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    Report Report Document Transcript

    • Group Holdings Plc Report & Financial Statements for the year ended 31 December 2008
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Highlights 2008 2007 £m £m % Revenue 26.8 26.4 +2 Headline EBITDA * 9.2 9.4 -2 Profit before tax 5.2 8.6 - 40 Profit before tax and goodwill impairment 8.7 8.6 +1 2008 2007 pence pence % EBITDA per share (basic) 30.5 30.9 -1 Earnings per share (basic) 9.2 21.0 - 56 Dividends per share paid in year 16.5 12.0 + 38 * EBITDA is defined as earnings before interest, tax, depreciation and goodwill impairment. A reconciliation of EBITDA to profit for the year as shown in the consolidated income statement is shown within note 13. The AGM will be held on 28 April 2009.
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Company registration number: 3194991 Registered office: John Ormond House 899 Silbury Boulevard Central Milton Keynes MK9 3XL www.personal-group.com Directors: C W T Johnston (Chairman) K W Rooney (Group managing director) J P Barber N Brittle R P Pease C J Curling (Non-executive) H H Driver (Non-executive) R M Green (Non-executive) Secretary: J P Barber Solicitors: Denton Wilde Sapte LLP Regency Court 206 Upper Fifth Street Milton Keynes MK9 2HR Bankers: The Co-operative Bank Plc Birmingham Corporate Banking Centre PO Box 82 118-120 Colmore Row Birmingham B3 3BA Auditor: Grant Thornton UK LLP Registered Auditors Chartered Accountants Grant Thornton House 202 Silbury Boulevard Central Milton Keynes MK9 1LW Nominated Brokers and Advisers: Cenkos Securities plc 6.7.8 Tokenhouse Yard London EC2R 7AS
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 INDEX PAGE Chairman’s statement 1-2 Report of the directors 3-5 Corporate governance statement 6-7 Report of the independent auditor 8-9 Consolidated income statement 10 Consolidated balance sheet 11 - 12 Company balance sheet 13 Consolidated statements of changes in equity 14 - 15 Company statements of changes in equity 16 - 17 Consolidated cash flow statement 18 Company cash flow statement 19 Notes to the financial statements 20 - 50
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Chairman’s statement BUSINESS REVIEW The group’s reported profit before tax (PBT) was £5.2m (2007: £8.6m) after providing for goodwill impairment of £3.4m in the year (2007: £nil). The group’s profit before interest, tax, depreciation and goodwill impairment was £9.2m (2007: £9.4m). Adding back the goodwill impairment, PBT increased slightly to £8.7m (2007: £8.6m). 2008 has been a good year for new business production. Our Personal Hospital Plan (PHP) and Death Benefit (DB) was 29% ahead of 2007. Voluntary Group Income Protection (VGIP) was up 211%. When translated into new business acquisition cost ratios the comparatives show that the cost of enrolling £100 of new PHP/DB annual premium in 2008 was £73.50 compared with £82.50 in 2007, a saving of approximately 10.9%. Combined new business expenses for PHP, DB, and VGIP rose by approximately 13.5% representing a £618,000 increased charge against profits in 2008 compared with 2007. Our PHP and DB and related policies have accumulated a £12.5m (2007: £12.9m) annual premium ‘bank’ of business that has been in force for more than 2 years and where all original sales costs have been recovered. What is more exciting is the effect of the last two years of considerably increased new business production that has created an additional annual bank of business which is less than 2 years old, which amounts to £7.9m (2007: £6.4m). During 2008, 29,698 (2007: 25,992) claims were processed, of which fewer than 1% were denied benefit, with the great majority paid in full by return of post. For the fifth year in succession no policyholder had their benefit curtailed because their hospital stay exceeded the maximum period payable. No Personal Assurance Plc claims were referred to the Financial Ombudsman Service during the year. During the financial year Berkeley Morgan Group (BMG) companies contributed £1.4m (2007: £1.1m) of PBT. This represented approximately 16.1% of the PBT (after adding back goodwill impairment) of the group. BMG has generated consistent profits between £1.1m to £1.7m since we acquired the business at the beginning of 2005. However, as we informed the market last year, we have completed a thorough analysis of the business prospects of each of the trading companies within BMG which includes travel, house & contents, private medical insurance agencies and a small team of financial advisers, and have come to the conclusion that the goodwill previously valued at £9.4m should be reduced to £6.0m, hence the goodwill impairment during the year. The fall in interest rates during the year has had an adverse impact on our net investment income which has decreased to £508,000 (2007: £848,000). At 31 December 2008 our government fixed interest securities and cash deposits amounted to £10.5m (2007: £10.7m). During 2008, our small equity portfolio suffered a reduction in market value to £484,000 at 31 December 2008 (2007: £924,000). The group’s joint venture with Abbeygate Developments Limited, of additional office space and residential units on the site adjacent to John Ormond House, continues to be fully let and generated a gross income of £0.4m in 2008 (2007: £0.4m) of which 50% is receivable by the group. As stated in Personal Assurance Plc’s annual return to the Financial Services Authority the capital resources requirement at 31 December 2008 was £3.0m (2007: £2.9m). Personal Assurance Plc’s qualifying capital resources available to cover this requirement were £7.8m (2007: £7.2m). This margin of solvency will allow further increases in premium income to be written by Personal Assurance Plc without the requirement for new capital. DIVIDENDS AND DIVIDEND POLICY During 2008 we paid quarterly dividends amounting to £5m (16.5p per share), an increase of 37.5% compared to 2007. In my 2007 chairman’s statement I commented that it was unlikely that dividends in 2009 will equal those paid in 2008. However, I am pleased to report that as a result of our continuing strong profit stream and cash position we were able to announce, earlier this year, our first quarterly dividend for 2009 amounting to 4.15p per share, which was paid today. Providing business continues as expected we anticipate paying the same amounts in June, September and December 2009. 1
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Chairman’s statement THE BOARD nd On the 2 February 2009 we announced that we had appointed a new group managing director, Nigel Brittle. th The board anticipates Nigel will take over fully from Ken Rooney following our AGM on the 28 April 2009. Nigel comes to us with 22 years experience with a similar if somewhat larger organisation to Personal Group. We believe Nigel’s personality, character and knowledge will add great value to the group in the years ahead. Ken Rooney, who has been group managing director for approximately 5 years, will become executive deputy chairman and will chair the subsidiary company boards. The all time record production and low cost of sales ratio achieved during 2008 is a tribute to Ken’s firm financial control and leadership throughout this period. Personally my plan is to continue as group chairman whilst substantially reducing my involvement in the day to day management of the group, moving to a non-executive role chairing Personal Group Holdings Plc and Personal Assurance Plc boards. I remain a director of Personal Group Trustees Limited and Abbeygate (Marlborough Gate 2) Limited and remain a trustee of the Personal Assurance Charitable Trust. I resigned my directorships of other subsidiary companies in January 2009. PROSPECTS FOR 2009 Current trading is in line with directors’ expectations. It should be noted that in previous economic downturns the insurance products on which the group’s success is based have proven remarkably resilient as customers have appreciated their simplicity and value for money. Our balance sheet remains strong with total equity, excluding goodwill, in excess of £17.1m. My thanks to all our policyholders, host company employers, employees and associates for their contribution to our continuing success. Christopher W T Johnston Chairman 27 March 2009 2
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Report of the Directors The directors present their report together with the audited financial statements for the year ended 31 December 2008. Principal activities The group is principally engaged in transacting short term accident and health insurance, employee benefits related business and financial services in the UK. Key performance indicators Management has established certain financial and non-financial key performance indicators which are used to measure the performance of the business on a regular basis. The following key performance indicators are considered important to the business: Financial: Annual premium growth Liquidity using the proportion of cash and government fixed interest securities versus total assets FSA capital resources requirement Claims ratio Non-financial: Total number of policies in force Claims handled in the period Results and dividends A review of the year's results is given in the chairman's statement (see pages 1 and 2). The profit for the year, before taxation of £2,456,000 (2007: £2,213,000), amounted to £5,227,000 (2007: £8,571,000). During the year ordinary dividends of £4,993,000 (2007: £3,627,000) were paid. Directors The present membership of the Board is set out below. All directors served throughout the year, with the exception of H H Driver and N Brittle who were appointed as directors on 1 May 2008 and 2 February 2009 respectively. S M Donald resigned as a director on 30 April 2008. In accordance with the Articles of Association, J P Barber and R P Pease retire by rotation and offer themselves for re-election. The interests of the directors and their families (including transactions committed to before the year end and shares held in the all employee share ownership plan) in the shares of the company as at 1 January 2008 and 31 December 2008 were as follows: Ordinary shares of 5p each in Personal Group Holdings plc At 31 December 2008 At 1 January 2008 C W T Johnston (Chairman) 15,581,393 15,476,393 K W Rooney (Group managing director) 177,151 160,213 J P Barber 342,880 316,707 N Brittle - - R P Pease 88,872 94,563 C J Curling (Non-executive) 25,122 12,298 H H Driver (Non-executive) - - R M Green (Non-executive) 46,130 22,704 At 31 December 2008 the mid market closing share price was 215.0p per share. 3
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Report of the Directors On 27 April 2004 unapproved Inland Revenue options were awarded to J P Barber and K W Rooney in respect of 37,533 and 53,619 shares respectively at an exercise price of 186.5p per share, exercisable on or after 27 April 2007. 20,000 shares were exercised on 28 January 2008 when the bid market closing price was 300.0p per share, 2,680 shares were exercised on 2 October 2008 when the bid market closing price was 255.0p per share, 1,608 shares were exercised on 14 October 2008 when the bid market closing price was 226.25p per share and 13,245 shares were exercised on 9 December 2008 when the bid market closing price was 207.0p per share. On 27 April 2007 the remuneration committee of Personal Group Holdings Plc approved the award of options to purchase shares in Personal Group Holdings Plc as follows: Number of Exercise price Earliest exercisable shares pence per share date J P Barber 32,154 311.0 27 April 2010 R P Pease 4,002 311.0 27 April 2010 R P Pease 5,831 301.0 22 May 2010 K W Rooney 41,800 311.0 27 April 2010 At 31 December 2008 options outstanding were as follows: Number of Exercise price Earliest exercisable shares pence per share date J P Barber 32,154 311.0 27 April 2010 R P Pease 4,002 311.0 27 April 2010 R P Pease 5,831 301.0 22 May 2010 K W Rooney 53,619 186.5 27 April 2007 K W Rooney 41,800 311.0 27 April 2010 During the year all directors and officers were covered by third party indemnity insurance. Charitable donations Donations to charitable organisations amounted to £80,000 (2007: £80,000). 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 financial statements for each financial year. Under that law the directors have elected to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable International Financial Reporting Standards as adopted by the European Union have been followed, subject to any material departure 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 company will continue in business. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 4
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Report of the Directors In so far as the directors are aware: there is no relevant audit information of which the company’s auditor is unaware; and the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Risk management objectives and policies See note 3 to the consolidated financial statements. Capital requirements See note 4 to the consolidated financial statements. Corporate governance The board’s report on the group’s corporate governance procedures is set out on pages 6 and 7. Payment of creditors It is the company's and group’s policy to pay all suppliers within the terms agreed at the time the order is made, subject to the satisfactory completion of the order by the supplier. The company and group had no trade creditors at the year end. Purchase of own shares On 19 December 2008 the company purchased 482,500 of its own 5p ordinary shares representing 1.6% of the company’s issued capital. The shares were purchased at a price of 210.0p per share and were cancelled on the same day. Auditor Grant Thornton UK LLP offer themselves for reappointment as auditor in accordance with section 385 of the Companies Act 1985. BY ORDER OF THE BOARD J P Barber Director & Company Secretary 27 March 2009 5
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Corporate governance statement General principles The board of Personal Group Holdings Plc supports the principles and is committed to achieving high standards of corporate governance. As an AIM listed company it is not required to comply with the Combined Code but notwithstanding this seeks to comply with those provisions which are most appropriate given the size of the group and the nature of its operations. Board of directors The board presently consists of five executive and three non-executive directors. The board meets on a regular basis and is responsible for the strategy and development of the group and the efficient management of its resources. It is supplied in a timely manner prior to meetings with information on financial, business and corporate matters, which enables it to discharge its duties. All directors have access to the advice and services of the company secretary and appropriate training is given as and when required. There are also procedures in place for the non-executive directors to obtain independent legal or other professional advice at the group’s expense. The group has a formal schedule of matters which are reserved for decision by the board. In addition the board has established committees with written terms of reference to fulfil specific functions as set out below. The matters reserved for the board include the appointment of directors and senior executives, in consequence of which a separate nominations committee is considered unnecessary at the present time. Audit committee The audit committee comprises the three non-executive directors and is chaired by R M Green. It meets at least twice a year, with the finance director and auditor usually in attendance. The committee reviews accounting matters, financial reporting and internal controls together with the interim and annual results announcements. Remuneration committee The remuneration committee consists of the three non-executive directors with the group managing director in attendance and is chaired by C J Curling. The committee meets as required but not less than once a year. It reviews and makes recommendations to the board regarding the terms and conditions of employment of the executive directors including performance related bonuses and share options, and sets the framework for the remuneration of other senior executives. The remuneration of the non-executive directors is fixed by the board as a whole. Compliance committee The compliance committee comprises the three non-executive directors with the group managing director and the group compliance officer normally in attendance. It is chaired by H H Driver. The committee meets as required but not less than four times a year. It oversees the compliance function of the group and reports to the board on Financial Services Authority compliance activities of the group as a whole. Auditor independence The audit committee reviews the nature and extent of non-audit services supplied by the external auditor to the group, seeking to balance objectivity and value for money. In determining the policy, the audit committee has taken into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm, and does not agree to the auditor providing a service if, having regard to the ethical guidance, the result is that: the external auditor audits its own firm’s work; the external auditor makes management decisions for the group; a mutuality of interest is created; or the external auditor is put in the role of advocate for the group. 6
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Corporate governance statement Internal control The board of directors is responsible for the group’s system of internal control and for reviewing its effectiveness. Such a system, however, is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The board has established a continuous process for identifying, evaluating and managing the group’s significant risks. This process involves the monitoring of all controls including financial, operational and compliance controls and risk management. It is based principally on reviewing reports from senior management and professional advisers to ensure that any significant weaknesses are promptly remedied. Relationship with shareholders The board attaches a high importance to maintaining good relationships with institutional shareholders and analysts, and seeks to keep them updated fully on the group’s performance, strategy and management. In addition the board welcomes as many shareholders as possible to attend the Annual General Meeting and encourages open discussion after the formal proceedings. Corporate social responsibility The group is committed to ensuring that the way in which its business is conducted has a positive impact on its employees and on the communities in which it operates. Its activity in this respect includes a charitable fund to which Personal Assurance Plc presently contributes approximately half of one per cent of premium income. The group supports a range of voluntary sector and community activities, primarily where its own employees or employees of host companies from whom the group derives its business are actively involved. 7
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Report of the Independent Auditor to the members of Personal Group Holdings Plc We have audited the group and parent company financial statements (the ''financial statements'') of Personal Group Holdings Plc for the year ended 31 December 2008 which comprise the consolidated income statement, the consolidated and parent company balance sheets, the consolidated and parent company statements of changes in equity, the consolidated and parent company cash flow statements and notes 1 to 34. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. 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 The directors' responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors' Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors' Report is consistent with the financial statements. The information given in the Directors' Report includes that specific information presented in the Chairman's statement that is cross- referred from the results and dividends and key performance indicators sections of the Directors' Report. In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors' Report, the Chairman's Statement and the Corporate Governance Statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and company's circumstances, consistently applied and adequately disclosed. 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. 8
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Opinion In our opinion: the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's affairs as at 31 December 2008 and of its profit for the year then ended; the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company's affairs as at 31 December 2008; the financial statements have been properly prepared in accordance with the Companies Act 1985; and the information given in the Directors' Report is consistent with the financial statements. GRANT THORNTON UK LLP REGISTERED AUDITOR CHARTERED ACCOUNTANTS Central Milton Keynes 27 March 2009 9
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Consolidated income statement Note 2008 2007 £000 £000 Gross premiums written 16,379 16,007 Change in unearned premiums 82 31 _______ _______ Net premiums written 5 16,461 16,038 Other income: Insurance related 5 8,006 7,769 Non-insurance related 5 1,572 1,538 Investment property 5 234 208 Investment income 6 508 848 _______ _______ Revenue 26,781 26,401 _______ _______ Claims incurred 7 (3,448) (3,080) Insurance operating expenses 8 (7,235) (7,084) Impairment of non-financial assets 15 (3,433) - Other expenses: Insurance related (5,444) (5,495) Non-insurance related (1,789) (1,736) Charitable donations (80) (80) _______ _______ Expenses (21,429) (17,475) _______ _______ Results of operating activities 5,352 8,926 Finance costs 6 (125) (355) _______ _______ Profit before tax 10 5,227 8,571 Tax 11 (2,456) (2,213) _______ _______ Profit for the year 12 2,771 6,358 _______ _______ The profit for the period is attributable to equity holders of Personal Group Holdings Plc. Earnings per share as arising from total and continuing operations Pence Pence Basic 13 9.2 21.0 Diluted 13 9.1 21.0 All operations are considered to be continuing. The accompanying accounting policies and notes form an integral part of these financial statements. 10
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Consolidated balance sheet at 31 December 2008 2008 2007 Note £000 £000 ASSETS Non-current assets Goodwill 15 6,000 9,433 Property, plant and equipment 16 5,556 5,449 Investment properties 17 3,159 2,091 Financial assets 18 5,620 6,075 _______ _______ 20,335 23,048 _______ _______ Current assets Trade and other receivables 19 3,234 3,570 Cash and cash equivalents 20 7,478 7,728 _______ _______ 10,712 11,298 _______ _______ Non-current assets classified as held for sale Property, plant and equipment 21 - 1,068 _______ _______ _______ _______ Total assets 31,047 35,414 _______ _______ The accompanying accounting policies and notes form an integral part of these financial statements. 11
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Consolidated balance sheet at 31 December 2008 2008 2007 Note £000 £000 EQUITY Equity attributable to equity holders of Personal Group Holdings Plc Share capital 22 1,503 1,527 Capital redemption reserve 24 - Other reserves (890) (570) Profit and loss reserve 22,522 25,752 _______ _______ Total equity 23,159 26,709 _______ _______ LIABILITIES Non-current liabilities Deferred tax liabilities 23 226 143 _______ _______ Current liabilities Provisions 24 135 345 Trade and other payables 25 4,265 5,020 Current tax liabilities 994 1,092 Borrowings 26 2,268 2,105 _______ _______ 7,662 8,562 _______ _______ _______ _______ Total liabilities 7,888 8,705 _______ _______ _______ _______ Total equity and liabilities 31,047 35,414 _______ _______ The financial statements were approved by the board on 27 March 2009. C W T Johnston J P Barber The accompanying accounting policies and notes form an integral part of these financial statements. 12
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Company balance sheet at 31 December 2008 2008 2007 Note £000 £000 ASSETS Non-current assets Investment in subsidiary undertakings 27 18,163 21,184 Financial assets 18 4,421 4,794 _______ _______ 22,584 25,978 _______ _______ Current assets Trade and other receivables 19 159 734 _______ _______ _______ _______ Total assets 22,743 26,712 _______ _______ EQUITY Equity attributable to equity holders of Personal Group Holdings Plc Share capital 22 1,503 1,527 Capital redemption reserve 24 - Other reserves (772) (587) Profit and loss reserve 11,135 16,451 _______ _______ Total equity 11,890 17,391 _______ _______ LIABILITIES Current liabilities Trade and other payables 25 8,585 7,216 Borrowings 26 2,268 2,105 _______ _______ Total liabilities 10,853 9,321 _______ _______ _______ _______ Total equity and liabilities 22,743 26,712 _______ _______ The financial statements were approved by the board on 27 March 2009. C W T Johnston J P Barber The accompanying accounting policies and notes form an integral part of these financial statements. 13
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Consolidated statement of changes in equity for the year ended 31 December 2008 Equity attributable to equity holders of Personal Group Holdings Plc Share Capital Other Profit & Total capital redemption reserves loss equity reserve reserve £000 £000 £000 £000 £000 Balance as at 1 January 2008 1,527 - (570) 25,752 26,709 ______ ___ ____ _______ _______ Available for sale investments: Transfer to income statement - - 4 - 4 Valuation changes taken to equity - - (193) - (193) Current tax on unrealised valuation changes taken to equity - - 54 - 54 ______ ___ ____ _______ _______ Net expense recognised directly into equity - - (135) - (135) Profit for the year - - - 2,771 2,771 ______ ___ ____ _______ _______ Total recognised income and expense for the year - - (135) 2,771 2,636 ______ ___ ____ _______ _______ Employee share-based compensation - - - 45 45 Dividends - - - (4,993) (4,993) Proceeds of AESOP share sales - - - 177 177 Cost of AESOP shares sold - - 202 (202) - Cost of AESOP shares purchased - - (387) - (387) Buy back and cancellation of shares (24) 24 - (1,028) (1,028) ______ ___ ____ _______ _______ Balance as at 31 December 2008 1,503 24 (890) 22,522 23,159 ______ ___ ____ _______ _______ The accompanying accounting policies and notes form an integral part of these financial statements. 14
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Consolidated statement of changes in equity for the year ended 31 December 2007 Equity attributable to equity holders of Personal Group Holdings Plc Share Shares Other Treasury Profit & Total capital to be reserves shares loss equity issued reserve reserve £000 £000 £000 £000 £000 £000 Balance as at 1 January 2007 1,528 298 (685) (298) 22,957 23,800 ______ _____ _____ ____ _______ _______ Available for sale investments: Transfer to income statement - - (10) - - (10) Valuation changes taken to equity - - 5 - - 5 Current tax on unrealised valuation changes taken to equity - - - - - - ______ _____ ____ ____ _______ _______ Net expense recognised directly into equity - - (5) - - (5) Profit for the year - - - - 6,358 6,358 ______ _____ ____ ____ _______ _______ Total recognised income and expense for the year - - (5) - 6,358 6,353 ______ _____ ____ _____ _______ _______ Employee share-based compensation - - - - 43 43 Dividends - - - - (3,627) (3,627) Proceeds of AESOP share sales - - - - 555 555 Cost of AESOP shares sold - - 534 - (534) - Cost of AESOP shares purchased - - (415) - - (415) Shares issued from treasury - (298) - 298 - - Cancellation of treasury shares (1) - 1 - - - ______ _____ ____ _____ _______ _______ Balance as at 31 December 2007 1,527 - (570) - 25,752 26,709 ______ _____ ____ _____ _______ _______ The accompanying accounting policies and notes form an integral part of these financial statements. 15
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Company statement of changes in equity for the year ended 31 December 2008 Equity attributable to equity holders of Personal Group Holdings Plc Share Capital Other Profit & Total capital redemption reserves loss equity reserve reserve £000 £000 £000 £000 £000 Balance as at 1 January 2008 1,527 - (587) 16,451 17,391 ______ ___ ____ _______ _______ Profit for the year - - - 685 685 ______ ___ ____ _______ _______ Total recognised income and expense for the year - - - 685 685 ______ ___ ____ _______ _______ Employee share-based compensation - - - 45 45 Dividends - - - (4,993) (4,993) Proceeds of AESOP share sales - - - 177 177 Cost of AESOP shares sold - - 202 (202) - Cost of AESOP shares purchased - - (387) - (387) Buy back and cancellation of shares (24) 24 - (1,028) (1,028) ______ ___ ____ _______ _______ Balance as at 31 December 2008 1,503 24 (772) 11,135 11,890 ______ ___ ____ _______ _______ The accompanying accounting policies and notes form an integral part of these financial statements. 16
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Company statement of changes in equity for the year ended 31 December 2007 Equity attributable to equity holders of Personal Group Holdings Plc Share Shares Other Treasury Profit & Total capital to be reserves shares loss equity issued reserve reserve £000 £000 £000 £000 £000 £000 Balance as at 1 January 2007 1,528 298 (707) (298) 14,455 15,276 ______ _____ ____ ____ _______ _______ Profit for the year - - - - 5,559 5,559 ______ _____ ____ ____ _______ _______ Total recognised income and expense for the year - - - - 5,559 5,559 ______ _____ ____ ____ _______ _______ Employee share-based compensation - - - - 43 43 Dividends - - - - (3,627) (3,627) Proceeds of AESOP share sales - - - - 555 555 Cost of AESOP shares sold - - 534 - (534) - Cost of AESOP shares purchased - - (415) - - (415) Shares issued from treasury - (298) - 298 - - Cancellation of treasury shares (1) - 1 - - - ______ _____ ____ ____ _______ _______ Balance as at 31 December 2007 1,527 - (587) - 16,451 17,391 ______ _____ ____ ____ _______ _______ The accompanying accounting policies and notes form an integral part of these financial statements. 17
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Consolidated cash flow statement 2008 2007 Note £000 £000 Operating activities Profit after tax 2,771 6,358 Adjustments for Depreciation 452 439 Goodwill impairment 3,433 - Profit on disposal of property, plant and equipment (5) (14) Realised and unrealised net investment losses 275 25 Interest received (705) (847) Dividends received (37) (18) Interest paid 136 366 Share-based payments 45 43 Taxation expense recognised in income statement 2,456 2,213 Changes in working capital Trade and other receivables 331 464 Trade and other payables (970) (793) Taxes paid (2,417) (2,641) ______ ______ Net cash from operating activities 5,765 5,595 ______ ______ Investing activities Additions to property, plant and equipment (575) (362) Additions to investment property - (18) Proceeds from disposal of property plant and equipment 30 62 Purchase of own shares by the AESOP (387) (415) Proceeds from disposal of own shares by the AESOP 177 555 Purchase of own shares for cancellation (1,028) - Purchase of financial assets (103) (95) Proceeds from disposal of financial assets 95 228 Interest received 705 847 Dividends received 37 18 ______ ______ Net cash (used)/gained in investing activities (1,049) 820 ______ ______ Financing activities Proceeds from bank loans 387 415 Repayment of bank loans (224) (4,595) Interest paid (136) (366) Dividends paid (4,993) (3,627) ______ ______ Net cash used in financing activities (4,966) (8,173) ______ ______ Net change in cash and cash equivalents (250) (1,758) Cash and cash equivalents, beginning of year 20 7,728 9,486 ______ ______ Cash and cash equivalents, end of year 20 7,478 7,728 ______ ______ The accompanying accounting policies and notes form an integral part of these financial statements. 18
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Company cash flow statement 2008 2007 £000 £000 Operating activities Profit after tax 685 5,559 Adjustments for Increase in impairment provision 4,021 83 Realised and unrealised net investment losses/(gains) 280 (108) Share-based payments 45 43 Changes in working capital Trade and other receivables 575 3,190 Trade and other payables (566) (1,100) ______ ______ Net cash from operating activities 5,040 7,667 ______ ______ Investing activities Purchase of own shares (387) (415) Proceeds from disposal of own shares 177 555 ______ ______ Net cash (used)/gained in investing activities (210) 140 ______ ______ Financing activities Proceeds from bank loans 387 415 Repayment of bank loans (224) (4,595) Dividends paid (4,993) (3,627) _______ _______ Net cash used in financing activities (4,830) (7,807) _______ _______ Net change in cash and cash equivalents - - _______ _______ Cash and cash equivalents, beginning and - - _______ _______ end of year The accompanying accounting policies and notes form an integral part of these financial statements. 19
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 1 General information The principal activities of Personal Group Holdings Plc (‘the company’) and subsidiaries (together ‘the group’) include transacting short term accident and health insurance, and providing employee benefits related business and financial services in the UK. The company is a limited liability company incorporated and domiciled in England. The address of its registered office is John Ormond House, 899 Silbury Boulevard, Milton Keynes MK9 3XL. The company is quoted on the Alternative Investment Market of the London Stock Exchange. These financial statements have been approved for issue by the board of directors on 27 March 2009. 2 Accounting policies These financial statements of Personal Group Holdings Plc are for the year ended 31 December 2008. They have been prepared in accordance with the requirements of International Financial Reporting Standards (IFRS) as adopted by the EU. These financial statements have been prepared in accordance with IFRS standards and IFRIC interpretations as adopted by the EU, issued and effective as at 31 December 2008. 2.1 Standards and Interpretations not yet effective The following Standards and Interpretations have been issued, but are not yet effective and have not been early adopted by the group: IAS 1 Presentation of Financial Statements (revised 2007) (effective 1 January 2009) IAS 23 Borrowing Costs (revised 2007) (effective 1 January 2009) Amendment to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation (effective 1 January 2009) IAS 27 Consolidated and Separate Financial Statements (Revised 2008) (effective 1 July 2009) Amendment to IFRS 2 Share-based Payment - Vesting Conditions and Cancellations (effective 1 January 2009) Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate Financial Statements - Costs of Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective 1 January 2009) Amendment to IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items (effective 1 July 2009) Improvements to IFRSs (effective 1 January 2009 other than certain amendments effective 1 July 2009) IFRS 3 Business Combinations (Revised 2008) (effective 1 July 2009) IFRS 8 Operating Segments (effective 1 January 2009) IFRIC 15 Agreements for the Construction of Real Estate (effective 1 January 2009) IFRIC 16 Hedges of a Net Investment in a Foreign Operation (effective for periods beginning on or after 1 October 2008) IFRIC 17 Distributions of Non-cash Assets to Owners (effective 1 July 2009) IFRIC 18 Transfers of Assets from Customers (effective prospectively for transfers on or after 1 July 2009) 20
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements IAS 1 Presentation of Financial Statements (Revised 2007) will result in changes to the presentation of the group’s financial statements as the format currently adopted for the statement of changes in equity will no longer be permitted. Instead, the group will present a statement of comprehensive income combining the existing income statement with other income and expenses currently presented as part of the statement of changes in equity. In addition, the group will present a separate statement of changes in equity showing owner changes in equity. IFRS 3 Business Combinations (Revised 2008) will apply to any future business combinations that the group may undertake once it is in force. The group has no plans to adopt the revised standard in advance of its mandatory implementation date and it is not possible to quantify the effect of the standard on future business combinations until those combinations take place. The other Standards and Interpretations are not expected to have any significant impact on the group’s financial statements, in their periods of initial application, except for the additional disclosures on operating segments when IFRS 8 Operating Segments comes into effect for periods commencing on or after 1 January 2009. IFRS 8 Operating Segments requires entities to adopt the ‘management approach’ to reporting on their operating segments. Consequently the segmental analysis of the group may change on adoption. 2.2 Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU. It should be noted that accounting estimates and assumptions are used in the preparation of the financial statements. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. Such knowledge has been used to determine the following: future profitability of the Berkeley Morgan group of companies on which the goodwill impairment valuation is based (note 15) establishing the value of provisions (note 24) establishing the value of claims outstanding (note 3 and note 25) and, presentation of certain property as investment property (note 2.13 and note 17) The impact of these estimates and assumptions are given in the cross-referred notes above. 2.3 Basis of consolidation The group financial statements consolidate those of the company and all of its subsidiary undertakings drawn up to 31 December 2008. Subsidiaries are entities over which the group has the power to control the financial and operating policies so as to obtain benefits from its activities. The group obtains and exercises control through voting rights. Unrealised gains on transactions between the group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the group. 21
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements Acquisitions of subsidiaries are dealt with by the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the deemed cost for subsequent measurement in accordance with the group accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition. 2.4 Business combinations completed prior to date of transition to IFRS The group has elected not to apply IFRS 3 Business Combinations retrospectively to business combinations prior to 1 January 2006. Accordingly the classification of the combination remains unchanged from that used under UK GAAP. Assets and liabilities are recognised at date of transition if they would be recognised under IFRS, and are measured using their UK GAAP carrying amount immediately post-acquisition as deemed cost under IFRS, unless IFRS requires fair value measurement. Deferred tax and minority interest are adjusted for the impact of any consequential adjustments after taking advantage of the transitional provisions. 2.5 Joint ventures Abbeygate Developments (Marlborough Gate 2) Limited is the only jointly controlled entity within the group. Its financial statements have been incorporated into Personal Group Holdings Plc’s financial statements using proportionate consolidation. The proportionate consolidation approach includes the group’s share of net assets and net profits of the joint venture under each heading of the income statement and balance sheet. 2.6 Goodwill Goodwill representing the excess of the cost of acquisition over the fair value of the group’s share of the identifiable net assets acquired, is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Negative goodwill is recognised immediately after acquisition in the income statement. Goodwill written off to reserves prior to date of transition to IFRS remains in reserves. There is no re-instatement of goodwill that was amortised prior to transition to IFRS. Goodwill previously written off to reserves is not written back to profit or loss on subsequent disposal. 22
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 2.7 Revenue Revenue is measured by reference to the fair value of consideration received or receivable by the group for goods supplied and services provided, excluding VAT and trade discounts. Revenue is recognised upon the performance of services or transfer of risk to the customer. Premium recognition Premium income is recognised on a receivable basis over the life that the policy is in force. Where a proportion of premiums written in the current year relate to cover provided in the following year it is carried forward as a provision for unearned premiums, calculated on a daily pro rata basis. Written premiums exclude insurance premium tax. Interest and dividend income Interest income is recognised on an effective interest rate method. Dividends are recognised when declared. Investment management expenses Investment management expenses are recognised on an accruals basis. Other income Property rental income is recognised on a receivable basis when the right to receive consideration has been established. Commission on insurance product sales is recognised when the policy goes on risk (i.e., when confirmation has been received from the insurer that the policy has been unconditionally accepted and that cover is being provided for the policyholder); in the case of indemnity commission, provision is made for estimated future lapses. Investments Unrealised gains or losses on long term assets classified as available for sale are recognised directly into equity. Unrealised investment gains and losses include adjustments in respect of unrealised gains and losses recorded in prior years which have been realised during the year and are reported as realised gains and losses in the current income statement together with gains or losses realised in the current year. Unrealised gains or losses on assets classified as long term financial assets and carried at fair value through profit or loss are recognised as income or expense in the income statement. 2.8 Deferred acquisition expenses Acquisition expenses represent direct costs associated with writing new policies by the group. A proportion of acquisition expenses are deferred to a subsequent accounting period to match the deferral to a subsequent accounting period of the proportion of the written premiums to which the acquisition expenses relate. The deferral of acquisition expenses is calculated by applying the ratio of unearned premiums to written premiums. 23
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 2.9 Claims recognition The provision for claims outstanding comprises the estimated cost of claims incurred but not settled at the balance sheet date, whether reported or not. Provision is made at the end of an accounting period for claims handling expenses to cover the anticipated costs of negotiating and settling claims which have occurred, whether notified or not, by that date. The provision includes the anticipated costs of the general claims administration relating to such claims. Adjustments to the amounts of claims provisions established in prior years are reflected in the financial statements for the period in which the adjustments are made, and are disclosed separately if material. The liability adequacy test (IFRS 4 paragraph 16) is performed at each reported balance sheet date. This requires the estimate of future cash flows under its insurance contracts to be measured against the recognised insurance liabilities. 2.10 Property, plant and equipment Property, plant and equipment is stated at cost or valuation, net of depreciation and any provision for impairment. No depreciation is charged during the period of construction. Borrowing costs on property, plant and equipment under construction are capitalised during the period of construction. Disposal of assets The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the income statement. Depreciation Depreciation is calculated to write down the cost or valuation less estimated residual value of all property, plant and equipment other than freehold land excluding investment properties by equal annual instalments over their estimated useful economic lives. Residual value is reviewed annually and amended if material. The rates generally applicable are: Freehold properties 50 years Motor vehicles 4 years Computer equipment 2 - 4 years Furniture, fixtures and fittings 5 - 10 years 2.11 Impairment testing of goodwill, other intangible assets and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the group at which management monitors the related cash flows. Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 24
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 2.12 Leased assets All leases are operating leases as the group does not bear substantially all the risks and rewards related to the ownership of the leased asset. The payments made under them are charged to the income statement on a straight line basis over the lease term. Lease incentives are spread over the term of the lease. 2.13 Investment properties Investment properties are properties held to earn rentals and/or for capital appreciation. There is a degree of judgement on the presentation of certain property where market conditions have meant that whilst the intention of management is to sell the property it does not fully meet the criteria of IFRS 5: Non-current assets held for sale and discontinued operations. Management believe that, where the property contains a third party tenant and the intention of sale remains, is on balance, grounds for treating the property as an investment property. The group measures all of its investment properties in accordance with IAS 40’s requirements for the cost model. Depreciation is based on cost less residual value. As residual value currently exceeds cost no depreciation is being provided. Rental income arising from the investment property is shown within other income and is recognised on a straight line basis over the lease term. The leases are classified as operating leases as the group has substantially all the risks and rewards related to the ownership of the leased asset. 2.14 Taxation Current tax is the tax currently payable based on taxable profit for the year. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. 25
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 2.15 Financial assets Financial assets are divided into the following categories: loans and other receivables; financial assets at fair value through profit or loss; and available for sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which they were acquired. All financial assets are recognised when the group becomes a party to the contractual provisions of the instrument. Financial assets other than those categorised as at fair value through profit or loss are initially recognised at fair value plus transaction costs. Financial assets categorised as at fair value through profit or loss are recognised initially at fair value with transaction costs expensed through the income statement. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the income statement. Provision against receivables is made when there is objective evidence that the group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the assets carrying amount and the present value of estimated future cash flows. Other financial assets include UK treasury loan stock, quoted and unquoted equity shares. These assets are not considered to be current assets and have been classified as long term financial assets and are carried at fair value through profit or loss. Financial assets at fair value through profit or loss include financial assets that are designated by the entity as at fair value through profit or loss upon initial recognition. Subsequent to initial recognition, the financial assets included in this category are measured at fair value with changes in fair value recognised in the income statement. Financial assets originally designated as financial assets at fair value through profit or loss are not reclassified subsequently. Financial assets are designated as at fair value through profit or loss where they are managed and their performance evaluated on a fair value basis in accordance with the group’s documented investment strategy. The group owns a portfolio of UK shares that are held, and managed on a discretionary basis, by an independent fund manager. These assets are reported as long term financial assets classified as available for sale. Available for sale financial assets include non-derivative financial assets that are either designated as such or do not qualify for inclusion in any of the other categories of financial assets. All financial assets within this category are measured subsequently at fair value, with changes in value recognised in equity. Gains and losses arising from investments classified as available for sale are recognised in the income statement when they are sold or when the investment is impaired. An assessment for impairment is undertaken at least at each balance sheet date. A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the group transfers substantially all the risks and rewards of ownership of the asset, or if the group neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset. 26
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 2.16 Financial liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the group becomes a party to the contractual provisions of the instrument. All financial liabilities are recorded initially at fair value, net of direct issue costs. Financial liabilities are recorded at amortised cost using the effective interest method, with interest related charges recognised as an expense in finance cost in the income statement. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. There are no financial liabilities categorised as at fair value through profit and loss. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. 2.17 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. 2.18 Investments in subsidiary undertakings and joint ventures Investments in subsidiary undertakings and joint ventures are shown at cost less amounts written off. 2.19 Equity Equity comprises the following: “Share capital” represents the nominal value of equity shares. “Shares to be issued” represents shares to be issued as contingent consideration on acquisition. “Capital redemption reserve” represents the nominal value of its own equity shares purchased, and then cancelled, by the company. “Other reserves” represent the investment in own company shares by the Employee Benefit Trust plus changes to the market value of available for sale investments. “Treasury shares reserve” represents the cost of treasury shares purchased to satisfy the contingent consideration for acquisition. “Profit and loss reserve” represents retained profits. 2.20 Employee benefits Defined contribution group and self-invested personal pension schemes The pension costs charged against profits are the contributions payable to the schemes in respect of the accounting period. 27
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 2.21 Share-based payment Equity-settled share-based payment All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2006 are recognised in the financial statements. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument as at the date it is granted to the employee. All equity-settled share-based payments are ultimately recognised as an expense in the income statement with a corresponding credit to “other reserves”. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. 2.22 Employee Benefit Trust The assets and liabilities of the Employee Benefit Trust (EBT) have been included in the group accounts. Any assets held by the EBT cease to be recognised on the group balance sheet when the assets vest unconditionally in identified beneficiaries. The costs of purchasing own shares held by the EBT are shown as a deduction against equity. The proceeds from the sale of own shares held increase equity. Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the group income statement. At present the company operates a plan whereby all employees, excluding controlling shareholders, are entitled to make monthly payments to the trust via payroll deductions. The current allocation period is six months and shares are allocated to employees at the end of each allocation period. The shares are allocated at the lower of the mid-market price at the beginning and end of the allocation period. The trust company has not waived its right to dividends on unallocated shares. Dividend income receivable on unallocated shares and any profit or loss on allocation of shares to individuals is taken directly to the “other reserves” within equity. 2.23 Treasury shares Shares purchased by the company and held as treasury shares are shown as a deduction against equity. 28
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 2.24 Non-current assets held for sale Assets held for sale includes assets that the group intends or expects to sell within one year from the date of classification as held for sale. Assets classified as held for sale are measured at the lower of their carrying amounts immediately prior to their classification as held for sale and their fair value less costs to sell. Assets classified as held for sale are not subject to depreciation or amortisation. Where the intention of sale changes, the asset is transferred at carrying value to the appropriate asset category and the asset is then subject to the appropriate financial reporting standard from transfer. 3 Risk management objectives and policies Personal Group Holdings Plc is exposed to market risk through its use of financial instruments and specifically through interest rate risk and certain other price risks which result from both its operating and its investing activities. The group’s and company’s risk management is coordinated at its headquarters, in close co-operation with the board of directors, and focuses on actively securing the group’s and company’s short to medium term cash flows by minimising the exposure to financial markets. Personal Group Holdings Plc does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The group and company does not have exposure to foreign currencies and does not use any derivatives or hedging to manage any of its liabilities. The most significant financial risks to which the group and company are exposed are described below. Credit risk The group’s and company’s exposure to credit risk includes the carrying value of financial assets at the balance sheet date, summarised as follows: Group Company 2008 2007 2008 2007 £000 £000 £000 £000 Trade receivables 1,563 1,518 - - Other receivables 538 584 - - Accrued interest 106 59 - - Loan to joint venture 2,121 2,167 4,241 4,334 Amounts due from subsidiary undertakings - - 157 732 Cash and cash equivalents 7,478 7,728 - - ______ _______ ______ ______ 11,806 12,056 4,398 5,066 ______ _______ ______ ______ There are no corresponding impairment provisions nor any related credit derivatives or similar instruments which mitigate the credit risk. The vast majority of the group’s revenue is generated from the sale of insurance policies to individual customers. However, a substantial proportion of the premiums are collected, and paid over to the group, by the individuals’ employer via payroll deduction. This naturally exposes the group to an element of credit risk. However the vast majority of employers pay over payroll deductions made, within one month, on a regular basis. The use of payroll deductions by a “host company employer” would not be permitted where the board believed there may be a significant credit risk. Receivables past their due date are summarised within note 19. The credit risk for liquid funds and other short term financial assets is considered negligible, since the counterparties are UK and EU banks. At 31 December 2008 the counterparties were as follows: The Co-operative Bank plc, Anglo Irish Bank Corporation plc, Abbey National plc, Bank of Scotland plc and HSBC Bank plc. 29
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements The company is also exposed to the loan to the joint venture. The property owned by the joint venture is currently fully let and income continues to exceed expenditure and therefore the joint venture is able to fulfil its obligations regarding the payment of interest to the company. The company’s loan to the joint venture is secured by a charge over the property. All subsidiary undertakings are 100% owned by the company. Either the chairman and/or the group managing director are directors of all of the subsidiary undertakings and therefore the company directors have a good understanding of the operational performance of each of the subsidiary undertakings. The company directors are satisfied that the subsidiary undertakings have sufficient future income streams to enable the liabilities to be repaid in full in the foreseeable future. The group is also exposed to credit risk of £58,000 (2007: £84,000) in relation to the estimate of amounts recoverable from financial advisers in respect of renewals commission which has been clawed back due to the policy being terminated. This asset forms part of the group’s estimate of wastage provision shown in note 24. There is no collateral on these amounts and the write-off of these amounts over the past three years ranges from £nil to £24,000. Market risk The group is exposed to market risk in respect of its financial assets carried at fair value through profit and loss and available for sale assets. These assets are traded on UK regulated markets. The available for sale assets are managed by an independent third party fund manager on a discretionary basis, subject to certain conditions imposed by the board. A detailed analysis of the individual components of financial assets at fair value and available for sale assets are as follows: 2008 2007 £000 £000 Financial assets designated at fair value through profit and loss: Quoted investments 4% 2009 treasury loan stock 3,015 2,984 Lighthouse Group shares 180 460 Available for sale financial assets: Independently managed equity portfolio 304 464 ______ ______ 3,499 3,908 ______ ______ Realised investment income from these investments is not considered to be subject to material variation as the treasury loan stock interest is fixed and other assets carried at fair value through profit and loss are not currently paying substantial dividends. Dividends from the equity portfolio in 2008 totalled £13,000 (2007: £18,000). Unrealised gains and losses on financial assets carried at fair value through profit and loss are recognised in the income statement. A 10% decrease in the value of these assets at 31 December 2008 would result in a charge to the income statement of approximately £320,000, with a corresponding deduction in equity. Unrealised gains and losses on available for sale financial assets are recognised in equity. A 10% decrease in the value of these assets at 31 December 2008 would result in a deduction to equity of approximately £30,000. 30
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements Liquidity risk Cash balances are managed internally by the finance director and amounts are placed on short term deposits (currently not exceeding 12 months) to ensure that sufficient funds are available at all times to pay all liabilities as and when they fall due. The group and company maintain flexibility in funding via a £12m 364 day credit facility with a major UK bank. At 31 December 2008 amounts on short term deposits exceeded borrowings by £4,498,000. As at 31 December 2008 the group’s and company’s liabilities have contracted maturities (including interest payments where applicable) as summarised below: Group Company Within 6 6-12 Within 6 6-12 months months months months £000 £000 £000 £000 At 31 December 2008 Amounts owed to subsidiary undertakings - - 8,552 - Trade and other payables 2,120 351 29 - Current tax liabilities 994 - - - Borrowings 166 2,166 166 2,166 ______ ______ ______ ______ 3,280 2,517 8,747 2,166 ______ ______ ______ ______ At 31 December 2007 Amounts owed to subsidiary undertakings - - 7,146 - Trade and other payables 2,601 347 54 - Current tax liabilities 1,092 - - - Borrowings 119 2,119 119 2,119 ______ ______ ______ ______ 3,812 2,466 7,319 2,119 ______ ______ ______ ______ Cash flow and fair value interest rate risk The group’s and company’s cash flow interest rate risk arises from borrowings in respect of the 364 day credit facility mentioned above and the group’s All Employee Share Ownership Plan (AESOP) loan. The group’s and company’s borrowings are all at variable rates linked to the Bank of England base rate. Interest rate risk on the group’s and company’s borrowings is balanced by short term fixed interest deposits with several UK financial institutions. Therefore reasonably predictable variations in UK interest rates cannot have a material adverse effect on the group’s investment income (net of finance costs). At 31 December 2008 amounts on short term deposits exceeded borrowings by £4,498,000. If UK interest rates increased by 4% net finance income would increase by approximately £180,000 with a corresponding increase to equity. The fair value impact of a change in the UK interest rates of the treasury loan stock have been ignored for this analysis as they mature in early 2009. 31
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements Insurance claim and related risks Personal Assurance Plc underwrites healthcare cash plans and personal accident or sickness policies. Taking into account the company’s claims history since the company was incorporated in 1984, the board has taken the decision not to use reinsurance as a way of managing insurance claim risk. At present the maximum amount payable on any one single claim is £73,100, and would only be payable after a continuous period of hospital confinement of two years. The total number of policies in force at 31 December 2008 was 221,314 (2007: 220,723) and the average amount paid per claim in 2008 was £166 (2007: £174). All underwriting and the vast majority of insurance related business is regulated by the Financial Services Authority (FSA). As required by the FSA all regulated companies have an appropriate level of professional indemnity insurance which covers both employees and self-employed advisers. For the year ended 31 December 2008 the gross claims ratio of Personal Assurance Plc was 21.1% (2007: 19.2%). A 2% increase in the claims ratio would increase claims incurred by approximately £328,000. 4 Capital requirements In addition to the statutory capital requirements of a UK registered Plc the FSA requires that all regulated companies maintain capital resources requirements, the actual amount being determined on an annual basis at the year end. At 31 December 2008 the requirements of the group’s FSA regulated companies were as follows: FSA capital Surplus over resources Available capital resources requirement qualifying assets requirement £000 £000 £000 Company Personal Assurance Plc 2,960 7,771 4,811 Personal Assurance Services Ltd 104 863 759 Personal Group Benefits Ltd 90 455 365 Personal Insurance & Reinsurance Brokers Ltd 8 130 122 Berkeley Morgan Ltd 72 1,672 1,600 In order to maintain its capital resources requirement, Personal Assurance Plc maintains the majority of its assets in UK government fixed interest securities and short term fixed interest rate deposits. 32
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 5 Segment analysis The group operates four main trading business segments, insurance underwriting, insurance and financial services related business, non-insurance related business, and investment property business. Personal Assurance Plc, a subsidiary within the group is an FSA regulated general insurance company and is authorised to transact accident and sickness insurance. Insurance and financial services related business income includes insurance brokerage commissions generated from insurance underwriting agencies, general insurance and brokerage commission and the provision of financial services. The vast majority of this income is generated from subsidiary companies that are also regulated by the FSA. Non-insurance related business consists of income derived from the sale of benefit books and other services. The revenue and net result generated by each of the group’s business segments are summarised as follows: Non- Insurance Insurance insurance Investment underwriting related related property Group £000 £000 £000 £000 £000 Business segments 2008 Revenue 16,461 8,006 1,572 234 26,273 Investment income 419 101 (12) - 508 _______ _______ _______ _______ _______ Total income 16,880 8,107 1,560 234 26,781 Net result for year before tax 6,117 (844) (69) 23 5,227 Segment assets 9,922 12,806 5,099 3,220 31,047 Segment liabilities (excluding tax) 1,435 4,421 806 6 6,668 Depreciation 2 416 8 26 452 2007 Revenue 16,038 7,769 1,538 208 25,553 Investment income 455 139 254 - 848 _______ _______ _______ _______ _______ Total income 16,493 7,908 1,792 208 26,401 Net result for year before tax 6,249 2,070 239 13 8,571 Segment assets 9,688 18,057 5,490 2,179 35,414 Segment liabilities (excluding tax) 1,543 5,127 795 5 7,470 Depreciation 2 399 12 26 439 Segment liabilities excludes tax of £1,220,000 (2007: £1,235,000). A reconciliation between segment liabilities shown above and total segment liabilities is as follows: 33
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements Non- Insurance Insurance insurance Investment underwriting related related property Group £000 £000 £000 £000 £000 2008 Segment liabilities (excluding tax) 1,435 4,421 806 6 6,668 Segment tax liabilities 694 497 (3) 32 1,220 ______ ______ ____ ___ ______ Total segment liabilities 2,129 4,918 803 38 7,888 ______ ______ ____ ___ ______ 2007 Segment liabilities (excluding tax) 1,543 5,127 795 5 7,470 Segment tax liabilities 914 320 - 1 1,235 ______ ______ ____ __ ______ Total segment liabilities 2,457 5,447 795 6 8,705 ______ ______ ____ __ ______ All business is transacted in the UK and therefore there is no secondary information to disclose. 6 Investment income and finance costs 2008 2007 £000 £000 Investment income Loans and receivables: Income from unlisted investments 244 283 Income from cash on deposit 388 457 Financial assets designated at fair value through profit and loss: Income from fixed interest securities 120 120 Income from listed investments 24 - Unrealised losses (253) (23) Available for sale: Income from listed investments 13 18 Realised gains 11 28 Realised losses (37) (18) Realised gains/(losses) transferred from equity 4 (10) Investment management expenses (6) (7) ____ ____ 508 848 ____ ____ 34
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 2008 2007 £000 £000 Finance costs Interest expense on AESOP bank loan 15 12 Interest expense on other bank loan 110 343 ____ ____ 125 355 ____ ____ 7 Claims incurred 2008 2007 £000 £000 Claims paid 3,188 2,920 Claims handling expenses paid 299 274 ______ ______ 3,487 3,194 ______ ______ Decrease in claims provision (48) (120) Increase in provision for claims handling costs 9 6 ______ ______ (39) (114) ______ ______ ______ ______ 3,448 3,080 ______ ______ 8 Insurance operating expenses 2008 2007 £000 £000 Acquisition costs 4,153 3,816 Decrease in deferred acquisition costs - 13 ______ ______ Incurred acquisition costs 4,153 3,829 Administration expenses 3,082 3,255 ______ ______ 7,235 7,084 ______ ______ Total commission incurred during the year in respect of direct insurance was £984,000 (2007: £820,000). 35
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 9 Directors’ and employees’ remuneration a) Staff costs (excluding non-executive directors’ fees) during the year were as follows: 2008 2007 £000 £000 Wages and salaries 6,038 6,180 Social security costs 667 687 Other pension costs 375 368 ______ ______ 7,080 7,235 ______ ______ Average number of employees was as follows: 2008 2007 Number Number Administration 84 105 Sales and marketing 86 80 ____ ____ 170 185 ____ ____ b) Transactions with key management personnel: Key management personnel are defined as the directors of Personal Group Holdings Plc. 2008 2007 £000 £000 Emoluments 1,342 1,275 Social security costs 170 157 Gains made on the exercise of share options 28 60 Share-based expense 18 18 Pension contributions to group and self invested personal pension schemes 69 70 ______ ______ During the year, 8 directors (2007: 7 directors) participated in group and self invested personal pension schemes. During the previous year, one director waived emoluments to the value of £50,000. The amounts set out above include remuneration in respect of the highest paid director as follows. All emoluments relate to payments made by subsidiary undertakings. 2008 2007 £000 £000 Emoluments 736 680 Pension contributions to self invested personal pension scheme 24 24 ____ ____ The company does not incur employee remuneration. 36
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 10 Profit before tax 2008 2007 £000 £000 Profit before tax is stated after: Auditors’ remuneration (inclusive of non-recoverable VAT): Audit services: Audit of company financial statements 24 29 Non-audit services: Audit of subsidiary undertakings 86 78 Taxation 4 12 Review of interim financial statements 8 5 Depreciation of property, plant and equipment 452 439 Rental income receivable 352 325 Operating lease rentals – land and buildings 97 105 ____ ____ 11 Tax The relationship between the expected tax expense based on the effective tax rate of Personal Group Holdings Plc at 28.5% (2007: 30%) and the tax expense actually recognised in the income statement can be reconciled as follows: 2008 2007 £000 £000 Profit before tax 5,227 8,571 Tax rate 28.5% 30% ______ ______ Expected tax expense 1,490 2,571 Adjustment for marginal tax rate differences (8) (11) Reduction in opening deferred tax resulting from reduction in tax rate - (12) Adjustment for non deductible expenses (36) (16) Adjustment for goodwill impairment 978 - Other adjustments Tax charge in respect of prior years (3) (65) Utilisation of losses not provided for (19) (68) Deferred tax on non-current assets classified as held for sale - (186) Current tax on unrealised valuation changes taken to equity 54 - ______ ______ Actual tax expense 2,456 2,213 ______ ______ 37
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 2008 2007 £000 £000 Comprising Current tax expense 2,315 2,434 Relating to equity accounted investments 54 - In respect of prior year (3) (55) Deferred tax In respect of prior year - (10) Origination and reversal of temporary differences 90 42 Non-current assets classified as held for sale - (186) Adjustment for tax rate differences - (12) ______ ______ 2,456 2,213 ______ ______ 12 Profit for the year The parent company has taken advantage of section 230 of the Companies Act 1985 and has not included its own profit and loss account in these financial statements. The parent company’s profit for the year was £685,000 (2007: £5,559,000). 13 Earnings per share 2008 2007 Weighted Weighted average Pence average Pence Earnings number of per Earnings number of per £000 shares share £000 shares share Basic 2,771 30,268,462 9.2 6,358 30,260,729 21.0 Dilutive effect of shares in Employee Share Ownership Plan - 17,948 (0.1) - 36,417 - ______ ____________ _____ ______ ___________ _____ Diluted 2,771 30,286,410 9.1 6,358 30,297,146 21.0 ______ ____________ _____ ______ ___________ _____ Profit for the year 2,771 30,268,462 9.2 6,358 30,260,729 21.0 Interest expense 125 0.4 355 1.1 Tax 2,456 8.1 2,213 7.3 Depreciation 452 1.5 439 1.5 Goodwill impairment 3,433 11.3 - - ______ ____________ _____ ______ ____________ _____ EBITDA 9,237 30,268,462 30.5 9,365 30,260,729 30.9 ______ ____________ _____ ______ ____________ _____ EBITDA per share is based on earnings before interest, tax, depreciation and goodwill impairment. 38
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 14 Dividends 2008 2007 2008 2007 Pence per share £000 £000 Equity dividends Ordinary shares paid in year March 6.6 6.0 2,016 1,833 May - 3.5 - 1,069 June 3.3 - 1,008 - September 3.3 - 1,008 - October - 2.5 - 764 December 3.3 - 1,008 - ______ ______ 5,040 3,666 Less: amounts paid on own shares (47) (39) ____ ____ ______ ______ 16.5 12.0 4,993 3,627 ____ ____ ______ ______ 15 Goodwill All of the goodwill results from the acquisition of Berkeley Morgan Group Limited in January 2005. The carrying amount of goodwill which has been allocated to that cash-generating unit can be analysed as follows: £000 Gross carrying amount at 1 January 2007 and 1 January 2008 9,433 Impairment provision (3,433) ______ Net carrying amount at 31 December 2008 6,000 ______ The underlying performance of the Berkeley Morgan Group has deteriorated during the year to an extent that, when taken in addition to significant changes to the group’s discount rate as a result of the increase in dividends paid during the year, an impairment provision has become necessary. The amounts for the cash-generating unit were determined based on value in use calculations over a period of fifteen years, covering a detailed three year forecast, followed by an extrapolation of expected cash flows at a growth rate of nil (2007: 3%). The growth rate does not assume significant increases in sales volumes or profitability as the current circumstances of the business environment make it difficult for growth to be assumed. The group’s pre-tax discount rate at 31 December 2008 has been estimated at 12.0% (2007: 8.9%) based upon the group’s weighted average cost of capital. The value in use calculation described above results in a deficit of approximately £3,433,000. This deficit has been provided for in full. There are a number of significant estimates used by management to determine the value in use of goodwill including profitability and discount rate. If profits were to decrease by 10% over the 15 years, the impairment provision would increase by approximately £0.6m. An increase of 10% would decrease the provision by approximately £0.4m. If the discount rate were to increase by 1% the impairment provision would increase by £0.1m. If the discount rate were to decrease by 1% the impairment provision would decrease by £0.3m. 39
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 16 Property, plant and equipment For the year ended 31 December 2008 Freehold land Furniture and Motor Computer fixtures & properties vehicles equipment fittings Total £000 £000 £000 £000 £000 Cost At 1 January 2008 5,225 530 452 1,935 8,142 Additions 253 184 21 122 580 Disposals - (93) (35) (6) (134) ______ ____ ____ ______ ______ At 31 December 2008 5,478 621 438 2,051 8,588 ______ ____ ____ ______ ______ Depreciation At 1 January 2008 657 207 330 1,499 2,693 Provided in the year 92 148 90 122 452 Eliminated on disposals - (72) (35) (6) (113) ______ ____ ____ ______ ______ At 31 December 2008 749 283 385 1,615 3,032 ______ ____ ____ ______ ______ Net book amount at 31 December 2008 4,729 338 53 436 5,556 ______ ____ ____ ______ ______ Net book amount at 1 January 2008 4,568 323 122 436 5,449 ______ ____ ____ ______ ______ 40
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements For the year ended 31 December 2007 Freehold land Furniture and Motor Computer fixtures & properties vehicles equipment fittings Total £000 £000 £000 £000 £000 Cost At 1 January 2007 6,365 477 406 1,915 9,163 Transfer to assets classified as held for sale (1,140) - - - (1,140) Additions - 225 105 21 351 Disposals - (172) (59) (1) (232) ______ ____ ____ ______ ______ At 31 December 2007 5,225 530 452 1,935 8,142 ______ ____ ____ ______ ______ Depreciation At 1 January 2007 616 204 290 1,399 2,509 Eliminated on transfer to assets classified as held for sale (72) - - - (72) Provided in the year 113 127 99 100 439 Eliminated on disposals - (124) (59) - (183) ______ ____ ____ ______ ______ At 31 December 2007 657 207 330 1,499 2,693 ______ ____ ____ ______ ______ Net book amount at 31 December 2007 4,568 323 122 436 5,449 ______ ____ ____ ______ ______ Net book amount at 1 January 2007 5,749 273 116 516 6,654 ______ ____ ____ ______ ______ 17 Investment properties £000 Carrying value at 1 January 2007 2,073 Additions in year 18 _____ Carrying value at 31 December 2007 2,091 Transfer from non-current assets classified as held for sale 1,068 _____ Carrying value at 31 December 2008 3,159 ______ The investment properties have not been valued by independent professional chartered surveyors. However the directors believe that, taking into account recent property transactions in the Milton Keynes area, the total open market value of this property is likely to be in the range £4,500,000 - £5,000,000. The group’s share of this amount is 50%. The directors believe that the open market value of the Blackburn property is likely to be in the range £1,100,000 - £1,200,000 based on speculative verbal offers received in the year. 41
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 18 Financial assets Group Company 2008 2007 2008 2007 £000 £000 £000 £000 Loans and receivables 2,121 2,167 4,241 4,334 Financial assets designated at fair value through profit and loss 3,195 3,444 180 460 Available for sale 304 464 - - ______ ______ ______ ______ 5,620 6,075 4,421 4,794 ______ ______ ______ ______ The loans and receivables are secured by a charge over the Milton Keynes property shown within note 17. Quoted financial assets designated at fair value through profit and loss and available for sale assets are stated at their bid market price. Unquoted financial assets designated at fair value through profit and loss are valued using an expected future cash flow basis. 19 Trade and other receivables Group Company 2008 2007 2008 2007 £000 £000 £000 £000 Loans and receivables: Trade receivables arising out of direct insurance operations 1,563 1,518 - - Other receivables due within one year 538 584 - - Amounts due from subsidiary undertakings - - 157 732 Accrued interest 106 59 - - Deferred acquisition costs 45 65 - - Other prepayments and accrued income 982 1,344 2 2 ______ ______ ____ ____ 3,234 3,570 159 734 ______ ______ ____ ____ All of the group’s trade receivables arising out of direct insurance operations and other trade receivables due within one year have been reviewed for indicators of impairment. No provision for impairment has been made in respect of the current or prior year. 42
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements Some of the unimpaired receivables are past their due date as at the reporting date. The age of receivables past their due date but not impaired is as follows: 2008 2007 £000 £000 Not more than three months 2,047 2,077 More than three months but not more than 6 months 18 11 More than six months but not more than 1 year 36 14 ______ ______ 2,101 2,102 ______ ______ In the past, the group has incurred bad debt write offs up to approximately £40,000 in a year and consequently whilst the above may be overdue, the risk of credit default is considered to be low. The group has no charges or other security over any of these assets. 20 Cash and cash equivalents 2008 2007 £000 £000 Cash at bank and in hand 712 751 Short term investments/cash equivalents 6,766 6,977 ______ ______ 7,478 7,728 ______ ______ 21 Non-current assets classified as held for sale 2008 2007 £000 £000 Property, plant and equipment - 1,068 ______ ______ At 31 December 2008 the directors were of the opinion that the Blackburn property should now be shown as an investment property and therefore the carrying value of the property has been transferred to investment properties (see note 17). 43
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 22 Share capital 2008 2007 £000 £000 Authorised 200,000,000 ordinary shares of 5p each 10,000 10,000 _______ _______ Allotted, called up and fully paid 30,064,661 (2007: 30,547,161) ordinary shares of 5p each 1,503 1,527 _______ _______ On 19 December 2008 the company purchased 482,500 of its own shares at a price of 210 pence per share. The total cost of the share purchase, including stamp duty and broker’s commission, totalled £1,028,454. These shares were cancelled on the same day. The total number of own shares held by the Employee Benefit Trust at 31 December 2008 was 431,067 (2007: 388,954). As at 31 December 2008 the group maintained one share-based payment scheme for employee compensation. For the options granted to vest there are no performance criteria obligations to be fulfilled other than continuous employment during the 3 year period, except for early termination of employment by attaining normal retirement age, ill health or redundancy. All share-based employee compensation will be settled in equity. The group has no legal or constructive obligation to repurchase or settle the options. Share option and weighted average exercise price are as follows for the reporting periods presented: 2008 2007 Weighted Weighted average average exercise exercise price price Number pence Number pence Outstanding at 1 January 2008 325,707 270.2 364,547 186.5 Options granted in year 9,950 301.5 218,470 311.0 Options exercised in year (53,618) 186.5 (257,310) 187.3 Options cancelled in year (19,207) 312.4 - - _________ ________ Outstanding at 31 December 2008 262,832 285.4 325,707 270.2 _________ ______ ________ ______ The weighted average exercise price of 53,619 (2007: 107,237) share options exercisable at 31 December 2008 was 186.5 pence per share. The fair values of options which were granted on 27 April 2007 and 28 January 2008 were determined by using the Black-Scholes valuation model. The fair value of these options was 62 pence per share. Significant inputs into the calculation include a weighted average share price of 311.0p and exercise prices as illustrated above. Furthermore the calculation takes into account future dividends of 4.0% and a volatility rate of 30.0%, based on expected share price. Risk-free interest rate was determined at 6.0%. The options are exercisable between 3 and 10 years after the date of grant and have exercise prices ranging between 301 pence and 319 pence per share. 44
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements The weighted average remaining contracted life of outstanding options at 31 December 2008 was 7 years and 9 months (2007: 8 years and 4 months). The underlying expected volatility was determined by reference to historical data. No special features immanent to the options granted were incorporated into the measurement of fair value. In total, £45,000 of employee compensation by way of share based payment expense has been included in the consolidated income statement for 2008 (2007: £43,000). The corresponding credit is taken to equity. No liabilities were recognised due to share-based transactions. 23 Deferred tax 2008 2007 Deferred Deferred Deferred Deferred tax assets tax liabilities tax assets tax liabilities £000 £000 £000 £000 Non-current assets and liabilities Property plant and equipment 39 243 32 257 Financial assets - - - 16 Assets held for sale - - - 27 Investment properties - 28 - - Current assets Pension and other employee - obligations 4 - 113 Share options 2 - 12 - ___ ____ ____ ____ 45 271 157 300 Offset (45) (45) (157) (157) ___ ____ ____ ____ - 226 - 143 ___ ____ ____ ____ At 31 December 2008 the group, excluding the joint venture, had tax losses of £1,076,000 (2007: £1,091,000) available to carry forward to offset against future profits of the same trades. A deferred tax asset has not been recognised in respect of the carried forward tax losses as there is uncertainty as to when they will be utilised given the trade is no longer a significant component of the group. 24 Provisions £000 At 1 January 2007 256 Movement in provisions charged to income statement 211 Utilised during the year (122) ____ At 31 December 2007 345 Movement in provisions charged to income statement (133) Utilised during the year (77) ____ At 31 December 2008 135 ____ 45
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements The provisions have been recognised in respect of the estimate of claw back of commission relating to cancellation of policies, pension’s transfers and the free standing additional voluntary contributions review. Due to the nature of the provisions, and the fact that they will be affected by circumstances that are outside of the control of the group, there is uncertainty as to the actual amount that should be provided for. This uncertainty is taken into consideration when reviewing the outstanding provisions at the balance sheet date. The utilisation of the provisions over the past three years has been between £122,000 and £130,000 and the estimate has been based upon that history. The maximum potential claim of pension transfers and the free standing voluntary contributions review is unknown as it depends upon the circumstances of each claim. The total commission that could potentially be clawed-back due to cancellation of policies in respect of new business written in 2008 is £1,165,000 (2007: £1,141,000). 25 Trade and other payables Group Company 2008 2007 2008 2007 £000 £000 £000 £000 Financial liabilities measured at amortised cost: Claims outstanding 744 778 - - Amounts owed to subsidiary undertakings - - 8,552 7,146 Other creditors 1,075 1,064 - - Provision for unearned premiums 284 366 - - Accruals and deferred income 2,162 2,812 33 70 ______ ______ ______ ______ 4,265 5,020 8,585 7,216 ______ ______ ______ ______ The gross claims ratio relating to claims outstanding and the impact of assumptions on this estimate is shown in note 3. These liabilities are not secured against any assets of the group. 26 Borrowings 2008 2007 £000 £000 Financial instruments measured at amortised cost: AESOP bank loan 268 105 Other bank loan 2,000 2,000 ______ ______ 2,268 2,105 ______ ______ The AESOP bank loan is repayable within one year by equal monthly instalments. Interest is charged at 1% over the Co-operative Bank plc base rate. The other bank loan is a revolving credit facility. Interest is charged at 0.8% over the Royal Bank of Scotland plc base rate. The other bank loan is secured by a fixed charge over freehold property. 46
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 27 Company investment in subsidiary undertakings and joint venture Shares in subsidiary undertakings £000 Cost At 1 January 2008 23,442 Additions 1,000 _______ At 31 December 2008 24,442 _______ Amounts written off At 1 January 2008 2,258 Impairment provision 4,021 _______ At 31 December 2008 6,279 _______ Net book amount at 31 December 2008 18,163 _______ Net book amount at 1 January 2008 21,184 _______ The impairment provision includes the Berkeley Morgan Group Limited write down, which has been estimated at £3,433,000, using similar assumptions and estimates in the goodwill impairment review (see note 15), along with the impairment of dormant and loss making subsidiary undertakings. At 31 December 2008 the company held 100% of the allotted share capital of the following trading companies, all of which were incorporated in England and Wales and have been consolidated in the group financial statements. Nature of business Personal Assurance Plc * General insurance Personal Insurance & Reinsurance Brokers Limited * Insurance broking Personal Assurance Services Limited * Administration services Personal Group Benefits Limited * Employee benefits sales and marketing Personal Group Trustees Limited * Trustee for employee share options Personal Management Solutions Limited * Employee benefits sales and marketing Berkeley Morgan Group Limited * Berkeley Morgan Group Holding company Berkeley Morgan Limited Independent financial advisers Universal Provident Limited Health insurance services Rapidinsure.co.uk Limited General insurance intermediary B M Agency Services Limited Wholesale insurance intermediary * Directly owned by Personal Group Holdings Plc At 31 December 2008 the company held 50% of the allotted share capital of Abbeygate Developments (Marlborough Gate 2) Limited which has been incorporated in England and Wales. At 31 December 2008 the allotted share capital of Abbeygate Developments (Marlborough Gate 2) Limited was 2 £1 ordinary shares (see note 32). 47
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 28 Capital commitments There were no capital commitments at 31 December 2008. At 31 December 2007 the group had capital commitments in respect of office equipment of £20,000. 29 Contingent liabilities There were no contingent liabilities at 31 December 2008 and 31 December 2007. 30 Pensions Group and self invested personal pension schemes. The company operates a group personal pension scheme for the benefit of certain directors and employees. The scheme is administered by Scottish Equitable Plc and the funds are held independent of the company. In addition the company makes contributions to certain directors self invested personal pension schemes. These schemes are administered by City Trustees Limited and the funds are held independent of the company. 31 Leasing commitments and rental income receivable Total operating lease payments due until the end of the lease, or the first break clause, total £311,000 (2007: £95,000). An analysis of these payments due is as follows: 2008 2007 £000 £000 Total operating lease payments due on leases that expire: Within one year 9 58 Within two to five years 160 37 Within five to ten years 142 - ____ ___ 311 95 ____ ___ Total operating rent receivable payments due until the end of the lease or the first break clause, total £1,106,000 (2007: £1,628,000). An analysis of these receivable payments due is as follows: 2008 2007 £000 £000 Total operating lease rent receivable payments due on leases that expire: Within one year 44 130 Within one to two years 148 - Within two to five years 458 266 Within five to ten years 456 1,232 ______ ______ 1,106 1,628 ______ ______ 48
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements 32 Related party transactions Personal Group Holdings Plc does not have any bank accounts other than a loan account. All transactions are dealt with via subsidiary undertakings. A list of inter-company balances with subsidiary undertakings is as follows: 2008 2007 Debtor Creditor Debtor Creditor £000 £000 £000 £000 Personal Assurance Plc - 3,025 - 1,609 Personal Assurance Services Ltd - 3,559 - 3,384 Personal Group Benefits Ltd 154 - - 594 Personal Insurance & Reinsurance Brokers Ltd - 133 - 136 Personal Assurance Financial Services Plc - 137 - 137 Multiplelisting Ltd - 100 - 100 John Ormond House Ltd - - - - Personal Management Solutions Ltd - 261 729 - Mutual Benefit Ltd - 12 - 12 ParTake Services Ltd 3 - 3 - Berkeley Morgan Group Ltd - 1,325 - 1,174 ____ ______ ____ ______ 157 8,552 732 7,146 ____ ______ ____ ______ During 2004 the company entered into a joint venture agreement with Abbeygate Developments Limited to construct a freehold joint office and residential property development on land adjacent to John Ormond House. A joint venture company called Abbeygate Developments (Marlborough Gate 2) Limited was established to construct the property. This company is owned equally by Personal Group Holdings Plc and Abbeygate Developments Limited. The development is funded by way of a loan from Personal Group Holdings Plc. Interest on the loan is charged at 1% above the Bank of England base rate on a daily basis. During the year interest receivable totalled £244,456 (2007: £281,962). Personal Group Holdings Plc has a charge over the development. 49
    • Personal Group Holdings Plc – Annual Report for the year ended 31 December 2008 Notes to the consolidated financial statements At 31 December 2008 the amount outstanding on the loan was £4,240,768 (2007: £4,334,468). The aggregate amounts relating to Abbeygate Developments (Marlborough Gate 2) Limited that have been included in the consolidated financial statements are as follows: 2008 2007 £000 £000 Non-current assets Property, plant and equipment 45 72 Investment property 2,091 2,091 Long term financial assets (2,120) (2,167) ______ ______ 16 (4) Current assets Trade and other receivables 16 16 ______ ______ 32 12 ______ ______ Current liabilities Trade and other payables 6 5 Current tax liabilities 4 1 ______ ______ 10 6 ______ ______ Income 195 208 Expenses (175) (195) ______ ______ Profit for the year before tax 20 13 ______ ______ The long term financial asset deduction represents the derecognition of the group’s long term asset invested in the joint venture. There were no cash movements in the year as the company does not have its own bank account and all transactions are dealt with through inter-company accounts. 33 Controlling related party C W T Johnston is the group’s controlling related party by virtue of his majority shareholding. 34 Cash flows from insurance contracts During the year £16,334,000 (2007: £15,872,000) was received from insurance contracts. Future cash flows will depend upon the amount of new business written, and the amount of cancellations received, in any financial period. 50
    • Personal Group Holdings Plc John Ormond House, 899 Silbury Boulevard, Central Milton Keynes, Buckinghamshire MK9 3XL Telephone 01908 605000 Facsimile 01908 201711 Group Holdings Plc www.personal-group.com © Personal Group Holdings Plc 2009