Final Results and Notice of AGM

Notes to the financial statements

For the year ended 31 March 2020

 

1.   GENERAL INFORMATION

WH Ireland Group plc is a public company incorporated in the United Kingdom. The shares of the Company are traded on the Alternative Investment Market (AIM), a market operated by the London Stock Exchange Group plc. The address of its registered office is 24 Martin Lane, London, EC4R 0DR.

 

BASIS OF PREPARATION

The principal accounting policies adopted in the preparation of the consolidated financial statements are set out in note 3. The policies have been consistently applied to all the years presented, unless otherwise stated.

 

The consolidated financial statements are presented in GBP, which is also the Group’s functional currency. Amounts are rounded to the nearest thousand, unless otherwise stated. These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs) as adopted by the EU.

 

Despite the uncertainty around Brexit and Covid-19, the performance in the first period of the new financial year has been significantly above our stressed scenario analysis. Decisive actions around cost reductions have already taken place and this has ensured that the Group is able to meet its regulatory capital requirement. An analysis of potential negative scenarios were conducted as part of the going concern review to assess the potential impact on revenue, asset values with a particular focus on the more variable component parts of our overall revenue, corporate finance fees and commission. Furthermore, reverse stress tests were modelled to determine when a liquidity crisis or a breach of regulatory capital in the Group would occur.

 

Whilst the Directors consider it unlikely, particularly given the profitable performance of the Group since the period end, the long term impact of Covid-19 on the economy and in turn the Group’s variable transactional based revenue is unknown. In the event that these revenues are 30% below forecast a material uncertainty exists which may cast significant doubt on the Group’s ability to continue as a going concern without taking remedial action that could include cost reduction programmes, assets sales and the raising of further capital in order to ensure that regulatory capital requirements are maintained. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern

 

Based on the above, the Group continues to adopt the going concern basis in preparing the financial statements. This is discussed in more detail in the Directors’ Report.

 

2.   ADOPTION OF NEW AND REVISED STANDARDS

 

New standards, amendments and interpretations adopted

This is the first set of the Group’s annual financial statements in which IFRS 16 Leases has been applied, the impact of which is described below.

 

IFRS 16 Leases

The standard has been adopted from 1 April 2019 using the modified retrospective approach. Adoption of IFRS 16 has resulted in the group recognising right of use assets and lease liabilities for all contracts that are, or contain, a lease.  On transition, the Group has recognised a right of use asset of £3.4m and lease liabilities of £3.8m. The Right of use asset was measured at an amount equal to the lease liability adjusted for deferred rent balance at 31 March 2019 of £0.4m

 

Lease liabilities are measured at the present value of the remaining lease payments discounted using an incremental borrowing rate as at 1 April 2019. The weighted average incremental borrowing rate applied was 5%.

 

Right of use assets are initially measured at the amount of the lease liabilities and adjusted by the amount of any prepaid or accrued lease payments as at 31 March 2019.

 

As permitted under IFRS 16, all leases are accounted for by recognising a right of use asset and a lease liability except for:

– Leases with a term of 12 months or less remaining at 1 April 2019

– Leases of low value assets

 

Lease liabilities are subsequently increased by the interest charge using the incremental borrowing rate and reduced by the contractual payments. Right of use assets are amortised on a straight line basis over the remaining term of the lease.

 

The reconciliation between the operating lease commitment as at 31 March 2019 and the lease liability as at 1 April 2019 is as follows:

 

	£’000
Operating lease commitment at 31 March 2019	4,192
Effect of applying the Group’s incremental borrowing rate	(583)
Effect of extending lease term	202
Lease liability recognised as at 1 April 2019	3,811

 

 

3.   SIGNIFICANT ACCOUNTING POLICIES

 

       Basis of consolidation

Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The consolidated financial statements present the results of the company and its subsidiaries (“the Group”) as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full. The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained until the date on which control ceased.

In the Company’s accounts, investments in subsidiary undertakings and associates are stated at cost less any provision for impairment.

Business combinations

All business combinations are accounted for by applying the purchase method. The purchase method involves recognition, at fair value, of all identifiable assets and liabilities, including contingent liabilities, of the subsidiary at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. The cost of business combinations is measured based on the fair value of the equity or debt instruments issued and cash or other consideration paid, plus any directly attributable costs. Any directly attributable costs relating to business combinations before or after the acquisition date are charged to the statement of comprehensive income in the period in which they are incurred.

Goodwill arising on a business combination represents the excess of cost over the fair value of the Group’s share of the identifiable net assets acquired and is stated at cost less any accumulated impairment losses. Goodwill is tested annually for impairment. Any impairment is recognised immediately in the statement of comprehensive income and is not subsequently reversed. On disposal of a subsidiary the attributable amount of goodwill that has not been subject to impairment is included in the determination of the profit or loss on disposal.

Discontinued operations

The Group present its results from its discontinued operations separately from its continuing operations. In line with IFRS 5, an operation is classed as discontinued if it has been or in the process of being disposed, represents either a separate major line of business or a geographical area of operations or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operation

 

Assets and liabilities held for sale

An asset or liability is classified as held for sale if it’s carrying value is intended to be recovered through its sale rather than its continuing use, management is committed to a plan to sell, the asset is available for immediate sale, an active programme to locate a buyer has been initiated, the sale is highly probable within 12 months of classification as held for sale and the actions required to complete the transaction indicate it is unlikely it will be significantly changed or withdrawn. Assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment losses is recognised through the consolidated comprehensive income.

Revenue

Revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow into the Group. It is measured based on the consideration specified in a contract with a customer.

 

Revenue comprises: brokerage commission, investment management fees, corporate finance fees, commission and fees earned from the provision of independent financial advice.

·      Brokerage commission is recognised when receivable in accordance with the date of the underlying transaction. It is a variable fee based on a percentage of the transaction and therefore performance obligation is satisfied at the date of the underlying transaction to which the brokerage relates.

·      Investment management fees are recognised in the period in which the related service is provided. It is a variable fee based on the average daily market value of assets under management and is invoiced on a calendar quarter basis in arrears. The performance obligation is satisfied over time as the contractual obligations are on ongoing throughout the period under contract. The revenue accrued but not yet invoiced is recognised as a contract asset.

·      Corporate finance advisory fees are fixed fees agreed on a deal by deal basis and might include non-cash consideration received in the form of shares, loan notes, warrants or other financial instruments recognised at the fair value on the date of receipt and therefore the performance obligation is satisfied at a point in time when the Group has fully completed the performance obligations per the contract.

·      Retainer fees are recognised over the length of time of the agreement. Fees are fixed and invoiced quarterly in advance based on the agreed engagement letter. The performance obligation is satisfied over time as the contractual obligations are on ongoing throughout the period under contract. The deferred revenue is recognised as a contract liability.

·      Corporate placing commissions are variable fees agreed on a deal by deal basis based on a percentage of the funds raised as part of a transaction. This includes non-cash consideration received in the form of shares, loan notes, warrants or other financial instruments recognised at the fair value on the date of receipt. Given that fees related to this work are success based, there is a significant risk of reversal of the variable revenue and therefore the performance obligation is satisfied at a point in time when the transaction is completed.

 

Employee benefits

The Group contributes to employees’ individual money purchase personal pension schemes. The assets of the schemes are held separately from those of the Group in independently administered funds. The amount charged to the statement of comprehensive income represents the contributions payable to the schemes in respect of the period to which they relate.

 

Short term employee benefits are those that fall due for payment within twelve months of the end of the period in which employees render the related service. The cost of short term benefits is not discounted and is recognised in the period in which the related service is rendered. Short term employee benefits include cash-based incentive schemes and annual bonuses.

 

Share-based payments

The share option programmes allows Group employees to receive remuneration in the form of equity-settled share-based payments granted by the Company.

 

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value of the options granted is measured using an option valuation model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). The cumulative expense recognised for equity settled transactions, at each reporting date until the vesting date, reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The statement of comprehensive income

charge or credit for a period represents the movement in cumulative expense recognised at the beginning and end of that period.

 

Where the terms of an equity-settled award are modified, an incremental value is calculated as the difference between the fair value of the repriced option and the fair value of the original option at the date of re-pricing. This incremental value is then recognised as an expense over the remaining vesting period in addition to the amount recognised in respect of the original option grant.

Where an equity-settled award is cancelled or settled (that is, cancelled with some form of compensation) it is treated as if it had vested on the date of cancellation and any expense not yet recognised for the award is recognised immediately

 

However, if a new award is substituted for the cancelled award and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. Any compensation paid up to the fair value of the award is accounted for as a deduction from equity. Where an award is cancelled by forfeiture, when the vesting conditions are not satisfied, any costs already recognised are reversed (subject to exceptions for market conditions).

 

In all instances, the charge/credit is taken to the statement of comprehensive income of the Group or Company by which the individual concerned is employed.

Employee Benefit Trust (EBT)

The cost of purchasing own shares held by the EBT are shown as a deduction against equity. The proceeds from the sale of own shares held increase equity. Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the consolidated statement of comprehensive income.

 

Employee Share Ownership Trust (ESOT)

The Company has established an ESOT. The assets and liabilities of this trust comprise shares in the Company and loan balances due to the Company. The Group includes the ESOT within these consolidated Financial Statements and therefore recognises a Treasury shares reserve in respect of the amounts loaned to the ESOT and used to purchase shares in the Company. Any cash received by the ESOT on disposal of the shares it holds, will be used to repay the loan to the Company.

 

Treasury shares

The costs of purchasing Treasury shares are shown as a deduction against equity. The proceeds from the sale of own shares held increase equity. Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the consolidated statement of comprehensive income.

 

Income taxes

Income tax on the profit or loss for the periods presented, comprising current tax and deferred tax, is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

 

Current tax is the expected tax payable on the taxable income for the year, using rates enacted or substantively enacted at the reporting period end date and any adjustment to tax payable in respect of previous years.

•      Deferred tax is provided for temporary differences, at the reporting period end date, between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The following temporary differences are not provided for;

·      goodwill which is not deductible for tax purposes;

·      the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and

·      temporary differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting period end date (note 19).

 

A deferred tax asset is recognised for all deductible temporary differences and unused tax losses only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. No deferred tax assets have been recognised.

 

Plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and impairment. Depreciation is calculated, using the straight line method, to write down the cost or revalued amount of plant and equipment over the assets’ expected useful lives, to their residual values, as follows:

 

Computers, fixtures and fittings                                        –                             4 to 7 years

 

Intangible assets

Measurement

Intangible assets with finite useful lives that are acquired separately are measured, on initial recognition at cost. Following initial recognition, they are carried at cost less accumulated amortisation and any accumulated impairment. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition.

 

Intangible assets other than goodwill are amortised over the expected pattern of their consumption of future economic benefits, to write down the cost of the intangible assets to their residual values as follows:

 

Client relationships                                                              –                              10 years

 

The amortisation period and method for an intangible asset are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset or its residual value are accounted for by changing the amortisation period or method and treated as changes in accounting.

 

Impairment

The carrying amounts of the Group’s intangible assets are reviewed when there is an indicator of impairment and the asset’s recoverable amount is estimated.

 

The recoverable amount is the higher of the asset’s fair value less costs to sell (or net selling price) and its value-in-use. Value-in- use is the discounted present value of estimated future cash inflows expected to arise from the continuing use of the asset and from its disposal at the end of its useful life. Where the recoverable amount of an individual asset cannot be identified, it is calculated for the smallest cash-generating unit (CGU) to which the asset belongs. A CGU is the smallest identifiable group of assets that generates cash inflows independently.

 

When the carrying amount of an asset (or CGU) exceeds its recoverable amount, the asset (or CGU) is considered to be impaired and is written down to its recoverable amount. An impairment loss is immediately recognised as an expense. Any subsequent reversal of impairment credited to the statement of comprehensive income shall not cause the carrying amount of the intangible asset to exceed the carrying amount that would have been determined had no impairment been recognised.

 

Leased assets

Measurement and recognition of leases as a lessee

For any new lease contracts entered into on or after 1 April 2019, as permitted under IFRS 16, the Group recognises a right of use asset and a lease liability except for:

– Leases with a term of 12 months or less from the lease commencement date

– Leases of low value assets

 

Lease liabilities are measured at the present value of the unpaid lease payments discounted using an incremental borrowing rate.

 

Right of use assets are initially measured at the amount of the lease liabilities plus initial direct costs, costs associated with removal and restoration and payments previously made. Right of use assets are amortised on a straight line basis over the term of the lease.

 

Lease liabilities are subsequently increased by the interest charge using the incremental borrowing rate and reduced by the contractual payments.

 

Financial instruments

Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument.

 

Financial assets and liabilities

Investments are recognised and derecognised on the trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

 

Assets and liabilities are presented net where there is a legal right to offset and an intention to settle in that way.

 

The three principal classification categories for financial assets are: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.

 

Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

 

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

–       it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

–       its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.

 

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

 

Assets held at FVTPL are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss.

 

Financial assets at amortised cost are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

 

Debt investments at FVOCI are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.

 

Equity investments at OCI are subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss.

 

Financial liabilities

Bank loans and loan notes are initially recognised as financial liabilities at the fair value of the consideration received. Subsequent to initial recognition, bank loans and loan notes are measured at amortised cost using the effective interest rate method.

 

Trade payables

Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade payables approximates to their fair value.

 

Provisions

A provision is recognised when a present legal or constructive obligation has arisen as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

 

Deferred consideration

Deferred consideration is recognised at the discounted present value of amounts payable. Subsequent to initial recognition, it is rebased over the period in which the consideration is payable, with the unwinding of the discount being taken to the statement of comprehensive income.

 

 

 

4.   CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION AND UNCERTAINTY

 

The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

There are no significant accounting judgements relevant to the application of these policies.

 

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including reasonable expectations of future events. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

 

Amortisation and impairment of non-financial assets

As noted above, the Group estimates the useful economic lives of intangible assets, in order to calculate the appropriate amortisation charge. This is done by the Directors using their knowledge of the markets and business conditions that generated the asset, together with their judgement of how these will change in the foreseeable future.

 

Where an indicator of impairment exists, value in use calculations are performed to determine the appropriate carrying value of the asset. The value in use calculation requires the Directors to estimate the future cash flows expected to arise for the CGU and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise (see note 14).

 

Investments in subsidiaries

Where an indicator of impairment exists, management uses its judgement to assess the carrying value of the asset by determining the fair value by independent assessment of the carrying value of the business units and by comparative analysis against other similar businesses in the peer group. The carrying value of investments in subsidiaries at 31 March 2020 was £19.3m (see note 15).

 

Going Concern

Management has used its judgement and knowledge of the business in preparing detailed financial forecasts for the period to September 2021 which consider the funding and capital position of the Group. The forecasts take into account foreseeable downside risks, based on the information that is available to the Directors at the time of the approval of these financial statements (see note 1).

 

There remains uncertainty over what the future impact on the economy, the Group and its business will be as a result of Brexit and Covid-19. However, this is being continuously monitored by the Group and the stressed forecast prepared to September 2021 is being reviewed on a regular basis. This is to ensure that if there is any risk to liquidity and capital position, decisive actions could be taken immediately.

 

 

 

 

5.   SEGMENT INFORMATION

 

The Group has two principal operating segments, Wealth Management (WM) and Corporate & Investment Broking (CIB) and a number of minor operating segments that have been aggregated into one operating segment.

 

The WM division offers investment management advice and services to individuals and contains our Wealth Planning business, giving advice on and acting as intermediary for a range of financial products. The CIB division provides corporate finance and corporate broking advice and services to companies and acts as Nominated Adviser (Nomad) to clients listed on the Alternative Investment Market (‘AIM’) and contains our Institutional Sales and Research business, which carries out stockbroking activities on behalf of companies as well as conducting research into markets of interest to its clients.

 

All divisions are located in the UK or the Isle of Man. Each reportable segment has a segment manager who is directly accountable to, and maintains regular contact with, the Chief Executive Officer.

 

No customer represents more than ten percent of the Group’s revenue.

 

The majority of the Group’s revenue originates within the UK with a non-material element originating overseas in the Isle of Man which has been included in “Other Group companies”.

 

The following tables represent revenue and cost information for the Group’s business segments:

 

 

 

 

* Other Group companies include WH Ireland (IOM) Limited, WH Ireland Plc.. Discontinued operations are included in other Group companies.

 

 

 

 

*Other Group companies include WH Ireland (IOM) Limited, WH Ireland Plc and Stockholm Investments Ltd. Discontinued operations are included in other Group companies.

 

Segment assets and segment liabilities are reviewed by the Chief Executive Officer in a consolidated statement of financial position. Accordingly this information is replicated in the Group Consolidated statement of financial position. As no measure of assets or liabilities for individual segments is reviewed regularly by the Chief Executive Officer, no disclosure of total assets or liabilities has been made.

 

 

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies.

 

Revenue disaggregated by division and timing of recognition below:

 

 

Year to 31 March 2020	WM	CIB	Head Office	Other Group Companies	Group	Less Discontinued Operations	Continuing Operations
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
Point in time	4,034	4,571	–	77	8,682	(119)	8,563
Over time	9,756	3,289	–	1,136	14,181	(1,136)	13,045
Total	13,790	7,860	–	1,213	22,863	(1,255)	21,608
Year to 31 March 2019	WM	CIB	Head Office	Other Group Companies	Group	Less Discontinued Operations	Continuing Operations
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
Point in time	5,675	4,340	–	131	10,146	(323)	9,823
Over time	9,313	3,299	–	921	13,533	(922)	12,611
Total	14,988	7,639	–	1,052	23,679	(1,245)	22,434

 

 

 

 

6.   OPERATING (LOSS)/PROFIT

 

 

 

 

Other administrative expenses are incurred in the ordinary course of the business and do not include any non-recurring items.

 

Exceptional items totalling £970,000 (2019: £4,113,000) is shown below:

 

 

Notes:

 

*As announced on 2 June 2016, the Group entered into a seven year agreement with SEI Investments (Europe) Ltd, to outsource its Private Wealth Management back office operations and move to a “Model B” arrangement. On account of a number of unforeseen obstacles, significant cost has been incurred in both internal and external resources dedicated to this project (“Project Discovery”) as the project moves to conclude the transfer of clients and assets from the prior legacy platforms over to SEI.

**During the period ended 31 March 2020, there were some further personnel restructures and a one off project on cost reduction was undertaken. During the year ending 31 March 2019, there were a number of changes within the senior management team and several external hires were made. The costs of these changes, in respect of both short term consultancy costs and fixed employment related costs, are considered by the Board to be non-trading and exceptional in nature.

*** During the year ending 31 March 2020 and 31 March 2019, the Group incurred various costs in relation to one off regulatory projects.

 

 

7.   EMPLOYEE BENEFIT EXPENSE

 

 

Non-salaried staff are commission-only brokers and therefore do not receive a salary.

 

 

 

The average number of persons (including Directors) employed during the year was:

 

 

The total amount paid to Directors in the period, including social security costs was £1.0m (2019: £1.2m). Full details of Directors’ remuneration, including that of the highest paid Director, are disclosed in the Remuneration Report of these financial statements.

 

 

8.   FINANCE INCOME AND EXPENSE

 

 

 

9.   TAX EXPENSE

 

 

 

The tax expense for the year and the amount calculated by applying the standard United Kingdom corporation tax rate of 19% (2019: 19%) to profit before tax can be reconciled as follows:

 

 

 

 

10.  DISCONTINUED OPERATIONS AND ASSETS & LIABILITIES HELD FOR SALE

The Group announced its intention to sell its subsidiary WH Ireland (IOM) Limited on 29 June 2020. In accordance with IFRS 5 non-current assets held for sale and discontinued operations, the results for WH Ireland (IOM) Limited are included in discontinued operations in both the current and prior period; its assets and liabilities have been classified as held for sale and recorded at the lower of the carrying value and fair value less costs to sell. The associated assets and liability were therefore presented as held for sale in this year’s financial statements.

 

Financial performance and cash flow information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets and liabilities of disposal group classified as held for sale

The following assets and liabilities relating to WH Ireland (IOM) Limited were reclassified as held for sale at 31 March 2020:

 

 

11. DIVIDEND

 

No dividend is proposed in respect of 2020 (2019: none).

 

 

 

12.  EARNINGS PER SHARE

Basic EPS is calculated by dividing the profit or loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares (note 27).

 

Diluted EPS is the basic EPS, adjusted for the effect of the conversion into fully paid shares of the weighted average number of all employee share options outstanding during the year. In a year when the Company presents positive earnings attributable to ordinary shareholders, anti-dilutive options represent options issued where the exercise price is greater than the average market price for the period.

 

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:

 

 

Share options are anti-dilutive as they reduce the stated loss per share.

 

13.  PROPERTY, PLANT AND EQUIPMENT

 

	Group		Company
	Computers,		Computers,
	fixtures and fittings		fixtures and fittings
	£’000		£’000
Cost
At 31 March 2018	4,930		33
Additions	380		–
Disposals	–		–
At 31 March 2019	5,310		33
Additions	214		–
Reclassified as held for sale	(80)		–
Disposals	–		–
At 31 March 2020	5,444		33
Depreciation and impairment
At 31 March 2018	3,656		31
Charge for the year	492		2
Adjustment on disposal	–		–
At 31 March 2019	4,148		33
Charge for the year	499		–
Reclassified as held for sale	(34)
Adjustment on disposal	–		–
At 31 March 2020	4,613		33
Net book values
At 31 March 2020	831		–
At 31 March 2019	1,162		–
At 31 March 2018	1,274		2

 

 

 

14.  INTANGIBLE ASSETS

 

 

 

Client relationships arise when the group acquires a broker business with an existing client base.  These individual broker businesses each represent a cash generating unit.  During the year ending 31 March 2019, a number of brokers left the business and the group was unable to retain the business formerly undertaken by them.  As a result, the client relationships associated with these cash generating units has been fully impaired.

 

 

15.  SUBSIDIARIES

 

 

 

Investments in subsidiaries are stated at cost less impairment.

 

The Group raised £2.80m on 22 November 2019 by way of placings to existing and new shareholders. The Group intends to use the placing to create a significant buffer to its minimum regulatory capital position. The additions in the year relate to additional subscriptions for shares in WH Ireland Limited, a wholly owned subsidiary, in November 2019.

 

The Company’s subsidiaries, all of which are included in the consolidated financial statements, are presented below:

 

 

 

The registered office of WH Ireland (IOM) Limited is St George’s Tower, Hope Street, Douglas, Isle of Man, IM1 1HR.

 

The registered office of all other companies listed above is 24 Martin Lane, London, EC4R 0DR.

 

The following dormant subsidiaries are guaranteed by the Company and therefore take advantage of the Companies Act (2006) in obtaining exemption from an individual audit:

 

 

16.  INVESTMENTS

 

 

 

 

Financial assets at fair value through profit or loss include equity investments other than those in subsidiary undertakings. These are measured at fair value with fair value gains and losses recognised through profit and loss.

Other investments, in the main, comprise financial assets designated as fair value through profit or loss and include warrants and equity investments. Financial assets designated as ‘fair value through profit or loss’ are measured at fair value with fair value gains and losses recognised directly in the statement of comprehensive income.

 

Warrants may be received during the ordinary course of business and are designated as fair value through profit or loss. There is no cash consideration associated with the acquisition.

 

Fair value, in the case of quoted investments, represents the bid price at the reporting period end date. In the case of unquoted investments, the fair value is estimated by reference to recent arm’s length transactions. The fair value of warrants is estimated using established valuation models.

 

The fair value of the warrants was determined using the Black Scholes model and grouped within level 3 with fair value measurements derived from formal valuation techniques (see note 25). The key inputs into this calculation are the share price as at 31 March 2020, exercise price, risk free interest rate and volatility which is based on the share price movements during the period 1 December 2019 to 31 March 2020.

 

17.  RIGHT OF USE ASSET & LEASE LIABILITY

 

 

Maturity of discounted lease payments in relation to non-cancellable leases

The table below represents the minimum lease payments in relation to non-cancellable leases where the group is a lessee:

 

 

 

 

The following represents the lease expense in relation to leases which is recognised in the statement of comprehensive income:

 

 

 

Nature of leases

The Group leases a number of properties in the jurisdictions it operates.

These leases are usually for a fixed term although the Group sometimes negotiates break clauses in its leases. On a case-by-case basis, the Group will consider whether the absence of a break clause would exposes the group to excessive risk. Typically factors considered in deciding to negotiate a break clause include:

                – the length of the lease term;

                – the economic stability of the environment in which the property is located; and

                – whether the location represents a new area of operations for the Group

 

As at 31 March 2020, the carrying amounts of the lease liabilities are not reduced by the amounts that would not be paid as a result of exercising the break clauses because the Group does not anticipate to exercise its rights to the break clauses.

 

18.  SUBORDINATED LOAN

 

 

 

This interest-free, subordinated loan was originally issued to WH Ireland (IOM) Limited on 31 March 2014 and has been increased in line with the needs of the subsidiary. As part of the agreement for the sale of WH Ireland (IOM) Limited, announced on 29 June 2020, the subordinated loan will be repaid on completion. Accordingly, the loan has been classified as a current asset. The impact of applying IFRS 9 has been considered and probability of default was assessed and consequently, it was determined that the expected credit loss is nil.

 

19.  DEFERRED TAX ASSETS AND LIABILITIES

 

Deferred tax is provided for temporary differences, at the reporting period end date, between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes using a tax rate of 19% (2019: 19%). A deferred tax asset is recognised for all deductible temporary differences and unutilised tax losses only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

 

No deferred tax asset or liability has been recognised in the year. The balance as at 31 March 2020 is £nil (2019: £nil).

 

The unrecognised tax losses amount to £19.5m (2019: £16.5m)

 

20.  TRADE AND OTHER RECEIVABLES

 

 

The carrying value of trade and other receivable balances are denominated fully in British pounds (2019: 100%).

 

Accrued income relates to management fee accrual. Management fees are accrued on a monthly basis and reconciled to fees collected quarterly. Consideration to IFRS 9 has been made and it has been determined that there is a low probability of default and therefore the expected credit loss is not material.

 

The impact of applying IFRS 9 to intercompany balances for the Company has been considered and probability of default was assessed and consequently, it was determined that the expected credit loss is not material.

 

Fees and charges owed by clients are generally considered to be past due where they remain unpaid five working days after the relevant billing date. At 31 March 2020, trade receivables (net of provisions for impairment and doubtful debts) comprised of the following:

 

Trade receivables are largely amounts due from retainer clients, who are invoiced on a quarterly basis in advance. The Group’s policy is to allow 30 days for payment. Consequently, these receivables have no significant financing component and the Group have applied the simplified approach in line with IFRS 9. Calculation of loss allowances are measured at an amount equal to lifetime expected credit losses (ECLs). The approach taken by the Group in arriving at the expected credit loss is as follows:

 

Step 1: The Group have determined the appropriate brackets by grouping each trade receivables based on the ageing structure.

 

Step 2: Having determined the appropriate groupings, a historical loss rate (adjusted for forward looking information) was calculated for each age bracket by reviewing the pattern of payment of trade receivables over the past 12 months.

 

Step 3: This historical loss rate (adjusted for forward looking information) has been applied to each ageing bracket of trade receivables as at the balance sheet date to arrive at an expected credit loss for each grouping. All trade receivables over 365 days have a 100% historical loss rate loss applied to them.

 

 

 

Based on the above, the group recognised an expected credit loss of £44k (2019: £641k).

 

The maximum exposure to credit risk, before any collateral held as security, is the carrying value of each class of receivable set out above.

 

The Directors consider that the carrying amounts of trade and other receivables approximate their fair value.

 

Movements in impairment provisions were as follows:

 

 

 

21.  OTHER INVESTMENTS

 

 

These represent short-term principal positions in the form of listed investments which are held at market value. No tax was payable at that value.

 

 

22.  CASH AND CASH EQUIVALENTS

 

 

	Group		Company
	31 Mar 2020	31 Mar 2019	31 Mar 2020	31 Mar 2019
	£’000	£’000	£’000	£’000
Cash and cash equivalents	2,580	7,702	–	3

 

For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand and deposits with banks and financial institutions with a maturity of up to three months.

 

Cash and cash equivalents represent the Group’s and the Company’s money and money held for settlement of outstanding transactions.

 

Money held on behalf of clients is not included in cash and cash equivalents on the statement of financial position. Client money at 31 March 2020 for the Group was £430k (2019: £469k). There is no client money held in the Company (2019: £nil).

 

23.  TRADE AND OTHER PAYABLES

 

 

The Directors consider that the carrying amounts of trade and other payables approximate their fair value.

 

Deferred income relates to retainer fees invoiced in advance and spread over the length of the period, typically quarterly.

 

24.  DEFERRED CONSIDERATION

 

Deferred consideration represents the amounts payable over a three year period from September 2016 to October 2019, for certain client relationships (note 14).

 

 

 

25.  FINANCIAL RISK MANAGEMENT

 

The fair value of all of the Group’s and the Company’s financial assets and liabilities approximated its carrying value at the reporting period end date. The carrying amount of non-current financial instruments, including floating interest rate borrowing, is not significantly different from the fair value of these instruments based on discounted cash flows. The significant methods and assumptions used in estimating fair values of financial instruments are summarised below:

 

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include equity investments, other than those in subsidiary undertakings. In the case of listed investments, the fair value represents the quoted bid price at the reporting period end date. The fair value of unlisted investments is estimated by reference to recent arm’s length transactions.

 

Other investments

Other investments include warrants and equity investments, categorised as fair value through profit or loss. In the case of listed investments, the fair value represents the quoted bid price at the reporting period end date. The fair value of unlisted investments is estimated by reference to recent arm’s length transactions. In the case of warrants, the fair value is estimated using established valuation models.

 

Trade receivables and payables

The carrying value less impairment provision of trade receivables and payables is assumed to approximate their fair values due to their short-term nature.

 

Borrowings

Borrowings are measured at amortised cost using the effective interest rate method. The tables below summarise the Group’s main financial instruments by financial asset type:

 

 

 

 

 

 

he numbers have been re-presented to be consistent with current year disclosures

 

The tables below summarise the Company’s main financial instruments by financial asset type:

 

	31 March 2020
	Amortised cost	Fair value through profit or loss	Total
Company	£’000	£’000	£’000
Financial assets
Subordinated loan (note 18)	985	–	985
Group balances	2,477	–	2,477
Financial liabilities
Trade and other payables	156	–	156

 

 

	31 March 2019
	Amortised cost	Fair value through profit or loss	Total
Company	£’000	£’000	£’000
Financial assets
Subordinated loan (note 18)	985	–	985
Group balances	2,383	–	2,383
Financial liabilities
Trade and other payables	108	–	108

 

 

 

Risks

The main risks arising from the Group’s financial instruments are credit risk, liquidity risk and market risk. Market risk comprises, interest rate risk and other price risk. The Directors review and agree policies for managing each of these risks which are summarised below:

 

Credit risk

Credit risk is the risk that clients or other counterparties to a financial instrument will cause a financial loss by failing to meet their obligations. Credit risk relates, in the main, to the Group’s trading and investment activities and is the risk that third parties fail to pay amounts as they fall due. Formal credit procedures include approval of client limits, approval of material trades, collateral in place for trading clients and chasing of overdue accounts. Additionally, risk assessments are performed on banks and custodians.

 

The maximum exposure to credit risk at the end of the reporting period is equal to the statement of financial position figure. Impairment policy and information on collateral held against trade receivables can be found in note 19. There were no other past due, impaired or unsecured debtors.

 

Financial assets that are neither past due nor impaired in respect of trade receivables relate mainly to bonds, equity and gilt trades quoted on a recognised exchange, are matched in the market, and are either traded on a cash against documents basis or against a client’s portfolio.

 

The credit risk on liquid funds, cash and cash equivalents is limited due to deposits being held at the Group’s main bank with a credit rating of “A”, assigned by Standard and Poor’s.

 

There has been no change to the Group’s exposure to credit risk or the manner in which it manages and measures the risk during the period.

 

The credit risk in the Company principally comes from intercompany balances and subordinated loan. Since these are all within the Group, the Directors are able to closely monitor the risk of default on a regular basis to minimise any potential losses.

 

Liquidity risk

Liquidity risk is the risk that obligations associated with financial liabilities will not be met. The Group monitors its risk to a shortage of funds by considering the maturity of both its financial investments and financial assets (for example, trade receivables) and projected cash flows from operations.

 

The Group’s objective is to maintain the continuity of funding through the use of bank facilities where necessary, which are reviewed annually with the Group’s Banker, the Bank of Scotland. Items considered are limits in place with counterparties which the bank are required to guarantee, payment facility limits, as well as the need for any additional borrowings.

 

The Directors most recently renewed the Group’s main banking facilities in February 2015. As an evergreen facility there is no requirement to update the agreement annually, although a formal review of facilities is undertaken at least annually.

 

This ensures that the group and the company both have sufficient funds/current assets available to meet the liabilities as they fall due.

 

 

The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments:

 

 

he numbers have been re-presented to be consistent with current year disclosures

 

The table below summarises the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments:

 

 

	31 March 2020
	Payable within 1 year	Payable in 2 to 5 years	Payable after more than 5 years	Total contractual payments
Company	£’000	£’000	£’000	£’000
Trade and other payables	156	–	–	156
	156	–	–	156

 

 

	31 March 2019
	Payable within 1 year	Payable in 2 to 5 years	Payable after more than 5 years	Total contractual payments
Company	£’000	£’000	£’000	£’000
Trade and other payables	108	–	–	108
	108	–	–	108

he numbers have been re-presented to be consistent with current year disclosures

 

Market Risk

Interest rate risk

The Group’s exposure to the risk of changes in market interest rates relates to the Group’s amount of interest receivable on cash deposits. The maximum exposure for interest is not significant.

 

Other price risk

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk) whether those changes are caused by factors specific to the individual financial instrument or its issuer or factors affecting all similar financial instruments traded in the market. Other investments are recognised at fair value and subject to changes in market prices.

 

The Group manages other price risk by monitoring the value of its financial instruments on a monthly basis and reporting these to the Directors and Senior Management. The Group has disposed of a number of its investments during the course of the year, which has helped mitigate risk. However, the risk of deterioration in prices remains high whilst the market continues to be volatile.

 

The risk of future losses is limited to the fair value of investments as at the year-end of £1,501k (2019: £1,397k). See note 16 and 21.

 

 

Fair value measurement recognised in the statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

 

·      Level 1 at fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets and liabilities;

·      Level 2 fair value measurements are those derived from inputs other than the quoted price included within Level 1 that are observable for the asset or a liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

·      Level 3 fair value measurements are those derived from formal valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

 

 

 

 

 

 

There were no transfers between levels in either financial year.

 

 

 

26.  CAPITAL MANAGEMENT

 

The capital of the Group comprises share capital, share premium, retained earnings and other reserves. The total capital at 31 March 2020 amounted to £8.5m for the Group (2019: £8.8m) and £23.3m for the Company (2019: £20.5m). The primary objective of the Group’s capital management is to ensure that it maintains a strong capital structure in order to support the development of its business, to maximise shareholder value and to provide benefits for its other stakeholders.

 

These objectives are met by managing the level of debt and setting dividends paid to shareholders at a level appropriate to the performance of the business.

 

Certain activities of the Group are regulated by the FCA which is the statutory regulator for financial services business and has responsibility for policy, monitoring and discipline for the financial services industry. The FCA requires the Group’s resources to be adequate, that is, sufficient in terms of quantity, quality and availability, in relation to its regulated activities.

 

The Group monitors capital on a daily basis by measuring movements in the Group regulatory capital requirement and through its Internal Capital Adequacy Assessment Process (ICAAP). Compliance with FCA minimum common equity tier 1 regulatory capital requirements was maintained during the year and the Group is satisfied that there is and will be, sufficient capital to meet these regulatory requirements for the foreseeable future.

 

27.  TREASURY SHARES

 

 

At 31 March 2020 no shares in the Company were held in Treasury (2019: nil shares). At 31 March 2020 no shares in the Company were held in the EBT (2019: nil shares) and the ESOT held 720,000 shares (2019: 2,139,500), at a nominal value of 5p per share. This represents 1.48% of the called up share capital (2019: 4.64%).

 

28.  EMPLOYEE BENEFIT TRUSTS (EBT)

 

The WH Ireland EBT was established in October 1998 and the WH Ireland Group plc Employee Share Ownership Trust (ESOT) was established in October 2011, both for the purpose of holding and distributing shares in the Company for the benefit of the employees. All costs of the EBT and ESOT are borne by the Company or its subsidiary WH Ireland Limited.

 

Joint Ownership Arrangements (the ‘JOE Agreements’) are in place in relation to 720,000 shares between the trustees of the ESOT and a number of employees (the ‘Employees’). Under the JOE Agreements, the option for the Employees to acquire the interest that the trustees of the ESOT has in the jointly owned shares, lapses when an employee is deemed to be a Bad Leaver. If an Employee ceases to be an employee of the Group, other than in the event of critical illness or death, the Employee is deemed to be a Bad Leaver.

 

The shares carry dividend and voting rights though these have been waived by all parties to the JOE Agreements.  Due to the consolidation of the ESOT into the Group accounts, these shares are shown in Treasury (note 27). Due to the nature of these arrangements, the options contained in the JOE Agreements are accounted for as share-based payments (note 29).

 

29.  SHARE-BASED PAYMENTS

 

The Group had two schemes for the granting of non-transferable options to employees during the reporting period; the approved Company Share Ownership Plan (CSOP) and a Save as You Earn Schemes (SAYE 3). In addition, options are held in the ESOT (note 28). Details of these schemes can be found in the Remuneration Report. SAYE 3 matured during the period in May 2019.

 

Under the terms of the LTIP, options over the Company’s shares may be granted on a discretionary basis to employees and consultants of the Group (including Directors) at a price to be agreed between the Company and the relevant option holder. Under the terms of the options granted under the current LTIP, such options vest on the third anniversary of the award dates; are exercisable at the market price at the time the option was issued and are exercisable for ten years after the vesting date.

 

Movements in the number of share options outstanding that were issued post 7 November 2002 and their related weighted average exercise prices (WAEP) are as follows:

 

 

* WA Life represents the weighted average contractual life in years to the expiry date for options outstanding at the end of the year

 

 

* WA Life represents the weighted average contractual life in years to the expiry date for options outstanding at the end of the year

 

 

The pricing models used to value these options and their inputs are as follows:

 

 

 

The volatility of the Company’s share price was estimated as the standard deviations of daily historical continuously compounded returns over a period commensurate with the expected life of the option, back from the date of grant and annualised by the factor of the square root of 252, assuming 252 trading days per year (2019: 252 trading days). For options granted in 2004, volatilities were calculated back to the date of the Group’s flotation in July 2000.

 

 

30.  CAPITAL COMMITMENTS

 

There were no capital commitments for the Group or the Company as at 31 March 2020 (2019: £nil).

 

 

31.  RELATED PARTY TRANSACTIONS

 

Group

Services rendered to related parties were on the Group’s normal trading terms in an arms’ length transaction. Amounts outstanding are unsecured and will be settled in accordance with normal credit terms. No guarantees have been given or received. No provision (2019: £nil) has been made for impaired receivables in respect of the amounts owed by related parties.

 

Key management personnel include Executive and Non-Executive Directors of WH Ireland Group plc and all its subsidiaries. They are able to undertake transactions in stocks and shares in the ordinary course of the Group’s business, for their own account and are charged for this service, as with any other client. The transactions are not material to the Group in the context of its operations, but may result in cash balances on the Directors’ client accounts owing to or from the Group at any one point in time. The charges made to these individuals and the cash balances owing from/due to them are disclosed in the table below. There are no other material contracts between the Group and the Directors.

 

 

The following table sets out the transactions which have been entered into during the year together with any amounts outstanding:

 

 

The total compensation of key management personnel is shown below:

 

 

The highest paid Director for 2020 was P Wale receiving emoluments of £371,145 (2019: former Director RW Killingbeck £376,883)

 

Company

The Parent Company receives interest from subsidiaries in the normal course of business. Total interest received during the year was £nil (2019: £nil). In addition, the Parent Company received a management charge of £479k (2019: £481k) from its subsidiary WH Ireland Limited. WH Ireland Limited also charged the Parent Company £nil (2019: £25k) for broker services.

 

It has been agreed between WH Ireland Group Plc and WH Ireland (IOM) Limited that they agree the right to set off certain existing inter-company balances.

 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. The captions in the primary statements of the Parent Company include amounts attributable to subsidiaries. These amounts have been disclosed in aggregate in the notes 15 and 20 and in detail in the following table:

 

 

 The net amount owed by related parties is £2,477k (2019: £2,383k) (see note 20).

 

 

32.  EVENTS AFTER THE REPORTING DATE

 

On 29 June 2020 the Group announced its intention to sell its subsidiary WH Ireland (IOM) Limited