Results for the six months ended 31 December Our focus on growth markets is bearing fruit

Transcription

1 Hansard Global plc Results for the six months ended 31 December 2010 Our focus on growth markets is bearing fruit

2 INTERIM MANAGEMENT REPORT Results for the six months ended 31 December 2010 The Group has had a good start to the financial year reflected in improved new business flows, continued positive operating cash flows and increased assets under administration. % Six months ended 31 December change Present value of new business premiums 114.5m 73.5m 55.8 % New business margin after tax 7.4% 6.9% 7.3 % EEV operating profit after tax 9.7m 7.1m 36.6 % IFRS profit after tax 8.4m 9.2m (8.7)% IFRS earnings per share 6.1p 6.7p (8.7)% Interim dividend per share 5.75p* 5.50p 4.5 % As at % change Assets under Administration 1,303.3m 1,134.7m 14.9 % European Embedded Value 263.4m 247.0m 6.6 % * Payment date 31 March 2011 Contents Page Chairman s Statement 2 Report of the Managing Director 4 Report of the Chief Distribution Officer 11 IFRS Results 13 EEV Results 25 1

3 INTERIM MANAGEMENT REPORT Chairman s Statement Dr. Leonard Polonsky I am pleased to report that Hansard s performance in the first six months of the financial year (H1 2011) indicates that the measures taken in prior periods to invest in distribution infrastructure and to focus on growth markets are bearing fruit. New business flows in the period are approximately 50% higher than those of H1 2010, on all metrics reported by the Group. Whilst continued low interest rates and development expenditure have contributed to a reduction in IFRS profits to 8.4m after tax (H1 2010: 9.2m), we have continued to generate positive operating cash flows and have increased Embedded Value by 6.6% to 263.4m (30 June 2010: 247.0m). It is satisfying to note that current levels of new business are approaching levels that we had seen before the global credit crisis. We remain determined to grow in volume and profitability and so the current levels of new business flows at industry-leading margins give cause for optimism for the remainder of the financial year and the longer term. The Board has resolved to increase our interim dividend by 4.5% to 5.75 pence per share, which is covered by IFRS earnings of 6.1p per share in the period. I am delighted that our continued investment in distribution infrastructure and focus on particular growth markets has delivered new business growth of 50% over the previous year." Six months ended 31 December Basis m m % change Compensation Credit % Present Value of New Business Premiums % Annualised Premium Equivalent % New business Improvements in market conditions, continued investment in Hansard OnLine and distribution infrastructure, investment in fast growing markets in Latin America and the Far East and the growing level of interest in Hansard s products among financial advisors and their clients have contributed to an increased flow of new business. New business flows in H are approximately 50% higher than those of H1 2010, on all metrics reported by the Group. New business margins for H of 7.4% (H1 2010: 6.9%) on the Present Value of New Business Premiums ( PVNBP ) basis are market leading. New business flows for the six-month period ended 31 December 2010 are summarised as above (comparisons on an actual currency basis). The Group s market-driven focus is producing results. Regular premium flows, particularly from Latin America and the Far East, have increased by 49%, compared with H While we saw a small number of large single premium cases in Q1, the flow of single premium business in certain parts of the EU and EEA regions remains constrained by market conditions and current regulatory complexity. The Group remains committed to certain EU markets whilst reducing its exposure to others. 2

4 INTERIM MANAGEMENT REPORT Chairman s Statement continued The Group s investment in strategic projects to develop Hansard OnLine, including the implementation of new business initiatives and more efficient administrative processes, is bearing fruit. At the time of writing, over 50% of applications received use the online mechanism. Financial performance for the six months ended 31 December 2010 Financial results are presented under International Financial Reporting Standards as adopted by the European Union ( IFRS ). Additionally, certain information relating to embedded value is presented using the European Embedded Value ( EEV ) methodology. The Board believes that publishing EEV Information in conjunction with IFRS results provides more meaningful information on the financial position and performance of the Group than that provided by IFRS reporting alone. The IFRS profit after tax for the period was 8.4m compared to the profit of 9.2m earned in the corresponding period of the previous financial year. Earnings per share were 6.1 pence (H1 2010: 6.7p). The EEV of the Group, following the payment of a dividend of 10.6m in November 2010, has risen to 263.4m, an increase of 6.6% from the value at 30 June The EEV profit for the period is 27.0m (H1 2010: 25.9m). Assets under Administration The value of assets under administration as at 31 December 2010, at 1.3bn, has risen by 14.9% since 30 June 2010, reflecting continued premium flows, new business and the improvement in capital markets over that period. Capitalisation and Solvency The Group continues to be substantially capitalised to satisfy operational, regulatory and policyholder expectations. The Group s capital is held with a wide range of deposit institutions and in highly-rated money market liquidity funds. The Group had no borrowings during the period or at the period end (31 December 2009: Nil) and cash of 77.1m at the balance sheet date. Dividends The Board has resolved to increase the interim dividend by 4.5% to 5.75 pence per share (April 2010: 5.5p). This will be paid on 31 March 2011 (ex-dividend date: 2 March 2011). On 19 November 2010 the Company paid a final dividend of 7.7p per share. Including the interim dividend referred to above, this will result in amounts totaling 13.45p per share, or 18.5m, being paid as dividends during this financial year. Employees and Intemediaries These excellent new business results and continued development of the Group s proposition are a tribute to our employees, Account Executives and the independent financial advisors who introduce business to us. On behalf of the Board and shareholders I would like to thank everyone connected with Hansard for their dedication and contribution to these strong results. Outlook Even though we continue to face economic uncertainty, we shall continue to deliver excellent service to independent financial advisors and their clients, maintain profitable growth and generate value for our shareholders. Dr Leonard Polonsky Chairman 23 February current levels of new business are approaching levels that we had seen before the global credit crisis 3

5 INTERIM MANAGEMENT REPORT Report of the Managing Director Gordon Marr As I commented in the Annual Report for the year ended 30 June 2010, we have recognised that the decisions taken by Hansard in prior periods to invest in distribution infrastructure, to improve support to Independent Financial Advisors (IFAs) in our target markets, to reduce our exposure to operational and business model risk and to control expenses, are beginning to bear fruit. This is reflected in a growing level of interest in Hansard s products among financial advisors and their clients and has contributed to an increased flow of new business in the period ended 31 December 2010 (H1 2011). New business flows have increased by approximately 50% over the levels of the period ended 31 December 2009 and in Q we achieved a fifth consecutive quarter of new business growth on the PVNBP basis. Decisions taken... are beginning to bear fruit We also recognised that one impact of the extreme financial and market circumstances encountered over the last two years will be an increase in the Group s resources to address enhanced corporate governance, risk management and regulatory reporting, and to resolve uncertainties in policyholder asset values for those asset types whose weaknesses were exposed by the credit crisis. Recruitment for some of these resources began during the first half of the financial year, will continue into the second half of this financial year and will have an impact on the Group s expense base. Despite this, the Group has continued in its efforts to maintain an environment in which we can benefit from profitable relationships with IFAs and their clients, while continuing to effectively manage related risks. Throughout the period the Group has continued to: Generate positive cashflows to fund new business and dividends; Maintain expense disciplines; Invest in distribution infrastructure, Hansard OnLine and other IT developments, and Enhance its risk management frameworks. These and other factors are disclosed in this interim management report, as follows: 1. IFRS Results for the six months ended 31 December Embedded Value Results for the six months ended 31 December Systems development activities in the period, and 4. Risk management Commentary on new business is contained in the report of the Chief Distribution Officer. 1. IFRS Results We have again presented abridged financial information to improve the clarity of the financial performance of the Group under IFRS reporting. An abridged consolidated income statement, balance sheet and cash flow statement is set out below, together with commentary on salient figures. The performance of the Group under IFRS for H remained resilient. Fees and commissions receivable have increased but the decision to reinstate pension contributions and salary reductions, together with the impact of continued investment in Hansard OnLine and other functionality has contributed to increased administrative and other expenses. Despite increased investment income we have experienced a reduction in profit, compared with the results of the comparative period (H1 2010). 4

6 INTERIM MANAGEMENT REPORT The Group s profits arising from its Isle of Man-based operations continue to be taxable at zero percent, as was confirmed in the recent Isle of Man budget. Profit after taxation for the period is 8.4m (H1 2010: 9.2m). Earnings per share are 6.1 pence (H1 2010: 6.7p). IFRS results also reflect continuing investment of the Group s capital in profitable policy contracts, funded by positive cashflows. During the period, 12.2m (H1 2010: 8.8m) was invested in the acquisition of new business with a value (under EEV) of 19.3m (H1 2010: 12.0m). 1.1 Abridged consolidated income statement Year Six months ended ended Fees and commissions Investment and other income Origination costs (9.0) (8.8) (17.2) Administrative and other expenses (9.5) (7.9) (17.1) Profit for the period before taxation Taxation (0.2) (0.3) (0.2) Profit for the period after taxation Fees and commissions A summary of fees and commissions is set out below: Year Six months ended ended Contract fee income Fund management fees Commissions receivable IFRS fees and commissions Third party fund management fees (2.3) (1.9) (4.6) Fees and commissions attributable to Group activities Fund management fees and commissions receivable from third parties are related directly to the value of assets under administration, and are received in the currency of the underlying assets or funds. Reported fees, in sterling, received during the period have been restricted as a result of the strength of sterling against the currencies in which assets are denominated, particularly the US dollar and Euro Investment income attributable to the Group An analysis of investment income is set out below: Year Six months ended ended Income from investments Currency gains on net operating assets (0.2) Interest income on the Group s capital balances has increased as a result of action taken in the previous financial year to take advantage of higher interest rates by investing certain amounts longer-term. Volatility in foreign exchange markets has contributed to unrealised gains on translation of net operating assets held in foreign currencies, particularly Euro and US dollar. Any continued strengthening of Sterling against these currencies over the remainder of this financial year will cause a reversal of these gains Origination costs Origination costs include new business commissions, intermediary incentives and other distribution-related expenditure. Origination costs and other directly attributable incremental costs incurred on the issue of a policy are deferred and amortised over the life of the relevant contract. Other origination costs incurred reflect investment in distribution resources in line with our strategy. Year Six months ended ended Amortisation of deferred origination costs Other origination costs Administrative expenses We continue to manage our cost base effectively while investing in the Group s sales and distribution infrastructure, responding to increasing regulatory requirements and better linking employee incentives with investor interests. The decision to reinstate pension contributions ( 0.4m) and approve salary increases with effect from 1 July 2010, coupled with the estimated bonuses of 0.1m payable under group-wide incentive arrangements have contributed to an increase of 1.1m in salaries and other costs, when compared with H Other expenses and professional fees in the period include amounts totalling 0.3m (H1 2010: nil) for administration, custody, dealing and other charges paid to Capital International Limited under the terms of the outsourcing arrangement that commenced in November The Group is continuing a series of strategic projects to develop Hansard OnLine, develop new business initiatives and streamline administrative processes. Amounts totalling 0.5m (H1 2010: 0.2m), including salary and related costs of 0.4m, are included in expenses in relation to these 5

7 INTERIM MANAGEMENT REPORT activities. We anticipate that expenditure of a further 0.6m will be incurred in the remainder of the financial year on these projects. Reflecting the issues referred to above, administrative and other expenses attributable to Group activities are 9.5m, an increase of 1.6m from H A summary of administrative and other expenses attributable to the Group is set out below: Year Six months ended ended Salaries and other costs of administration resources Other expenses and professional fees Third party fund management fees Project costs IFRS administrative and other expenses Third party fund management fees (2.3) (1.9) (4.6) 1.2 Abridged consolidated balance sheet The condensed consolidated balance sheet presented under IFRS reflects the financial position of the Group at 31 December As a result of its method of presentation, the consolidated balance sheet incorporates the assets under administration held to back the Group s liability to policyholders, and also incorporates the equivalent liability to policyholders of 1.3bn (31 December 2009: 1.0bn). Additionally, the Group s own capital resources of 77.1m are disclosed in different positions based on maturity date of bank deposits. The abridged consolidated balance sheet presented below, allows a better understanding of the Group s own capital position and reflects positive operating cash flows despite continued investment in new business. The final dividend of 7.7p per share paid in November 2010 exceeded IFRS earnings per share for the half-year, and has therefore caused a small reduction in Shareholders equity since 30 June As at Assets Deferred origination costs Other assets Cash and bank deposits Liabilities Deferred income reserve Other payables Deferred origination costs Deferred origination costs represent the unamortised balance of accumulated origination costs. 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 increase in value since 30 June 2010 reflects continuing investment of the Group s capital in profitable policy contracts funded by positive cashflows, net of amounts amortised. Direct distribution costs of 10.9m (H1 2010: 6.9m) were invested in the acquisition of new business in the period Cash and bank deposits The Group s cash and deposit balances, excluding those held to cover liabilities under investment contracts, at 31 December 2010 stood at 77.1m. This is a decrease of 4.7m from the value of 81.8m reported at 30 June 2010, following a dividend of 10.6m paid during the period. This further reflects the Group s continued cash generative capability. The Group s capital is held with a wide range of deposit institutions and in highly-rated money market liquidity funds. The Group had no borrowings during the year or at the balance sheet date (30 June 2010: Nil) Deferred income reserve Deferred income reserve represents the unamortised balance of accumulated initial amounts received on new business, which exceeds the level of expected annual fees for that contract. These amounts are released to the income statement on a straight-line basis over the life of each contract. The decrease in value since 30 June 2010 reflects the sales mix of new business. Being primarily regular premium business, fees are received over the initial period of the contract, rather than being received up front. 1.3 Abridged consolidated cash flow statement Positive operating cash flows in the period allowed the Group to fund new business from its own resources and continue to invest in its sales force and support teams. The following summarises the Group s own cash flows in the period: Year Six months ended ended Net cash inflow from existing business Foreign exchange differences (0.2) Interest on investments Cash inflow Investment in new business (10.9) (6.9) (16.2) Net operating cash flow Purchase of plant and equipment (0.3) (0.1) (0.3) Corporation tax paid - (0.3) (0.3) Dividends paid (10.6) (10.1) (17.6) Net cash (outflow) / inflow (4.8) Net assets Shareholders' equity Share capital and reserves

8 INTERIM MANAGEMENT REPORT 1.4 Dividends A final dividend of 7.7p per share in relation to the previous financial year was paid in November This amounted to 10.6m. The Board has considered the results for H and the Group s continued cash flow generation and has resolved to increase the interim dividend by 4.5% to 5.75p per share (April 2010: 5.5p). This will be paid on 31 March Assets under Administration Retention of Assets under Administration ( AUA ) remains strong. New business, net positive premium flows from policyholders and strengthening capital markets, despite the weakness of foreign currencies against Sterling, have underpinned the growth in AUA to 1.3bn at 31 December 2010, up 14.9% from 30 June Deposits to investment contracts in H total 106.9m, aided by single premiums of 66.6m. This compares with deposits of 67.3m in H (after a reduction of 14m representing the cancellation of two single premium cases that were issued prior to June 2009, within their contractual cooling off period). The flexible nature of our products, allowing policyholders the ability to determine the investment mix held within policy contracts has, we believe, helped maintain benefits paid out on those contracts at the previous year s levels and further emphasises the value of the insurance wrapper. Deposits to investment contracts Deductions from investment contracts (90.5) (87.4) (180.4) Investment contract benefits Increase in period Opening balance 1, , ,002.1 Closing balance 1, , ,134.7 During the period we have seen an increase in liquidations and other efforts to resolve uncertainty over policyholder asset values. The selection and performance of assets provides a significant portion of the complaints received by the Group. In all cases the assets linked to policies, and which determine the policy values, are selected by policyholders or their duly appointed (or nominated) advisors. The Group does not provide investment advice and, accordingly, the Board is of the view that these complaints have no merit. A small portion of policyholder assets are exposed to funds connected to Bernard Madoff and we have appointed reputable lawyers to strongly refute the claims made in relation to our policyholder assets and who are liaising with other defence counsel. The Group has no exposure to Keydata funds or to compensation claims from the Financial Services Compensation Scheme in relation to those funds. Under the terms of the unit-linked contracts issued by the Group, the policyholder bears the financial risk attaching to assets to which the contracts are linked. 1.6 Capitalisation and Solvency The Group continues to be substantially capitalised to satisfy operational, regulatory and policyholder expectations. Following increases in the aggregate minimum regulatory margins in the period, the required margins are covered 13.4 times (30 June 2010: 15.1 times) by the Group s capital resources. The relatively low minimum solvency requirement reflects the fact that the Group does not have options or guarantees on its investment portfolio, is not exposed to longevity risk through an annuity book and uses a prudent reassurance programme to manage the mortality and morbidity risks of the life businesses. The investment policy for non-linked assets remains prudent, with no exposure to equity investments. Non-linked liabilities are matched by highly-rated money market funds and bank deposits. This policy continues to immunise the capital base from stock market falls Solvency II We recognise that the introduction of Solvency II will see a fundamental change in the way EU-based insurers assess their capital requirements and risk management standards. Based on current guidance we do not expect additional capital requirements as a result of these legislative changes. While Solvency II will initially apply only to EU-based insurers, we continue to enhance the risk management framework throughout the Group. The documentation of corporate policies and risk assessments will provide a more informed basis for both decision making and solvency assessment. 2. Embedded Value Results EEV results for the period reflect the fact that the Group continues to issue profitable new business and to generate positive cash flows to fund new business and pay dividends. The operating profit performance of the Group in H has improved relative to H1 2010, despite volatile markets and uncertain economic outlook. The value of 8.5m added from new business is 67% higher than in H EEV operating profit after tax has increased by 36.6% to 9.7m (H1 2010: 7.1m). Increases in market levels and other external conditions, which will impact on future asset-based income streams, gave rise to EEV investment return profits of 17.3m in the period (H1 2010: 18.8m). The Embedded value at 31 December 2010 is 263.4m, an increase of 16.4m or 6.6% since 30 June 2010 following a dividend payment of 10.6m in that period. 2.1 EEV Profit EEV profit provides a measure of the Group s performance over the halfyear ended 31 December EEV profit after tax has increased by 4.2% to 27.0m (H1 2010: 25.9m), a return on EEV of 10.9% in the period (H1 2010: 10.9%). The components of EEV profit after tax are set out in the table below. Additional analysis is contained within the EEV Information section of this report. Year Six months ended ended New business contribution Expected return Experience variances (1.3) (1.6) (4.1) Operating assumption changes (2.7) (0.1) (2.1) Expected return on net worth Model changes 2.1 (0.2) 2.1 EEV operating profit after tax Investment return variances Economic assumption changes (0.5) 0.0 (5.1) EEV profit after tax

9 INTERIM MANAGEMENT REPORT Operating profit performance new business New business volumes, expressed as Present Value of New Business Premiums (PVNBP), have increased by 56% compared to H The Group has retained its focus on profitability and has earned 8.5m from new business activities in the period (H1 2010: 5.1m). The new business margin for the period, being the contribution from new business expressed as a percentage of PVNBP, has increased to 7.4%. This is primarily as a result of increased volumes and action taken by the Group to increase the proportion of sales attributable to regular premium products, which typically have a higher margin than single premium products. An adverse reduction in margin arising from the larger single premium cases issued in Q1 has been offset by an increase in profitability from other products. Year Six months ended ended New business volumes - PVNBP ( m) New business contribution net of corporation tax ( m) New business margin (%) 7.4 % 6.9 % 6.9 % As a result of the introduction of online new business functionality for regular premium products and the relative scaleability of the Group s systems, the increase in new business volumes in the first-half of the year has been achieved without a corresponding increase in acquisition expenses. The underlying profitability of new business written by the Group remains consistently above levels enjoyed by a majority of competitors. The Internal Rate of Return of new business written during the year remains in excess of 15% per annum, while initial capital invested in underwriting new business is returned, on average, within three years Operating profit performance in-force business Operating profit for in-force business in the period was 1.2m (H1 2010: 2.0m) which was lower than expected. This was influenced, primarily, by a reduction in the risk discount rate, our response to changes in the behaviour of policyholders, and increased expense assumptions. Additionally improvements to our actuarial modelling systems to better forecast behaviour have resulted in an addition of 2.1m to EEV operating profit. Throughout the period the Group experienced a lower rate of policy lapses, and a higher proportion of policyholders requesting premium reductions. The net effect has increased EEV operating profit by 0.2m (H1 2010: 0.6m loss). The Group incurred expenses of 0.5m higher than expected. A portion of these costs related to additional investment in governance, risk management and administration resources. Management considered the outlook for future administrative costs and decided to take a more cautious position, as reflected within changes to operating assumptions. Further details are in section of the EEV Information Investment returns Investment performance is a key driver of the EEV profit as it reflects future expectations of asset-based income streams. Increased investment returns on policyholder assets under administration have which contributed 16.1m (H1 2010: 13.7m) to EEV profit. Assets under administration have increased by 14.9% since 30 June 2010 to 1.3bn. 2.2 EEV balance sheet The Group s embedded value has proved resilient. The Group s EEV at 31 December 2010 has risen to 263.4m, an increase of 16.4m or 6.6% in the six months from 30 June 2010, demonstrating the continued acquisition of profitable new business. The table below provides a summarised breakdown of the EEV at the reporting dates: As at Net worth Value of future profits ( VIF ) Net worth is the market value of shareholders funds, determined on an IFRS basis, adjusted to exclude certain assets recognised in the Value of future profits. The decrease in net worth, following the payment of a dividend of 10.6m in November 2010, reflects the impact of the Group s progressive dividend record. At the balance sheet date the net worth of the Group is represented by liquid cash balances. 2.3 Profit emergence In general, the faster that future cash flows (recognised in the VIF) are expected to emerge into net worth, the more confidence there is that those cash flows will be received at their anticipated levels and hence the more confidence there is about the EEV itself. As at 31 December 2010, the value of future profits is 200.9m. Over a quarter of these profits are expected to convert into net worth within 2 years, half within 5 years and three quarters within 9 years. Relative to most life insurance companies, this reflects a fast conversion of future cash flows to net worth, as required by the Group s pricing methodology. 2.4 Net Asset Value The net asset value per share ( NAV ) at 31 December 2010, on the EEV basis, is 191.8p. This represents an increase of 6.6% from the NAV at 30 June The NAV is based upon the EEV at the balance sheet date divided by the number of shares in issue at that date, being 137,282,656 shares. 3. Systems Developments A number of projects are underway to develop Hansard OnLine, implement new business initiatives and streamline administrative processes. 3.1 Hansard OnLine Hansard OnLine is the Group's internet platform: it joins together financial advisors around the world with Hansard s offices, and with their clients (via client sites administered by the Group). Hansard OnLine is a secure extranet platform hosting a rich and deep set of up-to-date and historic information about the policies and clients introduced via each intermediary. Widely and independently regarded as best in class, Hansard OnLine, launched in 1999, is a valuable sales and administration tool. Hansard OnLine continues to be developed to meet the needs of independent financial advisors and policyholders, as can be seen in the report of the Chief Distribution Officer. 8

10 INTERIM MANAGEMENT REPORT 3.2 OnLine new business In particular, a wide range of financial advisors have used secure upload and online new business functionality in the six-month period. A pilot version of online new business was launched early in 2010: the facility was enthusiastically taken up by financial advisors and as a result, the facility has been the subject of a rolling programme of enhancements, thus extending its reach, and cutting out any re-keying of data. At the time of writing, over 50% of applications received use the online mechanism. Online new business ensures clean and speedy submission of business while limiting the requirement for paper. A facility to allow straight through processing of selected single premium contracts is being developed. 3.3 Hansard OnLine refresh The look and feel of Hansard OnLine has been updated, taking advantage of the tools and techniques that simply were unavailable at Hansard OnLine s launch over ten years ago. 3.4 Client sites Client sites are an extension of Hansard OnLine: a client site can be set up when business is first received, or at any time during a product's lifetime. The intermediary directs the facilities that will be available to each client (policyholder), and is alerted every time a client visits. There are over 10,000 active client sites. At its simplest, Hansard OnLine and client sites provide valuation, premium collection, fund and investment performance information on products from both Hansard insurance companies and in the following languages: English, Dutch, French, German, Japanese, Mandarin, Norwegian, Portuguese, Spanish and Swedish. Work to support the Group's plans to extend the reach, functionality and penetration of client sites is progressing. Clients can now change contact information online the first example of technology allowing Hansard clients to manage their own data - and plans to extend the ease of access, without reducing security, are well progressed. During February 2011, a development to alert clients to incoming post, and to allow them to view the post online, has been implemented. This development is designed to make client sites more attractive by providing a secure, speedy and convenient way to communicate, thus lessening the reliance on postal communication. 4. Risks relating to the Group s financial and other exposures Hansard s business model involves the controlled acceptance and management of risk exposures. The steps taken to minimise those exposures include the operation of unit-linked insurance business. 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. The shareholders exposure on this unit-linked business is limited to the extent that income arising from asset management charges is generally based on the value of assets in the funds, and any sustained falls in value will reduce earnings. The Group s exposure to financial risks is addressed within note 14 to the consolidated financial statements. Additionally, the EEV Information includes a summary of the sensitivity of the Group s EEV results to economic and other factors. The Board believes that the principal risks facing the Group are those relating to the operation of the Group s business model and to the environment within which the Group operates. The Group has designed its products, distribution methods and cost base with a view to reducing operational and financial risk, and has in place a risk management framework that is continually being refreshed to better support our objectives and to recognise regulatory and legislative change. While the Group s business model has served to minimise the principal risks facing the Group, the responses to the extreme financial and market circumstances encountered over the last two years may impact on the Group s strategic objectives, profitability or capital requirements. The following table provides examples of the principal risks that may impact on the Group s strategic objectives, profitability or capital in the remainder of this financial year. These risks and uncertainties have not changed materially since the 2010 Annual Report. Where necessary, the Group will develop alternative strategies to minimise the impact of any changes to its risk profile. Gordon Marr Managing Director 23 February Strategic IT developments The Group s plans to upgrade its unit fund management software and tighten its core administration systems are well progressed and should realise benefits over the coming six to twelve months. 9

11 INTERIM MANAGEMENT REPORT Risk event examples Risk factors and uncertainties Group profitability affected by financial market and economic conditions Distribution strategy compromised as a result of market changes or competitor activity Non-compliance with regulations, including product design or intermediary behaviour The Group s earnings and profitability are influenced by a broad range of factors including the performance and liquidity of investment markets, interest rate movements and inflation. Extreme market conditions can influence the purchase of financial services products and the period over which business is retained. The Group closely monitors competitor activity and marketplaces for signs of any potential new entrants or threats to forecast new business levels. The Group maintains dialogue with the Insurance & Pensions Authority of the Isle of Man Government, the Central Bank of Ireland and other regulatory and legislative authorities. However, sudden changes in legislation without prior consultation, or the differing interpretation and application of regulations over time, may have a detrimental effect on the Group s strategy, profitability and risk profile. Hansard OnLine development and availability Any prolonged failure in internet capacity preventing the Group from delivering Hansard OnLine might impact on the Group s reputation and strategic objectives. Operational risks Counterparty, distribution and third party risks We investigate exceptions to expected results, behaviour and parameters, and investigate the root causes. Corrective actions are implemented in accordance with the impact and likelihood of recurrence. The Group seeks to limit exposure to loss from counterparty, distribution and third party failure through selection criteria, pre-defined risk based limits on concentrations of exposures and monitoring positions. Outsourcing Fraud The Group s dependence on outsourced activities comes under threat should business partners decide to revise strategy or fail. Recruitment and retention policies allow for appropriate vetting of staff to be conducted to determine their suitability and integrity. Infrastructure failure Business Continuity Plans, including full data replication at an independent recovery centre, can be invoked when required. Testing is conducted frequently. Key staff loss The Group actively focuses on retaining the best personnel. However, sudden unanticipated loss of pools of expertise may, in the short term, impact certain segments of the Group s business. 10

12 INTERIM MANAGEMENT REPORT Report of the Chief Distribution Officer Joseph Kanarek Continued investment in Hansard OnLine and distribution infrastructure, improvements in market conditions, and the growing level of interest in Hansard s products among financial advisors and their clients has contributed to an increased flow of new business. Through the continued application of our new business strategy, the Group has continued to harness new business momentum and in Q we achieved a fifth consecutive quarter of new business growth on the PVNBP basis. New business for H of 114.5m on the PVNBP basis is 55.8% above the level of the corresponding period of the previous financial year (H1 2010: 73.5m). We have continued to direct our market development and other resources to attract further sources of regular premium new business flows from growth markets. These increased regular premium flows support market leading new business margins of 7.4% for the period (H1 2010: 6.9%). New business for the six months ended 31 December 2010 New business sales volumes are expressed in terms of the Group s internal metric, Compensation Credit ( CC ), and two bases generally made available to the market, Present Value of New Business Premiums ( PVNBP ) and Annualised Premium Equivalent ( APE ). A summary of new business flows on each metric is set out below. Comparisons against the corresponding period are on an actual currency basis. Six months ended Year ended Change 2010 m m % m CC % 11.9 PVNBP % APE % 22.3 To allow better comparison with results published by other companies the following commentary relates to new business flows calculated on the basis of PVNBP. Six months ended Year ended Change 2010 By type of contract m m % m Regular premium % 69.0 Single premium % 97.3 PVNBP % Six months ended Year ended Change 2010 By geographical area m m % m EU and EEA (4.8)% 72.2 Far East % 31.1 Latin America % 37.6 Rest of World % 25.4 PVNBP %

13 INTERIM MANAGEMENT REPORT Report of the Chief Distribution Officer continued Throughout the period we continued to direct our market development and other resources to attract further sources of regular premium new business flows from growth markets. This is reflected in regular premiums of 47.9m which is 48.8% above the flows of H More particularly, this is reflected in the continuing growth in flows from Latin America and the Far East regions which, at 49.7m, are approximately 59% above the combined total for those regions for H Single premium flows of 66.6m have increased by 61.3% over H1 2010, aided by some exceptionally large cases from the Rest of the World regions in Q Five contracts accounted for approximately 20.3m. This illustrates the sensitivity of the Group s PVNBP reporting to large single premium cases. While this reflects a recovery in investor confidence, the flow of single premium business in certain parts of the EU and EEA regions remains restrained as a result of volatile market conditions and current regulatory complexity. Differing interpretation and application of regulations, particularly within the EU, has caused us to reconsider our exposure to certain markets. For example, we have suspended taking new business from Norway. We receive business from a well-diversified network of financial advisors around the world, which results in new business being received in a range of currencies. In line with the Group s principal new business production areas, approximately 43% (as a percentage of PVNBP) of new business premiums in the period were received in US Dollar, with a further 28% received in Euro and 13% in Sterling. OnLine new business The Group continues to invest in Hansard OnLine to allow financial advisors to provide a better service to their clients. In particular, a wide range of financial advisors have used secure upload and online new business functionality in the six-month period. A total of 700 policies have been introduced electronically in the period by financial advisors using those facilities, which represents a significant reduction in paper flows and in turnaround time and a significant increase in data security and efficiency. These facilities continue to be enhanced and are being extended to other intermediary groupings. New business margins The Group continues to issue new business on terms that meet target returns and contribute to profit. The new business margin is sensitive to volumes and the product mix: as a result of the substantial value of regular premium business issued in Q2 2011, which is more profitable to the Group than single premium business, the overall new business margin for H is 7.4% (H1 2010: 6.9%). Market development In the first half of this financial year the Group increased its exposure to the growth markets of China, Japan, Malaysia, Mexico and Venezuela which has had a significant impact on the number of relationships with financial advisors in those areas, and also on new business flows in the period. This increase was aided by graduates of the Market Development Manager programme who have developed relationships with financial advisors and are on target for what was included in new business production projections for their part. While remaining committed to sourcing single premium contracts, the Group reduced exposure to certain regions within Western Europe. The Group has retained its exposure to certain markets in the Middle East but writes insignificant amounts of business in North Africa. Selective recruitment of distribution resources continues, in line with the Group s policy of expanding its reach amongst suitable financial advisors in the Group s target markets, and the next training course for Market Development Manager recruits is expected to be held early in the next financial year. Outlook Barring dramatic changes in economic circumstances we expect regular premium new business flows to continue through the remainder of this financial year at rates experienced in the first half, although we noted a recent reduction in some new business flows as a result of the timing of the Chinese New Year. While we expect a continuing flow of single premium business we do recognise that larger cases have a distorting impact on reported numbers. Joseph Kanarek 23 February 2011 New business for H of 114.5m on the PVNBP basis is 55.8% above the level of the corresponding period of the previous financial year. 12

14 IFRS RESULTS Independent review report to Hansard Global plc Introduction We have been engaged by the company to review the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 31 December 2010, which comprises the consolidated income statement, the consolidated statement of changes in equity, the consolidated balance sheet, the consolidated cash flow statement and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated set of financial statements. Directors responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom s Financial Services Authority. As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union. Our responsibility Our responsibility is to express to the company a conclusion on the condensed consolidated set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the United Kingdom s Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of review We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the International Auditing and Assurance Standards Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 31 December 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. PricewaterhouseCoopers LLC Chartered Accountants Douglas Isle of Man 23 February

15 IFRS RESULTS Consolidated Income Statement Six months ended Year ended 31 December Note Fees and commissions Investment income Other operating income Investment contract benefits (152.2) (179.9) (146.9) Origination costs (9.0) (8.8) (17.2) Administrative and other expenses 6 (11.8) (9.8) (21.7) (173.0) (198.5) (185.8) Profit on ordinary activities before taxation Taxation on profit on ordinary activities 7 (0.2) (0.3) (0.2) Profit for the period after taxation Total comprehensive income The Group has no other items of Comprehensive Income and as such has not presented a separate consolidated Statement of Comprehensive Income. Earnings per share Six months ended Year ended 31 December Note (p) (p) (p) Basic Diluted The notes on pages 18 to 23 form an integral part of these condensed consolidated half-yearly financial statements. 14

16 IFRS RESULTS Consolidated Statement of Changes in Equity Share Other Retained capital reserves earnings Total Note m Shareholders equity at 30 June (48.5) Total comprehensive income for the period Transactions with owners Dividends (10.1) (10.1) Shareholders equity at 31 December (48.5) Share Other Retained capital reserves earnings Total Note m Shareholders equity at 30 June (48.4) Total comprehensive income for the period Transactions with owners Dividends (10.6) (10.6) Shareholders equity at 31 December (48.4) The notes on pages 18 to 23 form an integral part of these condensed consolidated half-yearly financial statements. 15

17 IFRS RESULTS Consolidated Balance Sheet Restated (Note 2) 31 December Notes Assets Plant and equipment Deferred origination costs Financial investments Equity securities Collective investment schemes Fixed income securities Deposits and money market funds , , ,160.7 Other receivables Cash and cash equivalents Total assets 1, , ,332.8 Liabilities Financial liabilities under investment contracts 10 1, , ,134.7 Deferred income reserve Amounts due to investment contract holders Other payables Total liabilities 1, , ,278.2 Net assets Shareholders equity Called up share capital Other reserves (48.4) (48.5) (48.4) Retained earnings Total shareholders equity The notes on pages 18 to 23 form an integral part of these condensed consolidated half-yearly financial statements. 16

18 IFRS RESULTS Consolidated Cash Flow Statement Six months ended Restated (Note 2) Year ended 31 December Notes Cash flow from operating activities Profit before tax for the period Adjustments for: Depreciation Dividends receivable (1.3) (1.4) (3.8) Interest receivable (1.0) (0.6) (1.2) Foreign exchange (gain)/loss (0.6) Changes in operating assets and liabilities Decrease in debtors Dividends received Interest received (Increase)/decrease in deferred origination costs (3.3) 0.8 (1.5) (Decrease)/increase in deferred income reserve (1.0) (0.4) 0.7 Increase in creditors Increase in financial investments (168.7) (170.6) (168.0) Increase in financial liabilities Cash generated from/(used by) operations (2.8) Corporation tax paid - (0.3) (0.3) Net cash generated from/(used by) operations (3.1) Cash flows from investing activities Purchase of plant and equipment (0.3) (0.1) (0.3) Proceeds from sale of investments Purchase of investments - - (0.1) Net cash flows from investing activities (0.2) (0.1) (0.4) Cash flows from financing activities Dividends paid (10.6) (10.1) (17.6) Net (decrease)/increase in cash and cash equivalents (3.5) 5.2 (21.1) Cash and cash equivalents at beginning of period Effect of exchange rate changes Cash and cash equivalents at period end The notes on pages 18 to 23 form an integral part of these condensed consolidated half-yearly financial statements. 17

19 IFRS RESULTS Notes to the Condensed Consolidated Financial Statements 1 General information The principal activity of the Company is to act as the holding company of the Hansard Group of companies. The activities of the principal operating subsidiaries include the transaction of life assurance business and related activities. The Company has its primary listing on the London Stock Exchange. These condensed consolidated half-yearly financial statements were approved for issue on 23 February These condensed consolidated half-yearly financial statements do not comprise statutory financial statements and are unaudited. The board of directors approved the statutory financial statements for the year ended 30 June 2010 on 22 September The report of the auditor on those financial statements was unqualified and did not contain an emphasis of matter paragraph. 2 Basis of presentation These condensed consolidated half-yearly financial statements for the half-year ended 31 December 2010 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority ( DTR ) and with IAS 34 Interim Financial Reporting as adopted by the European Union ( EU ). The condensed consolidated half-yearly financial statements should be read in conjunction with the annual financial statements for the year ended 30 June 2010, which were prepared in accordance with International Financial Reporting Standards as adopted by the EU. Except where otherwise stated, all figures included in the condensed consolidated half-yearly financial statements are stated in pounds sterling, which is also the functional currency of the Company, rounded to the nearest hundred thousand pounds. The Directors have reclassified deposits held by or on behalf of policyholders as financial investments and not cash and cash equivalents, as these assets do not constitute cash equivalents held for the purpose of meeting short-term commitments. The comparative figure ( 145.6m) in the consolidated balance sheet, consolidated cash flow statement and related notes has been restated accordingly. In addition, a classification adjustment was made to the comparative figures for other receivables ( 2.2m) and other payables ( 2.2m), in respect of periodic fees due from policyholders at 31 December Accounting policies The significant accounting policies applied are consistent with those of the annual financial statements for the year ended 30 June 2010 and can be accessed on the Company s website: The International Accounting Standards Board has amended IAS 34 - Interim financial reporting, in connection with disclosures around fair value and classification of financial instruments and changes in contingent assets and liabilities (Effective for accounting periods commencing on or after 1 January 2011). The Group has not early adopted this amendment and is in the process of assessing its likely effect on future interim financial statements, if any. 4 Segmental information In the opinion of the Group s Executive Committee, deemed to be the Chief Operating Decision Maker (CODM), the Group operates in a single reportable segment, that of the distribution and servicing of long-term investment products through the Group s subsidiaries. The Group s Executive Committee uses two principal measures when appraising the performance of the business: net issued compensation credit (NICC) and expenses. NICC is a measure of the value of new in-force business and top-ups on existing single premium contracts. NICC is the total amount of basic initial commission payable to intermediaries for business sold in a period and is calculated on each piece of new business. It excludes override commission paid to intermediaries over and above the basic level of commission. The Group maintains a close control over the margins realised on new business, which are consistent across the Group s products and, hence, NICC is a reliable indicator of income. 18

20 IFRS RESULTS The following table analyses NICC geographically and reconciles NICC to origination costs during the period: Six months ended Year ended 31 December Latin America EU and EEA Far East Rest of World Net compensation credit reported to the CODM Other commission costs paid to third parties Enhanced unit allocations Direct origination costs during the period Other distribution-related expenditure Total origination costs Expenses are reported to the Group s Executive Committee on a monthly basis on an aggregate basis, as distinct from the classification of costs between origination and administration and other expenses for IFRS reporting purposes, and may be reconciled as follows: Six months ended Year ended 31 December Expenses reported to the Group Executive Committee Annual management charges credited against expenses Amounts reclassified as origination costs (3.3) (2.1) (4.8) Renewal commission and investment management fees Other Administrative and other expenses All Group assets are deemed to belong to the single segment. Revenues and expenses allocated to geographical locations contained in sections 4.1 to 4.4 below, reflect the revenues and expenses generated in or incurred by the legal entities in those locations. 4.1 Geographical analysis of fees and commissions by origin Six months ended Year ended 31 December Isle of Man Republic of Ireland Geographical analysis of profit before taxation Six months ended Year ended 31 December Isle of Man Republic of Ireland Geographical analysis of gross assets 31 December Isle of Man 1, Republic of Ireland , , ,

21 IFRS RESULTS 4.4 Geographical analysis of gross liabilities 31 December Isle of Man Republic of Ireland , , , Fees and commissions Six months ended Year ended 31 December Contract fee income Fund management charges Commissions receivable Administrative and other expenses Included in administrative and other expenses is the following: Six months ended Year ended 31 December Auditors remuneration - Fees payable to the Company s auditor for the audit of the Company s annual accounts Fees payable for the audit of the Company s subsidiaries pursuant to legislation Employee costs Investment management fees Professional and other fees Renewal and other commission Operating lease rentals Licences and maintenance fees Insurance costs Depreciation of plant and equipment Communications Directors fees Taxation The Group s profits arising from its Isle of Man-based operations are taxable at zero percent. Corporation tax for the Republic of Ireland-based operations is based on the effective annual rate for taxable income of 12.5%, applied to the expected taxable profits for the period. 20

22 IFRS RESULTS 8 Earnings per share Earnings per share is based upon the profit for the period after taxation divided by the average number of shares in issue throughout the period. There is no significant difference between earnings per share and fully-diluted earnings per share. Six months ended Year ended 31 December Profit after tax ( m) Weighted average number of shares in issue (millions) Earnings per share in pence Weighted average number of shares in issue (millions) Dilution of shares due to share save scheme (millions) Weighted average number of shares Diluted earnings per share in pence Dividends Six months ended Year ended 31 December Final dividend of 7.7p per share paid on 19 November Interim dividend of 5.5p per share paid on 1 April Final dividend of 7.35p per share paid on 20 November The Board have resolved to pay an interim dividend of 5.75p per share. This amounts to 7.9m and will be paid on 31 March 2011 to shareholders on the register at 2 March Financial investments held to cover liabilities under investment contracts The following investments, other assets and liabilities are held to cover financial liabilities under investment contracts. They are included within the relevant headings on the consolidated balance sheet. 31 December Equity securities Investment in collective investment schemes Fixed income securities Deposits Other receivables Total assets 1, , ,134.9 Other payables (2.1) (2.4) (0.2) Financial investments held to cover liabilities 1, , , Called up share capital 31 December Authorised: 200,000,000 ordinary shares of 50p Issued and fully paid: 137,282,656 ordinary shares of 50p

23 IFRS RESULTS 12 Foreign exchange rates The closing exchange rates used by the Group for the translation of balance sheet items from US$ and to Sterling were as follows: 31 December US Dollar Euro Related party transactions Intra-Group transactions are eliminated on consolidation and are not disclosed separately here. There have been no significant related party transactions in the period nor changes to related parties. Related party transactions affecting the results of previous periods and an understanding of the Group s financial position at previous balance sheet dates are as disclosed in the Annual Report & Accounts for the year ended 30 June There have been no significant awards during the period under the Save As You Earn (SAYE) share-save programme for employees. The estimated fair value of the scheme and the imputed cost for the period under review is not material to these financial statements. 14 Financial risk management The Group s operations expose it to a variety of financial risks. The Group s objective in the management of financial risk is to minimise, where practicable, its exposure to such risk, except when necessary to support other objectives. The principal method by which the Group seeks to manage risk is through the operation of unit-linked business, whereby the policyholder bears the financial risk relating to the financial assets and liabilities arising from such contracts. Under the unit-linked investment contracts that are written by the Group, policyholders bear the investment risk on the assets in the unitlinked funds, as the policy benefits are directly linked to the fair value of the assets. These assets are managed consistent with the expectations of the policyholders. 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 shareholders exposure is limited to the extent that certain contract income is based on the value of assets in the unit-linked funds. Information concerning the operation of the frameworks to manage financial and other risks is contained in pages of the Report & Accounts for the year ended 30 June 2010, and in note 22 thereto, Financial risk management. There have been no significant changes to the frameworks in the period to 31 December The more significant financial risks to which the Group is exposed, and an estimate of the potential financial impact of each on the Group s IFRS earnings, are set out below. For each category of risk, the Group determines its risk appetite and sets its investment, treasury and associated policies accordingly Market risk This is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, analysed between price, interest rate and currency risk. (a) Price risk An overall change in the market value of the unit-linked funds would affect the annual management charges accruing to the Group since these charges, which are typically 1% pa, are based on the market value of assets under administration. Similarly, due to the fact that some of these charges may be deducted from policies in foreign currency, a change in foreign exchange rates relative to Sterling can result in fluctuations in management fee income and expenses reflected in these financial statements. The approximate impact on shareholder profits and equity of a 10% change in unit-linked fund values, either as a result of price or currency fluctuations, is 1.6m (H1 2010: 1.5m) in a financial year. (b) Interest rate risk Interest rate risk is the risk that the Group is exposed to lower returns or loss as a direct or indirect result of fluctuations in the value of, or income from, specific assets arising from changes in underlying interest rates. The Group is primarily exposed to interest rate risk on the balances that it holds with credit institutions and in Money market funds. The Group has mitigated its exposure to cash flow interest rate risk by placing a proportion of its cash holdings on longer-term fixed deposits. After the placing of a proportion of shareholder cash onto longer-term, fixed-rate deposits, a change of 1% p.a. in interest rates will result in an increase or decrease of approximately 0.8m (H1 2010: 0.7m) in the Group s equity and annual investment income. 22

24 IFRS RESULTS (c) Currency risk Currency risk is the risk that the Group is exposed to higher or lower returns as a direct or indirect result of fluctuations in the value of, or income from, specific assets and liabilities arising from changes in underlying exchange rates. The sensitivity of the Group to the currency risk inherent in investments held to cover financial liabilities under investment contracts is incorporated within the analysis set out in (a) above. (c)(i) Group foreign currency exposures The Group is exposed to currency risk on the foreign currency denominated bank balances and other net operating assets that it holds to the extent that they do not match liabilities in those currencies. The Group s currency risk is minimised by frequent repatriation of excess foreign currency funds to sterling. At the balance sheet date the Group had exposures in the following currencies: 31 December US$m m US$m m Gross assets Matching currency liabilities (7.7) (3.6) (9.2) (5.2) Amounts totalling 12.0m held at the balance sheet date (H1 2010: 10.9m) represent capital in Hansard Europe Limited held in currency to meet regulatory and other commitments. (c)(ii) Financial investments by currency Certain fees and commissions are earned in currencies other than sterling, based on the value of financial investments held in those currencies from time to time. At the balance sheet date the analysis of financial investments by currency denomination is as follows: Currency % % % US Dollars Euro Sterling Others Credit risk Credit risk is the risk that the Group is exposed to lower returns or loss if another party fails to perform its financial obligations to the Group. The Group s main exposure to credit risk is in relation to deposits with credit institutions and investments in highly-rated Money market funds. These investments are made in accordance with established policy regarding minimum credit rating profile. An analysis of the Group s cash and cash equivalent balances and liquid investments is as follows: Currency Deposits with credit institutions Money market funds Maximum counterparty exposure limits are set both at an individual subsidiary company level and on a Group wide basis. There have been no changes to fair value as a result of credit risk Liquidity risk Liquidity risk is the risk that the Group, though solvent, does not have sufficient financial resources to enable it to meet its obligations as they fall due, or can only secure them at excessive cost. The Group s exposure to liquidity risk is considered to be low since it maintains a high level of liquid assets to meet its liabilities. 23

25 IFRS RESULTS STATEMENT OF DIRECTORS RESPONSIBILITIES The directors, whose names are reflected on the company s website, confirm that, to the best of their knowledge, this condensed set of consolidated half-yearly financial statements has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR and DTR 4.2.8, namely: An indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and Material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company s website. Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. By order of the Board L S Polonsky Director G S Marr Director 23 February

26 EEV RESULTS Results of operations on the European Embedded Value Basis for the six months ended 31 December Basis of preparation The results of the Group s operations for the six months ended 31 December 2010 as measured on a European Embedded Value (EEV) basis are set out below. For interim reporting purposes certain disclosures have been reduced from that which would be required under the EEV Principles. The results are measured on a basis determined in accordance with the EEV Principles published by the CFO Forum in May 2004 and extended in October Methodology and assumptions The methodology used to derive the EEV results at the valuation date is consistent with the EEV methodology used in relation to the consolidated financial statements for the year ended 30 June Under EEV methodology, profit is recognised as margins are released from policy related balances over the lifetime of each policy within the Group s in-force covered business. The total profit recognised over the lifetime of a policy under EEV methodology is the same as reported under IFRS, but the timing of recognition is different. The EEV is an estimate of the value of the shareholders interest in the Group based on the in-force portfolio at the valuation date, 31 December It excludes the value of any future new business that the Group may write after that date. EEV comprises net worth and the value of future profits ( VIF ) from business in-force at the valuation date, Net worth is the market value of shareholder funds, determined on an IFRS basis, adjusted to exclude deferred origination costs and deferred income reserve. VIF is the present value of profits expected to arise from assets backing the liabilities of the covered business, being the entire business of the Group, including its life assurance companies and subsidiaries providing administration, distribution and other services. All results are calculated net of corporation tax. 2.1 Operating assumptions The EEV was calculated using best estimate operating assumptions (e.g. expenses, mortality, lapses, premium persistency, partial withdrawals and policyholder activity) having regard for the Group s own past, current and expected future experience, together with other relevant data. All assumptions are based on the business being part of a going concern. Other than as indicated in below, there have been no changes to assumptions from those used for the year ended 30 June 2010 and set out in detail in the 2010 Report and Accounts. 2.2 Economic assumptions The principal economic assumptions used in the EEV calculations are actively reviewed at each reporting date and are internally consistent. The principal economic assumptions used are set out below. As at Risk discount rate (VIF calculation) 2.7% 3.3% 2.5% Risk discount rate (NBC calculation) 2.5% 3.3% 3.3% Future expense inflation 5.0% 5.0% 5.0% Corporation Tax Isle of Man 0% 0% 0% Corporation Tax Republic of Ireland 12.5% 12.5% 12.5% Discussions are continuing that could impact on the future rates of corporation tax that might be levied on the Group s profits arising in the Isle of Man. Any changes to the current tax regime may impact on the profitability and Embedded Value of the Group in the future. An indication of a potential impact on the EEV of the Group, and on the related contribution from new business, is provided within the EEV Sensitivity disclosures in note 7 below. 25

27 EEV RESULTS 3 EEV profit performance for the period The operating profit of the Group measured under EEV, at 9.7m has improved by 36.6% relative to the corresponding period of the previous financial year. New business sales volumes have improved significantly from levels in the prior year and margins have also been improved, as can be seen in 3.1 below. The current policyholder book continues to generate positive cash flows to fund new business and pay dividends. 3.1 EEV profit The components of EEV profit after tax are set out in the table below. Six months ended Year ended New Business Contribution Expected Return Experience Variances (1.3) (1.6) (4.1) Operating Assumption Changes (2.7) (0.1) (2.1) Expected Return on Net Worth Model and Regulatory changes 2.1 (0.2) 2.1 EEV operating profit after tax Investment Return Variances Economic assumption changes (0.5) 0.0 (5.1) EEV profit after tax New Business Contribution (NBC) New Business Contribution represents the value of new business written in the period. It is calculated at point of sale, including any acquisition expense overrun, and is net of corporation tax. NBC for the period was 8.5m (H1 2010: 5.1m) Expected cash flow generated The table below provides valuable insight into cashflows generated by the business relating to both new and existing business. The expected return of 2.3m (H1 2010: 2.8m) represents, in large part, the Group s view of the factors impacting upon the increase in the value of future profits over the period and in new business between the point of sale and the end of the period due to the time value of money. It is based on the 2.5% assumption for the risk discount rate at the previous financial year-end, (H1 2010: 3.3%). H H EEV Net Worth VIF EEV Net Worth VIF Cash flows generated by existing business (19.0) (20.4) New business strain 0.0 (11.6) (8.3) 8.3 Time value of existing business Time value of new business 0.1 (0.1) Time value of non-market risk (0.1) 0.0 (0.1) (0.1) 0.0 (0.1) (5.1) (9.4) Experience variances Experience variances arise where the Group s actual experience during the period in areas such as expenses, policy persistency, premium persistency, mortality and fees from policyholder activity differ from the assumptions used to calculate the EEV at the previous year-end. Experience variances are summarised in the following table. Six months ended Year ended Premium changes (0.4) (1.5) (1.6) Expenses (0.5) 0.2 (1.5) Other (0.4) (0.3) (1.0) Experience variances (1.3) (1.6) (4.1) 26

28 Hansard Global plc Report & Accounts for the half-year ended 31 December 2010 EEV RESULTS Operating assumption changes Changes were made to the EEV assumptions to reflect current expectations about future levels of expenses, lapses and mortality. These operating assumption changes decreased the EEV by 2.7m (H1 2010: 0.1m loss). Six months ended Year ended Expenses (1.9) (0.1) (2.5) Mortality (0.3) Other (0.5) 0.0 (0.9) (2.7) (0.1) (2.1) Expected return on net worth The expected return on net worth of 0.8m (H1 2010: 1.1m) reflects the anticipated increase to shareholder assets over the period due to the time value of money and its calculation is based on the 2.5% risk discount rate at the previous financial year-end (2009: 3.3%). The reduction in this return from the corresponding period last year is primarily due to lower interest rates Model changes The Group continues to refine its modelling functionality. During the period, improvements made to the model resulted in an increase to EEV of 2.1m (H1 2010: 0.2m loss) Investment return variances The impact of market and other external conditions gave rise to EEV investment return profits of 17.8m in the period (H1 2010: 18.8m). The main elements contributing to this profit are as follows: Six months ended Year ended Investment performance of policyholder funds Exchange rate movements Treasury Margins (1.3) Commissions receivable Other 0.2 (1.0) (2.7) Economic assumption changes Economic assumption changes resulted in an EEV loss of 0.5m (H1 2010: nil). Lower interest rates have led to a reduction in the investment growth assumption rate. 27

29 EEV RESULTS 3.2 Analysis of EEV profit The table below shows an analysis of EEV profit after tax split between net worth and the value of in-force covered business (VIF). Movements during the period affecting non-market risk and frictional costs are immaterial. This analysis, when combined with the reconciliation of net worth in 5 below, provides a reconciliation of EEV profit and IFRS profit. While the total profit recognised over the lifetime of a policy under EEV methodology is the same as reported under IFRS, the timing of recognition is different. H H Movement in Movement in EEV Net Worth VIF EEV Net Worth VIF New Business Contribution Expected return (5.1) (9.4) Experience variances (1.3) (3.7) 2.4 (1.6) (1.5) (0.1) Operating assumption changes (2.7) 0.0 (2.7) (0.1) 0.0 (0.1) Expected return on Net worth Model Changes (0.2) 0.0 (0.2) EEV Operating profit after tax (4.7) Investment return variances (0.9) 19.7 Economic Assumption changes (0.5) 0.0 (0.5) EEV profit after tax Embedded value at 31 December EEV balance sheet Following the payment of a dividend of 10.6m, the Group s EEV has increased by 16.4m to 263.4m (30 June 2010: 247.0m). The EEV balance sheet is presented below. As at Free surplus Required capital Net worth VIF Reduction for non-market risk (5.8) (5.6) (5.7) Frictional costs (0.9) (0.8) (0.9) Value of future profits EEV Reconciliation of EEV The following table provides a reconciliation of the opening and closing EEV for each of the components. H H EEV Net Worth VIF EEV Net Worth VIF Opening EEV EEV Profit after Tax Dividends paid (10.6) (10.6) 0.0 (10.1) (10.1) 0.0 Closing EEV

30 EEV RESULTS 5 Reconciliation of net worth The following table provides a link between the EEV net worth and consolidated shareholders equity presented under IFRS. EEV net worth is the market value of the shareholders funds, determined on an IFRS basis, adjusted to exclude certain items which affect the timing of IFRS profit but do not have any economic value at the valuation date. These items are typically assets such as the deferred origination costs and other debtor assets recognised in the VIF, and certain liabilities such as the deferred income reserve. Consolidated shareholders equity Adjusted for: IFRS deferred origination costs (108.9) (103.3) (105.6) IFRS deferred income reserve IFRS debtor recognised in VIF (5.9) (7.3) (6.9) EEV net worth New business profitability The Group continues to write profitable new business. The following metrics illustrate an indication of the profitability of the new business written in the period. 6.1 New business margin New business margin is defined as New Business Contribution (NBC) divided by Present Value of New Business Premiums (PVNBP). The new business margin for the half-year is 7.4%, an increase from 6.9% for the half-year ended 31 December This is primarily as a result of increased volumes and action taken by the Group to increase the proportion of sales attributable to regular premium products, which typically have a higher margin than single premium products. A reduction in margin arising from the larger single premium cases issued in Q1 has been offset by an increase in profitability from other products. Six months ended Year ended New business - PVNBP 114.5m 73.5m 166.3m New business contribution (net of corporation tax) 8.5m 5.1m 11.5m New business margin 7.4% 6.9 % 6.9 % NBC and PVNBP have been calculated using the same economic assumptions as those used to determine the EEV as at the start of the year and the same operating assumptions used to determine the EEV as at the Valuation date. No credit is taken in the calculation of NBC for returns in excess of risk-free returns. NBC is shown after allowing for the cost of required capital, calculated on the same basis as for in-force business. 6.2 Internal Rate of Return (IRR) New business requires initial capital investment to cover set-up costs, commission payments, statutory reserves and solvency capital requirements. IRR is a measure of the post tax shareholder return on this initial capital invested. It is defined as the discount rate at which the present value of expected cash flows over the life of the new business written in the period is equal to the total capital invested to support the writing of that business. The average IRR on new business written during the period continues to be in excess of 15% per annum. 6.3 Break Even Point (BEP) BEP indicates how quickly shareholders can expect new business to repay its capital support. In effect, it is defined as the point at which initial capital invested to support the writing of new business in the year (including its share of overhead expenses) is recouped from revenue from that same business. BEP is calculated ignoring the time-value of money. The breakeven point for new business written during the period was within 3 years. 6.4 Profit Emergence As at 31 December 2010, the value of future profits is 200.9m. Over a quarter of these profits are expected to convert into net worth within 2 years, half within 5 years and three quarters within 9 years. Relative to most life insurance companies, this illustrates a fast conversion of future cash flows to net worth, as required by the Group s pricing methodology. 29

31 EEV RESULTS 7 EEV sensitivity analysis Sensitivities provide an indication of the impact of changes in particular assumptions on the EEV at 31 December 2010 and the NBC for the period. The sensitivity analysis indicates that the Group s exposure to operating factors is limited largely as a result of product design, with expenses being the main operating exposure. The Group is primarily exposed to economic factors. In particular, as a result of the diversified portfolio of assets under administration, it is exposed to movements in exchange rates and asset values, through the impact on the level of expected future fund-based management income. Impact on: EEV NBC m m Central assumptions Operating sensitivities 10% increase in maintenance expenses (5.5) (0.3) 100bp increase in expense inflation (4.4) (0.3) 100bp decrease in charge inflation (3.2) (0.2) 100bp increase in expense & charge inflation (0.1) % increase in lapse rates (3.0) (0.2) 10% increase in paid-up rates (1.0) (0.2) 10% increase in mortality rates (0.3) % increase in partial withdrawals (1.9) (0.1) 10% increase in premium reductions (0.6) (0.1) 10% increase in premium holidays (0.3) (0.0) 10% corporation tax in Isle of Man (currently zero) (19.8) (0.8) Economic sensitivities 100bp increase in risk discount rate (10.3) (0.9) 100bp decrease in investment return rate (7.9) (0.5) 100bp increase in risk discount rate & investment return rate (2.4) (0.4) 10% decrease in the value of equities and property (11.0) % increase in sterling exchange rates (18.1) (0.9) 10% decrease in commissions receivable (3.3) (0.2) Reduce required capital to minimum requirement In each sensitivity calculation, all other assumptions remain unchanged, except where indicated. There is a natural correlation between many of the sensitivity scenarios tested, so the impact of two occurring together is likely to be different from the sum of the individual sensitivities. No changes to statutory valuation bases, pricing bases and required capital have been included. No future management action has been modelled in reaction to the changing assumptions. For new business, the sensitivities reflect the impact of a change from inception of the policy. 30

32 EEV RESULTS Report of the Reviewing Actuaries Review of the European Embedded Value ( EEV ) of Hansard Global plc for the six months ended 31 December Our role Deloitte MCS Limited has been engaged by Hansard Global plc to act as Reviewing Actuaries in connection with results on an EEV basis published in sections within Hansard Global plc s Results for the six months ended 31 December Responsibilities The EEV Information and the methodology and assumptions underlying it is the sole responsibility of the Directors of Hansard Global plc. It has been prepared by the Directors of Hansard Global plc, and the calculations underlying the EEV Statements have been performed by Hansard Global plc. Our review was conducted in accordance with generally accepted actuarial practices and processes. It comprised a combination of such reasonableness checks, analytical reviews and checks of clerical accuracy as we considered necessary to provide reasonable assurance that the EEV Information has been compiled free of material error. The review of the Interim Results is substantially less detailed than for the full year. The EEV Information necessarily makes numerous assumptions with respect to economic conditions, operating conditions, taxes, and other matters, many of which are beyond the Group s control. Although the assumptions used represent estimates which the Directors believe are together reasonable, actual experience in future may vary from that assumed in the preparation of the EEV Information, and any such variations may be material. Deviations from assumed experience are normal, and are to be expected. The EEV does not purport to be a market valuation of the Group and should not be interpreted in that manner since it does not encompass all of the many factors that may bear upon a market value. For example, it makes no allowance for the value of future new business. Opinion On the basis of our limited review, nothing has come to our attention that causes us to retract our opinion that: the methodology and assumptions used to prepare the EEV Information comply in all material respects with the European Embedded Values Principles set out by the CFO Forum in May 2004, and additional guidance released in October 2005 (the CFO Forum Principles ); and the EEV Information has been compiled on the basis of the methodology and assumptions, and complies in all material respects with the CFO Forum Principles. Reliances and Limitations We have relied on data and information, including the value of net assets, management accounting data and solvency information supplied to us by the Group. Further, we have relied on the terms of the contracts, as they have been reported to us, being enforceable. We have relied on the reported mathematical reserves, the adequacy of those reserves, and on the methods and assumptions used to determine them. We have assumed that all provisions made in the IFRS financial statements for any other liabilities (whether actual, contingent or potential) of whatever nature, are appropriate. We have relied on information relating to the current and historical operating experience of the Group s life insurance business, including the results of experience investigations relating to policy persistency, and expense analysis. In forming our opinion, we have considered the assumptions used in the EEV Information in the context of the reported results of those investigations although we have not attempted to predict the impact of potential future changes in the competitive forces in markets on the assumptions. Yours faithfully Deloitte MCS Limited 23 February 2011 Deloitte MCS Limited. Registered in England & Wales with registered number Registered office: Hill House, 1 Little New Street, London EC4A 3TR, United Kingdom. Deloitte MCS Limited is a subsidiary of Deloitte LLP, which is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited ( DTTL ), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see for a detailed description of the legal structure of DTTL and its member firms. Member of Deloitte Touche Tohmatsu Limited 31

33 INTERIM MANAGEMENT REPORT Contacts and Advisors Registered Office Harbour Court Lord Street Box 192 Douglas Isle of Man IM99 1QL Tel: +44 (0) Fax: +44 (0) Chairman & Chief Executive Dr L S Polonsky dr.polonsky@hansard.com Financial Advisor Lazard & Co. Limited 50 Stratton Street London W1J 8LL Tel: +44 (0) Auditor PriicewaterhouseCoopers LLC Sixty Circular Road Douglas Isle of Man IM1 1SA Tel: +44 (0) Fax: +44 (0) Reviewing Actuaries Deloitte MCS Limited Hill House 1 Little New Street London EC4A 3TR Tel: +44 (0) Fax: +44 (0) Media Enquiries Pelham Bell Pottinger 6th Floor, Holborn Gate 330 High Holborn London WC1V 7QD Tel: +44 (0) Fax: +44 (0) Broker Panmure Gordon (UK) Limited Moorgate Hall 155 Moorgate London EC2M 6XB Tel: +44 (0) Fax: +44 (0) Broker Macquarie Capital (Europe) Limited CityPoint 1 Ropemaker Street London EC2Y 9HD Tel: +44 (0) Fax: +44 (0) Registrar Chamberlain Fund Services Limited 3rd Floor Exchange House Athol Street Douglas Isle of Man IM1 1JD Tel: + 44 (0) Fax: +44 (0) UK Transfer Agent Capita IRG Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel (UK): * Tel (Overseas): *Nb: 0871 Number - calls cost 10p per minute plus network extras. 32

34 INTERIM MANAGEMENT REPORT Financial Calendar for the financial year ending 30 june 2011 Ex-dividend date for interim dividend 2 March 2011 Record date for interim dividend 4 March 2011 Payment date for interim dividend 31 March 2011 Interim Management Statement 10 May 2011 Announcement of 4th quarter new business results 27 July 2011 Announcement of results for the year ended 30 June September

35 Hansard Global plc Hansard Global plc Harbour Court Lord Street Box 192 Douglas Isle of Man IM99 1QL Tel: +44 (0) Fax: +44 (0) E: Hansard International Limited Harbour Court Lord Street Box 192 Douglas Isle of Man IM99 1QL Tel: +44 (0) Fax: +44 (0) E: Hansard Europe Limited Carysfort House Carysfort Avenue Blackrock Co. Dublin Republic of Ireland Tel: +353 (0) Fax: +353 (0) E: