Arden Partners plc
Annual Report 2012

Plain-text annual report

Arden Partners plc Annual Report 2012 17758ARDENPARCVR.indd 1 17758 26/02/2009 Proof 5 02/03/2010 12:04 Arden Partners plc Arden Partners plc is an established stockbroker which provides a range of financial services to corporate and institutional clients. Based in the United Kingdom and with strong international links, Arden Partners plc’s shares trade on London's AIM market, part of the London Stock Exchange. Contents Page: 1 2 3 5 8 9 12 16 17 19 20 21 22 23 24 25 26 48 49 Highlights Chairman’s Statement Chief Executive’s Statement Corporate Governance Board of Directors Report of the Directors Directors’ Remuneration Report Statement of Directors’ Responsibilities Independent Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Company Statement of Financial Position Consolidated Statement of Cash Flows Company Statement of Cash Flows Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Notes to the Consolidated Financial Statements Corporate Information Notice of Meeting ARDEN PARTNERS PLC ANNUAL REPORT 2012 HIGHLIGHTS FINANCIAL Revenue Profit before tax Share based payments and reorganisation costs Underlying profit before tax * Earnings/(loss) per share: Basic Underlying Basic † Diluted Underlying Diluted ‡ Dividend per ordinary share: Interim Proposed final NON-FINANCIAL Funds raised for clients Client brokerships Average number of staff Year ended 31 October 2012 Year ended 31 October 2011 £9.8m £12.4m £0.2m £0.8m £1.0m 0.6p 3.4p 0.6p 3.2p 0.65p Nil £0.6m £0.6m £1.2m 2.2p 4.7p 2.0p 4.3p Nil Nil £166m £265m 36 37 32 49 * Profit before tax as adjusted for the effect of share based payments and reorganisation costs † Basic earnings per share as adjusted for the after-tax effect of share based payments and reorganisation costs, ignoring ‡ Diluted earnings per share as adjusted for the after-tax effect of share based payments and reorganisation costs, deferred tax ignoring deferred tax - 1 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 CHAIRMAN’S STATEMENT It gives me great pleasure to set down my first statement as Chairman of Arden Partners plc. My appointment as Chairman in January 2013 was alongside a number of other Board changes. James Reed-Daunter was appointed Chief Executive Officer and Jonathan Keeling took the post of Deputy Chairman with direct responsibility for developing international relationships to broaden Arden’s existing global franchise. These Board changes are somewhat reflective of a continually changing environment for Arden’s peer group of small and mid-cap brokers and the difficult economic conditions that have prevailed over the last few years. Markets have been tough and only brokers who have made substantial changes to their business models have survived in good shape. Arden has changed by reducing overheads significantly year-on-year for the past two years and is now in a more positive position of expected revenues against its overhead base. I am pleased to report that Arden has remained profitable over the last financial year. For the year to 31 October 2012, profit before tax was £0.2m compared to a profit before tax of £0.6m in 2011. Underlying profit before tax in 2012 was £1.0m before deducting share based payments and reorganisation costs of £0.8m. Whilst turnover was some 21% down on 2011, cost savings have significantly reduced the impact on the bottom line. This Board is committed to challenge overhead levels generally and is adamant that costs be maintained at the appropriate level compared with projected revenues. The model now allows stakeholders within the business and shareholders to benefit equally in profits that accrue to the business. The strong balance sheet has allowed the Board to make a significant investment in buying-back its own shares and over the last two years some £2.25m has been spent on share purchases. These buy-backs and subsequent cancellation of shares in treasury have led to 17% reduction in total share capital. An interim dividend of 0.65p per share was paid this year representing £0.2m. I wish to express my gratitude to Lord Flight, who retired from the Board at the end of December 2012, and Trevor Norris who retires today. Trevor was one of the original founding partners in 2002 and his enthusiasm will be missed. I would like to thank all of our staff, clients and shareholders for their continuing support. Peter Moon Chairman 15 January 2013 - 2 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 CHIEF EXECUTIVE’S STATEMENT In presenting my first statement since taking over as Chief Executive on 1st January 2013, I am pleased to report that the Group made a profit for the year. As stated in previous announcements, the Board had implemented an overhead reduction strategy to protect operational cash outflows, and over the year, this has ensured overall profitability, despite lower revenues than the previous year. Cost reductions effected in the latter part of the financial year will further reduce the overhead base in 2013 and my focus going forward will be on cost management as well as performance delivery. The market sectors in which we operate have continued to contract and pressures from reduced volumes and commission rates are likely to impact further, however we feel the steps we have taken will mitigate the effect on Arden. The balance sheet remains strong and is key to our ability to attract and retain corporate clients. Strong cash generation enabled the Board to declare an interim dividend and purchases of own shares into Treasury were effected both in the latter stages of the year and into the current year. Trading in the first two months of the year has been satisfactory. The pipeline of corporate transactions is reasonable but as ever delivery remains dependent on market conditions. We are recruiting, very selectively, into key areas of strategic development and are encouraged at both the pool of labour available to us as well as a new realism by candidates with regard to remuneration expectation. Financial review Revenues during the year ended 31 October 2012 were £9.8m compared to £12.4m in 2011. Administrative expenses for the year totalled £9.6m (2011: £11.8m) including restructuring costs of £0.6m (2011: £0.1m). Underlying profit before tax was £1.0m (2011: £1.2m) after allowing for restructuring costs and share-based payments. Profit before tax was £0.2m (2011: £0.6m). After adjusting for the effect of restructuring costs and share based payments, underlying basic earnings per share were 3.4p compared to 4.7p in 2011. Basic earnings per share were 0.6p (2011: 2.2p). In June 2012 the Company cancelled 2,372,768 shares which it held in Treasury at the end of the previous financial year. During October 2012 and November 2012 the Company has purchased in aggregate 2,301,529 ordinary shares to be held, for the time being in Treasury, for consideration of £1.1m. Cash generation from operational activities was positive at £0.4m (2011: Outflow of £2.6m) but the impact of the shares acquired into Treasury meant that overall cash balances reduced by £0.3m. Equities Division Revenues fell from £7.6m to £6.4m. This is generally reflective of market conditions which have seen trading volumes fall by some 20%. - 3 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 CHIEF EXECUTIVE’S STATEMENT Corporate Finance Division During the year we were involved in 15 transactions compared to 12 in 2011. In aggregate we placed £166m for our corporate clients. Since the year end we have placed a further £96m for our clients. Including retainer income, corporate revenues were down from £4.7m to £3.4m. This reflects the lack of IPO activity during the year. I am pleased to report that we extended our corporate client list during the year, with the addition of companies operating in the UK, Continental Europe and the Indian sub-continent. Finally, I would like to take this opportunity to thank our staff and other stakeholders for their continued support. James Reed-Daunter Chief Executive Officer 15 January 2013 - 4 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 CORPORATE GOVERNANCE Introduction Whilst the Group, consisting of Arden Partners plc and those entities outlined in Note 12, is not obliged to comply with the Combined Code (2010), the Directors have agreed to adopt the ethos of those regulations and to disclose certain information relating to corporate governance. The Directors and the Board The composition is as follows: Peter Moon Independent Chairman (Non-Executive) Chairman of Nominations Committee Deputy Chairman (Executive) Jonathan Keeling James Reed-Daunter Chief Executive Officer Chief Operating Officer Steve Wassell Senior Independent Director (Non-Executive) Mark Ansell Chairman of Audit Committee Chairman of Remuneration Committee Trevor Norris, Group Finance Director and Company Secretary, retires from the Board today. Steve Wassell assumes the role of Company Secretary. Biographical details of all the Directors are set out on page 8. UK Corporate Governance Code On 28 September 2012, the Financial Reporting Council (“FRC”) published revised codes and guidance on corporate governance. This included the UK Corporate Governance Code and the UK Stewardship Code and re-emphasis of the need for a company to ensure that the board comprises an appropriate balance of skills, experience and independence and operates in such a way as to actively encourage constructive challenge. The Board of Arden believes that the composition is appropriate to the size and complexity of the business. The Board carries out an annual assessment of its efficacy and performance and confirms that the non-executive directors have access to both the Company’s NOMAD and lawyers when external advice is required. Where appropriate, copies of any instructions and advice are circulated to the full Board. Board meetings The Board has regular scheduled full meetings and will meet at other times as necessary. The Board is responsible for strategic and major operational issues affecting the Group. It reviews financial performance, regulatory compliance, and monitors key performance indicators. All directors receive appropriate information on a timely basis to enable them to discharge their duties accordingly. The Board will consider any ad hoc matters of significance to the Group including corporate activity. Attendance at meetings by members of the Board during the year ended 31 October 2012 was as follows: - 5 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 CORPORATE GOVERNANCE Total number of meetings Lord Flight James Reed-Daunter1 Jonathan Keeling Trevor Norris Steve Wassell Mark Ansell Peter Moon Grahame Whateley2 Board 6 6 2 5 4 6 5 6 1 Audit Committee 2 Remuneration Committee 1 Nominations Committee 1 2 n/a n/a n/a n/a 2 1 n/a 1 n/a n/a n/a n/a 1 1 n/a 1 n/a n/a n/a n/a 1 1 n/a Notes: 1. 2. James Reed-Daunter attended all but one meetings required subsequent to his appointment. Grahame Whateley attended all but one meeting required prior to his resignation. Re-election of Directors In accordance with the Company’s Articles, and to ensure compliance with the UK Corporate Governance Code, certain of the Directors are required to be re-elected at Annual General Meetings of the Company. In accordance with the Articles, James Reed-Daunter is required to retire at the forthcoming Annual General Meeting and, being eligible, offers himself for re-election. The Board supports this re-appointment having assessed performance and value to the Board. Remuneration Committee The Remuneration Committee, which comprises the Independent Non-Executive Directors, is chaired by Mark Ansell and has responsibility for determining remuneration of Executive Directors and senior members of staff. This Committee makes decisions in consultation with the Chief Executive Officer and no Director plays a part in any decision about their own remuneration. This Committee also reviews bonus and equity arrangements for the Group’s senior employees and in addition has responsibility for supervising the Arden Partners Share Option Scheme and the grant of options under its terms. The remuneration of all Non-Executive Directors is fixed by the Board. Audit Committee The Audit Committee, which comprises the Independent Non-Executive Directors, is chaired by Mark Ansell and has responsibilities which include the review of: • • • • The Group’s internal control environment. Financial risks (including market risk in relation to the Group’s market making activities). Financial statements, reports and announcements, including whether the Board’s responsibility to present an annual report that is fair, balanced and understandable. The Audit Committee evidences this review in a report to the Board following its meeting with the auditors to discuss their Report to the Audit Committee and includes an assessment of the information provided in support of the Board’s statement on going concern and on any significant issues and how those issues were addressed. Independence of auditors, including a review of the non-audit services provided and the level of such fees relative to the audit fee. The Audit Committee is satisfied that the independence of BDO LLP as auditors has not been impaired through the provision of non-audit services. Details of auditor’s fees are shown in note 3 of the financial statements on page 31. A review is also carried out on the effectiveness of external audit. - 6 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 CORPORATE GOVERNANCE • Ensuring the Group has a policy which allows any member of staff to raise, in confidence, any concern about possible impropriety in matters of financial reporting or other matters, and to ensure that suitable arrangements are in place for a proportionate independent investigation of such matters including any follow-up action required. Nominations Committee The Committee’s responsibilities include ensuring that the size and composition of the Board is appropriate for the needs of the Group including an assessment of diversity profile, selecting the most suitable candidate or candidates for the Board and to oversee succession planning aspects for the Board. This Committee is chaired by Peter Moon. Operations Board The Group is managed by an Operations Board which has responsibility for implementation of strategy and monitoring progress of delivery against key objectives, along with management of operational risk. The Committee also reviews financial performance against budgets and key performance indicators. The Operation Board is chaired by the Chief Operating Officer. Risk Committee The Risk Committee is now chaired by the Chief Operating Officer and has the Director of Compliance and the Corporate Finance Technical Director as permanent members. This Committee is charged with monitoring risk exposures including those which arise through trading and holding financial instruments, regulatory and compliance, capital adequacy and financial reporting risk. This Committee also has responsibility for monitoring the Group’s internal control environment. A further explanation of risks which are faced by the Group, is set out in note 24 to the Financial Statements. Internal Control The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, which complies with the guidance “Internal Control: Guidance for Directors on the Combined Code”. This has been in place throughout the year and up to the date of approval of the Financial Statements. The process is regularly reviewed by the Board. The Directors are responsible for the Group’s system of internal control and for reviewing its effectiveness. However, such a system can only provide reasonable, but not absolute, assurance against material misstatement or loss. The Group’s system of internal control includes appropriate levels of authorisation and segregation of duties. Financial information is presented to the Board each month comprising management accounts and other financial data which allows for a rigorous review of performance. Insurance The Group maintains appropriate insurance cover in respect of litigation against the Directors and Officers of the Group. Going Concern After making enquiries, the Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to believe it is appropriate to adopt the going concern basis in preparing the Financial Statements. - 7 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 BOARD OF DIRECTORS Peter Moon (Independent Chairman and Non-Executive Director) Peter has been involved in the institutional investment business for many years. In 2009 he retired from the Universities' Superannuation Scheme Limited where he was Chief Investment Officer running a fund of some £27.5 billion. Previous institutions where he has worked include British Airways Pensions, National Provident and Slater Walker Investment Management. Peter has also acted as adviser to a number of Councils including Lincolnshire and Middlesbrough. He has served as Chairman of the NAPF Stock Exchange Sub-Committee and as a member of the NAPF Investment Committee. Jonathan Keeling (Executive Deputy Chairman) Jonathan is one of the founder members of Arden Partners. A graduate in economics, he joined Albert E Sharp as an Equity Salesman in 1985, was made a Director in 1989 and Head of Small Cap Sales in the early 1990s. Jonathan left Albert E Sharp in 2001 and then briefly worked for Harris Allday and Old Mutual Securities before joining the team to form Arden Partners. Jonathan was Chief Executive Officer from January 2008 until 31 December 2012 when he became Executive Deputy Chairman. James Reed-Daunter (Chief Executive Officer) James is a Business Economics and Accountancy graduate of Southampton University. He joined Albert E Sharp in 1992 in their private clients unit working on their unit trust and fund management desk. In 1995 he moved to become an equity sales director selling small-mid cap stocks to UK investing institutions. James is a founding partner of Arden, joining in November 2002 as Head of Equity Sales, and was appointed Chief Executive Officer on 1 January 2013. Steve Wassell (Chief Operating Officer) Having established and developed his own business in the outdoor leisure sector over a fifteen year period prior to it being acquired by Tandem Group plc in 2000, Steve subsequently held a number of senior operational roles in private and publicly quoted companies within a diverse range of sectors, including Automotive, Leisure and Social Care. Steve joined Arden Partners as Operations Director in January 2009. Mark Ansell (Independent Non-Executive Director) Mark is a Chartered Accountant and has significant experience as a business consultant and director involved in strategic and corporate finance advice and in management and leadership roles. Mark has previously held senior roles in many organisations including being the Deputy Chief Executive and Finance Director of Aston Villa plc, Interim Chief Executive of Marketing Birmingham and as a Senior Partner and Partner in charge of Corporate Finance of Deloitte in Birmingham and the Midlands. Mark is the Senior Independent Director. Trevor Norris (Group Finance Director and Company Secretary) Trevor is a Chartered Accountant. Having spent several years with KPMG and a brief period as a sole practitioner, Trevor joined Midlands Electricity plc in 1995 as a Financial Consultant in establishing their embryonic energy services company, where he became Managing Director. Trevor left in 2000 to act as a Consultant to a number of public companies before becoming involved in the early stage formation of Arden Partners and was appointed Group Finance Director in June 2002. He resigned on 15 January 2013. - 8 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 REPORT OF THE DIRECTORS The Directors present their Annual Report and audited Financial Statements for the financial year ended 31 October 2012. Principal Activities Arden Partners plc is an established stockbroker which provides a range of financial services to corporate and institutional clients. Based in the United Kingdom and with strong international links, Arden’s shares trade on London’s AIM market, part of the London Stock Exchange. Business Review and Future Developments A review of the Group’s operations and performance during the financial year, setting out the position at the year end, significant changes during the year and an indication of the outlook for the future, is contained in the Chief Executive’s Statement. Following the recent changes in the Board structure a review of KPI’s is being carried out but in the main these will be revenue focused. Principal Risks and Uncertainties By far the major risk the business faces is stock market conditions. Adverse market conditions may have a significant negative effect on revenues and profitability. The Group mitigates some of this risk by targeting revenues across a number of sectors of the market and by careful control of overheads. Other risks include liquidity risk, credit risk and operational risk and an explanation of these is set out in note 24. Results and Dividends The Consolidated Statement of Comprehensive Income for the year is set out on page 18. The Directors are not proposing to pay a final ordinary dividend (2011: Nil) and paid an interim dividend of 0.65p per share (2011: Nil). The intention is to reward shareholders via dividend where circumstances allow. Directors The Directors of the Company who held office since 1 November 2011 were: Jonathan Keeling James Reed-Daunter Trevor Norris Steve Wassell Mark Ansell Peter Moon Previous Directors: Grahame Whateley Lord Flight Chief Executive Officer (until 31 December 2012) Deputy Chairman (Executive) (with effect from 1 January 2013) Director (Executive) (Appointed 14 June 2012) Chief Executive Officer (with effect from 1 January 2013) Group Finance Director and Company Secretary (resigns on 15 January 2013) Chief Operating Officer Non-Executive Director Non-Executive Director Non-Executive Director (resigned 31 December 2011) Chairman and Non-Executive Director (resigned 31 December 2012) Directors’ Interests The interests of current Directors in shares and options are disclosed in the Directors’ Remuneration Report set out on pages 12 to 15. - 9 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 REPORT OF THE DIRECTORS Significant Shareholdings In addition to the current Directors’ interests shown on page 13, the Directors have been notified that the following shareholders had interests in 3% or more of the Company’s ordinary share capital (total voting rights) at 15 January 2013: Institutional Holders Universities Superannuation Scheme Marlborough Fund Managers Others: John Grahame Whateley Alasdair Locke Richard Day Robert Griffiths Mark Braddock Colin Kettle Arden Partners Employee Benefit Trust David Larkam Tony Bartlett Benjamin Thefaut % 9.34 3.43 15.39 6.01 5.74 4.84 4.40 4.38 4.29 4.19 3.88 3.16 Share Capital Information relating to the Company’s ordinary share capital (including share repurchase and cancellation) is shown in note 19 to the Financial Statements. Treasury Shares At 31 October 2012 the company held 1,512,928 of its own shares in Treasury at a cost of £0.7m. Employee Share Trusts The Group currently operates one Employee Benefit Share Trust, the Arden Partners Employee Benefit Trust, which administers the Arden Partners plc share schemes as Trustee. At 31 October 2012 the Trust held 974,838 (4.29% of total voting rights) (2011: 997,576 (4.05% of total voting rights)) shares. The Trustees have agreed to hold these shares to satisfy options granted under a share option scheme (the Arden Partners Old Scheme – see page 42) prior to the Company’s admission on to AIM. Employment Policies Employees are encouraged to participate in the success of the Group through a performance based incentive scheme incorporating bonus and share option arrangements. Employees are kept informed of progress at regular review meetings. Charitable and Political Donations The Group made charitable donations amounting to £350 (2011: £1,051) during the year. The Group did not make any political donations (2011: £Nil). Supplier Payment Policy It is the Group’s policy to settle debts with its creditors on a timely basis, taking into consideration the terms and conditions offered by each supplier. The number of supplier days outstanding at the year end, based on the average monthly outstanding creditor balances, was 34 days (2011: 24 days). - 10 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 REPORT OF THE DIRECTORS Directors’ and Officers’ Liability Insurance The Company purchases and maintains liability insurance for its Directors and Officers as permitted by the Companies Act 2006. This insurance was in force throughout the year ended 31 October 2012 and remains in force at the date of this Report. Financial Instruments Details of the use of financial instruments by the Group and Company are contained in note 24 of the Financial Statements. Auditors All of the current Directors have taken all of the steps that they ought to have taken to make themselves aware of any information needed by the Company’s auditors for the purposes of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware. The Audit Committee reviews and approves the appointment of external auditors and monitors their independence. BDO LLP have expressed their willingness to continue in office and an ordinary resolution re- appointing them as auditors and authorising the Directors to determine their remuneration will be proposed at the forthcoming Annual General Meeting. By order of the Board Trevor Norris Company Secretary 15 January 2013 - 11 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 DIRECTORS’ REMUNERATION REPORT Introduction Whilst the Group is not obliged to comply with The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, the Directors have agreed to adopt the ethos of those regulations and to disclose certain information relating to the current Directors. The Directors are not intending to comply fully with Schedule VIII of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, but are providing disclosures on a voluntary basis. The Report also describes how the Board has applied the Principles of Good Governance relating to Directors’ remuneration. This Report is not subject to audit and a resolution to approve it will be proposed at the Annual General Meeting of the Company at which the Financial Statements are to be approved. On 1 January 2011 the Group became subject to the conditions of the Financial Services Authority’s (“the FSA’s”) Remuneration Code (“the Remuneration Code”). The Remuneration Committee believes that the Group’s Remuneration Policies and procedures are both relevant and proportionate to the Remuneration Code requirements. The Group is classified as a “Tier 3” entity and to that extent is not subject to the detailed provisions relating to deferral and retained shares. Remuneration Policy Arden Partners has a policy to attract, motivate and reward individuals of the highest calibre who are committed to grow the value of the business and to maximise returns to shareholders. This policy is as relevant to Executive Directors as it is to employees and the rewards of Executive Directors are aligned with those of shareholders in reflecting the performance of the Group. The Group operates in a business environment where it is common practice to pay bonuses. The Group’s policy is predicated on a principle that all bonuses are discretionary and are based on a measure of Group profitability. The Group’s business is such that profits and losses from trading are essentially of a short-term nature and can be accurately measured. Where appropriate the bonus pool is adjusted to take account of any unrealised profits and, given the Group’s risk policies and associated controls, the Remuneration Committee is of the opinion that the bonus policy does not encourage behaviour that may conflict with the Group’s overall approach to risk. Whilst the Group is not subject to Remuneration Code guidelines regarding deferral and retained shares, the Remuneration Committee believes that an element of deferral and claw-back of bonus is appropriate in certain circumstances including the level of bonus. As a policy no bonus under £100,000 would be subject to deferral but may be subject to claw-back. The Remuneration Committee does not believe that bonuses should be capped by reference to salary levels for any employee, including Executive Directors, as this could have an adverse impact on performance. Basic salary levels for Executive Directors are set at reasonable levels by reference to observable peer group comparators. Where appropriate, an employee’s overall remuneration package may involve the grant of options under the Group’s share option scheme as noted below. Directors’ Service Contracts No Director has a service contract for longer than twelve months and no contract contains provisions for sums to be paid on termination. Copies of Directors’ service contracts will be available for inspection at the Annual General Meeting. - 12 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 DIRECTORS’ REMUNERATION REPORT Pension Arrangements The Group does not operate a final salary pension scheme. Executive Directors who are entitled to receive pension contributions may nominate a defined contribution pension scheme into which the Company makes payments on their behalf. Share Options Details of the Arden Partners plc Share Option Scheme are given in note 19 to the Financial Statements. The Remuneration Committee has responsibility for supervising the scheme and the grant of options under its terms. The Company’s policy is to use the Share Option Scheme to attract and retain key senior employees including the Executive Directors. Any grant of options is at the discretion of the Remuneration Committee and will take into account individual performance and responsibilities. Where appropriate, a grant of options will incorporate performance criteria and for Executive Directors may incorporate earnings per share, total shareholder return and return on capital employed. Some of these aspects will be bench-marked against a pool of similar competitors. Where appropriate such measures may include non-financial performance measures. All remuneration incentives are set in context to the Group’s risk policies. Directors’ Remuneration A summary of the total remuneration paid to Directors who served during the year ended 31 October 2012 is set out below: Executive Directors James Reed-Daunter1, 2 Jonathan Keeling2 Steve Wassell Trevor Norris Non-Executive Directors Lord Flight Mark Ansell3 Peter Moon Grahame Whateley Total Salary, fees and benefits £’000 Pension contributions £’000 Incentive payments £’000 Compensation on retirement from office £’000 Total 2012 £’000 63 191 126 124 30 42 45 6 627 7 23 12 15 - - - - 50 30 - - - - - - - - - 123 - - - 18 120 244 138 262 30 42 45 24 57 80 141 905 Notes: 1. 2. 3. James Reed-Daunter was appointed a Director on 14 June 2012 and his salary is apportioned from this date. The incentive payments to James Reed-Daunter and Jonathan Keeling reflected their ongoing sales roles. Remuneration was paid to a third party company, Mark Ansell Consulting Limited. - 13 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 DIRECTORS’ REMUNERATION REPORT A summary of the total remuneration paid to current Directors who served during the year ended 31 October 2011 is set out below: Executive Directors Jonathan Keeling Steve Wassell Trevor Norris Non-Executive Directors Sir David Rowe-Ham Tony Bartlett Lord Flight Mark Ansell Peter Moon Grahame Whateley Total 191 105 127 10 9 33 52 29 40 596 Salary, fees and benefits £’000 Pension contributions £’000 Incentive payments £’000 Gain on Exercise of Share Options £’000 Total 2011 £’000 543 117 142 10 9 33 52 29 40 49 12 15 - - - - - - 85 - - - - - - - - 218 - - - - - - - - 76 85 218 975 Directors’ Interests in Ordinary Shares of Arden Partners plc The Directors in office at the year end had interests in the ordinary share capital of the Company (all of which were beneficial) as shown below: Executive Directors Jonathan Keeling James Reed-Daunter Trevor Norris Steve Wassell Non-Executive Directors Howard Flight Mark Ansell Peter Moon 31 October 2012 Number Percentage Interest 31 October 2011 Number 1,515,391 1,182,541 559,600 373,743 123,000 50,000 50,000 6.45% 5.03% 2.38% 1.59% 0.52% 0.21% 0.21% 1,506,881 n/a 679,600 178,743 123,000 50,000 50,000 - 14 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 DIRECTORS’ REMUNERATION REPORT Directors’ Interests in Share Options The following Directors had interests in options over ordinary shares of the Company as shown below: Executive Directors Trevor Norris Steve Wassell James Reed-Daunter Totals Notes 1 2 3 31 October 2012 Number Options exercised in year Number 167,399 200,000 125,000 492,399 - - - - 31 October 2011 Number 167,399 200,000 125,000 492,399 Notes: 1. 2. 3. These options were granted under the Arden Partners Limited Share Option Scheme (“the Old Scheme”) on 24 April 2006 in this capacity as Executive Director and no performance criteria are attached to the exercise of these options. These options became eligible for exercise on 24 April 2009 at a price of 47.8 pence per share and have an expiry date of 24 April 2016. These options were granted on 22 October 2009 under the Arden Partners Share Plan 2007 and no performance criteria are attached to the exercise of these options. These options became eligible for exercise on 31 January 2012 at a price of 10.0 pence per share and have an expiry date of 21 October 2019. These options were granted on 22 October 2009 under the Arden Partners Share Plan 2007. The performance criteria having been met, these options became eligible for exercise on 31 January 2012 at a price of 10.0 pence per share and have an expiry date of 21 October 2019. Further details of option schemes are set out in note 19 to the Financial Statements. Approval This Report was approved by the Remuneration Committee and signed on its behalf by: Mark Ansell Chairman of Remuneration Committee 15 January 2013 - 15 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS Directors’ responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under Company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and Company and of the profit or loss of the group for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the directors are required to: • • • • select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; 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 requirements of 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. Website publication The directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the directors. The directors' responsibility also extends to the ongoing integrity of the financial statements contained therein. - 16 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 INDEPENDANT AUDITOR’S REPORT TO THE MEMBERS OF ARDEN PARTNERS PLC For the year ended 31 October 2012 We have audited the financial statements of Arden Partners plc for the year ended 31 October 2012 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Financial Position, the Consolidated and Company Statements of Cash Flows, the Consolidated and Company Statements of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the statement of directors’ responsibilities, 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 (APB’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 APB’s website at www.frc.org.uk/apb/scope/private.cfm. Opinion on financial statements In our opinion: • • • • the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31 October 2012 and of the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. - 17 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 INDEPENDANT AUDITOR’S REPORT TO THE MEMBERS OF ARDEN PARTNERS PLC For the year ended 31 October 2012 Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • • • • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Neil Fung-On (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor London United Kingdom BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). - 18 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 October 2012 Revenue Administrative expenses Profit from operations Finance income Finance costs Profit before taxation Income tax expense Profit after taxation Other comprehensive income for the year Decrease in fair value on available for sale financial assets Total comprehensive income for the year attributable to equity shareholders Earnings per share Basic Diluted Note 2 7 8 9 10 10 2012 £’000 9,785 (9,634) 2011 £’000 12,381 (11,826) 151 64 (4) 211 (70) 141 (10) 131 0.6p 0.6p 555 60 (3) 612 (106) 506 - 506 2.2p 2.0p - 19 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 CONSOLIDATED STATEMENT OF FINANCIAL POSITION At 31 October 2012 Note 2012 £’000 2012 £’000 2011 £’000 2011 £’000 11 13 14 15 16 17 18 19 Assets Non-current assets Property, plant and equipment Deferred tax asset Total non-current assets Current assets Trading investments Available for sale financial assets Trade and other receivables Stock borrowing collateral Cash and cash equivalents Total current assets Total assets Current liabilities Trade and other payables Corporation tax liability Total current liabilities Total liabilities Net assets Shareholders’ equity Called up share capital Capital redemption reserve Share premium account Employee Benefit Trust reserve Available for sale reserve Retained earnings Total equity before deduction of own shares Own shares Total equity 5,058 490 9,943 107 4,882 (9,068) (130) 191 134 325 20,480 20,805 (9,198) (9,198) 11,607 2,501 237 2,933 (607) (10) 7,214 12,268 (661) 11,607 5,920 - 23,872 - 5,201 (23,369) (126) 394 125 519 34,993 35,512 (23,495) (23,495) 12,017 2,700 - 2,933 (612) - 8,189 13,210 (1,193) 12,017 The Financial Statements were approved by the Board of Directors and authorised for issue on 15 January 2013. Trevor Norris Group Finance Director Mark Ansell Chairman of the Audit Committee The notes on pages 26 to 47 form part of these financial statements - 20 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 COMPANY STATEMENT OF FINANCIAL POSITION At 31 October 2012 Company number: 4427253 Assets Non-current assets Property, plant and equipment Investments Deferred tax asset Total non-current assets Current assets Trading investments Available for sale financial assets Trade and other receivables Stock borrowing collateral Cash and cash equivalents Total current assets Total assets Current liabilities Trade and other payables Corporation tax liability Total current liabilities Total liabilities Net assets Shareholders’ equity Called up share capital Capital redemption reserve Share premium account Employee Benefit Trust reserve Available for sale reserve Retained earnings Total equity before deduction of own shares Own shares Total equity Note 2012 £’000 2012 £’000 2011 £’000 2011 £’000 5,058 490 10,131 107 4,876 (9,250) (130) 11 12 13 14 15 16 17 18 19 191 - 134 325 20,662 20,987 (9,380) (9,380) 11,607 2,501 237 2,933 (607) (10) 7,214 12,268 (661) 11,607 5,920 - 24,060 - 5,197 (23,553) (126) 394 - 125 519 35,177 35,696 (23,679) (23,679) 12,017 2,700 - 2,933 (612) - 8,189 13,210 (1,193) 12,017 The Financial Statements were approved by the Board of Directors and authorised for issue on 15 January 2013. Trevor Norris Group Finance Director Mark Ansell Chairman of the Audit Committee The notes on pages 26 to 47 form part of these financial statements - 21 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 October 2012 Note Operating activities before taxation Net profit before tax Adjustments for: Fair value adjustments Depreciation Net interest receivable Share based payments Operating cash flow before changes in working capital Decrease/(increase) in trade and other receivables Decrease/(increase) in trading investments Increase in stock borrowing collateral (Decrease)/increase in trade and other payables Purchase of available for sale investment Cash generated from operations Income taxes paid Cash flows from operating activities Investing activities Purchases of property, plant and equipment Net interest received Net cash from investing activities Financing activities Purchase of own shares Issue of shares Dividends paid to equity shareholders Net cash from financing activities Decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 17 2012 £’000 211 (548) 249 (60) 233 85 13,941 1,349 (107) (14,247) (500) 521 (75) 446 (46) 60 14 (661) 38 (156) (779) (319) 5,201 4,882 2011 £’000 612 (34) 214 (57) 512 1,247 (17,629) (2,679) - 16,477 - (2,584) (49) (2,633) (207) 57 (150) (1,193) 163 - (1,030) (3,813) 9,014 5,201 The notes on pages 26 to 47 form part of these financial statements - 22 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 COMPANY STATEMENT OF CASH FLOWS For the year ended 31 October 2012 Note Operating activities before taxation Net profit before tax Adjustments for: Fair value adjustments Depreciation Net interest receivable Share based payments Operating cash flow before changes in working capital Decrease/(increase) in trade and other receivables Decrease/(increase) in trading investments Increase in stock borrowing collateral (Decrease)/increase in trade and other payables Purchase of available for sale investment Cash generated from operations Income taxes paid Cash flows from operating activities Investing activities Purchases of property, plant and equipment Net interest received Net cash from investing activities Financing activities Purchase of own shares Issue of shares Dividends paid to equity shareholders Net cash from financing activities Decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 17 2012 £’000 211 (548) 249 (60) 233 85 13,939 1,349 (107) (14,247) (500) 519 (75) 444 (46) 60 14 (661) 38 (156) (779) (321) 5,197 4,876 2011 £’000 612 (34) 214 (57) 512 1,247 (17,629) (2,679) - 16,477 - (2,584) (49) (2,633) (207) 57 (150) (1,193) 163 - (1,030) (3,813) 9,010 5,197 The notes on pages 26 to 47 form part of these financial statements - 23 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 October 2012 Consolidated statement of changes in equity for the year ended 31 October 2012 Share capital £’000 Share Premium account £’000 Capital Redemption Reserve £’000 Own shares £’000 Employee Benefit Trust Reserve £’000 Available for sale Reserve £’000 2,700 2,933 (1,193) (612) Balance at 31 October 2011 Profit for year Revaluation of available for sale assets Total comprehensive income for the year Share based payments Issue of shares Purchase of own shares Sale of shares held by Employee Benefit Trust Dividends paid to equity shareholders Balance at 31 October 2012 Own shares cancelled (237) - - - - 38 - - - - - - - - - - - - - - - - - - - - - - - - (661) 237 1,193 - - - - - - - - - - - 5 - Retained earnings £’000 Total £’000 8,189 12,017 141 - 141 233 - - (1,193) - 141 (10) 131 233 38 (661) - 5 (156) (156) - - (10) (10) - - - - - - 2,501 2,933 237 (661) (607) (10) 7,214 11,607 Consolidated statement of changes in equity for the year ended 31 October 2011 Share capital £’000 2,544 - - - 156 - - Share Premium account £’000 2,926 - - - 7 - - Own shares £’000 - - - - - (1,193) - 2,700 2,933 (1,193) Employee Benefit Trust Reserve £’000 (648) - - - - - 36 (612) Retained earnings £’000 7,171 506 506 512 - - - Total £’000 11,993 506 506 512 163 (1,193) 36 8,189 12,017 Balance at 31 October 2010 Profit for year Total comprehensive income for the year Share based payments Issue of shares Purchase of own shares Sale of shares held by Employee Benefit Trust Balance at 31 October 2011 Notes 1. 2. 3. The Employee Benefit Trust reserve represents shares held in the parent company by the Arden Partners Employee Benefit Trust which is consolidated in these financial statements in accordance with the accounting policy in note 1. Own Shares represents shares purchased to be held as treasury shares at historical cost. The capital redemption reserve is due to the cancellation of 2,372,768 ordinary shares in June 2012. It represents the nominal value of shares that have been cancelled that were previously held as Treasury Shares. The notes on pages 26 to 47 form part of these financial statements - 24 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 31 October 2012 Company statement of changes in equity for the year ended 31 October 2012 Share capital £’000 Share Premium account £’000 Capital Redemption Reserve £’000 Own shares £’000 Employee Benefit Trust Reserve £’000 Available for sale Reserve £’000 2,700 2,933 (1,193) (612) Balance at 31 October 2011 Profit for year Revaluation of available for sale assets Total comprehensive income for the year Share based payments Issue of shares Purchase of own shares Sale of shares held by Employee Benefit Trust Dividends paid to equity shareholders Balance at 31 October 2012 - - - - 38 - - - Own shares cancelled (237) - - - - - - - - - - - - - - - - - - - - - (661) 237 1,193 - - - - - - - - - - - 5 - Retained earnings £’000 Total £’000 8,189 12,017 141 - 141 233 - - (1,193) - 141 (10) 131 233 38 (661) - 5 (156) (156) - - (10) (10) - - - - - - 2,501 2,933 237 (661) (607) (10) 7,214 11,607 Company statement of changes in equity for the year ended 31 October 2011 Share capital £’000 2,544 - - - 156 - - Share premium account £’000 2,926 - - - 7 - - Own shares £’000 - - - - - (1,193) - 2,700 2,933 (1,193) Employee Benefit Trust Reserve £’000 (648) - - - - - 36 (612) Retained earnings £’000 7,171 506 506 512 - - - Total £’000 11,993 506 506 512 163 (1,193) 36 8,189 12,017 Balance at 31 October 2010 Profit for year Total comprehensive income for the year Share based payments Issue of shares Purchase of own shares Sale of shares held by Employee Benefit Trust Balance at 31 October 2011 Notes 1. 2. 3. The Employee Benefit Trust reserve represents shares held in the parent company by the Arden Partners Employee Benefit Trust which is consolidated in these financial statements in accordance with the accounting policy in note 1. Own Shares represents shares purchased to be held as treasury shares at historical cost. The capital redemption reserve is due to the cancellation of 2,372,768 ordinary shares in June 2012. It represents the nominal value of shares that have been cancelled that were previously held as Treasury Shares. The notes on pages 26 to 47 form part of these financial statements - 25 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements 1) Accounting policies Arden Partners plc is a public limited company incorporated in the United Kingdom under the Companies Act. The address of the Company’s registered office is set out on page 47. Basis of preparation The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to the Group and Company to all the years presented unless otherwise stated. These policies are in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively, “IFRS”) issued by the International Accounting Standards Board as endorsed for use in the European Union. The Group and Company Financial Statements have been prepared in accordance with IFRS. These financial statements have also been prepared in accordance with those parts of the Companies Act 2006 that are applicable to companies preparing their financial statements in accordance with IFRS. The Consolidated and Company Financial Statements have been prepared under the historical cost convention as modified by the revaluation of certain financial assets, financial liabilities and derivative instruments to fair value. Basis of consolidation Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Company and its subsidiaries (the “Group”) as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full. The Company has taken advantage of Section 408 of the Companies Act 2006, and the Statement of Comprehensive Income of the parent company is not presented. The parent company’s profit after taxation for the financial year amounted to £141,000 (2011: £506,000). New standards effective during the year None of the new standards, interpretations or amendments, which are effective for the first time in these financial statements, has had a material impact on these financial statements. Standards that have been issued, but are not yet effective for the year ended 31 October 2012 include: IAS 1 Presentation of Items of Other Comprehensive Income (Amendment) 1 Jul 2012 Amendments to IFRS 7 Offsetting Financial Assets and Financial Liabilities 1 Jan 2013 IFRS 13 Fair Value Measurement Annual Improvements to IFRSs (2009-2011 Cycle) IFRS 10 Consolidated Financial Statements 1 Jan 2013 1 Jan 2013 1 Jan 2014 Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities 1 Jan 2014 IFRS 9 Financial Instruments 1 Jan 2015 - 26 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements The Board is currently assessing the impact of IFRS 13 and IFRS 9. All other standards and interpretations are not expected to have a material impact on the financial statements. The accounting policies set out below have, unless otherwise stated, been applied consistently by the Group to all periods presented in these consolidated financial statements. Revenue Revenue comprises the net realised and unrealised trading gains or losses of shares traded on a principal basis, commissions and fees earned from trading shares on an agency basis, together with fees derived from corporate finance activities, broking services and retainers. Revenue is recognised at the fair value of the consideration receivable, to the extent that it is probable that the economic benefits associated with the transaction will flow to the Group. Where consideration includes financial instruments or other non-cash items, revenue is measured at fair value using an appropriate valuation method. Corporate Finance Division The Group recognises revenue at the point of completing an assignment to the extent that it has obtained the right to consideration through performance of its services to clients. Deal fees and placing commissions are only recognised once there is certainty of the contractual entitlement for the Group to receive them. Corporate retainers are recognised on an accruals basis. Equities Division Institutional commissions are recognised on trade dates. Net trading gains or losses are the realised and unrealised profits and losses from market making long and short positions on a trade date basis. Interest receivable Financial income, which comprises principally interest received, is recognised using the effective interest rate method. Property, plant and equipment Property, plant and equipment is stated at cost, net of depreciation and impairment in value. Depreciation is provided to write off the cost, less estimated residual values, of all tangible fixed assets evenly over their expected useful lives on a straight line basis. It is calculated at the following rates: Improvements to leasehold buildings Fixtures, fittings and computer equipment - - 33.33% per annum 33.33% per annum Investments Investments in subsidiaries are stated at cost less, where appropriate, provision for impairment. Financial assets Financial assets comprise trading investments, available for sale assets, trade receivables, other receivables, and cash and cash equivalents. The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The Group has not classified any of its financial assets as held to maturity. The Group's accounting policy for each category is as follows: - 27 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements • • • • • Trading investments: Trading investments comprise held for trading investments: o Held for trading: Held for trading investments represent long market making positions and other investments held for resale in the near term and are stated at fair value with gains and losses from changes in fair value being taken to the Statement of Comprehensive Income. For trading investments which are quoted in active markets, fair values are determined by reference to the current quoted bid price. Other trading investments may include options and warrants which are valued using the Black-Scholes model. Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the Statement of Comprehensive Income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the Statement of Financial Position. Market receivables: comprise sold security transactions awaiting settlement at the year end. These balances are shown gross and are recognised by trade date. Available for sale assets: Non-derivative financial assets not included in the above categories are classified as available for sale. They are carried at fair value with changes in fair value recognised directly in a separate component of equity (available for sale reserve). Where there is a significant or prolonged decline in the fair value of an available for sale financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously charged to equity, is recognised in the income statement. Purchases and sales of available for sale financial assets are recognised on contract date with any change in fair value between trade date and the balance sheet date being recognised in the revaluation reserve. On sale, the amount held in the available for sale reserve associated with that asset is removed from equity and recognised in the Statement of Comprehensive Income. Cash and cash equivalents: Cash and cash equivalents comprise cash in hand, bank balances and call deposits that are readily convertible to a known amount of cash and are not subject to a significant risk of changes in value. Cash and cash equivalents all have original dates to maturity of three months or less. Financial liabilities The Group classifies its financial liabilities into one of the categories discussed below, depending on the purpose for which the liability was acquired. The Group's accounting policy for each category is as follows: - 28 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements • • • • Held for trading: Held for trading liabilities represent short market-making positions and are stated at fair value. Gains and losses from changes in fair value are taken to the Statement of Comprehensive Income. For trading liabilities which are quoted in active markets, fair values are determined by reference to the current quoted offer price. Fair value through profit or loss: The Group does not have any financial liabilities designated as being at fair value through profit or loss. Other financial liabilities: These comprise market payables, trade payables, other payables and accruals. They are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. Market payables: These comprise purchased security transactions awaiting settlement at the year end. These balances are shown gross and are recognised by trade date. Stock borrowing collateral The Group may enter into stock borrowing arrangements with certain institutions which are entered into on a collateralised basis with securities or cash advances received as collateral. Under such arrangements a security is purchased with a commitment to return it at a future date at a future agreed price. The securities purchased are not recognised on the Statement of Financial Position and the transaction is treated as a secured loan made for the purchase price. Where cash has been used to effect the purchase, the cash collateral amount is recorded as a pledged asset on the Statement of Financial Position. Foreign currency transactions Transactions in foreign currencies are translated into sterling at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the Statement of Financial Position date are translated into sterling at the exchange rate ruling at the Statement of Financial Position date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income. Taxation Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognised in the Statement of Comprehensive Income except to the extent that it relates to items recognised directly in equity, in which case it is recognised directly in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the Statement of Financial Position date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. 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 Statement of Financial Position date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. - 29 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements Dividends Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised when approved by shareholders at an Annual General Meeting. Dividends unpaid at the Statement of Financial Position date are only recognised as a liability at that date to the extent that they are appropriately authorised and are no longer at the discretion of the Company. Own Shares The cost of purchasing Treasury Shares held by the company are shown as a deduction against equity and are declared as Own Shares. Leased assets Assets acquired under finance leases where the Group has substantially all the risks and rewards of ownership are capitalised. The outstanding future lease obligations are shown in trade and other payables. Operating lease rentals are charged to the Statement of Comprehensive Income on a straight line basis over the period of the lease. Pension costs Contributions to defined contribution pension schemes are charged to the Statement of Comprehensive Income in the period in which they become payable. Employee Benefit Trust Arden Partners Employee Benefit Trust is a trust established by Trust deed in 2006 and the assets and liabilities are held separately from the Company. Its assets and liabilities are fully consolidated in the consolidated and company Statements of Financial Position, and holdings of Arden Partners plc shares by the Arden Partners Employee Benefit Trust are shown as a deduction from company and consolidated equity under the heading “Employee Benefit Trust reserve”. Share based payments – equity settled All options granted are recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value is measured using the Black-Scholes model, taking into account the terms and conditions upon which the options were granted. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each Statement of Financial Position date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Critical accounting estimates The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable in the circumstances, the results of which form the basis of judgements about carrying values of assets and liabilities. Actual results may differ from those amounts. Judgements made by management that may have a significant effect on the financial statements relate principally to the Group’s equity-settled share-based remuneration schemes for employees. Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant. The fair value of share options is estimated by using valuation models, such as Black-Scholes, on the date of grant based on certain assumptions. - 30 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements Those assumptions are described in note 19 and include, among others, the dividend growth rate and expected volatility. 2) Revenue Revenue is wholly attributable to the principal activity of the Group and arises solely within the United Kingdom. Equities Division Corporate Finance Division Total revenue 2012 £’000 6,424 3,361 9,785 2011 £’000 7,638 4,743 12,381 Included within revenue of the Equities Division is an amount of £486,000 (2011: £304,000) relating to the fair value adjustment of derivatives held within trading investments that are fair valued through profit or loss. The Directors are of the opinion that there are only two operating segments and while segment revenues are reviewed internally business resources are not allocated to segments for the purposes of deriving either profit or assets. In 2012 none of the Group’s customers contributed more than 10% of the groups revenue. In 2011, two of the Group’s customers each contributed more than 10% of the Group’s revenue. The amounts were £1,572,000 which is reflected in the Corporate Finance division revenue and £1,425,000 which is reflected in the Equities Division revenue. 3) Profit from operations This is arrived at after charging: Depreciation of property, plant and equipment Operating lease costs Auditor’s remuneration: Audit services: Company Subsidiaries Tax services Audit related assurance services Foreign currency losses Share based payments Reorganisation costs 2012 £’000 2011 £’000 249 248 38 1 6 12 1 233 559 214 243 36 1 18 12 1 512 122 4) Dividends Dividends recognised in the year consisted of the 2012 interim dividend of £156,000 (0.65p per share). No dividends were recognised in the prior year. The amounts shown above in respect of dividends paid by the Group exclude dividends paid to the Arden Partners Employee Benefit Trust amounting to £2,000 in 2012 (2011: £Nil). - 31 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements 5) Employees Staff costs (including Directors) of the Company and Group consist of: Wages and salaries Incentive payments Share based payments (see note 19 for further details) Social security costs Other pension costs 2012 £’000 4,015 200 233 472 291 5,211 2011 £’000 4,477 524 512 519 276 6,308 Staff costs include an amount of £559,000 (2011: £122,000) in respect of reorganisation payments. The average number of employees (including Directors) of the Group and Company during the year was 37 (2011: 49) of which 23 (2011: 33) are front-office and the remainder are administration. During the year a pension accrual of £120,000 (2011: £100,000) which had been accrued in previous years has been released to the Statement of Comprehensive Income. 6) Directors' remuneration Directors' emoluments Company contributions to money purchase pension schemes Gain on exercise of share options Compensation for loss of office 2012 £’000 707 57 - 141 905 2011 £’000 681 76 218 - 975 There were 4 Directors in defined contribution pension schemes during the year (2011: 3). The total amount payable to the highest paid Director in respect of emoluments was £221,000 (2011: £276,000). Company pension contributions of £23,000 (2011: £49,000) were provided towards a money purchase scheme on his behalf. A gain was realised on the exercise of share options of £Nil (2011: £218,000). Further details of Directors’ remuneration are set out in the Report on Directors’ Remuneration on pages 12 to 15. 7) Finance income Bank and other interest receivable 2012 £’000 64 2011 £’000 60 - 32 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements 8) Finance costs Bank loans and overdrafts 9) Income tax expense UK Corporation tax Current tax on profit of the year Adjustment in respect of previous periods Total current tax Deferred tax Origination and reversal of timing differences Deferred tax on financial assets Change in tax rate Adjustment in respect of previous periods Total deferred tax Total taxation expense 2012 £’000 4 2012 £’000 118 (39) 79 (36) - 8 19 (9) 70 2011 £’000 3 2011 £’000 115 (111) 4 93 (49) 14 44 102 106 The tax assessed for the year is higher (2011: lower) than the standard rate of corporation tax in the UK. The differences are explained below: Profit before tax Profit on ordinary activities at the standard rate of corporation tax in the UK of 24% (2011: 26%) Effect of: Expenses not deductible for tax purposes Prior year current tax over provision Prior year deferred tax under provision Change in tax rate Marginal relief Deferred tax on share options Deferred tax on financial assets Total taxation expense 2012 £’000 211 2011 £’000 612 51 159 46 (39) 19 15 (12) (10) - 70 2 (111) 44 14 (13) 60 (49) 106 As a result of a change in legislation the Directors anticipate that profits for the year ending 31 October 2013 will be taxed at a rate of 23%. - 33 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements 10) Earnings per share In addition to the basic earnings per share, underlying earnings per share has been shown because the Directors consider that this gives a more meaningful indication of the underlying performance of the Group. Where applicable, all adjustments are stated after taking into consideration current tax treatment ignoring deferred tax. Basic earnings per share Add: IFRS2 share-based payments Add: Reorganisation payments Underlying basic earnings Diluted earnings per share Add: IFRS2 share-based payments Add: Reorganisation payments Underlying diluted earnings Year ended 31 October 2012 Pence per Share 0.6 1.0 1.8 Numerator £’000 141 233 425 3.4 0.6 0.9 1.7 3.2 799 141 233 425 799 Year ended 31 October 2011 Pence per Share 2.2 2.2 0.3 4.7 2.0 2.0 0.3 4.3 Numerator £’000 506 512 90 1,108 506 512 90 1,108 Year ended 31 October 2012 Number Year ended 31 October 2011 Number Denominator Weighted average number of shares in issue for Basic Earnings calculation Weighted average dilution for outstanding share options Weighted average number for diluted earnings calculation 23,741,595 951,788 24,693,383 23,354,081 1,821,144 25,175,225 The weighted average dilution for outstanding share options was 951,788 (2011: 1,821,144). The 974,838 (2011: 997,576) shares held by the Arden Partners Employee Benefit Trust and the 1,512,928 (2011: 2,372,768) shares held in Treasury have been treated as cancelled and excluded from the denominator. - 34 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements 11) Property, plant and equipment Group and Company as at 31 October 2012 Cost At 1 November 2011 Additions At 31 October 2012 Depreciation At 1 November 2011 Provided for the year At 31 October 2012 Net book value At 31 October 2012 At 31 October 2011 Group and Company as at 31 October 2011 Cost At 1 November 2010 Additions At 31 October 2011 Depreciation At 1 November 2010 Provided for the year At 31 October 2011 Net book value At 31 October 2011 At 31 October 2010 Improvements to leasehold buildings £’000 Fixtures, fittings and computer equipment £’000 494 - 494 395 84 479 15 99 1,535 46 1,581 1,240 165 1,405 176 295 Improvements to leasehold buildings £’000 Fixtures, fittings and computer equipment £’000 494 - 494 310 85 395 99 184 1,328 207 1,535 1,111 129 1,240 295 217 Total £’000 2,029 46 2,075 1,635 249 1,884 191 394 Total £’000 1,822 207 2,029 1,421 214 1,635 394 401 At 31 October 2012, the Group and Company had capital commitments of £Nil (2011: £Nil). - 35 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements 12) Investments Company Cost At 1 November 2011 and 31 October 2012 Group undertakings £ 42 The Company owns the whole of the issued share capital of Arden Partners Nominees Limited, a company registered in England. This company's sole activity is the holding of investments for clients of Arden Partners plc. The company has not traded during the current or prior year. The Company also owns the whole of the issued share capital of Arden Partners EBT Limited, a company registered in England. The company's sole activity is to act as payment agent for the Arden Partners Employee Benefit Trust. At 31 October 2012, the Arden Partners Employee Benefit Trust held 974,838 ordinary shares in Arden Partners plc (2011: 997,576 ordinary shares). The Company also owns the whole of the issued share capital of Arden Partners Asset Management Limited, a company registered in England which was formed as a name protection company. The company has not traded during the current or prior year. - 36 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements 13) Deferred tax Group and Company - 2012 Accelerated capital allowances and temporary differences Share option £’000 £’000 Total deferred tax asset £’000 Financial assets £’000 At 1 November 2011 – asset/(liability) Adjustments in respect of previous periods (Charged)/credited to statement of comprehensive income Change in tax rate – (charged)/credited to statement of comprehensive income At 31 October 2012 Deferred taxation comprises: Accelerated capital allowances Other timing differences Share options Total deferred tax asset 54 (19) 26 (3) 58 71 - 10 (5) 76 125 (19) 36 (8) 134 2012 £’000 41 17 76 134 - - - - - 2011 £’000 15 39 71 125 Deferred tax liability on financial assets - - - 37 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements Group and Company – 2011 Accelerated capital allowances and temporary differences Share option £’000 £’000 Total deferred tax asset £’000 Financial assets £’000 At 1 November 2010 – asset/(liability) Adjustments in respect of previous periods (Charged)/credited to statement of comprehensive income Change in tax rate – (charged)/credited to statement of comprehensive income At 31 October 2011 138 (44) (33) (7) 54 142 - (60) (11) 71 280 (44) (93) (18) 125 (53) - 49 4 - 14) Trading investments Group and Company Long market making positions Other investments: Options and warrants 2012 £’000 4,044 1,014 5,058 2011 £’000 5,392 528 5,920 At 31 October 2012 the historical cost of long market making positions was £4,219,000 (2011 £5,630,000). There are no long market making positions denominated in foreign currency (2011: £Nil). At 31 October 2012 the historical cost of other investments was £87,000 (2011: £87,000). There are no other investments denominated in foreign currency (2011: £Nil). - 38 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements 15) Available for sale financial assets Group and Company Listed investments 2012 £’000 490 2011 £’000 - At 31 October 2012 the historical cost of the listed investments was £500,000 (2011: £Nil). There are no listed investments denominated in foreign currency (2011: £Nil). Listed investments relates to a holding in Treasury Gilts which is pledged as security to BNP Paribas Securities Services. 16) Trade and other receivables Group Market receivables Trade receivables Other receivables Prepayments and accrued income Company Market receivables Trade receivables Other receivables Prepayments and accrued income 2012 £’000 7,570 1,351 541 481 9,943 2012 £’000 7,570 1,351 729 481 10,131 2011 £’000 21,048 1,112 1,244 468 23,872 2011 £’000 21,048 1,112 1,432 468 24,060 There are no amounts denominated in foreign currency included within trade receivables of the Group and the Company at 31 October 2012 (2011: £Nil). The fair value of market, trade and other receivables approximates to amortised cost. An analysis of overdue trade receivables is shown in note 24. No other receivables are overdue. - 39 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements 17) Cash and cash equivalents Group Cash and bank balances Call deposits Company Cash and bank balances Call deposits 2012 £’000 237 4,645 4,882 2012 £’000 231 4,645 4,876 2011 £’000 2,855 2,346 5,201 2011 £’000 2,851 2,346 5,197 Included within cash and bank balances of the Group and the Company at 31 October 2012 is an amount of £150,000 (2011: £220,000) which is denominated in US$. 18) Trade and other payables Group Held for trading liabilities Market payables Trade payables Other taxation and social security Other payables Accruals and deferred income 2012 £’000 - 7,379 304 262 365 758 9,068 2011 £’000 2,409 18,407 275 215 930 1,133 23,369 There are no differences between the fair values and the amortised cost of any of the trade and other payables. Included in the above are financial liabilities amounting to £8,135,000 (2011: £19,688,000). - 40 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements Company Held for trading liabilities Market payables Trade payables Other taxation and social security Other payables Accruals and deferred income 2012 £’000 - 7,379 304 262 547 758 9,250 2011 £’000 2,409 18,407 275 215 1,114 1,133 23,553 There are no differences between the fair values and the amortised cost of any of the trade and other payables. Included in the above are financial liabilities amounting to £8,317,000 (2011: £19,872,000). 19) Share capital Equity share capital 40,000,000 Ordinary shares of 10p each 25,005,594 (2011: 26,995,718) Ordinary shares of 10p each Authorised 2012 £’000 2011 £’000 Allotted, called up and fully paid 2012 £’000 2011 £’000 4,000 4,000 - - - - 2,501 2,700 During the year the Company issued in aggregate 382,644 (2011: 1,551,475) ordinary shares of 10p each to satisfy the exercise of share options. Gross proceeds were £38,000 (2011: £163,000) of which £38,000 (2011: £156,000) has been credited to share capital and £Nil (2011: £7,000) to the Share Premium account. In June 2012 the company cancelled 2,372,768 (2011: Nil) ordinary shares that it held in Treasury at the beginning of the financial year. During September and October 2012 the company purchased in aggregate 1,512,928 (2011: 2,372,768) ordinary shares at a price of 43.5 pence per share to be held in Treasury. The total cost of the shares was £0.7m (2011: £1.2m). In November 2012 the Company purchased a further 788,601 ordinary shares at 50 pence per share for consideration of £0.4m. These shares are again to be held in Treasury. - 41 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements Options over the Company’s shares outstanding Movements in the number of share options and their weighted average exercise prices are as follows: Weighted Average Exercise price (pence) 2012 24.9 Weighted Average Exercise price (pence) 2011 19.7 Number of Options 2011 3,959,325 (10.0) (1,551,475) - (16.5) 28.1 530,000 (432,991) 2,504,859 (10.4) 10.0 (10.6) 24.9 Number of Options 2012 2,504,859 (382,644) - (96,740) 2,025,475 At 1 November 2011 Exercised during the year Granted during the year Lapsed during the year At 31 October 2012 The weighted average market price of the Company’s shares at the date of exercise of options during the year was 34.4p (2011: 53.8p). The share options outstanding at the year end have a weighted average exercise price and expected remaining life as follows: 31 October 2012 31 October 2011 Number of share options Exercise price (pence) Weighted average expected remaining life (months) Number of share options Exercise price (pence) 970,475 47.8 42 987,215 47.8 1,055,000 10.0 87 1,517,644 10.0 2,025,475 2,504,859 Weighted average expected remaining life (months) 54 94 Arden Partners Old Scheme Arden Partners Share Plan 2007 - 42 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements The number of options outstanding by issue date and exercise price, together with the vesting periods, fair values, and the assumptions used to calculate the fair value, and the actual remaining contractual life as at 31 October 2012 are as follows: Grant dates Weighted average fair value at grant date 1 Average exercise price Weighted average share price at date of grant 2 Expected volatility 3 Risk free interest rate Dividend yield Option life (months) Weighted average option life (months) Weighted average life remaining (months) Number of options outstanding Percentage of options expected to vest Number of options vested but unexercised Arden Partners Share Plan 2007 Arden Partners Old Scheme 17/04/2008 to 24/03/2011 45p to 148p 10.0p 91.0p 30% 4% to 5.75% 3% 120 120 87 1,055,000 100% 600,000 21/4/2006 3.5p 47.8p 30.0p 30% 5% 3.5% 120 120 42 970,475 100% 970,475 Notes: 1. 2. 3. The estimate of the fair value of the services received is measured based on the Black-Scholes model. The contractual life is the life of the option in question and growth in dividend yield is based on the best current estimate of future yields over the contractual period. The Arden Partners Old Scheme was established in April 2006 with the stock price having been agreed with the Inland Revenue Share Valuation Office. Expected volatility is based on historic information adjusted to take effect of future trends in economic conditions, behavioural considerations and exercise restrictions. The total expense recognised for the year arising from share based payments is as follows: Expensed during the year (equity settled) (included within employee costs as set out in note 5) 20) Pensions 2012 £’000 233 2011 £’000 512 The Company operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund. Where members of staff do not join the Company scheme, contributions are made to their own nominated schemes all of which are defined contribution. The pension charge for the year amounted to £291,000 (2011: £276,000). Contributions amounting to £75,000 (2011: £81,000) were payable to schemes and are included in payables. - 43 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements 21) Commitments under operating leases The Group and the Company were committed to making the following payments under non-cancellable operating leases as set out below: Within one year Between one and two years Between two and five years Land and buildings 2011 £’000 307 227 440 2012 £’000 227 227 213 667 974 22) Related party disclosures The key management are considered to be the Board of Directors of Arden Partners plc, whose remuneration can be seen in the Directors’ Remuneration Report on pages 11 to 14. The compensation in total for each category required by IAS 24 is as follows: Salaries and short term employee benefits Pension Contributions Share-based payments Compensation for loss of office Year ended 31 October 2012 £’000 707 57 106 141 1,011 Year ended 31 October 2011 £’000 681 76 100 - 857 The Group has paid £42,000 (2011: £52,000) to Mark Ansell Consulting Limited for the services of Mark Ansell as a Non-Executive Director, Mark Ansell is a director of both Mark Ansell Consulting Limited and Arden Partners plc. At 31 October 2012, included within accruals and deferred income in note 18 is an amount owed to Trevor Norris of £122,500 (2011: £Nil) and Mark Ansell Consulting Limited of £7,110 (2011: £1,713). 23) Post balance sheet events On 2 November 2012 the company purchased 788,601 ordinary shares to be held in Treasury. The total cost of the shares was £0.4m. 24) Financial instruments and risk profile The Group and Company’s financial instruments comprise cash and cash equivalents, trading positions, trade receivables and trade payables arising from operations. The Group and Company have recognised the following risks arising from these financial instruments: • • Equity price risk Credit risk • • Liquidity risk Operational risk 24.1 Equity price risk The Group and Company face risk arising from holding trading investments in markets that fluctuate. The Group and Company manage equity price risk by establishing individual stock limits and overall investment criteria, and management reports are prepared daily in support of a review regime. The Board reviews trading investments on a monthly basis. - 44 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements 24.2 Liquidity risk Liquidity risk is the risk that the Group and Company are unable to raise sufficient funding to enable them to meet their obligations and is managed as follows: • • • • • • maintaining a strong capital base forecasting future cash-flow requirements monitoring of cash positions on a daily basis monitoring of market making positions on a daily basis control over timely settlement of trade receivables control over timely settlement of market receivables and payables. Capital management The Group and Company’s policy in respect of capital adequacy is to maintain a strong capital base so as to retain investor, creditor and market confidence. During the years ended 31 October 2011 and 2012 capital has been maintained at a level above minimum FSA requirements. Such levels have been established by reference to an internal ICAAP assessment. The Group and Company’s capital resources consist of Tier 1 equity capital and Tier 3 retained earnings. The Group and Company hold their cash and cash equivalents with a reputable financial institution. All cash and cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash. 24.3 Credit risk Credit risk represents the possibility that the Group or Company will suffer a loss from a counterparty failing to meet its obligations. Credit risk is managed as follows: • • • • • robust client account opening and vetting procedures general policy to deal only with FSA registered counterparties general policy on limiting exposure to concentration risk control over timely settlement of market receivables review of daily settlement reports by the Risk Committee Exposure to credit risk The carrying value of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Market receivables Collateral deposits Trade receivables Other receivables Cash and cash equivalents Group 2012 £’000 7,570 107 1,351 541 4,882 Total loans and receivables 14,451 2011 £’000 21,048 - 1,112 1,244 5,201 28,605 Company 2012 £’000 7,570 107 1,351 729 4,876 14,633 2011 £’000 21,048 - 1,112 1,432 5,197 28,789 - 45 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements The ageing of trade receivables at the reporting date was: Not past due Past due 31-60 days Past due 61-90 days Past due 91-120 days Past due 121+ days Provisions Total Movement in provision Opening balance at 1 November 2011 Amounts released Amounts written off Increase in provision Closing balance at 31 October 2012 31 October 2012 £’000 1,332 9 - 10 - - 1,351 31 October 2012 £’000 - (10) (5) 15 - 31 October 2011 £’000 989 48 67 8 - - 1,112 31 October 2011 £’000 43 (47) (43) 47 - 24.4 Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, staff or systems, or from external causes whether deliberate, accidental or natural. This would also include risk from changes in legislation, regulation, currency or interest rate risk. Operational risk is managed by the Operations Committee with day-to-day control exercised by the Chief Operating Officer. The Group and Company also has contingency plans in place to cover loss of systems, property and other eventualities. The Group and Company had an aggregate currency exposure at 31 October 2012 in respect of US$241,000 (£150,000). There was a currency exposure for the Group and the Company at 31 October 2011 of US$351,000 (£220,000). The effect of a 10% movement in the US$/£ exchange rate from the rate ruling at the balance sheet date would be to impact profit/(loss) and net assets by approximately £15,000 (2011: £22,000). Fixed rate cash financial assets of £4,645,000 (2011: £2,346,000) comprise sterling cash deposits on money markets at an average rate of 0.50% (2011: 0.50%). Remaining cash was held on current accounts attracting interest based on LIBID. Other financial assets do not have maturity dates and do not currently attract interest. If the average level of interest received on cash deposits had been 0.5% higher or lower than the level actually received in the year ended 31 October 2012, the profit before taxation would have been decreased or increased by approximately £5,000. In the year ended 31 October 2011 a 0.5% movement in rates would have increased or decreased the profit before taxation by approximately £6,000. - 46 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notes to the Consolidated Financial Statements 24.5 Fair value estimation The Company has adopted the amendment to IFRS 7 for financial instruments which are measured at fair value at the balance sheet date. This requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: • • • Level 1: Quoted prices unadjusted in active markets for identical assets or liabilities; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, observed either directly as prices or indirectly from prices; and Level 3: Inputs for the asset or liability that are not based on observable market data. The following table presents the Group’s and Company’s assets and liabilities that are measured at fair value at 31 October 2012: Group and Company as at 31 October 2012 Assets Trading investments: Long market making positions Options and warrants Available for sale financial assets Liabilities Held for trading liabilities Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 4,044 - 490 4,534 - 1,014 - 1,014 - - - - - - - 4,044 1,014 490 5,548 - Group and Company as at 31 October 2011 Assets Trading investments: Long market making positions Options and warrants Liabilities Held for trading liabilities Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 5,392 - 5,392 - 528 528 2,409 - - - - - 5,392 528 5,920 2,409 - 47 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Corporate Information Company Secretary Steve Wassell Arden House, Edgbaston Birmingham, B15 3DU Tel: 0121 423 8900 Company Number 4427253 Nominated Advisor Financial PR Adviser Altium Capital Limited 30 St James’s Square London SW1Y 4AL Buchanan Communications 107 Cheapside London EC2V 6DN Registrar Lawyers Auditors Bankers Registered Office Capita IRG Plc The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Eversheds LLP 1 Wood Street London EC2V 7WS BDO LLP 55 Baker Street London W1U 7EU HSBC Bank plc 120 Edmund Street Birmingham B3 2QZ Arden House Highfield Road Edgbaston Birmingham B15 3DU - 48 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notice of Meeting Notice is hereby given that the Annual General Meeting of Arden Partners plc (the “Company”) will be held at 125 Old Broad Street, London, EC2N 1AR on 14 March 2013 at 11.00 a.m. for the following purposes: Ordinary Business 1. 2. 3. To receive and adopt the Company’s Financial Statements for the year ended 31 October 2012, together with the Directors’ Report, Directors’ Remuneration Report and Report of the Independent Auditor on those Financial Statements. To re-elect James Reed-Daunter as a Director, who is retiring in accordance with the Company’s Articles of Association. To reappoint BDO LLP as auditors to the Company, to hold office from the conclusion of this meeting until the conclusion of the next Annual General Meeting at which the Financial Statements are laid and to authorise the Directors to fix their remuneration. To transact any other ordinary business of the Company. Special Business As special business, to consider and, if thought fit, pass the following resolutions which will be proposed as to resolution number 4 as an ordinary resolution and as to resolutions numbered 5 and 6 as special resolutions: 4. 5. That, subject to and in accordance with Article 12 of the Articles of Association of the Company, the Directors of the Company be generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 (in substitution for any existing authority to allot relevant securities) to exercise all the powers of the Company to allot relevant securities (within the meaning of such section) up to a maximum aggregate nominal value of £756,802.16, being approximately one third of the current issued share capital (excluding treasury shares), such authority to expire on the conclusion of the next Annual General Meeting of the Company but so that the Company may before such expiry make offers or agreements which would or might require relevant securities of the Company to be allotted after such expiry, and the Directors may allot relevant securities in pursuance of such offers or agreements as if the authority conferred by this resolution had not expired. That, subject to the passing of resolution 4 as set out in the notice of this meeting, and in accordance with Article 13 of the Articles of Association of the Company, the Directors be empowered pursuant to section 570 of the Companies Act 2006 to allot equity securities (as defined in section 560 of the Companies Act 2006) for cash pursuant to the general authority and be empowered pursuant to section 573 of the said Act to sell ordinary shares (as defined in section 560 of the said Act) held by the Company as treasury shares (as defined in section 724 of the said Act, for cash) as if section 561(1) of the Companies Act 2006 did not apply to such allotment or sale, provided that this power shall be limited to allotments of equity securities and the sale of treasury shares: 5.1 in connection with or pursuant to an offer of such securities by way of rights, open offer or other pre-emptive offer to the holders of ordinary shares in the Company and other persons entitled to participate therein in proportion (as nearly as practicable) to their respective holdings, subject to such exclusions or other arrangements as the Directors may consider necessary or expedient to deal with fractional entitlements or any legal or practical problems under the laws of any territory or the regulations or requirements of any regulatory authority or any stock exchange in any territory; and - 49 - ARDEN PARTNERS PLC ANNUAL REPORT 2012 Notice of Meeting 5.2 otherwise than pursuant to sub-paragraph 5.1 above, up to an aggregate nominal amount of £125,027.97, and such power shall expire on the conclusion of the next Annual General Meeting of the Company provided that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry, and the Directors of the Company may allot equity securities in pursuance of such offer or agreement as if the power conferred by this resolution had not expired. 6. That the Company be generally and unconditionally authorised, pursuant to section 701 of the Companies Act 2006, to make market purchases (as defined in section 693(4) of the Companies Act 2006) of up to 3,405,609 ordinary shares of 10p each in the capital of the Company (being approximately 15 per cent of the current issued ordinary share capital of the Company (excluding treasury shares)) on such terms and in such manner as the Directors of the Company may from time to time determine, provided that: 6.1 6.2 the amount paid for each share (exclusive of expenses) shall not be: (i) more than the higher of (1) five per cent above the average of the middle market quotation for ordinary shares as derived from the AIM Appendix to the Daily Official List of the London Stock Exchange plc for the five business days before the date on which the contract for the purchase is made, and (2) an amount equal to the higher of the price of the last independent trade and current independent bid as derived from the trading venue where the purchase was carried out; or (ii) less than 10p per share; and the authority herein contained shall expire on the conclusion of the Annual General Meeting of the Company to be held in 2014 provided that the Company may, before such expiry, make a contract to purchase its own shares which would or might be executed wholly or partly after such expiry, and the Company may make a purchase of its own shares in pursuance of such contract as if the authority hereby conferred hereby had not expired. By order of the Board Steve Wassell Company Secretary 15 January 2013 Registered office: Arden House 17 Highfield Road Edgbaston Birmingham B15 3DU - 50 - www.arden-partners.co.uk London 125 Old Broad Street London EC2N 1AR Tel 020 7614 5900 Fax 020 7614 5901 Birmingham Arden House 17 Highfield Road Edgbaston Birmingham B15 3DU Tel 0121 423 8900 Fax 0121 423 8901 Bristol Broad Quay House Prince Street Bristol BS1 4DJ Tel 020 7614 5900 Fax 020 7614 5901 17758ARDENPARCVR.indd 4 17758 26/02/2009 Proof 5 02/03/2010 12:04 

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