Half Year Results

PRESS RELEASE

Charles Taylor plc

Announcement of results for the six months ended 30 June 2018

· Gaining traction in global insurance technology market

· Significantly oversubscribed share placing to support major insurance technology acquisition

· Improved loss adjusting operating profit and margin

· Grew assistance and travel claims management business

· Grew TPA business organically and via acquisition; recognised as a leader in the global TPA market

· Grew mutual insurance clients

David Marock, Group Chief Executive Officer, Charles Taylor plc said:

"Charles Taylor has delivered strong revenue growth combined with a solid increase in adjusted profit before tax - after the investments we have made to deliver our growth strategy. These initiatives are showing great promise with our Insurance Support Services business winning high-profile business and our Adjusting Services business showing steady progress in its ambition to increase profits and margin. Underpinning this performance is Management Services, which provides a solid core to our business with deep, long-standing client relationships and steady, reliable growth.

We are confident that our growth strategy offers shareholders the greatest potential for long-term growth in the Group's share price, along with rising income over time. We anticipate that our full year performance will be in line with the Board's expectations".

Consolidated financial highlights

For the six months ended 30 June 2018

1. Restated to amend the recognition of revenue from the Signal Mutual contract, within the Management Services business as a result of adopting IFRS 15, no full year impact on 2018.

2. The non-recurring costs set out above largely relate to the one-off costs of relocating the Group's three London offices into a single City location (£2.4m), deferred consideration accounted for as employee remuneration (£1.5m), costs related to centralising and standardising Finance and HR operations (£0.4m) and acquisition costs (£0.7m). Further details regarding these and the other adjustments to statutory profit before tax are set out in the Financial Review.

3. Due to fully recognising deferred tax assets in respect of brought forward losses at the end of 2017, the Group will incur a full tax charge in 2018; the effective tax rate will be in the range of 15-20% on adjusted profits. 

Group Chief Executive Officer's Review

Charles Taylor performed well in the first half of 2018, delivering strong revenue growth. Adjusted profit before tax, which reflects the underlying performance of the Group, also increased, although at a slower rate than revenue, as we build our teams to service recent contract wins.

Statutory profit before tax was down, largely due to:

· the increase in amortisation of intangible assets arising from acquisitions, a natural consequence of purchasing people-based, asset light businesses

· one-off costs of relocating the Group's three London offices into a single City location. The cash cost of the move is expected to be neutral and the cost of occupancy (which provides for further expansion) is expected to be marginally lower going forward

· deferred consideration following the acquisitions of Inworx, Criterion and Aasgard Summit which is accounted for as employee remuneration

· the costs of centralising and standardising elements of our Finance and HR operations to delivering efficiencies going forward

Our efforts to grow our business materially are achieving results.

Our claims management businesses, in which we have been investing over the last two years, continued to grow strongly. The Adjusting Services business increased revenue and improved margin. CEGA grew its revenue and profit contribution to the Group following recent business wins from leading UK insurers. Our other Third Party Adminstration (TPA) businesses also continued to win new business, including wins as a direct result of our recent TPA-related acquisitions.

Charles Taylor InsureTech is gaining traction as a global insurance technology provider. It has won substantial global insurance technology contracts and has acquired an insurance-focused technology consultancy and software provider. This was funded by a share placing which was significantly oversubscribed.

We are confident that our growth strategy offers shareholders the greatest potential for long-term growth in the Group's share price, along with rising income over time. We anticipate that our full year performance will be in line with the Board's expectations.

Professional Services

Our Professional Services businesses performed well overall in H1 2018:

· Management Services marginally decreased its revenue and marginally increased operating profit while growing the membership of our major mutual clients.

· Adjusting Services achieved good organic growth in both revenue (8%) and operating profit (41%). The business built on the improvement in margin achieved in 2017 improving from 5% in the six months to June 2017 to 7% margin in the six months to June 2018.

· Insurance Support Services delivered strong revenue growth. Operating profit was down largely because of the investment required to grow the business in line with our strategy.

Owned Insurance Companies

The Group's owned life insurance companies delivered strong revenue and profit growth.

Group results H1 2018

Continuing business

Professional Services performance 

Owned Insurance Companies performance

Notes:

1. Restated to amend the recognition of revenue from the Signal Mutual contract, within the Management Services business as a result of adopting IFRS 15, no full year impact on 2018.

2. Revenue figures are stated before inter-segment eliminations.

Dividend

An interim dividend of 3.48p (H1 2017: 3.31p) has been declared and will be paid on 9 November 2018 to shareholders on the register on 12 October 2018.

Management Services

Management Services marginally decreased its revenue and marginally increased operating profit while growing the membership of our major mutual insurance clients. The UK and International business line also prepared The Standard Club to write European business after Brexit. The Americas business extended the reach of the SafeShore workers' compensation programme.

Management Services - UK & International

Delivered growth for The Standard Club: We have managed The Standard Club since it was founded in 1884. The Club provides Protection and Indemnity (P&I) insurance to approximately 10% of the global shipping market. Our work is focused on ensuring that The Club can provide P&I cover at the lowest sustainable premium cost, whilst providing the highest level of financial security and service to The Club's members.

We delivered positive results for The Club in H1 2018:

· Insured tonnage increased by 6% over the year to stand at 159m gross tonnes by the February 2018 renewal. This increase was a combination of new members entering The Club and existing members increasing their entries. The growth was delivered against the headwinds of increased fleet consolidation and lay-ups as the world fleet continues to face difficult trading conditions. It demonstrates that The Club's financial strength and reputation for service excellence make it an attractive choice of insurer by shipowners.

· The Club's free reserves increased by US$30m to US$461m at the February 2018 renewal. This was largely due to a strong underwriting performance and 6.5% growth in The Club's investment portfolio, which is managed by Charles Taylor Investment Management.

Enhanced operations: We have streamlined The Club's operations to increase efficiency, reorganising The Club's 'blue water' tonnage into two divisions instead of three. We are taking steps to prepare The Club for Brexit and ensure that it can continue to insure members in Europe, after the UK leaves the European Union.

Strengthened syndicate: The Standard Syndicate at Lloyd's was established as part of The Club's strategy to diversify its sources of income and is managed by Charles Taylor Managing Agency. The syndicate strengthened its underwriting team in H1 2018 with the objective of improving its underwriting performance, which has been below expectations in its early years of operation. However insurance market conditions continue to be difficult; as a result, Lloyd's has been increasingly scrutinising the performance of all Lloyd's syndicates, resulting in a more challenging operating environment for The Standard Syndicate.

Enhanced The Strike Club's operations: The Strike Club is the only dedicated mutual insurer covering the running costs of vessels delayed by strikes, shore delays, collisions, groundings and other incidents outside an owner's or charterer's control. We delivered a good renewal for The Club in February 2018 in difficult market conditions, with 98% of members renewing and securing nearly US$6m of new business during the membership year. In H1 2018 we have focused on improving The Club's operational efficiency, following the closure of the Monaco office in June 2017 and relocation of those operations to London.

The Club unfortunately experienced higher than expected levels of insurance claims. We have increased The Club's focus on its core marine delay insurance and are working with The Club's board to agree the most appropriate strategy for the mutual.

Management Services - Americas

Delivered growth for Signal Mutual: We have managed Signal Mutual since it was founded in 1986. Signal Mutual is the largest provider of Longshore workers' compensation insurance to the US maritime industry, with over 250 members.

The association continues to perform well under our management. The total payroll of members, on which Signal Mutual's calls are based, is estimated to rise by 6.1% to US$4.25bn in the 2017/18 membership year. The total advance call has increased by 4.7% and eight new members have joined since the membership renewal in October 2017.

SafeShore the Longshore Workers' Compensation Small Account programme, backed by Signal Mutual, is growing its membership steadily and now has over 200 Employers participating in the programme. We have extended SafeShore's reach by enabling its clients to insure workers through owner-controlled insurance programmes (OCIP). The OCIP is being used by a major terminal operator to insure contract workers during the renovation of a New Jersey port.

Adjusting Services

Adjusting Services achieved good revenue and strong operating profit growth. The business continued its recent trend of performance improvement, with margin in the first half of 2018 ahead of the comparable period in 2017, improving from around 5% to 7% margin year-on-year. We made further improvements in the management of the business' working capital requirement.

We made progress on the implementation of our strategy of strengthening Adjusting Services' capabilities in Property and Casualty (P&C) markets with the objective of increasing regular, recurring income streams and improving margins. We also focused on our core capabilities in Aviation, Natural Resources and Marine, where we enjoy strong market positions.

Diversified into profitable P&C lines:

· Expanded in USA P&C market: Our planned growth in the USA has steadily continued. We have recruited some of the industry's best in class talent. In H1 2018, we added 15 new staff members to our USA adjusting business, bringing our total USA colleague count to around 50.

· Delivered UK Construction and Engineering (C&E) growth: The UK C&E team, established in late 2016, increased revenue from existing clients.

· Developed UK major loss capabilities: We increased our focus on UK major property losses, appointing a head of specialist adjusting at the end of 2017 and recruiting two further adjusters in H1 2018 to manage and coordinate our response to major losses.

· Established presence in HNW market: Our entry into the high net worth loss adjusting market, through the acquisition of Criterion Adjusters in 2017, contributed to revenue and profit growth.

· Extended reach in French market: We entered a collaboration agreement with Cabinet Naudet, a French adjusting firm specialising in large and complex industrial and technical claims. This gives us greater access to the French market and enables us to serve French clients in international markets.

· Grew Middle East team: We have strengthened our P&C adjusting team in the Middle East, recruiting senior adjusters with well-established local market followings in Doha.

· Implemented succession plans: We appointed internally a new managing director for Charles Taylor General Adjusting. This UK business was formerly known as Knowles Loss Adjusters and was acquired by the Group in 2015.

Focused on core capabilities: Charles Taylor has market-leading positions in the Aviation, Natural Resources and Marine loss adjusting markets:

· Delivered strong Aviation performance: Our aviation team performed well in H1 2018, benefiting from an increase in claims activity, particularly through our regional aviation adjusting hub in Singapore.

· Built Natural Resources adjusting team in USA and Middle East: We have recruited senior natural resources adjusters in the USA and Middle East. These appointments have already resulted in new business and further strengthened our leading Global team of Natural Resource Adjusters.

· Appointed a new managing director for Marine: We appointed a new managing director for our marine adjusting business, following the retirement of a long-serving predecessor. The new MD transferred from a senior leadership role in the Management Services business. This appointment demonstrates the breadth of opportunity the Group can and does provide to talented individuals.

· Secured major marine claim: Our marine average adjusters have been appointed to handle the security collection on one of the world's largest known containership general average cases to date.

Enhanced focus on business development: We appointed a Strategy & Business Development Director, who joined from a major management consulting business to focus and drive our global business development efforts.

Responded to natural disasters: The high level of insured losses from Hurricanes Harvey, Irma and Maria and earthquakes in Mexico supported our overall performance with higher volumes of property and yacht claims handled by our adjusters. While these claims supported our performance, we are not reliant on future major natural catastrophes to achieve further business growth, due to our focus on more complex, higher value incidents across our broad business.

Improved efficiency: As highlighted in the 2017 Annual Report and Accounts, we are focused on improving the operational efficiency of the business. This programme includes restructuring teams to improve the margins of under-performing offices and strengthen management. This initiative has continued to deliver positive results in H1 2018.

Focused on working capital: Our efforts to reduce the working capital requirement of the business have continued. Work in progress improved year-on-year to 8.7 months (H1 2017: 9.0), continuing the trend of improvement noted at the full year. We have restructured our working capital team as part of a Group-wide initiative to centralise and standardise processes and thus provide a scalable platform to support the Group's growth. We believe this will enable us to continue to achieve further reductions in our overall working capital requirements.

Shortlisted for major industry award: We were shortlisted for the Cuthbert Heath (major claims) award at the prestigious Insider Honours for our response to Hurricane Irma in the British Virgin Islands. This follows our success in winning the award in 2017.

Insurance Support Services

Insurance Support Services delivered strong revenue growth. Operating profit was down because of the strategic investments made to grow the business.

The business had an exceptional first half year in 2018, winning major new insurance technology contracts, acquiring technology and TPA businesses and securing new TPA contracts. We expect these significant successes to translate into further growth in revenue and operating profit.

Charles Taylor InsureTech:

Made great strides in establishing Charles Taylor InsureTech as a global technology provider with over 500 experts: Charles Taylor InsureTech was established to help insurance businesses drive change through the delivery of technology-enabled solutions:

· Secured major Lloyd's contract: We won a three-year contract with the London Market Group to deliver a delegated authority solution to the Lloyd's and related London company insurance markets. The contract may be extended for up to a further seven years. The solution will be taken up by 80 Lloyd's managing agents, about 250 brokers, and over 4,000 global Managing General Agencies (MGAs) which are within the scope of this major contract win. We were a finalist for the Insurtech Honour award at the Insider Honours for our work on this project.

· Appointed by top Latin American insurer: We have been awarded a significant five country contract with the option for a further five countries by Seguros SURA to implement Fadata's INSIS solution as the core operating platform of a major transformation programme. Seguros SURA is a top four life, general and health insurer in Latin America.

· Acquired Latin American insurance-focused insurance technology business: We acquired Inworx, a Latin American-based insurance-focused technology consultancy and software provider. Inworx delivers solutions to local, regional and global insurance corporates across Latin America. Inworx significantly broadens Charles Taylor InsureTech's technology capabilities on a global basis and expands its presence in Latin America. It added over 260 technology staff and multiple international and local insurance market clients in 15 Latin American countries. We are already seeing opportunities to implement Inworx solutions for UK clients.

· Delivered project for employee benefit provider: We are concluding the initial phase of work on a project to transform the technology infrastructure of a global employee benefit (re)insurance provider, reported in the 2017 Annual Report and Accounts. We anticipate that this may lead to further opportunities.

Disappointingly, Fadata continues to make losses, the Group's 28.2% share of which is reflected in Share of Associates. These arise from the creation of a London-based senior management team to drive activity in London Markets, the interest charges related to the business's financing structure and, primarily, the length of time it is taking to win major implementations and convert licensing opportunities. The Group participated in a funding round in March 2018 of €1.9m and a further round in September 2018 of €0.6m. Steps are being taken to improve Fadata's performance with the appointment of a new CEO charged with undertaking a significant operational review of the business. Fadata's INSIS software is highly rated by the leading industry analysts and we remain confident in the business's long-term future.

Claims programme management:

Embedding CEGA contract wins: CEGA is a market leading provider of assistance and travel claims management services to insurers. The business delivered double digit revenue and operating profit growth as the income from the contract wins with major UK insurers, announced at the year-end, starts to flow through.

· Growing UK assistance services:  Our new contract to provide medical assistance services to a top three UK insurer commenced in January 2018 and is now well embedded and operating effectively. This has contributed to around a 10% uplift in the number of assistance cases CEGA handles, which now exceed 45,000 annually.

· Secured new medical screening business: We secured new business for Antidote, our medical screening solution from a client in New Zealand. Antidote is a tool that enables underwriters to assess risk and set premiums for medical insurance products.

· Won major industry awards: We won the Claims Management Team of the Year and the Counter Fraud Awards at the British Claims Awards. These awards celebrate the achievements of leading professionals in the claims sector on behalf of their clients.

· Increased automated claims handling: Our automated claims solution, developed with Charles Taylor InsureTech saw increased throughput. The solution is already used by one of CEGA's clients and enables its customers to notify straightforward insurance claims online without needing to speak to a claims handler.

Extending TPA capabilities in the US: Charles Taylor TPA is a global Third Party Administrator (TPA), which manages claims for insurers, coverholders and self-insured employers. The business has taken a significant step forward by being recognised as a Leader in the Insurance TPA market by global consulting and research business, Everest Group, in its PEAK Matrix™ 2018. The PEAK Matrix™ assessments provide analysis and insights to enable enterprises to make selection decisions about global services providers, locations, and products and solutions within various market segments.

· Acquired US marine TPA: We acquired Aasgard Summit, a provider of marine claims management and technical services focusing on the US West Coast states. The acquisition embeds Charles Taylor's position as a provider of claims services to the maritime community.

· Embedded Metro Risk Management: We have completed the integration of Metro Risk Management into Charles Taylor TPA, providing clients with a seamless claims management service.

· Secured high profile TPA contract: Charles Taylor TPA has been appointed as TPA by Moor & South, the owner and manager of San Francisco's iconic Pier 39 and Blue & Gold ferry fleet. The relationships and capabilities provided by Metro Risk Management were critical in securing this new business win.

Other technical services:

Appointed Managing Agency CEO: Charles Taylor Managing Agency (CTMA), manager of The Standard Syndicate, has appointed a new Chief Executive Officer. He is currently Chief Executive of another turnkey managing agency and is expected to take up his role later in 2018. His deep knowledge of the Lloyd's market, expertise in leading a turnkey managing agency and abilities in driving strategic change will be invaluable as we look to take CTMA forward.

Delivered steady performance from other Insurance Support Services businesses: Charles Taylor Insurance Services covers two separate business lines, providing outsourced insurance services to life insurance and non-life clients. Both performed steadily during the period. Other business lines, including the Group's investment management and captive management businesses, performed in line with management's expectations.

Owned Insurance Companies

The Group's owned life insurance companies delivered strong revenue and profit growth.

Focused on integrating life businesses

We made good progress in implementing the Group's strategy to acquire and consolidate international life insurance companies. This delivers economies of scale and increased operational efficiencies, reducing reserve requirements and triggering cash releases for the Group. We completed the operational integration of the closed book of Zurich International which was transferred into LCL International Life Assurance Company Limited, the Group's wholly-owned life insurer, at the end of 2017.

Enhanced Group operations

In the first half of 2018, we took forward further initiatives to optimise our core capabilities and support services to underpin growth:

· Completed the Group's London property strategy: We have successfully relocated staff from three London offices into a single City location to increase efficiency and collaboration.

· Driving business development and collaboration: We have held two successful Business Development Forums in 2018, bringing together around 70 of the Group's senior client-facing UK staff to focus on how we drive organic growth by delivering more service to existing clients, winning new clients and working together more effectively. We have also enhanced our Group-wide disciplines for managing key client relationships and new business pipelines.

· Reinforcing technology backbone: Charles Taylor InsureTech is completing the Group-wide migration to Windows 10. This increases our data security and operational efficiency.

· Creating scalable support services: We are restructuring elements of our Finance and HR operations to provide a scalable platform to support the Group's growth.

· Furthering Diversity and Inclusion (D&I): We are progressing our strategy to ensure full benefit from the diversity and expertise of our people. Initiatives include holding bias awareness training for senior staff, developing career plans for talented individuals, focusing on promoting, educating and communicating about D&I, promoting wellbeing among our staff and developing inclusive recruitment practices. We were a finalist for the Inclusion and Diversity Honour award at the Insider Honours 2018 for our work in this area.

· Prepared for GDPR: We have delivered programmes across the Group's businesses to ensure that we have policies and procedures in place to meet the requirements of the General Data Protection Regulations.

· Offering excellent career opportunities: Our latest staff engagement survey reports that 88% of employees would recommend Charles Taylor as a place to work.

· Shortlisted for HR Award: Charles Taylor's recruitment team has been shortlisted for the "Most Effective Recruitment Strategy" at the HR Excellence Awards in 2018.

· Insourced staff travel: We have insourced our global staff travel service to CEGA to benefit from the Group's capabilities, capture cost savings and increase efficiency.

Current trading and outlook

Charles Taylor performed well in the first half of 2018 and we anticipate that our full year performance will be in line with the Board's expectations.

The Group has delivered strong revenue growth combined with a solid increase in adjusted profit before tax and earnings after the investments we have made to deliver our growth strategy. These initiatives are showing great promise with our Insurance Support Services business winning high-profile business and our Adjusting Services business showing steady progress in its ambition to increase profits and margin. Underpinning this performance is Management Services, which provides a solid core to our business with deep, long-lasting client relationships and steady, reliable growth.

We are well placed to deliver further growth, increased profit and greater shareholder value.

David Marock

Group Chief Executive Officer

12 September 2018

Financial Review

The results for the period are summarised in the table below and explained in more detail in the Group Chief Executive Officer's review.

Notes: Figures above are presented using unrounded numbers, so minor rounding differences may arise.

1. Restated to amend the recognition of revenue from the Signal Mutual contract, within the Management Services business as a result of adopting IFRS 15n full year impact on 2018.

2. Adjustments include non-recurring costs and amortisation of acquired intangible assets.

3. Adjusted EBITDA is adjusted profit before tax plus depreciation, amortisation and finance costs and before pre-tax non-controlling interests.

Adjustments

Charles Taylor is a global provider of technical services and solutions dedicated to enabling the global insurance market to do the business of insurance fundamentally better.

We operate through three Professional Services businesses: Management, Adjusting and Insurance Support Services. We also own and consolidate international life insurance businesses through our Owned Insurance Companies business.

The Professional Services businesses provide specialist services and technology solutions to the insurance market. We are continually developing new capabilities through carefully targeted acquisitions, joint ventures and business investments which have a compelling strategic and financial rationale, strong cultural fit and an acceptable risk profile. Our strategy includes the execution of selected investments; however, acquisitions are infrequent and so the associated costs of such investments are not representative of the underlying performance of these businesses.

The Owned Insurance Companies business targets life insurance businesses which are primarily in run off, creating value through consolidation and operational efficiency. Its strategy is to identify, acquire and then merge them, legally and operationally, with another insurer, achieving economies of scale in the annual running costs. This business has acquired five life companies in recent years. Profit releases on acquisitions are dependent on the merging of businesses, requiring regulatory approval, leading to profit fluctuations. Acquisition-related costs are therefore considered to be a core element of this business' underlying performance.

For these reasons, the Group adjusts statutory profit before tax to report a profit before tax which better reflects the Group's underlying performance ("adjusted profit before tax"). These adjustments, the largest of which are listed below, are as follows in H1 2018:

· The amortisation of intangible assets recognised on acquisition by the Professional Services division of £3.5m (2017: £2.3m) is adjusted because this expense does not relate to underlying performance. The increase relative to June 2017 is largely due to the acquisition of Criterion and Inworx.

· On completion of the Group's London property strategy, which relocated staff from three London offices into a single City location, the Group incurred lease exit costs and other non-recurring move costs, including dilapidations totalling £2.4m. The cash cost of the move is expected to be neutral and the cost of occupancy (which provides for further expansion) is expected to be marginally lower going forward. These costs have been adjusted.

· The Professional Services business' investment related activity in the first half of 2018 included earn-out accruals of £1.4m, specifically Inworx, Criterion and Aasgard Summit which are treated as remuneration in accordance with IFRS3, as well as acquisition related costs of £0.7m, largely in acquiring Inworx. These costs do not relate to the Group's underlying performance and have been adjusted.

· A Group initiative to centralise and standardise elements of our Finance and HR operations to provide a scalable platform to support the Group's growth has resulted in exceptional costs of £0.4m which do not reflect the Group's core cost base and underlying operating performance and are adjusted accordingly.

Net debt, cash flow and financing

Net debt at the half year was £52.7m which is lower than FY 2017 (£57.2m) due to cash incentives received on London property costs not yet incurred. Average net debt, which better reflects the Group's overall borrowing levels is £49.0m (FY 2017: £39.5m). The increase includes additional revenue growth related Adjusting working capital and capital expenditure;acquisitions and investments in this period (Inworx, Aasgard Summit and Fadata) were effectively funded through an equity raise, with net proceeds of £17.5m.

The Group's senior banking facilities comprise a revolving credit facility of £70m and an accordion facility of £25m. In addition, the Group has a US$4.75m facility with Citizen's Bank and additional local overdraft facilities. Excluding the accordion facility, Charles Taylor has total available facilities of c. £83m (Sterling equivalent).

Retirement benefit schemes

The Group's pension deficit at 30 June 2018 was £33.2m, net of deferred tax £25.7m, compared with £44.8m at the 2017 year end, net of deferred tax £37.2m. The reduction in the pension deficit since FY 2017 is primarily the result of changes in the assumptions used to value the liabilities (which are themselves a direct reflection of changes in bond yields over the period) and the payment by the Employer of deficit funding contributions. We have long-term plans in place and work closely with the schemes' trustees to manage the deficit. There are multi-year programmes in place to recover pension scheme deficits fully on a regulatory funding basis and funding costs are reflected in management fees charged by the Group where appropriate. We continue to monitor the Group's pension scheme exposures and act, as appropriate

Associates

Associates are entities over which the Group has significant influence but not control or joint control. Fadata AD is the most material of the Group's associates. Due to Fadata's net losses to 30 June 2018 the carrying value of Group's investment in ordinary shares in Fadata of €4.1m had reduced to nil in accordance with IAS 28. The Group also holds preference shares in Fadata that, in accordance with IAS 32 are recorded as a financial liability by Fadata and a financial asset by the Group. In accordance with IAS 39, these preference shares are measured at amortised cost, because they are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold to maturity. The carrying value of Group's investment in preference shares as at 30 June 2018 was €7.2m.

Dividend

An interim dividend of 3.48p per share (H1 2017: 3.31p) has been declared and will be paid on 9 November 2018 to shareholders on the register on 12 October 2018.

Foreign exchange

The Group manages its exposure to foreign currency fluctuations by use of forward foreign exchange contracts and options to sell currency in the future. Inworx deferred consideration, which is payable in US$, has been designated as a hedge of the Group's net investment, which is valued in US$. Changes in the sterling value of the deferred consideration, as a result of changes in the value of the US$ against sterling, are recorded in reserves to offset the changes in the sterling value of the Group's net investment in Inworx, which is also recorded in reserves.

Taxation

The Group recognises taxation based on management's estimate of the weighted average annual income tax rate expected for the full financial year on the Group's adjusted profits, which is expected to be within the range of 15% to 20%, together with management's estimate of the impact of non-tax deductible expenses on the statutory tax charge (H1 2017: 0%). The most significant non-tax deductible expense is remuneration paid to employees and former executive shareholders of subsidiaries acquired by the Group who remain actively engaged in the business. The impact of these non-tax deductible expenses is to increase the effective tax rate on the Group's statutory profits to 138%.

Related party transactions

There have been no related-party transactions in the period that have materially affected the financial position or performance of the Group.

Principal risks and uncertainties

The nature of the principal risks and uncertainties for the first half of 2018 fall into the three categories of business, financial and legal and regulatory risks. These remain unchanged from those explained in the 2017 Annual Report and Accounts. The Group's risk management systems are designed to manage the risk of failing to achieve our business objectives. We have an embedded and continuous process for identifying, evaluating and managing the principal risks which the Group faces.

Going concern

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, being a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

Mark Keogh

Group Chief Financial Officer

12 September 2018

1 £2.3m has been reclassified to the Merger Reserve from Share Premium to reflect that the fair value of the shares issued over and above the par value in respect of the acquisitions of Knowles Loss Adjusters in May 2014 and CEGA in August 2016, both qualified for merger relief in accordance with the Section 612 of the Companies Act 2006.

2 Restated as a result of adopting IFRS 15 (see note 2).

3 The non-current assets, non-current liabilities and accumulated losses have been restated as a result of the remeasurement of assets acquired and liabilities assumed as part of the Criterion acquisition as permitted under IFRS 3 (revised) (see note 7).

The financial statements were approved by the board of directors and authorised for issue on 12 September 2018.

Mark Keogh

Director

12 September 2018

1 Cash and cash equivalents includes client funds of £133.7m (30 June 2017: £118.9m, 31 December 2017: £121.4m).

Condensed Consolidated Statement of Changes in Equity

1 £2.3m has been reclassified to the Merger Reserve from Share Premium to reflect that the fair value of the shares issued over and above the par value in respect of the acquisitions of Knowles Loss Adjusters in May 2014 and CEGA in August 2016, both qualified for merger relief in accordance with the Section 612 of the Companies Act 2006.

2 The accumulated losses have been restated as a result of the remeasurement of assets acquired and liabilities assumed as part of the Criterion acquisition as permitted under IFRS 3 (revised) (see note 7).

3 Restated as a result of adopting IFRS 15 (see note 2).

Own shares comprise 449,436 (30 June 2017: 384,315; 31 December 2017: 324,247) shares held by the Charles Taylor Employee Share Ownership Plan Trust (ESOP). The market value of these shares was £1.4m (30 June 2017: £0.9m; 31 December 2017: £0.9m) at the balance sheet date.

The trustee of the ESOP is Summit Trust International SA, an independent professional trust company registered in Switzerland. The ESOP is a discretionary trust for the benefit of employees of the Group and provides a source of shares to distribute to the Group's employees (including executive directors and officers) under the Group's various bonus and incentive schemes, at the discretion of the trustee acting on the recommendation of a committee of the Board.

The assets, liabilities, income and costs of the ESOP are incorporated into the condensed set of financial statements.

There are no significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances other than company law requirements dealing with distributable profits, and in the case of the insurance companies' regulatory permissions and solvency limits.

Notes to the Condensed Set of Financial Statements

1. General information

These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2017 were approved by the board of directors on 14 March 2018 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

These condensed consolidated interim financial statements have been reviewed, not audited.

2. Accounting policies Basis of preparation

These condensed consolidated interim financial statements for the six months ended 30 June 2018 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting', as adopted by the European Union. The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2017, which have been prepared in accordance with IFRSs as adopted by the European Union.

Going concern

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

Accounting policies

The accounting policies adopted are consistent with those of the previous financial year except as described below.

• The Group has adopted IFRS 15, "Revenue from Contracts with Customers", using the cumulative effect method.

As a result, the revenue recognised from the Signal Mutual contract, within the Management Services business, has been restated to straight line recognition, previously 40% in the fourth quarter followed by 20% in each subsequent quarter.

There is no overall impact on the FY2018 revenue.

The revenue for the half year comparatives has therefore been increased by £1.7m and the impact of the cumulative timing difference of £2.3m shown as a movement in reserves in the Condensed Consolidated Statement of Changes in Equity.

• IFRS 9 Financial Instruments was effective from 1 January 2018, however it did not have any material impact on the Group's accounting policies and did not require retrospective adjustments.

• Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.

• The Group has adopted net investment hedge accounting for the deferred consideration recognised as part of the Inworx acquisition. The deferred consideration, which is payable in US$, has been designated as a hedge of the Group's net investment in Inworx, which is valued in US$. Changes in the sterling value of the deferred consideration, as a result of changes in the value of the US$ against sterling, are recorded in reserves to offset the changes in the sterling value of the Group's net investment in Inworx, which is also recorded in reserves.

• The Group has determined that the functional currency of Inworx is US$. Therefore, in spite of the fact that two of the legal entities acquired as part of this acquisition are resident in Argentina (which is a hyperinflationary environment), the Group does not believe that it is appropriate to adopt hyperinflationary accounting for the Inworx results.

Standards issued but not yet applied

• IFRS 16 'Leases' is effective and will be applied for the financial year beginning on 1 January 2019. The interim results for FY19 will be IFRS 16 compliant with the first annual report published in accordance with IFRS 16 being the 31 December 2019 report.

• Based on our initial view we expect there to be a material change in the balance sheet on adoption of IFRS 16, primarily because of the operating lease entered into for The Minster Building, however the Group has not yet performed a detailed review of all its operating leases to quantify the full impact. This detailed review will be performed during the second half of 2018.

3. Segmental information Identification of segments

For management and internal reporting purposes the Group is currently organised into four operating businesses, the first three of which are considered to be professional services businesses.

• Management Services business - provides end-to-end management services to insurance companies, mutuals and associations.

• Adjusting Services business -provides loss adjusting services across the aviation, energy, marine, property & casualty and special risks sectors.

• Insurance Support Services business - provides a wide range of professional, technology and support services, enabling our clients to select the specific services they require.

• Owned Life Insurers business - consolidates life insurance businesses which are primarily in run-off, creating value through targeted acquisitions and operational efficiency.

Management information about these businesses is regularly provided to the Group's chief operating decision maker to assess their performance and to make decisions about the allocation of resources. Accordingly, these businesses correspond with the Group's operating segments under IFRS 8 Operating Segments. Businesses forming part of each business which might otherwise qualify as reportable operating segments have been aggregated where they share similar economic characteristics and meet the other aggregation criteria in IFRS 8.

Measurement of segmental results and assets

Transactions between reportable segments are accounted for on the basis of the contractual arrangements in place for the provision of goods or services between segments and in accordance with the Group's accounting policies. Reportable segment results and assets are also measured on a basis consistent with the Group's accounting policies. Operating profit for the individual segments includes an allocation of central costs. The Adjustments column includes elimination of inter-segment revenue, share of results of associates and the adjustments set out in the Financial Review. Reconciliations of segmental results to the Group profit before tax are set out below.

Information about major customers

The Group derived revenue within its Management Services business of £20.7m (to 30 June 2017: £18.0m, full year 2017:

£36.1m) from one external customer which accounts for more than 10% of Group revenue.

Owned

1 Restated as a result of adopting IFRS 15 (see note 2).

2 The non-current assets have been restated as a result of the remeasurement of assets acquired and liabilities assumed as part of the Criterion acquisition as permitted under IFRS 3 (revised) (see note 7).

3 Excluding deferred tax.

4. Income tax expense

Income tax expense is recognised based on management's estimate of the weighted average annual income tax rate expected for the full financial year on the group's operating profits (which is expected to be within the range of 15% to 20%) plus management's estimate of the impact of non-tax deductible expenses on the statutory tax charge. The most significant non-tax deductible expense is remuneration paid to employees and former executive shareholders of subsidiaries acquired by the group who remain actively engaged in the business. The impact of these non-tax deductible expenses is to increase the effective tax rate on the Group's statutory profits to 138%.

The final dividend of 3.48p per share, will be paid on 9 November 2018. Dividend paid have been shown as a movement in shareholders funds.

6. Earnings per share

The earnings and weighted average number of shares used in the calculation of earnings per share are as shown below. The shares held by the ESOP have been excluded from the calculation because the trustees have waived the right to dividends on these shares.

7. Acquisition of subsidiaries Aasgard

On 2 March 2018 the Group acquired 100% of the equity of Bowditch Marine Inc (Washington) ("BMI"), 100% of the equity of Aasgard Summit Management Services Inc (Washington) ("ASMS") and 51% of the equity of Employers Medical Review Services LLC (Washington) ("EMNI"). Collectively, these companies are described as "Aasgard".

Aasgard is a provider of marine claims management and related technical services focusing on the US West Coast states.

A further estimated £2.4m is payable in three instalments from March 2019, subject to the executive shareholders remaining actively engaged in the business over a period of at least three years.

Inworx

On 2 May 2018 Charles Taylor Insuretech Limited and Charles Taylor Insurance Services Ltd acquired 95% and 5% respectively of Inworx Argentina S.A, Softseg S.A ("the Argentinian entities") and Inworx Peru SAC. Separately, CTI Mexico SA de CV, a newly incorporated entity which is wholly owned by CT Holdings BV, acquired the Mexican and US trade of the Argentinian entities. These acquisitions are described collectively as "Inworx".

Inworx is an insurance-focused technology software provider, selling primarily to insurance brokers, insurers and other corporates in Latin America.

Inworx

A further estimated £16.5m is payable in four instalments from May 2019, subject to the executive shareholders remaining actively engaged in the business over a period of at least four years.

A merger reserve of £2.5m was created in respect of these acquisitions in line with Section 612 of the Companies Act 2006

Criterion

On 9 August 2017 Charles Taylor acquired all of the equity of Criterion Adjusters Limited, Criterion Surveyors Limited and Criterion Claims Management Limited, which are described collectively as "Criterion". This acquisition is described in detail in the financial statements for the year ended 31 December 2017. The assets acquired are as follows:

Criterion

The analysis of assets acquired and liabilities assumed on acquisition, which was reported in the financial statements for the year ended 31 December 2017, was a provisional analysis. This has been restated within the remeasurement period being 12 months of the date of recognition which is permitted under IFRS 3 (revised). The revised analysis of assets acquired and liabilities assumed is shown above. A further £6.5m is payable in four instalments from September 2018, subject to the executive shareholders remaining actively engaged in the business over a period of at least five years. As required by IFRS 3 (revised) these payments will be expensed to the income statement over the relevant period of active engagement. The

discounted value of this restatement is included as Revaluation within Deferred consideration.

Deferred consideration

Acquisitions include Inworx and Aasgard, as described above. £3.7m of the total deferred consideration is due within one year.

Deferred consideration

£000

If the above acquisitions have been completed on the first day of the period, the combined revenue and statutory profit before tax would have

been £130.1m and £0.7m respectively.

8. Goodwill

Goodwill has increased by £14.0m since the year end, due to the acquisition of Inworx, £12.8m, the revised carrying value of CTMA goodwill, £1.0m and foreign exchange differences, £0.2m.

9 Other intangible assets

Other intangible assets increased by £11.6m since the year end, as a result of customer relationships of £14.2m arising on acquisitions (see note 7), IT assets capitalised of £2.7m, offset by amortisation of £5.3m.

10. Bank overdrafts and loans

Loans raised during the period amounted to £25.1m (to 30 June 2017: £49.3m, full year 2017: £104m) and repayments on loans amounted to £29.1m (to 30 June 2017: £52.8m, full year 2017: £78.5m). The Group has a senior facilities agreement with Royal Bank of Scotland, HSBC and Bank of Ireland for a five year term, which matures on 13 October 2022, but with an option to extend to October 2023.

The number of allotted and fully paid shares of the Company increased during the six month period to 30 June 2018 due to:

• 646,859 shares issued under employee share schemes; and

• 940,201 shares issued to former owners of the Inworx Group under deferred consideration arrangements.

• 6,770,800 shares issued to fund the acquisition of Inworx, from which £17.1m was raised and expenses of £0.5m were incurred.