Preliminary results for period 9.10. to 31.12.08

30th Jan 2009 07:00



30 January 2009

RESOLUTION LIMITED

Registered Office: Trafalgar Court, Les Banques, St Peter Port, Guernsey, Channel Islands

Company Number: 49558

Preliminary results for the period 9 October 2008 to 31 December 2008

Resolution Limited incorporated in Guernsey on 9 October 2008 and commenced trading on the London Stock Exchange on 10 December 2008.

£660 million gross funds (£649.6 million net of expenses) were raised towards acquiring and restructuring financial services companies.

The loss for the period of £0.7 million related to initial operating expenses. Investment return on the cash received reduced this to £0.2 million. 

Michael Biggs, Chairman of Resolution Limited, commented:

"These results are in line with our expectations." 

"Our objective is to unlock value through acquisitions and restructuring in the UK and Western European financial services, with an initial focus on life assurance and asset management in the UK. A number of possible acquisitions are under evaluation for 2009."

Enquiries:
Michael Biggs, Resolution Limited	+44 (0)1481 745 368
Investors / analysts
Steve Riley, Resolution Operations LLP	+44 (0)20 7016 9085
Media
Alex Child-Villiers, Temple Bar Advisory	+44 (0)20 7002 1080

Note: The statutory accounts for the period ended 31 December 2008 have not yet been filed. The statutory accounts have been audited by Ernst & Young LLP and their report was not modified or qualified. This announcement does not constitute statutory accounts. 

Forward-looking statements

The preliminary announcement contains certain forward-looking statements with respect to Resolution Limited and its outlook. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast.

Financial calendar

Annual Report posted to shareholders	9 February 2009
Annual General Meeting	11 March 2009
Interim results for 2009	26 August 2009

Website

www.resolution.gg

Chairman's statement

I have great pleasure in presenting my first report as Chairman of Resolution Limited.

Resolution commenced trading on the London Stock Exchange just before the year end, following a successful placing with institutional investors, and I would like to extend a personal welcome to all our shareholders. The Company has a clear objective to unlock and create value for shareholders through the acquisition and restructuring of financial service businesses in the UK and Western Europe. We intend to acquire businesses in one or more of the life assurance, asset management, general insurance, banking and diversified general financial sectors.

Initially, we expect to focus on opportunities in the life assurance and asset management sectors in the UK. Opportunities elsewhere in Western Europe will be kept under review, especially in countries where industry practices and the regulatory system operate in a manner similar to that in the UK. The Company is targeting a mid-teen gross internal rate of return over the medium term from its restructuring activities, which include combining sub-scale businesses, improving cost and capital efficiencies and selling or demerging businesses outside its focused market sectors. On completion of a restructuring project we will look to realise value for shareholders through the listing, sale or demerger of the restructured business. In general, we anticipate that a restructuring project will last between two and four years. 

The value opportunity

We see value opportunities arising from both the past strategies of financial services companies and from some of the current trends in the financial services industry, together with the current wider market instability. Our preferred approach is to partner with boards and management in the execution of their chosen strategy.

Years of diversification in financial services has led to the emergence of complex financial conglomerates, which often include poorly performing, fragmented and sub-scale operations. The inherent complexity of some of these groups has produced unidentified and unrewarded risks, which have led to long term underperformance and shareholder disappointment.

The regulatory environment continues to be a main driver of market restructuring. For example, banks with insurance subsidiaries are being required, as a result of the Basel II capital accords, to make partial deductions from their regulatory Tier 1 capital from 2012 onwards. Similarly, the EU Solvency II directive is likely to require owners of insurance assets to set aside more capital to reflect the risks for certain types of business.

Across the financial services industry, the prevailing market dislocation and asset price volatility has caused most financial services companies to reassess their strategies, business models and investment programmes. We are well placed to partner with the shareholders, boards and management of financial services companies who are looking to reposition their future strategy.

The placing and financing

The Company placed 660 million shares with institutional shareholders in December 2008, raising £649.6 million after fees and expenses. These funds have been invested in short-term liquidity funds with HSBC pending their deployment on acquisitions. The Board has an extremely conservative policy in respect of the investment of its cash resources.

We were delighted with investors' support for our restructuring objectives in financial services, particularly against a backdrop of uncertain equity markets where capital has become an increasingly scarce commodity. In discussing the investment opportunity with potential investors, we made it clear that substantial additional equity is likely to be required to finance acquisitions. In addition, we anticipate offering new shares in the Company to the shareholders of target companies who wish to benefit from the value that is expected to be released from Resolution's restructuring capabilities. We will also look to raise appropriate levels of borrowings to help finance and, potentially, refinance acquisitions where such finance is available on acceptable terms.

Our shareholders include many of the UK's leading institutional investors who are also significant investors in the UK financial services industry. A number of our shareholders hold over 3% of the Company's equity, representing a strong platform on which to support our future ambitions. Resolution Capital, which acted as facilitator to the placing and as adviser to the Company on its formation, has also invested £20 million in the ordinary shares of the Company.

Share price

Resolution Limited's shares were admitted to trading on the main market of the London Stock Exchange on 10 December 2008. From an issue price of 100 pence per share, the share price subsequently rose to a peak of 116 pence and settled back to 111 pence on 31 December 2008.

Corporate structure

Resolution Limited was incorporated in Guernsey on 9 October 2008. The Board has decided to outsource its administration and a number of its operating activities. The administration and accounting have been outsourced to Northern Trust International Fund Administration Services (Guernsey) Limited, a Guernsey based company, and a number of other operating activities have been outsourced to Resolution Operations LLP, a UK Limited Liability Partnership.

Operational management

The operating agreement between the Company and Resolution Operations LLP is for an initial period of 5 years. The scope of the activities covered by the agreement includes the identification and assessment of investment opportunities, the design and execution of restructuring plans, and the identification, assessment and execution of value realisation opportunities. 

I am very pleased that the Company has been able to enter into the agreement with Resolution Operations LLP, which has a high quality and experienced management team. The senior management team comprises a number of former executive directors of Resolution plc, which was sold to Pearl Group Limited in May 2008, who have extensive experience of restructuring and operating life assurance and asset management businesses. Further, John Tiner has joined the team as Chief Executive. He brings 30 years of financial services experience to the team following his previous positions as the Chief Executive at the UK Financial Services Authority and Managing Partner at Andersen, where he was responsible for its worldwide financial services practice. 

The Company pays an operating fee to Resolution Operations LLP for the services it provides. The Resolution Operations LLP partners share in the value created for shareholders by way of a 'Value Share'. The Value Share crystallises upon the completion of a restructuring project and when the capital realised by the Company has been returned to shareholders, unless shareholders vote to leave the capital in the Company to finance a further acquisition. The Value Share will represent 10% of the value created by a restructuring project, after adjusting for the risk-free rate of return. The Board believes that the financial incentives of the Resolution Operations LLP partners are closely aligned with the interests of all shareholders.

The Board and corporate governance

I am delighted that we have been able to form a strong Board with experience from across the financial services industry. The Board comprises independent non-executive directors only. The partners of Resolution Operations LLP are invited to attend most of our meetings to bring recommendations for transactions and to update the Board on market developments and progress with restructuring projects. However, all Board decisions are taken exclusively by the Board.

As a Guernsey company with a secondary listing on the London Stock Exchange, we are not required to comply with the corporate governance requirements and shareholder rights of UK publicly listed companies. However, the Board is committed to complying with these requirements, where they are appropriate. Hence, the Company has adopted the Combined Code to the extent it is appropriate and determined that shareholder approval will be required for our first major transaction which involves raising additional equity capital and all major transactions thereafter, and has granted pre-emption rights to shareholders in respect of future share issues for cash.

Dividend policy

The Company expects that returns for shareholders will derive primarily from capital appreciation of the ordinary shares and returns of proceeds from disposals, rather than from regular dividends. The Company does not expect to pay any regular annual or semi-annual dividends, at least in the short-term, but the position will be kept under review. Accordingly, no dividend is being proposed in respect of the 2008 year end.

Outlook

The Company has in place a strong Board and a highly experienced management team in Resolution Operations LLP, with a strong track record of delivering value. Following completion of the initial fund raising, the focus is now on evaluating suitable acquisition opportunities and taking the initial steps towards our first acquisition.

Michael Biggs

Chairman

Operating and financial review

Overview of results

The Company was incorporated on 9 October 2008 and consequently these financial statements cover the period from incorporation to 31 December 2008. The financial statements have been prepared on the basis of International Financial Reporting Standards (IFRS) as adopted by the European Union. 

The Company obtained a secondary listing on the official list of the UK Listing Authority and was admitted to trading on the main market of the London Stock Exchange on 10 December 2008. The Company's related placing raised gross proceeds of £660 million. After charging initial expenses of £10.4 million the net amount raised was £649.6 million. The initial expenses estimated for the purposes of the prospectus were more conservative at £14 million.

As the Company did not complete any transactions during the short trading period the only source of income was from the investment return on cash raised in the placing. Total invested cash at 31 December 2008 was £652.6 million after the payment of some initial and general running expenses. This was invested in short term investments in accordance with the cash mandate described below. Because the mandate is intended to provide security of capital and liquidity rather than to maximise potential profits from the short-term sale of investments in the portfolio, these investments have been classified as available-for-sale under IAS39 and therefore the unrealised increase in their value at the year end of £0.5 million has been treated as a reserve movement in equity. Consequently, there is no income recorded for the period and the costs incurred from the date of the listing until the end of the year resulted in a loss of £0.7 million. It is important to note that the initial expenses of £10.4 million associated with the raising of the equity have been netted against equity rather than being reflected in the income statement. 

Significant agreements

The majority of the Company's outgoings in 2008 were, in the absence of due diligence costs in respect of possible acquisitions, comprised of contractual commitments. In particular, the Company has outsourced most of its operating functions to Resolution Operations LLP for which it will pay an annual fee of 0.5% of the non-cash value of the Company subject to a minimum payment of £10 million per annum. As the Company had not completed any acquisitions in the period to 31 December 2008 the financial statements reflect the amount due, £565,000, based on the minimum payment for the period from when the Company obtained its listing until the end of the year. 

Under the terms of the operating agreement with Resolution Operations LLP, due diligence costs will only become payable by the Company once the Board has approved a transaction in principle. At this stage the Company will take responsibility for any further third party costs of due diligence and execution of a transaction (subject to any limits which the Company may put on those costs). No agreements had been approved in principle by 31 December 2008 and consequently no such costs are reflected in these financial statements.

The Company has also entered into a corporate administration agreement with Northern Trust International Fund Administration Services (Guernsey) Limited covering, inter alia, secretarial services. The administrator is entitled to receive an annual fee of £175,000 which will increase to £250,000 once the first acquisition is completed together with additional fees for accounting services. The financial statements reflect the appropriate proportion of these costs from the date of admission to listing. 

In addition to these agreements the Company has regular outgoings in respect of the use and protection of the Resolution name (£100,000 per annum subject to an inflationary adjustment), an investment management and custodian agreement with HSBC under which an annual fee of 10 basis points is payable based on average assets under management and directors' fees of £650,000 per annum of which £114,000 has been charged in these financial statements.

Invested cash and cash management

At 31 December 2008 the Company had £652.6 million of invested cash following the listing in December. The investment objective of the investment manager, HSBC, is to provide security of capital, liquidity and, subject to these constraints, a competitive investment return by investing in a diversified portfolio of short-term securities, instruments and obligations, which may include, subject to any limitations imposed by the Company from time to time certificates of deposit, commercial paper, medium-term notes, variable rate notes, bank deposits, bankers' acceptances, government bonds, treasury bills and corporate bonds. The investment manager may only make investments on the Company's behalf in securities denominated in sterling or that are fully hedged back into sterling. Furthermore, the current mandate requires that the securities should have a short-term credit rating of at least A1/P-1 (or its equivalent) from a recognised credit rating agency at the time of purchase and at least 80 per cent of the investments must be maintained at a credit rating of A1+/P1 (or its equivalent). The investment manager has been instructed to invest in securities which have a maximum maturity of six months in the case of treasury bills and 100 days in the case of all other investments.

Principal risks and uncertainties

Prior to any acquisitions being undertaken by the Company, the principal risks are related to the investment of the Company's significant cash balance. Details of how this risk is managed through the investment mandate are set out above. Following an acquisition, the principal risks facing the Company will relate primarily to the nature and performance of the acquired businesses.

Details of the Company's risk management policy will be given in the corporate governance report. Resolution Operations LLP is responsible for updating the risk management policy and framework, risk reports and other such reports on this subject as required by the Board or the Audit and Risk Committee in accordance with the operating agreement.

Corporate governance

Although not required to do so under Guernsey law, the directors intend to observe the requirements of the Combined Code to the extent that it is appropriate. The corporate governance report will provide details of the Company's compliance with the Combined Code.

Key performance indicators

The Company will develop key performance indicators that are consistent with the nature of the businesses that it acquires to enable it to monitor and report on the performance of those businesses.

Directors, employees and employee benefits

The Company has no employees, pension schemes, share schemes or other long term incentive plans. Directors are remunerated on a fee only basis.

Consolidated income statement

for the period from 9 October 2008 to 31 December 2008

		2008
	Notes	£m
Administrative expenses	1	(0.7)
Total operating expenses		(0.7)
Loss for the period attributable to equity holders		(0.7)
Attributable to:
Ordinary shareholders		(0.7)
		(0.7)
Earnings per ordinary share
Basic earnings per ordinary share (pence)	8	(0.11)p
Diluted earnings per ordinary share (pence)	8	(0.11)p

Consolidated balance sheet

as at 31 December 2008

		2008
	Notes	£m
ASSETS
Financial assets
Available-for-sale	6	652.6
		652.6
Current assets
Trade debtors and other receivables		0.1
Cash and cash equivalents		1.3
Total assets		654.0
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital	7	649.6
Retained loss	9	(0.7)
Capital reserves	9	0.5
Total equity	9	649.4
Liabilities
Trade creditors and other payables	5	4.6
Total liabilities		4.6
Total equity and liabilities		654.0

Note: All assets and liabilities are current; amounts are therefore due for settlement or recovery within 1 year.

Statement of changes in equity

for the period ended 31 December 2008

		2008
		£m
Equity at start of period		-
Issue of share capital for cash, net of transaction costs		649.6
Total recognised loss for the period	(0.7)
Unrealised gain on investments available-for-sale	0.5
Loss for the period attributable to equity holders		(0.2)
Equity at 31 December 2008		649.4

Consolidated statement of cash flows

for the period ended 31 December 2008

		2008
		£m
Cash flows from operating activities		(0.7)
Movements in operating assets and liabilities		0.6
Net cash flows from operating activities		(0.1)
Cash flows from investing activities
Purchase of investment securities		(658.2)
Disposal of investment securities		6.1
Net cash flows from investing activities		(652.1)
Cash flows from financing activities
Proceeds from issue of ordinary share capital, net of transaction costs		653.5
Net cash flows from financing activities		653.5
Net increase in cash and cash equivalents		1.3
Cash and cash equivalents at the end of the period		1.3

Note: Cash and cash equivalents is comprised of bank and cash balances only.

Notes to the consolidated financial statements

1.  Administrative expenses 

	2008
	£m
Administrative expenses	0.6
Directors' fees	0.1
Total administrative expenses	0.7

2.  Auditor's remuneration

	2008
	£'000
Fees payable to the auditor for the audit of the Group's financial statements	20
Fees for services as reporting accountants	550

3.  Taxation

The Group is resident for tax purposes in Guernsey and is subject to the company standard rate of income tax in Guernsey of zero per cent.

4.  Investment in subsidiary undertakings

Name		Percentage of equity and votes	Investment	Country of incorporation	Principal activity
Resolution Holdco No 1 LP		99.99%	General partner interest of £199.98	Guernsey	Holding company

5.  Trade creditors and other payables

		2008
		£m
Accrued expenses		4.6
		4.6

6.  Financial assets

	2008	2008
	Cost	Fair value
Available-for-sale	£m	£m
Short term investments	652.1	652.6
Total available-for-sale investments	652.1	652.6

7.  Share capital 

The authorised share capital of the Company is represented by an unlimited number of ordinary shares of no par value.

	Number of	2008
Issued and fully paid	Shares	£m
Share of no par value issued fully paid on incorporation	1	0.0
Shares of no par value issued for cash on initial public offering	599,999,999	600.0
Shares in respect of over-allotment	60,000,000	60.0
Transaction costs, net of income tax	-	(10.4)
	660,000,000	649.6

At 9 October 2008 the Company had share capital of one ordinary share of no par value which was issued for £1. On 10 December 2008, an additional 599,999,999 ordinary shares of no par value were allotted and issued by the Company at £1 per ordinary share.

An over-allotment option was granted to Citigroup Global Markets U.K. Equity Limited to subscribe for additional ordinary shares at the original offer price. It was exercised on 18 December 2008 with a further 60 million ordinary shares of no par value issued on that date at £1 per ordinary share.

The total amount of the transaction costs related to the issuance of shares, net of income tax, was £10.4 million.

All ordinary shares in issue in the Company rank pari passu and carry the same voting rights and rights to receive dividends and other distributions declared or paid by the Company.

8.  Earnings per share

The earnings per share has been calculated on the basis of the profit and weighted average number of shares in issue, as set out below.

		2008
		£m
Net loss for the period		(0.7)
Weighted average number of ordinary shares for basic earnings per share		638,181,818
Weighted average number of ordinary shares for diluted earnings per share		638,181,818

The weighted average number of ordinary shares represents the average calculated from the date of the placing of ordinary shares on 10 December 2008 in respect of the 600 million shares issued on that date and from 18 December 2008 in respect of the 60 million shares issued through the over-allotment option.

9.  Statement of changes in equity attributable to equity holders of parent 

	Share capital (note 7) 2008 £m	Retained  loss  2008  £m	Capital reserves 2008 £m	Total 2008 £m
At start of period	-	-	-	-
Net loss	-	(0.7)	-	(0.7)
Unrealised gain on investments available-for-sale	-	-	0.5	0.5
Issue of share capital, net of transaction costs	649.6	-	-	649.6
At 31 December 2008	649.6	(0.7)	0.5	649.4

10.  Segmental reporting

The Group has only one reporting segment being the corporate segment.

11.  Related party transactions

The Company has entered into certain contracts with related parties as described below.

An operating agreement with Resolution Operations LLP, as a result of which the Company has outsourced most of its operating functions to Resolution Operations LLP. This agreement has, subject to certain conditions, a minimum term of 5 years. Under this agreement the Company will pay an annual fee based on the value of the Company (subject to a minimum payment of £10 million) to Resolution Operations LLP. An amount of £565,000 has been included in administrative expenses and trade creditors and other payables in the financial statements in respect of amounts due to Resolution Operations LLP for the period from incorporation to the year end. In addition, the Company paid a formation fee of £1million to Resolution Operations LLP under the operating agreement, which has been included in transaction costs relating to the issue of shares in the financial statements;

RCAP Guernsey LP, a partnership in which the members of Resolution Operations LLP are limited partners, acquired shares in the Company for a consideration of £20 million in the initial public offering. The Company has entered into a lock-up deed with RCAP GP Limited, acting in its capacity as general partner of RCAP Guernsey LP, restricting the sale of the shares held by RCAP Guernsey LP for a period of three years;

As described in note 4, the Company has a 99.99% interest in, and is the general partner in, Resolution Holdco No 1 LP, a Guernsey limited partnership. The limited partners in this partnership are RCAP Guernsey LP and RCAP Investments SARL. The Company has entered into the partnership agreement with these parties for the purpose of making acquisitions of financial services businesses; and

A trade mark licence agreement with Resolution (Brands) Limited, a company wholly owned by a partner of Resolution Capital Limited, under which the Group has agreed to pay a fee of £100,000 per annum for the first year of the licence, with the fee increasing each year thereafter in line with any increase in the retail price index.

12.  Directors' interests

At the date of approval of the financial statements the Chairman, Michael Biggs, held 100,000 ordinary shares, which represents 0.02% of the issued share capital of the Company.

13.  Risk management

The principal risk is related to the investment of the Company's cash holding which amounted to £652.6 million at 31 December 2008. This risk is managed through the Board-approved investment mandate which the Company has agreed with the investment manager. The investment objective is to provide security of capital, liquidity and, subject to these constraints, a competitive investment return. This is achieved by investing in a diversified portfolio of short-term securities, instruments and obligations, which may, under the mandate, only include certificates of deposit, commercial paper, medium-term notes, variable rate notes, bank deposits, bankers' acceptances, government bonds, treasury bills, and corporate bonds. Investments can only be in securities denominated in sterling or that are fully hedged back into sterling. The securities must have a short-term credit rating of at least A1/P-1 (or its equivalent) from a recognised credit rating agency at the time of purchase and at least 80 per cent of the investments must be maintained at a credit rating of A1+/ P1 (or its equivalent). Investments are restricted to securities which have a maximum maturity of six months in the case of treasury bills and 100 days in the case of other investments.

All of the investments are valued on a market bid basis and are invested in sterling-denominated investments. Of the total, £281.6 million is invested in UK treasury bills which are therefore subject principally to market risk with the balance of £371 million held in corporate bonds and certificates of deposits in accordance with the above mandate and therefore subject to both market and credit risk; £371 million is therefore the maximum exposure to credit risk. Due to the short-term nature of the investments it is not appropriate to present a sensitivity analysis as any such market risk would not be material. 

ENDFR CKCKKFBKDCDB

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Related Shares:

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