Walker Crips Group plc Half-year Report (8126V)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Walker Crips Group Plc	LSE:WCW	London	Ordinary Share	GB00B1YMRV88	ORD 6 2/3P

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	0.00	0.00%	18.00	17.00	19.00	18.00	18.00	18.00	3,078	07:41:26

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
Security Brokers & Dealers	31.57M	368k	0.0086	20.93	7.66M

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RNS Number : 8126V

Walker Crips Group plc

16 December 2021

Walker Crips Group plc

("Walker Crips", the "Company" or the "Group"),

Results for the six months ended 30 September 2021

Highlights

-- Total revenues of GBP15.69 million representing growth of 9.3% on the comparative period last year (2020: GBP14.35 million)

   --    Adjusted EBITDA GBP1.29 million (2020: GBP0.81 million) ([1]) 
   --    Underlying cash generated from operations GBP0.55 million (2020: GBP0.17 million) ([2])

-- Operating profit pre-exceptional items ([3]) GBP232,000 (2020: operating loss of GBP272,000) and operating profit post-exceptional items ([3]) 120,000 (2020: operating loss of GBP374,000)

-- Profit before tax pre- exceptional items ([3]) GBP166,000 (2020: loss before tax GBP349,000) and profit before tax post-exceptional items ([3]) GBP54,000 (2020: loss before tax GBP451,000)

   --    Net cash position of GBP8.38 million (2020: GBP7.81 million)

-- Assets Under Management ("AUM") increased by 5.9% to GBP3.6 billion from March 2021 (2020: GBP3.1 billion)

-- Total Assets Under Management and Administration ("AUMA") increased by 5.6% to GBP5.7 billion from March 2021 (2020: GBP4.8 billion)

   --    Interim dividend increased to 0.30 pence per share (2020: 0.15 pence per share)

[1] Adjusted EBITDA represents earnings before exceptional items ([3]) , interest, taxation, depreciation and amortisation on an IFRS basis. The Directors present this result as it is a metric widely used by stakeholders when considering an entity's financial performance. A full reconciliation is provided in the Chairman's statement.

[2] Underlying cash generated from operations shows the cash generated from operations adjusted for lease liability payments under IFRS 16, non-cyclical working capital movements and exceptional items. The Directors consider that this metric helps readers understand the cash generating performance of the Group. A full reconciliation to reported results is presented in the Chairman's statement.

[3] Exceptional items are disclosed in note 10 to the accounts and a full reconciliation to reported results is presented in the Chairman's statement.

Martin Wright, Chairman of Walker Crips, commented:

The Group reports a small profit at the half-year compared to the prior period loss, and continues to generate positive adjusted EBITDA ([1]) and underlying operating cash ([2]) , which enable continued support of our revenue and growth initiatives. Headwinds include inflationary cost pressures and our focus continues to be on revenue growth, improving operating efficiency and cost control.

For further information, please contact:

 
 Walker Crips Group plc                 Tel: +44 (0)20 3100 8000 
  Craig Harrison, Media Relations 
 
   Four Communications                    Tel: +44 (0)20 3697 4200 
   Mark Knight 
   walkercrips@fourcommunications.com 
 
   Singer Capital Markets                 Tel: +44 (0)20 7496 3000 
   Will Goode / George Tzimas

Further information on Walker Crips Group is available on the Company's website: www.walkercrips.co.uk

Chairman's statement

Introduction

The Group reports an operating profit at the half-year, which is explained more fully in the trading update below. Behind the headline figures, progress is being made on a number of fronts. Specifically, the Group continues to implement its restructuring strategy to improve operating margins for the Investment Management division and its renewed growth strategy for the Wealth Management division. Tangible progress is being made and we will remain focused on this objective, noting that it will take time to execute fully and bring further improvement in profitability, particularly given the cost pressures we are currently experiencing. The increase in reported revenue is pleasing and reflects the continuing broad improvement across most business lines that we saw in the second half of last year.

AUMA recovered to GBP5.7 billion, up 5.6% from March 2021 (GBP5.4 billion). The Group balance sheet and capital base remain sufficiently robust to support our growth strategy and the payment of a modest interim dividend. As at the reporting date, the Group's net assets are GBP22.1 million (September 2020: GBP22.3 million; March 2021: GBP22.3 million) and net cash surplus is GBP8.4 million (September 2020: GBP7.8 million; March 2021: GBP8.9 million). The Group capital surplus remains above 200%.

Group performance

The Group's revenue is GBP1.34 million (9.3%) up compared to the comparative period last year, this has been principally driven by the recovery in markets seen since the second half of the prior year. Breaking this down, broking commissions income rose by GBP115,000 (2.9%) and non-broking income by GBP1.2 million (11.8%). Within non-broking income, an improved performance from our structured products service was largely offset by reduced profitability from our arbitrage desk and lower interest income on client deposits. Pre-exceptional items, operating profit and profit before tax are GBP232,000 (2020: loss of GBP272,000) and GBP166,000 (2020: loss of GBP349,000), respectively.

The increase in revenues and operating margin has led to a GBP481,000 (60%) improvement in reported adjusted EBITDA and GBP378,000 (223%) improvement in underlying cash generation. Although the actions we are taking to improve operating margins are beginning to come through, with the reported gross margin now 70.2% compared to 68.6% in the prior period, this improvement is offset by a GBP659,000 increase in administrative expenses before exceptional items. The period-on-period increase also reflects the fact that the Directors took a three-month 20% voluntary pay reduction last year. Additionally, the growth strategy for our Wealth Management division means we invest in new teams before they start generating revenue. Adjusting the investment made in new teams and the prior period voluntary pay reduction, pre-exceptional administrative expenses have risen by 3%, which is in line with the rise in CPI over the 12 months to September 2021. However, we are experiencing inflationary pressures in many areas, including salaries. We are also reviewing and investing in our business and compliance functions as we implement improvements and respond to new regulations, which will add extra costs to our operations in the second half of the year.

The reorganisation of our business continues, with further redundancies concluded in the period in connection with the ongoing project to rationalise the number of regulated entities. We report such related costs of GBP336,000 (2020: GBP102,000) as exceptional items. In addition, following a successful legal challenge in connection with establishing client ownership, we recognised exceptional income, net of related costs, of GBP224,000. After exceptional items, the Group's operating result is a profit of GBP120,000 (2020: loss of GBP374,000), profit before tax of GBP54,000 (2020: loss of GBP451,000) and profit after tax of GBP44,000 (2020: loss of GBP366,000).

 
 Reconciliation of operating profit / (loss) to operating profit / (loss) before exceptional 
  items 
                                                           Unaudited                 Unaudited                 Audited 
                                                           September                 September                   March 
                                                                2021                      2020                    2021 
                                                             GBP'000                   GBP'000                 GBP'000 
---------------------------------------  ---------------------------  ------------------------  ---------------------- 
 Operating profit / (loss)                                       120                     (374)                      22 
 Exceptional items (note 10)                                     112                       102                     419 
 Operating profit / (loss) before 
  exceptional items                                              232                     (272)                     441 
---------------------------------------  ---------------------------  ------------------------  ---------------------- 
 
 Reconciliation of profit / (loss) before tax to profit / (loss) 
 before tax and exceptional 
 items 
                                                           Unaudited                 Unaudited                 Audited 
                                                           September                 September                   March 
                                                                2021                      2020                    2021 
                                                             GBP'000                   GBP'000                 GBP'000 
---------------------------------------  ---------------------------  ------------------------  ---------------------- 
 Profit / (loss) profit before tax                                54                     (451)                   (114) 
 Exceptional items (note 10)                                     112                       102                     419 
 Profit / (loss) before tax and 
  exceptional items                                              166                     (349)                     305 
---------------------------------------  ---------------------------  ------------------------  ---------------------- 
 
 Adjusted EBITDA 
                                                           Unaudited                 Unaudited                 Audited 
                                                           September                 September                   March 
                                                                2021                      2020                    2021 
                                                             GBP'000                   GBP'000                 GBP'000

---------------------------------------  ---------------------------  ------------------------  ---------------------- 
 Operating profit / (loss)                                       120                     (374)                      22 
 Exceptional items (note 10)                                     112                       102                     419 
 Amortisation / depreciation                                     563                       604                   1,212 
 Right-of-use-assets depreciation 
  charge                                                         493                       475                     961 
 Adjusted EBITDA                                               1,288                       807                   2,614 
---------------------------------------  ---------------------------  ------------------------  ---------------------- 
 
 Underlying cash generated by the Group 
                                                           Unaudited                 Unaudited                 Audited 
                                                           September                 September                   March 
                                                                2021                      2020                    2021 
                                                             GBP'000                   GBP'000                 GBP'000 
---------------------------------------  ---------------------------  ------------------------  ---------------------- 
 Net cash inflow from operations                                 213                         5                   1,806 
 Working capital                                                 768                       618                     (8) 
 Lease liability payments under IFRS 16                        (545)                     (555)                 (1,133) 
 Exceptional items (note 10)                                     112                       102                     419 
 Underlying cash generated in the 
  period                                                         548                       170                   1,084 
---------------------------------------  ---------------------------  ------------------------  ----------------------

Investment Management

The Group's Investment Management division returned an operating profit of GBP688,000 for the six-month period compared to GBP285,000 in the previous year. As noted above, significantly higher income from fees, commissions and structured products were partially offset by reduced income from the arbitrage desk, reduced interest income and exceptional costs. The actions underlying the significant exceptional costs should contribute positively in the second half of the year, helping mitigate current cost pressures and initiatives noted previously. There are likely to be further exceptional costs as we continue to progress the Group restructuring programme.

The development of the Group's model portfolio service ("MPS") capabilities continued during the period, with all MPS teams enjoying steady growth in AUM due both to performance and organic growth. Our various MPS teams in Barker Poland Asset Management LLP, and offices in York, London and Truro contributed their knowledge and expertise to our 'Investment Senate', chaired by our CIO, which oversaw the asset allocation and security selection of the Group's York-based "Service First" model portfolio brand.

Wealth Management

Our Wealth Management division's turnover increased by 5.46% to GBP850,000 with AUM increasing by 17.2% to GBP438 million compared to March 2021. The division has also benefited from exceptional income arising from a successful legal challenge relating to client ownership. Since the start of the financial year a new team of financial planners has joined. Although the costs of the new team have contributed to the division reporting a loss for the period, new clients are now being onboarded and revenue is being generated, which should contribute to improved performance in the second half of the year.

Group strategy

We remain confident in our strategy to grow our core business and commercialise our technological capabilities. The Investment Management division's project to improve operating margins will be a long-term exercise, with the overall impact on operating margins likely to be positive, but is unlikely to be smooth, from reporting period to reporting period. The Wealth Management division is focused on generating organic revenue growth and through the recruitment of new revenue-generating advisers, which may lead to short-term drags due to recruitment costs and the time needed to bed-down new advisers, and the acquisition of client-lists. Headwinds also include the inflationary cost pressures we face, including salaries and recruitment, and the investment in our compliance infrastructure. The initiatives are key to building a business that is sustainably profitable and competitive, whilst recognising the need to restore performance as quickly as possible.

Dividends

The Board has declared an interim dividend of 0.30 pence per share (2020: 0.15 pence per share), which will be paid on 7 January 2022 to shareholders on the register on 24 December 2021. The ex-dividend date will be 23 December 2021.

Our aim is to always reward shareholders for their continued support. The Board will continue to monitor the Group's progress, and set the final dividend based on performance, capital headroom, market outlook and short-term and long-term cash flow considerations.

Our community

We believe that even during challenging times, it is important that we continue to support our chosen charities. In addition to providing financial support, we endeavour to do more by using our technological capabilities for good, by engaging in technology philanthropy, using technology as a catalyst to boost the efforts of charitable organisations, working with them to design, deploy and maintain those systems.

Our partner charity's mission, www.twiningenterprise.org.uk, is to combat mental health stigma and to assist people who are struggling with mental health issues around work. Their goal is to ensure that everyone suffering from mental health issues can find employment and cope with the challenges of working life, to support employers and raise awareness around mental health in general, and to reduce stigma and discrimination. The mission and efforts of Twining were proven to be especially crucial, as highlighted during this pandemic.

We urge you to join us by signing on to support Twining in their mission, staying informed of their latest news and activities, and support them financially by going to www.enoc.pro/community.

Outlook

There is little doubt that we have a difficult year ahead. Despite reporting a small profit for the first half, we are clearly not out of the pandemic driven uncertainties and there are inflationary and regulatory cost pressures on the business. We are resolute in our determination to address these challenges, to continue to progress our key initiatives and to maintain the delivery of high standards of customer service.

Martin Wright

Chairman

16 December 2021

Walker Crips Group plc

Condensed consolidated income statement