JOSEWIN_LIMITED - Accounts

The directors present the strategic report for the year ended 31 December 2018.

Overview

Josewin Limited (‘the group’) continued to provide investment and support services to the Group’s Companies throughout 2018. Group companies delivered Compliance Services, IT, Marketing, Accounts and Training Support to 590 self-employed advisers across the UK.

Group Companies are:-

HL Partnership Limited

Mortgage Support Network Limited

Josewin Training and Development Limited

Clear Thinking Finance Limited

Despite the risks and uncertainty driven by the timing of the UK’s departure from the European Union, all major indicators that the Group measures itself against showed positive growth. Net adviser headcount in its core companies grew as did revenue, whilst costs in the group were maintained at acceptable levels with operating profit margins showing steady and controlled growth.

However, the Directors are aware of the link between the performance of the housing market and customer sentiment towards an uncertain economic climate. As a result, the Group continues to monitor the ratio between revenue and costs of its subsidiaries closely to ensure it is able to react positively to changes whatever direction the key indicator travels. The Directors have experience of operating a mortgage and protection business prior to the financial crisis and, whilst it is not anticipated that the UK Mortgage Market will return to the transaction levels experienced in 2010, the Group Board remains focussed on a strategy of both managing costs and looking to generate business efficiencies where appropriate.

In 2018 the Group began the project of consolidating Mortgage Support Network (MSN) Members into HL Partnership (HLP). MSN is a Mortgage & Protection Network which was acquired by the Group in 2017 to add significant scale and mortgage volume to its operation. 2018 has seen MSN adopt the back office and Compliance infrastructure of HLP, and management resource was re-aligned to service both businesses. Now that the synergies of the two core companies are in place, the transition has begun to move 108 members of MSN to HLP, creating a combined distribution business of 590 advisers and realising efficiency savings that back office consolidation brings with it. It is anticipated this project will conclude by the end of 2019.

Organic growth of adviser numbers, alongside the recurring income generated from lenders now paying Procuration Fees for Mortgage Product Transfers, has caused Group revenue to increase by 17% to £34.0m (2017 £29.0m) whilst gross profit was £5.7m, up 23% on 2017 (£4.6m). Cash and short-term deposits have increased from £4.36m to £4.77m. Administrative costs as a percentage of revenue has risen to 12.4% (2017: 11.7%) and reflect the investment the Group has made in its compliance infrastructure to meet the growth of adviser numbers and transaction count through HLP and MSN.

As with all businesses that have distribution companies in the financial sector, the Group is subject to a number of risks which it manages on a daily basis. The primary risk which is ever increasing, is that the current economic climate and the demand from customers to buy and refinance their homes. The Directors of the Group continue to monitor the political situation, transactions levels and the general mood of the distribution base, to gauge future revenue growth. To mitigate the risk of a slow down in productivity, the Group has been reviewing the fixed monthly fee revenue model within its core companies, moving income from a transaction based model to one that delivers a more consistent income stream. With the emergence of lenders paying procuration fees for Product Transfers, combined with an investment in IT to facilitate mortgage reviews, there is now an underlying and repeating income stream from mortgage advice which has led to increases in adviser productivity resulting in revenue growth.

The Group continues to monitor the potential levels of financial risk that is generated from the indemnified commission generated by its core companies. The Group understands that good customer outcomes means holistic advice across all product categories and that, whilst indemnified commission presents an identified and quantifiable risk, customers not receiving advice on the right protection solution also creates risk in the business. This means the Group continually looks for a balance between delivering good quality protection advice and provisioning for non-recoverable clawback.

During 2018, the Group made provisions of £183,000 (2017: £605,000) specifically in relation to the indemnified insurance clawbacks resulting from a former member in HLP whose sole focus was generating telephone-based protection sales. This firm is no longer with the Network. Provisioning has been based on the Group’s analysis of the cases written by this business, the underlying performance and the value of indemnified commission amortised over the remaining indemnity period. This item has been recognised in the financial statements as an exceptional item and recoveries are underway following the purchase of assets from the firm’s liquidators.

To further mitigate the financial risks highlighted by the level of bad debt arising from clawbacks in 2018, the Group has implemented a number of initiatives on which are reviewed regularly by the Board. The financial risk of a firm is identified by the Group’s risk committee led by the Group Compliance Director and reported on to the Group Board. As a consequence of the changes in the monitoring of firms that present the greatest level of financial risk, the Group Directors believe that measures are in place to better predict and ensure the financial wellbeing of its firms in 2019 and beyond.

Finally, the Group is aware of the risk that regulatory failure can have on future performance. The Group continues to enjoy a strong and professional relationship with the Regulator at core Company level and has strong lines of communication that allow the Group Board to make decisions based on delivering good customer outcomes. Work is well under way to ensure the Group has the governance in place to meet the changes that the Senior Managers and Certification regime will create, and believes it has the knowledge and experience to deliver the changes against the deadlines set by the Regulator.

The company monitors its performance using a number of measures:

(*excluding exceptional items)

On behalf of the board

The directors present their annual report and financial statements for the year ended 31 December 2018.

The principal activity of the company and group continued to be as a network of authorised mortgage, protection and general insurance brokers.

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

The results for the year are set out on page 8.

Ordinary dividends were paid amounting to £822,885. The directors do not recommend payment of a further dividend.

No preference dividends were paid. The directors do not recommend payment of a final dividend.

The group manages its cash and borrowing requirements in order to maximise interest income and minimise interest expense, whilst ensuring the group has sufficient liquid resources to meet the operating needs of the business.

Investments of cash surpluses are made through banks and companies which must fulfil credit rating criteria approved by the Board.

All adviser borrowers are subject to due diligence and sign-off at board level and the tracking of all loans are reported monthly.

The directors believe that there are no future developments that require disclosure.

MHA Carpenter Box were appointed as auditor to the group and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the auditor of the company is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the auditor of the company is aware of that information.

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 United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). 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 company, and of the profit or loss of the group for that period. In preparing these financial statements, the directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and accounting estimates that are reasonable and prudent;

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

•     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and 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 company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

We have audited the financial statements of Josewin Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2018 which comprise the group statement of comprehensive income, the group statement of financial position, the company statement of financial position, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows and notes 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 United Kingdom Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

• give a true and fair view of the state of the group's and the parent company's affairs as at 31 December 2018 and of the group's profit for the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• have been prepared in accordance with the requirements 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 report. We are independent of the 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, 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.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of our audit:

• the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report and the directors' report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors' remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Other matters which we are required to address

The financial statements of the company for the year ended 31 December 2017 were not audited and therefore the corresponding figures are unaudited.

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.

As permitted by s408 Companies Act 2006, the company has not presented its own income statement and related notes. The company’s profit for the year was £1,127,401 (2017 - £472,605).

Josewin Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is .

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The group has opted to early adopt the Financial Reporting Exposure Draft 67 following the Triennial Review 2017. This had no effect on the current or prior year of the financial statements for the group.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £1.

The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.

The company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements for parent company information presented within the consolidated financial statements:

- Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;

- Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.

The consolidated financial statements incorporate those of Josewin Limited and all of its subsidiaries (ie entities that the group controls through its power to govern the financial and operating policies so as to obtain economic benefits) that are material to the group. Subsidiaries acquired during the year are consolidated using the purchase method. Their results are incorporated from the date that control passes.

All financial statements are made up to 31 December 2018. All intra-group transactions and balances between group companies are eliminated on consolidation.

Josewin Trading & Development Limited and Clear Thinking Finance Limited, wholly-owned subsidiaries, are exempt from the requirements of Companies Act 2006 relating to audit of its individual company accounts under section 479A of the Companies Act 2006 relating to subsidiary companies.

At the time of approving the financial statements, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Revenue is recognised in respect of commission receivable, and services rendered, to the group's network and is shown net of VAT and other sales related taxes. Commission receivable is recognised on approval of a broker's loan application.

Goodwill represents the excess of the cost of acquisition of a business over the fair value of net assets acquired. It is initially recognised as an asset at cost and is subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Goodwill is considered to have a finite useful life and is amortised on a systematic basis over its expected life, which is ten years from the year of purchase.

Property, plant and equipment are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the income statement.

Equity investments are measured at fair value through profit or loss. In the parent company financial statements, investments in subsidiaries are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.

At each reporting period end 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.

Cash and cash equivalents are basic financial assets and include deposits held at call with banks.

The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the group's statement of financial position when the group becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

The group enters into basic financial instruments transactions that result in the recognition of financial assets and liabilities like trade and other receivables and payables.

Debt instruments like other receivables and payables are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future receipts discounted at a market rate of interest. Debt instruments that are payable or receivable within one year are measured, initially and subsequently, at the undiscounted amount of the cash or other consideration expected to be paid or received.

Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.

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.

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.

Provisions are recognised when the group has a legal or constructive present obligation as a result of a past event, it is probable that the group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting end date, taking into account the risks and uncertainties surrounding the obligation.

The provision for the clawback of commission represents a modelled estimate of the value of commissions reclaimable by product providers in respect of policies cancelled either from outset or which lapsed, based on the past experience of such claims.

The costs of short-term employee benefits are recognised as a liability and an expense.

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

Rentals payable under operating leases, including any lease incentives received, are charged to income on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.

In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount 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 where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.

The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.

Provisions are recognised when the group has a legal or constructive present obligation as a result of a past event, it is probable that the group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting end date, taking into account the risks and uncertainties surrounding the obligation.

The provision for the clawback of indemnity commission represents a modelled estimate of the value of commissions reclaimable by product providers in respect of policies cancelled during the indemnity period, based on the past experience of such claims.

Provisions of bad debt primarily relate to management's estimate on the recovery of commission claw backs on older balances.

The group operates in one principal activity, that of the rendering of services, which is wholly undertaken in the United Kingdom. Revenue is therefore made up 100% by the fees receivable in relation to the rendering of these services.

The company has made provision for indemnified insurance clawbacks resulting from a network member whose sole focus was generating telephone based protection sales. This firm is no longer with the Network. Provisioning has been based on the company’s analysis of the cases written by this business, the underlying performance and the value of indemnified commission amortised over the remaining indemnity period.

The average monthly number of persons (including directors) employed by the group and company during the year was:

Their aggregate remuneration comprised:

The board of directors are the key management personnel of the group.

The actual charge for the year can be reconciled to the expected charge based on the profit or loss and the standard rate of tax as follows:

Details of the company's subsidiaries at 31 December 2018 are as follows:

a) Pharos House, 67 High Street, Worthing, West Sussex, BN11 1DN.

On 7 July 2017 the company acquired Mortgage Support Network Limited. The investment in Mortgage Support Network Limited has been included in the company's statement of financial position at its fair value at the date of acquisition.

The provision for clawbacks on indemnified commissions has been estimated by applying an industry average rate of clawback to the value of commissions potentially reclaimable by product providers during the remaining indemnity period.

The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:

A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.

The ordinary shares are voting and carry the right to dividends subject to there being sufficient profits available for distribution. In the event of a winding up or other return of capital, the ordinary shares rank below the A preference shares.

The A preference shares are non voting and have a fixed right to a dividend being 40% of the net profit of the company and its subsidiaries for the relevant financial year. In the event of a winding up or return of capital, the A preference shares rank above ordinary shares.

Post year end, the articles of the company were amended to the effect that the A preference shareholders are no longer entitled to a percentage of net profit but instead they are entitled to 40% of any dividends declared. As such ordinary shareholders are now entitled to 60% of any dividends declared. Furthermore the rights upon an event of a winding up or return of capital were also changed, with A preference shareholders receiving 40% of any assets remaining after the payment of its liabilities and ordinary shareholders receiving 60%.

At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

During the current year a subsidiary of the parent company, Mortgage Support Network Limited recognised broker fees income and expenditure on a gross basis whereas in the prior period, it was recognised on a net basis. The net impact on the prior period profits for the group is nil, however revenue and cost of sales have both increased by £335,088 as a result of this.

The group accounts have been restated to incorporate the impact of a misclassification of a clawback provision included in other payables in the prior year in subsidiaries of the parent company. The net impact on the prior period profits is nil, however current liabilities have decreased by £716,120 and provisions for liabilities have increased by the same amount.