We feature the work of John Virtue in this year’s Report and Accounts as we have been closely involved with his work over the years culminating in his current exhibition at the National Gallery. I had admired and bought his work before first meeting him during his exhibition at Tate St Ives in Cornwall in 1999. He became a good friend and I had the privilege of being a small part of his journey from his studio in Exeter to the incredible challenge of being Associate Artist at the National Gallery.
John responded with amazing bravery, energy, creativity, discipline and talent. The result was a triumph and we are proud to have been his sponsor. I hope that we can mirror his response to his challenge in our pursuit of excellence at Hiscox.
Page 1 Detail of Landscape No. 663, 2003 acrylic, black ink and shellac on canvas 183 x 183cm Hiscox plc, London
John Virtue: London Paintings is on show at the National Gallery, London (9 March–5 June 2005) sponsored by Hiscox plc. Photograph of John Virtue courtesy of the National Gallery.
His paintings have been described by a leading art critic as presenting “a complicated negotiation between chance and calculation”. We recognise ourselves in that, and like John will strive to emulate his disciplined creativity.
Record operating profit of £86.3 million, after £70 million impact of 2004 hurricane season.
Final dividend increased 21 per cent, making a total dividend of 5.0p per share for the year (2003: 4.2p per share).
A strong performance across the Group: – London Market business increased operating profit to £63.5 million (2003: £61.5 million) with a combined ratio of 92.9 per cent (2003: 85.8 per cent)
– UK Retail increased operating profit to £18.8 million (2003: £15.0 million) with a combined ratio of 89.8 per cent (2003: 90.3 per cent)
Market conditions in 2005 are more competitive but still attractive in aggregate.
The growth of retail businesses to complement the more volatile London Market business has continued successfully, and will show real value in the next stage of the underwriting cycle.
Breakdown of Hiscox plc total controlled GWP by Retail/London Market and product lines: 100% = £1,051 million
Reinsurance and Major Property • Reinsurance • Commercial property • Onshore energy
Dividend The Board recommends a final dividend of 3.5p (net) per share (2003: 2.9p per share), making a total distribution of 5.0p per share for the year, an increase of 19 per cent on 2003. This will be paid on 27 June 2005 to shareholders on the register on 15 April 2005. We remain committed to a progressive dividend policy. A policy of total distribution would be very harmful as the Group has an obvious need of capital, and any dividend policy geared to a percentage of profits would be destabilising for long-term shareholders and encourage volatility in the shares.
Current business The Group has grown in strength and depth over the year. Our strategy of building a strong regional book of retail business to balance the more volatile Lloyd’s business continues to succeed. We are also growing our direct account to supplement brokered business. We are not in competition with brokers as we are concentrating on smaller accounts which are uneconomic for brokers, and dealing with clients who wish to place their insurances direct with an insurer.
Our Lloyd’s Syndicate 33 absorbed substantial losses from the four hurricanes which hit Florida during the year but still made a similar profit to last year, an unthinkable result a few years ago. This was achieved by good underwriting, but also indicates the strength of rates last year in the international market. There is obviously pressure on some of the best rated business as there always will be, but the renewal season went well. We are back in a normal insurance market after a short period of extraordinary shortage of capacity which enabled very high prices to be charged. Underwriting discipline is the key, backed by a constant search for profitable business and control of expenses. We continue to adhere to the old truth that turnover is vanity, profit sanity. If Lloyd’s business gets too competitive we are able to concentrate our resources on the retail business.
Business conditions are good. There is no doubt that rates have been high and many deserved to be reduced. The problem is that momentum gathers, and brokers get used to reducing rates and underwriters get used to cutting them. I will state, as all Chairmen and Chief Executives will, that we will exercise discipline and refuse to reduce rates to uneconomic levels. No sensible leader could say anything different. Most then demand growth from their staff, seeming to ignore that the only way you can grow is by winning business off the competition, and virtually the only way to do that is to quote a reduced premium. Many underwriting businesses monitor changes in rates at renewal, and announce small reduction percentages so the Chief Executive is happy that discipline reigns and that it is the others who are cutting rates. But do they monitor the amount they cut the existing rates of other insurers to win new business?
Regulation I am devoted to rigorous and sensible regulation aimed at maintaining the solvency of general insurers. We lose business to suicidal rate cutters and then have to help pay for their abandoned policyholders after their inevitable insolvency. So I accept a rigorous analysis of our underwriting and reserving by those who understand the business.
On the rest of our commercial activities, my view is that there should be draconian penalties for dishonesty or gross negligence
Chairman’s Statement continued in running a business, but far fewer petty rules for all. I am not surprised that removing road signs reduces accidents. If businesses were forced to use their own instinct, moral sense and common sense in managing their enterprises instead of ticking boxes in obedience to ‘one size fits all’ corporate governance rules, I am sure that fewer mishaps would occur and honest profits would be higher.
People Despite the burden of regulation and a year of extraordinary losses, everyone at Hiscox has worked with cheerful, vibrant efficiency and made a substantial profit. The atmosphere and spirit throughout the Group is a credit to all who work in it, as is the profit, and I would like to thank them sincerely.
The future I offer six good reasons why I believe we have a strong future.
Insurance is a great business. Everybody has to have it, there is never a shortage of demand, and as the world prospers, as life becomes more complicated and as litigation sadly grows, so does the need for insurance.
We have a talented group of people with stable senior management, all of whom are committed to growing a top quality insurance business.
We have the wonderful advantage of being able to use Lloyd’s for internationally traded business and our regional offices and companies for local retail business. We focus on our specialist areas (both of business and geographically) which have substantial growth potential and we stick to our knitting.
We have no legacy problems whereas the need to bolster reserves is eating away at the established insurance industry.
The management is aligned with shareholders and is determined to achieve long-term growth in profitability leading to steadily increasing dividends, growth in net assets and earnings per share, and a higher share price.
“We have a talented group of people with stable senior management, all of whom are committed to growing a top quality insurance business.”
The trends in each of our divisions are reviewed below: Art and Private Clients We created this division last year, bringing the underwriting of this important area under common management. The benefits of this have been to unify and simplify the interface with brokers, and to ensure that we are able to underwrite large fine art and household risks through all of our European offices as well as our Lloyd’s operation. There has been increasing competition in the market in London as some of the international giants appear to be underwriting in this area as a hobby without proper oversight and discipline. In the face of increasing competition in London, we have intensified our efforts in the UK Regions and are developing our European business. In addition, we launched a reinvigorated ‘Fine Art by Hiscox’ product, which will help us grow our stand-alone fine art book on a pan-European basis. We had a limited involvement in the fire at the Momart storage facility, the industry’s largest insured art loss since 1991.
Our Executive Household team provides high value household and contents insurance for customers direct or through partnerships with professional associations and commercial organisations. It has had a good year, growing through both channels.
“Our Group strategy remains unchanged. Our goal is to build a profitable specialty insurer, focused on specific product lines and geographic markets.”
In the UK we will be launching a new professional indemnity product targeting the smallest firms and individual freelance consultants. This will be a no-frills version of our existing professional indemnity product and will be available through a number of distribution channels.
Reinsurance and Major Property This team focuses on various classes of reinsurance on both an excess of loss and pro-rata basis, and the insurance of major industrial and commercial property. Rates in reinsurance continue to offer good margins. The four hurricanes which made landfall in the USA tested the nerve of the industry, and reminded us all that risk should only be assumed at the right price. During the December renewal season, reinsurance rates in the US were stable overall, with prices for risks in Florida increasing, with reductions occurring elsewhere. International catastrophe reinsurance rates have been under pressure as a result of over-capacity. Unfortunately, this is driven as much by older professional firms as by new entrants.
We are now reducing the large pro-rata reinsurance account created between 2001 and 2003 as some of the underlying rates are beginning to ease.
The reinsurance market is now seeing the benefits from the introduction of improved natural perils statistical modeling over the last decade. This is bringing greater discipline and transparency to the market. Hiscox combined the major property team with the reinsurance team this year in order to embed and apply this modeling and statistical expertise consistently over the two areas. As stated last year, big ticket property rates are under significant pressure as the market is showing insufficient discipline in applying technical knowledge to pricing. In 2005 we will be reducing our property line size to ensure that we are not over exposed in a softer market. We intend continuing with our selective approach to risks, shedding business as necessary, motivated by the conviction that discipline will pay off over time.
“The reinsurance market is seeing the benefits from the introduction of improved natural perils statistical modeling over the last decade.”
Pre-tax profits were £77.0 million (2003: £83.4 million). The lower pre-tax profit reflects the fact that in 2004 the actual investment return was less than the assumed longer term rate of return. In 2003 it was higher. Hiscox plc had an after-tax return on opening equity of 16.5 per cent (2003: 21.7 per cent). Earnings per share on the basis of profit after tax were 18.7p (2003: 20.9p). Our net asset value before equalisation provisions at the year end was 132.8p per share (2003: 119.1p). These results all reflect a credible performance.
London Market This business consists of our share of the profits of Syndicate 33, fees and profit commission from third party capital and the return on the capital which supports the business. Operating profits of £63.5 million were achieved (2003: £61.5 million). This business performed exceptionally well considering it bore the brunt of the weather-related catastrophes which impacted our business.
UK Retail Our UK Retail Business achieved an increase in operating profit to £18.8 million (2003: £15.0 million).
Our direct business continues to grow and during the year hit the 10,000 customer mark. It has been particularly successful in building a customer base from partnership relationships with major financial institutions and membership organisations.
International Retail This area includes the business written in our mainland European offices and through our insurance company in Guernsey. In aggregate they had a significantly better year. Hiscox Guernsey has continued to sustain its excellent performance achieving an operating profit of £2.8 million (2003: £2.3 million). This continued performance reflects our leading position in the worldwide kidnap and ransom market. Our offices in mainland Europe delivered a much improved performance, achieving an operating profit of £1.2 million (2003: £1.7 million loss) and an improved combined ratio of 102.1 per cent (2003: 107.4 per cent). We are not yet satisfied with this level of performance, but the trend is in the right direction. Our strategy is to build on the footholds we have created in our existing markets and to gain economies of scale. During 2005, we will be seeking to broaden our product range drawing on the lessons that we have learnt in the UK.
“Our European strategy is to build on the footholds we have created.”
Retail business results UK Europe Guernsey* UK Europe Guernsey £m £m £m £m £m £m
Trading result 69.0 69.3 Other income less expenses (2.1) (4.4) Loan interest, goodwill and capacity amortisation (3.4) (3.4)
rate of return, producing an overall return for the year of 3.3 per cent. We increased our exposure to equities at the beginning of the year, having sold the majority of the high yield debt portfolio. The strong rally in equities at the end of the year produced a return on equities for the year of 10.2 per cent.
Through our Hiscox Investment Management subsidiary we now manage the investment of £1.6 billion against £1.2 billion a year ago.
We supervise fund managers, both in the UK and USA, who invest our Group assets. Our specialist Financial Funds, which we manage ourselves, produced positive returns for all four funds in the year. The US Financial Fund had its tenth anniversary in November, which over the decade produced a compound return of 14.7 per cent p.a.
Balance sheet Shareholders’ funds have grown from £330 million to £372 million. Net assets per share before equalisation provisions at the end of year were at 132.8p (2003: 119.1p). This performance is key to driving shareholder value as this underlying asset value provides strong support to our share price. Cash and financial assets within our controlled group grew to £1.4 billion (2003: £1.1 billion), demonstrating the overall financial health of the Group. We have continued with our stand by Letter of Credit of £137.5 million. We plan to re-finance this during the course of 2005. We expect to use our retained earnings over the next several years to decrease our balance sheet leverage, to provide us with the financial flexibility to acquire the balance of Syndicate 33 and to fund incremental expansion.
People An insurance company can be described as no more than a pile of cash and a bunch of good people. Cash is a commodity; it is the good people that distinguishes Hiscox from others. These results reflect the hard work and endeavours of the 500 people who work within our organisation. We were pleased to again be rated as one of the Top 100 Companies To Work For, in the annual Sunday Times survey.
Chairman (Aged 62) Robert Hiscox joined the Group in 1965. He was Deputy Chairman of Lloyd’s between
Director of Underwriting (Aged 53) Chairman of the Lloyd’s Market Association, Robert Childs has been Underwriter of Syndicate 33 since 1993. He joined the Group in 1986.
Derek Nigel Donald Netherton* Chairman of Investment Committee (Aged 60) Derek Netherton was previously a Director of J. Henry Schroder & Co. Limited and is currently Chairman of Greggs plc and a non-executive director of Next plc and St James’s Place Capital plc.
He was also a member of the Supervisory Board of the Schroder Exempt Property Unit Trust until 12 February 2004 and a nonexecutive director of Plantation & General Investments plc until June 2004. He joined the Group on 6 August 1999.
Tax Advisors PricewaterhouseCoopers 89 Sandyford Road Newcastle upon Tyne NE99 1PL
The roles and activities of Chairman and Chief Executive are distinct and separate. The Chairman is responsible for running an effective Board and overall strategy, and the Chief Executive has executive responsibility for running the Group’s business.
Any director may seek independent professional advice at the Company’s expense. A copy of the advice is provided to the Company Secretary who will circulate to all directors. No such advice was sought during the year.
The Board delegates operational management of the trading entities and divisions to their own boards but reserves certain matters for itself, including: setting group strategy, approving significant mergers or acquisitions, approving the financial statements, approving Group business plans and budgets, approving major new areas of business, approving capital raising, setting Group investment guidelines, approving the directors’ remuneration, approving significant expenditure or projects, and approving the issue of share options.
The Audit Committee The Audit Committee comprises four independent non-executive directors. It meets at least four times a year to assist the Board on matters of financial reporting, risk management and internal control. The internal and external auditors have unrestricted access to the Audit Committee, which monitors the scope, results and cost effectiveness of the external audit, the independence and objectivity of the auditors, and the nature and extent of non-audit work together with the level of related fees. All non-audit work with fees greater than £50,000 must be pre-approved by the Audit Committee. KPMG Audit Plc has confirmed to the Audit Committee that in its opinion it remains independent. The Committee is satisfied that this is the case.
The Risk Committee The Risk Committee comprises the Chief Executive, the Group Finance Director, the Head of Compliance & Internal Audit, and a senior manager from each of the Global Markets and Retail arms of the Group. It meets monthly to monitor the risk management framework and reports directly to the Board and the Audit Committee.
The Remuneration Committee The Remuneration Committee comprises four independent nonexecutive directors and meets at least twice a year. The Committee recommends to the Board a framework of executive remuneration and its cost. The Committee will also determine on the Board’s behalf the specific remuneration packages for each of the executive directors, including pension rights and any compensation payments. The Board’s remuneration report is presented on pages 18 to 20.
The Conflicts Committee The Conflicts Committee comprises all the independent non-executive directors. It meets as and when required. Should a conflict of interest arise between Group entities, there is a formal procedure to refer the matter to this Committee.
The Executive Group and the Group Management Team Two key management committees, the Executive Group and the Group Management Team, head the Group’s organisational structure. These committees meet weekly and manage the Group’s business operations in order to achieve the Board’s strategic business objectives.
Performance evaluation During the year the performance of the Board and its main committees, and of the ten individuals who serve on them, has been formally evaluated. This evaluation comprised a number of reviews, internal and external, to form an overall and dispassionate view of the performance of the individuals and the groups.
All directors attend the AGM and a non-executive director attends the six-monthly analysts meeting. The Company also
The annual report and accounts are sent to all shareholders, and further copies are available directly from Hiscox, via the FT report and accounts service, or through the Hiscox website, www.hiscox.com.
Hiscox acknowledges that it is neither possible, nor desirable, to eliminate risk completely and the system can only provide reasonable and not absolute assurance against material misstatement or loss. The constant aim is to be fully aware of the risks to which the business is exposed and to manage these risks to acceptable levels.
Key senior management responsibilities are clearly identified together with their reporting lines to the relevant executive directors. Terms of reference and reporting lines are in place for all key decisionmaking and monitoring committees including the committees mentioned above.
Operational risk: The different types of operational risk are managed by different specialist senior managers. A wide variety of metrics and processes are used to monitor and control key operational risk matters such as projects, systems, compliance, distribution, outsourcing, competence and continuity. The Board, its subsidiary boards and committees receive regular reports on relevant operational risk areas.
Indirect assurance over risk management In parallel with its direct monitoring processes described above, the Board has internal audit and the Risk Committee as additional indirect means to monitor and review the effectiveness of risk management throughout the organisation.
Internal audit The internal audit function is responsible for providing independent assurance directly to the Audit Committee on the adequacy and effectiveness of the Board’s system of risk management and internal control. This assurance is provided by means of an agreed programme of review, responsive work and direct reporting of significant issues.
Internal audit is also responsible for making recommendations at all levels where risk management may be usefully improved and for reporting the acceptance and implementation of significant recommendations to the Audit Committee.
It also plays an important role in promoting and developing good risk management practice as well as identifying emerging risks and recommending appropriate risk management strategies.
Bonuses The Remuneration Committee believes that a significant portion of the total remuneration should be attained through an incentive bonus which links rewards directly with performance. A bonus pool is created when the business profits of the Group, based on the year’s accounting pre-tax operating result, exceed a return on equity linked to the longer term rate of return (‘Hurdle Return’). The bonus pool is limited to a percentage of profits above the Hurdle Return. Similarly the bonus pools allocated to each major business division are calculated based on the business profits generated by that division above the Hurdle Return. This pool is utilised to award annual bonuses to all staff including executive directors based upon the performance of their business area and upon their individual performance. In this way, the bonus scheme aligns the interests of employees with shareholders. The actual amount to be paid to executive directors is determined by the Remuneration Committee based on the performance of the Group and an assessment of individual performance.
The Remuneration Committee also reviews and confirms the recommendations of management regarding the award of bonuses to senior managers and staff.
The following graph shows the Company’s performance, measured by total shareholder return, compared with the performance of the FTSE All-Share Insurance Index also measured by total shareholder return. The FTSE All-Share Insurance Index has been selected for this comparison because it is the most representative index for measuring the performance of the insurance market in which Hiscox participates.
Awards were made during the year to executive directors, senior executives and other staff under the Approved and Unapproved share option schemes. The exercise of options under these schemes depends upon achieving certain performance targets over a period of three years. These options are not offered at a discount and conform with institutional investor dilution guidelines. All directors entitled to share options are subject to these same performance criteria.
Awards were also made during the year under the Sharesave Scheme and the International Sharesave Scheme. These schemes provide a medium term incentive available to all staff. Awards depend upon the amount employees are prepared to save out of their salary subject to the maximum figure under the rules. There are no performance criteria for these schemes. The Remuneration Committee is very pleased with the commitment shown by employees in the future of the Group.
Exercise of awards issued prior to 22 June 2004 under the Approved and Unapproved Share Option Schemes is dependent upon the basic earnings per share of the Group increasing at 2% more than the rate of inflation over a period of three years.
The Remuneration Committee believes that using ROE as the long-term performance condition better aligns the interests of employees with shareholders because: (i) ROE captures the efficiency with which the Company is using shareholder funds to generate earnings, whereas EPS growth gives no indication of the level of return on the investment required to generate those additional earnings; (ii) the Company operates in a highly cyclical business where earnings can fluctuate considerably, which can have a distorting effect on EPS growth. Where EPS is used as a performance condition this can introduce an element of luck as to when in the cycle share grants are made which can operate to the disadvantage of both employees and shareholders. The Remuneration Committee believes that an average ROE performance requirement over the three year period smooths out the cyclical fluctuations in earnings and ensures that over any given period shareholders will receive a minimum return on equity before share grants to employees will vest.
The ROE will be calculated as profit before tax and goodwill amortisation divided by shareholders’ funds at the beginning of each year. The ROE will be calculated for each of the three financial years constituting the performance period and then averaged.
The Board proposes to amend the Hiscox Unapproved Share Option Scheme (the ‘Unapproved Scheme’) so as to allow for the grant of options to French employees that will qualify for favourable tax treatment in France (‘Approved Options in France’). The proposed amendment has arisen as a result of a recent review undertaken to ensure that all of our overseas employees are able, where possible, to qualify for any available favourable tax treatments on their share options as UK employees are able to do under the Hiscox Approved Share Option Scheme. The proposed amendment would add a new Schedule 2 to the Unapproved Scheme (‘Schedule 2’) under which Approved Options in France would be granted. The main provisions applying to Approved Options in France (in addition to the general provisions of the Unapproved Scheme) are that: (i) they may only be granted to employees who do not own more than 10% of the ordinary share capital of the Company; (ii) they may not be granted less than 20 dealing days after the date of declaration of a dividend (the date on which the dividend is approved) or an increase in share capital; (iii) they cannot be granted within ten dealing days of the announcement of the Company’s results and cannot be granted while, or for ten days after, management become aware of any price sensitive information; (iv) they may not be granted at an exercise price that is less than the higher of the middle-
Directors’ Remuneration Report continued market quotation of the Company’s shares (as derived from the London Stock Exchange Daily Official List) on the dealing day immediately preceding the grant date and the average middle market quotation for each of the 20 dealing days immediately preceding the grant date; (v) they may only be granted within the period of 38 months from the date of the shareholder resolution approving the adoption of Schedule 2; (vi) no cash-equivalent payments may be made on the exercise of Approved Options in France and such options are not transferable; and
The directors believe that the amendment to the Unapproved Scheme is in the best interests of shareholders and the Company and recommend that you vote in favour of the resolution.
Copies of the amended rules of the Unapproved Scheme, including Schedule 2, will be available for inspection at the offices of the Company at 1 Great St Helen’s, London EC3A 6HX, during usual office hours (Saturdays, Sundays and bank holidays excepted) from the date of dispatch of the Report and Accounts up to and including the date of the Annual General Meeting and at the meeting itself.
Exchanged options Under the terms of the offers to purchase Hiscox Holdings Ltd and Economic Insurance Holdings Ltd in July 1996, the Company offered to exchange existing options held in the shares of those companies for options on Hiscox plc shares. As a result of this offer, exchanged options were issued to 38 employees and former employees of those companies. The interests of executive directors in such exchanged options are shown in note 25 to the accounts.
Pensions The Hiscox Pension Scheme is an Inland Revenue approved occupational pension arrangement. This is a defined benefit arrangement and is noncontributory. There are two sections: the first section provides for benefits accruing at the rate of one-sixtieth for each year of service up to retirement age of 60 for employees, including former members of the Economic Insurance Holdings Limited Scheme who retain the right to a retirement age of 63. The second section provides for a pension at retirement age of up to twothirds of final pensionable salary, accruing at the rate of the lower of: (a) one-thirtieth for each year of service up to retirement age of 60; or
On 1 January 2001, Hiscox introduced a non-contributory defined contribution arrangement for all employees joining after that date, with contributions based on basic salary. All members are provided with death in service cover of up to four times basic salary.
Service contracts Other than in the case of RRS Hiscox, the contracts of employment of the directors provide for termination on six months’ notice by either side.
Corporate social responsibility Our core values: Underpinning the Hiscox culture is a set of core values, which determine the standard of behaviour Hiscox expects from all of its employees. These core values, which include integrity, quality, efficiency and respect, are intended to guide everything Hiscox does in its business and they determine the way in which Hiscox employees deal with a range of stakeholders, both internal and external. Hiscox recognises that by conducting its business with these values firmly rooted at its core, it is more likely to achieve business success and create value for shareholders.
Employee policies: The Company has a clearly stated aim to be an employer of choice recognised for its people excellence. This influences all of its employment policies. Our people genuinely make a difference and therefore we have to attract the best employees, enable them to perform to an excellent standard and to contribute to the development of the business, reward them on their level of contribution and provide an environment in which they can enjoy their work.
They are also encouraged to socialise with each other and enjoy their work environment.
The Company was therefore delighted to once again appear in the 2005 Sunday Times 100 Best Companies To Work For survey, for the third year in succession. The results of this survey were derived from both the views of employees and from a review of the policies and processes of the companies surveyed.
The Group is also committed to ensuring that all employees are provided with safe working conditions. A Health and Safety Committee oversees compliance with, and the development of, the Group’s health and safety policy which is available to all staff via the Group’s intranet. In addition, risk assessments are completed for the buildings and for all staff, records of which are maintained for inspection by Environmental
In 2004 we received the Platinum Award at the Clean City Awards Scheme for our continuing contribution to reducing, reusing and recycling as much waste as possible. We have also begun programmes to recycle batteries, mobile phones, lamps and CDs.
To promote wellbeing within the office and protect the environment we have undertaken further initiatives, such as installing air filters on all printers and fax machines to remove toner dust, irritants and general fumes, and using coffee in our vending machines that is purchased under the Federale Nationale de Colombia scheme. This scheme ensures that not only does the grower receive the correct price for his produce but that he farms the land in an eco-
We have also continued with our reading partners scheme, where staff assist pupils at the Elizabeth Selby Infants School in Tower Hamlets with reading development. We also provide mentors for students at Morpeth School in Tower Hamlets.
Hiscox Art Projects has held a number of exhibitions of young artists in the year.
International financial reporting standards All European Union listed companies are required to adopt International Financial Reporting Standards (‘IFRS’) for accounting periods beginning on or after 1 January 2005, which will include comparative information for 2004.
fully into the Group’s reporting systems and processes. The Group’s IFRS conversion project is progressing to plan. Conversion of the opening balance sheet at 1 January 2004 based on the standards currently endorsed by the European Union is largely complete and work on the restatement of the 2004 consolidated accounts is at an advanced stage.
The restated opening balance sheet and consolidated accounts for 2004 will be issued prior to the announcement of the Group’s interim results on 12 September 2005.
Annual General Meeting The notice of the Annual General Meeting is contained on page 59.
Resolution 10, which will be proposed as an ordinary resolution, seeks to obtain approval for the Remuneration Report as set out on pages 18 to 20 of this Report and Accounts.
Resolution 12, which will be proposed as a special resolution, seeks to renew the authority conferred on the Board to issue equity securities of the Company for cash without application of the pre-emption rights provided by Section 89 of the Companies Act 1985. The authority contained in this resolution will be limited to an aggregate nominal value of £734,550.22, representing 5.0% of the issued ordinary share capital as at 14 March 2005. This authority will terminate no later than the earlier of the conclusion of the next Annual General Meeting or a date falling fifteen months after the date of the passing of the resolution.
Save to the extent purchased pursuant to the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 (the ‘Regulations’), any shares purchased under this resolution will be cancelled. Shares purchased by the Company pursuant to the Regulations may be subsequently transferred to an employees’ share scheme, and such transfers will not exceed 5% of the issued ordinary share capital of the Company (adjusted for scrip/ bonus and rights issues) in any rolling 10 year period. The Company does not currently hold any treasury shares. Hiscox Holdings Limited and Hiscox Trustees Limited, subsidiaries of the Company, own 65,943 and 325,434 shares respectively in the Company at 14 March 2005.
Resolution 14, which will be proposed as a special resolution, seeks to amend the Articles of Association of the Company so that the Company may accept electronic proxy votes submitted on behalf of uncertificated shareholders by their sponsors or voting service providers through CREST.
Your directors consider that each of the resolutions described above and in the notice of Annual General Meeting will be of benefit to and is in the best interest of the Company and shareholders as a whole. Your directors unanimously recommend that you vote in favour of the resolutions. Those directors who hold ordinary shares in the Company intend to do so in respect of their own beneficial holdings, except with regard to Resolution 10 (relating to the remuneration report) on which they will not vote.
United Kingdom company law requires the directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss of the Group for that period.
We have audited the financial statements on pages 26 to 57. We have also audited the information included by cross reference within the directors’ remuneration report that is described as having been audited.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the directors’ remuneration report to be audited.
Opinion In our opinion: • the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 31 December 2004 and of the profit of the Group for the year then ended; and
• the financial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985.
Consolidated Profit and Loss Account Technical Account – General Business for the year ended 31 December 2004
Earned premiums, net of reinsurance Gross premiums written 4(c) 778,893 797,380 Outward reinsurance premiums (97,327) (136,414)
Allocated investment income transferred from the non-technical account 8(a), 8(d) 39,799 30,583
Consolidated Profit and Loss Account Non-Technical Account for the year ended 31 December 2004
Investment return 8(a) 27,118 32,154 Unrealised gains/(losses) on investments 8(a) 5,968 8,026 Investment expenses and charges 8(a) (1,087) (805)
Comprising: Operating profit based on longer term investment return 4(c) 86,337 77,122 Short term fluctuations in investment return 8(a), 8(d) (7,800) 8,792 Movement in equalisation provision 4(c), 7 (1,503) (2,506)
In accordance with the amendment to Financial Reporting Standard (‘FRS’) 3 ‘Reporting financial performance’ in relation to the revaluation of investments, no note of historical cost profits or losses has been prepared as the Group’s only material gains and losses on assets relate to the holding and disposal of investments.
Consolidated Statement of Total Recognised Gains and Losses For the year ended 31 December 2004
Investments Land and buildings 15(a) 2,925 410 Other financial investments 15(b) 1,001,225 773,289
Debtors Debtors arising out of direct insurance operations 16 258,135 251,026 Debtors arising out of reinsurance operations 33,793 53,878
The financial statements were approved by the Board of directors on 14 March 2005 and were signed on its behalf by: RRS Hiscox, Chairman
Capital and reserves Called up share capital 23, 24(b) 14,685 14,565 Share premium account 24(b) 234,267 232,341 Merger reserve 24(b) 58,970 58,970 Capital redemption reserve 24(b) 33,244 33,244 Capital reserve 24(b) 1,498 163 Profit and loss account 24(b) 4,864 5,577
Cash flow statement Net cash inflow from general business 74,930 31,300 Net shareholders’ cash outflow from Lloyd’s business 32(c) – (7,712)
Net cash flow from operating activities 32(a) 74,930 23,588 Servicing of finance 32(d) (1,384) (2,233) Taxation recovered/(paid) (206) (59) Capital expenditure 32(d) (8,851) (3,052) Acquisitions and disposals 32(d) (1,091) (50) Equity dividends paid (12,833) (10,744)
Cash flows were invested as follows: Increase/(decrease) in cash holding 32(e) 393 (25,608) Net portfolio investment: Shares and units in unit trusts 32(e) (30,490) 44,586 Debt securities and other fixed interest securities 32(e) 46,070 59,657 Deposits with credit institutions 32(e) 36,371 (68,275) Other investments 32(e) – –
Notes to the Accounts 1 Basis of preparation The financial statements of the Group and the Company have been prepared in accordance with applicable accounting standards as at 31 December 2004 and under historical cost accounting rules, modified by the revaluation of investments.
The balance sheet of the parent company is prepared in accordance with the provisions of Section 226 of, and Schedule 4 to, the Companies Act 1985.
Hiscox Dedicated Corporate Member Limited and the subsidiaries of Hiscox Select Holdings Limited underwrite as corporate members of Lloyd’s on the syndicate managed by Hiscox Syndicates Limited (the ‘managed syndicate’). In view of the several liability of underwriting members at Lloyd’s for the transactions of syndicates in which they participate, the attributable share of the transactions, assets and liabilities of the syndicate has been included in the financial statements.
Premiums written include estimates for ‘pipeline’ premiums and adjustments to premiums written in prior accounting periods. Outward reinsurance premiums are accounted for in the same accounting period as the premiums for the related direct insurance or inwards reinsurance business.
The Chain Ladder method is adopted where sufficient development data is available in order to produce estimates of the ultimate claims and premiums by actuarial reserving group and underwriting year or year of account for the managed syndicate. This methodology produces optimal estimates when a large claims development history is available and the claims development patterns throughout the earliest years are stable.
The Bornhuetter-Ferguson method is predominantly employed to produce ultimate loss estimates when there is little development data available, e.g. in relation to more recent underwriting years or years of account. The BornhuetterFerguson method is based on the Chain Ladder approach but utilises estimated ultimate loss ratios. In exceptional cases the required provision is calculated with reference to the actual exposures.
Adjustments are made within the reserving methodology to allow for expected significant movements to the figures not actually processed by
31 December 2004 and also to remove distortions in the historical claims development patterns from large claims not expected to reoccur in the future.
3(e) Unexpired risk Provision is made for unexpired risks arising from general business where the expected value of the claims and expenses attributable to the unexpired periods of policies in force at the balance sheet date exceeds the unearned premiums provision in relation to such policies after the deduction of any acquisition costs deferred. The provision for unexpired risks is calculated separately by classes of business which are managed together, after taking into account the relevant investment return.
Dividends on ordinary shares are recognised as income on the date the ordinary shares are marked ex-dividend. Other investment income and interest receivable are included in income on an accruals basis.
3(j) Depreciation Depreciation is provided to write off the cost less the estimated residual value of tangible assets on a straight-line basis over their estimated useful economic lives or length of lease, if less, as follows: Freehold property 50 years Short leasehold, fixtures and fittings 10-15 years Computer hardware and software 3-5 years Motor vehicles 3 years All other tangible fixed assets 4 years 3(k) Goodwill Goodwill arising on the acquisition of subsidiaries has been written off directly to reserves in the year of acquisition up to 31 December 1997.
From 1 January 1998, in accordance with FRS 10 ‘Goodwill and intangible assets’, goodwill arising on acquisitions, being the difference between the fair value of the purchase consideration and the fair value of net assets acquired, is capitalised in the balance sheet and amortised on a straight-line basis over its useful economic life, which is considered to not exceed 20 years. Provision is made for any impairment.
All other leases are accounted for as ‘operating leases’ and the rental charges are charged to the profit and loss account on a straight-line basis over the period of the lease.
Notes to the Accounts continued enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences, except for which no provision is permissible as explained below, that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Group’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.
Movement in deferred acquisition costs (18,004) (3,408) (3,199) (24,611) (32,362) (1,525) (2,938) (36,825)
Net longer term investment return 34,018 8,598 3,190 45,806 21,779 7,281 2,631 31,691 *Before movement in equalisation provision.
Notes to the Accounts continued 4 Segmental information continued (b) Reconciliation of 100% level technical results to Group results
Technical profit for 100% of continuing operations (Note 4a) 114,902 112,680
Notional share attributable to Group at current level of capacity ownership 84,283 79,718 Adjustments to reflect lower levels of capacity in prior years: 2001 year of account (221) 2,628 2002 year of account 199 (1,443) 2003 year of account 30 – Investment return on corporate assets 6,421 7,162 Amounts applicable to quota share reinsurers* 1,650 (1,265)
Investment return, based on longer term rate of return 28,011 8,598 3,190 39,799 20,671 7,281 2,631 30,583
Operating profit, based on longer term investment return 63,561 18,786 3,990 86,337 61,545 15,015 562 77,122
Short term fluctuations in investment return (10,205) 2,604 (199) (7,800) 2,913 5,238 641 8,792
Profit on ordinary activities before taxation 53,356 20,508 3,170 77,034 64,458 18,523 427 83,408 *Based on longer term investment return, before movement in equalisation provision and elimination of inter-company transactions.
London Market/Group comprises Hiscox plc’s share of the results of Syndicate 33, the results of the Hiscox Captive and the results of the non-underwriting entities of the Group, net of any business written between Group companies.
Group Company Operations Total Group Company Operations Total 5 Movement in prior years’ claims provision Lloyd’s Insurance International 2004 2003
Allocation to the technical account based on the longer term rate (39,799) (30,583)
Short term fluctuations in investment return retained in the non-technical account (7,800) 8,792
(b) Investment return by currency The investment return by currency of investment, net of investment expenses and charges, was: US Dollar 1.6 5.4
Shares and units in unit trusts 6.0 6.0 Debt securities and other fixed interest securities 4.0 4.0 Deposits with credit institutions 4.0 4.0
Actual investment return: Shares and units in unit trusts 7,196 16.1 – – 9,736 19.9 16,932 18.1 Debt securities and other fixed interest securities 2,408 3.1 11,418 4.0 3,591 3.8 17,417 3.8
Shares and units in unit trusts 390 – 434 824 Debt securities and other fixed interest securities 972 4,753 1,120 6,845 Deposits with credit institutions 383 644 842 1,869
Shares and units in unit trusts 446 – 489 935 Debt securities and other fixed interest securities 784 2,913 945 4,642 Deposits with credit institutions 632 464 507 1,603 9 Other income and charges
Agency salaries 1,777 1,472 Underwriting agency income 4,548 2,937 Profit commission 3,508 5,482
Operating profit is stated after charging: Loan interest payable 1,952 1,946 Amortisation of goodwill and Lloyd’s capacity costs 1,453 1,450 Finance lease charges 25 19 Operating lease charges (net of recharges to the managed syndicate) 2,041 1,972 Depreciation (net of recharges to the managed syndicate) on tangible fixed assets: – Owned assets 1,823 1,739 – Leased assets 91 74 Exchange losses/(gains) 6,813 3,698 Increase/(decrease) in provisions for bad and doubtful debts (including share of syndicate) 1,932 (221)
10 Auditors’ remuneration Fees payable to the auditors and its associates (exclusive of VAT) (a) Group
11 Employees’ remuneration Their aggregate remuneration and associated costs were: Wages and salaries 31,730 32,011 Social security costs 4,645 3,915 Other pension costs 4,219 3,417
The average monthly number of staff employed by the Group was 446 (2003: 412), comprising 154 underwriting and 292 administrative staff (2003: 141 and 271 respectively). Of the total remuneration shown above, an amount of £13,697,000 was recharged to the syndicate managed by Hiscox Syndicates Limited (2003: £12,206,000).
The reconciliation of basic earnings per share based on profit on ordinary activities after tax to adjusted basic earnings per share based on operating profit after tax is as follows: Earnings EPS Earnings EPS
Adjusted basic, based on operating profit after tax 61,165 21.0 55,929 19.3
Diluted earnings per share has been calculated taking into account 2,435,000 (2003: 2,579,000) options under employee share schemes and 940,000 (2003: 1,093,000) options under SAYE share schemes.
Current tax UK corporation tax on profits of the period 11,062 3,998 Foreign tax 25 3
Factors that may affect future tax charges The differences between the total current tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit on ordinary activities before tax is as follows: Profit on ordinary activities before tax 77,034 83,408
Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% (2003: 30%) 23,110 25,022 Effects of: Expenses not deductible for tax purposes 3,822 (667) Schedule 23 deduction for employee shares (540) – Section 107 interest 325 – Non taxable investment income (3,357) (2,629) Capital allowances in excess of depreciation 111 272 Foreign tax, income tax and excess tax on Controlled Foreign Companies (536) (407) Short term timing differences on Lloyd’s business (10,943) (16,955) Other short term timing differences (564) (21) Deferred tax not provided (341) (614) Adjustments in respect of previous periods 1,615 5,217
There is a deferred tax asset unprovided of £2,399,000 for the Group. £735,000 of the unprovided tax asset is in respect of the unrealised loss arising within the holdings of shares and units in unit trusts, £1,661,000 relates to losses of overseas companies and £3,000 to accelerated capital allowances.
Notes to the Accounts continued 15 Investments – Group continued (b) Other financial investments
Funds at Lloyd’s and other Corporate Assets Share of Syndicate Insurance Company Total
Shares and units in unit trusts 54,505 47,930 – – 57,442 52,992 111,947 100,922 Debt securities and other fixed interest securities 82,261 84,508 397,507 394,553 99,702 100,226 579,470 579,287
Of the above investments, all the shares and units in unit trusts and all the debt securities and other fixed interest securities are listed on a recognised stock exchange.
The total market value of investments purchased and disposed of in the year was £1,184,196,000 (2003: £806,002,000) and £955,665,000 (2003: £544,680,000) respectively.
17 Tangible assets – Group Plant and Fixtures machinery and fittings Total
For details of principal subsidiary undertakings, see note 31. Debt securities Shares and and other Deposits units in fixed interest with credit unit trusts securities institutions Other Total
Share of syndicate’s overseas deposits 37,707 27,679 – – Share of syndicate’s other debtors balances 33,735 25,464 – –
Due to Group companies – – 41,419 10,022 Corporation tax payable 7,855 – 614 – Amounts owed to credit institutions 57 477 – – Obligations under finance leases 370 255 – –
Movement in the provision 31,657 207,992 239,649 Commutation of business – (9,226) (9,226)
Exercise of approved and unapproved share options 1,152,309 57 Exercise of SAYE share options 1,254,067 63 24 Reconciliation of movement in shareholders’ funds Total Total
Issued Share Capital Reserve Profit share- shareshare premium Merger redemption Capital for own and loss holders’ holders’
Exercise of share options 120 1,926 – – – – – 2,046 1,862 Disposal of own shares – – – – – 322 41 363 751 Acquisition of own shares held in an ESOP – – – – – (109) – (109) – Exchange differences taken to reserves – – – – – – (412) (412) (155) Retained profit for the year – – – – – – 39,874 39,874 48,247
(b) Total shareholders’ funds capital reserve reserve reserve reserve shares account funds funds
Exercise of share options 120 1,926 – – – – – 2,046 1,862 Unrealised gains/(losses) net of tax – – – – 1,335 – – 1,335 1,432 Retained profit/(loss) for the year – – – – – – (713) (713) (1,955)
(b) Pension entitlements The pension entitlements of the directors in relation to the Hiscox defined benefit scheme were as follows: Increase in Total accrued Transfer value of the Transfer value of Transfer value of Increase in transfer accrued pension pension at increase in accrued accrued pension at accrued pension at value of accrued during the year 31 December 2004 pension 1 January 2004 31 December 2004 benefit during the year
Notes The pension entitlement shown is that which would be paid annually on retirement based on service to the end of the year, with the exception of RRS Hiscox, whose figures above are based on his actual pension in payment. The increase in accrued pension for the year excludes any increase for inflation. The transfer value has been calculated on the basis of actuarial advice in accordance with version 8.1 Actuarial Guidance Note GN11: Retirement Benefit Schemes – Transfer Values. No contractual contributions were due or have been paid by the directors during the year. RRS Hiscox retired from the scheme on 3 January 2003.
BE Masojada 2,359,455 – 2,317,808 – RS Childs 1,173,468 – 1,152,469 – SJ Bridges 286,363 – 205,283 –
25 Directors’ emoluments and share option schemes continued (d) continued (ii) Share options The share options disclosed below include replacement options in Hiscox plc relating to Hiscox Holdings Limited and Hiscox Insurance Holdings Limited share options granted prior to acquisition by Hiscox plc, plus options under the Hiscox plc Approved and Unapproved Share Options Schemes. The condition of exercise of the Approved and Unapproved share options is described on page 19.
Number of Number of Adjusted options at Number of Number of Number of options at exercise Market price Date from 1 January options options options 31 December price at date of which 2004 granted lapsed exercised 2004 £ exercise exercisable Expiry date
The aggregate gains made by the directors on exercise of the above options (based on market price at date of exercise less the exercise price) was £20,000 (2003: £773,000). The market price of Hiscox plc shares at 31 December 2004 was 166.5p. The highest and lowest values of Hiscox shares
Defined benefit scheme A qualified independent actuary carried out a full actuarial valuation as at 31 December 2002 and updated that valuation on an FRS 17 basis as at 31 December 2004.
The major assumptions used by the actuary were, in nominal terms, as follows: %pa %pa %pa %pa
Rate of increase in salaries 3.80 3.80 3.25 3.50 Rate of increase in RPI linked pensions in payment 2.80 2.80 2.25 2.50 Rate of increase of pensions in deferment 2.80 2.80 2.25 2.50
The impact on the net assets and retained profits of the Group at 31 December 2004 of adopting FRS 17 would be: Net assets
During the year the Group has contributed to the scheme at the rate of 22.6% of pensionable salaries and contributions will remain at this level for the next three years. An additional contribution of £7,000,000 was paid in December 2003 and £2,766,000 in January 2005 as contributions towards the deficit. The Group has agreed that further additional contributions will be made. 61% of the deficit calculated on an FRS 17 basis is recharged to Syndicate 33.
Analysis of the amount that would have been charged to operating profit under FRS 17: Current service cost 2,834 2,348 Past service cost – –
26 Pension contributions continued Analysis of the amount that would have been credited to net finance charges under FRS 17: Expected return on pension scheme assets 3,465 2,845 Interest on pension scheme liabilities (4,991) (4,278)
Analysis of the actuarial gain/(loss) that would have been included in the statement of total recognised gains and losses under FRS 17: Actual return less expected return on pension scheme assets 1,352 3,267 Experience gains and losses arising on the scheme liabilities 916 (2,517) Changes in assumptions underlying the present value of the scheme liabilities (1,856) (6,418)
(d) The managed syndicate is subject to the New Central Fund annual contribution, which is an annual fee calculated on capacity. This fee was 1.25% on capacity for 2004 and is 0.5% for 2005, with a further 0.75% being loaned to the new Central Fund. In addition to this annual fee, the Council of Lloyd’s has the discretion to call a further contribution of up to 3% per annum of capacity if required.
Operating leases which expire: From two to five years inclusive 67 151 218 62 47 109
BE Masojada is also Deputy Chairman of Lloyd’s. Hiscox Underwriting Group Services Limited receives a fee of £41,250 p.a. in relation to his services. No balances were outstanding at 31 December 2004.
Company Nature of business Country of incorporation Hiscox Assurances Services† Underwriting agent France Hiscox Insurance Company Limited† General insurance England Hiscox Insurance Company (Guernsey) Limited† General insurance Guernsey Hiscox Dedicated Corporate Member Limited Lloyd’s corporate name England Hiscox Select Insurance Fund PLC Insurance holding company England Hiscox Select Holdings Limited† Insurance holding company England Hiscox Select A to J Limited† Lloyd’s corporate name England Hiscox Holdings Limited‡ Insurance holding company England Hiscox Insurance Holdings Limited Insurance holding company England Hiscox International Holdings B.V.† Insurance holding company Netherlands Hiscox Syndicates Limited† Lloyd’s managing agent England Hiscox Underwriting Ltd† Lloyd’s underwriting agent England Hiscox AG† Underwriting agent Germany Hiscox bv† Underwriting agent Netherlands Hiscox Investment Management Limited Investment management England Hiscox Connect Limited Online intermediary England Hiscox Underwriting Group Services Limited Service company England Hiscox NV† Underwriting agent Belgium Hiscox Trustees Limited^ Corporate trustee England Hiscox Pension Trustees Limited Pension trustee England
‡Hiscox Holdings Limited held 67,580 shares (2003: 406,884 shares) in Hiscox plc at 31 December 2004. In accordance with UITF Abstract 37, which came into force during 2003, the cost of these shares of £64,000 (2003: £386,000) has been taken to a separate reserve for own shares.
During 2004, 339,304 of these shares were issued to staff at a price of £1.069 as part of the employee performance share plans. This gave rise to a profit on disposal of £41,000 which has been credited to reserves. These gains on own shares have not been taken through the profit and loss account nor through the statement of total recognised gains or losses in accordance with UITF Abstract 37.
Operating profit before taxation after interest, based on longer term investment return 86,337 77,122 Depreciation and amortisation of fixed assets 4,405 4,125 Increase in general insurance technical provisions, net of reinsurance 56,019 43,482 Increase/(decrease) in amounts owed to agents (4,708) (2,591) (Increase)/decrease in amounts owed by agents (4,670) (11,295) (Increase)/decrease in other debtors (14,687) (24,979) Increase/(decrease) in other creditors (162) 482 Cash transferred (to)/from Lloyd’s business (note 32c) – (7,712) Realised and unrealised investment (gains)/losses (4,333) (8,004) Short term fluctuations in investment return (7,800) 8,792 Interest expense 1,952 1,946 (Profits)/losses relating to Lloyd’s business (36,472) (56,516) Other non-cash transactions (951) (1,264)
Movement arising from cash flows 52,649 10,103 Movement in Lloyd’s business 32(c), 32(e) 184,574 182,711 Changes in market value and exchange rate effects 32(e) (1,185) 10,042
Total portfolio investments net of financing at 1 January 824,983 622,127
Total portfolio investments net of financing at 31 December 1,061,021 824,983
(d) Analysis of cash flows for headings netted in the cash flow statement £000 £000
Servicing of finance Interest paid (1,359) (2,194) Interest paid element of finance leases (25) (39)
Capital expenditure Payments to acquire tangible fixed assets (3,080) (2,935) Payments to acquire land and buildings (2,985) – Receipts from sales of tangible fixed assets – – Receipts from sales of land and buildings 500 – Payments to acquire intangible fixed assets (3,286) (117)
Cash at bank and in hand 61,332 52,945 121,196 62,520 38,466
Key statistics Adjusted earnings/(loss) per share based on operating profit/(loss) after tax* 21.0p 19.3p 11.3p (9.7)p 3.2p Earnings/(loss) per share based on profit/(loss) on ordinary activities after tax* 18.7p 20.9p 6.9p (14.8)p 3.5p Diluted earnings/(loss) per share based on profit/(loss) on ordinary activities after tax* 18.5p 20.6p 6.7p (14.8)p 3.4p *Earnings/(losses) and dividends per share for earlier years have been restated for subsequent changes of capital not involving full consideration at fair value, including bonus issues and rights issues.
(2) To re-appoint SJ Bridges who retires as director in accordance with the Articles of Association and the Combined Code.
(4) To re-appoint C Franklin Engler who retires as director in accordance with the Combined Code. (5) To re-appoint SH Hall who retires in accordance with the Combined Code (aged 71).
(7) To authorise the directors to determine the level of auditors’ remuneration.
Special business To consider and, if thought fit, pass the following resolutions, of which resolutions 9 to 11 will be proposed as ordinary resolutions and resolutions 12 to 14 will be proposed as special resolutions.
Special resolutions (12) That the directors be empowered (in addition to all existing authorities) pursuant to Section 95 of the Act to allot equity securities (as defined in Section 94 of the Act) for cash pursuant to the authority conferred by Resolution 9 as if Section 89(1) of the Act did not apply to the allotment. This power will expire on the earlier of the conclusion of the next Annual General Meeting or a date falling fifteen months after the date of the passing of this resolution, but the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after the expiry of this power and the directors may allot equity securities in pursuance of that offer or agreement as if the authority conferred by this resolution had not expired provided that this power is limited to: (i) allotments of equity securities where such securities have been offered (whether by way of a rights issue, open offer or otherwise) to holders of ordinary shares in proportion (as nearly as may be) to their existing holdings of ordinary shares but subject to the directors having a right to make such exclusions or other arrangements in connection with the offer as they deem necessary or expedient: (a) to deal with equity securities representing fractional entitlements; and
(13) That the Company be authorised to purchase its own shares from the market. The authority will be limited to a purchase of own shares up to a maximum number of 14,500,000 shares (representing 4.9% of the Company’s issued share capital) and the cost of the shares will be limited to a minimum share price of £0.50 per share and a maximum price per share that is not more than 5% above the average of the closing middle market quotations for an ordinary share as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the date on which the ordinary share is purchased. This authority will terminate on the earlier of the conclusion of the next Annual General Meeting or a date falling fifteen months after the date of the passing of this resolution. The Company may make a contract or contracts to purchase ordinary shares under the authority hereby conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority and may make a purchase of ordinary shares in pursuance of any such contract or contracts.
(14) That the Articles of Association of the Company, to allow for electronic proxy voting, be and are hereby amended as follows: (a) By inserting the following in article 1(A): ““electronic communication” has the same meaning as in the Electronic Communications Act 2000;”.
(C) Unless the contrary is stated in it, the appointment of a proxy is deemed to confer authority to demand or join in demanding a poll and to vote on a resolution or amendment of a resolution put to, or other business which may properly come before, the meeting or meetings for which it is given, as the proxy thinks fit.
(E) A member may appoint more than one proxy to attend on the same occasion. When two or more valid but differing instruments of proxy are delivered for the same share for use at the same meeting, the one which is last validly delivered or received (regardless of its date or the date of its execution) shall be treated as replacing and revoking the other or others as regards that share.
(H) Subject to the Acts, the Company may send an instrument of proxy to all or none of the persons entitled to receive notice of and to vote at a meeting. If sent the instrument shall provide for two-way voting (without prejudice to a right to abstain) on all resolutions set out in the notice of meeting.”.
(c) in any invitation contained in an electronic communication to appoint a proxy issued by the Company in relation to the meeting, received at such address not less than 48 hours before the time for holding the meeting at which the person named in the form of appointment of proxy proposes to vote; (iii) in the case of a meeting adjourned for less than 28 days but more than 48 hours or in the case of a poll taken more than 48 hours after it is demanded, deposited or received as required by paragraphs (i) or (ii) not less than 24 hours before the time appointed for the holding of the adjourned meeting or the taking of the poll; or
(iv) in the case of a meeting adjourned for less than 48 hours or in the case of a poll not taken immediately but taken not more than 48 hours after it was demanded, delivered at the adjourned meeting or at the meeting at which the poll was demanded to the chairman or to the secretary or to a director.
An instrument of proxy not deposited or received in accordance with this article is invalid.”.
(d) By deleting article 62 and replacing it with the following: “62. When votes by proxy valid though authority revoked A vote cast or poll demanded by a proxy or authorised representative of a company is valid despite termination of his authority unless notice of termination is received by the Company at the office or, in the case of a proxy, any other place specified for delivery or receipt of the form of appointment of proxy or, where the appointment of proxy was contained in an electronic communication, at the address at which the form of appointment was received, not later than the last time at which an appointment of proxy should have been delivered or received in order to be valid for use at the meeting or adjourned meeting at which the vote is cast or the poll demanded or (in the case of a poll taken otherwise than at or on the same day as the meeting or adjourned meeting) for use on the holding of the poll at which the vote is cast.”.
Note A member entitled to attend and vote may appoint one or more proxies to attend and on a poll, vote instead of him. The instrument appointing a proxy must be in writing and a form of proxy for use at the meeting is enclosed.
A proxy need not also be a member of the Company.
In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, only those members entered on the relevant register of members of the Company as at 6.00 pm on 19 June 2005 shall be entitled to attend or vote at the meeting in respect of the number of shares registered in their name at that time. Changes to entries on the relevant register of members after 6.00 pm on 19 June 2005 shall be disregarded in determining the rights of any person to attend or vote at the meeting.
Merchant in collaboration with Ammunition. Printed by St Ives Westerham Press.
• Payment of final dividend 27 June 2005 *Shares bought on or after this date will not qualify for the dividend. **Shareholders must be on our register on this date to receive the dividend.