Holdings Limited
Holdings Limited
Holdings Limited
Making investing easier
Annual Report and Financial Statements 2016
Contents
Strategic report
Highlights
Joint statement from the Chairman and Chief Executive
The AJ Bell Way
Our products
Easiest platform to use
First class service
Brand awareness
Our people
Principal risks and uncertainties
Corporate social responsibility
Governance
Board of Directors
Executive Management Board
Directors’ report
Statement of directors’ responsibilities in respect of the Strategic report,
Directors’ report and the financial statements
Independent auditor’s report to the members of AJ Bell Holdings Limited
Financial statements
Consolidated income statement
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Company balance sheet
Notes to the Company financial statements
Unaudited five-year summary
Other information
Definitions
Company information
4
5
9
10
12
14
16
18
19
22
26
27
28
32
33
36
37
38
39
40
76
77
82
84
85
Highlights
Key performance indicators
Assets under
administration
£31.8 bn
22%
£23.3bn
Total number of
retail customers
140,451
17%
£18.0bn
98,525
117,169
£8.1bn
£8.5bn
22,025
23,282
2015
£26.1bn
Platform
2016
£31.8bn
Non-platform
2015
120,550
Platform
2016
140,451
Non-platform
Key financial information
Revenue
Profit
before tax
Net assets
Return on
assets
Diluted
earnings
per share
Total
ordinary
dividend
£64.5m
£16.8m
£53.8m
25%
32.73p
25.75p
September 2016
September 2016
September 2016
September 2016
September 2016
September 2016
13%
8%
3%
1%
8%
1%
£57.0m
September 2015
£15.5m
September 2015
£52.3m
September 2015
24%
September 2015
30.17p
September 2015
25.50p
September 2015
4
Other informationFinancial statementsGovernanceStrategic report Joint statement from the Chairman and Chief Executive
Les Platts
Chairman
Andy Bell
Chief Executive Officer
We are pleased to present our annual report for the year ended
30 September 2016 in which we highlight a record number of new
customers and inflows, together with a growth in revenue, profits and
dividends. This strong performance is underpinned by the quality of our
product propositions, supported by an efficient operating model and a
successful organic growth strategy built on a robust infrastructure.
Growth
Total retail customers increased by 17% from 120,550 to
140,451 during the financial year with AUA growing by 22%
from £26.1bn to £31.8bn. The growth in AUA was largely
attributable to the record inflows but was supported by
favourable market movements, with the FTSE All-Share
rising by 11% during the 12-month period.
The platform propositions continue to be the key driver of
growth in the business with customers and AUA in that part
of our business increasing by 19% and 29% respectively
during the period. More detailed information about the
performance of the platform and non-platform propositions
can be found on pages 10 and 11.
Financial performance
Revenue increased by 13%, from £57.0m to £64.5m for the
year ended 30 September 2016. All revenue streams grew
year-on-year with the exception of trail commission from
funds, following the complete ban on all platform rebates
from 6 April 2016. In the lead-up to the EU referendum on
23 June 2016, both stock market asset values and customer
transaction volumes were depressed due to the uncertainty
but markets and activity recovered in the final quarter. The
returns available on cash deposits reduced further during the
year following the BoE policy decisions to cut the base rate
to 0.25% and to continue its quantitative easing programme.
Profit before tax increased by 8% to £16.8m for the year
ended 30 September 2016, compared to £15.5m in the prior
year. The increase in profitability is due to the strong growth
in our customer base coupled with operational efficiencies
gained across the business.
Financial position
The Group’s financial position continues to remain strong
with net assets totalling £53.8m at 30 September 2016. We
benefit from a short working capital cycle that enables the
majority of our profits to be converted to cash within the
same financial year. Our cash balance was £39.5m at the
year end, an increase of 9% compared with the prior year.
This surplus of cash ensures that we have funds available to
invest in the business and hold a significant liquidity buffer.
We also hold a significant surplus of regulatory capital at
all times. Further details can be found under our Capital
Requirement Regulation (CRR) part eight disclosures (see
page 29 of the Directors’ report for more information).
5
Strategic reportGovernanceFinancial statementsOther information t
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Joint statement from the Chairman and Chief Executive
a range of investment solutions for our customers. Our
Managed Portfolio Service was the first product to launch,
having been successfully rolled out in August 2016. This
service provides low-cost, risk-targeted model portfolios –
constructed and managed within the Group – that provide
diversified exposure to a wide variety of markets. The next
phase of our investment management strategy will be to
launch our own range of low-cost AJ Bell funds.
We help our customers to invest by providing them with
rich investment content and in recent years have seen a
significant increase in the demand to access information
through mobile devices. This change in behaviour has been
recognised and we have recently made the transition from
print to digital for our weekly Shares Magazine. This is now
being provided free of charge to AJ Bell Youinvest customers
who have more than £4k held in their portfolios.
Market developments
The platform market continues to grow, whilst its participants
experience a period of consolidation. Competitive pricing,
the low interest rate environment and the increasing costs of
regulation have had an adverse impact on profitability with
many of our peers struggling to break even. The decline
in profitability has led to many of the loss-making platform
companies seeking to exit from the market and this trend is
expected to continue in the immediate future.
The industry faces some short-term challenges, with
increasing regulatory pressures, downward pressure
on revenues and, for some, the added difficulties of re-
platforming. It is estimated that over £200bn of assets,
representing more than half of the advised platform
market, will be changing IT platform in the near future.
Our investment platform, a proprietary solution supported
by GBST’s Composer and JHC’s Figaro systems, was
completed in 2011 and it has proven to be a big success. It
has provided the Group with a stable and scalable operating
model that ensures we have the infrastructure to support our
ambitious growth targets well into the future.
The regulatory framework has been evolving for some
time and the cost of operating in the investment industry
continues to rise. The new regulatory capital rules for SIPP
operators came into effect from 1 September increasing
administration costs across the industry and, for many,
the capital requirements. Financial strength is a key
consideration for many advisers and retail customers when
choosing their investment platform. Our prudent approach
to managing our capital base will continue to provide the
assurance they are seeking.
Shareholder returns
Diluted earnings per share (DEPS) increased by 2.56p per
share, from 30.17p per share last year to 32.73p per share
in the current year. The Board has declared a final dividend
of 13.00p per share, taking the total dividend for the year to
25.75p per share, compared to 25.50p in the previous year.
This reflects the financial strength of the Group, the Board’s
commitment to a progressive dividend policy and its positive
outlook for the long-term prospects of the business.
Governance
There were no changes to the composition of the Board
during the year (see page 26). The Board continues to
provide strong support and appropriate challenge to the
Executive Management Board to ensure its strategy is
sound, achievable and ultimately delivered. During the year,
Simon Turner increased his responsibilities and replaced
John Tomlins as Chairman of the Risk and Compliance
Committee. John remains Chairman of the Audit Committee.
The Board has met nine times during the year and
is supported by four sub-committees: Audit, Risk &
Compliance, Remuneration and Nominations. The Audit
and Risk & Compliance Committees both met four times,
the Remuneration Committee twice and the Nominations
Committee once. The Board and its sub-committees
achieved 100% attendance for all meetings.
Responsibility for the day-to-day management of the
business remains with the EMB (see 27).
Easiest platform to use
We aim to become the easiest platform to use and our digital
strategy remains pivotal to delivering this strategic goal. A
number of significant improvements have been made during
the year including the launch of a new website for AJ Bell
Investcentre and significant enhancements to the AJ Bell
Youinvest website. The enhancements we make focus on
ease of use, speed, and richer functionality to improve the
customer journey.
Our customers’ needs and how they use our products
are constantly evolving. We strive to meet their changing
requirements by developing functionality that allows them
to access our products how they want and when they want.
This year we developed prototype functionality to facilitate
dealing activity through messenger services for Facebook
and Amazon Echo and both are currently being trialled with
private user groups. Our weekly AJ Bell Youinvest market
outlook videos were also made available to Apple TV and
Roku channels. We are constantly exploring new innovative
ideas to ensure we meet the evolving needs of our existing
customers and appeal to the next generation of investors.
The acquisition of an investment management business
earlier this year provided the Group with the ability to provide
Joint statement from the Chairman and Chief Executive
The product propositions of the Group remain well
positioned in the market and the planned enhancements,
coupled with the launch of our own investment solutions, will
only serve to strengthen their position. The long-term future
of the savings industry remains positive and the growth
in the platform market is expected to continue. We plan
to capitalise on that growth as we execute our ambitious
growth strategy.
Conclusion
We have enjoyed another record year of new customers
and inflows to the business and this is testament to the hard
work of our people, coupled with the strength and depth of
our relationship with our customers.
Next year, we will provide our Manchester-based staff
with an improved office environment when we relocate the
Group’s office headquarters to Exchange Quay. The move
will also ensure that we have sufficient space to expand
our operations to meet our future growth plans. This will
be a significant step forward and signifies the progress the
business has made since it first moved to Trafford House in
2002.
The key to our success has always been our people and we
would like to take this opportunity to thank our staff for the
quality of their work and their commitment.
Les Platts
Chairman
Andy Bell
Chief Executive Officer
Outlook
We continue to believe that the pension freedoms reforms
are generally positive for the savings industry. It also
remains our view that Government policy should provide
certainty and confidence to savers by ensuring simplicity
and stability. Stability could be enhanced by refraining from
making changes to legislation each year. A pledge by the
government to rule out any further tax changes impacting
pensions for a certain period of time would help to provide
the certainty that investors need.
Our call for simplicity has historically been in relation to
pension tax rules, but more recently also for ISAs as the
number of types of accounts available to investors has
increased and the rules have become more complicated. It
is our belief that investors only need one ISA, with a single
set of rules that can cope with the different options that
are currently available to savers. We are also campaigning
for changes that will make it easier for advisers to migrate
their customers onto a new platform, where cost saving is
the main driver, by removing regulatory and provider led
obstacles.
Market volatility appears likely to remain in the short term
with the uncertainty surrounding the UK’s exit from the
European Union. The latest market forecasts suggest the
UK economy will continue to grow in 2017, but the Bank of
England’s decision to cut the base rate to 0.25%, increase
quantitative easing and provide £100bn of new funding to
banks will continue to cause downward pressure on the
margins we earn on cash deposits. In addition, the impact
of new global liquidity standards under BASEL III will further
diminish both appetite and capacity for cash deposits within
the UK banking sector. We have operated in challenging
markets before and our diversified revenue model ensures
we will remain resilient during such periods.
The regulatory challenges will continue next year, with the
ongoing application of CRD IV for investment firms and
the preparation required for the introduction of MiFID II.
Management will invest the required time to ensure we are
ready to comply with any regulatory changes as and when
they become effective.
We will continue to progress our digital strategy next year
and will be looking to release a number of other new online
tools and features for AJ Bell Investcentre. A number of
digital and functionality enhancements are also planned for
AJ Bell Youinvest including a dividend reinvestment facility
and an enhanced online new customer application process.
We also plan to launch our own range of low-cost funds
next year, in what will be an exciting new direction for the
business. Our aim will be to provide customers with access
to simple, low-cost, transparent investment solutions that
make investing easier. It is also planned to launch a Lifetime
ISA (LISA) for our AJ Bell Investcentre and AJ Bell Youinvest
platforms on 6 April 2017 when they become the latest
addition to the range of tax-free ISAs available in the UK
savings market.
7
Strategic reportGovernanceFinancial statementsOther information The AJ Bell Way
AJ Bell has never provided financial or personal investment advice.
It operates exclusively on an execution-only basis – whether directed
by the customer, their adviser or by its institutional customers. Our
aim is to be a market-leading provider of investment products and
administration services in the adviser and execution-only platform
markets. This includes providing white labelling, dealing, custody and
investment administration services for other financial services firms.
We help people to invest
Our primary objective is to help people invest and we aim to do this by thinking like our customers, making investing easier
and leading our markets. Informed by our guiding principles, the AJ Bell Way is a framework we have developed to ensure
our strategy is driven by our passion to help people invest.
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FINANCE & ASS U R A N C E
9
Strategic reportGovernanceFinancial statementsOther information
Our products
Our platform business
Assets under
administration
29%
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AJ Bell Investcentre
AJ Bell Youinvest
AJ Bell Investcentre is an online investment platform
distributed by financial advisers. It offers award-winning
SIPPs, ISAs, and GIAs, together with a market-leading
range of investments and a highly competitive charging
structure. A LISA is planned for launch in April 2017.
AJ Bell Investcentre is one of the largest and fastest-
growing businesses in the advised platform market.
AJ Bell Youinvest is a platform designed to provide an easy
and cost-effective way for execution-only investors to take
control of their investments. This award-winning platform
provides SIPPs, ISAs, Junior ISAs and Dealing Accounts.
It has a guided investment facility, a wide range of different
investment types and a comprehensive research centre.
A LISA is planned for launch in April 2017.
AJ Bell Youinvest is one of the largest and fastest-growing
platforms in the execution-only segment of the market.
IMAS
IMAS is a fully integrated investment custody administration
solution that allows wealth managers to focus on delivering
a high quality service without the distraction of administering
the assets.
10
Other informationFinancial statementsGovernanceStrategic report
Our products
Our non-platform business
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AJ Bell Platinum
AJ Bell Media
AJ Bell Platinum is a bespoke service that provides
expert technical support, backed by a dedicated team of
administrators. Distributed by UK financial advisers but also
available on a DIY basis, AJ Bell Platinum offers SIPPs and
SSASs.
AJ Bell Media is an award-winning specialist financial
publishing company that supports the platform business by
providing high quality investment content via a variety of
media channels. It also publishes Shares, a weekly digital
investment publication, hosts investment conferences and
events, and provides stock market data and independent
news content to a wide range of corporate and retail
customers.
Institutional
AJ Bell’s Institutional service provides dealing, settlement
and custody services and research facilities to institutional
investment businesses.
Third party administration
AJ Bell’s third party administration service provides white
label SIPP administration to a number of leading financial
services companies.
AJ Bell Investments
AJ Bell Investments provides a range of investment
and multi-asset fund management solutions to retail,
professional and institutional customers.
11
Strategic reportGovernanceFinancial statementsOther information
AJ Bell Investcentre launched a
Managed Portfolio Service in 2016.
Easiest platform to use
Our customers remain at the heart
of everything we do and this is
encapsulated in our strategic aim
to become the easiest platform to
use. We plan to achieve this by
delivering a rolling programme
of changes and initiatives to
ensure we continually improve
the service that we provide to our
customers.
We have continued to invest in our digital strategy following
the successful changes that were made to the AJ Bell
Youinvest website last year. This year our attention has
turned to AJ Bell Investcentre. A new website has been
launched with simplified navigation, an extended customer
area and an enhanced interactive research centre. This
coincided with the launch of a range of cash management
tools that provide advisers with a streamlined process for
managing customer cash movements.
Further enhancements will be made next year, focusing on
ease of use, speed and richer functionality to improve the
customer journey.
Other informationFinancial statementsGovernanceStrategic report Investment management
Cost leadership, the efficient delivery of investment
services and a focus on customer outcomes form the
strategy for AJ Bell Investments.
Ryan Hughes joined the Group as Head of Fund Selection
during the year. He has a strong background in investment
management, having worked at both Old Mutual and Apollo
Asset Management, and is tasked with building a robust
fund selection process.
AJ Bell Investcentre launched a Managed Portfolio Service
in 2016. The service provides advisers with a range of
portfolios to choose from that are mapped to market-
leading risk profiling tools. The portfolios will be managed
in-house by our expert investment management team,
thereby reducing the regulatory burden for advisers. We
look forward to providing an update on progress next year.
In the forthcoming period, we will look to broaden our range
of investment solutions, including the launch of our AJ Bell
fund range.
Strategic reportGovernanceFinancial statementsOther information First class service
We aim to provide a first class service by responding to our customers
quickly and accurately, and by giving them the educational content
they need to make informed investment decisions.
Responsiveness
Awards
We set challenging targets for completing all of our key
processes and communications to ensure we respond to our
customers’ requests, questions and queries promptly. These
targets are monitored on a regular basis and corrective
action is taken should we fail to meet them. This year all of
these targets were met, and many were exceeded.
Accuracy
Our functional operating structure ensures that our
customers’ queries can be directed to the appropriate team
and answered swiftly by staff with the required technical
expertise. All of our customer services staff undertake
rigorous training when they join the business and many
study for professional qualifications. Annual refresher
courses are also undertaken by all staff and the QA
team regularly listens to phone calls and reviews written
correspondence to ensure that our high standards are
maintained.
We are proud to have won the following awards
this year:
• UK Platform Awards 2016
- Leading platform-enabled retirement
proposition
• City of London Wealth Management
Awards
- Best SIPP Provider 2016
• Moneyfacts
- Five star rating
•
•
Professional Adviser Awards 2016
- Best SIPP Provider
FTAdviser
- Online Service Awards
(Five star award - Life and Pensions and
Consistent Service Excellence award)
Investment content
The Shares weekly investment magazine
recently made the successful transition
to become a digital-only publication. This
provides users with investment tips, expert
analysis and market information and is
provided to AJ Bell Youinvest customers free
of charge (where they hold more than £4k in
their portfolio).
Our adviser-focussed investment event
‘Investival’ sold out this year with over 400
advisers attending on the day. It was held at
the Royal Institute of British Architects for the
second consecutive year, with a number of
industry expert guest speakers taking part.
‘Investival’ continues to prove popular with
the adviser community.
STOCKS | FUNDS | INVESTMENT TRUSTS | PENSIONS AND SAVINGS
VO L 18 / I S S U E 4 5 / 10 NOV E M B E R 2016 / £4.25
SHARES
WE MAKE INVESTING EASIER
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Earnings forecasts
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GENEROUS HSBC
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WE EXPLORE CONTROVERSIAL WAY OF FUNDING DIVIDENDS: PAGE 24
STRIKE IT RICH
Analyst eyes 660%+
share price upside
for oil stock
Brand awareness
AJ Bell’s ambition is to become one of the best-known names in its
markets. In 2016 we sought to further this aim by increasing both our
public relations and sponsorship activities.
Public relations
Sports sponsorship
Our Investment Director, Russ Mould, continues to build his
reputation as a trusted investment expert, making frequent
appearances on radio and television to share his insights on
topical, business-related issues. We have also maintained
our focus on producing quality written material in the form
of opinion pieces and articles for industry publications. Our
work in this area received a major boost in 2016 following
the appointment of a new Senior Analyst, Tom Selby, who
joined us from MoneyMarketing.
We hold a number of long-term strategic sponsorship
partnerships with sporting teams, events, venues and
individuals who offer AJ Bell significant exposure to a
number of media channels including television coverage.
AJ Bell National Badminton League
English badminton is enjoying a significant rise in popularity
and profile following success in the Rio Olympics, where
Team GB won its first badminton medal in 12 years. We
have extended our title sponsorship of the AJ Bell National
Badminton League (NBL) for a further two years.
The deal includes live TV coverage of 8 matches, court
branding at all 21 fixtures in the 2016/17 season and naming
rights to the league’s exciting ‘PowerPlay’ double points rally
- an in-play feature exclusive to the AJ Bell NBL.
16
AJ Bell London Triathlon
AJ Bell British Squash Grand Prix
Following last year’s success we decided to sponsor the
AJ Bell London Triathlon for a second year. The event is
the largest competition of its kind anywhere in the world,
attracting over 14,000 triathletes and 30,000 spectators
every year.
We sponsored the AJ Bell British Squash Grand Prix for the
third consecutive year in 2016, building on what is already
a firm association between our brand and a sport that
continues to grow in popularity.
Nick Matthew
2016 saw a welcome return to the classic Westminster
cycle route and its backdrop of famous London sights. Once
again, we benefited from enormous branding opportunities
around the course, which was covered by Channel 4,
Eurosport (UK) and Sky Sports.
Squash is extremely popular among our target demographic,
so we are pleased to be associated with the three-
time World Squash Champion and holder of three
Commonwealth Gold medals for another year.
AJ Bell Stadium
The AJ Bell Stadium is the home of Sale Sharks and Salford
Red Devils. The site enjoys a prominent position next to
the M60 motorway, from where the AJ Bell branding on the
rooftop is clearly visible.
Nick Matthew
Commonwealth
Gold Squash
Winner
17
Our people
Our HR strategic framework is
underpinned by engagement
factors taken from the Best
Companies survey; the largest
survey of its kind in the UK. We
take part in the survey every
year to independently measure
our staff engagement and in
2016 were delighted to record
our highest-ever engagement
score, moving closer to a coveted
two star accreditation.
.... in 2016 were
delighted to record
our highest-ever
engagement score...
Our Management Development Programme has been
extended to include team leaders, following its popularity
with managers and the positive impact it has had on
the business. We have also launched a school leavers’
programme during the year, offering successful applicants a
two year fixed term contract. This will provide the successful
applicants with the opportunity to attain a professional
qualification and gain exposure to the business by rotating
around four Customer Service Teams.
Talent management remains a key focus for us. It ensures
we have a consistent framework across the business to
identify those people who have the relevant skills and talent
needed to progress in the organisation and become the
leaders and managers of tomorrow. This is complemented
by our Skills to Progress framework. This provides our
Customer Services staff with the opportunity to demonstrate
that they have the right skills, knowledge and behaviours to
progress their career with us. We aim to give our employees
the best possible chance to further their career at AJ Bell
and our talent management framework continues to be a
success with over 60% of vacancies being filled internally in
the last year.
Office move
Next year, after 15 years at our current location, we will be
moving our office headquarters to 4 Exchange Quay which
is located in Salford Quays. This is more than just a change
of address, it is the start of a new chapter in our history and
will provide the springboard to deliver more success for the
business in the future.
18
Principal risks and uncertainties
The Board is committed to a continual process of
improvement and embedment of the risk management
framework in the Group. This is to ensure that the business
identifies both existing and emerging risks, and develops
appropriate mitigation strategies.
The directors believe that there are a number of potential
risks to the Group that could hinder the successful
implementation of their strategy. These risks may arise
from internal and external events, acts and omissions.
The directors are proactive in identifying, assessing and
managing all risks facing the business.
Taxation law change risk
Changes to tax legislation may reduce the attractiveness
of tax-advantaged saving wrappers offered by the Group
as a means of saving for retirement. The directors are not
expecting any change in legislation over the coming year
that would make the Group’s products significantly less
attractive. The introduction of Lifetime ISAs in April 2017 is
expected to increase the appeal of ISAs and, although this
may have some impact on the market for pensions overall,
the directors are optimistic about the prospects for continued
growth in saving into tax-advantaged wrappers.
Industry risks
Regulatory risk
The Group operates within an increasingly regulated
environment such that new or revised legislation or
regulation may have a materially adverse effect on it. In
addition, the acquisition of the investment businesses
in early 2016 has led to the Group becoming subject to
additional regulatory requirements.
The Group monitors all regulatory developments to enable
an assessment to be made of their impact on the Group’s
businesses and for steps to be taken to mitigate any
regulatory risks.
The Brexit vote has created doubt over the future shape of
regulation in the UK. However, in the short term, the FCA
has made clear that, until the UK has actually left the EU,
regulated firms must comply with existing and new EU
regulation, including MiFID II, the implementation of which
is expected to require significant resource over the next
eighteen months.
The new capital framework for SIPP operators became
effective from September 2016. This will generally increase
the amount of regulatory capital required to be held by SIPP
operators. The Group has assessed the financial impact on
its capital requirement at a regulated entity and Group level,
and does not expect it to be material. A substantial cash
surplus is held by the Group to provide additional regulatory
capital to its regulated subsidiaries if the need arises.
The Group has considered the FCA’s 2016 Business Plan
and the forward-looking areas of focus identified by the FCA,
and these have been taken into account in our assessment
of the Group’s material risks, the controls in place to mitigate
these risks and our risk and compliance plans for 2017.
In view of the increase in regulatory requirements, we have
increased the resource in our Risk and Compliance teams
and established an Investment Committee to oversee certain
activities of the investment business.
Competitor and market risks
The Group operates in a highly competitive and dynamic
industry which constantly aims to improve the services
and products available to customers. This may impact
the Group such that its products become either obsolete
or uncompetitive when compared to other offerings in the
marketplace. The Group regularly reviews its products
against competitors, in relation to pricing, functionality and
service, and actively seeks to make enhancements where
necessary to maintain or improve its competitive position in
line with the Group’s strategic objectives. The changes to
the pricing for the AJ Bell Youinvest and AJ Bell Investcentre
products, with effect from October 2016, are intended to
ensure these products remain competitive in their target
markets and are sustainable, taking into account the
changing regulatory and economic environment.
Conduct risk
Conduct risk is the risk that detriment is caused to the
Group’s customers as a result of inappropriate execution
of the Group’s business activities. The Group continues to
focus on enhancements to its risk management framework,
in relation to the identification, monitoring and mitigation
of risks of poor customer outcomes, and to its product
management process to reduce the potential for customer
detriment.
Following the acquisition of the investment businesses, the
Group has launched the Managed Portfolio Service and
is planning to launch a number of other new investment
products and services designed for its target markets,
including a range of risk-targeted funds. In the development
of these products, we recognise that they carry different
risks to our existing products, and we will put in place
appropriate controls to minimise and monitor the risks of
poor customer outcomes from the outset.
19
Strategic reportGovernanceFinancial statementsOther information Principal risks and uncertainties
Economic and capital market fluctuations
risk
Operational risks
Although the immediate impact of the Brexit vote was not
as dire as many of the predictions, there is considerable
uncertainty over the longer term impact on the UK economy
and this is likely to remain until, at least, exit terms are
agreed. The Group’s products are targeted at UK residents
and we do not do business in any other countries and have
relatively few customers outside the UK. However, in the
event that the economy falls back into a prolonged recession,
this may impact contribution levels and confidence generally
in the savings and investment markets. The directors believe
that the Group’s overall income levels and in particular
the balance between the different types of assets and
transactions from which that income is derived, provide a
robust defensive position against any economic downturn.
Capital market fluctuations can have an effect on customer
transactional activity and the value of assets under
administration. The Group has a variety of transactional and
recurring revenue streams, some of which are monetary
amounts while others are ad valorem. This mix of revenue
types helps to limit the Group’s exposure to capital market
fluctuations.
Technology risk
The reliance on evolving technology remains crucial to the
Group’s effort to develop its services and enhance products.
The risk exists that either the Group’s technology fails to
operate correctly in some way or that the Group fails to take
advantage of any emerging technologies.
In 2015 the Board approved a revised technology strategy for
the Group, covering a period of 3-5 years, and good progress
has been made over the last year in the implementation
of this strategy. Progress and priorities are reviewed on a
regular basis by the Board with a more detailed roadmap
agreed for the next 12-18 months. Focus remains on the
increasing risk posed by the activities of ‘cyber’ criminals
and the actions required to ensure our controls continue to
mitigate this ever-evolving risk and to protect our customers’
data. In addition, we have carried out a review of our IT
hosting arrangements and a number of changes will be
implemented over the coming year. The Group continues to
invest in its IT infrastructure, to ensure that it is capable of
supporting the planned growth in the business and to protect
customers’ personal data.
Counterparty credit risk
There is a risk that unexpected losses may arise as a result
of our institutional customers, market counterparties or banks
used by the Group failing to meet their financial obligations.
The Group carries out initial and ongoing due diligence
on the market counterparties and banks that it uses and
regularly monitors the level of exposure. The Group holds an
appropriate amount of capital against the materialisation of
this risk.
Financial control environment risk
This includes the risk of loss to the business, or its
customers, and damage to the reputation of the Group, or
one of its leading brands, because of either the actions of an
unassociated third party or the misconduct of an employee.
The financial control and fraud prevention policies and
procedures are designed to ensure that the risk of fraudulent
access to customer or corporate accounts is minimised.
Third party reliance risk
The Group undertakes its dealing, custody, settlement and
administrative activities in-house and is therefore exposed to
risk as a consequence of its reliance on third party software
suppliers.
To mitigate the risk posed by third party software suppliers,
the Group maintains a strong partnership relationship with
the key suppliers and monitors their performance to ensure
their continued commitment to service, financial stability and
viability.
20
Other informationFinancial statementsGovernanceStrategic report Principal risks and uncertainties
Operational processing risk
Business continuity management risk
There is a risk that the Group’s operational processes are
subject to error, causing both a reduction in earnings and
damage to the Group’s reputation. The Group focusses on
increasing the effectiveness of its operational procedures
and, through its business improvement function, aims to
improve and automate more of its processes and, by doing
so, reduce the need for manual intervention and the potential
for errors.
There is a risk of disruption to the Group’s business in the
event of a loss of access to any of the Group’s properties
or in the event of a catastrophic systems failure. The
Group has agreements in place with specialist suppliers for
geographically remote disaster recovery facilities for all of its
operations, including separate offsite IT recovery facilities.
There is a rolling programme of testing of business continuity
plans.
Key people risks
The loss of key personnel within the Group, an increase in
staff turnover or an inability to find appropriately qualified
new or replacement employees, particularly in periods of
sustained growth, may have a materially adverse impact on
the Group’s performance. The Group maintains succession
plans for key members of management and has also sought
to mitigate this risk by facilitating equity ownership for
senior employees through various share schemes and the
development of a staff engagement strategy.
There is also a risk that the volume of business activity in
some areas significantly exceeds planned levels, resulting in
difficulties in maintaining the service standards expected by
the Group’s customers and advisers. The Group takes into
account any regulatory or other events that are expected to
lead to an increase in activity within its business planning
processes and monitors activity and service levels on an
ongoing basis for any indication of unexpected variations so
that appropriate action can be taken.
Strategic project and project overload risk
There is a risk of failing to deliver on a major strategic project,
or trying to complete too many projects or business change
initiatives too quickly, leading to a failure to deliver the
anticipated benefits. The Group has implemented a process
designed to improve the management and delivery of
business improvement initiatives, alongside more significant
projects, with members of the Executive Management Board
meeting on a regular basis to monitor progress, re-prioritise
or approve additional resource, as necessary to ensure
delivery of the Group’s strategic objectives.
Litigation risk
There is a risk of liability related to litigation from customers
or third parties. The Group has robust systems and controls
and maintains an appropriate level of professional indemnity
insurance cover against these potential liabilities.
21
Strategic reportGovernanceFinancial statementsOther information Corporate social
responsibility
Volunteering at St Ann’s hospice
The Great AJ Bell Bake Off
At AJ Bell we have a strong
social conscience. We encourage
staff to ‘give something back’
through charitable and voluntary
activities and introduce company
initiatives to help raise the profile
of local charities. Here is a brief
summary of the activities that
were undertaken in 2016.
Charity fund raising
At the start of the year we held a staff vote to choose our
very first ‘Charity of the Year’. The Alzheimer’s Society was
the clear winner and since then people across the business
have raised thousands of pounds for this great cause
through a variety of activities, including sponsored runs,
cake bakes, sweepstakes, a penalty shoot-out and even
dressing as pirates!
Over 30 staff took part in the AJ Bell London Triathlon
in August, many of them raising funds for charity in the
process. In addition, we also had a number of staff who
completed marathons, 10km runs and various other
challenges. One member of staff took on 10 triathlons to
raise money for Alder Hey Children’s Hospital, one walked
106km in the Isle of Wight Challenge to raise money for The
East Kent Hospitals Charity Dementia Appeal and a team
from the Risk and Compliance team took part in ‘Pretty
Muddy’ for Cancer Research.
Volunteering at Manchester Dog’s Home
Raising money for our Charity of the year –
Alzheimer's society
Volunteering
In the summer staff from the Manchester office volunteered
to help with gardening, tidying and painting benches at St
Ann’s Hospice. More recently, some of our Tunbridge Wells
staff took on the task of painting their local Alzheimer’s
Society offices and staff in Manchester were invited back to
St Ann’s as they had done such great work on the previous
visits.
AJ Bell Stadium - North Stand
Each year we offer the naming rights for AJ Bell Stadium’s
North Stand to a charity free of charge. The chosen charity
can put its branding on the stand for two years, in order to
raise awareness of their work and hopefully gain additional
funds over the period of the deal.
Last year the cancer charity Maggie’s reached the end of its
two-year spell as the naming partner for the North Stand.
Following a public vote via social media, the naming rights
for the next two years were awarded to ‘Wooden Spoon’,
which uses the power of rugby to fund life-changing projects
for disadvantaged and disabled children across the UK and
Ireland.
By order of the Board
Christopher Bruce Robinson (Company Secretary)
for and on behalf of AJ Bell Holdings Limited
Trafford House, Chester Road, Manchester, M32 0RS
15 December 2016
Governance
Board of Directors
26
Les Platts
Chairman
Les joined AJ Bell in September 2008 having retired as an Audit Partner and
practice Senior Partner for the north-east with a leading international professional
services firm. Over a period of 33 years, Les gained extensive UK and international
experience across all industry sectors, including FTSE 100, FTSE 250, smaller
listed PLCs, large private companies and private equity investments. He has
advised at Board level on a wide range of financial, commercial and governance
issues, and is also Vice Chairman of a major Building Society.
Andy Bell
Chief Executive Officer
Andy co-founded AJ Bell in 1995, having spent a number of years working within
the financial services sector. Graduating from Nottingham University in 1987 with
a first class degree in Mathematics, he qualified as a Fellow of the Institute of
Actuaries in 1993 and has built AJ Bell into one of the largest providers of low-
cost, online investment platforms and stockbroker services in the UK. Andy is the
principal driving force behind the business, and his focus is increasingly on future
strategy and growth opportunities.
Michael Summersgill
Chief Financial Officer
Michael joined AJ Bell in July 2007 and became Chief Financial Officer in June
2011. He is responsible for a range of operational and support functions in the
business, including our stockbroking operations, Technology Services, Finance,
HR, Key control functions within the SIPP administration business and Business
Improvement. Michael graduated from the University of Sheffield with a degree
in Economics and began his career as an accountant in public practice, gaining
experience with a broad portfolio of clients.
John Tomlins
Non-executive Director
John joined AJ Bell with a wealth of experience, having spent his entire full time
career working in the IT and financial services sectors. Career highlights include
pioneering work on new client investment solutions, and helping to develop a
customer proposition that grew one start-up platform’s assets under administration
from zero to £40 billion. John also co-founded the Institute of Customer Services,
and is presently the Non-executive Chairman of a major technology and software
supplier to investment platforms.
Simon Turner
Non-executive Director
Simon joined the Board with strong experience in the retail, consumer electronics
and IT industries, thanks to his time as Group Managing Director at a leading
UK electrical retailer, and his appointment to the boards of several large internet
businesses. No stranger to the financial services industry, he has also enjoyed
an eight-year spell on the board at one of Britain’s biggest building societies, and
currently sits on the UK board of a major bank.
Other informationFinancial statementsGovernanceStrategic report
Executive Management Board
The EMB is the decision-making body that is responsible for the execution of the strategy
agreed with the Board of Directors. It is charged with the day-to-day management of the
Group, within the confines of the matters reserved to the Board of Directors. The EMB meets
regularly to review the performance of the Group and to agree corrective action where
issues arise.
The EMB consists of the Chief Executive Officer, the Chief Financial Officer and the following
members of senior management:
Fergus Lyons
Managing Director, AJ Bell Investcentre
Fergus worked at a major bank for over 20 years before joining AJ Bell in August 2000.
Since then he has worked in many areas of the business, and is currently Managing
Director of AJ Bell Investcentre. Fergus is also responsible for Customer Services, AJ Bell
Investments and our Platinum SSAS/SIPP products.
Richard Taylor
Chief Risk Officer
Richard joined AJ Bell in October 2005 with over 25 years’ experience in the financial
services industry. He is responsible for the risk, compliance, legal and technical resources
functions within AJ Bell. Before joining AJ Bell, Richard held senior legal, marketing and
strategy roles with a number of leading insurance companies. For many years he worked
for a company specialising in the SSAS and SIPP market, leading its Legal, Pensions
Technical and Compliance teams.
Charles Galbraith
Managing Director, AJ Bell Youinvest
Charles joined AJ Bell Securities in 2006 as Managing Director. He has worked in a
number of stockbroking firms over the past 20 years, concentrating on both private and
institutional clients. Previously he was Managing Director of a well-known stockbroker,
and was also responsible for the stocks and shares ISA business of a major high street
bank. Charles has overall responsibility for our institutional stockbroking business, AJ Bell
Youinvest platform and media business.
Roger Stott
Group Finance Director
Roger qualified as a Chartered Accountant in 1990 and has worked in retail stockbroking
since 1999. He spent seven years as Finance Director at a well-known stockbroker, joining
the company at start-up and seeing it through an MBO and sale. With AJ Bell since 2008,
Roger is responsible for overseeing the finance department, the commercial management
of supplier relationships and our third party products.
Christopher Bruce Robinson
Group Legal Services Director and Company Secretary
Bruce joined AJ Bell in October 2012, having previously acted as one of the company’s
external legal advisers. Before joining AJ Bell, Bruce spent 20 years in private practice as
a corporate and commercial lawyer.
27
Strategic reportGovernanceFinancial statementsOther information
Directors’ report
The directors present their annual report on the affairs of the Group, together with the
consolidated financial statements and auditor’s report, for the year ended 30 September 2016.
Directors
The directors, who served throughout the year, are disclosed on page 26.
Directors’ interests
The directors who held office at 30 September 2016 had the following interests in the share capital of the Company:
Ordinary
A non-voting
B non-voting
X non-voting
C non-voting
30 Sept 2016
30 Sept 2016
30 Sept 2016
30 Sept 2016
30 Sept 2016
Les Platts
Andy Bell
Michael Summersgill
John Tomlins
Simon Turner
Total
50,305
-
11,459,783
104,093
-
31,578
25,800
-
-
-
-
44,541
13,281
-
-
-
-
66,330
-
-
-
38,948
14,517
-
-
11,567,466
104,093
57,822
66,330
53,465
No director held the Ordinary non-voting class of shares at 30 September 2016, 30 September 2015 or at any time during
the period between these dates.
Directors’ share options
At 30 September 2016, the directors who held office held the following share options:
Director
M Summersgill
M Summersgill
M Summersgill
Number
Exercise price £
Date of grant
of option
Earliest date
of exercise
10,000
2,500
1,000
1.90
3.00
3.50
1 Aug 09
1 Oct 10
19 Dec 11
1 Jul 17
1 Jul 17
1 Jul 17
There are no performance criteria attaching to any of the three tranches of share options.
No options were exercised by the directors during the year, or during the previous year.
FCA Remuneration Code
The Group is subject to CRD IV requirements and therefore the FCA Remuneration Code.
28
Other informationFinancial statementsGovernanceStrategic report
Directors’ report
We maintain remuneration policies and practices in accordance with the applicable principles of the Remuneration Code,
which are overseen by the Remuneration Committee, comprised of the Non-executive Directors of the Board. Material
decisions in relation to the remuneration of staff whose actions have a material impact on the risk profile of the firm and in
relation to individuals in control functions are overseen by the Remuneration Committee. Our remuneration policies provide
for variable remuneration to be linked to performance.
Key performance indicators
Key performance indicators in relation to the Group’s activities, as reviewed continually by senior management, are
presented on the highlights page, given at page 4.
Dividends
The Company has declared a final dividend of 13.00p (2015: 16.00p) per share, to be paid on 16 December 2016. This,
together with the interim dividend of 12.75p (2015: 9.50p) paid on 31 March 2016, makes a total dividend in respect of the
financial year ended 30 September 2016 of 25.75p per share (2015: 25.50p).
Capital management
The Group is subject to CRD IV requirements and therefore has a consolidated regulatory capital requirement. The capital
comprises share capital, share premium and retained earnings. The directors ensure that the level of capital held in the
Group:
• meets the regulatory capital requirements;
•
•
provides a strong base for ongoing trading activities;
is sufficient to support the Group’s long-term strategy.
The Group’s regulatory capital requirement and details can be found under our Capital Requirement Regulation Part Eight
(Pillar 3) disclosures; this can be found on the Group’s website at www.ajbell.co.uk. We continue to hold a significant amount
of capital above the Group’s regulatory capital requirement.
Country by Country Reporting
AJ Bell Securities Limited and AJ Bell Investments LLP are regulated under CRD IV and CRR. New regulation requires
disclosure of certain financial information on a country by country basis. The following table demonstrates how we comply
with the country by country reporting requirements of CRD IV, by showing where the relevant information can be found within
the financial statements. The Company has taken the exemption permitted under CRD IV to provide this information on a
consolidated basis.
Jurisdiction
Number of
employees
Turnover
Profit (or loss)
before tax
Cash tax paid on
profit or loss
(£’000)
Public subsidies
received
UK
See note 6
See Income
statement
See Income
statement
3,498
None received
29
Strategic reportGovernanceFinancial statementsOther information Directors’ report
Financial risks
Interest rate risk
As at the year end, the Group had no significant borrowings and therefore was not exposed to a material interest rate risk
related to debt.
The Group’s income levels are affected by prevailing interest rates and in a low interest rate environment, the revenue the
Group earns on cash deposits reduces. The Group maintains good relationships with its banking partners and is able to
access competitive rates due to the large value of deposits it places. This, along with the ability to control the interest rate on
customer balances, enables the Group to mitigate this risk as far as it is practicable to do so.
Liquidity risk
This is the risk that the Group may be unable to meet its liabilities as and when they fall due. These liabilities arise from the
day-to-day activities of the Group and from its obligations to customers. The Group is a highly cash generative business and
maintains sufficient cash balances and standby banking facilities to fund its ongoing trading requirements.
Credit and bank default risk
The Group’s credit risk extends to its principal financial assets. These are cash balances held with banks and trade and
other receivables.
The directors continually monitor the strength of the banks used by the Group. The banks currently used by the Group are
Bank of Scotland plc, HSBC Bank plc, The Royal Bank of Scotland plc, Santander UK plc, BNP Paribas Securities Services,
Close Brothers plc, Lloyds Bank plc and Brown Brothers Harriman & Co. Bank of Scotland plc, the Group’s principal banker,
is a major UK high street bank and is 100% owned by Lloyds Banking Group in which the UK Government is a shareholder.
All of the banks currently used by the Group have long-term credit ratings of at least A (Fitch), apart from The Royal Bank
of Scotland plc which has a rating of BBB+ (Fitch), or A3 (Moody’s). Where the services of other banks are used, the Group
performs a rigorous due diligence prior to selection as well as subsequent monitoring on an ongoing basis. This ensures that
the Group retains the ability to further mitigate the counterparty risk on its own behalf and that of its customers.
With regards to trade receivables, the Group has implemented procedures that require appropriate credit or alternative
checks on potential customers before business is undertaken. This minimises credit risk in this area.
Political contributions
There were no political contributions in the current year or prior year.
Disabled employees
Applications for employment by disabled persons are considered bearing in mind the aptitude of the applicant concerned. In
the event of employees becoming disabled every effort is made to ensure that their employment with the Group continues
and that appropriate facilities and training are arranged. It is the policy of the Group that the training, career development
and promotion of disabled persons must, as far as possible, be identical to that of other employees.
30
Other informationFinancial statementsGovernanceStrategic report Directors’ report
Employee consultation
The Group places considerable value on the involvement of its employees. It has continued to keep them informed on
matters affecting them as employees and arising from the various factors affecting the performance of the Group. This is
achieved through formal and informal meetings and internal publications. Employee representatives are consulted regularly
on a wide range of matters affecting their current and future interests. Employee share schemes have operated since June
2005. These schemes have promoted wider employee involvement in the Group.
The directors believe that the incentivisation of senior management and key employees by equity participation is an
important factor in the continuing success of the Group. This policy aligns the interests of management with those of the
wider shareholder base.
Internal control
The Board has overall responsibility for the maintenance of the internal control system established by the Group and
places considerable reliance on a strong control environment. However, such a system is designed to manage rather than
eliminate the risk of failure to achieve business objectives. It can only provide reasonable and not absolute assurance
against material misstatement or loss. Compliance with internal control procedures is monitored by the directors through the
Risk and Compliance Committee and the External Audit Committee, which are responsible for overseeing the Group’s Risk
Management, Compliance and Internal Audit functions.
Going concern
The consolidated financial statements have been prepared on a going concern basis. After making enquiries, the directors
believe that they have a reasonable expectation that the Group has adequate resources to continue in operational existence
for the foreseeable future. The going concern basis of preparation is discussed in note 2.1 of the consolidated financial
statements.
Events after the date of the consolidated statement of financial position
Details of events occurring after the end of the reporting period are given in note 26.
Auditor
Each of the persons who are 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 ought to have taken as a director in order to make himself aware of any
relevant audit information and to establish that the Company’s auditor is aware of that information;
pursuant to Section 487 of the Companies Act 2006, the auditor will be deemed to be reappointed and KPMG LLP will
therefore continue in office.
Approved by the Board on 15 December 2016 and signed on its behalf by:
Christopher Bruce Robinson (Company Secretary)
for and on behalf of AJ Bell Holdings Limited
Trafford House, Chester Road, Manchester, M32 0RS
15 December 2016
31
Strategic reportGovernanceFinancial statementsOther information Statement of directors’ responsibilities in respect of the Strategic
report, Directors’ report and the financial statements
The directors are responsible for preparing the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and parent company financial statements for each financial year.
Under that law they have elected to prepare the Group financial statements in accordance with IFRSs and adopted by
the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK
Accounting Standards and applicable law including FRS 101 (Financial Reporting Standard 101) ‘Reduced Disclosure
Framework’ as issued by the Financial Reporting Council.
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 Company and of the profit or loss of the Company for that period. In preparing these
financial statements, the directors are required to:
•
select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
•
•
•
for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the
EU;
for the parent company financial statements, state whether applicable FRS 101 Accounting Standards have been
followed, subject to any material departures disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will
continue in business.
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 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 Company and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
32
Other informationFinancial statementsGovernanceStrategic report Independent auditor’s report to the members of
AJ Bell Holdings Limited
Opinion on other matter prescribed by the
Companies Act 2006
In our opinion the information given in the Strategic report
and the Directors’ report for the financial year for which the
financial statements are prepared is consistent with the
financial statements.
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.
Richard Gabbertas (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 St Peter’s Square
Manchester
M2 3AE
15 December 2016
We have audited the financial statements of AJ Bell Holdings
Limited for the year ended 30 September 2016 set out
on pages 36 to 81. The financial reporting framework that
has been applied in the preparation of the Group financial
statements is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the EU. The
financial reporting framework that has been applied in the
preparation of the parent company financial statements is
applicable law and UK Accounting Standards (UK Generally
Accepted Accounting Practice).
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 set out on page 32, 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
A description of the scope of an audit of financial statements
is provided on the Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate.
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 30 September 2016 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
EU;
the parent company financial statements have been
properly prepared in accordance with UK Generally
Accepted Accounting Practice;
the financial statements have been prepared in
accordance with the requirements of the Companies Act
2006.
33
Strategic reportGovernanceFinancial statementsOther information Financial statements
Consolidated income statement
For the year ended 30 September 2016
Revenue
Administrative expenses
Before unoccupied property costs
Unoccupied property costs
Administrative expenses
Operating profit
Investment revenue
Finance costs
Profit before tax
Taxation
Profit for the year
Profit/(loss) for the financial year attributable to:
Equity holders of the parent company
Non-controlling interests
Earnings per ordinary share:
Basic (pence)
Diluted (pence)
Notes
4
5
7
8
10
10
2016
£’000
64,466
(47,537)
(180)
(47,717)
16,749
73
(43)
16,779
(3,466)
13,313
13,440
(127)
13,313
32.85
32.73
2015
£’000
57,038
(41,651)
-
(41,651)
15,387
120
(38)
15,469
(3,140)
12,329
12,329
-
12,329
30.23
30.17
The notes and information on pages 40 to 73 form part of these consolidated financial statements. All income, profit and
earnings are in respect of continuing operations.
There were no other components of recognised income or expense in either year and consequently no statement of other
comprehensive income has been presented.
36
Other informationFinancial statementsGovernanceStrategic report Consolidated statement of financial position
As at 30 September 2016
Assets
Non-current assets:
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax asset
Current assets:
Trade and other receivables
Client and market receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities:
Trade and other payables
Client and market payables
Current tax liabilities
Obligations under finance leases
Provisions
Non-current liabilities:
Obligations under finance leases
Provisions
Other payables
Total liabilities
Net assets
Equity
Share capital
Share premium
Retained earnings
Equity attributable to owners of the company
Non-controlling interests
Total equity
The notes on pages 40 to 73 form an integral part of these financial statements.
Approved by the Board on 15 December 2016 and signed on its behalf by:
Michael Summersgill (Director)
for and on behalf of AJ Bell Holdings Limited
Trafford House, Chester Road, Manchester, M32 0RS
15 December 2016
Notes
2016
£’000
2015
£’000
11
13
14
17
16
16
16
19
19
18
21
18
21
20
22
3,660
5,016
1,268
49
9,993
14,288
71,459
39,510
125,257
1,957
6,796
1,204
54
10,011
12,723
41,788
36,318
90,829
135,250
100,840
(9,554)
(68,009)
(1,701)
(75)
(363)
(7,370)
(38,598)
(1,843)
(106)
(53)
(79,702)
(47,970)
(34)
(754)
(972)
(1,760)
(109)
(398)
(90)
(597)
(81,462)
(48,567)
53,788
52,273
40
2,229
51,918
54,187
(399)
40
1,913
50,320
52,273
-
53,788
52,273
37
Strategic reportGovernanceFinancial statementsOther information Consolidated statement of changes in equity
For the year ended 30 September 2016
Balance at 1 October 2014
Total comprehensive income
for the year:
Profit for the financial year
Transactions with owners, recorded directly
in equity:
Issue of share capital
Dividends
Credit to equity in respect of
share-based payments
Deferred tax effect of share-based payments
Tax relief on exercise of share options
Balance at 30 September 2015
Balance at 1 October 2015
Total comprehensive income
for the year:
Profit for the financial year
Transactions with owners,
recorded directly in equity:
Issue of share capital
Dividends
Credit to equity in respect of
share-based payments
Deferred tax effect of
share-based payments
Tax relief on exercise of share options
Transactions between owners:
Equity to holders of non-controlling interest
Total contributions by and distributions to owners
Share
capital
£’000
40
Share
premium
£’000
Retained
earnings
£’000
1,085
48,261
Non-
controlling
interests
£'000
-
-
-
-
-
-
-
-
-
Total
equity
£'000
49,386
12,329
828
(10,297)
39
(19)
7
52,273
52,273
-
12,329
828
-
-
-
-
-
(10,297)
39
(19)
7
1,913
50,320
1,913
50,320
316
-
(11,763)
69
(8)
72
-
-
-
-
-
-
-
13,440
(127)
13,313
-
-
-
-
-
316
(11,763)
69
(8)
72
-
(212)
(484)
212
(484)
-
-
-
-
-
-
-
40
40
-
-
-
-
-
-
-
-
Balance at 30 September 2016
40
2,229
51,918
(399)
53,788
The notes on pages 40 to 73 form an integral part of these financial statements.
38
Other informationFinancial statementsGovernanceStrategic report Consolidated statement of cash flows
For the year ended 30 September 2016
Cash flows from operating activities
Profit for the financial year
Adjustments to cash flows from non-cash items:
Investment revenue
Finance costs
Income Tax expense
Depreciation and amortisation
Impairment of intangible assets
Share-based payment expense
Increase in provisions
Operating cash flows before movement in working capital
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Cash generated from operations
Income Tax paid
Interest paid
Notes
2016
£’000
2015
£’000
13,313
12,329
(73)
43
3,466
2,086
345
69
666
19,915
(31,018)
30,230
19,127
(3,498)
(43)
(120)
38
3,140
2,041
-
39
18
17,485
301
(1,203)
16,583
(3,501)
(38)
Net cash flow from operating activities
15,586
13,044
Cash flows from investing activities
Purchase of other intangible assets
Purchase of property, plant and equipment
Interest received
Loss on disposal of fixed assets
Net cash paid to acquire subsidiary
Net cash flows from investing activities
Cash flows from financing activities
Payments of obligations under finance leases
Proceeds from issue of share capital
Proceeds from settlement of part-paid shares
Dividends paid
13
14
(115)
(604)
73
4
(199)
(841)
(106)
316
-
(163)
(343)
120
8
-
(378)
(101)
176
652
9
(11,763)
(10,297)
Net cash flows from financing activities
(11,553)
(9,570)
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Total cash and cash equivalents at end of year
3,192
36,318
39,510
3,096
33,222
36,318
The notes and information on pages 40 to 73 form part of the consolidated financial statements.
39
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
1. General information
The Company is incorporated and registered in England and Wales. The address of the registered office is given on page
85. The nature of the Group’s operations are set out in the Strategic report on pages 4 to 23 and the Directors’ report on
pages 28 to 31.
The consolidated financial statements for the Company and its subsidiaries were approved by the Board on 15 December
2016.
2. Significant accounting policies
Basis of accounting
The consolidated financial statements are prepared on a going concern basis as noted on page 41 and are presented
in sterling, rounded to the nearest thousand. They are prepared on the historical cost basis and the principal accounting
policies applied in the preparation of these financial statements are set out on pages 40 to 48.
The consolidated financial statements of AJ Bell Holdings Limited have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the EU. The directors have elected to prepare the parent company’s
financial statements in accordance with the provisions of the Large and Medium-Sized Companies and Groups (Accounts
and Reports) Regulation 2008 and have prepared them in accordance with FRS101. This UK GAAP standard allows the
use of EU-adopted International Financial Reporting Standards (IFRS) with reduced disclosures, where allowed, by the
Companies Act and associated legislation. As permitted by Section 408 of the Companies Act 2006, no profit and loss
account is presented for the Company; the notes and information for the Company are presented on pages 76 to 81.
Change in accounting policy
At the date of issue of these financial statements there were a number of standards and interpretations in issue which were
relevant but not yet effective for the Group. The directors do not believe that any of these will have a significant impact on
the Group.
Accounting policies as shown below have been consistently applied throughout the current and prior financial year.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company (its subsidiaries) made up to 30 September each year. Control is achieved where the Company has the power to
govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. They cease to be
consolidated from the date that the Group no longer has control.
All intercompany transactions, balances, income and expenses are eliminated on consolidation.
A list of the significant investments in subsidiaries (including the name, country of incorporation, principal activities and
proportion of ownership interest) are given in note 4 to the Company’s separate financial statements.
40
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
2.1 Going concern
The Group’s business activities, together with its financial position and the factors likely to affect its future development
and performance are set out in the Strategic report on pages 4 to 23 and the Directors’ report on pages 28 to 31. Within
the Directors’ report, the financial risks section on page 30 includes the Group’s policies and processes for managing
exposure to credit and liquidity risk. The Group’s forecasts and objectives, taking into account a number of potential changes
in trading performance, show that the Group should be able to operate at adequate levels of both liquidity and capital for
the foreseeable future. The directors have performed a number of stress tests on capital and liquidity and these provide
assurance that the Group has sufficient capital to operate under stressed conditions.
Consequently, after making reasonable enquiries, the directors are satisfied that the Group has sufficient resources to
continue in business for the foreseeable future and therefore have continued to adopt the going concern basis in preparing
the financial statements.
2.2 Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method. The cost of acquisition is measured as the
aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss
as incurred. The acquiree’s identifiable tangible and intangible assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date.
2.3 Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of
the identifiable assets and liabilities of the subsidiary, associate or jointly-controlled entity at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment
losses. Goodwill that is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised
immediately and is not subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to one or more of the Group’s CGUs (Cash Generating Units)
expecting to benefit from the synergies of the combination. CGUs to which goodwill has been allocated are reviewed
annually or more frequently when there is an indication that the goodwill relating to that CGU may have been impaired. If
the recoverable amount from the CGU is less than the carrying amount of the assets present on the consolidated statement
of financial position forming that CGU, the impairment loss is allocated first to reduce the carrying amount of any goodwill
allocated to the assets forming that CGU and then to the assets of the CGU pro-rata on the basis of the carrying amount of
each asset in the CGU.
On disposal of a subsidiary, associate or jointly-controlled entity, the attributable amount of goodwill is included in the
determination of the profit or loss on disposal.
41
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
2.4 Revenue recognition
In recognising revenue, the directors follow the principles contained in IAS 18 ‘Revenue’ to determine appropriate revenue
recognition policies. Revenue is recognised to the extent that it is probable that the economic benefits associated with the
transaction will flow into the Group.
Revenue is measured at the fair value of the consideration received or receivable net of discounts, VAT and other sales-
related taxes, for goods sold and services provided in the year.
Administration and custodian fees are recognised in the period in which the service is rendered using the percentage
completion method. The extent to which a service is complete is determined by the different work activity profiles of the
associated individual services.
Services rendered at the inception of a fixed-term contract are recognised over the life of that contract.
Asset-based commissions are accrued on a time basis by reference either to the principal and effective interest rate or the
due date for payment.
Transaction-based commissions are recognised when receivable in accordance with the date of the underlying transaction
Investment revenue comprises interest income receivable on the Group’s bank deposits. Interest income is recognised in the
income statement as it accrues, using the effective interest rate method.
2.5 Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value
of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is
included in the consolidated statement of financial position as a finance lease obligation. Lease payments are apportioned
between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining
balance of the liability.
Rental payments under operating leases are charged to the income statement on a straight-line basis over the term of
the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a
straight-line basis over the lease term.
2.6 Finance costs
Finance costs comprise interest payable and finance charges on finance leases. Finance costs are recognised in the income
statement using the effective interest rate method.
2.7 Retirement benefit costs
The Group makes payments into the personal pension schemes of certain employees as part of their overall remuneration
package. Contributions are recognised in the income statement as they are payable.
The Group also contributes to employees’ stakeholder pension schemes. The assets of the scheme are held separately
from those of the Group in independently administered funds. Any amount charged to the income statement represents the
contribution payable to the scheme in respect of the period to which it relates.
Alternatively, the Group will pay contributions to an employee’s AJ Bell Youinvest SIPP, if they wish, instead of the
stakeholder pension.
42
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
2.8 Taxation
The tax expense represents the sum of the current tax payable and deferred tax. Tax is recognised in the income statement
except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax
payable or receivable in respect of previous years, using tax rates enacted or substantively enacted at the reporting date.
Deferred tax
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred tax liabilities are generally recognised on all
taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will
be available in the future, against which deductible temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises (other than in a business combination) from:
• The initial recognition of goodwill; or
•
•
investment in subsidiaries to the extent that they will probably not reverse in the foreseeable future; or
the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting
profit.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.
2.9 VAT
Revenues, expenses and assets are recognised net of the amount of sales tax except where the sales tax incurred on a
purchase of assets or services is not recoverable in whole or in part from the taxation authority.
Where the sales tax is not recoverable in whole or in part from the taxation authority, it is expensed through the income
statement, except in the case of a capital asset where the irrecoverable proportion is capitalised as part of the capital cost of
that asset.
2.10 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment losses.
Depreciation is provided, where material, on all property, plant and equipment at rates calculated to write off the cost, less
estimated residual value, of each asset evenly using a straight-line method over its estimated useful economic life as follows:
Leasehold improvements
Over the life of the lease
Office equipment
Computer equipment
4 years
4 years
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or,
where shorter, over the term of the relevant lease.
The gain or loss arising on 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 the income statement immediately.
Where an asset is under construction at the end of a reporting period, the costs involved that meet the relevant recognition
criteria are disclosed as a separate class of asset. As these assets are not available for use by the business they are not
depreciated, instead they are reviewed for impairment.
43
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
2.11 Intangible assets (excluding goodwill)
Intangible assets comprise computer software, customer contracts and non-contractual customer relationships, and
the Group’s Key Operating System (KOS). These are stated at cost or fair value less amortisation and any recognised
impairment loss. Amortisation is provided, where material, on all intangible fixed assets excluding goodwill at rates calculated
to write off the cost or valuation, less estimated residual value, of each asset evenly using a straight-line method over its
estimated useful economic life as follows:
Computer software
KOS
4 years
10 years
KOS enhancements
Over the remaining life of the KOS
Customer contracts and non-contractual
customer relationships
5-10 years
The gain or loss arising on 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 the income statement immediately.
Where an asset is under construction at the end of a reporting period, the costs involved that meet the relevant recognition
criteria are disclosed as a separate class of asset. As these assets are not available for use by the business they are not
amortised, instead they are reviewed for impairment.
2.12 Internally-generated intangible assets
An internally-generated asset arising from work performed by the Group is recognised only if all the following conditions are
met:
• An asset is created that can be identified (such as software).
•
It is probable that the asset created will generate future economic benefits
• The development costs of the asset can be measured reliably.
Where such an asset is under construction at the end of a reporting period, the costs involved that meet the relevant
recognition criteria are disclosed as a separate class of asset. As these assets are not available for use by the business they
are not depreciated or amortised, instead they are reviewed for impairment. Typically, such projects consist of a mixture of
tangible and intangible components and these are disclosed separately in the financial statements.
44
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
2.13 Impairment of tangible and intangible assets (excluding goodwill)
At each reporting date of the consolidated statement of financial position the directors review the carrying amount of
the Group’s tangible and intangible assets to determine whether there is any indication that those assets have suffered
impairment. If such an indication exists then the recoverable amount of that particular asset is estimated.
An impairment test is performed for an individual asset unless it belongs to a CGU, in which case the present value of the
net future cash flows generated by the CGU is tested. A CGU is the smallest group of assets that generates cash inflows
from continuing use that are largely independent of the cash inflows of other assets or of groups of other assets. An
intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the
asset may be impaired.
Recoverable amount
The recoverable amount of a tangible or intangible asset is the higher of its fair value less costs to sell and its value-in-
use. In assessing its value-in-use, the estimated net future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or CGU in which the asset sits is estimated to be lower than the carrying value, then
the carrying amount is reduced to the recoverable amount. An impairment loss is recognised immediately in the income
statement as an expense.
Reversals of impairment
An impairment loss is reversed on tangible and intangible assets only if subsequent external events reverse the effect of
the original event which caused the recognition of the impairment. An impairment loss is reversed only to the extent that
the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortisation, if no impairment loss had been recognised. An impairment reversal is recognised in the income statement
immediately.
2.14 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held on call with banks and other short-term highly liquid
investments with original maturities of three months or less. Where appropriate, bank overdrafts are shown within borrowings
in current liabilities in the consolidated statement of financial position. For the purposes of the consolidated cash flow
statement, cash and cash equivalents are defined as above, net of outstanding bank overdrafts if the Group has the right of
set off.
45
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
2.15 Financial instruments
Financial assets and liabilities are recognised in the consolidated statement of financial position when a member of the
Group becomes a party to the contractual provisions of the instrument.
Financial assets
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under
a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned.
All financial assets are classified as loans and receivables.
Loans and receivables
Trade 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 fair value, less any impairment.
In accordance with current market practice, certain balances with clients, Stock Exchange member firms and other
counterparties are included as receivables. Client and market receivables are presented net where there is a legal right
of offset and the ability and intention to settle on the net basis. Clients’ settlement cash balances represent client money
required to meet settlement obligations. No interest income is recognised as all loans and receivables are short-term
receivables and the recognition of interest would be immaterial.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each date of the consolidated statement of financial position.
These 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 affected.
For financial assets objective evidence of impairment could include:
• default or delinquency in interest or principal payments; or
•
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually
are, in addition, 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 30 days, as well as the observable changes in national or local economic
conditions that correlate with default on receivables.
The carrying amount of the financial assets is reduced by the use of a provision. When a trade receivable is considered
uncollectable, it is written off against the provision. Subsequent recoveries of amounts previously written off are credited
against the provision. Changes in the carrying amount of the provision are recognised in the income statement.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered
into.
An equity instrument is any contract that evidences a residual interest in the assets in which the investment is made after
deducting all of its liabilities.
Financial liabilities
All financial liabilities are classified as other financial liabilities.
Other financial liabilities, including any borrowings, are initially measured at fair value, net of transaction costs. They are
subsequently measured at amortised cost using the effective interest rate method. In accordance with current market
practice, certain balances with clients, Stock Exchange member firms and other counterparties are included as payables.
Client and market payables are presented net where there is a legal right of offset and the ability and intention to settle on
the net basis.
46
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
Effective interest rate method
The effective interest rate method is a method of calculating the amortised cost of a debt instrument and of allocating the
interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash flows
through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial
recognition.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they
expire.
2.16 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) 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 consideration required to settle that obligation at the date of the consolidated statement of financial position and are
discounted to present value where the effect is material.
2.17 Share-based payments
The Group applies the requirements of IFRS 2 ‘Share-based Payment’. For the purposes of this financial information, 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. These 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 directors’
estimate of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions. Where a grant
of equity-settled share-based payments is not subject to vesting conditions, the fair value determined at the grant date is
expensed immediately.
Fair value is measured by use of the Black-Scholes model. The expected life applied in the model has been adjusted based
on the directors’ best estimate for the effects of non-transferability, exercise restrictions and behavioural considerations. As
the Company’s shares are not listed on a recognised stock exchange and therefore no readily available market price exists
for the shares, the share price has been estimated using a generally accepted business valuation method. Share price
volatility has been estimated as the average of the volatility applying to a comparable group of listed companies.
2.18 Dividends
Dividend distributions to the Company’s shareholders are recognised in the period in which the dividends are paid. Final
dividends declared after the reporting period are not included as a liability in the financial statements but are disclosed in the
notes to the financial statements.
2.19 Levies
The Group applies the guidance provided in IFRIC 21 to levies issued under the Financial Services Compensation Scheme.
The interpretation clarifies when an entity recognises a liability for a levy imposed by government in accordance with
legislation (other than taxes and fines or other penalties).
47
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 2, the directors are required to make
judgements, estimates and assumptions to determine the carrying amounts of certain assets and liabilities. The estimates
and associated assumptions are based on the Group’s historical experience and other relevant factors. Actual results may
differ from the estimates applied.
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.
Critical judgements in applying the Group’s accounting policies
The following critical judgements have been made by the directors in applying the Group’s accounting policies.
Impairment reviews of non-current assets
At each reporting date, the Group’s non-current assets are reviewed for impairment where there are indicators of impairment
or a review is specifically required by IAS 36. As it is not possible to test the Group’s assets for impairment on an individual
basis, impairment reviews are carried out on a CGU basis. In order to determine an asset’s recoverable amount, the
directors review the expected future cash flows of the CGU to which the asset is allocated.
There are a number of estimations that the directors have used to forecast the expected future cash flows of the CGUs that
have been reviewed. Key judgements in arriving at these estimations include:
• The revenue generated by the future demand for the Group’s products and services;
•
•
the anticipated future costs attributable to the supply of the Group’s products and services; and
the level of ongoing maintenance expenditure required on the Group’s assets in order to generate the expected level of
cash flows.
Capitalisation of internally-generated intangible assets
The Group’s accounting policy in relation to internally-generated intangible assets is given at section 2.12 in the notes to the
consolidated financial statements.
Management judges whether incremental cash flows attributable to each project can be reliably measured. For projects
where it is deemed probable that the asset will generate future economic benefits that can be measured, expenditure is
capitalised. Examples of this are the delivery of a new product or service and the development of a new operating system.
For projects that do not meet this expenditure criteria, such as the maintenance of an asset or new functionality for an
existing product, the cost is expensed to the income statement as incurred.
48
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
4. Revenue
An analysis of the consolidated revenue is as follows:
Investment administration services
Dealing and custody services
Media services
Investment management services
Total
5. Operating profit
Profit for the financial year has been arrived at after charging:
Amortisation of intangible assets
Depreciation of tangible assets
Impairment of intangible assets
Loss on disposal of tangible assets
Operating lease rentals
Staff costs
Fees payable to the company’s auditor for the audit of the
company’s annual accounts
Fees payable to the company’s auditor and its associates for other services:
Audit of the accounts of subsidiaries
Audit-related assurance services
Other assurance services
2016
£’000
2015
£’000
38,129
22,287
3,202
848
64,466
33,862
19,586
3,590
-
57,038
2016
£’000
2015
£’000
1,550
536
345
4
1,216
25,101
23
76
60
9
1,648
393
-
8
999
22,945
11
57
54
4
49
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
6. Employee benefit costs and employee numbers
The average number of employees (including Executive Directors) in the continuing
operations of the Group during the year ended 30 September 2016 were:
Administrative functions
607
570
The aggregate employee costs for the continuing operations of the Group were as follows:
2016
No.
2015
No.
Short-term employee benefits
Social security costs
Retirement benefit costs
Termination benefits
Total
Remuneration of key management personnel
Key management personnel are represented by the Board of Directors as shown on
page 26 and the EMB as shown on page 27:
Short-term employee benefits
Retirement benefit costs
Total
Remuneration of directors
The following costs relate to the Board of Directors as shown on page 26:
Short-term employee benefits
Retirement benefit costs
Total
2016
£’000
21,566
2,345
1,013
177
25,101
2015
£’000
19,941
2,112
819
73
22,945
2016
£’000
2015
£’000
2,499
66
2,565
2016
£’000
1,141
1
1,142
2,303
62
2,365
2015
£’000
1,085
1
1,086
50
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
Remuneration of highest paid director
Short-term employee benefits
Total
7. Finance costs
Obligations under finance leases
Other finance costs
Total finance costs
2016
£’000
720
720
2015
£’000
711
711
2016
£’000
2015
£’000
20
23
43
24
14
38
51
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
8. Taxation
Tax charged/(credited) in the income statement
Current taxation
UK Corporation Tax
Adjustment to current tax in respect of prior period
Deferred taxation
Origination and reversal of temporary differences
Change in recognised deductible temporary differences
Reduction in tax rate
2016
£’000
3,552
(240)
3,312
(69)
217
6
2015
£’000
3,494
(113)
3,381
(268)
22
5
Tax expense per the consolidated income statement
3,466
3,140
Corporation Tax is calculated at 20% of the estimated assessable profit for the year to 30 September 2016 (2015: 20.5%).
In addition to the amount charged to the income statement, certain tax amounts have been charged/(credited) directly to
equity as follows:
Deferred tax relating to share-based payments (see note 16)
Current tax relief on exercise of share options
2016
£’000
8
(72)
(64)
2015
£’000
19
(7)
12
It is expected that the ongoing effective tax rate will remain at a rate approximating to the standard UK Corporation Tax rate
in the medium term except for the impact of deferred tax arising from the timing of exercising of share options. The standard
UK Corporation Tax rate was reduced to 20% (from 21%) on 1 April 2015 and accordingly the Group’s profits for this
accounting year are taxed at an effective rate of 20%. Deferred tax has been recognised at 17%, being the rate at which the
deferred tax assets are expected to reverse.
52
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
The charge for the year can be reconciled to the profit per the income statement as follows:
Profit before tax
Profit before tax multiplied by a pro-rata rate of Corporation Tax in
the UK of 20% (2015: 20.5%)
Effects of:
Adjustments to current tax in respect of prior period
Expenses not deductible
Change in recognised deductible temporary differences
Reduction in tax rate
Income not taxable
2016
£’000
2015
£’000
16,779
15,469
3,356
3,171
(13)
110
9
5
(1)
(91)
55
5
-
-
Total tax expense in consolidated income statement
3,466
3,140
Effective tax rate
20.7%
20.3%
53
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
9. Dividends
Amounts recognised as distributions to equity holders during the year:
Final dividend for the year ended 30 September 2015 of 16.00p (2014: 15.75p)
per share
Interim dividend for the year ended 30 September 2016 of 12.75p (2015: 9.50p)
per share
Ordinary dividends paid on equity shares
Proposed final dividend for the year ended 30 September 2016 of 13.00p
(2015: 16.00p) per share
2016
£’000
2015
£’000
6,546
6,423
5,217
11,763
3,874
10,297
5,373
6,513
Dividends are payable on all classes of issued, fully or partially paid up ordinary shares, except B and C non-voting shares
as disclosed in note 22.
10. Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the parent company by the
weighted average number of ordinary, non-voting ordinary and A and X non-voting ordinary shares in issue during the period.
Diluted earnings per share is calculated by adjusting the weighted average number of shares in all classes to assume
exercise of all potentially dilutive share options.
Earnings for the purposes of basic and diluted earnings per share being profit
attributable to equity holders of the parent company
Number of Shares
Weighted average number of ordinary shares (for the purpose of basic earnings per
share) in issue during the year
Effect of potentially dilutive share options
2016
£’000
2015
£’000
13,440
12,329
Number
of shares
2016
Number
of shares
2015
40,914,184
40,788,579
148,193
73,993
Weighted average number of ordinary shares for the purposes of fully diluted
earnings per share
41,062,377
40,862,572
54
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
11. Goodwill
Cost
At 1 October 2015
Additions
At 30 September 2016
Accumulated impairment losses
At 1 October 2015
Charge for the financial year
At 30 September 2016
2016
£’000
2,069
1,703
3,772
112
-
112
2015
£’000
2,069
-
2,069
112
-
112
Carrying value at 30 September 2016
3,660
1,957
The directors test goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.
Goodwill arising on acquisition of AJ Bell Securities Limited
Goodwill of £532,000 recognised in the statement of financial position arose on the acquisition of AJ Bell Securities Limited
during the year ended 30 September 2008.
For the purposes of impairment testing, goodwill arising on the acquisition of AJ Bell Securities Limited is allocated to the
dealing and custody CGU.
Goodwill arising on acquisition of AJ Bell Media Limited
Goodwill of £1,537,000 recognised in the statement of financial position arose on the acquisition of AJ Bell Media Limited
during the year ended 30 September 2013.
For the purposes of impairment testing, £380,000 of goodwill arising on the acquisition of AJ Bell Media Limited is allocated
to the investment administration CGU, with the remaining £1,157,000 being allocated to the dealing and custody CGU.
Goodwill arising on acquisition of Indexx Markets Limited
Goodwill of £1,588,000 recognised in the statement of financial position arose on the acquisition of Indexx Markets Limited
during the year ended 30 September 2016.
For the purposes of impairment testing, £1,143,000 of goodwill arising on the acquisition of Indexx Markets Limited is
allocated to the investment administration CGU, with the remaining £445,000 being allocated to the dealing and custody
CGU.
Goodwill arising on acquisition of AJ Bell Investments LLP
Goodwill of £115,000 recognised in the statement of financial position arose on the acquisition of AJ Bell Investments LLP
during the year ended 30 September 2016.
For the purposes of impairment testing, £83,000 of goodwill arising on the acquisition of AJ Bell Investments LLP is allocated
to the investment administration CGU, with the remaining £32,000 being allocated to the dealing and custody CGU.
55
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
Calculation of value-in-use of CGUs
Dealing and custody CGU
The recoverable amount of the assets contained within the dealing and custody CGU is determined by estimating its value-
in-use; the discounted future cash flows attributable to the CGU are projected over the four years based on the most recent
forecasts approved by the Board.
Investment administration CGU
The recoverable amount of the assets contained within the investment administration CGU is determined by estimating its
value-in-use; the discounted future cash flows attributable to the CGU are projected over the remaining five-year life of the
key operating system, which was deemed to have a useful life of ten years when it was brought into use five years ago, and
was deemed the most prominent asset in the CGU, based on the most recent forecasts approved by the Board.
The directors have exercised the following key judgements in estimating the future cash flows:
Revenue
A moderate rate of growth has been used to extrapolate cash flow projections beyond the most recent budget approved by
the Board for the investment administration and dealing and custody CGUs.
Administrative expenses
Economies of scale are expected to be gained in the medium- to long-term, although there are not expected to be any
significant changes to the nature of administrative expenses.
Asset maintenance
Modest ongoing maintenance expenditure is required on the assets in the CGUs in order to generate the expected level of
cash flows.
Discount rate
A pre-tax discount rate of 5% has been applied to the forecast cash flows in order to estimate the value-in-use of the CGUs.
Based on these key judgements, the estimated value-in-use of the CGUs comfortably supports the carrying values of the
assets held within them.
In addition to the impairment review carried out as described above, the directors have performed sensitivity analysis on
their calculations, with key assumptions being revised adversely to reflect the potential for future performance being below
expected levels. Changes to revenue are the most sensitive as they would have the greatest impact on future cash flows but
under the tests performed they continued to support the carrying value of the assets under the CGUs.
Following their review of both the dealing and custody CGU and investment administration CGU, the directors are satisfied
that goodwill is not impaired.
56
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
12. Acquisitions
On 29 February 2016 the Group’s subsidiary, AJ Bell Asset Management Limited, acquired the entire share capital of Indexx
Markets Limited and its wholly owned subsidiary Allium Capital Limited (now AJ Bell Capital Limited) and Mansard Capital
LLP (now AJ Bell Investments LLP).
Indexx Markets Limited designs investment products, and its FCA-regulated wholly owned subsidiary AJ Bell Capital Limited
operates an existing range of multi-asset funds. AJ Bell Investments LLP is also an FCA-regulated company that provides
investment management services.
This acquisition has facilitated the launch of AJ Bell’s Managed Portfolio Service for advisers and their clients, and in due
course, its own range of funds.
In the period between the acquisition and the reporting date, Indexx Markets Limited contributed revenue of £690,000 and a
loss of £507,000 to the Group’s results. AJ Bell Investments LLP contributed revenue of £249,000 and a loss of £14,000.
If the acquisition had occurred on 1 October 2015, the directors estimate that consolidated revenue would have been
£64.8m including Indexx Markets Limited and £64.5m including AJ Bell Investments LLP with consolidated profit being
£16.7m for the year ended 30 September 2016.
Consideration transferred
The consideration transferred for the acquisition of Indexx Markets Limited was £149,000, this being made up of £107,000
cash and £42,000 worth of share capital in AJ Bell Asset Management Limited, issued to the Indexx Markets Limited
management team. As Indexx Markets Limited held cash and cash equivalent amounts of £7,000 on the date of acquisition,
the net cost arising on the acquisition was £142,000.
The consideration transferred for the acquisition of AJ Bell Investments LLP was £185,000, this being made up of
£143,000 cash and £42,000 worth of share capital in AJ Bell Asset Management Limited, issued to the AJ Bell Investments
management team. As AJ Bell Investments LLP held cash and cash equivalent amounts of £44,000 on the date of
acquisition, the net cost arising on the acquisition was £141,000.
Identifiable assets and liabilities acquired
Trade and other
receivables
Cash and cash
equivalents
Trade and other
payables
Indexx Markets Limited
AJ Bell Investments LLP
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
160
7
(2,142)
(1,975)
160
7
(2,142)
(1,975)
100
44
(105)
39
100
44
(105)
39
The trade receivables for Indexx Markets Limited include gross contractual amounts of £115,000 and for AJ Bell Investments
LLP include gross contractual amounts of £69,000. They have not been reduced by a provision made for those considered
to be doubtful debts, as the trade receivables were expected to be collected at the acquisition date for both companies.
If new information is obtained within one year from the acquisition date about facts and circumstances that existed at the
acquisition date which identify any material adjustments to the above amounts, or any additional provisions that existed at
the acquisition date, then the acquisition accounting will be revised.
57
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
Non-controlling interest
AJ Bell Holdings Limited has a 75% share in AJ Bell Asset Management Limited which wholly owns Indexx Markets Limited
and AJ Bell Investments LLP, therefore, the non-controlling interest has been calculated as 25% of Indexx Markets Limited’s
and AJ Bell Investments LLP’s net assets at acquisition.
Under IFRS 3 we have chosen to value the non-controlling interest’s proportionate share of net assets/liabilities of the
acquired companies.
Net assets / (liabilities)
Non-controlling interest
Attributable to non-controlling interest
Indexx Markets Limited
£’000
AJ Bell Investments LLP
£’000
(1,975)
25%
(494)
39
25%
10
The profits/losses attributable to the non-controlling interest will be shown as one line on the face of the income statement.
Goodwill
Goodwill recognised as a result of the acquisition is shown below:
Total cash consideration transferred
Less: Fair value of identifiable net assets / (liabilities)
Total goodwill recognised
Indexx Markets Limited
£’000
AJ Bell Investments LLP
£’000
107
(1,481)
1,588
143
28
115
The goodwill is attributable to the skills and technical talent of the assembled workforce that will allow the Group to take
advantage of the post-RDR landscape in the platform market and develop low-cost investment management solutions for
advisers and DIY customers.
It has been allocated to the cash generating units that derive revenue from the investment platforms that will benefit from the
provision of this. For the purposes of impairment testing, £1,143,000 of goodwill arising on the acquisition of Indexx Markets
Limited will be allocated to the pension administration CGU and £445,000 to the stockbroking CGU. For the purposes of
impairment testing, £83,000 of goodwill arising on the acquisition of AJ Bell Investments LLP will be allocated to the pension
administration CGU and £32,000 to the stockbroking CGU. None of the goodwill recognised is to be deductible for tax
purposes.
Acquisition-related costs
The due diligence work was predominantly undertaken by the Group’s management team, with some supplementary legal
support provided by external consultants. In addition to management time, acquisition-related costs of £7,000 were included
in administrative expenses in the condensed consolidated income statement for the year ended 30 September 2016.
58
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
13. Other intangible assets
Cost
At 1 October 2014
Additions
At 30 September 2015
Additions
At 30 September 2016
Amortisation
At 1 October 2014
Amortisation charge
At 30 September 2015
Amortisation charge
Impairment
At 30 September 2016
Carrying amount
30 September 2015
30 September 2016
Average remaining
amortisation period
Key operating
system
£’000
Contractual
customer
relationships
£’000
Computer
software
£’000
Total
£’000
8,657
-
8,657
-
8,657
1,863
1,056
2,919
1,056
-
3,975
5,738
4,682
2,135
-
2,135
-
2,135
1,241
275
1,516
274
345
2,135
619
-
6,430
163
6,593
115
6,708
5,837
317
6,154
220
-
6,374
439
334
17,222
163
17,385
115
17,500
8,941
1,648
10,589
1,550
345
12,484
6,796
5,016
4 years
6 months
7 months
The acquisition of AJ Bell Media & Money AM in 2012 gave rise to a customer list being recognised as an intangible asset.
This was based on the contractual position and the expected profitability of the corporate solution customers within Money
AM. The corporate solutions customer list is unable to support the net book value on the balance sheet as it no longer
generates positive cash flows and has resulted in an impairment of £152,000.
The acquisition of AJ Bell Securities in 2007 gave rise to a customer list being recognised as an intangible asset based on
the profitability of 54 institutional customers that existed at the time of acquisition. The corporate solutions customer list is
unable to support the net book value on the balance sheet as it no longer generates positive cash flows and has resulted in
an impairment of £193,000.
The impairment charge of £345,000 (2015: £nil) is recognised under administrative expenses in the income statement.
59
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
14. Property, plant and equipment
Leasehold
improvements
£’000
Office
equipment
£’000
Other property,
plant and
equipment
£’000
Cost
At 1 October 2014
Additions
Disposals
At 30 September 2015
Additions
Disposals
At 30 September 2016
Depreciation
At 1 October 2014
Charge for year
At 30 September 2015
Charge for the year
Eliminated on disposal
At 30 September 2016
Carrying amount
At 30 September 2015
At 30 September 2016
676
1
-
677
-
-
677
519
17
536
17
-
553
141
124
Total
£’000
4,310
356
(8)
4,658
604
(148)
5,114
3,061
393
3,454
536
(144)
1,346
59
-
1,405
36
(12)
1,429
874
168
1,042
170
(12)
2,288
296
(8)
2,576
568
(136)
3,008
1,668
208
1,876
349
(132)
1,200
2,093
3,846
363
229
700
915
1,204
1,268
During the year, additions of property, plant and equipment under finance leases totalled £Nil (2015: £13,000).
The carrying amount of the Group’s office equipment includes an amount of £99,000 (2015: £197,000) in respect of assets
held under finance leases.
At the year-end, the Group had no commitments (2015: £Nil) to purchase any tangible fixed assets.
15. Subsidiaries
A list of the significant investments in subsidiaries, including the name, country of incorporation, and proportion of ownership
interest is given in note 4 to the Company’s separate financial statements.
The financial statements for the year ended 30 September 2016 of AJ Bell EBT Limited have been exempted from audit
under s479C of the Companies Act 2006 by way of parent guarantee from AJ Bell Holdings Limited.
60
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
16. Other financial assets
Trade and other receivables
Trade receivables
Prepayments and accrued income
2016
£’000
6,287
8,001
2015
£’000
6,243
6,480
14,288
12,723
The directors consider that the carrying value of trade and other receivables approximates to their fair value.
The maturity profile of the Group’s trade receivables was as follows:
Neither past due nor impaired
31 to 60 days
61 to 90 days
91 days and over
Provision for doubtful debts
Trade receivables per consolidated statement of financial position
The movement in the provision for doubtful debts is as follows:
At 1 October 2015
Amounts charged to the income statement as irrecoverable
Amounts recovered during the year
At 30 September 2016
2016
£’000
4,451
87
82
1,831
6,451
(164)
6,287
2016
£’000
208
40
(84)
164
2015
£’000
4,904
114
147
1,286
6,451
(208)
6,243
2015
£’000
169
153
(114)
208
The directors have reviewed the collectability of all receivables and are satisfied that those balances not otherwise provided
against are recoverable.
Client and market receivables
Client and market receivables
Clients’ settlement cash balances
Client and market receivables arise as a result of the provision of stockbroking services.
2016
£’000
41,658
29,801
71,459
2015
£’000
23,560
18,228
41,788
61
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
Cash and cash equivalents
Cash and cash equivalents
2016
£’000
39,510
39,510
2015
£’000
36,318
36,318
Cash and cash equivalents comprise cash held by the Company and any of its operating subsidiaries. It also includes short-
term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates to
their fair value. Any client bank accounts in foreign currency have been translated into sterling at the prevailing exchange
rate at the statement of financial position date.
Financial assets
Financial assets consist of cash and cash equivalents, trade receivables and client and market receivables and total
£117,256,000 (2015: £84,349,000).
Risks arising from financial assets
Credit and bank default risk
The Group’s credit risk extends to its principal financial assets. These are cash balances held with banks and trade and
other receivables.
As regards trade receivables, the Group has implemented procedures that require appropriate credit or alternative checks
on potential customers before business is undertaken. This minimises credit risk in this area.
The directors continue to monitor the strength of the banks used by the Group. The banks currently used by the Group are
Bank of Scotland plc, HSBC Bank plc, The Royal Bank of Scotland plc, Santander UK plc, BNP Paribas Securities Services,
Close Brothers plc, Lloyds Bank plc and Brown Brothers Harriman & Co. Bank of Scotland plc, the Group’s principal banker,
is substantial and is 100% owned by Lloyds Banking Group in which the UK Government still has a stake. The degree of
state ownership is closely monitored by the Group. All of the banks currently used by the Group have long-term credit ratings
of at least A (Fitch), apart from The Royal Bank of Scotland plc which has a rating of BBB+ (Fitch), or A3 (Moody’s). Where
the services of other banks are used, the Group follows a rigorous due diligence process prior to selection. This results in the
Group retaining the ability to further mitigate the counterparty risk on its own behalf and that of its customers.
Embedded derivatives
In accordance with IAS39, ‘Financial Instruments: Recognition and Measurement’, the Group has reviewed all contracts for
embedded derivatives that are required to be separately accounted for if they do not meet certain requirements set out in the
standard. The directors are satisfied that there are no material embedded derivatives held by the Group.
62
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
17. Deferred tax asset
The following are the major deferred tax assets/(liabilities) recognised by the Group and movements thereon during the
current and prior reporting period.
Accelerated
capital
allowances
£’000
(158)
154
-
(4)
(106)
-
(110)
Share-based
payments
£’000
137
(22)
(19)
96
38
(8)
126
Short-term
timing
differences
£’000
Losses
£’000
(147)
109
-
(38)
49
-
11
-
-
-
-
22
-
22
Total
£’000
(168)
241
(19)
54
3
(8)
49
At 1 October 2014
Credit/(charge) to the
income statement
(Charge) to equity
At 1 October 2015
Credit/(charge) to the
income statement
(Charge) to equity
At 30 September 2016
The current year deferred tax adjustment relating to share-based payments reflects the estimated total future tax relief
associated with the cumulative share-based payment benefit arising in respect of share options granted but unexercised as
at 30 September 2016.
As at 30 September 2016 the Group had no unused tax losses (2015: £92,000) which have not been recognised as a
deferred tax asset.
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after
offset) for financial reporting purposes:
Deferred tax asset
Deferred tax liability
Net deferred tax asset
2016
£’000
317
(268)
49
2015
£’000
96
(42)
54
63
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
18. Obligations under finance leases
2016
Within one year
In two to five years
2015
Within one year
In two to five years
Finance leases
Minimum lease
payments
£’000
Less finance
charges
£’000
Present value of
lease obligations
£’000
79
35
114
(4)
(1)
(5)
75
34
109
Minimum lease
payments
£’000
Less finance
charges
£’000
Present value of
lease obligations
£’000
119
113
232
(13)
(4)
(17)
106
109
215
It is the Group’s policy to lease certain items of office equipment under finance leases. The average lease term is between
three and five years. All lease obligations are denominated in sterling. The fair value of the Group’s lease obligations
approximates to their carrying amount.
19. Other financial liabilities
Trade and other payables
Trade payables
Accruals and deferred income
Social security and other taxes
Other payables
2016
£’000
1,283
6,568
1,408
295
9,554
2015
£’000
1,075
4,626
1,320
349
7,370
Trade payables, accruals and deferred income principally comprise amounts outstanding for trade purchases and ongoing
costs. The directors consider that the carrying amount of trade payables approximates to their fair value.
Client and market payables
Client and market payables arise as a result of the provision of stockbroking services.
2016
£’000
2015
£’000
68,009
38,598
64
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
Financial liabilities
Financial liabilities consist of trade payables, client and market payables and obligations under finance leases.
The following details the Group’s remaining contractual maturity for its non-derivative financial liabilities.
2016
2015
Less than
1 month
£’000
68,710
39,503
1 to 3
months
£’000
51
-
3 to 12
months
£’000
589
276
1 to 5
years
£’000
34
109
Total
£’000
69,394
39,888
Risks arising from financial liabilities
Liquidity risk
This is the risk that the Group may be unable to meet its liabilities as and when they fall due. These liabilities arise from the
day-to-day activities of the Group and from its obligations to customers. The Group is a highly cash generative business and
maintains sufficient cash and standby banking facilities to fund its foreseeable trading requirements.
65
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
20. Other payables
Non-current loans and borrowings
Unsecured debentures
Other payables
Non-current payables
2016
£’000
848
124
972
2015
£’000
-
90
90
The loan debenture of £848,000 (2015: Nil) that is unsecured, bears interest at 5% per annum and is due for repayment in
full by 28 February 2019.
21. Provisions
At 1 October 2015
Increase/(decrease) in existing provisions
Provisions used
At 30 September 2016
Included in non-current liabilities
Included in current liabilities
Office
dilapidations
£’000
FSCS
levy
£’000
398
683
-
1,081
754
327
53
-
(17)
36
-
36
Total
£’000
451
683
(17)
1,117
754
363
The FSCS levy provision represents an estimate of a potential interim levy for the year ended 31 March 2016.
The Group is contractually obliged to reinstate its four leased properties to their original state and layout at the end of the
lease. The office dilapidations provision represents the directors’ best estimate of the present value of costs which will
ultimately be incurred in settling these obligations. The increase in this provision relates to the newly leased property,
4 Exchange Quay.
66
Other informationFinancial statementsGovernanceStrategic report
Notes to the consolidated financial statements
For the year ended 30 September 2016
22. Share Capital
Issued, fully-called and paid:
38,650,070 (2015: 38,592,492) ordinary shares of 0.1p each
38,650
38,593
2016
£
2015
£
75,000 (2015: 75,000) ordinary non-voting shares of 0.1p each
846,081 (2015: 781,471) A non-voting ordinary shares of 0.1p each
773,994 (2015: 767,465) X non-voting ordinary shares of 0.1p each
Issued, partly-called and paid:
Nil (2015: 167,102) B non-voting ordinary shares of 0.1p each
201,631 C non-voting ordinary shares of 0.1p each
10,000 (2015: 64,000) A non-voting ordinary shares of 0.1p each
– 0.2% partly-called and paid
Nil (2015: 221,104) A non-voting ordinary shares of 0.1p each
– 0.3% partly-called and paid
6,529 (2015: 57,597) X non-voting ordinary shares of 0.1p each
– 10% partly-called and paid
Nil (2015: 120,683) X non-voting ordinary shares of 0.1p each
– 0.3% partly-called and paid
Nil (2015: 151,665) A non-voting ordinary shares of 0.1p each
– 0.3% partly-called and paid
Total value of fully or partly-paid shares
75
846
774
75
781
767
40,345
40,216
2016
£
2015
£
-
8
-
-
7
-
-
6
-
-
1
6
-
-
15
40,360
13
40,229
67
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
The following share transactions that have had an impact on share premium during the year:
Transaction type
Share class
Exercise of EMI options
A non-voting ordinary shares of 0.1p each
Full payment
X non-voting ordinary shares of 0.1p each
Exercise of CSOP options Ordinary shares of 0.1p each
New issue under OTB
A non-voting ordinary shares of 0.1p each, 0.2% partly-paid
New issue
Ordinary shares of 0.1p each
New issue under OTB
C non-voting ordinary shares of 0.1p each
Number of
shares
Premium
£’000
64,545
6,529
51,778
10,000
5,800
201,631
56
26
165
-
29
40
316
The ordinary non-voting shares, A non-voting ordinary shares and X non-voting ordinary shares have the same rights as to
dividend and on winding-up as the ordinary shares except that they cannot vote at meetings of shareholders.
The B non-voting and C non-voting shares do not have the same rights to a dividend and on winding-up as the ordinary
shares and cannot vote at meetings of shareholders.
68
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
23. Operating leases
The Group as lessee:
2016
£’000
2015
£’000
Minimum lease payments under operating leases recognised as an expense in the year
1,216
999
At the date of the consolidated statement of financial position, the Group had outstanding commitments for future minimum
lease payments under non-cancellable operating leases as shown in the table presented below. The calculations represent
the minimum payments up to the next available break point in each of the Group’s leases.
Within one year
In the second to fifth years inclusive
After five years
2016
£’000
2,112
5,743
15,936
23,791
2015
£’000
1,046
1,833
201
3,080
Presented below are the minimum lease payments to which the Group would be contractually obligated if all break options
were removed:
Within one year
In the second to fifth years inclusive
After five years
2016
£’000
2,173
5,764
16,580
24,517
2015
£’000
1,046
3,818
5,278
10,142
Operating lease payments represent rentals payable by the Group for its office properties. At original inception, office
property leases are negotiated for an average term of ten to fifteen years and rentals are fixed for an average of three years.
69
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
24. Share-based payments
Equity-settled share option schemes
During the year there have been two HMRC-approved share option schemes in operation, an EMI scheme and CSOP.
Following amendments to the EMI thresholds, the Group ceased to qualify as an eligible participant and the EMI scheme
was closed to new entrants in July 2008. The CSOP was created in July 2009 to replace the EMI scheme, and to ensure that
equity ownership for all levels of employees within the organisation continued to be facilitated.
All unexercised options granted under the EMI scheme prior to July 2008 are fully vested and remain exercisable. Options
granted under the EMI scheme are usually forfeited if the employee leaves the Group before the option expires. There
were no unvested EMI scheme options in existence during the current or prior year. Therefore, there was no share-based
payment expense in respect of the EMI scheme in either the prior year or current year, nor will there be any expense in
future accounting periods.
Options granted under the CSOP vest between three and ten years after the date of grant and are usually forfeited if
the employee leaves the Group before the option expires. The expense for share-based payments under the CSOP is
recognised over the respective vesting period of these options. The expense recognised in the year to 30 September 2016
was £30,040 (2015: £27,764).
The fair value of equity-settled share options granted is estimated as at the date of grant using the Black-Scholes method,
taking into account the terms and conditions upon which the options were granted.
During the period, a total of 113,984 options were granted under the CSOP. The fair value of these options has been
estimated using the Black-Scholes method.
The inputs to that model for this new issue of options are listed below:
Fair value of share from generally accepted business model (£)
Exercise price of an option (£)
Expected volatility
Expected dividend yield
Risk-free interest rate
Expected option life to exercise (months)
5.00
5.00
25%
5.10%
0.81%
36
Options are exercisable at a price equal to the market value of the Company’s shares on the date of grant. As the Company
is unlisted, it has no readily available share price and so its share value is calculated using dividend and earnings-
based models to determine a range of valuations. The average price indicated by these valuations is assumed to be the
approximate market value at the date of grant. This is discounted to represent the minority value of one share and is agreed
with HMRC prior to the granting of options. The expected life of the options is based on the minimum period between the
grant of the option, the earliest possible exercise date and an analysis of the historical exercise data and is not necessarily
indicative of exercise patterns that may occur. The expected volatility reflects the assumption that historical volatility is
indicative of future trends, which may also not necessarily be the case.
We have estimated the value of Growth shares using the Black-Scholes method, taking into account the terms and
conditions upon which the options were granted. The expense recognised in the period was the fair value of the growth
shares less the 20 pence issue price. This resulted in a charge to the income statement of £38,617 (2015: £10,883), relating
to the issue of 201,631 Growth shares in December 2015.
70
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
The inputs to that model for this new issue of options are listed below:
Fair value of share from generally accepted business model (£)
Expected volatility
Expected dividend yield
Risk-free interest rate
Time expected to reach growth target (months)
5.00
25%
5.10%
0.59%
21
The fair value of the shares has been based on a whole company basis and has been provided independently by our tax
advisers. The dividend yield, volatility and risk-free interest rates are consistent with those used for CSOPs. The expected
time period has been based on the assumed date that the growth target threshold will be met using a three year forecast
approved by the Board.
71
Strategic reportGovernanceFinancial statementsOther information Notes to the consolidated financial statements
For the year ended 30 September 2016
Details of the aggregate share options (EMI and CSOP) outstanding during the year are as follows:
Reconciliation of the movement in the number of share options:
Outstanding at beginning of period
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Exercisable, end of period
Outstanding at beginning of period
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
2016
Number
529,902
113,984
(26,480)
(50,470)
2015
Number
460,819
130,254
(20,252)
(40,919)
566,936
529,902
254,438
259,972
2016
(£)
2.89
5.00
2.99
3.18
3.28
2.94
2015
(£)
2.69
3.50
2.72
2.71
2.89
1.90
The Company is unlisted; therefore no quoted price is available for its stock.
The lowest exercise price for share options outstanding at the end of the period was 22p (2015: 22p) and the highest
exercise price was 500p (2015: 420p). The weighted average remaining contractual life of share options outstanding at the
end of the period was five years (2015: six years).
72
Other informationFinancial statementsGovernanceStrategic report Notes to the consolidated financial statements
For the year ended 30 September 2016
25. Related party transactions
Subsidiaries
The Company has a related party relationship with its subsidiaries. Transactions between the Company and its subsidiaries
and between subsidiaries have been eliminated on consolidation.
Key management personnel
The Group has a related party relationship with its directors and members of the senior management team (the ‘key
management personnel’). Remuneration of key management personnel is disclosed in note 6. During the year there were no
material transactions or balances between the Group and its key management personnel or members of their close families,
other than noted below.
Directors
Remuneration of the directors is disclosed in note 6.
Charitable donations
During the year, the Group made donations totalling £85,279 (2015: £76,500) to the AJ Bell Trust, a registered charity of
which Mr A J Bell is a trustee.
26. Events after the date of the consolidated statement of financial position
At the date of approval of these consolidated financial statements, the directors are not aware of any material events after
the date of the consolidated statement of financial position.
73
Strategic reportGovernanceFinancial statementsOther information 75
Strategic reportGovernanceFinancial statementsOther information Company balance sheet
As at 30 September 2016
Assets
Non-current assets
Investments
Current assets
Trade and other receivables - due within one year
Trade and other receivables - due after one year
Cash and cash equivalents
Current liabilities
Creditors: Amounts falling due within one year
Net assets
Equity
Share capital
Share premium
Retaining earnings
Total equity
Notes
2016
£’000
2015
£’000
4
5
5
6
7
8
10,130
18,010
1,226
5,806
15,068
22,100
(1,674)
30,556
40
2,229
28,287
30,556
907
6,480
8,932
16,319
(1,565)
32,764
40
1,912
30,812
32, 764
Approved by the Board on 15 December 2016 and signed on its behalf by:
Michael Summersgill (Director)
for and on behalf of AJ Bell Holdings Limited
Trafford House, Chester Road, Manchester, M32 0RS
15 December 2016
76
Other informationFinancial statementsGovernanceStrategic report Notes to the Company financial statements
For the year ended 30 September 2016
1. Significant accounting policies
Basis of accounting
The separate financial statements of the Company are presented as required by the Companies Act 2006. They have been
prepared under the historic cost convention and in accordance with applicable United Kingdom Accounting Standards and
law.
The accounting policies that are different to those used in the preparation of the consolidated financial statements are
summarised below. They have all been applied consistently throughout the year and the preceding year.
The separate statements have been prepared on a going concern basis. The directors believe that they have a reasonable
expectation that the Company has adequate resources to continue in operational existence for 12 months from the date the
financial statements are approved.
Investments
Investments in subsidiary undertakings are shown at cost less provision for impairment.
Taxation
The charge or credit for taxation is based on the profit or loss for the year and takes into account taxation deferred because
of timing differences between the treatment of certain items for taxation and accounting purposes.
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted
or substantively enacted by the balance sheet date.
Deferred tax is recognised, using the liability method, on temporary differences arising between tax bases of assets and
liabilities and their carrying amounts. Deferred tax is determined using tax rates that have been enacted or substantively
enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred
tax liability is settled.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilised.
2. Profit for the financial year
As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own profit and
loss account for the year. The Company reported a profit for the year ended 30 September 2016 of £9,107,000 (2015:
£7,317,000). This profit was generated from the Company’s principal activity which is that of a holding company.
The auditor’s remuneration for the audit and other services is disclosed in note 5 to the consolidated financial statements.
3. Charitable donations
During the year, the Company made charitable donations of £85,279 (2015: £76,500).
77
Strategic reportGovernanceFinancial statementsOther information Notes to the Company financial statements
For the year ended 30 September 2016
4.
Investments
Cost
At 1 October 2015
Additions
Capital reduction
At 30 September 2016
Accumulated impairment losses
At 1 October 2015
Charge for the financial year
At 30 September 2016
2016
£’000
18,412
2,120
(10,000)
10,532
402
-
402
2015
£’000
18,412
-
-
18,412
402
-
402
Carrying value at 30 September 2016
10,130
18,010
78
Other informationFinancial statementsGovernanceStrategic report Notes to the Company financial statements
For the year ended 30 September 2016
The Company has investments in the ordinary share capital of the following subsidiaries at 30 September 2016:
Name of Company
Country of incorporation
Principal activity
Holding %
AJ Bell Limited*
AJ Bell Trustees Limited
England and Wales
England and Wales
Ashby London Trustees Limited
England and Wales
AJ Bell Platinum Limited*
England and Wales
Ashby London Actuarial Services Limited*
England and Wales
Investment / Group
administration
Dormant
Dormant
Dormant
Dormant
AJ Bell Management Limited*
England and Wales
Investment administration
Sippdeal Trustees Limited
England and Wales
AJ Bell (PP) Trustees Limited
England and Wales
Whitehead Trustees Limited
England and Wales
Ashby London (PP) Trustees Limited
England and Wales
Sippdeal Limited
MSM Media Limited*
England and Wales
England and Wales
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
AJ Bell Securities Limited*
England and Wales
Dealing and custody
Lawshare Nominees Limited
England and Wales
AJ Bell EBT Limited*†
AJ Bell Media Limited*
MoneyAM Limited
England and Wales
England and Wales
England and Wales
Dormant
Dormant
Media
Media
AJ Bell Asset Management Limited*
England and Wales
Investment management services
AJ Bell Investments LLP
England and Wales
Investment management services
Indexx Markets Limited
England and Wales
Investment management services
AJ Bell Capital Limited
England and Wales
Investment management services
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
75
75
75
* Indicates direct investment of AJ Bell Holdings Limited
† The financial statements for the year ended 30 September 2016 of AJ Bell EBT Limited have been exempted from audit
under s479C of the Companies Act 2006 by way of parent guarantee from AJ Bell Holdings Limited.
79
Strategic reportGovernanceFinancial statementsOther information Notes to the Company financial statements
For the year ended 30 September 2016
5. Trade and other receivables
Due within one year:
Trade receivables
Amounts owed by Group undertakings
Prepayments and accrued income
Due after one year:
Deferred tax asset relating to share-based payments
Amounts owed by Group undertakings
2016
£’000
2015
£’000
-
371
855
1,226
126
5,680
5,806
335
7
565
907
30
6,450
6,480
Amounts owed by Group undertakings falling due after one year relate to loans issued to AJ Bell Limited by the Company
in relation to costs incurred by AJ Bell Limited in renewing IT infrastructure and administration systems in order to enhance
products and services for the Group.
6. Creditors: Amounts due within one year
Trade payables
Amounts owed to Group undertakings
Other taxation and social security
Corporation Tax
Accruals and deferred income
7. Called-up share capital
The Company’s share capital is disclosed in note 22 to the consolidated financial statements.
2016
£’000
-
570
-
1,089
15
1,674
2015
£’000
276
381
56
815
37
1,565
80
Other informationFinancial statementsGovernanceStrategic report Notes to the Company financial statements
For the year ended 30 September 2016
8. Reserves
At 1 October 2015
Retained profit for the financial year
Issue of new shares
Pay up of part-paid shares
Dividends paid
Credit to equity for equity-settled share-based payments
Share premium
£’000
Profit & loss
£’000
1,912
-
317
-
-
-
30,812
9,107
-
-
(11,763)
131
At 30 September 2016
2,229
28,287
9. Reconciliation of movement in equity shareholders’ funds
Retained profit for the financial year
Credit to equity for equity-settled share-based payments
Dividends
Proceeds from issue of new shares
Proceeds from pay-up of part-paid shares
Net decrease in shareholders’ funds
Opening shareholders’ funds at 1 October 2015
2016
£’000
9,107
131
2015
£’000
7,317
39
(11,763)
(10,297)
(2,525)
(2,941)
317
-
(2,208)
32,764
175
652
(2,114)
34,878
Closing shareholders’ funds at 30 September 2016
30,556
32,764
81
Strategic reportGovernanceFinancial statementsOther information Unaudited five-year summary
For the year ended 30 September 2016
IFRS
Results
Revenue
Profit from operations
Profit before tax
Profits attributable to equity
holders of AJ Bell Holdings
Limited
Non-controlling interests
Assets employed
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Long-term provisions
Net assets
Financed by
Equity
Key statistics
Earnings per share (pence)
Fully diluted earnings per share
(pence)
Dividends paid in year
(pence per share)
Dividend declared with respect to
profits generated in year
(pence per share)
2016
£’000
2015
£’000
2014
£’000
2013
£’000
2012
£’000
64,466
16,749
16,779
13,440
(127)
9,993
125,257
(79,702)
(1,006)
(754)
57,038
15,387
15,469
53,493
15,914
16,117
57,043
23,725
23,902
51,765
26,360
26,501
12,329
12,523
18,164
19,799
-
-
-
-
10,011
90,829
11,487
88,034
11,863
83,908
9,778
64,907
(47,970)
(49,309)
(48,420)
(35,711)
(199)
(398)
(428)
(398)
(358)
(315)
(287)
(280)
53,788
52,273
49,386
46,678
38,407
53,788
52,273
49,386
46,678
38,407
32.85
32.73
28.75
30.23
30.17
25.25
30.87
30.76
25.00
45.08
44.82
24.75
49.39
49.14
22.50
25.75
25.50
25.25
25.00
24.75
82
Other informationFinancial statementsGovernanceStrategic report Other information
Definitions
The following definitions are used throughout the annual report and financial statements:
AUA
Assets under administration
Board, Directors
The Board of Directors of AJ Bell Holdings Limited
BoE
Company
CGU
CRD IV
CRR
CSOP
DEPS
DIY
EMB
EMI
FCA
FTSE
FSCS
Fund
GIA
Group
HMRC
ISA
KOS
Bank of England
AJ Bell Holdings Limited
Cash Generating Unit
Capital Requirements Directive IV
Capital Requirements Regulation
Company Share Option Plan
Diluted Earnings Per Share
Do It Yourself
Executive Management Board
Enterprise Management Incentive
Financial Conduct Authority
Financial Times Stock Exchange
Financial Services Compensation Scheme
The generic term used to describe unit trusts and Open-Ended Investment Companies
General Investment Account
AJ Bell Holdings Limited and its wholly-owned subsidiaries
HM Revenue and Customs
Individual Savings Account
Key Operating System
Non-platform business
Includes our SIPP only, institutional stockbroking services, media and investments
OTB
PBT
Option to Buy Shares Scheme
Profit Before Tax
Platform business
Includes our AJ Bell Investcentre, AJ Bell Youinvest and IMAS propositions
QA
RDR
SIPP
SSAS
Quality and Audit
Retail Distribution Review
Self-Invested Personal Pension
Small Self-Administered Scheme
84
Other informationFinancial statementsGovernanceStrategic report Company information
Company number
04503206
Company Secretary
Christopher Bruce Robinson
Registered office
Trafford House
Chester Road
Manchester
M32 0RS
Auditor
KPMG
1 St Peter’s Square
Manchester
M2 3AE
Principal banker
Bank of Scotland plc
1 Lochrin Square
92 – 98 Fountainbridge
Edinburgh
EH3 9QA
85
Strategic reportGovernanceFinancial statementsOther information AJ Bell Holdings Limited, Trafford House, Chester Road, Manchester M32 0RS
AJ Bell Holdings Limited, Trafford House, Chester Road, Manchester M32 0RS
0345 40 89 100
0345 40 89 100
www.ajbell.co.uk
www.ajbell.co.uk
Company registration number 04503206
Company registration number 04503206