The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain
31 July 2020
News Release
Walker Crips Group plc
("Walker Crips", the "Company" or the "Group")
Final results for the year ended 31 March 2020
Walker Crips Group plc, the investment management and wealth management services, pensions administration and regulation technology Group, announces audited results for the year ended 31 March 2020.
Highlights
The Group reports improved year-on-year income and profits.
· Annual revenues up 3% to £31.4 million (2019: £30.5 million).
· Operating profits up 172.5% to £1.09 million (2019: £0.40 million) and up 65% to £0.717 million (2019: £0.434 million) excluding exceptional items.
· Profit before tax up 97% to £963,000 (2019: £489,000) and up 13% to £588,000 (2019: £521,000) excluding exceptional items.
· IAS 17 consistent EBITDA up 21% to £1.93 million (2019: £1.59 million)*.
· Underlying cash generated from operations increased by 18.6% to £1.85 million (2019: £1.56 million)*.
· Cash and cash equivalents increased by £1.8 million to £8.6 million.
· Assets Under Management, with the COVID-19 impact on global markets, particularly affecting the final month of the year, declined by 15% to £2.8 billion (2019: £3.3 billion).
· Non-broking income as a percentage of total income increased to 74.3% (2019: 71.6%).
· The pandemic headwinds of lower market levels and lower interest rates are now negatively impacting income and the underlying mix.
· No final dividend proposed (2019: 0.33 pence) in view of the pandemic headwinds.
· Liquid resources remain strong and we look forward with confidence to continuing to implement strategic priorities including ongoing focus on cost control.
* Fully explained in the Chairman's statement
For further information, please contact:
| | |
| Four Broadgate Roland Cross/Anthony Cornwell
|
Tel: +44 (0)20 3697 4200
|
| Cantor Fitzgerald Europe | Tel: +44 (0) 20 7894 7625 |
| Will Goode / Philip Davies | |
Chairman's statement
Confident in our continued success
An increase in year-on-year profits for the Group has been overshadowed by the tragic and profound impact of the coronavirus pandemic just before the year end, forcing the precautionary suspension of the final dividend. Nevertheless, the Group's emphasis on technology facilitated a rapid and effective response to the practical challenges posed by the lockdown.
Overview of 2019/2020
Against a backdrop of largely buoyant market conditions, most of the Group's businesses performed well until the very last month of last year, and I am pleased to report an increase in full year profit before tax of £474,000, or 97% on the prior year. However, the sudden onset of the pandemic and the terrible effects it has wrought on the economy and capital markets has marred what was a reasonably good year for the Group. With Management's focus now firmly on the future, the Group is repositioning itself for the changes and challenges ahead.
Operating profit for the year of £1.092 million (2019: £402,000) and profit before tax for the year of £963,000 (2019: £489,000) both benefited from the recovery of a longstanding disputed insurance claim of £209,000 and from the reassessment of deferred cash consideration due on acquired client relations of £166,000, both of which have been reported as exceptional items. Adjusting for exceptional items, earnings growth remains strong, with operating profit increasing by 65% to £717,000 (2019: £434,000) and profit before tax increasing by 13% to £588,000 (2019: £521,000). The reconciliation of these IFRS and alternative performance measures ('APMs') can be found in CEO's statement below.
The reported results this year are also impacted by the adoption of IFRS 16 'Leases' with effect from 1 April 2019 and because the modified retrospective approach is used they are not comparable to those reported in the prior year under the previous accounting standard IAS 17. To provide a meaningful comparison we have presented an EBITDA based APM, which reports operating profits before exceptional items adjusted for depreciation, amortisation and lease charges for both 2019 and 2020 on an IAS 17 consistent basis.
On this basis the Group's EBITDA for the year increased 21% to £1.93m (2019: £1.59m). The reconciliations of EBITDA to operating profit before exceptional items for 2020 and 2019 are presented in CEO's statement below. In the year to 31 March 2022 EBITDA figures will be presented on an IFRS 16 consistent basis.
The encouraging momentum that I reported in the first half of the year continued in the second half. Although we experienced a decline in broking commission for the year of £572,000, these revenue losses were more than offset by an increase of £1.35 million in management fees, as clients continue to switch from commission-based to fixed fee tariffs.
Total non-broking income, which benefited from the full-year impact of the rollout of new tariffs on management fees, the impact of higher interest rates on managed client deposits, a continued strong performance in our arbitrage trading book, notwithstanding a mark to market loss on year-end positions reflecting market declines in March 2020, improved Walker Crips Structured Investments ("WCSI") results offset by lower revenues from short term lending and net investment revenue, comprised 74.3% of Group revenues versus 71.6% in the previous year. It should be noted, however, that the full year's benefit of increased interest margins on managed deposits arising from previous base rate rises will be more than reversed by the two reductions to base rates in March this year, taking them to historic lows as part of the Bank of England's extraordinary response to the pandemic.
Total Assets Under Management and Administration ("AUMA") averaged £5.0 billion during the year, compared with £5.1 billion for the previous year, helped by positive market performance and strong growth from the private client teams, offset by the loss of a team of associates (with approximately £240 million in assets) at the start of the year.
AUMA were impacted by the collapse in equity markets in March and ended the year down 14% at £4.3 billion, but have since recovered along with markets to £4.8 billion by 30 June 2020. Discretionary and Advisory Assets Under Management were similarly impacted by the global market decline, ending the year at £2.8 billion (31 March 2019: £3.3 billion).
Commission paid to self-employed associates increased by 1.0% during the year, significantly lower than the 3% growth in revenues, reflecting the changing mix of revenues towards other non-sharing parts of the business and resulting in an improvement in the gross margin to £21.6 million (31 March 2019: £20.8 million). Administrative expenses rose by £0.6 million (2.7%) during the year, significantly lower than the 3% growth in revenues and resulting in an improvement in operating profit margin excluding exceptional items to 2.3% (31 March 2019: 1.4%). Management focus on the cost base is paying off, with the growth in administrative expenses largely accounted for by an increase in regulatory fees and levies of £0.3 million, effectively doubling from the previous year. Following the onset of the pandemic, Management implemented an immediate cost-reduction initiative, including the acceptance of a temporary pay cut by all Group and subsidiary Directors. Further actions are being discussed and readied, subject to developments in market conditions.
At a divisional level, Investment Management saw an 7.5% increase in fees and other revenues to £21.5 million (2019: £20 million), offset by the fall in commission income noted above such that overall revenues of the division increased by 2.4% year on year to £29.6 million (2019: £2.9 million). There were notably strong performances by the London and York-based private client teams. The impact of the pandemic on markets, and indirectly on fees, has translated into current fee income falling broadly in line with industry benchmarks and Management's expectations. Encouragingly, commissions have, so far, been more resilient than originally budgeted. Management is not budgeting for a rise in base rates in the foreseeable future and the recent cuts in base rates is projected to result in a decline in annual revenues of £1.5 million compared to the year ended 31 March 2020.
The York-based Wealth Management division has seen an overall revenue increase of £0.09 million on the previous year. During the year, two teams within the York division transferred to the Investment Management division to gain better operational efficiencies. The Wealth Management team took full ownership of the previous joint venture with a local firm of Accountants, JWP Creers, securing over £70,000 of recurring annual revenue and Assets Under Management of approximately £11 million on 1 April 2019 for a cash consideration of £47,000. JWP Creers Wealth Management Limited has changed its name to Walker Crips Ventures Limited and the trade and operations of the company were integrated into Walker Crips Wealth Management Limited.
The Structured Investments team ("WCSI") delivered improved revenue in the second half to the year, following sluggish volumes in the first half. Market conditions towards the end of the year were favourable, with rising volatility prompting an improvement in the product terms available to clients. For the year as a whole, revenues, despite some mark to market losses reported at year end (majority of which have since been recovered) were up 27.6% to £1.85 million (2019: £1.45 million). WCSI added structured deposits to its product line-up, though market conditions constrained the issuance in the short-term and this was not launched in the year. WCSI has continued to build its relationships with leading credit institutions, adding new issuers during the year and further diversifying potential credit risk.
The Group's balance sheet remains stable, with reported net assets of £22,644,000, up £923,000 from the prior year, including a £601,000 increase due to the adoption of IFRS 16 on 1 April 2019 (see note 35), profit for the year and the payment of dividends of £396,000.
The Group's cash generated by operations during the year was £3.5 million compared to an operating cash out-flow of £0.6 million in the prior year. Adjusting for exceptional items, the anomalies in the timing of working capital payments around reporting dates and the 2020 lease liability and interest payments that are now reported as financing activities following the adoption of IFRS 16 'Leases' (see above), underlying operating cash generated improved by 18.6% to £1.85 million (2019: £1.56 million). Reconciliations of the underlying cash generated APMs to operating cash per the cashflow statement are presented below in CEO's statement. After cash deployed in investing activities and dividends paid in the year, cash and cash equivalents increased a healthy £1.820 million to £8.609 million at year end.
We have navigated the COVID-19 reality by implementing the Group's business continuity plan, to protect the Group's operations, its clients, its shareholders and its staff. The Board of Directors has invested in technology and infrastructure to enable the vast majority of staff to work from home to abide by government guidelines. Operations have been smooth and unaffected by the disruptions thanks to the Group's state-of-the-art systems.
Without doubt, the COVID-19 pandemic caused significant disruption to the financial services industry and the true financial impact on the UK and Global economy and, in particular, on the Group is as yet an unknown. However, it is encouraging to see the regulated financial services sector has so far demonstrated good governance, control, and risk management and mitigation procedures to limit the overall impact. It is also encouraging to see majority of our clients view this short term disruption as an opportunity.
As part of the post-COVID-19 recovery, the Group plans to implement future cash generating strategies such as further expansion of the Group's Software as a Service offering and an Investment Manager recruitment drive. These strategies are now more important than ever, and the Board sees revenue-generating expansion as the best path to recovery and the Group's future growth beyond these exceptional times.
As the UK emerges from the lockdown, we look forward into settling to the new normality in an improving post-COVID-19 economy and environment, with more streamlined business processes, to give the Group the best chance possible of a quick bounce back.
The continuing negative impact of the pandemic post year end, both in the form of market declines and reduced interest margins on managed deposits noted above, has prompted a renewed management focus on forecasting cash flows. The results of these forecasts have been integrated into the Group's renewed corporate strategy, its dividend policy and cost management initiatives. The balance sheet, cash generation and liquidity enables us to weather these market impacts and continue to invest in our strategic initiatives, as further evidenced by the stress testing performed in support of our viability statement and going concern assessment. However, in view of the present uncertainty and as explained further below, the Board considers it prudent to cease the payment of dividends at this time.
Strategy
I am pleased that the Group has been able to adjust so well to the rapid changes in working practices occurring as a result of the pandemic and, in the light of the pandemic, the Group's focus on technology has been more than justified. However, it is still incumbent on Management to take the Group's technology services to the next level, and this is an even greater focus in the Group's strategy.
EnOC, our technology subsidiary, was incorporated in 2018 to deliver our "Software as a Service" (SaaS) business. EnOC aims to close the technology gap by engineering out complexities. During the year, EnOC Pro Platform (www.enoc.pro) was launched; a cloud service that helps industry practitioners address the administration of the new SM&CR regulatory regime. This service seeks to disrupt the established regulation technology space by providing a comprehensive and user-friendly solution on a low-cost subscription basis. The SaaS business is now reported as a separate business segment, though it is too early to report on the traction and support the product will receive, as financial services businesses look to streamline and improve their compliance solutions.
Walker Crips Investment Management (WCIM) has renewed its corporate strategy with an emphasis on growing the core investment management business by organic growth and attracting new advisors, which is entirely realistic and appropriate for the times. I note that the strategy also makes the most of the talents of its new management team (which I discuss below).
In line with the strategy of continued investment in technology, a new back office system was implemented during the year for Walker Crips Wealth Management that will streamline business processes and improve client communication. The pension management team, following a full review of SIPP fee tariffs, now has a fully transparent and competitive product supported by robust back office systems, leaving us ideally placed to expand our client base. The SSAS client book remains consistent and we expect growth in this market through our introducers and potential acquisition of smaller competitors.
Walker Crips Structured Investments recruited senior staff from major competitors, and built new relationships with product-providers in preparation for increased activity. These plans were delayed temporarily by the very extreme market conditions for structured products, both in terms of price levels and increased volatility, which impacted on the ability of providers to create products. However, we expect WCSI to resume a growth path if calmer market conditions continue to prevail.
Dividend
During the year, the Board approved an interim dividend of 0.60 pence per share (2019: 0.58 pence per share) payable on 20 December 2019 to those shareholders on the register at the close of business on 6 December 2019.
With the sudden onset of the coronavirus pandemic, this year we witnessed a once-in-a-century event and its terrifying personal and economic consequences. While the effect on capital markets has somewhat lessened of late, the impact of the reduction in base rates creates increased uncertainties for the Group as it lies beyond Management's control. Under these conditions, with the likelihood of the Group reporting losses in the short-term, Management has decided to take a conservative approach to expenses and cash flows for the foreseeable future. This is absolutely a time for shoring up the Group's finances and for resizing costs and dividend distributions to the expected decline in revenues and profitability. I am pleased to be able to say that, leading by example, the Board and subsidiary Directors have all accepted voluntary reductions in pay on a temporary basis. My deepest sympathies go out to those staff who have lost relatives, friends and loved ones. Given the extraordinary impact of the pandemic, the Board has concluded that it would be inappropriate to recommend a full-year dividend. The Board will review the Group's dividend policy when there is greater clarity about the future impact of the pandemic.
Our people, culture and governance
By setting the right example at the top, the Board has prioritised good culture and conduct across all who represent the Group. We continue to encourage professionalism and the right behaviours in all we do. The end result is a unified emphasis on achieving the right outcomes for clients. The new Senior Managers & Certification Regime ("SM&CR") came into force on 9 December 2019. We have embraced and adopted it as part of our culture of accountability rather than treating it as another regulatory burden. Indeed, we have already built our own SM&CR system within our new company, EnOC Technologies Limited, and have expanded it to include not just the regulatory requirements, but also our internal policies, governance and controls. Corporate governance and stewardship as reported against the UK Corporate Governance regime provides assurance to external parties who rely on sound management of the business and its risks.
I would like to thank all my fellow Directors, investment managers and advisers and members of staff for their continued commitment to the highest levels of client service, support and diligence during the period. Sanath Dandeniya's promotion to Group Finance Director has introduced fresh impetus and innovation in our finance function and operations. The appointments of Nick Hansen*, as CEO of Walker Crips Investment Management, and Chris Darbyshire, as Chief Investment Officer have reinvigorated our main operating subsidiary's senior Management and service offerings. I would like to take this opportunity to thank Rodney Fitzgerald again for his outstanding and selfless contribution to the Group, both as Group Finance Director (1999-2019) and Group CEO (2007-2017), and to wish him well in his retirement.
This will be my final Annual Report since, as announced at last year's Annual General Meeting, I will be stepping down as Chairman at the forthcoming AGM, having served your company in this role for the past 13 years. I have, however, agreed to the Board's request to continue as a Non-Executive Director for up to 12 months, and Martin Wright will take on the role of Chairman. I would like to pay tribute now to all our loyal employees and Directors for the support they have given me during some very difficult times such as the 2008 financial crisis and the current COVID-19 pandemic. Walker Crips has been in existence for well over 100 years and I am confident we will see the present crisis through and continue in our prime goal of offering excellent service to all our clients.
Outlook
I cannot remember a more difficult time for the Group or, indeed, the investment Management industry. The improved results for the year were an important indicator that the Group was heading in the right direction before the pandemic hit, and I am pleased that Management has risen to the current challenge, and is already taking the difficult decisions that will support the Group's continued progress, its staff and clients.
Liquid resources remain strong despite the impact of the pandemic and we look forward with confidence to continuing to implement strategic priorities.
D. M. Gelber
Chairman
31 July 2020
*awaiting approval from the FCA
CEO's statement
Focussing on our customers for 106 years
Our three-pronged strategy continues to give direction to the Group whilst the world and the financial markets look to recover from the COVID-19 pandemic.
Reflection
We are pleased with the results for the year ending 31 March 2020, but first, I wish to address the tragic events caused by the COVID-19 pandemic. Some of us have lost family and friends to the virus; to those people we send our heartfelt condolences, recognising that in all the analyses of financial impact, above all it is the human cost that is hardest to bear. In February, our CIO was already identifying the epidemic (as it was then) as a potential game-changer for markets and businesses in general. We then activated our business continuity plan on 12 March, ahead of the government's lockdown of 23 March, giving us a head-start in winding down office-based activities and implementing the working from home (WFH) regime. The adaptability of our people and the readiness of our technology enabled our transition to WFH nearly seamlessly. I am proud of how our members responded to this crisis, how we kept the Company functioning normally, and how we continued to engage with our clients and ensuring that they did not suffer any interruption in quality of service during a potentially chaotic time. Everyone played their part, demonstrated patience and tenacity, and got on with the business at hand.
While I am delighted with the way our members responded to the challenge, we cannot avoid the fact that our financial performance is a function of events in capital markets. Absent a significant improvement in market conditions, our revenues will be materially impacted for the current accounting year ending 31 March 2021. Management has taken swift action to resize our cost-base, to help mitigate the impact on earnings of the forecast decline in revenues.
The Company Directors of the Group and subsidiary boards agreed to a 20% temporary reduction in salary in light of market conditions. Management is closely monitoring costs, and will take proportionate action, while continuing to pursue our strategy to grow the business.
The year ahead
Firstly, I wish to thank David Gelber for his decade-long service to Walker Crips as Group Chairman. David has led us with wise counsel and patient advice. His dedication to the company, and tirelessly giving of his time and support to the executive board, is greatly valued. Whilst it was his intention to retire at the forthcoming AGM, we are grateful that he has agreed to stay on as Non-Executive Director for up to 12 months. I also wish to thank, in advance, Martin Wright who will be taking over as Group Chairman immediately after the AGM. Martin knows the company well, and we look forward to his guidance and counsel as we navigate the opportunities and the challenges ahead.
Turning now to the Company's performance over the past year, and our plans for the future. Investment Management (WCIM) has had a good year but it was overshadowed by the challenges and threats posed by COVID-19. Nevertheless, the changes made by the new WCIM leadership team of Nick Hansen, CEO, and Chris Darbyshire, CIO, have put WCIM on a much better footing. The combining and enlarging of the private client department, and the focus on the associate teams will yield positive results over the next twelve months. Chris has brought a wealth of expertise across different asset classes and provided clear investment strategies. I am particularly impressed with his market insights, especially as the COVID-19 crisis evolved. I know that the business will thrive under his investment acumen. Nick has bolstered WCIM's commercial focus on organic revenue growth, a strategy aimed at ensuring WCIM is financially self-sustaining, and we remain committed to growing our business through attracting the highest quality investment advisers and network associates and providing them with systems and services that helps reduce the admin burden and allows them to focus on clients.
The Wealth Management (WCWM) division has continued to grow, even during these challenging times. The consistent and uniform process implemented by Dominic Martin over two years ago is starting to bear fruit and the fact that it is scalable, makes me optimistic for what WCWM will achieve over the next twelve months.
The Pensions team is also weathering the COVID-19 storm, ably led by Wendy Eastwood, ensuring that our SSAS and SIPP clients are well supported and kept in touch with regular updates. Our collectives team (BPAM) continues to add new clients and new asset inflows. Geoff Wright and his team run a tight ship, and they are passionately focussed on good customer outcomes.
Historically, our approach toward diversification has served the Group well. International Equity Arbitrage generated record profits, Tier 1 Investor Visa continues its 100% success rate for its clients since 2013, and Structured Investments is always in demand by the IFA community. We will seek out good opportunities to add to this growing list of successful diversification, to add to the breadth of our revenue streams.
3-pronged strategy for growth
1. Core Investment Management & Advisory Business
· This is our largest revenue generating division, providing clients with investment, wealth, pensions, collectives advice and the creation of structured investments for clients, IFAs and counterparties;
· We continue to invest significantly in our core business, always enhancing our systems and processes to deliver efficiencies, cost savings and improved services to our Investment Managers via our in-house developed client management system thereby enabling them to provide high quality tailored service to clients;
· The profitability for FY20/21 is expected to be impacted due to lower market volumes and sustained low, or zero, interest rates;
· We continue to grow AUM&A, the major driver of revenue in the form of recurring fees;
· We have been increasing the creation and deployment of automated processes, reducing risk and increasing scalability and efficiency;
· We continue to be focussed on driving down non-variable costs and we endeavour to operate on an OpEx (Operational Expenditure) rather than a CapEx (Capital Expenditure) basis;
· Our York office has concluded the migration of our backoffice systems to a cloud platform and we have already started seeing efficiencies which will translate to improvement in revenues;
· Our collectives investment management team maintained their performance levels while facing compression of margin pressures;
· We continue to look for good quality investment and wealth managers, either individually or as teams; and
· The business is in strong financial standing, and we are able to weather the economic crisis arising from the COVID-19 pandemic.
2. Alternative Investments
· This subset of our core investment management division is where we create innovative and higher margin new business lines;
· Our Tier 1 (Investor) Visa investment business continues to perform well, attracting ultra high net worth individuals from the Far East to invest in the UK. Our assessment process is vigorous and thorough and has provided assurance to the UK Home Office with 100% success rate since 2013;
· Our Short Term Lending associate increased its investment mandate from £44 million to £70 million; and
· Our international equity arbitrage business generates significant returns on our modest principal trading book.
3. Software as a Service (SaaS)
· The EnOC Pro Platform is live and its Senior Managers & Certification Regime (SM&CR) tool is being used by our own group of companies and also by a number of external companies;
· A number of SaaS systems are currently being developed and the next to be deployed will be an HR system, which is a logical extension of the SM&CR tool;
· The objective of EnOC is to provide enterprise level systems to companies of all sizes, from the very large to the very small. Our pricing model is on a subscription basis without minimum amounts and without long term lock-in contracts, accessible to even the smallest of companies and scalable to the largest. EnOC's ethos is to close the technology gap between those who can afford large systems, and those who cannot, between those who can build their own systems, and those who do not have the resources to do so; removing the barriers to entry;
· EnOC was born in the cloud and will remain a cloud service, for all the benefits it brings to the service and to our partners; and
· We must and we will Create > Innovate > Rejuvenate > Eliminate > Repeat.
Conclusion
Our core objectives of shareholder value, customer service, operational effectiveness and efficiency, remain; and only by emphasising and investing in technology as the delivery mechanism will our core objectives be achieved. COVID-19 has made it startlingly clear how much we depend on technology.
We have been fortunate that we have been building our own technology for nearly 20 years, and that we have been early adopters of cloud-based technology. We transitioned to an online workforce overnight with maximum operational resilience and minimum, or no, risk to clients. The world has changed significantly over the past several months and we have shown that we are able to adapt and change along with it.
Dependence on technology will only increase. We will prioritise and increase our investment into the development of our own technology, continue to innovate and create regulatory and operational technologies for ourselves, for our partners and for the industry via the EnOC Pro Platform www.enoc.pro.
I wish to thank the Non-Executive Directors for keeping the Executives on the straight and narrow, Sanath Dandeniya for holding the purse strings and for being my sounding board, and the Directors for the leadership of their teams.
And finally, I echo the Chairman's words, that we are proud of our Investment Managers, Advisors and our staff, for their resilience, for their can-do attitude, but most of all for their unwavering focus on ensuring that our clients continue to be well looked after.
| Reconciliation of profit before tax to profit | | | | Reconciliation of operating profit to operating profit | | |
| before tax and exceptional items | | | | before exceptional items | | |
| | 2020 | 2019 | | | 2020 | 2019 |
| | £000 | £000 | | | £000 | £000 |
| Profit before tax | 963 | 489 | | Operating profit | 1,092 | 402 |
| Exceptional items (Note10) | (375) | 32 | | Exceptional items (Note10) | (375) | 32 |
| Profit before tax and exceptional items | 588 | 521 | | Operating profit before tax and exceptional items | 717 | 434 |
| | | | | | | |
| Underlying cash generated by the Group | | | | IAS17 consistent EBITDA | | |
| | 2020 | 2019 | | | 2020 | 2019 |
| | £000 | £000 | | | £000 | £000 |
| Net cash inflow / (outflow) from operations | 3,483 | (631) | | Operating profit before tax and exceptional items | 717 | 434 |
| Working capital | (160) | 2,163 | | Amortisation / depreciation (Note32) | 1,199 | 1,151 |
| Lease liability payments under IFRS16 | (1,101) | - | | RoUA* depreciation charge (Note 32) | 867 | - |
| Exceptional items (Note10) | (375) | 32 | | IAS 17 operating lease charge (Note 35) | (855) | - |
| Underlying cash generated in the period | 1,847 | 1,564 | | IAS17 consistent EBITDA | 1,928 | 1,585 |
* Right of use assets.
Charity
We are pleased to be supporting Twining, the mental health charity. Twining provides employment support to people with mental health conditions, which is a great need at the best of times, but during the COVID-19 pandemic, the demand from people who need support from Twining has increased exponentially. Twining provides practical advice and coaching about finding work, and also supporting people who are in work but are facing challenges. They understand that people with mental health problems face unique work barriers, preventing them from getting into, and staying at, work. Twining believes that with the right support, these barriers can be overcome and people can enjoy a healthy working life.
The Group, our Investment Managers, Advisors and staff, support Twining financially, but we are also very pleased to be able to support them technologically. Twining is doing a very good thing, helping people in need, and if you are also able to support them, please visit www.twiningenterprise.org.uk.
S. K. W. Lam
Chief Executive Officer
31 July 2020
Consolidated income statement
year ended 31 March 2020
| | | 2020 | 2019 |
| | Note | £'000 | £'000 |
| Revenue | 5 | 31,422 | 30,458 |
| Commission and fees paid | 7 | (9,771) | (9,673) |
| Share of change in net assets of joint venture | 8 | (11) | 14 |
| Gross profit | | 21,640 | 20,799 |
| | | | |
| Administrative expenses | 9 | (20,923) | (20,365) |
| Exceptional items | 10 | 375 | (32) |
| Operating profit | | 1,092 | 402 |
| | | | |
| Investment revenue | 11 | 76 | 90 |
| Finance costs | 12 | (205) | (3) |
| Profit before tax | | 963 | 489 |
| Taxation | 14 | (245) | (156) |
| Profit for the year attributable to equity holders of the Parent Company | | 718 | 333 |
| | | | |
| Earnings per share | | | |
| Basic | 16 | 1.69p | 0.78p |
| Diluted | 16 | 1.69p | 0.78p |
Consolidated statement of comprehensive income
year ended 31 March 2020
| | 2020 | 2019 |
| | £'000 | £'000 |
| Profit for the year | 718 | 333 |
| Total comprehensive income for the year attributable to equity holders of the Parent Company | 718 | 333 |
Consolidated statement of financial position
as at 31 March 2020
| | | Group | Group |
| | | 2020 | 2019 |
| | Note | £'000 | £'000 |
| Non-current assets | | | |
| Goodwill | 17 | 4,388 | 4,388 |
| Other intangible assets | 18 | 6,701 | 7,262 |
| Property, plant and equipment | 19 | 2,330 | 2,520 |
| Right-of-use assets | 20 | 4,362 | - |
| Investment in joint ventures | 8 | - | 44 |
| Investments - fair value through profit or loss | 21 | 51 | 51 |
| | | 17,832 | 14,265 |
| Current assets | | | |
| Trade and other receivables | 22 | 24,515 | 35,785 |
| Investments - fair value through profit or loss | 21 | 638 | 1,005 |
| Cash and cash equivalents | 23 | 8,609 | 6,916 |
| | | 33,762 | 43,706 |
| Total assets | | 51,594 | 57,971 |
| | | | |
| Current liabilities | | | |
| Trade and other payables | 27 | (22,750) | (34,095) |
| Current tax liabilities | | (424) | (178) |
| Deferred tax liabilities | 24 | (335) | (317) |
| Bank overdrafts | 25 | - | (127) |
| Provisions | 28 | (178) | (484) |
| Lease liabilities | 29 | (969) | - |
| | | (24,656) | (35,201) |
| Net current assets | | 9,106 | 8,505 |
| | | | |
| Long-term liabilities | | | |
| Deferred cash consideration | 38 | (15) | (47) |
| Lease liabilities | 29 | (3,620) | - |
| Dilapidation provision | 28 | (659) | (542) |
| Landlord contribution to leasehold improvements | | - | (460) |
| | | (4,294) | (1,049) |
| Net assets | | 22,644 | 21,721 |
| | | | |
| Equity | | | |
| Share capital | 30 | 2,888 | 2,888 |
| Share premium account | 30 | 3,763 | 3,763 |
| Own shares | 31 | (312) | (312) |
| Retained earnings | 31 | 11,582 | 10,659 |
| Other reserves | 31 | 4,723 | 4,723 |
| Equity attributable to equity holders of the Parent Company | | 22,644 | 21,721 |
The financial statements of Walker Crips Group plc (Company registration no: 01432059) were approved by the Board of Directors and authorised for issue on 31 July 2020.
Signed on behalf of the Board of Directors
S. S. Dandeniya FCCA, Director
31 July 2020
Consolidated statement of cash flows
year ended 31 March 2020
| | | 2020 | 2019 |
| | Note | £'000 | £'000 |
| Operating activities | | | |
| Cash generated / (used) by operations | 32 | 3,483 | (631) |
| Tax received | | 18 | 66 |
| Net cash generated / (used) by operating activities | | 3,501 | (565) |
| Investing activities | | | |
| Purchase of property, plant and equipment | | (321) | (382) |
| Sale of investments held for trading | | 101 | 789 |
| Consideration paid on acquisition of client lists | | (21) | (111) |
| Consideration paid on acquisition of subsidiary | | (1) | - |
| Deferred consideration paid on acquisition of subsidiary | | - | (600) |
| Dividends received | 11 | 17 | 23 |
| Interest received | | 48 | 67 |
| Net cash used by investing activities | | (177) | (214) |
| Financing activities | | | |
| Dividends paid | | (396) | (796) |
| Interest paid | 12 | (7) | (3) |
| Repayment of lease liabilities* | | (944) | - |
| Repayment of lease interest* | | (157) | - |
| Net cash used by financing activities | | (1,504) | (799) |
| Net increase / (decrease) in cash and cash equivalents | | 1,820 | (1,578) |
| Net cash and cash equivalents at beginning of period | | 6,789 | 8,367 |
| Net cash and cash equivalents at end of period | | 8,609 | 6,789 |
| Cash and cash equivalents | | 8,609 | 6,916 |
| Bank overdrafts | | - | (127) |
| | | 8,609 | 6,789 |
* Total repayment of lease liabilities under IFRS 16 in the period was £1,101,000.
Consolidated statement of changes in equity
year ended 31 March 2020
| | | Share | Own | | | | |
| | Share | premium | shares | Capital | | Retained | Total |
| | capital | account | held | redemption | Other | earnings | equity |
| | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Equity as at 31 March 2018 | 2,861 | 3,674 | (312) | 111 | 4,557 | 11,122 | 22,013 |
| Total comprehensive income for the year | - | - | - | - | - | 333 | 333 |
| Contributions by and distributions to owners | | | | | | | |
| Dividends paid | - | - | - | - | - | (796) | (796) |
| Issue of shares on acquisition of intangibles and | | | | | | | |
| as deferred consideration | 27 | 89 | - | - | 55 | - | 171 |
| Total contributions by and distributions to owners | 27 | 89 | - | - | 55 | (796) | (625) |
| Equity as at 31 March 2019 | 2,888 | 3,763 | (312) | 111 | 4,612 | 10,659 | 21,721 |
| Comprehensive income for the year | - | - | - | - | - | 718 | 718 |
| Effect of adoption of IFRS 16 (see note 35) | - | - | - | - | - | 601 | 601 |
| Total comprehensive income for the year | - | - | - | - | - | 1,319 | 1,319 |
| Contributions by and distributions to owners | | | | | | | |
| Dividends paid | - | - | - | - | - | (396) | (396) |
| Total contributions by and distributions to owners | - | - | - | - | - | (396) | (396) |
| Equity as at 31 March 2020 | 2,888 | 3,763 | (312) | 111 | 4,612 | 11,582 | 22,644 |
Notes to the accounts
year ended 31 March 2020
1. General information
Walker Crips Group plc ("the Company") is the Parent Company of the Walker Crips group of companies ("the Group"). The Group is a public limited company incorporated in the United Kingdom under the Companies Act 2006. The Group is registered in England and Wales. The address of the registered office is Old Change House, 128 Queen Victoria Street, London EC4V 4BJ.
The significant accounting policies have been disclosed below. The accounting policies for the Group and the Company are consistent unless otherwise stated.
2. Basis of preparation
The financial information set out in these financial statements does not constitute the Group's statutory accounts for the years ended 31 March 2020 and 2019. The statutory accounts for 31 March 2020 to which these non-statutory accounts relate have not been delivered to the registrar of companies.
The auditor's report has been signed and was unqualified.
This preliminary announcement is based on the Group financial statements which are prepared in accordance with IFRS.
Going concern
The financial statements of the Group have been prepared on a going concern basis. At 31 March 2020, the Group had net assets of £22.6 million (31 March 2019: £21.7 million), net current assets of £9.1 million (31 March 2019: £8.5 million) and cash and cash equivalents of £8.6 million (31 March 2019: £6.8 million (net of overdraft)). The Group reported an operating profit of £1.09 million for the year ended 31 March 2020 inclusive of exceptional income of £375,000 (31 March 2019: £402,000 inclusive of exceptional costs of £32,000) and net cash inflows from operating activities of £3.5 million (31 March 2019: net cash outflows from operating activities of £565,000).
The Directors consider the going concern basis to be appropriate following their assessment of the Group's financial position and its ability to meet its obligations as and when they fall due. In making the going concern assessment the Directors have taken into account the following:
· The capital structure and liquidity of the Group, noting the capital comprises equity, the balance sheet now reflects lease liabilities arising on the adoption of IFRS 16 and the level of liquid resources remains strong.
· Its base case and stressed cash flow forecasts over the financial reporting periods ending 31 March 2021 and 31 March 2022.
· The principal risks facing the Group and its systems of risk management and internal control.
· Improved operating cashflow during the year to 31 March 2020, noting the reported figure also benefits from the impact of adopting IFRS 16 in respect of leased assets for which the resulting liability repayments and interest cost in the year were £944,000 and £157,000 respectively.
· the uncertainty caused by the COVID-19 outbreak and the immediate measures, including suspension of certain discretionary spends, cost cutting and use of the Government job retention scheme, to mitigate the impact on the business.
Key assumptions that the Directors have made in preparing the base case cash flow forecasts are that:
· Revenues prudently reflect the impact of (i) continued low base rates of 10 basis points on income for managing client deposits and (ii) lower fee income expectation as a result of the lower UK equity market levels. The base case assumption is for the FTSE100 index to remain at 5700 range until December 2020 and recovering to 7000 range and increasing modestly thereon. Overall revenue growth expectation for future years set conservatively at 2% to 3.3% from the COVID-19 impacted lower starting point.Base case costs prudently reflect only the actions Management has taken to date in response to the impact of COVID-19 on the business for the remainder of the present reporting year, with any further cost savings delayed until the year to 31 March 2022.
Key stress scenarios that the Directors have considered include:
· A 'bear stress scenario': representing a further 10% fall in income compared to the base case scenario in reporting period ending 31 March 2021 and 31 March 2022.
· A remote 'severe or reverse stress scenario': representing a 20% fall in commission income and 15% fall in fee income compared to the base case for each forecast period.
· Both stress scenarios assume no mitigating actions.
Liquidity and regulatory capital resource requirement exceeded the minimum threshold in both the base and bear scenarios. However, in the severe stress scenario, although the Group has positive liquidity throughout the period, negatively impact our capital prudential capital ratio is such that it falls below the regulatory requirement in June 2022. The Directors consider this scenario to be remote in view of the prudence built into the base case planning and that further mitigations available to the Directors are not reflected therein. Such mitigating actions within Management control include reduction in propriety risk positions, delayed capital expenditure, further reductions in discretionary spend and additional reduction in employee headcount. Other mitigating actions which may be possible include seeking shareholder support, sale of assets and stronger cost reductions.
The Directors have also considered the wider operational consequences and ramifications of the COVID-19 pandemic. As explained in the Chief Executive's report our business infrastructure has proved resilient in protecting the safety of our employees and maintaining our high levels of client service in the 'working from home' mode of operations. The Government lockdown restrictions have caused some disruptions, however, the Group's advanced IT systems, along with greater use of cloud-based technology, have allowed all operations to run at 100% capacity. We continue to review our approach in line with latest developments and government guidance. Our stress testing demonstrates the Group's financial resilience and operating flexibility.
Following the assessment of the Group's financial position and its ability to meet its obligations as and when they fall due, including the financial implications of the pandemic, the Directors are not aware of any material uncertainties that cast significant doubt on the Group's ability to continue as a going concern.
Standards and interpretations affecting the reported results or the financial position
The accounting policies adopted are consistent with those of the previous financial year with the exception of IFRS 16 "Leases". The Group has applied the modified retrospective approach and has not restated comparative amounts for the period prior to initial adoption. The impact of adopting this new standard is outlined in note 3.
The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the Group.
3. Significant accounting policies
Basis of consolidation
The Group financial statements consolidate the financial statements of the Group and companies controlled by the Group (its subsidiaries) made up to 31 March each year. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its powers to direct relevant activities of the entity. Subsidiaries are fully consolidated from the date on which control is obtained and no longer consolidated from the date that control ceases; their results are in the consolidated financial statements up to the date that control ceases.
Entities where the interest is 49% or less are assessed for potential treatment as a Group company against the control tests outlined in IFRS 10, being power over the investee, exposure or rights to variable returns and power over the investee to affect the amount of investors' returns.
All intercompany balances, income and expenses are eliminated on consolidation.
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 "Business Combinations" are recognised at their fair value at the acquisition date.
Interests in joint ventures
A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control; that is when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control.
The Group's share of the assets, liabilities, income and expenses of jointly controlled entities are accounted for in the consolidated financial statements under the equity method. In the current year, there was no longer an asset classified as a joint venture investment.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a company or jointly controlled entity at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is not amortised but is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed in future periods.
For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. On disposal of a company or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Intangible assets
(a) Client lists
Client lists are recognised when it is probable that future economic benefits will flow to the Group and the cost of the asset can be measured reliably whilst the risk and rewards have also transferred into the Group's ownership.
Intangible assets classified as client lists are recognised when acquired as part of a business combination or when separate payments are made to acquire clients' assets by adding teams of Investment Managers.
The cost of acquired client lists and businesses generating revenue from clients and Investment Managers are capitalised. These costs are amortised on a straight-line basis over their expected useful lives of three to twenty years. The amortisation period and amortisation method for intangible assets are reviewed at least each financial year end. All intangible assets have a finite useful life.
Amortisation of intangible fixed assets is included within administrative expenses in the consolidated income statement.
At each statement of financial position date, the Group reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
During the year, a review of the Group's intangible assets resulted in the revision of the Useful Economic Life ("UEL") of an acquired client list. The Truro client list, which had an estimated UEL of 16.25 years as at 31 March 2019, was revised to 11.25 years. As it was a change in accounting estimate, this revision and the resultant change in annual amortisation for this intangible asset was applied prospectively, beginning with a new annual amortisation charge for this asset in the current financial year.
The revised amortisation charge in respect of this intangible asset was £143,000 in the current year and the annual charge expected for the remaining UEL of the asset. The charge in prior year was £99,000.
(b) Software Licenses
Computer software which is not an integral part of the related hardware is recognised as an intangible asset when the Group is expected to benefit from future use of the software and the costs are reliably measured and amortised using the straight line method over a useful life of up to five years.
Own shares held
Own shares consist of treasury shares which are recognised at cost as a deduction from equity shareholders' funds. Subsequent consideration received for the sale of treasury shares is also recognised in equity with any difference being taken to retained earnings. No gain or loss is recognised on sale of treasury shares.
Shares to be issued
Shares to be issued represent the Group's best estimate of the Ordinary Shares in the Group which are likely to be issued, following business combinations or the acquisition of client relationships which involve deferred payments in the Group's shares. Where shares are due to be issued within a year, the sum is included in current liabilities. Shares to be issued are dependent on the achievement of pre-defined targets and are treated as a liability until they are allotted and issued. There were no transactions recognised in relation to this in the current year.
Revenue recognition
Revenue is measured at a fair value of the consideration or receivable and represents gross commissions, interest receivable and fees in the course of ordinary investment business, net of discounts, VAT and sales related taxes.
Revenues recognised under IFRS 15
Revenue from contracts with customers:
· gross commissions on stockbroking activities are recognised on those transactions whose trade date falls within the financial year, with the execution of the trade being the performance obligation at that point in time;
· in Walker Crips Investment Management, fees earned from managing various types of client portfolios are accrued daily over the period to which they relate with the performance obligation fulfilled over the same period;
· fees in respect of financial services activities of Walker Crips Wealth Management are accrued evenly over the period to which they relate with the performance obligation fulfilled over the same period;
· fees earned from structured investments are recognised on the date the underlying security of the structured investment is traded and settled, with the execution of the trade being the performance obligation at that point in time; and
· fees earned from software offering, Software as a Service "SaaS", are accrued evenly over the period to which they relate with the performance obligation fulfilled over the same period.
Other incomes:
· interest is recognised as it accrues in respect of the financial year;
· dividend income is recognised when:
· the Group's right to receive payment of dividends is established;
· when it is probable that economic benefits associated with the dividend will flow to the Group;
· the amount of the dividend can be reliably measured; and
· gains or losses arising on disposal of trading book instruments and changes in fair value of securities held for trading purposes are both recognised in profit and loss.
The Group does not have any long-term contract assets in relation to customers of any fixed and/or considerable lengths of time which require the recognition of financing costs or incomes in relation to them.
Operating expenses
Operating expenses and other charges are provided for in full up to the statement of financial position date on an accruals basis.
Exceptional items
To assist in understanding its underlying performance, the Group identifies certain items of pre-tax income and expenditure and discloses them separately in the Consolidated income statement.
Such items would include:
1. profits or losses on disposal, closure or impairment of assets or businesses;
2. corporate transaction and restructuring costs;
3. changes in the fair value of contingent consideration; and
4. non-recurring items considered individually for classification as exceptional by virtue of their nature or size.
The separate disclosure of these items allows a clearer understanding of the Group's trading performance on a consistent and comparable basis, together with an understanding of the effect of non-recurring or large individual transactions upon the overall profitability of the Group. The exceptional items arising in the current period are explained in note 10 and all fall under category 4 above. The related tax effect is also quantified and disclosed in note 14.
Deferred income
Income received from clients in respect of future periods to the transaction or reporting date are classified as deferred income within creditors until such time as value has been received by the client.
Foreign currencies
The individual financial statements of each of the Group's companies are presented in pounds sterling, which is the functional currency of the Group and the presentation currency of the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each statement of financial position date, monetary assets and liabilities that are denominated in foreign currencies are re-translated at the rates prevailing on the balance sheet date. Exchange differences arising on the settlement of monetary items, and on the re-translation of monetary items, are included in the consolidated income statement for the period. Where consideration is received in advance of revenue being recognised, the date of the transaction reflects the date the consideration is received.
Impairment of non-financial assets
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). If there is an indication of possible impairment, the recoverable amount of any affected asset (or group of related assets) is estimated and compared with its carrying amount. If the estimated recoverable amount is lower, the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is recognised immediately in profit or loss.
Property, plant and equipment
Fixtures and equipment are stated at historical cost less accumulated depreciation and provision for any impairment. Depreciation is charged so as to write-off the cost or valuation of assets over their estimated useful lives using the straight-line method on the
following bases:
Computer hardware 331/3 % per annum on cost
Computer software between 20% and 331/3 % per annum on cost
Leasehold improvements over the term of the lease under IFRS 16
Furniture and equipment 331/3 % per annum on cost
Right-of-use assets held under contractual arrangements are depreciated over the lengths of their respective contractual terms, as prescribed under IFRS 16.
The gain or loss on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income. The residual values and estimated useful life of items within property, plant and equipment are reviewed at least at each financial year end. Any shortfalls in carrying value are impaired immediately through profit or loss.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the statement of financial position date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted by the statement of financial position date. Deferred tax is charged or credited directly to the Income Statement, except when it relates to items charged or credited to 'Other Comprehensive Income' in which case the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to do so and presented as a net number on the face of the statement of financial position.
Financial assets and liabilities
Financial assets and liabilities are recognised in the Consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.
At initial recognition, the Group measures a financial asset or financial liability at its fair value plus or minus transaction costs. Transaction costs of financial assets and financial liabilities carried at fair value through profit or loss ("FVTPL") are expensed in the statement of comprehensive income. Immediately after initial recognition, an expected credit loss allowance ("ECL") is recognised for financial assets measured at amortised cost, which results in an accounting loss being recognised in profit or loss when an asset is newly originated.
The Group does not use hedge accounting.
a) Financial assets
Classification and subsequent measurement
The Group classifies its financial assets in the following measurement categories:
· Fair value through profit or loss ("FVTPL"); or
· Amortised cost.
Financial assets are classified as current or non-current depending on the contractual timing for recovery of the asset.
(i) Debt instruments
Classification and subsequent measurement of debt instruments depend on:
· the Group's business model for managing the asset; and
· the cash flow characteristics of the asset.
Business model: The business model reflects how the Group manages the assets in order to generate cash flows. That is, whether the Group's objective is solely to collect the contractual cash flows from the assets, to collect both the contractual cash flows and cash flows arising from the sale of assets, or solely or mainly to collect cash flows arising from the sale of assets. Factors considered by the Group include past experience on how the contractual cash flows for these assets were collected, how the assets' performance is evaluated, and how risks are assessed and managed.
Cash flow characteristics of the asset: Where the business model is to hold assets to collect contractual cash flows, the Group assesses whether the financial instruments' contractual cash flows represent solely payments of principal and interest ("the SPPI test"). In making this assessment, the Group considers whether the contractual cash flows are consistent with a basic lending instrument.
Based on these factors, the Group classifies its debt instruments into one of two measurement categories:
Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest ("SPPI"), and that are not designated at FVTPL, are measured at amortised cost. Amortised cost is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortisation, using the effective interest rate method, of any difference between that initial amount and the maturity amount, adjusted by any ECL recognised. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset to the gross carrying amount. Interest income from these financial assets is included within investment revenues using the effective interest rate method.
Fair value through profit or loss ("FVTPL"): Assets that do not meet the criteria for amortised cost or fair value through other comprehensive income ("FVTOCI") are measured at fair value through profit or loss.
Reclassification
The Group reclassifies debt instruments when and only when its business model for managing those assets changes. The reclassification takes place from the start of the first reporting period following the change.
Impairment
The Group assesses on a forward-looking basis the ECL associated with its debt instruments held at amortised cost. The Group recognises a loss allowance for such losses at each reporting date. On initial recognition, the Group recognises a 12-month ECL. At the reporting date, if there has been a significant increase in credit risk, the loss allowance is revised to the lifetime expected credit loss.
The measurement of ECL reflects:
· an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes;
· the time value of money; and
· reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.
The Group adopts the simplified approach to trade receivables and contacts assets, which allows entities to recognise lifetime expected losses on all assets, without the need to identify significant increases in credit risk (i.e. no distinction is needed between 12-month and lifetime expected credit losses).
(ii) Equity instruments
Investments are recognised and derecognised on a trade date basis where a purchase or sale of an investment is under a contract whose terms require delivery of the instrument within the timeframe established by the market concerned, and are initially measured at fair value.
The Group subsequently measures all equity investments at fair value through profit and loss. Changes in the fair value of financial assets at FVTPL are recognised in revenue within the Consolidated Income Statement.
(iii) Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are shown within current liabilities in the statement of financial position.
De-recognition
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
b) Financial liabilities
Classification and subsequent measurement
Financial liabilities are classified and subsequently measured at amortised cost.
Financial liabilities are derecognised when they are extinguished.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Trade payables
Trade payables are classified at amortised cost. Due to their short-term nature, their carrying amount is considered to be the same as their fair value.
Bank overdrafts
Interest-bearing bank overdrafts are initially measured at fair value and shown within current liabilities. Finance charges are accounted for on an accrual basis in profit or loss using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Share Incentive Plan ("SIP")
The Group has an incentive policy to encourage all members of staff to participate in the ownership and future prosperity of the Group. All employees can participate in the SIP following three months of service. Employees may contribute a maximum of 10% of their gross salary in regular monthly payments (being not less than £10 and not greater than £150) to acquire Ordinary Shares in the Parent Company (Partnership Shares). Partnership Shares are acquired monthly.
For the period ending 31 March 2020, for every Partnership Share purchased, the employee receives one matching share. All shares awarded under this scheme have been purchased in the market by the Trustees of the SIP.
On 1 April 2020, The Directors as part of the COVID-19 response to preserve cash and liquidity, suspended the matching option. This will continue until 31 March 2021.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the statement of financial position date, and are discounted to present value where the effect is material.
Long-term liabilities - deferred cash and shares consideration
Amounts payable to personnel under recruitment contracts in respect of the client relationships, which transfer to the Group, are treated as long-term liabilities if the due date for payment of cash consideration is beyond the period of one year after the year-end date. The value of shares in all cases is derived by a formula based on the value of client assets received in conjunction with the prevailing share price at the date of issue which in turn determines the number of shares issuable.
Share-based payments
The Group issues equity-settled share-based payments to certain self-employed personnel. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effects of non-market-based vesting conditions.
The Group also issues shares as part of deferred consideration for client relationships acquired under arrangements agreed with Investment Managers when they join the Group. Equity-settled share-based payments are awarded if Assets Under Management or revenue targets for incoming clients have been achieved. The fair value is estimated at the date of transfer of the assets and are amortised on a straight-line basis over their estimated useful lives.
As at the reporting date there were no share-based payments in issue.
Pension costs
The Group contributes to defined contribution personal pension schemes for selected employees. The contribution rate is based on annual salary and the amount is charged to the income statement on an accrual basis.
Dividends paid
Equity dividends are recognised when they become legally payable. There is no requirement to pay dividends unless approved by the shareholders by way of written resolution where there is sufficient cash to meet current liabilities, and without detriment of any financial covenants, if applicable.
IFRS 16 "Leases"
As outlined in note 2 above. The Group has adopted IFRS 16 "Leases" for the first time this period. This new standard was adopted on 1 April 2019. Under the transition method chosen, comparative information is not restated, and therefore, the revised requirements are not reflected in the prior year financial statements. Rather, these changes have been processed at the date of initial application (1 April 2019) and recognised in the opening equity balances.
Details of the impact of adoption are given below.
IFRS 16 provides a single lessee accounting model by removing the IAS 17 classification of leases as either operating or finance leases. The standard introduces a single, on-balance sheet accounting model, which requires:
· recognition of a right-of-use asset and corresponding lease liability with respect to all lease arrangements in which the Group is the lessee, except for short-term leases and leases of low value assets;
· recognition of a depreciation charge on the right-of-use asset on a straight-line basis over the shorter of the expected life of the asset and the lease term; and
· recognition of an interest charge arising from the unwinding of the discounted lease liability over the lease term.
All leases are accounted for by recognising a right-of-use asset and a lease liability except for:
· Leases of low value assets; and
· Leases with a duration of 12 months or less.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also includes:
· amounts expected to be payable under any residual value guarantee;
· the exercise price of any purchase option granted in favour of the Group if it is reasonable certain to assess that option; and
· any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.
Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:
· lease payments made at or before commencement of the lease;
· initial direct costs incurred; and
· the amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset (typically leasehold dilapidations - see note 28).
Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.
Reassessment of lease term by way of extension, exercising of break clause or termination will result in an adjustment to the carrying value of the lease liability to reflect the payments to make over the revised term.
The Group's leasing activities
The Group leases various offices, software and equipment that were recognised as right-of use assets on the application of IFRS 16. The Group's lease contracts are typically made for fixed periods of 2 to 10 years and extension and termination options are included in a number of property and software leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts.
The extensions to leases are exercisable only by the Group and not by the respective lessor. Lease terms are negotiated on an individual basis and contain a wide range of different but comparable terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.
Prior to the implementation of IFRS 16, payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease. From 1 April 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use assets are depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
· fixed payments (including in-substance fixed payments), less any lease incentives receivable;
· variable lease payment that are based on an index or a rate;
· amounts expected to be payable by the lessee under residual value guarantees;
· the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
· payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The Group, as permitted under IFRS 16 has used the incremental borrowing rate, being the rate that the Group estimates that it would have to pay to borrow funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
Right-of-use assets are measured at cost comprising the following:
· the amount of the initial measurement of lease liability;
· any lease payments made at or before the commencement date less any lease incentives received;
· any initial direct costs; and
· restoration costs.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.
The Group does not have any leasing activities acting as a lessor.
Transition method and practical expedients utilised
The Group has adopted IFRS 16 retrospectively from 1 April 2019, but has not restated comparatives for prior year ending 31 March 2019, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening statement of financial position on 1 April 2019.
The Group elected to apply the practical expedient to not reassess whether a contract is, or contains, a lease at the date of initial application. Contracts entered into before the transition date that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. The definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after 1 April 2019.
IFRS 16 provides for certain optional practical expedients, including those related to the initial adoption of the standard. The Group applied the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:
· apply a single discount rate to a portfolio of leases with reasonably similar characteristics;
· exclude initial direct costs from the measurement of right-of-use assets at the date of initial application for leases where the right-of-use asset was determined as if IFRS 16 had been applied since the commencement date;
· reliance on previous assessments on whether leases are onerous as opposed to preparing an impairment review under IAS 36 as at the date of initial application;
· applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term remaining as of the date of initial application; and
· the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
Adjustments recognised on adoption of IFRS 16
As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for most leases. However, the Group has elected not to recognise right-of-use assets and lease liabilities for some leases of low value assets based on the value of the underlying asset when new or for short-term leases with a lease term of 12 months or less.
On adoption of IFRS 16, the Group recognised right-of-use assets and lease liabilities in relation to leases of property, software and hire of equipment, which had previously been classified as operating leases. The lease liabilities were measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate as at 1 April 2019. The Group's incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. The incremental borrowing rates used by the
Group to measure lease liabilities at 1 April 2019 are listed in the table below:
|
| Incremental Borrowing Rate |
| Leased property | 3.23% |
| Hire of equipment | 2.87% |
| Software licenses | 2.87% |
In the context of transition to IFRS 16, right-of-use assets of £5,062,000 and lease liabilities of £5,366,000 were recognised as at 1 April 2019. Of these lease liabilities, £1,026,000 was due within one year and were captured within current liabilities in the statement of financial position. In addition, the Group has decided not to apply the new IFRS 16 guidance to leases whose lease term will end within 12 months of the date of initial application. In such cases, the leases are accounted for as short-term leases and the lease payments associated with them are recognised as an expense from short term leases.
The following table reconciles the minimum lease commitments disclosed in the Group's 31 March 2019 annual financial statements to the amount of lease liabilities recognised on 1 April 2019:
|
|
| As at 1 April 2019 |
|
|
| £'000 |
| Operating lease commitments disclosed as at 31 March 2019 |
| 7,214 |
| Less: Service & Maintenance element included within lease commitments |
| (997) |
| Adjusted operating lease commitments |
| 6,217 |
|
|
|
|
| Discounted using the lessee's incremental borrowing rate of at the date of initial application |
| 5,233 |
| Add: finance lease liabilities recognised as at 1 April 2019 |
| 142 |
| Less: short-term leases recognised on a straight-line basis as expense |
| (9) |
| Lease liability recognised as at 1 April 2019 |
| 5,366 |
|
|
|
|
| Of which were due: |
|
|
| Current lease liabilities |
| 1,026 |
| Non-current lease liabilities |
| 4,340 |
|
|
| 5,366 |
Details of the right-of-use assets and lease liabilities can be found in notes 20 and 29, respectively.
Judgements and estimates
IFRS 16 requires certain judgements and estimates to be made and those significant judgements are explained below.
Following a review of all leases, the Group has opted to use single discount rates for leases with reasonably similar characteristics. The discount rates used, which are listed within the above disclosure, have had an impact on the right of use assets values, lease liabilities on initial recognition and lease finance costs included within the income statement.
IFRS 16 defines a lease term as the non-cancellable period of a lease, together with the options to extend or terminate a lease, if the lessee is reasonably certain to exercise the lease options available at the time of reporting. Where a lease includes the option for the Group to extend the lease term, the Group has exercised the judgement, based on current information, that such leases will be extended to the full length available, and this is included in the calculation of the value of the right of use assets and lease liabilities on initial recognition and valuation at the reporting date.
4. Key sources of estimation uncertainty and judgements
COVID-19 - estimation and judgement
The COVID-19 pandemic is an unprecedented global event; therefore, it is somewhat difficult to predict certain outcomes, including future revenues and cash flows. The unpredictable nature of this pandemic carries a higher degree of uncertainty, but in preparing these financial statements, the Directors have used all available information and past experience in making estimates and judgements.
Impairment of goodwill - estimation and judgement
Determining whether goodwill is impaired requires an estimation of the fair value less costs to sell and the value-in-use of the cash-generating units to which goodwill has been allocated. The fair value less costs to sell involves estimation of values based on the application of earnings multiples and comparison to similar transactions. The value-in-use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and apply a discount rate in order to calculate present value. The assumptions used and inputs involve judgements and create estimation uncertainty. These assumptions have been stress-tested as described in note 17. The carrying amount of goodwill at the balance sheet date was £4.4 million (2019: £4.4 million) as shown in note 17.
Other intangible assets - judgement
Acquired client lists are capitalised based on current fair values. No acquisitions were made in the period to 31 March 2020. When the Group purchases client relationships from other corporate entities, a judgement is made as to whether the transaction should be accounted for as a business combination, or a separate purchase of intangible assets. In making this judgement, the Group assesses the acquiree against the definition of a business combination in IFRS 3. Payments to newly recruited Investment Managers are capitalised when they are judged to be made for the acquisition of client relationship intangibles. The useful lives are estimated by assessing the historic rates of client retention, the ages and succession plans of the Investment Managers who manage the clients and the contractual incentives of the Investment Managers. The Directors conduct a review of indicators of impairment and also consider a life of up to twenty years to be both appropriate and in line with peers.
IFRS 16 "Leases" - estimation and judgement
IFRS 16 requires certain judgements and estimates to be made and those significant judgements are explained below.
· Following a review of all leases, the Group has opted to use single discount rates for leases with reasonably similar characteristics. The discount rates used, which are listed within the above disclosure, have had an impact on the right of use assets values, lease liabilities on initial recognition and lease finance costs included within the income statement.
· IFRS 16 defines a lease term as the non-cancellable period of a lease, together with the options to extend or terminate a lease, if the lessee is reasonably certain to exercise the lease options available at the time of reporting. Where a lease includes the option for the Group to extend the lease term, the Group has exercised the judgement, based on current information, that such leases will be extended to the full length available, and this is included in the calculation of the value of the right of use assets and lease liabilities on initial recognition and valuation at the reporting date.
Short-Term Lending Administration - judgement
The Group provides administrative services to Special Purpose Vehicles who in turn make loans to specialist lenders in the residential housing construction industry. Having considered the requirements of IFRS 10, the Directors have also obtained independent advice to support our conclusion that no additional consolidation is required as a result of these arrangements and the structure in which the Group provides this service.
During the period, all contracts relating to Short-Term Lending Administration were novated to a new entity, Walker Crips Property Investment Limited (WCPIL), where the Group holds 33% investment. Future revenue from this division will be accounted via equity accounting method.
Provision for dilapidations - estimation and judgement
The Group has made provisions for dilapidations under six leases for its offices. The Group did not enter into any new property leases in the period. During the year, £117,000 of additional provisions were recognised, including £41,000 of interest, giving a new provision at year-end of £659,000.
5. Revenue
An analysis of the Group's revenue is as follows:
| | | | 2020 | | | 2019 |
| | | Non- | | | Non- | |
| | Broking | broking | | Broking | broking | |
| | income | income | Total | income | income | Total |
| | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Stockbroking commission | 8,095 | - | 8,095 | 8,667 | - | 8,667 |
| Fees and other revenue1 | - | 21,468 | 21,468 | - | 20,0223 | 20,022 |
| | | | | | | |
| Investment Management | 8,095 | 21,468 | 29,563 | 8,667 | 20,022 | 28,889 |
| Wealth Management, Financial Planning & Pensions | - | 1,859 | 1,859 | - | 1,7693 | 1,769 |
| Revenue | 8,095 | 23,327 | 31,422 | 8,667 | 21,791 | 30,458 |
| | | | | | | |
| Investment revenue (see note 11) | - | 76 | 76 | - | 902 | 902 |
| Total Income | 8,095 | 23,403 | 31,498 | 8,667 | 21,881 | 30,548 |
| % of total income | 25.7 | 74.3 | 100.0 | 28.4 | 71.6 | 100.0 |
1 Includes Investment Management, Structured Investments, Alternative Investments and SaaS.
2 Prior year adjusted to exclude finance costs of £3,000. See note 12 for finance costs.
3 During the period to March 2020, two teams transferred from Wealth Management to Investment management and as a result, to make the comparison more meaningful, revenue of £832,000 was transferred from Wealth Management to Investment Management.
Timing of revenue recognition
The following table presents operating income analysed by the timing of revenue recognition of the operating segment providing the service:
| | | | | Consolidated |
| | | | | year ended |
| | Investment | Wealth | | 31 March |
| | Management | Management | SaaS | 2020 |
| 2020 | £'000 | £'000 | £'000 | £'000 |
| Revenue from contracts with customers | | | | |
| Products and services transferred at a point in time | 10,269 | 410 | - | 10,679 |
| Products and services transferred over time | 16,706 | 1,449 | 1 | 18,156 |
| | | | | |
| Other revenue | | | | |
| Products and services transferred at a point in time | 280 | - | - | 280 |
| Products and services transferred over time | 2,307 | - | - | 2,307 |
| | 29,562 | 1,859 | 1 | 31,422 |
| | | | | Consolidated |
| | | | | year ended |
| | Investment | Wealth | | 31 March |
| | Management | Management | SaaS | 2019 |
| 2019 | £'000 | £'000 | £'000 | £'000 |
| Revenue from contracts with customers | | | | |
| Products and services transferred at a point in time | 10,360 | 459 | - | 10,819 |
| Products and services transferred over time1 | 16,309 | 1,250 | - | 17,559 |
| | | | | |
| Other revenue | | | | |
| Products and services transferred at a point in time | 234 | 60 | - | 294 |
| Products and services transferred over time | 1,786 | - | - | 1,786 |
| | 28,689 | 1,769 | - | 30,458 |
1 During the period to March 2020, two business segments were transferred from Wealth Management to Investment management and as a result, to make the comparison more meaningful, revenue from contracts with customers of £832,000 was transferred from Wealth Management to Investment Management.
| | Contract | Contract | Contract | Contract |
| | assets | assets | liabilities | liabilities |
| | 2020 | 2019 | 2020 | 2019 |
| | £'000 | £'000 | £'000 | £'000 |
| Brought forward | 4,623 | 4,005 | (4) | (3) |
| Amounts included in contract liabilities that was recognised | | | | |
| as revenue during the period | - | - | 4 | 3 |
| Settlement of contract assets brought forward | (4,623) | (4,005) | - | - |
| Cash received in advance of performance and not recognised | | | | |
| as revenue during the period | - | - | (3) | (4) |
| Amounts included in contract assets that was recognised | | | | |
| as revenue during the period | 4,907 | 4,623 | - | - |
| At 31 March | 4,907 | 4,623 | (3) | (4) |
6. Segmental analysis
For segmental reporting purposes, the Group currently has three operating segments; Investment Management, being portfolio-based transaction execution and investment advice; Wealth Management, being financial planning and pension advice; and Software as a Service (SaaS) comprising provision of regulatory and admin software to regulated companies. Unallocated corporate expenses, assets and liabilities are not considered to be allocateable accurately, or fairly, under any known basis of allocation and are therefore disclosed separately.
Walker Crips Investment Management's activities focus predominantly on investment management of various types of portfolios and asset classes.
Walker Crips Wealth Management provides advisory and administrative services to clients in relation to their financial planning, life insurance, inheritance tax and pension arrangements.
EnOC Technologies Limited (Saas) provides the regulatory and admin software, software as a service, to regulated companies including all WCG's regulated entities. Fees payable by subsidiary companies to EnOC Technologies Limited has been eliminated on consolidation. These companies are the basis on which the Group reports its primary segment information.
Revenues between Group entities, and in turn reportable segments, are excluded from the below analysis as part of the consolidation journals to cancel intercompany transactions and balances.
| | | | | Consolidated |
| | | | | year ended |
| | Investment | Wealth | | 31 March |
| | Management | Management | SaaS | 2020 |
| 2020 | £'000 | £'000 | £'000 | £'000 |
| Revenue | | | | |
| Revenue from contracts with customers | 26,975 | 1,859 | 1 | 28,835 |
| Other revenue | 2,587 | - | - | 2,587 |
| Total revenue | 29,562 | 1,859 | 1 | 31,422 |
| | | | | |
| Results | | | | |
| Segment result | 2,034 | 42 | (29) | 2,047 |
| Unallocated corporate expenses | | | | (955) |
| | | | | 1,092 |
| Investment revenue | | | | 76 |
| Finance costs | | | | (205) |
| Profit before tax | | | | 963 |
| Tax | | | | (245) |
| Profit after tax | | | | 718 |
| | | | | Consolidated |
| | | | | year ended |
| | Investment | Wealth | | 31 March |
| | Management | Management | SaaS | 2020 |
| 2020 | £'000 | £'000 | £'000 | £'000 |
| Other information | | | | |
| Capital additions | 444 | 14 | 109 | 567 |
| Depreciation | 520 | 70 | 13 | 603 |
| | | | | |
| Statement of financial positions | | | | |
| Assets | | | | |
| Segment assets | 42,473 | 964 | 159 | 43,596 |
| Unallocated corporate expenses | | | | 7,998 |
| Consolidated total assets | | | | 51,594 |
| | | | | |
| Liabilities | | | | |
| Segment liabilities | 23,805 | 502 | 216 | 24,523 |
| Unallocated corporate liabilities | | | | 4,427 |
| Consolidated total liabilities | | | | 28,950 |
| | | | | Consolidated |
| | | | | year ended |
| | Investment | Wealth | | 31 March |
| | Management | Management | SaaS | 2019 |
| 2019 | £'000 | £'000 | £'000 | £'000 |
| Revenue | | | | |
| Revenue from contracts with customers1 | 26,669 | 1,709 | - | 28,378 |
| Other revenue | 2,020 | 60 | - | 2,080 |
| Total revenue | 28,689 | 1,769 | - | 30,458 |
| | | | | |
| Results | | | | |
| Segment result | 1,223 | 138 | - | 1,361 |
| Unallocated corporate expenses | | | | (959) |
| | | | | 402 |
| Investment revenue | | | | 90 |
| Finance costs | | | | (3) |
| Profit before tax | | | | 489 |
| Tax | | | | (156) |
| Profit after tax | | | | 333 |
| | | | | Consolidated |
| | | | | year ended |
| | Investment | Wealth | | 31 March |
| | Management | Management | SaaS | 2019 |
| 2019 | £'000 | £'000 | £'000 | £'000 |
| Other information | | | | |
| Capital additions | 318 | 93 | - | 411 |
| Depreciation | 522 | 71 | - | 593 |
| | | | | |
| Statement of financial positions | | | | |
| Assets | | | | |
| Segment assets | 50,823 | 2,601 | - | 53,424 |
| Unallocated corporate expenses | | | | 4,547 |
| Consolidated total assets | | | | 58,975 |
| | | | | |
| Liabilities | | | | |
| Segment liabilities | 35,072 | 774 | - | 35,846 |
| Unallocated corporate liabilities | | | | 404 |
| Consolidated total liabilities | | | | 36,250 |
1 During the period to March 2020, two business segments was transferred from Wealth Management to Investment management and as a result, to make the comparison more meaningful, revenue from contracts with customers of £832,000, Segment result of £210,000 and Segment assets of £125,000 was transferred from Wealth Management to Investment Management.
7. Commissions and fees paid
Commissions and fees paid comprises:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| To authorised external agents | | 65 | 25 |
| To approved persons | | 9,706 | 9,648 |
| | | 9,771 | 9,673 |
8. Investment in joint venture and associate
Associate
The Group has a 33% (2019: nil) interest in an associate, Walker Crips Property Income Limited ("WCPIL"), a separate structured vehicle incorporated and operating in the United Kingdom.
The contractual arrangement provides the Group with only the rights to the net assets with the rights to the assets and obligation for liabilities resting primarily with WCPIL.
This investment has not been recognised for as associate in the consolidated Financial Statement of the Group for the period ending 31 March 2020, since the related results were not material for the Group.
Joint venture
In the prior year, the Group had a 50% interest in a joint venture, JWPCreers Wealth Management Limited, a regulated financial services company. The primary activity of JWPCreers Wealth Management Limited was to provide financial advice to the clients of JWPCreers LLP (a firm of accountants), who held the other 50% interest in the joint venture. The contractual arrangement provided the Group with equal rights to the net assets of the joint arrangement, with the rights to the assets and obligation regarding the liabilities resting primarily with JWPCreers Wealth Management Limited. Under IFRS 11, this joint arrangement was classified as a joint venture and was included in the consolidated financial statements using the equity method.
On 1 April 2019, Walker Crips Wealth Management Limited, a 100% owned subsidiary of the Group, increased its shareholding in JWPCreers Wealth Management Limited from 50% to 100%. In the previous financial year to 31 March 2019, this entity was a joint venture. On 2 April 2019, the entity changed its name to Walker Crips Ventures Limited.
As part of the purchase agreement, prior to the increase in shareholding, and on 1 April 2019, a dividend payment of £22,000 was paid to "A" shareholders of the joint venture, being the joint venture partner only. This saw the net assets of the joint venture decrease by £22,000 on 1 April 2019, just prior to the acquisition by WCWM on the same day. The Group's share of the decrease in net assets of half this amount is reflected in the consolidated income statement as an £11,000 share of change in net assets of the joint venture. Given the above there are no financial figures at 31 March 2020 since WCV is a subsidiary of the Group. Thus n/a is shown below.
Summarised financial information in relation to the joint venture is presented below:
| | 2020 | 2019 |
| As at 31 March | £'000 | £'000 |
| Current assets | n/a | 100 |
| Non-current assets | n/a | - |
| Current liabilities | n/a | (12) |
| Non-current liabilities | n/a | - |
| | | |
| Included in the above amounts are: | | |
| Cash and cash equivalents | n/a | 90 |
| Current financial liabilities (excluding trade payables) | n/a | (6) |
| Non-current financial liabilities (excluding trade payables) | n/a | - |
| Net assets (100%) | n/a | 88 |
| | | |
| Group share of net assets (50%) | n/a | 44 |
| Period ending 31 March | | |
| Revenue | n/a | 84 |
| Profit before tax | n/a | 28 |
| Profit after tax | n/a | 23 |
| Tax expense | n/a | 5 |
| | | |
| Total consolidated income | n/a | |
| Total consolidated income (100%) | n/a | 28 |
| Group share of total consolidated income (50%) | n/a | 14 |
| Dividends received by Group from Joint Venture | n/a | - |
| Included in the above amounts are: | n/a | - |
| Depreciation and amortisation | n/a | - |
| Interest income | n/a | - |
| Interest expense | n/a | - |
| Income tax expense (income) | n/a | - |
9. Profit for the year
Profit for the year on continuing operations has been arrived at after charging:
| | | 2020 | 2019 |
| | Note | £'000 | £'000 |
| Depreciation of property, plant and equipment | 19 | 590 | 593 |
| Depreciation of right-of-use assets | 20 | 867 | - |
| Amortisation of intangibles | 18 | 609 | 558 |
| Staff costs | 13 | 13,268 | 12,680 |
| Recharge of staff costs | | (581) | (521) |
| Settlement costs | | 1,049 | 1,012 |
| Communications | | 1,474 | 1,264 |
| Computer expenses | | 642 | 738 |
| Other expenses | | 2,785 | 2,452 |
| Auditor's remuneration | | 220 | 315 |
| Lease payment | | - | 1,274 |
| | | 20,923 | 20,365 |
A more detailed analysis of auditor's remuneration is provided below:
| | | 2020 | | 2019 |
| | £'000 | % | £'000 | % |
| Audit services | | | | |
| Fees payable to the Company's auditor for the audit of its annual accounts | 60 | 27 | 51 | 16 |
| The audit of the Company's subsidiaries pursuant to legislation - current year | 145 | 66 | 125 | 40 |
| The audit of the Company's subsidiaries pursuant to legislation - prior year | - | - | 125 | 40 |
| | | | | |
| Non-audit services | | | | |
| FCA client assets reporting | 12 | 6 | 12 | 3 |
| Interim review | 3 | 1 | 2 | 1 |
| | 220 | 100 | 315 | 100 |
10. Exceptional items
As a result of their materiality the Directors decided to disclose certain amounts separately in order to present results which are not distorted by significant items of income and expenditure.
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Changes in the value of deferred consideration | | (166) | (102) |
| Transaction cost in relation to a launch of a public issuance | | - | 134 |
| Insurance recovery of historical claim against the Group | | (209) | - |
| | | (375) | 32 |
In the period to 31 March 2020, the Group received £209,000 in respect of a disputed insurance recovery. This related to a historic claim expensed in prior periods that was resolved in the current period, following arbitration proceedings. In addition, cash consideration payable for acquired client relationships was re-assessed based on actual values and accordingly, an exceptional credit has been recorded in the year representing the reversal of an over-estimation of £166,000.
During the period to 31 March 2019, cash consideration payable on acquisition of client relationships were re-assessed based on the actual values and accordingly, an exceptional credit, being exceptional in nature and size, was recorded representing the reversal of an over-estimation of £102,000 of such consideration.
Also, during the period to 31 March 2019, a further £134,000 provision was made to cover the costs of delayed launch of a listed bond in connection with the Group's short-term lending facility business. The bond has not been launched to date, therefore Directors believe it is prudent to retain the provision until all matters relating to the launch has been resolved.
11. Investment revenues
Investment revenue comprises:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Interest on bank deposits/fixed income securities | | 59 | 67 |
| Dividends from equity investment | | 17 | 23 |
| | | 76 | 90 |
12. Finance costs
Finance costs comprises:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Interest on lease liabilities | | (157) | - |
| Interest on dilapidation provisions | | (41) | - |
| Interest on overdue liabilities | | (7) | (3) |
| Net investment revenue | | (205) | (3) |
13. Staff costs
Particulars of employee costs (including Directors) are as shown below:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Wages and salaries | | 10,909 | 10,390 |
| Social security costs | | 1,182 | 1,126 |
| Share incentive plan | | 239 | 209 |
| Other employment costs | | 938 | 955 |
| | | 13,268 | 12,680 |
Staff costs do not include commissions payable mainly to self-employed account executives, as these costs are included in total commissions payable to approved persons disclosed in note 7. At the end of the year there were 44 self-employed account executives who were approved persons of the Group (2019: 49).
The average number of staff employed during the year was:
| | | 2020 | 2019 |
| | | Number | Number |
| Executive Directors | | 2 | 3 |
| Certification and approved Staff | | 60 | 58 |
| Other staff | | 156 | 157 |
| | | 218 | 218 |
The table incorporates the new staff classification under Senior Managers and Certification Regime (SM&CR).
14. Taxation
The tax charge is based on the profit for the year of continuing operations and comprises:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| UK corporation tax at 19% (2019: 19%) | | 328 | 189 |
| Prior year adjustments | | (16) | (6) |
| Origination and reversal of timing differences during the current period | | (67) | (35) |
| Adjustment to the estimated recoverable amount of deferred tax | | - | 8 |
| | | 245 | 156 |
Corporation tax is calculated at 19% (2019: 19%) of the estimated assessable profit for the year.
The charge for the year can be reconciled to the profit per the income statement as follows:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Profit before tax | | 963 | 489 |
| Tax on profit on ordinary activities at the standard rate UK corporation tax rate of 19% (2019: 19%) | | 183 | 93 |
| | | | |
| Effects of: | | | |
| Tax rate changes for deferred tax | | (15) | 3 |
| Expenses not deductible for tax purposes | | 7 | 3 |
| Prior year adjustment | | (1) | 3 |
| Fixed asset differences | | 74 | 58 |
| Non-taxable income | | - | (4) |
| Other | | (3) | - |
| | | 245 | 156 |
Current tax has been provided at the rate of 19%. A further reduction in the rate of corporation tax to 17% was due to come into effect from April 2020, however this planned reduction was cancelled in March 2020 and on 17 March 2020 the 19% rate was again substantively enacted. Deferred tax has been provided at 19% (2019: 17%).
The exceptional credit of £375,000 (2019: cost of £32,000), disclosed separately on the consolidated income statement, is tax chargeable to the value of £71,250 (2019: tax deductible £6,000) of corporation tax. Classifying these credits/costs as exceptional has no effect on the tax liability.
15. Dividends
When determining the level of proposed dividend in any year a number of factors are taken into account including levels of profitability, future cash commitments, investment needs, shareholder expectations and prudent buffers for maintaining an adequate regulatory capital surplus. Amounts recognised as distributions to equity holders in the period:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Final dividend for the year ended 31 March 2019 of 0.33p (2018: 1.29p) per share | | 142 | 549 |
| Interim dividend for the year ended 31 March 2020 of 0.60p (2019: 0.58p) per share | | 254 | 247 |
| | | 396 | 796 |
| Proposed final dividend for the year ended 31 March 2020 of 0.00p (2019: 0.33p) per share | | - | 142 |
Subject to approval by shareholders at the Annual General Meeting held in September, the Directors do not propose to pay a final dividend this year.
16. Earnings per share
The calculation of basic earnings per share for continuing operations is based on the post-tax profit for the financial year of £718,000 (2019: £333,000) and on 42,577,328 (2019: 42,509,997) Ordinary Shares of 6 2/3 pence, being the weighted average number of Ordinary Shares in issue during the year.
No dilution to earnings per share in the current year or in the prior year.
The calculation of the basic and diluted earnings per share is based on the following data:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Earnings for the purpose of basic earnings per share being net profit attributable to equity holders of the Parent | | 718 | 333 |
| Earnings for the purposes of diluted earnings per share | | 718 | 333 |
Number of shares
| | | 2020 | 2019 |
| | | Number | Number |
| Weighted average number of Ordinary Shares for the purposes of basic earnings per share | | 42,577,328 | 42,509,997 |
| Weighted average number of Ordinary Shares for the purposes of diluted earnings per share | | 42,577,328 | 42,509,997 |
This produced basic earnings per share of 1.69 pence (2019: 0.78 pence) and diluted earnings per share of 1.69 pence (2019: 0.78 pence).
17. Goodwill
| | | | £'000 |
| Cost | | | |
| At 1 April 2018 | | | 7,056 |
| At 1 April 2019 | | | 7,056 |
| At 31 March 2020 | | | 7,056 |
| | | | |
| Accumulated impairment | | | |
| At 1 April 2018 | | | 2,668 |
| At 1 April 2019 | | | 2,668 |
| Impaired during the year | | | - |
| At 31 March 2020 | | | 2,668 |
| | | | |
| Carrying amount | | | |
| At 31 March 2020 | | | 4,388 |
| At 31 March 2019 | | | 4,388 |
Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefit from that business combination or intangible asset. The carrying amount of goodwill has been allocated as follows:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| London York Fund Managers Limited CGU (London York) | | 2,901 | 2,901 |
| Barker Poland Asset Management LLP CGU (BPAM) | | 1,487 | 1,487 |
| | | 4,388 | 4,388 |
The recoverable amounts of the CGUs have been determined based upon value-in-use calculations for the London York CGU and fair value less costs of disposal for the BPAM CGU.
The London York computation was based on discounted five-year cash flow projections and terminal values. The key assumptions for these calculations are a pre-tax discount rate of 12%, terminal growth rates of 1.75% and the expected changes to revenues and costs during the five year projection period based on discussions with senior Management, past experience, future expectations in light of anticipated market and economic conditions, comparisons with our peers and widely available economic and market forecasts. The pre-tax discount rate is determined by Management based on current market assessments of the time value of money and risks specific to the London York CGU. The base value-in-use cash flows were stress tested for an increase in discount rates to 16% and a 20% fall in net inflows resulting in no impairment.
The discount rate would need to increase to 27.6% for the London York CGU value in use to equal the respective carrying values. Revenues would need to fall by £456,000 per annum in present value terms for the London York CGU value in use to equal the respective carrying values.
The BPAM CGU recoverable amount was assessed, in accordance with IAS 36, by adopting the higher method of the fair value less cost of disposal to determine the recoverable amount (as opposed to the lower value in use). The recoverable amount at the year-end calculated for the BPAM CGU, determined by the fair value less cost of disposal, exceeded that produced by the value-in-use calculation. The fair value less cost of disposal amounted to £4.7 million (2019: £4.9 million) with headroom, after selling costs, of £0.9 million after applying price earnings multiples based on the average of the Group's and its peers' published results. Accordingly, this measurement is classified as fair value hierarchy Level 3 being directly based on observable market data. A 20% decrease in BPAM's profit after tax would result in potential impairment of £136,000. Profit before tax would have to drop by £60,000 per annum before an impairment is required.
The impairment assessment of both CGU's gives due consideration to the implications of COVID-19 and has been assessed in line with Group's going concern assessment, therefore after careful consideration, Management has concluded that there is no impairment to goodwill.
18. Other intangible assets
| | Unit trust | | | |
| | management | Software | | |
| | contracts | licences | Client lists | Total |
| | £'000 | £'000 | £'000 | £'000 |
| Cost | | | | |
| At 1 April 2018 | 240 | 44 | 10,531 | 10,815 |
| Disposal of fully depreciated intangible assets | (240) | - | - | (240) |
| Additions in the year | - | - | (7) | (7) |
| At 1 April 2019 | - | 44 | 10,524 | 10,568 |
| Disposal of fully depreciated intangible assets | - | - | - | - |
| Additions in the year | - | - | 48 | 48 |
| At 31 March 2020 | - | 44 | 10,572 | 10,616 |
| | | | | |
| Amortisation | | | | |
| At 1 April 2018 | 240 | 7 | 2,741 | 2,988 |
| Eliminated on disposal of fully depreciated intangible assets | (240) | - | - | (240) |
| Charge for the year | - | 9 | 549 | 558 |
| At 1 April 2019 | - | 16 | 3,290 | 3,306 |
| Charge for the year | - | 9 | 600 | 609 |
| At 31 March 2020 | - | 25 | 3,890 | 3,915 |
| | | | | |
| Carrying amount | | | | |
| At 31 March 2020 | - | 19 | 6,682 | 6,701 |
| At 31 March 2019 | - | 28 | 7,234 | 7,262 |
The intangible assets are amortised over their estimated useful lives. 'Unit trust management contracts' are amortised over ten years but are no longer in use. 'Client lists' are amortised over three to twenty years and 'Software Licenses' are amortised over five years. There are no indications that the value attributable to client lists should be impaired.
19. Property, plant and equipment
| | Leasehold | | | |
| | improvements, | | | |
| | furniture and | Computer | Computer | |
| | equipment | software | hardware | Total |
| Owned fixed assets | £'000 | £'000 | £'000 | £'000 |
| Cost | | | | |
| At 1 April 2018 | 2,765 | 2,355 | 1,312 | 6,432 |
| Disposal of fully depreciated assets | (182) | - | - | (182) |
| Additions | 151 | 213 | 47 | 411 |
| At 1 April 2019 | 2,734 | 2,568 | 1,359 | 6,661 |
| Re-classification of initial software build costs to software lease liabilities | - | (58) | - | (58) |
| Additions | 99 | 283 | 76 | 458 |
| At 31 March 2020 | 2,833 | 2,793 | 1,435 | 7,061 |
| Accumulated depreciation | | | | |
| At 1 April 2018 | 762 | 1,882 | 1,082 | 3,726 |
| Eliminated on disposal of fully depreciated assets | (178) | - | - | (178) |
| Charge for the year | 296 | 160 | 137 | 593 |
| At 1 April 2019 | 880 | 2,042 | 1,219 | 4,141 |
| Charge for the year | 183 | 265 | 148 | 596 |
| Re-classification of depreciation charge on IFRS 16 re-classified assets | - | (6) | - | (6) |
| At 31 March 2020 | 1,063 | 2,301 | 1,367 | 4,731 |
| Carrying amount | | | | |
| At 31 March 2020 | 1,770 | 492 | 68 | 2,330 |
| At 31 March 2019 | 1,854 | 526 | 140 | 2,520 |
20. Right-of-use assets
| | | | Computer | Computer | |
| | | Offices | software | hardware | Total |
| Right-of-use assets held under leasing arrangements under IFRS 16 | | £'000 | £'000 | £'000 | £'000 |
| Cost | | | | | |
| Recognised on adoption of IFRS 16 on 1 April 2019 | | 4,601 | 366 | 95 | 5,062 |
| Lease reassessment | | - | 25 | - | 25 |
| Additions | | - | 142 | - | 142 |
| At 31 March 2020 | | 4,601 | 533 | 95 | 5,229 |
| Accumulated depreciation | | | | | |
| 1 April 2019 | | - | - | - | - |
| Charge for the year | | 660 | 187 | 20 | 867 |
| At 31 March 2020 | | 660 | 187 | 20 | 867 |
| Carrying amount | | | | | |
| At 31 March 2020 | | 3,941 | 346 | 75 | 4,362 |
| At 31 March 2019 | | - | - | - | - |
21. Investments
Non-current asset investments
| | | Investments at | |
| | | fair value through | |
| | | profit or loss | Total |
| | | £'000 | £'000 |
| At 31 March 2019 | | 51 | 51 |
| At 31 March 2020 | | 51 | 51 |
The Group's investments include £11,000 of life policies and £40,000 unregulated collective investment scheme ("UCIS") investments held in relation to a number of customer complaints.
Current asset investments
| | | As at | As at |
| | | 31 March | 31 March |
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Trading investments | | | |
| Investments - fair value through profit or loss | | 638 | 1,005 |
Financial assets at fair value through profit or loss represent investments in equity securities and collectives that present the Group with opportunity for return through dividend income, interest and trading gains. The fair values of these securities are based on quoted market prices.
The following provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. The Group's financial assets held at fair value through profit and loss under current assets fall within this category;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). The Group does not hold financial instruments in this category; and
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The Group's financial assets held at fair value through profit and loss under non-current assets fall within this category.
| | Level 1 | Level 2 | Level 3 | Total |
| | £'000 | £'000 | £'000 | £'000 |
| At 31 March 2020 | | | | |
| Financial assets held at fair value through profit and loss | 638 | - | 51 | 689 |
| | | | | |
| At 31 March 2019 | | | | |
| Financial assets held at fair value through profit and loss | 1,005 | - | 51 | 1,056 |
Further IFRS 13 disclosures have not been presented here as the balance represents 1.336% (2019: 1.822%) of total assets. There were no transfers of investments between any of the Levels of hierarchy during the year.
22. Trade and other receivables
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Amounts falling due within one year: | | | |
| Due from clients, brokers and recognised stock exchanges at amortised cost | | 16,184 | 27,030 |
| Other debtors at amortised cost | | 2,380 | 3,063 |
| Prepayments and accrued income | | 5,951 | 5,692 |
| | | 24,515 | 35,785 |
23. Cash and cash equivalents at amortised cost
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Short-term cash deposits held at bank, repayable on demand with penalty | | - | 3,250 |
| Cash deposits held at bank, repayable on demand without penalty | | 8,609 | 3,666 |
| | | 8,609 | 6,916 |
Cash and cash equivalents do not include deposits of client monies placed by the Group with banks and building societies in segregated client bank accounts (free money and settlement accounts). All such deposits are designated by the banks and building societies as clients' funds and are not available to satisfy any liabilities of the Group.
The amount of such net deposits which are not included in the consolidated statement of financial position at 31 March 2020 was £305,300,000 (2019: £300,600,000).
The credit quality of banks holding the Group's cash at 31 March 2020 is analysed below with reference to credit ratings awarded by Fitch.
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| A+ | | 5,221 | 2,659 |
| A | | 1,829 | 1,122 |
| AA- | | - | 3,135 |
| A- | | 1,558 | - |
| Unrated or held in cash | | 1 | - |
| | | 8,609 | 6,916 |
24. Deferred tax liability
| | | | Short-term | |
| | | | temporary | |
| | | Capital | differences | |
| | | allowances | and other | Total |
| | | £'000 | £'000 | £'000 |
| At 1 April 2018 | | 23 | (364) | (341) |
| Use of loss brought forward | | - | 37 | 37 |
| Debit to the income statement | | (10) | (3) | (13) |
| At 1 April 2019 | | 13 | (330) | (317) |
| Use of loss brought forward | | - | 78 | 78 |
| (Debit)/credit to the income statement | | (78) | 67 | (11) |
| Debit to the statement of comprehensive income | | - | (85) | (85) |
| At 31 March 2020 | | (65) | (270) | (335) |
A further reduction in the rate of corporation tax to 17% was due to come into effect from April 2020, however this planned reduction was cancelled in March 2020 and on 17 March 2020 the 19% rate was again substantively enacted. Deferred tax has been provided at 19% (2019: 17%).
25. Bank overdrafts at amortised cost
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Bank overdrafts | | - | (127) |
26. Financial instruments and risk profile
Financial risk management
Procedures and controls are in place to identify, assess and ultimately control the financial risks faced by the Group arising from its use of financial instruments. Steps are taken to mitigate identified risks with established and effective procedures and controls, efficient systems and the adequate training of staff.
The Group's risk appetite, along with the procedures and controls mentioned above, are laid out in the Group's Internal Capital Adequacy Assessment Process document prepared in accordance with the requirements of the Financial Conduct Authority (FCA).
The overall risk appetite for the Group is considered by Management to be low, despite operating in a marketplace where financial risk is inherent in investment management and financial services.
The Group considers its financial risks arising from its use of financial instruments to fall into three main categories:
(i) credit risk;
(ii) liquidity risk; and
(iii) market risk.
Financial risk management is a central part of the Group's strategic management which recognises that an effective risk management programme can increase a business's chances of success and reduce the possibility of failure. Continual assessment, monitoring and updating of procedures and benchmarks are all essential parts of the Group's risk management strategy.
(i) Credit risk management practices
The Group's credit risk is the risk of loss through default by a counterparty and, accordingly, the Group's definition of default is primarily attributable to its trade receivables or pledged collateral which is the risk that a client, market counterparty or recognised stock exchange will be unable to pay amounts to settle a trade in full when due. Other credit risks, such as free delivery of securities or cash, are not deemed to be significant. Significant changes in the economy or a particular sector could result in losses that are different from those that the Group has provided for at the year-end date.
All financial assets at the year-end were assessed for credit impairment and no material amounts have arisen having evaluated the age of overdue debtors, the quality of recourse to third parties and the availability of mitigation through the disposal of liquid collateral in the form of marketable securities. The Group's write-off policy is driven by the historic dearth of instances where material irrecoverable losses have been incurred. Where the avenues of recourse and mitigation outlined above have not been successful, the outstanding balance, or residual balance if sale proceeds do not fully cover an exposure, will be written off.
The Board is responsible for oversight of the Group's credit risk. The Group accepts a limited exposure to credit risk but aims to mitigate and minimise the risk through various methods. There is no material concentrated credit risk as the exposures are spread across a substantial number of clients and counterparties.
Trade receivables (includes settlement balances)
Settlement risk arises in any situation where a payment of cash or transfer of a security is made in the expectation of a corresponding delivery of a security or receipt of cash. Settlement balances arise with clients, market counterparties and recognised stock exchanges.
In the vast majority of cases, control of the stock purchased will remain with the Group until client monetary balances are fully settled.
Where there is an absence of securities collateral, clients are usually required to hold sufficient funds in their managed deposit account prior to the trade being conducted. Holding significant amounts of client money helps the Group to manage credit risks arising with clients. Many of our clients also hold significant amounts of stock and other securities in our nominee subsidiary company, providing additional security should a specific transaction fail to be settled and the proceeds of such securities disposed of can be used to settle all outstanding obligations.
In addition, the client side of settlement balances are normally fully guaranteed by our commission-sharing certification persons who conduct transactions and manage the relationships with our mutual clients.
Exposures to market counterparties also arise in the settlement of trades or when collateral is placed with them to cover open trading positions. Market counterparties are usually other FCA-regulated firms and are considered creditworthy, some reliance being placed on the fact that other regulated firms would be required to meet the stringent capital adequacy requirements of the FCA.
Maximum exposure to credit risk:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Cash | | 8,609 | 6,916 |
| Trade receivables | | 16,184 | 27,030 |
| Other debtors | | 2,380 | 3,063 |
| Accrued income | | 56 | 23 |
| | | 27,229 | 37,032 |
An ageing analysis of the Group's financial assets is presented in the following table:
| | | 0 - 1 | 2 - 3 | Over 3 | Carrying |
| | Current | month | months | months | value |
| At 31 March 2020 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Trade receivable | 14,559 | 1,547 | 60 | 18 | 16,184 |
| Cash and cash equivalent | 8,609 | - | - | - | 8,609 |
| Other debtors | 2,265 | 134 | - | 37 | 2,436 |
| | 25,443 | 1,681 | 60 | 55 | 27,229 |
Expected credit loss
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables and contract assets. To measure expected credit losses on a collective basis, trade receivables and contract assets are grouped based on similar credit risk and aging. The contract assets have similar risk characteristics to the trade receivables for similar types of contracts.
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.
The Group undertake a daily assessment of credit risk which includes monitoring of client and counterparty exposure and credit limits. New clients are individually assessed for their credit worthiness using external ratings where available and all institutional relationships are monitored at regular intervals.
As at 31 March 2020, the Directors of the Company reviewed and assessed the Group's existing assets for impairment using the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables and contract assets and no additional impairments have been recognised. No material defaults are anticipated.
Concentration of credit risk
In addition, daily risk management procedures to actively monitor disproportionately large trades by a customer or market counterparty are in place. The financial standing, pattern of trading, type and size of security or instrument traded are amongst the factors taken into consideration.
(ii) Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when they fall due.
Historically, sufficient underlying cash has been prevalent in the business for many years as the Group is normally cash-generative. The risk of unexpected large cash outflows could arise where large amounts are being settled daily of which only a fraction forms the commission earned by the Group. This could be due to clients settling late or bad deliveries to the market or CREST, also resulting in a payment delay from the market side.
The Group's policy with regard to liquidity risk is to carefully monitor balance sheet structure and borrowing limits, including:
· monitoring of cash positions on a daily basis;
· exercising strict control over the timely settlement of trade debtors; and
· exercising strict control over the timely settlement of market debtors and creditors.
The Group holds its cash and cash equivalents spread across a number of highly rated financial institutions. All cash and cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash without penalty.
All the regulated Group subsidiaries are subject to the provisions of FCA Liquidity standards if they are within the scope of the rules in the FCA Handbook chapter IFPRU 7.
The table below analyses the Group's cash outflow based on the remaining period to the contractual maturity date.
| | | | Less than | |
| | | | 1 year | Total |
| 2020 | | | £'000 | £'000 |
| Trade and other payables | | | 22,750 | 22,750 |
| | | | 22,750 | 22,750 |
| | | | | |
| 2019 | | | | |
| Bank overdrafts | | | 127 | 127 |
| Trade and other payables | | | 34,095 | 34,095 |
| | | | 34,222 | 34,222 |
Future contracted undiscounted cash flows for deferred cash consideration amounts to £15,000, and is shown in long-term liabilities.
(iii) Market risk
Market risk is the risk that changes in market prices such as foreign exchange rates or equity prices, on financial assets and liabilities will affect the Group's results. They relate to price risk on fair value through profit or loss trading investments and are subject to ongoing monitoring.
Fair value of financial instruments
The fair values of the Group's financial assets and liabilities are not materially different from their carrying values as they have been revalued at 31 March 2020 using closing market prices.
A 10% fall in global equity markets would, in isolation, result in a pre-tax decrease to net assets of £63,800 (2019: £100,500). A 10% rise would have an equal and opposite effect.
The impact of foreign exchange and interest rate risk is not material and is therefore not presented.
27. Trade and other payables
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Amounts owed to clients, brokers and recognised stock exchanges | | 15,167 | 25,781 |
| Other creditors | | 3,548 | 4,021 |
| Contract liability | | 3 | 4 |
| Accrued expenses | | 4,032 | 4,289 |
| | | 22,750 | 34,095 |
Trade creditors and accruals comprise amounts outstanding for investment-related transactions, to customers or counterparties, and ongoing costs. The average credit period taken for purchases in relation to costs is ten days (2019: thirteen days). The Directors consider that the carrying amount of trade payables approximates to their fair value.
28. Provisions
Provisions included in other current liabilities and long-term liabilities are made up as follows:
| | 2020 | | |
| | Claims / | 2020 | |
| | complaints | Dilapidations | Total |
| | £'000 | £'000 | £'000 |
| At start of year | 484 | 542 | 1,026 |
| Additions | 1 | 117 | 118 |
| Utilisation of provision | (258) | - | (258) |
| Unused amounts reversed during the year | (49) | - | (49) |
| | 178 | 659 | 837 |
Claims/complaints
These provisions relate to outstanding claims and complaints from third parties which, in the opinion of the Board, need providing for after taking into account the risks and uncertainties surrounding each claim or complaint. The timing of these settlements is unknown but it is expected that they will be resolved within twelve months.
Dilapidations
The Group, based on revised estimates, has made an additional provision of £117,000 for dilapidations in connection with acquired leasehold premises (2019: nil). These costs are expected to arise at the end of each respective lease. Provisions for dilapidations payable on leases after more than one year amounted to £659,000.
The Group has six leased properties, all of which have contractual dilapidation requirements. The dilapidation provisions in relation to these leases range from net present values as at the year-end of £10,000 to £528,000 per lease.
29. Lease liabilities
| | | Computer | Computer | |
| | Offices | software | hardware | Total |
| Lease liabilities | £'000 | £'000 | £'000 | £'000 |
| Cost | | | | |
| Recognised on adoption of IFRS 16 on 1 April 2019 | 4,916 | 362 | 88 | 5,366 |
| Additions | - | 142 | - | 142 |
| Adjustments* | - | 25 | - | 25 |
| Interest | 147 | 8 | 2 | 157 |
| Lease payments | (854) | (231) | (16) | (1,101) |
| At 31 March 2020 | 4,209 | 306 | 74 | 4,589 |
* Adjustments relates to new services added to existing leases recognised on 1 April 2019.
| | | 2020 | 2019 |
| Lease liabilities profile (statement of financial position) | | £'000 | £'000 |
| Amounts due within one year | | 969 | - |
| Amounts due after more than one year | | 3,620 | - |
| | | 4,589 | - |
| | | 2020 | 2019 |
| Undiscounted lease maturity analysis | | £'000 | £'000 |
| Within one year | | 1,099 | - |
| Between one and two years | | 942 | - |
| Between two and five years | | 2,643 | - |
| Over five years | | 1,496 | - |
| Total undiscounted lease liabilities | | 6,180 | - |
30. Called-up share capital
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Called-up, allotted and fully paid | | | |
| 43,327,328 (2019: 43,327,328) Ordinary Shares of 6 2/3 p each | | 2,888 | 2,888 |
The Group's Articles were amended in 2010 since when there has been no authorised share capital. Shareholders have no restrictions on their holdings except for certain Investment Managers who were awarded shares in the Group soon after joining as part of the consideration for their client relationships. These holdings cannot be sold for a period of four to six years from commencement date.
In the prior year, 409,598 new Ordinary Shares were issued and allotted to various personnel associated with the Group in order to meet contractual commitments made by the Group as part of the ongoing expansion of its client base. All shares issued to personnel under recruitment contracts are restricted from sale for periods between four to six years.
The following movements in share capital occurred during the year:
| | Number of | Share | Share | |
| | Shares | capital | premium | Total |
| | | £'000 | £'000 | £'000 |
| At 1 April 2018 | 42,917,730 | 2,861 | 3,674 | 6,535 |
| Shares issued to personnel | 409,598 | 27 | 89 | 116 |
| At 1 April 2019 | 43,327,328 | 2,888 | 3,763 | 6,651 |
| At 31 March 2020 | 43,327,328 | 2,888 | 3,763 | 6,651 |
The Group's capital is defined for accounting purposes as total equity. As at 31 March 2020, this totalled £22,644,000 (2019: £21,721,000). The increase during the year was attributable the impact of adopting IFRS 16 on 1 April 2019, profit for the year less dividends paid.
The Group's objectives when managing capital are to:
· safeguard the Group's ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders;
· maintain a strong capital base in a cost-efficient manner to be able to support the development of the business when required;
· optimise the distribution of capital across the Group's subsidiaries, reflecting the requirements of each company;
· strive to make capital freely transferable across the Group where possible; and
· comply with regulatory requirements at all times.
Walker Crips Group plc is classified for capital purposes as an investment management group and performs an Internal Capital Adequacy Assessment Process ("ICAAP"), which is presented to the FCA on request. Regulatory capital resources for ICAAP purposes are calculated in accordance with published rules. These require certain adjustments to and certain deductions from accounting capital, the latter largely in respect of intangible assets. The ICAAP compares regulatory capital resources against regulatory capital requirements derived using the FCA's Pillar 1 and Pillar 2 methodology.
The Group has adopted the standardised approach to calculating its Pillar 1 credit risk component and the basic indicator approach to calculating its operational risk component. Capital management policy and practices are applied at both Group and entity level.
In addition to a variety of stress tests performed as part of the ICAAP process, and daily reporting in respect of treasury activity, capital levels are monitored and forecast to ensure that dividends and investment requirements are appropriately managed and appropriate buffers are kept against adverse business conditions.
Regulatory capital
No breaches were reported to the FCA during the financial years ended 31 March 2019 and 2020.
The Group holds 750,000 of its own shares, purchased for total cash consideration of £312,000. In line with the principles of IAS 32 these treasury shares have been deducted from equity. No gain or loss has been recognised in the income statement in relation to these shares.
31. Reserves
Apart from share capital and share premium, the Group holds reserves at 31 March 2020 under the following categories:
| Own shares held | (£312,000) (2019: (£312,000)) | - the negative balance of the Group's own shares, which have been bought back and held in treasury. |
| Retained earnings | £11,582,000 (2019: £10,659,000) | - the net cumulative earnings of the Group, which have not paid out as dividends, retained to be reinvested in our core, or developing, companies. |
| Other reserves | £4,723,000 (2019: £4,723,000) | - the cumulative premium on the issue of shares as deferred consideration for corporate acquisitions. |
32. Cash generated/(used) by operations
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Operating profit for the year | | 1,092 | 402 |
| Adjustments for: | | | |
| Amortisation of intangibles | | 609 | 558 |
| Changes in the fair value of deferred consideration | | (166) | (102) |
| Loss on sale of tangible fixed asset | | - | 4 |
| Net change in fair value of financial instruments at fair value through profit or loss* | | 367 | 91 |
| Share of change in net assets of joint venture | | 11 | (14) |
| Depreciation of property, plant and equipment | | 590 | 593 |
| Depreciation of right-of-use assets | | 867 | - |
| Decrease in debtors** | | 11,044 | 1,642 |
| Decrease in creditors** | | (10,884) | (3,805) |
| | | | |
| Change in working capital as a result of net effects of acquiring a subsidiary and disposal of a joint venture | | | |
| De recognition of joint venture asset now fully acquired | | (44) | - |
| Trade and other payables | | (12) | - |
| Trade and other receivables | | 9 | - |
| Net cash inflow / (outflow) | | 3,483 | (631) |
* Mark to market loss on year end positions reflecting market declines in March 2020.
** £160,000 cash inflow from working capital movement (prior year, an out flow of £2,163,000).
33. Financial commitments
Capital commitments
At the end of the year, there were capital commitments of £ nil (2019: £ nil) contracted but not provided for and £ nil (2019: £ nil) capital commitments authorised but not contracted for.
Lease commitments
Prior to 1 April 2019, all Group leases were classified as operating leases. The future aggregate minimum lease payments under non-cancellable operating leases prior to the implementation of IFRS 16 were:
| | | | 2019 |
| | | | £'000 |
| Within one year | | | 1,445 |
| Within two to five years | | | 3,742 |
| More than five years | | | 2,027 |
34. Related parties
Directors and their close family members have dealt on standard commercial terms with the Group. The commission and fees earned by the Group included in revenue through such dealings is as follows:
| | 2020 | 2019 |
| | £'000 | £'000 |
| Commission and fees received from Directors and their close family members | 14 | 10 |
Other related parties include Charles Russell Speechlys, of which M. J. Wright, Non-Executive Director, is a Partner. Charles Russell Speechlys provides certain legal services to the Group on normal commercial terms and the amount paid and expensed during the year (including the fees paid to the firm for Mr. Wright's services as Director) was £84,000 (2019: £181,000), including administrative expenses or other receivables if the costs are reimbursable.
Commission of £4,746 (2019: £3,354) was earned by the Group from Phillip Securities (HK) Limited (a Phillip Brokerage Pte Limited company, where H. M. Lim is a shareholder) having dealt on standard commercial terms. Additionally, some custody services are provided by Phillip Securities Pte Ltd (in Singapore, where H. M. Lim is a Director), again all on standard commercial terms, both these items being included in revenue. Transactions between the Group and its subsidiaries, which are related parties, have been eliminated on consolidation and are accordingly not disclosed. Remuneration of the Directors who are the key Management personnel of the Group are disclosed in the table opposite.
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Key management personnel compensation | | | |
| Short-term employee benefits | | 446 | 590 |
| Post-employment benefits | | 34 | 45 |
| Termination benefits | | - | 86 |
| Share-based payment | | 7 | 9 |
| | | 487 | 730 |
35. Effect of changes in accounting policies
Impact on Financial Statements on adoption
Right-of use assets were initially measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 31 March 2019. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.
The following illustrates the impact on the income statement on the adoption of IFRS 16:
| | | | | | | 31 March |
| | 31 March | | | | | 2020 |
| | 2020 | | Finance | | Other | under |
| | as reported | Rents | costs | Depreciation | adjustments | IAS 17 |
| | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Revenue | 31,422 | - | - | - | - | 31,422 |
| Commission and fees paid | (9,771) | - | - | - | - | (9,771) |
| Share of after tax profit from joint venture | (11) | - | - | - | - | (11) |
| Gross profit | 21,640 | - | - | - | - | 21,640 |
| Administrative expenses | (20,923) | (855) | - | 861* | 19** | (20,898) |
| Exceptional items | 375 | - | - | - | - | 375 |
| Operating profit | 1,092 | (855) | - | 861 | 19 | 1,117 |
| Investment revenue | 76 | - | - | - | - | 76 |
| Finance costs | (205) | - | 157 | - | - | (48) |
| Profit before tax | 963 | (855) | 157 | 861 | 19 | 1,145 |
| Taxation | (245) | - | - | - | - | (245) |
| Profit for the period attributable to equity holders of the Parent Company | 718 | (855) | 157 | 861 | 19 | 900 |
* This depreciation is the net effect of the depreciation charges relating to the new right-of-use assets and the existing depreciation treatment of items adjusted for as a result of the application of IFRS 16.
** This adjustment relates to the revised treatment of irrecoverable VAT on certain rental invoices as a result of the application of IFRS 16.
The recognised right-of-use assets split between asset classes and on 1 April 2019 and 31 March 2020 can be seen in note 20.
The change in accounting policy affected the following items in the statement of financial position on 1 April 2019:
· Right-of-use assets - increase by £5,062,000;
· Prepayments - decrease by £239,000 regarding rental prepayments;
· Accrued expenses - decrease by £621,000 regarding the rent-free period;
· Current liabilities - decrease by £63,000 regarding the landlord contribution;
· Non-current Lease liabilities - decrease by £460,000 regarding the landlord contribution;
· Current liabilities - increase by £1,026,000 regarding lease liabilities within one year;
· Non-current Lease liabilities - increase by £4,340,000 regarding lease liabilities after one year.
The net impact on retained earnings on 1 April 2019 was an increase of £601,000.
The table below presents the impact of adopting IFRS 16 on the statement of financial position as at 1 April 2019:
| | | As at 1 April 2019 |
| | | £'000 |
| Right-of-Use Assets on 1 April 2019 (based on lease liabilities) | | 5,366 |
| Adjustments: | | |
| Derecognition of Landlord Contribution | | (523) |
| Reclassification of prepaid expenses | | 219 |
| Total right-of-use Assets on 1 April 2019 after all adjustments | | 5,062 |
| | | As at 1 April 2019 |
| | | £'000 |
| Irrecoverable VAT reversal of prepayments | | (20) |
| Reduction in accrued expenses (derecognition of rent-free period) | | 621 |
| Net increase in retained earnings | | 601 |
Included in profit or loss for the period are £867,000 of depreciation of right-of-use assets and £157,000 of finance expenses on lease liabilities. The Group did not classify any leases as low value leases.
The lease liabilities outstanding as at 31 March 2020 are disclosed in note 29.
36. Contingent liability
Occasionally the Group receives complaints that are considered without merit, but the final outcome sometimes falls outside the Group's control. Where such claims are not covered by the Group's indemnity insurance, for example due to an excess or coverage dispute, a contingent liability arises. However, where in the view of the Directors a negative outcome is considered to be remote no disclosure has been made in these financial statements.
37. Subsequent events
There are no material events arising after 31 March 2020, which have an impact on these financial statements.
COVID-19 is a significant in-year event, the impact of which is likely to be felt for an unquantifiable number of months or even years. The Investment and Wealth Management market in which the Group operates is a resilient market with a good track record of early recovery. However, the Group has considered the immediate consequences and ramifications of the pandemic and, accordingly, has already taken some early steps to protect the Group, our client service and our employees.
Business Continuity Plans are in place across the Group's operating segments, with measures to manage and continue client service, operational efficiency and staff welfare whilst significant portion of our staff continue to work remotely from home. We continue to review this approach on a daily basis in line with Government guidance.
38. Long-term liabilities - deferred cash consideration
| | 2020 | 2019 |
| | £'000 | £'000 |
| Amounts due to personnel under recruitment contracts/acquisition agreements | 15 | 47 |
These amounts are based on fixed contractual terms and the fair value of the liability approximates carrying value, due to the consistency of the prevailing market rate of interest when compared to the inception of liability.
Company balance sheet
As at 31 March 2020
| | | 2020 | 2019 |
| | Note | £'000 | £'000 |
| Non-current assets | | | |
| Other intangible assets | 43 | 3,556 | 3,879 |
| Property, plant and equipment | 42 | 1,420 | 1,556 |
| Investments measured at cost less impairment | 44 | 17,425 | 17,425 |
| | | 22,401 | 22,860 |
| Current assets | | | |
| Trade and other receivables | 45 | 737 | 770 |
| Deferred tax asset | 46 | 179 | 224 |
| Cash and cash equivalents | | 141 | 269 |
| | | 1,057 | 1,263 |
| Total assets | | 23,458 | 24,123 |
| | | | |
| Current liabilities | | | |
| Trade and other payables | 47 | (2,363) | (2,314) |
| | | (2,363) | (2,314) |
| Net current liabilities | | (1,306) | (1,051) |
| | | | |
| Long-term liabilities | | | |
| Deferred cash consideration | 50 | (15) | (47) |
| Dilapidation provision | 50 | (554) | (450) |
| Landlord contribution to leasehold improvements | 50 | (398) | (460) |
| | | (967) | (957) |
| Net assets | | 20,128 | 20,852 |
| | | | |
| Equity | | | |
| Share capital | 49 | 2,888 | 2,888 |
| Share premium account | 49 | 3,763 | 3,763 |
| Own shares | 49 | (312) | (312) |
| Retained earnings | 49 | 9,066 | 9,790 |
| Other reserves | 49 | 4,723 | 4,723 |
| Equity attributable to equity holders of the Parent Company | | 20,128 | 20,852 |
As permitted by section 408 of the Companies Act 2006 the Parent Company has elected not to present its own profit and loss account for the year. Walker Crips Group plc reported a loss for the financial year of £328,000 (2019: profit of £1,690,000).
The financial statements of Walker Crips Group plc (Company registration no: 01432059) were approved by the Board of Directors and authorised for issue on 31 July 2020.
Signed on behalf of the Board of Directors:
S. S. Dandeniya FCCA
Director
31 July 2020
Company statement of changes in equity
year ended 31 March 2020
| | Called up | Share | Own | | | |
| | share | premium | shares | | Retained | Total |
| | capital | account | held | Other | earnings | equity |
| | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Equity as at 31 March 2018 | 2,861 | 3,674 | (312) | 4,668 | 8,896 | 19,787 |
| Total comprehensive income for the period | - | - | - | - | 1,690 | 1,690 |
| Contributions by and distributions to owners | | | | | | |
| Dividends paid | - | - | - | - | (796) | (796) |
| Issue of shares on acquisition of intangibles and | | | | | | |
| as deferred consideration | 27 | 89 | - | 55 | - | 171 |
| Total contributions by and distributions to owners | 27 | 89 | - | 55 | (796) | (625) |
| Equity as at 31 March 2019 | 2,888 | 3,763 | (312) | 4,723 | 9,790 | 20,852 |
| Total comprehensive income for the period | - | - | - | - | (328) | (328) |
| Contributions by and distributions to owners | | | | | | |
| Dividends paid | - | - | - | - | (396) | (396) |
| Total contributions by and distributions to owners | - | - | - | - | (396) | (396) |
| Equity as at 31 March 2020 | 2,888 | 3,763 | (312) | 4,723 | 9,066 | 20,128 |
Notes to the Company accounts
year ended 31 March 2020
39. Significant accounting policies
The separate financial statements of Walker Crips Group plc, the Parent Company, are presented as required by the Companies Act 2006.
The financial statements have been prepared under the historical cost convention except for the modification to a fair value basis for certain financial instruments as specified in the accounting policies below, and in accordance with Financial Reporting Standard (FRS 102), the Financial Reporting Standard applicable in the UK and the Republic of Ireland, and the Companies Act 2006.
The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires Management to exercise judgement in applying the Parent Company's accounting policies (see note 40).
The financial statements are presented in the currency of the primary activities of the Parent Company (its functional currency). For the purpose of the financial statements, the results and financial position are presented in pounds sterling (£). The principal accounting policies have been summarised below. They have all been applied consistently throughout the year and the preceding year.
The Parent Company has chosen to adopt the disclosure exemption in relation to the preparation of a cash flow statement under FRS 102.
Property, plant and equipment
Fixtures and equipment are stated at historical cost less accumulated depreciation and provision for any impairment. Depreciation is charged so as to write-off the cost or valuation of assets over their estimated useful lives using the straight-line method on the following bases:
Computer hardware 331/3 % per annum on cost
Computer software between 20% and 331/3 % per annum on cost
Leasehold improvements over the term of the lease
Furniture and equipment 331/3 % per annum on cost
The gain or loss on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income. The residual values and estimated useful life of items within property, plant and equipment are reviewed at least at each financial year end. Any shortfalls in carrying value are impaired immediately through profit or loss.
Intangible assets
Client lists
Client lists are recognised when it is probable that future economic benefits will flow to the Parent Company and the cost of the asset can be measured reliably whilst the risk and rewards have also transferred into the Parent Company's ownership.
Intangible assets classified as client lists are recognised when acquired as part of a business combination or when separate payments are made to acquire clients' assets by adding teams of Investment Managers.
The cost of acquired client lists and businesses generating revenue from clients and Investment Managers are capitalised. These costs are amortised on a straight-line basis over their expected useful lives of three to twenty years. The amortisation period and amortisation method for intangible assets are reviewed at least each financial year end. All intangible assets have a finite useful life.
During the year, a review of the Company's intangible assets resulted in the revision of the UEL of an acquired client list. The Truro client list, which had an estimated UEL of 16.25 years as at 31 March 2019, was revised to 11.25 years. As it was a change in accounting estimate, this revision and the resultant change in annual amortisation for this intangible asset was applied prospectively, beginning with a new annual amortisation charge for this asset in the current financial year.
The revised amortisation charge in respect of this intangible asset was £143,000 in the current year and the annual charge expected for the remaining UEL of the asset. The charge in prior year was £99,000.
Impairment of non-financial assets
At each reporting date, the Parent Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). If there is an indication of possible impairment, the recoverable amount of any affected asset (or group of related assets) is estimated and compared with its carrying amount. If the estimated recoverable amount is lower, the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is recognised immediately in profit or loss.
Taxation
The tax expense represents the sum of the tax currently payable and any deferred tax.
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid or recovered using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Current tax charges arising on the realisation of revaluation gains recognised in the statement of comprehensive income are also recorded in this statement.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.
A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax assets and liabilities are not discounted.
Own shares held
Own shares consist of treasury shares which are recognised at cost as a deduction from equity shareholders' funds. Subsequent consideration received for the sale of treasury shares is also recognised in equity with any difference being taken to retained earnings. No gain or loss is recognised on sale of treasury shares.
Financial instruments
Financial assets and financial liabilities are recognised in the balance sheet when the Parent Company becomes a party to the contractual provisions of the instrument. Section 11 of FRS 102 has been applied in classifying financial instruments depending on the nature of the instrument held.
Revenue
Income consists of interest received or accrued over time and dividend income recorded when received.
Investments in subsidiaries
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. The fair valuation of the Parent Company's basic financial instrument investments is based upon the underlying market price and volatility which may be subject to fluctuation from year to year (see note 44 for further information).
Debtors
Other debtors are classified as basic financial instruments and measured at initial recognition at transaction price. Debtors are subsequently measured at amortised cost using the effective interest rate method. A provision is established when there is objective evidence that the Group will not be able to collect all amounts due.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits, together with other short-term highly liquid investments, which are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Parent Company after deducting all of its liabilities. Equity instruments issued by the Parent Company are recorded at the proceeds received, net of direct issue costs.
Share-based payments
The Parent Company makes share based payments to certain self-employed account executives of a subsidiary within the Group, the share-based payment is accounted for as an intangible in the respective subsidiary.
As at the reporting date there were no share-based payments in issue.
Shares to be issued
Shares to be issued represent the Parent Company's best estimate of the Ordinary Shares in the Parent Company which are likely to be issued following business combinations or the acquisition of client relationships which involve deferred payments in the Parent Company's shares. Where shares are due to be issued within a year, the sum is included in current liabilities. Shares to be issued are dependent on the achievement of predefined targets and are treated as a liability until they are allotted and issued. The Parent Company had recognised as a liability the sum which has been issued and allotted to personnel associated with the Parent Company in order to meet contractual commitments given as part of the recent expansion of its client base. There were no transactions recognised in relation to this in the current year.
Leases
Rentals under operating leases are charged on a straight-line basis over the lease term even if the payments are not made on such a basis. Benefits received as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
Going concern
After conducting enquiries, the Directors believe that the Parent Company has adequate resources to continue in existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. The Parent Company's business activities, together with the factors likely to affect its future development, performance and position, has been rigorously assessed (see note 2).
40. Key sources of estimation uncertainty and judgements
The preparation of financial statements in conformity with generally accepted accounting practice requires Management to make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period.
Intangible assets
Acquired client lists are capitalised based on current fair values. By assessing the historic rates of client retention, the ages and succession plans of the Investment Managers who manage the clients and the contractual incentives of the Investment Managers, the Directors consider a life of up to twenty years to be both appropriate and in line with our peers. There were no acquisitions made in the period to 31 March 2020. Additions in the period relates to existing client lists and are disclosed in note 43.
The determination of what constitutes 'observable' requires significant judgement by the Directors when using peer comparisons to rationalise our assessments. The Directors consider observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, provided by multiple, independent sources that are actively involved in the relevant market.
41. Profit/loss for the year
Loss for the financial year of £328,000 (2019: profit of £1,690,000) is after an amount of £60,000 (2019: £51,000) related to the auditor's remuneration for audit services to the Parent Company.
Particulars of employee costs (including Directors) are as shown below:
Employee costs during the year amounted to:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Employee costs during the year amounted to: | | | |
| Wages and salaries | | 170 | 176 |
| Social security costs | | 14 | 15 |
| Other costs | | 4 | 7 |
| | | 188 | 198 |
In the current year, employee costs are those of the Non-Executive Directors, a proportion of Executive Directors and the cost of the Group's profit share scheme. The remaining Executive Director Employee costs are borne by Walker Crips Investment Management Limited.
The monthly average number of staff employed during the year was:
| | | 2020 | 2019 |
| | | Number | Number |
| Executive Directors | | 2 | 3 |
| Non-Executive Directors | | 4 | 4 |
| | | 6 | 7 |
42. Property, plant and equipment
| | Leasehold | | |
| | improvements, | | |
| | furniture and | Computer | |
| | equipment | software | Total |
| | £'000 | £'000 | £'000 |
| Cost | | | |
| At 1 April 2019 | 2,125 | 858 | 2,983 |
| Additions | 67 | - | 67 |
| At 31 March 2020 | 2,192 | 858 | 3,050 |
| | | | |
| Amortisation | | | |
| At 1 April 2019 | 569 | 858 | 1,427 |
| Charge for the year | 203 | - | 203 |
| At 31 March 2020 | 772 | 858 | 1,630 |
| | | | |
| Net book value | | | |
| At 31 March 2020 | 1,420 | - | 1,420 |
| At 31 March 2019 | 1,556 | - | 1,556 |
43. Other intangible assets
| | | Client lists | Total |
| | | £'000 | £'000 |
| Cost | | | |
| At 1 April 2019 | | 5,055 | 5,055 |
| Additions | | 21 | 21 |
| At 31 March 2020 | | 5,076 | 5,076 |
| | | | |
| Amortisation | | | |
| At 1 April 2019 | | 1,176 | 1,176 |
| Charge for the year | | 344 | 344 |
| At 31 March 2020 | | 1,520 | 1,520 |
| | | | |
| Net book value | | | |
| At 31 March 2020 | | 3,556 | 3,556 |
| At 31 March 2019 | | 3,879 | 3,879 |
44. Fixed asset investments
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Subsidiary undertakings | | 17,425 | 17,425 |
A complete list of subsidiary undertakings can be found in note 55.
45. Trade and other receivables
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Amounts owed by Group undertakings | | 436 | 492 |
| Prepayments and accrued income | | 8 | 28 |
| Other debtors | | 293 | 250 |
| | | 737 | 770 |
A presentational change was made in this note to exclude the deferred tax asset from this grouping and to present it in its own line on the face of the statement of financial position. The deferred tax asset is presented separately in note 46.
46. Deferred taxation
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| At 1 April | | 224 | 140 |
| Use of losses brought forward | | - | - |
| Use of Group Relief | | (86) | - |
| Credit to the income statement | | 41 | 84 |
| As at 31 March | | 179 | 224 |
A further reduction in the rate of corporation tax to 17% was due to come into effect from April 2020, however this planned reduction was cancelled in March 2020 and on 17 March 2020 the 19% rate was again substantively enacted. Deferred tax has been provided at 19% (2019: 17%).
47. Trade and other payables
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Accruals and deferred income | | 99 | 117 |
| Amounts due to subsidiary undertakings | | 2,195 | 1,950 |
| Other creditors | | 69 | 247 |
| | | 2,363 | 2,314 |
48. Risk management policies
Procedures and controls are in place to identify, assess and ultimately control the financial risks faced by the Parent Company arising from its use of financial instruments. Steps are taken to mitigate identified risks with established and effective procedures and controls, efficient systems and the adequate training of staff.
The Parent Company's risk appetite, along with the procedures and controls mentioned above, are laid out in the Group's Internal Capital Adequacy Assessment Process document prepared in accordance with the requirements of the Financial Conduct Authority ("FCA").
The overall risk appetite for the Parent Company and for the Group as a whole is considered by Management to be low, despite operating in a market-place where financial risk is inherent in the core businesses of Investment Management and financial services.
The Group considers its financial risks arising from its use of financial instruments to fall into three main categories:
(i) credit risk;
(ii) liquidity risk; and
(iii) market risk.
Further information on the disclosures and policies carried out by the Parent Company and the Group are made in note 26 of the consolidated financial statements.
(i) Credit risk
Maximum exposure to credit risk:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Cash | | 141 | 269 |
| Other debtors | | 293 | 250 |
| As at 31 March | | 434 | 519 |
The credit quality of banks holding the Group's cash at 31 March 2020 is analysed below with reference to credit ratings awarded by Fitch.
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| A+ | | 11 | 224 |
| A | | - | 45 |
| AA- | | 130 | - |
| As at 31 March | | 141 | 269 |
Analysis of other debtors due from financial institutions:
| | | | | 2020 | 2019 |
| | | | | £'000 | £'000 |
| Neither past due, nor impaired | | | | 293 | 250 |
| Amounts past due, but not impaired | < 30 Days | | | - | - |
| | > 30 Days | | | - | - |
| | > 3 Months | | | - | - |
| As at 31 March | | | | 293 | 250 |
(ii) Liquidity risk
The tables below analyse the Parent Company's future undiscounted cash outflows based on the remaining period to the contractual maturity date:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Creditors due within one year | | 2,363 | 2,314 |
| Creditors due after more than one year | | 569 | 497 |
| As at 31 March | | 2,932 | 2,811 |
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Within one year | | 2,363 | 2,314 |
| Within two to five years | | 15 | 47 |
| After more than five years | | 554 | 450 |
| As at 31 March | | 2,932 | 2,811 |
(iii) Market risk
Market risk is the risk that changes in market prices such as foreign exchange rates or equity prices will affect the Group's income.
These relate to price risk breached on available-for-sale and trading investments and closely monitored using limits to prevent significant losses.
Fair value of financial instruments
No financial instruments at fair value were held by the Parent Company in the current or prior financial year.
49. Called-up share capital
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Called-up, allotted and fully paid | | | |
| 43,327,328 (2019: 43,327,328) Ordinary Shares of 6 2/3 p each | | 2,888 | 2,888 |
No new shares were issued in the year to 31 March 2020. In the prior year, 409,598 new Ordinary Shares were issued and allotted to various personnel associated with the Parent Company in order to meet contractual commitments made by the Parent Company as part of the ongoing expansion of its client base.
The Parent Company holds 750,000 of its own shares, purchased for a total cash consideration of £312,000. In line with the principles of FRS 102, section 11, these treasury shares have been deducted from equity. No gain or loss has been recognised in the profit and loss account in relation to these shares.
The following movements in share capital occurred during the year:
| | | Share | Share | |
| | Number | capital | premium | Total |
| | of shares | £'000 | £'000 | £'000 |
| At 1 April 2018 | 42,917,730 | 2,861 | 3,674 | 6,535 |
| Issue of shares on acquisition of intangibles and as deferred consideration | 409,598 | 27 | 89 | 116 |
| At 1 April 2019 | 43,327,328 | 2,888 | 3,763 | 6,651 |
| At 31 March 2020 | 43,327,328 | 2,888 | 3,763 | 6,651 |
Walker Crips is classified for capital purposes as an Investment Management group and performs an Internal Capital Adequacy Assessment Process (ICAAP), which is presented to the FCA on request. Regulatory capital resources for ICAAP purposes are calculated in accordance with published rules. These require certain adjustments to and certain deductions from accounting capital, the latter largely in respect of intangible assets. The ICAAP compares regulatory capital resources against regulatory capital requirements derived using the FCA's Pillar 1 and Pillar 2 methodology. The Group has adopted the standardised approach to calculating its Pillar 1 credit risk component and the basic indicator approach to calculating its operational risk component. Capital management policy and practices are applied at both Group and entity level.
In addition to a variety of stress tests performed as part of the ICAAP process, and daily reporting in respect of treasury activity, capital levels are monitored and forecast to ensure that dividends and investment requirements are appropriately managed and appropriate buffers are kept against adverse business conditions.
Apart from share capital and share premium, the Parent Company holds reserves at 31 March 2020 under the following categories:
| Own shares held | (£312,000) (2019: (£312,000)) | - the negative balance of the Parent Company's own shares, which have been bought back and held in treasury. |
| Retained earnings | £9,066,000 (2019: £9,790,000) | - the net cumulative earnings of the Parent Company, which have not paid out as dividends, retained to be reinvested in our core, or new, business. |
| Other reserves | £4,723,000 (2019: £4,723,000) | - the cumulative premium on the issue of shares as deferred consideration for corporate acquisitions. |
50. Creditors: amounts falling due after more than one year
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Dilapidation provision | | 554 | 450 |
| Landlord contribution to leasehold improvements | | 398 | 460 |
| Deferred cash consideration | | 15 | 47 |
| | | 967 | 957 |
51. Financial commitments
Capital commitments
At the end of the year, there were capital commitments of £ nil (2019: £ nil) contracted but not provided for and £ nil (2019: £ nil) capital commitments authorised but not contracted for.
Lease commitments
The annual commitments under non-cancellable operating leases fall due as follows:
| | | 2020 | 2019 |
| | | £'000 | £'000 |
| Within one year | | 765 | 763 |
| Within two to five years | | 2,616 | 2,775 |
| More than five years | | 1,390 | 1,976 |
52. Related party transactions
Key Management are those persons having authority and responsibility for planning, controlling and directing the activities of the Parent Company and Group. In the opinion of the Board, the Parent Company and Group's key Management are the Directors of Walker Crips Group plc.
Total compensation to key Management personnel is £487,000 (2019: £730,000).
53. Contingent liability
Occasionally the Company receives complaints that are considered without merit, but the final outcome sometimes falls outside the Company's control. Where such claims are not covered by the Group's indemnity insurance, for example due to an excess or coverage dispute, a contingent liability arises. However, where in the view of the Directors a negative outcome is considered to be remote no disclosure has been made in these financial statements.
54. Subsequent events
There are no material events arising after 31 March 2020, which have an impact on these financial statements.
COVID-19 is a significant in-year event, the impact of which is likely to be felt for an unquantifiable number of months or even years. The Investment and Wealth Management market in which the Group operates is a resilient market with a good track record of early recovery. However, the Group has considered the immediate consequences and ramifications of the pandemic and, accordingly, has already taken some early steps to protect the Group, our client service and our employees.
Business Continuity Plans are in place across the Group's operating segments, with measures to manage and continue client service, operational efficiency and staff welfare whilst significant portion of our staff continue to work remotely from home. We continue to review this approach on a daily basis in line with Government guidance.
55. Subsidiaries and jointly-owned entities
| | Principal place of business | Principal activity | Class and percentage of shares held |
| Group | | | |
| Trading subsidiaries | | | |
| Walker Crips Investment Management Limited1 | United Kingdom | Investment management | Ordinary Shares 100% |
| London York Fund Managers Limited3 | United Kingdom | Management services | Ordinary Shares 100% |
| Walker Crips Wealth Management Limited3 | United Kingdom | Financial services advice | Ordinary Shares 100% |
| Ebor Trustees Limited3 | United Kingdom | Pensions management | Ordinary Shares 100% |
| EnOC Technologies Limited1 | United Kingdom | Financial regulation and other software | Ordinary Shares 100% |
| Barker Poland Asset Management LLP1 | United Kingdom | Investment management | Membership 100% |
| | | | |
| Non-trading subsidiaries | | | |
| Walker Crips Financial Services Limited1 | United Kingdom | Financial services | Ordinary Shares 100% |
| G & E Investment Services Limited3 | United Kingdom | Holding company | Ordinary Shares 100% |
| Ebor Pensions Management Limited3 | United Kingdom | Dormant company | Ordinary Shares 100% |
| Investorlink Limited1 | United Kingdom | Agency stockbroking | Ordinary Shares 100% |
| Walker Cambria Limited1 | United Kingdom | Dormant company | Ordinary Shares 100% |
| Walker Crips Trustees Limited1 | United Kingdom | Dormant company | Ordinary Shares 100% |
| W.B. Nominees Limited2 | United Kingdom | Nominee company | Ordinary Shares 100% |
| WCWB (PEP) Nominees Limited2 | United Kingdom | Nominee company | Ordinary Shares 100% |
| WCWB (ISA) Nominees Limited2 | United Kingdom | Nominee company | Ordinary Shares 100% |
| WCWB Nominees Limited2 | United Kingdom | Nominee company | Ordinary Shares 100% |
| Walker Crips Consultants Limited1 | United Kingdom | Dormant company | Ordinary Shares 100% |
| Walker Crips Ventures Limited3 | United Kingdom | Financial services advice | Ordinary Shares 100% |
| | | | |
| Jointly-owned entities | | | |
| Walker Crips Property Income Limited1 | United Kingdom | Holding company | Ordinary Shares 33.3% |
The registered office for companies and associated undertakings is:
1 Old Change House, 128 Queen Victoria Street, London, England, EC4V 4BJ.
2 St James House, 27-43 Eastern Road, Romford, Essex, England, RM1 3NH.
3 Apollo House, Eboracum Way, York, England, YO31 7RE.
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