REG - Hansard Global plc - Results for the year ended 30 June 2017 <Origin Href="QuoteRef">HSD.L</Origin> - Part 2
28/09/2017 07:07
- Part 2: For the preceding part double click ID:nRSb0302Sa
other infrastructure. Dividends of £12.2m (2016: £12.2m) paid during the year
were covered by the Group's excess cash resources. As we have previously communicated, we are planning to reduce the
current level of dividend by 50% in 2018 which will better match the level of operating cash flows generated and allow the
Group to take advantage of other new business development and strategic opportunities.
Overall cash and deposits have decreased from £76.6m at 30 June 2016 to £71.6m at 30 June 2017.
2017 2016
£m £m
Net cash surplus from operating activities 22.7 15.9
Interest received on shareholder bank deposits 1.0 1.0
Net cash inflow from operations 23.7 16.9
Net cash investment in new business (17.4) (15.4)
Purchase of property and computer equipment (0.4) (0.2)
Corporation tax paid (0.1) (0.1)
Net cash inflow before dividends 5.8 1.2
Dividends paid (12.2) (12.2)
Net cash outflow (6.4) (11.0)
2017 2016
£m £m
Net cash outflow (6.4) (11.0)
Increase in amounts due to contract holders 1.0 3.4
Net Group cash movements (5.4) (7.6)
Group cash at beginning of year 76.6 80.9
Effect of exchange rate changes 0.4 3.3
Group cash and deposits at end of year 71.6 76.6
Bank deposits and money market funds
The Group holds its liquid assets in highly-rated money market liquidity funds and with a wide range of deposit
institutions to minimise market risk. Deposits totalling £14.4m have original maturity dates greater than 3 months and are
therefore excluded from the definition of "cash and cash equivalents" under IFRS as reflected in note 16 to the
consolidated balance sheet (2016: £15.7m). The following table summarises the total shareholder cash and deposits at the
balance sheet date.
2017 2016
£m £m
Money market funds 49.2 53.6
Short-term deposits with credit institutions 8.0 7.3
Cash and cash equivalents under IFRS 57.2 60.9
Shareholders' longer-term deposits with credit institutions 14.4 15.7
Shareholder cash and deposits 71.6 76.6
The longer-term term deposits have maturity dates of between 4 months and 11 months from the balance sheet date.
Abridged consolidated balance sheet
The consolidated balance sheet presented under IFRS reflects the financial position of the Group at 30 June 2017. As a
result of its method of presentation, the consolidated balance sheet incorporates the financial assets held to back the
Group's liability to contract holders, and also incorporates the net liability to those contract holders of £1,049.7m
(2016: £923.5m). Additionally, that portion of the Group's capital that is held in bank deposits is disclosed in "cash and
cash equivalents" based on original maturity terms, as noted above.
The abridged consolidated balance sheet presented below, adjusted for those differences in disclosure, allows a better
understanding of the Group's own capital position.
2017 2016
£m £m
Assets
Deferred origination costs 111.6 110.9
Other assets 7.3 6.5
Bank deposits and money market funds 71.6 76.6
190.5 194.0
Liabilities
Deferred income 129.2 130.5
Other payables 29.6 27.3
158.8 157.8
Net assets 31.7 36.2
Shareholders' equity
Share capital and reserves 31.7 36.2
Deferred origination costs
The deferral of origination costs reflects that the Group will earn fees over the long-term from contracts issued in a
given financial year. These costs are recoverable out of future net income from the relevant contract and are charged to
the income statement on a straight-line basis over the life of each contract.
The movement in value over the financial year is summarised below.
2017 2016
Carrying value £m £m
At beginning of financial year 110.9 113.5
Origination costs incurred during the year 16.8 15.1
Origination costs amortised during the year (16.1) (17.7)
111.6 110.9
Deferred income
The treatment of deferred income ensures that contract fees are taken to the consolidated statement of comprehensive income
in equal installments over the longer-term, reflecting the services to be provided over the period of the contract. This is
consistent with the treatment of deferred origination costs. Deferred income at the balance sheet date is the unamortised
balance of accumulated initial amounts received on new business.
The proportion of income deferred in any one year is dependent upon the mix and volume of new business flows in previous
years. The Group's focus on regular premium business means that these fees are received over the initial period of the
contract, rather than being received up front, as is often the case with single premium contracts.
The majority of initial fees collected during the year relates to charges taken from contracts issued in prior financial
years demonstrating the cash generative nature of the business. Regular premium contracts issued in this financial year
will generate the majority of their initial fees over the next 18 months on average.
The movement in value of deferred income over the financial year is summarised below.
2017 2016
Carrying value £m £m
At beginning of financial year 130.5 137.6
Income received and deferred during the year 16.8 11.4
Income recognised in contract fees during the year (18.1) (18.5)
129.2 130.5
CONTRACT holder Assets under administration
In the following paragraphs, contract holder assets under administration ("AuA"), refers to net assets held to cover
financial liabilities, as analysed in note 17 to the consolidated financial statements presented under IFRS.
The Group enjoys a stream of cash flows from the large number of regular premium contracts administered on behalf of
clients around the world. The Group has continued to build an increasing stream of single premium business which increased
to £66.4m this year (2016: £52m). The majority of premium contributions are designated in currencies other than sterling,
reflecting the wide geographical spread of those contact holders. Premium contributions during the year also includes
additional contributions of approximately £4.0m (2016: £4.3m) relating to single and regular premium contracts issued by
Hansard Europe in prior years.
These flows are offset by charges and withdrawals, by premium holidays affecting regular premium policies and by market
valuation movements. During the year, the Group benefitted from significant market gains which drove AuA to over £1
billion.
The currency composition of AuA at the balance sheet date is similar to that as at 30 June 2016, with 60% of AuA designated
in US dollar (2016: 69%) and 19% in euro (2016: 12%).
The value of AuA at 30 June 2017 was £1,049.7m, £126.2m above the value at 30 June 2016.
2017 2016
£m £m
Deposits to investment contracts - regular premiums 84.5 71.9
Deposits to investment contracts - single premiums 66.4 52.0
Withdrawals from contracts and charges (159.2) (168.3)
Effect of market movements 123.8 (48.1)
Effect of currency movements 10.7 108.9
Movement in year 126.2 16.4
At beginning of financial year 923.5 907.1
1,049.7 923.5
The analysis of AuA held by each Group subsidiary to cover financial liabilities is as follows:
2017 2016
Fair value of AuA at 30 June £m £m
Hansard International 878.5 749.0
Hansard Europe 171.2 174.5
1,049.7 923.5
As expected the level of assets in Hansard Europe continues to decline after closing to new business in 2013. However,
investment market strength and sterling's continued weakness has offset significantly the impact of net contract holder
withdrawals.
complaints and potential litigation
In valuation issues such as those referred to above, financial services institutions can be drawn into disputes in cases
where the performance of assets selected directly by or on behalf of contract holders through their advisors fails to meet
their expectations. This is particularly relevant in the case of more complex products distributed throughout Europe.
Even though the Group does not give any investment advice, as this is left to the contract holder directly or through an
agent, advisor or an entity appointed at their request or preference, the Group has been subject to a number of complaints
in relation to the performance of assets linked to contracts.
Some of these complaints escalate into litigation, particularly in Europe. At the beginning of this financial year the
Group was facing litigation based on writs totalling E15.7m (£13.1m).
During the year the Group successfully won a further three cases in Italy and Germany which continues to affirm confidence
in the Group's legal arguments. The outstanding writs have not materially reduced as two cases have since been appealed
and the other case was of a relatively minor value. Two additional claims were made during the year, resulting in a net
increase of outstanding writs of E1.2m. The total level of writs outstanding at the end of the year was E16.9m (£14.8m).
While it is not possible to forecast or determine the final results of such litigation, based on the pleadings and advice
received from the Group's legal representatives, we believe we have a strong chance of success in defending these claims.
The writs have therefore been treated as contingent liabilities and are disclosed in note 26 to the consolidated financial
statements.
Results for the year under European Embedded Value
Headline results
During the course of the 2017 financial year, the Group made a European Embedded Value ("EEV") profit of £11.7m (2016:
profit of £13.1m), analysed into an EEV operating loss of £8.2m (2016: loss of £1.1m) and gains from investment return
variances and economic assumption changes of £19.9m (2016: gains of £14.2m).
The EEV operating loss is primarily driven by a negative experience variance of £4.7m and negative operating assumption
changes of £5.9m. Experience variances arise when actual experience differs from that assumed in the prior year's EEV.
Operating assumption changes reflect changes in management's view of the behaviour of the existing business.
Headline results for the EEV are shown in the tables below:
2017 2016
£m £m
EEV operating loss after tax (8.2) (1.1)
Investment return variances and economic assumption changes 19.9 14.2
EEV profit 11.7 13.1
EEV before dividends 207.7 208.1
Dividends paid during the financial year (12.2) (12.2)
Closing Embedded Value 195.5 195.9
The EEV at 30 June 2017 of £195.5m has remained broadly level with the 30 June 2016 amount of £195.9m, after the payment of
dividends of £12.2m for the year (2016: £12.2m).
Sales metrics
New business comparatives are shown below:
2017 2016
New business sales ("PVNBP") £148.5m £119.5m
New Business Contribution ("NBC") £1.3m £0.2m
New Business Margin ("NBM") 0.9 % 0.2%
The change is primarily due to the increase in new business volumes over the period and the existence of a greater number
of insurance contracts to spread initial expenses over.
The New Business Contribution and Margin have increased primarily due to the increase in new business volumes over the
period and the existence of a greater number of insurance contracts to spread initial expenses over. New Business Margin is
also impacted by the mix of business written, with regular premium business having a larger margin than single premium
business. During 2017, a higher proportion of single premium business was written than in 2016.
The high-level components of the EEV are shown in the table below:
2017 2016
£m £m
Free Surplus 21.4 27.9
Required Capital 27.8 27.6
Net Worth 49.2 55.5
Value of In-Force ("VIF") 152.6 147.8
Other (6.3) (7.4)
Value of Future Profits ("VFP") 146.3 140.4
EEV 195.5 195.9
Net Worth has reduced to £49.2m from £55.5m as profits earned from the existing business are offset by the dividend paid.
It is represented by liquid cash and money market balances.
Free Surplus, which is available for investment and distribution, has reduced to £21.4m from £27.9m reflecting the fact
that more of the cash which continues to emerge from the existing policies was needed to invest in increasing levels of new
business. Required Capital has not changed significantly. It currently includes around £20m of Hansard Europe capital, the
use of which management estimates is constrained for up to three years.
The increase in VFP reflects sterling exchange rates on 30 June 2017, increased new business levels, the conversion of VFP
to Net Worth and the impact of contract holder behaviour and renewal expenses.
The Other component of VFP includes a reduction to non-market risk and frictional costs, which have not changed
substantially over the year.
Change in Net Worth 2017 2016
£m £m
Opening Net Worth 55.5 63.5
Expected new Net Worth from existing business 27.9 24.0
Time value 0.1 0.5
Net worth variance (1.3) (1.7)
Net Worth from Existing Business 26.7 22.8
New Business Strain (20.8) (18.6)
Dividends paid (12.2) (12.2)
Closing Net Worth 49.2 55.5
The Net Worth is lower than projected by £1.3m (2016: lower by £1.7m) primarily because of worse than assumed operating
experience during the year. The Net Worth has grown by £26.7m (2016 £22.8m), of which £20.8m (2016: £18.6m) has been
invested in new business (shown as New Business Strain) and £12.2m has been paid in dividends (2016: £12.2m).
EEV profit after tax
The Group's EEV profit after tax is £11.7m (2016: £13.1m). New business, experience variances, operating assumptions and
model changes drive this result at an operating profit level. Thereafter, the impact of positive investment return
variances and economic assumption changes more than offset the loss at an operating level.
2017 2016
£m £m
New Business Contribution 1.3 0.2
Experience variances (4.7) (3.8)
Operating assumption and model changes (5.6) 1.0
Expected return on new and existing business and Net Worth 0.8 1.5
EEV operating loss after tax (8.2) (1.1)
Investment return variances 16.8 18.8
Economic assumption changes 3.1 (4.6)
EEV profit after tax 11.7 13.1
Experience variances 2017 2016
£m £m
Full encashments (2.0) (1.2)
Premium reductions and underpayments (1.7) (0.8)
Charges (0.7) (0.6)
One-off expenses (0.5) (0.3)
Policies made paid up (0.4) (0.1)
Ongoing expenses (0.2) (1.3)
Other 0.8 0.5
Experience variances (4.7) (3.8)
Experience variances arise when the behavior of the existing book differs from that assumed. Major contributors to the
experience variances this year are worse than assumed encashment and premium persistency.
Full encashments were significantly impacted by a single broker which has now ceased trading.
Operating assumption changes 2017 2016
£m £m
Ongoing expenses (5.3) 1.0
Premium persistency (2.1) 0.9
Full encashment (0.6) 0.6
Partial encashment 0.7 (2.5)
Contract holder activity margins 1.4 -
Other - (0.1)
Operating assumption changes (5.9) (0.1)
The primary change in operating assumption changes during the year was a strengthening of the expenses assumed to be borne
by each in-force contract. This was to reflect a lengthier period being taken by the Group to achieve the scale assumed in
its long-term assumptions, impacted also by the closure to new business of Hansard Europe.
Investment return variances
Investment performance principally reflects the investment choices, by nature and currency, made by contract holders. It is
therefore largely outside the Group's control.
2017 2016
£m £m
Investment performance of contract holder funds 14.9 (7.6)
Exchange rate movements 1.1 26.1
Other 0.8 0.3
Investment return variances 16.8 18.8
Economic assumption changes
There was a positive variance of £3.1m (2016: negative £4.6m) from economic assumption changes. This reflects changes to
government yields for the currencies to which the Group is exposed in line with EEV Principles.
2017 2016
£m £m
Contract holder activity margins 3.8 (4.7)
Risk discount rates and unit growth (0.7) 0.1
Economic assumption changes 3.1 (4.6)
Net asset value per share
On an EEV basis, the net asset value per share at 30 June 2017 is 142.3p (2016: 142.5p) based on the EEV at the balance
sheet date divided by the number of shares in issue at that date, being 137,444,792 ordinary shares (2016: 137,440,456
shares).
The net asset value per share at 30 June 2017 on an IFRS basis, is 23.1p (2016: 26.3p).
Risk management and internal control
As with all businesses, the Group is exposed to risk in pursuit of its objectives. The Board has overall responsibility for
the Group's system of risk management and internal control and for reviewing its effectiveness. The schedule of powers
reserved to the Board ensures that the Directors are responsible for determining, evaluating and controlling the nature and
extent of the principal risks which the Board is willing to take in achieving its strategic objectives and the Board
oversees the strategies for principal risks that have been identified.
The Executive Management Team works within the risk appetite established by the Board and the governance, risk management
and internal control arrangements which constitute the Group Enterprise Risk Management (ERM) Programme and which direct
the Group, including setting the cultural tone and expectations from the top, delegating authorities and monitoring
compliance.
Having regard to the Financial Reporting Council's 'Guidance on Risk Management, Internal Control and Related Financial and
Business Reporting', the ERM Programme encompasses the policies, processes, tasks, behaviours and other aspects of the
Group's environment, which cumulatively:
· Facilitate the effective and efficient operation of the Group and its subsidiaries by enabling appropriate responses
to be made to significant business, operational, financial, compliance and other risks to business objectives, so
safeguarding the assets of the Group;
· Help to ensure the quality of internal and external reporting. This requires the maintenance of proper records and
processes that generate a flow of timely, relevant and reliable information from within and outside the Group;
· Seek to ensure compliance with applicable laws and regulations and also with internal policies with respect to the
conduct of business.
Approach
The ERM Programme is structured in accordance with the component elements and supporting principles of the Committee of
Sponsoring Organisations of the Treadway Commission (COSO) Enterprise Risk Framework and has been designed to be
appropriate to the nature, scale and complexity of the Group's business at both corporate and subsidiary level. A
comprehensive review of the component elements of the ERM Programme has been undertaken during the year ended 30 June 2017.
The review has sought to strengthen the governance arrangements associated with the identification and management of risks
across the Group and to enhance the reporting arrangements which assist the Directors in their assessment of the adequacy
and effectiveness of the Group's risk management and internal control systems.
The ERM Programme continues to be built upon the 'three lines of defence' model, which addresses how specific duties
relating to risk management and internal control are assigned and coordinated between front line management (first line),
risk and compliance monitoring functions (second line) and the independent assurance services of internal audit (third
line). Each of the three lines plays a distinct role within the Group's overarching governance framework.
The ERM Programme seeks to add value through embedding risk management and effective internal control systems as continuous
and developing processes within strategy setting, programme level functions and day-to-day operating activities. The ERM
Programme also acknowledges the significance of the Group's operating culture and values in relation to risk management and
their impact on the overall effectiveness of the internal control framework.
The ERM Programme promotes the pursuit of its overarching performance, information and compliance objectives through focus
on five interrelated elements, which enable the management of risk at strategic, programme and operational level to be
integrated, so that layers of activity support each other. The five interrelated elements are defined as:
· Management oversight and the control culture
· Risk recognition and assessment
· Control activities and segregation of duties
· Information and communication
· Monitoring activities and correcting deficiencies
Risk management processes are undertaken on both a bottom-up and top-down basis. The top-down aspect involves the Board
assessing, analysing and evaluating what it believes to be the principal risks facing the Group. The bottom-up approach
involves the identification, review and monitoring of current and forward-looking risks on a continuous basis at functional
and divisional levels, with analysis and formal reporting to the Executive Risk Committee, established by the Board, on a
quarterly basis and onward analytical reporting to the Board. The terms of reference of the Committee are published on the
Company's website.
The system of internal control is designed to manage rather than eliminate risk of failure to achieve business objectives,
and can only provide reasonable and not absolute assurance against material misstatement or loss.
Review of risk management and internal control systems
The results of the risk management processes combine to facilitate identification of the principal business, financial,
operational and compliance risks and any associated key risks at a subordinate level. Established reporting cycles enable
the Board to maintain oversight of the quality and effectiveness of risk management and internal control activities
throughout the year and ensure that the entirety of the governance, risk management and internal control frameworks, which
constitute the ERM Programme, are operating as intended. These processes have been in place throughout the year under
review and up to the date of this report.
Independently of the quarterly cyclical risk reporting arrangements and in accordance with provision C.2.1 of the UK
Corporate Governance Code, the Board has conducted its annual review of the effectiveness of the company's risk management
and internal control systems including financial, operational and compliance controls. This review is undertaken in
collaboration with the Audit Committee and is based upon analysis and evaluation of:
· Attestation reporting from subsidiary companies of the Group as to the effective functioning of the risk management
and internal control framework and the ongoing identification and evaluation of risk within each subsidiary;
· Formal compliance declarations from senior managers at divisional level that key risks are being managed
appropriately within the functional and operational areas falling under their span of control and that controls have been
examined and are effective;
· The cumulative results of cyclical risk reporting by senior and executive management via the Executive Risk
Committee, covering financial, operational and compliance controls;
· Independent assurance work by the Group Internal Audit Department to identify any areas for enhancements to internal
controls and work with Management to define associated action plans to deliver them.
The Board has determined that there were no areas for enhancement which constituted a significant weakness for the year
under review and they are satisfied that the Group's governance, risk management and internal control systems are operating
effectively and as intended.
Financial reporting process
The Group maintains a process to assist the Board in understanding the risks to the Group of failing to meet its
objectives. This incorporates a system of planning and sensitivity analysis incorporating Board approval of forecast
financial and other information. The Board receives regular representations from the senior executives.
Performance against targets is reported to the Board quarterly through a review of the Group's and Company's results based
on accounting policies that are applied consistently throughout the Group. Financial and management information is prepared
quarterly by the Chief Financial Officer ("CFO") and presented to the Board and Audit Committee. The members of the Audit
Committee review the draft financial statements for the half year ended 31 December annually and for the full financial
year, and meet with the CFO to discuss and challenge the presentation and disclosures therein. Once the draft document is
approved by the Audit Committee, it is reviewed by the Board before final approval at a Board meeting.
Outsourcing
The majority of investment dealing and custody processes in relation to policyholder assets are outsourced to Capital
International Limited ("CIL"), a company authorised by the Isle of Man Financial Services Authority and a member of the
London Stock Exchange.
These processes are detailed in a formal contract that incorporates notice periods and a full exit management plan.
Delivery of services under the contract is monitored by a dedicated relationship manager against a documented Service Level
Agreement and Key Performance Indicators.
CIL is required to confirm monthly that no material control issues have been identified in their operations; this is
overseen via the delivery of services monitoring performed by the relationship manager. Each year CIL are required to
confirm and evidence the adequacy and effectiveness of their internal control framework through an Assurance report, with
an external independent review performed every second year. The last such report, which included an external independent
review, was issued by CIL on 13 May 2016 and did not reveal any material control deficiencies in the period reviewed from 1
January 2015 to 31 December 2015.
Risks relating to the Group's financial and other exposures
Hansard's business model involves the controlled acceptance and management of risk exposures. Under the terms of the
unit-linked investment contracts issued by the Group, the policyholder bears the investment risk on the assets in the
unit-linked funds, as the policy benefits are directly linked to the value of the assets in the funds. These assets are
administered in a manner consistent with the expectations of the contract holders. By definition, there is a precise match
between the investment assets and the policyholder liabilities, and so the market risk and credit risk lie with
policyholders.
The Group's exposure on this unit-linked business is limited to the extent that income arising from asset management
charges and commissions is generally based on the value of assets in the funds, and any sustained falls in value will
reduce earnings. In addition, there are certain financial risks (credit, market and liquidity risks) in relation to the
investment of shareholders' funds. The Group's exposure to financial risks is explained in note 3 to the consolidated
financial statements.
The Board believes that the principal risks facing the Group's earnings and financial position are those risks which are
inherent to the Group's business model and operating environment.. The regulatory landscape continues to evolve at both a
local and international level and the risk management and internal control frameworks of the Group must remain responsive
to developments which may change the nature, impact or likelihood of such risks
Principal Risks
The following table sets out the principal inherent risks that may impact the Group's strategic objectives, profitability
or capital and how such risks are managed or mitigated. The Board robustly reviews and considers its principal risks on at
least an annual basis.
Risk Risk factors and management
Business model risk The scale and pace of change in regulatory and supervisory standards at an international level continue to drive developments at a local level. The interpretation or application of regulation over time may impact market accessibility, broker relationships
and / or competitive positioning. If the Group fails to monitor the regulatory environment or adequately integrate the management of associated obligations within strategic, business model or business planning processes there may be material risk to the
achievement of strategic objectives both in the short and longer term. How we manage the risk: · Robust strategic planning processes informed by analytical review of the external environment and consideration of associated risk in the short and longer
term.· Continuous monitoring and review of developments in local and international law and regulation.· Engagement with regulatory authorities and industry bodies, including active engagement in and responding to regulatory consultation
exercises.
Distribution strategy compromised as a result of market changes, technology or competitor activity The business environment in which the international insurance industry operates is subject to continuous change as new market and competitor forces come into effect and as technology continues to evolve. Hansard may fail to sufficiently differentiate
itself from its competitors and global brands and as a result be unable to build and sustain successful distribution relationships. How we manage the risk: · Close monitoring of marketplaces and competitor activity for signs of threats to forecast new
business levels. · Revised strategies designed to add additional scale to the business, on a more diversified basis, through organic growth at acceptable levels of risk and profitability.· Continuous development of technology.
Conduct risk Any failure to adequately assess, monitor, manage and mitigate risks to the delivery of fair customer outcomes, or to market integrity, can be expected to result in material detriment to the achievement of strategic objectives and is likely to incur
regulatory censure, financial penalty, contract holder litigation and / or reputational damage.How we manage the risk: · Developments in the Group's ERM framework will continue to drive and deliver the integration of conduct risk management at both a
cultural and practical level.· Business activities designed to manage the volume and velocity of regulatory change are fundamentally concerned with ensuring compliance with conduct risk obligations, managing conflicts of interest, preventing market
abuse and building robust governance arrangements around new product development and product suitability processes. · The Group maintains regular dialogue with its regulatory authorities and continual discussions with its advisors in relation to
developments in the regulatory environment in which we operate.
Infrastructure risk Infrastructure risk (cont.) A material failure in our core business systems or business processes may result in significant, costly interruptions, customer dissatisfaction and regulatory censure. How we manage the risk: · Maintenance of detailed and robust Business Continuity
Plans, including full data replication at an independent recovery centre, which can be invoked when required. · Frequent and robust testing of business continuity and disaster recovery arrangements.
Cyber risk As we and our business partners increasingly digitalise our businesses, we are unavoidably exposed to the risk of cybercrime. If the Group fails to take adequate and appropriate measures to protect its systems and data from the inherent risk of attack,
disruption and/or unauthorised access by internal or external parties could arise, resulting in confidential data being exposed and/or systems interruption. A significant cybercrime event could result in reputational damage, regulatory censure and
financial loss.How we manage the risk: · Continuous focus on the maintenance of a robust, secure and resilient IT environment that protects customer and corporate data. · Control techniques deployed to evaluate the security of systems and
proactively address emerging threats both internally within the organisation and externally, through regular engagement with internet and technology providers and through industry forums.
Failure to drive the right corporate culture and attract, develop, engage and retain key personnel Delivery of the Group's strategy is dependent on attracting and retaining experienced and high-performing management and staff. The performance, knowledge and skills of our employees are central to our success. We must attract, integrate, engage and retain
the talent required to deliver our strategy and have the appropriate processes and culture in place. The inability to retain key people, and adequately plan for succession can be expected to negatively impact the performance of the Group.How we manage the
risk: · Significant resources focussed on communicating strategy and desired cultural behaviours to all employees. · Forums established for employees to provide feedback for continuous improvement.· Employee engagement monitored and
measured through periodic employee surveys. · Group performance management system in place. · Training and development strategy in place to manage talent, provide development opportunities and address any skill gaps.· Remuneration models and
trends monitored closely by the Group's Human Resources Department and the Remuneration Committee.· Succession planning strategy in place, to manage and mitigate 'key person' risk.
Other Key Risks
In addition to the principal risks identified above, there are other key risks that the Group is subject to that derive
from the nature of the business it operates. These are outlined below, together with how they are managed.
Risk Risk factors and management
Market risk While the Group does not invest shareholder funds in assets subject to any significant market risk, the Group's earnings and profitability are influenced by the performance of contract holder assets and the fees derived from their value. Significant
changes in equity markets and interest rates can adversely affect fee income earned. Extreme market conditions can influence the purchase of financial services products and the period over which business is retained.How we manage the risk --- These risks
are inherent in the provision of investment-linked products.We model our business plans across a broad range of market and economic scenarios and take account of alternative economic outlooks within our overall business strategy.
Credit Risk In dealing with financial institutions, banking, money market and settlement, custody and other counterparties the Group is exposed to the risk of financial loss and operational disruption of our business processes. How we manage the risk --- The Group
seeks to limit exposure to loss from counterparty and third party failure through selection criteria, minimum rating agency limits, pre-defined risk based limits on concentrations of exposures and monitoring positions.
Liquidity risk If the Group does not have sufficient liquid assets available to pay its creditors, the Group may fail to honour its obligations as they fall due, or may have to incur significant loss or cost to do so.How we manage the risk --- The Group maintains highly
prudent positions in accordance with its risk appetite and investment policies which ensures a high level of liquidity is available in the short term at all times. Generally, shareholder assets are invested in cash or money market instruments with highly
rated counterparties.
Currency risk The Group operates internationally and earns income in a range of different currencies. The vast majority of its operational cost base is denominated in Sterling. The movement of Sterling against US Dollars is the most significant exposure to reported
income levels.How we manage the risk --- We seek to match currency assets and liabilities to mitigate against currency movements to the extent possible. As the Group's products are long term products, over time currency movements tend to even out, reducing
the need for active hedging policies. Long term trends are monitored however and considered in pricing models.
Further detail around financial risks is outlined in Note 3 (Financial Risk Management) to the consolidated financial
statements.
Consolidated Statement of Comprehensive Incomefor the year ended 30 June 2017
Year ended Year ended
30 June 30 June
2017 2016
Notes £m £m
Fees and commissions 5 52.6 51.3
Investment income 6 135.5 62.8
Other operating income 0.5 0.6
188.6 114.7
Change in provisions for investment contract liabilities (134.5) (60.8)
Origination costs 7 (19.3) (20.2)
Administrative and other expenses 8 (27.1) (25.3)
(180.9) (106.3)
Profit before taxation 7.7 8.4
Taxation 10 - (0.1)
Profit and total comprehensive income for the year
after taxation 7.7 8.3
Earnings per share
2017 2016
Note (p) (p)
Basic 11 5.6 6.0
Diluted 11 5.6 6.0
Consolidated Statement of Changes in Equity
for the year ended 30 June 2017
Share Other Retained
capital reserves earnings Total
£m £m £m £m
At 1 July 2015 68.7 (48.3) 19.7 40.1
Profit and total comprehensive income for the
year after taxation - - 8.3 8.3
Transactions with owners
Dividends paid - - (12.2) (12.2)
At 30 June 2016 68.7 (48.3) 15.8 36.2
Share Other Retained
capital reserves earnings Total
£m £m £m £m
At 1 July 2016 68.7 (48.3) 15.8 36.2
Profit and total comprehensive income for the
year after taxation - - 7.7 7.7
Transactions with owners
Dividends paid - - (12.2) (12.2)
At 30 June 2017 68.7 (48.3) 11.3 31.7
Consolidated Balance SheetAs at 30 June 2017
2017 2016
Notes £m £m
Assets
Property, plant and equipment 13 1.0 1.0
Deferred origination costs 14 111.6 110.9
Financial investments
Equity securities 20.5 13.0
Investments in collective investment schemes 920.9 784.5
Fixed income securities 22.0 22.6
Deposits and money market funds 103.1 120.2
Other receivables 15 5.2 4.4
Cash and cash equivalents 16 57.2 60.9
Total assets 1,241.5 1,117.5
Liabilities
Financial liabilities under investment contracts 17 1,049.7 923.5
Deferred income 18 129.2 130.5
Amounts due to investment contract holders 22.8 20.7
Other payables 19 8.1 6.6
Total liabilities 1,209.8 1,081.3
Net assets 31.7 36.2
Shareholders' equity
Called up share capital 21 68.7 68.7
Other reserves 22 (48.3) (48.3)
Retained earnings 11.3 15.8
Total shareholders' equity 31.7 36.2
Consolidated Cash Flow Statementfor the year ended 30 June 2017
2017 2016
£m £m
Cash flow from operating activities
Profit before tax for the year 7.7 8.4
Adjustments for:
Depreciation 0.4 0.5
Dividends receivable (3.9) (3.9)
Interest receivable (0.8) (0.6)
Foreign exchange gains (0.4) (3.3)
Changes in operating assets and liabilities
Increase in other receivables (0.7) (0.3)
Dividends received 3.9 3.9
Interest received 0.8 0.7
(Increase)/decrease in deferred origination costs (0.7) 2.6
Decrease in deferred income (1.3) (7.1)
Increase in creditors 3.5 3.6
Increase in financial investments (126.3) (16.2)
Increase in financial liabilities 126.3 16.5
Cash flow from operations 8.5 4.8
Corporation tax paid (0.1) (0.1)
Cash flow from operations after taxation 8.4 4.7
Cash flows from investing activities
Purchase of plant and equipment (0.4) (0.2)
Proceeds from sale of investments 0.3 -
Purchase of investments (0.2) (0.1)
Cash flows used in investing activities (0.3) (0.3)
Cash flows from financing activities
Dividends paid (12.2) (12.2)
Cash flows used in financing activities (12.2) (12.2)
Net decrease in cash and cash equivalents (4.1) (7.8)
Cash and cash equivalents at beginning of year 60.9 65.4
Effect of exchange rate changes 0.4 3.3
Cash and cash equivalents at year end 57.2 60.9
Notes to the consolidated financial statements
1 Principal accounting policies
Hansard Global plc ("the Company") is a limited liability company, incorporated in the Isle of Man, whose shares are
publicly traded. The principal activity of the Company is to act as the holding company of the Hansard group of companies.
The registered office of the Company is Harbour Court, Lord Street, Box 192, Douglas, Isle of Man, IM99 1QL.
These consolidated financial statements incorporate the assets, liabilities and the results of the Company and its
subsidiary undertakings ("the Group"). The principal accounting policies adopted in the preparation of these consolidated
financial statements are set out below or, in the case of accounting policies that relate to separately disclosed values in
the primary statements, within the relevant note to these consolidated financial statements. These policies have been
consistently applied, unless otherwise stated.
1.1 Basis of presentation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as
adopted by the European Union ("IFRSs"), International Financial Reporting Standards Interpretations Committee ("IFRSIC")
interpretations, and with the Isle of Man Companies Acts 1931 to 2004. The financial statements have been prepared under
the historical cost convention as modified by the revaluation of financial investments and financial liabilities at fair
value through profit or loss. The Group has applied all International Financial Reporting Standards adopted by the European
Union and effective at 30 June 2017.
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt
the going concern basis of accounting in preparing the financial statements.
There has been no significant impact in the financial statements due to the mandatory application of new accounting
standards for the year ended 30 June 2017.
The following new standards and interpretations are in issue but not yet effective and have not been early adopted by the
Group:
· IAS7, 'Statement of cash flows in disclosure initiative
· IFRS 15, 'Revenue from contracts with customers'
· Annual improvements 2014
· IFRS 9, 'Financial instruments'
· IFRS 16, 'Leases'
· IFRS 17, 'Insurance contracts
· Amendments to IAS12, 'On recognition of deferred tax assets for unrealised losses'
· Amendment to IFRS 4, 'Insurance contracts' regarding the implementation of IFRS 9, 'Financial instruments'.
The adoption of the above standards is not expected to have any material impact on the Group's results.
There are no other standards, amendments or interpretations to existing standards that are not yet effective, that would
have a material impact on the Group's financial statements.
The financial statements are
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