Culver warns on profits

In a trading update today, Culver Holdings announced it will make a significant loss for the second half of 2007.

The company blamed additional expenses incurred in the acquisition of two brokers, also announced today.

Culver acquired 100% of Lloyd’s broker LPH Pitman and 81% of AMS Corporate Risks, the specialist aviation broker, for around £135,000.

A further £50,000 could be paid out in the future under the deals.

A stock exchange announcement read:

“Culver Holdings plc announces the acquisitions of 81 per cent of the issued share capital of aviation specialist broker AMS Corporate Risks Ltd. (“AMS”) and the whole of the issued share capital of Lloyd’s broker LPH Pitman Ltd (“LPH”). The aggregate initial consideration for the acquisitions is £134,346 paid in cash at completion and up to a further £38,443 payable within six weeks, both funded from a new bank borrowing facility. Deferred consideration of up to £12,900 will be payable following the first anniversary of completion, dependent on the continuation of terms of business between LPH and certain underwriters.

LPH is an established Lloyd’s broker, having been in business since 1932. LPH currently specialises in placing aerospace and related risks into the Lloyd’s market and has in recent years also placed other classes of risks into the Lloyd’s market, including professional indemnity, political risks and directors and officers. AMS is a specialist aviation broker involved principally in emerging markets with a particular emphasis on the fast growing Eastern European and Russian markets.

The acquisitions will give the Culver Group a new niche area of activity and also a direct access to the Lloyd’s market which should enable the group to improve its service to customers and the margin it earns as well as facilitating the Group’s entering other specialist niche areas.

In the 10 month period to its financial year end, 31 December 2007, AMS achieved net brokerage income of £329,430 and made a loss before taxation of £41,641. Its gross assets at 31 December 2007 were £253,548 and its net assets were £8,687. LPH currently has no clients other than AMS’s and all of its business is reported as turnover by AMS. Its costs have been funded by management charges levied on AMS. In the year ended 31 December 2007, it made a loss of £159,123 on no reported turnover reflecting mainly a number of non-recurring items. Its gross assets at 31 December 2007 were £141,493 and its net assets were £9,070.

The shares in AMS have been acquired from Aerospace Management Capital Ltd (a company controlled by Mr Jeremy Leggett) and the share capital of LPH has been acquired from LPH Group Limited (a company in which Mr Leggett is a significant shareholder).

Both companies will operate under the direction of Culver’s insurance broking subsidiary Culver Insurance Brokers Limited (“CIB”). The existing directors of AMS and LPH, except Mr Leggett, will continue as executives of the businesses and will continue to own the remaining 19 per cent. of the issued share capital of AMS. David Sullivan and Robert Lewis (Chief Executive and Managing Director respectively of CIB) will be appointed to the board alongside them. Mr Leggett has entered into a two year consultancy arrangement with AMS.

Commenting on the acquisitions David Sullivan, Chief Executive of CIB said: “This is a major strategic development for Culver Insurance Brokers, taking us from being another substantial regional broker to being a fully fledged Lloyd’s broker. This should allow us to reduce our cost of access to the Lloyd’s market for our traditional business and also broaden our product and service offering and our geographical reach.

The acquisition also gives us the tools to develop market niches in which we are already operating, such as wholesale broking, professional indemnity and trade credit to their full potential and add further niches such as aviation broking.”

Trading update

These acquisitions were in mind in September last year and were alluded to when Culver announced its interim results to 30 June 2007. The protracted negotiation process has involved the Group in greater than anticipated expense and has also delayed the booking of income at a satisfactory level by the new teams recruited in the middle of 2007. In the employee benefits and financial planning segment of the Group’s business, a number of additional producers have been recruited during the last quarter and the early signs are that they are beginning to produce expected levels of income although the impact of this will only emerge in 2008. As a result, the Group will report a significant loss for the second half of 2007, largely resulting from the inevitable costs of new production staff being borne in advance of the achievement of expected income streams.

The board considers that the acquisitions announced today will enhance the Group’s existing business. It continues to believe that the changes and additions made since the change of management in the insurance broking segment are leading the Group in the right direction and that the benefits will be recognised by shareholders over the years to come.”