WH Ireland Group plc Annual report and accounts 2010 Our key points at a glance Business summary ● Operating losses ceased in September 2010 such that the year end loss was little changed from that incurred in the first half of the year. Balance sheet strengthened through better trading and asset sales. ● ● Executive Board further strengthened with appointment of Chief Executive, Paul Compton and significant recruitment in equity sales, trading and compliance. Trading results have improved throughout the year and continue into the new year with £25m being raised for clients in the year to date as compared to £16m for the year under review, and the Board views the year ahead with confidence. Financial statistics ● Group turnover decreased by 25% to £18.4m (2009: £24.6m) ● ● ● ● Full year loss reduced to £0.3m (2009: £2.1m) Basic loss per share of 1.25p (2009: 8.95p) Equity shareholders’ funds decreased to £13.5m (2009: £14.1m), representing approximately 63p per share (2009: 66p) Total funds under management and control in the UK increased to £1.64bn (2009: £1.18bn) WH Ireland Group plc annual report and accounts 2010 Contents 1 2 3 6 7 10 11 14 15 16 17 18 19 20 21 Chairman’s statement Chief executive’s report Business review Board of directors and advisors Directors’ report Corporate governance Remuneration report Statement of directors’ responsibilities Independent auditors’ report Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Company statement of changes in equity Notes to the financial statements WH Ireland Group plc annual report and accounts 2010 Chairman’s statement Results and dividend The result for the full year is an operating loss of £0.7m; a considerable recovery from the £1.8m suffered last year. In our interim results we announced an operating loss of £0.6m and we are pleased that the final six months of the year have therefore shown an improvement on the first. It is with regret however that, given the loss incurred in the year, your Directors consider that the payment of a dividend is not justified. People and growth It has been a year of transition for WH Ireland as we installed new management, strengthened our teams and created a more cohesive business. Inevitably this had an impact on our financial performance, but with bolstered client relationships and increasing funds under management, the Group has made considerable progress over the past 12 months. We are delighted that Paul Compton has joined us as Chief Executive, bringing with him a very successful track record as an analyst (UBS/Merrill Lynch), broker (Collins Stewart) and fund manager (Toscafund). He brings to the Group energy, ideas and experience. His FSA registration has now been received and he is fully operational. I would also like to take the opportunity to welcome John Scott (as Executive Director) and Alan Kershaw (as Finance and Operations Director) to the Group Board. I look forward to working with all of them to spur on the advancement of your Company. The Directors identified certain areas where the Group needed to improve its service and operations, and I am pleased to say that since my last report we have made great strides to recruit in key positions. We were pleased to welcome Steven Astaire and his team from Astaire Securities; and Ruari McGirr and Sebastian Wykeham from St Helens Capital. They have all settled in well and are contributing to our revenues. Since the year end, Simon Doyle and Gary Woolmer have joined us from Westhouse Securities and are Market Making in our in-house stocks which we believe will help us to improve the service we provide for our corporate clients. We are optimistic that these improvements will help us win further high-quality corporate clients, as exemplified by our recent appointment as Nomad and broker to a number of corporate clients including Noble Investments. Elsewhere in the business, our Compliance function has been greatly strengthened with Stephen Cooper joining us from Arden Partners and I am also delighted to announce that Deepak Lalwani has recently confirmed that he will be joining us. Deepak is an expert on India and will strengthen our relationships in this fast growing and capital hungry part of the world economy. Overall, the structure of the Company is moving from a collection of self interested franchises into a business which is structured to more effectively support our corporate, private and wealth management clients. This ongoing process will be the key to our continued success in a broking sector which offers many opportunities for a well-structured company with motivated and incentivised business producers. Our people are the bedrock of this business, and I would like to thank the rest of the team throughout the whole of WH Ireland for their continued support and hard work. Australia DJ Carmichael (the Australian stockbroking business in which the Company has a 37.28% stake) continues to make progress despite the global economic downturn. It has made a small profit in the year ending 30 November 2010 and its revenues for the first two months of this financial year are encouraging. We have strengthened our relationship with DJ Carmichael and are hopeful that this will result in increasing revenues for both companies. I would like to thank Ian Dorrington, Paul Adams and everybody at DJ Carmichael for their support. Summary and Outlook Our Company remains vulnerable to a market downturn and the current high hard/soft commodity prices, levels of inflation and related unrest in the Middle East and North Africa highlight this downside risk. However, over the past year we have, I believe, greatly strengthened our ability to support, nurture and raise funds for exciting smaller companies who will play a very important part in any economic recovery. We have also reduced our indebtedness with the recent sale of our JBCM Holdings shares and the redemption of their loan notes. I am pleased to report that the first two months of the new financial year have started well for the Group. We have already successfully raised approximately £25m for our clients, compared to only £16m in the year under review; further increased our funds under management and are optimistic about the prospects for the year subject to volatility in the world economy. Rupert Lowe Chairman WH Ireland Group plc annual report and accounts 2010 1 Chief executive’s report Overview I joined WH Ireland on 6th September 2010 and assumed the role of Chief Executive on 31st January 2011. As such, I was something of a spectator to the results being reported. Over the past two years, the Group has set a number of strategic priorities; including reducing costs, improving the balance sheet, and focusing on our core operational strengths. On each of these areas the Group has made significant progress. The Group has instigated some personnel changes during the post September period, which essentially stemmed the losses of the Group, such that the loss for the year of £0.6m was little changed from that incurred in the first half. In tandem with these personnel changes, we also sold off a series of residual equity holdings to reduce Group debt. This process has continued into the current year such that there should be no need to access further equity funds to support the Group in its current form. In summary, the September to November months were a stabilisation period for the Group in earnings and balance sheet terms. The second half improvement in trading meant that the full year loss was reduced from the £2.1m figure reported in the prior year to £0.3m this year. This remains unacceptable, but was a step in the right direction. Overall, I would say that the year ended with WH Ireland being in much better shape than it has been in recent years, but it is just the ‘end of the beginning’ rather than cause for congratulation. Strategy I have spent much of my time since joining the Company getting to know the business and identifying our strengths. WH Ireland is well positioned to provide a flexible and personalised solution to our retail clients through the Private Clients and Wealth Management teams. With a strong regional network and long history, our aim is to provide an alternative to the ‘one size fits all’ offerings of the large banks. Our in-house dealing capability allows us to be competitive with discount brokers on a total cost basis, whilst still providing a valuable advisory service. Within Secondary Markets, we have recently recruited a team to enhance our services in this area by offering Contracts For Difference and spread betting capabilities. This tax and capital efficient way of investing offers considerable upside to the Group when leveraged across the existing client base. Capital Markets provides advice and fund raising capability to small companies. At the year-end we were acting for 68 companies, of which 51 were quoted on AIM. This activity complements our Private Client stockbroking business as there are often good returns to be made from businesses that have fallen under the radar of the major institutions. At a time when many of the major stockbrokers are withdrawing from the sub-£100m market we are specifically setting our stall out to service this audience. In order to make acceptable returns from this area of the market, one needs to combine broker fees with commissions but also principal trading. To this end, the Company began market making, predominantly for its in-house stocks, in early January 2011 and initial results have been good. In summary, our strategy is to offer private investors a personalised investment service that sets us apart from the standardised mainstream approach and to service the UK smaller company sector at a time when it is being increasingly ignored by other players. As such, we are confident that we will be able to build a bigger business than we currently have and produce attractive returns. It is my personal belief that in due course, UK tax regulation will have to be altered to encourage small company investment. Should this occur, the Company would be well positioned to grow more rapidly. The future With improving trading and an adequate balance sheet we have entered the new financial year in a solid position. Progress to date has been in line with our internal budget and consequently much better than for the previous year. We have many challenges ahead but we should be able to create a substantial company in its chosen areas of activity. One of the great advantages of WH Ireland is that it is small enough to reward results fairly directly. As such, stakeholders who have weathered the dark days should be increasingly well rewarded. Paul Compton Chief Executive WH Ireland Group plc annual report and accounts 2010 2 Business review Overview The WH Ireland Group has one principal operating subsidiary, WH Ireland Limited. T his consists of four tradi ng divisions; Private Clients which provides full stockbroking services to retail clients, Wealth Management which provides independent financial advisory services to individuals, Capital M arkets which comprises corporate finance and broking services to small an d mid-cap companies, and Secondary Trading which consists of stockbroking and research services to Institutional clients. Although the Group’s income is p redominantly derived from activities conducted in the UK, a number of retail, institutional and corporate clients are situated worldwide. During the course of the year under review, the Group’s holding in Acceleris plc was sold and its holding in Ultimate Finance Group plc was reduced to a position where it no longer exercised control. At the year end, the Group had 200 staff (2009: 200) in the United Kingdom. Key Performance Indicators (KPIs) The Group uses a number of KPIs to monitor its performance against its financial objectives: 1. Ratio of loss before tax to total revenue: 30 November 2010 % 30 November 2009 % Ratio of loss before tax to revenue (3.36) (8.45) This is a n indication of our profit margin on all bu following the cost-saving measures previously implemented and business growth underway. siness areas and demo nstrates the improvin g financial results 2. Funds under management and administration 30 November 2010 £m 30 November 2009 £m Stockbroking discretionary and advisory funds under management Financial Services advisory assets Assets under nominee control (not included above) 778 235 623 611 190 377 Total This is used as a measure of recurring income streams on an activity basis. It repre sents a 38.9% increase for the year in respect of funds under management and administration. 1,178 1,636 3. Recurring income streams 30 November 2010 £m 30 November 2009 £m Value of Group recurring income This is used as another key indicator of business activity. This represents a decrease of 8.8%. 5.41 5.93 WH Ireland Group plc annual report and accounts 2010 3 Business review Key Performance Indicators (‘KPIs’) continued 1. The Board monitors the performance of the Capital Markets division as follows 30 November 2010 30 November 2009 Number of transactions Money raised Retained clients 22 £16m 68 15 £20m 64 Although we experienced a de cline in money raise d during the year, we were successful in in creasing both th e number of clients and the number of transactions undertaken. The new financial year has continued to show signs of recovery in capital markets, which indicates an opportunity for a return to more favourable trading conditions. Results for the financial year A summary of the income statement for the financial year is set out below: Revenue Administrative expenses Operating loss Other income and charges Loss before taxation Taxation Loss after taxation 30 November 2010 £’000 18,379 (19,108) 30 November 2009 £’000 24,618 (26,449) (729) 111 (618) 351 (267) (1,831) (249) (2,080) 183 (1,897) Turnover decreased by 25.3%, but t he operating loss position has improved from £1.8m in 2009 to £0.7m in 2010. The decrease in revenu e from 2009 relates to la rge one-off transa ctions in the Secondary Trading div ision in the previous year and a relatively slight re duction in income in the Private Clients division (see Note 5). Other segme ntal results show year on year improvements in terms of revenue and profit before tax. Overall within the Group the cost management initiatives undertaken in previous years have continued to be followed which has resulted in improvements to the expenditure items within the accounts, with a reduced fixed cost base and more alignment of the business performance with variable cost elements. Future Outlook The future outlook of the business is discussed in the Chairman’s statement on page 1. Balance Sheet and Capital Structure Maintaining a strong and liquid balance sheet is a key business objective for the Board. Net a ssets amounted to £13.5m (2009: £14.1m) and net current assets to £2.7m (2009: £2.8m). The balance sheet is underpinned by the holding of our head office building in the centre of Manchester and our broad investment portfolio. Risks and Uncertainties Risk to th e business is consistently reviewed and monitored by the Boa rd and senior management. The Group operates a formal Risk Committee to consider risk management issues and advise the Board appropriately on these matters. This enables the Group to foster a culture to hi ghlight the be nefits of a ri sk-based approach to internal control and management of the Group. The Group also maintains an Internal Audit Department that reports directly to the Group Audit Committee. There are a number of potential risks to th e business which the Group monitors through its ri sk management framework and evaluates through its regulatory reporting assessment processes: WH Ireland Group plc annual report and accounts 2010 4 Business review Risks and Uncertainties continued Financial Risk A significant element of the Group’s income is linked to transaction volumes. Furthermore, the Group has a predominantly fixed cost base which would require time to adjust, in the event of a material, sustained, market downturn. To mitigate this risk, the Directors ensure that the balance sheet remains strong and suitably liquid and that sufficient regulatory capital is retained within the Group to provide a healthy surplus over regulatory capital requirements. The Group monitors its regulatory capital requirements on a daily basis. The Group continues to actively seek to increase that proportion of variable cost to total costs in order to limit the impact of a market downturn on the profitability of the Group. Furthermore the Group continues to build its discretionary and managed-advisory service offering to reduce the proportion of its income that is linked to transaction volumes. Operational Risk Operational risk is the risk of loss to the Group resulting from inadequate or failed internal processes, people and systems, or from external events. Business continuity risk is the risk that serious damage or disruption may be caused to the business as a result of a breakdown, from either internal or external sources, in the infrastructure of the Group. This risk is mitigated by the large number of branches from which the Group operates, the Group having its own business continuity and disaster recovery arrangements, including business interruption insurance cover. The Group has robust systems and controls that are designed to minimise the Group’s exposure to operational risk, including acts of fraud and computer crime. Furthermore operational risks are mitigated by the existence of appropriate insurance cover. The Group recognises the importance of key management and revenue generators and mitigates the risk of reliance on these individuals through key man insurance policies. Credit Risk The Board takes active steps to minimise the possibility of credit losses. This includes formal credit management procedures and the close supervision of credit limits and exposures. Formal credit procedures include approval of client limits, approval of material trades, collateral requirements for trading clients and proactive management of overdue accounts. There are formal rules around traded option business including management of margin. Additionally, risk assessments are performed on an ongoing basis during the year on banks and custodians. Regulatory Risk The Group operates in a regulated environment. The Group has an independent and well resourced Compliance and Internal Audit department. The Directors monitor changes and developments in the regulatory environment and ensure that sufficient resources are made available for the Group to implement any required changes. The impact of the regulatory environment on the Group’s management of its capital is discussed in note 30 of the financial statements. Resources and Relationships The Group’s most vital resource remains its employees and the Group remains committed to retaining and recruiting quality staff that share our culture and vision. Staff at all levels of the business are heavily focused on delivering a quality service to our clients. To this end the Board continues to embrace the Financial Services Authority (FSA) initiative on Treating Customers Fairly (TCF) and is ensuring that all aspects of TCF continue to be embedded throughout the business. The Board collates management information to assist in monitoring these non-financial objectives. These include items such as risk appetite monitoring, staff turnover and client complaint data. Alan Kershaw Finance & Operations Director WH Ireland Group plc annual report and accounts 2010 5 Nominated adviser and broker Panmure Gordon Moorgate Hall 155 Moorgate London EC2M 6XB Auditors BDO LLP 55 Baker Street London W1U 7EU Solicitors DWF LLP 1 Scott Place, 2 Hardman Street Manchester M3 3AA Bankers Bank of Scotland Level 2, Pentland House 8 Lochside Avenue Edinburgh Park Edinburgh EH12 9DJ Registrars Neville Registrars Limited Neville House 18 Laurel Lane Halesowen West Midlands B63 3DA Company Secretary and registered office Dan Bate 11 St James’s Square Manchester M2 6WH Company number 3870190 Board of directors and advisors Rupert Lowe Non-executive Chairman Rupert worked for Phillips and Drew between 1981 and 1988, serving on the LIFFE Board between 1985 and1988. He was a member of the Committee who created the FTSE 100 Index before joining Baring Securities in 1988. He worked in Japanese derivatives with Baring Securities before joining Morgan Grenfell in 1990. Between 1996 and 2006 he was Chairman of Southampton Leisure Holdings Plc. He was previously Chairman of The Prince's Trust (South East) and is currently Chairman of Jubilee Group Holdings (Lloyds Insurance) and a number of family related construction businesses including Lowe Holdings Ltd. Paul Compton Chief Executive Paul has 25 years’ experience in the Small/Mid Cap sector. He joined WH Ireland from Toscafund Asset Management LLP, the London based hedge fund and asset managers. Previously Paul was Head of Capital Markets at Collins Stewart after working for Merrill Lynch as Head of Capital Goods Research. Paul started his career as a production engineer in the motor industry. John Scott Executive Director John joined the Group in December 2008 from Barclays Wealth and is now the Head of Private Client Stockbroking of WH Ireland Limited, having worked in stockbroking for over 40 years. Alan Kershaw Finance and Operations Director Alan joined the Group as Operations Director of WH Ireland Limited in January 2010 and was appointed to the Group Board in November 2010 following his appointment as Finance Director. He trained as a Chartered Accountant with PwC, qualifying in 1991, and has spent the last 20 years working in a variety of senior management roles in the financial services industry. Richard Lee Non-executive Director Richard is a Non-executive Director having previously been Chairman of WH Ireland Limited. He has been a Director of a number of public companies in a broad spread of industries and is currently a Non-executive Director of Ultimate Finance Group Plc and Wilmslow Finance Holdings Limited. Roger Lane-Smith Non-executive Director Roger was Senior Partner and Chairman of DLA Piper UK from 1998 to 2005 and was appointed a Senior Consultant to the practice in May 2005. He is a Non- executive Director of MS International, Dolphin Capital Investors, Timpsons, Avia Health Informatics and a number of other non-quoted companies. WH Ireland Group plc annual report and accounts 2010 6 Directors’ report The Directors present their annual report on the affairs of the Group, together with the financial statements and Independent Auditors’ Report, for the year ended 30 November 2010. Principal activities The principal activity of the Company during the year was that of a holding company. The principal activities of the Group during the year were the provision of stockbroking, wealth management and corporate finance advice, research, products and services to individuals and institutions. Business review A review of the business can be found in the Business Review on pages 3 to 5. Going concern The financial statements of the Group have been prepared on a going concern basis. In making this assessment, the Directors have prepared detailed financial forecasts for the period to November 2012 which consider the funding and capital position of the Group. Those forecasts make assumptions in respect of future trading conditions, notably the economic environment and its impact on the Group’s revenues and costs. In addition to this the nature of the Group’s business is such that there can be considerable variation in the timing of cash inflows. The forecasts take into account foreseeable downside risks, based on the information that is available to them at the time of approval of these financial statements. Certain activities of the Group are regulated by the FSA which is the single statutory regulator for financial services business in the UK and has responsibility for policy, monitoring and discipline for the financial services industry as a whole. The FSA requires the Group’s capital resources to be adequate; that is sufficient in terms of quantity, quality and availability, in relation to its regulated activities. The Directors monitor the Group’s regulatory capital resources on a daily basis and they are prepared to implement appropriate management actions to address any potential deficit as required, these actions may include cost reductions, regulatory capital optimisation programmes or further capital raising. The Directors consider that, taking account of foreseeable downside risks, regulatory capital requirements will continue to be met. As set out in note 26, part of the Group’s funding is provided by bank loans and overdrafts. Bank loans which were repayable over a 10 to 25 year period at draw down, are secured on the 11 St James’s Square property in Manchester. The overdrafts (which are primarily used to facilitate client transactions) are repayable on demand. The Directors are in the final stages of renewing the bank facilities and have received a draft facility letter from the Group’s bank, confirming sufficient funding facilities will be available to the Group until 29 February 2012. Post balance sheet events After the balance sheet date, JBCM Holdings Limited exercised their right to buy-back the Group’s holding of shares in the company and redeemed the loan notes ahead of schedule (see note 19). Financial instruments and risk management Details of risks and risk management arising from the Group’s financial instruments are set out in note 29 of the financial statements. Dividends The Directors do not propose the payment of any ordinary dividend in respect of the current financial year. WH Ireland Group plc annual report and accounts 2010 7 Directors’ report Directors The Directors who held office during the year and their interest in the shares of the Company were as follows: RA Ford (resigned 31 August 2010) NJ Gurney (resigned 11 November 2010) R Lane-Smith REM Lee RJG Lowe Lord Marland (resigned 22 July 2010) JMF Padovan (resigned 22 April 2010) MA Frame (resigned 11 January 2010) JM Scott (appointed 22 July 2010) AM Kershaw (appointed 1 November 2010) At 30 November 2010 N/A N/A 26,038 10,267 737,356 N/A N/A N/A 74,575 — At 30 November 2009 150,000 — 26,038 10,267 687,356 1,392,359 4,415 18,026 N/A N/A On 31st January 2011 following FSA approval, the appointment of CP Compton to the Board as Chief Executive was confirmed. CP Compton currently holds 250,000 shares in the Company, with options over a further 2,128,000 shares, further details of which are in the Remuneration Report on pages 11 to 13. None of the Directors who held office at the end of the financial year had any disclosable interest in the shares of other Group companies. Full details of Directors’ service contracts, remuneration and share interests can be found in the Remuneration Report on pages 11 to 13. Major shareholdings At 18 February 2011, the last practicable date prior to the publication of this report, the Company had been notified of the following shareholdings (other than those of the Directors) of 3% or more of the share capital: A Stone PA Bell ORA (Guernsey) Limited Lord J Marland Montpellier Group LLC D Whelan D Ross T Agnew Ordinary shares 2,030,869 1,887,061 1,708,568 1,342,859 1,114,348 1,038,073 932,855 807,142 % 9.64 8.96 8.11 6.37 5.29 4.93 4.43 3.83 Policy and practice on payment of creditors During the year no specific standard or code was followed with respect to the payment of suppliers but the Company and Group’s policy for the payment of suppliers was as follows: payment terms were agreed at the start of the relationship with the supplier and were only changed by agreement; standard payment terms to suppliers of goods and services were within 30 days from receipt of a correct invoice for satisfactory goods or services which had been ordered and received unless other terms were agreed in a contract; payments were made in accordance with the agreed terms or in accordance with the law if no agreement had been made; and suppliers were advised when an invoice was contested without delay and any disputes were settled as quickly as possible. This will also be the policy for the forthcoming year. The Company does not have significant trade creditors in the conventional sense, however at the year end for the Group there were 28.13 days’ purchases (2009: 19.01 days) in creditors relating to operational expenses. WH Ireland Group plc annual report and accounts 2010 8 Directors’ report Environmental matters The Group recognises its impact on the environment and takes steps to reduce it. Although the Group’s activities have only a comparatively small impact, the Directors are aware that environmental risks and uncertainties impact to some extent on all companies and affect investment decisions. Political and charitable contributions The Company did not make any political or charitable donations or incur any political expenditure during the year. Within the rest of the Group, WH Ireland Limited made charitable donations of £735 (2009: £130), but made no political donations or incurred any political expenditure. Contractual arrangements The Directors have opted not to disclose information about persons with whom the Group has contractual or other arrangements which are essential to the business as they are of the opinion that such disclosure would be prejudicial to the other party. Employees It is Group policy that employees should be kept as fully informed regarding the Group’s progress and plans for the future as is feasible and practicable through regular communication between management and staff. The Company policy is to give full and fair consideration to all disabled people who apply for employment, seeks to develop the skills and potential of disabled people, affords them access to training and promotion opportunities and makes every effort to retain in suitable employment those staff who have the misfortune of becoming disabled whilst in the employment of the Group. Employees are encouraged to be involved in the Company’s performance through participation in a share ownership scheme provided by the WH Ireland Employee Benefit Trust. The WH Ireland Employee Benefit Trust held 211,822 shares in the Company (2009: 211,822 shares), representing 1.00% of the called up share capital (2009: 1.00%). The maximum number of shares held at any time during the year was 211,822 shares (2009: 211,822 shares). The nominal value of shares purchased in the year was £nil (2009: £nil). The Board wishes to express its appreciation to all the staff for the efforts they have made during the last year. Annual General Meeting (AGM) The resolutions being proposed at the AGM include usual resolutions dealing with the ordinary business of the AGM together with certain additional special business. A description of the resolutions relating to the special business is set out at the end of the Notice of AGM. Auditors The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditors are unaware; and each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. In accordance with Section 487 of the Companies Act 2006, a resolution for the re-appointment of BDO LLP as auditors of the Company is to be proposed at the forthcoming AGM. By order of the Board D L Bate Company Secretary 11 St James’s Square Manchester M2 6WH 25 February 2011 WH Ireland Group plc annual report and accounts 2010 9 Corporate governance The Board has given consideration to the UK Corporate Governance Code (the Code) issued from time to time by the Financial Reporting Council (FRC). Although companies traded on AIM are not required to provide corporate governance disclosure, or follow guidelines in its Code, the Directors have chosen to provide certain information on how the Company has adopted various principles of the Code. The Board and its committees At the date of this report the Group Board was made up of three Executive and three Non-executive Directors. The Board is responsible for the overall direction and strategy of the Group and meets regularly throughout the year. Under the Company’s Articles of Association at every AGM, any directors: who have been appointed by the directors since the last AGM; or who were not appointed or reappointed at one of the preceding two AGMs, must retire from office and may offer themselves for reappointment by the members. Accordingly this year, JM Scott, AM Kershaw and CP Compton will retire and offer themselves for reappointment. The Board has formally established a number of committees and agreed their terms of reference, these committees are as follows: Remuneration Committee The principal function of this committee is to determine the policy on Executive appointments and remuneration. The committee consists of the three Non-executive Directors: with R Lane-Smith as Chairman. It is the aim of the committee to attract, retain and motivate high calibre individuals with a competitive remuneration package. Remuneration for Executives normally comprises basic salary, bonus, benefits in kind and options. Details of the current Directors’ remuneration and the Executive Share Option Scheme are given in the Remuneration Report. Other Executive Directors may be invited to attend the meetings. Audit Committee The committee is made up of the three Non-executive Directors: with REM Lee as acting Chairman. It is responsible for reviewing the Company’s arrangements with its external and internal auditors, including the cost effectiveness of the audit and the independence and objectivity of the auditors. It also reviews the application and appropriateness of the Company’s accounting policies, including any changes to financial reporting requirements brought about by both external and internal requirements and it gives consideration to all major financial announcements made by the Company including its interim and preliminary announcements and annual report and accounts. The external auditors and other Executive Directors may be invited to attend the meetings. Risk and Compliance Committee The committee is made up of the three Non-executive Directors: with R Lane-Smith as Chairman. Its principal terms of reference are to review compliance with all the relevant financial services legislation and regulation, adherence to the Group’s own internal procedures and the identification of operational, credit and other financial risks. Other Executive Directors and Compliance Directors of subsidiary companies may be invited to attend the meetings. Internal control The Board has overall responsibility for the system of internal control established by the Group and places considerable importance on maintaining a strong control environment. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. Detailed internal control procedures exist throughout the Group’s operations and compliance is monitored by management and the Group’s Compliance and Internal Audit Departments. WH Ireland Group plc annual report and accounts 2010 10 Remuneration report The Directors present the Directors’ Remuneration Report (the “Remuneration Report”) for the financial year ended 30 November 2010. Composition and role of the Remuneration Committee The Board has established a Remuneration Committee which currently consists of the three Non-executive Directors, chaired by R Lane-Smith. The committee determines and agrees with the Board the framework and policy of Executive remuneration and the associated costs to the Group and is responsible for the implementation of that policy. The committee determines the specific remuneration packages for each of the Executive Directors and no Director or Senior Executive is involved in any decisions as to his own remuneration. The committee has access to information and advice provided by the Chief Executive and the Finance & Operations Director and has access to independent advice where it considers it appropriate. This report explains how the Group has applied its policy on remuneration paid to Executive Directors. Framework and policy on Executive Directors’ remuneration The Group’s remuneration policy is designed to provide competitive rewards for its Executive Directors and other Senior Executives, taking into account the performance of the Group and the individual Executives, together with comparisons to pay conditions throughout the markets in which the Group operates. It is the aim of the committee to attract, retain and motivate high calibre individuals with a competitive remuneration package. It is common practice in the industry for total remuneration to be significantly influenced by bonuses. The remuneration packages are constructed to provide a balance between fixed and variable rewards. Therefore remuneration packages for Executive Directors and Senior Executives normally include basic salary, discretionary bonuses, benefits in kind and options. In agreeing the level of basic salaries and annual bonuses the committee takes into consideration the total remuneration that Executives could receive. Basic salary Basic salaries are reviewed on an annual basis or following a significant change in responsibilities. The committee seeks to establish a basic salary for each Executive determined by individual responsibilities and performance, taking into account comparable salaries for similar positions in companies of a similar size in the same market. Incentive arrangements 1) Annual discretionary bonuses These are designed to reflect the Group’s performance, taking into account the performance of its peers, the market in which the Group operates and the Executive’s contribution to that performance. 2) Specific performance related discretionary bonus These are designed to reward a specific exceptional performance by the Executives which have had a material positive impact on the profitability of the Group and the Executive’s contribution to that performance. These bonuses are added to normal salary and subjected to normal PAYE taxation. 3) Carried interest bonus scheme The Board may at any time at its sole discretion pay a bonus equal to a proportion of the profit on disposal of shares or warrants acquired as a result of corporate finance activities to eligible employees nominated by the Board at its absolute discretion. Any disposal of shares or warrants will be based on normal investment criteria taken in the best interests of the Group. It is the intention that under this scheme no more than 35% of the disposal profits of the relevant shares or warrants would be paid out to the eligible employees. These bonuses are added to normal salary and subjected to normal PAYE taxation. 4) Share options Under the terms of the Executive Share Option Scheme, options over the Company’s shares may be issued on a discretionary basis to Executives within the Group at not less than the prevailing market price. The maximum aggregate subscription price of all options issued to an Executive in any ten year period may not exceed four times the annual remuneration of that Executive. In addition options may not be granted in total in excess of 20% of the share capital of the Company (of all classes) in issue at that time and no individual may have options representing more than 5% of the share capital of the Company (of all classes) in issue at the time. WH Ireland Group plc annual report and accounts 2010 11 Remuneration report Other employee benefits Depending on the terms of their contract certain Executive Directors and Senior Executives are entitled to a range of benefits, including a fully expensed company car, contributions to individual personal pension plans, private medical insurance and life assurance. Service contracts and notice periods All Executive Directors are employed on rolling contracts subject to between six and twelve months’ notice from either the Executive or the Group, given at any time. The service contracts of the current Executive Directors are available for inspection by any person at the Company’s registered office during normal office hours on any day except weekends and bank holidays and at the AGM from 9am on the day of the Meeting until the conclusion of the Meeting. Contracts of employment for Senior Executives are all on a rolling basis subject to notice periods ranging from three to twelve months. Service contracts do not provide explicitly for termination payments or damages but the Group may make payments in lieu of notice. For this purpose pay in lieu of notice would consist of basic salary and other relevant emoluments for the relevant notice period excluding any bonus. External appointments undertaken by Executive Directors In the committee’s opinion, experience of other companies’ practices and challenges is valuable for the personal development of the Group’s Executive Directors and for the Company. It is therefore the Group’s policy to allow Executive Directors to accept non-executive directorships at other companies, provided the time commitment does not interfere with the Executive Directors’ responsibilities within the Group. Fees are retained by the individual Director. Non-executive Directors All Non-executive Directors have a remuneration agreement for an initial period of twelve months and thereafter on a rolling basis subject to three months’ notice by either the Non-executive Director or the Group, given at any time. In the event of termination of their appointment they are not entitled to any compensation. The terms and conditions of appointment of Non-executive Directors are available for inspection by any person at the Company’s registered office during normal working hours on any day except weekends or bank holidays and at the AGM from 9am on the day of the Meeting until the conclusion of the Meeting. Non-executive Directors’ fees are determined by the Executive Directors having regard to the need to attract high calibre individuals with the right experience, the time and responsibilities entailed and comparative fees paid in the market in which the Group operates. They are not eligible for pensions and do not participate in the Group’s bonus or share schemes. WH Ireland Group plc annual report and accounts 2010 12 Remuneration report Directors’ emoluments The remuneration of each Director, excluding share options and awards, during the year ended 30 November 2010 is detailed in the table below: Salary £ Benefits £ Bonus £ 30,197 7,500 142,800 86,160 9,525 39,259 — — 25,000 125,000 22,917 16,667 10,417 — 515,442 3,285 797 — 1,495 2,043 383 — — — — — — — — 8,003 24,455 — — — — — — — — — — — — — 24,455 Total for year ended 30 November 2010 £ 57,937 8,297 142,800 87,655 11,568 39,642 — — 25,000 125,000 22,917 16,667 10,417 — 547,900 Executive JM Scott AM Kershaw RA Ford NJ Gurney REM Lee MA Frame WL Beevers DW Youngman Non-executive R Lane-Smith RJG Lowe REM Lee Lord Marland JMF Padovan R Rudd Notes: Total for year ended Pension contribution for year ended 30 November 30 November 2010 £ 2009 £ — — 201,799 101,553 94,784 114,386 122,223 104,954 25,000 100,000 — 25,000 25,000 14,583 929,282 9,333 750 11,250 19,198 922 876 — — — — — — — — 42,329 Pension contribution for year ended 30 November 2009 £ — — 17,500 10,000 14,784 14,692 9,302 7,790 — — — — — — 74,068 1. The highest paid Director for 2010 and 2009 was RA Ford who received total emoluments of £154,050 and £219,299 respectively Included in RA Ford’s salary is a £30,000 payment under his compromise agreement. Included in MA Frame’s salary is a £30,000 payment under his compromise agreement. 2. 3. Directors’ interests in share options Full details of options over ordinary shares in the Company held by Executive Directors at 30 November 2010 are shown below: JM Scott REM Lee REM Lee REM Lee Number of options ordinary shares 70,000 100,000 20,000 30,000 Date of grant of share option 16.04.08 30.05.02 17.03.04 25.05.04 Exercise price per ordinary share 108.0p 50.0p 75.0p 70.0p Exercise period 17.04.11 to 16.04.18 31.05.05 to 30.05.12 18.03.07 to 17.03.14 26.05.07 to 25.05.14 No options were exercised during the year. 1,057,500 options lapsed during the year due to individuals leaving the employ of the Group. As mentioned in the Directors’ report, CP Compton (appointed 31st January 2011) has options over 2,128,000 shares in the Company. These have an exercise price of 36.75p, being the closing mid-market price on 22 July 2010, the date of grant and are exercisable between 06.09.13 and 06.09.20. In the respect of this specific grant, the Remuneration Committee resolved to waive the limits of four times the annual remuneration of the executive, and a holding of more than 5% of the total share capital. At 30 November 2010 the market price of the Company’s shares was 55.00p. The highest daily closing price during the year was 57.50p and the lowest daily closing price was 36.25p. WH Ireland Group plc annual report and accounts 2010 13 Statement of directors’ responsibilities In respect of the directors’ report and the financial statements The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether they have been prepared in accordance with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. WH Ireland Group plc annual report and accounts 2010 14 Independent auditors’ report To the members of WH Ireland Group plc We have audited the financial statements of WH Ireland Group plc for the year ended 30 November 2010 which comprise as the group statement of financial position and company balance sheet, the group statement of comprehensive income, the group statement of cash flows, the group statement of changes in equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the Group’s and the Parent Company’s affairs as at 30 November 2010 and of the Group’s loss for the year then ended; the Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union; the Parent Company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent Company financial statements are not in agreement with the accounting records and returns; or certain disclosures of Directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Neil Fung-On (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor London United Kingdom 25 February 2011 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). WH Ireland Group plc annual report and accounts 2010 15 Consolidated statement of comprehensive income For the year ended 30 November 2010 Revenue Administrative expenses Operating loss Other Income Investment gains/(losses) Fair value (losses)/gains on investments Finance Income Finance Expense Share of profit of associates Loss on disposal of associates Loss before tax Tax credit Loss from continuing operations Loss on discontinued operations, net of tax Loss for the year Other comprehensive income: Transferred to profit or loss on sale of Property, plant and equipment Valuation (losses)/ gains on available for sale investments Transferred to profit or loss on sale of investments Exchange gains arising on translation of foreign operations Tax relating to components of other comprehensive income Total other comprehensive income Total comprehensive income Loss for the year attributable to: Owners of the parent Non controlling interest Total comprehensive income attributable to: Owners of the parent Non controlling interest Earnings per share for profit to the ordinary equity holders of the parent during the period Basic Diluted Continuing operations Basic Diluted period Note 3 & 5 6 8 8 17 9 10 32 32 12 12 Year ended 30 November 2010 £’000 18,379 (19,108) (729) 45 259 (72) 54 (90) 226 (311) (618) 351 (267) — (267) (102) (192) (31) — 60 (265) (532) (267) — (267) (532) — (532) (1.25)p (1.25)p (1.25)p (1.25)p Year ended 30 November 2009 £’000 24,618 (26,449) (1,831) 29 (300) 37 84 (192) 93 — (2,080) 183 (1,897) (216) (2,113) — 55 — 479 114 648 (1,465) (2,075) (38) (2,113) (1,507) 42 (1,465) (9.79)p (9.79)p (8.95)p (8.95)p The notes on pages 21 to 51 form part of these financial statements. The Company has elected to take the exemption under Section 408 of the Companies Act 2006 not to present the Parent Company Income Statement. The loss after taxation of the Parent Company for the year was £589k (2009: profit of £1,008k). WH Ireland Group plc annual report and accounts 2010 16 Consolidated statement of financial position As at 30 November 2010 Group Company As at As at 30 November 30 November 2009 £’000 2010 £’000 ASSETS Non-current assets Property, plant and equipment Goodwill Intangible assets Subsidiaries Associates Investments Loan notes receivable Deferred tax asset Subordinated loan Current assets Trade and other receivables Other investments Corporation tax recoverable Cash and cash equivalents Total assets LIABILITIES Current liabilities Trade and other payables Bank overdraft Borrowings Provisions Non-current liabilities Borrowings Deferred tax liability Accruals and deferred income Provisions Total liabilities Total net assets Note 13 14 15 16 17 18 19 20 21 22 23 24 25 24 & 26 26 28 26 20 28 6,301 2,835 161 — 1,156 1,483 335 930 — 13,201 37,205 — 21 2,439 39,665 52,866 (36,495) — (305) (149) (36,949) (1,930) (384) (98) (20) (2,432) (39,381) 13,485 EQUITY Share capital Share premium Available-for-sale reserve Revaluation reserve Other reserves Retained earnings Treasury shares Total equity The notes on pages 21 to 51 are an integral part of these financial statements. 1,064 5,724 47 565 1,472 4,900 (287) 13,485 6,813 2,909 321 — 1,963 1,514 310 643 — 14,473 42,673 855 42 4,258 47,828 62,301 (44,628) — (419) — (45,047) (2,426) (273) (297) (147) (3,143) (48,190) 14,111 1,064 5,724 210 667 1,472 5,261 (287) 14,111 As at 30 November 2010 £’000 As at 30 November 2009 £’000 1 — — 2,544 945 661 335 14 — 4,500 4,704 — — — 4,704 9,204 (352) (827) (305) — (1,484) (1,930) — — — (1,930) (3,414) 5,790 1,064 5,724 (155) — 719 (1,275) (287) 5,790 1 — — 2,544 2,250 213 310 24 750 6,092 4,884 — — 1 4,885 10,977 (562) (1,033) (419) — (2,014) (2,426) — (74) — (2,500) (4,514) 6,463 1,064 5,724 (165) — 719 (592) (287) 6,463 These financial statements were approved by the Board of Directors on 25 February 2011 and were signed on its behalf by: R J G Lowe C P Compton Director Director WH Ireland Group plc annual report and accounts 2010 17 Consolidated statement of cash flows For the year ended 30 November 2010 Operating activities: (Loss)/profit for the year Adjustments for: Depreciation, amortisation and impairment Finance income Finance expense Taxation Share of profit of associates Profit on disposal of associates Changes in investments Gain on sale of discontinued operations Gain on sale of property, plant and equipment Non-cash adjustment for share option charge Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables Decrease/(Increase) in provisions Decrease/(increase) in current asset investments Exchange adjustments Net cash (used in)/generated from operations Income taxes paid/received Net cash (out)/in flows from operating activities Investing activities: Proceeds from sale of property, plant and equipment Proceeds from sale of investments Interest received Disposal of subsidiary, net of cash acquired Purchase of associates Disposal of associates Acquisition of property, plant and equipment Acquisition of investments Repayment of subordinated loan Purchase of loan notes Net cash generated from/(used in) investing activities Financing activities: Proceeds from issue of share capital Decrease in borrowings Interest paid Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Clients’ settlement cash Group cash/(overdrafts) Cash and cash equivalents at end of year Note 13,14 & 15 8 8 9 17 34 23 8 10 17 13 18 19 31 26 8 24 Group Company Year ended Year ended Year ended 30 November 30 November 30 November 30 November 2009 £’000 2010 £’000 2010 £’000 2009 £’000 Year ended (267) (2,113) 562 (54) 90 (351) (226) 311 272 — (128) (94) 5,468 (8,332) 22 855 — (1,872) 256 (1,616) 291 823 54 — — 100 (81) (665) (25) 497 — (610) (90) (700) (1,819) 4,258 2,439 1,573 866 2,439 1,151 (109) 199 (247) (93) — 507 (382) (171) 97 211,533 (198,025) (212) (757) 548 11,926 (728) 11,198 250 — 109 (218) (32) — (203) (133) — — (227) 101 (774) (199) (872) 10,099 (5,841) 4,258 1,969 2,289 4,258 (589) — (5) 83 10 — 583 (18) — — (94) 180 (284) — — — (134) — (134) — 202 5 — — 100 — — 750 (25) 1,032 — (610) (83) (693) 205 (1,032) (827) — (827) (827) 1,008 — (5) 143 16 — — 156 — — 97 (70) (596) — — 29 778 — 778 — — 5 705 (32) — — — — — 678 101 (469) (143) (511) 945 (1,977) (1,032) — (1,032) (1,032) The notes on pages 21 to 51 are an integral part of these financial statements. WH Ireland Group plc annual report and accounts 2010 18 Consolidated statement of changes in equity For the year ended 30 November 2010 Balance at 1 December 2008 Gain arising on available-for-sale investments Exchange rate adjustments Deferred taxation Other comprehensive income Loss after taxation Total comprehensive income Shares issued Share premium on exercise of options Amounts owed from shareholders Employee share option scheme Disposal of subsidiary Balance at 30 November 2009 Gain arising on available-for-sale investments Loss on property revaluation Deferred taxation Other comprehensive income Loss after taxation Total comprehensive income Employee share option scheme Balance at 30 November 2010 Available- Share Share capital premium £’000 5,633 £’000 1,054 for-saleRevaluation Exchange reserve reserve reserve £’000 £’000 £’000 31 667 170 Other Retained Treasury shares £’000 (287) reserves earnings £’000 7,847 £’000 1,472 Total equity £’000 16,587 — — — — — — 10 — — — — — — — — — 91 — — — 1,064 — — 5,724 55 — (15) 40 — 40 — — — — — 210 — — (223) — — — — — — 1,064 — — — 60 — (163) — — — (163) — — 47 5,724 — — — — — — — — — — 479 129 608 — 608 — — — — — — — — — — — — — 55 — — — (2,075) (2,075) — — 479 — 114 648 — — (2,075) — (1,427) 10 — — — 91 — (608) — (608) — — — (639) — — — 1,472 97 — 5,261 97 — — (639) 14,111 (287) — — — — (223) — — — — — — — — — — — — — 1,472 — — — (267) (267) (94) 4,900 — (102) — 60 — (265) — (267) — (532) — (94) 13,485 (287) 667 — (102) — (102) — (102) — 565 The total number of authorised ordinary shares is 34.5 million shares of 5p each (2009: 34.5 million shares of 5p each). The total number of issued ordinary shares is 21.3 million shares of 5p each (2009: 21.3 million shares of 5p each). WH Ireland Group plc annual report and accounts 2010 19 Company statement of changes in equity For the year ended 30 November 2010 Available- Balance at 1 December 2008 Loss arising on available-for- sale investments Other comprehensive income Profit after taxation Total comprehensive income Shares issued Share premium on exercise of options Amounts owed from shareholders Employee share option scheme Balance at 30 November 2009 Loss arising on available-for- sale investments Other comprehensive income Loss after taxation Total comprehensive income Employee share option scheme Balance at 30 November 2010 Share Share capital premium £’000 5,633 £’000 1,054 — — — — 10 — — — 1,064 — — — — — 1,064 — — — — — 91 — — 5,724 — — — — — 5,724 for-sale Revaluation Exchange reserve £’000 (162) reserve £’000 — reserve reserves £’000 719 Other Retained Treasury shares £’000 (287) earnings £’000 (1,089) £’000 — Total equity £’000 5,868 (3) (3) — (3) — — — — (165) 10 10 — 10 — (155) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (3) — — — 1,008 — 1,008 — — — (3) — 1,008 — 1,005 10 — — — — 91 — (608) — (608) — 719 — 97 (592) — — — — (589) — (589) (94) — (1,275) 719 — (287) — 97 6,463 10 — 10 — (589) — (579) (94) — 5,790 (287) The nature and purpose of each reserve, whether Consolidated or Company only, is summarised below: Share premium The share premium is the amount raised on the issue of shares that is in excess of the nominal value of those shares and is recorded less any direct costs of issue. Available-for-sale reserve The available-for-sale reserve reflects gains or losses arising from the change in fair value of available-for-sale financial assets except for impairment losses which are recognised in the income statement. When an available-for- sale asset is impaired or derecognised, the cumulative gain or loss previously recognised in the available-for-sale reserve is transferred to the income statement. Revaluation reserve The revaluation reserve reflects changes in the fair value of property, plant and equipment until such time as the assets are disposed of. A revaluation surplus is recognised in the revaluation reserve unless it reverses a previous deficit when it is credited to the income statement up to the amount of the previous deficit. A revaluation deficit is charged to the income statement unless it reverses a previous surplus when it is charged to the revaluation reserve up to the amount of the previous surplus. Exchange reserve The exchange reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. Other reserves Other reserves comprise a merger reserve of £491k (2009: £491k), a capital redemption reserve of £228k (2009: £228k) and other reserves of £753k (2009: £753k). Retained earnings Retained earnings reflect; accumulated income, expenses, gains and losses, recognised in the income statement and the statement of recognised income and expense and is net of dividends paid to shareholders. The cumulative effect of changes in accounting policy is also reflected as an adjustment in retained earnings. Treasury shares Purchases of the Company’s own shares in the market are presented as a deduction from equity, at the amount paid, including transaction costs. That is, treasury shares are shown as a separate class of shareholders’ equity with a debit balance. WH Ireland Group plc annual report and accounts 2010 20 Notes to the financial statements For the year ended 30 November 2010 1. General information WH Ireland Group plc is a public company incorporated in the United Kingdom. The shares of the Company are listed on the AIM stock exchange. The address of its registered office is 11 St James’s Square, Manchester M2 6WH. The Group’s principal activities are described in the Business review on pages 3 to 5 and in note 5. 2. Adoption of new and revised standards In preparing the Group financial statements for the current period, the Group has adopted the following new International Financial Reporting Standards (IFRS), amendments to IFRS and International Financial Reporting Interpretations Committee (IFRIC) Interpretations, which have not had a significant impact on the results or net assets of the Group: IFRS 8 - Operating Segments IFRS 2 (amended) – Share-based payment – Vesting Conditions and Cancellations IAS 1 (revised 2007) – Presentation of Financial Statements IFRS 7 (amended) – Improving Disclosures about Financial Instruments Improvements to IFRSs (April 2009) The following standards and interpretations were effective in 2010 but are not relevant to the Group: IAS 23 (revised) – Borrowing costs IAS 32 (amended) IAS 1 (amended) – Puttable Financial Instruments and Obligations Arising on Liquidation IFRIC 15 – Agreements for the Construction of Real Estate IFRIC 9 – Embedded Derivatives The following standards, amendments and interpretations to published standards are not yet effective: EU Endorsement status Mandatory effective date (periods beginning) New standard or interpretation The following new standards, interpretations and amendments, which have not been applied in these financial statements, are not expected to have an effect on the Group’s financial statements, other than on presentation of those statements: IFRS 2 (amended) Group Cash Settled Share-based Payment Transactions IAS 32 (amended 2009) Classification Of Rights Issues IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IAS 24 (revised) Related Party Transactions IFRIC 14 (amended) Limit on Defined Benefit Asset IFRS 9 Financial Instruments 1 February 2010 To be confirmed 1 January 2013 1 January 2011 1 January 2010 1 January 2011 1 July 2010 Endorsed Endorsed Endorsed Endorsed Endorsed 3. Significant accounting policies Basis of consolidation The consolidated financial statements incorporate the financial statements of WH Ireland Group plc and all its subsidiary undertakings. Subsidiaries are all entities in which the Group has a controlling interest, generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are consolidated from the date on which control is transferred to the Group and are deconsolidated from the date control ceases. Intragroup balances and any unrealised gains or income and expenses arising from intragroup transactions are eliminated on consolidation. Unrealised losses are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. For the purposes of the consolidated financial statements, uniform accounting policies have been followed by the Group. In the Company’s accounts, investments in subsidiary undertakings and associates are stated at cost less any provision for impairment. Associates are those entities in which the Group has significant influence, but not control over their financial and operating policies. The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. WH Ireland Group plc annual report and accounts 2010 21 Notes to the financial statements continued For the year ended 30 November 2010 3. Significant accounting policies continued Business combinations All business combinations are accounted for by applying the purchase method. The purchase method involves recognition, at fair value, of all identifiable assets and liabilities, including contingent liabilities, of the subsidiary at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. The cost of business combinations is measured based on the fair value of the equity or debt instruments issued and cash or other consideration paid, plus any directly attributable costs. Goodwill arising on a business combination represents the excess of cost over the fair value of the Group’s share of the identifiable net assets acquired and is stated at cost less any accumulated impairment losses. Goodwill is tested bi-annually for impairment. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Negative goodwill arising on an acquisition is recognised immediately in the income statement. On disposal of a subsidiary the attributable amount of goodwill that has not been subject to impairment is included in the determination of the profit or loss on disposal. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Associates Associates are those entities in which the Group has significant influence but not control over their financial and operating polices. The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates, on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. Any goodwill shown as part of the carrying amount of the investment in an associate is not amortised but instead tested annually for impairment. Where the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to zero and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate. Revenue The Group follows the principles of IAS 18 ‘Revenue Recognition’, in determining appropriate revenue recognition policies. Revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow into the Group. Revenue comprises brokerage commission, investment management fees, corporate finance fees, commission earned from the provision of independent financial advice and interest receivable in the course of ordinary investment management business and is stated net of VAT and foreign sales tax. Brokerage commission is recognised when receivable in accordance with the date of the underlying transaction. Investment management fees are recognised in the period in which the related service is provided. Corporate finance fees comprise the value of services supplied by the Group. Advisory fees are recognised when the relevant transaction is completed and retainer fees are recognised over the length of time of the agreement. Commission earned from the provision of independent financial advice comprises commission relating to new business written and trail commission earned on existing client business managed by the Group. New business commission is recognised when the relevant transaction is completed and trail commission is recognised over the length of time of the customer policy. Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable. Segment reporting Following the adoption of IFRS 8, operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, and who has been identified as the Board of Directors, comprising both Executive and Non-executive Directors. WH Ireland Group plc annual report and accounts 2010 22 Notes to the financial statements continued For the year ended 30 November 2010 3. Significant accounting policies continued Foreign currencies The Company’s functional and presentation currency is sterling and the Group’s presentational currency is sterling. Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate ruling at the balance sheet date. Exchange differences arising are included in the income statement. Assets and liabilities of foreign operations are translated at the exchange rates ruling at the balance sheet date. Income and expense items are translated at the average exchange rate for the period. Exchange differences arising from this translation of foreign operations are recognised in a separate component of equity. Employee benefits The Group contributes to employees’ individual money purchase personal pension schemes. The assets of the schemes are held separately from those of the Group in independently administered funds. The amount charged to the income statement represents the contributions payable to the schemes in respect of the period to which they relate. Short-term employee benefits are those that fall due for payment within twelve months of the end of the period in which employees render the related service. The cost of short-term benefits is not discounted and is recognised in the period in which the related service is rendered. Short-term employee benefits include cash-based incentive schemes and annual bonuses. Carried interest bonus scheme The Group maintains a carried interest bonus scheme under which bonuses may be payable to certain corporate finance personnel when certain warrants or shares acquired as part of a corporate finance transaction are ultimately sold at a profit. Details of this scheme are given in the Remuneration Report on pages 11 to 13. The relevant warrants and shares are included within investments and are revalued at the year end reporting date and a bonus is provided on 35% of the expected profit should the warrants or shares be sold at that revalued amount, being the maximum amount of bonus that may be paid out, inclusive of employer’s taxes. The amount of the bonus provision relating to warrants where the expiry date is less than one year is shown in trade and other payables under one year and the balance is shown in trade and other payables over one year. Share-based payments The share option programme allows Group employees to receive remuneration in the form of equity-settled share- based payments granted by the Parent Company. The Group and Company have taken advantage of the transitional provisions of IFRS 2 ‘Share-based Payment’ in respect of equity-settled awards and have applied IFRS 2 only to awards granted after 7 November 2002 that had not vested before 1 December 2006. The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value of the options granted is measured using an option valuation model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). The cumulative expense recognised for equity-settled transactions, at each reporting date until the vesting date, reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised at the beginning and end of that period. Where the terms of an equity-settled award are modified, an incremental value is calculated as the difference between the fair value of the re-priced option and the fair value of the original option at the date of re-pricing. This incremental value is then recognised as an expense over the remaining vesting period in addition to the amount recognised in respect of the original option grant. WH Ireland Group plc annual report and accounts 2010 23 Notes to the financial statements continued For the year ended 30 November 2010 3. Significant accounting policies continued Share-based payments continued Where an equity-settled award is cancelled or settled (that is, cancelled with some form of compensation) it is treated as if it had vested on the date of cancellation and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. Any compensation paid up to the fair value of the award is accounted for as a deduction from equity. Where an award is cancelled by forfeiture, when the vesting conditions are not satisfied, any costs already recognised are reversed (subject to exceptions for market conditions). In all instances, the charge/credit is taken to the income statement of the Group company by which the individual concerned is employed. Treasury shares The costs of purchasing Treasury shares are shown as a deduction against equity. The proceeds from the sale of own shares held increase equity. Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the consolidated income statement. Income taxes Income tax on the profit or loss for the periods presented, comprising current tax and deferred tax, is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using rates enacted or substantively enacted at the balance sheet date and any adjustment to tax payable in respect of previous years. Deferred tax is provided for temporary differences, at the balance sheet date, between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The following temporary differences are not provided for: goodwill which is not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and temporary differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised for all deductible temporary differences and unused tax losses only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Leases Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Operating lease payments are recognised as an expense in the income statement, on a straight line basis over the lease term. Property, plant and equipment Plant and equipment is stated at cost less accumulated depreciation. Depreciation is calculated, using the straight line method, to write down the cost or revalued amount of property, plant and equipment over the assets’ expected useful lives, to their residual values, as follows: Buildings – 50 years Computers, fixtures and fittings – 4 to 7 years The Group’s freehold land is considered to have a residual value equal to or greater than its carrying amounts and therefore the current depreciation charge in respect of freehold land is zero. WH Ireland Group plc annual report and accounts 2010 24 Notes to the financial statements continued For the year ended 30 November 2010 3. Significant accounting policies continued Intangible assets Intangible assets acquired separately are measured, on initial recognition, at cost. Following initial recognition, intangible assets acquired separately are carried at cost less accumulated amortisation and any accumulated impairment. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Intangible assets are amortised over their useful economic lives. The amortisation period and method for an intangible asset are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method and treated as changes in accounting estimates. Amortisation is calculated on a straight line basis to write down the cost of intangible assets to their residual values over this assessed period. Impairment of non-financial assets The carrying amounts of the Group’s non-financial assets are reviewed at each reporting date when events or circumstances indicate that the assets may be impaired. If any such indication exists or, as in the case of goodwill, when annual impairment testing is required, the asset’s recoverable amount is estimated. The recoverable amount is the higher of the asset’s fair value less costs to sell (or net selling price) and its value-in- use. Value-in-use is the discounted present value of estimated future cash inflows expected to arise from the continuing use of the asset and from its disposal at the end of its useful life. Impairment is identified at the individual asset level where possible. Where the recoverable amount of an individual asset cannot be identified, it is calculated for the smallest cash-generating unit (CGU) to which the asset belongs. A CGU is the smallest identifiable group of assets that generates cash inflows independently. When the carrying amount of an asset (or CGU) exceeds its recoverable amount, the asset (or CGU) is considered to be impaired and is written down to its recoverable amount. An impairment loss is immediately recognised as an expense. Financial assets Initial recognition The classification of financial assets at initial recognition depends upon the purpose for which they are acquired and their characteristics. Financial assets are measured initially at their fair value. Financial assets not at fair value through profit or loss include any directly attributable incremental costs of acquisition or issue. Financial assets classified as available-for-sale Available-for-sale financial assets are financial assets designated as such on initial recognition or those that do not qualify to be classified in another category. They include equity investments, other than those in subsidiary undertakings and those equities which form part of the carried interest bonus scheme that are held for an indefinite period of time. After initial measurement, available-for-sale financial assets are subsequently measured at fair value. In the case of listed investments, the fair value represents the quoted bid price of the investment at the balance sheet date. The fair value of unlisted investments is estimated by reference to recent arm’s length transactions. Unrealised gains and losses are recognised directly in equity in the available-for-sale reserve. When an available-for- sale financial asset is disposed of, the cumulative gain or loss previously recognised in equity is recognised in the income statement in profit on disposal of available-for-sale investments. Losses arising from impairment are recognised in the income statement in impairment losses on financial assets and removed from the available-for-sale reserve. Financial assets held at cost Unquoted investments where there is no available quote for the relevant instrument are stated at lower of cost and net realisable value. Any profit or loss on sale is credited or charged to the income statement. WH Ireland Group plc annual report and accounts 2010 25 Notes to the financial statements continued For the year ended 30 November 2010 3. Significant accounting policies continued Financial assets continued Impairment of financial assets The Group assesses, at each balance sheet date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of financial assets classified as available-for-sale, a significant or prolonged decline in the fair value of the asset is considered in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss, less any impairment loss previously recognised is removed from equity and recognised in the income statement. If, in a subsequent period, the fair value of an asset classified as available-for-sale increases, the loss may not be reversed through the income statement. Any increase after an impairment loss has been recognised is treated as a revaluation and is recognised directly in equity. Loan notes receivable Loan notes are initially recognised as a financial asset at the fair value of the amount paid. Subsequent to initial recognition, loan notes are measured at amortised cost using the effective interest method. The loan notes have derivative features embedded within them. Where the economic characteristics and risks of the embedded derivative are not closely related to those of the host instrument, and where changes in value of the host instrument are not reflected in the income statement, the embedded derivative is separated from the host and carried in the balance sheets at fair value within ‘derivative financial instruments’, with gains and losses on the embedded derivative being recognised in the income statement in ‘fair value movements’. Trade receivables Trade receivables are measured on initial recognition at fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. Other investments Other investments, which relate to short-term principal positions taken on behalf of clients, are recognised and derecognised on trade date. Other investments are measured at fair value which is determined directly by reference to published prices in an active market where available. Gains or losses arising from changes in fair value or disposal of other investments are recognised through the income statement. Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprise cash and bank balances, short-term highly liquid investments with a maturity of three months or less and bank overdrafts repayable on demand. Client settlement balances are included in cash but are separately disclosed in the notes to the financial statements. Financial liabilities Bank loans and loan notes are initially recognised as financial liabilities at the fair value of the consideration received. Subsequent to initial recognition, bank loans and loan notes are measured at amortised cost using the effective interest method. Trade payables Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade payables approximates to their fair value. Provisions A provision is recognised when a present legal or constructive obligation has arisen as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred. Discontinued operations The results of discontinued and continuing operations are shown separately on the face of the income statement. A discontinued operation is a CGU or a group of CGUs that has been disposed of and: a) represents a separate major line of business or geographical area of operations; b) is part of a single major line of business or geographical area of operations; or c) is a subsidiary acquired exclusively with a view to resale. WH Ireland Group plc annual report and accounts 2010 26 Notes to the financial statements continued For the year ended 30 November 2010 3. Significant accounting policies continued Employee Benefit Trust (EBT) The cost of purchasing own shares held by the EBT are shown as a deduction against equity. The proceeds from the sale of own shares held increase equity. Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the consolidated income statement. 4. Critical accounting judgements and key sources of estimation and uncertainty Estimates and judgements are continually evaluated and are based on historical experience and other factors, including reasonable expectations of future events. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Investments The fair value of investments that are not traded in an active market are determined by using valuation techniques. The Group uses its judgement to select a variety of methods that are mainly based on market conditions existing at the balance sheet date. In the case of warrants, the fair value is estimated using established valuation models. Share-based payments The calculation of the fair value of equity-settled share-based awards and the resulting charge to the income statement require assumptions to be made regarding future events and market conditions. These assumptions include the future volatility of the Company’s share price, future dividend yield and the rate at which awards will lapse or be forfeited. These assumptions are then applied to a recognised valuation model in order to calculate the fair value of the awards. The assumptions made are based on relevant historical data, where available, and take into account any knowledge of future market expectations. The fair value attributed to the awards and hence the charge made to the income statement could be materially affected should different assumptions be made to those applied by the Group. Details of these assumptions are set out in note 33. 5. Segment information IFRS 8 requires indication of operating segments on the basis of internal reports that are regularly reviewed by the entity’s chief operating decision maker (‘CODM’) in order to allocate resources to the segment and assess its performance. The CODM has been determined to be the Executive and Non-Executive Directors, as they are principally responsible for evaluating operating segment performance and deciding how to allocate resources to operating segments. The Group has four main operating divisions; Private Clients, Wealth Management, Capital Markets and Secondary Trading. These four segments represent the Group’s reportable segments under IFRS8. The Private Clients division offers investment management and stockbroking advice and services to individuals. Wealth Management contains our Independent Financial Advisory (“IFA”) business, giving advice on and acting as intermediary for a range of financial products. The Capital Markets division provides corporate finance and corporate broking advice and services to companies and acts as Nominated Advisor to clients listed on the Alternative Investment Market (“AIM”). Secondary Trading contains our Institutional Sales and Research business, which carries out stockbroking activities on behalf of companies as well as conducting research into markets of interest to its clients. Each reportable segment has a segment manager who is directly accountable to and maintains regular contact with the CODM. The Head Office segment comprises centrally incurred costs and revenues. Previously segments were determined and presented in accordance with IAS 14 ‘Segment Reporting’. The Group’s primary format for reporting segment information was business segments, but reporting was also categorised by geographic location, due to a subsidiary located in Australia. During the prior year however, the shareholding in this subsidiary was substantially reduced, to the point at which it became classified as an associate and is no longer separately reported, therefore is not included in the following tables. As the Group’s only location in now the UK, geographic reporting is no longer necessary. Comparative information has been restated to reflect the new segments. No customer represents more than ten percent of the Group’s revenue. WH Ireland Group plc annual report and accounts 2010 27 Notes to the financial statements continued For the year ended 30 November 2010 5. Segment information continued The following tables represent revenue and profit information for the Group’s business segments. Year ended 30 November 2010 Revenue Segment result Other Income Investment Income Finance income Finance expense Share of profit of associates Loss on discontinued operations, net of tax Profit/(loss) before taxation Taxation Profit/(loss) on continuing operations after taxation Private Wealth Clients Management £’000 1,667 (257) — — — — — — (257) — £’000 8,783 2,263 — — — — — — 2,263 — Capital Secondary Trading Markets £’000 £’000 2,395 2,801 461 367 — — 135 — — — — — — — — — 461 502 — — Head Office £’000 2,734 (3,876) 45 53 55 (90) 226 — (3,587) 351 Group £’000 18,379 (1,042) 45 188 55 (90) 226 — (618) 351 2,263 (257) 502 461 (3,236) (267) Impairment losses on goodwill (note 14) of £74k can be allocated to the Private Clients segment and is included in the segment result above. Year ended 30 November 2009 Revenue Segment result Other Income Investment Income Finance income Finance expense Share of profit of associates Loss on discontinued operations, net of tax Profit/(loss) before taxation Taxation Profit/(loss) on continuing operations after taxation Private Wealth Clients Management £’000 1,263 (1,003) — — 5 — — — (998) — £’000 8,496 1,816 — — — — — — 1,816 — Capital Secondary Trading Markets £’000 £’000 9,637 2,464 2,684 (1,087) — — — 62 — — — — — — — — 2,684 (1,025) — — Head Office £’000 2,758 (4,241) 29 (325) 79 (192) 93 (216) (4,773) 183 Group £’000 24,618 (1,831) 29 (263) 84 (192) 93 (216) (2,296) 183 1,816 (998) (1,025) 2,684 (4,590) (2,113) Impairment losses on goodwill (note 14) of £74k and £162k can be allocated to the Private Clients and Wealth Management segments respectively, and are included in the segment results above. Segment assets and segment liabilities are reviewed by the CODM in a consolidated statement of financial position. Accordingly this information is replicated in the Group Consolidated Statement of Financial Position on page 13. As no measure of assets of liabilities for individual segments is reviewed regularly by the CODM, no disclosure of total assets or liabilities has been made, in accordance with the amendment to paragraph 23 of IFRS 8. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. WH Ireland Group plc annual report and accounts 2010 28 Notes to the financial statements continued For the year ended 30 November 2010 6. Operating loss Group Operating loss is stated after charging/(crediting): Depreciation of property, plant and equipment Amortisation of intangible assets Impairment of goodwill Profit on disposal of property, plant and equipment Foreign exchange differences Operating lease rentals – property Operating lease rentals – vehicles and equipment Employee benefit expense (note 7) Auditors’ remuneration: Audit of these financial statements Amounts payable to the principal auditors and their associates in respect of: – audit of financial statements of subsidiaries pursuant to legislation Amounts payable to the previous auditors and their associates in respect of: – other services Amounts payable to other auditors and their associates in respect of: – audit of financial statements of subsidiaries pursuant to legislation – other services Year ended 30 November 2010 £’000 Year ended 30 November 2009 £’000 328 160 74 (128) (122) 332 30 11,642 24 23 — — — 477 160 514 (171) 30 642 75 21,374 25 75 47 92 9 Amortisation of intangible assets shown above is included in administrative expenses in the consolidated statement of comprehensive income. Included within employee benefit expense above for the prior year, is £428k relating to non-recurring restructuring costs. An additional £296k was incurred in that year in relation to restructuring, which is also considered to be non- recurring. 7. Employee benefit expense Group Wages and salaries Bonuses* Social security costs Other pension costs Shared commission attachés Share options granted to employees Year ended 30 November 2010 £’000 7,247 784 889 321 9,241 2,495 11,736 (94) 11,642 Year ended 30 November 2009 £’000 9,308 3,366 1,572 774 15,020 6,257 21,277 97 21,374 *The carried interest bonus scheme credits of £282k (2009: £13k), included in the bonus figure above, are included in administrative expenses. WH Ireland Group plc annual report and accounts 2010 29 Notes to the financial statements continued For the year ended 30 November 2010 7. Employee benefit expense continued The average number of persons (including Directors) employed during the year was: Corporate, dealing and sales Settlement Administration Salaried staff Shared commission attachés Year ended 30 November 2010 Number of employees 70 23 76 169 22 191 Year ended 30 November 2009 Number of employees 76 29 91 196 53 249 In the prior year 30 of the total salaried members of staff were employed in the Australian subsidiary and 34 of the shared commission attachés. In the current year WHI Australia Pty Limited is held as an associate, thus its employees are no longer included. Shared commission attachés are commission only brokers and therefore do not receive a salary. The total amount paid to Directors in the year, including social security costs was £0.6m (2009: £1.11m). Full details of Directors’ remuneration, including that of the highest paid Director, are disclosed in the Remuneration Report on pages 11 to 13 of these financial statements. 8. Finance income and expense Group Bank interest receivable Loan note interest receivable Finance income Interest payable on bank loans and overdrafts Finance expense 9. Taxation Group Current tax (credit)/expense: United Kingdom corporation tax at 28% (2009: 28%) Tax on discontinued operation (note 10) Adjustments in respect of prior years Deferred tax credit (note 20): Origination and reversal of temporary differences Effect of change in tax rate Adjustments in respect of prior years Total tax credit in the income statement Year ended 30 November 2010 £’000 50 4 54 Year ended 30 November 2009 £’000 104 5 109 90 90 199 199 Year ended 30 November 2010 £’000 Year ended 30 November 2009 £’000 — — (235) (235) (69) 25 (72) (116) (351) — 64 269 333 (515) — (1) (516) (183) WH Ireland Group plc annual report and accounts 2010 30 Notes to the financial statements continued For the year ended 30 November 2010 9. Taxation continued The tax credit for the year and the amount calculated by applying the standard United Kingdom corporation tax rate of 28% (2009: 27.97%) to profit before taxation can be reconciled as follows: Group Loss before taxation Tax expense using the United Kingdom corporation tax rate of 28% (2009: 27.97%) Other expenses not tax deductible Income not chargeable to tax Difference in overseas tax rates Adjustments to current tax in respect of prior years Tax effect of chargeable gains Adjustments to deferred tax in respect of prior years Tax on discontinued operation (note 10) Effect of change in tax rate Total tax credit in the income statement Year ended 30 November 2010 £’000 (618) (173) 233 (205) 76 (235) — (72) — 25 (351) Year ended 30 November 2009 £’000 (2,360) (660) 593 (433) (8) 269 (7) (1) 64 — (183) 10. Discontinued operations On 30 September 2009, the Put-call Option in relation to WH Ireland Australia Pty Limited expired, resulting in a charge to the income statement shown as a loss on discontinued operations. Subsequently on 6 November 2009 a 39.35% stake in this subsidiary was sold, reclassifying it as an associate undertaking. The associate is therefore accounted for using the equity method (meaning its results and balance sheet are no longer consolidated into those of the Group) and has been shown as a discontinued operation in the prior period. The post-tax gain on discontinued operations was determined as follows: Part disposal of stake Consideration received: Cash Deferred consideration Cash disposed of Net assets disposed (other than cash): Property, plant and equipment Intangible assets Trade and other receivables Deferred tax asset Investments Trade and other payables Other financial liabilities Share of associate taken under equity accounting Non controlling interest released Foreign exchange reserve released Gain on part disposal of stake Loss on expiry of Put-call Options Total gain on disposal of discontinued operation The net cash outflow comprises: Cash received Cash disposed of Year ended 30 November 2009 £’000 705 222 927 923 205 199 6,691 772 28 (6,140) (62) (958) 1,658 (529) (639) (1,168) 437 (55) 382 705 (923) (218) WH Ireland Group plc annual report and accounts 2010 31 Notes to the financial statements continued For the year ended 30 November 2010 10. Discontinued operations continued The result of the discontinued operation was as follows: Revenue Administrative expenses Operating loss Other income Investment income Finance income Finance expense Share of profit of associates Loss before tax Tax expense Profit on disposal of associate Loss on discontinued operation, net of tax The cash flow statement includes the following amounts related to the discontinued operation: Operating activities Investing activities Financing activities Net cash from discontinued operations Year ended 30 November 2010 £’000 — — — — Year ended 30 November 2009 £’000 5,077 (5,825) (748) — 68 25 (7) — (662) 64 382 (216) Year ended 30 November 2009 £’000 677 (160) (312) 205 11. Dividends No final dividend is proposed in respect of the year ended 30 November 2010. Dividends have been recognised as set out below: Group Final dividend paid in respect of the year ended 30 November 2009 at nil p per share (2008: nil p) Interim dividend paid in respect of the year ended 30 November 2010 at nil p per share (2009: nil p) Year ended 30 November 2010 £’000 — — — Year ended 30 November 2009 £’000 — — — 12. Earnings per share (EPS) Basic EPS is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares (note 31). Diluted EPS is the basic EPS, adjusted for the effect of the conversion into fully paid shares of the weighted average number of all employee share options outstanding during the year. Options over 527,855 (2009: 813,963) shares are excluded from the EPS calculation as they are antidilutive. Antidilutive options represent options issued where the exercise price is greater than the average market price for the period. WH Ireland Group plc annual report and accounts 2010 32 Notes to the financial statements continued For the year ended 30 November 2010 12. Earnings per share (EPS) continued Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below: Group Weighted average number of shares in issue during the period Effect of share options Earnings attributable to ordinary shareholders Continuing operations Discontinued operations Basic EPS Continuing operations Discontinued operations Diluted EPS Continuing operations Discontinued operations 13. Property plant and equipment Group Cost or valuation At 1 December 2008 Additions Disposals Exchange rate adjustments Disposal of subsidiary At 30 November 2009 Additions Disposals Exchange rate adjustments Disposal of subsidiary At 30 November 2010 Depreciation At 1 December 2008 Disposals Charge for the year Exchange rate adjustments Disposal of subsidiary At 30 November 2009 Disposals Charge for the year Exchange rate adjustments Disposal of subsidiary At 30 November 2010 Net book values At 30 November 2010 At 30 November 2009 At 30 November 2008 Year ended 30 November 2010 000’s 21,281 75 21,356 Year ended 30 November 2009 000’s 21,186 93 21,279 £’000 (267) (267) - (267) (1.25)p -p (1.25)p (1.25)p -p (1.25)p £’000 (2,075) (1,897) (178) (2,075) (8.95)p (0.84)p (9.79)p (8.95)p (0.84)p (9.79)p Freehold property £’000 Motor vehicles £’000 Computers, fixtures and fittings £’000 6,592 — — — — 6,592 2 (250) — — 6,344 191 — 101 — — 292 (11) 98 — — 379 5,965 6,300 6,401 — — — — — — — — — — — — — — — — — — — — — — — — — 2,247 203 (356) 127 (395) 1,826 79 (50) — — 1,855 1,325 (271) 375 75 (191) 1,313 (24) 230 — — 1,519 336 513 922 Total £’000 8,839 203 (356) 127 (395) 8,418 81 (300) — — 8,199 1,516 (271) 476 75 (191) 1,605 (35) 328 — — 1,898 6,301 6,813 7,323 Bank borrowings are secured on freehold property for the value of £2,235,034 (2009: £2,845,142) (note 26). WH Ireland Group plc annual report and accounts 2010 33 Notes to the financial statements continued For the year ended 30 November 2010 13. Property plant and equipment continued Company Cost or valuation At 1 December 2008 Additions At 30 November 2009 Additions At 30 November 2010 Depreciation At 1 December 2008 At 30 November 2009 At 30 November 2010 Net book values At 30 November 2010 At 30 November 2009 At 30 November 2008 14. Goodwill Group Beginning of year Put-call Options Disposal of subsidiary Exchange differences Impairment End of year Computers, fixtures and fittings £’000 1 — 1 — 1 — — — 1 1 1 Total £’000 1 — 1 — 1 — — — 1 1 1 Year ended 30 November 2010 £’000 2,909 — — — (74) 2,835 Year ended 30 November 2009 £’000 3,430 (2) (61) 56 (514) 2,909 Impairment tests for goodwill Goodwill of the Group is allocated to the following CGUs: Stockholm Investments Limited £’000 1,020 (74) 946 WH Ireland (Financial Services) Limited £’000 898 — 898 ARE Business and Professional Limited £’000 242 — 242 Beginning of year Impairment End of year London £’000 178 — 178 WH Ireland Limited Leeds £’000 253 — 253 Manchester £’000 117 — 117 Cardiff £’000 201 — 201 Total £’000 2,909 (74) 2,835 The Group tests bi-annually for impairment. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flows based on financial budgets prepared by management covering a three year period and then extrapolated for the following seven years based on relevant estimated growth rates. This cash flow is then discounted by an appropriate cost of capital (currently 10%) in order to estimate their present value. The key assumptions for the value-in-use calculations are those regarding the discount rate, growth rates and expected changes to revenues and costs in the period. Management has made these assumptions based on past experience and future expectations in the light of anticipated market conditions, combined with the actions taken during the year to streamline the Group’s operations whilst maximising revenue potential. Where the value-in-use exceeds the carrying value of the goodwill asset, it has been concluded that no impairment is necessary. At 30 November 2009, the Group had goodwill of £1,020k allocated to Stockholm Investments Limited. Whilst this CGU still shows strong results and is forecast to make positive future cash flows, the Directors have had to take into consideration the age of the key personnel intrinsically tied to the goodwill. Although succession planning is in place, the Directors have reviewed the longer term forecasts for this CGU and concede that cash flows could be affected and so have recognised an impairment loss of £74k for the year. WH Ireland Group plc annual report and accounts 2010 34 Notes to the financial statements continued For the year ended 30 November 2010 14. Goodwill continued Impairment tests for goodwill continued Sensitivity analysis shows that the revenue growth assumption is a key component of the outcome of the recoverable amount. These are currently set between 1.0% and 3.0% depending on the CGU. The following table shows; the current growth assumption, the amounts by which the percentage would have to fall for the outcome to be affected and the headroom, for the three most sensitive CGUs (other CGUs requiring a fall of between 14.3% and 41.7%): WH Ireland (Financial Services) Limited ARE Business and Professional Limited Leeds 15. Intangible assets Cost At 1 December 2008 Disposal of subsidiary Exchange differences At 30 November 2009 At 30 November 2010 Amortisation At 1 December 2008 Charge for the year Disposal of subsidiary At 30 November 2009 Charge for the year At 30 November 2010 Net book values At 30 November 2010 At 30 November 2009 At 30 November 2008 16. Subsidiaries Company Beginning of year Disposal of subsidiary Put-call Options adjustment Expiry of Put-call Options adjustment End of year Investments in subsidiaries are stated at cost. Current revenue Required fall in revenue % 9.3 6.7 9.3 growth assumption % 1.0 1.0 3.0 Headroom £’000 297 691 1,995 Client relationships £’000 641 — — 641 641 160 160 — 320 160 480 161 321 481 Licences £’000 112 (144) 32 — — 6 — (6) — — — — — 106 Total £’000 753 (144) 32 641 641 166 160 (6) 320 160 480 161 321 587 Year ended 30 November 2010 £’000 2,544 — — — 2,544 Year ended 30 November 2009 £’000 4,590 (1,863) 29 (212) 2,544 WH Ireland Group plc annual report and accounts 2010 35 Notes to the financial statements continued For the year ended 30 November 2010 16. Subsidiaries continued The Company’s subsidiaries, all of which are included in the consolidated financial statements, are presented below: Subsidiary WH Ireland Limited Country of incorporation Principal activity England and Wales Stockbroking, corporate finance and wealth management Class of shares Ordinary Proportion held by Group 100% Proportion held by Company 100% WHI Leasing Limited WH Ireland (Financial Services) Limited Readycount Limited Stockholm Investments Limited WH Ireland (Stockbrokers) Limited ARE Business and Professional Limited SRS Business and Professional Limited WH Ireland Nominees Limited WH Ireland Trustee Limited Fitel Nominees Limited England and Wales England and Wales Leasing Ordinary Dormant Ordinary England and Wales England and Wales Property Ordinary Investment consultancy Ordinary England and Wales Investment company Ordinary 100% 100% 100% 100% 100% England and Wales Dormant Ordinary 100% England and Wales England and Wales England and Wales England and Wales Dormant Ordinary Dormant Ordinary Trustee Ordinary Nominee Ordinary 100% 100% 100% 100% 100% — 100% 100% 100% — — — — — 17. Associates Investments in associates at 30 November 2010 were as follows: JBCM Holdings Limited Dart Capital Limited Country of incorporation England and Wales England and Wales Principal activity Class of shares Holding company Ordinary Investment and Ordinary Proportion held by Group 19.78%* 19.78%* Proportion held by Company 19.78%* — WHI Australia Pty Limited DJ Carmichael Pty Limited Fogbell Nominees Pty Limited Overnight Nominees Pty Limited Carmichael Capital Markets Pty Limited * This investment has been deemed to be an associate as WH Ireland Group plc has a seat on the board of JBCM Holdings Limited and is therefore considered to have significant influence over this company. Australia Australia Australia 37.28% 37.28% 37.28% Dormant Ordinary Dormant Ordinary Australia Australia 37.28% 37.28% 37.28% — — — — financial planning Holding company Ordinary Stockbroking Ordinary Nominee Ordinary On 19 March 2010 WH Ireland Group plc disposed of its Holding in Acceleris plc for £100,000, £25,000 of which was received as loan notes (note 19). On 14 October 2010 a transaction effected by Ultimate Finance Group plc resulted in the shareholding percentage of WH Irel and Group plc being substantially reduced. Th is resulted in the Group effectively losing significant influence over the business and accordingly the holding has been reclassified from an associate to an investment. Group Beginning of year Additions Disposals Share of profit End of year Year ended 30 November 2010 £’000 1,963 — (1,033) 226 1,156 Year ended 30 November 2009 £’000 880 990 — 93 1,963 WH Ireland Group plc annual report and accounts 2010 36 Notes to the financial statements continued For the year ended 30 November 2010 17. Associates continued Summarised financial information in respect of the Group’s associates is set out below: Total assets Total liabilities Total net assets Group’s share of total net assets Revenues Profits Company Beginning of year Additions Disposals End of year 18. Investments Group Available-for-sale investments At 1 December 2008 Additions Fair value gain/(loss) Impairment At 30 November 2009 Additions Fair value gain/(loss) Impairment Disposals At 30 November 2010 Other investments At 1 December 2008 Exchange rate adjustments Additions Fair value (loss)/gain Disposal of subsidiary Disposals At 30 November 2009 Additions Fair value loss Disposals At 30 November 2010 Total investments 30 November 2010 Total investments 30 November 2009 Year ended 30 November 2010 £’000 7,236 (3,235) 4,001 1,320 Year ended 30 November 2010 £’000 11,073 424 Year ended 30 November 2010 £’000 2,250 — (1,305) 945 Year ended 30 November 2009 £’000 55,548 (48,855) 6,693 1,976 Year ended 30 November 2009 £’000 11,220 78 Year ended 30 November 2009 £’000 1,312 938 — 2,250 Quoted £’000 202 1 63 (74) 192 102 33 18 (235) 156 Quoted £’000 539 29 79 (25) (28) (203) 391 935 (18) (587) 721 Unquoted £’000 809 — (8) (229) 572 — (225) — — 347 Warrants £’000 297 — 53 10 — (1) 359 250 (77) (227) 305 Total £’000 1,011 1 55 (303) 764 102 (192) 18 (235) 457 Total £’000 836 29 132 (15) (28) (204) 750 1,185 (95) (814) 1,026 1,483 1,514 WH Ireland Group plc annual report and accounts 2010 37 Notes to the financial statements continued For the year ended 30 November 2010 18. Investments continued Company Available-for-sale investments At 1 December 2008 Fair value loss At 30 November 2009 Fair value gain Disposals At 30 November 2010 Other investments At 1 December 2008 Fair value loss At 30 November 2009 Additions* Fair value loss Disposals At 30 November 2010 Total investments 30 November 2010 Total investments 30 November 2009 Quoted £’000 114 (57) 57 53 (71) 39 Quoted £’000 258 (102) 156 622 (21) (135) 622 Total £’000 114 (57) 57 53 (71) 39 Total £’000 258 (102) 156 622 (21) (135) 622 661 213 * Additions in 2010 represent the investment in Ultimate Finance Group plc, reclassified from associates during the year (see note 17). Available-for-sale investments, for both the Group and the Company, include equity investments other than those equity investments which form part of the carried interest bonus scheme (note 3) and investments in subsidiaries. Available-for-sale investments are measured at fair value with fair value gains and losses recognised directly in equity in the available-for-sale reserve. Other investments, in the main, comprise financial assets designated as fair value through profit or loss, for both Group and Company and include equity investments which form part of the carried interest bonus scheme (note 3). Financial assets designated as ‘fair value through profit or loss’ are measured at fair value with fair value gains and losses recognised directly in the income statement. Warrants are acquired as part of the carried interest bonus scheme (note 3) and designated as fair value through profit or loss. There is no cash consideration associated with the acquisition. Fair value, in the case of quoted investments, represents the bid price at the balance sheet date. In the case of unquoted investments, the fair value is estimated by reference to recent arm’s length transactions. The fair value of warrants is estimated using established valuation models and the fair value of Put-call Options is formula driven. 19. Loan notes receivable Loan notes receivable represent £310,000 Unsecured Convertible Loan Notes 2008–2013 issued on 28 February 2008 by JBCM Holdings Limited (note 17). These loan notes were due to be repaid as follows: 27 February 2011 27 February 2012 27 February 2013 £100,000 £100,000 £110,000 Since the year end these loan notes have been repaid at face value (see note 38). Additions to loan notes receivable in the year, represent £25,000 Unsecured Nil Rate Loan Notes 2020 issued on 19 March 2010 by Acceleris plc (note 17). These loan notes will be repaid as follows: 19 March 2020 £25,000 WH Ireland Group plc annual report and accounts 2010 38 Notes to the financial statements continued For the year ended 30 November 2010 20. Deferred tax assets and liabilities Deferred tax is provided for temporary differences, at the balance sheet date, between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes using a tax rate of 28% (2009: 28%). A deferred tax asset is recognised for all deductible temporary differences and unused tax losses only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and liabilities are attributable to the following: Group Property, plant and equipment Intangible assets Available-for-sale investments Provisions, trade and other payables Losses Company Trade and other payables Movements in deferred tax are shown below: Group Property, plant and equipment Intangible assets Available-for-sale investments Provisions, trade and other payables Losses At 1 December 2008 £’000 Recognised in income statement £’000 (1) (9) (66) 282 306 512 (30) 65 — 98 383 516 Deferred tax assets Deferred tax liabilities 2010 £’000 171 33 — 14 712 930 2009 £’000 62 140 — 191 250 643 2010 £’000 (53) — (21) (310) — (384) 2009 £’000 (108) (84) (81) — — (273) Deferred tax assets Deferred tax liabilities 2010 £’000 14 14 2009 £’000 24 24 2010 £’000 — — 2009 £’000 — — Foreign exchange Part-disposal of subsidiary movement £’000 £’000 Recognised 30 November 2009 £’000 in equity £’000 At Recognised At in income Recognised 30 November 2010 in equity statement £’000 £’000 £’000 — — — — 129 129 (15) — — (189) (568) (772) — — (15) — — (15) (46) 56 (81) 191 250 370 164 (23) — (487) 462 116 Company Trade and other payables Losses 21. Subordinated loan At 1 December 2008 £’000 38 2 40 Recognised in income statement £’000 (14) (2) (16) At 30 November 2009 £’000 24 — 24 Recognised in equity £’000 (10) — (10) Subordinated loan The £750,000 which was owed by WH Ireland Limited was repaid on 19 March 2010 in accordance with the underlying agreement. 30 November 2010 £’000 — 30 November 2009 £’000 — 30 November 2010 £’000 — 30 November 2009 £’000 750 Group Company WH Ireland Group plc annual report and accounts 2010 39 — — 60 — — 60 118 33 (21) (296) 712 546 At 30 November 2010 £’000 14 — 14 Notes to the financial statements continued For the year ended 30 November 2010 22. Trade and other receivables Trade receivables Amounts due from Group companies Other receivables Taxation and social security Prepayments and accrued income Group Company 30 November 2010 £’000 35,549 — 690 — 966 37,205 30 November 2009 £’000 41,312 — 449 — 912 42,673 30 November 2010 £’000 — 4,417 222 10 55 4,704 30 November 2009 £’000 — 4,609 241 — 34 4,884 Trade receivables that relate to market transactions are considered to be past due once the date for settlement has passed. Fees and charges owed by clients are generally considered to be past due where they remain unpaid five working days after the relevant billing date. At 30 November 2010, trade receivables (net of provisions for bad and doubtful debts) comprised the following: Not past due Up to 5 days past due From 6 to 15 days past due From 16 to 30 days past due From 31 to 45 days past due More than 45 days past due Group Company 30 November 2010 £’000 33,964 586 235 270 (59) 553 35,549 30 November 2009 £’000 38,144 1,509 124 218 125 1,192 41,312 30 November 2010 £’000 — — — — — — — 30 November 2009 £’000 — — — — — — — Trade receivables that are not past due, or are past due but not impaired, principally relate to market transactions. The date of settlement of market transactions is set at the time that the relevant sale or purchase order is placed with the market. It is expected that, in the normal course of business, certain transactions may not have completed by the settlement date. For example, a shortage of stock in the market may result in an extended settlement period, in which case the order remains outstanding until the required quantity of stock has become available. Such balances that remain outstanding after the settlement date are classified as past due, as appropriate, in the table above, but the extended settlement period does not have an adverse effect on the credit quality of the balances, particularly as the related cash or stock to which the balances relate are retained by the Group and/or the Company until settlement occurs. The Group has recognised an allowance for doubtful debts of 100% against all receivables over 365 days because historical experience has been that receivables beyond 365 days are not recoverable. Allowances against doubtful debts are recognised against trade receivables between 30 days and 365 days based on estimated irrecoverable amounts determined by reference to past default experience of the counterparty and an analysis of the counterparty’s current financial position. At 30 November 2010, £328k of the Group’s trade receivable balances were impaired and provided for (2009: £1,922k). During the year ended 30 November 2008 the Group suffered a significant bad debt for which a specific provision of £1,057k was made in the accounts. During the year ended 30 November 2009, judgement was obtained against this debtor and the Group received the sale proceeds of two UK properties in the year under review. The debtor has now been declared bankrupt and the Directors are attempting to collect the remainder of the debt with the assistance of the Trustee in Bankruptcy. Given the uncertainty around any further recovery, the debt has been written off and the provision at the balance sheet date in relation to this client has been reduced to £nil (2009:£736k). The maximum exposure to credit risk, before any collateral held as security, is the carrying value of each class of receivable set out above. Collateral held against trade receivables comprises cash or marketable securities to which the Group has an unconditional right to realise for the purposes of clients’ obligations. All such marketable securities must be held in the Group’s nominee, Fitel Nominees Limited, and must be marked to market daily. The Directors consider that the carrying amounts of trade and other receivables approximate their fair value. WH Ireland Group plc annual report and accounts 2010 40 Notes to the financial statements continued For the year ended 30 November 2010 22. Trade and other receivables continued Movements in impairment provisions were as follows: At 1 December Amount released from provision due to recovery Amounts written off, previously fully provided Amount charged to the income statement At 30 November Group Company 30 November 2010 £’000 1,922 (858) (1,116) 380 328 30 November 2009 £’000 2,103 (321) — 140 1,922 30 November 2010 £’000 — — — — — 30 November 2009 £’000 — — — — — The carrying value of trade and other receivable balances are denominated in the following currencies: At 1 December Sterling Australian dollar Other At 30 November 23. Other investments Current asset investment Group 30 November 2010 £’000 30 November 2009 £’000 Company 30 November 2010 £’000 30 November 2009 £’000 28,344 8,072 789 37,205 33,518 8,457 698 42,673 4,704 — — 4,704 4,884 — — 4,884 Group 30 November 2010 £’000 — 30 November 2009 £’000 855 Company 30 November 2010 £’000 — 30 November 2009 £’000 — These represent short-term principal positions taken on behalf of clients as at 30 November and are held at market value. No tax was payable at that value. In the current year the closing position on current asset investments represent a liability to the Group, and as such is carried within other creditors. 24. Cash, cash equivalents and bank overdraft Cash and cash equivalents Bank overdraft Group 30 November 30 November 2009 £’000 4,258 — 4,258 2010 £’000 2,439 — 2,439 Note 26 Company 30 November 2010 £’000 — (827) (827) 30 November 2009 £’000 1 (1,033) (1,032) For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, deposits with banks and financial institutions with a maturity of up to three months and bank overdrafts repayable on demand. Cash and cash equivalents represent the Group’s and the Company’s money and money held for settlement of outstanding transactions. Free money held in trust on behalf of clients is not included in the balance sheet. Free money at 30 November 2010 for the Group was £85,429k (2009: £93,457k). There is no free money held in the Company (2009: £nil). WH Ireland Group plc annual report and accounts 2010 41 Notes to the financial statements continued For the year ended 30 November 2010 25. Trade and other payables Trade payables Amounts due to Group companies Other payables Taxation and social security Accruals and deferred income Group 30 November 30 November 2009 £’000 39,546 — 593 643 3,846 44,628 2010 £’000 33,879 — 748 283 1,585 36,495 Company 30 November 2010 £’000 — 266 38 — 48 352 30 November 2009 £’000 — 414 — — 148 562 The Directors consider that the carrying amounts of trade and other payables approximate their fair value. Accruals and deferred income shown above includes, for the Group, £nil (2009: £45k) and for the Company £nil (2009: £11k) relating to bonuses provided under the carried interest bonus scheme (note 3). Accruals and deferred income included in non-current liabilities includes, for the Group, £nil (2009: £237k) and for the Company £nil (2009: £75k) relating to bonuses provided under the carried interest bonus scheme (note 3). 26. Borrowings Bank overdrafts Bank loans Group Company 30 November 2010 £’000 — 2,235 2,235 30 November 2009 £’000 — 2,845 2,845 30 November 2010 £’000 827 2,235 3,062 30 November 2009 £’000 1,033 2,845 3,878 The Company has a facility with the Bank of Scotland in respect of a £3m property loan repayable over twenty years at 1.25% above base rate and a £1m working capital facility loan repayable over ten years, with a one year capital repayment holiday, at 2.25% above base. The property loan was drawn down on 4 February 2002 and the working capital facility loan was drawn down on 29 May 2002. The Group has an overdraft facility with the Bank of Scotland for £1m at 3.25% above base rate, which is repayable on demand. The Bank holds the shares of WH Ireland Limited in its nominee company for the beneficial interest of WH Ireland Group plc as security and in addition has a floating charge over the assets of the other trading subsidiaries of the Group. The Directors are in the final stages of renewing the bank facilities and have received a draft facility letter from the Group’s bank, confirming sufficient funding facilities will be available to the Group until 29 February 2012. These bank overdrafts and loans, at floating interest rates, expose the Group to interest rate risk which is the risk that future cash flows may be adversely affected as a result of changes in interest rates. The management of interest rate risk is discussed at note 29. Bank loans are repayable as follows: Within one year Within two to five years After five years Group 30 November 30 November 2009 £’000 419 1,540 886 2,845 2010 £’000 305 625 1,305 2,235 Company 30 November 2010 £’000 305 625 1,305 2,235 30 November 2009 £’000 419 1,540 886 2,845 The Directors consider that the carrying amounts of bank overdrafts and loans approximate their fair value. WH Ireland Group plc annual report and accounts 2010 42 Notes to the financial statements continued For the year ended 30 November 2010 27. Liability for Put-call Options Beginning of year Change in fair value of Put-call Options Expiry of options End of year Year ended 30 November 2010 £’000 — — — — Year ended 30 November 2009 £’000 183 29 (212) — As part of the Group’s acquisition of a majority stake in DJ Carmichael Pty Limited there was an option for minority shareholders to put a proportion of their shares to the Group in the period 31 March 2009 to 30 September 2009. The amounts which could be put to the Group under these options varied depending on other purchases of shares made by the Group but at 30 November 2008 represented 12% of the share capital of DJ Carmichael Pty Limited. Additionally, the Group had a Call Option over the full non controlling interest. In combination with the Put Options, the Call Option had the effect of creating a forward purchase agreement over the element of shares covered by the Put Options. The consideration payable under these options was formula driven and at 30 November 2008 amounted to £183k The options expired without exercise on 30 September 2009, resulting in a loss of £55k which was charged to the income statement (note 10). 28. Provisions Group At 1 December 2009 Provided during the year Utilised during the year At 30 November 2010 Provisions included in current liabilities Provisions included in non-current liabilities Provided during the year IFA clawback provision £’000 19 1 — 20 Complaints provision £’000 128 179 (158) 149 Total £’000 147 180 (158) 169 30 November 2010 £’000 149 20 169 30 November 2009 £’000 — 147 147 The IFA clawback provision relates to any policy cancellations and the resultant potential repayment of past independent financial advisory commission earned, relating mainly to products such as pensions and insurance. The complaints provision relates to any complaints which may result in cash outflows falling below the insurance excess of £100k. The expected period of settlement of the outstanding complaints provision is six months from the year end. WH Ireland Group plc annual report and accounts 2010 43 Notes to the financial statements continued For the year ended 30 November 2010 29. Financial instruments Set out below is a summary, by category, of carrying amounts and fair values of all the Group’s financial assets and financial liabilities: Group Financial assets Available-for-sale investments Other investments Loan notes receivable Trade and other receivables Current asset investments Cash and cash equivalents Financial liabilities Borrowings Trade and other payables Bank overdraft Accruals and deferred income Provisions Company Financial assets Available-for-sale investments Other investments Loan notes receivable Subordinated loan Trade and other receivables Cash and cash equivalents Financial liabilities Borrowings Trade and other payables Bank overdraft Accruals and deferred income Carrying amount and fair value 30 November 2010 £’000 30 November 2009 £’000 457 1,026 335 36,239 — 2,439 2,235 36,495 — 98 169 764 750 310 41,761 855 4,258 2,845 44,628 — 297 147 Carrying amount and fair value 30 November 2010 £’000 30 November 2009 £’000 39 622 335 — 4,649 — 2,235 784 827 — 57 156 310 750 4,850 1 2,845 562 1,033 74 The significant methods and assumptions used in estimating fair values of financial instruments are summarised below: Available-for-sale financial assets Available-for-sale financial assets include equity investments, other than those in subsidiary undertakings. In the case of listed investments, the fair value represents the quoted bid price at the balance sheet date. The fair value of unlisted investments is estimated by reference to recent arm’s length transactions. Other investments Other investments include warrants and equity investments categorised as fair value through profit or loss. In the case of listed investments, the fair value represents the quoted bid price at the balance sheet date. The fair value of unlisted investments is estimated by reference to recent arm’s length transactions. In the case of warrants, the fair value is estimated using established valuation models. Loan notes receivable Loan notes receivable are measured at amortised cost using the effective interest method. Their fair value is not materially different to their carrying value. Trade receivables and payables The carrying value less impairment provision off trade receivables and payables is assumed to approximate their fair values due to their short-term nature. Trade and other receivables exclude prepayments and accrued income and accruals and deferred income represent liabilities due for settlement after more than one year. WH Ireland Group plc annual report and accounts 2010 44 Notes to the financial statements continued For the year ended 30 November 2010 29. Financial instruments continued Borrowings Borrowings are measured at amortised cost using the effective interest method. The table below summarises the Group’s main financial instruments by financial asset type: Group Financial assets Available-for-sale investments Other investments Loan notes receivable Trade and other receivables Current asset investment Cash and cash equivalents Financial liabilities Borrowings Trade and other payables Accruals and deferred income Provisions Group Financial assets Available-for-sale investments Other investments Loan notes receivable Trade and other receivables Current asset investment Cash and cash equivalents Financial liabilities Borrowings Trade and other payables Accruals and deferred income Provisions Company Financial assets Available-for-sale investments Other investments Loan notes receivable Subordinated loan Trade and other receivables Cash and cash equivalents Financial liabilities Borrowings Trade and other payables Bank overdraft Accruals and deferred income 30 November 2010 Held at fair value as Amortised available-for-sale assets £’000 cost £’000 Fair value through profit or loss £’000 — — 335 36,239 — 2,439 2,235 36,495 98 169 Amortised cost £’000 — — 310 41,761 — 4,258 2,845 44,628 297 147 457 — — — — — — — — — — 1,026 — — — — — — — — 30 November 2009 Held at fair value as available-for-sale assets £’000 Fair value through profit or loss £’000 764 — — — — — — — — — — 750 — — 855 — — — — — 30 November 2010 Held at fair value as available-for-sale assets £’000 Fair value through profit or loss £’000 Amortised cost £’000 — — 335 — 4,649 — 2,235 784 827 — 39 — — — — — — — — — — 622 — — — — — — — — Total £’000 457 1,026 335 36,239 — 2,439 2,235 36,495 98 169 Total £’000 764 750 310 41,761 855 4,258 2,845 44,628 297 147 Total £’000 39 622 335 — 4,649 — 2,235 784 827 — WH Ireland Group plc annual report and accounts 2010 45 Notes to the financial statements continued For the year ended 30 November 2010 29. Financial instruments continued Company Financial assets Available-for-sale investments Other investments Loan notes receivable Subordinated loan Trade and other receivables Cash and cash equivalents Financial liabilities Borrowings Trade and other payables Bank overdraft Accruals and deferred income 30 November 2009 Held at fair value as available-for-sale assets £’000 Fair value through profit or loss £’000 Amortised cost £’000 — — 310 750 4,850 1 2,845 562 1,033 74 57 — — — — — — — — — — 156 — — — — — — — — Total £’000 57 156 310 750 4,850 1 2,845 562 1,033 74 The main risks arising from the Group’s financial instruments are credit risk, liquidity risk and market risk. Market risk comprises currency risk, interest rate risk and other price risk. The Directors review and agree policies for managing each of these risks which are summarised below: Credit risk Credit risk is the risk that clients or other counterparties to a financial instrument will cause a financial loss by failing to meet their obligations. Credit risk relates, in the main, to the Group’s trading and investment activities and is the risk that third parties fail to pay amounts as they fall due. Formal credit procedures include approval of client limits, approval of material trades, collateral in place for trading clients and chasing of overdue accounts. There are formal rules around traded option business including management of margin. Additionally, risk assessments are performed on banks and custodians. Maximum exposure The maximum exposure to credit risk at the end of the reporting period is equal to the balance sheet figure. Credit Quality Financial assets that are neither past due nor impaired in respect of trade receivables relate mainly to bonds, equity and gilt trades quoted on a recognised exchange, are matched in the market, and are either traded on a cash against documents basis or against a client’s portfolio. The credit risk on liquid funds, cash and cash equivalents is limited due to deposits being held at the Group’s main bank with a credit rating of “-AA”, assigned by international credit rating agencies. There has been no change to the Group’s exposure to credit risk or the manner in which it manages and measures the risk during the period. Liquidity risk Liquidity risk is the risk that obligations associated with financial liabilities will not be met. The Group monitors its risk to a shortage of funds by considering the maturity of both its financial investments and financial assets (for example, trade receivables) and projected cash flows from operations. The Group’s objective is to maintain the continuity of funding through the use of bank overdrafts and loans. At 30 November 2010 the Group had an overdraft facility of £1m (2009: £5.0m), due for renewal on 28 February 2011. The Directors are in the final stages of renewing the bank facilities and have received a draft facility letter from the Group’s bank, confirming sufficient funding facilities will be available to the Group until 28 February 2012. At 30 November 2010 the Company had drawn on £0.8m (2009: £1.0m) of this facility WH Ireland Group plc annual report and accounts 2010 46 Notes to the financial statements continued For the year ended 30 November 2010 29. Financial instruments continued Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to currency risk is largely limited to the operations of its Australian associate and the current policy of the Group is that the level of risk does not necessitate the need to use forward foreign exchange contracts. Based on the average exchange rate for the year it is estimated that an increase in the AUD:GBP exchange rate of 10% would result in an increase in the loss before tax of approximately £4k exchange rate of the same amount would result in a decrease in the loss before tax of approximately £5k. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with floating interest rates and amounts receivable on cash deposits. The Group views such exposure to interest rate fluctuations as immaterial. At 30 November 2010 if bank base rates had been 100 basis points higher, profit for the year would have been approximately £24k (2009: £62k) lower. If bank base rates had been 100 basis points lower, profit for the year would have been higher by the same amount. Other price risk Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk) whether those changes are caused by factors specific to the individual financial instrument or its issuer or factors affecting all similar financial instruments traded in the market. The Group manages market price risk by monitoring the value of its financial instruments on a monthly basis and reporting these to the Directors and Senior Management. The Group has suffered a significant deterioration in the value of its investments during the course of the year. The risk of further deterioration in prices remains high whilst the market continues to be volatile. The risk of future losses is limited to the fair value of investments as at the year end of £1,483k (2009: £1,514k). The table below summarises the maturity profile of the Group’s financial liabilities at 30 November 2010 based on contractual undiscounted payments: Group At 30 November 2010 Trade and other payables Borrowings Other financial liabilities At 30 November 2009 Trade and other payables Borrowings Other financial liabilities Company At 30 November 2010 Trade and other payables Bank overdraft Borrowings Other financial liabilities Payable within 1 year £’000 36,495 305 149 36,949 Payable within 1 year £’000 44,628 419 — 45,047 Payable within 1 year £’000 784 827 305 — 1,916 Payable in 2 to 5 years £’000 — 625 118 743 Payable in 2 to 5 years £’000 — 1,540 444 1,984 Payable in 2 to 5 years £’000 — — 625 — 625 Payable after more than 5 years £’000 — 1,305 — 1,305 Payable after more than 5 years £’000 — 886 — 886 Payable after more than 5 years £’000 — — 1,305 — 1,305 Total contractual payments £’000 36,495 2,235 267 38,997 Total contractual payments £’000 44,628 2,845 444 47,917 Total contractual payments £’000 784 827 2,235 — 3,846 WH Ireland Group plc annual report and accounts 2010 47 Notes to the financial statements continued For the year ended 30 November 2010 29. Financial instruments continued Company At 30 November 2009 Trade and other payables Bank overdraft Borrowings Other financial liabilities Payable within 1 year £’000 562 1,033 419 — 2,014 Payable in 2 to 5 years £’000 — — 1,540 74 1,614 Payable after more than 5 years £’000 — — 886 — 886 Total contractual payments £’000 562 1,033 2,845 74 4,514 Fair value measurement recognised in the statement of financial position The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: Level 1 at fair value measurement are those derived from quoted prices (unadjusted) in active markets for identical assets and liabilities; Level 2 fair value measurements are those derived from inputs other than the quoted price included within Level 1 that are observable for the asset or a liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair values measurements are those derived from formal valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Financial investments available for sale Quoted equities Unquoted equities Financial instruments designated at fair value through profit and loss Quoted equities Other investments Total There were no transfers between Level 1 and 2 during the year Balance at 30 November 2009 Total gains or losses: - In profit or loss - In other comprehensive income Purchases Settlements Balance at 30 November 2010 Level 1 £’000 156 — 99 622 877 Level 2 £’000 — — — — — Level 3 £’000 — 301 — 305 606 Total £’000 156 301 99 927 1,483 Unquoted equities £’000 572 Other investments £’000 359 — (271) — — 301 (77) — 250 (226) 305 The table above only includes financial assets. There were no financial liabilities subsequently measured at fair value on Level 3 fair value measurement basis. Of the total gains or losses for the period included in profit or loss, £72k relates to asset-backed securities held at the balance sheet date. Fair value gains or losses on asset backed securities are included in ‘Fair value gains/(losses) on investments. All gains and losses included in other comprehensive income relate to asset-based securities and unquoted equities held at the balance sheet date, and are reported as ‘Valuation gains/(losses) on available for sale investments’. WH Ireland Group plc annual report and accounts 2010 48 Notes to the financial statements continued For the year ended 30 November 2010 30. Capital management The capital of the Group comprises share capital, share premium, retained earnings and other reserves. The total capital at 30 November 2010 amounted to £13.49m for the Group (2009: £14.11m) and £5.79m for the Company (2009: £6.46m). The primary objective of the Group’s capital management is to ensure that it maintains a strong capital structure in order to support the development of its business, to maximise shareholder value and to provide benefits for its other stakeholders. These objectives are met by managing the level of debt and setting dividends paid to shareholders at a level appropriate to the performance of the business. Certain activities of the Group are regulated by the FSA which is the single statutory regulator for financial services business and has responsibility for policy, monitoring and discipline for the financial services industry as a whole. The FSA requires the Group’s resources to be adequate, that is, sufficient in terms of quantity, quality and availability, in relation to its regulated activities. The Group monitors capital on a daily basis by measuring movements in the Group regulatory capital requirement and through its Internal Capital Adequacy Assessment Process (ICAAP). Compliance with FSA regulatory requirements was maintained during the year and the Group is satisfied that there is and will be sufficient capital to meet these regulatory requirements for the foreseeable future. 31. Treasury shares Group At 1 December and 30 November Year ended 30 November 2010 £’000 287 Year ended 30 November 2009 £’000 287 The WH Ireland EBT was established in October 1998 for the purpose of holding and distributing shares in the Company for the benefit of the employees. All costs of the EBT are borne by WH Ireland Limited. At 30 November 2010 the EBT held 211,822 shares in the Company (2009: 211,822 shares), representing 1% of the called up share capital (2009: 1%). There were no movements in this holding in the year. 32. Non controlling interest Group Beginning of year Share of loss after tax Exchange rate adjustments Expiry of Put-call Options Adjustment on decrease in holding in subsidiary End of year Year ended 30 November 2010 £’000 — — — — — — Year ended 30 November 2009 £’000 220 (38) 80 266 (528) — WH Ireland Group plc annual report and accounts 2010 49 Notes to the financial statements continued For the year ended 30 November 2010 33. Share-based payments The Group has an unapproved executive share option scheme for the granting of non-transferable options to employees. The exercise price of granted options is equal to the mid price at the date of the grant. Options are equity-settled and conditional on the employee completing three years’ service (the vesting period). They are exercisable from the third anniversary of the date of grant and have a contractual option term of ten years. Movements in the number of share options outstanding that were issued post 7 November 2002 (see note 3) and their related weighted average exercise prices are as follows: 2010 2009 Outstanding at beginning of year Lapsed/surrendered Exercised Granted Lapsed Outstanding at end of year Exercisable at end of year options Number of Weighted average exercise price Pence 101.92 107.05 — 36.75 — 45.52 71.20 1,530,000 (1,157,500) — 2,128,000 — 2,500,500 125,000 options Number of Weighted average exercise price Pence 100.56 71.59 — 69.50 — 101.92 71.13 1,580,000 (100,000) — 50,000 — 1,530,000 200,000 The weighted average share price at the date of exercise, of the options exercised during 2009 was 75.50p. These options were issued prior to 7 November 2002 and are therefore not included in the table above. The options outstanding at the year end have an exercise price in the range of 36.75p to 108p (2009: 69.5p to 139p). The assumptions used for the binomial options pricing model in determining the fair value of options in issue were as follows: Expected life Expected dividend yield – – 5 years (2009: 5 years) 0.00 – 5.76% (2009: 3.31–5.76%) The volatility of the Company’s share price was estimated as the standard deviations of daily historical continuously compounded returns over a period commensurate with the expected life of the option, back from the date of grant and annualised by the factor of the square root of 252, assuming 252 trading days per year (2009: 252 trading days). For options granted in 2004, volatilities were calculated back to the date of the Group’s flotation in July 2000. The risk-free rate is the yield to maturity on the date of grant of a UK Gilt Strip, with term to maturity equal to the life of the option. The Group recognised during the year, a total credit of £94k (2009: charge of £97k) relating to share-based payment transactions. 34. Operating lease commitments The future aggregate minimum lease payments under non-cancellable operating leases are as follows: Not later than one year Later than one year and not later than five years Later than five years Group Company 30 November 2010 £’000 250 707 — 957 30 November 2009 £’000 324 893 — 1,217 30 November 2010 £’000 — — — — 30 November 2009 £’000 — — — — Operating lease payments represent rentals payable for office premises and equipment. Leases are negotiated for an average of eight years. The leases do not contain provisions for contingent rental payments, purchase options or escalation charges and do not impose restrictions beyond the property to which they relate. 35. Capital commitments Neither the Group nor the Company had any capital commitments at 30 November 2010 (2009: nil). WH Ireland Group plc annual report and accounts 2010 50 Notes to the financial statements continued For the year ended 30 November 2010 36. Related party transactions Group Transactions between the Company and its subsidiaries, which are related parties, are eliminated on consolidation and are therefore not disclosed here. The following table sets out the transactions which have been entered into during the year together with any amounts outstanding: Associates Key management personnel Other related parties Services rendered to related parties £’000 576 316 1 2 — — Purchases/ services from related parties £’000 — — — — — — Amounts owed by related parties £’000 — 7 — 45 — — Amounts owed to related parties £’000 2 — — 209 — — Related parties 2010 2009 2010 2009 2010 2009 Services rendered to related parties were on the Group’s normal trading terms. Amounts outstanding are unsecured and will be settled in accordance with normal credit terms. No guarantees have been given or received. No provision (2009: £nil) has been made for doubtful receivables in respect of the amounts owed by related parties. Key management personnel Key management personnel include Executive and Non-executive Directors of WH Ireland Group plc and all its subsidiaries and their total compensation is shown below: Short-term employee benefits Post-employment benefits Other long-term benefits Termination benefits Share-based payment Year ended 30 November 2010 £’000 1,545 119 — 60 1 1,725 Year ended 30 November 2009 £’000 2,006 132 — 147 83 2,368 Company The Parent Company receives interest from subsidiaries in the normal course of business. Total interest received during the year was £37k (2009: £65k). In addition, the Parent Company received a management charge of £571k (2009: £2,600k) from its subsidiary WH Ireland Limited. Amounts outstanding at 30 November 2010 and at 30 November 2009 between the Parent Company and subsidiaries are provided in notes 21, 22 and 25. 37. Contingent liabilities The Group has contingent liabilities in respect of indemnities (principally in respect of certified stock transfers and share certificates) given in the ordinary course of business. No material loss is considered likely to arise in respect of these contingent liabilities. 38. Events after the balance sheet date No final dividend was proposed in respect of the year ended 30 November 2010. After the balance sheet date, JBCM Holdings Limited exercised their right to buy-back the Group’s holding of shares in the company and redeemed the loan notes ahead of schedule (see note 19). WH Ireland Group plc annual report and accounts 2010 51