REG - Walker Crips Group - Results for the six months ended 30 September 2023
28/12/2023 12:15
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RNS Number : 0939Y Walker Crips Group plc 28 December 2023
28 December 2023
Walker Crips Group plc
("Walker Crips" or "the Company", and together with its subsidiaries "the
Group")
Results for the six months ended 30 September 2023
Key Figures
● Total revenues decreased 3.8% to £15.5 million (2022: £16.1
million).
● Gross profits (revenues net of commissions and fees paid out to
self-employed investment managers) increased by 2.2% to £12.6 million (2022:
12.3 million).
● Operating profit increased by 49.1% to £173,000 (2022: £116,000 -
as restated) and profit before tax increased by 170.7% to £268,000 (2022:
£99,000 - as restated), helped by the higher interest rate environment.
● Operating profit pre-exceptional items ( 3 ) increased by 6.8% to
£173,000 (2022: £162,000) and profit before tax pre-exceptional items ( 3 )
increased by 84.8% to £268,000 (2022: £145,000).
● Adjusted EBITDA( 1 ) decreased by 6.3% to £1,059,000 (2022:
£1,130,000).
● Underlying cash generated from operations( 2 ) broadly flat at
£1,606,000 (2022: £1,610,000).
● Net cash position of £14.1 million (2022: £10.6 million).
● Assets Under Management ("AUM") decreased to £2.5 billion (31 March
2023: £3.1 billion) and Total Assets Under Management and Administration
("AUMA") decreased by 11.6% to £4.4 billion (31 March 2023: £5.0 billion),
both movements reflecting market conditions and the impact of departing
self-employed associates as reported in the last annual accounts.
● Interim dividend maintained at 0.25 pence per share (2022: 0.25
pence per share).
1 Adjusted EBITDA represents earnings before exceptional items 3 ,
interest, taxation, depreciation and amortisation on an IFRS basis. The
Directors present this result as it is a metric widely used by stakeholders
when considering an entity's financial performance. A full reconciliation is
provided in the Chairman's statement.
2 Underlying cash generated from operations shows the cash generated
from operations adjusted for lease liability payments under IFRS 16,
non-cyclical working capital movements and cash exceptional items. The
Directors consider that this metric helps readers understand the cash
generating performance of the Group. A full reconciliation to reported results
is presented in the Chairman's statement.
3 Exceptional items are disclosed in note 9 to the accounts and a full
reconciliation to reported results is presented in the Chairman's statement.
Martin Wright, Chairman of Walker Crips, commented:
"Profit before tax of £268,000 is improved on the £99,000 (restated) for the
comparative period. Although cautious about the short-term outlook, we are
confident in our business and product development initiatives."
For further information, please contact:
Walker Crips Group plc Tel: +44 (0)20 3100 8000
Craig Harrison, Media Relations
Four Agency Tel: +44 (0)20 3920 0555
Jonathan Atkins
walkercrips@four.agency
Singer Capital Markets Tel: +44 (0)20 7496 3000
Charles Leigh-Pemberton / Asha Chotai
Further information on Walker Crips Group is available on the Company's website:
www.walkercrips.co.uk (http://www.walkercrips.co.uk)
Chairman's statement
Introduction
The half year to September 2023 has been a period of consolidation with
continued focus on compliance with the new Consumer Duty rules and associated
training, ongoing actions to address previously reported shortcomings in our
financial crime procedures and analysing the miscalculation of stamp duty
reserve tax. We continue to invest in our people, new financial planning
hires, product innovation, and business development teams. Management will
prioritise new business generation as we face into market headwinds and
address regulatory imperatives. The recent falls in headline inflation are
an encouraging step.
The environment for businesses such as ours remains challenging. Global and
UK economic uncertainty continues to impact financial markets and our
results. Higher inflation and rising interest rates have led to negative
investment sentiment, thereby adversely impacting our revenues. While the
full economic and social impact of rate rises on borrowings, including
mortgages, is yet to be felt, the immediate impact has been to divert
disposable income away from investing, as investors address short- and
medium-term liquidity needs.
Recent geopolitical events around the world have added to the feeling of
global insecurity and instability. We have already seen the macro-economic
impact of the invasion of Ukraine by Russia. The political situation is
uncertain, with elections looming here and in the United States. Quite apart
from the appalling human cost, the war in Ukraine and more recently the
violence in the Middle East create nervousness and insecurity in the markets,
subduing investors' appetite to trade.
Against this background, the Group reports first-half operating profit and
profit before tax of £173,000 and £268,000 respectively, which are improved
on those for the comparative period of £116,000 (restated) and £99,000
(restated). Underlying operating cash generation was £1,606,000, compared
to £1,610,000 for the prior period. The Group is cautious about the
short-term outlook due to the referenced continued market uncertainty, noting
that income geared to the higher interest rate environment has supported the
Group's financial performance.
Group performance
Market confidence coupled with the impact of departing self-employed
investment management associates (see investment management divisional
performance below) have negatively impacted the Group's revenue generation in
the period. Operating costs have also increased by 2.1% in comparison to the
prior period, with the impact of significantly higher inflationary pressures
including salary awards limited by cost control efforts and lower FCA levies.
Increased income on corporate cash and from managing clients' trading cash
balances, both driven by the higher interest rate environment, have largely
mitigated the negative effect on results of reduced trading volumes and
reduced management fees. Further explanation of these results is set out
below in the divisional analysis.
In our last annual report, I referenced the imperative of the Group to invest
in our people for both the short and medium term. With this in mind, and
responding appropriately to the cost-of-living crisis impacting our workforce,
we awarded a substantial increase in the fixed pay of our teams at the start
of the financial year to negate the inflationary impact on their incomes. We
have also recruited at revenue generator, business development and support
team levels.
The Executives have also continued to address the shortcomings in our
compliance and operating controls, as I also noted in the reports, which led
to high exceptional costs reported in recent years. We invested
substantially in people and in training and we also engage external specialist
consultants and advisers as required. This is a process of continual
improvement which requires regular investment, and not a solitary event. It
is an investment in the Firm's future.
In our results to March 2023, the Group recognised a net liability of
£878,000 in relation to an underpayment of Stamp Duty Reserve Tax and
associated costs. That resulted in a prior year adjustment and accordingly,
the comparative period to 30 September 2022 has been restated for
consistency. We currently await the appointment of an HMRC caseworker to
whom to present our findings and with whom to agree a settlement. Until
settled, there remains some uncertainty, but based upon our analysis and
professional advice received, we presently expect the total liability and
related costs to be within the total provision already made.
Reconciliation of operating profit to operating profit before exceptional
items
Unaudited Unaudited Audited
September
September
March
2023
2022 - as restated
2023
£'000 £'000 £'000
Operating profit 173 116 625
Exceptional items (note 9) - 46 554
Operating profit before exceptional items 173 162 1,179
Reconciliation of profit before tax to profit before tax and exceptional items
Unaudited Unaudited Audited
September
September
March
2023
2022 - as restated
2023
£'000 £'000 £'000
Profit before tax 268 99 632
Exceptional items (note 9) - 46 554
Profit before tax and exceptional items 268 145 1,186
Adjusted EBITDA
Unaudited Unaudited Audited
September
September
March
2023
2022 - as restated
2023
£'000 £'000 £'000
Operating profit 173 116 625
Exceptional items (note 9) - 46 554
Amortisation / depreciation 564 560 1,301
Right-of-use-assets depreciation charge 322 408 771
Adjusted EBITDA 1,059 1,130 3,251
Underlying cash generated from operations
Unaudited Unaudited Audited
September
September
March
2023
2022
2023
£'000 £'000 £'000
Net cash inflow from operations 563 25 3,539
Working capital 372 1,559 156
Lease liability payments under IFRS 16 (166) (278) (332)
Cash outflow on operating exceptional items 837 304 -
Underlying cash generated in the period 1,606 1,610 3,363
Investment Management
The investment management division achieved an operating profit of £911,000
compared to £570,000 (as restated) in the prior period. At a more granular
level, commission income has declined 13.6% from £2,956,000 to £2,555,000
and fee income declined 19.7% from £11,178,000 to £8,979,000. As well as
the impact of leavers (see below), market conditions have contributed to these
results, the latter also affecting our structured investment business where
there has been reduced customer appetite for locking savings away in
medium-term products. However, income from managing customer trading cash,
which increased from £879,000 to £2,668,000 due to higher interest rates and
customers' decisions to maintain higher levels of cash, has mitigated the
impact. Barker Poland Asset Management ("BPAM") has also performed well,
with revenues and operating profits up by 3.4% and 7.7% respectively on the
comparative period. BPAM is a discretionary investment manager and financial
planner which operates under restricted status and deploys its own investment
models. We also anticipate a returning appetite for our structured
investment products, supplemented by the near-term launch of our new
structured deposit product range which provides further attractive options for
our customers and IFAs. We also expect our recent investments in business
development to help drive new customer and revenue growth.
As explained in our 31 March 2023 annual report and accounts, in our tighter
regulatory operating environment, we have now parted company with several
self-employed investment management associates. AUMA declined by 11.6% from
March 2023, of which 10.8% was due to customers transferring out with departed
associates. The effect has therefore been material and continues to feed
into our results, but is nevertheless consistent with our regulatory risk
appetite and business planning. Our focus is on replacing reduced revenues
through our product and business development initiatives.
The FCA recently wrote to the CEOs of Investment Platforms and SIPP operators
regarding the appropriateness of policies on retention of interest on their
clients' trading cash balances and instances of 'double dipping' where account
fees are also applied. In their recent letter to CEOs of Wealth Management
and Stockbroking firms the FCA refers to many firms not passing on fair
interest on client money balances, despite interest rates having risen, and in
some instances also charging a fee for holding these funds, which can further
erode value and returns. The FCA expects firms to change these and other
identified practices, if they exist, and to assess regularly the overall cost
and value for money of products and services, making changes when poor value
is identified. As noted above, we retain a proportion of interest on client
money funds and this revenue stream contributes to our financial results. We
regularly review and update our interest retention policy, referencing to
competitor and market practices as part of our considerations. We will
continue to review our policies and practices as required by the Consumer Duty
requirements and informed by the FCA's letters, amending them as appropriate.
We note competitors have already referenced changes in their practices in
this area and we plan for downward movement in this revenue stream.
Financial Planning
The financial planning division has increased revenues by 12.4% to £1,067,000
from £949,000 in the prior period. This reflects the division's focus in
recent years on both organic and inorganic growth, including growing the
number of financial planners from three, three years ago, to twelve.
However, the division's operating loss continues to increase, up 84.6% to
£299,000 compared to £162,000 last year. This reflects the inevitable time
lag between the investment in new teams and revenues coming on-stream.
Management remains confident in the strategy for this division, with revenue
growth returning the division to profitability in future.
EnOC Technologies
EnOC is reporting a loss of £244,000 compared to £61,000 in the prior year.
This reflects the internal reorganisation of technology specialists
previously within the investment management division. EnOC provides vital
services and support across the Group's operations. To highlight the value of
EnOC to the Group's operations, the segment disclosure in note 4 now includes
an additional table, without cancelling intercompany revenues, to demonstrate
its true value to the Group.
Central unallocated costs
These costs have reduced from £231,000 to £195,000, reflecting the continued
cost control efforts across the Group which have helped limit the overall
headline cost increase notwithstanding higher levels of general inflation and
the significant investment in our people.
Group strategy
The Group continues to focus on growing revenue and reducing the complexities
of our product offering, thereby allowing us to focus on our core services and
scale up, developing new products, and targeted business development. Our
new Business Development team was created solely for this purpose, to engage
with new corporates, individuals, and IFAs. Support teams continue to
improve processes and systems to enhance our customers' experience, strengthen
internal controls, and increase efficiencies. Staff and management have
engaged well with the new Consumer Duty rules and are focussed on customer
outcomes. We continue to be proactive in recruiting revenue generators.
Dividends
Notwithstanding the low level of profits, the Group wishes to recognise the
continuing support of our shareholders. Accordingly, the Board has declared
an interim dividend of 0.25 pence per share (2022: 0.25 pence per share),
which will be paid on 26 January 2024 to shareholders on the register on 12
January 2024. The ex-dividend date will be 11 January 2024.
The Board will continue to monitor the Group's progress, and set any final
dividend based on performance, capital headroom, market outlook and short-term
and long-term cash flow considerations.
Outlook
We continue to face macro-economic and regulatory headwinds. There are real
uncertainties in the financial markets. However, interest rates appear to
have peaked and inflation is beginning to reduce, which should help a revival
in market confidence with investors again thinking of saving for the future,
thus allowing us the opportunity to support them and contributing to Group
performance.
Our business development team is now several months into their journey and
their efforts are expected to bear fruit in 2024. Our Financial Planning
division is now fully equipped with a complement of advisers and revenue
expected to consistently increase as the recent hires transition their
customer relationships over time and pursue new business opportunities.
Martin Wright
Chairman
28 December 2023
Walker Crips Group plc
Walker Crips Group plc
Condensed consolidated income statement
For the six months ended 30 September 2023
Unaudited Unaudited Audited
September
September
March
2023
2022 - as restated *
2023
Notes £'000 £'000 £'000
Revenue 4, 7 15,446 16,057 31,612
Commissions and fees paid 8 (2,895) (3,774) (7,264)
Gross profit 12,551 12,283 24,348
Administrative expenses (12,378) (12,121) (23,169)
Exceptional items 9 - (46) (554)
Operating profit 4 173 116 625
Investment revenue 185 28
95
Finance costs (90) (45) (88)
Profit before tax 268 99 632
Taxation (67) (19) (214)
Profit for the period attributable to equity holders of the Parent Company 201 80 418
Earnings per share
Basic and diluted 5 0.47p 0.19p 0.98p
* The restatement of the September 2022 figures is explained in note 16.
Walker Crips Group plc
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2023
Unaudited Unaudited Audited
September
September
March
2023
2022 - as restated *
2023
£'000 £'000 £'000
Profit for the period 201 80 418
Total comprehensive income for the period attributable to equity holders of 201 80 418
the Parent Company
* The restatement of the September 2022 figures is explained in note 16.
Walker Crips Group plc
Condensed consolidated statement of financial position
As at 30 September 2023
Unaudited Unaudited Audited
September September March
2023 2022 - as restated* 2023
Notes £'000 £'000 £'000
Non-current assets
Goodwill 4,388 4,388 4,388
Other intangible assets 4,225 5,387 4,648
Property, plant and equipment 884 1,015 989
Right-of-use-assets 2,187 2,336 2,340
11,684 13,126 12,365
Current assets
Trade and other receivables 20,828 30,266 36,301
Investments - fair value through profit or loss 12 993 1,413 1,276
Cash and cash equivalents 14,051 10,623 13,138
35,872 42,302 50,715
Total assets 47,556 55,428 63,080
Current liabilities
Trade and other payables (21,201) (29,528) (36,849)
Current tax liabilities (261) (216) (269)
Deferred tax liabilities (446) (349) (371)
Provisions (695) (820) (878)
Lease liabilities (492) (166) (341)
Dividends payable (106) (511) -
Deferred cash consideration (59) (37) (94)
(23,260) (31,627) (38,802)
Net current assets 12,612 10,675 11,913
Long-term liabilities
Deferred cash consideration (44) (16) (71)
Lease liabilities (2,301) (2,287) (2,389)
Provisions (690) (564) (652)
(3,035) (2,867) (3,112)
Net assets 21,261 20,934 21,166
Equity
Share capital 2,888 2,888 2,888
Share premium account 3,763 3,763 3,763
Own shares (312) (312) (312)
Retained earnings 10,199 9,872 10,104
Other reserves 4,723 4,723 4,723
Equity attributable to equity holders of the Parent Company 21,261 20,934 21,166
* The restatement of the September 2022 figures is explained in note 16.
Walker Crips Group plc
Condensed consolidated statement of cash flows
For the six months ended 30 September 2023
Unaudited Unaudited Audited
September September March
2023 2022 2023
Notes £'000 £'000 £'000
Operating activities
Cash generated from operations 13 563 25 3,539
Tax paid - - (120)
Net cash generated from operating activities 563 25 3,419
Investing activities
Purchase of property, plant and equipment (32) (30) (150)
Sale / (purchase) of investments held for trading 407 (221) (205)
Consideration paid on acquisition of intangibles (2) (9) (183)
Dividends received - 24 47
Interest received 185 5 48
Net cash generated / (used in) from investing activities 558 (231) (443)
Financing activities
Dividends paid - - (617)
Interest paid (42) (6) (2)
Repayment of lease liabilities * (118) (239) (246)
Repayment of lease interest * (48) (39) (86)
Net cash used in financing activities (208) (284) (951)
Net increase / (decrease) in cash and cash equivalents 913 (490) 2,025
Net cash and cash equivalents at beginning of period 13,138 11,113 11,113
Net cash and cash equivalents at end of period 14,051 10,623 13,138
* Total IFRS 16 lease liability payments of £166,000 (30 September 2022:
£278,000; 31 March 2023: £332,000).
Walker Crips Group plc
Condensed consolidated statement of changes in equity
For the six months ended 30 September 2023
Share Share premium account Own Capital redemption Other Retained earnings Total
capital
shares
equity
held
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Equity as at 31 March 2022 2,888 3,763 (312) 111 4,612 10,303 21,365
Total comprehensive income for the period - as restated - - - - - 80 80
Contributions by and distributions to owners
Dividends paid - - - - - (511) (511)
Total contributions by and distributions to owners - - - - - (511) (511)
Equity as at 30 September 2022- as restated 2,888 3,763 (312) 111 4,612 9,872 20,934
Total comprehensive income for the six-month period - - - - - 338 338
Contributions by and distributions to owners
Dividends paid - - - - - (106) (106)
Total contributions by and distributions to owners - - - - - (106) (106)
Equity as at 31 March 2023 2,888 3,763 (312) 111 4,612 10,104 21,166
Total comprehensive income for the period - - - - - 201 201
Contributions by and distributions to owners
Dividends paid and payable - - - - - (106) (106)
Total contributions by and distributions to owners - - - - - (106) (106)
Equity as at 30 September 2023 2,888 3,763 (312) 111 4,612 10,199 21,261
* The restatement of the September 2022 figures is explained in note 16.
Walker Crips Group plc
Notes to the condensed consolidated financial statements
For the six months ended 30 September 2023
1. General information
Walker Crips Group plc ("the Company") is the Parent Company of the Walker
Crips group of companies ("the Group"). The Company is a public limited
company incorporated in England and Wales under the Companies Act 2006. The
Company's registered office is at Old Change House, 128 Queen Victoria Street,
London EC4V 4BJ.
2. Basis of preparation and significant accounting policies
Basis of preparation
This condensed consolidated interim financial report for the half-year
reporting period ended 30 September 2023 has been prepared in accordance with
the UK-adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority. They do not include all
disclosures that would otherwise be required in a complete set of financial
statements, however, selected explanatory notes are included for events and
transactions that are significant to an understanding of the Group's financial
position and performance.
The condensed consolidated financial statements have been prepared on the
basis of the accounting policies and methods of computation set out in the
Group's consolidated financial statements for the year ended 31 March 2023
therefore should be read in conjunction with the Group's audited financial
statements for the year ended 31 March 2023. The interim financial
information is unaudited and does not constitute statutory accounts as defined
in section 434 of the Companies Act 2006.
As explained in notes 9 and 16 the Group has identified an obligation to SDRT
which has arisen over a number of years for which prior year results have been
restated.
The Group's financial statements for the year ended 31 March 2023 have been
reported on by the auditors and delivered to the Registrar of Companies. The
report of the auditors was unqualified however included an emphasis of matter
disclosure in relation to the SDRT provision. The audit report did not contain
a statement under section 498 (2) or (3) of the Companies Act 2006. The
interim financial information has neither been audited nor reviewed pursuant
to guidance issued by the Audit Procedures Board.
The interim condensed consolidated financial statements are presented in GBP
sterling (£) and are rounded to the nearest thousand, unless stated
otherwise.
Going Concern
The interim financial statements of the Group are prepared on a going concern
basis. As at 30 September 2023, the Group had net assets of £21.3 million (31
March 2023: £21.2 million), net current assets of £12.6 million (31 March
2023: £11.9 million) and net cash and cash equivalents of £14.1 million (31
March 2023: £13.1 million). The Group reported an operating profit of
£173,000 for the period to 30 September 2023 (30 September 2022: £116,000 -
as restated), and net cash generated from operating activities of £563,000
(30 September 2022: £25,000).
The Directors consider the going concern basis to be appropriate following
their assessment of the Group's financial position and its ability to meet its
obligations as and when they fall due. In making the going concern assessment,
the Directors have considered:
- The Group's base case financial projections for the five-year
period through to 31 March 2028.
- The Group's positive operating cash generation during the period
to 30 September 2023 and its projected future cash flows.
- The principal risks facing the Group and its systems of risk
management and internal control.
- The outcome of stress scenarios applied to the Group's base case
projections.
Key assumptions that the Directors have made in preparing the base case
projections are:
- Management fees and trading commissions projected to grow by 2.5%
through March 2025 and 3.5% thereafter.
- Reduction in income generated from customer trading cash balances
in response to market conditions.
- Costs reflect Management's actions already implemented and those
planned for the near term, with inflation then assumed to be 4% over the
period to 31 March 2028.
- Base rates remaining at 5.35% for the remainder of the reporting
year with 0.25% quarterly reductions commencing Q3 2024 through Q3 2026.
Key stress scenarios that the Directors have considered include:
- A 'bear stress scenario' representing a 10% reduction in
management fees and trading commissions, with the consequent reduction in
revenue sharing based costs, compared to the base case in the reporting
periods ending 31 March 2025 through to 31 March 2028.
- A 'severe stress scenario' representing a 15% fall in management
fees and trading commissions in the periods ending 31 March 2025 through
to 31 March 2028.
The bear and severe stress scenarios indicate potential breaches of the
Group's minimum regulatory capital ratio threshold in November 2025 and May
2025 respectively. Our reverse stress testing indicates that all revenues
would have to decline by circa 18% over the next 15 months compared to base
case to reach the Group's minimum regulatory capital ratio threshold. The
Directors note the conservative base case projections and that all stress
scenarios are before considering the impact of corrective management actions.
As such, based upon the analysis, the Directors consider scenarios leading to
a regulatory capital threshold breach to be remote.
Taxation
The tax charge in the income statement represents the sum of the tax currently
payable and deferred tax.
The tax currently payable is based on the taxable profit for the period.
Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated using tax
rates that have been enacted or substantively enacted by the statement of
financial position date. The amount of taxable profit in the current period
has been estimated.
Deferred tax is calculated at the tax rates that are expected to apply in the
period in which the liability is settled or the asset is realised based on tax
rates that have been enacted or substantively enacted by the statement of
financial position date.
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to do so and presented as a net number on the face of the
statement of financial position.
Use of estimates and judgements
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. In the future, actual
experience may differ from these estimates and assumptions. 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.
There have been no material revisions to the nature and amounts of estimates
of numbers reported in prior periods.
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 with the latest test
carried out as at 30 September 2023. The carrying amount of goodwill at the
statement of financial position date was £4.4 million (31 March 2023: £4.4
million).
Other intangible assets - judgement
Acquired client lists are capitalised based on current fair values. When the
Group purchases client relationships from other corporate entities, a
judgement is made as to whether the transaction should be accounted for as a
business combination, or a separate purchase of intangible assets. In making
this judgement, the Group assesses the acquiree against the definition of a
business combination in IFRS 3. Payments to newly recruited investment
managers are capitalised when they are judged to be made for the acquisition
of client relationship intangibles. The useful lives are estimated by
assessing the historic rates of client retention, the ages and succession
plans of the investment managers who manage the clients and the contractual
incentives of the investment managers. Key assumptions in this regard consist
of the following:
1. The Group continues as a going concern;
2. Life expectancy of clients based on data from 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%.
No intangible asset acquisitions were made in the period to 30 September 2023.
Provisions - estimation and judgement
Provisions are recognised when the Group has a present obligation as a result
of a past event, and it is probable that the Group will be required to settle
that obligation. Provisions are measured at the Directors' best estimate of
the expenditure required to settle the obligation at the statement of
financial position date, and are discounted to present value where the effect
is material.
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
but allowed the lapse of two existing lease agreements. The amounts of the
provisions are, where possible, estimated using quotes from professional
building contractors. The property, plant and equipment elements of the
dilapidations are depreciated over the terms of their respective leases. The
obligations in relation to dilapidations are inflated using an estimated rate
of inflation and discounted using appropriate gilt rates to present value. The
change in liability attributable to inflation and discounting is recognised in
interest expense.
Provision for stamp duty liability - estimation and judgement
The Group identified an obligation in respect of Stamp Duty Reserve Tax which
has arisen over a number of years and was not identified due to a procedures
and controls failure. Work remains ongoing to quantify the obligation and
until quantified and agreed with HMRC there remains estimation uncertainty as
explained in notes 9 and 16.
3. Changes in significant accounting policies
The accounting policies applied in these interim condensed consolidated
financial statements are consistent with those applied in the Group's
consolidated financial statements as at and for the year ended 31 March 2023.
4. Revenue and segmental analysis
For segmental reporting purposes, the Group currently has three operating
segments:
- Investment Management, being portfolio-based transaction execution
and investment advice;
- Wealth Management, being financial planning and pension advice;
and
- Software as a Service ("SaaS"), comprising provision of regulatory
and admin software to regulated companies.
Walker Crips Investment Management's activities focus predominantly on
investment management of various types of portfolios and asset classes.
Walker Crips Wealth Management provides advisory and administrative services
to clients in relation to their financial planning, life insurance,
inheritance tax and pension arrangements.
EnOC Technologies Limited ("EnOC") provides cloud-based software solutions to
our business partners including all the Group's regulated entities. Fees
payable by subsidiary companies to EnOC have been eliminated on consolidation.
These activities are the basis on which the Group reports its primary segment
information. Unallocated corporate expenses are disclosed separately. Revenues
between Group entities and reportable segments are excluded from the below
analysis.
Revenue Investment Management Financial planning SaaS Total
£'000 £'000 £'000 £'000
Six months to 30 September 2023 14,369 1,067 10 15,446
Six months to 30 September 2022 15,100 949 8 16,057
Year to 31 March 2023 29,657 1,939 16 31,612
Operating profit / (loss) Unallocated Operating
Costs
profit
£'000 £'000 £'000 £'000 £'000
Six months to 30 September 2023 911 (299) (244) (195) 173
Six months to 30 September 2022 - as restated 570 * (162) (61) (231) 116
Year to 31 March 2023 1,553 (310) (128) (490) 625
The following table analyses the above segmental breakdown without cancelling
intercompany transactions to show the value of each segment to the Group
itself.
Revenue Investment Management Financial planning SaaS Total
£'000 £'000 £'000 £'000
Six months to 30 September 2023 14,016 1,124 306 15,446
Six months to 30 September 2022 15,044 998 15 16,057
Year to 31 March 2023 29,534 2,047 31 31,612
Operating profit / (loss) Unallocated Operating
Costs
profit
£'000 £'000 £'000 £'000 £'000
Six months to 30 September 2023 559 (243) 52 (195) 173
Six months to 30 September 2022 - as restated 513 (113) (53) (231) 116
Year to 31 March 2023 1,432 (203) (114) (490) 625
* The restatement of the September 2022 figures is explained in note 16.
5. Earnings per share
The calculation of basic earnings per share for continuing operations is based
on the post-tax profit for the period of £201,000 (2022: £80,000 - as
restated) and on 42,577,328 (2022: 42,577,328) ordinary shares of 6 2/3p,
being the weighted average number of ordinary shares in issue during the
period. There is no dilution applicable to the current period.
6. Dividends
The interim dividend of 0.25 pence per share (2022: 0.25 pence per share) is
payable on 26 January 2024 to shareholders on the register at the close of
business on 12 January 2024. The associated ex-dividend date is 11 January
2024. The interim dividend has not been included as a liability in this
interim report.
7. Total income
Six months Six months
ended 30 ended 30 Year ended
September
September
31 March
2023 2022 2023
£'000 £'000 £'000
Revenue from contracts with customers 12,461 15,138 28,353
Other revenue 2,985 919 3,259
15,446 16,057 31,612
Investment revenue 185 28 95
15,631 16,085 31,707
8. Commissions and fees paid
Commissions and fees paid comprise:
Six months Six months
ended 30 ended 30 Year ended
September
September
31 March
2023 2022 2023
£'000 £'000 £'000
To authorised external agents - 3 3
To self-employed certified persons 2,895 3,771 7,261
2,895 3,774 7,264
9. Exceptional items
Certain items of income and expenditure may be disclosed separately as
exceptional due to their nature and materiality in order to provide a clearer
understanding of the Group's performance. During the period to 30 September
2023, there were no exceptional items to report. Exceptional items impacting
the comparative information are as follows:
Exceptional items included within operating profit Six months Six months Year ended
ended 30
ended 30 September 2022 - as restated
31 March
September 2023
2023
£'000 £'000 £'000
Liability arising from the underpayment of SDRT - 46 131
Accelerated amortisation - - 423
- 46 554
During the year to 31 March 2023 (and in the restated results for the period
to 30 September 2022), the following items were classified as exceptionals due
to their materiality and non-recurring nature. These were:
a) SDRT liability to HMRC resulting from a system monitoring error where
stamp duty was omitted from certain client contracts. A voluntary disclosure
to HMRC has been made and we presently estimate the cost of repayment,
potential penalties and related costs, net of tax, to be £878,000. This has
been allocated to the years ending 31 March 2023 (including the period to 30
September 2022), 31 March 2022 and prior period. As the error spans several
years and is regarded as fundamental, prior reported results have been
restated. Further details of the provision and estimation uncertainty are
included in note 16. Our customers were not adversely impacted by this error.
b) As explained in the 31 March 2023 annual report and accounts and
referenced in the Chairman's statement, during the year to March 2023, a
number of self-employed investment managers with intangible assets linked to
client lists advised their intention to leave the Group which resulted in the
Group changing the useful economic life of each asset to align with the
revised expected timeline of future benefits. This resulted in an additional
£423,000 of amortisation expensed in the second half of the year ending 31
March 2023.
Further information regarding these items can be found in notes 10, 27 and 38
in the published Annual Report and Accounts of 2023.
The results for the period ending 30 September 2022 have also been restated
for the relevant portion of the aforementioned SDRT provision.
10. Tax
Tax is charged at 25% for the six months ended 30 September 2023 (2022: 19%)
representing the best estimate of the average annual effective tax rate
expected to apply for the full year, applied to the pre-tax income of the
six-month period.
11. Current investments - fair value through profit or loss
As at As at As at
30 September
30 September
31 March
2023 2022 2023
£'000 £'000 £'000
Trading investments
Investments - fair value through profit or loss 993 1,413 1,276
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.
12. Fair values
The following provides an analysis of financial instruments that are measured
subsequent to initial recognition at fair value, grouped into Levels 1 to 3
based on the degree to which the fair value is observable:
- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or liabilities. The
trading investments fall within this category;
- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices). The Group does not hold financial instruments in this
category; and
- Level 3 fair value measurements are those derived from valuation
techniques that include inputs for the asset or liability that are not based
on observable market data (unobservable inputs). The Group's investments held
in non-current assets fall within this category.
The following tables analyse within the fair value hierarchy to the Group's
investments measured at fair value.
Level 1 Total
£'000 £'000
At 30 September 2023
Financial assets held at fair value through profit and loss 993 993
993 993
At 30 September 2022
Financial assets held at fair value through profit and loss 1,413 1,413
1,413 1,413
At 31 March 2022
Financial assets held at fair value through profit and loss 1,276 1,276
1,276 1,276
Further IFRS 13 disclosures have not been presented here as the balance
represents 2.088% (2022: 2.550%) of total assets.
13. Cash generated from operations
Unaudited Unaudited Audited
September September March
2023 2022 - as restated 2023
£'000 £'000 £'000
Operating profit for the period 173 116 * 625
Adjustments for:
Amortisation of intangibles 424 374 1,393
Net change in fair value of financial instruments at fair value through profit (124) 454 575
or loss
Depreciation of property, plant and equipment 140 186 331
Depreciation of right-of-use assets 322 408 771
Decrease in debtors * 15,473 19,736 13,662
Decrease in creditors * (15,845) (21,249) * (13,818)
Net generated from operations 563 25 3,539
* £372,000 cash outflow from working capital movement (30 September 2022:
£1,513,000 outflow; 31 March 2023: £156,000 outflow).
14. Contingent liability
In 2021 a former associate brought a claim against Walker Crips Investment
Management Limited ("WCIM") in the Employment Tribunal. A hearing of a
preliminary issue took place in 2022 and the Tribunal found in favour of WCIM.
The former associate appealed that decision and in 2023, whilst many of the
appeal grounds were not upheld, certain points were referred back to the
Employment Tribunal to reconsider. WCIM does not consider that the claims are
justified and intends to defend them robustly.
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 any
cases where a financial obligation is deemed to be probable and thus provision
is made, the Directors presently consider a negative outcome to be remote.
Accordingly, no further disclosure has been made in these financial
statements. Provisions made remain subject to estimation uncertainty, which
may result in material variations in such estimates as matters are finalised.
15. Subsequent events
There are no material events arising after 30 September 2023, which have an
impact on these unaudited financial statements.
16. Prior year adjustment
In the prior year, the Group discovered errors in how it accounted for Stamp
Duty Reserve Tax ("SDRT") on certain transactions undertaken on behalf of
clients. Following the discovery of this error, the Group undertook an
investigation of the various transactions impacted by the error. This
investigation is ongoing, but based on the latest available information,
management's current estimate of the resulting obligation including related
interest, penalties and professional support costs is unchanged from that
established at 31 March 2023 of £878,000, of which £690,000 remains provided
at 30 September 2023 after professional fees incurred to date including
additional related audit fees. Key sources or estimation uncertainty include
the basis for the period covered together with penalties and interest that may
be applied, which management have determined having taken professional advice.
The error has been corrected by restating each of the affected financial
statement line items for the prior periods.
As the investigation is ongoing, there remains uncertainty surrounding both
the quantum of the liability in respect of the SDRT due, as well as the
interest and penalties that HMRC may charge and the ultimate level of
professional support costs.
The amounts of the error for each of the three years ending 31 March 2023 and
cumulative prior period are estimated as follows:
31 March 2023 31 March 2022 31 March 2021 31 March 2020 and period
£ £ £ £
SDRT liability to HMRC 131,000 118,000 157,000 472,000
Of the amount of £131,000 recognised in the year ending 31 March 2023,
£46,000 is attributable to the six-month period ending 30 September 2022 and
has been recognised as an exceptional expense (see note 9). In accordance with
the interim tax adjustment calculation set out in note 10, an amount of tax
credit of £9,000 was also adjusted in the prior year income statement in
relation to this.
The below extracts of the statement of financial position illustrate the
impact of the cumulative adjustments above up until 30 September 2022:
Consolidated statement of financial position extract 30 September 2022 Change Restated 30 September 2022
£'000 £'000 £'000
Current tax liabilities (225) 9 (216)
Provisions (27) (793) (820)
Net assets 21,718 (784) 20,934
Retained earnings 10,656 (784) 9,872
Total equity 21,718 (784) 20,934
Directors' responsibility statement
The Directors confirm that to the best of their knowledge:
(a) The condensed set of financial statements contained within the half yearly
financial report has been prepared in accordance with IAS 34 'Interim
Financial Reporting' as adopted by the EU;
(b) The half yearly report from the Chairman (constituting the interim
management report) includes a fair review of the information required by DTR
4.2.7R; and
(c) The half yearly report from the Chairman includes a fair review of the
information required by DTR 4.2.8R as far as applicable.
On Behalf of the Board
Sean Lam
Chief Executive Officer
28 December 2023
Walker Crips Group plc
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