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B.P. Marsh &Partners (BPM)

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Tuesday 09 June, 2020

B.P. Marsh &Partners

Final Results

RNS Number : 3221P
B.P. Marsh & Partners PLC
09 June 2020
 

9th June 2020

 

B.P. Marsh & Partners Plc  

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

 

Final Results for the Year to 31st January 2020

 

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 2020.

 

Highlights:

· Net Asset Value increased by £10.7m to £136.9m (31 January 2019: £126.2m), an 8.5% increase, net of Dividend

· Net Asset Value per share increased by 29.8p to 380.1p (31 January 2019: 350.3p)

· Total Shareholder return of 9.8 % for the year including the Dividend paid in July 2019

· Net Asset Value average annual compound growth rate of 8.5% during the year, compares to an average of 8.1% per annum since flotation and 11.8% since 1990 (net of Dividends and the cash proceeds of Placings)

· Consolidated profit after tax of £12.5m (31 January 2019 restated: £12.4m). This constitutes an increase of 3.4% excluding one-off items of £0.4m

· Two new investments; Agri Services Company PTY Limited in Sydney and Lilley Plummer Risks Limited in London

· Dividend of 2.22p per share payable in July 2020 (2019: 4.76p)

 

Commenting on the results, Brian Marsh OBE, Chairman, said:   "The Group is pleased to have continued to produce a good overall performance throughout the year despite the various challenges we faced."

 

Analyst briefing:

An analyst presentation, hosted by the Company, will be held on Tuesday 9th June 2020 at 10:00 a.m. BST.

 

Please contact Tim Pearson at Tavistock Communications on 07983118502 or [email protected] should any analyst wish to attend.

 

Note

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

 

For further information, please visit www.bpmarsh.co.uk or contact:  

 

B.P. Marsh & Partners Plc

Brian Marsh OBE / Sinead O'Haire

 

+44 (0)20 7233 3112

Panmure Gordon (UK) Limited

Atholl Tweedie / Charles Leigh Pemberton / Ailsa MacMaster

 

+44 (0)20 78862500

Tavistock

Jos Simson / Simon Hudson / Tim Pearson

[email protected]

+44 (0)20 7920 3150

 

Notes to Editors:  

B.P. Marsh's current portfolio contains seventeen 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 approaching ten years. 

 

Joint Statement by the Chairman and Managing Director

 

We are pleased to present the audited Consolidated Financial Statement of B.P. Marsh & Partners Plc for the year ended 31 January 2020.

 

We concluded the year with an 8.5% increase in NAV (net of Dividend) and an increase in the equity value of the Portfolio of £11.6m to £115.7m. In addition to our loan book of £18.8m, we are pleased therefore to be able to report that our NAV stands at £136.9m or 380.1p per share, as at 31 January 2020.

 

For the year ended 31 January 2020, the Board are recommending a dividend of 2.22p per share to Shareholders. We have tried to balance the need to conserve cash to ensure that the Group can continue to prosper and develop in the undoubtedly difficult times to come, due to the consequences of the Covid-19 Pandemic, whilst also rewarding Shareholders for their continuing loyalty. We believe that we have struck this balance.

 

As at 31 January 2020, the Company had available cash of £3.8m, comprised of a free cash balance of £0.8m with access to a further £3.0m by way of a loan facility with Brian Marsh Enterprises Limited. As at 8 June 2020, the cash balance has been further bolstered by the repayment of a £2.0m Loan Facility from Nexus Underwriting Limited and stands at £1.8m after providing £1.0m of additional finance to the Portfolio. Total available cash, including the loan facility, stands at £4.0m net of the dividend payable in July 2020. The Group believes it is well positioned to be able to provide financial assistance to our Portfolio Companies, enabling them to continue to trade through the challenges posed by Covid-19.

 

Given the tumultuous times in which the world finds itself, we believe it might be useful at this time for the Group's investment strategy to be reiterated: the Group focuses on partnerships with dynamic and entrepreneurial management teams who need a Venture Capital Partner to support them in maintaining and building their businesses, and who have a long-term investment horizon. The Group's investment criteria are focused on the Financial Services Intermediary Sector with a particular interest and knowledge in Insurance Intermediaries. This means that companies with which the Group partners do not involve themselves in primary risk-taking activities.

 

Our Management Team works closely with those of the Group's Investee Companies and its philosophy is to devise mutually agreeable exit plans alongside management when the time comes, rather than imposing its own exit timetable and any pressures which would come with that. We have successfully cultivated a Portfolio of 17 investments which span four continents and six countries.

 

During the Year the Group completed two new Investments. In July 2019, the Group acquired a 36% shareholding in Agri Services Company PTY Limited in Sydney and in October 2019, a 30% shareholding in Lilley Plummer Risks Limited in London. Within the existing portfolio there have been some strong performers, with Nexus Underwriting Management Limited ("Nexus") and XPT Group LLC ("XPT") both reporting particularly encouraging results. During the year it was also announced that LEBC Group Limited, the trading subsidiary of the Company's Investment LEBC Holdings Limited ("LEBC"), had exited the Defined Benefit Transfer Advice space following consultation with the Financial Conduct Authority.

 

LEBC has taken a number of steps to reduce costs following this move and has undergone a restructuring, which continues to focus on its core business of providing Independent Financial Advice to its clients. We have confidence in our colleagues and the management team at LEBC. Further information on the performance of the Portfolio is included later in this report.

 

Since the year end, the Covid-19 Pandemic has come upon us all and we have been in close and constant communication with all of our Investee Companies to quantify what impact Covid-19 will have. Each of them has implemented its own 'Covid-19 Action Plan' and our Chief Investment Officer will provide additional details thereupon within his report. The Group continues to be on hand to assist any of our partners whenever necessary and possible.

 

We also believe it is important to report the steps we ourselves have taken to adapt to the pressures that Covid-19 has placed upon us. On 8 March 2020, before the Government ordered the countrywide lockdown, the Group made the decision to introduce remote working for every member of staff. This was carried out primarily to ensure the safety of our staff, but also to give ourselves time to resolve any teething problems that would emerge from this remote working before the Government officially shut down the country. This transition has been smooth and successful.

 

We are in regular communication with all staff members, in order to ensure that they continue to remain positive and fully active in these difficult times and we would want to thank them for their continued hard work during this period.

 

We are, of course, constantly monitoring the situation with regard to our return to the office. This will be predicated primarily on whether the safety of our staff can be maintained, alongside the government guidelines in force, but the Group remains fully operational in the meantime.

 

It is our belief that due to the diversity of our portfolio, which operates solely within the intermediary space, we are well positioned to manage through these unprecedented times. We have no doubt that there will be difficult hurdles ahead, but our spread of risk across the globe, and across many classes of business, should provide a natural hedge for the challenges to come.

 

We have managed our business satisfactorily during previous recessions and financial crises; we are confident that we can build on these experiences and that we are well prepared for what might lie ahead. Staff morale remains high, and we are pleased to be able to deliver a dividend at this time, as well as to provide reassurance to our Partners that we are well placed to be able to assist them through the challenges ahead.

 

Brian Marsh OBE,

Alice Foulk

Chairman

Managing Director

8th June 2020

8th June 2020

 

 

Chief Investment Officer's Portfolio Update

 

The portfolio has performed well for the financial period, with our Insurance Intermediary investments showing good growth. Over the financial period the portfolio as a whole increased in value by £11.6m, to £115.7m, or 11.1%.

 

Whilst these valuations pre-date the outbreak and impact of Covid-19, as noted by the Chairman and the Managing Director, we believe the Company and the portfolio is well positioned to manage through these unprecedented times. The anticipated trading impact of Covid-19 will be factored into our interim results to 31 July 2020. The impact of the virus is being closely monitored and all investee companies have prepared response plans and proposed measures have been shared across the portfolio. At this juncture Covid-19 appears unlikely to negatively influence the portfolio as a whole in a material fashion, and we remain confident that our investment strategy and sector focus will prove resilient during this period of disruption.

 

New Investments

 

During the year we made two new investments. In July 2019, the Group acquired a 36% shareholding in Agri Services Company PTY Limited in Sydney, Australia and in October 2019, a 30% shareholding in Lilley Plummer Risks Limited ("Lilley Plummer").

 

Lilley Plummer is a newly formed specialist Marine Lloyd's broker, based in London. The Company acquired its stake in Lilley Plummer for a total cash consideration of £1.0m, in a mixture of Redeemable and Non-Redeemable Preference shares.

 

The experienced management team at Lilley Plummer is formed of Stuart Lilley and Dan Plummer. Prior to founding Lilley Plummer, Dan Plummer gained valuable experience across the marine market having held senior positions at CR Marine & Aviation SRL, Windsor Partners LLP and Howden Insurance Brokers Ltd. Stuart Lilley, prior to Lilley Plummer, held roles at International Risk Solutions, FP Marine and latterly Howden Insurance Brokers Ltd. The two individuals have over two decades of experience in the London and International Marine Market.

 

Agri Services Company PTY Limited is a holding company that owns Ag Guard PTY Ltd ("Ag Guard"), a specialist agricultural insurance underwriting agency based in Sydney.   The Group subscribed for a 36% preferred equity stake for consideration of AU$2.6m.

 

Founded by Alex Cohn and Ben Ko, a strong management team with experience through the entire agricultural insurance value chain, Ag Guard arranges policies for and on behalf of Great Lakes Australia ("GLA"). GLA is a subsidiary of Münchener Rückversicherungs-Gesellschaft AG, part of Munich Re.

 

Portfolio Update & Activity

 

NAV breakdown by portfolio company

 

The composition of B. P. Marsh's underlying portfolio company exposure can be found here:

 

http://www.rns-pdf.londonstockexchange.com/rns/3221P_1-2020-6-8.pdf

 

The current portfolio is strongly weighted towards Insurance Intermediaries with all but one portfolio company, LEBC, operating in this industry. The Company has established itself as a leading investor in this sector with a solid track record. Whilst very much a targeted approach given the size and complexity of the insurance intermediary sector, it means the Company is exposed to a wide variety of specialist classes of business as investment opportunities.

 

In the Insurance Intermediary space, our investments are separated into two areas: Insurance Brokers and Underwriting Agencies ("MGAs").

 

As a Group, our insurance investments produce over US$1.0bn (£939.0m) of insurance premium ("GWP"), and a breakdown between broker and MGA can be found here:-

 

http://www.rns-pdf.londonstockexchange.com/rns/3221P_2-2020-6-8.pdf

 

Insurance Brokers  

Investments:

 

£'000s

 

 

 

 

 

 

 

 

 

 

Broking Investments

 

Jurisdiction

 

% Shareholding 31st Jan 2020

 

Valuation

31st Jan 2020

 

Cost of

Investment

 

% of Net Asset Value

31st Jan 2020

Asia Reinsurance Brokers Pte Limited

 

Singapore

 

25.0%

 

830

 

1,551

 

1%

CBC UK Limited

 

UK

 

38.2%

 

7,150

 

4

 

6%

EC3 Brokers Limited

 

UK

 

20.0%

 

5,288

 

5,000

 

5%

Lilley Plummer Risks Limited

 

UK

 

30.0%

 

1,317

 

1,000

 

1%

Mark Edward Partners LLC

 

USA

 

30.0%

 

0

 

4,573

 

0%

Summa Insurance Brokerage, S. L

 

Spain

 

77.3%

 

6,120

 

6,096

 

5%

 

Much of the Group's growth has been underpinned by its successful track record of investing in specialist Insurance Brokers, both within the Lloyd's and London Market and internationally. The Group has a wide network of contacts within this space which continues to be an invaluable source of investment opportunities. Our significant experience and deep operational engagement has allowed the Group to unlock value across the portfolio.

 

Our Broking Investments placed over £400.0m of insurance premium, producing over £32.0m of commission income during 2019, accessing the specialty markets of, inter alia, Lloyd's and London, North America, Asia Pacific and Bermuda.

 

The majority of the Broking Investments in the portfolio are relatively recent, having occurred in the last five years, and we see strong opportunities for these investments to develop further as part of our long-term investment strategy. The Group's most recent significant disposals of its shareholdings in Hyperion Insurance Group Ltd and Besso Insurance Group Ltd, having held both for over 20 years and delivered IRRs in excess of 20%, underline the success of our long-term approach.

 

Underwriting Agencies / Managing General Agents ("MGAs")

Investments:

£'000s

 

 

 

 

 

 

 

 

 

 

MGA Investments  

 

Jurisdiction

 

% Shareholding 31st Jan 2020

 

Valuation 31st Jan 2020

 

Cost of Investment

 

% of Net Asset Value

31st Jan 2020

Ag Guard PTY Limited

 

Australia

 

36.0%

 

1,320

 

1,428

 

0%

ATC Insurance Solutions PTY Limited

 

Australia

 

20.0%

 

6,329

 

2,865

 

6%

The Fiducia MGA Company Limited

 

UK

 

35.2%

 

1,691

 

228

 

1%

MB Prestige Holdings PTY Limited

 

Australia

 

40.0%

 

2,716

 

480

 

2%

Nexus Underwriting Management Limited

 

UK

 

18.1%

 

40,045

 

11,126

 

35%

Stewart Specialty Risk Underwriting Limited

 

Canada

 

30.0%

 

2,534

 

-

 

2%

Sterling Insurance PTY Limited

 

Australia

 

19.7%

 

2,272

 

1,945

 

2%

Walsingham Motor Insurance Limited

 

UK

 

42.8%

 

2,103

 

600

 

2%

XPT Group LLC

 

USA

 

32.1%

 

10,951

 

7,330

 

9%

 

The Group has a long track-record of investing in Underwriting Agencies and deploys its expertise in identifying dynamic management teams in early start companies who also have the ability to attract the long-term support from insurance capacity providers on whose behalf these MGAs issue insurance premium.

 

Our MGAs produced GWP of over £538.0m and £62.0m of commission income during 2019. This was across 28 product areas and on behalf of over 50 insurers.

 

The Group's investee MGAs' ongoing focus on profitable underwriting has presented both a challenge and an opportunity. With recent access to insurer capital being restricted to profitable underwriting programmes,  certain MGAs have struggled to obtain underwriting facilities; as such we were pleased to note that all our MGA investments were able to maintain the continued support of their insurer partners for 2019 and into 2020.

 

This means our MGAs are well placed to take advantage of any increased pricing of insurance premiums as a reaction to the incurred insurance losses that have recently been felt by the insurance sector.

 

IFA Investment

Investment:

£'000s

 

 

 

 

 

 

 

 

 

 

 

 

Jurisdiction

 

% Shareholding

31st Jan 2020

 

Valuation 31st Jan 2020

 

Cost of Investment

 

% of Net Asset Value

31st Jan 2020

LEBC Holdings Limited

 

UK

 

 

59.3%

 

25,000

 

12,374

 

22%

 

LEBC is presently the Group's only non-insurance related investment, although we do continue to see investment opportunities in the financial planning and advisory sector, having previously successfully invested here, with both the IFA, Thomson Group Plc and discretionary fund manager, Principal Asset Management Ltd.

 

LEBC's performance during 2019 was impacted by the decision to exit the defined benefit transfer advisory area. However, this doesn't change our view that LEBC will continue to grow successfully in its field led by its management team. This team has guided LEBC through other previous challenges such as the Retail Distribution Review, and we anticipate that following the current restructuring LEBC will be well placed to succeed.

 

 

Portfolio Company Highlights

 

Nexus Underwriting Management Limited ("Nexus")

+ 27.6 pence 2020 NAV per share uplift

The Company originally invested in Nexus in 2014, acquiring a 5% stake for £1.5m. Our current shareholding is 17.6% which cost an aggregate £11.13m. Since our investment Nexus' value has grown from £31.0m to £228.0m. Over this period Nexus has increased its GWP from £50.0m to £325.0m, and its adjusted EBITDA from £2.3m to circa £15.0m.  The performance of Nexus during this period confirmed our view that we backed a first-rate management team, capable of delivering exponential profitable growth, turning Nexus into the pre-eminent London based underwriting agency.

 

During 2019 Nexus made a further three acquisitions in trade credit (Credit & Business Finance Ltd), and financial lines (Capital Risks MGA Limited and Plus Risk Limited).

 

In November 2019, Nexus announced the launch of Nexus Specialty Inc. ("NSI") in the US, marking a significant step forward in their plan to grow, both through acquisition and organically, to become a leading specialty MGA in the territory. Following this announcement, in January 2020 NSI agreed a wide-ranging new underwriting agreement with A-rated insurer Crum & Forster that allows NSI to underwrite its market leading trade credit products on a fully admitted basis in the US across 45 states.

 

At 31 December 2019, Nexus has offices in nine countries, across three continents, underwriting a diverse insurance portfolio of products in excess of £325.0m GWP via an array of over 500,000 policies across 15 classes of business.

 

CBC UK Limited ("CBC")

+ 7.4 pence 2020 NAV per share uplift

CBC is a specialist Lloyd's broker providing both wholesale and retail broking solutions to its UK based clients. The Group acquired its shareholding in CBC, as part of a management led buy-out of its previous owner. As part of this buy-out the Group was once again able to partner with Andrew Wallas, who was appointed Chairman of CBC. Andrew's longstanding experience in the City encompasses his previous roles as Chief executive of Nelson Hurst and Marsh Ltd, CEO and Chairman of Glencairn Ltd and of Andrew Wallas and Marsh Ltd.

 

Following the Group's investment in 2017, the CBC Management team reversed a £0.1m post-tax loss into an immediate profit, and have grown EBITDA from £0.1m to a forecast £2.5m over the period of the Group's investment. They have also successfully started to attract teams from other broking houses with the recent addition of their International team hired from Price Forbes, allowing CBC to expand out of the UK market.

 

XPT Group LLC ("XPT")

+ 9.0 pence 2020 NAV per share uplift

Since investment in 2017, XPT, the specialty lines distribution company, has made numerous acquisitions, providing it with a footprint across the US with offices in North Carolina, Texas, California and New York. From a standing start in 2017, XPT is now forecasting annualised GWP of US$300.0m for the 2020 year.

 

In April 2019, the Group provided XPT with a US$2.0m Loan Facility. This sits alongside US$40m of aggregate funding from Madison Capital Funding LLC ("Madison"). Madison also acquired an equity interest in the business in September 2019 which valued XPT at an enterprise value of c.US$54.0m. Madison is backed by the financial strength and stability of New York Life Insurance Company and has US$10.6bn of assets under management, exclusively investing alongside private equity sponsors and other investors.

 

Subsequent to the end of the Group's 2020 financial year, XPT has acquired 100% of LP Risk, Inc ("LP Risk"), the Houston, Texas, headquartered MGA and surplus lines Broker, LP Risk also has offices in Dallas and San Antonio (Texas).

 

LP Risk specialises in transportation, hospitality, contractors, marine, energy/oil & gas and manufacturing. With 51 employees, it handles over 4,000 accounts a year on behalf of 350 retail agents and brokers in 18 States. Following the acquisition, LP Risk owner and CEO, Landon Parnell has remained with the business as the President of LP Risk and has become a member of XPT's Executive Committee.

 

It is expected that this acquisition will bolster XPT's foothold within its existing markets and add an experienced professional to XPT's Executive Committee. The transaction furthers XPT's strategy to develop a high-class specialty distribution platform across the US by acquiring niche, profitable businesses.

 

Stewart Specialty Risk Underwriting Ltd ("SSRU")

+ 5.0 pence 2020 NAV per share uplift

The Group backed SSRU as a start-up MGA in 2017, having been introduced to its CEO, Stephen Stewart, by contacts at what was Aon Benfield. Since its establishment SSRU has become a trusted insurance partner to the Canadian Property and Casualty sector concentrating on severity driven risk and often with international exposure.

 

The Group's nominal equity investment has now grown to a value of £2.5m since 2017.

 

 

Outlook

 

The Group believes the portfolio and the management teams within it are well set to continue to deliver excellent long-term growth to their shareholders.

 

There is continued demand from the wider private equity market for financial services and intermediated investments which provide exit opportunities for our portfolio companies.

 

On the other hand, the Group remains broadly insulated from this backdrop, due to its sector specific niche and sourcing model, which focuses on identifying off-market deals through a network of entrepreneurial business founders and managers, avoiding competitive processes.

 

Therefore, B. P. Marsh can find investment opportunities at a stage where valuations are fair and there is opportunity for significant growth.

 

Daniel Topping,

Chief Investment Officer

8th June 2020

 

 

Financial Review

 

Financial Performance Summary

The table below summarises the Group's financial results and key performance indicators for the year to 31 January 2020.

 

Year to/as at

 

Year to/as at

 

 

 31st January

 

 31st January

 

 

2020

 

2019

 

 

 

 

Restated*

 

 

 

 

 

 

Net Asset Value

£136.9m

 

£126.2m

 

Net Asset Value per share

380.1p

 

350.3p

 

 

 

 

 

 

Profit on ordinary activities before tax

£12.3m

 

£12.2m

 

Dividend per share paid

4.76p

 

4.76p

 

Total shareholder return (including dividends)

£12.4m

 

£12.5m

 

Total shareholder return on opening shareholders' funds

9.8%

 

11.7%

 

 

 

 

 

 

Net cash from operating activities (net of equity investments, realisations and loans)

£1.5m

 

£(1.5)m

 

Equity cash investment for the year

£2.6m

 

£8.7m

 

Realisations (net of disposal costs)

£0.4m

 

£Nil

 

Loans issued in the year

£5.1m

 

£3.8m

 

Loans repaid by investee companies in the year

£1.0m

 

£1.8m

 

Cash funds (including Treasury) at end of year

£0.8m

 

£7.9m

 

Borrowing / Gearing

£Nil

 

£Nil

 

 

 

 

 

 

*Restated for IFRS 16 lease accounting

 

Overall, the Group delivered a solid return given the various challenges that it faced this year. The Net Asset Value increased by £10.7m, which matched the previous year's performance (2019: £10.7m). At 31 January 2020, the Net Asset Value of the Group was £136.9m, or 380.1p per share (2019: £126.2m, or 350.3p per share). This equates to an increase in Net Asset Value of 8.5% (2019: 10.0%) for the year.

 

The Net Asset Value of £136.9m at 31 January 2020 represented a total increase in Net Asset Value of £107.7m since the Group was originally formed in 1990 having adjusted for the original capital investment of £2.5m, the £10.1m net proceeds raised on AIM in 2006 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 8.1% in Group Net Asset Value after running costs, realisations, losses, distributions and corporation tax since flotation and 11.8% since 1990.

 

The results to 31 January 2020 do not reflect any Covid-19 impact. Further details on this are provided later in the report.

 

Investment Performance

 

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

 

31st January 2019 valuation

Acquisitions at cost

Disposal proceeds

Adjusted 31st January 2019 valuation

31st January 2020 valuation

£101.9m

£2.6m

£0.4m

£104.1m

£115.7m

 

This equates to an increase in the portfolio valuation of 11.1% (2019: 16.1%). This result demonstrates the robustness and depth of the investment portfolio, notwithstanding the significant write down in valuation of one of the Group's largest investments (LEBC) during the year.

 

The Group invested £2.4m (2019: £8.7m) in two new investments during the year - Lilley Plummer Risks Ltd and Agri Services Company PTY Ltd. In addition, the Group provided £5.1m of loans (2019: £3.8m) as follow-on funding to four investee companies to enable them to make acquisitions, or to provide working capital for strategic hires and product development.

 

In addition, £1.0m of loan repayments were made to the Group by investee companies (2019: £1.8m). Since the year-end, the Group has received a further £2.1m in loan repayments.

 

Whilst the Group did not make any significant realisations during the year, it did make a partial realisation of its investment in Paladin Holdings Limited ("Paladin"), receiving proceeds of £0.4m. This disposal related to shares that the Group had been warehousing on behalf of Paladin which were held under a specific call option arrangement and the proceeds received were in line with the carrying value of these shares.

 

Operating Income

 

Net gains from investments were £11.5m, in line with the previous year (2019: £11.5m), based upon the revaluation of the investment portfolio at 31 January 2020.

 

Overall, income from investments increased by 12.2% to £5.2m (2019: £4.6m).  Fees increased by 27.6% over the year to £1.1m (2019: £0.9m) reflecting the increased number of investments within the portfolio. The fees were also bolstered by several one-off transaction fees received. Income from loans increased by 20.5% to £1.3m over the year (2019: £1.1m) due to the provision of both new and further loan funding to the portfolio. Dividend income increased by 3.8% to £2.8m over the year (2019: £2.7m).

 

Operating Expenses

 

Operating expenses, including costs of making new investments, increased by 7.2% during the year to £4.2m (2019 restated*: £3.9m).  This increase was largely due to several exceptional expenses which were included within the 2020 operating costs, including £0.3m of costs relating to a termination payment made to an executive director as well as £0.1m of costs incurred in making new investments which were expensed under IFRS. After excluding these atypical expenses, underlying operating expenses actually decreased by £0.1m (1.4%) over 2019.

 

Profit on Ordinary Activities

 

The consolidated profit on ordinary activities after taxation increased by 0.7% to £12.5m (2019 restated*: profit of £12.4m).

 

The Group's strategy is to cover expenses from the portfolio yield. On an underlying basis, including treasury returns, but excluding investment activity (e.g. unrealised gains on equity, provision against loans receivable from investee companies and all underlying treasury portfolio movement), this was achieved with a pre-tax profit of £0.8m for the year (2019: £0.7m).

 

Liquidity

 

Cash funds at 31 January 2020 were £0.8m (2019: £7.9m) as a result of continued investment into new opportunities and providing follow-on funding into the portfolio.

 

During the year, the Group secured a £3.0m loan facility with Brian Marsh Enterprises Ltd, a company in which the Chairman, Mr. Brian Marsh, is a director and sole shareholder. The loan facility provides the Group with further investment funds at an interest rate of the higher of either 4% or the UK 1-month LIBOR plus 3.25%, which are available to be drawn down until 29 July 2021.

 

At 31 January 2020 and at the date of this report the Group had not drawn down on these funds and has no borrowings (2019: £nil).

 

Since the year-end, the Group has received a further £2.1m in loan repayments. Total available cash, including the loan facility, currently stands at £4.0m net of the dividend payable in July 2020.

 

Dividend

 

The Group maintained its dividend payment at £1.7m (or 4.76p per share) during the year (2019: £1.7m or 4.76p per share).  Total shareholder return for the year was therefore 9.8% (2019: 11.7%) including the dividend payment and the Net Asset Value increase.

 

Due to the current Covid-19 pandemic, the Group, having taken into consideration its available cash resources and liquidity, and the potential requirements from the investment portfolio, has agreed to declare a dividend of £0.8m (or 2.22p per share), payable on 31 July 2020 to those shareholders registered on 26th June 2020. This dividend represents a distribution of 100% of the underlying realised profits of the business for the year to 31 January 2020.

 

Covid-19 Impact Assessment

 

The financial statements to 31 January 2020 have not included any impact of Covid-19 on either the Group or on the valuations of its investment portfolio. This is because, at that time, although it had developed into a major risk in China, it had not established itself in the UK and the rest of the world and had not financially impacted upon either the Group or its investments. As such, it has been determined that Covid-19 is to be treated as a non-adjusting post balance sheet event.

 

The Group is exposed to the risks associated with Covid-19. Since the outbreak of the virus, the Board has been continually assessing its potential impact on the Group and its underlying investments. The Group has taken all the steps that it can to ensure that the health and safety of its staff, their families and those of the Group's investments is prioritised, whilst also ensuring the continuity of the Group's day to day operations through remote working arrangements.

 

The Board considers that the largest risk to the Group arising from Covid-19 is that of its underlying investment value and the effects that lockdown restrictions may have on the trading of its individual investee companies. Any negative impact on the trading of the Group's investee companies could cause liquidity issues for those companies, for example due to reduced income, delayed debtor receipts, or restrictions to funding. Furthermore, the Group's income could be potentially reduced if the profits of the investee companies are significantly impacted and cause a reduction to dividend distributions.

 

However, the Board considers that it has a strong portfolio of well-managed investee companies that are each taking steps to manage the risks to their income and to their liquidity, implementing cost reductions where necessary to mitigate any reduction in income and profitability accordingly.

 

The Group has also been monitoring its own income and cash collection. Lower dividend income is a risk in not only the current year, but also in the following year as investee companies manage their own liquidity through this pandemic. The Group has taken measures to mitigate this risk, immediately halting discretionary spending before the start of the UK's lockdown, and reviewing all costs going forwards in order to maintain an acceptable level of underlying profit and preserve working capital.

 

Whilst several of our investee companies have experienced reductions in income as a direct result of Covid-19, in contrast a number of investments are still performing at, or above budget for the year despite the lockdown which is testament to their durability and demonstrates that we have a diversified portfolio, both in terms of products and geographically.

 

It is too early to ascertain with any degree of certainty the full impact of the risks that Covid-19 is posing to the Group, as the duration of the pandemic, and thus restrictions, is currently unknown. The Board continues to monitor the key threats to the business closely.

 

The significant fall in the equity markets will undoubtedly put pressure on valuation multiples in the short-term, specifically for any portfolio company that has been directly exposed to the impact of Covid-19. However, the Group has sufficient cash resources, with the recent repayment of £2.0m in loan from Nexus, alongside the availability of a £3.0m loan facility, such that it does not need to realise investments at the current time just to create liquidity, and as such can look to the longer term when it is expected that multiples will return to their pre-Covid-19 levels.

 

The Board is confident that whilst the Covid-19 risk may have a short-term impact on the Group's overall profitability and growth, it does not consider there to be a risk to the Group's going concern assumption.

 

Jon Newman,

Group Director of Finance

8th June 2020

 

 

Portfolio Valuation

 

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

 

AG Guard PTY Limited (Agri Services Company PTY Limited)

( www.agguard.com.au )

In July 2019 the Group subscribed for a 36% stake in Agri Services Company PTY Limited, which in turn acquired 100% of the equity Ag Guard PTY Limited ("Ag Guard"). Ag Guard is a Managing General Agency, which provides insurance to the Agricultural Sector, based in Sydney, Australia.

Date of investment: July 2019

Equity stake: 36%

31 January 2020 valuation: £1,320,000

 

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 2020 valuation: £830,000

 

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 2020 valuation: £6,329,000

 

CBC UK Limited (Paladin Holdings 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: 38.2%

31 January 2020 valuation: £7,150,000

 

Criterion Underwriting Pte Limited

(www.criterionmga.com)

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 2020 valuation: £Nil

 

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 2020 valuation: £5,288,000

 

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: 35.2%

31 January 2020 valuation: £1,691,000

 

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 2020 valuation: £25,000,000

 

Lilley Plummer Risks Limited

( www.lprisks.co.uk )

In October 2019, the Group invested into Lilley Plummer Risks, the newly formed specialist marine Lloyd's broker. Lilley Plummer Risks was established by Stuart Lilley and Dan Plummer in 2019, and provides products across the marine Insurance market.

Date of investment: October 2019

Equity stake: 30%

31 January 2020 valuation: £1,317,000

 

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 2020 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 2020 valuation: £2,716,000

 

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: 18.1%

31 January 2020 valuation: £40,045,000

 

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 2020 valuation: £2,534,000

 

Sterling Insurance PTY Limited (Neutral Bay Investments 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 2020 valuation: £2,272,000

 

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 2020 valuation: £6,120,000

 

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 2020 valuation: £2,045,000

 

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 2020 valuation: £58,000

 

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: 32.1%

31 January 2020 valuation: £10,951,000

 

 

Consolidated Financial Statements

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

FOR THE YEAR ENDED 31ST JANUARY 2020

 

 

 

Notes

2020

2019

Restated*

 

 

£'000

£'000

£'000

£'000

 

 

 

 

 

 

GAINS ON INVESTMENTS

1

 

 

 

 

Provision against equity investments and loans

15

(69)

 

(2,595)

 

Unrealised gains on equity investment revaluation

 

12

 

11,570

 

 

14,106

 

 

 

 

11,501

 

11,511

INCOME

 

 

 

 

 

Dividends

1,25

2,787

 

2,684

 

Income from loans and receivables

1,25

1,299

 

1,079

 

Fees receivable

1,25

1,108

 

868

 

 

 

 

5,194

 

4,631

 

 

 

 

 

 

OPERATING INCOME

2

 

16,695

 

16,142

 

 

 

 

 

 

Operating expenses

 

(4,210)

 

(3,928)

 

 

2

 

(4,210)

 

(3,928)

 

 

 

 

 

 

OPERATING PROFIT

 

 

12,485

 

12,214

 

 

 

 

 

 

Financial income

2,4

16

 

108

 

Financial expenses

2,3

(77)

 

(88)

 

Exchange movements

2,8

(152)

 

(25)

 

 

 

 

(213)

 

(5)

 

 

 

 

 

 

PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION

8

 

 

12,272

 

 

12,209

 

 

 

 

 

 

Income taxes

9

 

258

 

232

 

 

 

 

 

 

PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION ATTRIBUTABLE TO EQUITY HOLDERS

 

 

20

 

 

 

£12,530

 

 

 

£12,441

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

20

 

 

£12,530

 

 

£12,441

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - basic and diluted (pence)

 

10

 

 

34.9p

 

 

37.6p

 

 

 

 

 

 

 

*Restated for IFRS 16 (refer to Note 29)

 

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

 

 

CONSOLIDATED AND PARENT COMPANY STATEMENTS OF FINANCIAL POSITION

 

31ST JANUARY 2020

 

(Company Number: 05674962)

 

 

 

Group

 

Company

 

Notes

2020

2019

 

2020

2019

 

 

 

Restated*

 

 

Restated*

 

 

£'000

£'000

 

£'000

£'000

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-CURRENT ASSETS

 

 

 

 

 

 

Property, plant and equipment

11

151

158

 

-

-

Right-of-use asset

21

1,286

1,468

 

-

-

Investments - equity portfolio

12

115,666

101,947

 

109,804

99,214

Investments - subsidiaries

12

-

-

 

27,283

27,328

Investments - treasury portfolio

13

-

14

 

-

-

Loans and receivables

15

16,211

14,509

 

3,959

3,860

 

 

133,314

118,096

 

141,047

130,402

CURRENT ASSETS

 

 

 

 

 

 

Trade and other receivables

16

5,017

2,867

 

-

-

Cash and cash equivalents

 

787

7,855

 

8

8

TOTAL CURRENT ASSETS

 

5,804

10,722

 

8

8

TOTAL ASSETS

 

139,118

128,818

 

141,054

130,410

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-CURRENT LIABILITIES

 

 

 

 

 

 

Lease liabilities

21

(1,204)

(1,372)

 

-

-

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Trade and other payables

18

(876)

(1,064)

 

-

(3)

Lease liabilities

21

(168)

(160)

 

-

-

Corporation tax provision

18

-

(48)

 

-

(48)

TOTAL CURRENT LIABILITIES

18

(1,044)

(1,272)

 

-

(51)

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

(2,248)

(2,644)

 

-

(51)

 

 

 

 

 

 

 

NET ASSETS

 

£136,870

£126,174

 

£141,054

£130,359

 

 

 

 

 

 

 

CAPITAL AND RESERVES - EQUITY

 

 

 

 

 

 

Called up share capital

19

3,747

3,748

 

3,747

3,748

Share premium account

20

29,367

29,358

 

29,367

29,358

Fair value reserve

20

57,696

46,128

 

107,661

97,071

Reverse acquisition reserve

20

393

393

 

-

-

Capital redemption reserve

20

7

6

 

7

6

Capital contribution reserve

20

42

21

 

-

-

Retained earnings

20

45,618

46,520

 

272

176

SHAREHOLDERS' FUNDS - EQUITY

 

20

 

£136,870

 

£126,174

 

 

£141,054

 

£130,359

 

 

 

 

 

 

 

Net asset value per share (pence)

10

380.1p

350.3p

 

376.5p

347.8p

 

 

 

 

 

 

 

*Restated for IFRS 16 (refer to Note 29)

 

The Financial Statements were approved by the Board of Directors and authorised for issue on 8th June 2020

and signed on its behalf by:

 

J.S. Newman & D.J. Topping

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

FOR THE YEAR ENDED 31ST JANUARY 2020

 

 

 

Notes

 

2020

 

2019

 

 

 

 

 

Restated*

 

 

 

£'000

 

£'000

Cash used by operating activities

 

 

 

 

 

Income from loans to investee companies

 

 

1,299

 

1,079

Dividends

 

 

2,787

 

2,684

Fees received

 

 

1,108

 

868

Operating expenses

 

 

(4,210)

 

(3,928)

Net corporation tax repaid / (paid)

 

 

261

 

(1,170)

Purchase of equity investments

12

 

(2,551)

 

(8,719)

Net proceeds from sale of equity investments

12,14

 

402

 

-

Net payment of loans to investee companies

 

 

(4,163)

 

(1,953)

Adjustment for non-cash share incentive plan

 

 

121

 

104

Decrease / (increase) in receivables

 

 

58

 

(954)

Decrease in payables

 

 

(189)

 

(406)

Depreciation and amortisation

11,21

 

215

 

211

Net cash used by operating activities

 

 

 

(4,862)

 

 

(12,184)

 

 

 

 

 

 

Net cash (used by) / from investing activities

 

 

 

 

 

Purchase of property, plant and equipment

11

 

(26)

 

(20)

Purchase of treasury investments

13

 

-

 

(27)

Net proceeds from sale of treasury investments

13

 

14

 

2,828

Net cash (used by) / from investing activities

 

 

 

(12)

 

 

2,781

 

 

 

 

 

 

Net cash (used by) / from financing activities

 

 

 

 

 

Financial income

4

 

16

 

45

Financial expenses

21

 

(77)

 

(84)

Net decrease in lease liabilities

21

 

(160)

 

(152)

Dividends paid

7

 

(1,712)

 

(1,714)

Net proceeds on issue of company shares

10,19

 

-

 

16,589

Payments made to repurchase company shares

19,20

 

(243)

 

(79)

Net cash (used by) / from financing activities

 

 

 

(2,176)

 

 

14,605

 

 

 

 

 

 

Change in cash and cash equivalents

 

 

(7,050)

 

5,202

Cash and cash equivalents at beginning of the year

 

 

 

7,855

 

 

2,648

Exchange movement

 

 

(18)

 

5

 

 

 

 

 

 

 

Cash and cash equivalents at end of year†

 

 

 

£787

 

 

£7,855

 

 

 

 

 

 

*Restated for IFRS 16 (refer to Note 29)

 

All differences between the amounts stated in the Consolidated Statement of Cash Flows and the Consolidated Statement of Comprehensive Income are attributed to non-cash movements.

 

†The above cash and cash equivalents balance excludes treasury portfolio funds which are referred to in Note 13.  Including treasury portfolio balances of £Nil, total available cash and treasury portfolio funds as at 31st January 2020 was £787k (as at 31st January 2019: £7,869k, including £14k of treasury portfolio funds).

 

 

PARENT COMPANY STATEMENT OF CASH FLOWS

 

FOR THE YEAR ENDED 31ST JANUARY 2020

 

 

 

Notes

 

2020

 

2019

 

 

 

£'000

 

£'000

Cash from operating activities

 

 

 

 

 

Dividends received from subsidiary undertakings

 

 

1,962

 

1,794

Net corporation tax paid

 

 

(48)

 

-

(Decrease) / increase in payables

 

 

(3)

 

3

Net cash from operating activities

 

 

1,911

 

1,797

 

 

 

 

 

 

Net cash used by financing activities

 

 

 

 

 

Decrease / (increase) in amounts owed by group undertakings

 

 

 

45

 

 

(17,008)

Adjustment relating to non-cash items

 

 

(1)

 

415

Dividends paid

7

 

(1,712)

 

(1,714)

Payments made to repurchase company shares

19,20

 

(243)

 

(79)

Net proceeds on issue of company shares

10,19

 

-

 

16,589

Net cash used by financing activities

 

 

(1,911)

 

(1,797)

 

 

 

 

 

 

Change in cash and cash equivalents

 

 

-

 

-

Cash and cash equivalents at beginning of the year

 

 

8

 

8

 

 

 

 

 

 

 

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 2020

 

 

 

Group

Company

 

2020

2019

2020

2019

 

 

Restated*

 

Restated*

 

 

 

 

 

 

£'000

£'000

£'000

£'000

 

 

 

 

 

Opening total equity

126,174

98,833

130,359

98,833

Comprehensive income for the year

12,530

12,441

12,552

12,455

Dividends paid

(1,712)

(1,714)

(1,712)

(1,714)

Repurchase of company shares

(243)

(79)

(243)

(79)

Share incentive plan

121

104

98

95

New shares issued (net funds raised)

-

16,589

-

16,589

New shares issued to SIP and JSOP

-

-

-

4,180

TOTAL EQUITY

£136,870

£126,174

£141,054

£130,359

 

*Restated for IFRS 16 (refer to Note 29)

 

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 2020

 

 

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 2020 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.

 

First time adoption of IFRS 16 Leases

 

On 1st February 2019, the Group adopted IFRS 16 Leases ("IFRS 16"), which replaces IAS 17 Leases ("IAS 17").

 

The only impact on the Group relates to leases for use of office space. These were previously classified as operating leases under IAS 17, with lease rentals charged to operating expenses on a straight-line basis over the lease term.

 

IFRS 16 requires lessees to recognise a lease liability, representing the present value of the obligation to make lease payments, and a related right of use ("ROU") asset. The lease liability is calculated based on expected future lease payments, discounted using the relevant incremental borrowing rate. An incremental borrowing rate of 5% was used to discount the future lease payments when measuring the lease liability on adoption of IFRS 16.

 

The ROU asset is recognised at cost less accumulated depreciation and impairment losses, with depreciation charged on a straight-line basis over the life of the lease. In determining the value of the ROU asset and lease liabilities, the Group considers whether any leases contain lease extensions or termination options that the Group is reasonably certain to exercise.

 

The Group has applied the retrospective approach to IFRS 16 and details of the prior year adjustments are in Note 29.

 

New Accounting Standards

 

There are no new standards that have been issued, but are not yet effective for the year ended 31st January 2020, which might have a material impact on the Group's financial statements in future periods.

 

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 £12,551,785, prior to a dividend distribution of £1,712,185 (2019: restated profit of £12,454,783 prior to a dividend distribution of £1,714,418).

 

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 end are translated at the exchange rate ruling at the reporting period end.

 

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 credit or expense represents the sum of the tax currently recoverable or payable and any deferred tax.  The tax currently recoverable or 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 receivable or 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.

 

IFRIC 23 has been adopted and applied to the recognition and measurement of uncertain tax provision during the year. However it is noted that the adoption of IFRIC 23 has had no material impact on the tax position as at the year end.

 

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.

 

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

 

 

 

 

 

 

 

 

2020

2019

2020

2019

2020

2019

 

 

Restated*

 

Restated*

 

Restated*

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Operating income

7,019

16,882

9,676

(740)

16,695

16,142

Operating expenses

(2,800)

(2,886)

(1,410)

(1,042)

(4,210)

(3,928)

Segment operating profit / (loss)

 

4,219

 

13,996

 

8,266

 

(1,782)

 

12,485

 

12,214

 

 

 

 

 

 

 

Financial income

11

79

5

29

16

108

Financial expenses

(51)

(65)

(26)

(23)

(77)

(88)

Exchange movements

(33)

8

(119)

(33)

(152)

(25)

 

 

 

 

 

 

 

Profit / (loss) before tax

4,146

14,018

8,126

(1,809)

12,272

12,209

Income taxes

258

232

-

-

258

232

Profit / (loss) for the year

£4,404

£14,250

£8,126

£(1,809)

£12,530

£12,441

 

*Restated for IFRS 16 (refer to Note 29)

 

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

 

 

 

 

 

 

 

 

2020

2019

2020

2019

2020

2019

LEBC Holdings Limited

1,272

1,464

24

32

1

1

Nexus Underwriting Management Limited

 

997

 

788

 

19

 

17

 

1

 

1

XPT Group LLC1

673

-

13

-

2

-

Paladin Holdings Limited1

-

449

-

10

-

1

 

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

 

2020

2019

2020

2019

2020

2019

 

 

Restated*

 

Restated*

 

Restated*

 

£'000

£'000

£'000

£'000

£'000

£'000

Non-current assets

 

 

 

 

 

 

Property, plant and equipment

108

121

43

37

151

158

Right-of-use asset

918

1,128

368

340

1,286

1,468

Investments - equity portfolio

82,594

78,309

33,072

23,638

115,666

101,947

Investments - treasury portfolio

-

14

-

-

-

14

Loans and receivables

12,382

11,856

3,829

2,653

16,211

14,509

 

96,002

91,428

37,312

26,668

133,314

118,096

Current assets

 

 

 

 

 

 

Trade and other receivables

4,141

1,575

876

1,292

5,017

2,867

Cash and cash equivalents

787

7,855

-

-

787

7,855

 

4,928

9,430

876

1,292

5,804

10,722

 

 

 

 

 

 

 

Total assets

100,930

100,858

38,188

27,960

139,118

128,818

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Lease liabilities

(860)

(1,054)

(344)

(318)

(1,204)

(1,372)

 

(860)

(1,054)

(344)

(318)

(1,204)

(1,372)

Current liabilities

 

 

 

 

 

 

Trade and other payables

(873)

(1,061)

(3)

(3)

(876)

(1,064)

Lease liabilities

(120)

(123)

(48)

(37)

(168)

(160)

Corporation tax provision

-

(48)

-

-

-

(48)

 

(993)

(1,232)

(51)

(40)

(1,044)

(1,272)

 

 

 

 

 

 

 

Total liabilities

(1,853)

(2,286)

(395)

(358)

(2,248)

(2,644)

 

 

 

 

 

 

 

Net assets

£99,077

£98,572

£37,793

£27,602

£136,870

£126,174

 

Additions to property, plant and equipment

 

18

 

15

 

8

 

5

 

26

 

20

 

Depreciation and amortisation of property, plant and equipment

 

(154)

 

(162)

 

(61)

 

(49)

 

(215)

 

(211)

 

 

 

 

 

 

 

Impairment of investments and loans

-

 

-

 

(69)

(2,595)

(69)

(2,595)

 

 

 

 

 

 

 

Cash flow arising from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

(2,861)

(3,746)

(2,001)

(8,438)

(4,862)

(12,184)

Investing activities

(12)

2,781

-

-

(12)

2,781

Financing activities

(2,176)

14,605

-

-

(2,176)

14,605

Change in cash and cash equivalents

 

(5,049)

 

13,640

 

(2,001)

 

(8,438)

 

(7,050)

 

5,202

 

*Restated for IFRS 16 (refer to Note 29)

 

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 2020 and 2019 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:

 

 

2020

 

2019

 

%

%

 

 

 

UK

43

51

Non-UK

57

49

Total

100

100

 

 

 

 

 

3.  FINANCIAL EXPENSES

2020

2019

 

 

Restated*

 

£'000

£'000

 

 

 

Investment management costs (Note 13)

-

4

Interest costs on lease liability (Note 21)

77

84

 

£ 77

£ 88

 

 

 

*Restated for IFRS 16 (refer to Note 29)

 

 

4.  FINANCIAL INCOME

2020

2019

 

£'000

£'000

 

 

 

Bank and similar interest

16

45

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

-

63

 

£ 16

£ 108

 

 

5.  STAFF COSTS

 

The average number of employees, including all directors (executive and non-executive), employed by the Group during the year was 17 (2019: 19); 6 of those are in a management role (2019: 6) and 11 of those are in a support role (2019: 13).  All remuneration was paid by B.P. Marsh & Company Limited.

 

The related staff costs were:

2020

2019

 

£'000

£'000

 

 

 

Wages and salaries

2,447

2,222

Social security costs

316

297

Pension costs

129

118

Other employment costs (Note 24)

100

90

 

£2,992

£2,727

 

 

 

 

During the year to 31st January 2017 the Group 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 Note 24 for further details.

 

During the year to 31st January 2019, 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 £79,054 (2019: £76,470) relating to the SIP and £21,413 (2019: £13,728) relating to the Joint Share Ownership Agreements are included within 'Other employment costs' above.

 

 

2020

2019

The aggregate emoluments of the directors were:

£'000

£'000

 

 

 

Management services - remuneration

1,492

1,257

Fees

20

72

Pension contributions - remuneration

65

61

 

£ 1,577

£ 1,390

 

669,860 of the 1,461,302 shares, in respect of which joint interests were granted during the year to 31st January 2019, were issued to directors.  Following the resignation of an executive director during the year, 167,465 jointly-owned shares were consequently forfeited.  Refer to Note 24 for further details. 

 

Of the total 33,330 (2019: 35,222) Free, Matching and Partnership Shares granted under the SIP during the year, 12,120 (2019: 12,808) were granted to directors of the Company. 

 

Following the resignation of an executive director during the year, a total of 16,143 ordinary shares in the Company were withdrawn from the SIP Trust and transferred into the direct beneficial ownership of that director.

 

Of the £21,413 (2019: £13,728) charge relating to the Joint Share Ownership Plan and the £79,054 (2019: £76,470) charge relating to the SIP, £9,187 (2019: £6,293) and £28,747 (2019: £27,807) related to the directors respectively.

 

Refer to Note 24 for further details.

 

 

2020

2019

 

£'000

£'000

Highest paid director

 

 

Emoluments

342

304

Pension contribution

7

18

 

£ 349

£ 322

 

The highest paid director includes emoluments of £270,000 relating to a settlement paid upon leaving the Company.  The highest paid director also owns 16,143 ordinary shares in the Company.

 

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 (2019: 4) accrued benefits under these defined contribution pension schemes.

 

The key management personnel comprise of the directors.

 

 

7.  DIVIDENDS

2020

2019

 

£'000

£'000

Ordinary dividends

 

 

 

 

 

Dividend paid:

 

 

 

 

 

4.76 pence each on 35,970,271 Ordinary shares (2019: 4.76 pence each on 36,016,775 Ordinary shares)

1,712

1,714

 

 

 

 

£ 1,712

£ 1,714

 

 

 

 

In the current year a total dividend of £8,703 (2019: £6,961) was payable on the 182,831 (2019: 146,237) ordinary shares held by the B.P. Marsh SIP Trust ("SIP Trust").

 

No dividend was payable on the 1,461,302 (2019: 1,461,302) ordinary shares held by the B.P. Marsh Employees' Share Trust ("Share Trust") under the Joint Share Ownership Plan and on 46,504 ordinary shares held in Treasury which were unallocated at the dividend record date (2019: no shares held in Treasury at the dividend record date).

 

 

8.  PROFITON ORDINARY ACTIVITIES BEFORE TAXATION

2020

2019

 

 

Restated*

 

£'000

£'000

The profit for the year is arrived at after charging:

 

 

 

 

 

Depreciation and amortisation of property, plant & equipment, and right-of-use asset

 

215

 

211

Auditor's remuneration :-

 

 

  Audit fees for the Company

29

29

  Other services:

 

 

-Audit of subsidiaries' accounts

17

17

-Taxation

13

14

-Other advisory

15

2

Exchange loss

152

25

 

*Restated for IFRS 16 (refer to Note 29)

 

 

9.  INCOME TAX EXPENSE

2020

2019

 

£'000

£'000

Current tax:

 

 

Current tax on profits for the year

-

48

Adjustments in respect of prior years

(258)

(312)

 

 

 

Total current tax

(258)

(264)

 

 

 

Deferred tax (Note 17):

 

 

Origination and reversal of temporary differences

-

32

 

 

 

Total deferred tax

-

32

 

 

 

Total income taxes credited in the Consolidated Statement of Comprehensive Income

 

£ (258)

 

£ (232)

 

The tax assessed for the year is lower (2019: lower) than the standard rate of corporation tax in the UK.  The differences are explained below:

 

 

2020

2019

 

 

Restated*

 

£'000

£'000

 

 

 

Profit before tax

12,272

12,209

 

 

 

Profit on ordinary activities at the standard rate of corporation tax in the UK of 19.00% (2019: 19.00%)

2,332

2,320

Tax effects of:

 

 

Expenses not deductible for tax purposes

80

90

Prior year current tax overprovision

(258)

(312)

Other adjustments

-

48

Other effects:

 

 

Deferred tax movement on unrealised loss on treasury portfolio

-

32

Non-taxable income (dividends received)

(530)

(510)

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

(2,198)

(2,680)

Management expenses unutilised

316

780

 

 

 

Total income taxes credited in the Consolidated Statement of Comprehensive Income

 

£ (258)

 

£ (232)

 

*Restated for IFRS 16 (refer to Note 29)

 

There are no factors which may affect future tax charges.

 

 

 

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

 

 

2020

 

£'000

2019

Restated*

£'000

Earnings

 

 

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

 

12,530

 

12,441

 

 

 

Earnings per share - basic and diluted

34.9p

37.6p

 

 

 

Number of shares

Number

Number

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

 

35,947,869

 

33,065,228

 

 

 

Number of dilutive shares under option

Nil

Nil

 

 

 

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

 

35,947,869

 

33,065,228

 

*Restated for IFRS 16 (refer to Note 29)

 

During the year to 31st January 2019 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, during that year, 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 were 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 at that time, 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 was calculated by proportioning the Placing and Open Offer shares over the period. 

 

During the year the Company paid £243,232 (2019: £79,310) in order to repurchase 87,780 (2019: 28,573) ordinary shares at an average price of 277 pence per share (2019: 278 pence per share). Distributable reserves were reduced by £243,232 (2019: £79,310) as a result during the year.

 

Ordinary shares held by the Company in Treasury

 

Movement of ordinary shares held in Treasury:

 

 

 

2020

2019

 

Number

Number

 

 

 

Opening total ordinary shares held in Treasury at 1st February

28,573

21,009

 

 

 

Ordinary shares repurchased held in Treasury during the year

87,780

28,573

 

 

 

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

(19,218)

(21,009)

 

 

 

Ordinary shares cancelled during the year

(12,077)

-

 

 

 

Total ordinary shares held in Treasury at 31st January

85,058

28,573

 

 

 

 

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

 

The Group's policy on the repurchase of ordinary shares 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 and place them into Treasury. The threshold was 20% until 11th October 2018 when 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 2020, 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 380 pence for the Group.  If the joint share ownership arrangements were included, this would increase the Group's net asset value by £4,106,259 and the net asset value per share would be 376 pence.

 

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 376 pence for the Company.

 

The increase to the weighted average number of ordinary shares between 2019 and 2020 is mainly attributable to the increased weighting of the new ordinary shares that were issued from the Placing and Open Offer which occurred during the year ended 31st January 2019.

 

The 19,218 ordinary shares transferred from Treasury to the SIP Trust in June 2019 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. 

 

33,330 ordinary shares (comprising the 19,218 ordinary shares transferred from Treasury to the SIP Trust during the year, together with 14,112 of unallocated ordinary shares acquired by the SIP Trust as part of the new issue of shares by the Company during the year ended 31st January 2019) were allocated to the participating employees as Free, Matching and Partnership shares under the share incentive plan arrangement in June 2019 (Note 24).

 

On 11th December 2019 12,077 ordinary shares in the Company were cancelled.  These shares were previously held in Treasury.  Following the cancellation, the total number of ordinary shares in issue reduced from 37,478,077 as at 31st January 2019 to 37,466,000 as at 31st January 2020.

 

 

11.   PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

Furniture and Equipment

£'000

Leasehold Fixtures and Fittings and Others

£'000

 

 

 

Total

£'000

 

 

 

 

Group

 

 

 

 

 

 

 

Cost

 

 

 

At 1st February 2018

104

152

256

Additions

20

-

20

Disposals

(5)

-

(5)

At 31st January 2019

119

152

271

 

 

 

 

At 1st February 2019

119

152

271

Additions

26

-

26

Disposals

(8)

-

(8)

At 31st January 2020

137

152

289

 

 

 

 

Depreciation

 

 

 

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

 

 

 

 

At 1st February 2019

79

34

113

Eliminated on disposal

(8)

-

(8)

Charge for the year

18

15

33

At 31st January 2020

89

49

138

 

 

 

 

Net book value

 

 

 

At 31st January 2020

£ 48

£ 103

£ 151

At 31st January 2019

£ 40

£ 118

£ 158

At 31st January 2018

£ 34

£ 133

£ 167

 

 

 

12.   INVESTMENTS - EQUITY PORTFOLIO

 

 

 

Group

 

 

Shares in investee companies

 

Continuing investments

 

£'000

At valuation

 

 

 

At 1st February 2018

79,122

Additions

8,719

Disposals

-

Provisions

-

Unrealised gains in this period

14,106

At 31st January 2019

£101,947

 

 

At 1st February 2019

101,947

Additions

2,551

Disposals

(402)

Provisions

-

Unrealised gains in this period

11,570

At 31st January 2020

£115,666

 

 

At cost

 

 

 

At 1st February 2018

47,100

Additions

8,719

Disposals

-

Provisions

-

At 31st January 2019

£55,819

 

 

At 1st February 2019

55,819

Additions

2,551

Disposals

(400)

Provisions

-

At 31st January 2020

£57,970

 

The additions relate to the following transactions in the year:

 

On 26th April 2019 the Group agreed to provide further funding of £122,909 to The Fiducia MGA Company Limited ("Fiducia") as part of a rights issue in conjunction with another of its shareholders.  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%.

 

On 12th July 2019 the Group acquired a 36% equity stake in Agri Services Company PTY Limited ("Agri Services") for an initial consideration of AUD 1,470,000 (£822,516).  Agri Services is the holding company for Ag Guard PTY Limited, which provides insurance solutions for the Australian agricultural sector.  Further consideration of AUD 1,130,000 (£605,216) was subsequently paid on 15th January 2020 following Agri Services meeting certain agreed conditions in relation to securing capacity for a new product.  As at 31st January 2020 the total consideration paid by the Group was AUD 2,600,000 (£1,427,732) and the Group's equity holding remained at 36%.

 

On 21st October 2019 the Group acquired a 30% equity stake in Lilley Plummer Risks Limited ("Lilley Plummer"), a newly formed specialist Marine Lloyd's broker based in London, for a total cash consideration of £1,000,000.  The Group's equity holding is through a mixture of 700,000 Redeemable and 300,000 Non-Redeemable Preferred shares of £1 each.

 

The disposals relate to the following transaction in the year:

 

On 18th September 2019 the Group received an Option Notice in relation to its holding of 100,000 ordinary shares in Paladin Holdings Limited ("Paladin") which were being held by the Group under a three-year call option arrangement that Paladin could call at any time.  The terms of the call option arrangement allowed Paladin to buy-back the shares from the Group at a fixed price of £4.02 per share (£402,000).  On 2nd October 2019, pursuant to the Option Notice being served, the Group received £402,000 as consideration for the shares, after which the shares were cancelled.  Following the exercise of the call option and the subsequent cancellation of the shares, the Group's equity holding in Paladin decreased from 44.3% as at 31st January 2019 to 38.2% as at 31st January 2020.

 

The unquoted investee companies, which are registered in England except Summa Insurance Brokerage, S.L. (Spain), MB Prestige Holdings PTY Limited (Australia), Asia Reinsurance Brokers Pte Limited (Singapore), Stewart Specialty Risk Underwriting Ltd (Canada), XPT Group LLC (USA), Mark Edward Partners LLC (USA), ATC Insurance Solutions PTY Limited (Australia), Criterion Underwriting Pte Limited (Singapore) and Agri Services Company PTY Limited (Australia) 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

 

 

 

£

£

 

 

 

 

 

 

 

Agri Services Company PTY Limited1

36.00

-

-

-

Holding Company for specialist Australian agricultural Managing General Agency

 

 

 

 

 

 

Asia Reinsurance Brokers Pte Limited

25.00

31.05.19

2,159,593

(235,595)

Specialist reinsurance broker

 

 

 

 

 

 

ATC Insurance Solutions PTY Limited

20.00

30.06.19

3,194,781

1,616,147

Specialist Australian Managing General Agency

 

 

 

 

 

 

Criterion Underwriting Pte Limited1

29.40

-

-

-

Specialist Singaporean Managing General Agency

 

 

 

 

 

 

EC3 Brokers Group Limited

20.00

31.12.18

(842,743)

(1,764,893)

Investment holding company

 

 

 

 

 

 

LEBC Holdings Limited

59.34

30.09.19

4,631,046

(357,774)

Independent financial advisor company

 

 

 

 

 

 

Lilley Plummer Risks Limited1

30.00

-

-

-

Specialist Marine broker

 

 

 

 

 

 

MB Prestige Holdings PTY Limited

40.00

31.12.19

2,370,399

946,180

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

31.03.19

4,039,229

218,014

Investment holding company

 

 

 

 

 

 

Nexus Underwriting Management Limited

18.01

31.12.18

20,973,929

1,568,016

Specialist Managing General Agency

 

 

 

 

 

 

Paladin Holdings Limited

38.24

31.12.18

105,677

242,277

Investment holding company

 

 

 

 

 

 

Stewart Specialty Risk Underwriting Limited

30.00

31.12.19

239,094

303,632

Specialist Canadian Casualty Underwriting Agency

 

 

 

 

 

 

Summa Insurance Brokerage, S.L.

77.25

31.12.18

8,382,512

(369,155)

Consolidator of regional insurance brokers

 

 

 

 

 

 

The Fiducia MGA Company Limited

35.18

31.12.18

(2,128,168)

(962,122)

Specialist UK Marine Cargo Underwriting Agency

 

 

% holding

Date

Aggregate

Post tax

 

 

of share

information

capital and

profit/(loss)

 

Name of company

Capital

available to

reserves

for the year

Principal activity

 

 

 

£

£

 

 

 

 

 

 

 

Walsingham Holdings Limited

20.00

30.09.18

980

(520)

Investment holding company

 

 

 

 

 

 

Walsingham Motor Insurance Limited

40.50

30.09.18

(914,027)

414,950

Specialist
UK Motor Managing General Agency

 

 

 

 

 

 

XPT Group LLC

32.07

31.12.18

5,296,639

(1,861,261)

USA Specialty lines insurance distribution company

 

 

 

 

 

 

 

1Agri Services Company PTY Limited, Criterion Underwriting Pte Limited and Lilley Plummer Risks Limited are all newly incorporated companies.  Statutory accounts are not available as these are not yet due.

 

The Group's 35% equity investments in Bastion Reinsurance Brokerage (PTY) Limited and Bulwark Investment Holdings (PTY) Limited and its 42.5% equity investment in Property and Liability Underwriting Managers (PTY) Limited, all of which are based in South Africa, have not been listed above as they were in the process of being wound up as at 31st January 2020 and no recent financial information is available.

 

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 2018 (restated*)

88,506

Additions

-

Unrealised gains in this period (restated*)

10,708

At 31st January 2019 (restated*)

£ 99,214

 

 

At 1st February 2019 (restated*)

99,214

Additions

-

Unrealised gains in this period

10,590

At 31st January 2020

£ 109,804

 

 

At cost

 

 

 

At 1st February 2018

2,143

Additions

-

At 31st January 2019

£ 2,143

 

 

At 1st February 2019

2,143

Additions

-

At 31st January 2020

£ 2,143

 

*Restated for IFRS 16 (refer to Note 29)

 

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

2020

2020

Principal activity

 

 

£

£

 

 

 

 

 

 

B.P. Marsh &

  Company Limited

100

133,866,476

12,530,372

Consulting services and investment holding company

 

 

 

 

 

Marsh Insurance

  Holdings Limited

100

6,099,974

-

Investment

holding company - dormant

 

 

 

 

 

B.P. Marsh Asset

  Management Limited

100

1

-

Dormant

 

 

 

 

 

B.P. Marsh (North America)

  Limited*

100

(2,515,480)

3,335,313

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 £27,282,519 (2019: £27,327,910) are treated as capital contributions.

 

 

13.  NON-CURRENT INVESTMENTS - TREASURY PORTFOLIO

 

Group

 

 

 

 

 

2020

2019

At valuation

 

£'000

£'000

 

 

 

 

Market value at 1st February

 

14

2,756

Additions at cost

 

-

27

Disposals

 

(14)

(2,828)

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

 

-

59

Market value at 31st January

 

£ -

£ 14

 

 

 

 

Investment fund split:

 

 

 

 

 

 

 

GAM London Limited

 

-

2

Rathbone Investment Management Limited

 

-

12

Total

 

£ -

£ 14

 

All the treasury portfolio was disposed of during the year.

 

Investment management costs of £22 (2019: £4,125) 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 (2019: None).

 

 

15.  LOANS AND RECEIVABLES - NON-CURRENT

 

 

Group

 

Company

 

2020

2019

 

2020

2019

 

£'000

£'000

 

£'000

£'000

 

 

 

 

 

 

Loans to investee companies (Note 25)

16,211

14,509

 

-

-

Amounts owed by group undertakings

-

-

 

3,959

3,860

 

 

 

 

 

 

 

£ 16,211

£ 14,509

 

£ 3,959

£ 3,860

 

A provision of £69,154 (2019: £2,594,874) was made against loans to investee companies in the current year and therefore the total provision as at 31st January 2020 was £4,785,637 (2019: £4,716,483).

 

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

 

2020

2019

 

2020

2019

 

£'000

£'000

 

£'000

£'000

 

 

 

 

 

 

Trade receivables

574

631

 

-

-

Less provision for impairment of receivables

 

-

 

(13)

 

 

-

 

-

 

574

618

 

-

-

Loans to investee companies (Note 25)

2,635

376

 

-

-

Corporation tax repayable

248

299

 

-

-

Other receivables

15

38

 

-

-

Prepayments and accrued income

1,545

1,536

 

-

-

 

 

 

 

 

 

 

£ 5,017

£ 2,867

 

£ -

£ -

 

 

 

 

 

 

 

Included within net trade receivables is a gross amount of £426,497 (2019: £457,618) owed by the Group's participating interests, against which a provision for bad debts of £Nil has been made (2019: £13,254). 

 

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

 

2020

2019

 

2020

2019

 

£'000

£'000

 

£'000

£'000

 

 

 

 

 

 

Balance at 1st February

13

58

 

-

-

 

Decrease in allowance recognised in the Statement of Comprehensive Income

 

 

 

(13)

 

 

 

(45)

 

 

 

 

-

 

 

 

-

 

 

 

 

 

 

Balance at 31st January

£ -

£ 13

 

£ -

 

 

 

 

 

 

 

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 £573,900 (2019: £618,217), of which £220,036 (2019: £112,058) of debtors are past due at the reporting date for which the Group has not made a provision 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 £158,196 (2019: £85,979) 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

 

2020

2019

 

2020

2019

 

£'000

£'000

 

£'000

£'000

 

 

 

 

 

 

Not past due

354

506

 

-

-

Past due: 0 - 30 days

105

44

 

-

-

Past due: 31 - 60 days

22

1

 

-

-

Past due: more than 60 days

93

67

 

-

-

 

 

 

 

 

 

 

£ 574

£ 618

 

£ -

 

 

 

 

 

 

 

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 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

 

£ -

 

£ -

 

 

 

 

 

At 1st February 2019

 

-

 

-

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

 

 

-

 

 

-

Re-measurement upon change in tax rate

 

-

 

-

 

 

 

 

 

At 31st January 2020

 

£  -

 

£ -

 

 

 

 

 

 

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 (2019: £Nil) would become payable by the Group.

 

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 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 2020. 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.

 

A reduction in the UK corporation tax rate from 19% to 17% (effective 1st April 2020) was substantively enacted on 6th September 2016. The March 2020 Budget announced that a rate of 19% would continue to apply with effect from 1st April 2020, and this change was substantively enacted on 17th March 2020. This change in tax rate has had no material impact on the Group financial statements for the year ended 31st January 2020 as the directors do not consider there is any deferred tax due at the year end.

 

 

18.  CURRENT LIABILITIES

Group

 

Company

 

2020

2019

 

2020

2019

 

 

Restated*

 

 

 

 

£'000

£'000

 

£'000

£'000

Trade and other payables

 

 

 

 

 

Trade payables

79

73

 

-

-

Other taxation & social security costs

63

68

 

-

-

Accruals and deferred income

734

923

 

-

3

Lease liabilities (Note 21)

168

160

 

 

 

 

 

 

 

 

 

 

1,044

1,224

 

-

3

 

 

 

 

 

 

Corporation tax (Note 9)

-

48

 

-

48

 

 

 

 

 

 

 

£ 1,044

£ 1,272

 

£ -

£ 51

 

 

 

 

 

 

*Restated for IFRS 16 (refer to Note 29)

 

The corporation tax as at 31st January 2019 of £47,500 related 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") during that year 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).

 

All of the above liabilities are measured at amortised cost.

 

 

19.  CALLED UP SHARE CAPITAL

2020

2019

 

£'000

£'000

Allotted, called up and fully paid

 

 

37,466,000 Ordinary shares of 10p each (2019: 37,478,077)

3,747

3,748

 

 

 

 

£ 3,747

£ 3,748

 

During the year to 31st January 2019 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, during that year, 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 were 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 at that time, were also issued and allotted to the participants of the Company's Share Incentive Plan ("SIP").

 

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 £243,232 (2019: £79,310) in order to repurchase 87,780 (2019: 28,573) ordinary shares at an average price of 277 pence per share (2019: 278 pence per share). Distributable reserves were reduced by £243,232 (2019: £79,310) as a result during the year.

 

On 11th December 2019 12,077 ordinary shares in the Company were cancelled.  These shares were previously held in Treasury.  Following the cancellation, the total number of ordinary shares in issue reduced from 37,478,077 as at 31st January 2019 to 37,466,000 as at 31st January 2020.

 

As at 31st January 2020 a total of 85,058 ordinary shares were held by the Company in Treasury (31st January 2019: 28,573 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 Group's policy on the repurchase of ordinary shares 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 and place them into Treasury. The threshold was 20% until 11th October 2018 when 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

 

 

Share

 

 

Reverse

 

Capital

 

Capital

 

 

 

Share

premium

Fair value

acquisition

redemption

contribution

Retained

 

 

capital

account

reserve

reserve

reserve

reserve

earnings

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

At 1st February 2018 (restated*)

 

2,923

 

9,398

 

32,022

 

393

 

6

 

7

 

54,084

 

98,833

 

 

 

 

 

 

 

 

 

Comprehensive income

for the year

-

-

14,106

-

-

14

(1,679)

12,441

 

 

 

 

 

 

 

 

 

Dividends paid

(Note 7)

 

-

 

-

 

-

 

-

 

-

 

-

 

(1,714)

 

(1,714)

 

 

 

 

 

 

 

 

 

Issue of new shares

(Note 10)

825

19,944

-

-

-

-

(74)

20,695

 

 

 

 

 

 

 

 

 

Repurchase of

Company shares

(Note 19)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(79)

 

 

(79)

 

 

 

 

 

 

 

 

 

Share Incentive Plan

-

16

-

-

-

-

88

104

 

 

 

 

 

 

 

 

 

Shares issued to JSOP

Trust treated as Treasury shares (Note 10)

-

-

-

-

-

-

(4,106)

(4,106)

 

 

 

 

 

 

 

 

 

 

At 31st January 2019 (restated*)

 

£3,748

 

£29,358

 

£46,128

 

£ 393

 

£ 6 

 

£ 21

 

£46,520

 

£126,174

 

 

 

At 1st February 2019 (restated*)

 

3,748

 

29,358

 

46,128

 

393

 

6

 

21

 

46,520

 

126,174

 

 

 

 

 

 

 

 

 

Comprehensive income

for the year

-

-

11,570

-

-

-

960

12,530

 

 

 

 

 

 

 

 

 

Transfers on disposal of investments (Note 12)

-

-

(2)

-

-

-

2

-

 

 

 

 

 

 

 

 

 

Dividends paid

(Note 7)

 

-

 

-

 

-

 

-

 

-

 

-

 

(1,712)

 

(1,712)

 

 

 

 

 

 

 

 

 

Repurchase of

Company shares

(Note 19)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(243)

 

 

(243)

 

 

 

 

 

 

 

 

 

Cancellation of Company shares (Note 19)

(1)

-

-

-

1

-

-

-

 

 

 

 

 

 

 

 

 

Share Incentive Plan

-

9

-

-

-

21

91

121

 

 

 

 

 

 

 

 

 

 

At 31st January 2020

 

£3,747

 

£29,367

 

£57,696

 

£393 

 

£7 

 

£42 

 

£45,618

 

£136,870

 

 

* Restated for IFRS 16 (refer to Note 29)

 

Company

 

Share

 

Capital

Capital

 

 

 

Share

premium

Fair value

redemption

contribution

Retained

 

 

capital

account

reserve

reserve

reserve

earnings

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

At 1st February 2018 (restated*)

 

2,923

 

9,398

 

86,363

 

6

 

-

 

143 

 

98,833 

 

 

 

 

 

 

 

 

 

Comprehensive income for the year

-

-

10,708

 

-

 

-

1,747

12,455

 

 

 

 

 

 

 

 

Dividends paid

(Note 7)

 

-

 

-

 

-

 

-

 

-

 

(1,714)

 

(1,714)

 

 

 

 

 

 

 

 

Issue of new shares

(Note 10)

825

19,944

-

-

-

-

20,769

 

 

 

 

 

 

 

 

Repurchase of Company shares

(Note 19)

 

-

 

-

 

-

 

-

 

-

 

(79)

 

(79)

 

 

 

 

 

 

 

 

Share Incentive Plan

-

16

-

-

-

79

95

 

 

 

 

 

 

 

 

 

At 31st January 2019 (restated*)

 

£3,748

 

£29,358

 

£97,071

 

£ 6

 

£ -

 

£ 176

 

£130,359

 

 

 

 

 

 

 

 

 

 

 

At 1st February 2019 (restated*)

 

3,748

 

29,358

 

97,071

 

6

 

-

 

176 

 

130,359 

 

 

 

 

 

 

 

 

 

Comprehensive income for the year

-

-

10,590

 

-

 

-

1,962

12,552

 

 

 

 

 

 

 

 

Dividends paid

(Note 7)

 

-

 

-

 

-

 

-

 

-

 

(1,712)

 

(1,712)

 

 

 

 

 

 

 

 

Repurchase of Company shares

(Note 19)

 

-

 

-

 

-

 

-

 

-

 

(243)

 

(243)

 

 

 

 

 

 

 

 

Cancellation of Company shares

(Note 19)

(1)

-

-

1

-

-

-

 

 

 

 

 

 

 

 

Share Incentive Plan

-

9

-

-

-

89

98

 

 

 

 

 

 

 

 

 

At 31st January 2020

 

£3,747

 

£29,367

 

£107,661

 

£7

 

£ -

 

£272

 

£141,054

 

 

 

 

 

 

 

 

 

* Restated for IFRS 16 (refer to Note 29)

 

 

21.  LEASES

 

The Group has applied IFRS 16: Leases ("IFRS 16") using the retrospective approach.  The impact of the changes is disclosed in Note 29.  The revised accounting policies relating to the Group's leases following the adoption of IFRS 16 are set out in Note 1.

 

The Group has one operating lease, that of its main office premises.  Information about this lease, for which the Group is a lessee is presented below.

 

 

Right-of-use asset (Group)

 

 

 

Land and Buildings

 

 

£'000

 

 

 

At 1st February 2018 (restated*)

 

1,650

Depreciation charge (restated*)

 

(182)

 

 

 

At 31st January 2019 (restated*)

 

£ 1,468

 

 

 

At 1st February 2019 (restated*)

 

1,468

Depreciation charge

 

(182)

 

 

 

At 31st January 2020

 

£ 1,286

 

 

 

*Refer to Note 29

 

Lease liabilities (Group)

 

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

 

2020

2019

 

Land and

Land and

 

buildings

Buildings

 

 

Restated*

Maturity analysis - contractual undiscounted cash flows:

£'000

£'000

 

 

 

Earlier than one year

236

236

Between two and five years

945

945

More than five years

490

726

 

£ 1,671

£ 1,907

 

 

 

Lease liabilities included in Consolidated Statement of Financial Position

 

 

at 31st January:

£ 1,372

£ 1,532

 

 

 

Maturity analysis:

 

 

Current liabilities (Note 18)

168

160

Non-current liabilities

1,204

1,372

 

£ 1,372

£ 1,532

 

 

 

*Refer to Note 29

 

Amounts recognised in profit or loss (Group):

2020

2019

 

 

Restated*

 

£'000

£'000

 

 

 

Interest on lease liabilities (Note 3)

77

84

 

Amounts recognised in the Consolidated Statement of Cash Flows:

2020

2019

 

 

Restated*

 

£'000

£'000

 

 

 

Total cash outflow for leases

(236)

(236)

 

 

 

*Refer to Note 29

 

There are no right-of-use assets or associated lease liabilities recognised in the Company's Statement of Financial Position.

 

 

22.  LOAN AND EQUITY COMMITMENTS

 

As at 31st January 2020, the Group had no loan or equity commitments.

 

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.

 

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, political risk and covid-19 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 £787,000 (2019: £7,855,000), 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 0.6% p.a. in the period (2019: deposit rates of interest ranged up to 0.8% p.a.).  During the period maturity periods ranged between immediate access and 32 days (2019: maturity periods ranged between immediate access and 32 days).

 

Currency hedging

During the year the Group engaged in one currency hedging transaction amounting to €1,350,000 (2019: 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 £17,721 (2019: net gain of £10,519) 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 two currency hedging transactions amounting to €1,300,000 and USD 1,000,000 which were entered into on 30th January 2020.  The fair values of these hedges are not materially different to the transaction costs.

 

Financial liabilities

The Company had no borrowings as at 31st January 2020 (2019: £Nil), although it did have an undrawn loan facility in place for up to £3,000,000 provided by Brian Marsh Enterprises Limited, a company in which the Chairman, Brian Marsh, is a director and sole shareholder, which was entered into on 29th July 2019. The loan facility provides the Group with further liquidity at an interest rate of the higher of 4% or the UK 1-month LIBOR plus 3.25% (capped at 10%) and is available to be drawn down until 29th July 2021.

 

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 2020:

 

 

 

Level 1

Level 2

Level 3

Total

 

 

£'000

£'000

£'000

£'000

Assets

 

 

 

 

 

 

 

 

 

 

 

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

 

-

-

115,666

115,666

 

 

 

 

 

 

Treasury portfolio investments

 

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

-

-

£115,666

£ 115,666

 

The Group's classification of the financial instruments at fair value into the valuation hierarchy at 31st January 2019 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

 

-

-

101,947

101,947

 

 

 

 

 

 

Treasury portfolio investments

 

 

14

 

-

 

-

 

14

 

 

 

 

 

 

 

 

£14

-

£101,947

£ 101,961

 

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 2020 classified as Level 3, 84% by value (2019: 87%) were valued using a multiple of earnings and 16% (2019: 13%) 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 2020 was 14.1x (2019: 11.9x). The weighted average post discount Price/Earnings multiple used (based on the valuations derived) when valuing the portfolio at 31st January 2020 was 19.5x (2019: 13.3x).

 

If the multiple used to value each unquoted investment valued on an earnings basis as at 31st January 2020 moved by 10%, this would have an impact on the investment portfolio of £13.2m (2019: £10.4m) or 10% (2019: 10%).

 

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 2020 the proportion of the investment portfolio that was valued using these techniques were: 15% using industry metric (2019: 13%), 0% using revenues (2019: 1%), and 1% at cost (2019: 0%).

 

If the value of all the investments valued under alternative methodologies moved by 10%, this would have an impact on the investment portfolio of £1.7m (2019: £1.4m) or 1% (2019: 1%).

 

 

24.  SHARE BASED PAYMENT ARRANGEMENTS

 

Joint Share Ownership Plan

 

During the year to 31st January 2019, 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 2020

£21,413

 

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 during the year, however 167,465 jointly-owned shares were forfeited on the departure of an executive director.  However, the number of jointly-owned shares expected to vest has not been adjusted on the basis that these shares may be redistributed to other employees of the Company.  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 19,218 ordinary shares in the Company, which were held in Treasury as at 31st January 2019 (2019: 21,009 ordinary shares in the Company, which were either repurchased during that year or held in Treasury as at 31st January 2018) were transferred to the B.P. Marsh SIP Trust ("SIP Trust").  As a result, together with 14,112 unallocated shares issued to the SIP Trust during the year to 31st January 2019, a total of 33,330 (2019: 47,312) ordinary shares in the Company were available for allocation to the participants of the SIP.

 

On 13th June 2019, a total of 11 eligible employees (including 4 executive directors of the Company) applied for the 2019-20 SIP and were each granted 1,212 ordinary shares ("19-20 Free Shares"), representing approximately £3,600 at the price of issue. 

 

Additionally, on 13th June 2019, 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 (606 ordinary shares) and were therefore awarded 1,212 Matching Shares. 

 

The 19-20 Free and Matching Shares are subject to a 1 year forfeiture period.

 

A total of 33,330 (2019: 35,222) Free, Matching and Partnership Shares were granted to the 11 (2019: 11) eligible employees during the year, including 12,120 (2019: 12,808) granted to 4 executive directors of the Company.

 

Following the resignation of an executive director during the year, a total of 16,143 ordinary shares in the Company were withdrawn from the SIP Trust and transferred into the direct beneficial ownership of that director.

 

As at 31st January 2020 a total of 179,567 Free, Matching and Partnership Shares had been granted to 11 eligible employees under the SIP, including 74,268 granted to 4 executive directors of the Company.

 

£79,054 of the IFRS 2 charges (2019: £76,470) associated with the award of the SIP shares to 11 (2019: 11) 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:

 

 

2020

2019

 

£

£

 

 

 

Bastion Reinsurance Brokerage (PTY) Limited

425,831

425,831

Bulwark Investment Holdings (PTY) Limited

665,000

665,000

The Fiducia MGA Company Limited

2,470,000

2,470,000

LEBC Holdings Limited

1,000,000

-

Nexus Underwriting Management Limited

6,000,000

4,000,000

Paladin Holdings Limited

4,596,500

4,096,500

Property and Liability Underwriting Managers (PTY) Limited

 

1,450,778

 

1,450,778

Walsingham Holdings Limited

300,000

300,000

Walsingham Motor Insurance Limited

415,000

1,170,000

 

 

 

 

 

 

 

Summa Insurance Brokerage, S.L.

2,389,761

2,440,761

 

 

 

 

AUD

AUD

 

 

 

MB Prestige Holdings PTY Limited

555,010

838,959

 

 

 

 

CAD

CAD

 

 

 

Stewart Specialty Risk Underwriting Limited

450,000

450,000

 

 

 

 

USD

USD

 

 

 

Mark Edward Partners LLC

2,600,000

2,600,000

XPT Group LLC

2,000,000

-

 

 

 

 

SGD

SGD

 

 

 

Criterion Underwriting Pte Limited

120,000

-

 

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:

 

 

2020

2019

 

£

£

 

 

 

Agri Services Company PTY Limited

86,268

-

Asia Reinsurance Brokers Pte Limited

114,203

129,321

ATC Insurance Solutions PTY Limited

339,853

184,386

Criterion Underwriting Pte Limited

(7,899)

7,899

EC3 Brokers Group Limited

343,880

343,325

The Fiducia MGA Company Limited

185,701

163,075

LEBC Holdings Limited

1,272,119

1,463,787

Lilley Plummer Risks Limited

74,530

-

MB Prestige Holdings PTY Limited

186,019

178,010

Neutral Bay Investments Limited

116,640

124,302

Nexus Underwriting Management Limited

997,365

788,265

Paladin Holdings Limited

373,122

449,207

Stewart Specialty Risk Underwriting Limited

41,931

35,642

Summa Insurance Brokerage, S.L.

189,710

196,450

Walsingham Holdings Limited

24,000

17,293

Walsingham Motor Insurance Limited

144,234

137,727

XPT Group LLC

672,752

372,280

 

 

 

 

 

 

 

In addition, the Group made management charges of £34,300 (2019: £33,600) to the Marsh Christian Trust ("the Trust"), a grant making charitable Trust, of which Brian Marsh, the Executive Chairman and a significant shareholder of the Company, is also the Trustee and Settlor.

 

The Group also made management charges of £5,500 (2019: £1,300) to Brian Marsh Enterprises Limited.  Brian Marsh, the Chairman and a significant shareholder of the Company is also the Chairman and majority shareholder of Brian Marsh Enterprises Limited.

 

On 12th June 2019 Brian Marsh gifted 350,000 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 982,000 at that time.  As at 31st January 2020 and at the date of this report, the Trust's holding in the Company remained at 982,000 shares.

 

On 29th July 2019 the Group entered into a £3,000,000 loan facility provided by Brian Marsh Enterprises Limited, a company in which the Chairman, Brian Marsh, is a director and sole shareholder.  The loan facility provides the Group with further liquidity at an interest rate of the higher of 4% or the UK 1-month LIBOR plus 3.25% (capped at 10%) and is available to be drawn down until 29th July 2021.

 

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

 

Of the total dividend payments made during the year of £1,712,185, £757,055 was paid to the directors or parties related to them (2019: total dividend payments of £1,714,418, of which £828,318 was paid to the directors or parties related to them).

 

 

26.  EVENTS AFTER THE REPORTING DATE

 

On 12th February 2020 the Group drew down £300,000 of its £3,000,000 loan facility with Brian Marsh Enterprises Limited ("BME") to assist with its working capital requirements in advance of anticipated further investment into the existing investee company portfolio.  This draw down represented the first advance from the loan facility since its agreement in July 2019.  On 1st May 2020, following the repayment of an investee company loan (noted below), the Group repaid the £300,000 outstanding to BME.  As at 31st January 2020 the Group was debt free and, following the aforementioned drawdown and repayment, the Group remains debt free at the date of this report.

 

On 5th March 2020 the Group acquired 50,000 ordinary shares (5.5% equity stake) in Paladin Holdings Limited ("Paladin") from a minority shareholder and exiting employee for consideration of £260,000.  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 £5.226 per share (£261,300).  This acquisition increased the Group's equity holding in Paladin from 38.2% as at 31st January 2020 to 43.7% at the time of investment and as at the date of this report.

 

On 17th April 2020 the Group provided The Fiducia MGA Company Limited ("Fiducia") with a further loan facility of £75,000 which was drawn down immediately.  This facility was made available to assist with Fiducia's general working capital requirements and is in addition to an existing £2,470,000 loan facility provided in earlier years.  As at 31st January 2020 £2,470,000 of loans were outstanding and following the aforementioned drawdown total loans stand at £2,545,000 at the date of this report.

 

On 27th April 2020 the Group provided LEBC Holdings Limited ("LEBC") with a further loan facility of £1,000,000, of which £500,000 was drawn down on 1st May 2020.  This facility was made available to assist with LEBC's general working capital requirements and is in addition to an existing £1,000,000 loan facility provided to LEBC in February 2019 which was fully drawn down at that time.  As at 31st January 2020 £1,000,000 of loans were outstanding and following the aforementioned drawdown total loans stand at £1,500,000, with a remaining undrawn facility of £500,000 at the date of this report.

 

In addition, on 27th April 2020 an agreement was made between the Group and LEBC to restructure LEBC's Articles of Association which would provide the Group with a £25,000,000 preferred capital return on its equity shareholding in the event of any sale.

 

On 30th April 2020 Nexus Underwriting Management Limited ("Nexus") repaid its £2,000,000 revolving credit facility outstanding to the Group which was originally provided to Nexus in April 2019.  This £2,000,000 facility can be reborrowed up until the final repayment date of 31st December 2020.  As at 31st January 2020 total loans outstanding were £6,000,000 and following the aforementioned repayment reduced to £4,000,000, with a remaining undrawn facility of £2,000,000 at the date of this report.

 

On 22nd May 2020 the Group provided Paladin with a further loan facility of £500,000, of which £300,000 was drawn down immediately.  This facility was made available to finance a new team hire.  As at 31st January 2020 £4,596,500 of loans were outstanding and following the aforementioned drawdown total loans stand at £4,896,500, with a remaining undrawn facility of £200,000 at the date of this report.

 

 

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

 

2020

2019

 

2020

2019

 

 

 

 

 

Restated*

 

£'000

£'000

 

£'000

£'000

 

 

 

 

 

 

Fair value of investments - equity portfolio

 

115,666

 

101,947

 

 

109,804

 

99,214

 

 

 

 

 

 

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

 

 

11,567

 

 

 

10,195

 

 

 

 

10,980

 

 

9,921

 

 

 

 

 

 

*Restated for IFRS 16 (refer to Note 29)

 

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% (2019: 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 2020 the Group was debt free (31st January 2019: 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 2020, 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 £152,000 for the Group (2019: £139,000 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, 73% of the Group's net assets were sterling denominated (2019: 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 2020

 

Sterling

 

Euro

Australian dollar

 

US dollar

 

Other

 

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Net assets

99,734

8,132

12,919

12,463

3,622

136,870

 

 

 

 

 

 

 

Sensitivity analysis

 

 

 

 

 

 

Assuming a 10% movement of exchange rates against sterling

 

 

 

 

 

 

Impact on net assets

N/A

(640)

(1,174)

(1,065)

(329)

(3,208)

 

 

 

 

 

 

 

 

 

As at 31st January 2019 (restated*)

 

Sterling

 

Euro

Australian dollar

 

US dollar

 

Other

 

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Net assets

99,688

6,201

10,773

7,705

1,807

126,174

 

 

 

 

 

 

 

Sensitivity analysis

 

 

 

 

 

 

Assuming a 10% movement of exchange rates against sterling

 

 

 

 

 

 

Impact on net assets

N/A

(457)

(979)

(701)

(164)

(2,301)

 

 

 

 

 

 

 

*Restated for IFRS 16 (refer to Note 29)

 

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 Investment 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.

 

Covid-19 risk

 

The Group is exposed to the risks associated with the 2020 global coronavirus pandemic ("Covid-19").  Since the outbreak of the virus, the Board has been continually assessing the potential impact of Covid-19 on the Group and its underlying investments.  The Group has taken all the steps that it can to ensure that the health and safety of its staff, their families and the Group's associates is prioritised, whilst also ensuring the continuity of the Group's day to day operations through remote working arrangements.

 

 

28.   ULTIMATE CONTROLLING PARTY

 

The directors consider there to be no ultimate controlling party.

 

 

29.   PRIOR YEAR RESTATEMENT

 

As detailed in Note 1 to the financial statements, IFRS 16: Leases ("IFRS 16") was adopted for the first time in this year.

 

The primary changes to the Group's Statement of Comprehensive Income within these consolidated financial statements are as follows:

 

a)  The Group is no longer recognising rental costs associated with the operating lease on its office premises within its operating expenses.  Instead, these rental costs are recognised as an effective repayment of the lease liability included within the Consolidated Statement of Financial Position.

 

b)  The Group is now recognising an amortisation charge on the right-of-use asset which is included within its operating expenses in the Consolidated Statement of Comprehensive Income.

 

c)  The Group is now recognising an interest charge calculated on the lease liability which is included under Financial Expenses within the Consolidated Statement of Comprehensive Income.

 

Refer to Note 21 'Leases' for further details relating to the Group's recognition of the right-of-use asset and the associated lease liability.

 

The prior year adjustments necessary for the adoption of the new IFRS 16 for the Group are detailed below:

 

Group Reconciliation of equity

at 31st January 2018

 

 

 

 

 

 

 

 

Consolidated Statement of Financial Position as previously reported

 

Effect of transition to IFRS 16

 

Restated Consolidated Statement of Financial Position

 

 

£'000

 

£'000

 

£'000

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-CURRENT ASSETS

 

 

 

 

 

 

Property, plant and equipment

 

167

 

-

 

167

Right-of-use asset

 

-

 

1,650

 

1,650

Investments - equity portfolio

 

79,122

 

-

 

79,122

Investments