REG - Walker Crips Group - Final Results
29/07/2022 15:15
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RNS Number : 3135U Walker Crips Group plc 29 July 2022
29 July 2022
Walker Crips Group plc
("Walker Crips", the "Company" or the "Group")
Final results for the year ended 31 March 2022
Walker Crips Group plc, the investment management and wealth management
services, pensions administration and regulation technology Group, announces
audited results for the year ended 31 March 2022.
Financial Highlights
· Total revenues increased 8.1% to £32.8 million (2021: £30.3
million).
· A significant improvement in operating profit to £326,000 (2021:
£22,000), being £1,866,000 (2021: £441,000) when adjusted for operational
exceptional items*.
· Profit before tax £324,000 (2021: loss before tax £114,000), being
profit before tax £1,761,000 (2021: £305,000) when adjusted for total
exceptional items*.
· Adjusted EBITDA increased 49% to £3.90 million (2021: £2.61
million) **.
· Underlying cash generated from operations improves 71% to £1.34
million (2021: £0.78 million)***.
· Cash and cash equivalents £11.11 million (2021: £8.86 million).
· Assets Under Management ("AUM") increased by 5.9% to £3.6 billion
(2021: £3.4 billion).
· Proposed final dividend of 1.20 pence per share (2021: 0.60 pence per
share), bringing the total dividends for the year to 1.50 pence per share
(2021: 0.75 pence per share).
* Exceptional items are disclosed in note 10 to the accounts and a full
reconciliation to IFRS results is presented in the Finance Director's review.
** Adjusted EBITDA represents earnings before interest, taxation, depreciation
and amortisation, and exceptional items. The Directors present this result as
it is a metric widely used by stakeholders when considering an entity's
financial performance. A full reconciliation to IFRS results is provided in
the Finance Director's review.
*** Underlying cash generated from operations represents the cash generated
from operations adjusted for lease liability payments under IFRS 16,
non-cyclical working capital movements and exceptional items. The Directors
consider that this metric helps readers understand the cash generating
performance of the Group. A full reconciliation to the IFRS results is
provided in the Finance Director's review.
For further information, please contact:
Walker Crips Group plc Tel: +44 (0)20 3100 8000
Craig Harrison, Media Relations
Four Communications
Mark Knight Tel: +44 (0)20 3697 4200
walkercrips@fourcommunications.com (mailto:walkercrips@fourcommunications.com)
Singer Capital Markets
Will Goode / George Tzimas Tel: +44 (0)20 7496 3000
Further information on Walker Crips Group is available on the Company's
website: www.walkercrips.co.uk
Chairman's statement
Return to operational profitability and continued focus on improving operating
margins.
Martin Wright
Chairman
The combination of the recovery in financial markets and focus on profit
improvement has seen the Group return to profit for the full year. The core
business delivered a strong performance, and continues to do so in the first
part of our new financial year, albeit the impact of good growth in revenues
and improving margins were marred by the exceptional costs we are reporting
and which are explained further below and in the CEO's report. At a strategic
level, we continue to progress a number of projects that will incur additional
costs in the near-term and, as I said in my statement for the interim report,
the Investment Management division's project to improve operating margins will
be a long-term exercise, with the overall impact on operating margins expected
to be positive, but unlikely to be smooth from reporting period to reporting
period.
Overview of 2021/2022
The tumultuous events that accompanied my first year as Chairman of your
company have been succeeded by conditions that are, mercifully, less traumatic
but which, perhaps, still deserve to be labelled as extraordinary. The rapid
rise of inflation to 40-year highs has made management strategy and investment
conditions tricky, to say the least, and markets are understandably struggling
to cope with the impact.
The rewards of management's efforts to reduce costs during the pandemic,
accompanied by the more-benign market conditions which applied throughout the
first three quarters of the financial year, gave the Group breathing space to
focus on improving operating margins within the Investment Management
division, in tandem with the ongoing efforts to renew growth in the Wealth
Management division. That strategy is bearing fruit and should continue to do
so over the longer-term.
I am also pleased to report that the Structured Investments business has
bounced back from its annus horribilis of the previous year, under the
guidance of its new managers, and I wish them continued success. The
Investment Management division, which includes the structured investment team,
was the principal driver of growth in operating profits during the year, and
the division's performance was also enhanced by the improved contributions of
the investment management teams in the firm's York, London and Inverness
offices and the Barker Poland Asset Management team in London. We were
disappointed that two investment managers from the division's Truro office
have departed. Having spent eight successful years in Truro, we are committed
to maintaining a local presence, and will continue to serve our existing
clients. I thank our team members who have stepped in to provide continuity to
our clients, while we recruit locally.
As set out in the financial highlights, revenues for the year grew by £2.5
million to £32.8 million and Adjusted EBITDA* increased by £1.29 million to
£3.90 million (2021: £2.61 million), an incremental operating margin of
51.6% and testament to management's focus on margin improvement. It is
therefore extremely disappointing that the very welcome improvements in
financial performance generally have been undermined by a number of matters
that have given rise to significant exceptional costs. Although certain
exceptional costs relate to the restructuring initiated during the pandemic,
those required firstly to improve our financial crime framework and separately
for the estimated cost of redress to a small number of customers caused by the
actions of one associate, were neither anticipated nor acceptable. We are
making the changes necessary to address these matters and the associate
concerned has been sanctioned. I would add that insurers have been informed of
the redress matter, although at this stage no recovery has been recognised in
the accounts pending finalisation of the loss and insurer's confirmation of
cover. The Group is taking all appropriate measures to ensure losses in
relation to this matter are recovered. I can also confirm that the Executive
Directors were not awarded the discretionary bonuses approved by shareholders
at last year's annual general meeting.
Results have also been hampered by the residual effect of the decline in Bank
of England base rates during the previous year and lower contributions from
the Group's alternative businesses.
After exceptional costs, the Group's profit before tax for the year is
£324,000, an improvement on the loss of £114,000 reported in the previous
year. The exceptional costs noted are non-recurring and therefore, given the
underlying improvement in trading, the Directors are recommending a final
dividend of 1.20 pence per share, doubling the previous year's final dividend.
Strategy
The pandemic demonstrated the resilience of the core Investment Management
business, which, exceptional costs aside, has bounced back robustly. The
Wealth Management business has rebounded from adviser and client losses during
the previous year and its recruitment strategy has started to produce revenue
growth. The York office, which is home to our biggest Wealth Management team
and one of our largest Investment Management teams, leads the firm in its
ability to derive revenue-synergies from both types of service, and points the
way forward for the rest of the Group in generating top-line growth. We hope
to replicate that close working relationship between the Wealth Management
division's new Southampton office and our other teams of investment managers
around the country.
The Group's seamless transition to flexible working, which is now more
entrenched than ever as a working practice at our own and most other
companies, justified our focus on technology. The Group believes that
continued investment in technology is crucial to providing innovative and
effective services to our clients, investment managers and staff. EnOC
Technologies Limited's project to commercialise our technology remains a key
limb of our growth plan. The Group will therefore maintain its focus on
revenue growth and margin improvement, and continue keeping a tight rein on
costs in light of current inflationary pressures and the tight labour markets.
Dividend
Our aim is always to reward our shareholders for their continued support. In
that light, having taken into account the Group's improved profitability and
potential for continuing improved operating margins, capital headroom, and
short-term and long-term cash flow considerations, the Board will recommend
for shareholders' approval at the forthcoming AGM for a final dividend of 1.20
pence per share (2021: 0.60 pence) payable on 7 October 2022 to those
shareholders on the register at the close of business on 23 September 2022,
with an ex-dividend date of 22 September 2022. As noted earlier, this is a
twofold increase on the previous year's final dividend.
Our community
We believe that in challenging times, it is important that we continue to
support our chosen charities. In addition to financial support, we try to do
more by using our technology for good, engaging in technology philanthropy,
and using technology as a catalyst to boost the efforts of those charities,
working with them to design, deploy and maintain those systems.
Our partner charity, www.twiningenterprise.org.uk, has a mission to combat
mental health stigma and to assist people who are struggling with mental
health issues around work. Their goal is to ensure that everyone with a mental
health issue can find employment and cope with the challenges of working life,
to support employers and raise awareness around mental health in general and
to reduce stigma and discrimination.
This is a mission whose work is crucial, as has been highlighted during this
pandemic. We urge you to join us by signing on to support Twining in their
mission, staying informed of their latest news and activities, and support
them financially by going to www.enoc.pro/community.
Directors, Account Executives and staff
Whilst I am hopeful that the challenging period of the pandemic is behind us
all, and pleased to have reported a return to profit, the Group nevertheless
faces challenges ahead. This includes acknowledging and making the necessary
changes to our culture, leadership team, behaviours and controls to mitigate
recurrence of the failures that gave rise to the exceptional costs noted
above. We know these costs and the reasons therefore will be disappointing
news for our shareholders. Your Directors and the leadership team are focused
on the required changes and the need to make them without distracting from the
many positive actions being taken to grow the business and improve margins. I
would like to thank my fellow Directors, our investment managers and advisers
and all members of staff for their efforts, resilience and continued
commitment to the highest levels of client service, support and diligence.
Outlook
The rebound in the underlying trading performance this year demonstrates the
Group's potential to generate revenue growth and improve profitability, which
continues to bode well for the future.
Martin Wright
Chairman
29 July 2022
* Adjusted EBITDA represents earnings before interest, taxation,
depreciation and amortisation, and exceptional items. The Directors present
this result as it is a metric widely used by stakeholders when considering an
entity's financial performance. A full reconciliation to IFRS results is
provided in the Finance Director's review.
CEO's statement
Innovating, Digitising and Focussing on Customer Outcomes
Sean Lam
Chief Executive Officer
I am proud that our investment managers, financial planners, advisers, and our
staff have continued to serve our customers diligently through the global
challenges of the past few years. There was a job to be done, and they got it
done. I am thankful to, and grateful for, all my colleagues for ensuring that
our customers were well taken care of, without interruption in service.
After nearly two years of working from home, we have now comfortably settled
into a hybrid working model where members can either work all week in the
office, desk-share a few days a week, hot-desk once in a while, or work from
home, depending on the needs of the department while balancing the needs of
the staff. This can only work if there's mutual trust and responsibility, and
I'm pleased to say that we have both in spades. As long as our performance and
customer engagement remain high, hybrid working can continue.
Group's Performance
In our Investment Management division, we were sensitive to the dual risk of a
simultaneous fall in asset values and a decline in interest income, but we
reviewed and streamlined certain parts of our business during the past two
years which led to significant improvements in operating margins and
profitability. We will accelerate our effort to simplify and digitise our
business further, making our business more efficient, more scalable, but still
providing good outcomes to our customers. We will continue to improve the
revenue-growth potential of the existing businesses, generate greater
profitability from such growth opportunities, while also maintaining a tight
control of, and increasing the productivity of, our cost-base. The division
generally had a strong year, with robust, double-digit growth in fee income
offsetting the decline in commissions and interest income.
Our Wealth Management and Barker Poland Asset Management divisions have also
had a year of strong revenue growth. Our new Solent branch in Fareham has had
a great start and contributed strongly to the Wealth Management division. Our
York office has worked very well together, providing financial planning,
investment management and pensions (SIPP & SSAS) services, working
together for our customers. The investment team continues to manage the firm's
flagship Service First model portfolios, Inheritance Tax Relief model
portfolios, and has oversight over the Truro branch, ensuring that we maintain
our service offering to our customers in Cornwall.
Our Structured Investments team contributed to the Investment Management
division's performance with significant growth in fee income, as the industry
bounced back vigorously from a very difficult last financial year. Walker
Crips is now the leading structured products distributor in the UK and we
thank the team for holding fast during the difficulties of last year, where
one of the most significant players exited the market completely, and we are
now poised to capitalise on the opportunities of this year.
Challenges
We continue to invest heavily in our regulatory framework. Regulation
continues to move forward unabated and we must adapt swiftly. The next big
regulatory initiative is Consumer Duty which, amongst other things, places
emphasis on consumer outcomes and firms' obligations to proactively deliver
them. Firms are required to take all reasonable steps to avoid causing
foreseeable harm to customers, enabling them to pursue their financial
objectives, and always act in good faith towards them.
During the year, the Investment Management division incurred significant costs
that have been designated exceptional in the accounts that follow and
explained in note 10 to the financial statements, including two material items
I want to address upfront. The first relates to expenditure to upgrade and
improve our financial crime control framework, which was subject to an
independent review. I wish to stress that there has been no evidence of
financial crime, but our controls and procedures around this area needed
significant improvement. The remediation and enhancement project commenced
during the year and the total estimated cost of £595,000 has been provided
for. Secondly, and separate from upgrading and improving our financial crime
control framework, we identified that there was inappropriate conduct by an
associate that caused financial detriment to a small number of customers. The
associate concerned has been sanctioned and their contract terminated, and
whilst we should have identified it in a timelier manner, management is
satisfied that this was an isolated incident. All relevant parties have been
informed, including the regulator, and we are in the process of finalising the
redress calculation which is presently estimated to be £650,000 including
associated costs before any potential insurance recoveries. Any future
recovery will also be treated as an exceptional item.
In light of these weaknesses, management is embedding a broader review of the
Group's regulatory compliance framework to ensure our processes are at
industry standards and are able to adapt to the changing regulatory landscape.
Our financial planning and budgeting reflect this planned step-up in risk and
compliance costs. We are also reinforcing a tenet of our core principles that
"Compliance and Risk are everybody's responsibility", renewing our emphasis
and setting the tone from the top.
During the year, the Group sold its one-third share of its investment in
Walker Crips Property Income Limited for £105,000. This will have minimal
impact on our future revenues. We stopped onboarding new customers to the Tier
1 Investor Visa programme in November 2021 and the government permanently
closed the Tier 1 (Investor) Visa route for foreign nationals on 17 February
2022. For customers who are already in the programme, we will continue to
service them until its natural conclusion.
Nevertheless, the Group is able to report a profit before tax of £324,000 for
the full year after all exceptional items, an improvement on the £114,000
loss reported in the previous year. This was assisted by the return to growth
of the core businesses of investment management, wealth management and
structured investments.
Technology Advantage
We will accelerate our vision to "Simplify and Digitise". We will do what we
do but we must do it better, faster, and more economically. We will use our
EnOC Pro Platform to create technologies that will transform processes, create
greater efficiencies, reduce the use of paper, provide better services to our
customers, and allow our staff to do the more complex, thinking work and less
of the manual repetitive processes. We must continue to adapt and innovate,
and our dependence on technology will only increase. We will continue to
prioritise and invest in developing our own technology, utilising our digital
capabilities to create and innovate for our customers and the firm. We are
technology makers, not just technology takers.
Reducing our Carbon Footprint
If we want our children to see tomorrow, like we saw yesterday, then let's not
screw up today. We must not pillage the earth like a Ponzi scheme; it is
unconscionable to plunder from the future to satisfy today. Put simply, we
must safeguard our planet for our children, and for our children's children.
We consciously began our journey in small steps back in 2007 when we moved
offices. We installed PIR lighting, refurbished the old doors instead of
buying new (surprisingly, it costs the same!), and for the first time embarked
on a de-papering exercise. In 2013, we decided to better utilise cloud
services which resulted in the long-term reduction of our server room size by
75%, reducing heat emissions by requiring fewer on-site servers, less air
conditioning and less electricity. Our lighting is powered by low-energy
consumption LEDs.
Hybrid working is here to stay, and we are currently merging some of our
offices to better utilise our available square footage. We have turned off
excess appliances like refrigerators and dishwashers. It may seem minuscule,
but it all adds up. We are also persuading the landlords of our buildings to
sign up with "green" energy suppliers using sustainable resources. One of our
mantras is to "Simplify and Digitise"; digitisation increases efficiencies and
reduces the drain on resources. We have engaged carbon emission auditors to
determine our carbon output, and our goal is to continue to reduce it each
year. Time is running out for our planet, so it needs to be more like a
sprint, and less like a marathon.
We can all do our part in reducing our carbon footprint:
· REFUSE - Avoid buying harmful, wasteful or non-recyclable products,
e.g. unnecessary product packaging and single-use plastics. Don't need, don't
buy. Less painful on the pocket too.
· REDUCE - Reduce the use of harmful, wasteful, and non-recyclable
products so that fewer of them end up in landfill. Use the minimum required to
avoid unnecessary waste. E.g. don't need, don't print. Reduce single-use
plastics, plastic packaging, and styrofoam cups.
· REUSE - Get rid of the "buy and throw-away" mindset. Use what you have
as often, and for as long, as you can.
· REPAIR - Try to repair things before tossing them out.
· REPURPOSE - If something is no longer useful for its original purpose,
think creatively of ways it can be broken down and reconstituted as something
else. I am a big fan of upcycling!
· ROT - Compost if you can, try not to let your trash end up in landfill.
· RECYCLE - Make recycling your last step, after going through all the
R's above.
We must purposefully and actively practise the seven "R"s at home and in the
office, so that they become automatic and habitual.
Outward Focus
As a Group, we continue to support www.twiningenterprise.org.uk, the mental
health charity. In addition to financial support, we also try to use our
technology for good, through technology philanthropy. If you wish to find out
more, or want to support Twining financially, please visit enoc.pro/community.
Conclusion
As I conclude, I wish to reiterate our mission: to make investment rewarding
for our customers, our shareholders and our staff, and to give our customers a
fair deal. And we support our investment advisers and our staff by being a
technology-driven financial services company.
I wish to thank all my colleagues at Walker Crips for their energy,
enthusiasm, loyalty, dedication and their can-do attitude, and for their
unwavering focus on ensuring that our customers are well looked after.
Sean Lam
Chief Executive Officer
29 July 2022
Chief Investment Officer's analysis
The persistence of speculative excess was the market's undoing
Chris Darbyshire
Chief Investment Officer
Having reached peak exuberance during the year, investor sentiment ended up
accelerating into the trough of despair. But it was a hard-fought contest and,
for much of the year, the enormous amounts of cash being pumped into the
economy by central banks and governments continued to find their way into
financial assets. The nature of the assets being bought showing very clearly
who was doing the buying: analysts at Bank of America estimated that American
retail investors poured nearly $900 billion into global equity funds in the
year to November 2021, more than the combined total over the previous 19
years. Robust inflows continued right through the inflation shock and the
situation in Ukraine, with US equity funds taking in an estimated $84 billion
in the first calendar quarter of 2022. Meanwhile, US corporate share buybacks
reached all-time highs during our financial year, and were still accelerating
as the year ended.
Reflection
The vast majority of flows were captured by index trackers, reinforcing the
dominance of the world's largest companies which, in turn, reinforced the
dominance of the technology sector. Flush with money and enthusiasm, investors
in the US ignored a growing, global wave of anti-technology lawsuits and
regulations. Indeed, as recently as December, a three-times leveraged fund
tracking the Nasdaq 100 stock index saw record inflows (of $1.5 billion) in a
single day. At the same time, Apple's market value reached nearly 3% of the
value of all the world's stock markets combined, and the top five US
technology companies represented over 10% of the world's stock market value.
Not only did the behemoths lead indexes higher, but they did so with an
unusual serenity for most of the year: at one point in the fourth calendar
quarter of 2021, the S&P 500 rose to all-time highs for seven days in a
row. Long after the peak in equity markets, signs of speculation in the
mega-caps were still abundant, with announcements of stock splits by US
technology companies greeted by extremely outsized responses. Alphabet
(Google) enjoyed a $130 billion boost to its market value on the day of the
announcement, Amazon saw an $80 billion boost for its stock split and, more
recently, Tesla an $84 billion boost.
As a result, equity markets were able to maintain their relative calm while
bond markets entered an inflation-inspired meltdown, but that's now history,
of course. Within two months of the end of 2021, the capital markets were in
panic mode, catalysed by inflation and the war in Ukraine. Indeed, markets
themselves have now become the headlines, and not in a good way. Having spent
most of the last two years blithely ignoring any and all risks, many investors
have no choice but to focus only on risk.
Nothing captured the zeitgeist better than the cryptocurrency universe, whose
total market value exceeded $2 trillion in April 2021, supposedly driven by
"institutional" demand as traditional asset managers discovered its true
value. To put that in perspective, $2 trillion exceeded the cash in
circulation of most national currencies, and you could have bought the entire
German stock market with it. At one point the government of El Salvador caught
the speculative bug with its historic, but ultimately botched, decision to
make Bitcoin legal tender. Other governments moved in the other direction:
central banks in the developed world began to encircle the technology with the
threat of regulation, and China went all-out when it declared all
crypto-currency transactions to be illegal. In case anybody missed it, this
edict was issued simultaneously by the People's Bank of China and nine other
government institutions, including the Supreme Court and the police. Cryptos
were already losing value by the end of the year as the inflows of cash
required to pump prices higher began to subside and, subsequent to the
year-end, there has been a more substantial implosion caused by failures of
the technologies involved. Books about cryptocurrencies will soon take their
place in the economic literature about speculative bubbles.
The rise of inflation and the fall of central bankers
A sharp acceleration in inflationary forces first became visible in the
economic data in May 2021, but it was a full six months before bond markets
began to pay much attention. By then, expectations for inflation had already
doubled. Month after month, as each inflation report trounced expectations,
bonds refused to concede defeat. In July 2021, for example, German government
10-year bonds rallied by the most since the start of the pandemic. It was a
similar story across the rest of the developed world, with bonds rallying
despite economic growth roaring back and inflation surging towards its highs
of the last two decades.
Central bankers were complicit in the delusion. As late as August, Federal
Reserve Chairman Jerome Powell was reiterating his view that the surge in
inflation was only temporary and, not only would the asset purchases continue
in the near-term, but any "tapering" of asset purchases would not be
accompanied by higher interest rates. At that time, Chairman Powell was
unwilling to pick a fight with markets, even if that meant running more
inflation risk and further inflating asset-price bubbles. Everything was
priced for perfection, but with a massive, post-pandemic rebound in the
economy, record levels of corporate profits, and ultra-loose monetary policy
providing maximum support, perfection was still very much on the menu. By the
end of the year, inflation had more than doubled but $300 billion a month was
still being injected into government bond markets via asset purchase
programmes. The monetary policy needle was still set to "maximum growth", and
bond markets had begun to reflect uncertainty around the extent, duration and
consequences of inflation.
The Federal Reserve's ("the Fed") credibility was further undermined by
reports in the media that Fed officials had front-run crucial decisions by the
central bank, and that the Chairman's own portfolio had been advantaged by the
choice of assets under the Fed's asset purchase programme. The officials
concerned immediately liquidated their personal portfolios, and the Chairman
initiated a review of the rules on investments by Fed insiders. As a result,
Fed officials were forced to exit markets in their personal portfolios, while
simultaneously facing the biggest policy dilemma since the Credit Crunch.
Within a couple of months, the energy crisis had begun to materialise and
central banks went from dismissing inflation as being "transitory" to
inflation being their main concern. At first, only the tone changed, while the
existing policy guidance was left intact. However, bond markets weren't buying
it, prompting gut-wrenching shifts in rate expectations all around the world.
Such was the momentum that, at one point, investors were able to observe in
real time the President of the European Central Bank ("ECB") explaining at
length why the ECB would not be raising rates anytime soon while,
simultaneously, Eurozone bond yields rocketed into orbit. It was like a visit
to the Hall of Mirrors.
By now, Fed governors were queuing up to signal a faster withdrawal from the
Fed's $120 billion a month asset-purchase programme but, in a sign of the
times, markets initially reacted with exuberance. Equity markets hit new
all-time highs in December and even Bond markets managed a decent rally during
the fourth calendar quarter of 2021. It was January before they finally got
the message: bond markets shifted from steady eddies to screaming demons in a
regime change of record-breaking rapidity.
The mood darkened further, however, as successive inflation reports
outstripped forecasters' expectations, and inflation spread from
pandemic-affected goods to the broader service economy. With higher house
prices also feeding into higher rental costs, a major component of inflation
calculations, a higher trajectory for inflation was locked in.
China went from investable to uninvestable, and back again
Having been the lead underwriter of global economic growth since the Credit
Crunch, China spent the year in reverse gear. China's economy was the first to
lose some momentum following the pandemic, as the central bank acted early to
tighten interest rates and the costs of financing. The Chinese government,
meanwhile, reined in borrowing by heavily indebted local authorities to fund
infrastructure projects. A series of high-profile corporate restructurings
dealt a further blow to China's economic credibility, starting with Huarong
Asset Management, a state-owned enterprise and one of China's biggest issuers.
Huarong threatened to default on $42 billion of debt, of which $23 billion was
denominated in US dollars and held by foreigners. This was followed by the
effective bankruptcy of the giant, debt-laden Chinese property company
Evergrande, whose debt burden was estimated by some sources to be equivalent
to 2-3% of Chinese GDP.
But what really scared investors was a year-long regulatory crackdown on
technology companies. First was the authorities' cancellation of the flotation
of Ant Financial, one of the largest initial public offerings ever planned,
apparently following public criticisms by its founder, Jack Ma, of China's
regulatory approach to the finance sector. Jack Ma disappeared from view for
several months afterwards, but was back in the spotlight recently when another
of his creations, internet giant Alibaba Group Holdings, was fined a record
$2.8 billion by Chinese regulators for anti-competitive practices.
These fears moved to a whole new level of intensity with the announcement of
probes into three Chinese companies that had listed on US stock exchanges
within the last few weeks. One of them, Didi Global (the Chinese version of
on-line taxi company Uber), had listed on the New York Stock Exchange a mere
two days previously. All three companies were ordered to halt new user
registrations, and app stores were told to remove Didi's service from their
platforms. That the authorities were targeting Chinese companies that have
just raised money in the US should be seen in the context of the broader trade
war between China and the developed world. By doing this, Beijing demonstrated
its dislike of overseas listings, discouraged Chinese technology firms from
having foreign investors and, moreover, undermined the credibility of the New
York Stock Exchange as a venue for Chinese listings. Capital markets became
weaponised. This would normally have subdued capital markets in the developed
world but, fortunately for investors, pandemic stimulus had replaced Chinese
government stimulus as the driver of sentiment.
Meanwhile, the rapid downward spiral in US-China political and trade relations
continued. President Biden put another nail in the coffin with a ban on
investment in a blacklist of Chinese companies with ties to China's military;
US investors were given one year to divest any holdings. The legislation was a
continuation of an initiative started by President Trump, but Biden took it a
step further, adding more companies to the list and strengthening it against
legal challenges. International investors and global corporates were faced
with a dilemma: Chinese markets are attractive because the economic growth
expectations are huge. But to participate you have to bow-down to the powers
in Beijing, while running the gauntlet of western public opinion.
Adding to these issues, the pandemic continued to cause serious problems for
China's economy due to the government's zero-tolerance approach to managing
Covid risk. Although the onset of the Omicron variant initially panicked
markets all over the world, causing the worst daily decline in more than a
year, it took only a month for developed world stock markets to shrug it off.
This largely reflected the response of western consumers, whose behaviour
(influenced by vaccination programmes) has been progressively less affected by
each wave of the virus. China's zero-Covid policy, on the other hand, which
was so effective at containing the first wave of the pandemic, has led to a
lack of acquired immunity. Moreover, Sinovac, the Chinese Covid vaccine, was
found to be relatively ineffective against Omicron - a result that increases
the risk of any given variant causing a healthcare crisis. This makes it very
unlikely that China will be able to alter its zero-tolerance approach to Covid
even if it wanted to, and increases the likelihood of Chinese factory
closures, further global supply chain blockages and persistent inflation.
The Chinese off-shore stock market, and its technology sector in particular,
reflected this sequence of disasters. The Hang Seng China Enterprises Index,
which measures the prices of Chinese companies listed in Hong Kong, fell by
32% during our financial year, and subsequently fell another 10% on top of
that. The Nasdaq Golden Dragon Index, an index of Chinese companies listed in
the US, fell 70% from peak-to-trough. Even the on-shore domestic equity
markets, which were reported to have benefited from government support, traded
below the levels reached in 2015.
Following our year-end, the pendulum swung back in favour of investors, with a
series of supportive statements from the authorities, including from President
Xi himself. First among them, the top Chinese financial regulator committed to
stability in capital markets, supporting overseas stock listings, resolving
risks in the property market and to completing the crackdown on the technology
sector "as soon as possible." The Nasdaq Golden Dragon Index of Chinese
companies listed in America promptly rallied by a third. At one point, the
Hang Seng China Enterprises Index, comprising Chinese companies listed in Hong
Kong, rallied by 20% in two days. Next, the central bank intervened to weaken
the Chinese yuan, and the Chinese government distanced itself from the
conflict in Ukraine. Finally, President Xi offered the prospect of a change in
the country's longstanding zero-Covid policy by committing to reduce Covid's
economic impact. Optimists described this as akin to Draghi's "we will do
whatever it takes" moment during the eurozone crisis. While the pace of good
news-flow has slowed somewhat since then, such public statements are usually
perceived by Chinese investors as a state-sanctioned buy-signal.
How did we do?
The year started with our clients' portfolios enjoying some of the best
returns in years, with UK shares having been caught up in the all-encompassing
global stock market rally. The further down the size-scale you went, the
better it got: the FTSE 100 index had rallied but was outshone by small and
mid-sized British companies, where our portfolios are typically overweight
compared with relevant benchmarks. The FTSE 250, which tracks the performance
of small and mid-sized British companies, reached new all-time highs early in
our financial year and the FTSE AIM, which tracks the smallest UK listed
companies, rose to 35% above its pre-pandemic level.
The pound sterling was the missing piece, however, as acrimonious post-Brexit
dealings with the EU damaged confidence in the prospects for what is still the
UK's single biggest trading relationship. Threats by the British government to
walk away from its treaty obligations with the EU set a worrying precedent
and, at the very least, are hardly likely to encourage investment from the EU.
Meanwhile the EU was aggressively encouraging providers of financial services
- one of the UK's biggest exports - to relocate within the single market.
As the year went on, and the speculative fervour supporting small-cap stocks
wore off, the FTSE 100's bias towards energy, mining and banking stocks meant
it actually benefited from the surge in inflation, while most other global
stock market indices slipped. Our portfolios benefited from an inherent
overweight to UK large-cap exposure and to old-economy dividend-payers. The
decision by European countries, notably Germany, to increase military
expenditure predictably sent defence-related stocks soaring. This was a boon
to a host of British companies. For the first time in nearly two decades,
investors seeking income outperformed those seeking growth. It's tempting to
say that the long-running pre-eminence of growth stocks over value stocks has
finally come to an end, but there have been many false dawns of this kind in
the past.
Clients seeking growth have been impacted by the crash in the valuations of
growth stocks. However, the reversal in the market's attitude to growth stocks
has been indiscriminate, punishing some companies whose prospects for revenues
and profits remain undimmed by inflationary trends. The ability of a company
to prosper despite inflation, or even during a recession, depends on the
strength of its brand, products and business model. It's extremely unlikely
that good companies become bad companies overnight, but that is what the
market is pricing. Good companies are now available on very attractive
valuations, and we are inclined to see this as an opportunity. Time will tell
whether we are correct, but, for now, we do not believe that the current
market swing towards value will endure long enough to justify wholesale
changes to portfolios. We remain long term investors and believe the quality
of the underlying investments will outlast this uncertainty.
Where now for ESG?
Progress towards a parallel, Environmental, Social and Governance ("ESG")
conscious world for investors is accelerating. Even central banks are getting
in on the act. During our financial year, the European Central Bank set out
plans to involve climate change considerations in its analysis of the economy
and financial markets, the Bank of Japan published a climate change strategy,
in which it will purchase foreign currency-denominated green bonds issued by
governments and other foreign institutions. Meanwhile, the UK became the first
country to introduce a green savings product from a sovereign issuer.
Should investors be weighting portfolios towards ESG-friendly investments?
With extreme weather events affecting the harvests of coffee, corn, wheat and
sugar this year, sending their commodity-market prices soaring, and with
wildfires and other extreme weather-events becoming seemingly commonplace,
it's natural to want to respond.
The war in Ukraine may have caused some governments to roll back plans to
mothball fossil fuel technologies, but it has also been a boon to energy
generators everywhere, including those of renewable energy. Moreover,
performance of ESG-friendly funds has been strong over the past several years,
though that has more to do with their historically large allocations to the
technology sector than their inherent ESG qualities.
Ultimately, all types of risk end up being financial if they cause asset
prices to fluctuate. The ESG concept isolates and unites particular sources of
risk under a common banner, which is increasingly being championed by
governments, the financial services sector and regulators worldwide. It's not
unusual for major risks to attract this level of attention - witness the
pandemic stimulus programmes that united governments and central banks in a
coordinated policy response.
The difference is that the "E" in ESG is going to be with us for a very long
time. Unlike social and governance issues, climate-related risks have
potentially profound and wide-ranging consequences for asset prices. The good
news is that these will most likely unfold over a long horizon, giving
investors - and asset prices - the ability to react appropriately. Financial
theory says that competitive markets are very quick to assess and incorporate
threats and opportunities, so it should not be easier to earn returns in ESG
investments than in any other sector. But it's worth considering the risks and
potential rewards that are specific to this sector, and which make it so
distinctive. One is the pace of climate change itself which, if it becomes
very volatile, raises the risk of abrupt, unforeseen shifts in government
policies. These would be reflected in increasing volatility of prices of
fossil fuel-dependent industries as well as of green champions.
Another distinct risk is whether, and how, societies adapt to the long-term
goal of a zero-emissions world. After all, adapting to the post-Covid world
has not exactly gone smoothly. Like vaccine-deniers, climate change-deniers
abound, and society as a whole must bear the cost of the transition to
sustainable energy production and consumption. With inflation already raging,
that looks unlikely to be a vote-winner in the short-term. Volatility in the
pace of policy change is therefore a distinct possibility, despite the current
momentum towards green goals.
Chris Darbyshire
Chief Investment Officer
29 July 2022
Finance Director's review
Building on the strength of the underlying business.
Sanath Dandeniya
Finance Director
The business responded well to the challenges caused by the pandemic, and now
we look to build on that resilience as the Group continues its focus on
revenue growth and margin improvement.
Financial performance
Our response to the pandemic challenged the Group to focus on revenue
generation, cost reduction and cash management in the core business. These
actions served us well and the resilience of the core business, recovery in
markets and actions taken have returned the Group to profitability,
notwithstanding the inflationary pressures we now face and the significant
investment we made and continue to make in strengthening our risk and
compliance functions.
Total revenue
Total revenue increased by 8.1% to £32.8 million (2021: £30.3 million), a
record for the Group and more than offsetting the loss in interest income that
adversely impacted the results in recent years. The increase was due to strong
performances in our core business. Management fee income was robust, rising by
9.7%. The recovery in markets played a role in this, but most of our
businesses were also able to generate additional revenue growth, strengthening
our position against the heightened uncertainty encountered in market
conditions since the start of the current calendar year. Our Structured
Investment business recovered from an extremely difficult year in 2020/21, and
made a significant contribution to revenue growth. Barker Poland Asset
Management also had another strong year, generating revenue growth of 19%. The
Wealth Management division began to see the benefits of its recruitment drive,
with revenue growth of 14.9%.
These sources of revenue growth compensated for other areas of our business
where performance was below that of the previous year. Specifically, trading
commissions decreased by 10.5% (equating to £0.95 million) due to lower
volumes, our arbitrage desk made a positive but reduced contribution (£0.67
million down), and the investor immigration business contracted by £0.1
million. This latter business has subsequently closed to new applicants
following the government's decision to shut the Tier 1 Investor visa route
based on rising worldwide security concerns, but we will continue to service
our existing clients. The effects of the reduction in base rates from the
previous year continued to exert a residual downward effect on revenues and
operating profit, reducing both by £0.1 million.
As a result of the strength in management fees and the changing mix in our
business, broking income fell to 24.5% of revenues, from 29.7% in 2021. Our
gross operating margin also increased from 68.2% to 72.4%, reflecting the
changing mix and management actions to improve profitability. Notwithstanding
the increase in revenues, commissions and fees paid reduced by £0.6 million,
reflecting a strong performance by the Private Client Department teams and
actions tilting the mix of revenue growth towards full-time employees and away
from self-employed associates. Commissions and fees paid decreased as a
percentage of revenues from 32% to 27.8%, although some of this gain was
offset by higher staff costs in administrative expenses.
The Wealth Management division, excluding exceptional income and the new
Solent addition, has seen a marginal growth in revenue in the year and the
increase in both client numbers and Assets under Administration ("AUA") bodes
well for the future. Client numbers increased by 144 to 1,117 and AUA
increased by £61 million to £579 million. The new Solent office (Southampton
team) is now up and running and continuing to onboard new clients and recorded
recurring revenues of £164,000 by the year-end.
The Wealth Management division is continuing its graduate training plan which
was successfully launched last year and due to be replicated this July, with
the idea of growing its talented financial planners of the future.
Additionally, the continual search for advisers to join the firm who share the
same ethos on looking after clients' long-term and holistic needs. Working
more closely with the internal Investment Managers is gaining momentum to
facilitate greater client servicing for the wider Group.
Expenses
Administrative expenses, excluding exceptional items, increased by £1.63
million, or 8.0%, but this increase does not represent a like-for-like
comparison due to various initiatives taken during the height of the pandemic
last year to reduce costs. In addition, we have made further investments to
develop our new Southampton office. Adjusting for these factors, expenses
increased by 5.4%, largely driven by increases in staff costs, including the
restoration of directors' pay from a voluntary pay-cut taken in the previous
year. It should be noted that with tight labour markets, we continue to
experience inflationary wage pressures.
We are also reporting significantly increased exceptional costs this year.
These relate to the restructuring and redundancy initiatives initiated during
the pandemic along with specific items noted in the CEO's report and the
Chairman's Statement. These costs were partially offset by the exceptional
income from a confidential settlement agreement also reported in the interim
results. The exceptional items are further explained in note 10.
Cash management
The Group is highly cash generative and recorded a cash inflow from operations
of £4.2 million (2021: £1.8 million). Underlying cash generated from
operations, principally reflecting the impact of lease liability payments,
non-cyclical working capital movements and cash flows from exceptional items
(see adjacent reconciliation), was £1.34 million (2021: £0.78 million),
demonstrating cash generative ability of the Group's operating model. After
deducting cash deployed in investing activities and dividends paid, cash and
cash equivalents increased to £11.11 million at year-end (2021: £8.86
million).
Financial result and alternative performance measures
The Group's operating profit and profit before tax for the year of £326,000
and £324,000, respectively (2021: £22,000 and a loss of £114,000,
respectively), reflect the continued momentum from the first half of the year,
although the pace of revenue growth slowed as markets declined and volatility
increased towards the end of our financial year. Nevertheless, the Group was
able to report operating profit of £206,000 in the second half of the
financial year, up from £120,000 in the first half.
The annual results include operating exceptional charges of £1,540,000, being
total exceptional charges of £1,437,000 including the profit on disposal of
our associated company Walker Crips Property Income Limited (renamed Crystal
Property Income Limited) (2021: £419,000). Adjusting for exceptional items
(see adjacent reconciliations and further detail in note 10, the Group's
operating profit and profit before tax for the year are £1.87 million and
£1.76 million, respectively (2021: £441,000 and £305,000, respectively),
and reflect the improvement in the Group's core business.
The Group's adjusted EBITDA (being EBITDA adjusted for exceptional items - see
adjacent reconciliation) is £3.9 million (2021: £2.6 million), an increase
of 49.3% demonstrating a robust current year trading performance.
Total Assets Under Management and Administration ("AUMA") averaged £5.6
billion during the year, compared with £4.9 billion in the previous year,
reflecting the recovery in equity markets from the global pandemic.
Discretionary and Advisory Assets Under Management similarly benefited from
the market recovery, rising by the end of the year to £3.6 billion (2021:
£3.4 billion). Total AUMA is up slightly from March 2021 levels to £5.5
billion (2021: £5.4 billion).
Reconciliation of operating profit to operating profit before exceptional 2022 2021
items
£'000 £'000
Operating profit 326 22
Operating exceptional items (note 10) 1,540 419
Operating profit before exceptional items 1,866 441
Reconciliation of profit/(loss) before tax to profit before tax and total 2022 2021
exceptional items
£'000 £'000
Profit/(loss) before tax 324 (114)
Total exceptional items (note 10) 1,437 419
Profit before tax and exceptional items 1,761 305
Adjusted EBITDA 2022 2021
£'000 £'000
Operating profit 326 22
Operating exceptional items (note 10) 1,540 419
Amortisation/depreciation (note 31) 1,165 1,212
Right-of-use assets depreciation charge (note 31) 873 961
Adjusted EBITDA 3,904 2,614
Underlying cash generated from operations 2022 2021
£'000 £'000
Net cash inflow from operations 4,217 1,806
Working capital (note 31) (2,257) (8)
Lease liability payments under IFRS 16 (note 31) (1,052) (1,133)
Cash outflow on operating exceptional items (note 10, 27 and 31) 435 118
Underlying cash generated in the period 1,343 783
Divisional performance
The Investment Management division, including exceptional costs, delivered an
operating profit of £1.16 million for the year, compared to £1.33 million in
the previous year. Operating profits when adjusted for exceptional costs grew
by £1.2 million to £2.9 million (2021: £1.27 million). This reflects the
strong performance of Investment Management and advisory fees, plus a rebound
in Structured Investments business, offset by reduced activity in commissions,
in the arbitrage and investor immigration businesses, as well as the
continuing drag from the reduction in BoE base rate in the previous year.
Regarding the latter: the change in the interest rate cycle, with continued
increases in base rate expected, should exert a favourable impact on revenues
and profits during the next financial year. Nevertheless, management will
remain focused on initiatives to improve the division's operating margins and
reduce reliance on interest returns. The prospects for the Structured
Investments business remain positive as pricing conditions have improved and
certain competitors have exited this sector, we believe that the Structured
Investments team is well-positioned to build on its prominent market position.
The Wealth Management division has cemented its recovery from departures of
several advisers in the previous year, and revenues have been rejuvenated by
the hiring of new advisers and the acquisition of a client book with funds
under management. The cost-base should improve as recruitment-related costs
subside but, as yet, the division has not returned to profit, reporting a loss
before tax of £258,000 (2021: loss before tax of £127,000).
Our tech arm, EnOC Technologies Limited ("EnOC"), reported an operating loss
of £86,000 (2021: £122,000). EnOC's tech capabilities are integral to the
Group's operational efficiencies, deploying cloud solutions to the business
and we continue to invest in its capabilities and prospects.
Capital resources, liquidity and regulatory capital
The Group's capital structure, comprising solely of equity capital, provides a
stable platform to support growth. At year end, net assets are £22.11 million
(2021: £22.32 million), reflecting a net decrease of £0.21 million (2021:
reduction of £0.3 million), due to the reported profit after tax less
dividends paid. Liquidity remains strong with cash and cash equivalents
increasing over the year to £11.1 million (2021: £8.9 million), testimony to
the Group's underlying resilience and the continued recovery from the
pandemic. Regulatory capital at year end, including audited reserves for the
year, is £12.3 million (2021: £11.7 million), comfortably in excess of the
Group's capital requirements as shown in the tables below. The finance team
has also implemented the new prudential regulatory regime.
Regulatory own funds and own funds requirements 2022 2021
£'000 £'000
Own funds
Share capital 2,888 2,888
Share premium 3,763 3,763
Retained earnings 11,050 11,260
Other reserves 4,723 4,723
Less:
Own shares held (312) (312)
Regulatory adjustments (9,804) (10,584)
Total own funds 12,308 11,738
Total own funds requirement (4,676) (5,382)
Regulatory capital surplus 7,632 6,356
Cover on own funds as a % 263.2% 218.1%
Dividends
In view of the Group's financial performance, capital and liquidity position,
the Board is recommending a final dividend of 1.20 pence per share to be paid
on 7 October 2022 for those members on the shareholders' register on 23
September 2022. The ex-dividend date of 22 September 2022. Including the
interim dividend of 0.30 pence per share (2021: 0.15 pence per share), the
total dividend for the year is 1.50 pence per share (2021: 0.75 pence per
share).
Sanath Dandeniya
Finance Director
29 July 2022
Consolidated income statement
year ended 31 March 2022
Note 2022 2021
£'000 £'000
Revenue 5 32,820 30,348
Commissions and fees paid 7 (9,110) (9,702)
Share of associate after tax profit 8 57 66
Gross profit 23,767 20,712
Administrative expenses 9 (21,901) (20,271)
Exceptional items 10 (1,540) (419)
Operating profit 326 22
Investment revenue 11 9 10
Finance costs 12 (114) (146)
Exceptional item - Profit on disposal of associate investment 8 & 10 103 -
Profit/(loss) before tax 324 (114)
Taxation 14 (151) (144)
Profit/(loss) for the year attributable to equity holders of the Parent 173 (258)
Company
Earnings/(loss) per share
Basic and diluted 16 0.41p (0.61)p
The following Accounting Policies and Notes form part of these financial
statements.
Consolidated statement of comprehensive income
year ended 31 March 2022
2022 2021
£'000 £'000
Profit/(loss) for the year 173 (258)
Total comprehensive income/(loss) for the year attributable to equity holders 173 (258)
of the Parent Company
The following Accounting Policies and Notes form part of these financial
statements.
Consolidated statement of financial position
as at 31 March 2022
Note 2022 2021
£'000 £'000
Non-current assets
Goodwill 17 4,388 4,388
Other intangible assets 18 5,752 6,566
Property, plant and equipment 19 1,169 1,477
Right-of-use asset 20 2,597 3,612
Investment in associate 8 - 2
Investments - fair value through profit or loss 21 - 37
13,906 16,082
Current assets
Trade and other receivables 22 50,003 49,098
Investments - fair value through profit or loss 21 1,647 920
Cash and cash equivalents 23 11,113 8,855
62,763 58,873
Total assets 76,669 74,955
Current liabilities
Trade and other payables 26 (49,625) (47,395)
Current tax liabilities (132) (123)
Deferred tax liabilities 24 (414) (400)
Provisions 27 (1,137) (205)
Lease liabilities 28 (245) (946)
Deferred cash consideration 36 (89) -
(51,642) (49,069)
Net current assets 11,121 9,804
Long-term liabilities
Deferred cash consideration 36 (29) (33)
Lease liabilities 28 (2,300) (2,856)
Provision 27 (586) (675)
(2,915) (3,564)
Net assets 22,112 22,322
Equity
Share capital 29 2,888 2,888
Share premium account 29 3,763 3,763
Own shares 30 (312) (312)
Retained earnings 30 11,050 11,260
Other reserves 30 4,723 4,723
Equity attributable to equity holders of the Parent Company 22,112 22,322
The following Accounting Policies and Notes form part of these financial
statements.
The financial statements of Walker Crips Group plc (Company registration no:
01432059) were approved by the Board of Directors and authorised for issue on
29 July 2022.
Signed on behalf of the Board of Directors
Sanath Dandeniya FCCA
Director
29 July 2022
Consolidated statement of cash flows
year ended 31 March 2022
Note 2022 2021
£'000 £'000
Operating activities
Cash generated from operations 31 4,217 1,806
Tax paid (120) (379)
Net cash generated from operating activities 4,097 1,427
Investing activities
Purchase of property, plant and equipment (119) (24)
(Purchase)/sale of investments held for trading (342) 78
Consideration paid on acquisition of intangibles (93) -
Consideration paid on acquisition of client lists - (100)
Consideration received on sale of associate 105 -
Dividends received 11 9 8
Dividends received from associate investment 8 57 64
Interest received 11 - 2
Net cash (used in)/generated from investing activities (383) 28
Financing activities
Dividends paid 15 (383) (64)
Interest paid 12 (21) (12)
Repayment of lease liabilities* (959) (999)
Repayment of lease interest* (93) (134)
Net cash used in financing activities (1,456) (1,209)
Net increase in cash and cash equivalents 2,258 246
Net cash and cash equivalents at beginning of period 8,855 8,609
Net cash and cash equivalents at end of period 11,113 8,855
* Total repayment of lease liabilities under IFRS 16 in the period was
£1,052,000 (2021: £1,133,000)
The following Accounting Policies and Notes form part of these financial
statements.
Consolidated statement of changes in equity
year ended 31 March 2022
Share Share Own Capital Other Retained Total
capital premium shares redemption £'000 earnings equity
£'000 account held £'000 £'000 £'000
£'000 £'000
Equity as at 31 March 2020 2,888 3,763 (312) 111 4,612 11,582 22,644
Comprehensive loss for the year - - - - - (258) (258)
Total comprehensive loss for the year - - - - - (258) (258)
Contributions by and distributions to owners
Dividends paid - - - - - (64) (64)
Total contributions by and distributions to owners - - - - - (64) (64)
Equity as at 31 March 2021 2,888 3,763 (312) 111 4,612 11,260 22,322
Comprehensive income for the year - - - - - 173 173
Total comprehensive income for the year - - - - - 173 173
Contributions by and distributions to owners
Dividends paid - - - - - (383) (383)
Total contributions by and distributions to owners - - - - - (383) (383)
Equity as at 31 March 2022 2,888 3,763 (312) 111 4,612 11,050 22,112
The following Accounting Policies and Notes form part of these financial
statements.
Notes to the accounts
year ended 31 March 2022
1. General information
Walker Crips Group plc ("the Company") is the Parent Company of the Walker
Crips group of companies ("the Company"). The Company is a public limited
company incorporated in the United Kingdom under the Companies Act 2006 and
listed on the London Stock Exchange. The Group is registered in England and
Wales. The address of the registered office is Old Change House, 128 Queen
Victoria Street, London EC4V 4BJ.
The significant accounting policies have been disclosed below. The accounting
policies for the Group and the Company are consistent unless otherwise stated.
2. Basis of preparation
The consolidated financial statements have been prepared in accordance with
UK-adopted international accounting standards in conformity with the
requirements of the Companies Act 2006.
The principal accounting policies adopted in the preparation of the
consolidated financial statements are set out in note 3. The policies have
been consistently applied to all the years presented, unless otherwise stated.
The Group financial statements are presented earlier in this announcement.
The consolidated financial statements are presented in GBP sterling (£).
Amounts shown are rounded to the nearest thousand, unless stated otherwise.
The consolidated financial statements have been prepared on the historical
cost basis, except for certain financial instruments that are measured at fair
value, and are presented in Pounds Sterling, which is the currency of the
primary economic environment in which the Group operates. The principal
accounting policies adopted are set out below and have been applied
consistently to all periods presented in the consolidated financial
statements.
The preparation of financial statements requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in
the process of applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and
estimates are significant to the consolidated financial statements, are
disclosed in note 4.
Going concern
The financial statements of the Group have been prepared on a going concern
basis. At 31 March 2022, the Group had net assets of £22.11 million (2021:
£22.32 million), net current assets of £11.1 million (2021: £9.8 million)
and cash and cash equivalents of £11.1 million (2021: £8.9 million). The
Group reported an operating profit of £326,000 for the year ended 31 March
2022 (2021: £22,000), inclusive of exceptional expense of £1,540,000
(2021: £419,000), and net cash inflows from operating activities of £4.2
million (2021: £1.8 million).
The Directors consider the going concern basis to be appropriate following
their assessment of the Group's financial position and its ability to meet its
obligations as and when they fall due. In making the going concern assessment
the Directors have taken into account the following:
· The Group's three-year base case projections based on current strategy,
trading performance, expected future profitability, liquidity, capital
solvency and dividend policy.
· Outcome of stress scenarios applied to the Group's base case
projections prior to deployment of management actions.
· The principal risks facing the Group and its systems of risk management
and internal control.
· The Group's ability to generate positive operating cash flow during the
year to 31 March 2022 and the projections over the next three years.
Key assumptions that the Directors have made in preparing the base case cash
flow forecasts are that:
· Revenues reflect the impact of (i) expected client and revenue losses
from Truro IM resignation, (ii) net interest income from managing client
deposits prudently capped at £1.2 million, and (iii) no further significant
impact from the pandemic other than what is already known. The total revenue
is expected to increase by 1.27% with gains from fee income offset by the
lower trading commissions. Years two and three growth expectation set
conservatively at 2%.
· Base case costs prudently reflect only the actions Management has taken
to date.
Key stress scenarios that the Directors have then considered include:
· A "bear stress scenario": representing a further 10% fall in income
compared to the base case scenario in the reporting periods ending 31 March
2023 and 31 March 2024.
· A remote "severe stress scenario": representing a 20% fall in
commission income and 15% fall in fee income compared to the base case for
each forecast period.
· Both stress scenarios assume no mitigating actions and include a
further prudent adjustment for the estimation uncertainty in respect of
certain provisions (see note 4).
Liquidity and regulatory capital resource requirements exceed the minimum
thresholds in both the base and bear scenarios. However, in the severe stress
scenario, although the Group has positive liquidity throughout the period, the
negative impact on our prudential capital ratio is such that it is projected
to fall below the regulatory requirement in January 2024. The Directors
consider this scenario to be remote in view of the prudence built into the
base case planning and that further mitigations available to the Directors are
not reflected therein. Such mitigating actions within Management control
include reduction in proprietary risk positions, delayed capital expenditure,
further reductions in discretionary spend and additional reduction in employee
headcount. Other mitigating actions which may be possible include seeking
shareholder support, sale of assets and stronger cost reductions.
Following the assessment of the Group's financial position and its ability to
meet its obligations as and when they fall due, including the financial
implications of the pandemic, the Directors are not aware of any material
uncertainties that cast significant doubt on the Group's ability to continue
as a going concern.
Standards and interpretations affecting the reported results or the financial
position
The accounting standards adopted are consistent with those of the previous
financial year. Amendments to existing IFRS standards did not have a material
impact on the Group's Consolidated Income Statement or the Statement of
Financial Position.
The Group does not expect standards yet to be adopted by the UK endorsement
body ("UKEB") to have a material impact in future years.
3. Significant accounting policies
Basis of consolidation
The Group financial statements consolidate the financial statements of the
Group and companies controlled by the Group (its subsidiaries) made up to 31
March each year. The Group controls an entity when it is exposed to, or has
rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through its powers to direct relevant
activities of the entity. Subsidiaries are fully consolidated from the date on
which control is obtained and no longer consolidated from the date that
control ceases; their results are in the consolidated financial statements up
to the date that control ceases.
Entities where the interest is 49% or less are assessed for potential
treatment as a Group company against the control tests outlined in IFRS 10,
being power over the investee, exposure or rights to variable returns and
power over the investee to affect the amount of investors' returns.
All intercompany balances, income and expenses are eliminated on
consolidation.
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method.
The cost of the acquisition is measured at the aggregate of the fair values,
at the date of exchange, of assets given, liabilities incurred or assumed, and
equity instruments issued by the Group in exchange for control of the
acquiree. The acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS 3 Business
Combinations are recognised at their fair value at the acquisition date.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date
carrying value of the acquirer's previously held equity interest in the
acquiree is re-measured to fair value at the acquisition date; any gains or
losses arising from such re-measurement are recognised in profit or loss.
Contingent consideration is classified either as equity or as a financial
liability. Amounts classified as a financial liability are subsequently
re-measured to fair value, with changes in fair value recognised in profit or
loss.
Interests in associate
An associate is an entity in which the Group has significant influence, but
not control or joint control. The Group uses the equity method of accounting
by which the equity investment is initially recorded at cost and subsequently
adjusted to reflect the investor's share of the net assets of the associate.
The Group had a 33% associate investment in Walker Crips Property Income
Limited ("WCPIL"). This investment was disposed fully during the period (see
note 8).
Intangible assets
(a) Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess
of the consideration transferred, the amount of any non-controlling interest
in the acquiree and the acquisition-date fair value of any previous equity
interest in the acquiree over the fair value of the identifiable net assets
acquired. If the total of consideration transferred, non-controlling interest
recognised and previously held interest measured at fair value is less than
the fair value of the net assets of the subsidiary acquired, in the case of a
bargain purchase, the difference is recognised directly in the income
statement.
Goodwill is initially recognised as an asset at cost and is subsequently
measured at cost less any accumulated impairment losses. Goodwill is not
amortised but is reviewed for impairment at least annually. Any impairment is
recognised immediately in profit or loss and is not subsequently reversed in
future periods.
For the purpose of impairment testing, goodwill acquired in a business
combination is allocated to each of the CGUs, or groups of CGUs, that is
expected to benefit from the synergies of the combination. Each unit or group
of units to which the goodwill is allocated represents the lowest level within
the entity at which the goodwill is monitored for internal management
purposes. Goodwill is monitored at the operating segment level.
Goodwill impairment reviews are undertaken annually or more frequently if
events or changes in circumstances indicate a potential impairment. The
carrying value of the CGU containing the goodwill is compared to the
recoverable amount, which is the higher of value-in-use and the fair value
less costs of disposal. Any impairment is recognised immediately as an expense
and is not subsequently reversed.
(b) Client lists
Client lists are recognised when it is probable that future economic benefits
will flow to the Group and the cost of the asset can be measured reliably
whilst the risk and rewards have also transferred into the Group's ownership.
Intangible assets classified as client lists are recognised when acquired as
part of a business combination, when separate payments are made to acquire
clients' assets by adding teams of investment managers, or when acquiring the
ownership of client relationships from retiring inhouse self-employed
investment managers.
The cost of acquired client lists and businesses generating revenue from
clients and investment managers are capitalised. These costs are amortised on
a straight-line basis over their expected useful lives of three to twenty
years at inception. The amortisation period and amortisation method for
intangible assets are reviewed at least each financial year end. All
intangible assets have a finite useful life.
Amortisation of intangible fixed assets is included within administrative
expenses in the consolidated income statement.
At each statement of financial position date, the Group reviews the carrying
amounts of its intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where the asset does not generate
cash flows that are independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit to which the asset belongs.
(c) Software licences
Computer software which is not an integral part of the related hardware is
recognised as an intangible asset when the Group is expected to benefit from
future use of the software and the costs are reliably measured and amortised
using the straight-line method over a useful life of up to five years.
Impairment of non-financial assets
Intangible assets that have an indefinite useful life or intangible assets not
ready to use are not subject to amortisation and are tested annually for
impairment. Assets that are subject to amortisation are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for
the amount by which the asset's carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset's fair value less
costs of disposal and value-in-use. For the purposes of assessing impairment,
assets are grouped at the lowest levels for which there are largely
independent cash inflows (cash-generating units). Prior impairments of
non-financial assets (other than goodwill) are reviewed for possible reversal
at each reporting date.
Own shares held
Own shares consist of treasury shares which are recognised at cost as a
deduction from equity shareholders' funds. Subsequent consideration received
for the sale of treasury shares is also recognised in equity with any
difference being taken to retained earnings. No gain or loss is recognised on
sale of treasury shares.
Revenues recognised under IFRS 15
Revenue from contracts with customers:
· Gross commissions on stockbroking activities are recognised on those
transactions whose trade date falls within the financial year, with the
execution of the trade being the performance obligation at that point in time.
· In Walker Crips Investment Management, fees earned from managing
various types of client portfolios are accrued daily over the period to which
they relate with the performance obligation fulfilled over the same period.
· Fees in respect of financial services activities of Walker Crips Wealth
Management are accrued evenly over the period to which they relate with the
performance obligation fulfilled over the same period.
· Fees earned from structured investments are recognised on the date the
underlying security of the structured investment is traded and settled, with
the execution of the trade being the performance obligation at that point in
time.
· Fees earned from software offering, Software as a Service ("SaaS"), are
accrued evenly over the period to which they relate with the performance
obligation fulfilled over the same period.
Other incomes:
· Interest is recognised as it accrues in respect of the financial year.
· Dividend income is recognised when:
· The Group's right to receive payment of dividends is established;
· When it is probable that economic benefits associated with the dividend
will flow to the Group;
· The amount of the dividend can be reliably measured; and
· Gains or losses arising on disposal of trading book instruments and
changes in fair value of securities held for trading purposes are both
recognised in profit and loss.
The Group does not have any long-term contract assets in relation to customers
of any fixed and/or considerable lengths of time which require the recognition
of financing costs or incomes in relation to them.
Operating expenses
Operating expenses and other charges are provided for in full up to the
statement of financial position date on an accruals basis.
Exceptional items
To assist in understanding its underlying performance, the Group identifies
certain items of pre-tax income and expenditure and discloses them separately
in the Consolidated income statement.
Such items include:
1. profits or losses on disposal or closure of businesses;
2. corporate transaction and restructuring costs;
3. changes in the fair value of contingent consideration; and
4. non-recurring items considered individually for classification as
exceptional by virtue of their nature or size.
The separate disclosure of these items allows a clearer understanding of the
Group's trading performance on a consistent and comparable basis, together
with an understanding of the effect of non-recurring or large individual
transactions upon the overall profitability of the Group. The exceptional
items arising in the current period are explained in note 10.
Deferred income
Income received from clients in respect of future periods to the transaction
or reporting date are classified as deferred income within creditors until
such time as value has been received by the client.
Foreign currencies
The individual financial statements of each of the Group's companies are
presented in Pounds Sterling, which is the functional currency of the Group
and the presentation currency of the consolidated financial statements.
In preparing the financial statements of the individual companies,
transactions in currencies other than the entity's functional currency
(foreign currencies) are recorded at the rates of exchange prevailing on the
dates of the transactions. At each statement of financial position date,
monetary assets and liabilities that are denominated in foreign currencies are
re-translated at the rates prevailing on the balance sheet date. Exchange
differences arising on the settlement of monetary items, and on the
re-translation of monetary items, are included in the consolidated income
statement for the period.
Where consideration is received in advance of revenue being recognised, the
date of the transaction reflects the date the consideration is received.
Property, plant and equipment
Fixtures and equipment are stated at historical cost less accumulated
depreciation and provision for any impairment. Depreciation is charged so as
to write-off the cost or valuation of assets over their estimated useful lives
using the straight-line method on the following bases:
Computer hardware 33( 1)/(3)% per
annum on cost
Computer software between 20% and
33( 1)/(3)% per annum on cost
Leasehold improvements over the term of the lease
Furniture and equipment 33( 1)/(3)% per annum on cost
Right-of-use assets held under contractual arrangements are depreciated over
the lengths of their respective contractual terms, as prescribed under
IFRS 16.
The gain or loss on the disposal or retirement of an asset is determined as
the difference between the sales proceeds and the carrying amount of the asset
and is recognised in income. The residual values and estimated useful life of
items within property, plant and equipment are reviewed at least at each
financial year end. Any shortfalls in carrying value are impaired immediately
through profit or loss.
Taxation
The tax expense for the period comprises current and deferred tax.
Tax is recognised in the income statement, except to the extent that it
relates to items recognised directly in equity. In this case the tax is also
recognised directly in other comprehensive income or directly in equity,
respectively.
The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the end of the reporting period in the
countries where the Company's subsidiaries and associates operate and generate
taxable income. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax regulation is
subject to interpretation. It establishes provisions where appropriate on the
basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However, the
deferred tax is not accounted for if it arises from initial recognition of an
asset or liability in a transaction other than a business combination that, at
the time of the transaction, affects neither accounting nor taxable profit or
loss. Deferred income tax is determined using tax rates (and laws) that have
been enacted, or substantially enacted, by the end of the reporting period and
are expected to apply when the related deferred income tax asset is realised,
or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is
probable that future taxable profit will be available against which the
temporary differences can be utilised.
Deferred income tax liabilities are provided on taxable temporary differences
arising from investments in subsidiaries, associates and joint arrangements,
except for deferred income tax liability where the timing of the reversal of
the temporary difference is controlled by the Group and it is probable that
the temporary difference will not reverse in the foreseeable future.
Generally, the Group is unable to control the reversal of the temporary
difference for associates, unless there is an agreement in place that gives
the Group the ability to control the reversal of the temporary difference not
recognised.
Deferred income tax assets are recognised on deductible temporary differences
arising from investments in subsidiaries, associates and joint arrangements
only to the extent that it is probable the temporary difference will reverse
in the future and there is sufficient taxable profit available against which
the temporary difference can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax
liabilities, and when the deferred income tax assets and liabilities relate to
income taxes levied by the same taxation authority on either the taxable
entity or different taxable entities where there is an intention to settle the
balances on a net basis.
Financial assets and liabilities
Financial assets and liabilities are recognised in the Consolidated Statement
of Financial Position when the Group becomes a party to the contractual
provisions of the instrument.
At initial recognition, the Group measures a financial asset or financial
liability at its fair value plus or minus transaction costs. Transaction costs
of financial assets and financial liabilities carried at fair value through
profit or loss ("FVTPL") are expensed in the income statement. Immediately
after initial recognition, an expected credit loss allowance ("ECL") is
recognised for financial assets measured at amortised cost, which results in
an accounting loss being recognised in profit or loss when an asset is newly
originated.
The Group does not use hedge accounting.
a) Financial assets
Classification and subsequent measurement
The Group classifies its financial assets in the following measurement
categories:
· Fair value through profit or loss ("FVTPL");
· Fair value through other comprehensive income ("FVTOCI"); or
· Amortised cost.
Financial assets are classified as current or non-current depending on the
contractual timing for recovery of the asset. The classification depends on
the purpose for which the financial assets were acquired. Management
determines the classification of its financial assets at initial recognition.
(i) Debt instruments
Classification and subsequent measurement of debt instruments depend on:
· the Group's business model for managing the asset; and
· the cash flow characteristics of the asset.
Business model: The business model reflects how the Group manages the assets
in order to generate cash flows. That is, whether the Group's objective is
solely to collect the contractual cash flows from the assets, to collect both
the contractual cash flows and cash flows arising from the sale of assets, or
solely or mainly to collect cash flows arising from the sale of assets.
Factors considered by the Group include past experience on how the contractual
cash flows for these assets were collected, how the assets' performance is
evaluated, and how risks are assessed and managed.
Cash flow characteristics of the asset: Where the business model is to hold
assets to collect contractual cash flows, the Group assesses whether the
financial instruments' contractual cash flows represent solely payments of
principal and interest ("the SPPI test"). In making this assessment, the Group
considers whether the contractual cash flows are consistent with a basic
lending instrument.
Based on these factors, the Group classifies its debt instruments into one of
two measurement categories:
Amortised cost: Assets that are held for collection of contractual cash flows
where those cash flows represent solely payments of principal and interest
("SPPI"), and that are not designated at FVTPL, are measured at amortised
cost. Amortised cost is the amount at which the financial asset is measured at
initial recognition minus the principal repayments, plus or minus the
cumulative amortisation, using the effective interest rate method, of any
difference between that initial amount and the maturity amount, adjusted by
any ECL recognised. The effective interest rate is the rate that exactly
discounts estimated future cash payments or receipts through the expected life
of the financial asset to the gross carrying amount. Interest income from
these financial assets is included within investment revenues using the
effective interest rate method.
Fair value through profit or loss ("FVTPL"): Assets that do not meet the
criteria for amortised cost or fair value through other comprehensive income
("FVTOCI") are measured at fair value through profit or loss.
Reclassification
The Group reclassifies debt instruments when and only when its business model
for managing those assets changes. The reclassification takes place from the
start of the first reporting period following the change.
Impairment
The Group assesses on a forward-looking basis the ECL associated with its debt
instruments held at amortised cost. The Group recognises a loss allowance for
such losses at each reporting date. On initial recognition, the Group
recognises a 12-month ECL. At the reporting date, if there has been a
significant increase in credit risk, the loss allowance is revised to the
lifetime expected credit loss.
The measurement of ECL reflects:
· an unbiased and probability weighted amount that is determined by
evaluating a range of possible outcomes;
· the time value of money; and
· reasonable and supportable information that is available without undue
cost or effort at the reporting date about past events, current conditions and
forecasts of future economic conditions.
The Group adopts the simplified approach to trade receivables and contract
assets, which allows entities to recognise lifetime expected losses on all
assets, without the need to identify significant increases in credit risk
(i.e. no distinction is needed between 12-month and lifetime expected credit
losses).
(ii) Equity instruments
Investments are recognised and derecognised on a trade date basis where a
purchase or sale of an investment is under a contract whose terms require
delivery of the instrument within the timeframe established by the market
concerned, and are initially measured at fair value.
The Group subsequently measures all equity investments at fair value through
profit and loss. Changes in the fair value of financial assets at FVTPL are
recognised in revenue within the Consolidated Income Statement.
(iii) Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with
financial institutions, other short-term, highly liquid investments with
original maturities of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of
changes in value. Bank overdrafts are shown within current liabilities in the
statement of financial position.
De-recognition
Financial assets are derecognised when the rights to receive cash flows from
the financial assets have expired or have been transferred and the Group has
transferred substantially all the risks and rewards of ownership.
b) Financial liabilities
Classification and subsequent measurement
Financial liabilities are classified and subsequently measured at amortised
cost.
Financial liabilities are derecognised when they are extinguished.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument
is any contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities.
Trade payables
Trade payables are classified at amortised cost. Due to their short-term
nature, their carrying amount is considered to be the same as their fair
value.
Bank overdrafts
Interest-bearing bank overdrafts are initially measured at fair value and
shown within current liabilities. Finance charges are accounted for on an
accrual basis in profit or loss using the effective interest rate method and
are added to the carrying amount of the instrument to the extent that they are
not settled in the period in which they arise.
Equity instruments
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from the proceeds.
Where any Group company purchases the Company's equity share capital (treasury
shares), the consideration paid, including any directly attributable
incremental costs (net of income taxes) is deducted from equity attributable
to the Company's equity holders, until the shares are cancelled or reissued.
Where such shares are subsequently reissued, any consideration received, net
of any directly attributable incremental transaction costs and the related
income tax effects, is included in equity attributable to the Company's equity
holders.
Share Incentive Plan ("SIP")
The Group has an incentive policy to encourage all members of staff to
participate in the ownership and future prosperity of the Group. All employees
can participate in the SIP following three months of service. Employees may
contribute a maximum of 10% of their gross salary in regular monthly payments
(being not less than £10 and not greater than £150) to acquire Ordinary
Shares in the Parent Company (Partnership Shares). Partnership Shares are
acquired monthly.
In response to mitigate some perceived impacts from the pandemic on the Group,
the matching option was temporarily suspended during the twelve-month period
to 31 March 2021. On 1 April 2021, the matching option was reinstated to
one-half for every Partnership Share purchased. This arrangement will continue
until 31 March 2022. All shares awarded under this scheme have been purchased
in the market by the Trustees of the SIP.
Provisions
Provisions for environmental restoration, restructuring costs and legal claims
are recognised when the Group has a present legal or constructive obligation
as a result of past events, it is probable that an outflow of resources will
be required to settle the obligation, and the amount has been reliably
estimated. Restructuring provisions comprise lease termination penalties and
employee termination payments. Provisions are not recognised for future
operating losses.
Provisions are measured at the present value of the expenditures expected to
be required to settle the obligation, using a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific
to the obligation. The increase in the provision due to the passage of time
is recognised as interest expense.
Long-term liabilities - deferred cash and shares consideration
Amounts payable to personnel under recruitment contracts in respect of the
client relationships, which transfer to the Group, are treated as long-term
liabilities if the due date for payment of cash consideration is beyond the
period of one year after the year-end date. The value of shares in all cases
is derived by a formula based on the value of client assets received in
conjunction with the prevailing share price at the date of issue which in turn
determines the number of shares issuable.
Pension costs
The Group contributes to defined contribution personal pension schemes for
selected employees. For defined contribution schemes, the Group pays
contributions to publicly or privately administered pension insurance plans on
a mandatory, contractual or voluntary basis. The Group has no further payment
obligations once the contributions have been paid. The contributions are
recognised as employee benefit expenses when they are due. Prepaid
contributions are recognised as an asset to the extent that a cash refund or a
reduction in the future payments is available. The contribution rate is based
on annual salary and the amount is charged to the income statement on an
accrual basis.
Dividends paid
Equity dividends are recognised when they become legally payable. Dividend
distribution to the Company's shareholders is recognised as a liability in the
Group's financial statements in the period in which the dividends are approved
by the Company's shareholders. There is no requirement to pay dividends unless
approved by the shareholders by way of written resolution where there is
sufficient cash to meet current liabilities, and without detriment of any
financial covenants, if applicable.
Leases
The Group leases various offices, software and equipment that are recognised
under IFRS 16. The Group's lease contracts are typically made for fixed
periods of 2 to 10 years and extension and termination options enabling
maximise operational flexibility are included in a number of property and
software leases across the Group.
All leases are accounted for by recognising a right-of-use asset and a lease
liability except for:
· Leases of low value assets; and
· Leases with a duration of 12 months or less.
Payments associated with short-term leases and leases of low-value assets are
recognised on a straight-line basis as an expense in profit or loss.
Short-term leases are leases with a lease term of 12 months or less. Low-value
assets comprise IT equipment and small items of office furniture.
Leases are recognised as a right-of-use asset and a corresponding liability at
the date at which the leased asset is available for use by the Group. Each
lease payment is allocated between the liability and finance cost. The finance
cost is charged to profit or loss over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability
for each period. The right-of-use assets are depreciated over the shorter of
the asset's useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a
present value basis. Lease liabilities include the net present value of the
following lease payments:
· fixed payments (including in-substance fixed payments), less any lease
incentives receivable;
· variable lease payments that are based on an index or a rate;
· amounts expected to be payable by the lessee under residual value
guarantees;
· the exercise price of a purchase option if the lessee is reasonably
certain to exercise that option; and
· payments of penalties for terminating the lease, if the lease term
reflects the lessee exercising that option.
The lease payments are discounted using the interest rate implicit in the
lease. If that rate cannot be readily determined, which is generally the case
for leases held by the Group, the lessee's incremental borrowing rate is used.
To determine the incremental borrowing rate, the Group:
· where possible, uses recent third-party financing received by the
individual lessee as a starting point, adjust to reflect changes in financing
conditions since third-party financing was received;
· uses a build-up approach that starts with a risk-free interest rate
adjusted for credit risk for leases held by the Group, which does not have
recent third-party financing; and
· make adjustments specific to the lease, for example term, country,
currency and security.
Lease payments are allocated between principal and finance cost. The finance
cost is charged to profit and loss over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability
for each period.
Right-of-use assets are measured at cost comprising the following:
· the amount of the initial measurement of lease liability;
· any lease payments made at or before the commencement date less any
lease incentives received;
· any initial direct costs; and
· restoration costs.
Right-of-use assets are depreciated over the shorter of the lease term and the
useful economic life of the underlying asset on a straight-line basis.
The Group does not have any leasing activities acting as a lessor.
Earnings per share
Basic earnings per share is calculated by dividing:
· the profit attributable to owners of the company, excluding any costs
of servicing equity other than ordinary shares;
· by the weighted average number of ordinary shares outstanding during
the financial year, adjusted for bonus elements in ordinary shares issued
during the year and excluding treasury shares (note 16).
There are currently no obligations present that could have a dilutive effect
on ordinary shares.
Share-based payments
Share-based payments are remuneration payments to selected employees that take
the form of an award of shares in Walker Crips Group plc. Employees are not
able to exercise such awards in full until three years after the award has
been made (the vesting period).
Equity-settled share-based payments to employees are measured at fair value of
the equity instruments at the date of grant. The fair value excludes the
effect of non-market-based vesting conditions. Details regarding the
determination of the fair value of equity-settled share-based transactions are
set out in note 37.
As the share-based payment awards are for fully paid free shares, fair value
is measured as the market value of the shares at each grant date.
The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based
on the Group's estimate of the number of shares that will eventually vest. At
each reporting date, the Group revises its estimate of the shares expected to
vest as a result of the effect of non-market based vesting conditions. The
impact of the revision of the original estimates, if any, is recognised in the
Income Statement such that the cumulative expense reflects the revised
estimate.
4. Key sources of estimation uncertainty and judgements
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
Impairment of goodwill - estimation and judgement
Determining whether goodwill is impaired requires an estimation of the fair
value less costs to sell and the value-in-use of the cash-generating units to
which goodwill has been allocated. The fair value less costs to sell involves
estimation of values based on the application of earnings multiples and
comparison to similar transactions. The value-in-use calculation requires the
entity to estimate the future cash flows expected to arise from the
cash-generating unit and apply a discount rate in order to calculate present
value. The assumptions used and inputs involve judgements and create
estimation uncertainty. These assumptions have been stress-tested as described
in note 17. The carrying amount of goodwill at the balance sheet date was
£4.4 million (2021: £4.4 million) as shown in note 17.
Other intangible assets - judgement
Acquired client lists are capitalised based on current fair values. During the
year, one intangible asset, a client list, was purchased by subsidiary Walker
Crips Investment Management Limited. When the Group purchases client
relationships from other corporate entities, a judgement is made as to whether
the transaction should be accounted for as a business combination, or a
separate purchase of intangible assets. In making this judgement, the Group
assesses the acquiree against the definition of a business combination in IFRS
3. Payments to newly recruited investment managers are capitalised when they
are judged to be made for the acquisition of client relationship intangibles.
The useful lives are estimated by assessing the historic rates of client
retention, the ages and succession plans of the investment managers who manage
the clients and the contractual incentives of the investment managers. The
Directors conduct a review of indicators of impairment and also consider a
life of up to twenty years to be both appropriate and in line with peers.
Key assumptions in this regard consist of the following:
1. The continuing going concern of the Company;
2. Life expectancy of clients based on the Office for National Statistics;
3. Succession plans in place for staff and investment managers;
4. Amounts of AUMA are consistent on average;
5. A growth rate of client list AUMA of a conservative 2%; and
6. A discount rate of 12%.
Provisions - estimation and judgement
The Company has provided for the estimated cost of the project relating to the
upgrade of its financial crime control framework, which was subject to an
independent review that highlighted the need for significant improvement. The
costs of the review and to implement the remediation are estimated to be
£595,000, of which £455,000 remains provided at year end. Management has a
detailed project plan underpinning the estimate for the remaining provision,
but this includes assumptions regarding required resources which may change. A
provision has also been made for Management's present estimate for potential
customer redress and associated costs although the review remains at an early
stage. Management has engaged third-party legal and regulatory expert advice
and opinion to assist in this matter and ensure a fair customer outcome is
achieved. The Group's insurers have been kept informed of this matter although
at this time no asset has been recognised for any potential insurance recovery
until the extent of cover has been formally agreed. As work remains ongoing
the estimated provision is subject to change. Areas of estimation uncertainty
remain the appropriateness of the methodology and validation of input
assumptions pending legal and regulatory expert advice.
In light of the uncertainty in respect of the above two provisions, for the
purposes of the going concern and viability assessment, Management has
prudently applied a 50% adverse stress to the amounts provided. It is noted
that there also may be downward revisions to the estimates and, in respect of
client redress, insurance recoveries pending further discussions with and the
agreement of insurers.
Finally, the Company established dilapidation provisions based on quotes and
reasonable estimates of the amounts for works, as well as appropriate rates of
inflation and discount rates (see below).
IFRS 16 "Leases" - estimation and judgement
IFRS 16 requires certain judgements and estimates to be made and those
significant judgements are explained below.
The Group has opted to use single discount rates for leases with reasonably
similar characteristics. The discount rates used have had an impact on the
right-of-use assets' values, lease liabilities on initial recognition and
lease finance costs included within the income statement.
Where a lease includes the option for the Group to extend the lease term, the
Group has exercised the judgement, based on current information, that such
leases will be extended to the full length available, and this is included in
the calculation of the value of the right-of-use assets and lease liabilities
on initial recognition and valuation at the reporting date.
Provision for dilapidations - estimation and judgement
The Group has made provisions for dilapidations under six leases for its
offices. The Group did not enter into any new property leases in the period.
During the year, £16,000 of additional provisions were recognised, including
£4,000 of interest and released a further £77,000 of excess provision,
totaling £618,000 provision at 31 March 2022.
The amounts of the provisions are, where possible, estimated using quotes from
professional building contractors. The property, plant and equipment elements
of the dilapidations are depreciated over the terms of their respective
leases. The liabilities in relation to dilapidations are inflated using an
estimated rate of inflation and discounted using appropriate gilt rates to
present value. The change in liability attributable to inflation and
discounting is recognised in interest expense.
5. Revenue
An analysis of the Group's revenue is as follows:
2022 2021
Broking Non- Total Broking Non- Total
income broking £'000 income broking £'000
£'000 income £'000 income
£'000 £'000
Stockbroking commission 8,044 - 8,044 9,009 - 9,009
Fees and other revenue - 22,931 22,931 - 19,733 19,733
Investment Management 8,044 22,931 30,975 9,009 19,733 28,742
Wealth Management, 1,606
Financial Planning & Pensions 15 1,830 1,845 - 1,606
Revenue 8,059 24,761 32,820 9,009 21,339 30,348
Investment revenue (see note 11) - 9 9 - 10 10
Total income 8,059 24,770 32,829 9,009 21,349 30,358
% of total income 24.5% 75.5% 100.0% 29.7% 70.3% 100.0%
Timing of revenue recognition
The following table presents operating income analysed by the timing of
revenue recognition of the operating segment providing the service:
2022 Investment Wealth SaaS Consolidated
Management Management £'000 year ended
£'000 £'000 31 March
2022
£'000
Revenue from contracts with customers
Products and services transferred at a point in time 11,894 260 38 12,192
Products and services transferred over time 17,917 1,585 - 19,502
Other revenue
Products and services transferred at a point in time 404 - - 404
Products and services transferred over time 722 - - 722
30,937 1,845 38 32,820
2021 Investment Wealth Consolidated
Management Management year ended
£'000 £'000 SaaS 31 March
£'000 2021
£'000
Revenue from contracts with customers
Products and services transferred at a point in time 10,389 161 16 10,566
Products and services transferred over time 16,393 1,425 - 17,818
Other revenue
Products and services transferred at a point in time 1,089 20 - 1,109
Products and services transferred over time 855 - - 855
28,726 1,606 16 30,348
6. Segmental analysis
For segmental reporting purposes, the Group currently has three operating
segments; Investment Management, being portfolio-based transaction execution
and investment advice; Wealth Management, being financial planning and
pensions administration; and Software as a Service ("SaaS") comprising
provision of regulatory and admin software and bespoke cloud software to
companies. Unallocated corporate expenses, assets and liabilities are not
considered to be allocatable accurately, or fairly, under any known basis of
allocation and are therefore disclosed separately.
Walker Crips Investment Management's activities focus predominantly on
investment management of various types of portfolios and asset classes.
Walker Crips Wealth Management provides advisory and administrative services
to clients in relation to their financial planning, life insurance,
inheritance tax and pension arrangements.
EnOC Technologies Limited ("EnOC") provides the regulatory and admin software,
Software as a Service ("SaaS"), to their business partners, including all
WCG's regulated entities. Fees payable by subsidiary companies to EnOC have
been eliminated on consolidation and are excluded from segmental analysis.
Revenues between Group entities, and in turn reportable segments, are excluded
from the segmental analysis presented below.
The Group does not derive any revenue from geographical regions outside of the
United Kingdom.
Investment Wealth SaaS Consolidated
2022 Management Management £'000 year ended
£'000 £'000 31 March
2022
£'000
Revenue
Revenue from contracts with customers 29,811 1,845 38 31,694
Other revenue 1,126 - - 1,126
Total revenue 30,937 1,845 38 32,820
Results
Segment result 1,160 (258) (102) 800
Unallocated corporate expenses (474)
326
Investment revenue 9
Finance costs (114)
Profit on disposal of associate investment 103
Profit before tax 324
Tax (151)
Profit after tax 173
Investment Wealth SaaS Consolidated
2022 Management Management £'000 year ended
£'000 £'000 31 March
2022
£'000
Other information
Capital additions 466 5 - 471
Depreciation 260 43 - 303
Statement of financial positions
Assets
Segment assets 71,823 77 390 72,290
Unallocated corporate assets 4,379
Consolidated total assets 76,669
Liabilities
Segment liabilities 52,189 235 237 52,661
Unallocated corporate liabilities 1,896
Consolidated total liabilities 54,557
Investment Wealth SaaS Consolidated
2021 Management Management £'000 year ended
£'000 £'000 31 March
2021
£'000
Revenue
Revenue from contracts with customers 26,782 1,586 16 28,384
Other revenue 1,944 20 - 1,964
Total revenue 28,726 1,606 16 30,348
Results
Segment result 1,333 (127) (127) 1,079
Unallocated corporate expenses (1,057)
22
Investment revenue 10
Finance costs (146)
Loss before tax (114)
Tax (144)
Loss after tax (258)
Investment Wealth SaaS Consolidated
2021 Management Management £'000 year ended
£'000 £'000 31 March
2021
£'000
Other information
Capital additions 91 201 - 292
Depreciation 304 71 - 375
Statement of financial positions
Assets
Segment assets 67,297 1,138 369 68,804
Unallocated corporate assets 6,151
Consolidated total assets 74,955
Liabilities
Segment liabilities 48,486 328 10 48,824
Unallocated corporate liabilities 3,809
Consolidated total liabilities 52,633
7. Commissions and fees paid
Commissions and fees paid comprises:
2022 2021
£'000 £'000
To authorised external agents 61 63
To self-employed certified persons 9,049 9,639
9,110 9,702
8. Investment in associate
2022 2021
£'000 £'000
Brought forward 2 -
Share of after-tax profit 57 66
Dividends (57) (64)
Disposals (2) -
Carried forward - 2
The Group disposed of its 33.33% interest in its associate, Walker Crips
Property Income Limited ("WCPIL"), during the year for a consideration of
£105,000. The brought forward value of the Group's share of net assets in
WCPIL was £2,000. The Board of WCPIL submitted management accounts to 31
December 2021 reporting an after-tax profit of £171,000, giving the Group a
£57,000 entitlement from which a dividend of £57,000 was paid to the Group
in the period.
9. Profit/(loss) for the year
Profit/(loss) for the year on continuing operations has been arrived at after
charging:
2022 2021
£'000 £'000
Depreciation of property, plant and equipment (see note 19) 303 375
Depreciation of right-of-use assets (see note 20) 873 961
Amortisation of intangibles (see note 18) 862 837
Staff costs (see note 13) 13,862 12,690
Recharge of staff costs (725) (710)
Settlement costs 1,143 1,148
Communications 1,260 1,195
Regulatory costs 765 756
Computer expenses 790 595
Other expenses 2,540 2,221
Auditor's remuneration 223 203
21,901 20,271
A more detailed analysis of auditor's remuneration is provided below:
2022 2022 2021 2021
£'000 % £'000 %
Audit services
Fees payable to the Company's auditor for the audit of its annual accounts 51 23 57 28
The audit of the Company's subsidiaries pursuant to legislation - current year 119 53 133 66
Non-audit services
FCA client assets reporting 13 6 13 6
AAF Review 40 18 - -
223 100 203 100
10. Exceptional items
Certain amounts are disclosed separately in order to present results which are
not distorted by significant items of income and expenditure due to their
nature and materiality.
2022 2021
£'000 £'000
Exceptional items included within operating profit
Change in fair value of deferred consideration - 31
Restructuring, redundancy and other costs 516 388
Net compensation income (221) -
Financial crime control framework review and remediation 595 -
Client redress and associated costs 650 -
Operating exceptional items 1,540 419
Other
Profit on disposal of associate investment (103) -
Total exceptional items 1,437 419
In the prior year, the Group incurred professional fees and other expenses
relating to the actions taken in response to the pandemic, including
restructuring and redundancy costs, and a contractual dispute. In addition,
the Group recognised a change in fair value of deferred consideration in
respect of acquired client relationships.
In the current year, the following items have been classified as exceptions
due to their materiality and non-recurring nature. These are:
a) Completion of the Group's restructuring and redundancy activity
commenced during the pandemic;
b) The Group received compensation under a confidential settlement
agreement, without admission of liability by either party in relation to a
dispute;
c) The costs of an independent review and resulting actions to remediate
and enhance the Group's financial crime framework. See notes 4 and 27;
d) The actions of an associate combined with an internal control failure
resulted in customer detriment. Provision has been made for the present
estimate of redress and associated costs. We are working with our insurers to
confirm scope of cover and any future recovery will also be treated as an
exceptional item. See notes 4 and 27; and
e) The Group disposed of its 33.33% interest in its associate, Walker
Crips Property Income Limited ("WCPIL").
In total, £1,437,000 has been expensed in the current year. The directors
acknowledge this is a significant amount but consider transparent disclosure
and explanation provides readers with an improved understanding of the Group
results.
11. Investment revenue
Investment revenue comprises:
2022 2021
£'000 £'000
Interest on bank deposits - 2
Dividends from equity investment 9 8
9 10
12. Finance costs
Finance costs comprises:
2022 2021
£'000 £'000
Interest on lease liabilities (93) (134)
Interest on dilapidation provisions (11) (2)
Interest on overdue liabilities (10) (10)
(114) (146)
13. Staff costs
Particulars of employee costs (including Directors) are as shown
below:
2022 2021
£'000 £'000
Wages and salaries 11,561 10,643
Social security costs 1,197 1,074
Share incentive plan 57 94
Other employment costs 1,047 879
13,862 12,690
Staff costs do not include commissions payable mainly to self-employed account
executives, as these costs are included in total commissions payable to
self-employed certified persons disclosed in note 7. At the end of the year
there were 39 certified self-employed account executives (2021: 40).
The average number of staff employed during the year was:
2022 2021
Number Number
Executive Directors 2 2
Certification and approved staff 54 60
Other staff 152 150
208 212
The table incorporates the new staff classification under Senior Managers and
Certification Regime ("SM&CR").
14. Taxation
The tax charge is based on the loss/profit for the year of continuing
operations and comprises:
2022 2021
£'000 £'000
UK corporation tax at 19% (2021: 19%) 131 96
Prior year adjustments (66) 111
Origination and reversal of timing differences during the current period 86 (63)
151 144
Corporation tax is calculated at 19% (2021: 19%) of the estimated assessable
profit for the year.
The charge for the year can be reconciled to the (loss)/profit per the income
statement as follows:
2022 2021
£'000 £'000
Profit/(loss) before tax 324 (114)
Tax on profit/(loss) on ordinary activities at the standard rate UK 62 (22)
corporation tax rate of 19% (2021: 19%)
Effects of:
Tax rate changes for deferred tax 108 -
Expenses not deductible for tax purposes 21 22
Prior year adjustment (66) 111
Fixed asset differences 26 63
Other - (30)
151 144
Current tax has been provided at the rate of 19%. Deferred tax has been
provided at 25% (2021: 19%).
The exceptional charge of £1,437,000 (2021: £419,000), disclosed separately
on the consolidated income statement, is tax deductible to the value of
£373,000 (2021: £80,000) of corporation tax. Classifying these credits/costs
as exceptional has no effect on the tax liability.
In the Spring Budget 2021, the Government announced that from 1 April 2023 the
UK corporation tax rate will increase from 19% to 25%. This will have a
consequential effect on the Group's future tax charge.
15. Dividends
When determining the level of proposed dividend in any year a number of
factors are taken into account including levels of profitability, future cash
commitments, investment needs, shareholder expectations and prudent buffers
for maintaining an adequate regulatory capital surplus. Amounts recognised as
distributions to equity holders in the period:
2022 2021
£'000 £'000
Final dividend for the year ended 31 March 2021 of 0.60p (2020: 0.00p) per 255 -
share
Interim dividend for the year ended 31 March 2022 of 0.30p (2021: 0.15p) per 128 64
share
383 64
Proposed final dividend for the year ended 31 March 2022 of 1.20p (2021: 511 256
0.60p) per share
The proposed final dividends are subject to approval by shareholders at the
Annual General Meeting and have not been included as liabilities in these
financial statements.
16. Earnings/(loss) per share
The calculation of basic earnings/(loss) per share for continuing operations
is based on the post-tax profit for the financial year of £173,000 (2021:
post-tax loss of £258,000) and divided by 42,577,328 (2021: 42,577,328)
Ordinary Shares of 6(2)/(3) pence, being the weighted average number of
Ordinary Shares in issue during the year.
No dilution to earnings/(loss) per share in the current year or in the prior
year.
The calculation of the basic earnings/(loss) per share is based on the
following data:
2022 2021
£'000 £'000
Earnings/(loss) for the purpose of basic earnings/(loss) per share
being net profit/(loss) attributable to equity holders of the Parent Company 173 (258)
Number of shares
2022 2021
Number Number
Weighted average number of Ordinary Shares for the purposes of basic earnings 42,577,328 42,577,328
per share
This produced basic earnings per share of 0.41 pence (2021: basic loss per
share of 0.61 pence).
17. Goodwill
£'000
Cost
At 1 April 2020 7,056
At 1 April 2021 7,056
At 31 March 2022 7,056
Accumulated impairment
At 1 April 2020 2,668
At 1 April 2021 2,668
Impaired during the year -
At 31 March 2022 2,668
Carrying amount
At 31 March 2022 4,388
At 31 March 2021 4,388
Goodwill acquired in a business combination is allocated, at acquisition, to
the cash-generating units ("CGUs") that are expected to benefit from that
business combination or intangible asset. The carrying amount of goodwill has
been allocated as follows:
2022 2021
£'000 £'000
London York Fund Managers Limited CGU ("London York") 2,901 2,901
Barker Poland Asset Management LLP CGU ("BPAM") 1,487 1,487
4,388 4,388
The recoverable amounts of the CGUs have been determined based upon
value-in-use calculations for the London York CGU and fair value, less costs
of disposal for the BPAM CGU.
The London York computation was based on discounted five-year cash flow
projections and terminal values. The key assumptions for these calculations
are a pre-tax discount rate of 12%, terminal growth rates of 2% and the
expected changes to revenues and costs during the five-year projection period
based on discussions with senior management, past experience, future
expectations in light of anticipated market and economic conditions,
comparisons with our peers and widely available economic and market forecasts.
The pre-tax discount rate is determined by management based on current market
assessments of the time value of money and risks specific to the London York
CGU. The base value-in-use cash flows were stress tested for an increase in
discount rates to 16% and a 20% fall in net inflows resulting in no
impairment.
The discount rate would need to increase above 16% for the London York CGU
value-in-use to equal the respective carrying values. Revenues would need to
fall by £341,000 per annum in present value terms for the London York CGU
value-in-use to equal the respective carrying values.
The BPAM CGU recoverable amount was assessed, in accordance with IAS 36, by
adopting the higher method of the fair value less cost of disposal to
determine the recoverable amount (as opposed to the lower value-in-use). The
recoverable amount at the year-end calculated for the BPAM CGU, determined by
the fair value less cost of disposal, exceeded that produced by the
value-in-use calculation. The fair value less cost of disposal amounted to
£7.8 million (2021: £5.4 million) with headroom, after selling costs, of
£4.2 million (2021: £1.7 million) after applying price earnings multiples
based on the average of the Group's and its peers' published results.
Accordingly, this measurement is classified as fair value hierarchy Level 3
having used valuation techniques not based on directly observable market data.
A 58% decrease in BPAM's profit after tax would result in potential impairment
of £15,000.
18. Other intangible assets
Software Client lists Total
licences £'000 £'000
£'000
Cost
At 1 April 2020 44 10,572 10,616
Re-classification of software as intangibles * 2,783 - 2,783
Additions in the year 56 93 149
At 1 April 2021 2,883 10,665 13,548
Re-classification of assets relating to IFRS 16 (45) - (45)
Additions in the year 61 32 93
At 31 March 2022 2,899 10,697 13,596
Amortisation
At 1 April 2020 25 3,890 3,915
Re-classification of software as intangibles* 2,230 - 2,230
Charge for the year 204 633 837
At 1 April 2021 2,459 4,523 6,982
Charge for the year 185 677 862
At 31 March 2022 2,644 5,200 7,844
Carrying amount
At 31 March 2022 255 5,497 5,752
At 31 March 2021 424 6,142 6,566
* During the previous year, the cost and accumulated depreciation of
software assets were reclassified as intangible assets from property, plant
and equipment. There was no impact to the Consolidated Income Statement in the
current or prior years.
The intangible assets are amortised over their estimated useful lives in order
to determine amortisation rates. "Client lists" are assessed on a
client-by-client basis and are amortised over periods of three to twenty years
and "Software licences" are amortised over five years. There are no
indications that the value attributable to client lists or software licences
should be impaired.
19. Property, plant and equipment
Owned fixed assets Leasehold Computer Computer Total
improvement, software hardware £'000
furniture and £'000 £'000
equipment
£'000
Cost
1 April 2020 2,833 2,793 1,435 7,061
Re-classification of assets* (121) (10) 126 (5)
Re-classification of software as intangibles** - (2,783) - (2,783)
Additions in the year 54 - 21 75
At 1 April 2021 2,766 - 1,582 4,348
Re-classification of assets* (73) - - (73)
Dilapidation asset reassessment (50) - - (50)
Additions in the year 110 - 8 118
At 31 March 2022 2,753 - 1,590 4,343
Accumulated depreciation
1 April 2020 1,063 2,301 1,367 4,731
Re-classification of assets* 19 (71) 47 (5)
Re-classification of software as intangibles** - (2,230) - (2,230)
Charge for the year 298 - 77 375
1 April 2021 1,380 - 1,491 2,871
Charge for the year 253 - 50 303
At 31 March 2022 1,633 - 1,541 3,174
Carrying amount
At 31 March 2022 1,120 - 49 1,169
At 31 March 2021 1,386 - 91 1,477
* Adjustments were made in the year to reclassify assets more
appropriately between asset classes. The net impact of these adjustments in
asset costs and accumulated depreciation was nil and did not require changes
or corrections to depreciation policy.
** The cost and accumulated depreciation of software assets were reclassified
as intangible assets from property, plant and equipment. There was no impact
to the Consolidated Income Statement in the current or prior years.
20. Right-of-use assets
Computer Computer
Offices software hardware Total
£'000 £'000 £'000 £'000
Cost
1 April 2021 4,601 744 95 5,440
Additions 104 155 - 259
Lease reassessment (401) - - (401)
At 31 March 2022 4,304 899 95 5,298
Accumulated depreciation
1 April 2021 1,319 469 40 1,828
Charge for the year 649 204 20 873
At 31 March 2022 1,968 673 60 2,701
Carrying amount
At 31 March 2022 2,336 226 35 2,597
At 31 March 2021 3,282 275 55 3,612
21. Investments - fair value through profit or loss
Non-current asset investments
Investments Total
at fair value £'000
through
profit or loss
£'000
At 31 March 2020 51 51
At 31 March 2021 37 37
Loss from change in fair value (37) (37)
At 31 March 2022 - -
The Group's investment in unregulated collective investment scheme ("UCIS")
were written down in the period to £nil. The investment was to cover a
corresponding creditor of £25,000, therefore a net write-down of £12,000 was
recognised in the Income Statement.
Current asset investments
As at As at
31 March 31 March
2022 2021
£'000 £'000
Trading investments
Investments - fair value through profit or loss 1,647 920
Financial assets at fair value through profit or loss represent investments in
equity securities and collectives that present the Group with opportunity for
return through dividend income, interest and trading gains. The fair values of
these securities are based on quoted market prices.
The following provides an analysis of financial instruments that are measured
subsequent to initial recognition at fair value, grouped into Levels 1 to 3
based on the degree to which the fair value is observable:
Level 1 fair value measurements are those derived from quoted prices
(unadjusted) in active markets for identical assets or liabilities. The
Group's financial assets held at fair value through profit and loss under
current assets fall within this category;
Level 2 fair value measurements are those derived from inputs other than
quoted prices included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from
prices). The Group does not hold financial instruments in this category; and
Level 3 fair value measurements are those derived from valuation techniques
that include inputs for the asset or liability that are not based on
observable market data (unobservable inputs). The Group's financial assets
held at fair value through profit and loss under non-current assets fall
within this category.
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
At 31 March 2022
Financial assets held at fair value through profit and loss 1,647 - - 1,647
At 31 March 2021
Financial assets held at fair value through profit and loss 920 - - 920
Further IFRS 13 disclosures have not been presented here as the balance
represents 2.148% (2021: 1.277%) of total assets. There were no transfers of
investments between any of the levels of hierarchy during the year.
22. Trade and other receivables
2022 2021
£'000 £'000
Amounts falling due within one year:
Due from clients, brokers and recognised stock exchanges at amortised cost 42,898 40,633
Other debtors at amortised cost 1,522 2,447
Prepayments and accrued income 5,583 6,018
50,003 49,098
23. Cash and cash equivalents
2022 2021
£'000 £'000
Cash deposits held at bank, repayable on demand without penalty 11,113 8,855
11,113 8,855
Cash and cash equivalents do not include deposits of client monies placed by
the Group with banks and building societies in segregated client bank accounts
(free money and settlement accounts). All such deposits are designated by the
banks and building societies as clients' funds and are not available to
satisfy any liabilities of the Group.
The amount of such net deposits which are not included in the consolidated
statement of financial position at 31 March 2022 was £314,424,000 (2021:
£274,145,000).
The credit quality of banks holding the Group's cash at 31 March 2022 is
analysed below with reference to credit ratings awarded by Fitch.
2022 2021
£'000 £'000
A+ 7,837 5,256
AA- 2,959 3,337
A- 45 25
Unrated or held in cash 272 237
11,113 8,855
24. Deferred tax liability
Capital Short-term Total
allowances temporary £'000
£'000 differences
and other
£'000
At 1 April 2020 (65) (270) (335)
Use of loss brought forward - 32 32
Debit to the income statement (59) (38) (97)
At 1 April 2021 (124) (276) (400)
Use of loss brought forward 119 (170) (51)
Debit to the income statement - 37 37
At 31 March 2022 (5) (409) (414)
Deferred income tax assets are recognised for tax loss carried forward to the
extent that the realisation of the related tax benefit through future taxable
profits is probable. The Group did not recognise deferred income tax assets of
£152 (2021: £11,000) in respect of losses amounting to £800 (2021:
£58,000) that can be carried forward against future taxable income. Losses
amounting to £nil (2021: £nil) and £nil (2021: £nil) expire in 2021 and
2022, respectively.
25. Financial instruments and risk profile
Financial risk management
Procedures and controls are in place to identify, assess and ultimately
control the financial risks faced by the Group arising from its use of
financial instruments. Steps are taken to mitigate identified risks with
established and effective procedures and controls, efficient systems and the
adequate
training of staff.
The Group's risk appetite, along with the procedures and controls mentioned
above, are laid out in the Group's Internal Capital Adequacy Assessment
Process document prepared in accordance with the requirements of the Financial
Conduct Authority ("the FCA").
The overall risk appetite for the Group is considered by Management to be low,
despite operating in a marketplace where financial risk is inherent
in investment management and financial services.
The Group considers its financial risks arising from its use of financial
instruments to fall into three main categories:
(i) credit risk;
(ii) liquidity risk; and
(iii) market risk.
Financial risk management is a central part of the Group's strategic
management which recognises that an effective risk management programme can
increase a business's chances of success and reduce the possibility of
failure. Continual assessment, monitoring and updating of procedures and
benchmarks are all essential parts of the Group's risk management strategy.
(i) Credit risk management practices
The Group's credit risk is the risk of loss through default by a counterparty
and, accordingly, the Group's definition of default is primarily attributable
to its trade receivables or pledged collateral which is the risk that a
client, market counterparty or recognised stock exchange will be unable to pay
amounts to settle a trade in full when due. Other credit risks, such as free
delivery of securities or cash, are not deemed to be significant. Significant
changes in the economy or a particular sector could result in losses that are
different from those that the Group has provided for at the year-end date.
All financial assets at the year-end were assessed for credit impairment and
no material amounts have arisen having evaluated the age of overdue debtors,
the quality of recourse to third parties and the availability of mitigation
through the disposal of liquid collateral in the form of marketable
securities. The Group's write-off policy is driven by the historic dearth of
instances where material irrecoverable losses have been incurred. Where the
avenues of recourse and mitigation outlined above have not been successful,
the outstanding balance, or residual balance if sale proceeds do not fully
cover an exposure, will be written off.
The Board is responsible for oversight of the Group's credit risk. The Group
accepts a limited exposure to credit risk but aims to mitigate and minimise
the risk through various methods. There is no material concentrated credit
risk as the exposures are spread across a substantial number of clients and
counterparties.
Trade receivables (includes settlement balances)
Settlement risk arises in any situation where a payment of cash or transfer of
a security is made in the expectation of a corresponding delivery
of a security or receipt of cash. Settlement balances arise with clients,
market counterparties and recognised stock exchanges.
In the vast majority of cases, control of the stock purchased will remain with
the Group until client monetary balances are fully settled.
Where there is an absence of securities collateral, clients are usually
required to hold sufficient funds in their managed deposit account prior to
the trade being conducted. Holding significant amounts of client money helps
the Group to manage credit risks arising with clients. Many of our clients
also hold significant amounts of stock and other securities in our nominee
subsidiary company, providing additional security should a specific
transaction fail to be settled and the proceeds of such securities disposed of
can be used to settle all outstanding obligations.
In addition, the client side of settlement balances are normally fully
guaranteed by our commission-sharing certified persons who conduct
transactions and manage the relationships with our mutual clients.
Exposures to market counterparties also arise in the settlement of trades or
when collateral is placed with them to cover open trading positions. Market
counterparties are usually other FCA-regulated firms and are considered
creditworthy, some reliance being placed on the fact that other regulated
firms would be required to meet the stringent capital adequacy requirements of
the FCA.
Maximum exposure to credit risk:
2022 2021
£'000 £'000
Cash 11,113 8,855
Trade receivables 42,898 40,633
Other debtors 1,522 2,447
Accrued interest income 108 55
55,641 51,990
An ageing analysis of the Group's financial assets is presented in the
following table:
Current 0-1 2-3 Over 3 Carrying
At 31 March 2022 £'000 month months months value
£'000 £'000 £'000 £'000
Trade receivables 42,459 245 179 15 42,898
Cash and cash equivalent 11,113 - - - 11,113
Other debtors 1,469 11 1 41 1,522
Accrued interest income 108 - - - 108
55,149 256 180 56 55,641
Expected credit loss
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses using a lifetime expected credit loss provision for trade receivables
and contract assets. To measure expected credit losses on a collective basis,
trade receivables and contract assets are grouped based on similar credit risk
and ageing. The contract assets have similar risk characteristics to the trade
receivables for similar types of contracts.
The Group undertakes a daily assessment of credit risk which includes
monitoring of client and counterparty exposure and credit limits. New clients
are individually assessed for their creditworthiness using external ratings
where available and all institutional relationships are monitored at regular
intervals.
As at 31 March 2022, the Directors of the Company reviewed and assessed the
Group's existing assets for impairment using the IFRS 9 simplified approach to
measuring expected credit losses using a lifetime expected credit loss
provision for trade receivables and contract assets and no additional
impairments have been recognised on application and no material defaults are
anticipated within the next 12 months.
Concentration of credit risk
In addition, daily risk management procedures to actively monitor
disproportionately large trades by a customer or market counterparty are in
place.
The financial standing, pattern of trading, type and size of security or
instrument traded are amongst the factors taken into consideration.
(ii) Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its payment
obligations associated with its financial liabilities when they fall due.
Historically, sufficient underlying cash has been prevalent in the business
for many years as the Group is normally cash-generative. The risk of
unexpected large cash outflows could arise where large amounts are being
settled daily of which only a fraction forms the commission earned by the
Group. This could be due to clients settling late or bad deliveries to the
market or CREST, also resulting in a payment delay from the market side.
The Group's policy with regard to liquidity risk is to carefully monitor
balance sheet structure and borrowing limits, including:
· monitoring of cash positions on a daily basis;
· exercising strict control over the timely settlement of trade debtors;
and
· exercising strict control over the timely settlement of market debtors
and creditors.
The Group holds its cash and cash equivalents spread across a number of highly
rated financial institutions. All cash and cash equivalents are short-term
highly liquid investments that are readily convertible to known amounts of
cash without penalty.
All the regulated Group subsidiaries are subject to the provisions of FCA
Liquidity standards if they are within the scope of the rules in the FCA
Handbook chapter IFPRU 7.
The table below analyses the Group's cash outflow based on the remaining
period to the contractual maturity date.
2022 Less than Total
1 year £'000
£'000
Trade and other payables 49,625 49,625
49,625 49,625
2021
Trade and other payables 47,395 47,395
47,395 47,395
(iii) Market risk
Market risk is the risk that changes in market prices such as foreign exchange
rates or equity prices, on financial assets and liabilities will affect the
Group's results. They relate to price risk on fair value through profit or
loss trading investments and are subject to ongoing monitoring.
Fair value of financial instruments
The fair values of the Group's financial assets and liabilities are not
materially different from their carrying values as they are valued at their
realisable values. The Group's financial assets that are classed as current
asset and non-current asset investments (fair value through profit or loss)
have been revalued at 31 March 2022 using closing market prices.
A 10% fall in global equity markets would, in isolation, result in a pre-tax
decrease to net assets of £164,700 (2021: £92,000). A 10% rise would have an
equal and opposite effect.
The impact of foreign exchange and interest rate risk is not material and is
therefore not presented.
26. Trade and other payables
2022 2021
£'000 £'000
Amounts owed to clients, brokers and recognised stock exchanges 42,325 39,951
Other creditors 2,537 3,059
Contract liability 14 28
Accrued expenses 4,749 4,357
49,625 47,395
Trade creditors and accruals comprise amounts outstanding for
investment-related transactions, to customers or counterparties, and ongoing
costs. The average credit period taken for purchases in relation to costs is
15 days (2021: 14 days). The Directors consider that the carrying amount of
trade payables approximates to their fair value.
27. Provisions
Provisions included in other current liabilities and long-term liabilities are
made up as follows:
Professional Client Dilapidations Total
fees payments £'000 £'000
£'000 £'000
Provisions falling due within one year
At start of year - 205 - 205
Additions 595 650 16 1,121
Dilapidation provision transferred from more than one year - - 16 16
Utilisation of provision 140 (205) - (205)
455 650 32 1,137
Provisions falling due after one year
At start of year - - 675 675
Dilapidation provision transferred to less than one year - - (16) (16)
Utilisation or release of provision - - (77) (77)
Interest - - 4 4
- - 586 586
Total as at 31 March 2022 455 650 618 1,723
Professional fees
The Group has provided for the costs to remediate and improve its financial
crime control framework. See notes 4 and 10.
Client payments
These provisions relate to expected payments to clients for redress, claims or
complaints together with associated costs which in the opinion of the Board,
need providing for after taking into account the risks and uncertainties
surrounding such events. The timing of these settlements are unknown but it is
expected that they will be resolved within 12 months. See notes 4 and 10.
Dilapidations
The Group, based on revised estimates, has made an additional provision of
£16,000 for dilapidations in connection with acquired leasehold premises
(2021: total additional provision of £16,000), which is due within one year.
These costs are expected to arise at the end of each respective lease.
Provisions for dilapidations payable on leases after more than one year
amounted to £586,000, including interest.
The Group had six leased properties, all of which had contractual dilapidation
requirements. The dilapidation provisions in relation to these leases range
from net present values as at the year-end of £10,000 to £525,000 per lease.
28. Lease liabilities
Lease liabilities Offices Computer Computer Total
£'000 software hardware £'000
£'000 £'000
At 1 April 2021 3,486 261 55 3,802
Additions 104 155 - 259
Lease reassessments (417) - - (417)
Interest 87 5 1 93
Lease payments (923) (248) (21) (1,192)
At 31 March 2022 2,337 173 35 2,545
Lease liabilities profile (statement of financial position) 2022 2021
£'000 £'000
Amounts due within one year 245 946
Amounts due after more than one year 2,300 2,856
2,545 3,802
Undiscounted lease maturity analysis 2022 2021
£'000 £'000
Within one year 340 1,069
Between one and two years 491 266
Between two and five years 2,058 3,898
Over five years 54 65
Total undiscounted lease liabilities 2,943 5,298
29. Called-up share capital
2022 2021
£'000 £'000
Called-up, allotted and fully paid
43,327,328 (2021: 43,327,328) Ordinary Shares of 6(2)/(3)p each 2,888 2,888
The Group's Articles were amended in 2010 since when there has been no
authorised share capital. Shareholders have no restrictions on their holdings
except for certain investment managers who were awarded shares in the Group
soon after joining as part of the consideration for their client
relationships. These holdings cannot be sold for a period of four to six years
from commencement date.
The following movements in share capital occurred during the year:
Number of Share Share Total
shares capital premium £'000
£'000 £'000
At 1 April 2021 43,327,328 2,888 3,763 6,651
At 31 March 2022 43,327,328 2,888 3,763 6,651
The Group's capital is defined for accounting purposes as total equity. As at
31 March 2022, this totalled £22,299,000 (2021: £22,322,000).
The Group's objectives when managing capital are to:
· safeguard the Group's ability to continue as a going concern so that it
can continue to provide returns for shareholders and benefits for other
stakeholders;
· maintain a strong capital base to support the development of the
business;
· optimise the distribution of capital across the Group's subsidiaries,
reflecting the requirements of each company;
· strive to make capital freely transferable across the Group where
possible; and
· comply with regulatory requirements at all times.
Walker Crips Group plc is classified for capital purposes as an investment
management group and performs an Internal Capital Adequacy Assessment Process
("ICAAP"), which is presented to the FCA on request. Regulatory capital
resources for ICAAP purposes are calculated in accordance with published
rules. These require certain adjustments to and certain deductions from
accounting capital, the latter largely in respect of intangible assets. The
ICAAP compares regulatory capital resources against regulatory capital
requirements derived using the FCA's Pillar 1 and Pillar 2 methodology.
The Group has adopted the standardised approach to calculating its Pillar 1
credit risk component and the basic indicator approach to calculating its
operational risk component. Capital management policy and practices are
applied at both Group and entity level.
In addition to a variety of stress tests performed as part of the ICAAP
process, and daily reporting in respect of treasury activity, capital levels
are monitored and forecast to ensure that dividends and investment
requirements are appropriately managed and appropriate buffers are kept
against adverse business conditions.
Regulatory capital
No breaches were reported to the FCA during the financial years ended 31 March
2022 and 2021.
Treasury shares
The Group holds 750,000 of its own shares, purchased for total cash
consideration of £312,000. In line with the principles of IAS 32 these
treasury shares have been deducted from equity (note 30). No gain or loss has
been recognised in the income statement in relation to these shares.
30. Reserves
Apart from share capital and share premium, the Group holds reserves at 31
March 2022 under the following categories:
Own shares held (£312,000) (2021: (£312,000)) · the negative balance of the Group's own shares, which have been bought
back and held in treasury.
Retained earnings £11,050,000 (2021: £11,260,000) · the net cumulative earnings of the Group, which have not been
paid out as dividends, are retained to be reinvested in our core, or
developing, companies.
Other reserves £4,723,000 (2021: £4,723,000) · the cumulative premium on the issue of shares as deferred consideration
for corporate acquisitions £4,612,000 (2021: £4,612,000) and
non-distributable reserve into which amounts are transferred following the
redemption or purchase of the Group's own shares £111,000 (2021: £111,000).
31. Cash generated by operations
2022 2021
£'000 £'000
Operating profit for the year 326 22
Adjustments for:
Amortisation of intangibles 862 837
Changes in the fair value of deferred consideration - 31
Net change in fair value of financial instruments at fair value through profit (347) (362)
or loss*
Share of associate after tax result (57) (66)
Depreciation of property, plant and equipment 303 375
Depreciation of right-of-use assets** 873 961
Decrease in debtors*** (915) (24,572)
Increase in creditors*** 3,172 24,580
Net cash inflow 4,217 1,806
* Revaluation (profit)/loss on proprietary positions.
** Lease liability payment associated with RoU assets were
£1,052,000 (2021: £1,133,000).
*** Cash inflow from working capital movement of £2,257,000 (2021:
£8,000). The movement in working capital includes provisions made in respect
of accrued exceptional costs of £1,105,000 (2021: £301,000). Actual cash
outflow relating to exceptional costs in the year amounted to £435,000 (2021:
£118,000).
32. Financial commitments
Capital commitments
At the end of the year, there were capital commitments of £nil (2021: £nil)
contracted but not provided for and £nil (2021: £nil) capital commitments
authorised but not contracted for.
33. Related parties
Directors and their close family members have dealt on standard commercial
terms with the Group. The commission and fees earned by the Group included in
revenue through such dealings is as follows:
2022 2021
£'000 £'000
Commission and fees received from Directors and their close family members 15 15
Other related parties include Charles Russell Speechlys, of which Martin
Wright, Chairman, is a Partner. Charles Russell Speechlys provides certain
legal services to the Group on normal commercial terms and the amount paid and
expensed during the year (including the fees paid to the firm for Mr. Wright's
services as Director) was £268,000 (2021: £154,000).
Fees of £30,000 (2021: £0) were received by EnOC Technologies Ltd from
CyberQuote Pte Ltd (a company, where Hua Min Lim is a shareholder) for the
service provided on normal commercial terms.
Commission of £4,245 (2021: £7,587) was earned by the Group from Phillip
Securities (HK) Limited (a Phillip Brokerage Pte Limited company, where Hua
Min Lim is a shareholder) having dealt on standard commercial terms.
Additionally, some custody services are provided by Phillip Securities Pte Ltd
(in Singapore, where Hua Min Lim is a Director), again all on standard
commercial terms, both these items being included in revenue. Transactions
between the Group and its subsidiaries, which are related parties, have been
eliminated on consolidation and are accordingly not disclosed. Remuneration of
the Directors who are the key Management personnel of the Group are disclosed
in the table below.
2022 2021
£'000 £'000
Key management personnel compensation
Short-term employee benefits 458 432
Post-employment benefits 33 31
Share-based payment - -
491 463
34. Contingent liability
From time to time, the Group receives complaints or undertakes past business
reviews, the outcomes of which remain uncertain and/or cannot be reliably
quantified based upon information available and circumstances falling outside
the Group's control. Accordingly, contingent liabilities arise, the ultimate
impact of which may also depend upon availability of recoveries under the
Group's indemnity insurance and other contractual arrangements. Other than the
complaints deemed to be probable, the Directors presently consider a negative
outcome to be remote or a reliable estimate of the amount of a possible
obligation cannot be made. As a result, no disclosure has been made in these
financial statements. As explained in note 4, certain provisions remain
subject to estimation uncertainty which may result in material variations in
such estimates as matters are finalised.
35. Subsequent events
There are no material events arising after 31 March 2022, which have an impact
on these financial statements.
36. Deferred cash consideration
2022 2021
£'000 £'000
Due within one year
Amounts due to personnel under recruitment contracts/acquisition agreements 89 -
Due after one year
Amounts due to personnel under recruitment contracts/acquisition agreements 29 33
These amounts are based on fixed contractual terms and the fair value of the
liability approximates carrying value, due to the consistency of the
prevailing market rate of interest when compared to the inception of
liability.
The presentation of this note was amended in this financial year to show both
current and non-current liabilities for deferred cash consideration on the
face of the statement of financial position. In previous years, deferred cash
consideration was only separately disclosed on the statement of financial
position under non-current liabilities, with current elements of deferred cash
consideration being disclosed under other creditors in note 26.
37. Share-based payments
The Group recognised total expenses in the year of £19,431 (2021: £nil)
related to equity-settled share-based payment transactions.
Free share-based payment
The Group established a single scheme in the form of conditional share awards
with a three year vesting period. No performance conditions were attached to
the scheme except that the relevant employee is employed at the vesting date.
This was settled by the purchase of shares in the open market in benefit of
the employee and no newly issued or treasury shares can be used to satisfy the
award.
One award was made in the financial year.
Share Incentive Plan ("SIP")
Employees who have been employed for longer than three months and are subject
to PAYE are invited to join the SIP. Employees may use funds from their gross
monthly salary (being not less than £10 and not greater than £150) to
purchase ordinary shares in the Group ("Partnership Shares"). For every
Partnership Share purchased, the employee receives matching shares at a rate
of 50%. Employees are offered an annual opportunity to top up contributions to
the maximum annual limit of £1,800 (or 10% of salary, if lower). All shares
to date awarded under this scheme have been purchased in the market monthly.
It is the intention of the Directors to continue this policy in the year to 31
March 2023.
Company balance sheet
as at 31 March 2022
Note 2022 2021
£'000 £'000
Non-current assets
Other intangible assets 41 - 3,215
Property, plant and equipment 40 - 856
Investments measured at cost less impairment 42 21,757 17,775
21,757 21,846
Current assets
Trade and other receivables 43 758 759
Deferred tax asset 44 - 74
Cash and cash equivalents 335 359
1,093 1,192
Total assets 22,850 23,038
Current liabilities
Trade and other payables 45 (3,407) (3,162)
(3,407) (3,162)
Net current assets/(liabilities) (2,314) (1,970)
Long-term liabilities
Landlord contribution to leasehold improvements 48 - (335)
- (335)
Net assets 19,443 19,541
Equity
Share capital 47 2,888 2,888
Share premium account 47 3,763 3,763
Own shares 47 (312) (312)
Retained earnings 47 8,381 8,479
Other reserves 47 4,723 4,723
Equity attributable to equity holders of the Company 19,443 19,541
As permitted by section 408 of the Companies Act 2006 the Parent Company has
elected not to present its own profit and loss account for the year. Walker
Crips Group plc reported an after-tax profit for the financial year of
£285,000 (2021: after-tax loss of £523,000).
The financial statements of Walker Crips Group plc (Company registration no:
01432059) were approved by the Board of Directors and authorised for issue on
29 July 2022.
Signed on behalf of the Board of Directors:
Sanath Dandeniya FCCA
Director
Company statement of changes in equity
year ended 31 March 2022
Called up Share Own Other Retained Total
share premium shares £'000 earnings equity
capital account held £'000 £'000
£'000 £'000 £'000
Equity as at 31 March 2020 2,888 3,763 (312) 4,723 9,066 20,128
Total comprehensive loss for the period - - - - (523) (523)
Contributions by and distributions to owners
Dividends paid - - - - (64) (64)
Total contributions by and distributions to owners - - - - (64) (64)
Equity as at 31 March 2021 2,888 3,763 (312) 4,723 8,479 19,541
Total comprehensive income for the period - - - - 285 285
Contributions by and distributions to owners
Dividends paid - - - - (383) (383)
Total contributions by and distributions to owners - - - - (383) (383)
Equity as at 31 March 2022 2,888 3,763 (312) 4,723 8,381 19,443
The following Accounting Policies and Notes form part of these financial
statements.
Notes to the Company accounts
year ended 31 March 2022
37. Significant accounting policies
The separate financial statements of Walker Crips Group plc, the Parent
Company, are presented as required by the Companies Act 2006.
The financial statements have been prepared under the historical cost
convention except for the modification to a fair value basis for certain
financial instruments as specified in the accounting policies below, and in
accordance with Financial Reporting Standard (FRS 102), the Financial
Reporting Standard applicable in the UK and the Republic of Ireland, and the
Companies Act 2006.
The preparation of financial statements in compliance with FRS 102 requires
the use of certain critical accounting estimates. It also requires Management
to exercise judgement in applying the Parent Company's accounting policies
(see note 38).
The financial statements are presented in the currency of the primary
activities of the Parent Company (its functional currency). For the purpose of
the financial statements, the results and financial position are presented in
GBP Sterling (£). The principal accounting policies have been summarised
below. They have all been applied consistently throughout the year and the
preceding year.
The Parent Company has chosen to adopt the disclosure exemption in relation to
the preparation of a cash flow statement under FRS 102.
Going concern
After conducting enquiries, the Directors believe that the Parent Company has
adequate resources to continue in existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the
financial statements. The Parent Company's business activities, together with
the factors likely to affect its future development, performance and position,
has been rigorously assessed.
Property, plant and equipment
Fixtures and equipment are stated at historical cost less accumulated
depreciation and provision for any impairment. Depreciation is charged so as
to write-off the cost or valuation of assets over their estimated useful lives
using the straight-line method on the following bases:
Computer
hardware
33(1)/(3)% per annum on cost
Computer
software
between 20% and 33(1)/(3)% per annum on cost
Leasehold improvements over the
term of the lease
Furniture and equipment
33(1)/(3)% per annum on cost
The gain or loss on the disposal or retirement of an asset is determined as
the difference between the sales proceeds and the carrying amount of the asset
and is recognised in income. The residual values and estimated useful life of
items within property, plant and equipment are reviewed at least at each
financial year end. Any shortfalls in carrying value are impaired immediately
through profit or loss.
Intangible assets
Client lists
Client lists are recognised when it is probable that future economic benefits
will flow to the Parent Company and the cost of the asset can be measured
reliably whilst the risk and rewards have also transferred into the Parent
Company's ownership.
Intangible assets classified as client lists are recognised when acquired as
part of a business combination or when separate payments are made to acquire
clients' assets by adding teams of investment managers.
The cost of acquired client lists and businesses generating revenue from
clients and investment managers are capitalised. These costs are amortised on
a straight-line basis over their expected useful lives of three to twenty
years. The amortisation period and amortisation method for intangible assets
are reviewed at least each financial year end. All intangible assets have a
finite useful life.
Impairment of non-financial assets
At each reporting date, the Parent Company reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows (cash-generating units). If there is an
indication of possible impairment, the recoverable amount of any affected
asset (or group of related assets) is estimated and compared with its carrying
amount. If the estimated recoverable amount is lower, the carrying amount is
reduced to its estimated recoverable amount, and an impairment loss is
recognised immediately in profit or loss.
Taxation
The tax expense represents the sum of the tax currently payable and any
deferred tax.
Current tax, including UK corporation tax and foreign tax, is provided at
amounts expected to be paid or recovered using the tax rates and laws that
have been enacted or substantively enacted by the balance sheet date. Current
tax charges arising on the realisation of revaluation gains recognised in the
statement of comprehensive income are also recorded in this statement.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future or a right
to pay less tax in the future have occurred at the balance sheet date.
A deferred tax asset is regarded as recoverable and therefore recognised only
when, on the basis of all available evidence, it can be regarded as probable
that there will be suitable taxable profits from which the future reversal of
the underlying timing differences can be deducted. Deferred tax assets and
liabilities are not discounted.
Own shares held
Own shares consist of treasury shares which are recognised at cost as a
deduction from equity shareholders' funds. Subsequent consideration received
for the sale of treasury shares is also recognised in equity with any
difference being taken to retained earnings. No gain or loss is recognised on
sale of treasury shares.
Financial instruments
Financial assets and financial liabilities are recognised in the balance sheet
when the Parent Company becomes a party to the contractual provisions of the
instrument. Section 11 of FRS 102 has been applied in classifying financial
instruments depending on the nature of the instrument held.
Revenue
Income consists of profits distribution from Barker Poland Asset management
LLP, interest received or accrued over time and dividend income recorded when
received.
Investments in subsidiaries
Investments in subsidiaries are stated at cost less, where appropriate,
provisions for impairment.
Debtors
Other debtors are classified as basic financial instruments and measured at
initial recognition at transaction price. Debtors are subsequently measured at
amortised cost using the effective interest rate method. A provision is
established when there is objective evidence that the Group will not be able
to collect all amounts due.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits, together
with other short-term highly liquid investments, which are readily convertible
to a known amount of cash and are subject to an insignificant risk of changes
in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument
is any contract that evidences a residual interest in the assets of the Parent
Company after deducting all of its liabilities. Equity instruments issued by
the Parent Company are recorded at the proceeds received, net of direct issue
costs.
Leases
Rentals under operating leases are charged on a straight-line basis over the
lease term even if the payments are not made on such a basis. Benefits
received as an incentive to enter into an operating lease are also spread on a
straight-line basis over the lease term.
38. Key sources of estimation uncertainty and judgements
The preparation of financial statements in conformity with generally accepted
accounting practice requires Management to make estimates and judgements that
affect the reported amounts of assets and liabilities as well as the
disclosure of contingent assets and liabilities at the balance sheet date and
the reported amounts of revenues and expenses during the reporting period.
Intangible assets
Acquired client lists are capitalised based on current fair values. By
assessing the historic rates of client retention, the ages and succession
plans of the investment managers who manage the clients and the contractual
incentives of the investment managers, the Directors consider a life of up to
20 years to be both appropriate and in line with our peers. There were no
acquisitions made in the period to 31 March 2022.
On 1 April 2021, the Company transferred the net book value of client list
assets, as well as corresponding liabilities to a fully owned subsidiary
Walker Crips Investment Management Limited to reflect the correct substance of
historical transactions that created them on the balance sheet of the Company
(see note 41). The adjustment had no impact on the financial performance or
position of the Group.
39. Profit for the year
Profit for the financial year of £285,000 (2021: loss of £523,000) is after
an amount of £51,000 (2021: £57,000) related to the auditor's remuneration
for audit services to the Parent Company.
Particulars of employee costs (including Directors) are as shown below.
Employee costs during the year amounted to:
2022 2021
£'000 £'000
Employee costs during the year amounted to:
Wages and salaries 175 147
Social security costs 25 12
Other costs - 3
200 162
In the current year, employee costs are those of the Non-Executive Directors,
a proportion of Executive Directors and the cost of the Group's profit share
scheme. The remaining Executive Directors' employee costs are borne by Walker
Crips Investment Management Limited.
The monthly average number of staff employed during the year was:
2022 2021
Number Number
Executive Directors 2 2
Non-Executive Directors 4 4
6 6
40. Property, plant and equipment
Leasehold Computer Total
improvements, software £'000
furniture and £'000
equipment
£'000
Cost
At 1 April 2021 1,674 858 2,532
Asset transfers on 1 April 2021* (1,674) - (1,674)
At 31 March 2022 - 858 858
Depreciation
At 1 April 2021 818 858 1,676
Asset transfers on 1 April 2021* (818) - (818)
Charge for the year - - -
At 31 March 2022 - 858 858
Net book value
At 31 March 2022 - - -
At 31 March 2021 856 - 856
* The cost and accumulated depreciation of leasehold additions, property
dilapidation assets and liabilities were transferred on 1 April 2021 to
subsidiary Walker Crips Investment Management Limited to reflect the real
obligation of the subsidiary to pay for the future works. The adjustment had
no impact on the financial performance or position of the Group, in the
current year or prior periods, due to the fact that Walker Crips Investment
Management Limited is a wholly owned subsidiary.
41. Other intangible assets
Client lists Total
£'000 £'000
Cost
At 1 April 2021 5,076 5,076
Asset transfers on 1 April 2021* (5,076) (5,076)
At 31 March 2022 - -
Amortisation
At 1 April 2021 1,861 1.861
Asset transfers on 1 April 2021* (1,861) (1,861)
Charge for the year - -
At 31 March 2022 - -
Net book value
At 31 March 2022 - -
At 31 March 2021 3,215 3,215
* On 1 April 2021, the Company transferred the net book value of client
list assets, as well as corresponding liabilities to a fully owned subsidiary
Walker Crips Investment Management Limited to reflect the correct substance of
historical transactions that created them on the balance sheet of the Company.
The adjustment had no impact on the financial performance or position of the
Group, in the current year or prior periods, due to the fact that Walker Crips
Investment Management Limited is a wholly owned subsidiary.
42. Investments measured at cost less impairment
2022 2021
£'000 £'000
Subsidiary undertakings 21,757 17,775
During the year, the Company made an investment of £250,000 in Walker Crips
Wealth Management Limited, an indirect 100% owned subsidiary of the Group. The
Company also recognised at £41,352 the investment value at cost of
Investorlink Limited, an historically owned dormant subsidiary, which was not
previously recognised in monetary terms in investments.
In addition, on 1 April 2021, the Company transferred the carrying value of
intangible assets, property related assets and related liabilities to its
wholly owned subsidiary, Walker Crips Investment Management Limited ("WCIM").
The transaction was funded in WCIM by raising an amount of £3,690,000 by way
of a capital contribution from the Company. The Company recognised the capital
contribution as an increase in its investment in WCIM by £3,690,000.
A complete list of subsidiary undertakings can be found in note 53.
43. Trade and other receivables
2022 2021
£'000 £'000
Amounts owed by Group undertakings 758 751
Prepayments and accrued income - 8
758 759
A presentational change was made in this note to exclude the deferred tax
asset from this grouping and to present it in its own line on the face of the
statement of financial position. The deferred tax asset is presented
separately in note 44.
44. Deferred taxation
2022 2021
£'000 £'000
At 1 April 74 179
Use of Group Relief (14) (40)
(Charge)/credit to the income statement (60) (65)
At 31 March - 74
Deferred tax has been provided at 25% (2021: 19%).
In the Spring Budget 2021, the Government announced that from 1 April 2023,
the UK corporation tax rate will increase from 19% to 25%. This will have a
consequential effect on the Company's future tax charge.
45. Trade and other payables
2022 2021
£'000 £'000
Accruals and deferred income 61 142
Amounts due to subsidiary undertakings 3,270 2,730
Other creditors 76 290
3,407 3,162
46. Risk management policies
Procedures and controls are in place to identify, assess and ultimately
control the financial risks faced by the Parent Company arising from its use
of financial instruments. Steps are taken to mitigate identified risks with
established and effective procedures and controls, efficient systems and the
adequate training of staff.
The Parent Company's risk appetite, along with the procedures and controls
mentioned above, are laid out in the Group's Internal Capital Adequacy
Assessment Process document prepared in accordance with the requirements of
the Financial Conduct Authority ("FCA").
The overall risk appetite for the Parent Company and for the Group as a whole
is considered by Management to be low, despite operating in a market-place
where financial risk is inherent in the core businesses of investment
management and financial services.
The Group considers its financial risks arising from its use of financial
instruments to fall into three main categories:
(i) credit risk;
(ii) liquidity risk; and
(iii) market risk.
Further information on the disclosures and policies carried out by the Parent
Company and the Group are made in note 25 of the consolidated financial
statements.
(i) Credit risk
Maximum exposure to credit risk:
2022 2021
£'000 £'000
Cash 335 359
Other debtors 758 751*
As at 31 March 1,093 1,110
The credit quality of banks holding the Group's cash at 31 March 2022 is
analysed below with reference to credit ratings awarded by Fitch.
2022 2021
£'000 £'000
A - -
A+ 335 359
AA- - -
As at 31 March 335 359
Analysis of other debtors due from financial institutions:
2022 2021
£'000 £'000
Neither past due, nor impaired 758 751*
Amounts past due, but not impaired < 30 days - -
> 30 days - -
> 3 months - -
- -
* These disclosures were omitted in the prior year. The correction of
these items in prior year do not affect profit or loss or the statement of
financial position in the prior or current year. These amounts are for
disclosure purposes only.
(ii) Liquidity risk
The tables below analyse the Parent Company's future undiscounted cash
outflows based on the remaining period to the contractual maturity date:
2022 2021
£'000 £'000
Creditors due within one year 3,407 3,162
Creditors due after more than one year - -
As at 31 March 3,407 3,162
2022 2021
£'000 £'000
Within one year 3,407 3,162
Within two to five years - -
After more than five years - -
As at 31 March 3,407 3,162
(iii) Market risk
Market risk is the risk that changes in market prices such as foreign exchange
rates or equity prices will affect the Group's income.
These relate to price risk breached on available-for-sale and trading
investments and closely monitored using limits to prevent significant losses.
Fair value of financial instruments
No financial instruments at fair value were held by the Parent Company in the
current or prior financial year.
47. Called-up share capital
2022 2021
£'000 £'000
Called-up, allotted and fully paid
43,327,328 (2021: 43,327,328) Ordinary Shares of 6(2)/(3)p each 2,888 2,888
No new shares were issued in the year to 31 March 2022 or the prior year.
The Parent Company holds 750,000 of its own shares, purchased for a total cash
consideration of £312,000. In line with the principles of FRS 102, section
11, these treasury shares have been deducted from equity. No gain or loss has
been recognised in the profit and loss account in relation to these shares.
The following movements in share capital occurred during the year:
Number Share Share Total
of shares capital premium £'000
£'000 £'000
At 1 April 2021 43,327,328 2,888 3,763 6,651
At 31 March 2022 43,327,328 2,888 3,763 6,651
Walker Crips is classified for capital purposes as an Investment Management
group and performs an Internal Capital Adequacy Assessment Process ("ICAAP"),
which is presented to the FCA on request. Regulatory capital resources for
ICAAP purposes are calculated in accordance with published rules. These
require certain adjustments to and certain deductions from accounting capital,
the latter largely in respect of intangible assets. The ICAAP compares
regulatory capital resources against regulatory capital requirements derived
using the FCA's Pillar 1 and Pillar 2 methodology. The Group has adopted the
standardised approach to calculating its Pillar 1 credit risk component and
the basic indicator approach to calculating its operational risk component.
Capital management policy and practices are applied at both Group and entity
level.
In addition to a variety of stress tests performed as part of the ICAAP
process, and daily reporting in respect of treasury activity, capital levels
are monitored and forecast to ensure that dividends and investment
requirements are appropriately managed and appropriate buffers are kept
against adverse business conditions.
Apart from share capital and share premium, the Parent Company holds reserves
at 31 March 2022 under the following categories:
Own shares held (£312,000) (2021: (£312,000)) · the negative balance of the Parent Company's own shares that have been
bought back and held in treasury.
Retained earnings £8,381,000 (2021: £8,479,000) · the net cumulative earnings of the Parent Company, which have not paid
out as dividends, retained to be reinvested in our core or new business.
Other reserves £4,723,000 (2021: £4,723,000) · the cumulative premium on the issue of shares as deferred consideration
for corporate acquisitions £4,612,000 (2021: £4,612,000) and
non-distributable reserve into which amounts are transferred following the
redemption or purchase of the Group's own shares £111,000 (2021: £111,000).
48. Creditors: amounts falling due after more than one year
2022 2021
£'000 £'000
Landlord contribution to leasehold improvements - 335
- 335
The landlord contribution towards leasehold improvements was transferred on 1
April 2021 to subsidiary Walker Crips Investment Management Limited to reflect
the real obligation of the subsidiary to pay for the future works. The
adjustment had no impact on the financial performance or position of the
Group, in the current year or prior periods, due to the fact that Walker Crips
Investment Management Limited is a wholly owned subsidiary.
49. Financial commitments
Capital commitments
At the end of the year, there were capital commitments of £nil (2021: £nil)
contracted but not provided for and £nil (2021: £nil) capital commitments
authorised but not contracted for.
Lease commitments
The Company did not have any annual commitments under non-cancellable
operating leases (2021: £nil).
50. Related party transactions
Key Management are those persons having authority and responsibility for
planning, controlling and directing the activities of the Parent Company and
Group. In the opinion of the Board, the Parent Company and Group's key
Management are the Directors of Walker Crips Group plc.
Total compensation to key management personnel is £491,000 (2021: £463,000).
51. Contingent liability
From time to time, the Company receives complaints or undertakes past business
reviews, the outcomes of which remain uncertain and/or cannot be reliably
quantified based upon information available and circumstances falling outside
the Company's control. Accordingly contingent liabilities arise, the ultimate
impact of which may also depend upon availability of recoveries under the
Company's indemnity insurance and other contractual arrangements. Other than
the complaints deemed to be probable, the Directors presently consider a
negative outcome to be remote or a reliable estimate of the amount of a
possible obligation cannot be made. As a result, no disclosure has been made
in these financial statements.
52. Subsequent events
There are no material events arising after 31 March 2022, which have an impact
on these financial statements.
53. Subsidiaries and associates
Principal place of business Principal activity Class and percentage of shares held
Group
Trading subsidiaries
Walker Crips Investment Management Limited(1) United Kingdom Investment management Ordinary Shares 100%
London York Fund Managers Limited(2) United Kingdom Management services Ordinary Shares 100%
Walker Crips Wealth Management Limited(2) United Kingdom Financial services advice Ordinary Shares 100%
Ebor Trustees Limited(2) United Kingdom Pensions management Ordinary Shares 100%
EnOC Technologies Limited(1) United Kingdom Financial regulation and other software Ordinary Shares 100%
Barker Poland Asset Management LLP(1) United Kingdom Investment management Membership 100%
Non-trading subsidiaries
Walker Crips Financial Services Limited(1) United Kingdom Financial services Ordinary Shares 100%
G & E Investment Services Limited(2) United Kingdom Holding company Ordinary Shares 100%
Ebor Pensions Management Limited(2) United Kingdom Dormant company Ordinary Shares 100%
Investorlink Limited(1) United Kingdom Agency stockbroking Ordinary Shares 100%
Walker Cambria Limited(1) United Kingdom Dormant company Ordinary Shares 100%
Walker Crips Trustees Limited(1) United Kingdom Dormant company Ordinary Shares 100%
W.B. Nominees Limited(1) United Kingdom Nominee company Ordinary Shares 100%
WCWB (PEP) Nominees Limited(1) United Kingdom Nominee company Ordinary Shares 100%
WCWB (ISA) Nominees Limited(1) United Kingdom Nominee company Ordinary Shares 100%
WCWB Nominees Limited(1) United Kingdom Nominee company Ordinary Shares 100%
Walker Crips Consultants Limited(1) United Kingdom Dormant company Ordinary Shares 100%
Walker Crips Ventures Limited(1) United Kingdom Financial services advice Ordinary Shares 100%
The registered office for companies and associated undertakings is:
1 Old Change House, 128 Queen Victoria Street, London, England, EC4V 4BJ.
2 Apollo House, Eboracum Way, York, England, YO31 7RE.
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