TIDMTAW
RNS Number : 3979D
Tawa PLC
28 March 2014
PRESS RELEASE 28 MARCH 2014
FOR IMMEDIATE RELEASE
ANNUAL RESULTS ANNOUNCEMENT
Tawa plc
Results for the year ended 31 December 2013
Joint statement of the Chairman and the Chief Executive
Officer
In a circular published on 20 December 2013, following a
strategic review to evaluate the best options for maximising
shareholder value, the Board announced its intention to split
Tawa's operating divisions into two independent groups: the Service
Business and the Risk Carrier Business and to demerge the risk
carrier business by way of dividend in specie to existing
shareholders. On 10 January 2014, a general shareholders' meeting
approved the Company's proposals. Subject to other conditions
precedent being fulfilled, Tawa plc will be renamed Pro Insurance
Solutions PLC. The demerger is expected to be completed in April
2014.
This is the last annual report of the diversified Group. A new
era starts for the Company, now totally dedicated to providing
services to the insurance industry.
Overview
Over the last four years, Tawa has moved from being a pure
run-off risk carrier towards being a multi-segment player in the
insurance market. Acting as a specialised investor in the insurance
industry, Tawa owns run-off portfolios and insurance service
businesses. The Group also has operated as an incubator for new
projects in the sector and supporting professional teams to launch
and operate new business ventures.
Focus on the service business
As discussed in the circular, Tawa has expanded significantly in
the servicing arena of the international insurance industry with
the acquisition of Pro Insurance Solutions, the Chiltington Group,
the creation of, and one-third participation in, a consortium for
the acquisition of Asta and the establishment of a 66 person
service platform in the US. The service business has progressively
become the focus of the Tawa Group. The Company is to be a pure
play service provider from the date of the demerger and the
completion of the Hamburger Internationale Rückversicherung ("HIR")
sale.
The corporate entities forming the service business include Pro
UK (including a branch in Zurich), Pro US and the Chiltington
Group, which includes Ass Assekuranz Service - und
Sachverständigengesellchaft GmbH in Germany and Chiltington
Internacional SA in Argentina. The 380 staff and the four main
territories covered (UK, Continental Europe, USA and South America)
give the service business the capacity to provide international
services to Tawa's key clients including in Asia where Tawa
recently opened a Singapore-based run-off management operation to
manage one of its client's businesses.
The service business is now operating under a single brand, Pro,
having replaced the Chiltington brand. Pro is a well-established
provider of services to the insurance industry, for some 21 years,
including underwriting support, claims management, broking support
and consulting services, which are provided to a broad array of
international clients across the insurance market. Services are
provided from the UK, USA, Germany and Argentina.
The announced sale of the German run-off risk carrier HIR to
Compre, and the simultaneous transfer by HIR to the Company of the
Chiltington service entities will make this integration more
effective in the future by enabling a simplification of the
corporate structure around the world.
As part of its expansion into servicing the Lloyd's market, in
January 2012 Tawa organised a consortium with Skuld Paraline Group
Ltd to acquire Asta, the leading turnkey Lloyd's managing agency
services company. Each consortium member owns one third of the
voting rights and 30 per cent of the economic interest, with the
remaining 10 per cent being owned by Asta management. The
consortium operates under the terms of the Asta Shareholders'
Agreement. After 15 January 2015, each Asta shareholder has the
benefit of a "Shoot Out" clause, which, if triggered by any of the
three shareholders which wishes to transfer its shares, would
enable the other Asta shareholders to acquire those transferring
shares. This may therefore enable Tawa to either gain a controlling
interest in Asta or realise its interest in Asta.
The service business has combined historical revenues of
approximately $37.6 million for the financial year ended 31
December 2013. The service business made a loss before tax of $1.6
million (including Asta's loss of $1.2 million) for the year ended
31 December 2012 and reported a pre tax operating profit of $3.8
million (including Asta's profit of $2.7 million) the full year
2013.
At the beginning of 2013 an international consultancy firm was
appointed to conduct a strategic review of its overall business
with a view to continuing its development while enhancing
shareholder value.
Following this review a number of projects are underway to
develop the service business, with an objective of consolidating
its market positioning and securing higher margin business.
The service business is aiming to achieve significant growth
over the next three years and its senior management has been
strengthened during the year. This process culminated in the
appointment of Mr Artur Niemczewski, as the new Chief Executive
Officer of the service business who will be appointed to the Board
with effect from the demerger and become Chief Executive Officer of
your Company at that time.
While the operating service companies generated a profit of $3.8
million this year, the holding company, this year again, has borne
the costs of continuing the investment in the service business
transformation, of approximately $2.8 million, including head
office costs. It is expected that in 2014 in the new stand alone
context, further investment will be required to establish Pro as a
leading competitor in its space. Reducing its cost base and
increasing net margins remain at the forefront of the Company's
investment priorities.
A pro forma EBITDA statement for the 6 months to 30 June 2013
was included in the circular to shareholders. This is updated for
the 12 months to 31 December 2013 and included at the end of the
Strategic Report.
Risk portfolio: getting ready for the demerger
On the risk portfolio side volatility reduction and portfolio
downscaling received a lot of attention in 2013, and in preparation
for the demerger, the Company launched an active restructuring
program.
Earlier in 2013 the Company disposed of KX Re as previously
announced. Post the KX Re sale, the net asset value of the Risk
Carrier Business was $155.8 million (as at 30 June 2013). On 29
November 2013, Tawa issued a statement to the effect that US lead
paint claims against QX Re's reinsurance facility had increased by
more than was expected. Subsequently the Company fully impaired the
$28 million remaining value of its investment in QX Re.
Also the Company announced on 20 December 2013 the sale of HIR,
the German run-off risk carrier to Compre for a price of EUR4
million. The sale is subject to regulatory approval and is expected
to close shortly.
Remaining investments are in PXRE (USA) with a NAV of $26.8
million after paying a $13 million dividend in November 2013 and
Island Capital (Bermuda) (NAV $19.8 million as at 31 December
2013).
The Risk Carrier Business will be entitled to receivables from
CX Re, with a NAV of $37.9m, the level of which is dependent on the
outcome of litigation relating to the availability of tax losses
which have been surrendered to Tawa's financial partners. The lead
partner's appeal against HMRC's refusal to grant relief is
currently being heard in the Upper Tribunal.
Work continues on the run-off of the Risk Carrier Business
entities. Whilst retaining the potential to generate value, these
entities carry discrete and substantial risks - PXRE (USA) on the
outcome of World Trade Center claims; Island Capital (Bermuda) on
the recovery of significant subrogated claims and QX Re on the
outcome of the litigation in respect of the rescission of a
reinsurance contract.
Incubators
In 2013, Tawa invested $3.9 million ($7 million in 2012) in
support of Lodestar Marine, the marine P&I MGA, the brokering
firm Q360, and developing STRIPE(R) , an internet claims management
system. Whilst we consider these sums as investments, under IFRS
accounting these were fully expensed during the year rather than
capitalised.
Accounts and dividends
On the accounting front, Tawa reported a full year loss of $78.3
million, bringing the net assets per share at 31 December 2013 to
$0.89 per share (GBP0.54 per share) compared with 31 December 2012
of $1.57 per share (GBP0.98 per share) and a share price of 14.5
pence at the end of 2013.
These results stem mainly from:
-- the $28.2 million adverse reserve development in QX Re;
-- the loss on the disposal of KX Re of $21.2 million;
-- 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;
and
-- the impairment of Tawa Associates goodwill of $13.2 million.
In light of these results, Tawa will not recommend any cash
dividend in 2014 relating to the results for 2013.
2014 prospects
2014 will see a new era for the Company, now a pure play
insurance service provider. The goal for the management team is to
recreate shareholder value by maximising the key strengths of the
service business:
-- the Pro brand which is well regarded and respected in the insurance market;
-- its blue chip client base and strength of offering to major insurers;
-- its established track record of delivering solutions for complex mission critical systems;
-- its on-going long term contracts which represented
approximately 55 per cent of Tawa's revenues in respect of the
twelve month period ended 31 December 2013; and
-- its 30 per cent interest in Asta.
Risk management and compliance
Tawa perceives the current regulatory environment to be
beneficial to its service business model as high standards of
compliance and risk management are increasingly becoming a unique
selling point for our service offering to (re)insurance
companies.
Therefore, Tawa and its subsidiaries are committed to responding
positively and proactively to regulatory evolution and are
allocating a high level of resources in the areas of risk
management programs, compliance and internal audit. Our
responsibility to our various shareholders is to take business
risk, which we do, but we have little appetite for any other form
of risk.
The Tawa senior team is closely involved in all the companies we
have in our portfolio to ensure our systems and controls are
consistent with the size and the complexity of our different
businesses. This requires continuous improvement and ensuring we
never become complacent about what we perceive as a key business
enabler.
* * * * * *
In conclusion, we would like to thank our shareholders for their
strong support during 2013 and their unanimous vote in favour of
the demerger. The Company, as a pure play service provider, with a
Profit & Loss account reflecting directly its trading
performance should be both easier to understand and to value by our
shareholders and by the markets.
Going forward, our Company will rely on what makes us different,
namely our people: people across the world with high expertise,
skills and integrity, working together to achieve our common
purpose. We would like to thank each of them for their continuing
contribution to the Group.
Lastly, thanks to the Directors for their active contribution
and support.
Tim Carroll Gilles Erulin
Chairman Chief Executive Officer
Strategic report
The Directors present their strategic report for the Group for
the financial year ended 31 December 2013.
Introduction to the Group's business
Tawa plc ("Tawa" or "the Group") comprises two main operating
divisions:
-- the service 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(R) Global
Services Ltd (a web based data processing system).
The service 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
service 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 was conditional on various consents. The High
Court approved the reduction of the Company's share capital on 26
March 2014. 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 service 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 service business to become a focussed managed service business;
-- increasing the potential for the Board to declare dividends
in respect of the service business; and
-- allowing the service 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:
Unaudited 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
2013 has been a year of financial restructuring and from the
second quarter of 2014 the Group will become Service
orientated.
-- Loss for the year on continuing operations was $38.2 million
(2012: restated loss $22.5 million);
-- Loss for the year from discontinued operations was $40.1
million (2012: restated loss $2.3 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;
-- Debt of $20.6 million was repaid during the year and balances
due as at 31 December 2013 were $16.3 million;
-- Net assets per share in sterling decreased from GBP0.98 to
GBP0.54 ($ decreased from $1.57 to $0.89); and
-- The Group's net tangible assets are $90.1 million (2012: $154.6 million).
Unaudited 31 Dec 2013 Restated Audited 31 Dec 2012
$m $m
----------------------- ------------------------------
Service business: External revenue 35.1 32.5
----------------------- ------------------------------
Service business: Segmental profit/(loss) 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 carrier 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 its
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:
Unaudited 31 Dec 2013 Audited 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 27.5 7.6 35.1 15.7 50.8 29.5 13.0 42.5
Cost of
services (27.2) (8.2) (35.4) (11.0) (46.4) (38.3) (10.8) (49.1)
Other 1.0 0.7 1.7 (2.0) (0.3) 8.3 (3.4) 4.9
---------------- -------- ------------- --------- ------------- ---------- ---------- ------------- ----------
Profit/(loss)
for the year 1.3 0.1 1.4 2.7 4.1 (0.5) (1.2) (1.7)
Taxation after
Group relief (0.3) - (0.3) - (0.3) 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 its 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 service 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.
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 business remain the
same, to continue to grow the service 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) discontinued operations loss
is $1.0 million (2012: gain $3.2 million), as summarised below:
Continuing operations - risk carriers Discontinued operations - risk carriers
--------------------------------------------- -------------------------------------------------------------------------------
Unaudited Unaudited
HIR 31 Dec Audited 31 KX ICG OX Associate 31 Dec Audited 31
QX Re (1) 2013 Dec 2012 Re PXRE (2) Re CX Re 2013 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 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 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
--------------------------------------------------- ------------------------------------------------------------------------------------------
Total
Associate CX held for
QX Re HIR Total Group KX Re PXRE ICG OX Re Re sale
Unaudited 31 $m
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 127.4 176.5
Average mean
term of
portfolio < 4 years 3.04 years n/a n/a < 4 years < 4 years n/a 8.27 years n/a
Average
effective
rate of
investment
return Undiscounted 1.84% n/a n/a Undiscounted Undiscounted n/a 2.51% n/a
Net insurance
liabilities
undiscounted (25.8) (38.1) (63.9) n/a (6.8) (0.5) n/a (86.1) (93.4)
Net insurance
liabilities
discounted (25.8) (33.1) (58.9) n/a (6.8) (0.5) n/a (70.0) (77.3)
Cumulative
dividends
paid to
holding
company - - - n/a (47.8) - n/a - (47.8)
-------------- -------------- --------------- ------------------ --------------- ------------- -------------- --------------- -------------- ---------
Audited 31 $m
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 336.8
Average
effective
rate of
investment
return Undiscounted 1.95% n/a 1.95% Undiscounted Undiscounted Undiscounted 1.77% n/a
Net insurance
liabilities
undiscounted (32.2) (29.1) (61.3) (42.5) (9.5) (1.7) (0.3) (105.1) (159.1)
Net insurance
liabilities
discounted (32.2) (24.1) (56.3) (35.0) (9.5) (1.7) (0.3) (90.6) (137.1)
Cumulative
dividends
paid to
holding
company - - - (75.0) (34.8) - (2.4) - (112.2)
-------------- -------------- --------------- ------------------ --------------- ------------- -------------- --------------- -------------- ---------
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 are discussed in
the service business section.
Unaudited 31 Dec 2013 Audited 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. 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).
Q360 and Lodestar are being transferred in the demerger of TAL
and are therefore being reported as discontinued. 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:
Unaudited 31 Dec 2013 Restated Audited 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
-------------------------------------------------- ----------------------- -----------------------------
Loss for the year from discontinued operations (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
$21.2 million in accordance with IFRS. 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). The remaining goodwill relates 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' losses remain significant totalling
$3.5 million for the year (2012: $6.3 million) as below:
Q360 Lodestar Total Unaudited 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)
---------------------------- ----------------- ------------------- -----------------------------
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 plc Pro 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.
Pro plc TAL Current Combined Group
$m $m $m
------------------- -------- ------- -----------------------
Total assets 133.8 141.6 275.4
Total liabilities (116.4) (58.4) (174.8)
------------------- -------- ------- -----------------------
Net asset value 17.4 83.2 100.6
------------------- -------- ------- -----------------------
Corporate governance report
The Company has continued its commitment to maintaining
effective corporate governance during 2013. Companies on the AIM
Market are not obliged to comply with the UK Corporate Governance
code (the "Code"). The Company has sought to comply with a number
of the provisions of the Code in so far as it considers them to be
appropriate.
The Board has authority, and is accountable to shareholders, for
ensuring that the Company is appropriately managed and achieves the
corporate objectives it sets. In order to fulfil its
responsibilities, the Board meets on a regular basis and has a
formal schedule of matters specifically reserved for its
consideration and decision. The schedule of matters reserved to the
Board provides that the Board's role encompasses the overall
management of the Company including approval of long term strategy
and objectives, oversight of operations, ensuring maintenance of a
sound system of internal controls and risk management, decisions
relating to any changes in the Company's capital structure or of
management and approval of any significant expenditure. When
Directors are unable to attend a meeting, they are advised of
matters to be discussed and have the opportunity to make their
views known to the Chairman prior to the meeting.
Since 16 January 2013, the Board has comprised two Executive
Directors, namely Colin Bird and Gilles Erulin and three
Non--Executive Directors, namely, Loïc Brivezac, Tim Carroll and
Anthony Hamilton.
The Non--Executive Directors share responsibility for the
discharge of the Board's duties by taking an essentially
supervisory role and are chosen for their broad and complementary
experience in relation to the Executive Directors. The key elements
of the role and responsibility of the Non--Executive Directors
are:
-- supervision of, and advice to, the Executive Directors;
-- evaluation of Executive Directors' performance;
-- setting the remuneration of Executive Directors;
-- monitoring of the effectiveness of controls; and
-- governance and compliance.
These roles and responsibilities are carried out through
membership of the Board and its committees. Prior to 21 June 2012,
the Board had an Audit Committee, Nomination Committee and a
Remuneration Committee. Since that date, the Board has ceased to
have a Nomination Committee and a Remuneration Committee and the
duties formerly performed by those committees have been assumed by
the Board. Membership of, and attendance at, the Board and
Committees is set out below. The terms of reference for the Audit
Committee, along with the schedule of matters reserved to the Board
can be found in the investor relations section of the Company's
website www.tawaplc.co.uk.
Board attendance during 2013
Director Relevant number of meetings Number attended % Attendance
------------------------ ---------------------------- ---------------- -------------
Gilles Erulin 4 4 100%
Tim Carroll 4 4 100%
Colin Bird 4 4 100%
Loïc Brivezac (*) 4 4 100%
Anthony Hamilton 4 4 100%
(*) With effect from 16 January 2013, Loïc Brivezac was
appointed as a non-executive Director of the Tawa plc Board
replacing Gilles Pagniez.
Audit committee membership during 2013
Following appointment to the Tawa plc Board on 16 January 2013,
Loïc Brivezac has also been appointed as chair of the Company's
Audit Committee replacing Mr Pagniez.
Board independence
The Board concludes that Tim Carroll and Anthony Hamilton are
independent in character and judgement.
The Board will review on an ongoing basis whether there are
relationships or circumstances which are likely to affect or could
appear to affect the independence of Mr Carroll and Mr
Hamilton.
Audit Committee
The Audit Committee was established by the Board on 28 June 2007
and at the reporting date consisted of Loïc Brivezac, Tim Carroll
and Gilles Pagniez. The Committee meets at least twice a year and
will meet at least once without any Executive Director being
present. The external auditor attends the Committee meetings
(including at least one with no Executive Directors present), to
discuss the nature and scope of the audit before it commences as
well as reviewing the auditor's reports relating to accounts and
internal control systems. Effective 16 January 2013, Loïc Brivezac
was appointed as chair of the Audit Committee replacing Mr
Pagniez.
The main responsibilities of the Audit Committee are to monitor
the integrity of the financial statements, to review the
effectiveness of the Company's financial reporting and internal
control policies, to make recommendations to the Board in relation
to the appointment of the external auditor, including reviewing
terms and conditions and fee arrangements. The Committee also has
regard to the requirements of the Financial Conduct Authority and
the UK Corporate Governance in carrying out its duties.
During the year, the Audit Committee reviewed the Company's
interim report. Since the year--end, the Audit Committee has
reviewed the 2013 annual report. The Committee also considered the
terms and conditions, fees and independence of Mazars LLP and
confirms the independence of the external auditor.
Attendance at each of the meetings by Audit Committee members is
set out below.
Director / member Relevant number of meetings Number attended % Attendance
------------------------ ---------------------------- ---------------- -------------
Tim Carroll 3 3 100%
Loïc Brivezac (*) 3 3 100%
Gilles Pagniez (*) 3 3 100%
(*) Following appointment to the Tawa plc Board on 16 January
2013, Loïc Brivezac was appointed as chair of the Company's Audit
Committee replacing Mr Pagniez.
Corporate social responsibility
The Company recognises the importance of various stakeholders to
its business, including its employees, shareholders, capital
providers, clients and the wider community. The Company takes into
account its responsibilities to, and impact on, each of these
stakeholders in its policies and procedures.
Employees
The Group's employee geographical mix remained stable during
2013, although overall staff numbers have decreased to 366 (2012:
416) as illustrated below:
2013 2012
-------------------------- ------- ----- ------- -----
Geographical region Number % Number %
-------------------------- ------- ----- ------- -----
United Kingdom 247 68% 294 71%
Germany 38 10% 42 10%
United States of America 59 16% 62 15%
South America 22 6% 18 4%
Employee relations
The Company recognises that its success lies with its employees
and, accordingly, it aims to meet or exceed best practice in terms
of employee relations. The Company has an established equal
opportunities policy. Key performance indicators continue to be
monitored within the UK and have been established cross territory
for ongoing monitoring.
UK staff absence averaged 0.61 per days per employee compared
with 2.5 during 2012. Ongoing professional development is
encouraged with 25% of the UK workforce holding at least one
professional qualification. UK voluntary employee turnover
increased to 13% during 2013 (2012: 7%). Involuntary turnover
(redundancies) increased to 17% in 2013 (2012: 12.9%). Within the
US voluntary employee turnover amounted to 15% (2012: 3.4%) with
involuntary turnover of 5% (2012:18.6%).
Employee policies and procedures
The Group complies with employment legislative requirements and
aims to build on these to ensure best practice processes across the
Group and within each territory.
Information and consultation
During 2013 briefing sessions on the Group's progress have been
held for all employees together with regular information bulletins
via email.
Employee remuneration
The Group offers competitive remuneration which consists of base
pay, benefits, profit share and severance pay.
Pay is reviewed and profit share awarded in the context of the
performance management framework which evaluates overall and
individual performance.
Directors' remuneration report
The Company is committed to maintaining effective corporate
governance. Whilst companies on the AIM Market are not obliged to
prepare a Directors' remuneration report, the Company has sought to
comply with a number of the provisions of the Companies Act
requirements in so far as it considers them appropriate.
Remuneration policy
The objective of the policy is to ensure that all members of the
executive management of the Company are provided with appropriate
incentives to encourage and maintain long term sustainability and
enhanced performance and are, in a fair and responsible manner,
rewarded for their individual and collective contributions to the
success of the Company. The Board will have regard to conditions of
service and remuneration levels of competitor companies to ensure
that the Company is well placed to attract and retain high calibre
management, but not so as to cause remuneration to rise without a
corresponding sustained improvement in performance.
There are key elements of the remuneration package for Executive
Directors and senior management:
-- Basic salary, contractual benefits including pensions;
-- Annual performance related remuneration; and
-- Share awards.
Basic salary, variable pay and benefits
The Non-Executive Directors are responsible for determining the
remuneration of the Chairman, all Executive Directors, the Company
Secretary and, in addition the senior management of the Group with
annual remuneration above GBP300,000 or the equivalent thereof.
They utilise advice from New Bridge Street Consultants (a leading
advisor on senior executive compensation to UK listed companies)
together with reports provided by Towers Watson as well as other
publicly available reports in order to ensure that remuneration
levels are consistent with comparable companies, while also taking
into account the Company's performance. Executive Directors also
receive benefits in kind such as private health care and permanent
heath insurance and pension contributions.
Profit share
A three year service business profit share pool was put in place
in 2013 to cover all staff across the service businesses (Pro and
Chiltington). There are two profit share pools, one to cover the
senior executives within the service business and the second to
cover all other service business staff.
All staff profit share: 15% of EBITDA in year one to be
allocated to the bonus pool; Year 2 13.75%; Year 3 12.5%; with
discretion of the Board if less than 80% of EBITDA target is
reached. Funding for each territory calculated based on 80% of the
territory results and 20% of the Group results.
Senior Executive profit share: Funding is driven by Group
financial targets. 15% of the target EBITDA is allocated to the
pool if the target is reached in year one; 13.75% in year 2 and 12%
in year 3. Where between 80% and 100% of target EBITDA is achieved
ten per cent of achieved EBITDA is allocated to the pool. Where
less than 80% of the EBITDA target is achieved any funding is at
the discretion of the Board. Where the EBITDA target is exceeded
33% of the excess is allocated to the pool once the all staff pool
funding has been accounted for.
Participants of the senior executive profit share are determined
annually. Individual awards are based on performance aligned to
internal and external performance measures; Financial; Client;
Growth; People and Risk.
Directors' remuneration
Services whilst Directors of the parent, amounts received as
Directors of the parent, as Directors of any subsidiaries and
otherwise in connection with any company in the Group are as
follows:
2013 2012
Salary Performance
/ Fees related Pension Taxable Total Total
remuneration benefits
$ $ $ $ $ $
--------------- ------------------ ---------------------- ---------------------- ---------------------- -------------------- --------------
Chairman
Tim Carroll
(appointed
as Chairman
20 June 2013) 52,539 - - - 52,539 -
Colin Bird
(retired
as Chairman
20 June 2013) 165,441 57,190 28,178 7,233 258,042 375,070
Executive
Directors
Colin Bird 105,686 - 28,178 7,233 141,097 -
Gilles Erulin 653,596 57,190 86,576 29,843 827,205 729,874
David Vaughan
(*) - - - - - 310,423
Non-Executive
Directors
Patricia
Barbizet
(*) - - - - - 27,546
Loïc
Brivezac
(re-appointed
16 January
2013) 69,166 - - - 69,166 29,151
Tim Carroll 33,497 - - - 33,497 65,589
Anthony
Hamilton 38,399 - - - 38,399 46,400
John
Hendrickson
(*) - - - - - 57,499
Hans Miller
(*) - - - - - 29,151
Gilles Pagniez
(resigned
16 January
2013) 8,170 - - - 8,170 120,881
Total 1,126,494 114,380 142,932 44,309 1,428,115 1,791,584
--------------- ------------------ ---------------------- ---------------------- ---------------------- -------------------- --------------
(*) did not seek re election at the Annual General Meeting on 21
June 2012 and term of office as a Director of Tawa plc came to an
end at the close of that meeting.
Share awards
The Company operates a single share plan that was introduced in
2007, being the Performance Share Plan which is designed to align
the interests of senior management and shareholders to deliver
outstanding results. There were no new awards granted in 2013.
The Performance Share Plan
The Performance Share Plan provides for the grant of awards over
Ordinary Shares. The vesting of awards granted to Executive
Directors and senior management are subject to performance
conditions set by the Remuneration Committee on or prior to the
grant of an award. Awards normally vest on the third anniversary of
the date of grant, subject to the satisfaction of relevant
performance conditions and to the employee being either an employee
or Director within the Tawa Group on that date.
The performance conditions for awards made on 6 May 2011 are
subject to four independent performance conditions.
The acquisitions performance condition (APC). 30% of the award
is subject to a performance condition based on the size and number
(if any) of acquisitions completed by the Company during the
acquisitions performance period.
Acquisition completed during the Acquisitions Percentage of 30% of the total number of
Performance Period Shares subject to an award that vests
---------------------------------------------- ---------------------------------------------
One transformational acquisition 100%, i.e. 30% of the total number of Shares
subject to the Award
For each big acquisition 50%, i.e. 15% of the total number of Shares
subject to the Award
For each transactional acquisition 16.6%, i.e. 5% of the total number of Shares
subject to the Award
For each small acquisition 6.6%, i.e. 2% of the total number of Shares
subject to the Award
---------------------------------------------- ---------------------------------------------
The cumulative extraction of capital performance condition
("CEC"). 25% of the total number of Shares subject to an Award
shall be subject to this condition.
Cumulative extraction of capital at Percentage of 25% of the total number
the end of the Cumulative extraction of Shares subject to an award that
of capital performance period vests
-------------------------------------- ---------------------------------------
100% or more of CEC Target 100%, i.e. 25% of total number of
Shares subject to Award
Between 75% of CEC Target and 100% Pro-rata between 25% and 100%, i.e.
of CEC Target between 6.25% and 25% of total number
of Shares subject to Award
75% of CEC Target 25%, i.e. 6.25% of total number of
Shares subject to Award
Less than 75% of CEC Target Nil%
-------------------------------------- ---------------------------------------
The NAV performance condition requires average annual compound
Net Asset Value per Share growth over the NAV performance period to
be at least equal to 7.5% where upon that part of the award subject
to the NAV Performance Condition shall vest as follows:
Average annual compound NAV over the Percentage of 25% of the total number
NAV Performance Period of Shares subject to an award that
vests
------------------------------------- ---------------------------------------
Equal to or greater than 15% 100%, i.e. 25% of total number of
Shares subject to an Award
Between 7.5% and 15% Pro-rata between 25% and 100%, i.e.
between 6.25% and 25% of total number
of Shares subject to an Award
Equal to 7.5% 25%, i.e. 6.25% of total number of
Shares subject to an Award
Less than 7.5% Nil%
------------------------------------- ---------------------------------------
The TSR performance condition: The portion of the award subject
to the TSR performance condition will vest as follows:
Rank of the Company's TSR against comparator companies at Percentage of 20% of the total number of Shares subject
the end of the performance period to the award that will vest
---------------------------------------------------------- ----------------------------------------------------------
Upper quartile or above 100% i.e. 20% of the total number of Shares subject to an
Award.
Between upper quartile and median Pro-rata between 20% and 100% i.e., between 4% and 20% of
the total number of shares subject
to an award
Median 20% i.e., 4% of the total number of Shares subject to an
Award
Below median Nil%
As noted above, in addition to the satisfaction of performance
conditions, the vesting of these awards is subject to the Executive
Director and senior executive being either an employee or Director
within the Tawa Group on the third anniversary of date of grant,
except in the case of the award granted to Gilles Erulin, who is
required to be an employee or Director within the Tawa Group on 30
March 2014 for awards made in 2011.
Awards held
The awards held over Ordinary Shares of 10p each in the Company
as at 31 December 2013 by Executive Directors serving at the
year-end are disclosed in the Directors' Report.
Future grants of awards under the Performance Share Plan will be
approved by the Board. The Board will have due regard to the
Association of British Insurers Guidelines, the UK Corporate
Governance Code and the Financial Conduct Authority remuneration
code in making such awards and setting appropriate performance
conditions.
Pensions
Executive Directors are entitled to become members of Tawa's
Retirement Benefit Plan or to elect for contributions to be paid
into a personal plan. The amount of employer contributions is
linked to age and ranges from contributions of 7% to 20% of salary.
To be a member of the Tawa Plan individuals are required to
contribute a minimum of 3% of salary. The amount of contribution
made to Executive Directors is outlined in the Directors'
remuneration table above.
Service contracts
The contracts of Gilles Erulin and Tim Carroll are terminable by
either side on 12 months' and 1 month notice respectively. The
Board believes that these notice periods provide an appropriate
balance and adequately protect the Company, having regard to the
prevailing market for recruiting suitable replacements.
Non--Executive Directors
The Executive Directors review Non--Executive Directors'
remuneration annually to ensure that fees are in line with
comparable companies. All Non--Executive Directors receive an
annual fee in respect of their board duties and an attendance fee
for each board and board committee meeting they attend. The
Non--Executive Directors do not receive any other benefit.
Consolidated income statement For the year ended 31 December
2013
Unaudited 31 Dec 2013 Audited 31 Dec 2012
restated
$m $m
--------------------------------------------------------------------- ----------------------- ----------------------
Income from continuing operations
Insurance premium revenue - 0.1
--------------------------------------------------------------------- ----------------------- ----------------------
Net earned premium revenue - 0.1
Revenue from consultancy, insurance and run-off services 37.6 32.5
Investment return 1.2 3.0
Other income 1.7 8.3
--------------------------------------------------------------------- ----------------------- ----------------------
Income 40.5 43.8
Total income 40.5 43.9
--------------------------------------------------------------------- ----------------------- ----------------------
Insurance claims and loss adjustment expenses (25.8) (7.4)
Insurance claims and loss adjustment expenses recovered from
reinsurers - (7.0)
--------------------------------------------------------------------- ----------------------- ----------------------
Net insurance claims (25.8) (14.4)
--------------------------------------------------------------------- ----------------------- ----------------------
Total expenses (53.4) (48.7)
--------------------------------------------------------------------- ----------------------- ----------------------
Results of operating activities before negative goodwill recognised (38.7) (19.2)
Negative goodwill recognised - 0.3
Results of operating activities (38.7) (18.9)
Share of results of associates 2.7 (1.2)
Finance costs (1.3) (1.9)
--------------------------------------------------------------------- ----------------------- ----------------------
Loss before taxation (37.3) (22.0)
Taxation (0.9) 1.8
--------------------------------------------------------------------- ----------------------- ----------------------
Loss for the year from continuing operations (38.2) (20.2)
Loss for the year from discontinued operations (40.1) (2.3)
----------------------- ----------------------
Loss for the year (78.3) (22.5)
--------------------------------------------------------------------- ----------------------- ----------------------
Attributable to:
Owners of the Company (78.3) (22.5)
Non-controlling interests - -
----------------------- ----------------------
(78.3) (22.5)
--------------------------------------------------------------------- ----------------------- ----------------------
Earnings per share
From continuing and discontinued operations
Basic: Ordinary shares (cents per share) (69.17) (20.22)
Diluted: Ordinary shares (cents per share) (69.17) (20.22)
--------------------------------------------------------------------- ----------------------- ----------------------
From continuing operations
Basic: Ordinary shares (cents per share) (33.74) (18.16)
Diluted: Ordinary shares (cents per share) (33.74) (18.16)
--------------------------------------------------------------------- ----------------------- ----------------------
Consolidated statement of comprehensive income For the year
ended 31 December 2013
Audited 31 Dec 2012
Unaudited 31 Dec 2013 restated
$m $m
--------------------------------------------------------------- ----------------------- ---------------------
Loss for the year (78.3) (22.5)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Currency translation differences 1.4 0.6
--------------------------------------------------------------- ----------------------- ---------------------
1.4 0.6
Total comprehensive losses for the year (76.9) (21.9)
--------------------------------------------------------------- ----------------------- ---------------------
Continuing operations (36.3) (19.2)
Discontinued operations (40.6) (2.7)
---------------------------------------------------------------
(76.9) (21.9)
--------------------------------------------------------------- ----------------------- ---------------------
Attributable to:
Owners of the Company (76.9) (21.9)
(76.9) (21.9)
--------------------------------------------------------------- ----------------------- ---------------------
Consolidated statement of financial position As at 31 December
2013
Unaudited 31 Dec 2013 Audited 31 Dec 2012
$m $m
------------------------------------------------------- ----------------------- ----------------------
Assets
Cash and cash equivalents 21.7 57.0
Assets held for sale 141.6 -
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
------------------------------------------------------- ----------------------- ----------------------
Consolidated statement of changes in equity As at 31 December
2013
Share Own
Share based shares Capital
Share premium payments res redemption Translation Retained Non-controlling Total
capital reserve reserve erve reserve reserve earnings Total interest Equity
$m $m $m $m $m $m $m $m $m $m
------------------ ---------- --------- --------- -------- ----------- ------------- ---------- ------- ----------------- --------
Balance at 1
January 2012 22.2 111.4 3.7 (2.6) - (1.3) 63.8 197.2 1.0 198.2
Comprehensive
losses
Loss for the year - - - - - - (22.5) (22.5) - (22.5)
Other comprehensive income
Currency
translation
differences - - - - - 0.6 - 0.6 - 0.6
Total
comprehensive
income/(losses)
for the year - - - - - 0.6 (22.5) (21.9) - (21.9)
------------------ ---------- --------- --------- -------- ----------- ------------- ---------- ------- ----------------- --------
Transactions with owners
Issue of share
capital 0.4 1.4 - - - - - 1.8 - 1.8
Share based
payments - - 0.4 - - - - 0.4 - 0.4
Own shares
cancelled in the
period (0.4) (2.2) - 2.6 - - - - - -
Total
transactions
with owners - (0.8) 0.4 2.6 - - - 2.2 - 2.2
------------------ ---------- --------- --------- -------- ----------- ------------- ---------- ------- ----------------- --------
Balance at 31
December 2012
(Audited) 22.2 110.6 4.1 - - (0.7) 41.3 177.5 1.0 178.5
------------------ ---------- --------- --------- -------- ----------- ------------- ---------- ------- ----------------- --------
Comprehensive
losses
Loss for the year - - - - - - (78.3) (78.3) - (78.3)
Other comprehensive income
Currency
translation
differences - - - - - 1.4 - 1.4 - 1.4
Total
comprehensive
income/(losses)
for the year - - - - - 1.4 (78.3) (76.9) - (76.9)
------------------ ---------- --------- --------- -------- ----------- ------------- ---------- ------- ----------------- --------
Change in the
scope of
consolidation - - - - - - (0.8) (0.8) (0.3) (1.1)
Transactions with owners
Share based
payments - - 0.1 - - - - 0.1 - 0.1
Reclassification
of amounts
relating to own
shares cancelled
in 2012 - 2.2 - - 0.4 - (2.6) - - -
------------------ ---------- --------- --------- -------- ----------- ------------- ---------- ------- ----------------- --------
Total
transactions
with owners - 2.2 0.1 - 0.4 - (2.6) 0.1 - 0.1
------------------ ---------- --------- --------- -------- ----------- ------------- ---------- ------- ----------------- --------
Balance at 31
December 2013
(Unaudited) 22.2 112.8 4.2 - 0.4 0.7 (40.4) 99.9 0.7 100.6
------------------ ---------- --------- --------- -------- ----------- ------------- ---------- ------- ----------------- --------
Consolidated statement of cash flows For the year ended 31
December 2013
Unaudited 31 Dec 2013 Audited 31 Dec 2012 restated
$m $m
------------------------------------------------------------- ----------------------- ------------------------------
Operating activities
Net cash used in continuing operations (111.1) (69.5)
Net cash used in discontinued operations (7.0) (6.9)
Cash used in operations (118.1) (76.4)
------------------------------------------------------------- ----------------------- ------------------------------
Investing activities
Cash payments to acquire debt securities (73.9) (79.3)
Cash receipts from sale and maturity of debt securities 104.3 91.8
Cash transferred from investing activities 1.4 7.9
Cash receipts from interest 4.0 7.8
Purchases of property, plant and equipment (0.2) (0.1)
Acquisition of an associate - (10.1)
Acquisition of a subsidiary net of cash and cash equivalents - 9.1
Proceeds from the disposal of a subsidiary 15.2 -
Cash generated from discontinued investing activities 64.3 37.6
-------------------------------------------------------------
Cash generated by investing activities 115.1 64.7
------------------------------------------------------------- ----------------------- ------------------------------
Financing activities
Proceeds from financial borrowings - 24.1
Repayments of financial borrowings (8.2) -
Cash used in discontinued financing activities (7.8) -
-------------------------------------------------------------
Cash flows (used in)/generated by financing activities (16.0) 24.1
------------------------------------------------------------- ----------------------- ------------------------------
Net (decrease)/increase in cash and cash equivalents (19.0) 12.4
Cash and cash equivalents at beginning of year 57.0 44.7
Effects of exchange rate changes on the balance of cash held
in foreign currencies 0.9 (0.1)
Cash and cash equivalents at end of year 38.9 57.0
------------------------------------------------------------- ----------------------- ------------------------------
As presented in the consolidated statement of financial
position
Cash and cash equivalents 21.7 57.0
Assets held for sale 17.2 -
Cash and cash equivalents at end of year 38.9 57.0
------------------------------------------------------------- ----------------------- ------------------------------
Events after the reporting period
The proposed demerger was approved by Tawa's shareholders on 10
January 2014 and at that time was conditional on various consents.
The High Court of Justice of England and Wales approved the
reduction of share capital on 26 March 2014. The anticipated
effective date for the demerger is April 2014. After the demerger
the Group will be renamed Pro Insurance Solutions PLC.
As a result of the capital reduction, interim accounts dated 31
March 2014 are being prepared to allow for the declaration of the
dividend in specie in early April 2014 once all the consents have
been received. These interim accounts will be filed at Companies
House.
On 25 and 26 March 2014 the Upper Tribunal of the Tax and
Chancery Chamber heard an appeal against the refusal of HMRC to a
claim by a member of a consortium to utilise trading losses
surrendered by associate CX Re. It can typically be two months
after the last day of hearing before the Tribunal's decision is
known.
The financial information set out in the announcement does not
constitute the Company's statutory accounts for the years ended 31
December 2013 or 2012. The financial information for the year ended
31 December 2012 is derived from the statutory accounts for that
year which have been delivered to the Registrar of Companies. The
auditor has reported on those accounts; their report was
unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain a
statement under s498(2) or (3) Companies Act 2006. The audit of the
statutory accounts for the year ended 31 December 2013 is not yet
complete. These accounts will be finalised on the basis of the
financial information presented by the Directors in this
preliminary announcement and will be delivered to the Registrar of
Companies following the Company's annual general meeting.
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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