B.P. Marsh & Partners PLC
Annual Report 2014

Plain-text annual report

B. P. M A R S H & P A R T N E R S P L C 2 0 1 4 A N N U A L R E P O R T C O M P A N Y I N F O R M A T I O N DIRECTORS Brian Marsh OBE (Chairman) Jonathan Newman (Group Director of Finance) Daniel Topping (Director) Camilla Kenyon (Director) Natasha Dunbar (Director) Stephen Clarke (Non-executive) Philip Mortlock (Non-executive) Campbell Scoones (Non-executive) COMPANY SECRETARY Sinead O’Haire COMPANY NUMBER 05674962 REGISTERED OFFICE 2nd Floor, 36 Broadway London, SW1H 0BH AUDITOR Rawlinson & Hunter, 8th Floor 6 New Street Square, London, EC4A 3AQ BROKER AND NOMINATED ADVISER Panmure Gordon (UK) Limited One New Change London EC4M 9AF REGISTRAR Capita Asset Services The Registry, 34 Beckenham Road Beckenham, Kent BR3 4TU C O N T E N T S GROUP PROFILE CHAIRMAN’S STATEMENT EQUITY INVESTMENTS REVIEW DIRECTORS’ REPORT, STRATEGIC REPORT AND CONSOLIDATED FINANCIAL STATEMENTS DIRECTORS CORPORATE GOVERNANCE REPORT OF THE REMUNERATION COMMITTEE GROUP REPORT OF THE DIRECTORS GROUP STRATEGIC REPORT INDEPENDENT AUDITOR’S REPORT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED & COMPANY STATEMENTS OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CASH FLOWS COMPANY STATEMENT OF CASH FLOWS CONSOLIDATED & COMPANY STATEMENTS OF CHANGES IN EQUITY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS G R O U P P R O F I L E 1 3 9 12 13 15 17 20 24 26 27 28 29 29 30 The B.P. Marsh Group (the “Group”) is a niche venture capital provider to early stage financial services businesses. It will consider investing in start-ups, management buy-outs, management buy-ins, hive-offs and similar opportunities. It is also able to provide follow-on funding for successful companies in its portfolio when required for further growth. The Group typically invests up to £3 million in financial service investment opportunities based in the United Kingdom, but will also consider opportunities in Europe, North America, Australia and occasionally elsewhere. It likes to invest in people businesses with good management. The Group does not seek to impose exit pressures on its investee companies, but prefers to work with management to develop a mutually acceptable exit route. The Group has a considerable bank of experience in the financial services sector and seeks to use this experience to add value to its investments. It is also able to provide consultancy and administrative services to its portfolio of investments when required. The Group’s aim is to be the capital provider of choice to the financial services intermediary sector. 1 IT IS NOT THE POWER OF MONEY THAT MAKES AN INVESTMENT A SUCCESS; IT IS THE POWER OF THE IDEAS BEHIND IT. C H A I R M A N ’ S S T A T E M E N T B.P. Marsh & Partners PLC, the niche venture capital provider to early stage businesses, announces its audited Group final results for the year to 31st January 2014. HIGHLIGHTS • Sale of 80% of its holding in Hyperion Insurance Group Limited for £29.2m, whilst retaining a 2.79% stake • Increase in the value of the remaining Portfolio of 14% • Three new investments made during the period, one in the UK and two separate operations in Australia • Consolidated profit after tax of £3.8m • Interim Dividend of 1.25p per share paid; increased and Final Dividend of 2.75p per share declared, ref lecting the Group’s confidence in the current portfolio and capital position of the Company • Net Asset Value increase to 202p per share I am pleased to present the audited Consolidated Financial Statements of B.P. Marsh & Partners Plc for the year ended 31st January 2014. It has been a busy year for us. During the year we concluded the sale of 80% of our stake in Hyperion Insurance Group Limited (“Hyperion”) for £29.2m, retaining a 2.79% stake. The sale of the bulk of this investment, after a partnership of 20 years, has enabled the Group to enter a new phase in its development. Having successfully navigated the bleak years of the financial downturn, we now find ourselves in the position of having adequate cash in hand to make new investments and reward our shareholders. To this end we have declared, for the first time, an increased dividend for the year, with the aspiration that we will continue to pay a final dividend of at least 2.75p per share in the coming two years. In addition, in this the Group’s 24th year of operation, I am pleased to report that there has again been a steady increase in our Net Asset Value during the year. The Group has achieved an annual compound Net Asset Value growth rate of 11.6% after running costs, realisations, losses and distributions and having made an appropriate allowance for deferred corporation tax since the Group’s establishment in 1990 (excluding £10.1m raised on f lotation). I am also pleased to report that during the year there has been an increase of 14% within our ongoing equity Portfolio of Investments and that we have achieved a consolidated profit after tax of £3.8m, post the sale of Hyperion. Our current higher than normal cash position has, however, reduced overall profitability on a year-on- year comparison while the business reinvests the Hyperion proceeds and returns funds to shareholders. As the Group deploys the capital the overall performance of the Portfolio’s Net Asset Value will be expected to improve accordingly. We have in the year made three new investments, totalling approximately £2.7m in equity financing and £2.0m of follow-on loan funding, all of which fall within our heartland of insurance intermediaries, in Walsingham Motor Insurance Limited in London, plus Sterling Insurance Pty Limited and MB Prestige Holdings Pty Limited, which are both separately based in Sydney, Australia. Within our existing Portfolio, the Group made a further investment in LEBC Holdings Limited, acquiring an additional 12.02%. We also subscribed for our entitlement in the Randall & Quilter share placing in May 2013, increasing our holding from 667,978 to 948,831 shares, to retain its 1.33% stake. Subsequent to the year-end we successfully realised our holding in the PDGI businesses, which will inject a further net £1m into our cash reserves after costs. It is an exciting time in the market, with a returning appetite for risk-taking and with good opportunities to invest in interesting businesses with capable management teams who are confident in their prospects. 3 S N O I L L I M £ 60 50 40 30 20 10 0 G R O U P V A L U A T I O N S 58.90 56.90 55.50 44.17 40.61 22.10 4.77 2.50 31st Jan 90 31st Jan 95 31st Jan 05 31st Jan 07 31st Jan 10 31st Jan 13 31st July 13 31st Jan 14 YEAR ENDED NET OF DEFERRED TAX YEAR ENDED SIX MONTHS ENDED NB: The valuations at 31st January 2007 includes £10.1m net proceeds raised on AIM. C H A I R M A N ’ S S T A T E M E N T FINANCIAL PERFORMANCE The Group sold 80% of its shareholding in Hyperion for £29.2m in cash, which delivered the majority of the £20.1m increase in retained earnings for the year. The sale enabled the Group to provide net £15.1m in new financing during the year, of which £4.5m (30%) was utilised to fund new investments. The net asset value of the Group increased by 6.3% over the year to £58.9m, or 202p per share (2013: £55.5m or 190p per share). Consolidated profit after tax was £3.8m (2013: £6.2m) which was mainly as a result of revaluing the investment portfolio in line with current market conditions. The Group’s strategy is to cover expenses from the portfolio yield, and on an underlying basis (excluding portfolio movement) this was achieved with a pre-tax profit of £0.2m for the year (2013: £0.06m). In 2013 the Group’s investment in Hyperion was valued at £35.5m which accounted for 67.3% of the Group’s equity portfolio. Despite the realisation of 80% of this holding for cash at the 2013 carrying value, the equity portfolio overall increased at a greater rate than compared to 2013 with a 14% increase for the year (2013: increase of 13.3%). The sale was an excellent achievement for the Group, but converting such a significant holding into cash has led to a short-term impact on overall profitability on a year-on-year comparison as the Group deploys capital into new investment opportunities. Income from investments increased by 8% from 2013 as the cash from the sale of Hyperion was reinvested into new and existing opportunities. Fees receivable reduced by £0.4m compared to 2013 but was offset by loan arrangement fees being levied on new loans granted such that overall total income from fees and loans receivables was £1.9m for the year, up 6% on 2013 (£1.8m). Operating expenses, including costs of making new investments, were 1% lower during the year at £1.99m (2013: £2.01m). The Group paid a 1.25p per share dividend during the year, 25% greater than the previous year (2013: 1p per share). Total shareholder return for the year was therefore 6.9%, excluding the 2.75p per share final dividend declared to be paid in July 2014. The Group has delivered an annual compound growth rate of 11.6% in net asset value after all costs, realisations, losses, distributions and deferred tax since 1990 (excluding the £10.1m raised on f lotation). SUMMARY OF DEVELOPMENTS IN THE PORTFOLIO During the financial year ended 31st January 2014, the following developments took place within the Group and its portfolio. Sterling Insurance Pty Limited (“Sterling”) The Group acquired an effective 19.7% stake in Sterling, through a joint venture enterprise alongside Besso Insurance Group Limited (“Besso”) on 5th June 2013. Sterling is a specialist underwriting agency offering a range of insurance solutions within the Liability sector specialising in niche markets including hard-to-place and complex risks, with offices in Sydney, Perth and Brisbane. Besso has had a commercial relationship with Sterling since 2004. Since its MBO from International Underwriting Services Pty Limited in 2008, Sterling has grown revenues from AUD 2.7m, to AUD 5.8m and operating profit of AUD 0.5m to a post-tax profit of AUD 1.2m as at its year-end position at 31st December 2012. Neutral Bay Investments Limited (“Neutral Bay”), the joint venture entity (of which the Group owns 49.9%, the remaining majority stake owned by Besso) purchased a 39.47% shareholding in Sterling from Sterling’s founder George Condell for AUD 6.2m, with George Condell retaining a reduced stake going forwards. Daniel Topping has been appointed to the boards of both Neutral Bay and Sterling, as the Group’s nominee director. The Group funded Besso’s proportion of this investment by way of a secured £2m loan facility, repayable over the next four years. This investment is in line with Besso’s ambitions to expand internationally and acquire businesses which are complementary to Besso’s growth strategy, and the Group is pleased that it is able to assist in making this possible by providing additional investment capital commitments. 5 C H A I R M A N ’ S S T A T E M E N T Walsingham Motor Insurance Limited (“Walsingham”) The Group acquired a 30% stake in Walsingham, a new specialist UK Managing General Agency (“MGA”) operating in niche motor insurance markets, for a consideration of £0.3m on 3rd December 2013. The management team has a proven track record in starting and growing MGA businesses. The team also has considerable underwriting expertise, along with long-term experience of the motor insurance sector. Walsingham commenced trading in July 2013 having secured primary capacity from Calpe, a subsidiary of TransRe, a leading international reinsurer. In addition to the equity investment, the Group has to date provided loan funding of £1.2m. MB Prestige Holdings Pty Limited (“MB Group”) The Group acquired a 40% equity position in MB Group on 17th December 2013 for AUD 0.8m. MB Group is an MGA headquartered in Sydney, Australia and is recognised as a market leader in respect of prestige motor vehicle insurance in Australia. The Group partnered with MB Group’s management team to buy out an existing shareholder, delivering a 60% shareholding to MB Group’s management team and 40% to the Group. In addition to the equity investment, the Group provided loan funding of AUD 1.4m. Hyperion Insurance Group Limited (“Hyperion”) – sale of 80% The transaction to sell 80% of the Group’s holding in Hyperion to the global growth equity firm General Atlantic Hawthorn B.V. (“General Atlantic”) completed on 8th July 2013 and cash consideration of £29.2m (equating to £5.20 per A Ordinary Share of Hyperion) was received. The Company retained a 2.79% stake in Hyperion subject to a Call Option arrangement which will allow General Atlantic to purchase this stake at £5.20 per share. The Call Option will expire and fall away on 8th July 2016 or upon Hyperion undertaking an Initial Public Offering (“IPO”), whichever is the earlier. Under the Call Option the Group would receive a further £7.3m in cash and the Group is valuing this holding at this amount. The Group agreed to provide to Hyperion a loan of £6.0m at an interest rate of Bank of England Base rate + 5%, minimum 7.5% for a minimum term of 12 months to refinance existing shareholder loans (including £2.9m that the Group had previously provided to Hyperion). As such £3.1m in cash from the sale of shares has been used to finance this loan. Unless repaid early, the loan will be repayable on an IPO or a change of control of Hyperion or on 3rd October 2017, whichever is the earlier. PORTFOLIO DEVELOPMENTS Besso Insurance Group Limited (“Besso”) Turkey In May 2013 Besso bought a specialist aviation intermediary, HSB Sigorta ve Reasurans Brokerligi (“HSB”), to add to its platform in the Turkish market. Now known as Besso Sigorta ve Reasurans, the Company was established in 2007 and is already assisting Besso in developing its participation in the fast growing Turkish insurance market. Australia In June 2013, Besso, alongside the Group, invested in Neutral Bay Investments Limited, an investment vehicle established to acquire a 39.5% shareholding in Sterling, as mentioned above. For a number of years Besso has been the London Market broker for this operation and has helped in its development since Sterling’s management buy-out, which was conducted in 2008. 6 C H A I R M A N ’ S S T A T E M E N T LEBC Holdings Limited (“LEBC”) Additional Investment On 31st January 2014 the Group acquired an additional 12.02% stake in LEBC from an exiting shareholder for a cash consideration of £1.0m. LEBC’s Employee Benefit Trust also acquired a further 12.02% for a cash consideration of £1.0m, provided by the Group by means of a loan facility for the entire amount. The Group’s stake in LEBC increased from 22.89% to 34.91%. Year-End Results as at 30th September 2013 LEBC Group Limited, the trading subsidiary of LEBC, has recently announced its year-end results, as at 30th September 2013, namely an 8% increase in turnover, to £11.3m from £10.4m in 2012. The Edinburgh-headquartered firm, which has 14 branches throughout the UK, also reported a 28% increase in Operating Profit (c. £0.7m in 2013 compared to c. £0.5m in 2012) and has also had a positive start to the new financial year, with continued strong revenue and profit growth. Sterling On 8th August 2013, Steadfast Group Limited acquired a 39.5% shareholding in Sterling, for the consideration of AUD 6.2m. Steadfast is Australia’s largest network of insurance brokers, with more than 430 offices across Australia and New Zealand, and annually generates around AUD 4.1 billion in insurance sales. Summa Insurance Brokerage, S.L (“Summa”) Despite the ongoing economic difficulties in Spain, Summa continue to generate solid cash f lows and repay debt. During the year the Group assisted in sourcing a new CFO to further improve the infrastructure for growth within this investment. U.S. Risk (UK) Limited (“U.S. Risk”) U.S. Risk appointed Mike Lobb as CEO in August 2013. Previously Mr Lobb held the role of Managing Director at Howden Insurance Brokers (part of the broking subsidiary of Hyperion). EVENTS AFTER THE REPORTING DATE PDGI Sale The Group announced the sale, to its fellow shareholders, of its respective stakes in Portfolio Design Group International Limited, Morex Commercial Limited, Preferred Asset Management Limited and New Horizons Nominees Limited (together the “PDGI Businesses”) for a combined total of £1.25m in cash on 1st May 2014. This realisation ref lects the Company’s current valuation of the PDGI Businesses and the Board is confident that this opportunity was well-timed and in keeping with the Company’s strategy, delivering an internal rate of return of 24.5% per annum, including all income received. This divestment also delivered cash to the Group to enable it to pursue new opportunities, and allowed the PDGI Businesses to restructure their shareholder base and pursue new opportunities as they see fit. BUSINESS STRATEGY The Group typically invests amounts of up to £3m and only takes minority equity positions, normally acquiring between 15% and 45% of an investee company’s total equity. Based on our current portfolio, the average investment has been held for approximately 8 years. The Group requires its investee companies to adopt certain minority shareholder protections and appoint a director to its board. The Group’s successful track record is based on a number of factors that includes a robust investment process, management’s considerable sector experience and a f lexible approach to exit. At year end, the Group had £14.8m in cash and treasury funds, of which £9.0m was available for new investment opportunities after commitments. Currently the Group has £8.7m available for new investment opportunities after such commitments. 7 C H A I R M A N ’ S S T A T E M E N T DIVIDEND The Group declared an interim dividend of 1.25p per share on 22nd July 2013, paid in August 2013. A final dividend of 2.75p per share was declared on 24th March 2014 and, subject to Shareholder approval at the next AGM, will be paid in July 2014. This shift towards a regular dividend stream is announced in recognition of the steady growth and consolidation of the Group’s investment portfolio and demonstrates that the Group is an attractive capital and income investment. The Management team remains positive about the Company's ability to generate long term returns from the existing investment portfolio, alongside an interesting pipeline of new investment opportunities. It is the Board's aspiration to maintain a final dividend of at least this level for the years ending 31st January 2015 and 31st January 2016, subject to ongoing review and approval by the Board and the Shareholders. INVESTMENT OPPORTUNITIES The Group’s well-respected contacts within the insurance intermediary sector ensure access to a wide variety of new investment opportunities and for enabling discussions on these to be initiated at an early stage. At the current time, at a point in the cycle when valuations are high, the Group’s sector knowledge and experience, coupled with its reputation within the market, enables it to uncover and move on opportunities judiciously. The Group received 61 relevant new investment proposals during the year, of which we took 25% to the confidentiality stage, 16% warranted continued detailed investigation, 8% proceeded to Heads of Terms stage and 5% (3 new investments) were completed. Of the proposals, 52% fell within the insurance sector, the area of the Group’s specialism. The opportunities have ranged from start-ups to investments in established businesses and innovative approaches to applying Software as a Service within the sector. The IFA sector meanwhile continues consolidation in a more measured manner than in the years directly leading up to the major changes in regulations affecting the IFA sector, with 10% of the proposals being from the IFA segment. SUMMARY In the Group’s 25th year we have cash in hand to make new investments and reward shareholders. We have achieved annual compound growth of 11.6% and our Net Asset Value per share has increased to 202p. The Group looks forward to the year ahead with confidence and this is ref lected in our aspiration to pay a dividend of at least 2.75p per share in the coming two years. Brian Marsh OBE 2nd June 2014 8 E Q U I T Y I N V E S T M E N T S R E V I E W As at 31st January 2014 the Group’s equity interests were as follows: Besso Insurance Group Limited (www.besso.co.uk) In February 1995 the Group assisted a specialist team departing from insurance broker Jardine Lloyd Thompson Group in establishing Besso Holdings Limited. The company specialises in insurance broking for the North American wholesale market and changed its name to Besso Insurance Group Limited in June 2011. Date of investment: February 1995 Equity stake: 37.94% 31st January 2014 valuation: £7,190,000 The Broucour Group Limited (www.amberglobe.co.uk) (www.turnerbutler.co.uk) In March 2008 the Group assisted in establishing Amberglobe, a business sales platform that provides valuation and negotiation services for the sale of SME businesses in the sub £3m sector. In July 2012 Broucour was formed as a new holding company for Amberglobe, and the Group financed the acquisition of Turner Butler. Date of investment: March 2008 Equity stake: 49.0% 31st January 2014 valuation: £349,000 Hyperion Insurance Group Limited (www.hyperiongrp.com) The Group first invested in Hyperion in 1994. Hyperion owns, amongst other things, an insurance broker specialising in directors’ and officers’ (“D&O”) and professional indemnity (“PI”) insurance. In 1998 Hyperion set up an insurance managing general agency specialising in developing D&O and PI business in Europe. The Group sold 80% of its holding to General Atlantic in July 2013, with the remaining holding being valued at the agreed option price. Date of investment: November 1994 Equity stake: 2.79% 31st January 2014 valuation: £7,310,000 LEBC Holdings Limited (www.lebc-group.com) In April 2007 the Group invested in LEBC, an Independent Financial Advisory company providing services to individuals, corporates and partnerships, principally in employee benefits, investment and life product areas. Date of investment: April 2007 Equity stake: 34.91% 31st January 2014 valuation: £5,682,000 MB Prestige Holdings Pty Limited (www.mbinsurance.com.au) In December 2013 the Group invested in MB Prestige Holdings Pty Limited, the parent Company of MB Insurance Group Pty Limited a Managing General Agent, headquartered in Sydney, Australia. MB Group is recognised as a market leader in respect of prestige motor vehicle insurance in all mainland states of Australia. Date of investment: December 2013 Equity stake: 40.0% 31st January 2014 valuation: £819,000 Portfolio Design Group International Limited (www.surrendalink.co.uk) In March 1994 the Group invested in the Portfolio Design Group, a company which sells with-profits life endowment policies to large financial institutions. In 2002 the company diversified into investment management. Date of investment: March 1994 Equity stake: 20.0% 31st January 2014 valuation: £1,238,000 9 E Q U I T Y I N V E S T M E N T S R E V I E W Randall & Quilter Investment Holdings Limited (www.rqih.com) Randall & Quilter Investment Holdings is an AIM listed run-off management service provider and acquirer of solvent insurance companies in run-off. The Group invested in Randall & Quilter in January 2010, the result of a share exchange with the Group's shareholding in JMD Specialist Insurance Services Group Limited, which Randall & Quilter wholly acquired. Date of investment: January 2010 Equity stake: 1.33% 31st January 2014 valuation: £1,708,000 Sterling Insurance Pty Limited (www.sterlinginsurance.com.au) In June 2013, in a joint venture enterprise alongside Besso, the Group invested in Sterling Insurance Pty Limited, an Australian specialist underwriting agency offering a range of insurance solutions within the Liability sector, specialising in niche markets including mining, construction and demolition. Date of investment: June 2013 Equity stake: 19.70% 31st January 2014 valuation: £2,266,000 Summa Insurance Brokerage, S.L. (www.grupo-summa.com) In January 2005 the Group provided finance to a Madrid-based Spanish management team with the objective of acquiring and consolidating regional insurance brokers in Spain. Through acquisition Summa is able to achieve synergistic savings, economies of scale and greater collective bargaining thereby increasing overall value. Date of investment: January 2005 Equity stake: 48.63% 31st January 2014 valuation: £2,636,000 U.S. Risk (UK) Limited (www.oxfordinsurancebrokers.co.uk) (www.jhinternational.co.uk) In July 2010 the Group completed its investment in U.S. Risk (UK), the parent company of Oxford Insurance Brokers Limited, a London-based Lloyd’s insurance and reinsurance broker and James Hampden International Brokers Limited, a specialist international reinsurance and insurance broking company. Date of investment: July 2010 Equity stake: 29.3% 31st January 2014 valuation: £2,212,000 Walsingham Motor Insurance Limited (www.walsinghamunderwriting.com) In December 2013 the Group invested in Walsingham Motor Insurance Limited, a new niche UK Motor Managing General Agency. Walsingham was established in August 2012 and commenced trading in July 2013 having secured primary capacity from Calpe. Date of investment: December 2013 Equity stake: 30.0% 31st January 2014 valuation: £300,000 These investments have been valued in accordance with the accounting policies on Investments set out in Note 1 of the Consolidated Financial Statements. 10 B.P. MARSH & PARTNERS PLC DIRECTORS’ REPORT, STRATEGIC REPORT & CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST JANUARY 2014 References throughout the Reports and Consolidated Financial Statements to the “Company” or “B.P. Marsh” refers to B.P. Marsh & Partners Plc, and references to the “Group” refers to the consolidated group, being the Company and its subsidiary undertakings. 11 D I R E C T O R S Brian Marsh OBE Chairman, aged 73 (R) (I) (V) Brian started his career in insurance broking and underwriting in Lloyd’s and the London and overseas market over 55 years ago and was, from 1979 to 1990, chairman of Nelson Hurst & Marsh (Holdings) Ltd, before founding the Group. Brian has over 30 years’ experience in building, buying and selling financial services businesses particularly in the insurance sector. Brian is a majority shareholder in B.P. Marsh owning 58.4% of the Company. Jonathan Newman ACMA, CGMA, MCSI Group Finance Director, aged 39 (I) (V) Jonathan is a Chartered Management Accountant with over 17 years’ experience in the financial services industry. He joined the Group in November 1999 and was appointed a director of B.P. Marsh in September 2001 and Group Finance Director in December 2003. Jonathan is responsible for the Group’s finance function, evaluates new investment opportunities and is also the Group’s nominee director on the boards of three investee companies. Daniel Topping MCSI, ACIS Director, aged 30 (I) Daniel is a Member of the Chartered Institute of Securities and Investment (MCSI) and an Associate Member of the Institute of Chartered Secretaries and Administrators (ACIS), having graduated from the University of Durham. He joined B.P. Marsh in February 2007 having started his career at WiltonGroup. In 2011, having spent a period of time as Investment Assistant to the Chairman he was appointed as a director of B.P. Marsh and currently has five nominee appointments and evaluates new investment opportunities. Daniel owns 802 ordinary shares in B.P. Marsh. Camilla Kenyon Director, aged 41 (I) Millie was appointed as Head of Investor Relations at B.P. Marsh in February 2009, having 4 years of prior experience with the Company. She is Head of the New Business Department and chairs the New Business Committee. Millie has a background in media and public relations, is a qualified journalist (National Council for the Training of Journalists) and holds a Certificate in Investor Relations. Millie currently has three nominee appointments. Natasha Dunbar BBA Director, aged 44 (R) Natasha has over 19 years’ experience in the financial services industry. Having joined the Company in 1994 she was made Managing Director in March 2002, subsequently becoming a non-executive director of the Company in 2008, a position she held for five years. Natasha was reappointed as a director in February 2013, resigning her position upon the Company’s Remuneration Committee and subsequently becoming a member of the Company’s Investment Committee. Natasha currently holds a non-executive appointment at one of the Group’s investee companies. Trustees on behalf of Natasha own 4.9% of the Company. Stephen Clarke FCA Non-executive, aged 76 (R) (A) A Chartered Accountant, Stephen gained many years’ experience with Charterhouse Development Capital in the structuring of venture capital projects in all fields including financial services, and in guiding and monitoring their progress. He joined the Group in 1993 and has over 40 years’ experience of the financial services sector. Stephen continues to give specialist advice to B.P. Marsh on the structuring of entry and exit deals. Philip Mortlock MA, FCA Non-executive, aged 76 (R) (A) (V) A Chartered Accountant with over 40 years’ insurance experience, Philip entered the Lloyd’s insurance world in 1965 and, after some years with Fenchurch Group, joined Nelson Hurst & Marsh group as Finance Director and Company Secretary until 1990. He joined the Group in 1990 and has a great deal of experience of the special nature of broking and underwriting finances. Philip continues to give a broad range of advice to B.P. Marsh and served as the Group’s nominee director on the board of Portfolio Design Group International Limited until the Group’s disposal of this investment in May 2014 (please refer to Note 28 on page 55). Campbell Scoones Non-executive, aged 67 (R) Campbell joined B.P. Marsh in April 2013 and has over 45 years’ experience in the Lloyds and overseas insurance broking and underwriting markets. Having started his career in 1966, Campbell has worked for a number of Lloyd’s insurance broking and underwriting firms during this time, including, inter alia, Nelson Hurst & Marsh, Citicorp Investment Limited, Marsh & McLennan Companies and Admiral/Encon Underwriting. Campbell owns 35,800 ordinary shares in B.P. Marsh. KEY ( R ) Member of the Remuneration Committee during the year ( I ) Member of the Investment Committee during the year ( A ) Member of the Audit Committee during the year ( V ) Member of the Valuation Committee during the year 12 C O R P O R A T E G O V E R N A N C E The board of B.P. Marsh (“the Board”) is responsible for the Group’s corporate governance policies and recognises the importance of high standards of integrity, and consistently seeks to apply the principles set out in the revised UK Corporate Governance Code (the “Code”) by the Financial Reporting Council to the extent that they are appropriate for, and applicable to, a company of B.P. Marsh’s size quoted on the Alternative Investment Market (“AIM”). DIRECTORS Details of the appointment and resignation dates of directors are shown in the Group Report of the Directors. All directors are subject to re-election within a three-year period. All the directors have access to the advice and services of the Company Secretary and may, in furtherance of their duties, take independent legal and financial advice at the Company’s expense. They also have access to the minutes of the Board, in which any concerns expressed by them regarding matters pertaining to the Group are recorded. A formal review of the performance and effectiveness of each director, including the non-executive directors, takes place annually and is assessed on an on-going basis by the other members of the Board and Committees of the Board. The Group recognises that its non-executive directors are not “independent”, as recommended by the Code, however it feels that, given the size and nature of the Group, the benefit derived from the collective relevant experience of its non-executive directors justifies their position on the Board. BOARD MEETINGS The Board meets at least quarterly and at such other times as required, and receives regular reports on a wide range of key issues including investment performance, investment opportunities, disposals and corporate strategy. All major decisions affecting the Group are taken at Board level and all the directors are free to bring any matter to the attention of the Board at any time. COMMITTEES OF THE BOARD The Board has established four standing committees, the Audit Committee, the Remuneration Committee, the Investment Committee and the Valuation Committee. As the Board deals with all matters relating to recruitment and appointment, the Board has decided not to establish a Nominations Committee at the present time. Audit Committee The Audit Committee is comprised of two of the non-executive directors of the Company and is chaired by Philip Mortlock. The external auditors, together with the Group Finance Director and other financial staff are invited to attend these meetings. In accordance with its terms of reference, one of the principal functions of this committee is to determine the appropriateness of accounting policies to be used in the Group’s annual financial statements. In addition the Committee is responsible for assessing the Group’s audit arrangements and the Group’s system of internal controls, and to review the half-yearly and annual results before publication. Remuneration Committee The Remuneration Committee is comprised of the three non-executive directors of the Company and Brian Marsh and is chaired by Philip Mortlock. In accordance with its terms of reference the Committee determines the level and make-up of remuneration (including bonuses and awards) of the executive directors and members of staff. The Report of the Remuneration Committee to the shareholders on how directors are remunerated, together with details of individual directors’ remuneration packages, is to be found on pages 15 to 16. Investment Committee The Investment Committee is comprised of all the executive directors of the Company and meets whenever significant investment matters arise which are not dealt with in the normal course of Board business. 13 C O R P O R A T E G O V E R N A N C E ( C O N T I N U E D ) Valuation Committee The Valuation Committee is comprised of Philip Mortlock, Brian Marsh and Jonathan Newman and, in accordance with its terms of reference, is responsible for preparing investment valuations and reviewing the suitability of the Company’s investee company valuation policy. RELATIONS WITH SHAREHOLDERS The Board attaches great importance to maintaining good relationships with all of its shareholders. The executive directors meet with representatives of institutional investors and analysts to discuss their views and ensure that the corporate objectives and strategies of the Group are well understood. The Company reports formally to the shareholders twice a year, when its half-yearly and full-year results are announced, when reports are sent to shareholders and published on the Company’s website (www.bpmarsh.co.uk). The Company also produces quarterly trading updates, in order to ensure a consistent f low of information throughout the year. The Company will advise shareholders attending the Annual General Meeting (“AGM”) of the number of proxy votes lodged for and against each resolution. Members of the Board will be in attendance at the AGM and will be available to meet shareholders informally after the meeting. INTERNAL CONTROLS AND RISK MANAGEMENT The Board is responsible for ensuring the Group has effective internal controls in place throughout the year, as well as procedures necessary for reviewing the Group’s system of internal controls and assessing the nature and extent of the risks facing the Group. The Board believes that its Annual Report and these consolidated financial statements play an important part in presenting all shareholders with an assessment of the Group’s position and prospects. The Chairman’s Statement included within the Annual Report contains a detailed consideration of the Group’s position and prospects. A statement of the directors’ responsibilities in respect of the consolidated financial statements is set out on page 17. By order of the Board S.C. O’Haire Company Secretary 2nd June 2014 14 R E P O R T O F T H E R E M U N E R A T I O N C O M M I T T E E The Remuneration Committee of the Board (the “Committee”) during the year comprised three non-executive directors of the Company, Philip Mortlock, Stephen Clarke and Campbell Scoones (appointed 19th April 2013) as well as the Chairman, Brian Marsh. Natasha Dunbar served on the Committee until her appointment as an executive director on 13th February 2013 (see below). The Committee is responsible for setting the remuneration of the executive directors and other members of staff. REMUNERATION POLICY The Committee reviews remuneration levels annually and seeks to ensure that they are set at a level which is in line with comparable companies in the industry, are capable of attracting, retaining and motivating directors of appropriate calibre, are consistent with the performance of the Company and at the same time are aligned with the best interests of the shareholders. The Committee’s terms of reference provide that for as long as the Chairman of the Company is executive, he should attend as a member and be invited to express his views on remuneration levels, but should not be present when his own salary is decided or when decisions are taken on performance targets for incentive arrangements in which he participates. The Board has delegated the review and setting of non-executive director remuneration to a sub-committee of the Board consisting of the Chairman and the Group Finance Director. The Committee receives advice from external remuneration advisers where appropriate. DIRECTORS’ SERVICE AGREEMENTS The executive directors entered into service agreements with the Company on the following dates: DIRECTOR B.P. Marsh J.S. Newman D.J. Topping C.S. Kenyon J.K.N. Dunbar * DATE OF SERVICE AGREEMENT 30th January 2006 30th January 2006 1st March 2011 1st March 2011 13th February 2013 TERM Continuous Continuous Continuous Continuous Continuous NOTICE PERIOD 6 months 6 months 6 months 6 months 6 months The non-executive directors do not have service agreements, but their letters of appointment provide that their tenure of office is for an initial period of 12 months and shall continue until either terminated by the non-executive director or the Company, on giving to the other, 3 months prior written notice. DIRECTOR P.J. Mortlock S.S. Clarke C.R. Scoones * DATE OF OFFICE TENURE 30th January 2006 30th January 2006 19th April 2013 INITIAL PERIOD 12 months 12 months 12 months NOTICE PERIOD 3 months 3 months 3 months * J.K.N. Dunbar resigned as a non-executive director of the Company on 13th February 2013 and was appointed an executive director on the Board of the Company on the same date. On 19th April 2013 C.R. Scoones was appointed a non-executive director of the Company. 15 R E P O R T O F T H E R E M U N E R A T I O N C O M M I T T E E ( C O N T I N U E D ) AUDITED INFORMATION Aggregate Directors’ Remuneration 2014 (£) 2013 (£) Emoluments Fees Pension contributions 790,532 33,573 35,300 882,386 43,403 26,300 Aggregate Directors’ Emoluments SALARIES AND FEES BENEFITS ANNUAL BONUSES LONG TERM INCENTIVE PAYMENTS (£) (£) (£) (£) 2014 EMOLUMENTS EXCLUDING PENSION PENSION CONTRIBUTIONS (£) B.P. Marsh J.S. Newman D.J. Topping C.S. Kenyon J.K.N. Dunbar P.J. Mortlock S.S. Clarke C.R. Scoones 125,000 138,000 100,000 51,393 87,000 48,072 35,500 27,889 1,141 4,017 2,210 3,235 3,648 - - - - 60,000 35,000 13,500 13,500 - - - - - - 75,000 - - - - 126,141 202,017 137,210 143,128 104,148 48,072 35,500 27,889 In addition to the above, Mr S.S. Clarke has an entitlement to a gain based on a carried interest, as outlined in Note 18 on page 48 of these financial statements. Directors’ Pensions The executive directors received the following pension contributions during the year: B.P. Marsh J.S. Newman D.J. Topping C.S. Kenyon J.K.N. Dunbar 2014 (£) - 13,800 5,000 7,800 8,700 This report has been approved by the Remuneration Committee and the Board as a whole and has been signed on behalf of the Chairman of the Remuneration Committee, Philip Mortlock, on 2nd June 2014. By order of the Board S.C. O’Haire Company Secretary 16 G R O U P R E P O R T O F T H E D I R E C T O R S DIRECTORS B.P. Marsh OBE (Chairman) J.S. Newman ACMA, CGMA, MCSI D.J. Topping MCSI, ACIS C.S. Kenyon J.K.N. Dunbar BBA (resigned as non-executive director and reappointed as an executive director on 13th February 2013) S.S. Clarke FCA (non-executive) P.J. Mortlock FCA (non-executive) C.R. Scoones (non-executive) (appointed 19th April 2013) The directors submit their report and the audited financial statements of the Company and the Group for the year ended 31st January 2014. STATEMENT OF DIRECTORS’ RESPONSIBILITIES The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare Group and Company financial statements for each financial year. Under that law, the directors have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and the Group’s profit or loss for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investments Market. In preparing financial statements the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRS as adopted by the EU subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. The directors confirm that they have complied with the above requirements in preparing the financial statements. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the directors. The directors’ responsibility also extends to the on-going integrity of the financial statements contained therein. DISCLOSURE OF INFORMATION TO THE AUDITORS Each of the persons who are directors at the time when the Group Report of the Directors is approved has confirmed that: • so far as that director is aware, there is no relevant audit information of which the Company's auditors are unaware; and • that director has taken all steps that ought to have been taken as a director in order to be aware of any information needed by the Company and Group’s auditors in connection with preparing their report and to establish that the auditors are aware of that information. 17 G R O U P R E P O R T O F T H E D I R E C T O R S ( C O N T I N U E D ) DISCLOSURE OF INFORMATION TO THE AUDITORS (CONTINUED) This information is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. PRINCIPAL ACTIVITY The principal activity of the Group during the year was the provision of consultancy services to, as well as making and trading investments in, financial services businesses. COUNTRY OF INCORPORATION AND REGISTRATION B.P. Marsh & Partners Plc was incorporated and is registered in England and Wales. RESULTS OF THE BUSINESS The results for the year are set out on page 26. The directors consider the current state of affairs of the Group to be satisfactory. DIVIDENDS An interim dividend of £365,375 (1.25p per share) was paid on 23rd August 2013 in respect of the current year (2013: £292,861). The directors have recommended a final dividend of £803,825 (2.75p per share) which will be paid, subject to Shareholder approval, on 25th July 2014 to Shareholders registered at the close of business on 27th June 2014. SUBSTANTIAL INTERESTS As at 26th May 2014 the directors have been made aware that the following shareholders held disclosable interests of 3% or more of the issued share capital of the Company: BENEFICIAL OWNER NO. OF ORDINARY SHARES OF 10P EACH HELD % OF ISSUED SHARE CAPITAL Mr B.P. Marsh James Sharp & Co The Tasha Dunbar Trust Henderson Global Investors ISPartners Investment Solutions Mr Ian C Springhall AXA Framlington Asset Management 17,084,271 1,532,985 1,424,774 1,400,000 1,172,500 963,614 932,720 58.4% 5.2% 4.9% 4.8% 4.0% 3.3% 3.2% DIRECTORS The names of the directors who served at any time during the year are stated at the head of this report. The directors’ interests in the shares of the Company were: Mr B.P. Marsh The Tasha Dunbar Trust * Mr C.R. Scoones ** Mr D.J. Topping 31ST JANUARY 2014 ORDINARY SHARES OF 10P EACH 31ST JANUARY 2013 ORDINARY SHARES OF 10P EACH 17,304,771 1,428,614 35,800 802 17,304,771 1,428,614 - 802 * The Tasha Dunbar Trust holds shares in trust for J.K.N. Dunbar who is a director of the Company. ** C.R. Scoones held shares in the Company prior to being appointed as a director on 19th April 2013. 18 G R O U P R E P O R T O F T H E D I R E C T O R S ( C O N T I N U E D ) EVENTS AFTER THE REPORTING DATE On 12th February 2014 Mr B.P. Marsh, the Chairman and majority shareholder of the Company, transferred 220,000 ordinary shares in the Company to the Marsh Christian Trust, a grant-making charitable trust of which Mr B.P. Marsh is also Trustee and Settlor, for nil consideration. On 27th February 2014 the Group provided the remaining £200,000 of an agreed £1,200,000 loan facility to Walsingham Motor Insurance Limited to fund the continued expansion of the business. On 17th April 2014, the Group provided Besso Insurance Group Limited (“Besso”) with a short-term working capital loan of £315,000. The loan is repayable over 12 months, commencing 31st May 2014, with a final repayment date of 30th April 2015. On 1st May 2014 the Group sold, to its fellow shareholders, its respective 20% stakes in Portfolio Design Group International Limited, Morex Commercial Limited, Preferred Asset Management Limited and New Horizons Nominees Limited (together the “PDGI businesses”) for £1,250,000 in cash. As outlined in Note 18, Mr S.S. Clarke, a non-executive Director of the Company, is entitled to 20% of any gain on the sale of the PDGI businesses after the deduction of expenses. Consequently, on 2nd May 2014 the Group paid Mr S.S. Clarke £197,033 in respect of his entitlement due on the sale of the PDGI businesses as per the carried interest agreement between the Group and Mr S.S. Clarke. On 12th May 2014 the Group provided £68,000 of an agreed £747,000 loan facility to Besso in order to fund the continued expansion of its business in Turkey. This draw down was in addition to the £265,000 already drawn down from the facility as at 31st January 2014 (see Note 24). On 29th May 2014 the Group subscribed to its pro-rata proportion of a £1,200,000 Rights Issue in U.S. Risk (UK) Limited (“U.S. Risk”). Total consideration paid amounted to £351,000 for 351,000 newly issued B Ordinary shares (£1 per share) with the Group maintaining its 29.28% holding in U.S. Risk as at the date of this report. In addition, on the same date the Group agreed to provide an additional loan facility of £469,515 to U.S. Risk. As at 31st January 2014 U.S. Risk had drawn down £1,800,000 of its previously agreed £1,950,000 loan facility (Note 24). The £469,515 facility provided is in addition to the £1,800,000 already drawn down and brings the total agreed loan facility to £2,269,515. £204,909 of the additional facility was drawn down on completion, taking the total loan drawn down at the date of this report to £2,004,909, leaving a remaining undrawn facility of £264,606. No cash was provided to U.S. Risk in respect of the £204,909 loan drawn down as it was in settlement of existing trade receivables balances owing to the Group. Both the Rights Issue and increase to the loan facility were made for working capital purposes. DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE The Company has purchased insurance cover to cover directors’ and officers’ liability, as permitted by Section 233 of the Companies Act 2006. AUDITORS The auditors, Rawlinson & Hunter Audit LLP, will be proposed for appointment in accordance with relevant legislation. By order of the Board S.C. O’Haire Company Secretary 2nd June 2014 Registered Office: 2nd Floor 36 Broadway London SW1H 0BH 19 G R O U P S T R A T E G I C R E P O R T BUSINESS REVIEW During the year the major activities of the Group were as follows: On 1st March 2013 the Group acquired a further £50,000 of 14% loan stock in Besso Insurance Group Limited (“Besso”). As at 31st January 2014 the total 14% loan stock held by the Group was £2,750,000. On 2nd April 2013 the Group provided £1,200,000 of an agreed £1,950,000 loan facility to U.S. Risk (UK) Limited (“U.S. Risk”) to fund the continued expansion of the business. On 10th December 2013 a further £600,000 was drawn down in order for U.S. Risk to finance further acquisitions. As at 31st January 2014 the total loan drawn down amounted to £1,800,000, with a remaining undrawn facility of £150,000. On 1st May 2013, the Group entered into an agreement to provide Besso with a loan facility of £747,000, of which it drew down on £265,000 on 29th May 2013, to enable it to finance its acquisition of HSB Sigorta ve Reasurans Brokerligi Ltd ("HSB"), an Istanbul-based Insurance and Reinsurance broker. On 13th May 2013 the Group subscribed to its pro-rata proportion of a £25m placing of new shares by Randall & Quilter Investment Holdings Limited (“R&Q”) (formerly known as Randall & Quilter Investment Holdings plc, prior to its re-domicile to Bermuda in July 2013) increasing its shareholding from 667,978 to 948,830 shares, but maintaining its overall percentage holding in R&Q. Total consideration paid for the shares amounted to £337,022 (£1.20 per share). As at 31st January 2014 the Group’s overall holding in R&Q was 1.33%. On 5th June 2013 the Group acquired an effective 19.7% stake in Sterling Insurance Pty Ltd (“Sterling”), a specialist underwriting agency based in Australia. This investment was conducted through Neutral Bay Investments Limited (“Neutral Bay”), alongside Besso. Neutral Bay purchased a 39.47% shareholding in Sterling from its founder George Condell for AUD 6,159,571 (£3,898,619). As at 31st January 2014 the Group owned 49.9% of Neutral Bay with the remaining 50.1% majority stake owned by Besso. Total consideration payable for the Group’s 49.9% investment in Neutral Bay was £1,945,411 and comprised of 99,800 Ordinary £1 shares and 1,845,611 Redeemable Preferred £1 shares. As at 31st January 2014 the Group had made no future capital commitment in respect of Neutral Bay. As per its ongoing pledge to support Besso in its expansion plans, the Group funded Besso’s proportion of the investment in Sterling by way of a secured £2,000,000 loan facility repayable over 4 years. £1,953,208 of this facility was drawn down on 6th June 2013, with the remaining £46,792 drawn down on 11th June 2013. Together with £2,750,000 of 14% loan stock and other loans of £1,132,575 total loans drawn down by Besso as at 31st January 2014 amounted to £5,882,575, with a remaining undrawn facility of £482,000. The Group utilised its Directors’ Loan Facility (see Note 17) and drew down the full amount of £4,325,000 over several tranches in the period March to May 2013 in order to provide funding for the loans and investments listed above. Following the partial sale of its investment in Hyperion Insurance Group Limited (“Hyperion”) in July 2013 (noted below) the Group repaid the Directors’ Loan Facility in full, at which time the facility expired. On 8th July 2013 the Group completed the sale of 5,623,520 shares (80% of its total holding of 7,029,400 shares) in Hyperion to the global growth equity firm General Atlantic for a cash consideration of £29,242,304 (£5.20 per A Ordinary share). The Group’s remaining 1,405,880 A Ordinary shares in Hyperion (2.79% as at 31st January 2014) is subject to a Call Option arrangement which will allow General Atlantic to purchase these remaining shares at £5.20 per share. The Call Option will expire and fall away on 8th July 2016 or upon Hyperion undertaking an Initial Public Offering (“IPO”), whichever is the earlier. Under the Call Option the Group could receive a further £7,310,576 in cash if exercised. The Share Purchase Agreement includes an anti-embarrassment provision which provides that if Hyperion undertakes an IPO by 8th July 2014, at a price at or in excess of £6.25 per A Ordinary share, there will be an additional amount payable to the Group, up to a maximum of £0.30 per A Ordinary share. This provision could result in a maximum additional amount of £2,108,820 in consideration becoming payable to the Group; however Hyperion's value would need to have increased to £6.60 per A Ordinary Share, or above, in the 12 months following completion and the right market conditions would need to be in place for a successful IPO, for this maximum additional consideration to become payable. As at the date of this report the Directors consider this additional consideration to be unlikely. 20 G R O U P S T R A T E G I C R E P O R T ( C O N T I N U E D ) BUSINESS REVIEW (CONTINUED) As part of the above agreement the Group also provided a loan of £6,037,361 to Hyperion at an interest rate of Bank of England Base rate plus 5% (minimum 7.5%) for a minimum term of 12 months to refinance existing shareholder loans (including £2,754,392 that the Group had previously provided to Hyperion). The loan will be repayable on either an IPO or a change of control of Hyperion or by 3rd October 2017, whichever is the earlier, but following the first anniversary of this facility Hyperion will be able to pre-pay the loan prior to these events on the giving of one month’s notice. On 25th October 2013 the Group acquired 1.25% (1.46% economic rights) in Besso from Brian Marsh Enterprises Limited for total consideration of £209,485. The purchase price was in line with the Group’s valuation of Besso’s shares as at 31st January 2013 and increased the Group’s holding in Besso from 36.71% as at 31st January 2013 to 37.96% as at 31st January 2014 (economic holding increased from 36.48% to 37.94%). On 2nd December 2013 the Group acquired a 30% stake in Walsingham Motor Insurance Limited ("Walsingham"), a new specialist UK Motor Managing General Agency ("MGA") operating in niche markets, for a consideration of £300,000. In addition to the equity investment the Group provided Walsingham with £1,000,000 of loan funding on completion and, subject to certain conditions, additional loan funding of £200,000. On 17th December 2013 the Group acquired a 40% stake in MB Prestige Holdings Pty Limited (“MB Group”), an MGA headquartered in Sydney, Australia, for AUD 873,066 (£479,707). MB Group is recognised as a market leader in respect of prestige motor vehicle insurance in all mainland states of Australia. In addition to the equity investment, the Group provided MB Group with loan funding of AUD 1,417,334 (£752,460). On 24th January 2014 the Group provided an additional €500,000 (£418,927) of loan funding, in cash, to Summa Insurance Brokerage, S.L. (“Summa”). This additional funding was provided as part of an overall refinancing package to incorporate Summa's existing loan balances of €1,971,879 and outstanding fees and interest of €479,361 owing to the Group into one consolidated loan balance of €2,951,240 (£2,421,630 as at 31st January 2014). The new consolidated loan is repayable over the next 10 years with a final repayment date of 31st January 2024. On 31st January 2014 the Group acquired a further 12.02% equity stake in LEBC Holdings Limited (“LEBC”) from an exiting former employee shareholder for consideration of £1,000,000. Following the acquisition the Group’s total holding in LEBC increased from 22.89% to 34.91%. In addition to the equity investment the Group also provided LEBC's Employee Benefit Trust with £1,005,000 of funding via a secured short term loan facility (repayable within 12 months) in order to allow the management team to increase their shareholding in LEBC. Financial Performance At 31st January 2014, the net asset value of the Group was £58.9m, or 202p per share (2013: £55.5m, or 190p per share) including a provision for deferred tax. This equates to an increase in net asset value of 6.3%, or an increase of 6.9% excluding the dividend payment (2013: increase of 10.6%, 11.2% excluding the dividend payment). The increase in net asset value was mainly as a result of revaluing the portfolio in line with current market conditions, and the underlying business (excluding portfolio movement) showed a pre-tax profit of £0.2m (2013: £0.06m). The Group’s investment portfolio movement during the year was as follows: 31ST JANUARY 2013 VALUATION ACQUISITIONS AT COST DISPOSAL PROCEEDS IMPAIRMENT PROVISIONS ADJUSTED 31ST JANUARY 2013 VALUATION 31ST JANUARY 2014 VALUATION £52.7m £4.3m £(29.2)m £nil £27.8m £31.7m In 2013, the Group’s investment in Hyperion was valued at £35.5m, which accounted for 67.3% of the Group’s equity portfolio. Despite the realisation of 80% of this holding for cash at the 2013 carrying value, the equity portfolio overall increased at a greater rate than compared to 2013 with a 14% increase for the year (2013: increase of 13.3%). 21 G R O U P S T R A T E G I C R E P O R T ( C O N T I N U E D ) BUSINESS REVIEW (CONTINUED) Financial Performance (continued) The net asset value of £58.9m at 31st January 2014 represented a total increase in net asset value of £46.3m since the Group was originally formed in 1990 having adjusted for the £10.1m net proceeds raised on AIM and the original capital investment of £2.5m. The directors note that the Group has delivered an annual compound growth rate of 11.6% in Group net asset value after running costs, realisations, losses, distributions and deferred tax since 1990. The consolidated profit on ordinary activities after taxation was £3.8m (2013: profit of £5.7m). The consolidated profit on ordinary activities before taxation was £4.1m (2013: profit of £6.2m). This profit includes unrealised gains of £3.7m on investment revaluations (2013: unrealised gains of £6.1m). As set out above, the lower profit compared to 2013 is as a result of the partial disposal of Hyperion which represented a significant proportion of the unrealised gains in 2013. Income from investments increased by 8% from 2013 as the cash from the sale of Hyperion was reinvested into new and existing opportunities. Fees receivable reduced by £0.4m compared to 2013 but was offset by loan arrangement fees being levied on new loans granted such that overall total income from fees and loans receivables was £1.9m for the year, up 6% on 2013 (£1.8m). Operating expenses, including costs of making new investments, were 1% lower during the year at £1.99m (2013: £2.01m). The Group continued its strategy of covering operational expenses through portfolio yield without the requirement for significant realisations. Retained earnings increased by £20.1m, principally as a result of the sale of Hyperion (Note 14). Future Prospects During the year under review, several new investments were made and the Group continued to assist and support its existing investments through follow-on funding to enable continued growth. A number of prospective investments were considered and the Group continues to receive a strong pipeline of opportunities and continues to evaluate them for investment potential. Financial Data and Key Performance Indicators The table below summarises the Group’s financial results and key performance indicators. YEAR TO/AS AT 31ST JANUARY 2014 YEAR TO/AS AT 31ST JANUARY 2013 Net asset value Net asset value per share Equity portfolio increase Equity portfolio return Equity portfolio return excluding Hyperion Dividend per share Total shareholder return (including dividends) Total shareholder return on opening shareholders’ funds Annual operating cash profit/(loss) Cash investment for the year – Equity Cash investment for the year – Loans Realisations (net of costs) Profit on realisations Loans repaid by investee companies in the year £ 58.9m 202p 14.0% £ 6.1m £ 4.7m 1.25p £ 3.8m 6.9% £ 0.7m £ 4.3m £ 13.8m £ 29.0m £ 20.6m £ 3.0m £ 55.5m 190p 13.3% £ 8.2m £ 1.5m 1.00p £ 5.6m 11.2% £ 0.01m £ 0.8m £ 1.7m £ 4.9m £ 3.9m £ 0.4m 22 G R O U P S T R A T E G I C R E P O R T ( C O N T I N U E D ) FINANCIAL RISK MANAGEMENT The Group’s operations expose it to a variety of financial risks. The Group manages the risk to limit the adverse effects on the financial performance of the Group by monitoring those risks and acting accordingly. As at 31st January 2014 the Group was debt free (31st January 2013: debt free). During the year, the Group drew down its £4.325m Directors’ Loan Facility in full in order to provide funding to existing and new investments. However in July 2013, following the receipt of funds from the partial disposal of an investment (Note 14), the Group repaid the £4.325m Directors’ Loan Facility outstanding in full (Notes 17 and 27), at which time the facility expired. The monitoring of the financial risk management is the responsibility of the Board. The policies of the Board of directors are implemented by the Group’s finance department under specific guidelines. Price risk The Group is exposed to private equity securities price risk. The Group manages the risk by ensuring that a director is appointed to the board of each investee company. In this capacity, the appointed director can advise the Group’s Board of the investee companies’ activities and prompt action can be taken to protect the value of the investment. Management reports are required to be prepared by investee companies for the review of the appointed director and by the Group Board. Credit risk The Group provides consulting services to its investee companies which are investigated before an investment is made and are continually monitored. As such the directors believe that the credit risk is adequately managed. Liquidity risk The directors assess and review the Group’s liquidity position and funding requirements on a regular basis and this is an agenda item for its Board meetings. They consider that the Group has sufficient liquidity to manage current commitments. Interest rate cash f low risk At 31st January 2014, the Group had no interest bearing liabilities but had interest bearing assets. Interest bearing assets are loans made available to investee companies to aid their expansion, and are normally subject to a minimum interest rate to protect the Group from a period of low interest rates. Currency risk Although the Group's investments are predominantly within the UK it also makes investments and derives income outside the UK. As such some of the Group's income and assets are subject to movement in foreign currencies which will affect the Consolidated Statement of Comprehensive Income in accordance with the Group's accounting policy. The Board monitors the movements and manages the risk accordingly. POLICY ON PAYMENT OF SUPPLIERS The Group’s policy on the payment of suppliers is to settle transactions based upon the supplier’s agreed terms of trade. Average supplier days were 28 (2013: 19) during the year. GOING CONCERN The directors continue to adopt the going concern basis in preparing the financial statements. This is because the directors, after making enquiries and following a review of the Group’s budget for 2015 and 2016, including cash f lows and borrowing facilities, consider that the Group has adequate resources to continue its operation for the foreseeable future. By order of the Board S.C. O’Haire Company Secretary 2nd June 2014 23 I N D E P E N D E N T M E M B E R S O F A U D I T O R ’ S R E P O R T B . P . M A R S H & P A R T N E R S T O T H E P L C We have audited the Group and Company financial statements of B.P. Marsh & Partners Plc for the year ended 31st January 2014 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Financial Position, the Consolidated and Company Statements of Cash Flows, the Consolidated and Company Statements of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (“IFRSs”) as adopted by the EU and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Statement of Directors’ Responsibilities set out in the Group Report of the Directors, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and to express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group and Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Directors’ Report, Strategic Report and Consolidated Financial Statements to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31st January 2014 and of the Group’s profit for the year then ended; • the Group’s financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; • the Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Report of the Remuneration Committee to be audited has been properly prepared in accordance with the Companies Act 2006; and • the information given in the Group Report of the Directors and the Group Strategic Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 24 I N D E P E N D E N T M E M B E R S O F A U D I T O R ’ S R E P O R T B . P . M A R S H & P A R T N E R S T O T H E P L C ( C O N T I N U E D ) Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Company’s financial statements and the part of the Report of the Remuneration Committee to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Christopher Bliss (Senior Statutory Auditor) For and on behalf of RAWLINSON & HUNTER Statutory Auditor Chartered Accountants Eighth Floor 6 New Street Square New Fetter Lane London EC4A 3AQ 2nd June 2014 25 C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 NOTES 2014 2013 (£’000) (£’000) (£’000) (£’000) 12 3,744 97 368 1,402 486 138 (78) (108) Gains on investments Realised gains on disposal of equity investments (net of costs) 1,14 Unrealised gains on equity investment revaluation 12 Carried interest movement 2,18 1 Income Dividends Income from loans and receivables Fees receivable Operating Income Operating expenses Operating Profit Financial income Financial expenses Exchange movements Profit on ordinary activities before taxation Taxation Profit on ordinary activities after taxation attributable to equity holders 1,27 1,27 1,27 2 2 2,4 2,3 2,8 8 9 22 Earnings per share – basic and diluted (pence) 10 The result for the year is wholly attributable to continuing activities. 3,853 2,256 6,109 (1,987) 4,122 (48) 4,074 (241) 3,833 13.1p 5 6,130 5 301 929 855 5 (65) 37 6,140 2,085 8,225 (2,007) 6,218 (23) 6,195 (518) 5,677 19.4p The notes on pages 30 to 55 form part of these financial statements. 26 C O N S O L I D A T E D & C O M P A N Y S T A T E M E N T S O F F I N A N C I A L P O S I T I O N F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 (Company Number: 05674962) NOT E S 2014 (£’000) 2013 (£’000) 2014 (£’000) 2013 (£’000) G RO U P C O M PA N Y Assets Non-current assets Property, plant and equipment Investments – equity portfolio Investments – treasury portfolio Loans and receivables Current assets Trade and other receivables Cash and cash equivalents Total current assets Total Assets Liabilities Non-current liabilities Loans and other payables Carried interest provision Deferred tax liabilities Total non-current liabilities Current liabilities Trade and other payables Corporation tax provision Total current liabilities Total liabilities Net Assets Capital and reserves - equity Called up share capital Share premium account Fair value reserve Reverse acquisition reserve Capital redemption reserve Retained earnings Shareholders' funds - equity 11 12 13 15 16 17 18 19 20 20 20 21 22 22 22 22 22 22 18 31,710 9,289 17,248 58,265 2,685 5,502 8,187 7 52,711 - 8,587 61,305 1,174 1,787 2,961 - 48,767 - 10,155 58,922 - 1 1 - 45,299 - 10,155 55,454 - 1 1 66,452 64,266 58,923 55,455 - (197) (2,736) (2,933) (558) (4,038) (4,596) (100) (294) (7,933) (8,327) (484) - (484) (7,529) (8,811) - - - - - - - - - - - - - - - - 58,923 55,455 58,923 55,455 2,923 9,370 9,743 393 6 36,488 58,923 2,923 9,370 26,348 393 6 16,415 55,455 2,923 9,370 46,623 - 6 1 58,923 2,923 9,370 43,155 - 6 1 55,455 The Financial Statements were approved by the Board of Directors and authorised for issue on 2nd June 2014 and signed on its behalf by: The notes on pages 30 to 55 form part of these financial statements. B.P. Marsh & J.S. Newman 27 C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 NOTES 2014 (£’000) 2013 (£’000) Cash from operating activities Income from loans to investees Dividends Fees received from investment activity Operating expenses Decrease / (increase) in receivables (Decrease) / increase in payables Depreciation Net cash from operating activities Net cash from investing activities Purchase of property, plant and equipment Purchase of equity investments Purchase of treasury investments Net proceeds from sale of equity investments Corporation tax paid on equity investment disposal Net proceeds from sale of treasury investments Net cash from investing activities Net cash used by financing activities (Repayment) / advances of borrowings Net advances of loans to investee companies Financial income 1 Financial expenses 2 Dividends paid Payments made to repurchase Company shares Net cash used by financing activities Change in cash and cash equivalents Cash and cash equivalents at beginning of the period Exchange movement 3 Cash and cash equivalents at end of period 11 11 12 13 12 20 13 17 4 3 7 22 1,402 368 486 (1,987) 456 (26) 6 705 (17) (4,272) (12,000) 29,029 (1,400) 2,777 14,117 - (10,736) 60 (66) (365) - (11,107) 3,715 1,787 - 5,502 929 301 855 (2,007) (361) 287 8 12 (1) (822) - 4,870 - - 4,047 (1,250) (1,276) 5 (65) (293) (50) (2,929) 1,130 666 (9) 1,787 1 The financial income as noted in the Consolidated Statement of Comprehensive Income is £138k (2013: £5k). The financial income in the Consolidated Statement of Cash Flows excludes realised and unrealised income of £78k (2013: £nil) arising from the Group’s treasury investments as this is a non-cash movement. 2 The financial expenses as noted in the Consolidated Statement of Comprehensive Income are £78k (2013: £65k). The financial expenses in the Consolidated Statement of Cash Flows excludes treasury management costs of £12k (2013: £nil) as this is a non-cash movement. 3 The exchange movement as noted in the Consolidated Statement of Comprehensive Income is a loss of £(108)k (2013: gain of £37k). The exchange movement in the Consolidated Statement of Cash Flows excludes an exchange loss of £(108)k (2013: gain of £46k) relating to the revaluation of loans denominated in Euros and Australian Dollars as this is a non-cash movement. The notes on pages 30 to 55 form part of these financial statements. 28 C O M P A N Y S T A T E M E N T O F Y E A R E N D E D 3 1ST F O R T H E J A N U A R Y 2 0 1 4 C A S H F L O W S No Company Statement of Cash Flows has been prepared as there has been no cash f low movement in the Company during the current and previous period, other than dividends received from B.P. Marsh & Company Limited (“BPMCL”), a subsidiary company, which were settled via an intercompany adjustment. The ordinary dividend payment to the Company’s members during the year was physically made by BPMCL and ref lected in the Company through an intercompany adjustment. Accordingly the Company’s “cash and cash equivalents” balance as at 31st January 2014 is £1k (2013: £1k). C O N S O L I D A T E D & C O M P A N Y S T A T E M E N T S O F C H A N G E S I N E Q U I T Y F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 G RO U P C O M PA N Y 2014 (£’000) 2013 (£’000) 2014 (£’000) 2013 (£’000) Opening total equity Total recognised income and expense for period Dividends paid Repurchase of Company shares 55,455 3,833 (365) - 50,121 5,677 (293) (50) 55,455 3,833 (365) - 50,121 5,677 (293) (50) Total Equity 58,923 55,455 58,923 55,455 Refer to Note 22 for detailed analysis of the changes in the components of equity. The notes on pages 30 to 55 form part of these financial statements. 29 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 1. ACCOUNTING POLICIES Basis of preparation of financial statements These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted for use by the European Union (“IFRS”), and in accordance with the Companies Act 2006. The consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial assets and financial liabilities through profit and loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates particularly in relation to investment valuation. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. New standards effective during the year None of the new standards, interpretations or amendments, which are effective for the first time in these consolidated financial statements, has had a material impact on these consolidated financial statements. Basis of consolidation The Group financial statements consolidate the results and net assets of the Company and all of its subsidiary undertakings. Business combinations The results of subsidiary undertakings are included in the consolidated financial statements from the date that control commences until the date that control ceases. Control exists where the Group has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. Accounting policies of the subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. All business combinations are accounted for by using the acquisition accounting method. This involves recognising identifiable assets and liabilities of the acquired business at fair value. Goodwill represents the excess of the fair value of the purchase consideration for the interests in subsidiary undertakings over the fair value to the Group of the net assets and any contingent liabilities acquired. The one exception to the use of the acquisition accounting method was in 2006 when B.P. Marsh & Partners Plc became the legal parent company of B.P. Marsh & Company Limited in a share for share exchange transaction. This was accounted for as a reverse acquisition, such that no goodwill arose, and a merger reserve was created ref lecting the difference between the book value of the shares issued by B.P. Marsh & Partners Plc as consideration for the acquisition of the share capital of B.P. Marsh & Company Limited. This compliance with IFRS 3 also represented a departure from the Companies Act. Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Associates are those entities in which the Group has significant inf luence, but not control, over the financial and operating policies. Investments that are held as part of the Group’s investment portfolio are carried in the Consolidated Statement of Financial Position at fair value even though the Group may have significant inf luence over those companies. This treatment is permitted by IAS 28 Investment in Associates (“IAS 28”), which requires investments held by venture capital organisations to be excluded from its scope where those investments are designated, upon initial recognition, as at fair value through profit or loss and accounted for in accordance with IAS 39, with changes in fair value recognised in the profit or loss in the period of the change. The Group has no interests in associates through which it carries on its business. 30 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 1. ACCOUNTING POLICIES (CONTINUED) Business combinations (continued) No Statement of Comprehensive Income is prepared for the Company, as permitted by Section 408 of the Companies Act 2006. The Company made a profit for the year of £3,833,449, prior to a dividend distribution of £365,375 (2013: profit of £5,676,742 prior to a dividend distribution of £292,861). Investments – equity portfolio All equity portfolio investments are designated as “fair value through profit or loss” assets and are initially recognised at the fair value of the consideration. They are measured at subsequent reporting dates at fair value. The Board conducts the valuations of equity portfolio investments. In valuing equity portfolio investments, the Board applies guidelines issued by the International Private Equity and Venture Capital Valuation (“IPEVCV”) Committee. The following valuation methodologies have been used in reaching the fair value of equity portfolio investments, some of which are in early stage companies: a) at cost, unless there has been a significant round of new equity finance in which case the investment is valued at the price paid by an independent third party. Where subsequent events or changes to circumstances indicate that an impairment may have occurred, the carrying value is reduced to ref lect the estimated extent of impairment; b) by reference to underlying funds under management; c) by applying appropriate multiples to the earnings and revenues of the investee company; or d) by reference to expected future cash f low from the investment where a realisation or f lotation is imminent. Both realised and unrealised gains and losses arising from changes in fair value are taken to the Consolidated Statement of Comprehensive Income for the year. In the Consolidated Statement of Financial Position the unrealised gains and losses arising from changes in fair value are shown within a “fair value reserve” separate from retained earnings. Transaction costs on acquisition or disposal of equity portfolio investments are expensed in the Consolidated Statement of Comprehensive Income. Income from equity portfolio investments Income from equity portfolio investments comprises: a) gross interest from loans, which is taken to the Consolidated Statement of Comprehensive Income on an accruals basis; b) dividends from equity investments are recognised in the Consolidated Statement of Comprehensive Income when the shareholders rights to receive payment have been established; and c) advisory fees from management services provided to investee companies, which are recognised on an accruals basis in accordance with the substance of the relevant investment advisory agreement. Investments – treasury portfolio All treasury portfolio investments are designated as “fair value through profit or loss” assets and are initially recognised at the fair value of the consideration. They are measured at subsequent reporting dates at fair market value as determined from the valuation reports provided by the fund investment manager. Both realised and unrealised gains and losses arising from changes in fair market value are taken to the Consolidated Statement of Comprehensive Income for the year. In the Consolidated Statement of Financial Position the unrealised gains and losses arising from changes in fair value are shown within the retained earnings reserve as these investments are deemed as being easily convertible into cash. Costs associated with the management of these investments are expensed in the Consolidated Statement of Comprehensive Income. 31 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 1. ACCOUNTING POLICIES (CONTINUED) Income from treasury portfolio investments Income from treasury portfolio investments comprises of dividends receivable which are either directly reinvested into the funds or received as cash. Carried interest provision This represents the amount payable to a director in the event of a particular equity investment being sold and is calculated on the fair value of that investment at the end of each reporting period. Property, plant and equipment Property, plant and equipment are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the property, plant and equipment cost less their estimated residual value, over their expected useful lives on the following bases: Furniture & equipment – 5 years Leasehold fixtures and fittings – over the life of the lease Foreign currencies Monetary assets and liabilities denominated in foreign currencies at the reporting period are translated at the exchange rate ruling at the reporting period. Transactions in foreign currencies are translated into sterling at the foreign exchange rate ruling at the date of the transaction. Exchange gains and losses are recognised in the Consolidated Statement of Comprehensive Income. Taxation The tax expense represents the sum of the tax currently payable and any deferred tax. The tax currently payable is based on the estimated taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the date of the Consolidated Statement of Financial Position. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and of liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and it is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each date of the Consolidated Statement of Financial Position and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. 32 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 1. ACCOUNTING POLICIES (CONTINUED) Taxation (continued) Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to the Consolidated Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current assets and liabilities on a net basis. Pension costs The Group operates a defined contribution scheme for some of its employees. The contributions payable to the scheme during the period are charged to the Consolidated Statement of Comprehensive Income. Operating leases Rentals under operating leases are charged on a straight-line basis over the lease term. Benefits received and receivable as an incentive to sign an operating lease are recognised on a straight-line basis over the period until the date the rent is expected to be adjusted to the prevailing market rate. Financial assets and liabilities Financial instruments are recognised in the Consolidated Statement of Financial Position when the Group becomes party to the contractual provisions of the instrument. De-recognition occurs when rights to cash f lows from a financial asset expire, or when a liability is extinguished. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the reporting period which are classified as non-current assets. They are stated at their cost less impairment losses. Loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowings. After initial recognition, these are subsequently measured at amortised cost using the effective interest method, which is the rate that exactly discounts the estimated future cash f lows through the expected life of the liabilities. Amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement. Trade and other receivables Trade and other receivables in the Consolidated Statement of Financial Position are initially measured at original invoice amount and subsequently measured after deducting any provision for impairment. Cash and cash equivalents Cash and cash equivalents in the Consolidated Statement of Financial Position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents comprise cash and short-term deposits as defined above and other short-term highly liquid investments that are readily convertible into cash and are subject to insignificant risk of changes in value, net of bank overdrafts. 33 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 1. ACCOUNTING POLICIES (CONTINUED) Trade and other payables Trade and other payables are stated based on the amounts which are considered to be payable in respect of goods or services received up to the date of the Consolidated Statement of Financial Position. International Financial Reporting Standards in issue but not yet effective At the date of authorisation of these consolidated financial statements, the International Accounting Standards Board (“IASB”) and International Financial Reporting Interpretations Committee (“IFRIC”) have issued the following standards, which are effective for annual accounting periods beginning on or after the stated effective date. Effective for periods beginning on or after IFRS 10, 11 & 12 and IAS 27 & 28 – Investment Entities (Amendments) IFRS 11 – Joint Arrangements IAS 32 – Amendment to Offsetting Financial Assets and Financial Liabilities IFRS 9 – Financial Instruments – Classification and Measurement 1st January 2014 1st January 2014 1st January 2014 1st January 2015 The Group is currently assessing the impact of IFRS 10 “Investment Entities (Amendments)”. All other standards and interpretations are not expected to have a material impact on the consolidated financial statements. As the Group prepares its financial statements in accordance with IFRS as adopted by the European Union, the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group’s discretion to early adopt standards. 2. SEGMENTAL REPORTING The Group operates in one business segment, provision of consultancy services to, as well as making and trading investments in, financial services businesses. The Group identifies its reportable operating segments based on the geographical location in which each of its investments is incorporated and primarily operates. For management purposes, the Group is organised and reports its performance by two geographic segments: UK & Channel Islands and Non-UK & Channel Islands. If material to the Group overall (where the segment revenues, reported profit or loss or combined assets exceed the quantitative thresholds prescribed by IFRS 8 Operating Segments (“IFRS 8”)), the segment information is reported separately. The Group allocates revenues, expenses, assets and liabilities to the operating segment where directly attributable to that segment. All indirect items are apportioned based on the percentage proportion of revenue that the operating segment contributes to the total Group revenue (excluding any unrealised gains and losses on the Group’s non-current investments). Each reportable segment derives its revenues from three main sources from equity portfolio investments as described in further detail in Note 1 under ‘Income from equity portfolio investments’ and also from treasury portfolio investments as described in Note 1 under ‘Income from treasury portfolio investments’. All reportable segments derive their revenues entirely from external clients and there are no inter-segment sales. 34 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 2. SEGMENTAL REPORTING (CONTINUED) GEOGRAPHIC SEGMENT 1: UK & CHANNEL ISLANDS GEOGRAPHIC SEGMENT 2: NON-UK & CHANNEL ISLANDS GROUP 2014 (£’000) 2013 (£’000) 2014 (£’000) 2013 (£’000) 2014 (£’000) 2013 (£’000) 5,949 Operating income / (loss) (1,679) Operating expenses Segment operating profit / (loss) 4,270 Financial income Financial expenses Exchange movements Profit / (loss) before tax Income tax Profit / (loss) for the year 117 (66) - 4,321 (293) 4,028 9,180 (1,558) 7,622 4 (51) (9) 7,566 (834) 6,732 160 (308) (148) 21 (12) (108) (247) 52 (195) (955) (449) (1,404) 1 (14) 46 (1,371) 316 (1,055) 6,109 (1,987) 4,122 138 (78) (108) 4,074 (241) 3,833 8,225 (2,007) 6,218 5 (65) 37 6,195 (518) 5,677 Included within the operating income reported above are the following amounts requiring separate disclosure owing to the fact that they are derived from a single investee company and the total revenues attributable to that investee company are 10% or more of the total realised income generated by the Group during the period: TOTAL INCOME ATTRIBUTABLE TO THE INVESTEE COMPANY % OF TOTAL REALISED OPERATING INCOME REPORTABLE GEOGRAPHIC SEGMENT 2014 (£’000) 2013 (£’000) 2014 2013 2014 2013 Besso Insurance Group Limited 876 Hyperion Insurance Group Limited 552 - Summa Insurance Brokerage, S.L. 292 U.S. Risk (UK) Limited 724 590 312 210 39 24 - 13 35 28 15 10 1 1 - 1&2 1 1 2 1&2 35 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 2. SEGMENTAL REPORTING (CONTINUED) GEOGRAPHIC SEGMENT 1: UK & CHANNEL ISLANDS GEOGRAPHIC SEGMENT 2: NON-UK & CHANNEL ISLANDS GROUP 2014 (£’000) 2013 (£’000) 2014 (£’000) 2013 (£’000) 2014 (£’000) 2013 (£’ 000) Non-current assets Property, plant and equipment Investments – equity portfolio Investments – treasury portfolio Loans and receivables Current assets Trade and other receivables Cash and cash equivalents Deferred tax assets 15 25,989 9,289 14,074 49,367 2,460 5,502 - 7,962 7 49,225 - 6,899 56,131 970 1,787 - 2,757 3 5,721 - 3,174 8,898 225 - 40 265 - 3,486 - 1,688 5,174 204 - 327 531 18 31,710 9,289 17,248 58,265 2,685 5,502 40 8,227 7 52,711 - 8,587 61,305 1,174 1,787 327 3,288 Total assets 57,329 58,888 9,163 5,705 66,492 64,593 Non-current liabilities Loans and other payables Carried interest provision Deferred tax liabilities Current liabilities Trade and other payables Corporation tax provision Total liabilities - (197) (2,776) (2,973) (558) (4,038) (7,569) (100) (294) (8,260) (8,654) (484) - (9,138) - - - - - - - - - - - - - - - (197) (2,776) (2,973) (558) (4,038) (7,569) (100) (294) (8,260) (8,654) (484) - (9,138) Net assets 49,760 49,750 9,163 5,705 58,923 55,455 Additions to property, plant and equipment Depreciation of property, plant and equipment Impairment of investments and loans Cash f low arising from: 14 5 - 1 7 - 3 1 - - 1 - 17 6 - 1 8 - Operating activities Investing activities Financing activities Change in cash and cash equivalents 684 16,542 (9,513) (29) 4,047 (2,899) 21 (2,425) (1,594) 7,713 1,119 (3,998) 41 - (30) 11 705 14,117 (11,107) 12 4,047 (2,929) 3,715 1,130 36 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 3. FINANCIAL EXPENSES Other interest (Note 17) Investment management costs (Note 13) 4. FINANCIAL INCOME 2014 (£’000) 2013 (£’000) 66 12 78 65 - 65 2014 (£’000) 2013 (£’000) Bank interest Income from treasury portfolio investments – dividend and similar income (Note 13) Income from treasury portfolio investments – net unrealised gains on revaluation (Note 13) 60 14 64 138 5 - - 5 5. STAFF COSTS The average number of employees, including all directors (executive and non-executive), employed by the Group during the year was 16 (2013: 16). All remuneration was paid by B.P. Marsh & Company Limited. The related staff costs were: Wages and salaries Social security costs Pension costs 6. DIRECTORS’ EMOLUMENTS The aggregate emoluments of the directors were: Management services – remuneration Fees Pension contributions – remuneration 2014 (£’000) 2013 (£’000) 1,125 141 58 1,324 1,219 153 43 1,415 2014 (£’000) 2013 (£’000) 790 34 35 859 883 43 26 952 In addition to the above, Mr S.S. Clarke has an entitlement to a gain based on a carried interest, as outlined in Note 18. 37 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 6. DIRECTORS’ EMOLUMENTS (CONTINUED) Highest paid director Emoluments Long term incentive payments Pension contribution 2014 (£’000) 2013 (£’000) 202 - 14 216 175 250 13 438 The Company contributes into its defined contribution pension scheme on behalf of certain employees and directors. Contributions payable are charged to the Consolidated Statement of Comprehensive Income in the period to which they relate. During the period, 4 directors (2013: 3) accrued benefits under the defined contribution pension scheme. 7. DIVIDENDS Ordinary dividends Interim dividend paid (2013: Final dividend paid): 1.25 pence each on 29,230,000 Ordinary shares (2013: 1 pence each on 29,286,143 Ordinary shares) 8. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION The profit for the period is arrived at after charging / (crediting): Depreciation of owned tangible fixed assets Auditors remuneration: Audit fees for the Company Other services: Audit of subsidiaries’ accounts Taxation Other advisory Exchange loss / (gain) Operating lease rentals of land and buildings 2014 (£’000) 2013 (£’000) 365 365 293 293 2014 (£’000) 2013 (£’000) 6 24 10 10 19 108 84 8 23 9 8 22 (37) 84 38 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 9. TAXATION The charge for tax comprises: 2014 (£’000) 2013 (£’000) UK corporation tax charge for the year Deferred tax charge for the year (Note 19) Factors affecting the charge for the year Profit on ordinary activities before tax Tax at 23.17% on profit on ordinary activities (2013: 24.33%) Effects of: Expenses not deductible for tax purposes Non taxable net unrealised gains Capital gains on disposal of investments Tax payable on realised gains on disposal of investments Other adjustments Other effects: Management expenses utilised Non-taxable income (dividends received) Corporate tax charge for the year - 241 241 4,074 944 71 (905) 5,817 (5,438) (22) (382) (85) - There are no factors which may affect future tax charges except as set out in Note 19. - 518 518 6,195 1,507 25 (1,493) 953 - - (919) (73) - 10. EARNINGS PER SHARE FROM CONTINUING OPERATIONS ATTRIBUTABLE TO THE EQUITY SHAREHOLDERS Earnings Earnings for the purpose of basic and diluted earnings per share being net profit attributable to equity shareholders Earnings per share – basic and diluted Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 2014 (£’000) 2013 (£’000) 3,833 13.1p 5,677 19.4p N U M B E R N U M B E R 29,230,000 29,258,072 Number of dilutive shares under option Nil Nil Weighted average number of ordinary shares for the purposes of dilutive earnings per share 29,230,000 29,258,072 In the prior year the Company repurchased 56,143 ordinary shares at a price of 89 pence per ordinary share. These shares were immediately cancelled upon purchase, resulting in a reduction in the number of ordinary shares in issue from 29,286,143 to 29,230,000. 39 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 11. PROPERTY, PLANT AND EQUIPMENT Group Cost At 1st February 2012 Additions Disposals At 31st January 2013 At 1st February 2013 Additions Disposals At 31st January 2014 Depreciation At 1st February 2012 Eliminated on disposal Charge for the year At 31st January 2013 At 1st February 2013 Eliminated on disposal Charge for the year At 31st January 2014 Net book value At 31st January 2014 At 31st January 2013 At 31st January 2012 FURNITURE & EQUIPMENT (£’000) LEASEHOLD FIXTURES & FITTINGS (£’000) TOTAL (£’000) 51 - - 51 51 - - 51 51 - - 51 51 - - 51 - - - 118 1 (10) 109 109 17 (5) 121 104 (10) 8 102 102 (5) 6 103 18 7 14 67 1 (10) 58 58 17 (5) 70 53 (10) 8 51 51 (5) 6 52 18 7 14 40 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 12. NON-CURRENT INVESTMENTS – EQUITY PORTFOLIO Group At valuation At 1st February 2012 Additions Disposals Provisions Unrealised gains in this period At 31st January 2013 At 1st February 2013 Additions Disposals Provisions Unrealised gains in this period At 31st January 2014 At cost At 1st February 2012 Additions Disposals Provisions At 31st January 2013 At 1st February 2013 Additions Disposals Provisions At 31st January 2014 SHARES IN INVESTEE COMPANIES TOTAL (£’000) 50,624 822 (4,865) - 6,130 52,711 52,711 4,272 (29,017) - 3,744 31,710 18,264 822 (1,117) - 17,969 17,969 4,272 (3,788) - 18,453 The principal additions relate to the following transactions in the year: On 13th May 2013 the Group subscribed to its pro-rata proportion of a £25m placing of new shares by Randall & Quilter Investment Holdings Limited (“R&Q”) (formerly known as Randall & Quilter Investment Holdings plc, prior to its re-domicile to Bermuda in July 2013) increasing its shareholding from 667,978 to 948,830 shares, but maintaining its overall percentage holding in R&Q. Total consideration paid for the shares amounted to £337,022 (£1.20 per share). As at 31st January 2014 the Group’s overall holding in R&Q was 1.33%. On 5th June 2013 the Group acquired an effective 19.7% stake in Sterling Insurance Pty Limited (“Sterling”), a specialist underwriting agency based in Australia. This investment was conducted through Neutral Bay Investments Limited (“Neutral Bay”), alongside Besso. Neutral Bay purchased a 39.47% shareholding in Sterling from its founder George Condell for AUD 6,159,571 (£3,898,619). As at 31st January 2014 the Group owned 49.9% of Neutral Bay with the remaining 50.1% majority stake owned by Besso. Total consideration payable for the Group’s 49.9% investment in Neutral Bay was £1,945,411 and comprised of 99,800 Ordinary £1 shares and 1,845,611 Redeemable Preferred £1 shares. As at 31st January 2014 the Group had made no future capital commitment in respect of Neutral Bay. 41 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 12. NON-CURRENT INVESTMENTS – EQUITY PORTFOLIO (CONTINUED) Group (continued) On 25th October 2013 the Group acquired 1.25% (1.46% economic rights) in Besso Insurance Group Limited (“Besso”) from Brian Marsh Enterprises Limited for total consideration of £209,485. The purchase price was in line with the Group’s valuation of Besso’s shares as at 31st January 2013 and increased the Group’s holding in Besso from 36.71% as at 31st January 2013 to 37.96% as at 31st January 2014 (economic holding increased from 36.48% to 37.94%). On 3rd December 2013 the Group acquired a 30% equity stake in Walsingham Motor Insurance Limited (“Walsingham”), a new specialist UK Motor Managing General Agency (“MGA”) operating in niche markets, for consideration of £300,000. On 17th December 2013 the Group acquired a 40% equity stake in MB Prestige Holdings Pty Limited (“MB Group”) for consideration of AUD 873,066 (£479,707). MB Group is a MGA headquartered in Sydney, Australia and is recognised as a market leader in respect of prestige motor vehicle insurance in all mainland states of Australia. On 31st January 2014 the Group acquired a further 12.02% equity stake in LEBC Holdings Limited (“LEBC”) from an exiting former employee shareholder for consideration of £1,000,000. Following the acquisition the Group’s total holding in LEBC increased from 22.89% to 34.91%. The principal disposal in the year relates to the following transaction: On 8th July 2013 the Group completed the sale of 5,623,520 shares (80% of its total holding of 7,029,400 shares) in Hyperion Insurance Group Limited (“Hyperion”) to the global growth equity firm General Atlantic for a cash consideration of £29,242,304 (£5.20 per A Ordinary share), or a net cash consideration of £29,028,604 after the deduction of related disposal costs (Note 14). The Group’s remaining 1,405,880 A Ordinary shares in Hyperion (2.79% as at 31st January 2014) is subject to a Call Option arrangement which will allow General Atlantic to purchase these remaining shares at £5.20 per share. The Call Option will expire and fall away on 8th July 2016 or upon Hyperion undertaking an Initial Public Offering (“IPO”), whichever is the earlier. Under the Call Option the Group could receive a further £7,310,576 in cash if exercised. The Share Purchase Agreement includes an anti-embarrassment provision which provides that if Hyperion undertakes an IPO by 8th July 2014, at a price at or in excess of £6.25 per A Ordinary share, there will be an additional amount payable to the Group, up to a maximum of £0.30 per A Ordinary share. This provision could result in a maximum additional amount of £2,108,820 in consideration becoming payable to the Group; however Hyperion's value would need to have increased to £6.60 per A Ordinary Share, or above, within the following 12 months and the right market conditions would need to be in place for a successful IPO, for this maximum additional consideration to become payable. As at the date of this report the directors consider this additional consideration to be unlikely. 42 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 12. NON-CURRENT INVESTMENTS – EQUITY PORTFOLIO (CONTINUED) Group (continued) The unquoted investee companies, which are registered in England except Summa Insurance Brokerage S.L. (Spain), Preferred Asset Management Limited (Jersey) and Close Horizons Limited (Isle of Man) are as follows: NAME OF COMPANY % HOLDING OF SHARE CAPITAL DATE INFORMATION AVAILABLE TO AGGREGATE CAPITAL AND RESERVES (£) POST TAX PROFIT/(LOSS) FOR THE YEAR (£) PRINCIPAL ACTIVITY The Broucour Group Limited Besso Insurance Group Limited Hyperion Insurance Group Limited 49.00 30.04.13 (639,935) 149,794 Business transfer agents 37.94 31.12.13 8,337,249 32,099 Insurance intermediary 2.79 30.09.13 24,812,000 9,874,000 LEBC Holdings Limited 34.91 30.09.13 725,568 586,765 MB Prestige Holdings PTY Limited Neutral Bay Investments Limited Portfolio Design Group International Limited 40.00 31.12.13 877,661 292,355 49.90 - - - 20.00 31.12.13 6,702,360 295,276 Morex Commercial Limited 20.00 31.12.13 502,893 55,970 Preferred Asset Management Limited 20.00 30.09.13 577,514 358,794 Close Horizons Limited 20.00 31.12.13 1,635,051 192,151 Insurance holding company Independent financial advisor company Specialist Australian Motor Managing General Agency Investment holding company Fund managers of traded endowment policies Trading in secondary life policies Fund management company Fund management company Summa Insurance Brokerage, S.L. 48.625 31.12.12 8,860,443 (31,059) Consolidator of regional insurance brokers U.S. Risk (UK) Limited 29.28 31.12.13 1,260,455 (619,279) Walsingham Motor Insurance Limited 30.00 30.09.13 (378,118) (379,118) Holding company for insurance intermediaries Specialist UK Motor Managing General Agency 43 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 12. NON-CURRENT INVESTMENTS – EQUITY PORTFOLIO (CONTINUED) Group (continued) In addition, as at 31st January 2014 the Group held 1.33% of the share capital of Randall & Quilter Investment Holdings Limited (“R&Q”). R&Q is an AIM listed company. Close Horizons Limited (“Close Horizons”) is a 100% owned trading subsidiary of New Horizons Nominees Limited (“New Horizons”), a non-trading investment holding company in which the Group owns 20% of the share capital. The results shown above are therefore ref lective of the Group’s effective 20% ownership in Close Horizons. On 25th February 2014, following a period of run-off (which commenced in 2011), Paterson Squared, LLC (“Paterson Squared”) was formally dissolved. By 31st January 2012 the Group’s 22.5% investment valuation had been fully written down and a full provision had been made against the outstanding £100,000 loan due. The directors considered that recovery of any outstanding balances at 31st January 2014 was highly unlikely without further investment in legal costs and on the basis of the subsequent confirmation of the company’s dissolution, Paterson Squared has been removed from the Group’s ongoing investments. The aggregate capital and reserves and profit/(loss) for the year shown above are extracted from the relevant local GAAP accounts of the investee companies except for those of Hyperion Insurance Group Limited which are prepared under IFRS. Company At valuation At 1st February 2012 Additions Unrealised gains in this period At 31st January 2013 At 1st February 2013 Additions Unrealised gains in this period At 31st January 2014 At cost At 1st February 2012 Additions At 31st January 2013 At 1st February 2013 Additions At 31st January 2014 SHARES IN GROUP UNDERTAKINGS (£’000) 39,965 - 5,334 45,299 45,299 - 3,468 48,767 2,143 - 2,143 2,143 - 2,143 44 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 12. NON-CURRENT INVESTMENTS – EQUITY PORTFOLIO (CONTINUED) Shares in group undertakings All group undertakings are registered in England and Wales. The details and results of group undertakings, which are extracted from the UK GAAP accounts of these companies, are as follows: NAME OF COMPANY % HOLDING OF SHARE CAPITAL AGGREGATE CAPITAL AND RESERVES AT 31ST JANUARY 2014 (£) PROFIT/(LOSS) FOR THE YEAR TO 31ST JANUARY 2014 (£) PRINCIPAL ACTIVITY B.P. Marsh & Company Limited 100 51,503,183 269,935 Marsh Insurance Holdings Limited B.P. Marsh Asset Management Limited B.P. Marsh & Co. Trustee Company Limited Marsh Development Capital Limited 100 100 100 100 Consulting services and investment holding company Investment holding company 11,625,866 (124,400) 23,854 22,854 Consulting services 1,000 1 - - Dormant Dormant 13. NON-CURRENT INVESTMENTS – TREASURY PORTFOLIO Group At valuation Market value at 1st February 2013 Additions at cost Disposals Change in value in the year (Note 3 & Note 4) Market value at 31st January 2014 (£’000) - 12,000 (2,777) 66 9,289 The treasury portfolio comprises of investment funds managed and valued by the Group’s investment managers, GAM London Limited, Rothschild Wealth Management (UK) Limited and Banque Heritage SA. All investments in securities are included at year end market value. The initial investment into the funds was made following the partial realisation of the Group’s investment in Hyperion Insurance Group Limited in July 2013 (see Note 12). The purpose of the funds is to hold (and grow) the Group’s surplus cash until such time that suitable investment opportunities arise. The funds are risk bearing and therefore their value not only can increase, but also has the potential to fall below the amount initially invested by the Group. However, the performance of each fund is monitored on a regular basis and the appropriate action is taken if there is a prolonged period of poor performance. 45 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 13. NON-CURRENT INVESTMENTS – TREASURY PORTFOLIO (CONTINUED) As at 31st January 2014 the valuations of the treasury portfolio investments were split by fund as follows: Investment Fund At valuation GAM London Limited Rothschild New Court Fund Banque Heritage SA Total VALUATION AS AT 31ST JANUARY 2014 (£) 5,543,754 731,996 3,013,176 9,288,926 Investment management costs of £12,549 (2013: £Nil) were charged to the Consolidated Statement of Comprehensive Income for the current year (Note 3). 14. REALISED GAINS ON DISPOSAL OF EQUITY INVESTMENTS The realised gains on disposal of equity investments comprises of a net gain of £11,604 in respect of the Group’s disposal of 80% of its investment in Hyperion Insurance Group Limited (“Hyperion”) at its carrying value of £29,017,000 for a consideration of £29,242,304. This resulted in a gross realised gain on disposal of £225,304, reduced by disposal costs totalling £213,700, to give a net realised gain of £11,604 (see Note 12 for further details of this disposal). The above Hyperion disposal also resulted in a net release to Retained Earnings from the Fair Value Reserve of £19,791,304, comprising of a £25,228,770 release of fair value which has been reduced by tax payable on disposal of £5,437,466 (see Note 9 and Note 22). The amount included in realised gains on disposal of equity investments for the year ended 31st January 2013 was £4,501 in respect of capital distributions made by Randall & Quilter Investment Holdings Limited. In addition, during the year ended 31st January 2013 the Group also made partial disposals of its investments in Hyperion and Besso Insurance Group Limited (“Besso”) at their respective carrying values. As a result of these disposals being made at carrying value, no material gain or loss was included in the Consolidated Statement of Comprehensive Income for the year ended 31st January 2013, however the disposals did result in a release to Retained Earnings from the Fair Value Reserve of £3,748,321 (see Note 22). 15. LOANS AND RECEIVABLES – NON-CURRENT G RO U P C O M PA N Y 2014 (£’000) 2013 (£’000) 2014 (£’000) 2013 (£’000) Trade receivables Loans to investee companies (Note 27) Amounts due from subsidiary undertakings - 17,248 - 17,248 127 8,460 - 8,587 - - 10,155 10,155 - - 10,155 10,155 £127,214 of prior year non-current trade receivables were owed by the Group’s participating interests. See Note 27 for terms of the loans. 46 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 16. TRADE AND OTHER RECEIVABLES – CURRENT Trade receivables Less provision for impairment of receivables Loans to investee companies (Note 27) Other receivables Prepayments and accrued income G RO U P C O M PA N Y 2014 (£’000) 2013 (£’000) 2014 (£’000) 2013 (£’000) 217 - 217 2,101 13 354 2,685 363 - 363 261 11 539 1,174 - - - - - - - - - - - - - - Included within trade receivables is £183,391 (2013: £332,394) owed by the Group’s participating interests. Trade receivables are provided for based on estimated irrecoverable amounts from the fees and interest charged to investee companies, determined by the Group’s management based on prior experience and their assessment of the current economic environment. Movement in the allowance for doubtful debts: G RO U P C O M PA N Y 2014 (£’000) 2013 (£’000) 2014 (£’000) 2013 (£’000) Balance at 1st February Utilisation of provision in the period Balance at 31st January - - - 123 (123) - - - - - - - In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The Group’s net trade receivable balance (current and non-current) includes debtors with a carrying amount of £216,382 (2013: £490,046) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. Ageing of past due but not impaired: 0 – 30 days 31 – 60 days 61 – 90 days More than 90 days G RO U P C O M PA N Y 2014 (£’000) 2013 (£’000) 2014 (£’000) 2013 (£’000) 50 56 51 60 217 238 83 45 124 490 - - - - - - - - - - There were no provisions made against loans to investee companies in both the current or prior year. The total provision against loans relating to existing Non-Current Investments as at 31st January 2014 stands at £685,000 (2013: £785,000). See Note 27 for terms of the loans and Note 26 for further credit risk information. 47 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 17. LOANS AND OTHER PAYABLES During the year, the Group drew down in full its £4,325,000 loan facility, which certain directors, and companies controlled by the directors, or other related parties, agreed to provide to the Group during the year to 31st January 2011. The loan facility was secured on the assets of the Company and accrued interest at a rate of UK Base Rate + 4% (subject to a minimum of 6.5%). Following the partial sale of the Group’s investment in Hyperion Insurance Group Limited in July 2013 (see Note 12), the Group repaid the outstanding loan in full, at which time the facility expired. Interest on this loan facility of £65,608 (2013: £64,760) was charged to the Consolidated Statement of Comprehensive Income for the current year (Note 3). During the year to 31st January 2013 the Group received an upfront payment of £300,000 in respect of a three year loan arrangement fee from Besso Insurance Group Limited ("Besso"). As at 31st January 2014 none of this fee was included in the Consolidated Statement of Financial Position under ‘Non-current liabilities’ as a long- term deferred income creditor (as at 31st January 2013: £100,000). The total fee is either included within the Consolidated Statement of Financial Position under ‘Current liabilities’ or has already been credited to the Consolidated Statement of Comprehensive Income as fees receivable. 18. CARRIED INTEREST PROVISION Carried interest provision G RO U P C O M PA N Y 2014 (£’000) 2013 (£’000) 2014 (£’000) 2013 (£’000) 197 197 294 294 - - - - This carried interest provision represents S.S. Clarke’s entitlement to a maximum of 20% of any gain, after deducting expenses and following the repayment of all loans, redemption of all preference shares, loan stock and equivalent finance provided by the Company, on the sale of the Group’s equity investments in Portfolio Design Group International Limited, Morex Commercial Limited, Preferred Asset Management Limited and New Horizons Nominees Limited (together the “PDGI businesses”). No amounts were paid under this contract during the year (2013: £Nil). However, on 1st May 2014 the Group sold its entire investment in the PDGI businesses and on 2nd May 2014 the Group paid S.S. Clarke £197,033 in settlement of his carried interest entitlement in respect of this sale (see Note 28 for further details). 19. DEFERRED TAX LIABILITIES – NON-CURRENT At 1st February 2012 Charged to Statement of Comprehensive Income At 31st January 2013 At 1st February 2013 Charged to Statement of Comprehensive Income Release of deferred tax provision (Note 20) At 31st January 2014 48 G RO U P (£’000) C O M PA N Y (£’000) 7,415 518 7,933 7,933 241 (5,438) 2,736 - - - - - - - N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 19. DEFERRED TAX LIABILITIES – NON-CURRENT (CONTINUED) The directors estimate that, if the Group were to dispose of all its investments at the amount stated in the Consolidated Statement of Financial Position, £2,736,000 (2013: £7,933,000) of tax on capital gains would become payable by the Group at a corporation tax rate of 21% (2013: 23%). Following the partial disposal of the Group’s equity investment in Hyperion Insurance Group Limited (see Note 12 for further details) and the realisation of the gains arising from this disposal in the current year, £5,438,000 of deferred tax previously provided in respect of this investment (and included within the £7,933,000 of deferred tax provided as at 31st January 2013) was released to corporation tax payable in the Statement of Financial Position. 20. CURRENT LIABILITIES Trade and other payables Trade payables Other taxation & social security costs Accruals and deferred income Corporation tax provision Release of deferred tax provision (Note 19) Corporation tax paid on account during the year G RO U P C O M PA N Y 2014 (£’000) 2013 (£’000) 2014 (£’000) 2013 (£’000) 65 52 441 558 5,438 (1,400) 4,038 4,596 30 31 423 484 - - - 484 - - - - - - - - - - - - - - - - The corporation tax provision relates to tax payable on the partial realisation of the Group’s investment in Hyperion Insurance Group Limited (See Note 12 for further details). 21. CALLED UP SHARE CAPITAL Allotted, called up and fully paid 29,230,000 Ordinary shares of 10p each (2013: 29,230,000) 2014 (£’000) 2013 (£’000) 2,923 2,923 2,923 2,923 In the prior year the Company repurchased 56,143 ordinary shares at a price of 89 pence per ordinary share. These shares were immediately cancelled upon purchase, resulting in a reduction in the number of ordinary shares in issue from 29,286,143 to 29,230,000. 49 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 22. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS Group SHARE CAPITAL (£’000) SHARE PREMIUM ACCOUNT (£’000) FAIR VALUE RESERVE (£’000) REVERSE RETAINED CAPITAL ACQUISITION REDEMPTION EARNINGS RESERVE (£’000) RESERVE (£’000) (£’000) TOTAL (£’000) At 1st February 2012 2,929 9,370 24,656 393 Profit for the year Transfers on sale of investments (Note 14) Dividends Paid (Note 7) - - - Share repurchase (Note 21) (6) - - - - 5,440 (3,748) - - At 31st January 2013 2,923 9,370 26,348 At 1st February 2013 2,923 9,370 26,348 Profit for the year Transfers on sale of investments (Note 14) Dividends Paid (Note 7) - - - - - - 3,186 (19,791) - - - - - 393 393 - - - At 31st January 2014 2,923 9,370 9,743 393 - - - - 6 6 6 - - - 6 12,773 50,121 237 5,677 3,748 - (293) (293) (50) (50) 16,415 55,455 16,415 55,455 647 3,833 19,791 - (365) (365) 36,488 58,923 Company SHARE CAPITAL (£’000) SHARE PREMIUM ACCOUNT (£’000) FAIR VALUE RESERVE CAPITAL RETAINED REDEMPTION EARNINGS TOTAL (£’000) RESERVE (£’000) (£’000) (£’000) At 1st February 2012 2,929 9,370 37,821 Profit for the year Dividends paid (Note 7) Share repurchase (Note 21) - - (6) - - - 5,334 - - At 31st January 2013 2,923 9,370 43,155 At 1st February 2013 2,923 9,370 43,155 Profit for the year Dividends paid (Note 7) - - - - 3,468 - At 31st January 2014 2,923 9,370 46,623 - - - 6 6 6 - - 6 1 50,121 343 5,677 (293) (293) (50) (50) 1 1 55,455 55,455 365 3,833 (365) (365) 1 58,923 50 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 23. OPERATING LEASE COMMITMENTS The Group and Company was committed to making the following future aggregate minimum lease payments under non-cancellable operating leases: Earlier than one year Between two and five years 24. LOAN AND EQUITY COMMITMENTS 2014 LAND AND BUILDINGS (£’000) 2013 LAND AND BUILDINGS (£’000) 84 160 84 244 On 22nd July 2010 (as varied on 8th August 2012) the Group entered into an agreement to provide a loan facility of £1,950,000 to U.S. Risk (UK) Limited, an investee company. As at 31st January 2014 £1,800,000 of this facility had been drawn down. On 1st May 2013 the Group entered into an agreement to provide a loan facility of £747,000 to Besso Insurance Group Limited, an investee company. As at 31st January 2014 £265,000 of this facility had been drawn down. Together with £2,750,000 of 14% loan stock and other loans of £2,867,575, total loans drawn down as at 31st January 2014 amounted to £5,882,575, with a remaining undrawn facility of £482,000. On 2nd December 2013 the Group entered into an agreement to provide a loan facility of £1,200,000 to Walsingham Motor Insurance Limited, an investee company. As at 31st January 2014 £1,000,000 of this facility had been drawn down. 25. CONTINGENT LIABILITIES The Group has entered into long-term incentive arrangements with certain employees and directors. Provided they remain in employment with the Group as at specified dates in the future, the Group has agreed to pay bonuses totalling £60,000 together with the Employers’ National Insurance due thereon. £30,000 is due to be paid on 15th May 2015 and £30,000 on 15th May 2016. No amount has been included in these financial statements as the performance conditions relating to these incentives had not been met at the year end 26. FINANCIAL INSTRUMENTS The Group’s financial instruments comprise loans to participating interests, cash and liquid resources and various other items, such as trade debtors, trade creditors, other debtors and creditors and loans. These arise directly from the Group’s operations. The Group has not entered into any derivatives transactions. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are price risk, credit risk, liquidity risk, interest rate cash f low risk and currency risk. The Board reviews and agrees policies for managing each of these risks and they are summarised in the Group Report of the Directors under “Financial Risk Management”. 51 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 26. FINANCIAL INSTRUMENTS (CONTINUED) Interest rate profile The Group has cash balances of £5,502,000 (2013: £1,787,000), which are part of the financing arrangements of the Group. The cash balances comprise bank current accounts and deposits placed at investment rates of interest, which ranged up to 2.0% p.a. in the period (2013: deposit rates of interest ranged up to 0.3% p.a.). During the period maturity periods ranged between immediate access and 1 year (2013: maturity periods ranged between immediate access and 1 month). Currency hedging During the period, the Group did not engage in any form of currency hedging transaction (2013: None). Financial liabilities The Company had no borrowings as at 31st January 2014 (2013: £Nil). Please refer to Note 17 for further details. Fair values The Group has adopted the amendment to IFRS 7 for financial instruments which are measured at fair value at the reporting date. This requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: • Level 1: Quoted prices unadjusted in active markets for identical assets or liabilities; • Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, observed either directly as prices or indirectly from prices; and • Level 3: Inputs for the asset or liability that are not based on observable market data. The following table presents the Group’s assets and liabilities that are measured at fair value at 31st January 2014: Assets Equity portfolio investments designated as “fair value through profit or loss” assets Treasury portfolio investments L E V E L 1 (£’000) L E V E L 2 (£’000) L E V E L 3 (£’000) T OTA L (£’000) 1,708 9,289 10,997 - - - 30,002 31,710 - 9,289 30,002 40,999 The Group’s assets and liabilities that are measured at fair value at 31st January 2013 are presented in the following table: Assets Equity portfolio investments designated as “fair value through profit or loss” assets L E V E L 1 (£’000) L E V E L 2 (£’000) L E V E L 3 (£’000) T OTA L (£’000) 785 785 - - 51,926 52,711 51,926 52,711 52 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 27. RELATED PARTY DISCLOSURES The following loans owed by the associated companies of the Company and its subsidiaries were outstanding at the year end: The Broucour Group Limited Besso Insurance Group Limited Hyperion Insurance Group Limited LEBC Holdings Limited U.S. Risk (UK) Limited Walsingham Motor Insurance Limited Summa Insurance Brokerage, S.L. MB Prestige Holdings Pty Limited 2014 (£) 1,135,000 5,882,575 6,037,361 1,005,000 1,800,000 1,000,000 (€) 2,951,240 (AUD) 1,417,334 2013 (£) 1,285,000 3,678,698 2,754,392 - - - (€) 1,971,879 (AUD) - The loans are typically secured on the assets of the investee companies and an appropriate interest rate is charged based upon the risk profile of that company. During the year, the Group both drew down and repaid in full its agreed £4,325,000 loan facility with certain directors, companies controlled by the directors, or other related parties (the “Lenders”), including Brian Marsh Enterprises Limited (total £3,500,000 facility drawn down and repaid in full during the year), Ms J.K.N. Dunbar (total facility of £500,000 drawn down and repaid in full during the year), Mr P.J. Mortlock (total facility of £250,000 drawn down and repaid in full during the year) and Mrs M. Newman (total facility of £75,000 drawn down and repaid in full during the year) which was secured on the assets of the Company. The loan accrued interest at a rate of UK Base Rate + 4%, subject to a minimum of 6.5%. Interest was payable on a quarterly basis and this rolling facility bore a charge of 1% p.a. on any undrawn amount. Following the full repayment of the loan in July 2013 (subsequent to the partial sale of the Group’s investment in Hyperion Insurance Group Limited as outlined in Note 12), the facility expired. Mr B.P. Marsh, the Chairman and majority shareholder of the Company is also the Chairman and majority shareholder of Brian Marsh Enterprises Limited. In addition Ms J.K.N. Dunbar (a director and shareholder of the Company) is a director and minority shareholder of Brian Marsh Enterprises Limited. Ms C.S. Kenyon (a director of the Company) is also a director of Brian Marsh Enterprises Limited. 53 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 27. RELATED PARTY DISCLOSURES (CONTINUED) Income receivable, consisting of consultancy fees, interest on loans and dividends recognised in the Consolidated Statement of Comprehensive Income in respect of the associated companies of the Company and its subsidiaries for the year were as follows: The Broucour Group Limited Besso Insurance Group Limited Hyperion Insurance Group Limited LEBC Group Limited MB Prestige Holdings Pty Limited Neutral Bay Investments Limited Paterson Squared, LLC Portfolio Design Group International Limited Summa Insurance Brokerage, S.L. U.S. Risk (UK) Limited and related entities Walsingham Motor Insurance Limited 2014 (£) 53,490 875,550 551,521 128,467 7,586 94,456 - 34,000 94,022 292,110 17,753 2013 (£) 30,855 723,581 589,843 102,249 - - 959 66,000 311,733 209,531 - In addition, the Group made management charges of £34,000 (2013: £35,000) to Marsh Christian Trust. Mr B.P. Marsh, the Chairman and majority shareholder of the Company, is also the Trustee and Settlor of Marsh Christian Trust. The Group also made management charges of £8,000 (2013: £15,000) to Brian Marsh Enterprises Limited. On 25th October 2013 the Group acquired 1.25% (1.46% economic rights) in Besso Insurance Group Limited (“Besso”) from Brian Marsh Enterprises Limited for total consideration of £209,485. The purchase price was in line with the Group’s valuation of Besso’s shares as at 31st January 2013 and increased the Group’s holding in Besso from 36.71% as at 31st January 2013 to 37.96% as at 31st January 2014 (economic holding increased from 36.48% to 37.94%). S.S. Clarke is entitled to a maximum of 20% of any gain, after deducting expenses and following the repayment of all loans, redemption of all preference shares, loan stock and equivalent finance provided by the Company, on the sale of the Group’s investments in Portfolio Design Group International Limited, Morex Commercial Limited, Preferred Asset Management Limited and New Horizons Nominees Limited (together the “PDGI businesses”). The carried interest provided for at the year end was £197,033 (2013: £294,000). All the above transactions were conducted on an arms length basis. Of the total dividend payments made during the year of £365,375, £234,625 was paid to the directors or parties related to them (2013: total dividend payments of £292,861, of which £187,334 was paid to the directors or parties related to them). 54 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1ST J A N U A R Y 2 0 1 4 28. EVENTS AFTER THE REPORTING DATE On 12th February 2014 Mr B.P. Marsh, the Chairman and majority shareholder of the Company, transferred 220,000 ordinary shares in the Company to the Marsh Christian Trust, a grant-making charitable trust of which Mr B.P. Marsh is also Trustee and Settlor, for nil consideration. On 27th February 2014 the Group provided the remaining £200,000 of an agreed £1,200,000 loan facility to Walsingham Motor Insurance Limited to fund the continued expansion of the business. On 17th April 2014, the Group provided Besso Insurance Group Limited (“Besso”) with a short-term working capital loan of £315,000. The loan is repayable over 12 months, commencing 31st May 2014, with a final repayment date of 30th April 2015. On 1st May 2014 the Group sold, to its fellow shareholders, its respective 20% stakes in Portfolio Design Group International Limited, Morex Commercial Limited, Preferred Asset Management Limited and New Horizons Nominees Limited (together the “PDGI businesses”) for a combined total of £1,250,000 in cash. As outlined in Note 18, Mr S.S. Clarke, a non-executive Director of the Company, is entitled to 20% of any gain on the sale of the PDGI businesses after the deduction of expenses. Consequently, on 2nd May 2014 the Group paid Mr S.S. Clarke £197,033 in respect of his entitlement due on the sale of the PDGI businesses as per the carried interest agreement between the Group and Mr S.S. Clarke. On 12th May 2014 the Group provided £68,000 of an agreed £747,000 loan facility to Besso in order to fund the continued expansion of its business in Turkey. This draw down was in addition to the £265,000 already drawn down from the facility as at 31st January 2014 (see Note 24). On 29th May 2014 the Group subscribed to its pro-rata proportion of a £1,200,000 Rights Issue in U.S. Risk (UK) Limited (“U.S. Risk”). Total consideration paid amounted to £351,000 for 351,000 newly issued B Ordinary shares (£1 per share) with the Group maintaining its 29.28% holding in U.S. Risk as at the date of this report. In addition, on the same date the Group agreed to provide an additional loan facility of £469,515 to U.S. Risk. As at 31st January 2014 U.S. Risk had drawn down £1,800,000 of its previously agreed £1,950,000 loan facility (Note 24). The £469,515 facility provided is in addition to the £1,800,000 already drawn down and brings the total agreed loan facility to £2,269,515. £204,909 of the additional facility was drawn down on completion, taking the total loan drawn down at the date of this report to £2,004,909, leaving a remaining undrawn facility of £264,606. No cash was provided to U.S. Risk in respect of the £204,909 loan drawn down as it was in settlement of existing trade receivables balances owing to the Group. Both the Rights Issue and increase to the loan facility were made for working capital purposes. 29. ULTIMATE CONTROLLING PARTY The directors consider Mr B.P. Marsh to be the ultimate controlling party. 55 N O T E S 56 YOU NEVER KNOW HOW GOOD AN INVESTMENT IS UNTIL YOU HAVE SOLD IT. GROWTH, MATURITY AND A VISION FOR SUCCESS. B.P. MARSH & PARTNERS PLC 2nd Floor 36 Broadway London SW1H 0BH Tel: +44 (0)207 233 3112 Fax: +44 (0)207 222 0294 D E S I G N E D A N D P RO D U C E D BY K U RT Z L I M I T E D P H O TO G R A P H Y BY RO D N E Y S M I T H 

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