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It also satisfactorily explained the reasons for the classification of the balances as current in its 2020 financial statements but indicated that circumstances had subsequently changed and that the balances would be classified as non-current in its next annual report. The Chief Executive’s review disclosed that, during the year, a gain was recognised on sale and leaseback transactions in relation to the ‘portion’ of the assets that were not leased back and which were, in effect, disposed of. In view of this, we questioned why all the proceeds from sale and leaseback transactions were classified as financing activities in the cash flow statement.
THG – which in addition to selling nutrition and beauty products online also markets its technology and logistics expertise to other retailers – was billed as a British success story. As James Gard wrote in an article for Morningstar in November 2021, “IPO investors were hoping that THG would become the UK’s Shopify, the Canadian e-commerce giant now worth nearly $200 billion, whose shares have risen 5,000% since its float in May 2015”. But things didn’t quite work out that way, as concerns over THG’s governance and strategy have dragged the share price sharply lower since September 2021. Similar to ROA, asset turnover shows how efficient businesses are at generating sales from their assets. Measures how many times a company can make interest payments on its debt with its earnings before interest and taxes . Both of these reports provide quantitative data, which traders can use to forecast and understand a commodity market’s fundamentals.
The Annual Report and Financial Statements for the year ended 31 March 2021 have been delivered to the Registrar of Companies and those for the year ended 31 March 2022 will be delivered following the Company’s Annual General Meeting to be held on 28 July 2022. CFD and spread bet gross client income net of rebates, levies and risk management gains or losses and stockbroking revenue net of rebates. The cohort of clients onboarded during the pandemic displays similar characteristics, including quality and tenure, to those of prior client cohorts, giving the Group confidence of retaining this ongoing stronger and larger client base into the medium term. The Australian Securities and Investments Commission (“ASIC”) implemented measures relating to CFDs on 29 March 2021. After the introduction of these new measures, regulatory conditions are now more harmonised globally and we can continue to focus on growing our business in an industry where regulatory arbitrage is reduced.
xcritical Plc
A new legislative package, the Investment Firm Regulation and Directive (“IFR/IFD”), was also introduced in Europe that became directly applicable to Member States from 26 June 2021. Both regimes have been designed to be more tailored towards investment firms and have led to changes in the treatment of capital, remuneration requirements, governance and transparency provisions. The UK played an instrumental role in the introduction of IFR/IFD and the IFPR has been designed to achieve similar outcomes, albeit tailored where necessary to reflect the structure of the UK market and how it operates. Amounts due from brokers relate to cash held at brokers either for initial margin or balances in excess of this for cash management purposes. The reduced client trading exposures throughout the year, particularly in equities, resulted in decreases in holdings at brokers for hedging purposes. Gross client income fell by £18.7 million (11%) and RPC decreased by £803 (17%), with active clients decreasing by 21%.
We asked the company to clarify whether the recoverable amount of the company’s investments in subsidiaries had been calculated as at 31 December 2020, and, if so, explain the analysis undertaken. The company confirmed that an impairment review had been performed and provided a summary of its analysis. The company agreed to include reconciliations for organic cash conversion and ROCE to the financial statements and explanations for items excluded from adjusted operating profit in future annual reports and accounts. The company undertook that additional disclosures in respect of adjustments to reported measures would similarly be provided. We questioned the prominence given to alternative performance measures in the company’s interim report following material business combinations and divestments in the period.
Trade and other payables consist mainly of accruals and deferred income, amounts due on stockbroking trades yet to settle and amounts due to clients in relation to title transfer funds. Property, plant and equipment increased during the year due to the recognition of right-of-use assets under the newly adopted accounting standard IFRS 16 “Leases”, which was applicable to the Group from 1 April 2019. Premises costs reduced due to a change in accounting standards, resulting in the rental costs of leases in excess of one year being re-categorised from premises costs to depreciation and interest charges. Total operating expenses have increased by £28.2 million (23%) to £151.3 million, mainly as a result of an increase in variable remuneration of £11.4 million due to the significant improvement in financial performance.
Net staff costs including variable remuneration increased £6.2 million (8%) to £84.9 million following significant investment across the business, particularly within technology, marketing and product functions, to support the delivery of strategic projects. Variable remuneration decreased due to the Group performance resulting in lower performance-related pay. The Board’s decision to undertake the buyback was underpinned by the Company’s robust capital position and having considered the capital and liquidity requirements for ongoing investment in the business.
- The implementation dates are unknown, but current indications are that the measures will not have a material impact in the coming financial year.
- We also requested the company explain how the change in tax legislation in Luxembourg in 2017 affected the assessment of recoverability of the deferred tax asset.
- We have been ramping up our efforts to make customer input intrinsic to our business processes across product development, marketing, and client services.
- The FRC’s reviews are based solely on the company’s annual report and accounts and do not benefit from detailed knowledge of the company’s business or an understanding of the underlying transactions entered into.
We asked the company to explain why a right-of-use (‘ROU’) asset arising from a business combination in the period was significantly less than the related lease liability recognised. The company explained that the ROU asset had been reduced to reflect the fact that the company did not intend to use all the office space leased. The divestment of the business giving rise to the APM adjustments completed in December 2021 meaning that the metrics questioned will not feature in the company’s 2021 annual report and accounts. The company provided us with information to support its use of business plan projections for periods longer than five years in its value in use calculations.
xcritical HOLDINGS LIMITED
We asked the company to clarify disclosures describing certain revenue as being recognised ahead of agreement with the customer. The company satisfactorily explained some of the key terms of its contracts with customers and how these have been considered in the recognition of revenue. It undertook to enhance its revenue disclosures to more clearly articulate the point at which https://xcritical.expert/ revenue is recognised where additional space on towers is used. The company agreed to re-present the comparative amounts in its 2021 annual report and accounts. As the re-presentation affects a primary statement, the company also agreed to disclose in its 2021 report and accounts that the matter came to its attention as a result of the Financial Reporting Council’s enquiry.
- Depreciation and amortisation have increased by £1.7 million (15%) to 12.9 million, primarily due to the depreciation of additional office space in London and the amortisation of staff development costs which were capitalised at the end of the previous financial year.
- The company explained it planned to record the reclassification from other payables to provisions as a current year reclassification in FY21, rather than as a prior period adjustment, as it did not consider the effect of the change to be material.
- Hmm, interesting how since listing they’ve really never been profitable to share holders, i’d keep off this one, also heard they are market makers and work against their clients trades.
- However, as forex currencies exist in pairs, analysts need to take into account one currency’s value relative to another’s value.
Trading in VCT shares is not particularly active, so shares tend to be valued at a discount to their net asset value. In other words, if you seek to sell, you may be offered a price which is less than the full value of the underlying assets. Mechanisms for the buy-back of shares are explained in the annual reports for the VCTs, but you should have no expectation that there will be any buy-back or other opportunity to redeem your interest. Before investing in foreign exchange, carefully consider your level of experience and risk appetite. CFDs are complex instruments and bring high risk of losing money because of the leverage they provide.
Credit Risk Overview
Based on the information provided by the company, we accepted the company’s accounting for the CPEC and the presentation of the interest paid in the cash flow statement. We asked the company to provide reconciliations in future annual reports where the basis of computing an APM cannot be immediately derived from amounts in the accounts, which the company agreed to do. It was unclear how the summary funds flow statement, which includes a key performance indicator, had been derived from the reported cash flow statement. We asked the company to supply us with a reconciliation along with an explanation of the purpose of the summary funds flow statement. We asked for more information about arrangements for manufacturer and third party financing of inventory.
The notes to the financial statements included details of a key source of estimation uncertainty relating to the estimation of provisions against uncertain tax positions. We asked the company why certain exceptional items were not representative of the underlying trading of the company, given they appeared to occur each year. The company provided the requested explanations, and also noted that in future it does not plan to identify items as exceptional in the income statement. We asked the company to explain why the gain on sale from certain businesses appeared to have been presented as part of continuing operations. The company acknowledged that the gain on sale should have been presented as part of discontinued operations.
- APAC has a Conduct Committee for the region, nominated jointly by the APAC and stockbroking Boards.
- The group had significant deferred tax liabilities in respect of accelerated capital allowances.
- The company explained that the provision comprised a number of discrete items, none of which were material individually or when aggregated with related items.
The net book value amount of property, plant and equipment on 31 March 2019 included £1,763,000 in respect of computer hardware held under finance leases. The Committee is comprised of senior management from across the Group who oversee functions which impact client money. The CMRG forms a key part of the oversight of client money in addition to compliance, internal audit and PricewaterhouseCoopers LLP as external auditors.
We asked the company to quantify the financial impact of the arrangements on its accounts, and to explain how its accounting policy was consistent with IFRS 15, ‘Revenue from Contracts with Customers’. We asked the company to describe its accounting policy for the capacity reservation fee referred to in its strategic report. The company provided this information and undertook to disclose the policy in its future accounts. The company also explained that the Footasylum business was included within the ‘Other Sports Fashion Fascias’ operating segment for reporting to the Chief Operating Decision Maker and aggregated into the ‘Sports Fashion’ segment, having similar characteristics to the ‘JD’ fascia.
The company provided further analysis of the balance and agreed to present the amount of the balance that related to corporate income tax as a separate line item in the balance sheet in the 2021 annual report, as required by IAS 1, ‘Presentation of Financial Statements’. It will also provide a clearer description of the amount remaining within trade and other receivables. In closing this matter, we observed that we expected the disclosures to make clear the basis on which the company considered certain share-based scammed by xcritical payment charges to be cash-related items, and thus included in operating EBITDA. The company satisfactorily explained that the tariff risk provision comprises variable consideration refund liabilities in respect of its Swiss operations. Due to the particular level of estimation uncertainty as regards timing and/or amount, it has judged that presentation within provisions is appropriate although the provision is outside the scope of IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’.
xcritical Plc – Director/PDMR Shareholding
It also undertook to enhance the IAS 1, ‘Presentation of Financial Statements’, paragraph 125 disclosures to include the sensitivity of asset values to changes in assumptions related to climate change. The company provided satisfactory responses in respect of the conditions existing at the 2019 balance sheet date, together with further information about the assumptions and sensitivities that management expected to disclose in the 2020 financial statements. The company stated its intention to explain more clearly the sensitivities to direct impairments of assets in cash generating units, as distinct from the risks of impairment of goodwill. The company confirmed that non-current financial assets are assessed for impairment and agreed to augment its disclosures to include details of the inputs, assumptions and estimation techniques used to calculate expected credit losses in future annual reports and accounts. We asked the company to confirm whether there were any individual brand assets that were material to the financial statements.
As anticipated, the changes reduced the notional value of retail client trading in Australia and, combined with lower market volatility, resulted in less active client trading than in the prior period. In April 2022, ASIC extended its product intervention order, imposing conditions on the issue and distribution of CFDs for a further five years to 23 May 2027, thereby improving regulatory visibility. The underlying fundamentals of the business remain well supported; we continue to target and retain higher value, sophisticated clients and we have seen levels of client money, which are an indicator of future trading potential, remain close to the record levels seen in the prior year.
We requested more information on the identification of cash-generating units for the purpose of assessing impairment of property, plant and equipment and right of use assets. We requested information about the company’s basis for assuming a new five-year term for such leases, the legal and contractual rights and obligations relevant to this assessment, the treatment of any exceptions, and the accounting entries and amounts concerned. The company undertook to improve its disclosure of the accounting policy on this matter by better describing the key judgements involved in deciding that the services offered to the developers are deemed to be distinct from the ongoing provision of water and wastewater services. We queried whether a goodwill impairment test was performed at 31 May 2021 and why certain of the relevant IAS 36 ‘Impairment of Assets’ disclosures were not given. The company confirmed that such a test was performed and that it would provide the disclosures in future accounts. Only a certain number of CRR’s reviews of company reports and accounts result in substantive questioning of the Board.
CRR’s routine reviews generally cover all parts of companies’ reports and accounts over which the FRC has statutory powers (that is, strategic reports, directors’ reports and financial statements). Limited scope reviews arise for a number of reasons, including those conducted when company reports and accounts are selected for thematic review or reviews that have been prompted by a complaint. In accordance with the Supervision Committee’s Operating Procedures, CRR does not identify those companies whose reviews were prompted by a complaint. Investment in smaller companies which are unquoted, or traded on AIM or ISDX Markets, by its nature, involves a higher degree of risk than investment in larger companies, including those traded on the main market. In particular, smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals.
The company explained that these vehicles had been accounted for as financing arrangements in accordance with paragraphs B66 and B68 of IFRS 15. However, it also explained that its FY2021 revenue and cost of sales incorrectly included offsetting amounts of £7,899k in relation to the contracts, and agreed to correct its accounting treatment in future accounts. The market announcement dated 3 March stated that the company entered into certain irrevocable arrangements for own share repurchases. However, we could not identify a corresponding financial liability in the annual report and accounts, which we queried.
We asked for clarification of an apparent inconsistency in commentary about the company’s expected compliance with its banking covenants under a ‘reverse stress test’ between the Chief Financial Officer’s Review and the Independent Auditor’s report. The company explained that there was no intended inconsistency, and that the reverse stress test, by definition, resulted in a covenant breach. The company undertook to ensure that in future the wording used in management’s statements on going concern would be more aligned to that used in the auditor’s report. We identified a number of areas where improvements could be made to the presentation of the company’s APMs.
Share
In relation to acquisitions, we requested further information about the company’s accounting for deemed remuneration. The company satisfactorily explained the basis for concluding that equity consideration represented post combination remuneration and provided its rationale for recording the deemed remuneration debit to the share-based payment reserve on initial recognition. We asked the company to clarify its accounting policy in relation to dry-docking costs in the light of the requirements of paragraph 14 of IAS 16, ‘Property, Plant and Equipment’. The company satisfactorily responded to our enquiry and revised the accounting policy wording for dry-docking costs in its IFRS financial statements for the year ended 30 November 2021. It represents the funds that the business has generated historically, including any unrealised gains/losses on open hedging positions.
We asked the company for more information about its sensitivity testing of the estimated recoverable amount of the Retail group of cash generating units (‘CGU’). We considered the information and explanations the company provided about its approach, which was based on downside scenarios developed for the assessment of going concern and viability. In closing this matter, we drew the company’s attention to the fact that, as cash-settled share-based payment obligations should not be a component of equity, we would not expect the related cash flows to meet the definition of cash flows from financing activities. We queried whether all the accounting estimates identified in the 2020 report and accounts gave rise to a significant risk of material adjustment to the carrying value of an asset or liability in the next financial year.
We also asked the company to explain how it considered the accounts met the requirements of IAS 1 ‘Presentation of Financial Statements’ paragraphs 125 and 129. The company explained how it had considered the requirements, and undertook to include references to IFRS measures of performance and cash flows in the Chairman’s and CEO’s statements in its next annual report. The company also acknowledged that the commentary provided on cash flow performance in the strategic report could have been clearer.
Derivative financial instruments
The company agreed to include these disclosures in its future reporting, including details of the range and impact of the assumptions used. We asked the company to reconsider the classification of cash receipts in relation to sub-leases, which had been classified as inflows from financing activities in the group cash flow statement. They did not appear to meet the definition of financing activities in paragraph 6 of IAS 7, ‘Statement of Cash Flows’, which are those that ‘result in changes in the size and composition of the contributed equity and borrowings of the entity’.