Author: modula

FINANCIAL HIGHLIGHTS

Financial performance reflects continued momentum despite challenging market conditions and with ongoing investment in people, operations and technology.

• Revenue increased by 45% to £434m from £299m in 2015.
• EBITDA, the Group’s preferred measure of profitability, increased 82% to £103m from £57m in 2015.
• The EBITDA margin increased to 24% (2015: 19%) with significant investment in people, operations and systems balanced with strong cost control.
• The Group delivered underlying organic revenue growth of 8% (2015: 5%).

Acquisition structure, financing and non-recurring items
As anticipated the structure, integration and related financing profile of the acquisition of RKH Holdings Limited (RKH), completed in April 2015, and other transactions continue to be reflected in the Group’s income statement in accordance with IFRS accounting requirements.

As a result, the Group will report an IFRS accounting loss of £38m for 2016. The accounting loss under IFRS specifically reflects:

• £76m (2015: £30m) in respect of the deferred consideration payable to RKH employee shareholders.
• £38m (2015: £23m) for depreciation and amortisation.
• £37m (2015: £23m) of loan interest and similar items.
• £26m (2015: nil) gain in fair value change for movement in liquidity put option.

OPERATIONAL HIGHLIGHTS

12 month period of focused integration and consolidation to deliver robust and resilient structure and operations and a platform for a differentiated global offering,

• Strong progress made on operational integration in the UK, including rationalisation of London locations, embedding of business-specific support services and systems integration.
• From 1 October 2016, the Group fully aligned its management structure to three pillars: Howden, being retail broking; RKH Group, being specialty and reinsurance broking; and DUAL, the Group’s MGA operations.
• Core support services delivered through a single consolidated service company, Hyperion Services, from 1 October 2016.

Building a platform for talent
With restructuring undertaken to ensure a flat and empowered management structure in all Group operations, to deliver appropriate support services, and to protect Hyperion’s entrepreneurial culture, the enlarged Group continues to attract talented individuals. This is evidenced in the appointment, during the year, of a number of well-regarded, senior market experts, as well as experienced and respected practitioners from outside of the industry.

Those joining the Group in the 12 month period to 30 September 2016 include:

• Lyn Grobler as Chief Information Officer, Hyperion.
• Goh Chye Huat as Chief Executive Officer, South East Asia, Howden.
• Richard Clapham as Chief Executive Officer, Europe, DUAL.
• Stephen Manning as Chief Operating Officer, DUAL.
• Mark Hudson as Chief Financial Officer, DUAL.

The Group’s commitment to broad employee ownership saw the launch of a D and E share programme and the completion of its third employee share offer. More than 20% of Group employees now own shares in Hyperion and its subsidiaries.

Selective strategic acquisitions and start-ups
Hyperion continues to seek strategic partnerships, to make acquisitions, and to launch operations where likeminded businesses and people will bring specialist expertise to the Group, give geographic reach in key territories, and make a difference to clients.

• In December 2015 the Group acquired 75% of Chelsea Risk Management Inc., a marine insurance agency based in San Francisco which specialises in coverage for ports, terminals and logistics operators, bringing Marine capability to DUAL’s US operations.
• In March 2016 the Group acquired 100% of PMG Financial Services Limited, the UK’s largest independent specialist surety broker, positioning itself to become a leading participant in the surety market.
• In April 2016 the Group expanded its Iberoamerican retail broking operations with the launch of Howden Portugal.
• In September 2016 the Group completed the acquisition of a majority stake in Euroassekuranz Versicherungsmakler AG, Germany’s leading independent retail insurance broker to mid-market clients, forming a strategic partnership connecting the niche specialisms of Howden in Germany — Financial Lines and Marine — with those of Euroassekuranz — Industrial, Commercial and Real Estate.

David Howden, Chief Executive Officer, commented:

“The effort to shape, support and position the significantly larger Hyperion Group for the future has been a key focus for the Group in 2016. We are now structured, with our three arms of Howden, RKH and DUAL, to harness the expertise and agility of the Group to deliver the best for our clients, partners, employees and shareholders, and to take Hyperion to the next level.

Against the backdrop of political events of the last six months, the value of the natural hedge provided by our balanced model and geographic and product diversification is clearer than ever.

We are well positioned in the face of external factors and our differentiated platform and employee-ownership model make Hyperion a unique place to work. I am delighted that we continue to attract some of the brightest talent from inside and outside the industry.

I have long said that it is the quality of our people that make this Group stand out — they are the ones who deliver the organic growth that is the foundation of the business — and I am delighted that we are now the eighth largest employee-owned company in the UK with more than 700 employee shareholders in the Group and its subsidiaries.”

Dominic Collins, Chairman, said:

“Integrating the Hyperion and RKH Groups quickly and efficiently to allow our businesses to continue to deliver growth and profitability has been critical. I am pleased that the significant efforts of those involved have allowed the Group to deliver a strong underlying performance whilst we continue to invest in the platform for the future, and my thanks go to all our employees for their efforts.”

FINANCIAL HIGHLIGHTS

Underlying performance reflects the Group’s transformational year and demonstrates a strong result in the face of industry and global economic headwinds.

• Revenue increased by 50% to £299.0m from £199.0m in 2014.
• The Group’s principal measure of profitability, EBITDA, increased 31% to £56.7m from £43.2m in 2014.
• EBITDA margin decreased to 19%, primarily reflecting continuing investment in start-up businesses (2014: 22%).
• The Group delivered underlying organic revenue growth of 5% (2014: 7%).

Transaction, financing charges and non-recurring expenses

The structure, integration and related financing profile of the acquisition of RKH Holdings Limited (RKH) and other transactions are reflected in the Group’s 2015 income statement.  Specifically, the majority of the deferred consideration payable to RKH employee shareholders will, as anticipated, be expensed in accordance with International Financial Reporting Standards (IFRS) over the deferral period to 2017.  In addition, Hyperion completed a $750m debt refinancing in April 2015 resulting in both recurring and non-recurring financing charges to the Group’s income statement.  There will also be a number of one-off integration and other transaction-related expenses in 2015.  As a result, the Group will report an IFRS accounting loss of £81.4m for 2015 despite a significantly higher level of operating profit.

The accounting loss under IFRS specifically reflects:

• £84.8m of non-recurring and acquisition costs, including a non-cash charge of £29.7m in respect of the deferred consideration payable to RKH employee shareholders and a further non-cash impairment charge of £23.6m following a review of the carrying value of intangible assets relating to previous acquisitions.
• £28.7m in respect of finance charges, including £22.7m of loan interest and similar cash items, with the balance relating to amortisation of capitalised fees and fair value adjustments.
• £23.2m for depreciation and amortisation, including £15.8m related to customer relationship assets recognised on the acquisitions made during 2015.

The Board has concluded that Hyperion will not pay a dividend in relation to the 2015 financial year.

OPERATIONAL HIGHLIGHTS

Strategic acquisitions have brought scale, distribution and specialisms in key markets.

The acquisition of RKH was completed on 29 April 2015 and created a business with a strong international and UK retail distribution network outside North America; a leading independent specialty lines insurance and reinsurance broker; and a leading international specialist underwriting agency.

As well as RKH, Hyperion made a number of acquisitions in 2015 which strengthened its product and distribution capabilities both geographically and in terms of specialist market positions.  These included:

• Schouten Sicherheit International bolstered the Group’s presence in Germany, and brought Hyperion a leading market position in the global sports and contingency markets.
• Harmonia, a leading insurance broking firm which specialises in employee benefits and commercial lines, enhanced the Group’s presence in Brazil.
• Wacolda, Proseguros and NMB Colombia, which gave the Group a strong broking platform in Colombia.
• Powell Bateson, a commercial insurance broking firm based in Liverpool, which brought specific expertise in construction, property and risk and safety management to the UK business.
• PrimeCare Insurance Services Limited gave the Group a strong market position in the UK care sector through brands Care Homes Insurance Services and Primecare.
• Perkins Slade, a UK-based sport and recreation, corporate and high net worth insurance broking firm gave the Group an enhanced market position in insurance broking services to sports’ national governing bodies and amateur sports associations as well as a regional broking operation in Birmingham.
• UBK Correduria de Seguros, Spain’s eleventh largest broker, brought scale, broad regional presence and significant personal lines and high net worth expertise to the Group’s operations in Spain.
• An initial 49% stake in, and management control of, specialist financial lines, commercial, employee benefits, marine, engineering and credit insurance broker, CIMB Insurance Brokers (CIB), which brought scale and enhanced the Group’s position and reputation in Malaysia, one of the region’s fastest growing markets.

The employee ownership model is at the heart of the Group’s proposition to all its stakeholders, attracting entrepreneurial talent to Hyperion and in turn delivering a different and enhanced offering to clients, employees and insurer and broker partners.

The Group’s ability to attract talent is evidenced in the appointment of a number of well-respected, senior market experts during the year, from Board level to business development, corporate governance and support services.

Three important senior appointments were made in 2015:

• Dominic Collins became Chairman of the Group following the merger with RKH in April 2015.
• Oliver Corbett was appointed Chief Financial Officer and an Executive Director of the Group Board in September 2015.
• Clement Booth was appointed Non-Executive Chairman of the DUAL International Board and a Non-Executive Director of the Group Board in October 2015.

The Group is committed to growing its employee shareholder base and following the latest employee share offer, 600 of the Group’s more than 3,000 employees are now shareholders in Hyperion and its subsidiaries.

David Howden, Chief Executive Officer, commented:

“2015 was a pivotal year in what has been achieved for the future of Hyperion.  Our commitment to a long-term strategy to build sustainable value for our shareholders through organic growth and strategic acquisitions that deliver balance in our operating model, geographic reach and product range remains as strong as ever.  Hyperion now stands out as something exceptional in the insurance industry.  The three pillars of the Group – our retail broking operations, our leading Specialty and Reinsurance business, and our international underwriting agency operations – are clearly differentiated from their competitors and are each market-leading in their own right.  Together, and underpinned by majority employee ownership, they offer a truly unique proposition for clients, insurance markets, brokers and employees.

As we look to the future, the 2015 financial year has laid the foundation upon which we will continue to build a Group that stands out as a home for exceptional people; that provides a service to its clients and partners that is different from its competitors because its employees own it.”

Dominic Collins, Chairman, said:

“I am delighted that from 1 October 2015 the combined Hyperion and RKH businesses have been legally and organisationally integrated and the planned changes in leadership and structure have been effected. This ensures the enlarged Group is fit for purpose as the industry continues to evolve rapidly and I am confident we are well positioned to deliver the benefits to our clients, insurer partners and shareholders of our efforts.”