26th Sep 2005 07:02
Charles Taylor Consulting PLC23 September 2005 PRESS RELEASE Contacts: John Rowe, Chairman 020 7759 4900 George Fitzsimons, Group Finance Director 020 7759 6355 Charles Taylor Consulting plc Announcement of interim results for six months ended 30 June 2005 Consolidated Financial Highlights Six months to Six months to 30 June 2005 30 June 2004 Increase Revenue £31.9m £31.5m 1.3% Profit before tax £4.5m £4.5m - Earnings per share 10.84p 10.20p 6.3% Dividend per share -- interim 3.96p 3.60p 10.0% The group's results have been prepared, for the first time, using accountingpolicies consistent with International Financial Reporting Standards (IFRS). Thegroup has accordingly restated its previously reported 2004 results andfinancial position. The interim dividend of 3.96p is payable on 25 November 2005 to Shareholdersregistered on 14 October 2005. Under IFRS this dividend will be recognised inthe period in which it is approved by the Board. Chairman's Statement Group Revenue grew by 1.3% to £31.9m (£31.5m), pre tax profits were unchanged at£4.5m and earnings per share increased 6.3% to 10.84p (10.2p) in the six monthsended 30 June 2005. I am also able to report that once again it is proposed that the interimdividend be increased by 10% to 3.96p. Group overview The company provides a wide variety of services to the insurance industry. It issplit into two operating divisions, CTC Management and CTC Services with theformer providing management and investment services to Mutual Insuranceassociations and captive insurance companies as well as providing generalisedrisk management advice to a wide variety of companies around the world. CTCServices provides adjusting services, principally to insurers as well asproviding technical advice in a variety of different areas. Whilst the group's strategy to date has been to position itself to be able toachieve strong results irrespective as to the state of the insurance market, itis, due to the nature of its underlying customers and services, exposed to thevagaries of the insurance cycle. The acquisition of Bateman Chapman in 2004 provided the group with a betterbalance between CTC Services and CTC Management and significantly increased therange and depth of services provided. The group now has a diversifiedpenetration of the insurance services market, and the ability to take advantageof all opportunities that present themselves. Going forward, the group will focus on leveraging its expertise as opportunitiesarise as well as seeking to increase both long-term earnings visibility andgrowth prospects. International Financial Reporting Standards ("IFRS") It is now obligatory that the accounts of Charles Taylor Consulting be preparedin accordance with IFRS. In order to provide you with comparable figures, it hastherefore been necessary to re-state our figures for 2004 and an analysis of thechanges is contained in this report. The principal impact of the new accountingrules on these results has been in relation to the treatment of the pensiondeficits previously disclosed under FRS17. Both our Management and Servicesdivisions have seen their profits reduced as a result, and we estimate that theadditional full year effect is likely to be an extra charge in the region of£1m. The deficit previously disclosed under FRS17 has now been included in thebalance sheet and as a consequence shareholders' funds have been reduced by£18.3m net of the related deferred tax asset at 30 June 2005. Operational review Transfer of Average Adjusting from CTC Management to CTC Services With a view to managing all those businesses which involve charging fees forservices on an hourly basis within the same division, we have decided that witheffect from 1 January 2005, our Average Adjusting activities would be reportedwithin the Marine section of CTC Services. These interim results thereforereflect this change. As a result, CTC Management now includes earnings from ourMutual Management, Captive Management, Investment Management and Risk Managementbusinesses and CTC Services the results from all our other fee earningbusinesses. CTC Management Revenue £15.2m (2004: £15.2m)Operating profit £2.9m (2004: £2.8m) A good performance was achieved overall in a period during which significantinvestment was made in the division and some costs rose more than anticipated,particularly within the Mutual Development Unit in which our smaller Mutuals aremanaged and new ones developed. Income was also affected as a result of a needto introduce more stringent underwriting in respect of the membership of one ofour smaller Mutuals. As mentioned previously, we have been reinforcing our capabilities, both throughrecruitment and re-positioning of our existing resources. We have done so fortwo reasons; firstly to ensure that we can meet the servicing requirements ofexisting clients and, secondly, in order to position ourselves to take advantageof new business opportunities. Our ability to retain our existing clientsdepends on providing the levels of service that they require and, as stated onmany previous occasions, our continued success depends crucially on the successof the various insurance Mutuals that we manage. We are expanding our operationsin Australia and hope to add to the two Mutuals we already have undermanagement. As far as our flagship Mutuals, Standard and Signal, are concerned,this has been a year in which investments in infrastructure and new people havebeen made and the benefits of this investment will be seen in the future. CTC Services Revenue £16.6m (2004: £16.3m)Operating profit £2.2m (2004: £2.1m) The divisional result was significantly affected by the low level of activitywithin the aviation business, which has historically been the second largestcomponent of our Services business. The division benefits for the first timefrom the inclusion of Average Adjusting within CTC Marine and the comparatorsfor the division have been adjusted to reflect this. Average Adjusting duringthe period accounted for approximately 70% of Marine turnover. Our target is that an average margin of 20% should be achieved by all ouroperating units across the insurance cycle. Where it becomes clear that there isno prospect of this being achieved, we will withdraw from the area in question. Energy The integration of Bateman Chapman Limited and our pre-existing energy businesshas now been substantially completed and we have decided to trade globally underthe Bateman Chapman name. Since 1 January, we have expanded operations furtherthrough the creation of an energy presence in our Paris office. The energy operation provided approximately 45% of Services revenue during theperiod and produced satisfactory results. The prospects for this area areextremely good with high oil prices encouraging oil exploration and productionin ever more inhospitable areas. Marine With the incorporation of Average Adjusting, this unit accounted for 22% ofServices revenue in the period. Whilst profits were impacted by an IAS19 pensioncharge attributable to Average Adjusting, the overall performance, afterallowing for this, was acceptable albeit that the overall desired margin was notachieved. Since the end of June I am pleased to say that there has been anotable increase in instructions. Aviation This accounted for approximately 20% of Services revenue and suffered theinevitable consequences of an exceptionally good aviation underwriting result in2004. There has been a significant upturn in activity since 30 June. Non-Marine This accounted for 13% of Services revenue during the period and produced anacceptable return for the first six months continuing the progress which it hadmade following a very difficult first six months for 2004. The cost reductionsimposed at the beginning of the year have obviously helped, but the improvementis largely due to reaping the rewards of efforts put in by management inmarketing this unit's significant capabilities Consortium Management I am pleased to say that the Wavelength Consortium, through which a number ofLloyd's underwriters insure ports and terminals around the world, continues andis likely to be renewed for another year. We have also established a new joint venture in Norway, which will manage acover-holder facility for yachts and other pleasure craft on behalf of a numberof Lloyd's underwriters. It will also provide an opportunity to market othergroup services in Scandinavia. Management changes Earlier this year we announced the appointment of George Fitzsimons as the newGroup Finance Director with Stephen Matthews, the incumbent since 1996, havingagreed to take up the newly created role of Finance Director, Mutuals andAcquisitions. Damian Ely has been appointed to the board, subject to FSAapproval and will take up the role of Chief Operating Officer of the group witheffect from 1 October 2005. Outlook and current trading I advised you in March when reporting on the full year results for 2004, that2005 would be a year during which we invested, particularly on the Managementside, with a view to reinforcing service levels and growth prospects for thefuture. This investment, which so far has involved recruiting new staff andrelocating personnel to new locations, will continue until the year-end andbeyond. On the Services side of the business we continue to recruit where wefeel that to do so will enable us to exploit growth opportunities. We are continually reviewing the range of services that your company providesand the opportunities to expand into areas where sustainable growth isachievable. The backdrop against which your company is now operating has changedsignificantly for the better both compared to the first six months of last yearand, indeed, to the first six months of this year. This is unlikely to affectthe results to 31 December 2005 but will flow through to 2006. John Rowe Chairman23 September 2005 Consolidated income statementSix months ended 30 June 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 Note £000 £000 £000 Continuing operationsRevenue 3 31,874 31,462 62,809 _______ _______ _______Administrative expenses (27,078) (26,466) (52,392)Share of results of associates 19 (35) (18) Share of results of joint ventures 28 23 32 _______ _______ _______ Profit from operations 4,843 4,984 10,431Investment income 333 97 273Finance costs (686) (571) (1,184) _______ _______ _______ Profit before tax 4,490 4,510 9,520Tax 4 (529) (836) (1,460) _______ _______ _______Profit for the period fromcontinuing operations 3,961 3,674 8,060 _______ _______ _______ Attributable to:Equity holders of the parent 3,894 3,640 8,029Minority interest 67 34 31 _______ _______ _______ 3,961 3,674 8,060 _______ _______ _______Dividends paid 5 (1,948) (1,767) (3,061) _______ _______ _______ Retained profit for the period 2,013 1,907 4,999 _______ _______ _______ Earnings per share fromcontinuing operations Basic 6 10.84 10.20 22.43 _______ _______ _______Diluted 6 10.82 10.18 22.42 _______ _______ _______ Consolidated balance sheet30 June 2005 30 June 30 June 31 December 2005 2004 2004 Note £000 £000 £000 Non-current assetsGoodwill 18,077 17,976 18,077 Property, plant and equipment 3,235 3,460 3,096Interests in associates 746 656 696Interests in joint ventures 471 477 511Investments 31 42 45Deferred tax assets 8,061 5,796 7,848 _______ _______ _______ 30,621 28,407 30,273 _______ _______ _______ Current assetsTrade and other receivables 42,083 39,062 38,512Cash and cash equivalents 21,403 14,985 24,222 _______ _______ _______ 63,486 54,047 62,734 _______ _______ _______Total assets 94,107 82,454 93,007 _______ _______ _______ Current liabilitiesTrade and other payables 12,460 14,400 14,868Tax liabilities 626 1,389 292Obligations under finance leases 109 98 112Bank overdrafts and loans 7 15,372 13,371 14,603Client monies 17,443 10,852 18,156 _______ _______ _______ 46,010 40,110 48,031 _______ _______ _______Net current assets 17,476 13,937 14,703 _______ _______ _______ Non-current liabilitiesBank loans 7 9,777 11,230 8,811Retirement benefit obligation 8 26,227 18,902 25,693Deferred tax liabilities 44 47 -Long-term provisions 220 171 194Obligations under finance leases 227 244 211 _______ _______ _______ 36,495 30,594 34,909 _______ _______ _______Total liabilities 82,505 70,704 82,940 _______ _______ _______ Net assets 11,602 11,750 10,067 _______ _______ _______ EquityShare capital 9 364 364 364Share premium account 19,593 19,505 19,505Merger reserve 6,872 6,872 6,872Capital reserve 662 662 662Own shares (1,515) (1,561) (1,516)Retained earnings (14,491) (14,165) (15,870) _______ _______ _______Equity attributable to equity holders of the parent 11,485 11,677 10,017Minority interest 117 73 50 _______ _______ _______Total equity 11,602 11,750 10,067 _______ _______ _______ Consolidated cash flow statementSix months ended 30 June 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 Note £000 £000 £000Net cash from operating activities 10 2,271 4,378 16,380 Investing activitiesInterest received 113 97 273Proceeds on disposal of property, plant and equipment 73 150 179Purchases of property, plant and equipment (418) (422) (633)Proceeds from sale of investments 232 - 35Acquisition of subsidiary (4,400) (15,147) (15,248) _______ _______ _______Net cash used in investing activities (4,400) (15,322) (15,394) _______ _______ _______ Financing activitiesProceeds from issue of shares 88 4,176 4,176Dividends paid (1,948) (1,767) (3,061)Repayments of borrowings (2,263) (1,418) (3,835)Repayments of obligations under finance leases (58) (68) (127)New bank loans raised 3,400 10,400 10,400Increase/(decrease) in bank overdrafts 388 (1,863) (526) _______ _______ _______Net cash (used in)/from financing activities (393) 9,460 7,027 _______ _______ _______Net (decrease)/increase in cash and cash equivalents (2,522) (1,484) 8,013Cash and cash equivalents at beginning of period 24,222 16,369 16,369Effect of foreign exchange rate changes (297) 100 (160) _______ _______ _______Cash and cash equivalents at end of period 21,403 14,985 24,222 _______ _______ _______ Consolidated statement of total recognised income and expenseSix months ended 30 June 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 £000 £000 £000 Exchange differences on translation of foreign operations 170 (464) (856)Actuarial losses on defined benefit pension schemes (305) - (4,633)Write-down of shares held by QUEST - (61) (85) _______ _______ _______Net expense recognised directly in equity (135) (525) (5,574) _______ _______ _______Profit for the period 2,013 1,907 4,999 _______ _______ _______Total recognised income and expense for the period 1,878 1,382 (575) _______ _______ _______Attributable to:Equity holders of the parent 1,811 1,348 (606)Minority interests 67 34 31 _______ _______ _______ 1,878 1,382 (575) _______ _______ _______ Notes to the interim financial informationSix months ended 30 June 2005 1. General information The information for the year ended 31 December 2004 does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. A copyof the statutory accounts for that year has been delivered to the Registrar ofCompanies. The auditors' report on those accounts was unqualified. 2. Accounting policies Basis of accounting In common with other European listed companies, the group is required to prepareits consolidated financial statements for the year ending 31 December 2005 inaccordance with the International Financial Reporting Standards (IFRS) endorsedby the European Union. This Interim Financial Report has been prepared inaccordance with the accounting policies that are anticipated to be used inpreparation of the annual financial statements. These policies have been set outbelow. There is a possibility that the directors may determine that some changesare necessary when preparing the full annual financial statements for the firsttime in accordance with the accounting standards adopted for use in the EuropeanUnion. The IFRS standards and IFRIC interpretations that will be applicable andadopted for use in the European Union at 31 December 2005 are not known withcertainty at the time of preparing this interim financial information. The group has accordingly restated its previously reported 2004 consolidatedresults and financial position. The restated comparative information has notbeen audited. The disclosures required by IFRS 1 concerning the transition fromUK GAAP to IFRSs are given in note 13. The financial statements have beenprepared on the historical cost basis, except for the revaluation of certainproperties and financial instruments. The principal accounting policies adoptedare set out below. Basis of consolidation The consolidated financial statements and interim financial informationincorporate the financial statements of the company and entities controlled bythe company (its subsidiaries) made up to 31 December and 30 June respectivelyeach period. Control is achieved where the company has the power to govern thefinancial and operating policies of an investee entity so as to obtain benefitsfrom its activities. On acquisition, the assets and liabilities and contingent liabilities of asubsidiary are measured at their fair values at the date of acquisition. Anyexcess of the cost of acquisition over the fair values of the identifiable netassets acquired is recognised as goodwill. Any deficiency of the cost ofacquisition below the fair values of the identifiable net assets acquired (i.e.discount on acquisition) is credited to profit and loss in the period ofacquisition. The interest of minority shareholders is stated at the minority'sproportion of the fair values of the assets and liabilities recognised.Subsequently, any losses applicable to the minority interest in excess of theminority interest are allocated against the interests of the parent. The results of subsidiaries acquired or disposed of during the period areincluded in the consolidated income statement from the effective date ofacquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Investments in associates and joint ventures An associate is an entity over which the group is in a position to exercisesignificant influence, but not control or joint control, through participationin the financial and operating policy decisions of the investee. A joint venture is a contractural arrangement whereby the group, with one ormore parties, undertakes an economic activity that is subject to joint control. The results and assets and liabilities of associates and joint ventures areincorporated in these financial statements using the equity method ofaccounting. Investments in associates and joint ventures are carried in thebalance sheet at cost as adjusted by post-acquisition changes in the group'sshare of the net assets of the associate or joint venture, less any impairmentin the value of individual investments. Losses of the associates or jointventures in excess of the group's interest in those associates or joint venturesare not recognised. Where a group company transacts with an associate or joint venture of the group,profits and losses are eliminated to the extent of the group's interest in therelevant associate or joint venture. Losses may provide evidence of animpairment of the asset transferred in which case appropriate provision is madefor impairment. Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the group's interest in the fair value of the identifiableassets and liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset and reviewed for impairment at leastannually. Any impairment is recognised immediately in profit or loss and is notsubsequently reversed. On disposal of a subsidiary, the attributable amount of goodwill is included inthe determination of the profit or loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRSs has beenretained at the previous UK GAAP amounts subject to being tested for impairmentat that date. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for services provided in the normalcourse of business, net of discounts, VAT and other sales-related taxes. Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the ratethat exactly discounts estimated future cash receipts through the expected lifeof the financial asset to that asset's net carrying amount. Dividend income from investments is recognised when the shareholders' rights toreceive payment have been established. Leasing Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. Assets held under finance leases are recognised as assets of the group at theirfair value or, if lower, at the present value of the minimum lease payments,each determined at the inception of the lease. The corresponding liability tothe lessor is included in the balance sheet as a finance lease obligation. Leasepayments are apportioned between finance charges and reduction of the leaseobligation so as to achieve a constant rate of interest on the remaining balanceof the liability. Finance charges are charged directly against income. Rentals payable under operating leases are charged to income on a straight-linebasis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operatinglease are also spread on a straight line basis over the lease term. Foreign currencies Transactions in currencies other than pounds sterling are recorded at the ratesof exchange prevailing on the dates of the transactions. At each balance sheetdate, monetary assets and liabilities that are denominated in foreign currenciesare retranslated at the rates prevailing on the balance sheet date. Non-monetaryassets and liabilities carried at fair value that are denominated in foreigncurrencies are translated at the rates prevailing at the date when the fairvalue was determined. Gains and losses arising on retranslation are included innet profit or loss for the period, except for exchange differences arising onnon-monetary assets and liabilities where the changes in fair value arerecognised directly in equity. In order to hedge its exposure to certain foreign exchange risks, the groupenters into forward contracts (see below for details of the group's accountingpolicies in respect of such derivative financial instruments). On consolidation, the assets and liabilities of the group's overseas operationsare translated at exchange rates prevailing on the balance sheet date. Incomeand expense items are translated at the average exchange rates for the periodunless exchange rates fluctuate significantly. Exchange differences arising, ifany, are classified as equity and transferred to the group's translationreserve. Such translation differences are recognised as income or as expenses inthe period in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. The group has elected to treat goodwill and fairvalue adjustments arising on acquisitions before the date of transition to IFRSsas sterling-denominated assets and liabilities. Profit from operations Profit from operations is stated after the share of results of associates andjoint ventures but before investment income and finance costs. Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as anexpense as they fall due. Payments made to state-managed retirement benefitschemes are dealt with as payments to defined contribution schemes where thegroup's obligations under the schemes are equivalent to those arising in adefined contribution retirement benefit scheme. For defined benefit retirement benefit schemes, the cost of providing benefitsis determined using the Projected Unit Credit Method, with actuarial valuationsbeing carried out at each balance sheet date. Actuarial gains and losses arerecognised in full in the period in which they occur. They are recognisedoutside profit or loss and presented in the statement of recognised income andexpense. Past service cost is recognised immediately to the extent that the benefits arealready vested, and otherwise is amortised on a straight-line basis over theaverage period until the benefits become vested. The retirement benefit obligation recognised in the balance sheet represents thepresent value of the defined benefit obligation as adjusted for unrecognisedpast service cost, and as reduced by the fair value of scheme assets. Any assetresulting from this calculation is limited to past service cost, plus thepresent value of available refunds and reductions in future contributions to theplan. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. Thegroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from goodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in a transaction thataffects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, and interests in jointventures, except where the group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Property, plant and equipment Land and buildings held for use in the production or supply of goods orservices, or for administrative purposes, are stated in the balance sheet attheir revalued amounts, being the fair value at the date of revaluation,determined from market-based evidence by appraisal undertaken by professionalvaluers, less any subsequent accumulated depreciation and subsequent accumulatedimpairment losses. Revaluations are performed with sufficient regularity suchthat the carrying amount does not differ materially from that which would bedetermined using fair values at the balance sheet date. Any revaluation increase arising on the revaluation of such land and buildingsis credited to the properties revaluation reserve, except to the extent that itreverses a revaluation decrease for the same asset previously recognised as anexpense, in which case the increase is credited to the income statement to theextent of the decrease previously charged. A decrease in carrying amount arisingon the revaluation of such land and buildings is charged as an expense to theextent that it exceeds the balance, if any, held in the properties revaluationreserve relating to a previous revaluation of that asset. Depreciation on revalued buildings is charged to income. On the subsequent saleor retirement of a revalued property, the attributable revaluation surplusremaining in the properties revaluation reserve is transferred directly toaccumulated profits. Fixtures and equipment are stated at cost less accumulated depreciation and anyrecognised impairment loss. Depreciation is charged so as to write off the cost or valuation of assets,other than land, over their estimated useful lives, using the straight-linemethod, on the following bases: Buildings 2.5%Fixtures and equipment 20%-25%Aircraft 10% Assets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets or, where shorter, over the term of therelevant lease. The gain or loss arising on the disposal or retirement of an asset is determinedas the difference between the sales proceeds and the carrying amount of theasset and is recognised in income. Internally-generated intangible assets - research and development expenditure Expenditure on research activities is recognised as an expense in the period inwhich it is incurred. An internally-generated intangible asset arising from the group's informationtechnology development is recognised only if all of the following conditions aremet: • an asset is created that can be identified (such as software and newprocesses); • it is probable that the asset created will generate future economic benefits;and • the development cost of the asset can be measured reliably. Internally-generated intangible assets are amortised on a straight-line basisover their useful lives. Where no internally-generated intangible asset can berecognised, development expenditure is recognised as an expense in the period inwhich it is incurred. Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the group estimates therecoverable amount of the cash-generating unit to which the asset belongs. Anintangible asset with an indefinite useful life is tested for impairmentannually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to theasset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised as an expense immediately, unless the relevant asset is carried ata revalued amount, in which case the impairment loss is treated as a revaluationdecrease. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of an impairmentloss is recognised as income immediately, unless the relevant asset is carriedat a revalued amount, in which case the reversal of the impairment loss istreated as a revaluation increase. Financial instruments Financial assets and financial liabilities are recognised on the group's balancesheet when the group becomes a party to the contractual provisions of theinstrument. Trade receivables Trade receivables are measured on initial recognition at fair value. Tradereceivables do not carry any interest. Appropriate allowances for estimatedirrecoverable amounts are recognised in the profit or loss when there isobjective evidence that the asset is impaired. Investments Investments are recognised and derecognised on a trade date where a purchase orsale of an investment is under a contract whose terms require delivery of theinvestment within the timeframe established by the market concerned, and areinitially measured at cost, including transaction costs. Financial liability and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the group afterdeducting all of its liabilities. Bank borrowings Interest-bearing bank loans and overdrafts are initially measured at fair value.Finance charges, including premiums payable on settlement or redemption anddirect issue costs, are accounted for on an accrual basis to the profit and lossaccount using the effective interest method and are added to the carrying amountof the instrument to the extent that they are not settled in the period in whichthey arise. Trade payables Trade payables are initially measured at fair value. They are not interestbearing. Equity instruments Equity instruments issued by the company are recorded at the proceeds received,net of direct issue costs. Derivative financial instruments and hedge accounting The group's activities expose it primarily to the financial risks of changes inforeign currency exchange rates and interest rates. The group uses foreignexchange forward contracts to hedge these exposures. The group does not usederivative financial instruments for speculative purposes. Derivative financial instruments are initially recognised at fair value atcontract date and are remeasured at fair value at subsequent reporting dates.Changes in the fair value of derivative financial instruments that aredesignated and effective as hedges of future cash flows are recognised directlyin equity and the ineffective portion is recognised immediately in the incomestatement. If the cash flow hedge of a firm commitment or forecasted transactionresults in the recognition of an asset or a liability, then, at the time theasset or liability is recognised, the associated gains or losses on thederivative that had previously been recognised in equity are included in theinitial measurement of the asset or liability. For hedges that do not result inthe recognition of an asset or a liability, amounts deferred in equity arerecognised in the income statement in the same period in which the hedged itemaffects net profit or loss. For an effective hedge of an exposure to changes in the fair value, the hedgeditem is adjusted for changes in fair value attributable to the risk being hedgedwith the corresponding entry in profit or loss. Gains or losses fromre-measuring the derivative, or for non-derivatives the foreign currencycomponent of its carrying amount, are recognised in profit or loss. Changes in the fair value of derivative financial instruments that do notqualify for hedge accounting are recognised in the income statement as theyarise. There were no derivatives that qualified for hedge accounting during theperiod. Hedge accounting is discontinued when the hedging instrument expires or is sold,terminated, or exercised, or no longer qualifies for hedge accounting. At thattime, any cumulative gain or loss on the hedging instrument recognised in equityis retained in equity until the forecasted transaction occurs. If a hedgedtransaction is no longer expected to occur, the net cumulative gain or lossrecognised in equity is transferred to net profit or loss for the period. Share-based payments On 1 January 2005 the group applied the requirements of IFRS 2 Share-basedPayments. In accordance with transitional provisions, IFRS 2 has been applied toall grants after 7 November 2002 which were unvested at 1 January 2005. The group issues equity-settled share-based payments to certain employees. Thereis an Executive scheme for senior employees and a Sharesave scheme open to allqualifying employees. Equity-settled share-based payments are measured at fairvalue at the date of grant. The fair value determined at the grant date isexpensed on a straight-line basis over the vesting period, based on the group'sestimate of shares that will eventually vest. An amount equivalent to the profitand loss account charge is credited to the profit and loss account reserve atdate of grant. Fair value is measured by use of the Black-Scholes-Merton pricing model. Theexpected option life used in the model is based on management's best estimate,taking behavioural considerations into account. 3. Segmental information For management purposes, the group is currently organised into two operatingdivisions - CTC Management and CTC Services. These are the basis on which thegroup reports its primary segment information. The Services division comprisesfour separate business units: Energy, Aviation, Marine and Non-Marine. Principal activities are as follows: CTC Management - Mutual management, captive management, investment managementand risk management. CTC Services - Energy, Aviation, Non-Marine and Marine (including Average)adjusting. Six months ended Six months ended 30 June 2005 30 June 2004 £000 £000RevenueManagement 15,231 15,179Services 16,643 16,283 _______ _______Consolidated 31,874 31,462 _______ _______ Six months ended Six months ended 30 June 2005 30 June 2004 £000 £000 ResultManagement 2,913 2,804Services 2,246 2,118 _______ _______Consolidated 5,159 4,922 _______ _______ Unallocated foreign exchange (363) 74Share of results of associates and joint ventures 47 (12) _______ _______Profit from operations 4,843 4,984Investment income 333 97Finance costs (686) (571) _______ _______Profit before tax 4,490 4,510Tax (529) (836) _______ _______Profit after tax 3,961 3,674 _______ _______ Segmental information on a geographicalbasis is as follows: Six months ended Six months ended 30 June 2005 30 June 2004 £000 £000RevenueUnited Kingdom 10,626 10,890Other Europe 891 629North America 4,254 4,412Asia Pacific 3,741 3,071Bermuda 12,362 12,460 _______ _______Consolidated 31,874 31,462 _______ _______ 4. Tax Six months ended Six months ended 30 June 2005 30 June 2004 £000 £000Current tax:UK corporation tax 368 801Foreign tax 218 200 _______ _______ 586 1,001 _______ _______Deferred tax:Current year (57) (165) _______ _______ 529 836 _______ _______ Corporation tax for the interim period is charged at 11.8% (2004: 18.5%),representing the best estimate of the weighted average annual corporation taxrate expected for the full financial year. Excluding prior year over-provisions,the expected effective tax rate for the full financial year is 15.2%. 5. Dividends Six months ended Six months ended 30 June 2005 30 June 2004 £000 £000Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 December 2004 of 5.42p (2003: 4.93p) per share 1,948 1,767 _______ _______ Proposed interim dividend for the six months ended 30 June 2005 of 3.96p (2004:3.60p) per share 1,421 1,294 _______ _______ The proposed interim dividend was approved by the Board on 23 September 2005 andin accordance with IFRS has not been included as a liability as at 30 June 2005. 6. Earnings per share from continuing operations The calculation of the basic and diluted earnings per share is based on thefollowing data: Six months ended Six months ended 30 June 2005 30 June 2004 £000 £000 EarningsEarnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent 3,893 3,640 _______ _______ Number Number Number of sharesWeighted average number of ordinary shares for the purposes of basic earningsper share 35,912,234 35,681,128 Effect of dilutive potential ordinary shares: Share options 74,494 80,254 ____________ ____________ Weighted average number of ordinary shares for the purposes of diluted earnings per share 35,986,728 35,761,382 ____________ ____________ 7. Bank overdrafts and loans Loans raised during the period amounted to £3,400,000 (2004: £10,400,000) andrepayments on loans amounted to £2,263,000 (2004: £1,418,000). 8. Retirement benefit obligations Defined benefit schemes On implementation of IAS 19 the group reviewed the basis for determining thebalance sheet and income statement figures for each of its four defined benefitschemes, which had been previously disclosed under FRS 17 after takingprofessional actuarial advice. On reviewing these calculations it has beenidentified that certain mortality rates were not adjusted in the previouslyreported FRS 17 disclosures until 31 December 2004 although changes in mortalityhad clearly taken place earlier than that date and could have been reflected inactuarial calculations of the benefit obligation at 31 December 2003. Inaddition, certain general assumptions had been made where individual factorsrelevant to each particular scheme would have been more appropriate. Under IAS19, we have been advised that the appropriate treatment is to reflect thesechanges in the Statement of Recognised Income and Expense rather than to restatereported figures. If the calculations had been revised at the time, the balancesheet figures presented would have been £21,761,000 at 1 January 2004,£22,266,000 at 30 June 2004 and £21,414,000 at 31 December 2004. The movementfrom the figure which would have been reported at 31 December 2004 on this basisand the actual balance sheet figure at 30 June 2005 is principally explained bya reduction in the discount rate from 5.3% at 31 December 2004 to 4.9% at 30June 2005. The figures for the period to 30 June 2005 have been preparedreflecting the revised scheme bases, updated where appropriate for changes inactuarial assumptions since 31 December 2004. The present value of the benefit obligation and the pension scheme assets as at30 June 2004 were projected assuming experience to be in line with theassumptions used for determining the obligation at 31 December 2003. Other retirement benefit obligations A liability of £61,000 (2004: £64,000) has been recognised in respect of fixedbenefits payable to former employees until 2030. 9. Share capital 41,329 ordinary 1p shares were issued during the period for cash (2004:1,763,354). The consideration above 1p per share is reflected in the sharepremium account and amounts to £88,000 (2004: £4,158,000). 10. Notes to the cash flow statement Six months ended Six months ended 30 June 2005 30 June 2004 £000 £000 Profit from operations 4,843 4,984 Adjustments for: Depreciation of property, plant and equipment 394 486 Gain on disposal of property, plant and equipment - (27) Increase/(decrease) in provisions 94 343 Share of results of associates and joint ventures (47) 12 _______ _______ Operating cash flows before movements in working capital 5,284 5,798 (Increase)/decrease in receivables (2,514) 202 Increase/(decrease) in payables 1,109 (252) _______ _______Cash generated by operations 3,879 5,748Income taxes paid (929) (791)Interest paid (679) (579) _______ _______Net cash from operating activities 2,271 4,378 _______ _______ Additions to motor vehicles during the period amounting to £72,000 (2004 -£104,000) were financed by new finance leases. Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. Cash includes client monies of £17,443,000 (2004 - £10,852,000). 11. Net interest bearing liabilities At At 30 June 2005 30 June 2004 £000 £000 Cash and cash equivalents 21,403 14,985Bank overdrafts and current loans (15,372) (13,371)Non-current bank loans (9,777) (11,230)Loan stock (104) (195)Finance leases (336) (342) _______ _______ (4,186) (10,153)Client monies (17,443) (10,852) _______ _______ (21,629) (21,005) _______ _______ 12. Related party transactions Transactions between the company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisnote. Transactions between the group and its associates and its joint venturesare not material and so have not been disclosed. 13. Explanation of transition to IFRSs The group has applied IFRS1, First Time Adoption of International FinancialReporting Standards, in preparing these consolidated interim condensed financialstatements. The group's transition date is 1 January 2004 and as such an openingIFRS balance sheet has been prepared at that date. Consequently, 2004comparative information has been restated under these new accounting standards. In order to make the transition to IFRS easier, IFRS1 allows some exemptionsfrom full retrospective application of certain standards. In preparing theseconsolidated interim financial statements in accordance with IFRS1, the grouphas applied the mandatory exceptions and certain of the optional exceptions fromfull retrospective application of IFRS. The group has elected to apply the following optional exemptions, and mandatoryexceptions, from full retrospective application: Business combinations exemption The group has applied the business combinations exemption in IFRS1. It has notrestated business combinations that took place prior to the 1 January 2004transition date. Cumulative translation differences exemption The group has elected to set the previously accumulated translation differencesto zero at 1 January 2004. This exemption has been applied to all subsidiariesin accordance with IFRS1. Estimates exception Estimates under IFRS at 1 January 2004 are consistent with estimates made forthe same date under UK GAAP. IFRS reconciliations The reconciliations of equity at 1 January 2004 (date of transition to IFRS) andat 31 December 2004 (date of last UK GAAP financial statements) and thereconciliation of profit for 2004 are required by IFRS 1 First-time adoption ofInternational Financial Reporting Standards in the year of transition. In addition to the above reconciliations, the reconciliation of equity at 30June 2004 and the reconciliation of profit for the six months ended 30 June 2004have been included below to enable a comparison of the 2005 interim figures withthe corresponding period of the previous financial year. Reconciliation of equity at 1 January 2004 (date of transition to IFRSs) Effect of transition Note UK GAAP to IFRSs IFRSs Goodwill 6,247 - 6,247Intangible assets - - -Property, plant and equipment 3,319 - 3,319Investments 1,296 - 1,296Deferred tax assets c - 5,632 5,632 _______ _______ _______Total non-current assets 10,862 5,632 16,494 _______ _______ _______ Trade and other receivables a 30,107 (329) 29,778Cash and cash equivalents 16,369 - 16,369 _______ _______ _______ Total current assets 46,476 (329) 46,147 _______ _______ _______ Total assets 57,338 5,303 62,641 _______ _______ _______ Interest-bearing loans 18,038 - 18,038Trade and other payables 19,677 - 19,677Employee benefits b 67 18,333 18,400Dividend to shareholders d 1,767 (1,767) -Current tax liability 603 - 603Deferred tax liability 47 - 47 _______ _______ _______Total liabilities 40,199 16,566 56,765 _______ _______ _______ Total assets less total liabilities 17,139 (11,263) 5,876 _______ _______ _______Issued capital 15,693 - 15,693Revaluation reserve - - -Other reserves 7,534 - 7,534Own shares (1,563) - (1,563)Retained earnings a, b, c, d, e (4,528) (11,263) (15,791)Minority interest 3 - 3 _______ _______ _______Total equity 17,139 (11,263) 5,876 _______ _______ _______ Reconciliation of equity at 30 June 2004 Effect of transition Note UK GAAP to IFRSs IFRSs Goodwill 17,976 - 17,976Intangible assets - - -Property, plant and equipment 3,460 - 3,460Investments 1,175 - 1,175Deferred tax assets c - 5,796 5,796 _______ _______ _______ Total non-current assets 22,611 5,796 28,407 _______ _______ _______Trade and other receivables a 39,324 (262) 39,062Cash and cash equivalents 14,985 - 14,985 _______ _______ _______ Total current assets 54,309 (262) 54,047 _______ _______ _______ Total assets 76,920 5,534 82,454 _______ _______ _______ Interest-bearing loans 25,137 - 25,137Trade and other payables 25,229 - 25,229Employee benefits b 64 18,838 18,902Dividend to shareholders d 1,294 (1,294) -Current tax liability 1,389 - 1,389Deferred tax liability 47 - 47 _______ _______ _______Total liabilities 53,160 17,544 70,704 _______ _______ _______ Total assets less total liabilities 23,760 (12,010) 11,750 _______ _______ _______ Issued capital 19,869 - 19,869Revaluation reserve - - -Other reserves 7,534 - 7,534Own shares (1,561) - (1,561)Retained earnings a, b, c, d, e (2,155) (12,010) (14,165)Minority interest 73 - 73 _______ _______ _______Total equity 23,760 (12,010) 11,750 _______ _______ _______ Reconciliation of equity at 31 December 2004 (date of last UK GAAP financialstatements) Effect of transition Note UK GAAP to IFRSs IFRSsGoodwill 18,077 - 18,077Intangible assets - - -Property, plant and equipment 3,096 - 3,096Investments 1,252 - 1,252Deferred tax assets c - 7,848 7,848 _______ _______ _______Total non-current assets 22,425 7,848 30,273 _______ _______ _______ Trade and other receivables a, b 39,045 (533) 38,512Cash and cash equivalents 24,222 - 24,222 _______ _______ _______Total current assets 63,267 (533) 62,734 _______ _______ _______Total assets 85,692 7,315 93,007 _______ _______ _______ Interest-bearing loans 23,922 - 23,922Trade and other payables 33,033 - 33,033Employee benefits b 64 25,629 25,693Dividend to shareholders d 1,946 (1,946) -Current tax liability 292 - 292Deferred tax liability - - - _______ _______ _______Total liabilities 59,257 23,683 82,940 _______ _______ _______Total assets less total liabilities 26,435 (16,368) 10,067 _______ _______ _______ Issued capital 19,869 - 19,869Revaluation reserve - - -Other reserves 7,534 - 7,534Own shares (1,516) - (1,516)Retained earnings a, b, c, d, e 498 (16,368) (15,870)Minority interest 50 - 50 _______ _______ _______Total equity 26,435 (16,368) 10,067 _______ _______ _______ Reconciliation of profit for the six months ended 30 June 2004 Effect of transition Note UK GAAP to IFRSs IFRSsRevenue 31,462 - 31,462 _______ _______ _______Administrative expenses a, b, e (25,914) (552) (26,466)Other income 85 - 85Finance costs (571) - (571) _______ _______ _______ (26,400) (552) (26,952) _______ _______ _______Profit before tax 5,062 (552) 4,510Tax expense (836) - (836) _______ _______ _______Net profit/(loss) 4,226 (552) 3,674 _______ _______ _______ Reconciliation of profit for the year ended 31 December 2004 Effect of transition Note UK GAAP to IFRSs IFRSsRevenue 62,809 - 62,809 _______ _______ _______Administrative expenses a, b, e (51,214) (1,178) (52,392)Other income 287 - 287Finance costs (1,184) - (1,184) _______ _______ _______ (52,111) (1,178) (53,289) _______ _______ _______Profit before tax 10,698 (1,178) 9,520Tax expense (1,460) - (1,460) _______ _______ _______Net profit/(loss) 9,238 (1,178) 8,060 _______ _______ _______ Notes to the reconciliations of equity and profit The transition to IFRS resulted in the following changes in accounting policies: a) Under previous Generally Accepted Accounting Principles (GAAP)start-up costs relating to new mutuals were capitalised from the point at whichagreement for establishing the mutuals was reached, up until the point at whichthe mutuals became operational. The costs were then amortised over the periodwhen revenue was expected to be earned under the management agreements. UnderIFRS these costs do not qualify for recognition as assets. The effect of thechange is a decrease in equity at 31 December 2004 of £203,000 (£262,000 as of30 June 2004 and £329,000 as of 1 January 2004) and an increase of profit beforetax of £114,000 for the year to 31 December 2004 (£40,000 for the six months to30 June 2004). b) Obligations arising from defined benefit pension schemes which are inexcess of the value of plan assets are shown as a liability. Under previous GAAPobligations arising from defined benefit pension schemes were not recognised asa liability but disclosed separately in the notes. The effect of the change is adecrease in equity at 31 December 2004 of £25,959,000 (£18,838,000 as of 30 June2004 and £18,333,000 as of 1 January 2004) and a decrease of profit before taxof £1,199,000 for the year to 31 December 2004 (£545,000 for the six months to30 June 2004). The pension scheme liability previously disclosed under FRS 17 at31 December 2004 was £25,629,000. The total decrease in equity arising from thechange to IFRS was £25,959,000 as a result of a deficit funding prepayment of£330,000 recognised in the 31 December 2004 balance sheet as previously stated. c) The change in accounting for obligations arising from defined benefitschemes increased the deferred tax asset by £7,689,000at 31 December 2004(£5,651,000 as of 30 June 2004 and £5,500,000 as of 1 January 2004). A deferredtax asset relating to fixed asset timing differences has also been recognisedamounting to £159,000 at 31 December 2004 (£145,000 as of 30 June 2004 and£132,000 as of 1 January 2004). d) Dividends to shareholders declared after the balance sheet date but beforethe financial statements are authorised for issue are not recognised as aliability at the balance sheet date but disclosed separately in the notes. Underprevious GAAP dividends for the accounting period were recognised as aliability. The effect of the change is an increase in equity at 31 December 2004of £1,946,000 (£1,294,000 as of 30 June 2004 and £1,767,000 as of 1 January2004). The change does not affect profit or loss before tax. e) Share options granted to employees are recognised as an expense over thevesting period based on the value of the option at the date of grant. Underprevious GAAP the cost of share options was not recognised in profit or loss.The effect of the change is a decrease of profit before tax of £93,000 for theyear to 31 December 2004 (£47,000 for the six months to 30 June 2004). Thechange does not affect equity. Independent review report to Charles Taylor Consulting plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2005 which comprises the income statement, thestatement of recognised income and expense, the balance sheet, the cash flowstatement and related notes 1 to 13. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority, which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. International Financial Reporting Standards As disclosed in note 2, the next annual financial statements of the group willbe prepared in accordance with International Financial Reporting Standards asadopted for use in the EU. Accordingly, the interim report has been prepared inaccordance with the recognition and measurement criteria of IFRS and thedisclosure requirements of the Listing Rules. The accounting policies areconsistent with those that the directors intend to use in the annual financialstatements. There is, however, a possibility that the directors may determinethat some changes to these policies are necessary when preparing the full annualfinancial statements for the first time in accordance with IFRSs as adopted foruse in the EU. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2005. Deloitte & Touche LLPChartered AccountantsLondon23 September 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Charles Taylor