Interim Results to 31st July 2019

by B.P. Marsh | Oct 15, 2019 | Portfolio News

B.P. Marsh & Partners Plc, the specialist investor in financial services intermediary businesses, announces its unaudited Group interim results for the six months to 31 July 2019 (the “Period”).

The financial highlights for the Period are:

• Net Asset Value (“NAV”) at 31 July 2019 of £130.0m (31 July 2018 restated*: £120.0m; 31 January 2019 restated*: £126.2m)
• NAV per share of 361p(31 July 2018: 333p; 31 January 2019: 350p)
• 4.0% increase in the equity value of the portfolio in the Period
• Profit after tax of £5.6m
• Final dividend of 4.76p per share for the year to 31 January 2019 declared and paid in July 2019
• Cash balance of £1.4m as at 31 July 2019
• Loan facility of £3.0m available to use for investment

The key developments for the Period are:

• LEBC Holdings Limited valuation impacted by withdrawal from Defined Benefit transfer market. Management actions are underway
• XPT Group LLC, based in New York City, completed a fourth acquisition in the Period and, post Period-end, successfully raised $40.0m in aggregate in funding and acquired its fifth business
• Nexus Underwriting Management Limited secured an additional £16.0m in new loan facilities and completed the acquisitions of a specialist Trade Credit Broker and a London-based Financial and Professional Lines Managing General Agency
• New investment in Ag Guard PTY Limited of Sydney, Australia

Brian Marsh, B.P. Marsh Chairman, commented,

“B.P. Marsh has continued its long track record of delivering NAV growth from its diverse portfolio of investments, despite specific challenges. As a leading specialist investor in global financial services intermediaries and with 50% of our investment portfolio revenues emanating from outside of the UK, the outlook for the rest of the financial year is positive.”

Analyst Briefing

An analyst presentation, hosted by the Company, will be held on Tuesday 15 October 2019 at 10:00 a.m. at the offices of B.P. Marsh & Partners Plc, 4 Matthew Parker Street, SW1H 9NP.

Please contact Adam Lloyd at Newgate Communications on 020 3655 6880 or [email protected] if you wish to attend.

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

*  Please note that these Interim results reflect the adoption of IFRS 16: Leases, which has had the impact of increasing the Group’s assets by £1.4m and increasing the Group’s liabilities by £1.5m through the recognition of a right-of-use asset and an associated lease liability in relation to the Group’s operating lease on its office premises. There has been negligible overall impact on the Group’s Net Asset Value, however the prior period comparatives have had to be restated accordingly.

Chairman’s Statement

I am pleased to present the unaudited Consolidated Financial Statements of B.P. Marsh & Partners Plc for the six-month period to 31 July 2019.

On 2 September 2019, LEBC Group Limited voluntarily ceased the provision of Defined Benefit pension transfer advice pursuant to a market-wide review by the FCA. As a consequence of this, the Group has reduced the valuation of its holding in LEBC to £23.9m. However due to strong performance elsewhere within the portfolio, the Group is still aiming to conclude the year in a satisfactory position in terms of Net Asset Value. Our Net Asset Value as at 31 July 2019 was £130.0m or 361p per share, up 3% over the Period, notwithstanding the revaluation of LEBC.

During the Period, our partners in New York City, XPT, acquired Klein & Costa Insurance Services, a Managing General Agency and surplus lines broker located in California. XPT continues to have a promising pipeline of new investment opportunities, and we look forward to supporting its growth.

Nexus has continued with its successful acquisition strategy over the Period. In April 2019, it acquired Credit & Business Finance Limited, a specialist trade credit broker, and Capital Risks MGA Limited, a Warranty and Indemnity Managing General Agency. Nexus is now the leading independent UK trade credit broker. Most recently, in July 2019, Nexus acquired Plus Risk Limited, a London based Financial and Professional Lines Managing General Agency.

We were very pleased to complete a new acquisition over the Period. In July 2019, the Group subscribed for a 36% equity stake in Ag Guard Pty Limited (“Ag Guard”), which provides insurance solutions for the Australian agriculture sector, with insurance capacity provided by Munich Re.

The Group’s Australian investments continue to perform well, with ATC being a star performer, achieving significant EBITDA growth.

Walsingham has seen strong growth throughout the Period, with its results exceeding expectations.

The Group has experienced a healthy flow of new investment opportunities, with 42 received over the Period, compared to 32 received over the period to 31 July 2018. We continue to look at a number of domestic and international opportunities.

Currently, 50% of our investee companies’ revenue emanates from the UK, and 50% emanates from overseas.

Since incorporation, we have achieved an average annual compound growth in Net Asset Value of 11.7%, excluding any new funds raised.

Cash Balance

At 31 July 2019 the Group’s cash balance was £1.4m. During the Period, the Group entered into a £3.0m loan facility, provided by Brian Marsh Enterprises Limited, a company in which the Chairman, Brian Marsh, is a director and sole shareholder.

The loan facility provides the Group with further investment funds at an interest rate of the higher of either 4% or the UK 1-month LIBOR plus 3.25%, which are available to be drawn down until July 2020.

The Board considers that these are commercially advantageous terms, compared to other avenues of funding available. 

Business Update

Summary of Developments in the Portfolio

New Investments

Ag Guard PTY Limited (“Ag Guard”)

On 12 July 2019 the Group invested in Ag Guard, based in Sydney Australia.

The Group subscribed for a 36% equity stake in Agri Services Company PTY Limited, which in turn acquired 100% of Ag Guard, for an initial cash consideration of AU$1.47m (c.£823,000). Further consideration of up to AU$1.13m (c.£628,000) may become payable, subject to performance. 

Founders Alex Cohn (Managing Director), Martin Birch (Technical Director) and Ben Ko (Finance & Operations Director) have considerable experience in the provision of general insurance services in the Australian rural sector.      

It is expected that the Group’s investment in Ag Guard, with the backing of a strong and experienced management team, will enable Ag Guard to become a serious market player over the next five years.

Portfolio news

UK

LEBC Group Limited (“LEBC”)

The Group notes its recent announcement regarding its investee company LEBC Holdings Limited released on 2 September 2019, in which it holds a 59.3% shareholding. LEBC Holdings Limited is the parent company of LEBC Group Limited, the UK IFA business.

Pursuant to the FCA’s market-wide review of the defined benefit (“DB”) transfer market, LEBC agreed to voluntarily cease the provision of DB pension transfer advice and projects, with effect from 2 September 2019.

Advice in the DB transfer market represents c.20% of LEBC’s total revenue in its current year. As such, the cessation of the provision of advice in this area has impacted LEBC as can be seen by the Group’s reduction in valuation of its equity of LEBC to £23.9m.  However, LEBC, excluding DB transfer business, is still expected to produce annual revenue of c. £19.0m alongside an acceptable underlying profit position.

In line with its successful long-term investment strategy, the Group will continue to support LEBC as it evolves its business, which provides a range of financial solutions, for the benefit of its customers, staff and shareholders. LEBC has implemented a significant restructuring and is working on a number of initiatives, some of which have already been implemented, including its bionic advice offering. The Group will work closely with LEBC’s management team to return LEBC to the position it was in before the withdrawal from the DB market, and have recently assisted in the recruitment of a new Chairman to the holding company Board.

Since the Company invested in LEBC in April 2007, the current valuation represents a 1.9x money multiple.

Nexus Underwriting Management Limited (“Nexus”)

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, bringing the total loan funding from the Company to £6.0m.

In addition to the facility from the Company, Nexus secured an additional £14.0m loan facility from funds managed by HPS Investment Partners, LLC (“HPS”), a leading global investment firm.

The funding provided by both B.P. Marsh and HPS has resulted in Nexus securing a total of £46.0m of loan funding, including the £30.0m of loan funding secured from both B.P. Marsh and HPS in July 2017.

Nexus is forecasting an adjusted EBITDA of c.£20m over the next 12 months, which would represent a compound annual increase in EBITDA of 45% since B.P. Marsh’s investment in August 2014.

During the Period, Nexus completed 3 acquisitions; Credit & Business Finance Limited (“CBF”), a specialist trade credit broker, Capital Risks MGA Limited (“Capital Risks”), a Warranty and Indemnity MGA, and Plus Risk Limited (“PBL”), a Financial and Professional Lines MGA.

Following the acquisition of CBF, Nexus became the leading independent UK trade credit broker, fulfilling one of its strategic goals as well as uniting the two biggest producers of ‘new to market’ business.

As part of the acquisitions, key management from the new acquisitions became shareholders in Nexus. The new acquisitions have increased Nexus’ forecast revenue by £2.83m and EBITDA by £1.39m. The Group recognises the recent growth in Nexus, which has been reflected in the Company’s valuation for its holding in Nexus increasing from £30.12m to £40.3m.

Nexus were pleased to announce the appointment of Andrew Moss, as non-executive Chairman. Andrew spent five years as Group CEO of Aviva Plc, and prior to this he held senior positions within Lloyd’s of London. He was most recently Chairman of Parker Fitzgerald, a London Based management consultancy firm, where he helped steer their recent acquisition by Accenture to its successful outcome.

The Company welcomed this appointment pursuant to Nexus’ avowed goal of achieving £20m of annualized EBITDA by the 2020 financial year, which will well position it as the pre-eminent London Market specialty MGA and strategically manoeuvre Nexus to review its next stage of development.

CBC UK Limited (“CBC”)

CBC, the London-based Lloyd’s broking business has increased its EBITDA by 40% in 2018, and is on target for increasing at the same rate in 2019.

CBC continues to strengthen its product offering with strategic hires and has recently hired an experienced Financial Products team. During the Period, the Group provided a £0.5m loan to support CBC in these endeavours.

The Fiducia MGA Company Limited (“Fiducia”)

In November 2016, the Group invested in Fiducia, a UK Marine Cargo Underwriting Agency, established by CEO Gerry Sheehy, based in Leeds.

Fiducia is a registered Lloyd’s Coverholder which specialises in the provision of insurance solutions across a number of Marine risks including Cargo, Transit Liability, Engineering and Terrorism Insurance.

During the Period, the Group invested £0.12m in Fiducia, being its pro-rata share of a £0.35m fundraising, with the remainder being provided by its CEO and founder, Gerry Sheehy.

Since Fiducia commenced trading, it has grown from a start-up position to producing in excess of estimated £10m forecast Net Written Premium in the year ending 31 December 2019, across its specialist lines of business.

EC3 Brokers Limited (“EC3”)

In December 2017, the Group invested in EC3, an independent specialist Lloyd’s broker and reinsurance broker.

Since investment, EC3 is expected to grow its top line revenue from c. £9m to a budgeted target of approaching £14m in the year to 31December 2019, whilst also maintaining a good underlying profit margin.

Over the same period, B.P. Marsh has worked with EC3 to augment its management function, and further develop its product offering to deliver both top and bottom-line growth.

Walsingham Motor Insurance Limited (“Walsingham”)

Walsingham, the London-based motor fleet MGA, continued its strong progress in 2018 reporting £19.8m in premium and generating EBITDA for the year of £0.6m. 2019 has seen further steady growth, reporting £21.5m in premium in 10 months’ trading with EBITDA expected to be c.60% ahead of 2018.

USA

XPT Group LLC (“XPT”)

The Group invested into XPT, the U.S. based specialty lines insurance distribution company, in June 2017.

In July 2019, XPT acquired Klein & Costa Insurance Services (“Klein & Costa”), an MGA and surplus lines broker located in Santa Ana, California.

Established in 2001, Klein & Costa provides broking services in the areas of Professional Liability and Speciality Lines, and as an MGA it represents three carriers with broad delegated underwriting authority.

Following the acquisition, Klein & Costa became part of Western Security Surplus Insurance Brokers (“WSSIB”), XPT’s wholesaler and MGA based in Texas and California, and began trading under the WSSIB name. This acquisition provided WSSIB with entry into a new location and introductions to Klein & Costa’s retail producers.

Since XPT commenced trading, it has grown from start-up to $165.0m in Gross Written Premium and is approaching $3.9m of adjusted EBITDA in its current financial year ending 31 December 2019.

Following the Period-end, XPT successfully secured $40m, in aggregate, of funding from Madison Capital Funding LLC (“Madison Capital”). As part of the transaction, Madison Capital took an equity interest in XPT Group LLC.

XPT has secured loan funding of $18.0m to refinance its current debt facility, and an additional $22.0m to support future growth. The financing with Madison Capital provides XPT with an opportunity to enter the next phase of its development and continue to seek strategic acquisitions in the North American insurance market.

As part of the fund raising, Madison Capital invested $2.0m and took an equity holding in XPT which values XPT at an enterprise value of $54.0m. This is approximately 10% greater than the Group’s 31 July 2019 valuation.

In tandem with the fundraising, XPT completed the acquisition of Sierra Specialty Insurance Services, Inc (“Sierra”). Sierra is an MGA and wholesale broker based in Fresno, California, and specialises in the provision of insurance to independent retail agents. Sierra represents XPT’s fifth acquisition of an established business.

Australia

ATC Insurance Solutions (PTY) Limited

Sterling Insurance (PTY) Limited

MB Prestige Holdings (PTY) Limited

Ag Guard (PTY) Limited

B.P. Marsh’s existing investments in Australia continue to perform well in a challenging insurance market, with premium income and profitability increasing across the board.

This is in response to a more positive insurance market internationally, and it also underlines the intrinsic quality of these companies and their management teams.   

Additionally, the Group was pleased to note that all of the Company’s Australian MGAs successfully renewed their underwriting capacity support with Lloyd’s and the international insurance markets.

ATC Insurance Solutions (PTY) Limited (“ATC”) saw strong growth throughout the Period, reporting a significant increase of Gross Written Premium from AUD 61.0m in 2018 to AUD 84.0m in 2019.

The Company’s newest investment, Ag Guard, is a start-up which will no doubt face initial challenges, however we believe that the management team we have backed, with our investment support and underwriting support from Munich Re, has a strong growth horizon looking to the future. 

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.

Since the Group’s investment, SSRU has grown its Gross Written Premium from nil to a forecast position of over CA$9.0m in the year ending 31 December 2019, and achieving a profit and dividend yield.

Europe

Summa Insurance Brokerage, S.L. (“Summa”)

Summa is a regional consolidator of insurance brokers with 16 branches across Spain. 

Whilst the Spanish insurance market continues to be a challenging place in which to operate, Summa continues to deliver c. €45.0m of annual premium and an annual adjusted EBITDA of over €1.2m.

The Group is also pleased to note that Summa has recently achieved Lloyd’s Coverholder status, which will bolster its product offering going forward. 

Dividend

In July 2019 the Group paid a dividend of £1.7m to shareholders, equating to a dividend per share of 4.76p. The Board continues to strike a balance between investing cash into new opportunities for long-term capital growth and providing shareholders with a yield. This was the final dividend from an agreed three-year distribution following the successful realisation of Besso in February 2017. The Board is committed to paying further dividends funded by the proceeds of future portfolio realisations.

Share Buy-Backs

The Group has a share buy-back policy, as announced on 17 July 2019, that enables it to buy back shares when the Company’s share price is more than 15% below the Company’s most recently published Net Asset Value, within the permitted constraints of the Market Abuse Regulation.

The Board remains of the view that the authority to undertake low volume buy-backs of shares, when regulatory restrictions allow, is an important stabilising mechanism in times of market or share price volatility. During the Period, the buy-backs were conducted with the backdrop of market turbulence and the Board believes that these transactions had a stabilising effect on the Company’s share price.

During the six-month period to 31 July 2019 a number of buy-backs were undertaken, amounting to 51,416 shares, at an average price of £2.81 per share, which are being held in Treasury.

Directorate Changes

On 23 August 2019, the Group announced that Camilla Kenyon would be resigning her position as Executive Director, with effect from 31 August 2019.

Millie had worked with the Company since 2006. The Board is grateful for her contribution as an Executive Director since 2011.

As part of Millie’s departure from the Group, an internal restructuring process was undertaken with her role being divided amongst the existing Management Team. The Investor Relations function will sit with the Chairman, Managing Director and Company Secretary, and New Business responsibilities will be assumed by the Investment Department.   

On 2ⁿ October 2019, the Group announced that Campbell Scoones, aged 72, resigned as a Non-Executive Director of the Company. Campbell also resigned from his role on the Remuneration Committee. The Nominations Committee will be considering candidates for Campbell’s replacement.

Business Strategy

The Group invests amounts of up to £5m in the first round of funding and takes minority equity positions in financial services intermediaries, normally acquiring between 20% and 40% of an investee company’s total equity. During the holding period, additional investment can lead to the Group having a majority holding, as is the case currently in LEBC and Summa. In these circumstances, day to day business operation remains with management, with the Group providing input, advice and assistance, as with all of its portfolio businesses.

The Group makes long-term investments with an average holding period post-float of 6.4 years, with our current portfolio being held on average for approximately 4.3 years. As ever, we do not invest in companies that accept Insurance Underwriting risk.

The Group requires its investee companies to adopt minority shareholder protections and to appoint a nominee director to its board.

Since 1990 the Group has generated an average NAV annual compound growth rate of 11.7% (excluding the £10.1m proceeds raised on flotation and £16.6m proceeds raised as part of the Placing & Open Offer completed in July 2018). Its successful track record can be attributed to a number of factors that include a robust investment process, management’s considerable sector experience and a flexible approach to exit.

Outlook and New Business Opportunities

In addition to making the investment in Ag Guard during the Period to 31 July 2019, the Group continues to look at a number of MGAs and Insurance Brokers both domestically and internationally, alongside several interesting opportunities outside the insurance space.

36% of enquiries received by the Company emanated internationally, and 64% of enquires received by the Company were domestic.

The Group has produced a satisfactory overall performance in the Period. 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

14 October 2019

Investee Company Update – XPT Group LLC

by B.P. Marsh | Sep 16, 2019 | Portfolio News

B.P. Marsh & Partners Plc the specialist investor in early stage financial services businesses, is pleased to announce that XPT Group LLC (“XPT”), the U.S. based specialty lines insurance distribution company, has successfully completed a fund-raising exercise and complementary acquisition.

Fundraising

XPT has secured $40million in aggregate financing from Madison Capital Funding LLC (“Madison”).

Madison, founded in 2001, is a market leader in providing middle market companies with debt solutions. Since inception Madison has invested  $34.4billion in 1,193 transactions with 305 different private equity sponsors. Madison is a leader in financing the insurance distribution segment.

As part of the transaction, Madison will take an equity interest in the business which values XPT at an enterprise valuation of circa $54m.

The financing provides XPT with an opportunity to make further acquisitions and enter the next phase of its growth. Upon completion with Madison, XPT will draw down $18m. This draw down will be to finance the acquisition detailed below and to repay an existing debt facility.

A further $22m finance facility is in place to support growth.

Acquisition

Simultaneously to the completion of the fundraising, XPT have acquired 100% of Sierra Specialty Insurance Services Inc. (“Sierra”). Sierra is an MGA and wholesale broker based in Fresno, California, and specialises in the provision of insurance to independent retail agents.

Sierra is led by President, Kathy Schroeder together with COO, Mark Schroeder. Both Mark and Kathy Schroeder have many decades of experience in underwriting, broking and management. Kathy has also served on the American Association of Managing General Agents Board, one of the two predecessors to Wholesale Specialty Insurance Association (WSIA). Both Kathy and Mark Schroeder will remain at Sierra post acquisition.

Following the investment by Madison in XPT and the acquisition of Sierra by XPT, B. P. Marsh will have a revised shareholding of 32.2% in XPT.

XPT continues to explore additional M&A opportunities in the U.S. that complement and enhance XPT’s product and distribution offering.

XPT’s Chief Executive Officer Thomas Ruggieri has stated that “XPT is fortunate to have quickly assembled a Partnership nucleus of expert specialists in Specialty Distribution financially backed by the two most experienced financers supporting Insurance Distribution in BP Marsh and Madison Capital Funding. We look forward to continuing our industry leading organic growth by supporting our partners with new product, resources and customer service to attract the brightest client focused producers to our partnership.” He also noted “Kathy and Mark’s leadership in the industry and in central California will greatly enhance our partnership. Sierra Specialty reinforces XPT’s collaboration as they will partner in our existing product segments in general authority underwriting, transportation and hospitality, while moving us into agri-business.  

Commenting on the recent activity, the Group’s Chief Investment Officer and Nominee Director on XPT, Daniel Topping, said “The fundraising with Madison is a tremendous milestone in XPT’s development. Since XPT’s first investment in November 2017, XPT has grown to Gross Written Premium approaching $200m, inclusive of the Sierra acquisition. This is an outstanding achievement by the XPT team and we look forward to further supporting their growth.”

Trading Update

by B.P. Marsh | Sep 2, 2019 | Portfolio News

B.P. Marsh, the specialist investor in early stage financial services businesses, provides the market with an update on trading for the six months ended 31 July 2019.

B.P. Marsh had anticipated that it would make this Trading Update on 5 September 2019. However, in light of the Group’s recent share price performance and the announcement made regarding LEBC Holdings Limited the Group believed it was sensible and prudent to bring this trading update forward, to update shareholders on the performance of the Company as a whole and to provide further information regarding LEBC.

LEBC Holdings Limited (“LEBC”)

The Group notes its recent announcement regarding its investee company LEBC Holdings Limited, in which it holds a 59.3% shareholding. LEBC Holdings Limited is the parent company of LEBC Group Limited (“LEBC”) the UK IFA business.

As part of its market-wide review of the defined benefit (“DB”) transfer market, the FCA has undertaken a review of LEBC focused on the division of the business that provides DB pension transfer advice.

Following this, LEBC has agreed voluntarily to cease the provision of DB pension transfer advice and projects, forthwith.

Advice in the DB transfer market represents c.20% of LEBC’s total revenue in the current year. The cessation of the provision of advice in this area will have an impact on LEBC. However, LEBC, excluding DB transfer business, is expecting to produce annual revenue of c. £19m with the business still reporting an acceptable underlying profit position.

In line with its successful long-term investment strategy, B.P. Marsh will continue to support LEBC as it evolves its business, which provides a range of financial solutions, for the benefit of its customers, staff and shareholders. As reported this morning, LEBC is working on a number of initiatives, some of which have already been implemented. The Group will work closely with LEBC’s management team to return LEBC to the position it was in before the FCA review.

Although the current situation will reduce LEBC’s valuation in the short term, B.P. Marsh has a diverse portfolio. The strong performance delivered by a number of its investee companies in recent months, as outlined below, means that the Board believes that the Company will emerge in a satisfactory position under the circumstances as regards its financial results for the six months ended 31 July 2019. As at the last published valuation (being 31 January 2019, released on 11 June 2019), the Group valued its 59.3% stake in LEBC at £35.5m.

Net Asset Value and Interim Results

The latest published Net Asset Value (“NAV”) is £126.2m, or 350p per share, as at 31 January 2019. The NAV per share is calculated based upon the total shares in issue of 37,478,077, and then excluding 1,461,302 shares held in a management incentive scheme as these shares are subject to performance criteria which have not yet been met and are non-dilutive at this time.

Although the current situation will reduce LEBC’s valuation in the short term, B.P. Marsh has a diverse portfolio and the strong performance delivered by a number of its investee companies in recent months means that the Board believes that the Company will emerge in a satisfactory position under the circumstances as regards its financial results for the six months ended 31 July 2019.

The interim results to 31 July 2019 and the updated NAV will be announced on Tuesday 15 October 2019.

Cash Balance

At 31 July 2019 the Group’s cash balance was £1.4m. In light of this, the Board explored short, medium and long term funding options to improve the cash balances of the Company, in order to take advantage of any new investment opportunities.

Having reviewed all the options available to the Group, and given the market wide volatility, the Group entered into a £3m loan facility, provided by Brian Marsh Enterprises Limited, a company in which the Chairman, Brian Marsh, is a director and sole shareholder.

The loan facility provides the Group with further investment cash at an interest rate of the higher of 4% or the UK 1-month LIBOR plus 3.25% and is available to be drawn down until July 2020.

The Board considers that these are commercially advantageous terms, compared to other avenues of funding available.

Follow-on Investments and Funding
Nexus Underwriting Management Ltd (“Nexus”)

EC3 Brokers Limited (“EC3”)

In December 2017, the Group invested in EC3, an independent specialist Lloyd’s broker and reinsurance broker.

Since investment, EC3 has grown its top line revenue from c. £9m to a budget of approaching £14m in the year to 30 December 2019, whilst also maintaining a good underlying profit margin.

Over the same period, B.P. Marsh has worked with EC3 to augment its management function, and further develop its product offering to deliver top and bottom-line growth.

The Fiducia MGA Company Limited

In November 2016, the Group invested in a UK Marine Cargo Underwriting Agency, established by CEO Gerry Sheehy and based in Leeds.

Fiducia is a registered Lloyd’s Coverholder which specialises in the provision of insurance solutions across a number of Marine risks including, Cargo, Transit Liability, Engineering and Terrorism Insurance

Since Fiducia commenced trading, it has grown from a start-up position to producing in excess of £10m in Gross Written Premium in the year ending 31 December 2019, across its specialist lines of business.

Walsingham Motor Insurance Ltd (“Walsingham”)

Walsingham, the London-based motor fleet MGA, continued its strong progress in 2018 reporting £19.8m in premium and generating EBITDA for the year of £0.6m. 2019 has seen further strong growth, reporting £21.5m in premium in 10 months’ trading and EBITDA expected to be significantly ahead of 2018.

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.

Since the Group’s investment, SSRU has increased its Gross Written Premium from nil to a forecasted position of over CA$9m, in the year ending 31 December 2019, whilst also producing profit and dividend yield.

Spain
Summa Insurance Brokerage, S. L. (“Summa”)
Summa is a regional consolidator of insurance brokers in Spain, with 19 branches across Spain.

USA

XPT Group LLC (“XPT”)

Whilst the Spanish insurance market continues to be a challenging place in which to operate, Summa continues to deliver c. €45m of annual premium and an annual adjusted EBITDA of over €1.2m.

The Group was also pleased to note that Summa had achieved Lloyd’s coverholder status, which will bolster its product offering going forward.

The Group invested into XPT in June 2017, the U.S. based specialty lines insurance distribution company.

In July 2019, XPT’ acquired Klein & Costa Insurance Services (“Klein & Costa”), an MGA and surplus lines broker located in Santa Ana, California.

Established in 2001, Klein & Costa provides broking services in the areas of Professional Liability and Speciality Lines, and as an MGA it represents three carriers with broad delegated underwriting authority.

Following the acquisition, Klein & Costa became part of WSSIB, XPT’s wholesaler and MGA based in Texas and California, and began trading under the WSSIB name and provided WSSIB with entry into a new location and introductions to Klein & Costa’s retail producers.

Australia

B.P. Marsh’s existing investments in Australia [ATC Insurance Solutions PTY Limited, Sterling Insurance PTY Limited and, MB Prestige Holdings PTY Limited] continue to perform well in an insurance market which although challenging from a performance perspective, has presented these companies with growth opportunities. As such premium income and profitability has increased across the board.

On the one hand this is in response to a more positive insurance market internationally, but it also underlines the intrinsic quality of these companies and their management teams.

Additionally, the Group was pleased to note that all of the Company’s Australian MGAs were able to renew their underwriting capacity support with Lloyd’s and the international insurance markets.

As regards the Company’s newest investment, Ag Guard PTY Limited , although a start-up, which will no doubt face initial challenges, we believe that the management team we have backed, with our investment support and underwriting support from Munich Re, has a strong growth horizon looking to the future.

New Investment
Ag Guard PTY Limited (“Ag Guard”)

Dividend

In July 2019 the Group paid a dividend of £1.714m to shareholders, equating to a dividend per share of 4.76p.

Directorate Change

On 23 August 2019, the Group announced that Camilla Kenyon will be resigning her position as Executive Director, with effect from 31 August 2019.

Millie has worked with the Company since 2006. The Board is grateful for her contribution as an Executive Director since 2011.

As part of Millie’s departure from the Group, an internal restructuring process was undertaken, with her role being divided amongst the existing Management Team. The Investor Relations function will sit with the Chairman and Managing Director, and New Business will be assumed by the Investment Department.

New Business Opportunities and Outlook

In addition to making the investment in Ag Guard during the Period to 31 July 2019, the Group continues to look at a number of MGAs and Brokers both domestically and internationally, alongside a number of interesting opportunities outside the insurance space.

Investee Company Update – Nexus Underwriting Management Limited

by B.P. Marsh | Jul 30, 2019 | Portfolio News

B.P. Marsh & Partners Plc, the specialist investor in early stage financial services businesses, is pleased to note that its investee company Nexus Underwriting Management Limited (“Nexus”), in which it holds an aggregate shareholding of 18.5%, has announced that it has acquired Plus Risk Limited (“PRL”), a London based Financial and Professional Lines MGA.

PRL provides Management Liability and niche Professional Indemnity Insurance. PRL was founded in 2017 and its underwriting team is comprised of James Rasmussen and Neil Ede, who will continue in the business post transaction. James Rasmussen and Neil Ede will become shareholders in Nexus and move to Nexus’ London headquarters.

James Rasmussen has over 19 years’ of FinPro broking and underwriting experience, including previous roles at Travelers and Chubb. Neil Ede has over 20 years’ experience in the industry, including 7 years at Chubb and 10 years at AIG.

Since BP Marsh’s investment in Nexus in 2014, Nexus’ Gross Written Premium has grown from £50m to an expected Gross Written Premium of £313m for the year ending 31^st December 2019.

Daniel Topping, B.P. Marsh’s Chief Investment Officer commented: “PRL is a natural adjunct to Nexus’ FinPro product offering. The acquisition of PRL is another pleasing example of Nexus’ buy and build strategy, representing the 14^th transaction Nexus has undertaken since our investment in 2014.”

Colin Thompson, Nexus Founder and Group CEO has commented: “This is a strategic acquisition for Nexus and a natural addition to our existing capabilities. We are acquiring PRL at an exciting stage in its development and will look to accelerate growth through our infrastructure, distribution channels and networks.”

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