Jarvis Securities plc Half-year Report (1318T)

TIDMJIM

RNS Number : 1318T

Jarvis Securities plc

16 July 2020

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

Jarvis Securities

("Jarvis", the "Company" or the "Group")

Interim Results for the Six Months Ended 30 June 2020

Highlights

   --    GBP1,606,681 (30.8%) increase in revenue versus six months to 30 June 2019 
   --    GBP1,202,967 (50.3%) increase in profit before tax versus six months to 30 June 2019 
   --    Cash under administration has increased 23.0% versus 30 June 2019 

Enquiries:

   Jarvis Securities plc                                                            01892 510 515 

Andrew Grant

Jolyon Head

   WH Ireland Limited                                                            0113 394 6600 

Katy Mitchell

Darshan Patel

Chairman's Statement

I wrote in my statement a year ago that I thought lower trading activity due to lack of clarity over the UK's Brexit position would not stay at the lower end of the spectrum indefinitely, and once volumes returned to the market we would be well positioned to capture financial benefits. Admittedly, the catalyst for increased volume may not have been solely Brexit related, but the second part of the comment has proven to be accurate.

I believed that the uncertainty between the vote to leave the EU in 2016 and the election at the end of 2019 created an artificially depressed trading environment. So, I am pleased to say that we have now seen a significant increase in trade volumes for which the corresponding increase in revenue has outstripped the increase in the marginal operating costs. As a consequence, the Directors believe the Company is trading ahead of current market expectations. I have long maintained that the business model would translate increased trade volumes into improved profits, and the conditions over this period has enabled us to demonstrate this and produce the results which are now published here. We have been able to offset the effects of the depressed market conditions through organic growth and realigning the business model. We are now able to see the results which can be produced in a favourable market but still with no contribution from an increase in interest rates.

I am also pleased that we were able to cope operationally with the challenges COVID-19 presented. From this we anticipate further opportunities to grow the business and utilise working practices that had not previously been considered.

As always I would like to thank the staff of Jarvis but on this occasion I would like to extend a special thank you on behalf of all stakeholders to those individuals that have put in the hours and effort that has enabled Jarvis to meet the challenges of Covid 19. It is further worthy of mention that we have not been put in a position of having to consider the furlough process or any Covid related financial schemes being offered to businesses.

As has historically been the case we will continue to maintain our general policy of returning profits to shareholders where the cash held is surplus to regulatory and operating requirements.

Key Performance Indicators (KPI)

The key performance indicators (KPIs) are designed to give stakeholders in the business a more rounded view of the Group's performance. Further details on the KPIs and their measurement can be found in the last Annual Report. A selection of KPIs and the Group's results to the interim period for these are detailed below. These results have been annualised from the position at 30 June 2020 where measurement over a year is required.

 
KPI:                                30/6/20     30/6/19     Target 
Profit before tax margin            53%         46%         20% 
Revenue per employee (annualised)   GBP227,574  GBP172,580  to increase 
 

Consolidated income statement for the period ended 30 June 2020

 
                                     Six months ended          Six months ended 
                          Notes                       30/6/20  30/6/19 
                                     GBP                       GBP 
Continuing operations 
Revenue                              6,827,225                 5,220,544 
Administrative expenses              (3,227,094)               (2,822,187) 
 Lease Finance Costs                  (3,301)                   (4,495) 
Profit before income 
 tax                                 3,596,830                 2,393,862 
Income tax charge         4          (683,398)                 (455,067) 
Profit for the period                2,913,432                 1,938,795 
 
Attributable to equity 
 holders of the parent               2,913,432                 1,938,795 
 
Earnings per share        5          P                         P 
Basic                                26.66                     17.75 
 

Consolidated statement of financial position at 30 June 2020

 
                                Notes  30/6/20         31/12/19         30/6/19 
                                       GBP             GBP         GBP 
Assets 
Non-current assets 
Property, plant and equipment          422,690         461,471     507,742 
Intangible assets                      88,330          105,428     93,410 
Goodwill                               342,872         342,872     342,872 
                                       853,892         909,771     944,024 
Current assets 
Trade and other receivables            9,014,246       3,373,427   4,559,959 
Investments held for 
 trading                               3,419           4,600       1,696 
Cash and cash equivalents              3,241,186       5,290,961   5,243,260 
                                       12,258,851      8,668,988   9,804,915 
Total assets                           13,112,743      9,578,759   10,748,939 
 
Equity and liabilities 
Capital and reserves 
Share capital                   7      111,828         111,828     111,828 
Share premium                          1,576,669       1,576,669   1,576,669 
Merger reserve                         9,900           9,900       9,900 
Capital redemption reserve             9,845           9,845       9,845 
Retained earnings                      5,941,377       4,949,467   6,090,824 
 Own shares held in treasury            (944,054)       (981,136)   (1,086,589) 
Total equity                           6,705,565       5,676,573   6,712,477 
Non-current liabilities                 38,664          38,664      37,451 
 Deferred income tax                     106,956         148,633     189,691 
 Lease Liabilities 
 Current liabilities                   145,620         187,297     227,142 
Trade and other payables               5,506,103       3,184,059   3,272,363 
Lease Liabilities                      82,734          81,507      80,298 
Income tax                      4      672,721         449,323     456,659 
                                       6,261,558       3,714,889   3,809,320 
Total liabilities                      6,407,178       3,902,186   4,036,462 
Total equity and liabilities           13,112,743      9,578,759   10,748,939 
 
 

Consolidated statement of comprehensive income

 
                                    Six months ended  Six months 
                                     30/6/20           ended 
                                                       30/6/19 
Profit for the period               2,913,432         1,938,795 
Total comprehensive income 
 for the period                     2,913,432         1,938,795 
Attributable to equity holders 
 of the parent                      2,913,432         1,938,795 
 

Consolidated statement of changes in equity for the period

 
                                                                                                        Attributable 
                                                                                                         to equity 
                                                        Capital     Share                  Own shares    holders 
                           Share    Share      Merger   redemption  option   Retained       held in      of the 
                           capital   premium   reserve  reserve     reserve   earnings      treasury     company 
                           GBP      GBP        GBP      GBP         GBP      GBP           GBP          GBP 
Balance at 31/12/18        111,828  1,576,669  9,900    9,845       -        5,523,363     (859,587)    6,372,018 
 Purchase of own 
  shares held in treasury   -        -          -        -           -        -             (227,002)    (227,002) 
 IFRS 16 Modified 
  Retrospective Lease 
  Adjustment                -        -          -        -           -        (5,600)       -            (5,600) 
Profit for the period      -        -          -        -           -        1,938,795     -            1,938,795 
Dividends                  -        -          -        -           -        (1,365,734)   -            (1,365,734) 
Balance at 30/6/19         111,828  1,576,669  9,900    9,845       -        6,090,824     (1,086,589)  6,712,477 
Sale of own shares 
 held in treasury          -        -          -        -           -        23,254        105,453      128,707 
Profit for the period      -        -          -        -           -        1,971,935     -            1,971,935 
Dividends                  -        -          -        -           -        (3,136,546)   -            (3,136,546) 
Balance at 31/12/19        111,828  1,576,669  9,900    9,845       -        4,949,467     (981,136)    5,676,573 
Sale of own shares 
 held in treasury          -        -          -        -           -        17,445        37,082       54,527 
Profit for the period      -        -          -        -           -        2,913,432     -            2,913,432 
 Dividends                  -        -          -        -           -        (1,938,967)   -            (1,938,967) 

Balance at 30/6/20         111,828  1,576,669  9,900    9,845       -        5,941,377     (944,054)    6,705,565 
 
 

Consolidated statement of cashflows for the period ended 30 June 2020

 
                                              Six months             Six months ended 
                                               ended                  30/6/19 
                                               30/6/20 
                                                        GBP          GBP 
Cash flow from operating activities 
Profit before tax                                       3,596,829     2,393,862 
Finance Cost                                            3,301        4,495 
 Depreciation charges                                    46,506       45,929 
Amortisation charges                                    24,473       39,454 
                                                        3,671,109    2,483,740 
 
(Increase)/ decrease in receivables                     (5,640,819)  725,041 
(Decrease) / increase in payables                       2,325,344    (463,056) 
(Increase) / decrease in investments 
 held for trading                                       1,182        260 
Cash generated from operations                          356,816      2,745,985 
 
Interest paid                                           (3,301)      (4,495) 
 Income tax (paid)                                       (460,000)    (446,250) 
Net cash from operating activities                      (106,485)    2,295,240 
 
Cash flows from investing activities 
Purchase of tangible assets                             (7,725)      (31,567) 
Purchase of intangible fixed assets                     (7,375)      (39,400) 
                                                        (15,100)     (70,967) 
 
 

Notes forming part of the interim financial statements

1. Basis of preparation

The interim consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting. These interim financial statements have been prepared in accordance with those IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these statements (July 2020).

These consolidated interim financial statements have been prepared in accordance with the accounting policies set out below, which have been consistently applied to all the periods presented. These accounting policies comply with applicable IFRS standards and IFRIC interpretations issued and effective at the time of preparing these statements.

The preparation of these interim financial statements in accordance with IFRS requires the use of certain accounting estimates. It also requires management to exercise judgement in the process of applying the Group's accounting policies. The areas involving a high degree of judgement or complexity, or areas where the assumptions and estimates are significant to the consolidated interim financial statements are disclosed in Note 9.

The financial information contained in this report, which has not been audited, does not constitute statutory accounts as defined by Section 434 of the Companies Act 2006. The auditors' report for the 2019 accounts was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

2. Accounting policies

(a) IFRS 15 'Revenue from Contracts with Customers'

IFRS 15 requires that the recognition of revenue is linked to the fulfilment of identified performance obligations that are enshrined in the customer contract.

Commission - the group charges commission on a transaction basis. Commission rates are fixed according to account type. When a client instructs us to act as an agent on their behalf (for the purchase or sale of securities) our commission is recognised as income on a point in time basis when the instruction is executed in the market. Our commission is deducted from the cash given to us by the client in order to settle the transaction on the client's behalf or from the proceeds of the sale in instance where a client sells securities.

Management fees - these are charged quarterly or bi-annually depending on account type. Fees are either fixed or are a percentage of the assets under administration. Management fees income is recognised over time as they are charged using a day count and most recent asset level basis as appropriate.

Interest income - this is accrued on a day count basis up until deposits mature and the interest income is received. The deposits pay a fixed rate of interest. In accordance with FCA requirements, deposits are only placed with banks that have been approved by our compliance department. Interest income is recognised over time as the deposits accrue interest on a daily basis.

(b) Basis of consolidation

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date on which control ceases. The group financial statements consolidate the financial statements of Jarvis Securities plc, Jarvis Investment Management Limited, JIM Nominees Limited, Galleon Nominees Limited and Dudley Road Nominees Limited made up to 30 June 2020.

The Group uses the purchase method of accounting for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The cost of acquisition over the fair value of the Group's share of identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group's share of the net assets of the subsidiary acquired, the difference is recognised in the income statement.

Intra-group sales and profits are eliminated on consolidation and all sales and profit figures relate to external transactions only. No profit and loss account is presented for Jarvis Securities plc as provided by S408 of the Companies Act 2006.

(c) Property, plant and equipment

All property, plant and equipment is shown at cost less subsequent depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is provided on cost in equal annual instalments over the lives of the assets at the following rates:

Leasehold improvements - 33% on cost, or over the lease period if less than 3 years

   Motor vehicles                                    -               15% on cost 
   Office equipment                                -               20% on cost 

Land & Buildings - Buildings are depreciated at 2% on cost. Land is not depreciated.

Right of use asset - Straight line basis over the lease period

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. Impairment reviews of property, plant and equipment are undertaken if there are indications that the carrying values may not be recoverable or that the recoverable amounts may be less than the asset's carrying value.

(d) Intangible assets

Intangible assets are carried at cost less accumulated amortisation. If acquired as part of a business combination the initial cost of the intangible asset is the fair value at the acquisition date. Amortisation is charged to administrative expenses within the income statement and provided on cost in equal annual instalments over the lives of the assets at the following rates:

   Databases                                           -              4% on cost 
   Customer relationships                    -              7% on cost 
   Software developments                   -              20% on cost 
   Website                                               -              33% on cost 

Impairment reviews of intangible assets are undertaken if there are indications that the carrying values may not be recoverable or that the recoverable amounts may be less than the asset's carrying value.

(e) Goodwill

Goodwill represents the excess of the fair value of the consideration given over the aggregate fair values of the net identifiable assets of the acquired trade and assets at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Any negative goodwill arising is credited to the income statement in full immediately.

(f) Deferred income tax

Deferred income tax is provided in full, using the liability method, on differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting or taxable profit or loss. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the timing difference is controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future.

(g) Segmental reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. The directors regard the operations of the Group as a single segment.

(h) Pensions

The group operates a defined contribution pension scheme. Contributions payable for the year are charged to the income statement.

(i) Trading balances

Trading balances incurred in the course of executing client transactions are measured at initial recognition at fair value. In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties are included as trade receivables and payables. The net balance is disclosed where there is a legal right of set off.

(j) Operating leases and finance leases

Costs in respect of operating leases are charged on a straight line basis over the lease term in arriving at the profit before income tax. Where the company has entered into finance leases, the obligations to the lessor are shown as part of borrowings and the rights in the corresponding assets are treated in the same way as owned fixed assets. Leases are regarded as finance leases where their terms transfer to the lessee substantially all the benefits and burdens of ownership other than right to legal title.

(k) Investments

Investments held for trading

Investments held for trading are stated at fair value. An investment is classified in this category if acquired principally for the purpose of selling in the short term. Assets in this category are classified as current.

Purchases and sales of investments are recognised on the trade-date - the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value. Investments are derecognised when the rights to receive cash flows from the investments have expired or been transferred and the Group has transferred substantially all the risks and rewards of ownership. Realised and unrealised gains and losses arising from changes in fair value of investments held for trading are included in the income statement in the period in which they arise. Unrealised gains and losses arising in changes in the fair value of available-for-sale investments are recognised in equity. When investments classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities.

The fair value of quoted investments is based on current bid prices. If the market for an investment is not active, the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, or discounted cash flow analysis refined to reflect the issuer's specific circumstances.

The Group assesses at each balance sheet date whether there is objective evidence that an investment is impaired. In the case of investments classified as available-for-sale, a significant or prolonged decline in the fair value below its cost is considered in determining whether the security is impaired.

Investments in subsidiaries

Investments in subsidiaries are stated at cost less provision for any impairment in value.

(l) Foreign exchange

The group offers settlement of trades in sterling as well as various foreign currencies. The group does not hold any assets or liabilities other than in sterling and converts client currency on matching terms to settlement of trades realising any currency gain or loss immediately in the income statement. Consequently the group has no foreign exchange risk

(m) Share capital

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from proceeds, net of income tax. Where the company purchases its equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income tax), is deducted from equity attributable to the company's equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly incremental transaction costs and the related income tax effects, is included in equity attributable to the company's equity holders.

(n) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

(o) Current income tax

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate based on the taxable profit for the year.

(p) Dividend distribution

Dividend distribution to the company's shareholders is recognised as a liability in the group's financial statements in the period in which interim dividends are notified to shareholders and final dividends are approved by the company's shareholders.

(q) Expected credit loss

The group currently calculates a "bad debt" provision on customer balances based on 25% of overdrawn client accounts which are one month past due date and are not specifically provided for. Under IFRS 9 this assessment is required to be calculated based on a forward - looking expected credit loss ('ECL') model, for which a simplified approach has been applied. This method uses historic customer data, alongside future economic conditions to calculate expected loss on receivables

(r) Right of use of assets

The right-of-use asset is initially measured at cost and subsequently at cost less any accumulated depreciation and impairment losses, and adjusted for certain premeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implied in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate.

The Group has applied judgement to determine the lease term for contracts with options to renew or exit early.

3. Segmental information

All of the reported revenue and operational results for the period derive from the Group's continuing financial services operations.

4. Income tax charge

Interim period income tax is accrued based on an estimated average annual effective income tax rate of 19%.

5. Earnings per share

 
                                Six months ended 30/6/20           Six months ended 30/6/19 
                            Earnings    Weighted     Per      Earnings    Weighted     Per share 
                                         average      share                average      amount 
                                         no. of       amount               no. of 
                                         shares                            shares 
                            GBP         GBP          p        GBP         GBP          p 
 
Earnings attributable 
 to ordinary shareholders    2,913,432   10,929,758   26.66    1,938,795   10,921,228   17.75 
 
 

6. Dividends

During the interim period dividends totalling 17.75p (2019: 12.5p) per ordinary share were declared and paid.

7. Share capital

During the period 9,600 shares were sold from treasury. At the period end 244,400 shares are held in treasury.

8. Interim measurement

Costs that incur unevenly during the financial year are anticipated or deferred in the interim report only if it would also be appropriate to anticipate or defer such costs at the end of the financial year.

9. Critical accounting estimates and judgements

The Group makes estimates and assumptions concerning the future. These estimates and judgements are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets within the next financial year relate to goodwill, intangible assets and the expense of employee options.

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2 (e). These calculations require the use of estimates.

The Group considers at least annually whether there are indications that the carrying values of intangible assets may not be recoverable, or that the recoverable amounts may be less than the asset's carrying value, in which case an impairment review is performed. These calculations require the use of estimates.

10. Related party transactions

The company has a lease with Sion Properties Limited, a company controlled by A J Grant by virtue of his majority shareholding, for the rental of 78 Mount Ephraim, a self-contained office building. The lease is included in the right of use assets and has an annual rental of GBP87,500, being the market rate on an arm's length basis, and expires on 26 September 2027.

11. Capital commitments

At 30 June the company had no material capital commitments.

12. Assets impairment review

The Group considers at least annually whether there are indications that the carrying values of intangible assets may not be recoverable, or that the recoverable amounts may be less than the asset's carrying value, in which case an impairment review is performed. These calculations require the use of estimates. The Group also calculates the implied levels of variables used in the calculations at which impairment would occur.

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July 16, 2020 02:05 ET (06:05 GMT)