Curtis Banks Group plc

("Curtis Banks", the "Group")

Final Results for 12 months to 31 December 2017

 

Curtis Banks Group plc, one of the UK's leading SIPP providers, is pleased to announce its final results for the 12 months to 31 December 2017 in line with the audited accounts available on the Group's website.

 

Highlights

 

·     Operating revenue increased by 47% to £43.6m (2016: £29.7m)

 

·     Adjusted operating profit¹ increased by 51% to £10.7m (2016: £7.1m)

 

·     Adjusted operating margin increased to 25% (2016: 24%)

 

·     Profit before tax increased by 31% to £5.9m

 

·     Adjusted diluted EPS increased by 48% to 15.38p

 

·     Strong gross organic growth in own SIPP numbers of 14% with total administered now 76,474

 

·     Assets under administration increased by 21% to £24.7bn

 

·     Proposed final dividend of 4.75p (2016: 3p) making a full year payment of 6.25p (2016: 4p)

 

Highlights and key performance indicators for the year include:

 

Financial	2017	2016
Operating Revenue	£43.6m	£29.7m
Adjusted Operating Profit	£10.7m	£7.1m
Profit before Tax	£5.9m	£4.5m
Adjusted Operating Margin	25%	24%
Basic EPS	9.75p	7.23p
Diluted EPS	9.26p	7.02p
	2017	2016
Basic EPS on Adjusted Operating Profit less an effective tax rate	16.20p	10.67p
Diluted EPS on Adjusted Operating Profit less an effective tax rate	15.38p	10.37p
Operational Highlights
Number of SIPPs Administered	76,474	72,983
Assets under Administration	£24.7bn	£20.4bn
Total organic new own SIPPs in year	8,719	6,236

 

^____________

¹ Profit before tax, amortisation and non- recurring costs  

 

Commenting on the results and prospects, Rupert Curtis, CEO of Curtis Banks, said:

 

"This year has been one of considerable progress for the Group with a strong increase in our operating revenues and adjusted operating profit. As a result and in accordance with our progressive dividend policy I am pleased to report a 56% proposed increase in our dividend for the year.

"We have undergone a period of consolidation following the acquisition of Suffolk Life and now have a single identity for the Group. Our new integrated Group Management Committee has built the foundations for us to operate more efficiently and to provide an even better service for our customers.

"The market opportunity for SIPP providers remains compelling. The key regulatory and demographic drivers of our organic growth persist and we are well positioned to continue our profitable growth."

 

Analyst Presentation:

There will be a presentation on Thursday 15 March 2018 at 9.30am for institutional investors and analysts at Peel Hunt LLP, Moor House, 120 London Wall, London EC2Y 5ET. Those wishing to attend should contact [email protected] .

 

Copies of the audited accounts of the Group will be available on the Group website today.

 

For more information:  

 

Curtis Banks Group plc	www.curtisbanks.co.uk
Rupert Curtis - Chief Executive Officer	+44 (0) 117 9107910
Paul Tarran - Chief Financial Officer Will Self - Deputy Chief Executive Officer
Peel Hunt LLP (Nominated Adviser & Broker)	+44 (0) 20 7418 8900
Guy Wiehahn
Rishi Shah
Camarco	+44 (0) 20 3757 4984
Ed Gascoigne-Pees
Hazel Stevenson Jane Glover

 

LEI Code:   213800LYP7YTVDXRMP40

 

Notes to Editors:

Curtis Banks administers over 76,000 Self-Invested Pension Schemes, principally SIPPs and SSASs. The Group commenced trading in 2009 and has successfully developed, through a combination of organic growth and acquisitions, into one of the largest UK providers of these products. The Group currently employs approximately 570 staff in its head office in Bristol and regional offices in Ipswich and Dundee.

For more information - www.curtisbanks.co.uk

 

 

 

 

I am pleased to present my first statement as Chairman of Curtis Banks for the year ended 31 December 2017. I would like to start by thanking my predecessor Chris Banks as previous Chairman of the Group for his contribution to the growth of the Group. Chris was a founder of the business and has been a major contributor in the growth of the business and we are delighted that he remains a strategic advisor to the business.

The year has been one of consolidation as we made the Suffolk Life business an integral part of the Curtis Banks Group and these results are our first full year results that include the full period's contribution of Suffolk Life which the Group acquired in 2016. We have enhanced our level of governance and management control, to meet the needs of the enlarged Group, and are well positioned to deliver our strategy in 2018 and thereafter. As a result of this transaction and the progress we have made in growing the rest of our business, our revenue and profitability have grown strongly compared to the prior year. 

 

The period under review has shown operating revenue increasing by 47% from £29.7m to £43.6m compared to the same period last year, with adjusted operating profit increasing by 51% from £7.1m to £10.7m. Fully diluted earnings per share on these results (after tax) amounted to 15.38p per share (2016 - 10.37p) and on the statutory profits after tax diluted earnings per share are 9.26p (2016 - 7.02p). This is a good set of results particularly with the high levels of regulatory focus on SIPP providers and industry changes.

 

Our operating margin has continued to improve over the second half of the year and now stands at 25% for the full year.  We expect to achieve further improvement in this margin in the medium term as we grow our top line and achieve operational efficiencies.

 

The year has seen us make substantial progress against our strategic objectives in order to ensure we realise the benefits of our acquisitions, market ourselves more efficiently and continuously look for ways to grow our revenues.  We have launched a new group wide brand and have rationalised our office locations down to three sites in Bristol, Dundee and Ipswich. As part of our focus on growing revenues we are also enhancing our property administration services across the Group.  We will continue to explore ways in which we can capture the opportunities within the SIPP administration industry and one of our major objectives for 2018 is the standardisation of our service offerings.

 

We announced in December that we completed our review of our operating systems and have decided to implement a material upgrade of the existing Curtis Banks operating system and to continue to use the Suffolk Life back office system. We are confident that this is the optimal solution in terms of cost, efficiency and risk.

 

The total number of SIPPs currently administered by the Group now exceeds 76,000 and this is as a result of continued new organic growth of all SIPPs and our attrition rates remaining stable with previous years. 

 

 

 

Dividends

 

We paid an interim dividend of 1.5p per share (2016: 1.0p per share) on 15 November 2017 and the Board proposes a final dividend of 4.75p per share (2016: 3p per share) which, if approved, will be paid to shareholders on the register at the close of business on 27 April 2018.  The shares will be marked ex-dividend on 26 April 2018 and the proposed dividend paid on 18 May 2018.  This will mean the total dividend paid in respect of the year ended 31 December 2017 will amount to 6.25p per share reflecting a 56% increase in the operating profit from the enlarged group.

 

 

Summary and outlook

 

 

During the course of this year, the Group has made considerable progress against its strategic objectives.  We have also enhanced our revenue generation capabilities and are excited about the prospects for offering enhanced property administration services across the organisation.  With a strong market position, the continued growth of the SIPP industry, excellent staff, strong relationships with high quality professional introducers and a real focus on delivering value to clients and shareholders alike the board look forward to the future with confidence.

 

 

Chris Macdonald

Chairman

14 March 2018

 

 

 

 

 

 

 

Operational Review

 

2017 has been a successful year for us and I would like to start by thanking all our staff for their hard work and dedication over the last year which has made these results possible.

 

The year has been one of consolidation as we made the Suffolk Life business an integral part of the Curtis Banks Group.   A Group Management Committee was created in April. This team comprises talented managers from both the original Curtis Banks and Suffolk Life teams and has removed any 'silo' effect of different business entities. The team now oversees the Group and manages the changes needed to improve service for our customers and increase our operating margins. Having a team acting with a common Group purpose has already yielded results, such as standardised operating procedures and aligned risk management.

 

We have rationalised our office network down to three sites in Bristol, Dundee and Ipswich.  In January 2017 we closed our Chilmark office which was part of the acquisition of a book of 5,000 SIPPs in 2016. Post period end, in January 2018, we closed our Market Harborough office. 

 

These significant changes are the most notable part of our work towards our five strategic objectives, which everyone in the business is focused on meeting. They are: 

·   Meet changing customer needs - adapting to the changing needs of the UK population and regulatory environment to be the SIPP provider of choice.

·     Capitalise on the right opportunities for growth - Focus on profitable areas of organic market growth and selective acquisitions of well-aligned books or businesses, with a clear business identity.

·    Enhance revenue generation - extend proven revenue generation activities across the wider group and continually review fee income relative to the services provided.

·    Drive efficiency through technology - continue technology advances appropriate to the business to deliver improved margins through efficiency and improved service to customers.

·    Maintain a robust and sustainable business model - market leading governance, capitalisation and robust systems to ensure a sustainable long term business and confidence for our business partners, customers and shareholders. 

We are now taking action to build on our foundations and deliver on our strategic objectives.

We have launched a new Group brand and a single objective of growing profitably by delivering the best SIPP in the market.  There is now a common identity and culture across our Group, across all businesses and products, reflecting that all our customers can expect the same quality service-led approach that underpins our values.

 

 

 

SIPP Numbers and Revenues

 

	Full SIPPs	Mid SIPPs	eSIPPs	Total own SIPPs	Third Party Administered	Total
2017 number	20,539	24,682	22,193	67,414	9,060	76,474
2016 number	20,955	22,097	19,428	62,480	10,503	72,983
Gross organic growth rate*	3.39%	18.45%	20.22%	13.95%	0.75%	12.05%
SIPPs added organically	711	4,079	3,929	8,719	79	8,798
EPML data cleanse	-	-250	-	-250	-	-250
SIPPs lost through attrition	-1,127	-1,244	-1,164	-3,535	-1,522	-5,057
Attrition rate*	5.38%	5.63%	5.99%	5.66%	14.49%	6.93%

 

 

^* Growth and attrition percentage rate based on opening SIPP numbers at the beginning of the year

At the year end the number of SIPPs administered increased to 76,474, adding a net 3,491 schemes. 8,798 new SIPPs were added and attrition rates on own SIPPs remained stable from previous years at 5.7%.  We are grateful to our professional introducers for their continued support.

 

Our market and products

 

Customers with SIPPs invested in our 6,000 strong commercial property portfolio currently contract with third parties, who often do not have the related pension expertise, principally offering legal, management, inspection and valuation services. Extending our expertise to these services will enhance our customer proposition and diversify revenue generation.

 

We have formed a legal services company, Rivergate Legal Ltd, and an application has been submitted to the Solicitors Regulatory Authority for this company. In addition, we have formed a property management company, Templemead Property Solutions Ltd, and have submitted an application for RICS approval.  

 

The Group has also recruited a Group Sales Director, Dave Stratton, previously Head of IFA Distribution at AXA Elevate. He has commenced work on restructuring and aligning the sales teams across the Group to build on our strong organic sales figures.

 

We are also developing a new SIPP proposition for the Group, to deliver a single suite of products across the Group and providing enhanced functionality. This will be our organic new business proposition and will also enhance the functionality of existing products.

 

 

Regulation

 

Regulatory scrutiny of the SIPP market continues, but our simple business model and our scale position us well within the complex regulatory environment facing the wider industry. A recent area of focus is that of the nature of the assets within SIPPs. The Group undertakes robust due diligence on non standard investments, and the nature of the investments we are prepared to accept into SIPPs puts the Group in a strong position.

 

HMRC action on in specie contributions is an issue affecting our industry and the outcome and impact are not known at this stage. We do not believe that the net exposure arising from this will be material to the Group.

 

IT strategy

 

During the year we continued to review our operating systems, to ensure that they are appropriate for the enlarged Group, providing the necessary functionality to enable the Group to provide an efficient and cost effective service to both IFAs and their customers.

 

This review was completed in December 2017 when we concluded that the most cost effective, appropriate and lowest risk solution is to implement a material upgrade of the existing back office operating system at Curtis Banks and to continue to use the Suffolk Life back office system as well. A material consideration in reaching this decision was the additional functionality provided by a new version of the Curtis Banks operating system, which only recently became available. We believe this is an effective solution for the foreseeable future based on our current strategy.

 

The upgrade of the systems at Curtis Banks is expected to commence in H2 2018. Costs associated with this upgrade will be capitalised and amortised in accordance with our normal accounting policy. Amortisation will commence once the upgrade is completed and fully operational.

 

People and culture

Operational efficiencies have allowed us to grow the business while maintaining staff numbers, delivering a positive contribution to our operating margin.

We value our people and the positive contribution they make to our culture and the performance of our business. We continue to place emphasis on staff engagement and wellbeing and have established a structured reward and recognition scheme and an employee forum that drives engagement and communication. We have also grown our corporate social responsibility activities, promoting our presence in our local communities and increasing our support for our people's own fundraising activities.

 

Rupert Curtis

Chief Executive Officer

14 March 2018

 

 

 

 

 

Chief Finance Officer's review

 

Financial Review

 

Operational revenues of £43.6m in 2017 have increased by 47% over the comparable period. This is through a combination of strong organic growth and the full year effect of the acquisition of the Suffolk Life Group of Companies in May 2016.

 

The operational revenue contribution from the Suffolk Life group of companies accounted for £22.5m of such revenue for the year ended 31 December 2017 compared to £10.4m in the seven months ended 31 December 2016. Operational revenues for the Group in the year ended 31 December 2017 excluding Suffolk Life grew by 8.6%.

 

Fee revenue remains the predominant source of income for the Group with a strong emphasis on recurring annual fee income. In the year ended 31 December 2017 annual recurring fees represented 84% of the total fee income.  Fees are based on a recurring fixed monetary annual fee and a menu of additional fixed fees depending on the services provided to the SIPP. Fees are not dependent on movements in the value of underlying assets within SIPPs and as a result the income of the Group is not dependent on movements in financial markets.

 

Interest income remains part of Group income. In the year ended 31 December 2017 £9.5m of the Group operating revenues were from interest margin (2016 - £4.5m). The significant increase in this income from the previous year arose from the alignment in November 2016 of Suffolk Life banking systems with the virtual banking system operated at Curtis Banks. This allowed for funds to be placed on deposit with more attractive interest rates than previously. Future interest rate increases will not meaningfully impact Group operational revenue as clients will share in any uplift in bank base rate.

 

Administrative expenses of £32m for the Group increased by 44% compared to the previous year.  This was largely a result of a full year of costs from the Suffolk Life Group of Companies. Suffolk Life administration costs for the year ended 31 December 2017 were £16.8m compared to £8.4m for the seven month period to 31 December 2016.

 

Staff costs for the year totalled £21.0m compared to £15.2m for the year ended 31 December 2016. Of this increase £4.8m related to the full year effect of the acquisition of Suffolk Life. In addition staff costs have increased due to annual pay reviews related to average wage earnings and, as set out in the report of the Remuneration Committee, the introduction during the year of an Executive Bonus Scheme and Long Term incentive Plan for key members of staff, as well as a further offering of the Save as You Earn option schemes for all staff members. Whilst such measures have a financial impact their introduction results in the retention and reward of key members of staff that is necessary to grow and develop the business.

 

 

 

 

Financial Review (continued)

 

Staff numbers have remained relatively static at 597 as at 31 December 2017 compared to 591 as at 31 December 2016, the slight increase arising from additional staff being recruited in the final quarter of the year to cover the imminent closure of Market Harborough office in January 2018.

 

Integration of the Suffolk Life operations was completed during the year and a full review of costs across the Group is taking place to identify areas where further cost efficiencies can be made as well as more efficient operational processing of the day to day SIPP administration activities. The objective of this review is to accelerate our progress in rebuilding the adjusted operating margin to  30%. This will be achieved by a combination of revenue enhancements, in year cost savings and operating improvements. These will not only benefit the Group but will also enhance the level and quality of services that are being provided to clients and introducers of business. A number of these enhancements have already been actioned.

 

The balance sheet as at 31 December 2017 shows a strong position with shareholder net assets increasing from £41.5m to £44.6m. Shareholder cash balances at year end were £25.7m compared to £21.5m at the end of the previous year and after regulatory capital requirements are taken into account at year end there were free shareholder cash balances of circa £9m available.

 

In 2016 the Group borrowed £23m for the acquisition of Suffolk Life. This comprised a £15m term loan repayable over 5 years and a revolving credit facility of £8m. Interest on this debt accrues at the rate of 2.25% plus LIBOR. The debt continues to be repaid in line with scheduled terms and the covenants required by the bank in respect of this gearing are well covered. As at year end the Group had net shareholder cash (after debt) of £8.1m (2016: £0.5m).

 

 

Suffolk Life Annuities

 

Part of the Suffolk Life Group of Companies, Suffolk Life Annuities Limited, is an insurance company that writes SIPP Products as insurance contracts. These are all non-participating insurance policy contracts and so the Group does not bear any insurance risk. As the policyholder assets and liabilities are shown on the balance sheet of Suffolk Life Annuities Limited, these also show on the Group balance sheet on consolidation. As the policies are non-participating contracts, the Client related assets and liabilities in Suffolk Life Annuities match. In addition the revenues, expenses and investment returns of the non-participating insurance policy contracts are shown in the consolidated statement of comprehensive income. Again, these income, expense items and investment returns due to the policy holders are completely matched. The acquisition was accounted for in accordance with IFRS 3 Business Combinations. An illustrative balance sheet as at 31 December 2017 showing the financial position of the Group excluding the policy holder assets and liabilities is included as supplementary unaudited information after the Notes to the Accounts. An illustrative cash flow on the same basis has also been provided.

 

 

 

Financial Review (continued)

 

Non recurring costs

 

Non recurring costs for the year ended 31 December 2017 of £3.8m principally comprise:

 

·     An exceptional impairment charge of £2.1m following completion of an operating systems review, as was noted in last year's financial statements and subsequently reported.

 

·     Closure cost provisions of £0.9m relating to the rationalisation of offices during the year.

 

·     Restructuring costs of £0.6m following acquisitions of businesses in prior years.

 

During the year ended 31 December 2017 the Group completed the review of its operating systems following the acquisition of the Suffolk Life business in May 2016. As a result the Group concluded that the most cost effective, appropriate and lowest risk solution was, subject to contract, to implement a material upgrade of the existing back office operating system at Curtis Banks whilst retaining the current systems at Suffolk Life. 

 

As a result of this decision costs of £2.1m incurred and capitalised on the initial development, installation, and evaluation and testing of an alternative system over recent years have now been written off as an exceptional impairment charge in the financial statements for the year ended 31 December 2017. Other than £0.1m, all of these costs were originally incurred in accounting periods up to and including the year to 31 December 2016.

 

During the year ended 31 December 2017 a review of all the office locations used by the Group was carried out. As a result of that review, and after full consultation with all relevant staff, the decision was taken to close the Group's office in Market Harborough.  The closure was effective from the end of January 2018. Full provision has been made in the financial statements for the year ended 31 December 2017 for all the financial costs arising from the decision to close that office including redundancy payments, amounts due under onerous leases and cost of relocating the activities of that office to other Group locations. The benefits of the decision to close the Market Harborough will be reflected in the current year.

 

Restructuring costs arose from previous year's acquisitions, principally the acquisition of the business of European Pensions Management Limited in July 2016.

 

 

 

Financial Review (continued)

 

 

Systems Development

 

As noted above, and in the Chief Executive's Report, after a full review the decision has been taken to upgrade the existing systems at Curtis Banks whilst retaining existing systems at Suffolk Life.

 

The upgrade of the systems at Curtis Banks is expected to commence in H2 2018. Costs associated with this upgrade will be capitalised and amortised in accordance with our normal accounting policy. Amortisation will commence once the upgrade is completed and fully operational.

 

 

Employee Benefit Trust

 

During the year under review the Group set up an offshore Employee Benefit Trust ("EBT") to acquire shares in the Company in the market to satisfy future option and long term incentive awards. The EBT is funded by loans from the Group. As at 31 December 2017 the EBT had acquired 99,155 shares in Curtis Banks Group plc funded by a £250,000 loan from the Group. The financial statements of the EBT are consolidated within the overall Group financial statements and these shares are shown on the balance sheet of the Group as Treasury Shares and are included within total equity.

 

Earnings per Share

 

Fully diluted Earnings per Share ("EPS") based on adjusted operating profits have increased by 48% in the year ended 31 December 2017 from 10.37p to 15.38p. On the profit after tax the fully diluted EPS shows a 32% increase in the same period from 7.02p to 9.26p. With the granting of new options in the year ended 31 December 2017 under the various option schemes adopted by the Group diluted EPS is considered to be a more meaningful measure of performance for investors than basic EPS.

 

 

Capital requirements

 

The Group's regulated subsidiary companies submit regular returns to the FCA and the PRA relating to their capital resources.  At 31 December 2017 the total regulatory capital requirement across the Group was £11.4 m and the Group had an aggregate surplus of £13.1m across all regulated entities. In addition to this it is Group internal policy for regulated companies within the Group to hold at least 130% of their required regulatory capital resulting in the aggregate surplus reducing to £9m. All the regulated firms within the Group maintained surplus regulated capital throughout the year.

 

 

Paul Tarran

Chief Financial Officer

14 March 2018