30 JUST GROUP PLC Annual Report and Accounts 2019
financial review continued
Non-recurring and project expenditure Non-recurring and project expenditure, which includes significant one-off project spend associated with restructuring the Group’s securitisation to meet the recent regulatory changes and to meet major new financial reporting requirements was £8.3m for 2019 (2018: £19.6m). Non-recurring expenditure for 2019 includes costs associated with the equity placing, Restricted Tier 1 notes issuance, new Tier 2 notes issue and the tender for existing Tier 2 notes which were all undertaken during the year. Other project expenditure included in this category includes preparations for the new insurance accounting standard, IFRS 17, restructuring of the Group’s internal LTM notes, and the costs of responding to the requirements of SS3/17, PS31/18 and PS19/19. The costs of on-going interaction with our regulators and the costs of implementing less significant regulatory changes are included in operating costs. Implementation of cost saving initiatives These costs are in respect of the significant cost savings initiated during the year to optimise the Group’s business model and prioritise capital efficiency. During the year the Group rationalised its property footprint, reducing its Reigate office locations from three to two, and moved to more cost efficient London premises. We simplified our senior management structure and made improvements to our business processes to create long-term savings. As previously mentioned, we have also closed our US care business and outsourced our drawdown service. These actions have resulted in a 10% reduction in our full year 2019 recurring core management expenses, with a total saving of £16m. These savings are expected to reduce both acquisition and maintenance costs. We expect on-going savings as new cost initiatives in 2020 drive further cost savings across the business. Investment and economic profits/losses Investment and economic profits for 2019 were £173.8m (2018: losses of £252.0m). Investment and economic profits for 2019 include the benefit of a decrease in risk-free rates and a narrowing of credit spreads, partly offset by an actual property growth rate lower than the long-term expected rate. In contrast, during 2018, we experienced IFRS losses from increases in risk-free rates and widening credit spreads. Investment and economic losses for 2018 included the impact of changes to the Group’s IFRS property growth and volatility assumption, in particular the reduction of the property growth assumption from 4.25% to 3.8% and an increase in volatility assumptions from 12% to 13%, which gave rise to a £211m loss reported through this line in the prior period. Once again there were no corporate bond defaults within our portfolio during the year (2018: no defaults). Amortisation costs Amortisation mainly relates to the acquired in-force business asset relating to Partnership Assurance Group plc, which is being amortised over ten years in line with the expected run-off of the in-force business.
OTHER NEW BUSINESS SALES Lifetime Mortgage advances were £415.8m in 2019 (2018: £602.1m), a decrease of 31%. We chose to write less new business to conserve capital. In 2019, there was a reduction in the amount of new business advanced in the lifetime mortgage market compared to 2018. We believe some customers deferred their decisions to use a lifetime mortgage until the Brexit uncertainty was brought to a conclusion. We also observed increased competition in the first half of the year as market participants sought to secure new business volumes. Following the publication of PS13/18, we chose to be more selective in the mortgages we advanced during 2019, with a focus on shorter duration loans to older borrowers, lower LTV business and on customers with sufficient income to service interest on their borrowings. Drawdown sales were £26.7m for the year (2018: £51.0m) and represented sales of the Group’s Flexible Pension Plan (“FPP”). The FPP product was closed to new business from July 2019 and existing customers have been migrated to a third party platform. ADJUSTED EARNINGS PER SHARE Although total earnings were higher in 2019, share capital increased by 9.9% following the Group’s capital raise in March. As a result, adjusted EPS (based on adjusted operating profit after attributed tax) has decreased slightly by 4% to 17.6 pence compared to the prior year.
Year ended 31 December 2019
Year ended 31 December 2018
177.1
Adjusted earnings (£m)
170.3 932.7
1,007.5
Weighted average number of shares (million)
17.6
Adjusted EPS (pence)
18.3
EARNINGS PER SHARE
Year ended 31 December 2019
Year ended 31 December 2018
285.8
Earnings (£m)
(63.7)
1,007.5
Weighted average number of shares (million)
932.7
28.4
EPS (pence)
(6.8)
RECONCILIATION OF OPERATING PROFIT TO STATUTORY IFRS RESULTS The following tables present the Group’s results on a statutory IFRS basis. 31 December 2019 £m 31 December 2018 £m Adjusted operating profit before tax 218.6 210.3 Non-recurring and project expenditure (8.3) (19.6) Implementation of cost saving initiatives (13.5) – Investment and economic profits/(losses) 173.8 (252.0) Interest adjustment to reflect IFRS accounting for Tier 1 notes as equity 16.8 – Amortisation costs (18.8) (24.2) IFRS profit/(loss) before tax 368.6 (85.5)
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