The directors present the strategic report for the year ended 30 April 2024.
Principal Activity
The company’s principal activities are to manage private clients’ investments, provide custody services for clients’ assets and to execute clients’ dealing instructions. The company is authorised and regulated by the Financial Conduct Authority.
Business Review
The strategic focus of the business is to grow both its funds under management and funds under administration through the provision of its discretionary management, execution-only and Outsourced Administration services. The directors are pleased to report, notwithstanding the continued volatility of world stockmarkets, the business experienced year-on-year growth in the combined value of its funds under management and funds under administration. Consequently, the directors are extremely pleased to report that the company’s profit before tax rose by 24% on the same period last year, benefitting significantly, once again, from rising interest rates. Whilst not all service categories delivered year-on-year growth, this represents an excellent performance on the figure for the previous twelve months. The directors continue to focus on managing the costs within the business by challenging all items through detailed evaluation and review processes to ensure the company’s expenditure remains in line with its business activities.
The company continues to operate in an environment where the impact of regulation is significant both in terms of cost and management time. The directors remain committed to attaining the highest standards of probity, business practice and governance and to meeting the company’s obligations within its regulatory framework. Over the past twelve months, the company has undertaken extensive work in meeting its obligations under the new Consumer Duty. Built into the company’s Strategy and Development Plan are values the directors believe are integral to maintaining its reputation in the marketplace. The directors believe that those values enable the company to build ethical relationships with its clients based upon mutual trust, understanding and professionalism.
The directors’ recognise that the marketplace is becoming increasingly competitive, nevertheless, they will continue to explore opportunities for growth whilst ensuring that the company retains sufficient capital to satisfy its regulatory requirement.
Employees
The directors are acutely aware that the success of the company is intrinsically linked to the quality of its staff. The directors commented in last year’s Strategic Report on how much it valued the contribution of our colleagues to the company’s successful performance.
Once again, it simply would not have been possible for the company to achieve such a financial performance which is based upon the delivery of the high standard of service that our clients have come to expect from us, without the unswerving commitment, dedication, skill and tireless efforts of all staff. The actions of all staff speaks volumes but so too does their understanding and responsibility of what it means to represent the company.
During the course of the financial year, we ensured that all of our colleagues were protected from the harsh economic environment by appropriate pay increases.
Financial Risk Management Objectives and Policies
The company operates financial policies which include ongoing assessments of interest rate management and borrowing policy. The Board approves all decisions on financial policy.
The company finances its activities through profit retention and if necessary, bank finance. The directors review and agree policies for managing financial risks and these are summarised below:
Liquidity Risk
Liquidity risk is the risk that the company will be unable to meet its obligations as they fall due.
The company maintains sufficient cash resources to meet its obligations at all times and monitors its liquidity position at its monthly Board Meeting.
Interest Rate Risk
Interest rate risk is the risk that future cash flows will be adversely affected as a result of changes in interest rates.
The company is exposed to interest rate risk principally with regard to the effect that a change in interest rates would have on amounts receivable on cash deposits.
The effect a change in interest rates would have on the company is explained in Note 25.
Credit Risk
Credit risk is the risk of financial loss arising from a client or other counterparty failing to meet their obligations to repay outstanding amounts as they fall due. Credit risk principally arises from the settlement of market transactions, amounts receivable from clients and cash deposited with banks.
The settlement risk in respect of client counterparties is mitigated as purchases of securities on behalf of clients are normally undertaken once cleared funds are available. Sales of securities are normally undertaken only when the related securities are held with the company’s nominee company.
The settlement risk in respect of market counterparties is mitigated as a result of transactions normally being undertaken on recognised exchanges and standard platforms which are subsequently then settled and delivered through major settlement systems.
The mitigation of credit risk relating to cash deposited with banks is achieved as a result of spreading deposits being held by a number of major banks possessing an acceptable credit rating.
Financial Instruments
The company’s trading operations are primarily financed by profit retention.
Where transactions are undertaken in a foreign currency, movements in exchange rates are a risk of the client and as such the directors do not believe the company is exposed.
Equal Opportunities
The company is an equal opportunity employer. The directors are committed to ensuring the company operates within the framework of law and ensuring that the company’s workplaces are free from unlawful discrimination on the grounds of colour, race, nationality, ethnic or national origin, gender (including gender reassignment), sexual orientation, religion or belief, age, marital status or physical or mental disability.
For the purposes of training, career development and promotion, all staff are treated the same way.
The directors continue to monitor the performance of the business specifically in respect of Funds under Management (FUM) and Funds Under Administration (FUA). As at the end of the financial year, FUM and FUA were, respectively; £265m and £3.62bn. The directors also regularly monitor the company’s financial performance, specifically in respect of capital and liquidity, through their monthly appraisal of the company’s ICARA.
The directors are pleased to report an increase in the company’s margins. The profit margin before tax for the year ended 30th April 2024, was 32.3% compared to 29.2% in the previous year. The Return on Capital Employed (being profit after taxation as a percentage of net assets) for the year ended 30th April 2024 was 26.3% compared to 24.1% in the previous year.
The business activities of the company together with the factors likely to affect its future development, performance and position are indicated below. The financial position, cash flows and liquidity position of the company are set out in the statement of financial position and statement of cash flows.
The directors have a reasonable expectation that the company has adequate resources to continue in operational existence for at least 12 months from the signing of the financial statements. In reaching this conclusion the directors have considered the following: budgeted and projected results of the business, projected cash flows, stress testing of cash flows and the risks that could impact on the company’s liquidity and solvency over the next twelve months.
As the company’s net asset position at 30th April 2024 was £12,298,960 and cash reserves together with highly liquid assets were almost £11.2m, the directors believe that the company has sufficient headroom to absorb the current risks and accordingly, the financial statements have been prepared on a going concern basis.
Streamlined energy and carbon reporting
Energy and carbon information is not disclosed because the company is a low energy user as defined in the Environment Reporting Guidelines.
Section 172
The Companies Act 2006 sets out a number of duties owed by directors to the company. This section details how the directors have discharged their duty to promote the success of the company, having regard to:
S 172 1 a) – ‘the likely consequences of any decision in the long term’
The Board is responsible for the long-term success of the company by setting its strategy.
The role of the Board is to provide strategic leadership within a framework of good corporate governance, prudent and effective control and robust risk management systems.
The Board meets every month with prepared agendas covering standard monthly reports compiled by senior managers from the business and assurance functions. There are a number of reports that the Board considers at six-monthly intervals. Further, there is a schedule of matters specifically reserved for the Board for its decision-making.
The Board sets the company’s strategic approach and targets ensuring that the necessary financial, human and operational resources are available to meet its overall objectives.
Each year the Board considers the company’s Strategy & Development Plan for the forthcoming financial year.
The company’s Strategy & Development Plan has a number of components to it. It establishes a number of Strategic Priorities to achieve the company’s Business Objective. Those Strategic Priorities are to: nurture existing lines of business; seek to increase the profitability of existing lines of business; deliver high quality services and maintain a professional reputation in the market place. Underpinning the Strategic Priorities are a number of Initiatives which include but not limited to: develop plans to procure new clients; continue to build long term ethical relationships; continue to deliver high quality services and to invest in technology to improve its client service.
At its monthly Board Meetings, the directors receive details of the various sources of income derived from the firm’s Assets under Management and Assets under Administration with the contribution of those revenue streams to its fixed and variable costs. The Board also reviews the company’s income and profit figures against its budgets.
The Board, through the firm’s ICARA, monitors and reviews the company’s capital and liquidity position to ensure that it has the required level of financial resilience.
The company’s strategy has a strong bias towards ensuring its staff are competent to support it in building long-term ethical relationships.
S 172 1 b) – ‘interests of the company’s employees’
As expressed elsewhere in this Strategic Report, the directors of the company recognise that its staff are vital to both its reputation and success and greatly values the contribution made by all of its employees in providing the highest standards of service to its clients.
The directors remain resolutely committed to ensuring that all staff are protected from unlawful discrimination in the workplace. Further, it is the company’s policy that all employees are allowed to work in an environment that is safe and free from harassment, bullying or unsolicited or unwelcome comments. The company values the principle of diversity and is committed to its promotion in the workplace by ensuring all individuals are treated fairly, with dignity and respect.
All of the company’s policies on standards of conduct are set out in its Employee Handbook.
S172 1 c) – ‘the need to foster the company’s business relationships with suppliers, customers and others’
The company operates a Code of Ethics Policy. All employees of the company are bound by the policy that establishes the standards expected in managing conflicts of interest and the receiving and giving of gifts and hospitality.
All employees of the company have a fiduciary duty to never place their own personal interest above the interests of the firm’s clients. This means never taking unfair advantage of the relationship with the company to benefit themselves or another party. It also means never to act in a way that interferes or conflicts with the company’s business or the interests of its clients. Furthermore, employees are expected to understand and respect the spirit of the Policy and always act in a way that demonstrates the company’s commitment to its clients and to doing the right thing. The company recognises that any activity that compromises its integrity has the potential to harm its reputation.
Built into the company’s Code of Ethics Policy is its Anti-Bribery Policy. The company prohibits doing business by the offering, the giving, the solicitation or the acceptance of any gift, hospitality or bribe to or from any person or company in order to gain any commercial, contractual or regulatory advantage for the company or to gain any personal advantage.
In accordance with the Companies Act 2006 and, more particularly, the company’s Articles of Association, the Board has the power to sanction any potential conflict of interest that may arise and impose any conditions that it thinks appropriate, for example, that a director abstains from any relevant discussion. All directors, when appropriate, have to submit a declaration stating any outside activity or directorship that could give rise to a conflict of interest. Further guidance is given in the company’s Code of Ethics Policy.
S172 1 d) – ‘the impact of the company’s operations on the community and the environment’
The company is extremely conscious of its wider obligations to the environment in which it operates. Wherever possible, the company recycles and encourages the use of technology in its interaction with clients, for example, in how it dispatches its reporting obligations. Further, the company takes its client, employee and business relationships very seriously. This is exemplified in the company’s Remuneration Policy, whereby, a significant element of any discretionary bonus award paid to an Executive Director is based upon non-financial criteria that evidences positive culture and conduct and good client outcomes.
S172 1 e) – ‘the desirability of the company maintaining a reputation for high standards of business conduct’
The company is committed to ensuring that in all of its activities it is dedicated to the highest standards of conduct and best practice. Indeed built into the company’s Strategy & Development Plan are values integral to maintaining its reputation in the market place. Those values are building long-term ethical relationships based on mutual understanding, trust and professionalism.
The company’s culture is determined by the Board. It is that culture which sets the tone for all its staff’s behaviour, judgements and decisions.
The company has an uncomplicated and simple business model and evidences its culture and conduct in its day-to-day operations, distilled through its management structure and recognises that its failure to demonstrate its desired culture and conduct will damage the company’s reputation and impact upon its future success.
The company has extensive Management Information throughout the operational areas of the business, that it uses to determine whether the company’s culture and conduct is consistent with that which the Board desires.
S172 1 f) ‘the need to act fairly as between members of the company’
The company has an extremely limited list of members who, primarily, are either directors of the company, former, retired directors of the company, employees or former employees. There is also a trust.
On behalf of the board
The directors present their annual report and financial statements for the year ended 30 April 2024.
The results for the year are set out on page 13.
The profit after taxation for the year was £3,228,678. A review of the business is included within the Strategic Report.
Ordinary dividends were paid amounting to £2,187,489.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Details of directors' share options are disclosed in note 8.
The company's current policy concerning the payment of trade creditors is to follow the CBI's Prompt Payers Code (copies are available from the CBI, Centre Point, 103 New Oxford Street, London WC1A 1DU).
The company's current policy concerning the payment of trade creditors is to:
settle the terms of payment with suppliers when agreeing the terms of each transaction;
ensure that suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts; and
pay in accordance with the company's contractual and other legal obligations.
Trade creditors of the company at the year end were equivalent to 36 day's purchases, based on the average daily amount invoiced by suppliers during the year.
Following the merger of MHA Moore & Smalley with MHA, the company's independent auditor has now become MHA. A resolution to reappoint MHA as independent auditor will be proposed at the next Annual General Meeting.
As the company has not consumed more than 40,000 kWh of energy in this reporting period, it qualifies as a low energy user under these regulations and is not required to report on its emissions, energy consumption or energy efficiency activities.
The company has chosen in accordance with Companies Act 2006, s. 414C(11) to set out in the company's strategic report information required by Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch. 7 to be contained in the directors' report. It has done so in respect of future developments and financial instrument risks.
We have audited the financial statements of James Brearley & Sons Limited (the 'company') for the year ended 30 April 2024 which comprise the income statement, the statement of comprehensive income, the statement of financial position, the statement of changes in equity, the statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 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
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
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.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
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 specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud, is detailed below:
Enquiry of management around actual and potential litigation and claims
Enquiry of management to identify any instances of non-compliance with laws and regulations
Enquiry of management about any known or suspected instances of fraud
Reviewing Board minutes
Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations
Performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatements due to fraud
Sample testing of revenue to ensure that income reconciles to agreements in place at the correct rates
Auditing the risk of management override of controls, including through testing journal entries and other adjustments for appropriateness.
Owing to the inherent limitations of an audit, there is an unavoidable risk that some material misstatements in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK). For instance, the further removed non-compliance is from the events and transactions reflected in the financial statements, the less likely the auditor is to become aware of it or to recognize the non-compliance.
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 notes on pages 19 to 45 form part of these financial statements.
These financial statements are presented in Sterling (GBP) as that is the currency in which the majority of the company's transactions are denominated. They comprise the financial statements of the company for the year ended 30 April 2024.
James Brearley & Sons Limited is a private limited company limited by shares. It is both incorporated and domiciled in England and Wales. the company operates in the United Kingdom and its principal place of business is Walpole House, Unit 2, Burton Road, Blackpool, Lancashire, FY4 4NW.
The continuing activities of the company are that of managing private clients' investments, to execute dealing instructions and provide custody services for clients' assets.
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 £. Foreign currency transactions are translated into Pound sterling using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
The company recognises revenue from the following major sources:
Revenue from contracts with customers
Revenue is recognised at an amount that reflects the consideration to which the company is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the company identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligation on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognise revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised.
Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability.
Revenue comprises net commission, management fees, dividend processing charges, nominal fees and other income receivable excluding value added tax in respect of the year. Revenue is measured at the fair value of the consideration received or receivable.
Commission income and expenses are recognised on all bargains executed up to the reporting period end date.
Revenue from management fees is recognised by reference to the stage of completion of the customer contract in the period in which the related service is provided. The stage of completion of the contract is determined by reference to the client valuation dates as specified in each clients agreement, with a fixed percentage charge levied on each client's portfolio by market valuation.
Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.
Interest receivable and payable on client money balances are netted and included under the heading other operating income. Client money is funds held by the firm on behalf of the client that has not been invested.
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the company. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Any revaluation surplus reserve relating to the item disposed of is recognised in other comprehensive income.
Investments in subsidiaries are those which are controlled by the company either directly or indirectly. Control is achieved where the company has power over the investee, that expose or give rights to variable returns from its involvement with the investee, and the company is able to use its power to affect the amount of returns from the investee. General control is achieved with a shareholding of more than one half of the voting rights that are exercisable to convertible are considered when assessing whether the company controls another entity.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Assets and liabilities are presented in the statement of financial position based on current and non-current classification.
An asset is classified as current when it is either expected to be realised or intended to be sold or consumed in the company's normal operating cycle; it is held properly for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.
All other assets are classified as non-current.
A liability is classified as current when it is either expected to be settled in the company's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period.
All other liabilities are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
Debt instruments are classified as financial assets measured at fair value through other comprehensive income where the financial assets are held within the company’s business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt instrument measured at fair value through other comprehensive income is recognised initially at fair value plus transaction costs directly attributable to the asset. After initial recognition, each asset is measured at fair value, with changes in fair value included in other comprehensive income. Accumulated gains or losses recognised through other comprehensive income are directly transferred to profit or loss when the debt instrument is derecognised.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership to another entity.
The company recognises financial debt when the company becomes a party to the contractual provisions of the instruments. Financial liabilities are classified as either 'financial liabilities at fair value through profit or loss' or 'other financial liabilities'.
Other financial liabilities, including borrowings, trade payables and other short-term monetary liabilities, are initially measured at fair value net of transaction costs directly attributable to the issuance of the financial liability. They are subsequently measured at amortised cost using the effective interest method. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Financial liabilities are derecognised when, and only when, the company’s obligations are discharged, cancelled, or they expire.
The company is authorised by the FCA to act as an agent when buying and selling investments on behalf of clients. Although the company has a legal obligation to the buyer and the seller in relation to a specific transaction, as the company will only enter into a contract for the buying and selling of investments in line with their agreements with clients there is no net exposure to the company. The outstanding client and market positions are therefore not recognised on the Balance Sheet.
Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
The tax expense represents the sum of the tax currently payable and deferred tax.
Equity-settled and cash-settled share-based compensation benefits are provided to certain employees.
Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services.
The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using the Black-Scholes option pricing model that takes into account the exercising price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the company receives the service that entitle the employees to receive payment. No account is taken of any other vesting option.
The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods.
Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied.
If equity-settled awards are modified, as a minimum an expense is recognised as if the modifications has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification.
If the non-vesting condition is within the control of the company or employee, the failure to satisfy the condition is treated as a cancellation. if the condition is not within the control of the company or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited.
If equity-settled awards are cancelled, it is treated as if it has vested on the date of the cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification.
At inception, the company assesses whether a contract is, or contains, a lease within the scope of IFRS 16. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Where a tangible asset is acquired through a lease, the company recognises a right-of-use asset and a lease liability at the lease commencement date. Right-of-use assets are included within property, plant and equipment, apart from those that meet the definition of investment property.
A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimate useful life of the asset, whichever is the shorter. Where the company expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of-use assets are subject to impairment or adjusted for any remeasurement of lease liabilities.
The company has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred.
A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the company's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of-use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down.
The company has elected not to recognise right-of-use assets and lease liabilities for short-term leases of machinery that have a lease term of 12 months or less, or for leases of low-value assets including IT equipment. The payments associated with these leases are recognised in profit or loss on a straight-line basis over the lease term.
Fair value Measurement
When an asset or liability, financial or non-financial, is measured as fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date: and assumes that the transactions will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
When measuring the fair value of an asset or a liability, the company uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Service contracts
The company entered into a managed service agreement with their software provider on 30 March 2017. On entering the agreement, the company negotiated an upfront payment being a 10 Year Platform fee amounting to £475,000, as well as an annual managed service fee to be paid each year of the 10 years, currently £773,296. The cost of service contracts is recognised in profit or loss on a straight line basis over the life of the contract. The upfront fee and the subsequent fees for configuration changes are initially recognised as prepayments and released to the profit or loss account over the life of the contract.
Dividends
Dividends are recognised when declared during the financial year to the extent that the obligation exists.
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, if the revision affects only that period, or in the period of the revision and future periods if 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 outlined below.
The company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black-Scholes model taking account of the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity.
Included within bank deposits (non-office) is net interest received on monies held in client accounts after deduction of payments of £3,846,576 (2023: £893,098) made to clients.
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 5 (2023: 4).
The number of directors who exercised share options during the year was 1 (2023: 2).
As at 30 April 2024 the following share options were outstanding in respect of ordinary shares regarding directors:
The directors are considered to be the key management personnel of the company.
The charge for the year can be reconciled to the profit per the income statement as follows:
Impairment tests have been carried out where appropriate and the following impairment losses have been recognised in profit or loss:
Property, plant and equipment includes right-of-use assets, as follows:
More information on impairment movements in the year is given in note 13.
The company's freehold land and buildings are stated at their revalued amounts, being the fair value at the date of revaluation. The valuation was undertaken in May 2022 by Duxburys Commercial, independent valuers not related to the company who held appropriate qualifications and had experience in the fair value measurement of properties in the relevant location. The valuation of the freehold land and buildings at May 2022 was £145,000 in their view. A subsequent valuation in April 2024 is not significantly different from this value.
The carrying value had the assets been carried under the cost model would have been £68,440 (2023: £71,064).
Investments include equity investments and gilts which are readily convertible into cash and, therefore highly liquid, but have been classified as being non-current on the basis that there is no current intention to dispose of them within the next 12 months
Details of the company's subsidiaries at 30 April 2024 are as follows:
The company has taken advantage of the exemption from preparing consolidated accounts contained in s402 of the Companies Act 2006 as the subsidiaries are all dormant and have therefore been excluded on the grounds that their inclusion is not material for the purpose of giving a true and fair view.
Credit risk is the risk of financial loss arising from a client or other counterparty failing to meet their obligations to repay outstanding amounts as they fall due. Credit risk principally arises from the settlement of market transactions, amounts receivable from clients and cash deposited with banks.
The settlement risk in respect of client counterparties is mitigated by virtue that purchases of securities on behalf of clients are normally undertaken once cleared funds are available. Sales of securities are normally undertaken only once the related securities are held with the company's nominee company. Any transactions undertaken prior to the receipt of cleared funds or securities are subject to close monitoring as part of the company's internal control procedures.
The settlement risk in respect of market counterparties is mitigated as a result of transactions normally being undertaken on recognised exchanges and standard platforms, delivered through major settlement systems.
The mitigation of credit risk relating to cash deposited with banks is achieved as a result of deposits being held at major banks that possess a high credit rating.
There is no material difference between the book and fair values of the financial instruments in the current and prior years.
The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
The directors consider that the carrying amounts of financial liabilities carried at amortised cost in the financial statements approximate to their fair values.
Liquidity risk is the risk that the company will be unable to meet its financial obligations as they fall due. The company maintains sufficient cash resources to meet its obligations at all times and all cash deposits of the company are repayable on demand.
The company's maturity analysis of lease liabilities is outlined in note 23. The company's other financial liabilities are all due for repayment within 12 months.
Lease liabilities are classified based on the amounts that are expected to be settled within the next 12 months and after more than 12 months from the reporting date, as follows:
Payment of the lease liabilities is due in quarterly instalments of £14,261 and £17,000, ending in March 2029. The lease liabilities have been discounted at an interest rate of 7%. There are no extension options for the head office lease. No judgement has been exercised in assessing the lease term as contract and agreements describe exact time frames.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon during the current and prior reporting period.
Interest rate risk is the risk that future cash flows may be adversely affected as a result of changes in interest rates.
The company is exposed to interest rate risk principally with regards to the effect that a change in interest rates would have on amounts payable on outstanding debt and amounts receivable on cash deposits. Interest rate risk is mitigated by ensuring all cash deposits are repayable on demand.
An increase in interest rates would have a favourable effect on interest income. A decrease in interest rates to 0% per annum would have an adverse effect on interest income of £4,898,596 (2023: £3,786,807). The firm has no exposure to interest being charged (i.e. no borrowings).
The company has a number of share option schemes for executives and employees of the company. In accordance with the terms of the plans, as approved by special resolutions, certain executives and employees, as determined by the board of directors, may be granted options to purchase ordinary shares.
Each employee share option converts into one ordinary share of the company on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting.
The weighted average share price at the date of exercise for share options exercised during the year was £2.27 (2023: £3.72).
The options outstanding at 30 April 2024 had an exercise price ranging from £3.75 to £8.00, and other than those options issued in 2009 expire ten years from the date of grant.
Ordinary shares entitle the holder to one vote in any circumstance. The shares carry rights to dividends.
During the year 59,088 Ordinary 1p shares were issued following options being exercised. These rank pari passu with the existing shares.
During the year 59,088 shares were issued following options being exercised.
The revaluation reserve arises on the revaluation of freehold land & buildings. When revalued land & buildings are sold, the portion of the revaluations reserve that relates to that asset is transferred directly to retained earnings. Items of other comprehensive income in the revaluation reserve will not subsequently be re-classified to profit or loss.
Distributions from the revaluations reserve can be made where they are in accordance with the requirements of the company's constitution, the Companies Act and relevant case law. Amounts may also be effectively distributed out of the revaluation reserve as part of a share buy-back. However, the payment of cash contributions out of the reserve is restricted by the terms of the company's constitution. These restrictions do not apply to any amounts transferred to retained earnings. The directors do not currently intend to make any distribution from the revaluation reserve.
The capital redemption reserve arises from the redemption of preference shares redeemed at par value in 2006.
The movement in the share option reserve reflects share options granted in the year and share options that have been exercised in the year.
The other movement relates to a transfer from the share option reserve to reflect the exercise of share options.
Amounts recognised in profit or loss as an expense during the period in respect of lease arrangements are as follows:
Set out below are the future cash outflows to which the lessee is potentially exposed that are not reflected in the measurement of lease liabilities:
The remuneration of key management personnel, including directors, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
Dividends totalling £605,348 (2023: £198,952) were paid in the year in respect of shares held by the company's directors and other parties related to directors.
At the year end, the company held deposits on behalf of clients with the company's principal bankers designated by the bank as clients' funds. The total deposits at 30 April 2024 were £151,270,136 and are not included within the company's assets (2023: £181,453,264).
There are outstanding client and market positions of £29,258,751 as at 30 April 2024 (2023: £67,365,152) whereby there is a legal obligation to make settlement for these transactions, but there is a corresponding legal obligation to receive settlement of them.