Walker Crips Group plc Half-year Report

TIDMWCW

RNS Number : 7575G

Walker Crips Group plc

27 November 2020

The following amendment has been made to the 'Half-year Report' announcement released on 27 November 2020 at 7:00am under RNS No. 6929G.

In the 'Headlines' section of the report, the 'GBP' sign has been removed from the interim dividend figure to read 0.15 pence per share.

All other details remain unchanged.

The full amended text is shown below.

27 November 2020

Walker Crips Group plc

("Walker Crips", the "Company" or the "Group"),

Results for the six months ended 30 September 2020

HEADLINES

 
      *   Total revenue for the 6-month period down 7.9% to GBP14.35 million 
           (2019: GBP15.58 million) 
      *   Loss before tax of GBP451,000 (2019: profit before tax of GBP620,000) 
      *   Operating loss before exceptional items of GBP272,000 (2019: 
           operating profit before exceptional items of GBP408,000)* 
      *   Operating loss including exceptional item of GBP374,000 (2019: 
           operating profit including exceptional items of GBP617,000) 
      *   IAS 17 consistent EBITDA of GBP380,000 (2019: GBP987,000)* 
      *   Underlying cash generated by operations of GBP170,000 (2019: 
           GBP745,000)* 
      *   Assets under Management and Administration GBP4.8 billion (2019: 
           GBP5.1 billion) 
      *   All Government support received as a result of COVID-19 voluntarily 
           repaid 
      *   Interim dividend of 0.15 pence per share (2019: interim dividend 
           of 0.60 pence per share)

Martin Wright, Chairman of Walker Crips Group plc, says:

"The onset of the COVID-19 pandemic in the first quarter of the year has taken all businesses into uncharted waters. At the time, no one could forecast with any degree of accuracy its effect. The significant impact the pandemic has had and continues to have on businesses and the wider socio-economic landscape has yet to be fully understood.

However, contrary to our worst fears, investor confidence and the financial services market remain resilient. Revenues since 30 September 2020 have also benefited from the rise in markets following the announcements regarding COVID-19 vaccines.

Notwithstanding reported headline losses, the Group continues to generate positive EBITDA(*) and underlying operating cash(*) , which enable continued support of our revenue and growth initiatives. However, this does not alleviate the imperative to focus on improved operating efficiencies and cost elimination. In this regard we are developing plans to simplify the Group structure by reducing the number of regulated entities and streamlining the management structure."

* See note 18 for the reconciliation of alternative performance measures ('APMs') to IFRS reported results

For further information, please contact:

 
 Walker Crips Group plc                 Tel: +44 (0)20 3100 8000 
  Ronan Gelling, Media Relations 
 
   Four Communications                    Tel: +44 (0)20 3697 4200 
   Mark Knight 
   walkercrips@fourcommunications.com 
 
   N+1 Singer                             Tel: +44 (0)20 7496 3000 
   Will Goode / George Tzimas

Further information on Walker Crips Group is available on the Company's website: www.walkercrips.co.uk

Chairman's Statement

Introduction

The onset of the COVID-19 pandemic in the first quarter of the year has taken all businesses into uncharted waters. At the time, no one could forecast with any degree of accuracy its effect and the significant impact the pandemic has had and continues to have on businesses and the wider socio-economic landscape has yet to be fully understood. The Group's executive management reacted rapidly and decisively to the situation. The Group, with its robust IT infrastructure, moved to remote working with relative ease on 12 March, eleven days before the national lockdown, providing continuity of service for our clients and safety and protection for staff. Since then, the Group has continued to operate efficiently, following all Government advice. In navigating these difficult times, your Group, led by its executives, has shown true resilience. I congratulate our staff and our investment managers for making this possible.

The pandemic shows no sign of abating, but, contrary to our worst fears, investor confidence and the financial services market remain resilient. That being said, as highlighted in our 2020 Annual Report and Accounts, the cut in the Bank of England base rate from 0.75% to 0.10% in response to the COVID-19 pandemic has had a significant impact on interest margins on managed deposits. The cut has resulted in the Group earning less interest income from its centralised treasury function and, as a result of this and other pandemic factors, the Group is reporting an operating loss for the period, which I explain further below.

We remain confident in our three-pronged strategy of growing our core business, seeking opportunities in our alternative business activities and commercialising our technological capabilities.

We are pleased with the recent advances in our drive for growth in our Wealth Management division, with the hiring of new advisers and the acquisition of a client book with funds under management since 30 September 2020. Fully supported by the new back office system implemented last year, we will maintain this course for controlled growth while always maintaining focus on our clients' best interests.

Notwithstanding reported headline losses, the Group continues to generate positive EBITDA(*) and underlying operating cash(*) , which enable continued support of our revenue and growth initiatives. However, this does not alleviate the imperative to focus on improved operating efficiencies and cost elimination. In this regard, we are developing plans to simplify the Group through reducing the number of regulated entities and streamlining the management structure.

The Group remains in a sound financial position and we continue to take steps to address the impact of COVID-19. We are optimistic about the opportunities before us but remain cautious given the continued impact of the pandemic and the ongoing uncertainty regarding the UK's exit from the European Union.

We hold steadfastly to our purpose of making investment rewarding for our clients, our shareholders and our staff, and giving our customers a fair deal. We support our investment managers and our staff by being a technology driven financial services company.

As we completed and reported on our March 2020 year-end, we were faced with significant uncertainty, the prospect of substantial revenue declines and potentially aggressive cost reduction action. We sought always to support our people, including the use of the Government's furlough scheme. Further, we made the considered, but nevertheless difficult, decision to preserve cash by not paying a final dividend. In the event, markets recovered sooner than we anticipated and the Group has benefitted from a period of higher trading commissions.

Accordingly, decisions have been taken to repay all Government support received and pay an interim dividend. Although we are pleased to announce these decisions, we emphasise the outlook remains uncertain. The Board continues to monitor the situation in view of the current uncertainties but remains confident in the medium and long-term prospects for the business. Revenues since 30 September 2020 have also benefited from the rise in markets following the announcements regarding COVID-19 vaccines.

Trading update

Despite financial markets falling sharply at the start of the year as a direct result of the pandemic, the Group has reported an operating income of GBP14.35 million for the six-month period to September 2020, 7.9% below same period last year (30 September 2019: GBP15.58 million). Broking income in the period was encouragingly up 5.3% to GBP4 million (30 September 2019: GBP3.8 million), highlighting market volatility and a degree of investor confidence. Non-broking income as a proportion to broking income fell by 4% to 72%, with the loss of treasury interest income and lower management fee income in the period. Management fee income, being a product of asset values, was down given the fall in financial markets.

Income from the investor immigration division fell in the period reflecting a reduced number of high net worth applicants seeking UK settlement due to the global pandemic restricting international travel and migration. Structured investment activity and income was also lower.

Administrative expenses in the period, excluding exceptional expenses, fell 3.5% to GBP10.12 million (30 September 2019: GBP10.49 million), but much of the cost savings and efficiencies gained in the first half were absorbed by the increase in the FSCS levy adding an additional GBP0.2m to the Group's cost base.

Overall the Group reported an operating loss for the period, including redundancy costs, of GBP374,000 (30 September 2019: operating profit GBP617,000). Excluding the redundancy costs, which are reported separately as an exceptional item, the operating loss for the period was GBP272,000 (30 September 2019: operating profit before exceptional items was GBP408,000). Reported EBITDA(*) and underlying cash(*) generated remain positive.

We continue to focus on cost control measures, are renegotiating supply contracts and have implemented an intensive de-papering and paperless exercise. The Directors across all entities took a voluntary temporary salary reduction of 20% in the first three months of the financial year. In addition, the success and efficiency with which our staff have adapted to working remotely have changed the way we work and we are therefore also reviewing our future physical office requirements.

Total Assets under Management and Administration, after taking a fall in March 2020, have recovered to GBP4.8 billion. This is up 11.6% from March 2020 (31 March 2020: GBP4.3 billion).

The Group balance sheet and capital base, although reduced by the reported loss, remain sufficiently robust to support our growth strategy and the payment of a small interim dividend. As at the reporting date, the Group recorded net assets of GBP22.3 million (30 September 2019: net assets of GBP22.7 million; 31 March 2020: net assets of GBP22.6 million) and cash surplus of GBP7.73 million after adjusting for the GBP76,000 furlough grant repaid post period end (30 September 2019: GBP7.55 million; 31 March 2020: GBP8.61 million). The Group capital surplus remains above 200%.

Investment Management

The Group's Investment Management division returned an operating profit of GBP285,000 for the six-month period compared to GBP1,161,000 in the previous year. The loss of income was primarily caused by lower interest income, management fees and structured investment income, offset by higher trading commissions and arbitrage income.

The Investment Management division proudly launched its in-house Model Portfolio Service in the period and is looking forward to marketing its service and performance to both existing and new clients.

Since the reporting date, two advisers have decided to leave the Group on amicable terms, which will result in the transfer of GBP46.8 million of Assets Under Management and Administration. The transfer of clients and their assets will take place later this year. The future impact on the Group's performance to be a reduction in net income before operating costs of circa GBP70,000.

Wealth Management

The division reported an operating loss of GBP17,000 (30 September 2019: operating profit GBP56,000) and is focused on improving results through recruiting new advisors, acquiring books of clients with funds under management and achieving cost savings, fully supported by the new back office system implemented last year.

Technology Services

EnOC Technologies Limited, the Group's new technology subsidiary, reported a loss of GBP78,000. The Group believes that its continued investment in technology is crucial to providing innovative and effective services to our clients, investment managers and staff.

The three-year project to commercialise our technology has begun. Since launching the EnOC Pro Platform in December 2019 with the Senior Managers & Certification Regime (SM&CR) system, a leading European systems provider in the private wealth space has signed up to adopt the system as part of its service offering to its clients. www.enoc.pro has also been collaborating on system development initiatives with counterparties in Singapore, Hong Kong and Malaysia as EnOC reaches out far beyond the boundaries of the Group.

Group Strategy

The Board continues to pursue a strategy of expansion by the recruitment of Investment and Wealth Management advisers and teams, and the acquisition of books of clients with funds under management. The Directors continue to monitor the cost base and look to take advantage of the more streamlined and flexible working environment as we adapt to the new normal working life.

Dividends

The Board did not take the decision in March to withdraw the final dividend lightly. Now that the Board has a greater visibility on the impact of the pandemic, we have approved an interim dividend of 0.15 pence per share (2019: 0.60 pence per share) payable on 23 December 2020 to those shareholders on the register at the close of business on 11 December 2020. Our aim is always to reward shareholders for their continued support. The Board will continue to monitor the Group's progress in terms of the commitments made by executives and the ongoing global pandemic, and will set the final dividend based on performance, capital headroom, market outlook and short-term and long-term cash flow considerations.

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 their efforts, working with them to design, deploy and maintain those systems.

Our partner charity's mission, www.twiningenterprise.org.uk, is to combat mental health stigma and to assist people who are struggling with mental health issues around work and whose 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. A mission whose work is especially crucial, as 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

This is my first Chairman's report. It gives me little pleasure to report losses, but I will happily admit that I am relieved that the impact of the unprecedented situation has not been more severe. Specifically, I would like to thank my fellow Directors, our investment managers and advisers and all members of staff for their continued commitment to the highest levels of client service, support and diligence during this exceptional period of global turmoil. One would hope that this is a once in a lifetime experience and I am very proud of the way our team reacted.

I would also like to take this opportunity to express my thanks, both personally and on behalf of the Group and its shareholders, to my colleague and our former Chairman David Gelber for his invaluable stewardship of the Group since 2007, a period during which we have seen a multitude of changes. He will be a hard act to follow. As we noted, he kindly agreed in the circumstances to continue as a Non-executive Director for an additional 12 months.

Outlook

No doubt we have a difficult year ahead. There is an ongoing global pandemic, the terms on which the UK plans to leave the EU have yet to be concluded and there is global political unrest. Despite this, I and the Board remain cautiously optimistic and excited about the future prospects of the Group. Led by the executives, your Group has begun new changes to consolidate and streamline its operations. Once achieved, the breadth of our service offering coupled with staff and account executives working together will provide the Group with the platform on which to emerge from this challenging period stronger and from there to grow and secure our long-term goals.

Martin Wright

Chairman

27 November 2020

Walker Crips Group plc

* See note 18 for the reconciliation of alternative performance measures ('APMs') to IFRS reported results

Condensed Consolidated Income Statement