a proportion of the Group's surplus cash until such time that suitable investment opportunities arise. 

 

The funds are risk bearing and therefore their value not only can increase, but also has the potential to fall below the amount initially invested by the Group.  However, the performance of each fund is monitored on a regular basis and appropriate action is taken if there is a prolonged period of poor performance.

 

Investment management costs of £4,125 (2018: £110,811) were charged to the Consolidated Statement of Comprehensive Income for the current year (Note 3).

 

 

14.     REALISED GAINS ON DISPOSAL OF EQUITY INVESTMENTS

 

During the year there were no realised gains on disposal of investments.

 

The amount included in realised gains on disposal of investments for the prior year ended 31st January 2018 comprised of a net gain of £718,070.  £698,796 of this net gain was in respect of the Group's disposal of its entire 37.94% investment in Besso Insurance Group Limited ("Besso") at its carrying value of £21,309,000 for a consideration of £22,007,796.  The remaining net gain of £19,274 was in respect of the Group's disposal of its entire 29.94% investment in Trireme Insurance Group Limited ("Trireme") at its carrying value of £2,908,000 for a consideration of £2,908,350 as well as an additional net payment of £18,924.

 

In aggregate, during the year to 31st January 2018, the above disposals resulted in a net release to Retained Earnings from the Fair Value Reserve of £15,390,983, comprising of a £18,977,245 release of fair value which was reduced by estimated tax payable on disposal (gross of management expenses available for tax relief) of £3,586,262 (Refer to Note 20). 

 

 

15.     LOANS AND RECEIVABLES - NON-CURRENT

Group

 

Company

 

2019

2018

 

2019

2018

 

£'000

£'000

 

£'000

£'000

 

 

 

 

 

 

Loans to investee companies (Note 25)

14,509

14,421

 

-

-

 

 

 

 

 

 

Other receivables (Note 25)

-

341

 

-

-

Less provision for impairment of other receivables

 

-

 

(341)

 

 

-

 

-

 

-

-

 

-

-

Amounts owed by group undertakings

-

-

 

3,860

-

 

 

 

 

 

 

 

 £   14,509

 £   14,421

 

£     3,860

£            -

 

Included within net other receivables for the Group in the prior year is a gross amount of £341,000 relating to deferred consideration owed to the Group by a former investee company, against which a provision of £341,000 was made during the year to 31st January 2018.

 

A provision of £2,594,874 (2018: £2,121,609) was made against loans to investee companies in the current year and therefore the total provision as at 31st January 2019 was £4,716,483 (2018: £2,121,609).

 

The amounts owed to the Company by group undertakings are interest free and repayable on demand.

 

See Note 25 for terms of the loans.

 

 

 

 

 

 

 

 

 

 

16.     TRADE AND OTHER RECEIVABLES - CURRENT

 

 

Group

 

Company

 

2019

2018

 

2019

2018

 

£'000

£'000

 

£'000

£'000

 

 

 

 

 

 

Trade receivables

631

359

 

-

-

Less provision for impairment of receivables

 

(13)

 

(58)

 

 

-

 

-

 

618

301

 

-

-

Loans to investee companies (Note 25)

376

1,136

 

-

-

Corporation tax repayable

299

18

 

-

-

Other receivables

38

17

 

-

-

Prepayments and accrued income

1,536

921

 

-

-

 

 

 

 

 

 

 

£    2,867

£    2,393

 

£           -

£           -

 

 

 

 

 

 

 

Included within net trade receivables is a gross amount of £457,618 (2018: £353,071) owed by the Group's participating interests, against which a provision for bad debts of £13,254 has been made (2018: £57,655). 

 

Trade receivables are provided for based on estimated irrecoverable amounts from the fees and interest charged to investee companies, determined by the Group's management based on prior experience and their assessment of the current economic environment.

 

Movement in the allowance for doubtful debts:

 

Group

 

Company

 

2019

2018

 

2019

2018

 

£'000

£'000

 

£'000

£'000

 

 

 

 

 

 

Balance at 1st February

58

178

 

-

-

 

Decrease in allowance recognised in the Statement of Comprehensive Income

 

 

 

(45)

 

 

 

(120)

 

 

 

 

-

 

 

 

-

 

 

 

 

 

 

Balance at 31st January

£      13   

£      58   

 

£           -

£           -

 

 

 

 

 

 

 

In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. 

 

The Group's net trade receivable balance includes debtors with a carrying amount of £618,217 (2018: £300,931), of which £112,058 (2018: £185,671) of debtors are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable.  The Group does not hold any collateral over these balances other than over £85,979 (2018: £117,549) included within the net trade receivables balance relating to loan interest due from investee companies which is secured on the assets of the investee company.

 

Ageing of past due but not impaired:

 

Group

 

Company

 

2019

2018

 

2019

2018

 

£'000

£'000

 

£'000

£'000

 

 

 

 

 

 

Not past due

506

115

 

-

-

Past due: 0 - 30 days

44

34

 

-

-

Past due: 31 - 60 days

1

-

 

-

-

Past due: more than 60 days

67

152

 

-

-

 

 

 

 

 

 

 

£       618

£       301

 

£           -

£           -

 

 

 

 

 

 

 

See Note 25 for terms of the loans and Note 23 for further credit risk information.

 

 

 

 

 

17.     DEFERRED TAX (ASSETS) / LIABILITIES - NON-CURRENT

 

 

 

Group

 

Company

 

 

£'000

 

£'000

 

 

 

 

 

At 1st February 2017

 

6,728

 

-

Tax movement relating to investment revaluation and disposal of revalued investments for the year (Note 9)

 

 

(6,758)

 

 

-

Re-measurement upon change in tax rate

 

(2)

 

-

 

 

 

 

 

At 31st January 2018

 

£        (32)

 

£           -

 

 

 

 

 

At 1st February 2018

 

(32)

 

-

Tax movement relating to investment revaluation and disposal of revalued investments for the year (Note 9)

 

 

32

 

 

-

Re-measurement upon change in tax rate

 

-

 

-

 

 

 

 

 

At 31st January 2019

 

£            -

 

£           -

 

 

 

 

 

 

The directors estimate that, under the current taxation rules and the current investment profile, if the Group were to dispose of all its investments at the amount stated in the Consolidated Statement of Financial Position, no tax on capital gains (2018: £Nil) would become payable by the Group.

 

The deferred tax asset of £32,000 included within the Statement of Financial Position as at 31st January 2018 related to the estimated tax credit arising on the accumulated net unrealised losses within the Group's Treasury Portfolio (Note 4).

 

Finance (No.2) Act 2017 introduced significant changes to the Substantial Shareholding Exemption ("SSE") rules in Taxation of Chargeable Gains Act 1992 Sch. 7AC which applied to share disposals on or after 1 April 2017. In general terms, the rule changes relax the conditions for the Group to qualify for SSE on a share disposal. 

 

Having reviewed the Group's current investment portfolio, the directors consider that the Group should benefit from this reform to the SSE rules on all non-US investments and, as a result, the directors would anticipate that on a disposal of shares in the Group's current non-US investments, so long as the shares have been held for 12 months, they should qualify for SSE and no corporation tax charge should arise on their disposal.

 

New tax legislation was introduced in the US in 2018 which taxes at source gains on disposal of any foreign partnership interests in US LLCs.  As such, deferred tax will need to be assessed on any potential net gains from the Group's investment interests in the US.

 

Having assessed the current portfolio, the directors anticipate that there should currently be no requirement to provide for deferred tax in respect of unrealised gains on investments under the current requirements of the IFRS as the US investments do not currently show a net gain, and the non-US investments are expected to benefit from the SSE rules.  As such no deferred tax provision has been made as at 31st January 2019. The requirement for a deferred tax provision is subject to continual assessment of each investment to test whether the SSE conditions continue to be met based upon information that is available to the Group and that there is no change to the accounting treatment in this regard under IFRS.  It should also be noted that, until the date of the actual disposal, it will not be possible to ascertain if all the SSE conditions are likely to have been met and, moreover, obtaining agreement of the tax position with HM Revenue & Customs may possibly not be forthcoming until several years after the end of a period of accounts.

 

 

 

 

18.   CURRENT LIABILITIES

Group

 

Company

 

2019

2018

 

2019

2018

 

£'000

£'000

 

£'000

£'000

Trade and other payables

 

 

 

 

 

Trade payables

73

83

 

    -

    -

Other taxation & social security costs

68

52

 

-

-

Accruals and deferred income

923

1,337

 

3

-

Amounts due to subsidiary undertakings

 

-

 

-

 

 

-

 

1

 

 

 

 

 

 

 

1,064

1,472

 

3

1

 

 

 

 

 

 

Corporation tax (Note 9)

48

1,200

 

48

-

 

 

 

 

 

 

 

£  1,112

£  2,672

 

£        51

£        1

 

 

 

 

 

 

 

The corporation tax as at 31st January 2019 of £47,500 relates to the estimated tax charge arising on a participator loan of £146,130 made by the Company to the B.P. Marsh Employees' Share Trust ("Share Trust") in order to facilitate the Share Trust's subscription to the 1,461,302 new shares issued by the Company which are being held under the Joint Share Ownership Plan (Note 19 and Note 24).

 

The corporation tax as at 31st January 2018 of £1,200,482 related to the estimated tax payable on the disposal of the Group's investment in Besso Insurance Group Limited during that year of £3,586,262, less £1,840,094 of quarterly instalment payments on account already made, £5,814 of foreign withholding tax deducted at source and £539,872 of estimated tax credit arising from surplus management expenses which exceeded the Group's underlying taxable income for that year.

 

All of the above liabilities are measured at amortised cost.

 

 

19.    CALLED UP SHARE CAPITAL

2019

2018

 

£'000

£'000

Allotted, called up and fully paid

 

 

37,478,077 Ordinary shares of 10p each (2018: 29,226,040)

3,748

2,923

 

 

 

 

£  3,748

£  2,923

 

During the year the Company issued a total of 8,252,037 new ordinary shares.

 

On 12th June 2018 the Company made a Placing Announcement to the market outlining details of a proposed placing of 6,169,194 new ordinary shares (the "Placing") to a new investor, an entity within the PSC Insurance Group ("PSC Group"), at a price of 252 pence per share ("Issue Price").  In addition, in order to provide existing shareholders with an opportunity to participate in the issue of new ordinary shares, the Company launched an open offer (the "Open Offer") to all qualifying shareholders to subscribe for an aggregate of up to 595,238 new ordinary shares at the Issue Price (on the basis of 1 open offer share for every 21 existing ordinary shares held).  All new open offer shares were fully subscribed for.

 

In addition, 1,461,302 new ordinary shares of 10 pence each were issued and allotted as part of a new joint share ownership plan ("2018 JSOP"), representing 5.00% of the existing issued share capital at the time the awards were made. This was to provide eligible employees of the Group with a joint beneficial ownership in and opportunity to benefit from any possible appreciation in the value of ordinary shares in the Company subject to a hurdle rate.  The new ordinary shares have been issued in the name of RBC cees Trustee Limited ("RBC") as trustee of the B.P. Marsh Employees' Share Trust ("Share Trust") at a subscription price of 281 pence, being the mid-market closing price on 12th June 2018. The ordinary shares issued to the Share Trust were partly paid for via a loan from the Company to RBC to cover the subscription cost of the aggregate nominal value of the shares, amounting to £146,130.  Refer to Note 24 for further details of the joint share ownership plan.

 

26,303 new ordinary shares, representing 0.09% of the existing issued share capital, were also issued and allotted to the participants of the Company's Share Incentive Plan ("SIP").  Refer to Note 24 for further details.

 

Both the 1,461,302 and the 26,303 new ordinary shares issued respectively for the purposes of the 2018 JSOP and the SIP were admitted to trading on AIM on 19th June 2018.

 

On 5th July 2018, at a General Meeting of the Company, all resolutions set out in a Circular dated 13th June 2018 outlining the conditions of the Placing and Open Offer were duly passed.

 

Both the Placing and the Open Offer raised total gross proceeds of £17,046,369 (net proceeds of £16,580,674 after costs) and 6,764,432 new ordinary shares were admitted to trading on AIM on 9th July 2018.

 

Following admission of the aforementioned new ordinary shares, the Company's issued share capital increased from 29,226,040 as at 31st January 2018 to 37,478,077 as at 31st January 2019.

 

During the year the Company paid a total of £79,310 (2018: £53,967) in order to repurchase 28,573 (2018: 28,646) ordinary shares at an average price of 278 pence per share (2018: 188 pence per share).

 

Distributable reserves have been reduced by £79,310 as a result (2018: reduction of £53,967).

 

As at 31st January 2019 a total of 28,573 ordinary shares were held by the Company in Treasury (31st January 2018: 21,009 ordinary shares were held by the Company in Treasury).

 

The Treasury shares do not have voting or dividend rights and have therefore been excluded for the purposes of calculating earnings per share.

 

The repurchase of the ordinary shares is borne from the Group's commitment to reduce share price discount to net asset value.  Its policy has been throughout the year (and previously) to be able to buy small parcels of shares when the share price is below a fixed percentage of its published Net Asset Value (or adjusted Net Asset Value following the Placing and Open Offer referred to above) and place them into Treasury. From 1st February 2018 (and throughout the previous financial year) this threshold was 20%.  On 11th October 2018 the Group announced an updated Share Buy-Back Policy confirming that the threshold had been reduced from 20% to 15%.

 

 

 

20.     RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

 

 

Group

 

 

 

 

 

 

 

 

 

 

2,923

 

9,381

 

26,191

 

393

 

6

 

5

 

40,783

 

79,682

 

 

 

 

 

 

 

 

 

-

-

21,222

-

-

-

(973)

20,249

 

 

 

 

 

 

 

 

 

 

-

 

-

 

(15,391)

 

-

 

-

 

-

 

15,391

-

 

 

 

 

 

 

 

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

(1,098)

 

(1,098)

 

 

 

 

 

 

 

 

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(54)

 

 

(54)

 

 

 

 

 

 

 

 

 

 

-

 

-

 

-

 

-

 

-

 

2

 

(2)

 

-

 

 

 

 

 

 

 

 

 

-

17

-

-

-

-

71

88

 

 

 

 

 

 

 

 

 

 

£2,923

 

£9,398

 

£32,022

 

£   393

 

£    6

 

£    7

 

£54,118

 

£98,867

 

 

 

2,923

 

9,398

 

32,022

 

393

 

6

 

7

 

54,118

 

98,867

 

 

 

 

 

 

 

 

 

-

-

14,106

-

-

14

(1,649)

12,471

 

 

 

 

 

 

 

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

(1,714)

 

(1,714)

 

 

 

 

 

 

 

 

 

825

19,944

-

-

-

-

(74)

20,695

 

 

 

 

 

 

 

 

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(79)

 

 

(79)

 

 

 

 

 

 

 

 

 

-

16

-

-

-

-

88

104

 

 

 

 

 

 

 

 

 

-

-

-

-

-

-

(4,106)

(4,106)

 

 

 

 

 

 

 

 

 

 

£3,748

 

£29,358

 

£46,128

 

£   393

 

£    6

 

£   21

 

£46,584

 

£126,238

 

 

 

 

 

Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,923

 

9,381

 

67,299

 

6

 

-

 

73 

 

79,682 

 

 

 

 

 

 

 

 

-

-

19,098

 

-

 

-

1,154

20,252

 

 

 

 

 

 

 

 

 

-

 

-

 

-

 

-

 

-

 

(1,098)

 

(1,098)

 

 

 

 

 

 

 

 

 

-

 

-

 

-

 

-

 

-

 

(54)

 

(54)

 

 

 

 

 

 

 

 

-

17

-

-

-

68

85

 

 

 

 

 

 

 

 

 

£2,923

 

£9,398

 

£86,397

 

£   6

 

£   -

 

£   143

 

£98,867

 

 

 

 

 

 

 

 

 

 

 

2,923

 

9,398

 

86,397

 

6

 

-

 

143 

 

98,867 

 

 

 

 

 

 

 

 

-

-

10,738

 

-

 

-

1,747

12,485

 

 

 

 

 

 

 

 

 

-

 

-

 

-

 

-

 

-

 

(1,714)

 

(1,714)

 

 

 

 

 

 

 

 

825

19,944

 

 

 

-

20,769

 

 

 

 

 

 

 

 

 

-

 

-

 

-

 

-

 

-

 

(79)

 

(79)

 

 

 

 

 

 

 

 

-

16

-

-

-

79

95

 

 

 

 

 

 

 

 

 

£3,748

 

£29,358

 

£97,135

 

£   6

 

£   -

 

£   176

 

£130,423

 

 

 

 

 

 

 

 

 

 

 

21.     OPERATING LEASE COMMITMENTS

 

The Group and Company was committed to making the following future aggregate minimum lease payments under non‑cancellable operating leases:

 

2019

2018

 

Land and

Land and

 

buildings

Buildings

 

£'000

£'000

 

 

 

Earlier than one year

£   236

£   236

Between two and five years

£   945

£   945

More than five years

£   726

£   963

 

 

 

 

 

22.     LOAN AND EQUITY COMMITMENTS

 

On 27th January 2017 the Group entered into an agreement to provide a loan facility of CAD 850,000 (subject to certain conditions) to Stewart Specialty Risk Underwriting Limited ("SSRU"), an investee company.  As at 31st January 2019 CAD 450,000 (£260,477) of this facility had been drawn down, leaving a remaining undrawn facility of CAD 400,000.

 

Please refer to Note 26 for details of loan facilities offered and amounts drawn down after the year end.

 

 

23.     FINANCIAL INSTRUMENTS

 

The Group's financial instruments comprise loans to participating interests, cash and liquid resources and various other items, such as trade debtors, trade creditors, other debtors and creditors and loans.  These arise directly from the Group's operations.

 

The Group has not entered into any derivatives transactions.

 

It is, and has been throughout the period under review, the Group's policy that no trading in financial instruments shall be undertaken unless there are economic reasons for doing so, as determined by the directors.

 

The main risks arising from the Group's financial instruments are price risk, credit risk, liquidity risk, interest rate risk, currency risk, new investment risk, concentration risk and political risk.  The Board reviews and agrees policies for managing each of these risks and they are summarised in the Group Strategic Report under "Financial Risk Management".

 

Interest rate profile

The Group has cash balances of £7,855,000 (2018: £2,648,000), which are part of the financing arrangements of the Group.  The cash balances comprise bank current accounts and deposits placed at investment rates of interest, which ranged up to 0.8% p.a. in the period (2018: deposit rates of interest ranged up to 1.0% p.a.).  During the period maturity periods ranged between immediate access and 32 days (2018: maturity periods ranged between immediate access and 9 months).

 

Currency hedging

During the year the Group engaged in one currency hedging transaction amounting to €1,350,000 (2018: one currency hedging transaction amounting to €1,350,000) to mitigate the exchange rate risk for certain foreign currency receivables.  This was settled before the year end.  A net gain of £10,519 (2018: net loss of £30,369) relating to this hedging transaction was recognised under Exchange Movements within the Consolidated Statement of Comprehensive Income when the transaction was settled. As at the year end the Group had one currency hedging transaction amounting to €1,350,000 which was entered into on 30th January 2019.  The fair value of this hedge is not materially different to the transaction cost.

 

Financial liabilities

The Company had no borrowings as at 31st January 2019 (2018: £Nil). 

 

Fair values

The Group has adopted the amendment to IFRS 7 for financial instruments which are measured at fair value at the reporting date. This requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

 

· Level 1: Quoted prices unadjusted in active markets for identical assets or liabilities;

· Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, observed either directly as prices or indirectly from prices; and

· Level 3: Inputs for the asset or liability that are not based on observable market data.

 

Unquoted equity instruments are measured in accordance with the IPEVCV Guidelines with reference to the most appropriate information available at the time of measurement.  Further information regarding the valuation of unquoted equity instruments can be found in the section 'Investments - equity portfolio' under the Accounting Policies (Note 1).

 

The following presents the classification of the financial instruments at fair value into the valuation hierarchy at 31st January 2019:

 

 

 

 

 

 

 

 

Level 1

Level 2

Level 3

Total

 

 

£'000

£'000

£'000

£'000

Assets

 

 

 

 

 

 

 

 

 

 

 

Equity portfolio investments designated as "fair value through profit or loss" assets

 

-

-

101,947

101,947

 

 

 

 

 

 

Treasury portfolio investments

 

 

14

 

-

 

-

 

14

 

 

 

 

 

 

 

 

£14

-

£101,947

£ 101,961

 

The Group's classification of the financial instruments at fair value into the valuation hierarchy at 31st January 2018 are presented as follows:

 

 

 

Level 1

Level 2

Level 3

Total

 

 

£'000

£'000

£'000

£'000

Assets

 

 

 

 

 

 

 

 

 

 

 

Equity portfolio investments designated as "fair value through profit or loss" assets

 

-

-

79,122

79,122

 

 

 

 

 

 

Treasury portfolio investments

 

 

2,756

 

-

 

-

 

2,756

 

 

 

 

 

 

 

 

£2,756

-

£79,122

£ 81,878

 

Level 3 inputs are sensitive to assumptions made when ascertaining fair value. Setting the valuation policy is the responsibility of the Valuations Committee, which is then reviewed by the Board. The policy is to value investments within the portfolio at fair value by applying a consistent approach and ensuring that the valuation methodology is compliant with the IPEVCV Guidelines. Valuations of the investment portfolio of the Group are performed twice a year, and the half-year valuations are subjected to the same level of scrutiny and approach as the audited final year accounts by the Valuations Committee.

 

Of assets held at 31st January 2019 classified as Level 3, 87% by value (2018: 76%) were valued using a multiple of earnings and 13% (2018: 24%) were valued using alternative valuation methodologies.

 

Valuation multiple - the valuation multiple is the main assumption applied to a multiple of earnings based valuation. The multiple is derived from comparable listed companies or relevant market transaction multiples. Companies in the same industry and geography and, where possible, with a similar business model and profile are selected and then adjusted for factors including size, growth potential and relative performance. A discount is applied or a reduced multiple used to reflect that the investment being valued is unquoted. The multiple is then applied to the earnings, which may be adjusted to eliminate one-off revenues or costs to better reflect the ongoing position, or to adjust for any minority interests. The resulting value is the enterprise value of the investment, after which certain adjustments are made to calculate the equity value. These adjustments may include debt, working capital requirements, regulatory capital requirements, deferred consideration payable, or anything that could be dilutive which is quantifiable. The Group's investment valuation is then derived from this based upon its shareholding.

 

The weighted average post discount EBITDA earnings multiple used (based on the valuations derived) when valuing the portfolio at 31st January 2019 was 11.9x (2018: 11.4x). The weighted average post discount Price/Earnings multiple used (based on the valuations derived) when valuing the portfolio at 31st January 2019 was 13.3x (2018: 15.5x).

 

If the multiple used to value each unquoted investment valued on an earnings basis as at 31st January 2019 moved by 10%, this would have an impact on the investment portfolio of £10.4m (2018: £7.1m) or 9% (2018: 8%).

 

Alternative valuation methodologies - there are a number of alternative investment valuation methodologies used by the Group, for reasons for specific types of investment. These may include valuing on the basis of an imminent sale where a price has been agreed but the transaction has not yet completed, using a discounted cash flow model, at cost, using specific industry metrics which are common to that industry and comparable market transactions have occurred, and a multiple of revenues where the investments are not yet profitable.

 

At 31st January 2019 the proportion of the investment portfolio that was valued using these techniques were: 13% using industry metric (2018: 6%), 1% using revenues (2018: 1%), and 0% at cost (2018: 17%).

 

If the value of all the investments valued under alternative methodologies moved by 10%, this would have an impact on the investment portfolio of £1.4m (2018: £0.6m) or 1% (2018: 1%).

 

 

24.     SHARE BASED PAYMENT ARRANGEMENTS

 

Joint Share Ownership Plan

 

During the year, B.P. Marsh & Partners Plc entered into joint share ownership agreements ("JSOAs") with certain employees and directors.  The details of the arrangements are described in the following table:

 

Nature of the arrangement

Share appreciation rights (joint beneficial ownership)

 

 

Date of grant

12th June 2018

Number of instruments granted

1,461,302

Exercise price (pence)

N/A

Share price (market value) at grant (pence)

 

281.00

Hurdle rate

3.75% p.a. (simple)

Vesting period (years)

3 years

Vesting conditions

There are no performance conditions other than the   recipient remaining an employee throughout the vesting period.  The awards vest after 3 years or earlier resulting from either:

 

a)   a change of control resulting from a person, or persons acting together, obtaining control of the Company either (i) as a result of a making a Takeover Offer; (ii) pursuant to a court sanctioned Scheme of Arrangement; or (iii) in consequence of a Compulsory Acquisition); or

 

b)   a person becoming bound or entitled to acquire shares in the Company pursuant to sections 974 to 991 of the Companies Act 2006; or

 

c)   a winding up.

 

If the employee is a bad leaver the co-owner of the jointly-owned share can buy out the employee's interest for 0.01p

Expected volatility

N/A

Risk free rate

1%

Expected dividends expressed as a dividend yield

1.9%

Settlement

Cash settled on sale of shares

% expected to vest (based upon leavers)

100%

Number expected to vest

1,461,302

Valuation model

Expected Return Methodology (ERM)

ERM value (pence)

36.00

Deduction for carry charge (pence)

31.60

Fair value per granted instrument (pence)

4.40

Charge for year ended 31st January 2019

£13,728

 

On 12th June 2018 1,461,302 new 10p Ordinary shares in the Company were issued and transferred into joint beneficial ownership for 12 employees (4 of whom are directors) under the terms of joint share ownership agreements.  No consideration was paid by the employees for their interests in the jointly-owned shares.

 

The new Ordinary shares have been issued into the name of RBC cees Trustee Limited ("the Trustee") as trustee of the B.P. Marsh Employees' Share Trust ("the Share Trust") at a subscription price of £2.81, being the mid-market closing price on 12th June 2018.

 

The jointly-owned shares are beneficially owned by (i) each of the 12 participating employees and (ii) the trustee of the Share Trust upon and subject to the terms of the JSOAs entered into between the participating employee, the Company and the Trustee.

 

Under the terms of the JSOAs, the employees and directors will receive on vesting the growth in value of the shares above a threshold price of £2.81 per share (market value at the date of grant) plus an annual carrying charge of 3.75% per annum (simple interest) to the market value at the date of grant.  The Share Trust retains the initial market value of the jointly-owned shares plus the carrying cost.

 

Alternatively, on vesting, the participant and the Trustee may exchange their respective interests in the jointly-owned shares such that each becomes the sole owner of a number of Ordinary shares of equal value to their joint interests.

 

Participants will therefore receive value from the jointly-owned shares only if and to the extent that the share value grows above the initial market value plus the carrying cost.

 

The employees and directors received an interest in jointly owned shares and a Joint Share Ownership Plan ("JSOP") is not an option, however the convention for JSOPs is to treat them as if they were options.  The value of the employee's interest for accounting purposes is calculated using the Expected Return Methodology.

 

The risk-free rates are based on the yield on UK Government Gilts of a term consistent with the assumed option life.

 

No jointly-owned shares were sold or forfeited during the year.  The number of jointly-owned shares expected to vest has therefore not been adjusted.  In accordance with IFRS 2: Share-based Payment, the fair value of the expected cost of the award (measured at the date of grant) has been spread over the three-year vesting period.

 

There has been no movement during the year in terms of the numbers of shares to be exercised.

 

Share Incentive Plan

 

During the year to 31st January 2017 the Group established an HMRC approved Share Incentive Plan ("SIP"). 

 

During the year a total of 21,009 ordinary shares in the Company, which were held in Treasury as at 31st January 2018 (2018: 13,363 ordinary shares in the Company, which were either repurchased during that year or held in Treasury as at 31st January 2017) were transferred to the B.P. Marsh SIP Trust ("SIP Trust").  In addition, 26,303 new ordinary shares were issued and allotted to the SIP Trust during the year (Note 10).  As a result, 47,312 ordinary shares in the Company were available for allocation to the participants of the SIP.

 

On 13th June 2018, a total of 11 eligible employees (including 4 executive directors of the Company) applied for the 2018-19 SIP and were each granted 1,281 ordinary shares ("18-19 Free Shares"), representing approximately £3,600 at the price of issue. 

 

Additionally, on 13th June 2018, all eligible employees were also invited to take up the opportunity to acquire up to £1,800 worth of ordinary shares ("Partnership Shares").  For every Partnership Share that an employee acquired, the SIP Trust offered two ordinary shares in the Company ("Matching Shares") up to a total of £3,600 worth of shares.  All 11 eligible employees (including 4 executive directors of the Company) took up the offer and acquired the full £1,800 worth of Partnership Shares (640 ordinary shares) and were therefore awarded 1,281 Matching Shares. 

 

The 18-19 Free and Matching Shares are subject to a 1 year forfeiture period.

 

A total of 35,222 (2018: 37,935) Free, Matching and Partnership Shares were granted to 11 (2018: 9) eligible employees during the year, including 12,808 (2018: 16,860) granted to 4 executive directors of the Company.

 

As at 31st January 2019 a total of 146,237 Free, Matching and Partnership Shares had been granted to 11 eligible employees under the SIP, including 62,148 granted to 4 executive directors of the Company.

 

£76,470 of the IFRS 2 charges (2018: £69,315) associated with the award of the SIP shares to 11 (2018: 9) eligible directors and employees of the Company has been recognised in the Statement of Comprehensive Income as employment expenses (Note 5).

 

The results of the SIP Trust have been fully consolidated within these financial statements on the basis that the SIP Trust is effectively controlled by the Company.

 

 

25.     RELATED PARTY DISCLOSURES

 

The following loans owed by the investee companies (including their subsidiaries and other related entities) of the Company and its subsidiaries were outstanding at the year end:

 

 

2019

2018

 

£

£

 

 

 

Bastion Reinsurance Brokerage (PTY) Limited

425,831

341,831

Bulwark Investment Holdings (PTY) Limited

665,000

665,000

The Fiducia MGA Company Limited

2,470,000

1,619,400

LEBC Holdings Limited

-

1,500,000

Nexus Underwriting Management Limited

4,000,000

4,000,000

Paladin Holdings Limited

4,096,500

3,996,500

Property and Liability Underwriting Managers (PTY) Limited

 

1,450,778

 

1,114,778

Walsingham Holdings Limited

300,000

-

Walsingham Motor Insurance Limited

1,170,000

1,200,000

 

 

 

 

 

 

 

Summa Insurance Brokerage, S.L.

2,440,761

2,606,133

 

 

 

 

AUD

AUD

 

 

 

MB Prestige Holdings PTY Limited

838,959

1,058,649

 

 

 

 

CAD

CAD

 

 

 

Stewart Specialty Risk Underwriting Limited

450,000

350,000

 

 

 

 

USD

USD

 

 

 

Mark Edward Partners LLC

2,600,000

-

 

 

 

 

The loans are typically secured on the assets of the investee companies and an appropriate interest rate is charged based upon the risk profile of that company.

 

Income receivable, consisting of consultancy fees, interest on loans and dividends recognised in the Consolidated Statement of Comprehensive Income in respect of the investee companies (including their subsidiaries and other related entities) of the Company and its subsidiaries for the year were as follows:

 

 

2019

2018

 

£

£

 

 

 

Asia Reinsurance Brokers Pte Limited

129,321

39,504

ATC Insurance Solutions PTY Limited

184,386

-

Bastion Reinsurance Brokerage (PTY) Limited

-

56,448

Besso Insurance Group Limited

-

76,350

The Broucour Group Limited

5,373

8,078

Bulwark Investment Holdings (PTY) Limited

-

83,359

Criterion Underwriting Pte Limited

7,899

-

EC3 Brokers Group Limited

343,325

43,134

The Fiducia MGA Company Limited

163,075

141,200

Hyperion Insurance Group Limited

-

74,433

LEBC Holdings Limited

1,463,787

835,693

Mark Edward Partners LLC

-

192,156

MB Prestige Holdings PTY Limited

178,010

176,991

Neutral Bay Investments Limited

124,302

124,987

Nexus Underwriting Management Limited

788,265

749,021

Paladin Holdings Limited

449,207

342,164

Property & Liability Underwriting Managers (PTY) Limited

 

-

 

36,509

Stewart Specialty Risk Underwriting Limited

35,642

52,220

Summa Insurance Brokerage, S.L.

196,450

211,892

Trireme Insurance Group Limited

-

41,122

Walsingham Holdings Limited

17,293

-

Walsingham Motor Insurance Limited

137,727

213,283

XPT Group LLC

372,280

309,100

 

In addition, the Group made management charges of £33,600 (2018: £34,000) to the Marsh Christian Trust ("the Trust"), a grant making charitable Trust of which Mr B.P. Marsh, the Executive Chairman and majority shareholder of the Company, is also the Trustee and Settlor.

 

The Group also made management charges of £1,300 (2018: £20,300) to Brian Marsh Enterprises Limited.  Mr B.P. Marsh, the Chairman and majority shareholder of the Company is also the Chairman and majority shareholder of Brian Marsh Enterprises Limited.

 

On 25th June 2018 Mr B.P. Marsh gifted 584,000 ordinary shares in the Company to the Marsh Christian Trust for £Nil consideration, taking the total number of shares held by the Trust in the Company to 1,582,000 at that time. Since 31st January 2019 the Trust has sold 950,000 of its ordinary shares in the Company at a price of 280 pence per share, reducing its holding down to 632,000 ordinary shares (1.7% of the Company) at the date of this report (Note 26).

 

As part of the share placing completed on 9th July 2018 (Note 10), 1,166,310 existing ordinary shares in the Company were transferred by B.P. Marsh Management Limited (a company wholly owned by Mr B.P. Marsh, the Executive Chairman of the Group) to the new investor, an entity within PSC Insurance Group, at the issue price of 252 pence per share.

 

All the above transactions were conducted on an arms-length basis.

 

Of the total dividend payments made during the year of £1,714,418, £828,318 was paid to the directors or parties related to them (2018: total dividend payments of £1,098,109, of which £682,667 was paid to the directors or parties related to them).

 

 

26.     EVENTS AFTER THE REPORTING DATE

 

On 1st February 2019 the Group provided LEBC Holdings Limited ("LEBC") with a loan facility of £1,000,000 which was drawn down immediately.  The loan was provided to assist with LEBC's general working capital requirements.  As at 31st January 2019 no loans were outstanding and following the aforementioned drawdown total loans stand at £1,000,000 at the date of this report.

 

On 27th February 2019 the Group was notified that 950,000 ordinary shares in the Company were sold at a price of 280 pence per share by the Marsh Christian Trust, a grant making charitable trust of which Mr B.P. Marsh, the Executive Chairman and a significant shareholder of the Company, is also the Trustee and Settlor.

 

On 1st April 2019 the Group provided XPT Group LLC ("XPT") with a loan facility of $2,000,000 (£1,542,534) which was drawn down immediately.  The loan was provided to assist XPT with the contractually owed earn out payment due to a former owner in respect of one of its acquisitions, W.E. Love & Associates Inc.  As at 31st January 2019 no loans were outstanding and following the aforementioned drawdown total loans stand at $2,000,000 at the date of this report.

 

On 1st April 2019 the Group provided Nexus Underwriting Management Limited ("Nexus") with a £2,000,000 revolving credit facility, as part of Nexus' wider debt fundraising exercise in order to undertake further M&A activity.  £1,000,000 was drawn down immediately and a further £500,000 was drawn down on 10th May 2019.  As at 31st January 2019 the total loan outstanding from Nexus, relating to an existing facility provided by the Group during the year to 31st January 2018, was £4,000,000 and following the aforementioned drawdowns increased to £5,500,000, with a remaining undrawn facility of £500,000 at the date of this report.

 

On 26th April 2019 the Group agreed, as part of a rights issue in conjunction with its fellow shareholder Gerry Sheehy, to provide further funding of £122,909 to The Fiducia MGA Company Limited ("Fiducia") as part of a total fundraising of £350,802.  The Group subscribed for a further 48 A ordinary shares in Fiducia which represented its proportional pre-emption rights.  As at 31st January 2019 the Group's holding in Fiducia was 35% and following the rights issue this increased to 35.18%.

 

 

27.     FINANCIAL RISK MANAGEMENT

 

This note explains the Group's exposure to financial risks and how these risks could affect the Group's future financial performance.  Current year profit and loss information has been included where relevant to add further context.

 

The Group's operations expose it to a variety of financial risks. The Group manages the risk to limit the adverse effects on the financial performance of the Group by monitoring those risks and acting accordingly.

 

The monitoring of the financial risk management is the responsibility of the Board. The policies of the Board of directors are implemented by the Group's various internal departments under specific guidelines.

 

The Group is a selective investor and each investment is subject to an individual risk assessment through an investment approval process.  The Group's Investment Committee is part of the overall risk management framework.  The risk management processes of the Company are aligned with those of the Group and both the Group and the Company share the same financial risks.

 

Price risk

 

The Group is exposed to private equity securities price risk as it invests in unquoted companies. The Group manages the risk by ensuring that a director of the Group is appointed to the board of each investee company.  In this capacity, the appointed director can advise the Group's Board of the investee companies' activities and prompt action can be taken to protect the value of the investment.  Monthly management reports are required to be prepared by investee companies for the review of the appointed director and for reporting to the Group Board.

 

A 10% change in the fair value of those investments would have the following direct impact on the Consolidated Statement of Comprehensive Income:

 

 

Group

 

Company

 

2019

2018

 

2019

2018

 

£'000

£'000

 

£'000

£'000

 

 

 

 

 

 

Fair value of investments - equity portfolio

 

101,947

 

79,122

 

 

99,278

 

88,540

 

 

 

 

 

 

Impact of a 10% change in fair value on Consolidated Statement of Comprehensive Income

 

 

10,195

 

 

 

7,912

 

 

 

9,928

 

 

8,854

 

 

 

 

 

 

 

Credit risk

 

The Group is subject to credit risk on its unquoted investments, cash and deposits.  The maximum exposure is the amount stated in the Consolidated Statement of Financial Position. 

 

The credit quality of unquoted investments, which are held at fair value and include debt and equity elements, is based on the financial performance of the individual portfolio companies.  The credit risk relating to these assets is based on their enterprise value and is reflected through fair value movements.

 

The Group is exposed to the risk of default on the loans it has made available to investee companies. The loans rank in preference to the equity shareholding and the majority are secured by a charge over the assets of the investment. The Group manages the risk by ensuring that there is a director of the Group appointed to the board of each of its investee companies.  In this capacity, the appointed director can advise the Group's board of investee companies' activities and prompt action can be taken to protect the value of the loan, such that the directors believe the credit risk to the Group is adequately managed. When a loan is assessed to be likely to be in default then the Group will review the probability of recoverability, and if necessary, make a provision for any amount considered irrecoverable.

 

The Group's cash is held with a variety of different counterparties with 100% (2018: 100%) held on demand with A rated institutions.

 

Liquidity risk

 

The Group invests in unquoted early stage companies. The timing of the realisation of these investments can be difficult to estimate. The directors assess and review the Group's liquidity position and funding requirements on a regular basis and this is an agenda item for its Board meetings. A key objective is to ensure that the income from the portfolio covers operating expenses such that funds available for investment are not used for working capital. The Group regularly reviews the cash flow forecast to ensure that it has the ability to meet commitments as they fall due and to manage its working capital. The Board considers that the Group has sufficient liquidity to manage current commitments.

 

As at 31st January 2019 the Group was debt free (31st January 2018: debt free). 

 

Interest rate risk

 

Interest rate risk arises from changes in the interest receivable on cash and deposits, on loans issued to investment companies and on certain preferred dividend mechanisms linked to an interest rate. In addition, the risk arises on any borrowings with a variable interest rate. At 31st January 2019, the Group had no interest bearing liabilities but had interest bearing assets. The majority of loans provided by the Group are subject to a minimum interest rate to protect the Group from a period of low interest rates, and also a hurdle rate linked to the UK Base Rate or LIBOR.

 

An increase of 100 basis points, based upon the Group's closing balance sheet position of its interest bearing assets, excluding any future contractual loan repayments and loan balances provided against at the year end, over a 12-month period, would lead to an approximate increase in total comprehensive income of £139,000 for the Group (2018: £57,000 increase).

 

Currency risk

 

Although the Group's investments are predominantly within the UK it also makes investments and derives income outside the UK. As such some of the Group's income and assets are subject to movement in foreign currencies which will affect the Consolidated Statement of Comprehensive Income in accordance with the Group's accounting policy. The Board monitors the movements and manages the risk accordingly.

 

At 31st January 2019, 79% of the Group's net assets were sterling denominated (2018: 79%). The Group's general policy remains not to hedge its foreign currency denominated investment portfolio.

 

The Group's net assets in Euro, US Dollar, Australian Dollar and all other currencies combined are shown in the table below.  The sensitivity analysis has been undertaken based upon the sensitivity of the Group's net assets to movements in foreign currency exchange rates, assuming a 10% movement in exchange rates against sterling.  The sensitivity of the Company to foreign exchange risk is not materially different from the Group.

 

 

As at 31st January 2019

 

Sterling

 

Euro

Australian dollar

 

US dollar

 

Other

 

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Net assets

99,752

6,201

10,773

7,705

1,807

126,238

 

 

 

 

 

 

 

Sensitivity analysis

 

 

 

 

 

 

Assuming a 10% movement of exchange rates against sterling

 

 

 

 

 

 

Impact on net assets

N/A

(457)

(979)

(701)

(164)

(2,301)

 

 

 

 

 

 

 

 

 

  

Currency risk (continued)

 

 

As at 31st January 2018

 

Sterling

 

Euro

Australian dollar

 

US dollar

 

Other

 

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Net assets

78,508

6,301

4,641

8,438

979

98,867

 

 

 

 

 

 

 

Sensitivity analysis

 

 

 

 

 

 

Assuming a 10% movement of exchange rates against sterling

 

 

 

 

 

 

Impact on net assets

N/A

(465)

(422)

(767)

(89)

(1,743)

 

 

 

 

 

 

 

 

 

 

 

New investment risk

 

An inherent risk of realising an investment is the loss of a performing asset and a potential lack of suitable new investments to replace the lost income and capital growth.  Prior to reinvestment, returns on cash can be significantly lower, which may reduce underlying profitability on a short-term basis until funds are reinvested. The Group has an active New Business department which continues to receive a strong pipeline of new investment opportunities.  In addition, there is often potential for further investment within the Group's existing portfolio.

 

Concentration risk

 

Although the Group only invests in financial service businesses, and specifically insurance intermediaries, the Group has a wealth of experience in this specific sector.  It seeks to manage concentration risk by making investments across a variety of geographic areas, development stages of business and classes of product.  Quantitative data regarding the concentration risk of the portfolio across geographies can be found in the Segmental Reporting analysis in Note 2.

 

Political risk

 

As a UK domiciled business, the Group is exposed to the risks associated with the UK's decision to leave the European Union ("Brexit").  The Board is continually assessing the potential impact of Brexit on the Group and its underlying investments, however the direct impact on the Group's investment portfolio is not expected to be material. It remains the Group's intention to continue to invest into the international financial services market.  As outlined under 'Currency risk' above, the Group continues to monitor the movements in its foreign currency denominated income and assets and manages this risk accordingly.

 

 

28.     ULTIMATE CONTROLLING PARTY

 

The directors consider there to be no ultimate controlling party.

 

Notice

 

The financial information set out above does not constitute B.P. Marsh & Partners Plc's statutory accounts for the year to 31 January 2019 but is derived from those accounts. The statutory accounts for the year to 31 January 2019 have not yet been delivered to the Registrar of Companies. The auditors have reported on those accounts and have given the following opinion:-

 

·    the financial statements give a true and fair view of the state of the Group's and of the Company's affairs as at 31 January 2019 and of the Group's profit for the year then ended;

 

·    the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;

 

·    the Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; and

 

·    the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

 

Approval

 

The financial statements were approved by the Board of Directors on 10 June 2019 for their release on 11 June 2019.

 

 

- Ends -

Notes to Editors:

About B.P. Marsh & Partners Plc

B.P. Marsh's current portfolio contains eighteen companies. More detailed descriptions of the portfolio can be found at www.bpmarsh.co.uk.

Since formation over 25 years ago, the Company has assembled a management team with considerable experience both in the financial services sector and in managing private equity investments. Many of the directors have worked with each other in previous roles, and all have worked with each other for at least five years.

Prior to Brian Marsh's involvement in the Company, he spent many years in insurance broking and underwriting in Lloyd's as well as the London and overseas market. He has over 30 years' experience in building, buying and selling financial services businesses, particularly in the insurance sector.

Alice Foulk joined B.P. Marsh in September 2011 having started her career at a leading Life Assurance company. In 2014 she took over as Executive Assistant to the Chairman, running the Chairman's Office and established herself as a central part of the management team.

In February 2015 she was appointed as a Director of B.P. Marsh and a member of the Investment Committee. In January 2016 Alice was appointed Managing Director of B.P. Marsh.

In her position as Managing Director, Alice is responsible for the overall performance of the Company and monitoring the Company's overall progress towards achieving the objectives and goals of the Company, as set by the Board.

Dan Topping is the Chief Investment Officer of B.P. Marsh, having been appointed as a Director in 2011. He joined the Company in February 2007, following two years at an independent London accountancy practice. Dan is the Senior Executive with overall responsibility for the portfolio and investment strategy of B.P. Marsh.

Dan graduated from the University of Durham in 2005 and is a member of the Securities and Investment Institute and the Institute of Chartered Secretaries and Administrators.

Dan is a standing member of the B.P. Marsh Investment and Valuation Committees and currently serves as a Board Director across the portfolio.

Camilla Kenyon (Millie) was appointed to the main Board in 2011, following her appointment as Head of Investor Relations in 2009. She has dual responsibilities within the Group, running both Investor Relations and the New Business Department and is Chair of the New Business Committee reviewing new investment opportunities.

Millie is nominee director over two investee companies and is a member of the Investment Committee. She has over 20 years of experience in the financial services industry, including numerous Board appointments and is a Member of the Investor Relations Society. Millie was shortlisted in the Specialist Investor category in the 2018 Women in Finance Awards.

Jonathan Newman is a Chartered Management Accountant and is the Group Director of Finance and has over 20 years' experience in the financial services industry. Jon graduated from the University of Sheffield with an honours degree in Business Studies and joined the Group in November 1999, following two years at Euler Trade Indemnity and two years at a Chartered Accountants. Jon is a Member of the Chartered Global Management Accountants, the Chartered Management Accountants and the Chartered Institute of Securities and Investment.

Jon was appointed a Director of B.P. Marsh & Company Limited in September 2001, and Group Finance Director in December 2003 and was instrumental in the admission of the Group to AIM in February 2006. Jon is a member of the B.P. Marsh Investment and Valuation Committees and currently serves as a Board Director for Walsingham Motor Insurance Limited, and provides senior financial support and advice to all companies within the Group's portfolio as well as evaluating new investment opportunities.

 


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