Creating value
through greater
alignment of
adviser and
customer interests
Nucleus Financial Group plc
Annual report and financial statements
for the year ended 31 December 2019
Company registration number 05522098
2019 highlights
3.3% increase in the
number of active
advisers from 1,396
to 1,442
Assets under administration ¹
16.3% increase
£16.1bn
£13.9bn
3.4% increase in
customer numbers
from 93,715 to
96,857
2018
2019
Average AUA ¹
Growth 7.5%
£14.1bn
£15.2bn
2018
2019
¹ Industry-specific financial performance measures. Included within this results announcement are alternative measures that the directors believe help to
inform the results and financial position of the group. These are defined in the definitions and glossary of technical terms section.
Annual report and financial statements 2019
Net revenue ¹
4.8% increase
£43.2m
£45.2m
2018
2019
Covid-19
In light of the rapidly evolving situation
regarding Covid-19 at the time of
writing, we’ve highlighted key areas in
this report where this is referenced.
Chairman’s statement
Chief executive’s report
Chief financial officers report
Directors’ report
Notes to the consolidated
financial statements
8
12
22
62
113
Profit for the year
25.2% increase
£6.0m
£4.8m
Adjusted EBITDA¹
£7.9m
(2018 £8.3m)
2018
2019
Full year dividend per share (p)*
5.0p
1.5p
2018
2019
*2019 final dividend suspended
Earnings per share
up 23.8% to 7.8p,
from 6.3p in 2018
Contents
Strategic report
Chairman’s statement
Chief executive’s report
About Nucleus
Section 172 report
Chief financial officer’s report
Principal risks and uncertainties
8
12
16
18
22
30
Governance
Risk management framework
Corporate governance statement
Board of directors
Audit committee report
Risk committee report
Nomination committee report
Remuneration and HR committee report
Directors’ report
Directors’ responsibilities statement
38
40
42
49
51
53
54
62
66
Annual report and financial statements 2019
Financials
Independent auditors’ report
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Company statement of financial position
Company statement of changes in equity
Company statement of cash flows
Notes to the company financial statements
Company information
Definitions and glossary
70
76
78
80
81
82
114
115
116
117
129
130
Strategic report
Governance
Financials
Strategic
report
6
Strategic reportGovernanceFinancials Annual report and financial statements 2019
Chairman’s statement
Chief executive’s report
About Nucleus
Section 172 report
Chief financial officer’s report
Principal risks and uncertainties
8
12
16
18
22
30
7
Chairman’s statement
Weathering
the storm
2019 is likely to be remembered as one where many
industries, not least our own, were temporarily stymied as
geopolitical events ran their course during the prolonged
political malaise ahead of the election. Our sector has,
however, weathered many of these storms over the years
and has once again proven itself to be resilient. 2020 has
started with an altogether different challenge with the
devastation currently being wrought across the globe by the
Covid-19 pandemic. David considers the impact of the rapidly
evolving situation on our business, our people and our users,
in his CEO report. The need to save and invest for our future
never goes away, it is only ever put to the side for a while.
8
Strategic reportGovernanceFinancials Angus Samuels
Chairman
“ … it is pleasing to
see continued growth
across many of our key
performance indicators
including growth in assets,
revenue and profit, as
well as the number of
customers and advisers
using the platform.”
This included material investment
in enhancing the core platform
proposition for advisers, a further
platform upgrade, improvements in
our customer service infrastructure and
the successful completion of a further
round of regulatory change.
The business also entered into a
number of strategic distribution
relationships in the year, including
a partnership with one major
IFA consolidator, and is in active
discussions with others. We expect
these new relationships to enhance the
resilience of net inflows and to present
future growth opportunities.
All of which makes our financial
performance for last year the more
gratifying, recording a 25.2 per cent
increase in profit after tax of £6.0m on
revenue of £51.5m, noting that 2018
included £1.7m of AIM admission
costs. David and Stuart provide full
detail of the key financial results in the
reports that follow but it is pleasing to
see continued growth across many of
our key performance indicators (KPIs)
including growth in assets, revenue
and profit, as well as the number of
customers and advisers using the
platform.
As anticipated in last year’s report,
the completion of the restructuring
of our outsourced operations at
the end of 2018 allowed us to
significantly accelerate our delivery of
operating efficiencies and our product
development over the year.
9
Annual report and financial statements 2019 The board
The board composition remained
unchanged throughout the course of
the financial year but did change in
February 2020 with the departure of
non-executive director, Jeremy Gibson.
Jeremy joined the board in 2013 and
was previously the chair of the audit and
risk committees until July 2018.
I would like to take this opportunity to
thank Jeremy for his considerable and
invaluable contribution over the course
of the last six years and wish him all
the very best for the future. Jeremy’s
position as a non-executive director is
filled by Alfio Tagliabue who has been
the CEO of Sanlam Investments UK since
2016. Alfio’s previous roles include CFO
at Sanlam UK and Ashcourt Rowan,
and he has many years as a board
level consultant to the asset and wealth
management industries. I would like to
extend a warm welcome to Alfio.
“ Culture and values
lie at the heart of any
good business and our
engagement with our
people is key to this.”
10
Governance
The business is subject to the Quoted Companies
Alliance (QCA) corporate governance code and the
board is committed to ensuring the highest level
of compliance with this. With the recent change in
board composition, I’m confident that the breadth
of skills and the depth of experience we have on
the board provide equal measures of support and
appropriate challenge to the strategic direction of
the company.
The long-term success of the business is reliant
on the strength of its corporate culture and the
board continues to recognise the importance
of good governance, and effective and resilient
systems and controls in supporting the executive
management in their development and delivery of
the company’s strategy.
Full details of the work of the board and its
committees can be found in the corporate
governance statement on page 40.
Strategic reportGovernanceFinancials Annual report and financial statements 2019
Culture and people
Culture and values lie at the heart of any
good business and our engagement
with our people is key to this. We’ve
made positive strides in our people
strategy this year with a strong focus
on individual accountability ahead of
the introduction of the Senior Managers
and Certification Regime (SM&CR) on 9
December 2019.
Given the challenging market conditions,
I would like to thank the entire team at
Nucleus for their commitment, focus and
resilience throughout the year.
Dividend
In light of the exceptional and open-
ended uncertainty caused by the
Covid-19 pandemic and the rapidly
changing environment, the board has
decided, in the interests of prudence,
not to recommend a dividend until there
is more certainty around the term and
impact on markets, investor confidence
and revenue.
Outlook
Politics aside, the decisiveness of the
general election and resolution of the
Brexit withdrawal agreement have
seeded encouraging signs of recovery
in investor confidence, with Nucleus
recording a 37.8 per cent increase in
net inflows in the last quarter of the year
compared to the previous quarter.
The positive inflow momentum from
Q4 continued into the first quarter of
2020 and there was limited impact
on inflows as a result of the Covid-19
pandemic until the latter part of March
when the typical step up in tax year
end contributions eased off. However,
the value of most asset classes fell
considerably in March, and, as the
significant uncertainty continues, it is
too early to estimate the impact of the
pandemic on Nucleus’ performance.
Notwithstanding this uncertainty, the
group has a robust capital structure
and solvency position, high conversion
rate of profit to cash, no borrowings and
available liquidity.
Against a backdrop of extraordinary
political division and uncertainty in the
UK for much of 2019, I’m pleased with
the company’s financial performance
over the past year. Underpinned by
anticipated continuing sector growth,
Nucleus’ broader and deeper skills
set including technology capabilities,
enhanced infrastructure, and recurring
fee model, give the board confidence
in the company’s ability to deliver its
plans and to manage the competitive
challenges that lie ahead.
Angus Samuels
Chairman
11
Chief executive’s report
Building on
our purpose
It’s impossible to begin this report without making
reference to the Covid-19 pandemic currently
wreaking havoc across our planet. The extremely ‘live’
nature of this situation means that the non-historic
aspects of this report are exposed to external events
more than ever before.
£16.1bn
Assets under administration
£1.9bn
Gross inflows
12
Strategic reportGovernanceFinancials David Ferguson
Founder and chief executive
I hope you will read the words that
follow in that context but also in the
knowledge that prior to the outbreak,
we were feeling very positive about
our prospects and what might be
achievable in the coming years. I expect
us to navigate this period successfully
and for us to continue to deliver on those
matters within our control. This should
mean that as and when some sort of
normality returns, we can return to the
financial trajectory we had previously
been working toward.
These are early days but our Covid-19
response has been anchored around
protecting the safety of our people,
in maintaining service levels and in
continuing to develop the business
in accordance with our long-term
objectives. We have ceased or limited
certain activities (whether in line with
government guidance or our values) but
in general terms have placed the long-
term success of the business ahead of
short-term profitability. I strongly believe
this approach is best aligned with the
interests of our key stakeholders and
will ensure we remain well-positioned
to capture our share of the structural
opportunity of the sector.
For now (and returning to the traditional
format of this report) I would like to
remind you that Nucleus was founded
to create value through greater
alignment of adviser and customers
interests, and we set out to achieve
this by building the most technology-
led platform in the UK. Despite the
challenging sector headwinds, we
made good progress during the course
of 2019 and closed the year with a
stronger than ever combination of
online product capability and offline
service. We continue to invest in the
team that made this possible. Their
efforts have positioned us well as
the financial planning and wealth
management markets continue to
evolve. Commercial and regulatory
pressures require all market
participants to deliver value for money
and we are excited about what we can
achieve in the coming years. We were
also pleased to win CoreData’s ‘best
medium platform’ award for the eighth
year in succession and to achieve
five-star status in the Financial Adviser
service awards.
13
Annual report and financial statements 2019 Operational performance
Financial performance and dividend
Net revenue was up 4.8 per cent to £45.2m and we recorded
an adjusted EBITDA of £7.9m (2018: £8.3m). Consistent
with our expectations, this represents a slight short-term
deterioration in operating margin over 2018 and reflects
our continued investment to accelerate future growth. On a
reported basis, we increased profit after tax and earnings per
share by 25.2 per cent and 23.8 per cent respectively, noting
that 2018 included £1.7m of AIM admission costs.
Further details are contained in Stuart’s report but in light of the
Covid-19 situation, the board has taken the prudent decision
not to recommend a dividend until there is more certainty
around the term and impact on markets, investor confidence
and revenue. While this would typically be considered an
unusual decision, we are in uncharted waters and I believe it
to be the correct course of action at this stage. The decision to
suspend payment of the 2019 final dividend will allow the group
to preserve capital until there is greater clarity on the effect of
Covid-19 and the board will continue to assess the situation
and the appropriateness of paying a second interim dividend
relating to the financial year ended 31 December 2019.
Our people
We’ve reshaped the organisation over the last two years, and
this will continue as we direct more of our people costs toward
our technology functions. Overall, we welcomed 64 new
colleagues in 2019 and grew full-time equivalent headcount
to 236 at the year-end, with over 70 per cent of these roles
involved in product management, platform operations, or
servicing our audience.
Our strategy of balancing the agility, scalability and resilience
of our product with high touch offline service requires us to
continue to invest in these areas over time. People engagement
has been strong throughout the year and the team feels well
set to achieve our objectives for 2020 and beyond. We made
positive progress in narrowing our gender pay gap, reducing
this by 1.7 per cent while women in senior positions remained at
32 per cent.
Kirsty Lynagh
Chief people officer
Although political and economic
uncertainty, largely related to the UK’s
exit from the EU, generated some
headwinds, markets ultimately rose
over the year and this, combined with
net inflows, helped power us toward a
16.3 per cent increase in assets under
administration (AUA) to £16.1bn. Overall
gross inflows fell to £1.9bn (from £2.3bn
in 2018), however, market share, on
a like-for-like basis, remained steady
at 3.8 per cent (retail advised platform
market).
We were also pleased to post four
successive quarters of growth in gross
inflows, along with continued growth
in active advisers and customers, the
latter two of which can be expected
to contribute to future inflow growth.
We enjoyed a notable uptick in inflows
toward the end of the year and this
trend has continued strongly into the
start of this year.
We experienced a heightened level
of outflows, when a handful of firms
that had been acquired moved some
customers off the platform. More
positively, we were successful in forging
new relationships with a leading IFA
consolidator and the biggest adviser
support services firm (in the UK),
and we are cultivating several other
opportunities in this area.
Our product development and
operations had a great year with notable
progress made on all fronts. We were
able to introduce new capabilities such
as a Junior Isa, new phased drawdown
features, a new customer portal and
many other platform enhancements,
including improved trading functionality
and meeting the new costs and charges
disclosure requirements of Mifid II. We
also improved the resilience of some of
our platform operations and installed
new telephony and CRM infrastructure
which will help us maintain and improve
service levels. These investments were all
well received by advisers and customers
and I’m really pleased to have achieved
the level of change velocity we believe
is necessary to support our growth
ambitions.
14
Strategic reportGovernanceFinancials “ I’m very pleased to
announce we plan to
launch Nucleus IMX, a
discretionary investment
management
proposition in 2020.”
Strategic development
We have greatly enjoyed the first full year of
our direct relationship with Bravura and remain
strongly of the view that our blend of in-house
development and data services sitting on top of
Bravura’s market-leading Sonata product is the
right technology model for us.
We have improved our flexibility in supporting
alternative product and pricing structures for larger
scale opportunities and, following the year end,
have packaged this under the Nucleus Enterprise
brand, with a view to driving further growth through
this channel.
Alongside our core platform product, we made
good progress in developing a new approach to
investment portfolio management, and I’m very
pleased to announce that following confirmation
of the relevant regulatory permissions in
January 2020 we plan to launch Nucleus IMX, a
discretionary investment management proposition,
in the first half of 2020. We believe the combination
of our data capabilities and the work we have
done internally and in partnership with leading
investment consultancy firm Hymans Robertson,
will allow us to open up a meaningful new revenue
stream while further aligning adviser and customer
interests.
Annual report and financial statements 2019
Outlook and Covid-19
Notwithstanding the impact of external factors, whether
related to market sentiment, the political environment or
the current coronavirus pandemic, I believe the business is
well-positioned to deliver on our plans and capitalise on the
structural growth themes relating to our sector.
The recent period has seen us materially accelerate our
product development efforts and coupled with strong
operational performance and high touch offline service, we
have started 2020 with a material improvement in inflows.
These have been driven by increased demand from existing
users and new demand from recently added adviser firms and
we look forward to accelerating growth as we add further new
firms through the year.
The competitive landscape has adjusted slightly with some
legacy companies exiting the market and some more tech-
led entrants emerging. There is little doubt that an effective
technology model is central to success in this market and we
continue to believe that blending Bravura’s Sonata product
with our in-house capabilities provides the right balance of
agility, scalability and resilience to meet user expectations in
the short term while also ensuring our business is durable
over the long term.
More widely, platforms can play a positive role in helping
deliver improved value for money for customers and to this
end we are particularly excited about Nucleus IMX which has
been designed specifically to improve value for money in asset
management and if successful should also bolster our overall
revenue yield, attract new users and create other interesting
product opportunities.
We face a new challenge this year with the rapid change in
the development of Covid-19, and it is entirely uncertain what
impact this might have on businesses and the economy. The
outlook is impossible to predict, but I can say that we remain
open for business, and cash generative each day. Our highest
priorities are the health and wellbeing of our people, users
and customers and we are taking every possible action to
adapt to the situation and ensure we continue to deliver our
online product as normal, backed up by top quality offline
support. Our platform is fully operational and all of our people
are successfully working remotely with no impact on service.
We are in continual dialogue with our users and our material
service providers and I consider our operations to be resilient,
recognising that our user experience remains reliant (as ever)
on the performance of many of the interconnected parties that
comprise the overall financial system.
David Ferguson
Founder and chief executive
15
About Nucleus
Nucleus is an independent
wrap platform that allows
customers to hold all of their
pensions, Isas and other
investments in one secure
place online.
We were founded in 2006 and built in collaboration
with financial advisers committed to altering the
balance of power in the industry by putting the
customer centre stage. We work with over 1,440
active financial advisers from more than 880
financial advice firms as at 31 December 2019. We
are responsible for AUA of £16.1bn on behalf of
more than 96,000 customers.
The platform offers a range of custody, trading,
payment, reporting, fee-handling, research
and integration services across a variety of
tax wrappers and around 5,000 asset choices
including cash, OEICs, unit trusts, offshore funds,
structured products and listed securities, including
ETFs and investment trusts, and currently facilitates
over 1.4 million customer account transactions on
average per month.
We create
value through
greater
alignment of
adviser and
customer
interests.
16
Strategic reportGovernanceFinancials Our purpose
Our purpose has been clear and consistent since our inception and that is to create
value through greater alignment of adviser and customer interests.
Our values
Our values are aligned to our purpose and provide the foundations that support,
shape and unify the culture of our business. Together they are a core part of our
identity and provide the framework for how we engage with our people, our users
and our customers and how we drive value for our shareholders.
Naturally, these values align with the principles of our regulator.
Accountable
We own solving problems and our customers, people,
stakeholders and our regulator can rely on each of us to be
disciplined and take responsibility. We collaborate, while
delivering as individuals, overcome challenges and see
things through on time. Being accountable means we are
reliable; we trust each other to deliver and enjoy autonomy.
Authentic
We are all human, this gives us the opportunity to be
ourselves, do our best work and deliver value for our
customers. Being authentic is being honest, respectful,
having ‘adult-to-adult’ relationships and not shying away
from candid conversations.
Energetic
We are proactive, innovative and tenacious. It’s about driving
our business forward and making a difference for our
customers and our people. We balance our drive to change
the future with being accountable for delivering every day.
Inspiring
We think big, act small and are humble. We’re always
looking to make life better for our customers and our people.
We’re relentlessly curious, always learning and developing,
pushing boundaries and finding better ways, for ourselves
and our customers.
17
Annual report and financial statements 2019 Section 172 report
Strategic
decisions
Our strategic decision making is driven by
a desire to fulfil our purpose, aligned to our
values, our policies and our overall attitude to
risk. A key input to any strategic decision, is
its impact on our stakeholders. In addition to
the stakeholder specific outcomes set out on
the next couple of pages, these case studies
highlight how the board took its duties set out in
s172(1) of the Companies Act 2006 into account
during the course of 2019.
18
Strategic reportGovernanceFinancials Case study one
Case study two
Propositional enhancements and core
technology upgrade
Culture and governance
The board constituted the advisory board in 2018
and engages it directly to garner the input of its
members. The advisory board is formed of a group
of financial advisers and business owners from
our user firms, and is tasked with collating the
feedback from our platform development group, as
well as representing our customers and engaging
with management on various strategic issues from
product development and regulatory change to
the impacts of industry reviews. The chair of the
advisory board reported quarterly to our board
during 2019 and that feedback was considered in a
number of strategic decisions.
Building on the decision in 2018 to unbundle
our outsourced technology and administration
contract and enter into a direct technology
relationship with Bravura, the board approved
a decision to implement our first major upgrade
under the new structure in Q2 2019, as well as a
number of key releases. The roadmap for these
propositional improvements was created taking
into account significant input from our users, our
suppliers and our customers’ needs. With the
needs of our stakeholders in view, for example,
costs were managed carefully and within budget
ensuring no impairment in our ability to meet our
dividend policy.
The advisory board also provided valuable
feedback to help us shape the proposition for
IMX, our new approach to portfolio management,
giving both a users’ perspective and feedback on
the most important features for our customers. The
new service builds on our strategic objectives to
invest in our data assets and our technology team
and create cost effective solutions for our users and
customers.
We believe these decisions will create
long term value and unlock our ability to
become a truly innovative digital platform.
A strategic objective for 2019 was to review our
conduct, values, policies and accountabilities
frameworks, with a view to giving clarity to our
people, our users and our regulator on how we
are organised, our expected behaviours and our
individual accountabilities.
The board took a decision to invest in building a
capability and accountability framework, (details of
which can be found on page 45) to strengthen our
existing systems and controls and align with our
delivery of a key regulatory change to comply with
the new SM&CR for solo-regulated firms.
Culture and governance were key strategic
objectives for Nucleus in 2019 and we were pleased
that these were also key objectives for the FCA.
We believe that building the foundations
on which to scale will deliver long term
value to all our stakeholders.
Factors all directors
must take into account:
1
2
3
4
5
6
the likely consequences of any
decision in the long term,
the interests of the company’s
employees,
the need to foster the company’s
business relationships with
suppliers, customers and others,
the impact of the company’s
operations on the community and
the environment,
the desirability of the company
maintaining a reputation for high
standards of business conduct, and
the need to act fairly as between
members of the company.
19
Annual report and financial statements 2019
Platform users
What matters most
How did we respond
• Connection to customers’
• Delivered a major
needs
• Continuous technology
and proposition
developments
• Dependable and
consistent service
standards
• Cost-effective platform
• Clear guidance and
thought leadership
How do we engage
• User sessions
• Platform development
group
• Practice development
group
• Advisory board
• Dedicated account
managers and business
development team
• Annual strategy event
• Thought leadership
platform
upgrade and many
propositional features on
our user-led technology
roadmap
• Developed our new
approach to portfolio
management,
permissions for which
have been granted, and
launch scheduled for
2020
• Changed our stockbroker
with improved trade
execution and pricing for
customers
• Introduced a new
telephony infrastructure
to improve our service
standards
• Built a cost and charges
engine into Narrate,
our reporting tool, to
support users’ regulatory
obligations
• Developed our strategy
to consider alternative
product and pricing
structures for larger scale
opportunities
Shareholders
What matters most
How did we respond
• Compelling business
• Reported quarterly on
model and growth story
performance
• Stability, resilience and
• Delivered against our
dividend policy
• Delivered against our
people strategy to create
the workforce for the
future
• Held more than
50 meetings with
shareholders and
potential shareholders
during the year
ability to scale
• Reliable returns
• Investing in our talent and
succession
How do we engage
• Investors roadshows twice
a year
• 1-2-1s with institutional
shareholders
• AGM and regular
disclosures
Customers
What matters most
How did we respond
• Transparency and
• Launched Nucleus Go, our
simplicity
• Fair pricing
• Quality of service
• Security of assets
How do we engage
• Bi-annual investors in
customers surveys
• Face to face meetings or
events
• Dedicated client relations
team
• Clear communications
new client portal
• Launched a junior Isa to
meet the needs of our
target market
• Changed our stockbroker
with improved trade
execution and pricing for
customers
• Created a customer
insight team, supported
by a suite of conduct and
customer policies
• Continued embedding
our updated conduct
framework to ensure all
our people are focused on
creating good customer
outcomes
As directors, we are obliged to
fulfil our codified directors’ duties
under section 172(1) (a)-(f) of the
Companies Act 2006, and, in
taking decisions, ensure that
we promote the success of the
company as a whole.
We acknowledge that this involves
both judgment and process.
We have created a number of
forums to facilitate and engage
the views and expectations of our
stakeholders and seek to ensure
we can demonstrate how their
views, as well as the long term
consequences, are taken into
account in our strategic decision
making.
We consider our key stakeholders
to be our customers, our
platform users, our people, our
shareholders, our suppliers, our
regulators, our community and
wider society. We have captured
what matters most to each group,
how we engage with them and
how we have responded to their
needs as follows.
20
Strategic reportGovernanceFinancials Our people
What matters most
How do we engage
• Making a difference
for our customers
• Autonomy,
coupled with clear
expectations and
boundaries
• Having opportunities
to grow and progress
• Being fairly rewarded
for their contributions
• Knowing that their
voice is heard
• Feeling alignment
between company
and personal values
• Regular surveys
• Fortnightly all
company briefing
sessions and
bi-annual strategy
updates led by our
CEO and his executive
team
• Culture champions in
each team
• Re-designed induction
for all
• Board member
responsible for
representing
employee voice
• ‘Ask me anything’
lunch with the
executive team for
new joiners
How did we
respond
• Restatement of our
company values
• Focus on culture
- creating a new
framework for
communicating and
embedding
• Diversity and
inclusion initiatives,
building on inclusive
hiring practices
and encouraging
psychological safety
and diversity of
thought
• Building leadership
capability to support
delivery and
alignment between
people and customer
experience
Our purpose
Our purpose has been clear and consistent since
our inception and that is to create value through
greater alignment of adviser and customer interests.
Regulators
What matters most
How did we respond
• Provided feedback to the
Platform Market Study
• Implemented the SM&CR,
designing our framework
to meet the standards of
an enhanced firm
• Refreshed and rolled
out our conduct risk
framework, and work
on embedding it for
the benefit of our
stakeholders.
• Understanding and
adopting the principles
and rules of the FCA
Handbook
• Open and transparent
communication
• Demonstrating good
conduct
• Acting in our customers’
best interests
How do we engage
• Members of the UK
platform development
group
• Direct communication via
our compliance senior
manager function holder
• Consultations and policy
statements
Suppliers
What matters most
How did we respond
• Attendance and input
to the working group,
formed of our core
technology supplier’s
clients. Its aim is to
reduce costs and risk
and improve outcomes
through aligned strategies
and regulatory initiatives
• Identified relationship
managers across all key
suppliers
• Reviewed effectiveness
and embedding of our
vendor management
suite of policies
• Trusted partnerships
• Strong governance
• Clear communications
• Our input into their service
delivery
How do we engage
• Regular service reviews
• Clearly documented
vendor management
onboarding and
maintenance policies and
practices
• Annual due diligence
reviews
• Collaborative
engagement
Community and wider society
What matters most
How did we respond
• Actively supporting local
• Our CEO is the chairman
of Fintech Scotland, aimed
at raising the profile
and local investment in
technology and financial
services in the Scottish
economy
• Recruited a number of
graduate coding and
software engineers
through our partnership
with Codeclan
• Set up a charity committee
which supported initiatives
raising over £50,000 for
MND Scotland in 2019
communities
• Engaging in charitable
activities
• Providing jobs and
investment
How do we engage
• Support employment and
apprenticeship schemes
with graduate coding
schemes
• Support local STEM
initiatives in schools and
universities
• Support a chosen charity
each year and work
collaboratively to reach
meaningful targets
• Host and attend meet-ups
for Agile Scotland and
other Fintechs
21
Annual report and financial statements 2019 Chief financial officer’s report
Positive
Momentum
2019 was a year that was characterised by
political and economic uncertainty and market
volatility, but which ended on a more solid
footing as the political environment stabilised.
The removal of these key issues in the last
quarter of the year led quickly to a return in
investor confidence allowing us to post a fourth
consecutive quarter of gross inflow growth.
22
Strategic reportGovernanceFinancials Annual report and financial statements 2019
Stuart Geard
Chief financial officer
“ …restructuring of our
primary outsourcing
relationships towards the
end of the previous year,
increased investment in
online functionality and
offline service…”
This positive momentum continued
into the start of 2020 and while it
will undoubtedly be impacted by the
uncertainty and disruption brought
about by Covid-19, gives us increased
confidence for when there is a return
to stability.
Returning to 2019, the difficult
environment did have a negative impact
on overall gross and net inflows in 2019,
and by implication AUA and revenue
and required us to carefully balance
the need to respond to the challenging
environmental conditions and our desire
to continue investing in our business.
As a result, Nucleus delivered a
satisfactory financial performance
in 2019, with its key financial metrics
reflecting the impact of lower than
expected net inflows and AUA, the
restructuring of our primary outsourcing
relationships towards the end of the
previous year, increased investment in
online functionality and offline service,
and effective management of costs.
We remain confident that our investment
in new initiatives and the ongoing
development of our service and
proposition leave us well-placed to
benefit from a recovery in markets
and investor sentiment, and to take
advantage of the longer-term sectoral
opportunity.
23
Strategic report
Governance
Financials
Financial key performance indicators
Year ended
December
2019
Year ended
December
2018
Year ended
December
2017
Year ended
December
2016
Year ended
December
2015
Group
AUA¹
£'000
£'000
£'000
£'000
£'000
16,141,279
13,883,713
13,576,703
11,143,757
9,068,789
Gross inflows¹
1,941,712
2,290,236
2,607,759
1,854,830
1,977,783
Net inflows¹
Revenue
509,444
1,193,502
1,668,237
970,263
1,229,625
51,517
49,405
45,462
37,483
Net revenue¹
45,234
43,154
39,361
32,407
Adjusted EBITDA¹
Profit for the year after tax
Dividend paid
Adjusted EBITDA margin¹
7,923
5,953
3,873
17.5%
8,304
4,756
3,933
19.2%
6,248
4,111
4,813
15.9%
5,141
3,387
nil
15.8%
16.5%
33,091
28,166
4,637
4,300
nil
¹
Industry-specific financial performance measures. Included within this results announcement are alternative measures that the directors
believe help to inform the results and financial position of the group.
24
Financial review
Group
Opening AUA
Inflows
Outflows
Net inflows
Market movements
Closing AUA
Average AUA
Group
Revenue
AUA related fees paid
Net revenue
Other income
Total operating income
Staff costs
AUA related costs
Other direct platform costs¹
Platform development costs
Other costs¹
Adjusted EBITDA*
Depreciation*
Adjusted EBIT
Interest income
Interest expense*
Adjusted profit before tax
Other non-operating income
AIM admission costs
Share-based payments
Statutory profit before tax
Taxation
Statutory profit after tax
Adjusted profit after tax
Basic and diluted EPS
Adjusted EPS
Blended revenue yield (bps)**¹
Adjusted EBITDA margin
Year ended December 2019
Year ended December 2018
£m
13,884
1,941
(1,432)
509
1,748
16,141
15,180
£m
13,577
2,290
(1,097)
1,193
(886)
13,884
14,124
Restated¹
Year ended December 2019
Year ended December 2018
£'000
51,517
(6,283)
45,234
105
45,339
(14,590)
(10,197)
(3,389)
(2,948)
(6,292)
7,923
(667)
7,256
80
(2)
7,334
17
-
(349)
7,002
(1,049)
5,953
5,941
7.8p
7.8p
29.8
17.5%
£'000
49,405
(6,251)
43,154
-
43,154
(14,142)
(11,131)
(1,522)
(1,682)
(6,373)
8,304
(585)
7,719
11
(7)
7,723
22
(1,688)
(404)
5,653
(897)
4,756
6,255
6.3p
8.2p
30.6
19.2%
¹ Platform-related mailing, bank charges, and errors and losses have been reclassified and restated from “other costs” to “other direct platform costs”.
* Adjusted EBITDA excludes non-operating income, AIM admission costs and share-based payments and includes ROU asset depreciation and ROU lease
liability interest. It is included within the strategic report as the directors believe this is a better representation of the underlying performance of the business.
** Blended revenue yield is calculated by dividing annualised revenue over average AUA.
25
Annual report and financial statements 2019 Revenue
Costs
AUA increased by 16.3 per cent over
the year, from £13.9bn at 31 December
2018 to £16.1bn at 31 December 2019,
compared to a 14.2 per cent increase
in the FTSE All-Share index over the
same period. The £2.2bn increase in
AUA comprised the impact of market
movements of £1.7bn as markets
recovered from their sharp decline in Q4
2018, as well as net inflows of £509m,
which were lower than in the previous
year. This reflected not only the impact
of the difficult external environment on
gross inflows, but also the impact of
increased outflows attributable to the
larger asset base and the withdrawal
of assets by firms acquired by
consolidators. Lower levels of net inflows
was a sector-wide issue throughout the
period as illustrated by Fundscape, who
reported net sales across the platform
market in Q3 2019 as being the lowest
since Q4 2012, immediately before the
Retail Distribution Review (Fundscape
Platform Report Q319 Issue, November
2019). Net sales across the sector for
the first three quarters of the year were
down 39.0 per cent (on the same period
in 2018).
Average AUA, which increased by 7.5
per cent over the year from £14.1bn to
£15.2bn, captures the impact of market
volatility throughout the year, including
the strong recovery in the first quarter
of 2019 and the post-general election
rise in December. As Nucleus’ revenue
accrues on a daily basis, average AUA
is a better indicator of top-line growth
and compares to growth in net revenue
for the year of 4.8 per cent (from £43.2m
in 2018 to £45.2m in 2019). The lower
rate of growth in net revenue resulted in
a blended revenue yield in 2019 of 29.8
basis points (2018: 30.6 basis points),
reflecting a number of factors, including
the revision of Nucleus’ distribution
agreement with Paradigm, improved
terms for Paradigm customers from July
2019 and the introduction of improved
terms for a small number of large
adviser groups.
Staff costs increased by 3.2 per cent from £14.1m
in 2018 to £14.6m in 2019, a slightly lower than
anticipated increase. Notwithstanding this, full-time
equivalent headcount increased from 218 to 236
over the year, with a particular focus on recruitment
in technology and customer servicing roles. The
group has continued to deliver on its strategy of
becoming the most technology enabled platform
in the UK and this is evidenced by the increase in
technology and change-related roles, increasing to
70 as at 31 December 2019 and representing 29.7
per cent of our total staff.
As stated in previous communications, we expect
the rate of increase in staff numbers to slow, with
most additional recruitment continuing to be in
technology-related roles.
AUA related costs, comprising principally the fees
paid to Genpact (for administration services) and
Bravura (for the licence of Sonata) decreased from
£11.1m in 2018 to £10.2m in 2019, at an average
cost of 6.72 bps (2018 – 7.88 bps). As stated in
our half-year results, this reflects the contractual
provisions within the restructured agreements as
well as, to a lesser extent, the impact of service
credits and the tiering benefits within a significant
component of these costs. Looking forward, but
subject to AUA recovering to the level prior to the
market fall in Q1 2020, the group is set to benefit
from the significantly lower basis points-related
charges relating to incremental AUA, albeit with a
reducing level of ‘fixed discounts’ that formed part
of the Genpact contract renegotiation.
“ We are encouraged by
what we have achieved
in 2019 and the positive
working relationship
we have established
with Bravura…”
26
Strategic reportGovernanceFinancials Third party platform development expenditure
for the year was £2.9m, in line with our stated
objective of spending approximately £3m per year
in this area. This comprised the costs of a further
upgrade to the latest version of Sonata (which
was completed in February 2019), development
of considerable new functionality (made available
to customers and advisers through two additional
releases during the year or in the development
pipeline for release in 2020) and investment
in testing software and other tools. We are
encouraged by what we have achieved in 2019
and the positive working relationship we have
established with Bravura and will seek to allocate
similar amounts of capital to platform development
expenditure in future years.
Other direct platform costs increased from
£1.5m to £3.4m, primarily as a result of Nucleus
becoming responsible for the cost of platform
hosting from August 2019 and assuming the cost
of platform-related printing and posting from May
2019 (following the restructure of our relationship
with Genpact). This increase in costs is consistent
with guidance given previously and represents
an increase in the fixed cost base of the group (in
exchange for a decrease in variable AUA related
costs payable to Genpact). The balance of other
direct platform costs relates to surround platform
licence fees, bank charges and compensation
costs. These costs, together with the platform-
related printing and postage costs increased from
£1.5m in 2018 to £2.3m in 2019, reflecting in part
the responsibilities taken on from Genpact but also
the larger size of the business and higher than
expected compensation costs.
Since taking over the service, printing and posting
costs have largely been optimised through
automation, and we will seek similar efficiencies
concerning the hosting of the platform. In this
respect, we completed a proof of concept in H2
2019 for moving all aspects of the hosting of the
platform to the cloud and will determine the optimal
timing of such a move (and consequently the
realisation of related cost savings) in conjunction
with other development priorities.
Other costs decreased by £0.1m (or 1.3 per cent)
from £6.4m in 2018. These costs, which include the
costs of our larger Edinburgh head office premises
(on an ‘all-in’ basis as opposed to an IFRS 16 Leases
basis that is used for statutory reporting purposes),
the incremental costs associated with being a
quoted business, higher FSCS levies from April 2019
and the increased overhead costs attributable to
the increased size of the business, benefited from
the £0.4m settlement received from a previous
service provider as well as positive variances on a
number of overhead cost lines.
Annual report and financial statements 2019
IFRS 16 impact
With effect from 1 January 2019 the group
implemented IFRS 16 Leases, the details and impact
of which are set out in the changes in accounting
policies note in the financial statements. To
provide a consistent and comparable indication of
financial performance, adjusted EBITDA has been
determined on a basis consistent with that applied
in the 2018 annual report and financial statements.
The required adjustment relates to IFRS 16-derived
right of use (ROU) asset depreciation and ROU
liability interest, which are included within other
costs in the financial review.
Operating margin
Our operating margin (as reflected by the adjusted
EBITDA margin) decreased from 19.2 per cent in
2018 to 17.5 per cent in 2019, mainly as a result
of the contractual changes referred to above and
the significant increase in platform development
expenditure over the prior year. Similarly, adjusted
EBITDA decreased by 4.6 per cent from £8.3m to
£7.9m, a result that we are satisfied with given the
difficult trading environment and the considerable
investment in the business.
Profit before tax
Statutory profit before tax increased by 23.9 per
cent over the previous year, with the prior year
results including £1.7m of costs relating to the
company’s admission to the AIM market.
Share-based payment expenses decreased by
13.6 per cent to £0.3m, despite the introduction of
a new LTIP tranche in 2019, reflecting the impact
of the challenging environment on the stretching
performance criteria within the long term incentive
schemes.
Taxation
The group’s effective tax rate of 15.0 per cent
(2018: 15.9 per cent) incorporates the impact of
expenses that are non-tax deductible of £0.1m
(2018: £0.4m), more than offset by the impact of tax
credit amounts of £0.3m (2018: £0.5m) in respect
of qualifying research and development (R&D)
expenditure relating to the prior 2 years. With the
group no longer qualifying for the SME R&D scheme
with effect from the beginning of 2018, an R&D tax
credit in respect of 2018 has been recognised in
2019 under the RDEC scheme and accounted for
as other income of £0.1m, which has then been
subject to corporation tax at 19 per cent.
27
Dividend
During the year, and consistent with our dividend policy, we
paid a final dividend in respect of the 2018 financial year of
£2.7m (or 3.6 pence per share) and an interim dividend in
October of £1.1m (or 1.5 pence per share). This compares to
dividends paid in the prior year of £4.0m, comprising pre-
admission dividends in June and July 2018 totalling £2.9m,
as well as an interim dividend in October 2018 of £1.1m (or 1.4
pence per share).
As detailed in the following section on financial position,
the directors are confident that the group’s capital structure,
solvency position, high conversion rate of profit to cash, no
borrowings and available liquidity can support the group
through a period of material uncertainty. However, in light of
the exceptional and open-ended uncertainty caused by the
Covid-19 pandemic, the recent collapse in equity markets and
the still rapidly changing environment, the board has decided,
in the interests of prudence, not to recommend a final dividend
for the year ended 31 December 2019.
The decision to suspend payment of the 2019 final dividend
will allow the group to preserve capital until there is greater
clarity on the effect of Covid-19 on Nucleus, its users, its
customers and the broader economy. The board will continue
to assess the situation and the appropriateness of paying a
second interim dividend relating to the financial year ended 31
December 2019.
The dividend suspension thus affords Nucleus increased
flexibility and protection at a time of unprecedented
uncertainty.
2019
financial
year
£’000
Pence
-
1,139
-
1,139
19.2%
1.5
-
1.5
2018
financial
year
£’000
2,870
1,063
2,734
Pence
1.4
3.6
3,797
5.0
60.7%
Pre-admission
dividend
Interim
dividend
Final
dividend*
Combined
dividend (post
admission)*
Pay-out ratio*
Cash flow
We continue to achieve a high conversion rate of operating
profit to cash before payment of dividends.
* 2019 suspended
28
Financial position
Nucleus continues to be funded
entirely by equity capital and has no
borrowings, save for in respect of the
lease of our Edinburgh headquarters,
which is recognised as a lease liability
under IFRS 16 Leases.
The group has historically not
recognised any intangible assets as
the relevant expenditure did not meet
the IFRS asset recognition criteria. This
includes expenditure incurred internally
or payable to third parties for the
development of the platform. However,
with the implementation of IFRS 16 we
have recognised a right of use asset
in respect of our head office premises
lease, and we have also recognised, in
accordance with IAS 38, an intangible
asset relating to the development and
licensing of Nucleus IMX which we plan
to launch in H1 2020.
All surplus capital not required for
working capital purposes is held in cash
and is governed by an embedded capital
management policy. At the end of the
financial year, the group had £18.5m of
cash and cash equivalents, representing
94.0 per cent (2018 – 101.1 per cent) of
the group’s net assets. The group also
has access to a £5.0m uncommitted
overdraft facility from RBS International
that is undrawn and has not been
accessed for the last three years.
The group’s liquidity management is
governed by an embedded liquidity
management policy and framework.
This requires the group’s liquidity
requirements to be projected over the
five-year planning period to ensure the
group has sufficient cash (including
predetermined buffer levels) to run the
business at all times and it is able to
withstand a number of defined severe
but plausible shocks.
As an IFPRU-regulated firm, Nucleus
is required to maintain, at all times,
financial resources and internal capital,
including own funds and liquidity
resources, that are adequate both as to
amount and quality to ensure there is no
significant risk that its liabilities cannot
be met as they fall due.
Strategic reportGovernanceFinancials Year ended
December 2019
Year ended
December 2018
£’000
£’000
253
3,476
18,525
4,212
19,706
19.7%
11,424
-
-
17,672
-
17,473
20.6%
10,537
While it is too early to estimate the impact of the Covid-19
pandemic on the group, the reaction to the uncertainty
has reduced the value of most asset classes, which in turn
has reduced the group’s AUA and could materially impact
inflows, with the consequence of both being a negative
effect on revenue. Advisers, customers and suppliers will
also be affected by the pandemic, although the extent of
such disruption is yet to be determined. Notwithstanding
this considerable uncertainty, the group has a robust capital
structure and solvency position, high conversion rate of profit
to cash, no borrowings and available liquidity. We will consider
and implement identified mitigating actions should these be
required (including in respect of expense management and
dividend payments) but will seek to not take actions that might
constrain the strategic development of the business unless
conditions deteriorate to the extent that this is required.
The directors consider that the group has adequate resources
to remain in operation for the foreseeable future and have
therefore continued to adopt the going concern basis in
preparing these financial statements.
Stuart Geard
Chief financial officer
Group financial position
Intangible assets
Right of use lease assets
Cash and cash equivalents
Lease liabilities
Net assets
Capital adequacy ratio
Excess capital – above 8% regulatory requirement
In practice, Nucleus determines its minimum regulatory
capital requirement as the highest of the formulaic pillar I
fixed overhead requirement, its internal pillar II assessment of
the amount of capital required to be held against a number
of identified severe but plausible risks and the net cost of
performing an orderly and responsible wind-down. In addition
to its regulatory minimum capital requirement, Nucleus
applies a buffer of 25 per cent in setting its internal minimum
capital requirement and then aims to manage its capital within
a target capital range above that.
At the end of the financial year, the group had a pillar I
statutory capital ratio of 19.7 per cent (amounting to £11.4m of
capital in excess of the 8 per cent minimum regulatory capital
requirement).
The group’s capital requirements are reviewed on a
quarterly basis and are also subject to periodic stress
testing to evidence that its regulatory capital requirements
can continue to be met in a range of stressed scenarios
(including macro-economic shocks, company-specific shocks
and a combination of simultaneous internal and external
shocks). The output of the stress testing is subject to a set of
mitigating actions, including in respect of staff recruitment
and remuneration, platform development expenditure,
discretionary expenditure, dividend payments and interim
profit verification, applied as appropriate to each scenario.
In all scenarios incorporating a significant shock to financial
markets, the nature of Nucleus’ revenue (ongoing annuity-
type revenue derived from asset classes that are not equally
correlated to equity markets) acts as an inherent mitigant.
Finally, the group’s capital position is subject to a number of
approved ‘reverse stress tests’. These tests (which in 2019
included the collapse of financial markets as a result of a
second global financial crisis but with central banks unwilling
or unable to provide adequate support and stimulus) have
a number of benefits, including identifying key vulnerabilities
in the business that could cause it to fail, identifying external
drivers that could result in a wind-down and the identification
of early risk indicators and management actions.
29
Annual report and financial statements 2019 Principal risks and uncertainties
Controlling
our risks
The following principal risks relate to the group’s
business and the wider sector in which it
operates. The risks and uncertainties described
below are not intended to be exhaustive.
Additional risks and uncertainties not
presently known to the directors or
that the directors currently deem to be
immaterial could also have an adverse
effect on the group’s business and
financial performance.
The group operates a risk management
framework through which it
systematically identifies actual and
potential risk events and seeks to put in
place appropriate policies and controls
as safeguards.
Our key risk categories as set out in
our risk taxonomy are summarised
on the following pages, and these
are managed within the risk appetites
set by the board on an annual basis.
Additional information can be found
in our Pillar 3 disclosure which can
be found on the company’s website
https://nucleusfinancial.com/investors.
30
Strategic reportGovernanceFinancials Business model risks
Fluctuations in capital markets, and
economic, political and market factors
that are beyond the group’s control
The group’s revenue and performance
are directly linked to the value of AUA
held on the platform, which in turn is
linked to the level of inflows, outflows
and the performance of the assets and
asset classes into which customers have
invested. A decline in capital market
asset values may: (i) reduce the value
of the AUA on the platform; (ii) prompt
customers (in conjunction with their
financial advisers) not to make further
investments or to withdraw funds from
the platform; and (iii) make it more
difficult for financial advisers to attract
new customers to advise through the
platform.
Economic, political and market factors
can also affect the level of inflows
and outflows and the performance
of investment assets. For example,
a general deterioration in the global
economy, and the UK economy in
particular, may have a negative impact
on customers’ disposable income and
assets, and the value of savings and
investments on the platform.
“ The group operates
a risk management
framework through
which it systematically
identifies actual and
potential risk events
and seeks to put in
place appropriate
policies and controls
as safeguards.”
31
Andrew Smith
Chief technology officer
Culture risk
Conduct risk is an intrinsic risk to
our business as our behaviour and
organisational structures have the ability
to impact customer outcomes, market
integrity and competition in our chosen
markets. Our values are embedded in
our business strategy and our internal
systems and controls are focused on
delivering our business plan while
meeting our various culture and conduct
expectations. Similarly, as a listed and
regulated business, governance risk
is intrinsic to our business model. We
believe good governance provides
assurance to our stakeholders that we
are focused on what matters most, our
conduct and customer outcomes.
Annual report and financial statements 2019 Reliance on key suppliers
Nucleus, like many other participants
in the wrap platform market, operates
a business model that outsources
selected components of its operations
and technology services, and enters
into agreements with selected product
providers to distribute and administer
their products as part of the Nucleus
wrap platform. As a result, the group
has a reliance on its key suppliers and
performance issues affecting these
products and services may have an
adverse impact on Nucleus’ strategy
and business performance.
The group’s key suppliers are:
• Genpact WM UK Limited, who
provide Nucleus with wrap
administration services;
• Bravura Solutions Limited, who
provide Nucleus with platform
technology services;
• Scottish Friendly Assurance Society
Limited and Sanlam Life & Pensions
UK Limited, who provide the onshore
bond tax wrappers on the platform;
• RL360, who provides the offshore
bond tax wrapper on the platform,
and
• Winterflood Securities Ltd (a
division of Winterflood Business
Services), who provide Nucleus with
stockbroking services.
“ We believe good
governance provides
assurance to our
stakeholders that
we are focused on
what matters most,
our conduct and
customer outcomes.”
Competition
The provision of advised platforms is
competitive and Nucleus faces significant
competition from a number of sources,
including other intermediated platform
providers, life insurance companies, asset
and fund managers and direct to consumer
investment platforms. While the group strives to
remain competitive by continuing to develop its
online and offline offering, the risk exists that it is
unable to adapt to changing market pressures
or customer demands, keep pace with
technological change and platform functionality
relative to its competitors or maintain its market
share given the intensity of the competition.
Competition may also increase in response
to demand dynamics, further consolidation
(including vertical integration) in the wider
financial services sector, new entrants to the
market or the introduction of new regulatory
requirements (including those targeted at
financial advisers or other market participants).
In addition, pricing pressure across the
investment lifecycle is prevalent as competitors
invest in new technologies and new blends
of products and services to deliver value and
compelling propositions for their customers and
other stakeholders.
Relationship with financial advisers
While Nucleus has been able to maintain
strong, longstanding relationships with its
adviser users, there can be no assurance that
this will continue. The group could lose or impair
relationships as a consequence of, among
other things, operational failures, uncompetitive
functionality or pricing, reputational damage,
consolidation and vertical integration in the
financial advice market or the closure of firms of
financial advisers. The loss of, or deterioration
in, the group’s relationships with its financial
adviser base, particularly those responsible
for directing significant inflows to the platform,
could have a material adverse effect on AUA
and revenues.
32
Strategic reportGovernanceFinancials Annual report and financial statements 2019
Operational and regulatory risks
Operational
The nature of the activities performed by the group is such
that a degree of operational risk is unavoidable. Operational
risk may have a number of consequences, including deficient
service delivery, poor customer outcomes, an inability to scale
effectively, reputational damage and financial loss.
The group’s operational risks can be divided into three main
categories (people, technology, and operational process and
controls) with relevant examples of each below.
Nicola Megaw
Chief legal officer
People
•
Failure to attract, train, motivate and retain core skills and knowledge in
the group.
• People-related errors in core processes.
Operational process and controls
•
•
Failure in core processes and controls (whether preventative or detective), either by
the group or by third parties.
Failure in systems and controls in place to meet the requirements of taxation and
other regulations in respect of the suitability of certain investments to be held within
certain tax wrappers and accounts.
Operational resilience and technology
•
•
•
Failure of, or disruption to, the sophisticated technology and advanced information
systems (including those of the group and its third-party service providers) upon
which the group is dependent.
Inability to respond to the need for technological change as a result of the failure to
continue to improve new technologies, through lack of appropriate investment in new
technologies or through such investment proving unsuccessful.
Failure to maintain existing technologies or to invest appropriately in continuing
improvements to those technologies.
• Vulnerability of the group’s networks and platform (and those of its third-party service
providers) to security risks, cyber-attack or other leakage of sensitive or personal data.
• Vulnerability of the group’s networks and platform (and those of its third-party service
providers) to security risks or cyber-attack leading to direct theft of monies or assets.
33
Regulatory
Regulatory risk includes the risk of non-compliance with existing regulatory requirements as well as the risk
relating to changes in government policy and applicable regulations:
a.
Impact of a material breach of existing regulatory requirements
If Nucleus Financial Services Limited (NFS) or any other member of the group, and/or any of its key
suppliers, were to commit a serious breach of any of the regulations that apply to it (not least the
applicable regulatory regime relating to the group’s FCA authorisations and its FCA regulated activities),
there could be both regulatory and financial consequences (including, without limitation, sanctions,
fines, censures, loss of permissions and/or the cost of being required to take remedial action).
b.
Impact of material new regulation and forthcoming regulatory change.
New regulation in 2019
SM&CR came into effect for Nucleus on 9
December 2019. The FCA classes Nucleus as
a core SM&CR firm. The four senior manager
function (SMF) holders - Angus Samuels, David
Ferguson, Stuart Geard and Yvonne Clough - are
now individually accountable to the FCA and
will be held responsible for failings within their
documented areas of responsibility. The certification
regime under SM&CR covers the remaining
significant management function holders and
staff (certification staff) who can cause ‘significant
harm’ to the firm and/or its customers. The SMFs
are responsible for supervising the certification
staff and must certify on an annual basis that these
individuals remain fit and proper.
In November 2019, new customer information
requirements came into effect for pensions. This
included the introduction of “wake-up” packs,
a single page summary - (given at age 50 and
included with wake-up packs issued at defined
intervals after age 50) and retirement risk warnings.
34
Forthcoming regulatory
change
Brexit took place on 31 January 2020.
Statutory instruments took effect on that
date to deliver transitional requirements
until the final legislative changes are
made. Most existing European financial
services regulatory requirements will
be grandfathered into UK legislation to
allow a smooth transition.
The FCA’s investment platforms market
study from 2017 introduced changes
relating to in-specie transfers between
platforms from July 2020. The changes
include requiring the facilitation of unit
class conversions to enable in-specie
transfers.
The new prudential regime for investment
firms, the Investment Firm Regime (IFR),
comes into effect on 26 June 2021. This
will replace the capital requirements
directive and regulation (CRD IV and CRR)
for small and medium-sized investment
firms. We do not anticipate that the
impact of the changes will be material to
our risk profile.
Strategic reportGovernanceFinancials Financial and liquidity risks
Solvency (including access to capital)
Liquidity
The group’s liquidity position is subject to a number
of factors that may generate liquidity strain in the
short or medium term. The group manages its
liquidity risk through an ongoing evaluation of its
working capital requirements against available
cash balances and credit facilities. The group also
has a defined liquidity management framework
that requires management to monitor and report
on liquidity positions and potential risks to the audit
committee and board on a quarterly basis.
The strategic report was approved by the board of
directors on 6 April 2020 and signed on its behalf by
David Ferguson
Director
Stuart Geard
Director
The group is required to maintain and have
available to it a sufficient level of capital as
determined by the requirements applicable to an
IFPRU 125k limited licence investment firm and a
non-insured Sipp operator.
The group may require access to additional capital
for a number of reasons, including increased
regulatory capital requirements, and there is no
assurance that such additional capital will be
available (or available on favourable terms).
Nucleus is a public company and its entire issued
share capital is admitted to trading on the AIM
market of the London Stock Exchange (LSE), which
provides the group with access to capital markets
if required. The group also operates a dividend
policy, with the intention that it will pay regular
dividends - however the ability of the group to pay
dividends is dependent on a number of factors
including, among other things, the results of its
operations, its financial condition, anticipated cash
requirements, regulatory capital requirements,
future prospects and its profits available for
distribution, and there can be no assurance that the
group will pay dividends or, if a dividend is paid, of
the amount that any dividend will be.
Barry Neilson
Chief customer officer
35
Annual report and financial statements 2019 Strategic report
Governance
Financials
Governance
36
Annual report and financial statements 2019
Risk management framework
Corporate governance statement
Board of directors
Audit committee report
Risk committee report
Nomination committee report
Remuneration and HR committee report
Directors’ report
Directors’ responsibilities statement
38
40
42
49
51
53
54
62
66
37
Risk management framework
Robust and
scalable
The board’s objective regarding risk management is to
deliver the group’s strategy and business plan supported
by a robust, scalable and enterprise wide governance,
risk management and control framework.
Our framework is concerned with:
• Embedding a risk aware culture with risk
management recognised as a management
competence, critical to the delivery of our
business strategy and performance targets.
We use a clearly defined risk framework to
effectively identify, assess, manage and report the
group’s risks. The framework is set out in our risk
management policy and is subject to annual review
and challenge by the risk committee.
• Demonstrating it is proportionate and effective
in the governance and performance of risk
management for an authorised and regulated
investment firm.
• Evidencing our business strategy and business
planning process are aligned with the risk
management framework.
• Demonstrating we manage our risk appetite
tolerances and limits across agreed risk
categories.
• Demonstrating we meet all applicable
regulatory principles and requirements on
an ongoing basis and do so based on strong
and effective risk management culture and
structures.
38
Strategic reportGovernanceFinancials Annual report and financial statements 2019
In assigning risk management responsibilities,
the group operates an approach to risk
management that is commonly referred to as
the “three lines of defence” model. The activities
within each of the three lines are:
1
First line of defence
Business lines have responsibility for identifying, assessing and
managing their risks through a sound set of policies, processes and
controls. Business lines are also responsible for the development
and deployment of appropriate mitigating actions and embedding of
systems and controls.
2
Second line of defence
The roles of the second line risk and compliance functions are to develop
and maintain the group risk and compliance management policies
and frameworks. Review of the effectiveness of the risk management
practices performed by operational management is evidenced through
effective assurance reporting to management and the audit committee.
The second line also provides support and advice to the business risk
owners in reporting risk related information within the group, including
management information on risk and assurance matters to the audit
and risk committees and the board. The risk committee receives regular
reporting from the second line on business performance against risk
appetites across the risk universe.
3
Third line of defence
The group engaged Deloitte LLP as an appointed internal audit
function to serve as its third line of defence on a fully outsourced basis.
Through the model the group obtains independent assurance on the
effectiveness of its control environment for material processes, Cass
handbook arrangements, and cyber frameworks. Internal audit, through
a risk-based approach, provides assurance to the audit committee and
the board on how effectively risks are assessed and managed, and the
effectiveness of the risk management framework. Findings arising from
these audit processes are reported to the audit committee.
The group also engages other third parties to provide independent
assurance.
39
Corporate governance statement
Support and
encourage
I am pleased to present our report on corporate
governance. On behalf of the board, I acknowledge
the importance of corporate governance and the
board’s role in overseeing the business. This has
certainly been the case again in 2019 as we have
continued to embed our culture, conduct, policies
and values throughout the year.
40
Strategic reportGovernanceFinancials “ At Nucleus we believe that our corporate
governance arrangements should support and
encourage effective risk management, diversity
of thought and robust decision making.”
During 2019 we tested and enhanced
our governance arrangements with
the introduction of the SM&CR, which
promotes individual accountability
across our business.
Angus Samuels
Chair
6 April 2020
In 2018 we adopted and implemented
the Quoted Companies Alliance (QCA)
Corporate Governance Code (the
“QCA Code”) and we comply with all its
principles, welcoming a code which is
proportionate to a company of our size
and complexity. We publish our annual
statement of compliance with the QCA
Code on our website (which was last
updated in September 2019) and this
can be found at https://nucleusfinancial.
com/investors.
At Nucleus we believe that our corporate
governance arrangements should
support and encourage effective risk
management, diversity of thought and
robust decision making. We believe
there is huge value in delivering effective
leadership and a corporate culture
based on ethical values and behaviours.
Our governance should support our
strategy for growth, commitment to the
creation of shareholder value in the long
term and our desire to deliver good
outcomes for our customers.
41
Annual report and financial statements 2019 Board of directors
Angus Samuels
(appointed July 2006, chair since March 2017)
Margaret Hassall
(appointed July 2018)
Independent non-executive chair
Independent non-executive director
Angus started his career as a stockbroker and became a
partner in Fergusson Bros, Hall Stewart and co. (a leading
South African stockbrokers). He has previously held a number
of chief executive officer roles and currently serves as the
Chairman of UK-based financial services group the Punter
Southall Group and corporate finance business Craven
Street Capital Limited. He also holds a number of other non-
executive directorship positions, including Sanlam UK Limited
and Sanlam Life and Pensions UK Limited.
Margaret has experience of and has developed knowledge
in various industry sectors including manufacturing, utilities
and financial services. She has held a number of senior
executive positions at Barclaycard plc, Bank of America Merrill
Lynch Corporation and The Royal Bank of Scotland plc. and in
addition to her executive roles, has also worked extensively as
a consultant for Deloitte, Oracle Corporation and Wavestone
Limited, and led the Financial Services consulting business for
Charteris plc. Since 2016 Margaret has been an independent
non-executive director at One Savings Bank plc, where she
was a member of the risk and audit committees. She is also
a non-executive director at Ascention Trust (Scotland) and
ReAssure UK services limited.
Jonathan Polin
(appointed July 2016)
Alfio Tagliabue
(appointed February 2020)
Non-independent non-executive director
Non-independent non-executive director
Jonathan began his financial services career with Prudential
plc before taking up the position of Managing Director UK,
European and Middle Eastern sales at what was formerly
known as Aberdeen Asset Management plc. Prior to this
Jonathan was a director at Ignis Asset Management Limited.
Jonathan has also held the position of chief executive officer
of wealth management firm, Ashcourt Rowan plc, before
becoming the group chief executive officer of Sanlam UK
Limited. Furthermore, Jonathan holds the position of non-
executive director at Blackett Walker and Avidus Scott Lang.
Alfio’s experience has spanned across the investment and
wealth management sector, where he has held a number of
CEO and CFO positions, as well as over 15 years’ experience
as a board level consultant and advisor in financial services,
investment management and other sectors. Alfio spent five
years in his early career with Mars & Co, before moving to
Man Group plc, Ashcourt Rowan plc, Sanlam UK and latterly
Sanlam Investments Limited, where he has held the position
of CEO since 2016.
Chair of the remuneration and HR committee
Chair of the nomination committee
Remuneration and HR committee member
Nomination committee member
42
Strategic reportGovernanceFinancials Tracy Dunley-Owen
(appointed July 2018)
John Levin
(appointed April 2017)
Independent non-executive director
Senior independent director
Tracy possesses wide-ranging experience in financial services
at senior level, specifically within the fields of audit and risk.
She has held senior executive finance roles in addition to
board, audit and risk committee responsibilities at various
companies within the Old Mutual plc group, Guardian
Financial Services group, a division of Swiss Reinsurance
Company Limited and Celestial Financial Services Limited.
Tracy is currently a non-executive director and chair of the
Audit Committee for Sun Life Assurance Company of Canada
(UK) Limited and non-executive director of Simplyhealth
Group Limited, Lifecheq (Pty) Limited and Women’s Investment
Portfolio Holdings (Pty) Limited.
John co-founded and is chair of the technology platform
Certua and the Quanis Group of companies which provides
business technology solutions for the insurance industry. John
also co-founded Telecom Plus plc where he was a non-
executive director from 1997 to 2006. John has held senior
positions in several companies including chair of Amtrust
Europe Limited and chief executive officer and non-executive
director of IGI Group Limited. John is currently the chair of
Rocketer Consulting Limited. John has also held the positions
of non-executive director at Pedigree Livestock Insurance
Limited, Car Care Plan (Holdings) Limited, Motor Insurance
Company Limited and chair of Q-Cloud Services Limited.
David Ferguson
(co-founder and CEO since 2006)
Chief executive officer
Stuart Geard
(appointed October 2012)
Chief financial officer
David was a trainee actuary prior to working at asset
management firm Ivory & Sime Limited and what was then
known as Scottish Life International Limited. David is currently
a director of Abacus Financial Marketing Limited, chair of
FinTech Scotland and a member of Her Majesty’s Treasury
Fintech Envoy for Scotland.
Stuart started his career with what is today PwC South Africa
before moving to Sanlam Limited as a senior manager in
corporate finance. He was head of finance and investments
for what is now Sanlam Life and Pensions UK Limited prior
to becoming finance director of Sanlam UK Limited. He also
served as director at Sanlam Private Investments UK Limited
and Sanlam Life and Pensions UK Limited and audit and risk
committee chair of most of the Sanlam Group’s interests in
the UK.
Chair of the audit committee
Audit committee member
Chair of the risk committee
Risk committee member
43
Annual report and financial statements 2019
Our board
The board of Nucleus consists of a
team of executive and non-executive
directors working together and using
their knowledge and experience of
UK financial services and platform
businesses to drive Nucleus forward
and achieve good outcomes for its
customers.
We believe our board possesses all the necessary
attributes to effectively steer and challenge the executive
team and assess the quality of management decision
making. The board must also ensure the group’s
obligations to its shareholders and wider stakeholders
are understood and met.
Our board is collectively responsible for setting out the
strategy and vision of the group. It is also responsible
for shaping and instilling company values, culture
and standards, providing oversight of and challenge
to management and for ensuring the maintenance of
sound systems of internal control and risk management.
Meeting attendance
Independent non-executive directors
Board ¹
Audit
committee ²
Risk
committee 3
Nomination
committee 4
Remuneration
and HR
committee 5
Angus Samuels (chair)
John Levin
Margaret Hassall
Tracy Dunley-Owen
Non-independent
non-executive directors
Jeremy Gibson
Jonathan Polin
Executive directors
David Ferguson
Stuart Geard
12
11
12
11
12
10
12
12
7
5
n/a
7
7
n/a
n/a
n/a
4
3
n/a
4
4
n/a
n/a
n/a
4
3
4
5
3
5
n/a
n/a
n/a
3
n/a
n/a
n/a
4
n/a
n/a
¹ The board met twelve times and held three board sub-committee meetings in 2019
² The audit committee met seven times in 2019.
³ The risk committee met four times in 2019.
4 The nomination committee met four times in 2019.
5 The remuneration and HR committee met five times in 2019.
44
Strategic reportGovernanceFinancials Board constitution
Our schedule of board reserved matters was
adopted on our admission to AIM in 2018 and is
reviewed regularly. It covers topics such as strategy
and management, governance, financial reporting
and controls, internal controls and remuneration.
The schedule of reserved matters can be found at
https://nucleusfinancial.com/investors.
There is a relationship agreement in place between
the company and its majority shareholder, Sanlam
UK Limited (Sanlam), the details of which were
disclosed in the company’s Admission document
which can be found at https://nucleusfinancial.
com/investors. The relationship agreement
contains a number of provisions designed to
protect the interests of shareholders as a whole
as well as to ensure that the company is able to
carry on its business independently from Sanlam,
and as a result supports independent, effective
and transparent decision-making by the board.
The relationship agreement also specifies that at
all times a majority of the board will be comprised
of directors who are considered by the board
to be unconnected and free from any business,
employment or other relationship with the Sanlam
Group. Pursuant to the relationship agreement, it
has been agreed that Sanlam nominated directors
do not qualify as independent directors and as
such, Jonathan Polin and Alfio Tagliabue are not
considered independent non-executive directors of
the company.
The board commits to following the QCA Code
which we believe will further support independent,
effective and transparent decision-making,
enhance collective and individual performance
and drive sustained performance. The board
considers Angus Samuels, John Levin, Margaret
Hassall and Tracy Dunley-Owen to be independent
non-executive directors and, as such, free of any
relationship which could materially interfere with
the exercise of their independent judgement.
Further commentary around the independence of
our directors can be found within the company’s
statement of compliance with the QCA Code, which
can be found at https://nucleusfinancial.com/
investors.
The board meets at least quarterly and, along
with executive management, holds an annual
strategy day to review potential strategic initiatives
and alignment with our business and strategic
planning activities. Regular training across a
range of topics is offered to our board in addition
to the learning and development that each
director undertakes individually.
Annual report and financial statements 2019
John Levin was appointed as the senior
independent director (SID) in May 2019. This
followed a decision to create the role taking into
account the size and scale of the company, its listed
status and the implementation of SM&CR. The SID
acts as a sounding board and key support to the
chairman, and acts as an intermediary for other
directors as required.
The company secretary and the chief executive
officer report directly to the chairman. The company
secretary acts as an internal but impartial adviser to
the board, specifically on governance matters, and
provides support to the board by managing the
agenda planning cycle and ensuring that the board
receives quality information in a timely fashion. She
also supports the chair in assessing training needs
and arranging training for the board as required.
Board effectiveness
The Nucleus board and its committees are
committed to periodic evaluation of their
performance and effectiveness. This commitment is
evidenced in our corporate governance framework
as part of the board schedule of reserved
matters and the terms of reference of each board
committee. The board performance evaluation is
led by the chair and supported by the company
secretary. Individual performance reviews for each
director are the responsibility of the chair and are
carried out annually.
During 2019, the board and each board
executive management committee reviewed their
effectiveness as part of a co-ordinated programme
throughout the year. Building on the feedback
from each review, the terms of reference for each
committee were reviewed along with the business
to be conducted at each meeting during the year.
The board recognises that well-informed and high-
quality decision making is a critical requirement for a
board to be effective. During 2019, with the support
of the company secretary, the board continued
to build on the design and implementation of its
procedures for decision making and information
sharing. A new template was introduced for all
reports to board and management committees
which reduced volume and improved quality and
consistency. The changes formed part of the overall
review of our governance arrangements aligned
to the SM&CR for solo-regulated firms which came
into effect in December 2019, and which is designed
to bring greater individual accountability across
the senior team. A capability framework was also
created, which acts as a responsibilities map for
every discipline in the organisation, and aligns to
our authorities framework and board reserved
matters. These tools provide greater clarity and
boundaries for our people and align to the ongoing
work to create clear leadership outcomes, and in
particular, to promote greater autonomy and agile
working practices.
45
Board oversight of Nucleus’ risk
management and control framework
The board has overall responsibility for risk
management and internal controls and is
supported by the risk and audit committees. Details
of our principal risks and uncertainties can be
found on pages 30 to 35 and a summary of our risk
management framework can be found on pages
38 to 39. Further details can be found in our Pillar
3 disclosure and statement of compliance with the
QCA Code, both of which can be found at https://
nucleusfinancial.com/investors.
Communication with shareholders
and stakeholders
The board is committed to maintaining an ongoing
dialogue with the group’s shareholders and
stakeholders.
It is intended that all directors will attend our AGM
to be held on 20 May 2020 and that shareholders
will be given the opportunity to ask questions.
Dialogue with shareholders and wider stakeholders
is welcome.
Our broader engagement with our stakeholders
is set out in our s172 report which can be found
on pages 18 to 21, and is also detailed in our
statement of compliance with the QCA Code, which
can be found at https://nucleusfinancial.com/
investors.
On behalf of the board
Angus Samuels
Chair
6 April 2020
Director induction, training
and re-election
Nucleus invites each new director to receive a
tailored induction including typical elements such
as briefings with members of the executive team
and other people across the business. All our
directors are also given the opportunity to meet
with other stakeholders such as our platform users,
our customers and key suppliers.
The group is committed to supporting individual
director development needs and has most recently
arranged training on SM&CR, the conduct rules,
cyber-crime, Icaap and the prudential regime as
well as offering regular Cass training. Furthermore,
all directors can take independent advice in
support of their duties at the group’s expense and
under the board policy for obtaining independent
advice. Directors also have access to the advice
and services of the company secretary.
During the year, the non-executive directors sought
independent advice on the implementation of
SM&CR.
The directors will each retire at the company’s AGM
and put themselves forward for re-election for
approval by shareholders.
Culture and conduct
Culture and conduct remained a focus during
2019. The group’s conduct and culture framework
was re-stated, and work focused on ensuring that
our culture and values remain embedded across
the group, including inviting all of our people to
go through our re-designed induction. The board
intends to continue assessing and monitoring
culture and conduct on an ongoing basis, and
receives quarterly reporting to support this, built on
qualitative and quantitative metrics.
In addition, the group wide policy framework
was restated, to align to our policies to our risk
categories, bringing greater connection for our
people between our values, our behaviours, our
strategic objectives and our policies. We refined
our conduct and customer suite of policies, and
provided training and awareness sessions to all
our people on conduct, customer outcomes and
the relevant regulatory rules that apply. In Q4,
we recorded an increase in our overall people
engagement to 74 per cent.
46
Strategic reportGovernanceFinancials Our board committees
To assist
and monitor
The board has established four principal committees:
Audit
Risk
Nomination
Remuneration
and HR
Each committee operates under its own terms of
reference to assist the board in its oversight and
monitoring responsibilities for the group.
47
Annual report and financial statements 2019 Audit committee and risk
committee reports
I am pleased to present
the audit committee and
risk committee reports
for the period ending 31
December 2019.
Alfio Tagliabue was appointed on
25 February 2020 replacing Jeremy
Gibson and I would like to take this
opportunity to thank Jeremy for his work
as a member of the committee during
2019. I look forward to welcoming Alfio
as a member of both the audit and risk
committees.
Tracy Dunley-Owen
Chair of the audit committee and risk
committee
48
Strategic reportGovernanceFinancials Audit committee report
Committee responsibilities
Composition and frequency of meetings
The audit committee terms of reference are
available on the company’s website and can be
found at https://nucleusfinancial.com/investors.
In accordance with these terms of reference, the
committee is responsible for:
• Providing assurance regarding the integrity,
quality and reliability of financial information
used by the board, specifically regarding the
annual reports and financial statements, as
well as significant financial and regulatory
returns, issued by the group.
• Reviewing and challenging the suitability,
appropriate adoption and any proposed
changes to accounting policies and practices
for the group.
• Reviewing the impact of any proposed
dividends.
• Maximising the efficiency and effectiveness
of the group’s internal and external audit
arrangements and three lines of defence.
• Providing assurance regarding group financial
reporting, compliance, internal controls and
ethical conduct.
• The engagement of and monitoring of all work
carried out by the auditors including any non-
audit work.
• Reviewing of quarterly reports such as the
reports from the chief financial officer, chief
technology officer, head of risk, head of
compliance, the money laundering reporting
officer, chief legal officer and Cass oversight
function holder.
The audit committee comprises Tracy Dunley-
Owen (chair), Angus Samuels, John Levin and
Alfio Tagliabue. Details of the number of meetings
held within the reporting period and attended by
members can be found in the table on page 44,
in the corporate governance report. The company
secretary acts as secretary to this committee.
The board is satisfied that as well as demonstrating
recent and relevant financial experience, the
committee members possess extensive business
experience, knowledge of financial markets and
the UK platform market, knowledge of the risks
and management practices inherent in these
markets and knowledge of the applicable legal and
regulatory landscape.
The board also considers that the committee is
independent.
Committee highlights
• Reviewing and approving new accounting
policies and changes to existing policies
adopted by the group.
• Reviewing and approving areas of significant
judgement and estimation including revenue
recognition, provisions, share-based payments
and income taxes.
• Reviewing the group’s interim results
announcement.
• Reviewing the annual money laundering
reporting officers report.
• Reviewing the impact of the company’s final
and interim dividend payments in May and
October 2019.
• Extending the relationship with our internal
audit provider, Deloitte LLP (Deloitte) to include
provision of cyber assurance.
• Overseeing the delivery of the external
statutory and Cass regulatory audit(s) by
PricewaterhouseCoopers LLP (PwC) and engaging
PwC for verification of profits.
49
Annual report and financial statements 2019 • Agreeing the external audit plan, agreeing the
audit fees and reviewing the effectiveness of
the external audit.
• Providing challenge and oversight of
the group’s response to external and
internal control findings and reviewing the
independence of the second line of defence.
• Reviewing the 2019 annual report and financial
statements and receiving report from PwC
relating to their audit.
• Reviewing and recommending the financial
statements of subsidiaries to the relevant board
(Nucleus Financial Services Limited, Nucleus
IFA Services Limited, Nucleus Trustee Company
Limited, NFS (Nominees) Limited and Nucleus
IMX Limited).
• Reviewing the committee effectiveness and
recommending changes to committee’s terms
of reference.
External audit arrangements
Subject to the approval of shareholders, the
audit committee is responsible for approving the
appointment of the external auditor and setting its
remuneration. As reported in our group accounts to
31 December 2010, PwC was first appointed as our
external auditor in 2010. Following the company’s
admission to AIM in July 2018, the audit partner
rotation rules for listed companies apply which
resulted in a change of engagement partner during
2018. The committee has reviewed the relationship
with the auditor and, having considered its
effectiveness and independence, propose that PwC
is re-appointed as external auditor at the company’s
forthcoming AGM.
The committee monitors any non-audit work
carried out by the auditors. The committee is
satisfied that the nature and value of non-audit
work performed has not affected the independence
of PwC.
Internal audit arrangements
Deloitte was appointed as the group’s internal audit
provider during 2018. Deloitte provides the group
with a fully independent assurance programme
which is informed by the group’s second line of
defence assurance programmes and business
requirements with reference to the committee
approved internal audit charter.
The internal audit programme is reviewed,
challenged and approved annually by the
committee and is also reviewed quarterly by the
committee to monitor progress and completeness.
On behalf of the audit committee
Tracy Dunley-Owen
Chair of the audit committee
6 April 2020
Seven
audit committee
meetings held in 2019
Four
risk committee
meetings held in 2019
50
Strategic reportGovernanceFinancials Risk committee report
Committee responsibilities
Committee highlights
The risk committee terms of reference are
available on the company’s website and can be
found at https://nucleusfinancial.com/investors.
In accordance with these terms of reference, the
committee is responsible for:
• Conducting a detailed review of the risk
universe, and recommending revised risk
categories and re-statement of our corporate
risks, as well as risk preferences and risk
appetites, to the board for approval.
• Reviewing and advising the board on the
group’s current and future overall risk exposure,
appetite and tolerance, and recommending
any changes to the board.
• Providing assurance to the board regarding
the group risk management framework, and
recommending any changes to the board.
• Maximising the efficiency and effectiveness of
• Engaging on the decision to appoint a chief risk
officer, and the recruitment process.
• Working to streamline reporting to the
committee.
• Reviewing and recommending board approval
of the 2018 Icaap approach and methodology
(including a change in the approach for credit
risk provision).
the group’s three lines of defence.
• Reviewing the assessment of regulatory capital
• Reviewing and recommending to the board the
annual Icaap approach and methodology, and
the quarterly reassessment of regulatory capital
requirements.
requirement quarterly.
• Reviewing the Icaap approach and
methodology in respect of the 2019 Icaap, this
being also relevant for 2020.
• Monitoring the effectiveness of the business risk
• Providing assurance on the group’s risk
management processes in the group.
• Reviewing and approving corporate policies in
accordance with the group policy framework.
Composition and frequency of meetings
The risk committee comprises Tracy Dunley-Owen
(chair), Angus Samuels, John Levin and Alfio
Tagliabue. Details of the number of meetings
held within the reporting period and attended by
members can be found in the table on page 44,
in the corporate governance report. The company
secretary acts as secretary to this committee.
The board is satisfied that the committee is
independent.
management framework and development of
key risk indicators.
• Reviewing the group’s existing and forecasted
risk profile.
• Reviewing the corporate risk matrix including
consideration of the principal risks and
reviewing the risk watchlist.
• Reviewing and recommending risk preferences
to the board.
• Reviewing and approving a redesigned
framework for group policies, approving of
a number of policies and recommending
policy changes to the board, including in the
conduct policy.
• Conducting a deep dive on cyber risk.
• Reviewing the committee’s effectiveness and
recommending changes to committee’s terms
of reference.
On behalf of the risk committee
Tracy Dunley-Owen
Chair of the risk committee
6 April 2020
51
Annual report and financial statements 2019 Nomination committee and
remuneration and HR committee
reports
I am pleased to present
the nomination and
remuneration and HR
committee reports for
the period ending 31
December 2019.
Margaret Hassall
Chair of the nomination committee and
remuneration and HR committee
52
Strategic reportGovernanceFinancials Nomination committee report
Committee responsibilities
Composition and frequency of meetings
The nomination committee terms of reference are
available on the company’s website and can be
found at https://nucleusfinancial.com/investors.
In accordance with these terms of reference, the
committee is responsible for:
• Reviewing the structure, size and composition
of the board and considering succession
planning for directors and other senior
executives, making recommendations to the
board as appropriate.
•
Identifying and nominating new director
appointments in line with board procedures,
making recommendations on re-election of
directors where they are retiring by rotation
and re-appointment of non-executive directors
where they have completed their term of office.
• Recommending suitable candidates for the
role of senior independent director (as and
when required).
• Evaluating director and management
training needs.
• Evaluating the target operating model
and organisational design and making
recommendations concerning any changes to
the responsibilities or other associated changes
to the organisational structure.
• Reviewing performance appraisals and fitness
and proprietary assessments for non-executive
directors and senior managers annually.
• Supporting the company’s role as a champion
of diversity and inclusion and monitoring
progress against the company’s diversity
targets as well as recommending any changes
to the diversity and inclusion policy to the board.
The nomination committee comprises Margaret
Hassall (chair), Angus Samuels, John Levin and
Jonathan Polin. Details of the number of meetings
held within the reporting period and attended by
members can be found in the table on page 44,
in the corporate governance report. The company
secretary acts as secretary to this committee.
The board is satisfied that the committee is
independent.
Committee highlights
• Encouraging management in nurturing an
inclusive, diverse and inspiring workplace. The
group’s inclusion and diversity statement can
be found on the company’s website at www.
nucleusfinancial.com/about-us/inclusion-and-
diversity.
• Reviewing the executive team structure,
management responsibilities map and
organisation structure in preparation for the
adoption of SM&CR in December 2019.
• Reviewing board and executive succession
planning.
• Recommending the appointment of John Levin
as senior independent director to the board.
• Engaging on the creation of the role of chief
risk officer, and the recruitment process to fill
that role.
• Recommending the appointment of a new
director to the trustee board of a group
subsidiary.
• Reviewing the committee effectiveness,
agreeing actions for improvements and
recommending changes to committee’s terms
of reference to the board.
On behalf of the nomination committee
Margaret Hassall
Chair of the nomination committee
6 April 2020
53
Annual report and financial statements 2019 Remuneration and HR committee report
Committee responsibilities
Committee highlights
The remuneration and HR committee’s terms of
reference are available on the company’s website
and can be found at https://nucleusfinancial.
com/investors. In accordance with these terms of
reference, the committee is ultimately responsible
for:
• Approving grant of performance share plan
awards and conditions.
• Approving annual salary increases for
executive directors, executive committee
members and other employees.
• Approving performance targets for the
• Setting the overall remuneration policy for the
executive directors and other senior employees.
2019 long-term incentive plan awards and
associated performance conditions.
• Within the terms of that policy, determining the
terms and conditions of employment of those
individuals and the level of their remuneration
(including short-term and long-term incentives).
• Approving performance targets for the
executive directors’ and other senior leaders’
2019 bonus scheme.
• Approving executive directors’ and other senior
• Reviewing the delivery of our people strategy.
leaders’ 2019 bonus awards.
Composition and frequency of meetings
The committee comprises Margaret Hassall (chair),
Angus Samuels, John Levin and Jonathan Polin.
Details of the number of meetings held within the
reporting period and attended by members can
be found in the table on page 44, in the corporate
governance report. The company secretary acts as
secretary to this committee.
The board is satisfied that the committee is
independent. No individual was involved in any
committee discussion relating to his or her own
remuneration.
During the year, the committee sought internal
support from the chief people officer, who
attended committee meetings by invitation from
the chair, to advise on specific questions raised
by the committee and on matters relating to
the performance and remuneration of senior
managers. The chief people officer was not present
for any discussions that related directly to her own
remuneration.
In addition, the committee sought external advice
from Deloitte on non-executive remuneration
benchmarking.
• Reviewing and recommending approval of the
directors’ remuneration policy (effective from 14
November 2018) to the board.
• Reviewing and approving, or recommending to
the board (as required), changes to policies to
implement the SM&CR.
• Reviewing the group’s people strategy.
• Considering and recommending to the board
the nomination of the chair as an employee
stakeholder representative point of contact.
• Reviewing the committee effectiveness,
agreeing actions for improvements, and
recommending changes to committee’s terms
of reference to the board.
Shareholder engagement
The group is committed to engaging with its
shareholders and wider stakeholders and the
purpose of the information presented is to provide
an indication of how remuneration is approached
at Nucleus and of director remuneration from
1 January 2019 to the end of the reporting
period. The majority of the information below on
remuneration policy is presented on a voluntary
basis. The committee wishes to oversee, assess
and challenge where appropriate how our
remuneration policy embeds and to review the
extent of engagement with shareholders on
our policy throughout the course of 2020. As an
AIM-listed company, Nucleus is not required to
seek shareholders’ approval of this report at the
forthcoming AGM. However, the committee will
keep this under review and may include such a
resolution in future years.
54
Strategic reportGovernanceFinancials Remuneration at Nucleus
Our remuneration policy has been chosen to
attract, motivate and retain high-performing
people who can deliver our strategy and
contribute fully to the future success of Nucleus.
With the support of the board, the committee intends to deliver a
market-relevant reward proposition that creates alignment between our
people and our shareholders and is driven by our appetite to: a) align
the interests of our people and our shareholders, b) reward the right
behaviours, reinforce the importance of good conduct and penalise
misconduct or other misbehaviour and, c) promote confidence and trust
by keeping our remuneration policy simple, clear and transparent.
The group’s current executive directors’ remuneration policy was
developed during the course of 2018 and was formally adopted by the
committee on 14 November 2018. It was last reviewed and approved by
the committee on 21 November 2019.
While the policy below refers explicitly to executive directors only, it is also
applicable to all other executive committee members and senior leaders.
“ In 2019 the group
performance measures
were: profit, net inflows,
project delivery, systems
and controls and service.”
55
Annual report and financial statements 2019 Executive director remuneration policy
The various elements and strategic objectives associated with executive remuneration are:
Base salary
Annual bonus
Element (purpose and link to strategy)
Element (purpose and link to strategy)
To reflect the market value and value of the role to
Nucleus along with the individual’s performance
and contribution.
To reinforce and reward delivery of annual
strategic business priorities thus delivering value to
shareholders and being consistent with the delivery
of the strategic plan.
Operation
The committee reviews base salaries with
reference to:
• The individual’s role, performance and
experience,
• Group performance and the external economic
environment,
Operation
Performance measured on an annual basis for
each financial year.
Performance measures reviewed prior to the start
of the year to ensure they remain appropriate and
align with the business strategy. Stretching targets
are set.
• Salary levels for similar roles at relevant
comparators; and
At the end of the year the committee determines
the extent to which these were achieved.
• Salary increases across the company.
Base salary is reviewed on an annual basis, with
any increases taking effect from 1 January.
The committee will seek to limit pay increases
for executive directors, where there is no change
in role, to those applied generally to our people
across the company.
However, where an executive director is relatively
new in role the committee reserves flexibility
to provide increases that are greater than
those applied across the company to bring the
individual’s salary into line with the market and
reflect the gaining of experience.
Performance metrics
Group and individual performance are
considerations in setting base salaries.
On-target bonuses are a maximum of 75 per cent
of base salary. The maximum bonus opportunity is
200 per cent of on-target. There is no minimum or
guaranteed level of bonus.
Awards are paid in cash, are discretionary and
do not form part of the terms and conditions of
employment.
Deferral may be applied where the committee
deems it necessary to do so.
Performance metrics
Performance measures are selected, and their
respective weightings may vary from year to year,
depending on the group priorities.
Measures include a blend of equally-weighted
personal and group objectives.
In 2019 the group performance measures were:
profit, net inflows, project delivery, systems and
controls and service.
In 2019 the personal element was measured by
assessing delivery against the business plan,
conduct, leadership and progress towards diversity
and inclusion objectives.
56
Strategic reportGovernanceFinancials Executive director remuneration policy
Long term incentive plan (LTIP)
Share incentive plan
Element (purpose and link to strategy)
Element (purpose and link to strategy)
To drive sustained long-term performance that
supports the creation of shareholder value.
To align shareholder interests with those of our
people and allow them to benefit from the long-
term success of the group.
Operation
Annual awards of performance shares may be
made to participants. The LTIP rules provide for
annual awards of up to 150 per cent of base salary,
save that this limit can be exceeded if the committee
determines that exceptional circumstances exist in
relation to one or more participants.
Award levels and performance conditions are
reviewed before each reward cycle to ensure they
remain appropriate.
Awards made under the LTIP will have a
performance period of three years and a minimum
vesting period of three years.
Dividend equivalents may accrue on LTIP awards
and are paid on those shares which vest.
Malus (of any unvested LTIP award) and clawback
(of any vested LTIP award) may be applied where
the committee deems it necessary to do so,
including in the event of gross misconduct or a
material misstatement.
Performance metrics
Vesting of LTIP awards is subject to group
performance and continued employment.
The current LTIP performance measures and
weightings are:
33 per cent EPS
33 per cent Net inflows
33 per cent Total shareholder return
The committee may vary the terms of the
performance conditions attaching to an outstanding
award in exceptional circumstances, provided that
the amended conditions are, in their opinion, neither
materially easier nor more difficult to achieve than
the original performance conditions as envisaged by
the committee at the date of grant of that award.
Operation
Executive directors are invited to participate in this
all-employee share plan on the same basis as all
of our people.
The Share Incentive Plan (SIP) provides for the
purchase of shares, in line with Her Majesty’s
Revenue and Customs (HMRC) participation level
rules, on a monthly basis from gross pay and is
also the vehicle used to allow for awards of free or
matching shares.
Performance metrics
Not performance related.
Four
nomination committee
meetings held in 2019
Five
remuneration and HR
committee meetings held
in 2019
57
Annual report and financial statements 2019 Executive director remuneration policy
Pension
Benefits
Element (purpose and link to strategy)
Element (purpose and link to strategy)
To provide a market competitive pension.
To provide market competitive benefits.
Operation
Operation
Executive directors may participate in the company
pension scheme or may receive a cash allowance
in lieu of pension contribution.
Salary is the only element of remuneration that is
pensionable.
A maximum of 10 per cent of base salary
contribution paid into the company’s group
pension scheme or, as an alternative, a maximum
of 8.5 per cent of base salary cash allowance
may be provided upon request. This is the same
opportunity that is offered to all other employees.
Performance metrics
Not performance related.
Benefits include private medical cover, life
assurance and employee assistance programmes.
28 days standard annual holiday allowance plus 9
public holidays.
Fully underwritten private medical insurance
to executive directors and their dependents is
provided.
Death in service at four x base salary.
Performance metrics
Not performance related.
Further detail behind our policy
Performance measures
The committee selects the short, medium and
long-term performance measures to ensure an
appropriate balance between short, medium and
long-term strategic goals and aligning the interests
of executive directors with shareholders as far as
practicable. Measures and targets for both the
bonus plan and LTIP are aligned to the strategic plan
based on internal and external reference points and
are set to be stretching but achievable with regard
to the group’s strategic priorities and economic
environment in a given year. These are approved by
the board.
The committee may apply discretion, in exceptional
circumstances (for example, if there is a major
corporate event), to amend or vary targets or the
weighting of performance metrics or to substitute
the metrics if these are no longer appropriate
to ensure alignment with strategy and any risks
within the business. The committee will consult
with the group’s risk management and control
functions to ensure changes are appropriate and
do not inadvertently encourage irresponsible or
inappropriate behaviour.
58
Strategic reportGovernanceFinancials Consideration of risk factors and risk appetite
Balance between fixed and variable pay
Malus and/or clawback may be applied where:
there is evidence of colleague misbehaviour,
misconduct, material error, where a colleague
participated in conduct which resulted in losses
for the group or they failed to meet appropriate
standards; there is any material failure of risk
management; if the financial results are restated; if
the financial results for a given year do not support
the level of variable remuneration awarded; or
in any other circumstances where the committee
consider adjustments should be made. The
committee is supported in this by the board
risk and audit committees and the Nucleus risk
function.
When determining the outcome of the performance
measures, the committee will seek the advice of
the board risk committee to ensure all relevant risk
factors are identified and the bonus pool and/or
individual awards may be adjusted accordingly.
Total variable remuneration (bonus and LTIP) is
limited by the rules of the LTIP, which limit the
annual allocation of awards (unless in exceptional
circumstances) to a maximum of 150 per cent of
base salary for executive directors under the LTIP,
and the rules of the management group bonus
scheme, which define the target and maximum
bonus rates. All of these parameters are within the
authority of the committee, which is therefore able
to ensure that an appropriate balance between
fixed and variable pay is maintained. The existing
LTIP award allocations and current and historic
on-target bonus payments result in approximately
a 2:1 ratio of variable pay to fixed pay (subject to the
achievement of performance conditions), with the
on-target LTIP award being at least half of the total
variable pay award.
Service contracts for executive directors
The service agreements govern the performance of
the executive directors’ duties for the company and
other members of the group. The principal terms of
the service agreements are summarised below.
• The service agreements provide for 28 holidays
per annum (plus public and bank holidays), and
up to three months sick pay.
• Executive directors are eligible to receive bonus
and/or other discretionary incentive awards.
These are at the committee’s discretion and the
executive directors do not have a contractual
right to receive such awards.
• An executive director’s employment may be
terminated by either party giving to the other not
less than six months’ written notice. Under the
terms of each service agreement, the company
may elect to terminate an executive director’s
employment by making a payment in lieu of
notice equal to the base salary and benefits
(but excluding bonus) for any unexpired portion
of the notice period.
• The company also has the discretion to
place an executive director on garden leave
during the notice period. It is entitled to
dismiss an executive director without notice or
compensation in specified circumstances, for
example if the executive director commits a
serious or persistent breach of any term of the
service agreement.
• The executive directors’ service agreements also
contain six-month post-termination non-compete
restrictions and 12 months’ post-termination non-
solicitation and non-deal restrictions.
59
Annual report and financial statements 2019 Directors’ remuneration in 2019
Audited single total figure of remuneration
The table below sets out a single figure for the total remuneration received by each director for the year
ended 31 December 2019 and the prior year:
Basic salary
/ fees
Taxable
benefits
Pension
Annual
bonus
Growth
shares
£’000
£’000
£’000
£’000
£’000
LTIP/SIP
£’000
Total
£’000
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Executive directors
David Ferguson 1,2,6
297
281
Stuart Geard 1,2,6
249
245
Non-executive directors
Tracy Dunley-Owen ³
Jeremy Gibson 4,5
Margaret Hassall ³
John Levin
Jonathan Polin 5
Angus Samuels 5
Michael Seddon 4
Stephen Tucker 4
39
35
39
35
35
83
-
-
16
37
16
35
35
83
23
23
2
1
-
-
-
-
-
-
-
-
1
1
-
-
-
-
-
-
-
-
9
10
15
14
138
200
108
143
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,131
1,580
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
446 2,628
368 1,983
39
35
39
35
35
83
-
-
16
37
16
35
35
83
23
23
Non-executive director remuneration is determined by the board as a whole within the limits set out in the
articles of association. Non-executives do not participate in performance-related bonus or share-based
payment arrangements.
¹ Basic salary includes 8.5 per cent pension cash allowance
² Pension restricted for annual taper allowance
³ Non-executive director fee received in 2018 pro-rated from appointment onto the board and sub committees post AIM listing
4 Weighted average non-executive director fee received in 2018 reflecting stepping down from sub-committee chair or board
post AIM admission
5 Remuneration paid to third parties
6 The remuneration received by the executive directors in 2018 included the value, at their date of conversion into ordinary
shares in Nucleus Financial Group Limited (being 26 January 2018) of the realised G ordinary shares in Nucleus Financial
Group Limited held by them. The growth shares, being G1 and G2 ordinary shares, were issued to the executive directors as
part of a previous long-term incentive plan operated by the group. Further details of the scheme are set out in note 27 share-
based payments below.
60
Strategic reportGovernanceFinancials Summary of share incentive plan awards
The table below summarises individual executive director share scheme awards as at 31 December 2019.
Scheme
Grant date
David Ferguson
Stuart Geard
LTIP 2018
LTIP 2019
SIP
26 July 2018
3 April 2019
243,441
199,786
1,204
164,180
134,738
-
Total shares awarded
444,431
298,918
The performance conditions, valuation assumptions and other relevant award information are set out in
note 27 share-based payments.
Directors’ interest in shares
The number of shares held by the directors as at 31 December 2019 is as follows:
Director
David Ferguson
Stuart Geard
Angus Samuels
Shares beneficially
owned ¹
Unvested LTIP
options
Non-entitled SIP
shares
1,810,713
954,625
53,409
443,227
298,918
-
1,204
-
-
Total
2,255,144
1,253,543
53,409
Margaret Hassall
Chair of the remuneration and HR committee
6 April 2020
¹ Includes shares held by connected parties
61
Annual report and financial statements 2019 Directors’ report
A wrap
platform
The directors present their report and the
audited consolidated financial statements
for the year ended 31 December 2019.
Nucleus Financial Group plc is the parent
company of a group of companies
comprising Nucleus Financial Group plc
and its subsidiaries, Nucleus Financial
Services Limited (NFS), and Nucleus IFA
Services Limited (NIFAS) (the group).
62
Strategic reportGovernanceFinancials “ The Nucleus wrap allows customers
to invest directly, or via various ‘tax
wrappers’ into a broad range of asset
types, including cash, unit trusts,
OEICs, ETFs, investment trusts and
other securities.”
Introduction
The company’s principal activity is that of a holding company. It also
contracts services on behalf of the group, is the main employer of
Nucleus staff and provides and charges management services to its
subsidiaries.
The group’s principal activity is that of a wrap
platform service provider.
The Nucleus wrap allows customers to invest
directly, or via various ‘tax wrappers’ into a broad
range of asset types, including cash, unit trusts,
OEICs, ETFs, investment trusts and other securities.
NFS is authorised and regulated by the FCA
as an IFPRU limited licence investment firm. In
addition, NFS has additional FCA and HMRC
obligations relating to its activities as an operator
of a self-invested personal pension scheme (a
Sipp operator) and also those relating to the
management of individual savings accounts (an
Isa manager). NFS is authorised to hold and control
client money as part of its activities and is therefore
subject to the FCA’s Cass rules.
Having met, but subsequently ceased to meet
the definition of a significant IFPRU firm within
the reporting period, NFS and the group were
required to comply with the rules and requirements
applicable to a significant IFPRU firm for a period of
twelve months from the date on which NFS ceased
to be a significant IFPRU firm (February 2019).
NIFAS is not regulated by the FCA and has ceased
trading.
The audited financial statements of the group,
company and NFS, along with the group’s Pillar 3
disclosure, can be found on the company’s website
https://nucleusfinancial.com/investors and they
are also available on request from the company
secretary.
63
Annual report and financial statements 2019 Business review and
strategic report
The strategic report includes a detailed
business review that is set out in the
chairman’s statement, chief executive’s
report and chief financial officer’s
report on pages 8 to 29. Within these
parts of the strategic report we set out
information relating to:
• How we fulfil our duties under s172
of the Companies Act 2006, and
in taking decisions, ensure that
we promote the success of the
company as a whole.
• The development and performance
of the business during the year.
• The financial position of the group at
the end of the year.
• Key performance indicators, both
financial and non-financial, which
are regularly assessed in relation
to the development, performance,
solvency and liquidity of the
business.
•
Information relating to likely future
developments of the business.
Details of risk management objectives
and policies relating to financial
instruments are set out in note 1 financial
instruments and in the risk management
framework above.
Results and dividends
The group’s profit for the year was
£6.0m (2018: £4.8m). Revenue
increased 4.3 per cent to £51.5m, (2018:
8.7 per cent to £49.4m), with operating
profit up 25.8 per cent to £7.1m (2018:
up 10.4 per cent to £5.6m). The full
results are set out in the accompanying
financial statements and notes.
In light of the exceptional and open-
ended uncertainty caused by the
Covid-19 pandemic and the still rapidly
changing environment, the board has
decided, in the interests of prudence,
not to recommend a dividend until there
is more certainty around the term and
impact on markets, investor confidence
and revenue.
64
Qualifying indemnity provisions
As permitted by the company’s articles of
association directors’ professional indemnity
insurance has been provided to all directors and
this arrangement was in place throughout the
year. As part of the company’s admission to AIM
customary indemnities were provided to certain
directors during the year and remain in force.
Directors
The directors who served during the
year and up to the date of signing the financial
statements were:
• T Dunley-Owen
• D R Ferguson
• S J Geard
•
J P Gibson (resigned 25 February 2020)
• M Hassall
•
•
•
J Levin
J C Polin
J A Samuels (Chair)
• A Tagliabue (appointed 25 February 2020)
Company registration
The company is a public company limited by shares
and is registered with the registrar of companies
for England and Wales with company number
05522098.
Political donations
No political donations were made by the group or
the company during the year under review.
Share capital structure
There were no changes to the share capital
structure during the year.
Authority to purchase own shares
The company’s articles of association grant
the authority to make market purchases of its
own shares. The directors confirm that, with the
exception of matching shares relating to employee
share schemes, the company has not purchased
any of its own shares during the year.
Strategic reportGovernanceFinancials Post balance sheet events
The Covid-19 pandemic, which first impacted the
group, its users, its customers and the broader
economy in the first quarter of 2020, is considered
to be a non-adjusting post balance sheet event.
From March 2020, NFS and the group were no
longer required to meet the rules and requirements
of a significant IFPRU firm as NFS last met the IFPRU
definition of a significant firm in February 2019.
There were no other subsequent events that
required adjustment to or disclosure in the financial
statements for the period from 31 December 2019
to the date upon which the financial statements
were available to be issued.
Going concern
With regard to the assessment of the group and
company’s ability to continue as a going concern,
the directors evaluate this taking into account:
• The latest business plan projections, stressed
for significant events that would have a material
impact on the group and company’s profitability,
liquidity, solvency and regulatory capital position.
• Actual performance to date.
• The current operating and trading environment,
which has been severely impacted by Covid-19.
• The current financial position, adequacy of
liquidity and capital to meet operational and
regulatory requirements (further details of which
are set out on page 29 of the strategic report).
• Known risks and uncertainties (including in
respect of Covid-19) with consideration of the
impact of these on the group and company’s
solvency and liquidity position.
• Known and expected changes in the regulatory
environment impacting platform operators.
The directors also consider their approach to
assessing the group and the company’s ability
to continue as a going concern with reference to
guidance from the Financial Reporting Council
(FRC) and the recommendations from the Sharman
Inquiry of 2012 which sought to identify lessons for
companies and auditors addressing going concern
and liquidity risks following the credit crisis.
Having regard to these matters, the directors have
a reasonable expectation that the group and the
company has adequate resources to continue in
operational existence for at least 12 months from
the date of this report. The group and the company
therefore continues to adopt the going concern
basis in preparing its financial statements.
Disclosures to the external
auditor statement
Each individual director confirms that
as far as they are aware, there is no
relevant audit information of which the
company’s auditor is unaware, and that
they have taken all the steps that ought
to have been taken as a director to
make themselves aware of any relevant
audit information and to establish that
the company’s auditor is aware of that
information.
Auditor
The auditors, PricewaterhouseCoopers
LLP, have indicated their willingness to
be re-appointed and a resolution for
their reappointment will be proposed at
the Annual General Meeting.
This report was approved by the board
on 6 April 2020 and signed on its behalf.
David Ferguson
Director
65
Annual report and financial statements 2019 Directors’ responsibilities statement
True and
fair view
The directors are responsible for preparing
the group strategic report, the directors’
report and the consolidated and company
financial statements in accordance with
applicable law and regulations.
66
Strategic reportGovernanceFinancials Company law requires the
directors to prepare financial
statements for each financial
year. Under that law the
directors have elected to
prepare the financial statements
in accordance with applicable
law and International Financial
Reporting Standards (IFRS) as
adopted by the European Union
(EU). Under Company law the
directors must not approve the
financial statements unless they
are satisfied that they give a
true and fair view of the state of
affairs of the company and the
group and of the profit or loss
of the company and group for
that period.
In preparing these financial statements,
the directors are required to:
• Select suitable accounting policies for
the group's financial statements and
then apply them consistently.
• Make judgments and accounting
estimates that are reasonable and
prudent.
• State whether applicable IFRSs
as adopted by the EU have been
followed, 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
group will continue in business.
The directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the company and group’s transactions
and disclose with reasonable accuracy
at any time the financial position of the
company and the group and enable
them to ensure that the financial
statements comply with the Companies
Act 2006. They are also responsible for
safeguarding the assets of the company
and the group and hence for taking
reasonable steps for the prevention
and detection of fraud and other
irregularities.
The directors are responsible for
the maintenance and integrity of
the company’s website. Legislation
in the United Kingdom governing
the preparation and dissemination
of financial statements and other
information included in the directors'
report may differ from legislation in
other jurisdictions.
David Ferguson
Director
67
Annual report and financial statements 2019
Strategic report
Governance
Financials
Financials
68
Annual report and financial statements 2019
Independent auditors' report
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Company statement of financial position
Company statement of changes in equity
Company statement of cash flows
Notes to the company financial statements
70
76
78
80
81
82
114
115
116
117
69
Independent auditors’ report to the
members of Nucleus Financial Group Plc
Report on the audit of the financial statements
Opinion
Basis for opinion
In our opinion, Nucleus Financial Group plc’s group financial
statements and company financial statements (the “financial
statements”):
• Give a true and fair view of the state of the group’s and of the
company’s affairs as at 31 December 2019 and of the group’s
profit and the group’s and the company’s cash flows for the
year then ended
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the
Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
• Have been properly prepared in accordance with International
Independence
We remained independent of the group in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as
applicable to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
Financial Reporting Standards (IFRSs) as adopted by the
European Union and, as regards the company’s financial
statements, as applied in accordance with the provisions of the
Companies Act 2006; and
• Have been prepared in accordance with the requirements of
the Companies Act 2006
We have audited the financial statements, included within the
Annual report and financial statements (the “Annual Report”),
which comprise: the Consolidated statement of comprehensive
income, the Consolidated and Company statements of financial
position as at 31 December 2019; the Consolidated and Company
statements of changes in equity, and the Consolidated and
Company statements of cash flows for the year then ended; and
the notes to the financial statements, which include a description
of the significant accounting policies.
70
Strategic reportGovernanceFinancials Report on the audit of the financial statements
Our audit approach
Overview
Materiality
Overall group materiality: £350,100 (2018:
£282,650), based on 5% of profit before tax.
Overall company materiality: £200,003 (2018:
£212,499), based on 1% of total expenses.
Audit scope
Key audit
matters
The consolidated financial statements comprise the consolidation
of three individual components, each of which represents an
individual legal entity within the group.
We performed a full scope audit of the complete financial
information of these three components, which together represent
100% of the group’s profit before tax.
Specific audit procedures were also performed over consolidation
adjustments required to aggregate the three individual
components together to form the consolidated financial
statements.
Revenue recognition (group).
Impact of Covid-19.
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates
that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed
the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
71
Annual report and financial statements 2019 Report on the audit of the financial statements
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
Revenue recognition
Revenue is material to the group and is an important determinant
of the group’s profitability.
The sole revenue stream of the group is fees charged to
customers for the provision of platform services. This revenue
stream is calculated based on fixed rates, applicable to each
respective product, and the value of assets held on the platform
each day.
Revenue may be misstated due to errors in system calculations or
manual processes, for example, arising from incorrect securities
prices or values of assets under administration used in these
calculations and processes. Further, there are incentive schemes
in place for directors and staff which are in part a function of the
group’s revenue performance. Where there are incentives based
on performance, there is an inherent risk of fraud in revenue
recognition as there is an inherent incentive to misstate revenue.
Unauthorised changes to, or errors in, these inputs and
calculations could lead to a misstatement of revenue.
How our audit addressed the key audit matter
We obtained an understanding of the revenue recognition policy
applied by management and ensured it complied with the stated
accounting policy.
For the aggregate revenue balance, we performed substantive
testing procedures taking the core assets under management
information and the fee rates applied to customers and
calculated an expectation of the revenue balance, by customer,
on a daily basis.
In order to rely on the assets under administration data we;
• Selected a sample of the underlying customer holdings of
individual securities at various dates throughout the period
and obtained independent confirmation of their holdings
This testing provided sufficient evidence for us to determine
that the assets under administration data was reliable for the
purposes of performing our substantive testing.
In order to rely on the fee rates applied to client assets we;
• Tested the fee rates applied to the value of customers’ assets
to the underlying offer documents of Nucleus products and
• Validated the accuracy of the products assigned to client
assets via obtaining original application documents
We compared our independent calculation to the amount
reported and noted immaterial differences
72
Strategic reportGovernanceFinancials Report on the audit of the financial statements
Key audit matter
Impact of Covid-19
Refer to page 8 Chairman’s statement, page 12 Chief executive’s
report and page 22 Chief financial officer’s report.
The group operates a wrap platform that administers financial
products such as pensions, ISAs and investments on behalf
of customers. The group primarily generates Revenue from
contractual basis point rate cards applied to the daily valuation of
assets under administration.
Given the significant uncertainties and potential impacts on
the group resulting from the COVID-19 outbreak, management
have modelled scenarios of market stress as part of their going
concern assessment. These scenarios consider the impacts
on the value of assets under administration from a prolonged
downturn in financial markets. Given that Revenue is primarily
based on asset values this downturn could have an impact on
the group’s profitability, liquidity and regulatory capital.
As part of their consideration, management have identified a
number of possible mitigating actions which could be taken for
example, the suspension of dividend payments, their ability to
utilise overdraft facilities and reduction of areas of discretionary
spend.
Following the consideration of these scenarios, the directors
continue to believe that it is appropriate to adopt the going
concern basis in preparing the financial statements and have
made a number of disclosures explaining the factors they have
considered.
How our audit addressed the key audit matter
We have obtained a copy of management’s going concern
assessment and discussed the basis of preparation with
management and the Audit Committee. We have agreed the
cash flow model to the group’s strategic plan.
We have obtained, understood and challenged management’s
scenarios which have been extended to reflect the potential
impact on financial markets of COVID-19 and considered
management’s key assumptions for reasonableness.
We have considered the reasonableness and achievability of the
mitigating actions that management have identified.
We have considered the adequacy of management’s disclosures
in the financial statements and read relevant “other information”
and checked consistency with the financial statements and our
knowledge based on our audit.
We believe that the disclosures made within the financial
statements are appropriate.
We determined that there were no key audit matters applicable to the company to communicate in our report.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
group and the company, the accounting processes and controls,
and the industry in which they operate.
The group is structured as one segment, comprising the
consolidation of three individual components, each of which
represents an individual legal entity within the group. All of
these components were considered financially significant and
we performed a full scope audit of their complete financial
information.
Together these components represent 100 per cent of the group’s
profit before tax. Specific audit procedures were also performed
over consolidation adjustments required to aggregate the three
individual components together to form the group financial
statements. All of the audit work was performed by the group
engagement team based in Edinburgh.
The company is a holding company, as well as contracting
services on behalf of the group and being the main employer.
It does not trade outside of the group. The only material income
it received during the year was income received from its
subsidiaries.
73
Annual report and financial statements 2019 Report on the audit of the financial statements
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us
to determine the scope of our audit and the nature, timing
and extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial
statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Group financial
statements
Company financial
statements
Overall
materiality
£350,100
(2018: £282,650).
£200,003
(2018: £212,499).
How we
determined it
5% of profit
before tax.
1% of total expenses.
Conclusions relating to going concern
ISAs (UK) require us to report to you when:
• The directors’ use of the going concern basis of accounting in
the preparation of the financial statements is not appropriate;
or
• The directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the group’s and company’s ability to continue
to adopt the going concern basis of accounting for a period
of at least twelve months from the date when the financial
statements are authorised for issue.
We have nothing to report in respect of the above matters.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the group’s and
company’s ability to continue as a going concern.
Rationale for
benchmark
applied
The consolidated Nucleus
Financial Group plc group
is a profit oriented group
and therefore we are
satisfied that the use of
profit before tax is an
appropriate benchmark.
As the company is not
profit orientated, with its
primary purpose being
a holding and service
company for the group,
we have calculated
materiality with reference
total expenses, with
this being a generally
accepted auditing
benchmark.
For each component in the scope of our group audit, we allocated
a materiality that is less than our overall group materiality. The
range of materiality allocated across components was between
£14,565 and £200,003. Certain components were audited to a
statutory audit materiality that was also less than our overall group
materiality.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above £17,505 (Group
audit) (2018: £14,133) and £10,000 (Company audit) (2018: £10,625)
as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other
information. Our opinion on the financial statements does not
cover the other information and, accordingly, we do not express
an audit opinion or, except to the extent otherwise explicitly stated
in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we identify
an apparent material inconsistency or material misstatement, we
are required to perform procedures to conclude whether there is
a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have
nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ report, we
also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work
undertaken in the course of the audit, ISAs (UK) require us also to
report certain opinions and matters as described below.
74
Strategic reportGovernanceFinancials
Report on the audit of the financial statements
Strategic Report and Directors’ Report
Use of this report
In our opinion, based on the work undertaken in the course of the
audit, the information given in the Strategic Report and Directors’
report for the year ended 31 December 2019 is consistent with the
financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the group and
company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the
Strategic Report and Directors’ report.
Responsibilities for the financial statements and
the audit
This report, including the opinions, has been prepared for and
only for the company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
Responsibilities of the directors for the financial statements
• We have not received all the information and explanations we
As explained more fully in the Directors’ Responsibilities Statement
set out on page 66, the directors are responsible for the
preparation of the financial statements in accordance with the
applicable framework and for being satisfied that they give a true
and fair view. The directors are also responsible for such internal
control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible
for assessing the group’s and the company’s ability to continue
as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the group or the
company or to cease operations, or have no realistic alternative
but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the
financial statements is located on the FRC’s website at: www.frc.
org.uk/auditorsresponsibilities. This description forms part of our
auditors’ report.
require for our audit; or
• Adequate accounting records have not been kept by the
company, or returns adequate for our audit have not been
received from branches not visited by us; or
• Certain disclosures of directors’ remuneration specified by law
are not made; or
• The company financial statements are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Other voluntary reporting
Directors’ remuneration
The company voluntarily prepares a Directors’ Remuneration
Report in accordance with the provisions of the Companies
Act 2006. The directors requested that we audit the part of the
Directors’ Remuneration Report specified by the Companies Act
2006 to be audited as if the company were a quoted company.
In our opinion, the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006
Lindsay Gardiner (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
6 April 2020
75
Annual report and financial statements 2019 Consolidated statement of comprehensive income
Continuing operations
Revenue
Cost of sales*
Gross profit
Other operating income
Administrative expenses*
Operating profit
Analysed as:
Adjusted EBITDA
Right of use lease liability interest in adjusted EBITDA
Right of use depreciation included in adjusted EBITDA
Depreciation
Loss on disposal of fixed asset
Other income
Share based payments
AIM admission costs
Finance income
Finance costs
Note
3
4
8
8
2019
£’000
51,517
(22,817)
28,700
122
(21,718)
7,104
7,923
180
438
(1,102)
(3)
17
(349)
-
80
(182)
Restated*
2018
£’000
49,405
(20,587)
28,818
22
(23,191)
5,649
8,304
-
-
(585)
-
22
(404)
(1,688)
11
(7)
76
Strategic reportGovernanceFinancials Consolidated statement of comprehensive income
Profit before income tax
Income tax
Profit for the financial year
Items that may be subsequently reclassified to profit and loss
Total comprehensive income attributable to equity holders
Earnings per share (pence)
Basic
Diluted
Note
5
10
12
12
2019
£’000
7,002
(1,049)
5,953
-
5,953
7.8
7.8
Restated*
2018
£’000
5,653
(897)
4,756
-
4,756
6.3
6.3
*Details of the 2018 cost of sales and administrative expenses restatement are set out in note 2.
The notes on pages 82 to 113 form part of these financial statements.
77
Annual report and financial statements 2019 31 December
2019
£’000
31 December
2018
£’000
Note
13
14
15
26
16
17
18
23
24
24
24
24
253
3,476
1,698
107
5,534
10,530
107
-
18,525
29,162
34,696
76
53
465
(121)
19,233
19,706
-
-
2,029
163
2,192
10,611
84
541
17,672
28,908
31,100
76
53
150
(30)
17,224
17,473
Consolidated statement of financial position
Assets
Non-current assets
Intangible assets
Right of use lease assets
Property, plant and equipment
Deferred tax
Current assets
Trade and other receivables
Investments in securities
Tax receivable
Cash and cash equivalents
Total assets
Equity
Shareholders’ equity
Called up share capital
Capital redemption reserve
Share-based payment reserve
Treasury shares
Retained earnings
Total equity
78
Strategic reportGovernanceFinancials Consolidated statement of financial position
31 December
2019
£’000
31 December
2018
£’000
Note
Liabilities
Non-current liabilities
Lease liabilities
Financial liabilities
Provisions
Deferred tax
Current liabilities
Lease liabilities
Financial liabilities
Trade and other payables
Tax payable
Provisions
Total liabilities
Total equity and liabilities
20
21
28
26
20
21
19
28
3,737
-
99
22
3,858
475
-
9,606
357
694
11,132
14,990
34,696
The financial statements were approved and authorised for issue by the board and were signed on its behalf on 6 April 2020.
Stuart Geard
Director
The notes on pages 82 to 113 form part of these financial statements.
-
6
32
41
79
-
87
12,134
740
587
13,548
13,627
31,100
79
Annual report and financial statements 2019 Consolidated statement of changes in equity
Called
up share
capital
£’000
Note
Retained
earnings
£’000
Treasury
shares
£’000
Capital
redemption
reserve
£’000
76
-
17,224
(71)
-
-
-
-
5,953
(3,873)
-
-
(30)
-
-
-
(91)
-
11
27
53
-
-
-
-
-
Balance at 1 January 2019
IFRS 16 conversion
Changes in equity
Profit for the year
Dividends paid
Purchase of own shares
Share-based payments charge
(excl. NIC)
Balance at 31 December 2019
76
19,233
(121)
53
Called
up share
capital
£’000
Note
Balance at 1 January 2018
Reclassify investments from FVOCI
to FVPL
Changes in equity
Issue of preference shares
Redemption of preference shares
Issue of bonus shares and G
share conversion
Buy back and redemption of G
shares and deferred shares
Profit for the year
Dividends paid
Purchase of own shares
Gain on disposal of own shares
Transfer on share conversion
11
Share-based payments charge
27
21
-
50
(50)
57
(2)
-
-
-
-
-
-
Retained
earnings
£’000
13,475
39
(50)
-
(57)
-
4,756
(3,933)
-
94
2,900
-
Treasury
shares
£’000
Capital
redemption
reserve
£’000
-
-
-
-
-
-
-
-
(30)
-
-
-
1
-
-
50
-
2
-
-
-
-
-
-
Share-
based
payment
reserve
£’000
150
-
-
-
-
315
465
Share-
based
payment
reserve
£’000
2,646
-
-
-
-
-
-
-
-
-
(2,900)
404
Balance at 31 December 2018
76
17,224
(30)
53
150
The notes on pages 82 to 113 form part of these financial statements.
Fair value
reserve
£’000
-
-
-
-
-
-
-
Fair value
reserve
£’000
39
(39)
-
-
-
-
-
-
-
-
-
-
-
Total
equity
£’000
17,473
(71)
5,953
(3,873)
(91)
315
19,706
Total
equity
£’000
16,182
-
-
-
-
-
4,756
(3,933)
(30)
94
-
404
17,473
80
Strategic reportGovernanceFinancials Consolidated statement of cash flows
Cash flows from operating activities
Cash inflows from operations
Interest received
Income tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of intangible fixed assets
Purchase of tangible fixed assets
Purchase/(sale) of investments
Net cash outflow from investing activities
Cash flows from financial activities
Interest paid
Dividends paid
Purchase of Treasury shares
Repayment of finance leases
Lease payments - principal
Exercise of options
Net cash outflows from financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effects of exchange rate changes
Cash and cash equivalents at end of year
The notes on pages 82 to 113 form part of these financial statements.
Note
29
8
13
15
17
8
11
22
20
5
18
2019
£’000
6,790
80
(855)
6,015
(253)
(348)
(16)
(617)
(182)
(3,873)
(91)
-
(393)
-
(4,539)
859
2018
£’000
7,298
8
(1,822)
5,484
-
(833)
10
(823)
(2)
(3,933)
(30)
(107)
-
98
(3,974)
687
17,672
16,992
(6)
(7)
18,525
17,672
81
Annual report and financial statements 2019 Notes to the consolidated financial statements
1. Accounting policies
Segmental reporting
Basis of preparation
The financial statements comply with International Financial
Reporting Standards (IFRS) as adopted by the European Union
(EU) and have been prepared on a going concern basis, under
the historical cost convention as modified by the recognition of
certain financial assets measured at fair value. Unless otherwise
stated, the accounting policies set out below have been applied
consistently in both years presented in these financial statements.
The preparation of the financial statements in compliance with
EU adopted IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise judgement in
applying the group and company’s accounting policies. The areas
where significant judgements and estimates have been made in
the preparation of the financial statements are detailed in note 2.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the company and all its subsidiary undertakings.
Subsidiaries are entities controlled by the company. Control
is achieved where the group has existing rights that give it
the current ability to direct the relevant activities that affect the
returns and exposure or rights to variable returns from the entity.
Subsidiaries are included in the consolidated financial statements
of the group from the date control of the subsidiary commences
until the date that control ceases. Intragroup balances, and any
unrealised gains and losses or income and expenses arising
from intragroup transactions, are eliminated in preparing the
consolidated financial statements.
Uniform accounting policies have been applied across the group.
Going concern
After reviewing the group and the company’s forecasts and
projections, together with the results of modelled severe but
plausible stress tests on both the liquidity and regulatory capital
adequacy, and the current operating and trading environment,
the directors have a reasonable expectation that the group and
the company has adequate resources to continue in operational
existence for at least 12 months from the date of signing of the
financial statements. The group and the company therefore
continues to adopt the going concern basis in preparing its
financial statements. Further information relevant to the directors’
assessment of going concern is set out in the directors’ report on
page 65.
Operating segments are reported in a manner consistent with
the internal reporting provided to the executive committee (the
chief operating decision maker). The board tasks responsibility
to the executive committee to assess the financial performance
and the position of the group and make strategic decisions and
allocate resources.
Nucleus’ principal activities are the provision of wrap
administration services and there is only one reporting and
operating segment as defined under IFRS 8 Operating Segments.
This is reviewed on a regular basis. It is considered appropriate
that management review the performance of the group by
reference to total results against budget.
The main financial performance measures are assets under
administration on the platform, gross and net inflows onto the
platform, revenue, adjusted EBITDA, profit for the year, dividend
paid, adjusted EBITDA margin, consolidated operating profit,
consolidated profit after tax and consolidated net assets. These
are disclosed in the chief financial officer’s report, where non-Gaap
financial performance measures are also identified. The operating
profit to adjusted EBITDA reconciliation is presented within the
Consolidated statement of comprehensive income. Non-Gaap
measures are also defined in the definitions and glossary section
of the financial statements.
Revenue
Revenue comprises fees earned by the group from the provision
of a wrap platform service to UK financial advisers and their
clients. Fees are recognised exclusive of Value Added Tax and
net of large case discounts. They are recorded in the year to
which they relate and can be reliably measured. Platform fees
are calculated monthly using contractual basis point rate cards
applied to the daily valuation of assets under administration on
the platform. Performance obligations are satisfied as the wrap
platform service is provided to customers over time. Accrued
income represents fees that are collected in the following month.
Interest income
Interest received is recognised in the statement of comprehensive
income as it is earned.
Finance costs
Interest expense is recognised in the statement of comprehensive
income in the year to which it relates.
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Strategic reportGovernanceFinancials Notes to the consolidated financial statements
Expense recognition
Internally generated intangible assets
Expenditure incurred by the group is recognised in the year to
which it relates. Any expenses relating to a year that have not yet
been invoiced are accrued and expenses paid but which relate
to future years are classified as prepayments within the statement
of financial position.
Foreign currency
The group and company’s functional and presentation currency is
the Pound Sterling. Transactions in foreign currencies are recorded
at the rate ruling at the date of the transaction. At each year end,
foreign currency monetary items are translated using the closing
rate. Foreign exchange gains and losses resulting from the
settlement of transactions at year end exchange rates of monetary
assets denominated in foreign currencies are recognised in
statement of comprehensive income.
Expenditure on internally generated brands, goodwill and
the maintenance of intangible assets is expensed. Where
development expenditure is incurred that satisfies the general
asset recognition criteria and where there is the intention, feasibility
and capability to complete the development, then this expenditure
is capitalised. The cost of internally generated intangible assets
includes directly attributable third party and internal staff costs.
Impairment reviews are carried out where there are indicators
of impairment.
Amortisation of intangible assets
Intangible assets with a limited useful life, once brought into
use, are amortised using the straight-line method over the
following period:
Licenses
5 years
Dividends
Property, plant and equipment
Dividends are recorded in the financial statements in the year in
which they are approved by the shareholders. Interim dividends
are recognised when paid.
Goodwill
Goodwill arises on consolidation and represents the excess of
the purchase consideration for a business over the fair value of
any identifiable assets and liabilities acquired. Goodwill is not
amortised but is tested annually for impairment or more frequently
where impairment indicators exist. Impairment losses are
recorded in the consolidated statement of comprehensive income,
and any recorded losses are not subsequently reversed
Externally acquired intangible assets
Intangible assets that are acquired from third parties are
recognised on the balance sheet at cost and amortised over the
expected useful life. The costs of externally acquired intangibles
includes the purchase consideration and directly attributable
costs of preparing the asset for its intended use. Impairment
reviews are carried out where there are indicators of impairment.
No impairment indicators were identified during the year.
Tangible fixed assets are stated at historic cost less depreciation.
Cost includes the original purchase price of the asset and the costs
attributable to bringing the asset to its working condition for its
intended use. Impairment reviews are carried out where there are
indicators of impairment. No impairment indicators were identified
during year.
Depreciation is charged so as to allocate the cost of the assets
less their residual value over their estimated useful lives, using
the straight-line method.
The estimated useful lives range as follows:
Fixtures and fittings
Office equipment
Short term leasehold property
4 years straight line
3 years straight line
10 years straight line
Gains and losses on disposals are determined by comparing the
proceeds with the carrying amount and are recognised in the
statement of comprehensive income.
Leases
From 1 January 2019, leases are recognised as a right-of-use asset
and a corresponding liability. Assets and liabilities arising from a
lease are initially measured on a present value basis. Right-of-use
assets are depreciated over the shorter of the asset’s useful life
and the lease term on a straight-line basis. Short term and low
value leases are expensed. Details of the assets can be found in
note 14, and liabilities in note 20.
83
Annual report and financial statements 2019
Notes to the consolidated financial statements
The fair value of services received by the group in exchange for the
grant of equity instruments is recognised as an expense over their
vesting period.
The total amount to be expensed or recognised as an increase
in the cost of investments is determined by reference to the fair
value of the equity instrument at the grant date and the number
of options or shares expected to vest. Service conditions are
included in the assumptions about the number of equity
instruments expected to vest. The relevant charge to the
consolidated statement of comprehensive income or increase
to the company’s investments is recognised over the vesting
period on a straight-line basis.
At the end of each reporting period, the company revises its
estimate of the number of equity instruments that are expected
to vest to reflect latest expectations on the employee’s ability
to achieve the specified performance criteria and actual or
anticipated leavers from the scheme. The company recognises
the impact of any revision to the prior year’s estimates in the
consolidated statement of comprehensive income or company
statement of financial position, with a corresponding adjustment
to equity.
National insurance contribution (NIC) obligations arising from
HMRC unapproved equity-settled schemes are treated as if they
are cash-settled, regardless of the equity determination of the
scheme itself. The company LTIP scheme is a HMRC unapproved
equity-settled scheme. The NIC cost is recognised over the vesting
period of the options and is measured with reference to the
employers’ NIC rate applied to the number of options expected to
vest, valued at the share price at the reporting date. Until the NIC
obligation is settled it is remeasured at the end of each reporting
period and at the date of settlement, with any changes in value
being recognised in the statement of comprehensive income.
Employee benefits trusts
The company has established an Employee Share Ownership
Trust (ESOT) and a Share Incentive Plan (SIP) trust for the purposes
of satisfying awards under share-based incentive and all
employees share ownership plans. Shares held by the trusts are
recorded as treasury shares and deducted from equity until the
shares are cancelled, reissued or disposed. The employee benefits
trusts are included within the consolidated financial statements of
the group.
Finance leases
For the year ended 31 December 2018 where assets were
financed by leasing agreements that give rights approximating to
ownership, the assets were treated as if they had been purchased
outright. The amount capitalised was the lower of the fair value
of the leased asset and the present value of the minimum lease
payments. Office equipment acquired under finance leases was
depreciated over its useful life of three years on a straight-line
basis. Depreciation on the relevant assets was charged to the
statement of comprehensive income. Interest on the finance lease
was recognised in the statement of comprehensive income using
the effective interest method.
Operating lease commitments
For the year ended 31 December 2018 rentals under operating
leases were charged to the statement of comprehensive income
on a straight-line basis over the lease term.
Incentives received to enter into an operating lease were credited
to the statement of comprehensive income, to reduce the lease
expense, on a straight-line basis over the period of the lease.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits
held at call with banks. Bank overdrafts are shown within current
liabilities due less than one year. Cash equivalents are highly liquid
investments that mature no more than three months from the date
of acquisition and that are readily convertible to known amounts
of cash with insignificant risk of change in value.
Defined contribution pension scheme
Nucleus Financial Group plc operates a defined contribution
pension scheme. The pension charge represents the amounts
payable by the group and the company to the scheme in respect
of the year and contributions are recognised as an expense when
they are due. Once the contributions have been paid, the group
and the company have no further payment obligations. The assets
of the scheme are held separately from those of Nucleus Financial
Group plc in an independently administered fund.
Share-based payments
The company operates a number of equity settled share-based
payment compensation plans, under which the group receives
services from directors and senior managers as consideration for
equity instruments (options or shares) of the company. These are
accounted for in accordance with IFRS 2 Share-based payments.
84
Strategic reportGovernanceFinancials Notes to the consolidated financial statements
Taxation
Current taxes are based on the results shown in the financial
statements and are calculated according to local tax rules, using
tax rates enacted or substantially enacted by the statement of
financial position date.
Full provision is made for deferred tax assets and liabilities arising
from all timing differences between the recognition of gains
and losses in the financial statements and recognition in the
tax computation.
A net deferred tax asset is recognised only if it can be regarded
as more likely than not that there will be suitable taxable profits
from which the future reversal of the underlying timing differences
can be deducted.
Deferred tax assets and liabilities are calculated at the tax rates
expected to be effective at the time the timing differences are
expected to reverse, based on tax laws that have been enacted or
substantively enacted by the statement of financial position date.
Deferred tax assets and liabilities are not discounted as the impact
of any discounting would be immaterial.
Provisions for liabilities
Provisions are made where an event has taken place that gives
the group or the company a legal or constructive obligation that
probably requires settlement by a transfer of economic benefit,
and a reliable estimate can be made of the amount of the
obligation.
Provisions are charged as an expense to the statement of
comprehensive income in the year that the group or the company
becomes aware of the obligation and are measured at the
best estimate at the statement of financial position date of the
expenditure required to settle the obligation, taking into account
relevant risks and uncertainties.
When payments are eventually made, they are charged to the
provision carried in the statement of financial position.
Financial instruments
Financial assets and financial liabilities are initially classified
as measured at amortised cost, fair value through other
comprehensive income, or fair value through profit and loss
when the group becomes a party to the contractual provisions
of the instrument. Financial assets are derecognised when the
contractual rights to the cash flows expire, or the group no longer
retains the significant risks or rewards of ownership of the financial
asset. Financial liabilities are derecognised when the obligation
is discharged, cancelled or expires.
Financial assets are classified dependent on the group’s
business model for managing the financial and the cash flow
characteristics of the asset. Financial liabilities are classified
and measured at amortised cost except for trading liabilities, or
where designated at original recognition to achieve more relevant
presentation. The group classifies its financial assets and liabilities
into the following categories:
Financial assets at amortised cost
The group’s financial assets at amortised cost comprise trade
and other receivables. These represent debt instruments with
fixed or determinable payments that represent principal or interest
and where the intention is to hold to collect these contractual
cash flows.
They are initially recognised at fair value, included in current and
non-current assets, depending on the nature of the transaction,
and are subsequently measured at amortised cost using the
effective interest method less any provision for impairment.
Impairment of trade and other receivables
In accordance with IFRS 9 an expected loss provisioning model is
used to calculate an impairment provision. We have implemented
the IFRS 9 simplified approach to measuring expected credit losses
arising from trade and other receivables, being a lifetime expected
credit loss. This is calculated based on an evaluation of our historic
experience plus an adjustment based on our judgement of
whether this historic experience is likely reflective of our view of the
future at the balance sheet date. In the previous year the incurred
loss model is used to calculate the impairment provision.
Financial liabilities at amortised cost
Financial liabilities at amortised cost comprise finance lease
obligations and trade and other payables. They are classified as
current and non-current liabilities depending on the nature of the
transaction, are subsequently measured at amortised cost using
the effective interest method.
Financial assets at fair value through profit and loss
The group has investments held on the platform for operational
purposes. These are recognised and measured at fair value using
the most recent available market price with gains and losses
recognised immediately in the profit and loss.
85
Annual report and financial statements 2019 Notes to the consolidated financial statements
The fair value measurement of the group’s financial and non-
financial assets and liabilities utilises market observable inputs
and data as far as possible. Inputs used in determining fair value
measurements are categorised into different levels based on how
observable the inputs used in the valuation technique utilised are
(the ‘fair value hierarchy’).
Level 1 – Quoted prices in active markets
Level 2 – Observable direct or indirect inputs other than Level
1 inputs
Level 3 – Inputs that are not based on observable market data
Standard
Conceptual Framework - amendments to
references to the conceptual framework in
IFRS standards
Effective from
1 January 2020
Amendments to IFRS 3: Business
combinations – definition of a business
1 January 2020
Definition of materiality - amendments to IAS
1 and IAS 8
1 January 2020
The group measures financial instruments relating to platform
holdings at fair value using Level 1.
Interest rate benchmark reform -
amendments to IFRS 9, IAS 39 and IFRS 7
1 January 2020
New standards effective for the first time in the 2019
financial statements
Standard
IFRS 16: Leases
Effective from
1 January 2019
IFRIC 23 - Uncertainty over income tax
1 January 2019
Amendments to IFRS 9: Financial instruments
- prepayment features with negative
compensation
1 January 2019
IFRS 17: Insurance contracts
1 January 2023
The adoption of these standards is not expected to have a material
impact on the group.
2. Critical accounting judgements, key sources
of estimation uncertainty, and restatements
Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances. The critical accounting judgements
and the key sources of estimation uncertainty are as follows:
Amendments to IAS 28: Investments
in associates - long-term interests in
associates and joint ventures
1 January 2019
Income taxes
Annual improvements 2015-2017 cycle
1 January 2019
Amendments to IAS 19: Employee benefits
- plan amendments, curtailments or
settlements
1 January 2019
The group is subject to income taxes. Judgement is required in
determining the extent to which it is probable that taxable profits
will be available in future against which deferred tax assets can
be utilised. Based on forecasts, the group expects to materially
recover its deferred tax assets within the next two years.
IFRS 16 Leases
Share-based payments
The group adopted IFRS 16 Leases effective 1 January 2019.
Details of the impact are set out in note 36 Changes in accounting
policies. Other new and amended standards did not have any
impact on the group’s accounting policies. Details of the assets can
be found in note 14, and liabilities in note 20.
Future standards, amendments to standards and interpretations
not early-adopted in the 2019 financial statements
New accounting standards and interpretations have been
published that are not mandatory for adoption in the 2019 financial
statements.
The group assesses the fair value of shares under the LTIP scheme
at the grant date using appropriate valuation models, depending
upon the nature of the performance criteria. At the end of each
reporting period, the company revises its estimate of the number
of options and shares under the LTIP scheme that are expected to
vest to reflect latest expectations on the group’s ability to achieve
the specified performance criteria and actual or anticipated leavers
from the schemes. For non-market related performance criteria,
the company recognises the impact of any revision to the prior
year’s estimates in the statement of comprehensive income,
with a corresponding adjustment to equity.
86
Strategic reportGovernanceFinancials Notes to the consolidated financial statements
2. Critical accounting judgements, key sources of estimation uncertainty, and restatements (continued)
Provisions
The group has recognised provisions in respect of client compensation, outsourced service, dilapidations and share incentive plans.
Further detail on these provisions, the rationale behind their recognition and the timing of future cash flow is included in note 28.
Restatement of costs of sales presentation in 2018
Platform related mailings, bank charges and errors and losses, which were previously disclosed in administrative expenses, have been
reclassified to cost of sales to achieve better presentation. There is no impact on the reported profit or net assets of the group as a result
of these restatements.
Continuing operations
Revenue
Cost of sales
Gross profit
Other operating income
Administrative expenses
Operating profit
Profit for the financial year
3. Revenue
2018
£’000
Adjustment
£’000
49,405
(19,809)
29,596
22
(23,969)
5,649
4,756
-
(778)
(778)
-
778
-
-
Restated
2018
£’000
49,405
(20,587)
28,818
22
(23,191)
5,649
4,756
Revenue comprises fees earned by the group from the provision of a wrap platform service to UK financial advisers and their clients.
All revenue arose within the United Kingdom (2018: all United Kingdom).
4. Other operating income
Other operating income
2019
£’000
122
2018
£’000
22
Other operating income includes a £100k R&D tax credit in respect of 2018 that has been recognised in 2019 under the RDEC scheme.
87
Annual report and financial statements 2019
Notes to the consolidated financial statements
5. Profit before income tax
The profit before income tax is stated after charging:
Depreciation of tangible fixed assets
Depreciation of right of use assets
Interest on right of use assets
Loss on disposal of fixed assets
Unrealised (gain)/loss on investments
Foreign exchange differences
Movement in expected loss provision
Operating lease rentals - (replaced re IFRS 16)
Share based payment charge
6. Employees
Wages and salaries
Social security costs
Other pension costs
Share-based payment charge
The average monthly number of employees during the year was as follows:
Employees
7. Directors’ remuneration
2019
£’000
664
438
180
3
(7)
6
59
-
349
2019
£’000
12,191
1,402
997
349
2018
£’000
585
-
-
-
5
7
8
446
404
2018
£’000
11,812
1,424
906
404
14,939
14,546
2019
223
2018
203
Details of directors’ remuneration are set out in the remuneration and HR committee report on pages 54 to 61.
88
Strategic reportGovernanceFinancials
Notes to the consolidated financial statements
8. Net finance (cost)/income
Finance income:
Bank interest receivable
Other interest income
Finance costs
Lease interest
Interest on finance leases
Other interest paid
Net finance (cost)/income
2019
£’000
70
10
80
2019
£’000
(180)
-
(2)
(182)
(102)
2018
£’000
10
1
11
2018
£’000
-
(2)
(5)
(7)
4
9. Auditors’ remuneration
The group paid the following amounts to its auditors in respect of the audit of the financial statements and for other services provided to
the group:
Audit of the financial statements
Client asset audit services
All other services
2019
£’000
182
175
30
387
2018
£’000
235
151
395
781
Other services in 2018 related to fees earned by PwC in their capacity as reporting accountants to the company’s admission to AIM and
other corporate finance transactions.
89
Annual report and financial statements 2019
Notes to the consolidated financial statements
10. Income tax
Analysis of tax expense
Current tax:
Tax on profits for the year
Adjustments in respect of prior periods
Deferred tax:
Origination and reversal of timing differences
Effect of tax rate on opening balances
Total expense in statement of comprehensive income
Factors affecting the tax expense
2019
£’000
1,271
(260)
24
14
1,049
2018
£’000
1,435
(527)
(11)
-
897
The tax assessed for the year is lower (2018: lower) than the standard rate of corporation tax in the UK of 19.00 per cent (2018: 19.00
per cent).
The differences are reconciled below:
Profit before taxation
2019
£’000
7,002
2018
£’000
5,653
Profit before taxation multiplied by the standard rate of corporation tax in the UK of 19.00
per cent (2018: 19.00 per cent)
1,330
1,074
Effects of:
Expenses not deductible for tax purposes
Fixed asset differences
Adjustments to tax charge in respect of prior period R&D claims
Deferred tax not recognised
Other differences
84
18
(258)
(218)
93
1,049
412
5
(527)
(70)
3
897
90
Strategic reportGovernanceFinancials
Notes to the consolidated financial statements
11. Dividends
£0.01 ordinary share dividends* (2018: 142p per share)
£0.001 ordinary share dividends* 5.1p (2018: 1.4p per share)
B ordinary share dividend (2018: 142p per share)
G3 share dividends (2018: 243p per realised share)
G3 share dividends (2018: 142p per realised share)
G4 share dividends (2018: 243p per realised share)
G4 share dividends (2018: 142p per realised share)
*The Esot waived its right to receive dividends during the year.
12. Earnings per share
2019
£’000
-
3,873
-
-
-
-
-
2018
£’000
1,577
1,063
1,081
84
49
50
29
3,873
3,933
Earnings per share has been calculated by dividing the total profit for the year by the weighted average number of ordinary shares in
issue during the year.
Profit for the year
Weighted average number of ordinary shares (basic)
SIP scheme
LTIP scheme
Weighted average number of ordinary shares (diluted)
Basic earnings per ordinary share (pence)
Diluted earnings per ordinary share (pence)
2019
£’000
5,953
2018
£’000
4,756
2019
2018
75,862,105
75,932,243
71,255
345,932
1,821
16,209
76,279,292
75,949,568
2019
7.8
7.8
2018
6.3
6.3
The weighted average number of ordinary shares reflect the number of shares in issue following the listing of the Company on 26 July
2018. The share capital transactions that happened during the year are detailed in note 23.
91
Annual report and financial statements 2019
Notes to the consolidated financial statements
13. Intangible assets
Cost
At 1 January 2019
Additions
Write-offs
At 31 December 2019
Amortisation
At 1 January 2019
Charge for the year
Impairments
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
Licences
£’000
-
253
-
253
-
-
-
-
253
-
The costs capitalised during 2019 represents development expenditure in relation to ancillary platform services.
The remaining contractual commitment in respect of the development expenditure amounts to £72,222 and is payable within 1 year.
92
Strategic reportGovernanceFinancials Notes to the consolidated financial statements
14. Right of use lease assets
Cost
At 1 January 2019
Transition to IFRS 16
Additions
Disposals
At 31 December 2019
Depreciation
At 1 January 2019
Transition to IFRS 16
Charge for the year
Eliminated on disposals
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
Right of use
asset Greenside
Edinburgh
£’000
Finance lease Office
equipment
£’000
-
3,901
-
-
3,901
-
-
438
-
438
3,463
-
-
360
1
-
361
-
248
100
-
348
13
-
Total
£’000
-
4,261
1
-
4,262
-
248
538
-
786
3,476
-
93
Annual report and financial statements 2019
Notes to the consolidated financial statements
15. Property, plant and equipment
Short-term
leasehold property
£’000
Fixtures and fittings
£’000
Office equipment
£’000
1,137
-
10
-
1,147
99
-
114
-
213
934
1,038
527
-
28
(4)
551
127
-
131
(1)
257
294
400
1,508
(360)
310
-
1,458
917
(248)
319
-
988
470
591
Short-term
leasehold property
£’000
Fixtures and fittings
£’000
Office equipment
£’000
837
300
-
1,137
7
92
-
99
1,038
830
357
170
-
527
34
93
-
127
400
323
1,303
364
(159)
1,508
676
400
(159)
917
591
627
Total
£’000
3,172
(360)
348
(4)
3,156
1,143
(248)
564
(1)
1,458
1,698
2,029
Total
£’000
2,497
834
(159)
3,172
717
585
(159)
1,143
2,029
1,780
Cost
At 1 January 2019
Transition to IFRS 16
Additions
Disposals
At 31 December 2019
Depreciation
At 1 January 2019
Transition to IFRS 16
Charge for the year
Eliminated on disposals
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
Cost
At 1 January 2018
Additions
Disposals
At 31 December 2018
Depreciation
At 1 January 2018
Charge for the year
Eliminated on disposals
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
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Strategic reportGovernanceFinancials
Notes to the consolidated financial statements
16. Trade and other receivables
Current:
Other debtors
Amounts owed by HMRC
Trade debtors
Accrued income
Prepayments
2019
£’000
1,201
1,929
444
5,243
1,713
10,530
2018
£’000
2,230
1,754
429
4,646
1,552
10,611
Included within other debtors is a balance of cash prefunded on the wrap platform as required by our client terms and conditions. This
fluctuates due to timing. The total loss allowance provided for trade and other receivables was £230,410 (2018: £176,784).
17. Investments in securities
Valuation
At 1 January
Additions in year
Disposals in year
Unrealised gain/(loss)
At 31 December
18. Cash and cash equivalents
Cash at bank and in hand
2019
£’000
84
39
(23)
7
107
2019
£’000
18,525
2018
£’000
99
-
(10)
(5)
84
2018
£’000
17,672
During 2018, the company transferred its £5,000,000 uncommitted overdraft facility from The Royal Bank of Scotland plc to The Royal Bank
of Scotland International Limited. The purpose of the overdraft is to support the company’s discretionary commitment to prefund tax relief
on eligible pension contributions and other temporary funding required under the client money and client asset rules. Interest is charged
on this facility at 3 per cent plus base rate up to an overdrawn amount of £5,000,000 and 5 per cent plus base rate on any amount over
£5,000,000. The overdraft is secured by a fixed and floating charge over all the company’s assets. The overdraft was undrawn as at
31 December 2019.
95
Annual report and financial statements 2019
Notes to the consolidated financial statements
19. Trade and other payables
Current:
Trade creditors
Social security and other taxes
Other creditors
Amounts owed to HMRC
Accruals
20. Lease liabilities
2019
£’000
1,423
372
2,206
118
5,487
9,606
2019
£’000
3,737
475
> 5 years
£’000
2018
£’000
3,674
380
1,816
240
6,024
12,134
2018
£’000
-
-
Total
£’000
4,212
Non-current:
Lease liabilities
Current:
Lease liabilities
2019
Lease liabilities
2018
Lease liabilities
1 year or less
£’000
1 - 2 years
£’000
2-5 years
£’000
475
-
494
-
1,602
1,641
-
-
-
Lease liabilities, which includes items previously classified as finance lease liabilities, increased by £4,513k as a result of adopting IFRS 16
Leases effective 1 January 2019.
96
Strategic reportGovernanceFinancials
Notes to the consolidated financial statements
21. Financial liabilities
Non-current:
Finance leases
Current:
Finance leases
2019
Finance leases
2018
Finance leases
2019
£’000
-
-
1 year or less
£’000
1 - 2 years
£’000
2-5 years
£’000
-
87
-
6
-
-
2018
£’000
6
87
Total
£’000
-
93
Financial liabilities now classified as lease liabilities as a result of adopting IFRS 16 Leases effective 1 January 2019.
22. Finance leases
Minimum lease payments under finance leases fall due as follows:
2019
£’000
2018
£’000
Gross obligations payable:
Within one year
Between one and five years
Finance charges payable:
Within one year
Between one and five years
Net obligations payable:
Within one year
Between one and five years
-
-
-
-
-
-
-
-
-
88
6
94
1
-
1
87
6
93
97
Annual report and financial statements 2019
Notes to the consolidated financial statements
23. Share capital
Fully paid ordinary shares of £0.001 each: 76,473,360 (2018: 76,473,360)
Employee benefits trusts hold a total of 611,255 shares (2018: 561,442).
2019
£’000
76
2018
£’000
76
During January 2018, in line with the growth share scheme, 142,362 G1 and 95,404 G2 shares converted into 124,448 ordinary and
113,318 deferred shares.
On 8 May 2018, the company issued 50,000 redeemable non-convertible preference shares at a nominal value of £1 per share. Each
preference share carried a right to a fixed non-cumulative dividend of 0.01 per cent of its nominal value, payable annually in arrears,
and did not carry any voting rights. These were redeemed on 26 July 2018.
On 6 July 2018, Nucleus Financial Group Limited was re-registered under the Companies Act 2006 as a public company under the
name of Nucleus Financial Group plc. The company listed on AIM on 26 July 2018 and this coincided with the following share capital
transactions:
On listing, 18,823 G3 shares and 8,812 G4 shares converted to ordinary shares and 21,905 G3 shares and 16,864 G4 shares converted
to deferred shares. Following this there were no G3 and G4 shares remaining in issue.
The company bought back 30,712 G1 shares, 9,026 G2 shares and 152,087 deferred shares for a consideration of £1. Following this there
were no G1, G2 or deferred shares remaining in issue.
The company then converted the remaining 761,028 B ordinary shares into ordinary shares and awarded a bonus issue of three new
ordinary shares for each existing ordinary share. This resulted in the creation of 5,735,502 new ordinary shares, bringing the total
ordinary shares in issue to 7,647,336. Subsequently, each ordinary share was then sub-divided into 10 new ordinary shares. This has
given rise to a post-listing number of fully paid shares in issue of 76,473,360.
24. Reserves
Capital redemption reserve
This is a non-distributable reserve into which amounts are transferred following the redemption or purchase of the company’s
own shares.
Share-based payment reserve
The fair value of services received in exchange for the grant of options and other share awards is recognised over their vesting period.
Upon conversion the fair value of services received is transferred to retained earnings.
Treasury shares
Shares of Nucleus Financial Group plc that are held in the Employee benefits trust and SIP trust for the purposes of satisfying awards
under share-based incentive and all employee share ownership plans.
Retained earnings
Retained earnings includes all current and prior year retained profits and losses.
98
Strategic reportGovernanceFinancials
Notes to the consolidated financial statements
25. Financial instruments
The principal financial instruments, from which financial instrument risk arises, are as follows:
• Trade and other receivables
• Cash and cash equivalents
•
Investments in securities
• Trade and other payables
As explained in note 1, financial assets and liabilities have been classified into categories that determine their basis of measurement
and, for items measured at fair value, whether changes in fair value are recognised in the statement of comprehensive income. In
adopting IFRS 9 all previously classified loans and receivables were re-classified as financial assets at amortised cost, with no change
to measurement, and all financial assets previously classified at fair value through other comprehensive income were reclassified as
financial assets at fair value through profit and loss, as this is the residual category under IFRS 9. The following tables show the carrying
values of assets and liabilities for each of these categories.
Financial assets at
fair value through
profit and loss
£’000
Financial liabilities at
amortised cost
£’000
Financial assets at
amortised cost
£’000
107
-
-
107
-
-
-
-
-
-
-
4,212
9,606
13,818
-
18,525
10,530
29,055
-
-
-
2019
Financial assets
Investments in securities
Cash and cash equivalents
Trade and other receivables
Total financial assets
Non-financial assets
Total assets
Financial liabilities
Lease liabilities
Trade and other payables
Total financial liabilities
Non-financial liabilities
Total liabilities
Total
£’000
107
18,525
10,530
29,162
5,534
34,696
4,212
9,606
13,818
1,172
14,990
99
Annual report and financial statements 2019 Total
£’000
84
17,672
10,611
-
17,672
10,611
28,283
28,367
-
-
-
2,733
31,100
93
12,134
12,227
1,400
13,627
Notes to the consolidated financial statements
25. Financial instruments (continued)
Financial assets at
fair value through
profit and loss
£’000
Financial liabilities at
amortised cost
£’000
Financial assets at
amortised cost
£’000
84
-
-
84
-
-
-
-
-
-
-
93
12,134
12,227
2018
Financial assets
Investments in securities
Cash and cash equivalents
Trade and other receivables
Total financial assets
Non-financial assets
Total assets
Financial liabilities
Finance lease obligations
Trade and other payables
Total financial liabilities
Non-financial liabilities
Total liabilities
100
Strategic reportGovernanceFinancials Notes to the consolidated financial statements
25. Financial instruments (continued)
Financial instruments measured at fair value – fair value hierarchy
The table below classifies financial assets that are categorised on the statement of financial position at fair value in a hierarchy that is
based on significance of the inputs used in making the measurements. The levels of hierarchy are disclosed in note 1.
Investments in securities are held for the benefit of platform functionality and are reported on a separate line in the statement of financial
position. The assets are held at fair value with any gains or losses being taken to the statement of comprehensive income.
The following tables show the group’s financial assets measured at fair value through profit and loss, classed according to the level of the
fair value hierarchy:
2019
Investments in securities
2018
Investments in securities
Credit risk
Level 1
£’000
107
Level 1
£’000
84
Level 2
£’000
-
Level 2
£’000
-
Level 3
£’000
-
Level 3
£’000
-
Total
£’000
107
Total
£’000
84
The group holds the surplus of corporate cash balances over and above its working capital requirements on deposit with its corporate
banking services providers, Royal Bank of Scotland plc, Bank of Scotland plc and Investec Bank plc. The group is therefore exposed to
counterparty credit risk and a failure of any of these banks would impact the group’s resources and its ability to meet its solvency and
liquidity requirements. Credit risk is managed within the risk appetites set by the board on an annual basis.
The supply of wrap platform services to clients results in trade receivables which management considers to be of low risk. Other
receivables are likewise considered to be low risk. Management do not consider that there is any concentration of risk within either
trade or other receivables.
Included in other receivables is a balance of cash prefunded on the wrap platform. Where these amounts are not received within normal
operational timeframes, our experience is that the risk of non-recovery increases, and we provide to our expectation of most likely
outcome. The provision as at 31 December 2019 was £230,410 (2018: £176,674).
Liquidity risk
The group’s liquidity position is subject to a range of factors that may generate liquidity strain in the short or medium term. The group
manages its liquidity risk through an ongoing evaluation of its working capital requirements against available cash balances and
credit facilities.
101
Annual report and financial statements 2019
Notes to the consolidated financial statements
25. Financial instruments (continued)
Exposure to securities markets
The group’s income is derived from a tiered basis point fee that is applied to client assets under administration. This income is exposed
to the value of the underlying investment assets which can be affected by market movements. Although some of this risk is mitigated
within components of the cost base, the group is ultimately exposed to volatility in its financial results because of market movements
beyond its control.
Operational risk
The nature of the activities performed by the group is such that a degree of operational risk is unavoidable in relation to losses that could
be incurred by the group or by others because of errors or omissions for which the group is ultimately liable.
Particular operational risks for the group are considered to be:
• People risks – we consider that the two most significant risks are the risk of failure to attract and retain core skills and knowledge
in the company, and people-related errors in core processes;
• Operational control failures in core processes – there is always a risk of failure in core processes, either directly by the company
and/or by third parties which would result in operational losses, poor client outcomes and reputational damage; and
• Systems-related risks including cyber-attacks, data leakage and business continuity events.
The following tables show an analysis of the financial assets and financial liabilities by remaining expected maturities.
< 3 months
£’000
3-12 months
£’000
1-5 years
£’000
>5 years
£’000
18,525
-
10,085
28,610
-
107
445
552
-
-
-
-
-
-
-
-
< 3 months
£’000
3-12 months
£’000
1-5 years
£’000
>5 years
£’000
17,672
-
10,182
27,854
-
84
429
513
-
-
-
-
-
-
-
-
Total
£’000
18,525
107
10,530
29,162
Total
£’000
17,672
84
10,611
28,367
2019
Financial assets
Cash and cash
equivalents
Investments
Trade and other
receivables
2018
Financial assets
Cash and cash
equivalents
Investments
Trade and other
receivables
102
Strategic reportGovernanceFinancials Notes to the consolidated financial statements
25. Financial instruments (continued)
2019
Financial liabilities
Trade and other
payables
Lease liabilities
2018
Financial liabilities
Trade and other
payables
Finance lease
obligations
< 3 months
£’000
3-12 months
£’000
1-5 years
£’000
>5 years
£’000
9,606
119
9,725
-
356
356
-
2,096
2,096
-
1,641
1,641
< 3 months
£’000
3-12 months
£’000
1-5 years
£’000
>5 years
£’000
11,966
87
12,053
168
-
168
-
6
6
-
-
-
26. Deferred tax
The deferred tax asset is made up of the following balances:
At 1 January 2018
(Charge)/credit to statement of
comprehensive income
At 31 December 2018
(Charge)/credit to statement of
comprehensive income
At 31 December 2019
Accelerated capital
allowances
£’000
Short term timing
differences
£’000
Losses and other
deductions
£’000
(5)
13
8
(1)
7
41
(24)
17
81
98
122
16
138
(136)
2
Total
£’000
9,606
4,212
13,818
Total
£’000
12,134
93
12,227
Total
£’000
158
5
163
(56)
107
As a result of the uncertainty in the opinion of the directors regarding the timing and extend of future profit generation by the group,
a deferred tax asset of £455,684 (2018: £286,290) has not been recognised.
103
Annual report and financial statements 2019
Notes to the consolidated financial statements
26. Deferred tax (continued)
The deferred tax liability is made up of the following balances:
Accelerated capital
allowances
£’000
Short term timing
differences
£’000
Losses and other
deductions
£’000
(46)
5
(41)
19
(22)
-
-
-
-
-
At 1 January 2018
(Charge)/credit to statement
of comprehensive income
At 31 December 2018
(Charge)/credit to statement
of comprehensive income
At 31 December 2019
27. Share-based payments
Total cost of share-based payments:
Long term incentive plan
Employers NIC on long term incentive plan
Share incentive plan
Growth shares
-
-
-
-
-
2019
£’000
290
34
25
-
349
Total
£’000
(46)
5
(41)
19
(22)
2018
£’000
150
-
1
253
404
National insurance contribution (NIC) obligations arising from HMRC unapproved equity-settled schemes are treated as if they are cash-
settled, regardless of the equity determination of the scheme itself.
104
Strategic reportGovernanceFinancials
Notes to the consolidated financial statements
27. Share-based payments (continued)
Long Term Incentive Plan (LTIP)
The LTIP comprises conditional awards of nil cost options over ordinary shares to selected members of the senior management team
(including the executive directors) and certain other employees, which vest on the achievement of specified performance targets and
continuous employment over a certain period of time (the vesting period). The performance conditions and details of movement in the
LTIP are set out in the remuneration and HR committee report.
The company granted long-term incentive awards in the form of nil-cost options over its ordinary shares to the executive directors and
other persons discharging managerial responsibility under its long-term incentive plan. The vesting of each of the awards is subject to
the satisfaction of performance conditions that have been set by the remuneration and HR committee. These conditions, which will be
assessed over prescribed three-year periods, relate to the achievement of specific targets in relation to earnings per share, net inflow of
assets under administration and total shareholder return. Vesting will also normally be dependent on the continued employment of the
participant within the group.
At 1 January 2018
Shares awarded during the year
Lapsed during the year
At 31 December 2018
Shares awarded during the year
Lapsed during the year
At 31 December 2019
Option pricing model
Date granted
Share price on grant date (p)
Vesting period (years)
Exercise price
Expected volatility
Risk-free rate
Dividend yield
Fair value per option at grant date
Remaining vesting period (years)
LTIP 2019
-
-
-
-
827,090
(23,674)
LTIP 2018
-
1,013,612
(68,865)
944,747
-
(30,211)
803,416
914,536
LTIP 2019
TSR condition
Monte Carlo
03/04/2019
LTIP 2019
Other conditions
Black Scholes
03/04/2019
LTIP 2018
TSR condition
Monte Carlo
26/07/2018
LTIP 2018
Other conditions
Black Scholes
26/07/2018
176p
3
0p
40%
0.72%
nil
89p
2.3
176p
3
0p
40%
0.72%
nil
176p
2.3
183p
3
0p
34%
0.84%
nil
85p
1.6
183p
3
0p
34%
0.84%
nil
183p
1.6
Expected volatility was determined by comparing Nucleus to other companies that provide software services to the financial services
sector as these were deemed to be the closest comparative with a long enough share history to give an indicative relative valuation and
volatility measure. In estimating a volatility range for the company we have excluded companies that have an enterprise value greater
than £500m, as we consider that they would not typically be reflective of the risks, size and growth profile of a company such as Nucleus.
Expected volatility of the companies was determined by reference to their historical volatility over a period consistent with the vesting
period of the options.
105
Annual report and financial statements 2019 Notes to the consolidated financial statements
27. Share-based payments (continued)
Share incentive plan (SIP)
The SIP is an all-employee share ownership plan which has been designed to meet the requirements of Schedule 2 to the Income Tax
(Earnings and Pensions) Act 2003 so that Ordinary Shares can be provided to UK employees under its terms in a tax-efficient manner.
During the year employees were offered the opportunity to buy Ordinary Shares with a value of up to the lower of £1,800 and 10 per cent
of the employee’s pre-tax salary, and the company agreed to match the number of shares so purchased. These matching shares are
held on the employees’ behalf in the SIP trust, subject to a holding period of three years, and may be forfeited if the participant ceases
employment within that period.
SIP
Brought forward at the beginning of the year
Matching shares awarded
Matching shares forfeited
Outstanding matching shares at the end of the year
Growth shares
2019
21,444
53,911
(1,088)
74,267
2018
-
21,444
-
21,444
G3 and G4 Ordinary Shares were granted to directors and employees. Details of the rights and the conditions attached to these shares
are included in note 1.
The growth shares granted were valued as at the date of grant or entitlement using the Black Scholes model. The significant assumptions
used are shown in the table below:
Date granted
Par value
Realisable
Shares in issue 31/12/2017
Price of the underlying share (£)
Effective strike price of the G Ordinary share
Expected volatility of the share price
Risk free interest rate over the life of the G Ordinary share
Dividend yield
Fair value per G Ordinary share at grant date
G3 shares
6/10/2015
£0.05
31/12/2019
40,727
£34.41
£34.41
25%
1.05%
Nil
£7.61
G4 shares
17/11/2016
£0.05
31/12/2020
25,676
£44.35
£44.35
28%
0.55%
Nil
£10.34
The volatility measured is based on historical volatility of similar listed entities between 2008 and 2015.
Coinciding with the companies listing on AIM on 26 July 2018, the growth share scheme ceased to exist. Details of the conversion of
growth shares into ordinary shares are set out in note 23 Share capital.
106
Strategic reportGovernanceFinancials Notes to the consolidated financial statements
28. Provisions
Client compensation
Outsourced service
Dilapidations
Share incentive plans
Analysed as follows:
Current
Non-current
At 1 January 2018
Provided during year
Utilised during year
Unused amounts reversed
during year
(Charge)/credit to statement
of comprehensive income
At 31 December 2018
Provided during year
Utilised during year
Unused amounts reversed
during year
(Charge)/credit to statement
of comprehensive income
At 31 December 2019
2019
£’000
2018
£’000
536
158
65
34
793
694
99
793
Share
incentive
plans
£’000
Client
compensation
£’000
Outsourced
service
£’000
Dilapidations
£’000
-
-
-
-
-
-
34
-
-
-
34
98
435
(73)
(31)
-
429
389
(122)
(160)
-
536
204
612
(333)
-
(325)
158
-
-
-
-
158
224
30
(222)
-
-
32
33
-
-
-
65
429
158
32
-
619
587
32
619
Total
£’000
526
1,077
(628)
(31)
(325)
619
456
(122)
(160)
-
793
107
Annual report and financial statements 2019
Notes to the consolidated financial statements
28. Provisions (continued)
Client compensation
The group remediates customers affected by errors on the platform and calculates any amounts due in line with guidance given by
the Financial Ombudsman Service in respect of the type of customer loss, distress and inconvenience for which customers should be
compensated. Where actual trading losses are suffered by customers, these are calculated in accordance with Mifid II best execution
rules to ensure customers are restored to the position they would have been in had the error or omission not been made. Amounts
are provided and utilised against the administrative expenses line in the statement of comprehensive income and the majority of the
outstanding issues are expected to be resolved in the first half of 2020.
Outsourced service
As part of the commercial agreement with its outsourced BPO service provider, should any key performance criteria not be met, the group
is entitled to receive a discount on the wrap administration fees charged. Where these are agreed, they are deducted from the invoiced
fee and the net expense is charged through the statement of comprehensive income. Where these are uncertain or in dispute with the
service provider, a provision is booked in recognition of the uncertainty regarding the outcome.
Dilapidations
The dilapidations provision relates to the group’s office premises at Greenside, Edinburgh. This is calculated using the Building Cost
Information Service survey (part of the Royal Institution of Chartered Surveyors) of average settlement figures for offices, adjusted for
inflation, and the square footage of the company’s leasehold premises. The provision has been classified as non-current due to the
likelihood of its utilisation at the end of the lease in 2027.
Share incentive plans
Provisions for share incentive plans relate to the LTIP which is a HMRC unapproved equity-settled scheme. The company is liable to pay
employers’ NIC upon exercise of the options. The provision is calculated using the applicable employers’ NIC rate applied to the number
of share awards expected to vest, valued at the share price at the reporting date. The provision is recognised over the vesting period of
the shares awarded.
108
Strategic reportGovernanceFinancials
Notes to the consolidated financial statements
29. Reconciliation of profit before income tax to cash generated from operations
Profit before income tax
Depreciation
Loss on disposal of fixed assets
Unrealised gain on investments
Share based payments charge (excl. NIC)
Bad debt provision
Increase in trade and other receivables
Decrease/(increase) in operational platform funding
(Decrease)/increase in trade and other payables
Increase in other provisions
Interest paid
Interest received
Net exchange differences
Cash inflows from operations
2019
£’000
7,002
1,102
3
(7)
315
59
(1,166)
1,187
(1,987)
174
182
(80)
6
2018
£’000
5,653
585
-
-
404
8
(615)
(257)
1,426
93
2
(8)
7
6,790
7,298
Operational platform prefunding includes prefunding of client pension tax relief and temporary funding required under the client money
and client assets rules.
30. Reconciliation of liabilities arising from financing activities
Finance lease liabilities
Lease liabilities
At 1 January 2018
£’000
Non-cash changes
£’000
200
2
At 1 January 2019
£’000
Non-cash changes
£’000
4,606
-
Cash flows
£’000
(109)
Cash flows
£’000
(394)
At 31 December
2018
£’000
93
At 31 December
2019
£’000
4,212
Lease liabilities, which includes items previously classified as finance lease liabilities, increased by £4,513k as a result of adopting IFRS 16
Leases effective 1 January 2019.
109
Annual report and financial statements 2019
Notes to the consolidated financial statements
31. Operating leases
The group’s future minimum lease payments under non-cancellable operating leases were as follows:
Within one year
Between one and five years
In more than five years
2019
Total
£’000
-
-
-
-
2018
Phase 1
£’000
312
2,614
1,518
4,444
2018
Phase 2
£’000
72
602
350
1,024
2018
Total
£’000
384
3,216
1,868
5,468
On 28 November 2017, the company entered into a new lease for its office premises at Greenside, Edinburgh and this agreement
contains an initial rent-free period of 18 months. The future minimum lease payments relate solely to this lease agreement. These
agreements are no longer classified as operating leases following the adoption and implementation of IFRS 16 Leases in 2019, details of
which are set out in note 36.
32. Employee share ownership trust
The two share ownership trusts that operate on behalf of the company and the employees are the NFG Limited Employee Benefit Trust 2010
which incurred a loss for the year of £3,385 and the Nucleus Financial Group plc Share Incentive Plan whose costs are borne by the group.
33. Pension commitments
The group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the group in
an independently administered fund. The pension cost charge represents contributions payable by the group to the fund and amounted
to £997,401 (2018: £906,115). Contributions totalling £90,009 (2018: £91,340) were payable to the fund at the balance sheet date.
34. Ultimate controlling party
In the opinion of the directors there is no ultimate controlling party.
Sanlam UK Limited (Sanlam), a company incorporated in England and Wales, is a majority shareholder of the company. The company
has entered into a Relationship Agreement with Sanlam and Shore Capital and Corporate Limited which governs the relationship
between Sanlam and the company, to ensure that the company is able to carry on its business independently from Sanlam and in
compliance with all applicable laws and regulations (including, the AIM Rules). Sanlam has agreed that all transactions and relationships
between the Sanlam Group and the company shall be on an arms’ length basis and on normal commercial terms.
110
Strategic reportGovernanceFinancials Notes to the consolidated financial statements
35. Related party transactions
Entities with significant influence over the company
Transactions with NIFAC and Sanlam were as follows:
Sanlam
Amounts owed to Sanlam in respect of board fees by NFG
Amounts owed to Sanlam in respect of fees for the Onshore Bond by NFS
Amounts charged by Sanlam to NFS in respect of the Onshore Bond
Amounts owed to Sanlam to NFS in respect of tax collected from the Onshore Bond
Dividend paid to Sanlam by NFG
NIFAC
Amounts owed to NFG
Dividend paid to NIFAC by NFG
2019
£’000
84
79
459
23
2,036
2019
£’000
-
-
2018
£’000
176
72
429
97
1,976
2018
£’000
42
632
On Nucleus’ admission to AIM, NIFAC realised part of its shareholding in Nucleus and distributed the net proceeds together with its
residual shareholding interest to its underlying shareholders. NIFAC no longer holds shares in Nucleus.
Subsidiaries
NFG owns 100 per cent of the share capital of NFS, NIFAS and IMX. There were no transactions with IMX and NIFAS. The transactions with
NFS are as follows:
NFS
Amounts owed to NFG by NFS
Other related parties
2019
£’000
1,760
2018
£’000
706
During the year the company was charged £nil (2018: £390,000) for services provided by Craven Street Capital of which J A Samuels
is a director.
Key management personnel
Key management personnel are considered to be members of the executive committee and remuneration for the year is as follows:
Short-term employee benefits
Post-employment benefits
Share-based payments
Post-employment benefits relate to defined contribution pension scheme charges.
2019
£’000
1,736
61
229
2,026
2018
£’000
2,238
95
314
2,647
111
Annual report and financial statements 2019
Notes to the consolidated financial statements
36. Changes in accounting policies
IFRS 16 Leases
In adopting this standard, which became effective from 1 January 2019, the modified retrospective approach was used, resulting in the
cumulative effect of application on 1 January 2019 being recognised through an adjustment to opening retained earnings. On adoption
the group recognised lease liabilities in relation to previously classified operating property leases. The liability was measured at the
present value of future lease payments, discounted using an estimated incremental borrowing rate of 4 per cent. The associated right-
of-use asset was measured on a retrospective basis as if the new standard had always applied. There were no changes relating to the
recognition of finance leases. Use was made of the practical expedient which allows the continuation of the existing assessment as to
whether a contract contains a lease for all ongoing contracts entered into before 1 January 2019.
31 December 2018
£’000
Effect of IFRS 16
£’000
1 January 2019
£’000
Assets
Non-current assets
Right of use lease assets
Property, plant and equipment
Deferred tax
Current assets
Total assets
Total equity
Liabilities
Non-current liabilities
Lease liabilities
Financial liabilities
Provisions
Deferred tax
Current liabilities
Lease liabilities
Financial liabilities
Trade and other payables
Tax payable
Provisions
Total liabilities
Total equity and liabilities
112
-
2,029
163
2,192
28,908
31,100
17,473
-
6
32
41
79
-
87
12,134
740
587
13,548
13,627
31,100
4,013
(112)
-
3,901
-
3,901
(71)
4,217
(6)
-
-
4,211
389
(87)
(541)
-
-
(239)
3,972
3,901
4,013
1,917
163
6,093
28,908
35,001
17,402
4,217
-
32
41
4,290
389
-
11,593
740
587
13,309
17,599
35,001
Strategic reportGovernanceFinancials Notes to the consolidated financial statements
37. Events after the reporting period
The Covid-19 pandemic, which first impacted the group, its users, its customers and the broader economy in the first quarter of 2020, is
considered to be a non-adjusting post balance sheet event. Further information relevant to the directors’ assessment of going concern is
set out in the directors’ report on page 65.
From March 2020 NFS and the group were no longer required to meet the rules and requirements of a significant IFPRU firm as NFS last
met the IFPRU definition for a significant firm in February 2019.
There were no other subsequent events that required adjustment to or disclosure in the financial statements for the period from 31
December 2019 to the date upon which the financial statements were available to be issued.
113
Annual report and financial statements 2019 Company statement of financial position
Assets
Non-current assets
Right of use lease assets
Property, plant and equipment
Investments
Deferred tax
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Shareholders’ equity
Called up share capital
Capital redemption reserve
Share-based payment reserve
Treasury shares
Retained earnings
Total equity
Liabilities
Non-current liabilities
Lease liabilities
Provisions
Current liabilities
Lease liabilities
Trade and other payables
Tax payable
Total liabilities
Total equity and liabilities
31 December 2019
£’000
31 December 2018
£’000
Note
4
5
6
12
7
8
19
19
19
19
19
10
11
10
9
3,463
934
7,645
107
12,149
3,174
1,007
4,181
16,330
76
53
465
(120)
8,632
9,106
3,737
99
3,836
475
2,883
30
3,388
7,224
16,330
-
1,038
7,645
163
8,846
1,382
1,758
3,140
11,986
76
53
150
(29)
7,481
7,731
-
32
32
-
4,223
-
4,223
4,255
11,986
In accordance with section 408 of the Companies Act 2006, the company is exempt from the requirement to present its own income
statement and a statement of comprehensive income. The company’s profit for the year was £5,094,729 (2018: £562,727). Included
in this amount is dividends received of £4,718,988 (2018: £2,335,065), which are recognised when the right to receive payment is
established. The company recognised no other income or expenses in either the current or prior year, other than the profit for each year.
The financial statements were approved and authorised for issue by the board and were signed on its behalf on 6 April 2020.
S J Geard
Director
The notes on pages 117 to 128 form part of these financial statements.
114
Strategic reportGovernanceFinancials Company statement of changes in equity
Balance at 1 January 2019
IFRS 16 conversion
Changes in equity
Other movements
Profit for the year
Dividend paid
Purchase of own shares
Share based payments charge
Called up
share capital
£’000
76
Note
-
-
-
-
-
-
Retained
earnings
£’000
7,481
(71)
-
5,095
(3,873)
-
-
Treasury
shares
£’000
(29)
Capital
redemption
reserve
£’000
Share-based
payment
reserve
£’000
53
150
-
-
-
-
(91)
-
-
-
-
-
-
-
Total equity
£’000
7,731
(71)
-
5,095
(3,873)
(91)
315
9,106
-
-
-
-
-
315
465
Balance at 31 December 2019
76
8,632
(120)
53
Balance at 1 January 2018
Changes in equity
Issue of preference shares
Redemption of preference shares
Issue of bonus shares and G
share conversion
Buy back and redemption of G
shares and deferred shares
Profit for the year
Dividend paid
Purchase of own shares
Transfer on share conversion
Share based payments charge
Called up
share capital
£’000
Note
21
50
(50)
57
(2)
-
-
-
-
-
Retained
earnings
£’000
8,058
(50)
-
(57)
-
563
(3,933)
-
2,900
-
Balance at 31 December 2018
76
7,481
The notes on pages 117 to 128 form part of these financial statements.
Treasury
shares
£’000
Capital
redemption
reserve
£’000
Share-based
payment
reserve
£’000
Total equity
£’000
-
-
-
-
-
-
-
(29)
-
-
(29)
1
2,646
10,726
-
50
-
2
-
-
-
-
-
-
-
-
-
-
-
-
(2,900)
404
-
-
-
-
563
(3,933)
(29)
-
404
53
150
7,731
115
Annual report and financial statements 2019
Company statement of cash flows
Cash flows from operating activities
(Cash outflows)/cash inflows from operations
Income tax paid
Net cash (outflow)/inflow from operations
Cash flows from investing activities
Purchase of tangible fixed assets
Dividend received
Interest received
Net cash inflow from investing activities
Cash flows from financial activities
Interest paid
Dividend paid
Purchase of Treasury shares
Lease payments - principal
Net cash outflows from financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effects of exchange rate changes
Cash and cash equivalents at end of year
The notes on pages 117 to 128 form part of these financial statements.
Note
14
5
10
2019
£’000
(1,014)
(1)
(1,015)
(10)
4,719
-
4,709
(180)
(3,873)
(91)
(301)
(4,445)
(751)
1,758
-
1,007
2018
£’000
149
(2)
147
(300)
2,335
2
2,037
-
(3,933)
(29)
-
(3,962)
(1,778)
3,540
(4)
1,758
116
Strategic reportGovernanceFinancials Notes to the company financial statements
1. Accounting policies
Nucleus Financial Group plc (the company) is a public limited company incorporated in the United Kingdom and registered in England
and Wales.
In accordance with Section 408 of the Companies Act 2006, the company is exempt from the requirement to produce its own income
statement and statement of comprehensive income.
The significant accounting policies applied in the preparation of these company financial statements are the same as those set out in
note 1 to the consolidated financial statements with the addition of the following:
Investments in subsidiaries
Investments in subsidiaries are valued at cost less any provision for impairment. At each reporting date, the directors assess whether
there is any indication that an asset may be impaired. If any such indication exists, the directors will estimate the recoverable amount
of the asset. There was no impairment during the year.
New standards effective for the first time in the 2019 financial statements
IFRS 16 Leases
The company adopted IFRS 16 Leases effective 1 January 2019. Details of the impact are set out in note 22 Changes in accounting policies.
2. Critical accounting judgements and key sources of estimation uncertainty
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. The estimates and judgements applied in the preparation of
these company financial statements are the same as those set out in note 2 to the consolidated financial statements.
3. Staff costs
Staff costs paid by the company and the number of employees are detailed in note 6 to the consolidated financial statements.
The company recharges an element of this cost to NFS.
The company’s pension commitments are disclosed in note 33 to the consolidated financial statements.
Directors’ remuneration and compensation of key management personnel is disclosed in notes 7 and 35 to the consolidated
financial statements.
117
Annual report and financial statements 2019 Right of use
asset Greenside
Edinburgh
£’000
-
3,901
-
-
3,901
-
-
438
-
438
3,463
-
Notes to the company financial statements
4. Right of use lease assets
Cost
At 1 January 2019
Transition to IFRS 16
Additions
Disposals
At 31 December 2019
Depreciation
At 1 January 2019
Transition to IFRS 16
Charge for the year
Eliminated on disposals
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
118
Strategic reportGovernanceFinancials Notes to the company financial statements
5. Property, plant and equipment
Cost
At 1 January 2019
Transition to IFRS 16
Additions
Disposals
At 31 December 2019
Depreciation
At 1 January 2019
Transition to IFRS 16
Charge for the year
Eliminated on disposals
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
Cost
At 1 January 2018
Additions
Disposals
At 31 December 2018
Depreciation
At 1 January 2018
Charge for the year
Eliminated on disposals
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
Short-term
leasehold property
£’000
1,137
-
10
-
1,147
99
-
114
-
213
934
1,038
Short-term
leasehold property
£’000
837
300
-
1,137
7
92
-
99
1,038
830
119
Annual report and financial statements 2019
Notes to the company financial statements
6. Investment in subsidiary companies
Cost
2019
£’000
2018
£’000
At 1 January and 31 December
7,645
7,645
Subsidiary undertakings
The following are subsidiary undertakings of the company:
Nucleus Financial Services Limited
Registered office: Elder House, St Georges Business Park, 207 Brooklands Road, Weybridge, Surrey, England, KT13 0TS
Class of shares: Ordinary
Holding: 100%
Principal activity: Provision of wrap administration services to selected financial advisers in the United Kingdom.
Aggregate capital and reserves
Profit for the financial year
Nucleus IFA Services Limited
2019
£’000
17,391
5,502
2018
£’000
16,607
6,020
Registered office: Greenside, 12 Blenheim Place, Edinburgh, Scotland, EH7 5JH
Class of shares: Ordinary
Holding: 100%
Principal activity: Provision of platform technology, sales, marketing and platform development services to NFS. Trade was transferred
to NFS on 1 April 2017
Aggregate capital and reserves
Profit for the financial year
2019
£’000
726
78
2018
£’000
648
523
120
Strategic reportGovernanceFinancials
Notes to the company financial statements
6. Investment in subsidiary companies (continued)
Nucleus IMX Limited
Registered office: Elder House, St Georges Business Park, 207 Brooklands Road, Weybridge, Surrey, England, KT13 0TS
Class of shares: Ordinary
Holding: 100%
Principal activity: Non-trading subsidiary
Aggregate capital and reserves
Profit for the financial year
7. Trade and other receivables
Amounts owed by group undertakings
Other debtors
Prepayments
Amounts owed by group undertakings are unsecured, interest free and have agreed repayment terms.
8. Cash and cash equivalents
Cash at bank and in hand
9. Trade and other payables
Trade creditors
Social security and other taxes
Other creditors
Accruals
2019
£
1
-
2019
£’000
2,231
57
886
3,174
2019
£’000
1,007
2019
£’000
407
371
9
2,096
2,883
2018
£
1
-
2018
£’000
706
116
560
1,382
2018
£’000
1,758
2018
£’000
367
380
6
3,470
4,223
121
Annual report and financial statements 2019
Notes to the company financial statements
2019
£’000
3,737
475
1 year or less
£’000
1 - 2 years
£’000
2-5 years
£’000
> 5 years
£’000
1,602
1,641
475
-
494
-
2018
£’000
-
-
Total
£’000
4,212
-
-
-
2019
£’000
2018
£’000
65
34
99
-
99
99
32
-
32
-
32
32
10. Lease liabilities
Non-current:
Lease liabilities
Current:
Lease liabilities
2019
Lease liabilities
2018
Lease liabilities
11. Provisions
Dilapidations
Share incentive plans
Analysed as follows:
Current
Non-current
122
Strategic reportGovernanceFinancials
Notes to the company financial statements
11. Provisions (continued)
At 1 January 2018
Provided during year
Utilised during year
At 31 December 2018
Provided during year
Utilised during year
At 31 December 2019
Share incentive plans
Share incentive
plans
£’000
Dilapidations
£’000
-
-
-
-
34
-
34
224
30
(222)
32
33
-
65
Total
£’000
224
30
(222)
32
67
-
99
Provisions for share incentive plans relate to the LTIP which is a HMRC unapproved equity-settled scheme. The company is liable to pay
employers’ NIC upon exercise of the options. The provision is calculated using the applicable employers’ NIC rate applied to the number
of share awards expected to vest, valued at the share price at the reporting date. The provision is recognised over the vesting period of
the shares awarded.
Dilapidations
During the year, the company utilised the remainder of the dilapidations provision relating to the previous leasehold premises following
completion of contractual restoration obligations. The current balance provides for dilapidations relating to the company’s new leasehold
office premises at Greenside, Edinburgh. This is calculated using the Building Cost Information Service survey (part of the Royal Institution
of Chartered Surveyors) of average settlement figures for offices, adjusted for inflation, and the square footage of the company’s
leasehold premises. The provision has been classified as non-current due to the likelihood of its utilisation at the end of the lease in 2027.
123
Annual report and financial statements 2019
Notes to the company financial statements
12. Deferred tax
At 1 January 2018
(Charge)/credit to statement of
comprehensive income
At 31 December 2018
(Charge)/credit to statement of
comprehensive income
At 31 December 2019
Accelerated capital
allowances
£’000
Short term timing
differences
£’000
Losses and other
deductions
£’000
(5)
13
8
(1)
7
41
(24)
17
81
98
122
16
138
(136)
2
Total
£’000
158
5
163
(56)
107
The total potential deferred tax asset arising in respect of unutilised tax losses and timing differences at 31 December 2019 is £562,305
(2018 £449,832). However, as a result of the uncertainty in the opinion of the directors regarding the timing and extent of future profit
generation by the company, a deferred tax asset of £455,684 (2018: 286,290) has not been recognised.
13. Financial instruments
2019
Financial assets
Investments in securities
Cash and cash equivalents
Trade and other receivables
Total financial assets
Non-financial assets
Total assets
Financial liabilities
Finance lease obligations
Trade and other payables
Total financial liabilities
Non-financial liabilities
Total liabilities
124
Financial liabilities at
amortised cost
£’000
Financial assets at
amortised cost
£’000
-
-
-
-
4,212
2,883
7,095
-
1,007
3,174
4,181
-
-
-
Total
£’000
-
1,007
3,174
4,181
12,149
16,330
4,212
2,883
7,095
129
7,224
Strategic reportGovernanceFinancials
Notes to the company financial statements
13. Financial instruments (continued)
2018
Financial assets
Investments in securities
Cash and cash equivalents
Trade and other receivables
Total financial assets
Non-financial assets
Total assets
Financial liabilities
Finance lease obligations
Trade and other payables
Total financial liabilities
Non-financial liabilities
Total liabilities
2019
Financial assets
Cash and cash
equivalents
Trade and other
receivables
2018
Financial assets
Cash and cash
equivalents
Trade and other
receivables
Financial liabilities at
amortised cost
£’000
Financial assets at
amortised cost
£’000
-
-
-
-
-
4,223
4,223
-
1,758
1,382
3,140
-
-
-
< 3 months
£’000
3-12 months
£’000
1-5 years
£’000
>5 years
£’000
1,007
3,173
4,180
-
1
1
-
-
-
-
-
-
< 3 months
£’000
3-12 months
£’000
1-5 years
£’000
>5 years
£’000
1,758
1,382
3,140
-
-
-
-
-
-
-
-
-
Total
£’000
-
1,758
1,382
3,140
8,990
12,130
-
4,223
4,223
32
4,255
Total
£’000
1,007
3,174
4,181
Total
£’000
1,758
1,382
3,140
125
Annual report and financial statements 2019 Notes to the company financial statements
13. Financial instruments (continued)
< 3 months
£’000
3-12 months
£’000
1-5 years
£’000
>5 years
£’000
2019
Financial liabilities
Trade and other
payables
Lease liabilities
2018
Financial liabilities
Trade and other
payables
Finance lease
obligations
2,883
119
3,002
-
356
356
-
2,096
2,096
-
1,641
1,641
< 3 months
£’000
3-12 months
£’000
1-5 years
£’000
>5 years
£’000
4,055
-
4,055
168
-
168
-
-
-
14. Reconciliation of profit before tax to cash generated from operations
Profit before income tax
Depreciation
Share based payments charge (excl. NIC)
(Increase)/decrease in trade and other receivables
(Decrease)/increase in trade and other payables
Increase/(decrease) in other provisions
Net exchange differences
Interest paid
Dividend received
(Cash outflows)/cash inflows from operations
126
Total
£’000
2,883
4,212
7,095
Total
£’000
4,223
-
4,223
2018
£’000
558
92
404
1,273
347
(192)
4
-
(2,337)
149
-
-
-
2019
£’000
5,182
552
315
(1,792)
(799)
67
-
180
(4,719)
(1,014)
Strategic reportGovernanceFinancials Notes to the company financial statements
15. Dividends
Details of dividends paid are disclosed in note 11 to the consolidated financial statements.
16. Called up share capital
Details of the share capital of the company are disclosed in note 23 to the consolidated financial statements.
17. Operating lease commitments
Details of the company’s operating lease commitments are disclosed in note 31 to the consolidated financial statements.
18. Share-based payments
For details of the company’s share schemes, including the valuation models used, refer to note 27 in the consolidated financial
statements.
19. Reserves
Details of the company’s reserves are disclosed in note 24 to the consolidated financial statements.
20. Related party transactions
Details of related party transactions are disclosed in note 35 to the consolidated financial statements.
21. Controlling party
Details of the ultimate controlling party are disclosed in note 34 to the consolidated financial statements.
127
Annual report and financial statements 2019 Notes to the company financial statements
22. Changes in accounting policies
IFRS 16 Leases
In adopting this standard, which became effective from 1 January 2019, the modified retrospective approach was used, resulting in the
cumulative effect of application on 1 January 2019 being recognised through an adjustment to opening retained earnings. On adoption
the group recognised lease liabilities in relation to previously classified operating property leases. The liability was measured at the
present value of future lease payments, discounted using an estimated incremental borrowing rate of 4 per cent. The associated right-
of-use asset was measured on a retrospective basis as if the new standard had always applied. There were no changes relating to the
recognition of finance leases. Use was made of the practical expedient which allows the continuation of the existing assessment as to
whether a contract contains a lease for all ongoing contracts entered into before 1 January 2019.
31 December
2018
£’000
Effect of IFRS 16
£’000
1 January
2019
£’000
-
1,038
7,645
163
8,846
3,140
11,986
7,731
-
32
32
-
4,223
4,223
4,255
11,986
3,901
-
-
-
3,901
-
3,901
(71)
4,211
-
4,211
302
(541)
(239)
3,972
3,901
3,901
1,038
7,645
163
12,747
3,140
15,887
7,660
4,211
32
4,243
302
3,682
3,984
8,227
15,887
Assets
Non-current assets
Right of use lease assets
Property, plant and equipment
Investments
Deferred tax
Current assets
Total assets
Total equity
Liabilities
Non-current liabilities
Lease liabilities
Provisions
Current liabilities
Lease liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
128
Strategic reportGovernanceFinancials Company information
Company information
Directors
T Dunley-Owen
D R Ferguson
S J Geard
M G Hassall
J A Levin
J C Polin
J A Samuels
A Tagliabue (appointed 25 February 2020)
Company secretary
N C Megaw
Registered number
05522098
Registered office
Elder House St Georges Business Park
207 Brooklands Road
Weybridge
Surrey
England
KT13 0TS
Independent auditors
PricewaterhouseCoopers LLP
Atria One
144 Morrison Street
Edinburgh
EH3 8EX
Bankers
The Royal Bank of Scotland
Aldgate Union
7th Floor
10 Whitechapel High Street
London
E1 8DX
Bank of Scotland plc
PO Box 17235
Edinburgh
EH11 1YH
Lloyds Bank Plc
Threadneedle Street
Chelmsford Legg St Osc
1 Legg Street
Chelmsford
CM1 1JS
The Royal Bank of Scotland International Limited
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4BQ
Investec Bank plc
30 Gresham Street
London
EC2V 7QP
129
Annual report and financial statements 2019
Definitions and glossary of technical terms
Definitions and glossary of technical terms
The following definitions apply throughout this document:
Industry-specific financial
performance measures
Included within this results announcement are alternative measures that the directors
believe help to inform the results and financial position of the group
Adjusted
Adjusted EBITDA
Denotes that a standard or defined financial performance measure is adjusted for
non-recurring items, transactions that do not reflect the normal operating activities
of the group and share based payments
Adjusted EBITDA excludes non-operating income, AIM admission costs, share-based
payments, loss on disposal of fixed assets and includes ROU asset depreciation and
ROU lease liability interest
Adjusted EBITDA margin
Adjusted EBITDA expressed as a percentage of revenue
Adjusted earnings per share (EPS)
Value of adjusted profit after tax divided by weighted average number of shares
AUA
Average AUA
Blended revenue yield (bps)
Capital adequacy ratio
Assets under administration
The average AUA balance for the period is calculated as the average of the end of day
AUA balances during the period
Net revenue is divided by the average assets under administration. For interim periods
the net revenue is annualised using the number of days in the period
A capital adequacy measure calculated by dividing regulatory capital over risk weighted
exposures
Compound asset growth rate
Average growth rate over a period of time expressed as an annualised percentage
EBITDA
Gross inflows
Earnings Before Interest Tax Depreciation and Amortisation
Value of cash and assets received onto the platform
Industry-specific financial-performance
measures
Alternative performance measures that the directors believe help to inform the results
and financial position of the group
Net inflows
Net revenue
Outflows
Value of Gross inflows less Outflows
Net revenue comprises revenue earned on the platform less the direct fees that are
payable to product providers of the platform
Value of cash and assets leaving the platform
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Definitions and glossary of technical terms
Definitions and glossary of technical terms
Glossary
AIM Rules
BPO
Customers
FCA
GDPR
IFRS
IMX
MiFID II
NFS
The rules published by London Stock Exchange entitled AIM Rules for Companies
Business process outsourcing. The contracting of the operations and responsibilities
of a specific business process to a third-party service provider.
The customers of Nucleus, whose assets are managed by financial advisers through
the platform
The Financial Conduct Authority
The General Data Protection Regulation (Regulation (EU) 2016/679)
International Financial Reporting Standards as adopted by the European Union
IMX is a discretionary investment management solution
The EU Markets in Financial Instruments Directive (2014/65/EU)
Nucleus Financial Services Limited
Nucleus or the group
The Company and its subsidiaries
Priips
Sanlam
SM&CR
The Packaged Retail and Insurance-based Investment Products Regulation
Sanlam UK Limited
Senior Managers and Certification Regime
131
Annual report and financial statements 2019 Annual report and financial statements 2019
Notes
132
Annual report and financial statements 2019
Notes
133
0131 226 9800
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www.nucleusfinancial.com
0415.03Nucleus Financial Group plc is registered in England and Wales with company number 05522098 and has its registered office at Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey KT13 0TS. Please note that telephone calls may be recorded in order to monitor the quality of our customer service and for training purposes.