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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Aj Bell Plc | LSE:AJB | London | Ordinary Share | GB00BFZNLB60 | ORD GBP0.000125 |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 385.50 | 383.00 | 384.50 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Investment Advice | 218.23M | 68.22M | 0.1659 | 23.24 | 1.58B |
TIDMAJB
RNS Number : 9500V
AJ Bell PLC
07 December 2023
7 December 2023
AJ Bell plc
Final results for the year ended 30 September 2023
AJ Bell plc ('AJ Bell' or the 'Company'), one of the UK's largest investment platforms, today announces its final results for the year ended 30 September 2023.
Highlights
Financial performance
-- Record financial performance, with revenue up 33% to GBP218.2 million (FY22: GBP163.8 million) and profit before tax (PBT) up 50% to GBP87.7 million (FY22: GBP58.4 million) -- PBT margin of 40.2% (FY22: 35.6%), reflecting an increased revenue margin of 29.8bps (FY22: 22.6bps) together with total cost growth in line with previous guidance -- Diluted earnings per share up 46% to 16.53 pence (FY22: 11.35 pence) -- Final dividend of 7.25 pence per share proposed, increasing the total ordinary dividend for the year by 46% to 10.75 pence per share (FY22: 7.37 pence per share) in line with the Company's stated dividend policy. This is the 19(th) consecutive year of ordinary dividend growth
Platform business
-- Another successful year, with customers increasing by 50,880 to 476,532 and platform net inflows of GBP4.2 billion (FY22: GBP5.8 billion) -- Record assets under administration (AUA) of GBP70.9 billion (FY22: GBP64.1 billion), up 11% driven by the net inflows across the platform and favourable market movements of GBP2.6 billion -- Customer retention rate remained high at 95.2% (FY22: 95.5%) -- Consistently high customer service levels evidenced by AJ Bell's Trustpilot rating of 4.8
AJ Bell Investments
-- Record net inflows in the year of GBP1.65 billion, up 57% versus the prior year (FY22: GBP1.05 billion underlying net inflows) -- Assets under management ("AUM") of GBP4.7 billion, up 68% in the year (FY22: GBP2.8 billion)
Michael Summersgill, Chief Executive Officer at AJ Bell, commented:
"I am pleased to report another year of strong financial performance for the business which has demonstrated our ability to continue to grow in different market conditions. Revenue increased 33% to GBP218.2 million, enabling us to reinvest in our customer proposition and our people, whilst delivering a record profit before tax of GBP87.7 million which supports an increased dividend for shareholders.
"We added over 50,000 customers to the platform in the year, reflecting the quality and value of our propositions, as well as increased investment in our brand. The growth in customers enabled us to deliver over GBP4 billion of net inflows, an excellent result which again highlights the benefit of operating our dual-channel platform.
"As we approach half a million platform customers, we remain focused on providing a great value proposition, with a philosophy of sharing our scale benefits with customers. Having reduced several fees across the platform in 2022, this year we have increased the interest rates paid to customers several times and will soon be increasing them further, with a particular focus on pension drawdown where there is a customer need to hold cash to fund income payments.
"We continue to invest in our customer proposition with a focus on making it easy for people to invest. In the D2C market we have recently added the option to purchase bonds and gilts online in response to increased demand for these investments in the higher interest rate environment. Our free pension finding service has proved popular with customers trying to track down and consolidate lost pension pots and next year we will be expanding this into a low-cost pension consolidation service. This will enable people to find and automatically consolidate their existing pensions into one simple pension with ready-made investment options and a single annual charge of between 0.45% and 0.60%.
"In the advised market we continue to invest in new functionality to help advisers manage their client portfolios. A focus this year has been supporting advisers with the implementation of the Consumer Duty and next year we will roll out a new client onboarding process which will streamline the new business process for advisers. We have recently added a money market portfolio to our MPS range to provide another investment option for advisers and their clients in the current interest environment.
"Maintaining a strong culture and motivated workforce is essential to facilitating our continued business growth. We made several enhancements to our pay and benefits package in the year, including a new free share award scheme for all employees which encourages our staff to think and act like business owners. The success of our business is down to the quality of work and commitment of our people, and I would like to thank them for their outstanding contribution during the year.
"The strong financial performance of the business has led the Board to propose a final ordinary dividend of 7.25 pence per share, increasing the ordinary dividend for the year by 46% to 10.75 pence per share. This extends our record of ordinary dividend increases to 19 years.
"Our dual-channel platform has continued to perform strongly against the current backdrop of elevated inflation and interest rates, demonstrating our resilience through the economic cycle. Whilst the current challenging environment is likely to persist in the short term, I am confident that our long-term focus and continued investment in the business positions us well to take advantage of the structural growth opportunity for the platform market."
Financial highlights
Year ended Year ended 30 September 30 September 2023 2022 Change Revenue GBP218.2 million GBP163.8 million 33% ----------------- ----------------- -------- Revenue per GBPAUA* 29.8bps 22.6bps 7.2bps ----------------- ----------------- -------- PBT GBP87.7 million GBP58.4 million 50% ----------------- ----------------- -------- PBT margin 40.2% 35.6% 4.6ppts ----------------- ----------------- -------- Diluted earnings per share 16.53 pence 11.35 pence 46% ----------------- ----------------- -------- Total ordinary dividend per share 10.75 pence 7.37 pence 46% ----------------- ----------------- --------
Non-financial highlights
Year ended Year ended 30 September 30 September 2023 2022 Change Number of retail customers 491,402 440,589 12% ---------------- ---------------- ---------- - Platform 476,532 425,652 12% ---------------- ---------------- ---------- - Non-platform 14,870 14,937 - ---------------- ---------------- ---------- AUA* GBP76.1 billion GBP69.2 billion 10% ---------------- ---------------- ---------- - Platform GBP70.9 billion GBP64.1 billion 11% ---------------- ---------------- ---------- - Non-platform GBP5.2 billion GBP5.1 billion 2% ---------------- ---------------- ---------- AUM* GBP4.7 billion GBP2.8 billion 68% ---------------- ---------------- ---------- Customer retention rate 95.2% 95.5% (0.3ppts) ---------------- ---------------- ----------
*see definitions
Contacts:
AJ Bell
Shaun Yates, Investor Relations -- Director +44 (0) 7522 235 898 -- Mike Glenister, Head of PR +44 (0) 7719 554 575
Results presentation details
A pre-recorded video with Michael Summersgill (CEO) and Peter Birch (CFO) discussing these results will be available on our website ( ajbell.co.uk/investor-relations ) along with an accompanying investor presentation from 07.00 GMT today. Management will be hosting a meeting for sell-side analysts at 09:30 GMT today. Attendance is by invitation only.
Management will also be hosting a group call for investors at 15.00 GMT today. Please contact Camilla Crowe at c.crowe@dbnumis.com for registration details.
Forward-looking statements
The full year results contain forward-looking statements that involve substantial risks and uncertainties, and actual results and developments may differ materially from those expressed or implied by these statements. These forward-looking statements are statements regarding AJ Bell's intentions, beliefs or current expectations concerning, among other things, its results of operations, financial condition, prospects, growth, strategies, and the industry in which it operates. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These forward-looking statements speak only as of the date of these full year results and AJ Bell does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of these results.
Chair's statement
Dear shareholder
"AJ Bell is a great business with a justifiable reputation for innovation, customer focus and a commitment to delivering real value to customers and advisers."
I am delighted to present my first Annual Report as your new Chair.
Since my appointment on 1 May 2023, I have spent time getting to know many people across the business, as well as having the pleasure of engaging with some of our shareholders and other key stakeholders, discussing both AJ Bell's business and the wider platform market. It has been a really interesting and informative period since joining, which has reaffirmed my initial very favourable impression of the people and the business. I am very excited to lead the Board and support the executive team in the goals we have set ourselves.
I am pleased to report that we have delivered a strong financial performance during the year with PBT of GBP87.7 million. Over the past 12 months customer numbers increased by 50,813 to 491,402 and we delivered GBP4.1 billion of net inflows, ending the year with total AUA of GBP76.1 billion. This strong performance demonstrates the resilience of our business model during a challenging year and continued uncertainties around the UK economy. The Financial review contains further information on this year's performance.
As the uncertainties in the wider economy continued into 2023, it created further challenges for our customers, our people and our wider stakeholders. As a Board we were particularly mindful of this and so our focus remained on the wellbeing of our staff, while maintaining a high-quality, value-for-money service to our customers and delivering positive outcomes for all our stakeholders.
Our governance structure and cohesive culture provide a solid framework for achieving our long-term strategic goals. The Board remains focused on delivering AJ Bell's purpose; to help people invest.
Culture, purpose and stakeholder engagement
The Board plays a vital role in shaping and embedding a strong and healthy culture through promoting the core values and principles of the Group and this continued to be a focus throughout the year. We welcomed the opportunity to engage with our staff and shareholders in person again this year, providing invaluable insight into the operation and culture of our business. I was delighted to be appointed as the nominated Employee Engagement Director in May, which has given me an opportunity to refresh the Employee Voice Forum (EVF).
During the year we also reviewed the AJ Bell Way and our guiding principles; challenging ourselves on their continued alignment with our purpose and culture following significant growth of the business. It was encouraging to see the level of engagement from our people and our customers and advisers, affirming how well our core values resonate with our key stakeholders. Whilst the key elements of our guiding principles remain relevant, some refinements have been made to simplify them and reflect the feedback received to ensure they continue to be embraced by our people on a day-to-day basis.
Consideration of our wider stakeholders in some of our key decisions in the year are outlined in our Section 172 statement.
We recognise the importance of an engaged workforce and it was pleasing to see that this year's staff survey showed positive progress with an overall response rate of 87%. Our people are at the heart of our continued growth and success and so how we motivate, reward and support them is a key priority for the Board. The introduction of the new free share award scheme for all employees has been very well received and we expect the level of share ownership to increase further for the coming year. Our pay and benefits package introduced at the start of FY23 has also seen further enhancements to base pay and pension contributions for the coming year.
We have made good progress embedding our Diversity and Inclusion framework. As reported last year our primary focus was on the senior management and talent pipeline where I am pleased to see we have already made positive steps on the recruitment at executive level. The Board will continue to monitor and challenge progress on our initiatives for the wider workforce where we expect to see further improvements in the coming year.
Further details on our ESG-related activities can be found in our Responsible Business section.
Board changes and succession
On 1 May 2023 I succeeded Baroness Helena Morrissey as Chair. On behalf of the Board, I would like to thank Helena for her significant contribution to AJ Bell as Chair and look forward to her continued involvement through her consultancy role where we are benefiting from her passion and commitment to diversity and inclusion.
As previously announced when Andy Bell stepped down from the Board in September 2022, it was agreed that he would have the right to nominate a Non-Executive Director to represent his interests on the Board whilst a significant shareholder. This agreement was formalised in July 2023 when we announced that Les Platts would join the Board as Andy's Representative Director. I would like to take this opportunity to formally welcome Les to the Board and very much look forward to working with him. Les' in-depth knowledge of the financial services sector and AJ Bell in particular, will further enhance the experience on the Board and help us drive the future growth of the Company.
During the year we resumed our search for two new independent Non-Executive Directors (NED), the first being a replacement for Simon Turner who has completed nine years' service and will step down from the Board once a successful handover is complete. The Board is extremely mindful of the importance of having a diverse range of skills, experience and perspective around the Board table and so this was at the forefront of our minds throughout the recruitment process. I am pleased to report that since the year end we have appointed Fiona Fry as an independent Non-Executive Director with effect from 7 December 2023. Fiona will succeed Simon Turner, as Chair of the Risk & Compliance Committee, subject to regulatory approval. Fiona is a highly experienced risk professional, having spent the majority of her career at KPMG where, as a partner she focused on financial services regulation. Fiona sat on the UK Board of KPMG for six years. She was previously Head of investigations at the Financial Services Authority (now the FCA). Fiona is currently Chair of the Risk Committee at Aviva Insurance Limited.
Our commitment to addressing both the Parker Review recommendations and the FCA diversity requirements remains a key consideration as we continue our search for a further independent NED to join the Board in the coming year. Whilst we are pleased with our progress, we acknowledge there is still more to be done to continue to drive greater diversity at both Board and executive level.
Further details on Board changes can be found in the Nomination Committee report.
Dividend
In line with our commitment to a progressive dividend, the Board is pleased to announce a final ordinary dividend of 7.25p per share, reflecting the financial strength of the business and strong capital position. The final ordinary dividend will be paid, subject to shareholder approval, at our AGM on 30 January 2024, to shareholders on the register at the close of business on 12 January 2024.
This brings the total ordinary dividend for the financial year to 10.75p per share, representing an increase of 46% on the previous year.
Looking ahead
I have really enjoyed my first seven months as AJ Bell's Chair. First impressions are of a committed, strong management team, collaborative Board and strong performance despite the wider economic backdrop. I truly believe this is a great business and I can see the growth potential. Our dual-channel business model is a real strength in the investment platform market and with a focus on ease of use and value for money, AJ Bell is well-positioned to continue to attract new customers and assets to the platform and further increase our market share.
I am very grateful to the Board and all those in the business who have helped me over the first few months as part of my induction and I am very much looking forward to continuing to work with them over the coming years.
AJ Bell is a financially strong business as evidenced by a profitable, well-capitalised and highly cash-generative business model, and the Board remains confident in the long-term prospects of the business. Whilst the macroeconomic environment remains challenging in the short term, it is clear that the fundamental growth drivers for the platform market remain firmly in place and I look forward to working with Michael, the executive team and the Board to ensure the business takes advantage of the growth opportunities that lie ahead.
Fiona Clutterbuck
Chair
6 December 2023
Board Priorities Performance and resilience: I am very proud of the strong performance that the business has delivered in 2023. However, I am acutely aware of the need to continue growing the business, whilst at the same time managing our cost base against a backdrop of significant macroeconomic uncertainty. These are two key priorities in the coming year. I am also keen that we continue to embrace the entrepreneurial culture which was so much a hallmark of the business under Andy Bell's leadership. Performance such as that which the business has demonstrated this year is only achievable if the business is resilient; technology plays a very important role in embedding this resilience so this too will be a focus for FY24. Culture: AJ Bell has always justifiably prided itself on a strong cohesive culture. In my first few months as Chair I have had the opportunity to experience this first hand. Interactions with my colleagues across the business have confirmed an open and transparent culture that permeates throughout the whole organisation. Our role as a Board is to monitor how we nurture this culture and ensure it remains a real strength
as we continue to grow. One of the most important facets of the AJ Bell purpose-led culture has been its extraordinary focus on doing the right thing for its customers. We place good customer outcomes at the heart of everything we do, with good value products, simple communications and strong processes to support our customers. The initial implementation of the Consumer Duty has been a key area of focus for the Board and the business as a whole during the year, with Simon Turner, our Chair of the Risk & Compliance Committee being appointed as our designated Non-Executive Director Consumer Duty Champion. Although we believe our culture is aligned with the requirements of Consumer Duty, we are by no means complacent and the Board's focus during FY24 will be on maintaining oversight to ensure the business is delivering good outcomes for its customers which are consistent with the Duty. Succession planning: The Board remains focused on maintaining good corporate governance and ensuring these principles are embedded into our culture. I strongly believe that diversity in all its forms leads to more productive and balanced Board discussions, and maintaining a diverse and inclusive Board is a key priority. This includes meeting our targets for gender and ethnic diversity, whilst at the same time ensuring that all Board appointments are made on merit. As I have already mentioned, we are well progressed in our search for two new independent NEDs. It will be important to ensure that our new NEDs receive an appropriate induction, matched to their skills and experience, together with the right level of support from the Board in their first year. We will also be focusing on putting in place succession planning for the Committee Chair roles.
Chief Executive Officer's review
Overview
"We are in a great position to maintain our growth momentum and capitalise on the significant long-term opportunities in our market by providing investors with an easy-to-use, low-cost platform, supported by excellent customer service."
We are pleased to report another strong set of results for 2023, delivering organic growth in customer numbers, AUA and AUM, across both the advised and D2C market segments. This growth, alongside a record financial performance, demonstrates the strength of our dual-channel platform and diversified revenue model to deliver in different market conditions.
In the five years since our IPO in December 2018 we have delivered the significant growth that was expected, increasing our share of the fast-growing platform market each year, whilst also paying an increasing ordinary dividend to shareholders. Our focus on providing great value through our high-quality products has led to nearly half a million platform customers now trusting us with their investments.
The investment platform market continues to grow. Whilst we are winning new business from our competitors within the platform market, crucially we are still growing the platform market by attracting assets held off-platform in legacy products, as investors seek the flexibility and control that platforms offer. This growth is set to continue with approximately two-thirds of the estimated GBP3 trillion addressable market currently held off-platform. Our dual-channel model, serving both the advised and D2C segments of the market, enables us to capture assets across the whole addressable market, whilst the benefits of our scale, coupled with our efficient operating model, enable us to keep costs low for customers and invest in our platform with a focus on ease of use. Together with our market-leading customer service levels, these factors have been key to our success to date and ensure we are positioned at the forefront of the platform market to capitalise on the significant long-term growth opportunities.
The current macroeconomic environment has presented challenges for investors and advisers, with high inflation leading to higher interest rates. These conditions have impacted consumer confidence and led to stronger demand for cash savings products. We expect these conditions to persist in the short term, however the versatility of our open-architecture platform enables us to continue to grow across a range of market conditions, as demonstrated in recent years. Our platform provides customers with the flexibility to choose from a broad range of investment options, enabling them to respond to changing market dynamics. In the higher interest rate environment, we have seen increased demand for government bonds and money market funds. Separately, our Cash savings hub has provided a convenient option for customers seeking higher returns on their cash savings.
Strong performance
Our platform delivered growth of over 50,000 customers in the year, increasing total platform customers by 12% to 476,532 (FY22: 425,652). Our low-cost products position us well at a time when customers are increasingly looking for value. Demand has been strong from D2C customers, supported by the investments in our brand and improved mobile app functionality. We maintained our excellent service levels throughout this period, as evidenced by our high customer retention rate of 95.2% (FY22: 95.5%).
The strength of our open-architecture platform, offering customers a wide range of investment options, was demonstrated as we delivered over GBP4 billion of net inflows. This contributed to an 11% increase in platform AUA which ended the year at GBP70.9 billion (FY22: GBP64.1 billion). Our investments business achieved another year of significant growth, with total AUM increasing by 68% to GBP4.7 billion (FY22: GBP2.8 billion). The strong demand has been fuelled by our excellent long-term investment performance, with all six of our multi-asset growth funds being placed in the top quartile of returns when compared to their Investment Association peers over the last five years.
Our diversified revenue model has enabled us to deliver a record financial performance whilst also investing in long-term initiatives to support future growth. Revenue increased by 33% to GBP218.2 million (FY22: GBP163.8 million), largely driven by growth in platform AUA and higher rates of interest generated on cash balances held on the platform.
We have been mindful of the need to share the benefits of higher revenue margins across all our stakeholders. For customers we have kept our prices low, paid a competitive interest rate on their cash balances and invested in our propositions; for our people we have improved our pay and benefits package in response to the rising cost of living; and for our shareholders our investments in brand and propositions position us to continue to increase our market share, whilst once again increasing our ordinary dividend.
Investing for long-term growth
We continue to innovate and invest in our products with a focus on ease of use.
A significant proportion of our addressable market sits in legacy pension products. Most adults have several employers during their career, and subsequently accumulate a number of different pension pots which can be inefficient to manage separately. Our free pension finding service, which is now live for new and existing customers, has proved popular with customers trying to track down and consolidate pension pots. In FY24, we will launch our new ready-made pension product that consolidates a customer's pension into a simple product, offering an investment range of four AJ Bell growth funds with a transparent all-in charging structure starting from 45bps. The streamlined nature of this product will reduce barriers for customers who are less confident in managing their own investments and provides an enhanced journey for new customers opening a pension with us in the future.
Our product philosophy of utilising our scale to keep charges low for our customers ensures we continue to provide excellent value for money. We reduced a number of charges across our full-service propositions in the second half of FY22 and are committed to continually reviewing our customer charges as we grow.
Trust and brand awareness are key drivers of a new customer's decision when choosing an investment platform.
We have built a brand which is highly trusted by our customers, and this year, we commenced our multi-year strategy to enhance brand awareness and to continue increasing our share of the growing platform market. This strategy was kick-started with our 'feel good, investing' multi-channel advertising campaign, alongside our new five-year partnership as the title sponsor of the Great Run Series.
Q&A with Michael Summersgill
It has now been five years since AJ Bell's IPO. How do you reflect on this time?
We have achieved significant organic growth in customers and AUA, in line with the strategy set out to investors at the time of the IPO. Over this period, platform AUA has increased by 84% to GBP70.9 billion and platform customers have risen by 160% to 476,532. This growth has been organic and hasn't required shareholder capital, in fact we have paid GBP147.5 million in dividends since the IPO.
Key to this growth has been investing in our platform propositions whilst consistently delivering excellent service to our customers, as reflected by our recognition as the Which? Recommended Investment Platform provider for five consecutive years and our market-leading Trustpilot score of 4.8-stars.
This service would not be possible without the dedication of our people. Culture and employee engagement have always been key strengths of the business, and we have maintained this as we continued to grow, achieving a 3-star accreditation in the Best Companies to Work For survey every year since we listed.
Looking ahead to the next five years, I am confident we will deliver on the significant growth opportunities our market continues to present.
How will your platform products drive growth?
I expect AJ Bell and Investcentre, our well-established full-service platform propositions, to continue to be the core drivers of growth. Alongside this, our new simplified products represent a key area of our growth strategy. Dodl, our simplified D2C platform proposition, is aimed at less-experienced investors. Given the success we have seen on our D2C brand work in 2023, we have decided to revitalise Dodl in FY24, so that it is brought much closer to our core AJ Bell branding and delivers an optimised marketing approach. We are confident in the high-quality customer outcomes the product delivers and this change will help to maximise future growth.
We continue to develop Touch, our simplified advised product. This will expand our offering for advisers, helping them to cater for clients looking for a digital service model. We completed a closed beta launch in the year and plan to deliver the initial proposition to market during 2024.
How will you maintain a strong culture?
Maintaining a strong, purpose-led culture is key for me. Our guiding principles are an important tool in fostering the right culture, having been first established around 10 years ago. We have revisited them this year to ensure they continue to reflect who we are as a business. This involved stakeholder engagement which highlighted how deep-rooted our guiding principles are. We have made some changes which are a refinement of the existing framework that has served us well, rather than a fundamental change. These refreshed guiding principles have been embraced by our people who continue to apply them in their roles each day.
Employee share ownership is ingrained in our culture, ensuring staff share in the success of the business. The introduction of our annual all-employee free share scheme will facilitate a continuation of this culture, with the first awards having been made in January 2023.
Business update
Advised
Advised customers Advised AUA 159,256 GBP48.2 billion +10% +8%
Our advised business has performed resiliently during a challenging period for the market, delivering a 13,885 increase in customer numbers and GBP3.4 billion increase in AUA. This increase was driven by net AUA inflows of GBP1.9 billion (FY22: GBP3.3 billion) and GBP1.5 billion of favourable market movements (FY22: GBP4.3 billion of adverse market movements). Net AUA inflows were 42% lower than prior year as a result of a moderation in transfer activity as advisers and their clients exercised more caution in the face of ongoing uncertainty in the macroeconomic environment.
We have continued to develop our full-service advised proposition, Investcentre, with a focus on ease of use. This included new dealing functionality which allows advisers to make one-off investments using their customers' model portfolio asset allocation, helping to avoid any unnecessary friction when adding money to portfolios. We have also made significant progress on enhancements to the onboarding journey, due to be rolled out in the first half of FY24, delivering an improved interface mapped to the advice process which streamlines the new business process for advisers.
In the higher interest environment a number of customers are looking for cash-like returns, whilst maintaining the benefits of remaining in their existing tax wrappers and having the flexibility to easily invest in other assets again at a time of their choosing. To support advisers in servicing those customers, we launched the AJ Bell Investments Money Market MPS in November. This product is at a market-leading low-price with no management fees and an ongoing charges figure (OCF) of just 10bps.
We engage with advisers through a range of events and technical support every year. We continued our 'on and off the road' seminars, and hosted our flagship Investival conference in November, which was attended by over 400 financial professionals. This regular communication with advisers allows us to forge strong relationships and earn their trust as a platform provider.
D2C
D2C customers D2C AUA 317,276 GBP22.7 billion +13% +18%
Our D2C business has delivered a strong performance, with a 36,995 increase in customer numbers and a GBP3.4 billion increase in AUA. This increase was driven by net inflows of GBP2.3 billion (FY22: GBP2.5 billion), with over 95% of these net inflows into tax-wrappers and dealing accounts, and GBP1.1 billion of favourable market movements (FY22: GBP2.7 billion of adverse market movements).
At the start of the financial year we retired the Youinvest sub-brand, renaming our full-service D2C platform as AJ Bell. This change has helped to drive the strong growth in the year by simplifying the journey for new customers, and improving the effectiveness of our direct marketing activity.
We have continued to focus on making the customer journey easier and have rolled out multiple enhancements to the AJ Bell platform. In November, we introduced the ability to purchase a select list of gilts online in response to increased demand for those instruments in the higher interest rate environment. We also delivered our pension finding service for new and existing customers.
Following the increases in the UK base rate throughout the year, we raised the rates we pay to customers on cash held on the platform. Early in 2024, we will be introducing a higher interest rate on cash held in SIPP drawdown, reflecting the fact that these customers often hold more of their portfolio in cash to fund their short-to-medium term retirement plans, as well as higher rates for SIPP and ISA customers with large cash balances.
We provide high-quality investment content for our D2C customers, covering the latest market trends. In May, we made our weekly Shares magazine free for all D2C customers, and our weekly Money & Markets and Money Matters podcasts provide further market information and expert analysis to support our customers in navigating their investment decisions.
Investments
AUM GBP4.7 billion +68%
Our investments business offers a range of simple, transparent investment solutions at a low cost. In a market where many asset managers are suffering persistent net outflows, the strong performance and low-cost nature of our multi-asset investment solutions continue to attract new assets in both the advised and D2C markets.
The growth has been particularly strong from advised and external platform customers who value the long-term track record of performance our investments have delivered.
Customer services and technology
We provide a high-quality service to our customers, with over 95% of customer calls in the year answered within 20 seconds. This excellent service is reflected in our 4.8-star Trustpilot score, as rated by our D2C customers, and our 95.2% platform customer retention rate.
We continue to invest in our technology to deliver a great customer experience. Our secure and scalable platform has been designed to facilitate growth and drive operational gearing, utilising a hybrid technology model which allows us to build adaptable, easy-to-use interfaces. During the year, we have continued to invest in the resilience of our platform through further investment in our cyber security and disaster recovery capabilities. In addition, we have increased the resource in the change teams in order to improve the speed at which we deliver further enhancements to our platform propositions.
We recognise the significant opportunities that artificial intelligence presents for us to increase our efficiency as a business as well as the risks it presents for customer security. In June, we dedicated engineering and business resources to execute an artificial intelligence hackathon, building several innovative proofs of concept. The output of this process was very encouraging, with lots of initiatives discussed and many ideas generated which we will consider adopting in the future. We will embrace artificial intelligence, with the focus initially on internal, non-customer-facing operations, as part of our efforts to continually improve operational efficiency.
People and culture
As our business continues to grow, it is important that we maintain a strong culture, along with our high levels of staff engagement and wellbeing. It is therefore pleasing to have once again achieved a 3-star accreditation in the 'Best Companies to Work For', and to be recognised as one of the top 20 large companies to work for in the UK.
At the start of FY23 we introduced several enhancements to our pay and benefits package, representing an increase in staff costs of over 10%, including our new free share award scheme for all employees. We remained mindful of the impact of the continuing cost-of-living pressures on our people when considering employee benefits for the forthcoming year. A number of additional enhancements to our pay and benefits package were made, including an average increase in base pay of 5.8% and a further uplift in pension contributions.
As part of our review of the AJ Bell Way, we have refreshed some of our guiding principles and relaunched these to staff across the business, further details of which can be found in our Responsible Employer section.
Our apprenticeship programmes continue to be a huge success, with this year's intake of 34 new digital and investment apprentices being the largest cohort since it was launched in 2017. We were also pleased to have been recognised as the 'Large Employer of the Year' at the North West Apprenticeship Awards. In addition, our commitment to developing our internal talent pipeline was recognised with an 'Outstanding' Ofsted rating following their inspection of our Talent Development Programme which upskills and develops our Team Leaders and Managers through apprenticeships.
We launched the AJ Bell Futures Foundation at the start of the year to develop long-term partnerships with our local communities. It has been great to see staff participating in volunteering activities with both of our partner charities, Smart Works and IntoUniversity, as well as taking up the chance to nominate local charities for donations. Further information on the work of the Foundation can be found in our Responsible Business report.
Regulatory developments
There are a number of ongoing regulatory developments that will impact customers in our market and we continue to engage proactively with Government and regulators on their behalf.
We were well prepared for the implementation of the new Consumer Duty which came into force at the end of July. We are supportive of this development and believe it will be positive for consumers, with an increased focus on value for money and ensuring good customer outcomes. It is disappointing the new Duty does not yet apply to legacy schemes, as the FCA has recently stated savers in older schemes may be at greatest risk of poor value for money.
We are continuing to work with the Government and the FCA on their review of the boundary between advice and guidance, and their exploration of new ways to offer support and guidance to consumers. We believe any new rules should be applicable to new and existing D2C customers and enable firms to deliver solutions that meet the needs of their customer cohorts. An overly prescriptive approach would stifle innovation and risk poor customer outcomes.
ISAs should be a simple, easy-to-use tax-efficient savings vehicle but we now have six variations of ISAs, all aiming to cater for slightly different customer needs, with complicated rules. We have been campaigning for the Government to simplify ISAs by creating a single ISA solution that is easy for consumers to understand and will encourage them to invest more. Whilst some relaxations were announced in the Autumn Statement such as allowing people to subscribe to more than one of the same type of ISA each year, we think this was a missed opportunity to launch a wider consultation with the aim of simplifying ISAs and helping people to invest. Whilst significant change may take some time to achieve, our proposals have been received well both by government and the industry, so we will continue to campaign for further change in this area.
Executive Committee changes
Bruce Robinson stepped down from his role as Company Secretary and Group Legal Services Director, and as a member of the Executive Committee, at the end of September 2023. I would like to thank Bruce for his exceptional service over the last 11 years at AJ Bell and look forward to continuing to work with him in his new role as an Executive Consultant.
Following this, I am pleased to report the internal promotion of Kina Sinclair to the role of Group Legal Services Director and as a member of the Executive Committee with effect from 1 October 2023. Kina joined AJ Bell in July 2018 and brings extensive knowledge of the business alongside her broad commercial law expertise.
As part of the succession plan for Bruce, we have separated the Company Secretary role and are pleased to announce the appointment of Olubunmi Likinyo as Company Secretary with effect from 1 October 2023.
Following the year end Kevin Doran, Managing Director of D2C and Investments, informed the business of his decision to leave. He will therefore be departing AJ Bell in the new year. Kevin has helped us to build a terrific investment business and I would particularly like to thank him for his work in this part of the business. I am pleased to announce that Charlie Musson, our Chief Communications Officer, has taken over as Acting Managing Director D2C. Having worked with Charlie for many years, I look forward to working with him in his new role as we continue to drive our D2C platform propositions forward.
Outlook
Investment platforms play a hugely important role in helping individuals to take control of their long-term investments. At AJ Bell, we operate a scalable platform that provides a high-quality, trusted service to our customers. Our continued investment in our advised and D2C platform propositions means we are well equipped and ready to serve both existing platform customers and new customers seeking to invest in the future.
In the short term, the macroeconomic environment will continue to present some headwinds. However, as we have seen this year, our versatile platform offering enables us to continue delivering robust growth in these conditions and the long-term structural drivers of growth in the UK platform market remain strong. Our aim remains to continue increasing our share of the platform market, which for many years has grown quicker than the broader financial services sector.
Our diversified revenue model means we are well placed to succeed in different macroeconomic conditions. Our philosophy remains to continually re-invest the benefits of our scale to drive long-term growth, ensuring that we offer a great value proposition to customers whilst investing in our brand, technology and people at the levels required to deliver on our long-term growth ambitions.
As a final point, I would like to thank all of our staff; without their ongoing commitment and quality of work our continued success would not be possible.
Michael Summersgill
Chief Executive Officer
6 December 2023
Financial review
"The advantages of our dual-channel model and diversified revenue streams enabled us to deliver a record financial performance in the year."
Overview
Our dual-channel platform achieved robust net inflows of GBP4.2 billion (FY22: GBP5.8 billion) and customer growth of 12% (FY22: 16%) in a challenging external environment. Our ability to continue to grow in these circumstances is testament to the quality of our platform propositions.
Our diversified revenue model enabled us to deliver a strong financial performance, with revenue increasing by 33% to GBP218.2 million (FY22: GBP163.8 million) and PBT up 50% to GBP87.7 million (FY22: GBP58.4 million), whilst investing in our people, propositions and brand to ensure we are well placed to achieve future growth.
Business performance
Customers
Customer numbers increased by 50,813 during the year to a total of 491,402 (FY22: 440,589). This growth has been driven by our platform propositions, with our advised customers up by 10% and our D2C customers increasing by 13%.
Our platform customer retention rate remained high at 95.2% (FY22: 95.5%).
Year ended Year ended 30 September 30 September 2023 2022 No. No. ================== ============== ============== Advised platform 159,256 145,371 D2C platform 317,276 280,281 ===================== ============== ============== Total platform 476,532 425,652 Non-platform 14,870 14,937 ===================== ============== ============== Total 491,402 440,589 --------------------- -------------- --------------
Assets under administration
Year ended 30 September 2023
Advised Total platform D2C platform platform Non-platform Total GBPbn GBPbn GBPbn GBPbn GBPbn -------------------------- ========== ============= ========== ============= ======= As at 1 October 2022 44.8 19.3 64.1 5.1 69.2 -------------------------- ---------- ------------- ---------- ------------- ------- Inflows 5.0 4.3 9.3 0.2 9.5 Outflows (3.1) (2.0) (5.1) (0.3) (5.4) -------------------------- ---------- ------------- ---------- ------------- ------- Net inflows / (outflows) 1.9 2.3 4.2 (0.1) 4.1 -------------------------- ---------- ------------- ---------- ------------- ------- Market and other movements 1.5 1.1 2.6 0.2 2.8 ========================== ========== ============= ========== ============= ======= As at 30 September 2023 48.2 22.7 70.9 5.2 76.1 -------------------------- ---------- ------------- ---------- ------------- -------
Year ended 30 September 2022
Advised Total platform D2C platform platform Non-platform Total GBPbn GBPbn GBPbn GBPbn GBPbn ========================== ========== ============= ========== ============= ======= As at 1 October 2021 45.8 19.5 65.3 7.5 72.8 -------------------------- ---------- ------------- ---------- ------------- ------- Inflows 6.2 3.9 10.1 0.2 10.3 Outflows (2.9) (1.4) (4.3) (2.2) (6.5) -------------------------- ---------- ------------- ---------- ------------- ------- Net inflows / (outflows) 3.3 2.5 5.8 (2.0) 3.8 -------------------------- ---------- ------------- ---------- ------------- ------- Market and other movements (4.3) (2.7) (7.0) (0.4) (7.4) ========================== ========== ============= ========== ============= ======= As at 30 September 2022 44.8 19.3 64.1 5.1 69.2
-------------------------- ---------- ------------- ---------- ------------- -------
We achieved robust total net inflows of GBP4.1 billion (FY22: GBP3.8 billion), driven by our platform.
Total advised platform net inflows were GBP1.9 billion (FY22: GBP3.3 billion). The year-on-year reduction was driven by a fall in gross inflows to GBP5.0 billion (FY22: GBP6.2 billion). There has been a moderation in transfer activity as advisers and their clients exercise more caution in the face of ongoing uncertainty in the macroeconomic environment, whilst existing customer inflows into tax-wrapped products remained stable. Advised outflows in the year increased to GBP3.1 billion (FY22: GBP2.9 billion).
Total D2C platform net inflows were GBP2.3 billion (FY22: GBP2.5 billion). Gross inflows increased to GBP4.3 billion (FY22: GBP3.9 billion) with the increase driven by changes to the annual pension allowance, competitive dynamics and strong inflows from new customers supported by the investments made in our brand. Outflows increased to GBP2.0 billion (FY22: GBP1.4 billion) as customers drew down on their investments amidst the cost-of-living pressures.
Non-platform net outflows of GBP0.1 billion (FY22: GBP2.0 billion) were significantly lower than FY22 following the closure of the institutional stockbroking business in the prior year.
Favourable market movements contributed GBP2.8 billion as global equity markets recovered some of the losses experienced in the prior year, when adverse market movements contributed to a GBP7.4 billion reduction in AUA. This resulted in closing AUA of GBP76.1 billion (FY22: GBP69.2 billion).
Assets under management
Year ended Year ended 30 September 30 September 2023 2022 GBPbn GBPbn ============== ============== ============== Advised 2.5 1.7 D2C 1.3 1.0 Non-platform 0.9 0.1 ================= ============== ============== Total 4.7 2.8 ----------------- -------------- --------------
Our range of funds and MPSs are highly valued by financial advisers, their clients and our retail customers. Total AUM closed at GBP4.7 billion (FY22: GBP2.8 billion), representing a 68% increase in the year. The growth has been particularly strong from our advised customers, as well as a significant increase in AUM from customers investing via external third-party platforms.
Financial performance
Revenue
Year ended Year ended 30 September 30 September 2023 2022 GBP000 GBP000 ====================== ============== ============== Recurring fixed 30,666 29,787 Recurring ad valorem 161,152 102,184 Transactional 26,416 31,876 ======================= ============== ============== Total 218,234 163,847 ------------------------- -------------- --------------
Revenue increased by 33% to GBP218.2 million (FY22: GBP163.8 million).
Revenue from recurring fixed fees increased by 3% to GBP30.7 million (FY22: GBP29.8 million), primarily due to higher pension administration revenue from our advised platform customers.
Recurring ad valorem revenue grew by 58% to GBP161.2 million (FY22: GBP102.2 million). The key driver of this growth was the higher levels of interest generated on cash balances held on the platform following increases to market rates of interest in the year, combined with elevated average cash balances in the first half of the year. Our economies of scale enable us to benefit from these interest rate rises whilst also sharing them with our customers by paying a market-competitive rate on their cash balances. Further information on the impact to revenue of changes to the UK base interest rate has been disclosed in note 25 to the consolidated financial statements. Increased custody fee income as a result of higher average platform AUA also contributed to this revenue growth.
Revenue from transactional fees decreased by 17% to GBP26.4 million (FY22: GBP31.9 million). This decrease was due to lower dealing activity levels in the current year, impacted by the macroeconomic environment.
Our overall revenue margin increased by 7.2bps to 29.8bps (FY22: 22.6bps).
Administrative expenses
Year ended Year ended 30 September 30 September 2023 2022 GBP000 GBP000 ========================= ============== ============== Distribution 25,928 14,998 Technology 40,317 32,706 Operational and support 65,769 57,162 ========================== ============== ============== Total 132,014 104,866 ---------------------------- -------------- --------------
Administrative expenses increased by 26% to GBP132.0 million (FY22: GBP104.9 million), in line with expectation, as we delivered our planned investment in our people, technology and brand, whilst absorbing some one-off inflationary impacts and supporting sustainable growth. Total staff costs increased by GBP9.9 million across the business driven by the roll out of a comprehensive new pay and benefits package which took effect on 1 October 2022 and increased headcount to support our growth.
Distribution costs increased by 73% to GBP25.9 million (FY22: GBP15.0 million) as we executed our plans to increase investment in our brand. This included our multi-channel 'feel good, investing' advertising campaign, and our new partnership as the title sponsor of the AJ Bell Great Run Series.
Technology costs increased by 23% to GBP40.3 million (FY22: GBP32.7 million). This increase reflects investment in our proposition development teams, as well as increases to our licensing and external hosting costs.
Operational and support costs increased by 15% to GBP65.8 million (FY22: GBP57.2 million). The higher costs were driven by an increase in the average number of employees in order to support our continued growth, as well as the investment in our pay and benefits package for staff. This was partially offset by lower dealing costs in the year as a result of reduced customer dealing activity.
The 26% total increase in the year reflects our investments, as planned, to deliver on our long-term growth plans. In FY24 we expect this growth rate to moderate to around 15% as inflationary pressures settle and we benefit from the operational gearing inherent in our business model, along with a focus on efficiency. The same factors are expected to result in lower levels of cost growth in the medium term.
Profitability and earnings
PBT increased by 50% to GBP87.7 million (FY22: GBP58.4 million) whilst PBT margin increased to 40.2% (FY22: 35.6%). The higher margin versus the prior year reflects the higher revenue margin.
Corporation tax for the period has been calculated at a rate of 22.0%, representing the average annual tax rate for the year, as the standard rate of UK corporation tax increased from 19.0% to 25.0% on 1 April 2023. Our effective rate of tax for the period was 22.2% (FY22: 20.0%).
Basic earnings per share rose by 46% to 16.59 pence (FY22: 11.39 pence) in line with the increase to PBT. Diluted earnings per share (DEPS), which accounts for the dilutive impact of outstanding share awards, also increased by 46% to 16.53 pence (FY22: 11.35 pence).
Financial position
The Group's financial position remains strong, with net assets totalling GBP166.0 million (FY22: GBP133.4 million) as at 30 September 2023 and a return on assets of 41% (FY22: 35%).
Financial resources and regulatory capital position
Our financial resources are continually kept under review, incorporating comprehensive stress and scenario testing which is formally reviewed and agreed at least annually.
Year ended Year ended 30 September 30 September 2023 2022 GBP000 GBP000 ======================================== ============== ============== Total shareholder funds 166,037 133,394 Less: unregulated business capital (3,675) (3,718) =========================================== ============== ============== Regulatory group shareholder funds 162,362 129,676 Less: foreseeable dividends (29,807) (18,843) Less: non-qualifying assets (12,887) (14,233) ------------------------------------------- -------------- -------------- Total qualifying capital resources 119,668 96,600 Less: capital requirement (53,930) (49,252) ------------------------------------------- -------------- -------------- Surplus capital 65,738 47,348 ------------------------------------------- -------------- -------------- % of capital resource requirement held 222% 196% =========================================== ============== ==============
During the year, we have continued to maintain a healthy surplus over our regulatory capital requirement and as at the balance sheet date this was 222% (FY22: 196%) of the capital requirement.
We operate a highly cash-generative business, with a short working-capital cycle that ensures profits are quickly converted into cash. We generated cash from operations of GBP120.5 million (FY22: GBP57.2 million) and held a significant surplus over our basic liquid asset requirement during the period, with our year end balance sheet including cash balances of GBP146.3 million (FY22: GBP84.0 million).
Dividend
At half year, the Board declared an interim dividend of 3.50 pence per share (FY22: 2.78 pence per share). This was higher than would have resulted from applying our stated interim dividend policy, to ensure that the growth in interim dividend more closely aligned with the increase in financial performance during the current year.
The full year dividend policy of paying out 65% of statutory profit after tax remains unchanged and therefore the Board has recommended a final dividend of 7.25 pence per share (FY22: 4.59 pence per share), resulting in a total ordinary dividend of 10.75 pence (FY22: 7.37 pence).
Peter Birch
Chief Financial Officer
6 December 2023
Principal risks and uncertainties
The Board is committed to a continual process of improvement and embedment of the risk management framework within the Group. This ensures that the business identifies both existing and emerging risks and continues to develop appropriate mitigation strategies.
The Board believes that there are a number of potential risks to the Group that could hinder the successful implementation of its strategy. These risks may arise from internal and external events, acts and omissions. The Board is proactive in identifying, assessing and managing all risks facing the business, including the likelihood of each risk materialising in the shorter or longer term.
The principal risks and uncertainties facing the Group are detailed below, along with potential impacts and mitigating actions. The majority of the Group's principal risks and uncertainties' residual risk has remained stable, however the residual risk has increased for information security and financial crime due to the heightened threat landscape in these areas.
Residual risk direction
Increased Stable Decreased Risk Potential impact Mitigations Strategic risk Strategic risk The Group regularly * Loss of competitive advantage, such that AUA and reviews its products The risk that the Group customer number targets are adversely impacted. This against competitors, in fails to remain competitive would have a negative impact on profitability. relation to pricing, in its peer group, due to functionality lack of innovative and service, and actively products and services, * Reputational damage as a result of underperformance seeks to make enhancements increased competitor and / or regulatory scrutiny. where necessary to activity, regulatory maintain or improve expectations, and lack of its competitive position marketing focus and spend in line with the Group's to keep pace with strategic objectives. competitors. The Group remains closely aligned with trade and Residual risk direction industry bodies, and other policy makers Stable across our market. The use of ongoing competitor analysis provides insight and an opportunity to adapt strategic direction in response to market conditions. ------------------------------------------------------------- -------------------------- ESG risk The Group has established * Environmental, physical and transition risks an ESG Working Group to The risk that resulting from climate change, which may impact the manage all ESG-related environmental, social and Group and our customers' assets. matters, including governance factors could people- and social-related negatively impact the matters, as well as the Group, * Social risks, include employee wellbeing and Group's Task Force for its customers, investors diversity and inclusion. Climate-related and the wider community. Financial Disclosures (TCFD). ESG-related Residual risk direction * Governance risks, including the risks related to the strategic objectives are Group's governance structures being ineffective, incorporated in the Stable which could manifest in governance-related Group's reputational and conduct risks. Business Planning Process (BPP). The Group is committed to creating an inclusive workplace and prioritising employee wellbeing, to establish an environment where all employees feel valued and supported. The Group's Employee Voice Forum promotes health and wellbeing in and outside of the office. The Group has a robust governance framework. ------------------------------------------------------------- -------------------------- Operational risk Legal and regulatory risk The Group maintains a * Regulatory censure and / or fines, including fines strong compliance culture The risk that the Group from the FCA and Information Commissioner's Office geared towards positive fails to comply with (ICO). customer outcomes regulatory and legal and regulatory compliance. standards. The Group performs regular * Related negative publicity could reduce customer horizon scanning to ensure confidence and affect ability to generate new all regulatory change is Residual risk direction inflows. detected and highlighted to the Group Stable for consideration. * Poor conduct could have a negative impact on customer The Group maintains an outcomes, impacting the Group's ability to achieve open dialogue with the FCA
strategic objectives. and actively engages with them on relevant proposed regulatory change. The Compliance function is responsible for ensuring all standards of the regulatory system are being met by the Group. This is achieved by implementing policies and procedures across the business, raising awareness and developing an effective control environment. Where appropriate, the Compliance Monitoring Team conducts reviews to ensure compliance standards have been embedded into the business. ------------------------------------------------------------- -------------------------- Information security risk The Group continually * Information security breaches could adversely impact reviews its cyber security The risk of a vulnerability individuals' data rights and freedoms and could position to ensure that it in the Group's result in fines / censure from regulators, such as protects the infrastructure being the ICO and FCA. confidentiality, exploited or user misuse integrity and availability that causes harm to of its network and the service, data and / or an * Failure to maintain or quickly recover operations data that it holds. asset causing material could lead to intolerable harm to customers and the A defence in-depth business impact. Group. approach is in place with firewalls, web gateway, Residual risk direction email gateway and * The Group could suffer damage to its reputation anti-virus Increased eroding trust and making it difficult to attract and amongst the technologies retain customers, employees, partners, and investors. deployed. Staff awareness is seen as being a key component of the layered defences, with regular updates, training and mock phishing exercises. Our security readiness is subject to independent assessment by a penetration testing partner that considers both production systems and development activities. This is supplemented by running a programme of weekly vulnerability scans to identify configuration issues and assess the effectiveness of the software patching schedule. The Group regularly assesses its maturity against an acknowledged security framework, which includes an ongoing programme of staff training and assessment through mock security exercises. ------------------------------------------------------------- -------------------------- Data risk The Group monitors the * Data breaches could adversely impact individuals' adequacy of its data Data risk is defined as the data rights and freedoms and could result in fines / governance framework via potential threats and censure from regulators, such as the ICO and FCA. the Data Forum . vulnerabilities that can The Group has data compromise the protection policies and confidentiality, integrity, * A data breach could result in financial loss due to procedures, security availability, and the cost of investigating the breach, notifying controls to protect data compliance of sensitive or impacted individuals, and implementing remediation such valuable data within measures. as encryption, access the Group and its controls and monitoring. third-party suppliers. This The Group educates risk encompasses the * The Group could suffer damage to its reputation, employees about data possibility of unauthorised eroding trust and making it difficult to attract and security and the access, loss, theft, retain customers, employees, partners, and investors. importance of protecting alteration, or exposure of sensitive data. data. The Group conducts regular
Residual risk direction data audits to identify and address potential Stable security risks. The Group's Data Protection Officer / CRO provides an assessment of the adequacy of the Group's data protection framework as part of the annual DPO report. ------------------------------------------------------------- -------------------------- Financial crime risk Extensive controls are in * The Group may be adversely affected, including place to minimise the risk regulatory censure or enforcement, if we fail to of financial crime. The risk of failure to mitigate the risk of being used to facilitate any Policies and procedures protect the Group and its form of financial crime. include: customers from all aspects mandatory financial crime of financial crime, training in anti-money including anti-money * Potential customer detriment as customers are at risk laundering and laundering, terror of losing funds or personal data, which can subject counter-terrorist financing, proliferation them to further loss via other organisations. financing, financing, sanctions fraud, market abuse and restrictions, the Criminal Finances Act market abuse, fraud, * Fraudulent activity leading to identity fraud and / for all employees to aid cyber-crime and the or loss of customer holdings to fraudulent activity. the detection, facilitation of tax prevention and reporting evasion. of financial crime. The * The Group could suffer damage to its reputation, Group has an extensive Residual risk direction eroding trust and making it difficult to attract and recruitment process retain customers, employees, partners, and investors. in place to screen Increased potential employees. The Group actively maintains defences against a broad range of likely attacks by global actors, bringing together tools from well-known providers, external consultancy and internal expertise to create multiple layers of defence. The latter includes intelligence shared through participation in regulatory, industry and national cyber security networks. ------------------------------------------------------------- -------------------------- Third-party management risk To mitigate the risk posed * Loss of service from a third-party provider could by third-party suppliers, The risk that a third-party have a negative impact on customer outcomes due to the Group conducts provider materially fails website unavailability, delays in receiving and / or onboarding due diligence to deliver the contracted processing customer transactions or interruptions to and monitors performance services. settlement and reconciliation processes. against documented service standards to ensure their Residual risk direction continued commitment * Financial impact through increased operational to service, financial Stable losses. stability and viability. Performance metrics are discussed monthly with * Regulatory fine and / or censure. documented actions for any identified improvements. This is supplemented by attendance at formal user groups with other clients of the key suppliers, sharing experience and leveraging the strength of the user base. Where relevant and appropriate, annual financial due diligence on critical suppliers and on-site audits are also undertaken. ------------------------------------------------------------- -------------------------- Technology risk The Group continues to * The reliance on evolving technology remains crucial implement a programme of The risk that the design, to the Group's effort to develop its services and increasing annual implementation and enhance products. Prolonged underinvestment in investment in the management of applications, technology would affect our ability to serve our technology infrastructure and customers and meet their needs. platform. This is informed services fail to meet by recommendations that current and future business result from regular requirements. * Failing to deliver and manage a fit-for-purpose architectural reviews technology platform could have an adverse impact on of applications and of the Residual risk direction customer outcomes and affect our ability to attract underpinning
new customers. infrastructure and Stable services. Daily monitoring routines * Technology failures may lead to financial or provide oversight of regulatory penalties, and reputational damage. performance and capacity. Our rolling programme of both business continuity planning and testing, and single point of failure management, maintains our focus on the resilience of key systems in the event of an interruption to service. ------------------------------------------------------------- -------------------------- Operational resilience risk The Group has developed a * Failure to maintain or quickly recover operations comprehensive operational The risk that the Group could lead to intolerable harm to customers and the resilience framework, does not have an adequate Group. under the direction operational resilience of the Operations framework to prevent, sub-committee of ExCo. The adapt to, respond to, * Operational resilience disruptions may lead to R&CC and Board also recover from and learn from financial or regulatory penalties, and reputational provide oversight. operational disruptions. damage. An annual operational resilience self-assessment Residual risk direction document is reviewed by the Board and R&CC. Stable The Group's Risk Team also provide a 2(nd) line of defence review of the operational resilience self-assessment. ------------------------------------------------------------- -------------------------- Process risk There is an ongoing * A decline in the quality of work would have a programme to train staff The risk that, due to financial impact through increased operational on multiple operational unexpectedly high volumes, losses. functions. Diversifying the Group is unable to the workforce enables the process work within business to deploy staff agreed service levels and / * Unexpectedly high volumes coupled with staff when high work volumes are or to an acceptable quality recruitment and retention issues could lead to poor experienced. for a sustained period. customer outcomes and reputational damage. Causes of increased volumes of work, for Residual risk direction example competitor behaviour, are closely Stable monitored in order to plan resource effectively. The Group focuses on increasing the effectiveness of its operational procedures and, through its business improvement function, aims to improve and automate more of its processes. This reduces the need for manual intervention and the potential for errors. ------------------------------------------------------------- -------------------------- Change risk All operational and * Operational resilience disruptions resulting from regulatory change is The risk of potential crystallisation of change risk may lead to financial prioritised, captured, and negative consequences and or regulatory penalties, and reputational damage. monitored through the uncertainties associated Operations sub-committee with introducing of ExCo. modifications, alterations, * Change can increase costs if not delivered within Technical Change is or adjustments to budget or introduce complexity to end users due to a prioritised, captured, and established processes or lack of compatibility with existing systems. monitored within systems. Technology Services and through Residual risk direction * Reduced quality because of a change can lead to associated Committees. customer dissatisfaction, rework, and additional Product Change is managed Stable costs. within the Product areas and overseen by the corresponding Proposition * An inability to deliver change can result in Committee. reputational damage to the Group, making it difficult to attract customers and talent. ------------------------------------------------------------- -------------------------- Financial control The Group's financial environment risk * Reputational damage with regulators, leading to control and fraud increased capital requirement. prevention policies and The risk that the financial procedures are designed to control environment is ensure that the risk of
weak. This includes the * Potential customer detriment resulting from fraudulent access to risk of loss to inadequate protection of customer assets. customer or corporate the business, or its accounts is minimised. customers, because of Anti-fraud training is either the actions of an * Increased expenditure in order to compensate provided to all members of associated third party customers for loss incurred. staff who act as first or the misconduct of an line of defence employee. to facilitate early detection of potentially Residual risk direction fraudulent activity. Strong technology controls Stable are in place to identify potential money laundering activity or market abuse. ------------------------------------------------------------- -------------------------- Conduct / Consumer Outcomes The Group's customer focus risk * Poor conduct could have a negative effect on customer is founded on our guiding outcomes. principles, which drive The risk that the fair the culture of treatment of customers is the business and ensure not central to the Group's * Reputational damage resulting from poor levels of customers remain at the corporate culture. customer service. heart of everything we do. Training on the Residual risk direction importance and awareness * The Group may be adversely affected, including of the delivery of good Stable regulatory censure or enforcement. customer outcomes is provided to all staff on a regular basis. The Group continues to focus on enhancements to its framework, in relation to the identification, monitoring and mitigation of risks of poor customer outcomes, and to its product management process to reduce the potential for customer detriment. All developments are assessed for potential poor customer outcomes, and mitigating actions are delivered alongside the developments as appropriate. The Group implemented the Consumer Duty in July 2023 which provides higher and clearer standards of consumer protection. ------------------------------------------------------------- -------------------------- People risk The Group has improved its * Difficulties in recruiting the right people to work recruitment processes to The risk that the Group for the Group. attract the best people fails to attract, retain, possible to join develop and engage the Group. employees who are aligned * Existing employees who are not motivated, do not The Group undertakes a to the Group's guiding perform well and may leave the Group. staff engagement survey at principles. least annually and uses this feedback to Residual risk direction * Talented employees who are not appropriately address any areas for developed and / or have limited opportunities to improvement to ensure Stable progress are likely to leave the Group. staff engagement remains high. The Group conducts regular * Resource shortfalls may impact quality and service reviews of its employee and could lead to poor service / consumer outcomes benefits package to ensure and reputational damage. it is competitive. The Group operates a talent development programme. ------------------------------------------------------------- -------------------------- Investment risk The Group maintains robust * Outflows or loss of assets under management as a Investment Governance Risk of failures result of underperformance or reputational damage. arrangements for decision surrounding the investment making in relation activities carried out by to the AJBI products and AJ Bell Investments * Compensation required to cover operational losses, services. The performance (AJBI). The risks specific such as trading errors. of AJBI products and to the AJBI entity include services is monitored operational, reputational on an ongoing basis for and conduct * Potential customer detriment resulting from alignment with customer risks. inadequate governance arrangements. expectations and mandates, including through Residual risk direction dedicated committees and by the independent 2(nd)
Stable line of defence Investment Risk function. Enterprise risks are reviewed and monitored through AJBI's Department Risk Forum, with escalation routes to the Investment Proposition Committee (IPC) and Risk & Compliance Committee. Consumer Duty Evidential MI is monitored and reported up through the IPC and Operational Committee. Any trading undertaken on the AJ Bell Funds or in model portfolios is subject to a number of internal controls to minimise the risk of any operational losses . ------------------------------------------------------------- -------------------------- Financial risk Market risk The Group's products are * Adverse effect on customer transactional activity or targeted at UK residents. The risk that a significant ad valorem fees generated from assets under We do not do business in and prolonged capital administration from which the Group derives revenue. any other countries market or economic downturn Sensitivities for interest rate and market movements and have relatively few has an adverse are shown in note 25 to the consolidated financial customers outside the UK. effect on customer statements. However, in the event that confidence, asset values the economy falls and interest rates. back into a prolonged recession, this may impact Residual risk direction contribution levels and confidence generally Stable in the savings and investment markets. The Directors believe that the Group's overall income levels and in particular the balance between the different types of assets and transactions from which that income is derived, provide a robust defensive position against a sustained economic downturn. Revenue from retained interest income is derived from the pooling of customer cash balances. The Group has a variety of transactional and recurring revenue streams, some of which are monetary amounts while others are ad valorem. This mix of revenue types helps to limit the Group's exposure to interest rate fluctuations and capital market fluctuations. ------------------------------------------------------------- -------------------------- Capital risk The Group adopts a * Inability to cover unexpected losses. cautious and controlled The risk that the Group approach to managing its does not maintain capital risk. sufficient capital * Additional regulatory scrutiny and potential The Group conducts an resources to cover increased regulatory capital resource requirements. Internal Capital and Risk unexpected Assessment (ICARA) process losses. aligned with its risk management framework Residual risk direction to identify, monitor and mitigate harms. Stable Where harms cannot be mitigated, the Group holds capital to cover potential unexpected losses (its capital resource requirement). The Group's capital risk appetite is to maintain its capital resources at least >125% more than the Group's capital resource
requirement. ------------------------------------------------------------- -------------------------- Credit risk The Group's credit risk * Unintended market exposure. extends principally to its The risk of potential financial assets, cash failure of clients, market balances held with counterparties or banks * Customer detriment. banks and trade and other used by the Group receivables. The Group to fulfil contractual carries out initial and obligations. ongoing due diligence on the market Residual risk direction counterparties and banks that it uses, and Stable regularly monitors the level of exposure. The Group continues to diversify across a range of approved banking counterparties, reducing the concentration of credit risk as exposure is spread over a larger number of counterparties. The banks currently used by the Group are detailed in note 25 to the consolidated financial statements. With regard to trade receivables, the Group has implemented procedures that require appropriate credit or alternative checks on potential customers before business is undertaken. This has minimised credit risk in this area. The Group will maintain its existing strategy of diversification to ensure acceptable exposure across a wide range of well-capitalised banks with appropriate credit ratings. It will continue to regularly monitor its level of exposure and to assess the financial strength of its banking counterparties. ------------------------------------------------------------- -------------------------- Liquidity risk The Group has robust * Reputational damage. systems and controls and The risk that the Group monitors all legal suffers significant entities to ensure they settlement default or * Potential customer detriment. have otherwise suffers major sufficient funds to meet liquidity problems or their liabilities as they issues of liquidity * Financial loss. fall due. deficiency which severely impact on the Group's The Group continues to reputation in the markets. * Unable to meet obligations as they fall due. monitor trade settlement on both an intra-day and The risk that the Group daily basis. does not have available readily realisable The Group continues to be financial resources to a highly cash-generative enable it to meet its business and to maintain obligations as they fall sufficient cash due or can only secure such and standby banking resources at excessive facilities to fund its cost. foreseeable trading requirements. Residual risk direction Stable ------------------------------------------------------------- --------------------------
Viability statement
In accordance with provision 31 of the UK Corporate Governance Code 2018, the Board has assessed the viability of the Group, considering a four-year period to September 2027. The Board considers a four-year horizon to be an appropriate period to assess the Group's strategy and its capital requirements, considering the investment needs of the business and the potential risks that could impact the Group's ability to meet its strategic objectives.
This assessment has been made considering the Group's financial position and regulatory capital and liquidity requirements in the context of its business model, strategy and four-year financial forecasts and in consideration of the principal risks and uncertainties, as detailed in the Strategic report. The principal risks and uncertainties are those that may adversely impact the Group based on its business model and strategy and are derived from both the Group's business activities and the wider macroeconomic environment in which the Group operates but does not control.
As an FCA-regulated entity, as part of its Internal Capital and Risk Assessment (ICARA) the Group is required to use stress testing of the business model and strategy to identify whether it holds sufficient own funds and liquid assets. Forward-looking hypothetical stress testing scenarios have been determined by considering potential macroeconomic and idiosyncratic events that would have a significant adverse impact on the Group's ability to generate profits, and therefore maintain the existing levels of own funds and liquid assets, over the business planning period.
The Board-approved four-year financial forecast assumes the business continues to grow customer numbers and AUA through investment in our brand, product propositions, technology and people. The financial forecasts assume that the Bank of England base interest rate has peaked, gradually falling throughout the forecast period, in line with market projections. There are no significant market movements in underlying asset values based on the position at the point the projections were approved by the Board.
The Board has considered the potential impact of three stress test scenarios, which cumulatively represent a severe, remote but plausible scenario:
1) Macroeconomic (Market risk) - a significant reduction in equity market values, based on the 2008-09 global financial crisis. Asset values fall by 40% in year one, recovering to 20% below the level they were prior to the fall in year two, and remain flat in years three and four.
2) Macroeconomic (Market risk) - Bank of England base interest rate reduced to 0.50% throughout the assessment period, leading to a lower interest rate retained on customer cash balances.
3) Idiosyncratic (Technology risk, Third-party management risk) - prolonged IT issues with key operating software suppliers cause significant damage to AJ Bell's service and reputation, which results in a reduction in customers. Following year one the Group incurs development and license costs to upgrade or replace key components of the platform software, with service levels and net inflows returning to normal in year three.
The Board have identified a number of potential management actions that could be taken, the action selected would be dependent upon the nature of the scenario.
The results have confirmed that the Group would be able to withstand the adverse financial impact of these three scenarios occurring simultaneously over the four-year assessment period. This assumes that dividends are paid in line with the recommendation made in the 30 September 2023 annual report and with the Group dividend policy on a forward-looking basis. During the period, the Group continues to retain surplus financial resources over and above its regulatory capital and liquidity requirements, with or without any management remediation actions.
The Group's strategy and four-year financial forecasts were approved by the Board in September 2023. The Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the four-year period ending September 2027.
The Strategic report was approved by the Board of Directors and signed on its behalf by:
Michael Summersgill
Chief Executive Officer
6 December 2023
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with UK-adopted international accounting standards and applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with UK-adopted international accounting standards and have elected to prepare the Parent Company financial statements in accordance with UK accounting standards and applicable law including FRS 101 Reduced Disclosure Framework.
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 Parent Company and of the profit or loss for the Group for that period. The Directors are also required to prepare the Group financial statements in accordance with international financial reporting standards as adopted by the UK.
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;
-- for the Group financial statements, state whether they have been prepared in accordance with UK-adopted international accounting standards, subject to any material departures disclosed and explained in the financial statements;
-- for the Parent Company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group or Parent Company will continue in business; and
-- prepare a Directors' report, a Strategic report and Directors' Remuneration report which comply with the requirements of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
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.
Each of the Directors, whose names and responsibilities are listed in the Corporate Governance report, confirms that, to the best of their knowledge:
-- The financial statements have been prepared in accordance with the applicable set of accounting standards and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group.
-- The Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and Parent Company, together with a description of the principal risks and uncertainties that they face.
We consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's position and performance, business model and strategy.
Approved by the Board on 6 December 2023 and signed on its behalf by:
Olubunmi Likinyo
Company Secretary
4 Exchange Quay
Salford Quays
Manchester
M5 3EE
Consolidated income statement
for the year ended 30 September 2023
2023 2022 Notes GBP000 GBP000 -------------------------------------------- ------ ---------- ---------- Revenue 5 218,234 163,847 Administrative expenses (132,014) (104,866) --------------------------------------------- ------ ---------- ---------- Operating profit 6 86,220 58,981 Investment income 8 2,393 198 Finance costs 9 (952) (768) --------------------------------------------- ------ ---------- ---------- Profit before tax 87,661 58,411 Tax expense 10 (19,442) (11,672) --------------------------------------------- ------ ---------- ---------- Profit for the financial year attributable to: Equity holders of the parent company 68,219 46,739 --------------------------------------------- ------ ---------- ---------- Earnings per share Basic (pence) 12 16.59 11.39 Diluted (pence) 12 16.53 11.35 --------------------------------------------- ------ ---------- ----------
All revenue, profit and earnings are in respect of continuing operations.
There were no other components of recognised income or expense in either period and, consequently, no statement of other comprehensive income has been presented.
Consolidated statement of financial position
as at 30 September 2023
2023 2022 Notes GBP000 GBP000 ----------------------------- ------ --------- --------- Assets Non-current assets Goodwill 13 6,991 6,991 Other intangible assets 14 7,433 8,779 Property, plant and equipment 15 3,809 3,325 Right-of-use assets 16 10,800 12,273 Deferred tax asset 18 484 610 ------------------------------ ------ --------- --------- 29,517 31,978 ----------------------------- ------ --------- --------- Current assets Trade and other receivables 19 58,501 49,436 Current tax receivable - 38 Cash and cash equivalents 20 146,304 84,030 ------------------------------- ------ --------- --------- 204,805 133,504 ----------------------------- ------ --------- --------- Total assets 234,322 165,482 ------------------------------ ------ --------- --------- Liabilities Current liabilities Trade and other payables 21 (52,437) (15,604) Current tax liability (151) - Lease liabilities 16 (1,540) (1,566) Provisions 22 (1,126) (519) ------ --------- --------- (55,254) (17,689) ----------------------------- ------ --------- --------- Non-current liabilities Lease liabilities 16 (10,866) (12,395) Provisions 22 (2,165) (2,004) ------ --------- --------- (13,031) (14,399) ----------------------------- ------ --------- --------- Total liabilities (68,285) (32,088) ------------------------------ ------ --------- --------- Net assets 166,037 133,394 ============================== ====== ========= ========= Equity Share capital 23 52 51 Share premium 8,963 8,930 Own shares (2,377) (473) Retained earnings 159,399 124,886 ------------------------------ ------ --------- --------- Total equity 166,037 133,394 ------------------------------ ------ --------- ---------
The financial statements were approved by the Board of Directors and authorised for issue on 6 December 2023 and signed on its behalf by:
Peter Birch
Chief Financial Officer
AJ Bell plc
Company registered number: 04503206
Consolidated statement of changes in equity
for the year ended 30 September 2023
Share Share Retained Own Total capital premium earnings shares equity GBP000 GBP000 GBP000 GBP000 GBP000 ------------------------------------------------- -------- -------- --------- -------- --------- Balance at 1 October 2022 51 8,930 124,886 (473) 133,394 -------------------------------------------------- -------- -------- --------- -------- --------- Total comprehensive income for the year: Profit for the year - - 68,219 - 68,219 Transactions with owners, recorded directly in equity: Issue of shares 1 33 - - 34 Dividends paid - - (33,294) - (33,294) Equity settled share-based payment transactions - - (110) - (110) Deferred tax effect of share-based payment transactions - - (88) - (88) Tax relief on exercise of share options - - 123 - 123 Share transfer relating to EIP (note 23) - - (96) 96 - Payment of tax from employee benefit trust - - (241) - (241) Own shares acquired (note 23) - - - (2,000) (2,000) Total transactions with owners 1 33 (33,706) (1,904) (35,576) -------------------------------------------------- -------- -------- --------- -------- --------- Balance at 30 September 2023 52 8,963 159,399 (2,377) 166,037 ================================================== ======== ======== ========= ======== ========= Share Share Retained Own Total capital premium earnings shares equity GBP000 GBP000 GBP000 GBP000 GBP000 --------------------------------------------- -------- -------- --------- ------- --------- Balance at 1 October 2021 51 8,658 122,739 (740) 130,708 ---------------------------------------------- -------- -------- --------- ------- --------- Total comprehensive income for the year: Profit for the year - - 46,739 - 46,739 Transactions with owners, recorded directly in equity: Issue of shares - 272 - - 272 Dividends paid - - (50,383) - (50,383) Equity settled share-based payment transactions - - 6,162 - 6,162 Deferred tax effect of share-based payment transactions - - (275) - (275) Tax relief on exercise of share options - - 171 - 171 Share transfer relating to EIP - - (267) 267 - Total transactions with owners - 272 (44,592) 267 (44,053) ---------------------------------------------- -------- -------- --------- ------- --------- Balance at 30 September 2022 51 8,930 124,886 (473) 133,394 ================================================ ======== ======== ========= ======= =========
Consolidated statement of cash flows
for the year ended 30 September 2023
2023 2022 Notes GBP000 GBP000 --------------------------------------------- ------ --------- --------- Cash flows from operating activities Profit for the financial year 68,219 46,739 Adjustments for: Investment income (2,393) (198) Finance costs 952 768 Income tax expense 19,442 11,672 Depreciation, amortisation and impairment 4,788 3,643 Share-based payment expense 24 1,103 4,728 Increase/(decrease) in provisions 607 (1,007) Loss on disposal of property, plant and equipment 16 21 Increase in trade and other receivables (9,065) (11,974) Increase in trade and other payables 36,833 2,839 --------------------------------------------- ------ --------- --------- Cash generated from operations 120,502 57,231 --------------------------------------------- ------ --------- --------- Income tax paid (19,092) (11,433) Net cash flows from operating activities 101,410 45,798 --------------------------------------------- ------ --------- --------- Cash flows from investing activities Purchase of other intangible assets 14 (1,926) (2,365) Purchase of property, plant and equipment 15 (1,574) (1,014) Interest received 2,393 198 --------------------------------------------- ------ Net cash flows used in investing activities (1,107) (3,181) --------------------------------------------- ------ --------- --------- Cash flows from financing activities Payments of principal in relation to lease liabilities 16 (1,576) (1,716) Payment of interest on lease liabilities 16 (952) (768) Proceeds from issue of share capital 23 34 272 Purchase of own shares for employee
share schemes 23 (2,000) - Payment of tax from employee benefit trust (241) - Dividends paid 11 (33,294) (50,383) --------------------------------------------- ------ Net cash flows used in financing activities (38,029) (52,595) --------------------------------------------- ------ --------- --------- Net increase/(decrease) in cash and cash equivalents 62,274 (9,978) Cash and cash equivalents at beginning of year 20 84,030 94,008 --------------------------------------------- ------ --------- --------- Total cash and cash equivalents at end of year 20 146,304 84,030 ============================================= ====== ========= =========
Notes to the consolidated financial statements
for the year ended 30 September 2023
1 General information
AJ Bell plc (the 'Company') is the Parent Company of the AJ Bell group of companies (together the 'Group'). The Group provides investment administration, dealing and custody services. The nature of the Group's operations and its principal activities are set out in the Strategic report and the Directors' report.
The Company is a public limited company which is listed on the Main Market of the London Stock Exchange and incorporated and domiciled in the United Kingdom. The Company's number is 04503206 and the registered office is 4 Exchange Quay, Salford Quays, Manchester, M5 3EE. A list of investments in subsidiaries, including the name, country of incorporation, registered office, and proportion of ownership is given in note 6 of the Company's separate financial statements.
The consolidated financial statements were approved by the Board on 6 December 2023.
The financial information contained in this report does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The financial information set out in this report has been extracted from the Group's 2023 Annual Report and Financial Statements, which have been approved by the Board of Directors on 6 December 2023. The Auditors have reported on the 2022 and 2023 accounts, their reports were (i) unqualified; (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under sections 498(2) or (3) of the Companies Act 2006.
2 Significant accounting policies
Basis of accounting
The consolidated financial statements of AJ Bell plc have been prepared in accordance with UK-adopted International Financial Reporting Standards.
The financial statements are prepared on the historical cost basis and prepared on a going concern basis. They are presented in sterling, which is the currency of the primary economic environment in which the Group operates, rounded to the nearest thousand.
The accounting policies have been applied consistently to all periods presented in these financial statements and by all Group entities, unless otherwise stated.
Changes to International Reporting Standards
Interpretations and standards which became effective during the year:
The following amendments and interpretations became effective during the year. Their adoption has not had any significant impact on the Group.
Effective from IAS 37 Onerous Contracts: Cost of Fulfilling a Contract 1 January (Amendments) 2022 IAS 16 Property, Plant and Equipment: Proceeds before 1 January intended use (Amendments) 2022 Annual Improvements to IFRS Standards 2018-2020 1 January 2022 IFRS Reference to the Conceptual Framework (Amendments) 1 January 3 2022
Interpretations and standards in issue but not yet effective
The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 30 September each year. The Group controls an entity when it is exposed to, or it has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Group reassesses whether it controls an entity if facts and circumstances indicate there are changes to one or more elements of control. The results of a subsidiary undertaking are included in the consolidated financial statements from the date the control commences until the date that control ceases.
All intercompany transactions, balances, income and expenses are eliminated on consolidation.
2.1 Going concern
The Group's business activities, together with its financial position and the factors likely to affect its future development and performance are set out in the Strategic report and the Directors' report. Note 25 includes the Group's policies and processes for managing exposure to credit and liquidity risk.
The Group's forecasts and objectives, considering a number of potential changes in trading conditions, show that the Group should be able to operate at adequate levels of both liquidity and capital for at least 12 months from the date of signing this report. The Directors have performed a number of stress tests, covering a significant reduction in equity market values, a fall in the Bank of England base interest rate leading to a lower interest rate retained on customer cash balances, and a further Group-specific idiosyncratic stress relating to a scenario whereby prolonged IT issues cause a reduction in customers. Further detail of the forecasts and stress test scenarios are set out in the Viability statement. These scenarios provide assurance that the Group has sufficient capital and liquidity to operate under stressed conditions.
Consequently, after making reasonable enquiries, the Directors are satisfied that the Group has sufficient financial resources to continue in business for at least 12 months from the date of signing the report and therefore have continued to adopt the going concern basis in preparing the financial statements.
2.2 Business combinations
A business combination is recognised where separate entities or businesses have been acquired by the Group. The acquisition method of accounting is used to account for the business combinations made by the Group. The cost of a business combination is measured at the aggregate of the fair values (at the date of exchange), of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control of the acquired entity. Where the consideration includes a contingent consideration arrangement, the contingent consideration is measured at its acquisition date fair value and included as part of the cost of the acquisition. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent consideration are charged to the income statement, except for obligations that are classified as equity, which are not re-measured. Where consideration is dependent on continued employment within the business this is treated as a separate transaction as post-acquisition remuneration.
Acquisition related costs are expensed as incurred in the income statement, except if related to the issue of debt or equity securities. Identifiable assets acquired and liabilities and contingent liabilities assumed in the business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the Group's share of the identifiable net assets of the subsidiary acquired, the difference is taken immediately to the income statement.
2.3 Segmental reporting
The Group determines and presents operating segments based on the information that is provided internally to the Board, which is the Group's Chief Operating Decision Maker (CODM). In assessing the Group's operating segments the Directors have considered the nature of the services provided, product offerings, customer bases, operating model and distribution channels amongst other factors. The Directors concluded there is a single segment as it operates with a single operating model; operations, support and technology costs are managed and reported centrally to the CODM. A description of the services provided is given within note 4.
2.4 Revenue recognition
Revenue represents fees receivable from investment administration and dealing and custody services for both client assets and client money. Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a good or service to a customer.
Recurring fixed
Recurring fixed revenue comprises recurring administration fees and media revenue.
Administration fees include fees charged in relation to the administration services provided by the Group and are recognised over time as the related service is provided.
Included within administration fees are annual pension administration fees. The Group recognises revenue from such fees over time, using an input method to measure progress towards complete satisfaction of a single performance obligation. The Group determined that the input method is the best method in measuring progress of the services relating to these fees because there is a direct relationship between the Group's effort (i.e. labour hours incurred) and the transfer of service to the customer.
The Group recognises revenue on the basis of the labour hours expended relative to the total expected labour hours to complete the service.
Certain pension administration fees are received in arrears or in advance. Where revenue is received in arrears for an ongoing service, the proportion of the income relating to services provided but not yet received is accrued. This is recognised as accrued income until the revenue is received. Where revenue is received in advance for an ongoing service, the proportion of the income relating to services that have not yet been provided is deferred. This is recognised as deferred income until the services have been provided.
Media revenue includes advertising, subscriptions, events and award ceremony and corporate solutions contracts. Subscriptions and corporate solutions revenue is recognised evenly over the period in which the related service is provided. Advertising, event and award ceremony revenue is recognised in the period in which the publication is made available to customers or the event or award ceremony takes place.
Recurring ad valorem
Recurring ad valorem revenue comprises custody fees, retained interest income and investment management fees provided by the Group and is recognised evenly over the period in which the related service is provided.
Ad valorem fees include custody fees charged in relation to the holding of client assets and interest received on client money balances. Custody fees and investment management fees are accrued on a time basis by reference to the AUA.
Transactional fees
Transactional revenue comprises dealing fees and pension scheme activity fees. Transaction-based fees are recognised when received in accordance with the date of settlement of the underlying transaction.
Other non-recurring fees are recognised in the period to which the service is rendered.
Customer incentives
Customer incentives paid to new retail customers are considered to be a reduction in revenue under IFRS 15. In line with IFRS 15, customer incentives to acquire new customers are offset against recurring ad valorem revenue and spread over the period which the customer is required to remain a customer in order to be eligible for the incentive. Customer incentives are paid in cash.
2.5 Share-based payments
The Group operates a number of share-based payment arrangements for its employees and non-employees. These generally involve an award of share options (equity-settled share-based payments) which are measured at the fair value of the equity instrument at the date of grant.
The share-based payment arrangements have conditions attached before the beneficiary becomes entitled to the award. These can be performance and/or service conditions.
The total cost is recognised, together with a corresponding increase in the equity reserves, over the period in which the performance and/or service conditions are fulfilled. Costs relating to the development of internally generated intangible assets are capitalised in accordance with IAS 38. The cumulative cost recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and management's estimate of shares that will eventually vest. At the end of each reporting period, the entity revises its estimates of the number of share options expected to vest based on the non-market vesting conditions. It recognises any revision to original estimates in the income statement and to intangible assets where appropriate, with a corresponding adjustment to equity reserves.
No cost is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting is conditional upon a market or non-vesting condition. These are treated as vested irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
The cost of equity-settled awards is determined by the fair value at the date when the grant is made using an appropriate valuation model or the market value discounted to its net present value, further details of which are given in note 24. The expected life applied in the model has been adjusted based on management's best estimate for the effects of non-transferability, exercise restrictions and behavioural considerations.
2.6 Investment income
Investment income comprises the returns generated on corporate cash at banks and short-term highly-liquid investments. Investment income is recognised in the income statement as it accrues, using the effective interest rate method.
2.7 Finance costs
Finance costs comprise interest incurred on lease liabilities recognised under IFRS 16. Finance costs are recognised in the income statement using the effective interest rate method.
2.8 Taxation
The tax expense represents the sum of the current tax payable and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years, using tax rates enacted or substantively enacted at the reporting date.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised if the temporary difference arises from:
-- the initial recognition of goodwill; or
-- investments in subsidiaries to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable they will not reverse in the foreseeable future; or
-- the initial recognition of an asset and liability in a transaction other than a business combination that, at the time of the transaction, affects neither the accounting nor taxable profit or loss.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that taxable profits will be available in the future, against which deductible temporary differences can be utilised. Recognised and unrecognised deferred tax assets are reassessed at each reporting date.
The principal temporary differences arise from accelerated capital allowances, provisions for share-based payments and unutilised losses.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
2.9 Dividends
Dividend distributions to the Company's shareholders are recognised in the period in which the dividends are declared and paid. The final dividend is approved by the Company's shareholders at the Annual General Meeting.
2.10 Goodwill
Goodwill arising on consolidation represents the difference between the consideration transferred and the fair value of net assets acquired of the subsidiary at the date of acquisition. Goodwill is not amortised, but is reviewed at least annually for impairment. Any impairment is recognised immediately through the income statement and is not subsequently reversed.
For the purposes of impairment testing goodwill acquired in a business combination is allocated to the cash generating unit (CGU) expecting to benefit from the synergies of the combination. CGUs to which goodwill has been allocated are reviewed annually or more frequently when there is an indication that the goodwill relating to that CGU may have been impaired. If the recoverable amount from the CGU is less than the carrying amount of the assets present on the consolidated statement of financial position forming that CGU, the impairment loss is allocated first to reduce the carrying amount of any goodwill
allocated to the assets forming that CGU and then to the assets of the CGU pro-rata on the basis of the carrying amount of each asset in the CGU.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
2.11 Intangible assets (excluding goodwill)
Intangible assets comprise computer software and mobile applications, and the Group's Key Operating Systems (KOS). These are stated at cost less amortisation and any recognised impairment loss. Amortisation is charged on all intangible assets excluding goodwill and assets under construction at rates to write off the cost or valuation, less estimated residual value, of each asset evenly using a straight-line method over its estimated useful economic life as follows:
Computer software and mobile applications - 3 - 4 years
KOS - 15 years
KOS enhancements - Over the remaining life of the KOS
The assets' estimated useful lives, amortisation rates and residual values are reviewed, and adjusted if appropriate at the end of each reporting period. An asset's carrying value is written down immediately to its recoverable amount if its carrying value is greater than the recoverable amount.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement immediately.
2.12 Internally-generated intangible assets
An internally-generated asset arising from work performed by the Group is recognised only when the following criteria can be demonstrated:
-- the technical feasibility of completing the intangible asset so that it will be available for use or sale; -- the intention to complete the intangible asset and use or sell it; -- the ability to use or sell the intangible asset; -- how the intangible asset will generate probable future economic benefits; -- the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and -- the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognised for internally-generated intangible assets is the sum of expenditure incurred from the date when the asset first meets the recognition criteria listed above. Development expenditure that does not meet the criteria is recognised as an expense in the period which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. Assets under construction are not amortised until the asset is operational and available for use.
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
2.13 Property, plant and equipment
All property, plant and equipment is stated at cost, which includes directly attributable acquisition costs, less accumulated depreciation and any recognised impairment losses. Depreciation is charged on all property, plant and equipment, except assets under construction, at rates to write off the cost, less estimated residual value, of each asset evenly using a straight-line method over its estimated useful economic life as follows:
Leasehold improvements - Over the life of the lease
Office equipment - 4 years
Computer equipment - 3 - 5 years
The assets' estimated useful lives, depreciation rates and residual values are reviewed, and adjusted if appropriate at the end of each reporting period. An asset's carrying value is written down immediately to its recoverable amount if its carrying value is greater than the recoverable amount.
Assets under construction relate to capital expenditure on assets not yet in use by the Group and are therefore not depreciated.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement immediately.
2.14 Leased assets and lease liabilities
Leases
(i) Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the leases. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.
Depreciation is applied in accordance with IAS 16: Property, Plant and Equipment. Right-of-use assets are depreciated over the lease term.
Right-of-use assets are subject to impairment.
(ii) Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the addition of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is a modification, a change in the lease term, a change in the fixed lease payments or a change in the assessment to purchase the underlying asset.
2.15 Impairment of intangible assets (excluding goodwill), property, plant and equipment and leased assets
At each reporting date the Group reviews the carrying amount of its intangible assets, property, plant and equipment and leased assets to determine whether there is any indication that those assets have suffered impairment. If such an indication exists then the recoverable amount of that particular asset is estimated.
An impairment test is performed for an individual asset unless it belongs to a CGU, in which case the present value of the net future cash flows generated by the CGU is tested. A CGU is the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or of groups of other assets. An intangible asset with an indefinite useful life or an intangible asset not yet available for use is tested for impairment annually and whenever there is an indication that the asset may be impaired.
The recoverable amount is the higher of its fair value less costs to sell and its value-in-use. In assessing its value-in-use, the estimated net future pre-tax cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or CGU in which the asset sits is estimated to be lower than the carrying value, then the carrying amount is reduced to the recoverable amount. An impairment loss is recognised immediately in the income statement as an expense.
An impairment loss is reversed only if subsequent events reverse the effect of the original event which caused the recognition of the impairment. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. An impairment reversal is recognised in the income statement immediately.
2.16 Retirement benefit costs
The Group makes payments into the personal pension schemes of certain employees as part of their overall remuneration package. Contributions are recognised in the income statement as they are payable.
The Group also contributes to employees' stakeholder pension schemes. The assets of the scheme are held separately from those of the Group in independently-administered funds. Any amount charged to the income statement represents the contribution payable to the scheme in respect of the period to which it relates.
2.17 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that the Group will be required to settle that obligation.
The amount recognised as a provision is the Directors' best estimate of the consideration required to settle that obligation at the reporting date and is discounted to present value where the effect is material.
2.18 Levies
The Group applies the guidance provided in IFRIC 21 to levies issued under the Financial Services Compensation Scheme. The interpretation clarifies that an entity should recognise a liability when it conducts the activity that triggers the payment of the levy under law or regulation.
2.19 Financial instruments
Financial assets and liabilities are recognised in the statement of financial position when a member of the Group becomes party to the contractual provisions of the instrument.
Financial assets
Financial assets are classified according to the business model within which the asset is held and the contractual cash-flow characteristics of the asset. All financial assets are classified at amortised cost.
Financial assets at amortised cost
The Group's financial assets at amortised cost comprise trade receivables, loans, other receivables and cash and cash equivalents.
Financial assets at amortised cost are initially recognised at fair value including any directly attributable costs. They are subsequently measured at amortised cost using the effective interest method, less any impairment. No interest income is recognised on financial assets measured at amortised cost, with the exception of cash and cash equivalents, as all financial assets at amortised cost are short-term receivables and the recognition of interest would be immaterial. Financial assets are derecognised when the contractual right to the cash flows from the asset expire.
Trade and other receivables
Trade and other receivables are initially recorded at the fair value of the amount receivable and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Other receivables also represent client money required to meet settlement obligations.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, on demand deposits with banks and other short-term highly-liquid investments with original maturities of three months or less, or those over which the Group has an immediate right of recall. Where appropriate, bank overdrafts are shown within borrowings in current liabilities in the consolidated statement of financial position.
Impairment of financial assets
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and number of days past due. The Group considers a trade receivable to be in default when it is past due by more than 90 days, or when the value of a client's receivable balance exceeds the value of the assets they hold with AJ Bell.
The expected loss rates are based on the payment profiles of sales over a period of 12 months before 30 September 2023 and the corresponding historical credit losses experienced within this period.
The carrying amount of the financial assets is reduced by the use of a provision. When a trade receivable is considered uncollectable, it is written off against the provision. Subsequent recoveries of amounts previously written off are credited against the provision. Changes in the carrying amount of the provision are recognised in the income statement.
Financial liabilities
Financial liabilities are classified according to the substance of the contractual arrangements entered into.
Lease liabilities
Lease liabilities consist of amounts payable by the Group measured at the present value of lease payments to be made over the lease term.
Other financial liabilities
The Group's other financial liabilities comprised borrowings and trade and other payables. Other financial liabilities are initially measured at fair value, net of transaction costs. They are subsequently carried at amortised cost using the effective interest rate method. A financial liability is derecognised when, and only when, the Group's obligations are discharged, cancelled or they expire.
Trade and other payables
Trade and other payables consist of amounts payable to clients and other counterparties and obligations to pay suppliers for goods and services in the ordinary course of business, including amounts recognised as accruals. Trade and other payables are measured at amortised cost using the effective interest method.
2.20 Employee benefit trust
The employee benefit trusts provide for the granting of shares, principally under share option schemes. AJ Bell plc is considered to have control of the trusts and so the assets and liabilities of the trusts are recognised as those of AJ Bell plc.
Shares of AJ Bell plc held by the trusts are treated as 'own shares' held and shown as a deduction from equity. Subsequent consideration received for the sale of such shares is also recognised in equity, with any difference between the sales proceeds and original cost being taken to equity.
3 Critical accounting adjustments and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described in note 2, the Directors are required to make judgements, estimates and assumptions to determine the carrying amounts of certain assets and liabilities. The estimates and associated assumptions are based on the Group's historical experience and other relevant factors. Actual results may differ from the estimates applied.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
There are no judgements made, in applying the accounting policies, about the future, or any other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
4 Segmental reporting
It is the view of the Directors that the Group has a single operating segment being investment services in the advised and D2C space administering investments in SIPPs, ISAs and General Investment/Dealing accounts. Details of the Group's revenue, results and assets and liabilities for the reportable segment are shown within the consolidated income statement and consolidated statement of financial position.
The Group operates in one geographical segment, being the UK.
Due to the nature of its activities, the Group is not reliant on any one customer or group of customers for generation of revenues.
5 Revenue
The analysis of the consolidated revenue is as follows:
2023 2022 GBP000 GBP000 ---------------------- -------- -------- Recurring fixed 30,666 29,787 Recurring ad valorem 161,152 102,184 Transactional 26,416 31,876 ---------------------- -------- -------- 218,234 163,847 ---------------------- -------- --------
Recurring ad valorem fees include custody fees. These recurring charges are derived from the market value of retail customer assets, based on asset mix and portfolio size, and are therefore subject to market and economic risks. The rate charged is variable dependent on the product, portfolio size and asset mix within the portfolio. The risks associated with this revenue stream in terms of its nature and uncertainty is discussed further within the financial instruments and risk management note..
Recurring ad valorem fees also include retained interest income earned on the level of customer cash balances, which are based on product type, customers' asset mix and portfolio size and are therefore subject to market and economic risks. The risks associated with this revenue stream in terms of its nature and uncertainty is discussed further within the financial instruments and risk management note 25.
The total revenue for the Group has been derived from its principal activities undertaken in the United Kingdom.
6 Operating profit
Profit for the financial year has been arrived at after charging:
2023 2022 GBP000 GBP000 ----------------------------------------------- ------- ------------- Amortisation and impairment of intangible assets 2,055 1,034 Depreciation of property, plant and equipment 1,079 1,019 Depreciation of right-of-use assets 1,654 1,590 Loss on the disposal of property, plant and equipment 16 21 Auditor's remuneration (see below) 1,093 496 Staff costs (see note 7) 64,758 54,887 ----------------------------------------------- ------- -------------
During the year there was no expenditure in relation to research and development expensed to the income statement (2022: GBPnil).
Auditor's remuneration
The analysis of auditor's remuneration is as follows:
2023 2022 GBP000 GBP000 --------------------------------------------- ------- ---------------- Fees payable to the Company's auditor for the audit of the Company's annual accounts 329 155 Fees payable to the Company's auditor for the audit of the Company's subsidiaries' accounts, pursuant to legislation 589 204 Audit-related assurance services 115 89 Other assurance services 60 48 1,093* 496 --------------------------------------------- ------- ----------------
* Of which GBP215,000 relates to the audit for the year ended 2022.
Of the above, audit-related services for the year totalled GBP1,063,000 (2022: GBP473,000).
7 Staff costs The average monthly number of employees (including Executive Directors) of the Group was: 2023 2022 No. No. ------------------------------------------ ------------------- ---------------- Operational and support 856 761 Technology 279 225 Distribution 140 109 ------------------------------------------ ------------------- ---------------- 1,275 1,095 ------------------------------------------ ------------------- ---------------- Employee benefit expense for the Group during the year: 2023 2022 GBP000 GBP000 ------------------------------------------ ------------------- ---------------- Wages and salaries 51,854 41,427 Social security costs 5,846 4,808 Retirement benefit costs 5,937 3,857 Termination benefits 18 67 Share-based payments (note 24) 1,103 4,728 ------------------------------------------ ------------------- ---------------- 64,758 54,887 ------------------------------------------ ------------------- ----------------
In addition to the above, GBP1,919,000 staff costs (2022: GBP1,315,000) have been capitalised as an internally generated intangible asset (see note 14).
8 Investment income
2023 2022 GBP000 GBP000 ------------------------------------------- -------- --------- Interest income on cash balances 2,393 198 ------------------------------------------- -------- --------- 9 Finance costs 2023 2022 GBP000 GBP000 ------------------------------------------- -------- ------- Interest on lease liabilities 952 768 ------------------------------------------- -------- ------- 10 Taxation Tax charged in the income statement: 2023 2022 GBP000 GBP000 ----------------------------------------- ------------------------- -------------- Current taxation UK Corporation Tax 19,750 11,855 Adjustment to current tax in respect of prior periods (346) (238) ----------------------------------------- -------------- 19,404 11,617 ----------------------------------------- ------------------------- -------------- Deferred taxation Origination and reversal of temporary differences (170) 62 Adjustment to deferred tax in respect of prior periods 341 45 Effect of changes in tax rates (133) (52) ----------------------------------------- -------------- 38 55 ----------------------------------------- ------------------------- -------------- Total tax expense 19,442 11,672 ----------------------------------------- ------------------------- --------------
Corporation Tax is calculated at 22% of the estimated assessable profit for the year to 30 September 2023 (2022: 19%).
In addition to the amount charged to the income statement, certain tax amounts have been credited directly to equity as follows:
2023 2022 GBP000 GBP000 ----------------------------------------------- ------- ------- Deferred tax relating to share-based payments (note 18) 88 275 Current tax relief on exercise of share options (123) (171) (35) 104 ----------------------------------------------- ------- -------
The charge for the year can be reconciled to the profit per the income statement as follows:
2023 2022 GBP000 GBP000 ---------------------------------------------------- ------------------ -------------- Profit before tax 87,661 58,411 ---------------------------------------------------- ------------------ -------------- UK Corporation Tax at 22% (2022: 19%): 19,293 11,098 Effects of: Expenses not deductible for tax purposes (22) 669 Income not taxable in determining taxable profit (16) (86) Amounts not recognised 325 236 Effect of rate changes to deferred tax (133) (52) Adjustments to current and deferred tax in respect of prior periods (5) (193) ---------------------------------------------------- ------------------ -------------- 19,442 11,672 ---------------------------------------------------- ------------------ -------------- Effective tax rate 22.2% 20.0%
Deferred tax has been recognised at 25%, being the rate expected to be in force at the time of the reversal of the temporary difference (2022: 19% or 25%). A deferred tax asset in respect of future share option deductions has been recognised based on the Company's share price at 30 September 2023.
11 Dividends
2023 2022 GBP000 GBP000 -------------------------------------------------- ------- -------------- Amounts recognised as distributions to equity holders during the year: Final dividend for the year ended 30 September 2022 of 4.59p (2021: 4.50p per share) 18,893 18,460 Special dividend for the year ended 30 September 2022 of nil (2021: 5.00p per share) - 20,511 Interim dividend for the year ended 30 September 2023 of 3.50p (2022: 2.78p per share) 14,401 11,412 -------------------------------------------------- ------- -------------- Total dividends paid on equity shares 33,294 50,383 -------------------------------------------------- ------- -------------- Proposed final dividend for the year ended 30 September 2023 of 7.25p (2022: 4.59p) per share 29,807 18,843
A final dividend declared of 7.25p per share is payable on 9 February 2024 to shareholders on the register on 12 January 2024. The ex-dividend date will be 11 January 2024. The final dividend is subject to approval by the shareholders at the Annual General Meeting on 30 January 2024 and has not been included as a liability within these financial statements.
Dividends are payable on all ordinary shares as disclosed in note 23.
The employee benefit trusts, which held 1,082,343 ordinary shares (2022: 567,100) in AJ Bell plc at 30 September 2023, have agreed to waive all dividends. This represented 0.3% (2022: 0.1%) of the Company's called-up share capital. The maximum amount held by the trusts during the year was 1,082,343.
12 Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of the Parent Company by the weighted average number of ordinary shares, excluding own shares, in issue during the year.
Diluted earnings per share is calculated by adjusting the weighted average number of shares to assume exercise of all potentially dilutive share options.
The weighted average number of anti-dilutive share options and awards excluded from the calculation of diluted earnings per share was 148,995 as at 30 September 2023 (FY22: 201,774).
The calculation of basic and diluted earnings per share is based on the following data:
2023 2022 GBP000 GBP000 ---------------------------------------------- ------------ ------------ Earnings Earnings for the purposes of basic and diluted earnings per share being profit attributable to the owners of the Parent Company 68,219 46,739 ---------------------------------------------- ------------ ------------ 2023 2022 No. No. ---------------------------------------------- ------------ ------------ Number of shares Weighted average number of ordinary shares for the purposes of basic EPS in issue during the year 411,242,458 410,248,095 Effect of potentially dilutive share options 1,405,191 1,485,721 ---------------------------------------------- ------------ ------------ Weighted average number of ordinary shares for the purposes of fully diluted EPS 412,647,649 411,733,816 ---------------------------------------------- ------------ ------------ 2023 2022 ---------------------------------------------- ------------ ------------ Earnings per share (EPS) Basic (pence) 16.59 11.39 Diluted (pence) 16.53 11.35 ---------------------------------------------- ------------ ------------
13 Goodwill
2023 2022 GBP000 GBP000 ---------------------------------- ------------------ ---------------- Cost As at 1 October and 30 September 7,103 7,103 ----------------------------------- ------------------ ---------------- Impairment As at 1 October and 30 September (112) (112) ----------------------------------- ------------------ ---------------- Carrying value at 30 September 6,991 6,991 ----------------------------------- ------------------ ----------------
Goodwill relates to acquisitions allocated to the Group's single cash generating unit (CGU).
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.
The recoverable amount of the assets within the CGU is determined using value-in-use calculations. In assessing the value-in-use the estimated future cash flows of the CGU are discounted to their present value using a pre-tax discount rate. Cash flows are based upon the most recent forecasts, approved by the Board, covering a two-year period.
The key assumptions for value-in-use calculations are those regarding discount rate, growth rates and expected changes to revenues and costs in the period, as follows:
- a compound rate of 9.5% (2022: 20%) has been used to assess the expected growth in revenue for the two-year forecast period. This is based on a combination of historical and expected future performance;
- benefits realised from our economies of scale are passed onto customers in the form of price reductions; and
- modest ongoing maintenance expenditure is required on the assets within the CGU in order to generate the expected level of cash flows.
The Directors have made these assumptions based upon past experience and future expectations in the light of anticipated market conditions and the results of streamlining processes through implementation of the target operating model for customer services.
Cash flows have been discounted using a pre-tax discount rate of 8.6% (2022: 8.1%).
The pre-tax discount rate has been calculated using an independent external source. The Directors have performed sensitivity analysis on their calculations, with key assumptions being revised adversely to reflect the potential for future performance being below expected levels. Changes to revenue are the most sensitive as they would have the greatest impact on future cash flows. However, even with nil growth in revenue, there would still be sufficient headroom to support the carrying value of the assets under the CGU.
Based upon the review above the estimated value-in-use of the CGU comfortably supports the carrying value of the assets held within it, and so the Directors are satisfied that for the period ended 30 September 2023 goodwill is not impaired.
14 Other intangible assets
Computer Contractual software Key operating customer and mobile system relationships applications Total GBP000 GBP000 GBP000 GBP000 -------------------------------- -------------- --------------- -------------- -------- Cost At 1 October 2021 11,681 2,135 6,469 20,285 Additions 2,749 - 1,050 3,799 Disposals - (2,135) (483) (2,618) At 30 September 2022 14,430 - 7,036 21,466 -------------------------------- -------------- --------------- -------------- -------- Additions 706 - 7 713 Disposals - - (36) (36) -------------------------------- -------------- --------------- -------------- -------- At 30 September 2023 15,136 - 7,007 22,143 -------------------------------- -------------- --------------- -------------- -------- Amortisation -------------------------------- -------------- --------------- -------------- -------- As at 1 October 2021 7,191 2,135 4,945 14,271 Amortisation charge 337 - 697 1,034 Eliminated on disposal - (2,135) (483) (2,618) At 30 September 2022 7,528 - 5,159 12,687 -------------------------------- -------------- --------------- -------------- -------- Amortisation and impairment 337 - 1,718 2,055 Eliminated on disposal - - (32) (32) At 30 September 2023 7,865 - 6,845 14,710 -------------------------------- -------------- --------------- -------------- -------- Carrying amount At 30 September 2023 7,271 - 162 7,433 -------------------------------- -------------- --------------- -------------- -------- At 30 September 2022 6,902 - 1,877 8,779 -------------------------------- -------------- --------------- -------------- -------- At 30 September 2021 4,490 - 1,524 6,014 -------------------------------- -------------- --------------- -------------- -------- Average remaining amortisation period 2 years Nil
The amortisation and impairment charge above is included within administrative expenses in the income statement.
Additions include an amount of GBP706,000 relating to internally generated assets for the year ended 30 September 2023 (2022: GBP3,556,000).
Total additions in the period are net of a credit of GBP1,213,000 related to the reversal of capitalised share-based payment expenses (2022: additions of GBP1,434,000). The reversal recognised in the period is due to a change in estimate regarding the expected vesting of milestones relating to the earn-out arrangement (note 24).
The net carrying amount of key operating systems includes GBP6,430,000 (2022: GBP5,724,000), relating to assets in development which are currently not amortised. At the year end, the Group had not entered into any contractual commitments (2022: GBP103,000) for the acquisition of intangible assets.
15 Property, plant and equipment
Leasehold Computer improvements Office equipment equipment Total GBP000 GBP000 GBP000 GBP000 ------------------------ -------------- ----------------- ----------- ------- Cost At 1 October 2021 2,192 954 5,610 8,756 Additions 9 22 983 1,014 Disposals - (1) (324) (325) At 30 September 2022 2,201 975 6,269 9,445 ------------------------ -------------- ----------------- ----------- ------- Additions 186 42 1,346 1,574 Disposals - (9) (241) (250) ------------------------ -------------- ----------------- ----------- ------- At 30 September 2023 2,387 1,008 7,374 10,769 ------------------------ -------------- ----------------- ----------- ------- Depreciation At 1 October 2021 655 797 3,953 5,405 Charge for the year 167 72 780 1,019 Eliminated on disposal - (1) (303) (304) ------------------------ -------------- ----------------- ----------- ------- At 30 September 2022 822 868 4,430 6,120 ------------------------ -------------- ----------------- ----------- ------- Charge for the year 174 58 847 1,079 Eliminated on disposal - (9) (230) (239) At 30 September 2023 996 917 5,047 6,960 ------------------------ -------------- ----------------- ----------- ------- Carrying amount At 30 September 2023 1,391 91 2,327 3,809 ------------------------ -------------- ----------------- ----------- ------- At 30 September 2022 1,379 107 1,839 3,325 ------------------------ -------------- ----------------- ----------- ------- At 30 September 2021 1,537 157 1,657 3,351 ------------------------ -------------- ----------------- ----------- -------
The depreciation charge above is included within administrative expenses in the income statement.
At the year end, the Group had not entered into contractual commitments for the acquisition of property, plant and equipment (2022: GBP471,000).
Computer equipment includes assets under construction of GBP68,000 (2022: GBP37,000) which are currently not depreciated.
16 Leases
i) Right-of-use assets Computer and office Property equipment Total GBP000 GBP000 GBP000 Cost At 1 October 2021 16,158 252 16,410 Additions 538 - 538 At 30 September 2022 16,696 252 16,948 Additions 161 21 182 Disposals - (6) (6) At 30 September 2023 16,857 267 17,124 Depreciation At 1 October 2021 2,940 145 3,085 Charge for the year 1,541 49 1,590 At 30 September 2022 4,481 194 4,675 Charge for the year 1,617 37 1,654 Disposals - (5) (5) At 30 September 2023 6,098 226 6,324 Carrying amount At 30 September 2023 10,759 41 10,800
At 30 September 2022 12,215 58 12,273 At 30 September 2021 13,218 107 13,325
The depreciation charge above is included within administrative expenses in the income statement.
The Group has entered into various leases in respect of property and computer and office equipment as a lessee. Lease terms are negotiated on an individual basis and contain a range of different terms and conditions. Property leases typically run for a period of six to fifteen years and computer and office equipment for a period of one to six years.
Additions include GBP161,000 relating to the increase in the Group's dilapidation provision (2022: GBP455,000) (see note 22).
Other than property and computer and office equipment there are no further classes of assets leased by the Group.
ii) Lease liabilities 2023 2022 GBP000 GBP000 Current 1,540 1,566 Non-current 10,866 12,395 12,406 13,961
The undiscounted maturity analysis of lease liabilities is shown below:
2023 2022 GBP000 GBP000 Within one year 2,384 2,517 In the second to fifth years inclusive 8,216 8,579 After five years 5,525 7,533 Total minimum lease payments 16,125 18,629
The total lease interest expense for the year ended 30 September 2023 was GBP952,000 (2022: GBP768,000). Principal cash outflow for leases accounted for under IFRS 16 for the year ended 30 September 2023 was GBP1,576,000 (2022: GBP1,716,000).
17 Subsidiaries
The Group consists of a Parent Company, AJ Bell plc incorporated within the UK, and a number of subsidiaries held directly and indirectly by AJ Bell plc which operate and are incorporated in the UK. Note 6 to the Company's separate financial statements lists details of the interests in subsidiaries.
18 Deferred tax asset
2023 2022 GBP000 GBP000 Deferred tax asset 999 906 Deferred tax liability (515) (296) 484 610
The movement on the deferred tax account and movement between deferred tax assets and liabilities is as follows:
Accelerated Short-term capital Share-based timing allowances payments differences Losses Total GBP000 GBP000 GBP000 GBP000 GBP000 At 1 October 2021 (199) 990 149 - 940 (Charge)/credit to income statement (97) 31 11 - (55) Charge to equity - (275) - - (275) At 30 September 2022 (296) 746 160 - 610 (Charge)/credit to income statement (219) 80 101 - (38) Charge to equity - (88) - - (88) At 30 September 2023 (515) 738 261 - 484
The current year deferred tax adjustment relating to share-based payments reflects the estimated total future tax relief associated with the cumulative share-based payment benefit arising in respect of share options granted but unexercised as at 30 September 2023.
Deferred tax assets have been recognised in respect of other temporary differences giving rise to deferred tax assets where it is probable that these assets will be recovered. As at 30 September 2023, deferred tax assets have not been recognised on trading losses of GBP5,524,000 (2022: GBP4,051,000).
19 Trade and other receivables
2023 2022 GBP000 GBP000 Trade receivables 2,613 2,207 Prepayments 8,861 6,824 Accrued income 33,662 21,960 Other receivables 13,365 18,445 58,501 49,436
The Directors consider that the carrying amount of trade and other receivables approximates their fair value. Included within other receivables is client money required to meet settlement obligations and are payable on demand.
Included within accrued income is GBP1,081,000 (2022: GBP984,000) relating to contract assets, a movement of GBP97,000 (2022: GBP6,000) during the year due to increased revenues.
The ageing profile of trade receivables was as follows:
2023 2022 GBP000 GBP000 Current - not past due 1,137 747 Past due: 0 to 30 days 476 886 31 to 60 days 279 116 61 to 90 days 173 39 91 days and over 1,341 1,024 3,406 2,812 Provision for impairment (793) (605) 2,613 2,207
The movement in the provision for impairment of trade receivables is as follows:
2023 2022 GBP000 GBP000 Opening loss allowance as at 1 October 605 524 Loss allowance recognised 254 174 Receivables written off during the year as uncollectable (8) (21) Unused amount reversed (58) (72) Balance at end of year 793 605
20 Cash and cash equivalents
2023 2022 GBP000 GBP000 Group cash and cash equivalent balances 146,304 84,030
Cash and cash equivalents at 30 September 2023 and 30 September 2022 are considered to be holdings of less than one month, or those over which the Group has an immediate right of recall.
21 Trade and other payables
2023 2022 GBP000 GBP000 Trade payables 960 138 Social security and other taxes 3,453 2,151 Other payables 859 678 Accruals 45,043 10,428 Deferred income 2,122 2,209 52,437 15,604
Trade payables, accruals and deferred income principally comprise amounts outstanding for trade purposes including payment of interest to customers and ongoing costs of the business. The Directors consider that the carrying amount of trade payables approximates their fair value.
Deferred income in the current and prior year relates to contract liabilities. The prior year deferred income balance has now all been recognised as revenue and the current year balance all relates to cash received in the current period. Total deferred income as at 30 September 2023 is expected to be recognised as revenue in the coming year.
22 Provisions
Office dilapidations Other provision Total GBP000 GBP000 GBP000 At 1 October 2022 2,004 519 2,523 Additional provisions 161 778 939 Provisions used - (171) (171) At 30 September 2023 2,165 1,126 3,291 Included in current liabilities - 1,126 1,126 Included in non-current liabilities 2,165 - 2,165
Office dilapidations
The Group is contractually obliged to reinstate its leased properties to their original state and layout at the end of the lease terms. During the year, management reviewed the Group's dilapidation provision and the assumptions on which the provision is based. The estimate is based upon property location, size of property and an estimate of the charge per square foot. A further charge of GBP161,000 has been recognised in relation to an increase in the estimated charge per square foot. The office dilapidations provision represents management's best estimate of the costs which will ultimately be incurred in settling these obligations.
Other provisions
The other provisions relate to the settlement of an operational tax dispute, the costs associated with defending a legal case and compensation required to settle a small number of disputed claims. There is some uncertainty regarding the amount and timing of the outflows required to settle the obligations; therefore a best estimate has been made by assessing a number of different outcomes considering the potential areas and time periods at risk and any associated interest. The timings of the outflows are uncertain and could be paid within 12 months of the date of the statement of financial position, subject to the timing of a final resolution.
23 Share capital
2023 2022 2023 2022 Issued, fully-called and paid: Number Number GBP GBP Ordinary shares of 0.0125p each 412,211,306 411,091,634 51,526 51,386
All ordinary shares have full voting and dividend rights.
The following transactions have taken place during the year:
Number of Share premium Transaction type Share class shares GBP000 Exercise of CSOP Ordinary shares of options 0.0125p each 31,462 33 Exercise of EIP Ordinary shares of options 0.0125p each 530,303 - Ordinary shares of Free shares 0.0125p each 557,907 - 1,119,672 33
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. They are entitled to share in the proceeds on the return of capital, or upon the winding up of the Company in proportion to the number of and amounts paid on shares held. The shares are non-redeemable.
Own shares
As at 30 September 2023, the Group held 1,082,343 in own shares in employee benefit trusts to satisfy future share incentive plans. Shares held by the Trust are held at GBP2,377,000 (2022: GBP473,000) being the price paid to repurchase, and the carrying value is shown as a reduction within shareholders' equity.
During the year, 631,151 ordinary own shares were purchased through AJ Bell's employee benefit trust in exchange for consideration of GBP2,000,000 (2022: GBPnil). 115,908 EIP options were exercised and issued from the employee benefit trusts in the year.
The costs of operating the trusts are borne by the Group but are not material. The trusts waived the right to receive dividends on these shares.
24 Share-based payments
Company Share Option Plan (CSOP)
The CSOP is a HMRC approved scheme in which the Board, at their discretion, grant options to employees to purchase ordinary shares. Each participating employee can be granted options up to the value of GBP60,000. Options granted under the CSOP can be exercised between the third and tenth anniversary after the date of grant and are usually forfeited if the employee leaves the Group before the option expires. The expense for share-based payments under the CSOP is recognised over the respective vesting period of these options.
Option To Buy Scheme (OTB) - Growth shares
The OTB scheme is a historical award scheme whereby the Board at its discretion granted growth shares to employees. Growth shares entitled the holder to participate in the growth value of the Group above a certain threshold level, set above the current market value of the Group at the time the shares were issued. Growth shares granted under the OTB scheme had different vesting conditions. The vesting condition attached to all growth shares granted is that the threshold level needs to be met and an exit event needs to have occurred. As part of the AJ Bell listing process all awards were converted into ordinary shares and those awards granted with an additional employment condition of four or six years after the date of grant, continue to be recognised as a share-based payment. Awards that were issued subject to employment conditions are subject to buy back options under which the Group can buy back the shares for their issue price if the employee leaves the Group before the expiry of the employment condition period.
Buy As You Earn plan (BAYE)
The BAYE plan is an all-employee share plan under which shares can be issued to employees as either free shares or partnership shares.
The Company may grant free shares up to a maximum of GBP3,600 per employee in a tax year. During the year, free shares up to a maximum value of GBP2,000 have been offered to all employees who were employed by the Company at 30 September 2022 (2022: nil).
Employees have been offered the opportunity to participate in the partnership plan to enable such employees to use part of their pre-tax salary to acquire shares. The limit to the pre-tax salary deduction is GBP1,800 or, if lower, 10% of salary each year.
The plan entitles employees to use this deduction to buy shares in the Company on a monthly basis at the current market value. Employees are able to withdraw their shares from the plan at any time but may be subject to income tax and national insurance charges if withdrawn within three years of purchasing the shares. Therefore the monthly partnership plan does not give rise to a share-based payment charge.
Executive Incentive Plan (EIP)
The EIP is a performance share plan that involves the award of nominal cost options to participants conditional on the achievement of specified performance targets and continuous employment over a certain period of time. Individual grants will be dependent on the assessment of performance against a range of financial and non-financial targets set at the beginning of the financial year.
Senior Manager Incentive Plan (SMIP)
The SMIP is a performance share plan that involves the award of nominal cost options to participants conditional on the achievement of specified performance targets and continuous employment over a certain period of time. Individual grants will be dependent on the assessment of performance against a range of financial and non-financial targets set at the beginning of the financial year.
CSR initiative
A CSR initiative was introduced in December 2019 with the intention of giving an additional contribution to charity through the donation of share options should a number of stretching targets be met by the Group. The awards made are equity-settled awards and involved the grant of market value options to the AJ Bell Trust conditional on the achievement of diluted earnings per share (DEPS) targets for the financial years 2022, 2023 and 2024 (Performance Period).
The exercise of each tranche will be conditional upon the DEPS having increased in relation to the 7.47 pence DEPS for the year ended 30 September 2019, by more than:
- 90% for September 2022; - 115% for September 2023; and - 140% for 30 September 2024.
These are considered to be the lower DEPS targets. The upper DEPS target for each performance period is 10% above the lower DEPS target.
The percentage of shares granted that will vest in each performance period is determined as follows:
- If actual DEPS is below the lower DEPS target, the vesting percentage is equal to zero; - If actual DEPS is above the upper DEPS target, the vesting percentage is equal to 100%; and
- If actual DEPS is between the lower and upper target, then the vesting percentage is determined by linear interpolation on a straight-line basis and rounded down to the nearest 10%.
As no service is being provided by the AJ Bell Trust, all conditions involved in the arrangement are considered to be non-vesting conditions. Non-vesting conditions should be taken into account when estimating the fair value of the equity instrument granted. The fair value has been estimated using the Monte Carlo simulation model.
Earn-out arrangement
The acquisition of Adalpha gave rise to an earn-out arrangement whereby share awards will be made should a number of operational and financial milestones, relating to AUA targets and the development of a simplified proposition for financial advisers, be met. The awards will be equity-settled and will vest in several tranches in line with the agreed milestones.
Under the terms of the acquisition agreement, shares will be awarded to eligible employees conditional upon the successful completion of certain performance milestones and their continued employment with the Group during the vesting period. There is no exercise price attached to the share award.
The fair value of the earn-out arrangement is estimated as at the date of grant calculated by reference to the quantum of the earn-out payment for each performance milestone and an estimated time to proposition completion, discounted to net present value. The performance conditions included within the arrangement are not considered market conditions and therefore the expected vesting is reviewed at each reporting date.
Movements during the year
The tables below summarise the outstanding options for each share-based payment scheme.
2023 2022 CSOP Weighted Weighted Average Average Exercise Price Exercise Number GBP Number Price GBP Outstanding at the beginning of the year 1,101,893 3.90 1,015,763 3.23 Granted during the year 223,167 3.73 461,744 3.73 Forfeited during the year (1,111,523) 3.94 (108,611) 4.05 Exercised during the year (31,462) 1.04 (267,003) 1.02 Outstanding at the end of the year 182,075 3.91 1,101,893 3.90 Exercisable at the end of the year 39,339 3.94 31,462 1.04
The lowest exercise price for share options outstanding at the end of the period was 298p (2022: 104p) and the highest exercise price was 434p (2022: 434p). The weighted average remaining contractual life of share options outstanding at the end of the period was 7.6 years (2022: 8.3 years).
2023 2022 OTB - Growth Shares Weighted Weighted Average Average Exercise Exercise Number Price GBP Number Price GBP Outstanding at the beginning of the year 1,166,131 0.63 3,192,268 0.63 Vested - - (2,026,137) 0.63 Outstanding at the end of the year 1,166,131 0.63 1,166,131 0.63
Upon listing to the London Stock Exchange, all growth shares were converted to ordinary shares and therefore no exercise price exists for growth shares outstanding at the end of the period. The weighted average remaining contractual life of growth shares converted to ordinary shares under a call option agreement at the end of the period was 0.2 years (2022: 1.2 years).
2023 2022 EIP Weighted Weighted Average Average Exercise Exercise Number Price GBP Number Price GBP Outstanding at beginning of the year 1,615,868 0.000125 1,487,313 0.000125 Granted during the year 912,833 0.000125 736,015 0.000125 Exercised during the year (646,211) 0.000125 (495,550) 0.000125 Lapsed during the year (207,298) 0.000125 (111,910) 0.000125 Outstanding at the end of the year 1,675,192 0.000125 1,615,868 0.000125 Exercisable at the end of the year 349,055 0.000125 565,636 0.000125
The weighted average remaining contractual life of EIP shares outstanding at the end of the period was 8.3 years (2022: 8 years).
2023 SMIP initiative Weighted Average Exercise Price Number GBP Outstanding at beginning of the year - - Granted during the year 3,999 0.000125 Outstanding at the end of the year 3,999 0.000125 Exercisable at the end of the year - - 2023 2022 CSR initiative Weighted Weighted Average Average Exercise Exercise Number Price GBP Number Price GBP Outstanding at beginning of the year 1,662,510 4.01 2,493,766 4.01 Forfeited during the year (332,502) 4.01 (831,256) 4.01 Outstanding at the end of the year 1,330,008 4.01 1,662,510 4.01 Exercisable at the end of the year 498,753 4.01 - -
The weighted average remaining contractual life of CSR options outstanding at the end of the period was 6.2 years (2022: 7.2 years).
Weighted average share price of options exercised.
The weighted average share price of all options exercised during the year was GBP3.46 (2022: GBP3.67).
Earn-out arrangement
2023 2022 Weighted Weighted Average Average Exercise Exercise Number Price GBP Number Price GBP Shares granted during the year - - 155,974 3.15
Measurement
The fair value of equity-settled share options granted is estimated as at the date of grant using the Black-Scholes model, taking into account the terms upon which the options and awards were granted.
The inputs into the Black-Scholes model and assumptions used in the calculations are as follows:
EIP
Grant date 09/12/2022 09/12/2022 09/12/2022 Number of shares under option 425,873 121,478 365,482 Fair value of share from generally accepted business model (GBP) 3.54 3.40 3.33 Share price (GBP) 3.61 3.61 3.61 Exercise price of an option (GBP) 0.000125 0.000125 0.000125 Expected volatility 36.90% 35.09% 35.09% Expected dividend yield 2.04% 2.04% 2.04% Risk-free interest rate 3.15% 3.18% 3.22% Expected option life to exercise (months) 12 36 48
CSOP
Grant date 08/12/2022 Number of shares under option 223,167 Fair value of share option from generally accepted business model (GBP) 0.82 Share price (GBP) 3.61 Exercise price of an option (GBP) 3.73 Expected volatility 35.09% Expected dividend yield 2.04% Risk-free interest rate 3.18% Expected option life to exercise (months) 36
SMIP
Grant date 08/02/2023 Number of shares under option 3,999 Fair value of share option from generally accepted business model (GBP) 3.25 Share price (GBP) 3.46 Exercise price of an option (GBP) 0.000125 Expected volatility 14.79% Expected dividend yield 2.13% Risk-free interest rate 3.15% Expected option life to exercise (months) 36
Expected volatility is estimated by considering historic average share price volatility at the grant date.
The expected life of the options is based on the minimum period between the grant of the option, the earliest possible exercise date and an analysis of the historical exercise data that is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that historical volatility is indicative of future trends, which may also not necessarily be the case.
During the year, the Group recognised a total share-based payment expense of GBP1,103,000 (2022: GBP4,728,000), inclusive of a GBP1,213,000 reversal of capitalised share-based payment expense (2022: capitalised GBP1,434,000) within the statement of financial position.
The reversal recognised in the period is due to a change in estimate regarding the expected vesting dates of milestones relating to the earn-out arrangement. Under the terms of the earn-out arrangement, shares will be awarded to eligible employees conditional upon the successful completion of certain performance milestones and their continued employment with the Group during the vesting period. The performance condition included within the arrangement is not considered a market condition and therefore the expected vesting will be reviewed at each reporting date.
25 Financial instruments and risk management
The Group's activities expose it to a variety of financial instrument risks; market risk (including interest rate and foreign exchange), credit risk and liquidity risk. Information is presented below regarding the exposure to each of these risks, including the procedures for measuring and managing them.
Financial instruments include both financial assets and financial liabilities. Financial assets principally comprise trade and other receivables and cash and cash equivalents. Financial liabilities comprise trade and other payables, accruals and obligations under leases. The Group does not have any derivative financial instruments.
Risk management objectives
The Group has identified the financial, business and operational risks arising from its activities and has established policies and procedures to manage these items in accordance with its risk appetite. The Board of Directors has overall responsibility for establishing and overseeing the Group's risk management framework and risk appetite.
The Group's financial risk management policies are intended to ensure that risks are identified, evaluated and subject to ongoing monitoring and mitigation (where appropriate). These policies also serve to set the appropriate control framework and promote a robust risk culture within the business.
The Group regularly reviews its financial risk management policies and systems to reflect changes in the business, counterparties, markets and range of financial instruments that it uses.
The Group's Treasury Committee has principal responsibility for monitoring exposure to the risks associated with cash and cash equivalents. Policies and procedures are in place to ensure the management and monitoring of each type of risk. The primary objective of the Group's treasury policy is to manage short-term liquidity requirements whilst maintaining an appropriate level of exposure to other financial risks in accordance with the Group's risk appetite.
Significant accounting policies
Details of the significant accounting policies, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each financial asset and financial liability, are disclosed within note 2 to the financial statements.
Categories of financial instrument
The financial assets and liabilities of the Group are detailed below:
2023 2022 Amortised Financial Carrying Amortised Financial Carrying cost liabilities value cost liabilities value GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 Financial assets Trade receivables 2,613 - 2,613 2,207 - 2,207 Accrued income 33,662 - 33,662 21,960 - 21,960 Other receivables 13,365 - 13,365 18,445 - 18,445 Cash and cash equivalents 146,304 - 146,304 84,030 - 84,030 195,944 - 195,944 126,642 - 126,642 Financial liabilities Trade and other payables - 46,030 46,030 - 10,598 10,598 Lease liabilities - 12,406 12,406 - 13,961 13,961 - 58,436 58,436 - 24,559 24,559
The carrying amount of all financial assets and liabilities is approximate to their fair value due to their short-term nature.
Market risk
Interest rate risk
The Group holds interest bearing assets in the form of cash and cash deposits. Cash at bank earns interest at floating rates based on daily bank deposit rates. Term deposits can also be made for varying periods depending on the immediate cash requirements of the Group, and interest is earned at the respective fixed-term rate. Based on the cash balances shown in the Group's statement of financial position at the reporting date, if interest rates were to move by 25bps it would change profit before tax by approximately:
2023 2022 GBP000 GBP000 + 25 bps (0.25%) 293 191 - 25 bps (0.25%) (293) (154)
As at the year end the Group had no borrowings, and therefore was not exposed to a material interest rate risk related to debt as the interest rate is fixed at the inception of the lease.
The Group retains a proportion of the interest income generated from the pooling of customer cash balances and as a result, the Group revenue has an indirect exposure to interest rate risk. The cash balances are held with a variety of banks and are placed in a range of fixed-term, notice and call deposit accounts with due regard for counterparty credit risk, capacity risk, concentration risk and liquidity risk requirements. The spread of rate retained by the Group is variable dependent on rates received by banks (disclosed to customers at between 1.15% below and 0.15% above the prevailing base rate) and amounts paid away to customers.
The impact of a 50bps increase or decrease in UK base interest rates on the Group's revenue has been calculated and shown below. This has been modelled on a historical basis for each year separately assuming that the UK base rate was 50bps higher or lower for the year.
2023 2022 GBP000 GBP000 + 50 bps (0.50%) - 11,827 - 50 bps (0.50%) - (12,759)
In FY23, movements in the UK base interest rate would not have impacted the retained interest income earned by the Group, as any increases or decreases to the UK base interest rate when it is at higher levels would be passed to customers in the form of higher or lower pay away rates respectively.
Conversely, in FY22 a 50bps increase would result in an additional GBP11.8m retained interest income, as the majority of the increased gross interest income earned would be retained by the Group to rebuild revenue margins when UK base is at low levels. A 50bps decrease would result in a reduction of GBP12.8m with the reduction in gross interest income earned being absorbed by the Group. At low levels of UK base rate it would not be possible to reduce the pay away rates significantly as they would already be at low levels.
Customer cash balances are not a financial asset of the Group and so are not included in the statement of financial position.
Market movement sensitivity
The Group's custody fees are derived from the market value of the underlying assets held by the retail customer in their account, based on product type, mix and portfolio size which are charged on an ad valorem basis. As a result, the Group has an indirect exposure to market risks, as the value of the underlying customers' assets may rise or fall. The impact of a 10% increase or reduction in the value of the customers underlying assets subject to the custody fees on the Group's revenue has been calculated and shown below. This has been modelled on a historical basis for each year separately assuming that the value of the customers' assets were 10% higher or lower than the actual position at the time.
2023 2022 GBP000 GBP000 + 10% higher 6,341 5,846 - 10% lower (6,341) (5,846)
Foreign exchange risk
The Group is not exposed to significant foreign exchange translation or transaction risk as the Group's activities are primarily within the UK. Foreign exchange risk is therefore not considered material.
Credit risk
The Group's exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due, arises principally from its cash balances held with banks and trade and other receivables.
Trade receivables are presented net of expected credit losses within the statement of financial position. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and number of days past due. Details of those trade receivables that are past due are shown within note 19.
The Group has implemented procedures that require appropriate credit or alternative checks on potential customers before business is undertaken. This minimises credit risk in this area.
The credit and concentration risk on liquid funds, cash and cash equivalents is limited as deposits are held across a number of major banks. The Directors continue to monitor the strength of the banks used by the Group. The principal banks currently used by the Group are Bank of Scotland plc, Barclays Bank plc, Lloyds Bank plc, Lloyds Bank Corporate Markets plc, HSBC Bank plc, NatWest Markets plc, Santander UK plc, Clearstream Banking SA and Qatar National Bank (Q.P.S.C). Bank of Scotland plc, the Group's principal banker, is substantial and is 100% owned by Lloyds Banking Group plc. All these banks currently have long-term credit ratings of at least A (Fitch). Where the services of other banks are used, the Group follows a rigorous due diligence process prior to selection. This results in the Group retaining the ability to further mitigate the counterparty risk on its own behalf and that of its customers.
The Group has no significant concentration of credit risk as exposure is spread over a large number of counterparties and customers. The maximum exposure to credit risk is represented by the carrying amount of each financial asset at the reporting date. In relation to dealing services, the Group operates as agent on behalf of its underlying customers and in accordance with London Stock Exchange Rules.
Any settlement risk during the period between trade date and the ultimate settlement date is substantially mitigated as a result of the Group's agency status, its settlement terms and the delivery versus payment mechanism whereby if a counterparty fails to make payment, the securities would not be delivered to the counterparty. Therefore any risk exposure is to an adverse movement in market prices between the time of trade and settlement. Conversely, if a counterparty fails to deliver securities, no payment would be made.
There has been no material change to the Group's exposure to credit risk during the year.
Liquidity risk
This is the risk that the Group may be unable to meet its liabilities as and when they fall due. These liabilities arise from the day-to-day activities of the Group and from its obligations to customers. The Group is a highly cash-generative business and maintains sufficient cash and standby banking facilities to fund its foreseeable trading requirements.
There has been no change to the Group's exposure to liquidity risk or the manner in which it manages and measures the risk during the year.
The following table shows the undiscounted cash flows relating to non-derivative financial liabilities of the Group based upon the remaining period to the contractual maturity date at the end of the reporting period.
1 to After Due within 5 5 1 year years years Total GBP000 GBP000 GBP000 GBP000 2023 Trade and other payables 46,030 - - 46,030 Lease liabilities 2,384 8,216 5,525 16,125 48,414 8,216 5,525 62,155 2022 Trade and other payables 10,598 - - 10,598 Lease liabilities 2,517 8,579 7,533 18,629 13,115 8,579 7,533 29,227
Capital management
The Group's objectives in managing capital are to:
- safeguard the Group's ability to continue as a going concern so that it can continue to provide returns for shareholders, security for our customers and benefits for other stakeholders;
- maintain a strong capital base to support the development of its business; and
- comply with regulatory requirements at all times.
The capital structure of the Group consists of share capital, share premium and retained earnings. As at the reporting date the Group had capital of GBP166,037,000 (2022: GBP133,394,000).
Capital generated from the business is both reinvested in the business to generate future growth and returned to shareholders principally in the form of dividends. The capital adequacy of the business is monitored on an ongoing basis and as part of the business planning process by the Board. It is also reviewed before any distributions are made to shareholders to ensure it does not fall below the agreed surplus as outlined in the Group's capital management policy. The liquidity of the business is monitored by management on a daily basis to ensure sufficient funding exists to meet the Group's liabilities as they fall due. The Group is highly cash-generative and maintains sufficient cash and standby banking facilities to fund its foreseeable trading requirements.
The Group conducts an ICARA, as required by the FCA to assess the appropriate amount of regulatory capital and liquid resources to be held by the Group. Regulatory capital and liquid resources for ICARA are calculated in accordance with published rules.
The ICARA compares the Group's financial resources against regulatory capital and liquidity requirements as specified by the relevant regulatory authorities. Our current financial resources, regulatory capital and liquidity requirements can be found in the Financial Review.
The Group maintained a surplus of regulatory capital and liquid resources throughout the year. The disclosures required under MIFIDPRU 8 of the Investment Firms Prudential Regime are available on the Group's website at ajbell.co.uk.
26 Interests in unconsolidated structure entities
The Group manages a number of investment funds (open-ended investments) acting as agent of the Authorised Corporate Director. The dominant factor in deciding who controls these entities is the contractual arrangement in place between the Authorised Corporate Director and the Group, rather than voting or similar rights. As the Group directs the investing activities through its investment management agreement with the Authorised Corporate Director, the investment funds are deemed to be structured entities. The investment funds are not consolidated into the Group's financial statements as the Group is judged to act as an agent rather than having control under IFRS 10.
The purpose of the investment funds is to invest capital received from investors in a portfolio of assets in order to generate a return in the form of capital appreciation, income from the assets, or both. The Group's interest in the investment funds is in the form of management fees received for its role as investment manager. These fees are variable depending on the value of the assets under management.
The funds do not have any debt or borrowings and are financed through the issue of units to investors.
The following table shows the details of unconsolidated structured entities in which the Group has an interest at the reporting date:
Management charge Number Net AUM Annual management receivable at of funds of funds charge 30 September Year Type GBPm GBP000 GBP000 2023 OEIC 9 2,426.6 2,859 280 2022 OEIC 9 1,465.5 1,816 369
The annual management charge is included within recurring ad valorem fees within revenue in the consolidated income statement.
The annual management charge receivable is included within trade and other receivables in the consolidated statement of financial position.
The maximum exposure to loss relates to a reduction in future management fees should the market value of the investment funds decrease.
27 Reconciliation of liabilities arising from financing activities
1 October Change in lease 30 September 2022 Cashflows liability 2023 2023 GBP000 GBP000 GBP000 GBP000 Lease liabilities 13,961 (1,576) 21 12,406 Total liabilities from financing activities 13,961 (1,576) 21 12,406 1 October Change in lease 30 September 2021 Cashflows liability 2022 2022 GBP000 GBP000 GBP000 GBP000 Lease liabilities 15,594 (1,716) 83 13,961 Total liabilities from financing activities 15,594 (1,716) 83 13,961
28 Related party transactions
Transactions between the Parent Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed.
Transactions with key management personnel:
Key management personnel is represented by the Board of Directors and the ExCo.
The remuneration expense of key management personnel is as follows:
2023 2022 GBP000 GBP000 Short-term employee benefits (excluding NI) 2,893 2,779 Retirement benefits 66 114 Share-based payment 1,484 2,389 4,443 5,282
During the year there were no material transactions or balances between the Group and its key management personnel or members of their close families, other than noted below.
Transactions with directors:
The remuneration of individual directors is provided in the Directors' Remuneration report.
Dividends totalling GBP163,000 (2022: GBP11,743,000) were paid in the year in respect of ordinary shares held by the Company's directors.
The aggregate gains made by the Directors on the exercise of share options during the year were GBP469,000 (2022: GBP772,000).
During the year Directors and their families received beneficial staff rates in relation to personal portfolios. The discount is not material to the Directors or to AJ Bell.
Other related party transactions:
Charitable donations
During the year the Group made donations of nil (2022: GBP298,000) to the AJ Bell Trust, a registered charity of which Mr A J Bell is a trustee.
EQ Property Services Limited
The Group is party to three leases with EQ Property Services Limited for rental of the Head Office premises, 4 Exchange Quay, Salford Quays, Manchester, M5 3EE. Mr M T Summersgill and Mr R Stott are directors and shareholders of both AJ Bell plc and EQ Property Services Limited, Mr A J Bell is a shareholder of both AJ Bell plc and EQ Property Services Limited. The leases for the rental of the building were entered into on 17 August 2016 for terms which expire on 30 September 2031, at an aggregate market rent of GBP2,009,000 (2022: GBP1,826,000 per annum).
At the reporting date, there is no payable outstanding (2022: GBPnil) with EQ Property Services Limited.
Andy Bell consultancy
On 1 October 2022 Andy Bell stepped down as CEO into a consultancy role for the Group, and remains a significant shareholder of AJ Bell plc. In his capacity as a consultant, he was paid GBP157,000 (2022: GBPnil).
Any amounts outstanding with related parties are unsecured and will be settled in cash. No guarantees have been given or received. No provision has been made for doubtful debts in respect of amounts owed by related parties.
29 Subsequent events
There have been no material events occurring between the reporting date and the date of approval of these consolidated financial statements.
Glossary
Adalpha AJ Bell Touch Limited and its wholly-owned subsidiaries AGM Annual General Meeting AJBI AJ Bell Investments AJBIC AJ Bell Investcentre BAYE Buy as you earn BBSL Blythe Business Services Limited Board, Directors The Board of Directors of AJ Bell plc BPP Business Planning Process BPS Basis points CAM Combined Assurance Model CASS Client Assets Sourcebook CBT Computer-Based Training CDP Carbon Disclosure Project CGU Cash Generating Unit CODM Chief Operating Decision Maker CSOP Company Share Option Plan CSR Corporate Social Responsibility CTP Competitive Tender Process DC Defined Contribution DEPS Diluted Earnings Per Share DTR Disclosure Guidance and Transparency Rules DWP Department for Work and Pensions D2C Direct to Consumer EIP Executive Incentive Plan EPS Earnings Per Share ERC Executive Risk Committee ESG Environmental, Social and Governance EVF Employee Voice Forum EVIC Enterprise Value Including Cash ExCo Executive Committee (formerly EMB) FCA Financial Conduct Authority FRC Financial Reporting Council FRS Financial Reporting Standards FTE Full Time Equivalent FTSE The Financial Times Stock Exchange FX Foreign Exchange GHG Greenhouse Gas HMRC His Majesty's Revenue and Customs HR Human Resources ICARA Internal Capital and Risk Assessment ICO Information Commissioner's Office IFRIC International Financial Reporting Interpretations Committee IFPR Investment Firm Prudential Regime IFRS International Financial Reporting Standards IPO Initial Public Offering ISA Individual Savings Account ISO International Organisation for Standardisation ISSB International Sustainability Standards Board IT Information Technology KOS Key Operating System KPI Key Performance Indicator KRI Key Risk Indicator LISA Lifetime ISA MiFID Markets in Financial Instruments Directive MIFIDPRU Prudential Sourcebook for MiFID Investment Firms MPS Managed Portfolio Service MSCI Morgan Stanley Capital International NGFS Network for Greening the Financial System OCF Ongoing Charges Figure OEIC Open-Ended Investment Company OTB Option To Buy PBT Profit Before Tax PCAF Partnership for Carbon Accounting Financials PLC Public Limited Company PR&U Principal Risks and Uncertainties R&CC Risk and Compliance Committee RMF Risk Management Framework SID Senior Independent Director SIPP Self-Invested Personal Pension SMIP Senior Management Incentive Plan SSAS Small Self-Administered Scheme TCFD Task Force on Climate-related Financial Disclosures WACI Weighted Average Carbon Intensity
Definitions
Ad valorem According to value AUA Assets Under Administration AUM Asset Under Management Customer retention The customer retention rate is the average rate number of funded platform customers during the financial year that remain funded at the year end Lifetime value The total amount of revenue a business expects to generate over the lifetime of a customer Listing rules Regulations subject to the oversight of the FCA applicable to companies listed on a UK stock exchange MSCI ESG rating MSCI's assessment of a Company's resilience to long-term, industry material ESG risks and how well they manage those risks relative to peers Own shares Shares held by the Group to satisfy future incentive plans Platforum The advisory and research business specialising in investment platforms Recurring ad valorem Includes custody fees, retained interest revenue income and investment management fees Recurring fixed Includes recurring pension administration revenue fees and media revenue Revenue per GBP Represents revenue as a percentage of the AUA average AUA in the year. Average AUA is calculated as the average of the opening and closing AUA in each quarter averaged for the year Transactional revenue Includes dealing fees and pension scheme activity fees UK Corporate Governance A code which sets out standards for best Code boardroom practice with a focus on Board leadership and effectiveness, remuneration, accountability and relations with shareholders
Company information
Company number 04503206 Company Secretary Olubunmi Likinyo Registered office 4 Exchange Quay Salford Quays Manchester M5 3EE Auditor BDO LLP 55 Baker Street London W1U 7EU Banker Bank of Scotland plc The Mound Edinburgh EH1 1YZ
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(END) Dow Jones Newswires
December 07, 2023 02:00 ET (07:00 GMT)
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