WCW Walker Crips Group Plc

Walker Crips Group plc

Notes to the condensed consolidated financial statements

For the six months ended 30 September 2024

1.    General information

Walker Crips Group plc ("the Company") is the Parent Company of the Walker Crips group of companies ("the Group").  The Company is a public limited company incorporated in England and Wales under the Companies Act 2006. The Company's registered office is at 128 Queen Victoria Street, London EC4V 4BJ.

2.    Basis of preparation and significant accounting policies

Basis of preparation

This condensed consolidated interim financial report for the half-year reporting period ended 30 September 2024 has been prepared in accordance with the UK-adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.  They do not include all disclosures that would otherwise be required in a complete set of financial statements, however, selected explanatory notes are included for events and transactions that are significant to an understanding of the Group's financial position and performance.

The condensed consolidated financial statements have been prepared on the basis of the accounting policies and methods of computation set out in the Group's consolidated financial statements for the year ended 31 March 2024 therefore should be read in conjunction with the Group's audited financial statements for the year ended 31 March 2024.  The interim financial information is unaudited and does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.

The Group's financial statements for the year ended 31 March 2024 have been reported on by the auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not draw attention to any matters by way of emphasis. The audit report did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The interim financial information has neither been audited nor reviewed pursuant to guidance issued by the Audit Procedures Board.

The interim condensed consolidated financial statements are presented in GBP sterling (£) and are rounded to the nearest thousand, unless stated otherwise.

Going Concern

The interim financial statements of the Group are prepared on a going concern basis. As at 30 September 2024, the Group had net assets of £20.1 million (31 March 2024: £21.3 million), net current assets of £11.8 million (31 March 2024: £12.7 million) and net cash and cash equivalents of £12.8 million (31 March 2024: £13.8 million). The Group reported an operating loss of £ 1.682 million for the period to 30 September 2024 (30 September 2023: profit of £0.173 million), and net cash used from operating activities of £0.6 million (30 September 2023: net cash generated £0.56 million).

The Directors consider the going concern basis to be appropriate following their assessment of the Group's financial position and its ability to meet its obligations as and when they fall due. In making the going concern assessment, the Directors have considered:

-     The Group's base case financial projections for the five-year period through to 31 March 2029.

-     The Group's operating cash inflows and outflows during the period to 30 September 2024, and its projected future cash flows, including the adjustment of known and/or planned factors to projected revenues and costs as at the date of the publication of this report.

-       The principal risks facing the Group and its systems of risk management and internal control.

-       The outcome of stress scenarios applied to the Group's base case projections.

The Directors have made key assumptions in formulating the forecast such as for economic factors such as interest rates and inflation and have assessed market trends and political events that may also affect trading.

Key stress scenarios that the Directors have considered for illustrative and comparative purposes include:

-     A "bear stress scenario": representing a 10% reduction in management fees, trading commissions, and interest income with the consequent reduction in revenue sharing based costs, compared to the base case in the reporting periods ending 31 March 2025 through to 31 March 2029.

-     A "severe stress scenario": representing a 20% fall in management fees, trading commissions, and interest income with the consequent reduction in revenue sharing based costs, compared to the base case in the reporting periods ending 31 March 2025 through to 31 March 2029.

The bear and severe stress scenarios indicate potential breaches of the Group's minimum regulatory capital ratio threshold in June 2026 and July 2025, respectively. Our reverse stress testing indicates that all revenues would have to decline by circa 12% over the next 12 months compared to base case to reach the Group's minimum regulatory capital ratio threshold.  The Directors note the conservative base case projections and that all stress scenarios are before considering the impact of corrective management actions or expected positive impact of Group's Assessment A capital requirement subsequent to the delivery of work noted in the Chairman's statement. As such, based upon the analysis, the Directors consider scenarios leading to a regulatory capital threshold breach to be remote.

Taxation

The tax credit/(charge) in the income statement represents the sum of the tax currently receivable/(payable) and deferred tax.

The tax currently receivable/(payable) is based on the taxable (loss)/profit for the period. Taxable (loss)/profit differs from net (loss)/profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's asset/(liability) for current tax is calculated using tax rates that have been enacted or substantively enacted by the statement of financial position date. The amount of taxable (loss)/profit in the current period has been estimated.

Deferred tax is calculated at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted by the statement of financial position date.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to do so and presented as a net number on the face of the statement of financial position.

Use of estimates and judgements

The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions 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.

There have been no material revisions to the nature and amounts of estimates of numbers reported in prior periods.

Impairment of goodwill - estimation and judgement

Determining whether goodwill is impaired requires an estimation of the fair value less costs to sell and the value-in-use of the cash-generating units to which goodwill has been allocated. The fair value less costs to sell involves estimation of values based on the application of earnings multiples and comparison to similar transactions. The value-in-use calculation requires the entity to estimate the future cash flows expected to arise from the cash generating unit and apply a discount rate in order to calculate present value. The assumptions used and inputs involve judgements and create estimation uncertainty. These assumptions have been stress-tested with the latest test carried out as at 30 September 2024.  The carrying amount of goodwill at the statement of financial position date was £4.4 million (31 March 2024: £4.4 million).

Other intangible assets - judgement

Acquired client lists are capitalised based on current fair values. When the Group purchases client relationships from other corporate entities, a judgement is made as to whether the transaction should be accounted for as a business combination, or a separate purchase of intangible assets. In making this judgement, the Group assesses the acquiree against the definition of a business combination in IFRS 3. Payments to newly recruited investment managers are capitalised when they are judged to be made for the acquisition of client relationship intangibles. The useful lives are estimated by assessing the historic rates of client retention, the ages and succession plans of the investment managers who manage the clients and the contractual incentives of the investment managers. Key assumptions in this regard consist of the following:

1. The Group continues as a going concern;

2. Life expectancy of clients based on data from the Office for National Statistics;

3. Succession plans in place for staff and investment managers;

4. Amounts of AUMA are consistent on average;

5. A growth rate of client list AUMA of a conservative 2%; and

6. A discount rate of 12%.

No intangible asset acquisitions were made in the period to 30 September 2024.

Provisions - estimation and judgement

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the statement of financial position date, and are discounted to present value where the effect is material.

IFRS 16 "Leases" - estimation and judgement

IFRS 16 requires certain judgements and estimates to be made and those significant judgements are explained below.

The Group has opted to use single discount rates for leases with reasonably similar characteristics. The discount rates used have had an impact on the right-of-use assets' values, lease liabilities on initial recognition and lease finance costs included within the income statement.

Where a lease includes the option for the Group to extend the lease term, the Group has exercised the judgement, based on current information, that such leases will be extended to the full length available, and this is included in the calculation of the value of the right-of-use assets and lease liabilities on initial recognition and valuation at the reporting date.

Provision for dilapidations - estimation and judgement

The Group has made provisions for dilapidations under six leases for its offices. The Group did not enter into any new property leases in the period but allowed the lapse of two existing lease agreements. The amounts of the provisions are, where possible, estimated using quotes from professional building contractors. The property, plant and equipment elements of the dilapidations are depreciated over the terms of their respective leases. The obligations in relation to dilapidations are inflated using an estimated rate of inflation and discounted using appropriate gilt rates to present value. The change in liability attributable to inflation and discounting is recognised in interest expense.

Provision for client payments - estimation and judgement

The Group, with the support of external advisors, is currently investigating an historical client suitability matter from which compensation costs may arise in the future. The current estimate of the provision is noted in note 15.

3.    Changes in significant accounting policies

The accounting policies applied in these interim condensed consolidated financial statements are consistent with those applied in the Group's consolidated financial statements as at and for the year ended 31 March 2024.

4.    Revenue and segmental analysis

For segmental reporting purposes, the Group currently has three operating segments:

-      Investment Management, being portfolio-based transaction execution and investment advice;

-      Wealth Management, being financial planning and pension advice; and

-      Software as a Service ("SaaS"), comprising provision of regulatory and admin software to regulated companies.

Walker Crips Investment Management's activities focus predominantly on investment management of various types of portfolios and asset classes.

Walker Crips Wealth Management provides advisory and administrative services to clients in relation to their financial planning, life insurance, inheritance tax and pension arrangements.

EnOC Technologies Limited ("EnOC") provides cloud-based software solutions to our business partners including all the Group's regulated entities. Fees payable by subsidiary companies to EnOC have been eliminated on consolidation.

These activities are the basis on which the Group reports its primary segment information. Unallocated corporate expenses are disclosed separately. Revenues between Group entities and reportable segments are excluded from the below analysis.

The following table analyses the above segmental breakdown without cancelling intercompany transactions to show the value of each segment to the Group itself.

5.    Earnings per share

The calculation of basic earnings per share for continuing operations is based on the post-tax loss for the period of £1,089,000 (2023: post-tax profit of £201,000) and on 42,577,328 (2023: 42,577,328) ordinary shares of 6 2/3p, being the weighted average number of ordinary shares in issue during the period.  There is no dilution applicable to the current period.

6.    Dividends

Given the reported results and our ongoing capital and liquidity requirements, the Board will not be declaring an interim dividend.

7.    Total income

8.    Commissions and fees paid

 Commissions and fees paid comprise:

9.    Exceptional items

Certain items of income and expenditure may be disclosed separately as exceptional due to their nature and materiality in order to provide a clearer understanding of the Group's performance. During the period to 30 September 2024, there were no exceptional items to report. Exceptional items impacting the comparative information are as follows:

The Group, in the financial year 2023, identified an obligation in respect of stamp duty reserve tax which arose over several previous years. An initial provision of £878,000 was made in 2023, and subsequently upon management investigation was revised to £355,000 in the financial year 2024 and has been settled in full in the current year (see note 15).

10.  Tax

Tax is credited/(charged) at 25% for the six months ended 30 September 2024 (2023: 25%), representing the best estimate of the average annual effective tax rate expected to apply for the full year, applied to the pre-tax (loss)/income of the six-month period.

11.  Current investments - fair value through profit or loss

Financial assets at fair value through profit or loss represent investments in equity securities and collectives that present the Group with opportunity for return through dividend income, interest and trading gains. The fair values of these securities are based on quoted market prices.

12.  Fair values

The following 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 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. The trading investments fall within this category;

-      Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). The Group does not hold financial instruments in this category; and

-      Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The Group's investments held in non-current assets fall within this category.

The following tables analyse within the fair value hierarchy to the Group's investments measured at fair value.

Further IFRS 13 disclosures have not been presented here as the balance represents 1.814% (2023: 2.088%) of total assets.

13.  Cash generated from operations

* £373,000 cash inflow from working capital movement (30 September 2023: £372,000 outflow; 31 March 2024: £1,124,000 outflow).

14.  Contingent liability

In 2021, a former associate brought a claim against Walker Crips Investment Management Limited "WCIM") in an Employment Tribunal.  A hearing of a preliminary issue took place in 2022 and the Tribunal found in favour of WCIM.  The former associate appealed certain aspects of that decision, and in 2023, whilst many of the appeal grounds were not upheld, certain points were referred back to the Employment Tribunal to reconsider.  The specific contested points were subsequently upheld and the case will in due course move to trial stage. WCIM considers the claims to be unjustified and intends to continue to defend them robustly.

In addition to above, from time to time, the Group receives complaints or undertakes past business reviews, the outcomes of which remain uncertain and/or cannot be reliably quantified based upon information available and circumstances falling outside the Group's control. Accordingly, contingent liabilities arise, the ultimate impact of which may also depend upon availability of recoveries under the Group's indemnity insurance and other contractual arrangements. Other than any cases where a financial obligation is deemed to be probable and thus provision is made, the Directors presently consider a negative outcome to be remote. As a result, no further disclosure has been made in these financial statements. Provisions made remain subject to estimation uncertainty, which may result in material variations in such estimates as matters are finalised.

15.  Provisions

Provisions within one year are made up as follows:

Client payments

The provision relates to the current estimate of client redress arising from a legacy suitability issue along with associated costs which in the opinion of the Board, need providing for after taking into account the risks and uncertainties surrounding such events. The investigation is currently ongoing to quantify the impact however the timing of these settlements are unknown but it is expected that they will be resolved within 12 months.

16.  Subsequent events

There are no material events arising after 30 September 2024, which have an impact on these unaudited financial statements.

Directors' responsibility statement

The Directors confirm that to the best of their knowledge:

(a) The condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;

(b) The half yearly report from the Chairman (constituting the interim management report) includes a fair review of the information required by DTR 4.2.7R; and

(c) The half yearly report from the Chairman includes a fair review of the information required by DTR 4.2.8R as far as applicable.

On Behalf of the Board

Sean Lam

Chief Executive Officer

27 December 2024

Walker Crips Group plc