TIDMCBP

RNS Number : 5946U

Curtis Banks Group PLC

07 April 2021

7 April 2021

Curtis Banks Group plc

("Curtis Banks" or the "Group")

Final Results for the 12 Months to 31 December 2020

Curtis Banks Group PLC is pleased to announce its final results for the 12 months to 31 December 2020. These results represent the full 12 month period including the fundraising and refinancing activities in July 2020; 5 months contribution from Dunstan Thomas and 2 months contribution from Talbot and Muir.

Financial Highlights

   --    Operating revenue increased by 10% to GBP53.9m (2019: GBP48.9m) 
   --    Adjusted profit before tax(1)  remained stable at GBP13.4m (2019: GBP13.4m) 
   --    Adjusted operating margin(2) decreased to 26.0% (2019: 28.1%) 
   --    Profit before tax decreased by 32% to GBP7.4m (2019: GBP10.9m) 
   --    Adjusted diluted EPS decreased by 8% to 17.9p (2019: 19.4p) (3) 

-- Gross organic growth in own Mid and Full SIPP numbers of 7.8% (2019: 7.5%) with total SIPPs, including third party administered, now 82,224 (2019: 76,541)

   --    Attrition rate on Mid and Full SIPPs decreased to 4.6% (2019: 5.7%) 
   --    Assets under Administration ("AuA") increased by 11% to GBP32.4bn (2019: GBP29.1bn) 
   --    Proposed final dividend of 6.5p (2019: 6.5p) making a full year payment of 9.0p (2019: 9.0p) 

Operational Highlights

-- The Group reduced its overall sensitivity to interest rates by increasing the annual SIPP administration fees payable on Mid and Full SIPPs with effect from February 2021

-- The acquisition of two high-quality businesses in Talbot and Muir and Dunstan Thomas supplemented the Group's core offering with additional scale and technology solutions

-- The Group made solid progress on its five year system strategy with the upgrade of the administration platform in 2020

-- The Group responded quickly to the COVID-19 pandemic to implement its business continuity plan and limit the severity of its impact on the business

-- Jill Lucas appointed to the Board as Independent Non-Executive Director and Chair of Dunstan Thomas to maximise technology-focused growth opportunities across the Group

Highlights and Key Performance Indicators:

 
                                        2020        2019 
 Financial 
 Operating revenue                    GBP53.9m    GBP48.9m 
 Adjusted profit before tax           GBP13.4m    GBP13.4m 
  (1) 
 Profit before tax                     GBP7.4m    GBP10.9m 
 Adjusted operating margin (2)          26.0%       28.1% 
 Diluted EPS                            9.5p        15.9p 
 Adjusted diluted EPS (3)               17.9p       19.4p 
 
 Operational 
 Number of SIPPs administered          82,224      76,541 
 Assets under Administration          GBP32.4bn   GBP29.1bn 
 Total organic new own SIPPs 
  in year                               4,113       4,567 
 Attrition rates (Mid & Full 
  SIPP)                                 4.6%        5.7% 
 Number of properties administered      8,905       6,352 
 

(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.

(3) Adjusted to reflect impact of bonus factor within shares issued during the year ended 31 December 2020.

Will Self, Chief Executive Officer of Curtis Banks, commented: "Curtis Banks made strong progress in 2020. The business effectively weathered the impact of the COVID-19 pandemic and made good progress on a number of strategic initiatives to provide us with a platform for future, long-term, sustainable growth. Operating revenue grew by 10% to GBP53.9m, reflecting acquisitive growth and steady performance in our core business of Mid and Full SIPPs, while Assets under Administration increased by 11% to GBP32.4bn."

"The business demonstrated a high degree of resilience in 2020. We completed the acquisitions of Talbot and Muir and Dunstan Thomas, two high-quality businesses which provide us with additional scale in our core line of business and the opportunity for technological innovation further down the line, respectively. We changed our fee model to ensure greater transparency to our clients and a more robust, consistent income stream which reduces our reliance on interest income. Our system strategy also continued to be delivered at pace, with the upgrades to our administration platform commencing last year."

"Looking ahead, we have a clear vision for long-term growth. Curtis Banks is evolving from a primarily focused SIPP administrator to a more holistic retirement group which provides technology and complementary services to the advised retirement market. We are confident that our efforts to diversify our core offering and revenue streams can reach new areas of an ever-increasing addressable market to provide the foundations for growth in 2021 and beyond."

Analyst Presentation

An analyst briefing is being held at 09:30 BST on 7 April 2021 via an online video conference facility. To register your attendance, please contact curtisbanks@instinctif.com.

For more information, please contact:

Curtis Banks Group plc via Instinctif Partners

Will Self - Chief Executive Officer

Dan Cowland - Chief Financial Officer

Peel Hunt LLP (Nominated Adviser & Joint Broker) +44 (0) 20 7418 8900

James Britton

Rishi Shah

Nplus1 Singer Capital Markets Limited (Joint Broker) +44 (0) 20 7496 3000

Mark Taylor

Rachel Hayes

Instinctif Partners (Financial PR) curtisbanks@instinctif.com / +44 78 3767 4600

Ross Gillam

Lewis Hill

Chairman's Statement

I am pleased to report the Curtis Banks Group results for the year ended 31 December 2020. In spite of being impacted by COVID-19 the business showed a very high degree of resilience, completed two excellent acquisitions, executed a successful fund raise and changed its fee model to ensure greater transparency to our clients and a more robust and consistent income. This puts the business in a strong position for future growth.

2020 Review

The highlights of our financial results demonstrated solid revenue growth, although operating profit softened as a result of the impact of the COVID-19 pandemic on the business. Operating revenue increased by 10% from GBP48.9m to GBP53.9m, reflecting acquisitive growth and a steady performance in our core business of Full and Mid SIPPs. Adjusted profit before tax remained stable at GBP13.4m (2019: GBP13.4m).

The Group was impacted by the COVID-19 pandemic during 2020. Management reacted quickly and effectively to implement its business continuity plan and limit the severity on the business. Our fixed, recurring fee model for our core products insulated the Group from the worst effects of the pandemic and the business has emerged from it in a robust position.

In spite of the obvious headwinds we remained focused on our stated strategy for future growth. In July 2020, the Group announced the acquisition of two high-quality businesses in Talbot and Muir and Dunstan Thomas. Talbot and Muir, a provider of SIPPs and SSAS products, has a strong reputation in the market and reinforces the Group's position as a leading SIPP provider. At the time of acquisition, Talbot and Muir delivered additional scale through 6,600 plans and AuA of approximately GBP3.6bn.

Dunstan Thomas is a FinTech company which provides technology and business solutions for wealth managers, platforms and providers, with an established client base and track record of repeat and recurring revenue. Dunstan Thomas will not only support the successful delivery of the Group's technology strategy but will also bring diversification by way of a broader product and service offering to other markets. The use of technology in the retirement market has historically been underutilised and we are excited about the role Dunstan Thomas can play in spearheading additional growth and development opportunities across the Group.

In November 2020, we took the decision to achieve a more appropriate balance between fee income and interest income to provide more transparency and greater certainty to our clients. We increased the annual SIPP administration fee paid on Mid and Full SIPPs with effect from 1 February 2021 and at the same time provided the framework to distribute an element of future interest related income to our clients. This change will materially reduce the Group's overall sensitivity to interest rates and reinforce our robust foundation for future growth through improved levels of recurring revenues.

People and Culture

In January 2021, we were delighted to welcome Jill Lucas to Curtis Banks as Non-Executive Director. Jill was also appointed as Chair of Dunstan Thomas. Jill brings a wealth of experience to the Group particularly in the field of technology and will bring invaluable experience to the board. Prior to joining the Group, Jill led technology transformation at Unilever and from 2012 until 2015 was Group Chief Information Officer for UK-based broker Towergate Insurance. Since 2019, she has been a Non-Executive Director for NS&I, the UK government-owned savings bank.

Jill's background in technology and experience in leadership teams will be invaluable as we continue to develop our business. In particular, her role as Chair of Dunstan Thomas will be crucial as we look to integrate technology throughout the Group and maximise opportunities for growth via increased collaboration and integration.

I would also like to thank the board, the whole executive team and staff at Curtis Banks for their endeavours and commitment to the Group in a challenging external environment.

Dividend

We paid an interim dividend of 2.5p per share (2019: 2.5p) on 13 November 2020 and the Board proposes a final dividend of 6.5p per share (2019: 6.5p) which, if approved by shareholders, will be paid on 4 June 2021 to shareholders on the register at the close of business on 7 May 2021. Total dividends for the year are therefore 9.0p per share (2019: 9.0p).

Outlook

We expect that challenging conditions will continue in the short term, as new business generation is hampered by restrictions from social distancing requirements. However, we remain well placed to deliver further profitable growth in the medium term as we continue to deliver efficiencies through systems integration. In the medium term and beyond, we remain confident about the Group's growth prospects. Our sensitivity to interest rates will materially reduce and we have an opportunity to leverage the scale and technology from the acquisitions of Talbot and Muir and Dunstan Thomas respectively to grow the Group. Through the strength of our product proposition and service, we are also well-placed to meet the changing needs of clients to deliver organic growth in what is an ever-increasing market.

In 2020, Curtis Banks started to evolve from a solely focussed SIPP administrator to a more holistic retirement group which provides technology and complementary services for the advised retirement markets, including FinTech, legal and property services. We have a clear vision and dedicated, first-rate management team with a plan for execution in 2021 and beyond.

Chris Macdonald

Chairman

6 April 2021

Chief Executive Officer's Review

We made strong progress in 2020 to evolve Curtis Banks from a predominantly SIPP administration business to a more holistic retirement group providing multiple complementary services, including FinTech, legal and property, for the advised retirement market. We believe this provides a solid platform for future, long-term, sustainable growth.

The external market dynamics and demographic trends play to our strengths. Our product proposition and service means we offer superior flexibility and optionality to meet the changing needs of a growing number of retirement savers and we are proven in adapting to, and remaining market leading with, ever-changing regulation in the retirement market. Retail investment platforms continue to see significant inflows, which we would expect in five to ten years' time to provide a significant inflow of business for our model as savers with more than GBP250,000 will benefit from our more cost effective fixed fee model. Technology remains underutilised in the pensions market and we are working to develop new products and services that leverage technology for the benefit of our clients, which includes our functional digital portal. The result is a large and growing addressable market requiring a range of complementary services - all of which can be met by Curtis Banks and underpins our position.

Operational Review

In the first half of 2020, we focused on our response to the COVID-19 pandemic. Following the outbreak of the first wave of the pandemic in March 2020, we acted quickly to implement our business continuity plan. The business felt some impact as the adviser community were unable to meet end customers in-person during the first lockdown, but productivity remained largely unaffected.

We have continued to progress our five year system strategy which consists of a number of elements. As previously announced, the development of a new digital portal completed in 2019. The centralisation of commercial property administration progressed to plan throughout 2020 and the upgrading of our administration platform commenced in 2020. I am pleased to report that all elements of the strategy continue to perform in line with the project projections and the acquisition of Dunstan Thomas, our key technology partner supporting the strategy, has further strengthened our control over the success of the programme.

We measure SIPP per operational FTE to measure the efficiency of our operations and also to provide reassurance around maintaining the desired levels of client servicing. Upon conclusion of the system strategy, and the introduction of our Target Operating Model, we expect to see an increase in the number of SIPPs per operational FTE.

At the year end the number of SIPPs administered increased to 82,224, this includes 4,113 new own SIPPs added organically plus 5,833 new SIPPs as a result of the acquisition of Talbot and Muir. Delivering a gross organic growth rate of 7.8%. In our two core areas of strategic focus, the Full SIPP saw gross organic growth of 3.2% which was a slight reduction on last year (2019: 3.4%). Our Mid SIPP gross organic growth rate was 11.1%, slightly higher than the previous year (2019: 10.8%). The table below sets out more detail on SIPPs numbers and rates of attrition.

 
                             Full    Mid SIPPs   eSIPPs    Total own    Third Party     Total 
                             SIPPs                           SIPPs      Administered 
 As at 31 December 
  2020                      23,013    31,985     20,742     75,740         6,484       82,224 
                           -------  ----------  --------  ----------  --------------  -------- 
 As at 31 December 
  2019                      19,869    27,799     21,726     69,394         7,147       76,541 
                           -------  ----------  --------  ----------  --------------  -------- 
 SIPPs added organically     628       3,072       413       4,113           9          4,122 
                           -------  ----------  --------  ----------  --------------  -------- 
 SIPPs added through 
  acquisitions              3,496      2,337        -        5,833           -          5,833 
                           -------  ----------  --------  ----------  --------------  -------- 
 Conversions and 
  reclassifications         (116)       117        (1)         -             -            - 
                           -------  ----------  --------  ----------  --------------  -------- 
 SIPPs lost through 
  attrition                 (864)     (1,340)    (1,396)    (3,600)        (672)       (4,272) 
                           -------  ----------  --------  ----------  --------------  -------- 
 Gross organic growth 
  rate                       3.2%      11.1%      1.9%       5.9%          0.1%         5.4% 
                           -------  ----------  --------  ----------  --------------  -------- 
 Annualised attrition 
  rate                       4.4%      4.8%       6.4%       5.2%          9.4%         5.6% 
                           -------  ----------  --------  ----------  --------------  -------- 
 

As we expand our proposition and services, we have diversified our revenue streams - and will continue to do so. In November 2020, we announced an increase to the annual SIPP administration fee paid on the Mid and Full SIPPs with effect from 1 February 2021. This decision was taken to reduce our reliance on interest income and as part of a shift towards higher client fees which lead to higher quality revenues. Our core line of business remains as the fixed annual fees for SIPP and SSAS products, with 86% of revenues expected to recur year on year. The high percentage of recurring revenues provides the Group with resilience and a solid foundation which allows us to continue to diversify our offering into other areas of the market.

Our flagship product, Your Future SIPP, continues to perform well and is one of the key drivers for organic growth of Full and Mid SIPPs. Your Future SIPP delivers efficiencies for clients and reduces the time spent on administration for advisers, clients and our business.

Rivergate Legal Limited continues to perform in line with expectations. Rivergate provides specialised and experienced advice to SIPP and SSAS clients seeking to invest commercial property within their pension portfolios. The business has remained focused on the supply of commercial property and real estate services in line with the Group's strategy. The total number of properties administered by the Group has increased to 8,905 (2019: 6,352) and we are confident that it will continue to grow into the medium term.

Acquisitions

In July 2020, the Group announced the acquisitions of Talbot and Muir, a provider of SIPPs and SSAS products, and Dunstan Thomas, a FinTech provider delivering technology and business solutions for wealth managers, platforms and providers. The acquisitions are in line with our published growth strategy to seek further value-enhancing, strategically aligned inorganic opportunities in the advised retirement market, alongside continued organic growth across all current business lines.

Talbot and Muir is a well-respected SIPP and SSAS provider and administrator with strong levels of recurring revenues based on a fixed fee model. Talbot and Muir delivers additional scale to the Group's existing offering through 6,600 plans and AuA of approximately GBP3.6bn, with 71 employees across offices in Nottingham and Leeds, joining the Group.

Dunstan Thomas is a FinTech provider delivering technology and business solutions for wealth managers, platforms and providers with an established client base and track record of repeat and recurring revenue. Curtis Banks has a long history of working with Dunstan Thomas, who have been a technology supplier to the Group for over five years. This acquisition will support the successful delivery and execution of the Group's technology strategy.

Dunstan Thomas will also expand our own customer proposition offering both existing and future clients access to a broader range of products and services, while giving us the opportunity to take our own product offering to other target markets. There are long-term growth opportunities in leveraging technology to reach new areas of the ever-increasing addressable advised retirement market. Technology is still underutilised in the pensions market and we will be working closely with Dunstan Thomas to develop new products and services backed by technology that disrupt the market. We also see immense scope for greater collaboration across the Group's diverse offering, especially via Dunstan Thomas' technology platform.

We are delighted to have acquired both Talbot and Muir and Dunstan Thomas, having executed both transactions in the midst of a global pandemic. We have started to integrate both businesses into the Group and this process is running smoothly. We are confident that both businesses will play a key role in diversifying and expanding the Group's offering to drive growth in the next two to three years.

People and Culture

During 2020, we were delighted to welcome colleagues from the acquisitions of Talbot and Muir and Dunstan Thomas into the Curtis Banks Group. We will be integrating both businesses into the Group in time and we look forward to working alongside their Executive teams on cross-group collaboration initiatives.

The COVID-19 pandemic has been a difficult time for us all. The welfare of employees has remained the top priority for management throughout the last 12 months. I wanted to take this opportunity to pay tribute to the dedication and perseverance of colleagues at Curtis Banks who seamlessly adapted to remote working conditions to ensure that productivity levels remained high. I am proud to work alongside them and I look forward to working with them to execute the exciting growth plans we have laid out for 2021 and beyond.

Outlook

We made strong progress on several of our strategic objectives in 2020. The system strategy continues at pace and is on track, while the increase in the annual SIPP administration fee paid on the Mid and Full SIPPs will reduce our reliance on interest income and increase our focus on generating higher quality revenues. The acquisitions of Talbot and Muir and Dunstan Thomas provide the Group with additional scale in the SIPP market and exciting growth opportunities to leverage technology to disrupt the advised retirement market.

In the short and medium term we have set the following growth objectives:

-- Organic Growth - to continue to focus on quality, advised SIPP business driving long term recurring fee revenues utilising our scalable operating model

-- Inorganic Growth - building on continued consolidation in the marketplace, the Group will continue to focus on selective, high quality acquisition opportunities to expand our client base

-- Diversification - building on the capability acquired in 2020, driving new products and services to a wider customer base enhancing EPS in the medium term

We have a clear vision for long-term growth. Our evolution from a single-track SIPP administration business to a provider of multiple complementary services will diversify our core offering and revenue streams to reach new areas of an ever-increasing addressable market. We are confident that the Group is well placed for growth in 2021.

Will Self

Chief Executive Officer

6 April 2021

Chief Financial Officer's Review

Results

A resilient financial performance for the year ended 31 December 2020 resulted in operational revenue increasing by 10% to GBP53.9m (2019: GBP48.9m) and adjusted profit before tax of GBP13.4m (2019: GBP13.4m). Adjusted diluted EPS decreased by 8% to 17.9p (2019: 19.4p), influenced by the issue of 11,904,762 new shares in July to support the Group's acquisition strategy. Statutory profit before tax, which is stated after amortisation and non-recurring costs, was GBP7.4m (2019: GBP10.9m), which includes GBP3.5m of non-recurring costs incurred during the year on previously announced restructuring activities and acquisition related costs. Diluted EPS on a statutory basis decreased by 40% to 9.5p (2019: 15.9p), impacted by the issuance of 11,904,762 ordinary shares in July 2020.

The robust financial performance was achieved despite the compound economic and political challenges of the UK's exit from the European Union and then the COVID-19 pandemic which quickly followed in March 2020. Like many other firms, the Group was not immune from the unquestionable impact of these challenges, in particular the prevailing COVID-19 restrictions which remain at our reporting date, but I believe the results once again demonstrate the resilience of our core business model and the strong levels of recurring sterling fixed fees which we have long extolled the virtues of.

The Group successfully completed two acquisitions during 2020. The acquisition of Talbot and Muir in October 2020 increases the number of high quality SIPPs under our administration and will further increase the Group's ability to generate recurring revenues. The acquisition of Dunstan Thomas in August 2020 has introduced a new revenue stream into the Group and is a further step in crystallising the Group's objective towards greater diversification and the Board looks forward to exploring the further opportunities that having a FinTech company within the Group will bring. Both Talbot and Muir and Dunstan Thomas made a positive contribution to the Group's revenue and earnings for part of 2020, with a full contribution from each to be achieved in 2021.

We also took action to rebalance our revenue profile by increasing the annual SIPP administration fee for our core SIPP products and changing how we share with clients the interest on SIPP bank account balances. These changes will result in clients receiving an increased share of interest, while the quality of the Group's revenue is improved due to the higher proportion generated from recurring fees.

The Group measures its performance by reference to the alternative profit measure of adjusted profit before tax as this is considered to better reflect the underlying results of the business by adjusting for those items which do not arise from the underlying operations of the business.

Revenue

Operational revenues of GBP53.9m in 2020 (2019: GBP48.9m) increased by 10% year on year, driven primarily by the part-year contributions from Dunstan Thomas and Talbot and Muir but also somewhat by the resilient organic growth in own Mid SIPP numbers.

Fee revenue from SIPP products remains the predominant source of fee income for the Group with 86% (2019: 84%) of these fees being recurring fixed annual fees. These fees are subject to contractual annual inflationary rises linked to average weekly earnings. Additional fixed fees are charged depending on the transactional services provided for each of the products.

All SIPP fees levied are fixed sterling charges and are not dependent on the value of the underlying assets held within the SIPP. As a result, the revenues generated by both Curtis Banks and Talbot and Muir are insulated from the movements in financial markets and/or commercial property values and are therefore subject to less volatility than many of our peers. This is a key differential that sets us apart from most of our competitors and provides an attractively priced product in terms of fees applied on higher value SIPPs. As the value of a SIPP increases our product becomes increasingly affordable.

In the year ended 31 December 2020, GBP12.2m of the Group operating revenue arose from interest margin (2019: GBP12.7m). The Group operates a highly efficient treasury operation with diverse partners and this enabled the Group to maintain impressive returns despite the low interest environment which perpetuated for most of the financial year and into 2021.

From 1 February 2021, the amount of interest paid to clients will no longer be set on a discretionary basis by the Group following the changes announced in November 2020. The Group believes that the new approach to sharing interest with clients is more transparent and provides greater certainty to clients. The amount of interest generated by the Group, and the amount shared with our clients, is monitored via the Group Assets and Liabilities Committee.

Expenses

The year ended 31 December 2020 saw administrative expenses increase by 13% to GBP39.9m from GBP35.2m. 78% of this increase related to our two acquisitions.

Staff costs for the year increased by 14% to GBP26.1m (2019: GBP22.6m) and were influenced by salary inflation, referenced to average weekly earnings, and the part year impact from the acquisitions of Dunstan Thomas of GBP1.9m (2019: nil) and Talbot and Muir of GBP0.4m (2019: nil).

Staff costs continue to reflect the cost of share based payment awards under the Group's Long Term Incentive Plan and Save As You Earn ("SAYE") schemes, as well as the commitment to the auto enrolment of staff pension contributions. These measures continue to reflect the importance of staff satisfaction to the Group and contribute not only to improved levels of key staff engagement and retention but also drive the provision of desired service levels to clients which are demanded by our introducers of business.

Average staff numbers increased to 698 (2019: 572), primarily as a result of the Group's acquisitions made in the year. This represents the support provided for the organic growth in own Full and Mid SIPPs achieved and to manage the migration of commercial property administration to a centralised function.

The other material operating expense that the Group incurs is in respect of IT and in 2020 this amounted to GBP3.1m (2019: GBP3.4m). These reflect not only the costs of supporting the core IT infrastructure across the Group's multiple office locations but also the amount of investment in technological improvements to the SIPP administration platform and the programme of these improvements is expected to continue into 2024.

The cost of undertaking regulatory activity continues to increase and for the year ended 31 December 2020 the Group spent GBP1.7m (2019: GBP1.1m) on a combination of regulatory fees, levies and insurance.

Finance costs relating to interest payable on bank loans increased by GBP0.2m year on year following the re-negotiation of the Group's increased term and revolving credit facilities during the year. Borrowings continue to be repaid in line with scheduled terms and the covenants required by the bank in respect of this gearing are well covered. Interest on the debt currently accrues at a rate of 2.25% over the London Interbank Offered Rate ("LIBOR") although it is expected that LIBOR will be replaced by the end of 2021.

The Sterling Overnight Indexed Average ("SONIA") is expected to replace LIBOR and we will work with our finance providers to ensure our credit facilities are transitioned to the new benchmark at that time.

The Group continues to take steps to improve its adjusted operating margin through a combination of revenue enhancements and operational efficiencies, balanced with the continued investment back into the business and the provision of a high quality service to our clients. The adjusted operating margin has decreased during the year, impacted by the increase in non-controllable regulatory costs and the pressure that the low interest environment had on interest income. The Group has sought to mitigate its sensitivity to interest income through an increase in annual fees on Mid and Full SIPPs which were effective 1 February 2021.

Non-Recurring costs

Non-recurring costs for the year can be broadly categorised into several core elements.

During the year ended 31 December 2020, the Group progressed its strategy to deliver its Target Operating Model through the centralisation of commercial property administration within one office location. Redundancy costs associated with this decision as well as costs associated with duplicated staff efforts while work is transferred between offices have been included within non-recurring costs, totalling GBP1,090,000 in the year ended 31 December 2020. The Group expects some further costs in early 2021 associated with the conclusion of this transition and will be recognisable as non-recurring costs in the relevant accounting period. Delivery of the Target Operating Model is ultimately seen as the main driver of operational efficiencies which are expected to be attainable once the broader investment in our system strategy has been completed.

Costs of GBP1,518,000 associated with acquisitions, primarily in relation to Dunstan Thomas and Talbot and Muir, were recognised during the financial year as outside of the operating cost base of the Group. A further cost of GBP151,000 was recognised in respect of deferred contingent consideration for the book of business acquired from Friends Life in 2015.

As has been widely reported in the wider industry press, HMRC has challenged all SIPP providers on whether pension contributions could be made in-specie. The Group has been in correspondence with HMRC regarding processes and documentation in respect of in specie contributions for some time. Following a favourable outcome for HMRC in an appeal against the First-Tier Tribunal's ruling in favour of another SIPP operator in a similar case, and having taken further legal advice, the Group now considers it more likely than not that some cost associated with this liability will be borne by the Group and has recognised a provision of GBP403,000 to reflect this.

As noted in our last annual financial statements, management had 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 recognised that additional direct costs may be incurred in completing this data cleansing exercise, including from any potential remediation. The data cleansing exercise is continuing with any residual remedial follow up actions to be completed during 2021. Of the original provision of GBP500,000 made at 31 December 2018, there is a remaining provision of GBP7,000 as at 31 December 2020. This is still considered to be adequate to cover any remaining costs.

Finally, during the year ended 31 December 2020, the Group invested in a new strategic treasury solution with a global provider of back office operational cash management software. The investment is designed to innovate and improve the Group's treasury management function through provision of a system that provides a multibank facility and this resulted in a non-recurring charge of GBP286k.

Amortisation and impairment of intangible assets

Amortisation of the Group's intangible assets represented a charge of GBP2,098,000 for the period. We have also taken a small impairment charge of GBP344,000 against the value of certain SIPP portfolios within intangible assets (2019: GBPnil). This follows a regular review of estimated future cash flows expected from these assets over their remaining useful economic lives and reflects increased uncertainty over the longevity of the current low interest rate environment.

Cash flows

Shareholder cash balances at year end were GBP32.5m compared to GBP31.2m at the end of the previous financial year.

Net cash inflows from shareholder operating activities for the period were GBP7.7m (2019: GBP13.8m net cash inflow), with the decline in cash generation primarily attributable to a reduction in profit before tax for the year and a higher amount of tax paid in the year caused by a number of the Group's subsidiaries transitioning into HMRC's QIP regime for very large companies.

A combination of the acquisitions made, the issue of shares and the re-financing of borrowing facilities during the year saw significant net cash outflows from investing activities and significant net cash inflows from financing activities.

Accounting Policies

Accounting policies have been updated to capture the relevant activities of the two acquisitions completed by the Group during the year.

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 2020 showing the financial position of the Group excluding the policyholder assets and liabilities is included as supplementary unaudited information after the notes to this announcement. An illustrative cash flow on the same basis has also been provided.

Employee Benefit Trust ("EBT")

The EBT continues to be used to acquire shares in the Group in the open 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 2020, the EBT held 261,276 shares in Curtis Banks Group PLC (2019: 206,286). A number of options awarded under the Company's SAYE 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 four (2019: three) regulated subsidiary companies submit regular returns to the FCA and the PRA relating to their capital resources. At 31 December 2020 the total regulatory capital requirement across the Group was GBP15.2m (2019: GBP13.2m) and the Group had an aggregate surplus of GBP17.2m (2019: GBP11.5m) 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 and this has been maintained throughout the year.

Three (2019: two) of the principal trading subsidiaries of the Group are regulated by the FCA and are subject to the relevant capital adequacy rules. The fourth (2019: third) regulated entity Suffolk Life Annuities Limited ("SLA"), being an insurance company, is subject to Solvency II rules and it's capital position is determined by the Standard Formula as set out in the Solvency II directives.

Full details of SLA's capital position are set out in the Solvency and Financial Condition Report published on the Group's website.

Financial Position

The Group increased net assets by 45% to GBP80.2m as at 31 December 2020 (2019: GBP55.5m), and increased shareholder cash reserves from GBP31.2m to GBP32.5m over the same period.

In July 2020 the Group placed 11,904,762 shares, raising gross proceeds of approximately GBP25m, to assist with the financing of initial consideration for the acquisitions of Dunstan Thomas and Talbot and Muir. At the same time, the Group re-negotiated its borrowing facilities with Santander and put in place a GBP20m term loan and a GBP10m rolling credit facility, GBP6m of which was drawn upon.

As at 31 December 2020, the Group had net shareholder cash (after debt) of GBP8.8m (2019: GBP19.9m).

The Group adopted the provisions of IFRS 16, accounting for leases, for the accounting period commencing 1 January 2019. The effect of this on our financial performance is not material although the impact on the Group's balance sheet has been to increase Non-current assets and Current/Non-current liabilities. It should be noted that our principal lenders exclude the impact of IFRS 16 when calculating our banking covenants. We have also received confirmation previously from the FCA that the provisions of IFRS 16 do not need to be taken into account in our regulatory capital calculations.

Outlook

The Group's profitability is not directly linked to market performance and therefore the growth in our SIPP numbers provides more visibility and less volatility of earnings combined with the discipline over our controllable cost base. In 2021 we expect the combination of SIPP revenue growth and a full year contribution from both of the Group's recent acquisitions to materially improve top line growth and we will maintain careful cost discipline whilst supporting our stated growth strategies.

Dan Cowland

Chief Financial Officer

6 April 2021

Consolidated statement of comprehensive income

 
                                                Year ended 31 December 2020                                    Year ended 31 December 2019 
                               Before amortisation      Amortisation                           Before amortisation     Amortisation 
                                 and non-recurring    and non-recurring                          and non-recurring          and 
                                       costs                costs                                      costs           non-recurring 
                                                                                Total                                      costs               Total 
                       Notes         GBP'000               GBP'000             GBP'000               GBP'000              GBP'000             GBP'000 
 Revenue                 2                   53,871                   -               53,871                 48,949                 -                48,949 
 
 Administrative 
  expenses                                 (39,885)             (5,411)             (45,296)               (35,218)           (2,470)              (37,688) 
 Impairment on 
  client 
  portfolios                                      -               (344)                (344)                      -                 -                     - 
 Policyholder 
  investment 
  returns*                      125,231                               -    125,231               365,815                            -     365,815 
 Non-participating 
  investment 
  contract expenses            (35,343)               -                   (35,343)              (33,943)              -                  (33,943) 
 Changes in 
  provisions: 
  Non-participating 
  investment 
  contract 
  liabilities                  (89,888)               -                   (89,888)             (331,872)              -                 (331,872) 
                              ---------                                  ---------            ----------                               ---------- 
 Policyholder total                               -                   -                    -                      -                 -                     - 
                                         ----------      --------------                                   ---------      ------------ 
 
 Operating profit                            13,986             (5,755)                8,231                 13,731           (2,470)                11,261 
 
 Finance income                                  83                   -                   83                    145                 -                   145 
 Finance costs           7                    (697)               (188)                (885)                  (523)                 -                 (523) 
                                         ----------      --------------             --------              ---------      ------------              -------- 
 Profit before tax                           13,372             (5,943)                7,429                 13,353           (2,470)                10,883 
 
 Taxation                8                  (2,793)               1,129              (1,664)                (2,502)               469               (2,033) 
                                         ----------      --------------             --------              ---------      ------------              -------- 
 Total comprehensive income 
  for the year                               10,579             (4,814)                5,765                 10,851           (2,001)                 8,850 
                                         ==========      ==============             ========              =========      ============              ======== 
 
 Attributable to: 
 Equity holders of 
  the 
  company                                                                              5,765                                                          8,850 
 Non-controlling                                                                           -                                                              - 
 interests 
                                                                                    --------                                                       -------- 
                                                                                       5,765                                                          8,850 
                                                                                    ========                                                       ======== 
 Earnings per 
 ordinary 
 share on net 
 profit 
 Basic (pence)**         9                                                               9.7                                                           16.2 
 Diluted (pence)**       9                                                               9.5                                                           15.9 
 

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

*Policyholder investment returns were previously presented within revenue. Amounts for the current period and comparatives are now represented alongside non-participating investment contract expenses and changes in provisions for non-participating investment contract liabilities to better reflect the fact that all such returns are due back to policyholders under non-participating investment contracts, and therefore have nil impact on shareholder profit or loss.

**Adjusted to take into account impact of bonus factor within shares issued during the year ended 31 December 2020, see note 9 for further detail.

Consolidated statement of financial position

 
                                                     Group 
 Group                              Notes        As at        As at 
                                             31-Dec-20    31-Dec-19 
                                               GBP'000      GBP'000 
 ASSETS 
 Non-current assets 
 Intangible assets                   10         91,166       43,427 
 Investment property                 11      1,208,605    1,265,784 
 Property, plant and equipment       12          7,658        6,195 
 Investments                                 2,072,317    1,994,197 
 Deferred tax asset                                  -          911 
                                           -----------  ----------- 
                                             3,379,746    3,310,514 
                                           -----------  ----------- 
 Current assets 
 Trade and other receivables                    26,913       19,915 
 Cash and cash equivalents           13        430,578      421,547 
 Current tax asset                                 580          446 
                                           -----------  ----------- 
                                               458,071      441,908 
                                           -----------  ----------- 
 
 Total assets                                3,837,817    3,752,422 
                                           -----------  ----------- 
 
 LIABILITIES 
 Current liabilities 
 Trade and other payables                       18,895       15,608 
 Deferred income                                26,995       26,192 
 Borrowings                          14         53,533       28,215 
 Lease liabilities                                 672          719 
 Provisions                          15            501          553 
 Contingent consideration                        2,516          214 
 Current tax liability                               -          738 
                                           -----------  ----------- 
                                               103,112       72,239 
                                           -----------  ----------- 
 Non-current liabilities 
 Borrowings                          14         53,370       48,911 
 Lease liabilities                               5,201        3,915 
 Provisions                                          7            - 
 Contingent consideration            18          5,657            - 
 Non-participating investment 
  contract liabilities                       3,585,307    3,571,904 
 Deferred tax liability                          5,013            - 
                                           -----------  ----------- 
                                             3,654,555    3,624,730 
                                           -----------  ----------- 
 
 Total liabilities                           3,757,667    3,696,969 
                                           -----------  ----------- 
 
 Net assets                                     80,150       55,453 
                                           -----------  ----------- 
 
 Equity attributable to owners 
  of the parent 
 Issued capital                                    330          271 
 Share premium                                  57,799       33,659 
 Equity share based payments                     2,747        2,313 
 Treasury shares                                 (741)        (534) 
 Retained earnings                              20,001       19,730 
                                           -----------  ----------- 
                                                80,136       55,439 
 
 Non-controlling interest                           14           14 
 
 Total equity                                   80,150       55,453 
                                           -----------  ----------- 
 

Approved by the Board of Directors and authorised for issue on 6 April 2021.

Dan Cowland

Chief Financial Officer

Company Registration No. 07934492

Consolidated statement of changes in equity

Group

 
                   Issued     Share     Equity   Treasury   Retained     Total   Non-controlling     Total 
                  capital   premium      share     shares   earnings   GBP'000          interest    equity 
                  GBP'000   GBP'000      based    GBP'000    GBP'000                     GBP'000   GBP'000 
                                      payments 
                                       GBP'000 
 
 At 1 January 
  2019                269    33,451      1,357      (716)     15,295    49,656                14    49,670 
 
 Total 
  comprehensive 
  income 
  for the year          -         -          -          -      8,850     8,850                 -     8,850 
 Share based 
  payments              -         -        956          -          -       956                 -       956 
 Ordinary 
  shares bought 
  and 
  sold by EBT           -         -          -        182          -       182                 -       182 
 Ordinary 
  shares issued         2       208          -          -          -       210                 -       210 
 Deferred tax 
  on share 
  based 
  payments              -         -          -          -        147       147                 -       147 
 Ordinary 
  dividends 
  declared 
  and paid              -         -          -          -    (4,562)   (4,562)                 -   (4,562) 
 
 At 31 December 
  2019                271    33,659      2,313      (534)     19,730    55,439                14    55,453 
 
 Total 
  comprehensive 
  income 
  for the year          -         -          -          -      5,765     5,765                 -     5,765 
 Share based 
  payments              -         -        434          -          -       434                 -       434 
 Ordinary 
  shares bought 
  and 
  sold by EBT           -         -          -      (207)          -     (207)                 -     (207) 
 Ordinary 
  shares issued        59    24,140          -          -          -    24,199                 -    24,199 
 Deferred tax 
  on share 
  based 
  payments              -         -          -          -      (345)     (345)                 -     (345) 
 Ordinary 
  dividends 
  declared 
  and paid              -         -          -          -    (5,149)   (5,149)                 -   (5,149) 
 
 At 31 December 
  2020                330    57,799      2,747      (741)     20,001    80,136                14    80,150 
                 ========  ========  =========  =========  =========  ========  ================  ======== 
 

Consolidated statement of cash flows

 
                                                                               Group 
                                                                        Year ended 31 December 
                                                                             2020         2019 
                                                                          GBP'000      GBP'000 
 Cash flows from operating activities 
 Profit before tax                                                          7,429       10,883 
 Adjustments for: 
 Depreciation                                                               1,499        1,321 
 Amortisation and impairments                                               2,442        1,379 
 Interest expense                                                             697          523 
 Share based payment expense                                                  434          956 
 Fair value gains on financial investments                              (119,957)    (232,848) 
 Additions of financial investments                                     (631,200)    (532,717) 
 Disposals of financial investments                                       673,037      584,425 
 Fair value losses on investment properties                                60,751       12,469 
 Increase in liability for investment contracts                            13,403      166,476 
 Changes in working capital: 
 (Increase)/decrease in trade and other receivables                       (2,737)      (1,730) 
 (Decrease)/increase in trade and other payables                          (1,105)        1,990 
 Taxes paid                                                               (2,996)      (2,454) 
 Net cash flows received from operating activities                          1,697       10,673 
                                                                     ------------  ----------- 
 
 Cash flows from investing activities 
 Payments for intangible assets                                             (986)        (696) 
 Purchase of property, plant and equipment                                  (591)      (1,015) 
 Purchase of investment property                                        (122,449)    (125,848) 
 Purchase and sale of shares in the Group by the EBT                        (207)          182 
 Receipts from sale of investment property                                118,877      122,047 
 Net cash flows from acquisitions                                        (34,638)        (166) 
 Net cash flows used in investing activities                             (39,994)      (5,496) 
                                                                     ------------  ----------- 
 
 Cash flows from financing activities 
 Equity dividends paid                                                    (5,149)      (4,562) 
 Net proceeds from issue of ordinary shares                                24,199          210 
 Net increase/(decrease) in borrowings                                     29,595      (9,456) 
 Principal elements of lease payments                                       (934)        (933) 
 Interest paid                                                              (383)        (465) 
 Net cash received from / (used in) financing activities                   47,328     (15,206) 
                                                                     ------------  ----------- 
 
 Net increase/(decrease) in cash and cash equivalents                       9,031     (10,029) 
                                                                     ------------  ----------- 
 
 Cash and cash equivalents at the beginning of the year                   421,547      431,576 
                                                                     ============  =========== 
 
 Cash and cash equivalents at the end of the year                         430,578      421,547 
                                                                     ============  =========== 
 
 
   1               Corporate information 

Curtis Banks Group PLC ("Curtis Banks" or "the Group") has a clear vision for long-term growth. 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 self-invested pension products.

At 31 December 2020 the Group administered circa GBP32.4bn (2019: GBP29.1bn) of pension assets on behalf of over 82,000 (2019: 76,000) active clients. More than 800 staff are employed across its head office in Bristol and regional offices in Ipswich, Dundee, Portsmouth, Nottingham and Leeds.

The Executive Directors have proven experience in the retail savings, pensions and wealth markets and have established a business that focuses on a service-driven proposition for the administration of flexible SIPPs. The Group's core pension products are primarily 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 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 20 and 21 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:

 
                                                                          Year ended 31 December 
                                                             2020                             2019 
                                                          GBP'000                          GBP'000 
 
 Pension administration fees                               36,856                           36,268 
 FinTech services                                           4,793                                - 
 Interest income                                           12,222                           12,681 
 
                                                           53,871                           48,949 
                                  ===============================  =============================== 
 
   3             Profit for the year 

Profit for the year is arrived at after charging:

 
                                                                                  Year ended 31 December 
                                                                     2020                             2019 
                                                                  GBP'000                          GBP'000 
 
 
 Amortisation and impairment of 
  intangible assets                                                 2,442                            1,379 
 Depreciation of property, plant 
  and equipment                                                     1,499                            1,321 
 Auditors' remuneration: 
 - audit of the financial statements 
  of the Group                                                        421                              278 
 - audit of the financial statements 
  of the Company                                                       70                               50 
 - audit related assurance services                                    37                               35 
 
   4             Operating segment reporting 

The Group acquired FinTech provider Dunstan Thomas on 3 August 2020. Prior to this acquisition, all results were viewed as one operating segment for the purposes of management decisions as all operations were conducted within the UK and all material operations were of the same nature and shared the same economic characteristics including a similar customer base and nature of product and services (i.e. pensions administration).

Following the acquisition of Dunstan Thomas during the year ended 31 December 2020, the Group is now considered to have two operating segments. Dunstan Thomas provides IT software development, licences and consultancy services and, collectively, these services are described in the Group's financial statements as FinTech.

The following tables present revenue and profit information regarding the Group's operating segments for the two years ended 31 December 2020 and 31 December 2019 respectively.

 
  Year ended 31 December     Pension Administration     FinTech   Consolidation    Consolidated 
   2020                                     GBP'000     GBP'000     adjustments         GBP'000 
                                                                        GBP'000 
 
 Revenue 
 External customers                          49,078       4,793               -          53,871 
 Internal customers                               -         485           (485)               - 
                            -----------------------  ----------  --------------  -------------- 
                                             49,078       5,278           (485)          53,871 
                            -----------------------  ----------  --------------  -------------- 
 
 Administrative expenses 
 External customers                          36,830       3,055               -          39,885 
 Internal customers                               -         485           (485)               - 
                            -----------------------  ----------  --------------  -------------- 
                                             36,830       3,540           (485)          39,885 
                            -----------------------  ----------  --------------  -------------- 
 
 Adjusted operating 
  profit                                     12,248       1,738               -          13,986 
 
 Adjusted operating 
  profit margin                               25.0%       32.9%                           26.0% 
 
 
  Year ended 31 December           Pension Administration    Consolidated 
   2019                                           GBP'000         GBP'000 
 
 Revenue 
 External customers                                48,949          48,949 
                                                   48,949          48,949 
                                  -----------------------  -------------- 
 
 Administrative expenses 
 External customers                                35,218          35,218 
                                                   35,218          35,218 
                                  -----------------------  -------------- 
 
 Adjusted operating profit                         13,731          13,731 
 
 Adjusted operating profit 
  margin                                            28.1%           28.1% 
 

Corporate costs

The Group's operating segments are managed together as one business. Accordingly, certain corporate costs such as finance income and expenses, non-recurring costs, gains and losses on the disposal of assets, taxes, intangible assets and certain other assets and liabilities are not allocated to individual segments as they are managed on a group basis. Segment adjusted operating profit or loss reflects the measure of segment performance reviewed by the Board of Directors (the Chief Operating Decision Maker).

The following table reconciles the total segments adjusted operating profit to statutory profit before tax:

 
                                                                                    Year ended 31 December 
                                                                       2020                             2019 
                                                                    GBP'000                          GBP'000 
 
 Total segments adjusted operating 
  profit                                                             13,986                           13,731 
 Amortisation and impairments                                       (2,442)                          (1,379) 
 Non-recurring administrative expenses                              (3,313)                          (1,091) 
 Finance income                                                          83                              145 
 Finance costs                                                        (885)                            (523) 
 
 Profit before tax                                                    7,429                           10,883 
                                            ===============================  =============================== 
 

The following table presents a split of assets and liabilities of the Group's operating segments for the year ended 31 December 2020. For the year ended 31 December 2019 the Group had only one operating segment, being Pension Administration, and consequently comparative information is disclosed in the Consolidated Statement of Financial Position.

Corporate assets and liabilities are not allocated to individual operating segments as they are managed on a group basis. Policyholder assets and liabilities are not allocated to individual operating segments as all investment returns associated with these are due back to policyholders under non-participating investment contracts, alongside non-participating investment contract expenses and changes in provisions for non-participating investment contract liabilities, such that the impact on shareholder assets and liabilities, and profit or loss, is nil.

 
       Year ended 31   Pension Administration    FinTech   Corporate   Policyholder   Consolidated 
       December 2020                  GBP'000    GBP'000     GBP'000        GBP'000        GBP'000 
 
 Total assets                          63,241      8,079      75,041      3,691,456      3,837,817 
 
 Total liabilities                     26,621      3,798      35,792      3,691,456      3,757,667 
 
   5             Non-recurring administrative expenses 

Non-recurring administrative expenses include the following significant items:

 
                                                                                      Year ended 31 December 
                                                                         2020                             2019 
                                                                      GBP'000                          GBP'000 
 
 Dunstan Thomas acquisition costs                                         769                                - 
 Talbot and Muir acquisitions costs                                       561                                - 
 Other acquisition related costs                                          151                               61 
 Redundancy & restructuring costs                                       1,091                              696 
 In-specie contributions                                                  402                                - 
 Treasury solution implementation                                         286                                - 
 Data cleansing provision                                                  53                                - 
 Costs relating to directorate and senior 
  management 
  changes                                                                   -                              334 
 
                                                                        3,313                            1,091 
                                              ===============================  =============================== 
 

Acquisition costs - Dunstan Thomas and Talbot and Muir

Two acquisitions were completed during the year: FinTech provider Dunstan Thomas on 3 August 2020, and fellow SIPP provider Talbot and Muir on 30 October 2020. The Group has incurred legal and professional fees in connection with these transactions and, in accordance with IFRS 3 Business Combinations, these have been expensed and treated as non-recurring costs. The Group expects that further costs may be recognised for these acquisitions over the next three financial years in relation to fair value changes to the amount of contingent consideration payable.

Other acquisition related costs

During the year, the Group incurred some final costs in relation to deferred consideration payable on the client portfolio acquired from Friends Life in 2015, together with final costs related to the acquisitions of Hargreave Hale and European Pension Management Ltd.

Redundancy & restructuring costs

During the year ended 31 December 2020 and 31 December 2019, the Group progressed its strategy to deliver its Target Operating Model and centralise commercial property administration within one office location. Redundancy costs associated with this decision as well as costs associated with duplicated staff efforts while work is transferred between offices were included within non-recurring costs.

In-specie contributions

As previously reported, 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 has been challenged by the sector as a whole. Following a favourable ruling for HMRC in a case affecting another SIPP operator, and having taken further legal advice, the Directors now consider it more likely than not that some cost associated with this issue will be incurred by the Group. See provisions note 15 for further detail.

Treasury solution implementation

During the year ended 31 December 2020, the Group invested in a new strategic treasury solution with a global provider of back office operational cash management software. The investment is designed to innovate and improve the Group's treasury management function through provision of a system that provides a multibank facility. Costs associated with this investment that did not meet the criteria for capitalisation have been treated as non-recurring cost.

Data cleansing provision

As part of the consolidation and integration exercise undertaken during the year ended 31 December 2018 management initiated a review of data records relating to commercial properties held within SIPPs administered by the Group. A small amount of further cost, over and above amounts previously provided, associated with this process arose during the year ended 31 December 2020.

Costs relating to directorate and senior management changes

During the year ended 31 December 2019, the incumbent Chief Financial Officer of the Group announced he was stepping down from the role and a successor was recruited. An orderly handover of responsibilities took place between the previous Chief Financial Officer and the new Chief Financial Officer. Costs associated with this transitional period incurred during the year ended 31 December 2019, including recruitment costs and costs of associated senior staff changes, have been treated as non-recurring costs.

   6               Directors and employees 
 
                                                                                        Year ended 31 December 
                                                                           2020                             2019 
                                                                        GBP'000                          GBP'000 
 
 Wages and salaries                                                      21,317                           18,524 
 Social security costs                                                    2,301                            1,765 
 Other pension costs                                                      2,015                            1,704 
 Share-based incentive awards                                               434                              956 
                                                -------------------------------  ------------------------------- 
                                                                         26,067                           22,949 
                                                ===============================  =============================== 
 
                                                                           2020                             2019 
 The monthly average number of employees                                 Number                           Number 
 during 
 the year was: 
 
 Directors                                                                    6                                6 
 Administration                                                             692                              566 
                                                                            698                              572 
                                                ===============================  =============================== 
  Details of emoluments paid to the directors and key management 
   personnel of the Group are as follows: 
                                                                                        Year ended 31 December 
                                                                           2020                             2019 
                                                                        GBP'000                          GBP'000 
 Total emoluments paid to: 
 Directors 
   Wages and salaries                                                     1,487                            1,280 
   Social security costs                                                    220                              146 
   Post-employment costs                                                     20                               37 
   Share-based incentive awards                                             202                              427 
 Key management personnel 
   Wages and salaries                                                       908                            1,334 
   Compensation for loss of office                                            -                              126 
   Social security costs                                                    136                              173 
   Post-employment costs                                                     60                               67 
   Share-based incentive awards                                              80                              177 
                                                -------------------------------  ------------------------------- 
                                                                          3,113                            3,767 
                                                ===============================  =============================== 
 Emoluments of highest paid director: 
  Wages and salaries                                                        508                              436 
  Pension contribution                                                        7                                9 
                                                -------------------------------  ------------------------------- 
                                                                            515                              445 
                                                ===============================  =============================== 
 

Short term employee benefits include wages and salaries. Long term employee benefits include share-based incentive awards.

   7             Finance costs 
 
                                                                                        Year ended 31 December 
                                                                             2020                           2019 
                                                                          GBP'000                        GBP'000 
 Operational cost 
 Interest payable on bank loans                                               523                            382 
 Interest and finance costs on lease 
  liabilities                                                                 174                            141 
 Non-recurring cost 
 Unwind of discount factor on contingent 
 consideration 
 relating to: 
 Acquisition of Dunstan Thomas                                                131                              - 
 Acquisition of Talbot and Muir                                                57                              - 
 
                                                                              885                            523 
                                                    =============================  ============================= 
 
   8            Taxation 
 
                                                                                  Year ended 31 December 
                                                                       2020                           2019 
                                                                    GBP'000                        GBP'000 
 Domestic current year tax 
 UK Corporation tax                                                   1,542                          2,202 
 
 Deferred tax 
 Origination and reversal of temporary 
  differences                                                           122                          (169) 
                                                                      1,664                          2,033 
                                              =============================  ============================= 
 
 Factors affecting the tax charge for 
  the year 
 Profit before tax                                                    7,429                         10,883 
                                              =============================  ============================= 
 
 Profit before tax multiplied by standard 
  rate of UK Corporation tax of 19% 
  (2019: 19%)                                                         1,412                          2,068 
                                              -----------------------------  ----------------------------- 
 
 Effects of: 
 Adjustment to prior year                                               117                           (33) 
 Non-deductible expenses                                                177                             10 
 Other tax adjustments                                                 (42)                           (12) 
                                              -----------------------------  ----------------------------- 
                                                                        252                           (35) 
 
 Total tax charge                                                     1,664                          2,033 
                                              =============================  ============================= 
 
   9               Earnings per share 

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to equity holders of the Company 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 Company 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:

 
                                                                2020         2019 
                                                             GBP'000      GBP'000 
 
 Net profit available to equity holders of 
  the Company                                                  5,765        8,850 
                                                   =================  =========== 
 
 Net profit before tax, non-recurring costs 
  and amortisation available to equity holders 
  of the Company.                                             13,372       13,353 
                                                   =================  =========== 
 
 Weighted average number of ordinary shares:                  Number       Number 
 
 Issued ordinary shares at start of the 
  year                                                    54,142,346   53,807,346 
 Effect of shares issued during the year**                 5,859,094    1,002,290 
 Effect of shares held by employee benefit 
  trust                                                    (296,835)    (244,741) 
 Basic weighted average number of shares                  59,704,605   54,564,895 
 
 Effect of dilutive options **                               886,707    1,216,778 
 Diluted weighted average number of shares                60,591,312   55,781,673 
                                                   =================  =========== 
 
                                                               Pence        Pence 
 Earnings per share: 
 Basic**                                                         9.7         16.2 
 Diluted**                                                       9.5         15.9 
  Earnings per share on net profit before 
   non-recurring costs and amortisation, less 
   an effective tax rate*: 
 Basic**                                                        18.1         19.8 
 Diluted**                                                      17.9         19.4 
 

*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 2020 was 19% (2019: 19%).

** Both basic EPS and diluted EPS have been adjusted to reflect the impact of a bonus factor within shares issued during the year ended 31 December 2020. Diluted EPS for the year ended 31 December 2019 has been restated on the same basis in this announcement. There is no impact to either the income statement or balance sheet of the Group.

   10             Intangible assets 

Group

 
                                                                              Internally 
                                                Client     Computer            Generated 
                               Goodwill     Portfolios     Software             Software       Total 
                                GBP'000        GBP'000      GBP'000    and Relationships     GBP'000 
                                                                                 GBP'000 
 Cost 
 At 1 January 2019               28,903         18,866        1,481                    -      49,250 
 
 Additions                            -              -          696                    -         696 
 
 At 31 December 
  2019                           28,903         18,866        2,177                    -      49,946 
 
 Arising on acquisitions         20,682         17,435            -               11,078      49,195 
 Additions                            -              -          606                  380         986 
 
 At 31 December 
  2020                           49,585         36,301        2,783               11,458     100,127 
                            -----------  -------------  -----------  -------------------  ---------- 
 
 Amortisation and 
  Impairment 
 At 1 January 2019                    -          4,379          761                    -       5,140 
 
 Charge for the 
  year                                -            941          438                    -       1,379 
 
 At 31 December 
  2019                                -          5,320        1,199                    -       6,519 
 
 Charge for the 
  year                                -          1,081          248                  769       2,098 
 Impairment                           -            344            -                    -         344 
 
 At 31 December 
  2020                                -          6,745        1,447                  769       8,961 
                            -----------  -------------  -----------  -------------------  ---------- 
 
 Net book value 
 At 1 January 2019               28,903         14,487          720                    -      44,110 
                            ===========  =============  ===========  ===================  ========== 
 At 31 December 
  2019                           28,903         13,546          978                    -      43,427 
                            ===========  =============  ===========  ===================  ========== 
 At 31 December 
  2020                           49,585         29,556        1,336               10,689      91,166 
                            ===========  =============  ===========  ===================  ========== 
 

Goodwill

Goodwill totalling GBP28,903,000 arose on the acquisition of Suffolk Life Group Limited and its subsidiaries on 25 May 2016. Goodwill totalling GBP16,115,000 arose on the acquisition of Dunstan Thomas Group Limited and its subsidiaries on 3 August 2020. Goodwill totalling GBP4,567,000 arose on the acquisition of Talbot and Muir Limited and its subsidiaries on 30 October 2020.

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, a book of full SIPPs from Friends Life PLC (now Aviva PLC) on 13 March 2015 and a book of SIPPs from Hargreave Hale Limited on 10 December 2018.

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.

Client portfolios fair valued at GBP17,435,000 arose on acquisition of Talbot and Muir Limited and its subsidiaries on 30 October 2020.

Impairment charges totalling GBP344,000 against the intangible asset relating to client portfolios have been recognised during the year (2019: GBPnil). This relates to changes in the estimate of future cash flows expected on these assets over their remaining useful economic lives owing to increased uncertainty over the longevity of the current low interest rate environment.

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 2020 of 14 years and 1 month.

Computer Software

Computer software comprises 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.

Internally Generated Software

Internally generated software and relationships represents the provisional and collective valuation of identifiable intangible assets separate to goodwill arising on acquisition of Dunstan Thomas by Curtis Banks Group PLC during the year ended 31 December 2020. Internally generated software and relationships are being provisionally amortised over a period of between 5 and 7.5 years. Please see business combinations note 17 to this announcement for further detail.

   11             Investment Property 

Assets held at fair value

Group

 
                                                Year ended 31 December 
                                            2020                  2019 
                                         GBP'000               GBP'000 
           Fair value 
 At 1 January                          1,265,784             1,274,452 
 
 Additions                               122,449               125,848 
 Disposals                             (118,877)             (122,047) 
 Fair value losses                      (60,751)              (12,469) 
 
 At 31 December                        1,208,605             1,265,784 
                            ====================  ==================== 
 
 

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.

   12             Property, plant and equipment 

Assets held at cost

Group

 
                                                             Computer                 Office               Total 
                                            Right           equipment             equipment, 
                                           of use                                 fixtures & 
                                           assets                                   fittings 
                                          GBP'000             GBP'000                GBP'000             GBP'000 
           Cost 
 At 1 January 2019                              -               4,338                  1,528               5,866 
 
 Arising on transition to 
  IFRS 16                                   5,285                   -                      -               5,285 
 Additions                                      -                 917                     98               1,015 
 Disposals                                      -               (172)                      -               (172) 
 
 At 31 December 2019                        5,285               5,083                  1,626              11,994 
 
 Arising from acquisitions                  1,904                 292                    468               2,664 
 Additions                                      -                 570                     21                 591 
 
 At 31 December 2020                        7,189               5,945                  2,115              15,249 
                               ------------------  ------------------  ---------------------  ------------------ 
 
 Depreciation 
 At 1 January 2019                              -               3,555                  1,095               4,650 
 
 Charge for the year                          695                 459                    167               1,321 
 Disposals                                      -               (172)                      -               (172) 
 
 At 31 December 2019                          695               3,842                  1,262               5,799 
 
 Arising from acquisitions                      -                 180                    113                 293 
 Charge for the year                          763                 547                    189               1,499 
 
 At 31 December 2020                        1,458               4,569                  1,564               7,591 
                               ------------------  ------------------  ---------------------  ------------------ 
 
 Carrying value 
 At 1 January 2019                              -                 783                    433               1,216 
                               ==================  ==================  =====================  ================== 
 At 31 December 2019                        4,590               1,241                    364               6,195 
                               ==================  ==================  =====================  ================== 
 At 31 December 2020                        5,731               1,376                    551               7,658 
                               ==================  ==================  =====================  ================== 
 
   13             Cash and cash equivalents 

As at 31 December 2020 and 2019 cash and cash equivalents were as follows:

 
                                                    Group               Company 
                                        As at 31 December     As at 31 December 
                                          2020       2019       2020       2019 
                                       GBP'000    GBP'000    GBP'000    GBP'000 
 
 Cash at bank and in hand               32,509     31,228      4,411      1,330 
 Deposits with credit institutions     397,518    389,715          -          - 
 Cash equivalents                          551        604          -          - 
 
 Cash and cash equivalents             430,578    421,547      4,411      1,330 
                                     =========  =========  =========  ========= 
 

The Group considers potential expected credit losses on cash and cash equivalents to be insignificant.

   14             Borrowings 
 
                                            Group 
                                As at 31 December 
                                  2020       2019 
                               GBP'000    GBP'000 
 Current 
 Bank loans                     53,533     28,215 
                                53,533     28,215 
                             ---------  --------- 
 
 Non-current 
 Bank loans                     53,370     48,911 
                                53,370     48,911 
                             ---------  --------- 
 
 Total borrowings              106,903     77,126 
                             =========  ========= 
 
 

Bank borrowings

The bank borrowings are repayable as follows:

 
                                                      Group 
                                          As at 31 December 
                                            2020       2019 
                                         GBP'000    GBP'000 
 
 Within 1 year                            53,533     28,215 
 Between 1 year and 5 years               42,531     31,793 
 After more than 5 years                  10,839     17,118 
                                         106,903     77,126 
                                       =========  ========= 
 

Bank borrowings of the Company are repayable between January 2021 and July 2025 and bear average coupons of 2.25% plus LIBOR per annum.

Total borrowings of the Group include liabilities of GBP83,147,000 (2019: GBP65,696,000) secured by legal charge over certain properties held within non-participating investment contracts, and liabilities of GBP23,756,000 (2019: GBP11,430,000) secured on the shares of Curtis Banks Limited, Suffolk Life Pensions Limited, Suffolk Life Annuities Limited, and Dunstan Thomas Group Limited.

   15           Provisions 
 
                                                                            As at 31 December 
                                Other provision    Restructuring        In-specie       Group 
                                        GBP'000        provision    contributions       Total 
                                                         GBP'000        provision     GBP'000 
 Provisions                                                               GBP'000 
 
 Balance as at 1 January 
  2019                                      500                -                -         500 
 
 Amounts introduced                           -              307                -         307 
 Amounts utilised                         (254)                -                -       (254) 
 
 Balance as at 31 December 
  2019                                      246              307                -         553 
 
 Amounts introduced                          53                -              402         455 
 Amounts arising on 
  acquisitions                                7                -                -           7 
 Amounts utilised                         (292)            (170)                -       (462) 
 Amounts released as 
  unutilised                                (7)             (38)                -        (45) 
 
 Balance as at 31 December 
  2020                                        7               99              402         508 
                              =================  ===============  ===============  ========== 
 

Other provision

As part of the consolidation and integration exercise undertaken during the year ended 31 December 2018 management initiated a review of data records relating to commercial properties held within SIPPs administered by the Group. A provision of GBP500,000 was made for the estimated costs arising from this exercise. Additionally, a contingent liability was recognised and remains disclosed within note 19 to this announcement.

As at 31 December 2019, the Group had completed its review enabling identification of the total number of cases potentially requiring remediation, and as of 31 December 2020, the vast majority of cases had been settled. There were no material variances to the original estimate of future remaining direct costs the Group expected to potentially bear.

Restructuring provision

During the year ended 31 December 2019, the Group progressed its strategy to deliver its Target Operating Model by deciding to centralise commercial property administration within one office location. Redundancy costs associated with this decision, relating to the year ended 31 December 2019, are included as amounts introduced to the restructuring provision for that year. There were no material variances to the original estimate of costs the Group expected to potentially bear.

In-specie contributions provision

As previously reported, 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 has been challenged by the sector as a whole. Following a favourable ruling for HMRC in a case affecting another SIPP operator, and having taken further legal advice, the Directors now consider it more likely than not that some cost associated with this issue will be incurred by the Group.

The total exposure for affected clients is estimated at GBP1.1m inclusive of interest. However, in recognition of the possibility that some clients may have insufficient assets to settle their share of the cost, the Group has recognised a provision of GBP0.4m and treated this amount as a non-recurring cost during the year ended 31 December 2020.

   16           Dividends 
 
                                             Year to 31 December 
                                                2020        2019 
                                             GBP'000     GBP'000 
 
 Ordinary dividend declared and paid           5,149       4,562 
 
                                               5,149       4,562 
                                          ==========  ========== 
 

An interim share dividend in respect of the year ended 31 December 2020 of 2.50p per share was declared by reference to audited distributable reserves as at 31 December 2019 and paid on 13 November 2020.

A final share dividend in respect of the year ended 31 December 2020 of 6.50p per share is proposed by reference to audited distributable reserves as at 31 December 2020 and, if approved, will be paid on 4 June 2021.

   17             Business combinations 

Acquisition of Dunstan Thomas

On 3 August 2020, Curtis Banks Group PLC completed the acquisition of the entire share capital of Dunstan Thomas Group Limited and its subsidiaries. Dunstan Thomas Group Limited holds four wholly owned trading subsidiaries, Digital Keystone Limited, Dunstan Thomas Holdings Limited, Dunstan Thomas Consulting Limited and Platform Action Limited, all of which now form part of the enlarged Group.

Dunstan Thomas Group Limited is a holding company. Dunstan Thomas Holdings Limited, Digital Keystone Limited, Dunstan Thomas Consulting Limited, and Platform Action Limited provide licences to customers for financial technologies that have been developed in house including Imago Illustrations and Integro CX Enterprise, alongside training, consultancy and other development solutions to the financial services market.

Initial consideration settled wholly in cash totalled GBP21.9m. Variable deferred contingent consideration linked to post acquisition EBITDA and estimated at approximately GBP3.9m is payable after a three year earn-out period post acquisition.

The acquisition has been accounted for using the acquisition method and in accordance with IFRS 3: Business Combinations.

 
                                                        GBP'000 
 
 Fair value of consideration payable                     25,848 
 Less: Provisional fair value of net assets acquired    (9,733) 
 
 Goodwill arising on acquisition (note 10)               16,115 
                                                       -------- 
 

The goodwill recognised above is attributed to the expected benefits from combining the assets and activities of Dunstan Thomas with those of the Group. The primary components of this residual goodwill comprise

   -      Cost savings generated through use of Dunstan Thomas to progress Group IT strategy 
   -      Cost savings generated through economies of scale and enlarged Group purchasing power 
   -      A skilled and knowledgeable workforce 

- New opportunities available to the combined business, as a result of Dunstan Thomas being part of an enlarged and more diversified Group

We have undertaken a valuation of the acquired goodwill and separately identifiable intangible assets, which comprise internally generated software and customer relationships. The fair value adjustments to reflect these assets have been measured provisionally and collectively pending completion of an independent valuation, which has been delayed as the impact of the covid-19 pandemic has required management to prioritise other commercial matters.

Fair value of these intangible assets has been based on the present value of expected future cash flows from these relationships, and the assumptions used in this exercise have also been used in determining the estimated useful economic life of each asset for the purposes of amortisation.

The provisional amounts recognised in respect of the identified assets acquired and liabilities assumed are set out in the following table:

 
                                    Carrying value   Fair value adjustments     Total 
                                           GBP'000                  GBP'000   GBP'000 
 Non-current assets 
 Intangible assets                           2,358                    8,690    11,048 
 Property, plant and equipment               1,351                        -     1,351 
 
 Current assets 
 Trade receivables                           1,527                        -     1,527 
 Other debtors                               1,356                        -     1,356 
 Prepayments & accrued income                  546                        -       546 
 Bank and cash                                 918                        -       918 
 
 Current liabilities 
 Trade payables                              (645)                        -     (645) 
 Taxes and social security costs             (831)                        -     (831) 
 Other payables                               (49)                        -      (49) 
 Accruals                                    (452)                        -     (452) 
 Deferred income                           (1,159)                        -   (1,159) 
 Lease liabilities                           (189)                        -     (189) 
 Current tax liability                       (380)                        -     (380) 
 
 Non-current liabilities 
 Deferred income                             (125)                        -     (125) 
 Lease liabilities                         (1,084)                        -   (1,084) 
 Deferred tax liability                          -                  (2,099)   (2,099) 
 
 Net assets acquired                         3,142                    6,591     9,733 
                                   ---------------  -----------------------  -------- 
 

Adjustments to finalise the fair values attributed to assets and liabilities acquired will be made in the financial statements for the year to 31 December 2021. If information obtained within one year of the acquisition date about facts and circumstances that existed at the acquisition date identifies adjustments to the above amounts, or any additional provisions that existed at the acquisition date, then the accounting for the acquisition will be revised.

Acquisition costs totalled GBP0.8m and comprised legal and professional fees, and due diligence work. In accordance with IFRS 3 Business Combinations, these costs have been expensed as reflected in note 5 to this announcement as non-recurring cost.

The post-acquisition operating activity of Dunstan Thomas Group Limited and its subsidiaries for the period from acquisition to the end of 31 December 2020 generated net profits before tax of GBP1.5m and after tax of GBP1.4m.

Operating revenues of GBP5.3m have been recognised in relation to the acquisition of Dunstan Thomas Group Limited and its subsidiaries for the period from acquisition to 31 December 2020. The operating revenue as though the acquired business had been held for the full year ended 31 December 2020 is estimated to be GBP12.7m.

The net cash flows arising from this acquisition during the year ended 31 December 2020 were as follows:

 
                                                        GBP'000 
 
 Net cash inflow from debt refinancing                   15,630 
 Working capital utilised                                 6,305 
                                                       -------- 
 
 Total initial consideration paid to vendors             21,935 
 Cash acquired on acquisition                             (918) 
 
 Net cash outflow in the year ended 31 December 2020     21,017 
                                                       -------- 
 

Acquisition of Talbot and Muir

On 30 October 2020, Curtis Banks Group PLC completed the acquisition of the entire share capital of Talbot and Muir Limited and its subsidiaries. The subsidiaries of Talbot and Muir Limited are all non-trading trustee entities acting as bare trustee for SIPP and SSAS pension assets and liabilities, all of which now form part of the enlarged Group. Talbot and Muir is a provider of SIPP and SSAS pension scheme administration services.

Initial consideration settled wholly in cash totalled GBP18.0m. Variable deferred contingent consideration linked to post acquisition EBITDA and estimated at approximately GBP4.1m is payable over a two year earn-out period post acquisition.

The acquisition has been accounted for using the acquisition method and in accordance with IFRS 3: Business Combinations.

 
                                               GBP'000 
 
 Fair value of consideration payable            21,845 
 Less: fair value of net assets acquired      (17,278) 
 
 Goodwill arising on acquisition (note 10)       4,567 
                                             --------- 
 

The goodwill recognised above is attributed to the expected benefits from combining the assets and activities of Talbot and Muir with those of the Group. The primary components of this residual goodwill comprise

   -      Revenue synergies expected to be available to the Group as a result of the transaction 
   -       Greater access to diverse distribution channels 

- Cost savings generated through additional scale and the purchasing power of the enlarged Group

   -      A skilled and knowledgeable workforce 

- New opportunities available to the combined business, as a result of Talbot and Muir being part of an enlarged Group

The fair value of the identifiable assets and liabilities acquired are set out below:

 
                                    Carrying value   Fair value adjustments     Total 
                                           GBP'000                  GBP'000   GBP'000 
 Non-current assets 
 Intangible assets                           3,145                   14,290    17,435 
 Property, plant and equipment               1,020                        -     1,020 
 
 Current assets 
 Trade receivables                             870                    (113)       757 
 Other debtors                                   1                        -         1 
 Prepayments & accrued income                  468                        -       468 
 Bank and cash                               4,193                        -     4,193 
 
 Current liabilities 
 Trade payables                               (45)                        -      (45) 
 Taxes and social security costs             (322)                        -     (322) 
 Accruals                                    (218)                        -     (218) 
 Deferred income                           (1,285)                        -   (1,285) 
 Lease liabilities                           (106)                        -     (106) 
 Deferred consideration                      (430)                        -     (430) 
 Current tax liability                       (113)                        -     (113) 
 
 Non-current liabilities 
 Lease liabilities                           (687)                        -     (687) 
 Deferred tax liability                       (40)                  (3,350)   (3,390) 
 
 Net assets acquired                         6,451                   10,827    17,278 
                                   ---------------  -----------------------  -------- 
 

Acquisition costs totalled GBP0.6m and comprised legal and professional fees, and due diligence work. In accordance with IFRS 3 Business Combinations, these costs have been expensed as reflected in note 5 to this announcement as non-recurring cost.

The post-acquisition operating activity of Talbot and Muir Limited and its subsidiaries for the period from acquisition to the end of 31 December 2020 generated net profits before tax of GBP0.3m and after tax of GBP0.2m.

Operating revenues of GBP1.0m have been recognised in relation to the acquisition of Talbot and Muir Limited and its subsidiaries for the period from acquisition to 31 December 2020. The operating revenue as though the acquired business had been held for the full year ended 31 December 2020 is estimated to be GBP6.0m.

The net cash flows arising from this acquisition during the year ended 31 December 2020 were as follows:

 
                                                        GBP'000 
 
 Net cash inflow from equity financing                   24,217 
 Amount retained as working capital                     (6,177) 
                                                       -------- 
 
 Total initial consideration paid to vendors             18,040 
 Cash acquired on acquisition                           (4,193) 
 
 Net cash outflow in the year ended 31 December 2020     13,847 
                                                       -------- 
 
   18             Contingent consideration 

The Group and Company has entered into certain acquisition agreements that provide for contingent consideration to be paid. These agreements and the basis of calculation of the net present value of the contingent consideration are summarised below. While it is not possible to determine the exact amount of contingent consideration (as this will depend on the performance of the acquired businesses during the period), the Group estimates the fair value of the remaining contingent consideration payable is GBP8.2m (2019: GBP0.1m).

On 3 August 2020 the Group acquired Dunstan Thomas for total maximum consideration of up to GBP27.5m, comprising initial consideration of GBP21.9m in cash plus contingent consideration of up to GBP5.6m payable in cash after three years post completion date if certain financial targets based on growth in earnings before interest, tax, depreciation and amortisation are met. The Group estimates the fair value of the remaining contingent consideration at 31 December 2020 to be GBP4.1m using forecasts approved by the Board covering the contingent consideration period.

On 30 October 2020 the Group acquired Talbot and Muir for total maximum consideration of up to GBP25.25m, comprising initial consideration of GBP18.0m in cash plus contingent consideration of up to GBP7.25m payable in cash over a two year period post completion if certain financial targets based on growth in earnings before interest, tax, depreciation and amortisation are met. The Group estimates the fair value of the remaining contingent consideration at 31 December 2020 to be GBP4.1m using forecasts approved by the Board covering the contingent consideration period.

   19           Contingent liabilities 

Data cleansing

During the year ended 31 December 2018 management initiated a review of data records related to properties held within SIPPs administered by the Group.

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

The Directors' best estimate of this contingent liability is GBP1.4m (31 December 2019: GBP2.3m). The decrease in estimate has arisen following satisfactory resolution of a number of cases and an overall reduction in the value of remaining cases and uncertainty remaining.

There remain inherent uncertainties in the estimate due to the potential for variations in the assumed action required to rectify individual positions. This estimate continues to be reviewed regularly, and any changes or refinements will be reported as appropriate. The Directors currently expect that, with COVID-19 related working limitations and also additional forbearance having been permitted in connection with the COVID-19 pandemic, any potential material follow up actions will be completed by 2021.

20 Unaudited IFRS Consolidated Statement of Financial Position as at 31 December 2020 split between insurance policy holders and the Group's shareholders

 
                                         2020           2020          2020          2019 
                                      GBP'000        GBP'000       GBP'000       GBP'000 
 ASSETS                           Group Total   Policyholder   Shareholder   Shareholder 
 Non-current assets 
 Intangible assets                     91,166              -        91,166        43,427 
 Investment property                1,208,605      1,208,605             -            42 
 Property, plant and 
  equipment                             7,658              -         7,658         6,195 
 Investments                        2,072,317      2,072,317             -             - 
 Deferred tax asset                         -              -             -           911 
                                 ------------  -------------  ------------  ------------ 
                                    3,379,746      3,280,922        98,824        50,575 
                                 ------------  -------------  ------------  ------------ 
 Current assets 
 Trade and other receivables           26,913         12,243        14,670         9,509 
 Cash and cash equivalents            430,578        398,069        32,509        31,228 
 Current tax asset                        580            222           358             - 
                                 ------------  -------------  ------------  ------------ 
                                      458,071        410,534        47,537        40,737 
                                 ------------  -------------  ------------  ------------ 
 
 Total assets                       3,837,817      3,691,456       146,361        91,312 
                                 ------------  -------------  ------------  ------------ 
 
 LIABILITIES 
 Current liabilities 
 Trade and other payables              18,895         10,626         8,269         5,966 
 Deferred income                       26,995         12,376        14,619        12,415 
 Borrowings                            53,533         49,681         3,852         3,156 
 Lease liabilities                        672              -           672           719 
 Provisions                               501              -           501           553 
 Contingent consideration               2,516              -         2,516           214 
 Current tax liability                      -              -             -           738 
                                 ------------  -------------  ------------  ------------ 
                                      103,112         72,683        30,429        23,761 
                                 ------------  -------------  ------------  ------------ 
 Non-current liabilities 
 Borrowings                            53,370         33,466        19,904         8,183 
 Lease liabilities                      5,201              -         5,201         3,915 
 Provisions                                 7              -             7             - 
 Contingent consideration               5,657              -         5,657             - 
 Non-participating investment 
  contract liabilities              3,585,307      3,585,307             -             - 
 Deferred tax liability                 5,013              -         5,013             - 
                                 ------------  -------------  ------------  ------------ 
                                    3,654,555      3,618,773        35,782        12,098 
                                 ------------  -------------  ------------  ------------ 
 
 Total liabilities                  3,757,667      3,691,456        66,211        35,859 
                                 ------------  -------------  ------------  ------------ 
 
 Net assets                            80,150              -        80,150        55,453 
                                 ------------  -------------  ------------  ------------ 
 
 Equity attributable to owners 
  of the parent 
 Issued capital                           330              -           330           271 
 Share premium                         57,799              -        57,799        33,659 
 Equity share based payments            2,747              -         2,747         2,313 
 Treasury shares                        (741)              -         (741)         (534) 
 Retained earnings                     20,001              -        20,001        19,730 
                                 ------------  -------------  ------------  ------------ 
                                       80,136              -        80,136        55,439 
 Non-controlling interest                  14              -            14            14 
 Total equity                          80,150              -        80,150        55,453 
                                 ------------  -------------  ------------  ------------ 
 

21 Unaudited IFRS Consolidated Statement of Cash Flows as at 31 December 2020 split between insurance policy holders and the Group's shareholders

 
                                              2020            2020           2020           2019 
                                           GBP'000         GBP'000        GBP'000        GBP'000 
                                       Group Total    Policyholder    Shareholder    Shareholder 
 Cash flows from operating 
  activities 
 Profit before tax                           7,429               -          7,429         10,883 
 Adjustments for: 
 Depreciation                                1,499               -          1,499          1,321 
 Amortisation and impairments                2,442               -          2,442          1,379 
 Interest expense                              697               -            697            523 
 Share based payment expense                   434               -            434            956 
 Fair value gains on financial 
  investments                            (119,957)       (119,957)              -              - 
 Additions of financial 
  investments                            (631,200)       (631,200)              -              - 
 Disposals of financial 
  investments                              673,037         673,037              -              - 
 Fair value losses on investment 
  properties                                60,751          60,751              -              - 
 Increase in liability for 
  investment contracts                      13,403          13,403              -              - 
 Changes in working capital: 
 (Increase)/decrease in 
  trade and other receivables              (2,737)         (1,214)        (1,523)            113 
 (Decrease)/increase in 
  trade and other payables                 (1,105)           (816)          (289)          1,092 
 Taxes paid                                (2,996)               -        (2,996)        (2,454) 
 
 Net cash flows from operating 
  activities                                 1,697         (5,996)          7,693         13,813 
                                     -------------  --------------  -------------  ------------- 
 
 Cash flows from investing 
  activities 
 Payments for intangible 
  assets                                     (986)               -          (986)          (696) 
 Purchase of property, plant 
  & equipment                                (591)               -          (591)        (1,015) 
 Purchase of investment 
  property                               (122,449)       (122,449)              -              - 
 Purchase and sale of shares 
  in the Group by the EBT                    (207)               -          (207)            182 
 Receipts from sale of investment 
  property                                 118,877         118,835             42              - 
 Net cash flows from acquisitions         (34,638)               -       (34,638)          (166) 
 
 Net cash flows from investing 
  activities                              (39,994)         (3,614)       (36,380)        (1,695) 
                                     -------------  --------------  -------------  ------------- 
 
 Cash flows from financing 
  activities 
 Equity dividends paid                     (5,149)               -        (5,149)        (4,562) 
 Net proceeds from issue 
  of ordinary shares                        24,199               -         24,199            210 
 Net increase/(decrease) 
  in borrowings                             29,595          17,360         12,235        (3,158) 
 Principal element of lease 
  payments                                   (934)               -          (934)          (933) 
 Interest paid                               (383)               -          (383)          (465) 
 
 Net cash flows from financing 
  activities                                47,328          17,360         29,968        (8,908) 
                                     -------------  --------------  -------------  ------------- 
 
 Net increase in cash and 
  cash equivalents                           9,031           7,750          1,281          3,210 
                                     -------------  --------------  -------------  ------------- 
 
 Cash and cash equivalents 
  at the beginning of the 
  year                                     421,547         390,319         31,228         28,018 
                                     =============  ==============  =============  ============= 
 Cash and cash equivalents 
  at the end of the year                   430,578         398,069         32,509         31,228 
                                     =============  ==============  =============  ============= 
 

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END

FR SSAEEMEFSEFL

(END) Dow Jones Newswires

April 07, 2021 02:00 ET (06:00 GMT)

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