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February 22, 2005
REM Customers, Brokers and Delivery Partners
Subject: 2004 Review
We're pleased to share the following comments summarizing our review of financial and operational results for 2004, which was a milestone year for REM in a number of ways.
As many of you know, we lost our first and then largest customer, Home Insurance, to liquidation in 2003, then said good-bye to a number of long term colleagues, including founders Peter Johnson and Chuck Callahan at year-end. In announcing those departures and the new management structure, we said that REM would continue to sharpen its focus on growing its TPA business to provide high quality claims, managed care and information solutions to risk managers, insurers, reinsurers and brokers. We also said that our business mission would remain unchanged -- to be the claims and risk management solutions provider of choice for our customers, by reducing their total loss costs, providing superior information tools, and delivering extraordinarily responsive and tailored customer service.
Despite the loss of Home Insurance, we entered 2004 with the momentum of having added several blue chip Risk Management and Wholesale customers in 2003, such as Shell Oil, Perkins Family Restaurants, California Select, Hormel Foods, and of course, SUPERVALU. Our success in developing new business in our chosen market segments continued in 2004 with the addition of numerous new customers such as Procter and Gamble, Hartford Specialty Insurance, Jefferson Health Systems, and Family Dollar Stores.
Our commitment to quality was strengthened with a revitalized Quality Assurance practice and we rose to the occasion when our customers needed us most, notably in responding to the demands of an unprecedented number of catastrophe claims. Specialized catastrophe operations were created in our Atlanta, Dallas, and Maitland, FL. offices that included 234 REM and contract staff over a number of months, supported by another 25 people in our Cranbury, Philadelphia, Minneapolis and Brea offices.
Following a tradition of continuously improving our customer information tools, we rolled out a new version of illumin products that included an enhanced internet claim reporting feature. Our web site update made it easier for customers to access illumin, along with a better look and simpler navigation for all users. Our IT and Operations units also set the stage for this year's upgrade of our illumin claims processing system, which will strengthen our infrastructure while improving functionality and reducing costs.
Our 2004 financial performance exceeded expectations, with revenue of $44.133 million and after-tax profit ("ATP") that yielded a return on equity ("ROE") of 24%. This gives us great confidence that our business base is solid and that we are well-positioned to achieve our goal of 15% compound annual growth in revenue, ATP and ROE as we gain ever improving economies of scale.
Going forward, our major challenges in 2005 and beyond are clear. We must:
grow our business through sales in our target markets;
continuously improve the quality of our services in order to deliver on our promises to current customers and to gain new ones;
constantly upgrade our customer information products and expertise in data delivery in order to retain the leadership position in our marketplace;
control our costs so that our service fees remain competitive.
Our 2005 Operations Plan contains a number of initiatives that will enable us to meet these challenges while introducing a number of operational improvements. We're off to a great start in terms of sales, with the best January in our history as we welcome new customers Tappe Construction, CRU Pest Control, Randstad and Wood Group.
We are pleased with the company's performance in 2004, and are mindful of the challenges in 2005 and beyond. We're grateful to our colleagues at REM for their fine work -- and to our customers, brokers and delivery partners for their continuing support. REM celebrates it's 10th anniversary in June, and we're confident that 2005 will be our best year yet.
Mike Riney
President & CEO
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