RNS Number:9973P
Benfield Group Limited
13 March 2008
13 March 2008
BENFIELD GROUP LIMITED
Preliminary results for the year ended 31 December 2007
Benfield Group Limited ("Benfield" or "the Group"), the world's leading
independent reinsurance and risk intermediary, today announces its preliminary
results for the year ended 31 December 2007.
Financial Summary
* Group revenue �339.2m (2006: �355.3m) - at constant rates of exchange
(1) revenue increased by 0.2%
* Group trading result(2) �69.3m (2006: �74.9m) - at constant rates of
exchange(1) the trading result increased by 6.3%
* Weak US dollar adversely impacted reported revenue by �16.9m and
reported trading result by �10.3m
* Group trading margin(3) 20.4% (2006: 21.1%) - at constant rates of
exchange(1) the trading margin increased to 22.4%
* Profit before tax �50.9m (2006: �53.0m)
* Profit for the financial year �36.8m (2006: �38.4m)
* Basic earnings per share 17.0p (2006: 17.2p)
* Diluted earnings per share maintained at 15.9p
* The Group returned �55.5m of cash to common shareholders in 2007
(2006: �78.3m)
* Final dividend of 9p per share (2006: 8p) brings total dividend to 13p
(2006: 12p) an increase of 8%
(1) Constant rates of exchange assume conversion of 2007 results at the exchange
rates achieved in 2006.
(2) Trading result comprises operating profit from continuing operations before
goodwill impairment, amortisation of intangible assets, depreciation of
property, plant and equipment and exceptional items.
(3) Trading margin represents trading result as a percentage of revenue.
Highlights
* Continued growth in revenue and trading result on constant currency
basis despite adverse market conditions
* Further expansion of global ReMetrics and capital markets capabilities
* Significant revenue growth from Benfield Corporate Risk
* Costs reduced by 3.8% - at constant rates of exchange(1) costs
reduced by 0.8%
* Initiation of further cost saving programme in 2008 with targeted
annualised savings of �15m
Grahame Chilton, Chief Executive of Benfield, commented, "The business faced
considerable headwinds in 2007 including adverse currency trends and the
softening reinsurance market. Nevertheless, we continued to deliver growth in
revenue and trading profit on a constant currency basis. We further strengthened
the unique mix of reinsurance knowledge, capital markets expertise and market
leading analytics which is at the heart of Benfield's franchise. We remain
committed to delivering value to shareholders through our long-term goal of
growth across cycles and I am confident of the Group's prospects for future
progress."
Trading results
2007 Growth
constant constant
currency* currency*
2007 �m 2006 Growth %
�m �m %
Revenue
International 171.1 174.6 180.6 -5.3% -3.3%
US 131.4 141.8 141.3 -7.0% +0.4%
Benfield Corporate Risk 26.3 28.4 18.2 +44.5% +56.0%
Corporate Investment Group 9.1 9.9 13.6 -33.1% -27.2%
Group Services 1.3 1.4 1.6 -18.8% -12.5%
Group revenue 339.2 356.1 355.3 -4.5% +0.2%
Trading result
International 37.1 39.6 39.3 -5.6% +0.8%
US 48.4 53.5 55.2 -12.3% -3.1%
Benfield Corporate Risk (11.0) (9.4) (17.2) +36.0% +45.3%
Corporate Investment Group (1.3) (1.4) 2.4 -154.2% -158.3%
Group Services (3.9) (2.7) (4.8) +18.8% +43.8%
Group trading result 69.3 79.6 74.9 -7.5% +6.3%
Trading margin
International 21.7% 22.7% 21.8% -0.1 pts +0.9 pts
US 36.8% 37.7% 39.1% -2.3 pts -1.4 pts
Group trading margin 20.4% 22.4% 21.1% -0.7pts +1.3pts
Earnings per share - basic 17.0p 17.2p
- diluted 15.9p 15.9p
*Constant currency assumes conversion of the 2007 results using the foreign
exchange rates achieved in 2006.
Contacts:
Grahame Chilton, Chief Executive Benfield +44 (0) 20 7578 7000
John Whiter, Chief Financial Officer Benfield +44 (0) 20 7578 7000
Analysts & Investors
Julianne Jessup Benfield +44 (0) 20 7578 7425
Rob Bailhache Financial Dynamics +44 (0) 20 7269 7200
Media
David Bogg Benfield +44 (0) 20 7522 4016
Peter Rigby/David Haggie Haggie Financial +44 (0) 20 7417 8989
Benfield is the world's leading specialist reinsurance and risk intermediary.
Its customers include many of the world's major insurance and reinsurance
companies as well as government entities and global corporations. Benfield
operates from 49 locations worldwide. Benfield is listed on the London Stock
Exchange under the ticker symbol BFD. www.benfieldgroup.com.
BUSINESS REVIEW
In 2007, the wind didn't blow, the earth didn't shake and global financial
markets were in turmoil. Benfield has not been directly affected by the global
credit crunch, nevertheless we find ourselves in the midst of an unusual
combination of adverse trends which could be described as swimming against the
tide in heavy weather. The nature of our business leads us to expect that we
will encounter squalls as well as calm seas as we pursue our long-term goal of
growth across cycles. The difficult trading conditions of 2007 are likely to
continue in the short-term and consequently, absent significant improvement in
market conditions, we anticipate the 2008 trading result will be marginally
below that for 2007. But tides turn and despite the current headwinds, we are
seeing the first signs of improvement.
Benfield's aim is to lead the market in complex risk solutions through
innovation, expertise and excellence and we are committed to working in
partnership with our customers to make them more successful. Every year presents
challenges to our business and those of our customers, and together we rise to
those challenges. 2007 was no exception and the issues highlighted at the
interim stage, particularly the adverse effect of the strength of sterling and
softening reinsurance rates, had a considerable impact on reported results.
Nevertheless, we continued to deliver growth in revenue and trading profit on a
constant currency basis. We further strengthened the unique combination of
reinsurance knowledge, capital markets expertise and market leading modelling
and analytical capabilities which is at the heart of Benfield's franchise. Most
importantly, we continued to add value to existing and new customers alike, as
evidenced by the steady growth in market share which we have achieved over the
last five years.
An accelerating decline in pricing and increased retention of risk in both the
insurance and reinsurance markets reduced overall premium and thus the brokerage
available to intermediaries. Based on Benfield's portfolio of property
catastrophe reinsurance contracts, average rates fell in every territory in 2007
and property catastrophe rates in many territories outside the US have declined
by in excess of 20% on a risk adjusted basis since 2005.
The softening property catastrophe market reflects a second benign year for
insured natural catastrophe losses and a plentiful supply of traditional
reinsurance and capital markets capacity. Benfield's financial results are
sensitive to trends in the property catastrophe market since this business line
accounts for approximately 60% of Group revenue. As previously reported,
regulatory changes in the Florida property catastrophe reinsurance market in the
early part of 2007 also had an adverse impact on the revenue of our broking
operations. Reinsurance pricing in most other segments such as casualty and
specialty lines continued to fall during 2007, as did primary rates in most
sectors including the marine, energy and power markets targeted by Benfield
Corporate Risk (BCR).
While lower reinsurance pricing typically stimulates increased volume of
reinsurance purchase, it is too early in the cycle for this to occur and it was
not evident in buyer behaviour during 2007. Many of the insurers and reinsurers
in Benfield's global customer base continued to report strong underwriting
results and they took advantage of their healthy balance sheets to retain more
risk rather than buy additional reinsurance protection. Our superior analytics,
creativity and customer focus again contributed to significant new wins in many
business segments during the year, some of which are described in more detail in
the divisional commentaries below.
One of the most dynamic features of our marketplace is the continued expansion
of the reinsurance/capital markets interface. The sub-prime crisis and
subsequent credit crunch had limited direct impact on the reinsurance market
during the year. Its full impact is yet to emerge but the crisis appears to
have had little effect on the appetite of the capital markets for reinsurance
risk, which continued to grow throughout 2007. In fact, the sub-prime crisis
appeared to confirm to investors the attraction of uncorrelated reinsurance risk
within an investment portfolio. During the year, investor interest in insurance
linked securities broadened further as insurance risk gained wider acceptance as
an asset class. By the same token, reinsurance buyers became increasingly
comfortable with these new forms of capacity and the growth in the number of
reinsurance-related capital markets transactions such as catastrophe bonds
continued.
The negative impact of the strength of sterling relative to the US dollar on the
reported revenue and trading result of the Group since the Initial Public
Offering (IPO) in 2003 has been significant. The US dollar has weakened over a
period of five years from US$1.60 at the beginning of 2003 to US$2.00 at the end
of 2007 while on a constant currency basis the Group has maintained growth in
total revenue every year. Reported revenue in 2007 was approximately �45m less
than it would have been had exchange rates remained constant over this five year
period.
On a constant currency basis, Group revenue increased by 0.2% and the trading
result improved by 6.3%. When compared to 2006, the strength of sterling
adversely impacted reported revenue by nearly �17m and the reported trading
result by over �10m. Consequently, reported revenue for 2007 fell by �16.1m to
�339.2m, reported trading result reduced from �74.9m to �69.3m and trading
margin reduced from 21.1% to 20.4%.
The Group is constantly looking to deliver value to customers and to lead the
market with original solutions. As part of this process, the Group recognises
that the business needs to grow and evolve. In this regard with effect from 2
June 2008, Paul Karon, Chief Executive Officer of the Group's US Division, will
be appointed Chairman of the US Division and Rob Bredahl will take his place as
Chief Executive Officer.
Paul has been Chief Executive Officer of the US Division since 2005 and during
this time the US operations have generated significant growth for the Group in
terms of revenue, profit and market share. In his new role Paul will focus on
key customer relationships and corporate strategy. He will also continue to
provide the US operation with strategic guidance as Chairman and will remain as
a valued member of the Group's Board of Directors.
Rob has already amply demonstrated his leadership skills, working closely with
Paul over the last three years to drive US strategy and leading Benfield
Advisory's successful expansion. In order to focus on his new role as Chief
Executive Officer of the US Division and leader of Benfield Advisory, Rob has
decided to step down as a Group Board Director. While the Board will miss his
contribution, the move will enable him to maximise his continuing contribution
to the success of the US business.
During the year, we continued to make progress towards our strategic objectives:
Generating earnings growth across the (re)insurance cycle through growth in
market share
Benfield creates innovative solutions which make our customers more successful,
by combining our expertise in reinsurance and capital markets with market
leading risk and financial modelling. The value created for existing and new
customers alike has resulted in consistent growth in Benfield's share of the
intermediated reinsurance market since the IPO in 2003.
Optimising margins through a focus on high value-added, customer driven business
together with robust cost control
During 2007 Benfield continued to invest in its specialist capabilities in order
to strengthen further the ability of the business to retain and win high value,
high margin business in its targeted sectors. Greater emphasis was also placed
on maximising the benefit of synergies between different specialist areas to
deliver innovative solutions.
For example, BCR was appointed as broker to several major shipping fleets
through the innovative application of Benfield's proprietary ReMetrica software
to assist such businesses with financial and risk modelling. The reinsurance
broking business was again successful in targeting prospects among the largest
insurers in the world, particularly in the UK and the US, where Benfield further
consolidated its strong position in the Florida market.
Against the backdrop of difficult market conditions and mindful of our strategic
goal of optimising margins, the Board continues to review the cost structure of
the business and seek further opportunities for cost efficiency. It has also
considered measures to reduce the mismatch between the Group's predominantly
dollar revenue and its non-dollar expenses.
The roll-out of GRiDS Global, our innovative business processing platform,
continued through 2007 and was implemented for all UK processed business. The
roll-out to the rest of the world will continue through 2008, enabling a more
efficient use of administrative resource.
During 2007, we completed the transfer of administration of all 'run-off' or
non-live reinsurance accounts to Paragon, our reinsurance administration and
asset recovery services company based in Minneapolis. This led to cost savings
and has meant that the on-going costs of administering run-off business will now
be incurred in dollars rather than sterling.
A number of cost control initiatives were undertaken in 2007, including a
redundancy and restructuring programme predominantly in the International
Division, which will generate annual savings from 2008 of �5.5m. Additional
controls were imposed on the area of travel and entertaining in 2007, which
resulted in expense reductions of over 5% on a constant currency basis.
In the current market climate, we are focused more than ever on maintaining the
balance between stringent cost control and a consistently high standard of
service to our customers. The Board continues to review employment costs and
the appropriate location and resourcing of support services. During 2008, the
Group is targeting additional annualised savings of �15.0m from a wider
restructuring programme, further travel and entertaining expense economies and a
more efficient procurement of services. The Group is also exploring a number of
strategies to secure longer-term cost benefits.
Attracting and retaining the best people in the industry
The quality of our people and their technical expertise is a valuable
competitive differentiator for Benfield. During 2007, we extended the scope of
our training and development to encompass increasing focus on technical
training, including capital markets specialist training for brokers. We have an
industry recognised, leading edge technical training programme in reinsurance
broking in the US and we will be rolling this out across the Group as a global
standard.
As an equal opportunities employer, we understand the value of having a diverse
workforce. During the year, the People Advisory and Development team developed a
number of initiatives to raise the awareness of the value of diversity within
the business, encourage a more diverse range of applicants through our graduate
recruitment schemes and ensure that all employees have equal opportunities to
progress and develop at Benfield.
These initiatives include partnering with a major reinsurer in the US to sponsor
a forum for women in insurance and developing our graduate recruitment programme
to attract applications from a more representative group than that which has
traditionally applied.
In March 2008 we relaunched our corporate values as One Team with an
Enterprising Spirit and a Passion to Deliver. The unique Benfield culture
encapsulated in these values makes Benfield a sought after place to work. This
is reflected in the loyalty of our Team Members. Among the Group's senior Team
Members the average length of service is 12 years, and many employees have
service records of 15 years or more with the Group. In 2007, Benfield was placed
for the seventh consecutive year in the UK's Sunday Times "Top 100 Companies to
Work For" survey.
Making optimum use of surplus cash to enhance earnings per share
Benfield is a cash generative business and we are committed to returning surplus
capital to shareholders when it cannot be more effectively invested within the
business. In April 2007, we completed the �75m share buy-back programme
announced in June 2006. Following a review of the Group's capital structure and
of potential future industry investment opportunities, the Board announced in
December 2007 a new �300m debt facility. The purpose of the facility is to fund
a third buy-back programme since the IPO in June 2003 to repurchase up to �150m
of shares, to refinance the existing debt and meet the prospective capital
requirements of the Group.
As at 11 March 2008 10,610,657 shares had been repurchased at a cost of �29.0m.
Cash returned to shareholders by way of dividend and share buy-back is in excess
of �250m since the Initial Public Offering. The Board remains committed to
continuing to review the use of surplus cash, including the further use of debt
for share buy-backs where this offers the best available return.
Leading change and innovation
We have been investing in our capabilities in the reinsurance related capital
markets area since Benfield Advisory was established over ten years ago.
Benfield Advisory has been at the forefront of capital raising and innovation in
the reinsurance industry and has led many of the new developments which have
facilitated the greater direct participation of investors in providing
contingent capital to the insurance and reinsurance market. It is also a core
part of Benfield's overall relationship with our customers, enabling us to
bridge the gap between traditional reinsurance solutions and capital markets
alternatives by offering sector expertise combined with execution capability.
The importance of Benfield Advisory's capital markets expertise in adding value
for our customers has never been greater and during the year, we invested
further in these capabilities by creating a separate Capital Markets operation
within Benfield Advisory. The new team acts as Benfield's 'centre of
excellence' for all forms of non-traditional risk transfer solutions including
sidecars, catastrophe bonds, industry loss warranties (ILWs), collateralised
reinsurance, derivatives and other index linked securities.
In order to facilitate cooperation between the broking teams and Benfield
Advisory, during the year we created a dedicated Structured Products team within
the reinsurance broking business. This team, which focuses on non-traditional
reinsurance and risk solutions, provides a centre of expertise for the broking
teams in these specialist areas and provides a seamless link between Benfield's
reinsurance customers and the specialist capabilities of the Capital Markets
operation. This was an important aspect of many reinsurance transactions during
2007, particularly for retrocession business, and contributed to several major
new business wins.
For example, Benfield placed a major risk transfer programme for the recently
created Caribbean Catastrophe Risk Insurance Facility in June 2007, using a
combination of traditional excess of loss reinsurance and a funded catastrophe
swap agreement which transfers part of the risk to the capital markets. This
unique solution was achieved through close cooperation between the International
Division and Benfield Advisory.
Investment also continued in the specialist capabilities of the reinsurance
broking businesses. For example, during 2007, the US Division built on its
leading position in catastrophe and risk modelling through the expansion of
Benfield's ReMetrics capabilities. The US ReMetrics team benefited from an
investment in the hiring and training of a group of new specialists in the areas
of actuarial, catastrophe modelling and enterprise risk management. The previous
year's focus on research and development was reflected in the launch of several
new or upgraded risk modelling and mapping products. For example, a new version
of ExposureViewTM, Benfield's proprietary risk mapping software, was released
in September 2007. This software now has almost 700 users at over 90 Benfield
customers worldwide.
During 2007 Benfield also became the first reinsurance intermediary to enable
insurers to model individual risks with the launch of Single Risk ModellingTM
software which, through an agreement with AIR Worldwide Corporation, a leading
provider of catastrophe risk models, provides single risk catastrophe modelling
services for underwriters in the US.
FINANCIAL REVIEW
Group
2007 Growth
constant constant
currency currency
2007 2006 Growth
�m �m �m % %
Revenue 339.2 355.3 356.1 -4.5% +0.2%
Trading result 69.3 74.9 79.6 -7.5% +6.3%
Trading margin 20.4% 21.1% 22.4% - -
Group revenue decreased from �355.3m in 2006 to �339.2m in 2007. Group trading
result decreased from �74.9m in 2006 to �69.3m in 2007, and the overall trading
margin reduced from 21.1% to 20.4%.
The movement in foreign exchange rates had a significant effect on the 2007
revenue and trading result, reducing them by �16.9m and �10.3m respectively.
Despite the softening reinsurance rates and the strengthening of sterling
relative to the US dollar, Group revenue increased by 0.2% on a constant
currency basis. The performance of each Division is discussed below. Given the
slowdown of revenue growth, the Group took steps during 2007 to control costs
and achieved a 3.8% decrease (0.8% decrease on a constant currency basis) in
general and administrative expenses.
2007 2006 Growth Growth
�m �m % Constant
Currency
%
General and administrative expenses(i)
Staff costs 194.3 200.4 -3.0% +0.2%
Travel and entertaining 19.6 21.4 -8.4% -5.1%
Premises 17.0 19.1 -11.0% -8.4%
Other 42.1 43.0 -2.1% 0.0%
Total 273.0 283.9 -3.8% -0.8%
(i) Excluding exceptional items
Staff costs were broadly maintained at 2006 levels on a constant currency basis.
Increases from hiring in the US and the full year costs in BCR Oslo (trading
as Parisco AS) following its acquisition in 2006 were offset by a number of cost
saving initiatives during the year. This included a programme of redundancies,
particularly within the International Division, control over the general level
of hiring and the level of employment costs. Further economies are anticipated
in 2008, whilst bearing in mind the competitive pressures for intellectual
capital.
The level of travel and entertaining costs was also the focus of attention
during 2007 and showed a decrease of 5.1% on a constant currency basis, despite
the continuing growth of business in BCR. Further savings are anticipated in
2008 through more efficient procurement of travel and entertaining. Premises
costs, which reduced by 8.4% on a constant currency basis, benefited in 2007
from the action taken in 2006 to transfer the US head office to Minneapolis.
Earnings per share
Basic earnings per share decreased from 17.2p for the year ended 31 December
2006 to 17.0p per share for the year ended 31 December 2007, which reflects the
decrease in profit after taxation. The impact of the decrease in earnings has
been largely offset by a reduction in the number of shares outstanding as a
result of the recent share buy-back programmes noted above. Diluted earnings
per share remained constant at 15.9p for the year. In the year ended 31
December 2007, the Group had 246.2m common shares in issue on average for the
purpose of the calculation of fully diluted earnings per share (2006: 257.7m).
Dividends
The Board has proposed a final dividend of 9.0 p per common share (2006: 8.0p)
which, together with the interim dividend of 4.0p per common share (2006: 4.0p),
makes a total dividend for the year of 13.0 p per common share (2006: 12.0p), an
increase of 8.3%.
Divisional review
International Division
2007 Growth
constant constant
currency currency
2007 2006 Growth
�m �m �m % %
Revenue 171.1 180.6 174.6 -5.3% -3.3%
Trading result 37.1 39.3 39.6 -5.6% +0.8%
Trading margin 21.7% 21.8% 22.7% - -
International Division revenue decreased by 5.3% to �171.1m for the year ended
31 December 2007 from �180.6m for the year ended 31 December 2006. At constant
rates of exchange, revenue decreased by 3.3% and the International Division
acted to control the impact on the trading result by reducing costs. A
redundancy programme, together with stricter control over travel and
entertaining expenditure and employment costs, meant that costs were reduced
such that, on a constant currency basis, the Division achieved a creditable 0.8%
increase in trading result. The reported trading result for the year ended 31
December 2007 decreased to �37.1m from �39.3m for the year ended 31 December
2006, a decrease of 5.6%. The trading margin fell from 21.8% to 21.7%.
The International Division result reflects continued softening of the global
reinsurance market in both property and casualty lines. In most of the
territories covered by the Division, reinsurance rates again fell by between 5%
and 20% and many cedants sought to capitalise on strong balance sheets by
retaining more risk. The expansion of the Florida Hurricane Catastrophe Fund,
which reduced demand for retrocession cover from catastrophe reinsurers,
together with increased retentions, had a knock-on effect on global retrocession
purchase. This, together with the impact of the continued shrinkage in global
aviation reinsurance premium (which Benfield estimates is a quarter of what it
was five years ago), contributed to a 15% fall in the revenue of Global
Specialty. Increased retentions also had an adverse impact on casualty revenue
although growth in new business and market share continued in 2007.
As anticipated, the overall volume of global facultative premium was lower
during 2007 than in 2006, particularly for catastrophe exposed risks. This
reflects softer market conditions and reduced demand for facultative solutions
as a result of the greater availability of mainstream treaty capacity. However,
the restructured Global Facultative operation performed well, generating an
improved margin and new business growth, particularly in energy and retrocession
business and in the Latin American and European regions.
The reduction in revenue masks the continued success of the Division in winning
new business. The Europe team was successful across the region in increasing
revenue in a difficult market by winning new business. For example, Benfield
was appointed as reinsurance broker to one of the largest UK insurers and
provided substantial additional aggregate excess of loss reinsurance to UK
customers which helped to mitigate their exposure to the record flood losses
during the year. Benfield won significant new business in Scandinavia and was
also reappointed as lead broker to the Norwegian Natural Perils Pool. The
Division continued to build on its strength in the French, Benelux and Central
European markets with the development of a new life reinsurance business stream
in Paris and further growth in the Russian market. Market share increased in
Switzerland, although progress in Germany was again held back because of the
slow pace of change in the market structure.
Benfield maintained its market share in the mature markets of Japan and
Australia, which were exceptions in remaining relatively stable in the fiercely
competitive Asian market, where reinsurance rates in many territories showed
double digit falls in 2007. Benfield continued to invest in developing markets
in this region. During the year the Group's operation in China continued to
grow and the Division made good progress in building Benfield's presence in the
Indian market in both property and casualty.
Continued success in selling ReMetricaTM, Benfield's proprietary risk modelling
software, also contributed to new business growth. As reported at the half
year, a notable achievement in 2007 was a five year agreement to provide an
extensive range of risk modelling and consulting services to Lloyd's and to
syndicates within the Lloyd's market. Under the terms of the agreement,
Lloyd's licensed Benfield's award-winning DFA modelling tool ReMetrica
Professional EditionTM for its own regulatory capital modelling requirements and
access to Benfield's consulting, natural peril and financial modelling expertise
and licences for ReMetricaTM and ReMetrica Limited EditionTM. Benfield now
licenses ReMetricaTM to more than 80 customers and provides access to more than
500 users worldwide.
US Division
2007 Growth
constant constant
currency currency
2007 2006 Growth
�m �m �m % %
Revenue 131.4 141.3 141.8 -7.0% +0.4%
Trading result 48.4 55.2 53.5 -12.3% -3.1%
Trading margin 36.8% 39.1% 37.7% - -
The US Division revenue decreased by 7.0% to �131.4m for the year ended 31
December 2007 from �141.3m for the year ended 31 December 2006. The significant
impact of the strength of sterling was particularly felt in the US Division as
at constant rates of exchange revenue increased by 0.4%.
The US Division trading result decreased by 12.3% to �48.4m for the year ended
31 December 2007 from �55.2m for the year ended 31 December 2006, but decreased
by 3.1% on a constant currency basis. The trading margin decreased from 39.1% to
36.8%. The US Division continued to invest in research and development and
further strengthened the US membership of the global ReMetrics team. This
further investment in intellectual capital and analytics contributed to the
margin reduction for the US Division.
As highlighted in the interim report, the US Division's result should be viewed
in the context of the exceptionally strong performance of 2006, immediately
following the record hurricane losses of 2005. The unusually benign hurricane
seasons of 2006 and 2007 have accelerated the reinsurance market's recovery from
these losses and Benfield estimates that US property catastrophe rates have
fallen by approximately 25% in the period since the June 2006 renewals. In
Florida, a substantial proportion of private market property catastrophe
capacity was replaced by the enlarged Florida Hurricane Catastrophe Fund (FHCF)
in the first quarter of 2007. As expected, this had an adverse impact on
Benfield's US broking revenue, although demand for peak wind catastrophe
coverage outside the limits provided by the FHCF remained buoyant and
catastrophe reinsurance purchases for Florida exposures were stronger than
previously anticipated. The US Division was again successful in winning
significant new catastrophe business from large nationwide buyers with peak
exposures.
As well as launching new and upgraded property risk modelling and mapping
products during the year, the Division continued to develop its casualty and
specialty capabilities. New products launched in workers' compensation and
directors' and officers' liability contributed to new business development. For
example, an innovative workers' compensation reinsurance structure called
BobCatTM was introduced at January 2008 renewals, designed to allow faster
settlement and reduce counterparty credit risk.
The broking operations continued to work closely with Benfield Advisory to
provide capital markets solutions where appropriate. The combination of
Benfield's broking expertise, modelling and analysis with Benfield Advisory's
capital markets capabilities again proved a powerful differentiator, which
helped Benfield retain its leading intermediary position in the Florida market
and generated additional business from both new and existing customers.
Benfield Advisory had another successful year with revenue for 2007 maintained
at just over �10.0m. The team advised on a number of significant transactions
including the sale of Praetorian Financial Group to QBE and the creation of
Starbound II, a US$342m sidecar for Renaissance Re. Among other activities
during the year, the Advisory business also raised �90m capital on behalf of a
new Lloyd's syndicate and arranged more than US$2bn in collateralised
reinsurance, as well as working closely with the broking teams to assist in
providing customers with a range of capital markets solutions. For example,
Benfield Advisory arranged a catastrophe risk swap as part of the risk transfer
programme for the newly created Caribbean Catastrophe Risk Insurance Facility
placed by Benfield's International Division in May 2007.
Benfield Corporate Risk Division
2007 Growth
constant constant
currency currency
2007 2006 Growth
�m �m �m % %
Revenue 26.3 18.2 28.4 +44.5% +56.0%
Trading result (11.0) (17.2) (9.4) +36.0% +45.3%
Trading margin -41.8% -94.5% -33.1% - -
Revenue in the BCR Division increased by 44.5% from �18.2m for the year ended 31
December 2006 to �26.3m for the year ended 31 December 2007. On a constant
currency basis revenue increased by 56.0%. This contributed to a reduction in
the trading loss for the period to �11.0m from �17.2m in 2006, an improvement of
�6.2m (�7.8m improvement on a constant currency basis).
The increase in costs over last year represents the full year run rate of
infrastructure and staff hired in 2006. The operational platform for BCR is now
complete.
During 2007, BCR worked closely with several of the Group's reinsurance
operations, particularly Benfield ReMetrics and the Global Facultative Solutions
and Marine teams. These relationships led to many instances of new business in
2007 and offer considerable potential for development in the future. BCR's
strategy of targeted acquisitions in specialist areas proved successful and the
business also continued to develop relationships with local partners rather than
invest directly, where appropriate.
2007 saw the full integration of BCR Oslo (trading as Parisco AS), the Norwegian
marine and energy business acquired in September 2006. It made a strong
contribution to BCR's continued growth in marine and energy business, performing
ahead of plan. In November 2007, BCR acquired the business of Canadian energy
specialists Beaufort International Insurance, Inc. and Beaufort Insurance
Services, Inc. Based in Calgary, Canada, they provide specialist insurance
broking services to companies operating in the oil and gas exploration and oil
sands industries throughout Western Canada. These businesses have been combined
with BCR's Calgary office and have greatly enhanced BCR's scope for growth in
the important Canadian oil sands market and created further opportunities for
BCR's Aviation team.
All areas of the business, especially aviation and property, were affected by
softening rates and the weaker US dollar during 2007. Revenue from the MEP
business more than doubled, reflecting strong new business growth as well as a
high level of retention of existing accounts and a particularly strong
performance in the large shipping fleets and emerging oil exploration and
production sectors. BCR's Houston energy and environmental business almost
doubled its revenue in 2007 with some substantial new global energy customers.
Business in this market is very competitive and the BCR brand is now established
as a viable alternative to the larger and regional brokers.
The North American marine business had another very good year, most notably with
two major appointments from global shipping lines which were won by using the
financial modelling capabilities of Benfield ReMetrics as a differentiator. This
capability creates further opportunities from BCR customers and prospects with
large shipping fleets.
Benfield's space business, trading as International Space Brokers (ISB),
reinforced its market leading position by securing insurance contracts for
launches through to 2010. The recognition of revenue in this sector is
dependent on the timing of satellite launches and in 2007 revenue was below
expectations due to two delayed launches, although this revenue is expected to
be recognised in 2008. During the year ISB continued to develop its
international customer portfolio, including working more closely with BCR's
Seoul office to break into the Korean space market.
Revenue from the Property & Casualty Corporate Insurance operation reduced,
reflecting softening market conditions and the loss of a major customer as a
result of merger activity.
The Aviation Insurance operation increased revenue by more than 50% as it
continued to benefit from synergies with energy industry logistics, and a small
number of staff were hired in Canada to exploit local opportunities
complementing the acquisition of the Beaufort businesses.
In only its second full year of operation, BCR continues to build a strong
franchise and revenue base in its target markets and to differentiate its
business offering by exploiting synergies with the analytical support provided
by Benfield's reinsurance business. We remain confident that BCR will be a
profitable source of further growth for the Group.
Corporate Investment Group Division
2007 2006 2007 Growth Growth
constant constant
currency currency
�m �m �m % %
Revenue 9.1 13.6 9.9 -33.1% -27.2%
Trading result (1.3) 2.4 (1.4) -154.2% -158.3%
Trading margin -14.3% 17.6% -14.1% - -
The role of the Corporate Investment Group (CIG) is to manage the Group's
portfolio of non-core businesses and investments.
CIG's revenue decreased from �13.6m to �9.1m for the period, while the trading
result reduced from a profit of �2.4m in 2006 to a loss of �1.3m in 2007.
Revenue and trading result in 2006 benefited from the contribution of Orbit, the
Group's employee benefits business, which was sold in April 2006. Orbit
contributed �3.4m and �1.9m to CIG's 2006 revenue and trading result
respectively. Following this disposal CIG results consist solely of Paragon (a
reinsurance administration and asset recovery services company).
Exceptional items
Exceptional items represent material non-recurring income or expenditure and,
for the year ended 31 December 2007, include other operating income of �9.7m
(2006: nil) and operating expenses of �12.9m (2006: �5.8m). In March 2007, the
Group agreed to withdraw from legal proceedings initiated following the
departure of a number of senior members of its Facultative Solutions team in
October 2006. The net proceeds of the settlement have been classified as
exceptional income. Exceptional expenses comprise the cost of settlement with
Lloyd's in relation to the New Central Fund dispute of �8.2m and restructuring
costs of �4.7m relating to the redundancy programme described above.
Full details of the exceptional items for the year ended 31 December 2007 are
set out in note 5.
Finance income and costs
Finance income increased from �0.2m to �1.3m in the year ended 31 December 2007
as a result of increased dividends from the Group's non-core industry
investments and interest recovered on the favourable settlement of certain
liabilities.
Finance costs reflect interest payable on bank borrowings and preference
dividends. The increase in interest payable on bank borrowings reflects the
increased level of net debt during the year. In 2006, finance costs also
included �3.3m of unrealised losses from the revaluation of the Group's holding
of Lancashire warrants, prior to their disposal in 2006.
Profit for the year
Profit before taxation was �50.9m in the year ended 31 December 2007 compared
with �53.0m in the year ended 31 December 2006.
For the year ended 31 December 2007, the Group taxation charge of �14.1m (2006:
�14.6m) represented an effective tax rate of 27.7% (2006: 27.5%). The rate
again benefited from favourable tax settlements in respect of previous periods.
Full details of the tax charge are set out in note 7 of the financial
statements.
The profit for the financial year, after taxation, decreased by 4.2% from �38.4m
in 2006 to �36.8m in 2007.
Foreign exchange
The Group's principal foreign currency exposure is to US dollars, mainly arising
from the results of the US Division and from revenue earned by the International
Division. Approximately 66% of the Group's revenue was US dollar denominated in
2007 (2006: 65%). The Group's results are sensitive to the impact of movements
in the US dollar exchange rate, with a 1 cent movement approximately equating to
a �0.7m movement in trading result, prior to the impact of any foreign exchange
hedging activity.
The effective rate achieved by the Group, via its hedging policy, for converting
US dollars to sterling during 2007 was $1.80 (2006: $1.76). The Group is
targeting a rate of US$1.98 for the US dollar for 2008.
Liquidity and capital resources
Net debt rose to �76.2m as at 31 December 2007 compared to �47.0m at the end of
the prior year. Net debt comprises available corporate funds of �41.8m, less
borrowings of �118.0m.
In December 2007 the Group replaced its existing �100m multi-currency revolving
credit facility with a five year �300m multi-currency term (�175m) and revolving
(�125m) credit facility maturing December 2012.
In April 2007, the Group completed the �75m share buy-back programme started in
2006 with repurchases totalling �15.0m. The Group completed an additional �9.3m
of share buy-backs prior to December 2007 when it announced a further �150m
share buy-back programme over the following two years to December 2009. �6.8m of
this programme was completed by 31 December 2007. Combined with common share
dividends of �25.7m, less proceeds from share issuance of �1.3m, the Group
returned �55.5m of cash to common shareholders during the year, compared to
�78.3m in the prior year.
During the year, the Group repaid �50.8m of debt maturing on the cancelled
facility and has drawn down �82.6m of borrowings on the revolving element of the
new �300m facility as at 31 December 2007.
The Group expects to finance operations, capital expenditure and acquisitions
from operating cash flow and the �300m facility where required.
OUTLOOK
Market conditions for our industry and for financial markets generally are as
challenging and volatile as we have seen in recent times. We do not anticipate
the headwinds facing the business from currency and market softening to ease
substantially during 2008 and this will make short-term progress difficult.
As demonstrated by the continued growth in Benfield's market share, our unique
franchise is a powerful differentiator. Our established expertise in capital
markets solutions in particular gives the business an excellent platform from
which to capitalise further on the expansion of the interface between
conventional reinsurance and the capital markets. There are also early signs
that the trading environment in our Florida business is improving, which is due
to the proposed revision to the Florida legislation. Previous investment in
broadening the scope of the core reinsurance business has already generated
significant new business growth, although the benefit has so far been muted by
softening market conditions. There are many opportunities for further growth in
both established and developing markets and from existing and new customers.
In the current challenging environment we remain firmly focused on optimising
the cost base and long-term operational structure of the Group. However, at this
stage, absent significant improvement in market conditions, we anticipate the
2008 trading result will be marginally below that for 2007.
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2007
(Audited)
Notes 2007 2006
�'000 �'000
Commission and fees 325,747 340,985
Interest income 13,458 14,307
Total revenue 3 339,205 355,292
Other operating income 12,715 3,534
Operating expenses 4 (285,797) (289,704)
Depreciation, amortisation and impairment charges (9,627) (8,982)
Operating profit 56,496 60,140
Analysed as:
Trading result 3 69,256 74,901
Depreciation, amortisation and impairment charges (9,627) (8,982)
Exceptional items 5 (3,133) (5,779)
Operating profit 56,496 60,140
Finance income 6 1,286 191
Finance costs 6 (6,883) (7,331)
Share of losses of associated undertakings after taxation - (32)
Profit before taxation 50,899 52,968
Taxation 7 (14,064) (14,544)
Profit for the financial year 36,835 38,424
Attributable to:
Equity holders of the Company 36,576 38,343
Minority interest 259 81
36,835 38,424
Earnings per 1p common share
Basic 8 17.00p 17.18p
Diluted 8 15.88p 15.86p
Dividends per 1p common share
Interim paid 9 4.0p 4.0p
Final proposed 9 9.0p 8.0p
13.0p 12.0p
CONSOLIDATED BALANCE SHEET
As at 31 December 2007
(Audited)
ASSETS Notes 2007 2006
�'000 �'000
Non-current assets
Goodwill 155,862 155,284
Intangible assets 21,753 20,715
Property, plant and equipment 12,414 14,385
Financial assets 31,497 23,481
Deferred tax assets 2,716 6,170
224,242 220,035
Current assets
Trade and other receivables 10 78,830 77,741
Financial assets 945 12,751
Current tax recoverable - 180
Cash and cash equivalents 41,822 43,261
121,597 133,933
Fiduciary financial assets 15,032 15,313
Fiduciary cash and cash equivalents 162,767 200,968
299,396 350,214
LIABILITIES
Current liabilities
Trade and other payables 11 42,624 61,066
Insurance broking creditors 177,799 216,281
Financial liabilities 12 20,946 586
Current tax liabilities 23,132 31,310
Provisions 13 2,280 6,849
266,781 316,092
Net current assets/(liabilities) 32,615 34,122
Non-current liabilities
Trade and other payables 11 940 1,413
Financial liabilities 12 98,282 90,271
Deferred tax liabilities 2,560 -
Provisions 13 5,279 3,684
107,061 95,368
Net assets 149,796 158,789
SHAREHOLDERS' EQUITY
Share capital 14 2,204 2,277
Share premium 147,586 146,859
Treasury shares (16,357) (17,605)
Fair value and other reserves 90,206 93,145
Retained earnings (74,346) (65,951)
Total shareholders' equity 15 149,293 158,725
Minority interest in equity 503 64
Total equity 149,796 158,789
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSES
For the year ended 31 December 2007
(Audited)
2007 2006
�'000 �'000
Currency translation adjustments (410) (15,665)
Actuarial loss in defined benefit scheme - (238)
Deferred tax on actuarial loss - 93
Fair value gains/(losses) on revaluation of available-for-sale financial assets 4,704 (120)
Deferred tax on revaluation of available-for-sale financial assets (1,254) 36
Fair value (losses)/gains on cash flow hedges (8,018) 7,066
Deferred tax on fair value (losses)/gains on cash flow hedges 2,369 (2,240)
Net loss recognised directly in equity (2,609) (11,068)
Profit for the financial year 36,835 38,424
Total recognised income for the financial year 34,226 27,356
Attributable to:
Equity holders of the Company 33,951 27,362
Minority interest 275 (6)
34,226 27,356
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2007
(Audited)
2007 2006
Corporate Fiduciary Total Corporate Fiduciary Total
�'000 �'000 �'000 �'000 �'000 �'000
Cash flows from operating activities
Cash generated from operations (note 16) 41,276 (40,620) 656 51,469 32,236 83,705
Interest received 13,458 - 13,458 14,307 - 14,307
Taxation paid (17,937) - (17,937) (6,735) - (6,735)
Net cash generated by operating 36,797 (40,620) (3,823) 59,041 32,236 91,277
activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash (1,480) - (1,480) (14,538) - (14,538)
acquired
Proceeds from disposal of subsidiaries, 211 - 211 612 - 612
net of cash
Purchases of intangible assets (6,128) - (6,128) (7,298) - (7,298)
Purchases of property, plant and (3,647) - (3,647) (7,643) - (7,643)
equipment
Proceeds from sale of property, plant 1,826 - 1,826 218 - 218
and equipment
Purchases of financial assets (8,480) - (8,480) (13,261) - (13,261)
Proceeds from sale of financial assets 12,035 - 12,035 22,841 2,026 24,867
Dividends received 459 - 459 191 - 191
Net cash used in investing activities (5,204) - (5,204) (18,878) 2,026 (16,852)
Cash flows from financing activities
Net proceeds from issue of common shares 1,338 - 1,338 14,484 - 14,484
Proceeds from sale of own shares - - - 918 - 918
Repurchase of common shares (31,206) - (31,206) (79,534) - (79,534)
Proceeds from borrowings 82,631 - 82,631 50,464 - 50,464
Repayments of borrowings (50,835) - (50,835) (14,357) - (14,357)
Finance costs (9,114) - (9,114) (3,655) - (3,655)
Dividends paid to Company's shareholders (25,729) - (25,729) (24,686) - (24,686)
Dividends paid to minority interests (137) - (137) (471) - (471)
Net cash used in financing activities (33,052) - (33,052) (56,837) - (56,837)
Net increase/(decrease) in cash and cash (1,459) (40,620) (42,079) (16,674) 34,262 17,588
equivalents
Cash and cash equivalents at 1 January 43,261 200,968 244,229 64,995 184,496 249,491
Exchange gains/(losses) on cash and cash 20 2,419 2,439 (5,060) (17,790) (22,850)
equivalents
Cash and cash equivalents at 31 December 41,822 162,767 204,589 43,261 200,968 244,229
1. BASIS OF PREPARATION
The Company is obliged to prepare its financial statements in accordance with
the Bermuda Companies Act 1981, which permits a company to prepare its financial
statements under International Financial Reporting Standards ("IFRS").
Accordingly, the consolidated financial statements have been prepared in
accordance with Bermuda law, under the historic cost convention as modified by
the revaluation of available-for-sale investments and derivative financial
instruments, and in accordance with IFRS and International Financial Reporting
Interpretations Committee ("IFRIC") interpretations endorsed by the European
Union.
2. CHANGE TO ACCOUNTING POLICY
IFRS 8, "Operating Segments", is effective for periods beginning on or after 1
January 2009; however the Directors have decided to adopt this standard
commencing in 2007. IFRS 8 replaces IAS 14, "Segmental Reporting", and the new
standard requires a 'management approach', under which segmental information is
presented on the same basis as that used for internal reporting purposes. There
has been no impact on the measurement of assets and liabilities as a result of
adopting the new standard. Comparatives for 2006 have been restated.
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker, as defined in the
Chief Executive's Business Review. The chief operating decision-maker has been
identified as the Benfield Group Board.
3. SEGMENTAL REPORTING
Division structure
Benfield's principal business is insurance and reinsurance broking. The Group
manages its core intermediary business on the basis of three operating
divisions: International, US and Benfield Corporate Risk (BCR). The
International Division incorporates reinsurance business from customers located
outside the US together with revenue from certain specialty teams which operate
on a global basis. The US Division encompasses the Group's reinsurance business
from customers located in mainland US, excluding revenue from those global
specialty lines. The US Division also includes Benfield Advisory, the Group's
corporate finance and investment advisory business. BCR incorporates business
from corporate insurance customers globally.
The non-intermediary areas of the business include the Corporate Investment
Group (CIG), which manages the Group's portfolio of non-core businesses and
investments, and the Group Services Division which controls expenses incurred in
connection with the provision of head office and Group related support
activities.
Division results analysis
2007 2006
Revenue Trading Revenue Trading
result result
�'000 �'000 �'000 �'000
International 171,131 37,095 180,552 39,300
US 131,419 48,408 141,345 55,229
BCR 26,277 (10,964) 18,246 (17,246)
CIG 9,069 (1,348) 13,565 2,358
Group Services 1,309 (3,935) 1,584 (4,740)
339,205 69,256 355,292 74,901
2007 2006
�'000 �'000
Revenue by category
Reinsurance broking 281,195 299,372
Corporate insurance broking 25,508 17,612
Corporate finance and investment advisory services 10,393 10,917
Other 8,651 13,084
Total commission and fees 325,747 340,985
Interest income 13,458 14,307
Total revenue 339,205 355,292
4. OPERATING EXPENSES
2007 2006
�'000 �'000
Staff costs 198,965 203,725
Travel and entertaining 19,598 21,369
Premises 17,036 21,065
Other 50,198 43,545
285,797 289,704
Included within operating expenses are certain exceptional items as described in
note 5.
5. EXCEPTIONAL ITEMS
2007 2006
�'000 �'000
Other operating income
Facultative team settlement 9,680 -
Operating expenses
Lloyd's New Central Fund settlement (8,153) -
Restructuring costs (4,660) (4,934)
Awards granted to employees - (845)
(12,813) (5,779)
Exceptional items (net) (3,133) (5,779)
Facultative team settlement
In October 2006, the Group announced the resignation of a number of senior
members of its Facultative Solutions team. As a result of these resignations,
the Group found it necessary to initiate processes to protect its business
interests, including legal proceedings and the enforcement of employee
contractual obligations. In March 2007, the Group entered into an agreement to
withdraw from the legal proceedings and release the former employees from their
contractual obligations in consideration for a payment of �9,525,000. This
consideration, together with the release of associated costs previously provided
for, is recorded as other operating income.
Lloyd's New Central Fund settlement
In June 2007, the Group reached a settlement with Lloyd's in relation to the New
Central Fund dispute, details of which were given in the accounts for the year
ended 31 December 2006. The charge above represents the gross consideration
payable to Lloyd's offset by recoveries under the Group's Errors and Omissions
insurance policies.
Restructuring costs
In March 2007, the Group initiated a restructuring programme, which included the
termination of a number of roles in certain areas of the business. These costs
represent the costs arising from this programme during the period to 31 December
2007.
During 2006, the Group's US head office function was relocated from Westport to
Minneapolis. A charge of �2,422,000 arose as a consequence of the associated
redundancy and property rationalisation costs. The remainder of the
restructuring costs in 2006 related to legal and residual salary costs
associated with the resignation of the Facultative Solutions team referred to
above.
Awards granted to employees
In March 2003, share based awards were made under the 2002 Incentive Plan to
certain key employees of the Group in respect of services provided prior to the
Company's Initial Public Offering. No previous awards had been made under the
2002 Incentive Plan and the plan ceased to be available for the issue of new
awards with effect from June 2003. In accordance with IFRS, the cost of these
awards was spread over the 12 to 36 month vesting period from the date of grant.
6. FINANCE INCOME AND COSTS
2007 2006
�'000 �'000
Finance income
Dividends from investments 459 191
Other interest receivable 827 -
1,286 191
Finance costs
Interest payable on bank borrowings (3,711) (1,277)
Dividends on cumulative redeemable convertible preference shares (2,400) (2,400)
Amortisation of issue costs of cumulative redeemable convertible preference shares (126) (126)
Unwind of discount on provisions (627) -
Other interest payable (19) (165)
Fair value losses on equity derivatives - (3,277)
Fair value losses on foreign currency derivatives - (86)
(6,883) (7,331)
Other interest includes interest on tax payable in relation to amounts in
dispute with tax authorities which, upon settlement, will have an interest
impact. Other interest receivable has resulted from the successful resolution
of tax authority queries.
Fair value losses on equity derivatives arising in 2006 related to the Group's
holding of Lancashire Holdings Limited warrants, which was disposed of during
2006.
7. INCOME TAX EXPENSE
Major components of income tax expense
2007 2006
�'000 �'000
Current tax:
UK corporate tax on income for the period 5,863 5,296
Foreign tax on income for the period 10,025 6,734
Adjustments in respect of previous periods (5,552) (5,058)
10,336 6,972
Deferred tax:
Origination and reversal of temporary differences 3,167 7,572
Impact of change in UK tax rate 561 -
Total income tax expense 14,064 14,544
Tax charged to equity:
Current tax credit on share awards (397) (4,972)
The adjustment in respect of previous periods relates to favourable tax
settlements.
Tax on the Group's profit before taxation differs from the standard rate of
corporation tax in the UK of 30%. The differences are explained below:
2007 2006
�'000 �'000
Profit before taxation 50,899 52,968
Profit multiplied by the standard rate of corporation tax in the UK of 30% 15,270 15,890
Effect of:
Expenses not deductible for tax purposes 1,917 2,736
Adjustments in respect of foreign tax rates 1,588 1,564
Adjustments in respect of share awards 645 (348)
Adjustments to tax in respect of prior periods (6,281) (5,600)
Tax effect of unrecognised losses 337 856
Profit on disposal of subsidiary operations not taxable - (517)
Re-measurement of deferred tax due to change in UK tax rate 561 -
Other 27 (37)
14,064 14,544
8. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the earnings attributable to
common shareholders by the weighted average number of common shares in issue
during the year, excluding those held in the employee share trusts which are
treated as cancelled.
For diluted earnings per share, the weighted average number of common shares in
issue, excluding those held in the employee share trusts, is adjusted to assume
conversion of all dilutive potential common shares. The Company has the
following three classes of shares which were potentially dilutive:
(i) cumulative redeemable convertible preference shares;
(ii) those share awards granted to employees where the exercise price
is less than the quoted price of the Company's common shares during the relevant
year; and
(iii) deferred share units.
Supplementary basic and diluted earnings per share have been calculated to
exclude the effect of goodwill impairment and exceptional items. The adjusted
numbers have been provided in order that the effects of these charges on
reported earnings can be fully appreciated.
2007 2006
Earnings Weighted Pence per Earnings Weighted Pence per
average number share average number share
�'000 of shares �'000 of shares
Unadjusted earnings per share
Basic earnings per share
Earnings attributable to common 36,576 215,137,001 17.00 38,343 223,216,949 17.18
shareholders
Effect of dilutive securities:
Share options 10,849,885 (0.81) 14,822,282 (1.07)
Deferred share units 4,222,505 (0.30) 3,693,903 (0.24)
Cumulative redeemable convertible 2,526 16,000,000 (0.01) 2,526 16,000,000 (0.01)
preference shares
Diluted earnings per share 39,102 246,209,391 15.88 40,869 257,733,134 15.86
Adjusted earnings per share
Basic earnings per share 36,576 215,137,001 17.00 38,343 223,216,949 17.18
Exceptional items 3,133 1.46 5,779 2.59
Tax on exceptional items (983) (0.46) (1,976) (0.89)
Basic earnings per share excluding 38,726 215,137,001 18.00 42,146 223,216,949 18.88
exceptional items
Diluted earnings per share 39,102 246,209,391 15.88 40,869 257,733,134 15.86
Exceptional items 3,133 1.27 5,779 2.24
Tax on exceptional items (983) (0.40) (1,976) (0.77)
Diluted earnings per share excluding 41,252 246,209,391 16.75 44,672 257,733,134 17.33
exceptional items
9. DIVIDENDS
2007 2006
�'000 �'000
Final paid in respect of 2006 - 8p (2005: 7p) per common share of 1p 17,140 15,801
Interim paid in respect of 2007 - 4p (2006: 4p) per common share of 1p 8,589 8,885
25,729 24,686
Dividends amounting to �262,000 (2006: �242,000) in respect of the Company's
common shares held by employee share trusts have been deducted in arriving at
the aggregate of dividends paid.
A final dividend in respect of 2007 of 9.0p per share (2006: 8.0p) is proposed
by the Directors. If approved, the final dividend will be paid on 7 May 2008 to
shareholders who are registered at the close of business on 4 April 2008.
10. TRADE AND OTHER RECEIVABLES
2007 2006
�'000 �'000
Trade debtors 63,350 65,331
Less provision for bad debts (6,506) (6,047)
Trade debtors - net 56,844 59,284
Amounts due from associated undertakings - 389
Other debtors 13,243 7,299
Prepayments and accrued income 8,743 10,769
78,830 77,741
11. TRADE AND OTHER PAYABLES
2007 2006
�'000 �'000
Current liabilities
Trade creditors 9,119 7,978
Social security payable 3,605 3,806
Retirement benefit obligations - 611
Other creditors and accruals 29,900 48,671
42,624 61,066
Non-current liabilities
Other creditors and accruals 940 1,413
43,564 62,479
12. FINANCIAL LIABILITIES
2007 2006
�'000 �'000
Current
Derivative instruments 1,040 586
Cumulative redeemable convertible preference shares 19,906 -
20,946 586
Non-current
Derivative instruments 169 -
Unsecured bank loan 78,144 50,523
Cumulative redeemable convertible preference shares 19,969 39,748
98,282 90,271
Bank loans
During the year the �100m revolving credit facility (expiry March 2011) was
replaced with a new �300m credit facility, which is available until 7 December
2012. The �300m facility consists of a �175m term loan and a �125m revolving
credit facility. The rate of interest payable on any loans drawn fluctuates in
line with the current LIBOR rate, plus a margin.
The fair value of bank loans reflects the loan principals drawn at 31 December
2007 on the revolving credit facility (�20m Pounds sterling; and $125m US
dollars) and 31 December 2006 (�10m Pounds sterling; and $80m US dollars)
respectively, adjusted for any unamortised arrangement fees.
13. PROVISIONS
Litigation Property Other Total
and disputes related
�'000 �'000 �'000 �'000
At 1 January 2007 1,257 7,360 1,916 10,533
Exchange adjustments (10) (35) (4) (49)
Transfer from income statement 439 334 1,206 1,979
Utilised in year (1,306) (1,688) (1,910) (4,904)
At 31 December 2007 380 5,971 1,208 7,559
Provisions have been analysed between current and non-current as follows:
Group 2007 2006
�'000 �'000
Current 2,280 6,849
Non-current 5,279 3,684
7,559 10,533
14. CALLED UP SHARE CAPITAL
2007 2006 2007 2006
Number Number �'000 �'000
Authorised
Common shares of 1p 500,000,000 500,000,000 5,000 5,000
Allotted, called up and fully paid
At 1 January 227,696,802 234,555,001 2,277 2,345
Repurchased and cancelled (10,370,203) (19,435,984) (104) (194)
Allotted to employees 3,092,742 12,577,785 31 126
At 31 December 220,419,341 227,696,802 2,204 2,277
Changes to share capital during the year to 31 December 2007
1111
During the year, 10,370,203 (2006: 19,435,984) common shares of 1p each,
representing 4.6% (2006: 8.3%) of the issued share capital of the Company, were
repurchased for an aggregate consideration, including expenses, of �31,206,000
(2006: �68,119,000) and were subsequently cancelled.
A total of 2,179,514 (2006: 10,613,235) common shares of 1p each were allotted
on the exercise of options by employees during the year for an aggregate
consideration of �749,000 (2006: �8,784,000). A total of 913,228 (2006:
1,952,450) common shares of 1p each were allotted to satisfy deferred share
units that vested and were distributed to employees during the year. During
2006, 12,100 common shares of 1p each were gifted to new employees.
15. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Share Share premium Treasury Fair value Retained Total
capital shares and other earnings
�'000 reserves �'000
�'000 �'000 �'000
�'000
At 1 January 2006 2,345 138,181 (10,252) 103,787 (34,332) 199,729
Total recognised income for the period - - - (10,836) 38,198 27,362
Dividends - - - - (24,686) (24,686)
Provision for share awards - - - - 20,332 20,332
Shares issued to employees 126 8,678 3,626 - 2,174 14,604
Repurchase and cancellation of own (194) - - 194 (68,119) (68,119)
shares
Purchase of treasury shares - - (11,415) - - (11,415)
Proceeds on disposal of own shares - - 436 - 482 918
At 31 December 2006 2,277 146,859 (17,605) 93,145 (65,951) 158,725
Total recognised income for the period - - - (2,625) 36,576 33,951
Dividends - - - - (25,729) (25,729)
Provision for share awards - - - - 12,115 12,115
Shares issued to employees 31 727 1,248 - (569) 1,437
Repurchase and cancellation of own (104) - - (314) (30,788) (31,206)
shares
At 31 December 2007 2,204 147,586 (16,357) 90,206 (74,346) 149,293
16. CASH FLOW FROM OPERATING ACTIVITIES
Reconciliation of profit to net cash inflow from operating activities:
2007 2006
�'000 �'000
Continuing operations
Profit for the financial year 36,835 38,424
Adjusted for:
Taxation 14,064 14,544
Depreciation, amortisation and impairment charges 9,627 8,982
Fair value gains through income statement (1,271) (396)
Gain on disposal of subsidiary operations (642) (311)
Gain on sale of available-for-sale financial assets (912) (3,020)
(Gain)/loss on disposal of property, plant and equipment (372) 5
Cost of shares gifted during the year 99 120
Cost of share options issued 15,207 13,875
Interest income (13,458) (14,307)
Investment income (1,286) (191)
Finance costs 6,883 7,331
Share of losses of associated undertakings - 32
Increase in trade and other receivables (1,089) (11,549)
Decrease in payables (19,278) (10,251)
(Decrease)/increase in provisions (3,649) 3,493
Exchange translation differences 518 4,688
Corporate cash generated from operations 41,276 51,469
(Decrease)/increase in insurance broking creditors (38,482) 14,446
Exchange translation differences (2,138) 17,790
Cash generated from operations 656 83,705
17. SHAREHOLDER INFORMATION
The financial information contained in this preliminary announcement does not
constitute statutory accounts within the meaning of s84 of the Bermuda Companies
Act 1981 or s240 of the United Kingdom Companies Act 1985. Statutory accounts
will be posted to shareholders no later than 2 April 2008.
The auditors have reported on the statutory accounts in accordance with the
requirements of s90 of the Bermuda Companies Act 1981. Their report was
unqualified and did not contain an emphasis of matter paragraph as defined by
International Standard on Auditing (UK and Ireland) 700.
The shareholders entered in the Register of Members on 4 April 2008 will be
entitled to the proposed final dividend of 9.0p per common share which will,
subject to approval at the Annual General Meeting to be held on 2 May 2008, be
payable on 7 May 2008.
Copies of the preliminary press release (and statutory accounts when available)
may be obtained from the Company Secretariat, Benfield Group Limited, 55
Bishopsgate, London, EC2N 3BD.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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