Towergate Insurance
Limited
Quarterly report
For the quarter ended 31 March 2015
TIG Finco plc £425,000,000 8.75% senior secured notes due 2020
TIG Finco plc £75,000,000 floating rate super senior secured notes due
2020
Issued: 26 June 2015
Table of contents Page
General and recent developments 1 Presentation of financial and other information 3 Forward looking statements 4 Summary unaudited pro forma financial information and other data 5 Management’s discussion and analysis of financial condition and results of operations 14 Appendix 1 – Interim financial statements of Towergate Insurance limited 20
1
General
This quarterly report should be read in conjunction with the unaudited interim consolidated financial statements of
Towergate Insurance Limited (TIL or the Company) for the quarter ended 31 March 2015.
This quarterly report has been prepared under International Financial Reporting Standards (IFRS). This quarterly
report presents unaudited interim consolidated financial and other information on TIL and its subsidiary companies
(together the Group or Towergate).
Recent developments
The following items have been noted as updates to ongoing issues or a summary of transactions to bring to the
attention of the reader:
Updates on the ongoing issues with the Financial Conduct Authority (FCA) in relation to client money and
advice provided by the Towergate Financial business
A summary of the Group financial restructuring
Senior management changes
A summary financial review and outlook
FCA
During Q3 2013 the Group identified that £15.0m of client and insurer monies had been misallocated to an
unrestricted account between November 2007 and January 2011. As soon as the misallocation was confirmed
management transferred £15.0m to the relevant client and insurer accounts. The FCA was notified and
investigations into this matter are continuing.
The Group is continuing discussions with the FCA in connection with past advice provided by the Towergate
Financial businesses on pension Enhanced Transfer Values (ETV) and Unregulated Collective Investment Schemes
(UCIS). There remain material uncertainties over the level of redress costs as customer contact has commenced but
is not significantly complete and the redress methodology has not been agreed. Purely for internal purposes a range
of £65.0m-£85.0m is used in cash flow projections. Given the level of uncertainty this item remains a contingent
liability in the Group’s financial statements.
Acquisitions and disposals
The Group made seven acquisitions in the fifteen months to 31 March 2015 (consisting of two companies and five
portfolios) for an aggregate consideration of approximately £21.9m. The Group disposed of five businesses during
this period. The material transactions were:
On 17 April 2014 the Group completed the acquisition of Arista Insurance Limited (Arista), a leading UK
commercial managing general agent specialising in property, liability and motor insurance, for a
consideration of £16.7m. Arista has a clearly defined regional distribution network and fits well with the
Group’s strategy of acquiring specialist businesses with strong growth potential
On 29 August 2014 the Group disposed of Folgate Insurance Company Limited (FICL) to Anglo London
for a consideration of £1.9m. Folgate Insurance was an insurance company in run off and as such operated
outside the Group’s core UK specialist lines and small and medium sized businesses (SME) markets
On 23 December 2014 the Group disposed of The Hayward Holding Group Limited (Hayward Aviation) to
Jardine Lloyd Thompson for a consideration of £27.0m. As an international aviation insurance broker,
Hayward Aviation operated outside the Group’s core UK specialist personal lines and SME markets
On 16 March 2015 the Group disposed of its Towergate Financial business (TF) to Palatine Private Equity
for a consideration of £8.6m. The Towergate Financial business was a provider of independent financial
and mortgage advice and operated outside the Group’s core UK specialist personal lines and SME markets
Group financial restructuring
On 2 April 2015 the Group completed a financial restructuring in relation to the senior secured creditors and senior
unsecured creditors of Towergate Finance plc, a former intermediate parent company. As part of these
arrangements TIG Finco plc (a newly formed holding company) acquired the Group for consideration of £735.0m
made up of the issue of £425.0m of Senior Secured Notes by TIG Finco plc and the issue of new shares in TIG
Finco plc’s indirect parent company, TIG Topco Limited, valued at £310.0m.
2
As a result of these arrangements, in April 2015 Highbridge Principal Strategies LLC became the Group’s majority
shareholder.
As part of the financial restructuring, additional capital of £122.0m was received by the Group through the issue by
TIG Topco Limited of new shares for £50.0m and the issue by TIG Finco plc of £75.0m of Super Senior Secured
Notes at a discount of £3.0m. The additional funds provide liquidity to the Group and have enabled it to fund the
costs of the restructuring of £42.0m, the vesting of long term incentive plans which have crystallised or will in the
future crystallise as a result of the restructuring of £30.0m, retention bonuses of £8.0m and minority interest buy
outs of £2.0m.
Senior management changes
There have been a number of senior management changes in the period since 31 December 2014 including:
Scott Egan has changed his role from Chief Financial Officer to Interim Chief Executive Officer
Alastair Lyons has changed his role from Executive Chairman to Non-executive Chairman
The appointment of Mark Mugge as Chief Operating Officer and Steve Wood as Chief Executive Officer
of Paymentshield
The appointment of John Tiner as Chairman with effect from 29 June 2015
Financial review and outlook
Q1 2015 was a challenging period. Confidence in Towergate was tested with performance in all divisions affected
by both the Group financial restructuring and the change programme.
However significant progress has been made in multiple areas. Towergate has attracted long term supportive
shareholders in Highbridge, KKR and Sankaty. Over the last fifteen months much of the comprehensive change
programme has been implemented. Towergate continues to attract talent. The Board remains focussed on
operational delivery in 2015 and there are some early signs of recovery as the business stabilises.
The Group is focussed on retention and new business and aims to deliver this through a concentration on customer
service and operational excellence. The expectation is that expenses will fall through the completion of the change
programme and continued integration of businesses. The Board will continue to invest in the business to deliver
profitable growth in its chosen markets.
3
Presentation of financial and other information
This quarterly report is prepared by the Company in connection with the issuance by TIG Finco plc of £425.0m
senior secured notes and £75.0m floating rate super senior secured notes (together the Notes) on 2 April 2015.
The unaudited interim consolidated financial statements of the Group have been prepared in accordance with IFRS.
The unaudited financial information of the Group presented in this quarterly report and discussed in the
management’s discussion and analysis of financial condition and results of operations has been prepared on a pro
forma basis in order to present a two-year financial track record. Adjustments have been made in respect of:
Subtraction of the results of disposed businesses:
Hayward Aviation for the period 1 January 2014 to 23 December 2014
FICL for the period 1 January 2014 to 29 August 2014
TF for the period 1 January 2014 to 16 March 2015
Inclusion of the Group debt which was in Towergate Finance plc at the date of this report, to reflect the
impact on the Group’s unaudited interim consolidated financial statements.
These financial results include certain financial measures and ratios, including EBITDA, Adjusted EBITDA,
Adjusted EBITDA margin and certain leverage and coverage ratios that are not presented in accordance with IFRS.
In these financial results, references to EBITDA for the parent guarantor are to profit/(loss) on ordinary activities
before interest payable and similar charges, tax, depreciation, amortisation of intangibles and group reorganisation
costs. Accordingly, EBITDA can be extracted from the consolidated financial statements of TIL by taking
profit/(loss) on ordinary activities and adding back interest payable and similar charges, tax, depreciation,
amortisation of intangibles and group reorganisation costs.
References to Adjusted EBITDA for TIL represent EBITDA as adjusted for certain redundancy and restructuring
costs, financing transaction costs, asset write downs in connection with business restructuring, long-term incentive
plan charges and business investment costs.
EBITDA-based measures are not presented as measures of the results of operations. EBITDA-based measures have
important limitations as an analytical tool, and should not be considered in isolation or as substitutes for analysis of
the Group’s results of operations. Management believes that the presentation of EBITDA-based measures is helpful
to investors as a measure of the operating performance and ability to service debt. EBITDA-based measures may
not be comparable to similarly titled measures used by other companies.
EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and leverage and coverage ratios are not measurements of
financial performance under IFRS and should not be considered as alternatives to other indicators of the Group’s
operating performance, cash flows or any other measure of performance derived in accordance with IFRS.
Certain data contained in these financial results, including financial information, have been subject to rounding
adjustments. Accordingly, in certain instances the sum of the numbers in a column or a row in tables may not
conform exactly to the total figure given for that column or row.
The discussion includes forward looking statements, which, although based on assumptions that are considered
reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially
from those expressed or implied herein. Undue reliance cannot be placed on these forward looking statements.
These forward looking statements are made as of the date of this annual report and are not intended to give any
assurance as to future results.
Segmental analysis is presented in this financial information. From time to time structural changes are made within
the business and trading businesses may move between the reported segments. When this occurs financial
information is restated in respect of the corresponding prior year period to facilitate the discussion and analysis of
the results.
In these financial results, all capitalised terms not otherwise defined are defined in the indenture agreements dated 2
April 2015 related to the issuance of the Notes.
4
Forward looking statements
This annual report contains statements under the captions risk factors, business, management’s discussion and
analysis of financial condition and results of operations, and in other sections that are, or may be deemed to be,
forward-looking statements. In some cases, these forward-looking statements can be identified by the use of
forward-looking terminology, including the words “aims”, “believes”, “estimates”, “anticipates”, “expects”,
“intends”, “may”, “will”, “plans”, “predicts”, “assumes”, “shall”, “continue” or “should” or, in each case, their
negative or other variations or comparable terminology or by discussions of strategies, plans, objectives, targets,
goals, future events or intentions.
Many factors may cause the Group’s results of operations, financial condition, liquidity and the development of the
industries in which it operates to differ materially from those expressed or implied by the forward-looking
statements contained in this annual report. These factors include among others:
The impact of current economic conditions on the Group’s results of operations and financial condition
The risk of a downturn in the property market
Volatility or declines in the premiums on which the Group’s commissions are based and declines in
commission rates
The Group’s dependence on insurance companies providing us underwriting capacity and on third-party
brokers, mortgage intermediaries and networks of mortgage intermediaries to distribute its products
The impact of any adverse changes to relationships with brokers and mortgage intermediaries
The impact of competition
The Group’s exposure to potential regulatory sanctions and fines
The unpredictable nature of profit commissions
Legislative, taxation and regulatory changes, inquiries or enforcement actions, affecting the Group’s ability to
operate or the profit generated from its activities
Exposure to potential liabilities arising from errors and omissions claims against the Group
The impact of acting outside the scope of the Group’s delegated authority from insurance companies
Interruption or loss of the Group’s information processing systems or failure to maintain secure information
systems and technological changes
Risks relating to the Group’s acquisition strategy
Risks of increased competition from consolidators limiting potential growth opportunities
The Group’s ability to retain its senior management and underwriters, account executives, sales personnel and
other client facing employees
The Group’s ability to gain technological expertise and apply technology effectively
The risk that the Group may have to write down the value of its goodwill
The interests of the Group’s shareholders
Risk relating to conflicts of interest and transactions with affiliated companies
The Group’s substantial debt
Fluctuations in interest and foreign exchange rates
The other factors discussed in more detail under Risk factors
These risks and others described under Risk factors are not exhaustive. Other sections of this annual report describe
additional factors that could adversely affect the Group’s results of operations, financial condition, liquidity and the
development of the industries in which it operates. New risks can emerge from time to time, and it is not possible
for the Group to predict all such risks, nor can it assess the impact of all such risks on its business or the extent to
which any risks, or combination of risks and other factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and uncertainties, readers of this document should
not rely on forward-looking statements as a prediction of actual results.
Any forward-looking statements are only made as of the date of this annual report, and the Group does not intend,
and does not assume any obligation, to update forward-looking statements set forth in this annual report. Readers of
this document should interpret all subsequent written or oral forward-looking statements attributable to the Group or
to persons acting on its behalf as being qualified by the cautionary statements in this annual report. As a result,
readers of this document should not place undue reliance on these forward looking statements.
5
Summary unaudited pro forma financial information and other data
The pro forma financial information presented in this section has been prepared in accordance with the information
given in presentation of financial and other information.
The adjustments made in order to present the unaudited pro forma consolidated financial information have been
made based on available information and assumptions that the Board believes are reasonable. The unaudited pro
forma consolidated financial information is for informational purposes only and does not purport to present what the
Group’s results would actually have been had the disposals of TF, Hayward Aviation and FICL and the
restructuring transaction, and the application of the proceeds therefrom occurred on the dates presented, nor should
it be used as the basis of projections of the Group’s results of operations or financial condition for any future period.
The unaudited pro forma consolidated financial information should be read in conjunction with the financial
statements included as an appendix to this quarterly report.
The following tables should be read in conjunction with, and is qualified in its entirety by reference to, the
consolidated financial statements and the notes thereto for TIL for the quarters ended 31 March 2015 and 2014. The
tables should also be read together with management’s discussion and analysis of financial condition and results of
operations.
The following tables provide a summary on basis of the pro forma consolidated statement of comprehensive
income, pro forma consolidated statement of the financial position, consolidated cash flow, other financial data, a
reconciliation of the loss on ordinary activities to Adjusted EBITDA and an analysis of contractual debt.
Quarter
ended 31
March
Quarter
ended 31
March
2015 2014
£000 £000
Pro forma consolidated statement of comprehensive income data:
Commission and fees 85,331 92,470
Investment income 89 102
Salaries and associated expenses (50,487) (47,342)
Other operating costs (40,949) (24,479)
Depreciation and amortisation charges (5,303) (4,764)
Group operating (loss) / profit (11,319) 15,987
Finance costs (22,245) (24,777)
Finance income 93 3,503
Loss before taxation (33,471) (5,287)
Income tax credit 4,232 4,846
Loss on ordinary activities after taxation (29,239) (441)
6
Quarter ended
31 March
Quarter ended
31 March
2015 2014
£000 £000
Pro forma consolidated statement of financial position data:
Intangible assets 818,271 1,365,880
Property, plant and equipment 11,130 10,785
Other non-current assets 11,347 7,528
Trade and other receivables 76,871 231,492
Cash at bank and in hand 185,396 182,785
Other current assets - -
Current liabilities (405,791) (334,633)
Non-current liabilities (929,804) (936,705)
Net (liabilities) / assets (232,580) 527,132
Quarter
ended 31
March
Quarter
ended 31
March
2015 2014
£000 £000
Consolidated cash flow:
Cash flows from operating activities
Cash generated from / (used in) operations 11,157 (742)
Exceptional items (18,302) (2,366)
(Decrease) / increase in net insurance broking creditors (25,237) (14,769)
Net interest (paid) / received and investment income 182 157
Taxation (paid) / received - 16
Net cash used in operating activities (32,200) (17,704)
Cash flows from investing activities
Acquisitions and disposals 2,205 (2,792)
Purchase of intangible assets – computer software and commission buy outs (1,316) (2,912)
Purchase of property, plant and equipment (372) (520)
Net cash generated from / (used in) investing activities 517 (6,224)
Cash flows from financing activities
Financing 16,646 10,854
Net cash generated from financing activities 16,646 10,854
Decrease in net cash in the year (15,037) (13,074)
Quarter
ended 31
March
Quarter
ended 31
March
2015 2014
£000 £000
Other financial data:
EBITDA 12,404 23,167
Adjusted EBITDA 13,077 23,787
Adjusted EBITDA margin 15.33% 25.72%
Net borrowings(1) 1,010,418 989,157
(1) Net borrowings represent pro forma total borrowings excluding accrued interest and capitalised fees plus deferred consideration and less
available cash and cash equivalents.
7
Quarter
ended 31
March
Quarter
ended 31
March
2015 2014
Reconciliation of loss on ordinary activities to Adjusted EBITDA
£000 £000
Loss on ordinary activities after tax (29,239) (441)
Add back:
Finance costs and income (related to derivative financial instruments)(A) 22,245 21,324
Group reorganisation costs 4,853 2,366
Regulatory costs 1,051 -
Group financial restructuring costs 12,423 -
Income tax (4,232) (4,846)
Depreciation and amortisation charges 5,303 4,764
EBITDA 12,404 23,167
Add back / (deduct from):
(Profit) / loss on disposal of business(B) 340 -
Asset write-downs in connection with business restructuring(C) 294 213
Long-term incentive plan charges(D) - 150
Business investment costs(E) 32 41
Acquisition costs(F) 7 216
Adjusted EBITDA 13,077 23,787
(A) Finance costs are comprised of interest payable on bank loans, directors’ loans, the Notes, finance charges payable in respect of finance leases and hire
purchase contracts, hedging costs and certain other charges. Finance income represents the fair value gains on derivative (interest rate swap) financial
instruments.
(B) Represents in 2015 the loss on disposal of the sale of a portfolio from Towergate Underwriting Group Limited.
(C) Represents costs incurred in relation to potential acquisitions and disposals of businesses.
(D) Represents non-cash provisions charged in connection with potential future settlement costs of long-term incentive plans. Certain members of the Group’s
board of directors and senior management are entitled to a one-time cash bonus, in addition to any annual bonus, based on the value appreciation of Towergate.
The vesting conditions of the bonus were a 90% sale of shares of Towergate or a listing of Towergate. As a result of the financial restructuring which completed
on 2 April 2015 the existing long term incentive plans were deemed to have a zero value and amounts previously provided in relation to these have been credited to
the statement of comprehensive income for the year ended 31 December 2014.
(E) Represents investment costs which are incurred for the purposes of generating future EBITDA and value growth. Business investments costs will include,
amongst other things; recruitment and compensation costs paid to market professionals recruited from competitors for the period following their resignation from
such competitors and prior to when they are able to solicit clients on the Group’s behalf due to non-compete clauses in favour of such competitors and the costs of
recruitment and appointment of executive, non-executive and specialist advisers.
(F) Represents (i) transaction costs in respect of acquisitions (ii) adjustments to acquisitions that are more than one year post-acquisition and (iii) adjustments to
the valuation of deferred consideration and redemption liability non-controlling interest put options on acquisitions that are more than one year post-acquisition.
8
Unaudited pro forma financial information and other data
for the quarter ended 31 March 2015
Pro forma consolidated statement of comprehensive income
Quarter ended
31 March 2015
for Towergate
Insurance(1)
Removal of the
results and pro
forma
adjustments for
the disposal of
TF (2)
Pro forma
adjustments for
debt costs(3)
Pro forma
quarter ended
31 March 2015
£000 £000 £000 £000
Pro forma consolidated statement of comprehensive income
Commission and fees 85,331 - - 85,331 Investment income 89 - - 89 Salaries and associated expenses (50,487) - - (50,487) Other operating costs (40,949) - - (40,949) Depreciation and amortisation charges (5,303) - - (5,303) Group operating loss (11,319) - - (11,319) Analysed as:
Group operating profit before exceptional items 7,348 - - 7,348 (Loss) on disposal of businesses and investments (340) - - (340) Group reorganisation costs (4,853) - - (4,853) Regulatory costs (1,051) - - (1,051) Group financial restructuring costs (12,423) - - (12,423)
Group operating loss (11,319) - - (11,319) Finance costs(4) (238) - (22,007)(a) (22,245) Finance income(5) 93 - - 93
Loss before taxation (11,464) - (22,007) (33,471) Income tax (expense) / credit (6) (224) - 4,456(b) 4,232
Loss on continuing operations (11,688) - (17,551) (29,239)
Loss for the period from discontinued operations, net of tax (366) 366(a) - -
Total comprehensive (loss)/profit for the period (12,054) 366 (17,551) (29,239)
Other pro forma data Available cash(7) 40,280 - - 40,280 EBITDA 12,404 - - 12,404 Adjusted EBITDA 13,077 - - 13,077 Adjusted EBITDA margin - - - 15.33% Adjusted EBITDA 12 months to 31 March 2015 86,191 (799) - 85,392 Capital expenditure 1,664 (1) - 1,663 Adjusted net senior borrowings(8) - - - 674,700 Adjusted net total borrowings(8) - - - 1,010,418 Adjusted net interest expense(9) - - - 22,250 Ratio of adjusted net senior secured borrowings to adjusted EBITDA(8) - - - 7.90x Ratio of adjusted net total borrowings to adjusted EBITDA(8) - - - 11.83x Ratio of adjusted EBITDA to adjusted net interest expense(9) - - - 3.84x
Pro forma division data Turnover by division Underwriting 19,498 - - 19,498 Insurance Brokers 36,666 - - 36,666 Direct 14,980 - - 14,980 Paymentshield 11,107 - - 11,107 Network 3,067 - - 3,067 Central support 13 - - 13
9
Quarter ended
31 March 2015
for Towergate
Insurance(1)
Removal of the
results and pro
forma
adjustments for
the disposal of
TF (2)
Pro forma
adjustments for
debt costs(3)
Pro forma
quarter ended
31 March 2015
£000 £000 £000 £000
Pro forma division data (continued) Adjusted EBITDA by division Underwriting 4,928 - - 4,928 Insurance Brokers 5,427 - - 5,427 Direct 3,752 - - 3,752 Paymentshield 7,532 - - 7,532 Network 986 - - 986 Central support (9,548) - - (9,548)
(1) The information in this column has been derived from the Group’s unaudited interim consolidated financial statements as of and for the quarter ended 31 March 2015 included
elsewhere in this quarterly report.
(2) The pro forma and removal of trading period adjustments for the disposal of TF on 16 March 2015, give effect to the following adjustment;(a) represents the removal of the
aggregated results of the trading period 1 January 2015 to 16 March 2015 for TF which is classed as discontinued operations in the TIL consolidated financial statements and is
compiled from information in the respective management accounts of TF .
(3) The pro forma adjustments for debt costs incurred by Towergate Finance Plc on behalf of the Group give effect to the following adjustments: (a) represents (i) the interest costs
for the quarter ended 31 March 2015 in respect of the 8.5% senior secured notes (£5.1m), the 10.5% senior notes (£8.0m), the floating rate senior secured notes (£6.1m), the £14.6m
10.5% senior notes (£0.4m), the £85.0m revolving credit facility(£1.1m) and the £4.0m senior secured notes (£0.1m)(ii) the amortisation of capitalised debt costs in relation to the
transaction of 10 May 2013 and 11 February 2011 (£1.4m), offset by the removal of the interest cost for the £20.0m bridging loan which is contained in the TIL consolidated
financial statements (£0.2m) (b) represents the tax effect of pro forma adjustments (a).
(4) Finance costs are comprised of interest payable on bank loans, directors’ loans, the debt as discussed in (3), finance charges payable in respect of finance leases and hire
purchase contracts, hedging costs and certain other charges.
(5) Finance income represents the interest receivable on own funds and fair value gains on derivative (interest rate swap) financial instruments.
(6) The Group does not expects to incur a corporation tax charge for 2015, any profits will be group relieved with losses from companies outside of the restricted group.
(7) Available cash of £40.3m excludes restricted cash in an amount of £145.1m. Restricted cash consists of (i) client money in respect of insurance premiums due to insurance
companies and insurance company money in respect of claims payments due to policyholders, (ii) cash deposits kept for the purposes of solvency and capital adequacy requirements
imposed by the FCA and (iii) rent deposits.
(8) The pro forma borrowings incurred by Towergate Finance Plc have been used in calculating adjusted borrowings. For the purposes of calculating adjusted net senior secured
borrowings, total pro forma Towergate Finance Plc debt excludes unsecured loan notes and has been adjusted for the pro forma available cash of £40.3m. The ratios of adjusted net
senior secured borrowings to adjusted EBITDA and adjusted net total borrowings to adjusted EBITDA are calculated by reference to the pro forma adjusted EBITDA for the 12
months ended 31 March 2015 of £85.4m.
(9) Adjusted net interest expense represents net interest expense on pro forma adjusted total borrowings, excluding commitment fees relating to the undrawn portion of the revolving
credit facility and hedging costs. The ratios of adjusted EBITDA to adjusted net interest expense is calculated by reference to the pro forma adjusted EBITDA for the 12 months
ended 31 March 2015 of £85.4m.
10
Unaudited pro forma financial information and other data
for the quarter ended 31 March 2015
Pro forma consolidated statement of financial position
As at 31
March 2015
for Towergate
Insurance(1)
Pro forma
adjustments
for debt(2)
Pro forma as
at 31 March
2015
£000 £000 £000
Pro forma consolidated statement of financial position Net assets Non-current assets
Intangible assets 818,271 - 818,271 Property, plant and equipment 11,130 - 11,130 Available for sale financial assets 140 - 140 Deferred tax assets 11,207 - 11,207
840,748 - 840,748 Current assets
Trade and other receivables 76,871 - 76,871 Cash and cash equivalents 185,396
- 185,396
262,267 - 262,267 Current liabilities
Borrowings (20,074) (85,000)(a) (105,074) Trade and other payables (255,418) (40,406)(b) (295,824) Current tax liabilities (2,504) - (2,504) Provision for liabilities and charges (2,389) - (2,389)
(280,385)
85)
(125,406) (405,791)
Net current liabilities (18,118) (125,406) (143,524) Non-current liabilities
Borrowings (150) (920,400)(c) (920,550) Trade and other payables (5,136) - (5,136) Provision for liabilities and charges (4,118) - (4,118)
(9,404) (920,400) (929,804)
Net assets / (liabilities) 813,226 (1,045,806) (232,580)
(1) The information in this column has been derived from the Group’s unaudited interim consolidated financial statements as of and for the Quarter ended 31 March
2015 included elsewhere in this quarterly report.
(2) The pro forma for debt reflect the borrowings, capitalised debt costs and interest payable incurred by Towergate Finance Plc as at 31 March 2015. These
amounts were incurred on behalf of the Group but following the group capital restructure are not included in the unaudited interim consolidated financial statements
of TIL as at 31 March 2015 give effect to the following adjustments (a) represents the £85.0m revolving credit facility(b) represents (i) interest payable at 31 March
2015 in respect of the 8.5% senior secured notes (£10.7m), the 10.5% senior notes (£19.4m), the floating rate senior secured notes (£8.0m), the £14.6m 10.5% senior
notes (£1.0m), the £85.0m revolving credit facility (£1.1m) and the £4.0m senior secured notes (£0.2m) (c) represents borrowings on the 8.5% senior secured notes
(£230.0m), the 10.5% senior notes (£290.0m), the floating rate senior secured notes (£396.0m), the £14.6m 10.5% senior notes (£14.1m) and the £4.0m senior
secured notes (£3.8) (ii) offset by fees capitalised in respect of the transactions of 10 May 2013 (£7.6m) and in respect of the transactions of 11 February 2011
(£5.9m).
11
Unaudited pro forma financial information and other data for the quarter ended 31 March 2014
Pro forma consolidated statement of comprehensive income
Quarter
ended 31
March 2014
for
Towergate
Insurance (1)
Removal of
the results
and pro
forma
adjustments
for the
disposal of
FICL,
Hayward
Aviation and
TF(2)
Revised
recognition
of trading
deals(3)
Pro forma
adjustments
for debt
costs(4)
Pro forma
quarter
ended 31
March 2014
£000 £000 £000 £000 £000
Pro forma consolidated statement of comprehensive
income
Commission and fees 92,835 - (365) - 92,470 Investment income 102 - - - 102 Salaries and associated expenses (47,342) - - - (47,342) Other operating costs (24,698) 27(a) 192 - (24,479) Depreciation and amortisation charges (4,764) - - - (4,764)
Group operating profit/(loss) 16,133
27 (173) - 15,987
Analysed as:
Group operating profit before exceptional items 18,499 27 (173) - 18,353 Group reorganisation costs (2,366) - - - (2,366)
Group operating profit/(loss) 16,133 27 (173) 15,987
Finance costs(5) (1) - - (24,776)(a) (24,777)
Finance income(6) 50 - - 3,453(b) 3,503
Profit/(loss) before taxation 16,182 27 (173) (21,323) (5,287)
Income tax credit / (expense) (7) 233 (6)(b) 37 4,582(c) 4,846
Profit / (loss) on continuing operations 16,415 21 (136) (16,741) (441)
Profit for the period from discontinued operations, net
of income tax(8) 497 (497)(c) - - -
Total comprehensive profit / (loss) for the period 16,912 (476) (136) (16,741) (441)
Other pro forma data Available cash(9) 46,865 (6,130) - - 40,735 EBITDA 23,313 27 (173) - 23,167 Adjusted EBITDA 23,933 27 (173) - 23,787 Adjusted EBITDA margin - - - - 25.72% Adjusted EBITDA 12 months to 31 March 2014 139,347 (4,231) (173) - 134,943 Capital expenditure 2,976 (67) - - 2,909 Adjusted net senior borrowings(10) - - - - 648,245 Adjusted net total borrowings(10) - - - - 989,157 Adjusted net interest expense(11) - - - - 20,922
Ratio of adjusted net senior secured borrowings to adjusted EBITDA(10) - - - - 4.80x
Ratio of adjusted net total borrowings to adjusted EBITDA(10) - - - - 7.33x
Ratio of adjusted EBITDA to adjusted net interest
expense(11) - - - - 6.45x
Pro forma division data Turnover by division Underwriting 19,234 - - - 19,234 Insurance Brokers 39,914 - - - 39,914 Direct 15,784 - - - 15,784 Paymentshield 12,893 - (45) - 12,848 Networks 3,863 - (320) - 3,543 Central support 1,147 - - - 1,147
12
Quarter
ended 31
March 2014
for
Towergate
Insurance (1)
Removal of
the results
and pro
forma
adjustments
for the
disposal of
FICL,
Hayward
Aviation and
TF(2)
Revised
recognition
of trading
deals(3)
Pro forma
adjustments
for debt
costs(4)
Pro forma
quarter
ended 31
March 2014
£000 £000 £000 £000 £000
Pro forma division data (continued) Adjusted EBITDA by division Underwriting 6,765 - 4 - 6,769 Insurance Brokers 7,388 (181) (98) - 7,109 Direct 5,198 - - - 5,198 Paymentshield 9,015 - 55 - 9,070 Network 1,800 - (320) - 1,480 Central support (6,233) 208 186 - (5,839)
(1) The information in this column has been derived from the Group’s unaudited interim consolidated financial statements as of and for the Quarter ended 31 March 2014
included elsewhere in this quarterly report.
(2) The pro forma and removal of trading period adjustments for the disposal of Hayward Aviation on 23 December 2014, FICL on 29 August 2014 and TF on 16 March 2015,
give effect to the following adjustments:(a) represents the trading period 1 January 2014 to 31 March 2014 for FICL and is compiled from information in their respective
management accounts (b) represents the tax effect of pro forma adjustment (a); (c) represents the removal of the aggregated results of the trading period 1 January 2014 to 31
March 2014 for Hayward Aviation and TF which are classed as discontinued operations in the TIL consolidated financial statements.
(3)The Group as part of year end revised the basis of estimation of revenue recognition related to long term deal income; this adjustment makes this year end adjustment in the
period to which it relates. Year end adjustments to expense charges have been recognised in the period to which they relate.
(4) The pro forma adjustments for debt costs incurred by Towergate Finance Plc on behalf of the Group give effect to the following adjustments: (a) represents (i) the interest
costs for the quarter to 31 March 2014 in respect of the 8.5% senior secured notes (£4.9m), the 10.5% senior notes (£7.6m), the floating rate senior secured notes (£5.9m), the
£14.6m 10.5% senior notes (£0.4m), the interest rate swap agreement (£3.7m), the £85m revolving credit facility (£0.8m) and the £4.0m senior secured notes (£0.1m)(ii) the
amortisation of capitalised debt costs in relation to the transaction of 10 May 2013 and 11 February 2011 (£1.4m) (b)represents the fair value gain on the interest rate swap
derivative (c) represents the tax effect of pro forma adjustments (a) and (b).
(5) Finance costs are comprised of interest payable on bank loans, directors’ loans, the debt as discussed in (4), finance charges payable in respect of finance leases and hire
purchase contracts, hedging costs and certain other charges.
(6) Finance income represents the interest receivable on own funds and fair value gains on derivative (interest rate swap) financial instruments.
(7) The Group does not expects to incur a corporation tax charge for 2014, any profits will be group relieved with losses from companies outside of the restricted group
(8) On 23 December2014 the Group disposed of Hayward Aviation. The Group also committed to a plan to dispose of its TF business. The results of both businesses have been
classed as discontinued operations in the statutory accounts for the year ended 31 December 2014 and the consolidated statement of comprehensive income for the quarter
ended 31 March 2014 has been restated to show TF and Hayward Aviation as discontinued operations.
(9) Pro forma available cash of £40.7m excludes restricted cash in an amount of £148.6m. Restricted cash consists of (i) client money in respect of insurance premiums due to
insurance companies and insurance company money in respect of claims payments due to policyholders, (ii) cash deposits kept for the purposes of solvency and capital
adequacy requirements imposed by the FCA and (iii) rent deposits.
(10) The pro forma borrowings incurred by Towergate Finance Plc have been used in calculating adjusted borrowings. For the purposes of calculating adjusted net senior
secured borrowings, total pro forma Towergate Finance Plc debt excludes unsecured loan notes and has been adjusted for the pro forma available cash of £40.7m. The ratios
of adjusted net senior secured borrowings to adjusted EBITDA and adjusted net total borrowings to adjusted EBITDA are calculated by reference to the pro forma adjusted
EBITDA for the 12 months ended 31 March 2014 of £134.9m.
(11) Adjusted net interest expense represents net interest expense on pro forma adjusted total borrowings, excluding commitment fees relating to the undrawn portion of the
revolving credit facility and hedging costs. The ratios of adjusted EBITDA to adjusted net interest expense is calculated by reference to the pro forma adjusted EBITDA for the
12 months ended 31 March 2014 of £134.9m.
13
Unaudited pro forma financial information and other data
for the quarter ended 31 March 2014
Pro forma consolidated statement of financial position
As at 31
March 2014
for Towergate
Insurance(1)
Pro forma
adjustments
for debt (2)
Pro forma
adjustments for
the disposal of
Hayward, FICL
and TF(3)
Pro forma as
at 31 March
2014
£000 £000 £000 £000
Pro forma consolidated statement of financial position
Net assets Non-current assets
Intangible assets 1,414,385 - (48,505) 1,365,880 Property, plant and equipment 11,104 - (319) 10,785 Available for sale financial assets 203 - (16) 187 Deferred tax assets 7,437 - (96) 7,341
1,433,129 - (48,936) 1,384,193 Current assets
Trade and other receivables 239,498 - (8,006) 231,492 Cash and cash equivalents 195,483 - (12,698) 182,785
434,981 - (20,704) 414,277
Current liabilities
Borrowings (92) (59,000)(a) - (59,092)
Trade and other payables (229,826) (14,315)(b) 8,570 (235,571) Derivative financial instruments - (14,857)(c) - (14,857) Current tax liabilities (22,657) - 769 (21,888) Provision for liabilities and charges (3,473) - 248 (3,225)
(256,048) (88,172) 9,587 (334,633)
Net current assets / (liabilities) 178,933 (88,172) (11,117) 79,644
Non-current liabilities Borrowings (160) (913,535)(d) - (913,695) Trade and other payables (19,863) - - (19,863) Provision for liabilities and charges (3,147) - - (3,147)
(23,170) (913,535) - (936,705)
Net assets / (liabilities) 1,588,892 (1,001,707) (60,053) 527,132
(1) The information in this column has been derived from the Group’s unaudited interim consolidated financial statements as of and for the Quarter ended 31 March
2014 included elsewhere in this quarterly report.
(2) The pro forma adjustments for debt reflect the borrowings, capitalised debt costs and interest payable incurred by Towergate Finance Plc as at 31 March 2014.
These amounts were incurred on behalf of the Group but following the group capital restructure are not included in the unaudited interim consolidated financial
statements of TIL give effect to the following adjustments (a) represents the amount drawn on the £85m revolving credit facility(b) represents (i) interest payable at 31
March 2014 in respect of the 8.5% senior secured notes (£2.4m), the 10.5% senior notes (£3.8m), the floating rate senior secured notes (£3.8m), the interest rate
swap agreement (£3.7m), the £14.6m 10.5% senior notes (£0.2m), the £85.0m revolving credit facility(£0.3m) and the £4.0m senior secured notes (£0.1m) (c)
represents the fair value of Towergate Finance plc’s interest rate swap derivative which expires on December 31, 2014 (d) represents borrowings on the senior
secured notes (£230m), the 10.5% senior notes (£290m), the floating rate senior secured notes (£396.0m), the £14.6m 10.5% senior notes (£14.0m) and the £4.0m
senior secured notes (£3.8) (ii) offset by fees capitalised in respect of the transactions of 10 May 2013 (£10.7m) and in respect of the transactions of 11 February 2011
(£9.6m).
(3) The pro forma adjustments for the disposal of Hayward Aviation on 23 December 2014, FICL on 29 August 2014 and TF on 16 March 2015 represents the assets
and liabilities at 31 March 2014 contained within the TIL consolidated statement of financial position at this date.
14
Management’s discussion and analysis of financial condition and results of
operations
Significant factors affecting results of operations
Insurance industry dynamics
Insurance cycle
The insurance industry is inherently cyclical, meaning that the pricing and terms and conditions of cover vary over
time. The insurance cycle is characterised by soft and hard market conditions. Soft conditions reflect muted
demand, low or negative premium rates, widening coverage and the free availability of capital. As a result soft
markets generally result in lower level of underlying profitability for both insurance carriers and intermediaries.
Hard market conditions generally follow a periodic of heightened loss activity and capital erosion. As a result the
supply of insurance is limited, rating or pricing increases and coverage narrows. It follows that underlying
profitability for both insurance carriers and intermediaries generally rises in a hard market, although there can be a
lag between the market turn and the effect on reported profits.
Insurance rating
The outlook for rating is likely to remain soft for some time reflecting the ready availability of capital, the absence
of major loss events and the absence of withdrawal of underwriting capacity or of insurance carriers from the
markets in which the Group operates.
Commissions and fees
Insurance brokers and underwriting agents derive the majority of their revenue from commissions and fees.
Commissions are generally based on insurance premiums and negotiated commission rates. Fees are paid for
individual services based on negotiated amounts. As rating is currently soft, commission income is relatively
depressed.
The Group also enters into profit sharing arrangements, fees for the provision of payment instalment plans and other
one off deals with third parties which are recognised over the life of the relevant arrangement or when they can be
measured with reasonable certainty. Such trading deal income includes contributions to marketing or product
development, volume payments and profit commissions receivable. The amount and timing of trading deal income
is inherently uncertain and individual amounts may be material. Amounts accrued at the year end and recognised as
assets may be judgemental. A change in estimation of trading deal income could have a material effect on the
Group’s financial performance.
Acquisitions and disposals
The Group has pursued a strategy of acquisitions to deliver scale advantage.
This acquisition strategy has been focussed on both intermediary (or broking) business and on underwriting
agencies. In evaluating potential acquisitions, the Group considers the market position, growth prospects and
underwriting performance of target businesses, as well as their geographic, distribution channel and product mix fit
with its existing operations. The price paid for acquisitions is based primarily on the commission and fee income
streams of the target business and the potential to increase such streams following the acquisition.
Acquisitions affect the results of operations in several ways. First, the results for the period during which an
acquisition takes place includes the results of the acquired business in that and subsequent accounting periods.
Second, the results for subsequent periods may be affected by applying the Group’s enhanced commission
arrangements to the policies that acquired business places, and by cross-selling products. Third, the results for
subsequent periods may be affected if synergies are realised from shared services and infrastructure.
The Group made seven acquisitions in the fifteen months to 31 March 2015 (consisting of two companies and five
portfolios) for an aggregate consideration of approximately £21.9m. The Group disposed of five businesses during
this period. The material transactions were:
On 17 April 2014 the Group completed the acquisition of Arista Insurance (Arista), a leading UK
commercial managing general agent specialising in property, liability and motor insurance, for a
consideration of £16.7m. Arista has a well-defined regional distribution network and fits well with the
Group’s strategy of acquiring specialist businesses with strong growth potential
On 29 August 2014 the Group disposed of Folgate Insurance (FICL) to Anglo London for a consideration
of £1.9m. Folgate Insurance was an insurance company in run off and as such operated outside the
Group’s core UK specialist lines and small and medium sized businesses (SME) markets
15
On 23 December 2014 the Group disposed of Hayward Aviation Limited (Hayward Aviation) to Jardine
Lloyd Thompson for a consideration of £27.0m. As an international aviation insurance broker, Hayward
Aviation operated outside the Group’s core UK specialist personal lines and SME markets
On 16 March 2015 the Group disposed of its Towergate Financial (TF) business to Palatine Private Equity
for a consideration of £8.6m. The Towergate Financial business was a provider of independent financial
and mortgage advice and operated outside the Group’s core UK specialist personal lines and SME markets
Seasonality
The Group experiences some seasonality in the volumes of insurance policies transacted and, consequently, in
commission and fees. The Group has historically transacted less business from November to February than in most
other months of the year. Accordingly, although volumes typically increase in March, commission and fees for the
first quarter tends to be lower than the second and third quarter, before declining again in the fourth quarter.
Description of key line items
Set out below is a brief description of the composition of the key line items of the Group’s income statement.
Commission and fees
Commissions and fees represents income received from third parties net of commissions paid to sub-agents and
brokers. When a sub-agent or broker refers a customer to the Group, it typically shares that commission with the
sub-agent or broker. For purposes of the analysis of results below, commission and fees are analysed by division.
Income from trading deals with insurers is included in commission and fees.
Investment income
Investment income represents the interest received on restricted cash.
Salaries and associated expenses
Salaries and associated expenses represent the costs of staff and staff related costs incurred in the operations of the
Group and will include staff related costs for exceptional spend not in the normal course of operations of the Group.
Other operating expenses
Other operating expenses represent all other administrative costs which are not staff or staff related and will include
exceptional spend not in the normal course of operations of the Group.
Depreciation and amortisation charges
Depreciation and amortisation charges represent the depreciation charge and the amortisation of intangible assets.
Impairment of goodwill
Impairment of goodwill represents the impairment of the goodwill balance based on the value in use or fair value
less costs to sell of the Group. This is conducted at a cash generating unit level which reflects the divisional
structure of the Group.
Finance costs
Finance costs represent the interest and other financing costs of the Group.
Finance income
Finance income represents the interest on available cash and the change in fair value of any financial instrument in
the statement of financial condition.
Impairment of associate
Impairment of associate represents the write down in the fair value of associates in the statement of financial
condition.
Income tax
Income tax represents the addition of the current income tax charge based on the profit or loss before taxation and
the deferred tax charge based on the temporary timing differences between the carrying value of assets in the
statement of financial condition and the amount carried for tax purposes.
Group financial performance
The following discussion and analysis compares pro forma consolidated results of operations for the quarter ended
16
31 March 2015 and pro forma consolidated results of operations for the quarter ended 31 March 2014.
Turnover and EBITDA by division
The tables below set out the commission and fees and adjusted earnings results for the divisions of the Group:
Pro forma basis
Commission and fees
2015
£m
2014
£m
Insurance Brokers 36.7 39.9
Direct 15.0 15.8
Underwriting 19.5 19.2
Paymentshield 11.1 12.9
Network 3.0 3.5
Other 0.0 1.2
85.3 92.5
Pro forma basis
Adjusted earnings
2015
£m
2014
£m
Insurance Brokers 5.4 7.1
Direct 3.8 5.2
Underwriting 4.9 6.8
Paymentshield 7.5 9.0
Network 1.0 1.5
Other (9.5) (5.8)
13.1 23.8
Insurance Brokers: commission and fees declined by 8.1% compared to last year. Adjusted earnings declined by
23.7% compared to last year. Commission and fees for Q1 continue to be impacted by the change programme and
uncertainty caused by the Group financial restructuring. The impact of the reduced income was mitigated by
reduced expenses as the benefits of the change programme start to emerge. Gross margins remain strong at 20%,
consistent with last year.
Direct: commission and fees declined by 5.1% compared to last year. Adjusted earnings declined by 27.8%
compared to last year. This is due to a more competitive environment leading to reduced retention rates and new
business. There are some early signs of improvement with new business growing and retention rates ahead of last
year’s average.
Underwriting: commission and fees increased by 1.4% compared to last year. Adjusted earnings declined by
27.2% compared to last year. Commission and fees have increased due to the acquisition of Arista, which has also
led to an increase in expenses. Organic commission and fees have declined due to the impact of the financial
restructuring and the challenging rate environment. Underlying retention levels remain steady and a long term
strategic deal has been extended with Allianz which will provide up to £770m of maximum capacity.
Paymentshield: commission and fees declined by 13.6% compared to last year. Adjusted earnings declined by
17.0% compared to last year. Commission and fees continue to be affected by the reduction in the mortgage
premium protection insurance product. Household panel quote conversion has stabilised, with household new
business volumes and margin improving over the quarter.
Network: commission and fees declined by 13.4% compared to last year. Adjusted earnings declined by 33.4%
compared to last year. Commission and fees has reduced due to one off income items included in 2014,
discontinued insurer deals and corrective rating actions.
Investment income
Investment income has fallen by £0.01m (12.7%); this is due to a fall in the average return during 2014.
17
Salaries and associated expenses
Salaries and associated expenses have risen by £3.1m (6.6%); staff numbers have remained stable in the quarter
with the increase in cost reflecting as increase in pay of 2.5% last year and provision for bonuses.
Other operating costs
Other operating costs have risen by £16.5m (67.3%); this is mainly due to the exceptional items of £12.4m relating
to the Group financial restructuring, £1.1m in respect of regulatory costs and an increase of £2.5m in relation to
Group reorganisation costs.
Depreciation and amortisation charge
The depreciation and amortisation charge has risen by £0.5m (11.3%); this is due to an increase in the level of
software development costs resulting from the change programmes and of intangible assets following acquisitions
made in 2013 and 2014.
Finance costs
Finance costs have fallen by £2.5m (10.2%); this is due to the settlement of derivative contracts which were used to
hedge floating rate debt.
Finance income
Finance income has risen by £3.4m (97.3%); this represents the change in value of the derivative instrument used to
hedge floating rate debt.
Group change programmes
During 2014 the Group undertook a number of major change programmes. These programmes were designed to
improve efficiency across Towergate, to build regulatory resilience, to position the Group to exploit future scale
advantages and to enhance the customer proposition.
Group reorganisation costs
In April 2014 the Group announced the creation of a new business unit in Manchester. This unit is designed to
service small premium business through a dedicated contact centre with extended opening times. In addition the
Group has undertaken a site consolidation to rationalise its office network across its Insurance Brokers, Direct and
Underwriting businesses.
In February 2014 the Group began a major finance transformation with the creation of accounting centres in Leeds
and Maidstone. All insurance broking accounting and client money processing was consolidated into an in-house
facility in Leeds. In parallel, financial accounting and management accounting was centralised in a second in-house
facility in Maidstone. These two centres are developing standardised policies and procedures and will allow future
investment to be focused and prioritised. They will also allow IT hardware and software used by the Group to be
streamlined and re-focused with the objective, over time, of improving control while exploiting scale advantage.
These initiatives had an aggregate cost of £4.9m during Q1 2015 (Q1 2014: £2.4m), which has been treated as an
exceptional item.
Regulatory costs
The Group has incurred exceptional regulatory costs of £1.1m in Q1 2015 (Q1 2014: £Nil). These items primarily
represent costs incurred in relation to regulatory investigations into advice provided by Towergate Financial on
pension Enhanced Transfer Values (ETV) and Unregulated Collective Investment Schemes (UCIS), investigation
into client money issues and a strengthening of the Group’s control framework.
Group financial restructuring costs
Towergate has undergone a financial restructuring which completed in April 2015. Costs of £12.4m (Q1 2014:
£Nil) related to this restructuring have been recognised in the Q1 2015 results.
Financial strength
On a statutory basis the Group had net assets of £815.7m at 31 March 2015 (£1,588.9m at 31 March 2014) and net
current liabilities of £15.0m at 31 March 2015 (net current assets of £178.9m at 31 March 2014). The Group had
regulatory capital requirements within its regulated companies of £19.8m at 31 March 2015 and £19.9m at 31 March
2014.
Following the restructuring on 2 April 2015 the level of debt supported by the Group has significantly reduced and
18
the overall leverage position of the Group has reduced from 10.4x at 31 March 2015 to 4.6x after adjusting to pro
forma for the Group financial restructuring on 2 April 2015.
Cash flow
For Q1 2015 the net cash flow generated from operating activities was an outflow of £32.2m (Q1 2014: £17.7m) and
net decrease in cash balances of £15.0m (Q1 2014: £13.1m).
The cash generated from operating activities has declined due to the level of expenditure on exceptional items, being
£18.3m Q1 2015 and £2.4m Q1 2014. Cash from investing activities is positive due to the sale of TF in the period.
The cash generated from financing activity is positive reflecting the £20.0m bridging loan in the period; for Q1 2014
the positive inflow was due to the £12.1m cash injection by Advent to fund the acquisition of Arista.
Outlook
Q1 2015 was a challenging period. Confidence in Towergate was tested with performance in all divisions affected
by both the Group financial restructuring and the change programme.
However significant progress has been made in multiple areas. Towergate has attracted long term supportive
shareholders in Highbridge, KKR and Sankaty. Over the last fifteen months much of the comprehensive change
programme has been implemented. Towergate continues to attract talent. The Board remains focussed on
operational delivery in 2015 and there are some early signs of recovery as the business stabilises.
The Group is focussed on retention and new business and aims to deliver this through a concentration on customer
service and operational excellence. The expectation is that expenses will fall through the completion of the change
programme and continued integration of businesses. The Board will continue to invest in the business to deliver
profitable growth in its chosen markets.
19
Contractual obligations
The following table summarises material contractual obligations as of 31 March 2015 and includes disclosures for
the pro forma debt held by Towergate Finance plc at that date:
Contractual obligations
Total
Less than 1
year 1-5 years
More than 5
years
£m £m £m £m
Senior secured notes 233.9 - 233.9 -
Revolving credit facility 85.0 85.0 - -
Senior secured floating rate notes 396.0 - 396.0 -
10.5% senior notes 304.1 - 304.1 -
Bridging loan 20.0 20.0 - -
Other obligations(1) 11.4 9.0 2.4 -
Operating leases 46.5 12.5 25.3 8.7
Total contractual obligations 1,096.9 126.5 961.7 8.7
(1) Represents deferred consideration and redemption liability on non-controlling interest put options in an amount of £11.1m and obligations under finance leases and hire purchase contracts in an amount of £0.3m.
Debt commitments are discussed further in the section description of debt
Deferred consideration
Deferred consideration is payable in respect of certain acquisitions based on the performance of the acquired
business typically in the 24-month period following the acquisition and in connection with put and call options
granted to shareholders of businesses we have acquired in respect of the remaining minority interest of such
shareholders typically for the 36-month period following the acquisition.
Operating leases
Contractual obligations for operating leases reflect the Group’s annual commitments under non-cancellable
operating leases.
Off balance sheet arrangements
The Group had no off balance sheet arrangements at 31 March 2015.
Contingent liabilities
ETV and UCIS
The Group continues to be in discussions with the FCA in relation to past advice provided by the Towergate
Financial Group businesses on ETV and UCIS. The independent file reviews for both investigations are ongoing.
Customer contact, which will be a key factor in determining the extent of the Group’s redress obligation,
commenced in Q1 2015 and is expected to be phased over three years. Payment of any necessary redress is
expected to occur over similar periods of time once the relevant customers have been contacted and the redress
methodology has been agreed. Payments are expected to commence in Q3 2015.
Given the number of material uncertainties that continue to exist, it is not yet possible to make a reliable estimate of
the Group’s ultimate liability in connection with these investigations. However, purely for the purposes of
developing business plans and cash flow projections for the Group, it has adopted a range of £65.0m to £85.0m in
potential redress costs for ETV and UCIS in aggregate, excluding costs and expenses.
This internal range is derived from a set of assumptions based on currently available information. As explained
above, in view of the material uncertainties all such assumptions are subject to change and the Group can give no
assurances as to whether its ultimate liability will be within this range or whether it will be lower or higher. The
ultimate liability for ETV and UCIS may, therefore, be materially different to this range.
In addition, the foregoing does not include any recoveries that may be available either from relevant third parties or
under the Group’s insurance arrangements, both of which the Group continues to pursue. The maximum
recoverable amount under insurance arrangements is £12.0m (subject to a deductible) in addition to costs, although
the ultimate extent and timing of any recoverability remains uncertain.
Contents
Interim Report for the three months to 31 March 2015 2-3
Condensed consolidated statement of comprehensive income 4
Condensed consolidated statement of financial position 5
Condensed consolidated statement of changes in equity 6
Condensed consolidated statement of cash flows 7
Notes 8-18
2
Interim Report for the three months to 31 March 2015
The following items have been noted as updates to ongoing issues or a summary of transactions to bring to the attention of the
reader:
Updates on the ongoing issues with the Financial Conduct Authority (FCA) in relation to client money and advice
provided by the Towergate Financial business
A summary of the Group financial restructuring
Senior management changes
A summary financial review and outlook
FCA
During Q3 2013 the Group identified that £15.0m of client and insurer monies had been misallocated to an unrestricted account
between November 2007 and January 2011. As soon as the misallocation was confirmed management transferred £15.0m to
the relevant client and insurer accounts. The FCA was notified and investigations into this matter are continuing.
The Group is continuing discussions with the FCA in connection with past advice provided by the Towergate Financial
businesses on pension Enhanced Transfer Values (ETV) and Unregulated Collective Investment Schemes (UCIS). There
remain material uncertainties over the level of redress costs as customer contact has commenced but is not significantly
complete and the redress methodology has not been agreed. Purely for internal purposes a range of £65.0m-£85.0m is used in
cash flow projections. Given the level of uncertainty this item remains a contingent liability in the Group’s financial
statements.
Acquisitions and disposals
The Group made seven acquisitions in the fifteen months to 31 March 2015 (consisting of two companies and five portfolios)
for an aggregate consideration of approximately £21.9m. The Group disposed of five businesses during this period. The
material transactions were:
On 17 April 2014 the Group completed the acquisition of Arista Insurance Limited (Arista), a leading UK commercial
managing general agent specialising in property, liability and motor insurance, for a consideration of £16.7m. Arista
has a clearly defined regional distribution network and fits well with the Group’s strategy of acquiring specialist
businesses with strong growth potential
On 29 August 2014 the Group disposed of Folgate Insurance Company Limited (FICL) to Anglo London for a
consideration of £1.9m. Folgate Insurance was an insurance company in run off and as such operated outside the
Group’s core UK specialist lines and small and medium sized businesses (SME) markets
On 23 December 2014 the Group disposed of The Hayward Holding Group Limited (Hayward Aviation) to Jardine
Lloyd Thompson for a consideration of £27.0m. As an international aviation insurance broker, Hayward Aviation
operated outside the Group’s core UK specialist personal lines and SME markets
On 16 March 2015 the Group disposed of its Towergate Financial business (TF) to Palatine Private Equity for a
consideration of £8.6m. The Towergate Financial business was a provider of independent financial and mortgage
advice and operated outside the Group’s core UK specialist personal lines and SME markets
Group financial restructuring
On 2 April 2015 the Group completed a financial restructuring in relation to the senior secured creditors and senior unsecured
creditors of Towergate Finance plc, an intermediate parent company. As part of these arrangements TIG Finco plc (a newly
formed holding company) acquired the Group for consideration of £735.0m made up of the issue of £425.0m of Senior Secured
Notes by TIG Finco plc and the issue of new shares in TIG Finco plc’s indirect parent company, TIG Topco Limited, valued at
£310.0m.
As a result of these arrangements, in April 2015 Highbridge Principal Strategies LLC became the Group’s majority
shareholder.
As part of the financial restructuring, additional capital of £122.0m was received by the Group through the issue by TIG Topco
Limited of new shares for £50.0m and the issue by TIG Finco plc of £75.0m of Super Senior Secured Notes at a discount of
£3.0m. The additional funds provide liquidity to the Group and have enabled it to fund the costs of the restructuring of £42.0m,
the vesting of long term incentive plans which have crystallised or will in the future crystallise as a result of the restructuring of
£30.0m, retention bonuses of £8.0m and minority interest buy outs of £2.0m.
3
Interim Report for the three months to 31 March 2015 (continued)
Senior management changes
There have been a number of senior management changes in the period since 31 December 2014 including:
Scott Egan has changed his role from Chief Financial Officer to Interim Chief Executive Officer
Alastair Lyons has changed his role from Executive Chairman to Non-executive Chairman
The appointment of Mark Mugge as Chief Operating Officer and Steve Wood as Chief Executive Officer of
Paymentshield
The appointment of John Tiner as Chairman with effect from 29 June 2015
Financial review and outlook
Q1 2015 was a challenging period. Confidence in Towergate was tested with performance in all divisions affected by both the
Group financial restructuring and the change programme.
However significant progress has been made in multiple areas. Towergate has attracted long term supportive shareholders in
Highbridge, KKR and Sankaty. Over the last twelve months much of the comprehensive change programme has been
implemented. Towergate continues to attract talent. The Board remains focussed on operational delivery in 2015 and there are
some early signs of recovery as the business stabilises.
The Group is focussed on retention and new business and aims to deliver this through a concentration on customer service and
operational excellence. The expectation is that expenses will fall through the completion of the change programme and
continued integration of businesses. The Board will continue to invest in the business to deliver profitable growth in its chosen
markets.
4
Condensed consolidated statement of comprehensive income
for the period ended 31 March 2015 Unaudited
Three months ended
Unaudited
Three months ended
Audited
Twelve months ended
31 March 2015 31 March 2014 31 December 2014
£000 £000 £000
Commissions and fees 85,331 92,835 375,923
Investment income 89 102 480
Salaries and associated expenses (50,487) (47,342) (193,220)
Other operating costs (40,949) (24,698) (331,423)
Depreciation and amortisation charges (5,303) (4,764) (22,504)
Impairment of goodwill - - (552,861)
Operating (loss) / profit (11,319) 16,133 (723,605)
Analysed as:
Operating profit before exceptional items 7,348 18,499 72,489
Related party bad debt provision - - (190,534)
Reduction in value of contingent consideration - - 9,127
Loss on disposal of businesses and investments (340) - (1,547)
Group reorganisation costs (4,853) (2,366) (37,390)
Finance legacy review - - (3,702)
Regulatory costs (1,051) - (8,898)
Group financial restructuring costs (12,423) - (10,289)
Impairment of goodwill - - (552,861)
Operating (loss) / profit (11,319) 16,133 (723,605)
Finance costs (238) (1) (11)
Finance income 93 50 336
(Loss) / profit before taxation (11,464) 16,182 (723,280)
Income tax (expense) / credit (224) 233 883
(Loss) / profit for the year from continuing operations (11,688) 16,415 (722,397)
(Loss) / profit for the year from discontinued operations, net
of income tax
(366) 497 (23,283)
Total comprehensive (loss) / profit for the year (12,054) 16,912 (745,680)
Attributable to:
Owners of the parent (12,054) 16,912 (745,723)
Non-controlling interests - - 43
(12,054) 16,912 (745,680)
The notes on pages 8 to 18 form part of this condensed set of financial statements.
5
Condensed consolidated statement of financial position Unaudited as at Unaudited as at Audited as at
31 March 2015 31 March 2014 31 December 2014
Net assets £000 £000 £000
Non-current assets
Intangible assets 818,271 1,414,385 823,561
Property, plant and equipment 11,130 11,104 11,993
Available-for-sale financial assets 140 203 140
Deferred tax asset 11,207 7,437 11,056
840,748 1,433,129 846,750
Current assets
Trade and other receivables 76,871 239,498 70,808
Cash and cash equivalents 185,396 195,483 199,018
Assets held for sale - - 7,333
262,267 434,981 277,159
Current liabilities
Borrowings (20,074) (92) (80)
Trade and other payables (255,418) (229,826) (280,712)
Liabilities held for sale - - (2,476)
Current tax liabilities (2,504) (22,657) (2,494)
Provisions for other liabilities and charges (2,389) (3,473) (2,607)
(280,385) (256,048) (288,369)
Net current (liabilities) / assets (18,118) 178,933 (11,210)
Non-current liabilities
Borrowings (150) (160) (165)
Trade and other payables (5,136) (19,863) (5,170)
Provisions for other liabilities and charges (4,118) (3,147) (4,666)
(9,404) (23,170) (10,001)
813,226 1,588,892 825,539
Total equity
Capital and reserves attributable to the
Company’s shareholders
Share capital 1,407,307 1,407,307 1,407,307
Share premium 117,979 117,979 117,979
Share incentive plan - 733 -
Retained earnings (712,179) 62,510 (700,125)
Shareholders’ equity 813,107 1,588,529 825,161
Non-controlling interest 119 363 378
813,226 1,588,892 825,539
The notes on pages 8 to 18 form part of this condensed set of financial statements.
This condensed set of financial statements were approved by the board of directors on 25 June 2015 and were signed on its
behalf by:
S Egan
Director
6
Condensed consolidated statement of changes in equity
Share
capital
Share
premium
Share incentive
plan
Retained
earnings
Shareholders
equity
Non-
controlling
interests
Total
equity
£000 £000 £000 £000 £000 £000 £000
Balance at 1 January
2015
1,407,307 117,979 - (700,125) 825,161 378 825,539
Loss for the year - - (12,054) (12,054) - (12,054)
Dividend to non-
controlling interest - - - - - (259) (259)
Balance at 31 March
2015 1,407,307 117,979 - (712,179) 813,107 119 813,226
Share
capital
Share
premium
Share incentive
plan
Retained
earnings
Shareholders
Equity
Non-
controlling
interests
Total
equity
£000 £000 £000 £000 £000 £000 £000
Balance at 1 January
2014 1,406,099 107,100 583 45,598 1,559,380 363 1,559,743
Profit for the year - - - 16,912 16,912 - 16,912
Issue of share capital 1,208 10,879 - - 12,087 - 12,087
Share based payment
transaction - - 150 - 150 - 150
Balance at 31 March
2014 1,407,307 117,979 733 62,510 1,588,529 363 1,588,892
7
Condensed consolidated statement of cash flows
Unaudited
Three months
ended
Unaudited
Three months
ended
Audited
Twelve months
ended
31 March 2015 31 March 2014 31 December 2014
£000 £000 £000
Cash flows from operating activities
Cash generated from / (used in) operations 11,157 (742) 52,348
Exceptional items (18,302) (2,366) (45,001)
Interest paid - (1) (11)
Interest received 93 56 372
Taxation (paid) / received - 16 (1)
Investment income 89 102 480
(Decrease) / increase in net insurance broking creditors (25,237) (14,769) (3,135)
Net cash (used in) / generated from operating activities (32,200) (17,704) 5,052
Cash flows from investing activities
Acquisition of businesses, net of cash acquired (8) (2,792) (11,197)
Purchase of property, plant and equipment (372) (520) (5,701)
Purchase of intangible fixed assets – computer software and CBO’s (1,316) (2,912) (14,873)
Disposal of businesses 7,544 - 24,606
Net cash disposed of with businesses (5,331) - (11,186)
Net cash generated from / (used in) investing activities 517 (6,224) (18,351)
Cash flows from financing activities
Proceeds from issue of shares - 12,088 12,088
Proceeds from borrowings 20,000
Loan to / (from) investment 10 12 43
Net settled deferred consideration (3,343) (1,228) (6,931)
Capital element of finance lease rental payments (21) (18) (25)
Net cash generated from financing activities 16,646 10,854 5,175
Net decrease in cash and cash equivalents (15,037) (13,074) (8,124)
Cash and cash equivalents at the beginning of the period 200,433 208,557 208,557
Cash and cash equivalents at the end of the period 185,396 195,483 200,433
Included in the Group’s own funds is £17.8m (31 March 2014: £18.6m) of restricted cash kept in segregated accounts for
purposes of solvency and capital adequacy requirements imposed by the FCA. Pursuant to these regulatory requirements
established by the FCA applicable to the insurance broking industry, the Group holds cash in the segregated accounts for the
purpose of ensuring funds are available to pay any costs and expenses necessary to achieve an orderly winding-up of the
Group’s business in the event its broking operations cease to operate or are otherwise closed down. The amount of cash
required to be held is determined by management and agreed by the FCA.
Fiduciary funds represent client money used to pay premiums to underwriters, to settle claims to policyholders and to defray
commissions and other income. They are not available for general corporate purposes. Fiduciary funds of £nil (31 March 2014:
£nil) are placed at bank as deposits.
8
Notes to the financial statements
1 General information
Towergate Insurance Limited (the Company) was incorporated on the 22 December 2010 as a private company limited by
shares with registered number 07476462. It is incorporated and domiciled in the UK. The address of its registered office is
Towergate House, Eclipse Park Sittingbourne Road, Maidstone, ME14 3EN.
These condensed consolidated interim financial statements as at and for the three months ended 31 March 2015 comprise the
company and its subsidiaries (Towergate or the Group).
Towergate Insurance Limited is a holding company which delivers central functions across the Group and, through its
subsidiaries, operates primarily to distribute insurance products and to act as an underwriting agent. The principal activities of
the Group are insurance broking, underwriting, mortgage broking solutions and the provision of insurance network services
The financial information contained in these interim results does not constitute statutory accounts of Towergate Insurance
Limited within the meaning of Section 435 of the Companies Act 2006. Statutory accounts for Towergate Insurance Limited
for the period ended 31 December 2014 have been reported on by the company’s auditors. The report of the auditors was (i)
unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without
qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these interim consolidated financial statements are the same as
those applied in the Group’s consolidated financial statements for the year ended 31 December 2014. These policies have been
consistently applied to all the periods presented, unless otherwise stated.
2.1 Basis of preparation
The interim consolidated financial statements of the Group have been prepared in accordance with IAS 34 Interim Financial
Reporting. They do not include all the information required for a complete set of IFRS financial statements. However, selected
explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the
Group’s financial position and performance since the last annual consolidated financial statements as at and for the year ended
31 December 2014.
The consolidated financial statements are presented in GBP sterling (£), which is also the Group’s functional currency.
Amounts shown are rounded to the nearest thousand, unless stated otherwise. The interim consolidated financial statements
have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets.
The directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the
foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements.
2.2 Going concern
The interim financial statements of the Group set out on pages 5 to 19 have been prepared on a going concern basis. The
Directors believe the going concern basis to be appropriate following their assessment of the Group’s financial position and its
ability to meet its obligations as and when they fall due as described below.
At 31 March 2015 the Group had net assets of £813.2m (31 March 2014: £1,588.9m) and net current liabilities of £18.1m (31
March 2014: net current assets £178.9m). The Group includes a number of subsidiary undertakings who have at various times
guaranteed bank and bond debt owed by Towergate Finance plc, an intermediate holding company (note 13).
In reaching their view on preparation of the Group’s financial statements on a going concern basis, the Directors have therefore
considered significant uncertainties facing the Group that existed at the balance sheet date of 31 March 2015 and subsequent
actions and developments in the period up to the date of approval of these financial statements.
The uncertainties that existed at the balance sheet date were disclosed on 19 November 2014 in the consolidated financial
statements of Towergate Holdings II Limited, an intermediate parent company, for the period ended 30 September 2014. Those
consolidated financial statements highlighted uncertainties over that group’s operational cash flow and liquidity requirements
and respective management actions (some of which required the agreement of third parties), the successful renegotiation of that
group’s financial covenant attaching to a fully drawn £85.0m revolving credit facility and the quantum, timing and recoveries of
customer redress payments relating to advice given by the Group’s Towergate Financial businesses.
9
Notes to the financial statements (continued)
2 Summary of significant accounting policies (continued)
2.2 Going concern (continued)
On 2 April 2015 control of the Group changed as a consequence of the financial restructuring of the senior secured creditors
and senior unsecured creditors of Towergate Finance plc (an intermediate parent company). As part of this, TIG Finco plc
acquired the Group for consideration of £735.0m and additional capital was made available of £122.0m through the issue by
TIG Topco Limited of new shares for £50.0m and the issue by TIG Finco plc of £75.0m of super senior secured notes at a
discount of £3.0m. This capital was raised to provide liquidity and to fund the costs of the restructuring.
As at the date of approval of these financial statements, on the basis of cash flow forecasts prepared under the new structure the
Directors believe that this restructuring removes the uncertainties highlighted over the Group’s operational cash flow and
liquidity requirements. In addition, the £85.0m revolving credit facility has been repaid in full and cancelled removing the
financial covenant obligations faced by the Group.
The Group sold the Towergate Financial business on 16 March 2015. As part of the sale the potential liabilities in relation to
the advice given on the sale of ETV and UCIS remain with the Group. Given the number of material uncertainties that continue
to exist, it is not yet possible to make a reliable estimate of the Group’s ultimate liability in connection with these
investigations. However, purely for the purposes of developing business plans and cash flow projections for the Group, a range
of £65.0m to £85.0m has been adopted as a potential redress cost, excluding expenses.
On the basis of their assessment of the Group’s financial position, the Directors have a reasonable expectation that it will be
able to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of
accounting in preparing the annual financial statements.
10
Notes to the financial statements (continued)
3 Critical accounting estimates and judgements
Estimates and judgements used in preparing the interim financial statements are continually evaluated and are based on
historical experience and other factors, including expectations of future events that are believed to be reasonable. The resulting
accounting estimates will, by definition, seldom equal the related actual results.
The estimates and assumptions that have a significant effect on the carrying amounts of assets and liabilities were the same as
those applied to the consolidated financial statements as at and for the year ended 31 December 2014.
3.1 Fair value estimation
Below is an analysis of the financial instruments carried at fair value, by valuation method. The different levels have been
defined as follows:
(a) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
(b) Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices).
(c) Level 3: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
Contingent consideration classified at fair value through profit and loss (relating to deferred consideration and redemption
liability on non-controlling interest put options) are categorised within level 3 of the fair value hierarchy. Other techniques, such
as estimated discounted cash flows, are used to determine their fair value. Management consider the carrying value of assets to
approximate to fair value.
Deferred
consideration
£000
Redemption liability
on non controlling
interest put options
£000
Total
£000
Balance at 31 December 2014 10,887 3,582 14,469
Settlement to vendor/non controlling interest (2,545) (798) (3,344)
Balance at 31 March 2015 8,342 2,784 11,126
The valuations of contingent consideration are based on an evaluation of profit in the individual businesses in which the
contingent consideration is based. Initially the full value of any deferred consideration is provided. For the redemption liability
of non controlling interest put options the valuation is set out in the put option and current profits will be used to value the
liability.
A 10% upward movement in underlying profits would cause a £0.2m increase in the liability and a 10% movement downward
would cause a £0.6m reduction in the liability.
The table below summarises the Group’s financial instruments by category:
Loans and
receivables
£000
Available for
sale
£000
Total
£000
31 March 2015
Assets per statement of financial position
Available for sale financial assets - 140 140
Trade and other receivables, excluding prepayments 65,949 - 65,949
Cash and cash equivalents 185,396 - 185,396
251,345 140 251,485
11
Notes to the financial statements (continued)
3 Critical accounting estimates and judgements (continued)
3.1 Fair value estimation (continued)
Liabilities at fair
value through
profit and loss
account
£000
Other financial
liabilities at
amortised cost
£000
Total
£000
31 March 2015
Liabilities per statement of financial position
Finance lease liabilities - (224) (224)
Trade and other payables, excluding non-financial liabilities (130,782) (129,772) (260,554)
(130,782) (129,996) (260,778)
Loans and
receivables
£000
Available for sale
£000 Total
£000
31 December 2014
Assets per statement of financial position
Available for sale financial assets - 140 140
Trade and other receivables, excluding prepayments 58,981 - 58,981
Cash and cash equivalents 199,018 - 199,018
257,999 140 258,139
Liabilities at fair
value through
profit and loss
account
£000
Other financial
liabilities at
amortised cost
£000
Total
£000
31 December 2014
Liabilities per statement of financial position
Finance lease liabilities - (245) (245)
Trade and other payables, excluding non-financial liabilities (126,957) (158,925) (285,882)
(126,957) (159,170) (286,127)
12
Notes to the financial statements (continued)
4 Discontinued operations
On 23 December 2014 the Group disposed of Hayward Aviation as it operated outside the Group’s core markets. The Group
also disposed of its Towergate Financial business (TF) on 16 March 2015. The Towergate Financial business provides
independent financial and mortgage advice and operated outside the Group’s core markets.
Hayward Aviation and TF were treated as discontinued operations in the consolidated accounts for the year ended 31
December 2014. In these interim financial statements the results of TF for the three months to 31 March 2015 and for the three
months to 31 March 2014 have been classed as discontinued operations. The results of Hayward Aviation have been shown as
discontinued operations in the three months to 31 March 2014.
Results of the discontinued operations 2015 2014 2014
Towergate Financial Hayward Aviation Towergate Financial
£000 £000 £000
Income 3,725 2,127 6,567
Expenses (4,451) (1,770) (6,291)
Results from operating activities (726) 357 276
Income tax 360 (77) (59)
Results from operating activities, net of tax (366) 280 217
(Loss) / profit on sale of discontinued operation - - -
(Loss)/profit for the year (366) 280 217
13
Notes to the financial statements (continued)
5 Cash generated from operations
Unaudited
Three months
ended
Unaudited
Three months
ended
Audited
Twelve months
ended
March 2015 March 2014 December 2014
£000 £000 £000
Cash flows from operating activities
(Loss) / profit after income tax including discontinued operations (12,054) 16,912 (745,680)
Depreciation 1,151 1,293 5,501
Amortisation 4,212 3,577 17,159
(Gains) / Losses on disposal of non-current assets (4) 1 282
Goodwill Impairment - - 555,914
Exceptional items – Group reorganisation costs 4,853 2,366 37,582
Exceptional items – Finance legacy review - - 3,702
Exceptional items – Regulatory costs 1,051 - 8,898
Exceptional items – Group financial restructuring costs 12,423 - 10,289
Related party bad debt provision - - 191,161
Finance (income) / costs – net 146 (55) (361)
Investment Income (89) (102) (480)
Income tax (credit) / expense (136) (97) (279)
Reduction in value of contingent consideration - - (9,127)
(Gains) / losses on disposal of businesses and investments 340 - 23,184
(Increase) / decrease in trade and other receivables (2,161) (24,184) (72,826)
Increase / (decrease) in trade and other payables – excluding insurance broking
balances 2,225 (996) 29,963
Increase in provisions for liabilities and charges (800) 543 (2,534)
Net cash inflow / (outflow) from operations 11,157 (742) 52,348
14
Notes to the financial statements (continued)
6 Goodwill
Goodwill is contained within Intangible assets on the statement of financial position. At 31 December 2014 the value of
goodwill is based on the Group’s financial restructuring is a Level 3 valuation based on market evidence for the value of the
Group. Goodwill is attributable to the specific synergies and the workforce of the acquired business expected to arise after the
Group’s purchase of the above companies.
There are no impairment indicators at 31 March 2015.
The below table provides a reconciliation of the carrying amount of goodwill.
Goodwill
£000
Cost
Balance at 1 January 2015 1,487,532
Acquisition through business combination 7
Disposal (402)
Balance at 31 March 2015 1,487,137
Impairment
Balance at 1 January 2015 716,532
Disposal (10)
Balance at 31 March 2015 716,522
Carrying amount at 1 January 2015 771,000
Carrying amount at 31 March 2015 770,615
TF was treated as held for sale and re-measured to fair value less costs to sell in the statement of financial position as at 31
December 2014 therefore there is no impact on goodwill as a result of the disposal on 16 March 2015.
7 Business combinations
There were no share purchase or portfolio acquisitions were made in the three months to 31 March 2015. There were
adjustments to prior year acquisitions completed in the three months to 31 March 2015 totalling £0.01m.
15
Notes to the financial statements (continued)
8 Business disposals
Disposals in the three months to 31 March 2015
During the period the Group disposed of its TF business. Further details on this disposal are provided in the table below:
Towergate
Financial
Disposal date 16 March 2015
£000
Non-current assets
Intangible assets 4,648
Property, plant and equipment 265
Available-for-sale financial assets 16
Current assets
Trade and other receivables 1,582
Cash 5,331
Total assets 11,842
Trade and other payables (2,742)
Net assets 9,100
Satisfied by:
Proceeds 8,135
Costs to sell (791)
Completion accounts adjustment 1,756
9,100
The results of TF business are shown separately in the statement of comprehensive income as discontinued operations. The
comparative period results from discontinued operations have been re-presented to include those operations classified as
discontinued in the current year, in the statement of comprehensive income.
In addition to the above, in the three months to 31 March 2015 the group disposed of two portfolios resulting in a loss on
disposal of £0.3m.
9 Income taxes
Income tax is recognised based on managements judgement using an effective tax rate of 20.25% for the three months to 31
March 2015 (three months to 31 March 2014: 21.49%).
16
Notes to the financial statements (continued)
10 Borrowings
At 31 March
2015
At 31 March
2014
£000 £000
Current
Finance lease liabilities 74 92
Bridging loan 20,000 -
20,074 92
Non current
Finance lease liabilities 150 160
150 160
Total borrowings 20,224 252
11 Provisions for other liabilities and charges
As at 31 March 2015 the Group recognised the following provisions:
Share based payment provision – relates to certain individuals with a guaranteed minimum amount in their agreements. This
provision has not changed value since the year ended 31 December 2014.
E & O provision - In the normal course of business the Group may receive claims in respect of errors and omissions. A
provision has been made in respect of outstanding errors and omissions claims. In the three months to 31 March 2015 this
provision has reduced by £0.4m.
Onerous lease provision – provides for costs incurred for the full remaining term of the lease. In the three months to 31 March
2015 this provision has reduced by £0.4m.
12 Related party disclosure
For the three months to 31 March 2015 Mr Peter Cullum ceased to be a director of the Broomco (4099) group but he continued
to be a member of the key management of Towergate during this period.
The following transactions were carried out with related parties:
Purchases of services
Three months
ended 31 March
2015
Three months
ended 31 March
2014
£000 £000
- Rental services from Mr Peter Cullum 622 645
All purchases of services with related parties are conducted on an arm’s length basis.
17
Notes to the financial statements (continued)
13 Contingent liabilities and commitments
Legal and other loss contingencies
Guarantees
On 10 May 2013 Towergate Finance plc, the immediate holding company of this Group, completed a partial refinancing of the
Group’s borrowings and outstanding bank debt at that date as a result of which £394.0m was repaid in full. As part of the
refinancing, a new £85.0m Revolving Credit Facility with a syndicate of banks, led by Lloyds Banking Group plc (the
Towergate Facilities) was put in place and Senior Secured Floating Rate Notes of £396.0m were issued by Towergate Finance
plc. In addition, £14.6m of Senior Secured Notes were exchanged for additional 10.5% Senior Notes.
The obligations of Towergate Finance plc under the Towergate Facilities, as well as its obligations under the Floating Rate
Senior Secured Notes, the 8.5% Senior Secured Notes and the 10.5% Senior Notes, were guaranteed by Towergate Holdings II
Limited, an intermediate holding company at the year end, and all its material and certain other subsidiaries. These companies
are listed below:
Towergate Finance plc Towergate Holdings II Limited
Towergate Insurance Limited Fusion Insurance Holdings Limited
Fusion Insurance Services Limited The Hayward Holding Group Limited
Hayward Aviation Limited Paymentshield Group Holdings Limited
Paymentshield Holdings Limited Paymentshield Limited
Broker Network Holdings Limited The Broker Network Limited
The TF Bell Group Limited TF Bell Holdings Limited
Townfrost Limited Towergate Underwriting Group Limited
Towergate Risk Solutions Limited Towergate London Market Limited
Oyster Risk Solutions Limited TL Risk Solutions Limited
Cullum Capital Ventures Limited Four Counties Finance Limited
Capital & County Insurance Brokers Limited Three Counties Insurance Brokers Limited
CCV Risk Solutions Limited Just Insurance Brokers Limited
Cox Lee & Co Limited Portishead Insurance Management Limited
HLI (UK) Limited Berkeley Alexander Limited
Protectagroup Acquisitions Limited Protectagroup Holdings Limited
Protectagroup Limited Crawford Davis Insurance Consultants Limited
Roundcroft Limited Richard V Wallis & Co Limited
Moffatt & Co Limited Countrywide Insurance Management Limited
Eclipse Park Acquisitions Limited Managing Agents Reference Assistance Services Limited
On 2 April 2015 the Towergate Group completed a financial restructuring and recapitalisation process. At that date Towergate
Finance plc sold its immediate subsidiary, Towergate Insurance Limited, to a new company, TIG Finco plc. On the same date
TIG Finco plc issued £425.0m of 8.75% Senior Secured Notes and £75.0m of Floating Rate Super Senior Secured Notes.
The obligations of TIG Finco plc under the 8.75% Senior Secured Notes and the Floating Rate Super Senior Secured Notes are
guaranteed by TIG Midco Limited, the immediate parent company of TIG Finco plc and all its material and certain other
subsidiaries. These companies are listed below:
Berkeley Alexander Limited Protectagroup Limited
Capital & County Insurance Brokers Limited Richard V Wallis & Co Limited
Countrywide Insurance Management Limited Roundcroft Limited
Cox Lee & Co Limited T F Bell Holdings Limited
Crawford Davis Insurance Consultants Limited T L Risk Solutions Limited
Cullum Capital Ventures Limited The Broker Network Limited
Four Counties Finance Limited The T F Bell Group Limited
Fusion Insurance Holdings Limited Three Counties Insurance Brokers Limited
Fusion Insurance Services Limited Towergate London Market Limited
HLI (UK) Limited Townfrost Limited
Just Insurance Brokers Limited CCV Risk Solutions Limited
Managing Agents Reference Assistance Services Limited Eclipse Park Acquisitions Limited
Moffatt & Co Limited Towergate Risk Solutions Limited
Paymentshield Holdings Limited Broker Network Holdings Limited
Paymentshield Limited Oyster Risk Solutions Limited
Portishead Insurance Management Limited Paymentshield Group Holdings Limited
Protectagroup Acquisitions Limited Towergate Underwriting Group Limited
Protectagroup Holdings Limited Towergate Insurance Limited
18
Notes to the financial statements (continued)
13 Contingent liabilities and commitments (continued)
Legal and other loss contingencies (continued)
E&O provisions
In the normal course of business, the group may receive claims in respect of errors and omissions. No material adverse financial
impact is expected to arise above the provision in these interim financial statements.
Contingent liabilities
Enhanced Transfer Values and Unregulated Collective Investment Schemes
The Group continues to be in discussions with the FCA in relation to past advice provided by the Towergate Financial
businesses on ETV and UCIS. The independent file reviews for both investigations are ongoing. Customer contact, which will
be a key factor in determining the extent of the Group’s redress obligation, commenced in Q1 2015 and is to be phased over
three years. Payment of any necessary redress is expected to occur over similar periods of time once the relevant customers
have been contacted and the redress methodology has been agreed. Payments are expected to commence in Q3 2015.
Given the number of material uncertainties that continue to exist, it is not yet possible to make a reliable estimate of the
Group’s ultimate liability in connection with these investigations. However, purely for the purposes of developing business
plans and cash flow projections for the Group, it has adopted a range of £65.0m to £85.0m in potential redress costs for ETV
and UCIS in aggregate, excluding costs and expenses.
This internal range is derived from a set of assumptions based on currently available information. As explained above, in view
of the material uncertainties all such assumptions are subject to change and the Group can give no assurances as to whether its
ultimate liability will be within this range or whether it will be lower or higher. The ultimate liability for ETV and UCIS may,
therefore, be materially different to this range.
In addition, the foregoing does not include any recoveries that may be available either from relevant third parties or under the
Group’s insurance arrangements, both of which the Group continues to pursue. The maximum recoverable amount under
insurance arrangements is £12.0m (subject to a deductible) in addition to costs, although the ultimate extent and timing of any
recoverability remains uncertain.
Commitments
Long term incentive plan
The Group operates a cash-settled long term incentive plan for certain employees. Payments are made under the scheme on a
change in control event basis and the amounts paid are calculated using performance related measures. This payment will only
be made on the event of a change in control and therefore no obligation exists at the year end and no amount has been
recognised in these financial statements. The maximum amount payable under the plan as at 31 March 2015 is £30.0m.
14 Post balance sheet event
On 2 April 2015 the Group completed a financial restructuring in relation to the senior secured creditors and senior unsecured
creditors of Towergate Finance plc, an intermediate parent company. As part of these arrangements TIG Finco plc (a newly
formed holding company) acquired the Group for consideration of £735.0m made up of the issue of £425.0m of Senior Secured
Notes by TIG Finco plc and the issue of new shares in TIG Finco plc’s indirect parent company, TIG Topco Limited, valued at
£310.0m.
As a result of these arrangements, in April 2015 funds controlled or managed by Highbridge Principal Strategies LLC became
the Group’s majority shareholder.
As part of the financial restructuring, additional capital of £122.0m was received by the Group through the issue by TIG Topco
Limited of new shares for £50.0m and the issue by TIG Finco plc of £75.0m of Super Senior Secured Notes at a discount of
£3.0m. The additional funds, which have been passed to the Group through a loan arrangement, provide liquidity to the Group
and have enabled it to fund the costs of the restructuring of £42.0m, the vesting of long term incentive plans which have
crystallised (or will in the future crystallise as a result of the restructuring) of £30.0m, retention bonuses of £8.0m and minority
interest buy outs of £2.0m.