Chairman's Statement

I am delighted to present to you my first annual report as Chairman of Hansard Global plc ("Hansard" or "Group").  As mentioned at the half year, I wish to formally thank Philip Gregory for his previous chairmanship, leadership and guidance provided to the Group over the past 9 years. 

In March our CEO, Gordon Marr, decided he wished to retire after a 33-year career with Hansard.  I would like to similarly thank Gordon for his many years' service and commitment to the Group.  Having overseen the successful acquisition of our licence in Japan, Gordon leaves Hansard well-positioned for the future.  Our new CEO, Graham Sheward, joined us in May and is working well with me and the whole Board to build on Hansard's long-term legacy and deliver the next phase of the Group's development and growth.

I also welcome David Peach to our Board as an additional independent non-executive director and Chairman of our Audit Committee.

New business

New business for the 2021 financial year ("FY 2021") improved to £173.0m (in Present Value of New Business Premiums ("PVNBP") terms), up 8.3% from the FY 2020 figure of £159.8m. 

This was a significant success given the continuing challenges of Covid-19 and associated restrictions on travel and meeting with customers and distribution partners.  We have seen Hansard's on-line model and ability to accept business electronically as a strong factor in maintaining new business levels. 

Financial performance

Our IFRS profit before tax for the year was £5.1m, up from £4.7m in 2020. 

Fees and commissions were up £1.0m to £50.5m for the year (2020: £49.5m), reflecting a number of factors, including strong growth in assets under management. 

Origination costs to acquire new business were down £1.6m to £16.4m, reflecting strong cost control over our new business activities while significant uncertainty existed around the impact of Covid-19.

Administration costs were up £0.2m to £29.5m.  This reflects our continued investment in our Japanese branch and in our project to replace our policy administration systems.  We have sought to offset these additional costs by prudent cost control and savings in other areas.

Litigation defence activity continued to be active with significant costs incurred during the year, primarily in Italy, Belgium and Germany.  These costs, together with provisions for future settlements, totalled £1.9m compared to £1.3m in 2020.

Further detail and analysis is contained in the Business and Financial Review.

Japan

As noted in our 2020 Annual Report, the key to significantly increased new business lies in our ability to take advantage of the opportunity we have developed in Japan. 

During the 2021 financial year we concluded the development of our innovative new product for the Japanese market.  This is ready to launch on our newly implemented administration system, bringing a highly-advanced platform that will benefit our customers, our distribution partners and our own operational efficiency. 

The product launch timing currently rests with our first distribution partner who has placed new product launches on hold until Covid-19 challenges in Japan have abated.  We will announce any material progress in this area as details emerge. 

Capitalisation and solvency

The Group remains well capitalised to meet the requirements of regulators, contract holders, intermediaries and other stakeholders. We have not required any government-backed financial support as a result of Covid-19, nor placed any staff on furlough. 

On a risk-based capital basis, total Group Free Assets in excess of the Solvency Capital Requirements of the Group were £58.7m (2020: £66.5m), a coverage of 168% (2020: 180%). We have maintained our prudent investment policy for shareholder assets, which minimises market risk and has provided a stable and resilient solvency position over many years and economic cycles.

Dividends

The Board has resolved to pay a final dividend of 2.65p per share (2020: 2.65p).  In making this decision, the Board has carefully considered its current and future cash flows, the risks and potential variabilities introduced by Covid-19, the outlook for future growth and profitability and the views of key stakeholders, including regulators and shareholders. 

The dividend is subject to approval at the Annual General Meeting.  If approved, this will represent total dividends for the financial year of 4.45p per share (2020: 4.45p).  Upon approval, the final dividend will be paid on 11 November 2021.  The ex-dividend date will be 30 September 2021 and the record date will be 1 October 2021.

Graeme Easton

Chairman

22 September 2021

GROUP CHIEF EXECUTIVE OFFICER'S OVERVIEW

I was delighted to join Hansard in May of this year as Group Chief Executive Officer.  In the past four months I have spent time getting to know and understand the current business, and the future opportunities that exist.  I have enjoyed getting to know my new colleagues to understand their roles and contribution to the Company.  In essence, the core product and distribution diversification strategy remains critical, whilst near and short-term organisation improvement initiatives are already underway. The key strategic projects the Group has already embarked upon will continue at pace and with significant focus on completion and execution, namely:

·      launching our new locally-licenced investment product in Japan, and;

·      replacing our policy administration systems to support our next generation of products and to secure significant cost and efficiency gains.

These projects will improve financial performance by growing revenues while at the same time reducing the cost of administering the business. Both of these projects have made positive progress during the past financial year despite the challenging operational environment. 

Our new investment product has been operationally ready to launch in the Japanese market for some time with its launch currently delayed by virtue of the Covid-19 pandemic restrictions in force in Japan, which are outside of our control. We are therefore reliant on an improvement in the Coronavirus environment in Japan to go to market before the end of 2021, which is our strong intention.

Our new operating systems are in place to administer our Japanese product and we have moved on to the next stage of the project to migrate our existing products onto the new platform. We expect this Phase Two project to complete by the end of 2022.

RESULTS FOR THE YEAR UNDER REVIEW

We believe that the following areas are the fundamental factors for the success of the Group:

·      Diversification of our product and distribution channels to enable origination of significant flows of new business from identified target markets;

·      Managing our exposure to business risks;

·      Positioning ourselves to incorporate ever-increasing levels of regulation into our business model;

·      Leveraging our market-leading technology and systems; and

·      Managing our cash flows through the cycle to fund the appropriate balance of investment in new business and dividends.

I would draw your attention to the following items below. Additional information is contained in the Business and Financial Review.

1.         New business distribution

Despite a challenging year due to Covid-19, the level of new business earned during the full year was £173.0m (using the PVNBP metric), up 8.3% from £159.8m in FY 2020.

Our largest region, Middle East & Africa, proved resilient despite the challenges of Covid-19 with new business up 7.9%. Our Far East region was the fastest growing region, up 28% albeit from a smaller base. 

In general, we have seen lower case volumes but of higher value being sold, particularly single premium products. This likely reflects the fact that higher net worth individuals have saved funds during the pandemic and continue to have investment and wealth management needs. 

2.         Operational, Business and Financial Risks

Our business model involves the acceptance of a number of risks on a managed and controlled basis. The Group's Enterprise Risk Management ("ERM") Framework provides for the identification, assessment, management, monitoring and control of current and emerging risks, recognising that systems of internal control can only provide reasonable and not absolute assurance against material misstatement or loss. The Group's internal control and risk management processes have operated satisfactorily throughout the year under review.

2.1        Litigation Risk

As explained more fully in the Business and Financial Review, we continue to manage complaints and litigation arising from our closed-book, Hansard Europe, where the performance of assets linked to a particular contract have suffered or become illiquid.  We continue to maintain that we do not give investment advice and are not party to the selection of assets and therefore believe that such claims have no merit.

As at 30 June 2021, the Group had been served with cumulative writs with a net exposure totalling £22.7m (2020: £23.4m), arising from contract holder complaints and other asset performance-related issues.

During the year, the Group successfully defended sixteen cases with net exposures of approximately £1.6m, ten of which have been appealed by the plaintiffs. These successes continue to affirm confidence in the Group's legal stance.

We have previously noted that we expect a number of larger claims to be covered by our Group insurance policy.  During FY 2021 we recorded £0.5m in insurance recoveries.  We expect such reimbursement to continue for these claims. 

We continue to estimate overall insurance coverage to be in the range of £6m to £13m should those large cases be ruled against us.

3.         Hansard OnLine

Our award-winning IT systems and online customer platform are key aspects of our proposition.  Hansard OnLine is a powerful sales and business administration tool that is used by independent financial advisors ("IFAs") and clients the world over. It is an integral part of the Group's operating model and allows us to better service IFAs and clients, embed process efficiencies and be flexible in operational deployment.

Hansard OnLine provides IFAs and clients with a reliable online self-service model which they can access 24/7 from anywhere around the world with an internet connection. It provides an important foundation to our strategic goal of delivery of excellent customer service.

As noted in previous reports, we have embarked on a project to replace our core administration systems and ensure our infrastructure is future-proofed for our next generation of products and strategic development.  Phase One of this project has been completed and delivered operational readiness for our Japanese product.  The migration of our existing products is scheduled for completion by the end of 2022. 

Additional information concerning Hansard OnLine is set out in the Business and Financial Review.

4.         Operating cash flows and dividends

The Group generates operating cash flows to fund investment in new business and support dividend payments.

As outlined in the Cash Flow analysis section of the Business and Financial Review, the Group generated £3.6m in overall net cash inflows before dividends (2020: inflows of £2.1m), after the investment of £16.5m (2020: £19.1m) in acquiring new business and £3.8m (2020: £3.0m) in IT software and equipment expenditure.  Dividends of £6.1m were paid in the financial year (2020: £6.0m).

A final dividend of 2.65p per share has been proposed by the Board and will be considered at the Annual General Meeting on 3 November 2021.  When the final dividend is paid at this level, dividends will total 4.45p per share in respect of the full 2021 financial year.

FINANCIAL PERFORMANCE

Results for the year

Financial performance is summarised as follows. A detailed review of performance is set out in the Business and Financial Review that follows this report.

IFRS results

IFRS profit before tax for the year was £5.1m, up from £4.7m in 2020.  After eliminating litigation and non-recurring items, the underlying IFRS profit (a non-GAAP metric used by management) was £6.8m, up from £6.2m in 2020.

Fees and commissions were £50.5m for the year (2020: £49.5m).  Fees from Hansard International were up £1.3m to £47.5m from 2020, reflecting a number of factors, including strong growth in assets under management.  Income from our closed book, Hansard Europe, has continued to fall, as expected, and is £0.3m down on the prior year.

Administrative and other expenses were £29.5m for the year, slightly up on the 2020 level of £29.3m.  This reflects our continued investment in our Japanese branch and in our project to replace our policy administration systems.  We have sought to offset these additional costs by prudent cost control and savings in other areas.

Origination costs to acquire new business were down £1.6m to £16.4m, reflecting strong cost control over our new business activities while significant uncertainty existed around the impact of Covid-19.

Further detail and analysis is contained in the Business and Financial Review.

Capitalisation and solvency

Our key financial objective is to ensure that the Group's solvency is managed safely through the economic cycle to meet the requirements of regulators, contract holders, intermediaries and shareholders. The Group continues to be well capitalised.

Under risk-based capital methodologies, total Group Free Assets in excess of the Solvency Capital Requirements of our insurance subsidiaries were £59.2m (2020: £66.5m), a coverage of 168% (2020: 180%).  Shareholder assets are typically held in a wide range of deposit institutions and in highly-rated money market liquidity funds. This prudent investment policy for shareholder assets minimises market risk and has provided a stable and resilient solvency position over recent years.

our people

Our people are critical to our success.  We have a dedicated dynamic workforce across a number of locations around the world.  I would like to recognise and thank them for their continued commitment, flexibility and resilience in managing both our on-going day-to-day operations and our key strategic projects throughout the challenges of the Covid-19 environment.

We have a commitment to quality at the highest level in relation to servicing contract holders and intermediaries. It was therefore pleasing to have again been recognised externally in this area.  In October 2020, Hansard was awarded "Excellence in Client Service - Industry" from International Investor for both the Asian region and as overall global winner.  We also maintained our five-star rating for customer service by AKG Financial Analytics in their 2020 review.

Covid-19

Our business has continued to operate during the Covid-19 pandemic without any significant disruption to our corporate systems or customer service provision.

Our technology and effective business continuity plans have allowed us to switch seamlessly to working remotely whenever required, both at our head office in the Isle of Man and our subsidiary and branch offices around the world.

For our Independent Financial Advisor ("IFA") network around the world, the difficulties in meeting clients, providing advice and concluding sales remain challenging.  We have implemented a number of key actions to facilitate the on-boarding of new business, for example rolling out additional tools to allow customers and IFAs to provide and sign documentation electronically.

We noted in our 2020 Annual Report and Accounts that we were supporting and working with our customers where they may be experiencing personal financial difficulties, for example by allowing for premium holidays without incurring any additional charges or penalties.  We have concluded that temporary concessionary period and while we saw some additional contracts lapsing, the overall impact was not material.

We have also not encountered any material financial concerns with our IFA relationships and have therefore been in a position to write back the £0.2m provision we made at 30 June 2020.

Graham Sheward

Group Chief Executive Officer

22 September 2021
 

Our Business Model and Strategy

Hansard is a specialist long-term savings provider that has been providing innovative financial solutions for international clients since 1987. We focus on helping financial advisors and institutions to provide their clients (individual and corporate investors) with savings and investment products in secure life assurance wrappers to meet long-term savings and investment objectives.

We administer assets in excess of £1 billion for just under 40,000 client accounts around the world.

Business Model

The Company's head office is in Douglas, Isle of Man, and its principal subsidiaries operate from the Isle of Man, The Bahamas and the Republic of Ireland. 

Hansard International is regulated by the Isle of Man Financial Services Authority and has a branch in Malaysia, regulated by the Labuan Financial Services Authority, to support business flows from Asian growth economies.  Through its relationship with a local insurer in the UAE, Hansard International reinsures business written in the UAE.

Launched in 2019, Hansard Worldwide underwrites international and expatriate business around the world.  It is regulated by the Insurance Commission of The Bahamas.

Hansard Europe is regulated by the Central Bank of Ireland. Hansard Europe ceased accepting new business with effect from 30 June 2013.

Our products are designed to appeal to affluent international investors, institutions and wealth-management groups. They are distributed exclusively through IFAs and the retail operations of financial institutions.

Our network of Account Executives provide local language-based support services to financial advisors in key territories around the world, supported by our multi-language online platform, Hansard OnLine.

Vision and Strategy

Our vision for the Hansard Group is:

"to share success with our clients by providing simple, understandable and innovative financial solutions".

To deliver this vision, client outcomes will be the central focus within our business and, consequently, we will seek to evolve all aspects of our products, processes and distribution in order to constantly improve.

Our talented people are the foundation of our business. We have created an empowering culture, which values innovation, quality, integrity and respect.

Our strategy to improve, grow and future-proof our business will be delivered through three key areas of strategic focus:

i.           Improve our business:  We will improve customer outcomes through the introduction of new disclosures, the provision of new products and services, focusing on the quality of our IFAs with whom we work with and continuing to drive up the engagement of our people within our business.

ii.          Grow our business:  In recent years we established a new life company in The Bahamas and entered into a strategic alliance with Union Insurance in the UAE. We have acquired the necessary licence and approvals to access the Japanese market. We will continue to seek out opportunities for locally licenced business in other targeted jurisdictions over the coming years.

iii.         Future-proof our business: We actively consider new and innovative technologies, propositions and business models.  It remains critical to support the online and digital needs of our clients alongside improving organisational efficiency and scalability.

Strategy DEVELOPMENT

Our strategy team, led by Ollie Byrne our Commercial Director, has three main aims:

i)          to capitalise on near term strategic opportunities;

ii)          to ensure the Group is correctly positioned for future regulatory developments and change; and

iii)         to consider and plan for longer term industry and technological evolution.

During the past financial year the primary focus has been on delivering our two most significant near-term strategic initiatives:

·      bringing to market our locally-licensed investment product in Japan; and

·      upgrading and streamlining our systems and IT infrastructure. 

We are operationally ready with our Japanese product.  We intend to launch with our first distribution partner on our new policy administration system when Covid-19 restrictions in Japan are relaxed.  Completion of the IT implementation and migration is scheduled by the end of 2022.

Regulatory change

The Isle of Man Financial Services Authority (the "Authority") remains committed to maintaining a robust and up to date insurance supervisory framework appropriate to the Island's insurance businesses.

The Island's reputation as a well-regulated and internationally responsible jurisdiction is of vital importance to maintaining consumer confidence and therefore market share. The international standards applicable to effective insurance supervision are the Insurance Core Principles (ICPs), issued by the International Association of Insurance Supervisors (IAIS).  The ICPs emphasise the need for insurers and regulators to understand the nature and degree of risks assumed and provide for them appropriately thus addressing financial stability risks with the ultimate aim of protecting the interests of consumers and wider stakeholders. 

The Authority has continued its work to revise the framework for insurance regulation and supervision and maintain a high level of observance with the IAIS Insurance Core Principles. The Authority has sought to develop and implement these revisions in a way which is appropriate and proportionate for the Isle of Man's diverse insurance sector whilst promoting regulatory best practice and preserving the continued reputation of the Isle of Man as a stable and well-regulated jurisdiction. 

Major milestones have already been enacted with the implementation of new risk-based capital corporate governance, enterprise risk management, conduct of business requirements and a Group Supervision regime.

We have continued our work to adapt the Hansard model and our strategic and business plans in line with the intent and objectives of the regulatory changes, working transparently with our regulators to shape the practical implementation of the Authority's roadmap and embed associated changes. The Group continues to monitor developments in our other regulatory jurisdictions.

Products

The Group's products are unit-linked regular or single premium life assurance and investment contracts which offer access to a wide range of investment assets. The contracts are flexible, secure and held within "wrappers" allowing life assurance cover or other features depending upon the needs of the client. The contract benefits are directly linked to the value of those assets that are selected by, or on behalf of, the client and held within the wrapper. The Group does not offer investment advice. Contract holders bear the investment risk.

The Group's products do not include any contracts with financial options and/or guarantees regarding investment performance and, hence, unlike the situation faced by some other life assurers, the Group carries no guarantee risk that can cause capital strain. 

As a result of high levels of service, the nature of the Group's products, the functionality of Hansard OnLine, and the ability of the contract holder to reposition assets within a contract, we aim to retain the contract holder relationship over the long term.

Contract holder servicing and related activities are performed by Hansard Administration Services Limited, which is authorised by the Financial Services Authority of the Isle of Man Government to act as an Insurance Manager to insurance subsidiaries of the Group.

Revenues

The main sources of income for the Group are the fees earned from the administration of insurance contracts. These fees are largely fixed in nature and amount. Approximately 30% of the Group's revenues, under IFRS, are based upon the value of assets under administration. The new business generated in a particular year is expected to earn income for an average period of 14 years. Our business is therefore long term in nature both from a contract holder perspective and with regards to the income that is generated. 

From this income we meet the overheads of the business, invest in our business, remunerate our distribution network and pay dividends.

Managing Risk

Risk can arise from a combination of macro events and company specific matters.  On the macro side, events such as the UK exit from the EU, terrorist attacks, pandemics and geo-political tensions can cause significant volatility to stock markets and foreign exchange markets.  We therefore continue to maintain a robust, low risk balance sheet. We believe this prudent approach to be appropriate to meet the requirements of regulators, contract holders, intermediaries and shareholders.

We are conscious that managing operational risk is critical to our business and we are continuously developing our enterprise risk management system and controls.  Further details of our approach to risk management and the principal risks facing the Group are outlined in the Risk Management and Internal Control Section.

Hansard OnLine

Hansard OnLine is a powerful and secure tool that is used by our IFAs around the world.  Available in multiple languages, it allows them to access information about their clients, to generate reports for their clients, to submit new business applications online, to place dealing and switch instructions online, to access all client correspondence and to access a library of forms and literature.

Almost all investment transactions are processed electronically by intermediaries, on behalf of their clients, using Hansard OnLine and over 90% of all new business applications are submitted via the platform.

The straight-through processing of contract holder instructions (whether received directly or through their appointed agents) reduces the Group's operational risk exposures, as does the ability of the Group to communicate electronically with contract holders and intermediaries, irrespective of geographical boundaries.  Data validation happens in real-time to ensure there are no delays to the investment of client funds.

Hansard OnLine Lite provides prospective IFAs with easy access to a subset of the online system. Its purpose is to showcase our online proposition to prospective and new IFAs and to allow easy access to non-sensitive documents and functionality. Users can access our online document library, the Unit Fund Centre, company news and submit new business online.

The benefit of Hansard OnLine is recognised by many IFAs as market leading and our online proposition has been nominated for and won a number of independent industry awards in recent years.  Most recently this included winning International Investment's 'Excellence in Fintech' award in October 2020.

Online Accounts

Whilst many of our IFAs are technologically sophisticated and have been utilising our online offering for years, our client base has typically lagged behind. However, we are now observing a growing trend amongst our clients to take more control of their financial wellbeing by embracing mobile technology to better monitor and manage their finances.

To support our commitment to delivering 'excellent customer service', we believe it is vital to provide our clients with a modern and secure online platform that allows them to access their finances easily and comprehensively, 24/7. We provide this through our client-facing version of Hansard OnLine, called Online Accounts.

Similar to our IFA-facing online platform, the client's Online Account allows them to access all their policy information, valuation statements, transaction history, premium reports, switch funds online, access all correspondence, access a library of forms and literature, and more.

A large and increasing number of clients have signed up for this service which allows them to view all documentation and communications relating to their contracts via their Online Account as well as choosing to receive post electronically, rather than in hard-copy form. This not only provides a more secure, more efficient and cost-effective means of communication with clients but also the convenience to manage their own contract within a timeframe which is more suitable. This has gained further traction during the restrictions encountered during the Covid-19 pandemic.

Continuous Improvements to our Online Proposition

When it comes to improving how we operate and the proposition we offer, we value the views of our clients and IFAs. This means that we regularly seek feedback through surveys and office visits in order to identify ways in which we can improve our systems and processes to best meet their needs.  However, it is not just functionality that is important, we also have a continuous programme to enhance the overall user experience, for both IFA's and our clients.

Cyber Security

As cyber crime continues to increase and target commercial and public enterprises alike, Hansard has continued to invest in its cyber security.  This includes continuous upgrades to our firewall protection, encryption of data, tokenisation of sensitive data and annual external review and testing.

Excellent Customer Service

We strive to provide excellent customer service and turn-around times to our clients and our IFA community.  We have won a number of external awards in this area over the years, most recently in October 2020 when we won 'Excellence in Client Service - Industry' from International Investor for both the Asian region and as overall global winner.  We also maintained our five-star rating for customer service by AKG Financial Analytics in their 2020 review.

Key performance indicators

The Group's senior management team monitors a wide range of Key Performance Indicators, both financial and non-financial, that are designed to ensure that performance against targets and expectations across significant areas of activity are monitored and variances explained.

The following is a summary of the key indicators that were monitored during the financial year under review.

business AND FINANCIAL REVIEW

NEW BUSINESS PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2021

The Group continues to focus on the distribution of regular and single premium products in a range of jurisdictions around the world, achieving well diversified new business growth.

New business performance for the year is summarised in the table below:

In Present Value of New Business Premiums ("PVNBP") terms, new business for the year to 30 June 2021 was £173.0m, 8.3% up on the prior year.

The Annualised Premium Equivalent ("APE") measure shows a decline of 3.7% from 2020.  The year on year change for APE is lower than PVNBP as it does not take into account the more detailed experience assumptions for regular premiums that are accounted for within the PVNBP methodology. 

In general we have seen lower case count levels but higher value cases being sold, particularly single premiums. This likely reflects the fact that higher net worth individuals have saved funds during the pandemic and continue to have investment and wealth management needs. 

Present Value of New Business Premiums ("PVNBP")

New business flows on the PVNBP basis for the Group are further analysed as follows:

Our largest region, Middle East and Africa, rose 7.9% for the year.  This is reflective of the Middle East emerging comparatively well from Covid-19 and the successful acquisition of a number of high net worth single premium policies.

The level of new business from the Rest of World region was up 4.5%, supported by higher value regular premium policies.

New business in Latin America rose by 8.0% despite experiencing some of the most challenging global Covid-19 conditions.  Again, this was driven by higher value single and regular premium policies.

New business in the Far East rebounded significantly from the lower levels seen last year and the earlier part of this financial year.

The currencies premiums were received in remained relatively consistent, with the predominant currency being US Dollars:

New business margins

New business margins (calculated on a PVNBP basis) are sensitive to sales levels and product mix (regular premium products and smaller single premium sizes typically have a higher margin).  While positive on a marginal cost basis, our new business margin was a negative 0.5% for the year (2020: negative 0.1%).  The deterioration was primarily due to changes in business mix, changes in economic assumptions and changes in operating assumptions. We expect the primary catalyst for margin improvement to be a successful launch of our new product into the Japanese market in the 2022 financial year.

Presentation of financial results

Our business is long term in nature. The nature of the Group's products means that new business flows have a limited immediate impact on current earnings reported under International Financial Reporting Standards as adopted by the European Union ("IFRS"), as initial fees and acquisition costs from the contracts sold are mostly deferred and amortised over the life of the contract. The benefit of sales to fee income levels are felt in future financial periods, noting also that our newer products have a longer earning period than our older products.

Results for the year

The following is a summary of key items to allow readers to better understand the results for the year. IFRS profit before tax for the year was £5.1m, up from £4.7m in 2020.

Operating profit prior to litigation and non-recurring items was £6.8m in 2021, up from £6.2m in 2020.

Abridged consolidated income statement

The consolidated statement of comprehensive income presented under IFRS reflects the financial results of the Group's activities during the year. This income statement however, as a result of its method of presentation, incorporates a number of features that might affect an understanding of the results of the Group's underlying transactions. These relate principally to:

·      Investment gains attributable to contract holder assets were £163.8m (2020: £0.1m). These assets are selected by the contract holder or an authorised intermediary and the contract holder bears the investment risk. They are also reflected within 'Change in provisions for investment contract liabilities'.

·      Third party fund management fees collected and paid onwards by the Group to third parties having a relationship with the underlying contract.  In 2021 these were £5.3m (2020: £4.8m). These are reflected on a gross basis in both income and expenses under the IFRS presentation.

An abridged non-GAAP consolidated income statement in relation to the Group's own activities is presented below, excluding the items of income and expenditure indicated above.

Fees and commissions

Fees and commissions for the year attributable to Group activities were £45.2m, up 1.3% on the 2020 total of £44.7m.

Contract fee income totalled £32.2m for the year (2020: £32.2m).  Contract fee income includes the amortised element of up-front income deferred under IFRS and contract-servicing charges.  Amortisation of deferred income was broadly similar to the prior year, whilst immediately recognised fees, including surrender charges, have increased compared to the prior year.  The continuing run-off of Hansard Europe which closed to new business in 2013 resulted in lower contract fee income of £0.3m compared to 2020.

Fund management fees accruing to the Group and commissions receivable from third parties totalling £8.3m (2020: £7.9m) are related directly to the value of assets under administration and are therefore exposed to market movements, currency rates and valuation judgements.  With positive performance from global stock markets, average assets under management for 2021 were higher than 2020.

A summary of fees and commissions is set out below:

Included in contract fee income is £16.7m (2020: £17.0m) representing the amortisation of fees prepaid in previous years, as can be seen in the analysis set out below:

Investment and other income

Historically low UK and US interest rates continue to result in modest levels of interest income earned on the Group's deposits and money market funds.

Origination costs

Under IFRS, new business commissions paid, together with the directly attributable incremental costs incurred on the issue of a contract, are deferred and amortised over the anticipated life of that contract to match the longer-term income streams expected to accrue from the contracts issued this year. Typical terms range between 6 years and 16 years, depending on the nature of the product. Other elements of the Group's new business costs, for example recruitment costs, which reflect investment in distribution resources in line with our strategy, are expensed as incurred.

Origination costs incurred in 2021 have decreased as a result of less business being reinsured from the UAE which incurs a higher cost of acquisition and the cancellation of the majority of sales-related travel and promotional events due to Covid-19.

Amounts totaling £14.1m (2020: £14.6m) have been expensed to match contract fee income earned this year from contracts issued in previous financial years, as can be seen in the analysis below.

Summarised origination costs for the year were:

Administrative and other expenses

We continue to manage our expense base robustly to control administrative expenses while supporting our strategic developments and other new business growth activities with targeted expenditure.

An analysis of administrative and other expenses is set out in notes 8 and 9 to the consolidated financial statements under IFRS. The following summarises some of the expenses attributable to the Group's own activities.

Salaries and other employment costs have increased by £0.4m or 4% to £11.0m, reflecting the expansion of headcount in our Japan branch and the costs of short-term contractors supporting our systems project. Cost inflation was contained by not awarding any inflation-based salary increases during the year.

The average Group headcount for the 2021 financial year was 191 people (2020: 192 people). 

Other administrative expenses increased from £7.7m to £8.0m.  During the year there were additional lease costs arising from our move of head office premises and non-capitalised IT expenditure associated with our systems project.

Professional fees including audit are down a further £0.3m (2020: £0.3m) as a result of a savings programme which was commenced in 2019.  These costs include amounts totalling £0.4m paid to the Group's auditor (2020: £0.5m); £0.5m (2020: £0.6m) for administration, custody, dealing and other charges paid under the terms of the investment processing outsourcing arrangements; recruitment costs of £0.1m (2020: £0.2m), costs of investor relations activities of £0.2m (2020: £0.2m) and general legal and professional fees of £1.4m (2020: £1.3m).

Growth investment spend represents internal and external strategic costs to generate opportunities for growth.  This includes the costs of our strategy team and costs associated with developing our Japanese proposition which have reduced in the current year as the project has neared conclusion

Litigation defence and settlement costs represent those costs (net of insurance recoveries) incurred in defending Hansard Europe against writs taken against it, as described more fully in note 25 to the consolidated financial statements.  At 30 June 2021, a provision of £0.4m has been made for expected future settlements. 

Provision for doubtful debts relate to amounts due from brokers which are deemed to be irrecoverable.  The £0.2m provided for in 2020 represented an estimate due to increased risk perceived for brokers who may not be in a financial position to repay upfront commissions on lapsed business due to Covid-19.  This risk did not crystalise in 2021 and therefore has been released.
 

Cash Flow ANALYSIS

The operational cash surplus (fees deducted from contracts and commissions received, less operational expenses paid) for the year was £23.8m (2020: £22.7m). Operating cash flows have increased this year as a result of the increase in fee income levels and lower acquisition costs. 

Writing new business, particularly regular premium business, produces a short-term cash strain as a result of the commission and other costs incurred at the inception of a contract.  Annual management charges offset this strain and produce a positive return over time.

Future increases in new business levels can be funded where necessary by the Group's significant cash resources, but over time as the level of contract holder assets is built up, the annual management charges that are earned from the Group's newer products will become sufficient to sustain new business growth and dividends.

During 2021, the Group invested £3.3m (2020: £2.9m) as part of a project to replace its administration systems.  These costs are capitalised as computer software on the Group's consolidated balance sheet.  In addition, £0.5m was incurred as part of the Group's move to its new head office.

The following non-GAAP tables summarise the Group's own cash flows in the year.  Overall Group cash and deposits have increased from £60.8m at 30 June 2020 to £63.5m at 30 June 2021. 

Group bank deposits and money market funds

The Group holds its liquid assets in highly-rated money market liquidity funds and with a wide range of deposit institutions to minimise market risk.  Deposits totalling £6.8m (2020: £21.2m) have original maturity dates typically greater than 3 months and are therefore excluded from the definition of "cash and cash equivalents" under IFRS and are instead included within 'Deposits and money market funds' in the consolidated balance sheet. The following table summarises the total shareholder cash and deposits at the balance sheet date.

Abridged consolidated balance sheet

The consolidated balance sheet presented under IFRS reflects the financial position of the Group at 30 June 2021. As a result of its method of presentation, the consolidated balance sheet incorporates the financial assets held to back the Group's liability to contract holders, and also incorporates the net liability to those contract holders of £1,224.2m (2020: £1,080.5m). Additionally, that portion of the Group's capital that is held in bank deposits is disclosed in "cash and cash equivalents" based on original maturity terms, as noted above. 

The abridged consolidated balance sheet presented below, adjusted for those differences in disclosure, allows a better understanding of the Group's own capital position.

Deferred origination costs

The deferral of origination costs reflects that the Group will earn fees over the long-term from contracts issued in a given financial year. These costs are recoverable out of future net income from the relevant contract and are charged to the consolidated statement of comprehensive income on a straight-line basis over the life of each contract. 

The movement in value over the financial year is summarised below.

Deferred income

The treatment of deferred income ensures that contract fees are taken to the consolidated statement of comprehensive income in equal instalments over the longer-term, reflecting the services to be provided over the period of the contract. This is consistent with the treatment of deferred origination costs. Deferred income at the balance sheet date is the unamortised balance of accumulated initial amounts received on new business.

The proportion of income deferred in any one year is dependent upon the mix and volume of new business flows in previous years. The Group's focus on regular premium business means that these fees are received over the initial period of the contract, rather than being received up front, as is often the case with single premium contracts. 

The majority of initial fees collected during the year relates to charges taken from contracts issued in prior financial years demonstrating the cash generative nature of the business. Regular premium contracts issued in this financial year will generate the majority of their initial fees over the next 18 months on average.

The movement in value of deferred income over the financial year is summarised below.

CONTRACT HOLDER Assets under administration

In the following paragraphs, contract holder assets under administration ("AuA"), refers to net assets held to cover financial liabilities, as analysed in note 17 to the consolidated financial statements presented under IFRS.  Such assets are selected by or on behalf of contract holders to meet their investment needs.

The Group receives investment inflows to its AuA from single and regular premium contracts which are offset by withdrawals, charges, premium holidays affecting regular premium policies and by market valuation movements. 

The majority of premium contributions are designated in currencies other than sterling, reflecting the wide geographical spread of those contact holders.  The currency composition of AuA at the balance sheet date is similar to that as at 30 June 2020, with 68% of AuA designated in US dollar (2020: 67%) and 10% in euro (2020: 11%).

Certain collective investment schemes linked to customers' contracts can from time to time become illiquid, suspended or be put into liquidation. In such cases, the Directors are required to exercise their judgement in relation to the fair value of these assets.  The cumulative impact on the balance sheet is not material.

The value of AuA at 30 June 2021 was £1,224.2m, up 13.3% from 30 June 2020.  During 2021, significant gains were achieved as a result of positive global stock markets, offset by a weaker US dollar versus sterling.  The following table summarises the movements in the year:

The analysis of AuA held by each Group subsidiary to cover financial liabilities is as follows:

Assets acquired by Hansard Worldwide are administered by Hansard International and therefore are included within Hansard International's total AuA.

Since it closed to new business in 2013, Hansard Europe's AuA has been declining broadly in line with expectations as contracts are surrendered or mature.

DIVIDENDS

An interim dividend of 1.8p per share was paid in April 2021. This amounted to £2.5m.

The Board has considered the results for the full year ended 30 June 2021, the Group's continued cash flow generation and its future expectations and has resolved to pay a final dividend of 2.65p per share (2020: 2.65p). Subject to approval at the AGM, this dividend will be paid on 11 November 2021.

complaints and litigation

In valuation issues such as those referred to above, financial services institutions can be drawn into disputes in cases where the performance of assets selected directly by or on behalf of contract holders through their advisors fails to meet their expectations. This is particularly relevant in the case of more complex products distributed throughout Europe.

Even though the Group does not give any investment advice, as this is left to the contract holder directly or through an agent, advisor or an entity appointed at their request or preference, the Group has been subject to a number of complaints in relation to the performance of assets linked to contracts.

As at 30 June 2021, the Group had been served with cumulative writs with a net exposure totalling €26.5m, or £22.7m in sterling terms (30 June 2020: €25.8m / £23.4m) arising from contract holder complaints and other asset performance-related issues. All such writs relate to historic business written by Hansard Europe prior to its closure to new business in 2013. The increased exposure since 30 June 2020 was driven by a reduction in the fair value of investment assets backing the claims.

During the year, the Group successfully defended sixteen cases with net exposures of approximately £1.6m, ten of which have been appealed by the plaintiffs (2020: successfully defended nine cases with net exposures of £0.6m). These successes continue to affirm confidence in the Group's legal arguments.

Our policy is to maintain contingent liabilities even where we win cases in the court of first instance if such cases have been subsequently appealed.  This includes our largest single case in Belgium.

We have previously noted that we expect a number of our larger claims to ultimately be covered by our Group insurance cover.  During FY 2021 we recorded £0.5m in insurance recoveries.  We expect such reimbursement to continue during the course of those claims. 

As a result we also expect that a significant amount of the £22.7m of contingent liabilities referred to above would be covered by insurance should those cases be ruled against us.  We continue to estimate insurance coverage to be in the range of £6m to £13m.

While it is not possible to forecast or determine the final results of such litigation, based on the pleadings and advice received from the Group's legal representatives and experience with cases previously successfully defended, we believe we have a strong chance of success in defending these claims. Other than smaller cases where based on past experience it is expected a settlement might be reached, the writs have therefore been treated as contingent liabilities and are disclosed in note 25 to the consolidated financial statements.  Where there is an established pattern of settlement for a grouping of claims, a provision has been made for the remaining exposures and included in note 19 'Other Payables'.

Net asset value per shaRE

The net asset value per share on an IFRS basis at 30 June 2021 is 17.9p (2020: 18.8p) based on the net assets in the Consolidated Balance Sheet divided by the number of shares in issue, being 137,557,079 ordinary shares (2020: 137,557,079).
 

Risk management and internal control

The Group is naturally exposed to both existing and emerging internal and external risks as it pursues its strategic and business objectives. All such risks, are managed as part of the corporate model via the governance, risk management and internal control arrangements which constitute the ERM Framework. This has never been more clearly demonstrated than via the unprecedented circumstances and associated challenges presented by the Covid-19 pandemic, which continued to dominate the landscape throughout the reporting period, presenting societal, economic and corporate level impacts, which manifested at macro and micro levels around the world.

The Group ERM Framework has remained central to the Board's ability to take swift, decisive and informed decisions in response to the range of possible risks which the pandemic presented to the Group, its employees, customers and wider stakeholder groups. Pandemic-specific business resilience planning and the inherent strength of the Group's systems infrastructure have continued to support smooth and stable remote working arrangements, which have remained robust and resilient throughout the various periods of 'lockdown' which have taken effect locally and at international levels.

Risk metrics and key performance indicators, targeted to identify and assess both prudential and conduct elements of the principal and subordinate risk universe, have remained under scrutiny, together with those via which the broader risk spectrum is monitored and managed. These metrics have supported continuous monitoring of operational resilience, stakeholder impacts and the potential consequences of market volatilities, together with related stresses to global economies. Operational and Executive Risk Committee Meetings have maintained close scrutiny of these monitoring activities with formal reporting to both the Board and the Group's regulators, as necessary and appropriate.

Approach

Having regard to the Financial Reporting Council's 'Guidance on Risk Management, Internal Control and Related Financial and Business Reporting', the ERM Framework encompasses the policies, processes, tasks, behaviours and other aspects of the Group's environment, which cumulatively:

·      Facilitate the effective and efficient operation of the Group and its subsidiaries by enabling appropriate responses to be made to significant business, operational, financial, compliance and other risks to business objectives, so safeguarding the assets of the Group;

·      Help to ensure the quality of internal and external reporting. This requires the maintenance of proper records and processes that generate a flow of timely, relevant and reliable information from within and outside the Group;

·      Seek to ensure continuous compliance with applicable laws and regulations as well as with internal policies governing the conduct of business; and

·      Drive the cultural tone and expectations of the Board in respect of governance, risk management and internal control arrangements and the delegation of associated authorities and accountabilities.

The Board of Hansard Global plc ("the Board") has overall responsibility for the effective operation of the ERM Framework and the Directors retain responsibility for determining, evaluating and controlling the nature and extent of the risks which the Board is willing to accept across the spectrum of risk types, taking account of varying levels of strategic, financial and operational stresses, potential risk scenarios and emerging as well as existing risk exposures. This approach ensures that risk appetite remains an integral element of decision-making by both the Board and the Executive Management Team, including in the setting of strategy, ongoing business planning and business change initiatives. 

The ERM Framework has been designed to be appropriate to the nature, scale and complexity of the Group's business at both corporate and subsidiary level. The Framework components are reviewed on at least an annual basis and refined, if necessary, to ensure they remain fit for purpose in substance and form and continue to support the Directors' assessment of the adequacy and effectiveness of the Group's risk management and internal control systems. Such assessment depends upon the Board maintaining a thorough understanding of the Group's risk profile, including the types, characteristics, interdependencies, sources and potential impact of both existing and emerging risks on an individual and aggregate basis. The disciplines of the ERM Framework seek to coordinate risk management in respect of the Group as a whole, including for the purpose of ensuring compliance with capital adequacy requirements, liquidity adequacy requirements and regulatory capital requirements, in line with the Isle of Man Financial Services Authority's risk-based capital regime.

Governance, risk management and internal control protocols remain structured upon a 'three lines' model, which determines how specific duties and responsibilities are assigned and coordinated. Front line management are responsible for identifying risks, executing effective controls and escalating risk issues and events to the Group's Control Functions. The Group Risk and Compliance teams oversee and work in collaboration with the First Line, ensuring that functions and operations are consistent with rules, limits and risk appetite constraints.  The Group Internal Audit Department provides independent assurance services to the Board and Executive Management Team on the adequacy and effectiveness of the Group's governance, risk management and internal control arrangements.

The ERM Framework seeks to add value through embedding risk management and effective internal control systems as continuous and developing processes within strategy setting, programme level functions and day-to-day operating activities. The ERM Framework also acknowledges the significance of organisational culture and values in relation to risk management and their impact on the overall effectiveness of the internal control framework.

Emerging Risks

The ERM Framework promotes the pursuit of its overarching performance, information and compliance objectives through focus on five interrelated elements, which enable the management of risk at strategic, programme and operational level to be integrated, so that layers of activity support each other. The five interrelated elements are defined as: -

·      Management oversight and the control culture

·      Risk recognition and assessment

·      Control activities and segregation of duties

·      Information and communication

·      Monitoring activities and correcting deficiencies

Risk management processes are undertaken on both a top-down and bottom-up basis. The top-down aspect involves the Board assessing, analysing and evaluating what it believes to be the principal existing and emerging risks facing the Group. The bottom-up approach involves the identification, review and monitoring of current and forward-looking risks on a continuous basis at functional and divisional levels, with analysis and formal reporting to the Executive Risk Committee, established by the Board, on a quarterly basis and onward analytical reporting to the Board.  The terms of reference of the Committee are published on the Company's website.

Stress and scenario testing is used to identify emerging risks as well as to analyse and assess any changes in existing aspects of the 'Risk Universe', which are monitored via the ERM Framework. Such analyses use both quantitative tests and qualitative assessments to consider reasonably plausible risk events, including those stresses and scenarios that could lead to failure of the business, approximated to the range of impact types which can be envisaged. The results of the stress and scenario testing are considered and explored by the Operational and Executive Risk Committees, the Audit and Risk Committee and the Board, as necessary and appropriate.  

The system of internal control is designed to understand and manage rather than eliminate risk of failure to achieve business objectives and can only provide reasonable, rather than absolute assurance against material misstatement or loss.

Review of risk management and internal control systems

The results of the risk management processes combine to facilitate identification of the principal business, financial, operational and compliance risks and any associated key risks at a subordinate level. Established reporting cycles enable the Board to maintain oversight of the quality and effectiveness of risk management and internal control activities throughout the year and ensure that the entirety of the governance, risk management and internal control frameworks, which constitute the ERM Framework, are operating as intended. These processes have been in place throughout the year under review and up to the date of this report.

Independently of its quarterly and ad hoc risk reporting arrangements the Board has conducted its annual review of the effectiveness of the Company's risk management and internal control systems including financial, operational and compliance controls. This review is undertaken in collaboration with the Audit Committee and is based upon analysis and evaluation of:

·      Attestation reporting from the key subsidiary companies of the Group as to the effective functioning of the risk management and internal control frameworks and the ongoing identification and evaluation of risk within each key subsidiary.

·      Formal compliance declarations from senior managers at divisional level that key risks are being managed appropriately within the functional and operational areas falling under their span of control and that controls have been examined and are effective.

·      The cumulative results of cyclical risk reporting by senior and executive management via the Operational Risk Committee and the Executive Risk Committee, covering financial, operational and compliance controls.

·      Independent assurance work by the Group Internal Audit Department to identify any areas for enhancements to internal controls and work with management to define associated action plans to deliver them.

The Board has determined that there were no areas for enhancement which constituted a significant weakness for the year under review and they are satisfied that the Group's governance, risk management and internal control systems are operating effectively and as intended, having particular regard to the disruptions and risks arising from the Covid-19 pandemic.

Financial reporting process

Integral to ERM monitoring and reporting arrangements are the conventions which ensure that the Board maintains a continuous understanding of the financial impacts of the Group failing to meet its objectives, due to crystallisation of an actual or emerging risk, or via the stress and scenario events, which the Board considers to be reasonably plausible. This includes those stresses and scenarios that could lead to a failure of the business. Planning and sensitivity analyses incorporate Board approval of forecast financial and other information. The Board receives regular representations from the senior executives in this regard.

Performance against targets is reported to the Board quarterly through a review of Group and subsidiary company results based on accounting policies that are applied consistently throughout the Group.  Financial and management information is prepared quarterly by the Chief Financial Officer ("CFO") and presented to the Board and Audit Committee. The members of the Audit Committee review the financial statements for the half year ended 31 December and for the full financial year and meet with the CFO to discuss and challenge the presentation and disclosures therein. Once the draft document is approved by the Audit Committee, it is reviewed by the Board before final approval at a Board meeting.

Outsourcing

The majority of investment dealing and custody processes in relation to contract holder assets are outsourced to Capital International Limited ("CIL"), a company authorised by the Isle of Man Financial Services Authority and a member of the London Stock Exchange.

These processes are detailed in a formal contract that incorporates notice periods and a full exit management plan. Delivery of services under the contract is monitored by a dedicated Relationship Manager against a documented Service Level Agreement, which includes Key Performance Indicators.

CIL is required to confirm on a monthly basis that no material control weaknesses have been identified in their operations; this is overseen via service delivery monitoring performed by the Relationship Manager. Each year CIL are required to confirm and evidence the adequacy and effectiveness of their internal control framework through a formal Assurance Report on Internal Controls. An external independent review has also been completed during the year ended 30 June 2021. The review did not reveal any material control deficiencies in the period. 

Risks relating to the Group's financial and other exposures

Hansard's business model involves the controlled acceptance and management of risk exposures. Under the terms of the unit-linked investment contracts issued by the Group, the contract holder bears the investment risk on the assets in the unit-linked funds, as the policy benefits are directly linked to the value of the assets in the funds. These assets are administered in a manner consistent with the expectations of the contract holders. By definition, there is a match between the investment assets and the contract holder liabilities, and so the market risk and credit risk lie with contract holders.

The Group's exposure on this unit-linked business is limited to the extent that income arising from asset management charges and commissions is generally based on the value of assets in the funds, and any sustained falls in value will reduce earnings. In addition, there are certain financial risks (credit, market and liquidity risks) in relation to the investment of shareholders' funds. The Group's exposure to financial risks is explained in note 3 to the consolidated financial statements.

The Board believes that the principal risks facing the Group's earnings and financial position are those risks which are inherent to the Group's business model and operating environment. The regulatory landscape continues to evolve at both a local and international level and the risk management and internal control frameworks of the Group must remain responsive to developments which may change the nature, impact or likelihood of such risks.