TIDMIHP
RNS Number : 9332I
IntegraFin Holdings plc
17 December 2020
IntegraFin Holdings plc - Full Year Results for the Year Ended
30 September 2020
IntegraFin Holdings plc is pleased to report its results for the
year to 30 September 2020.
Highlights
-- Profit after tax of GBP45.5m (+11%)
-- Funds under direction GBP41.09bn (+9%)
-- Gross inflows of GBP5.75bn in the year (+1%)
Alex Scott, Chief Executive Officer, commented:
"Given the events that unfolded over the second half of our
financial year, we are very pleased to deliver a robust set of
results.
Gross inflows of GBP5.75 billion remained at broadly the same
level as last year, while net inflows of GBP3.59 billion were 3%
higher. The increase in net inflows was driven by a reduction in
outflows in the second half of the year. I am pleased to report
that profit after tax increased by 11% to GBP45.5 million.
The Directors have declared an interim dividend of 5.6 pence per
ordinary share, taking the total dividend for the year to 8.3p per
share (2019: 7.8 pence per ordinary share).The dividend is payable
on 22 January 2021 to ordinary shareholders on the register on 29
December 2020. The ex-dividend date will be 24 December 2020.
I am also pleased to advise that Transact will be reducing
charges again. These reductions will benefit the majority of
Transact customers."
Financial Highlights
Year ended Year ended
30 September 30 September
2020 2019
GBPm GBPm
Funds under direction 41,093 37,799
Revenue 107.3 99.2
Profit before tax attributable
to shareholder returns 55.3 49.9
Operating profit attributable to
shareholder returns 55.3 49.6
Operating margin 51.5% 50.0%
Basic and diluted earnings per
share 13.7p 12.4p
Contacts
Media - Lansons
Tony Langham +44 (0)7979 692287
Maddy Morgan-Williams +44 (0)7947 364578
Investors
Jane Isaac +44 (0)20 7608 4937
Analyst Presentation
IntegraFin Holdings plc will be hosting an analyst presentation
on Thursday 17 December 2020 following the release of these results
for the year ended 30 September 2020. Attendance is by invitation
only. Slides accompanying the analyst presentation will be
available on the IntegraFin Holdings plc website.
Annual General Meeting
The Annual General Meeting 2020 is scheduled to be held at 4pm
on 4 March 2021 at 29 Clement's Lane, London EC4N 7AE and by
telephone.
Cautionary Statement
These results have been prepared in accordance with the
requirements of English Company Law and the liabilities of the
Directors in connection with these results shall be subject to the
limitations and restrictions provided by such law.
These results are prepared for and addressed only to the
company's shareholders as a whole and to no other person. The
company, its Directors, employees, agents or advisers do not accept
or assume responsibility to any other person to whom these results
are shown or into whose hands it may come and any such
responsibility or liability is expressly disclaimed.
These results contain forward looking statements, which are
unavoidably subject to risk and uncertainty because they relate to
events and depend upon circumstances that will occur in the future.
It is believed that the expectations set out in these forward
looking statements are reasonable but they may be affected by a
wide range of variables which could cause future outcomes to differ
from those foreseen. All statements in these results are based upon
information known to the company at the date of this report. Except
as required by law, the company undertakes no obligation to
publicly update or revise any forward looking statement, whether as
a result of new information, future events or otherwise.
CEO Review
I am pleased to introduce my first review as Chief
Executive.
Mike Howard and Ian built the business on a foundation of
recruiting high calibre staff to deliver the highest quality
customer service as efficiently as possible. I picked up the mantle
from Ian in early March as we entered a period of significant
change to the operating environment and my primary concerns have
been to ensure the ongoing wellbeing of our staff, and the
continuing delivery of that service to our clients. This will be an
ongoing theme as we negotiate our way through the coming months.
With the secure foundation we have built over many years, I believe
we can continue to develop our offering to the benefit of all our
stakeholders.
Headlines
Given the events that unfolded over the second half of our
financial year, we are very pleased to deliver a robust set of
results.
Gross inflows of GBP5.75 billion remained at broadly the same
level as last year, while net inflows of GBP3.59 billion were 3%
higher. The increase in net inflows was driven by a reduction in
outflows, as clients' spending patterns reduced in the second half
of the year.
FUD at the year-end totalled GBP41.09 billion, an increase of 9%
over the year. Other key metrics also continued to demonstrate
positive performance, with client numbers passing 190k (+7%) and
adviser numbers passing 6k (+6%). This drove an increase in revenue
to GBP107.3 million (+8%) and, coupled with sensible expense
management, has enabled us to report that profit before tax
increased by 11% to GBP55.3 million.
Market background
Strong equity market performance where the FTSE All-share index
rose 5% from October through to early March was matched by growth
in inflows in the platform market, reversing the softening that had
occurred throughout much of our previous financial year. This
continued through to the tax year end, but changed rapidly as the
impact of government measures to address COVID-19 took effect.
The second half, in a completely different, unparalleled
operating environment, was difficult for clients and their
advisers. Inflows fell across the retail advised platform sector as
advisers focused on delivery of service to their current clients.
Despite the difficulties, the market continued to function, with
services previously provided face-to-face being provided virtually,
and paper-based processes being replaced by digital processes.
Over the full year, the retail advised platform market FUD grew
by 6% from GBP433.61 billion (restated September 2019. Revised from
GBP427.7 billion, as stated in FY19's accounts, due to the
inclusion of two more competitors) to GBP460.52 billion (September
2020).
Our activity
Against this backdrop, we have seen a small increase in our
market share of FUD, and we consistently rank in the top three
firms for gross inflows. According to Fundscape statistics we have
achieved the highest 2020 net flows to date among retail advised
platforms.
We achieved this by enhancing our service offering with
incremental additions to functionality and responsible price
reductions creating more value for money for our clients.
For the eleventh year running, Transact retained the top spot in
the annual independent research studies by Investment Trends and
CoreData. This was especially rewarding as we have had to adapt to
delivering our service whilst working from home. As owners of
proprietary platform software, we were in full control of the
realignment of our technology development - so, from early March,
we concentrated on digital processing enhancements, better enabling
clients and advisers to manage financial plans with reduced need
for physical documents and wet signatures.
The outlook
T he outlook is clearly heavily dependent upon the economic
effects of the measures being taken to combat COVID-19 and their
impact upon equity markets, FUD and flows. The operating
environment has become more difficult and unpredictable and this
seems likely to remain the case in the coming months. Additionally,
there is still little certainty on the shape of the UK's trading
relationship with the European Union, despite the proximity of the
end of the transition period.
However, none of this changes the fundamental need of
individuals and their families to plan and take care of their
financial future, so we will continue to refine our systems and
processes and further develop and expand the financial
infrastructure and associated services that we have successfully
delivered for twenty years through both internal investment and
consideration of acquisition opportunities. We will keep investing
in our staff and supporting them, being especially mindful of their
mental welfare in these difficult times. We will continue to manage
our cost base prudently, to deliver fair returns for all of our
stakeholders, and we will leverage the agility that has helped
shape our approach to the events of the last few months, as we
advance into the new year.
Alexander Scott
Chief Executive Officer
16 December 2020
FINANCIAL REVIEW
A robust set of results
The FTSE All Share Index was buoyant at the end of our first
quarter, in part due to the decisive UK election result in December
2019. It peaked in mid-January, at 4,258 points, before crashing
36% by late March, as the COVID-19 pandemic took hold, many
countries went into lockdown and the economic impact was priced
into the markets. Recovery from the March low point was erratic,
but FUD ended the year 9% up, aided by solid net flows. This has
resulted in increased revenue and increased profits.
FUD increased to GBP41.09 billion (2019: GBP37.80 billion) with
g ross inflows of GBP5.75 billion (2019: GBP5.70 billion). Outflows
decreased slightly to GBP2.16 billion (2019: GBP2.20 billion)
resulting in increased net inflows of GBP3.59 billion (2019 GBP3.50
billion).
Income continued to grow. We generated revenue of GBP107.3
million (2019: GBP99.2 million) up 8%, leading to a 11% increase in
operating profit attributable to shareholders of GBP55.3 million
(2019: GBP49.6 million).
This performance was achieved through continuing focus on doing
what we do well, and continuing to make it better and more
efficient for the future. We continued to develop the delivery of
our high quality service by investing in our people and our
proprietary technology. These developments allowed us to benefit
from ongoing process efficiencies which are reflected in our
increased operating margin.
FUD , inflows and outflows
For the financial year ended
30 September
2020 2019
GBPm GBPm
Opening FUD 37,799 33,113
Inflows 5,750 5,700
Outflows (2,160) (2,203)
-------------------- --------------- --------------
Net flows 3,590 3,497
Market movements (224) 1,197
Other movements(1) (72) (8)
-------------------- --------------- --------------
Closing FUD 41,093 37,799
(1) Other movements includes dividends, interest, fees and tax
charges and rebates.
Financial year 2020 saw extreme levels of market volatility.
Despite this, the level of client inflows onto Transact marginally
improved when compared with FY19. Outflow rates for the year, as a
percentage of opening FUD, fell slightly from FY19, resulting in
strong net flows which were up 3% year on year. FUD ended the year
at GBP41.09 billion, up GBP3.29 billion from 2019, an increase of 9
%.
Financial performance
Financial year 2020 was another year of robust financial
performance. By continuing to generate positive net inflows,
through our ability to attract new inflows and retain business
already on the platform, we increased FUD. This drove revenue
growth and, when coupled with careful management of our expense
base, resulted in increased profits .
For the financial year ended
Income 30 September
2020 2019
(Restated)
GBPm GBPm
Revenue 107.3 99.2
Cost of sales (0.8) (0.8)
Gross profit 106.5 98.4
Operating expenses (51.2) (48.8)
Operating profit attributable
to shareholder returns 55.3 49.6
Net interest income 0.0 0.3
-------------------------------------- ------------- ----------------
Profit before tax attributable
to shareholder returns 55.3 49.9
Change in investment contract
liabilities 82.9 (554.8)
Fee and commission expenses (137.6) (125.6)
Investment returns 54.7 680.4
Net policyholder income attributable
to policyholder returns (3.1) 7.1
Policyholder tax 3.1 (7.0)
Tax on ordinary activities (9.8) (8.9)
-------------------------------------- ------------- ----------------
Profit after tax 45.5 41.1
-------------------------------------- ------------- ----------------
Total gross profit in the financial year to 30 September 2020
increased by GBP8.1 million, or 8%, to GBP106.5million from GBP98.4
million. This increase was achieved after reductions in the annual
commission income charge and the threshold at which we rebate buy
commission, and reflects the increases in the value of FUD, number
of clients and number of tax wrappers held on the platform.
Profit after tax for financial year 2019 has been restated to
GBP41.1 million, an increase from GBP40.1 million, and an
adjustment to 2019 opening retained earnings has been made of
GBP5.4m.
The restatement of profit after tax across prior years is due to
the identification of an error in the calculation of the
policyholder tax provision (over) in the subsidiary, ILUK, which is
one of the elements of the Group's insurance and life assurance
segment. The error was due to corporate expenses being deducted in
the policyholder tax calculation resulting in an overprovision of
tax reserves due back to policyholders. As a result there has been
a release of the policyholder tax provision to the retained
earnings as at 1 October 2018 and to the statement of profit or
loss and other comprehensive income in 2019.
In addition to the restatement explained above, certain
comparatives have been reclassified due to an error in presentation
in prior years. This has the effect of reflecting items of income,
expenses, gains and losses relating to the Group's insurance and
life assurance segment on a gross basis, rather than on a net
basis. In addition, cash held by the Group's insurance and life
assurance segment, for the benefit of policyholders has been
separately disclosed in cash and cash equivalents.
These changes have no effect on net assets or overall
profit.
Components of revenue
For the financial year ended
30 September
2020 2019
GBPm GBPm
Annual commission income 94.5 86.7
Wrapper fee income 9.7 9.0
Other income 3.1 3.5
Total fee income 107.3 99.2
-------------------------- ---------------- -------------
Our revenue comprises three elements and two of these elements,
annual commission income (an annual, tiered fee on FUD) and wrapper
fee income ( quarterly wrapper fees for each of the tax wrapper
types clients hold) constitute our recurring revenue. The third
element is other income and includes buy commission charged on
asset purchases.
Annual commission income increased by GBP7.8 million, or 9%, to
GBP94.5 million (2019: GBP86.7 million). This growth was achieved
through growth in average FUD of 12%, despite volatile market
conditions affecting asset values throughout the year.
Wrapper administration fee income increased by GBP0.7 million,
or 8%, to GBP9.7 million (2019: GBP9.0 million). This reflects the
net increase in the number of open tax wrappers on the
platform.
Recurring revenue streams constituted 97% (2019: 97%) of total
fee income.
Other income, mainly buy commission and dealing charges, reduced
by 11%, GBP0.4 million, to GBP3.1 million (2019: GBP3.5 million).
The primary reason for this fall was the reduction in the buy
commission rebate threshold, this was introduced to make our
charging structure more competitive. The required portfolio value
for clients to receive the rebate was reduced from GBP0.5 million
to GBP0.4 million, with effect from March 2020.
Operating expenses
Total operating expenses increased by GBP2.4 million, or 5%, to
GBP51.3 million (2019: GBP48.8 million). The increase was mainly
due to an increase in regulatory fees, professional fees and staff
costs.
For the financial year ended
30 September
2020 2019
(Restated)
GBPm GBPm
Staff costs 36.9 36.3
Occupancy 2.0 3.6
Regulatory and professional fees 7.0 5.5
Other income - tax relief due
to shareholders (1.1) (1.0)
Other costs 3.8 3.7
---------------------------------- ----------- ------------------
Total expenses 48.6 48.1
Depreciation and amortisation 2.6 0.7
---------------------------------- ----------- ------------------
Total operating expenses 51.2 48.8
---------------------------------- ----------- ------------------
Staff costs
Staff costs increased by GBP0.6 million, or 2%, to GBP36.9
million (2019: GBP36.3 million).
Average staff numbers decreased from 509 to 492, a drop of 3%.
The reduction was the result of natural attrition and efficiency
gains delivered through platform development. The small rise in
staff costs in the period was attributable to the net effects of
general inflationary increases.
Staff share scheme costs, both the Share Incentive Plan (SIP)
for all staff and the Performance Share Plan (PSP) for management,
did not increase materially.
We operate a defined contribution pension scheme for our staff.
The company-paid contribution was increased to 9% of annual salary
in FY19, it was not further increased in FY20.
Occupancy
Occupancy costs decreased by GBP1.6 million due to the
implementation of the new lease accounting standard, IFRS 16, which
came into effect on 1 October 2019.
IFRS 16 brings leases on-balance sheet and, in our case, applies
to the IHP Group property leases for offices in London, the Isle of
Man and Australia.
The accounting standard replaces rent expense with straight line
depreciation on a right of use asset and notional interest expense
on a corresponding lease liability.
Regulatory and professional fees
Regulatory and professional fees increased by GBP1.5 million, or
27%, to GBP7.0 million. The most significant increase was in UK
Financial Services Compensation Scheme (FSCS) levies, which
increased by GBP0.9 million, or 82%, year on year. There was a
smaller increase in professional fees of GBP0.6 million,
attributable to ad hoc project work performed throughout the
year.
Other income - tax relief due to shareholders
This relates to the release of tax provisions due back to
policyholders. Details of the 2019 restatement can be seen in the
financial performance section above.
Depreciation and amortisation
Depreciation and amortisation charges increased by GBP1.9m and
GBP1.6m of this was attributable to the depreciation arising on the
right of use asset on the balance sheet, required by IFRS 16.
An element of the remaining GBP300k increase in depreciation was
due to the purchase of new equipment required to enable staff to
work from home, but the majority was due to a full year of
deprecation on equipment bought in the latter half of financial
year 2019.
Total capitalised expenditure for the financial year was GBP0.9
million compared with GBP1.3 million in the prior year.
Net income attributable to policyholder returns, and
policyholder tax
Net income attributable to policyholder returns decreased by
GBP10.1m, from income of GBP8.1m in FY19 to an expense of GBP2.0m
in FY20. Policyholder tax decreased by GBP10.0m, from a tax charge
of GBP7.0m in FY19 to a tax credit of GBP3.1m in FY20. Both of
these reductions were due to a decrease in the gains on investments
held for the benefit of policyholders as a result of the downturn
in financial markets during FY20.
Profit before tax attributable to shareholder returns
In the financial year to 30 September 2020 our operating margin
increased to 52%.
After including interest income on corporate cash, the interest
expense arising from the implementation of IFRS 16 and returns on
corporate gilt holdings, profit before tax in the financial year to
30 September 2020 was GBP55.3 million, an increase of 11% on the
prior year.
Tax
The Group has operations in three tax jurisdictions, UK,
Australia and Isle of Man, meaning profits are subject to tax at
three different rates. However, the vast majority of the Group's
income, 95%, is earned in the UK.
Tax on ordinary activities described below solely comprises the
Group's 'shareholder corporation tax' which is distinguished from
the 'policyholder tax' that the Group collects and remits to HMRC
in respect of ILUK, which is taxed under the "I minus E" tax
regime.
Tax for the year increased by GBP0.8 million, or 9%, to GBP9.8
million (2019: GBP9.0 million) due to increased profits. Our
effective rate of tax over the period remained stable at 18%.
Our tax strategy can be found at: https://
www.integrafin.co.uk/legal-and-regulatory-information/
Earnings per share
2020 2019
(Restated)
GBPm GBPm
Operating profit attributable to
shareholder returns 55.3 49.6
Net interest income 0.0 0.3
-------------------------------------- ------- -----------
Profit before tax attributable
to shareholder returns 55.3 49.9
Net policyholder income attributable
to policyholder returns (3.1) 7.1
Policyholder tax 3.1 (7.0)
Tax on ordinary activities (9.8) (8.9)
Profit after tax for the period 45.5 41.1
Number of shares in issue 331.3m 331.3m
Earnings per share - basic and
diluted 13.7p 12.4p
Earnings per share increased to 13.7 pence, an increase of 10%
on prior year.
The 2019 EPS has been restated in line with t he restatement of
profit after tax noted in the financial performance section
above.
Consolidated statement of financial position
In the consolidated statement of financial position, the
material items that merit comment include the following:
Intangible assets (note 13)
The Group's intangible asset as at 30 September 2020 of GBP13.0
million (2019: GBP13.0 million) comprises goodwill arising from the
purchase of Integrated Application Development Pty Ltd ( IAD) in
July 2016. Goodwill is tested for impairment each financial
year.
Right of use asset and corresponding lease liability (notes 15
and 26)
On 1 October 2019, the Group recognised a right of use asset and
a lease liability on adoption of IFRS 16. The right of use asset
has been depreciated through the year and ends the year at GBP4.0
million. The lease liability has also reduced from the net effect
of rent payments under the terms of the respective lease agreements
and interest charges, and ends the year at GBP6.1 million.
Deferred acquisition costs and deferred income liability (notes
17 and 27)
Deferred acquisition costs and deferred income liability arise
in our life insurance subsidiaries, IntegraLife UK Limited (ILUK)
and IntegraLife International Ltd (ILInt). They are driven by the
level of adviser fees payable by clients from new insurance
wrappers opened in each year. These two line items are required to
be shown under IFRS, however, the timing and magnitude of movement
in the items always nets off exactly, resulting in zero net effect
in each of the companies and in the consolidated statements of
financial position. Both items increased by GBP3.1 million to
GBP53.5 million over the financial year.
Investments and cash held for the benefit of policyholders and
liabilities for linked investment contracts (notes 19, 20 and
21)
ILUK and ILInt write only unit-linked insurance policies. They
match the assets and liabilities of their linked policies such
that, in their own individual statements of financial position,
these items always net off exactly. These line items are required
to be shown under IFRS in the consolidated statement of profit or
loss, the consolidated statement of financial position and the
consolidated statement of cash flows, but have zero net effect.
Investments and cash held for the benefit of policyholders have
increased to GBP16.73 billion (2019: GBP15.45 billion) and GBP1.38
billion (2019: GBP1.21 billion) respectively. Liabilities for
linked investment contracts increased to GBP18.11 billion (2019:
GBP16.66 billion). This reflects the increase in the value of FUD
held in life insurance wrappers.
Deferred tax liabilities (note 28)
Deferred tax liabilities decreased by GBP4.2 million to GBP9.0
million (2019: GBP13.2 million). This decrease was primarily due to
market movements in the assets held in the ILUK's onshore bond tax
wrappers during the year. Sufficient cash is held by ILUK to meet
this liability.
Provisions (note 30)
Provisions have increased in financial year 2020 by GBP6.9
million. This is largely due to tax charges deducted from clients
not becoming payable to HMRC due to the downturn in the financial
markets. If no tax liability arises in the future then these
charges will be refunded to policyholders.
Cash and cash equivalents (note 21)
Shareholder cash increased from GBP132.3m 30 September 2019 to
GBP154.1m at 30 September 2020. The increase of 16% reflects the
cash-generative nature of the business and the strength of the
liquidity within the Group.
Liquidity and capital management
At 30 September 2020 the Group held cash and cash equivalents of
GBP154.1 million (2019: GBP132.3 million). Cash generated through
trading also covered dividend payments totaling GBP26.2 million.
This comprised GBP17.2 million second interim dividend in respect
of the financial year 2019, paid in January 2020 and GBP8.9 million
first interim dividend in respect of the first half of financial
year 2020 (2019: GBP8.6 million), paid in June 2020.
To enable the Group to offer a wide range of tax wrappers there
are three regulated entities within the Group; a UK investment
firm, a UK life insurance company and an Isle of Man life insurance
company. Each regulated entity maintains capital well above the
minimum level of regulatory capital required, ensuring sufficient
capital remains available to fund ongoing trading and future
growth. Cash and investments in short-dated gilts are held to cover
regulatory capital requirements and tax liabilities.
The regulatory capital requirements and resources in ILUK and
ILInt are calculated by reference to economic capital-based
regimes, and therefore do not directly equate to IFAL's
expense-based regulatory capital requirements. These bases are
determined by the appropriate regulations that apply for each of
the companies.
Regulatory Capital
For the financial year ended
30 September 2020
Regulatory Capital Regulatory Capital
requirements resources Regulatory Cover
GBPm GBPm %
IFAL 24.0 34.1 141.8
ILUK 170.4 239.3 140.4
ILInt 18.5 33.4 180.7
All of the company's regulated subsidiaries continue to hold
regulatory capital resources well in excess of their regulatory
capital requirements. We will maintain sufficient regulatory
capital and an appropriate level of working capital. We will use
retained capital to further invest in the delivery of our service
to clients, pay dividends to shareholders and provide fair rewards
to staff.
Capital
For the financial year ended
30 September 2020
GBPm
Total equity 140.9
Loans and receivables, intangible
assets and property, plant and
equipment (22.0)
----------------------------------- -----------------------------
Available capital pre dividend 118.9
Interim dividend declared (18.6)
----------------------------------- -----------------------------
Available capital post dividend 100.3
Additional risk appetite capital (63.5)
----------------------------------- -----------------------------
Surplus 36.9
----------------------------------- -----------------------------
Additional risk appetite capital is capital the IHP Board
considers to be appropriate for it to hold to ensure the smooth
operation of the business such that it is able to meet future risks
to the business plan and future changes to regulatory capital
requirements without recourse to additional capital.
The board considers the impact of regulatory capital
requirements and risk appetite levels on prospective dividends from
all of its regulated subsidiaries. Our Group's Pillar 3 document
contains further details and can be found on our website at:
https://www.integrafin.co.uk/legal-and-regulatory-information/
Pillar 3 Disclosures.
As stated in the Chair's report, t he board has declared a
second interim dividend for the year of 5.6 pence per ordinary
share, taking the total dividend for the year to 8.3 pence per
share (2019: 7.8 pence)
Given the net cash, liquidity and capital coverage positions as
set out above, the Group is well positioned to fund the GBP18.6
million dividend.
2020 2019
Dividend Type Share Class GBPm GBPm
-------------------------- ------------- ---------- ----------
Ordinary All 27.5 25.8
Per share
Ordinary - first interim All 2.7 pence 2.6 pence
Ordinary - second All
interim 5.6 pence 5.2 pence
16 December 2020
Key risks
There are factors within and outside of our control that may
affect the achievement of our strategic objectives. We aim to
mitigate exposures that are outside our risk appetite where
possible. The key risks associated with our strategic objectives
are:
1. Stock market volatility : The COVID-19 pandemic created
immense uncertainty in stock markets throughout the year, with
large fluctuations from day to day, as news emerged. The shape and
implementation of the Brexit deal the UK agrees with the EU may
also continue to have a negative impact on stock markets for some
time. Stock market volatility impacts the value of our FUD.
Risk management and control : The risk of stock market
volatility, and the impact on revenue, is mitigated through a wide
asset offering which ensures we are not wholly correlated with one
market, and which enables clients to switch assets in times of
uncertainty. In particular, clients are able to switch into cash
assets, which remain on our platform. Our wrapper fees are not
impacted by stock market volatility as they are a fixed quarterly
charge. We also closely monitor and control expenses, which assists
in maintaining profit in turbulent times.
2. Service standards failure: Our high levels of client and
adviser retention are dependent upon our consistent and reliable
levels of service. Failure to maintain these service levels would
affect our ability to attract and retain business.
Risk management and control: We manage the risk of service
standards failure by ensuring our service standards do not
deteriorate. This is achieved by providing our client service teams
with extensive initial and ongoing training, supported by
experienced subject matter experts and managers. Service levels are
monitored and quality checked and any deviation from expected
service levels is addressed. We also conduct satisfaction surveys
to ensure our service levels are still perceived as excellent by
our clients and their advisers. Service standards are also
dependent on resilient operations, both current and forward
looking, ensuring that risk management is in place.
3. Increased competition: We operate in a competitive market.
Increased levels of competition for clients and advisers;
improvements in offerings from other investment platforms; and
consolidation in the adviser market may all make it more
challenging to attract and retain business.
Risk management and control: Competitor risk is mitigated by
focusing on providing exceptionally high levels of service and
being responsive to client and financial adviser demands through an
efficient expense base. This allows us to continue to increase the
value for money of our service by r educing client charges, subject
to profit and capital parameters when deemed appropriate.
4. Diversion of resources: Maintaining our quality and relevance
requires ongoing investment. Any reduction in investment due to
diversion of resources to other non-discretionary expenditure (for
example, a change in the taxation regime or other regulatory
developments) may affect our competitive position.
Risk management and control: The risk of reduced investment in
the platform is managed through a disciplined approach to expense
management and forecasting. We horizon scan for upcoming regulatory
and taxation regime changes and maintain contingency to allow for
unexpected expenses e.g. FSCS levies, which ensures we do not need
to compromise on investment in our platform to a degree that
affects our offering.
5. Uncontrolled expenses: Higher expenses than expected and
budgeted for would adversely impact cash profits. The key
constituent of expenses is salary costs, but other expenses are
more likely to change unexpectedly, for example legal, compliance
or regulatory costs and levies.
Risk management and control: The most significant element of our
expense base is staff costs. These are controlled through modelling
staff requirements against forecast business volumes, factoring in
efficiencies that it is expected will emerge through platform
development. Any expenditure request that deviates from plan is
rigorously challenged and must be approved before it is
incurred.
6. Capital strain: Unexpected, additional capital requirements
imposed by regulators may negatively impact our solvency coverage
ratio.
Risk management and control: We continuously monitor the current
and expected future regulatory environment and ensure that all
regulatory obligations are or will be met. This provides a
proactive control to mitigate this risk. Additionally, we carry out
an assessment of our capital requirements, which includes assessing
the regulatory capital required. We retain a capital buffer over
and above the regulatory minimum solvency capital requirements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with the Companies Act
2006 and for being satisfied that the Annual Report and financial
statements, taken as a whole, give a fair, balanced and
understandable view which provides the information necessary for
shareholders to assess the company's position and performance,
business model and strategy.
Company law requires the directors to prepare financial
statements for each financial year.
Under that law the directors are required to prepare the group
financial statements and have elected to prepare the company
financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the group and company and of the
profit or loss for the group and company for that period.
In preparing the financial statements, the directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
IFRSs as adopted by the European Union, , subject to any material
departures disclosed and explained in the financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company and Group
will continue in business; and
-- prepare a director's report, a strategic report and
director's remuneration report which comply with the requirements
of the Companies Act 2006.
The directors are responsible for keeping adequate accounting
records that show and explain the Group's transactions, disclose
with reasonable accuracy at any time the financial position of the
company and enable them to ensure that the financial statements
comply with the Companies Act 2006 and, as regards the group
financial statements, Article 4 of the IAS Regulation.
They are also responsible for safeguarding the assets of the
company and Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The directors are responsible for ensuring the annual report and
the financial statements are made available on a website. Financial
statements are published on the company's website in accordance
with legislation in the United Kingdom governing the preparation
and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the company's website is the responsibility of the directors.
The directors' responsibility also extends to the ongoing integrity
of the financial statements contained therein.
Directors' responsibilities pursuant to DTR4
The directors confirm to the best of their knowledge:
-- The group financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and Article 4 of the IAS
Regulation and give a true and fair view of the assets,
liabilities, financial position and profit and loss of the
group.
The annual report includes a fair review of the development and
performance of the business and the financial position of the group
and the parent company, together with a description of the
principal risks and uncertainties that they face.
The current directors, at the date of approval of this report,
confirm that:
-- they have taken all of the steps that they ought to have
taken as directors to make themselves aware of any information
needed by the company's auditor for the purposes of the audit, and
to establish that the auditor is aware of that information;
-- they are not aware of any relevant audit information of which the auditor is unaware;
-- to the best of their knowledge, the financial statements,
prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the issuer and the
undertakings included in the consolidation taken as a whole;
-- the management report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- The Annual Report and financial statements, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the performance, strategy and
business model of the company and Group.
The directors consider it appropriate to adopt the going concern
basis of accounting in preparing the consolidated financial
statements as they believe the Group will continue to be in
business, and meet any liabilities as they fall due, for a period
of at least twelve months from the date of approval of the
financial statements.
By order of the board,
Helen Wakeford
Company Secretary
16 December 2020
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
Note 2020 2019 (Restated)
GBP'000 GBP'000
Revenue
Fee income 5 107,320 99,165
Cost of sales (865) (806)
Gross profit 106,455 98,359
Administrative expenses 8 (51,016) (48,773)
Credit loss allowance on financial
assets 23 (176) (20)
Net income attributable to policyholder
returns 12 (3,066) 7,115
----------------------------------------- ----- ----------- ----------------
Operating profit 52,197 56,681
----------------------------------------- ----- ----------- ----------------
Operating profit attributable
to policyholder returns 12 (3,066) 7,115
Operating profit attributable
to shareholder returns 55,263 49,566
Change in investment contract
liabilities 20 82,895 (554,767)
Fee and commission expenses 20 (137,536) (125,618)
Investment returns 10 54,677 680,422
Interest expense 26 (233) -
Interest income 9 256 308
----------------------------------------- ----- ----------- ----------------
Profit on ordinary activities
before taxation 52,256 57,026
----------------------------------------- ----- ----------- ----------------
Profit on ordinary activities
before taxation attributable
to policyholder returns 12 (3,066) 7,115
Profit on ordinary activities
before taxation attributable
to shareholder returns 55,322 49,911
Policyholder tax 12 3,066 (6,969)
Tax on profit on ordinary activities 11 (9,838) (8,950)
Profit for the financial year 45,484 41,107
Other comprehensive income
Exchange gains/(losses) arising
on translation of foreign operations 22 (20)
Total other comprehensive income
for the financial year 22 (20)
Total comprehensive income for
the financial year 45,506 41,087
----------------------------------------- ----- ----------- ----------------
Earnings per share
Earnings per share - basic and
diluted 7 13.7p 12.4p
All activities of the Group are classed as continuing.
Notes 1 to 40 form part of these Financial Statements
COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
Note 2020 2019
GBP'000 GBP'000
Revenue - -
Cost of sales - -
----------------- -----------------
Gross profit - -
Administrative expenses 8 (1,208) (1,096)
Credit loss allowance on financial
assets 18 (85) (24)
----------------- -----------------
Operating loss (1,293) (1,120)
Dividend income 38 32,326 30,118
Interest income 9 91 66
----------------- -----------------
Profit on ordinary activities
before taxation 31,124 29,064
Tax on profit on ordinary activities 11 - -
----------------- -----------------
Profit for the financial year 31,124 29,064
Other comprehensive income - -
Total comprehensive income for
the financial year 31,124 29,064
-------------------------------------- ----- ----------------- -----------------
All activities of the Company are classed as continuing.
Notes 1 to 40 form part of these Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Note 2020 2019 (restated) 1 October
2018
GBP'000 GBP'000 GBP'000
Non-current assets
Loans 18 2,647 1,185 1,189
Intangible assets 13 12,951 12,951 12,966
Property, plant and equipment 14 2,313 2,405 1,813
Right of use assets 15 3,961 - -
Deferred tax asset 28 489 157 44
Deferred acquisition costs 17 53,482 50,443 46,073
75,843 67,141 62,085
Current assets
Financial assets at fair value
through profit
or loss 22 5,051 5,066 6,219
Other prepayments and accrued
income 23 14,412 13,082 11,471
Trade and other receivables 24 3,556 7,189 4,591
Investments held for the benefit
of policyholders 19 16,727,208 15,454,769 13,376,481
Cash and cash equivalents 21 1,539,843 1,342,619 1,230,301
Current tax asset 53 - -
----------------------------------- ----- ----------- ---------------- -------------
18,290,123 16,822,725 14,629,063
Current liabilities
Trade and other payables 25 18,366 17,024 14,764
Lease liabilities 26 2,375 - -
Liabilities for linked investment
contracts 20 18,112,935 16,665,048 14,489,933
Current tax liabilities - 3,987 3,702
----------------------------------- ----- ----------- ---------------- -------------
18,133,676 16,686,059 14,508,399
Non-current liabilities
Provisions 30 25,208 18,230 13,756
Lease liabilities 26 3,712 -
Deferred income liability 27 53,482 50,443 46,073
Deferred tax liabilities 28 8,968 13,248 12,570
----------------------------------- ----- ----------- ---------------- -------------
91,370 81,921 72,399
Net assets 140,920 121,886 110,350
----------------------------------- ----- ----------- ---------------- -------------
Capital and reserves
Called up equity share capital 3,313 3,313 3,313
Capital redemption reserve 31 2 2 2
Share-based payment reserve 32 1,698 1,008 530
Employee Benefit Trust reserve 33 (1,103) (275) -
Foreign exchange reserve 34 (22) (44) (24)
Non-distributable reserves 34 5,722 5,722 5,722
Non-distributable insurance
reserves 34 501 501 501
Profit or loss account 130,809 111,659 100,306
----------------------------------- ----- ----------- ---------------- -------------
Total equity 140,920 121,886 110,350
----------------------------------- ----- ----------- ---------------- -------------
These Financial Statements were approved by the Board of
Directors on 16 December 2020 and are signed on their behalf
by:
Alexander Scott
Director
Company Registration Number: 08860879
Notes 1 to 40 form part of these Financial Statements
COMPANY STATEMENT OF FINANCIAL POSITION
Note 2020 2019
GBP'000 GBP'000
Non-current assets
Investment in subsidiaries 16 16,832 15,800
Loans 18 2,647 1,184
19,479 16,984
Current assets
Prepayments 23 56 30
Other receivables 24 342 86
Cash and cash equivalents 26,090 24,342
-------------------------------- ----- -------- --------
26,488 24,458
Current liabilities
Trade and other payables 25 491 518
-------------------------------- ----- -------- --------
491 518
Net assets 45,476 40,924
-------------------------------- ----- -------- --------
Capital and reserves
Called up equity share capital 3,313 3,313
Profit or loss account 41,962 37,006
Share-based payment reserve 32 1,070 880
Employee Benefit Trust reserve 33 (869) (275)
-------------------------------- ----- -------- --------
Total equity 45,476 40,924
-------------------------------- ----- -------- --------
These Financial Statements were approved by the Board of
Directors on 16 December 2020 and are signed on their behalf
by:
Alexander Scott
Director
Company Registration Number: 08860879
Notes 1 to 40 form part of these Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
2020 2019
GBP'000 GBP'000
(Restated)
Cash flows from operating activities
Profit before tax 52,256 57,026
Adjustments for :
Amortisation and depreciation 2,571 669
Share-based payment charge 1,776 1,237
Interest on cash held (256) (308)
Interest charged on lease 234 -
Investment returns (36) (37)
Increase in policyholder tax recoverable (1,515) -
Decrease in current asset investments 15 1,153
-------------------------------------------- ----------------- ------------
55,045 59,740
Decrease/(increase) in trade and
other receivables 2,305 (4,211)
Increase in trade and other payables 3,858 2,260
Increase in provisions 6,978 5,041
Decrease in share based payment (1,126) -
reserve
Increase in investments held for
the benefit of policyholders (1,272,440) (2,078,288)
Increase in liabilities for linked
investment contracts 1,447,887 2,175,115
Cash generated from operations 242,507 159,657
Income taxes paid (13,803) (15,633)
Interest paid on lease liabilities (234) -
------------------------------------------- ----------------- ------------
Net cash flows from operating activities 228,470 144,024
Investing activities
Acquisition of tangible assets (859) (1,246)
Decrease/(increase) in loans (1,462) 3
Interest on cash held 256 308
Investment returns 36 37
-------------------------------------------- ----------------- ------------
Net cash used in investing activities (2,029) (898)
Financing activities
Purchase of own shares in Employee
Benefit Trust (828) (275)
Settlement of share-based payment
reserve - (706)
Equity dividends paid (26,158) (29,807)
Repayment of lease liabilities (2,244) -
-----------------
Net cash used in financing activities (29,230) (30,788)
Net increase in cash and cash equivalents 197,211 112,338
Cash and cash equivalents at beginning
of year 1,342,619 1,230,301
Exchange gain/(losses) on cash
and cash equivalents 13 (20)
Cash and cash equivalents at end
of year 1,539,843 1,342,619
-------------------------------------------- ----------------- ------------
Notes 1 to 40 form part of these Financial Statements
COMPANY STATEMENT OF CASH FLOWS
2020 2019
GBP'000 GBP'000
Cash flows from operating activities
Loss before interest and dividends (1,293) (1,120)
Adjustments for:
Increase in trade and other
receivables (306) (30)
Decrease in trade and other
payables (4) (205)
Net cash flows from operating
activities (1,603) (1,355)
Investing activities
Dividends received 32,326 30,118
Interest received 91 66
Decrease/(increase) in loans (1,462) 3
--------------------------------------- --------- ---------
Net cash generated from investing
activities 30,955 30,187
Financing activities
Purchase of own shares in Employee
Benefit Trust (594) (275)
Settlement of share-based payment
reserve (843) (706)
Equity dividends paid (26,167) (29,818)
---------
Net cash used in financing
activities (27,604) (30,799)
Net increase/(decrease) in
cash and cash equivalents 1,748 (1,967)
Cash and cash equivalents at
beginning of year 24,342 26,309
Cash and cash equivalents at
end of year 26,090 24,342
--------------------------------------- --------- ---------
Notes 1 to 40 form part of these Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share-based Non-distributable Employee
Share Non-distributable Other payment insurance Benefit Retained Total
capital reserves reserves reserve reserves Trust earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance
at 1 October
2018 3,313 5,722 (22) 530 501 - 94,899 104,943
Correction
of retained
earnings - - - - - - 5,408 5,408
Restated
balance
at 1 October
2018 3,313 5,722 (22) 530 501 - 100,307 110,351
Comprehensive
income for
the year:
Profit for
the year - - - - - - 41,107 41,107
Movement
in currency
translation - - (20) - - - - (20)
Total
comprehensive
income for
the year - - (20) - - - 41,107 41,087
Distributions
to owners:
Dividends - - - - - - (29,807) (29,807)
Share based
payment
reserve - - - 1,237 - - - 1,237
Settlement
of share
based payment
expense - - - (707) - - - (707)
Purchase
of own shares
in EBT - - - - - (275) - (275)
Other movement - - - (52) - - 52 -
--------------- -------- ------------------ ---------- ------------ ------------------ --------- --------- ---------
Total
distributions
to owners - - - 478 - (275) (29,755) (29,552)
--------------- -------- ------------------ ---------- ------------ ------------------ --------- --------- ---------
Balance
at 1 October
2019 3,313 5,722 (42) 1,008 501 (275) 111,659 121,886
Impact of
IFRS 16 - - - - - - (240) (240)
Deferred
tax on IFRS
16 - - - - - - 31 31
Adjusted
balance
at 1 October
2019 3,313 5,722 (42) 1,008 501 (275) 111,450 121,677
Comprehensive
income for
the year:
Profit for
the year - - - - - - 45,484 45,484
Movement
in currency
translation - - 22 - - - - 22
Total
comprehensive
income for
the year - - 22 - - - 45,484 45,506
Distributions
to owners:
Share-based
payment
expense - - - 1,776 - - - 1,776
Settlement
of share
based payment - - - (1,126) - - - (1,126)
Purchase
of own shares
in EBT - - - - - (828) - (828)
Excess tax
relief
charged
to equity - - - 73 - - - 73
Other movement - - - (33) - - 33 -
Dividends
paid - - - - - - (26,158) (26,158)
--------------- -------- ------------------ ---------- ------------ ------------------ --------- --------- ---------
Total
distributions
to owners - - - 690 - (828) (26,125) (26,263)
--------------- -------- ------------------ ---------- ------------ ------------------ --------- --------- ---------
Balance
at 30
September
2020 3,313 5,722 (20) 1,698 501 (1,103) 130,809 140,920
--------------- -------- ------------------ ---------- ------------ ------------------ --------- --------- ---------
COMPANY STATEMENT OF CHANGES IN EQUITY
Share-based Employee
Share payment Benefit Retained Total
capital reserve Trust earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 October 2018 3,313 350 - 37,760 41,423
Comprehensive income for
the year:
Profit for the year - - - 29,064 29,064
Total comprehensive income
for the year - - - 29,064 29,064
Distributions to owners:
Dividends - - - (29,818) (29,818)
Share-based payment expense - 1,237 - - 1,237
Settlement of share-based
payments - (707) - - (707)
Purchase of own shares in
EBT - - (275) - (275)
------------------------------- --------- ------------ --------- ---------- ---------
Total distributions to owners - 530 (275) (29,818) (29,563)
------------------------------- --------- ------------ --------- ---------- ---------
Balance at 1 October 2019 3,313 880 (275) 37,006 40,924
------------------------------- --------- ------------ --------- ---------- ---------
Comprehensive income for
the year:
Profit for the year - - - 31,124 31,124
Total comprehensive income
for the year - - - 31,124 31,124
Distributions to owners:
Dividends - - - (26,167) (26,167)
Share-based payment expense - 1,032 - - 189
Settlement of share-based
payments - (843) - - -
Purchase of own shares in
EBT - - (594) - (594)
------------------------------- --------- ------------ --------- ---------- ---------
Total distributions to owners - 189 (594) (26,167) (26,572)
------------------------------- --------- ------------ --------- ---------- ---------
Balance at 30 September 2020 3,313 1,069 (869) 41,963 45,476
------------------------------- --------- ------------ --------- ---------- ---------
Notes 1 to 40 form part of these Financial Statements
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation and significant accounting policies
General information
IntegraFin Holdings plc (the "Company") a public limited company
incorporated and domiciled in the United Kingdom ("UK"), along with
its subsidiaries (collectively the "Group") offers a market leading
investment platform which enables advisers to implement financial
plans as simply and efficiently as possible.
The registered office address, and principle place of business,
is 29 Clement's Lane, London, EC4N 7AE.
a) Basis of preparation
The Financial Statements have been prepared and approved by the
Directors in accordance with International Financial Reporting
Standards ("IFRS") as endorsed by the European Union ("EU") and
those parts of the Companies Act 2006 applicable to companies
reporting under IFRS.
The Financial Statements have been prepared on the historical
cost basis, except for the revaluation of certain financial
instruments, which are stated at their fair value, have been
prepared in pound sterling, which is the functional currency of the
Company and are rounded to the nearest thousand.
Going concern
The financial statements have been prepared on a going concern
basis, following an assessment by the board.
Going concern is assessed over the 12 month period from when the
Annual Report is approved, and the board has concluded that the
Group has adequate resources to continue in operational existence
for the next 12 months. This is supported by:
-- The current financial position of the Group;
o The Group maintains a conservative balance sheet and manages
and monitors solvency and liquidity on an ongoing basis, ensuring
that it always has sufficient financial resources for the
foreseeable future.
o As at 30 September 2020, the Group had GBP154 million of
shareholder cash on the balance sheet, demonstrating that liquidity
remains strong.
-- Detailed cash flow and working capital projections; and
-- Stress-testing of liquidity, profitability and regulatory
capital, taking account of possible adverse changes in trading
performance, including the impact of COVID-19.
When making this assessment, the board has taken into
consideration both the Group's current performance and the future
outlook, including the impact of the COVID-19 pandemic. Market
volatility and uncertainty is expected to continue for some time,
due to the pandemic and the effect of measures taken to combat it,
but the Group's fundamentals remain strong.
Stress and scenario testing has been carried out, in order to
understand the potential financial impacts of severe, yet
plausible, scenarios on the Group. The following scenarios have
been considered that give specific consideration to COVID-19:
-- A prolonged economic downturn as COVID-19 cases increase,
leading to a reduced investor propensity for savings
-- Loss of investor confidence in capital and investment markets
due to an extended period of pandemic, combined with the end of the
transitional period with the EU
-- Loss of investor confidence (as above), combined with an internal cyber attack
Having conducted detailed cash flow and working capital
projections, and stress-tested liquidity, profitability and
regulatory capital, taking account of the impact of the COVID-19
pandemic and further possible adverse changes in trading
performance, the board is satisfied that the Group is well placed
to manage its business risks.
The board is also satisfied that it will be able to operate
within the regulatory capital limits imposed by the Financial
Conduct Authority (FCA), Prudential Regulation Authority (PRA), and
Isle Man Financial Services Authority (IoM FSA). Accordingly, the
board does not believe a material uncertainty exists that would
have an effect on the going concern of the Group and have prepared
the financial statements on a going concern basis.
Basis of consolidation
The consolidated Financial Statements incorporate the Financial
Statements of the Company and its subsidiaries. Where the Company
has control over an investee, it is classified as a subsidiary. The
Company controls an investee if all three of the following elements
are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power
to affect those variable returns. Control is reassessed whenever
facts and circumstances indicate that there may be a change in any
of these elements of control.
Subsidiaries are fully consolidated from the date on which
control is obtained by the Company and are deconsolidated from the
date that control ceases. Acquisitions are accounted for under the
acquisition method. Intercompany transactions, balances, income and
expenses, and profits and losses are eliminated.
The Financial Statements of all of the wholly owned subsidiary
companies are incorporated into the consolidated Financial
Statements. Two of these subsidiaries, IntegraLife International
Limited (ILInt) and IntegraLife UK Limited (ILUK) issue contracts
with the legal form of insurance contracts, but which do not
transfer significant insurance risk from the policyholder to the
Company, and which are therefore accounted for as investment
contracts.
In accordance with IFRS 9, the contracts concerned are therefore
reflected in the consolidated statement of financial position as
investments held for the benefit of policyholders, and a
corresponding liability to policyholders.
b) New accounting standards
IFRS 16 Leases
The Group adopted IFRS 16 on 1 October 2019. The Group used the
modified retrospective approach of transition, which uses the net
effect of applying IFRS 16 on the first day fof the first
accounting period in which the new standard is applied.
The recognised right of use assets all relate to rental leases
for the offices of the Group previously classified as "operating
leases". Such leases have varying terms, clauses and renewal
rights.
The Group recognises a right of use asset and corresponding
lease liability on the date a leased asset is made available for
use by the Group, except for short term leases (defined as leases
with a lease term of 12 months or less) and leases of low value
assets. For these leases, the Group recognises the lease payments
as an operating expenses on a straight line basis over the term of
lease.
On commencement date, the Group measured the lease liability as
the present value of all future lease payments, discounted using
the incremental borrowing rate of 3.2% at the date of transition.
The Group's incremental borrowing rate is the rate at which a
similar borrowing could be obtained from an independent creditor
under comparable terms and conditions.
The standard allows companies to apply practical expedients when
using the modified retrospective approach of transition. The Group
has chosen to use a single discount rate to its portfolio of leases
as they all have reasonably similar characteristics.
The right of use asset was measured at its net book value,
assuming it had been capitalised and depreciated from inception.
The net effect is recognised through an adjustment to retained
earnings. Prior periods have not been restated.
The table below shows the impact on retained earnings of
recognising the asset and the corresponding liabilities for each of
the leases, and the release of the rent free reserve.
Right of use assets - 1 October GBP5.6m
2019
Lease liabilities - 1 October (GBP8.3m)
2019
----------
Release of rent free reserve GBP2.5m
liability
----------
Reduction to retained earnings (GBP0.2m)
- 1 October
----------
Details of the right of use asset and the lease liability are
set out in Notes 15 and 26 respectively.
The following is a reconciliation of total operating lease
commitments at 30 September 2019 (as disclosed in the Annual Report
to 30 September 2019) to the lease liabilities recognised at
1 October 2019:
GBP'000
Lease commitments - 1 October 2019 8,841
Discounted using incremental borrowing rate (505)
------------------------------------------------------ --------
Lease liabilities on adoption of IFRS 16 - 1 October
2019 8,336
------------------------------------------------------ --------
No other standards or amendments adopted in the period had a
material effect on the financial statements.
c) Future standards, amendments to standards, and
interpretations not early-adopted in the 2020 annual Financial
Statements.
IFRS 17 Insurance Contracts
IFRS 17 was issued in May 2017 and will replace IFRS 4 Insurance
Contracts. An exposure draft was issued in June 2019. IFRS 17
establishes the principles for the recognition, measurement,
presentation and disclosure of insurance contracts within the scope
of the Standard. The Group would be required to provide information
that faithfully represents those contracts, such that users of the
financial statements can assess the effect insurance contracts have
on the entity's financial position, financial performance and cash
flows. The standard is effective for accounting periods beginning
on or after 1 January 2023, subject to EU endorsement.
The Group has performed a preliminary assessment regarding the
impact of IFRS 17 on the Financial Statements and, due to the vast
majority of contracts written by the business being investment
contracts, it is expected such impact will be negligible.
No other f uture standards, amendments to standards, or
interpretations are expected to have a material effect on the
financial statements.
d) Principal accounting policies
Revenue from contracts with customers
Revenue represents the fair value of services supplied by the
Company. All fee income is recognised as revenue in line with the
provision of the services.
Fee income comprises:
Annual commission income
Annual commission is charged for the administration of products
on the Transact platform, and is levied monthly in arrears on the
average value of assets and cash held on the platform in the
month.
Wrapper fee income
Wrapper fees are charged for each of the tax wrappers held by
clients, and are levied quarterly in arrears based on fixed fees
for each wrapper type.
Annual commission and wrapper fees relate to services provided
on an on-going basis, and revenue is therefore recognised on an
on-going basis to reflect the nature of the performance obligations
being discharged.
Accrued income on both annual commission and wrapper fees is
recognised as a trade receivable on the statement of financial
position, as the Group's right to consideration is conditional on
nothing other than the passage of time.
Other income
This comprises buy commission and dealing charges. These are
charges levied on the acquisition of assets, due upon completion of
the transaction. Revenue is recorded on the date of completion of
the transaction, as this is the date the services are provided to
the customer.
Deferred acquisition costs and deferred income liabilities
Incremental costs directly attributable to securing investment
contracts are deferred. These costs consist of fees paid to
policyholders' financial advisers. The costs relating to Pension,
Onshore Life and Offshore Life contracts are capitalised as
deferred acquisition costs and are amortised over the Directors'
best estimates of the lives of the contracts which are deemed to be
fourteen, sixteen and eighteen years respectively (2019: fourteen,
sixteen and eighteen years), over which the services are provided.
Equal service provision is assumed over the lifetime of the
contract and, as such, the deferred costs are amortised on a linear
basis over the expected life of the contract, adjusted for expected
persistency.
A corresponding deferred income liability is recognised in
respect of charges taken from customers of the Company at the
contract's inception to meet obligations to financial advisers.
Deferred income liabilities are also amortised over the Directors'
best estimates of the lives of the contract, which are again deemed
to be fourteen, sixteen and eighteen years. At the end of each
reporting period, deferred acquisition costs are reviewed for
recoverability, against future margins from the
related contracts at the statement of financial position date.
An impairment loss is recognised in the statement of profit or loss
and other comprehensive income if the carrying amount of the
deferred acquisition costs is greater than the future margins from
the related contracts.
Deferred acquisition costs and deferred income liability are
required to be shown under IFRS, however, the timing and magnitude
of movement in the items always nets off exactly, resulting in zero
net effect in each of the companies and in the consolidated
statements of financial position.
Investment income
Interest on cash and coupon on shareholder gilts are the two
sources of investment income received. Interest income is accrued
on a time basis, by reference to the principal outstanding and at
the effective interest rate applicable, which is the rate that
exactly discounts estimated future cash receipts through the
expected life of the financial asset to that financial asset's
carrying amount.
Investments
Fixed asset investments in subsidiaries are stated at cost less
any provision for impairment.
Other investments comprise UK Government fixed interest
securities backing insurance contracts or held as shareholder
investments. These investments are mandatorily held at 'fair value
through profit or loss' at initial recognition and are stated at
quoted bid prices which equates to fair value, with any resultant
gain or loss recognised in profit or loss. Purchases and sales of
securities are recognised on the trade date.
Investment contracts - investments held for the benefit of
policyholders
Investment contracts are comprised of unit-linked contracts in
ILInt and ILUK. Investment contracts result in financial
liabilities whose fair value is dependent on the fair value of
underlying financial assets. They are designated at inception as
financial liabilities at 'fair value through profit or loss' in
order to reduce an accounting mismatch with the underlying
financial assets.
Valuation techniques are used to establish the fair value at
inception and each reporting date. The Company's main valuation
techniques incorporate all factors that market participants would
consider and are based on observable market data. The financial
liability is measured both initially and subsequently at fair
value. The fair value of a unit-linked financial liability is
determined using the fair value of the financial assets contained
within the funds linked to the financial liability.
Dividends
Equity dividends are recognised in the accounting period in
which the dividends are declared.
Intangible non-current assets
Intangible non-current assets, excluding goodwill, are stated at
cost less accumulated amortisation and comprise intellectual
property software rights. The software rights were amortised over
seven years on a straight line basis, as it was estimated that the
code would be replaced every seven years, and therefore have a
finite useful life. The software rights are now fully amortised,
but due to ongoing system development and coding updates no
replacement is required. Goodwill is held at cost and, in
accordance with IFRS, is not amortised but is subject to annual
impairment reviews.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and accumulated impairment losses. Cost
includes expenditures that are directly attributable to the
acquisition of the asset. Subsequent costs are included in the
asset's carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits
associated with the item will flow to the Company and the cost can
be measured reliably. Repairs and maintenance costs are charged to
the profit and loss and other comprehensive income statement during
the period in which they are incurred.
The major categories of property, plant, equipment and motor
vehicles are depreciated as follows:
Asset class All UK and Isle of Man Australian entity
entities
Leasehold improvements Straight line over the Straight line over
life of the lease 40 years
Fixtures & Fittings Straight line over 10 Reducing balance over
years 2 to 8 years
Equipment Straight line over 3 to Reducing balance over
10 years 3 to 10 years
Motor vehicles N/A Reducing balance over
2 to 8 years
Residual values, method of depreciation and useful lives of the
assets are reviewed annually and adjusted if appropriate.
Impairment of non-financial assets
Property, plant and equipment, right of use assets and
intangible assets are tested for impairment when events or changes
in circumstances indicate that the carrying amount may not be
recoverable. Recoverable amount is the higher of an asset's fair
value less costs to sell and value in use (being the present value
of the expected future cash flows of the relevant asset).
The Group evaluates impairment losses for potential reversals
when events or circumstances warrant such consideration.
Goodwill is tested for impairment annually, and once an
impairment is recognised this cannot be reversed. For more detailed
information in relation to this, please see note 13.
Pensions
The Group makes defined contributions to the personal pension
schemes of its employees. These are chargeable to profit or loss in
the year in which they become payable.
Foreign currencies
Transactions in foreign currencies are translated into the
functional currency at the exchange rate in effect at the date of
the transaction. Foreign currency monetary assets and liabilities
are translated to sterling at the year end closing rate.
Non-monetary assets denominated in a foreign currency that are
measured in terms of historical cost are translated using the
exchange rate in effect at the date when the fair value was
determined. Foreign exchange rate differences that arise are
reported net in profit or loss as foreign exchange
gains/losses.
The assets and liabilities of foreign operations are translated
to sterling using the year end closing exchange rate. The revenues
and expenses of foreign operations are translated to sterling at
rates approximating the foreign exchange rates ruling at the
relevant month of the transactions. Foreign exchange differences
arising on retranslation are recognised directly in the
reserves.
Taxation
The taxation charge is based on the taxable result for the year.
The taxable result for the year is determined in accordance with
enacted legislation and taxation authority practice for calculating
the amount of corporation tax payable.
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the statement of
financial position differs from its tax base. Recognition of
deferred tax assets is restricted to those instances where it is
probable that taxable profit will be available against which the
difference can be utilised.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantively enacted by the
reporting date and are expected to apply when the deferred tax
assets/liabilities are recovered/settled.
Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker is responsible for allocating
resources and assessing performance of the operating segments and
has been identified as the chief executive officer of the
Company.
For the year ended 30 September 2020, the business of ILUK and
ILInt was the direct insurance of investment linked pensions
business, written by single premium in the United Kingdom, single
premium life assurance linked bonds and linked qualifying
investment plans written in the United Kingdom. Insurance risk is
minimal as all contracts have been classed as investment
contracts.
ILInt and ILUK policyholder assets and liabilities
Investments held for the benefit of policyholders are stated at
fair value and reported on a separate line in the statement of
financial position. They are designated as financial assets at
'fair value through profit or loss' in order to reduce an
accounting mismatch option with the equivalent financial
liabilities. Gains and losses arising from changes in fair value
are presented in the consolidated profit and loss and other
comprehensive income statement within "investment returns" .
Investment inflows received from policyholders are invested in
funds selected by the policyholders. The resulting liabilities for
linked investment contracts are accounted for under the 'fair value
through profit or loss' option, in line with the corresponding
assets as permitted by IFRS 9.
As all investments held for the benefit of policyholders are
matched entirely by corresponding linked liabilities, any gain or
loss on assets recognised through the consolidated profit and loss
and other comprehensive income statement are offset entirely by the
gains and losses on linked liabilities, which are recognised within
the "change in investment contract liabilities" line. The overall
net impact on profit is therefore GBPnil.
Client assets and client monies
IFAL client assets and client monies are not recognised in the
parent and consolidated statements of financial position (see Note
29) as they are owned by the clients of IFAL.
Lease agreements
Prior year rental costs were recognised as operating leases and
charged to the statement of profit or loss and other comprehensive
income on a straight line basis over the term of the lease. Where
an incentive to sign the lease had been taken, the incentive was
spread on a straight line basis over the lease term. However, with
the introduction of IFRS 16 from 1 October 2019, rental costs are
now recognised on the balance sheet under 'Lease liabilities', with
interest charged to the statement of profit or loss. A
corresponding asset is recognised and depreciation is charged to
the statement of profit or loss on a straight line basis over the
lease term. Details of the lease commitments are set out in Note
26.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances from instant
access and notice accounts, call deposits, and other short-term
deposits with an original maturity of three months or less. The
carrying amount of these assets approximates to their fair
value.
Cash and cash equivalents held for the benefit of the
policyholders are held to cover the liabilities for unit linked
investment contracts. These amounts are 100% matched to
corresponding liabilities.
Financial instruments
Financial assets and liabilities are recognised when the Company
becomes a party to the contractual provisions of the instrument.
Financial assets are derecognised when the rights to receive cash
flows from the assets have expired or have been transferred and the
Company has transferred substantially all risks and rewards of
ownership. Financial liabilities are derecognised when the
obligation specified in the contract is discharged, cancelled or
expires.
At initial recognition, the Company classifies its financial
instruments in the following categories, based on the business
model in which the assets are managed and their cash flow
characteristics:
(i) Financial assets and liabilities at fair value through profit or loss
This category includes financial assets and liabilities acquired
principally for the purpose of selling or repurchasing in the
short-term.
Financial instruments in this category are recognised on the
trade settlement date, and subsequently, at fair value. Purchases
and sales of securities are recognised on the trade date.
Transaction costs are expensed in the consolidated profit and loss
and other comprehensive income statement. Gains and losses arising
from changes in fair value are presented in the consolidated profit
and loss and other comprehensive income statement within
"investment returns" for corporate assets and "n et income
attributable to policyholder returns" for policyholder assets in
the period in which they arise. Financial assets and liabilities at
fair value through profit or loss are classified as current except
for the portion expected to be realised or paid beyond twelve
months of the balance sheet date, which are classified as
long-term.
(ii) Financial assets at amortised cost
This category includes non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. This is comprised of accrued fees, trade and other
receivables, loans, and cash and cash equivalents. These are
included in current assets due to their short-term nature, except
for loans which are included in non-current assets.
Assets held at amortised cost are initially recognised at fair
value. Subsequent measurement is at amortised cost using the
effective interest method less any expected credit losses.
(iii) Financial liabilities at amortised cost
Financial liabilities at amortised cost comprise trade and other
payables. These are initially recognised at fair value. Subsequent
measurement is at amortised cost using the effective interest
method. They are classified as current liabilities due to their
short-term nature.
Impairment of financial assets
Expected credit losses are required to be measured through a
loss allowance at an amount equal to:
-- the 12-month expected credit losses (expected credit losses
from possible default events within 12 months after the reporting
date); or
-- full lifetime expected credit losses (expected credit losses
from all possible default events over the life of the financial
instrument).
A loss allowance for full lifetime expected credit losses is
required for a financial instrument if the credit risk of that
financial instrument has increased significantly since initial
recognition, as well as to contract assets or trade receivables
that do not constitute a financing transaction.
For all other financial instruments, expected credit losses are
measured at an amount equal to the 12-month expected credit
losses.
Impairment losses on financial assets carried at amortised cost
are reversed in subsequent periods if the expected credit losses
decrease.
Provisions
Provisions are recognised when the Company has an obligation,
legal or constructive, as a result of a past event, and it is
probable that the Company will be required to settle that
obligation. Provisions are estimated at the Directors' best
estimate of the expenditure required to settle the obligation at
the reporting date, and are discounted to present values where the
effect is material.
Trade and other payables
Other payables are short-term, not interest-bearing and are
stated at their amortised cost which is not materially different to
cost and approximates to fair value.
Share-based payments
Equity-settled share-based payment awards granted to employees
are measured at fair value at the date of grant. The awards are
recognised as an expense, with a corresponding increase in equity,
spread over the vesting period of the awards, which accords with
the period for which related services are provided.
The total amount expensed is determined by reference to the fair
value of the awards as follows:
(i) SIP shares
The fair value is the market price on the grant date. There are
no vesting conditions, as the employees receive the shares
immediately upon grant.
(ii) PSP share options
The fair value of share options is determined by applying a
valuation technique, usually an option pricing model, such as Black
Scholes. This takes into account factors such as the exercise
price, the share price, volatility, interest rates, and
dividends.
At each reporting date, the estimate of the number of share
options expected to vest based on the non-market vesting conditions
is assessed. Any change to original estimates is recognised in the
statement of comprehensive income , with a corresponding adjustment
to equity reserves.
2. Critical accounting estimates and judgements
Critical accounting estimates are those where there is a
significant risk of material adjustment in the next 12 months, and
critical judgements are those that have the most significant effect
on amounts recognised in the accounts.
In preparing these Financial Statements, management has made
judgements, estimates and assumptions about the future that affect
the application of the Group's accounting policies and the reported
amounts of assets, liabilities, income and expenses. Management
uses its knowledge of current facts and applies estimation and
assumption techniques that are aligned with relevant accounting
policies to make predictions about the future. Actual results may
differ from these estimates.
The area where judgements and estimates have the most
significant effect in these financial statements is the tax
provision for its subsidiary, ILUK.
In assessing whether to recognise a provision, the Group has
evaluated the likelihood of a constructive or legal obligation, and
whether that obligation can be estimated reliably.
The provision required has been calculated based on an
estimation of tax payable to HMRC (through detailed calculations on
the forecasted income and expenses for the financial year) and
refunds payable back to policyholders. As explained in note 39, the
balances relating to prior years have been restated due to an error
attributable to changes in the treatment of tax reserves. Further
details regarding the current year provision can be found in note
30.
3. Financial instruments
(i) Principal financial instruments
The principal financial instruments, from which financial
instrument risk arises, are as follows:
-- Trade and other receivables
-- Accrued fees
-- Cash and cash equivalents
-- Investments in quoted debt instruments
-- Listed shares and securities
-- Trade and other payables
-- Loans
(ii) Financial instruments by category
As explained in Note 1, financial assets and liabilities have
been classified into categories that determine their basis of
measurement and, for items measured at fair value, whether changes
in fair value are recognised in the statement of profit or loss and
other comprehensive income . The following tables show the carrying
values of assets and liabilities for each of these categories for
the Group:
Financial assets:
Fair value through
profit or loss Amortised cost
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash equivalents - - 1,539,843 1,342,619
Listed shares and securities 92 69 - -
Loans - - 2,647 1,185
Investments in quoted
debt instruments 4,959 4,997 - -
Accrued income - - 10,244 9,768
Trade and other receivables - - 786 3,444
Investments held for the
policyholders 16,727,208 15,454,769 - -
Total financial assets 16,732,259 15,459,835 1,553,520 1,357,016
------------------------------ ----------- ----------- ---------- ----------
Financial liabilities:
Fair value through
profit or loss Amortised cost
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
Trade and other payables - - 8,660 5,893
Accruals - - 7,792 6,908
Lease liabilities - - 6,087 -
Liabilities for linked
investments contracts 18,112,935 16,665,048 - -
----------------------------- ----------- ----------- -------- --------
Total financial liabilities 18,112,935 16,665,048 22,539 12,801
----------------------------- ----------- ----------- -------- --------
The following tables show the carrying values of assets and
liabilities for each of these categories for the Company:
Financial assets:
Fair value through
profit or loss Amortised cost
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash equivalents - - 26,090 24,342
Loans - - 2,647 1,185
Total financial assets - - 28,737 25,527
--------------------------- ----------- ---------- -------- --------
Financial liabilities:
Fair value through
profit or loss Amortised cost
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
Trade and other payables - - 56 49
Accruals - - 311 390
Total financial liabilities - - 367 439
----------------------------- ----------- ---------- -------- --------
(iii) Financial instruments not measured at fair value
Financial instruments not measured at fair value include cash
and cash equivalents, accrued fees, loans, trade and other
receivables, and trade and other payables. Due to their short-term
nature and/or expected credit losses recognised, the carrying value
of these financial instruments approximates their fair value.
(iv) Financial instruments measured at fair value - fair value hierarchy
The table below classifies financial assets that are recognised
on the statement of financial position at fair value in a hierarchy
that is based on significance of the inputs used in making the
measurements. The levels of hierarchy are disclosed on the next
page.
Investments held for the benefit of policyholders are stated at
fair value and reported on a separate line in the statement of
financial position. The assets are classified using the 'fair value
through profit or loss' option with any resultant gain or loss
recognised through the statement of profit or loss and other
comprehensive income .
Assets held at fair value also comprises investments held in
gilts, and these are held at fair value through profit and
loss.
The following table shows the three levels of the fair value
hierarchy:
Fair value Description of hierarchy Types of investments classified
hierarchy at each level
Level 1 Quoted prices (unadjusted) Cash and cash equivalents,
in active markets for identical listed equity securities,
assets gilts, actively traded
pooled investments such
as OEICS and unit trusts.
--------------------------------- ---------------------------------
Level 2 Inputs other than quoted Actively traded unlisted
prices included within Level equity securities where
1 that are observable for there is no significant
the asset either directly unobservable inputs, structured
(i.e. as prices) or indirectly products and regularly
(i.e. derived from prices) priced but not actively
traded instruments.
--------------------------------- ---------------------------------
Level 3 Inputs that are not based Unlisted equity securities
on observable market data with significant unobservable
(unobservable inputs). inputs, inactive pooled
investments.
--------------------------------- ---------------------------------
For the purposes of identifying level 3 assets, unobservable
inputs means that fair values of the assets may be based on
estimates and assumptions that can not be corroborated with
observable market data.
The following table shows the Group's assets measured at fair
value and split into the three levels:
2020 Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Investments and
assets held for
the benefit of
policyholders
Policyholder cash 1,385,736 - - 1,385,736
Investments and
securities 506,286 154,810 751 661,847
Bonds and other
fixed-income securities 12,404 1,891 15 14,310
Holdings in collective
investment schemes 15,930,106 120,026 910 16,051,042
-------------------------- ----------------- -------------- -------------- --------------
17,834,532 276,727 1,676 18,112,935
Other investments 4,959 - - 4,959
-------------------------- ----------------- -------------- -------------- --------------
Total 17,839,491 276,727 1,676 18,117,894
-------------------------- ----------------- -------------- -------------- --------------
2019 Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Investments and
assets held for
the benefit of
policyholders
Policyholder cash 1,213,371 - - 1,213,371
Investments and
securities 444,076 140,991 2,447 587,514
Bonds and other
fixed-income securities 4,485 9,320 3,005 16,810
Holdings in collective
investment schemes 14,731,562 109,714 6,077 14,847,353
-------------------------- ----------------- -------------- -------------- --------------
16,393,494 260,025 11,529 16,665,048
Other investments 5,066 - - 5,066
-------------------------- ----------------- -------------- -------------- --------------
Total 16,398,560 260,025 11,529 16,670,114
-------------------------- ----------------- -------------- -------------- --------------
Level 1 valuation methodology
Financial assets included in Level 1 are measured at fair value
using quoted mid prices that are available at the reporting date
and are traded in active markets. These financial assets are mainly
collective investment schemes and listed equity instruments.
Level 2 and Level 3 valuation methodology
The Group regularly reviews whether a market is active, based on
available market data and the specific circumstances of each
market. Where the Group assesses that a market is not active, then
it applies one or more valuation methodologies to the specific
financial asset. These valuation methodologies use quoted market
prices where available, and may in certain circumstances require
the Group to exercise judgement to determine fair value.
Financial assets included in Level 2 are measured at fair value
using observable mid prices traded in markets that have been
assessed as not active enough to be included in Level 1.
Otherwise, financial assets are included in Level 3. These are
assets where one or more inputs to the valuation methodology are
not based on observable market data. The key unobservable input is
the pre-tax operating margin needed to price asset holdings.
Level 3 sensitivity to changes in unobservable measurements
For financial assets assessed as Level 3, based on its review of
the prices used, the Company believes that any change to the
unobservable inputs used to measure fair value would not result in
a significantly higher or lower fair value measurement at year end,
and therefore would not have a material impact on its reported
results.
Changes to valuation methodology
There have been no changes in valuation methodology during the
year under review.
Transfers between Levels
The Company's policy is to assess each financial asset it holds
at the current financial year end, based on the last known price
and market information, and assign it to a Level.
The Company recognises transfers between Levels of the fair
value hierarchy at the end of the reporting period in which the
changes have occurred. Changes occur due to the availability of (or
lack thereof) quoted prices, whether a market is now active or not,
and whether there are indications of impairment.
Transfers between Levels between 30 September 2020 and 30
September 2019 are presented in the table below at their valuation
at 30 September 2020:
Transfers from Transfers to GBP'000
Level 1 Level 2 3,493
Level 2 Level 1 7,834
The reconciliation between opening and closing balances of Level
3 assets are presented in the table below:
GBP'000
Opening balance 11,529
Unrealised gains or losses in the year ended
30 September 2020 (57)
Transfers in to Level 3 at 30 September 2020
valuation 224
Transfers out of Level 3 at 30 September 2020
valuation (8,280)
Purchases, sales, issues and settlement (1,740)
------------------------------------------------- --------------
Closing balance 1,676
------------------------------------------------- --------------
Any resultant gains or losses on financial assets held for the
benefit of policyholders are offset by a reciprocal movement in the
linked liability.
The group regularly assesses assets to ensure they are
categorised correctly and FVH levels adjusted accordingly. The
group monitors situations that may impact liquidity such as
suspensions and liquidations while also actively collecting
observable market prices from relevant exchanges and asset
managers. Should an asset price become observable following the
resumption of trading the FVH level will be updated to reflect
this.
(v) Capital maintenance
The regulated companies in IntegraFin Group are subject to
capital requirements imposed by the relevant regulators. As
detailed in the CFOR, Group capital requirements for 2020 were
GBP212.9 million (2019: GBP216.3 million).
The Group has complied with the requirements set by the
regulators during the year. The Group's policy for managing capital
is to ensure each regulated entity maintains capital well above the
minimum requirement.
4. Risk and risk management
Risk assessment
Risk assessment is the determination of quantitative values
and/or qualitative judgements of risk related to a concrete
situation and a recognised threat. Quantitative risk assessment
requires calculations of two components of risk, the magnitude of
the potential impact, and the likelihood that the risk
materialises. Qualitative aspects of risk, despite being more
difficult to express quantitatively, are also taken into account in
order to fully evaluate the impact of the risk on the
organisation.
(1) Market risk
Description of risk
Market risk is the risk of loss arising either directly or
indirectly from fluctuations in the level and in the volatility of
market prices of assets, liabilities and other financial
instruments.
(a) Price risk
Market price risk from reduced income
The Company's dividend income from its regulated subsidiary IFAL
is exposed to market risk. The Group's main source of income is
derived from annual management fees and transaction fees which are
linked to the value of the clients' portfolios, which are
determined by the market prices of the underlying assets. The
Group's revenue is therefore affected by the value of assets on the
platform, and consequently it has exposure to equity market levels
and economic conditions.
The Group mitigates the second order market price risk by
applying fixed charges per tax wrapper in addition to income
derived from the charges based on clients' linked portfolio values.
This approach of fixed and variable charging offers an element of
diversification to its income stream. The risk of stock market
volatility, and the impact on revenue, is also mitigated through a
wide asset offering which ensures the Group is not wholly
correlated with one market, and which enables clients to switch
assets, including into cash on the platform, in times of
uncertainty.
Sensitivity testing has been performed to assess the impact of
market movements on the Group's Profit for the year. The
sensitivity is applied as an instantaneous shock at the start of
the year, and shows the impact of a 10% change in values across all
assets held on the platform.
Impact on profit for the year
2020 2019
GBP'000 GBP'000
10% increase in asset values 6,931 6,145
10% decrease in asset values (6,931) (6,145)
Market risk from direct asset holdings
The Group and the company have limited exposure to primary
market risk as capital is invested in high quality, highly liquid,
short-dated investments.
(b) Interest rate risk
The Group and the company's balance sheet and capital
requirements are relatively insensitive to first order impacts from
movements in interest rates.
(c) Currency risk
The company is not directly exposed to significant currency
risk. The table below shows a breakdown of the material foreign
currency exposures for the unit-linked policies within the
Group:
2020 2020 2019 2019
Currency GBP'000 % GBP'000 %
GBP 17,983,651 99.3 16,564,270 99.4
USD 106,532 0.6 79,716 0.5
EUR 13,862 0.1 14,263 0.1
Others 8,890 0.0 6,799 0.0
-------------- ----------- ------ ----------- ------
Total 18,112,935 100.0 16,665,048 100.0
-------------- ----------- ------ ----------- ------
99.3% of investments and cash held for the benefit of
policyholders are denominated in GBP, its base currency. Remaining
currency holdings greater than 0.1% of the total are shown
separately in the table. A significant rise or fall in sterling
exchange rates would not have a significant first order impact on
its results since any adverse or favorable movement in policyholder
assets is entirely offset by a corresponding movement in the linked
liability.
(2) Credit (counterparty default) risk
Credit risk is the risk that the Group or company is exposed to
a loss if another party fails to meet its financial obligations.
For the company, the exposure to counterparty default risk arises
primarily from loans directly held by the company.
Assets held at amortised cost
(a) Accrued income
This comprises fees owed by clients. These are held at amortised
cost, less expected credit losses ("ECLs").
Under IFRS 9, a forward-looking approach is required to assess
ECLs, so that losses are recognised before the occurrence of any
credit event. The Group estimates that pending fees three months or
more past due are unlikely to be collected and are written off.
Based on management's experience, pending fees one or two months
past due are generally expected to be collected. However,
consideration is also given to potential losses on these fees.
Historical loss rates have been used to estimate expected future
losses, while consideration is also given to underlying economic
conditions, in order to ensure that expected losses are recognised
on a forward-looking basis. This has led to the additional
recognition of an immaterial amount of ECLs.
Details of the ECLs recognised in relation to accrued income can
be seen in note 23.
(b) Loans
Loans subject to the 12 month ECL are GBP2.7m (2019: GBP1.2m).
While there is increased economic uncertainty in the current
climate, leading to potentially higher credit risk, there is not
considered to be a significant increase in credit risk, as all of
the loans are currently performing to schedule, and there are no
concerns regarding the borrowers. There is therefore no need to
move from the 12 month ECL model to the lifetime ECL model.
Expected losses are recognised on a forward-looking basis, which
has led to the additional recognition of an immaterial amount of
ECLs.
Details of the ECLs recognised in relation to loans can be seen
in note 18.
(c) Cash and equivalents
The Group has a low risk appetite for credit risk, which is
limited to exposures to credit institutions for its bank deposits.
A range of major regulated UK high street banks is used. A rigorous
annual due diligence exercise is undertaken to assess the financial
strength of these banks with those used having a minimum credit
rating of A (Fitch). In order to actively manage the credit and
concentration risks, the Board has agreed risk appetite limits for
the regulated entities of the amount of corporate and client funds
that may be deposited with any one bank; which is represented by a
set percentage of the respective bank's total customer deposits.
Monthly monitoring of these positions along with movements in Fitch
ratings is undertaken, with reports presented to the Directors for
review. Collectively these measures ensure that the Group
diligently manages the exposures and provide the mitigation scope
to be able to manage credit and concentration exposures on behalf
of itself and its customers
Counterparty default risk exposure to loans
The Company has loans of GBP2,647k (2019: GBP1,185k). There are
no other loans held by the Group.
Counterparty default risk exposure to Group companies
As well as inconvenience and operational issues arising from the
failure of the other Group companies, there is also a risk of a
loss of assets. The Company is due GBP342k (2019: GBP86k) from
other Group companies.
Counterparty default risk exposure to other receivables
The company has no other receivables arising, due to the nature
of its business, and the structure of the Group.
Across the Group, there is exposure to counterparty default risk
arising primarily from:
-- corporate assets directly held by the Group;
-- exposure to clients; and
-- exposure to other receivables.
The other exposures to counterparty default risk include a
credit default event which affects funds held on behalf of clients
and occurs at one or more of the following entities:
-- a bank where cash is held on behalf of clients;
-- a custodian where the assets are held on behalf of clients; and
-- Transact Nominees Limited (TNL), which is the legal owner of
the assets held on behalf of clients.
There is no first order impact on the Group from one of the
events in the preceding paragraph. This is because any credit
default event in respect of these holdings will be borne by
clients, both in terms of loss of value and loss of liquidity.
Terms and conditions have been reviewed by external lawyers to
ensure that these have been drafted appropriately.
However, there is a second order impact where future profits for
the Group are reduced in the event of a credit default which
affects funds held on behalf of clients.
There are robust controls in place to mitigate credit risk, for
example, holding corporate and client cash across a range of banks
in order to minimise the risk of a single point of counterparty
default failure. Additionally, maximum counterparty limits and
minimum credit quality steps are set for banks.
Corporate assets and funds held on behalf of clients
There is no significant risk exposure to any one UK clearing
bank.
Counterparty default risk exposure to clients
The Group is due GBP10.2m (2019: GBP9.8m) from fee income owed
by clients.
Impact of credit risk on fair value
Due to the limited direct exposure that the Group and the
company have to credit risk, credit risk does not have a material
impact on the fair value movement of financial instruments for the
year under review. The fair value movements on these instruments
are predominantly due to changes in market conditions.
(3) Liquidity risk
Liquidity risk is the risk that funds are not accessible such
that the company, although solvent, does not have sufficient liquid
financial resources to meet obligations as they fall due, or can
secure such resources only at excessive cost.
As a holding company, the company's main liquidity risk is
related to paying out shareholder dividends and operating expenses
it may incur. Additionally, the company has made short term
commitments, in the form of a capped facility arrangement, to
Vertus Capital SPV1 Limited ('Vertus') (as one of Vertus' sources
of funding) to assist Vertus in developing its business, which is
to provide tailored niche debt facilities to adviser firms to fund
acquisitions, management buy-outs and other similar
transactions.
Across the Group, the following key drivers of liquidity risk
have been identified:
-- liquidity risk arising due to failure of one or more of the
Group's banks;
-- liquidity risk arising due to the bank's system failure which
prevents access to Group funds; and
-- liquidity risk arising from clients holding insufficient cash
to settle fees when they become due.
The Group's liquidity risk arises from a lack of readily
realisable cash to meet debts as they become due. This takes two
forms - clients' liabilities coming due and other liabilities (e.g.
expenses) coming due.
The first of these, clients' liabilities is primarily covered
through the terms and conditions with clients' taking their own
liquidity risk, if their funds cannot be immediately surrendered
for cash.
Payment of other liabilities depends on the Group having
sufficient liquidity at all times to meet obligations as they fall
due. This requires access to liquid funds, i.e. working banks and
it also requires that the Group's main source of liquidity, charges
on its clients' assets, can also be converted into cash.
The company has set out two key liquidity requirements: first,
to ensure that clients maintain a percentage of liquidity in their
funds at all times, and second, to maintain access to cash through
a spread of cash holdings in bank accounts.
There are robust controls in place to mitigate liquidity risk,
for example, through regular monitoring of expenditure, closely
managing expenses in line with the business plan, and, in the case
of the Vertus facility, capping the value of loans. Additionally,
the Group holds corporate and client cash across a range of banks
in order to mitigate the risk of a single point of counterparty
default failure.
Maturity schedule
The following table shows an analysis of the financial assets
and financial liabilities by remaining expected maturities as at 30
September 2019 and 30 September 2020.
Financial assets:
1-5 Over 5
2019 Up to 3 months 3-12 months years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investments
held for the
policyholders 15,454,769 - - - 15,454,769
Investments 69 - 4,997 - 5,066
Accrued income 9,768 - - - 9,768
Trade and other
receivables 3,250 188 7 - 3,445
Loans - - 1,185 - 1,185
Cash 1,342,619 - - - 1,342,619
----------------- --------------- ------------ -------- -------- -----------
Total 16,810,475 188 6,189 - 16,816,852
----------------- --------------- ------------ -------- -------- -----------
1-5 Over 5
2020 Up to 3 months 3-12 months years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investments
held for the
policyholders 16,727,208 - - - 16,727,208
Investments 92 - 4,959 - 5,051
Accrued income 10,244 - - - 10,244
Trade and other
receivables 614 165 7 - 786
Loans - - 2,647 - 2,647
Cash 1,539,843 - - - 1,539,843
----------------- --------------- ------------ -------- -------- -----------
Total 18,278,001 165 7,613 - 18,285,779
----------------- --------------- ------------ -------- -------- -----------
Financial liabilities:
1-5 Over 5
2019 Up to 3 months 3-12 months years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Liabilities
for linked investment
contracts 16,665,048 - - - 16,665,048
Trade and other
payables 9,391 3,407 - - 12,798
Total 16,674,439 3,407 - - 16,677,846
------------------------ --------------- ------------ -------- -------- -----------
1-5 Over 5
2020 Up to 3 months 3-12 months years years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Liabilities
for linked investment
contracts 18,112,935 - - - 18,112,935
Trade and other
payables 16,257 195 - - 16,452
Lease liabilities 614 1,761 3,712 - 6,087
Total 18,129,806 1,956 3,712 - 18,135,473
------------------------ --------------- ------------ -------- -------- -----------
Financial assets held in portfolio investments and the
corresponding liabilities are deemed to have a maturity of up to
three months since the liabilities are repayable on demand. In
practice the contractual maturities of the underlying assets may be
longer than three months, but the majority of assets held within
portfolios are highly liquid.
Undiscounted cash flows
Up to 3 3-12 1-5 Over Carrying
2020 months months years 5 years Total amount
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Lease liabilities 689 1,936 3,883 - 6,508 6,087
Total 689 1,936 3,883 - 6,508 6,087
The undiscounted cash flows are in relation to the lease
liabilities and are presented at their gross undiscounted
contractual amounts i.e. the principle amounts to be paid for the
periods stated.
There is no comparative for the 2019 financial year as the Group
did not have any lease liabilities.
(4) Outflow risk
Outflows occur when funds are withdrawn from the platform for
any reason. Outflows typically occur where clients' circumstances
and requirements change. However, these outflows can also be
triggered by operational failure, competitor actions or external
events such as regulatory or economic changes.
Outflow risk is mitigated by focusing on providing exceptionally
high levels of service. Outflow rates are closely monitored and
unexpected experience is investigated. Despite the current
challenging and uncertain economic and geopolitical environment,
outflow rates remain stable and within historical norms.
(5) Expense risk
Expense risk arises where costs increase faster than expected or
from one-off expense "shocks".
The Group and the Company has exposure related to expense
inflation risk, where actual inflation deviates from expectations.
As a significant percentage of the Group's expenses are staff
related the key inflationary risk arises from salary inflation. The
Group and the Company have no exposures to defined benefit staff
pension schemes or client related index linked liabilities.
The Group's expenses are governed at a high level by the Group's
Expense Policy. The monthly management accounts are reviewed
against projected future expenses by the Board and by senior
management and action is taken where appropriate.
5. Disaggregation of revenue
For the financial year ended
30 September
2020 2019
GBP'000 GBP'000
Annual commission income 94,468 86,715
Wrapper fee income 9,743 8,961
Other income 3,109 3,489
Total fee income 107,320 99,165
-------------- --------------
Total fee income relates to both classes of business (see note 6
for details).
6. Segmental reporting
The revenue and profit before tax are attributable to activities
carried out in the UK.
The Group has two classes of business as follows:
- provision of investment administration services
- transaction of ordinary long term insurance and underwriting life assurance
Analysis by class of business is given below.
Statement of profit or loss on continuing operations - segmental
information for the year ended 30 September 2020:
Investment Insurance Other income Consolidated Total
administration and life adjustments
services assurance
business
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue
Fee income 55,923 51,355 42 - 107,320
Cost of sales (543) (323) - - (865)
Expenses
Admin expenses (61,170) (56,831) - 65,914 (52,087)
Impairment losses (109) (67) - - (176)
Net income attributable
to policyholders - (1,995) - - (1,995)
Change in investment
contract liabilities - 82,895 - - 82,895
Fee and commission
expenses - (137,536) - - (137,536)
Investment returns - 54,677 - - 54,677
Interest expense (120) (113) - - (233)
Interest income 121 135 - - 256
Profit before
tax 41,402 43,180 - (32,326) 52,256
Policyholder
tax - 3,066 - - 3,066
Tax on profit
on ordinary
activities (4,641) (5,197) - - (9,838)
Profit for the
financial year 36,761 41,048 - (32,326) 45,484
Statement of profit or loss on continuing operations - segmental
information for the year ended 30 September 2019:
Investment Insurance Other income Consolidated Total
administration and life adjustments
services assurance
business
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue
Fee income 52,045 47,120 - - 99,165
Cost of sales (495) (312) - - (806)
Expenses
Admin expenses (58,722) (54,356) - 63,353 (49,726)
Impairment losses (3) (17) - - (20)
Net income attributable
to policyholders - 8,068 - - 8,068
Change in investment
contract liabilities - (554,767) - - (554,767)
Fee and commission
expenses - (125,618) - - (125,618)
Investment returns - 680,422 - - 680,422
Interest expense - - - - -
Interest income 146 162 - - 308
Profit before
tax 38,198 48,946 - (30,118) 57,026
Policyholder
tax - (6,969) - - (6,969)
Tax on profit
on ordinary activities (4,230) (4,720) - - (8,950)
Profit for the
financial year 33,969 37,256 - (30,118) 41,107
The figures above comprise the results of the companies that
fall directly into each segment, as well as a proportion of the
results from the other Group companies that only provide services
to the revenue-generating companies. This therefore has no effect
on revenue, but has an effect on the profit before tax.
Disaggregation of revenue by segment - For the financial year
ended 30 September 2020
Investment Insurance and
administration life assurance
services business Other Total
GBP'000 GBP'000 GBP'000 GBP'000
Annual commission
income 51,873 42,595 - 94,468
Wrapper fee income 2,337 7,406 - 9,743
Other income 1,713 1,354 42 3,109
Total fee income 55,923 51,355 42 107,320
Disaggregation of revenue by segment - For the financial year
ended 30 September 2019
Insurance and
Investment administration life assurance
services business Total
GBP'000 GBP'000 GBP'000
Annual commission
income 48,013 38,702 86,715
Wrapper fee income 2,137 6,825 8,961
Other income 1,895 1,593 3,489
Total fee income 52,045 47,120 99,165
Statement of financial position - segmental information for the
years ended 30 September 2020 and 30 September 2019:
2020 2019
GBP'000 GBP'000
Net assets
Investment administration services 68,434 61,009
Insurance and life assurance business 72,486 60,877
140,920 121,886
Segmental information: Split by geographical location
2020 2019
GBP'000 GBP'000
Revenue
United Kingdom 103,089 95,192
Isle of Man 4,231 3,974
Total 107,320 99,165
2020 2019
GBP'000 GBP'000
Non-current assets
United Kingdom 19,128 15,310
Isle of Man 97 46
Total 19,225 15,356
The non-current assets excludes the deferred acquisition costs
and deferred tax assets.
7. Earnings per share
2020 2019
(restated)
Profit
Profit for the year and earnings
used in basic and diluted earnings
per share GBP45.5m GBP41.1m
Weighted average number of shares
Weighted average number of Ordinary
shares 331.3m 331.3m
Weighted average numbers of Ordinary
Shares held by Employee Benefit
Trust (0.1m) -
Weighted average number of Ordinary
Shares for the purposes of basic
EPS 331.2m 331.3m
Adjustment for dilutive share option
awards 0.1m -
Weighted average number of Ordinary
Shares for the purposes of diluted
EPS 331.3m 331.3m
Earnings per share
Basic earnings per share 13.7p 12.4p
Earnings per share - basic and diluted 13.7p 12.4p
Earnings per share ("EPS") is calculated based on the share
capital of IntegraFin Holdings plc and the earnings of the
consolidated Group.
Basic EPS is calculated by dividing profit after tax
attributable to ordinary equity shareholders of the Company by the
weighted average number of Ordinary Shares outstanding during the
year. The weighted average number of shares excludes shares held
within the Employee Benefit Trust to satisfy the Group's
obligations under employee share awards.
Diluted EPS is calculated by adjusting the weighted average
number of Ordinary Shares outstanding to assume conversion of all
potentially dilutive Ordinary Shares.
As noted in note 39, the 2019 EPS was restated due to the
identification of an error in the calculation of the policyholder
tax provision.
8. Expenses by nature
The following expenses are included within administrative
expenses:
Group
2020 2019
(restated)
GBP'000 GBP'000
Depreciation 2,561 654
Amortisation - 15
Wages and employee benefits expense 36,732 36,093
Other staff costs 200 241
Auditor's remuneration:
* Auditing of the Financial Statements of the Company
pursuant to the legislation 78 70
* auditing of the Financial Statements of subsidiaries 99 91
* other assurance services 118 100
Other Auditor's remuneration:
* auditing of the Financial Statements of subsidiaries 154 115
* other assurance services 97 147
Other professional fees 2,808 2,314
Regulatory fees 3,643 2,689
Operating lease costs:
* Land and buildings 4 1,822
* Equipment 3 3
Other occupancy costs 2,001 1,817
Other costs 3,589 3,555
Other income - tax relief due to
shareholders (1,071) (953)
Total administrative expenses 51,016 48,773
"Other income - tax relief due to shareholders" relates to the
release of policyholder tax provisions to the statement of profit
or loss and other comprehensive income. Details of the 2019
restatement can be found in note 39.
Company
2020 2019
GBP'000 GBP'000
Wages and employee benefits expense 475 514
Other staff costs 24 59
Auditor's remuneration:
* Auditing of the Financial Statements of the Company
pursuant to the legislation 78 70
* other assurance services 18 17
Other professional fees 422 314
Regulatory fees 30 16
Other costs 161 106
Total administrative expenses 1,208 1,096
Wages and employee benefits expense
The average number of staff (including executive Directors)
employed by the Group during the financial year amounted to:
2020 2019
No. No.
CEO 1 1
Client services staff 213 230
Finance staff 60 57
Legal and compliance staff 31 30
Sales, marketing and product development
staff 40 43
Software development staff 104 96
Technical and support staff 45 52
494 509
The Company has no employees (2019: nil).
Wages and employee (including executive Directors) benefits
expenses during the year, included within administrative expenses,
were as follows:
2020 2019
GBP'000 GBP'000
Wages and salaries 29,307 28,987
Social security costs 3,085 3,203
Other pension costs 2,714 2,657
Share-based payment costs 1,626 1,246
36,732 36,093
Compensation of key management personnel
Key management personnel are defined as those persons having
authority and responsibility for planning, directing and
controlling the activities of the entity and as such, only
Directors are considered to meet this definition.
2020 2019
GBP'000 GBP'000
Short term employee benefits* 2,622 2,331
Post employment benefits 40 47
Share based payment 522 192
Other benefits 33 4
Social security costs 211 322
3,428 2,896
Highest paid Director:
Short term employee benefits* 491 564
Other benefits 140 86
Post employment benefits 7 5
Number of Directors for whom pension
contributions are paid 2 5
*Short term employee benefits comprise salary and cash
bonus.
9. I nterest income
Group Company Group Company
2020 2020 2019 2019
GBP'000 GBP'000 GBP'000 GBP'000
Interest income on bank
deposits 194 29 272 30
Interest income on loans 62 62 36 36
256 91 308 66
10. Investment returns
2020 2019
GBP'000 GBP'000
Interest on fixed-interest securities 80 95
Realised losses on fixed-interest
securities - (34)
Unrealised losses on fixed-interest
securities (44) (24)
Change in fair value of underlying
assets (73,093) 546,149
Investment income 127,734 134,236
Total investment returns 54,677 680,422
11. Tax on profit on ordinary activities
Group
a) Analysis of charge in year
The income tax expense comprises:
2020 2019
GBP'000 GBP'000
(restated)
Corporation tax
Current year - corporation tax 9,879 8,994
Adjustment in respect of prior
years 125 7
10,004 9,001
Deferred tax
Current year (38) 29
Adjustment in respect of prior
years (113) (95)
Change in deferred tax charge/(credit)
as a result of lowered tax rate (15) 15
Total tax charge for the year 9,838 8,950
b) Factors affecting tax charge for the year
The tax on the Group's profit before tax differs from the amount
that would arise using the weighted average tax rate applicable to
profits of the consolidated entities as follows:
2020 2019
GBP'000 GBP'000
(restated)
Profit on ordinary activities before
tax 52,256 57,026
Policyholder tax 3,066 (6,969)
Effect of gross overseas withholding
tax - -
55,322 50,057
Profit on ordinary activities multiplied
by effective rate of Corporation
Tax 19% (2019: 19%) 10,511 9,511
Effects of:
Non-taxable dividends (187) (141)
Income / expenses not taxable /
deductible for tax purposes multiplied
by effective rate of corporation
tax (17) 12
Adjustments in respect of prior
years (356) (459)
Effect of lower tax rate (15) 15
Rate differences 30 12
Other adjustments (128) -
9,838 8,950
Company
a) Analysis of charge in year
2020 2019
GBP'000 GBP'000
Deferred tax charge/(credit) (see
note 28) - -
Total - -
b) Factors affecting tax charge for the year
2020 2019
GBP'000 GBP'000
Profit on ordinary activities before
tax 31,124 29,064
Profit on ordinary activities multiplied
by effective rate of Corporation
Tax 19% (2019: 19%) 5,914 5,522
Effects of:
Non-taxable dividends (6,142) (5,722)
Income / expenses not taxable / deductible
for tax purposes multiplied by effective
rate of Corporation Tax 9 19
Group loss relief to ISL 219 181
- -
12. Policyholder income and expenses - Group
2020 2019
GBP'000 GBP'000
(restated)
Net income attributable to policyholder
returns (3,066) 7,115
Policyholder tax 3,066 (6,969)
This relates to income and expenses, and the associated tax
charges, on policyholder assets and liabilities.
13. Intangible assets - Group
Software and
IP rights Goodwill Total
Cost GBP'000 GBP'000 GBP'000
At 1 October 2019 12,505 12,951 25,456
At 30 September 2020 12,505 12,951 25,456
Amortisation
At 1 October 2019 12,505 - 12,505
Charge for the year - - -
At 30 September 2020 12,505 - 12,505
Net Book Value
At 30 September 2019 - 12,951 12,951
At 30 September 2020 - 12,951 12,951
Cost GBP'000 GBP'000 GBP'000
At 1 October 2018 12,505 12,951 25,456
At 30 September 2019 12,505 12,951 25,456
Amortisation
At 1 October 2018 12,490 - 12,490
Charge for the year 15 - 15
At 30 September 2019 12,505 - 12,505
Net Book Value
At 30 September 2018 15 12,951 12,966
At 30 September 2019 - 12,951 12,951
Amortisation of the software and IP rights is recognised within
administrative expenses in the statement of profit or loss and
comprehensive income.
Goodwill impairment assessment
In accordance with IFRS, the goodwill is not amortised, but is
assessed for impairment on an annual basis. The recoverable amount
is determined based on value in use calculations. The use of this
method requires the estimation of future cash flows and the
determination of a discount rate in order to calculate the present
value of the cash flows.
The goodwill relates to the acquisition of IAD Pty in July 2016.
The carrying amount of goodwill is allocated to the two cash
generating units ("CGUs") that are benefitting from the acquisition
as follows:
2020 2019
GBP'000 GBP'000
Investment administration services 7,256 7,313
Insurance and life assurance business 5,695 5,638
Total 12,951 12,951
Other assumptions are as follows:
2020 2019
Discount rate 8.8% 4.6%
Period on which detailed forecasts
are based 5 years 5 years
Long term growth rate 1.0% -
The recoverable amounts of the above CGUs have been determined
from value in use calculations based on cash flow projections from
formally approved budgets covering a five year period to 30
September 2025. Post the five year business plan, the growth rate
used to determine the terminal value of the cash generating units
was based on a long term growth rate of 1.0%.
Based on management's experience, the key assumptions on which
management has calculated its projections are net inflows, market
growth and expense inflation.
The annual impairment test showed that there was significant
headroom in the recoverable amount over the carrying value of the
CGUs. There is therefore no indication of impairment.
A sensitivity analysis has been performed, which showed that
there were no reasonable foreseeable changes in the assumptions
which would result in the recoverable amount falling below the
carrying amount.
14. Property, plant and equipment - Group
Leasehold Fixtures Motor
improvements Equipment and Fittings Vehicles Total
Cost GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 October 2019 1,728 2,607 186 111 4,632
Additions - 852 - - 852
Disposals - (152) - (9) (161)
Foreign exchange 4 7 - 1 12
At 30 September
2020 1,732 3,314 186 103 5,335
Depreciation
At 1 October 2019 1,008 1,020 127 72 2,227
Charge in the
year 148 758 18 22 946
Disposals - (149) - (9) (158)
Foreign exchange 1 5 - 1 7
At 30 September
2020 1,157 1,634 145 86 3,022
Net Book Value
At 30 September
2019 720 1,587 59 39 2,405
At 30 September
2020 575 1,680 41 17 2,313
Cost GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 October 2018 1,731 2,461 208 120 4,520
Additions - 1,228 - 38 1,266
Disposals - (1,077) (22) (46) (1,145)
Foreign exchange (3) (5) - (1) (9)
At 30 September
2019 1,728 2,607 186 111 4,632
Depreciation
At 1 October 2018 842 1,705 130 30 2,707
Charge in the
year 167 395 19 73 654
Disposals - (1,077) (22) (31) (1,130)
Foreign exchange (1) (3) - - (4)
At 30 September
2019 1,008 1,020 127 72 2,227
Net Book Value
At 30 September
2018 889 756 78 93 1,813
At 30 September
2019 720 1,587 59 39 2,405
The Company holds no property, plant and equipment.
Total
GBP'000
At 1 October 2019 15,800
Capital contributions in the year 1,032
At 30 September 2020 16,832
Net Book Value
At 30 September 2019 15,800
At 30 September 2020 16,832
Total
GBP'000
At 1 October 2018 14,563
Capital contributions in the year 1,237
At 30 September 2019 15,800
Net Book Value
At 30 September 2018 14,563
At 30 September 2019 15,800
15. Right of use assets - Property - Group
Cost GBP'000
Additions on adoption of IFRS 16 - 1 October
2019 5,581
Australian dollar foreign exchange adjustment 5
At 30 September 2020 5,586
Depreciation
Charge in the year 1,615
Foreign exchange adjustment 10
At 30 September 2020 1,625
Net Book Value
At 30 September 2019 -
At 30 September 2020 3,961
Depreciation is calculated on a straight line basis over the
term of the lease.
16. Investment in subsidiaries
Company
Incorporation
and significant
Name of Company Holding % Held place of business Business
Direct holdings
Integrated Financial Investment
Arrangements Ltd Ordinary Shares 100% United Kingdom Administration
IntegraFin Services Services
Limited Ordinary Shares 100% United Kingdom Company
Software
provision
Transact IP Limited Ordinary Shares 100% United Kingdom & development
Integrated Application
Development Pty Software
Ltd Ordinary Shares 100% Australia maintenance
Objective Asset
Management Limited Ordinary Shares 100% United Kingdom Dormant
Indirect holdings
IntegraFin Limited Ordinary Shares 100% United Kingdom Non-trading
Transact Nominees
Limited Ordinary Shares 100% United Kingdom Non-trading
IntegraLife UK Limited Ordinary Shares 100% United Kingdom Life Insurance
IntegraLife International
Limited Ordinary Shares 100% Isle of Man Life Assurance
ObjectMastery (UK)
Limited Ordinary Shares 100% United Kingdom Consultancy
Objective Funds
Limited Ordinary Shares 100% United Kingdom Dormant
Objective Wealth
Management Limited Ordinary Shares 100% United Kingdom Dormant
IntegraFin (Australia)
Pty Limited Ordinary Shares 100% Australia Non-trading
Transact Trustees
Limited Ordinary Shares 100% United Kingdom Non-trading
The Group has 100% voting rights on shares held in each of the
subsidiary undertakings.
All the UK subsidiaries have their registered office address at
29 Clement's Lane, London, EC4N 7AE. ILInt's registered office
address is at 18-20 North Quay, Douglas, Isle of Man, IM1 4LE.
IntegraFin (Australia) Pty's registered office address is at Level
4, 854 Glenferrie Road, Hawthorn, Victoria, Australia 3122.
Integrated Application Development Pty Ltd's registered office
address is 19-25 Camberwell Road, Melbourne, Australia.
The above subsidiaries have all been included in the
consolidated Financial Statements. The results of ILInt and ILUK
are included as described in the basis of consolidation accounting
policy in note 1.
Integrated Financial Arrangements Ltd is authorised and
regulated by the Financial Conduct Authority. The principal
activity of the Company and its subsidiaries is the provision of
'Transact', a wrap service that arranges and executes transactions
between clients, their financial advisers and financial product
providers including investment managers and stockbrokers.
IntegraFin Services Limited (ISL), is the Group services
company. All intra-group service contracts are held by this
services company.
Integrated Application Development Pty Ltd (IAD Pty) provides
software maintenance services to the Group.
IntegraFin Limited is the trustee of the IntegraSIP Share
Incentive Plan, which was set up to allocate Class C Shares in the
capital of the Company to staff. IntegraFin Limited undertakes no
other activities.
Transact Nominees Limited holds customer assets as a nominee
company on behalf of Integrated Financial Arrangements Ltd.
IntegraFin (Australia) Pty Limited is currently non-trading.
Transact IP Limited licenses its proprietary software to other
members of the IntegraFin Group.
IntegraLife UK Limited is authorised by the Prudential
Regulation Authority and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority. Its principal
activity is the transaction of ordinary long term insurance
business within the United Kingdom.
IntegraLife International Limited is authorised and regulated by
the Isle of Man Financial Services Authority and its principal
activity is the transaction of ordinary long term insurance
business within the United Kingdom through the Transact Offshore
Bond.
17. Deferred acquisition costs
2020 2019
GBP'000 GBP'000
Opening balance 50,443 46,073
Capitalisation of deferred
acquisition costs 10,615 11,668
Amortisation of deferred acquisition
costs (7,576) (7,298)
Change in deferred acquisition
costs 3,039 4,370
Closing balance 53,482 50,443
18. Loans
This note analyses the loans and advances the Company has made.
The carrying amounts of loans and advances are as follows:
2020 2019
GBP'000 GBP'000
Loans to third parties 2,716 1,203
Interest receivable on loans 16 9
Total gross loans 2,732 1,209
Credit loss allowance (85) (24)
--------- --------
Total net loans 2,647 1,185
--------- --------
The loans are measured at amortised cost with the credit loss
allowance charged straight to the profit or loss account. The total
movement in the credit loss allowance can be seen in Note 23.
19. Investments held for the benefit of policyholders
2020 2020 2019 2019
Cost Fair value Cost Fair value
ILInt GBP'000 GBP'000 GBP'000 GBP'000
Investments held
for the benefit
of policyholders 1,346,990 1,534,080 1,218,143 1,440,852
1,346,990 1,534,080 1,218,143 1,440,852
ILUK
Investments held
for the benefit
of policyholders 13,482,294 15,193,128 11,994,153 14,013,917
13,482,294 15,193,128 11,994,153 14,013,917
Total 16,727,208 15,454,769
All amounts are current as customers are able to make same-day
withdrawal of available funds and transfers to third-party
providers are generally performed within a month.
These assets are held to cover the liabilities for unit linked
investment contracts. All contracts with customers are deemed to be
investment contracts and, accordingly, assets are 100% matched to
corresponding liabilities.
20. Liabilities for linked investment contracts
2020 2019
Fair value Fair value
ILInt GBP'000 GBP'000
Unit linked liabilities 1,636,781 1,541,917
1,636,781 1,541,917
ILUK
Unit linked liabilities 16,476,154 15,123,131
16,476,154 15,123,131
Total 18,112,935 16,665,048
Analysis of change in liabilities for linked investment
contracts
2020 2019
GBP'000 GBP'000
Opening balance 16,665,048 14,489,933
Investment inflows 2,415,445 2,515,577
Investment outflows (834,454) (850,772)
Compensation 47 679
Changes in fair value
of underlying assets (72,990) 545,902
Investment income 127,734 134,236
Other fees and charges
- Transact (50,360) (44,888)
Other fees and charges
- third parties (137,535) (125,619)
Closing balance 18,112,935 16,665,048
The benefits offered under the unit-linked investment contracts
are based on the risk appetite of policyholders and the return on
their selected collective fund investments, whose underlying
investments include equities, debt securities, property and
derivatives. This investment mix is unique to individual
policyholders. When the diversified portfolio of all policyholder
investments is considered, there is a clear correlation with the
FTSE 100 index and other major world indices, providing a
meaningful comparison with the return on the investments.
The maturity value of these financial liabilities is determined
by the fair value of the linked assets at maturity date. There will
be no difference between the carrying amount and the maturity
amount at maturity date.
21. Cash and cash equivalents
2020 2019
GBP'000 GBP'000
Bank balances - Instant access 148,617 132,340
Bank balances - Notice accounts 5,500 -
Cash and cash equivalents held
for the benefit of the policyholders
- instant access - ILUK 1,231,043 1,048,129
Cash and cash equivalents held
for the benefit of the policyholders
- term deposits - ILUK 51,982 61,085
Cash and cash equivalents held
for the benefit of the policyholders
- instant access - ILINT 100,716 98,083
Cash and cash equivalents held
for the benefit of the policyholders
- term deposits - ILINT 1,985 2,982
------------
Total 1,539,843 1,342,619
------------
Bank balances held in instant access accounts are current and
available for use by the Group.
All of the bank balances held in notice accounts require less
than 35 days' notice before they are available for use by the
Group.
The cash and cash equivalents held for the benefit of the
policyholders are held to cover the liabilities for unit linked
investment contracts. These amounts are 100% matched to
corresponding liabilities.
22. Financial assets at fair value through profit or loss
Group Group
2020 2019
GBP'000 GBP'000
Listed shares and securities 92 69
Gilts 4,959 4,997
5,051 5,066
Investments are all UK and sterling based and held at fair
value.
23. Other prepayments and accrued income
Group Company Group Company
2020 2020 2019 2019
GBP'000 GBP'000 GBP'000 GBP'000
Accrued income 10,956 - 10,390 -
Less: credit loss
allowance (712) - (622) -
Accrued income
- net 10,244 - 9,768 -
Prepayments 4,168 56 3,314 30
14,412 56 13,082 30
Movement in the credit loss allowance (for accrued income and
loans receivable) is as follows:
2020 2019
GBP'000 GBP'000
Opening credit loss
allowance (646) (796)
Reduction in credit
loss allowance - 170
(Increase)/decrease
during the year (176) (20)
Balance at 30 September (822) (646)
24. Trade and other receivable
Group Company Group Company
2020 2020 2019 2019
(restated)
GBP'000 GBP'000 GBP'000 GBP'000
Amounts owed by
Group undertakings - 342 - 86
Amounts due to
HMRC 2,227 - 1,384 -
Amount due from
policyholders to
meet current tax
liability - - 3,098 -
Other receivables 1,329 - 2,707 -
3,556 342 7,189 86
Amount due from HMRC is in respect of tax claimed on behalf of
policyholders for tax deducted at source.
25. Trade and other payables
Group Company Group Company
2020 2020 2019 2019
GBP'000 GBP'000 GBP'000 GBP'000
Trade payables 1,716 7 498 -
PAYE and other
taxation 1,420 67 1,343 70
Due to Group undertakings - 56 - 9
Other payables 7,436 49 8,242 49
Accruals and deferred
income 7,794 312 6,941 390
18,366 491 17,024 518
Other payables mainly comprises GBP6.2m (2019: GBP5.1m) in
relation to bonds awaiting approval and the rent free reserve of
GBP2.5m in 2019.
26. Lease liabilities
Lease liabilities - Property:
GBP'000
Lease liabilities on adoption of IFRS
16 - 1 October 2019 8,336
Lease payments (2,477)
Interest expense 233
Foreign exchange adjustment (5)
Balance at 30 September 2020 6,087
Amounts falling due within one year 2,375
Amounts falling due after one year 3,712
The above table provides a reconciliation of the financial
liabilities arising from financing activities.
The total future minimum lease payments of operating leases are
due as follows:
Land and Land and
Buildings Buildings
2020 2019
Group GBP'000 GBP'000
Within 1 year - 2,511
Within 2-5 years - 6,257
Over 5 years - -
The introduction of IFRS 16 has meant that for financial year to
30 September 2020, the land and building lease commitments (which
related to the leasehold premises at 29 Clement's Lane, ILInt
leasehold premises at 18/20 North Quay on the Isle of Man, and the
IAD Pty leasehold premises at 19-25 Camberwell Road, Melbourne,
Australia) are not classified as operating leases, but rather
finance leases which have been recognised on the balance sheet.
Short term, low value leases include a car park at the ILInt
leasehold premises (GBP4,000) and a franking machine at the ISL
premises (GBP3,000). These lease payments have been charged to the
profit or loss account on a straight line basis over the lease
terms.
27. Deferred income liability
2020 2019
GBP'000 GBP'000
Opening balance 50,443 46,073
Capitalisation of deferred income 10,615 11,668
Amortisation of deferred income (7,576) (7,298)
Change in deferred acquisition costs 3,038 4,370
Closing balance 53,482 50,443
28. Deferred tax
Deferred tax is calculated in full on temporary differences
under the liability method using a tax rate of 19% (2019: 17%).
Deferred Tax Accelerated Share based Policyholder Other deductible Total
Asset capital payments tax temporary
allowances differences
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 October
2018 44 - - - 44
Charge to income (44) 110 - 47 113
--------------------
At 30 September
2019 - 110 - 47 157
Adjustment in
respect of prior
year - 108 - 18 127
Adjustment to
opening balances - - - 32 32
Excess tax relief
charged to equity - 60 - - 60
Charge to income - 124 - (10) 113
--------------------
At 30 September
2020 - 402 - 87 489
--------------------
Deferred Tax Accelerated Share based Policyholder Other deductible Total
Liability capital payments tax temporary
allowances differences
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 October
2018 - - 13,187 - 13,187
Charge to income 60 - 1 - 61
At 30 September
2019 60 - 13,188 - 13,248
Charge to income 61 - (4,341) - (4,280)
At 30 September
2020 121 - 8,847 - 8,968
The Company has no deferred tax assets or liabilities.
29. Client monies and client assets
2020 GBP'000 GBP'000
Amounts due to
Client monies 3,106,978 clients 3,106,978
Corresponding
Client assets 37,985,921 liability 37,985,921
2019 GBP'000 GBP'000
Amounts due to
Client monies 2,626,624 clients 2,626,624
Corresponding
Client assets 35,172,798 liability 35,172,798
The above client monies are held separately (off balance sheet)
in client bank and the above client assets are held on behalf of
Integrated Financial Arrangements Ltd by Transact Nominees
Limited.
30. Provisions
Group Group
2020 2019
(restated)
GBP'000 GBP'000
Balance brought forward 18,230 13,756
Increase in dilapidations provision 52 38
Increase in ILInt non-linked unit
provision 2 3
Increase/(decrease) in ILUK tax provision 6,924 4,632
Release of rent provision - (102)
Other provisions - (97)
Balance carried forward 25,208 18,230
Dilapidations provisions 464 413
ILInt non-linked unit provision 41 39
ILUK tax provision 24,703 17,778
25,208 18,230
The dilapidation provisions relate to the current leasehold
premises at 29 Clement's Lane, and the current ILInt leasehold
premises at 18/20 North Quay, on the Isle of Man. The Group is
committed to restoring the premises to their original state at the
end of the lease term. Whilst it is probable that payments will be
required for dilapidations, uncertainty exists with regard to the
amount and timing of these payments, and the amounts provided
represent management's best estimate of the Group's liability.
ILUK tax provision comprises claims received from HMRC that are
yet to be returned to policyholders, charges taken from unit-linked
funds and claims received from HMRC to meet current and future
policyholder tax obligations. These are expected to be paid to
policyholders over the course of the next seven years.
31. Capital redemption reserve - Group
2020 2019
GBP'000 GBP'000
Balance brought forward 2 2
Balance carried forward 2 2
On 12 December 2013 IFAL was granted authority by shareholders
to repurchase GBP4,500,000 worth of ordinary shares from
shareholders. IFAL purchased 45,917 shares, and they were then
cancelled, giving rise to a capital redemption reserve of
GBP2,271.
32. Share-based payments
Share-based payment reserve
Group Company Group Company
2020 2020 2019 2019
GBP'000 GBP'000 GBP'000 GBP'000
Balance brought forward 1,008 880 530 350
Movement in the year 723 190 531 530
Transfer to profit and
loss reserve (33) - (53) -
Balance carried forward 1,698 1,070 1,008 880
The reduction in reserves of GBP33k (2019: GBP53k) is due to
former members of staff leaving the SIP 2005 scheme.
Share schemes
(i) SIP 2005
IFAL implemented a SIP trust scheme for its staff in October
2005. The SIP is an approved scheme under Schedule 2 of the Income
Tax (Earnings & Pensions) Act 2003.
This scheme entitled all the staff who were employed in October
2005 to Class C shares in IFAL, subject to their remaining in
employment with the company until certain future dates.
The Trustee for this scheme is IntegraFin Limited, a wholly
owned non-trading subsidiary of IFAL.
Shares issued under the SIP may not be sold until the earlier of
three years after issue or cessation of employment by the Group. If
the shares are held for five years they may be sold free of income
tax or capital gains tax. There are no other vesting
conditions.
The cost to the Group in the financial year to 30 September 2020
was GBPnil (2019: GBPnil). There have been no new share options
granted.
(ii) SIP 2018
The Company implemented an annual SIP awards scheme in January
2019. This is an approved scheme under Schedule 2 of the Income Tax
(Earnings & Pensions) Act 2003, and entitles all eligible
employees to ordinary shares in the Company. The shares are held in
a UK Trust.
The scheme includes the following awards:
Free Shares
The Company may give Free Shares up to a maximum value,
calculated at the date of the award of such Free Shares, of
GBP3,600 per employee in a tax year.
The share awards are made by the Company each year, dependent on
12 months continuous service at 30 September. The cost to the Group
in the financial year to 30 September 2020 was GBP649k (2019:
GBP641k).
Partnership and Matching Shares
The Company provides employees with the opportunity to enter
into an agreement with the Company to enable such employees to use
part of their pre-tax salary to acquire Partnership Shares. If
employees acquire Partnership Shares, the Board grants relevant
Matching Shares at a ratio of 2:1.
The cost to the Group in the financial year to 30 September 2020
was GBP555k (2019: GBP427k).
(iii) Performance Share Plan
The Company implemented an annual PSP scheme in December 2018.
Awards granted under the PSP take the form of options to acquire
Ordinary Shares for nil consideration. These are awarded to
Executive Directors, Senior Managers and other employees of any
Group company, as determined by the Remuneration Committee.
The exercise of the PSP awards is conditional upon the
achievement of a performance condition set at the time of grant and
measured over a three year performance period.
The cost to the Group in the financial year to 30 September 2020
was GBP423k (2019: GBP194k). This is based on the fair value of the
share options at grant date, rather than on the purchase cost of
shares held in the Employee Benefit Trust reserve, in line with
IFRS 2 Share-based Payment.
Details of the share awards outstanding are as follows:
2020 2019
Shares Shares
(number) (number)
SIP 2018
Shares in the plan at start of the 251,541 -
year
Granted 275,249 264,661
Shares withdrawn from the plan (53,107) (13,120)
Shares in the plan at end of year 473,683 251,541
Available to withdraw from the plan
at end of year 83,569 61,446
Details of the movements in the share scheme during the year are
as follows:
2020 2020 2019 2019
Weighted Shares Weighted Shares
average average
exercise exercise
price price
(pence) (number) (pence) (number)
SIP 2005
Outstanding
at start
of the year 0.00 1,630,190 0.00 2,307,274
Shares
withdrawn
from
the plan 0.00 (428,967) 0.00 (677,084)
Shares in
the plan
at end of
year 0.00 1,201,223 0.00 1,630,190
Available to
withdraw
from the
plan at end
of year 0.00 1,201,223 0.00 1,630,190
The weighted average share price at the date of withdrawal for
shares withdrawn from the plan during the year was 487.76p (2019:
342.39p).
At 30 September 2020 the exercise price was GBPnil as they were
all nil cost options.
2020 2020 2019 2019
Weighted Share Weighted Share
average options average options
exercise exercise
price price
(pence) (number) (pence) (number)
PSP
Outstanding
at start
of the year 0.00 269,511 0.00 -
Granted 0.00 165,132 0.00 275,481
Forfeited 0.00 - 0.00 (5,970)
Outstanding
at end
of year 0.00 434,643 0.00 269,511
Exercisable
at end
of year 0.00 - 0.00 -
The fair value of options granted during the year has been
estimated using the Black-Scholes model. The principal assumptions
used in the calculation were as follows:
2020 2019
PSP
Share price at date of grant 454.5 276.5
Exercise price Nil Nil
Expected life 3 years 3 years
Risk free rate 0.52% 0.73%
Dividend yield 1.7% 1.4%
Weighted average fair value per option 431.7 p 265.1 p
33. Employee Benefit Trust reserve
Group:
2020 2019
GBP'000 GBP'000
Balance brought forward (275) -
Purchase of own shares (828) (275)
Balance carried forward (1,103) (275)
Company:
2020 2019
GBP'000 GBP'000
Balance brought forward (275) -
Purchase of own shares (594) (275)
Balance carried forward (869) (275)
The Employee Benefit Trust ("EBT") was settled by the Company
pursuant to a trust deed entered into between the Company and
Intertrust Employee Benefit Trustee Limited ("Trustee"). The
Company has the power to remove the Trustee and appoint a new
trustee. The EBT is a discretionary settlement and is used to
satisfy awards made under the PSP.
The Trustee purchases existing Ordinary Shares in the market,
and the amount held in the EBT reserve represents the purchase cost
of IHP shares held to satisfy options awarded under the PSP scheme.
IHP is considered to be the sponsoring entity of the EBT, and the
assets and liabilities of the EBT are therefore recognised as those
of IHP. Shares held in the trust are treated as treasury shares and
shown as a deduction from equity.
34. Other reserves - Group
2020 2019
GBP'000 GBP'000
Foreign exchange reserves (22) (44)
Non-distributable reserves 5,722 5,722
Non-distributable insurance reserves 501 501
Foreign exchange reserves are gains/losses arising on
retranslating the net assets of
IAD Pty into sterling.
Non-distributable reserves relate to share premium held by one
of the Company's subsidiaries, IFAL, which is classified within
other reserves on a Group level .
Non-distributable insurance reserves arose due to the transition
from UK GAAP to IFRS in financial year 2015, whereupon actuarial
reserving required under the old standards became impermissible
under new standards.
35. Related parties
During the year the Company did not render nor receive any
services with related parties within the Group, and at the year end
the Company had the following intra-Group receivables:
Amounts owed by/
(to) related parties
Company 2020 2019
GBP'000 GBP'000
Integrated Financial Arrangements
Ltd 8 11
IntegraFin Services Limited 277 70
IntegraFin Limited (9) (9)
IntegraLife UK Limited 4 4
Integrated Application Development
Pty Limited 6 1
The Group has not recognised any expected credit losses in
respect of related party receivables nor has it been given or
received any guarantee during 2020 or 2019 regarding related party
transactions.
Payments to key management personnel, defined as members of the
Board, are shown in the Remuneration Report. Directors of the
Company received a total of GBP4.3m in dividends during the year.
The number of IHP shares held at the end of the year by key
management personnel was 51,256,896, a decrease of 14,477,377 from
last year.
All of the above transactions are commercial transactions
undertaken in the normal course of business.
36. Contingent liabilities
In January 2020 the Group received notice from HMRC that the
inclusion of Integrated Application Development Pty Ltd (IAD) in
the UK VAT group was terminated with effect from 16 July 2016. The
Group included IAD in the UK VAT group having taken specialist
advice to ensure its actions were in accordance with the relevant
laws. The consequence of the exclusion of IAD from the UK VAT group
is that the services provided from Australia would now be subject
to reverse-charge VAT.
The Group has challenged this notification and opened a
discussion with HMRC about its intention to exclude IAD from the UK
VAT group, therefore the financial implications of this notice ,
including the timing of any potential payment, remain uncertain,
pending the outcome of the reconsideration of the exclusion.
HMRC's notice states that the VAT due since July 2016 until
October 2019 will be approximately GBP4.3m and that going forward
there would be an additional annual VAT charge of approximately
GBP1.4m. The Group does not yet know whether HMRC will charge
interest and/or a penalty if the appeal to the notification is
unsuccessful.
Due to the ongoing uncertainty around the additional VAT
charges, pending the outcome of the dialogue with HMRC, the
Directors do not believe it would be appropriate to recognise a
provision in these financial statements. Payment of the additional
VAT charges is considered to be less than probable and this is
supported by both the original VAT advice received from specialists
when the VAT group was created, and subsequent specialist advice
following HMRC's challenge in January 2020.
37. Events after the reporting date
A second interim dividend of 5.6 pence per share was declared on
16 December 2020.
38. Dividends
During the year to 30 September 2020 the Company paid interim
dividends of GBP26.2m (2019: GBP29.8m) to shareholders. The Company
received dividends from subsidiaries of GBP32.3m
(2019:GBP30.1m).
39. Restatement of prior years
Profit after tax for financial year 2019 has been restated to
GBP41.1 million, an increase from GBP40.1 million, and an
adjustment to 2019 opening retained earnings has been made of
GBP5.4m.
The restatement of profit after tax across prior years is due to
the identification of an error in the calculation of the
policyholder tax provision (over) in the subsidiary, ILUK, which is
one of the elements of the Group's insurance and life assurance
segment. The error was due to corporate expenses being deducted in
the policyholder tax calculation resulting in an overprovision of
tax reserves due back to policyholders. As a result, there has been
a release of the policyholder tax provision to the retained
earnings as at 1 October 2018 and to the statement of profit or
loss and other comprehensive income in 2019.
The above change has been reflected by restating each of the
affected financial statement line items for the periods as
follows:
a) Statement of Profit or Loss and Other Comprehensive Income (extract)
2019 Increase 2019 (restated)
to profit
GBP'000 GBP'000 GBP'000
Other income included
within administration
expenses (49,726) 953 48,773
Operating profit attributable
to shareholder returns 48,613 953 49,566
Profit on ordinary activities
before taxation 56,073 953 57,026
Profit before shareholder
taxation 48,958 953 49,911
Policyholder tax (6,969) 146 (7,115)
Shareholder tax (8,811) (139) (8,950)
Profit after policyholder
and shareholder tax 40,147 960 41,107
Earnings per share -
basic and diluted 12.1 0.3p 12.4p
b) Statement of Financial Position (extract)
2019 Increase/ 2019 (restated)
(decrease)
GBP'000 GBP'000 GBP'000
Trade and other receivables 6,510 679 7,189
Total current assets 16,822,046 679 16,822,725
Provisions 24,564 (6,334) 18,230
Current tax liability 3,342 645 3,987
Total liabilities 16,773,669 (5,690) 16,767,979
Net assets 115,518 6,369 121,887
Retained earnings 105,291 6,369 111,660
Total equity attributable
to equity holders 115,518 6,369 121,887
c) Statement of Financial Position (extract)
1 October 2018 Increase/ 1 October
(decrease) 2018 (restated)
GBP'000 GBP'000 GBP'000
Trade and other receivables 4,058 533 4,591
Total current assets 14,628,530 533 14,629,063
Provisions 19,137 (5,381) 13,756
Current tax liability 3,195 507 3,702
Total liabilities 14,585,672 (4,874) 14,580,798
Net assets 104,943 5,407 110,350
Retained earnings 94,899 5,407 100,306
Total equity attributable
to equity holders 104,943 5,407 110,350
40. Restatement of presentation
In addition to the restatement explained above, certain
comparatives have been reclassified due to an error in presentation
in prior years.
This has the effect of reflecting items of income, expenses,
gains and losses relating to the Group's insurance and life
assurance segment on a gross basis, rather than on a net basis.
In addition, cash held by the Group's insurance and life
assurance segment, for the benefit of policyholders has been
separately disclosed in cash and cash equivalents.
These changes have no effect on net assets or overall
profit.
Details of these changes are shown below.
a) Statement of Profit or Loss and Other Comprehensive Income (extract)
2019 Increase 2019 (restated)
to profit
GBP'000 GBP'000 GBP'000
Investment returns 37 680,385 680,422
Fee and commission expenses - (125,618) (125,618)
Change in investment
contract liabilities - (554,767) (554,767)
b) Statement of Financial Position (extract)
2019 Increase/ 2019 (restated)
(decrease)
GBP'000 GBP'000 GBP'000
Cash and cash equivalents 132,340 1,210,279 1,342,619
Investments held for
the benefit of policyholders 16,665,048 (1,210,279) 15,454,769
c) Statement of Financial Position (extract)
1 October 2018 Increase/ 1 October
(decrease) 2018 (restated)
GBP'000 GBP'000 GBP'000
Cash and cash equivalents 116,849 1,113,452 1,230,301
Investments held for
the benefit of policyholders 14,489,933 (1,113,452) 13,376,481
d) Statement of Cash Flows (extract)
2019 Increase/ 2019 (restated)
(decrease)
GBP'000 GBP'000 GBP'000
Cash flows from operating
activities
(Increase) in investments
held for the benefit
of policyholders - (2,078,288) (2,078,288)
Increase in liabilities
for linked investment
contracts - 2,175,115 2,175,115
Increase in cash 15,511 96,827 112,338
Cash and cash equivalents
at the beginning of the
year 116,849 1,113,452 1,230,301
Cash and cash equivalents
at the end of the year 132,340 1,210,279 1,342,619
DIRECTORS, COMPANY DETAILS, ADVISERS
Executive Directors
Ian Taylor
Michael Howard
Alexander Scott
Jonathan Gunby (appointed 2(nd) March 2020)
Non-Executive Directors
Richard Cranfield
Christopher Munro
Neil Holden
Caroline Banszky
Victoria Cochrane
Robert Lister
Company Secretary
Helen Wakeford
Independent Auditors
BDO LLP, 55 Baker Street, London, W1U 7EU
Solicitors
Eversheds Sutherland, One Wood Street, London, EC2V 7WS
Corporate Advisers
Peel Hunt LLP, Moor House, 120 London Wall, London, EC2Y 5ET
Principal Bankers
NatWest Bank Plc, 135 Bishopsgate, London, EC2M 3UR
Registrars
Equiniti Group plc, Sutherland House, Russell Way, Crawley, RH10
1UH
Registered Office
29 Clement's Lane, London, EC4N 7AE
Investor Relations
Jane Isaac 020 7608 4900
Website
www.integrafin.co.uk
Company number
8860879
LEI number
213800CYIZKXK9PQYE87
IntegraFin Holdings plc, 29 Clement's Lane, London, EC4N 7AE
Tel: (020) 7608 4900 Fax: (020) 7608 5300
(Registered office: as above; Registered in England and Wales
under number: 8860879)
The holding company of the Integrated Financial Arrangements Ltd
group of companies.
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END
FR KKABQNBDBQBD
(END) Dow Jones Newswires
December 17, 2020 02:00 ET (07:00 GMT)
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