SHRE.L Regulatory News (SHRE)

29 July 2015

AIM: SHRE.LN

Share plc

("Share" or "the Group" or "Company")

Half year results

for the six months to 30 June 2015

Share is parent company of The Share Centre, a leading independent retail stockbroker, and Sharefunds, which provides investment management and fund administration services.

Key Points

Richard Stone, Chief Executive, commented:

"Share has delivered a resilient performance, increasing its market share1, in a trading environment that was markedly weaker in the first half of the current financial year than the same period last year, which featured high profile IPOs and stronger dealing volumes. Results mainly reflect the change in the backdrop, with reduced interest income and trail commission.

While conditions have been tougher, we are very encouraged with the progress we are making strategically and in particular with our ongoing customer and partnership initiatives. The signing of a major three year contract with Barclays represented a significant step forward. Our market share of new ISA accounts opened in the period increased and existing customers also increased their asset allocation with us.

Looking ahead, we are continuing to improve the effectiveness of our marketing efforts and efficiency of operations whilst always focused on putting our customers first. We are also driving a number of growth initiatives and in particular are in discussions on a number of potential new partnership opportunities, which if successful will enhance the Group's performance in 2016 and beyond. We expect to be able to say more about these opportunities during the second half of 2015. With any increase in interest rates and a further Lloyds IPO also benefiting us, we therefore remain very positive about the Group's long term growth prospects."

Note 1 - as measured by ComPeer Limited

Note 2 - Excludes the impact of some items, in particular any large non-recurring items, the Financial Services Compensation Scheme levy and share based payment charges as defined in note 6. Basic earnings per share was 0.1p and diluted earnings per share was 0.1p (2014: 0.4p and 0.4p respectively).

Contacts:

Risk Warning

This document is not intended to constitute an offer or agreement to buy or sell investments and does not constitute a personal recommendation. The investments and services referred to in this document may not be suitable for every investor and if in doubt independent financial advice should be sought. No liability is accepted whatsoever for any loss howsoever arising from any information in this document subject to the rules of the Financial Conduct Authority or the Financial Services and Markets Act 2000. Share prices, values and income can go down as well as up and investors may get back less than their initial investment. The Share Centre is a member of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority under reference 146768.

About Share plc:

www.shareplc.com or www.share.com.

Share plc is the parent holding company of The Share Centre Limited and Sharefunds Limited and its shares are traded on AIM. The Share Centre started trading in 1991 and provides a range of account-based services to enable investors to share in the wealth of the stock market. Retail services include Share Accounts, ISAs, JISAs and SIPPs, all with the benefit of investment advice, and dealing in a wide range of investments. Services available to corporate clients include Enterprise Investment Scheme (EIS) administration, share plan administration and 'white-label' dealing platforms.

Share plc

Interim report and accounts 2015

Chairman's statement

Introduction

Share has delivered a resilient performance, increasing its market share* in a trading environment that was markedly weaker in the first half of the current financial year than the same period last year, which featured high profile IPOs and stronger dealing volumes. Results mainly reflect the change in the backdrop, with reduced interest income and trail commission. Revenue for the first half decreased by 7% to £7.4m (2014: £7.9m) with the reduction in interest income and trail commission accounting fully for that decline. Underlying profit before tax was £608,000 (2014: £1.1.m). The Group has continued to increase its market share* as independently measured by ComPeer against a benchmarked peer group, with our share of peer group revenues rising to a record 7.82% (2014: 7.70%) in the first half.

While conditions have been tougher, we are very encouraged with the progress we are making strategically and in particular with our ongoing customer and partnership initiatives. The signing of a major three year contract with Barclays Stockbrokers to provide certificated dealing services, and the launch of that service in April 2015, represented a significant step forward. The Group's market share of new ISA accounts opened in the period increased and existing customers increased their asset allocation with us. In total, customer assets rose to £2.8bn at the end of the period, up 10% since the end of 2014. This compares favourably to the performance of the FTSE All Share index which increased by just 1%.

Looking ahead, we are continuing to drive a number of growth initiatives. In particular, we are in discussions on a number of potential new partnership opportunities, which if successful will enhance the Group's performance in 2016 and beyond. In addition, any increase in interest rates and a further Lloyds IPO will benefit us. We remain very positive about the Group's long term growth prospects.

Financial results

Revenues at £7.4m decreased by 7% from £7.9m over the same period last year. Excluding revenues derived from interest income and trail commission, revenues were flat year-on-year. Highlighting progress between the two halves, first half revenue was 4% ahead of the second half of 2014. Underlying pre-tax profit in the first half reduced to £608,000 from £1.1m and on a statutory basis, profit before tax decreased to £142,000 (2014: £0.8m).

Our revenues comprise:

· Dealing commission income

Income from commission reduced by 8% year-on-year. Commencing from early April, our new Barclays contract made only three months contribution, however the service is already making a profitable contribution. As expected, following our tariff restructuring in 2013 in anticipation of the Retail Distribution Review ("RDR"), trail commission significantly reduced year-on-year. However, we have been amongst the earliest in our market both to start and complete the conversion of our customers' fund holdings to 'clean share classes', (that do not pay trail commission and which typically have a lower annual management charge), and we therefore do not expect further impact from the loss of this income. This contrasts with some in our sector who have not yet completed the conversion process which has a deadline or 'sunset clause' of April 2016, as set by the RDR.

· Fee income

Income from fees decreased by 1% year-on-year. The 2014-2015 tax year saw our most successful year for our Enterprise Investment Scheme ("EIS") administration business, where we provide our core custody and dealing services to around 140 funds and 20 fund managers. The growth in our EIS business benefits all of our revenue streams, dealing commission, fees and to a lesser extent interest income (as client money is held for relatively short periods before being invested in investee companies).

· Interest income

Cash held on behalf of customers at 30 June 2015 was up 20% on the same period last year, however interest income was down 23% year-on-year. As previously highlighted, this reduction reflects changes to the Client Asset rules that prohibit firms such as ourselves from using term deposits. In addition, deposits historically placed at higher rates have matured into the current lower interest environment and, with changes to banking regulations, deposit rates have come under further pressure even though base rates have remained at 0.5%. As our interest income has low associated costs, the prohibition of the use of term deposits has a material impact on its profit contribution. However, there remains considerable latent earnings potential when interest rates rise. A 0.25% increase in the rate earned on client money balances would increase revenues and profits by c.£500,000 per annum.

Profitability

The Group generated a small operating loss of £83,000 in the first half (2014: £541,000 profit). Underlying profit before tax decreased to £608,000 (2014: £1.1m). The underlying profit result is stated after removing any unusual one-off costs along with the share-based payment costs and the Financial Services Compensation Scheme ("FSCS") levy over which we have no control (as shown in note 6 below) and so gives a more consistent view of the performance of the business. On a statutory basis, profit before tax was lower at £142,000 (2014: £761,000). Underlying earnings per share reduced to 0.4p (2014: 0.7p) and statutory earnings per share decreased to 0.1p per share (2014: 0.4p per share).

Costs

Reported overhead costs increased year-on-year by less than 1% (2014: increase of 7%). Headcount growth has been limited and staff costs decreased by 3.5% year-on-year. We expect staff costs to be somewhat higher in the second half of the year as we recruit into our IT and Digital Marketing Teams. The decrease in staff costs was offset by increased share-based payment charges for long term equity incentives granted as a result of the senior management changes since 30 June 2014. The share-based charge is recorded as a cost and then credited back to reserves as it does not impact the financial resources of the business.

Unlike prior years, this year we planned to weight our marketing spend towards the start of the year, in order to focus on the key account acquisition period ahead of the tax year end. After the first quarter, given investor sentiment, marketing activity was more cautious and for the first half as a whole was down 5% year-on-year. The Barclays service has also led to a rise in our direct costs of settlement.

Cash flows and balance sheet

The Group continues to be highly cash generative. Cash and cash equivalents were £12.1m at 30 June 2015 (2014: £13.2m). During the period there were two major cash outflows, the dividend of £0.9m and purchase of 3.7m shares for £1.2m by Sharesecure Limited (a Trustee of the Employee Benefit Trust) as part of Gavin Oldham's offer of shares in June 2015.

The Group's balance sheet remains strong with shareholders' funds totalling £18.9m or 13 pence per ordinary share in issue. Of that £12.1m, 63% is held in cash. The Group continues to hold significant levels of capital over and above the levels required by the Financial Conduct Authority ("FCA"). As at 30 June 2015, the Group had capital resources of £18.9m, 6.0 times the requirement (2014: 6.5 times).

Market context

The markets were volatile in the first half of the year due to increased global economic uncertainty and a UK General Election. Indeed, the average daily absolute movement in the FTSE 100 was 0.45% in the first half of 2014 but 0.65% in the first half of 2015. As reported in our Trading Update for the first quarter of 2015, in the face of this increased volatility and in the run up to the General Election investor activity was subdued. Whilst the unexpectedly clear result provided a temporary fillip to the markets, subsequently investor sentiment was unchanged, not least against the backdrop of the Greek debt crisis. This inevitably led to weaker dealing volumes as compared to 2014 when the comparative data was particularly strong. The first half of 2014 was a strong market comparative, with high profile IPOs such as TSB, Saga and Pets at Home, together with significantly higher absolute volumes of ISA account openings.

Market share

The Group's performance relative to a peer group of eight other stockbrokers is surveyed monthly by ComPeer, an independent company which gathers and reports data on the wealth management sector. This benchmarking is a very useful guide to the Group's performance, eliminating the 'peaks and troughs' of the market and investor sentiment which may be reflected in absolute revenue numbers but not in relative performance.

The latest data released by ComPeer shows the Group's share of revenues increased in the first half of the year to a record level of 7.82%, (2014: 7.70%). Revenue market share of 8.16% for the second quarter of the year (Q2 2014: 8.15%) increased from 7.48% in the first quarter.

The Group outperformed its peers in terms of dealing commission and fees. Together those two revenue streams in the six months to 30 June 2015 decreased by 5% compared to 2014, whilst our peers saw them fall by 7%.

Delivering our strategy

The three elements of the Group's strategy - Putting Customers First, Focus on Core Business and Strategic Partnerships or Acquisitions - remain central.

In Putting Customers First, we believe that our services should be driven by our customers' needs. This tax year, we extended our opening hours and were open over the weekends ahead of the end of the tax year end. In December 2014, we joined the customer review site, Trustpilot and already have over 400 reviews with an average rating of 8.9 out of 10. In terms of Focus on Core Business, for the first time we launched a brand advertising campaign, which was deliberately designed to be bolder. Partly reflecting these efforts, we saw our share of new ISA accounts opened in Q1 2015 increase to 4.74% (2014: 3.44%), as measured by ComPeer against 17 competitors in the broader retail stockbroking market. We continue to pursue appropriate opportunities for Strategic Partnerships or Acquisitions and see the contract with Barclays for certificated dealing services as a start to other similar relationships.

Board and management changes

We were delighted to welcome Gareth Thomas, former executive Board director of John Lewis plc, as a non-executive Director in January as previously reported. In addition in the same month, we were pleased to welcome Darren Cornish as Director of Customer Experience at The Share Centre Limited, a newly created senior management position. Darren was previously at E.ON UK plc, and responsible for driving improvements to customer service. He joined John Sargeant who was recruited as IT Director in November 2014. John was previously at One Stop, part of Tesco plc.

Change of auditor

Following a tender process we are pleased to announce that the Group has the intention of changing its Auditors from Deloitte to Ernst & Young ("EY"). Deloitte, and its predecessor firms, have been the Group's auditors since the Group was first established and we would thank them for the years of service and support that they have given the Group. EY have impressed us with their knowledge of the sector and we look forward to working with them going forward. We will make a further announcement once the appointment is formalised.

Outlook and trading update

We remain very positive about the future prospects of the Group. We believe that demographic change and reform for personal investors are all working in our favour at present, including the changes announced in the recent Summer Budget. We welcome the Chancellor's signalling of a radical review of the pension regime, a further indication that the Government views the ISA as the savings and investment vehicle of choice for personal investors. The ISA is, and always had been, a key product offering of The Share Centre.

Trading in the second half of the year is in line with expectations and with a number of strategic initiatives underway, we continue to look forward with confidence. In particular, we are in advanced discussions on a number of new partnership opportunities about which we hope to be able to announce more detail as the year progresses. Those opportunities, if successfully concluded, will be additive to the Group's performance in 2016 and beyond, and along with initiatives focused on our own brand, a full year of the Barclays contract, the prospect of a further Lloyds IPO and an increase in interest rates and thus interest income, all give us reason to be positive about the Group's future prospects.

Gavin Oldham

Chairman

29 July 2015

(*) Benchmarked revenue peer group includes: Alliance Trust Savings, Barclays Stockbrokers, Equiniti, Halifax Share Dealing, HSBC Stockbrokers, Saga Personal Finance, Selftrade and TD Direct Investing.

Share plc

Interim report and accounts 2015

Condensed consolidated income statement

All results are in respect of continuing operations.

* The Directors consider that the underlying earnings per share as presented in note 6 represents a more consistent measure of the underlying performance of the business as this measure excludes one-off items of income or expense.

Condensed consolidated statement of comprehensive income

Condensed consolidated balance sheet

This condensed set of financial statements was approved by the Board on 28 July 2015

Signed on behalf of the Board

Gavin Oldham

Condensed consolidated statement of changes in equity

Condensed consolidated cash flow statement

Notes to the condensed accounts

1 Basis of preparation

The financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs) as adopted by the European Union. However, this announcement does not itself contain sufficient information to comply with IFRSs. The financial information contained in these Interim Financial Statements does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The Group's published full financial statements comply with IFRSs. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

In the current year, the following new and revised Standards and Interpretations have been adopted and have had no impact on these financial statements:

· IAS 19 "Defined Benefit Plans: Employee Contributions"

· Annual Improvements to IFRSs: 2010-2012 Cycle

· Annual Improvements to IFRSs: 2011-2013 Cycle

The following standards, amendments and interpretations have been issued with implementation dates, subject to EU endorsement in some cases, which do not impact on these financial statements:

· Annual Improvements to IFRSs: 2012-2014 Cycle

· IFRS 15 Revenue from contracts with customers

· IFRS 9 Financial instruments

The impact of future standards and amendments on the financial statements is being assessed by the Group and the Company.

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these condensed financial statements.

2 Accounting policies

The same accounting policies, presentation and methods of computation are followed in this condensed set of financial statements as applied in the Group's latest annual audited financial statements.

3 Critical accounting judgements and key sources of estimation uncertainty 

In the application of the Group's accounting policies the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Allowance for bad debts

The Group makes a provision for the element of fees which it believes will not be recovered from customers. This is based on past experience and detailed analysis of the outstanding fees position particularly with regard to the value of customers' portfolios relative to the fees owed.

Fair value of investments

The Group currently holds investments in the London Stock Exchange plc, Euroclear plc, WAY Group Limited, Professional Partners Administration Limited (PPAL), Alpha Prospects, Eirx Therapeutics plc, Consort Capital (formally Investbx Limited) and Asset Match Limited. These are held as available-for-sale financial assets and are measured at fair value at the balance sheet date. In May 2015, Share plc obtained 6,750,000 Alpha Prospects shares at a cost of £63,000 from the SF Webb Capital Gold Fund, for which Sharefunds Limited is the Authorised Corporate Director, in order to remove an inadvertent breach position within the fund. These shares will be disposed of by Share plc in the open market whenever possible. In March 2014, a subsidiary of WAY Group Limited, Professional Partners Administration Limited, was demerged from WAY and Share plc now holds investments in both WAY and PPAL.

London Stock Exchange plc shares trade in an active market and the fair value is readily determined by market price. The Euroclear plc shares do not trade in an active market, although eligible shareholders were invited to participate in a buy back. A view of fair value is therefore formed based on the weighted average price following the buy-back and the net asset value of the business adjusted for liquidity considerations. WAY Group Limited shares are carried at cost as the shares are not publicly traded and there is no other means of determining a reliable and timely fair value based on the limited publicly available information. Both the Eirx Therapeutic plc shares, Consort Capital and Asset Match Limited shares are carried at nil value given the financial position of the companies and their recent history.

Share-based payments

The Company's shares have been traded on Sharemark (now Asset Match) since 2000 and on AIM since May 2008. This provides a market price to help determine the fair value of equity-settled share-based payments but, in addition to this, estimations are made as to price volatility, risk free interest rate and expected life. These estimations enable the Black-Scholes model to then be used to determine the fair value of these equity-settled share-based payments.

Impairment

The assets on the balance sheet are reviewed for any indications of impairment. This is done with reference to the recoverability and market value of the assets concerned but may involve an element of judgement or estimation in determining whether there are any indications of impairment and the extent of any impairment loss.

4 Business and geographical segments

IAS 34 Interim Financial Reporting requires disclosure of segment information within the interim report as the Group is required to disclose segment information in its annual financial statement as required by IFRS 8 Operating Segments.

It should be noted that the accounting policies of the reportable segments are the same as the Group's accounting policies and that there were no major customers contributing more than 10% of revenues in the Group as a whole.

5 Taxation

Tax for the six month period is charged at 20.25% (six months ended 30 June 2014: 21.5%), representing the best estimate of the average annual effective tax rate expected for the full year. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. In 2015 this was 20% (2014: 20%).

6 Earnings per share

7 Cash at bank and in hand

(a) This amount is held by The Share Centre Limited in trust on behalf of clients but may be used to complete settlement of outstanding bargains and dividends due.

(b) At 30 June 2015 segregated deposit amounts held by the Group on behalf of clients in accordance with the client money rules of the Financial Conduct Authority amounted to £207.6 million (30 June 2014: £172.5 million). The Group has no beneficial interest in these deposits and accordingly they are not included on the balance sheet.

8 Cash flow

Reconciliation of operating profit to net cash inflow from operating activities

Included in other losses are the cash cost of acquiring shares under the companies' share option schemes and SIP matching shares.

9 Distribution to shareholders

10 Share based payments

The Group operated an Enterprise Management Incentive (EMI) approved share option scheme; however the balance sheet of the Group no longer meets the requirements to grant options under the EMI rules. During 2014, the Group implemented the Company Share Ownership Plan (CSOP) which enables the regular granting of share options on the same basis as EMI scheme.

The Group has applied the requirements of IFRS 2 in respect of share-based payments. During the first half of the year ended 30 June 2015, the Group made one equity-settled share-based payment under the Group's CSOP scheme and Unapproved share options to staff and directors of 2,186,391 shares on 1 May 2015. In all cases, all options have been granted with an exercise price equal to market value - being the closing mid-price on the day prior to grant. A fair value has been determined during the year using the Black-Scholes model. The main assumptions are as follows:

Details of the share options outstanding during the year are as follows:

The weighted average market share price at the date of exercise for options exercised during the first six months of 2015 was 36.1 pence (the first six months of 2014: 42.3 pence).

In addition, the Group operates a Share Incentive Plan (SIP). Further detail of the scheme is available from the Group's annual report and accounts.

The total expense for equity-settled share-based payments for the Group in respect of awards made in the first half of 2015 was £334,000 (six months ended 30 June 2014: £1,211,000). This expense is then applied across the vesting periods. An adjustment is made to this figure in respect of members of staff to whom options and shares have been granted but who have left the Group's employ during the vesting period. The overall net charge taken in the income statement for the first half of 2015 is £274,000 (six months ended 30 June 2014: £237,000).