Our latest Investing Matters Podcast episode with QuotedData's Edward Marten has just been released. Listen here.

Less Ads, More Data, More Tools Register for FREE

Pin to quick picksIfg Regulatory News (IFP)

  • There is currently no data for IFP

Watchlists are a member only feature

Login to your account

Alerts are a premium feature

Login to your account

IFG Group plc: Preliminary Statement

25 Mar 2019 07:01

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

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 £1.93 for each IFG Ordinary Share, valuing the entire issued and to be issued ordinary share capital of IFG at approximately £206 million.

The proposed acquisition represents:

a premium of approximately 46 per cent to IFG's closing share price of £1.325 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 £1.34 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 £1.36 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 (£m)

 

87.6

78.4

12%

Adjusted operating profit (£m)

 

12.4

10.5

18%

Operating profit/(loss) (£m)

 

0.3

(0.4)

-

Adjusted EPS (p)

 

9.14

8.34

10%

Basic EPS (p)

 

(0.90)

(0.32)

-

Free cash flow (£m)

 

6.6

5.7

16%

 

Revenue growth of 12% to £87.6 million (2017: £78.4 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 £12.4 million (2017: £10.5 million) demonstrating the strength of the underlying businesses Exceptional costs of £9.9 million (2017 £8.8 million) including a provision of £4.9 million in relation to the dual trustee review and £3.0 million retention payments following the cancelled sales process of Saunderson House Operating profit (after exceptional costs and amortisation) was £0.3 million up from a loss of £0.4 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 £25.6 million (2017: £49.5 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 (£bn)

 

25.3

25.5

New Clients

 

4,651

6,116

Total Clients

 

58,753

58,551

Retention rate

 

93%

93%

Adjusted Operating Profit (£m)

 

10.3

6.1

 

AUA 1% lower than 2017 at £25.3 billion (2017: £25.5 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 £4.9 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 (£bn)

 

4.9

5.1

New Clients

 

239

247

Total Clients

 

2,342

2,121

Retention rate

 

99%

96%

Adjusted Operating Profit (£m)

 

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 

Group Chief Executive

IFG Group plc

Tel: +44 20 3887 6181

Gavin Howard    

Group Chief Financial Officer

IFG Group plc

Tel: +44 20 3887 6181 

 

Media enquiries:

Justin Griffiths   

Powerscourt

Tel: +44 20 7250 1446

Jack Hickey    

Powerscourt

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

DELIVERING SHAREHOLDER VALUE

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 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 £78.4 million last year to £87.6 million, with adjusted operating profit increasing by 18% from £10.5 million to £12.4 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 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 £87.6 million up 12% from £78.4 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 £12.4 million from £10.5 million in 2017. This, was depressed by £9.9 million of exceptional costs, resulting in operating profit of £0.3 million up from a loss of £0.4 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 £3.1 million during 2018, compared to £3.8 million of cash consumption during 2017. Free cash flows have increased by 16% to £6.6 million from £5.7 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 £2.3 million, significantly lower than those incurred in H1 2018 of £2.7 million. The Group remains on track to achieve annual cost savings of £1.0 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 £1.0 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 £4.9 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 £1.1 million in relation to the sale of the International Business resulting in an increase to provisions of £0.6 million from £0.5 million (see note 4). This agreement closes off this matter and removes the risk of a potential finding against the Group of £1.3m plus legal costs, which would likely have been significant had the case gone 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 £78.4 million in 2017 to £87.6 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 £10.5 million to £12.4 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 £0.3 million is marginally higher than the loss of £0.4 million in 2017 which was also impacted by material exceptional costs.

Loss after tax for the year of £1.0 million was primarily as a result of the lack of tax relief for sanction charges and settlement costs relating to legacy matters (2017: £0.3 million). Consequently, basic loss per share was 0.90 pence (2017: loss per share of 0.32 pence).

Net assets remained stable at £74.0 million compared to £74.7 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 £5.7 million to £6.6 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 £24.6 million to £27.7 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 £20 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

 

 

£'000

£'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 £87.6 million (2017: £78.4 million), with James Hay improving by 15% from £46.2 million to £53.3 million, and Saunderson House increasing by 7% from £32.2 million to £34.3 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 £1.4 million in 2017 to £2.4 million in 2018.

Adjusted operating profit

Adjusted operating profit, before amortisation of intangibles and exceptional costs, increased by 18% from £10.5 million to £12.4 million. This was principally driven by the increased revenues in James Hay which saw its contribution increase by 69% from £6.1 million to £10.3 million, and adjusted operating margin return to prior year levels.

The contribution from Saunderson House decreased by 18% from £8.6 million to £7.1 million, excluding one-off retention payments of £3.0 million, as 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 £4.2 million to £5.0 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

 

 

£'000

£'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 £9.9 million (2017: £8.8 million), comprise remediation costs in relation to the ongoing investigation and resolution of legacy issues in James Hay of £5.5 million, retention payments of £3.0 million to Saunderson House staff following the cancelled sale, settlement costs of £0.7 million associated with the departure of the former CEO, £0.6 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 £0.1 million. Legacy costs are net of actual and/or assumed recoveries under the Group's insurance arrangements.

Operating profit

An operating profit of £0.3 million, after amortisation of intangibles of £2.1 million and exceptional costs of £9.9 million, was a marginal improvement on the prior year (2017 loss: (£0.4 million)). Amortisation of intangibles, principally related to the James Hay acquisition in 2010, remained in line with 2017 at £2.1 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

 

£'000

£'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 sale of the International Business (see note 4)

(627)

 

 

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 charge

450

(1,404)

312%

*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 pence

Earnings£'000

Per share pence

Earnings£'000

Loss attributable to owners of the Parent Company

(0.90)

(954)

(0.32)

(338)

Amortisation of acquisition related intangible assets

1.64

1,724

1.83

1,933

Exceptional items

7.80

8,235

6.39

6,732

Relating to the sale of International business

0.60

627

0.44

469

Adjusted earnings

9.14

9,632

8.34

8,796

The table above shows how we calculate adjusted EPS and adjusted earnings. The above amounts are net of tax, if applicable. An amount of £45,000 related to prior year tax adjustments is included in exceptional items above.

 

Cash flows

The Group generated £10.7 million (2017: £10.1 million) from operations, reflecting adjusted operating profits, offset by movements in working capital. The Group paid a net corporate tax payment of £1.1 million in 2018 (2017: £2.3 million) and invested a total of £4.0 million in capital expenditure (2017: £4.4 million), compared to depreciation and amortisation of £6.4 million (2017: £5.3 million). Total dividends paid during 2018 were £nil (2017: £5.2 million), resulting in an increase in net cash of £3.1 million to £27.7million.

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 £5.7 million to £6.6 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 £2.0 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

 

£'000

£'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.

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 £24.6 million to £27.7 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 £5.1 million (2017: £6.6 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 £25.6 million (2017: £49.5 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 £138.1 million (2017: £194.0 million). There were 105,405,665 shares in issue at 31 December 2018.

 

 

Extract from operational review - James Hay

HIGHLIGHTS

Revenue £53.3 million Adjusted operating profit £10.3 million Assets under administration £25.3 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 £463 billion (Q3 2017) to £540 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 £1.7 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.

Clients

2018

2017

Change

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 £25.3 billion with net inflows of £0.8 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).

AUA

31 December

31 December

 

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 £53.3 million was 15% higher than 2017 (£46.2 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 £10.3 million (2017: £6.1 million) despite costs increasing by 7% as we invested in people and efficiency programmes.

Operating profit after exceptional items improved from a loss of £2.3 million in 2017 to a profit of £2.7 million. Exceptional items of £5.5 million relate primarily to the ongoing legacy review of the dual-trustee book, previously highlighted (2017: £6.3 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 £1.3 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.£20 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 £1.0 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 £4.9 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 £200,000 to invest (our average client portfolio size is £450,000) 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:

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. 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. 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. 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 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 £700,000 p.a., while a 5% movement in assets held in James Hay's investment centre would impact revenue by approximately £550,000 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 £34.3 million Adjusted operating profit £7.1 million Assets under advice £4.9 billion 10% growth in clients bringing total clients to 2,342, 396 of which are DMS clientsIndustry 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 c£783bn 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 £34.3m from £32.2m in 2017. Saunderson House now serves 2,342 clients with assets under advice of c£4.9 billion (down from £5.1 billion in 2017) due to recent market movements.

Operating profit fell to £4.1 million (2017: £7.2 million), primarily as a result of £3.0 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.

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, £215bn 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

 

 

 

£'000

£'000

 

From operations

 

 

 

 

Revenue

3

87,633

78,394

 

Staffing expense

 

(54,578)

(49,265)

 

Depreciation and amortisation

 

(6,426)

(5,330)

 

Expected credit loss on trade receivables/impairment allowance

 

(56)

(64)

 

Other operating expenses

 

(26,250)

(24,299)

 

Other gains

 

4

131

 

Operating profit/(loss)

 

327

(433)

 

 

 

 

 

 

Analysed as:

 

 

 

 

Operating profit before exceptional items

10,250

8,362

 

Exceptional items

4

(9,923)

(8,795)

 

Operating profit/(loss)

 

327

(433)

 

 

 

 

 

 

Finance income

 

123

52

 

Profit/(loss) before income tax

 

450

(381)

 

 

 

 

 

 

Income tax (expense)/credit

5

(1,404)

43

 

Loss for the financial year

 

(954)

(338)

 

 

 

 

 

 

 

 

 

 

 

The expected credit loss recognised in 2018 was calculated in accordance with IFRS 9: Financial 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

 

 

£'000

£'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 currency operations

 

29

143

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

 

 

 

£'000

£'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

     

 

 

£'000

£'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 operating activities

 

7,141

1,269

     

 

 

 

 

     

Cash flows from investing activities

 

 

 

     

Purchase of property, plant and equipment

 

(1,039)

(1,622)

     

Sale of property, plant and equipment

 

-

550

     

Disposal of subsidiaries

 

-

4,037

     

Acquisition of intangible assets

 

(2,983)

(2,766)

     

Net cash (used)/generated in investing activities

 

(4,022)

199

     

 

 

 

 

     

Cash flows from financing activities

 

 

 

     

Dividends paid

 

-

(5,217)

     

Cash settlement of vested share options

 

-

(35)

     

Net cash used in financing activities

 

-

(5,252)

     

 

 

 

 

     

Net increase/(decrease) in cash and cash equivalents

 

3,119

(3,784)

     

 

 

 

 

     

Cash and cash equivalents at the beginning of the financial year

 

24,572

28,226

     

Effect of foreign exchange rate changes

 

3

130

     

Cash and cash equivalents at end of financial year

 

27,694

24,572

     

 

 

 

 

     

 

 

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

     

 

 

£'000

£'000

     

Cash and short-term deposits

 

 

 

     

 - as disclosed on the Consolidated Statement of Financial Position

9

27,694

24,572

     

Cash and cash equivalents at end of financial year

 

27,694

24,572

     

 

 

 

 

     
             

 

Consolidated Statement of Changes in Equity

 

Share capital

£'000

Share premium

£'000

Other reserves

£'000

Retained earnings

£'000

Total equity

£'000

At 1 January 2017

10,093

82,404

(14,054)

1,763

80,206

 

 

 

 

 

 

Loss for financial year

-

-

-

(338)

(338)

Other comprehensive income

 

 

 

 

 

Currency translation:

 

 

 

 

 

- arising in the financial year

-

-

143

-

143

Total comprehensive loss for the financial year

-

-

143

(338)

(195)

 

 

 

 

 

 

Dividends

-

-

-

(5,217)

(5,217)

Transfer of vested share-based payment

-

-

(164)

164

-

Share-based payment compensation:

 

 

 

 

 

- value of employee services - share options

-

-

(43)

-

(43)

- Cash settlement of vested share options

-

-

-

(35)

(35)

Transaction with owners

-

-

(207)

(5,088)

(5,295)

At 31 December 2017

10,093

82,404

(14,118)

(3,663)

74,716

 

 

 

 

 

 

Loss for financial year

-

-

-

(954)

(954)

Other comprehensive income

 

 

 

 

 

Currency translation:

 

 

 

 

 

- arising in the financial year

-

-

29

-

29

Total comprehensive loss for the financial year

-

-

29

(954)

(925)

Dividends

-

-

-

-

-

Transfer of vested share-based payment

-

-

(238)

238

-

Reclassification of exchange reserve upon strike-off of subsidiaries

-

-

-

-

-

Share-based payment compensation:

 

 

 

 

 

- value of employee services - share options

-

-

234

-

234

- Cash settlement of vested share options

-

-

-

-

-

Transaction with owners

-

-

(4)

238

234

At 31 December 2018

10,093

82,404

(14,093)

(4,379)

74,025

 

 

Notes to the Group financial statements

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.

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.

The preliminary accounts are prepared to provide shareholders and investors with reliable and timely information on the performance of the Group for the year.

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.

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 management

Group/

other

Total

 

£'000

£'000

£'000

£'000

 

 

 

 

 

Annual fees

24,682

-

-

24,682

Transaction fees

3,216

-

-

3,216

Asset based fees (includes DMS)

13,347

2,382

-

15,729

Margin on cash

12,050

-

-

12,050

Advisory fees

-

31,956

-

31,956

Total revenue

53,295

34,338

-

87,633

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

10,293

7,092

(5,007)

12,378

Amortisation of acquired intangibles

(2,128)

-

-

(2,128)

Exceptional items

(5,508)

(2,996)

(1,419)

(9,923)

Operating profit/(loss)

2,657

4,096

(6,426)

327

 

 

 

 

 

Finance income

94

28

1

123

Profit/(loss) before income tax

2,751

4,124

(6,425)

450

Income tax expense

 

 

 

(1,404)

Loss for the year

 

 

 

(954)

 

For the year ended 31 December 2017 comparatives are as follows:

 

Platform

Independent wealth management

Group/ other

Total

 

£'000

£'000

£'000

£'000

 

 

 

 

 

Annual fees

24,066

-

-

24,066

Transaction fees

4,102

-

-

4,102

Asset based fees (includes DMS)

11,274

1,420

-

12,694

Margin on cash

6,727

-

-

6,727

Advisory fees

-

30,805

-

30,805

Total revenue

46,169

32,225

-

78,394

 

 

 

 

 

Adjusted operating profit/(loss)

6,079

8,599

(4,179)

10,499

Amortisation of acquired intangibles

(2,137)

-

-

(2,137)

Exceptional items

(6,262)

(1,425)

(1,108)

(8,795)

Operating (loss)/profit

(2,320)

7,174

(5,287)

(433)

 

 

 

 

 

Finance income

35

17

-

52

(Loss)/profit before income tax

(2,285)

7,191

(5,287)

(381)

Income tax credit

 

 

 

43

Loss for the year

 

 

 

(338)

 

Assets and liabilities - 2018

 

 

 

 

 

Platform

Independent wealth management

Group/ other

Total

 

£'000

£'000

£'000

£'000

ASSETS

 

 

 

 

 

 

 

 

 

Segment assets

76,607

26,026

4,397

107,030

Deferred income tax asset

 

 

 

156

Income tax asset

 

 

 

134

Total assets as reported on the Consolidated Statement of Financial Position

 

 

 

107,320

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

Segment liabilities

(17,963)

(10,125)

(3,102)

(31,190)

Deferred income tax liabilities

 

 

 

(1,817)

Current income tax liabilities

 

 

 

(288)

Total liabilities as reported on the Consolidated Statement of Financial Position

 

 

 

(33,295)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The 2017 comparatives are as follows:

Platform

Independent wealth management

Group/ other

Total

ASSETS

£'000

£'000

£'000

£'000

 

 

 

 

 

Segment assets

69,812

23,855

6,860

100,527

Deferred income tax asset

 

 

 

703

Income tax asset

 

 

 

133

Total assets as reported on the Consolidated Statement of

Financial Position

 

 

 

101,363

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

Segment liabilities

(12,251)

(9,519)

(2,457)

(24,227)

Deferred income tax liabilities

 

 

 

(2,252)

Current income tax liabilities

 

 

 

(168)

Total liabilities as reported on the Consolidated Statement of

Financial Position

 

 

 

(26,647)

 

 

 

 

 

 

 

 

Other segmental information - 2018  

Platform

Independent wealth management

Group/ other

Total

 

£'000

£'000

£'000

£'000

Property, plant and equipment - additions  

586

441

12

1,039

Intangible assets - additions

2,229

754

-

2,983

Property, plant and equipment - depreciation

(835)

(500)

(71)

(1,406)

Intangible assets - amortisation  

(2,303)

(589)

-

(2,892)

Acquired intangible assets - amortisation

(2,128)

-

-

(2,128)

 

 

 

 

 

The 2017 comparatives are as follows:

Platform

Independent wealth management

Group/ other

Total

 

£'000

£'000

£'000

£'000

Property, plant and equipment - additions  

586

1,011

25

1,622

Intangible assets - additions

1,974

792

-

2,766

Property, plant and equipment - depreciation

(819)

(327)

(120)

(1,266)

Intangible assets - amortisation  

(1,570)

(413)

-

(1,983)

Acquired intangible assets - amortisation

(2,137)

-

-

(2,137)

 

Included In depreciation for the year ending 31 December 2017 were £54,000 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, £55.5 million (2017: £57.9 million).

Exceptional items

Exceptional items charged against operating profit

2018

2017

 

£'000

£'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 £0.7 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 £4.9 million, in addition to £0.6 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 £0.1 million have also been recognised during the year.

Retention payments

A one-off cost of £3.0 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 £0.6 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 £1.3 million, and a cost of £0.1 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 £5.4 million has been recognised in relation to remediation and legal costs. Costs incurred include £2.0 million in relation to the ongoing Elysian Fuels investigation (which includes £1.3 million of provisions for legal costs), £1.6 million of costs relating to the historical pension transfers review in Saunderson House, where there are safeguarded benefits (which includes a provision of £0.9 million for potential client remediation) and £1.8 million of costs associated with the review of other legacy matters in James Hay, (including a provision of £1.5 million for potential remediation).  

Consultancy costs

Consultants costs of £1.6 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 £0.5 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 £0.3 million relates to interim assessment of costs awarded by the judge and £0.1 million relates to legal costs provided for.

Income tax expense/(credit)

 

2018

2017

 

£'000

£'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

 

£'000

£'000

 

 

 

Profit/(loss) before income tax

450

(381)

 

 

 

Tax calculated at domestic tax rates applicable to results in the respective country

86

(73)

Adjustment in respect of prior years

(64)

(383)

Re-measurement of deferred tax - impact of change in UK tax rate

(5)

79

Non-taxable gain

(1)

(9)

Differences in overseas tax rates

(11)

(19)

Current year losses for which no deferred tax asset was recognised

48

60

Others including expenses not deductible for tax purposes

1,351

302

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 balances that were impacted by the change in the UK rate substantively enacted at the balance sheet date. In accordance with the IFRS provisions, the rate of 17% is used as a basis for the calculation of UK deferred taxes.

Earnings per ordinary share

 

2018

2017

Basic

 

 

Loss after income tax (£'000)

 

 

From operations

(954)

(338)

Total

(954)

(338)

 

 

 

Weighted average number of ordinary shares in issue for the

 

 

calculation of earnings per share

105,405,665

105,405,665

 

 

 

Basic loss per share (pence)

 

 

From operations

(0.90)

(0.32)

From loss for the year

(0.90)

(0.32)

 

 

 

 

 

 

 

 

 

2018

2017

 

 

Diluted

 

 

Loss after income tax (£'000)

 

 

From operations

(954)

(338)

Total

(954)

(338)

 

 

 

Weighted average number of ordinary shares in issue for the

 

 

calculation of earnings per share

105,405,665

105,405,665

Dilutive effect of share options

108,724

246,069

 

 

 

Weighted average number of ordinary shares for the calculation of

 

 

diluted earnings per share

105,514,389

105,651,734

 

 

 

Diluted loss per share (pence)

 

 

From operations

(0.90)

(0.32)

From loss for the year

(0.90)

(0.32)

 

Contingencies

Given the nature of the business the Group undertakes, it may from time to time receive complaints against it. The Group has procedures in place to assess the veracity of the claims and provision has been made to cover its best estimate of the exposure in respect of these matters which requires significant judgement and subjective assumptions. No provisions have been recorded for other contingencies, as the Group's obligations under them are not probable and estimable.

Following the Group's ongoing review initiated in 2017, the Group has identified a number of legacy matters which are still under consideration as set out below.

ELYSIAN FUELS

As previously disclosed, the Group is incurring material legal and remediation costs relating to James Hay's inception of Elysian Fuels investments between 2011-2015. James Hay received notices of assessment arising from Elysian Fuels for tax years 2011-2012 and 2012-2013 and protective notices of assessment in respect of 2013-2014 and 2014-2015, all of which have been appealed. James Hay has applied to HMRC for the assessments in respect of tax years 2011-2012 and 2012-2013 to be discharged and intends to submit further applications to apply for the discharge of the assessments in respect of tax years 2013-2014 and 2014-2015. Our discussions with HMRC seeking an acceptable resolution of James Hay's inception of Elysian Fuels investments over the overall 2011-2015 period are on-going.

James Hay is committed to working collaboratively with HMRC to resolve this matter and will continue to do so. However, James Hay will pursue appeals to the Tax Tribunals as necessary to protect its position. The maximum potential sanction charge for the overall 2011-2015 period is approximately £20m, plus interest at HMRC's standard rate, assuming all Elysian Fuels shares are deemed valueless at inception, and no underlying clients discharge their own tax liabilities.

Based on advice from the Group's legal advisers, the directors are confident that the outcome at Tribunal and/or any settlement with HMRC would be substantially lower than the maximum potential sanction charge and would be fundable from the Group's cash resources at the time an obligation is anticipated to crystallise. As a result of a range of disputed facts regarding our actions, any resulting liability, which would be a function of investment valuations and the level of any charge or client liability/recovery, is highly uncertain and unquantifiable and is expected to remain so whilst discussions with HMRC and/or any Tribunal proceedings continue. Therefore no provision, other than for legal fees expected to be incurred in relation to this matter, are provided for as the liability remains contingent. The Group believes James Hay acted appropriately and in accordance with its clients' instructions in relation to these investments.

DUAL-TRUSTEE REVIEW

Review of the dual-trustee book which is now closed to new business is underway. We have now reviewed approximately 20% of the SSAS book and work continues to complete the review. While we have provided for our best estimate of costs in relation to the whole book of business, the provision is based on extrapolation from the sample reviewed to date based on the incidence of issues and the cost per issue from that sample. As such, there is a significant level of judgement in reaching our estimates and further issues may come to light in future as work progresses. A 10% change in either incidence or cost per issue would change the provision by £485,000. The provision made 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. The ongoing review may identify further cases in need of remediation (which we would expect to be significantly recoverable from insurance) and/or subject to sanction charges.

OTHER LEGACY MATTERS

The Group has continued its reviews of other legacy business, to ensure that any other contingent exposures are identified and remediated. Over time these may result in further remediation costs, including legal costs for legacy claims and HMRC sanction charges, however, the exposures remain uncertain. These reviews remain in progress although some matters have been provided in exceptional costs in respect of 2017 and 2018, to the extent such liabilities have been deemed likely and capable of being estimated with reasonable certainty.

HMRC RELIEF AT SOURCE IN SPECIE CLAIM

James Hay received a protective assessment in relation to pension relief at source for the tax years 2013/14 and 2014/15 where the contributions in question were underpinned by the transfer of an asset. The maximum potential exposure for these tax years is c.£0.4 million. James Hay does not consider that any relief at source paid to it during the period to which the assessment relates is properly repayable to HMRC and has appealed the assessment.

In last year's decision involving Sippchoice and HMRC, the Tribunal found that a contribution in kind to a self-invested pension plan was a payment which gave rise to an income tax deduction. The Tribunal also observed that HMRC's attempt to deny relief at source in respect of asset contributions clearly contradicted the position set out in HMRC's Pensions Tax Manual. HMRC disagrees with the Sippchoice decision and has appealed the decision. The outcome of the Sippchoice appeal may have an impact on James Hay's appeal against the assessment.

Given the uncertainty around the appeals, we have included this as a contingent liability.

Cash generated from operations

 

2018

2017

From operations

£'000

£'000

Profit/(loss) before income tax

450

(381)

Depreciation and amortisation

6,427

5,332

Finance income

(123)

(52)

Foreign exchange movement

32

35

Non-cash share based payment compensation charges

6

(43)

(Increase)/decrease in trade and other receivables

(5,786)

750

Increase in current and provisions

9,659

4,491

Cash generated from continuing operations

10,665

10,132

 

 

 

The increase in trade receivables in the year primarily relates to an increase in work-in-progress balances in Saunderson House and the short-term funding of client trades in James Hay at the year end, which reduced year end cash balances and subsequently reversed in January 2019. The increase in liabilities is primarily due to provisions made in relation to legacy matters, which are expected to be paid during 2019.

Analysis of net cash/(debt)

 

Opening

Cash

Other

Closing

 

Balance

flow

movements

balance

 

£'000

£'000

£'000

£'000

Cash and short-term deposits

24,572

3,119

3

27,694

Total

24,572

3,119

3

27,694

 

Other movements

Other movements of £3,000 include the impact of exchange rate movements arising on balances denominated in currencies other than Sterling.

Events since the year end

The Board has reluctantly taken a prudent decision that no final dividend will be paid in respect of 2018.

Approval of financial statements

This preliminary announcement was approved by the Board of Directors on 22 March 2019.


ISIN:IE0002325243
Category Code:ACS
TIDM:IFP
LEI Code:213800DDLICUJ14JTY47
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.:7924
EQS News ID:790973
 
End of AnnouncementEQS News Service

UK Regulatory announcement transmitted by DGAP - a service of EQS Group AG. The issuer is solely responsible for the content of this announcement.

Date   Source Headline
28th Aug 20192:47 pmEQSIFG Group plc: Scheme is Effective
28th Aug 20197:30 amRNSEuronext Dublin Market Suspension Notice
27th Aug 20193:41 pmEQSIFG Group plc: Court Approval
27th Aug 20199:09 amEQSIFG Group plc: Holding(s) in Company - Morgan Stanley
26th Aug 20192:04 pmBUSForm 8.3 - IFG
23rd Aug 20192:29 pmEQSIFG Group plc: Holding(s) in Company - Morgan Stanley
23rd Aug 20199:57 amRNSForm 38.5(a) - IFG Group Plc
21st Aug 20193:43 pmEQSHolding(s) in Company - Artemis Investment Management LLP
21st Aug 20193:30 pmRNSForm 8.3 - IFP LN
21st Aug 201912:13 pmRNSForm 8.3 - IFG Group
21st Aug 201911:12 amEQSHolding(s) in Company - Syquant Capital
19th Aug 201911:57 amRNSForm 38.5(a) - IFG Group Plc
19th Aug 20198:53 amGNWMan Group PLC : Form 8.3 - IFG Group plc
15th Aug 20193:30 pmRNSForm 8.3 - IFP LN
15th Aug 201912:45 pmRNSForm 8.3 - IFG Group PLC
15th Aug 201912:43 pmRNSForm 8.3 - IFG Group Plc
15th Aug 201910:23 amRNSForm 38.5(a) - IFG Group PLC
15th Aug 20198:46 amEQSIFG Group plc: Holding(s) in Company - Morgan Stanley
14th Aug 20193:30 pmRNSForm 8.3 - IFP LN
14th Aug 201911:34 amRNSForm 38.5(a) - IFG Group Plc
14th Aug 20199:50 amRNSForm 8.3 - IFG GROUP PLC
14th Aug 20199:45 amRNSForm 8.3 - IFG Group PLC
13th Aug 20193:30 pmRNSForm 8.3 - IFP LN
13th Aug 20192:36 pmBUSForm 8.3 - Ireland Regulatory Disclosure/IFG
13th Aug 20199:13 amEQSHolding(s) in Company - Goldman Sachs Group
13th Aug 20197:00 amEQSIFG Group plc: Offer Update - FCA Approval Received
12th Aug 20194:22 pmBUSFORM 8.3 - IFG GROUP PLC - AMENDMENT
12th Aug 20193:30 pmRNSForm 8.3 - IFP LN
12th Aug 20192:55 pmRNSForm 8.3 - IFG Group PLC
12th Aug 20192:40 pmBUSForm 8.3 - IFG Group plc
12th Aug 201912:30 pmRNSForm 38.5(a) - IFG Group Plc
12th Aug 201910:51 amEQSHolding(s) in Company - Barclays Bank plc
12th Aug 201910:22 amRNSForm 8.3 - IFG Group plc
12th Aug 20199:25 amRNSForm 8.3 - IFG Group Plc
12th Aug 20199:09 amEQSHolding(s) in Company - Weiss Asset Management LP
12th Aug 20197:00 amRNSForm 8.3 - IFG Group plc
9th Aug 20195:40 pmEQSIFG Group plc: Holding(s) in Company - Morgan Stanley
9th Aug 20193:43 pmBUSForm 8.3 - IFG Group Plc - Amendment
9th Aug 20192:05 pmEQSIFG Group plc: Holding(s) in Company - Weiss Asset Management LP
9th Aug 201912:45 pmEQSIFG Group plc: Update on Regulatory Capital
9th Aug 201911:30 amRNSForm 38.5(a) - IFG Group Plc
9th Aug 20198:50 amRNSForm 8.3 - IFG Group plc
9th Aug 20197:00 amRNSForm 8.3 - IFG Group plc
8th Aug 20195:24 pmEQSIFG Group plc: Holding(s) in Company - Sand Grove Capital Management LLP
8th Aug 20195:19 pmEQSIFG Group plc: Holding(s) in Company - Morgan Stanley & Co. International plc
8th Aug 20193:16 pmRNSForm 8.3 - IFG Group PLC
8th Aug 20193:00 pmBUSForm 8.3 - IFG GROUP PLC
8th Aug 20193:00 pmBUSForm 8.3 - IFG Group PLC
8th Aug 20192:33 pmRNSForm 8.3 - IFG GROUP PLC
8th Aug 201912:06 pmRNSForm 8.3 - IFG Group PLC

Due to London Stock Exchange licensing terms, we stipulate that you must be a private investor. We apologise for the inconvenience.

To access our Live RNS you must confirm you are a private investor by using the button below.

Login to your account

Don't have an account? Click here to register.

Quickpicks are a member only feature

Login to your account

Don't have an account? Click here to register.