REG - IntegraFin Holdings - Final Results
14/12/2022 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20221214:nRSN6123Ja&default-theme=true
RNS Number : 6123J IntegraFin Holdings plc 14 December 2022
LEI Number: 213800CYIZKXK9PQYE87
14 December 2022
Announcement of annual results for IntegraFin Holdings plc ("IHP Group") for
the year ended 30 September 2022
Continued commercial momentum in spite of volatile markets
Headlines
· Group revenue increase of 8% to £133.6m (2021: £123.7m)
· Underlying Group profit before tax increase of 1% to £65.8m
(2021: £65.2m)
· Underlying Group earnings per share increase of 2% to 16.3 pence
(2021: 16.0 pence). The underlying result is after adjusting for
non-underlying expenses including, in particular, the payment to HMRC of prior
year VAT and interest on software services of £8.8m.
· IFRS profit before tax £54.3m (2021: £63.6m)
· IFRS profit after tax £44.0m (2021: £51.1m)
· We remain on schedule with the planned, and pre-announced, IT and
software development recruitment, which we target to complete by the end of
FY23. We reiterate that after this IT investment is completed we then do not
expect material recruitment in these areas in the period to FY27.
· The detailed cost guidance, which we disclosed in July 2022, for
financial years ending 30 September 2023 and 30 September 2024 remains
unchanged.
· Proposed final dividend of 7.0 pence per share (2021: 7.0 pps),
resulting in a full year dividend of 10.2 pence per share, a 2% increase on
prior year (2021: 10.0 pps). The proposed dividend has been calculated by
reference to underlying profit, excluding, in particular, the expense
adjustment for prior years' VAT on software services.
· The Transact platform business continues to grow:
o Gross inflows on to the Transact platform for FY22 of £7.3bn
o Net inflows on to the Transact platform for FY22 of £4.4bn
o A 5% increase in the Transact platform's adviser base to c.7.5k advisers
registered on the Transact platform (30 September 2021: 7.2k)
o An 8% increase in the number of clients using the Transact platform to
c.225k (30 September 2021: 209k)
o Launched the Transact-BlackRock Model Portfolio Service
· The Time4Advice business plan remains on schedule:
o Time4Advice's next generation CURO software is now live with an adviser
firm for beta testing
o The roll out to adviser firms of the next generation CURO software will
commence during the second half of FY23
Financial highlights
IHP Group
Year to 30 September 2022 Year to 30 September 2021 Change (%)
Total Group revenue £133.6m £123.7m +8%
Underlying profit before tax £65.8m £65.2m +1%
IFRS profit before tax £54.3m £63.6m -15%
Underlying earnings per share 16.3p 16.0p +2%
Total dividend per share 10.2p 10.0p +2%
Transact net inflows and FUD
Year to 30 September 2022 Year to 30 September 2021 Change (%)
Net new business inflows £4.4bn £4.9bn -11%
Closing funds under direction ('FUD') £50.1bn £52.1bn -4%
Average daily FUD for the year £52.5bn £47.2bn +11%
Alex Scott, IHP Group Chief Executive Officer, commented:
''I am very pleased with the resilience shown by the IHP Group during the past
financial year.
During a period of significant volatility in asset markets, we have grown
Group revenue, and recorded substantial net flows on to the Transact platform.
This is thanks largely to the continued hard work and commitment to clients,
from our staff, and the advisers we work with.
We have delivered a resilient financial outcome for the financial year ended
30 September 2022, with an underlying profit after tax result of £54.1m,
being 2% higher than the prior year (2021: £53.0m).
In line with our dividend policy of paying out c.60-65% of earnings as a
dividend, we propose a final dividend of 7.0 pence, thereby increasing the
dividend for the year to 10.2 pence, a 2% increase on prior year (2021: 10.0
pence).
Looking ahead, I believe that the outlook remains positive for the Group, with
demand for independent financial advice expected to remain strong. Prior
experience has shown that during periods of economic uncertainty new clients
will continue to seek independent financial advice to facilitate the setup and
implementation of their financial plans. In respect of our current clients, we
expect they will continue to rely on the support and knowledge provided by
their financial adviser.
We are mindful of the difficult economic environment. However, we expect the
performance of the IHP Group to remain resilient during financial year 2023,
with new clients and advisers joining, continued robust flows onto the
Transact platform, and the commencement of the rollout of the next generation
CURO software.''
Enquiries
Investors
Luke Carrivick, IHP Head of Investor Relations +44 020 7608 5463
Media
Lansons: Tony Langham +44 (0)7979692287
Lansons: Maddy Morgan-Williams +44 (0)7947364578
2022 Full year results presentation
IHP will be hosting a virtual analyst audio presentation at 09:30am on 14
December 2022. This will be available at https://brrmedia.news/IntegraFin_FY
(https://brrmedia.news/IntegraFin_FY) . A recording of the presentation will
be available for playback after the event at https://www.integrafin.co.uk/
(https://www.integrafin.co.uk/) . Slides accompanying the analyst presentation
will also be available this morning at
https://www.integrafin.co.uk/annual-reports/
(https://www.integrafin.co.uk/annual-reports/) .
Chief Executive Officer's statement
Overview
The business has remained resilient throughout the year, with robust net flows
and strong adviser and client growth. This is an achievement in a financial
year that has seen a serious downturn in investor sentiment. Any positivity
from the lifting of COVID restrictions has been eroded by increasing levels of
geopolitical tension, inflation levels not experienced in 30 years, industrial
unrest and political turmoil.
At such times of economic uncertainty, clients rely even more on the support
and knowledge of their financial adviser. Our business model is centred on
providing long-term support for our clients and financial advisers, enabling
them to stay on track with their long-term financial plans, helping retain
business on our investment platform.
For the delivery of that support to clients and advisers we combine our
leading proprietary technology with high quality client service. Our
employees, who deliver that service, have been impacted by the current
economic climate, especially the effects high interest rates are having on
mortgage and rent payments, coupled with the significant rise in the general
cost of living. We have managed these concerns by assessing and reshaping our
remuneration packages to provide greater certainty of income for employees,
whilst adding modest additional cost to the Group. Our focus has been on
retention of key employees and on recruitment into roles that drive
efficiency.
Headlines
With our consistent approach, we have continued to grow Transact, with the
platform's adviser base increasing by 5% over the period, leading to over 7.5k
advisers being registered on the Transact platform at the end of the year.
Advisers have brought a further 17k clients to the platform, an increase of 8%
over the year, with 224.7k clients now using Transact to manage their
financial plans.
Gross inflows eased over the year, falling back from the previous year's
record high of £7.70 billion to £7.28 billion. The first quarter of this
year continued to benefit from the positive market sentiment seen in FY21, but
there was a gradual slowing from the second quarter onwards as economic and
political impacts took effect. The Transact platform is utilised by clients
and advisers for long-term financial planning and this long-term view has
helped outflows remain relatively stable during the course of the year. This
resulted in robust net inflows to the Transact platform for the financial year
ended 30 September 2022 of £4.40 billion, relative to the prior year £4.95
billion.
Even with strong positive net inflows, the impact of negative market movements
resulted in a decrease of 4% in FUD at the year-end, finishing at £50.07
billion.
Revenue in the year has increased to £133.6 million (+8%). The Group's
revenue is predominantly generated by the value of funds under direction (FUD)
held on Transact. The average daily FUD on the Transact platform during the
financial year was £52.5 billion, compared with an average during the prior
financial year of £47.2 billion. This has helped drive revenues up, despite
the year end FUD being below the level at the prior year end, as markets fell
sharply from mid-August through to our year end.
Core expenses have increased, mainly due to employee costs, driven by growth
in employee numbers to support and develop the business and inflationary
pressure on salary levels required to recruit and retain high quality
employees. Additionally, HMRC upholding its original decision, at second
review, of our VAT dispute has added £1.8 million to our core expenses this
year.
The VAT decision has also had a significant impact on non-underlying expenses,
as we have paid all prior year contested VAT and interest, £8.8 million in
total, in order to allow us to formally appeal the findings to the First-tier
Tribunal (Tax Chamber).
After these costs, the Group's profit before tax has decreased by 15%, to
£54.3 million. Removing non-underlying VAT and T4A expenses, in both 2021 and
2022, shows a modest increase in underlying profit from £65.2 million in FY21
to £65.8 million in FY22.
Market background
Equity market performance was strong in the first quarter of our financial
year and this was reflected in the advised platform market, with strong
year-on-year growth of gross inflows in the quarter. There was a gradual
slowdown in the second quarter, which resulted in tax year end flows falling
below prior year levels across the sector.
The second half of the year deteriorated more rapidly, as the combined
economic effects of Russia's invasion of Ukraine, trade tensions between the
US and China and the longer-term costs of COVID lockdowns took hold. Interest
rate increases, made globally in an attempt to quell persistent inflation,
have further added to negative sentiment among investors.
Activity in the investment platform market slowed considerably in the second
half of the year, following several changes of platform ownership in the first
half. Over the full year, the retail advised platform market FUD fell by 7%
from £553.28 billion (September 2021) to £516.65 billion (September 2022).
Our activity
Our focus through the year has been on organic platform growth, service
quality and the addition of incremental platform functionality. We have also
been working to enhance our platform operating efficiencies in a hybrid
working model. Amongst many enhancements to our platform were further
additions to our online Guided Applications capabilities, accelerated
portfolio creation and anti-money laundering checking, which has allowed us to
switch off the use of paper forms in line with our environmental strategy.
The employment market has continued to be buoyant, with an excess of jobs over
available quality recruits. We have been able to leverage our reputation to
continue to attract quality employees, but we are not immune to the salaries
being offered to attract our employees away. Money isn't enough by itself to
retain good employees, for whom job fulfilment and feeling they are accepted
as themselves, are both valued highly, even more so following COVID
lockdowns. We foster a culture of belonging, where everyone's views are
important and listened to. Expanding our employee engagement programme, to
better demonstrate this on issues such as flexible working, performance
structures and office environment, has proven beneficial in retaining
employees.
We have increased the breadth of our services for Transact clients, with the
September launch of the Transact - BlackRock Model Portfolio Servicer (MPS).
Available exclusively to investment platform clients, this will extend the
choice of Discretionary Investment Managers available on our platform even
further. The Transact - BlackRock MPS will use BlackRock's market leading
investment process, at a highly competitive ongoing cost for investments. We
expect this to contribute both to the retention of our current clients and
financial advisers, as well as being attractive to new clients and financial
advisers.
We have again been able to reduce the cost of Transact to clients. Reductions
were made to both ad valorem and buy transaction charges, further increasing
the value of the offering to clients.
Development of T4A's next generation CURO software has progressed well, with a
beta client live by the end of the year. A live testing period will then
follow, before rollout to pipeline clients commences later in 2023. In the
meantime, the current CURO3 product has been selling well, with a good flow of
new clients opting to implement this system ahead of the new release.
Throughout the financial year, we have been continuing work with our external
consultants, Willis Towers Watson, to help the Group establish a prioritised
and thoughtful environmental plan. This will be aligned to our ambitions,
supports a low carbon-emissions economy and remains flexible enough to
accommodate changes in regulation. With these criteria in mind, we have set
out a phased approach. The first phase, in which we are making progress,
clarifies the best opportunities across the IHP Group over the short, medium
and longer-term to directly influence and shape the scope 1, 2 and relevant
elements of scope 3 carbon emissions arising from our business.
The outlook
We are mindful of the difficult economic environment, with inflation and
interest rate stresses expected to persist, leading to continued volatility in
asset markets. However, given the strength of our proposition and its
careful management, we expect the performance of the Transact platform to
remain robust during the forthcoming financial year, with new clients and
advisers joining and continued resilient flows onto the Transact platform.
Despite the adverse headwinds, the advised platform market is expected to grow
in 2023, and we aim to carry on growing our share of it.
In 2023, we will continue to execute on our priorities, investing in the
development of our proprietary software, we will train users in how to best
use the extensive functionality now available to deliver operational
excellence efficiently. All of this will enable our clients, with their
advisers, to stay on track with their long-term financial plans.
Once T4A's next generation CURO software has been proven with the beta client,
we will begin the implementation process with the adviser firms in the current
pipeline. The focus will be on ensuring that new users are properly supported
throughout the process, building the foundations of enduring relationships.
July 2023 brings the primary implementation deadline for the FCA's Consumer
Duty regulations, with all reviews necessary to meet the consumer outcome
rules being complete before the end of April. As the business has always been
focused on consumer outcomes, we feel well-positioned for these new rules, but
undoubtedly there will be additional costs incurred in demonstrating
compliance. We have factored this in to our development plans and costs.
We will take a measured approach to our appeal to the First-tier Tribunal (Tax
Chamber) on the VAT ruling, ensuring both legal costs and management time are
kept to a minimum.
We do not underestimate the uncertainty of our environment, however, we focus
on what we can control. Continuing to invest in our people and our
infrastructure, whilst managing our societal impact, will ensure we are well
positioned to face the challenges ahead, enabling us to continue to deliver
for all of our stakeholders.
Ian Taylor
I cannot close without a few words about my long-time friend and colleague,
who sadly passed away in October. Ian was an incredible individual who, with
Mike Howard, set out to completely transform the delivery of financial plans
in the UK market.
Ian's focus was always to deliver the best outcome for "Mrs Miggins". This
focus built a principled business, years ahead of the RDR curve and the
forthcoming Consumer Duty rules.
Ian was always happy to share his thoughts and experience and equally willing
to listen to others, but never diverted from his principles. We continue to
drive the business on those principles: "Do the right thing" and "Stick to our
knitting".
Alexander Scott
CEO
13 December 2022
Financial review
In a fundamentally solid year for core operations, Group revenue increased by
8% to £133.6 million.
There was steady growth in investment platform clients (+8%), investment
platform advisers (+5%) and T4A licence users (+ 46%).
Profit before tax was £54.3 million (-15%). The year on year reduction is due
to investment in people, recognition of current year VAT on software fees and
an increase in non-underlying expenses of £8.2 million to £11.5 million, as
we recognised and settled backdated VAT and interest thereon.
Underlying PBT is £65.8 million (FY21: £65.2 million), an increase of 1% on
underlying PBT for FY21, after VAT of £1.7 million is included in FY21.
EPS is 13.3p (FY21: 15.4p). After removing all non-underlying expenses in
FY22, underlying EPS is 16.3p and it was 16.0p in FY21.
Transact platform operational performance
YE 2022 YE 2021
£m £m
Opening FUD 52,112 41,093
Inflows 7,275 7,695
Outflows (2,873) (2,744)
Net flows 4,402 4,951
Market movements (6,248) 6,297
Other movements(1) (196) (229)
Closing FUD 50,070 52,112
(1) Other movements includes fees, tax charges and rebates, dividends and
interest.
Transact's gross inflows for 2022 financial year were £7.28 billion and
outflows were £2.87 billion, leading to net flows of £4.40 billion, which is
a year on year decrease of 11%. FUD has ended the year down 4% at £50.07
billion, impacted by £6.25 billion of negative market movements.
Inflows for the majority of the first half of the year were strong, at £4.07
billion (FY21: £3.73 billion), and contributed 56% of the full year
inflows. However, as markets fell and inflation took hold, inflows were
impacted and each month subsequent to February 2022 was lower than the same
month in the year before. This was due to client sentiment weakening and the
value of asset transfers onto the platform falling, resulting in a full year
inflow reduction of £420.0 million (5%), when compared against FY21.
The year-on-year reduction in net flows is due to the fall in inflows, and the
annualised rate of platform outflows remains within the range we expect at 6%
(FY21 7%). The steadiness of the outflow rate is supported by the continuing
strength in client numbers and advisers using the platform.
T4A operational performance
T4A was acquired by IHP in January 2021 and, therefore, this is the first full
financial year of T4A being part of the IHP Group.
In the 12 months to September 2022, T4A has increased CURO licence users by
44%, from 1,566 at 30 September 2021, to 2,253 at September 2022. These
numbers exclude a large user that had commenced the process of terminating
their CURO licences at the point T4A was acquired by IHP.
Group financial performance
Revenue
Following the acquisition of T4A in January 2021, there have been two streams
of Group revenue: investment platform revenue (97% of total revenue) and T4A
revenue (3% of total revenue).
Investment platform revenue
Investment platform revenue has increased by 7% year-on-year to £129.7
million and comprises three elements, 98% (FY21: 98%) of which is from a
recurring source.
Annual commission income (an annual, ad valorem tiered fee on FUD) and wrapper
administration fee income (quarterly fixed wrapper fees for each of the tax
wrapper types available) are recurring. Other income is composed of buy
commission and dealing charges.
YE 2022 YE 2021
Investment platform revenue £m £m
Annual commission income (recurring) 115.9 107.7
Wrapper fee income (recurring) 11.6 10.6
Other income 2.2 3.0
Total platform revenue 129.7 121.3
Annual commission income increased by £8.2 million (8%) versus the prior
financial year. Annual commission revenue was impacted by: financial markets
weakening from February onwards, demonstrated by daily average FUD of £53.04
billion for the first half of the financial year reducing to £52.05 billion
for the second half of the financial year; and, we reduced the annual
commission rate from 0.27% to 0.26%, with effect from 1 July 2022.
Recurring wrapper administration fee income increased by £1.0 million (9%)
year-on-year (FY21: 9%), reflecting the increase in the number of open tax
wrappers and broadly in line with the increase in client numbers.
Buy commission, included in other income, reduces as a component of revenue
each year and was £1.5 million (FY21: £2.3 million) in FY22. We reduced
the threshold at which clients receive a rebate of buy commission with effect
from 1 March 2022, from £0.3 million which effected on 1 March 2021, to £0.2
million from 1 March 2022.
T4A revenue
T4A's revenue was £3.9 million for FY22, compared with £2.4 million from 11
January 2021 to 30 September 2021.
Operating expenses
YE 2022 YE 2021
£m £m
Employee costs 47.1 41.6
Occupancy 2.3 1.4
Regulatory and professional fees 9.8 7.6
Other income - tax relief due to shareholders (2.4) (2.2)
Current year VAT 3.2 1.2
Other costs 3.2 2.8
Non-underlying expenses - backdated VAT and interest 8.8 -
Non-underlying expenses - other 2.7 3.3
Total expenses 74.7 55.7
Depreciation and amortisation 3.0 3.1
Total operating expenses 77.7 58.8
Operating expenses have increased by £18.7 million, or 32%. This is
attributable to the following notable increases in expense categories. Note
that FY22 includes a full year of T4A expenses of £5.3 million, versus £3.4
million for nine months in FY21.
Non-underlying expenses - backdated VAT (£8.0 million) and interest (£0.8
million)
Other non-underlying expenses - £2.7 million
In our FY20 and FY21 Annual Report, we disclosed a contingent liability in
respect of potential reverse charge VAT payable on services provided by our
wholly owned Australian software development Company, Integrated Application
Development Pty (IAD).
The contingent liability arose because HMRC had notified us in January 2020
that the inclusion of IAD in our VAT Group was terminated with effect from
July 2016.
We have been unsuccessful in two stages of requesting HMRC review their
original decision to exclude IAD Pty from our VAT Group, as detailed in a
Regulatory News Announcement released on 20 September 2022, and as a result we
have had to settle backdated VAT of £8.0 million for the period to September
2021. We have also paid non-recurring interest on the VAT due of £800k.
We are appealing the original decision to the First-tier Tribunal (Tax
Chamber), however, we will be required to recognise and pay VAT on software
fees going forward whilst our appeal progresses, as such we have also
recognised an ongoing VAT liability in the current year of £1.8 million,
Other non-underlying expenses of £2.7 million comprise a credit of £0.3
million upon the release of a dilapidations accrual for the Clement's Lane
office, which has now been confirmed as not required, and £3.0 million of
ongoing expenses due to the IFRS requirement that we recognise the post
combination deferred and additional consideration payable to the original T4A
shareholders in relation to the acquisition of T4A as remuneration over the
four years from January 2021 to December 2024. The remuneration cost is
expected to be £3.0 million in both FY23 and FY24, and will reduce to £760k
in FY25.
Employee costs £47.1 million (+£5.5 million (+13%))
Employee costs have increased from £41.6 million to £47.1 million (+13%),
including T4A employee costs of £4.1 million (FY21 nine months: £2.5
million). Average monthly employee costs have risen 8% from £3.6 million to
£3.9 million and average Group employee numbers through the year have also
increased by 8% (FY21: 2%) from 543 in FY21 to 594 in FY22.
Notable headcount additions are 15 roles across the Group in software
development and information technology areas, with more roles being recruited
over the coming months, in line with our intent to significantly increase
system development capacity across the Group which will drive efficiencies.
We have also added eight roles in order to better support advisers using our
investment platform software, in order to increase self-service, which again
increases efficiencies.
We awarded our people, excluding T4A, an average pay rise of 7.5% (FY21: 5%)
in June 2022, in recognition of the increase in the cost of living in 2022,
which also increased employer National Insurance, already impacted by the
1.25% social care levy introduced in April, and contractual enrolment costs.
Regulatory and professional fees £9.8 million (+£2.2 million (+29%))
Regulatory fees and FSCS costs have increased by £700k (19%), from £3.5
million in FY21 to £4.2 million in FY22. This is due to an increase in fees
levied on two of the regulated entities in the Group: Integrated Financial
Arrangements Ltd (IFAL) and IntegraLife UK Ltd (ILUK). The uplift in these
costs arises due to increasing business volumes and impacts the financial
services industry as a whole.
Professional fees have increased year-on-year by £1.5 million (37%), from
£4.1 million in FY21 to £5.6 million in FY22. The uplift in professional
fees relates to one-off consultancy and advisory engagements, which have been
necessary in order to progress Corporate projects, such as the Group
restructure.
Occupancy £2.3 million (+£0.9 million (+64%))
Occupancy costs have increased by £0.9 million in FY22, due to a reduction in
the rates rebate for the Clement's Lane Head Office of £0.5 million to £0.2
million in FY22. There has also been a very sharp inflationary increase in
energy costs from December 2021 onwards, resulting in an increase in FY22 of
£0.4 million. These inflated energy costs are projected to continue for the
foreseeable future.
Current year VAT (£3.2 million (+£2.0 million (+167%))
Current year VAT has increased by £2.0 million, largely due to recognition of
VAT on software fees in FY22. This cost will be ongoing, whilst the next stage
appeal process progresses.
Tax
The Group has operations in three tax jurisdictions: UK, Australia and Isle of
Man. This results in profits being subject to tax at three different rates.
However, the vast majority of the Group's income, 96%, is earned in the UK.
Shareholder tax on ordinary activities for the year decreased by £2.2
million, or 18%, to £10.3 million (FY21: £12.5 million) due to the reduction
in taxable profit. Our effective rate of tax over the period was 18% (FY21:
20%). The decrease in effective rates compared to FY21 was due to the increase
in allowable non-underlying expenses incurred in FY22, as the backdated,
non-recurring VAT was tax deductible.
Our tax strategy can be found at:
https://www.integrafin.co.uk/legal-and-regulatory-information/
(https://www.integrafin.co.uk/legal-and-regulatory-information/)
Profit
Group gross profit for the year to September 2022 rose by £9.3 million to
£131.5 million, from £122.2 million, an increase of 8%.
Group profit before tax (PBT) has reduced by 15% to £54.3 million.
Excluding all non-underlying expenses, Group PBT has risen by 1%, or £0.6
million, year on year, to £65.8 million, including a full year of T4A losses
of £1.9 million (FY21 nine months: £1.2 million).
Group profit after tax has reduced by £7.1 million (14%) year on year, from
£51.1 million to £44.0 million.
Earnings per share
YE 2022 YE 2021
£m £m
Profit after tax for the period 44.0 51.1
Average number of shares - basic EPS 331.0m 331.0m
Average number of shares - diluted EPS 331.3m 331.3m
Earnings per share - basic and diluted 13.3p 15.4p
Earnings per share have fallen by 2.1p per share to 13.3p, a fall of 14%.
Consolidated statement of financial position
Net assets have grown 17%, or £8.9 million, in the year, and the material
movements on the consolidated statement of financial position are as follows:
Cash and significant cash flows
Shareholder cash has increased by £6.9 million year on year to £183.0
million (FY21: £176.1 million). Growth of 4% (FY21: 14%) reflects the cash
generative nature of the business and ongoing Group liquidity, but is offset
by dividends paid in the year of £33.8 million (FY21: £28.5 million) and the
one off payment of £8.8 million of backdated VAT and interest, plus £1.4
million paid in respect of VAT due for ten months of FY22.
Deferred tax asset, non-current provisions and non-current deferred tax
liability
The large increases in the deferred tax asset of £5.3 million to £6.0
million (FY21: £0.7 million), the non-current provisions of £34.9 million to
£41.9 million (FY21: £7.0 million) offset by the reduction of the
non-current deferred tax liabilities of £28.6 million to £0.9 million (FY21:
29.5 million) are all a function of the realised and unrealised losses that
have arisen on policyholder assets, as the value of linked funds has fallen
year on year.
ILUK holds tax charges deducted from ILUK policyholders in reserve to meet
future tax liabilities and the tax reserve may be paid back to policyholders
if asset values do not recover such that the tax liability unwinds.
Investments and cash held for the benefit of policyholders and liabilities for
linked investment contracts (notes 17, 18 and 20)
ILUK and ILInt write only unit-linked insurance policies. They match the
assets and liabilities of their linked policies such that, in their own
individual statements of financial position, these items always net off
exactly. These line items are required to be shown under IFRS in the
consolidated statement of comprehensive income, the consolidated statement of
financial position and the consolidated statement of cash flows, but have zero
net effect.
Cash and investments held for the benefit of ILUK and ILInt policyholders have
fallen to £22.17 billion (FY21: £23.05 billion). This fall of 4% is entirely
consistent with the fall in total FUD on the investment platform.
Capital resources and capital management
To enable the Group to offer a wide range of tax wrappers, there are three
regulated entities within the Group: a UK investment firm, a UK life insurance
Company and an Isle of Man life insurance Company.
Each regulated entity maintains capital well above the minimum level of
regulatory capital required, ensuring sufficient capital remains available to
fund ongoing trading and future growth. Cash and investments in short-dated
gilts are held to cover regulatory capital requirements and tax liabilities.
The regulatory capital requirements and resources in ILUK and ILInt are
calculated by reference to economic capital-based regimes.
IFAL, from the 1 January 2022, has been subject to new regulatory capital and
liquidity rules with the implementation in the UK of the MIFIDPRU rule book.
The new prudential rules introduce revised approach for the calculation of
capital requirements reflecting new 'K' factor requirements that cover
potential harms arising from business activities. The K factors are
calculated on formulas for assets and cash under administration
Regulatory Capital as at 30 September 2022
Regulatory Capital requirements Regulatory Capital resources Regulatory cover
£m £m %
IFAL 32.2 39.7 123.2
ILUK 193.5 245.7 127.0
ILInt 25.1 44.0 175.3
All of the Company's regulated subsidiaries continue to hold regulatory
capital resources well in excess of their regulatory capital requirements. We
will maintain sufficient regulatory capital and an appropriate level of
working capital. We will use retained capital to further invest in the
delivery of our service to clients, pay dividends to shareholders and provide
fair rewards to employee.
Capital as at 30 September 2022
£m
Total equity 173.2
Loans and receivables, intangible assets and property, plant and equipment (30.6)
Available capital pre dividend 142.6
Interim dividend declared (23.2)
Available capital post dividend 119.4
Additional risk appetite capital (76.2)
Surplus 43.2
Additional risk appetite capital is capital the board considers to be
appropriate for it to hold to ensure the smooth operation of the business such
that it is able to meet future risks to the business plan and future changes
to regulatory capital requirements without recourse to additional capital.
The board considers the impact of regulatory capital requirements and risk
appetite levels on prospective dividends from all of its regulated
subsidiaries.
Our Group's Pillar 3 document contains further details and can be found on our
website at: https://www.integrafin.co.uk/legal-and-regulatory-information/
Pillar 3 Disclosures.
As stated in the Chair's report, the board has declared a second interim
dividend for the year of 7.0 pence per ordinary share, taking the total
dividend for the year to 10.2 pence per share (2021: 10.0p)
Dividends
During the year to 30 September 2022, IHP (the Company) paid a second interim
dividend of £23.2 million to shareholders in respect of financial year 2021
and a first interim dividend of £10.6 million in respect of financial year
2022.
In respect of the second interim dividend for financial year 2022, the board
has declared a dividend of 7.0 pence per ordinary share (FY21: 7.0p).
The financial year 2022 total dividends paid and declared of £33.8 million
compares with full year interim dividends of £33.1 million in respect of
financial year 2021.
Principal risks and uncertainties
The directors, in conjunction with the board and ARC, have undertaken a review
of the potential risks to the Group that could undermine the successful
achievement of its strategic objectives, threaten its business model or future
performance and considered non-financial risks that might present operational
disruption.
The tables below set out the Group's principal risks and uncertainties, the
risk trend for 2022 together with a summary of how we manage and mitigate the
risks.
Business and strategic risks
Principal risk and uncertainty Management and controls 2022 risk trend:
Service standard failure (including unexpected outflow risk) - Our high levels We manage the risk of service standards failure by ensuring our service Increase
of client and adviser retention are dependent upon our consistent and reliable standards do not deteriorate. This is achieved by providing our client service
levels of service. Failure to maintain these service levels would affect our teams with extensive initial and ongoing training, supported by experienced
ability to attract and retain business. There is a potential risk for a net subject matter experts and managers. Service levels are monitored and quality
outflow (i.e. greater level of withdrawals or transfers) than expected checked and any deviation from expected service levels is addressed. We also
impacting profitability. conduct satisfaction surveys to ensure our service levels are still perceived
as excellent by our clients and their advisers. Service standards are also
dependent on resilient operations, both current and forward looking, ensuring
that risk management is in place.
Aligned to strategic objectives
We remain a recognised top platform service provider by the industry, with
1. Drive Growth steady increases in the number of advisers and clients on our core platform
system. The challenges facing the business and the wider industry, have
2. Grow Earnings increased during the year, however monitoring service metrics has allowed us
to identify the areas where processing backlogs have arisen and to deliver
targeted remediation plans to ensure customer outcomes and service standards
are maintained.
T4A continues to develop the delivery of NEXT GENERATION CURO and the team has
grown to meet client demand.
Diversion of platform development resources - The risk of reduced investment in the platform is managed through a Stable
disciplined approach to expense management and forecasting. We horizon scan
Maintaining our quality and relevance requires ongoing investment. Any for upcoming regulatory and taxation regime changes and maintain contingency
reduction in investment due to diversion of resources to other to allow for unexpected expenses e.g. UK Financial Services Compensation
non-discretionary expenditure (for example, regulatory developments) may Scheme (FSCS) levies, which ensures we do not need to compromise on investment
affect our competitive position. in our platform to a degree that affects our offering.
Aligned to strategic objectives
1. Drive growth
The risk has remained broadly unchanged over the year. We remain proactive in
2. Invest in the business embedding regulatory changes (e.g. IFPR, Operational Resilience) through our
business as usual model. Our platform developers remain responsive to the
3. Grow earnings business and have increased developer resources over the year.
We are responsive to tax rate changes relevant to our products without lengthy
Platform development lead times.
Increased competition - We operate in a competitive market. Increased levels Competitor risk is mitigated by focusing on providing exceptionally high Increase
of competition for clients and advisers; improvements levels of service and being responsive to client and financial adviser demands
in offerings from other investment platforms; and consolidation in through an efficient process and operational base. We continue to develop our
the adviser market may all make it more challenging to attract and retain digital strategy expanding our Transact on-line interface allowing advisers
business. direct processing onto the platform. This is more cost effective and allows us
to continue to increase the value-for-money of our service by reducing client
charges, subject to profit and capital parameters when deemed appropriate.
Aligned to strategic objectives The Group continues to review its business strategy and growth potential. In The market remains competitive with an increasing number of on-line
this regard, it primarily considers organic opportunities that will enhance or application based products available to individuals. In addition the FCA
1. Drive growth complement its current service offerings to the adviser market. undertake ongoing reviews on the delivery of the "Investment platforms market
study" from 2019 which encourages the transparency of communication to clients
3. Grow earnings and advisers on pricing and charging structures. The new FCA Consumer Duty
rules further raise expectations for platform providers to test and assess
value-for-money products, services and fee advice.
The advised market remains our key target and our platform service and
developments remain award winning. Positioning and delivering our digital TOL
services forms a key part to our business strategy improving both
functionality and service efficiency.
T4A continues to broaden our service offering to advisers. We also continue
to support the diversification of the adviser market through the Vertus scheme
which continues to be successful.
We remain a recognised top platform service provider by the industry, with
steady increases in the number of advisers and clients on our core platform
system. The challenges facing the business and the wider industry, have
increased during the year, however monitoring service metrics has allowed us
to identify the areas where processing backlogs have arisen and to deliver
targeted remediation plans to ensure customer outcomes and service standards
are maintained.
T4A continues to develop the delivery of NEXT GENERATION CURO and the team has
grown to meet client demand.
Diversion of platform development resources -
Maintaining our quality and relevance requires ongoing investment. Any
reduction in investment due to diversion of resources to other
non-discretionary expenditure (for example, regulatory developments) may
affect our competitive position.
Aligned to strategic objectives
1. Drive growth
2. Invest in the business
3. Grow earnings
The risk of reduced investment in the platform is managed through a
disciplined approach to expense management and forecasting. We horizon scan
for upcoming regulatory and taxation regime changes and maintain contingency
to allow for unexpected expenses e.g. UK Financial Services Compensation
Scheme (FSCS) levies, which ensures we do not need to compromise on investment
in our platform to a degree that affects our offering.
Stable
The risk has remained broadly unchanged over the year. We remain proactive in
embedding regulatory changes (e.g. IFPR, Operational Resilience) through our
business as usual model. Our platform developers remain responsive to the
business and have increased developer resources over the year.
We are responsive to tax rate changes relevant to our products without lengthy
Platform development lead times.
Increased competition - We operate in a competitive market. Increased levels
of competition for clients and advisers; improvements
in offerings from other investment platforms; and consolidation in
the adviser market may all make it more challenging to attract and retain
business.
Aligned to strategic objectives
1. Drive growth
3. Grow earnings
Competitor risk is mitigated by focusing on providing exceptionally high
levels of service and being responsive to client and financial adviser demands
through an efficient process and operational base. We continue to develop our
digital strategy expanding our Transact on-line interface allowing advisers
direct processing onto the platform. This is more cost effective and allows us
to continue to increase the value-for-money of our service by reducing client
charges, subject to profit and capital parameters when deemed appropriate.
The Group continues to review its business strategy and growth potential. In
this regard, it primarily considers organic opportunities that will enhance or
complement its current service offerings to the adviser market.
Increase
The market remains competitive with an increasing number of on-line
application based products available to individuals. In addition the FCA
undertake ongoing reviews on the delivery of the "Investment platforms market
study" from 2019 which encourages the transparency of communication to clients
and advisers on pricing and charging structures. The new FCA Consumer Duty
rules further raise expectations for platform providers to test and assess
value-for-money products, services and fee advice.
The advised market remains our key target and our platform service and
developments remain award winning. Positioning and delivering our digital TOL
services forms a key part to our business strategy improving both
functionality and service efficiency.
T4A continues to broaden our service offering to advisers. We also continue
to support the diversification of the adviser market through the Vertus scheme
which continues to be successful.
Financial risks
Principal risk and uncertainty Management and controls Change over the year
Stock and bond market volatility (Market Risk) - our core business revenue is The risk of stock and bond market volatility, and the impact on revenue, is Increase
derived from our platform business which has a fee structure based upon a mitigated through a wide asset offering which ensures we are not wholly
percentage of our FUD. Sustained equity and bond volatility has an impact on correlated with one market, and which enables clients to switch assets in
the revenue streams of the platform business. times of uncertainty. In particular, clients are able to switch into cash
assets, which remain on our platform. Our wrapper fees are not impacted by
market volatility as they are based on a fixed quarterly charge. We retain a
good insight of our business processes in order to ensure efficiencies are The risk to FUD from stock and bond market volatility remains high.
Aligned to strategic objectives captured which coupled with further online processing allows us to closely
monitor and control expenses. A strong investment platform service and sales External factors continue to influence equity markets in 2022 which have
1. Drive growth and marketing activity ensures we attract new advisers and clients. Sustaining significantly unwound much of the post COVID 2021 re-bound. The Ukraine/Russia
positive net inflows during turbulent times presents the potential for longer war has set inflationary and economic shockwaves globally, impacting energy
3. Grow earnings term profitability. prices and supply chains. The changes in Prime Ministers in the UK has seen a
shift in policy on tax and fiscal support at a macro-economic level as well as
4. Maintain cash generation for individuals and businesses. A significant level of uncertainty remains in
the success the measures taken by Governments and Central Banks, who are
5. Maintain strong balance sheet Our average daily FUD for the financial year has increased at £52.5bn (2021: facing decade highs in interest rates in their attempts to tackle inflation,
£47.2bn). The Transact platform is utilised by clients and advisers for will have. Stock and bond market volatility is expected to continue for the
6. Deliver on dividend policy long-term financial planning and outflows have remained relatively stable foreseeable future with a consequential impact on the value of our FUD.
during the course of the year. However, the closing value of FUD year on year
has reduced by 3.9% which is a direct reflection of the downward market
movements in the first six months of 2022. Net inflows onto the platform
remained robust throughout the year and represents a strong pipeline for
future platform growth.
Uncontrolled expense risk - Higher expenses than expected and budgeted for The most significant element of our expense base is employee costs. These are Increase
would adversely impact cash profits. Economic drivers e.g. sustained levels of controlled through modelling employee requirements against forecast business
high inflation can impact the cost base of the business irrespective of volumes. Planned investment in IT and software development deliver
business volumes e.g. through salary rises, premises, utility bills and enhancements to our proprietary platform enabling us to implement enhanced
external levies and legal fees. The suppliers are also wrestling with the straight through processing of operational activities. A robust multi-year
requirements of climate initiatives with unit costs for sustainable or green costing plan is produced which reflects the strategic initiatives of the
energy and supplies likely to attract a premium as organisations stride toward business. This captures planned investment expenditure which build our The risk has increased over the year as a direct result of inflationary
a net zero carbon footprint. Such costs are difficult to control directly operational capability and cost effective scalability of the business. Cost pressures on the UK and Global economy. The Group has made supportive cost of
and also unexpectedly impact the base case budget. base variance analysis is completed with any expenditure that deviates living salary increases to employees, and actively recruited IT and developers
unexpectedly from plan being rigorously reviewed to assess the likely trend to support the business. Occupancy and utility costs as a result of inflation
with reforecasts completed accordingly. and employees returning to the office have increased. Regulatory fees and
professional fees have also increased during the year as a result of the broad
Aligned to strategic objectives regulatory agenda. Slower rates of increase are expected in 2023.
4. Maintain cash generation
6. Deliver on dividend policy
Capital strain (including Liquidity) - Unexpected, additional capital or We continuously monitor the current and expected future regulatory environment Stable
liquidity requirements imposed by regulators may negatively impact our and ensure that all regulatory obligations are or will be met. This provides a
solvency coverage ratio. proactive control to mitigate this risk. Additionally, we carry out an
assessment of our capital requirements, which includes assessing the
regulatory capital required. We retain a capital buffer over and above the
regulatory minimum solvency capital requirements.
Aligned to strategic objectives
The expectation for capital and liquidity requirements meets regulatory
expectation.
5. Maintain strong balance sheet
6. Deliver on dividend policy
Credit risk - loss due to defaults from holdings of cash and cash equivalents, The Group seeks to invest its shareholder assets in high quality, highly Stable
deposits, formal loans and reinsurance treaties with banks and financial liquid, short-dated investments. Maximum counterparty limits are set for banks
institutions. and minimum credit quality steps are also set. The Vertus loan scheme has an
agreed commitment level and the value of the drawn and undrawn balances are
monitored regularly. Loans are made on approved business cases.
Aligned to strategic objectives No change.
5. Maintain strong balance sheet
Non-financial risks
Principal risk and uncertainty Management and controls Change over the year
Reputational risk - the risk that current and potential clients' desire to do The Risk Management Framework provides the monitoring mechanisms to ensure Stable
business with the Group reduces due to a lower perception in the market place that reputational damage controls operate effectively and reputational risk is
of the Group's offered services covering the Transact platform and T4A adviser mitigated, to some extent, by internal operational risk controls, error
support software. management and complaints handling processes as well as root cause analysis
investigations.
Unchanged for the year.
Aligned to strategic objectives
1. Drive growth
Operational risk (including operational resilience and the environment, social People Increase
and governance (ESG) agenda) - the risk of loss arising from inadequate or
failed internal processes, people and systems, or from external events. We are very aware of our need to retain and attract experienced and competent
people within the business. The business announced a new performance
management and talent recognition programme which seeks to reward high
performing employee members and identify future leaders and talent within the
People business. We maintain a comprehensive career and training development The "great resignation" from mid-2021 into the early part of 2022 presented
programme and provide a flexible working environment that meets our employee some initial difficulties with the retention of employees and the ability to
The inability to attract, retain and motivate employees within the business. and business needs. These are supported by robust Group HR policies and attract new recruits in our UK and Australian operations. Through a strong
Significant attrition rates of experienced employees or an inability to practices. group engagement process we have been able to identify and address the gaps.
attract new employees can have a detrimental impact on the service provided as
well as poor adherence to regulatory procedures and requirements resulting in
reputational damage and potential compliance breaches.
IT Infrastructure and software
Initiatives that include, a supportive cost of living pay increase;
An aging and underinvested IT infrastructure and software has the potential
implementation of a new performance management approach; defined future talent
for causing the Company disruption through systems outages, a failure to plan IT Infrastructure and software mapping with a focus on training and career development; the adoption of
and maintain operational capacity and create vulnerabilities to operational
flexible working arrangements between the office and home, have collectively
resilience and loss of a competitive market share as newer technology emerges. The continuous and evolving sophistication of the cyber threat to our IT managed the risk position.
infrastructure and maintaining business resilience remain high on the
operational risk agenda. Cyber detection tools are deployed, penetration
testing and the assessment of controls to NIST standards is regularly
undertaken. Key developments in our IT infrastructure are due to complete at the end of
2022 with the full commissioning of new datacenters giving more capacity and
Awareness training is provided to ensure employee understand and recognise operational resilience.
threats to our business systems.
IT Resiliency and Information Security
The nature of the business requires the Group to store and retrieve
Continued investment in IT and software development will deliver enhancements
significant volumes of information some of which is highly sensitive. IT Resiliency and Information Security to our proprietary investment platform and back office software - with
enhanced functionality for UK clients and their advisers. Furthermore, this
The Group aims to minimise its operational risks at all times through a strong investment will enable us to implement enhanced straight through processing of
and well-resourced control and operational structure. In particular, the our operational activities, meaning that we improve our operational
Regulatory risk Group has in place a dedicated financial crime team and an on-going fraud and efficiencies and the cost effective scalability of our investment platform.
cyber risk awareness programme. Additionally, the Group carries out regular This will reduce the additional operational employees required to service
The regulated entities within the Group have a full and stretching agenda. A IT system maintenance, and system vulnerability testing. The Crisis Management additional clients and advisers over the next 3 years.
range of pronouncements made during the last 18 months need transitioning Team (CMT) reviews the Group's business continuity plans during the course of
effectively into business as usual, including FCA PS22/9 Consumer Duty and FCA the year.
PS21/3 Operational Resilience. It is imperative that these activities remain
on plan and meet the high standards expected. Meeting the regulatory agenda is primary to our operations for our core
platform business. The agenda remains challenging but we remain on track to
Beyond IT and cyber security, the Company also has a function lead by the deliver in line with required target dates.
Company's data protection officer to manage information security risk and
compliance with UK GDPR.
Aligned to Strategic Objectives
1. Drive growth Regulatory focus
2. Invest in the business The Group has established a series of projects to deliver against the
regulatory requirements it faces. We use our subject matter experts to
3. Grow earnings interpret and business lines to implement policies and procedures aligned to
expectations. In addition, Group Internal Audit undertake thematic reviews of
4. Maintain cash generation the regulatory projects throughout the course of delivery to ensure scoping,
gap analysis and delivery plans and actions are adequately covered. This
review also reflects on our internal governance ensuring the board retain
ownership receiving effective communication and updates.
Operations form an integral part of the ESG agenda and we are embracing the
developments by continuing to work towards understanding the impact of climate
change on the business operations and ensuring diversity and inclusion is
actively embedded across all areas of the business. A consistent application
of the risk management framework, has supported the Group allowing management
to make effective and informed risk based operational decisions.
Increase
Geopolitical risk - the risk of changes in the political landscape disrupting Geopolitical risk cannot be directly mitigated by the Group. However, through
the operations of the business or resulting in significant development costs. close monitoring of developments through its risk horizon scanning process,
potential impacts are taken into consideration as part of the business
planning process.
The external geo-political environment in 2022 has become increasingly
Aligned to strategic objectives uncertain through a series of significant global events including the
Ukraine/Russia war, trade tensions between USA and China, global energy crisis
1. Drive growth and supply chain issues. Within the UK, political events are causing
disruption to markets and macroeconomics with a direct impact on FUD for the
2. Invest in the business Group.
3. Grow earnings
4. Maintain cash generation
5. Maintain strong balance sheet
6. Deliver on dividend policy
Emerging risk focus
The management approach to risk ensures that we identify and monitor a series
of emerging risks. These have a degree of uncertainty around the likelihood
and impact on the business. The more significant emerging risks in the near,
medium and longer term are set out below and are regularly reported and
assessed through the governance Committees.
We have classified the profile of these risks as follows; Near-term is
considered to represent the next 12 months; Medium-term between 1 and 3 years
and longer-term is 3 years and beyond.
Near-term risks · Prolonged poor economic outlook for the UK · A sustained level of UK economic disruption with high inflation and
interest rates, volatile bond and equity markets and potential house price
slumps is expected to impact investing clients' confidence. Investors might
seek to withdraw funds to meet their cost of living increase which would
impact the value of our FUD and future income streams.
· Geopolitical risk · The potential for further geopolitical global shocks is increasing. In
addition to the humanitarian impact of the Ukraine/Russia war, a severe energy
crisis has emerged impacting European countries which is impacting the post
COVID economic recovery and cost of living. The potential for a further
deterioration in USA and China trading arrangements may well impact supply
chains especially the computer chip market. Sanctions reprisals with Russia
might lead to technology reprisals through cyber threats on the financial
services sector.
· Financial Crime Fraud · The emergence of more sophisticated instances of financial crime
impacting our security and reputation across the client base.
· Disruptive market influences The independent adviser model is dramatically impacted as a result of
prolonged economic factors, new technological entrants and a more aggressive
acquisition by vertically integrated firms reducing our adviser/client base.
Medium-term risks · Climate change · A disorderly transition towards a low carbon economy might lead to
additional and burdensome regulation and policies being imposed on companies.
This has the potential to have two impacts, firstly on the value of other
companies and, hence, our FUD with the consequence of impacting our revenues;
secondly on the cost base from our suppliers imposing a premium as we strive
to deliver our operational climate strategies in terms of premises, workforce
travel, energy suppliers and the supply and disposal of consumables, e.g. IT
equipment, paper, water.
· Regulatory changes and a shifting focus · Changing expectations of the UK and Isle of Man regulators. Increasing
regulatory scrutiny or focus impacting our platform business model.
· Shift in tax regime which may alter the tax benefits of pensions and
ISAs. The shift in the tax treatment of savings commonly referenced as EET and
TEE 1 (#_ftn1) .
· Changes in international tax rules and the impact on the Group's Isle of
Man Company, ILInt, with the potential for IOM corporate profits to be taxed
at 15%.
Longer-term risks · Generational shift in customers and expectations · The aging population is shifting the longer term savings habits and
expectations. The cost of an aging demographic population suggests that higher
taxes may be required of a smaller working population creating less savings
opportunities. Surveys suggest that Gen-X and Millennials are more
conservative investors with many indicating a preference to hold cash. The
further advancement of technology may well impact the employment markets and
our target markets in the longer term.
The directors have carried out a robust assessment of the principal and
emerging risks facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity, and have concluded
that the Group is well positioned to manage these risks.
Statement of directors' responsibilities
The directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable United Kingdom law and
regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have elected to prepare the Group
and parent Company financial statements in accordance with UK-adopted
international accounting standards ("IFRSs"). Under Company law the directors
must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and the Company
and of the profit or loss of the Group and the Company for that period.
In preparing these financial statements the directors are required to:
• select suitable accounting policies in
accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors and then apply them consistently;
• make judgements and accounting estimates that
are reasonable and prudent;
• present information, including accounting
policies, in a manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance
with the specific requirements in IFRSs is insufficient to enable users to
understand the impact of particular transactions, other events and conditions
on the Group and Company financial position and financial performance;
• in respect of the Group financial statements,
state whether UK-adopted international accounting standards have been
followed, subject to any material departures disclosed and explained in the
financial statements;
• in respect of the parent Company financial
statements, state whether UK-adopted international accounting standards, have
been followed, subject to any material departures disclosed and explained in
the financial statements; and
• prepare the financial statements on the going
concern basis unless it is inappropriate to presume that the Company and/ or
the Group will continue in business.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's and Group's transactions and
disclose with reasonable accuracy, at any time, the financial position of the
Company and the Group and enable them to ensure that the Company and the Group
financial statements comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Group and parent Company and
hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
Under applicable law and regulations, the directors are also responsible for
preparing a strategic report, directors' report, directors' remuneration
report and corporate governance statement that comply with that law and those
regulations. The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Company's website.
Directors' responsibilities pursuant to DTR4
The directors confirm, to the best of their knowledge:
• that the consolidated financial statements, prepared in
accordance with UK-adopted international accounting standards give a true and
fair view of the assets, liabilities, financial position and profit of the
parent Company and undertakings included in the consolidation taken as a
whole;
• that the annual report, including the strategic report,
includes a fair review of the development and performance of the business and
the position of the Company and undertakings included in the consolidation
taken as a whole, together with a description of the principal risks and
uncertainties that they face; and
• that they consider the annual report, taken as a whole, is
fair, balanced and understandable and provides the information necessary for
shareholders to assess the Company's position, performance, business model and
strategy.
By order of the board,
Helen Wakeford
Company Secretary
13 December 2022
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Note 2022 2021
£'m £'m
Revenue
Fee income 5 133.6
123.7
Cost of sales (2.1) (1.5)
Gross profit 131.5 122.2
Expenses
Administrative expenses 8 (77.7) (58.8)
Credit loss allowance on financial assets 22 (0.2) (0.2)
Operating profit 53.6 63.2
Interest expense 25 (0.1) (0.2)
Interest income 9 0.8 0.1
Net policyholder returns¹
Net income/(loss) attributable to policyholder returns (38.5) 31.5
Change in investment contract liabilities 2,770.3 (2,736.1)
Fee and commission expenses 18 (192.6) (204.1)
Policyholder investment returns 10 (2,577.7) 2,940.2
Net policyholder returns (38.5) 31.5
Profit on ordinary activities before taxation attributable to policyholders 15.8 94.6
and shareholders
Policyholder tax credit/(charge) 38.5 (31.0)
Profit on ordinary activities before taxation attributable to shareholders 54.3 63.6
Total tax attributable to shareholder and policyholder returns 11 28.2 (43.5)
Less: tax attributable to policyholder returns (38.5) 31.0
Shareholder tax on profit on ordinary activities (10.3) (12.5)
Profit for the financial year 44.0 51.1
Other comprehensive (loss)/income
Exchange (losses)/gains arising on translation of foreign operations 0.1 (0.1)
Total other comprehensive (losses)/income for the financial year 0.1 (0.1)
Total comprehensive income for the financial year 44.1 51.0
Earnings per share
Earnings per share - basic and diluted 7 13.3p 15.4p
(1) See note 1 for details on the presentational changes to policyholder
balances.
All activities of the Group are classed as continuing.
Notes 1 to 35 form part of these Financial Statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Note 2022 2021
£'m £'m
Non-current assets
Loans 16 5.5 3.4
Intangible assets 12 21.8 22.3
Property, plant and equipment 13 1.2 1.8
Right-of-use assets 14 2.1 3.6
Deferred tax asset 26 6.0 0.7
36.6 31.8
Current assets
Financial assets at fair value through profit or loss 21
3.1 5.1
Other prepayments and accrued income 22
17.2 16.0
Trade and other receivables 23 2.0 3.7
Cash and cash equivalents 19 183.0 176.1
Current tax asset 15.0 1.1
220.3 202.0
Current liabilities
Trade and other payables 24 21.5 17.4
Provisions 28 10.7 11.6
Lease liabilities 25 1.9 2.3
34.1 31.3
Non-current liabilities
Provisions 28 46.1 6.2
Contingent consideration 29 1.7 0.8
Lease liabilities 25 0.9 2.7
Deferred tax liabilities 26 0.9 29.5
49.6 39.2
Policyholder assets and liabilities¹
Cash held for the benefit of policyholders 20
1,458.6 1,266.3
Investments held for the benefit of policyholders 17
20,715.8 21,787.1
Liabilities for linked investment contracts
18 (22,174.4) (23,053.4)
- -
Net assets 173.2 163.3
Equity
Called up equity share capital 3.3 3.3
Share-based payment reserve 30 2.6 2.4
Employee Benefit Trust reserve 31 (2.4) (2.1)
Foreign exchange reserve 32 - (0.1)
Non-distributable reserves 32 5.7 5.7
Non-distributable insurance reserves 32 - 0.5
Retained earnings 164.0 153.6
Total equity 173.2 163.3
(1) See note 1 for details on the presentational changes to policyholder
balances.
These Financial Statements were approved by the Board of Directors on 13
December 2022 and are signed on their behalf by:
Alexander Scott
Director
Company Registration Number: 08860879
Notes 1 to 35 form part of these Financial Statements
COMPANY STATEMENT OF FINANCIAL POSITION
Note 2022 2021
£'m £'m
Non-current assets
Investment in subsidiaries 15 33.3 31.6
Loans receivable 16 5.5 3.4
38.8 35.0
Current assets
Prepayments 22 0.1 -
Other receivables 23 0.2 0.1
Cash and cash equivalents 33.1 31.0
33.4 31.1
Current liabilities
Trade and other payables 24 2.4 2.4
Loans payable 16 1.0 1.0
3.4 3.4
Non-current liabilities
Contingent consideration 29 1.7 0.8
Loans payable 16 7.0 8.0
8.7 8.8
Net assets 60.1 53.9
Equity
Called up equity share capital 3.3 3.3
Share-based payment reserve 30 2.2 1.7
Employee Benefit Trust reserve 31 (2.1) (1.8)
Profit or loss account
Brought forward retained earnings 50.7 42.0
Profit for the year 39.8 37.2
Dividends paid in the year (33.8) (28.5)
Profit or loss account 56.7 50.7
Total equity 60.1 53.9
The Company has taken advantage of the exemption in section 408 (3) of the
Companies Act 2006 not to present its own income statement in these financial
statements.
These Financial Statements were approved by the Board of Directors on 13
December 2022 and are signed on their behalf by:
Alexander Scott
Director
Company Registration Number: 08860879
Notes 1 to 35 form part of these Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Note 2022 2021
£'m £'m
Cash flows from operating activities
Profit on ordinary activities before taxation 54.3 63.6
Adjustments for income statement non-cash movements:
Amortisation and depreciation 3.0 3.1
Share-based payment charge 2.0 1.9
Release of actuarial provision (0.5) -
Adjustments for cash effecting investing activities:
Interest on cash and loans (0.8) (0.1)
Interest charged on lease 0.1 0.2
Decrease/(increase) in current asset investments 2.0 (0.1)
Adjustments for statement of financial position movements:
Decrease / (increase) in trade and other receivables 0.5 (1.3)
Increase / (decrease) in trade and other payables 4.0 (2.1)
Increase in contingent consideration 0.9 0.7
Decrease in share-based payment reserve (1.3) (1.2)
Increase / (decrease) in provisions 39.0 (7.4)
Adjustments for policyholder balances:
(Decrease)/ increase in investments held for the benefit of policyholders
1,071.3 (5,059.9)
Increase in liabilities for linked investment contracts (879.0) 4,940.5
(Decrease)/increase in policyholder tax recoverable (44.5) 19.4
Cash generated (used in)/generated from operations 251.0 (42.7)
Income taxes paid (13.5) (13.3)
Interest paid on lease liabilities (0.1) (0.2)
Net cash flows (used in)/generated from operating activities 237.5 (56.2)
Investing activities
Acquisition of tangible assets (0.4) (0.7)
Acquisition of subsidiary, net of cash acquired - (7.9)
Increase in loans (2.1) (0.8)
Interest on cash held 0.8 0.1
Net cash used in investing activities (1.7) (9.3)
Financing activities
Purchase of own shares in Employee Benefit Trust (0.5) (1.0)
Equity dividends paid (33.7) (28.5)
Repayment of lease liabilities (2.4) (2.3)
Net cash used in financing activities (36.6) (31.8)
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
Net (decrease)/increase in cash and cash equivalents 199.2 (97.3)
Cash and cash equivalents at beginning of year 1,442.4 1,539.8
Exchange (losses)/gains on cash and cash equivalents - (0.1)
Cash and cash equivalents at end of year 1,641.6 1,442.4
Cash and cash equivalents consist of:
Cash and cash equivalents 183.0 176.1
Cash held for the benefit of policyholders 1,458.6 1,266.3
Cash and cash equivalents 1,641.6 1,442.4
Notes 1 to 35 form part of these Financial Statements.
COMPANY STATEMENT OF CASH FLOWS
Note 2022 2021
£'000 £'000
Cash flows from operating activities
Loss before interest and dividends (4.9) (4.8)
Adjustment for statement of financial position movements:
Decrease/(increase) in trade and other receivables (0.2) 0.2
Increase/(decrease) in trade and other payables - 1.7
Increase in contingent consideration 0.9 0.7
Settlement of share-based payment reserve (1.3) (1.1)
Net cash flows used in operating activities (5.5) (3.3)
Investing activities
Acquisition of subsidiary - (8.6)
Purchase of subsidiary share capital - (4.0)
Dividends received 45.0 42.1
Interest received 0.2 0.1
Increase in loans receivable (2.0) (0.8)
Net cash generated from investing activities 43.3 28.8
Financing activities
Purchase of own shares in Employee Benefit Trust (0.5) (0.9)
Increase in loans payable - 10.0
Repayment of loans (1.0) (1.0)
Interest expense on loans (0.2) (0.2)
Equity dividends paid (33.8) (28.5)
Net cash used in financing activities (35.5) (20.6)
Net increase in cash and cash equivalents 2.2 4.9
Cash and cash equivalents at beginning of year 31.0 26.1
Cash and cash equivalents at end of year 33.2 31.0
Notes 1 to 35 form part of these Financial Statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share capital Non-distributable insurance and other reserves Share-based payment reserve Employee Benefit Trust Retained earnings Total equity
£'m £'m £m £'m £'m £'m
Balance at 1 October 2020 3.3 6.2 1.7 (1.1) 130.8 140.9
Comprehensive income for the year:
Profit for the year - - - - 51.1 51.1
Movement in currency translation - (0.1) - - - (0.1)
Total comprehensive income for the year - (0.1) - - 51.1 51.0
Share-based payment expense - - 1.9 - - 1.9
Settlement of share based payment - - (1.2) - - (1.2)
Purchase of own shares in EBT - - - (1.0) - (1.0)
Excess tax relief charged to equity - - 0.1 - - 0.1
Other movement - - (0.1) - 0.1 -
Distributions to owners - Dividends paid - - - - (28.5) (28.5)
Balance at 30 September 2021 3.3 6.2 2.4 (2.1) 153.5 163.3
Balance at 1 October 2021
Comprehensive income for the year:
Profit for the year - - - - 44.0 44.0
Movement in currency translation - 0.1 - - - 0.1
Total comprehensive income for the year - 0.1 - - 44.0 44.1
Share-based payment expense - - 2.0 - - 2.0
Settlement of share based payment - - (1.5) - - (1.5)
Purchase of own shares in EBT - - - (0.5) - (0.5)
Excess tax relief charged to equity - - (0.3) - - (0.3)
Exercised share options - - - 0.2 (0.2) -
Release of actuarial reserve - (0.5) - 0.5 -
Other movement - - - - - -
Distributions to owners - Dividends paid - - - - (33.9) (33.9)
Balance at 30 September 2022 3.3 5.7 2.6 (2.4) 164.0 173.2
Notes 1 to 35 form part of these Financial Statements.
COMPANY STATEMENT OF CHANGES IN EQUITY
Share capital Share-based payment reserve Employee Benefit Trust Retained earnings Total equity
£'m £'m £'m £'m £'m
Balance at 1 October 2020 3.3 1.1 (0.9) 42.0 45.5
Comprehensive income for the year:
Profit for the year - - - 37.2 37.2
Total comprehensive income for the year - - - 37.2 37.2
Settlement of share-based payments - 0.6 - - 0.6
Purchase of own shares in EBT - - (0.9) - (0.9)
Distributions to owners - dividends - - - (28.5) (28.5)
Balance at 30 September 2021 3.3 1.7 (1.8) 50.7 53.9
Comprehensive income for the year:
Profit for the year - - - 40.0 40.0
Total comprehensive income for the year - - - 40.0 40.0
Settlement of share-based payments - 0.5 - - 0.5
Purchase of own shares in EBT - - (0.5) - (0.5)
Distributions to owners - dividends - - - (33.8) (33.8)
Balance at 30 September 2022 3.3 2.2 (2.3) 56.9 60.1
Notes 1 to 35 form part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation and significant accounting policies
General information
IntegraFin Holdings plc (the "Company"), a public limited Company incorporated
and domiciled in the United Kingdom ("UK"), along with its subsidiaries
(collectively the "Group"), offers a range of services which are designed to
help financial advisers and their clients to manage financial plans in a
simple, effective and tax efficient way.
The registered office address, and principle place of business, is 29
Clement's Lane, London, EC4N 7AE.
a) Basis of preparation
The consolidated Financial Statements have been prepared and approved by the
directors in accordance with UK-adopted International Accounting Standards.
The Financial Statements have been prepared on the historical cost basis,
except for the revaluation of certain financial instruments, which are stated
at their fair value, have been prepared in pound sterling, which is the
functional currency of the Company and are rounded to the nearest thousand.
Climate risks have been considered where appropriate in the preparation of
these Financial Statements, with particular consideration given to the impact
of climate risk on the fair value calculations and impairment assessments.
This has concluded that the impact of climate risk on the financial statements
is not material.
The effects of the Ukraine/Russia war has been considered in the preparation
of these Financial Statements, and the impact is not material.
Going concern
The financial statements have been prepared on a going concern basis,
following an assessment by the board.
Going concern is assessed over the 12 month period from when the Annual Report
is approved, and the board has concluded that the Group has adequate
resources, liquidity and capital to continue in operational existence for the
next 12 months. This is supported by:
· The current financial position of the Group:
o The Group maintains a conservative balance sheet and manages and monitors
solvency and liquidity on an ongoing basis, ensuring that it always has
sufficient financial resources for the foreseeable future.
o As at 30 September 2022, the Group had £183.0 million of shareholder cash
on the statement of financial position, demonstrating that liquidity remains
strong.
· Detailed cash flow and working capital projections; and
· stress-testing of liquidity, profitability and regulatory
capital, taking account of possible adverse changes in trading performance.
1. Basis of preparation and significant accounting policies (continued)
When making this assessment, the board has taken into consideration both the
Group's current performance and the future outlook, including the impact of
events in Ukraine and rising inflation rates. Market volatility and
uncertainty is expected to continue for some time, due to these evolving world
events and the effect of measures taken to combat it, but the Group's
fundamentals remain strong.
Stress and scenario testing has been carried out, in order to understand the
potential financial impacts of severe, yet plausible, scenarios on the Group.
This assessment incorporated a number of stress tests covering a broad range
of scenarios, including external market shocks, internal system and security
failures, and the worsening of the COVID pandemic.
Having conducted detailed cash flow and working capital projections, and
stress-tested liquidity, profitability and regulatory capital, the board is
satisfied that the Group is well placed to manage its business risks.
The board is also satisfied that it will be able to operate within the
regulatory capital limits imposed by the Financial Conduct Authority (FCA),
Prudential Regulation Authority (PRA), and Isle Man Financial Services
Authority (IoM FSA). Accordingly, the board does not believe a material
uncertainty exists that would have an effect on the going concern of the Group
and have prepared the financial statements on a going concern basis.
Basis of consolidation
The consolidated Financial Statements incorporate the Financial Statements of
the Company and its subsidiaries. Where the Company has control over an
investee, it is classified as a subsidiary. The Company controls an investee
if all three of the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of the
investor to use its power to affect those variable returns. Control is
presumed to exist where the Group owns the majority of the voting rights of an
entity. Control is reassessed whenever facts and circumstances indicate that
there may be a change in any of these elements of control.
Subsidiaries are fully consolidated from the date on which control is obtained
by the Company and are deconsolidated from the date that control ceases.
Acquisitions are accounted for under the acquisition method. Intercompany
transactions, balances, income and expenses, and profits and losses are
eliminated on consolidation.
The Financial Statements of all of the wholly owned subsidiary companies are
incorporated into the consolidated Financial Statements. Two of these
subsidiaries, IntegraLife International LTD (ILInt) and IntegraLife UK Limited
(ILUK) issue contracts with the legal form of insurance contracts, but which
do not transfer significant insurance risk from the policyholder to the
Company, and which are therefore accounted for as investment contracts.
In accordance with IFRS 9, the contracts concerned are therefore reflected in
the consolidated statement of financial position as investments held for the
benefit of policyholders, and a corresponding liability to policyholders.
1. Basis of preparation and significant accounting policies (continued)
Presentational changes to Policyholder items
Presentational changes have been made to the consolidated statement of
comprehensive income and the consolidated statement of financial position in
order to provide information that is more relevant to users of the financial
statements, by splitting out the policyholder and shareholder values. This
revised structure is likely to continue going forward and prior year
comparative information has also been reclassified.
Changes in accounting policies
i) There have been no new standards, amendments to standards or
interpretations adopted during the financial year that had a material effect.
ii) Future standards, amendments to standards, and interpretations not
yet effective are noted below.
The following amendments are effective for the period beginning 1 January
2023:
IFRS 17 Insurance Contracts
In June 2022, the IASB issued amendments to IFRS 17 which will replace IFRS 4
Insurance Contracts. IFRS 17 establishes the principles for the recognition,
measurement, presentation and disclosure of insurance contracts within the
scope of the Standard. The Group would be required to provide information that
faithfully represents those contracts, such that users of the financial
statements can assess the effect insurance contracts have on the entity's
financial position, financial performance and cash flows.
The Group has performed an assessment regarding the impact of IFRS 17 on the
Financial Statements and, while the insurance companies in the Group do
administer insurance business and hold capital relating to the risks
associated with this, the vast majority of contracts written by the insurance
companies are investment contracts under IFRS 9, and the impact of IFRS 17
will therefore be negligible.
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
In January 2020, the IASB issued amendments to IAS 1 regarding the
presentation of liabilities in the statement of financial position.
Presentation between current and non-current liabilities is to be based on
rights in existence at year end to defer settlement. The standard now explains
that settlement includes the transfer of cash, goods, services, or equity
instruments unless the obligation to transfer equity instruments arises from a
conversion feature classified as an equity instrument, separate from the
liability component the instrument. The surrounding wording is expected to
reflect any right to defer the settlement by at least 12 months.
Classifications are not expected to be impacted by expectations on whether the
right to defer settlement will be exercised or not.
The Group has assessed the impact of this amendment and does not note any
significant impact.
1. Basis of preparation and significant accounting policies (continued)
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2)
In February 2021, the IASB issued amendments to IAS 1 to assist in determining
which accounting policies to disclose, with reference to materiality and how
to determine which policies fall into this category. IFRS Practice Statement 2
includes guidance to support this.
The Group has assessed the impact of this amendment and does not note any
significant impact.
Definition of Accounting Estimates (Amendments to IAS 8)
In February 2021, the IASB issued amendments to IAS 8 to clarify how to
distinguish changes in accounting policies from changes in accounting
estimates. That distinction being that changes in accounting estimates are
applied prospectively to future transactions and events, but changes in
accounting policies are applied retrospectively to past transactions and
events.
The Group has assessed the impact of this amendment and does not note any
significant impact.
Deferred Tax Related to Assets and Liabilities arising from a Single
Transaction
(Amendments to IAS 12)
In May 2021, the ISAB issued amendments to IAS 12 which will require
recognition of deferred taxes on particular transactions which, on initial
recognition, give rise to equal amounts of taxable and deductible temporary
differences.
The Group has assessed the impact of this amendment and does not note any
significant impact.
No other future standards, amendments to standards, or interpretations are
expected to have a material effect on the financial statements.
b) Principal accounting policies
Revenue from contracts with customers
Revenue represents the fair value of services supplied by the Company. All fee
income is recognised as revenue on an accruals basis and in line with the
provision of the services.
Fee income comprises:
Annual commission income
Annual commission is charged for the administration of products on the
Transact platform, and is levied monthly in arrears on the average value of
assets and cash held on the platform in the month.
1. Basis of preparation and significant accounting policies (continued)
Wrapper fee income
Wrapper fees are charged for each of the tax wrappers held by clients, and are
levied quarterly in arrears based on fixed fees for each wrapper type.
Annual commission and wrapper fees relate to services provided on an on-going
basis, and revenue is therefore recognised on an on-going basis to reflect the
nature of the performance obligations being discharged.
Accrued income on both annual commission and wrapper fees is recognised as a
trade receivable on the statement of financial position, as the Group's right
to consideration is conditional on nothing other than the passage of time.
Licence income
Licence income is the rental charge for use of access to T4A's CRM software.
The rental charge is billed monthly in advance, based on the number of
users. Revenue is recognised in line with the provision of the service.
Consultancy income
Consultancy income relates to consultancy services provided by T4A on an
as-needs basis. Revenue is recognised when the services are provided.
Other income
This comprises buy commission and dealing charges. These are charges levied on
the acquisition of assets, due upon completion of the transaction. Revenue is
recorded on the date of completion of the transaction, as this is the date the
services are provided to the customer.
Investment income
Interest on shareholder cash, policyholder cash and coupon on shareholder
gilts are the three sources of investment income received. These are
recognised in the Consolidated Statement of Comprehensive Income in interest
income and within policy holder returns. Interest income is recognised using
the effective interest method.
Fee and commission expenses
Fee and commission expenses are paid by ILUK and ILInt policyholders to their
financial advisers. Expenses comprise annual commission which is levied
monthly in arrears on the average value of assets and cash held on the
platform in the month and upfront fees charged on new premiums on the
platform.
Investments
Fixed asset investments in subsidiaries are stated at cost less any provision
for impairment.
Other investments comprise UK Government fixed interest securities backing
insurance contracts or held as shareholder investments. These investments are
mandatorily held at 'fair value through profit or loss' at initial recognition
and are stated at quoted bid prices which equates to fair value, with any
resultant gain or loss recognised in profit or loss. Purchases and sales of
securities are recognised on the trade date.
1. Basis of preparation and significant accounting policies (continued)
Investment contracts - investments held for the benefit of policyholders
Investment contracts held for the benefit of policy holders are comprised of
unit-linked contracts. Investments held for the benefit of policyholders are
stated at fair value and reported on a separate line in the statement of
financial position, see accounting policy on financial instruments for fair
value determination. Investment contracts result in financial liabilities
whose fair value is dependent on the fair value of underlying financial
assets. They are designated at inception as financial liabilities at 'fair
value through profit or loss' in order to reduce an accounting mismatch with
the underlying financial assets. Gains and losses arising from changes in fair
value are presented in the consolidated profit and loss and other
comprehensive income statement within "investment returns".
Investment inflows received from policyholders are invested in funds selected
by the policyholders. The resulting liabilities for linked investment
contracts are accounted for under the 'fair value through profit or loss'
option, in line with the corresponding assets as permitted by IFRS 9.
As all investments held for the benefit of policyholders are matched entirely
by corresponding linked liabilities, any gain or loss on assets recognised
through the consolidated profit and loss and other comprehensive income
statement are offset entirely by the gains and losses on linked liabilities,
which are recognised within the "change in investment contract liabilities"
line. The overall net impact on profit is therefore £nil.
Valuation techniques are used to establish the fair value at inception and
each reporting date. The Company's main valuation techniques incorporate all
factors that market participants would consider and are based on observable
market data. The financial liability is measured both initially and
subsequently at fair value. The fair value of a unit-linked financial
liability is determined using the fair value of the financial assets contained
within the funds linked to the financial liability.
Dividends
Dividends are usually announced with the Group's interim and annual results.
Equity dividends paid are recognised in the accounting period in which the
dividends are declared and approved. The reduction in equity in the year
therefore comprises the prior year final dividend and the current year interim
dividend.
Intangible non-current assets
Intangible non-current assets, excluding goodwill, are stated at cost less
accumulated amortisation and comprise intellectual property software rights.
The software rights were amortised over seven years on a straight line basis,
as it was estimated that the code would be replaced every seven years, and
therefore have a finite useful life. The software rights are now fully
amortised, but due to ongoing system development and coding updates no
replacement is required. Goodwill is held at cost and, in accordance with
IFRS, is not amortised but is subject to annual impairment reviews.
1. Basis of preparation and significant accounting policies (continued)
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and accumulated impairment losses. Cost includes expenditures that are
directly attributable to the acquisition of the asset. Subsequent costs are
included in the asset's carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated
with the item will flow to the
Company and the cost can be measured reliably. Repairs and maintenance costs
are charged to the profit and loss and other comprehensive income statement
during the period in which they are incurred.
The major categories of property, plant, equipment and motor vehicles are
depreciated as follows:
Asset class All UK and Isle of Man entities Australian entity
Leasehold improvements Straight line over the life of the lease Straight line over 40 years
Fixtures & Fittings Straight line over 10 years Reducing balance over 2 to 8 years
Equipment Straight line over 3 to 10 years Reducing balance over 3 to 10 years
Motor vehicles N/A Reducing balance over 2 to 8 years
Residual values, method of depreciation and useful lives of the assets are
reviewed annually and adjusted if appropriate.
Business combinations
The acquisition method of accounting is used to account for all business
combinations, regardless of whether equity instruments or other assets are
acquired. The consideration transferred for the acquisition of a subsidiary
comprises the:
· fair values of the assets transferred;
· liabilities incurred to the former owners of the acquired business;
· equity interests issued by the Group;
· fair value of any asset or liability resulting from a contingent
consideration arrangement; and
· fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair values
at the acquisition date.
Acquisition-related costs are expensed as incurred.
The excess of the consideration transferred over the fair value of the net
identifiable assets acquired is recorded as goodwill. If those amounts are
less than the fair value of the net identifiable assets of the business
acquired, the difference is recognised directly in the statement of
comprehensive income.
Where settlement of any part of cash consideration is deferred, the amounts
payable in the future are discounted to their present value as at the date of
exchange.
1. Basis of preparation and significant accounting policies (continued)
The discount rate used is the entity's incremental borrowing rate, being the
rate at which a similar borrowing could be obtained from an independent
financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial
liability. Amounts classified as a financial liability are subsequently
remeasured to fair value, with changes in fair value recognised in the
statement of comprehensive income.
Contingent arrangements payable to selling shareholders that continue
providing services are assessed to determine if there is an element of payment
for post-combination services. The element that is determined to relate to
post-combination services is recognised in the statement of comprehensive
income across the periods to which the services relate.
Goodwill and goodwill impairment
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group's share of the identifiable net assets of the acquired
entity at the date of acquisition. Goodwill is recognised as an asset at cost
at the date when control is achieved and is subsequently measured at cost less
any accumulated impairment losses.
Goodwill is allocated to one or more cash generating units (CGUs) expected to
benefit from the synergies of the combination, where the CGU represents the
smallest identifiable group of assets that generates cash inflows that are
largely independent of the cash inflows from other assets or group of assets.
Goodwill is reviewed for impairment at least once annually, and also whenever
circumstances or events indicate there may be uncertainty over this value. The
impairment assessment compares the carrying value of goodwill to the
recoverable amount, which is the higher of value in use and the fair value
less costs of disposal. Any impairment loss is recognised immediately in
profit or loss and is not subsequently reversed.
Intangible assets acquired as part of a business combination
Intangible assets acquired as part of a business combination are recognised
where they are separately identifiable and can be measured reliably.
Acquired intangible assets consist of contractual customer relationships,
software and brand. These items are capitalised at their fair value, which are
based on either the 'Relief from Royalty' valuation methodology or the
'Multi-period Excess Earnings Method', as appropriate for each asset.
Subsequent to initial recognition, acquired intangible assets are measured at
cost less accumulated amortisation and any recognised impairment losses.
Amortisation is recognised in the consolidated statement of comprehensive
income within administration expenses on a straight line basis over the
estimated useful lives of the assets, which are as follows:
Asset class Useful life
Customer relationships 15 years
Software 7 years
Brand 10 years
1. Basis of preparation and significant accounting policies (continued)
The method of amortisation and useful lives of the assets are reviewed
annually and adjusted if appropriate.
Impairment of non-financial assets
Property, plant and equipment, right-of-use assets and intangible assets are
tested for impairment when events or changes in circumstances indicate that
the carrying
amount may not be recoverable. Recoverable amount is the higher of an asset's
fair value less costs to sell and value in use (being the present value of the
expected future cash flows of the relevant asset).
The Group evaluates impairment losses for potential reversals when events or
circumstances warrant such consideration.
Goodwill is tested for impairment annually, and once an impairment is
recognised this cannot be reversed. For more detailed information in relation
to this, please see note 12.
Pensions
The Group makes defined contributions to the personal pension schemes of its
employees. These are chargeable to profit or loss in the year in which they
become payable.
Foreign currencies
Transactions in foreign currencies are translated into the functional currency
at the exchange rate in effect at the date of the transaction. Foreign
currency monetary assets and liabilities are translated to sterling at the
yearend closing rate. Foreign exchange rate differences that arise are
reported net in profit or loss as foreign exchange gains/losses.
The assets and liabilities of foreign operations are translated to sterling
using the year end closing exchange rate. The revenues and expenses of foreign
operations are retranslated to sterling at rates approximating the foreign
exchange rates ruling at the relevant month of the transactions. Foreign
exchange differences arising on retranslation are recognised directly in the
reserves.
Taxation
The taxation charge is based on the taxable result for the year. The taxable
result for the year is determined in accordance with enacted legislation and
taxation authority practice for calculating the amount of corporation tax
payable.
Deferred tax assets and liabilities are recognised where the carrying amount
of an asset or liability in the statement of financial position differs from
its tax base. Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be available against
which the difference can be utilised.
1. Basis of preparation and significant accounting policies (continued)
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the reporting date and are expected
to apply when the deferred tax assets/liabilities are recovered/settled.
Policyholder Tax
HMRC requires ILUK to charge basic rate income tax on its life insurance
policies (FA 2012, s102). ILUK collects this tax quarterly, by charging 20%
tax (2021: 20%) on gains from assets held in the policies, based on the
policyholder's acquisition costs and market value at each quarter end.
Additional charges are applied on any increases
in the previously charged gain. The charge is adjusted by the fourth financial
year quarter so that the total charge for the year is based on the gain at the
end of the financial year. When assets are sold at a loss, or reduce in market
value by the financial year end, a refund of the charges may be applied.
Policyholder tax is recorded as an expense in the statement of comprehensive
income, with a corresponding liability recognised on the statement of
financial position (under IAS 12).
Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker is responsible for allocating resources and assessing
performance of the operating segments and has been identified as the Chief
Executive Officer of the Company.
For the year ended 30 September 2022, the business of ILUK and ILInt was the
direct insurance of investment linked pensions business written by single
premium in the United Kingdom, and single premium life assurance linked bonds
and linked qualifying investment plans written in the United Kingdom and Isle
of Man. Insurance risk is minimal as all contracts have been classed as
investment contracts.
Client assets and client monies
Integrated Financial Arrangements Ltd (IFAL) client assets and client monies
are not recognised in the parent and consolidated statements of financial
position (see note 27) as they are owned by the clients of IFAL.
Lease assets and lease liabilities
Right-of-use
assets
The Group recognises right-of-use assets on the date the leased asset is made
available for use by the Group. These assets relate to rental leases for the
office of the Group, which have varying terms clauses and renewal rights.
Right-of-use assets are measured at cost, less any accumulated depreciation
and impairment losses, and adjusted for any re-measurement of lease
liabilities. The cost of right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred, and lease payments made
at or before the commencement date.
Depreciation is applied in accordance with IAS 16: Property, Plant and
Equipment. Right-of-use assets are depreciated over the lease term. See note
13 and 14.
1. Basis of preparation and significant accounting policies (continued)
Lease liabilities
The Group measures lease liabilities in line with IFRS 16 on the balance sheet
as the present value of all future lease payments, discounted using the
incremental borrowing rate of 3.2% at the date of commencement. After the
commencement date, the amount of lease liabilities is increased to reflect the
addition of interest and reduced for the lease payments made. The Group's
incremental borrowing rate is the rate at which a similar borrowing could be
obtained from an independent creditor under comparable terms and conditions.
See note 25.
Short-term leases
The Group defines short-term leases as those with a lease term of 12 months or
less and leases of low value assets. For these leases, the Group recognises
the lease payments as an operating expenses on a straight line basis over the
term of lease.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances from instant access and
notice accounts, call deposits, and other short-term deposits with an original
maturity of three months or less. The carrying amount of these assets
approximates to their fair value. Cash and cash equivalents held for the
benefit of the policyholders are held to cover the liabilities for unit linked
investment contracts. These amounts are 100% matched to corresponding
liabilities.
Financial instruments
Financial assets and liabilities are recognised when the Company becomes a
party to the contractual provisions of the instrument. Financial assets are
derecognised when the rights to receive cash flows from the assets have
expired or have been transferred and the Company has transferred substantially
all risks and rewards of ownership. Financial liabilities are derecognised
when the obligation specified in the contract is discharged, cancelled or
expires.
At initial recognition, the Company classifies its financial instruments in
the following categories, based on the business model in which the assets are
managed and their cash flow characteristics:
(i) Financial assets and liabilities at fair value through profit
or loss
This category includes financial assets and liabilities acquired principally
for the purpose of selling or repurchasing in the short-term, comprising of
listed shares and securities and investments in quoted debt instruments.
Financial instruments in this category are recognised on the trade date, and
subsequently measured at fair value. Purchases and sales of securities are
recognised on the trade date. Transaction costs are expensed in the
consolidated profit and loss and other comprehensive income statement. Gains
and losses arising from changes in fair value are presented in the
consolidated profit and loss and other comprehensive income statement within
"investment returns" for corporate assets and "net income attributable to
policyholder returns" for policyholder assets in the period in which they
arise. Financial assets and liabilities at fair value through profit or loss
are classified as current except for the portion expected to be realised or
paid beyond twelve months of the balance sheet date, which are classified as
long-term.
1. Basis of preparation and significant accounting policies (continued)
(ii) Financial assets at amortised cost
These assets comprised of accrued fees, trade and other receivables, loans,
and cash and cash equivalents. These are included in current assets due to
their short-term nature, except for the element of the loan payable to
subsidiary which is to be settled after 12 months, which is included in
non-current assets.
Financial assets are measured at amortised cost when they are held within the
business model whose objective is to hold assets to collect contractual cash
flows and their contractual cash flows represent solely payments of principal
and interest.
The carrying value of assets held at amortised cost are adjusted for
impairment arising from expected credit losses.
(iii) Financial liabilities at amortised cost
Financial liabilities at amortised cost comprise trade and other payables and
loans payable. These are initially recognised at fair value. Subsequent
measurement is at amortised cost using the effective interest method. Trade
and other payables are classified as current liabilities due to their
short-term nature. The loan is split between current and non-current
liabilities, based on the repayment terms.
Impairment of financial assets
Expected credit losses are required to be measured through a loss allowance at
an amount equal to:
· the 12-month expected credit losses (expected credit losses from
possible default events within 12 months after the reporting date); or
· full lifetime expected credit losses (expected credit losses from
all possible default events over the life of the financial instrument).
A loss allowance for full lifetime expected credit losses is required for a
financial instrument if the credit risk of that financial instrument has
increased significantly since initial recognition, as well as to contract
assets or trade receivables, where the simplified approach is applied to
assets that do not contain a significant financing component.
For all other financial instruments, expected credit losses are measured at an
amount equal to the 12-month expected credit losses.
Impairment losses on financial assets carried at amortised cost are reversed
in subsequent periods if the expected credit losses decrease.
Provisions
Provisions are recognised when the Company has an obligation, legal or
constructive, as a result of a past event, and it is probable that the Company
will be required to settle that obligation. Provisions are estimated at the
directors' best estimate of the expenditure required to settle the obligation
at the reporting date, and are discounted to present values where the effect
is material.
1. Basis of preparation and significant accounting policies (continued)
The ILUK policyholder reserves, which are part of the provisions balance,
arises from tax reserve charges collected from life insurance policyholders,
which are held to cover possible future tax liabilities. If no tax liability
arises the charges are refunded to policyholders, where possible. As these
liabilities are of uncertain timing or amounts, they are recognised as
provisions on the statement of financial position.
Balances due to HMRC are considered under IAS 12 Income Taxes, whereas
balances due to policyholders are considered under IAS 37 Provisions,
Contingent Liabilities and Contingent Assets.
Share-based payments
Equity-settled share-based payment awards granted to employees are measured at
fair value at the date of grant. The awards are recognised as an expense, with
a corresponding increase in equity, spread over the vesting period of the
awards, which accords with the period for which related services are provided.
The total amount expensed is determined by reference to the fair value of the
awards as follows:
(i) Share Incentive Plan (SIP) shares
The fair value is the market price on the grant date. There are no vesting
conditions, as the employees receive the shares immediately upon grant.
(ii) Performance share plan (PSP) share options
The fair value of share options is determined by applying a valuation
technique, usually an option pricing model, such as Black Scholes. This takes
into account factors such as the exercise price, the share price, volatility,
interest rates, and dividends.
At each reporting date, the estimate of the number of share options expected
to vest based on the non-market vesting conditions is assessed. Any change to
original estimates is recognised in the statement of comprehensive income,
with a corresponding adjustment to equity reserves.
2. Critical accounting estimates and judgements
Critical accounting estimates are those where there is a significant risk of
material adjustment in the next 12 months, and critical judgements are those
that have the most significant effect on amounts recognised in the accounts.
In preparing these Financial Statements, management has made judgements,
estimates and assumptions about the future that affect the application of the
Group's accounting policies and the reported amounts of assets, liabilities,
income and expenses. Management uses its knowledge of current facts and
applies estimation and assumption techniques that are aligned with relevant
accounting policies to make predictions about the future. Actual results may
differ from these estimates.
Estimates and judgements are reviewed on an ongoing basis and revisions are
recognised in the period in which the estimate is revised. There are no
assumptions made about the future, or other major sources of estimation
uncertainty at the end of the reporting period, that have a significant risk
of resulting in a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
2. Critical accounting estimates and judgements (continued)
Judgements which do not involve estimates
The assessment to recognise the ILUK policyholder provision comes from an
evaluation of the likelihood of a constructive or legal obligation, and
whether that obligation can be estimated reliably. The provision required has
been calculated based on an assessment of tax payable to HM Revenue &
Customs (HMRC) and refunds payable back to policyholders.
3. Financial instruments
(i) Principal financial instruments
The principal financial instruments, from which financial instrument risk
arises, are as follows:
· Trade and other receivables
· Accrued fees
· Investments in quoted debt instruments
· Listed shares and securities
· Trade and other payables
· Loans
(ii) Financial instruments by category
As explained in note 1, financial assets and liabilities have been classified
into categories that determine their basis of measurement and, for items
measured at fair value, whether changes in fair value are recognised in the
statement of comprehensive income. The following tables show the carrying
values of assets and liabilities for each of these categories for the Group:
Financial assets:
Fair value through profit or loss Amortised cost
2022 2021 2022 2021
£'m £'m £'m £'m
Cash and cash equivalents - - 183.0 176.1
Cash and cash equivalents policyholder - - 1,458.6 1,266.3
Listed shares and securities 0.1 0.1 - -
Loans - - 5.5 3.4
Investments in quoted debt instruments 3.0 5.0 - -
Accrued income - - 12.1 12.0
Trade and other receivables - - 0.6 0.9
Investments held for the policyholders 20,715.8 21,787.1 - -
Total financial assets 20,718.9 21,792.2 1,659.8 1,458.7
Financial liabilities:
Fair value through profit or loss Amortised cost
2022 2021 2022 2021
£'m £'m £'m £'m
Trade and other payables - - 7.4 7.1
Accruals - - 3.0 7.9
Lease liabilities - - 2.8 5.0
Deferred consideration - - 1.7 1.7
Contingent consideration 1.7 0.8 - -
Liabilities for linked investments contracts 22,174.4 23,053.4 - -
Total financial liabilities 22,176.1 23,054.2 14.9 21.7
3. Financial instruments (continued)
The following tables show the carrying values of assets and liabilities for
each of these categories for the Company:
Financial assets:
Fair value through profit or loss Amortised cost
2022 2021 2022 2021
£'m £'m £'m £'m
Cash and cash equivalents - - 33.1 31.0
Trade and other receivables - - 0.2 -
Loans - - 5.5 3.4
Total financial assets - - 38.8 34.4
Financial liabilities:
Fair value through profit or loss Amortised cost
2022 2021 2022 2021
£'m £'m £'m £'m
Trade and other payables - - 0.4 -
Loans - - 8.0 9.0
Deferred consideration - - 1.7 2.5
Contingent consideration 1.7 0.8 - -
Accruals - - 0.2 0.4
Total financial liabilities 1.7 0.8 10.3 11.9
(iii) Financial instruments not measured at fair value
Financial instruments not measured at fair value include cash and cash
equivalents, accrued fees, loans, trade and other receivables, and trade and
other payables. Due to their short-term nature and/or expected credit losses
recognised, the carrying value of these financial instruments approximates
their fair value.
(iv) Financial instruments measured at fair value - fair value
hierarchy
The table below classifies financial assets that are recognised on the
statement of financial position at fair value in a hierarchy that is based on
significance of the inputs used in making the measurements. The levels of
hierarchy are disclosed on the next page.
Investments held for the benefit of policyholders are recorded at fair value
through the profit or loss and reported on a separate line in the statement of
financial position.
Assets held at fair value also comprises investments held in gilts, and these
are held at fair value through profit and loss.
3. Financial instruments (continued)
The following table shows the three levels of the fair value hierarchy:
Fair value hierarchy Description of hierarchy Types of investments classified at each level
Level 1 Quoted prices (unadjusted) in active markets for identical assets. Listed equity securities, gilts, actively traded pooled investments such as
OEICS and unit trusts.
Level 2 Inputs other than quoted prices included within Level 1 that are observable Actively traded unlisted equity securities where there is no significant
for the asset either directly (i.e. as prices) or indirectly (i.e. derived unobservable inputs, structured products and regularly priced but not actively
from prices). traded instruments.
Level 3 Inputs that are not based on observable market data (unobservable inputs). Unlisted equity securities with significant unobservable inputs, inactive
pooled investments.
For the purposes of identifying level 3 assets, unobservable inputs means that
current observable market information is no longer available. Where these
assets arise management will value them based on the last known observable
market price. No other valuation techniques are applied.
The following table shows the Group's assets measured at fair value and split
into the three levels:
2022 Level 1 Level 2 Level 3 Total
£'m £'m £'m £'m
Investments and assets held for the benefit of policyholders
Term deposit 63.9 - - 63.9
Investments and securities 631.9 137.9 0.3 770.1
Bonds and other fixed-income securities 10.9 1.2 - 12.1
Holdings in collective investment schemes 19,730.4 137.7 1.6 19,869.7
20,437.1 276.8 1.9 20,715.8
Other investments 3.0 - - 3.0
Total 20,440.1 276.8 1.9 20,718.8
2021 Level 1 Level 2 Level 3 Total
£'m £'m £'m £'m
Investments and assets held for the benefit of policyholders
Investments and securities 633.6 163.9 0.4 797.9
Bonds and other fixed-income securities 14.8 0.6 - 15.4
Holdings in collective investment schemes 20,859.0 113.3 1.5 20,973.8
21,507.4 277.8 1.9 21,787.1
Other investments 5.0 - - 5.0
Total 21,512.4 277.8 1.9 21,792.1
The Group regularly reviews whether a market is active or not, based on
available market data and the specific circumstances of each market.
3. Financial instruments (continued)
Level 1 valuation methodology
Financial assets included in Level 1 are measured at fair value using quoted
mid prices that are available at the reporting date and are traded in active
markets. These financial assets are mainly collective investment schemes and
listed equity instruments.
Level 2 and Level 3 valuation methodology
Financial assets included in Level 2 are measured at fair value using
observable mid prices traded in markets that have been assessed as not active
enough to be included in Level 1.
Otherwise, financial assets are included in Level 3. These assets have
unobservable inputs as the current observable market information is no longer
available. Where these assets arise management will value them based on the
last known observable market price. No other valuation techniques are applied.
Level 3 sensitivity to changes in unobservable measurements
For financial assets assessed as Level 3, based on its review of the prices
used, the Group believes that any change to the unobservable inputs used to
measure fair value would not result in a significantly higher or lower fair
value measurement at year end, and therefore would not have a material impact
on its reported results.
Changes to valuation methodology
There have been no changes in valuation methodology during the year under
review.
Transfers between Levels
The Company's policy is to assess each financial asset it holds at the current
financial year end, based on the last known price and market information, and
assign it to a Level.
The Company recognises transfers between Levels of the fair value hierarchy at
the end of the reporting period in which the changes have occurred. Changes
occur due to the availability of (or lack thereof) quoted prices and whether a
market is now active or not.
Transfers between Levels between 01 October 2021 and 30 September 2022 are
presented in the table below at their valuation at 30 September 2022:
Transfers from Transfers to £'m
Level 1 Level 2 18.8
Level 2 Level 1 1.3
3. Financial instruments (continued)
The reconciliation between opening and closing balances of Level 3 assets are
presented in the table below:
2022 2021
£'m £'m
Opening balance 1.9 1.7
Unrealised gains or losses in the year ended 30 September 2022 (0.4) (0.2)
Transfers in to Level 3 at 30 September 2022 valuation 0.4 1.1
Transfers out of Level 3 at 30 September 2022 valuation - (0.7)
Closing balance 1.9 1.9
Any resultant gains or losses on financial assets held for the benefit of
policyholders are offset by a reciprocal movement in the linked liability.
The Group regularly assesses assets to ensure they are categorised correctly
and Fair Value Hierarchy (FVH) levels adjusted accordingly. The Group monitors
situations that may impact liquidity such as suspensions and liquidations
while also actively collecting observable market prices from relevant
exchanges and asset managers. Should an asset price become observable
following the resumption of trading the FVH level will be updated to reflect
this.
(v) Capital maintenance
The regulated companies in the Group are subject to capital requirements
imposed by the relevant regulators as detailed below:
Legal entity Regulatory regime
IFAL IFRP
ILUK Solvency II
ILInt Isle of Man risk based capital regime
Group capital requirements for 2022 are driven by the regulated entities,
whose capital resources and requirements as detailed below:
IFAL ILUK ILInt
30 September 30 September 30 September
2022 2021 2022 2021 2022 2021
£'m £'m £'m £'m £'m £'m
Capital resource 39.7 37.2 244.0 268.7 42.0 43.4
Capital requirement 32.6 25.4 186.9 214.1 23.7 23.9
Coverage ratio 122% 147% 131% 125% 177% 181%
3. Financial instruments (continued)
The Group has complied with the requirements set by the regulators during the
year. The Group's policy for managing capital is to ensure each regulated
entity maintains capital well above the minimum requirement.
4. Risk and risk management
Risk assessment
The board has overall responsibility for the determination of the Group's risk
management objectives and policies and, whilst retaining ultimate
responsibility for them, it has delegated the authority for designing and
operating processes that ensure the effective implementation of the objectives
and policies to the Group's risk function.
Risk assessment is the determination of quantitative values and/or qualitative
judgements of risk related to a concrete situation and a recognised threat.
Quantitative risk assessment requires calculations of two components of risk,
the magnitude of the potential impact, and the likelihood that the risk
materialises. Qualitative aspects of risk, despite being more difficult to
express quantitatively, are also taken into account in order to fully evaluate
the impact of the risk on the organisation.
(1) Market risk
Market risk is the risk of loss arising either directly or indirectly from
fluctuations in the level and in the volatility of market prices of assets,
liabilities and other financial instruments.
(a)
Price risk
Market price risk from reduced income
The Company's dividend income from its regulated subsidiaries, IFAL, ILUK and
ILInt, is exposed to market risk. The Group's main source of income is derived
from annual management fees and transaction fees which are linked to the value
of the clients' portfolios, which are determined by the market prices of the
underlying assets. The Group's revenue is therefore affected by the value of
assets on the platform, and consequently it has exposure to equity market
levels and economic conditions.
The Group mitigates the second order market price risk by applying fixed
charges per tax wrapper in addition to income derived from the charges based
on clients' linked portfolio values. These are recorded in note 5 as wrapper
fee income and annual commission income, respectively. This approach of fixed
and variable charging offers an element of diversification to its income
stream. The risk of stock market volatility, and the impact on revenue, is
also mitigated through a wide asset offering which ensures the Group is not
wholly correlated with one market, and which enables clients to switch assets,
including into cash on the platform, in times of uncertainty.
4. Risk and risk management (continued)
Sensitivity testing has been performed to assess the impact of market
movements on the Group's Profit for the year. The sensitivity is applied as an
instantaneous shock at the start of the year, and shows the impact of a 10%
change in values across all assets held on the platform.
Impact on profit for the year
2022 2021
£'m £'m
10% increase in asset values 8.5 7.9
10% decrease in asset values (8.5) (7.9)
Market risk from direct asset holdings
The Group and the Company have limited exposure to primary market risk as
capital is invested in high quality, highly liquid, short-dated investments.
Market risk from unit-linked assets
The Group and the Company have limited exposure to primary market risk from
the value of unit-linked assets as fluctuations are borne by the
policyholders.
(b) Interest rate risk
The Group and the Company's balance sheet and capital requirements are
relatively insensitive to first order impacts from movements in interest
rates.
(c) Currency risk
The Company is not directly exposed to significant currency risk. The table
below shows a breakdown of the material foreign currency exposures for the
unit-linked policies within the Group:
2022 2022 2021 2021
Currency £'m % £'m %
GBP 22,021.1 99.3 22,914.6 99.4
USD 127.0 0.6 111.0 0.5
EUR 16.4 0.1 18.1 0.1
Others 9.8 0.0 9.7 0.0
Total 22,174.3 100.0 23,053.4 100.0
99.3% of investments and cash held for the benefit of policyholders are
denominated in GBP, its base currency. Remaining currency holdings greater
than 0.1% of the total are shown separately in the table. However, it is
recognised that the majority of investments held for the benefit of
policyholders are in collective investment schemes and some of their
underlying assets are denominated in currencies other than GBP, which
increases the funds under direction currency risk exposure. A significant rise
or fall in sterling exchange rates would not have a significant first order
impact on the Group's results since any adverse or favourable movement in
policyholder assets is entirely offset by a corresponding movement in the
linked liability.
4. Risk and risk management (continued)
(2) Credit (counterparty default) risk
Credit risk is the risk that the Group or Company is exposed to a loss if
another party fails to meet its financial obligations. For the Company, the
exposure to counterparty default risk arises primarily from loans directly
held by the Company, while for the Group this risk also arises from fees owed
by clients.
Assets held at amortised cost
(a)
Accrued income
This comprises fees owed by clients. These are held at amortised cost, less
expected credit losses ("ECLs").
Under IFRS 9, a forward-looking approach is required to assess ECLs, so that
losses are recognised before the occurrence of any credit event. The Group
estimates that pending fees three months or more past due are unlikely to be
collected and are written off. Based on management's experience, pending fees
one or two months past due are generally expected to be collected, but
consideration is also given to potential losses on these fees. Historical loss
rates have been used to estimate expected future losses, while consideration
is also given to underlying economic conditions, in order to ensure that
expected losses are recognised on a forward-looking basis. This has led to the
additional recognition of an immaterial amount of ECLs.
Details of the ECLs recognised in relation to accrued income can be seen in
note 22.
(b)
Loans
Loans subject to the 12 month ECL are £5.5m (2021: £3.6m). While there
remains a level of economic uncertainty in the current climate, leading to
potentially higher credit risk, there is not considered to be a significant
increase in credit risk, as all of the loans are currently performing to
schedule, and there are no significant concerns regarding the borrowers. There
is therefore no need to move from the 12 month ECL model to the lifetime ECL
model. Expected losses are recognised on a forward-looking basis, which has
led to the additional recognition of an immaterial amount of ECLs.
In addition to the above, the Company has committed a further £5.6m in
undrawn loans.
Details of the ECLs recognised in relation to loans can be seen in note 16. No
ECLs have been recognised on the undrawn loan commitments, as any ECLs would
not be considered to be material.
(c) Cash and equivalents
The Group has a low risk appetite for credit risk, which is mainly limited to
exposures to credit institutions for its bank deposits. A range of major
regulated UK high street banks is used. A rigorous annual due diligence
exercise is undertaken to assess the financial strength of these banks with
those used having a minimum credit rating of A (Fitch).
4. Risk and risk management (continued)
In order to actively manage the credit and concentration risks, the Board has
agreed risk appetite limits for the regulated entities of the amount of
corporate and client funds that may be deposited with any one bank; which is
represented by a set percentage of the respective bank's total customer
deposits. Monthly monitoring of these positions along with movements in Fitch
ratings is undertaken, with reports presented to the Directors for review.
Collectively these measures ensure that the Group diligently manages the
exposures and provide the mitigation scope to be able to manage credit and
concentration exposures on behalf of itself and its customers
Counterparty default risk exposure to loans
The Company has loans of £5.5m (2021: £3.4m). There are no other loans held
by the Group.
Counterparty default risk exposure to Group companies
As well as inconvenience and operational issues arising from the failure of
the other Group companies, there is also a risk of a loss of assets. The
Company is due £160k (2021: £130k) from other Group companies.
Counterparty default risk exposure to other receivables
The Company has no other receivables arising, due to the nature of its
business, and the structure of the Group.
Across the Group, there is exposure to counterparty default risk arising
primarily from:
· corporate assets directly held by the Group;
· exposure to clients; and
· exposure to other receivables.
·
The other exposures to counterparty default risk include a credit default
event which affects funds held on behalf of clients and occurs at one or more
of the following entities:
· a bank where cash is held on behalf of clients;
· a custodian where the assets are held on behalf of clients; and
· Transact Nominees Limited (TNL), which is the legal owner of the
assets held on behalf of clients.
There is no first order impact on the Group from one of the events in the
preceding paragraph. This is because any credit default event in respect of
these holdings will be borne by clients, both in terms of loss of value and
loss of liquidity. Terms and conditions have been reviewed by external lawyers
to ensure that these have been drafted appropriately. However, there is a
second order impact where future profits for the Group are reduced in the
event of a credit default which affects funds held on behalf of clients.
There are robust controls in place to mitigate credit risk, for example,
holding corporate and client cash across a range of banks in order to minimise
the risk of a single point of counterparty default failure. Additionally,
maximum counterparty limits and minimum credit quality steps are set for
banks.
4. Risk and risk management (continued)
Corporate assets and funds held on behalf of clients
There is no significant risk exposure to any one UK clearing bank.
Counterparty default risk exposure to clients
The Group is due £11.8m (2021: £12.0m) from fee income owed by clients.
Impact of credit risk on fair value
Due to the limited direct exposure that the Group and the Company have to
credit risk, credit risk does not have a material impact on the fair value
movement of financial instruments for the year under review. The fair value
movements on these instruments are predominantly due to changes in market
conditions.
(3) Liquidity risk
Liquidity risk is the risk that funds are not accessible such that the
Company, although solvent, does not have sufficient liquid financial resources
to meet obligations as they fall due, or can secure such resources only at
excessive cost.
As a holding company, the Company's main liquidity risk is related to paying
out shareholder dividends and operating expenses it may incur. Additionally,
the Company has made short term commitments, in the form of a capped facility
arrangement, to Vertus Capital SPV1 Limited ('Vertus') (as one of Vertus'
sources of funding) to assist Vertus in developing its business, which is to
provide tailored niche debt facilities to adviser firms to fund acquisitions,
management buy-outs and other similar transactions.
Across the Group, the following key drivers of liquidity risk have been
identified:
· liquidity risk arising due to failure of one or more of the
Group's banks;
· liquidity risk arising due to the bank's system failure which
prevents access to Group funds; and
· liquidity risk arising from clients holding insufficient cash to
settle fees when they become due.
The Group's liquidity risk arises from a lack of readily realisable cash to
meet debts as they become due. This takes a number of forms - clients'
liabilities coming due, other liabilities (e.g. expenses) coming due,
insufficient liquid assets to meet loan repayments to subsidiary companies and
future payment commitments over the next three years following the acquisition
of T4A.
The first of these, clients' liabilities is primarily covered through the
terms and conditions with clients' taking their own liquidity risk, if their
funds cannot be immediately surrendered for cash.
Payment of other liabilities depends on the Group having sufficient liquidity
at all times to meet obligations as they fall due. This requires access to
liquid funds, i.e. working banks and it also requires that the Group's main
source of liquidity, charges on its clients' assets, can also be converted
into cash.
The payment of loan obligations is covered by the upward dividends from
subsidiary entities which were assessed against the financial plans and
capital projections of the regulated entities to ensure the level of
affordability of the future dividends.
4. Risk and risk management (continued)
The purchase price for T4A comprised three elements, a fixed sum payable on
deal completion which has been settled, a further fixed sum to be paid in four
equal annual instalments and a variable amount by reference to T4A's
performance over that four year period. The payment of these future
obligations is expected to be met from the company's own reserves and
dividends it expects to receive from its subsidiaries.
The Company has set out two key liquidity requirements: first, to ensure that
clients maintain a percentage of liquidity in their funds at all times, and
second, to maintain access to cash through a spread of cash holdings in bank
accounts.
There are robust controls in place to mitigate liquidity risk, for example,
through regular monitoring of expenditure, closely managing expenses in line
with the business plan, and, in the case of the Vertus facility, capping the
value of loans. Additionally, the Group holds corporate and client cash across
a range of banks in order to mitigate the risk of a single point of
counterparty default failure.
Maturity schedule
The following table shows an analysis of the financial assets and financial
liabilities by remaining expected maturities as at 30 September 2022 and 30
September 2021.
In addition to the financial assets and financial liabilities shown in the
tables below, the Company committed a further £5.6m in undrawn loans. These
are available to be drawn down immediately.
Financial assets:
2022 Up to 3 months 3-12 months 1-5 Over 5 years Total
years
£'m £'m £'m £'m £'m
Investments held for the policyholders 20,715.8 - - - 20,715.8
Investments 124.2 - 3.1 - 127.3
Accruals and deferred income 12.1 - - - 12.1
Trade and other receivables 2.0 0.2 - - 2.2
Loans - - 5.5 - 5.5
Cash and cash equivalents 183.0 - - - 183.0
Cash held for the benefit of policyholders 1,458.6 - - - 1,458.6
Total 22,495.7 0.2 8.6 - 22,504.5
2021 Up to 3 months 3-12 months 1-5 Over 5 years Total
years
£'m £'m £'m £'m £'m
Investments held for the policyholders 21,787.1 - - - 21,787.1
Investments 0.2 - 5.0 - 5.2
Accruals and deferred income 12.0 - - - 12.0
Trade and other receivables 0.8 0.2 - - 1.0
Loans - - 3.4 - 3.4
Cash and cash equivalents 176.1 - - - 176.1
Cash held for the benefit of policyholders 1,266.3 - - - 1,266.3
Total 23,242.5 0.2 8.4 - 23,251.1
Financial liabilities:
2022 Up to 3 months 3-12 months 1-5 Over 5 years Total
years
£'m £'m £'m £'m £'m
Liabilities for linked investment contracts 22,174.4 - - - 22,174.4
Trade and other payables 11.8 3.7 - - 15.5
Lease liabilities 0.6 1.3 0.9 - 2.8
Deferred consideration - 1.5 0.2 - 1.7
Contingent consideration - - 1.7 - 1.7
Total 22,186.8 6.5 2.8 - 22,196.1
2021 Up to 3 months 3-12 months 1-5 Over 5 years Total
years
£'m £'m £'m £'m £'m
Liabilities for linked investment contracts 23,053.4 - - - 23,053.4
Trade and other payables 9.9 5.1 - - 15.0
Lease liabilities 0.6 1.9 2.8 - 5.3
Deferred consideration - 1.6 0.2 - 1.8
Contingent consideration - - 0.8 - 0.8
Total 23,063.9 8.6 3.8 - 23,076.3
(4) Outflow risk
Outflows occur when funds are withdrawn from the platform for any reason.
Outflows typically occur where clients' circumstances and requirements change.
However, these outflows can also be triggered by operational failure,
competitor actions or external events such as regulatory or economic changes.
Outflow risk is mitigated by focusing on providing exceptionally high levels
of service. Outflow rates are closely monitored and unexpected experience is
investigated. Despite the current challenging and uncertain economic and
geopolitical environment, outflow rates remain stable and within historical
norms.
(5) Expense risk
Expense risk arises where costs increase faster than expected or from one-off
expense "shocks".
The Group and the Company has exposure related to expense inflation risk,
where actual inflation deviates from expectations. As a significant percentage
of the Group's expenses are staff related the key inflationary risk arises
from salary inflation. The Group and the Company have no exposures to defined
benefit staff pension schemes or client related index linked liabilities.
The Group's expenses are governed at a high level by the Group's Expense
Policy. The monthly management accounts are reviewed against projected future
expenses by the Board and by senior management and action is taken where
appropriate.
5. Disaggregation of revenue
The Group has the following categories of revenue:
· Annual commission - based on a fixed percentage applied to the
value of the client's portfolio each month.
· Wrapper fee income - based on a fixed quarterly charge per
wrapper.
· Other income - buy commission is based on a set percentage charge
applied to each transaction. Dealing charges are charged based on a fixed fee
for each type of transaction.
· Adviser back-office technology - licence income based on a fixed
monthly charge per number of users. Consultancy income is charged based on
the services provided.
For the financial year ended
30 September
2022 2021
£'m £'m
Annual commission income 115.8 107.7
Wrapper fee income 11.6 10.6
Other income 2.2 3.0
Adviser back-office technology 4.0 2.4
Total fee income 133.6 123.7
6. Segmental reporting
The revenue and profit before tax are attributable to activities carried out
in the UK and the Isle of Man.
The Group has three classes of business, which have been organised primarily
based on the products they offer, as detailed below:
· Investment administration services - this relates to services
performed by IFAL, which is the provider of the Transact wrap service. It is
the provider of the General Investment Account (GIA), is a Self-Invested
Personal Pension (SIPP) operator, an ISA manager and is the custodian for all
assets held on the platform (except for those held by third party custodians).
·
· Insurance and life assurance business - this relates to ILUK and
ILInt, insurance companies which provide the Transact Personal Pension,
Executive Pension, Section 32 Buy-Out Bond, Transact Onshore and Offshore
Bonds, and Qualifying Savings Plan on the Transact platform.
·
· Adviser back-office technology - this relates to T4A, provider of
financial planning technology to adviser and wealth management firms via the
CURO adviser support system. T4A was acquired during the financial period
ending 30 September 2021.
Other Group entities relates to the rest of the Group, which provide services
to support the Group's core operating segments.
Analysis by class of business is given below.
6. Segmental reporting (continued)
Statement of comprehensive income - segmental information for the year ended
30 September 2022:
Investment administration services Insurance and life assurance business Adviser back-office technology Other Group entities Consolidation adjustments Total
£m £m £m £m £m £m
Revenue
Annual commission income 63.4 52.6 - - - 116.0
Wrapper fee income 2.8 8.7 - - - 11.5
Adviser back-office technology - - 3.9 - - 3.9
Other income 1.3 0.9 - 64.4 (64.4) 2.2
Gross profit/(loss) 67.5 62.2 3.9 64.4 (64.4) 133.6
Cost of sales (0.7) (0.4) (0.5) (0.5) - (2.1)
Expenses
Admin expenses (43.0) (28.8) (5.3) (64.6) 64.0 (77.7)
Credit loss allowance on financial assets (0.1) - - (0.1) - (0.2)
Operating profit/(loss) 23.7 33.0 (1.9) (0.8) (0.4) 53.6
Interest expense - - - (0.4) 0.3 (0.1)
Interest income 0.1 1.0 - - (0.3) 0.8
Net policyholder returns
Net income/(loss) attributable to policyholder returns (38.5) - - - (38.5)
Change in investment contract liabilities - 2,770.3 - - - 2,770.3
Fee and commission expenses - (192.6) - - - (192.6)
Policyholder investment returns - (2,577.7) - - - (2,577.7)
Net policyholder returns - (38.5) - - - (38.5)
Profit on ordinary activities before taxation attributable to policyholders 23.8 (4.5) (1.9) (1.2) (0.4) 15.8
and shareholders
Policyholder tax credit/(charge) - 38.5 - - - 38.5
Profit on ordinary activities before taxation attributable to shareholders 23.8 34.0 (1.9) (1.2) (0.4) 54.3
Total tax attributable to shareholder and policyholder returns (4.4) 32.6 0.3 (0.4) 0.1 28.2
Less: tax attributable to policyholder returns - (38.5) - - - (38.5)
Shareholder tax on profit on ordinary activities (4.4) (5.9) 0.3 (0.4) 0.1 (10.3)
Profit/(loss) for the financial year 19.4 28.1 (1.6) (1.6) (0.3) 44.0
6. Segmental reporting (continued)
Statement of comprehensive income - segmental information for the year ended
30 September 2021:
Investment administration services Insurance and life assurance business Adviser back-office technology Other Group entities Consolidation adjustments Total
£m £m £m £m £m £m
Revenue
Annual commission income 58.9 45.3 - - - 104.2
Wrapper fee income 2.6 8.1 - - - 10.7
Adviser back-office technology - - 2.4 - - 2.4
Other income 1.8 4.6 - 60.4 (60.4) 6.4
Gross profit/(loss) 63.3 58.0 2.4 60.4 (60.4) 123.7
Cost of sales (0.6) (0.4) (0.3) (0.2) - (1.5)
Expenses
Admin expenses (34.5) (21.8) (3.4) (59.2) 60.2 (58.8)
Credit loss allowance on financial assets (0.2) - - - - (0.2)
Operating profit/(loss) 28.0 35.8 (1.3) 0.9 (0.2) 63.2
Interest expense - - - (0.4) 0.2 (0.2)
Interest income - 0.2 - 0.1 (0.2) 0.1
Net policyholder returns
Net income/(loss) attributable to policyholder returns 31.5 - - - 31.5
Change in investment contract liabilities - (2,736.1) - - - (2,736.1)
Fee and commission expenses - (204.1) - - - (204.1)
Policyholder investment returns - 2,940.2 - - - 2,940.2
Net policyholder returns - 31.5 - - - 0.5
Profit on ordinary activities before taxation attributable to policyholders 28.0 36.5 (1.3) 0.6 (0.2) 63.6
and shareholders
Policyholder tax credit/(charge) - (31.0) - - - (31.0)
Profit on ordinary activities before taxation attributable to shareholders 28.0 36.5 (1.3) 0.6 (0.2) 63.6
Total tax attributable to shareholder and policyholder returns (5.3) (37.6) 0.3 (0.7) (0.2) (43.5)
Less: tax attributable to policyholder returns - 31.0 - - - 31.0
Shareholder tax on profit on ordinary activities (5.3) (6.6) 0.3 (0.7) (0.2) (12.5)
Profit/(loss) for the financial year 22.7 29.9 (1.0) (0.1) (0.4) 51.1
The comparative table has been restated to correct arithmetic errors and to
include the 'Other Operating Entities' segment. These errors related only to
the segmental reporting table and did not impact any financial statement
line items. See further details below.
6. Segmental reporting (continued)
Line in current year Line in prior year Segment Amount in CY (£m) Amount in PY (£m) Change (£m) Explanation of change
Annual Commission Income Annual Commission Income Insurance 45.3 48.7 (3.4) Reclass amount of 3.4m from Annual commissions to other income
Other Income Other Income Insurance 4.6 1.2 3.4 Reclass amount of 3.4m from Annual commissions to other income
Other Income Other Income Other Group Entities 60.4 - 60.4 Recharged services of £60.4m to ISL that are eliminated on consolidation that
hadn't been included in PY disclosure
Total fee income Total fee income
Other Income Other Income Consolidated adjustments (60.4) - (60.4) Recharged services of £60.4m to ISL that are eliminated on consolidation not
included in PY disclosure
Total fee income Total fee income
Admin expenses Admin expense Investment administration services (IAS) (34.5) (64.8) (30.3) Reclass the amount of admin expense that should be included in other group
entities of total 59.2m from IAS (30.3m), Insurance (27.8m) and T4A (1.1m)
Admin expenses Admin expense Insurance (21.8) (49.6) (27.8) Reclass the amount of admin expense that should be included in other group
entities of total 59.2m from IAS (30.3m), Insurance (27.8m) and T4A (1.1m)
Admin expenses Admin expense Other Group Entities (59.2) - 59.2 Reclass the amount of admin expense that should be included in other group
entities of total 59.2m from IAS (30.3m), Insurance (27.8m) and T4A (1.1m)
Profit/(loss) before tax Profit/(loss) before tax IAS 28.0 3.2 24.8 Number changed to correctly sum the revenue - expenses for the segment
Profit/(loss) before tax Profit/(loss) before tax Insurance 36.5 39.0 (2.5) Number changed to correctly sum the revenue - expenses for the segment
Profit/(loss) before tax Profit/(loss) before tax Consolidation adjustments (0.2) 60.2 (60.4) Number changed to correctly sum the revenue - expenses for the segment
Profit for the financial year Profit for the financial year IAS 22.7 44.1 (21.4) Correctly casting the segmental column
Profit for the financial year Profit for the financial year Insurance 29.9 49.6 (19.7) Correctly casting the segmental column
Profit for the financial year Profit for the financial year Other Group Entities (0.1) - (0.1) Correctly casting the segmental column
Profit for the financial year Profit for the financial year Consolidation adjustments (0.4) (42.4) 42.0 Correctly casting the segmental column
Statement of financial position - segmental information for the year ended 30
September 2022:
Investment administration services Insurance and life assurance business Total
Adviser back-office technology
£'m £'m £'m £'m
Assets
Non-current assets 10.4 30.6 0.8 41.8
Current assets 71.8 144.7 3.8 220.3
Total assets 82.2 175.3 4.6 262.1
Liabilities
Current liabilities 10.5 22.5 1.1 34.1
Non-current liabilities 1.9 52.8 0.1 54.8
Total liabilities 12.4 75.3 1.2 88.9
Policyholder assets and liabilities
Cash held for the benefit of policyholder - 1,458.6 - 1,458.6
Investments held for the benefit of policyholders - 20,715.8 - 20,715.8
Liabilities for linked investment contracts - (22,174.4) - (22,174.4)
Total policyholder assets and liabilities - - - -
Net assets 69.8 100.0 3.4 173.2
Non-current asset additions 0.2 0.1 0.0 0.3
6. Segmental reporting (continued)
Statement of financial position - segmental information for the year ended 30
September 2021:
Investment administration services Insurance and life assurance business Total
Adviser back-office technology
£'m £'m £'m £'m
Assets
Non-current assets 11.8 20.0 - 31.8
Current assets 67.3 130.8 3.9 202.0
Total assets 79.1 150.8 3.9 233.8
Liabilities
Current liabilities 8.1 22.5 0.7 31.3
Non-current liabilities 2.6 36.6 - 39.2
Total liabilities 10.7 59.1 0.7 70.5
Policyholder assets and liabilities
Cash held for the benefit of policyholder - 1,266.3 - 1,266.3
Investments held for the benefit of policyholders - 21,787.1 - 21,787.1
Liabilities for linked investment contracts - (23,053.4) - (23,053.4)
Total policyholder assets and liabilities - - - -
Net assets 68.4 91.7 3.2 163.3
Non-current asset additions 0.3 0.3 - 0.6
Segmental information: Split by geographical location
2022 2021
£'m £'m
Revenue
United Kingdom 128.3 118.9
Isle of Man 5.3 4.8
Total 133.6 123.7
2022 2021
£'m £'m
Non-current assets
United Kingdom 25.1 26.8
Isle of Man - 0.1
Total 25.1 26.9
7. Earnings per share
2022 2021
Profit
Profit for the year and earnings used in basic and diluted earnings per share £44.0m £51.1m
Weighted average number of shares
Weighted average number of Ordinary shares 331.3m 331.3m
Weighted average numbers of Ordinary Shares held by Employee Benefit Trust (0.4m) (0.3m)
Weighted average number of Ordinary Shares for the purposes of basic EPS 330.9m 331.0m
Adjustment for dilutive share option awards 0.4m 0.3m
Weighted average number of Ordinary Shares for the purposes of diluted EPS 331.3m 331.3m
Earnings per share
Basic and diluted 13.3p 15.4p
Earnings per share ("EPS") is calculated based on the share capital of
IntegraFin Holdings plc and the earnings of the consolidated Group.
Basic EPS is calculated by dividing profit after tax attributable to ordinary
equity shareholders of the Company by the weighted average number of Ordinary
Shares outstanding during the year. The weighted average number of shares
excludes shares held within the Employee Benefit Trust to satisfy the Group's
obligations under employee share awards.
Diluted EPS is calculated by adjusting the weighted average number of Ordinary
Shares outstanding to assume conversion of all potentially dilutive Ordinary
Shares.
8. Expenses by nature
The following expenses are included within administrative expenses:
Group
2022 2021
£'m £'m
Depreciation 2.6 2.8
Amortisation 0.4 0.3
Wages and employee benefits expense 46.1 41.0
Other staff costs 1.0 0.6
Auditor's remuneration:
- auditing of the Financial Statements of the Company pursuant to the 0.1 0.2
legislation
- auditing of the Financial Statements of subsidiaries 0.4 0.2
- other assurance services 0.3 0.1
Other Auditor's remuneration:
- auditing of the Financial Statements of subsidiaries - 0.2
- other assurance services - 0.1
Other professional fees 4.7 3.5
Regulatory fees 4.2 3.5
- Non-underlying expenses - backdated VAT 8.0 -
- Non-underlying expenses - interest on backdated VAT 0.8 -
- Other non-underlying expenses 2.7 3.3
Short-term lease payments:
- land and buildings 0.1 0.1
Other occupancy costs 2.3 1.2
Other costs 6.4 3.9
Other income - tax relief due to shareholders (2.4) (2.2)
Total administrative expenses 77.7 58.8
"Other income - tax relief due to shareholders" relates to the release of
policyholder reserves to the statement of comprehensive income.
Non-underlying expenses relate to back dated VAT and interest being due to
HMRC after their review concluded that the inclusion of IAD in our VAT group
was terminated with effect from July 2016, and reverse charge VAT is therefore
payable on services provided by IAD since that date. We have been unsuccessful
in two stages of appealing the decision, which resulted in non-underlying
expenses of backdated VAT of £8.0 million for the period to September 2021
and non-recurring interest on the VAT due of £0.8m. For further details see
the Financial Review.
8. Expenses by nature (continued)
Other non-underlying expenses relate professional fees and stamp duty in
relation to acquisitions, and post-combination remuneration. The
post-combination remuneration payment to the original shareholders of T4A is
comprised of the deferred and additional consideration payable in relation to
the acquisition of T4A and is recognised as remuneration over four years from
January 2021 to December 2024. This non-underlying expense will continue in
subsequent years and is expected to be £3 million in financial years 2022 to
2024, before reducing to £0.8 million in financial year 2025.
Company
2022 2021
£'m £'m
Wages and employee benefits expense 0.6 0.4
Non underlying expenses:
-Remuneration 3.0 2.2
Auditor's remuneration:
- auditing of the Financial Statements of the Company pursuant to the 0.2 0.3
legislation
Other professional fees 0.8 1.2
Other costs 0.2 0.6
Total administrative expenses 4.8 4.7
Wages and employee benefits expense
The average number of staff (including executive directors) employed by the
Group during the financial year amounted to:
2022 2021
No. No.
CEO 2 2
Client services staff 223 231
Finance staff 69 61
Legal and compliance staff 38 33
Sales, marketing and product development staff 64 45
Software development staff 131 122
Technical and support staff 67 49
594 543
The Company has no employees (2021: nil).
Wages and employee (including executive directors) benefits expenses during
the year, included within administrative expenses, were as follows:
2022 2021
£'m £'m
Wages and salaries 36.3 32.9
Social security costs 4.2 3.4
Other pension costs 3.6 2.8
Share-based payment costs 2.0 1.9
46.1 41.0
8. Expenses by nature (continued)
Compensation of key management personnel
Key management personnel are defined as those persons having authority and
responsibility for planning, directing and controlling the activities of the
entity and as such, only directors are considered to meet this definition.
2022 2021
£'m £'m
Short-term employee benefits* 2.9 2.9
Post-employment benefits 0.2 0.1
Share based payment 0.4 0.4
Social security costs 0.4 0.4
4.1 3.8
Highest paid director: 0.6
Short-term employee benefits* 0.2 0.6
Other benefits - 0.1
No. No.
Number of directors for whom pension contributions are paid 8 8
*Short-term employee benefits comprise salary and cash bonus.
9. Interest income
Group Company Group Company
2022 2022 2021 2021
£'m £'m £'m £'m
Interest income on bank deposits 0.6 - - -
Interest income on loans 0.2 0.2 0.1 0.1
0.8 0.2 0.1 0.1
10. Policyholder investment returns
2022 2021
£'m £'m
Change in fair value of underlying assets (2,729.2) 2,810.1
Investment income 151.5 130.1
Total investment returns (2,577.7) 2,940.2
11. Tax on profit on ordinary activities
Group
a) Analysis of charge in year
The income tax expense comprises:
2022 2021
£'m £'m
Corporation tax
Current year - corporation tax 10.0 12.2
Adjustment in respect of prior years 0.7 0.4
10.7 12.6
Deferred tax
Current year (0.4) (0.2)
Change in deferred tax charge/(credit) as a result of higher tax rate - 0.1
Total shareholder tax charge for the year 10.3 12.5
Policyholder taxation
UK policyholder tax at 20% (2021: 20%) - 11.5
Deferred tax at 20% (2021: 20%) (33.8) 19.6
Prior year adjustments (4.9) (0.3)
Tax deducted on overseas dividends 0.2 0.2
Total policyholder taxation (38.5) 31.0
Total tax attributable to shareholder and policyholder returns (28.2) 43.5
11. Tax on profit on ordinary activities (continued)
b) Factors affecting tax charge for the year
The tax on the Group's profit before tax differs from the amount
that would arise using the weighted average tax rate applicable to profits of
the consolidated entities as follows:
2022 2021
£'m £'m
Profit on ordinary activities before taxation attributable to shareholders 54.3 63.6
Profit on ordinary activities multiplied by effective rate of Corporation Tax 10.3 12.1
19% (2021: 19%)
Effects of:
Non-taxable dividends - (0.1)
Income / expenses not taxable / deductible for tax purposes multiplied by (0.2) 0.7
effective rate of corporation tax
Adjustments in respect of prior years 0.7 (0.1)
Effect of change in tax rate - 0.1
Effect of lower tax rate jurisdiction (0.5) -
Other adjustments - (0.2)
10.3 12.5
Add policyholder tax (38.5) 31.0
(28.2) 43.5
Company
a) Analysis of charge in year
2022 2021
£'m £'m
Deferred tax charge/(credit) (see note 26) - -
Total - -
b) Factors affecting tax charge for the year
2022 2021
£'m £'m
Profit on ordinary activities before tax 39.9 37.2
Profit on ordinary activities multiplied by effective rate of Corporation Tax 7.6 7.1
19% (2021: 19%)
Effects of:
Non-taxable dividends (8.5) (8.0)
Income / expenses not taxable / deductible for tax purposes multiplied by 0.6 0.6
effective rate of Corporation Tax
Group loss relief to ISL 0.3 0.3
- -
12. Intangible assets - Group
Software and IP rights Goodwill Customer relationships Software Brand Total
Cost £'m £'m £'m £'m £'m £'m
At 1 October 2021 12.5 18.3 2.1 2.0 0.3 35.2
At 30 September 2022 12.5 18.3 2.1 2.0 0.3 35.2
Amortisation
At 1 October 2021 12.5 - 0.1 0.2 0.1 12.9
Charge for the year - - 0.2 0.3 - 0.5
At 30 September 2022 12.5 - 0.3 0.5 0.1 13.4
Net Book Value
At 30 September 2021 - 18.3 2.0 1.8 0.2 22.3
At 30 September 2022 - 18.3 1.7 1.5 0.2 21.8
Cost
At 1 October 2020 12.5 13.0 - - - 25.5
Acquisitions through business combinations - 5.3 2.1 2.0 0.3 9.7
At 30 September 2021 12.5 18.3 2.1 2.0 0.3 35.2
Amortisation
At 1 October 2020 12.5 - - - - 12.5
Charge for the year - - 0.1 0.2 0.1 0.4
At 30 September 2021 12.5 - 0.1 0.2 0.1 12.9
Net Book Value
At 30 September 2020 - 13.0 - - - 13.0
At 30 September 2021 - 18.3 2.0 1.8 0.2 22.3
All intangible assets are externally generated.
Goodwill impairment assessment
In accordance with IFRS, goodwill is not amortised, but is assessed for
impairment on an annual basis. The impairment assessment compares the carrying
value of goodwill to the recoverable amount, which is the higher of value in
use and the fair value less costs of disposal. The recoverable amount is
determined based on value in use calculations. The use of this method requires
the estimation of future cash flows and the determination of a discount rate
in order to calculate the present value of the cash flows.
The goodwill relates to the acquisition of IAD Pty in July 2016 and T4A in
January 2021.
The carrying amount of the IAD Pty goodwill is allocated to the two cash
generating units ("CGUs") that relate to the Transact platform, as these are
benefitting from the IAD PTY acquisition. The carrying amount of the goodwill
for T4A is allocated to the CGU that relates to the CURO software as this is
the source of revenue for T4A.
IAD Pty
2022 2021
£'m £'m
Investment administration services 7.2 7.2
Insurance and life assurance business 5.7 5.7
Total 12.9 12.9
12. Intangible assets - Group (continued)
The carrying amount of the T4A goodwill is all allocated to the below CGU:
T4A
2022 2021
£'m £'m
Adviser back-office technology 5.3 5.3
Other assumptions are as follows:
2022 2021
Discount rate 11.6% 10.0%
Period on which detailed forecasts are based 5 years 5 years
Long-term growth rate 2.0% 1.0%
The recoverable amounts of the above CGUs have been determined from value in
use calculations based on cash flow projections from formally approved budgets
covering a five year period to 30 September 2027. Post the five year business
plan, the growth rate used to determine the terminal value of the cash
generating units was based on a long-term growth rate of 2.0%. The discount
rate is assessed on an annual basis and has been calculated using the weighted
average cost of capital.
Based on management's experience, the key assumptions on which management has
calculated its projections are net inflows, market growth and expense
inflation.
The annual impairment tests relating to both acquisitions indicated that there
is significant headroom in the recoverable amount over the carrying value of
the CGUs. There is therefore no indication of impairment.
Projected cash flows are impacted by movements in underlying assumptions,
including equity market levels, number of CURO users, employee numbers and
cost inflation. The Group considers that projected cash flows of the
investment administration services and insurance and life assurance business
CGUs are most sensitive to movements in equity markets, because they have a
direct impact on the level of the Group's fee income, while the adviser
back-office technology CGU is most sensitive to the number of CURO users, as
this forms the basis of its licence income.
A sensitivity analysis has been performed, with key assumptions being revised
adversely to reflect the potential for future performance being below expected
levels. This estimated that a fall in equity markets of approximately 45%, or
a reduction of CURO users of 25% compared to expectations, would be required
before the carrying value of any CGU would exceed the recoverable amount.
13. Property, plant and equipment - Group
Leasehold improvements Equipment Fixtures and Fittings Motor Vehicles Total
Cost £'m £'m £'m £'m £'m
At 1 October 2021 1.7 3.6 0.2 - 5.5
Additions - 0.3 - - 0.3
Disposals - (0.2) - - (0.2)
Foreign exchange - - - - -
At 30 September 2022 1.7 3.7 0.2 - 5.6
Depreciation
At 1 October 2021 1.3 2.3 0.1 - 3.7
Charge in the year 0.1 0.8 - - 0.9
Disposals - (0.2) - - (0.2)
Foreign exchange - - - - -
At 30 September 2022 1.4 2.9 0.1 - 4.4
Net Book Value
At 30 September 2021 0.4 1.3 0.1 - 1.8
At 30 September 2022 0.3 0.8 0.1 - 1.2
Cost £'m £'m £'m £'m £'m
At 1 October 2020 1.7 3.3 0.2 0.1 5.3
Additions - 0.6 - - 0.6
Disposals - (0.3) - (0.1) (0.4)
At 30 September 2021 1.7 3.6 0.2 - 5.5
Depreciation
At 1 October 2020 1.2 1.6 0.1 0.1 3.0
Charge in the year 0.1 1.0 - 1.1
Disposals - (0.3) - (0.1) (0.4)
At 30 September 2021 1.3 2.3 0.1 - 3.7
Net Book Value
At 30 September 2020 0.6 1.7 - - 2.3
At 30 September 2021 0.4 1.3 0.1 - 1.8
The Company holds no property, plant and equipment.
14. Right-of-use assets - Property - Group
Cost £'000
At 1 October 2021 6.5
Additions -
Disposals -
Foreign exchange 0.1
At 30 September 2022 6.6
Depreciation £'000
At 1 October 2021 2.8
Charge in the year 1.7
Disposals -
Foreign exchange -
At 30 September 2022 4.5
Net Book Value
At 30 September 2021 3.6
At 30 September 2022 2.1
Cost £'m
At 1 October 2020 5.6
Additions 1.3
Disposals (0.4)
At 30 September 2021 6.5
Depreciation £'000
At 1 October 2020 1.6
Charge in the year 1.6
Disposals (0.4)
At 30 September 2021 2.8
Net Book Value
At 30 September 2020 4.0
At 30 September 2021 3.6
Depreciation is calculated on a straight line basis over the term of the
lease.
15. Investment in subsidiaries
2022 2021
£'m £'m
Carrying value at 1 October 31.6 16.8
Additions - 13.0
Share-based payments 1.7 1.8
Carrying value at 30 September 33.3 31.6
15. Investment in subsidiaries (continued)
The Company has investments in the ordinary share capital of the following
subsidiaries at 30 September 2022:
Name of Company Holding % Held Incorporation and significant place of business Business
Direct holdings
Integrated Financial Arrangements Ltd Ordinary Shares 100% United Kingdom Investment Administration
IntegraFin Services Limited Ordinary Shares 100% United Kingdom Services Company
Transact IP Limited Ordinary Shares 100% United Kingdom Software provision & development
Integrated Application Development Pty Ltd Ordinary Shares 100% Australia Software maintenance
Transact Nominees Limited Ordinary Shares 100% United Kingdom Non-trading
IntegraLife UK Limited Ordinary Shares 100% United Kingdom Life Insurance
IntegraLife International Limited Ordinary Shares 100% Isle of Man Life Assurance
Transact Trustees Limited Ordinary Shares 100% United Kingdom Non-trading
Objective Funds Limited Ordinary Shares 100% United Kingdom Dormant
Objective Wealth Management Limited Ordinary Shares 100% United Kingdom Dormant
Time For Advice Limited Ordinary Shares 100% United Kingdom Financial planning software
Indirect holdings
IntegraFin Limited Ordinary Shares 100% United Kingdom Non-trading
ObjectMastery (UK) Limited Ordinary Shares 100% United Kingdom Dormant
IntegraFin (Australia) Pty Limited Ordinary Shares 100% Australia Non-trading
The Group has 100% voting rights on shares held in each of the subsidiary
undertakings.
All the UK subsidiaries have their registered office address at 29 Clement's
Lane, London, EC4N 7AE. ILInt's registered office address is at 18-20 North
Quay, Douglas, Isle of Man, IM1 4LE. IntegraFin (Australia) Pty's registered
office address is at Level 4, 854 Glenferrie Road, Hawthorn, Victoria,
Australia 3122. Integrated Application Development Pty Ltd's registered office
address is 19-25 Camberwell Road, Melbourne, Australia.
The above subsidiaries have all been included in the consolidated Financial
Statements.
Integrated Financial Arrangements Ltd is authorised and regulated by the
Financial Conduct Authority. The principal activity of the Company and its
subsidiaries is the provision of 'Transact', a wrap service that arranges and
executes transactions between clients, their financial advisers and financial
product providers including investment managers and stockbrokers.
15. Investment in subsidiaries (continued)
IntegraFin Services Limited (ISL), is the Group services company. All
intra-group service contracts are held by this services company.
Integrated Application Development Pty Ltd (IAD Pty) provides software
maintenance services to the Group.
IntegraFin Limited is the trustee of the IntegraSIP Share Incentive Plan,
which was set up to allocate Class C Shares in the capital of the Company to
staff. IntegraFin Limited undertakes no other activities.
Transact Nominees Limited holds customer assets as a nominee company on behalf
of Integrated Financial Arrangements Ltd.
IntegraFin (Australia) Pty Limited is currently non-trading.
Transact IP Limited licenses its proprietary software to other members of the
IntegraFin Group.
IntegraLife UK Limited is authorised by the Prudential Regulation Authority
and regulated by the Financial Conduct Authority and the Prudential Regulation
Authority. Its principal activity is the transaction of ordinary long-term
insurance business within the United Kingdom.
IntegraLife International Limited is authorised and regulated by the Isle of
Man Financial Services Authority and its principal activity is the transaction
of ordinary long-term insurance business within the United Kingdom through the
Transact Offshore Bond.
Time For Advice Limited is a specialist software provider for financial
planning and wealth management.
Group restructure
On 1 July 2022 IFAL transferred the entire issued share capital of six
subsidiaries to the Company. These transfers were made for nil consideration,
and each of the transfers constituted a distribution in kind by IFAL. The
amount of each distribution was taken to be the book value of the relevant
shares, being:
· £1.7m for ILUK
· £1.0m for ILInt
· £1 for each of Transact Nominees Limited, Transact Trustees
Limited TTL, Objective Funds Limited and Objective Wealth Management Limited
The investments in the Company accounts are valued at cost, which in this case
is nil.
16. Loans
This note analyses the loans payable by and receivable to the Company. The
carrying amounts of loans are as follows:
Loans receivable
2022 2021
£'m £'m
Loans receivable from third parties 5.7 3.5
Interest receivable on loans - 0.1
Total gross loans 5.7 3.6
Credit loss allowance (0.2) (0.2)
Total net loans 5.5 3.4
The loans receivable are measured at amortised cost with the credit loss
allowance charged straight to the statement of comprehensive income. The total
movement in the credit loss allowance can be seen in Note 22.
Loans payable
2022 2021
£'m £'m
Loan payable to subsidiary 8.0 9.0
To be settled within 12 months 1.0 1.0
To be settled after 12 months 7.0 8.0
Total loan payable 8.0 9.0
The loans payable are initially recognised at fair value. Subsequent
measurement is at amortised cost using the effective interest method. The
interest charge is recognised on the statement of comprehensive income.
Interest on the loan is paid quarterly, whilst the remaining capital
repayments are annual over the next 8 years.
17. Investments held for the benefit of policyholders
2022 2022 2021 2021
Cost Fair value Cost Fair value
ILInt £'m £'m £'m £'m
Investments held for the benefit of policyholders 1,988.9 2,057.2 1,737.5 2,102.2
1,998.9 2,057.2 1,737.5 2,102.2
ILUK
Investments held for the benefit of policyholders 19,215.4 18,658.6 16,146.4 19,684.9
19,215.4 18,658.6 16,146.4 19,684.9
Total 21,214.3 20,715.8 17,883.9 21,787.1
17. Investments held for the benefit of policyholders (continued)
All amounts are current as customers are able to make same-day withdrawal of
available funds and transfers to third-party providers are generally performed
within a month.
These assets are held to cover the liabilities for unit linked investment
contracts. All contracts with customers are deemed to be investment contracts
and, accordingly, assets are 100% matched to corresponding liabilities.
18. Liabilities for linked investment contracts
2022 2021
Fair value Fair value
ILInt £'m £'m
Unit linked liabilities 2,201.4 2,199.7
2,201.4 2,199.7
ILUK
Unit linked liabilities 19,973.0 20,853.7
19,973.0 20,853.7
Total 22,174.4 23,053.4
Analysis of change in liabilities for linked investment contracts
2022 2021
£'m £'m
Opening balance 23,053.4 18,112.9
Investment inflows 3,113.9 3,391.3
Investment outflows (1,163.1) (1,130.5)
Compensation - 0.2
Changes in fair value of underlying assets (2,729) 2,940.2
Investment income 151.5 -
Other fees and charges - Transact (59.7) (56.6)
Other fees and charges - third parties (192.6) (204.1)
Closing balance 22,174.4 23,053.4
The benefits offered under the unit-linked investment contracts are based on
the risk appetite of policyholders and the return on their selected collective
fund investments, whose underlying investments include equities, debt
securities, property and derivatives. This investment mix is unique to
individual policyholders. When the diversified portfolio of all policyholder
investments is considered, there is a clear correlation with the FTSE 100
index and other major world indices, providing a meaningful comparison with
the return on the investments.
The maturity value of these financial liabilities is determined by the fair
value of the linked assets at maturity date. There will be no difference
between the carrying amount and the maturity amount at maturity date.
19. Cash and cash equivalents
2022 2021
£'m £'m
Bank balances - instant access 173.5 169.6
Bank balances - notice accounts 9.5 6.5
Total 183.0 176.1
Bank balances held in instant access accounts are current and available for
use by the Group.
All of the bank balances held in notice accounts require less than 35 days'
notice before they are available for use by the Group.
20. Cash held for the benefit of policyholders
2022 2021
£'m £'m
Cash and cash equivalents held for the benefit of the policyholders - instant
access - ILUK
1,314.3 1,131.6
Cash and cash equivalents held for the benefit of the policyholders - term
deposits - ILUK
- 37.2
Cash and cash equivalents held for the benefit of the policyholders - instant
access - ILINT
144.2 96.5
Cash and cash equivalents held for the benefit of the policyholders - term
deposits - ILINT
1.0
Total 1,458.5 1,266.3
Cash and cash equivalents held for the benefit of the policyholders are held
to cover the liabilities for unit linked investment contracts. These amounts
are 100% matched to corresponding liabilities.
21. Financial assets at fair value through profit or loss
Group Group
2022 2020
£'m £'m
Listed shares and securities 0.1 0.1
Gilts 3.0 5.0
Total 3.1 5.1
Investments are all UK and sterling based and held at fair value.
22. Other prepayments and accrued income
Group Company Group Company
2022 2022 2021 2021
£'m £'m £'m £'m
Accrued income 13.1 - 12.8 -
Less: credit loss allowance (1.0) - (0.8) -
Accrued income - net 12.1 - 12.0 -
Prepayments 5.1 0.1 4.0 -
Total 17.2 0.1 16.0 -
22. Other prepayments and accrued income (continued)
Movement in the credit loss allowance (for accrued income, loans receivable
and trade and other receivables) is as follows:
2022 2021
£'m £'m
Opening credit loss allowance (0.8) (0.6)
Reduction in credit loss allowance - -
Decrease / (Increase) during the year (0.2) (0.2)
Balance at 30 September (1.0) (0.8)
23. Trade and other receivables
Group Company Group Company
2022 2022 2021 2021
£'m £'m £'m £'m
Other receivables 2.1 - 0.9 -
Less: credit loss allowance (0.1) - (0.1) -
Other receivables net 2.0 - 0.8 -
Amounts owed by Group undertakings - 0.2 - 0.1
Amounts due from HMRC - - 1.8 -
Amount due from policyholders to meet current tax liability - - 1.1 -
Total 2.0 0.2 3.7 0.1
Amount due from HMRC is in respect of tax claimed on behalf of policyholders
for tax deducted at source.
24. Trade and other payables
Group Company Group Company
2022 2022 2021 2021
£'m £'m £'m £'m
Trade payables 1.6 - 0.4 -
PAYE and other taxation 2.2 0.1 1.7 0.1
Other payables 7.7 0.3 5.5 0.2
Accruals and deferred income 8.3 0.3 8.1 0.4
Deferred consideration 1.7 1.7 1.7 1.7
Total 21.5 2.4 17.4 2.4
Other payables mainly comprises £4.8 million (2021: £4.2 million) in
relation to bonds awaiting approval.
25. Lease liabilities
Lease liabilities - Property:
2022 2021
£'m £'m
Opening balance 5.1 6.1
Additions - 1.3
Lease payments (2.4) (2.5)
Interest expense 0.1 0.2
Balance at 30 September 2.8 5.1
Amounts falling due within one year 1.9 2.4
Amounts falling due after one year 0.9 2.7
The above table provides a reconciliation of the financial liabilities arising
from financing activities.
The Group has various leases in respect of property as a lessee. Lease terms
are negotiated on an individual basis and run for a period of one to five
years.
26. Deferred tax
Deferred tax is calculated in full on temporary differences under the
liability method using a tax rate of 20% (2021: 20%) on policyholder assets
and liabilities and 25% (2021: 25%) on non-policyholder items. The increase in
the UK corporation tax rate from the current rate of 19% to 25% was
substantively enacted in May 2021. This new rate has been applied to deferred
tax balances which are expected to reverse after 1 April 2023, the date on
which that new rate becomes effective.
Deferred Tax Asset Accelerated Capital Allowances Share based payments Policyholder Excess management expenses and deferred acquisition costs Other deductible temporary differences Total
Policyholder Unrealised losses/(unrealised gains) Policyholder Unrealised losses on investment trusts
£'m £'m £'m £'m £'m £'m £'m
At 1 October 2020 - 0.4 - - - 0.1 0.5
Charge to income - 0.2 - - - - 0.2
At 30 September 2021 - 0.6 - - - 0.1 0.7
Excess tax relief charged to equity - (0.3) - - - - (0.3)
Charge to income 0.1 0.2 8.1 2.2 0.2 - 10.8
Offset Deferred Tax Liability (5.2) (5.2)
At 30 September 2022 0.1 0.5 2.9 2.2 0.2 0.1 6.0
26. Deferred tax (continued)
Deferred Tax Liability Accelerated capital allowances Policyholder tax on unrealised gains Other taxable differences Total
£'m £'m £'m £'m
At 1 October 2020 0.1 8.8 - 8.9
Charge to income - 19.6 0.2 19.8
Deferred tax acquired through business combination - - 0.8 0.8
At 30 September 2021 0.1 28.4 1.0 29.5
Charge to income (0.1) (23.2) (0.1) (23.4)
Offset against Deferred Tax asset (5.2) (5.2)
At 30 September 2022 - - 0.9 0.9
The Company has no deferred tax assets or liabilities.
The deferred tax movement in 2022 arises due to significant falls in the value
of equity and bond markets resulting in losses on investments held for the
benefit of policyholders (£184.4m), as well as excess management charges
(£3.7m). To support the recognition of the policyholder net deferred tax
asset of £5.4m, modelling has been carried out to review the likely recovery
period for the deferred tax asset. The modelling is based on management
forecasts and concludes that the deferred tax asset on losses is expected to
be recovered by financial year 2024. An extreme downside case was also
modelled based on PRA Solvency II guidance to include a fall in type 1 equity
stock markets, and a mass lapse of life insurance products, neither of which
impacted the anticipated recovery.
27. Client monies and client assets
2022 £'m £'m
Client monies 3,346.8 Amounts due to clients 3,346.8
Client assets 46,723.7 Corresponding liability 46,723.7
2021 £'m £'m
Client monies 2,901.5 Amounts due to clients 2,901.5
Client assets 49,210.1 Corresponding liability 49,210.1
The above client monies are held separately (off balance sheet) in client bank
and the above client assets are held on behalf of Integrated Financial
Arrangements Ltd by Transact Nominees Limited.
28. Provisions - Group
2022 2021
£'m £'m
Balance brought forward 17.8 25.2
(Decrease)/increase in dilapidations provision (0.3) 0.1
Decrease in ILInt non-linked unit provision (0.1) -
(Decrease)/increase in ILUK policyholder reserves 45.0 (7.5)
Decrease in other provisions (5.6) -
Balance carried forward 56.8 17.8
Amounts falling due within one year 10.7 11.6
Amounts falling due after one year 46.1 6.2
Dilapidations provisions 0.2 0.5
ILInt non-linked unit provision - 0.1
Current ILUK policyholder reserves 56.6 11.6
Non-current ILUK policyholder reserves - 5.6
Total 56.8 17.8
The dilapidation provisions relate to the current leasehold premises at 29
Clement's Lane, and the current ILInt leasehold premises at 18/20 North Quay,
on the Isle of Man. The Group is committed to restoring the premises to their
original state at the end of the lease term. Whilst it is probable that
payments will be required for dilapidations, uncertainty exists with regard to
the amount and timing of these payments, and the amounts provided represent
management's best estimate of the Group's liability.
ILUK policyholder reserve comprises claims received from HMRC that are yet to
be returned to policyholders, charges taken from unit-linked funds and claims
received from HMRC to meet current and future policyholder tax obligations.
These are expected to be paid to policyholders over the course of the next
seven years.
29. Contingent consideration - Group and company
2022 2021
£'m £'m
Contingent consideration 1.7 0.8
The T4A acquisition cost included additional consideration between £0 and
£8.6 million, which is payable in January 2025 and contingent on T4A meeting
certain performance targets over the next four years.
The fair value of the contingent consideration is remeasured at each reporting
date. Management have estimated the fair value at 30 September 2022 as £3.9
million, and this is being recognised across the four year period from January
2021 to December 2024. The contingent consideration balance relates to the
element of the additional consideration that has been recognised up to 30
September 2022.
30. Share-based payments
Share-based payment reserve
Group Company Group Company
2022 2022 2021 2021
£'m £'m £'m £'m
Balance brought forward 2.4 1.7 1.7 1.1
Movement in the year 0.2 0.5 0.7 0.6
Balance carried forward 2.6 2.2 2.4 1.7
Share schemes
(i) SIP 2005
IFAL implemented a SIP trust scheme for its staff in October 2005. The SIP is
an approved scheme under Schedule 2 of the Income Tax (Earnings &
Pensions) Act 2003.
This scheme entitled all the staff who were employed in October 2005 to Class
C shares in IFAL, subject to their remaining in employment with the Company
until certain future dates.
The Trustee for this scheme is IntegraFin Limited, a wholly owned non-trading
subsidiary of IFAL.
Shares issued under the SIP may not be sold until the earlier of three years
after issue or cessation of employment by the Group. If the shares are held
for five years they may be sold free of income tax or capital gains tax. There
are no other vesting conditions.
The cost to the Group in the financial year to 30 September 2022 was £nil
(2021: £nil). There have been no new share options granted.
(ii) SIP 2018
The Company implemented an annual SIP awards scheme in January 2019. This is
an approved scheme under Schedule 2 of the Income Tax (Earnings &
Pensions) Act 2003, and entitles all eligible employees to ordinary shares in
the Company. The shares are held in a UK Trust.
The scheme includes the following awards:
Free Shares
The Company may give Free Shares up to a maximum value, calculated at the date
of the award of such Free Shares, of £3,600 per employee in a tax year.
The share awards are made by the Company each year, dependent on 12 months
continuous service at 30 September. The cost to the Group in the financial
year to 30 September 2022 was £0.6m (2021: £0.7m).
Partnership and Matching Shares
The Company provides employees with the opportunity to enter into an agreement
with the Company to enable such employees to use part of their pre-tax salary
to acquire Partnership Shares. If employees acquire Partnership Shares, the
board grants relevant Matching Shares at a ratio of 2:1.
30. Share-based payments (continued)
The cost to the Group in the financial year to 30 September 2022 was £0.5m
(2021: £0.5m).
(iii) Performance Share Plan
The Company implemented an annual PSP scheme in December 2018. Awards granted
under the PSP take the form of options to acquire Ordinary Shares for nil
consideration. These are awarded to Executive Directors, Senior Managers and
other employees of any Group Company, as determined by the Remuneration
Committee.
The exercise of the PSP awards is conditional upon the achievement of a
performance condition set at the time of grant and measured over a three year
performance period.
The cost to the Group in the financial year to 30 September 2022 was £0.8m
(2021: £0.7m). This is based on the fair value of the share options at grant
date, rather than on the purchase cost of shares held in the Employee Benefit
Trust reserve, in line with IFRS 2 Share-based Payment.
Details of the share awards outstanding are as follows:
2022 2021
Shares Shares
(number) (number)
SIP 2018
Shares in the plan at start of the year 692,683 473,683
Granted 292,318 295,210
Shares withdrawn from the plan (130,754) (76,210)
Shares in the plan at end of year 854,247 692,683
Available to withdraw from the plan at end of year 314,161 148,543
Details of the movements in the share scheme during the year are as
follows:
2022 2022 2021 2021
Weighted average exercise price Shares Weighted average exercise price Shares
(pence) (number) (pence) (number)
SIP 2005
Outstanding at start of the year 0.00 872,709 0.00 1,201,223
Shares withdrawn from the plan 0.00 (67,200) 0.00 (328,514)
Shares in the plan at end of year 0.00 805,509
0.00 872,709
Available to withdraw from the plan at end of year 0.00 805,509
0.00 872,709
The weighted average share price at the date of withdrawal for shares
withdrawn from the plan during the year was 425.47 pence (2021: 507.35 pence).
30. Share-based payments (continued)
At 30 September 2022 the exercise price was £nil as they were all nil cost
options.
2022 2022 2021 2021
Weighted average exercise price Share options Weighted average exercise price Share options
(pence) (number) (pence) (number)
PSP
Outstanding at start of the year 0.00 576,088 0.00 434,643
Granted 0.00 184,772 0.00 141,445
Forfeited 0.00 - 0.00 -
Exercised 0.00 (85,553)
Outstanding at end of year 0.00 675,307 0.00 576,088
Exercisable at end of year 0.00 183,958 0.00 -
The fair value of options granted during the year has been estimated using the
Black-Scholes model. The principal assumptions used in the calculation were as
follows:
2022 2021
PSP
Share price at date of grant 522.5 555.0
Exercise price Nil Nil
Expected life 3 years 3 years
Risk free rate 0.69% 0.00%
Dividend yield 1.91% 1.50%
Weighted average fair value per option 493.3p 530.7p
31. Employee Benefit Trust reserve
Group:
2022 2021
£'m £'m
Balance brought forward (2.1) (1.1)
Purchase of own shares (0.3) (1.0)
Balance carried forward (2.4) (2.1)
Company:
2022 2021
£'m £'m
Balance brought forward (1.8) (0.9)
Purchase of own shares (0.3) (0.9)
Balance carried forward (2.1) (1.8)
31. Employee Benefit Trust reserve (continued)
The Employee Benefit Trust ("EBT") was settled by the Company pursuant to a
trust deed entered into between the Company and Intertrust Employee Benefit
Trustee Limited ("Trustee"). The Company has the power to remove the Trustee
and appoint a
new trustee. The EBT is a discretionary settlement and is used to satisfy
awards made under the PSP.
The Trustee purchases existing Ordinary Shares in the market, and the amount
held in the EBT reserve represents the purchase cost of IHP shares held to
satisfy options awarded under the PSP scheme. IHP is considered to be the
sponsoring entity of the EBT, and the assets and liabilities of the EBT are
therefore recognised as those of IHP. Shares held in the trust are treated as
own shares and shown as a deduction from equity.
32. Other reserves - Group
2022 2021
£'m £'m
Foreign exchange reserves - (0.1)
Non-distributable merger reserve 5.7 5.7
Non-distributable insurance reserves - 0.5
Foreign exchange reserves are gains/losses arising on retranslating the net
assets of
IAD Pty into sterling.
Non-distributable reserves relate to the non-distributable merger reserve held
by one of the Company's subsidiaries, IFAL, which is classified within other
reserves on a Group level.
33. Related parties
During the year the Company did not render nor receive any services with
related parties within the Group, and at the year end the Company had the
following intra-Group receivables:
Amounts owed by related parties
Company 2022 2021
£'m £'m
Integrated Financial Arrangements Ltd 0.1 0.1
A loan of £10 million was issued to the Company by IntegraLife UK Limited in
FY21. This is an arm's length transaction as interest is charged at a
commercial rate. IHP is paying the loan off over ten years and made the second
payment of £1 million, plus accrued interest, during the year. The current
loan balance is £8 million.
The Group has not recognised any expected credit losses in respect of related
party receivables, nor has it been given or received any guarantee during 2022
or 2021 regarding related party transactions.
33. Related parties (continued)
Payments to key management personnel, defined as members of the board, are
shown in the Remuneration Report. Directors of the Company received a total of
£3.6million (2021: £3.3million) in dividends during the year and benefitted
from staff discounts for using the platform of £2k (2021: £2k). The number
of IHP shares held at the end of the year by key management personnel was
35,207,874, a increase of 1,123 from last year.
All of the above transactions are commercial transactions undertaken in the
normal course of business.
34. Events after the reporting date
A second interim dividend of 7.0 pence per share was declared on 13 December
2022. This dividend has not been accrued in the consolidated statement of
financial position.
35. Dividends
During the year to 30 September 2022 the Company paid interim dividends of
£33.8million (2021: £28.5million) to shareholders. The Company received
dividends from subsidiaries of £45.0million (2021: £42.1million).
DIRECTORS, COMPANY DETAILS, ADVISERS
Executive Directors
Michael Howard
Alexander Scott
Jonathan Gunby
Non-Executive Directors
Richard Cranfield
Christopher Munro
Rita Dhut
Caroline Banszky
Victoria Cochrane
Robert Lister
Company Secretary
Helen Wakeford
Independent Auditors
Ernst & Young LLP, 25 Churchill Place, Canary Wharf, London, E14 5EY
Solicitors
Eversheds Sutherland, One Wood Street, London, EC2V 7WS
Corporate Advisers
Peel Hunt LLP, 7(th) Floor 100 Liverpool Street, London, England, EC2M 2AT
Barclays Bank PLC, 5 The North Colonnade, Canary Wharf, London, E14 4BB
Principal Bankers
NatWest Bank Plc, 135 Bishopsgate, London, EC2M 3UR
Registrars
Equiniti Group plc, Sutherland House, Russell Way, Crawley, RH10 1UH
Registered Office
29 Clement's Lane, London, EC4N 7AE
Investor Relations
Luke Carrivick 020 7608 4900
Website
www.integrafin.co.uk (http://www.integrafin.co.uk)
Company number
8860879
Glossary of Alternative Performance Measures ("APMs")
Various alternative performance measures are referred to in the Annual Report,
which are not defined by IFRS. They are used in order to provide better
insight into the performance of the Group. Further details are provided below.
APM Definition and purpose
Operational performance measures
Funds under direction ("FUD") Calculated as the total market value of all cash and assets on the platform,
valued as at the respective year end.
Year end 2022 2021
£bn £bn
Cash 3.51 2.91
Assets 46.56 49.20
FUD 50.07 52.11
%change on the previous year -4% 27%
Average daily FUD 2022 2021
£bn £bn
Cash 3.23 2.91
Assets 49.27 44.33
FUD 52.50 47.24
%change on the previous year 11% 22%
The measurement of FUD is the primary driver of the largest component of the
Group's revenue. FUD is used to derive the annual commissions due to the
Group.
These values are not reported within the financial statements or the
accompanying notes.
Gross inflows and net inflows Calculated as gross inflows onto the platform less outflows leaving the
platform by clients during the respective financial year.
Inflows and outflows are measured as the total market value of assets and cash
joining or leaving the platform.
2022 2021
£bn £bn
Gross inflows 4.73 7.70
Outflows 2.53 2.74
Net inflows 2.19 4.95
%change on the previous year -56% 38%
The measurement of net inflows onto the platform shows the net movement of
cash and assets on the platform during the year. This directly contributes to
FUD and therefore revenue.
These values are not reported within the financial statements or the
accompanying notes.
Adviser and client numbers Calculated as the total number of advisers or clients as at the financial year
end.
Advisers are calculated as the number of advisers with over £1k of client FUD
on the platform.
Clients are calculated as the total number of clients on the platform.
T4A licence users calculated as the total number of core licence users active
on the CURO platform.
2022 2021
£'000 £'000
Advisers 6.9 6.5
%increase 5% 5%
Clients 224.7 208.6
%increase 8% 9%
T4A licence users 2.2 1.5
%increase 44%
This measurement is an indicator of our presence in the market.
These values are not reported within the financial statements or the
accompanying notes.
Income statement measures
Non-underlying expenses Calculated as costs which have been incurred outside of the ordinary course of
the business.
Non-underlying expenses 2022 2021
£m £m
Backdated VAT 8.0 -
Interest on backdated VAT 0.8 -
Other 2.7 3.3
Non-underlying expenses 11.5 3.3
Our non-underlying expenses represent costs which do not relate to our
recurring business operations and hence should be separated from operating
expenses in the income statement.
Non-underlying expenses relate to back dated VAT and interest being due to
HMRC after their review concluded that the inclusion of IAD in our VAT group
was terminated with effect from July 2016, and reverse charge VAT is therefore
payable on services provided by IAD since that date. We have been unsuccessful
in two stages of appealing the decision, which resulted in non-underlying
expenses of backdated VAT of £8.0 million for the period to September 2021
and non-recurring interest on the VAT due of £0.8m. For further details see
the Financial Review.
Other costs consist of professional fees and stamp duty in relation to
acquisitions (FY21 only), and post-combination remuneration. Post-combination
remuneration relates to the payment to the original shareholders of T4A.
This is comprised of the deferred and additional consideration payable in
relation to the acquisition of T4A and is recognised as remuneration over four
years from January 2021 to December 2024. This non-underlying expense will
continue in subsequent years and is expected to be £3 million in financial
years 2022 to 2024, before reducing to £0.8 million in financial year 2025.
Other costs in FY22 also include a credit of £0.3 million in relation to the
dilapidations provision on the Group's Clement's Lane office, as it has been
established that this is no longer required.
Underlying earnings per share Calculated as profit after tax net of non-underlying expenses, divided by
called up equity share capital.
2022 2021
£m £m
Profit after tax 44.0 51.1
Non-underlying expenses 11.5 1.6*
Tax allowable element of costs (1.4) 0.3
Underlying profit after tax 54.1 53.0
Divide by: Called up equity share capital 3.3 3.3
Underlying earnings per share 16.3p 16.0p
*Includes VAT on IAD costs of £1.7 million for FY21, though the actual costs
were recorded in FY22
Underlying profit before tax Calculated as profit before tax net of non-underlying expenses.
2022 2021
£m £m
Profit before tax 54.3 63.6
Add: Non-underlying expenses 11.5 1.6*
Underlying profit before tax 65.8 65.2
* Includes VAT on IAD costs of £1.7 million for FY21, though the actual costs
were recorded in FY22.
Cash flow measures
Dividend per share Calculated as dividend per share paid to shareholders, which relate to the
respective financial years.
2022 2021
1(st) interim dividend 3.2 pence 3.0 pence
2(nd) interim dividend 7.0 pence 7.0 pence
Shareholder returns 10.2 pence 10.0 pence
%increase on previous financial year 2.0% 20.5%
There are generally two dividend payments made relating to each financial
year. Shareholder returns is a measurement of the total cash dividend received
by each shareholder for each indvidual share held by them.
Dividend policy Calculated as total cash dividends paid in relation to the respective
financial year, divided by the post-tax profit relating to that same financial
year.
2022 2021
£m £m
Total cash dividends paid 33.8 33.1
Profit for the financial year 44.0 51.1
Dividends as a % of profit 77% 65%
Our policy is to pay 60% to 65% of full year profit after tax as two interim
dividends. For FY22 the total dividend is 77% of IFRS reported profit for the
financial year, but is 62% after excluding non-underlying expenses.
Delivery on dividend policy is a measurement of our performance against the
policy and the businesses ability to generate distributable profits.
The measurement of FUD is the primary driver of the largest component of the
Group's revenue. FUD is used to derive the annual commissions due to the
Group.
These values are not reported within the financial statements or the
accompanying notes.
Gross inflows and net inflows
Calculated as gross inflows onto the platform less outflows leaving the
platform by clients during the respective financial year.
Inflows and outflows are measured as the total market value of assets and cash
joining or leaving the platform.
2022 2021
£bn £bn
Gross inflows 4.73 7.70
Outflows 2.53 2.74
Net inflows 2.19 4.95
% change on the previous year -56% 38%
The measurement of net inflows onto the platform shows the net movement of
cash and assets on the platform during the year. This directly contributes to
FUD and therefore revenue.
These values are not reported within the financial statements or the
accompanying notes.
Adviser and client numbers
Calculated as the total number of advisers or clients as at the financial year
end.
Advisers are calculated as the number of advisers with over £1k of client FUD
on the platform.
Clients are calculated as the total number of clients on the platform.
T4A licence users calculated as the total number of core licence users active
on the CURO platform.
2022 2021
£'000 £'000
Advisers 6.9 6.5
% increase 5% 5%
Clients 224.7 208.6
% increase 8% 9%
T4A licence users 2.2 1.5
% increase 44%
This measurement is an indicator of our presence in the market.
These values are not reported within the financial statements or the
accompanying notes.
Income statement measures
Non-underlying expenses
Calculated as costs which have been incurred outside of the ordinary course of
the business.
Non-underlying expenses 2022 2021
£m £m
Backdated VAT 8.0 -
Interest on backdated VAT 0.8 -
Other 2.7 3.3
Non-underlying expenses 11.5 3.3
Our non-underlying expenses represent costs which do not relate to our
recurring business operations and hence should be separated from operating
expenses in the income statement.
Non-underlying expenses relate to back dated VAT and interest being due to
HMRC after their review concluded that the inclusion of IAD in our VAT group
was terminated with effect from July 2016, and reverse charge VAT is therefore
payable on services provided by IAD since that date. We have been unsuccessful
in two stages of appealing the decision, which resulted in non-underlying
expenses of backdated VAT of £8.0 million for the period to September 2021
and non-recurring interest on the VAT due of £0.8m. For further details see
the Financial Review.
Other costs consist of professional fees and stamp duty in relation to
acquisitions (FY21 only), and post-combination remuneration. Post-combination
remuneration relates to the payment to the original shareholders of T4A.
This is comprised of the deferred and additional consideration payable in
relation to the acquisition of T4A and is recognised as remuneration over four
years from January 2021 to December 2024. This non-underlying expense will
continue in subsequent years and is expected to be £3 million in financial
years 2022 to 2024, before reducing to £0.8 million in financial year 2025.
Other costs in FY22 also include a credit of £0.3 million in relation to the
dilapidations provision on the Group's Clement's Lane office, as it has been
established that this is no longer required.
Underlying earnings per share
Calculated as profit after tax net of non-underlying expenses, divided by
called up equity share capital.
2022 2021
£m £m
Profit after tax 44.0 51.1
Non-underlying expenses 11.5 1.6*
Tax allowable element of costs (1.4) 0.3
Underlying profit after tax 54.1 53.0
Divide by: Called up equity share capital 3.3 3.3
Underlying earnings per share 16.3p 16.0p
* Includes VAT on IAD costs of £1.7 million for FY21, though the actual costs
were recorded in FY22
Underlying profit before tax
Calculated as profit before tax net of non-underlying expenses.
2022 2021
£m £m
Profit before tax 54.3 63.6
Add: Non-underlying expenses 11.5 1.6*
Underlying profit before tax 65.8 65.2
* Includes VAT on IAD costs of £1.7 million for FY21, though the actual costs
were recorded in FY22.
Cash flow measures
Dividend per share
Calculated as dividend per share paid to shareholders, which relate to the
respective financial years.
2022 2021
1(st) interim dividend 3.2 pence 3.0 pence
2(nd) interim dividend 7.0 pence 7.0 pence
Shareholder returns 10.2 pence 10.0 pence
% increase on previous financial year 2.0% 20.5%
There are generally two dividend payments made relating to each financial
year. Shareholder returns is a measurement of the total cash dividend received
by each shareholder for each indvidual share held by them.
Dividend policy
Calculated as total cash dividends paid in relation to the respective
financial year, divided by the post-tax profit relating to that same financial
year.
2022 2021
£m £m
Total cash dividends paid 33.8 33.1
Profit for the financial year 44.0 51.1
Dividends as a % of profit 77% 65%
Our policy is to pay 60% to 65% of full year profit after tax as two interim
dividends. For FY22 the total dividend is 77% of IFRS reported profit for the
financial year, but is 62% after excluding non-underlying expenses.
Delivery on dividend policy is a measurement of our performance against the
policy and the businesses ability to generate distributable profits.
1 (#_ftnref1) Investments made under EET indicates that the initial
investment is made exempt of tax first E, the second E denotes that income and
gains on the investment is also exempt whilst in the wrapper. The T in this
case represents that the withdrawal is taxed in line with the individual's
personal tax rate. E.g. Pensions. In contrast TEE denotes that the investment
is made from taxed income but income and gains on the investment and
withdrawals are exempt represented by the second and third E. e.g. ISAs.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR BKNBDBBDBNBDRecent news on Integrafin Holdings
See all newsREG - IntegraFin Holdings - Director/PDMR Shareholding
AnnouncementREG - IntegraFin Holdings - Q2 Trading Update
AnnouncementREG - IntegraFin Holdings - Holding(s) in Company
AnnouncementREG - IntegraFin Holdings - Director/PDMR Shareholding
AnnouncementREG - TR Property Inv. IntegraFin Holdings - Holding(s) in Company
Announcement