11th Mar 2005 07:00
PRESS RELEASEContacts: John Rowe, Chairman 020 7759 4900Steve Clarke, Chief Executive 020 7759 4977Stephen Matthews, Finance Director 020 7759 4918 Charles Taylor Consulting plc Announcement of results for year ended 31 December 2004 Consolidated Financial HighlightsFor the year ended 31 December 2004 Year to Year to Increase 31 December 31 December 2004 2003 Turnover ‚£62.8m ‚£55.9m 12% Profit before tax ‚£10.7m ‚£8.8m 22% Earnings per share 25.70p 22.40p 15% Dividends per share - 3.60p 3.27p 10% interim Dividends per share - final 5.42p 4.93p 10% 9.02p 8.20p 10% The final dividend is payable on 25 May 2005 to Shareholders on the register on15 April 2005.CHAIRMAN'S STATEMENTI am delighted to be able to report to you that the efforts of the 719 people,who work for the company around the world, have been rewarded by a good set offinancial results for 2004. Turnover rose by 12%, profit before tax by 22% andearnings per share by 15%. Our thanks are due to them all.I can also report that your Board is recommending that the final dividend forthe year be increased by 10% from that paid at the equivalent stage last year.CTC MANAGEMENTMutual ManagementOur mutual management activities lie at the core of your company's business.During 2004 the flagship mutuals we manage, the Standard P&I Club and SignalMutual, grew satisfactorily. In addition, over the period, we have diversifiedfurther our portfolio of mutual management contracts with the acquisition ofthe Unimutual management contract in Australia. Among the smaller mutuals wemanage, Capricorn Mutual, which is also based in Australia, showed notablegrowth, as did the other mutuals we have established in recent years.In order to ensure that we provide the appropriate levels of service to ourmutual management clients, we will be investing in a variety of areas during2005. This will additionally enable us to capitalise on the opportunity tocreate new mutuals. This activity forms an important platform for futuregrowth.Investment ManagementOur mutual insurance clients have $1bn of funds under management with us and itis clearly important that we continue to achieve good investment returns. UnderCharles Mawdsley we are seeking to broaden our in-house expertise through therecruitment of additional fund managers. As reported previously, in May 2002 wecreated our first specialist fund, the Taylor Hedge Fund and I am pleased toreport that this made its first contribution in 2004; in developing investmentmanagement further we intend to enhance investment returns for our clients andcreate additional earning streams for the company.Average AdjustingAfter the restructuring that occurred in 2003, it is gratifying to see a goodresult in 2004. The quality of our products means that we remain the leadingprovider of these services worldwide and, although demand is variable, ourshipping connections make this a sensible activity for the group to be involvedin. In the current year we have combined this business with our othermarine-related claims business and it will therefore form part of the CTCServices division from now on. We believe that both businesses will benefitfrom this co-ordination of their activities.Exchange RatesA significant part of our income from mutual management and Average Adjustingis in US$. Our results were therefore affected by the adverse movement in the $/‚£ exchange rate over the period, although it was mitigated somewhat by hedgingactivities.CTC SERVICESThis division comprises two large parts, energy and aviation, which betweenthem account for 80% of the division's turnover. The other two smallercomponent parts, marine and non-marine, account for the balance. Overall marketconditions remained mixed, with some parts suffering as a result of highdeductibles while others operated in a more favourable environment.EnergyAt the start of 2004 we acquired BCL. In combination with our other existingenergy operations, based principally in North America, we have created asubstantial operation, which produced excellent results. Under Dudley Chapman'sleadership the two businesses are combining, and will produce a significantcompetitor to the market leader in this field. Noteworthy so far, apart fromthe good performance last year, which was by no means exclusively due to thehurricanes in the last quarter, has been the way in which all concerned haveapproached integration. It augurs well for the future that, despite theinevitable disruption this brings, all adjusters are extremely busy.AviationAviation, which is the other large component of our Services division,maintained its market share in a year where there were a low number of majorlosses, but a significant number of attritional claims. We continue to recruitnew surveyors and expand this operation, which makes a significantcontribution; most recently we have added an aviation arm to our Mexico officeand we are already seeing the benefit of this investment.Non-MarineThis smaller part of the division had a difficult 2004, although it toobenefited from the losses caused by hurricanes in the last quarter of the year.I am pleased to be able to say, however, that the marketing efforts in 2004 arebeginning to show some signs of paying off and both the quality and quantity ofinstructions received is improving. We opened an office in Madrid during theyear.MarineThe marine division business had a difficult year during 2004 but nonethelesswas not without its achievements. As mentioned elsewhere, this activity hasbeen combined with our hull adjusting operation for 2004, and I expect theco-ordination of these two activities to be beneficial for both of them.BOARD AND MANAGEMENT CHANGESThe group has benefited from the strong contribution of Steve Clarke, who hasserved as CEO for the last two years. Unfortunately, due to personalcircumstances, he has asked to step down from this position. He will remain onthe board until the end of 2005 and will work on a number of strategic matters.Having regard to the nature and scale of our operations, the Board hasconcluded that it is in the interests of the company that the role of Chairmanand CEO be combined for a period of no more than two years. I have agreed totake on this additional responsibility. In addition, the board has decided tocreate a new position of Group Chief Operating Officer. Damian Ely, who hasbeen the Chief Operating Officer in North America for the last 7 years and anemployee for the last 16 years, will return to the UK on 1st October 2005 totake on this new role.OUTLOOK AND CURRENT TRADING2005 is a year in which, as stated above, the group will invest in supportingits mutual management activities. This will both strengthen the base of ourexisting mutuals and facilitate further diversification of our mutualmanagement portfolio, both in Australia, where our success to date is anillustration of the opportunities available, and elsewhere.As far as the Services division is concerned, initial indications are thatanother good year is in prospect for both our energy and, perhaps, our aviationbusinesses. The ‚£/$ exchange rate remains a significant issue, although we willmitigate this wherever possible through hedging operations.We are committed to grow your company, as illustrated by the investments we aremaking in 2005, and our record to date; we see no reason why we should notmaintain our progressive dividend, which has increased by 10% every year since1996. This is underpinned and made possible by the cash generative nature ofyour company.FINANCIAL REVIEWThis report should be read in conjunction with the Chairman's Statement.Description of the BusinessThe Charles Taylor Consulting group provides management and insurance relatedservices to both buyers and providers of insurance.Segmental information is provided on the activities of the Management Divisionand the Services Division.Within the Management Division there are three principal activities:1. The management of mutualsThe management of mutuals represents the largest activity of the ManagementDivision. This activity is the provision of all the day-to-day servicesinvolved in running a mutual (risk transfer) association, whether on a fullyregulated or discretionary basis. The members of the managed mutuals providethe capital and have their risks covered on a mutual basis. Most aspects of theadministration of these arrangements are sub-contracted to group companies.2. Average adjustingThis activity is the provision of services to the shipping insurance communityin handling general averages and claims on policies of marine insurance.3. Risk management servicesThis activity includes the provision of advice to corporate buyers of insuranceon the structure and appropriateness of their insurance arrangements, captiveand mutual feasibility studies and ad hoc insurance reviews.Within the Services division there are essentially four areas of activity,identified with the major markets for commercial insurance: * Aviation * Energy * Non-marine * Marine In each case, Services personnel are engaged in advising on issues and quantumin respect of insurance claims in their respective markets.The nature of the group's businesses leads them to reflect conditions in theworld insurance markets. In the case of mutual management, when insurance ismore expensive (hard market), the balance shifts in favour of mutuals, wherethe aim is to reduce the cost of insurance by there being a higher level ofaggregate risk retention between members of a mutual.The availability of cheaper insurance (soft market) may lead to increasedcompetitive pressure and a climate where the alternative risk transfermechanisms, such as mutuals become less attractive.In most circumstances, however, once companies become members of a mutual,through which the collectively control their own insurance affairs they tend toremain there.The conditions that favour the creation and expansion of mutual insuranceschemes (i.e. hard market) are in some ways balanced by being less beneficialfor the Services division businesses because there are usually fewer claims todeal with, and vice versa. In the case of the Services division, a soft marketresults in easier insurance terms, which often results in buyers of insurancetransferring more of their risk for the same or reduced premiums. This istypically achieved by a reduction in the level of self-retained loss(deductible) before insurance cuts in. This usually results in more claimsfalling to insurers and more work for the Services division.Key Performance IndicatorsThe group uses a number of budget-related measures to determine the performanceof operating units and, particularly, monitors work in progress andproductivity levels, issuing of fees and cash collections for the time-basedbusinesses (i.e. those other than mutual management). There are no generallyrecognised measures for the position of the insurance market and the extent towhich it is "hard" or "soft" as previously referred to.ResultsIn 2004, turnover rose from ‚£55.9m to ‚£62.8m including ‚£8.2m from the BatemanChapman (Holdings) Limited group, acquired in January 2004. Profits before taxrose from ‚£8.8m to ‚£10.7m.Dividends and earnings per shareThe proposed final dividend for 2004 is 5.42p (2003 - 4.93p), increased in linewith the interim dividend paid in November of 3.60p (2003 - 3.27p). Thisrepresents a year on year increase of 10%, which is consistent with the policyadopted by your Board in previous years. It remains the intention of your Boardto maintain a progressive dividend policy, while retaining sufficient cash inthe business to fund organic and acquisitive growth.There remain 2.2m shares under option at the end of the year, which produce noeffect on the earnings per share with the diluted earnings per share being thesame as the undiluted earnings per share. Of the outstanding share options,1.2m were exercisable below the company's share price at the close of businesson 31 December 2004 - 234.0p.The earnings per share rose from 22.4p to 25.7p, an increase of 15%.TreasuryThe group continues to manage its exposure to foreign currency fluctuations bythe use of forward foreign exchange contracts. The contracts open during theyear and at the year end were all to protect the group's exposure to movementsin the US$: ‚£ sterling rate.Over the last two years, the US$ has weakened significantly against the ‚£sterling. In 2002, the US$ profits of the group were translated at 1.49 to ‚£1.In 2003, the rate was 1.63 to ‚£1 and by 31 December 2004 the rate was 1.83 to ‚£1. The group has benefited in the short-term from the forward sales of US$.In addition, the group uses working capital overdrafts in billing currenciesother than the accounting currency, as a way to manage the exposure to currencyfluctuations.The borrowings in ‚£ sterling and US$ are principally at rates that are linkedto LIBOR plus margins of1.25 - 1.50%.TaxationThe group continues to enjoy a low tax rate. Tax amortisation on acquisitionsin the US and profits arising in lower tax jurisdictions overseas account forthis.During 2004, the effective tax rate on profits was 13.7%, an increase on the2003 level (13%), reflecting the tax arising on the profits of Bateman Chapmanwhich is subject to tax on a significant part of its trading activities.FinancingDuring the year, ‚£5.7m of cash was generated which was used to repay loansamounting to ‚£3.8m. The remaining ‚£1.9m was used to reduce the group's netborrowings.During the year, a number of executive and share scheme options were exercised,producing cash of ‚£59k. During 2005, ‚£413k of options are exercisable at belowthe market price at 31 December 2004. If they were all exercised they wouldgenerate ‚£884k in cash for the group.The group has issued share capital (including share premium) of ‚£19.9mTypically, shares have been issued in connection with acquisitions up to abouta third of the total consideration. At this level, it has been possible toborrow additionally from the group's bankers and the Board has retained a halfto two-thirds of the earnings each year to meet such financing requirements.The group has historically generated cash in line with its earnings.AcquisitionsIn January 2004, the group acquired Bateman Chapman (Holdings) Limited. Theinitial consideration amounted to ‚£14.5m, of which ‚£4.1m was met from the netproceeds of placing 1,722,600 shares, and the balance from bank borrowings. Inaddition, up to a further ‚£4.4m was payable in cash, based on the results ofthe first year's trading: this earn-out amount has been achieved and the amountpaid out in January and March 2005, as provided for in the sale agreement.International Accounting Standards ("IFRS")The group has made preparations for the implementation of IFRS and will befully compliant in 2005. The group's financial statements are expected to beimpacted by the new accounting standards for pensions and share based paymentsin particular.Stephen MatthewsFinance Director10 March 2005Consolidated Profit and Loss AccountFor the year ended 31 December 2004 Year to Year to 31 December 31 December 2004 2003 ‚£000 ‚£000 Notes Turnover 3 Group and share of joint ventures - 55,586 55,921 Continuing operations Acquisitions 8,235 - Less share of joint venture turnover (1,012) - Group turnover 62,809 55,921 Operating costs (51,214) (46,949) Operating profit Continuing operations 8,990 8,972 Acquisitions 2,605 - 11,595 8,972 Share of operating profits of joint ventures 32 - Share of operating (losses)/profits of (18) 137 associated companies Interest receivable and similar income 273 513 Interest payable and similar charges (1,184) (795) Profit on ordinary activities before taxation 3 10,698 8,827 Tax on profit on ordinary activities (1,460) (1,146) Profit on ordinary activities after taxation 9,238 7,681 Equity minority interest (31) (2) Profit for the period 9,207 7,679 Dividends paid (1,294) (1,116) Dividends proposed (1,946) (1,767) Retained profit for the financial period 5,967 4,796 Dividends per share (p) 9.0 8.2 Earnings per ordinary share (p) - Basic 4 25.7 22.4 Earnings per ordinary share (p) - Diluted 4 25.7 22.4 Consolidated Balance SheetAt 31 December 2004 At At 31 31 December December 2004 2003 (Restated) ‚£000 ‚£000 Notes Fixed assets Intangible assets 18,077 6,247 Tangible assets 3,096 3,319 Investments excluding joint ventures 741 799 Share of gross assets of joint ventures 1,475 1,051 Share of gross liabilities of joint ventures (964) (554) 511 497 22,425 10,862 Current assets Debtors due within one year 6 39,031 30,093 Debtors due after more than one year 6 14 14 39,045 30,107 Cash at bank and in hand 24,222 16,369 63,267 46,476 Creditors: amounts falling due within one year 7 (50,171) (35,667) Net current assets 13,096 10,809 Total assets less current liabilities 35,521 21,671 Creditors: amounts falling due after more than 8 (9,022) (4,465) one year Provisions for liabilities and charges (64) (67) 26,435 17,139 Capital and reserves Called up share capital 364 346 Share premium account 19,505 15,347 Merger reserve 6,872 6,872 Capital reserve 662 662 Own shares (1,516) (1,563) Profit and loss account 498 (4,528) Equity shareholders' funds 5 26,385 17,136 Equity minority interests 50 3 26,435 17,139 Consolidated Cash Flow StatementFor the year ended 31 December 2004 Year to 31 Year to 31 December 2004 December 2003 ‚£000 ‚£000 Notes Net cash inflow from operating activities 9 20,055 15,615 Returns on investments and servicing of finance Interest and other income received 273 513 Interest paid (1,165) (779) Interest element of finance lease rentals (19) (30) Net cash outflow from returns on investments (911) (296) and servicing of finance Taxation Tax paid (2,651) (1,124) Capital expenditure and financial investment Payments to acquire tangible fixed assets (633) (855) Purchase of investments - (561) Receipts from sale of investments 35 153 Receipts from sale of fixed assets 179 196 Net cash outflow from capital expenditure and (419) (1,067) financial investment Acquisitions Purchasing of subsidiary undertaking (15,469) - Net cash acquired with subsidiary 221 - Net cash outflow from acquisitions (15,248) - Equity dividends paid (3,061) (2,636) Net cash (outflow)/inflow before financing (2,235) 10,492 Financing Issue of shares net of expenses 4,176 228 Draw down of loans 10,400 6,480 Loan repayments (3,835) (10,096) Capital element of finance lease rentals (127) (250) Net cash inflow/(outflow) from financing 10,614 (3,638) Increase in cash in the year 10 8,379 6,854 Statement of Total Recognised Gains and LossesFor the year ended 31 December 2004 Year to Year to 31 31 December December 2004 2003 ‚£000 ‚£000 Profit for the financial period 9,207 7,679 Write down of shares held by Qualifying (85) (66) Employee Share Ownership Trust ("QUEST") Foreign currency translation differences on (856) (496) foreign currency net investment in subsidiaries 8,266 7,117 Note on prior period adjustment: 8,266 7,117 Total recognised gains and losses for the period as above Prior period adjustment - 312 Total recognised gains and losses since the 8,266 7,429 last annual report Notes to the AccountsFor the year ended 31 December 20041. Basis of ConsolidationThe preliminary figures for the year ended 31 December 2004 are an extract fromthe latest accounts of the Group and have been prepared on the basis of thesame accounting policies as set out in the statutory accounts for 2003, withthe exception of the change detailed below. These accounts have not yet beendelivered to the Registrar of Companies.The figures and financial information for the year ended 31 December 2003 areextracted from the latest published accounts of the Group and do not constitutethe statutory accounts for that year. Those accounts have been delivered to theRegistrar of Companies and included the report of the auditors which wasunqualified and did not contain statements under either section 237(2) orsection 237(3) of the Companies Act 1985.Change in accounting policyThe Group has implemented UITF Abstract 38 'Accounting for Employee ShareOwnership Plan ("ESOP") Trusts' in the preparation of its accounts andcomparative figures have been restated. UITF 38 supersedes UITF 13 'Accountingfor ESOP Trusts' and requires that until such time as the company's own sharesheld by an ESOP trust vest unconditionally in the employees, the considerationpaid for the shares should be deducted in arriving at shareholders' funds. Theapplication of UITF 38 reduced consolidated total assets and consolidated totalshareholders' funds at 31 December 2004 by ‚£1,516,000 (31 December 2003 - ‚£1,563,000).2. Acquisition and goodwillIn January 2004 the group acquired 100% of the ordinary share capital ofBateman Chapman (Holdings) Limited and its subsidiaries for a potential maximumconsideration of ‚£18,900,000 in cash which became established in 2005 when afinal payment of ‚£4,400,000 became payable based on the performance of thebusiness and certain balance sheet criteria in the year following completion.The book value of the assets and liabilities was considered to be the fairvalue on acquisition. Using the acquisition method of accounting the fair valueof the assets and liabilities and the resulting goodwill is as follows: ‚£000 Fixed assets 1,002 Work in progress and debtors 9,705 Cash 547 Bank loans and overdrafts (326) Creditors and provisions (2,889) 8,039 Satisfied by: Cash 14,500 Deferred cash 4,400 Expenses 969 Total consideration 19,869 Goodwill 11,830 Notes to the AccountsFor the year ended 31 December 20043. Analyses of turnover and profit before taxAnalyses of turnover and profit before tax (by class of business andgeographical location) are stated below: Year to Year to 31 31 December December 2004 2003 ‚£000 ‚£000 Turnover Charles Taylor Management 36,740 37,051 Charles Taylor Services 26,069 18,871 62,809 55,921 Turnover by geographical location: United Kingdom 21,094 18,647 Other European countries 1,492 1,301 Bermuda 24,295 22,734 North America 8,525 8,027 Asia Pacific 7,403 5,212 62,809 55,921 Profit before tax Charles Taylor Management - trading profit 6,344 6,714 - interest on acquisition finance (754) (275) Charles Taylor Services - trading profit 5,108 2,388 10,698 8,827 Profit before tax by geographical location: Year to Year to 31 31 December December 2004 2003 ‚£000 ‚£000 United Kingdom 2,876 2,551 Other European countries (69) (136) Bermuda 6,026 5,575 North America 1,326 478 Asia Pacific 539 359 10,698 8,827 Notes to the AccountsFor the year ended 31 December 20044. Earnings per ordinary shareEarnings per ordinary share have been calculated by dividing the profit onordinary activities after taxation and minority interests for each period bythe weighted average number of shares in issue.The shares held by the ESOP and QUEST have been excluded from the calculationbecause the trustees have waived the right to dividends on these shares. Theweighted average number of shares on this basis was 35,790,684 in the yearended 31 December 2004 and 34,088,651 in the year to 31 December 2003.5. Reconciliation of movements in equity shareholders' funds Year to Year to 31 31 December December 2004 2003 ‚£000 (Restated) ‚£000 Profit for financial period 9,207 7,679 Dividends (3,240) (2,883) 5,967 4,796 Issue of share capital 18 1 Share premium arising on issue of share 4,158 227 capital Write down of shares held by QUEST (85) (66) Foreign currency translation differences on (856) (496) foreign currency net investments in subsidiaries Own shares 47 180 Net addition to equity shareholders' funds 9,249 4,642 Opening equity shareholders' funds 17,136 12,494 Closing equity shareholders' funds 26,385 17,136 Notes to the Accounts (Continued)For the year ended 31 December 20046. Debtors At At 31 31 December December 2004 2003 ‚£000 ‚£000 Trade debtors 18,074 16,889 Amounts owed by associated companies and 425 84 joint ventures Other debtors 2,168 2,225 Prepayments and accrued income 18,174 10,596 Corporation tax 204 313 39,045 30,107 Included above are the following amounts falling due after more than one year: Prepayments and accrued income 14 14 7. Creditors: amounts falling due within one year At At 31 31 December December 2004 2003 ‚£000 ‚£000 Bank loans and overdrafts 14,603 13,245 'C' loan stock 185 243 Obligations under finance leases and hire 112 132 purchase contracts Trade creditors 2,165 1,766 Amounts owed to associates 106 97 Corporation tax 292 603 Other taxation and social security 938 811 Other creditors 1,132 858 Accruals and deferred income 6,136 4,440 Proposed dividend 1,946 1,767 Deferred consideration 4,400 - Client monies 18,156 11,705 50,171 35,667 Notes to the Accounts (Continued)For the year ended 31 December 20048. Creditors: amounts falling due after more than one year At At 31 31 December December 2004 2003 ‚£000 ‚£000 Bank loans 8,811 4,236 Obligations under finance leases and hire 211 182 purchase contracts Deferred tax - 47 9,022 4,465 9. Reconciliation of operating profit to net cash inflow from operatingactivities Year to Year to 31 31 December December 2004 2003 ‚£000 ‚£000 Operating profit 11,595 8,972 Depreciation charges 1,003 946 Profit on sale of fixed assets (46) (29) Decrease in debtors 640 775 Increase in creditors 7,026 4,985 Decrease in provisions (3) (522) Other non-cash items (160) 488 Net cash inflow from continuing operating 20,055 15,615 activities Notes to the Accounts (Continued)For the year ended 31 December 200410. Analysis of changes in net debt during the period At 1 Cash Other Exchange At January Flow non-cash movement 2004 changes 31 December 2004 ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 Cash in hand and at bank 16,369 8,151 - (298) 24,222 Overdrafts (10,977) 332 - 194 (10,451) 5,392 8,483 - (104) 13,771 Debt due within one year (2,268) 2,218 (4,137) 35 (4,152) Debt due after one year (4,236) (8,840) 4,137 128 (8,811) Loan stock (243) 58 - - (185) Finance leases (314) 127 (141) 5 (323) (1,669) 2,046 (141) 64 300 Client monies (11,705) (6,451) - - (18,156) (13,374) (4,405) (141) 64 (17,856) Included within the movement of cash is a ‚£6,451,000 increase in client fundsheld. CTCENDCHARLES TAYLOR CONSULTING PLCRelated Shares:
Charles Taylor