TIDMWCW
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 GBP15.5 million (2022: GBP16.1 million).
-- Gross profits (revenues net of commissions and fees paid out
to self-employed investment managers) increased by 2.2% to GBP12.6
million (2022: 12.3 million).
-- Operating profit increased by 49.1% to GBP173,000 (2022:
GBP116,000 - as restated) and profit before tax increased by 170.7%
to GBP268,000 (2022: GBP99,000 - as restated), helped by the higher
interest rate environment.
-- Operating profit pre-exceptional items ([3]) increased by
6.8% to GBP173,000 (2022: GBP162,000) and profit before tax
pre-exceptional items ([3]) increased by 84.8% to GBP268,000 (2022:
GBP145,000).
-- Adjusted EBITDA([1]) decreased by 6.3% to GBP1,059,000 (2022: GBP1,130,000).
-- Underlying cash generated from operations([2]) broadly flat
at GBP1,606,000 (2022: GBP1,610,000).
-- Net cash position of GBP14.1 million (2022: GBP10.6 million).
-- Assets Under Management ("AUM") decreased to GBP2.5 billion
(31 March 2023: GBP3.1 billion) and Total Assets Under Management
and Administration ("AUMA") decreased by 11.6% to GBP4.4 billion
(31 March 2023: GBP5.0 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 GBP268,000 is improved on the GBP99,000
(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
Craig Harrison, Media Relations 8000
Four Agency Tel: +44 (0)20 3 920
Jonathan Atkins 0555
walkercrips@four.agency
Singer Capital Markets Tel: +44 (0)20 7496
Charles Leigh-Pemberton / Asha Chotai 3000
Further information on Walker Crips Group is available on the
Company's website: 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 GBP173,000 and GBP268,000
respectively, which are improved on those for the comparative
period of GBP116,000 (restated) and GBP99,000 (restated).
Underlying operating cash generation was GBP1,606,000, compared to
GBP1,610,000 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 GBP878,000 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 September Audited
September 2022 - March
2023 as restated 2023
GBP'000 GBP'000 GBP'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 September Audited
September 2022 - March
2023 as restated 2023
GBP'000 GBP'000 GBP'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 September Audited
September 2022 - March
2023 as restated 2023
GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'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 GBP911,000 compared to GBP570,000 (as restated) in the prior
period. At a more granular level, commission income has declined
13.6% from GBP2,956,000 to GBP2,555,000 and fee income declined
19.7% from GBP11,178,000 to GBP8,979,000. 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 GBP879,000 to
GBP2,668,000 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 GBP1,067,000 from GBP949,000 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 GBP299,000 compared to GBP162,000 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 GBP244,000 compared to GBP61,000 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 GBP231,000 to GBP195,000,
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 2023
- as restated
*
Notes GBP'000 GBP'000 GBP'000
----------------------------------------- ----- ------------------- ------------------ ---------------
4,
Revenue 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
------------------------------------------ ----- ------------------- ------------------ ---------------
E arnings per share
----------------------------------------- ----- ------------------- ------------------ ---------------
Basic and diluted 5 0. 47p 0.1 9p 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 2023
- as restated
*
GBP'000 GBP'000 GBP'000
------------ -------------- -------------
Profit for the period 201 80 418
------------------------------------------ ------------ -------------- -------------
Total comprehensive income for the
period attributable to equity holders
of the Parent Company 201 80 418
------------------------------------------ ------------ -------------- -------------
* 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 2023
restated*
Notes GBP'000 GBP'000 GBP'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 30,2 66 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 (2 61) (2 16) (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 10,6 75 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 GBP'000 GBP'000 GBP'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 GBP166,000 (30
September 2022: GBP278,000; 31 March 2023: GBP332,000).
Walker Crips Group plc
Condensed consolidated statement of changes in equity
For the six months ended 30 September 2023
Share Own
Share premium shares Capital Retained Total
capital account held redemption Other earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 - - - - - 3 38 338
------------------------------ --------- --------- -------- ------------ -------- ---------- --------
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 (GBP) 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 GBP21.3 million (31 March 2023: GBP21.2 million), net
current assets of GBP12.6 million (31 March 2023: GBP11.9 million)
and net cash and cash equivalents of GBP14.1 million (31 March
2023: GBP13.1 million). The Group reported an operating profit of
GBP173,000 for the period to 30 September 2023 (30 September 2022:
GBP116,000 - as restated), and net cash generated from operating
activities of GBP563,000 (30 September 2022: GBP25,000).
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 GBP4.4 million (31 March 2023: GBP4.4
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.
Investment Financial SaaS Total
Revenue Management planning
GBP'000 GBP'000 GBP'000 GBP'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 Unallocated Operating
profit Costs profit
/ (loss)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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.
Investment Financial SaaS Total
Revenue Management planning
GBP'000 GBP'000 GBP'000 GBP'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 Unallocated Operating
profit Costs profit
/ (loss)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP201,000 (2022: GBP80,000 - 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
GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'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 Six months Six months Year ended
within ended 30 ended 30 31 March
operating profit September September 2023
2023 2022 - as
restated
GBP'000 GBP'000 GBP'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 GBP878,000. 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
GBP423,000 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
GBP'000 GBP'000 GBP'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
GBP'000 GBP'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 2023
restated
GBP'000 GBP'000 GBP'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
or loss (124) 454 575
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
(21,249)
Decrease in creditors * (15, 845) * (13,818)
Net generated from operations 563 25 3,539
--------------------------------- ---------------------------- ----------------------------- ------------------
* GBP372,000 cash outflow from working capital movement (30
September 2022: GBP1,513,000 outflow; 31 March 2023: GBP156,000
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 GBP878,000, of
which GBP690,000 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
GBP GBP GBP GBP
-------------- -------------- -------------- --------------
SDRT liability
to HMRC 131,000 118,000 157,000 472,000
-------------- -------------- -------------- --------------
Of the amount of GBP131,000 recognised in the year ending 31
March 2023, GBP46,000 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 GBP9,000
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 30 September 2022 Change Restated 30 September
of financial position GBP'000 GBP'000 2022
extract GBP'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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END
IR PPGCUPUPWGPR
(END) Dow Jones Newswires
December 28, 2023 07:15 ET (12:15 GMT)
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