Admiral Group plc (LON:ADM) announced a record Group profit before tax of £479.3 million for the year ended 31 December 2018
2018 Results Highlights
|Group’s share of profit before tax (Ogden 0%)*1||£479.3 million||£405.4 million||+18%|
|Group’s share of profit before tax (Ogden -0.75%)*1||£413.3 million||£405.4 million||+2%|
|Group statutory profit before tax (Ogden 0%)||£476.2 million||£403.5 million||+18%|
|Group statutory profit before tax (Ogden -0.75%)*1||£410.2 million||£403.5 million||+2%|
|Earnings per share (Ogden 0%)||137.1 pence||117.2 pence||+17%|
|Earnings per share (Ogden -0.75%)||118.2 pence||117.2 pence||+1%|
|Full year dividend*4||126.0 pence||114.0 pence||+11%|
|Return on equity*1||56%||55%||+2%|
|Group turnover*1||£3.28 billion||£2.96 billion||+11%|
|Group net revenue||£1.26 billion||£1.13 billion||+12%|
|Group customers*1||6.51 million||5.73 million||+14%|
|UK insurance customers*1||5.24 million||4.62 million||+13%|
|International car insurance customers*1||1.22 million||1.03 million||+18%|
|Group’s share of price comparison profit*1||£8.8 million||£7.1 million||+24%|
|Statutory price comparison profit||£6.6 million||£5.4 million||+22%|
|Solvency ratio (post dividend)*2||194%||205%|
Over 10,000 staff each receive free shares worth a total of £3,600 under the employee share scheme based on the full year 2018 results.
*1Alternative Performance Measures – refer to the end of the report for definition and explanation.
*2Unaudited. Refer to capital structure and financial position section later in the report for further information.
*3The Group’s 2017 financial results were reported on an Ogden discount rate -0.75% basis. 2018 reported results reflect the impact of a change in assumption for the Ogden rate to 0%, with the equivalent results on a -0.75% basis also included above. Refer to the Glossary for further information on the Ogden discount rate.
*4 2018 dividend includes an additional dividend of 11 pence per share relating to the increase in post-tax profits from the change in Ogden discount rate assumption
Comment from David Stevens, Group Chief Executive Officer
2018 was another pleasing result with rapid growth and record profit for the Group. It was, however, characterised by some “yes, but’s”. , as well as some unequivocal YES’s!
Yes, we delivered record profits and dividends, but we were helped by the UK government’s decision to unwind partially the change in the Ogden discount rate from a couple of years ago.
Yes, we grew rapidly pretty much across the board, but growth in the core UK Motor business slowed in the second half as we reduced our competitiveness in the face of rising claims costs.
Yes, our biggest price comparison site, Confused.com, grew both market share and profits, butCompare.com, our US site, struggled as other advertisers upped their spends.
There were, however, two unequivocal yes’s. The rapid growth and improved ratios from our international insurers and our first ever ‘First’ in the Sunday Times Best Company to Work For competition.
Mostly happy staff, mostly happy customers, and increased dividends. Something for everyone.
The Directors have proposed a final dividend of 66.0 pence per share (2017: 58.0 pence per share) representing a normal dividend (65% of post-tax profits) of 49.1 pence per share and a special dividend of 16.9 pence per share. 11 pence per share of the final dividend is related to the Odgen profit benefit. The dividend will be paid on 31 May 2019. The ex-dividend date is 9 May 2019 and the record date is 10 May 2019.
Analysts and investors will be able to access the Admiral Group management presentation which commences at 10.30am GMT on Thursday 7 March 2019 by registering at the following link https://pres.admiralgroup.co.uk/admiral035/vip_connect. A copy of the presentation slides will be available at www.admiralgroup.co.uk
Annette Court, Admiral Group Chairman, commented:
“I’m delighted that the Group has reported another year of record profit, and just as delighted that Admiral has been voted as Best Large Company to Work for in the UK by the Sunday Times. This is an endorsement of our distinctive culture, where the dedication and passion of our people are key to ensuring the best possible service for our customers and delivering another year of strong results.
I’d also like to take this opportunity to congratulate David Stevens on being awarded ‘Best Leader’ by the Sunday Times for the third year running.”
I continue to be impressed by the energy, dedication and passion shown by all of the 10,000 people at Admiral. Our focus on customer service, our distinctive culture and our contribution to the communities in which we operate remain at our heart. This has resulted again in a positive set of financial results in 2018.
Admiral is now 26 years old and over the years has become a much bigger and diverse organisation through a strong track record of organic growth. We remain true to our values and approach which are as relevant now as they always have been. We have a straightforward and highly focused strategy where we continue to concentrate on our core market of UK insurance while taking what we know to overseas markets where we are now seeing some encouraging results. At the same time, we are exploring how we can make use of our core skills in other areas of insurance and in the personal loans and car finance markets in the UK.
Admiral Group has delivered another positive set of results in 2018: record turnover, profit, dividend, strong return on capital, strong solvency ratio and record customer numbers. Yet again our results have been impacted by Ogden (Personal Injury Discount Rate), this time in a positive way. Following Royal Assent of the Civil Liability Bill in the UK Parliament just before Christmas, the Group has applied a best estimate assumption for the Ogden rate at 0%, which has had a significant positive impact on our 2018 profits. Excluding this our profits would have been up slightly year on year.
The Group has continued to grow with turnover increasing by 11% to £3.28 billion. Customer numbers increased strongly by 14% to 6.5 million.
The Group’s share of pre-tax profit increased by 18% to £479.3 million, favourably impacted by the change in Ogden rate (assumed 0%). Earnings per share and return on equity both increased, by 17% to 137.1 pence (1% increase to 118.2 pence excluding Ogden impact) and one percentage point respectively. The Group’s solvency ratio remains robust at 194% (205% in 2017).
UK insurance continued to be dominated by UK Motor where we grew the number of vehicles we insure by 9% to over 4 million. We have seen some deterioration in the 2018 loss ratio; this has been more than offset by favourable claims development of past years, part of which arises due to the change in the Ogden discount rate. We have reduced our growth in the second part of the year in line with our normal prudent approach and focus on value rather than volume.
We continue to invest resource in improving our core skills in UK Motor including investing in technology to improve our efficiency and the service we provide to customers supporting the continuing shift to online servicing.
Household insurance continues to grow but the result has been impacted by severe adverse weather and subsidence events resulting in a loss of £3.0 million for the year (profit of £4.1 million in 2017). Turnover is now £146.0 million and properties insured have increased by 31% to 0.87 million. Customers buy from us either using price comparison sites (which continues to grow significantly), or directly and, increasingly, using our MultiCover offering, building on the success of MultiCar.
Our Financial Services business continues to grow in both Personal Loans and Car Finance, with a loans balance at year end 2018 of £300 million. We continue with our test and learn approach. The early signs are positive, we see the potential to differentiate and expect this to be an increasingly significant part of our business in future.
We are continuing to invest in our overseas insurance businesses, which is bearing fruit with reduced losses overall and our European insurers delivering overall profits as outlined at our European investor day in September. Turnover and customer numbers are continuing to grow materially by some 20% and 18% respectively and we now have £0.5 billion of combined turnover and 1.2 million customers outside the UK. We remain optimistic in delivering significant long term profit for the Group. In particular, ConTe has seen significant growth, now insuring 580k vehicles, and increased profits due to loss ratio improvement. At Elephant Auto in the US we have refined the strategy and are seeing positive loss ratio development as well as improved customer loyalty.
As a result of Brexit, we have established an insurance company and an insurance intermediary business in Spain to support our European operations.
In our Price Comparison (PC) businesses, Confused in the UK increased revenue and profits. In Confused, Rastreator and LeLynx, we continue to invest in a range of market verticals which are growing well as well as investing in delivering an improved customer experience. Our US comparison business, Compare, has experienced challenging market conditions impacted by increased competition for customer acquisition which pushed up marketing spend in 2018. This is reflected in a £32.9 million impairment of the carrying value of the Group’s investment. In addition, our former Admiral CEO, Henry Engelhardt, and his wife, Diane, entered into an agreement to invest in Compare and we look forward to having Henry sharing his expertise as part of the Compare Board.
Our joint venture PC business, Preminen, continues to explore new opportunities with operations in Mexico, and more recently Turkey.
Our distinctive culture which has been maintained since launch is definitely worth a further mention. It is a key part of our competitive advantage which we work hard to maintain. It can be distilled into the following areas and is underpinned by a deep focus and commitment to the customer:
Highly talented team – David Stevens is an outstanding leader who leads a strong, capable and experienced management team which engages the whole business
Focus – selective diversification building on our core skills
Pricing – data analysis lies at the heart of what we do
Prudent reserving – continue to hold a material margin in our claims reserves
Claims management – consistent positive feedback from customers on the service they receive
Controlled test and learn – organic growth with measured expansion steps
Shareholder returns – we believe in returning excess capital to shareholders
Overall we believe that people who like what they do, do it better.
I have had the pleasure of visiting our operations in the UK, France, Italy, Spain and the US along with other NEDs. I also attended the annual Staff General Meeting (with approximately 6,000 people), our annual management off-site event and the Admiral Business Club. I continue to be inspired by the deep commitment of our people to our culture and serving our customers. In all of these the Admiral distinctive culture is in evidence; it really is different.
From the moment a new employee starts at Admiral, they understand our commitment to putting the customer at the heart of what we do – the customer, the customer, the customer. We do try to do the ‘right thing’ and to continue to make it easier to do business with us and be there at moments of need to provide an excellent service.
We are proud to be recognised as a Great Place to Work. We were recently awarded Best Big Company to Work For in the UK, as well as the tenth Best Workplace in Europe and third in Italy amongst other similar accolades across the Group.
Our dividend policy remains that we distribute each year the available surplus over and above what we retain to meet regulatory requirements, the future development of our business and appropriate buffers. The Directors have recommended a final dividend of 66p per share (2017: 58p) for the year to 31 December 2018 representing a distribution of 87% of our second half earnings, and including an Ogden impact of 11p per share. The 66p per share includes a normal dividend of 65% of post-tax profits (49.1p per share) and a special dividend of 16.9p per share.
This will bring the total dividend for the year to 126p per share, an overall increase of 11%. This represents a pay-out ratio of 92%. The Group has delivered a Total Shareholder Return (TSR) of 314% over the last 10 years.
Corporate Governance and Board Changes
The Board recognises the need for a strong corporate governance framework and supporting processes across the Group and believes that good governance, with tone set from the top, is a key factor in delivering sustainable business performance and creating value for all the Group’s stakeholders.
The Board and I feel that the Board has a good balance of experience, skills and knowledge to support and challenge the management team and it is supported by effective governance and control systems.
We will continue to review all aspects of diversity to ensure that we are well prepared to guide the Group through our next phase of growth.
During the year the Board and each of its Committees undertook reviews of their effectiveness. The conclusions from these reviews provided useful feedback to each body on its performance. Further details are provided in the Corporate Governance Report.
Admiral’s incentive schemes remain distinctive, as our people are shareholders in our business. These are designed to ensure that decisions are made by management to support long-term value growth, that the right behaviours are rewarded and that our people’s interests are aligned with those of shareholders. Our core belief is that over the long-term, share appreciation depends on delivering great outcomes for our customers. Further details are provided in the Remuneration Report.
Colin Holmes stepped down from the Board at the end of 2018 and I would like to thank him for his excellent contribution over the last 8 years. He admirably (pun intended) steered the Audit Committee and acted as SID (Senior Independent Director) and a member of the Nomination and Governance Committee.
During 2018 we welcomed Andy Crossley (as reported last year), Mike Brierley and Karen Green. Andy and Mike became members of the Group Audit Committee. Andy was also appointed as a non-executive chairman EUI Limited, the UK insurance intermediary; and Mike became the non-executive chairman of Admiral Financial Services Ltd (AFSL) the company in which Admiral’s loans business is written. Karen became chair of the Audit Committee effective 14 December 2018. They all bring substantial financial services experience. Owen Clarke took over the role as Senior Independent Director and Justine Roberts became a member of the Nomination and Governance committee, both effective end of 2018.
Our focus areas for the Board remain to:
Continue to build on the remarkably special Admiral culture and in so doing putting our people, customers and communities at the heart of what we do
Continue the history of growth, profitability and innovation
Invest in the development and growth of our people – we have focused on the quality and development of our senior management team, added to our talent base by some external hires, and reviewed our succession pipeline
Ensure excellent governance and the highest standards
Our role in Community
Admiral takes its role in society very seriously and has an active approach to Corporate Responsibility (more information in Corporate Social Responsibility Report on the Admiral website). We are proud to be Wales’ only FTSE 100 headquartered company and employ over 7,000 people in South Wales. Our staff play an active part in the communities in which we operate. We carefully consider our impact on the community and environment, including factors such as the green credentials of our buildings, raising funds for multiple charities, and considering the impact of climate change across the business.
On behalf of the Board I would like to thank everyone at Admiral for their continued hard work and contribution to the Group’s results in 2018. I would also like to thank our shareholders for their support and confidence. Most of all I would like to thank our customers for placing their business with us.
6 March 2019