Half-year Report

05 August 2016

esure Group plc interim results for the six months ended 30 June 2016

Growing top line across insurance and price comparison

Highlights

· Gross written premiums up 16.3% to £320.4m (1H 2015: £275.5m)

· In-force policies up 3.7% to 2.076 million in the first half of 2016 (FY 2015: 2.001 million, 1H 2015: 1.995 million)

· Combined operating ratio 3.4ppts higher at 99.2% (1H 2015: 95.8%) largely driven by adverse weather events in the first half of 2016

· Underlying profit before tax1 down 1.9% to £45.6m (1H 2015: £46.5m) impacted by adverse weather events in the first half of 2016

· Interim dividend per share of 3.0p (1H 2015: 4.2p), reflecting the Board's decision to retain capital to fund growth

· Solvency II Group coverage ratio of 126% (FY 2015: 123%), post dividend; and

Solvency II Solo coverage ratio of 136% (FY 2015: 138%)

· Gocompare2 revenue up 22.3% to £72.9m; operating profit up 9.0% to £14.5m (1H 2015: Revenue of £59.6m; operating profit of £13.3m)

Sir Peter Wood, Chairman of esure Group plc, said: "The management team is delivering on its strategic objective to grow both our insurance and price comparison businesses.

"On 7 June, we announced a strategic review of Gocompare.com to ensure we continue to focus on maximising shareholder value and the review is ongoing.

"We remain well capitalised under Solvency II and I am pleased to declare a dividend of 3.0 pence per share reflecting the Board's decision to retain capital as we look to take advantage of favourable motor market conditions."

Stuart Vann, Chief Executive Officer of esure Group plc, said: "We are reporting strong growth figures, with customer numbers and premiums up across the board. Motor premium growth of 18% is particularly strong, driven by a combination of our underwriting and rating initiatives as we look to capitalise on growth opportunities in a favourable market.

"It is also pleasing to be reporting an underlying profit before tax of £45.6 million, despite the adverse weather events in the first half of the year.

"In Gocompare.com we have delivered excellent revenue growth of 22% and continue to drive the business forward through improved marketing, a strengthened management team and focus on a wider product offering.

"We are well placed for further profitable growth across both businesses in the second half of the year."

Notes

1. The Group believes its underlying profit before tax, as disclosed in the highlights section on page 1, best reflects its performance for the period. The reported profit before tax of £37.7m (1H 2015: £105.4m) is adjusted for the Group's joint venture deemed disposal gain (non-cash) (1H 2016: £nil; 1H 2015: £63.8m; FY 2015: £63.8m) and amortisation of acquired intangibles (1H 2016: £7.9m; 1H 2015: £4.9m; FY 2015: £12.7m).

2. Gocompare means Gocompare.com Holdings Limited, a company incorporated in England and Wales with registered number 6062003 whose registered office is Unit 6, Imperial Courtyard, Newport, Gwent NP10 8UL. The Group acquired full ownership of Gocompare on 31 March 2015. Figures are disclosed on a 100% standalone basis, prior to any Group consolidation adjustment or ownership structure changes in 2015.

For further information:

About esure Group plc

The Group is an efficient, customer focused personal lines insurer, founded in 2000 by Chairman, Peter Wood, Britain's foremost general insurance entrepreneur. The Group is one of the UK's leading providers of Motor and Home insurance products through the esure and Sheilas' Wheels brands and owns the price comparison website, Gocompare.

Cautionary statement

Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and assumptions and are subject to a number of known and unknown risks and uncertainties that may cause actual events or results to differ materially from any expected future events or results expressed or implied in these forward-looking statements. Persons receiving this announcement should not place undue reliance on forward-looking statements. Unless otherwise required by applicable law, regulation or accounting standard, the Group does not undertake to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

Disclaimer

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation which came into effect on 3 July 2016.

Finance review

 (1) Gocompare's contribution to Group trading profit for the six months ended 30 June 2016 is £13.2m and net of £1.3m consolidation adjustments. Gocompare's £10.6m contribution to the Group's trading profit for the six months ended 30 June 2015 comprised £3.5m for the three month period under 50% ownership (including an adjustment of £0.4m required under the equity method of accounting that would not have been reported were Gocompare under full ownership) and £7.1m for the three month period subsequent to the acquisition of the outstanding 50% of the ordinary shares of Gocompare on 31 March 2015.

 (2) In-force policy movements have been calculated against the FY 2015 position.

Gross written premiums and in-force policies

Gross written premiums increased 16.3% to £320.4m (1H 2015: £275.5m) through an increase in in-force policies of 3.7% to 2.076 million (FY 2015: 2.001 million) and the Group's positive rating actions in Motor.

In Motor, gross written premiums increased 18.2% to £275.7m (1H 2015: £233.3m) largely as a result of growth in in-force policies of 4.2% to 1.495 million (FY 2015: 1.435 million) and positive rating increases compared to the first half of 2015. In addition, the Group's footprint expansion initiatives continue to build momentum and the retention rate remains strong at 77% (1H 2015: 80%).

In Home, gross written premiums increased 5.9% to £44.7m (1H 2015: £42.2m) due to in-force policy growth of 2.7% to 0.581 million (FY 2015: 0.566 million) and the Group's footprint expansion initiatives that are typically at a higher average premium. The Home retention rate remains strong at 81% (1H 2015: 81%).

Trading profit

Motor

Motor underwriting trading profit of £4.5m (1H 2015: £3.3m) has benefited from the Group's positive rating actions in 2015 earning through ahead of claims inflation, albeit the improvement in the current year performance has been offset by a lower level of favourable development of prior accident year reserves (1H 2016: £13.0m; 1H 2015: £30.4m).

Home

Home underwriting trading loss of £2.3m (1H 2015: profit of £7.1m) has been impacted by the severe weather events in June, with weather events in the first half £3.3m ahead of expectation, compared to a benign period in the first half of 2015. Favourable development of prior accident year reserves of £7.5m (1H 2015: £5.8m) reflects the positive run-off of reserves from storms Desmond, Eva and Frank in late 2015. The expense ratio has been impacted by costs associated with the Flood Re levy (Flood Re is a Government backed initiative to help those households who live in a flood risk area find affordable home insurance).

Additional services revenues

Additional services revenues are broadly flat at £51.5m (1H 2015: £51.0m). Instalment income is benefitting from an increased number of customers choosing to pay monthly and higher average premiums. Non-underwritten additional services trading profit increased 4.5% to £28.1m (1H 2015: £26.9m) and this is marginally ahead of the year-on-year in-force policy growth.

(1) Non-annualised

The Group achieved a total investment return of £6.8m in the first half of 2016. The impact of the UK referendum vote had a limited impact on the Group's investment return in the period. The Group's fixed income and equity portfolios have delivered a good performance with interest and dividend income of £7.1m in the first half of the year (1H 2015: £6.3m).

The Group acquired a long dated asset in the first half of the year to improve the matching of its asset and liability durations, and movements in the asset valuation will be accounted for under the available for sale accounting policy. In the first half of 2016 a gain of £3.9m on the asset has been recognised through other comprehensive income, rather than being recognised in the Group's profit before tax.

Gocompare.com

income and expenses on a 100% standalone ownership basis

Note: Gocompare.com's £10.6m contribution to the Group's trading profit for the six months ended 30 June 2015 comprised £3.5m for the three month period under 50% ownership and £7.1m for the three month period subsequent to the acquisition of the outstanding 50% of the ordinary shares of Gocompare.com on 31 March 2015.

Gocompare.com revenue has increased 22.3% to £72.9m (1H 2015: £59.6m) as the reinvigorated marketing campaigns, featuring Gio Compario, drive improved brand awareness and transactions. Expenses increased 26.1% to £58.4m (1H 2015: £46.3m) as the improved brand awareness increased online marketing spend and the Group continued to invest in Gocompare.com for medium term growth. As a consequence, operating profit increased 9.0% to £14.5m (1H 2015: £13.3m) and the Group remains on track to increase operating profit by 20-30% in 2016.

Gocompare.com's contribution to the Group's trading profit increased to £13.2m (1H 2015: £10.6m) largely as a consequence of a full year's ownership compared to 2015, when the Group held a 50% ownership in the first quarter of 2015 prior to taking full ownership of the business from April 2015.

Reconciliation of trading profit to profit before tax

Reconciliation of profit before tax to underlying profit before tax

The Group's profit before tax decreased 64.2% to £37.7m (1H 2015: £105.4m) as a consequence of the Group's 50% interest in Gocompare being remeasured to fair value at 31 March 2015 (the acquisition date). The resulting gain of £63.8m was recognised as the Group's joint venture deemed disposal gain (non-cash) and this did not repeat in 2016.

The acquisition of Gocompare resulted in additional acquired intangible assets and this has increased the amortisation charge per annum. Further information can be found in note 8 to the financial statements on page 22.

The Group incurred £4.3m in finance costs (1H 2015: £4.0m) relating to the interest due on the £125.0m of 6.75% ten year tier two Subordinated Notes issued on 19 December 2014.

In order to reflect better the Group's performance for the period and its dividend paying capacity the Group has disclosed its underlying profit before tax. The reported profit before tax for each period is adjusted for the Group's joint venture deemed disposal gain (1H 2016: £nil; 1H 2015: £63.8m; FY 2015: £63.8m) and amortisation of acquired intangibles (1H 2016: £7.9m; 1H 2015: £4.9m; FY 2015: £12.7m).

Profit after tax

Profit after tax decreased to £30.7m (1H 2015: £97.6m) as a consequence of the Group's joint venture deemed disposal gain recognised in 2015 not repeating in 2016. The UK Corporation tax rate was 20% with effect from 1 April 2016 and the Group incurred an effective tax rate of 18.6% (1H 2015: 7.4%). The 2015 effective tax rate was impacted by the tax treatment of the joint venture deemed disposal gain.

Underlying profit after tax is broadly flat at £37.0m (1H 2015: £37.7m) and reflects the Group's net of tax position after adjusting for the Group's joint venture deemed disposal gain and amortisation of acquired intangibles.

Earnings per share

Earnings per share decreased to 7.4 pence (1H 2015: 23.4 pence) as a consequence of the Group's joint venture deemed disposal gain recognised in 2015 not repeating in 2016.

Underlying earnings per share are broadly flat at 8.9 pence (1H 2015: 9.0 pence) after adjusting for the Group's joint venture deemed disposal gain and amortisation of acquired intangibles.

Dividend per share

An interim dividend of 3.0 pence per share (1H 2015: 4.2 pence per share) has been declared and approved by the Board. The dividend has been set with reference to the Group's underlying profit after tax.

When considering a special dividend, the Board considers the Group's capital resource requirements, prospective premium growth expectations and retains a prudent margin for contingencies. The Board remains committed to returning excess capital to shareholders, where it does not believe it can utilise retained capital for further growth.

The ex-dividend date is 8 September 2016, the record date is 9 September 2016 and the payment date is 21 October 2016.

Investments

Asset allocation

The Group's asset allocation remains weighted towards cash and liquidity, albeit the Group has acquired a long dated asset to improve the matching of its asset and liability durations. As a consequence the duration of the investment portfolio has increased to 2.9 years (FY 2015: 0.9 years). The improved matching of asset and liability durations reduces capital volatility and sensitivity to movements in the yield curve. The Group will continue to look at opportunities to align its asset and liability duration.

Solvency II

The Group is required to calculate its solvency capital requirement ("SCR") and capital resources ("Own Funds") under the Solvency II Directive. The SCR is the level of capital the Group is required to hold to meet its obligations if a 1 in 200 year event were to occur in the next 12 months.

The Group is well capitalised under Solvency II and its capital coverage ratio is 126%, after allowing for the interim dividend. The Group coverage ratio is largely unchanged from 31 December 2015 and includes an increase in the SCR as a consequence of the growth in premiums in the first half of the year and outlook for the remainder of 2016. Own Funds have also increased as the Group retains capital to fund profitable growth.

Outlook

The Group now expects gross written premium growth of 13-18% and in-force policy growth of 6-9% in 2016, assuming current market conditions in Motor prevail. The full year combined operating ratio, inclusive of the adverse weather costs in the first half of the year, is expected to be in the region of 98-99%, assuming normal weather for the remainder of the year. Gocompare.com's operating profit is on track to increase by 20-30% in 2016 and at least double its 2014 EBITDA to £50m by 2019.

UK Referendum

The Group is a UK based business underwriting insurance risks in the UK. The UK Referendum result is expected to have limited impact on the Group's operations.

Principal risks and uncertainties

To the best of the directors' knowledge the principal risks and uncertainties of the Group for the remaining six months of the year are outlined in note 13 to the financial statements.  

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2016

1. General information

esure Group plc is a Company incorporated in England and Wales. Its registered office is The Observatory, Reigate, Surrey RH2 0SG.

The nature of the Group's operations is the writing of general insurance for private cars and homes and, price comparison services. The Company's principal activity is that of a holding Company.

All of the Company's subsidiaries are located in the United Kingdom, except for esure S.L.U, which is incorporated in Spain.

2. Accounting policies

Basis of preparation

These condensed consolidated interim financial statements present the Group's financial information for the six months ended 30 June 2016 and have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union (EU). They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at the year ended 31 December 2015 which are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU.

These condensed consolidated interim financial statements have been prepared in Sterling and rounded to the nearest hundred thousand. Throughout these interim financial statements any amounts which are less than £0.05m are shown by 0.0, whereas a dash (-) represents that no balance exists.

As required by the FCA's Disclosure and Transparency Rules, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the year ended 31 December 2015, with the exception of an asset acquired in the six months ended 30 June 2016 which was classified as an "available for sale" (AFS) financial asset.

These condensed consolidated interim financial statements have been prepared on a going concern basis. The Group has a strong financial position with robust reserves, a conservative investment portfolio and capital significantly in excess of the minimum regulatory requirement. In addition, the Board has reviewed the Group's projections for the next twelve months and beyond, including cash flow forecasts and regulatory capital surpluses. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months.

The financial information contained in these interim results does not constitute statutory accounts of esure Group plc within the meaning of Section 435 of the Companies Act 2006. Statutory accounts for esure Group plc for the year ended 31 December 2015 have been delivered to the Registrar of Companies. The auditors have reported on the accounts, their report was:

(i) unqualified;

(ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and

(iii) did not constitute a statement under Section 498 (2) or (3) of the Companies Act 2006.

Available for sale financial assets

In the six months ended 30 June 2016 the group acquired an asset, which upon recognition, was classified as available for sale. This instrument was initially recognised at fair value with subsequent fair value gains or losses being recognised directly in other reserves. Interest income is recognised as investment income through the profit and loss and is calculated based on amortised cost using the effective interest method.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2016

2. Accounting policies (continued)

 Available for sale financial assets (continued)

If the financial asset is sold, unrealised gains or losses recognised in other reserves will be recognised in the profit or loss under investment income. Should the asset be impaired, impairment losses are recognised by reclassifying the losses accumulated in the available for sale reserve to profit or loss. The amount reclassified is the difference between the value on initial recognition and the current fair value, less any impairment loss previously recognised in profit or loss.

3. Critical accounting judgements and estimates

The Group's 2015 Annual Report and Accounts provide details of significant judgements and estimates used in the application of the Group's accounting policies. There have been no significant changes to the judgements and estimates during the interim period.

Key source of estimation uncertainty

Insurance contract liabilities

Estimates have to be made both for the expected ultimate cost of claims reported at the reporting date and for the expected ultimate cost of claims incurred but not reported ("IBNR") at the reporting date. It can take a significant period of time before ultimate claims cost can be established with certainty and for some types of claims.

The ultimate cost of outstanding claims is estimated by carrying out standard actuarial projections in line with the Institute and Faculty of Actuaries Technical Actuarial Standards. These techniques use past claims information and development patterns of these claims to project the expected future claims cost both for notified and non-notified claims.

Similar judgements, estimates and assumptions are employed in the assessment of adequacy of provisions for unearned premium and hence whether there is a requirement for an unexpired risk provision.

4. Segmental information

On 31 March 2015, the Group acquired the outstanding 50% of the ordinary shares of GoCompare. Following the acquisition, the Group's basis of segmentation has changed such that the contribution of Gocompare to the Group's consolidated income and expenses, other than the amortisation of the Gocompare brand and customer relationships, are reported under a new segment "Price comparison".

The amortisation of acquired intangible assets relating to the Gocompare brand and partner relationships recognised on application of IFRS 3 is presented in amortisation of acquired intangibles (see note 8 for more detail). The joint venture deemed disposal gain recognised on application of IFRS 3 to the acquisition is presented as a separate item. Gocompare's tax expense for the period following acquisition is presented in the Group's tax expense.

The share of joint venture profit received until 31 March 2015 is recognised under the investments segment in the same way as the Group's share of joint venture profit is presented in the segmental information provided for the year ended 31 December 2015.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2016

4. Segmental information (continued)

Segmental revenues, expenses and other information

An analysis of the Group's results by reportable segment is shown below:

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2016

4. Segmental information (continued)

(1) The Price Comparison segment reports Gocompare's contribution to the Group's trading profit subsequent to the acquisition of the outstanding 50% of the ordinary shares of Gocompare on 31 March 2015. The Group's 50% share of Gocompare's profit up until the date of acquisition is reported as share of joint venture profit.  

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2016

4. Segmental information (continued)

(1) The Price Comparison segment reports Gocompare's contribution to the Group's trading profit subsequent to the acquisition of the outstanding 50% of the ordinary shares of Gocompare on 31 March 2015. The Group's 50% share of Gocompare's profit up until the date of acquisition is reported as share of joint venture profit.  

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2016

4. Segmental information (continued)

Reconciliation of segmental information to IFRSs statement of comprehensive income

The Group incurred non-trading costs of £0.4m in the six months ended 30 June 2016 which mainly relates to share-based payments in respect of the long service and one-off awards issued at the time of the Group's Admission to the London Stock Exchange in 2013 (30 June 2015: £0.9m relating only to long service and one-off awards).

The Group's segmental information presents non-trading costs and the amortisation of acquired intangibles separately from other operating expenses.

Additionally, the Group's share of joint venture profit until the date of acquisition of Gocompare is presented before tax and amortisation. These items, which are presented within share of profit after tax of joint venture in the condensed consolidated income statement are presented within amortisation of acquired intangibles and tax expense in the segmental information.

5. Dividends

During the six months ended 30 June 2016, a dividend per share of 7.3p (£30.4m) was declared by the Board of Directors as a final dividend for the year ended 31 December 2015. The esure Employee Benefit Trust waived their right to a dividend and a dividend of £30.4m was paid by the Group. Subsequent to 30 June 2016, an interim dividend per share of 3.0p (£12.5m) has been declared by the Board of Directors (2015: interim dividend per share of 4.2p, £17.5m).

6. Earnings per share

Basic

Basic earnings per share is calculated by dividing the earnings attributable to the owners of esure Group plc and the weighted average of Ordinary Shares in issue during the period, excluding Ordinary Shares held as employee trust shares.

Diluted

Diluted earnings per share is calculated by dividing the earnings attributable to the owners of esure Group plc by the weighted average of Ordinary Shares in issue during the period adjusted for any dilutive potential Ordinary Shares.

The difference between the basic and diluted weighted average number of shares outstanding during the period, being 1,370,598 (31 December 2015: 1,202,953; 30 June 2015: 993,493), relates to the dilutive potential of the share-based payment arrangements.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2016

6. Earnings per share (continued)

Basic and diluted earnings per Ordinary Share

The IAS 33 earnings per share calculation is disclosed above and is based on a weighted average number of shares in issue for the six months ended 30 June 2016.

Underlying earnings per Ordinary Share

As a result of the acquisition of the outstanding 50% of the share capital of Gocompare on 31 March 2015, the Group has recognised a joint venture deemed disposal gain and amortisation relating to the intangible assets arising on the application of IFRS 3. In order to reflect better the Group's performance for the period and its dividend paying capacity, an additional underlying earnings per share calculation is presented below. The reported profit after tax for each period is adjusted for the Group's joint venture deemed disposal gain (30 June 2016: £nil, 30 June 2015: £63.8; 31 December 2015: £63.8m) and amortisation of acquired intangibles, as disclosed in the segmental information in note 4, net of the deferred tax credit associated with the amortisation (30 June 2016: £6.3m; 30 June 2015: £3.9m; 31 December 2015: £10.1m). The number of shares is set at the number of Ordinary Shares in issue as at the reporting date.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2016

7. Taxation

The Group incurred an effective tax rate of 18.6% in the six months ended 30 June 2016 (30 June 2015: 18.7%; 31 December 2015: 17.3%, excludes the effects of the deemed disposal gain on acquiring outstanding 50% shares of Gocompare 31 March 2015).

8. Goodwill and intangible assets