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Nucleus Financial Gp - Final Results

RNS Number : 9822I
Nucleus Financial Group PLC
07 April 2020
 

7 April 2020

Nucleus Financial Group plc

("Nucleus" or the "group")

Final audited results for the year ended 31 December 2019

Q1 AUA update

Nucleus delivers strong financial performance and AUA growth in face of challenging market conditions

Nucleus, a leading independent wrap platform provider, is pleased to announce its audited annual results for the year ended 31 December 2019.

Full year financial highlights

 

£ million (unless otherwise stated)

Year ended 31 Dec 2019

 

Year ended 31 Dec 2018

 

Change

Period end AUA

16,141

 

13,884

 

16.3%

Average AUA

15,180

 

14,124

 

7.5%

Revenue

51.5

 

49.4

 

4.3%

Net revenue*

45.2

 

43.2

 

4.8%

Blended revenue yield (bps)*

29.8

 

30.6

 

(2.6%)

Adjusted EBITDA*

7.9

 

8.3

 

(4.6%)

Adjusted EBITDA margin (%)*

17.5

 

19.2

 

(9.0%)

Adjusted profit before tax*

7.3

 

7.7

 

(5.0%)

Profit after tax

6.0

 

4.8

 

25.2%

Earnings per share (p)

7.8

 

6.3

 

24.5%

Adjusted earnings per share (p)*

7.8

 

8.2

 

(5.0%)

Full year dividend per share (p)* (see below for further detail)

1.5

 

5.0

 

(70.0%)

 

·      AUA increased 16.3% year-on-year to £16.1bn compared to a FTSE All-Share Index increase of 14.2% year-on-year

·      Net revenue grew by 4.8%, despite volatile markets, with a reduction in blended revenue yield as expected,  and due to several factors including improved terms for a small number of large adviser groups

·      Adjusted EBITDA was in line with expectations at £7.9m following increased investment in the product proposition during the year

·      Strong growth in statutory profit after tax, increasing by 25.2% to £6.0m on 2018

 

Full year operational highlights

·      3.3% increase in the number of active advisers from 1,396 to 1,442, over the previous year

·      3.4% increase in customer numbers from 93,715 to 96,857, over the previous year

·      Continued investment in the platform proposition throughout the year successfully delivered:

A further material platform software upgrade

A series of platform enhancements and software releases, designed to improve adviser efficiency including significant new trading functionality, improved bulk switching facility and new stockbroking supplier, pricing and capabilities

Launch of 'Nucleus Go', a new online client portal

New product developments including the launch of a Junior Isa and implementation of automated phased drawdown functionality

Improved service functionality including successful live testing of new telephony infrastructure (fully implemented post the end of the reporting period)

Successful implementation of all regulatory change including Mifid II costs and charges disclosure, pension wake up packs and the Senior Managers and Certification Regime (SM&CR)

 

Covid-19, final dividend and outlook

·      As noted in our announcement on 23 March 2020, following a period of positive inflow momentum, the rapid development of Covid-19 over the first few months of 2020 has created significant uncertainty in global markets and the value of most asset classes fell considerably in March. At the time of writing, it is entirely uncertain what impact this might have on businesses and the economy and, as the uncertainty prevails, it is too early to estimate the impact of the pandemic on Nucleus' performance.

·      Notwithstanding this uncertainty, the group has a robust capital structure and solvency position (with £11.4m of capital in excess of the pillar I minimum regulatory capital requirement), high conversion rate of profit to cash, no borrowings and available liquidity (including £18.5m of cash and cash equivalents at the end of the financial year).

·      However, in light of the exceptional and open-ended uncertainty caused by the Covid-19 pandemic and the rapidly changing environment, the board has decided, in the interests of prudence, not to recommend a dividend until there is more certainty around the term and impact on markets, investor confidence and revenue. The decision to suspend payment of the 2019 final dividend will allow the group to preserve capital until there is greater clarity on the above. The board will continue to assess the situation and the appropriateness of paying a second interim dividend relating to the financial year ended 31 December 2019.

 

Q1 AUA update

·      AUA was £14.0bn at the end of Q1 2020.

·      The positive inflow momentum from Q4 continued into the first quarter of 2020 and there was limited impact on inflows until the latter part of March when the typical step up in tax year end contributions eased off.

·      Q1 2020 gross inflows increased materially to £580m for the quarter, an increase of 24.5% on Q1 2019. Outflows stood at £312m, a 6.0% reduction on the same period in 2019, leaving net inflows of £268m for the first quarter, a 100.0% increase on Q1 2019.

·      As previously noted on 23 March 2020, market volatility, particularly in March, has seen market movements of -£2.4bn over the quarter.

·      3.9% increase in the number of active advisers from 1,376 to 1,430, over Q1 2019.

·      4.8% increase in customer numbers from 94,144 to 98,678, over Q1 2019.

 

 

 

David Ferguson, founder and CEO of Nucleus, commented:

"2019 was a challenging year for most UK financial services businesses as a result of the much trailed political and economic headwinds, particularly surrounding Brexit. Despite this, we made good progress over the year with growth across most of our key financial metrics, including AUA, revenue, profit after tax, customers and advisers."

"We're committed to continually investing in the platform, and our product development and operations teams had a great year with notable progress in delivering improved efficiency, new functionality and enhanced capabilities. We entered 2020 with a stronger than ever combination of online product capability and offline service."

"We face a new challenge this year with the rapid change in the development of Covid-19, and it is entirely uncertain what impact this might have on businesses and the economy. The outlook is impossible to predict, but I can say that we remain open for business, and cash generative each day. Our highest priorities are the health and wellbeing of our people, users and customers and we are taking every possible action to adapt to the situation and ensure we continue to deliver our online product as normal, backed up by top quality offline support. Our platform is fully operational and all of our people are successfully working remotely with no impact on service. We are in continual dialogue with our users and our material service providers and I consider our operations to be resilient, recognising that our user experience remains reliant (as ever) on the performance of many of the interconnected parties that comprise the overall financial system."

"In light of the Covid-19 situation, the board has taken the prudent decision not to recommend a dividend until there is more certainty around the term and impact on markets, investor confidence and revenue. While this would typically be considered an unusual decision, we are in uncharted waters, and I believe it to be the correct course of action at this stage."

"Despite the current situation, the positive momentum following the general election in December carried into the start of the year and inflows have remained buoyant throughout with a 100.0% increase in net inflows in Q1 2020 against the first quarter of 2019. Inflow momentum has eased off in the last couple of weeks as the Covid-19 situation has developed. Reiterating the point above, it is too early to form a view on what the impact may be on the financial performance of the business over the full year."

 "Notwithstanding the impact of external factors, whether related to market sentiment, the political environment or the current coronavirus pandemic, I believe the business is well-positioned to deliver on our plans and capitalise on the structural growth themes relating to our sector."

 

~ Ends ~

 

* Industry-specific financial performance measures.

Included within this results announcement are alternative measures that the directors believe help to inform the results and financial position of the group.

·      Blended revenue yield is calculated by dividing annualised revenue by Average AUA.

·      Adjusted EBITDA and adjusted profit before tax excludes non-operating income, AIM admission costs and share based payments.

·      Full year dividend per share represents the post admission combined interim and final dividends for the financial year.

 

The definitions and calculations are included at the end of the document, where other technical terms are also defined.

 

For further information please contact:

Nucleus           

David Ferguson, CEO                                                     Tel: +44 (0)13 1226 9800

Stuart Geard, CFO       

 

Shore Capital (Nominated Adviser and Broker)         

Hugh Morgan                                                                   Tel: +44 (0)20 7408 4090

Edward Mansfield               

Daniel Bush 

 

Camarco (Media enquiries)    

Jennifer Renwick                                                             Tel: +44 (0)20 3757 4994

Jake Thomas    
Analyst presentation 

There will be an analyst conference call to discuss the results at 9:00 a.m. today, 7 April. Analysts wishing to attend are asked to use the following link to join by Webex - https://nucleusfinancial.webex.com/meet/david.ferguson. For those joining by audio only, please dial +44-20-3478-5289 and use access code 959 296 964.

Forward looking statements

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". By their nature, forward-looking statements involve known and unknown risks and uncertainties since they relate to future events and circumstances. Actual results may, and often do, differ materially from any forward-looking statements.

Any forward-looking statements in this announcement reflect Nucleus' view with respect to future events as at the date of this announcement. Save as required by law or by the AIM Rules for Companies, Nucleus undertakes no obligation to publicly revise any forward-looking statements in this announcement following any change in its expectations or to reflect events or circumstances after the date of this announcement.

 

 

Notes to Editors

About Nucleus

Nucleus is a wrap platform founded in 2006 by advisers committed to altering the balance of power in the industry by putting the customer centre stage. It provides independent wrap platform services to 1,430 active adviser users and works with more than 900 financial adviser firms as at 31 March 2020. It is responsible for AUA of £14.0bn on behalf of more than 98,000 customers.

The multi award-winning platform offers a range of custody, trading, payment, reporting, fee-handling, research and integration services across a variety of tax wrappers and more than 5,000 asset choices including cash, OEICs, unit trusts, offshore funds, structured products and listed securities, including ETFs and investment trusts. The platform currently facilitates over 1.1 million customer account transactions on average per month.

Nucleus has been awarded a 5-star service rating at the 2019 Financial Adviser Awards and won CoreData's 'Best medium sized platform' for 2019 (and the last eight years), the Schroders 'Platform of the Year' award for 2016, 2017 and 2018 and won 'Best Platform' and 'Platform Innovation' at the 2018 Money Marketing Awards.

 

Chief executive's report

Overview

It's impossible to begin this report without making reference to the Covid-19 pandemic currently wreaking havoc across our planet. The extremely 'live' nature of this situation means that the non-historic aspects of this report are exposed to external events more than ever before. I hope you will read the words that follow in that context but also in the knowledge that prior to the outbreak, we were feeling very positive about our prospects and what might be achievable in the coming years. I expect us to navigate this period successfully and for us to continue to deliver on those matters within our control. This should mean that as and when some sort of normality returns, we can return to the financial trajectory we had previously been working toward.

These are early days but our Covid-19 response has been anchored around protecting the safety of our people, in maintaining service levels and in continuing to develop the business in accordance with our long-term objectives. We have ceased or limited certain activities (whether in line with government guidance or our values) but in general terms have placed the long-term success of the business ahead of short-term profitability. I strongly believe this approach is best aligned with the interests of our key stakeholders and will ensure we remain well-positioned to capture our share of the structural opportunity of the sector.

For now (and returning to the traditional format of this report) I would like to remind you that Nucleus was founded to create value through greater alignment of adviser and customers interests, and we set out to achieve this by building the most technology-led platform in the UK. Despite the challenging sector headwinds, we made good progress during the course of 2019 and closed the year with a stronger than ever combination of online product capability and offline service. We continue to invest in the team that made this possible. Their efforts have positioned us well as the financial planning and wealth management markets continue to evolve. Commercial and regulatory pressures require all market participants to deliver value for money and we are excited about what we can achieve in the coming years. We were also pleased to win CoreData's 'best medium platform' award for the eighth year in succession and to achieve five-star status in the Financial Adviser service awards.

Operational performance

Although political and economic uncertainty, largely related to the UK's exit from the EU, generated some headwinds, markets ultimately rose over the year and this, combined with net inflows, helped power us toward a 16.3 per cent increase in assets under administration (AUA) to £16.1bn. Overall gross inflows fell to £1.9bn (from £2.3bn in 2018), however, market share, on a like-for-like basis, remained steady at 3.8 per cent (retail advised platform market).

We were also pleased to post four successive quarters of growth in gross inflows, along with continued growth in active advisers and customers, the latter two of which can be expected to contribute to future inflow growth. We enjoyed a notable uptick in inflows toward the end of the year and this trend has continued strongly into the start of this year.

We experienced a heightened level of outflows when a handful of firms that had been acquired moved some customers off the platform. More positively, we were successful in forging new relationships with a leading IFA consolidator and the biggest adviser support services firm (in the UK), and we are cultivating several other opportunities in this area.

Our product development and operations had a great year with notable progress made on all fronts. We were able to introduce new capabilities such as a Junior Isa, new phased drawdown features, a new customer portal and many other platform enhancements, including improved trading functionality and meeting the new costs and charges disclosure requirements of Mifid II. We also improved the resilience of some of our platform operations and installed new telephony and CRM infrastructure which will help us maintain and improve service levels. These investments were all well received by advisers and customers and I'm really pleased to have achieved the level of change velocity we believe is necessary to support our growth ambitions.

Financial performance and dividend

Net revenue was up 4.8 per cent to £45.2m and we recorded an adjusted EBITDA of £7.9m (2018: £8.3m). Consistent with our expectations, this represents a slight short-term deterioration in operating margin over 2018 and reflects our continued investment to accelerate future growth. On a reported basis, we increased profit after tax and earnings per share by 25.2 per cent and 23.8 per cent respectively, noting that 2018 included £1.7m of AIM admission costs.

Further details are contained in Stuart's report, but in light of the Covid-19 situation, the board has taken the prudent decision not to recommend a dividend until there is more certainty around the term and impact on markets, investor confidence and revenue. While this would typically be considered an unusual decision, we are in uncharted waters and I believe it to be the correct course of action at this stage. The decision to suspend payment of the 2019 final dividend will allow the group to preserve capital until there is greater clarity on the effect of Covid-19 and the board will continue to assess the situation and the appropriateness of paying a second interim dividend relating to the financial year ended 31 December 2019.

Our people

We've reshaped the organisation over the last two years, and this will continue as we direct more of our people costs toward our technology functions. Overall, we welcomed 64 new colleagues in 2019 and grew full-time equivalent headcount to 236 at the year-end, with over 70 per cent of these roles involved in product management, platform operations or servicing our audience. Our strategy of balancing the agility, scalability and resilience of our product with high touch offline service requires us to continue to invest in these areas over time. People engagement has been strong throughout the year and the team feels well set to achieve our objectives for 2020 and beyond. We made positive progress in narrowing our gender pay gap, reducing this by 1.7 per cent while women in senior positions remained at 32 per cent.

Strategic development

We have greatly enjoyed the first full year of our direct relationship with Bravura and remain strongly of the view that our blend of in-house development and data services sitting on top of Bravura's market-leading Sonata product is the right technology model for us.

We have improved our flexibility in supporting alternative product and pricing structures for larger-scale opportunities and, following the year end, have packaged this under the Nucleus Enterprise brand, with a view to driving further growth through this channel.

Alongside our core platform product, we made good progress in developing a new approach to investment portfolio management, and I'm very pleased to announce that following confirmation of the relevant regulatory permissions in January 2020 we plan to launch Nucleus IMX, a discretionary investment management proposition, in the first half of 2020. We believe the combination of our data capabilities and the work we have done internally and in partnership with leading investment consultancy firm Hymans Robertson, will allow us to open up a meaningful new revenue stream while further aligning adviser and customer interests.

 

Outlook and Covid-19

Notwithstanding the impact of external factors, whether related to market sentiment, the political environment or the current coronavirus pandemic, I believe the business is well-positioned to deliver on our plans and capitalise on the structural growth themes relating to our sector.

The recent period has seen us materially accelerate our product development efforts and coupled with strong operational performance and high touch offline service, we have started 2020 with a material improvement in inflows. These have been driven by increased demand from existing users and new demand from recently added adviser firms and we look forward to accelerating growth as we add further new firms through the year.

The competitive landscape has adjusted slightly with some legacy companies exiting the market and some more tech-led entrants emerging. There is little doubt that an effective technology model is central to success in this market and we continue to believe that blending Bravura's Sonata product with our in-house capabilities provides the right balance of agility, scalability and resilience to meet user expectations in the short-term while also ensuring our business is durable over the long term.

More widely, platforms can play a positive role in helping deliver improved value for money for customers and to this end we are particularly excited about Nucleus IMX, which has been designed specifically to improve value for money in asset management and if successful should also bolster our overall revenue yield, attract new users and create other interesting product opportunities.

We face a new challenge this year with the rapid change in the development of Covid-19, and it is entirely uncertain what impact this might have on businesses and the economy. The outlook is impossible to predict, but I can say that we remain open for business, and cash generative each day. Our highest priorities are the health and wellbeing of our people, users and customers and we are taking every possible action to adapt to the situation and ensure we continue to deliver our online product as normal, backed up by top quality offline support. Our platform is fully operational and all of our people are successfully working remotely with no impact on service. We are in continual dialogue with our users and our material service providers and I consider our operations to be resilient, recognising that our user experience remains reliant (as ever) on the performance of many of the interconnected parties that comprise the overall financial system.

 

David Ferguson

Founder and chief executive

 

 

Chief financial officer's report

2019 was a year that was characterised by political and economic uncertainty and market volatility, but which ended on a more solid footing as the political environment stabilised. The removal of these key issues in the last quarter of the year led quickly to a return in investor confidence, allowing us to post a fourth consecutive quarter of gross inflow growth. This positive momentum continued into the start of 2020 and, while it will undoubtedly be impacted by the uncertainty and disruption brought about by Covid-19, gives us increased confidence for when there is a return to stability.

Returning to 2019, the difficult environment did have a negative impact on overall gross and net inflows in 2019, and by implication AUA and revenue and required us to carefully balance the need to respond to the challenging environmental conditions and our desire to continue investing in our business.

As a result, Nucleus delivered a satisfactory financial performance in 2019, with its key financial metrics reflecting the impact of lower than expected net inflows and AUA, the restructuring of our primary outsourcing relationships towards the end of the previous year, increased investment in online functionality and offline service, and effective management of costs.

We remain confident that our investment in new initiatives and the ongoing development of our service and proposition leave us well-placed to benefit from a recovery in markets and investor sentiment, and to take advantage of the longer-term sectoral opportunity.

 

 

Financial key performance indicators

 

 

 

 

 

 

 

 

 

Year ended December 2019

 

Year ended December 2018

 

Year ended December 2017

 

Year ended December 2016

 

Year ended December 2015

Group

£'000

 

£'000

 

£'000

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

AUA1

16,141,279

 

13,883,713

 

13,576,703

 

11,143,757

 

9,068,789

 

 

 

 

 

 

 

 

 

 

Gross inflows1

1,941,712

 

2,290,236

 

2,607,759

 

1,854,830

 

1,977,783

 

 

 

 

 

 

 

 

 

 

Net inflows1

509,444

 

1,193,502

 

1,668,237

 

970,263

 

1,229,625

 

 

 

 

 

 

 

 

 

 

Revenue

51,517

 

49,405

 

45,462

 

37,483

 

33,091

 

 

 

 

 

 

 

 

 

 

Net revenue1

45,234

 

43,154

 

39,361

 

32,407

 

28,166

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA1

7,923

 

8,304

 

6,248

 

5,141

 

4,637

 

 

 

 

 

 

 

 

 

 

Profit for the year after tax

5,953

 

4,756

 

4,111

 

3,387

 

4,300

 

 

 

 

 

 

 

 

 

 

Dividend paid

3,873

 

3,933

 

4,813

 

nil

 

nil

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin1

17.5%

 

19.2%

 

15.9%

 

15.8%

 

16.5%

 

 

 

 

 

 

 

 

 

 

1 Industry-specific financial performance measures. Included within this results announcement are alternative measures that the

directors believe help to inform the results and financial position of the group.

 

 

 

 

 

 

 

Financial review

 

 

 

 

 

Year ended December 2019

Year ended December 2018

Group

 

£m

£m

 

 

 

 

Opening AUA

 

13,884

13,577

 

 

 

 

Inflows

 

1,941

2,290

 

 

 

 

Outflows

 

(1,432)

(1,097)

 

 

 

 

Net inflows

 

509

1,193

 

 

 

 

Market movements

 

1,748

(886)

 

 

 

 

Closing AUA

 

16,141

13,884

 

 

 

 

Average AUA

 

15,180

14,124

         

 

 

 

 

 

Restated1

 

 

Year ended December 2019

Year ended December 2018

 

 

£'000

£'000

Group

 

 

 

Revenue

 

51,517

49,405

 

 

 

 

AUA related fees paid

 

(6,283)

(6,251)

 

 

 

 

Net revenue

 

45,234

43,154

 

 

 

 

Other income

 

105

-

 

 

 

 

Total operating income

 

45,339

43,154

 

 

 

 

Staff costs

 

(14,590)

(14,142)

 

 

 

 

AUA related costs

 

(10,197)

(11,131)

 

 

 

 

Other direct platform costs1

 

(3,389)

(1,522)

 

 

 

 

Platform development costs

 

(2,948)

(1,682)

 

 

 

 

Other costs1

 

(6,292)

(6,373)

 

 

 

 

Adjusted EBITDA*

 

7,923

8,304

 

 

 

 

Depreciation*

 

(667)

(585)

 

 

 

 

Adjusted EBIT

 

7,256

7,719

 

 

 

 

Interest income

 

80

11

 

 

 

 

Interest expense*

 

(2)

(7)

 

 

 

 

Adjusted profit before tax

 

7,334

7,723

 

 

 

 

Other non-operating income

 

17

22

 

 

 

 

AIM admission costs

 

-

(1,688)

 

 

 

 

Share-based payments

 

(349)

(404)

 

 

 

 

Statutory profit before tax

 

7,002

5,653

 

 

 

 

Taxation

 

(1,049)

(897)

 

 

 

 

Statutory profit after tax

 

5,953

4,756

 

 

 

 

Adjusted profit after tax

 

5,941

6,255

 

 

 

 

Basic and diluted EPS

 

7.8p

6.3p

 

 

 

 

Adjusted EPS

 

7.8p

8.2p

 

 

 

 

Blended revenue yield (bps)**

 

29.8

30.6

 

 

 

 

Adjusted EBITDA margin

 

17.5%

19.2%

 

 

 

 

1 Platform-related mailing, bank charges, and errors and losses have been reclassified and restated from "other costs" to "other direct platform costs"

*Adjusted EBITDA excludes non-operating income, AIM admission costs, share-based payments, loss on disposal of fixed assets and includes ROU asset depreciation and ROU lease liability interest.  It is included within the strategic report as the directors believe this is a better representation of the underlying performance of the business.

**Blended revenue yield is calculated by dividing annualised revenue over average AUA.

 

 

 

 

 

 

Revenue

AUA increased by 16.3 per cent over the year, from £13.9bn at 31 December 2018 to £16.1bn at 31 December 2019 and compared to a 14.2 per cent increase in the FTSE All-share index over the same period. The £2.2bn increase in AUA comprised the impact of market movements of £1.7bn as markets recovered from their sharp decline in Q4 2018, as well as net inflows of £509m, which were lower than in the previous year. This reflected not only the impact of the difficult external environment on gross inflows, but also the impact of increased outflows attributable to the larger asset base and the withdrawal of assets by firms acquired by consolidators.

Lower levels of net inflows was a sector-wide issue throughout the period as illustrated by Fundscape, who reported net sales across the platform market in Q3 2019 as being the lowest since Q4 2012, immediately before the Retail Distribution Review (Fundscape Platform Report Q319 Issue, November 2019). Net sales across the sector for the first three quarters of the year were down 39.0 per cent (on the same period in 2018).

Average AUA, which increased by 7.5 per cent over the year from £14.1bn to £15.2bn, captures the impact of market volatility throughout the year, including the strong recovery in the first quarter of 2019 and the post-general election rise in December. As Nucleus' revenue accrues on a daily basis, average AUA is a better indicator of top-line growth and compares to growth in net revenue for the year of 4.8 per cent (from £43.2m in 2018 to £45.2m in 2019). The lower rate of growth in net revenue resulted in a  blended revenue yield in 2019 of 29.8 basis points (2018: 30.6 basis points), reflecting a number of factors, including the revision of Nucleus' distribution agreement with Paradigm, improved terms for Paradigm customers from July 2019 and the introduction of improved terms for a small number of large adviser groups.

Costs

Staff costs increased by 3.2 per cent from £14.1m in 2018 to £14.6m in 2019, a slightly lower than anticipated increase. Notwithstanding this, full-time equivalent headcount increased from 218 to 236 over the year, with a particular focus on recruitment in technology and customer servicing roles. The group has continued to deliver on its strategy of becoming the most technology enabled platform in the UK and this is evidenced by the increase in technology and change-related roles, increasing to 70 as at 31 December 2019 and representing 29.7 per cent of our total staff. As stated in previous communications, we expect the rate of increase in staff numbers to slow, with most additional recruitment continuing to be in technology-related roles.

AUA related costs, comprising principally the fees paid to Genpact (for administration services) and Bravura (for the licence of Sonata) decreased from £11.1m in 2018 to £10.2m in 2019, at an average cost of 6.72 bps (2018 - 7.88 bps). As stated in our half-year results, this reflects the contractual provisions within the restructured agreements as well as, to a lesser extent, the impact of service credits and the tiering benefits within a significant component of these costs. Looking forward, but subject to AUA recovering to the level prior to the market fall in Q1 2020, the group is set to benefit from the significantly lower basis points-related charges relating to incremental AUA, albeit with a reducing level of 'fixed discounts' that formed part of the Genpact contract renegotiation.

Third-party platform development expenditure for the year was £2.9m, in line with our stated objective of spending approximately £3m per year in this area. This comprised the costs of a further upgrade to the latest version of Sonata (which was completed in February 2019), development of considerable new functionality (made available to customers and advisers through two additional releases during the year or in the development pipeline for release in 2020) and investment in testing software and other tools. We are encouraged by what we have achieved in 2019 and the positive working relationship we have established with Bravura and will seek to allocate similar amounts of capital to platform development expenditure in future years.

Other direct platform costs increased from £1.5m to £3.4m, primarily as a result of Nucleus becoming responsible for the cost of platform hosting from August 2019 and assuming the cost of platform-related printing and posting from May 2019 (following the restructure of our relationship with Genpact). This increase in costs is consistent with guidance given previously and represents an increase in the fixed cost base of the group (in exchange for a decrease in variable AUA related costs payable to Genpact). The balance of other direct platform costs relates to surround platform licence fees, bank charges and compensation costs. These costs, together with the platform-related printing and postage costs increased from £1.5m in 2018 to £2.3m in 2019, reflecting in part the responsibilities taken on from Genpact but also the larger size of the business and higher than expected compensation costs.

Since taking over the service, printing and posting costs have largely been optimised through automation and we will seek similar efficiencies concerning the hosting of the platform. In this respect, we completed a proof of concept in H2 2019 for moving all aspects of the hosting of the platform to the cloud and will determine the optimal timing of such a move (and consequently the realisation of related cost savings) in conjunction with other development priorities.

Other costs decreased by £0.1m (or 1.3 per cent) from £6.4m in 2018. These costs, which include the costs of our larger Edinburgh head office premises (on an 'all-in' basis as opposed to an IFRS 16 Leases basis that is used for statutory reporting purposes), the incremental costs associated with being a quoted business, higher FSCS levies from April 2019 and the increased overhead costs attributable to the increased size of the business, benefited from the £0.4m settlement received from a previous service provider as well as positive variances on a number of overhead cost lines.

IFRS 16 impact

With effect from 1 January 2019 the group implemented IFRS 16 Leases, the details and impact of which are set out in the changes in accounting policies note in the financial statements. To provide a consistent and comparable indication of financial performance, adjusted EBITDA has been determined on a basis consistent with that applied in the 2018 annual report and financial statements. The required adjustment relates to IFRS 16-derived right of use (ROU) asset depreciation and ROU liability interest, which are included within other costs in the financial review.

Operating margin

Our operating margin (as reflected by the adjusted EBITDA margin) decreased from 19.2 per cent in 2018 to 17.5 per cent in 2019, mainly as a result of the contractual changes referred to above and the significant increase in platform development expenditure over the prior year. Similarly, adjusted EBITDA decreased by 4.6 per cent from £8.3m to £7.9m, a result that we are satisfied with given the difficult trading environment and the considerable investment in the business.

Profit before tax

Statutory profit before tax increased by 23.9 per cent over the previous year, with the prior year results including £1.7m of costs relating to the company's admission to the AIM market.

Share-based payment expenses decreased by 13.6 per cent to £0.3m, despite the introduction of a new LTIP tranche in 2019, reflecting the impact of the challenging environment on the stretching performance criteria within the long term incentive schemes. 

Taxation

The group's effective tax rate of 15.0 per cent (2018: 15.9 per cent) incorporates the impact of expenses that are non-tax deductible of £0.1m (2018: £0.4m), more than offset by the impact of tax credit amounts of £0.3m (2018: £0.5m) in respect of qualifying research and development (R&D) expenditure relating to the prior 2 years. With the group no longer qualifying for the SME R&D scheme with effect from the beginning of 2018, an R&D tax credit in respect of 2018 has been recognised in 2019 under the RDEC scheme and accounted for as other income of £0.1m, which has then been subject to corporation tax at 19 per cent.

Dividend

During the year, and consistent with our dividend policy, we paid a final dividend in respect of the 2018 financial year of £2.7m (or 3.6 pence per share) and an interim dividend in October of £1.1m (or 1.5 pence per share). This compares to dividends paid in the prior year of £4.0m, comprising pre-admission dividends in June and July 2018 totalling £2.9m, as well as an interim dividend in October 2018 of £1.1m (or 1.4 pence per share).

As detailed in the following section on financial position, the directors are confident that the group's capital structure, solvency position, high conversion rate of profit to cash, no borrowings and available liquidity can support the group through a period of material uncertainty. However, in light of the exceptional and open-ended uncertainty caused by the Covid-19 pandemic, the recent collapse in equity markets and the still rapidly changing environment, the board has decided, in the interests of prudence, not to recommend a final dividend for the year ended 31 December 2019.

The decision to suspend payment of the 2019 final dividend will allow the group to preserve capital until there is greater clarity on the effect of Covid-19 on Nucleus, its users, its customers and the broader economy. The board will continue to assess the situation and the appropriateness of paying a second interim dividend relating to the financial year ended 31 December 2019.

The dividend suspension thus affords Nucleus increased flexibility and protection at a time of unprecedented uncertainty.

 

 

 

 

 

 

2019 financial year

 

2018 financial year

 

 

 

£'000

Pence

£'000

Pence

Pre-admission dividend

-

 

2,870

 

Interim dividend

1,139

1.5

1,063

1.4

Final dividend*

-

-

2,734

3.6

Combined dividend (post admission)*

1,139

1.5

3,797

5.0

Pay-out ratio

19.2%

 

60.7%

 

 

* -  2019 suspended

Cash flow

We continue to achieve a high conversion rate of operating profit to cash before payment of dividends.

 

 

Financial position

Group financial position

 

31 December 2019

31 December 2018

 

 

£'000

£'000

Intangible assets

 

253

-

 

 

 

 

Right of use lease assets

 

3,476

-

 

 

 

 

Cash and cash equivalents

 

18,525

17,672

 

 

 

 

Net assets

 

19,706

17,473

 

 

 

 

Capital adequacy ratio

 

19.7%

20.6%

 

 

 

 

Excess capital - above 8% regulatory requirement

 

11,424

10,537

 

 

 

 

 

 

 

 

 

 

 

 

Nucleus continues to be funded entirely by equity capital and has no borrowings, save for in respect of the lease of our Edinburgh headquarters, which is recognised as a lease liability under IFRS 16 Leases.

The group has historically not recognised any intangible assets as the relevant expenditure did not meet the IFRS asset recognition criteria. This includes expenditure incurred internally or payable to third parties for the development of the platform. However, with the implementation of IFRS 16 we have recognised a right of use asset in respect of our head office premises lease, and we have also recognised, in accordance with IAS 38, an intangible asset relating to the development and licensing of Nucleus IMX which we plan to launch in H1 2020.

All surplus capital not required for working capital purposes is held in cash and is governed by an embedded capital management policy. At the end of the financial year, the group had £18.5m of cash and cash equivalents, representing 94.0 per cent (2018 - 101.1 per cent) of the group's net assets. The group also has access to a £5.0m uncommitted overdraft facility from RBS International that is undrawn and has not been accessed for the last three years.

The group's liquidity management is governed by an embedded liquidity management policy and framework. This requires the group's liquidity requirements to be projected over the five-year planning period to ensure the group has sufficient cash (including predetermined buffer levels) to run the business at all times and it is able to withstand a number of defined severe but plausible shocks.

As an IFPRU-regulated firm, Nucleus is required to maintain, at all times, financial resources and internal capital, including own funds and liquidity resources, that are adequate both as to amount and quality to ensure there is no significant risk that its liabilities cannot be met as they fall due. In practice, Nucleus determines its minimum regulatory capital requirement as the highest of the formulaic pillar I fixed overhead requirement, its internal pillar II assessment of the amount of capital required to be held against a number of identified severe but plausible risks and the net cost of performing an orderly and responsible wind-down. In addition to its regulatory minimum capital requirement, Nucleus applies a buffer of 25 per cent in setting its internal minimum capital requirement and then aims to manage its capital within a target capital range above that.

At the end of the financial year, the group had a pillar I statutory capital ratio of 19.7 per cent (amounting to £11.4m of capital in excess of the 8 per cent minimum regulatory capital requirement).

The group's capital requirements are reviewed on a quarterly basis and are also subject to periodic stress testing to evidence that its regulatory capital requirements can continue to be met in a range of stressed scenarios (including macro-economic shocks, company-specific shocks and a combination of simultaneous internal and external shocks). The output of the stress testing is subject to a set of mitigating actions, including in respect of staff recruitment and remuneration, platform development expenditure, discretionary expenditure, dividend payments and interim profit verification, applied as appropriate to each scenario. In all scenarios incorporating a significant shock to financial markets, the nature of Nucleus' revenue (ongoing annuity-type revenue derived from asset classes that are not equally correlated to equity markets) acts as an inherent mitigant.

Finally, the group's capital position is subject to a number of approved 'reverse stress tests'. These tests (which in 2019 included the collapse of financial markets as a result of a second global financial crisis but with central banks unwilling or unable to provide adequate support and stimulus) have a number of benefits, including identifying key vulnerabilities in the business that could cause it to fail, identifying external drivers that could result in a wind-down and the identification of early risk indicators and management actions.

While it is too early to estimate the impact of the Covid-19 pandemic on the group, the reaction to the uncertainty has reduced the value of most asset classes, which in turn has reduced the group's AUA and could materially impact inflows, with the consequence of both being a negative effect on revenue. Advisers, customers and suppliers will also be affected by the pandemic, although the extent of such disruption is yet to be determined. Notwithstanding this considerable uncertainty, the group has a robust capital structure and solvency position, high conversion rate of profit to cash, no borrowings and available liquidity. We will consider and implement identified mitigating actions should these be required (including in respect of expense management and dividend payments) but will seek to not take actions that might constrain the strategic development of the business unless conditions deteriorate to the extent that this is required.

The directors consider that the group has adequate resources to remain in operation for the foreseeable future and have therefore continued to adopt the going concern basis in preparing these financial statements.

 

Stuart Geard
Chief financial officer

Consolidated statement of comprehensive income

 

 

 

 

 

Restated*

 

 

2019

2018

 

Note

£'000

£'000

Continuing operations

 

 

 

Revenue

 

51,517

49,405

Cost of sales*

 

(22,817)

(20,587)

 

 

 

 

Gross profit

 

28,700

28,818

 

 

 

 

Other operating income

 

122

22

Administrative expenses*

 

(21,718)

(23,191)

 

 

 

 

Operating profit

 

7,104

5,649

 

 

 

 

Analysed as:

 

 

 

Adjusted EBITDA

 

7,923

8,304

Right of use lease liability interest included in adjusted EBITDA

180

-

Right of use depreciation included in adjusted EBITDA

 

438

-

Depreciation

 

(1,102)

(585)

Loss on disposal of fixed asset

 

(3)

-

Other income

 

17

22

Share based payments

 

(349)

(404)

AIM admission costs

 

-

(1,688)

 

 

 

 

Finance income

 

80

11

Finance costs

 

(182)

(7)

 

 

 

 

Profit before income tax

 

7,002

5,653

 

 

 

 

Income tax

7

(1,049)

(897)

 

 

 

 

Profit for the financial year

 

5,953

4,756

 

 

 

 

Items that may be subsequently reclassified to profit and loss

-

-

 

 

 

 

Total comprehensive income attributable to equity holders

5,953

4,756

 

 

 

 

 

Earnings per share (pence)

 

 

 

Basic

6

7.8

6.3

Diluted

6

7.8

6.3

 

 

*Details of the 2018 cost of sales and administrative expenses restatement are set out in note 1.

 

 

Consolidated statement of financial position

 

 

 

31 December

31 December

 

 

2019

2018

 

Note

£'000

£'000

Assets

 

 

 

Non-current assets

 

 

 

Intangible assets

 

253

-

Right of use lease assets

 

3,476

-

Property, plant and equipment

 

1,698

2,029

Deferred tax

 

107

163

 

 

5,534

2,192

Current assets

 

 

 

Trade and other receivables

 

10,530

10,611

Investments in securities

 

107

84

Tax receivable

 

-

541

Cash and cash equivalents

 

18,525

17,672

 

 

29,162

28,908

 

 

 

 

Total assets

 

34,696

31,100

 

 

 

 

Equity

 

 

 

Shareholders' equity

 

 

 

Called up share capital

9

76

76

Capital redemption reserve

 

53

53

Share-based payment reserve

 

465

150

Treasury shares

 

(121)

(30)

Retained earnings

 

19,233

17,224

 

 

 

 

Total equity

 

19,706

17,473

 

 

 

 

Liabilities

 

 

 

Non-current liabilities

 

 

 

Lease liabilities

 

3,737

-

Financial liabilities

 

-

6

Provisions

3

99

32

Deferred tax

 

22

41

 

 

3,858

79

Current liabilities

 

 

 

Lease liabilities

 

475

-

Financial liabilities

 

-

87

Trade and other payables

 

9,606

12,134

Tax payable

 

357

740

Provisions

3

694

587

 

 

11,132

13,548

 

 

 

 

Total liabilities

 

14,990

13,627

 

 

 

 

Total equity and liabilities

 

34,696

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated statement of changes in equity

 

 

 

 

 

 

 

 

Share-

 

 

 

 

Called

 

 

Capital

based

Fair

 

 

 

up share

Retained

Treasury

redemption

payment

value

Total

 

Note

capital

earnings

shares

reserve

reserve

reserve

equity

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 1 January 2019

 

76

17,224

(30)

53

150

-

17,473

IFRS 16 conversion

 

-

(71)

-

-

-

-

(71)

 

 

 

 

 

 

 

 

 

Changes in equity

 

 

 

 

 

 

 

 

Profit for the year

 

-

5,953

-

-

-

-

5,953

Dividends paid

8

-

(3,873)

-

-

-

-

(3,873)

Purchase of own shares

 

-

-

(91)

-

-

-

(91)

Share-based payments charge (excl. NIC)

 

-

-

-

-

315

-

315

 

 

 

 

 

 

 

 

 

Balance at 31 December 2019

76

19,233

(121)

53

465

-

19,706

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-

 

 

 

 

Called

 

 

Capital

based

Fair

 

 

 

up share

Retained

Treasury

redemption

payment

value

Total

 

 

capital

earnings

shares

reserve

reserve

reserve

equity

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 1 January 2018

 

21

13,475

-

1

2,646

39

16,182

Reclassify investments from FVOCI to FVPL

 

-

39

-

-

-

(39)

-

 

 

 

 

 

 

 

 

 

Changes in equity

 

 

 

 

 

 

 

 

Issue of preference shares

 

50

(50)

-

-

-

-

-

Redemption of preference shares

 

(50)

-

-

50

-

-

-

Issue of bonus shares and G share conversion

 

57

(57)

-

-

-

-

-

Buy back and redemption of G shares and deferred shares

 

(2)

-

-

2

-

-

-

Profit for the year

 

-

4,756

-

-

-

-

4,756

Dividends paid

8

-

(3,933)

-

-

-

-

(3,933)

Purchase of own shares

 

-

-

(30)

-

-

-

(30)

Gain on disposal of own shares

 

-

94

-

-

-

-

94

Transfer on share conversion

 

-

2,900

-

-

(2,900)

-

-

Share-based payments charge

 

-

-

-

-

404

-

404

 

 

 

 

 

 

 

 

 

Balance at 31 December 2018

76

17,224

(30)

53

150

-

17,473

 

 

 

 

 

 

 

 

 

 

 

Consolidated statement of cash flows

 

 

 

 

2019

2018

 

Note

£'000

£'000

Cash flows from operating activities

 

 

 

Cash inflows from operations

4

6,790

7,298

Interest received

 

80

8

Income tax paid

 

(855)

(1,822)

 

 

 

 

Net cash inflow from operating activities

 

6,015

5,484

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase of intangible fixed assets

 

(253)

-

Purchase of tangible fixed assets

 

(348)

(833)

Purchase / (sale) of investments

 

(16)

10

 

 

 

 

Net cash outflow from investing activities

 

(617)

(823)

 

 

 

 

Cash flows from financial activities

 

 

 

Interest paid

 

(182)

(2)

Dividends paid

8

(3,873)

(3,933)

Purchase of Treasury shares

 

(91)

(30)

Repayment of finance leases

 

-

(107)

Lease payments - principal

 

(393)

-

Exercise of options

 

-

98

 

 

 

 

Net cash outflows from financing activities

 

(4,539)

(3,974)

 

 

 

 

Increase in cash and cash equivalents

 

859

687

 

 

 

 

Cash and cash equivalents at beginning of year

 

17,672

16,992

 

 

 

 

Effects of exchange rate changes

 

(6)

(7)

 

 

 

 

Cash and cash equivalents at end of year

 

18,525

17,672

 

 

 

 

 

 

 

 

Notes to the consolidated financial statements

1. Accounting policies

Basis of preparation

The financial statements comply with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and have been prepared on a going concern basis, under the historical cost convention as modified by the recognition of certain financial assets measured at fair value. Unless otherwise stated, the accounting policies set out below have been applied consistently in both years presented in these financial statements.

The preparation of the financial statements in compliance with EU adopted IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the group and company's accounting policies. The areas where significant judgements and estimates have been made in the preparation of the financial statements are detailed below.

Section 435 of the Companies Act 2006 statement

The financial information contained within this document does not constitute statutory accounts. It is based on statutory accounts which have been audited by PricewaterhouseCoopers LLP (PwC). The 2018 statutory accounts have been filed with the registrar of companies, and the 2019 statutory accounts will be filed in due course. The auditor PwC has reported on those accounts. Their reports were (i) unqualified, (ii) did not reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report, and (iii) did not contain a statement under section 498 (2) or (3) of the companies act 2006.

Basis of consolidation

The consolidated financial statements comprise the financial statements of the company and all its subsidiary undertakings.

Subsidiaries are entities controlled by the company. Control is achieved where the group has existing rights that give it the current ability to direct the relevant activities that affect the returns and exposure or rights to variable returns from the entity. Subsidiaries are included in the consolidated financial statements of the group from the date control of the subsidiary commences until the date that control ceases. Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.

Uniform accounting policies have been applied across the group.

Going concern

After reviewing the group and the company's forecasts and projections, together with the results of modelled severe but plausible stress tests on both liquidity and regulatory capital adequacy,and the current operating and trading environment, the directors have a reasonable expectation that the group and the company has adequate resources to continue in operational existence for at least 12 months from the date of signing of the financial statements. The group and the company therefore continues to adopt the going concern basis in preparing its financial statements.

 

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the executive committee (the chief operating decision maker). The board tasks responsibility to the executive committee to assess the financial performance and the position of the group and make strategic decisions and allocate resources.

Nucleus' principal activities are the provision of wrap administration services and there is only one reporting and operating segment as defined under IFRS 8 Operating Segments. This is reviewed on a regular basis. It is considered appropriate that management review the performance of the group by reference to total results against budget.

The main financial performance measures are assets under administration on the platform, gross and net inflows onto the platform, revenue, adjusted EBITDA, profit for the year, dividend paid, adjusted EBITDA margin, consolidated operating profit, consolidated profit after tax and consolidated net assets. These are disclosed in the chief financial officer's report, where non-Gaap financial performance measures are also identified. The operating profit to adjusted EBITDA reconciliation is presented within the Consolidated statement of comprehensive income. Non Gaap measures are also defined in the definitions and glossary section of the financial statements.

Revenue

Revenue comprises fees earned by the group from the provision of a wrap platform service to UK financial advisers and their clients. Fees are recognised exclusive of Value Added Tax and net of large case discounts. They are recorded in the year to which they relate and can be reliably measured. Platform fees are calculated monthly using contractual basis point rate cards applied to the daily valuation of assets under administration on the platform. Performance obligations are satisfied as the wrap platform service is provided to customers over time. Accrued income represents fees that are collected in the following month.

New standards effective for the first time in the 2019 financial statements

 

Standard

Effective from:

IFRS 16: Leases

1 January 2019

IFRIC 23 - Uncertainty over income tax

1 January 2019

Amendments to IFRS 9: Financial instruments - prepayment features with negative compensation

1 January 2019

Amendments to IAS 28: Investments in associates - long-term interests in associates and joint ventures

1 January 2019

Annual improvements 2015-2017 cycle

1 January 2019

Amendments to IAS 19: Employee benefits - plan amendments, curtailments or settlements

1 January 2019

 

 

IFRS 16 Leases

The group adopted IFRS 16 Leases effective 1 January 2019. Details of the impact are set out in note 11 Changes in accounting policies below. Other new and amended standards did not have any impact on the group's accounting policies.

Future standards, amendments to standards and interpretations not early-adopted in the 2019 financial statements

New accounting standards and interpretations have been published that are not mandatory for adoption in the 2019 financial statements.

 

Standard

Effective from:

Conceptual Framework - amendments to references to the conceptual framework in IFRS standards

1 January 2020

Amendments to IFRS 3: Business combinations - definition of a business

1 January 2020

Definition of materiality - amendments to IAS 1 and IAS 8

1 January 2020

Interest rate benchmark reform - amendments to IFRS 9, IAS 39 and IFRS 7

1 January 2020

IFRS 17: Insurance contracts

1 January 2023

 

The adoption of these standards is not expected to have a material impact on the group.

Critical accounting judgements and key sources of estimation uncertainty, and restatements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The critical accounting judgements and the key sources of estimation uncertainty are as follows:

Income taxes

The group is subject to income taxes. Judgement is required in determining the extent to which it is probable that taxable profits will be available in future against which deferred tax assets can be utilised. Based on forecasts, the group expects to materially recover its deferred tax assets within the next two years.

Share-based payments

The group assesses the fair value of shares under the LTIP scheme at the grant date using appropriate valuation models, depending upon the nature of the performance criteria. At the end of each reporting period, the company revises its estimate of the number of options and shares under the LTIP scheme that are expected to vest to reflect latest expectations on the group's ability to achieve the specified performance criteria and actual or anticipated leavers from the schemes. For non-market related performance criteria, the company recognises the impact of any revision to the prior year's estimates in the statement of comprehensive income, with a corresponding adjustment to equity.

Provisions

The group has recognised provisions in respect of client compensation, outsourced service, dilapidations and share incentive plans. Further detail on these provisions, the rationale behind their recognition and the timing of future cash flow is included in note 3.

Restatement of costs of sales presentation in 2018

Platform related mailings, bank charges and errors and losses, which were previously disclosed in administrative expenses, have been reclassified to cost of sales to achieve better presentation. There is no impact on the reported profit or net assets of the group as a result of these restatements.

 

 

 

 

 

 

2018

£'000

Adjustment

Restated

2018

£'000

Continuing operations

 

 

 

Revenue

49,405

-

49,405

Cost of sales

(19,809)

(778)

(20,587)

 

 

 

 

Gross profit

29,596

(778)

28,818

Other operating income

22

-

22

Administrative expenses

(23,969)

778

(23,191)

 

 

 

 

Operating profit

5,649

-

5,649

Profit for the financial year

4,756

-

4,756

 

 

2. Financial instruments

The principal financial instruments, from which financial instrument risk arises, are as follows:

·      Trade and other receivables

·      Cash and cash equivalents

·      Investments in securities

·      Trade and other payables

 

As explained in note 1, financial assets and liabilities have been classified into categories that determine their basis of measurement and, for items measured at fair value, whether changes in fair value are recognised in the statement of comprehensive income. In adopting IFRS 9 all previously classified loans and receivables were re-classified as financial assets at amortised cost, with no change to measurement, and all financial assets previously classified at fair value through other comprehensive income were reclassified as financial assets at fair value through profit and loss, as this is the residual category under IFRS 9. The following tables show the carrying values of assets and liabilities for each of these categories.

 

 

 

 

 

 

 

Financial assets at

 

 

 

 

fair value through

Financial liabilities

Financial assets at

 

 

profit and loss

at amortised cost

amortised cost

Total

 

£'000

£'000

£'000

£'000

2019

 

 

 

 

Financial assets

 

 

 

 

Investments in securities

107

-

-

107

Cash and cash equivalents

-

-

18,525

18,525

Trade and other receivables

-

-

10,530

10,530

 

 

 

 

 

Total financial assets

107

-

29,055

29,162

 

 

 

 

 

Non-financial assets

 

 

 

5,534

 

 

 

 

 

Total assets

 

 

 

34,696

 

 

 

 

 

Financial liabilities

 

 

 

 

Lease liabilities

-

4,212

-

4,212

Trade and other payables

-

9,606

-

9,606

 

 

 

 

 

Total financial liabilities

-

13,818

-

13,818

 

 

 

 

 

Non-financial liabilities

 

 

 

1,172

 

 

 

 

 

Total liabilities

 

 

 

14,990

 

 

 

 

 

 

 

 

 

 

 

Financial assets at

 

 

 

 

fair value through

Financial liabilities

Financial assets at

 

 

profit and loss

at amortised cost

amortised cost

Total

 

£'000

£'000

£'000

£'000

2018

 

 

 

 

Financial assets

 

 

 

 

Investments in securities

84

-

-

84

Cash and cash equivalents

-

-

17,672

17,672

Trade and other receivables

-

-

10,611

10,611

 

 

 

 

 

Total financial assets

84

-

28,283

28,367

 

 

 

 

 

Non-financial assets

 

 

 

2,733

 

 

 

 

 

Total assets

 

 

 

31,100

 

 

 

 

 

Financial liabilities

 

 

 

 

Finance lease obligations

-

93

-

93

Trade and other payables

-

12,134

-

12,134

 

 

 

 

 

Total financial liabilities

-

12,227

-

12,227

 

 

 

 

 

Non-financial liabilities

 

 

 

1,400

 

 

 

 

 

Total liabilities

 

 

 

13,627

 

 

 

 

 

 

 

Financial instruments measured at fair value - fair value hierarchy

The table below classifies financial assets that are categorised on the statement of financial position at fair value in a hierarchy that is based on significance of the inputs used in making the measurements.

Investments in securities are held for the benefit of platform functionality and are reported on a separate line in the statement of financial position. The assets are held at fair value with any gains or losses being taken to the statement of comprehensive income.

The following tables show the group's financial assets measured at fair value through profit and loss, classed according to the level of the fair value hierarchy.

 

 

 

 

 

 

 

Level 1

Level 2

Level 3

Total

 

£'000

£'000

£'000

£'000

2019

 

 

 

 

Investments in securities

107

-

-

107

 

 

 

 

 

 

Level 1

Level 2

Level 3

Total

 

£'000

£'000

£'000

£'000

2018

 

 

 

 

Investments in securities

84

-

-

84

 

 

 

 

 

 

Credit risk

The group holds the surplus of corporate cash balances over and above its working capital requirements on deposit with its corporate banking services providers, Royal Bank of Scotland plc, Bank of Scotland plc and Investec Bank plc. The group is therefore exposed to counterparty credit risk and a failure of any of these banks would impact the group's resources and its ability to meet its solvency and liquidity requirements. Credit risk is managed within the risk appetites set by the board on an annual basis.

The supply of wrap platform services to clients results in trade receivables which the management consider to be of low risk. Other receivables are likewise considered to be low risk. Management do not consider that there is any concentration of risk within either trade or other receivables.

Included in other receivables is a balance of cash prefunded on the wrap platform. Where these amounts are not received within normal operational timeframes, our experience is that the risk of non-recovery increases, and we provide to our expectation of most likely outcome. The provision as at 31 December 2019 was £230,410 (2017: £176,674).

Liquidity risk

The group's liquidity position is subject to a range of factors that may generate liquidity strain in the short or medium term. The group manages its liquidity risk through an ongoing evaluation of its working capital requirements against available cash balances and credit facilities.

 

 

 

Exposure to securities markets

The group's income is derived from a tiered basis point fee that is applied to client assets under administration. This income is exposed to the value of the underlying investment assets which can be affected by market movements. Although some of this risk is mitigated within components of the cost base, the group is ultimately exposed to volatility in its financial results because of market movements beyond its control.

Operational risk

The nature of the activities performed by the group is such that a degree of operational risk is unavoidable in relation to losses that could be incurred by the group or by others because of errors or omissions for which the group is ultimately liable.

Particular operational risks for the group are considered to be:

·      People risks - we consider that the two most significant risks are the risk of failure to attract and retain core skills and knowledge in the company, and people-related errors in core processes;

·      Operational control failures in core processes - there is always a risk of failure in core processes, either directly by the company and/or by third parties which would result in operational losses, poor client outcomes and reputational damage; and

·      Systems-related risks including cyber-attacks, data leakage and business continuity events.

 

The following tables show an analysis of the financial assets and financial liabilities by remaining expected maturities.

 

 

3. Provisions

 

 

 

2019

2018

 

£'000

£'000

Client compensation

536

429

Outsourced service

158

158

Dilapidations

65

32

Share incentive plans

34

-

 

 

 

 

793

619

 

 

 

Analysed as follows:

 

 

Current

694

587

Non-current

99

32

 

 

 

 

793

619

 

 

 

 

 

 

Share

Client

Outsourced

 

 

 

incentive plans

compensation

service

Dilapidations

Total

 

£'000

£'000

£'000

£'000

£'000

At 1 January 2018

-

98

204

224

526

 

 

 

 

 

 

Provided during year

-

435

612

30

1,077

Utilised during year

-

(73)

(333)

(222)

(628)

Unused amounts reversed during year

-

(31)

-

-

(31)

(Charge)/credit to statement of comprehensive income

-

-

(325)

-

(325)

 

 

 

 

 

 

At 31 December 2018

-

429

158

32

619

 

 

 

 

 

 

Provided during year

34

389

-

33

456

Utilised during year

-

(122)

-

-

(122)

Unused amounts reversed during year

-

(160)

-

-

(160)

(Charge)/credit to statement of comprehensive income

-

-

-

-

-

 

 

 

 

 

 

At 31 December 2019

34

536

158

65

793

 

 

 

 

 

 

 

 

 

Client compensation

The group remediates customers affected by errors on the platform and calculates any amounts due in line with guidance given by the Financial Ombudsman Service in respect of the type of customer loss, distress and inconvenience for which customers should be compensated. Where actual trading losses are suffered by customers, these are calculated in accordance with Mifid II best execution rules to ensure customers are restored to the position they would have been in had the error or omission not been made. Amounts are provided and utilised against the administrative expenses line in the statement of comprehensive income and the majority of the outstanding issues are expected to be resolved in the first half of 2020.

Outsourced service

As part of the commercial agreement with its outsourced BPO service provider, should any key performance criteria not be met, the group is entitled to receive a discount on the wrap administration fees charged. Where these are agreed, they are deducted from the invoiced fee and the net expense is charged through the statement of comprehensive income. Where these are uncertain or in dispute with the service provider, a provision is booked in recognition of the uncertainty regarding the outcome.

Dilapidations

The dilapidations provision relates to the group's office premises at Greenside, Edinburgh. This is calculated using the Building Cost Information Service survey (part of the Royal Institution of Chartered Surveyors) of average settlement figures for offices, adjusted for inflation, and the square footage of the company's leasehold premises. The provision has been classified as non-current due to the likelihood of its utilisation at the end of the lease in 2027.

Share incentive plans

Provisions for share incentive plans relate to the LTIP which is a HMRC unapproved equity-settled scheme. The company is liable to pay employers' NIC upon exercise of the options. The provision is calculated using the applicable employers' NIC rate applied to the number of share awards expected to vest, valued at the share price at the reporting date. The provision is recognised over the vesting period of the shares awarded.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4. Reconciliation of profit before income tax to cash generated from operations

 

 

 

2019

2018

 

£'000

£'000

Profit before income tax

7,002

5,653

Depreciation

1,102

585

Loss on disposal of fixed assets

3

-

Unrealised gain on investments

(7)

-

Share based payments charge (excl. NIC)

315

404

Bad debt provision

59

8

Increase in trade and other receivables

(1,166)

(615)

Decrease/(increase) in operational platform funding

1,187

(257)

(Decrease)/increase in trade and other payables

(1,987)

1,426

Increase in other provisions

174

93

Interest paid

182

2

Interest received

(80)

(8)

Net exchange differences

6

7

 

 

 

Cash inflows from operations

6,790

7,298

 

 

 

Operational platform prefunding includes prefunding of client pension tax relief and temporary funding required under the client money and client assets rules.

 

 

5. Reconciliation of liabilities arising from financing activities

 

 

 

 

 

 

 

 

 

At 1 January 2018

Non-cash changes

Cash flows

At 31 December 2018

 

£'000

£'000

£'000

£'000

Finance lease liabilities

200

2

(109)

93

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

Non-cash changes

Cash flows

At 31 December 2019

 

£'000

£'000

£'000

£'000

Lease liabilities

4,606

-

(394)

4,212

 

 

 

 

 

Lease liabilities, which includes items previously classified as finance lease liabilities, increased by £4,513k as a result of adopting IFRS 16 Leases effective 1 January 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6. Earnings per share

 

 

 

 

 

Earnings per share has been calculated by dividing the total profit for the year by the weighted average number of

ordinary shares in issue during the year.

 

 

 

2019

2018

 

£'000

£'000

Profit for the year

5,953

4,756

 

 

 

 

2019

2018

Weighted average number of ordinary shares (basic)

75,862,105

75,932,243

SIP scheme

71,255

1,821

LTIP scheme

345,932

16,209

Weighted average number of ordinary shares (diluted)

76,279,292

75,949,568

 

 

 

 

2019

2018

Basic earnings per ordinary share (pence)

7.8

6.3

Diluted earnings per ordinary share (pence)

7.8

6.3

 

 

 

 

The weighted average number of ordinary shares reflect the number of shares in issue following the listing of the Company on 26 July 2018.

The company grants long-term incentive awards in the form of nil-cost options over its ordinary shares to the executive directors and other persons discharging managerial responsibility under its long-term incentive plan. The total number of shares over which the awards were granted was 1,840,702 of which 122,750 have lapsed. The vesting of each of the awards is subject to the satisfaction of performance conditions that have been set by the remuneration and HR committee. These conditions, which will be assessed over prescribed three-year periods, relate to the achievement of specific targets in relation to earnings per share, net-inflow of assets under administration and total shareholder return. Vesting will also normally be dependent on the continued employment of the participant within the group.

 

 

7. Income tax

 

 

 

 

 

Analysis of tax expense

 

 

 

2019

2018

 

£'000

£'000

Current tax:

 

 

Tax on profits for the year

1,271

1,435

Adjustments in respect of prior periods

(260)

(527)

 

 

 

Deferred tax:

 

 

Origination and reversal of timing differences

24

(11)

Effect of tax rate on opening balances

14

-

 

 

 

 

 

 

Total expense in statement of comprehensive income

1,049

897

 

 

 

Factors affecting the tax expense

 

 

 

 

 

The tax assessed for the year is lower (2018: lower) than the standard rate of corporation tax in the UK of 19.00 per cent (2018: 19.00 per cent).

The differences are reconciled below:

 

 

 

 

 

 

2019

2018

 

£'000

£'000

Profit before taxation

7,002

5,653

 

 

 

 

 

 

Profit before taxation multiplied by the standard rate of corporation tax in the UK of 19.00 per cent (2018: 19.00 per cent)

1,330

1,074

 

 

 

Effects of:

 

 

Expenses not deductible for tax purposes

84

412

Non-current asset timing differences

18

5

Adjustments to tax charge in respect of prior period R&D claims

(258)

(527)

Deferred tax not recognised

(218)

(70)

Other differences

93

3

 

 

 

 

1,049

897

 

 

 

 

 

 

 

 

8. Dividends

 

 

 

2019

2018

 

£'000

£'000

£0.01 ordinary share dividends* (2018: 142p per share)

-

1,577

£0.001 ordinary share dividends* 5.1p (2018: 1.4p per share)

3,873

1,063

B ordinary share dividend (2018: 142p per share)

-

1,081

G3 share dividends (2018: 243p per realised share)

-

84

G3 share dividends (2018: 142p per realised share)

-

49

G4 share dividends (2018: 243p per realised share)

-

50

G4 share dividends (2018: 142p per realised share)

-

29

 

 

 

 

3,873

3,933

 

 

 

*The Esot waived its right to receive dividends during the year.

 

 

 

 

9. Share capital

 

 

 

2019

2018

 

£'000

£'000

Fully paid ordinary shares of £0.001 each: 76,473,360 (2018: 76,473,360)

76

76

 

 

 

 

Employee benefits trusts hold a total of 611,255 shares (2018: 561,442).

 During January 2018, in line with the growth share scheme, 142,362 G1 and 95,404 G2 shares converted into 124,448 ordinary and 113,318 deferred shares.

On 8 May 2018, the company issued 50,000 redeemable non-convertible preference shares at a nominal value of £1 per share. Each preference share carried a right to a fixed non-cumulative dividend of 0.01 per cent of its nominal value, payable annually in arrears and did not carry any voting rights. These were redeemed on 26 July 2018.

On 6 July 2018, Nucleus Financial Group Limited was re-registered under the Companies Act 2006 as a public company under the name of Nucleus Financial Group plc. The company listed on AIM on 26 July 2018 and this coincided with the following share capital transactions:

On listing, 18,823 G3 shares and 8,812 G4 shares converted to ordinary shares and 21,905 G3 shares and 16,864 G4 shares converted to deferred shares. Following this there were no G3 and G4 shares remaining in issue.

The company bought back 30,712 G1 shares, 9,026 G2 shares and 152,087 deferred shares for a consideration of £1. Following this there were no G1, G2 or deferred shares remaining in issue.

The company then converted the remaining 761,028 B ordinary shares into ordinary shares and awarded a bonus issue of three new ordinary shares for each existing ordinary share. This resulted in the creation of 5,735,502 new ordinary shares, bringing the total ordinary shares in issue to 7,647,336. Subsequently, each ordinary share was then sub-divided into 10 new ordinary shares. This has given rise to a post-listing number of shares in issue of 76,473,360.

 

 

 

 

 

 

 

10. Related party transactions

 

 

 

 

 

Entities with significant influence over the company

 

 

 

 

 

Transactions with Nucleus IFA Company Limited (NIFAC) and Sanlam UK Limited (Sanlam) were as follows:

 

2019

2018

Sanlam

£'000

£'000

Amounts owed to Sanlam in respect of board fees by NFG

84

176

Amounts owed to Sanlam in respect of fees for the Onshore Bond by NFS

79

72

Amounts charged by Sanlam to NFS in respect of the Onshore Bond

459

429

Amounts owed to Sanlam to NFS in respect of tax collected from the Onshore Bond

23

97

Dividend paid to Sanlam by NFG

2,036

1,976

 

 

 

 

2019

2018

NIFAC

£'000

£'000

Amounts owed to NFG

-

42

Dividend paid to NIFAC by NFG

-

632

 

 

 

On Nucleus' admission to AIM, NIFAC realised part of its shareholding in Nucleus and distributed the net proceeds together with its residual shareholding interest to its underlying shareholders.  NIFAC no longer holds shares in Nucleus.

 

 

 

Subsidiaries

 

 

NFG owns 100 per cent of the share capital of NFS, NIFAS and IMX.  There were no transactions with IMX and NIFAS.  The transactions with NFS are as follows:

 

 

 

 

2019

2018

NFS

£'000

£'000

Amounts owed to NFG by NFS

1,760

706

 

 

 

Other related parties

 

 

During the year the company was charged £nil (2018: £390,000) for services provided by Craven Street Capital of which J A A Samuels is a director.

 

 

 

Key management personnel

 

 

Key management personnel are considered to be members of the executive committee and remuneration for the year is as follows:

 

 

 

 

2019

2018

 

£'000

£'000

Short-term employee benefits

1,736

2,238

Post-employment benefits

61

95

Share-based payments

229

314

 

 

 

 

2,026

2,647

Post-employment benefits relate to defined contribution pension scheme charges.

 

 

 

 

 

11. Changes in accounting policies

IFRS 16 Leases

In adopting this standard, which became effective from 1 January 2019, the modified retrospective approach was used, resulting in the cumulative effect of application on 1 January 2019 being recognised through an adjustment to opening retained earnings. On adoption the group recognised lease liabilities in relation to previously classified operating property leases. The liability was measured at the present value of future lease payments, discounted using an estimated incremental borrowing rate of 4 per cent. The associated right-of-use asset was measured on a retrospective basis as if the new standard had always applied. There were no changes relating to the recognition of finance leases. Use was made of the practical expedient which allows the continuation of the existing assessment as to whether a contract contains a lease for all ongoing contracts entered into before 1 January 2019.

 

 

 

31 December 2018

Effect of IFRS 16

1 January 2019

 

 

£'000

£'000

£'000

Assets

 

 

 

 

Non-current assets

 

 

 

 

Right of use lease assets

 

-

4,013

4,013

Property, plant and equipment

 

2,029

(112)

1,917

Deferred tax

 

163

-

163

 

 

2,192

3,901

6,093

 

 

 

 

 

Current assets

 

28,908

-

28,908

 

 

 

 

 

Total assets

 

31,100

3,901

35,001

 

 

 

 

 

Total equity

 

17,473

(71)

17,402

 

 

 

 

 

Liabilities

 

 

 

 

Non-current liabilities

 

 

 

 

Lease liabilities

 

-

4,217

4,217

Financial liabilities

 

6

(6)

-

Provisions

 

32

-

32

Deferred tax

 

41

-

41

 

 

79

4,211

4,290

 

Current liabilities

 

 

 

 

Lease liabilities

 

-

389

389

Financial liabilities

 

87

(87)

-

Trade and other payables

 

12,134

(541)

11,593

Tax payable

 

740

-

740

Provisions

 

587

-

587

 

 

13,548

(239)

13,309

 

 

 

 

 

Total liabilities

 

13,627

3,972

17,599

 

 

 

 

 

Total equity and liabilities

 

31,100

3,901

35,001

 

 

 

12. Events after the reporting period

The Covid-19 pandemic, which first impacted the group, its users, its customers and the broader economy in the first quarter of 2020, is considered to be a non-adjusting post balance sheet event.

From March 2020 NFS and the group were no longer required to meet the rules and requirements of a significant IFPRU firm as NFS last met the IFPRU definition for a significant firm in February 2019.

There were no other subsequent events that required adjustment to or disclosure in the financial statements for the period from 31 December 2019 to the date upon which the financial statements were available to be issued.

 

 

Definitions and glossary of technical terms

 

The following definitions apply throughout this document:

Industry-specific financial

performance measures

Included within this results announcement are alternative measures that the directors believe help to inform the results and financial position of the group

 

Adjusted

Denotes that a standard or defined financial performance measure is adjusted for non-recurring items, transactions that do not reflect the normal operating activities of the group and share based payments

 

Adjusted EBITDA

Adjusted EBITDA excludes non-operating income, AIM admission costs, share-based payments, loss on disposal of fixed assets and includes ROU asset depreciation and ROU lease liability interest

 

Adjusted EBITDA margin

Adjusted EBITDA expressed as a percentage of revenue

 

Adjusted earnings per share (EPS)

Value of adjusted profit after tax divided by weighted average number of shares

 

AUA

Assets under administration

 

Average AUA

The average AUA balance for the period is calculated as the average of the end of day AUA balances during the period

 

Blended revenue yield (bps)

Net revenue is divided by the average assets under administration. For interim periods the net revenue is annualised using the number of days in the period

 

Capital adequacy ratio

A capital adequacy measure calculated by dividing regulatory capital over risk weighted exposures

 

Compound asset growth rate

Average growth rate over a period of time expressed as an annualised percentage

 

EBITDA   

Earnings Before Interest Tax Depreciation and Amortisation

 

Gross inflows

Value of cash and assets received onto the platform

 

Industry-specific financial-

performance measures

Alternative performance measures that the directors believe help to inform the results and financial position of the group

 

Net inflows

 

Value of Gross inflows less Outflows

Net Revenue

Net revenue comprises revenue earned on the platform less the direct fees that are payable to product providers of the platform

Outflows

Value of cash and assets leaving the platform

 

Glossary

 

 

AIM Rules

The rules published by London Stock Exchange entitled AIM Rules for Companies

 

BPO

Business process outsourcing. The contracting of the operations and responsibilities of a specific business process to a third-party service provider.

 

Customers

The customers of Nucleus, whose assets are managed by financial advisers through the platform

 

FCA

The Financial Conduct Authority

 

GDPR      

The General Data Protection Regulation (Regulation (EU) 2016/679)

 

IFRS        

International Financial Reporting Standards as adopted by the European Union

 

IMX

IMX is a discretionary investment management solution

MiFID II

The EU Markets in Financial Instruments Directive (2014/65/EU)

 

NFS

Nucleus Financial Services Limited

 

Nucleus or the group

The Company and its subsidiaries

 

Priips

The Packaged Retail and Insurance-based Investment Products Regulation

Sanlam

Sanlam UK Limited

 

SMCR

Senior Managers and Certification Regime

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
END
 
 
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