Former SBJ division caught out when pound weakened against dollar
Insurance and reinsurance broker Lonmar’s profit after tax fell 97% in 2009 after the company made a large foreign exchange loss.
Lonmar’s net profit for 2009 was £75,228 compared with £2.3m in 2008. This was despite a 5% increase in turnover to £21.4m from £20.4m.
Before its management buy-out in 2009, Lonmar was a subsidiary of SBJ Group, which was bought by AXA in 2008. The company changed its name to Lonmar Global Risks from SBJ Global Risks in March 2010.
The broker made a £1.3m foreign exchange loss for the year because of the weakening pound against the US dollar. According to Lonmar finance director Peter Ross, 34% of the company’s income was in US dollars, with the balance in eight other currencies.
The company uses a forward rate to hedge against foreign exchange rate fluctuation. It had entered the market with the hedge when the exchange rate was $2 to £1, but closed its position when the rate was $1.4 to £1.
“It is a large loss, but we needed some sense of security in terms of what rates we were going to use for our budget. If we were completely unhedged and it had gone the other way, we’d have looked equally stupid,” said Ross.
The second reason for the steep decline in profit was management charges payable to former parent AXA that were not previously part of their figures, according to Ross.
Administrative expenses increased to £20.1m in 2009 from £19m in 2008.
The company's interest receivable also declined to £335,918 from £1m.
The results reveal that Lommar’s highest-paid director’s remuneration surged 144% to £1.2m in 2009 from £472,162 in 2008. Ross said the increase was the result of a long-term incentive plan linked to the 2009 management buy-out.
Ross said the company is expecting better results in 2010, adding that administrative expenses such as staff turnover has been flat. “In 2010, we certainly have got better exchange rates for our turnover, so we will benefit from that in the next results,” he said.