TIDMTAW
RNS Number : 1908D
Tawa PLC
26 March 2014
PRESS RELEASE 26 MARCH 2014
PRELIMINARY RESULTS ANNOUNCEMENT
Tawa plc
Preliminary results for the year ended 31 December 2013
In a circular published on 20 December 2013 (the "Circular"),
following a strategic review to evaluate the best options for
maximising shareholder value, the Board announced its intention to
create Tawa's operating divisions as two independent groups: the
Services Business and the Risk Carrier Business. The risk carriers
are being demerged by way of dividend in specie to existing
shareholders and on 10 January 2014, a general shareholders meeting
approved the Company's proposals. The Demerger is subject to, among
other conditions precedent to, the court agreeing the capital
reduction.
In advance of the Demerger Capital reduction Court Hearing the
Directors present hereafter their preliminary results for the Group
for the financial year ended 31 December 2013. The audited Annual
Results will be announced on 28 March 2014.
*****
Gilles Erulin, CEO of Tawa, commented: "This is the last set of
annual accounts for the diversified Group. These accounts once
again confirm the necessity of freeing our company from the
volatility of the riskier business we invest in, for the value of
our more stable business to be recognised. The financial results
announced today reflect the write off of losses prior to completion
of the demerger plan and will enable the separate services business
and risk carrier business to operate on a better footing going
forward. Once again, I am certain that, the new Pro Insurance
Solutions plc structure, under the stewardship of Artur
Niemczewski, will enhance our service offerings to our clients and
will enable us to attract and retain further talents to our
organisation."
*****
Summary of 2013 financial results
2013 has been a year of financial restructuring. As a result of
the demerger from the second quarter of 2014 the Group will become
a pure play service business within the Insurance and Reinsurance
service provider arena.
-- Loss for the year on continuing operations was $38.2 million
(2012: restated loss $22.5 million);
-- Loss for the year on discontinued operations was $40.1
million (2012: restated loss $2.3 million);
-- Debt of $20.6 million was repaid during the year and balances
due as at 31 December 2013 were $16.3 million;
-- The Group's total equity has decreased by $77.9 million since
31 December 2012 to $100.6 million as at 31 December 2013;
-- Net assets per share in sterling decreased from GBP0.98 to
GBP0.54 ($ decreased from $1.57 to $0.89); and
-- The Group's net tangible assets are $90.1 million (2012: $154.6 million).
These numbers reflect those announced in the Circular, with the
bulk of the 2013 losses stemming from:
-- the $28.2 million adverse reserve development in QX Re;
-- the IFRS accounting loss on the disposal of KX Re of $21.2 million; and
-- the impairment of Tawa Associates goodwill of $13.2 million.
The main difference from the Circular's published numbers lies
in further investment in incubators of $2.1 million and corporate
costs of $7.7 million, including approximately $1.2 million
invested in the service business development, $1.6 million in the
costs of the demerger and $1.0 million litigation costs.
Introduction to the Group's business
Tawa plc ("Tawa" or "the Group") comprises two main operating
divisions:
-- the Services Business, being the provision of underwriting
support, claims management, agency management, consulting services
and system solutions to reinsurers; and
-- the risk carrier business, comprising the management of
insurance companies in run-off, together with investments in
broking and a managing general agency.
Tawa is a specialised investor in the insurance industry and
has, since its formation in 2001, acquired six insurance companies
in run-off and reinsured a run-off portfolio, through the
establishment of a dedicated reinsurance vehicle in Bermuda. In
April 2012 Tawa acquired the HIR Group which enabled the Group to
offer a platform for European run-off portfolio transfers under
European Union regulations.
Tawa also operates as an incubator for new projects, supporting
professional teams aspiring to create new businesses in the
insurance industry, and has to date launched three companies as
part of this business initiative and consequently has investments
in Lodestar Marine Ltd (a Marine business MGA) and Q360 Ltd (a
reinsurance broker) as well as an investment in STRIPE Global
Services Ltd (a web based data processing system).
The Services Business is now the focus of the Group and the
Board believes that the risk carrier business is better suited to
being owned and managed as a separate legal entity. Following
unsuccessful attempts to raise new equity it is evident to the
Board that the public markets better appreciate the profit driven
Services Business and that the private markets better appreciate
the risk carrier business. Against this background, and recognising
that the results of the risk carrier business have, in recent
years, prevented the Board from declaring dividends, the Board,
having taken appropriate advice, believes that a demerger of the
two business units should deliver additional value to shareholders
over time and has concluded that the demerger is in the best
interests of Tawa.
As a result of this on 20 December 2013 the Board announced its
intention to demerge Tawa's operating divisions into two
independent groups.
Planned demerger in 2014
The proposed demerger was approved by Tawa's shareholders on 10
January 2014 and is now conditional on confirmation of a reduction
of capital by the High Court of Justice of England and Wales and
various other consents. Further to the announcement dated 20
December 2013, the anticipated effective date for the demerger is
April 2014. All other dates notified in the announcement on 20
December 2013 remain the same. After the demerger the Group will be
renamed Pro Insurance Solutions PLC.
The reorganisation will involve the transfer of certain of the
business and assets of the risk carrier business to a wholly owned
subsidiary Tawa Associates Limited ("TAL"), whereby TAL will hold
the assets comprising the Risk Carrier Business. The demerger will
be completed by declaring a dividend in specie of TAL Ordinary
Shares to qualifying Tawa shareholders on the share register at
5.00 p.m. on 28 March 2014.
The Board has designed the demerger with the intention of
delivering additional value to shareholders by:
-- allowing the separate valuation of each business based on a
typical EBITDA multiple valuation for the Services Business and
based on a net asset valuation for the risk carrier business;
-- allowing Tawa and TAL to pursue their strategic objectives
independently with greater individual control over resources and
opportunities;
-- developing bespoke management structures, focussed on the particular needs of each company;
-- allowing the Services Business to become a focussed managed services business;
-- increasing the potential for the Board to declare dividends
in respect of the Services Business; and
-- allowing the Services Business to separately raise capital as required.
The demerger will create two distinct entities with different
strategic, operational and economic characteristics and with
separate management teams and Boards of Directors.
The transfer of the risk carrier business to TAL has been
presented in the financial statements as a disposal group held for
sale and the related results have been disclosed as discontinued in
2012 and 2013.
The following assets and liabilities, related to the demerger of
TAL, have therefore been disclosed in the balance sheet as held for
sale:
31 Dec 2013
$m
------------------------------ -------------
Assets
Assets held for sale 141.6
Liabilities
Liabilities held for sale (58.4)
-------------
Net assets held for sale 83.2
-------------
This has also resulted in the following presentation of
discontinued operations.
Total
continuing
Other Total and
Service Risk carrier corporate continuing Discontinued discontinued
business business activities operations operations operations
For the year
ended 31
December 2013 $m $m $m $m $m $m
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Segment
profit/(loss)/
for the year 1.1 (30.9) (8.4) (38.2) (40.1) (78.3)
Asta, included
in the other
corporate
activities 2.7 - (2.7) - - -
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Profit/(loss)
for the year 3.8 (30.9) (11.1) (38.2) (40.1) (78.3)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Summary of 2013 financial results
31 Dec 2013 Restated 31 Dec 2012
$m $m
------------------ ----------------------
Service business: External revenue 35.1 32.5
------------------ ----------------------
Service business: Per segmental 1.1 (0.4)
Share of results of Associate - Asta 2.7 (1.2)
Risk carrier business: Loss (30.9) (13.0)
Corporate: Corporate costs (8.6) (1.7)
Finance costs (2.1) (3.2)
Incubator loss - STRIPE(R) (0.4) (0.7)
------------------ ----------------------
(11.1) (5.6)
Discontinued operations: Loss (40.1) (2.3)
------------------ ----------------------
Total Group Loss for the year (78.3) (22.5)
------------------ ----------------------
Operational results
Tawa has the following divisions with clearly identified lines
of business, namely the:
-- Service business which comprise a platform that generates
income from consulting and outsourcing. Consulting typically
includes work provided directly for clients and the outsourcing
division includes work done on behalf of clients on Tawa's
platform. Following the demerger this division will become the
primary focus of the business;
-- Risk carriers business which holds the Group's acquired
insurance entities in run-off (risk carriers). Profitability is
achieved by effectively managing these assets and liabilities. The
majority of this division is being transferred to TAL and will no
longer be a primary division within the Group; and
-- Corporate which comprises all Group overheads, corporate
costs, acquisition activities and financing.
Service business results
Tawa's servicing platform comprises income from both consulting
and outsourcing. Consulting typically refers to work provided
directly for its clients and the outsourcing division refers to
work Tawa does on behalf of clients on its operating platform.
This division comprises the results from the following service
companies, in which Tawa had the following interests at the
reporting date:
Place of incorporation (or
Name of subsidiary registration) and operation Portion of ownership interest
------------------------------------------ ----------------------------------------- -------------------------------
Pro Insurance Solutions Limited
("Pro") Great Britain 100%
Pro IS, Inc ("Pro IS") United States Delaware 100%
Tawa Consulting Limited ("TCL") Germany 100%
Chiltington group of companies
("Chiltington") (1) Various 100%
Name of Associate
------------------------------------------ ----------------------------------------- -------------------------------
Asta Capital Limited ("Asta") Great Britain 33%
(1) Chiltington group of companies reported under this segment
comprise all the Chiltington entities with the exception of their
risk carriers.
The Group is exposed to a range of risks that need to be
identified and managed within the service business. These risks
include credit risk, interest rate risk, liquidity risk and
fluctuating foreign exchange rates. The Group's focus is to manage
and mitigate these risks.
The service business' profit of $3.8 million (2012: loss of $1.6
million) is summarised below:
31 Dec 2013 31 Dec 2012
---------------- ------------------------------------------------------------- -------------------------------------
Service Service
Pro Service Asta (33% business Service Asta (33% business
(1) Chiltington division share) Total division share) Total
---------------- -------- ------------- --------- ------------- ---------- ---------- ------------- ----------
$m $m $m $m $m $m $m $m
Results
Revenue from
services 28.5 7.6 36.1 15.7 51.8 34.5 13.0 47.5
Cost of
services (28.0) (8.2) (36.2) (11.0) (47.2) (38.0) (10.8) (48.8)
Other 1.0 0.7 1.7 (2.0) (0.3) 3.0 (3.4) (0.4)
---------------- -------- ------------- --------- ------------- ---------- ---------- ------------- ----------
Profit/(loss)
for the year 1.5 0.1 1.6 2.7 4.3 (0.5) (1.2) (1.7)
Taxation after
Group relief (0.5) - (0.5) - (0.5) 0.1 - 0.1
---------------- -------- ------------- --------- ------------- ---------- ---------- ------------- ----------
Segmental
profit/(loss)
for the year 1.0 0.1 1.1 2.7 3.8 (0.4) (1.2) (1.6)
---------------- -------- ------------- --------- ------------- ---------- ---------- ------------- ----------
Capital
extracted - - - - - (3.3) - -
(1) Pro includes the results of Pro and Pro IS.
No dividends were paid during the year (2012: A dividend of $3.3
million was paid by Pro to the holding company).
In accordance with the terms of the Pro sale and purchase
agreement, from 1 January 2010 the Group shares the service
division segment's after tax profits with Swiss Re on a 50/50 basis
over the five financial years to 31 December 2014, subject to an
overall cap of GBP12 million.
In 2012 Tawa committed to growing the Services Business and
restoring its profitability, this has been achieved in 2013. The
service business has seen growth during 2013, external revenue has
increased from $32.5 million to $37.6 million, an increase of
15.7%, and the division is now profitable. Emphasis on reducing the
cost base, coupled with significant new contract business, has
ensured the delivery of the plan. While the operating service
companies generated a profit of $3.8 million this year, Tawa plc
has borne the costs of continuing the investment in the service
business transformation, of approximately $2.8 million, as well as
carried a significant portion of the overhead costs. It is expected
that in 2014 further investment will be required to establish Pro
as a leading service provider in the insurance industry. Reducing
its cost base and increasing net margins remain at the forefront of
the Company's investment priorities, as does a return to the
dividend lists.
Tawa's associate Asta returned a trading profit for the year of
$14.2 million, before finance costs of $2.2 million and IFRS
adjustments of $3.8 million, resulting in an overall profit for the
year of $8.2 million (2012: loss of $3.5 million), of which Tawa
has a 30% economic share. Tawa's share of the results for the year
was a profit of $2.7 million (2012: loss of $1.2 million).
The Group's strategic goals for the service division however
remain the same, to continue to grow the Services Business and
improve its profitability. In response, work streams continue with
better integrated platforms across the various subsidiaries and
regions, enhancing cost synergies.
Risk carrier business results
Tawa generates value from run-offs in a variety of ways,
depending on the nature of the relevant run-off entity. These
approaches include but are not limited to:
-- buying net assets at a significant discount to economic value
and accelerating capital extraction; and
-- buying volatile books of business and applying management
techniques to create value and reduce volatility.
This division comprises the results from the following run-off
companies in which Tawa held the following interests at the
reporting date:
Place of incorporation (or registration)
Name of subsidiary and operation Portion of ownership interest
----------------------------------------- ------------------------------------------ -------------------------------
Hamburger Internationale
Rückversicherung ("HIR") Germany 100.0%
Pavant International Re S.A ("PIR") France 100.0%
QX Reinsurance Company Limited ("QX
Re") Bermuda 100.0%
Name of subsidiary - Discontinued
----------------------------------------- ------------------------------------------ -------------------------------
PXRE Reinsurance Company ("PXRE") United States Connecticut 100.0%
Island Capital Ltd ("ICL") Bermuda 94.3%
Island Capital (Europe) Ltd ("ICE") Great Britain 94.3%
Name of Associate - Discontinued
----------------------------------------- ------------------------------------------ -------------------------------
CX Reinsurance Company Limited ("CX
Re") (1) Great Britain 12.7%
(1) CX Re was initially a subsidiary of the Group but on 21
March 2006 Tawa disposed of 87.35% of its shareholding. In
accordance with IFRS, the retained shareholding of 12.65% has been
accounted for as an associate since that date. Although the Company
disposed of 87.35% of CX Re the deferred consideration receivable
on the sale will reflect the current net asset value of CX Re.
Subsequent to the transfer of the risk carrier business to TAL
and the disposal of KX Reinsurance Company Limited ("KX Re") and OX
Reinsurance Company Limited ("OX Re") the remaining risk carrier
subsidiaries in the Group are QX Re, HIR and PIR. HIR and PIR are
in the process of being sold, the sale was announced on 20 December
2013 and is still subject to regulatory approval. As the sale is
still subject to approval we have not presented these assets as
held for sale.
During the course of a run-off, the Group is exposed to a range
of risks that need to be identified and managed. These risks
include adverse loss development (insurance risk), liquidity,
operational risks, fluctuating foreign exchange rates, interest
rates and credit risk both in respect of investments and reinsurer
solvency. The Group's focus is to manage and mitigate these
risks.
The liabilities of the run-off companies typically comprise
claims outstanding, being the estimated cost of settling all claims
incurred but not paid, whether reported or not, together with
provisions for future costs related to the management of the
run-off. The claims outstanding reserves are estimated by the
Group's actuaries.
The assets of a run-off company typically comprise cash,
investments, subrogation recoveries and reinsurance recoverables.
From these assets, and any associated investment income, the Group
must meet the cost of administering and paying all claims that
arise on policies issued prior to the run-off. The residual
balance, if any, will be returned to shareholders once all
liabilities have been repaid or when the relevant regulator is
satisfied, inter alia, that the volatility is reduced to a level
where capital can be released. This is based on estimates of the
appropriate level of reserves and capital that the business
requires to settle all valid claims.
The Group's net technical provisions (claims outstanding less
reinsurance recoveries) will be paid over a period of many years
dependent upon the nature of the underlying risk, the claims
outstanding and the related reinsurance recoveries. The Group's
policy is, where appropriate, to discount the technical provisions
at the risk-free rate applicable to the relevant currency at the
duration of the liabilities where these have a mean term in excess
of 4 years. Currencies held in the Group are US dollar, sterling
and euro.
The Group's strategic principles for its asset and liability
management ("ALM") in the insurance entities are to:
-- provide liquid funds to finance liability and capital management;
-- mitigate exposure to changes in interest and foreign exchange rates;
-- assume measured credit risk in line with agreed guidelines; and
-- invest the Group's surplus in line with agreed guidelines.
The ALM return represents the change in value to the Group
statement of financial position from investment activities after
taking into account the unwinding of the discount and fees. The
discount is unwound over the lives of the portfolios, which
represents a charge to the income statement and actual investment
income is measured against this to ensure that it remains
appropriate to continue to discount at the chosen rate.
The risk carriers' net loss on continuing operations is $30.9
million (2012: loss of $13.0 million), mainly resulting from the
adverse deterioration of the $28.2 million remaining QX Re Penn
National Reinsurance lead paint facility. The discontinued
operations loss is $1.0 million (2012: gain $3.2 million), as
summarised below:
Continuing operations - risk carriers Discontinued operations - risk carriers
----------------------------------------- --------------------------------------------------------------------------
31 31
HIR Dec 31 Dec KX ICG OX Associate Dec
QX Re (1) 2013 2012 Re PXRE (2) Re CX Re 2013 31 Dec 2012
$m $m $m $m $m $m $m $m $m $m $m
----------------- ------- ------ ------- ------------ ------ ------- ------ ------ ----------- ------- -------------
Results
ALM results 0.4 1.0 1.4 2.8 0.2 (0.1) 0.6 (0.1) 1.1 1.7 3.7
Premium and other
income - - - 0.1 0.2 0.2 - - 0.1 0.5 2.3
Liability management (28.2) 2.0 (26.2) (14.4) (0.4) (0.4) 0.3 - 1.5 1.0 1.1
Expenses and other (0.6) (2.7) (3.3) (1.5) 0.3 (2.1) (0.6) - (4.5) (6.9) (0.3)
Group IFRS
valuations - (2.4) (2.4) - - - - - 1.8 1.8 (2.1)
--------------------- ------- ------ ------- ------------ ------ ------- ------ ------ ----------- ------- -------------
Profit/(loss) for
the year (28.4) (2.1) (30.5) (13.0) 0.3 (2.4) 0.3 (0.1) - (1.9) 4.7
Taxation after Group
relief - (0.4) (0.4) - - - - - 0.9 0.9 (1.5)
--------------------- ------- ------ ------- ------------ ------ ------- ------ ------ ----------- ------- -------------
Segmental
profit/(loss) for
the year (28.4) (2.5) (30.9) (13.0) 0.3 (2.4) 0.3 (0.1) 0.9 (1.0) 3.2
--------------------- ------- ------ ------- ------------ ------ ------- ------ ------ ----------- ------- -------------
Capital extracted - - - - - (13.0) - - - (13.0) (2.4)
(1) HIR includes the results of HIR and PIR.
(2) ICG includes the results of ICL and ICE.
Continuing risk carrier Business
The significant losses incurred within this division during the
current year are the QX Re losses of $28.2 million, which are
discussed below, as well as the HIR IFRS pension valuation
adjustment of $2.2 million.
QX Re is a Bermudian regulated special purpose insurer which
Tawa set up in 2011. The company provides reinsurance coverage for
a book of lead paint exposure underwritten by Penn National and,
for a book of this nature, is considered short tail. QX Re has
incurred ultimate losses of $28.2 million (2012: loss $14.3
million) during the year. Following an actuarial review the Group
has exhausted the reinsurance facility up to QX Re's exposure of
funds held in the segregated accounts due to significantly higher
claims experience than previously anticipated. The Group could have
additional exposure to the reinsurance treaty of $2.0 million
before the loss deterioration reverts back to Penn National.
Management believe that the information received when initiating
the reinsurance transaction was incomplete and, as a consequence,
Tawa has commenced legal action against Penn National in the
Delaware Federal Court seeking to rescind the reinsurance treaty on
grounds of fraud. On this basis management believes that it has no
exposure to any further losses arising from the reinsurance
treaty.
HIR is a small German reinsurer. On 20 December 2013 Tawa
announced the sale of HIR and PIR. During the year HIR made a loss
of $2.5 million (2012: profit $1.4 million) which was mainly
attributable to a Group IFRS pension valuation adjustment.
Discontinued risk carrier Business
On 16 April 2013, the Group disposed of its risk carrier KX Re
and its direct subsidiary OX Re. The business of KX Re comprised a
collection of mature portfolios of long-tail liabilities, including
exposure to asbestos, environmental and other latent claims. OX Re
was a small London market company which had been in run-off since
1994 and was acquired by Tawa as a strategic investment in 2011.
The Group's objective for KX Re was to reduce the company's
liabilities by accelerating the natural run-off of the portfolio to
enable the extraction of capital with regulatory approval. This was
achieved and since acquisition Tawa extracted capital of $75.0
million from KX Re by way of dividends to the holding company. The
sale of KX Re and OX Re was part of the Group's active investment
management program with a view to volatility reduction. The loss on
sale is considered a corporate activity and the results are
disclosed within discontinued operations.
PXRE is mainly comprised of catastrophe exposures. In 2013 the
investment return for PXRE was in line with the discount unwind
(2012: in line with the discount unwind). During the current year
capital of $13 million (2012: $nil million) was extracted from PXRE
by way of dividends to its holding company. Since acquisition Tawa
has extracted $47.8 million (2012: $34.8 million). This reflects
the significant progress made in reducing the volatility, achieved
by de-scaling the liability portfolios in this risk carrier. During
the year PXRE made a loss of $2.4 million (2012: profit $4.1
million) which was largely attributable to costs incurred.
Island Capital Group ("ICG"), which comprises ICL and ICE, is an
insurance group with a specialist underwriting portfolio of trade
credit and political risk insurance business, which went into
run-off in November 2008 following the sale of its trade credit and
political risk insurance underwriting platform. ICG made a profit
of $0.3 million during the year (2012: profit $1.0 million). As at
31 December 2013 there were $16.3 million of subrogation recoveries
included in assets held for sale due to Island Capital Limited.
These remain subject to judicial proceedings and the process is
taking longer than originally expected. Notwithstanding this,
management continue to see progress and still anticipate
realisation of the booked value.
The associate CX Re has a book of reinsurance contracts written
prior to August 2001, when the company ceased underwriting new
business. The company has consistently maintained a portfolio of
highly rated, readily realisable assets which broadly matches the
duration and currency of the liabilities, plus a substantial tax
asset, the recovery of which depends on the satisfactory resolution
of pending litigation with HMRC. In 2013 the investment return for
CX Re was $1.1 million in excess of the discount unwind (2012: $2.0
million in excess of the discount unwind). CX Re made a profit of
$0.9 million in the year (2012: loss of $0.2 million), including
the Group IFRS adjustment to the risk carriers debt purchase
portfolio of $1.8 million (2012: $nil).
The table below illustrates all the risk carriers' assets and
liabilities:
Group - risk carriers Held for sale - risk carriers
--------------------------------------------------- -------------------------------------------------------------------------------
Associate CX
QX Re HIR Total Group KX Re PXRE ICG OX Re Re
31 Dec 2013 $m $m $m $m $m $m $m $m
-------------- -------------- --------------- ------------------ --------------- ------------- -------------- --------------- --------------
Cash and
investments 27.1 54.0 81.1 n/a 29.8 19.3 n/a 127.4
Average mean
term of
portfolio < 4 years 3.04 years n/a n/a < 4 years < 4 years n/a 8.27 years
Average
effective
rate of
investment
return Undiscounted 1.84% n/a n/a Undiscounted Undiscounted n/a 2.51%
Net insurance
liabilities
undiscounted (25.8) (38.1) (63.9) n/a (6.8) (0.5) n/a (86.1)
Net insurance
liabilities
discounted (25.8) (33.1) (58.9) n/a (6.8) (0.5) n/a (70.0)
Cumulative
dividends
paid to
holding
company - - - n/a (47.8) - n/a -
-------------- -------------- --------------- ------------------ --------------- ------------- -------------- --------------- --------------
31 Dec 2012 $m $m $m $m $m $m $m $m
-------------- -------------- --------------- ------------------ --------------- ------------- -------------- --------------- --------------
Cash and
investments 60.2 46.7 106.9 54.2 106.9 15.6 5.7 154.4
Average mean
term of
portfolio < 4 years 10.1 years n/a 10.1 years < 4 years < 4 years < 4 years 8.5 years
Average
effective
rate of
investment
return Undiscounted 1.95% n/a 1.95% Undiscounted Undiscounted Undiscounted 1.77%
Net insurance
liabilities
undiscounted (32.2) (29.1) (61.3) (42.5) (9.5) (1.7) (0.3) (105.1)
Net insurance
liabilities
discounted (32.2) (24.1) (56.3) (35.0) (9.5) (1.7) (0.3) (90.6)
Cumulative
dividends
paid to
holding
company - - - (75.0) (34.8) - (2.4) -
-------------- -------------- --------------- ------------------ --------------- ------------- -------------- --------------- --------------
Corporate division results
This division incorporates corporate costs and Group overheads,
incubator costs for STRIPE(R) , acquisition activities and
financing resulting in a loss of $11.1 million (2012: $5.6
million). The share of results in associate Asta is discussed in
the service business section.
31 Dec 2013 31 Dec 2012
$m $m
------------------------------------------------------------- --------------------- -----------------
Corporate costs
Tawa plc (7.7) (4.7)
Share based payment accrual - (0.3)
------------------------------------------------------------- --------------------- -----------------
Total corporate costs (7.7) (5.0)
Acquisition/disposal related costs (0.5) (0.2)
Incubator loss - STRIPE(R) (0.4) (0.7)
Finance costs (2.1) (3.2)
------------------------------------------------------------- --------------------- -----------------
Loss for the year (10.7) (9.1)
Group tax relief (0.4) 1.4
Other - 2.1
--------------------- -----------------
Loss for the year (11.1) (5.6)
Share of results of Associate - Asta (reported separately) 2.7 (1.2)
Segmental loss for the year (8.4) (6.8)
------------------------------------------------------------- --------------------- -----------------
Corporate costs
Corporate costs were $7.7 million for the year (2012: $5.0
million). Corporate costs have increased when compared to 2012
because of a restructuring provision of $1.6 million raised for the
demerger, $1.2 million of costs borne by the Group in relation to
ensuring Pro is running efficiently and $1.0 million for litigation
costs.
Tawa's investment in incubators
Tawa incubates new projects the Group is developing by providing
capital to carefully selected projects, while the service business
provides the operating platform (reporting, compliance and other
support) to develop these projects until they can operate as
independent, profitable businesses. Q360 and Lodestar are being
transferred in the demerger of TAL and are therefore being reported
as discontinued. Current incubation projects are:
Continuing:
-- the STRIPE(R) system, a proprietary web-based platform that
was launched in September 2010, allowing principal to principal
processing of claims and other post placement transactions between
ceding company and reinsurer;
Discontinued:
-- Q360 Limited ("Q360"), a new London-based broking operation;
which was launched in February 2012 with Tawa providing the capital
backing. Q360 will initially operate within the business sectors of
onshore energy, property, binding authorities, professional
indemnity and non-recourse construction finance. Central to the
company's operational platform is the technology used, using
innovative processing software, as well as web-based products
giving an efficient binding authority facility. Tawa's subsidiary,
Pro, has been retained to provide Q360's post-placement services;
and
-- Lodestar Marine Limited ("Lodestar"), an MGA set up by Tawa
in 2011 to write marine protection and indemnity insurance for
vessels of a defined tonnage. Lodestar commenced writing business
in September 2012.
The ongoing investment in incubators remains significant
totalling $3.9 million for the year (2012: $7.0 million).
The incubator results included within the continuing operations
are:
STRIPE(R)
$m
---------------------------- ------------------
Revenue 0.5
Incubator operating costs (0.9)
Total (0.4)
---------------------------- ------------------
As these investments represent development of new projects, it
is accepted that the generation of positive cash flows will take
varying amounts of time consequently the Group is implementing
measures to control costs.
Acquisitions and disposals
Tawa is still in the business of acquiring, managing and then,
if appropriate, divesting assets. However, this is no longer a
priority of the service business and will form part of the demerged
risk carrier business. On the portfolio front, during 2013 the
divestment strategy has been prevalent, highlighted by the sale of
two of its risk carriers and the contracted sale of two others. No
acquisitions were made in the year. Disposal related costs for the
year were $0.5 million (2012: $0.2 million).
Financing
The corporate division also contains the Group's financing
arrangements.
At the beginning of the year, the Group had an outstanding
balance of $27.2 million on the $50 million facility set up
originally to finance the creation of QX Re and $24.1 million on
the second facility drawn down during 2012 to fund the Group's
investment in Asta, Chiltington and the incubators. Following the
disposal of KX Re in April 2013, $8.2 million was repaid against
the second facility and a further $12.4 million was repaid against
the $50 million facility after the approval and payment of the PXRE
dividend.
The finance costs in relation to these loans in 2013 were $2.1
million (2012: $3.2 million).
As part of the acquisition of ICG in 2010, the Group took on $10
million of that company's debentures repayable in 2035 with an
interest rate of LIBOR +3.75%.
The total Group debt at 31 December 2013 is $16.3 million (2012:
$60.5 million) which represents 16.3% of shareholders' funds (2012:
33.9%).
Discontinued Business
Following the demerger of TAL and the sale of subsidiaries the
results of the discontinued operations are as follows:
31 Dec 2013 Restated 31 Dec 2012
Discontinued operations $m $m
-------------------------------------------------- ------------------ ---------------------
Discontinued risk carriers, separately reported (1.0) 3.2
Loss on sale of KX Re (21.2) -
Impairment of goodwill (13.2) -
Incubator costs Q360 and Lodestar (3.5) (6.3)
Holding company costs (2.4) (0.2)
Other 1.2 1.0
-------------------------------------------------- ------------------ ---------------------
Segmental loss for the year (40.1) (2.3)
-------------------------------------------------- ------------------ ---------------------
This risk carriers results have been discussed in the risk
carrier business section.
On 16 April 2013 Tawa completed the sale of its risk carrier KX
Re and its direct subsidiary OX Re to Catalina Holdings (Bermuda)
Limited. This disposal resulted in an accounting loss in 2013 of
$21.3 million in accordance with IFRS, as disclosed in note 41 to
the financial statements. However, the sale generated a
cash-on-cash return of $46.6 million (total purchase and interest
costs of $71.7 million less total capital extractions, management
fees and sale price of $118.3 million) for the Group since the
acquisition of KX Re in May 2007. The sale also deleveraged the
platform. The cash-on-cash return is considered a better indication
of how Tawa's investment portfolio creates value for its
shareholders.
Goodwill shown in the Statement of Financial Position, being the
excess of the cost of an acquisition over the fair value of the
assets and liabilities acquired, as at 31 December 2013 was $9.6
million (2012: $22.8 million). This goodwill has been allocated to
the Pro group of companies. Goodwill is tested annually for
impairment and impairment losses, relating to the discontinued
operations of $13.2 million have been recognised in the current
year (2012: $nil).
The discontinued incubators' costs remain significant totalling
$3.5 million for the year (2012: $6.3 million) as below:
Q360 Lodestar Total 31 Dec 2013
$m $m $m
---------------------------- ----------------- ------------------- -------------------
Revenue 1.4 1.9 3.3
Incubator operating costs (2.9) (3.9) (6.8)
Total (1.5) (2.0) (3.5)
---------------------------- ----------------- ------------------- -------------------
Consolidated statement of financial position As at 31 December
2013
31 Dec 2013 31 Dec 2012
$m $m
------------------------------------------------------- ---------------------- ----------------------
Assets
Assets held for sale 141.6 -
Cash and cash equivalents 21.7 57.0
Financial assets - investments 74.6 249.9
Loans and receivables including insurance receivables 12.9 59.0
Reinsurers' share of technical provisions 0.7 27.9
Property, plant and equipment 1.7 1.6
Deferred assets - 48.7
Interest in associates 11.7 13.9
Other intangible assets 0.9 1.1
Goodwill 9.6 22.8
Total assets 275.4 481.9
------------------------------------------------------- ---------------------- ----------------------
Equity
Share capital 22.2 22.2
Share premium 112.8 110.6
Other reserves 5.3 3.4
Retained earnings (40.4) 41.3
------------------------------------------------------- ---------------------- ----------------------
Equity attributable to owners of the Company 99.9 177.5
Non-controlling interests 0.7 1.0
Total equity 100.6 178.5
------------------------------------------------------- ---------------------- ----------------------
Liabilities
Liabilities held for sale 58.4 -
Creditors arising out of insurance operations 6.9 71.2
Other liabilities 33.6 41.0
Financial liabilities - borrowings 16.3 60.5
Technical provisions 59.6 130.7
Total liabilities 174.8 303.4
------------------------------------------------------- ---------------------- ----------------------
Total liabilities and equity 275.4 481.9
------------------------------------------------------- ---------------------- ----------------------
Analysis of EBITDA for the demerged Pro services and TAL
business
The following is an analysis of the Pro operating companies
result as if the demerged structure had been operating in 2013.
This does not include the Tawa plc operating costs as shown in the
Summary of 2013 Results above.
Pro Insurance Solutions plc
Pro Insurance Solutions plc corporate activities TAL Combined
$m $m $m $m
-------------------------------- ------------------------------ ------------------------------- ------- ----------
Total income 36.8 3.7 4.8 45.3
Total expenses (35.4) (43.8) (10.4) (89.6)
-------------------------------- ------------------------------ ------------------------------- ------- ----------
Results of operating activities
before impairment of goodwill
recognised 1.4 (40.1) (5.6) (44.3)
Impairment of goodwill - - (13.2) (13.2)
-------------------------------- ------------------------------ ------------------------------- ------- ----------
Results of operating activities 1.4 (40.1) (18.8) (57.5)
Share of results of associate 2.7 - 0.1 2.8
Finance costs - (1.3) (1.0) (2.3)
-------------------------------- ------------------------------ ------------------------------- ------- ----------
Loss before taxation 4.1 (41.4) (19.7) (57.0)
Taxation (0.9) - - (0.9)
Loss for the year from
discontinued operations - - (20.4) (20.4)
--------------------------------
Profit/(loss) for the year 3.2 (41.4) (40.1) (78.3)
-------------------------------- ------------------------------ ------------------------------- ------- ----------
Summary of net asset values ("NAV") for the demerged Pro
services and TAL business
The following illustrates the NAV of the demerged structure had
it been effective on 31 December 2013.
Current Combined Group Pro Insurance Solutions plc TAL
$m $m $m
------------------- ----------------------- ---------------------------- -------
Total assets 275.4 133.8 141.6
Total liabilities (174.8) (116.4) (58.4)
------------------- ----------------------- ---------------------------- -------
Net asset value 100.6 17.4 83.2
------------------- ----------------------- ---------------------------- -------
Enquiries:
Gilles Erulin, Chief Executive, Tawa plc 020 7068 8000
Michael Gaughan, FWD 020 7623 2368
Guy Wiehahn / Harry Florry, Peel Hunt (Nominated
Adviser and Broker) 020 7418 8900
Further information can be found on the Company's website:
www.tawaplc.co.uk.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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