DJ IFG Group plc: Preliminary Statement
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IFG Group plc (IFP)
IFG Group plc: Preliminary Statement
25-March-2019 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
IFG GROUP PLC PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER
2018
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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
The IFG Directors accept responsibility for the information contained in this
announcement To the best of the knowledge and belief of the IFG Directors (who
have taken all reasonable care to ensure such is the case), the information
contained in this announcement is in accordance with the facts and does not
omit anything likely to affect the import of such information. The sources and
bases for the information in this announcement relating to the Acquisition are
set out in Appendix A to the Rule 2.5 Announcement relating to the Acquisition
dated 25 March 2019.
RECOMMENDED OFFER
IFG Group plc ("IFG") is pleased to announce that it has reached agreement
with Epiris GP Limited, as General Partner of the Epiris Funds advised by
Epiris LLP ("Epiris"), on the terms of a recommended cash offer pursuant to
which SaintMichelCo Limited ("Bidco"), a wholly owned indirect subsidiary of
the Epiris Funds, will acquire the entire issued and to be issued share
capital of IFG. Consequently, Bidco has today announced its firm intention to
make an offer for IFG under Rule 2.5 of the Takeover Rules.
Under the terms of the proposed acquisition, IFG shareholders will be entitled
to receive GBP1.93 for each IFG Ordinary Share, valuing the entire issued and to
be issued ordinary share capital of IFG at approximately GBP206 million.
The proposed acquisition represents:
· a premium of approximately 46 per cent to IFG's closing share price of
GBP1.325 on 22 March 2019 (being the last practicable date prior to the
publication of this Announcement);
· a premium of approximately 44 per cent to IFG's volume weighted average
share price of approximately GBP1.34 over the one-month period ended on 22
March 2019;
· a premium of approximately 42 per cent to IFG's volume weighted average
share price of approximately GBP1.36 over the three-month period ended on 22
March 2019; and
· a multiple of approximately 21.4 times IFG's adjusted after tax earnings
for the year ended 31 December 2018.
improved underlying performance
...............................
Financial Highlights
2018 2017 Change
Revenue (GBPm) 87.6 78.4 12%
Adjusted operating profit (GBPm) 12.4 10.5 18%
Operating profit/(loss) (GBPm) 0.3 (0.4) -
Adjusted EPS (p) 9.14 8.34 10%
Basic EPS (p) (0.90) (0.32) -
Free cash flow (GBPm) 6.6 5.7 16%
· Revenue growth of 12% to GBP87.6 million (2017: GBP78.4 million) driven by
repricing and increases in the Bank of England interest rate in James Hay
and strong performance in Saunderson House
· Adjusted operating profit increased 18% to GBP12.4 million (2017: GBP10.5
million) demonstrating the strength of the underlying businesses
· Exceptional costs of GBP9.9 million (2017 GBP8.8 million) including a
provision of GBP4.9 million in relation to the dual trustee review and GBP3.0
million retention payments following the cancelled sales process of
Saunderson House
· Operating profit (after exceptional costs and amortisation) was GBP0.3
million up from a loss of GBP0.4 million in 2017
· A 10% increase in adjusted EPS to 9.14 pence (2017 8.34 pence). Basic loss
per share was 0.90 pence, compared to a loss of 0.32 pence in the prior year
· Based on a more prudent assessment of regulatory capital, the group has
capital resources of GBP25.6 million (2017: GBP49.5 million) which is 502% of
its Pillar 1 requirement (2017: 750%) and surplus to its Pillar 2
requirements
Operational
James Hay
2018 2017
Assets under administration (GBPbn) 25.3 25.5
New Clients 4,651 6,116
Total Clients 58,753 58,551
Retention rate 93% 93%
Adjusted Operating Profit (GBPm) 10.3 6.1
· AUA 1% lower than 2017 at GBP25.3 billion (2017: GBP25.5 billion) with adverse
market movements over the year offsetting net inflows
· James Hay added 4,651 new clients during 2018, down 24% on 2017, driven
largely by the slow-down in the defined benefit ("DB") transfer market
following a significant rise in this market in 2017
· James Hay now serves 58,753 clients (2017: 58,551) of which 55,200 are in
SIPPs with the remaining 3,553 in SSAS and Wrap products. Client retention
remains stable at 93%
· Reviewed c.20% of dual-trustee SSAS schemes and provided GBP4.9 million as a
best estimate of costs to resolve these matters across the whole book
· We have submitted an application under s268 Finance Act 2004 for the
discharge of the HMRC assessment in respect of Elysian Fuels for tax years
ended 5 April 2012 and 5 April 2013 and expect to submit applications in
relation to later tax years in due course. We currently expect that a
process involving appeals to tribunal would be unlikely to complete before
the end of 2019
Saunderson House
2018 2017
Assets under advice (GBPbn) 4.9 5.1
New Clients 239 247
Total Clients 2,342 2,121
Retention rate 99% 96%
Adjusted Operating Profit (GBPm) 7.1 8.6
· AUA 4% lower than 2017 with adverse market movements over the year
offsetting net inflows
· Saunderson House achieved 239 new client wins in 2018, slightly down
compared to 247 in 2017 but a strong result, particularly in light of
distraction from the cancelled sale process
· Continued strong demand for Discretionary Management Services (DMS) making
up c.60% of new client wins
· Saunderson House now serves 2,342 clients (up 10% from 2,121 in 2017) with
client retention improving to 99% (2017: 96%)
Strategic and proposed acquisition
Following a challenging start to 2018, we have made good progress on
identifying and implementing our near-term priorities; building two
self-reliant businesses within an efficient group structure and making
meaningful progress in relation to legacy issues.
During the course of 2018, we have reviewed a range of options available to
the Group to assess whether greater value might be realised for shareholders
through alternative ownership structures. The review considered, amongst other
options, a demerger and the sale of one or both of the subsidiaries.
Having taken into account the relevant factors and applicable risks, the IFG
Board consider the terms of the proposed acquisition to be fair and
reasonable. Accordingly, the IFG Board unanimously recommends that IFG
shareholders vote in favour of the acquisition, as they intend to do in
respect of their own holdings.
Kathryn Purves, Chief Executive of IFG Group plc, commented:
"We are pleased to be announcing this transaction today and believe it is an
excellent outcome for shareholders, for the company, and for our clients. The
offer by Epiris represents a compelling opportunity for shareholders to
realise an immediate and attractive cash value for their shareholding in IFG
today. In addition, our employees and clients will benefit under the ownership
of Epiris which should help broaden and accelerate the delivery of IFG's
strategic objectives and the underlying strategies of James Hay and Saunderson
House."
Contacts:
Kathryn Purves Gavin Howard
Group Chief Executive Group Chief Financial Officer
IFG Group plc IFG Group plc
Tel: +44 20 3887 6181 Tel: +44 20 3887 6181
Media enquiries:
Justin Griffiths Jack Hickey
Powerscourt Powerscourt
Tel: +44 20 7250 1446 Tel: +353 1536 0683
Presentation of results and dial-in
There will be a presentation of these results to analysts and investors/fund
managers at 9.30am today at Macquarie offices, Ropemaker Place, 28 Ropemaker
Street, London EC2Y 9HD. The slides for this presentation can be downloaded
from IFG's website, www.ifggroup.com.
There will also be audio conference access to the presentation. The access
details for the presentation are:
Confirmation Code: 9484905
'
Location Phone Number
United Kingdom +44 (0)330 336 9105
Ireland +353 (0)1 246 5638
France +33 (0)1 76 77 22 74
Germany +49 (0)69 2222 13420
Switzerland +41 (0)22 567 5729
US +1 323-794-2093
Extract from Chairman's Statement
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DELIVERING SHAREHOLDER VALUE
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STRATEGY
I believe we have made substantive progress at IFG Group this year. The
underlying businesses have performed well, in spite of distractions in the
first four months of the year which were dominated by the assessments from
HMRC in relation to Elysian Fuels and the Saunderson House sales process,
which was later cancelled. These issues provided the backdrop against which
the new management team was appointed in April 2018.
Since then, we have focused on operational performance within our businesses
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whilst also pursuing our near-term priorities which will provide a solid base
from which to grow and deliver value to shareholders. As outlined in our
interim statement, these priorities are: the identification and resolution of
legacy issues; developing self-reliant businesses with reduced reliance on
central functions; and delivering a more efficient group cost structure. We
have made good progress in each of these areas and Kathryn Purves provides a
comprehensive update in her Chief Executive's Report.
In our December trading update we highlighted the attractive nature of the
markets in which we operate and set out our ambitious plans for the future.
These are covered in more detail in the business reviews.
performance
The period under review has shown revenue increasing by 12% from GBP78.4 million
last year to GBP87.6 million, with adjusted operating profit increasing by 18%
from GBP10.5 million to GBP12.4 million. It is disappointing that operating profit
was again depressed by exceptional provisions, primarily as a result of costs
in relation to resolution of legacy issues and staff retention costs in
Saunderson House following the cancelled sale. I believe that identifying and
resolving these legacy issues is an important part of building the foundations
for future growth and that the retention payments made to Saunderson House
staff have played an important role in stabilising the business over the
latter part of 2018. Basic loss per share was 0.90 pence, as a result of the
lack of tax relief for sanction charges and settlement costs relating to
legacy matters (2017: loss of 0.32 pence per share).
We believe this is a good set of results at an underlying level, particularly
in the context of the distraction and disruption suffered by the Group in the
early part of 2018 and the broader political and investment market volatility
during the year. Kathryn comments on the key financial results in her Chief
Executive's Report.
BOARD COMPOSITION AND RENEWAL
Alongside implementing increasingly federated governance and more clearly
defining Group's role and responsibilities, we have taken the opportunity to
review the composition of the Group Board. John Gallagher, my predecessor,
stood down in May 2018 and both Colm Barrington and Robin Phipps stood down in
August 2018. I thank each of them for their contribution to the Board and
their support of the Group. We are delighted that John remains a significant,
and supportive, shareholder in the Group.
During the year, John Cotter stepped down from the Group Board upon his
resignation as Group Chief Executive succeeded by Kathryn Purves, previously a
non-executive director of the Group and chair of the Group Risk Committee. I
would like to thank John for his contribution to the Group as CEO and CFO over
the years.
Gavin Howard was appointed Interim Group Chief Financial Officer in April and
subsequently joined the Group Board in August 2018 as Director and Group CFO.
Gavin has also taken on the role of James Hay CFO alongside his Group role.
Changes in the management teams of the businesses are discussed in more detail
in the operational reviews.
I believe that the Group Board, consisting of four non-executive directors and
two executive directors, is now more appropriately sized for its role within a
federated governance framework and operating alongside the boards of both
James Hay and Saunderson House, each of which include experienced, independent
non-executive directors. I would like to thank the members of both boards for
their support in implementing our federated governance.
As a result of the changes to the Group Board, the composition of the Board
committees has also changed during 2018. The Risk Committee and Audit
Committee have now been combined. The members of the Risk and Audit Committee
are: David Paige (chair), Cara Ryan, Peter Priestley and myself. The members
of the Remuneration Committee are: Peter Priestley (chair), Cara Ryan and
myself. The members of the Nominations Committee are: Cara Ryan (chair), Peter
Priestley and myself.
people and culture
My thanks go to the executive leadership of the Group and its subsidiaries,
and to all our employees across both our businesses, for their continuing hard
work, in what has been a challenging year for the Group. Tony Overy, Alastair
Conway and their teams have delivered considerable success in strengthening
their businesses, serving their existing clients and attracting new ones.
These efforts enable us to deliver value to shareholders and I thank them all
for their hard work and commitment.
Our ambition as a Group is to create and grow value for our shareholders,
clients of our businesses and employees across the Group, by supporting our
businesses to help end clients to save, invest and plan for their financial
future. Whilst James Hay and Saunderson House each has their own culture and
clearly defined values that are relevant to their services and clients, our
business principles form a framework within which the Group and its businesses
operate. We will always strive to:
· act with integrity in our dealings with all parties, both internally and
externally, treating people fairly and honestly;
· operate with ambition whilst ensuring compliance with both the letter and
the spirit of law and regulation; and
· take responsibility for our decisions and actions.
These principles inform and support the Group's culture and ensure we and our
businesses deliver excellent client outcomes and contribute positively to our
wider stakeholders.
The Board has also undertaken a review of the 2018 UK Corporate Governance
Code, which was published in July 2018, and how it may impact the Group and
its corporate governance. There are a number of workstreams underway to ensure
the Group continues to operate to a high standard of governance within its
businesses and that it is fully compliant with the new Code in 2019.
DIvidend
In light of the continued uncertainty around the resolution of a number of
legacy matters and the timing and scale of any exposure, the Board has
reluctantly taken the decision to continue with its prudent approach of
retaining cash to cover worst-case outcomes and, as a result, no final
dividend will be paid in respect of 2018 (2017: interim 1.60 pence per share).
The Board remains committed to a progressive dividend policy, with two
businesses which are cash generative. We intend to return to paying dividends
at the earliest possible time, once there is more clarity on these uncertain
potential exposures.
BREXIT
The regulatory challenges, political uncertainty and market volatility
experienced during 2018 are expected to continue in the year ahead. In the
event of a "hard" Brexit or a "no deal" Brexit there could be significant
knock on impacts across the UK economy and markets. The impact of Brexit on
our businesses is difficult to predict. Uncertainty drives an increased need
for financial advice but causes volatility in markets and delays decision
making. Any negative impact on the wider economy could reduce our clients'
ability to invest or increase their need to withdraw funds. The impact on
equity markets and interest rates may also impact our revenue linked to market
rates. Both of our businesses have considered a range of potential scenarios
to ensure they are well prepared and have undertaken extensive planning for
these scenarios. Further detail on the impact of Brexit is discussed in the
Business reviews. Brexit remains a source of considerable uncertainty and a
prolonged period of market turmoil or a significant economic downturn could
potentially have material adverse consequences for either business.
OUTLOOK
Despite a challenging start to 2018, the businesses have performed well,
delivering improved underlying performance and entering 2019 with confidence
and clear and ambitious medium-term plans. Brexit continues to be a source of
considerable uncertainty and the impact on the economy and investment markets
could have implications for both our businesses and their clients.
We are making good progress on the three near-term priorities identified as
part of our strategic review and we are moving towards having two self-reliant
businesses able to deliver on their growth plans. Resolution of legacy issues
will allow our businesses to focus on delivering on their potential and will
allow us to consider strategic options for the Group.
The Board is committed and confident in our ability to create value for you,
our shareholders.
Mark Dearsley
Chairman
22 March 2019
Extract from Group Chief Executive's statement
**********************************************
DEVELOPING TWO SELF-RELIANT BUSINESSES
......................................
2018 in review
The start of 2018 was a difficult period for the Group, with assessments from
HMRC in relation to Elysian Fuels and the cancelled Saunderson House sale
process creating material disruption and distraction, both internally and
externally. Management changes in April 2018 saw the appointment of a new
Chairman, CEO and CFO.
Since April, the new management team has engaged with a wide range of
shareholders and has also undertaken a review of the Group strategy and
structure in order to ensure we can deliver value effectively to shareholders.
Our focus has been on: supporting and stabilising the businesses to deliver
improved operating performance; developing strong relationships with the
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respective management teams; progressing and implementing critical near-term
priorities which are essential building blocks to creating and delivering
value for shareholders and reviewing a range of options around Group strategy.
We believe that addressing our identified near-term priorities, building two
self-reliant businesses within an efficient Group structure and progressing
resolution of legacy issues, enhances the strategic optionality for the Group,
allowing us to consider a range of options to best deliver value to
shareholders.
PERFORMANCE
During 2018 the Group has delivered strong top line growth with Group revenue
of GBP87.6 million up 12% from GBP78.4 million in 2017. We have two strong,
attractively positioned businesses that are performing well, however,
performance was again depressed by exceptional costs, primarily related to the
resolution of legacy matters in James Hay and one-off retention costs
following the cancelled sale process in Saunderson House. Whilst it is
disappointing to report another year of material exceptional cost, we believe
that dealing with legacy is a key priority and we have been focused on
improving clarity around potential issues in a timely manner.
With improved underlying performance in both businesses, we have delivered a
materially improved adjusted operating profit up 18% to GBP12.4 million from
GBP10.5 million in 2017. This, was depressed by GBP9.9 million of exceptional
costs, resulting in operating profit of GBP0.3 million up from a loss of GBP0.4
million in 2017. Basic loss per share was 0.90 pence, compared to a loss of
0.32 pence in the prior year. Adjusted earnings per share improved by 10% to
9.14 pence per share from 8.34 pence per share in 2017. Overall the Group
generated cash of GBP3.1 million during 2018, compared to GBP3.8 million of cash
consumption during 2017. Free cash flows have increased by 16% to GBP6.6 million
from GBP5.7 million in 2017 and Return on Capital Employed improved marginally
to 0.4% from -0.6% in 2017.
James Hay
The platform market continues to be an attractive, growing market supported by
long-term structural growth drivers. James Hay has a strong position within
the high net worth, trusted adviser-led SIPP platform market with
significantly higher than average case sizes and a powerful brand in relation
to pension expertise.
James Hay saw a material increase in revenue in 2018, driven by pricing
changes in 2017 and an increase in margin on cash as interest rates have
increased. It was however, adversely affected by weaker investment markets and
a decline in defined benefit ("DB") transfer volumes which reduced new
business volumes compared to the prior year. Following a comprehensive review
of James Hay's strategy, we remain confident of its ability to develop from
its current position as a trusted SIPP expert to address the wider platform
market, supporting clients through their investment life cycle.
James Hay plans to accelerate its expansion into the GIA and ISA market,
significantly increasing its addressable market and leveraging its strong
brand name and reputation with financial advisers to capture a greater share
of client investment flows. James Hay's management continues to focus on
driving new business into its MiPlan product, improving cost efficiencies,
expanding its product offering and building out its investment platform.
Saunderson House
The UK wealth management sector, particularly in relation to high net worth
clients, remains an attractive and growing market. Saunderson House is well
positioned within this sector and is focused on providing a wholly
independent, full service wealth management offering. It is a leading, trusted
adviser to high-earning professional services executives in which market it
has an attractive and differentiated advisory and discretionary proposition.
During 2018, Saunderson House was required to manage through a sale process
which was subsequently cancelled, creating a degree of disruption for both
clients and employees. Despite this, the business has performed strongly
during 2018, demonstrating the strength of its relationships with clients, its
brand, service and investment proposition.
Following a comprehensive review of its strategy, Saunderson House expects to
see its discretionary proposition continue to grow, enabling the business to
attract younger clients at the wealth accumulation stage of their life. This
strategy is expected to continue to enhance and embed long term value in the
business with clients accumulating wealth with Saunderson House and remaining
clients for a significant period of time.
DELIVERING NEAR-TERM PRIORITIES
Developing autonomous, self-reliant businesses
Over the course of the second half of 2018 we have focused on developing two
self-reliant, independent businesses with the necessary autonomy, resources
and capability to thrive.
A review of Group governance has been undertaken and has resulted in a
revised, increasingly devolved governance model being implemented, with full
support from the business boards.
We have worked with the boards and management teams of both businesses to put
in place comprehensive, long-term business plans, including setting more
granular targets, and we believe that these plans provide a good foundation
for each of the businesses to move forward with clarity and ambition.
The respective management teams within the businesses have been strengthened
and certain centralised responsibilities (in particular compliance and risk)
have been transferred into the businesses. As part of this, Simon Jackson,
previously Group CFO at Brooks MacDonald, joined Saunderson House as Finance
Director in January 2019, and Gavin Howard, Group CFO, has taken on the role
of James Hay CFO alongside his Group role. We have also brought in Stephen
Mohan as Operations Director in James Hay, as of December 2018, supplementing
the James Hay management team with increased platform industry experience.
Group efficiency
As we have further clarified the Group's role and responsibilities, we have
been able to identify cost savings and we continue to focus on delivering
operating and cost efficiencies within the group function. During 2018 we
significantly reduced the size of the Group Board, as set out in detail within
the Chairman's statement. We continue to make further reductions in the costs
of the group executive/central team and are reviewing options to reduce our
property footprint.
These actions have delivered H2 2018 costs of GBP2.3 million, significantly
lower than those incurred in H1 2018 of GBP2.7 million. The Group remains on
track to achieve annual cost savings of GBP1.0 million, with the full impact of
these savings visible in the second half of 2019. In order to achieve these
cost savings, we expect one-off restructuring costs of approximately GBP1.0
million to be incurred during 2019.
Legacy matters
Resolution of legacy matters, particularly within James Hay, has remained a
core focus during 2018 and has consumed considerable management time and
effort. The Group has continued its engagement with HMRC in relation to the
Elysian Fuels matter to attempt to address their concerns (and the associated,
previously reported, protective assessments). However, disappointingly, there
remains significant uncertainty as to potential outcomes and this issue will
take further time to resolve. Further detail is included in note 7 under
contingent liabilities.
In the interim results, the Group highlighted it was undertaking a review of
the legacy dual trustee book in James Hay. Having now reviewed approximately
20% of the book, we are sufficiently progressed to be able to make a provision
of GBP4.9 million as an estimate of potential issues across the book (see note
4). The provision is largely in relation to potential HMRC sanction charges as
a result of unauthorised payments from SSAS schemes and hence is not covered
by insurance. This is our best estimate as to the potential exposure in
relation to this book. It is based on extrapolation from the sample reviewed
to date and, as such, there is a significant level of judgement in reaching
our estimates and further issues may come to light in future as the review of
the complete book progresses over the course of 2019.
The previously disclosed reviews of NSIs and SSAS Loanbacks are now
substantially progressed. Discussions with HMRC in relation to associated
sanction charges are continuing and these are expected to fall within existing
provisions. We expect these to be closed off with HMRC during 2019. James Hay
is undertaking a voluntary redress programme and continues to engage with the
FCA, and its insurers in order to address any potential client detriment. The
remediation of this book is presently expected to be covered by existing
provisions.
Within Saunderson House, we have significantly progressed the remediation
process in relation to the previously reported pension transfers review, which
is expected to be covered in line with the existing provision made in the
prior year and to be completed during 2019.
In December 2018 we agreed a settlement of GBP1.1 million in relation to the
sale of the International Business resulting in an increase to provisions of
GBP0.6 million from GBP0.5 million (see note 4). This agreement closes off this
matter and removes the risk of a potential finding against the Group of GBP1.3m
plus legal costs, which would likely have been significant had the case gone
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to trial.
The Group maintains a strong balance sheet and sufficient regulatory surplus
capital in line with the Group's risk appetite, retaining cash to cover the
worst-case outcomes in respect of Elysian Fuels and other legacy matters that
are yet to be resolved.
STRATEGY
Alongside addressing the near-term priorities highlighted above, we have also
undertaken a full review of the current Group structure and the options
available to the Group to effectively deliver value to shareholders.
Continuing to progress our near-term priorities will result in a
cost-efficient Group, supporting two self-reliant and standalone businesses,
with legacy matters identified and resolved. This will allow us to explore a
range of strategic options for the Group.
PEOPLE
The quality and commitment of our people, both at Group and within the
businesses, supports our success and our ability to deliver value to
shareholders. I would like to thank all of our staff for their continuing hard
work to serve our clients and grow our businesses. Despite a challenging
period over the past two years, they have dealt with uncertainty and
disruption with professionalism and commitment.
BREXIT
The impact of Brexit on our businesses is difficult to anticipate. Whilst
uncertainty drives an increased need for financial advice, it can also cause
volatility in markets which can impact client confidence and cause delays in
decision making for both clients and financial advisers. Any negative impact
on the wider UK economy could reduce our clients ability to invest, or
potentially increase their need to withdraw funds. Both of our businesses have
considered a range of potential Brexit scenarios to ensure they are well
prepared, but it remains difficult to predict the impact with any certainty.
Both businesses' revenue models provide some protection against falls in
market value. Saunderson House's charges are heavily weighted to time and
materials and as a result, the direct impact of a fall in market value is
limited. James Hay's fees, partially driven by market values, are more
vulnerable to both the impact of market volatility and changes in interest
rates which could adversely affect revenue. Despite this uncertainty, we
remain confident in the long-term structural drivers of the demand for
independent financial advice and platform services.
OUTLOOK
Despite a challenging start to 2018, the underlying businesses have performed
well, delivering improved performance and we enter 2019 with confidence. We
continue to believe in the attractiveness of the markets in which both James
Hay and Saunderson House operate, and we have confidence that both can
continue to develop and maximise the opportunities ahead. Both businesses have
now put in place clear and ambitious medium-term plans with targets for growth
and efficiency. Alongside this we continue to improve the efficiency of the
current Group structure and expect to deliver material central cost savings
during 2019.
The Board continues to take a prudent approach to managing the Group's
liquidity and we continue to retain cash to cover any worst-case outcomes in
respect of Elysian Fuels and other legacy matters that are not yet resolved.
As a result, we will not be recommending a final dividend for 2018, however,
the Board remains committed to reinstating dividends as soon as practicable.
Kathryn Purves
Group Chief Executive
22 March 2019
Extract from financial review
*****************************
POSITIVE UNDERLYING PERFORMANCE
...............................
REVIEW AND COMMENTARY On THE RESULTS
The Group's businesses both delivered strong underlying performance in 2018
and both businesses now serve more clients thanks to winning new clients and
continued strong retention. The pricing changes implemented in James Hay in
late 2017 combined with increases in the Bank of England Base Rate have helped
to deliver a 12% increase in Group revenue, and despite the disruption of the
cancelled sale process in Saunderson House, the business performed strongly
during 2018, demonstrating the strength of its relationships with clients, its
brand, service and investment proposition. As a result, adjusted operating
profit (before exceptional costs and amortisation) was up by 18%. These
positives were offset by significant levels of exceptional costs,
predominantly relating to legacy issues within the Group and stabilizing
Saunderson House following the decision to end the sales process. These
exceptional costs led to operating profit being only marginally up on the loss
in 2017.
This financial review provides an overview of the Group's financial
performance for the year to 31 December 2018, and of the Group's financial
position at that date.
In line with our identified near-term priorities of building two self-reliant
businesses, the Group has reviewed the approach to reporting KPIs. At Group
level we focus on key measures of growth and shareholder value, while KPIs
which are specifically relevant to the underlying businesses are reported
under the respective operational reviews. The detailed financial performance
of the Group is covered below. The two businesses are separately disclosed as
segments, with additional disclosure of the central Group costs.
Revenue improved by 12% from GBP78.4 million in 2017 to GBP87.6 million, with
repricing and the increase in the Bank of England interest rates improving the
underlying performance in James Hay and the strong demand for the Saunderson
House discretionary management service contributing to improved revenue.
Adjusted operating profits increased by 18% from GBP10.5 million to GBP12.4
million demonstrating the strength of the two underlying businesses. This is
despite an increase in one-off central costs incurred during the year.
Adjusted EPS increased from 8.34 pence to 9.14 pence.
The results include exceptional costs relating to the ongoing legacy matters,
as well as residual costs associated with the business disposals made in 2014,
costs associated with the cancelled Saunderson House sale process, and
settlement payments relating to the departure of the former CEO. The operating
profit of GBP0.3 million is marginally higher than the loss of GBP0.4 million in
2017 which was also impacted by material exceptional costs.
Loss after tax for the year of GBP1.0 million was primarily as a result of the
lack of tax relief for sanction charges and settlement costs relating to
legacy matters (2017: GBP0.3 million). Consequently, basic loss per share was
0.90 pence (2017: loss per share of 0.32 pence).
Net assets remained stable at GBP74.0 million compared to GBP74.7 million in the
prior year and consequently, with only a marginal improvement in operating
profit, Return on Capital employed improved slightly from -0.6% in 2017 to
0.4% in 2018.
Free cash flow generated in the year improved by 16% from GBP5.7 million to GBP6.6
million, partly due to lower net capital expenditure combined with improved
operating cash flows.
The Group remains well capitalised. Despite an improvement in cash from GBP24.6
million to GBP27.7 million, we continue to conserve cash to ensure that we have
sufficient capital and cash to cover worst-case outcomes in relation to our
legacy issues, particularly in relation to Elysian Fuels, where we have
received protective assessments of approximately GBP20 million, plus interest
payable at HMRC's standard rate. As a result, despite the improved performance
for the Group during the year, we will not be recommending a final dividend
for 2018. We recognise the importance of dividend payments to our shareholders
and the Board remains committed to reinstating dividends as soon as
practicable.
Revenue
2018 2017
GBP'000 GBP'000
Platform 53,295 46,169
Independent wealth management 34,338 32,225
Total revenue 87,633 78,394
Revenue was 12% higher than the prior year at GBP87.6 million (2017: GBP78.4
million), with James Hay improving by 15% from GBP46.2 million to GBP53.3 million,
and Saunderson House increasing by 7% from GBP32.2 million to GBP34.3 million.
In James Hay, the repricing undertaken in H2 2017 and the Bank of England
interest rate increases both contributed to increased revenue, though this
impact was partly offset by a reduction in cash balances over the period,
signalling a behavioural change in investment strategy. The increase in
interest rates in late 2018, positions the business well for further revenue
growth in 2019.
Saunderson House saw revenue improve by 7% and the demand for Discretionary
Management Services contributed 60% of client wins during the year and an
increase in DMS revenue of 68% from GBP1.4 million in 2017 to GBP2.4 million in
2018.
Adjusted operating profit
Adjusted operating profit, before amortisation of intangibles and exceptional
costs, increased by 18% from GBP10.5 million to GBP12.4 million. This was
principally driven by the increased revenues in James Hay which saw its
contribution increase by 69% from GBP6.1 million to GBP10.3 million, and adjusted
operating margin return to prior year levels.
The contribution from Saunderson House decreased by 18% from GBP8.6 million to
GBP7.1 million, excluding one-off retention payments of GBP3.0 million, as
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compensation returned to prior year levels reversing a significant reduction
in 2017.
Group costs include costs associated with our London based Group teams, the
Board of Directors, governance and oversight committees and other costs
associated with being a publicly listed company. Group costs increased from
GBP4.2 million to GBP5.0 million as a result of increased costs in H1 2018 related
to interim resources in senior roles. Group costs normalised in H2 2018 with
further cost savings to be delivered during H1 2019 in line with the overall
cost saving initiatives previously announced.
2018 2017
GBP'000 GBP'000
Platform 10,293 6,079
Independent wealth management 7,092 8,599
Group/other (5,007) (4,179)
Total adjusted operating profit 12,378 10,499
Amortisation of intangibles (2,128) (2,137)
Exceptional costs (9,923) (8,795)
Operating profit/(loss) 327 (433)
Finance income 123 52
Profit/(loss) before income tax 450 (381)
Income tax (expense)/credit (1,404) 43
Loss for the year from operations (954) (338)
Exceptional costs
Exceptional costs of GBP9.9 million (2017: GBP8.8 million), comprise remediation
costs in relation to the ongoing investigation and resolution of legacy issues
in James Hay of GBP5.5 million, retention payments of GBP3.0 million to Saunderson
House staff following the cancelled sale, settlement costs of GBP0.7 million
associated with the departure of the former CEO, GBP0.6 million relating to the
full and final settlement of the matter relating to the sale of the
international business and legal costs associated with the cancelled sale
process of GBP0.1 million. Legacy costs are net of actual and/or assumed
recoveries under the Group's insurance arrangements.
Operating profit
An operating profit of GBP0.3 million, after amortisation of intangibles of GBP2.1
million and exceptional costs of GBP9.9 million, was a marginal improvement on
the prior year (2017 loss: (GBP0.4 million)). Amortisation of intangibles,
principally related to the James Hay acquisition in 2010, remained in line
with 2017 at GBP2.1 million.
Tax
The effective tax rate for the Group increased significantly to 312% from
11.3% in the prior year. The effective increase in rate is primarily due to
significant non-allowable costs in UK subsidiaries, primarily settlement costs
and sanction charges, combined with increased Group plc costs. The prior year
effective tax rate benefited from prior year tax adjustments relating to
dilapidations and amortisation. While mindful of our obligations to
Shareholders to ensure tax efficiency, we use only legitimate tax reliefs for
the purposes for which they were intended and do not take part in aggressive
tax planning or condone tax avoidance as both would contravene our cultural
values. See the table below for a reconciliation of the effective tax rate on
results and note 5 for a full reconciliation of the income tax expense.
Reconciliation of effective tax rate:
Gross Tax Effective
GBP'000 GBP'000 Tax rate
Operating profit before tax 450
Add back non-allowable items 7,030
Taxable profit 7,480 (1,468) 20%
Non-allowable items:
Settlement charges relating to the (627)
sale of the International Business
(see note 4)
Sanction charges (see note 4) (3,706)
Other non-allowable expenses* (2,697)
Total (7,030) -
Prior year tax adjustments - 64
Operating profit before tax/ tax 450 (1,404) 312%
charge
*Other non-allowable items related to non-qualifying depreciation, client
entertainment and losses in Ireland and Netherlands with no tax-benefit.
Adjusted EPS and adjusted earnings
The Group uses adjusted operating profit and adjusted earnings as measures of
performance to eliminate the impact of items it does not consider indicative
of ongoing underlying performance due to their unusual, exceptional or
non-recurring nature. The table below provides a reconciliation of how the
group calculates adjusted and basic operating profit.
Year ended Year ended
31 December 2018 31 December 2017
Per share Earnings Per share Earnings
pence GBP'000 pence GBP'000
Loss (0.90) (954) (0.32) (338)
attributable
to owners of
the Parent
Company
Amortisation 1.64 1,724 1.83 1,933
of
acquisition
related
intangible
assets
Exceptional 7.80 8,235 6.39 6,732
items
Relating to 0.60 627 0.44 469
the sale of
Internationa
l business
Adjusted 9.14 9,632 8.34 8,796
earnings
The table above shows how we calculate adjusted EPS and adjusted earnings. The
above amounts are net of tax, if applicable. An amount of GBP45,000 related to
prior year tax adjustments is included in exceptional items above.
Cash flows
The Group generated GBP10.7 million (2017: GBP10.1 million) from operations,
reflecting adjusted operating profits, offset by movements in working capital.
The Group paid a net corporate tax payment of GBP1.1 million in 2018 (2017: GBP2.3
million) and invested a total of GBP4.0 million in capital expenditure (2017:
GBP4.4 million), compared to depreciation and amortisation of GBP6.4 million
(2017: GBP5.3 million). Total dividends paid during 2018 were GBPnil (2017: GBP5.2
million), resulting in an increase in net cash of GBP3.1 million to
GBP27.7million.
Free cash flow generated in the year is an alternative performance measure
used by management to represent the cash flow generated from adjusted
operating activities less cash used in relation to capital expenditure. Free
cash flow improved by 16% from GBP5.7 million to GBP6.6 million, partly due to
lower net capital expenditure combined with improved operating cash flows.
Free cash flow was reduced due to unusually high balances over the year-end
period, used to fund settlement of client trades which adversely impacted
working capital by GBP2.0 million in James Hay, combined with higher working
capital outflows in Saunderson House which resulted from a requirement to
realign work-in-progress billing, as detailed in cash generated from
operations (note 8). The negative impact caused by mis-matched settlement of
client trades in James Hay was subsequently reversed in January 2019.
Management continues to closely monitor the Group's liquidity and ability to
meet obligations as they fall due.
The Group's total cash is restricted due to regulatory capital requirements
within its subsidiaries and a desire to ensure we retain sufficient cash to
cover worst-case outcomes in relation to the known legacy issues. We expect
the businesses to continue to generate cash to fund ongoing investment,
subject to the resolution of a number of legacy matters. The dividend policy
will be kept under review and, subject to retaining cover for our legacy
issues, the Board will seek to resume the payment of dividends at the earliest
possible date.
2018 2017
GBP'000 GBP'000
Cash flows from operating activities 10,665 10,132
Capital expenditure (4,022) (4,388)
Free cash flow 6,643 5,744
Interest and tax (974) (2,213)
Retention payment (1,500) -
Disposals of subsidiaries 550
Deferred consideration 4,037
Head office restructuring and exceptional costs (1,050) (6,650)
Dividends paid - (5,217)
Cash settlement of share awards - (35)
Net cash inflow/(outflow) 3,119 (3,784)
Use of alternative performance measures
The Group has identified certain measures that it believes will assist in the
understanding of the performance of the business. These measures are not
defined under IFRS but can be used, subject to appropriate disclosure in
conformance with the guidance issued by the European Securities and Markets
Association (ESMA). These alternative performance measures are; adjusted
operating profit, adjusted earnings per share, adjusted operating margin,
Return on Capital Employed and free cash flow as set out in note 2.
Adjusted operating profit, Adjusted EPS and Adjusted operating margin, exclude
acquisition-related amortisation, exceptional items and discontinued
operations. Management believes excluding these items from the calculation of
basic operating profit, Basic EPS and Basic operating margin is useful because
management excludes items that are not comparable when measuring operating
profitability, evaluating performance trends and setting performance
objectives. It allows investors to evaluate the Group's performance for
different periods on a more comparable basis.
The reconciliation of adjusted operating profit to profit before income tax is
disclosed in note 3.
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Return on capital employed
Return On Capital Employed is an alternative performance measure used by
management to measure how efficiently the Group generates profits from its
capital employed by comparing it to net profit, is calculated as earnings
before finance income and/or costs and tax, divided by capital employed.
The return on capital employed in 2018 has improved marginally to 0.4% (2017:
-0.6%), which was impacted by the material exceptional costs in both James Hay
and Saunderson House.
Financial and capital position
The Group's Consolidated Statement of Financial Position is set out below. The
Consolidated Statement of Financial Position remains strong and highly liquid.
Net cash increased from GBP24.6 million to GBP27.7 million in the year (see note
9).
The Pillar 1 capital resource requirement for the Group has been calculated in
accordance with the Financial Conduct Authority regulations and is GBP5.1
million (2017: GBP6.6 million).
The Group has recently reviewed its approach to calculating capital resources,
increasing the level of deductions from its allowable capital based on a more
conservative interpretation of the capital requirements regulation. This
revised approach results in a more prudent assessment of regulatory capital
resources of GBP25.6 million (2017: GBP49.5 million). In spite of the reduction,
the group has a coverage of 502% (2017: 750%) of its Pillar 1 requirement.
The Group has also assessed its Pillar 2 capital resource requirements and
confirms that it has sufficient capital resources to meet these requirements
for the foreseeable future and maintains surplus regulatory capital in line
with the Group's risk appetite. Resolution of legacy matters will impact the
actual capital position of the Group, but will also reduce Pillar 2
requirements going forward, as the assessment of potential capital
requirements will reduce when these legacy matters are resolved.
Financial risk management
The Group's Finance function oversees the management of the Group's exposure
to exchange risk, credit risk, liquidity and interest rate risk, in line with
defined policies and procedures. The Group does not trade in financial
instruments, except as necessary to hedge foreign currency exposures. The
Group does not enter into leveraged derivative transactions. Under the
management of the Group Financial Controller, working closely with the
divisional finance teams, treasury including Group funding and liquidity
requirements are managed.
The Group's financial reporting currency is Sterling, reflecting the primary
economic environment in which the businesses operate. The Group's revenue is
principally earned in Sterling, and the majority of its expenditure is
incurred in Sterling. The Group incurs certain Euro-denominated costs,
principally related to its Irish subsidiary.
Share price and market capitalisation
The Company's shares traded in a range of between 123 pence and 190 pence
during the year. The share price at 31 December 2018 was 131 pence (31
December 2017: 184 pence), a decrease of 29% in the year. The market
capitalisation at 31 December 2018 was GBP138.1 million (2017: GBP194.0 million).
There were 105,405,665 shares in issue at 31 December 2018.
Extract from operational review - James Hay
*******************************************
HIGHLIGHTS
· Revenue GBP53.3 million
· Adjusted operating profit GBP10.3 million
· Assets under administration GBP25.3 billion
· Total clients 58,753
Industry overview - platform
We operate in an industry with a favourable long-term outlook. Assets in the
advised platform market have grown from GBP463 billion (Q3 2017) to GBP540 billion
(Q3 2018) (Platforum's Adviser Guide Q3 2018) - an increase of 16.6%. Industry
forecasts predict the platform market will double in size in the next five
years and we expect our segment of the market to grow broadly in line with
this (Fundscape Q3 2018).
2018 has seen a number of challenges impacting the sector. SIPP new business
was impacted by increased scrutiny of Defined Benefit ("DB") transfers which
resulted in financial advisers taking time to ensure that their processes are
robust and that transfers continue to deliver good outcomes for consumers.
The regulatory landscape continued to develop with the Markets in Financial
Instruments Directive (MiFID) II and General Data Protection Regulation (GDPR)
recently implemented and the new Senior Managers and Certification Regime
(SMCR) due to come into force in late 2019. The FCA's final report for their
Investment Platform Market Study (IPMS) has recently been published and
consultation with the industry is ongoing for the FCA's Retirement Outcome
review. Both of these are likely to have implications for the market.
Platform providers have experienced significant merger, acquisition and IPO
activity. Nucleus, Transact and AJ Bell completed their listings to either the
AIM or LSE. Interactive Investor purchased ATS and FNZ, a technology provider
for many platforms, was purchased by Al Gore's Generation Fund in a deal
valuing the business at GBP1.7 billion.
Political uncertainty in the UK and the continuing Brexit negotiations along
with an emerging global economic slow-down has led to increased market
volatility which is likely to continue into 2019.
Goal
Our goal is to be a successful, sustainable and profitable business by
supporting financial advisers and delivering good outcomes to investors as
they accumulate, preserve and manage their wealth up to, through and beyond
retirement.
Our platform facilitates this by enabling investors and their advisers to
manage their retirement wealth safely and securely via an easy-to-use digital
interface and supporting services.
Business strategy
James Hay has a strong position as a SIPP specialist, recognised for its
capability at the complex end of the market. This is yet to be reflected in
adjacent ISA and General Investment Account (GIA) markets, and we will
continue to invest in enhancing our capability in these areas. The platform
space continues to see consolidation of pension and savings assets from those
with multiple products/pensions, and we see an opportunity to attract
incremental pension and non-pension assets from our existing client base.
Our distribution strategy focuses on high quality Independent Financial
Advisor ('IFA') relationships, and we continue to invest in enhancements to
our client services. We will continue to increase efficiency by making better
use of digital and self-serve capabilities.
Our focus remains on creating a 'digital platform' for the future and
responding to adviser and investor demand. This contributes to increasing
scalability and supports our journey to becoming a fully functional platform
for retirement wealth management. Our Insight programme has provided valuable
information on what advisers and clients expect from a platform. One of our
responses to this was to introduce more simplified language in our
communication with clients.
Business Review
2018 saw softer markets and a significant reduction of DB flows, with new
business flows of 4,651 (24% lower than 2017).
Customer retention across JHP remains unchanged at 93%, with retention in our
core product slightly higher at 94% and higher attrition among the legacy
products.
We now administer assets for 58,753 clients across our business, of which
55,200 are in SIPPs, (35,744 in MiPlan), and the remaining 3,553 are in
Small-Self Administered Schemes 'SSAS' and Wrap products.
2018 2017 Change
Clients
Opening 58,551 56,178 4%
Additions 4,651 6,116 -24%
Account consolidation (380) (169) 125%
Attrition (4,069) (3,574) 14%
Closing 58,753 58,551 0.3%
Assets under Administration (AuA) decreased by 1% on 2017 at GBP25.3 billion
with net inflows of GBP0.8 billion offset by market movements in Q4 2018 amidst
political uncertainty and fears of global market slow down. James Hay is now
the 8th largest platform in the UK by AuA (Platforum's Adviser Guide Q3 2018).
31 December 31 December
AUA
2018 2017
Opening 25.5 22.1
Net inflows* 0.8 1.7
Market movement (1.0) 1.7
Closing 25.3 25.5
Of which subject to asset-based charging 7.0 7.1
*Net inflows include withdrawals and exits
2018 revenue of GBP53.3 million was 15% higher than 2017 (GBP46.2 million) due to
the full year impact of re-pricing undertaken in 2017 combined with the
interest rate increases in Q4 2017 and Q3 2018. Our revenue is analysed in
note 3 and shows that asset-based fees account for 25% of revenue, annual and
transaction fees 52% and margin on cash 23%.
This year saw significant improvement in adjusted operating profit up 69% on
last year at GBP10.3 million (2017: GBP6.1 million) despite costs increasing by 7%
as we invested in people and efficiency programmes.
Operating profit after exceptional items improved from a loss of GBP2.3 million
in 2017 to a profit of GBP2.7 million. Exceptional items of GBP5.5 million relate
primarily to the ongoing legacy review of the dual-trustee book, previously
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highlighted (2017: GBP6.3 million).
LEgacy matters
We received protective assessments from HMRC in relation to client investments
in Elysian Fuels in H1 2018. We have appealed the assessments and attempted to
seek further information from HMRC to better understand their position and
inform our application against the assessments. We have submitted an
application under s268 Finance Act 2004 for the discharge of James Hay's
alleged liability assessed by HMRC in respect of tax years ended 5 April 2012
and 5 April 2013 and expect to submit applications in relation to later tax
years in due course. We currently expect that a process involving appeals to
tribunal would be unlikely to complete before late 2019 or mid-2020. The 2017
year-end provision of GBP1.3 million to cover the legal costs of such an appeal
process remains unchanged other than amounts utilised during the year. Based
on advice from the Group's legal advisers, the directors are confident that
the outcome at tribunal and/or settlement with HMRC would be substantially
lower than the maximum potential sanction charge.
The Group and James Hay Boards remain confident that any settlement with HMRC
would be materially lower than the c.GBP20 million included in HMRC's
assessments, together with any interest payable at HMRC's standard rate, and
that any financial exposure would be fundable from the Group's cash resources.
Dialogue with HMRC in relation to the Elysian Fuels matter is ongoing, but
there remains significant uncertainty as to the timing of a conclusion and the
impact of any negotiated settlement, which could be material. Given the
uncertainties regarding the fact of any liability and the size of any
potential sanction charge, we remain unable to make a provision and continue
to include this as a contingent liability.
We continue our review of other legacy business, to ensure that any other
exposures are identified and remediated where necessary. We have made
considerable progress in our review of Non-Standard Investments and we are in
ongoing discussions with HMRC in relation to a small number of cases which may
result in sanction charges. We continue to review these areas for client
detriment where redress may be applicable, however, we expect the majority of
this would be recoverable from insurance. We expect to conclude these matters
during 2019 and within the existing provision.
Review of the dual-trustee book which is now closed to new business is
underway. The complexity and structure of the book contribute to a greater
degree of risk inherent within the book and a high reliance on the control
environment in place. We have now reviewed approximately 20% of the SSAS book
and work continues to complete the review. This work may identify further
cases in need of remediation (which we would expect to be significantly
recoverable from insurance) and/or subject to sanction charges. We are
retaining significant costs in the business in relation to this review, in the
region of GBP1.0 million in each of 2018 and 2019, which is delaying the
emergence of efficiencies. On completion of this stage, we believe all
material legacy risk areas in James Hay will have been reviewed for financial
exposure and client detriment.
On the basis of the cases reviewed to date, we have made a provision of GBP4.9
million in 2018 in relation to potential sanction charges and legal fees
relating to the dual trustee book. This provision is our estimate of the costs
across the entire SSAS book and includes an extrapolation from the findings to
date. A level of significant management judgement is required in our provision
estimates which may change as we progress further with the review.
investment in our people
We continue to invest in our people to ensure successful delivery of our
strategic goals and good client outcomes.
The recent staff survey showed continued improvement in employee engagement
with a response rate of 87%, the highest we have achieved. There was a clear
desire to focus on training and development and this will be an area of focus
for 2019 and beyond.
In addition, we have further strengthened the senior management team with Iain
McCoo moving over to the role of Chief Commercial Officer with Gavin Howard
joining as CFO in November alongside his IFG Group role and Stephen Mohan
joining as Operations Director in December.
OUR CLIENts
We support clients as they accumulate and maintain wealth for the later phases
of their financial lives. Our proposition is designed for retail clients, that
are financially secure, typically with at least GBP200,000 to invest (our
average client portfolio size is GBP450,000) and looking to aggregate their
investments in one place, through tax wrappers, to maximise tax efficiency for
both saving and managing income. We offer a range of investments giving
clients the ability to meet their financial needs over time. Our proposition
is predominantly aimed at clients who are advised. We have a targeted approach
to the advisers we do business with, ensuring their clients are aligned with
our target market and seek to meet the needs of these advisers through our
overall service proposition.
We believe that meeting client expectations is central to our success as a
business. We strive to improve outcomes for clients through our service and
on-going client insight reviews. We use insight reviews to monitor our clients
understanding of James Hay products, how they align with our target market and
how they are using our products. Our review of client understanding of the
cooling off period has resulted in a rewrite of our communications on
cancellation rights, which saw a marked positive increase in client insight
scores in this area while insight into product charges has resulted in a
redesign of how we construct our charges schedules. We also regularly take the
opportunity to remind clients of how our products are intended to be used to
ensure they remain fit for their needs.
2018 brought about a strong focus on the timeliness of our service to clients,
with a significant improvement seen in meeting our published service levels.
As at the end of 2018, clients gave us a positive NPS score of +14 and
Customer Satisfaction (CSAT) score of 90%. 2019 will be focused on improving
the client and adviser experience further with newly appointed resource in
this area.
culture and values
James Hay's culture is founded on our values and behaviours. We aim to behave
in a way that is Confident, Professional, Positive and Engaging and espouse
the following values:
i) Think Investor - Thinking Investor has always been central to James Hay.
We're called to have a broad understanding of Investors' entire retirement
wealth planning journeys and act in the best interests of Investors rather
than simply servicing the needs of one individual, to the potential
detriment of our wider client base.
ii) Do the Right Thing - We must consider Investor Outcomes in all decisions
made and keep the end Investor in the forefront of our minds. Personal
ethics, such as honesty, integrity, fairness, diversity and inclusivity, as
well as consideration of 'the greater good', all ensure that our actions
consistently promote positive outcomes.
iii) Work as a Team - Good communications, setting and working towards
common goals, and playing to your individual strengths to improve outcomes
for Investors. Working as a team contributes to the shared success of the
business.
iv) Take Responsibility - More than achieving objectives and 'getting the
job done', Taking Responsibility means that we take action with a
willingness to 'think big' and deliver, adding value to the business's
overall success.
brexit
In light of the current political uncertainties, in particular in relation to
Brexit and its timing and impact, the year ahead is expected to continue with
the regulatory challenges, political uncertainty and market volatility that
impacted the tail end of 2018. In the event of a "hard" Brexit or a "no deal"
Brexit, there could be significant knock on impacts across the UK economy and
markets which would also impact James Hay. Market volatility, or market
declines, could adversely affect James Hay's revenue (in relation to revenue
earned on an ad valorem basis) and could impact clients' willingness to make
investment decisions. Furthermore, a sustained economic downturn in the UK
could result in higher unemployment and, potentially, a need for clients to
access their pension savings and reduce assets held on platform. Given the
political uncertainty surrounding Brexit, we have undertaken extensive
planning for a range of scenarios including 'hard' or 'no-deal' Brexit, an
agreed deal with an implementation period, early General election and
extension of Article 50. James Hay has limited direct business with Europe,
but uncertainty around Brexit could increase trading activity, cause
volatility in margins and reduce new business volumes. Both James Hay's asset
based and margin on cash revenue, which accounts for approximately 48% of
revenue, is vulnerable to market volatility. We believe that we are well
positioned given our preparation and have added information to our website to
keep advisers and investors informed.
Despite this uncertainty, we remain confident in the long-term structural
drivers of the business and the demand for platform services.
OUtlook
Having completed a comprehensive review of our longer-term strategy, James Hay
will continue its commitment to the platform market delivering an expanded
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DJ IFG Group plc: Preliminary Statement -8-
ISA/GIA proposition, focused on high net worth clients who are advised by our
strategic partners. James Hay continues to view the medium-term sector outlook
as positive.
The August 2018 interest rate increase will have a full year impact on 2019,
however overall cash balances have been at lower levels signalling a
behavioural change in investment strategy, while market volatility may impact
revenue earnings. A 5% movement in cash balances would impact revenue by
approximately GBP700,000 p.a., while a 5% movement in assets held in James Hay's
investment centre would impact revenue by approximately GBP550,000 p.a.
We are focused on resolving legacy matters, which continue to absorb
significant management time and focus. We believe that on completion of the
dual-trustee review, all material legacy risk areas in James Hay will have
been reviewed for financial exposure and client detriment and the reduction of
costs relating to this work is likely to lead to increased efficiency and will
allow us to focus on growing the core business.
Extract from operational review - Saunderson House
**************************************************
HIGHLIGHTS
· Revenue GBP34.3 million
· Adjusted operating profit GBP7.1 million
· Assets under advice GBP4.9 billion
· 10% growth in clients bringing total clients to 2,342, 396 of which are
DMS clients
Industry overview - independent wealth management
2018 delivered another year of heightened political activity, both in the UK
and overseas - with Brexit, domestic parliament instability and US-China trade
relations dominating headlines. This, alongside other economic factors,
brought with it a correction in some financial markets and a downward turn in
investor confidence.
The sustained low interest rate environment, coupled with significant market
uncertainty has continued to drive demand for wealth management services, and
the wealth management industry has experienced strong asset inflows, with
total investment assets managed by UK Wealth Managers having risen to cGBP783bn
as at 30 September 2018 (Compeer, 2018).
Demographic trends are supportive for our business. The growing and aging UK
population (ONS, 2017), a declining workforce as a proportion of the overall
population, and increasing concentration of UK wealth (ONS, 2018) encourage
demand for personal financial advice and increase the government's focus on
self-provision for retirement. We remain attuned to changes in consumer
preferences - particularly as we develop relationships with an increasing
number of younger clients and must respond to the rise of the 'digital
consumer'.
We continue to observe regulatory change within the industry, as firms meet
the Markets in Financial Instruments Directive (MiFID) II changes (including
cost and charges reporting) and prepare for the impact of Senior Managers
Certification Regime (SMCR). Regulatory commitments have added to our business
costs, and we have taken steps to improve our control environment, as detailed
in the Business Review below.
Goal
Our goal remains unchanged. We strive to be the first-choice wealth manager in
our chosen markets. We aim to do this by always acting as our clients'
financial advocate and delivering the highest standards of service in terms of
advice and conduct, whilst meeting all other stakeholders' expectations.
Business strategy
Winning clients earlier in their career was one of the core drivers for
launching Saunderson House's Discretionary Management Service (DMS) in 2016,
and this offering accounted for c.60% of new clients won in 2018. The firm's
efforts to extend its appeal to a younger client base have been successful -
resulting in a fall in the average age of our client base; c.50% of clients
under the age of 50 having been won since 2016. We have also expanded our
capability to acquire new clients by developing our adviser population, which
has resulted in 75% of clients now being won by individuals below Director
level (up from 25% in 2013).
In January 2018 we deployed improved technology to support our DMS business
which is now producing efficiency, scalability and control benefits from its
adoption. A significant enhancement was made in Q3 2018 with the introduction
of a seamless dealing service connection to one of our preferred investment
platform providers. Alongside this, significant development work has taken
place to ready this technology for use within our advisory business and we are
expecting full launch across the business from Q3 2019.
To mitigate the growing threat of cyber-crime and to protect the firm and our
clients' data, we have maintained investment in IT infrastructure and are
deploying security standards best practice within the business. To enhance our
broader control environment, we are in the process of developing our 'three
lines of defence'. This will involve reassigning ownership of independent risk
oversight from IFG Group to Saunderson House during 2019. As part of our
ongoing improvement programme, we have also delivered additional initiatives
to enhance our risk management controls, including recruitment within our risk
and compliance function, delivery of adviser training and development of our
management information framework.
Business review
We were proud to celebrate Saunderson House's 50th anniversary in October
2018. By acting as our clients' trusted financial advocate, we have grown to
become recognised as a leading provider to the City of London's top
professional individuals. Alongside significant growth within the firm, we are
proud to have helped our clients grow their own wealth and support them in
navigating difficult economic and financial events.
We saw some inevitable disruption to our H1 plans as a result of the process
that was undertaken in Q1 around a potential sale of the business, which was
subsequently cancelled. In particular, we experienced a slight slowdown in new
client wins during the first half of the year. We made much of this back
during the second half, enabling the business to achieve new client growth
largely in line with the prior year (2018: 239 new clients won, 2017: 247). At
the same time, we grew total revenues by c.7%. to GBP34.3m from GBP32.2m in 2017.
Saunderson House now serves 2,342 clients with assets under advice of cGBP4.9
billion (down from GBP5.1 billion in 2017) due to recent market movements.
Operating profit fell to GBP4.1 million (2017: GBP7.2 million), primarily as a
result of GBP3.0 million related to retention payments made to staff, following
the cancelled sale of the business.
As independent recognition of the Saunderson House offering, we were awarded
Wealth Management Firm of the Year at the MoneyAge awards in Q4 2018, as well
as being shortlisted for the Best Wealth Management Adviser and Best
Investment Adviser in the Money Marketing Awards 2018 earlier in the year.
Our in-house investment proposition plays a key role in our broader wealth
management offering. Our investment team has maintained its long-term
investment performance across three, five and ten years. Over the last decade,
our Wealth Accumulation Balanced portfolio has delivered a total return of
115.2%, outperforming the appropriate Asset Risk Consultants (ARC) comparator
by 25.5%.
2018 was the worst year for equity markets since the global financial crisis.
In stark contrast to the preceding 12 months, markets were extremely volatile
and all major stock indices lost value in both local currency and sterling
terms, providing for a challenging backdrop for portfolio returns. Even
traditional safe haven investments produced only negligible gains, as low
yields and the transition to a less accommodative monetary policy backdrop
capped the return from these assets. Over the first nine months, headwinds
included our underweight allocation to US equities, while larger weightings to
markets trading at a valuation discount, including European and emerging
markets, had a negative impact. However, this positioning worked in our favour
during the fourth quarter as US equities bore the brunt of the selling
pressures, while our decision to reduce equity allocations in May also
provided a degree of protection from wider market falls.
We took a further step to de-risk portfolios in December, trimming exposure to
UK commercial property, with the proceeds being retained in cash. Despite
Brexit induced uncertainty impacting UK-based assets in 2018, the UK
commercial property market held up relatively well. As a result of relatively
strong performance, the average market yield has since fallen and, in our
view, no longer provides adequate compensation to justify substantial
allocations to the asset class.
Equity markets bounced back sharply at the beginning of 2019, helped by more
promising trade talks between China and the US, a more dovish than expected
tone from the Federal Reserve and an encouraging round of corporate earnings
announcements in the US. As such, US equities were the strongest performers
over the period in local currency terms though all monitored regions were in
positive territory.
LEGACY MATTERS
In relation to the previously announced legacy matters, the firm has now
completed a review of its back book of transfers and has identified a small
number of cases where redress and compensation will be awarded to clients. The
firm expects to complete the remaining work by the end of 2019 which is
expected to settle within the current provision held.
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DJ IFG Group plc: Preliminary Statement -9-
investment in our people
We welcomed 15 new trainee financial planning staff in Q3 2018, as part of our
ongoing graduate programme. Since its launch in 2001, the graduate programme
has enabled the firm to recruit highly capable individuals and help them
develop their careers to become chartered financial planners or qualified
investment professionals. By cultivating new staff in this way, we are able to
offer excellent career opportunities, whilst instilling our strong
client-focused culture throughout the business.
We were pleased to be reaccredited to the Silver Standard of Investors in
People (IiP) - recognising the commitment we have to recruiting and developing
top talent. In H2 2018, we conducted an employee engagement survey across the
business; the results of which are contributing to our plans for 2019. We
recruited for a new Learning and Development role to evolve and formalise
career journeys within the organisation and provide enhanced development
support within all business functions. We have also launched an internal
awards and recognition programme using our new employee engagement platform,
'SHine', which was introduced earlier this year.
Tony Clarke was appointed to the Saunderson House Board in May 2018 and Chris
Sexton left the Saunderson House Board in Q3 2018. Following Chris Sexton's
departure, the investment team has transitioned to new leadership under Andrew
Birt who has been with the business over 15 years, demonstrating the strength
and depth throughout the Saunderson House team and our desire to promote
talent from within the business where possible. Simon Jackson, previously
Group CFO of Brooks Macdonald, joined Saunderson House as Finance Director in
January 2019.
our clients
We continue to experience strong demand from professional sectors, with
penetration rates of up to 50% within the partnerships of some of the largest
UK accountancy and legal firms. The addition of the discretionary management
service allows us to expand this market by focusing on those earlier in their
careers. We continue to leverage these strong relationships to engage with
prospects from new markets. Over 45% of clients won in 2018 came from non-core
markets, predominantly through referrals from clients and other professional
firms.
During the next 10 years, GBP215bn of UK millionaires' investable wealth is
expected to be passed on to the next generation (GlobalData, 2018). This has
prompted concerted efforts to be made in recent years by wealth managers
seeking to retain and grow their asset base by targeting future wealth
recipients. As part of our holistic wealth management approach, Saunderson
House has always actively engaged multiple generations within families we work
with. This has helped us build strong, deep relationships with our clients, as
well as understanding the needs and challenges that they have in passing on
wealth to future generations.
Passing wealth on to children (or wider family and friends) while minimising
the inheritance tax liability on death is often a key objective for our
clients. However, given the significant sums that can be involved, some are
concerned that a gift could impact on their children's career efforts, or fail
to be invested for the long term.
In 2018, Saunderson House conducted a research study amongst c.200 high net
worth individuals titled "Financial Wellbeing: More than just pounds and
pence". We found a substantial gap between the importance individuals placed
on providing financial support to their family (average rating of 4.4/5) and
the importance of discussing financial matters with their family (rated
3.7/5). This is an area where Saunderson House adds value to our clients, by
providing a consultative service to guide families through both the financial,
as well as emotional, aspects of wealth transfer.
Client retention levels were 99% for 2018, which is understood to be
exceptionally high for our industry. Our client feedback programme has
highlighted consistently high advocacy levels throughout the year (with an
average rating of 9.4/10). Responsiveness and personal service are frequently
noted as drivers of client satisfaction, alongside the professional service
delivered by our advisory team.
culture and values
Maintaining a strong, client-focused internal culture is critical to deliver
the high levels of service that the Saunderson House brand has been built
upon. In 2018, we conducted a review of the firm's values, which was driven by
the leadership team and involved all areas of the business. In addition to
redefining the values that underpin what we do, we have aligned these values
with our people management practices and embedded them within our conduct
framework to ensure they overarch the day to day operations of the business.
Working Together: Acknowledge and leverage individual strengths through
collaboration to be the best that we can be. Embrace change and encourage
diversity. Always treat others with the respect and compassion we would expect
to receive ourselves.
Make It Happen: Continuously striving to be the best in class, results driven
and deliver excellent outcomes for our clients. Always thinking ahead and
being both proactive and timely in our approach.
Think with Purpose: Always ensuring our advice to clients is considered and
resolute. Taking a long-term view whilst recognising the importance of our
tailored approach to client needs. Challenging ourselves to be innovative and
thought provoking.
Be the Difference: Always willing to go above and beyond for our clients.
Striving to make a difference to those around us by always acting with
integrity, and in our clients' best interests.
Lead from the Front: Committed to leading by example by being relentlessly
curious, owning the problem and striving for excellence. Ensuring leadership
happens at all levels of the organisation to reinforce our dedication to being
the first choice wealth manager.
brexit
Although the outcome of Brexit is currently uncertain, the UK-focus of our
business mitigates much of the vulnerability that areas of the industry face
regarding potential barriers to trade and the movement of people. With respect
to our clients, we have witnessed increased concern over the potential fallout
of UK political decisions, and in a survey of around 200 Saunderson House
clients, a change in UK government was rated as a higher concern than
geopolitical instability across all levels of wealth and was most prevalent
for those with larger portfolios. Whilst the direct impact of Brexit on
Saunderson House is relatively limited, particularly in light of Saunderson
House's fee structure and asset-based fees accounting for less than 5% of
revenue, a "hard" Brexit or "no deal" Brexit could impact across the UK
economy. A sustained market downturn or increased UK unemployment could
negatively impact clients' willingness and ability to invest, and hence could
impact demand for Saunderson House's services. Addressing this uncertainty, we
continue to guide clients towards diversified portfolios, both in terms of
investment holdings as well as the structure of their assets.
Despite this uncertainty, and indeed potentially driven by this uncertainty,
we remain confident of the demand from high net worth clients for high quality
financial planning and investment advice, particularly in times of market
turbulence.
outlook
As previously announced, we see opportunities to grow our brand through
increased penetration in our current market segments, as well as across new,
specialist market segments. We seek to do this by capitalising on our
differentiated financial planning and investment offering and by leveraging
our strong client relationships. We anticipate further growth in our
discretionary management service, in both client numbers and assets, as new
clients are attracted to the service and recently won younger clients
accumulate additional wealth.
Consolidated Income Statement
*****************************
Year ended 31 December 2018
Notes 2018 2017
GBP'000 GBP'000
From
operations
Revenue 3 87,633 78,394
Staffing (54,578) (49,265)
expense
Depreciation (6,426) (5,330)
and
amortisation
Expected (56) (64)
credit loss on
trade
receivables/im
pairment
allowance
Other (26,250) (24,299)
operating
expenses
Other gains 4 131
Operating 327 (433)
profit/(loss)
Analysed as:
Operating profit before 10,250 8,362
exceptional items
Exceptional 4 (9,923) (8,795)
items
Operating 327 (433)
profit/(loss)
Finance income 123 52
Profit/(loss) 450 (381)
before income
tax
Income tax 5 (1,404) 43
(expense)/cred
it
Loss for the (954) (338)
financial year
The expected credit loss recognised in 2018 was
calculated in accordance with IFRS 9: Financial
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DJ IFG Group plc: Preliminary Statement -10-
Instruments in comparison to the prior year allowance
which was calculated in line with IAS 39 Financial
Instruments: Recognition and Measurement. The impairment
allowance in the prior year was disclosed as part of
other operating expenses.
Earnings per share from continuing operations
attributable to the owners of the Company during the
year:
2018 2017
Loss per
ordinary share
(pence)
Basic 6 (0.90) (0.32)
Diluted 6 (0.90) (0.32)
Consolidated Statement of Other Comprehensive Income
****************************************************
Year ended 31 December 2018
2018 2017
GBP'000 GBP'000
Loss for the financial year (954) (338)
Other comprehensive income:
Items that may be reclassified subsequently to
profit or loss:
Exchange differences on translation of foreign 29 143
currency operations
Other comprehensive income 29 143
Total comprehensive loss for the financial year (925) (195)
Consolidated Statement of Financial Position
*********************************************
Year ended 31 December 2018
2018 2017
GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and equipment 3,814 4,181
Intangible assets 51,682 53,720
Deferred income tax asset 156 703
Total non-current assets 55,652 58,604
Current assets
Trade and other receivables 23,840 18,054
Income tax asset 134 133
Cash and cash equivalents 27,694 24,572
Total current assets 51,668 42,759
Total assets 107,320 101,363
LIABILITIES
Non-current liabilities
Deferred income tax liabilities 1,817 2,252
Provisions for other liabilities 471 449
Total non-current liabilities 2,288 2,701
Current liabilities
Trade and other payables 20,581 19,239
Income tax liabilities 288 168
Provisions for other liabilities 10,138 4,539
Total current liabilities 31,007 23,946
Total liabilities 33,295 26,647
Net assets 74,025 74,716
EQUITY
Ordinary share capital presented as equity 10,093 10,093
Share premium 82,404 82,404
Other reserves (14,093) (14,118)
Retained earnings (4,379) (3,663)
Total equity 74,025 74,716
Consolidated Statement of Cash Flows
************************************
Year ended 31 December 2018
Notes 2018 2017
GBP'000 GBP'000
Cash flows from operating
activities
Cash generated from operations 8 10,665 10,132
Exceptional items paid (2,550) (6,650)
Interest received 113 48
Income tax paid (1,087) (2,261)
Net cash generated from 7,141 1,269
operating activities
Cash flows from investing
activities
Purchase of property, plant and (1,039) (1,622)
equipment
Sale of property, plant and - 550
equipment
Disposal of subsidiaries - 4,037
Acquisition of intangible (2,983) (2,766)
assets
Net cash (used)/generated in (4,022) 199
investing activities
Cash flows from financing
activities
Dividends paid - (5,217)
Cash settlement of vested share - (35)
options
Net cash used in financing - (5,252)
activities
Net increase/(decrease) in cash 3,119 (3,784)
and cash equivalents
Cash and cash equivalents at 24,572 28,226
the beginning of the financial
year
Effect of foreign exchange rate 3 130
changes
Cash and cash equivalents at 27,694 24,572
end of financial year
Cash and cash equivalents for
the purpose of the statement of
cash flows are comprised of
cash and short-term deposits
net of bank overdrafts. For the
purpose of the cash flow
statement cash and cash
equivalents include the
following:
Notes 2018 2017
GBP'000 GBP'000
Cash and short-term deposits
- as disclosed on the 9 27,694 24,572
Consolidated Statement of
Financial Position
Cash and cash equivalents at 27,694 24,572
end of financial year
Consolidated Statement of Changes in Equity
*******************************************
Share Share Other Retained Total
capital premium reserves earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2017 10,093 82,404 (14,054) 1,763 80,206
Loss for financial - - - (338) (338)
year
Other
comprehensive
income
Currency
translation:
- arising in the - - 143 - 143
financial year
Total - - 143 (338) (195)
comprehensive loss
for the financial
year
Dividends - - - (5,217) (5,217)
Transfer of vested - - (164) 164 -
share-based
payment
Share-based
payment
compensation:
- value of - - (43) - (43)
employee services
- share options
- Cash settlement - - - (35) (35)
of vested share
options
Transaction with - - (207) (5,088) (5,295)
owners
At 31 December 10,093 82,404 (14,118) (3,663) 74,716
2017
Loss for financial - - - (954) (954)
year
Other
comprehensive
income
Currency
translation:
- arising in the - - 29 - 29
financial year
Total - - 29 (954) (925)
comprehensive loss
for the financial
year
Dividends - - - - -
Transfer of vested - - (238) 238 -
share-based
payment
Reclassification - - - - -
of exchange
reserve upon
strike-off of
subsidiaries
Share-based
payment
compensation:
- value of - - 234 - 234
employee services
- share options
- Cash settlement - - - - -
of vested share
options
Transaction with - - (4) 238 234
owners
At 31 December 10,093 82,404 (14,093) (4,379) 74,025
2018
Notes to the Group financial statements
***************************************
1) General information
IFG Group plc is a public company, listed on the Irish and London Stock
Exchanges and is registered and domiciled in the Republic of Ireland
(registration number 21010). The Group's registered address is 70 Sir John
Rogerson's Quay, Grand Canal Dock, Dublin 2, Ireland. These consolidated
statements comprise the Company and its subsidiaries. The Group provides a
range of financial solutions including full platform services, pension
administration and independent financial advice.
These consolidated financial statements are presented in Sterling, which is
the Company's functional currency. All amounts have been rounded to the
nearest thousand, unless otherwise indicated.
2) Basis of preparation
The Group financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the EU (IFRS), IFRIC
interpretations and those parts of the Companies Act 2014 applicable to
companies reporting under IFRS.
The financial information in this report has been prepared in accordance with
the listing rules of the Euronext Dublin Stock Exchange and in accordance with
Group accounting policies. Full details of the accounting policies adopted by
the Group are contained in the consolidated financial statements included in
the Company's annual report for the year ended 31 December 2018, which will be
available on the Group's website at www.ifggroup.com [1].
The preliminary accounts are prepared to provide shareholders and investors
with reliable and timely information on the performance of the Group for the
year.
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DJ IFG Group plc: Preliminary Statement -11-
The Group financial statements have been prepared on a basis consistent with
that reported for the year ended 31 December 2017 with the exception of
changes in the recognition of Impairment allowances in accordance with IFRS 9:
Financial Instruments and the presentation of revenue in the segmental
analysis in accordance with IFRS 15: Revenue from contracts with customers. No
other new standards, amendments or interpretations, which became effective in
2018, have had a material effect on the Group financial statements.
The financial information presented in this preliminary release does not
constitute "full group accounts" under Regulation 40(1) of the European
Communities (Companies: Group Accounts) Regulations, 1992. The preliminary
release was approved by the Board of Directors. The annual report and accounts
have also been approved by the Board of Directors with an unqualified report
from the external auditor. The financial information has been extracted from
the audited annual report and accounts. The full Group accounts will be laid
before the AGM and distributed to Shareholders in advance. They will be filed
with the Irish Registrar of Companies following the AGM.
Full Group accounts for the year ended 31 December 2017 received an
unqualified audit report and have been filed with the Irish Registrar of
Companies.
Use of alternative performance measures in the Group financial statements
The Group has identified certain measures that it believes will assist in the
understanding of the performance of the business. These measures are not
defined under IFRS and they may not be directly comparable with other
companies' adjusted measures. These non-IFRS measures are not intended to be a
substitute for, or superior to, any IFRS measures of performance but
management have included them as they consider them to be important
comparables and key measures used within the business for assessing
performance.
The following are key alternative performance measures identified by the Group
and used in the Group financial statements and in the financial information
presented herein.
Adjusted operating profit
Adjusted operating profit is defined as operating profit, excluding
acquisition-related amortisation, exceptional items and discontinued
operations. Management believes excluding these items from the calculation of
operating profit is useful because management excludes items that are not
comparable when measuring operating profitability, evaluating performance
trends and setting performance objectives. It allows investors to evaluate the
Group's performance for different periods on a more comparable basis.
The reconciliation of adjusted operating profit to profit before income tax is
disclosed in note 3.
Adjusted earnings and adjusted earnings per share
Adjusted earnings is defined as profit attributable to owners of the Parent
Company before amortisation of acquisition related intangible assets,
exceptional items, discontinued operations and unwinding of discount
applicable to contingent consideration, net of tax where applicable.
Adjusted EPS is defined as the continuing basic earnings per ordinary share
adjusted for amortisation of acquired intangibles, exceptional items,
discontinued operations and unwinding of discount applicable to contingent
consideration, net of tax where applicable.
The Group uses adjusted operating profit, adjusted earnings and adjusted EPS
as measures of performance to eliminate the impact of items it does not
consider indicative of ongoing operating performance due to their inherent
unusual, exceptional, or non-recurring nature or because they result from an
event of a similar nature.
A table showing the reconciliation from basic EPS to adjusted EPS and a
reconciliation from profit attributable to owners of the Parent Company to
adjusted earnings is included in the financial review.
Free Cash Flow
Free cash flow represents the cash flow generated from adjusted operating
activities less cash used in relation to capital expenditure.
Management considers free cash flow an important measure of the Group's
ability to generate cash and profits. It is an accurate measure of how much
cash the Group has generated to service its debts, pay dividends and further
invest in its operations. The financial review includes a reconciliation of
free cash flow to the net cash flow in the period.
Return on capital employed
Return on capital employed is calculated as earnings before interest and tax
divided by capital employed. It measures how efficiently the Group generates
profits from its capital employed by comparing it to net profit.
3) Segmental information
In line with the requirements of IFRS 8, 'Operating segments', the Group has
identified the Group Chief Executive of the Company as its Chief Operating
Decision Maker ('CODM'). The Group Chief Executive reviews the Group's
internal reporting in order to assess the performance of the Group and
allocate resources. The operating segments have been identified based on these
reports.
Throughout the year, the Group Chief Executive considered the business line
perspective, based on three reporting segments: platform, independent wealth
management and Group. The segments were managed by senior executives who
reported to The Group Chief Executive and the Board of Directors. These
segments are described in the strategic report.
The Group Chief Executive assesses the performance of the segments based on a
measure of adjusted earnings. She reviews working capital and overall balance
sheet performance at both a business level and on a Group wide basis, in
addition, she also receives reports on all measures at an individual business
level.
The Group earns its revenues in these segments by way of fees from the
provision of services and commissions earned in the intermediation of
financial service products. In line with the requirements of IFRS 15, further
disaggregation of revenue within the operating segments have been disclosed to
provide a more comprehensive understanding of the nature of different revenue
streams, with prior year comparatives being presented on a disaggregated
basis.
Goodwill is allocated to cash-generating units on a reporting segment level
and that is the level at which it is assessed for impairment.
Income tax is managed on a centralised basis and therefore the item is not
allocated between operating segments for the purpose of presenting information
to the CODM and accordingly is not included in the detailed segmental
analysis.
Intersegment revenue is not material and thus not subject to separate
disclosure.
The information provided to the Group Chief Executive for the reportable
segments, for the year ended 31 December 2018, is as follows:
Platform Independent wealth Group/ Total
management
other
GBP'000 GBP'000 GBP'000 GBP'000
Annual fees 24,682 - - 24,682
Transaction fees 3,216 - - 3,216
Asset based fees 13,347 2,382 - 15,729
(includes DMS)
Margin on cash 12,050 - - 12,050
Advisory fees - 31,956 - 31,956
Total revenue 53,295 34,338 - 87,633
Adjusted operating 10,293 7,092 (5,007) 12,378
profit/(loss)
Amortisation of (2,128) - - (2,128)
acquired intangibles
Exceptional items (5,508) (2,996) (1,419) (9,923)
Operating 2,657 4,096 (6,426) 327
profit/(loss)
Finance income 94 28 1 123
Profit/(loss) before 2,751 4,124 (6,425) 450
income tax
Income tax expense (1,404)
Loss for the year (954)
For the year ended 31 December 2017 comparatives are as follows:
Platform Independent Group/ Total
wealth other
management
GBP'000 GBP'000 GBP'000 GBP'000
Annual fees 24,066 - - 24,066
Transaction fees 4,102 - - 4,102
Asset based fees 11,274 1,420 - 12,694
(includes DMS)
Margin on cash 6,727 - - 6,727
Advisory fees - 30,805 - 30,805
Total revenue 46,169 32,225 - 78,394
Adjusted operating 6,079 8,599 (4,179) 10,499
profit/(loss)
Amortisation of (2,137) - - (2,137)
acquired
intangibles
Exceptional items (6,262) (1,425) (1,108) (8,795)
Operating (2,320) 7,174 (5,287) (433)
(loss)/profit
Finance income 35 17 - 52
(Loss)/profit (2,285) 7,191 (5,287) (381)
before income tax
Income tax credit 43
Loss for the year (338)
Assets and
liabilities -
2018
Platform Independent Group/ other Total
wealth
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March 25, 2019 03:02 ET (07:02 GMT)
management
GBP'000 GBP'000 GBP'000 GBP'000
ASSETS
Segment assets 76,607 26,026 4,397 107,030
Deferred income 156
tax asset
Income tax asset 134
Total assets as 107,320
reported on the
Consolidated
Statement of
Financial
Position
LIABILITIES
Segment (17,963) (10,125) (3,102) (31,190)
liabilities
Deferred income (1,817)
tax liabilities
Current income (288)
tax liabilities
Total (33,295)
liabilities as
reported on the
Consolidated
Statement of
Financial
Position
The 2017 Platform Independent Group/ other Total
comparatives are wealth
as follows: management
ASSETS GBP'000 GBP'000 GBP'000 GBP'000
Segment assets 69,812 23,855 6,860 100,527
Deferred income 703
tax asset
Income tax asset 133
Total assets as 101,363
reported on the
Consolidated
Statement of
Financial
Position
LIABILITIES
Segment (12,251) (9,519) (2,457) (24,227)
liabilities
Deferred income (2,252)
tax liabilities
Current income (168)
tax liabilities
Total (26,647)
liabilities as
reported on the
Consolidated
Statement of
Financial
Position
Platform Independent Group/ other Total
wealth management
Other segmental
information -
2018
GBP'000 GBP'000 GBP'000 GBP'000
Property, plant 586 441 12 1,039
and equipment -
additions
Intangible 2,229 754 - 2,983
assets -
additions
Property, plant (835) (500) (71) (1,406)
and equipment -
depreciation
Intangible (2,303) (589) - (2,892)
assets -
amortisation
Acquired (2,128) - - (2,128)
intangible
assets -
amortisation
The 2017 Platform Independent Group/ other Total
comparatives are wealth management
as follows:
GBP'000 GBP'000 GBP'000 GBP'000
Property, plant 586 1,011 25 1,622
and equipment -
additions
Intangible 1,974 792 - 2,766
assets -
additions
Property, plant (819) (327) (120) (1,266)
and equipment -
depreciation
Intangible (1,570) (413) - (1,983)
assets -
amortisation
Acquired (2,137) - - (2,137)
intangible
assets -
amortisation
Included In depreciation for the year ending 31 December 2017 were GBP54,000 of
costs relating to the Dublin head office closure which were treated as
exceptional costs
Breakdown of revenue by country of operation
The Group is domiciled in the Republic of Ireland, however all revenue is
derived in the UK in both the current and prior financial years.
During the year, there were no revenues derived from a single customer that
represent 10% or more of total revenues, in line with 2017.
Analysis of total non-current assets, at the year end, by geographical region
The total non-current assets (excluding deferred income tax assets), at the
year end, were all held in the United Kingdom, GBP55.5 million (2017: GBP57.9
million).
4) Exceptional items
Exceptional items charged against operating profit 2018 2017
GBP'000 GBP'000
Redundancy and restructuring costs 722 1,385
Legal, Remediation and governance fees 5,574 5,375
Retention payments 3,000 -
Consultancy costs - 1,566
Loss on disposal of International division 627 469
Total 9,923 8,795
2018
****
Redundancy and restructuring costs
Costs of GBP0.7 million relating to the departure of the former Group CEO have
been recognised in the year.
Legal, remediation and governance costs
Remediation and sanction costs relating to James Hay's ongoing review of the
dual-trustee book of GBP4.9 million, in addition to GBP0.6 million of costs
related to ongoing legacy products review has been recognised in the year.
Legal costs in relation to the Saunderson House cancelled sale process for
GBP0.1 million have also been recognised during the year.
Retention payments
A one-off cost of GBP3.0 million related to the previously announced retention
arrangements for senior management and employees of Saunderson House following
the cancelled sale process.
Loss on disposal of international division
Costs of GBP0.6 million were provided in the year, relating to the notice of
claim under the indemnities provided in association with the sale of the
International business. The increase in the provision was full and final
settlement of the matter and payment was settled in January 2019.
2017
****
Redundancy and restructuring costs
Redundancy costs relating to the restructure of the James Hay business of GBP1.3
million, and a cost of GBP0.1 million related to the impairment of the Swavesey
office and the delayed closure of the Dublin office.
Legal, remediation and governance costs
A cost of GBP5.4 million has been recognised in relation to remediation and
legal costs. Costs incurred include GBP2.0 million in relation to the ongoing
Elysian Fuels investigation (which includes GBP1.3 million of provisions for
legal costs), GBP1.6 million of costs relating to the historical pension
transfers review in Saunderson House, where there are safeguarded benefits
(which includes a provision of GBP0.9 million for potential client remediation)
and GBP1.8 million of costs associated with the review of other legacy matters
in James Hay, (including a provision of GBP1.5 million for potential
remediation).
Consultancy costs
Consultants costs of GBP1.6 million relating to the detailed review associated
with the ongoing legacy matters detailed above were treated as exceptional
during the year.
Loss on disposal of international division
The exceptional loss of GBP0.5 million relates to the legal costs paid in
relation to the First Names claim under the indemnities provided in the sale
of the International Segment of which GBP0.3 million relates to interim
assessment of costs awarded by the judge and GBP0.1 million relates to legal
costs provided for.
5) Income tax expense/(credit)
2018 2017
GBP'000 GBP'000
Current tax
Ireland (at 12.5%):
- current year 20 46
- prior year (1) -
UK and other (primarily at 19.00% (2017: 19.25%)):
- current year 1,786 1,278
- prior year (513) (602)
Total current tax expense 1,292 722
Deferred tax
Ireland:
- current year - 3
- prior year 6 -
UK and other:
- current year (338) (987)
- prior year 444 219
Total deferred tax expense/(credit) 112 (765)
Total income tax expense/(credit) 1,404 (43)
The tax on the Group's profit before tax differs from the theoretical amount
that would arise using the weighted average tax rate applicable to the profits
of the consolidated entities as follows:
2018 2017
GBP'000 GBP'000
Profit/(loss) before income tax 450 (381)
Tax calculated at domestic tax rates applicable to 86 (73)
results in the respective country
Adjustment in respect of prior years (64) (383)
Re-measurement of deferred tax - impact of change in (5) 79
UK tax rate
Non-taxable gain (1) (9)
Differences in overseas tax rates (11) (19)
Current year losses for which no deferred tax asset 48 60
was recognised
Others including expenses not deductible for tax 1,351 302
purposes
Income tax expense/(credit) 1,404 (43)
The weighted average applicable tax rate for the year was 312% (2017:11.3 %).
Increased Group plc costs, settlement costs associated with the sale of the
International business and sanction charges arising from the ongoing legacy
reviews, which are not allowable for tax, has resulted in a higher effective
tax rate. During the year, the Company re-measured relevant deferred tax
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