Walker Crips Group plc

Notes to the condensed consolidated financial statements

For the six months ended 30 September 2022

1.    General information

Walker Crips Group plc ("the Company") is the Parent Company of the Walker Crips group of companies ("the Group").  The Company is a public limited company incorporated in England and Wales under the Companies Act 2006. The Company's registered office is at Old Change House, 128 Queen Victoria Street, London EC4V 4BJ.

2.    Basis of preparation and significant accounting policies

Basis of preparation

The Group's consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS").  These condensed financial statements are presented in accordance with IAS 34 Interim Financial Reporting.  They do not include all disclosures that would otherwise be required in a complete set of financial statements; however, selected explanatory notes are included for events and transactions that are significant to an understanding of the Group's financial position and performance.

The condensed consolidated financial statements have been prepared on the basis of the accounting policies and methods of computation set out in the Group's consolidated financial statements for the year ended 31 March 2022 and therefore should be read in conjunction with the Group's audited financial statements for that year.  The interim financial information is unaudited and does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.

The Group's financial statements for the year ended 31 March 2022 have been reported on by the auditors and delivered to the Registrar of Companies.  The report of the auditors was unqualified and did not draw attention to any matters by way of emphasis.  They also did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.  The interim financial information has neither been audited nor reviewed pursuant to guidance issued by the Audit Procedures Board.

The interim condensed consolidated financial statements are presented in GBP sterling (£) and are rounded to the nearest thousand, unless stated otherwise.

Going concern

The Directors are satisfied that the Group has sufficient resources to continue in operation for a period of at least twelve months from the date of this report.  Accordingly, the Directors continue to adopt the going concern basis in preparing the condensed consolidated financial statements.

As at 30 September 2022, the Group had net assets of £21.7 million (31 March 2022: £22.1 million), net current assets of £11.5 million (31 March 2022: £11.1 million) and net cash and cash equivalents of £10.6 million (31 March 2022: £11.1 million).  The Group reported an operating profit of £162,000 for the period to 30 September 2022 (30 September 2021: £120,000), and net cash generated from operating activities of £25,000 (30 September 2021: 213,000).

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 the following into account:

-      Capital structure and liquid resources;

-      Trading performance in the six-month period to 30 September 2022;

-      The base case and stressed cash flow forecasts over the financial reporting periods ending 31 March 2023 and 31 March 2024;

-      Stress tests, including reversed stress test scenarios, to assess the Group's ability to withstand significant market-wide events; and

-      The principal risks facing the Group.

Key assumptions that the Directors have made in preparing the base case cash flow forecasts are that:

-      Revenues reflect the impact of (i) reduced trading activity, (ii) higher retained interest income from managing client deposits, (iii) no further significant impact from the pandemic other than that already known, and (iv) the FTSE 100 index remaining at the lower 7000 range for a large part of the next 12 months; and

-      Base case costs prudently reflect only the actions Management has taken to date and inflation of 10% over the period to 31 March 2024

Key stress scenarios that the Directors have considered include:

-      A 'bear stress scenario' representing a 10% fall in income compared to the base case scenario in reporting periods ending 31 March 2023 and 31 March 2024;

-      A 'severe stress scenario' representing a 20% fall in commission income and 15% fall in fee income compared to the base case for each forecast period; and

-      Both stress scenarios assume no mitigating actions.

Our reverse stress testing further indicates that revenues would have to decline by 25.4% over the next 18 months compared to base case to reach our liquidity and pillar 1 regulatory capital ratio thresholds.  These reverse stresses make no allowance for any mitigating actions available to the Group and the Directors consider them to be remote scenarios.

Although the pandemic remains a risk, the Directors believe that the stress conditions assessed demonstrate the Group's financial resilience and operating flexibility.  At the report date, the Directors were not aware of any material uncertainties that would cast doubt over the Group's ability to continue as a going concern.

Taxation

The tax charge in the income statement represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on the taxable profit for the period.  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.  The amount of taxable profit in the current period has been estimated.

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 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.

Use of estimates and judgements

Estimates and judgements used in the preparation of these interim condensed consolidated financial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable.

There have been no material revisions to the nature and amounts of estimates of numbers reported in prior periods.  The effects of COVID-19 have not made any significant changes to various methodologies adopted by the Group in assessing judgments and estimates made in the preparation of these interim condensed consolidated financial statements.

Key sources of estimates and judgements that have a significant impact on the carrying values of assets and liabilities are discussed below:

Impairment of goodwill - estimation and judgement

The Group tests biannually whether goodwill allocated to each of the cash-generating units have suffered any impairment.  Impairment tests are carried out more frequently if there are events or changes in circumstances that indicate that the carrying amount of the asset may exceed the recoverable amount.

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 and inputs involve judgements and create estimation uncertainty.

The last annual test was performed for the six months ending 30 September 2022.  The carrying amount of goodwill at the statement of financial position date was £4.4 million (31 March 2022: £4.4 million).

Other intangible assets - judgement

Acquired client lists are capitalised based on current fair values.  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 industry peers.

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.

No intangible asset acquisitions were made in the period to 30 September 2022.

Provisions - estimation and judgement

The Group has made provisions for dilapidations under four leases for its offices. The Group did not enter into any new property leases in the period but terminated two of its existing lease agreements.  The amounts of the provisions are, where possible, estimated using quotes from professional building contractors.  The property, plant and equipment elements of the dilapidations are depreciated over the terms of their respective leases.  The obligations in relation to dilapidations are inflated using an estimated rate of inflation and discounted using appropriate gilt rates to present value.  The change in liability attributable to inflation and discounting is recognised in interest expense.

Remaining provisions made at the year ended 31 March 2022 in relation to upgrading our financial crime control framework and customer redress and associated costs have been transferred to trade and other payables given the progress made during the period in resolving these matters.

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 have had an impact on the right-of-use asset values, lease liabilities on initial recognition and lease finance costs included within the income statement and statement of financial position.

-      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.

3.    Changes in significant accounting policies

The accounting policies applied in these interim condensed consolidated financial statements are consistent with those applied in the Group's consolidated financial statements as at and for the year ended 31 March 2022.

4.    Revenue and 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.

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 ("EnOC") provides cloud-based software solutions to our business partners including all Walker Crips Group's regulated entities.  Fees payable by subsidiary companies to EnOC have been eliminated on consolidation.

These activities are the basis on which the Group reports its primary segment information.  Unallocated corporate expenses are disclosed separately.  Revenues between Group entities and reportable segments are excluded from the below analysis.

5.    Earnings per share

The calculation of basic earnings per share for continuing operations is based on the post-tax profit for the period of £117,000 (2021: post-tax profit of £44,000) and on 42,577,328 (2021: 42,577,328) ordinary shares of 6 2/3p, being the weighted average number of ordinary shares in issue during the period.  There is no dilution applicable to the current period.

6.    Dividends

The interim dividend of 0.25 pence per share (2021: 0.30 pence per share) is payable on 20 January 2023 to shareholders on the register at the close of business on 6 January 2023.  The associated ex-dividend date is 5 January 2023.  The interim dividend has not been included as a liability in this interim report.

7.    Total income

The Group's income can also be categorised as follows for the purpose of measuring a key performance indicator; the ratio of non-broking income to total income.

8.    Commissions and fees paid

 Commissions and fees paid comprise:

9.  Investment in associate

Associate

The Group disposed of its 33.33% interest in its associate, Walker Crips Property Income Limited ("WCPIL"), in the previous financial year.

10.      Exceptional items

As a result of their materiality, the Directors disclose certain amounts separately in order to present results which are not distorted by significant non-recurring events. There are no reported exceptional items for the six months to 30 September 2022.

During the year to 31 March 2022, the following items were classified as exceptions due to their materiality and non-recurring nature.

a)   Completion of the Group's restructuring and redundancy activity commenced during the pandemic;

b)   The Group received compensation under a confidential settlement agreement, without admission of liability by either party in relation to a dispute;

c)   The estimated costs of an independent review and resulting actions to remediate and enhance the Group's financial crime framework;

d)   The estimated costs for redress and related costs resulting from the actions of an associate.

e)   The Group disposed of its 33.33% interest in its associate, Walker Crips Property Income Limited ("WCPIL").

11.      Tax

Tax is charged at 19% for the six months ended 30 September 2022 (2021: 19%) representing the best estimate of the average annual effective tax rate expected to apply for the full year, applied to the pre-tax income of the six-month period.

12.      Non-current investments - fair value through profit or loss

In the year to 31 March 2022, the Group's investment in unregulated collective investment schemes ("UCIS") was written down to £nil.

13.      Current investments - fair value through profit or loss

Financial assets at fair value through profit or loss represent investments in equity securities and collectives that present the Group with an opportunity for a return through dividend income, interest and trading gains.  The fair values of these securities are based on quoted market prices.

14.      Fair values

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 majority of trading investments 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).  A small population of trading investments fall within this category.

The following tables analyse within the fair value hierarchy to the Group's investments measured at fair value.

Further IFRS 13 disclosures have not been presented here as the balance represents 2.550% (2021: 1.922%) of total assets.

15.      Cash generated from operations

* £1,559,000 cash outflow from working capital movement (30 September 2021: £768,000 outflow; 31 March 2022: £2,257,000 inflow).

16.      Contingent liability

From time to time, the Group receives complaints or undertakes past business reviews, the outcomes of which remain uncertain and/or cannot be reliably quantified based upon information available and circumstances falling outside the Group's control.  Accordingly, contingent liabilities arise, the ultimate impact of which may also depend upon availability of recoveries under the Group's indemnity insurance and other contractual arrangements.  Other than the complaints deemed to be probable, the Directors presently consider a negative outcome to be remote or a reliable estimate of the amount of a possible obligation cannot be made.

17.      Subsequent events

There are no material events arising after 30 September 2022, which have an impact on these unaudited financial statements.

Directors' responsibility statement

The Directors confirm that to the best of their knowledge:

(a)   The condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;

(b)   The half-year Chairman's Statement (constituting the interim management report) includes a fair review of the information required by DTR 4.2.7R; and

(c)   The half-year Chairman's Statement includes a fair review of the information required by DTR 4.2.8R as far as applicable.

On behalf of the Board

Sean Lam

Chief Executive Officer

23 December 2022

Walker Crips Group plc