Condensed consolidated statement of financial position

*The audited results for year ended 31 December 2020 have been restated to account for measurement period adjustments arising under IFRS 3 Business Combinations relating to the acquisitions of the Dunstan Thomas Group and the Talbot and Muir Group that took place in H2 2020. The adjustments made to restate the 31 December 2020 comparatives, as further detailed in note 2.4, have not been subject to audit.

Approved by the Board and authorised for issue on 8 September 2021. Dan Cowland - Chief Financial Officer

Condensed consolidated statement of cash flows

*The audited results for year ended 31 December 2020 have been restated to account for measurement period adjustments arising under IFRS 3 Business Combinations relating to the acquisitions of the Dunstan Thomas Group and the Talbot and Muir Group that took place in H2 2020. The adjustments made to restate the 31 December 2020 comparatives, as further detailed in note 2.4, have not been subject to audit.

Notes to the financial statements

1.  Corporate information

Curtis Banks Group PLC ("the Company") is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on the AIM market of the London Stock Exchange PLC.  The interim condensed consolidated financial statements were authorised for issue in accordance with a resolution of the Directors on 8 September 2021.

The principal activity of the Group is that of the provision of pension administration services principally for Self-Invested Personal Pension schemes ("SIPPs") and Small Self-Administered Pension schemes ("SSASs").  The Group is staffed by experienced professionals who all have proven track records in this sector.

2               Basis of preparation and accounting policies

2.1            Basis of preparation

The interim condensed consolidated financial statements comprise the Company and its subsidiaries ("the Group") and have been prepared on a historical cost basis modified by revaluation of financial assets and financial liabilities through profit and loss where held at fair value, and are presented in pounds sterling, with all values rounded to the nearest thousand pounds except when otherwise indicated.

The interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting except for certain requirements in relation to financial instrument disclosure.  The board has considered the requirements of IAS 34 in relation to policyholder assets and liabilities and, given the unit-linked nature of these assets and liabilities, has concluded that revaluing certain policyholder financial instruments for the purposes of these interim financial statements would incur expense which is disproportionate to any potential benefits of doing so. Further, the board considers that the omission of updated valuations for these certain policyholder financial instruments will not influence the economic decisions of users of these financial statements, as all revenue and expenditure associated with these policyholder assets and liabilities is due back to the policyholders under non-participating investment contracts and therefore has nil impact on shareholder equity.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's financial statements for the year ended 31 December 2020, which were prepared in accordance with International Financial Reporting Standards adopted by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") of the IASB (together "IFRS") as adopted by the European Union, and in accordance with the requirements of The Companies Act 2006 applicable to companies reporting under IFRS.

The information relating to the six months ended 30 June 2021 and the six months ended 30 June 2020 is unaudited and does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2020 have been reported on by its auditor and delivered to the Registrar of Companies. The report of the auditor was unmodified and did not contain a statement under section 498(2) or (3) of The Companies Act 2006.

The interim condensed consolidated financial statements have been reviewed by the auditor and their report to the Board of Curtis Banks Group PLC is included within this interim report.

2.2            Basis of consolidation

The interim condensed consolidated financial statements consolidate the financial statements of the Company and its subsidiaries up to 30 June each year.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.  The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.  All inter-Group balances, income and expenses and unrealised gains and losses resulting from intra-Group transactions are eliminated in full.

The trading subsidiaries of Curtis Banks Group PLC as at 30 June 2021 were Curtis Banks Limited, Suffolk Life Pensions Limited, Suffolk Life Annuities Limited, Rivergate Legal Limited, Templemead Property Solutions Limited, Dunstan Thomas Group Limited, Digital Keystone Limited, Dunstan Thomas Holdings Limited, Dunstan Thomas Consulting Limited, Platform Action Limited, and Talbot and Muir Limited.

The trading subsidiaries of Curtis Banks Group PLC as at 30 June 2020 were Curtis Banks Limited, Suffolk Life Pensions Limited, Suffolk Life Annuities Limited, Rivergate Legal Limited and Templemead Property Solutions Limited.

Certain trading subsidiaries of Curtis Banks Group PLC hold the entire issued share capital of a number of non-trading trustee companies. All of these companies are nominee companies for the pension products administered by the trading subsidiaries of Curtis Banks Group PLC and have been dormant or non-trading throughout the period and are expected to remain dormant or non-trading.

2.3            Significant accounting policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2020.

An IFRS 3 measurement period adjustment to finalise the fair values attributed to assets and liabilities acquired from the Dunstan Thomas acquisition that took place on 3 August 2020 has been made during the current period. The adjustments made to restate the 31 December 2020 comparatives, as further detailed in note 2.4, have not been subject to audit. As a result of this adjustment, changes in the accounting estimate for the useful remaining economic life of certain intangible assets has been made, and an estimate for the new intangible asset category of Brand has been made. The following table sets out revised useful remaining economic lives assigned to each category of intangible asset:

New standards issued but not yet effective

The IASB and IFRIC have issued standards and interpretations with an effective date for periods starting on or after the date on which these financial statements start.  There are no newly issued standards expected to potentially have a material impact on the condensed consolidated interim financial statements and the consolidated financial statements to the Group.

Financial statements for the year ending 31 December 2021

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements will be consistent with those to be followed in the preparation of the Group's annual financial statements for the year ending 31 December 2021.

2.4            Prior year restatements

IFRS 3 measurement period adjustment

The audited results for year ended 31 December 2020 have been restated to account for measurement period adjustments arising under IFRS 3 Business Combinations relating to the acquisitions of the Dunstan Thomas Group and the Talbot and Muir Group that took place in H2 2020.

In order to finalise the fair values attributed to assets and liabilities acquired from the Dunstan Thomas acquisition an independent expert valuation was undertaken, the results of which were pending when the 2020 annual report was approved. The valuation helped to better identify and reflect the different components of intangible asset acquired, as principally reflected in the change of cost allocated to each intangible asset category within note 6 to these financial statements as a measurement period adjustment, compared to that reported in the original financial statements for the year ended 31 December 2020.

The results of the independent valuation also helped to inform a more accurate estimate of the relevant discount factor that ought to be applied to future expectations of cash flows arising on intangible assets and contingent consideration payable. Consequently, the fair value attributed to assets and liabilities acquired from the Talbot and Muir acquisition has also been restated as a measurement period adjustment.

The impact of these adjustments on previously reported figures is summarised in the two tables below:

Adjusted Basic EPS and Adjusted Diluted EPS errors

The unaudited results for the six month period ended 30 June 2020 contained a clerical error in the reported level of adjusted basic earnings per share and the adjusted diluted earnings per share. The values previously reported were 9.7p per share and 9.5p per share respectively, and this has now been restated to correctly reflect 9.4p per share and 9.2p per share.

2.5            Critical accounting judgements and key sources of estimation uncertainty

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

In preparing the financial statements the Group has selected and applied various accounting policies which are described in the notes to the financial statements. In order to apply these accounting policies the Group has made estimates and judgements concerning the future.

There are no critical judgements in the application of accounting policies.

The key sources of estimation uncertainty are disclosed below:

Client portfolios

Client portfolios include books of SIPPs acquired that are amortised over their useful economic life ("UEL") which management estimate to be 20 years. This estimated UEL is based upon management's historical experience of similar portfolios and expectation of the future persistency of the portfolio. The reasonableness of this estimate is assessed annually by comparison to actual lapse rates and consideration of factors that may affect it in the future, for example, changes to products.

Additionally, the Group reviews and judges whether acquired client portfolios show any indicators of impairment at least on an annual basis by considering actual versus forecast lapse rates and comparing the carrying value and recoverable amount. An impairment would exist where the recoverable amount determined is less than the carrying value of the asset.

Assessing recoverable amount through value in use comprises an estimation of future cash flows expected to arise from each client portfolio, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset, together with an estimated rate of attrition for each portfolio. The estimation of future cash flows is derived by taking the current earnings before tax, interest, depreciation and amortisation ("EBITDA") margin of the Group and applying this against forecast revenue from the relevant client portfolio.

One key source of estimation uncertainty is the level of future interest income expected, and in particular the longevity of the current low interest rate environment. Another key source of estimation uncertainty arises from the attrition rates used. The recoverable amount is most sensitive to both of these assumptions.

A 20% increase to the attrition rate assumption would result in a cumulative £44,000 decrease in the carrying value of client portfolios. A 40% increase to the attrition rate assumption would result in a cumulative £385,000 decrease in the carrying value of client portfolios.

A 2% decrease in the EBITDA margin assumption would result in a cumulative £538,000 decrease in the carrying value of client portfolios. A 4% decrease in the EBITDA margin assumption would result in a cumulative £1,436,000 decrease in the carrying value of client portfolios.

IFRS 9 impairment

Trade and other receivables are impaired based on the IFRS 9 simplified approach to measure expected credit losses using a lifetime expected loss allowance for all trade receivables. The loss allowances for trade and other receivables are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group's past history of shared credit risk characteristics, days past due, existing market conditions, as well as forward looking estimates at the end of each reporting period.

The loss rates are considered the key source of estimation uncertainty because the impact of a change in these could result in a material change in the expected credit loss. The Group determines its loss rates by reference to the underlying level of liquidity in each of the Group's clients' SIPPs because clients' fees are normally settled directly from their SIPP cash holdings. A lower level of liquidity in the SIPP, or indeed illiquidity, indicates reduced credit quality in the related trade receivable balance.

Changes in macroeconomic factors may impact the Group's clients' use of the SIPP and cause the level of liquidity in the SIPP to increase or decrease. A 10% increase or decrease in loss rates estimated at the period end would have the following impact:

The Group charges fixed fees for its services reducing its exposure to changes in macroeconomic factors such as COVID-19 which may otherwise impact a percentage basis point fee charging model.

The Group continually assesses historical recovery data to help determine how the underlying level of liquidity in the SIPPs fits into each of the credit quality ratings. Future historical data available may lead to changes in the estimated categorisation of trade receivables gross carrying amounts and associated loss allowance.

Where trade and other receivables have been outstanding for more than six years, amounts are deemed to have no reasonable expectation of recovery and are written off.

Contingent consideration payable on acquisitions

The Group has entered into certain acquisition agreements that provide for a contingent consideration to be paid. A financial instrument is recognised for all amounts management anticipates will be paid under the relevant acquisition agreement. This requires management to make an estimate of the expected future cash flows from the acquired business using forecasts that cover the contingent consideration period, and determine a suitable discount rate for the calculation of the present value of any contingent consideration payments.

A material change to the carrying value might occur if the acquired businesses achieve significantly more or less than their target earnings. The key assumption used in determining the value of these provisions is the forecast financial performance as applied in the terms of the contingent consideration arrangement. A 10% increase or reduction in achievement of forecast contingent consideration targets would increase or reduce the value of contingent consideration payable required by £0.9m.

Fair value of intangible assets acquired on acquisitions in 2020

An IFRS 3 measurement period adjustment to finalise the fair values attributed to assets and liabilities acquired from the Dunstan Thomas and Talbot and Muir acquisitions that took place in 2020 has been made during the current period. The adjustments made to restate the 31 December 2020 comparatives, as further detailed in note 2.4, have not been subject to audit. As part of this adjustment, revised estimates have been made for the useful remaining economic life of each intangible asset acquired as follows:

Estimates as reported in the audited financial statements for the year ended 31 December 2020:

Revised estimates now reported in the unaudited financial statements for the period ended 30 June 2021:

In deriving these revised estimates, initial internal assessments were generated based upon historical data and experience. These assessments were then benchmarked against market data to ensure reasonableness.

Fair values derived are based on financial forecasts and balance sheet data available at the time of acquisition, and use generally accepted valuation methodologies in arriving at fair value estimates.

Brand has been valued using a relief from royalty approach with a royalty rate of 2%. Client portfolios have been valued using variations of discounted cash flow analysis. Internally generated software has been valued using a relief from royalty approach with a royalty rate of 15%.

In assessing an appropriate base for the discount rate to be used against estimated future cash flows, both the internal rate of return and the weighted average cost of capital were considered. A discount factor of 13% has been applied to all estimated future cash flows based upon this analysis.

3             Operating segment reporting

The Group acquired FinTech provider Dunstan Thomas on 3 August 2020. Prior to this acquisition, all results were viewed as one operating segment for the purposes of management decisions as all operations were conducted within the UK and all material operations were of the same nature and shared the same economic characteristics including a similar customer base and nature of product and services (i.e. pensions administration). 

Following the acquisition of Dunstan Thomas during the year ended 31 December 2020, the Group is now considered to have two operating segments. Dunstan Thomas provides IT software development, licences and consultancy services and, collectively, these services are described in the Group's financial statements as FinTech.

The following tables present revenue and profit information regarding the Group's operating segments for the six month periods ended 30 June 2021 and 30 June 2020, and the year ended 31 December 2020.

Corporate costs

The Group's operating segments are managed together as one business. Accordingly, certain corporate costs such as finance income and expenses, non-recurring costs, gains and losses on the disposal of assets, taxes, intangible assets and certain other assets and liabilities are not allocated to individual segments as they are managed on a group basis. Segment adjusted operating profit or loss reflects the measure of segment performance reviewed by the Board of Directors (the Chief Operating Decision Maker).

The following table reconciles the total segments adjusted operating profit to statutory profit before tax:

*The audited results for year ended 31 December 2020 have been restated to account for measurement period adjustments arising under IFRS 3 Business Combinations relating to the acquisitions of the Dunstan Thomas Group and the Talbot and Muir Group that took place in H2 2020. The adjustments made to restate the 31 December 2020 comparatives, as further detailed in note 2.4, have not been subject to audit.

The following tables present a split of assets and liabilities of the Group's operating segments as at 30 June 2021 and 31 December 2020. As at 30 June 2020 the Group had only one operating segment, being Pension Administration, and consequently comparative information is as disclosed in the Consolidated Statement of Financial Position.

*The audited results for year ended 31 December 2020 have been restated to account for measurement period adjustments arising under IFRS 3 Business Combinations relating to the acquisitions of the Dunstan Thomas Group and the Talbot and Muir Group that took place in H2 2020. The adjustments made to restate the 31 December 2020 comparatives, as further detailed in note 2.4, have not been subject to audit.

Corporate assets and liabilities are not allocated to individual operating segments as they are managed on a group basis. Policyholder assets and liabilities are not allocated to individual operating segments as all investment returns associated with these are due back to policyholders under non-participating investment contracts, alongside non-participating investment contract expenses and changes in provisions for non-participating investment contract liabilities, such that the impact on shareholder assets and liabilities, and profit or loss, is nil.

4               Non-recurring costs

Non-recurring costs comprise the following items:

Acquisition costs - Dunstan Thomas and Talbot and Muir

Two acquisitions were completed during the year ended 31 December 2020: FinTech provider Dunstan Thomas on 3 August 2020, and fellow SIPP provider Talbot and Muir on 30 October 2020. The Group has incurred legal and professional fees in connection with these transactions and, in accordance with IFRS 3 Business Combinations, these have been expensed and treated as non-recurring costs. The Group expects that further costs may be recognised for these acquisitions over the next three financial years in relation to fair value changes to the amount of contingent consideration payable.

Contingent consideration on acquisitions

As at 30 June 2021, the Group updated its estimate of the amount of contingent consideration payable on the acquisitions of Dunstan Thomas and Talbot and Muir and this resulted in a reduction in the liability held on the consolidated statement of financial position.

Other acquisition related costs

During the year, the Group recovered some cost in relation to the acquisition of European Pension Management Ltd.

Redundancy & restructuring costs

During the reported periods above, the Group progressed its strategy to deliver its Target Operating Model and centralise commercial property administration within one office location. Redundancy costs associated with this decision as well as costs associated with duplicated staff efforts while work is transferred between offices have been included within non-recurring costs.

In-specie contributions

As previously reported, the Group has been in correspondence with HMRC regarding processes and documentation in respect of in-specie contributions. HMRC has alleged that incorrect procedures were followed and is seeking to reclaim tax reliefs granted and interest thereon. This is an industry wide issue affecting other SIPP operators and has been challenged by the sector as a whole. Following a favourable ruling for HMRC in a case affecting another SIPP operator, and having taken further legal advice, the Directors now consider it more likely than not that some cost associated with this issue will be incurred by the Group and this has been provided for.

Centralisation of pension administration systems

During the period ended 30 June 2021, the Group progressed its IT strategy to consolidate and centralise pension administration systems used. The investment is intended to lead to licence cost savings and allow for further progression of the Group's Target Operating Model in future years. Costs associated with this investment that did not meet the criteria for capitalisation have been treated as non-recurring cost.

Treasury solution implementation

During the year ended 31 December 2020, the Group invested in a new strategic treasury solution with a global provider of back office operational cash management software. The investment is designed to innovate and improve the Group's treasury management function through provision of a system that provides a multibank facility. Costs associated with this investment that did not meet the criteria for capitalisation have been treated as non-recurring cost.

Data cleansing provision

As part of the consolidation and integration exercise undertaken during the year ended 31 December 2018 management initiated a review of data records relating to commercial properties held within SIPPs administered by the Group. A small amount of further cost, over and above amounts previously provided, associated with this process arose during the year ended 31 December 2020.

5               Earnings per ordinary share

Basic earnings per share amounts are calculated by dividing net profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

Changes in income or expense that would result from the conversion of the dilutive potential ordinary shares are deemed to be trivial, and therefore no separate diluted net profit is presented. The following reflects the income and share data used in the basic and diluted earnings per share computations:

*As detailed in note 2.4, adjusted earnings per share on profit before non-recurring costs and amortisation, less an effective tax rate, for the unaudited six month period ended 30 June 2020 have been restated due to identification of an error.

**The audited results for year ended 31 December 2020 have been restated to account for measurement period adjustments arising under IFRS 3 Business Combinations relating to the acquisitions of the Dunstan Thomas Group and the Talbot and Muir Group that took place in H2 2020. The adjustments made to restate the 31 December 2020 comparatives, as further detailed in note 2.4, have not been subject to audit.

***The effective tax rate used is the current tax rate applicable to the accounting year. The current tax rate applicable for the year ending 31 December 2021 is 19.00% (2020: 19.00%).

6               Intangible assets