Last checked at 5 Jun 2008 07:00
5 June 2008
Walker Crips Group plc
Preliminary results for the year ended 31 March 2008
WALKER CRIPS GROUP DELIVERS STRONG PERFORMANCE
Walker Crips Group plc ("WCG", the "Company" or the "Group"), the integrated financial services group, today announces its unaudited preliminary results for the year ended 31 March 2008.
Financial highlights
Total revenues up 2.0% to £18.3 million (2007: £18.0 million)
Successful growth of non-broking fee income, which represents 48.9% of total revenues (2007: 46.2%)
Gross profit up 6.3% to £14.6 million (2007: £13.7 million); a gross margin of 80% (2007: 76%)
Pre-tax profit before exceptional expenses down 7.7% to £2.4 million (2007: £2.6 million)
Record Pre-tax profit up to £2.3m, an increase of 9.4% (2007: £2.1 million)
Profit after tax up 3.2% to £1.6m (2007: £1.5m)
Basic Earnings per share up to 4.5 pence (2007: 4.4 pence)
Proposed final dividend up 5.3% to 1.60 pence per share (2007: 1.52 pence per share) - total dividend for the year up 5.8% to 2.54 pence per share (2007: 2.40 pence per share)
Net Cash resources remain healthy at £5.1 million at the year end (2007: £6.1 million)
Business highlights
All business units contributed to the resilient performance over the year despite the difficult investment climate.
Funds under management at Walker Crips Asset Managers Limited ("WCAM") increased to £405 million at the year end (2007: £383 million) and currently stand at £455 million.
Substantial growth of our York subsidiary's Ebor SIPP pension product, rising to £44m under administration (2007: £24 million)
Office move successfully completed into one floor in modern and more functional building premises in the City of London.
Commenting on the results, David Gelber, Chairman, said:
"The diverse and robust nature of the Group's revenue streams should leave your Company well placed to minimise the impact of any further market turbulence. We remain cautiously optimistic and look forward to meeting all the challenges which lie ahead in the coming year."
Rodney FitzGerald, Chief Executive Officer, said:
"The end of the current instability in stock markets is perhaps not yet in sight but your Board believes that the Group, with its strong balance sheet, should continue to achieve a high return on capital with an appropriate level of cost control."
For further information, please contact:
Walker Crips Group plc Tel: +44 (0)20 3100 8000
Rodney FitzGerald, Chief Executive
Stephen Bailey, Investment Director
Altium Tel: +44 (0)20 7484 4010
Ben Thorne
Tim Richardson
Further information on Walker Crips Group plc is available on the Company's website: www.wcwb.co.uk
Chairman's Statement
Results Overview
I am pleased to announce that despite the onset of the credit crunch last August, your Group has produced an increased profit before tax of £2.3m compared to £2.1m in 2007. This 9.4% increase was achieved despite only a modest increase in revenue, and reflects the growth in our fund management division and investment income as well as our continuing efforts to keep a tight control on costs.
Basic Earnings per share improved to 4.5p from 4.4p last year.
Business performance overview
Each of the Group's core businesses made progress during the period, especially pleasing when set against the difficult market conditions that we have seen.
One of the highlights this year was the performance of our fund management subsidiary, Walker Crips Asset Managers Ltd (WCAM). WCAM once again enjoyed a successful year with funds under management rising from £383 million to £405 million at the year end. Underpinned by top quartile investment performance within their peer group, WCAM funds continue to attract the attention of institutional and private investors alike. Since the year end, funds under management have increased further to £455 million.
Fewer transactions in the stockbroking division led to a slight fall in revenue to £12.8m from £13.1m last year, however non-broking fee revenue increased to 48.9% of total income (2007 - 46.2%). As ever, we remain committed to developing our recurring revenue stream.
The financial services division, based in York, successfully completed its third year as part of the Walker Crips Group. The longer term benefits of closer co-operation and collaboration are now evident in the greater range of our own financial products and services that we are able to offer our clients, including the Ebor SIPP.
The corporate finance division has again performed profitably in the face of very tough markets in the second half of the period under review.
Office move
In August 2007 we relocated our head office within the City of London. The effective planning and dedication of the project team, staff and account executives ensured a smooth transition and relocation costs which were within budget. Our new offices now provide a more functional environment for our personnel and sufficient space is now available to accommodate our expansion plans.
Name change and share subdivision
On 14 August 2007 shareholders approved a proposal to change the Company's name to Walker Crips Group plc (WCG) having, on 20 July 2007, approved the subdivision of each 20p ordinary WCG share into three new ordinary WCG shares of 6 2/3p each at the Company's Annual General Meeting.
Dividend
I am pleased to announce that the Group's resilient performance this year has enabled your Board to propose an increased final dividend of 1.60 pence per share (2007 - 1.52 pence per share) which fully reflects both our confidence in our business strategy and the future of the Group. This proposed final dividend will be paid on 21 July 2008 to those shareholders on the register at the close of business on 13 June 2008 and will give a total dividend for the year of 2.54 pence per share (2007 - 2.40 pence per share), a 5.8% increase.
Outlook
The current year has started steadily, but we are mindful of uncertain investment conditions driven by the credit crunch and recession fears.
Nevertheless, the diverse and robust nature of the Group's revenue streams should leave your Company well placed to minimise the impact of any further market turbulence. We remain cautiously optimistic and look forward to meeting all the challenges which lie ahead in the coming year.
D M Gelber
Chairman
5 June 2008
Chief Executive's Report
Results Overview
After a good start to the financial year, activity slowed in the second half, particularly in stockbroking, against a backdrop of general market uncertainty caused by the well-publicised deterioration in credit markets and recessionary fears.
Despite this unstable environment, I am very pleased to report that all four of our business units once again contributed to the Group's record year. The underlying profit before tax and exceptional items at £2.4 million is little changed from the previous year's result which was achieved in a more conducive investment climate.
Asset Management (WCAM)
Despite difficult market conditions, our fund management team have thrived and its macro-economic investment philosophy has delivered impressive results. Their six year track record remains exceptional and I am confident that the division will continue to flourish .
One of our key performance indicators, the level of total funds under management, grew from £383 million to stand at £405 million at year end. WCAM, our asset management subsidiary, now manages eight funds together with a significant institutional equity mandate. Since the year end, funds under management have increased further to £455 million.
The division delivered another significant contribution to group profitability in the year being reported. The level of recurring annual management and trail fees proved to be a stable platform, enabling other Group revenue streams to add value and deliver profitability in difficult conditions.
Additional investors continue to be actively sought by our sales team who are able to promote the consistently good performance statistics and the established reputation of the joint managers, Stephen Bailey and Jan Luthman.
Investment Management/Stockbroking (Walker Crips Stockbrokers Limited)
Total income from investment management and stockbroking clients in the year was £12.8 million (2007: £13.1 million), a sound performance considering the market turmoil which prevailed for much of the year.
The Private Client Department (PCD) continued its impressive record of revenue growth from its advisory and discretionary managed client base, contributing significantly to further improvement in the Group's primary key performance indicator, the percentage of stable fee-based revenue compared to the volume-sensitive broking commission. The PCD grew its recurring fee income by 28% during the year and funds under management increased 31% over last year.
Our commission-sharing Account Executives continue to provide investment support and guidance to the client base, however, in view of the more recent uncertainty in investor sentiment, volumes and gross commission declined by 8%. Against a background of increasing regulation, greater competition and more demands on technology, our account executives generated gross commission of £6.5 million (2007: £7.1 million).
Although the net contribution from stockbroking was impacted more so by the market downturn than our other divisions, we expect it to similarly bounce back the strongest when more favourable market conditions return.
Our other fee-based investment management products, namely nominee and custody services, together with our PEP, ISA and Child Trust Funds investment and administration products and the managed deposit service continue to bolster our non-broking income base. Also, our telephone and online execution dealing services, Investorlink and Investelink, generate commissions which complement our advisory and discretionary services. Additional products were introduced during the year, including facilities to engage in spread betting and UK Treasury Bill trading to cater for the ever increasing spread of products required by today's investor.
Wealth Management
Our Financial Services and Pension Management Division, based in York, continues to go from strength to strength, this year making a third consecutive increased contribution to the Group's bottom line.
The Ebor SIPP product, through which we provide administration and bespoke Pension Portfolio Management services has completed another successful year with the number of plans rising from 161 to 223. Total amounts held at the year end within Ebor SIPP's exceeded £44 million. The number of SSAS's broke through the 200 mark ending the year at 203 schemes, within which £175 million is administered.
The York and London offices have merged both their business models and disciplines and the more efficient combined entity, Walker Crips Wealth Management Limited, has set itself an ambitious three year growth strategy. The present income charging policy concentrates on growing recurring management fees and provides a modern, solid and sustainable business model, well positioned to take full advantage of the forthcoming changes likely to be introduced in 2009 following the FSA's Retail Distribution Review.
Corporate Finance (Keith Bayley Rogers & Co Limited)
Predictably, the financial year concluded in very quiet conditions, where raising funds and introducing new products proved difficult. Those conditions have persisted into the current financial year. Notwithstanding efforts to expand its advisory and broking services, the corporate finance division experienced a fall in both placing commission revenue and overall profitability against the previous year. Despite a healthy pipeline and a largely maintained client list, the contribution from corporate finance to Group pre-tax profits halved to £122,000. Acting principally for clients on the Official List, AIM and PLUS Markets, the division had 18 retained clients at the year end, representing a small net decrease over last year.
Corporate activity
The Group's stated strategy is to expand through suitable acquisitions of both businesses and teams as well as organic growth. There has been a great deal of enquiry this year, however, valuation expectations have remained unrealistic. We will continue to seek to grow shareholder value through acquisitions and to capitalise on opportunities which may arise.
Exceptional debt provision
We have previously reported on the pursuit of fully provided outstanding debts of approximately £2.5 million which was shown as an exceptional item in the year to 31 March 2006. Following protracted but successful litigation through the courts, we are in the process of recovering funds from the three debtors, one of whom has recently died. Steps to enforce the judgment against each debtor are continuing. The board will pursue this resolutely, whilst ensuring costs incurred are appropriately contained.
Regulation
The implementation of the EU's MiFID and Capital Requirements Directives was completed during the year and our focus has now shifted to further embedding the risk procedures described in the ICAAP risk management document, as well as the full adoption of the FSA's themed initiative, Treating Customers Fairly.
Liquidity
Cash resources remain at a healthy level and continue to provide a firm foundation for possible future acquisitions. The Group's net assets rose by 6.6% over the year to £13.4 million, through a combination of retained profits and increasing value of investments, reflecting further the balance sheet strength of your Company.
Directors, account executives and staff
On behalf of the Board, I would like to thank my fellow directors, all our account executives and members of staff for their continued hard work, loyalty and commitment in the face of difficult market conditions and demanding regulatory and technological change.
Future Outlook
The end of the current instability in stock markets is perhaps not yet in sight but your Board believes that the Group, with its strong balance sheet, should continue to achieve a high return on capital with an appropriate level of cost control. When conditions have improved our organic expansion plans can again be fully resourced and implemented in full.
Since the year end, the performance of our three main equity funds has been highly impressive, which gives us grounds for optimism with regards to further expanding funds under management.
In the new financial year we have observed a slight improvement in business levels and should market conditions improve further, we look forward to reporting solid results in the interim statements later this year
R.A. FitzGerald FCA
Chief Executive Officer
5 June 2008
Consolidated income statement
Year ended 31 March 2008
| Note | 2008 £'000 | £'000 | ||||
| Revenue | 18,312 | 17,959 | ||||
| Commission payable | (3,749) | (4,253) | ||||
| Gross profit | 14,563 | 13,706 | ||||
| Share of after tax profits of joint ventures | 69 | 50 | ||||
| Administrative expenses - other | (12,530) | (11,347) | ||||
| Administrative expenses - exceptional items | 3 | (106) | (520) | |||
| Total administrative expenses | (12,636) | (11,867) | ||||
| Operating profit | 1,996 | 1,889 | ||||
| Investment revenues Finance costs | 324 (3) | 243 (14) | ||||
|
| ||||||
| Profit before tax | 2,317 | 2,118 | ||||
| Analysed as: Profit before tax and exceptional items Administrative expenses - exceptional items Profit before tax | 2,423 (106) ________ 2,317 | 2,638 (520) ________ 2,118 | ||||
| Taxation | (745) | (595) | ||||
| Profit for the year attributable to equity holders of the company | 1,572 | 1,523 | ||||
| Earnings per share | ||||||
| Basic | 4 | 4.5p | 4.4p | |||
| Diluted | 4 | 4.2p | 4.3p | |||
Consolidated statement of recognised income and expense
Year ended 31 March 2008
| 2008 £'000 | £'000 | |||
| Gain on revaluation of available-for-sale investments taken to equity | 282 | 43 | ||
| Deferred tax on gains on available-for-sale investments |
| (62) | 11 | |
| Deferred tax on share options |
| (148) | 275 | |
| Net income recognised directly in equity | 72 | 329 | ||
| Profit for period | 1,572 | 1,523 | ||
| Total recognised income and expense for the year attributable to equity holders of the company | 1,644 | 1,852 | ||
Consolidated balance sheet
31 March 2008
| Note | Group 2008 £'000 | Group
£'000 | |||
| Non-current assets | |||||
| Goodwill | 5,121 | 5,152 | |||
| Other intangible assets | 806 | 921 | |||
| Property, plant and equipment | 1,451 | 1,143 | |||
| Investment in joint ventures | 93 | 74 | |||
| Available for sale investments | 1,170 | 888 | |||
| Deferred tax asset | - | 178 | |||
| 8,641 | 8,356 | ||||
| Current assets | |||||
| Trade and other receivables | 40,864 | 64,290 | |||
| Trading investments | 216 | 138 | |||
| Cash and cash equivalents | 5,353 | 6,298 | |||
| 46,433 | 70,726 | ||||
| Total assets | 55,074 | 79,082 | |||
| Current liabilities | |||||
| Trade and other payables Current tax liabilities Bank overdrafts Provisions Deferred tax liability Shares to be issued |
| 5 | (39,489) (524) (301) - (84) (1,105) | (63,656) (448) (148) (649) - | |
| (41,503) | (64,901) | ||||
| Net current assets | 4,930 | 5,825 | |||
| Non-current liabilities Shares to be issued Cash consideration due under acquisition agreements | 5 | - (150) | (1,588) - | ||
| Net assets | 13,421 | 12,593 | |||
| Equity | |||||
| Share capital | 2,360 | 2,356 | |||
| Share premium account | 1,568 | 1,547 | |||
| Own shares | (173) | (173) | |||
| Retained earnings | 5,101 | 4,387 | |||
| Revaluation reserve | 789 | 569 | |||
| Other reserves | 3,776 | 3,907 | |||
| Equity attributable to equity holders of the company | 13,421 | 12,593 | |||
Consolidated cash flow statement
Year ended 31 March 2008
| 2008 £'000 | 2007 £'000 | ||||
| Operating activities | |||||
| Cash generated from operations | 1,101 | 5,384 | |||
| Interest received | 295 | 216 | |||
| Interest paid | (3) | (14) | |||
| Tax paid | (657) | (435) | |||
|
| |||||
| Net cash generated from operating activities | 736 | 5,151 | |||
| Investing activities | |||||
| Joint venture investment Deferred consideration payment under acquisition agreements | - (302) | (20) - | |||
| Net purchase of property, plant and equipment | (700) | (830) | |||
| Purchase of investments held for trading | (78) | (3) | |||
| Dividends received | 79 | 77 | |||
| Net cash used in investing activities | (1,001) | (776) | |||
| Financing activities | |||||
| Proceeds on issue of shares | 25 | 181 | |||
| Dividends paid | (858) | (790) | |||
| Net cash used in financing activities | (833) | (609) | |||
| Net (decrease) / increase in cash and cash equivalents | (1,098) | 3,766 | |||
| Net cash and cash equivalents at beginning of year | 6,150 | 2,384 | |||
| Net cash and cash equivalents at end of year | 5,052 | 6,150 | |||
| Cash and cash equivalents | 5,353 | 6,298 | |||
| Bank overdrafts | (301) | (148) | |||
| 5,052 | 6,150 | ||||
Notes for the year ended 31 March 2008
1. The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 March 2008 or 2007. The financial information for the year ended 31 March 2007 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s. 237(2) or (3) Companies Act 1985. The statutory accounts for the year ended 31 March 2008 are yet to be signed but will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting.
2. Whilst the information as set out in this preliminary announcement is prepared in accordance with International Financial Reporting Standards ('IFRS') the announcement itself does not contain sufficient information to comply with IFRS. The accounting policies are consistent with those applied in the full financial statements and are consistent with those of the prior year.
3. Exceptional items
During the year, final judgement was awarded in the High Court in the Company's favour against two clients' unauthorised transactions (as per the Group's announcement of the 3 July 2007). In order to bring proceedings to this final stage, additional legal expenses were incurred beyond the original exceptional provision made in the year to 31 March 2006. These additional legal costs amounted to £106,000 during the year.
Last year, the group secured a lease on premises to allow the continued expansion of the business. As a result of this, until the old lease expired, costs were being incurred with no economic benefits being received. The directors provided £520,000 in full for the onerous lease costs.
4. Earnings per share
The calculation of basic earnings per share is based on the post-tax profit for the financial year of £ 1,572,000 (2007 - £1,523,000) and on 34,920,683 (2007 - 34,612,461) ordinary shares of 6 2/3p, being the weighted average number of ordinary shares in issue during the year.
The effect of options granted and contingently issuable shares under acquisition agreements would be to reduce the reported earnings per share. The calculation of diluted earnings per share is based on 37,049,416 (2007 - 35,766,780) ordinary shares, being the weighted average number of ordinary shares in issue during the period adjusted for dilutive potential ordinary shares.
5. Under an agreement dated 11 April 2005 to purchase G &E Investment Services Limited (London York), ordinary shares in the Company may be issued, based on a profit related performance formula. The expected value represents the Directors' best current estimate.
During the year the acquisition agreement was amended by a deed of variation, agreed by all parties to the agreement, that the cash consideration payable be increased by £450,000, (£300,000 of which had been paid by the year end) in exchange for a reduction of £495,000 in the share consideration payable.
6. Segmental analysis
For management purposes the Group is currently organised into four operating divisions - Invesment Management / Stockbroking, Corporate Finance, Financial Services and Fund Management. These divisions, all of which conduct business in the United Kingdom only, are the basis on which the group reports its primary segment information.
| 2008 | Investment Management / Stockbroking £’000 | | Corporate Finance £’000 | | Financial services £’000 | | Fund Mgt £’000 | | Consolidated Year ended 31 March 2008 £’000 |
| | | | | | | | | | |
| Revenue | | | | | | | | | |
| External sales | 12,827 | | 820 | | 2,013 | | 2,652 | | 18,312 |
| | | | | | | | | | |
| Total revenue | 12,827 | | 820 | | 2,013 | | 2,652 | | 18,312 |
| | | | | | | | | | |
| Result | | | | | | | | | |
| Segment result | 772 | | 122 | | 421 | | 1,734 | | 3,049 |
| | | | | | | | | | |
| Unallocated corporate expenses | | | | | | | | | (1,122) |
| Share of results of joint venture | | | | | | | | | 69 |
| | | | | | | | | | |
| Operating profit | | | | | | | | | 1,996 |
| | | | | | | | | | |
| Investment revenues | | | | | | | | | 324 |
| Finance costs | | | | | | | | | (3) |
| | | | | | | | | | |
| Profit before tax | | | | | | | | | 2,317 |
| Tax | | | | | | | | | (745) |
| | | | | | | | | | |
| Profit after tax | | | | | | | | | 1,572 |
| | | | | | | | | | |
| Other information | | | | | | | | | |
| Capital additions | 686 | | 10 | | 5 | | - | | 701 |
| Depreciation | 309 | | 5 | | 73 | | 4 | | 391 |
| Balance sheet | | | | | | | | | |
| Assets | | | | | | | | | |
| Segment assets | 42,800 | | 841 | | 1,213 | | 1,579 | | 46,433 |
| | | | | | | | | | |
| Unallocated corporate assets | | | | | | | | | 8,641 |
| | | | | | | | | | |
| Consolidated total assets | | | | | | | | | 55,074 |
| | | | | | | | | | |
| Liabilities | | | | | | | | | |
| Segment liabilities | 38,776 | | 210 | | 551 | | 861 | | 40,398 |
| | | | | | | | | | |
| Unallocated corporate liabilities | | | | | | | | | 1,255 |
| | | | | | | | | | |
| Consolidated total liabilities | | | | | | | | | 41,653 |
| | | | | | | | | | |
| 2007 (Restated – see note below) | Investment Management / Stockbroking £’000 | | Corporate Finance £’000 | | Financial services £’000 | | Fund Mgt £’000 | | Consolidated Year ended 31 March 2007 £’000 |
| | | | | | | | | | |
| Revenue | | | | | | | | | |
| External sales | 13,111 | | 861 | | 2,141 | | 1,846 | | 17,959 |
| | | | | | | | | | |
| Total revenue | 13,111 | | 861 | | 2,141 | | 1,846 | | 17,959 |
| | | | | | | | | | |
| Result | | | | | | | | | |
| Segment result | 1,442 | | 244 | | 431 | | 1,041 | | 3,158 |
| | | | | | | | | | |
| Unallocated corporate expenses | | | | | | | | | (1,319) |
| Share of results of joint venture | | | | | | | | | 50 |
| | | | | | | | | | |
| Operating profit | | | | | | | | | 1,889 |
| | | | | | | | | | |
| Investment revenues | | | | | | | | | 243 |
| Finance costs | | | | | | | | | (14) |
| | | | | | | | | | |
| Profit before tax | | | | | | | | | 2,118 |
| Tax | | | | | | | | | (595) |
| | | | | | | | | | |
| Profit after tax | | | | | | | | | 1,523 |
| | | | | | | | | | |
| Other information | | | | | | | | | |
| Capital additions | 815 | | 10 | | 5 | | - | | 830 |
| Depreciation | 170 | | 8 | | 50 | | 6 | | 234 |
| Balance sheet | | | | | | | | | |
| Assets | | | | | | | | | |
| Segment assets | 67,195 | | 804 | | 1,651 | | 1,254 | | 70,904 |
| | | | | | | | | | |
| Unallocated corporate assets | | | | | | | | | 8,178 |
| | | | | | | | | | |
| Consolidated total assets | | | | | | | | | 79,082 |
| | | | | | | | | | |
| Liabilities | | | | | | | | | |
| Segment liabilities | 63,241 | | 206 | | 780 | | 674 | | 64,901 |
| | | | | | | | | | |
| Unallocated corporate liabilities | | | | | | | | | 1,588 |
| | | | | | | | | | |
| Consolidated total liabilities | | | | | | | | | 66,489 |
| | | | | | | | | | |
The Company's employee profit sharing arrangements are calculated by reference to aggregated group pre-tax profits. Previously these profit sharing costs were allocated to segments based on the total employment costs of each segment, which distorted the segmental result unfavourably for those segments employing a greater number of personnel because the profit sharing costs are costs that arise at the entity level and relate to the entity as a whole. It has been decided that group profit sharing costs should be disclosed as an unallocated corporate expense. This has the impact in 2007 of improving the segmental results for Investment Management / Stockbroking and Financial Services by £619,000 and £65,000 respectively. Unallocated corporate expenses have increased by £684,000.