ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
2018 AWARDS
• The Consumer Investment Awards – Best Customer Service
• Investment Trends – Highest Overall Client Satisfaction
• Online Personal Wealth Awards – Best Stockbroker
• ADVFN – Best Online Stockbroker
• UK Digital Experience Awards – Digital Change & Transformation
• MoneyAge – Best Online Sharedealing Provider
• Investors in People – Silver 3
CONTENTS
Highlights...... 5
Chairman’s statement...... 8
Strategic report...... 11
Board of Directors...... 28
Directors’ report...... 31
Corporate governance statement...... 34
Directors’ remuneration report...... 39
Independent auditor’s report...... 44
Financial Statements: Consolidated income statement...... 51 Consolidated statements of comprehensive income...... 51 Consolidated and Company balance sheets...... 52 Consolidated and Company statements of changes in equity...... 53 Consolidated and Company cash flow statements...... 55
Notes to the financial statements...... 56
Group information...... 86
Information for shareholders...... 87
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 4
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 5
HIGHLIGHTS
Strong operational and strategic progress against a challenging trading backdrop, especially in the second half of the year. Nonetheless, the Group returned to profitability at the operating level in the Investor confidence and second half. activity in the near term has been impacted by the current uncertain political environment, but Share remains well positioned with a growing customer base and a strong pipeline of partnership opportunities. The Group’s financial performance in 2019 is expected to build on the positive momentum in the second half of 2018 and deliver a material improvement in profitability in 2019 as the benefits of growth initiatives continue to come through.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 6 HIGHLIGHTS
REVENUE UP BY 12% TO A RECORD £21.0M (2017: £18.7M) – HELPED BY A FIRST FULL YEAR OF THE COMPUTERSHARE PARTNERSHIP
Commission Fee income Interest income income up by grew by increased by 3% 8% 150% to a record to a record to £10.9m £7.8m £2.3m
(2017: £10.6m) (2017: £7.2m) (2017: £0.9m), reflecting increased cash balances and bank base rate increases
Revenue market share excluding Reported loss (2017: profit of £0.4m interest (*) was Operating losses before tax was including one-off reduced by £22,000 item of £0.9m) 60% to 3.78% £0.3m
(2017: 4.03%) (2017: £0.8m) - operating profit of EBITDA of £0.2m in the second half of 2018
£0.5m (2017: £0.4m loss)
Underlying (**) (2017: 0.3p). Reported basic Proposed final basic and diluted and diluted earnings per (and total) earnings per share share of 0.0p (2017: 0.2p) increased to dividend of 0.4p Underlying 0.55p (**) earnings per share increased to £0.6m (2017: 0.40p per (2017: £0.4m) share), up by 38%
(*) The benchmarked revenue peer group comprises: AJ Bell; Alliance Trust Savings; Barclays Stockbrokers; Equiniti; Halifax Share Dealing; Hargreaves Lansdown; HSBC Stockbrokers; iDealing.com; Interactive Investor; ITI Capital; Jarvis Investment Management; Saga Personal Finance; Selftrade; Thomas Grant & Co; and Yorkshire Building Society. (**) Excludes the impact of any large non-recurring items, as defined in Note 14.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 HIGHLIGHTS 7
Balance sheet Assets under Shareholders’ remained administration funds of strong, with increased by 3% to £19.5m or cash of 13.5p per share £9.0m £4.9bn
(2017: £18.2m, (2017: £10.5m) and (2017: £4.7bn) 12.7p per share) equity investments of £8.4m (2017: £6.4m)
FINANCIAL BENEFITS OF GROWTH INITIATIVES AND DIGITAL TRANSFORMATION PROGRAMME ARE STARTING TO COME THROUGH
Material expansion of customer base, through continuing strategy of partnerships and account acquisitions Digital transformation programme has achieved further major milestones and is expected to be substantially A book acquisition completed in 2019 Together these of a further c.17,000 represent Beaufort Securities customer accounts c.£1.5bn c.22,000 Mobile App represented 8% of branded transferred in the of assets under customer accounts trades by the year end second half administration should transfer in 2019
www.share.com website was redesigned and launched. Further improvements are being delivered in 2019
CONTINUING RECOGNITION FOR CUSTOMER SERVICE
Innovative customer survey introduced, which Won ”Overall Client Satisfaction” in the 2018 achieved a 40% response rate and indicates Investment Trends UK Online Broking Report that The Share Centre Limited has a Net for the fifth consecutive year Promoter Score of +52
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 8
INTRODUCTION The Group made strong strategic and operational progress in 2018, achieving some important milestones in its digital transformation programme and increasing its customer base both organically and through account acquisitions. Stock market volatility depressed investor activity in the second half, particularly in the final quarter of the year, and regulatory changes, including the Markets in Financial Instruments Directive (‘MiFID II’), required additional cost to be incurred. Financial results for the year show some of the benefits from the strategic and operational progress that we have made, and we expect to see further benefits in 2019. Despite the difficult backdrop, revenue represented a new record of £21.0m (2017: £18.7m), up 12% year-on-year, and the Group returned to operating profitability in the second half. We start 2019 with the business in good shape, having completed a large part of the Group’s digital transformation programme and we also have a healthy pipeline of partnership opportunities. We therefore believe that Share is well-positioned to continue to grow and develop for the long term and to navigate near term challenges.
CHAIRMAN'S STATEMENT
FINANCIAL PERFORMANCE The growth in revenue delivered a market a one-off receipt of £0.9m for aborted share excluding interest of 3.78% product development work completed for Revenue growth was driven by strong (2017: 4.03%). a prospective partner). trading volumes in the earlier part of the year and the benefit of a full year of Operating losses materially improved over Overall the FTSE All-Share Index closed the our partnership with Computershare, the year, with the Group generating an year down 13%, but against this backdrop which was launched in May 2017. Weaker operating profit in the second half of £0.2m our growth in assets under administration trading conditions affected growth in the (H2 2017: operating loss of £0.6m), helping of 3% year-on-year to £4.9bn (2017: £4.7bn) second half of the year but the Group still to reduce the overall loss for the year by demonstrates our ability to attract and showed an uplift of 7% against the first 60% to £0.3m (2017: £0.8m). Underlying acquire new customers, and to build on half. This reflected the effects of the base profit before tax, adjusting for one-off items existing customer relationships. Had our rate increase in August 2018 and new (detailed in Note 14), increased by 63% to customers’ assets performed in line with account acquisition, particularly the take £0.6m (2017: £0.4m). the FTSE All-Share, without any monies in or out, assets under administration at on of c.17,000 customer accounts from the The reported loss before tax was £22,000 the year end would have been £4.1bn – administrator of Beaufort Securities. (2017: profit of £0.4m, which included
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 CHAIRMAN'S STATEMENT 9
indicating net inflows including account The proposed final dividend will be paid protectionist policies, as well as the UK acquisitions of c.£0.8bn in the year on 12 June 2019 to shareholders on the political environment, with uncertainty over (2017: £0.7bn). register at close of business on 10 May Brexit. This has meant that after unusually 2019, subject to shareholder approval at stable stock markets in 2017, 2018 was Cash balances held on client accounts the Annual General Meeting. characterised by volatility, which was of £446m were relatively high at the end especially marked in the second half. While of 2018 (2017: £387m), a 15% increase the market has recovered some of those on last year. We believe that this reflects STRATEGIC DELIVERY losses in 2019, London Stock Exchange data the reduced level of investor confidence The Group’s growth strategy remains shows a 27% decrease in trading volumes prevalent at the end of the year. based on the three core elements, ‘Putting in the first two months of 2019 against the Share’s balance sheet at the year end Customers First’, ‘Focus on the Core same period last year. remained strong with shareholders’ Business’ and ‘Strategic Partnerships Whilst we believe that the trading funds totalling £19.5m (2017: £18.2m). This and Acquisitions’. We are pleased to environment may remain difficult in the equates to 13.5p per share (2017: 12.7p). have delivered against all three over the near term, Share starts the new financial Shareholders’ funds include the value of year and I would highlight the following year in a stronger position over 2018. the Group’s investments in the London achievements in particular: We continue to attract new customers Stock Exchange plc (‘LSE’) and Euroclear • The launch of a significantly enhanced in good numbers as well as retaining Holding SA (‘Euroclear’). During the year, new website, www.share.com existing customers. The rate of retention the carrying value of our investment in • Winning the award for ‘Overall Client of the customers acquired from Beaufort Euroclear was reviewed and increased to Satisfaction’ in the Investment Trends Securities has exceeded our expectations partially reflect two recent transactions in annual survey of over 11,000 personal and we have had consistently positive Euroclear shares. investors for the fifth year in succession, feedback from those customers taken on. CHAIRMAN'S STATEMENT The capital requirement for the Group has alongside a number of other customer An agreed book of c.22,000 customer reduced to £3.9m (2017: £5.0m) as a result service awards accounts, which was announced in our of the improvement in profitability and • Agreements to acquire a combined half year announcement in August 2018, the Group holds 3.8 times the required total of c.39,000 customer accounts is also due to transfer into the business regulatory capital (2017: 3.0 times). (representing c.£1.5bn of assets under in 2019. We also have a strong pipeline of administration), including around 17,000 partnership opportunities at various stages DIVIDEND accounts from Beaufort Securities after of discussion. it went into special administration The Board is pleased to recommend a • The successful implementation of Taking a longer term view, the need for final (and total) dividend of 0.55p per share regulatory change requirements individuals and families to save and invest (2018: 0.40p per share), a 38% increase including MiFID II and EU General Data more for their financial futures remains on last year. This reflects the Group’s Protection Regulation (‘GDPR’) as strong as ever. The internet continues improved financial position, including the to provide a mechanism through which growth in underlying earnings, the positive OUTLOOK individuals can have the tools at their cash generated from operating activities, disposal to make their own investment the reduced capital requirement of the Investor activity over 2018 progressively decisions and to undertake the research business and the increase in the value of reduced, impacted by a number of factors. and education to help guide those shareholders’ funds. These included concerns over the US/ decisions. The return of real wage growth China relationship and a return to more and continued relatively loose monetary
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 10 CHAIRMAN'S STATEMENT
As at the end of 2018, The Share Centre had 93,000 Child Trust Fund accounts.
policy should give individuals more generation of savers and investors. The scope to engage in saving and investing, Share Centre has one of the only self-select but they typically require a more stable Child Trust Fund accounts in the market and political environment in which to build the as an ISA provider (and Junior ISA provider) confidence to do so. can also accommodate the roll-over on maturity into an ISA. We will therefore be There is a real need for Government to at the forefront of helping to ensure young build a more egalitarian approach to people engage fully with their accounts capitalism, and to engage individuals and that the opportunity to build a new in the activity of saving and investing; generation of investors is not wasted. As thereby encouraging ownership and at the end of 2018, The Share Centre had participation in capital markets. We 93,000 Child Trust Fund accounts. continue to campaign for such initiatives and for corporate moves to achieve We look forward to the future with greater participation in equities, through confidence. While trading volumes may public offerings, or broader customer or be adversely affected in the near term, employee share ownership. we completed 2018 with considerable momentum, notwithstanding the uncertain I conclude, by drawing attention to political backdrop. We are excited by the key opportunity for inter-generational opportunities ahead and expect to deliver investing: the Child Trust Fund initiative. further on our strategy in 2019, and to see This Government scheme created Share make further progress. individual accounts for all children born between September 2002 and January 2011, and the oldest recipients are now starting to gain control of these accounts, having reached the age of 16, with full access being reached at 18. With over six million accounts maturing between Gavin Oldham OBE 2020 and 2029, this is a great opportunity Chairman to engage young people and the next 22 March 2019
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 11
STRATEGIC REPORT
WHO ARE WE? Share plc is the AIM quoted (SHRE) parent company of a Group whose principal business is The Share Centre Limited. Share plc is the largest independent publicly quoted execution-only stockbroker. Some other facts and figures (as at 31 December 2018) include:
271,000 £4.9bn 34,000 252 customer accounts of assets under customer employees containing assets administration shareholder (2017: 224) (2017: 258,000) (2017: £4.7bn) accounts (2017: 35,500)
The Group is based in a single location in Aylesbury, Buckinghamshire, with over 80% of customers’ accounts opened online. The other entities in the Group are: The Share Centre (Administration Services) Limited – through which systems and special projects are operated The Shareholder Limited – a dormant company, historically the publisher of our regular magazines for customers Sharesecure Limited – the corporate trustee for participants in Share Incentive Plans and Share Options Schemes Share Nominees Limited – the non-trading ‘bare trustee’ company which holds our customers’ individual shareholdings, keeping them separate from the Group’s own resources Personal Retirement Account Limited – a dormant company to protect the name of our pension service
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 12 STRATEGIC REPORT
THE GROUP’S STRATEGY Our overall purpose is to enable more people to enjoy straightforward investing. This drives a passion to serve the personal investor regardless of their wealth or experience and supports a vision to become the consumers’ first choice for investment knowledge, support, dealing efficiency and fixed fees, maintaining our independence, now and in the future. In financial terms, we believe that the Group can grow to be an independent retail financial services provider with market share, revenues and profits significantly greater than it enjoys today. Underpinning what we offer is the commitment to deliver consistently high quality services to our customers. We want to continue to build the business to the benefit of all our customers, employees and shareholders and have a clearly defined strategy to deliver our vision, supported by our core values and brand. Most importantly, we wish to build our relationships with our customers based on trustworthiness and credibility.
THE GROUP’S GROWTH STRATEGY COMPRISES THREE KEY ELEMENTS: 1. 2. 3.
Putting Customers First Focusing on our Core Business: The Strategic Partnerships and Share Centre – www.share.com Acquisitions We will fit our services to our customers’ We will keep building brand We will use partners’ brands to reach needs, ambitions, knowledge and awareness and earning our customers’ more customers, providing our services experience by providing the tools and loyalty. This encourages our customers under a partner’s brand and we will support that are right for them. to act as advocates, helping to support keep an eye on our competitors for further growth. In particular, we aim acquisition opportunities. to share our expertise to empower customers’ decision making: walking alongside our customers.
Our core values of enterprise, respect for others, empowerment, clarity, and long-term stability support our growth strategy. They describe what we stand for as a business and underpin everything we do. They reflect the way we behave within our organisation as well as when interacting with our customers and partners. Our strategy, particularly in terms of growing the customer base, is supported by The Share Centre’s brand. We are here to provide our customers with support and practical tools to make investing simply easier. Whether our customers are experienced traders or new to investing we seek to provide them with everything they need to get started and go further. For new investors this may involve education and familiarisation with the market; for existing investors it means providing straightforward and easy- to-use routes to market; and for regular traders we aim to provide more value added content in terms of research and trading tools. We measure the success of the delivery of our strategy through metrics related to customer service, growth of market share, financial performance and regulatory compliance. These are expanded on further in the Key Performance Indicators section of the Strategic Report.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 STRATEGIC REPORT 13
THE GROUP’S BUSINESS MODEL The Group’s principal business is The Share Centre Limited, predominantly trading through its website www.share.com. The Share Centre provides services to personal investors on a self-select basis – i.e. personal investors make their own investment decisions. There are four main account types personal investors can choose from: Share Accounts – simple, easy-to-use dealing accounts capable of holding a full range of equities, funds, Exchange Traded Funds (‘ETFs’), bonds and investment trusts. Individual Savings Account (‘ISA’) – the same simple and easy-to-use functionality but within the tax efficient savings wrapper of an ISA. This capped annual contributions to the account at £20,000 for the 2017/18 and 2018/19 tax years. Self Invested Personal Pension (‘SIPP’) – offered in conjunction with our preferred pensions’ administrator Curtis Banks, the SIPP offers a tax efficient route through which to save in order to provide a pension in retirement. Child Trust Fund (‘CTF’)/Junior ISA – The Share Centre is a major CTF and Junior ISA provider. The Government ended its contributions to CTFs, although family and friends can still contribute. It then introduced the Junior ISA which can be opened by parents and guardians on an unfunded self-select basis. REVENUES There are three specific and distinct revenue streams. These revenue streams and operating profit are shown in the graphs below over the last ten years:
Total revenues (£’000) Operating profit (£’000)
25,000 3,500 3,000 TOTAL REVENUE 20,000 2,500 2,000 1,500 15,000 1,000 500 10,000 OPERATING PROFIT 0 -500 5,000 -1,000 -1,500 0 -2,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Revenues (£’000) 12,000 COMMISSION
10,000
8,000 FEES
6,000
4,000 INTEREST 2,000
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 14 STRATEGIC REPORT
Won ”Overall Client Satisfaction” in the 2018 Investment Trends UK Online Broking Report for the fifth consecutive year
Dealing commission: The Share Centre Interest income: Customer accounts are profile, increasing brand awareness of charges a commission for trades not intended as cash accounts. However, The Share Centre, engaging with existing executed on behalf of its customers and with a large and diverse customer base, at and potential customers and generating the customers of its partners. This is any one time there is inevitably a sizeable new customer accounts. IT costs in terms of collected as the trade is settled. The key amount of cash in aggregate across those licenses and maintenance now account for determinants for dealing commission accounts. The security of customer’s assets 5% of total costs. revenues are the volume of transactions is paramount, but having found suitable Finally, the Group spends money on rent, and the average commission per trade. places to deposit the funds that are also rates and similar operational costs, as well These variables include automated trades permitted from a regulatory perspective, as incurring irrecoverable value-added (e.g. automatic reinvestment of dividend The Share Centre earns interest income on tax (‘VAT’) given that not all the Group’s income) as well as customer initiated that cash. The key variables for this revenue revenues attract VAT. trades and reduced commission rates for stream are therefore the value of customer certain trades (e.g. regular investing). The cash held and the interest rate earned. Scalability volume of transactions is largely driven The Group has a balanced business by the number of customers, the level of We believe the Group’s business model model, with a large proportion of engagement with those customers and is scalable. No core functionality is revenues derived from fees and interest overall investor sentiment with the market. outsourced. This means the Group has as opposed to dealing commission. For effectively built ‘the engine’ and the Fees: The relationship with our customer is example, in 2018, 48% (2017: 44%) of the principal challenge is attracting increased at the core of The Share Centre’s activities. Group’s revenues were fees and interest. levels of activity to pass through that engine. The value of that is crystallised through The change from 2017 partly reflects the As a result, the increase in costs when the charging of an account administration increase in fees as a result of the take on taking on new accounts and new activity fee. The principal variables driving account of new accounts particularly from Beaufort is not commensurate with the increase in fees are the number of accounts and the Securities, changing our offline tariff in July revenues that those accounts generate. As tariff for each account, which is largely a 2018 and the base rate rises in November a result of this scalability, the Group believes flat fixed rate monthly charge. In addition 2017 and August 2018 that benefited our it could see margins expand in future as to account fees, the Company charges a interest income. the customer base and revenues grow. number of other fees including those for This expansion in margin may be further Costs some of its other business streams (e.g. accelerated by any increase in interest management fees for its Funds of Funds). The cost base of the Group is driven by rates to the extent that those increases are A key principle of the Group’s business The Share Centre. Approximately half of passed on by banks to depositors such as model with regard to fees, is that we do not the Group’s costs are related to the staff The Share Centre Limited. employed: in particular salaries and vary our fees according to the investment Should activity or interest rates fall though, related costs, as well as profit share – with type held by the customer – i.e. we do as the Group has a relatively fixed every member of staff receiving a bonus not charge different custody charges for overhead base, any reduction in revenue directly linked to the profits of the business. equities, funds etc. We levy a single simple will impact profitability. fixed account administration charge leaving Of the remaining cost, the Group invests the investor free to choose and change heavily in marketing activity. This accounted their investments without then being for 8% of total costs in 2018 (2017: 10%). This concerned about the impact such decisions is principally spent on raising the Group’s will have on the fees they have to pay.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 STRATEGIC REPORT 15
Balance sheet Company’s Share Incentive Plan (‘SIP’) and we offer our customers a valuable The balance sheet of the Group is shareholder perk. straightforward. The majority of shareholder funds are held in cash and Customers who own 500 shares or more investments. The principal investments in Share plc enjoy a 30% discount off of value are shares in the LSE, Euroclear their online dealing commission. This is a and Professional Partners Administration significant reduction in transaction costs Limited (‘PPAL’). The LSE shares are alongside an investment in the business. liquid and should be readily realisable, This shareholder perk encourages our while recent third party acquisitions of customers to own a part of our business shareholding in Euroclear demonstrate its and enables them to share in our success. strong shareholder value. The Group also recognises intangible assets in respect of Regulatory compliance systems development for its technology The Group complies with all the FCA’s programme and for the purchase of relevant rules and regulations. A strong customer accounts from third parties. compliance culture is maintained Working capital is limited as debtor and throughout the organisation and all staff creditor balances mainly comprise open receive regular training on matters such as positions with the market and customers. Anti-Money Laundering, Bribery and Fraud. When The Share Centre enters into a trade The Group also engages actively with the on behalf of a customer, acting as the FCA on issues, where the FCA is seeking customer’s matched principal, a debtor consultation with the industry. Client assets, and creditor balance exist until such time their safeguarding and protection, rightly as the trade settles – one side being the continue to be a high priority area for the open trade amount due to or from the FCA. The Group takes its responsibilities market, and the opposite side being the in this regard very seriously and it was amount due from or to the customer. particularly pleasing again that the Customers’ assets are segregated from the statement which received the highest level assets of the business and do not appear of agreement in the annual staff survey on the Group’s balance sheet. across all our staff was that “the Group treats the safety of customer assets and Capital of the business and the security of their data as paramount.” shareholder perk The Group was founded on the basis that democratic capitalism works best where there is a considerable overlap between consumers, employees and shareholders. To this end we encourage employee participation in our shares through the
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 16 STRATEGIC REPORT
REVIEW OF 2018 DELIVERY OF THE STRATEGY
Putting customers first Focusing on our core business We continue to manage our three ‘in- house’ Funds of Funds following the We delivered a number of significant We completed the third year of our digital transfer of our non-core Authorised improvements to our digital platforms in transformation programme, which is Corporate Director (‘ACD’) role, with the 2018. The biggest step forward was the fundamentally improving our proposition sale of Sharefunds Limited in April 2017. release of our new website, www.share. and the way in which we engage and During the year, funds under management com, and, in April 2018, we launched all interact with customers. 2018 was another increased by 9% to £110m from £101m. of our before ‘account sign-in’ pages. Our busy year as we continued our investment One of our Funds of Funds was ranked in Mobile App continues to gain traction in customer-facing technologies and the second quartile and two funds in the with customers and 8% of all our branded productivity improvements. In December, third quartile of their sectors (each sector trades were being executed through it at we tested a new ‘beta’ website, which representing c.150 funds) for the preceding the end of 2018. is designed to improve the customer 12 months. experience behind ‘account sign-in’ and We have also continued to enhance our which focuses on enhancing customers’ customer service operation, which together Strategic Partnerships and experience on a mobile phone or tablet. with our flat fee pricing structure, are key Acquisitions This new website was implemented in points of differentiation from our peers. early January 2019 and formed the first 2018 was another strong year for As part of our ‘Good to Great’ service instalment in a series of improvements in partnership initiatives both in terms of programme, we introduced an innovative early 2019. The site is now largely adaptive, delivery and in building a healthy pipeline customer survey that is sent immediately supporting our growing customer base of for 2019 and beyond. following the end of a call. We are the first mobile and tablet users, and has a fresh, UK financial services company to introduce During the year, we signed Heads modern, uncluttered feel that is “simply such a survey, and the response rate has of Terms, or reached an agreement easier” to navigate. We intend to continue been high at over 40%, providing us with a in principle for acquisitions which adding new functionality to it. wealth of actionable customer feedback. together account for c.39,000 customer Our customers are recognising the quality Work on legal, regulatory and HMRC accounts and over £1.5bn of assets of the service in giving our Associates 4.76 requirements continued throughout under administration. As part of this, we stars out of 5, and the query resolution 2018, including a programme to ensure completed the transfer of accounts from score was 92%. The Net Promoter Score compliance with the new MiFID II and Premier Asset Management and the (‘NPS’), which measures customer GDPR laws. We implemented various transfer of the majority of accounts from experience, was +52. new systems and controls relating to Beaufort Securities (which was in special information security during the year as administration). The transfer of c.22,000 These enhancements demonstrate our part of a sustained programme that will customers included within the c.39,000 continued commitment to our customers continue for the foreseeable future. We above is expected to complete in 2019. which was once again recognised in also made significant changes to our winning ‘Overall Client Satisfaction’ in the Revenue from the administration of tax- underlying hardware platform as we 2018 Investment Trends awards for the advantaged schemes (primarily Enterprise implemented new solutions designed to fifth year running. This prestigious award Investment Schemes) continued to be improved resilience and provide greater is based on an independent survey of strong in 2018. We added to the products technological scale for our IT systems 11,000 individual personal investors, and is we offer under this banner, launching an and website. the largest annual survey of retail investor unlisted income-paying bond for one of our opinions undertaken in the UK. fund manager partners and a Business Investment Relief product.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 A REVIEW OF 2018 | STRATEGIC REPORT 17
We continue with our strategy of developing relationships with large organisations that wish to offer their customers the best possible investment custody, administration and trading services and also continue to look for suitable corporate or customer book acquisition opportunities.
Key performance indicators The Group uses both quantitative and qualitative key performance indicators (‘KPIs’) to monitor and measure progress against the Board’s strategic objectives. They are listed below and are consistent with those disclosed in previous Annual Reports.
271,000 customer KPI STRATEGIC IMPORTANCE accounts containing assets Operating profit/earnings before Growing our revenues and scaling the business will drive (2017: 258,000) interest, tax, depreciation and improved profitability amortisation (‘EBITDA’)
Market share of benchmarked This provides an indication of how the Group is performing revenues * irrespective of underlying market trends, which affect the industry as a whole
Customer accounts A larger number of accounts should drive greater activity Average monthly and revenue website visitors at Assets under administration A rate of increase greater than the market as a whole 197,000 indicates the Group’s ability to attract new accounts, after website upgrade additional investment from existing customers and new partnerships or acquisitions (2017: average 190,000) Website visits Measure the level of interaction with customers and prospective customers through our digital channels
Net Promoter Score ** This measures the likelihood of the Group’s customers to recommend our services to others. A higher score will have a positive impact in acquiring and retaining customers
NPS score +52 * Measured independently by Compeer against a quarterly peer group of fifteen other retail stockbrokers, as per the Highlights page. ** Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 18 STRATEGIC REPORT | A REVIEW OF 2018
COMMISSION REVENUE up by FEE INCOME INCOME up by 12% to a record grew by 8% to 3% to a record £21.0m a record £7.8m (2017: £18.7m) £10.9m (2017: £7.2m) (2017: £10.6m)
Financial Performance deteriorating investor sentiment especially We took the opportunity to review accounts in the second half of the year. The higher and closed 7,000 dormant, empty and REVENUE average commission for Computershare deceased accounts. Accordingly, at the end Group revenue increased by 12% to a new services and the introduction of a minimum of 2018, The Share Centre was custodian high of £21.0m from £18.7m in 2017, with dealing commission of £20 (previously to 271,000 accounts that contained assets second half revenue up by 10% on the £7.50) for offline deals more than offset the (2017: 258,000; 2016: 250,000). This included same period in 2017. Revenue was up 44% decline in trading volumes. The change in 14,000 accounts transferred from Beaufort on 2016. The overall increase was helped our offline tariff was the first since 2013 and Securities, and we are delighted that so by a full year of our partnership with affected only a small percentage of our many have chosen to remain with The Computershare following its launch in May customers. This was implemented to reflect Share Centre. In 2018, the average monthly 2017 and strong trading volumes in the first the significantly greater cost in maintaining number of website visitors was 188,000 half of the year. a telephone dealing service compared (2017: 190,000) but since the upgrade of The Group’s revenue mix between to online dealing through our website or our website in April 2018, visitors have commission, fees and interest has Mobile App. Our basic commission for increased to an average of 197,000. online deals was unchanged. shifted, reflecting the base rate increases 2018 was also another successful year in November 2017 and August 2018. Our growth in commission income for our Enterprise Investment Scheme Accordingly, the mix was 52%, 37% and outperformed our peer group, which saw (‘EIS’) and other tax advantaged schemes 11% respectively in 2018 from 56%, 39% both commission and trades fall by 7% administration business, which provides and 5% respectively in 2017. Revenue over the year. custody and dealing services to around excluding interest was up 5% on 2017. 228 funds representing around £884m of FEE INCOME assets under administration. The Group’s market share of benchmarked Fee income increased by 8% to a record revenue (excluding interest) was 3.78% £7.8m (2017: £7.2m). New account INTEREST INCOME (2017: 4.03%). Our performance was in line acquisition was healthy reflecting trends Cash held on behalf of customers at with our peer group, which saw revenues in the wider market as highlighted by the 31 December 2018 increased by 15% increase by 13% year-on-year. UK Online Broking Report by Investment to £446m (31 December 2017: £387m) Fourth quarter data for 2018 showed our Trends. This report suggested that, while reflecting, in our view, the reduced level market share excluding interest at 3.90% the number of online investors continued of investor confidence at the end of the against our peer group, from 3.80% in Q3 to climb, with 960,000 unique individuals year. Interest income increased by 150% 2018 and 4.13% in Q4 2017. Our year-on- placing at least one online share deal in year-on-year to £2.3m (2017: £0.9m). year revenue growth in the fourth quarter the 12 months to May 2018 (2017: 930,000), This increase reflected a combination of for commission and fee income was 0.3%, this growth was driven more by new increased cash balances, higher interest compared to 2.9% in the third quarter, investors than by dormant clients who rates and the use of longer term deposits reflecting the weaker trading volumes. resumed trading. (up to 95 days) as permitted by the FCA from April 2017. Previously the Client The Group’s increase in fee income COMMISSION INCOME Asset rules did not allow the use of term compared to an increase of 31% for our peer Commission income increased by 3% to deposits. Interest income increased by 18% group. Consolidation in the sector has seen a new high of £10.9m (2017: £10.6m). This for our peer group. rise came despite lower trading volumes, some models shift away from commission, which reduced by 6% year-on-year based on transactional charging, towards (2017: 14% higher than 2016) affected by more fee-based structures.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 A REVIEW OF 2018 | STRATEGIC REPORT 19
INTEREST ASSETS UNDER INCOME REVENUE ADMINISTRATION increased by market share increased by 3% 3.78% to £4.9bn 150% to £2.3m (2017: 4.03%) (2017: £0.9m) (2017: £4.7bn)
COSTS Share-based payment charges for long ‘Other income’) and non-cash share- Costs increased by 9% to £21.4m over term equity incentives were £0.6m (2017: based payment charges, better reflects the year (2017: £19.5m). This was partly £0.5m). The share-based payment charge the performance of the Group. On this driven by higher transactional costs is recorded as a cost and then credited basis, earnings increased to 0.4p (2017: of £4.8m (2017: £4.4m), particularly in back to reserves as it does not impact the 0.3p). Reported earnings per share were respect of the Computershare services, financial resources of the business. 0.0p (2017: 0.2p). whereby the Group retains a proportion Total staff costs including share-based of dealing commission paid by the BALANCE SHEET payment charges and marketing spend customer, with the remainder being The Group’s balance sheet at the year end together totalled £12.0m (2017: £11.4m) and passed onto Computershare. remained strong with cash balances of represented 56% (2017: 59%) of total costs. £9.0m at the year end (2017: £10.5m) and Overheads rose by 9% to £16.5m (2017: Other expenditure related to premises, IT no debt. £15.1m), primarily reflecting an 11% systems and professional fees. increase in staff costs to £9.8m (2017: The Group’s financial position is further The Group also incurs regulatory fees and £8.8m), with headcount rising to 252 strengthened by equity investments of levies and irrecoverable VAT. In 2018, our (2017: 224). The increase in headcount, £8.4m (2017: £6.4m), primarily in the LSE costs in respect of the Financial Services which was lower than between 2016 and and Euroclear, the largest international Compensation Scheme (‘FSCS’) were 2017 (39), was mainly in our Customer central securities depository in the world. £235,000 (2017: £283,000). By their nature Service and Dealing Teams and included The dividends from these investments these costs are unpredictable and are initial support for the Beaufort Securities amounted to £235,000 (2017: £216,000), outside of our control. accounts that were acquired in two which is substantially in excess of the possible current interest return on tranches in September and December PROFITABILITY Group cash. 2018. However, with the improvements to Group profitability improved in the year as our digital platforms, we now expect to a result of higher revenue although this The carrying value of our investments see greater efficiencies emerge over time. was offset by increased transactional costs held in the LSE and Euroclear reflect the 1 Marketing was the second largest cost and staff costs. The Group’s EBITDA has estimated fair value of each share. For the incurred by the Group and our year-on- become an important key performance LSE this increased to £2.4m (2017: £2.3m), year spend was 15% lower at £1.6m (2017: indicator. This increased to £0.5m in 2018 and Euroclear increased to £5.6m (2017: £1.9m). The reduction reflects our increased from a loss of £0.4m in 2017. Operating £3.9m). This investment valuation was ability to use our in-house capabilities losses reduced by 60% to £0.3m from a historically based on the latest buyback rather than third parties as well as our loss of £0.8m in 2017. value per share (2017: £641). However, in October 2017 The Royal Bank of Scotland decision to ease spend in the second half of The reported loss before tax was £22,000 Group plc sold its 4% shareholding in the year as market conditions deteriorated. (2017: £0.4m profit, including a one-off Euroclear at a significantly higher price receipt of £0.9m for aborted product Amortisation costs increased to (£1,652) to Intercontinental Exchange development work completed for a £0.7m from £0.2m, principally due to Holdings and a similar sized acquisition prospective partner recognised as ‘Other the increased investment in systems was made by the LSE in January 2019 income’ in the income statement). development for our technology for a similar price. The Group therefore programme, with the upgrade of our The Board believes that underlying took the decision to use these recent website (before ‘account sign-in’) in April earnings per share which strip out one- sale valuations, discounted by 40% to 2018 and our Mobile App in October 2017. off items (such as the aforementioned reflect the larger size of shareholdings,
1 As calculated by adding back depreciation and amortisation charges (per Note 7) to the Group’s operating loss.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 20 STRATEGIC REPORT | A REVIEW OF 2018
OPERATING REPORTED LOSS LOSSES EBITDA of before tax was £0.5m reduced by 60%
(2017: £0.4m loss) £22,000 to £0.3m (2017: £0.4m) (2017: £0.8m)
the strategic benefits obtained from the assuming our customers performed in line We regularly measure the levels of purchase and that the transfer of shares is with the FTSE All-Share Index, this would headcount, staff turnover, costs and at the discretion of the Board of Euroclear. imply a net inflow of funds of c.£0.8bn absence. Currently staff turnover is The only other notable investment that during 2018 (2017: £0.7bn). It is worth somewhat higher than we would like, the Group holds to which it attributes a observing that the Computershare services however we continue to attract talented carrying value is PPAL, valued at £0.2m, add little to assets under administration individuals to join our team and our being the historic cost. as the customer interactions are currently sickness absence rate is close to the UK’s more transactional and not typically based private sector business average of 2.2% The increase in the net book value around a custody relationship. working hours lost. of intangible assets in 2018 to £3.7m (2017: £3.2m) principally represents FINANCIAL RESOURCES We aim to support our employees’ systems development for our technology As The Share Centre Limited is regulated personal and professional needs and seek programme (£1.0m). We expect the by the FCA (FCA registration number: to stay ahead of corporate best practice upgrade of our website to complete in the 146768), the Group holds regulatory capital, in many areas. This includes making first half of 2019. and it has been the long-standing policy contributions to employees’ personal pension plans (8% per annum with no Total shareholders’ funds as at 31 to maintain at least twice the amount contribution required from the employee). December 2018 stood at £19.5m (2017: of regulated capital required. As at 31 All employees participate in the Group’s £18.2m). This represents 13.5p per share in December 2018, the Group was holding 3.8 profit share arrangement which pays a issue (2017: 12.7p). The remaining working times (2017: 3.0 times) the capital required profit-related bonus. We also offer an capital on the balance sheet principally as calculated by the Group’s Internal Employee SIP which allows every employee reflects open customer positions with Capital Adequacy Assessment Process to purchase the Company’s shares on the Group and the market, i.e. unsettled (‘ICAAP’) for 2019. a tax efficient basis. Consequently, a customer sales and purchases, which all The ICAAP assesses the level of capital and significant number of our employees effectively net to zero as each side has financial resources that should be held by are shareholders, with 111 employees both an asset and a liability with the Group the Group. In summary, the requirement contributing to the scheme (2017: 108). as the matched principal in the middle. (being the amount that the Group has to Finally, the remaining balances net to a hold) is £3.9m for 2019 (2018: £5.0m). Full In 2018, we welcomed three talented liability largely in respect of non-current details of our capital requirements are candidates into our inaugural graduate deferred tax. required to be disclosed under Pillar III of training programme. They have started the Capital Requirements Directive and can their professional journey in our ASSETS UNDER ADMINISTRATION be found on our website – Investments and Dealing functions, and At the end of the year, the value of www.shareplc.com. we will be supporting them in their study investments and cash held by our for relevant industry qualifications. We look customers was £4.9bn (2017: £4.7bn), an PEOPLE forward to welcoming three further recruits increase of 3% (2017: 27%). Even with the Our people are critical to our customer in September 2019. We also have two impact of acquiring additional accounts, proposition and we pride ourselves on the employees who have combined working this showed strong growth compared to calibre and diversity of the staff that we with studying to develop their knowledge the 13% decrease in the FTSE All-Share employ. At the year end the ratio of male to and skills using the Apprenticeship Levy. Index over the same period. As a proxy, female employees was 54:46 (2017: 57:43).
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 STRATEGIC REPORT 21
Going concern Viability statement The Group’s business activities, together The Directors have assessed the outlook of the Company and Group over with the factors likely to affect its future a longer period than the twelve months required by the ‘Going Concern’ development, performance and position, statement, in accordance with the 2018 UK Corporate Governance Code. The are set out in the Chairman’s Statement Directors have assessed the Group’s viability, using its approved budget for and Strategic Report. This also includes a 2019, which provides greater detail over the forecasting assumptions used discussion of the Group’s cash flows and and the Group’s ICAAP. The ICAAP is a regulatory requirement whereby liquidity position as well as details of how the Directors identify the principal risks and uncertainties of the Group the Group manages risk. The notes to the as discussed below and its ability to meet its liabilities as they fall due, Financial Statements include a discussion together with stress and scenario tests. This process is used to determine an of credit and liquidity risk. The Group has appropriate level of capital that we should hold. considerable financial resources and no The principal risk that the Group faces which is not overtly mitigated is the external debt. With a diversified customer business risk of a prolonged downturn in market values, combined with base and core recurring revenue a reduction in investor confidence and hence dealing activity. This would streams along with large elements of impact the Group’s financial performance and ultimately threaten the failure discretionary spending in the Group’s of its business model. Following an assessment of the above, the Directors cost base, the Directors believe that concluded that the Viability Statement, like the ICAAP, should cover a period the Group is well placed to manage its of three years. business risks successfully. Therefore, after making enquiries, the Directors Based on the Group’s current financial position and principal risks, the have a reasonable expectation that the Directors have a reasonable expectation that the Company and the Company and the Group have adequate Group will be able to continue in operation and meet all their liabilities resources to continue in operational as they fall due up to December 2021. existence for the foreseeable future and In making this statement, the Directors have also made the following key at least 12 months. Accordingly, the going assumptions: concern basis has continued to be used in the preparation of the Annual Report and • There is no counterparty failure and the Group can withdraw client Financial Statements. money balances from its banks; • The downturn is not long term and that there is a modest recovery in market values and trading volumes after one year; • Prompt management action upon the cost base is possible to mitigate the impact of stress and scenario events, by eliminating discretionary spend e.g. marketing and reducing headcount.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 22 STRATEGIC REPORT
Prospects and outlook The three Funds of Funds that we offer On the assumption that market conditions allow an easy access point for retail and the government/regulatory backdrop The Group’s financial performance is investors into what is an otherwise remain supportive, we expect to see the now beginning to reflect the progress complex and crowded funds market. In continuing delivery of our strategy being that we have made both in increasing 2019, the aim is to leverage our competitive demonstrated through increased revenue our customer base and with our digital pricing and expand the distribution and headline earnings, accelerated further transformation programme. We expect to channels for these funds, particularly if additional partnership or acquisition see this progress continue in 2019. through independent financial advisers. opportunities crystallise. The Board The transformation of our digital In doing so, we expect to accelerate the therefore looks forward with confidence to proposition remains a key focus and we growth of funds under management. the future. anticipate this to be substantially completed We continue to seek additional corporate in 2019. Our new relaunched website is relationships building on our past success a substantially better proposition, with with well-known brands including Barclays enhanced navigation, presentation and and Computershare. We are currently in content. We plan further upgrades during discussions with a number of potential the first half of 2019 to improve dealing partners and have a strong pipeline of functionality and account maintenance. partnership opportunities including an As we continue to makes changes, we agreed book acquisition of c.22,000 are as committed as ever to our aim of customers that is expected to transfer into making investing a straightforward and the business in 2019. These opportunities enjoyable enterprise and to reducing typically have long lead times, with some the complexity around the language of development work and investment often investment, which is often a barrier to required on our part but a number of these engagement. We remain dedicated to have the scope to be transformational for assisting our customers in navigating the business. Our track record of delivering their way through investment decisions an end-to-end solution stands us in good and arriving at products and services that stead as we develop these discussions. most suit their needs. Undoubtedly investor confidence has Our substantial role in the Child Trust Fund been impacted by the current political market has a major part to play in this environment, including Brexit uncertainty respect as young people are able to take and concerns over the US/China control of their account from the age of 16. relationship. This adversely affected trading This should provide a major opportunity volumes in the run up to the year end and for our Self-Select Child Trust Fund, since at the start of 2019, although we have seen we are not aware of similar services in volumes recover somewhat since then. If the market and should also lead to a and when the fog of Brexit uncertainty lifts substantial expansion of our ISA book from we would anticipate investor confidence September 2020 onwards. returning and investor cash balances being invested back into the market.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 STRATEGIC REPORT 23
Principal risks and uncertainties The principal risks and uncertainties facing the Group change over time as new risks emerge and others cease to be of concern. The ongoing identification, understanding and mitigation of risks forms part of the ICAAP and is core to the decision making processes within the Group. The Group’s operational risk monitoring system consists of a combination of the ‘bottom up’ monitoring work, evaluation of departmental controls and review by the Compliance team, combined with the ‘top down’ approach of the Governance and Risk Sub-Committee (which uses the Risk Register as a template for regularly examining and measuring each identified element of risk). The Governance and Risk Sub-Committee reports to the Audit and Risk Committee and ultimately the Board, ensuring that the Board regularly reviews and challenges the Group’s risk profile. The principal risks to the Group are detailed below. The Directors believe that the identified risks have been addressed and where possible, and within the Group’s control, mitigating actions have been taken to ensure processes and procedures are in place and followed to limit any impact which could arise.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 24 STRATEGIC REPORT | PRINCIPAL RISKS AND UNCERTAINTIES
RISK EXAMPLES OF MITIGATING ACTIONS
LOSS OF CUSTOMER ASSETS OR DATA RISK Fraud, Cyber and Physical Security • Dedicated Information Security function including monitoring The risk that customer assets or data are misappropriated activities, staff education and protection solutions as a consequence of a fraud perpetrated by our own • IT infrastructure arrangements employees or a third party. Globally there is a continued • IT change management controls growing risk from cyber attacks, in terms of their • Customer password and memorable word security sophistication and potential impact • Segregation of duties • External penetration testing and security reviews
Counterparty Failure • Diversification of banking counterparties The risk that customers assets are lost as a result of the • Due diligence and regular reviews of counterparties failure of a counterparty holding those assets
OPERATIONAL FAILURE RISK IT Hardware and Software Failure • Back-up processes The operations of the Group are highly dependent upon IT. • Disaster recovery capability and testing There is the risk that the Group cannot operate for a period • In-house development resource enables issues to be immediately due to a failure in its core systems or interfaces, which could addressed impact the Group’s financial performance and regulatory • IT Governance including change control processes requirements • Incident management to reduce volume of future failures • Alternate external interfaces to avoid single points of failure
Financial Reporting Risk • Audit and Risk Committee review of compliance with accounting The risk of a material misstatement or omission within standards and annual audit the Group’s financial or regulatory reporting. In preparing • Corporate Investment Committee review of corporate investments the financial statements in accordance with International • Monthly management information including financial reporting Financial Reporting Standards, the Directors are required reviewed by the Executive and Board to make accounting judgements such as the valuation of unlisted investments and the capitalisation of intangible assets. These assumptions could be significant to the financial statements. Together with the risk of management override, there is a risk that the estimate or assumption used could be inaccurate or that the assumptions used subsequently turn out to be incorrect.
Process or Control Failures • Documentation of processes The risk that a control fails or human error, that results in • Defined ownership of processes across the Group financial loss, reputational or regulatory harm • Review and sign-off procedures • Induction and ongoing training and development • Management information on errors
Reconciliation Failure • Induction and ongoing training and development The risk of loss of client assets arising from a failure to • Management oversight and review complete in a timely and/or accurate manner the necessary • Monitoring through CASS Governance and Management reconciliations. Also the risk of fines for inadequate systems Information and controls • Compliance Monitoring Programme
Key Person Dependency • Cross-training and rotation The risk that the Group has excess corporate knowledge vested • Documentation of processes in a small number of key individuals. The loss of that knowledge • Skills matrices may impact our ability to serve our customers effectively • Succession planning
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 PRINCIPAL RISKS AND UNCERTAINTIES | STRATEGIC REPORT 25
RISK EXAMPLES OF MITIGATING ACTIONS
BUSINESS MODEL FAILURE RISK Competition, Investor Appetite and Sustainability • Regular reviews of competitive activity of Business Model • Diverse and loyal customer base In what is a competitive market, the risk that customers are • Business model with recurring revenues lost to existing (or new) competitors. This may require the • High quality customer service as evidenced by awards won Group to invest or spend more, which could impact the • Competitive pricing Group’s financial performance. Most revenues are driven • Strong balance sheet with cash resources by personal investors, with the risk that the Group’s financial • Positive shareholder relationship performance is impacted by investor confidence in the stock market or economic sentiment
Failure to execute Group Strategy • Well defined business strategy regularly communicated to all staff The risk that poor management or investment decisions • Staff survey could result in distraction or financial loss • Board discussion, with expertise and guidance of Non-Executive Directors • Use of third party advisors
Cultural Failure • Being on a single site helps ensure that the culture is embedded A failure of the culture of the Group, particularly with regard and consistent to the way it treats its customers and employees, could lead • Well-articulated strategy and core values to a loss of customers and/or regulatory censure. • Learning and development function
Loss of third party or relationships • Contractual arrangements The risk of financial loss or reputational harm of losing a • Dedicated Partnerships Team focussed on relationship major relationship. management • Ongoing review of product and service improvements • Increased diversification of relationships
REGULATORY RISK Breach of Regulatory Requirements • Well-staffed and knowledgeable Compliance and Technical The Share Centre is a regulated entity. There is the risk that Teams the Group fails to comply with current (and new) FCA (or • Staff training and induction other regulatory) rules e.g. treatment of customers and the • Reconciliation processes handling of customer assets or standards expected e.g. • Compliance reporting up to the Board of Directors Conduct Risk. This could lead to regulatory sanction, action • Compliance Monitoring Programme against approved persons or substantial fines • Engagement with experts and trade bodies
Regulatory Capital • Regulatory capital in excess of requirements The risk that the regulated capital required by the FCA to be • Monthly monitoring of financial performance held by the Group and its regulated entities is insufficient • ICAAP and stress testing overseen by Audit and Risk Committee
Financial Crime • Staff training at induction and annually The risk that The Share Centre is used to facilitate money • Non-complex products and mainly UK customers laundering, fraud or corruption • Financial Crime Team • Ongoing monitoring and verification of customers
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 26 STRATEGIC REPORT
THE WIDER COMMUNITY landlord to provide more bicycle parking, We aim to provide a safe and supportive through encouraging some flexible environment in which to work, and all The principal objective of the Group’s working patterns to enable staff to avoid staff receive appropriate training and corporate and social responsibility policy peak travel times, and through being workstation assessments to ensure health is to ensure a long-term sustainable future based in a relatively residential location. and safety issues are addressed and for Share plc, all its stakeholders and the risks mitigated. We also provide all staff Further environmental impacts arise from communities in which it operates. with the ability to join the Group’s private the energy we use and through the level medical scheme and provide access to The Directors of Share plc believe the of paper we consume, both of which we regular preventative health screening for Group has an important role to play in the try to mitigate through increased staff all managers. local community and more broadly. The awareness. In addition, we are continually active role the Group plays includes: seeking to increase the extensive use of Employees are kept informed of the Group’s electronic communications in delivering progress, including its key performance FINANCIAL EDUCATION our services which provides opportunities indicators, primarily by quarterly • Gavin Oldham is the founder and chair not only to improve customer facilities but presentations alongside information of trustees of The Share Foundation, a also to minimise our carbon ‘footprint’. issued by way of press releases. registered charity which establishes and administers Junior ISAs and Child It is the Group’s policy that no employee, Trust Funds for young people in care OUR CUSTOMERS or applicant for employment, receives throughout the United Kingdom on We are committed to providing all less favourable treatment (including behalf of the Department for Education. of our customers, and those of our training and development, recruitment The Share Centre also operates corporate clients with whom we deal, and promotion) by the Group or any Shares4Schools (www.shares4schools. with outstanding customer service. We other employee, on the grounds of org), a real investment competition for have embraced the concept of Treating disability, sex, age, race or religion Year 12 students. Customers Fairly and through training and nor be disadvantaged by conditions, CHARITABLE ACTIVITIES company culture have embedded this management attitudes, behaviour or • Staff at The Share Centre regularly throughout our organisation. requirements that cannot be justified. organise a variety of fundraising We are committed to fulfilling our ETHICAL RESPONSIBILITY events and participate in the monthly customers’ investment needs and ‘dress down’ day for charity. In 2018 we this includes investing in new services Share plc is committed to the highest focused these activities on one charity, and technologies to enable customer standards of corporate behaviour from its Thames Valley Air Ambulance, and interaction and a proactive approach to Directors and employees, and expects all raised, by way of staff and company customer contact, resolving issues which staff to perform their duties with efficiency contribution, £11,000 (2017: £9,000). may arise at the earliest opportunity. and diligence, treating others with care and courtesy. The Group has a strict conflict of THE ENVIRONMENT OUR EMPLOYEES interest policy and rules on the acceptance As an office-based business our impact of any gifts, which requires any material We invest in the development of all our gifts to be recorded on a central register on the environment is relatively light by the staff and believe they should share in the nature of our services. One impact is the maintained by the Compliance team. All success of the business. We have adopted personal share dealing by staff is also effect of staff driving to work which is in best practice with regard to legislation part mitigated through working with our monitored to ensure conflicts are avoided where applicable. and regulatory obligations are met.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 STRATEGIC REPORT 27
The Group pays bonuses and profit share to Directors and staff. In 2018, these payments represented 1% of base salaries (2017: 7%). No member of staff is rewarded on the basis of sales or commissions in respect of transactions undertaken by individual customers. The Strategic Report was approved by the Board of Directors on 22 March 2019.
Richard Stone Chief Executive 22 March 2019
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 28
BOARD OF DIRECTORS
GAVIN OLDHAM OBE RICHARD STONE MIKE BIRKETT CHAIRMAN CHIEF EXECUTIVE FINANCE DIRECTOR
Founder (1991) and formerly Chief Richard’s responsibilities include all Mike joined The Share Centre in Executive (1991-2013) of The Share aspects of oversight, including the February 2014 and has responsibility Centre/Share plc, having previously Group’s strategy for growth, and for the finance, settlement and other established Barclayshare (now Barclays encompass control and management account administration functions. Investments) for Barclays Bank, Gavin of the Group’s business. A chartered Mike is a chartered accountant and a plays an active role in business affairs accountant, he joined Share plc in Chartered Fellow of the CISI. Prior to this, and is a regular contributor to the April 2006, from his previous role as a Mike was Finance Director at Thomas media. He received the Editor’s award Director of Huntswood - an outsourcing Cook Online, the e-commerce centre of for services to private investors from the business serving the financial services excellence within Thomas Cook Group FT/Investors Chronicle in 2013. In 2005 sector. His earlier investment market Plc. Prior to that he worked for eight he founded The Share Foundation and experience as an equity research years with Betfair Group plc, initially as in 2014 founded Share Radio which analyst with the US investment Head of Financial Planning and Analysis is now operated by Share Premium bank, Robertson Stephens, included and then as Finance Director of Betfair Limited. He is managing director of both involvement in a number of initial public Group plc’s regulated financial trading those organisations and also an elected offerings across Europe. Prior to 2014, exchange, LMAX. lay member of the General Synod. Gavin Richard was Group Finance Director and was awarded the OBE in 2018 for his Chief Operating Officer. work supporting children and young people through The Share Foundation. As Chairman of the Group, Gavin is responsible for the overall effectiveness of the Board and its Committees.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 BOARD OF DIRECTORS 29
RICHARD TOLKIEN FRANCESCA ECSERY GARETH THOMAS NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR
Richard started his career with five Francesca has a background in Gareth has a background in retailing years at HM Treasury, and then consumer-led organisations, with and customer service. He was an went on to spend 24 years as an particular expertise in online sales, Executive director on the Board of investment banker with advisory and marketing and service delivery. John Lewis plc for ten years until his management experience gained in Francesca was most recently the Global retirement as Retail Director in 2010, senior corporate finance and Executive Business Development Director at having begun his career 30 years roles with Morgan Grenfell, HSBC and Cheapflights Media, and prior to that previously as a graduate. At John Macquarie Bank. He is retained as an Managing Director, International, at STA Lewis, he established a track record for independent expert witness on banking Travel Group, the world’s largest student delivering strong growth and financial and corporate finance in litigation and travel company. She is also a Non- results, and was a passionate believer arbitration and is the Chairman of the Executive Director of Air France S.A.,F&C in the importance of the employee and trustees of Stoke Mandeville Spinal Investment Trust plc, Marshall Motor customer experience, and of brand Research. Richard serves on all the Holdings plc and a limited partner in The reputation. Gareth is currently a Non- Board Committees and is Chairman of Rising Tide Europe. Francesca serves on Executive director of The Co-Operative the Audit and Risk Committee. all Board Committees. Group Limited as well as chairing the board of Waterside Holiday Group Limited. He is a Trustee of the American Museum and Gardens in Britain and is Chairman of the Arnolfini Arts Centre. Gareth serves on all Board Committees and is Chairman of the Remuneration and Nomination Committees.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 30
SENIOR MANAGEMENT THE SHARE CENTRE LIMITED
LINDA ROBERTS RICHARD STOLLERY JOHN SARGAENT DIRECTOR OF PARTNERSHIPS DIRECTOR OF CUSTOMER IT DIRECTOR AND CHANGE EXPERIENCE
John joined The Share Centre in Linda joined The Share Centre in 2009 Richard joined The Share Centre in November 2014 and has responsibility and is a Chartered Member of the CISI. November 2017. As Director of Customer for all of the Group’s systems She has responsibility for new business Experience, Richard has responsibility architecture, development and development, our relationships with for the customer experience, from infrastructure. John was previously third party partners and delivery customer acquisition through to Head of IT at One Stop, the retail and change management. She has customer engagement and service convenience subsidiary of Tesco plc extensive experience of these areas delivery. He has spent a large part of with over 750 stores across England gained from senior management roles his career at Xerox and LEGO as Global and Wales. Prior to his seven years with in companies servicing the financial Customer Service Director as well as One Stop, John was Business Systems services sector and has overseen with Adidas in Germany and, most Manager with Signet Jewellers Limited, all major project implementations in recently with Marks and Spencer. the largest speciality jewellery retailer recent years. in the US, UK and Canada, whose brands include H Samuel and Ernest Jones. John is also a chartered fellow of The British Computer Society.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 31
DIRECTORS’ REPORT
The Directors submit their report and the DIRECTORS AND THEIR INTERESTS audited accounts for the year ended 31 December 2018. The Directors who were in office during the year and their interests in the 0.5p ordinary shares of the Company were as follows: RESULTS FOR THE YEAR 2018 2017 The results for the year ended December G D R Oldham (including related 2018 and the financial position at that date 98,872,722 98,814,657 are set out in the financial statements. The parties detailed below) loss after taxation of the Group amounted R I Tolkien 360,608 337,778 to £69,000 (2017: £310,000 profit). F E Ecsery 98,134 76,911 A review of the business and its Outlook is G V Thomas 168,037 145,627 set out in the Strategic Report. M D Birkett 85,727 64,661 R W Stone 1,169,313 681,721 DIVIDENDS AND TRANSFERS Details of the Directors’ share options are included in the Directors’ remuneration report TO RESERVES and none of the Directors had an interest in any shares of any other Group company. During 2018 a final dividend of £575,000 in The Company maintains a liability insurance cover on behalf of Directors and officers of respect of 2017 was paid (0.40p per share). the Company and its subsidiary undertakings. A final dividend in respect of 2018 has been proposed by the Board of 0.55p per SHARE CAPITAL share. This would amount to a total final As at 31 December 2018, the following persons or entities held an interest of three percent dividend payment of £790,000 given the or more in the issued share capital of the Company. In accordance with the requirements current number of shares in issue. of Rule 26 of the AIM Rules this information is also available on the Group’s website The retained loss after tax of £69,000 www.shareplc.com (2017: £310,000 profit) has been transferred to reserves. PERCENTAGE OF SHAREHOLDER HOLDING ISSUED SHARE CAPITAL
Gavin Oldham controlled Trusts* 39,273,621 27.34% Gavin Oldham* 34,617,049 24.10% Virginia Oldham* 13,779,961 9.59% Sharesecure Limited 5,276,604 3.67% Miton Group plc 4,897,727 3.41% Susannah Oldham* 4,506,722 3.14% *These are related parties Share Nominees Limited, the non-trading bare trustee for The Share Centre Limited’s customers, held 61,233,827 shares (42.63%), including some of the shareholdings detailed above.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 32 DIRECTOR'S REPORT
DIRECTORS’ RESPONSIBILITIES STATEMENT The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (‘IFRS’s) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, International Accounting Standard 1 requires that Directors: • Properly select and apply accounting policies; • Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • Provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and • Make an assessment of the Group's ability to continue as a going concern. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and the 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 the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 DIRECTOR'S REPORT 33
FINANCIAL RISK MANAGEMENT The Group, overall, has a risk-averse attitude. In terms of specific risks, with the exception of strategic investments held historically in the LSE, Euroclear and PPAL, the Group will not take equity positions on its own account so is not exposed to further equity security price risk, and it has no credit concentration or relationships with customers which expose it to any significant credit risk. The level of debtors and creditors in the balance sheet predominantly represents customers’ open positions with the market. The Group has no borrowings and has significant cash resources which are held on short-term deposit – these two factors limited any exposure to interest rate or liquidity risk in 2018. Further information on financial assets and risks (including foreign currency risk management) is contained within the Strategic Report and Note 20 to the Financial Statements. INDEPENDENT AUDITOR Each of the persons who is a director at the date of approval of this annual report confirms that: • So far as the director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and • The director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. Ernst and Young LLP has expressed its willingness to continue in office as auditor and a resolution to reappoint it will be proposed at the forthcoming Annual General Meeting. On behalf of the Board
Gavin Oldham Chairman 22 March 2019
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 34
CORPORATE GOVERNANCE STATEMENT Share plc Board membership has not The Directors acknowledge the importance of adopting and following the altered during 2018 and nor were there highest standards of corporate governance. Having sought previously to any changes to the Board of the Group’s comply with the UK Corporate Governance Code in so far as was practicable principal operating company, The Share for a group the size of Share, in 2018 the Board adopted the new Quoted Centre Limited. The Board considers Companies Alliance (‘QCA’) Code. This followed an update to AIM Rule 26 Gareth Thomas and Francesca Ecsery to requiring all AIM-listed companies to follow and report against a recognised be independent Non-Executive Directors. corporate governance code. Following adoption of the QCA Code in Notwithstanding the fact that he has September 2018, the Board approved and published a detailed statement on served as a Non-Executive Director for how it seeks to comply with the ten QCA Code principles. This statement can 16 years and therefore does not meet be found in the Corporate Governance section of the Share plc website. current best practice criteria on longevity for independent Non-Executives, the Board continues to value highly the perceptive contributions and challenging yet supportive demeanour of Richard Tolkien BOARD as our third Non-Executive Director. Our Non-Executive Directors bring a The Board consists of the Chairman, broad range of skills and experience to two Executive Directors and three Non- the board table that complement those Executive Directors whose biographies of our Executive Directors and Chairman. are set out within the Strategic Report. Our business model demands that we Our Board of Directors have a range provide consistently high quality of service of experience and calibre to bring to our retail customers in order to win their independent judgment on issues of trust and build long term relationships. strategy and performance which helps Francesca and Gareth’s extensive retail the Board to carry out its supervisory experience provides valuable input to our and stewardship functions effectively board discussions on all aspects of our and to discharge its responsibilities customer relationships and CRM issues, to shareholders for the proper including our online proposition and ideas management of the Group. The three for service innovation. Non-Executive Directors of Share plc also sit on the board of The Share Centre A core element of our current growth Limited, the Group’s principal operating strategy is development of strategic company, which allows them a more partnerships and opportunities for detailed insight into the core business, acquisition of competitor business. In this its risks and opportunities, the people context, the insight brought by Richard involved, our systems and processes and Tolkien to the Board’s strategic decisions progress in meeting our strategic targets. on growth opportunities, including the execution and implementation required
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 CORPORATE GOVERNANCE STATEMENT 35
Shareholders’ funds of £19.5m or 13.5p per share (2017: £18.2m, 12.7p per share)
to bring those opportunities to fruition is During 2018, each of our Board members BOARD COMMITTEE invaluable based upon Richard’s long attended all five meetings of the Share plc experience in the corporate finance world. Board. There was also a 100% attendance ACTIVITY record at our Board committees (three As founder of the Company and as a The Audit and Risk Committee is Audit and Risk, two Remuneration, life-long champion of the provision of responsible for monitoring the integrity two Nomination and two Investment straightforward investment services to of the Group’s financial accounts and Committee meetings). Our Non-Executive personal investors, our Chairman, Gavin the adequacy and effectiveness of Directors are contracted under their letters Oldham OBE, brings an enormously helpful the Group’s systems of internal control of appointment to give two days of their perspective to all strategic and operational including risk management procedures. time per month to the Company. board discussions. Gavin’s work for The It is also responsible for monitoring the Share Foundation and his links to key independence and effectiveness of the industry bodies and influencers brings a BOARD EVALUATION Group’s external auditors. unique insight into the Boardroom to inform The Board undertakes a review of its In addition to its regular business of the Board’s debate on both opportunity effectiveness every year and its current overseeing the Company’s full and half and risk. approach is to seek external assistance year financial accounts, the Committee’s All of the Directors benefit from internal with this at least every third year. Following terms of reference were updated during training run by the Company including a thorough review of its effectiveness 2018 by the Board to bring them more in (but not limited to) the compliance training with the help of an independent, external line with the best practice terms published required for all employees as a result facilitator during 2017, the Board has by ICSA (The Governance Institute). This of our regulated status. Our Directors undertaken an internal review of its involved explicitly referencing the roles are regularly offered (and undertake) effectiveness in 2018 led by the Company of both the Head of Compliance and the relevant external training courses offered Secretary. Details of the findings of the Money Laundering Reporting Officer and by experts on matters related to issues 2018 review were reported and debated recognising the importance of those roles relating to both our industry sector and at the first Board meeting of 2019. The and of reports produced by the holders also their wider duties as Directors (for Board expects to report a summary of of the roles for the Committee’s benefit. example training on risk oversight duties the principle outcomes of the evaluation The Committee’s responsibilities for for Directors). via its website following completion of reviewing the Group’s risk management the process. Further initiatives have been processes were also made more The Company Secretary also provides all put in place in furtherance of the 2017 explicit and the terms of reference were Directors with regular updates on key legal board evaluation outcomes including: the adapted to reflect the creation of a new and corporate governance developments reshaping of our board strategic offsite set of Executive level forums, including relevant to their roles. Our auditors, EY, meetings; ensuring that formalities are a new Executive Governance and Risk subject to our Non-audit Services Policy, in place when the Chairman wishes to Sub-Committee which has taken on also provide relevant advice to the Audit express his majority shareholder view; and reporting responsibilities to the Board. The and Risk Committee and the Board about the inclusion in our board calendar of more Committee also spent time reviewing and relevant regulatory and compliance related time for the Chairman and Non-Executive advising upon an updated version of the items such as development of the Group’s Directors to meet without the Executive Group’s ICAAP. ICAAP and Client Assets Sourcebook Directors present. (‘CASS’) compliance.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 36 CORPORATE GOVERNANCE STATEMENT
The Remuneration Committee is also the remuneration of the management Having been formally demerged from the responsible for setting the remuneration tier below the Directors. The Committee conjoined Remuneration and Nominations policy of the Group and for oversight of also received and debated a report Committee during 2017, the Nominations the remuneration of all Executive Directors about levels of gender pay discrepancy Committee is responsible for reviewing and the Chairman. During the course of at The Share Centre. Further details of the the composition and size of the Board the year the Committee reviewed not only Committee and its work are detailed in the and its committees as well as providing the Executive Directors’ remuneration but Remuneration Report below. succession planning for the Board and
The structure of the Board and its sub-committees is regularly reviewed and these committees are as follows:
MINIMUM MEETING ATTENDEES CHAIRMAN PURPOSE FREQUENCY
Board Board Directors Chairman Quarterly Group strategy and regulatory control
Audit and Risk Non-Executive Directors Senior Non-Executive Bi-annually Review of internal control, Committee Chairman Director compliance, effectiveness and costs of audit
Executive Governance Chief Executive Chief Executive Quarterly Monitoring of Group risk and Risk Sub- Finance Director Committee Director of Partnerships and Change Director of Customer Experience IT Director Senior Non-Executive Director Head of Compliance
Remuneration Non-Executive Directors Non-Executive Director Bi-annually Structure of Board Committee Chairman remuneration
Nomination Committee Non-Executive Directors Chairman Bi-annually Structure, size and Chairman composition of the Board and succession planning
Corporate Investments Non-Executive Directors Chairman Bi-annually Review of market performance Committee Chairman and rationale for holding corporate investments
A statement of Directors’ responsibilities in respect of the financial statements is set out on page 32 and a statement of going concern is set out on page 21.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 CORPORATE GOVERNANCE STATEMENT 37
Proposed final (and total) dividend of 0.55p per share (2017: 0.40p per share), up by 38%
senior Executives. During the course of RISK MANAGEMENT AND • The internal financial reporting and 2018 the Committee debated not only review of financial results and other key succession plans for Non-Executive INTERNAL CONTROL performance criteria; Directors on the Board but also reviewed The Board has overall responsibility for risk • Accounting and financial reporting succession plans for the Executive management and internal controls. The policies to ensure the consistency, management team down to the level schedule of matters reserved for the Board integrity and accuracy of the Group’s below the Executive Directors. ensures that the Directors maintain full and financial records; • Regulatory control, compliance and The Investment Committee is charged effective control over all significant strategic, application of the FCA handbook; with responsibility for overseeing the financial, organisational and compliance • Client asset control and reconciliation; Group’s various strategic investments. issues. The Audit and Risk Committee and During the course of the year the has considered the absence of a formal • Internal control and compliance Committee considered the Group’s internal audit function again during 2018 reviews providing formal monitoring, strategic holdings and noted with interest in the context of the Group’s compliance risk assessment and reporting the sale of RBS’ holdings in Euroclear to procedures and other controls, and has of weaknesses in departmental ICE and the LSE purchase of a similar concluded this remains appropriate. processes. shareholding, following which the Further details of the Board’s approach to Committee debated the carrying value of effective risk management are included the Group’s own investment in Euroclear. in the ‘Principal risks and uncertainties’ RELATIONS WITH section of the Strategic Report. SHAREHOLDERS POLICY ON NON-AUDIT The Directors have delegated to Executive The Board recognises the importance SERVICES PROVIDED BY THE management the establishment and of communications with shareholders. implementation of a system of internal AUDITOR The Chairman’s statement and the controls appropriate to the regulatory and Strategic Report in this Annual Report To safeguard the independence of the business environment in which it operates. include a detailed consideration of the audit process, non-audit services provided This system of control has been developed business, its strategy, operations and by the auditor are usually limited to defined and refined over time to meet the Group’s future prospects. In addition, the Board audit-related work and tax services that current and future needs and the risks and now maintains a detailed statement on fall within specific categories. The auditor’s opportunities to which it is exposed. These its website for the benefit of shareholders remuneration for taxation services controls include but are not limited to: and other stakeholders outlining its principally relates to advice in connection • Strategic planning and the related compliance with the ten principles of the with the completion of the current and annual planning and quarterly re- QCA Code including the ways in which prior year tax computations for the Group. forecasting process including the it communicates with shareholders and Further details of non-audit services ongoing review by the Board of the other relevant stakeholders. provided by the auditor are included in Group’s strategies; Note 7 of the financial statements. The Board uses the Annual General • The definition of the organisational Meeting to communicate with investors structure and appropriate delegation and welcomes their participation. All of authorities to operational Directors are available at Annual General management; Meetings to answer questions.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 38 CORPORATE GOVERNANCE STATEMENT
The proxy votes cast on each resolution proposed at general meetings are disclosed at those meetings. Regular press announcements are also provided to inform shareholders and potential investors and are posted on the Group’s website, www.shareplc.com, as well as through the London Stock Exchange news service. The CEO and Finance Director undertake meetings with key shareholders, analysts and financial sector journalists following publication of both our full and half year results in order to answer questions and ensure that the key messages within our reports are properly understood and effectively communicated onwards. Key communications are typically shared with shareholders in draft form before publication with our NOMAD (Cenkos Securities) and also, as appropriate, with our advisers to ensure that they are accurate and effective. QCA CODE COMPLIANCE STATEMENT The Board has adopted the updated QCA Corporate Governance Code and has produced a statement outlining the application of the Code and its principles within the Company, how that application supports our long-term success and how we comply with the principles set out in Code. This can be found on the Share plc website. The Board believes that, with the disclosures included in this report and on its website, it has met the QCA’s requirement to provide disclosure against principles 1-10 of the Code.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 39
DIRECTORS’ REMUNERATION REPORT
As stated in the Corporate Governance REMUNERATION POLICY BONUS AND PROFIT SHARE Statement on pages 34 to 38, the Company now follows the QCA Code on The Company’s policy is to promote the The Company operates a bonus and Corporate Governance and follows the long term success of the Company by profit-sharing arrangement for its Executive principles of that Code in so far as they providing remuneration packages to Directors, thereby ensuring that the relate to remuneration and performance attract, motivate and retain Directors of the interests of shareholders and Executives of Directors. The Directors’ remuneration right calibre who will make a significant in sustaining increased profits are closely report is made in accordance with the contribution to the performance of the aligned and risks and rewards are shared. requirements of AIM Rule 19. It complies Company. The Board’s policy for Executive This arrangement operates through the with the requirements of AIM Rule 19 and remuneration is designed to: creation of a pool based on a percentage of profit before tax, profit before tax describes how the Board has applied the • Ensure the Directors’ rewards are growth and revenue growth, which is then principles of good governance relating to competitive when compared to similar distributed on the basis of salary. Directors’ remuneration. companies in terms of size and/or The auditor reports to the Company’s industry; and PENSIONS members on the ’auditable part’ of the • Give Executive Directors the opportunity Directors’ remuneration report and states to increase their earnings by achieving Executive Directors are responsible for whether in its opinion that part of the and exceeding key performance their own pension arrangements and are report has been properly prepared in objectives. eligible to receive an additional 8% of their accordance with the Companies Act 2006. As part of its ongoing business the annual salary payable into their personal The report has therefore been divided Committee undertakes periodic reviews money purchase pension scheme. This into separate sections for audited and of market levels of pay amongst similar is the same rate as applied to all staff unaudited information. companies. In conducting these reviews throughout the Group. of Directors’ remuneration, the pay and REMUNERATION COMMITTEE conditions of all staff within the Group SHARE OPTIONS The Remuneration Committee has the are considered including the level of any Directors are eligible to participate in the responsibility of making recommendations general increases awarded. Company’s share option schemes. Details to the Board on the Group’s general policy of the schemes are provided in Notes 28 on remuneration and for specific packages BASE SALARY AND BENEFITS and 29 to the financial statements. The for individual Executive Directors. IN KIND Committee ensures that awards are made within the overall limits authorised by the The membership of the Committee is: An Executive director’s basic salary is set shareholders and at an appropriate level G V Thomas - Chairman by the Remuneration Committee to reflect for an individual, taking into account their G D R Oldham the director’s responsibility, experience role, contribution to the business, previous R I Tolkien and market conditions. The basic salary is option grants and market practice. F E Ecsery reviewed annually with effect from 9 April. No director plays any part in any The benefits-in-kind provided include discussions about their own remuneration. medical cover, life assurance and car allowance.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 40 DIRECTORS’ REMUNERATION REPORT
SHARE INCENTIVE PLAN The Company operates a SIP which is open to all employees. The Executive Directors, with the exception of G D R Oldham, are eligible to participate in the plan and their interests in the shares of the Company are as set out in the Directors’ Report. G D R Oldham holds a controlling interest in the Company and is not eligible to participate in the scheme. He therefore receives an additional remuneration payment equivalent to the value of the contribution that the Company would have made had he been entitled to participate in the scheme and uses the net payment to purchase shares in the Company. SERVICE CONTRACTS The Company has entered into the following non fixed term service contracts with its Directors:
DATE OF CURRENT NOTICE PERIOD SERVICE AGREEMENT (MONTHS) G D R Oldham 1 January 2014 12 R I Tolkien 5 August 2009 1 F E Ecsery 4 July 2011 1 R W Stone 1 January 2014 6 M D Birkett 3 February 2014 6 G V Thomas 21 November 2014 1
In the event of termination of employment of any of the Directors, compensation amounting to that falling due under the notice period would be payable. NON-EXECUTIVE DIRECTORS The Board determines the level of Non-Executive remuneration after considering fee levels in comparable businesses. A basic fee is set for normal duties and supplementary fees are paid for additional duties. The UK Corporate Governance Code suggests that to retain their independence, Non- Executive Directors should not be able to participate in the Company’s share option schemes. The Group’s Non-Executive Directors only contribute to the Company SIP. Details of this plan, which is open to all employees, are given in Note 28. The amounts are not considered material to affect the independence of the Group’s Non-Executive Directors.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 DIRECTORS’ REMUNERATION REPORT 41
TOTAL SHAREHOLDER RETURN PERFORMANCE GRAPH
220
200
180
160
140
120
100
80 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018
SHARE PLC - PRICE FTSE ALL-SHARE - PRICE
AUDITED INFORMATION Directors’ emoluments
Profit 2018 2017 share/ Pension Pension Salary/fees Benefits Other 2 bonus 2018 Total Contribution 2017 Total Contribution £ £ £ £ £ £ £ £ G D R 150,000 10,090 9,800 - 169,890 12,000 183,049 12,000 Oldham R W Stone 202,008 9,372 - 81,613 292,993 10,617 247,873 10,033 M D Birkett 140,083 8,343 - 60,583 209,009 11,207 186,748 10,940 R I Tolkien3 30,967 - 160 - 31,127 - 28,900 - F E Ecsery 28,750 - 499 - 29,249 - 26,534 - G V Thomas 30,083 - 681 - 30,764 - 26,855 - 581,891 27,805 11,140 142,196 763,032 33,824 699,959 32,973
2 This additional remuneration payment for G D R Oldham is equivalent to the value of the contribution that the Company would have made had he been entitled to participate in the Company’s SIP. Additional payments for R I Tolkien, F E Ecsery and G V Thomas represent reimbursed taxable expenses. 3 Remuneration reflects role as Senior Independent Non-Executive Director.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 42 DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ SHARE OPTIONS Under the Company’s Executive share option scheme, enterprise management incentive scheme, co-ownership equity incentive plan, company ownership plan and long term equity incentive plan, as at 31 December 2018 options and interests in shares were held by Directors over ordinary 0.5p shares as follows:
Name Type At 1 Jan Expired Exercised At 31 Dec Exercise Date of Date first Expiry date 2018 in year in the year 2018 price grant exercisable
Richard Stone U 19,470 (19,470) 0 0.245 22/12/2008 22/12/2011 22/12/2018 Richard Stone C 9,947 9,947 0.360 25/06/2009 25/06/2012 25/06/2019 Richard Stone C 9,947 9,947 0.330 23/12/2009 23/12/2012 23/12/2019 Richard Stone E 9,894 9,894 0.285 22/12/2010 22/12/2013 22/12/2020 Richard Stone C 86,068 86,068 0.320 29/06/2010 29/06/2013 29/06/2020 Gavin Oldham U 162,707 162,707 0.250 22/06/2011 22/06/2014 22/06/2021 Gavin Oldham U 11,145 11,145 0.225 22/12/2011 22/12/2014 22/12/2021 Richard Stone E 40,931 40,931 0.250 22/06/2011 22/06/2014 22/06/2021 Richard Stone U 103,074 103,074 0.250 22/06/2011 22/06/2014 22/06/2021 Richard Stone U 9,863 9,863 0.225 22/12/2011 22/12/2014 22/12/2021 Gavin Oldham U 11,176 11,176 0.230 22/06/2012 22/06/2015 22/06/2022 Richard Stone E 9,934 9,934 0.230 22/06/2012 22/06/2015 22/06/2022 Gavin Oldham U 10,958 10,958 0.245 22/12/2012 22/12/2015 22/12/2022 Richard Stone E 10,714 10,714 0.245 22/12/2012 22/12/2015 22/12/2022 Richard Stone E 10,645 10,645 0.240 22/06/2013 22/06/2016 22/06/2023 Gavin Oldham U 10,887 10,887 0.240 22/12/2013 22/12/2016 22/12/2023 Richard Stone U 1,063,750 (1,063,750) 0 0.010 01/05/2014 01/05/2018 01/05/2024 Richard Stone U 1,063,750 1,063,750 0.010 01/05/2014 01/05/2019 01/05/2024 Richard Stone U 1,063,750 1,063,750 0.010 01/05/2014 01/05/2020 01/05/2024 Richard Stone CS 66,666 66,666 0.450 01/05/2014 01/05/2017 01/05/2024 Mike Birkett CS 66,666 66,666 0.450 01/05/2014 01/05/2017 01/05/2024 Mike Birkett U 390,000 390,000 0.450 01/05/2014 01/05/2017 01/05/2024 Gavin Oldham U 65,433 65,433 0.450 01/05/2014 01/05/2017 01/05/2024 Richard Stone U 65,433 65,433 0.450 01/05/2014 01/05/2017 01/05/2024 Mike Birkett U 390,000 390,000 0.450 01/05/2014 01/05/2018 01/05/2024 Mike Birkett U 390,000 390,000 0.450 01/05/2014 01/05/2019 01/11/2024 Gavin Oldham U 10,899 10,899 0.390 01/11/2014 01/11/2017 01/11/2024 Richard Stone U 10,899 10,899 0.390 01/11/2014 01/11/2017 01/11/2024 Mike Birkett U 9,446 9,446 0.390 01/11/2014 01/11/2017 01/05/2025 Richard Stone U 12,076 12,076 0.380 01/05/2015 01/05/2018 01/05/2025 Mike Birkett U 9,511 9,511 0.380 01/05/2015 01/05/2018 01/05/2025 Gavin Oldham U 10,655 10,655 0.380 01/05/2015 01/05/2018 12/11/2025 Richard Stone U 12,076 12,076 0.300 12/11/2015 12/11/2018 12/11/2025 Mike Birkett U 9,511 9,511 0.300 12/11/2015 12/11/2018 12/11/2025 Gavin Oldham U 10,655 10,655 0.300 12/11/2015 12/11/2018 09/06/2026 Richard Stone U 12,400 12,400 0.285 09/06/2016 09/06/2019 09/06/2026 Mike Birkett U 9,487 9,487 0.285 09/06/2016 09/06/2019 09/06/2026 Gavin Oldham U 10,406 10,406 0.285 09/06/2016 09/06/2019 01/11/2026 Richard Stone U 12,400 12,400 0.275 01/11/2016 01/11/2019 01/11/2026 Mike Birkett U 9,487 9,487 0.275 01/11/2016 01/11/2019 01/11/2026
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 DIRECTORS’ REMUNERATION REPORT 43
Name Type At 1 Jan Expired Exercised At 31 Dec Exercise Date of Date first Expiry date 2018 in year in the year 2018 price grant exercisable
Gavin Oldham U 10,406 10,406 0.275 01/11/2016 01/11/2019 04/05/2027 Richard Stone L 600,000 600,000 0.000 04/05/2017 04/05/2020 04/05/2027 Mike Birkett L 600,000 600,000 0.000 04/05/2017 04/05/2020 04/05/2027 Richard Stone L 600,000 600,000 0.000 04/05/2017 04/05/2021 04/05/2027 Mike Birkett L 600,000 600,000 0.000 04/05/2017 04/05/2021 04/05/2027 7,713,122 (19,470) (1,063,750) 6,629,902
(C) Shares held under the co-ownership equity incentive plan (CS) Company Share Ownership Plan (E) Share options granted under the Company’s EMI share option scheme (L) Shares granted under the Long Term Equity Incentive Plan (U) Share options granted under the Company’s unapproved share option scheme One option was exercised during the period realising a gain of £255,300. The market mid-price of the Company’s ordinary shares at 31 December 2018 was 22.75p and their price had ranged from 22.75p to 27.00p during 2018. RESOLUTION A resolution to shareholders to adopt the Directors’ remuneration report will be put forward at the Annual General Meeting. Approved by the Board and signed on its behalf
Gareth Thomas Board Remuneration Committee Chairman 22 March 2019
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 44 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHARE PLC
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHARE PLC
OPINION In our opinion: • Share plc’s group financial statements and parent company financial statements (the “financial statements”) give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2018 and of the group’s loss for the year then ended; • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements of Share plc which comprise:
GROUP PARENT COMPANY
Consolidated balance sheet as at 31 December 2018 Balance sheet as at 31 December 2018
Consolidated income statement for the year then ended Statement of changes in equity for the year then ended
Consolidated statement of comprehensive income for the year then ended Cash flows statement for the year then ended
Consolidated statement of changes in equity for the year then ended Related notes 1 to 30 to the financial statements including a summary of significant accounting policies
Consolidated cash flow statement for the year then ended
Related notes 1 to 30 to the financial statements, including a summary of significant accounting policies
The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards to the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHARE PLC 45
report below. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Overview of our audit approach
KEY AUDIT MATTERS • Incomplete or inaccurate income recognition through failure to recognise proper administration fee, or commission fee, including the risk of management override. • Incorrect valuation of unlisted investments. • Incorrect capitalisation of intangible assets and subsequent impairment. • Valuation and accounting treatment of share incentive schemes.
AUDIT SCOPE • We performed an audit of the complete financial information of Share plc and its subsidiaries.
MATERIALITY • Overall group materiality of £105,000 which represents 0.5% of revenue
Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 46 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHARE PLC
KEY OBSERVATIONS RISK OUR RESPONSE TO THE RISK COMMUNICATED TO THE AUDIT COMMITTEE
Incomplete or inaccurate income We have performed the following: We have no findings from recognition through failure to recognise the tests performed to bring We have performed walkthroughs to update our understanding proper administration fee, or commission • to the attention of the audit of the IT systems and relevant revenue processes, and we tested fee, including the risk of management committee. controls in relation to the client on boarding and removal process, override (£18,699k, 2017: £17,788k) waiving and discounting of fees and accounting processes. Refer to the Audit Committee Report (pages 6-8); Accounting policies (page 58; and • We tested the monthly reconciliations performed by the finance Note 5 to the Financial Statements (page 64) team which validate the completeness and accuracy of administration and commission income per Trader (the trading Share plc earns revenue from commission system) to the general ledger. fees and administration fees generated from trades made on behalf of its • We have compared the central tariff sheet rates to the fee rates customers. Commission fee income detailed within the Share plc website. is charged on a per trade basis and • Waivers and discounts on fees arise because of customer calculated either on a fixed or variable complaints. For a sample of waivers and discounts on fees, we rate depending on the type of product. obtained the relevant forms and agreed these were recorded Administration fees are charged monthly on the complaints log and properly approved by the department or quarterly, depending on the product, head. and are calculated either on a fixed fee or variable rate based on the product type. All • We independently recalculated a sample of administration and rates charged are determined based on commission income balances and agreed them to the General the central tariff data sheet and individually Ledger. agreed with their clients. • For each of our commission samples selected, we agreed the We identified a risk of incorrect rates being fee rate applied to the central tariff sheets and performed an applied to calculate the income. In addition, independent recalculation of the expected commission balance. we have identified a risk of management We compared the recalculated amounts to the commission override where discounts or waivers are charges recorded in Trader and to the General Ledger. applied inappropriately. • Administration fees are earned on either a monthly or quarterly basis depending on the individual client agreements. We performed analytical review procedures over administration income by calculating our expected administration fees, based on the rates contained in the central tariff sheet, and comparing our expectations to the amounts recorded in the general ledger. Any differences were discussed with management and explanations were verified through the review of supporting documentation such as invoices. • We used data analytical tools to identify non-standard commission income. For a sample of outliers we inquired about the nature with management and validated the explanations by confirming fee rates with the central tariff sheet and a Trader download of preferential rate that are individually agreed with the clients. We have tested the IT controls over the Manage Change Process in Trader, validating preferential rates have been entered accurately and have undergone relevant reviews. • Using data analytics tools, we reviewed all user postings made under commissions and administration fees, and verified that the journal entries are made by correctly authorised personnel. • We have reviewed all commissions and admin fee journal entries and confirmed that there were no postings made outside the expected timeframe (ie. first weekend of the month) and that journal postings are complete (ie. 12 separate postings of monthly fees, and 4 separate postings of quarterly fees).
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHARE PLC 47
KEY OBSERVATIONS RISK OUR RESPONSE TO THE RISK COMMUNICATED TO THE AUDIT COMMITTEE
Incorrect valuation of unlisted We have performed the following: We have no matters to investments (£5,936k, 2017: £4,156k) communicate with respect • We updated our understanding of the Group's systems and to the judgments used Refer to the Audit Committee Report (pages controls with respect to Unlisted investment valuation. by management in the 9-10); Accounting policies (page 60-61); and • We reviewed Investment Committee minutes to determine that the assessment of the fair value Note 17 to the Financial Statements (page of the unlisted investments 70) valuation considerations of unlisted investments were appropriate. The Group holds various unlisted as listed • We reviewed the valuation and the accounting treatment of the in Note 17. unlisted investments, and the related disclosures in the financial The Group adopts a valuation methodology statements. on the basis of the latest financial • We reviewed the fair value of the unlisted investments in information or any transactions undertaken comparison to recent sales and financial position of the unlisted within the last twelve months. entity and obtained latest news articles to verify latest indicative There is a risk that inaccurate judgments transaction prices of the investments where possible are made by management in the assessment of the fair value of the unlisted investments, in respect of determining whether investment values are to be increased or decreased based on the financial information available at the balance sheet date. Due to the lack of observable market transactions and the limited financial information available for the Group’s unlisted investments, we evaluated management’s judgment on the valuation of these securities. We identified valuation of unlisted investments as an area of the audit where management estimates and judgements are present. We focused on the valuation of the unlisted investments, assessing management assumptions and verifying the latest financial information where available and other information received
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 48 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHARE PLC
KEY OBSERVATIONS RISK OUR RESPONSE TO THE RISK COMMUNICATED TO THE AUDIT COMMITTEE
Incorrect capitalisation of intangible We have performed the following: We have no findings from assets and subsequent impairment the tests performed to bring We gained an understanding of the Group's systems and controls (£3,710k, 2017: £3,197k) • to the attention of the audit with respect to the capitalisation of Share's intangible assets. committee. Refer to the Audit Committee Report (pages 11-12); Accounting policies (page 59-60); • We discussed the status of development activities with and Note 16 to the Financial Statements management and for each development stage we determined if (page 69) the asset was being used and hence should start being amortised and reviewed for any impairment indicators. The Group’s intangible assets consist of purchased customer accounts, and • We obtained a schedule of intangible assets, and performed an internally generated websites and software. examination of invoices, contracts, agreements, and other data that support ownership and value of intangible asset. There is a risk that costs capitalised by management in relation to internally • We have performed an assessment of the useful life of each of the generated intangible assets are overstated intangible assets and recalculated their amortisation. in order to increase the value of its assets • We have compared the estimate of account closures made and decrease operating expenses, thereby by management and compared those to the actual account resulting in an increase in its operating closures occurring after the year end. For the tranche completed income which is a key performance in September we noted no differences. For the November tranche indicator for the Group. we noted that no additional closures were expected after February In addition, there is a risk that the 2019 by management. We calculated the expected closures for amortisation period does not accurately March and April 2019, using an average closures rate for the represent the assets' economic useful life or period from November to February, and noted an immaterial assets are amortised before they are ready difference in the expected valuation for the November tranche. for their intended use. • We assessed if the capitalised costs in relation to the internally generated intangibles are in line with the requirements of IAS 38 - Intangible Assets.
Valuation and accounting treatment of We have performed the following: Our procedures noted that share incentive schemes (£551k, 2017: • We have updated our understanding of the terms applied in the all inputs used and final £513k) Group's share incentive and bonus scheme structures including valuations by management the LTEIP scheme in options granted in the year Refer to the Audit Committee Report (page • We agreed a sample of individual awards that have been either are within the reasonable 13); Accounting policies (page 62); and Note granted or exercised during the year to underlying contractual range of estimates. 28 to the Financial Statements (page 81-82) information or other notification provided to employees. For options that have lapsed/expired, we have agreed the list of In addition, we concur that The Group has several option schemes the share schemes have in place which are valued using the Black individuals to verify that these relates to options held by leavers within the period. been accounted for in line Scholes Model, including a long term equity with IFRS 2. incentive plan (LTEIP) Scheme that was put • We performed a review of the Black Scholes and Monte Carlo into place in 2017. The options are being models to assess its appropriateness and recalculate the value of granted by Share plc to employees of The options granted. Share Centre Limited (TSC), and settlement • We assessed the accounting treatment adopted and whether the of the options are recharged to TSC. disclosure of the share based payments in the financial statements is consistent with both our understanding of the Group's There is a risk that assumptions used obligations under the scheme and the requirements of IFRS 2. in the calculation of the share incentive schemes are not reasonable or incorrectly entered into the model, resulting in an over/ understatement of share based payment charges. In addition, there is a risk that Group share schemes are not recognised or presented in the financial statements in accordance with IFRS 2 - share based payments.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHARE PLC 49
AN OVERVIEW OF THE SCOPE We determined materiality for the Group to Other information be £105k (2017: £94k), which is 0.5% (2017: OF OUR AUDIT 0.5%) of revenue. The Group is currently The other information comprises the information included in the annual Tailoring the scope focused on Revenue growth and is it is currently making large investments and report set out on pages 5-43, other Our assessment of audit risk, our improvements to the business systems and than the financial statements and our evaluation of materiality and our customer applications. Therefore, we have auditor’s report thereon. The directors are allocation of performance materiality deemed Revenue to be a more appropriate responsible for the other information. determine our audit scope for each basis for calculating Planning Materiality. Our opinion on the financial statements entity within the Group. Taken together, We determined materiality for the Parent does not cover the other information and, this enables us to form an opinion on Company to be £19.2k (2017: £21.0k), which except to the extent otherwise explicitly the consolidated financial statements. is 1% (2017: 1%) of equity. stated in this report, we do not express We take into account size, risk profile, any form of assurance conclusion thereon. the organisation of the group and Performance materiality effectiveness of group wide controls, In connection with our audit of the changes in the business environment The application of materiality at the financial statements, our responsibility and other factors such as recent Internal individual account or balance level. is to read the other information and, in audit results when assessing the level of It is set at an amount to reduce to an doing so, consider whether the other work to be performed at each entity. appropriately low level the probability information is materially inconsistent with that the aggregate of uncorrected the financial statements or our knowledge In assessing the risk of material and undetected misstatements obtained in the audit or otherwise misstatement to the Group financial exceeds materiality. appears to be materially misstated. If we statements, and to ensure we had identify such material inconsistencies or adequate quantitative coverage of On the basis of our risk assessments, apparent material misstatements, we are significant accounts in the financial together with our assessment of the required to determine whether there is statements, we have audited all Group’s overall control environment, a material misstatement in the financial consolidated entities within the Group, our judgement was that performance statements or a material misstatement all of which are based in the UK. materiality was 50% (2017: 50%) of our of the other information. If, based on the planning materiality, namely £53k We performed audit procedures on work we have performed, we conclude (2017: £47k). We have set performance that there is a material misstatement of significant accounts within the Group materiality at this percentage due to due which were selected based on the size the other information, we are required to to our past experience of corrected and report that fact. of these accounts or their risk profile. uncorrected misstatements. We have nothing to report in this regard. Changes from the prior year Reporting threshold Opinions on other matters There were no significant changes in An amount below which identified the scope of our audit from prior year. prescribed by the Companies Act misstatements are considered as being 2006 Our application of materiality clearly trivial. In our opinion, based on the work We agreed with the Audit Committee that We apply the concept of materiality undertaken in the course of the audit: we would report to them all uncorrected in planning and performing the audit, audit differences in excess of £5k (2017: • the information given in the strategic in evaluating the effect of identified £5k), which is set at 5% of planning report and the directors’ report for the misstatements on the audit and in materiality, as well as differences below financial year for which the financial forming our audit opinion. that threshold that, in our view, warranted statements are prepared is consistent Materiality reporting on qualitative grounds. with the financial statements; and • the strategic report and directors’ report We evaluate any uncorrected The magnitude of an omission or have been prepared in accordance misstatements against both the misstatement that, individually or in with applicable legal requirements. the aggregate, could reasonably be quantitative measures of materiality expected to influence the economic discussed above and in light of other decisions of the users of the financial relevant qualitative considerations in statements. Materiality provides a basis forming our opinion. for determining the nature and extent of our audit procedures.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 50 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SHARE PLC
Matters on which we are In preparing the financial statements, the required to report by exception directors are responsible for assessing the group and parent company’s ability to In the light of the knowledge and continue as a going concern, disclosing, understanding of the group and the parent as applicable, matters related to going company and its environment obtained concern and using the going concern basis in the course of the audit, we have not of accounting unless the directors either identified material misstatements in the intend to liquidate the group or the parent strategic report or the directors’ report. company or to cease operations, or have We have nothing to report in respect of the no realistic alternative but to do so. following matters in relation to which the Companies Act 2006 requires us to report Auditor’s responsibilities for the to you if, in our opinion: audit of the financial statements • adequate accounting records have not Our objectives are to obtain reasonable been kept by the parent company, or assurance about whether the financial returns adequate for our audit have statements as a whole are free from not been received from branches not material misstatement, whether due to visited by us; or fraud or error, and to issue an auditor’s • the parent company financial report that includes our opinion. statements are not in agreement with Reasonable assurance is a high level the accounting records and returns; or of assurance, but is not a guarantee • certain disclosures of directors’ that an audit conducted in accordance remuneration specified by law are not with ISAs (UK) will always detect a made; or material misstatement when it exists. • we have not received all the information Misstatements can arise from fraud or and explanations we require for our error and are considered material if, audit individually or in the aggregate, they could reasonably be expected to influence the Responsibilities of directors economic decisions of users taken on the basis of these financial statements. As explained more fully in the directors’ responsibilities statement set out on page A further description of our responsibilities 32, the directors are responsible for the for the audit of the financial statements preparation of the financial statements and is located on the Financial Reporting for being satisfied that they give a true and Council’s website at: fair view, and for such internal control as the www.frc.org.uk/auditorsresponsibilities. directors determine is necessary to enable This description forms part of our the preparation of financial statements auditor’s report. that are free from material misstatement, whether due to fraud or error.
Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Amarjit Singh (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 22 March 2019
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 51 FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER
2018 2017 Notes £’000 £’000 Revenue 5 21,039 18,726 Administrative expenses (21,354) (19,519) Operating loss 6 (315) (793) Investment revenues 10 293 225 Other income 11 - 900 Other gains 11 - 51 (Loss)/profit before taxation (22) 383 Taxation 12 (47) (73) (Loss)/profit for the year (69) 310
Basic earnings per share* (p) 14 0.0 0.2 Diluted earnings per share* (p) 14 0.0 0.2
* The Directors consider that the underlying earnings per share as presented in Note 14 represent a more consistent measure of the underlying performance of the business, as this measure excludes the impact of any large non-recurring items. All results are in respect of continuing operations. The notes on pages 56 to 85 form part of these financial statements. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER
2018 2017 Notes £’000 £’000 (Loss)/profit for the year (69) 310 Items that will not be re-classified to profit or loss: Gains on revaluation of equity investments 20 1,906 335 Deferred tax on gains on revaluation of equity investments 21 (343) (61) Exchange gains on equity investments 20 35 133 Deferred tax on exchange gains on equity investments 21 (5) (25) Deferred tax impact of change in tax rates 58 - 1,651 382 Items that have been re-classified to profit or loss: Disposal of subsidiary: transfer of reserves - (26) - (26) Total other comprehensive income 1,651 356 Total comprehensive income for the year attributable to equity shareholders 1,582 666 The notes on pages 56 to 85 form part of these financial statements.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 52 FINANCIAL STATEMENTS
CONSOLIDATED AND COMPANY BALANCE SHEETS AT 31 DECEMBER
Group Company 2018 2017 2018 2017 Notes £’000 £’000 £’000 £’000 Non-current assets Intangible assets 16 3,710 3,197 - - Property, plant and equipment 15 251 214 - - Equity investments 17 8,373 6,432 292 292 Investment in subsidiaries 18 - - 1,093 825 Deferred tax assets 21 182 143 - - 12,516 9,986 1,385 1,117 Current assets Trade and other receivables 19 16,915 24,673 7 15 Cash and cash equivalents 19 8,994 10,540 1,106 1,419 Current tax asset 155 87 - - 26,064 35,300 1,113 1,434 Total assets 38,580 45,286 2,498 2,551 Current liabilities Trade and other payables 22 (17,671) (25,942) (577) (452) Current tax liability - - - - (17,671) (25,942) (577) (452) Net current assets 8,393 9,358 536 982 Non-current liabilities Deferred tax liabilities 21 (1,442) (1,155) - - Total liabilities (19,113) (27,097) (577) (452) Net assets 19,467 18,189 1,921 2,099 Equity & reserves Equity share capital 23 718 718 718 718 Capital redemption reserve 24 104 104 104 104 Share premium account 1,064 1,064 1,064 1,064 Employee benefit reserve 24 (1,422) (1,631) (1,422) (1,631) Retained earnings 24 12,667 13,249 1,457 1,844 Revaluation reserve 24 6,336 4,685 - - Equity shareholders’ funds 19,467 18,189 1,921 2,099 The Company had no items to report in its statement of comprehensive income (‘SOCI’) and made a profit of £157,000 (2017: £440,000). The Company did not have any revenue income other than interest on cash held and dividend income from its subsidiary companies. The financial statements for Share plc (company registration number 02966283) were approved by the Board and authorised for issue on 22 March 2019. Signed on behalf of the Board
Gavin Oldham Chairman The notes on pages 56 to 85 form part of these financial statements.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 FINANCIAL STATEMENTS 53
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity Capital Share Employee holders Share redemption premium benefit Retained Revaluation of the Group Notes capital reserve account reserve earnings reserve Company £’000 £’000 £’000 £’000 £’000 £’000 £’000
Balance at 1 January 2017 718 104 1,064 (1,863) 13,418 4,303 17,744
Total comprehensive income for the period 24 - - - - 284 382 666
Dividends 13 - - - - (346) - (346)
Purchases of ESOP shares - - - (564) - - (564)
Sales of ESOP shares - - - 175 - - 175 Cost of matching & free shares in the Share - - - 229 (229) - - Incentive Plan Profit/(loss) on sale of ESOP shares and - - - 392 (392) - - dividends received Share-based payment credit 8 - - - - 513 - 513
Deferred tax on share-based payment 12 - - - - (7) - (7)
Share-based payment current year taxation 12 - - - - 8 - 8
Balance at 31 December 2017 718 104 1,064 (1,631) 13,249 4,685 18,189
Total comprehensive income for the period 24 - - - - (69) 1,651 1,582
Dividends 13 - - - - (554) - (554)
Purchases of ESOP shares - - - (484) - - (484)
Sales of ESOP shares - - - 152 - - 152 Cost of matching & free shares in the Share - - - 202 (202) - - Incentive Plan Profit/(loss) on sale of ESOP shares and - - - 339 (339) - - dividends received Share-based payment credit 8 - - - - 551 - 551
Deferred tax on share-based payment 12 - - - - 23 - 23
Share-based payment current year taxation 12 - - - - 8 - 8
Balance at 31 December 2018 718 104 1,064 (1,422) 12,667 6,336 19,467
The notes on pages 56 to 85 form part of these financial statements.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 54 FINANCIAL STATEMENTS
COMPANY STATEMENTS OF CHANGES IN EQUITY
Capital Share Attributable to redemption premium Employee Retained equity holders Company Share capital reserve account benefit reserve earnings of the Company £’000 £’000 £’000 £’000 £’000 £’000
Balance at 1 January 2017 718 104 1,064 (1,863) 1,858 1,881
Total comprehensive income for the period - - - - 440 440
Dividends - - - - (346) (346)
Purchase of ESOP shares - - - (564) - (564)
Sales of ESOP shares - - - 175 - 175 Cost of matching & free shares in the Share - - - 229 (229) - Incentive Plan Profit/(loss) on sale of ESOP shares and - - - 392 (392) - dividends received Share-based payment credit - - - - 513 513
Balance at 31 December 2017 718 104 1,064 (1,631) 1,844 2,099
Total comprehensive income for the period - - - - 157 157
Dividends - - - - (554) (554)
Purchase of ESOP shares - - - (484) - (484)
Sales of ESOP shares - - - 152 - 152 Cost of matching & free shares in the Share - - - 202 (202) - Incentive Plan Profit/(loss) on sale of ESOP shares and - - - 339 (339) - dividends received Share-based payment credit - - - - 551 551
Balance at 31 December 2018 718 104 1,064 (1,422) 1,457 1,921
The notes on pages 56 to 85 form part of these financial statements.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 FINANCIAL STATEMENTS 55
CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER
Group Company Notes 2018 2017 2018 2017 £’000 £’000 £’000 £’000 Net cash received from/(used in) operating activities 26 415 1,147 (583) (480)
Investing activities
Interest received 10 58 9 4 1
Equity dividends received - - 870 980
Return of capital to employee benefit trust - - 282 363
Dividend received from investments 10 235 216 - -
Purchase of property, plant and equipment 15 (157) (78) - -
Purchase of intangible investments 16 (1,211) (1,450) - -
Net proceeds from disposal of subsidiary 11 - 51 - 55
Cash and cash equivalents transferred in disposal - (41) - - of subsidiary
Net cash used in investing activities (1,075) (1,293) 1,156 1,399
Financing activities
Shares purchased through employee benefit trust (484) (564) (484) (564)
Shares sold through employee benefit trust 152 175 152 175
Equity dividends paid 13 (554) (346) (554) (346)
Net cash used in financing activities (886) (735) (886) (735)
Net (decrease)/increase in cash and cash (1,546) (881) (313) 184 equivalents
Cash and cash equivalents at the beginning of the 10,540 11,421 1,419 1,235 year
Cash and cash equivalents at the end of the year 8,994 10,540 1,106 1,419
The notes on pages 56 to 85 form part of these financial statements.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 56 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
1 GENERAL INFORMATION Share plc is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is Oxford House, Oxford Road, Aylesbury, Buckinghamshire, HP21 8SZ. The nature of the Group’s operations and its principal activities are set out in Strategic Report on pages 11 to 27. The financial statements are presented in pounds Sterling which is the currency of the primary economic environment in which the Group operates. 2 BASIS OF PREPARATION The Group financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (‘IASB’) and interpretations issued by the International Financial Reporting Interpretations Committee (‘IFRIC’) of the IASB as endorsed by the European Union. The Company’s financial statements have been prepared on the same basis and as permitted by Section 408 of the Companies Act 2006, no income statement is presented for the Company. Of the consolidated profit for the financial year a profit of £157,000 (2017: £440,000), before the payment of dividend distributions, has been dealt with in the financial statements of the Company. The Group accounts consolidate the financial statements of the Company and its subsidiaries, The Share Centre Limited, and The Share Centre (Administration Services) Limited, which make up their annual financial statements to 31 December. Other subsidiaries are not included in the Share plc consolidation as they are not trading and not material to the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. The Group has considerable financial resources and no external debt. With a diversified customer base and core recurring revenue streams along with large elements of discretionary spending in the Group’s cost base, the Directors believe that the Group is well placed to manage its business risks successfully despite the uncertain political and economic outlook. Therefore, after making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and at least 12 months. Accordingly, the going concern basis has continued to be used in the preparation of these financial statements. Changes to accounting standards In the current year, the following new and revised Standards and Interpretations have been adopted and have had no material impact on these financial statements. • IFRS 15 Revenue from Contracts with Customers, effective 1 January 2018 • IFRS 9 Financial Instruments, effective 1 January 2018 (further details below) • Classification and Measurement of Share-based Payment Transactions – Amendments to IFRS 2, effective 1 January 2018 • Applying IFRS 9 Financial Instrument with IFRS 4 Insurance Contracts – Amendments to IFRS 4, effective 1 January 2018 • Transfers of Investment Property – Amendments to IAS 40, effective 1 January 2018 • IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration, effective 1 January 2018 • AIP IFRS 1 First-time Adoption of International Financial Reporting Standards – Deletion of short- term exemptions for the first-time adopters, effective 1 January 2018
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE FINANCIAL STATEMENTS 57
• AIP IAS 28 Investments in Associates and Joint Ventures – Clarification that measuring investees at fair value through profit or loss is an investment-by-investment choice, effective 1 January 2018 At the date of authorisation of these financial statements, the following Standards and Interpretations which have not yet been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU). • IFRS 16 Leases (further details of impact below) • IFRIC Interpretation 23 Uncertainty over Income Tax Treatments, effective 1 January 2019 • Prepayment Features with Negative Compensation – Amendments to IFRS 9, effective 1 January 2019 • Long-term Interests in Associates and Joint Ventures – Amendments to IAS 28, effective 1 January 2019 • Plan Amendment, Curtailment or Settlement – Amendments to IAS 19, effective 1 January 2019 • AIP IFRS 3 Business Combinations – Previously held Interests in a joint operation, effective 1 January 2019 • AIP IFRS 11 Joint Arrangements – Previously held Interests in a joint operation, effective 1 January 2019 • AIP IAS 12 Income Taxes – Income tax consequences of payments on financial instruments classifies as equity, effective 1 January 2019 • AIP IAS 23 Borrowing Costs – Borrowing costs eligible for capitalisation, effective 1 January 2019 • Definition of a Business – Amendments to IFRS 3, effective 1 January 2019 • Definition of Material – Amendments to IAS 1 and IAS 8, effective 1 January 2019 • The Conceptual Framework for Financial Reporting, effective 1 January 2020 • IFRS 17 Insurance Contracts, effective 1 January 2021 IFRS 9 Financial instruments The adoption of IFRS 9 has not had a material effect on the measurement of the Group’s financial assets or liabilities on the date of initial application. Upon adoption of IFRS 9 the Group had designated investments in equity instruments previously classified as available-for-sale under IAS 39 as carried at fair value through other comprehensive income. Consequently, gains or losses related to these investments are no longer recycled into profit or loss upon realisation. The Group has taken the decision to apply IFRS 9 retrospectively, but has not restated prior periods. This has had no impact on the Group’s financial statements as all relevant transactions are already recognised in the retained earnings reserve. IFRS 16 Leases A new accounting standard has been issued, IFRS 16: Leases, which replaces IAS 17: Leases, effective from 1 January 2019. The new standard fundamentally alters the classification and measurement of operating leases for lessees, removing the distinction between operating and finance leases. The Group has reviewed its operating leases and is expecting the following impact from the adoption of the new standard: • The Group currently holds two contractual arrangements deemed to satisfy the conditions of a lease, and which do not fall into the exceptions of the standard. These are the contractual arrangements in relation to rental of the office building and the rental of photocopiers. • Currently these leases are accounted for in the income statement on an accruals basis under IAS 17. Under the new standard, these two assets will be required to be held on the balance sheet as “right of use” assets measured at cost (deemed to be the initial measurement of the lease liability plus any set up costs). The lease is initially measured as the total payments required under the terms of the lease, discounted by the incremental borrowing rate (as per the contract) to account for time value of money. • This cost will be the lease element only, excluding any maintenance costs. Maintenance costs will remain in the income statement, as under the current treatment. • The payments made under the lease contracts will no longer be charged to the income statement, and will instead be offset against the liabilities on the balance sheet.
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• Monthly depreciation of the assets will be charged to the income statement. • Interest on the liabilities will be calculated at the incremental borrowing rates, and will also be charged to the income statement monthly. The above changes in accounting treatment will result in both assets and liabilities being grossed up by c.£2.5m on the balance sheet on the transition date of 1 January 2019. The impact on the 2019 income statement is expected to be immaterial. The Group will not restate comparative information in the 2019 financial statements for operating leases as a result of IFRS 16. Prior period amendments that arise from the adoption of IFRS 16 will be recognised directly in retained earnings as of 1 January 2019. 3 ACCOUNTING POLICIES Revenue recognition Revenue from contracts with customers Revenue is measured at an amount that reflects the consideration received or receivable for services provided in the normal course of business, net of discounts, VAT and any other sales related taxes. Revenue is recognised on an accruals basis as the performance obligations are satisfied and primarily comprises dealing commissions, fees earned in the provision of broking and custodian services and interest income on client money. Following the issue of IFRS 15 Revenue from Contracts with Customers, the recognition of fees and commission is dependent on when the performance obligation is satisfied. The performance obligations relating to administration and frequent dealing fees are satisfied over time, therefore this revenue is recognised over time. For all other fees and commission, the performance obligation is satisfied at a point in time, and as such revenue is recognised at that point in time on an accruals basis. Other revenue Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable. Dividend income from equity investments is recognised when the shareholders’ right to receive payment has been established, typically on ex-dividend basis. Expenses Expenses are recognised on an accrual basis. Leasing The Group has no finance leases; all leases are classified as operating leases without any substantial transfer of the risks and rewards of ownership to the lessee. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Any benefits received or receivable as an incentive to enter into an operating lease, such as rent free periods, are also spread on a straight-line basis over the lease term. The new accounting standard, IFRS 16 Leases (effective from 1 January 2019), will change the accounting treatment of operating leases, details of which can be found in Note 2 above. Foreign currencies The consolidated and individual financial statements of each Group company are presented in pounds Sterling, which is the currency of the primary economic environment in which they operate. The Group has no material foreign currency cash balances at the balance sheet date. Any exchange differences arising on the incidental foreign currency balances the Group does periodically hold are recognised in profit or loss in the period in which they arise.
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Operating profit Operating profit is stated before investment income and any other income, or gains or losses which arise in respect of the equity investments held by the Group. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability or asset for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets or liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying value of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. In calculating deferred tax in 2018 the rate used was 18% (2017: 19%) based on a blended, forward-looking average rate. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited to equity or other comprehensive income, in which case the deferred tax is also dealt with in equity or the SOCI. 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. Property, plant and equipment Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method, on the following basis: Computer hardware, fixtures and equipment: 25% The gain or loss arising from 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. Intangible fixed assets Internally-generated intangible assets The Group’s activities do not typically give rise to internally generated intangible fixed assets. An internally-generated intangible asset is recognised only if all of the following conditions are met: • An asset is created that can be identified; • It is probable that the asset created will generate future economic benefits; and • The development cost of the asset can be measured reliably. In so far as any internally generated intangible assets are recognised, these would be amortised over their useful economic lives.
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Over the last three years, as part of the focus on customer-facing technology, work has been undertaken to develop a Mobile App and the website, to create additional functionality for customers. Following analysis, these assets have been identified as satisfying the above conditions and are therefore treated as internally-generated intangible assets in the Group’s balance sheet. Purchased software The Group’s purchased software is stated at cost and is amortised over its useful economic life, typically over five years on a straight-line basis. Purchased customer lists Intangible assets arising from the acquisition of customer accounts are calculated based on the cost of those acquisitions and are being amortised over five years on a straight line basis from the date of the transfer of the accounts. Any contingent consideration included in the cost of an asset has been recorded at fair value. Other intangible assets The Group’s investment in the share.com domain name is stated at cost and has been amortised over ten years on a straight-line basis from the year of completion of the transaction purchase. Investments in subsidiaries Fixed asset investments in subsidiaries in the Company’s balance sheet are shown at cost less provision for any impairment. Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Should the Group have any intangible assets with an indefinite useful life, these would be tested for impairment annually and, whenever there is an indication that the asset may be impaired, written down accordingly. If there is objective evidence that the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Financial instruments Financial assets and financial liabilities are recognised in the Group’s and Company’s balance sheets when they become party to the contractual provisions of the instrument. Financial assets Financial assets are measured at amortised cost, fair value through profit or loss (‘FVTPL’) or fair value through other comprehensive income (‘FVTOCI’). The classification depends on the nature of the financial asset, the business model for managing the asset and the asset’s contractual cash flow characteristics, and is determined at the time of initial recognition. Equity investments The Group has irrevocably opted to recognise its listed and unlisted investments in equity instruments at ‘FVTOCI’. This decision was taken to avoid potentially volatile movements in valuation from distorting the income statement. Fair value is determined in the manner described in Note 17. Gains and losses arising from changes in fair value and foreign exchange rates on non-monetary assets are recognised in the SOCI in the investments’ revaluation reserve.
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Dividends from equity investments are recognised in the income statement when the Group’s right to receive the dividends is established, it is probable the economic benefits will flow to the Group and the amount can be measured reliably. Financial assets at amortised cost Trade receivables are measured at initial recognition at fair value, in accordance with market practice, trade and settlement balances with clients, Stock Exchange member firms and other counterparties are included as debtors. Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as financial assets at amortised cost. Trade receivables do not contain significant financing components and, as such, are measured at undiscounted transaction price, determined in accordance with IFRS 15, less any loss allowance. Appropriate loss allowances for estimated irrecoverable amounts are recognised in the income statement following assessment of potential expected defaults. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Impairment of financial assets Following the introduction of IFRS 9: Financial Instruments, impairment reviews are no longer required for equity investments as all such investments are held at FVOCI. For all other financial assets the Group makes a provision for the element of fees which it believes will not be recovered from customers using the “expected credit loss” (‘ECL’) model. The Group has opted to use a simplified approach based on historic customer data, future economic conditions and detailed analysis of the outstanding fees position particularly with regard to the value of customers’ portfolios relative to the fees owed. This assessment includes factors such as the Group’s past experience of collecting payments, the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables. Where the carrying amount of trade receivables is reduced due to an expected credit loss; this is done so through the use of an allowance account. When a trade receivable is considered uncollectable and any allowance account balance has been used for a reduction in the carrying value, it would then be written off to the income statement. Subsequent recoveries of amounts previously written off are credited to the income statement. Changes in the carrying amounts are also recognised in the income statement. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Included within cash balances are amounts held on client settlement accounts as shown in Note 19. Client money The Group holds money in trust on behalf of clients in accordance with the FCA Client Asset rules. These amounts are not used by the Group to complete settlement of outstanding bargains and dividends due. The Group has no beneficial interest in these deposits and accordingly they are not included in the balance sheet. Where the Group holds client money on trust that represents amounts to the market arising from either the settlement of bargains or receipt of dividends, these monies are included in the balance sheet. De-recognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
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Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received net of direct issue costs. Financial liabilities Financial liabilities are classified as either financial liabilities at ‘FVTPL’ or at amortised cost. The Group has no financial liabilities at ‘FVTPL’. Financial liabilities at amortised cost, including borrowings if any, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest rate method. Trade and other payables Trade payables are measured at amortised cost. In accordance with market practice, trade and settlement balances with clients, Stock Exchange member firms and other counterparties are included as creditors. De-recognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material. The main provision held is in respect of employees’ outstanding holiday pay at the year end. Share-based payments The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity- settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non- market based vesting conditions. Fair value is measured using the Black-Scholes, and for new schemes the Monte Carlo, models. As Share plc is the grantor of the awards and settles them with its own equity for services rendered to its subsidiaries, IFRS 2 requires Share plc to recognise the arrangement as an equity- settled share-based payment. As the employee benefit trust (‘EBT’) is controlled by Share plc, the Company reports it as an extension of the entity in its company financial statements. As this arrangement is operated for employees of The Share Centre Limited, the share based payment expense is accounted for in the subsidiary’s own income statement and balance sheet, offset against cash contributions to the employee benefit trust held in Share plc. Details of the Group’s share-based payments, and subsidiary contributions relating to these, are disclosed in Note 28 to these financial statements. Purchase of shares for Employee Benefit Trust In respect of the Group’s SIP and where share option grants are made, the Group can acquire shares in Share plc. These shares are held by Sharesecure Limited, a trustee provider which is 100% owned by Share plc. Purchases are made to meet the potential obligations arising from the issue of share options made to employees and the allocation of shares to employees participating in the SIP. SIP shares are also received back from leaving employees. The net original cost of investment is deducted in arriving at shareholders' funds (the amounts are shown in a separate reserve, called the ‘Employee Benefit Reserve’). Gains and losses from share price movements arriving from these transactions are deducted from current year retained earnings.
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Pension scheme If requested, the Group contributes 8% of the employee’s gross salary to a defined contribution pension scheme of the employee’s choice. Contributions are charged to the income statement as they become payable. Dividends paid Proposed dividends on ordinary shares are subject to approval at the Annual General Meeting and are recognised as a liability upon shareholder approval. 4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies, which are described in Note 3, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The 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. Fair value of investments The Group currently holds investments in the London Stock Exchange plc (‘LSE’), Euroclear Holding SA (‘Euroclear’), WAY Group Limited, Professional Partners Administration Limited (‘PPAL’; demerged from WAY Group Limited during 2014), Alpha Prospects Limited, Asset Match Limited and EiRx Therapeutics plc. These are held as equity financial assets and are measured at fair value at the balance sheet date. The LSE shares trade in an active market and the fair value is readily determined by market price. The Euroclear shares do not trade in an active market, although eligible shareholders have previously been invited to participate in buy-backs or traded privately. Therefore historically the fair value has been calculated using a weighted average share price following recent buy-backs and the net asset value of the business adjusted for liquidity considerations. However, in 2018 the Group opted to use recent trades in Euroclear shares as the latest buyback data was outdated. WAY Group Limited shares are carried at cost as the shares are not publicly traded and there is no other means of determining a reliable and timely fair value based on the limited publicly available information. The company is currently loss-making and this investment may be worth materially less than cost, therefore the shares are now held at their nominal value of 1p per share. Alpha Prospects Limited and PPAL are held at cost and cost (less a small discount) respectively as explained in Note 17. The EiRx Therapeutic plc shares are carried at nil value given the financial position of the company and their recent history. Further detail is contained in Note 17. For unlisted investments, any share transactions undertaken in the past 12 months are considered when assessing the fair value of the investment. Share-based payments The Company’s shares have been traded on AIM since May 2008, which provides a market price to help determine the fair value of equity-settled share-based payments but, in addition to this, estimations are made as to price volatility, risk-free interest rate and expected life. These estimations enable the Black-Scholes and Monte Carlo models to then be used to determine the fair value of these equity-settled share-based payments. More details regarding share-based payments can be found in Note 28.
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Impairment The non-financial assets on the balance sheet which require loss assessments or impairment reviews are assessed with reference to the recoverability and market value of the assets concerned but may involve an element of judgement or estimation in determining whether there are any indications of impairment and the extent of any impairment loss. As part of these reviews, where appropriate, an assessment of the future economic benefits likely to be generated from the assets concerned is performed. This is based on a discounted cash flow model, which uses assumptions around customer activity to estimate future revenue. 5 REVENUE An analysis of the Group’s revenue is as follows:
2018 2017 £’000 £’000 Commission income 10,906 10,558
Fee income 7,793 7,230
Interest income on customer deposits 2,340 938
21,039 18,726
6 BUSINESS AND GEOGRAPHICAL SEGMENTS IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. There has been no aggregation of segments and the reportable segments during the year therefore represented by the following two business divisions: The Share Centre – this is the main trading business and provides stockbroking and custodian services to personal investors. Operating wholly in the UK, the great majority of this business is done directly with those customers, though in some cases the relationship is through a third party, typically on a white-labelled basis. Additionally, The Share Centre acts as investment manager to the TC Share Centre Portfolio Fund of funds. Sharefunds – historically this division operated a fund administration service up until the date of disposal (7 April 2017). The division’s customers were authorised funds for whom a range of administration services were provided. This included taking on the role of Authorised Corporate Director (‘ACD’). The split of revenues and operating profit were therefore as below.
The Share Centre Sharefunds* Total
2018 2017 2018 2017 2018 2017 £’000 £’000 £’000 £’000 £’000 £’000 Revenue 21,039 18,465 - 261 21,039 18,726
Operating (loss)/profit (315) (860) - 67 (315) (793)
*Figures shown for 2017 are up until the date of disposal (i.e. 1 January 2017 to 7 April 2017). It should be noted that the accounting policies of the reportable segments are the same as the Group’s accounting policies described in Note 3 and that there were no major customers contributing more than 10% of net revenue retained by the Group as a whole. The assets of the Group are principally used by The Share Centre. The services offered by the Group varied by business division as described above up until the date of disposal of Sharefunds in 2017. However within each business division no further segmentation by service was offered. Following the sale of Sharefunds Limited, the majority of its revenue remained within the Group as the three TC Share Centre Portfolio Fund of Funds continue to be managed by The Share Centre.
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7 OPERATING LOSS Operating loss for the year has been arrived at after charging:
2018 2017 £’000 £’000 Depreciation of property, plant and equipment (see Note 15) 120 127
Amortisation of intangible assets (see Note 16) 698 223
Staff costs (see Note 8) 9,774 8,791
Operating lease rentals – property (see Note 27) 259 364
Operating lease rentals – other (see Note 27) 35 35
Auditor’s remuneration
2018 2017 The analysis of auditor’s remuneration is as follows: £’000 £’000
Audit fees: Fees payable to the Group’s auditor for the audit of the 155 83 Group’s annual accounts and those of its subsidiaries
Fees payable to the Group’s auditor for other services to the Group
Tax compliance services 20 20
Tax advisory services 18 9
Total non-audit fees 38 29
The higher audit fees for 2018 were due to additional 2017 audit costs, predominantly relating to the sale of one of the Group entities, Sharefunds. The fees payable for the audit of the Company’s annual accounts amounted to £30,000 (2017: £15,000). 8 GROUP STAFF COSTS
The average number of employees of the Group (including 2018 2017 Executive Directors) was: Number Number Operating and support functions 177 152
Administrative and systems related functions 65 55
242 207
Staff costs during the year (including Executive and Non-Executive 2018 2017 Directors) £’000 £’000 Wages and salaries 7,754 6,675
Profit sharing bonus 100 429
Social security costs 796 698
Pension costs 573 476
Share-based payments 551 513 9,774 8,791 It should be noted that the Company itself does not have any employees (2017: nil).
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9 DIRECTORS Detailed information concerning Directors’ emoluments and share options is disclosed in the Directors’ remuneration report. 10 INVESTMENT REVENUES
2018 2017 £’000 £’000 Interest on bank deposits 58 9
Interest on overpaid tax - -
Dividends from equity investments 235 216
293 225
Investment revenues earned on financial assets, by category of asset, were as follows:
2018 2017 £’000 £’000 Financial assets at amortised cost (including cash and bank balances) 58 9
Equity financial assets 235 216
293 225
11 OTHER INCOME AND GAINS
2018 2017 £’000 £’000 Other income - 900
Disposal of Sharefunds - 51
Other gains - 51
During 2017 the Group worked with a prospective new partner in developing a new product. This partner decided not to proceed with the launch of that product and paid the Group a one-off, non-refundable fee of £0.9m for product development work completed but not progressing. This amount was to cover the costs associated with the delivery of product development work, which were included in Administrative expenses. 12 TAXATION
2018 2017 £’000 £’000 Current tax:
Corporation tax charge on the income for the year (42) (92)
Adjustments in respect of prior periods (25) (13)
Deferred tax
Origination and reversal of timing differences 20 32
(47) (73)
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The tax assessed for the current year can be reconciled to the profit per the income statement as follows:
2018 2017 £’000 £’000 (Loss)/profit before taxation (22) 383
Tax at 19.00% (2017: 19.25%) 4 (74) Effects of
Items not deductible for tax purposes (including expenses, capital (27) (5) allowances and deferred tax adjustments)
Foreign tax suffered (30) (28)
Prior year tax (25) (12)
Exempt dividend income 45 41
Tax payment made on behalf of Employee benefit scheme (2) (1)
Share-based payments (12) 6
(47) (73)
In addition to the amount charged to the income statement, deferred tax relating to the revaluation of the Group’s investments amounting to £290,000 has been charged (2017: £86,000) to other comprehensive income. A current tax credit of £8,000 (2017: £8,000) and deferred tax credit of £23,000 (2017: £7,000 charge) relating to excess deductions on share-based payments have been taken to equity. The current year tax rate used above (19%) is the corporation tax rate from 1 April 2017 to 31 March 2020. The standard rate of corporation tax in the UK is expected to change from 19% to 17% with effect from 1 April 2020. 13 DIVIDENDS
2018 2017 Amounts recognised as distributions to equity holders in the period £’000 £’000 2017 final dividend paid of 0.40p per ordinary share 575 359
Less dividend due to shares held via ESOP* (21) (13)
554 346
* Employee Stock Ownership Plan (‘ESOP’) The Directors are proposing a final dividend of 0.55p per share in respect of the year to 31 December 2018 (2017: 0.40p). This would amount to a dividend payment of £790,000 given the current share capital.
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14 EARNINGS PER SHARE
2018 2017 Earnings £’000 £’000
Earnings for the purpose of basic and diluted earnings per share, being (69) 310 net profit attributable to equity holders of the parent company
Other gains and losses - (951)
FSCS levies 235 283
Share-based payments 551 513
Redundancy/termination/recruitment costs 93 62
One-off costs relating to regulatory changes - 52
One-off legal and professional costs 50 -
Profit share impact of the above adjustments (200) 9
Taxation impact of the above adjustments (34) 105
Earnings for the purposes of underlying basic and diluted earnings 626 383 per share
Number Number Number of shares 000’s 000’s Weighted average number of ordinary shares 144,559 144,695
Non-vested shares held by employee share ownership trust (4,759) (5,276)
Basic earnings per share denominator 139,800 139,419
Effect of potential dilutive share options 8,182 8,494
Diluted earnings per share denominator 147,982 147,913
Basic earnings per share (p) 0.0 0.2
Diluted earnings per share (p) 0.0 0.2
Underlying basic earnings per share (p) 0.4 0.3
Underlying diluted earnings per share (p) 0.4 0.3
Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares during the year. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue assuming conversion of all potential dilutive ordinary shares. The potential ordinary shares consist of those share options where the exercise price is less than the average price of the Company’s ordinary shares during the year. The calculation results in a difference of only a small fraction of a penny, which is eliminated in roundings. Underlying basic and diluted earnings per share are calculated as for basic and diluted earnings per share but using an adjusted earnings figure before any one-off gains, losses, income or expense. The Directors consider that the underlying earnings per share represent a more consistent measure of the underlying performance of the Group.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE FINANCIAL STATEMENTS 69
15 PROPERTY, PLANT AND EQUIPMENT
Computer Fixtures and Total The Group hardware equipment £’000 £’000 £’000 Cost At 1 January 2017 1,172 151 1,323 Additions 67 11 78 At 31 December 2017 1,239 162 1,401 Additions 118 39 157 At 31 December 2018 1,357 201 1,558 Depreciation At 1 January 2017 949 111 1,060 Charge for the year 114 13 127 At 31 December 2017 1,063 124 1,187 Charge for the year 100 20 120 At 31 December 2018 1,163 144 1,307 Net book value At 31 December 2018 194 57 251 At 31 December 2017 176 38 214 The Company holds no fixed assets. 16 INTANGIBLE ASSETS
Share.com Purchased Purchased Systems Total The Group domain name customer accounts software development £’000 £’000 £’000 £’000 £’000 Cost At 1 January 2017 164 856 261 976 2,257 Additions - 135 33 1,282 1,450 At 31 December 2017 164 991 294 2,258 3,707 Additions - 165 22 1,024 1,211 At 31 December 2018 164 1,156 316 3,282 4,918 Amortisation At 1 January 2017 164 78 30 15 287 Charge for the year - 152 23 48 223 At 31 December 2017 164 230 53 63 510 Charge for the year - 208 63 427 698 At 31 December 2018 164 438 116 490 1,208 Net book value At 31 December 2018 - 718 200 2,792 3,710 At 31 December 2017 - 761 241 2,195 3,197 During the year the Group acquired customer accounts from the Special Administrator of Beaufort Securities Limited and Beaufort Asset Clearing Services Limited (together “Beaufort Securities”) following the company going into special administration. In addition, the Group is currently developing its website, which represents the systems development additions in the year. The Company holds no intangible assets.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 70 NOTES TO THE FINANCIAL STATEMENTS
17 EQUITY INVESTMENTS
Group Company 2018 2017 2018 2017 £’000 £’000 £’000 £’000 Unlisted investments at fair value 5,936 4,156 292 292 Listed investment at fair value 2,437 2,276 - - 8,373 6,432 292 292 The Group only holds investments in equity instruments. The Group has opted to recognise these equity instruments as financial assets at FVOCI, with all movements in value reflected in the investment revaluation reserve as shown in Note 24. This includes revaluation movements and profit/loss upon sale of shares. Unlisted investments Euroclear Holding SA This represents 6,030 (2017: 6,030) shares in Euroclear of one Euro each. These shares have an historical cost of £217,390 representing the investment made in Crest Co. Ltd, which was acquired by Euroclear during 2002. As at 31 December 2018, each share has an estimated fair value of £936 (2017: £641). Historically the valuation has been based on an analysis of Euroclear’s net assets as shown in its latest available financial information and a weighted average price following the last buy-back of shares from various shareholders. The most recent buyback was May 2017 and this was the basis for the valuation as at 31 December 2017. The valuation at 31 December 2018 has been calculated based on two recent purchases of holdings in Euroclear by third parties. In October 2017, The Royal Bank of Scotland Group plc announced that its subsidiaries had disposed of its c.5% holding of 148,349 shares in Euroclear plc to Intercontinental Exchange Holdings (‘ICE’) at c.£1,600 per share, significantly higher than Euroclear’s net assets per share and prices in the last buy-back. In January 2019, the London Stock Exchange purchased a c.5% holding in Euroclear also at a similar price of c.£1,600 per share. Both transactions involved a significantly larger stake than the Group’s own holding, and allowed the purchasers to obtain representation on the Euroclear Board. Therefore, the valuation at 31 December 2018 has been calculated based on the price per share of these two transactions (using an exchange rate as at 31 December 2018) discounted by 40% for the larger size of the shareholding, the strategic benefits obtained from the purchase and that the transfer of shares is at the discretion of the Board of Euroclear. This has revalued the Company’s shareholding at £5.6m. WAY Group Limited The Group holds 150,000 (2017: 150,000) 1p ordinary shares in WAY Group Limited, acquired in 2010 at cost of £472,500. During 2014, PPAL demerged from WAY Group Limited and consequently the Group received 150,000 1p ordinary shares in PPAL. The cost was split equally across the two companies. In 2015, Share plc revised its view of the prospects of the WAY Group Limited and the carrying value of the 150,000 shares was written back to its nominal value of 1p at a total value of £1,500. Given the lack of liquidity in the shares, Share plc continues to hold the shares at nominal value of £1,500 as at 31 December 2018. Professional Partners Administration Limited The fair value of PPAL shares as at 31 December 2015 was determined to be £1.50 per share with a total valuation of £225,000, discounted by 5% for liquidity risk from its historical cost of £236,250. The last published audited accounts for PPAL show a profit for the company. In September 2017, FundRock Management Company S.A. completed its purchase of PPAL’s subsidiary and major ACD operation, Fund Partners. In respect of the Group’s PPAL shares, there was no return of capital. The investment in PPAL continues to be held at £225,000 on the balance sheet at 31 December 2018 (2017: £225,000).
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE FINANCIAL STATEMENTS 71
EiRx Therapeutics plc The Share Centre Limited holds a total of 246,996,816 (2017: 246,996,816) shares in EiRx Therapeutics plc, which represents 2.62% (2017: 2.62%) of the company’s issued share capital. This holding arose in 2008 as a result of making good three customers’ accounts which, due to key logging virus software which had affected the customers’ computers, had been compromised by fraudsters. This holding cost £164,000, of which £124,000 was paid by our insurers. The shares have not traded since March 2008 and the Company was placed into creditors’ voluntary liquidation on 23 February 2015. Given that this liquidation process is still ongoing and there is no indication of any distribution, the value of the shareholding remained at £nil as at 31 December 2018. Asset Match Limited The Group, following the sale of Sharemark Limited and associated business, holds 27,780 (2017: 27,780) shares in Asset Match Limited representing 1.39% (2017: 1.46%) of the company’s total share capital of 1,992,701 (2017: 1,899,342). The company’s latest accounts for the year ending 31 December 2017 showed a net liability position and negative reserves. Given the nascent nature of this business, the lack of visibility of value or exit and no liquidity the shares are held at nil value on the balance sheet. Alpha Prospects Limited In May 2015, to rectify an advertent breach position, Share plc agreed to purchase from the SF Webb Capital Smaller Companies Gold Fund a holding of 6,750,000 shares at £0.00964 for a total consideration of £65,070, the current carrying value. This represents 1.8% (2017: 2.1%) of the company’s total allotted 366,605,754 (2017: 363,764,846) ordinary shares. Alpha Prospects Limited does not trade on a regulated investment exchange, and has only been traded on a matched bargain basis, so the trades are illiquid. In November 2016, the company re-registered as a private limited company and offered 36,500,000 shares for purchase at 5.5p. The latest indicative price for shares issued in November 2017 was 5.5p. Due to the illiquidity of the shares, the value of the holding remains unchanged at £65,070 as at 31 December 2018. Listed investments London Stock Exchange plc At the 31 December 2018, the Group remained the beneficial owner of 60,000 (2017: 60,000) LSE ordinary shares of 5p each which have a fair value of £40.62 (2017: £37.93) each based on the traded market price as at 31 December 2018. 18 SUBSIDIARIES The Company has investments in the following subsidiary undertakings:
Proportion of ordinary shares held Subsidiary undertaking Principal activity by the Company The Share Centre Limited Retail stock broking 100% The Share Centre (Administration Services) Limited Administration services 100%
The Shareholder Limited Dormant1 100%
Personal Retirement Account Limited Dormant1 100%
Share Nominees Limited Bare trustee nominee1 100%2
Sharesecure Limited Bare trustee1 100%
1 Subsidiaries not included in consolidation other than at cost in investments as the companies are not trading and are not material to the Group 2 Ordinary shares held by The Share Centre Limited All of the above companies are registered and incorporated in England and Wales. The registered office of all Group companies is Oxford House, Oxford Road, Aylesbury, Buckinghamshire, HP21 8SZ
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 72 NOTES TO THE FINANCIAL STATEMENTS
Investment in subsidiaries
2018 2017 £’000 £’000 Investment in The Share Centre Limited Shareholding 229 229 Contribution from subsidiary in relation to employee benefit 839 571 reserve Investment in The Share Centre (Administration Services) Limited 25 25
Investment in Sharefunds Limited - -
Total 1,093 825
The contribution from subsidiary in relation to the employee benefit reserve is the total cash transferred to the Company from The Share Centre Limited less share-based payment costs to-date. 19 OTHER FINANCIAL ASSETS Trade and other receivables
Group Company
2018 2017 2018 2017 £’000 £’000 £’000 £’000 Trade receivables:
Gross amounts receivable 15,132 23,048 - -
Allowance for doubtful debts (493) (458) - -
14,639 22,590 - -
Other receivables:
Other debtors 327 333 - -
Prepayments and accrued income 1,949 1,750 7 15
16,915 24,673 7 15
Trade receivables principally represent unsettled customer trades with our market counterparties of £13.9m (2017: £21.6m). No provision is considered necessary in respect of amounts outstanding from market counterparties. In respect of non-counterparty amounts included within trade receivables, appropriate allowances for expected losses are recognised in the income statement following assessments on the lifetime expected credit losses. The carrying value of the Group’s trade receivables was £2.8m at 31 December 2018 (2017: £1.2m). Of this £2.8m, one unsettled trade was over the value of £100k (2017: none) and one trade was over £1m (2017: none), both of which have been cleared since the year end. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision is calculated using reasonable and supportable information that is available at the reporting date in relation to customers’ account and outstanding fees values. In respect of balances due from customers, the principal consideration in determining the loss given default is the customers’ asset holdings relative to any fees owed. The concentration of credit risk in respect of customer balances is limited due to the customer base being large and unrelated. The credit risk related to market counterparties (primarily Euroclear UK & Ireland who operate the CREST settlement system which is the Central Securities Depositary) is limited due to the regulated nature of those counterparties and the stock held against the balances due in respect of unsettled sales.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE FINANCIAL STATEMENTS 73
Ageing of past due but not impaired trade receivables
2018 2017 £’000 £’000 0-90 days 1,096 949
90-180 days 100 89
180+ days 1,562 122
Balance at the end of the period 2,758 1,160
Movement in the allowance for doubtful debts
2018 2017 £’000 £’000 Balance at the beginning of the year 459 377
Impairment losses recognised 331 234
Amount written off as uncollectable (86) (8)
Impairment losses reversed (211) (144)
Balance at the end of the year 493 459
Ageing of impaired trade receivables
2018 2017 £’000 £’000 0-90 days 131 66
90-180 days 32 29
180+ days 330 364
Balance at the end of the period 493 459
Cash and cash equivalents
Group Company 2018 2017 2018 2017 £’000 £’000 £’000 £’000 Cash and cash equivalents 7,284 8,037 1,106 1,419
Cash held on trust for clients* 1,710 2,503 - -
8,994 10,540 1,106 1,419
* This amount is held by The Share Centre Limited in trust on behalf of clients but may be used to complete settlement of outstanding bargains and dividends due. Cash and cash equivalents comprise cash held by the Group with financial institutions with instant or short-term notice access. At 31 December 2018 segregated deposit amounts held by the Group on behalf of clients in accordance with the Client Asset rules of the FCA amounted to £446m (2017: £387m). The Group has no beneficial interest in these deposits and accordingly they are not included in the balance sheet.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 74 NOTES TO THE FINANCIAL STATEMENTS
20 FINANCIAL INSTRUMENTS Financial risk management The Group maintains a risk averse attitude and the principal assets of the Group are cash balances held with major banks and investments in the LSE and Euroclear. The Group conducts regular reviews of capital adequacy, cash flow and general financial performance as part of its ongoing risk management framework and as part of meeting its regulatory obligations in particular under the Capital Requirements Directive (‘CRD’) and FCA rules. With regard to the maturity of non-derivative financial assets, the non-derivative financial assets held by the Group amount to trade receivables (as detailed in Note 19), cash and cash equivalents (as detailed in Note 21) and equity investments in the LSE, Euroclear, WAY Group Limited, PPAL, Asset Match Limited, Alpha Prospects Limited and EiRx Therapeutics plc shares (as detailed in Note 17). The equity investments will be realised when economic conditions are appropriate and the Directors consider it to be in the best interests of the Group. Significant accounting policies Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement and the bases for recognition of income and expenses) for each class of financial asset, financial liability and equity instrument are disclosed in Note 3. Categories of financial instruments The carrying amount for each category of financial instrument as required under IFRS 9 is disclosed on the face of the balance sheet. There have been no reclassifications between categories during the course of the year. Foreign currency risk management The Group’s principal trading entity, The Share Centre Limited, trades investments in equities and funds on behalf of its customers. The Company operates such that all those investments are Sterling-denominated and all fees and amounts receivable are denominated and payable in Sterling. The Group only operates in the UK and all suppliers are UK-based with amounts payable in Sterling. As such the Group has no transactional trading exposure to foreign currency risk. The Group holds 6,030 shares in Euroclear. These shares are denominated in Euros and as such the Group is exposed to an element of foreign exchange risk in respect of the impact of currency movement on the value of this investment. Dividend income is received in respect of this investment in Euros. Upon receipt, the dividend is translated into Sterling and recognised in the financial statements. The Group does not hedge any of the exposure in respect of this investment. Foreign currency sensitivity analysis The Group only has an exposure to movements in Sterling relative to the Euro in respect of the investment in Euroclear which is Euro denominated. If there were a 10% move in the value of Sterling against the Euro then the value of this investment would move by 10% or c.£564,000 based on the year-end valuation (2017: c.£386,000) which would be recognised in other comprehensive income. Interest rate risk The Group has no external borrowings and is not exposed to interest rate or refinancing risk in this regard. The Group does hold client money balances (cash held on behalf of customers) and earns interest on those balances which forms part of the Group’s revenues. The interest paid to customers is typically the base rate less 3.5%. As such, the Group’s revenue in this regard is effectively fixed at a minimum of 3.5% of the client money balances as it is unaffected by movements in interest rates unless rates fall below 3.5% (as they are at present and likely to remain for some time). At the year-end these monies were split between seven institutions – Bank of Scotland, Lloyds Bank Corporate Markets, Royal Bank of Scotland, Barclays Bank, Melton Mowbray Building Society, Santander Bank and MUFG Bank – and all client monies are maintained in customer trust status
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE FINANCIAL STATEMENTS 75
accounts separate from the Group’s own funds in accordance with the FCA’s client money rules. The Group has a mixture of current accounts and term deposits for all its own cash and its client money. In April 2017, the FCA issued The Share Centre with a permission allowing up to 60% of the firm’s client money balances to be deposited for up to 95 days rather than the 30 day limit specified in the client money rules. In January 2018, the FCA issued a Policy Statement that changed the client money rules extending the length of unbreakable term deposits up to 95 days. The Group has charges over mortgage assets to at least 150% of the deposit value to ensure the security of the deposit held with Melton Mowbray Building Society. The Group is also subject to interest rate risk in respect of its own principal cash balances. These balances earn interest at the prevailing rate and the income is disclosed in the income statement under investment revenues. The direct link between the bank base rate and the interest rate paid to customers means that the Group’s interest income from client money balances is not generally sensitive to interest rate movements either up or down. However, with base rates below 3.5%, the Group could expect to see some improvement to interest income as rates increase until they reach 3.5% and interest starts to be paid to customers again. Given the cash balances held at the year-end, a 0.25% point increase in base rates (provided rates continue below 3.5%) would increase the Group’s interest income on client deposits by c.£1.1m per annum (2017: c.£1.0m). The interest income on the Group’s own principal balances is affected by changes in interest rates. Given the cash balances at the year-end, a 0.25% movement in interest rates would impact investment income by c.£22,000 per annum (2017: c.£26,000). This impact, after taking into account the corresponding increase/decrease in the Group’s tax charge, would lead to a change in retained profit for the year. Liquidity risk The Group actively maintains cash balances in instant access accounts and on short-term deposit such that it has sufficient funds available for operations. In terms of its own funds, the investments the Group holds are in the LSE, Euroclear, WAY Group Limited, PPAL, Asset Match Limited, Alpha Prospects, and EiRx Therapeutics plc. The LSE shares are actively traded and relatively liquid. Given the overall levels and mix of cash and investments, the Group is not exposed to any significant liquidity risk. Credit risk The Group has a large and diverse customer base such that there is no concentration of credit risk. Customers can generally only trade with available funds or stock in their account and this limits any exposure to credit risk in this regard. An allowance is made against amounts owed to the Group where there is insufficient value of stock within a customer account to cover any fees due. Amounts shown on the balance sheet are net of this allowance. The majority (82% (2017: 87%)) of trade and other receivables are funds due from other financial institutions and customers in settlement of trades. The credit risk in this respect is therefore considered to be limited. The Group estimates the maximum exposure to credit risk as £22.7m (2017: £31.4m), which is represented by the Group’s own cash balances and external debtors at the year end. At the year-end, the Group’s own cash was predominantly held with Bank of Scotland (part of the Lloyds Banking Group), Royal Bank of Scotland, HSBC and Barclays, all within the UK. The Board has only sanctioned use of institutions which meet the necessary due diligence requirements which includes an assessment of each institution’s balance sheet and ownership structures. The Group regularly reviews the institutions it uses. The same approach is taken in respect of depositing client monies and in line with the FCA’s guidance on client money, the diversification of deposits is also considered in this process. Equity price risk The Group is exposed to equity security price risk in respect of the investments it holds on its balance sheet at more than nil value – namely the LSE, Euroclear, WAY Group Limited, PPAL and Alpha Prospects Limited shares.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 76 NOTES TO THE FINANCIAL STATEMENTS
A proportion (9.6% (2017: 11.6%)) of the Group’s revenue is derived from ad valorem fees which are charged to customers based on the value of their holdings. Through this fee charging structure the Group is also exposed to an element of security price risk on the investments held by customers. More generally a significant reduction in equity values and a consequent or concurrent reduction in investor dealing activity would have a potentially significant impact on the Group’s financial performance. This risk is partly mitigated through the Group’s adoption of a flat fixed rate monthly charge for the majority of the Group’s accounts. Equity price sensitivity analysis If equity prices had been 10% higher/lower during 2018 then the net profit after tax of the Group would have been c.£164,000 (2017: c.£175,000) higher/lower as a result of the impact of those higher/lower equity prices on customer portfolio valuations and therefore on ad valorem fees charged by the Group. In addition, the fair value of the Group’s investments may have been similarly affected although such changes would have impacted shareholders’ funds through the revaluation reserve rather than the income statement. If equity prices had been 10% higher/lower at the 31 December 2018, the fair value of the LSE holding would have been c.£244,000 (2017: c.£226,000) higher/lower and c.£594,000 (2017: c.£416,000) higher/lower for unquoted investments. Fair value of financial instruments The Directors consider that the carrying amounts of all financial assets and financial liabilities recorded at amortised cost in the financial statements approximate to their fair values. Market values have been used to determine the fair values of equity financial assets. For those equity investments which do not have a quoted market price in an active market, fair value has been determined by reference to cost, or to the last available traded price and a comparison with the net asset value per share and other similar metrics, making valuation adjustments where appropriate for any uncertainties or illiquidity. The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: Level 1: Fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); the Group does not hold any financial instrument under this level; and Level 3: Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The techniques and significant unobservable inputs used for the Group’s material investments are as follows. Equity financial assets
Group Company 2018 2017 2018 2017 Level 1 Level 3 Total Level 1 Level 3 Total Total Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Quoted securities 2,437 - 2,437 2,276 - 2,276 - -
Unquoted securities - 5,936 5,936 - 4,156 4,156 292 292
Total 2,437 5,936 8,373 2,276 4,156 6,432 292 292
The Company only holds Level 3 financial assets. There were no transfers between any of the levels during the year.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE FINANCIAL STATEMENTS 77
Sensitivity of the input to fair value (10% Range increase/(decrease) would result in an increase/(decrease) in fair value of) Equity financial assets Significant in unquoted securities Valuation technique unobservable inputs 2018 2017 2018 2017 £’000 £’000
Professional Partners Expected recoverable Discount for 5% 5% 22 22 Administration Limited amount illiquidity
Expected recoverable Discount for Alpha Prospects Limited 3% 3% 7 7 amount illiquidity
Expected recoverable Discount for size and £535-691 Euroclear Holding SA £936 564 386 amount* nature of trades* per share * Previously Euroclear was valued using recent buyback information and net assets per share. However, this method was altered in 2018 following two trades in Euroclear shares, discounted by 40% for the size of the shareholding, the strategic benefits obtained from the purchase and that the transfer of shares is at the discretion of the Board of Euroclear (see Note 17 for further details). Reconciliation of Level 3 fair value measurements of financial assets:
Group Company Equity unquoted securities 2018 2017 2018 2017 £’000 £’000 £’000 £’000 Balance as at 1 January 4,156 4,215 292 292
Total gains/(loss) in other comprehensive income 1,780 (59) - -
Balance as at 31 December 5,936 4,156 292 292
All gains and losses included in other comprehensive income relate to securities held at the balance sheet date and are reported as changes of “Revaluation Reserve” (see Note 24). 21 DEFERRED TAX The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior period.
Share-based Accelerated tax Revaluation of Total payments depreciation financial assets £’000 £’000 £’000 £’000 As at 1 January 2017 57 (22) (986) (951)
Credit to income 32 - - 32
Charge to other comprehensive income - - (86) (86)
Charge to equity (7) - - (7)
As at 31 December 2017 82 (22) (1,072) (1,012)
Credit/(charge) to income 23 (3) - 20
Charge to other comprehensive income - - (291) (291)
Credit to equity 23 - - 23 As at 31 December 2018 128 (25) (1,363) (1,260)
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 78 NOTES TO THE FINANCIAL STATEMENTS
22 TRADE AND OTHER PAYABLES
Group Company 2018 2017 2018 2017 £’000 £’000 £’000 £’000 Trade creditors 14,873 23,062 - -
Amount owed to Group companies - - 514 421
Other taxation and social security 688 603 - -
Accruals and deferred income 1,862 1,972 63 31
Other creditors 248 305 - -
17,671 25,942 577 452
All balances are payable within 30 days or on demand. A large proportion (54%, 2017: 67%) of the Group’s trade creditors relate to customer trades which had not settled at the year end. The Group would only be required to pay these amounts once the money has been received from the market. As such, amounts recoverable from the market are also included within trade receivables (see Note 19). 23 CALLED UP SHARE CAPITAL
Ordinary shares of 0.5p each The Group and Company 2018 2017 Number £’000 Number £’000 Authorised 296,175,000 1,481 296,175,000 1,481
Allotted, called up and fully paid 143,652,334 718 143,652,334 718
The Company has one class of share capital which equally entitles the holder to receive dividends, repayment of capital and voting rights of one vote per share. 24 RESERVES The Group has a number of reserves included within its Shareholders’ Funds. The nature and purpose of these reserves is described below and the movement in each of these reserves is shown on the face of the primary statement, Consolidated statement of changes in equity (as shown on page 53). Capital redemption reserve This reserve relates to balances arising on the repurchase of the Company’s own shares for cancellation. Employee benefit reserve As explained in Note 3, the employee benefit reserve represents shares held in Share plc having been purchased by Sharesecure Limited. Sharesecure Limited is a trustee of two EBTs which are used to purchase shares to meet potential obligations arising from the issue of share options made to Directors and employees, and to meet requirements arising from the issue of matching and partnership shares under the SIP. In addition Sharesecure Limited is the other party to shares awarded to Directors and employees under the Co-ownership Equity Incentive plan. The individual recipients of those awards cannot exercise any benefits of ownership until three years after the grant date and therefore ownership is considered to rest with Sharesecure Limited.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE FINANCIAL STATEMENTS 79
The total number of shares held at year-end in respect of all the above arrangements was as follows:
2018 2017 Ordinary shares of 0.5p each Number Number Total number of shares held as at 1 January 5,276,200 5,678,760 Shares purchased or received back from leaving employees 1,465,475 1,638,538
Shares sold to employees or allocated to employees as matching shares (1,515,663) (1,574,553)
Share option scheme purchases and sales (467,190) (466,545)
Total number of shares held as at 31 December 4,758,822 5,276,200
The average purchase price of shares held at the end of the year was 25.6p (2017: 26.2p). Revaluation reserve This reserve represents the cumulative fair value position in respect of equity assets held by the Group which are revalued based on their fair value at the balance sheet date. Retained earnings This reserve represents the cumulative retained profits of the Group. The detailed movements on the revaluation reserve and the retained earnings reserve are shown on the face of the consolidated statement of changes in equity. However, the movements shown in the consolidated statement of comprehensive income are shown as a single line. This may be broken out between the two reserves as follows:
2018 2017 Revaluation Retained Total Revaluation Retained Total reserve earnings reserve earnings £’000 £’000 £’000 £’000 £’000 £’000 Retained profit for the period - (69) (69) - 310 310 Increase in fair value of equity investments 1,906 - 1,906 335 - 335 Deferred tax impact on movement in fair value of equity (343) - (343) (61) - (61) investments Exchange gains on equity investments 35 - 35 133 - 133 Deferred tax on exchange gains on equity investments (5) - (5) (25) - (25) Deferred tax impact of changes in tax rates 58 - 58 - - - Disposal of subsidiary’s net assets - - - - (26) (26) Movement in the year 1,651 (69) 1,582 382 284 666 25 CAPITAL MANAGEMENT The Group’s disclosures as required under Pillar III are set out in a separate document available on the Group’s website, www.shareplc.com. That Pillar III document shows that the Group had Tier 1 capital of £13.7m (2017: £15.0m) and Tier 2 capital of £6.3m (2017: £4.7m) as at 31 December 2018. The total capital resources of £14.9m (2017: £14.8m) demonstrate a significant surplus of £11.0m over the current capital requirement for 2018 of £3.9m (2017: £5.0m). It should be noted that the Group contains one regulated entity, The Share Centre Limited. In addition to having to satisfy capital requirements on a consolidated Group basis, this individual entity must also satisfy its own capital requirement. In particular, the Pillar III disclosures indicate that The Share Centre Limited had total capital resources at 31 December 2018 of £8.3m (2017: £8.2m) which is a surplus of £3.9m (2017: £3.3m) over the 2018 capital requirement of £4.4m (2017: £5.0m). The capital requirements of The Share Centre Limited could act as a limitation on the ability to pay dividends to the parent company and therefore ultimately of the Group to pay dividends out to its shareholders. Given the current capital position of the Group and its subsidiaries and the current dividend policy, this does not present a restriction at present.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 80 NOTES TO THE FINANCIAL STATEMENTS
26 NOTES TO THE CASH FLOW STATEMENT
Group Company 2018 2017 2018 2017 £’000 £’000 £’000 £’000 Operating loss (315) (793) (692) (591)
Other income - 900 - -
Other gains/(losses) - 1 - (2)
Depreciation of property, plant and equipment 120 127 - -
Amortisation of intangible assets 698 223 - -
Share-based payments 551 513 - -
Intercompany tax movement on Share Options - - 32 -
Operating cash flows before movement in working capital 1,054 971 (660) (593)
Decrease/(increase) in receivables 7,758 (12,211) 8 -
(Decrease)/increase in payables (8,271) 12,717 69 113
Cash generated by/(used in) operations 541 1,477 (583) (480)
Income taxes paid (126) (330) - -
Net cash received from/(used in) operating activities 415 1,147 (583) (480)
27 OPERATING LEASE ARRANGEMENTS At the balance sheet date the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
2018 2017 Land and Other Land and Other buildings buildings £’000 £’000 £’000 £’000 Within one year 259 35 364 35
One to five years 1,306 102 259 140
Over five years - - - -
Total 1,565 137 623 175
Operating lease payments principally represent rentals payable by the Group for its office premises. The current lease was renegotiated during 2014 for a ten year lease term with a break clause in 2019. Included in the new lease was a nine month rental free period for each of the first and second halves of the lease period. There were no other significant changes to the rental terms from the previous agreement. The commitments above are the minimum non-cancellable payments due. The Company has no commitments under operating leases (2017: none). The accounting treatment of operating leases will change from 1 January 2019, when IFRS 16 Leases becomes effective (see Note 2 for further details).
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE FINANCIAL STATEMENTS 81
28 SHARE-BASED PAYMENTS The Group continues to grant share options under Company Share Ownership Plan (‘CSOP’) at six-monthly intervals and discretionary grants to senior managers and Directors as deemed appropriate by the Board Remuneration Committee. In addition, the Group has an Unapproved Share Option Scheme and a Co-ownership Equity Incentive Plan. During 2017, a new Long Term Equity Incentive Plan (‘LTEIP’) was approved for Directors and senior managers. There are numerous options still outstanding on EMI scheme. All options expire ten years after the date of grant and, with the exception of some options granted under the unapproved and LTEIP share option schemes, the vesting period for options is three years. In respect of the Co-ownership Equity Incentive Plan, the shares are jointly held with the EBT. The individual recipients are able to sell the shares concerned between three and ten years after the grant date and benefit from the excess of the sales price at that time over and above the price specified in the Co-ownership agreement. That price is set at a c.20% premium to the market price at the date of grant. Details of the share options outstanding during the year are as follows:
2018 2017 Weighted Weighted Number of Number of average exercise average exercise share options share options price (p) price (p) Outstanding at the beginning of the year 14,143,865 13.6 11,179,356 25.1
Granted during the year 1,160,576 9.8 7,330,000 2.2
Exercised during the year (1,113,149) 1.8 (1,184,321) 3.2
Expired or forfeited during the year (503,617) 26.6 (3,181,170) 21.1
Outstanding at the end of the year 13,687,675 13.7 14,143,865 13.6
Exercisable at the end of the year 3,343,540 35.5 1,696,205 28.8
The weighted average market share price at the date of exercise for options exercised during 2018 was 25.0p (2017: 25.1p). The share options outstanding at the end of the year, their exercise prices and contractual lives are as detailed in Note 29. The Group has applied the requirements of IFRS 2 in respect of share-based payments. During the year ended 31 December 2018, the Group made four equity-settled share-based payments to staff and payments were made under the CSOP, LTEIP and Unapproved Share Option Schemes. The Group granted one-off share options at nil exercise price under LTEIP scheme, 50% of the awards vest subject to an absolute total shareholder return performance condition and the remaining 50% will vest subject to meeting a non-market based performance condition specifically growth in profit before tax, both are measure over a three and four year performance period commencing on 1 January 2017. Options were also granted under an Unapproved Share Option Scheme at nil exercise price with no performance conditions. In all other cases, there are no performance conditions attached to the options and options have been granted with an exercise price equal to market value – being the closing mid-price on the day prior to grant.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 82 NOTES TO THE FINANCIAL STATEMENTS
A fair value has been determined for each grant made during the year using the Black-Scholes and Monte Carlo models. The main assumptions are as follows:
CSOP CSOP LTEIP Unapproved CSOP CSOP LTEIP Unapproved Grant date 01/5/18 01/11/18 09/8/18 09/8/18 04/05/17 04/05/17 02/11/17 12/12/17
Share price at date of grant 27.0p 25.5p 25.5p 25.5 26.0p 26.0p 24.6p 22.8p
Exercise price 27.0p 25.5p 0.0p 0.0p 26.0p 0.0p 24.6p 0.0p
Risk-free interest rate 1.103% 1.038% 0.75% 1.032% 0.5% 0.5% 0.7% 0.7%
Dividend yield 1% 2% 2% 2% 1.0% 1.0% 1.0% 1.0% Volatility (based on historic 30% 30% 30% 30% 30% 30% 30% 30% share price movements) Average maturity at exercise 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years
Fair value per option 6.8p 5.7p 13-24.9p 23.1p 6.3p 3.5-25.3p 6.0p 21.6p
These prices and percentages have been rounded to one decimal place. In addition, the Group operates a SIP. This scheme is open to all employees and allows them to allocate up to £1,800 per annum of their pre-tax salary to purchase shares in Share plc through a partnership scheme without paying National Insurance contributions or Income Tax. For every share purchased through the partnership scheme, The Share Centre Limited purchases two matching shares. The employee must remain in employment for three years from the date of purchase of the partnership shares in order to qualify for the corresponding matching shares and in order for those shares to be transferred to them tax-free. The employee retains rights over both their own shares and the matching shares, receives dividends and is able to vote at meetings once the shares are purchased. The fair value for those shares given as matching shares under the arrangements of the SIP has been determined by reference to the market price. The value used is the quarter-up price based on the Daily Official List from the previous business day. This has ranged from 23.00 to 27.00p during 2018. The cost is then applied over three years, being the qualifying period during which the employee must remain in employment with the Group. It is Group policy that, where possible, shares to settle the SIP and the share options issued will be purchased in the market rather than issued as new shares. The total expense for equity-settled share-based payments for the Group in respect of awards made in 2018 was £789,000 (2017: £778,000). This expense is then applied across the three years to the vesting date. An adjustment is made to this figure in respect of members of staff to whom options and shares have been granted but who have left the group’s employ during the vesting period. The overall net charge taken in the income statement for 2018 is £551,000 (2017: £513,000). This expense is recognised in the income statement of The Share Centre Limited, as the employer of the employees to which this arrangement relates. This amount is offset against cash contributions to the EBT, controlled by Share plc, in the subsidiary’s balance sheet. During 2018, the cash contributions were £282,000 (2017: £363,000), resulting in a net contribution to the EBT of £268,000 (2017: £151,000). This amount is reflected in the parent company’s investment in its subsidiary, and both the parent and subsidiary companies’ equity, and is eliminated on consolidation.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE FINANCIAL STATEMENTS 83
29 SHARE OPTIONS At 31 December 2018 the following share options to subscribe for ordinary shares were outstanding:
Exercise period Exercise price Share Option 2018 total 2017 total First date Last date (p) Scheme or Plan number number 15-May-11 15-May-18 14.5 (E) - 44,500 22-Jun-11 22-Jun-18 30.5 (E) - 34,926 22-Dec-11 22-Dec-18 24.5 (E) - 35,297 22-Dec-11 22-Dec-18 24.5 (U) - 19,470 22-Jun-12 22-Jun-19 30 (E) 44,752 44,752 25-Jun-12 25-Jun-19 36 (C) 9,947 9,947 22-Dec-12 22-Dec-19 27.5 (E) 56,515 56,515 23-Dec-12 23-Dec-19 33 (C) 9,947 9,947 22-Jun-13 22-Jun-20 26.5 (E) 44,046 44,046 29-Jun-13 29-Jun-20 32 (C) 86,068 86,068 22-Dec-13 22-Dec-20 28.5 (E) 64,445 64,445 22-Jun-14 22-Jun-21 25 (E) 115,111 122,471 22-Jun-14 22-Jun-21 25 (U) 265,781 265,781 22-Dec-14 22-Dec-21 22.5 (E) 76,492 83,967 22-Dec-14 22-Dec-21 22.5 (U) 21,008 21,008 22-Jun-15 22-Jun-22 23 (E) 120,462 127,753 22-Jun-15 22-Jun-22 23 (U) 11,176 11,176 22-Dec-15 22-Dec-22 24.5 (E) 132,400 139,750 22-Dec-15 22-Dec-22 24.5 (U) 10,958 10,958 22-Jun-16 22-Jun-23 24 (E) 142,652 149,900 22-Jun-16 22-Jun-23 24 (U) 10,887 10,887 01-May-17 01-May-24 45 (U) 520,866 520,866 01-May-17 01-May-24 45 (CS) 295,506 302,641 01-Nov-17 01-Nov-24 39 (CS) 165,433 172,627 01-Nov-17 01-Nov-24 39 (U) 31,244 31,244 01-May-18 01-May-24 1 (U) - 1,063,750 01-May-18 01-May-24 45 (U) 390,000 390,000 01-May-19 01-May-24 1 (U) 1,063,750 1,063,750 01-May-19 01-May-24 45 (U) 390,000 390,000 01-May-20 01-May-24 1 (U) 1,063,750 1,063,750 01-May-18 01-May-25 38 (CS) 244,543 251,647 01-May-18 01-May-25 38 (U) 214,451 214,451 01-Nov-18 01-Nov-25 31 (CS) 218,078 235,209 12-Nov-18 12-Nov-25 30 (U) 40,766 40,766 01-May-19 01-May-25 38 (U) 173,685 173,685 01-May-20 01-May-25 38 (U) 173,685 173,685 09-Jun-19 09-Jun-26 28.5 (CS) 274,850 311,795 09-Jun-19 09-Jun-26 28.5 (U) 40,791 40,791 01-Nov-16 01-Nov-26 27.5 (CS) 275,034 327,019 01-Nov-16 01-Nov-26 27.5 (U) 40,791 40,791
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 84 NOTES TO THE FINANCIAL STATEMENTS
Exercise period Exercise price Share Option 2018 total 2017 total First date Last date (p) Scheme or Plan number number 04-May-20 04-May-27 0 (L) 2,400,000 2,400,000 04-May-20 04-May-27 26 (CS) 184,002 271,432 02-Nov-20 02-Nov-27 24.62 (CS) 185,408 270,402 12-Dec-20 12-Dec-27 0 (U) 200,000 200,000 04-May-21 04-May-27 0 (L) 2,400,000 2,400,000 12-Dec-21 12-Dec-27 0 (U) 200,000 200,000 12-Dec-22 12-Dec-27 0 (U) 200,000 200,000 01-May-21 01-May-28 27 (CS) 184,613 - 09-Aug-21 09-Aug-28 0 (U) 133,333 - 04-May-20 04-May-27 0 (L) 165,288 - 04-May-21 04-May-27 0 (L) 165,288 - 01-Nov-21 01-Nov-28 25.5 (CS) 163,200 - 09-Aug-22 09-Aug-28 0 (U) 133,333 - 09-Aug-23 09-Aug-28 0 (U) 133,334 - 13,687,675 14,143,865 (C) Co-ownership Equity Incentive plan (CS) Company Share Ownership Plan (E) EMI Scheme (L) Long Term Equity Incentive Plan (U) Unapproved share option scheme 30 RELATED PARTY TRANSACTIONS The Share Centre Limited The principal transaction between the Company and its subsidiaries was the dividend payment by The Share Centre Limited during the year of £870,000 at £3.80 per share (2017: £340,000 at £1.48 per share). The Company made payments to The Share Centre Limited for management fees totalling £448,000 (2017: £395,000) which primarily relate to the recharging of a proportion of Directors’ time. At the year-end the Company had a balance outstanding due to The Share Centre Limited of £514,000 (2017: £421,000). Remuneration of key management personnel The remuneration of the Directors and other members of senior management, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided in the Directors’ remuneration report on pages 39 to 43.
Year ended Year ended 31 December 2018 31 December 2017 £’000 £’000 Short-term employee benefits 1,265 1,097 Share-based payments 391 381 Defined contribution pension costs 63 57 Gains on exercise of share options 255 255 1,974 1,790
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE FINANCIAL STATEMENTS 85
The Share Foundation (‘TSF’) The Share Centre has been independently selected by Rayner Spencer Mills Research (‘RSMR’) Group, Account Allocation Adviser to TSF to be one of the Junior ISA providers for children and young people in care. The Junior ISA provided is our standard Ready-made Junior ISA containing either our Cautious Fund or our Positive Fund. The accounts are funded with a minimum of £200 government funding plus contributions from The Share Foundation as part of its charitable donations programme. The founder and chairman of TSF is Gavin Oldham. The Share Centre made no charges to TSF in 2018 in relation to administrative support (2017: £nil). Share Radio Limited (‘SRL’), Share Premium Limited (‘SPL’) and Transfluent Radio Limited (‘TRL’) SRL was an independently established and financed radio station with the aim of “sharing ideas about money”. It broadcast on the London and national DAB networks and online. SRL was set up in 2014 by Gavin Oldham and was 100% owned and controlled by Gavin Oldham, who is also the principal shareholder of Share plc. Following a strategic review in 2017, SRL terminated its DAB broadcasting and became purely an online service. The remaining more limited programme production and online only distribution was moved into a new entity, SPL, and SRL was renamed Transfluent Radio Limited. SPL is an Appointed Representative of The Share Centre Limited. Neither Share plc nor any of its subsidiaries has any ownership interest in SPL or TRL and had no such interest in these entities. However, it is a related party of both entities by virtue of Gavin Oldham’s involvement in each organisation. Advertising for The Share Centre is carried on SPL’s website. In addition, a weekly programme featuring The Share Centre is included in SPL’s Share Radio schedule. During the year The Share Centre Limited was charged £25,000 (2017: £10,500) by SPL for production, streaming and podcasting fees. Additionally, in 2017 The Share Centre Limited was charged for advertising and sponsorship (until the termination of its broadcasting) by SRL, which amounted to £74,000. At the year-end there were no balances outstanding between the two parties.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 86 GROUP INFORMATION
ADVISORS
Broker Solicitors The Share Centre Limited Dechert LLP Oxford House 160 Queen Victoria Street Aylesbury London Buckinghamshire EC4V 4QQ HP21 8SZ Penningtons Manches LLP Apex Plaza Independent auditor Forbury Road Ernst & Young LLP Reading 25 Churchill Place RG1 1AX Canary Wharf London E14 5EY Public Relations – Share plc KTZ Communications Ltd No.1 Cornhill Principal bankers London Bank of Scotland (part of EC3V 3ND the Lloyds Banking Group) New Uberior House 11 Earl Grey Street Public Relations – Edinburgh The Share Centre Limited EH3 9BN Teamspirit Public Relations 78 Cowcross Street Farringdon Registrars London Link Asset Services EC1M 6HE The Registry 34 Beckenham Road Beckenham Nominated advisor (‘NOMAD’) BR3 4TU Cenkos Securities Plc 6.7.8 Tokenhouse Yard London EC2R 7AS
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 87 INFORMATION FOR SHAREHOLDERS
Press releases, half-year results and other information relevant to shareholders are available on our website, www.shareplc.com. Shares issued or committed as at 31 December 2018:
Number of Number of shares % shareholders Oldham family and trusts 9 98,872,722 68.8 Other Directors and staff 106 5,952,751 4.2 Customers and other 31,394 19,449,759 13.5 Shareholders on the general register 618 19,449,409 13.5 32,127 143,724,641 100.0 FINANCIAL CALENDAR 2019 5 June 2019 – Annual General Meeting at 11am, One Great George Street, Westminster, London SW1P 3AA Dealing in Share plc shares Share plc shares are traded on AIM and customers of The Share Centre can place orders via their personal portfolio accessed at www.share.com, by telephone (01296 41 41 41) or in writing, quoting their name, customer reference, portfolio number and the number of shares to buy/sell together with the price limit (if any). You can buy and sell shares in Share plc via most stockbrokers, including The Share Centre. Share price information The latest prices for shares in Share plc are available through normal media channels for AIM reporting or via the home page at www.shareplc.com. Shareholder benefits All shareholders owning 500 or more Share plc shares in any account with The Share Centre receive a 30% discount on dealing rates at the time of dealing, for all deals done online (i.e. over the internet). This benefit can reduce the effective cost of dealing to just £5.25 per deal. Details of this are available online at www.shareplc.com. Opt-in for Shareholder Rights The Group succeeded in campaigning to amend the Companies Act 2006 to include provisions for individuals who hold their investments using a nominee to opt-in to receive information (for example, annual reports) directly from companies in which they invest. The Share Centre offers this facility to its customers. If you hold Share plc shares in your account with The Share Centre and wish to receive a copy of the full annual report, interim statement or other communication with shareholders, please sign in to your account, go to ‘my profile’, and enable the shareholder rights functionality. This enables you to choose whether to receive such communications by e-mail or post and to vote on company resolutions online. There is no charge for this, either for Share plc or any other company held in a customers’ account.
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 This document constitutes a financial promotion under the Financial Services and Markets Act 2000 and has been approved by The Share Centre Limited, a member of the London Stock Exchange. The Share Centre Limited is authorised and regulated by the Financial Conduct Authority register number 146768.
Please remember the value of investments and the income from them can go down as well as up, and you may not get back your original investment.