Final Results

by B.P. Marsh | Jun 11, 2019 | Portfolio News

FINAL RESULTS FOR THE YEAR TO 31 JANUARY 2019

B.P. Marsh & Partners Plc (AIM: BPM), the specialist investor in early stage financial services businesses, announces its audited Group final results for the year to 31 January 2019.

The highlights of the results are:

• Net Asset Value of £126.2m (31 January 2018: £98.9m), a 10.0% increase, net of Dividend and £16.6m net cash raised through the Placing and Open Offer in July 2018
• Total Shareholder return of 11.7% for the year including the Dividend paid in July 2018
• Net Asset Value per share increased to 350p (31 January 2018: 339p)
• Net Asset Value average annual compound growth rate of 11.9% since 1990 (net of Dividends and Placing cash)
• Consolidated profit after tax of £12.5m (31 January 2018: £20.2m, or £10.8m excluding one-off items). Up 16% excluding one-off items
• Increase in the Equity Value of the portfolio of 16.1% to £101.9m (31 January 2018 £79.1m)
• Final Dividend of 4.76p per share declared (31 January 2018: 4.76p), payable in July 2019
• Cash and treasury funds balance of £7.9m at year end, of which £1.5m remains uncommitted
• New investment in Australia, ATC Insurance Solutions PTY Ltd
• Additional investments in Nexus and XPT and provision of follow-on funding to Nexus
• Continued strong opportunity pipeline
• Share price increase of c.11% in the year and c.113% over five years

“We are pleased to have produced a good overall performance in an uncertain macro environment, which is testament to our developing investment portfolio and the tenacity of our team.”

Brian Marsh OBE, Chairman

Note

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

Chairman’s Statement

I am pleased to present the audited Consolidated Financial Statements of B.P. Marsh & Partners Plc for the year ended 31 January 2019.

We have concluded the year with a 10.0% increase in Net Asset Value (net of dividend and £16.6m net cash raised through the Placing and Open Offer in July 2018) during that period and an increase in the equity value of the portfolio from £79.1m to £101.9m, or 16.1% adjusting for acquisitions. Our Net Asset Value now stands at £126.2m or 350p per share.

There have been some excellent investee company performances within the portfolio both in the UK and overseas and across broking and Managing General Agents.

Nexus continues to grow strongly, driven by its determined management team and its ambition to achieve the Company’s strategy. Nexus has made several acquisitions during the year and we acquired a further interest in Nexus in October 2018, as well as providing them with loan funding in April 2019.

XPT meanwhile announced its latest acquisition in January 2019, alongside which we provided further funding of US $3.22m.

In the London insurance market both Walsingham and CBC are making good progress, whilst in Australia our most recent investment, ATC Insurance Solutions, has already proved itself to be a strong performer that we consider shows great promise.

As is customary in our business, there are always investee companies experiencing more difficult times in their territory or market. Our investee company in Singapore is accordingly undergoing some internal restructuring and one of our operations in the USA has not achieved its objectives.

In the UK, LEBC was affected by market turbulence from October onwards, driven by Brexit uncertainty. This has had a temporary impact, however our confidence in the business and its prospects remains unchanged.

During the year we completed a Placing that saw PSC Insurance Group, the Australian listed insurance intermediary investor, take a 19.8% shareholding in the Group. This relationship is progressing well and we view their investment as long-term and supportive. Meanwhile we continue to be interested in Australia as a territory for further potential investment.

The Placing and accompanying Open Offer raised £16.6m in cash for the Group and this is now nearly fully invested.

At the conclusion of the year, we have maintained our objective of consistent compound annual growth. This has been achieved despite the challenges provided by various political and market uncertainties and we are pleased in the period under review to have delivered a total shareholder return of 11.7%.

Business Update

Summary of Developments in the Portfolio

During and subsequent to the financial year ended 31 January 2019, the following developments have taken place:

New Investments – ATC Insurance Solutions PTY Limited (“ATC”)

On 10 July 2018 the Group announced an investment into the Australian based company ATC, taking a 20% equity stake for a total cash consideration of AUD $5.1m (£2.9m).

ATC is a Managing General Agency (“MGA”) which provides insurance underwriting services to a wide array of clients across a number of sectors, including Accident & Health, Construction & Engineering, Plant & Equipment and Sports Liability.

Chief Executive Officer, Chris Anderson and Director, Shane Sheppard established ATC as a Lloyd’s Coverholder in 2009. ATC is headquartered in Melbourne, with offices in Sydney and Brisbane, employing approximately 30 people.

Follow-on Investments

XPT Group LLC (“XPT”)

On 11 January 2019, the Group invested $3.22m into XPT by way of redeemable preference shares. XPT used these funds to acquire 100% of New York based MGA and Lloyd’s Coverholder, SVA Underwriting Services Inc (“SVA”).

SVA was founded in August 2013 by its President, Steven Vallejo. SVA specialises in Physical Damage and Cargo cover for the Trucking Insurance sector and will provide geographic expansion for XPT into the Northeast and Midwest.

Nexus Underwriting Management Ltd (“Nexus”)

On 29 October 2018 the Company purchased a further 1.9% in Nexus for cash consideration of £2.6m, taking our shareholding to 18.5%.

Portfolio Update

UK

Nexus Underwriting Management Ltd

In April 2019 the Group provided Nexus with a £2m revolving credit facility, as part of Nexus’ wider debt fundraising exercise in order to undertake M&A activity.

In addition to the facility from the Company, Nexus has secured an additional £14m loan facility from funds managed by HPS Investment Partners, LLC (“HPS”). HPS is a leading global investment firm.

The funding provided by both B.P. Marsh and HPS resulted in Nexus securing a total of £16m in additional loan facilities, alongside the £30m of funding secured from both B.P. Marsh and HPS in July 2017.

In April of this year, Nexus utilised a proportion of these funds to acquire Credit & Business Finance Limited (“CBF”), a specialist trade credit broker, and Capital Risks MGA Limited, a Warranty and Indemnity MGA.

Following the acquisition of CBF, Nexus is now the leading independent UK trade credit broker, fulfilling one of its strategic goals and uniting the two biggest producers of ‘new to market’ business, and will hold a share in excess of 10% of the estimated £350m Gross Written Premium for the UK trade credit broking market.

LEBC Holdings Ltd

LEBC was impacted by a combination of market volatility and Brexit uncertainty in Q4 2018 and announced in February 2019 that it would be postponing seeking a public listing due to market uncertainties.

Jack McVitie, the Chief Executive said: “We will secure a better result, should we continue to pursue an IPO, if we give the market time to normalise. LEBC has been built patiently through primarily organic growth over the last 19 years. In that time, we have seen many different market events and we know we will see many more in the future.“

Notwithstanding the difficult trading conditions LEBC continues to make progress in its key areas, including developing its digital offering, Hummingbird.

CBC UK Ltd

On 2 July 2018 CBC completed its first acquisition since the Group invested in 2017. CBC acquired 100% of Jersey based general insurance broker PBS Insurance Limited. In doing so, PBS Managing Director Si Aziz joined Paladin Holdings Limited (CBC’s parent company) as a shareholder.

CBC continues to demonstrate strong growth and for the year ended 31 December 2018 has reported draft audited revenue of £5.69m and Operating Profit of £0.95m. This is an increase of 5% in Revenue and 29% in Operating Profit over the prior year.

EC3 Brokers Limited (“EC3”)

Since the Group’s investment in December 2017, EC3 has continued to perform in line with expectations.

Walsingham Motor Insurance Ltd (“WMIL”)

WMIL continued to deliver good progress in the year ended 30 September 2018, reporting draft audited Total Income of £2.51m and Profit before Tax of £0.52m, up 11.3% over the prior year.

This growth has continued in 2019, with the business trading significantly ahead of expectations at the current time.

USA

XPT Group LLC (“XPT”)

On 18 January 2019 the Group announced that XPT, in which the Group owns a 35% shareholding, has acquired 100% of a New York City based MGA and Lloyd’s Coverholder, SVA Underwriting Services Inc (“SVA”).

As part of the acquisition, the Company agreed to provide XPT with further funding of $3.22m (£2.54m) by way of newly issued redeemable preference shares.

XPT’s acquisition of SVA is its third since it was established in June 2017, following Western Security Surplus Insurance Brokers, Inc. (“WSS”) in November 2017 and trucking specialist WE Love & Associates, Inc in January 2018.

XPT’s strategy is to develop a wholesale insurance broking and underwriting agency platform across the U.S. Specialty Insurance Sector. The acquisition of SVA continues to demonstrate that XPT can take advantage of the consolidation opportunities in the small-to-medium-sized wholesale space in the U.S. while adding operational expertise to organically grow the businesses at high rates.

Mark Edward Partners LLC (“MEP”)

MEP has found it difficult to make headway in recent months. Some of its specialist insurance products have been impacted by political changes and revenues have suffered as a result. The Group has taken its customary prudent approach to valuation and notes that, whilst this is a disappointing outcome, the business is still in operation and Management are making every effort to stabilise current trading.

Canada

Stewart Specialty Risk Underwriting Ltd (“SSRU”)

SSRU, the Toronto- based provider of specialty insurance products to a wide array of clients in the Construction, Manufacturing, Onshore Energy, Public Entity and Transportation sectors, commenced operations in February 2017.

For the year ended 31 December 2018 SSRU wrote Gross Written Premium of CAD$5.67m and is primed to enter its next stage of growth.

This growth will come via the continued organic development of its existing product offerings and expansion into new lines of business. Additionally, SSRU continues to explore M&A opportunities as they arise.

Australia

ATC Insurance Solutions PTY Limited

The Group’s third and most recent venture in Australia, ATC, has performed well since B.P. Marsh’s investment, in July 2018.

ATC continues to show strong growth, with gross written premium expected to grow by 25% year on year and underlying EBITDA expected to grow by 22% year on year.      

Dividend

The Board is pleased to declare a dividend of 4.76p per share, payable in July 2019, to be put to the Group’s shareholders at its Annual General Meeting.

The Board continues to strike a balance between investing cash into new opportunities for long-term capital growth and providing shareholders with a sustainable yield.

Share Buy-Backs

The Board has a stated policy, regularly reviewed, of undertaking low volume share buy-backs at times when the Group’s Share Price represents a 15% or greater discount to Net Asset Value. The Board considers this is a useful stabilising mechanism during periods of market or share price volatility.

During the year to 31 January 2019, the Company undertook a number of buy-backs purchasing an aggregate of 28,573 shares at an average price of 278p per share.

New Business Opportunities and Outlook

The Group received 64 new opportunities during the financial year. Of the 64, the majority were in the insurance sector, with 37 insurance intermediary enquiries, or 58%.

To compare with previous years, the Group received 77 proposals in 2018, 84 in 2017 and 71 in 2016.

The Board is pleased to receive a continuing flow of new investment enquiries commensurate with prior years and discussions are ongoing with a number of these proposals.

Australia continues to be a territory of interest to the Group, with three current investments and a significant shareholder based there.

Cash Balance

At 31 January 2019 the cash balance was £7.9m, with current uncommitted cash of £1.5m net of the dividend payable in July 2019. The Board notes the current level of uncommitted cash and has several options available to it in this respect.

Financial Performance

At 31st January 2019, the Net Asset Value of the Group was £126.2m, or 350p per share (2018: £98.9m, or 339p per share) including a provision for deferred tax where relevant. This equates to an increase in Net Asset Value of 10.0% (2018: 24.1%) for the year.

The Group increased its dividend payment to £1.7m (or 4.76p per share) during the year, as announced previously (2018: £1.1m or 3.76p per share).  Total Shareholder return for the year was therefore 11.7% (2018: 25.5%) including the dividend payment and the Net Asset Value increase.

The Group’s investment portfolio movement during the year was as follows:

This equates to an increase in the portfolio valuation of 16.1% (2018: 31.3%).

The Net Asset Value of £126.2m at 31st January 2019 represented a total increase in Net Asset Value of £97.0m since the Group was originally formed in 1990 having adjusted for the £10.1m net proceeds raised on AIM in 2006, the original capital investment of £2.5m and the £16.6m of net proceeds raised through the Share Placing and Open Offer in July 2018. The directors note that the Group has delivered an annual compound growth rate of 11.9% in Group net asset value after running costs, realisations, losses, distributions and corporation tax since 1990.

The consolidated profit on ordinary activities after taxation decreased by 38% to £12.5m (2018: profit of £20.2m) however, the 2018 consolidated profit on ordinary activities included two significant one-off items.  Firstly, an unrealised gain of £5.7m relating to the Group’s investment in LEBC Holdings Limited (“LEBC”) which arose on a change in valuation methodology.  Secondly, a write-back of deferred tax resulting from the changes to the Substantial Shareholding Exemption rules in 2017, which resulted in a net tax credit to the Consolidated Statement of Comprehensive Income of £3.7m.  Excluding these one-off items, the consolidated profit after taxation actually increased by £1.7m (16%) over 2018.

The consolidated profit on ordinary activities before taxation was £12.2m (2018: profit of £16.5m), of which £14.1m was derived from unrealised gains on revaluing the equity investment portfolio in line with current market conditions, a decrease of 22% on the previous year (2018: net unrealised gains of £18.1m).  As noted above, the unrealised gains in 2018 included £5.7m specifically relating to a change in valuation methodology for LEBC and if this were excluded as a one-off item, the true increase in the equity portfolio from unrealised gains was 14% over the year. 

The Group’s strategy is to cover expenses from the portfolio yield.  On an underlying basis, including treasury returns, but excluding investment activity (unrealised gains on equity, a provision against loans receivable from investee companies and all underlying treasury portfolio movement), this was achieved with a pre-tax profit of £0.7m for the year (2018: £0.7m).

The Group invested £8.7m during the year – £2.9m in new equity investments and £5.8m for follow-on equity financing to its existing portfolio.  In addition, the Group provided new loans for working capital to the portfolio of £3.8m.  Repayment of loans by the portfolio amounted to £1.8m in the year.  Cash funds (including treasury funds) at 31st January 2019 were £7.9m.

Overall, income from investments increased by 19.9% to £4.6m (2018: £3.9m).  Dividend income increased by 74.5% over the year due to the strengthening performance of the portfolio companies, whilst income from loans fell by 7.8%, which was largely the result of the portfolio repaying debt in accordance with agreed repayment schedules.  Fees were 24.8% lower mainly due to a number of one-off transaction fees received in 2018.

Whilst the Group did not realise any of its investments during the year, it was successful in raising £16.6m of net proceeds from a Share Placing and Open Offer which took place in July 2018.  The cash received from this fundraising enabled the Group to invest in a number of new and existing opportunities throughout the year.

Operating expenses, including costs of making new investments, decreased by 4.0% during the year to £4.0m (2018: £4.1m).  This decrease was largely due to several atypical expenses which were included within the 2018 operating costs, including £0.3m of enhanced bonuses awarded to directors and staff which were linked to the successful realisation of investments in that year as well as £0.2m of costs incurred in making new investments which were expensed under IFRS and £0.1m of one-off costs incurred in the prior year office move.  After excluding these atypical expenses, as well as an exceptional bad debt write-back of £0.1m from the 2018 operating costs, and after excluding £0.1m of atypical expenses incurred in 2019 relating to making new investments and the establishment of the Joint Share Ownership Plan, underlying operating expenses actually increased by £0.3m (7%) over 2018, in line with managing a growing portfolio.

Due to favourable market conditions, the Group’s treasury funds increased by 5.6% over the year (net of fund management charges) (2018: 4.1%), however the Group sold down the majority of its remaining treasury portfolio during the year to fund further investments.

Net Asset Value per share

In 2018 the Group entered into joint share ownership arrangements with certain employees and directors and issued 1,461,302 shares (3.9% of the current total issued shares) which were transferred into an Employee Benefit Trust. The employees and directors will only receive the growth in value of the shares above the market price of 281 pence per share on the date of issue, plus a 3.75% per annum carrying value after 3 years from the date of issue.

Although these shares are potentially dilutive, if the performance criteria are met then the Group would then receive the economic right to the first 281 pence per share, or £4.1m. The net asset value per share of the Group currently excludes these 1,461,302 shares as these were non-dilutive in the year to 31 January 2019, are subject to performance criteria that have not yet been achieved and are held within an Employee Benefit Trust.  The Group net asset value has therefore also excluded the economic right the Group has to £4.1m on vesting for the same reasons. On this basis the current net asset value per share is 350 pence for the Group. If the performance criteria for vesting is eventually met, the diluted net asset value per share based upon the current net asset value would be 348 pence.

Outlook

The Group has produced a good overall performance in the year. The Group’s strategy is to generate long-term value and the Board is confident in the Group’s ability to do so, notwithstanding short-term market uncertainties. 

Brian Marsh OBE, Chairman

10 June 2019