putting customers first - the share centre · putting customers first annual report 2012. 2 annual...
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putting customersfirstannual report 2012
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annual report 2012Front cover
Rosie, customer service team
annual report 2012
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Highlights
* the peer group comprises: Alliance Trust Savings, Barclays Stockbrokers, Equiniti, Halifax Sharedealing (HBoS), HSBC Stockbrokers, NatWest Stockbrokers (RBS), Saga Personal Finance, Selftrade and TD Direct Investing.
** profit before tax includes the cost of one-off other gains and losses of £0.6m (See Note 11) in 2012 and the Financial Services Compensation Scheme levies which have cost £0.6m over the last two years.
*** excludes the impact of some items, particularly any large non-recurring items, as defined in Note 14. Basic and diluted earnings per share decreased to 0.4p (2011: 0.8p)
final dividend increased
0.43p
Revenue market share* at record level – up 11.5% to 6.8% (2011: 6.1%)
Revenue decreased by 2.4% to £13.9m (2011: £14.3m), reflecting reduced dealing volumes
Operating profit decreased by 31% to £0.9m (2011: £1.4m)
One-off cost of £0.7 million relating to the withdrawal from providing fund accounting services
Profit before tax decreased by 57% to £0.7m (2011: £1.6m)**
Underlying*** basic and diluted earnings per share decreased to 0.9p (2011: 1.0p)
Final (and total) dividend proposed of 0.43p per share up 19% (2011: 0.36p)
Strong balance sheet – net cash increased 11% to £12.2m (2011: £11.0m)
Voted Stockbroker of the Year in 2012 by readers of the Financial Times and Investors Chronicle
Ranked No 1 for overall customer satisfaction in Investment Trends 2012 survey
6.8%
market share increased net cash increased
12.2m
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annual report 2012
who we are
Share plc is the AIM quoted (SHRE) parent company of a Group whose principal business is The Share Centre Limited. In addition to The Share Centre Limited, the Group includes a fund administration business, Sharefunds Limited.
93% of revenues in 2012 were derived from the Group’s retail stockbroking services. These are provided on a self-select basis with optional investment advice.
Share plc is the largest independent publicly quoted execution-only stockbroker. The Group is based in a single location in Aylesbury, Buckinghamshire, with over 75% of customers’ individually instructed transactions undertaken online.
main heading
shareplc:
over
46,000customer shareholders
accounts for 220,000 customers
279,000
Which include:
l Sharefunds Limited
l Sharesecure Limited
l The Share Centre (Administration Services) Limited
l Shareholder Limited
Other subsidiaries
The Share Centre Limited
employees137
78%of customer transactions undertaken online
of assets under administration
£1.8bn
The main trading arm of Share plc providing stockbroking services for private investors.
Non-trading ‘bare trustee’ companies which act as custodians of our customers’ investments.
Share Nominees Limited and Stock Academy Nominees Limited
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annual report 2012
Who we are 4
Chairman’s statement 6-7
Group strategy 8-12
Financial performance 13-17
Key performance indicators 18-19
Principal risks and uncertainties 20-21
Corporate and social responsibility 22-23
Board of directors and other members of senior management 24-25
Financial statements 27
Directors’ report 28-31
Corporate governance 32-33
Directors’ remuneration report 34-38
Independent auditor’s report 39-40
Consolidated income statement 41
Consolidated and Company statements of comprehensive income 42
Consolidated and Company balance sheets 43
Consolidated and Company statements of changes in equity 44-45
Consolidated and Company cash flow statements 46
Notes to the financial statements 47-76
Information for shareholders 77
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annual report 2012
Our 2012 annual results were achieved in a challenging year, impacted by poor investor sentiment, reduced dealing volumes, continuing high regulatory costs and some significant non-recurring items; the headline figures do not reflect the strength of the Group’s growth potential. We have also made significant progress in growing market share and in developing and reshaping our operations, and enhancing our services.
A detailed review of the Group’s trading performance in 2012 is set out in the Business Review by Richard Stone, Finance Director and Chief Operating Officer, but I will briefly comment on the headline figures. The 2.4% decrease in revenue to £13.9 million mainly reflected reduced dealing volumes with fee income only 1% down and interest income up 18%. Given the Group’s relatively fixed cost base, the reduction in revenues accounted for the decline in operating profits to £0.9 million, against £1.4 million in 2011. Exceptional items including a write-off of £0.66 million meant that the statutory profit before tax for the year was £0.7 million against £1.6 million in the prior year. Adjusting for exceptional items, underlying profit before tax was £1.2 million, while underlying earnings were 0.9 pence per share (2011: 1.0 pence per share). With the Group’s balance sheet remaining very strong, with no debt and net cash of £12.2 million, the Board is pleased to be recommending an increased final (and total) dividend for the year of 0.43 pence per share, a rise of almost 20%.
Some non-financial indicators are worth highlighting alongside the headline results. The Group’s market share of benchmarked revenues, which is measured consistently against a group of nine peers, increased by 11.5% in 2012 to a record 6.8% (2011: 6.1%). Additionally, in independent research conducted by Investment Trends (the global financial services market research organisation) in 2012, The Share Centre came top for overall customer satisfaction when measured against any other broker in the market. We were also delighted when The Share Centre was voted Stockbroker of the Year in 2012 by readers of the Financial Times and Investors Chronicle. These indicators are very pleasing as we believe they demonstrate the increasing strength of our brand, underpinned by the importance we place on maintaining the integrity of our core values and our commitment to our customers. In the Chief Executive’s review, Gavin Oldham discusses these values as well as our vision for the Group and the regulatory changes affecting both the Group and the financial services industry as a whole.
2012 overview
Sir Martin Jacomb
Chairman
6.1% 2011
6.8% 2012
Benchmarked revenue growth
1
Customer satisfactionStockbroker of the year
The efforts of our staff are key as we aim to become investors’ main source of investment services and their first choice for fair value, financial information and guidance.
annual report 2012
7For firms such as ours seeking to help and support our customers, compliance with regulation is a critical part of our operations. However, the burden associated with that compliance has grown ever greater in recent years. The regulatory response to the financial crisis, which was actually caused by problems in a relatively small number of organisations, has been directed almost entirely at the imposition of greater general restrictions on the activities of businesses throughout the industry: the extract from my “Reflections on Freedom” essay published by the Centre for Policy Studies identifies some specific examples.
Finally, I would like to extend my gratitude to all our employees whose dedication, commitment and focus on the needs of our customers are fundamental to the success of the business. The efforts of our staff are key as we aim to become investors’ main source of investment services and their first choice for fair value, financial information and guidance.
Current trading and outlook
2013 has started with a strong rally in stock markets around the world. This reflects more positive sentiment following President Obama’s re-election and the avoidance of the fiscal cliff in the US (at least in the short term), along with more positive steps to resolve the crisis in the Eurozone.
The Government’s ‘Funding for Lending Scheme’ has also had a significant impact. This scheme allows banks to borrow very cheaply from the state for up to four years. It has resulted in deposit rates falling sharply as banks no longer see any need to pay a better rate to attract deposits when such cheap money is available. This has helped fuel the rise in the London stockmarket and has resulted in a significant upturn in dealing activity in the first few weeks of 2013. As we go through 2013, we believe it will encourage private investors away from cash into equities and bonds in search of a return. However, at the same time, it will also impact our potential to earn interest income on client money deposits.
Although I lament the impositions which arise from overly burdensome regulation, in some areas regulation can provide an opportunity. We believe that the Retail Distribution Review (RDR) and the FSA’s subsequent platform paper which will likely prohibit trail commission payments from collective funds to distributors of those funds, including execution only platforms, will provide us with a significant opportunity. With a relatively small proportion of
our customers’ assets currently invested in funds we see this as an opportunity to grow our customer base and the value of assets we administer.
The FSA has indicated its intention to consult on a broader rewriting of the rules regarding client assets in 2013. This may result in an attack on the use of fixed term deposits for those funds. We will be watching this carefully as we believe the most important issue is the way a firm discharges its responsibility to safeguard those assets. We would not want to see regulations which prevent a firm from earning a reasonable and safe return on those funds and ignore the benefit of steps we have taken to protect customers’ assets.
Overall, we look forward positively to the year ahead. The business is now more focused and well positioned to take advantage of the opportunities which are presenting themselves as well as to face any challenges which the market and regulatory change may lay before us.
Extract from “Some Reflections on Freedom” – an essay by Sir Martin Jacomb written for and published by the Centre for Policy Studies (January 2013)
An example of what can go wrong if the principles of good government are ignored can be seen in the operation of the Financial Services Compensation Scheme (FSCS), as it applies to investment intermediaries. This is a specialised field, but an important one. And it is an example which is paralleled by countless other similar cases.
Under the FSCS scheme, operated by the FSA, all firms in this category who sell investment products to retail investors are grouped into a class, and if one firm fails owing money to investors because of negligence or fraud, caveat emptor no longer applies. The losing investors can claim compensation for losses up to £50,000 (or £85,000 in some cases) which has to be paid out of contributions paid by other members of the class. This not only casts the burden onto entirely innocent firms, thereby penalising prudence, but it also encourages risky behaviour by aggressive firms which whet the appetite of investors seeking a higher but riskier return. It is clearly inconsistent with any concept of freedom. No one who devised this arrangement, without at the same time policing the whole class effectively to suppress the risk of loss, could possibly have had the importance of freedom in mind. It undermines directly the incentive for prudent management, discourages new entrants into the field and rewards buyers who should have taken more care but knew that caveat emptor no longer applied and went for the risky product advertising the highest return. The parties who pay for this are prudent firms and their clients. The freedom of the innocent is thereby curtailed.
The idea of mutualisation of losses can be made to work to great advantage; but only if the basic principle is adhered to. This requires that the class of businesses involved are all running the same type of risk, that the class is subject to properly enforced rules governing risk, and also that the regulator governing the scheme is accountable to the businesses which have to underwrite the risk.
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annual report 2012
We want to continue to build the business to the benefit of all our customers, employees and shareholders and have a clearly defined strategy to deliver our vision, supported by our core values and brand. Most importantly, we wish to build our relationships with our customers based on trustworthiness and credibility.
Underpinning what we offer is the desire to enable more people to enjoy straightforward investing and as part of this we seek to deliver consistently high quality services to our customers. Our aspiration is to become consumers’ first choice for investment knowledge, guidance, dealing efficiency and fair value, which means becoming the place of reference for financial information and maintaining our independence, now and in the future.
The Group’s growth strategy comprises three key features as shown below.
Our core values of enterprise, respect for others, empowerment and responsibility, clarity, and long-term stability, support our growth strategy. They describe what we stand for as a business and underpin everything we do. They reflect the way we behave within our organisation as well as when interacting with our customers.
Our strategy, particularly in terms of growing the customer base, is supported by The Share Centre’s brand. We are here to provide our customers with sound guidance and practical tools to make investing easier. This means that we seek to empower our customers on their investment journey so that they can be more successful, providing guidance and reassurance to enable customers to invest with confidence. Whether our customers are
group strategy
Gavin Oldham
Chief Executive
We will fit our services to our customers’ needs, ambitions, knowledge and experience by providing the tools and guidance that are right for them.
We will use potential partners’ brands to reach more customers, providing our services under a partner’s brand, and we will keep an eye on our competitors for further acquisition opportunities.
We will keep building brand awareness and earning our customers’ loyalty. This encourages our customers to act as advocates, helping to support further growth. In particular, we aim to share our expertise to empower customers’ decision making: walking alongside our customers.
1 Putting customers first3 Establishing partnerships
and making selective acquisitions
2 Focus on our core brand: The Share Centre www.share.com
annual report 2012
9experienced traders or new to investing we seek to provide them with everything they need to get started and go further. For new investors this may involve education and familiarisation with the market; for existing investors it means providing straightforward and easy to use routes to market; and for regular traders we aim to provide more value added content in terms of research and trading tools.
Putting customers first
We strongly believe in helping people achieve their financial ambitions and potential, and maintaining the high quality of customer service that earned us the top overall customer satisfaction rating in the 2012 Investment Trends research. That achievement was external verification of the impact of putting customers first in all that we do.
We take pride in the fact that our customer service staff, all based in Aylesbury, are highly trained, knowledgeable across our full service offering, can call on experts within our organisation in the same building if needed, and are measured on the quality of their handling of the calls they deal with, not on the volume or speed.
In 2012 we have delivered against this part of our strategy by improving customers’ experience of our services in a number of ways. For example, we have introduced a mobile dealing service to allow existing customers to trade through their mobile or tablet device.
Focus on our core brand: The Share Centre – www.share.com
In 2012, we took the decision to focus our activities on our core brand – The Share Centre. Going forward we intend to maintain a much greater emphasis on our core activity of retail stockbroking. We will keep building The Share Centre’s brand awareness and seeking to earn our customers’ loyalty. Our aspiration is for our customers to become advocates for our services to help us grow. Indeed, in the 2012 Investment Trends research 17% of our customers who participated indicated that one of the reasons they chose to use us was because of a recommendation by someone they knew – this is a far higher percentage than personal investors in general cite in respect of their broker.
In 2012 we have taken a number of steps in pursuit of greater focus. We announced that we are withdrawing from the provision of fund accounting services to third party hosted funds. The regulatory view of ‘third party hosted fund arrangements’ has become increasingly negative. The systemic risks are very different to our core business and we were tied largely to one corporate client which added to concentration risk. We therefore served notice on WAY Fund Managers and effective from 31 March 2013 we will no longer be providing their fund accounting service. We will continue to act as Authorised Corporate Director (ACD) for a small number of funds and in particular our own in-house funds of funds. The fund accounting for these will be outsourced to BNP Paribas who will also be the depository and custodian.
We see an opportunity following the FSA’s Retail Distribution Review to launch more of our own funds managed and overseen in-house. Any new launches will be driven by customer demand and delivered through our retail stockbroking business. The decision to withdraw from fund accounting has resulted in the write-off of £662,000 of systems development costs incurred to date on a new bespoke fund accounting system for which we will no longer have a use. This year’s one-off charge to the income statement therefore brings forward depreciation charges which would otherwise have been spread over the next four years.
In December 2012 we sold Sharemark Limited to Asset Match Limited. Through Sharemark we have, since 2000, operated our own market (or Multilateral Trading Facility (MTF)). This auction based platform has never really gained the traction for smaller company shares that we thought it should: this may have reflected the emphasis Government has placed on debt rather than equity finance. We will continue to operate the market for Asset Match for a two year period while they develop their own systems, capabilities and regulatory approvals.
Establishing partnerships and making selective acquisitions
In addition to our own marketing efforts we have grown the business historically through the use of partners and selective acquisitions. We will continue to seek partners’ brands where we can get more customers through providing our services under that
annual report 2012
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annual report 2012
11brand or through the introduction of our services by that partner. We will also keep an active watch for any acquisition opportunities as they arise.
Historically our partners have included media groups for whom we offered share services, and we have made a number of acquisitions. In 2012 we have continued to deliver against this strand of our strategy with additional white-label services and the acquisition of the customer base of JPJShare.com from Rivington Street Holdings plc, adding approximately 5,000 customer accounts.
In summary
We will measure the success of the delivery of our strategy through metrics related to customer service, growth of market share, financial performance and regulatory compliance.
Our overriding priority in 2013 is to deliver growth; growth of the customer base, of revenues and profits. We will do this by attracting new customers and satisfying our existing customers.
Campaigning for the personal investor
We have always been active campaigners for the interests of personal investors. This included gaining a change to the Companies Act 2006 for the inclusion of nominee shareholder rights. In 2012 we continued to lobby for improvements to regulations and tax laws which will benefit personal investors. In particular, we are pleased to see the Government now committed to a consultation on the inclusion of AIM shares in ISA accounts. We will continue to argue vigorously for this and other changes including the removal of stamp duty on AIM shares, if not across the market as a whole, and a rebalancing of way the Financial Services Compensation Scheme is funded.
Regulatory change
Finally, I want to highlight the impact regulatory change has on our business. Our Chairman has already set out why he believes that excessive regulation is curtailing individual freedom with adverse outcomes for the economy as a whole as well as for individuals, including personal investors. In 2012 there were four distinct areas where regulation added burdens or resulted in changes in our business.
a Hosted funds: The FSA has progressively changed its view of hosted funds, increasing scrutiny of arrangements where the ACD is effectively ‘appointed’ by the fund manager. This has caused us to re-evaluate the risks and rewards associated with the fund accounting business being undertaken by Sharefunds Limited and to withdraw from the provision of fund accounting services. We will continue to act as ACD to five third party funds. Our main focus going forward will be on our in-house funds where we act as ACD and fund manager and potentially launching new in-house funds.
b Financial Services Compensation Scheme (FSCS): The FSA has consulted during the year on the funding arrangements for the FSCS. The changes have been cosmetic with the only major development being a 50% increase in the maximum level of compensation the Investment Intermediation class (of which The Share Centre Limited is a member) can be asked to contribute to cover the compensation costs of failed firms. This level would have been raised even higher had the FSA not had concerns over its affordability. In our view this misses the point. Firm failures continue at a level which suggests supervision and enforcement action is not being effective, and low risk, well managed firms (and their customers) continue to be penalised and asked to carry the cost of the failure of higher risk poorly managed firms. This drives incentives into the system to take more risk and the current culture of seeing the FSCS as underwriting investors’ risk-taking results in an erosion of the principle of caveat emptor. It also represents a barrier to competition and it disproportionately impacts smaller firms: this appears contrary to the statutory objective of the new Financial Conduct Authority (FCA) to promote competition.
c The extension of the Retail Distribution Review (RDR): From early 2014, it is likely that the RDR will be extended further to execution only firms providing a funds platform. This will prevent trail commission being paid back to those firms for distributing funds to their customers. Instead firms will have to charge those customers directly. As is pointed out in the Business Review below, this may actually present our firm with an opportunity as the value of funds held by our customers is relatively low compared to the rest of their assets. Trail commission comprised 3.8% of our revenues in 2012. It is likely to be eroded sooner than 2014 as the way funds are distributed changes. We have decided to be proactive in this respect and from May we intend to automatically convert customers’ holdings to ‘clean share classes’ with a lower management charge as they become available.
Our overriding priority in 2013 is to deliver growth; growth of the customer base, of revenues and profits. We will do this by attracting new customers and satisfying our existing customers.
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annual report 2012
d Fixed term deposits: The FSA has started, in the second half of 2012, to look closely at firms’ use of fixed term deposits for client money. New liquidity rules for banks have meant the fixed term deposits on offer now are ‘unbreakable’, and the FSA considers that this poses potentially unacceptable risks. The regulators are pulling in opposite directions here, with the FSA requiring depositors to have break clauses in deposit agreements and the Bank of England requiring deposit takers not to offer such clauses. We are confident that our current practices are within the existing client money rules and we take utmost care to protect our customers’ assets. Indeed, we believe we are alone in the industry in having obtained security for a proportion of the deposits we make of our customers’ money in the form of collateral from two of our deposit takers. Any moves to undermine the use of fixed term deposits could have an impact on our ability to earn interest income in the future, and to take collateral in this way. The FSA is likely to consult on a revision to the client asset rules in the summer of 2013. In any case, it is worth noting, as pointed out in the Chairman’s statement, that the Government’s ‘Funding for Lending Scheme’ has severely impacted short term deposit rates, which makes it important for us to search for ways of improving the returns we can safely earn.
Conclusion
During 2012, we significantly refined the Group’s focus and growth strategy, notwithstanding the economic and regulatory challenges. Our purpose is to enable more people to enjoy straightforward investing, and we will be aligning arrangements for shares and funds to provide a radically more transparent structure than our competitors.
We will be adopting ‘clean share classes’ for customers, rather than leaving investors paying higher management fees (and therefore trail commission) with some token ‘bonus’ repayment. We will also take the opportunity to review our tariff with particular focus on our online offerings in order to provide straightforward pricing for the substantial number of people who will be left without financial adviser access following the FSA’s regulatory changes.
There is a major opportunity for us to share our expertise and low-cost services to empower people to make their own investment decisions. In many walks of life there are examples of ‘hand-holding’ local services being replaced by informative and well-structured online alternatives, and investment is no exception. We are confident that our reputation for high quality customer service and everyday, accessible guidance will enable us to make significant progress in this brave new world.
annual report 2012
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Revenues
In 2012, overall revenues declined by 2.4% to £13.9 million (£14.3 million). While disappointing, in the context of the market as a whole this modest decline in revenues year-on-year appears to be a very robust performance. Revenues of the Group’s peers fell by 13.0% over the same period. This enabled the Group to show a strong increase in its market share of revenues, as measured against those peers, with the Group’s market share increasing to a new record of 6.8% compared to 6.1% in 2011. In Q4 2012, the Group’s market share climbed to 7.23% (2011: 6.49%).
The market share metric, using monthly data collected by Compeer and which we report to the market each quarter, has been used consistently since 2006. The graph below shows the progress we have made over that period.
Looking at the composition of revenues the impact of relatively weak dealing volumes on the Group’s overall performance is apparent. Dealing commission fell 11% to £5.0 million (2011: £5.7 million). This was less than the peer group decline of 18%. Fee income remained relatively strong at £6.5 million (2011: £6.6 million), helped by the fact that the stockmarket recovered first half losses during the second half of the year. Indeed, the FTSE All Share Index rose by 8% over 2012 taken as a whole. The 1%
decline in fee income, compared to a peer group decline of 24%, again demonstrates the robust nature of the Group’s business model relative to the market. Interest income is the third element of revenue and this showed significant growth in the year, increasing by 18% to £2.4 million (2011: £2.0 million). This reflected increased cash balances held on client accounts which rose by more than £25 million in the year to over £141 million. Rates were relatively unchanged year on year with improved rates available in the early part of 2012 giving way to much lower rates by the year-end as the Government’s ‘Funding for Lending Scheme’ started to impact deposit rates.
As a result of the above, the overall revenue mix shifted in the year in favour of fees and interest. The revenue split between dealing commission, fees and interest was 36%, 47% and 17% respectively (2011: 40%, 46% and 14% respectively). We have always placed great emphasis on our customer relationship rather than the transaction, and the quality of revenue associated with the recurring nature of fees and interest rather than more volatile dealing commission. This balance between revenue streams and focus on recurring revenues helps the business demonstrate robust performance at times of reduced investor activity such as we have seen in 2012. Fees and interest comprised 64% of revenues in 2012 (2011: 60%).
financial performance
Richard Stone
Finance Director and Chief Operating Officer
Market share of peer group revenues
1%
2%
3%
4%
5%
6%
7%
2006 2007 2008 2009 2010 2011 2012
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annual report 2012
Costs
Overall costs for the year increased by just 0.7% to £13.0 million (2011: £12.9 million), demonstrating a good level of cost control. It should be noted that the 2011 comparative cost values, and thus profits and earnings, have been restated as shown in Note 32.
The principal costs of the Group are related to the high quality staff we employ. Overall spend on salaries and related headcount costs was £6.7 million, an increase of 2.6% (2011: £6.6 million). The marginal increase reflects some headcount increases and a modest pay rise for staff, partially offset by lower profit share payments due to the reduced profitability of the Group. Overall headcount for the Group reduced from 148 at the start of the year to 137 at the end of the year, including Directors. The reduction principally reflected the transfer of employees out of the Group at year-end as the fund accounting service for WAY Fund Managers Limited was moved from Sharefunds Limited to another provider.
Marketing costs are the second largest spend for the Group, totalling £2.1 million in 2012 (2011: £2.1 million). Of this £1.1 million (2011: £1.3 million) was spent directly on promotional advertising online and in printed media.
Together staff and marketing costs comprised 68% of administrative costs (2011: 67%). Other costs related to premises, IT systems, professional and regulatory fees and irrecoverable VAT, and these costs totalled £3.0 million in 2012 (2011: £3.1 million).
One-off costs
This year we have taken significant steps to focus the business on its core retail stockbroking activities. This involved the disposal of the Sharemark business and the scaling back of the fund administration business, withdrawing from providing services as a third party administrator to other Authorised Corporate Directors, principally WAY Fund Managers Limited. This latter decision resulted in a write-off of £662,000 of capitalised development costs which had been incurred in respect of the development of a new system for that fund accounting business. That systems work will no longer be completed or have any use to the Group and hence the asset has been written off within ‘other gains and losses’. Against this, the disposal of Sharemark yielded a one-off gain of £100,000, also included within ‘other gains and losses’. The write-off of the systems development cost will have the impact of improving profitability over the coming years due to the absence of the depreciation cost.
Profitability
The profitability of the Group declined in 2012 largely as a result of the decline in revenues. Overall operating profit was £0.9 million (2011: £1.4 million), a fall of 31% or just over £400,000. This resulted in an operating margin of 6.7% (2011: 9.5%). The direct correlation between the movement in revenues and profits reflects the relatively fixed nature of the cost base and scalability of the business when revenues increase.
Profit before tax for the year was £0.7 million as compared to £1.6 million in 2011. This reflected the impact of the exceptional costs. Investment revenues were higher than in 2011 as a result of higher corporate cash balances and increased dividends from the investments held. Excluding the one-off items noted above and the FSCS levy (levied on our sector to cover the costs of failed firms), underlying profit before tax would have been £1.5 million (2011: £1.9 million).
Earnings and dividends
Basic and diluted earnings were 0.4 pence per share (2011: 0.8 pence per share). The Directors believe that looking at underlying earnings (see Note 14) gives a better view of the underlying performance of the business. These have been consistently adjusted for one-off items, share-based payments and the FSCS levies. Those FSCS levies have cost the Group £622,000 in the last two years. In 2012 underlying earnings were 0.9 pence per share (2011: 1.0 pence per share).
The Board of Directors is proposing a final (and total) dividend for the year of 0.43 pence per share. This continues the pattern of 20% per annum growth in the dividend payment. Subject to approval at the Annual General Meeting, the proposed dividend will be paid on 26 June 2013 to shareholders on the register on 24 May 2013.
The dividend payment is more than covered by underlying earnings (although not by headline earnings) and cash balances have grown during the year as accrued interest income has been received on some maturing cash deposits. The Board has confidence in the future prospects of the Group and hence is continuing to grow the dividend payment. The dividend will now have been increased by 20% per annum for three consecutive years and this will continue for as long as justified by the profitability of the Group and its potential.
16.5mShareholder
funds
annual report 2012
15Balance Sheet
The Group’s balance sheet remains strong with significant cash reserves and no debt. Overall shareholder funds at the end of 2012 increased to £16.5 million (2011: £15.9 million). This represents just under 11.5 pence per ordinary share in issue (2011: 11.1 pence). The Group’s cash balance represents 74% of shareholder funds (2011: 69%).
The Group continues to hold strategic investments in the London Stock Exchange plc and Euroclear plc. These were valued at £1.9 million and £1.4 million respectively at the end of 2012 (2011: £1.4 million each). The Group also has a stake in WAY Group Limited which is valued at £0.5 million – being the cost of that investment. Other holdings in Eirx Therapeutics Limited, Investbx Limited and Asset Match Limited are all held at nil value.
The remaining working capital balances on the balance sheet principally reflect the open customer positions with the Group and the market, i.e. unsettled customer sales and purchases. These are higher than in 2011 due to the increased level of activity at the end of 2012 relative to 2011. Overall these balances net to approximately zero – thus open positions within trade debtors of £7.2 million and cash held in trust for the settlement of trades of £0.7 million nets with the trade creditors balance of £7.9 million.
The Group has little in the way of any other creditors and the lower other debtors balance of approximately £3.2 million (2011: £4.2 million) reflects lower outstanding fees, prepayments and accrued income, including accrued interest on term deposits.
Capital requirement
The Group is required by the FSA to maintain a capital position so as to ensure it can always meet its current and anticipated short-term liabilities. The importance of this requirement means that the level of financial resources is viewed as a key performance indicator. The Group holds significant capital over and above that required by the FSA and has a stated policy that it will always seek to hold capital of at least twice the requirement. The Group’s Pillar III disclosures in this respect can be found on the Group’s website (www.shareplc.com).
Operations
Customer satisfaction is one of our main targets. This supports our passion for helping personal investors by providing
them with the tools and knowledge to achieve their financial objectives regardless of their wealth or experience. We are therefore delighted to be regarded so highly by our customers in independent surveys such as the Investment Trends research and in all the compliments we receive from our customers. The real test is when something goes wrong, and the level of complaints we experience continues to be very low. In 2012 we received a total of 1.6 complaints per 1,000 accounts (2011: 1.8). This was almost half the level experienced by many other execution-only stockbrokers, with those included in Compeer’s 2011 annual research having an average of 3.1 complaints per 1,000 customers. In 2012 we had just three (2011: five) complaints referred to the Financial Ombudsman Service (FOS) and none upheld against us (2011: one).
This high level of customer satisfaction is only achievable with the dedication and commitment of our high quality employees. We are very proud of the people we employ who are all critical to our customer proposition. At the end of 2012 we had 137 full time employees and directors (2011: 148). The ratio of male to female employees has remained constant at approximately 3:4.
Our core values, in particular Respect for Others, underpin the way we interact with our customers but also with each other. We offer our employees a range of benefits including the contribution of 8% of base salary into a pension of their choice, participation by all employees in the Group’s profit share arrangements which pays a quarterly profit related bonus, and a Share Incentive Plan with 2:1 matching of employee contributions. This latter benefit means a significant proportion of our employees are shareholders with 107 employees currently making regular monthly contributions into the scheme.
In 2012 we repeated the staff survey first conducted in 2011. This again showed high levels of satisfaction amongst our employees with over 80% (2011: 80%) of staff agreeing with the assertion “I believe that this is a great place to work” and over 85% (2011: 85%) of staff agreeing that they “would recommend The Share Centre as a good employer”.
The quality and reliability of our IT systems is critical to our performance. We operate and maintain a bespoke in-house system which provides us with the greatest possible independence and flexibility. 2012 saw continued investment in our IT infrastructure. This has included a rolling programme of the replacement of outdated hardware and an ongoing project to transfer much of the underlying code for the core systems to a
16
annual report 2012
more modern and better supported programming language. That these changes occur over time without impact on the customer service we deliver is clearly important.
The interaction between the customer proposition and the IT systems we operate is particularly evident in some of the projects which have been implemented in 2012. We have introduced a mobile dealing platform for our customers to facilitate dealing for existing customers through any mobile device such as a phone or tablet. We have also done much of the work on implementing new Content Management System software which will enable an improved website experience for our customers and prospective customers. This will be implemented in the first quarter of 2013 when the website is refreshed.
The website is our main means of interaction with our customers and potential customers. In 2012 www.share.com received an average of over 140,000 unique visitors every month (2011: 160,000) with an average of nearly 25,000 individual customers signing into their accounts each month (2011: 26,000). These figures, although lower than in 2011 reflecting the lower levels of activity across the market, demonstrate the high volume of interaction which occurs through our website and therefore the importance of that interface in terms of presentation and robustness.
Finally, it is worth noting that we provide services to a range of corporate clients (and their customers) in addition to our own personal investor customer base. These services include the provision of share-dealing and custody services on a white label basis, the provision of administrative and custodial services to Enterprise Investment Scheme (EIS) managers and the administration of Share Incentive Plans (SIPs). Overall these corporate revenue streams contributed 6.0% (2011: 5.8%) of Group revenues.
Regulatory compliance
Both The Share Centre Limited (FSA reference number: 146768) and Sharefunds Limited (FSA reference number: 227807) are authorised and regulated by the FSA and the Group as a whole complies with all the FSA’s relevant rules and regulations. A strong compliance culture is maintained throughout the organisation and all staff receive regular training on matters such as Anti-Money Laundering, Bribery and Fraud. The Group also engages actively with the FSA on issues where the FSA is seeking consultation with the industry. In 2012 this has included such matters as the funding
arrangements for the FSCS and questions the FSA has started to raise in respect of the use across the industry of term deposits for client money balances. Client assets, their safeguarding and protection, rightly continues to be a high priority area for the FSA. The Group takes its responsibilities in this regard very seriously and it was particularly pleasing that the statement which received the highest level of agreement in the 2012 staff survey across all our staff was that “the Group treats the safety of customer assets and the security of their data as paramount”.
During 2013 the FSA will be split into the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The FCA will regulate The Share Centre Limited and Sharefunds Limited and we will seek to engage positively with the FCA going forward as we have done with the FSA in the past.
Looking forward
The Group’s continuing focus is on providing exceptional service for our customers and through doing this we seek to expand our customer base and increase revenues. That revenue growth, with the scalable nature of the business, should deliver growth in margins and profit.
We see a number of opportunities in 2013. The Retail Distribution Review (RDR) is changing the way investors are advised and the way they are charged for investing in funds. Many IFAs have already left the high street, leaving customers without ready access to advice. We therefore believe there is an opportunity to offer those customers guidance and support.
In addition, RDR will make charges from fund distributors and advisors transparent and replace the existing opaque trail commission process. Trail commission is not currently prohibited for execution-only firms such as The Share Centre Limited, and may not be prohibited as the final FSA rules are still awaited on whether firms operating fund platforms will be prohibited from receiving trail commission with effect from 2014. Nevertheless, the funds industry is overtaking the regulator and ‘clean share classes’ with a lower annual management charge for investors and no trail payment back to the distributor are already gaining significant traction and media attention. Less than 10% of our customers’ assets are in funds and trail commission contributed just 3.8% (2011: 3.4%) of revenues in 2012. Without a material legacy position to protect, this gives us a significant opportunity to offer funds custody and trading solutions to personal investors at a very competitive price. We intend to do so in 2013.
The Group’s continuing focus is on providing exceptional service for our customers and through doing this we seek to expand our customer base and increase revenues. That revenue growth, with the scalable nature of the business, should deliver growth in margins and profit.
annual report 2012
17We believe that the continued low interest environment and search for a return on savings and investments will continue to encourage more people to turn to self-select providers such as The Share Centre Limited for their investment needs. We will continue to work hard to increase the number of customers we serve, maintaining the focus on our high quality customer service. We believe implementation of the Content Management System for the website and other improvements will help increase the conversion rate of prospective customers visiting our website into fully engaged customers.
In 2013 we also aim to increase the number of corporate partners we are working with and through whom we are providing our services to personal investors. We have employed a new Head of Corporate Sales to drive this initiative. We will also continue to pursue suitable acquisition opportunities where and when they arise.
The Chairman and Chief Executive have both highlighted the challenges posed by regulation in their reviews. 2013 will be no different with the move to the FCA likely to herald an approach to regulation characterised by earlier direct intervention by the regulator in areas where it sees concerning practices. One such challenge we foresee will be in the forthcoming consultation on the client asset rules and in particular the rules regarding client money. We believe this may contain changes prohibiting
or restricting the use of term deposits. We always place great emphasis on the security of our clients’ assets, for example putting in place secured deposit arrangements with some institutions. We believe the risks to client money revolve around the quality of controls and reconciliations and the corporate governance in respect of counterparty selection and monitoring. To prohibit the use of term deposits would not benefit customers but would penalise well run and managed firms, potentially severely curtailing our ability to earn interest income and receive collateral as security to protect customer deposits. We will, of course, engage with the FCA on any proposed changes and lobby hard to ensure that well managed firms, which take the security of their customers’ assets as seriously as we do, are not penalised by any new rules.
So, we see 2013 as being a year focused on delivery of the strategy as set out in the Chief Executive’s review. By continuing to put customers first, growing the customer base of the core business and working in partnership with others, we believe that we will be able to grow revenues and profits over the long term to the benefit of all customers, employees and shareholders. 2013 has started well with an upturn in activity levels relative to 2012 and we hope this continues through the rest of the year.
140,000 visits per month
to share.com
18
annual report 2012
The Group uses a number of key performance indicators to monitor and measure its progress through the year. These are both quantitative and qualitative and relate to activity levels as well as financial metrics. The key performance indicators discussed below are consistent with those disclosed in previous Annual Reports.
Business performanceMarket share
The principal key performance indicator, on which the Group reports quarterly, is the market share of benchmarked revenues. This is measured against a peer group of nine other retail stockbrokers and serves to identify whether our performance is exceeding that of our peers irrespective of underlying market trends which affect the industry as a whole. The data for the measurement of this indicator is drawn from Compeer, the independent company which gathers and provides data and analysis to the wealth management community.
The fourth quarter data showed a market share of 7.23% (Q4 2011: 6.49%). For the year as a whole the market share was 6.8% (2011: 6.1%). This data shows that the Group has outperformed its peers during the year in terms of revenue growth.
As noted in the business review above, this outperformance reflects the fact that the Group experienced significantly lower falls in dealing commission and fees than the peer group as a whole. Overall revenues for the Group declined by just over 2% as compared to a decline of almost 13% experienced by the collective peer group.
It is worth noting that the Group has a more balanced business model than its peers, with a greater proportion of revenues derived from fees and interest as opposed to dealing commission. For example, in 2012, 64% of the Group’s revenues were fees or interest as compared to 33% of our peer group’s revenues. In times of weaker dealing volumes as at present, the Group therefore
benefits as revenues are not impacted to the same extent as is the case for our peers.
Customer interaction
We measure the levels of interactions with customers and prospective customers through a range of metrics. These include the level of enquiries, accounts opened and website usage. Our website continues to attract increasing numbers of visitors and remains the predominant route through which new accounts are opened. In 2012 these metrics reflected the lower levels of investor activity in the market. The average monthly number of unique visitors was over 140,000 (2011: 160,000) and an average of nearly 25,000 individuals signed-in to www.share.com to access their accounts each month (2011: 26,000). Overall account numbers increased by just under 0.5% to 279,000 (2011: 278,000). Of the new Share Accounts opened during the year 92% were opened online (2011: 92%).
Headcount
We monitor levels of headcount and staff costs on a monthly basis, reviewing the actual levels (137 at 31 December 2012 (2011: 148)) as well as assessing staff turnover rates and our success in attracting and recruiting new staff. Headcount levels have decreased in the year reflecting the scaling back of the Sharefunds activity towards the year-end. In 2012 our staff turnover rate was 24.9% (2011: 6.3%) – clearly significantly increased due to the transfer of staff away from The Share Centre as part of the scaling back of fund accounting activities.
FinancialRevenue
In 2012 total revenue generated was £13.9 million (2011: £14.3 million). Given that a majority of our costs are related to headcount and discretionary marketing spend, driving revenue is key to driving the profitability of the Group and expanding our profit margins. This is therefore monitored closely on a monthly basis.
key performance indicators
annual report 2012
19In addition to the absolute value, we also look at the split between dealing commission, fees and interest income. In 2012 that split was 36%, 47% and 17% respectively (2011: 40%, 46% and 14% respectively). The shift in favour of fees and interest reflects the lower dealing volumes and thus commission revenues in the year.
We place particular emphasis on fees and interest income as these represent higher-quality recurring revenue streams. In 2012 they represented 64% (2011: 60%) of total revenues.
Operating margin
In driving revenue growth it is important that a significant element of that growth translates into increased profits. We therefore monitor the operating margin of the Group on a monthly basis. This margin decreased in 2012 to 6.7% (2011: 9.5%). This reflects the reduced activity levels against a relatively fixed cost base.
The Group considers an operating margin, between 25% and 30%, to be its longer term aspiration. As revenues expand further, and interest rates return to more historically normal levels, we would expect to see this margin increase.
Assets under administration
The level of assets under administration measures the collective value of the investments and cash held by our customers. We look at this in absolute terms and at the rate of change relative to overall market levels. At the end of the year this value was £1.84bn (2011: £1.51bn), an increase of 22% which compares favourably to an increase in the FTSE All Share index over the same period of 8%. A rate of increase greater than the market as a whole indicates the Group’s ability to attract new accounts and additional investment from existing customers. As a proxy, assuming our customers performed in line with the FTSE All Share index this would imply a net inflow of funds of c.£205 million during 2012 (2011: £73 million).
Cash flow
The Group’s full cash flow statement is presented on page 46. We monitor cash flows on a monthly basis and in particular review the Group’s ability to translate post-tax profits into cash. In 2012 the overall cash balances held on the Group’s own account, i.e. excluding amounts held in trust for clients to complete settlement of transactions, increased to £11.5 million from £10.5 million. As set out in the 2011 Annual Report, in addition to the profitability of the Group during 2012 cash balances were boosted by the maturing of some client money term deposits which paid their interest on maturity.
Financial resources
The FSA requires that regulated entities in the Group, as well as the Group as a whole, maintain certain levels of capital. We monitor the level of the Group’s financial resources and regulatory capital regularly and ensure this is above the minimum requirement, completing the necessary monthly, quarterly and annual regulatory returns to the FSA to demonstrate this. The Group currently has regulatory capital resources many times the required level and most of that capital is in effect held in liquid form as cash. As at 31 December 2012 our financial resources for this purpose – for the Group as a whole – stood at £16.6 million, 5.6 times the amount required (2011: £14.9 million, 6.0 times the requirement).
The Group has in place an Internal Capital Adequacy Assessment Process (ICAAP) which was reviewed by the FSA in 2009. Full details of our capital requirements as required to be disclosed under Pillar III of the Capital Requirements Directive can be found on our website – www.shareplc.com.
Assets under administration
2012
1.84bn
2011
1.51bn
20
annual report 2012
The Directors have identified and continually monitor the principal risks and uncertainties facing the Group. These may change over time as new risks emerge and others cease to be of concern. The principal risks to the Group are detailed below. The Directors believe that the identified risks have been addressed and where possible, and within the Group’s control, mitigating actions have been taken to ensure processes and procedures are in place and followed to limit any impact which could arise (see Note 20 for further detailed information).
Regulatory risk
The Group contains regulated entities. As such it is essential that it abides by the rules and requirements of the FSA. Failure to do so, especially with regard to the treatment of customers and the handling of customer assets, could lead to sanctions and fines on entities within the Group. A significant amount of the regulations which impact the Group originate from Europe and include directives such as the Capital Requirements Directive (CRD) and the Markets in Financial Instruments Directive (MiFID). MiFID is still being reviewed by the European Union and consultations are taking place, the outcome of which could impact the business. In addition, the FSA will change to become the Financial Conduct Authority (FCA) in 2013 and we anticipate a consultation on wide ranging changes to the client asset rules which could impact the business. The Group is also subject to the decisions of the Financial Ombudsman Service (FOS) and Financial Services Compensation Scheme (FSCS). In respect of the latter, the Group, through The Share Centre Limited and Sharefunds Limited, is liable for any fees levied by the FSCS to cover compensation costs incurred in respect of the customers of failed firms in our industry. These charges may be material.
Systems risk
The operations of the Group are highly dependent on technology. A failure in the Group’s core systems or customer interfaces could
pose a significant risk to the business. Were it to affect the ability to reconcile accounts or maintain records, this could also have regulatory implications. This would also be the case were any of the Group’s systems or processes in respect of data security to fail.
Reputational risk
The Group is continuing to spend significant sums of money on marketing and building The Share Centre’s brand to attract new customers. Were the brand to be affected in any way through bad publicity or negative associations, this could impact customer confidence in that brand and damage the prospects of the business.
Investor sentiment
The Group has a diversified customer base and is not subject to any significant concentration risk in its retail stockbroking business. However, most revenues are derived from personal investors and were investor confidence in the stock market to be adversely affected, or were there to be a very deep, prolonged recession with very high unemployment which reduced the ability of personal investors to undertake savings and investment activity, this could impact the performance of the Group. Indeed over the last year we have seen reduced deal volumes across the market partly for this reason.
Stock market volatility
Changes in the value of the stock market directly impact the level of ad valorem fees and therefore revenues. Sharp changes in valuations can also damage investor confidence and therefore damage the prospects of the Group more widely. The Group’s business model and split of revenues across commission, fees and interest help mitigate exposure to any one factor. However, a combination of falling stock values and sharply reduced investor activity could have a significant impact on the performance of the Group.
principal risks and uncertainties
annual report 2012
21Competition risk
The Group faces competition from a number of other brokers and larger financial institutions offering similar services. The Group has successfully differentiated itself by targeting investors at an earlier stage than many brokers, by offering a clear and easy to use service, through its high quality customer service and low prices. However, the Group is always susceptible to the impact of short-term cut-price offers from competitors who, in the case of the large financial institutions, may have substantial financial resources to support such initiatives.
Fund administration specific risks
The Group acts as Authorised Corporate Director (ACD) for some funds, including its own funds of funds. There is a greater exposure to systemic risk arising from issues such as the mis-pricing of funds. These activities will be largely outsourced to BNP Paribas during 2013; however, regulatory responsibility continues to rest with Sharefunds as, therefore, will aspects of the risk associated with this aspect of the Group’s business. A failure in any of these areas could have a material impact on the Group’s performance.
Other risks
The Group is impacted by fluctuations in economic sentiment amongst investors. This may increase or decrease trading dependent on investors’ confidence and availability of funds to invest. The Group is not though exposed to currency risk or specific country risk other than through its interactions with counterparties who themselves may suffer from such exposures. For example, whilst everything the Group does is in £ Sterling; the counterparties, and in particular, the banking institutions with which it deals, will have exposure to foreign currencies and other countries which could affect their stability and in turn have an impact on the Group.
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annual report 2012
The principal objective of the Group’s corporate and social responsibility policy is to ensure a long-term sustainable future for Share plc, all its stakeholders and the communities in which it operates.
The directors of Share plc believe the Group has an important role to play in the local community and more broadly. The active role the Group plays includes:
- Financial education
Gavin Oldham is a Board member of pfeg, the personal finance education charity, and the Group makes a £10,000 contribution to its activities by way of its corporate membership. The Share Centre also operates Shares4Schools (www.shares4schools.org), a real investment competition for Year 12 students.
- Charitable activities
Staff at The Share Centre regularly organise a variety of fundraising events and participate in the monthly ‘dress down’ day for charity. In 2012 these activities raised, by way of staff contribution, almost £2,800 (2011: £6,000). In 2013 we have decided to focus our charitable efforts on two organisations – one local and one national. They are The Florence Nightingale Hospice and Macmillan Cancer Support.
The environment
As an office-based business our impact on the environment is relatively light by the nature of our services. One impact is the effect of staff driving to work which is in part mitigated through working with our landlord to provide more bicycle parking, through encouraging some flexible working patterns to enable staff to avoid peak travel times, and through being based in a relatively residential location.
Further environmental impacts arise from the energy we use and through the level of paper we consume, both of which we try to mitigate through increased staff awareness. In addition, we are continually seeking to increase the extensive use of electronic
communications in delivering our services which provides opportunities not only to improve customer facilities but also to minimise our carbon ‘footprint’.
Our customers
We are committed to providing all of our customers, and those of our corporate clients with whom we deal, with outstanding customer service. We have embraced the concept of Treating Customers Fairly and through training and company culture have embedded this throughout our organisation.
We are committed to fulfilling our customers’ investment needs and this includes investing in new services and technologies to enable customer interaction and a proactive approach to customer contact, resolving issues which may arise at the earliest opportunity.
Our employees
We invest in the development of all our staff and believe all our employees should share in the success of the business. We have adopted best practice with regard to all legislation as noted in the Directors’ Report.
We support our employees’ personal and professional needs and seek to stay ahead of corporate best practice in many areas. This includes making significant contributions to employees’ personal pension plans, sick pay in excess of statutory minimums, sabbatical leave opportunities and flexible working where appropriate.
We also aim to provide a safe and supportive environment in which to work, and all staff receive appropriate training and workstation assessments to ensure health and safety issues are addressed and risks mitigated. We also provide all staff with the ability to join the Group’s private medical scheme covering them and their dependants, and provide access to regular preventative health screening for all managers.
Ethical
Share plc is committed to the highest standards of corporate behaviour from its directors and employees, and expects all staff
corporate and social responsibility
annual report 2012
23to perform their duties with efficiency and diligence, treating others with care and courtesy. The Group has a strict conflict of interest policy and rules on the acceptance of any gifts, which requires any such material gifts to be recorded on a central register maintained by the compliance department. All personal share dealing by staff is also monitored to ensure conflicts are avoided and regulatory obligations are met.
The Group pays bonuses to directors and staff based on a profit share. In 2012 this profit share element was 4.1% of base salaries (2011: 6.0%), reflecting the lower absolute levels of profit achieved in 2012. No member of staff is rewarded on the basis of sales or commissions in respect of transactions undertaken by individual customers.
The English International College, winners of the 2012 Share4schools investment competition
24
annual report 2012
w
Sir Martin Jacomb 83Chairman and Non-Executive Director
Sir Martin brings to the Share plc Board a wealth of experience from across the business spectrum. His previous experience includes serving as Chairman of Prudential, Chairman of BZW, Deputy Chairman of Barclays plc, Chairman of Canary Wharf plc and directorships at the Bank of England, Rio Tinto plc, and Marks and Spencer plc. Sir Martin is also a regular contributor to the media including television.
Richard Stone 39 Finance Director and Chief Operating Officer
Richard, a qualified Chartered Accountant, joined Share plc in April 2006, from his previous role as a Director of Huntswood - an outsourcing business serving the financial services sector. His earlier investment market experience as an equity research analyst with the US investment bank, Robertson Stephens, included involvement in a number of initial public offerings across Europe, and enables him to contribute to the further development of Share plc’s profile in addition to managing the financial and administrative affairs of the Group.
Gavin Oldham 63 Chief Executive
Gavin’s responsibilities include all aspects of control and oversight, including the Group’s strategy for growth. Founder of The Share Centre, having previously established Barclayshare (now Barclays Stockbrokers) for Barclays Bank, Gavin plays an active role in business affairs and is a regular contributor to radio and TV. An elected member of the General Synod and a Church Commissioner (and deputy chairman of its Assets Committee), he also serves on the Church’s Ethical Investment Advisory Group, and is a trustee of pfeg (Personal Finance Education Group) and founder of The Share Foundation.
board of directors
annual report 2012
25
w
Jeremy Helliwell 57 Director, Investor Service and Technology The Share Centre Limited
Jeremy worked in a variety of project and systems-based roles at Barclays, and was part of the core team which created Barclayshare (now Barclays Stockbrokers). Responsible for the day-to-day operations of the business including the front office activities of Customer Services and Dealing, as well the firm’s IT systems and infrastructure, Jeremy has significant day-to-day involvement in delivering quality services to our customers.
Iain Wallace 43 Compliance and Legal Services Director
Iain’s experience as a private client stockbroker, and latterly a regulator with the Securities and Futures Authority and the Financial Services Authority, ensures we maintain a strong compliance culture delivering clear, fair and effective services for our customers. He also maintains oversight of the service provided to Asset Match and the Sharefunds services for corporate clients, as well as The Share Centre’s advice service and HR function. Iain holds a Masters Degree in Financial Services Law (LLM).
Guy Knight 54 Sales and Marketing Director, The Share Centre Limited
Guy brings extensive practical experience across the insurance, investment banking, stockbroking and retail banking sectors. He has held a variety of Marketing, General Management and Board positions at companies including Hiscox Insurance, Deutsche Bank, Charles Schwab, Credit Agricole, The Mortgage Corporation and Nationwide Building Society. He is responsible for PR, marketing communications, brand management, product and pricing strategy and the corporate sales function.
Richard Tolkien 58 Non-Executive Director
Richard started his career with five years at HM Treasury, and then went on to spend 24 years as an investment banker with advisory and management experience gained in senior corporate finance and executive roles with Morgan Grenfell, HSBC and Macquarie Bank. He is also a non-executive director of Parkwood Holdings plc.
Francesca Ecsery 49 Non-Executive Director
Francesca has a background in consumer-led organisations, with particular expertise in online sales, marketing and service delivery. Francesca was most recently the Global Business Development Director at Cheapflights Media, and prior to that Managing Director, International, at STA Travel Group, the world’s largest student travel company. Francesca also uses this expertise to play a leading role as Publications Officer within the Women in Advertising and Communications London (WACL) organisation – a not-for-profit group of influential women working in marketing and communications.
26
annual report 2012
annual report 2012
27financial statements
Myra, dealing team
Helal, investment research analyst
Emma, customer service team
28
annual report 2012
The directors submit their report and the audited accounts for the year ended December 2012.
Principal activities
The Company acts as the holding company for the Group with subsidiaries as set out in Note 18. The principal business of the Group is made up of two fully integrated activities provided through The Share Centre Limited. These are:
• the provision of custodial administration whereby the Company acts as nominee for a number of different types of accounts including Share Accounts, ISAs and Child Trust Funds; and
• a low-cost dealing service to allow customers holding accounts to trade investments (including equities and funds).
In addition, the Group operates a fund administration business (Sharefunds).
Review of the business
A review of the business during the year is given in the Chairman’s statement, Chief Executive’s Review and in the Business Review on pages 6 to 23 of this Annual Report. Included in those reviews are details of the key performance indicators used by the directors to monitor the Group’s performance, along with explanations of the principal risks and uncertainties facing the business, and references to the Group’s future prospects. These statements should all be read and considered as part of this Directors’ Report.
Results for the year
The results for the year ended December 2012 and the financial position at that date are set out in the financial statements. The profit after taxation of the Group amounted to £521,000 (2011: £1,114,000).
Dividends and transfers to reserves
During 2012 a final dividend of £517,000 in respect of 2011 was paid (0.36 pence per share). A final dividend in respect of 2012 has been proposed by the Board of 0.43 pence per share. This would amount to a total gross final dividend payment of £618,000 given the current number of shares in issue.
The retained profit after tax of £521,000 (2011 (restated): £1,114,000) has been transferred to reserves.
Policy on payment to suppliers
The Group agrees terms and conditions for its business transactions with suppliers. Payment is then made on these terms, subject to the terms and conditions being met by the supplier. At 31 December 2012 Group trade creditors represented approximately 28 days (2011: 31 days).
Directors and their interests
The directors who were in office during the year and their interests in the 0.5p ordinary shares of the Company were as follows:
2012 2011
Sir Martin Jacomb (Chairman) 618,970 603,442
G D R Oldham (including related parties) 109,327,919 109,327,919
R I Tolkien 118,267 98,857
F E Ecsery - -
I P Wallace 132,597 135,792
R W Stone 98,472 104,062
directors’ report
29
annual report 2012
Details of the directors’ share options are included in the directors’ remuneration report and none of the directors had an interest in any shares of any other Group company. The Company maintains a liability insurance cover on behalf of directors and officers of the Company and its subsidiary undertakings.
Share capital
As at 13 March 2013 the following persons or entities held an interest of three percent or more in the issued share capital of the Company. In accordance with the requirements of Rule 26 of the AIM Rules this information is also available on the Group’s website www.shareplc.com:
Shareholder Holding Percentage of issued Share Capital
Gavin Oldham controlled Trusts* 71,868,750 50.0%
Gavin Oldham* 17,378,042 12.1%
Virginia Oldham (including Trust)* 12,352,737 8.6%
Cuillin Investments Limited 5,354,000 3.7%
*These are related parties
Share Nominees Limited, the non-trading bare trustee for The Share Centre Limited’s customers, holds 43,834,082 shares (30.5%), including some of the shareholdings detailed above.
Directors’ responsibilities statement
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the 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 the company and of the profit or loss of the Group for that period. In preparing these financial statements, International Accounting Standard 1 requires that directors
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and
• make an assessment of the Group’s ability to continue as a going concern.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
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annual report 2012
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Charitable and political donations
During the year the Group made charitable donations of £935 (2011: £1,459). No political donations were made in the year (2011: £Nil).
Employment policies
The Group encourages employees to participate in its success through performance-based bonus arrangements and through its use of share-based incentive arrangements among its senior employees. To further this overall equity participation the Company offers a Share Incentive Plan, which allows every employee to purchase up to £1,500 worth of the Company’s shares per annum on a tax-efficient basis. These are purchased on a monthly basis and held in trust and the shares acquired by the employee are supplemented by the Company on the basis of two matching shares for each share purchased by the employee.
Employees are kept informed of the Group’s progress, including the key performance indicator (benchmarked revenue share), by quarterly presentations alongside information issued by way of press releases.
It is the Group’s policy that no employee, or applicant for employment, receives less favourable treatment (including training and development, recruitment and promotion) by the Group or any other employee, on the grounds of disability, sex, age, race or religion nor be disadvantaged by conditions, management attitudes, behaviour or requirements that cannot be justified
Financial risk management
The Group, overall, has a risk-averse attitude. In terms of specific risks, with the exception of strategic holdings in the London Stock Exchange plc, Euroclear plc and WAY Group Limited, the Group does not take equity positions on its own account so is not exposed to equity security price risk, and it has no credit concentration or relationships with customers which expose it to any significant credit risk. The level of debtors and creditors in the balance sheet predominantly represents customers’ open positions with the market. The Group has no borrowings and has significant cash resources which are held on short-term deposit – these two factors limited any exposure to interest rate or liquidity risk in 2012. The Sharefunds business division is exposed to different risks to the rest of the Group and had an element of concentration risk as the majority of its revenues derived from fund administration in respect of funds managed by WAY Fund Managers. This will no longer be the case from 2013 onwards.
Further information on financial assets and risks is contained within the Business Review and Note 20 to the Financial Statements.
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Chairman’s Statement, Chief Executive’s Review and Business Review on pages 6 to 23. This also includes a discussion of the Group’s cash flows and liquidity position as well as details of how the Group manages risk. The notes to the Financial Statements include a discussion of credit and liquidity risk.
The Group has considerable financial resources and no external debt. With a diversified customer base and core recurring revenue streams along with large elements of discretionary spending in the Group’s cost base, the directors believe that the Group is well placed to manage its business risks successfully despite the uncertain economic outlook. Therefore, after making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the going concern basis has continued to be used in the preparation of the Annual Report and Financial Statements.
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annual report 2012
Independent auditor
Each of the persons who is a director at the date of approval of this annual report confirms that:
• So far as the director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and
• The director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
Deloitte LLP has expressed its willingness to continue in office as auditor and a resolution to reappoint it will be proposed at the forthcoming Annual General Meeting.
On behalf of the Board
Sir Martin Jacomb, Chairman13 March 2013
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corporate governance
The directors acknowledge the importance of the UK Corporate Governance Code and have complied with its requirements so far as is appropriate to a Group the size and nature of Share plc. Although not always required to do so, the directors have consistently provided corporate governance disclosures comparable with those that are voluntarily provided by AIM-quoted companies.
Board
The Board consists of three executive directors and three non-executive directors whose biographies are set out within the Business Review. These biographies demonstrate a range of experience and calibre to bring independent judgment on issues of strategy and performance which is vital to the success of the Group. The Board is responsible to shareholders for the proper management of the Group. A statement of directors’ responsibilities in respect of the financial statements is set out on page 29 and a statement of going concern is set out on page 30.
The structure of the Board and its sub-committees is regularly reviewed and these committees are as follows:
Meeting Attendees Chairman Minimum Frequency Purpose
Board Board directors Chairman Quarterly Group strategy and regulatory control
Executive Executive directors Chief executive Fortnightly Operational management of the Group
Audit and Risk Non-Executive Senior non-executive Biannually Review of internal control, Directors compliance, effectiveness and costs of audit
Risk sub-committee Compliance director, Compliance director Biannually Monitoring of Group risk Finance director, Investor service and Technology director (The Share Centre Limited) Non-executive director
Remuneration and Non-executive directors, Chairman Biannually Structure of Board Nomination Chief executive remuneration and the Board’s composition
Policy on non-audit services provided by the auditor
To safeguard the independence of the audit process, non-audit services provided by the auditor are usually limited to defined audit-related work and tax services that fall within specific categories. The auditor’s remuneration for taxation services principally relates to advice in connection with the completion of the current and prior year tax computations for the Group.
Risk management and internal control
The Board has overall responsibility for risk management and internal controls. The schedule of matters reserved for the Board ensures that the directors maintain full and effective control over all significant strategic, financial, organisational and compliance issues. The Audit and Risk Committee have considered the absence of a formal internal audit function in the context of the Group’s compliance procedures and other controls, and have concluded this is appropriate.
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The directors have delegated to executive management the establishment and implementation of a system of internal controls appropriate to the regulatory and business environment in which it operates. This system of controls has been developed and refined over time to meet the Group’s current and future needs and the risks and opportunities to which it is exposed. These controls include but are not limited to:
• Strategic planning and the related annual planning and quarterly re-forecasting process including the ongoing review by the Board of the Group’s strategies;
• The definition of the organisational structure and appropriate delegation of authorities to operational management;
• The internal financial reporting and review of financial results and other key performance criteria;
• Accounting and financial reporting policies to ensure the consistency, integrity and accuracy of the Group’s financial records;
• Regulatory control, compliance and application of the FSA rulebook;
• Client asset control and reconciliation; and
• Internal control and compliance reviews providing formal monitoring, risk assessment and reporting of weaknesses in departmental processes.
Relations with shareholders
The Board recognises the importance of communications with shareholders. The Chairman’s statement and the Business Review in this Annual Report include a detailed consideration of the business, its strategy, operations and future prospects.
The Board uses the Annual General Meeting to communicate with investors and welcomes their participation. All directors are available at Annual General Meetings to answer questions. The proxy votes cast on each resolution proposed at general meetings are disclosed at those meetings. Regular press announcements are also provided to inform shareholders and potential investors and are posted on the Group’s website, www.shareplc.com, as well as through the London Stock Exchange news service
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annual report 2012
directors’ remuneration report
As stated in the Corporate Governance Statement on pages 32 and 33, the Company acknowledges the importance of the UK Corporate Governance Code and has complied with its requirements so far as is appropriate to a Group of the size and nature of Share plc. The directors’ remuneration report is made in accordance with the requirements of AIM Rule 19. It complies with the requirements of AIM Rule 19 and describes how the Board has applied the principles of good governance relating to directors’ remuneration.
The auditor reports to the Company’s members on the “auditable part” of the directors’ remuneration report and states whether in its opinion that part of the report has been properly prepared in accordance with the Companies Act 2006. The report has therefore been divided into separate sections for audited and unaudited information.
Unaudited information
Remuneration committee
The Remuneration committee has responsibility for making recommendations to the Board on the Group’s general policy on remuneration and for specific packages for individual executive directors.
The membership of the committee is:
Sir Martin Jacomb (Chairman)G D R Oldham R I Tolkien F E Ecsery No director plays any part in any discussions about their own remuneration.
Remuneration policy
The Company’s policy is to provide remuneration packages to attract, motivate and retain directors of the right calibre who will make a significant contribution to the performance of the Company. The Board’s policy for executive remuneration is designed to:
• Ensure the directors’ rewards are competitive when compared to similar companies in terms of size and/or industry; and
• Give executive directors the opportunity to increase their earnings by achieving and exceeding key performance objectives.
As part of its ongoing business the Committee undertakes periodic reviews of market levels of pay amongst similar companies. Based on these reviews the Committee has determined a base salary for the Chief Executive but has noted the decision of the current incumbent to draw a lower salary than that established by the Committee as appropriate for the position. In conducting these reviews of directors’ remuneration, the pay and conditions of all staff within the Group are considered including the level of any general increases awarded
Base salary and benefits in kind
An executive director’s basic salary is set by the Remuneration Committee to reflect the director’s responsibility, experience and market conditions. The basic salary is reviewed annually with effect from 9 April.
The benefits-in-kind provided include medical cover, life assurance and car allowance.
Profit share
The Company operates a profit-sharing arrangement for its executive directors, who do not receive sales commission, thereby ensuring that the interests of shareholders and executives in sustaining increased profits are closely aligned and risks and rewards are shared. This arrangement operates through the creation of a pool based on a percentage of operating profits, operating profit growth and revenue growth, which is then distributed on the basis of salary.
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Pensions
Executive directors are responsible for their own pension arrangements and are eligible to receive an additional 8% of their annual salary payable into their personal money purchase pension scheme. This is the same rate as applied to all staff throughout the Group.
Share options
Directors are eligible to participate in the Company’s share option schemes. Details of the schemes are provided in Notes 29 and 30 to the financial statements. The committee ensures that awards are made within the overall limits authorised by the shareholders and at an appropriate level for an individual, taking into account their role, contribution to the business, previous option grants and market practice.
Share incentive scheme
The Company operates a Share Incentive Plan which is open to all employees. The executive directors, with the exception of G D R Oldham, are eligible to participate in the plan and their interests in the shares of the Company are as set out in the Directors’ Report.
G D R Oldham holds a controlling interest in the Company and is not eligible to participate in the scheme. He therefore receives an additional remuneration payment equivalent to the value of the contribution that the Company would have made had he been entitled to participate in the scheme, and uses the net payment to purchase shares in the Company.
Service contracts
The Company has entered into the following non fixed term service contracts with its directors:
Date of service Notice period agreement (months)
Sir M Jacomb 18 March 2008 1
G D R Oldham 14 April 2008 12
R I Tolkien 18 March 2008 1
F E Ecsery 4 July 2011 1
I P Wallace 14 April 2008 6
R W Stone 14 April 2008 6
In the event of termination of employment of any of the directors, compensation amounting to that falling due under the notice period would be payable.
Non-executive directors
The Board determines the level of non-executive remuneration after considering fee levels in comparable businesses. A basic fee is set for normal duties and supplementary fees are paid for additional duties.
Whilst the UK Corporate Governance Code suggests that to retain their independence, non-executive directors should not be able to participate in the Company’s share option schemes, the Company believes that the size of the share options granted to its non-executive directors in the past has not affected their independence.
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annual report 2012
Total shareholder return performance graph
The above graph shows performance relative to the FTSE All Share Index which the directors believe to be the most appropriate benchmark, particularly given the broad investments held by our customers and the consequent exposure elements of the Group’s revenues have to the constituents of that index.
Share plcFTSE All Share Index
01/ 08 07/08 01/09 07/09 01/10 07/10 01/11 07/11 01/12 07/12 01/13
140
120
100
80
60
40
20
0
Salary/ Benefits Other1 Profit 2012 2012 2011 2011 fees share total pension total pension contribution contribution £ £ £ £ £ £ £ £
Sir Martin Jacomb 40,000 - - - 40,000 - 35,333 -
G D R Oldham 133,500 8,597 6,000 18,185 166,282 10,680 199,417 10,293
R W Stone 120,786 8,873 - 16,120 145,779 9,480 171,812 9,147
I P Wallace 119,167 8,873 - 16,297 144,337 9,533 174,662 9,307
R I Tolkien 27,500 - - - 27,500 - 25,250 -
F E Ecsery2 25,000 - - - 25,000 - 8,424 -
465,953 26,343 6,000 50,602 548,898 29,693 614,898 28,747
1 This additional remuneration payment for G D R Oldham is equivalent to the value of the contribution that the Company would have made had he been entitled to participate in the Company’s Share Incentive Plan.2 F E Escery was appointed during 2011 so the prior year salary is not for a full 12 months.
Directors’ share options
Under the Company’s executive share option scheme, enterprise management incentive scheme and co-ownership equity incentive plan, as at 31 December 2012 options and interests in shares were held by directors over ordinary 0.5p shares as follows.
Audited Information
Directors’ emoluments
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annual report 2012
At 1 Jan Granted Exercised At 31 Dec Exercise Date of Date first Expiry 2012 in year in year 2012 price grant exercisable
Iain Wallace U 200,000 (200,000) - 0.12 21/03/2003 21/03/2007 21/03/2013Iain Wallace U 200,000 (200,000) - 0.12 21/03/2003 21/03/2008 21/03/2013Richard Stone E 50,000 (50,000) - 0.2 10/07/2006 10/07/2009 09/07/2016Richard Stone E 50,000 (50,000) - 0.2 10/07/2006 10/01/2011 09/07/2016Richard Stone E 50,000 50,000 0.2 10/07/2006 10/07/2012 09/07/2016Iain Wallace E 41,274 41,274 0.145 02/04/2007 02/04/2010 02/04/2017Iain Wallace E 19,960 19,960 0.3 22/12/2007 22/12/2010 22/12/2017Richard Stone E 50,000 (50,000) - 0.15 19/03/2007 19/09/2011 19/03/2017Richard Stone E 50,000 50,000 0.15 19/03/2007 19/03/2013 19/03/2017Richard Stone E 18,973 18,973 0.3 22/12/2007 22/12/2010 22/12/2017Iain Wallace E 250,000 (250,000) - 0.145 15/05/2008 15/05/2011 15/05/2018Iain Wallace E 28,473 28,473 0.27 15/05/2008 15/05/2011 15/05/2018Iain Wallace U 19,850 19,850 0.245 22/12/2008 22/12/2011 22/12/2018Richard Stone E 250,000 250,000 0.145 15/05/2008 15/05/2011 15/05/2018Richard Stone E 27,930 27,930 0.27 15/05/2008 15/05/2011 15/05/2018Richard Stone U 19,470 19,470 0.245 22/12/2008 22/12/2011 22/12/2018Iain Wallace C 9,947 9,947 0.36 25/06/2009 25/06/2012 25/06/2019Iain Wallace C 9,947 9,947 0.33 23/12/2009 23/12/2012 23/12/2019Richard Stone C 9,947 9,947 0.36 25/06/2009 25/06/2012 25/06/2019Richard Stone C 9,947 9,947 0.33 23/12/2009 23/12/2012 23/12/2019Iain Wallace E 10,071 10,071 0.285 22/12/2010 22/12/2013 22/12/2020Iain Wallace C 86,068 86,068 0.32 29/06/2010 29/06/2013 29/06/2020Richard Stone E 9,894 9,894 0.285 22/12/2010 22/12/2013 22/12/2020Richard Stone C 86,068 86,068 0.32 29/06/2010 29/06/2013 29/06/2020Gavin Oldham U 162,707 162,707 0.25 22/06/2011 22/06/2014 22/06/2021Gavin Oldham U 11,145 11,145 0.225 22/12/2011 22/12/2014 22/12/2021Iain Wallace E 146,499 146,499 0.25 22/06/2011 22/06/2014 22/06/2021Iain Wallace E 10,034 10,034 0.225 22/12/2011 22/12/2014 22/12/2021Richard Stone E 40,931 40,931 0.25 22/06/2011 22/06/2014 22/06/2021Richard Stone U 103,074 103,074 0.25 22/06/2011 22/06/2014 22/06/2021Richard Stone U 9,863 9,863 0.225 22/12/2011 22/12/2014 22/12/2021Gavin Oldham C 11,176 11,176 0.23 22/06/2012 22/06/2015 22/06/2022Iain Wallace E 9,934 9,934 0.23 22/06/2012 22/06/2015 22/06/2022Richard Stone E 9,934 9,934 0.23 22/06/2012 22/06/2015 22/06/2022Gavin Oldham U 10,958 10,958 0.245 22/12/2012 22/12/2015 22/12/2022Iain Wallace E 9,740 9,740 0.245 22/12/2012 22/12/2015 22/12/2022Richard Stone E 10,714 10,714 0.245 22/12/2012 22/12/2015 22/12/2022
TOTAL 2,042,072 62,456 (800,000) 1,304,528
(E) Share options granted under the Company’s EMI share option scheme(U) Share options granted under the Company’s unapproved share option scheme(C) Shares held under the co-ownership equity incentive plan
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annual report 2012
The market price of the Company’s ordinary shares at 31 December 2012 was 24 pence and their price had ranged from 21.20 pence to 24.50 pence during 2012. Iain Wallace exercised options during the year realising gains of £58,829 and Richard Stone exercised options during the year realising gains of £7,363.
There are no performance conditions that have to be fulfilled before share options can be exercised.
Resolution
A resolution to shareholders to adopt the directors’ remuneration report will be put forward at the Annual General Meeting.
Approved by the Board and signed on its behalf
Sir Martin Jacomb, Remuneration Committee Chairman
13 March 2013
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annual report 2012
independent auditor’s report to the members of share plc
We have audited the financial statements of Share plc for the year ended 31 December 2012 which comprise the Group Income Statement, the Group Statement of Comprehensive Income, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements, the Group and Parent Company Statements of Changes in Equity and the related Notes 1 to 32. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
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.
Respective responsibilities of directors and auditor
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. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2012 and of the Group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
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annual report 2012
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
• the parent company 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
Other Matters
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the provisions of the Companies Act 2006 that would have applied were the company a quoted company.
Simon Cleveland FCA (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor Bristol, United Kingdom,
13 March 2013
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annual report 2012
For the year ended 31 December 2012 Notes 2012 2011 (Restated*) £’000 £’000
Revenue 5 13,914 14,255
Administrative expenses (12,982) (12,898)
Operating profit 7 932 1,357
Investment revenues 10 298 210
Other gains and losses 11 (562) -
Profit before taxation 668 1,567
Taxation 12 (147) (453)
Profit for the year 521 1,114
Basic earnings per share** 14 0.4p 0.8p
Diluted earnings per share** 14 0.4p 0.8p
consolidated income statement
All results are in respect of continuing operations.
* Restated as detailed in note 32.
** The directors consider that the underlying earnings per share as presented in note 14 represent a more consistent measure of the underlying performance of the business as this measure excludes the impact of some items, including any large non-recurring items.
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annual report 2012
consolidated and company statements of comprehensive income
For the year ended 31 December 2012 2012 2011 (Restated) Group £’000 £’000
Profit for the year 521 1,114
Gains/(losses) on revaluation of available-for-sale investments taken to equity 642 (231)
Deferred tax on gains/(losses) on revaluation of available-for-sale investments taken to equity (156) 63
Exchange losses on available-for-sale investments taken directly to equity (35) (50)
Deferred tax on exchange losses on available-for-sale investments taken directly to equity 9 13
Deferred tax impact of change in tax rates 60 53
Net gain/(loss) recognised directly in equity 520 (152)
Total comprehensive income for the period 1,041 962
Attributable to equity shareholders 1,041 962
The Company had no items to report in its statement of comprehensive income and Share plc corporate entity recorded a profit of £480,000 (2011: £321,000 loss) as the company does not have any revenue income other than interest on cash held and dividend income from its subsidiary companies.
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annual report 2012
At 31 December 2012 Group Company Notes 2012 2011 2012 2011 (Restated) £’000 £’000 £’000 £’000
Non-current assets Intangible assets 15 29 357 - -Property, plant and equipment 16 192 165 - -Available-for-sale investments 17 3,856 3,249 473 473Investment in subsidiaries 18 - - 264 264Deferred tax assets 21 60 79 - -
4,137 3,850 737 737
Current assets Trade and other receivables 19 10,395 9,869 160 161
Cash and cash equivalents 19 12,186 11,044 616 1,272Current tax asset 84 - - -
22,665 20,913 776 1,433
Total assets 26,802 24,763 1,513 2,170
Current liabilities Trade and other payables 22 (9,659) (8,052) (554) (273)
Current tax liabilities - (100) - -
(9,569) (8,152) (554) (273)
Net current assets 13,096 12,761 222 1,160
Non-current liabilities
Deferred tax liabilities 21 (754) (672) - -
Total liabilities (10,323) (8,824) (554) (273)
Net assets 16,479 15,939 959 1,897
Equity Share capital 23 719 719 719 719Capital redemption reserve 25 104 104 104 104Share premium account 24 1,098 1,098 1,098 1,098Employee benefit reserve 25 (649) (711) - -Retained earnings 25 12,977 13,039 (962) (24)
Revaluation reserve 25 2,230 1,690 - -
Equity shareholders’ funds 16,479 15,939 959 1,897
These financial statements for Share plc (company registration number 02966283) were approved by the Board and authorised for issue on 13 March 2013.
Signed on behalf of the Board
Sir Martin Jacomb, Chairman
consolidated and company balance sheets
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annual report 2012
consolidated and company statements of changes in equity
For the year ended 31 December 2012 Share Capital Share Employee Retained Revaluation Attributable capital redemption premium benefit earnings reserve to equity reserve account reserve holders of the company Group £’000 £’000 £’000 £’000 £’000 £’000 £’000
Balance at 1 January 2011 719 104 1,098 (686) 12,390 1,812 15,437
Total comprehensive income for the period - - - - 1,084 (122) 962
Dividends - - - - (422) - (422)
Purchase of Employee Share Ownership Plan (ESOP) shares - - - (370) - - (370)
Sales of ESOP shares - - - 165 - - 165
Cost of matching and free shares in the Share Incentive Plan - - - 148 (148) - -
Profit on sale of ESOP shares and dividends received - - - 32 (59) - (27)
Share-based payment credit - - - - 212 - 212
Deferred tax on share-based payment - - - - (29) - (29)
Share-based payment current year taxation - - - - 11 - 11
Balance at 31 December 2011 719 104 1,098 (711) 13,039 1,690 15,939
Total comprehensive income for the period - - - - 501 540 1,041
Dividends - - - - (507) - (507)
Purchase of ESOP shares - - - (488) - - (488)
Sales of ESOP shares - - - 264 - - 264
Cost of matching and free shares in the Share Incentive Plan - - - 154 (154) - -
Profit on sale of ESOP shares and dividends received - - - 132 (123) - 9
Share-based payment credit - - - - 217 - 217
Deferred tax on share-based payment - - - - (16) - (16)
Share-based payment current year taxation - - - - 20 - 20
Balance at 31 December 2012 719 104 1,098 (649) 12,977 2,230 16,479
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annual report 2012
For the year ended 31 December 2012 Share Capital Share Retained Attributable capital redemption premium earnings to equity reserve account holders of the company Company £’000 £’000 £’000 £’000 £’000
Balance at 1 January 2011 719 104 1,098 1,728 3,649
Total comprehensive income for the period - - - (321) (321
Dividends - - - (431) (431)
Contribution to Sharefunds Limited - - - (1,000) (1,000)
Balance at 31 December 2011 719 104 1,098 (24) 1,897
Total comprehensive income for the period - - - 479 479
Dividends - - - (517) (517)
Contribution to Sharefunds Limited - - - (900) (900)
Balance at 31 December 2012 719 104 1,098 (962) 959
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annual report 2012
consolidated and company cash flow statements
For the year ended 31 December 2012 Group Company Notes 2012 2011 2012 2011 (Restated) £’000 £’000 £’000 £’000
Net cash received from/(used in) operating activities 27 1,827 (444) (1) (365)
Investing activities
Interest received 166 106 12 23
Dividend received from trading investments 132 104 - -
Purchase of property, plant and equipment (126) (40) - -
Purchase of intangible investments (350) (259) - -
Net cash (used in)/received from investing activities (178) (89) 12 23
Financing activities
Equity dividends received - - 750 -
Equity dividends paid 13 (507) (422) (517) (431)
Capital contribution to subsidiary company - - (900) (1,000)
Net cash used in financing (507) (422) (667) (1,431)
Net increase/(decrease) in cash and cash equivalents 1,142 (955) (656) (1,773)
Cash and cash equivalents at the beginning of the year 11,044 11,999 1,272 3,045
Cash and cash equivalents at the end of the year 12,186 11,044 616 1,272
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annual report 2012
notes to the financial statements
Amin, corporate actions
Tim, development
Sharon, accounts
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annual report 2012
notes to the financial statements
1 General information
Share plc is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is Oxford House, Oxford Road, Aylesbury, Buckinghamshire, HP21 8SZ. The nature of the Group’s operations and its principal activities are set out in the Business Review on pages 8 to 23.
The financial statements are presented in pounds Sterling which is the currency of the primary economic environment in which the Group operates.
2 Basis of preparation
The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB (together “IFRS”) as endorsed by the European Union.
The Company’s financial statements have been prepared on the same basis and as permitted by Section 408 of the Companies Act 2006, no income statement is presented for the Company. Of the consolidated profit for the financial year, a profit of £480,000 (2011: £321,000 loss) before the payment of dividend distributions, has been dealt with in the financial statements of the Company.
In the current year, the following new and revised Standards and Interpretations have been adopted and have had no impact on these financial statements.
• Amendments to IFRS 1 ‘First-time Adoption of Financial Statements – Sever Hyperinflation and Removal of Fixed Dates for First-time adopters’
• Amendments to IFRS 7 ‘Financial Instruments: Disclosures – Transfer of Financial Assets’
New standards, amendments and interpretations issued but not effective and yet to be endorsed by the EU are as follows:
• Amendment to IAS 1 ‘Clarification of the requirements for comparative information’
• IFRS 9, ‘Financial instruments’
• IFRS 13, ‘Fair value measurement’
• Amendment to IAS 12,’Income taxes’ on deferred tax’
New standards, amendments and interpretations issued but not effective and have been endorsed by the EU are as follows:
• Amendments to IFRS 1 ‘Repeated application of IFRS 1’ and ‘Borrowing Costs’
• IFRS 10, ‘Consolidated financial statements’
• FRS 11, ‘Joint arrangements’
• IFRS 12, ‘Disclosures of interests in other entities’
• Amendments to IAS 12 ‘Income taxes – Deferred Tax: Recovery of Underlying Assets’
• IAS 19 (revised 2011) ‘Employee benefits’
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annual report 2012
• IAS 27 (revised 2011) ‘Separate financial statements’
• IAS 28 (revised 2011) ‘Associates and joint ventures’
• Amendment to IAS 1, ‘Presentation of financial statements’ on OCI’
The directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group in future periods.
The Group accounts consolidate the financial statements of the Company and its subsidiaries, The Share Centre Limited, The Share Centre (Administration Services) Limited, The Shareholder Limited, and Sharefunds Limited, which all make up their annual financial statements to 31 December. Other subsidiaries are not included in the Share plc consolidation as they are not trading and not material to the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
The Group has considerable financial resources and no external debt. With a diversified customer base and core recurring revenue streams along with large elements of discretionary spending in the Group’s cost base, the Directors believe that the Group is well placed to manage its business risks successfully despite the uncertain economic outlook. Therefore, after making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the going concern basis has continued to be used in the preparation of these financial statements.
3 Accounting policies
Basis of consolidationThe Group accounts consolidate the financial statements of the Company and its subsidiaries. The accounting policies used have been consistently applied for many years.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Revenue recognitionRevenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts, VAT and any other sales related taxes.
Revenue is recognised on an accruals basis and primarily comprises dealing commissions, fees earned in the provision of broking and custodian services and interest income on client money. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable.
Dividend income from investments is recognised when the shareholders’ right to receive payment has been established, typically on cash receipt.
LeasingThe Group has no finance leases, all leases are classified as operating leases without any substantial transfer of the risks and rewards of ownership to the lessee.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Any benefits received or receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
Foreign currenciesThe consolidated and individual financial statements of each Group company are presented in pounds Sterling, which is the currency of the primary economic environment in which they operate. The Group has no material foreign currency balances at the balance sheet date.
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Any exchange differences arising on the incidental foreign currency balances the Group does periodically hold are recognised in profit or loss in the period in which they arise.
Operating profitOperating profit is stated before investment income and any other gains or losses which arise in respect of the available-for-sale investments held by the Group.
TaxationThe tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets or liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
The carrying value of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. In calculating deferred tax in 2012 the rate used was 23% (2011: 25%). Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Property, plant and equipmentFixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method, on the following bases:
Motor vehicles, computer hardware, fixtures and equipment 25%
The gain or loss arising from the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.
Intangible fixed assetsInternally-generated intangible assets
The Group’s activities do not typically give rise to internally generated intangible fixed assets. An internally-generated intangible asset is recognised only if all of the following conditions are met:
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• an asset is created that can be identified
• it is probable that the asset created will generate future economic benefits; and,
• the development cost of the asset can be measured reliably.
In so far as any internally generated intangible assets are recognised, these would be amortised over their useful economic lives
Other intangible assetsThe Group’s investment in the share.com domain name is stated at cost and is amortised over ten years on a straight-line basis from the year of completion of the transaction purchase. The intangible asset arising from the acquisition of the Wills & Co customer base was calculated based on the cost of that acquisition and is being amortised over five years on a straight-line basis from the year of completion of the transaction.
Investments in subsidiariesFixed asset investments in subsidiaries are shown at cost less provision for any impairment.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Any intangible assets with an indefinite useful life are tested for impairment annually and whenever there is an indication that the asset may be impaired.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the 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 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 in prior years. A reversal of an impairment loss is recognised as income immediately, 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.
Financial instrumentsFinancial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assetsInvestments are recognised and derecognised on a trade date where the purchase or sale of an investment is under a contract the terms of which require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.
Financial assets are classified into the following specified categories: Financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
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Available-for-sale financial assetsListed and unlisted shares held by the Group are classified as being AFS and are stated at their fair value. Fair value is determined in the manner described in note 19. Gains and losses arising from changes in fair value are recognised directly in equity in the investments’ revaluation reserve with the exception of impairment losses, interest calculated using the effective interest rate method and foreign exchange gains and losses on monetary assets, which are recognised directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the investments’ revaluation reserve is included in the profit or loss for the period.
Dividends on AFS equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established.
The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the balance sheet date. The change in fair value attributable to translation differences that result from a change in amortised cost of the asset is recognised in profit or loss, and other changes are recognised directly in equity.
Loans and receivablesTrade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Trade receivablesTrade receivables are measured at initial recognition at fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties are included as debtors.
Impairment of financial assetsFinancial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.
For shares classified as AFS, a significant or prolonged decline in fair value of the security below its cost is considered to be objective evidence of impairment. For all other financial assets objective evidence of impairment could include:
- Significant financial difficulty of the issuer or counterparty
- Default or delinquency in interest or principal payments, and
- It becoming probable that the borrower will enter bankruptcy or financial reorganisation.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectable, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease
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can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.
In respect of AFS equity securities, impairment losses previously recognised through profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised directly in equity.
Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Included within cash balances are amounts held on client settlement accounts as shown in note 19.
Derecognition of financial assetsThe Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
Financial liabilities and equityFinancial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
Equity instrumentsAn equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received net of direct issue costs.
Financial liabilitiesFinancial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.
The Group has no financial liabilities ‘at FVTPL’. ‘Other financial liabilities’, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest rate method.
Trade payablesTrade payables are measured at fair value. In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties are included as creditors.
Derecognition of financial liabilitiesThe Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
ProvisionsProvisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.
Share-based paymentsThe Group has applied the requirements of IFRS 2 Share-based Payments. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 January 2006.
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is measured using the Black-Scholes model. Details of the Group’s share-based payments are disclosed in Note 29 to these financial statements.
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Purchase of shares for Employee Benefit TrustDuring the year, the Group acquired a number of shares in Share plc, which are held by Sharesecure Ltd, a trustee provider, 100% owned by Share plc. The purchases were made to meet potential obligations arising from the issue of share options made to employees. The original cost of investment has been deducted in arriving at shareholders’ funds (the amounts are shown in a separate reserve, called ‘Employee Benefit Reserve’).
Pension schemeIf requested, the Group contributes 8% of the employee’s gross salary to a defined contribution pension scheme of the employee’s choice. Contributions are charged to the income statement as they become payable. The assets of these schemes are held separately from those of the Group in independently administered funds belonging to the relevant employees.
4 Critical accounting judgments and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 3, the directors are required to make judgements, estimates and assumptions about the carrying amounts 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.
Allowance for bad debtsThe Group makes a provision for the element of fees which it believes will not be recovered from customers. This is based on past experience and detailed analysis of the outstanding fees position particularly with regard to the value of customers’ portfolios relative to the fees owed.
Fair value of investmentsThe Group currently holds investments in the London Stock Exchange plc, Euroclear plc, WAY Group Limited, Investbx Limited, Eirx Therapeutics plc and Asset Match Limited. These are held as available-for-sale financial assets and are measured at fair value at the balance sheet date. London Stock Exchange plc shares trade in an active market and the fair value is readily determined by market price. The Euroclear plc shares do not trade in an active market, although a bulletin board system periodically collates buy and sell interest amongst shareholders.
A view is therefore formed as to fair value based on the most recently traded price and the net asset value of the business adjusted for liquidity considerations. WAY Group Limited shares are carried at cost as the shares are not publicly traded and there is no other means of determining a reliable and timely fair value based on the limited publicly available information, whilst the Investbx Limited and Eirx Therapeutic plc and Asset Match Limited shares are carried at nil value given the financial position of the companies and their recent history. Further detail is contained in note 17.
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Share-based paymentsThe Company’s shares have been traded on Sharemark (now Asset Match) since 2000 and AIM since May 2008. This provides a market price to help determine the fair value of equity-settled share-based payments but, in addition to this, estimations are made as to price volatility, risk-free interest rate and expected life. These estimations enable the Black-Scholes model to then be used to determine the fair value of these equity-settled share-based payments.
ImpairmentThe assets on the balance sheet are reviewed for any indications of impairment. This is done with reference to the recoverability and market value of the assets concerned but may involve an element of judgment or estimation in determining whether there are any indications of impairment and the extent of any impairment loss.
5 Revenue
An analysis of the Group’s revenue is as follows: 2012 2011 £’000 £’000
Commission income 5,047 5,671
Fee income 6,515 6,592
Interest income on customer deposits 2,352 1,992
13,914 14,255
6 Business and geographical segments
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. The reportable segments are therefore represented by the following two business divisions:
The Share Centre – this is the main trading business and provides stockbroking and custodian services to retail investors. Operating wholly in the UK, the vast majority of this business is done directly with those retail customers, though in some cases the relationship is through a third party, typically on a white-labelled basis.
Sharefunds – this is the division which operates a fund administration service. The division’s customers are authorised funds for whom a range of administration services may be provided. This can include taking on the role of Authorised Corporate Director. In addition to external third party funds, Sharefunds acts as investment manager to Sharefunds’ three Funds of Funds. The majority of revenues have derived from fees in respect of administration services provided to funds administered by WAY Fund Managers.
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annual report 2012
2012 2011 2012 2011 2012 2011 (Restated) (Restated) £’000 £’000 £’000 £’000 £’000 £’000
Revenue 13,098 13,380 816 875 13,914 14,255
Operating profit 1,552 1,697 (620) (340) 932 1,357
The Share Centre Sharefunds Total
It should be noted that the accounting policies of the reportable segments are the same as the Group’s accounting policies described in Note 3 and that there were no major customers contributing more than 10% of revenues in the Group as a whole. The assets of the Group are principally used by The Share Centre. The services offered by the Group vary by business division as described above. However, within each business division there is only one principal revenue stream and therefore there is no separate or further segmentation by service offered. Sharefunds has no material assets which would meaningfully be separated from The Share Centre, other than cash of £546,000 (2011: £466,000).
7 Operating profit
Operating profit for the year has been arrived at after charging: 2012 2011 £’000 £’000
Depreciation of property, plant and equipment (see note 16) 99 88
Amortisation of intangible assets (see note 15) 16 28
Staff costs (see note 8) 6,307 6,098
Operating lease rentals – property 418 418
Operating lease rentals – other 39 42
Auditor’s remunerationThe analysis of auditor’s remuneration is as follows: 2012 2011 £’000 £’000
Audit fees: Fees payable to the Group’s auditor for the audit of the Group’s annual accounts, those of its subsidiaries and of its three Fund of Funds 74 75
Fees payable to the Group’s auditor for other services to the Group
Tax services 19 30
Other services 5 1
Total non-audit fees 24 31
The fees payable to the Company’s auditor for the audit of the Company’s annual accounts amount to £20,000 (2011: £20,000).
The split of revenues and operating profit are therefore as follows.
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8 Group staff costs
2012 2011 Number Number
The average number of employees of the Group (including executive directors) was:
Operating and support functions 108 107
Administrative and systems related functions 39 39
147 146
2012 2011 £’000 £’000
Staff costs during the year (including executive and non-executive directors)
Wages and salaries 4,979 4,699
Profit sharing bonus 203 278
Social security costs 555 553
Pension costs 353 356
Share-based payments 217 212
6,307 6,098
It should be noted that the Company itself does not have any employees. (2011: Nil)
9 Directors
Detailed information concerning directors’ emoluments and share options is disclosed in the directors’ remuneration report.
10 Investment revenues
2012 2011 £’000 £’000
Interest on bank deposits 162 106
Interest on overpaid tax 4 -
Dividends from equity investments 132 104
298 210
Investment revenues earned on financial assets, by category of asset, were as follows: 2012 2011 £’000 £’000
Loans and receivables (including cash and bank balances) 166 106
Available-for-sale financial assets 132 104
298 210
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annual report 2012
2012 2011
£’000 £’000
Disposal of Sharemark Limited and related business 100 -
Disposal of intangible assets (662) -
(562) -
11 Other gains and losses
During the year, the Group disposed of Sharemark Limited, and sold a number of corporate client contracts and intellectual property related to the Sharemark market, to Asset Match Limited. The proceeds were £100,000 and an equity stake in Asset Match Limited. The Group will operate the market for Asset Match Limited for a period of two years and will be paid for doing so as part of a service contract.
Following the decision to withdraw from providing fund accounting services, the Group has no use for the partially developed bespoke fund accounting system which was being developed to support the expected growth in the Sharefunds business unit. The Group has therefore written off the development cost related to that system which was previously being capitalised as an intangible asset on the balance sheet. This totalled £662,000.
12 Taxation
2012 2011 £’000 £’000
Current tax:
Corporation tax charge on the income for the year (184) (424)
Adjustments in respect of prior periods 35 5
Deferred tax:
Origination and reversal of timing differences 29 (34)
Adjustments in respect of prior periods (27) -
(147) (453)
The tax assessed for the current year can be reconciled to the profit per the income statement as follows: 2012 2011 £’000 £’000
Profit before taxation 668 1,567
Tax at 24.5% (2011: 26.5%) (164) (415)
Effects of
Items not deductible for tax purposes (11) (26)
Foreign tax suffered (12) (9)
Prior year adjustments 8 5
Exempt dividend income 32 28
Rate differences on current tax 3 4
Rate differences on deferred tax (1) (1)
Share-based payments (2) (39)
(147) (453)
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annual report 2012
13 Dividends
2012 2011 £’000 £’000
Amounts recognised as distributions to equity holders in the period
2011 final dividend paid of 0.36 pence per ordinary share 517 431
Less amount received on shares held via ESOP (10) (9)
507 422
14 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares during the year.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue assuming conversion of all potential dilutive ordinary shares. The potential ordinary shares consist of those share options and warrants where the exercise price is less than the average price of the Company’s ordinary shares during the year. The calculation results in a difference of only a small fraction of a penny, which is eliminated in roundings.
Underlying basic and diluted earnings per share are calculated as for basic and diluted earnings per share but using an adjusted earnings figure before any one-off gains, losses, income or expense. The directors consider that the underlying earnings per share represent a more consistent measure of the underlying performance of the Group.
2012 2011 £’000 £’000
Earnings
Earnings for the purpose of basic and diluted earnings per share, being net profit attributable to equity holders of the parent company 521 1,114
Other losses 562 -
Non-operating expense – FSCS levies 283 339
Share-based payments 217 212
Profit share impact of the above adjustments (76) (43)
Taxation impact of the above adjustments (188) (72)
Earnings for the purposes of underlying basic and diluted earnings per share 1,319 1,550
The directors are proposing a final dividend of 0.43p per share in respect of the year to 31 December 2012. This would amount to a gross dividend payment of £618,000 given the current share capital.
In addition to the amount charged to the income statement, deferred tax relating to the revaluation of the Group’s investments amounting to £87,000 (2011: £129,000) has been debited directly to other comprehensive income. A current tax credit of £20,000 (2011: £11,000) and deferred tax charge of £16,000 (2011: £29,000) relating to excess deductions on share-based payments have been taken directly to equity.
The reduction in the main rate of UK corporation tax to 23% from 1 April 2013, followed by the proposed reduction to 21% from 1 April 2014, which has not been enacted, is not expected to materially affect future tax charges. The current year tax rate used above (24.5%) arises from the reduction in corporation tax rates in 2012 from 26% to 24%. Deferred tax has been calculated based on a rate of 23%.
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Number of shares Number (000s) Number (000s)
Weighted average number of ordinary shares 145,664 147,223
Non-vested shares held by employee share ownership trust (2,770) (2,914)
Basic earnings per share denominator 142,894 144,309
Effect of potential dilutive share options 40 68
Diluted earnings per share denominator 142,934 144,377
Basic earnings per share (pence) 0.4 0.8
Diluted earnings per share (pence) 0.4 0.8
Underlying basic earnings per share (pence) 0.9 1.0
Underlying diluted earnings per share (pence) 0.9 1.0
15 Intangible assets
The Group Share.com Wills and Co Internally Total domain name customer list developed software £’000 £’000 £’000 £’000
Cost
At 1 January 2011 164 59 53 276
Additions - - 259 259
At 31 December 2011 164 59 312 535
Additions - - 350 350
Disposals - - (662) (662)
At 31 December 2012 164 59 - 223
Accumulated amortisation
At 1 January 2011 144 6 - 150
Charge for the year 16 12 - 28
At 31 December 2011 160 18 - 178
Charge for the year 4 12 - 16
At 31 December 2012 164 30 - 194
Net book value
At 31 December 2012 - 29 - 29
At 31 December 2011 4 41 312 357
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annual report 2012
The Group Motor Computer Fixtures and Total vehicles hardware equipment £’000 £’000 £’000 £’000
Cost
At 1 January 2011 12 543 99 654
Additions - 37 3 40
At 31 December 2011 12 580 102 694
Additions - 122 4 126
At 31 December 2012 12 702 106 820
Accumulated depreciation
At 1 January 2011 12 357 72 441
Charge for the year - 77 11 88
At 31 December 2011 12 434 83 529
Charge for the year - 88 11 99
At 31 December 2012 12 522 94 628
Net book value
At 31 December 2012 - 180 12 192
At 31 December 2011 - 146 19 165
16 Property, plant and equipment
17 Available-for-sale investments
The Group 2012 2011 £’000 £’000
Unlisted investments at fair value 1,915 1,857
Listed investment at fair value 1,941 1,392
3,856 3,249
All investments held by the Group have been classified as available-for-sale. These available-for-sale assets have been included at fair value where a fair value can be reliably calculated, with the revaluation gains and losses reflected in the investment revaluation reserve as shown in note 25, until sale when the cumulative gain or loss is transferred to the income statement.
Unlisted Investments
Euroclear plc (“Euroclear”)This represents 6,030 shares in Euroclear plc of one Euro each. These shares have a historical cost of £217,390 representing the investment made in Crest Co. Ltd, which was acquired by Euroclear during 2002. As at 31 December 2012, each share has an estimated fair value of £239 (2011: £230) based on an analysis of Euroclear’s net assets as shown in its latest available financial information for the first half
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of 2011. The shares trade via a bulletin board system but no trades have been publicly recorded since 2006. The fair value represents a 64% discount to the net assets per share to reflect this illiquidity. This level of discount has been consistently applied for a number of years and the resulting valuation is compared to the indicative prices as shown on the bulletin board, the implied price earnings ratio and the dividend flows. Euroclear was profitable in the first half of 2011 and there is no evidence that the value per share has been impaired.
WAY Group LimitedThe Group holds 150,000 1p ordinary shares in WAY Group Limited, acquired in 2010 at cost of £472,500. These shares are not publicly traded, and unlike Euroclear plc, there is no bulletin board facility to collate expressions of buy and sell interest at a range of prices. In the absence of any evidence of impairment or any other means of determining a reliable and timely alternative fair value based on the limited publicly available information, these shares are held at cost and included in the unlisted investment balance above.
Eirx Therapeutics plcThe Share Centre Limited holds a total of 246,996,816 shares in Eirx Therapeutics plc, which represents 2.62% of that company’s issued share capital. This holding arose in 2008 as a result of making good three customers’ accounts which, due to key logging virus software which had affected the customers’ computers, had been compromised by fraudsters. This holding cost £164,000 of which £124,000 was paid by our insurers. The shares have not traded since March 2008 but the company continues to trade and this holding may have future value. Given the net liabilities position of the company’s balance sheet, its limited trading revenues and profits, and a first call on any disposal proceeds by our insurers this investment has been written down to nil value.
The company has indicated that it is still actively pursuing fundraising and other corporate opportunities however the outlook for the company remains unfavourable and therefore the value of the shareholding remained at nil as at 31 December 2012.
Asset Match LimitedAs part of the consideration for the sale of Sharemark Limited and associated business to Asset Match Limited, the Group received 14,257 shares in Asset Match Limited. Those shares represent 1% of the full paid share capital of Asset Match Limited, a company which was formed in 2011 and which has no publicly available trading history or information. Given the nascent nature of this business and no reliable means of assessing its future prospects or value, the shares are held at nil value on the balance sheet.
Investbx LimitedThe Group holds 1,485 £1 ordinary shares in Investbx Limited (a former Sharemark client) representing 9.9% of the company’s total allotted 15,000 £1 ordinary shares. The above shares were obtained at an ‘effective cost’ of £15,000 (representing foregone fees). There is no material net asset value of these shares based on the company’s financial performance and balance sheet as disclosed in the company’s latest accounts for the year ended 31 March 2012. There is no liquid market for the sale of Investbx shares and therefore no readily available traded market price of these shares either. These shares are therefore valued at nil value as at 31 December 2012.
Listed Investments
London Stock Exchange plc (“LSE”)The Group was the beneficial owner of 175,000 LSE ordinary shares of 5p each (2011: 175,000) which have a fair value of £11.09 each based on the traded market price as at 31 December 2012 (2011: £7.955).
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18 Subsidiaries
The Company 2012 2012 £’000 £’000
Shares in subsidiaries 264 264
The Company has investments in the following subsidiary undertakings:
Subsidiary undertaking Principal activity Proportion of ordinary shares held by the Company
The Share Centre Limited Retail stock broking 100%
The Share Centre (Administration Services) Limited Administration services 100%
The Shareholder Limited Publishing/mail order 100%
Share Nominees Limited Bare trustee nominee1 100%2
Stock Academy Nominees Limited Bare trustee nominee1 100%2
Sharesecure Limited Bare trustee1 100%
Personal Retirement Account Limited Dormant1 100%
Sharefunds Limited OEIC Authorised Corporate Director 100%
1 Subsidiaries not included in consolidation other than at cost in investments as the companies are not trading and are not material to the Group2 Ordinary shares held by The Share Centre Limited
All the above companies are registered and incorporated in England and Wales.
19 Other financial assets
Trade and other receivables Group Company 2012 2011 2012 2011 £’000 £’000 £’000 £’000
Gross amounts receivable 8,100 6,503 - -
Allowance for doubtful debts (171) (137) - -
7,929 6,366 - -
Amounts owed by Group undertakings:
By subsidiaries due in over one year - - 150 150
Other debtors 289 267 - -
Prepayments and accrued income 2,177 3,236 10 11
10,395 9,869 160 161
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Trade receivables are measured at initial recognition at fair value. These principally represent unsettled customer trades with our market counterparties of £7.2 million (2011: £5.7m). No provision is considered necessary in respect of amounts outstanding from market counterparties. In respect of non-counterparty amounts included within trade receivables, appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the value of the asset is impaired.
Included in the Group’s trade receivable balance are debtors with a carrying amount of £640,000 (2011: £742,000) which are past due date at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The largest element of these balances is in respect of fees due from customers and those customers have sufficient asset values on their accounts to cover the fees due.
Ageing of past due but not impaired trade receivables 2012 2011 £’000 £’000
0-90 days 285 250
90-180 days 181 154
180+ days 174 338
Balance at the end of the period 640 742
Movement in the allowance for doubtful debts 2012 2011 £’000 £’000
Balance at the beginning of the year 137 112
Impairment losses recognised 74 65
Amount written off as uncollectable (36) (31)
Impairment losses reversed (4) (9)
Balance at the end of the year 171 137
In determining the recoverability of trade receivables the Group considers any changes in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. In respect of balances due from customers, the principal consideration is the customers’ asset holdings relative to any fees owed. The concentration of credit risk in respect of customer balances is limited due to the customer base being large and unrelated. The credit risk related to market counterparties is limited due to the regulated nature of those counterparties and the stock held against the balances due in respect of unsettled sales. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.
Ageing of impaired trade receivables 2012 2011 £’000 £’000
0-90 days 26 25
90-180 days 24 18
180+ days 121 94
Balance at the end of the period 171 137
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Cash and cash equivalents Group Company 2012 2011 2012 2011 £’000 £’000 £’000 £’000
Cash and cash equivalents 11,516 10,524 616 1,272
Cash held on trust for clients (a) 670 520 - -
12,186 11,044 616 1,272
Cash and cash equivalents comprise cash held by the Group with financial institutions with instant or short-term access.
(a) This amount is held by The Share Centre Limited in trust on behalf of clients but may be used to complete settlement of outstanding bargains and dividends due.
At 31 December 2012 segregated deposit amounts held by the Group on behalf of clients in accordance with the client money rules of the Financial Services Authority amounted to £141,148,000 (2011: £115,549,000). The Group has no beneficial interest in these deposits and accordingly they are not included in the balance sheet.
20 Financial instruments
Financial risk managementThe Group maintains a risk averse attitude and the principal assets of the Group are cash balances held with major banks and investments in the London Stock Exchange plc and Euroclear plc. The Group conducts regular reviews of capital adequacy, cash flow and general financial performance as part of its ongoing risk management framework and as part of meeting its regulatory obligations in particular under the Capital Requirements Directive (CRD) and FSA rules.
With regard to the maturity of non-derivative financial assets, the non-derivative financial assets held by the Group amount to trade receivables as detailed in note 19, cash and cash equivalents as detailed in note 19 and equity investments in London Stock Exchange plc, Euroclear plc, WAY Group Limited, Investbx Limited, Eirx Therapeutics plc, and Asset Match shares. The equity investments are classified as available-for-sale and will be realised when economic conditions are appropriate and the directors consider it to be in the best interests of the Group.
Significant accounting policiesDetails of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement and the bases for recognition of income and expenses) for each class of financial asset, financial liability and equity instrument are disclosed in note 3.
Categories of financial instrumentsThe carrying amount for each category of financial instrument as required under IAS 39 is disclosed on the face of the balance sheet. There have been no reclassifications between categories during the course of the year. The derivative financial instrument came to an end on 1 November 2010.
Foreign currency risk management
The Group’s principal trading entity, The Share Centre Limited, trades investments in equities and funds on behalf of its customers. The Company operates such that all those investments are Sterling-denominated and all fees and amounts receivable are denominated and payable in Sterling. The Group only operates in the UK and all suppliers are UK-based with amounts payable in Sterling. As such the Group has no trading exposure to foreign currency risk.
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The Group holds 6,030 shares in Euroclear plc. These shares are denominated in Euros and as such the Group is exposed to an element of foreign exchange risk in respect of the impact of currency movement on the value of this investment. Dividend income received in respect of this investment in Euros is not material and the Group does not hedge any of the exposure in respect of this investment.
Foreign currency sensitivity analysisThe Group only has an exposure to movements in Sterling relative to the Euro in respect of the investment in Euroclear plc which is Euro denominated. If there were a 10% move in the value of Sterling against the Euro then the value of this investment would move by 10% or c.£140,000 based on the year-end valuation.
Interest rate riskThe Group has no external borrowings and is not exposed to interest rate or refinancing risk in this regard. The Group does hold client money balances (cash held on behalf of customers) and earns interest on those balances which forms a significant part of the Group’s revenues. The interest paid to customers is typically the base rate less 3.5%. As such, the Group’s revenue in this regard is effectively fixed at a minimum of 3.5% of the client money balances as it is unaffected by movements in interest rates unless rates fall below 3.5% (as they are at present).
The Group uses a mixture of current accounts and term deposits for all its own cash and its client money. These monies are currently split between eight institutions – Bank of Scotland, Royal Bank of Scotland, HSBC, Barclays, Co-operative Bank, Clydesdale Bank, Melton Mowbray Building Society and Manchester Building Society – and all client monies are maintained in customer trust status accounts separate from the Group’s own funds in accordance with the FSA’s client money rules. To the extent that the Group uses term deposits for holding client money the Group is exposed to the variability of LIBOR rates relative to base rates and will experience a lag in the impact of any changes. The Group has charges over mortgage assets to at least 150% of the deposit value to ensure the security of the deposit held with Melton Mowbray Building Society and Manchester Building Society.
The Group is also subject to interest rate risk in respect of its own principal cash balances. These balances earn interest at the prevailing rate and the income is disclosed in the income statement under investment revenues.
Interest rate sensitivityThe direct link between the bank base rate and the interest rate paid to customers means that the Group’s interest income from client money balances is not generally sensitive to interest rate movements either up or down. However, with base rates below 3.5% the Group could expect to see some improvement to interest income as rates increase until they reach 3.5% and interest starts to be paid to customers again. Given the cash balances held at the year-end, a 0.5% point increase in base rates (provided rates continue below 3.5%) would increase the Group’s interest income on client deposits by c£700,000 per annum. As noted above, there may be a lag in receiving this benefit dependent on the maturity of any term deposits used. As at 31 December 2012 c.40% of the Group’s client money balances were on term deposits with fixed rather than variable interest rates.
The interest income on the Group’s own principal balances is affected by changes in interest rates. Given the cash balances at the year-end a 0.5% movement in interest rates would impact investment income by c.£60,000 per annum. This impact, after taking into account the corresponding increase/decrease in the Group’s tax charge, would lead to a change in retained profit for the year.
Liquidity riskThe Group actively maintains cash balances in instant access accounts and on short-term deposit such that it has sufficient funds available for operations. This also applies to client monies so as to ensure sufficient funds are available at any time to meet customer requirements. In terms of its own funds, the investments the Group has on its balance sheet are in London Stock Exchange plc, Euroclear plc, WAY Group Limited, Investbx Limited, Eirx Therapeutics plc and Asset Match Ltd shares. London Stock Exchange plc shares are actively traded and relatively liquid. Given the overall levels and mix of cash and investments, the Group is not exposed to any significant liquidity risk. All financial liabilities are undiscounted and have contractual maturities which fall due within one year.
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Credit riskThe Group has a large and diverse customer base such that there is no concentration of credit risk. Customers can only trade with available funds or stock in their account and this limits any exposure to credit risk in this regard. An allowance is made against amounts owed to the Group where there is insufficient value of stock within a customer account to cover any fees due. Amounts shown on the balance sheet are net of this allowance.
The majority (69% (2011: 57%)) of trade and other receivables are funds due from other financial institutions and customers in settlement of trades. The credit risk in this respect is therefore considered to be limited. Credit risk within the Group’s business is further minimised by the collateral held within the Group’s nominee company.
At the year end, the Group’s own cash was predominantly held with Bank of Scotland, Royal Bank of Scotland, and Clydesdale Bank, all within the UK. The Board has only sanctioned use of institutions who meet the necessary due diligence requirements which includes an assessment of each institution’s balance sheet and ownership structures. The Group regularly reviews the institutions it uses. The same approach is taken in respect of depositing client monies and in line with the FSA’s guidance on client money the diversification of deposits is also considered in this process.
Equity price riskThe Group is exposed to equity security price risk in respect of the investments it holds on its balance sheet at more than nil value – namely London Stock Exchange plc, Euroclear plc and WAY Group Limited shares.
A significant proportion (28.5% (2011: 28.5%)) of the Group’s revenue is derived from fees which are charged to customers based on the value of their holdings. Through this fee charging structure the Group is also exposed to an element of security price risk on the investments held by customers. More generally a significant reduction in equity values and a consequent or concurrent reduction in investor dealing activity would have a potentially significant impact on the Group’s financial performance.
Equity price sensitivity analysisIf equity prices had been 10% higher/lower during 2012 then the net profit after tax of the Group would have been c.£300,000 (2011: c.£300,000) higher/lower as a result of the impact of those higher/lower equity prices on customer portfolio valuations and therefore on ad valorem fees charged by the Group.
In addition, the fair value of the Group’s investments may have been similarly affected although such changes would have impacted shareholders’ funds through the revaluation reserve rather than the income statement.
Fair value of financial instrumentsThe directors consider that the carrying amounts of all financial assets and financial liabilities recorded at amortised cost in the financial statements approximate to their fair values.
Market values have been used to determine the fair values of available-for-sale financial assets. For those equity investments which do not have a quoted market price in an active market, fair value has been determined by reference to cost, or to the last available traded price and a comparison with the net asset value per share and other similar metrics, making allowances where appropriate for any uncertainties or illiquidity.
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
Level 1: Fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); the Group does not hold any financial instrument under this level; and
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Level 3: Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Group 2012 2011 Level 1 Level 3 Total Level 1 Level 3 Total £’000 £’000 £’000 £’000 £’000 £’000
Available-for-sale financial assets
Quoted securities 1,941 - 1,941 1,392 - 1,392
Unquoted securities - 1,915 1,915 - 1,857 1,857
Total 1,941 1,915 3,856 1,392 1,857 3,249
Reconciliation of Level 3 fair value measurements of financial assets 2012 2011 Available-for-sale unquoted securities £’000 £’000
Balance as at 1 January 1,857 2,038
Total gain/ (loss) in other comprehensive income 58 (181)
Balance as at 31 December 1,915 1,857
All gains and losses included in other comprehensive income relate to securities held at the balance sheet date and are reported as changes of “Revaluation Reserve” (see note 25)
Cash and cash equivalents are not included in the disclosures above as they are held at cost.
21 Deferred tax
Share-based Accelerated Short-term Revaluation of Total payments tax depreciation timing differences financial assets £‘000 £‘000 £’000 £‘000 £‘000
As at 1 January 2011 78 14 - (751) (659)
(Charge)/credit to income (33) (2) 1 - (34)
Credit to other comprehensive income - - - 129 129
Charge to equity (29) - - - (29)
As at 31 December 2011 16 12 1 (622) (593)
(Charge) /credit to income (2) 33 (1) - 30
Charge to other comprehensive income - - - (87) (87)
Charge to equity (16) - - - (16)
Prior year adjustment - (28) - - (28)
As at 31 December 2012 (2) 17 - (709) (694)
The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior period.
There were no transfers between any of the levels during the year
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Group Company 2012 2011 2012 2011 £‘000 £‘000 £‘000 £‘000
Trade creditors 7,855 6,113 - -
Amount owed to Group companies - - 513 227
Other taxation and social security 459 446 - -
Accruals and deferred income 965 847 41 46
Other creditors 290 646 - -
9,569 8,052 554 273
22 Trade and other payables
The Group and Company
2012 2011 Ordinary shares of 0.5p each Number £’000 Number £’000
Authorised 296,175,000 1,481 296,175,000 1,481
Allotted, called up and fully paid 143,652,334 719 143,652,334 719
23 Called up share capital
2012 2011 £’000 £’000
Balance at 1 January and 31 December 1,098 1,098
24 Share premium account – Group and Company
25 Reserves
The Group has a number of reserves included within its Shareholders’ Funds. The nature and purpose of these reserves is described below and the movement in each of these reserves is shown on the face of the primary statement – Consolidated statement of changes in equity – as shown on page 44.
Capital redemption reserve
This reserve relates to balances arising on the repurchase of the Company’s own shares.
Employee benefit reserve
As explained in note 3, the employee benefit reserve represents shares held in Share plc having been purchased by Sharesecure Limited. Sharesecure Limited is a trustee of two employee benefit trusts which are used to purchase shares to meet potential obligations arising from the issue of share options made to directors and employees, and to meet requirements arising from the issue of matching and partnership shares under the Share Incentive Plan. In addition Sharesecure Limited is the other party to shares awarded to directors and employees under the Co-ownership Equity Incentive plan. The individual recipients of those awards cannot exercise any benefits of
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annual report 2012
2012 2011 Average purchase Average purchase Number price (pence) Number price (pence)
Ordinary shares of 0.5p each 2,770,143 23.4 2,913,953 23.8
During the year the employee benefit trusts purchased or received back from leaving employees a total of 1,026,424 Ordinary 0.5p shares. 1,170,234 shares were sold by the employee benefit trusts or allocated to employees by way of matching shares or free shares. The shares purchased had a total consideration of £240,000 (2011: £409,000).
Revaluation reserve
This reserve represents the cumulative fair value position in respect of assets held by the Group which are revalued based on their fair value at the balance sheet date.
Retained earnings
This reserve represents the cumulative retained profits of the Group.
The detailed movements on the revaluation reserve and the retained earnings reserve are shown on the face of the Consolidated statement of changes in equity. However, the movements shown in the Consolidated statement of comprehensive income are shown as a single line. This may be broken out between the two reserves as follows:
Revaluation Retained 2012 Revaluation Retained 2011 Total reserve earnings Total reserve earnings (Restated) £’000 £’000 £’000 £’000 £’000 £’000
Retained profit for the period - 521 521 - 1,114 1,114
(Decrease) / increase in fair value of available-for-sale investments 642 - 642 (231) - (231)
Deferred tax effect of movement in fair value of available-for-sale investments (156) - (156) 64 - 64
Exchange losses on available-for-sale investments - (35) (35) - (49) (49)
Deferred tax effect of exchange movements of available-for-sale investments - 9 9 - 12 12
Deferred tax impact of change in tax rate 54 6 60 45 7 52
Movement in the year 540 501 1,041 (122) 1,084 962
26 Capital Management
The Group’s disclosures as required under Pillar III are set out in a separate document available on the Group’s website, www.shareplc.com. That Pillar III document shows that the Group had Tier 1 capital of £14.4 million (2011: £13.2 million) and Tier 2 capital of £2.2 million (2011: £1.7 million) as at 31 December 2012. The total capital of £16.6 million (2011: 14.9 million) demonstrates a significant surplus over the current capital requirement for 2013 of £3.6 million.
It should be noted that the Group contains two regulated entities, The Share Centre Limited and Sharefunds Limited. In addition to having to satisfy capital requirements on a consolidated Group basis, each of these individual entities must also satisfy their own capital requirements. In particular, with regard to The Share Centre Limited, the Pillar III disclosures indicate that it had total capital resources at 31 December 2012
ownership until three years after the grant date and therefore ownership is considered to rest with Sharesecure Limited. The total number of shares held at year-end in respect of all the above arrangements was as follows:
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annual report 2012
Group 2011 Company 2012 (Restated) 2012 2011 £’000 £’000 £’000 £’000
Operating profit / (loss) 932 1,357 (382) (344)
Other gains (215) (231) - -
Depreciation of property, plant and equipment 99 88 - -
Amortisation of intangible assets 16 28 - -
Gain on disposal of discontinued operations 100 - 100 -
Share-based payments 217 212 - -
Operating cash flows before movement in working capital 1,149 1,454 (282) (344)
(Increase) / decrease in receivables (526) 6,963 - (4)
Increase / (decrease) in payables 1,517 (8,058) 281 (17)
Cash generated by/ (used in) operations 2,140 359 (1) (365)
Income taxes paid (313) (803) - -
Net cash from/ (used in) operating activities 1,827 (444) (1) (365)
27 Notes to the cash flow statements
of £11.0 million (2011: £11.0 million) which is a significant surplus over the 2012 capital requirement of £2.7 million (2011: £2.7 million). The capital requirements of the subsidiaries, and The Share Centre Limited in particular, could act as a limitation on the ability of those subsidiaries to pay dividends to the parent company and therefore ultimately of the Group to pay dividends out to its shareholders. Given the current capital position of the Group and its subsidiaries and the current dividend policy, this does not present a restriction at present.
2012 2011 Land and Other Land and Other buildings buildings £’000 £’000 £’000 £’000
One to five years 1,378 176 1,796 127
Over five years - - - -
Total 1,378 176 1,796 127
28 Operating lease arrangements
At the balance sheet date the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows
Operating lease payments principally represent rentals payable by the Group for its office premises. The current lease runs until 2016. The commitments above are the minimum non-cancellable payments due. The Company has no commitments under operating leases (2011: None).
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annual report 2012
29 Share-based payments
The Group operates an Enterprise Management Incentive (EMI) approved share option scheme which enables the regular granting of share options at six-monthly intervals and discretionary grants to senior managers and directors as deemed appropriate by the Board Remuneration Committee. In addition, the Group has an Approved Share Option Scheme, an Unapproved Share Option Scheme and a Co-ownership Equity Incentive Plan. With the exception of some options granted under the unapproved share option scheme, the vesting period for options is three years and they all expire ten years after the date of grant. In respect of the Co-ownership Equity Incentive Plan, the shares are jointly held with the Employee Benefit Trust. The individual recipients are able to sell the shares concerned between three and ten years after the grant date and benefit from the excess of the sales price at that time over and above the price specified in the Co-ownership agreement. That price is set at a c.20% premium to the market price at the date of grant.
Details of the share options outstanding during the year are as follows:
2012 2011 Number of Weighted average Number of Weighted average share options exercise price (p) share options exercise price (p)
Outstanding at the beginning of the year 7,632,218 18.0 6,844,887 20.9
Granted during the year 800,000 23.7 1,490,000 24.3
Exercised during the year (1,239,388) 14.0 (486,931) 16.3
Expired or forfeited during the year (339,556) 26.8 (215,738) 30.2
Outstanding at the end of the year 6,853,274 22.9 7,632,218 18.0
Exercisable at the end of the year 3,666,189 20.9 4,355,517 15.0
The weighted average market share price at the date of exercise for options exercised during 2012 was 21.9 pence (2012: 22.6 pence). The share options outstanding at the end of the year, their exercise prices and contractual lives are as detailed in note 30.
The Group has applied the requirements of IFRS 2 in respect of share-based payments. During the year ended December 2012, the Group made two equity-settled share-based payments to staff. These payments were made under the Group’s Enterprise Management Incentive (EMI) scheme and Unapproved share options plan. In all cases there are no performance conditions attached to the options. In all cases, except the options granted at a premium under the Co-ownership Equity Incentive plan, all options have been granted with an exercise price equal to market value – being the closing mid-price on the day prior to grant.
A fair value has been determined for each grant made during the year using the Black-Scholes model. The main assumptions are as follows:
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annual report 2012
Grant date 22/06/12 22/12/12
Share price at date of grant 23p 24.5p
Exercise price 23p 24.5p
Risk free interest rate 0.5% 0.5%
Dividend yield 1.0% 1.0%
Volatility (based on historic share price movements) 30% 30%
Average maturity at exercise 5 years 5 years
Fair value per option 5.5p 5.9p
In addition, the Group operates a Share Incentive Plan (SIP). This scheme is open to all employees and allows them to allocate up to £1,500 per annum of their pre-tax salary to purchase shares in Share plc through a partnership scheme without paying National Insurance contributions or Income Tax. For every share purchased through the partnership scheme, The Share Centre Limited purchases two matching shares. The employee must remain in employment for three years from the date of purchase of the partnership shares in order to qualify for the corresponding matching shares and in order for those shares to be transferred to them tax-free. The employee retains rights over both their own shares and the matching shares, receives dividends and is able to vote at meetings once the shares are purchased.
The fair value for those shares given as matching shares under the arrangements of the SIP has been determined by reference to the market price. The value used is the quarter-up price based on the Daily Official List from the previous business day. This has ranged from 22.37p to 24.38p during 2012. The cost is then applied over three years, being the qualifying period during which the employee must remain in employment with the Group.
In addition, the SIP enables the Group to grant employees free shares with a value of up to £3,000 per eligible employee per annum. On 21 December 2007, the Group granted 606,690 shares to employees based on a formula taking into account length of service and salary; grants ranged in value from £929 to £3,000. The cost of these free shares has been treated in the same way as for matching shares with that cost applied over three years, being the qualifying period during which the employee must remain in employment with the Group.
It is Group policy that, where possible, shares to settle the SIP and the share options issued will be purchased in the market rather than issued as new shares.
The total expense for equity-settled share-based payments for the Group in respect of awards made in 2012 was £220.000 (2011: £252,000). This expense is then applied across the three years to the vesting date. An adjustment is made to this figure in respect of members of staff to whom options and shares have been granted but who have left the Group’s employ during the vesting period. The overall net charge taken in the income statement for 2012 is £216,700 (2011: £212,000).
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annual report 2012
At 31 December 2012 the following share options to subscribe for ordinary shares were outstanding:
Exercise period Exercise price Share Option 2012 total 2011 total First date Last date Pence Scheme or Plan Number Number
22-Jun-05 22-Jun-12 16 (E) - 89,999
22-Dec-05 22-Dec-12 10 (E) - 87,500
22-Jun-06 22-Jun-13 14 (E) 53,116 68,192
22-Dec-06 22-Dec-13 16 (E) 69,989 86,425
21-Mar-07 21-Mar-13 12 (U) - 200,000
22-Jun-07 22-Jun-14 15 (E) 71,426 88,524
22-Dec-07 22-Dec-14 14 (E) 55,457 72,521
21-Mar-08 21-Mar-13 12 (U) - 200,000
22-Jun-08 22-Jun-15 14 (E) 56,177 83,136
22-Dec-08 22-Dec-15 14 (E) 87,914 104,787
22-Jun-09 22-Jun-16 20 (E) 108,968 125,787
10-Jul-09 10-Jul-16 20 (E) - 50,000
08-Dec-09 08-Dec-16 16 (E) 7,960 7,960
22-Dec-09 22-Dec-16 15 (E) 102,292 128,456
19-Mar-10 19-Mar-17 15 (E) 75,000 75,000
02-Apr-10 02-Apr-17 14.5 (E) 122,120 122,120
22-Jun-10 22-Jun-17 26 (E) 164,211 188,404
22-Dec-10 22-Dec-17 30 (E) 254,104 278,224
10-Jan-11 10-Jul-16 20 (E) - 50,000
15-May-11 15-May-18 27 (E) 112,263 112,263
15-May-11 15-May-18 14.5 (E) 1,151,344 1,510,744
22-Jun-11 22-Jun-18 30.5 (E) 229,216 253,164
19-Sep-11 19-Mar-17 15 (E) - 50,000
22-Dec-11 22-Dec-18 24.5 (E) 258,789 282,991
22-Dec-11 22-Dec-18 24.5 (U) 39,320 39,320
22-Jun-12 22-Jun-19 30 (E) 269,261 301,016
25-Jun-12 25-Jun-19 36 (C) 19,894 19,894
10-Jul-12 10-Jul-16 20 (E) 50,000 50,000
22-Dec-12 22-Dec-19 27.5 (E) 287,474 320,353
23-Dec-12 23-Dec-19 33 (C) 19,894 19,894
19-Mar-13 19-Mar-17 15 (E) 50,000 50,000
22-Jun-13 22-Jun-20 26.5 (E) 441,355 474,450
29-Jun-13 29-Jun-20 32 (C) 172,136 172,136
30 Share options
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annual report 2012
Exercise period Exercise price Share Option 2012 total 2011 total First date Last date Pence Scheme or Plan Number Number
22-Dec-13 22-Dec-20 28.5 (E) 321,581 369,506
22-Dec-13 22-Dec-20 28.5 (U) 9,452 9,452
22-Jun-14 22-Jun-21 25 (E) 497,366 537,430
22-Jun-14 22-Jun-21 25 (U) 542,570 542,570
22-Dec-14 22-Dec-21 22.5 (E) 344,811 370,034
22-Dec-14 22-Dec-21 22.5 (U) 39,966 39,966
22-Jun-15 22-Jun-22 0.23 (E) 377,848 -
22-Dec-15 22-Dec-22 0.245 (E) 379,042 -
22-Dec-15 22-Dec-22 0.245 (U) 10,958 -
6,853,274 7,632,218
(A) Approved share option scheme (C) Co-ownership Equity Incentive plan (E) EMI Scheme (U) Unapproved share option scheme
31 Related party transactions
The principal transactions between the Company and its subsidiaries were the capital contribution to Sharefunds Limited of £900,000 (2011: £1,000,000) and the payment to The Share Centre Limited of management fees of £205,000 (2011: £207,000) which primarily relate to the recharging of a proportion of directors’ time. At the year-end the Company had a balance outstanding due to The Share Centre Limited of £513,000 (2011: £227,000) and was owed, by way of a subordinated loan, £150,000 (2011: £150,000) by The Share Centre Limited.
Remuneration of key management personnelThe remuneration of the directors and other members of senior management, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual directors is provided in the ‘Directors’ remuneration report’ on pages 34 to 38.
Year ended Year ended 31 December 2012 31 December 2011 £’000 £’000
Short-term employee benefits 816 922
Share-based payments 17 41
Defined contribution pension costs 48 46
Gains on exercise of share options 66 26
947 1,035
Share Foundation JISAThe Share Centre has been independently selected by Kleinwort Benson, Account Allocation Adviser to The Share Foundation to be one of the Junior ISA (JISA) providers for children and young people in care. The JISA provided is our standard Ready-made JISA containing either our SF Cautious Fund or our SF Positive Fund. The accounts are funded with a minimum of £200 government funding plus contributions from The Share Foundation as part of its charitable donations programme. To date 4,400 accounts have been opened with total value of £901,000. The founder and chairman of TSF is Gavin Oldham.
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annual report 2012
Termination of Way Fund Relationship
As announced in August we completed a thorough review of our Sharefunds business, its risks and how it can best serve our retail customers. We decided that in any event it is best to concentrate on internally managed funds and reduce external dependencies. This has led us to give notice to WAY Fund Managers Limited (WAY) to terminate the fund administration which we currently undertake on its behalf, and this process will be complete by March 2013. We will continue to act as Authorised Corporate Director (ACD) and administrator for the other handful of third parties for whom we currently act. The WAY business contributed c.£650,000 to revenues in 2012 and along with the associated costs, this will fall away in 2013. It should be noted that the Group continues to hold an investment in WAY Group Limited, currently valued at £472,500 on the balance sheet.
32 Prior year adjustment
On 2 April 2012 The Share Centre Limited received an invoice from the Financial Services Compensation Scheme (FSCS) for £209,000. This was in respect of an interim levy for the period from April 2011 to March 2012. The Share plc Group accounts for 2011 had been approved by the Board and signed on 22 March 2012. This invoice therefore gave rise to a difference between the subsidiary accounts for 2011 and the Group’s consolidated accounts.
We have therefore adjusted the Group’s 2011 comparative figures in the income statement, consolidated statement of comprehensive income and balance sheet relative to those originally published as noted below. There is no impact on the Group’s cash flow statement.
2011 (Restated) 2011 (Original)
£’000 £’000
Income statement
Administrative expenses (12,898) (12,689)
Operating profit 1,357 1,566
Profit before taxation 1,567 1,776
Taxation (453) (509)
Profit for the year 1,114 1,267
Consolidated statement of comprehensive income
Profit for the year 1,114 1,267
Total comprehensive income for the period 963 1,116
Attributable to equity shareholders 963 1,116
Balance sheet
Trade and other payables (8,052) (7,843)
Current tax liabilities (100) (155)
Net current assets 12,761 12,915
Net assets 15,939 16,093
Retained earnings 13,039 13,193
Equity shareholders’ funds 15,939 16,093
In addition to the above, Basic and Diluted earnings per share have been revised to 0.8 pence per share from an originally published 0.9 pence per share. Underlying basic and diluted earnings per share, which the Directors consider represent a more consistent measure of the underlying performance of the Group, would have been unaffected at 1.0 pence per share as the FSCS interim levy would have been excluded from this calculation as in previous years
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Shares issued or committed as at 31 December 2012 Number of shareholders Number of shares %
Oldham family and trusts 11 109,327,919 76.2Other directors and staff 112 7,659,541 5.3Customers 46,660 22,159,619 15.4Other shareholders 555 4,505,255 3.1
47,338 143,652,334 100.0
information for shareholders
Press releases, half year results and other information relevant to shareholders are available on our website, www.shareplc.com
Financial calendar 2013
18 June 2013 Annual General Meeting at 11.00, One Great George Street, Westminster, London SW1P 3AA
Dealing in Share plc shares
Share plc shares are traded on AIM and Asset Match and customers of The Share Centre can place orders via their personal portfolio accessed at www.share.com, by telephone (01296 41 42 43) or in writing, quoting their name, customer reference, portfolio number and the number of shares to buy/sell together with the price limit. You can buy and sell shares in Share plc via most stockbrokers, including The Share Centre. If your preferred broker is not yet authorised to deal in Asset Match please ask them to contact the Asset Match team on 01296 41 42 43.
Asset Match auctions in Share plc shares are carried out weekly at 4.30pm each Thursday after the AIM market close, except Bank Holidays in which case deals are usually struck on the working day immediately prior to the Bank Holiday. For full details visit www.assetmatch.com or call 01296 41 41 41.
Share price information
The latest indicative and auction prices for shares in Share plc are available through normal media channels for AIM reporting and on www.assetmatch.com, or via the home page at www.shareplc.com.
Shareholder benefits
With effect from July 2012, the benefit for online shareholders of Share plc has been simplified and improved. All shareholders owning 500 or more Share plc shares in any account with The Share Centre will receive a 30% discount on dealing rates at the time of dealing, for all deals done online (i.e. over the internet or by mobile phone).
This benefit can reduce the effective cost of dealing to just £5.25 per deal.
Opt-in for Shareholder Rights
The Group succeeded in campaigning to amend the Companies Act 2006 to include provisions for individuals who hold their investments using a nominee to opt-in to receive information (for example, annual reports) directly from companies in which they invest. The Share Centre offers this facility to its customers. If you hold Share plc shares in your account with The Share Centre and wish to receive a copy of the annual report, interim statement and other communication with shareholders please sign in to your account, go to ‘my profile’, and enable the shareholder rights functionality which enables you to choose whether to receive such communications by e-mail or post and to vote on company resolutions online.
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Broker
The Share Centre Limited Oxford House, Oxford Road, Aylesbury, Buckinghamshire, HP21 8SZ
Nominated advisor (NOMAD)Peel Hunt LLP
Moor House, 120 London Wall, London EC2Y 5ET
Independent auditorDeloitte LLP
3 Rivergate, Temple Quay, Bristol, BS1 6GD
Principal bankersBank of Scotland
New Uberior House, 11 Earl Grey Street, Edinburgh, EH3 9BN
RegistrarsCapita Registrars
Northern House, Woodsome Park, Fenay Bridge, Huddersfield, West Yorkshire, HD8 0LA
SolicitorsDechert LLP
160 Queen Victoria Street, London, EC4V 4QQ
Public Relations – The Share Centre LimitedTeam Spirit
78, Cowcross Street, Faringdon, London, EC1M 6HE
Public Relations – Share plcBiddicks
No.1 Cornhill, London, EC3V 3ND
advisors
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annual report 2012This document constitutes a financial promotion under the Financial Services and Markets Act 2000 and has been approved by The Share Centre Limited, a member of the London Stock Exchange. The Share Centre Limited is authorised and regulated by the Financial Conduct Authority register number 146768.
Please remember the value of investments and the income from them can go down as well as up, and you may not get back your original investment.