Arden Partners plc
Annual Report 2016

Plain-text annual report

Arden Partners plc Annual Report 2016 Arden Partners plc Arden is an established, multi-service stockbroker. We provide a range of financial services to corporate and institutional clients. We act as Nominated Adviser, Broker, Sponsor and Financial Adviser to AIM and Main Market companies listed on the London Stock Exchange. Based in the United Kingdom and with strong international links, Arden’s shares trade on London’s AIM market. Contents Page: 1 2 3 4 5 6 8 11 15 16 18 19 20 21 22 23 24 25 49 Highlights Chairman’s Statement Chief Executive’s Statement Strategic Report Board of Directors Report of the Directors Corporate Governance 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 ARDEN PARTNERS PLC ANNUAL REPORT 2016 HIGHLIGHTS FINANCIAL Year ended 31 October 2016 Year ended 31 October 2015 Revenue £5.9m £5.5m Loss before tax Share based payments, lease settlement credit and reorganisation costs Underlying loss before tax * Loss per share: Basic Underlying Basic † Diluted Underlying Diluted ‡ Dividend per ordinary share: Interim Proposed final (£0.4m) (£0.1m) (£0.5m) (2.5p) (3.2p) (2.5p) (3.2p) Nil Nil (£2.1m) £0.3m (£1.8m) (10.8p) (9.4p) (10.8p) (9.4p) Nil Nil Capital Adequacy Ratio 404% 392% NON-FINANCIAL Funds raised for clients Retained corporate clients Average number of staff £61m 39 38 £44m 42 40 * Profit before tax as adjusted for the effect of share based payments, lease settlement credit and reorganisation costs. † Basic earnings per share as adjusted for the post-tax effect of share based payments, lease settlement credit ‡ Diluted earnings per share as adjusted for the post-tax effect of share based payments, lease settlement credit and reorganisation costs, ignoring deferred tax and reorganisation costs, ignoring deferred tax - 1 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 CHAIRMAN’S STATEMENT Together with other small and mid-market stockbrokers, your company found trading conditions difficult in 2016. However, the second half year delivered a better result than the first half, so that the full year loss was reduced from that recorded at the half year, and helped deliver a better result than in 2015. We continue to face challenges: commissions are under pressure, and the regulatory burden grows remorselessly. All brokers like Arden will have to increasingly rely on their corporate client list to generate fees in order to succeed. Given these circumstances, the executive have managed the company’s cost base tightly. Cash is being preserved. At the end of the year under review, Arden recruited a first-rate execution team from a rival firm. Early indications are that they will add materially to equity trading commissions, and they are helping to grow Arden’s corporate list in the current financial year. I hope we will be able to announce further hires of able stockbrokers in the months to come. We will also look to evaluate potential acquisitions of complementary businesses to take advantage of synergies and cost savings. The industry must consolidate further if it is to prosper, and Arden has cash, and an excellent corporate client list. While the sector background and competitive forces remain ferocious, I am cautiously optimistic that in the medium term Arden can achieve a satisfactory level of profitability. Given the loss for the year it would be inappropriate to pay a dividend. I would like to thank our institutional and corporate clients for their continued loyalty to Arden, and all the staff for their hard work during the 2016 financial year. Luke Johnson Chairman 26 January 2017 - 2 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 CHIEF EXECUTIVE’S STATEMENT I am pleased to report that Arden ended the year on a positive note, producing a profit of £0.3m in the second half, thereby reducing the H1 loss of £0.7m previously reported. In October we were delighted to announce the hiring of a top rated small and mid cap Sales and Trading team. Early indications are positive with a strong increase of revenues in this area and a number of corporate client wins. Financial Review Revenue in the year ended 31 October 2016 was £5.9m compared to £5.5m in 2015. The underlying loss before taxation, which is stated before adjusting for share-based payments, lease settlement credit and reorganisation costs, was £0.5m and compares to a loss before taxation in 2015, of £1.8m. Overheads continue to be managed tightly, resulting in a further £0.9m reduction year on year. The Board has continued to buy back the Company’s shares, under the shareholders authority granted at the last AGM. During the year ended 31 October 2016, the Company purchased net, 744,266 ordinary shares for a consideration of £0.287m. At the financial year end the Company held 1,200,242 ordinary shares in treasury at a total cost to the Company of £0.5m. Outlook Arden has managed its cost base tightly over the past two years, during what has been a difficult trading environment for the small and mid cap sector. Notwithstanding the generally harsh industry backdrop, we are encouraged by recent hires and are keen to recruit further quality individuals and teams on to what is a clean and financially strong platform. This will be key to continuing the momentum generated in H2 2016 into Arden’s current financial year. Finally may I take this opportunity to thank all our clients for their continued support and our staff for their dedication and hard work throughout the year. James Reed-Daunter Chief Executive Officer 26 January 2017 - 3 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 STRATEGIC REPORT Business Review As in recent years, we have continued to focus on cost and capital management in order to offset continued pressure on revenue streams and maximise operational cash flow. Arden continues to offer a multi faceted product offering to our corporate clients and during the year has enhanced its execution services with the addition of a bespoke trading team with strong institutional links. Our financial position remains robust with strong cash balances at the year end, enabling Arden to withstand market pressures and to capitalise, potentially, on any corporate opportunities that might arise from the market and sector in which we operate. Strategy Our strategy is to become the institutional and corporate broker of choice for small and mid cap companies trading on London based markets. We aim to achieve this through: • Providing incisive research material in a number of key sectors • Providing an efficient execution and trading platform to institutional clients • Providing a premium corporate broking service to an optimum number of corporate clients • Selective and proactive recruitment into key areas to support and enhance the quality of our offering • Growing sustainable revenue streams, both organically and generically • Managing cost and risk exposure This will then enable us to provide shareholder value through earnings growth and dividend distribution. Key Performance Indicators (KPI’s) Arden Partners Key Performance Indicators include the following measures: • Profit before Tax • Earnings per share • Corporate Client Base • Funds Raised / Debt issuances, for clients • Maintaining capital adequacy ahead of regulatory requirements Comparables against KPI’s are included in the Financial Highlights and Chief Executive’s report above - these being considered as extensions of the Strategic Report. 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 credit risk, liquidity risk and operational risk and an explanation of these is set out in note 24. By order of the Board Steve Wassell Company Secretary 26 January 2017 - 4 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 BOARD OF DIRECTORS Luke Johnson (Non-Executive Chairman) Luke is the Chairman of private equity house Risk Capital Partners LLP and holds numerous Board positions across a diverse range of sectors. Former business interests include the Chairmanship of Channel 4 Television Corporation from 2004 to 2010 and Pizza Express, where he grew the business from 12 owned restaurants to over 250 in a six year period. Luke holds Board positions in a number of charities and interest groups and is Chairman of The Institute of Cancer Research; Chairman of StageOne, the national campaign in support of entrepreneurship and Chairman of Career Colleges, an organisation planning 40 vocational colleges for 14-19 year olds. 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 Partners, joining in November 2002 as Head of Equity Sales, and was appointed Chief Executive Officer on 1 January 2015. Steve Wassell (Chief Operating Officer and Company Secretary) 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 and was appointed to the plc Board in December 2010. 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. - 5 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 REPORT OF THE DIRECTORS The Directors present their Annual Report and audited Financial Statements for the financial year ended 31 October 2016. Principal Activities Arden is an established, multi-service stockbroker. We provide a range of financial services to corporate and institutional clients. We act as Nominated Adviser, Broker, Sponsor and Financial Adviser to AIM and Main Market companies listed on the London Stock Exchange. Based in the United Kingdom and with strong international links, Arden’s shares trade on London’s AIM market. 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 dividend (2015: Nil) and did not pay an interim dividend (2015: Nil). Directors The Directors of the Company who held office since 1 November 2015 were: Current Directors as at 26 January 2017 Chairman Luke Johnson Executive Deputy Chairman Jonathan Keeling Chief Executive Officer James Reed-Daunter Chief Operating Officer and Company Secretary Steve Wassell Independent Non-Executive Director Mark Ansell Previous Directors: Peter Moon Previous Chairman and Non-Executive Director (resigned 07/03/2016) Directors’ Interests The interests of current Directors in shares and options are disclosed in the Directors’ Remuneration Report set out on pages 11 to 14. Significant Shareholdings In addition to the current Directors’ interests shown on page 13 and 14, 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 26 January 2017: Arden Partners Employee Benefit Trust Richard Day Alasdair Locke Colin Kettle Robert Griffiths Tony Bartlett % 7.62 7.04 7.03 6.31 5.66 5.49 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. - 6 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 REPORT OF THE DIRECTORS Treasury Shares The Board continued buying back the Company’s shares during the year, under the authority granted by the Shareholders. The Company purchased 1,293,266 ordinary shares in the year ended 31st October 2016, for a consideration of £0.4m, of which 549,000 shares were re-sold during the year. At 31 October 2016 the Company held 1,200,242 shares in Treasury, at a cost of £0.5m (2015: 455,976 £0.3m). 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 2016 the Trust held 1,480,700 (7.62% of total voting rights) (2015: 1,480,700 (7.34% of total voting rights)) shares. The Trustees have agreed to hold these shares to satisfy options granted under various share option schemes. 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 on a periodic basis. 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 2016 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 The Directors have taken all 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 Steve Wassell Company Secretary 26 January 2016 - 7 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 CORPORATE GOVERNANCE Introduction The Company has not applied the “comply or explain” principles of the UK Corporate Governance Code (“the Code”) and the information in this report does not explain how the Code has been applied. The Company refers to the Code in order to ascertain best practice. The Directors and the Board The composition is as follows: Luke Johnson Jonathan Keeling James Reed-Daunter Steve Wassell Mark Ansell Chairman (Non-Executive) Chairman of Nominations Committee Executive Deputy Chairman Chief Executive Officer Chief Operating Officer and Company Secretary Senior Independent Director (Non-Executive) Chairman of Audit Committee Chairman of Remuneration Committee Biographical details of all the Directors are set out on page 5. 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 2016 was as follows: Total number of meetings James Reed-Daunter Jonathan Keeling Steve Wassell Mark Ansell Luke Johnson Peter Moon1 Board Audit Committee Remuneration Committee 10 10 10 10 10 10 3 2 n/a n/a 2 2 1 1 10 n/a n/a n/a 10 7 3 Notes: 1. Luke Johnson attended all Audit Committee and Remuneration Committee meetings required subsequent to his appointment. 2. Peter Moon attended all Board meetings and Remuneration Committee meetings 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, Steve Wassell and Mark Ansell are required to retire at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. The Board supports their re-appointments having assessed their performance and value to the Board. - 8 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 CORPORATE GOVERNANCE Remuneration Committee The Remuneration Committee, which comprises the 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 Non-Executive Directors and the Chief Operating Officer, 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 30. A review is also carried out on the effectiveness of external audit. • • 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 Luke Johnson. 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 Board also reviews financial performance against budgets and key performance indicators. The Operations Board is chaired by the Chief Operating Officer. Risk Committee The Risk Committee is chaired by the Chief Operating Officer and has the Director of Compliance and the Head of Corporate Finance (and Technical Director) as permanent members. This Committee is charged with monitoring risk exposures including those which arise through trading and holding financial instruments, corporate finance business, 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. - 9 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 CORPORATE GOVERNANCE Internal Control The Board confirms that there is an ongoing process for identifying, evaluating and managing 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. - 10 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 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 and therefore full disclosure required by the regulations have not been made. This 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 2013 the Group became subject to the conditions of the Financial Conduct Authority’s (“the FCA’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. 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 and when compared to senior salary levels elsewhere in the business. 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. - 11 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 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 2016 is set out below: Executive Directors James Reed-Daunter Jonathan Keeling Steve Wassell Non-Executive Directors Luke Johnson Mark Ansell Peter Moon1 Total Salary, fees and benefits £’000 Pension contributions £’000 Incentive payments £’000 Total 2016 £’000 161 152 125 - 35 20 493 9 18 - - - - 27 - - - - - - - 170 170 125 - 35 20 520 Notes: 1. An element of the remuneration was paid to a third party company, Hartnup Consulting Limited. - 12 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 DIRECTORS’ REMUNERATION REPORT A summary of the total remuneration paid to current Directors who served during the year ended 31 October 2015 is set out below: Executive Directors James Reed-Daunter Jonathan Keeling Steve Wassell Non-Executive Directors Peter Moon1 Mark Ansell Luke Johnson Total Salary, fees and benefits £’000 Pension contributions £’000 Incentive payments £’000 152 152 111 45 35 - 495 18 18 13 - - - 49 - - - - - - - Total 2016 £’000 170 170 124 45 35 - 544 Notes: 1. An element of the remuneration was paid to a third party company, Hartnup Consulting Limited. 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 James Reed-Daunter Jonathan Keeling Steve Wassell Non-Executive Directors Luke Johnson Mark Ansell 31 October 2016 Number Percentage Interest 31 October 2015 Number 2,353,644 2,079,834 763,743 2,195,112 111,750 11.41% 10.08% 3.70% 10.64% 0.54% 2,353,644 2,059,334 763,743 2,174,612 111,750 - 13 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 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 James Reed-Daunter1 31 October 2015 Number Options granted in year Number Options exercised in year Number 31 October 2016 Number 500,000 - - 500,000 Notes: 1. These options were granted on 23 July 2013 under the Arden Partners Share Plan 2013 and are exercisable subject to the achievement of Company performance related conditions. These options cannot be exercised until 31 December 2018, and have an expiry date of 31 December 2022. 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 26 January 2017 - 14 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 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 (Including Director’s Report and Strategic 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 (IFRS) 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. - 15 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ARDEN PARTNERS PLC For the year ended 31 October 2016 We have audited the financial statements of Arden Partners plc for the year ended 31 October 2016 which comprise the Group and Company statement of financial position, the group statement of comprehensive income, the Group and Company statement of cash flows, the Group and Company statement 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 Financial Reporting Council’s (FRC’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 FRC’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: • • • • the financial statements give a true and fair view of the state of the Group’s and the parent Company’s affairs as at 31 October 2016 and of the Group’s loss 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 strategic report and directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. Opinion on others prescribed by the Capital Requirements (Country-by-Country Reporting) regulations 2013 In our opinion, the information given in note 25 to the financial statements for the year ended 31 October 2016 has been properly prepared, in all material, respects in accordance with the Capital Requirements (Country-by- Country Reporting) Regulations 2013. - 16 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ARDEN PARTNERS PLC For the year ended 31 October 2016 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 26 January 2017 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). - 17 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 October 2016 Note 2 7 8 9 Revenue Administrative expenses Loss from operations Finance income Finance expense Loss before taxation Income tax charge Loss after taxation Other comprehensive income for the year: Items that will or may be reclassified subsequently to profit or loss: Decrease in fair value of available for sale financial assets Deferred tax taken to equity Total comprehensive income for the year attributable to equity shareholders 2016 £’000 5,857 (6,323) (466) 40 (3) (429) (41) (470) (5) - (475) 2015 £’000 5,486 (7,646) (2,160) 65 (2) (2,097) - (2,097) (7) 6 (2,098) Loss per share Basic Diluted 10 10 (2.5p) (2.5p) (10.8p) (10.8p) The notes on pages 25 to 48 form part of these financial statements - 18 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 CONSOLIDATED STATEMENT OF FINANCIAL POSITION At 31 October 2016 Note 2016 £’000 2016 £’000 2015 £’000 2015 £’000 1,489 552 2,544 58 5,170 - (48) (2,719) 11 13 14 15 16 24 17 18 18 19 Assets Non-current assets Property, plant and equipment Deferred tax asset Total non-current assets Current assets Assets held at fair value Available for sale financial assets Trade and other receivables Stock borrowing collateral Cash and cash equivalents Corporation tax asset Total current assets Total assets Current liabilities Financial liabilities held at fair value Trade and other payables 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 27 50 77 9,813 9,890 (2,767) (2,767) 7,123 2,063 700 2,933 (849) (11) 2,836 7,672 (549) 7,123 1,703 507 2,138 120 5,372 16 (92) (1,979) 25 84 109 9,856 9,965 (2,071) (2,071) 7,894 2,063 700 2,933 (849) (6) 3,348 8,189 (295) 7,894 The Financial Statements were approved by the Board of Directors and authorised for issue on 26 January 2017. Steve Wassell Company Secretary Mark Ansell Chairman of the Audit Committee The notes on pages 25 to 48 form part of these financial statements - 19 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 COMPANY STATEMENT OF FINANCIAL POSITION At 31 October 2016 Note 2016 £’000 2016 £’000 2015 £’000 2015 £’000 Company number: 4427253 Assets Non-current assets Property, plant and equipment Deferred tax asset Total non-current assets Current assets Assets held at fair value Available for sale financial assets Trade and other receivables Stock borrowing collateral Cash and cash equivalents Corporation tax asset Total current assets Total assets Current liabilities Financial liabilities held at fair value Trade and other payables Total current liabilities Total liabilities Net assets 11 13 14 15 16 24 17 1,489 552 2,732 58 5,161 - 18 18 (48) (2,898) 19 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 27 50 77 9,992 10,069 (2,946) (2,946) 7,123 2,063 700 2,933 (849) (11) 2,836 7,672 (549) 7,123 6,756 1,703 507 2,326 120 5,363 16 (92) (2,158) 25 84 109 10,035 10,144 (2,250) (2,250) 7,894 2,063 700 2,933 (849) (6) 3,348 8,189 (295) 7,894 The Financial Statements were approved by the Board of Directors and authorised for issue on 26 January 2017. Steve Wassell Company Secretary Mark Ansell Chairman of the Audit Committee The notes on pages 25 to 48 form part of these financial statements - 20 - Note 2016 £’000 2015 £’000 (429) (2,097) (205) 23 (37) 22 (626) 88 683 (50) - 95 10 105 (26) 37 11 (31) 133 (420) - (318) (202) 5,372 5,170 287 25 (63) 111 (1,737) 2,976 (2,892) (513) 466 (1,700) - (1,700) (7) 63 56 - 10 (1,136) (140) (1,266) (2,910) 8,282 5,372 ARDEN PARTNERS PLC ANNUAL REPORT 2016 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 October 2016 Operating activities before taxation Loss before tax Adjustments for: Fair value adjustments of derivative financial assets Depreciation of fixtures, fittings and computer equipment Net interest receivable Share based payments Operating cash flow before changes in working capital Decrease in operating assets Increase/(decrease) in operating liabilities Purchase of available for sale investments Proceeds from disposal of available for sale investments Cash generated from operations Income taxes paid Net cash flows from operating activities Investing activities Purchases of property, plant and equipment Net interest received Net cash flows from investing activities Financing activities Exercise of share options Proceeds from the sale of own shares Purchase of own shares Dividends paid to equity shareholders Net cash flows 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 The notes on pages 25 to 48 form part of these financial statements - 21 - Note 2016 £’000 2015 £’000 (429) (2,097) (205) 23 (37) 22 (626) 88 683 (50) - 95 10 105 (26) 37 11 (31) 133 (420) - (318) (202) 5,363 5,161 287 25 (63) 111 (1,737) 2,976 (2,892) (513) 466 (1,700) - (1,700) (7) 63 56 - 10 (1,136) (140) (1,266) (2,910) 8,273 5,363 ARDEN PARTNERS PLC ANNUAL REPORT 2016 COMPANY STATEMENT OF CASH FLOWS For the year ended 31 October 2016 Operating activities before taxation Loss before tax Adjustments for: Fair value adjustments of derivative financial assets Depreciation of fixtures, fittings and computer equipment Net interest receivable Share based payments Operating cash flow before changes in working capital Decrease in operating assets Increase/(decrease) in operating liabilities Purchase of available for sale investments Proceeds from disposal of available for sale investments Cash generated from operations Income taxes paid Net cash flows from operating activities Investing activities Purchases of property, plant and equipment Net interest received Net cash flows from investing activities Financing activities Exercise of share options Proceeds from the sale of own shares Purchase of own shares Dividends paid to equity shareholders Net cash flows 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 The notes on pages 25 to 48 form part of these financial statements - 22 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 October 2016 Own shares cancelled (233) Share capital £’000 2,296 Share Premium account £’000 2,933 Capital Redemption Reserve £’000 Own shares £’000 Employee Benefit Trust Reserve £’000 Available for sale Reserve £’000 Retained earnings £’000 Total £’000 467 (264) (849) (33) 6,597 11,147 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (1,136) 10 233 1,095 - - - - - - - - - - - - - - - - (7) 34 27 - - - - - (2,097) (2,097) 6 - (34) 6 (7) - (2,125) (2,098) - - (1,095) 111 (1,136) 10 - 111 (140) (140) 2,063 2,933 700 (295) (849) (6) 3,348 7,894 - - - - - - - - - - - - - - - - - - - - - - - - - - - - (420) 134 - 32 - - - - - - - - - - (5) (5) - - - - (470) (470) - - - (5) (470) (475) - - 22 (64) (420) 134 22 (32) 2,063 2,933 700 (549) (849) (11) 2,836 7,123 Balance at 1 November 2014 Profit for year Deferred tax taken to equity Revaluation of available for sale financial assets Transferred to retained earnings on disposal of available for sale assets Total comprehensive income for the year Contributions by and distributions to owners Purchase of own shares Sale of own shares Share based payments Dividends paid to equity shareholders Balance at 31 October 2015 Profit for year Deferred tax taken to equity Revaluation of available for sale financial assets Total comprehensive income for the year Contributions by and distributions to owners Purchase of own shares Sale of own shares Share based payments Share options exercised Balance at 31 October 2016 Notes 1. The capital redemption reserve represents the nominal value of shares that have been cancelled that were previously held as Own Shares. 2. Own Shares represents shares purchased to be held as treasury shares at historical cost. 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. The notes on pages 25 to 48 form part of these financial statements - 23 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 31 October 2016 Own shares cancelled (233) Share capital £’000 2,296 Share Premium account £’000 2,933 Capital Redemption Reserve £’000 Own shares £’000 Employee Benefit Trust Reserve £’000 Available for sale Reserve £’000 Retained earnings £’000 Total £’000 467 (264) (849) (33) 6,597 11,147 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (1,136) 10 233 1,095 - - - - - - - - - - - - - - - - (7) 34 27 - - - - - (2,097) (2,097) 6 - (34) 6 (7) - (2,125) (2,098) - - (1,095) 111 (1,136) 10 - 111 (140) (140) 2,063 2,933 700 (295) (849) (6) 3,348 7,894 - - - - - - - - - - - - - - - - - - - - - - - - - - - - (420) 134 - 32 - - - - - - - - - - (5) (5) - - - - (470) (470) - - - (5) (470) (475) - - 22 (64) (420) 134 22 (32) 2,063 2,933 700 (549) (849) (11) 2,836 7,123 Balance at 1 November 2014 Profit for year Deferred tax taken to equity Revaluation of available for sale financial assets Transferred to retained earnings on disposal of available for sale assets Total comprehensive income for the year Contributions by and distributions to owners Purchase of own shares Sale of own shares Share based payments Dividends paid to equity shareholders Balance at 31 October 2015 Profit for year Deferred tax taken to equity Revaluation of available for sale financial assets Total comprehensive income for the year Contributions by and distributions to owners Purchase of own shares Sale of own shares Share based payments Share options exercised Balance at 31 October 2016 Notes 1. The capital redemption reserve represents the nominal value of shares that have been cancelled that were previously held as Own Shares. 2. Own Shares represents shares purchased to be held as treasury shares at historical cost. 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. The notes on pages 25 to 48 form part of these financial statements - 24 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 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 2006. The address of the Company’s registered office is set out on page 49. Basis of preparation The principal accounting policies applied 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. 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 control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. 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 loss after taxation for the financial year amounted to £470,000 (2015: loss £2,097,000). 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 2016 include: Annual improvements to IFRSs 2012-2015 Cycle Disclosure Initiative: Amendments to IAS 1 IFRS 15 Revenue from Contracts with Customers IFRS 9 Financial Instruments IFRS 16 Leases 1 Jan 2016 1 Jan 2016 1 Jan 2018 1 Jan 2018 1 Jan 2019 The Board is currently assessing the impact of IFRS 9 and IFRS 16. All other standards and interpretations are not expected to have a material impact on the financial statements. - 25 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED 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 retainer fees relate to revenue arising from advisory services provided to retained clients and 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 Finance 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 property, plant and equipment 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 held for trading instruments, those designated at fair value through profit or loss, available for sale assets, and loans and receivables. 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. - 26 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Group's accounting policy for each category is as follows: • • • Assets held at fair value: Held for trading instruments represent long market making positions and are measured at fair value with gains and losses from changes in fair value being taken to the Statement of Comprehensive Income. Derivative financial assets may include options which are valued using the Black-Scholes model, which management intends to hold in the short term and any change in fair value are taken to the Statement of Comprehensive Income. The derivative financial instruments are not designated as hedging instruments. Assets designated at fair value through profit and loss are valued with reference to current quoted prices in active markets. They are designated as fair value through profit and loss as management review performance of the asset as part of a portfolio of assets at fair value. 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) these are temporary differences which will be recognised in the Statement of Comprehensive Income upon sale. 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 trade date with any change in fair value between trade date and the reporting 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. 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 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. Included within loans and receivables are market receivables which comprise of sold security transactions awaiting settlement at year end. These balances are shown gross and are recognised on trade date at cost. Cash and cash equivalents Cash and cash equivalents comprise cash in hand, bank balances 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. - 27 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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: • • Fair value through profit or loss: These financial 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 financial liabilities which are quoted in active markets, fair values are determined by reference to the current quoted offer price. 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. Included within other financial liabilities are market payables which comprise of purchased security transactions awaiting settlement at the year end. These balances are shown gross and are recognised on trade date at cost. Stock borrowing collateral The Group may enter into stock borrowing arrangements with certain institutions. These 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 reporting date are translated into sterling at the exchange rate ruling at the reporting date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income within administrative expenses. 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 reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided based upon 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 reporting date. - 28 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. Dividends Dividends are recognised when they become legally payable. Interim dividends are recognised when paid. Final dividends are recognised when approved by shareholders at an Annual General Meeting. Dividends unpaid at the reporting 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 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 reporting 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. Vesting conditions for all the share option schemes relate to service conditions and profit, which are non market conditions the features of which are not incorporated not the fair value of the option. 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 amounts of assets and liabilities. Actual results may differ from those amounts. - 29 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. 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 2016 £’000 2,430 3,427 5,857 2015 £’000 2,172 3,314 5,486 Included within revenue of the Equities Division is a profit of £205,000 (2015: loss £287,000) relating to the fair value adjustment of derivatives held within assets 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 2016, none of the Group’s customers contributed 10% or more of the Group’s revenue. In 2015 one of the Group’s customers contributed more than 10% of the Group’s revenue, the amount was £914,000. 3) Profit from operations 2016 £’000 23 211 35 1 6 15 4 22 (150) - 2015 £’000 25 392 34 1 9 13 (2) 111 - 177 This is arrived at after charging/(crediting): 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/(gains) Share based payments Lease settlement (Note 10) Reorganisation costs - 30 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4) Dividends No dividends were recognised in the year. Dividends recognised in the prior year consisted of the 2014 final dividend of £140,000 (0.75p per share). 5) Employees Staff costs (including Directors) of the Group and Company consist of: Wages and salaries Incentive payments Share based payments (see note 19 for further details) Social security costs Other pension costs 2016 £’000 3,088 25 22 385 173 3,693 2015 £’000 3,474 23 111 418 255 4,281 Staff costs include an amount of £Nil (2015: £177,000) in respect of reorganisation payments. The average number of employees (including Directors) of the Group and Company during the year was 38 (2015: 40) of which 28 (2015: 30) are front-office and the remainder are administration. 6) Directors' remuneration Directors' emoluments including incentive payments Company contributions to money purchase pension schemes 2016 £’000 493 27 520 2015 £’000 495 49 544 There were 2 Directors in defined contribution pension schemes during the year (2015: 3). The total amount payable to the highest paid Director in respect of emoluments was £170,000 (2015: £170,000) of this total Company pension contributions of £18,000 (2015: £18,000) were provided towards a money purchase scheme on his behalf. Further details of Directors’ remuneration are set out in the Report on Directors’ Remuneration on pages 11 to 14. 7) Finance income Bank and other interest receivable 2016 £’000 40 2015 £’000 65 - 31 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8) Finance expense Bank overdrafts 9) Income tax (credit)/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 share options Change in tax rate Adjustment in respect of previous periods Total deferred tax Total income tax charge 2016 £’000 3 2015 £’000 2 2016 £’000 2015 £’000 - 7 7 26 8 - - 34 41 - (8) (8) 5 (5) - 8 8 - The tax assessed for the year is higher (2015: lower) than the standard rate of corporation tax in the UK. The differences are explained below: Loss before tax Loss on ordinary activities at the standard rate of corporation tax in the UK of 20% (2015: 20%) Effect of: Losses carried forward Expenses not deductible for tax purposes Deferred tax on share options Total income tax charge 2016 £’000 (429) 2015 £’000 (2,097) (86) (419) 94 25 8 41 405 19 (5) - A reduction in the UK corporation tax rate from 21% to 20% was substantively enacted in July 2014 and was effective from 1 April 2015. Further reductions to 19% from 1 April 2017 and 18% from 1 April 2020 were substantively enacted in November 2015. Accordingly, the deferred tax balances at 31 October 2016 have been stated at 19% as this is the expected prevailing rate when the temporary differences are expected to reverse. - 32 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 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 loss per share Add: IFRS2 share-based payments Add: Reorganisation payments Less: Lease settlement credit Year ended 31 October 2016 Year ended 31 October 2015 Pence per Share (2.5) 0.1 - (0.8) Numerator £’000 (470) 22 - (150) Pence per Share (10.8) 0.5 0.9 - Numerator £’000 (2,097) 111 177 - Underlying basic loss (3.2) (598) (9.4) (1,809) Diluted loss per share Add: IFRS2 share-based payments Add: Reorganisation payments Less: Lease settlement credit Underlying diluted loss (2.5) 0.1 - (0.8) (3.2) (470) 22 - (150) (598) (10.8) 0.5 0.9 - (9.4) (2,097) 111 177 - (1,809) Year ended 31 October 2016 Number Year ended 31 October 2015 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 18,734,234 541,383 19,275,617 19,282,644 840,385 20,123,029 The 1,480,700 (2015: 1,480,700) shares held by the Arden Partners Employee Benefit and the 1,200,242 (2015: 455,976) shares held in Treasury have been excluded from the denominator. No adjustment has been made to the diluted loss per share of 2.4p as the dilution effect of the weighted average number of outstanding share options of 541,383 would be to decrease the loss per share. - 33 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11) Property, plant and equipment Group and Company as at 31 October 2016 Cost At 1 November 2015 Additions At 31 October 2016 Depreciation At 1 November 2015 Charge for the year At 31 October 2016 Net book value At 31 October 2016 At 31 October 2015 Group and Company as at 31 October 2015 Cost At 1 November 2014 Additions At 31 October 2015 Depreciation At 1 November 2014 Provided for the year At 31 October 2015 Net book value At 31 October 2015 At 31 October 2014 Improvements to leasehold buildings £’000 Fixtures, fittings and computer equipment £’000 301 - 301 301 - 301 - - 1,230 25 1,255 1,205 23 1,228 27 25 Improvements to leasehold buildings £’000 Fixtures, fittings and computer equipment £’000 301 - 301 301 - 301 - - 1,223 7 1,230 1,180 25 1,205 25 43 Total £’000 1,531 25 1,556 1,506 23 1,529 27 25 Total £’000 1,524 7 1,531 1,481 25 1,506 25 43 - 34 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12) Investments Company Cost At 1 November 2014, 31 October 2015 and 31 October 2016 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 2016, the Arden Partners Employee Benefit Trust held 1,480,700 ordinary shares in Arden Partners plc (2015: 1,480,700 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. 13) Deferred tax asset Group and Company – 2016 At 1 November 2015 (Charged)/credited to Statement of Comprehensive Income At 31 October 2016 Group and Company – 2015 At 1 November 2014 Adjustments in respect of previous periods (Charged)/credited to Statement of Comprehensive Income Credited to equity At 31 October 2015 Accelerated capital allowances Share options £’000 45 £’000 39 Total deferred tax asset £’000 84 (9) 30 (25) 20 (34) 50 Accelerated capital allowances Share options £’000 34 - £’000 52 (8) Total deferred tax asset £’000 86 (8) (5) - 39 5 6 45 - 6 84 The Company has unutilised tax losses of £2.4m (2015: £2.0m) on which a potential deferred tax asset of £456k (2015: £406k) has not been recognised. - 35 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14) Assets held at fair value Group and Company Held for trading: Long market making equity positions Derivative financial assets: Options At 31 October 2016 2016 £’000 2015 £’000 1,284 1,703 205 - 1,489 1,703 At 31 October 2016 the historical cost of long market making positions was £1,232,000 (2015 £2,238,000). At 31 October 2016 the historical cost of derivative financial assets was £Nil (2015: £Nil). 15) Available for sale financial assets Group and Company At 1 November 2015 Purchased during the year Disposed of during the year Fair value losses At 31 October 2016 2016 £’000 507 50 - (5) 552 2015 £’000 467 513 (466) (7) 507 At 31 October 2016 the historical cost of available for sale financial assets was £563,000 (2015: £513,000). Included within available for sale financial assets is a holding in United Kingdom Treasury Gilts of £513,000 (2015: £513,000), which is pledged as security to BNP Paribas Securities Services. - 36 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 2016 £’000 1,409 598 198 339 2,544 2016 £’000 1,409 598 386 339 2,732 2015 £’000 661 819 254 404 2,138 2015 £’000 661 819 442 404 2,326 The fair value of market, trade and other receivables approximates to amortised cost as they are short term in nature. An analysis of past due trade receivables is shown in note 24. No other receivables are past due. Trade receivables are shown net of impairment. 17) Cash and cash equivalents Group Cash and bank balances Company Cash and bank balances 2016 £’000 5,170 2015 £’000 5,372 2016 £’000 5,161 2015 £’000 5,363 Included within cash and bank balances of the Group and the Company at 31 October 2016 is an amount of $17,000 (£13,000) (2015: $51,000 (£33,000)) which is denominated in USD. Included within cash and bank balances of the Group and the Company at 31 October 2016 is an amount of €3,000 (£2,000) (2015: €Nil (£Nil)) which is denominated in EUR. - 37 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18) Current liabilities Group Financial liabilities at fair value through profit and loss Short market making equity positions Trade and other payables Market payables Trade payables Other taxation and social security Other payables Accruals and deferred income Total trade and other payables Total current liabilities 2016 £’000 2015 £’000 48 92 1,477 303 178 239 522 2,719 2,767 652 300 177 116 734 1,979 2,071 There are no differences between the fair values and the amortised cost of any of the trade and other payables as they are short term in nature. Included in the above are financial liabilities amounting to £1,918,000 (2015: £1,073,000). Company Financial liabilities at fair value through profit and loss Short market making equity positions Trade and other payables Market payables Trade payables Other taxation and social security Other payables Accruals and deferred income Total trade and other payables Total current liabilities 2016 £’000 2015 £’000 48 92 1,477 303 178 418 522 2,898 2,946 652 300 177 295 734 2,158 2,250 There are no differences between the fair values and the amortised cost of any of the trade and other payables as they are short term in nature. Included in the above are financial liabilities amounting to £2,097,000 (2015: £1,252,000). - 38 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19) Share capital Equity share capital 40,000,000 Ordinary shares of 10p each 20,628,935 (2015: 20,628,935) Ordinary shares of 10p each Authorised 2016 £’000 2015 £’000 Allotted, called up and fully paid 2016 £’000 2015 £’000 4,000 4,000 - - - - 2,063 2,063 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) 2016 26.9 (3.4) 47.8 (15.4) 31.9 Number of Options 2016 1,964,158 (290,000) 359,908 (788,908) 1,245,158 Number of Options 2015 2,014,158 (100,000) 100,000 (50,000) 1,964,158 Weighted Average Exercise price (pence) 2015 26.7 (10.0) - - 26.9 At 1 November 2015 Exercised during the year Granted during the year Expired during the year At 31 October 2016 The weighted average market price of the Company’s shares at the date of exercise of options during the year was 27.2p (2015: 45.0p). The share options outstanding at the year end have a weighted average exercise price and expected remaining life as follows: 31 October 2016 31 October 2015 Weighted Average exercise price (pence) Weighted average expected remaining life (months) Number of share options Weighted average exercise price (pence) Weighted average expected remaining life (months) Number of share options - - - 359,908 47.8 75,000 10.0 53 175,000 10.0 1,170,158 33.3 56 1,429,250 23.7 1,245,158 1,964,158 - 39 - 6 61 67 Arden Partners Old Scheme Arden Partners Share Plan 2007 Arden Partners Share Plan 2013 ARDEN PARTNERS PLC ANNUAL REPORT 2016 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 2016 are as follows: Grant dates Weighted average fair value at grant date 1 Average exercise price Exercise price range Weighted average share price at date of grant Expected volatility 2 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 2013 Arden Partners Share Plan 2007 23/07/2013 to 22/04/2016 16.4p 33.3p 0p – 47.8p 39.54p 30% 0.5% 5% 36-113 74 48 1,170,158 100% 454,158 24/03/2011 44.7p 10.0p 10.0p 54p 30% 4% 5% 120 120 53 75,000 100% 75,000 Notes: 1. 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. 2. 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 2016 £’000 22 2015 £’000 111 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 £173,000 (2015: £255,000). Contributions amounting to £32,000 (2015: £48,000) remained outstanding to schemes and are included in payables. - 40 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 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 two and five years Greater than five years Land and buildings 2015 £’000 227 663 - 2016 £’000 242 469 - 711 890 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 Year ended 31 October 2016 £’000 493 27 3 523 Year ended 31 October 2015 £’000 495 49 14 558 The Group has paid £16,000 (2015: £18,000) to Hartnup Consulting Limited for the services of Peter Moon as a Non-Executive Director, Peter Moon is a director of Hartnup Consulting Limited and was a director of Arden Partners plc. At 31 October 2016, included within trade payables in note 18 is an amount due to Hartnup Consulting Limited of £Nil (2015: £6,000). 23) Events after the reporting period There have been no significant events between the end of the year and the date the Financial Statements were approved. - 41 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 24) Financial instruments and risk profile The Group and Company’s financial instruments comprise cash and cash equivalents, assets held at fair value, trade receivables and trade payables arising from operations. The Group and Company have recognised the following risks arising from these financial instruments: • Market risk • Credit risk • Liquidity risk • Operational risk 24.1 Market risk Equity price risk The Group and Company face risk arising from holding trading assets 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 assets on a monthly basis. Equity price sensitivity analysis A sensitivity analysis based on a 10% increase/decrease in the all share AIM index shows the impact of such a movement would be an increase/decrease of £38,000 in the profit shown in the Consolidated Statement of Comprehensive Income. In the year ended 31 October 2015 a 10% movement in the all share AIM index would have increased or decreased the profit before taxation by approximately £160,000. Interest price risk 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 2016, the profit before taxation would have been decreased or increased by approximately £20,000. In the year ended 31 October 2015 a 0.5% movement in rates would have increased or decreased the profit before taxation by approximately £17,000. Fixed rate cash financial assets of £4,800,000 (2015: £5,150,000) comprise sterling cash deposits at an average rate of 0.15% (2015: 0.30%). Remaining cash was held on current accounts attracting interest based on LIBOR. Other financial assets do not have maturity dates and do not currently attract interest. Currency price risk The Group and Company had an aggregate currency exposure at 31 October 2016 in respect of US$16,000 (£13,000). There was a currency exposure for the Group and the Company at 31 October 2015 of US$51,000 (£33,000). The effect of a 10% movement in the US$/£ exchange rate from the rate ruling at the reporting date would be to impact profit/(loss) and net assets by approximately £1,000 (2015: £3,000). - 42 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 24.2 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 FCA 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 Total loans and receivables Cash and cash equivalents Total assets Group 2016 £’000 1,409 58 598 198 2,263 5,170 7,433 2015 £’000 661 120 819 254 1,854 5,372 7,226 Company 2016 £’000 1,409 58 598 386 2,451 5,161 7,612 2015 £’000 661 120 819 442 2,042 5,363 7,405 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. Collateral deposits relate to stock borrowing arrangements which are entered into on a collateralised basis, with third party institutions, with securities or cash advances received as collateral. Under such arrangements a security is purchased with a commitment to return it at an agreed future date and price. In the event of a default the institution can exercise its right to retain the collateral deposit. 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 - 43 - 31 October 2016 £’000 507 47 - - 44 - 598 31 October 2015 £’000 287 32 46 25 429 - 819 ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Movement in provision: Opening balance Amounts released Amounts written off Increase in provision Closing balance 31 October 2016 £’000 - - - - - 31 October 2015 £’000 82 - (97) 15 - No receivables have been renegotiated and no non trade receivables are past due or impaired. 24.3 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. trade and other payables are short term in nature and are due for payment within one year. The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities: Group as at 31 October 2016 Financial liabilities at fair value through profit and loss Trade and other payables Group as at 31 October 2015 Financial liabilities at fair value through profit and loss Trade and other payables Between 3 and 12 months £’000 Between 1 - 2 Years £’000 Between 2 - 5 Years £’000 Over 5 years £’000 - 44 44 - - - - - - - - - Between 3 and 12 months £’000 Between 1 - 2 Years £’000 Between 2 - 5 Years £’000 Over 5 years £’000 - 36 36 - - - - - - - - - Up to 3 months £’000 48 1,826 1,874 Up to 3 months £’000 92 945 1,037 - 44 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Company as at 31 October 2016 Financial liabilities at fair value through profit and loss Trade and other payables Company as at 31 October 2015 Financial liabilities at fair value through profit and loss Trade and other payables Up to 3 months £’000 48 1,826 1,874 Up to 3 months £’000 92 945 1,037 Between 3 and 12 months £’000 Between 1 - 2 Years £’000 Between 2 - 5 Years £’000 Over 5 years £’000 - 44 44 - - - - - - - 179 179 Between 3 and 12 months £’000 Between 1 - 2 Years £’000 Between 2 - 5 Years £’000 Over 5 years £’000 - 36 36 - - - - - - - 179 179 Capital risk management The Group and Company’s policy in respect of capital risk management is to maintain a strong capital base so as to retain investor, creditor and market confidence. During the years ended 31 October 2015 and 2016 capital has been maintained at a level above minimum FCA 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. 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. - 45 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 24.5 Fair value estimation All financial instruments carried at fair value are categorised into three categories defined as follows: • Level 1 – Quoted market price Financial instruments with quoted prices for identical instruments in active markets. • Level 2 – Valuation technique using observable inputs Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable. • Level 3 – Valuation technique with significant non-observable inputs Financial instruments valued using models where one or more significant inputs are not observable. The best evidence of fair value is a quoted price in an actively traded market. In the event that the market for a financial instrument is not active, a valuation technique is used. The majority of valuation techniques employ only observable market data and so the reliability of the fair value measurement is high. However, certain financial instruments are valued on the basis of valuation techniques that feature one or more significant market inputs that are not observable. For these instruments, the fair value derived is more judgemental. ‘Not observable’ in this context means that there are few or no current market data available from which to determine the level at which an arm’s length transaction would be likely to occur. It generally does not mean that there is absolutely no market data available upon which to base a determination of fair value (for example, historical data may be used). Furthermore, the assessment of hierarchy level is based on the lowest level of input that is significant to the fair value of the financial instrument. - 46 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table presents the Group’s and Company’s assets and liabilities that are measured at fair value at 31 October 2016: Group and Company as at 31 October 2016 Level 1 £’000 Level 2 £’000 Level 3 £’000 Assets Long market making positions Options Available for sale financial assets Stock borrowing collateral Liabilities Short market making equity positions Group and Company as at 31 October 2015 1,284 - 552 58 1,894 48 - - - - - - Total £’000 1,284 205 552 58 2,099 - 205 - - 205 - 48 Assets Long market making positions Available for sale financial assets Stock borrowing collateral Liabilities Short market making equity positions Level 1 £’000 Level 2 £’000 Level 3 £’000 1,703 507 120 2,330 92 - - - - - - - - - - Total £’000 1,703 507 120 2,330 92 Reconciliation of recurring fair value measurements categorised within level 3 of the fair value hierarchy At 1 November 2015 Transferred to Level 1 – Long Market Making Positions Net unrealised profit/(loss) recognised in Statement of Comprehensive Income At 31 October 2016 Options £’000 - - 205 205 Total £’000 287 (164) (123) - The derivative financial assets are classified as level 3 within the fair value hierarchy and comprise equity options over liquid listed securities. - 47 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Determination of fair value The valuation models used where quoted market prices are not available incorporate certain assumptions that the Group anticipates would be used by a third party market participant to establish fair value. Fair value as at 31 October 2016 £’000 Valuation Technique Unobservable input Range Options 205 Black-Scholes Model Historical Volatility 30-40% Impact of reasonably possible alternative assumptions A sensitivity analysis based on a 10% increase/decrease in the volatility measure used as an input in the valuation of the options shows the impact of such a movement would be an increase of £4,115 / decrease of £2,211 respectively in the profit shown in the Consolidated Statement of Comprehensive Income. 25) Country by Country Reporting Arden Partners is required to comply with Article 89 of the Capital Requirements Directive IV (CRD IV) country by country reporting in order to comply with this requirement. The information below provides the relevant detail:- Entity Name Nature of Activities Geographic Location Turnover (£’000) Average number of employees Loss before tax (£’000) Corporation tax paid Public subsidies received 31 October 2016 Arden Partners plc Institutional Stockbroker UK 5,857 38 429 - - - 48 - ARDEN PARTNERS PLC ANNUAL REPORT 2016 CORPORATE INFORMATION Company Secretary Steve Wassell Arden House 17 Highfield Road Edgbaston Birmingham B15 3DU Company Number 4427253 Nominated Advisor Registrar Lawyers Auditors Bankers Registered Office GCA Altium Limited 1 Southampton Street London WC2R 0LR Capita Asset Services 40 Dukes Place London EC3A 7NH Eversheds LLP 1 Wood Street London EC2V 7WS BDO LLP 55 Baker Street London W1U 7EU HSBC Bank plc 1st Floor 60 Queen Victoria Street London EC4N 4TR Arden House 17 Highfield Road Edgbaston Birmingham B15 3DU - 49 - 125 Old Broad Street London 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 www.arden-partners.co.uk www.arden-partners.co.uk www.arden-partners.co.uk Bristol London Broad Quay House 125 Old Broad Street Prince Street London Bristol EC2N 1AR BS1 4DJ Birmingham London Arden House 125 Old Broad Street 17 Highfield Road London Edgbaston EC2N 1AR Birmingham B15 3DU Bristol Broad Quay House Prince Street Bristol BS1 4DJ Birmingham Arden House 17 Highfield Road Edgbaston Birmingham B15 3DU Bristol Broad Quay House Prince Street Bristol BS1 4DJ Tel 020 7614 5900 Fax 020 7614 5901 Tel 020 7614 5900 Fax 020 7614 5901 Tel 020 7614 5900 Fax 020 7614 5901 Tel 0121 423 8900 Fax 0121 423 8901 Tel 020 7614 5900 Fax 020 7614 5901 Tel 0121 423 8900 Fax 0121 423 8901 Tel 020 7614 5900 Fax 020 7614 5901 17758ARDENPARCVR.indd 4 17758 26/02/2009 Proof 5 17758ARDENPARCVR.indd 4 17758ARDENPARCVR.indd 4 02/03/2010 12:04 02/03/2010 12:04 17758 26/02/2009 Proof 5 17758 26/02/2009 Proof 5 02/03/2010 12:04 www.arden-partners.co.uk www.arden-partners.co.uk 125 Old Broad Street London 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 London Broad Quay House 125 Old Broad Street Prince Street London Bristol EC2N 1AR BS1 4DJ Birmingham Arden House 17 Highfield Road Edgbaston Birmingham B15 3DU Bristol Broad Quay House Prince Street Bristol BS1 4DJ Tel 020 7614 5900 Tel 020 7614 5900 Fax 020 7614 5901 Fax 020 7614 5901 Tel 0121 423 8900 Fax 0121 423 8901 Tel 020 7614 5900 Fax 020 7614 5901 17758ARDENPARCVR.indd 4 17758 26/02/2009 Proof 5 17758ARDENPARCVR.indd 4 02/03/2010 12:04 02/03/2010 12:04 17758 26/02/2009 Proof 5 www.arden-partners.co.uk www.arden-partners.co.uk 125 Old Broad Street London 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 London Broad Quay House 125 Old Broad Street Prince Street London Bristol EC2N 1AR BS1 4DJ Birmingham Arden House 17 Highfield Road Edgbaston Birmingham B15 3DU Bristol Broad Quay House Prince Street Bristol BS1 4DJ Tel 020 7614 5900 Tel 020 7614 5900 Fax 020 7614 5901 Fax 020 7614 5901 Tel 0121 423 8900 Fax 0121 423 8901 Tel 020 7614 5900 Fax 020 7614 5901 17758ARDENPARCVR.indd 4 17758 26/02/2009 Proof 5 17758ARDENPARCVR.indd 4 02/03/2010 12:04 02/03/2010 12:04 17758 26/02/2009 Proof 5 

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