The directors present the strategic report for the year ended 31 December 2023.
Principal activities
Y TREE provides comprehensive reporting, sophisticated advice and continuous implementation to high-net-worth individuals and families.
During 2023 Y TREE grew steadily while focusing on controlling expenses.
We generated fee income of £7.2m, representing a year-on-year increase of 28%. Expenses amounted to £16.6m, leading to a net loss of £8.8m. Total expenses were 14% higher than 2022. This was mainly driven by increases in headcount, marketing spend and IT infrastructure. People costs, comprising salaries, NI and pensions together with the international technology team, made up 76% of our expenditure, in line with 72% of expenses in 2022.
The company’s cash position, including cash equivalents represented under current asset investments, was £11.0m at 31 December 2023 compared to £12.6m at 31 December 2022. Our surplus cash is invested to provide additional income and is almost entirely invested in institutional money market funds to diversify exposure to banks.
Our growth activities focused on expanding our coverage of corporate opportunities; building our influential community; and creating a strong pipeline of qualified leads using technology and digital advertising channels.
During 2023 we accelerated our marketing activities using a mix of digital and traditional advertising channels as well as increased PR. Y TREE has seen a significant increase in press coverage with featured articles in top tier media outlets such as the Financial Times, FTAdviser, Investors' Chronicle, Spear’s Magazine, Fortune and the Robb Report, as well as key trade media titles like Private Equity International, Private Banker International and TheWealthNet.
During 2023 we focused on improving our core technology systems; enhancing our mobile app user experience; generating operational efficiencies; enhancing our core investment and financial life solutions.
As we move into 2024 we are focused on driving Y TREE towards profitability through a series of growth initiatives whilst maintaining tight controls on costs. The main areas of focus are organic growth in billable assets; gross margin enhancements and the addition of valuable new services.
The principal risks to our business are those that: (1) impede our ability to execute on our operational processes and meet our commitments to our clients and prospects; and (2) materially change or disrupt the assumptions underpinning our model and strategy, thereby affecting the achievement of our strategic objectives. Examples of the former include failure of operational processes; risk management failures; failure of technology which supports the business; changes to the legal and regulatory environment; or consequences of a bad actor. Examples of the latter include risks connected to the scale of lead generation by different channels; the level of client satisfaction; and risks associated with capital market movements.
These risks are mitigated through a proactive and modern enterprise risk management framework. The framework monitors a combination of quantitative measures, controls and qualitative inferences by senior management. The quantitative measures are Key Performance Indicators and Key Risk Indicators, which operate across the whole business and within each team or functional area to provide management with regular information to conduct analysis, identify trends and tools to take actions to reduce risk.
Capital risk refers to the potential that Y TREE may not possess sufficient regulatory capital to sustain its business operations in accordance with regulatory requirements stipulated by FCA. Capital risk is reduced through methodical planning, modelling and dynamic forecasting, which is reflected in the firm’s annual Individual Capital Adequacy and Risk Assessment (ICARA) process.
The key financial indicators and management information are regarded as important and are assessed, reviewed and acted upon promptly.
We also prepare a detailed five-year plan and annual budget which is reviewed on a quarterly basis.
The key performance indicators include, but are not limited to revenues, expenses and net income.
Primary indicators were as follows:
2023 2022 Change
£m £m %
Revenues 7.2 5.7 28%
Expenses 16.6 14.6 14%
Net income (8.8) (8.9) 1%
This statement sets out how the Directors have fulfilled their duty to comply with the requirements of Section 172 of the Companies Act 2006 and explains how the directors have considered broader stakeholder interests when making decisions to promote the success of the business.
The directors recognise the importance of acting in ways which promote high standards of business conduct. The board periodically reviews and approves the company’s risk management framework and its resources aligned against identifying, evaluating and mitigating risk. The Board periodically reviews matters relating to employee relations and company structure to ensure that they are consistent with employees’ interests. On an annual basis the Board reviews and approves the company's Individual Capital Adequacy and Risk Assessment (ICARA), which considers the sufficiency of the company’s capital and liquidity to withstand short to medium term ‘stresses’ to its business plan. Furthermore, starting from 2023, the Board began receiving a report on the firm’s compliance with the FCA rules on ‘Consumer Duty’ and evaluates its performance against the ‘four outcomes’ (a. Products and Services; b. Price and Value; c. Consumer Understanding; d: Customer Support) and three cross-cutting obligations.
Customers
The needs of the customer are fundamental to everything that Y TREE does. Our products and services are designed to provide transparency, efficiency and meaning in enabling clients to achieve their financial life aspirations.
Suppliers
Y TREE enters into a variety of agreements with service providers and suppliers. We aim to treat all suppliers fairly, openly and as valued partners.
Employees
At Y TREE, we recognise that our success is linked to our people. Grounded in our core values of Time, Togetherness and Responsibility, we are committed to fostering an environment where every team member feels valued, heard and motivated to excel. We understand that the well-being and development of our team is integral to our mission, and we strive to ensure that our workplace is a space where individuals can thrive both professionally and personally.
Regulators
Y TREE operates a robust risk and compliance framework to ensure that it meets the obligations of the UK regulatory framework.
Y TREE proactively and preemptively considers developments in its business that contribute to its role as a regulated firm in upholding the FCA’s statutory objectives.
Shareholders
Y TREE’s Board is committed to delivering long-term shareholder value by creating a differentiated customer centric service in personal financial services for high net worth individuals and families.
Decision making
Y TREE has dynamic governance and decision making processes, which ensures that decisions are taken at the right level with appropriate consultation. Executive decision makers at Y TREE follow their decisions and re-evaluate the intended outcomes against observed results. Decisions, proposals and strategies are scrutinised in separately managed teams and by specialist committees and ad hoc project groups. Y TREE considers the impact of its decisions on a number of stakeholders including clients and their families, shareholders, employees and contractors, counterparties/suppliers, authorities (e.g. regulators) and the broader context.
Impact on the community and the environment
When required by our clients’ constraints or preferences, we seek clarification from the asset management companies that we select for implementing investment strategies about their specific ESG considerations regarding the fund management processes in place, their business conduct and operations. This may include, but is not limited to, the security selection criteria for the investment products we may use, the asset management company policy on shareholder voting, the products’ prospectus and other legal documents references to ESG rules or the investment products’ benchmarks (where relevant).
Alongside our business, we have launched the Y TREE Foundation, which exists to advance the protection and improvement of the environment, the prevention and relief of poverty, and the inclusion and education of underserved people and communities through fundraising appeals and events with the Y TREE community.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2023.
The results for the year are set out on page 10.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
We continue to invest strategically in people and technology to build a business of scale.
During 2023, we invested significantly in building IT systems including cloud infrastructure, software and data analytics.
There is currently no commercial solution to deal with the full range of services that we provide to our clients. This has required us to undertake significant research and development into ways of enhancing the current system with innovative solutions that we designed and developed from scratch.
We built considerable scale and coverage around our investment risk framework, enhancing the technological processes supporting the assessment of risks inherent to both public and private investment securities.
The work of enhancing our services will continue into 2024 and beyond and will add significantly to our capacity to provide our clients with the unique ability to view and manage all aspects of their financial life from a single place.
The auditor, HW Fisher LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
As part of our planning process:
We enquired of management the systems and controls the company has in place, the areas of the financial statements that are most susceptible to the risk of irregularities and fraud, and whether there was any known, suspected or alleged fraud. The company did not inform us of any known, suspected or alleged fraud.
We obtained an understanding of the legal and regulatory frameworks applicable to the company. We determined that the following were most relevant: FRS 102, Companies Act 2006, health and safety, employment law and FCA's CASS regulations.
We considered the incentives and opportunities that exist in the company, including the extent of management bias, which present a potential for irregularities and fraud to be perpetuated, and tailored our risk assessment accordingly.
Using our knowledge of the company, together with the discussions held with the company at the planning stage, we formed a conclusion on the risk of misstatement due to irregularities including fraud and tailored our procedures according to this risk assessment.
The key procedures we undertook to detect irregularities including fraud during the course of the audit included:
Identifying and testing journal entries and the overall accounting records, in particular those that were significant and unusual.
Reviewing the financial statement disclosures and determining whether accounting policies have been appropriately applied.
Reviewing and challenging the assumptions and judgements used by management in their significant accounting estimates, in particular in relation to valuation of share options.
Testing key revenue lines, in particular cut-off, for evidence of management bias.
Obtaining third-party confirmation of material bank balances.
Documenting and verifying all significant related party balances and transactions.
Assessing the extent of compliance, or lack of, with the relevant laws and regulations.
Reviewing documentation such as the company board minutes, for discussions of irregularities including fraud.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements even though we have properly planned and performed our audit in accordance with auditing standards. The primary responsibility for the prevention and detection of irregularities and fraud rests with the directors.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
Y TREE Limited is a private company limited by shares incorporated in England and Wales. The registered office is Acre House, 11-15 William Road, London, United Kingdom, NW1 3ER.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs.
When the terms and conditions of equity-settled share-based payments at the time they were granted are subsequently modified, the fair value of the share-based payment under the original terms and conditions and under the modified terms and conditions are both determined at the date of the modification. Any excess of the modified fair value over the original fair value is recognised over the remaining vesting period in addition to the grant date fair value of the original share-based payment. The share-based payment expense is not adjusted if the modified fair value is less than the original fair value.
Share option reserve
The share option reserve consists of the fair value of the option shares which were exercisable at the end of the year. The reserve is not distributable.
Investments
Investments comprise investments in listed shares which are initially measured at transaction price excluding transaction costs and are subsequently measured at fair value at each reporting date. Changes in fair value are recognised through profit and loss.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
The directors have been unable to directly measure the fair value of share options granted during the year as there is no open market for Y TREE Limited shares. The Black-Scholes model has been used to estimate their fair value indirectly. The model uses a number of assumptions, which the directors consider to be reasonable based on the current size and condition of the company and the sector it operates in. As a result, the valuation is subject to a degree of uncertainty and is made on the basis of assumptions that may not prove to be accurate. See further details of the assumptions used in the model in note 17.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 3 (2022 - 3).
From 01 April 2023, the corporation tax rate increased to 25%.
The actual (credit)/charge for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
Current asset investments represent an investment in money market funds that are classified at fair value through profit and loss (FVTPL).
These are highly liquid mutual funds available for trading daily. The carrying amount of this asset approximates to its fair value.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The deferred tax liability set out above is expected to reverse within 12 months and relates to accelerated capital allowances that are expected to mature within the same period.
Deferred tax is not recognised in respect of tax losses on the basis that the company is in the early stages of development. There are total tax losses to use against future taxable profits of £18,280,080 (2022: £14,332,611).
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
The weighted average fair value of options granted in the year was determined using the Black-Scholes option pricing model. The Black-Scholes model is considered to apply the most appropriate valuation method due to the relatively short contractual lives of the options and the requirement to exercise within a short period after the employee becomes entitled to the shares (the “vesting date”).
Non-vesting conditions and market conditions are taken into account when estimating the fair value of the option at grant date.
During the year, the company recognised total share-based payment expenses of £497,141 (2022 - £298,844) which related to equity settled share based payment transactions.
During the year, 64,395 Ordinary B shares were issued with a nominal value of £6,440 for an aggregate consideration of £7,141,245
This was made up of the following issues:
On 6 January 2023 an issue of 9,268 Ordinary B shares were issued with a nominal value of £927 for an aggregate consideration of £1,221,430
On 31 January 2023 an issue of 7,547 Ordinary B shares were issued with a nominal value of £755 for an aggregate consideration of £994,619
On 1 February 2023 an issue of 3,821 Ordinary B shares were issued with a nominal value of £382 for an aggregate consideration of £503,570
On 27 February 2023 an issue of 13,646 Ordinary B shares were issued with a nominal value of £1,364 for an aggregate consideration of £1,798,406
On 25 April 2023 an issue of 19,411 Ordinary B shares were issued with a nominal value of £1,941 for an aggregate consideration of £2,558,176
On 23 June 2023 an issue of 9,160 Ordinary B shares were issued with a nominal value of £916 for an aggregate consideration of £44,884
On 26 July 2023 2,274 £0.10 Ordinary A shares were re-designated as 2,274 £0.10 Ordinary B shares
On 31 July 2023 an issue of 700 Ordinary B shares were issued with a nominal value of £70 for an aggregate consideration of £3,430
On 30 August 2023 1,137 £0.10 Ordinary A shares were re-designated as 1,137 £0.10 Ordinary B shares
On 1 September 2023 an issue of 466 Ordinary B shares were issued with a nominal value of £47 for an aggregate consideration of £2,283
On 19 September 2023 an issue of 20 Ordinary B shares were issued with a nominal value of £2 for an aggregate consideration of £2,038
On 29 September 2023 an issue of 237 Ordinary B shares were issued with a nominal value of £24 for an aggregate consideration of £11,826
On 18 December 2023 an issue of 119 Ordinary B shares were issued with a nominal value of £12 for an aggregate consideration of £583
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
Transactions with directors and companies in which directors hold an interest
At the year end creditors included £1,977 due to directors (2022: £9,943).
During the year, expenses of £10,918 (2022: £11,332) were paid to directors.
During the year, expenses of £nil (2022: £46,200) were made to companies for which directors are also Directors.