Final Results

Curtis Banks Group plc

("Curtis Banks", the "Company")

Final Results for 12 months to 31 December 2018

Strong financial and operating performance combined with margin enhancement

Curtis Banks Group plc, one of the UK's leading SIPP providers, is pleased to announce its final results for the 12 months to 31 December 2018.

Highlights

· Operating Revenue increased by 6% to £46.1m (2017: £43.6m)

· Adjusted profit before tax increased by 13% to £12.1m (2017: £10.7m)

· Adjusted operating margin2 increased to 27.1% (2017: 25.8%)

· Profit before tax increased by 72% to £10.1m

· Adjusted diluted EPS increased by 13% to 17.32p

· Gross organic growth in own SIPP numbers of 9% with total administered now 77,739

· Assets under administration increased by 0.4% to £24.8bn

· Proposed final dividend of 6.00p (2017: 4.75p) making a full year payment of 8.00p (2017: 6.25p)

Highlights and key performance indicators for the year include:

1 Profit before tax, amortisation and non- recurring costs

2 The ratio of operating profit before net finance costs, amortisation and non-recurring costs to operating revenues

Commenting on the results, Will Self, CEO of Curtis Banks, said:

"In my first results as Chief Executive of the Group I am delighted to report another year of strong and profitable growth. The past year has seen the Company make significant investment to support further organic growth, building on the consolidation and integration prioritised over the last two years.  

We believe we are setting a high bar with the introduction of our new SIPP proposition. Coupled with our new distribution structure we are now well-placed to increase our organic growth of full and mid SIPPs over the next full reporting period. We are also well positioned to grow the business inorganically and are proactively exploring possible acquisitions.

In January our CFO Paul Tarran announced his decision to stand down from the Board. A process has begun to find his successor and Paul remains in his current role until this process is complete in order to ensure a smooth transition.

The SIPP market is undergoing an evolution and, as one of the UK's leading providers, we have entered 2019 in an extremely strong position and I am confident about our prospects for growth and our broadening capability to deliver enhanced services for our customers as well as our ability to deliver against our strategic objectives."

Analyst and Investor Presentation:

There will be a presentation on Wednesday 20th March 2019 at 9.30am for institutional investors and analysts at Peel Hunt LLP, Moor House, 120 London Wall, London EC2Y 5ET. Those wishing to attend should contact jake.thomas@camarco.co.uk

For more information: 

Notes to Editors: 

Curtis Banks administers over 77,000 Self-Invested Pension Schemes, principally SIPPs and SSASs. The Group commenced trading in 2009 and has successfully developed, through a combination of organic growth and acquisitions, into one of the largest UK providers of these products. The Group employs approximately 560 staff in its head office in Bristol and regional offices in Ipswich and Dundee.

 For more information - www.curtisbanks.co.uk 

Chairman's Statement

I am pleased to report the Curtis Banks Group final results for the year ended 31 December 2018. These results show solid growth in all financial KPI's over a transitional period in which we have made important operational developments.

I would like to start by thanking our former Chief Executive Officer Rupert Curtis for being instrumental in the evolution of the business over a number of years from founding the business to the successful IPO in 2015. I am delighted that he remains a strategic advisor to the business. I would also like to thank Paul Tarran following his announcement to step down by the end of the year. Paul has made an enormous contribution to the business over a number of years. The search for his successor has already begun.

Taking Rupert Curtis' place is our new Chief Executive Officer, Will Self. Will has been with the business since 2016 and with strong credentials, over 15 years' experience and a member of the Board since 2016, I believe he is very well positioned to lead the business through the next stage of its growth. I am also delighted that Jane Ridgley has now joined the Board. Jane is currently Chief Operating Officer for the Group and will continue in that role as an executive director of the Board.

The period under review has shown an increase in all key financial metrics. Operating revenue has increased by 6% from £43.6m to £46.1m compared to the same period last year, with adjusted profit before tax increasing by 13% from £10.7m to £12.1m. Adjusted operating margin increased to 27.1% (2017: 25.8%) and profit before tax increased 72% to £10.1m. Fully diluted earnings per share on these adjusted operating results (after tax) amounted to 17.32p per share (2017: 15.38p). It is extremely pleasing during this period of transition for the Group to be able to report both top line growth and margin improvement.

We have invested significantly in our products this year and launched 'Your Future SIPP' in February 2019. In a sense, this development is the culmination of the Suffolk Life integration, as the product combines the best features of both companies' services into one industry leading proposition. We have also invested in our sales team and digital portals throughout the year and I am confident that these enhancements, combined with our expansion into UK's commercial property market, will lead to greater top-line growth.

The total number of SIPPs currently administered by the Group now exceeds 77,000. This is a result of continued new organic growth of all SIPPs and our attrition rates remaining stable with previous years.

Dividends

We paid an interim dividend of 2.00p per share (2017: 1.50p per share) on 15 November 2018 and the Board proposes a final dividend of 6.00p per share (2017: 4.75p per share) which, if approved, will be paid to shareholders on the register at the close of business on 26 April 2019. The shares will be marked ex-dividend on 25 April 2019 and the proposed dividend paid on 23 May 2019. This will mean the total dividend paid in respect of the year ended 31 December 2018 will amount to 8.00p per share (2017: 6.25p).

Summary and outlook

We are well positioned to grow the business and we continue to actively seek appropriate acquisition opportunities. Following a year of successfully implementing change within the Group, we have entered 2019 in a strong position for the year ahead. We continue to invest in the business to ensure we stay industry leaders and are in a strong position to grow revenues and maximise stakeholder value.

Chris Macdonald

Chairman

19 March 2019

Chief Executive's Review

Business Review

My first review as Chief Executive of the Group reports that 2018 has been another year of strong and profitable growth, building on the foundations of consolidation and integration prioritised over the last two years. It goes without saying that I would like to thank my predecessor Rupert Curtis who, along with Chris Banks and Paul Tarran, founded the business and helped build the industry leading Group that we have today. Their vision and belief in the SIPP market has enabled the Group to remain at the top of our sector and created a platform for the next stage of our journey.

One of the founding principles of the Group was to deliver high quality service. The Group remains a customer centric organisation, and I would also like to thank our hugely valued staff members who deserve recognition for the many and varied achievements over the last 12 months. Their success in meeting the challenges we present to them plays a vital role in delivering the increasing expectations of our customers at the same time as we evolve our business. The SIPP market is experiencing rapid change, and it is the hard work and dedication of each and every member of the business that enables us to deliver these final results for the year ended 31 December 2018.

We have focussed on adjusted operated margin as one of our key performance indicators, and I am pleased to report that this has further increased to 27.1% (2017: 25.8%). We remain confident that a 30% adjusted operating margin is sustainable with our current model. Adjusted profit before tax increased 13% to £12.1m (2017: £10.7m) as a result of strong revenue growth and further operational alignment within the Group.

2018 was a year of transition for some elements of the Group. We completed the delivery of our new brand, consolidating under a single identity and completing a journey that began internally with our staff, offices and culture. This has delivered a platform from which we can invest in and grow our market presence and reputation within our market. In April, we announced the appointment of Jane Ridgley to Chief Operating Officer of the Group. Jane brings a wealth of experience to the role, having previously held senior roles in Suffolk Life and Legal & General. She is a member of the Group Executive Committee and, as of January 2019, a member of the Board. Her extensive footprint within the company continues to drive cohesiveness within the Group's core operational teams and will engender enhanced collaboration.

In other areas of the Group we focussed on five key deliverables to provide the foundation required for us to deliver the next stage of our journey:

New single SIPP proposition - We have successfully launched our new SIPP product 'Your Future SIPP' which replaces the current range of products with a combined product offering the best features of the Curtis Banks and Suffolk Life SIPPs. It capitalises on our new brand, with a clear single market presence for our customers, and its enhanced digital functionality and customer focused service model is more efficient and appealing for both advisers and their clients.

New national sales function - Distributing 'Your Future SIPP' is our fully resourced, significantly enhanced sales team, headed by our Group Sales Director, Dave Stratton, a National Sales Manager and a team of seven Business Development Managers. Dedicated sales resource is also focussed on key adviser networks and investment partners to capitalise on other distribution channels.

Expanded commercial property expertise - We also have expanded further into the UK's commercial property market with the launch of two new companies. Rivergate Legal Limited offers a range of legal services to SIPP, SSAS and open market customers relating to commercial property transactions; and Templemead Property Solutions Limited provides valuation services and negotiates other professional services on behalf of Curtis Banks Group clients.

GDPR - During the period we also successfully implemented a GDPR framework throughout the Group without material financial or operational impact. As a Group we interact with a large number of external parties and I am pleased that this has been completed effectually.

IT Strategy - We continue to progress with the work to simplify our IT Infrastructure, as previously outlined. We launched our new website and secure portal, marking a material shift in and de-risking of our digital infrastructure. We now continue to explore the best routes to further exploit this investment.

Having successfully navigated a period in which we delivered both transitional and structural growth, we are well positioned to continue to grow the business and deliver against our strategic objectives.

Sales Growth

At the year end the number of SIPPs administered increased to 77,739 with 5,838 gross new own SIPPs added organically. Our two core areas of strategic focus, the Full SIPP and Mid SIPP both saw encouraging levels of new gross organic growth. Attrition rates on own SIPPs remain stable at 6.07%. The table below sets out more detail on SIPPs numbers and rates of attrition.

*Growth and attrition percentage rate based on opening SIPP numbers at the beginning of the year

Our strategic focus remains on the Full and Mid SIPP market where our expertise, charging model and customer service focus are concentrated in 'Your Future SIPP'. The Full SIPP market is relatively mature, with historic restrictions on annual contributions and annual allowances meaning that gross flow predominantly comes from existing SIPP customers. Many of these clients seek to add Commercial Property as an asset class or wish to move their existing SIPP to a new provider. Mid SIPPs continue to be the product of choice for pension consolidation and the first step for many pension customers from default funds into investment selection, therefore contributing material gross flow.

There have been some well publicised challenges, from which no provider has been immune, which have led to lower gross sales across the industry. The Defined Benefits ('DB') transfer review has impacted all Professional Advisers, spanning both 'DB' and Defined Contribution pension transfer advice. Liabilities arising from SIPPs holding non-standard assets have reduced confidence in the SIPP market, and the general economic environment has reduced consumers' focus on pension savings. All of these factors have been felt across the industry but we believe that our robust financial strength, quality of administration and our new proposition puts us at the forefront of the sector.

In spite of the above the overall SIPP market opportunity remains strong, with SIPPs still benefitting from the introduction of the pension freedoms and favoured as a way of allowing individuals to have greater access, control and responsibility over their pension savings. SIPPs are now being considered by a much larger group of consumers than ever before and are no longer perceived as reserved solely for those with large pension fund values.

'Your Future SIPP' - our new SIPP proposition

'Your Future SIPP' was launched following detailed adviser research and combines the best of the Curtis Banks and Suffolk Life SIPPs into one of the industry's leading propositions. Your Future SIPP accesses a high quality customer-focussed service model with specialised teams across the Group, and is competitively priced, with no application fees for online applications coupled with a tiered annual administration fee.

A new online portal has been launched that directly supports 'Your Future SIPP'. This will deliver efficiencies for advisers, reducing the time spent on administration. Advisers and clients will benefit from more digital functionality than before and it is accessible from desktop computers, tablets and mobiles. Other features include market access to virtually any investment solution, easy management of cash and automated adviser charging.

'Your Future SIPP' benefits from our highly experienced commercial property team, now enhanced by the legal and property management solutions within the Group offered by Rivergate Legal and Templemead Property Solutions, adding experience and value to customers with property investments.

We are still in the very early stages of the new proposition but believe our new proposition is market leading with a suite of features, flexibility and attractive pricing. Coupled with our new distribution structure we are now well-placed to increase our organic growth of Full and Mid SIPPs.

Acquisitions

Investing to add high quality assets is a core component of our future growth strategy. In December 2018, we announced the completion of the purchase of wealth manager Hargreave Hale's book of SIPPs. This comprised 578 SIPPs invested in assets valued at c £180 million. This SIPP book represented a good fit for our business model and marked the tenth asset purchase by Curtis Banks since the company was founded in 2009.

We remain disciplined in our approach to acquisitions where we consider each opportunity from both an earnings per share and return on investment perspective. We are committed to exploring further opportunities to add scale and expand our offering to greater numbers of clients.

Industry context and regulation

Regulatory scrutiny continues in the pension market. Our business model means that we only work with regulated financial advisers and do not give any advice or provide the investments held within our SIPPs. In addition our fee structures remain fair and transparent.

The issue of non-standard investments has received increased media attention. Whilst we acknowledge that these issues are significant within the wider industry, and that some uncertainty still persists, we do not consider them to be a material risk to our business. The Group continues to carry out robust due diligence on non-standard investments and our new product has a clear Schedule of Allowable Investments.

We have also taken a prudent approach to our legacy book, composed of our own SIPPs as well as a large number of historic acquisitions, and have undertaken a detailed review of this business. There are areas where we will need to take remedial action but these are limited. Commercial Property remains a complex asset class and we are now undertaking a comprehensive data cleanse in this area.

Our People and Culture

Our Chief Financial Officer, Paul Tarran, has notified the Board that he intends to stand down from the Board by the end of 2019. A process has begun to identify and recruit a successor as Chief Financial Officer, who can continue our journey to enhanced financial reporting and discipline while ensuring that the Group can capitalise on strategic growth opportunities. Paul will retain his current responsibilities until this process is complete to ensure a smooth transition.

We value our people and the positive contribution they make to our culture and the performance of our business. In late 2018 we appointed a new Group HR Director to lead us on defining a modern, forward looking people strategy. In doing so we are reviewing all elements of our culture from recruitment methodologies to long term incentives to ensure that all staff throughout the group are given the opportunity to develop and succeed.

Our wider strategy

The Group has considerable experience of administration of complex assets within a regulated environment coupled with management of complex data from multiple and diverse counterparties. We intend to formulate a strategy that delivers revenue growth and diversity in our areas of expertise. We have three areas of strategic focus:

· Organic sales - supported by our new national sales function and market leading proposition

· Acquisition opportunities - driving growth through additional books of business

· Diversifying revenue streams - building on our core capabilities of complex administration and commercial property, and expanding our service into Legal and Property Management offerings

In addition to this we will continue to focus on our core operating models to ensure that our risks remain effectively managed, and that operational opportunities and efficiencies are realised and able to meet our future strategic ambitions.

The SIPP market is undergoing an evolution and, as one of the leading providers, we have looked to the future and created the new SIPP proposition that advisers asked for, supported by a nationwide adviser support network. We have broadened our appeal and capability to commercial property clients and will place structured focus on other strategic growth opportunities. We have entered 2019 in a strong position and I am confident about our prospects for growth and our broadening capability to deliver enhanced services for our customers.

Will Self

Chief Executive Officer

19 March 2019

Chief Financial Officer's Review

Results

A healthy Group financial performance for the year ended 31 December 2018 resulted in an increased adjusted profit before tax of £12.1m (2017: £10.7m), an increase of 13% over the previous year. Statutory profit before tax, which is stated after amortisation and non-recurring costs increased by 72% to £10.1m. Adjusted diluted EPS similarly increased by 13% to 17.32p, while diluted EPS on a statutory basis increased by 56% to 14.45p.

The performance was achieved despite incurring upfront costs for laying the groundwork for enhanced future revenue generation through the new single Group wide product (as discussed in the Chief Executive's report), fully adopting the Curtis Banks brand and identity throughout the Group and expanding our sales team to provide nationwide coverage.

During the year costs were also incurred for the launch of the new companies to provide SIPP property valuation services ("Templemead Property Solutions Limited") and legal services ("Rivergate Legal Limited") to the 6,000+ commercial properties held by SIPPs & SSASs administered by the Group.

These results show an improvement in adjusted operating margin of 27.1% (2017: 25.8%). This has been achieved not only by the revenue growth but also following efficiency gains made on closure of our Market Harborough office in early 2018, and cost saving measures achieved through further alignment and amalgamation of suppliers, technology, processes and staff departments within the Group.

Revenue

Operational revenues of £46.1m in 2018 (2017: £43.6m) increased by 6% over the comparable period, driven by further good organic growth in numbers of SIPPs held and increased interest income.

Fee revenue from SIPPs & SSASs remains the predominant source of fee income for the Group with 87% (2017: 84%) of these fees being recurring fixed annual fees. These fees are subject to contractual annual inflationary rises. A menu of additional fixed fees are charged depending on the transactional services provided on the products.

All SIPP & SSAS fees levied are fixed monetary amounts and are not a percentage based charge on the value of the underlying assets held within SIPPs and SSASs. As a result the income of the Group is not affected by movements in financial markets and property values. This is a key differential that sets us apart from most of our competitors and provides an attractive product in terms of fees to higher value SIPPs.

Interest income on the margin on client funds remains a significant part of Group income. In the year ended 31 December 2018 £10.8m of the Group operating revenues were from interest margin (2017: £9.5m). Structural efficiencies in treasury management and the further strengthening of our relationships with deposit providers have led to the increase over last year in addition to favourable movements in base rates during the year.

Both Rivergate Legal Limited and Templemead Property Solutions Limited, since their launch in 2018, have positively contributed to revenue in 2018 and the further development of these companies is expected to drive higher operational revenues through 2019.

Expenses

The year ended 31 December 2018 saw administrative expenses increase by 4.0% to £33.6m from £32.3m.

Staff costs for the year increased by 4% to £21.9m (2017: £21.1m). Savings from the closure of the Market Harborough office were partly offset by recruitment in the second half of the year of an expanded Group wide sales team that achieves full national coverage of the UK. This coincided with the launch in early 2019 of our new Group product, 'Your Future SIPP', consistent with our strategy of investing for future organic growth.

Staff costs were also impacted by further share based payment awards under the Group's Long Term Incentive Plan and Save As You Earn option schemes, the annual pay review and required increases under auto enrolment of staff pension contributions. These measures however continue to contribute to improved levels of key staff retention and morale and provide the service levels to clients required from our introducers of business.

Staff numbers have decreased slightly to 558 as at 31 December 2018 (2017: 597), reflecting the closure of the Market Harborough office during the year offset by organic growth of staff numbers to service increasing SIPP numbers and our expanded sales team to achieve nationwide coverage.

The Group continues to take steps to improve its adjusted operating margin through a combination of revenue enhancements, cost saving measures and operational improvements. The Group also reduced computer costs by £0.2m year on year through renegotiation of contracts with key suppliers, and further alignment of suppliers and services between each of the Group's offices.

Provisions as at 31 December 2017 of £0.9m relating to the closure of the Group's Market Harborough office were fully utilised during 2018. A tenant was procured in 2018 to occupy the office for the remaining lease period providing sub-let income equivalent to the head lease rental payable over the remainder of the lease.

Finance costs reduced by £0.1m year on year as the company continues to repay borrowings taken out to facilitate the Suffolk Life acquisition in 2016. The debt continues to be repaid in line with scheduled terms and conditions and the covenants required by the bank in respect of this gearing are well covered. Interest on the debt accrues at a rate of 2.25% plus LIBOR.

Non-Recurring costs

Non-recurring costs for the year have reduced significantly following the provisions last year for the closure of the Market Harborough Office and the expensing of exceptional IT impairment costs. 

Current year non-recurring costs have arisen from further restructuring costs within the Group, the costs associated with the acquisition of the Hargreave Hale book of SIPPs during the year and provisions arising as part of the consolidation and integration exercises undertaken over the past year.

As part of these exercises, management initiated a review of data records relating to properties held within SIPPs administered by the Group. Based on a detailed review of a sample of properties and extrapolation of the initial findings across the full population of relevant properties, the directors recognise that additional direct costs may be incurred in completing this data cleansing exercise, including from any potential remediation. A provision of £0.5m has been made for this matter, being the directors' best estimate of the direct costs the Group may have to bear.

Suffolk Life Annuities

Part of the Suffolk Life Group of Companies, Suffolk Life Annuities Limited, is an insurance company that writes SIPP Products as insurance contracts. These are all non-participating investment contracts and so the Group does not bear any insurance risk. As the policyholder assets and liabilities are shown on the balance sheet of Suffolk Life Annuities Limited, these also show on the Group balance sheet on consolidation. Assets in the SIPPs administered by the rest of the Group are held in trust and not under insurance contracts and therefore do not need to be included on the balance sheet. As the policies are non-participating contracts, the client related assets and liabilities in Suffolk Life Annuities Limited match. In addition the revenues, expenses and investment returns of the non-participating investment contracts are shown in the consolidated statement of comprehensive income. Again, these income, expense items and investment returns due to the policyholders are completely matched. An illustrative balance sheet as at 31 December 2018 showing the financial position of the Group excluding the policyholder assets and liabilities is included as supplementary unaudited information after the notes to the financial statements. An illustrative cash flow on the same basis has also been provided.

Employee Benefit Trust ("EBT")

The EBT set up during the previous year continues to be used to acquire shares in the Company in the market to satisfy future vesting of options and long term incentive awards. The EBT is funded by loans from the Group. As at 31 December 2018 the EBT held 263,790 shares in Curtis Banks Group plc. A further £0.5m was advanced to the EBT by the Company during the year. A number of options awarded under the Company's Save As You Earn schemes vested during the year and awards were made from the shares held by the EBT.

The financial statements of the EBT are consolidated within the overall Group financial statements and these shares are shown on the balance sheet of the Group as Treasury Shares and are included within total equity.

Capital requirements

The Group's regulated subsidiary companies submit regular returns to the FCA and the PRA relating to their capital resources. At 31 December 2018 the total regulatory capital requirement across the Group was £11.6m and the Group had an aggregate surplus of £18.0m across all regulated entities. In addition to this it is Group internal policy for regulated companies within the Group to hold at least 130% of their required regulatory capital resulting in the aggregate surplus reducing to £14.5m. All the regulated firms within the Group maintained surplus regulated capital throughout the year.

After taking into account the regulatory capital requirements set out above, assuming all these were required to be held in cash, the Group had surplus 'free' cash available of approximately £13m. 

Financial Position

The Group increased net assets by 12% to £49.7m as at 31 December 2018 (2017: £44.6m), and increased shareholder cash reserves from £25.7m to £28.0m over the same period.

As at 31 December 2018, the Group had net shareholder cash (after debt) of £13.6m (2017: £8.1m).

The Group will have to adopt the provisions of IFRS 16, accounting for leases, for accounting periods commencing from 1 January 2019. We have evaluated the effect of this on our financial performance and this is not material. We have also had confirmation from our principal lenders that the provisions of IFRS 16 do not need to be taken into account when calculating our banking covenants. We have also received confirmation from the FCA that at this point in time the provisions of IFRS 16 do not need to be taken into account in calculating our regulatory capital calculations.

Paul Tarran

Chief Financial Officer

19 March 2019

Consolidated Statement of Comprehensive Income

The consolidated statement of comprehensive income has been prepared on the basis that all operations are continuing operations.

Approved by the Board of Directors and authorised for issue on 19 March 2019.

Paul Tarran

Chief Financial Officer

Company Registration No. 07934492

1 Corporate information

Curtis Banks Group PLC ("Curtis Banks" or "the Group") is one of the United Kingdom's leading administrators of self-invested pension products, principally SIPPs and SSASs. The Group commenced trading in 2009 and has successfully developed, through a combination of organic growth and acquisitions, into one of the largest UK providers of these products.

At 31 December 2018 the Group administered circa £24.8bn (2017: £24.7bn) of pension assets on behalf of over 77,700 (2017: 76,500) active customers. Approximately 560 staff are employed across its head office in Bristol and regional offices in Ipswich and Dundee.

The Executive Directors have proven experience in the pensions market and operate a business that focuses on a service-driven proposition for the administration of flexible SIPPs. The Group's products are distributed by authorised and regulated financial advisers, targeted towards pension savers who wish to take full advantage of the features and flexibility offered in the UK's modern and changing pension regime. Long standing relationships with key distributors result in high levels of repeat business and demonstrate satisfaction with products and services provided.

The Group is focussed on continuing to deliver increased value to both customers and shareholders in the years ahead.

Note: The Group includes an insurance company, Suffolk Life Annuities Limited, which provides SIPPs through non-participating individual insurance contracts. Due to Suffolk Life Annuities Limited's status as an insurance company, the consolidated results for the whole Group are required to include insurance policyholder assets and liabilities as well as the assets and liabilities and profits attributable to our shareholders. Notes 15 and 16 to this Announcement illustrate the split between policyholder and shareholder assets and liabilities and cash flows. 

2 Revenue

Revenue is wholly derived from activities undertaken within the United Kingdom and comprises the following categories:

3 Profit for the year

Profit for the year is arrived at after:

4 Non-recurring costs

Non-recurring costs include the following significant amounts:

Redundancy & restructuring costs following acquisitions

During the year ended 31 December 2018, the two existing sales teams within the Group were restructured into one to coincide with the launch of a new Group wide product in H1 2019.

During the year ended 31 December 2017 a full strategic review of all the office locations used by the Group was carried out. As a result of that review, the decision was taken to close the Group's office in Market Harborough and full provision was made for this in the financial statements for the year ended 31 December 2017

Exceptional impairment charge

During the year ended 31 December 2017 the Group completed the review if its operating systems following the acquisition of the Suffolk Life business in May 2016. As a result of this review the Group concluded that the most cost effective, appropriate and lowest risk solution was, subject to contract, to implement a material upgrade of the existing back office operating system at the Group.

As a result of this decision, costs of approximately £2.1 million incurred and capitalised on the initial development, installation, evaluation and testing of an alternative system over recent years were written off as an exceptional impairment charge in the financial statements for the year ended 31 December 2017.

Data Cleansing Provision

As part of the consolidation and integration exercise undertaken in the past year management initiated a review of data records relating to properties held within SIPPs administered by the Group.

Based on a detailed review of a sample of properties and extrapolation of the initial findings across the full population of relevant properties, the directors recognise that additional direct costs will be incurred in completing this data cleansing exercise. These costs include incremental costs of completing the review, as well as some potential costs of remediation. A provision of £500,000 has been recognised for this matter, being the directors' best estimate of the direct costs the Group may have to bear.

In estimating the amount provided, the main areas of uncertainty include:

· The number of properties within the population that may require remediation; and

· The nature and financial impact of the remediation required

5 Directors and employees

6 Taxation

7 Earnings per share

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

Changes in income or expense that would result from the conversion of the dilutive potential ordinary shares are deemed to be trivial, and therefore no separate diluted net profit is presented.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

*In order to reduce the impact of accounting measures such as deferred tax, and the timing of tax reliefs, the effective tax rate matches the current tax rate applicable to the accounting year. The current tax rate applicable for the year ended 31 December 2018 was 19.00% (2017: 19.25%).

8 Intangible assets

Group

Goodwill

Goodwill arose on the acquisition of Suffolk Life Group Limited and its subsidiaries on 25 May 2016. The Group tests goodwill for impairment annually or more frequently if there are indications that goodwill might be impaired. The recoverable amount of goodwill has been determined based on value-in-use calculations using a discount rate appropriate to the risk profile of the asset. These calculations use operating cash flow projections based on financial budgets approved by management covering a three year period, assuming business then continues onwards after this period at a steady rate for the purpose of the analysis.

Client Portfolios

Client portfolios represent individual client portfolios acquired through business combinations and accounted for under the acquisition method. The directors consider that there is no impairment to assets as at the year end. The client portfolios are being amortised over a period of 20 years.

The brought forward balance relates to the purchase by Curtis Banks Limited, a subsidiary company, of the trade and assets of Montpelier Pension Administration Services Limited on 13 May 2011, the full SIPP business of Alliance Trust Savings Limited on 18 January 2013, the full SIPP business and certain assets of Pointon York SIPP Solutions Limited on 31 October 2014, the full SIPP business of Rathbones Pension & Advisory Services Limited on 31 December 2014, and a book of full SIPPs from Friends Life PLC (now Aviva PLC) on 13 March 2015.

The brought forward balance also includes the purchase by Suffolk Life Pensions Limited, a subsidiary company, of the trade and assets of European Pensions Management Limited on 14 July 2016, and books of SIPPs purchased from Pointon York SIPP Solutions Limited on 9 November 2012, Pearson Jones PLC on 30 April 2013, and Origen Investment Services Limited on 22 May 2013.

Additions in the year comprise the purchase by Curtis Banks Limited of a book of 578 SIPPs from Hargreave Hale Limited for cash consideration of £433,000, all of which was settled on the acquisition completion date of 10 December 2018. Acquisition related costs of £45,000 were incurred in relation to this which have been expensed as non-recurring costs.

All acquisitions have been accounted for under the acquisition method of accounting. 

The directors have considered the carrying value of the client portfolios and have concluded that no impairment is required. The client portfolios are being amortised over a period of 20 years and have an average remaining expected useful economic life as at 31 December 2018 of 15 years and 7 months.

Computer Software

Computer software contains costs that meet the recognition criteria under IAS 38 as Intangible Assets. General small computer software costs are amortised over their useful economic life of four years on a straight-line basis. Computer software costs for significant projects are amortised over an estimated UEL on a project by project basis.

9 Investment Property

Assets held at fair value

Group

All investment properties have been valued at the year end by reference to most recent professional valuations and this is further adjusted by applying the corresponding property index available. Investment properties held to cover the linked policyholder business are included in non-participating investment contract liabilities.

10 Property, plant and equipment

Assets held at cost

Group

11 Cash and cash equivalents

As at 31 December 2018 and 2017 cash and cash equivalents were as follows:

12 Borrowings

Bank borrowings

The bank borrowings are repayable as follows:

Total borrowings of the Group include liabilities of £72,085,000 (2017: £76,464,000) secured by legal charge over certain properties held within non-participating investment contracts, and liabilities of £14,554,000 (2017: £17,666,000) secured on the shares of Curtis Banks Limited, Suffolk Life Pensions Limited and Suffolk Life Annuities Limited.

13 Dividends

A final share dividend in respect of 2017 of 4.75p per share was declared and paid on 18 May 2018.

An interim share dividend in respect of 2018 of 2.00p per share was declared and paid on 15 November 2018.

14 Contingent liabilities

In specie contributions

The Group has been in correspondence with HMRC regarding processes and documentation in respect of in specie contributions. HMRC have alleged that incorrect procedures were followed and is seeking to reclaim tax reliefs granted and interest thereon. This is an industry wide issue affecting other SIPP operators and is being challenged by the industry as a whole. It is not possible to determine when this matter will be resolved and the outcome and impact are not known at this stage. We do not believe that the net exposure arising from this will be material to the Group.

Data cleansing

As reported in note 4, management initiated a review of data records related to properties held within SIPPs administered by the Group. 

This review requires a case by case assessment of each of the properties within the population in order to assess whether any remedial action is required by the Group in respect of that property or the associated SIPP.

In addition to the provision of £500,000 for the estimated direct costs that the Group may incur in respect of this exercise, the directors consider that it is possible that the Group may also be exposed to indirect costs in the future, depending on the outcome of the case by case reviews.

The directors' best estimate of this contingent liability is £1.5m, however there are inherent uncertainties in this estimate including due to the sampling and extrapolation approach adopted so far, the quality of data and potential significant variations in the assumed liabilities payable to rectify individual SIPP positions.

This estimate will be reviewed regularly, and any changes or refinements will be reported as appropriate. The directors currently expect that the review will be completed by the end of 2019 with any potential material follow up actions completed by 2020.

15 Unaudited IFRS Consolidated Statement of Financial Position as at 31 December 2018 split between insurance policy holders and the Group's shareholders