Final Results
04/05/2023 14:46
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RNS Number : 4718Y Curtis Banks Group PLC 04 May 2023
4 May 2023
Curtis Banks Group PLC
("Curtis Banks" or the "Group")
Final Results for the 12 Months to 31 December 2022
Curtis Banks (AIM: CBP), one of the UK's leading SIPP providers, announces its
final results for the 12 months to 31 December 2022.
Financial Highlights
· Group revenue increased by 7.6% to £68.1m (2021: £63.3m)
· Pension administration fee income steadied at £45.3m (2021:
£45.1m)
· Interest income associated with pension administration increased
to £15.1m (2021: £8.3m)
· FinTech revenue decreased to £7.7m (2021: £9.9m)
· Group adjusted operating margin1 of 24.1% (2021: 23.5%1)
· Pension administration adjusted operating margin of 25.5% (2021:
23.9%)
· FinTech adjusted operating margin of 15.4% (2021: 21.9%),
reflecting one-off lower key client activity
· Adjusted profit before tax1 increased by 10.0% to £15.4m (2021:
£14.0m1)
· Loss before tax of £3.7m (2021: Profit before tax of £9.3m),
impacted by a £11.5m goodwill impairment charge relating to Dunstan Thomas
· Adjusted diluted EPS1 increased to 18.7p (2021: 16.9p1)
Operational Highlights
· Total Full and Mid SIPPs increased to 56,929 (2021: 55,971),
reflecting continued positive product range appeal
· Net growth in Full and Mid SIPPs of 1.7% (2021: 1.8%)
· Gross organic growth in Full and Mid SIPP plan numbers of 6.4%
(2021: 7.9%)
· Attrition rate on Full and Mid SIPPs reduced to 4.7% (2021: 6.1%)
reflecting initiatives taken by management to improve service levels across
the Group
· Assets under Administration ("AuA") decreased by 4.3% to £35.8bn
(2021: £37.4bn) due to external market movements
Post-period Highlights
· On 6 January 2023, the boards of Curtis Banks Group PLC, and
Nucleus Clyde Acquisition Limited ('Bidco'), a wholly-owned subsidiary of
Nucleus Financial Platforms Limited ('Nucleus'), announced that they have
reached agreement on the terms of a recommended cash offer by Bidco to acquire
the entire issued share capital of Curtis Banks for 350 pence per share
· On 27 February 2023, Curtis Banks's shareholders voted in favour
of the proposed acquisition. Both parties are progressing the relevant
regulatory and court approval processes and the acquisition is expected to
complete, subject to these approvals, in the summer of 2023
· The transaction - which is expected to complete in the coming
months - will create a leading financial planning and retirement-focused
adviser platform in the UK, with combined Assets Under Administration of
c.£80bn
Key Performance Indicators Year ended 31 December 2022 Year ended 31 December 2021
Financial
Revenue £68.1m £63.3m
Adjusted profit before tax1 £15.4m £14.0m
(Loss) / Profit before tax £(3.7m) £9.3m
Adjusted operating margin1 24.1% 23.5%
Diluted EPS (10.1p) 11.5p
Adjusted diluted EPS1 18.7p 16.9p
Operational Highlights
Number of Full and Mid SIPPs Administered 56,929 55,971
Assets under Administration £35.8bn £37.4bn
Total organic new Full & Mid SIPPs 3,602 4,329
Gross organic growth in Full & Mid SIPPs 6.4% 7.9%
Attrition rate on Full & Mid SIPPs 4.7% 6.1%
Number of properties administered 8,890 9,065
1 In addition to statutory IFRS performance measures, the Group has presented
a number of non-statutory alternative performance measures ("APMs"). The Board
believes that the APMs used give a more representative view of the underlying
performance of the Group and enhance comparability of information between
reporting periods. APMs are identified in the definitions at the end of this
announcement.
David Barral, Non-Executive Chairman of Curtis Banks, commented:
"These are resilient results that demonstrate the strength of Curtis Banks'
business model against a volatile market backdrop. The Group increased the
size of its core SIPP book, added new adviser relationships and recorded good
growth in revenue and underlying profitability.
"The modest growth in the core Full and Mid SIPP business was supported by a
pleasing reduction in customer attrition, reflecting the measures taken to
improve service levels across the business. In addition, the Group benefitted
from the tailwind of interest income, which nearly doubled to £15.1 million,
and our fixed-fee, inflation-linked pricing model, which continued to protect
the business from macroeconomic pressures. The FinTech business continued to
face commercial challenges in 2022, as outlined in the interim results,
however the current year has started well and we remain optimistic over its
medium-term prospects.
"The Board recognises the strategic value of being part of a larger group with
enhanced scale and efficiencies. The proposed acquisition by Nucleus, which
received shareholder approval in February, is an opportunity for Curtis Banks
to be part of a leading retirement-focused adviser platform with approximately
£80 billion of assets under administration. It will see us expand our
offering, leverage the strengths of the combined Group, and deliver enhanced
value to our advisers, customers and shareholders."
Enquiries:
Curtis Banks Group PLC +44 (0)117 910 7910
David Barral, Non-Executive Chairman
Peter Docherty, Interim Chief Executive Officer
Dan Cowland, Chief Financial Officer
Peel Hunt LLP (Nominated Adviser & Joint Broker) +44 (0)207 418 8900
Andrew Buchanan
James Steel
Singer Capital Markets (Joint Broker) +44 (0)20 7496 3000
Rick
Thompson
James Moat
Instinctif Partners (Financial PR) curtisbanks@instinctif.com (mailto:curtisbanks@instinctif.com) / +44 7949
939237
Tim
Linacre
Victoria Hayns
Joe Quinlan
Chairman's Statement
The results for the year ended 31 December 2022 demonstrate that the Group's
business model is robust and capable of withstanding challenges in the
macroeconomic environment. Our Full and Mid SIPP achieved a modest growth in
the number of policies of 1.7% (2021: 1.8%) with underlying gross sales growth
of 6.4% (2021: 7.9%). Focus on intermediary and client service has driven a
1.4% improvement in attrition rates down to 4.7% (2021: 6.1%).
Group revenues increased by 7.6% to £68.1m (2021: £63.3m) following a
favourable improvement in the interest rate environment. Revenue growth was
also underpinned by our fixed fee, inflation-linked pricing model which
provides resilience and protection against falling markets. Despite the slight
easing of inflationary pressures in recent months, we expect the steepening of
the yield curve observed in 2022 to have a material favourable impact on
interest income generated from pension administration services into 2023.
Inflation has remained stubbornly high in early 2023, and the return to the
Bank of England's target rate of 2% is unlikely to be swift. Therefore, the
Bank of England is still under pressure to maintain, if not slightly increase
rates, in the short term.
The FinTech segment has delivered lower than expected results in the period,
with revenues down 17.8% to £9.3m, reflecting a reduction in project activity
from one of its major clients and lower new business in 2022. The current year
has commenced more positively in this segment and we remain optimistic over
the medium term prospects.
The Group has delivered adjusted profit before tax of £15.4m (2021: £14.0m)
and maintains a strong balance sheet and cash flow profile, with our
regulatory capital surplus above regulatory capital requirements.
While the strength of our operating model is evident, we also recognise that
there is further room for improvement in order to fully capitalise on the
advantages of operating leverage, in particular in achieving efficiencies
through the streamlining of our technology and administrative systems.
Post balance sheet event - Acquisition by Nucleus
On 6 January 2023, the boards of Curtis Banks Group PLC, and Nucleus Clyde
Acquisition Limited ("Bidco"), a wholly-owned subsidiary of Nucleus Financial
Platforms Limited ("Nucleus"), announced that they have reached agreement on
the terms of a recommended cash offer by Bidco to acquire the entire issued
share capital of Curtis Banks for 350 pence per share. On 27 February 2023,
Curtis Banks's shareholders voted in favour of the proposed acquisition. Both
parties are progressing the relevant regulatory and court approval processes
and the acquisition is expected to complete, subject to these approvals, in
the summer of 2023.
The aggregate fees and expenses expected to be incurred by the Group as part
of the acquisition are expected to be approximately £6.2m contingent to the
completion of the acquisition, the breakdown of which is published in the
Scheme document available on the Curtis Banks website at
www.curtisbanks.co.uk/investors/pc-communications-library.
The proposed acquisition by Nucleus is expected to deliver significant
benefits for our intermediaries and customers. The combination will bring
together the strengths of both organisations, providing a full spectrum of
enhanced and comprehensive product offering and capabilities across pension
administration and platform technology.
One of the key benefits is the realisation of operational efficiencies for the
enlarged group from Nucleus's outsourcing arrangements with FNZ, which will
facilitate best-in-class service provision for financial advisers and their
customers. This is a significant opportunity for Curtis Banks to become a key
part of an enlarged organisation dedicated to positive customer outcome, and
to leverage our strengths and expertise from our award-winning SIPP & SSAS
offering and market leading commercial property administration expertise.
The completion of the transaction will create a leading financial planning and
retirement-focused adviser platform in the UK, with combined Assets Under
Administration of c. £80bn. The broader product set and enhanced distribution
channels will enable an extension to the current reach and to service a
greater number of intermediaries and customers more effectively. For example,
our existing customer base and network of adviser firms will gain access to
the broad range of products and services offered by Nucleus, including ISAs,
GIAs and onshore/offshore bonds.
Furthermore, the Curtis Banks back office would benefit from the use of FNZ's
platform administration solutions. The enhanced scale of the combined Group
will enable greater investment in technology and product and service offerings
that we would not be in a position to finance or execute on a standalone
basis.
In summary, the proposed acquisition by Nucleus is a strategic opportunity
that will enable us to expand our offering, leverage the strengths of the
combined Group; and deliver enhanced value to our advisers, customers and
shareholders.
The process of obtaining relevant regulatory and court approvals is currently
progressing as planned and we expect to announce an update on this in the
coming months.
SIPP Administration
Number of policies Full Mid Total Full and Mid SIPPs eSIPPs Third Party Administered Total
SIPPs SIPPs
As at 31 December 2021 21,272 34,699 55,971 17,881 5,827 79,679
SIPPs added organically 810 2,792 3,602 108 14 3,724
Conversions & reclassifications (674) 674 - - - -
SIPPs lost through attrition (1,134) (1,510) (2,644) (1,622) (545) (4,811)
As at 31 December 2022 20,274 36,655 56,929 16,367 5,296 78,592
Gross organic growth rate 3.8% 8.0% 6.4% 0.6% 0.2% 4.7%
Attrition rate 5.3% 4.4% 4.7% 9.1% 9.4% 6.0%
Despite the challenging macro-economic backdrop, our Full and Mid SIPP
products grew organically by 6.4% on a gross basis (2021: 7.9%) reflecting
continued positive momentum in our most popular products. Our Mid SIPP product
experienced strong gross organic growth of 8.0% (2021: 10.7%) and net growth
of 5.6% (2021: 8.5%). In combination, the Full and Mid SIPPs products
increased by 1.7%, after accounting for attrition, to 56,929 (2021: 55,971),
slightly below our target range of 2% - 6%. In 2022, we added 3,602 new Full
and Mid SIPPs across 369 adviser firms and wealth managers, of which 179 were
new relationships.
Attrition levels were lower at 4.7% (2021: 6.1%), reflecting improving service
levels across the business. We continue to have an attractive and loyal client
base and our average case size of c. £455k is amongst the highest in the
industry with one-third of our clients having been with the Group for over 10
years.
The Talbot and Muir business, which the Group acquired in 2020, has also
demonstrated strong client retention and positive net growth of 6.0% in
policies in force to 7,817 (2021: 7,374).
As at 31 December 2022, the total number of non-core SIPPs administered
decreased to 21,663 (2021: 23,708), following the on-going managed reduction
in these lower margin eSIPP and Third Party Administered ("TPA") products and
this is expected to continue for the medium-term.
FinTech business
The segment performed below the Group's expectation in the year, with revenues
of £9.3m (2021: £11.2m) due to difficulty in securing material new external
revenue and a reduction in project activity from a key client. Consequently,
an £11.5m impairment to the goodwill in relation to the Dunstan Thomas
segment was recognised. The Board remains focused on improving the performance
of Dunstan Thomas's third party business and the sales pipeline for FY23
remains strong with expectation of increased margins.
Dunstan Thomas continues to support the successful delivery of Curtis Banks's
own technology strategy, providing internal efficiencies and enhancing our
capabilities. CB Labs, established in conjunction with Dunstan Thomas's
technical expertise, has delivered Chatbots, an annual allowance tool, a
salary sacrifice tool, and the additional projects will further strengthen our
product offerings. Dunstan Thomas is also prototyping a bank of technical
concepts, including the adoption of machine learning and integration of
capabilities directly on IFA platforms. As an integral part of the Group, we
expect to further leverage Dunstan Thomas's expertise in FinTech to help us
continue to develop our propositions for both advisers and clients. Nucleus
intends to undertake a detailed review of the strategic fit of Dunstan Thomas
within the Combined Group following the acquisition.
Industry backdrop
Despite the market volatility experienced in the last two years, Curtis
Banks's business model has again proven to be resilient with our fixed fee
approach delivering consistent revenue generation that is inflation proof. Our
diverse product offering and extensive range of services enable us to respond
to the evolving retirement market, which has faced greater levels of
macroeconomic volatility in recent years.
The UK retail saving and investment market has experienced growth but faces
headwinds due to the cost of living crisis, changing client preferences
towards Environmental, social, and governance ("ESG") and responsible
investing, and the uncertainty caused by the post pandemic inflationary
economic environment. Individuals and households are facing affordability
challenges due to ongoing inflationary pressures.
The Group is well advanced in preparation for the upcoming Consumer Duty
regulations that are being introduced by the FCA. The new Consumer Duty sets
higher and clearer standards of consumer protection across financial services
and requires firms to put consumers at the heart of their business and focus
on delivering good outcomes for customers.
Planning is underway to meet the deadlines and staff are fully engaged on all
key activity. The milestones we are working towards are:
· 30 April 2023 - Completion of manufacturer reviews necessary to
meet outcome rules for all Curtis Banks Group existing open products and
services so that we can share with distributors to meet their obligations
under the Duty and identify where changes need to be made.
· 31 July 2023 - Meeting implementation deadline for new and
existing products.
· 31 July 2024 - Meeting implementation deadline for closed
products.
Toby Larkman, Chief Commercial Officer, is the Programme Sponsor and Susan
McInnes, Non-Executive Director, is the Board Consumer Duty Champion.
Target Operating Model
We reported in our half year results to 30 June 2022 that despite the progress
on the consolidation of our back office administration systems, and the
delivery of a number of elements of the programme, the completion date of 2024
was at risk.
In light of the planned acquisition by Nucleus, we are re-evaluating our
objectives roadmap while remaining committed to enhancing efficiency and
accountability, regardless of the path we choose.
Dividend
We paid an interim dividend of 2.5p per share (2021: 2.5p) on 11 November
2022. In light of the Nucleus transaction, the Board has decided not to
propose a final dividend.
People update
In May 2022, Chris Macdonald (Chairman) and Jules Hydleman (Non-Executive
Director) retired from the Board. Christopher Mills and I joined the Board as
Non-Executive Director and Chairman of the Group respectively.
In August 2022, Will Self stepped down as Chief Executive Officer and as an
Executive Director of the Group Board. I would like to once again thank Will
for the commitment that he showed to the business and the huge contribution
that he made throughout his time with the Group.
Following Will's departure, I assumed the role of Executive Chairman while we
undertook searches to find a successor. I am pleased to report that on 10
January 2023 we appointed Peter Docherty as our new Chief Executive Officer,
and I reverted to the role of Non-Executive Chairman on 1 February 2023. Peter
is very well positioned to lead the business with over 20 years of experience
in financial services, having most recently been the Chief Executive and
Managing Director of the Embark Platform during which time he led a
significant increase in customers and assets under administration driven by
organic growth and integration initiatives. Previous positions include the
roles of Chief Executive Officer and Chief Risk Officer of Alliance Trust
Savings Limited. He joins us at an exciting time as we work towards the
intended completion of the acquisition by Nucleus.
In November 2022, the Board appointed Susan McInnes as a Non-Executive
Director and chair of the Remuneration Committee, taking over from Jill Lucas
who resigned in December 2022. The Board also appointed Alastair Clarkson in
December 2022 as a Non-Executive Director and chair of the regulated
subsidiary entities of the Group. Both appointments bring a broad range of
experience to the Group, particularly within customer outcomes, people, risk
management and finance.
On 1 May 2023, Jane Ridgley retired from Curtis Banks and stepped down as the
Group's Chief Operating Officer and from her directorships of all Group
companies. I would like to take this opportunity to thank Jane for her
dedication, hard work and leadership which have been instrumental in helping
us achieve our goals. I am truly grateful for her many years of outstanding
service to the Group and I wish Jane the very best of luck as she embarks on
her retirement.
I am pleased to announce that Ross Allan replaced Jane as the Chief Operating
Officer with effect from 1 May 2023. Ross brings a wealth of experience to
Curtis Banks, having previously worked for abrdn and Standard Life and we are
delighted to have him take on this important role with us.
I am also delighted to announce the addition of several new Executive
Committee and senior management appointments within our IT, Transformational
Change and Operations teams. These new hires bring a wealth of experience and
expertise to the Group, and I am confident that they will play a crucial role
in strengthening these key areas.
ESG
Curtis Banks offers a platform for clients to build, invest and access their
pension through a variety of ways, including a wide range of investment
options and flexible passing of wealth. We understand and appreciate our
responsibility to our customers, as well as the ongoing commitments we have to
our staff, customers, communities and the wider environment. The Group's
purpose-led ESG strategy continues to recognise our delivery against these
commitments, and this progress is outlined in this announcement. Our ESG
policy (https://www.curtisbanks.co.uk/esg/) sets out our priorities and plans
in implementing positive change. The Group's ESG performance is overseen at
Board level by the Group's CEO, Peter Docherty.
Outlook
We expect revenue and profit margins to continue to improve in 2023 as
interest on deposit balances benefit from a higher yield curve, alongside
improvement in our FinTech segment which has been a key focus over H2 2022,
and underlying stability in our pension administration fees.
The management team are also heavily focused on facilitating the proposed
acquisition by Nucleus, however remain very mindful of the potential for
delays or the unlikely event which causes the acquisition not to proceed. As
such, we are investing substantial time and effort into delivering service
improvements for clients and advisers, paying particular attention to incoming
regulatory requirements, such as Consumer Duty. We are also strengthening the
leadership team to accommodate expected integration activity with Nucleus and
to ensure we maximise the potential of the core SIPP business (Full and Mid
SIPPs), deliver systems improvements, and continue to maintain robust levels
of service to our clients and advisers.
Section 172
The disclosures required under section 172 of the Companies Act are included
in the Directors' report.
David Barral
Chairman
4 May 2023
Chief Financial Officer's Review
Results
Group financial performance for the year ended 31 December 2022 resulted in an
adjusted profit before tax of £15.4m (2021: £14.0m), generating an adjusted
operating margin of 24.1% (2021: 23.5%). By segment, the pension
administration activity achieved an improved adjusted operating margin of
25.5% (2021: 23.9%); while the FinTech segment's adjusted operating margin
decreased to 15.4% (2021: 21.9%). Adjusted diluted EPS increased to 18.7p
(2021: 16.9p), while diluted EPS on a statutory basis reduced to a loss per
share of 10.1p (2021: profit per share of 11.5p).
On a statutory basis, the loss before tax of £3.7m (2021: profit before tax
of £9.3m) was materially driven by an impairment charge of £11.5m against
the value of goodwill relating to the acquisition of Dunstan Thomas. As at 30
June 2022, goodwill associated with the acquisition of Dunstan Thomas was
impaired by £9.8m due to expectations that the business segment's financial
performance would fall materially short of expectations over the year. This
created uncertainty over the forecast future cash flows, which was used to
conduct the goodwill impairment assessment. It has subsequently been
identified that in the assessment as at 30 June 2022 certain assumptions used
in the discount rate were not reflective of risks specific to the CGU, and
that a post-tax rate had been used rather than a pre-tax rate as required. Had
these factors been reflected in the impairment assessment at 30 June 2022, the
impairment would have been £11.5m which is the total impairment charge that
has now been booked during the year ended 31 December 2022. There would have
been no impact of these items on the financial statements for the prior year
to 31 December 2021.
An additional driver of the loss before tax is the value of adjusting items
recognised during the year. These included a previously disclosed incentive
arrangement for the Chairman of the Group of £2.0m, and redundancy &
restructuring costs of £2.7m, which included costs relating to Will Self's
departure as CEO of the Group.
The challenging conditions of 2022 have been reflected in net growth in own
Full and Mid SIPP plan numbers of 1.7%, this being slightly below our target
range. The Group's financial performance has benefitted from an improvement in
interest income, delivered by the yield curve steepening sharply, and also
from a slight reduction in the level of regulatory costs incurred. In a
challenging market place, organic sales remained robust, albeit lower than
2021, and attrition in Full & Mid SIPPs reduced compared to 2021.
The Group reports certain Alternative Performance Measures ("APMs") which we
believe provide greater clarity to stakeholders over the Group's underlying
performance and better enables stakeholders to form a view on the Group's
future prospects. The principal APMs adopted are Adjusted Profit before Tax,
Adjusted EPS and Adjusted Operating Margin, and these are presented further
below.
Adjusting items are classified as such when the nature and quantum of the
income or expense item is significant and arises from a business event, or
activity, that does not form part of usual day-to-day operations. Examples of
such items include acquisitions, including any subsequent re-measurement of
contingent deferred consideration and amortisation of intangible assets,
office relocations and restructuring activities.
A full reconciliation between the APMs and the statutory measures is disclosed
below for 2022 and prior year comparatives:
£'000 Year ended 31 December 2022 Year ended 31 December 2021
Revenue 68,063 63,307
Adjusted operating cost (51,639) (48,402)
Adjusted operating profit 16,424 14,905
Adjusted operating margin 24.1% 23.5%
Finance income 134 20
Interest expense (1,196) (921)
Adjusted profit before tax 15,362 14,004
Adjusting items:
Dunstan Thomas acquisition costs - (70)
Talbot and Muir acquisition costs - (63)
Other M&A related income/(costs) 359 (1,401)
Movement on contingent consideration relating to acquisitions 1,123 1,870
Discount unwind on contingent consideration (499) (879)
Redundancy & restructuring costs (2,665) (626)
In-specie contributions - 76
Centralisation of pension administration system (273) (322)
Treasury solution implementation - (45)
Data cleansing provision 63 (288)
Costs relating to the proposed acquisition by Nucleus (579) -
Chairman's incentive - cash settled share based payment (2,000) -
Adjusting items (4,471) (1,748)
Impairment of Goodwill (11,545) -
Intangible asset amortisation (3,086) (2,934)
IFRS (Loss)/Profit before tax (3,740) 9,322
Taxation (2,973) (1,603)
IFRS (Loss)/Profit after tax (6,713) 7,719
Adjusted EPS
Basic 18.7p 17.1p
Diluted 18.7p 16.9p
Revenue
Revenue of £68.1m for 2022 was 7.6% higher than the comparable period (2021:
£63.3m), driven by an increase in interest income. The Group saw a material
reduction in Fintech revenue from Dunstan Thomas, along with a slight
reduction in transactional SIPP fee volumes. In addition, the Group continued
to progress its managed reduction in non-core eSIPP and TPA products. Despite
this reduction, inflationary rises in fees levied, along with slight net
growth in Full and Mid SIPPs and a robust fixed fee model, saw overall pension
administration income remain stable year on year.
Fee revenue from SIPPs and SSASs remains the predominant source of income for
the Group with a strong emphasis on recurring annual fee income. In 2022, fee
income represented 67% of the total income and 91% of this fee income is
recurring (2021: 88%). Interest income saw a £6.8m increase on the prior
period comparative whilst the Fintech revenue contribution from Dunstan Thomas
fell by £2.2m.
SIPP fees are based on a recurring fixed monetary annual fee and a menu of
additional fixed fees depending on the services provided to the SIPPs. The
annual fees for the Curtis Banks Full and Mid SIPP products were amended as at
1 February 2021 and at the same time we made a clear commitment to our clients
as to how we will share interest revenue with them and therefore remove any
discretion. All of the fees that are applied to our SIPP products are subject
to contractual annual inflationary rises linked to the measurement of Average
Weekly Earnings ("AWE"). AWE applied from 1 January 2022 was 7.1%.
SIPP fees are not correlated to movements in the value of underlying assets
within the SIPP and as a result the recurring fee income of the Group is not
directly affected by the volatility in financial markets. This is a key
differential that sets us apart from most of our competitors and provides an
attractive product in terms of competitive fees for higher value SIPPs. As the
value of a SIPP increases our product becomes increasingly affordable from a
basis points perspective, and vice versa.
Client deposits remained relatively stable across the period and as at 31
December 2022 the Group held £1.004bn (2021: £1.027bn) of client deposits
across a range of UK-based, PRA regulated banking counterparties and managed
the cash in line with its established Treasury Framework. As at the reporting
date, the Group is paying 1.72% to clients on cash held within their SIPPs and
this is expected to increase from 1 July 2023 as the Bank of England continues
to keep base rates under review, with the expectation of a consequent
improvement in deposit rates available.
Revenues generated by Dunstan Thomas were down £2.2m, largely due to a
reduction of project income from a key client and the current economic
climate. The combined performance over the last 3 years has resulted in a
reduction of £1.9m to the total related contingent consideration expected to
be payable over the earn out period and a corresponding credit to the
consolidated statement of comprehensive income. The remaining earn out for the
acquisition of Talbot and Muir was settled post year end and the remaining
earn out for the acquisition of Dunstan Thomas is expected to be paid before
30 June 2023.
Expenses
The year ended 31 December 2022 saw administrative expenses, excluding
amortisation of intangibles, goodwill impairment and adjusting items, increase
to £51.6m (2021: £48.4m).
Staff costs increased to £34.6m (2021: £30.5m), which include adjusting
items of £2.0m charge for the chairman's incentive, expected to be payable on
completion of the transaction with Nucleus, and a substantial proportion of
the £2.7m redundancy and restructuring costs disclosed. Overall staff costs
have not changed materially year on year, with annual pay increases offset by
a decrease in headcount. These costs continue to be protected to a large
extent by the contractual inflationary increases applied to our SIPP and SSAS
products.
Overall headcount stood at 801 as at 31 December 2022 compared to 828 as at 31
December 2021.
Non-staff costs in aggregate grew to £20.9m from £15.3m in 2021, driven by
higher professional fees and an increase in compensation costs. This was a
result of a small number of individual high value financial detriment cases
and despite a decrease in the overall level of complaint volumes.
The Group continues to take steps to improve its adjusted operating margin
through a combination of revenue enhancements, cost saving measures and
operational efficiency improvements.
Adjusting Items
Adjusting items for the year were a net expense of £4.5m (2021: net expense
of £1.7m) and include redundancy and restructuring costs, an incentive scheme
arranged for the Chairman, and costs associated with the proposed Nucleus
transaction.
Acquisition related items
A net credit of £0.4m has been recognised in the period as other M&A
related costs which relates to contingency fees no longer payable on a
potential corporate transaction which did not subsequently proceed.
Movement in contingent consideration and discount unwind
The movements in contingent consideration payable (a £1.1m reduction) and the
discount unwind (£0.5m expense) are related to the acquisitions of Dunstan
Thomas and Talbot and Muir. The contingent considerations are dependent on the
business performance post-acquisition. The underperformance in Dunstan Thomas
during the year has contributed to the reduction in the liability.
As at the reporting date, the final consideration relating to the Talbot and
Muir acquisition has been fully settled, and the settlement was materially in
line with that estimated at the balance sheet date.
The final consideration relating to the Dunstan Thomas acquisition is expected
to be concluded imminently.
Redundancy and restructuring costs
In the year ended 31 December 2022, the Group incurred restructure costs of
£0.6m relating to the physical closure of the Dundee office location and the
transition of all Dundee-based colleagues to remote working arrangements
(2021: £nil). The Group also incurred senior executive restructure costs of
£2.0m (2021: £0.6m) of which £1m relates to the former CEO's departure.
Centralisation of pension administration system
The Group has made progress in implementing its strategy to transition its
entire SIPP administration onto a single administration platform. During the
year, the upgrade of the current Navision platform, which supports the
majority of the Group's SIPPs, to the Navision Business Central platform
progressed and was subsequently completed in January 2023. Following the
announcement of the Nucleus acquisition in January 2023, there is uncertainty
around the future application of Navision, and this remains under review
pending the outcome of the proposed transaction. The net book value of the
intangible assets capitalised in relation to this is £1.5m as at 31 December
2022.
Data cleansing provision
As part of the consolidation and integration exercise undertaken in 2018, a
review of data records relating to commercial properties held within SIPPs
administered by the Group was undertaken and data cleansing provision was
recorded as a result. In 2022, management have reassessed the potential
liability and released a portion of the previously recorded provision,
resulting in a net credit of £0.1m.
Proposed acquisition by Nucleus
External advice supporting the negotiation and due diligence process in
relation to the proposed acquisition by Nucleus resulted in costs of £0.6m,
primarily consisting of professional fees and legal fees.
Chairman incentive
In October 2022, an incentive scheme was announced for the Group's Chairman,
David Barral. This incentive has been accounted for as a cash-settled
share-based payment transaction. Although the proposed acquisition by Nucleus
was not announced until January 2023, i.e. after the end of the reporting
period (and is still yet to complete and therefore has not yet been paid),
management determined that it was appropriate to record the estimated
incentive payment, an amount of £2.0m, in the year end financial statements,
as it represented the best available estimate of the rewards expected to vest
as at 31 December 2022, in accordance with the relevant International
Financial Reporting Standard (IFRS 2 Share -based payment). The £2.0m value
is based on the acquisition price of 350p per share and the term of the
incentive agreement. If the transaction is successful, the amount is payable
upon Completion.
Amortisation of intangible assets
Amortisation of the Group's intangible assets represented a charge of £3,086k
(2021: £2,934k) for the year.
Goodwill impairment
As mentioned in the Results section above, goodwill associated with the
acquisition of Dunstan Thomas was impaired by £11.5m due to expectations at
half year 2022 reporting that the business segment's financial performance
would fall materially short of expectations over the year and an update to the
discount rate assumptions at year end.
Accounting methodology
During the year, Dunstan Thomas restructured their commercial model of
software licensing and related services. This was done in order to ensure
consistency in standard licensing practices, better management of business
risk, and to respond more effectively to changing customer needs. As a result,
new template customer agreements have been created and are now being used for
the majority of new software license contracts.
Alongside this change, a formal accounting methodology assessment was
conducted with the support of third party specialists, which concluded that
revenue recognition under IFRS 15 (Revenue from contracts with customers) for
certain new contracts would be different to the existing accounting
methodology. Specifically, revenue associated with the license performance
obligation itself will be recognised separately from that associated with the
service, and recognised at a point in time when the license is delivered to
the customer, instead of on a straight-line basis over the contract period.
Cash flows
Shareholder cash balances at period end were £23.9m compared to £31.9m at
the end of December 2021.
Net cash inflows from shareholder operating activities for the period were
£9.2m (2021: £13.5m). The reduction was due to exceptional cash inflows in
the prior year from the cash attributable to the additional working capital
introduced from Dunstan Thomas and Talbot and Muir on their respective
acquisitions, and a reduction in profits generated in the period.
Net cash outflows from investing activities for the period were £5.8m (2021:
£2.8m) which is largely attributable to the deferred consideration paid on
the Talbot and Muir acquisition, of £2.7m, and the addition of intangible
assets of £2.2m (2021: £1.7m) which relate primarily to product development
activity within Dunstan Thomas and computer software.
Net cash outflows from financing activities were £11.4m. These represent a
marginal increase from prior year (£11.3m), with the increase coming from
higher interest payments and the absence of shares being issued in the year
(2021: £0.3m).
Suffolk Life Annuities
Part of the Group, Suffolk Life Annuities Limited, is an insurance company
that writes SIPP products as insurance contracts. These are all
non-participating investment contracts and so the Group does not bear any
insurance risk. As the policies are non-participating contracts, the client
related assets and liabilities in Suffolk Life Annuities Limited match. In
addition, the revenues, expenses and investment returns of the
non-participating investment contracts are shown in the consolidated statement
of comprehensive income. An illustrative balance sheet as at 31 December 2022
showing the financial position of the Group excluding the policyholder assets
and liabilities is included as supplementary information. An illustrative cash
flow on the same basis has also been provided.
Employee Benefit Trust ("EBT")
The EBT continues to be used to acquire shares in the Group in the open market
to satisfy future vesting of options and long term incentive awards. The EBT
is funded by loans from the Group. As at 31 December 2022, the EBT held
332,591 shares in Curtis Banks Group PLC (2021: 488,296). A number of options
awarded under the Company's SAYE schemes vested during the year and awards
were made from the shares held by the EBT.
The financial statements of the EBT are consolidated within the overall Group
financial statements and these shares are shown on the balance sheet of the
Group as Treasury Shares and are included within total equity.
Capital requirements
The Group's four (2021: four) regulated subsidiary companies submit regular
returns to the FCA and the PRA relating to their capital resources. As at 31
December 2022, the total regulatory capital requirement across the Group was
£15.6m (2021: £15.1m) and the Group had an aggregate surplus of £6.9m
(2021: 17.0m). The reduction in surplus was primarily driven by a timing
differences relating to accrued interest receivable over 90 days which
increased substantially over H2 2022 following the higher interest rate
environment. All subsidiaries complied with their regulatory requirements
throughout the year. In addition to this, it is the Group's internal policy
for regulated companies within the Group to hold at least 130% of their
required regulatory capital and to take corrective action should regulatory
capital dip below this level.
One of the Group's FCA regulated entities dipped below the 130% internal
policy for a short period due to a timing difference in recognising interest
income for regulatory purposes. The audits of all regulated subsidiary results
for 2022 have been completed as of the date of this announcement and
consequently coverage has now returned above 130%, in line with the Group's
internal policy.
Three (2021: three) of the principal trading subsidiaries of the Group are
regulated by the FCA and are subject to the relevant capital adequacy rules.
The fourth regulated entity, Suffolk Life Annuities Limited ("SLA"), being an
insurance company, is subject to Solvency II rules and its capital requirement
is determined by the Standard Formula as set out in the Solvency II
directives. The regulatory solvency position (the ratio of the Company's own
funds to the biting requirement) of SLA was 216% as at 31 December 2022 (2021:
319%). Full details of SLA's capital position are set out in the Solvency and
Financial Condition Report published annually on the Group's website.
Financial Position
The statement of Financial Position as at 31 December 2022 reflects
shareholder net assets decreasing from £81.6m at 31 December 2021 to £69.4m
as at 31 December 2022 primarily as a result of the £11.5m impairment charge
taken during the current period.
As at 31 December 2022 the Group had net shareholder cash (after debt) of
£7.7m (2021: £12.0m).
Outlook
The Group's profitability is not directly linked to market performance and
therefore the growth in our SIPP numbers provides more visibility and less
volatility of earnings, combined with discipline over our controllable cost
base. We have benefited from the interest income increase as a result of the
rising interest rate environment in the year and expect this to increase
materially during 2023.
The proposed Nucleus transaction is expected to unlock significant new
opportunities for the Group. With the investment, the combined business aims
to further enhance business infrastructure to drive greater efficiency and
offer even better services and products to our customers and advisors.
Dan Cowland
Chief Financial Officer
4 May 2023
Consolidated statement of comprehensive income
For The Year Ended 31 December 2022
Year ended 31 December 2022 Year ended 31 December 2021
Total Total
£'000 £'000
Revenue 68,063 63,307
Administrative expenses (58,697) (52,205)
Impairment of goodwill (11,545) -
Policyholder investment (losses)/returns (288,162) 466,811
Non-participating investment contract expenses (34,372) (33,850)
Changes in provisions: Non-participating investment contract liabilities 322,534 (432,961)
Policyholder total - -
Operating (loss)/profit (2,179) 11,102
Finance income 134 20
Finance costs (1,695) (1,800)
(Loss)/Profit before tax (3,740) 9,322
Taxation (2,973) (1,603)
(Loss)/profit for the year and total comprehensive (loss)/income for the year (6,713) 7,719
Attributable to:
Equity holders of the company (6,713) 7,723
Non-controlling interests - (4)
(6,713) 7,719
(Loss) per ordinary share on the net loss /Earnings per ordinary share on net
profit
Basic (pence) (10.1) 11.6
Diluted (pence) (10.1) 11.5
The consolidated statement of comprehensive income has been prepared on the
basis that all operations are continuing operations.
Consolidated statement of financial position
As at 31 December 2022
Group
Group As at As at
31-Dec-22 31-Dec-21
£'000 £'000
ASSETS
Non-current assets
Intangible assets 77,362 89,814
Investment property 1,108,073 1,316,468
Property, plant and equipment 8,012 8,636
Investments 1,970,567 2,224,965
3,164,014 3,639,883
Current assets
Trade and other receivables 31,859 27,981
Cash and cash equivalents 404,816 410,133
Current tax asset 371 957
437,046 439,071
Total assets 3,601,060 4,078,954
LIABILITIES
Current liabilities
Trade and other payables 21,942 20,853
Deferred income 30,943 29,960
Borrowings 40,632 46,832
Lease liabilities 1,040 964
Provisions 484 453
Contingent consideration 4,355 2,467
99,396 101,529
Non-current liabilities
Borrowings 34,903 43,957
Lease liabilities 6,290 6,774
Provisions 2 178
Contingent consideration - 5,199
Non-participating investment contract liabilities 3,387,893 3,836,211
Deferred tax liability 3,214 3,464
3,432,302 3,895,783
Total liabilities 3,531,698 3,997,312
Net assets 69,362 81,642
Equity attributable to owners of the parent
Issued capital 332 332
Share premium 58,087 58,087
Equity share based payments 3,079 2,840
Treasury shares (1,284) (1,382)
Retained earnings 9,148 21,755
69,362 81,632
Non-controlling interest - 10
Total equity 69,362 81,642
Company statement of financial position
As at 31 December 2022
Company
Company As at As at
31-Dec-22 31-Dec-21
£'000 £'000
ASSETS
Non-current assets
Investments 97,932 109,317
97,932 109,317
Current assets
Trade and other receivables 321 377
Cash and cash equivalents 3,232 4,458
Current tax asset 519 519
4,072 5,354
Total assets 102,004 114,671
LIABILITIES
Current liabilities
Trade and other payables 2,885 1,383
Borrowings 4,565 4,507
Contingent consideration 4,355 2,467
11,805 8,357
Non-current liabilities
Borrowings 11,628 15,399
Contingent consideration - 5,199
11,628 20,598
Total liabilities 23,433 28,955
Net assets 78,571 85,716
Equity attributable to owners of the parent
Issued capital 332 332
Share premium 58,087 58,087
Equity share based payments 3,079 2,840
Retained earnings 17,073 24,457
Total equity 78,571 85,716
As permitted by section 408 Companies Act 2006, the holding company's profit
and loss account has not been included. The Company's loss after tax for the
year was £1,400k (2021: profit of £11,656k).
Consolidated statement of changes in equity
For The Year Ended 31 December 2022
Group
Equity share based payments Non-controlling
Issued capital Share premium £'000 Treasury shares Retained earnings interest Total
£'000 £'000 £'000 £'000 Total £'000 Equity
£'000 £'000
At 1 January 2021 330 57,799 2,747 (741) 20,134 80,269 14 80,283
Profit/(loss) and total comprehensive income for the year - - - - 7,723 7,723 (4) 7,719
Share based payments - - 93 - - 93 - 93
Ordinary shares bought and sold by EBT - - - (641) - (641) - (641)
Ordinary shares issued 2 288 - - - 290 - 290
Deferred tax on share based payments - - - - (105) (105) - (105)
Ordinary dividends declared and paid - - - - (5,997) (5,997) - (5,997)
At 31 December 2021 332 58,087 2,840 (1,382) 21,755 81,632 10 81,642
Loss and total comprehensive loss for the year - - - - (6,713) (6,713) - (6,713)
Share based payments - - 239 - - 239 - 239
Ordinary shares bought and sold by EBT - - - 98 - 98 - 98
Deferred tax on share based payments - - - - 90 90 - 90
Ordinary dividends declared and paid - - - - (5,984) (5,984) (10) (5,994)
At 31 December 2022 332 58,087 3,079 (1,284) 9,148 69,362 - 69,362
Consolidated statement of changes in equity
For The Year Ended 31 December 2022
Company
Issued Equity share based payments Retained earnings
Capital Share Premium £'000 £'000 Total
£'000 £'000 £'000
At 1 January 2021 330 57,799 2,747 18,798 79,674
Profit and total comprehensive income for the year - - - 11,656 11,656
Share based payments - - 93 - 93
Ordinary shares issued 2 288 - - 290
Ordinary dividends declared and paid - - - (5,997) (5,997)
At 31 December 2021 332 58,087 2,840 24,457 85,716
Loss and total comprehensive loss for the year - - - (1,400) (1,400)
Share based payments - - 239 - 239
Ordinary dividends declared and paid - - - (5,984) (5,984)
At 31 December 2022 332 58,087 3,079 17,073 78,571
Consolidated statement of cash flows
For The Year Ended 31 December 2022
Group
Year ended 31 December
*Restated
2022 2021
£'000 £'000
Cash flows from operating activities
(Loss)/Profit before tax (3,740) 9,322
Adjustments for:
Depreciation 1,645 1,806
Amortisation and impairments 14,631 2,934
Finance costs 1,695 1,800
Share based payment expense 239 93
Fair value gains on movement in contingent consideration (1,123) (1,870)
Fair value losses/(gains) on financial investments 202,325 (213,701)
Additions of financial investments (620,331) (647,479)
Disposals of financial investments 672,404 708,532
Fair value losses/(gains) on investment properties 175,450 (120,416)
(Decrease)/Increase in non-participating investment contract liabilities (448,318) 250,904
Changes in working capital:
Increase in trade and other receivables (3,911) (1,330)
Increase in trade and other payables 2,032 5,017
Taxes paid (2,514) (2,410)
Net cash flows used in operating activities (9,516) (6,798)
Cash flows from investing activities
Payments for intangible assets (2,179) (1,670)
Purchase of property, plant and equipment (683) (270)
Purchase of investment property (84,724) (92,456)
Net Sale/(purchase) of shares in the Group by EBT 98 (641)
Receipts from sale of investment property 117,669 105,009
Payment for acquisition of subsidiary (2,687) (255)
Net cash flows received from investing activities 27,494 9,717
Cash flows from financing activities
Equity dividends paid (5,984) (5,997)
Net proceeds from issue of ordinary shares - 290
Net decrease in borrowings* (11,901) (10,148)
Principal elements of lease payments (894) (762)
Interest paid (876) (781)
Net cash used in financing activities (19,655) (17,398)
Net decrease in cash and cash equivalents (1,677) (14,479)
Cash and cash equivalents at the beginning of the year* 386,187 400,666
Cash and cash equivalents at the end of the year* 384,510 386,187
Company statement of cash flows
For The Year Ended 31 December 2022
Company
Year ended 31 December
As restated*
2021
2022 £'000
£'000
Cash flows from operating activities
(Loss)/profit before tax (1,400) 11,656
Adjustments for:
Interest expense 1,368 712
Impairment of investments 11,701 -
Fair value gains on movement in contingent consideration* (1,123) (1,870)
Changes in working capital:
Decrease/(increase) in trade and other receivables 56 (345)
Increase/(decrease) in trade and other payables 1,533 693
Taxes paid - (275)
Net cash flows received from operating activities 12,135 10,571
Cash flows from investing activities
Payment for acquisition of subsidiary (2,764) (255)
Net cash flows used in investing activities (2,764) (255)
Cash flows from financing activities
Equity dividends paid (5,984) (5,997)
Net proceeds from issue of ordinary shares - 290
Net decrease in borrowings (4,000) (3,850)
Interest paid (613) (712)
Net cash used in financing activities (10,597) (10,269)
Net (decrease)/increase in cash and cash equivalents (1,226) 47
Cash and cash equivalents at the beginning of the year 4,458 4,411
Cash and cash equivalents at the end of the year 3,232 4,458
*The audited results for year ended 31 December 2021 has been restated to
include additional line items including 'Fair value gains on movement in
contingent consideration' and 'share based payments' which were included in
working capital movements instead of disclosed separately. This restatement is
a disclosure only reclassification that improves consistency over year on
year.
1 Corporate information
Curtis Banks Group PLC ("the Company") is a public limited company
incorporated and domiciled in England and Wales, whose shares are publicly
traded on the AIM market of the London Stock Exchange PLC.
At 31 December 2022 the Group administered circa £35.8bn (2021: £37.4bn) of
pension assets on behalf of over 78,500 (2021: 80,000) active customers. More
than 800 staff are employed across its head office in Bristol and regional
locations in Ipswich, Dundee, Portsmouth, Nottingham and Leeds.
The Executives have proven experience in the retail savings, pensions and
wealth markets and have established a business that focuses on a
service-driven proposition for the administration of flexible SIPPs. The
Group's core pension products are primarily distributed by authorised and
regulated financial advisers, targeted towards pension savers who wish to take
full advantage of the features and flexibility offered in the UK's modern and
changing pension regime. Strong, long-standing relationships with key
distributors result in high levels of retention and repeat business.
The Group continues to be focussed on delivering value to both customers and
shareholders and continuing to develop its client and service excellence.
Note: The Group includes an insurance company, Suffolk Life Annuities Limited,
which provides SIPPs through non-participating individual insurance contracts.
Due to Suffolk Life Annuities Limited's status as an insurance company, the
consolidated results for the whole Group are required to include insurance
policyholder assets and liabilities as well as the assets and liabilities and
profits attributable to our shareholders. Notes 16 and 17 to this Announcement
illustrate the split between policyholder and shareholder assets and
liabilities and cash flows.
2 Revenue
Revenue is wholly derived from activities undertaken within the United Kingdom
and comprises the following categories:
Year ended 31 December
2022 2021
£'000 £'000
Pension administration fees 45,295 45,091
FinTech services 7,694 9,900
Pension administration interest income 15,074 8,316
68,063 63,307
3 Total comprehensive income for the year
Total comprehensive income for the year is arrived at after charging:
Year ended 31 December
2022 2021
£'000 £'000
Amortisation and impairment of intangible assets 14,631 2,934
Depreciation of property, plant and equipment 1,645 1,806
Auditors' remuneration:
- audit of the company and consolidated financial statements 285 227
- audit of the financial statements of the subsidiaries 440 397
- audit related assurance services 71 40
4 Operating segment reporting
The following tables present revenue and profit information regarding the
Group's operating segments for the two years ended 31 December 2022 and 31
December 2021 respectively.
Pension Administration Consolidation adjustments
£'000 FinTech £'000 Consolidated
Year ended 31 December 2022 £'000 £'000
Revenue
External customers 60,369 7,694 - 68,063
Internal customers - 1,557 (1,557) -
60,369 9,251 (1,557) 68,063
Administrative expenses
External customers 51,421 7,276 - 58,697
Internal customers 549 773 (1,322) -
Impairment of goodwill - - 11,545 11,545
51,970 8,049 10,223 70,242
Operating profit / (loss) 8,399 1,202 (11,780) (2,179)
Pension Administration Consolidation adjustments
£'000 FinTech £'000 Consolidated
Year ended 31 December 2021 £'000 £'000
Revenue
External customers 53,407 9,900 - 63,307
Internal customers - 1,349 (1,349) -
53,407 11,249 (1,349) 63,307
Administrative expenses
External customers 43,866 8,339 - 52,205
Internal customers 813 390 (1,203) -
44,679 8,729 (1,203) 52,205
Operating profit / (loss) 8,728 2,520 (146) 11,102
Corporate costs
The Group's operating segments are managed together as one business.
Accordingly, certain corporate costs such as finance income and expenses,
gains and losses on the disposal of assets, taxes, intangible assets and
certain other assets and liabilities are not allocated to individual segments
as they are managed on a group basis. Segment operating profit or loss
reflects the measure of segment performance reviewed by the Board of Directors
(the Chief Operating Decision Maker).
The following table presents a split of assets and liabilities of the Group's
operating segments for the year ended 31 December 2022.
Corporate assets and liabilities are not allocated to individual operating
segments as they are managed on a group basis. Policyholder assets and
liabilities are not allocated to individual operating segments as all
investment returns associated with these are due back to policyholders under
non-participating investment contracts, alongside non-participating investment
contract expenses and changes in provisions for non-participating investment
contract liabilities, such that the impact on shareholder assets and
liabilities, and profit or loss, is nil.
As at 31 December 2022 Pension Administra-tion £'000 FinTech Corporate Policyholder Consolidated
£'000 £'000 £'000 £'000
Total assets 63,573 10,427 55,389 3,471,670 3,601,059
Total liabilities 34,094 3,154 22,780 3,471,670 3,531,698
The split of assets and liabilities of the Group's operating segments as at 31
December 2021 is illustrated below:
As at 31 December 2021 Pension Administra-tion £'000 FinTech Corporate Policyholder Consolidated
£'000 £'000 £'000 £'000
Total assets 65,960 9,508 70,853 3,932,633 4,078,954
Total liabilities 32,793 3,113 28,773 3,932,633 3,997,312
5 Directors and employees
Year ended 31 December
2022 2021
£'000 £'000
Wages and salaries 26,925 25,189
Social security costs 2,878 2,644
Other pension costs 2,576 2,327
Share-based incentive awards 2,244 364
34,623 30,524
2022 2021
The monthly average number of employees during the year was: Number Number
Directors 8 7
Administration 793 821
801 828
Details of emoluments paid to the directors and key management personnel of
the Group are as follows:
Year ended 31 December
2022 2021
£'000 £'000
Total emoluments paid to:
Directors
Wages and salaries 1,288 1,354
Social security costs 338 162
Compensation for loss of office 1,006 -
Post-employment costs 8 14
Share-based incentive 2,057 80
awards
Other key management personnel
Wages and salaries 1,066 1,005
Compensation for loss of office 219 62
Social security costs 158 129
Post-employment costs 119 69
Share-based incentive awards 15 2
6,274 2,877
Emoluments of highest paid director:
Wages and salaries 2,106 429
Pension contribution - 6
2,106 435
Short term employee benefits include wages and salaries. Long term employee
benefits include share-based incentive awards.
6 Finance costs
Year
ended 31 December
2022 2021
£'000 £'000
Interest payable on bank loans 869 702
Interest and finance costs on lease liabilities 262 209
Other interest expense 65 10
Total interest expense 1,196 921
Unwind of discount on contingent consideration relating to:
Acquisition of Dunstan Thomas 161 364
Acquisition of Talbot and Muir 338 515
Total finance costs 1,695 1,800
7 Taxation
Year
ended 31 December
2022 2021
£'000 £'000
Domestic current year tax
UK Corporation tax 2,615 1,875
Under provision in prior years 551 121
Deferred tax
Origination and reversal of temporary differences (193) (393)
2,973 1,603
Factors affecting the tax charge for the year
(Loss)/Profit before tax (3,740) 9,322
(Loss)/Profit before tax multiplied by standard rate of UK Corporation tax of (711) 1,771
19% (2021: 19%)
Effects of:
Adjustment to prior year 555 121
Non-deductible expenses 2,868 93
Other tax adjustments 261 (382)
3,684 (168)
Total tax charge 2,973 1,603
8 (Loss)/Earnings per share
Basic earnings per share amounts are calculated by dividing net profit for the
year attributable to equity holders of the Company by the weighted average
number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the Company by the weighted average
number of ordinary shares outstanding during the year plus the weighted
average number of ordinary shares that would be issued on the conversion of
all the dilutive potential ordinary shares into ordinary shares.
Changes in income or expense that would result from the conversion of the
dilutive potential ordinary shares are deemed to be trivial, and therefore no
separate diluted net profit is presented.
The following reflects the income and share data used in the basic and diluted
earnings per share computations:
2022 2021
£'000 £'000
Net (loss)/profit available to equity holders of the Company (6,713) 7,723
Number Number
Weighted average number of ordinary shares:
Issued ordinary shares at start of the year 66,879,312 66,414,312
Effect of shares issued during the year - 333,781
Effect of shares held by employee benefit trust (390,563) (316,688)
Basic weighted average number of shares 66,488,749 66,431,405
Effect of dilutive options 265,012 510,602
Diluted weighted average number of shares 66,753,761 66,942,007
Pence Pence
Earnings per share:
Basic (10.1) 11.6
Diluted (10.1) 11.5
9 Intangible assets
Group
Internally Generated Software
Customer Portfolios Computer £'000
Goodwill Brand £'000 Software Total
£'000 £'000s £'000 £'000
Cost
At 1 January 2021 55,732 1,595 33,805 2,783 5,770 99,685
Additions - - - 492 1,178 1,670
At 31 December 2021 55,732 1,595 33,805 3,275 6,948 101,355
Additions - - - 1,083 1,096 2,179
Disposals - - - (30) - (30)
At 31 December 2022 55,732 1,595 33,805 4,328 8,044 103,504
Amortisation and Impairment
At 1 January 2021 - 66 6,854 1,447 240 8,607
Charge for the year - 160 1,878 264 632 2,934
At 31 December 2021 - 226 8,732 1,711 872 11,541
Charge for the year - 160 1,878 295 753 3,086
Impairment 11,545 - - - - 11,545
Disposals - - - (30) - (30)
At 31 December 2022 11,545 386 10,610 1,976 1,625 26,142
Net book value
At 31 December 2020 55,732 1,529 26,951 1,336 5,530 91,078
At 31 December 2021 55,732 1,369 25,073 1,564 6,076 89,814
At 31 December 2022 44,187 1,209 23,195 2,352 6,419 77,362
Goodwill
Goodwill totalling £28,903k arose on the acquisition of Suffolk Life Group
Limited and its subsidiaries on 25 May 2016. Goodwill totalling £17,075k
arose on the acquisition of Dunstan Thomas Group Limited and its subsidiaries
on 3 August 2020. Goodwill totalling £9,754k arose on the acquisition of
Talbot and Muir Limited and its subsidiaries on 30 October 2020.
The Group tests goodwill for impairment annually or more frequently if there
are indications that goodwill might be impaired. The recoverable amount of
goodwill has been determined based on value-in-use calculations using a
discount rate appropriate to the risk profile of the asset. These calculations
use operating cash flow projections based on financial budget & forecast
approved by management covering a five year period, assuming business then
continues onwards after this period at a steady rate for the purpose of the
analysis.
Impairment charges totalling £11,545k against the intangible asset relating
to Goodwill within the Dunstan Thomas CGU have been recognised during the
period ended 31 December 2022 (2021: £nil). This relates to lower than
expected performance of the CGU in the period, a consequent reduction in the
estimate of future cash flows expected from the CGU, combined with an update
in discount rate assumptions used in the value-in-use calculation to better
reflect the characteristics of the business.
Customer Portfolios
Represents individual customer portfolios acquired through business
combinations and accounted for under the acquisition method. The directors
consider that there is no impairment to assets as at the year-end (2021:
£nil). The customer portfolios are being amortised over a period of 20 years.
The brought forward balance relates to the purchase by Curtis Banks Limited, a
subsidiary company, of the trade and assets of Montpelier Pension
Administration Services Limited on 13 May 2011, the full SIPP business of
Alliance Trust Savings Limited on 18 January 2013, the full SIPP business and
certain assets of Pointon York SIPP Solutions Limited on 31 October 2014, the
full SIPP business of Rathbones Pension & Advisory Services Limited on 31
December 2014, a book of full SIPPs from Friends Life PLC (now Aviva PLC) on
13 March 2015 and a book of SIPPs from Hargreave Hale Limited on 10 December
2018.
The brought forward balance also includes the purchase by Suffolk Life
Pensions Limited, a subsidiary company, of the trade and assets of European
Pensions Management Limited on 14 July 2016, and books of SIPPs purchased from
Pointon York SIPP Solutions Limited on 9 November 2012, Pearson Jones PLC on
30 April 2013, and Origen Investment Services Limited on 22 May 2013.
Lastly, the brought forward balance includes customer portfolios fair valued
at £11,229k which arose on acquisition of Talbot and Muir Limited and its
subsidiaries on 30 October 2020.
Computer Software
Computer software comprises costs that meet the recognition criteria under IAS
38 as Intangible Assets. General small computer software costs are amortised
over their useful economic life of four years on a straight-line basis.
Computer software costs for significant projects are amortised over an
estimated UEL on a project by project basis.
Internally Generated Software
Internally generated software represents the value of principal software
products owned and licensed by Dunstan Thomas. The asset includes both value
arising on acquisition of Dunstan Thomas during the year ended 31 December
2020, and further development of the asset since. Internally generated
software is being amortised over a period of 10 years.
Brand
Brand comprises the value of the Dunstan Thomas brand, which was obtained
following acquisition of Dunstan Thomas during the year ended 31 December
2020. Dunstan Thomas has been established in the UK for over 30 years and has
a strong market presence. The Group operates Dunstan Thomas as an independent
brand. The value of the brand was assessed at acquisition and is being
amortised over 10 years.
Research and development
The amount of research and development expenditure recognised as an expense is
£7k (2021: nil).
10 Property, plant and equipment
Assets held at cost
Group
Office equipment, fixtures & fittings
Right of use assets Computer equipment Total
£'000 £'000 £'000 £'000
Cost
At 1 January 2021 7,189 5,945 2,115 15,249
Additions 2,627 265 5 2,897
Disposals (579) - (81) (660)
At 31 December 2021 9,237 6,210 2,039 17,486
Additions 341 621 62 1,024
Disposals - (118) (3) (121)
At 31 December 2022 9,578 6,713 2,098 18,389
Accumulated depreciation
At 1 January 2021 1,458 4,569 1,564 7,591
Arising from acquisitions - (14) 14 -
Charge for the year 944 611 251 1,806
Disposals (469) - (78) (547)
At 31 December 2021 1,933 5,166 1,751 8,850
Charge for the year 948 562 135 1,645
Disposals - (115) (3) (118)
At 31 December 2022 2,881 5,613 1,883 10,377
Carrying value
At 31 December 2020 5,731 1,376 551 7,658
At 31 December 2021 7,304 1,044 288 8,636
At 31 December 2022 6,697 1,100 215 8,012
The total cash outflow for leases was £0.8m (2021: £0.9m).
11 Cash and cash equivalents
As at 31 December 2022 and 2021 cash and cash equivalents were as follows:
Group Company
As at 31 December As at 31 December
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Cash at bank and in hand 23,853 31,891 3,232 4,458
Deposits with credit institutions 378,746 376,856 - -
Cash equivalents 2,217 1,386 - -
Cash and cash equivalents 404,816 410,133 3,232 4,458
Bank overdraft (included within Borrowings) (20,306) (23,946) - -
Balance as per Statement of Cash flows 384,510 386,187 3,232 4,458
The Group considers potential expected credit losses on cash and cash
equivalents to be insignificant.
12 Borrowings
Group Company
As at 31 December As at 31 December
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Current
Bank loans 40,632 46,832 4,565 4,507
40,632 46,832 4,565 4,507
Non-current
Bank loans 34,903 43,957 11,628 15,399
34,903 43,957 11,628 15,399
Total borrowings 75,535 90,789 16,193 19,906
Bank borrowings
The bank borrowings are repayable as follows:
Group Company
As at 31 December As at 31 December
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Within 1 year 40,632 46,832 4,565 4,507
Between 1 year and 5 years 27,137 34,928 11,628 15,399
After more than 5 years 7,766 9,029 - -
75,535 90,789 16,193 19,906
Bank borrowings of the Company are repayable between January 2021 and July
2025 and bear average coupons of 2.25% plus compounded Sterling Overnight
Index Average (SONIA) and a credit adjustment spread per annum.
Total borrowings of the Group include liabilities of £59,342k (2021:
£70,883k) secured by legal charge over certain properties held within
non-participating investment contracts, and liabilities of £16,193k (2021:
£19,906k) secured on the shares of Curtis Banks Limited, Suffolk Life
Pensions Limited, Suffolk Life Annuities Limited and Dunstan Thomas Group
Limited.
The company's undiscounted borrowing repayable is £4,701k (2021: £4,477k)
within one year and £12,814k (2021: 16,836k) over one year.
13 Provisions
Provisions Other provision Restructuring provision In-specie contributions provision Group
£'000 £'000 £'000 Total
£'000
Balance as at 1 January 2021 7 99 402 508
Amounts provided 211 93 11 315
Amounts utilised - (99) - (99)
Amounts released as unutilised - - (93) (93)
Balance as at 31 December 2021 218 93 320 631
Amounts provided - 20 - 20
Amounts utilised - (93) - (93)
Amounts released as unutilised (72) - - (72)
Balance as at 31 December 2022 146 20 320 486
Other provision
As part of the consolidation and integration exercise undertaken during the
year ended 31 December 2018 management initiated a review of data records
relating to commercial properties held within SIPPs administered by the Group.
A provision of £500,000 was made for the estimated costs of completing this
exercise.
By 31 December 2019, the Group had completed its review enabling
identification of the total number of cases potentially requiring remediation,
and as of 31 December 2020, the vast majority of cases had been settled. There
were no material variances to the original estimate of future remaining direct
costs the Group expected to potentially bear.
A contingent liability was also recorded in respect of possible remediation
that might be required depending on the outcome of the review. The estimate of
these possible costs at 31 December 2019 was £1,400,000. Having largely
completed the review during 2021, management have been able to quantify the
expected remediation costs and provision of £211,000 has been made to the
remaining costs as at 31 December 2021. £68k of this provision was released
in 2022.
Restructuring provision
A £93,000 provision in 2021 has been made to reflect the updated estimate of
the impact from the restructuring activities. This has been fully utilised in
2022.
A new provision of £20k has been raised on the Dundee office dilapidation.
In-specie contributions provision
As previously reported, the Group has been in correspondence with HMRC
regarding processes and documentation in respect of in specie contributions.
HMRC have alleged that incorrect procedures were followed and is seeking to
reclaim tax reliefs granted and interest thereon. This is an industry wide
issue affecting other SIPP operators and has been challenged by the sector as
a whole. Following a favourable ruling for HMRC in a case affecting another
SIPP operator, and having taken further legal advice, the Directors now
consider it more likely than not that some cost associated with this issue
will be incurred by the Group.
The total exposure for affected customers is estimated at £1.1m inclusive of
interest. However, in recognition of the possibility that some customers may
have insufficient assets to settle their share of the cost, the Group
recognised a provision of £0.4m as at 31 December 2020. In 2021, this was
revised to £0.3m based on updated information. No changes have been made on
this provision in 2022.
14 Dividends
Year to 31 December
2022 2021
£'000 £'000
Ordinary dividend declared and paid 5,984 5,997
5,984 5,997
A final dividend in respect of the year ended 31 December 2021 of 6.5p per
share was proposed by reference to audited distributable reserves as at 31
December 2021 and was paid on 1 June 2022.
An interim dividend in respect of the year ended 31 December 2022 of 2.5p per
share was declared by reference to audited distributable reserves as at 31
December 2021 and paid on 11 November 2022.
15 Contingent consideration
The Group and Company has entered into certain acquisition agreements that
provide for contingent consideration to be paid. These agreements and the
basis of calculation of the net present value of the contingent consideration
are summarised below. The Group estimates the fair value of the remaining
contingent consideration payable is £4.4m (2021: £7.7m).
On 3 August 2020 the Group acquired Dunstan Thomas for total maximum
consideration of up to £27.5m, comprising initial consideration of £21.9m in
cash plus contingent consideration of up to £5.6m payable in cash after three
years post completion date if certain financial targets based on growth in
earnings before interest, tax, depreciation and amortisation are met. The
Group estimates the fair value of the remaining contingent consideration at 31
December 2022 to be £1.4m (2021: £3.2m), and this is expected to be settled
during H1 2023.
On 30 October 2020 the Group acquired Talbot and Muir for total maximum
consideration of up to £25.25m, comprising initial consideration of £18.0m
in cash plus contingent consideration of up to £7.25m payable in cash over a
two year period post completion if certain financial targets based on growth
in earnings before interest, tax, depreciation and amortisation are met. The
Group determined the fair value of the remaining contingent consideration at
31 December 2022 to be £3.0m (2021: £4.5m), which was subsequently fully
settled in February 2023.
16 Unaudited IFRS Consolidated Statement of Financial Position
as at 31 December 2022 split between insurance policy holders and the Group's
shareholders
2022 2022 2022 2021
£'000 £'000 £'000 £'000
ASSETS Group Total Policyholder Shareholder Shareholder
Non-current assets
Intangible assets 77,362 - 77,362 89,814
Investment property 1,108,073 1,108,073 - -
Property, plant and equipment 8,012 - 8,012 8,636
Investments 1,970,567 1,970,567 - -
3,164,014 3,078,640 85,374 98,450
Current assets
Trade and other receivables 31,859 11,945 19,914 15,144
Cash and cash equivalents 404,816 380,963 23,853 31,892
Current tax asset 371 122 249 835
437,046 393,030 44,016 47,871
Total assets 3,601,060 3,471,670 129,390 146,321
LIABILITIES
Current liabilities
Trade and other payables 21,942 10,501 11,441 9,455
Deferred income 30,943 13,934 17,009 15,819
Borrowings 40,632 36,067 4,565 4,507
Lease liabilities 1,040 - 1,040 964
Provisions 484 - 484 453
Contingent consideration 4,355 - 4,355 2,467
99,396 60,502 38,894 33,665
Non-current liabilities
Borrowings 34,903 23,275 11,628 15,399
Lease liabilities 6,290 - 6,290 6,774
Provisions 2 - 2 178
Contingent consideration - - - 5,199
Non-participating investment contract liabilities 3,387,893 3,387,893 - -
Deferred tax liability 3,214 - 3,214 3,464
3,432,302 3,411,168 21,134 31,014
Total liabilities 3,531,698 3,471,670 60,028 64,679
Net assets 69,362 - 69,362 81,642
Issued capital 332 - 332 332
Share premium 58,087 - 58,087 58,087
Equity share based payments 3,079 - 3,079 2,840
Treasury shares (1,284) - (1,284) (1,382)
Retained earnings 9,148 - 9,148 21,755
69,362 - 69,362 81,632
Non-controlling interest - - - 10
Total equity 69,362 - 69,362 81,642
17 Unaudited IFRS Consolidated Statement of Cash Flows for the
year ended 31 December 2022 split between insurance policy holders and the
Group's shareholders
2022 2022 2022 2021
£'000 £'000 £'000 £'000
Group Total Policyholder Shareholder Shareholder
Cash flows from operating activities
(Loss)/profit before tax (3,740) - (3,740) 9,322
Adjustments for:
Depreciation 1,645 - 1,645 1,806
Amortisation and impairments 14,631 - 14,631 2,934
Finance costs 1,695 - 1,695 1,800
Share based payment expense 239 - 239 93
Fair value gains on movement in contingent consideration (1,123) - (1,123) (1,870)
Fair value loss/(gains) on financial investments 202,325 202,325 - -
Additions of financial investments (620,331) (620,331) - -
Disposals of financial investments 672,404 672,404 - -
Fair value losses on investment properties 175,450 175,450 - -
Increase in liability for investment contracts (448,318) (448,318) - -
Changes in working capital:
(Increase)/decrease in trade and other receivables (3,911) 892 (4,803) (737)
Increase/(decrease) in trade and other payables 2,032 (1,104) 3,316 2,631
Taxes paid (2,514) - (2,514) (2,510)
Net cash flows from operating activities (9,516) (18,682) 9,166 13,469
Cash flows from investing activities
Payments for intangible assets (2,179) - (2,179) (1,670)
Purchase of property, plant & equipment (683) - (683) (270)
Purchase of investment property (84,724) (84,724) - -
Net Sale/(purchase) of shares in the Group by EBT 98 - 98 (641)
Receipts from sale of investment property 117,669 117,669 - -
Net cash flows from acquisitions (2,687) - (2,687) (255)
Net cash flows from investing activities 27,494 32,945 (5,451) (2,836)
Cash flows from financing activities
Equity dividends paid (5,984) - (5,984) (5,997)
Net proceeds from issue of ordinary shares - - - 290
Net decrease in borrowings (11,901) (7,901) (4,000) (4,000)
Principal element of lease payments (894) - (894) (762)
Interest paid (876) - (876) (781)
Net cash flows from financing activities (19,655) (7,901) (11,754) (11,250)
Net (decrease) / increase in cash and cash equivalents (1,677) 6,362 (8,039) (617)
Cash and cash equivalents at the beginning of the year 386,187 354,295 31,892 32,509
Cash and cash equivalents at the end of the year 384,510 360,657 23,853 31,892
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