The directors present the strategic report for the year ended 30 June 2022.
Alquity UK Limited ('AUK') is the holding company for the Alquity Group, which includes its subsidiaries Alquity Investment Management Limited ('AIML') and Alquity Asia Limited ('AAL')
Alquity Investment Management Limited ('Alquity') is an asset management business that connects investors to their investments and social progress in order to deliver better financial outcomes for all.
It is Alquity's profound belief that every person on the planet deserves the opportunity to succeed and therefore Alquity is committed to building a world leading responsible asset management business focussed on transforming how people invest to create a better, fairer world for all.
'How we deploy our capital shapes our societies': Alquity believes that the investing world needs asset managers who will help solve the greenwashing problem and help re-allocate capital towards a sustainable future. It also believes that the evolution of Environmental, Social and Governance ('ESG') and Impact investing requires a holistic approach (combining ESG with Impact) including a quantitative approach to facilitate large-scale strategies and impact. Alquity is committed to leading the investment community in this respect.
The funds managed by Alquity target attractive returns, defined as performance in the top quartile of our peer group over the medium to long-term (3-5 years), via a high conviction, fundamentally driven process. This approach emphasises not only macro analysis and financial valuation but also ESG factors to assess management quality, operational excellence and firm values. This results in “quality growth” focused portfolios that monetise long-term themes via transparent companies, with effective management who are aligned with all stakeholders.
The funds managed by Alquity are therefore responsible by construction, targeting consistent outperformance whilst contributing to long-term development. This philosophy resonates across the broader business; we encourage fund manager engagement and are happy to share our analysis. Our fund managers actively engage with companies on material ESG issues incorporating our Key Progress Indicators ('KPIs') which drive behaviours supporting the principles enshrined in the UN Global Compact.
Further, we recognise that responsible investment alone is insufficient to engender social progress. Therefore, at the corporate level we donate a minimum of 10% of our fee revenue to development projects in the regions in which we invest. By contributing to long-term sustainable economic development, we create more opportunities for our companies to succeed, closing the Alquity virtuous circle. In this way, our business aligns the incentives and values of investors, employees, holdings and communities. We believe these shared investment values are key to achieving enduring financial success and sustainable social progress.
Alquity ensures there is an alignment of interest predominantly through long-term incentives and remuneration of fund managers connected to the performance of the fund. Team members who drive the growth of Alquity and live our values have the opportunity to join the Alquity Enterprise Management Incentive ('EMI') Scheme, which is a UK HMRC approved options scheme.
Alquity is responsible for the sales of the funds it manages. Alquity sales team has historically been based out of the London office. We also work with a global network of brokers and distributors to market the funds in the Middle East, Africa, Asia, Latin America and Europe. In the retail market our main distribution channel is through platforms for regular savers, lump sum and pension investors. We have passed their rigorous due diligence due to our gold-standard operational architecture, unique business model and product offering.
The year to the end of June 2022 has been very challenging with reported losses of £28,184 as of 30 June 2022.
Despite this, Alquity Investment Management Limited ’ s (Alquity) commercial prospects continue to grow, and the investment performance of the funds managed by Alquity remains solid. Our 3 core GEM funds are now either 1st or 2nd quartile over 2 years and we expect all three will be in a similar quartile over 3Y in 12 months’ time. The energy sector has been the key headwind, appreciating c. 25+% in 2022 so far.
We have also focused on building on improved sustainability standards. In this respect, the latest AFNOR audit was completed with no minor non-conformities and stronger language backing our sustainable investment approach.
Furthermore, all GEM funds now qualify as Article 8 for SFDR purposes and GIF qualifies as Article 9. This is a testament to our ESG and Impact credentials.
However, the AUM has declined materially over the past year. Most of the loss of AUM is attributable to the significantly weaker market environment caused by the twin crises of spiking inflation and Russia’s actions in Ukraine.
Despite the decline in AUM, we can report many highlights over the course of the last year.
Alquity’s SICAV assets under management (AUM) reached $150mn in Q3 2021 before declining to a level of c. $120mn in February. Prior to the Ukraine conflict, we were seeing healthy net inflows into the funds managed by Alquity through the start of the year. However, the uncertainty caused by the war has led to heightened investor caution. AUM has reduced further to $103mn as of 30 June 2022. This remains well below AUM levels seen in 2018 and continues to be held back by weak markets. Many clients now have very high levels of cash, which they will put back into the markets when the situation improves. This will be a significant opportunity for us.
In calendar Q1 2022, Alquity signed an agreement with Spouting Rock Asset Management LLC (SRAM) to sell additional equity capital in Alquity UK Limited for £1.5mn. As of 30 June 2022, the first two tranches representing c.£800,000 had been deposited and we expect further tranches totaling £700,000 in the coming months.
After signing two distribution agreements (first, we agreed to create a US joint venture entity and distribution agreement with SRAM covering the domestic US market; second, we signed a third-party marketing agreement with Haven Green Partners to market Future World and Global Impact Fund in selected European and Latin American countries) we are pleased to see both organisations gaining traction with institutional prospects.
One of our existing clients, (a French private bank) took a step closer to becoming a strategic partner by granting our strategies wider access to their in-house platforms.
Through this period of turmoil, the organisations and businesses we have backed through Transforming Lives, such as Phool and Gjenge Makers, continue to flourish.
As mentioned above, the investment performance of the funds managed by Alquity for the year to the end of June 2022 was solid despite extremely difficult market conditions. Delivering above average peer performance is an important component to gaining recognition as a leading investment manager. 2022’s performance year continued to see heightened macro volatility with tremendous implications not just for stocks and sectors, but for ESG and Impact investing as well. Despite this, our performance has tracked well against most of our competitors. Looking ahead, we remain defensive going into 2022/2023. Nevertheless, our investment team remains in good shape to provide alpha opportunities.
Lastly, we are pleased to report that our partnership with the Manco of Alquity SICAV, East Capital Asset Management, which includes having access to their administrator and depositary platform, is working very well.
Throughout this period, Alquity has remained true to its origins and purpose: to change the way the world invests by building a bridge between public markets and impact. Alquity’s virtuous circle continues to be one of the only investment businesses dedicated to using impact investing as a tool to transform people’s lives as well as improving the way our industry and society allocates capital.
In relation to distribution, scaling our ESG and Impact strategies remains our top objective, however this has been slow since the end of COVID. The Ukraine conflict has set sales efforts back again after some positive flow in Q4 2021 and early 2022. Our sales team is highly experienced and with our new European sales director developing new prospects, traction has improved, however we have not delivered meaningful net flows.
Finally, market conditions for Global and Emerging Market Equities will remain challenging for the rest of the year. This undermines our best efforts to gain scale.
Having outlined the challenges which have frustrated our efforts to grow our AUM, we see many opportunities that can deliver the scale we desire:
UK-based fund advisors are growing more positive with us winning several new clients and initial inflows, which we believe can grow alongside their advised client base.
Our sales team is also gaining traction with institutional prospects in Europe and North America.
In Europe, fund platforms have placed SFDR article 8 and article 9 strategies at the centre of their allocations. This places Alquity funds at a distinct advantage over many of our industry peers.
Principal risks and uncertainties
Exposure to credit, liquidity, interest rate and foreign currency risk arises in the normal course of the company’s business.
Credit risk
The company provides sales, marketing and operational services to the Alquity Fund and also funds managed by what was the immediate holding company, a company under common control. Receivables are mainly from this source. Hence, the exposure to credit risk is not considered to be significant as the companies (including the former immediate holding company) are all owned ultimately by the same shareholder. No amounts receivable are past due or impaired.
Liquidity risk
The company’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term.
Interest rate risk
The company’s cash and cash equivalents are primarily invested at short-term market interest rates. Consequently, changes in interest rates would have insignificant impact on the company’s losses and retained losses.
Foreign currency risk
As the company’s cash at bank, other receivables and payables are denominated predominantly in British Pounds Sterling and US$, changes in foreign currency rates should have limited impact on the company’s losses and retained losses.
Lastly, as a post- balance sheet event, we can also report the approval at the end of September, to increase the share capital of Alquity UK Limited, the parent company of Alquity, in the amount of £1.5m. This was achieved through the swap of debt held by Alquity Group Limited for shares in Alquity UK Limited. The main purpose of this was to strengthen the capital requirement ratios of the Alquity group in light of the new FCA regulatory capital rules.
For these reasons we look forward to the next 12 months with confidence, despite the challenging market conditions, with far greater capacity to achieve scale, benefitting our clients and shareholders, and transforming more lives.
On behalf of the board
The directors present their annual report and financial statements for the year ended 30 June 2022.
The results for the year are set out on page 11.
No ordinary dividends were paid. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Saffery Champness LLP have expressed their willingness to continue in office and a resolution proposing that they be re-appointed will be put at the next general meeting.
We have audited the financial statements of Alquity UK Limited (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 30 June 2022 which comprise the group statement of comprehensive income, the group statement of financial position, the group statement of changes in equity, the group statement of cash flows and the group notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and international accounting standards (IAS) in conformity 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 group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard , 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.
Material uncertainty related to going concern
We draw attention to note 1.2 in the financial statements, which describes the impact of the market conditions on the results and financial position of the group. Note 1.2 discloses a material uncertainty to the future of the business which may significantly alter the group’s financial performance from that projected in its financial plan and cashflow projections. In addition, a significant proportion of the group's revenue is linked to fund performance in emerging markets which creates uncertainty in this process. Note 1.2 also refers to the additional support available to Alquity which has enabled the directors to conclude that it is appropriate to prepare financial statements on a going concern basis. It is uncertain as to how long current conditions will continue and how long such additional support will be required and available. As stated in note 1.2, these events or conditions indicate that uncertainty exists that may cast doubt on the group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
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.
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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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' r eport 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 parent company and their environment obtained in the course of the audit, we have not identifie d material misstatements in the strategic report or the directors' r eport . We have nothing to report in respect of the following matters in relation to which 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' r esponsibilities s tatement, 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 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 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 group and parent company 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 .
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud are detailed below.
Identifying and assessing risks related to irregularities:
We assessed the susceptibility of the group and parent company’s financial statements to material misstatement and how fraud might occur, including through discussions with the directors, discussions within our audit team planning meeting, updating our record of internal controls and ensuring these controls operated as intended. We evaluated possible incentives and opportunities for fraudulent manipulation of the financial statements. We identified laws and regulations that are of significance in the context of the group and parent company by discussions with directors and by updating our understanding of the sector in which the group and parent company operates .
Laws and regulations of direct significance in the context of the company include The Companies Act 2006, UK Tax legislation and The Financial Services and Markets Act 2000, on which The Financial Conduct Authority (FCA) Handbook is based.
Audit response to risks identified
We considered the extent of compliance with these laws and regulations as part of our audit procedures on the related financial statement items including a review of financial statement disclosures. We reviewed the company's records of breaches of laws and regulations, minutes of meetings and correspondence with relevant authorities to identify potential material misstatements arising. We discussed the company's policies and procedures for compliance with laws and regulations with members of management responsible for compliance.
During the planning meeting with the audit team, the engagement partner drew attention to the key areas which might involve non-compliance with laws and regulations or fraud. We enquired of management whether they were aware of any instances of non-compliance with laws and regulations or knowledge of any actual, suspected or alleged fraud. We addressed the risk of fraud through management override of controls by testing the appropriateness of journal entries and identifying any significant transactions that were unusual or outside the normal course of business. We assessed whether judgements made in making accounting estimates gave rise to a possible indication of management bias. At the completion stage of the audit, the engagement partner’s review included ensuring that the team had approached their work with appropriate professional scepticism and thus the capacity to identify non-compliance with laws and regulations and fraud.
The company is regulated by the FCA. We discussed the company’s authorisation and permitted activities with the SMF16 and obtained evidence of this from the FCA register. We obtained additional evidence about compliance by discussing any breaches with the SMF16 and SMF17 and reviewing correspondence with the FCA.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
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 c ompany has not presented its own income statement and related notes. The c ompany’s profit for the year was £403,810 (2021 - £3,468,392).
Alquity UK Limited (“the company”) is a private limited company incorporated in England and Wales. The registered office is 3rd Floor, 9 Kingsway, London, WC2B 6XF. The company's principal activities and nature of its operations are disclosed in the directors' report.
The group consists of Alquity UK Limited and all of its subsidiaries.
The financial statements are prepared in sterling, which is the functional currency of the group . Monetary amounts in these financial statements are rounded to the nearest £ 1 . The principal accounting policies adopted are set out below.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 2.
Fees are recognised as earned at the point when financial advice is provided.
Fees are recognised as and when fees from the management of investments are earned.
Revenue is recognised as gross earned for the value of FUM held within the month.
Revenue is recognised as interest accrues (using the effective interest method that is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset).
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 statement of comprehensive income.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are 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 the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Interests in subsidiaries are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership to another entity.
The group recogni s es financial debt when the group becomes a party to the contractual provisions of the instruments. Financial liabilities are classified as either ' financial liabilities at fair value through profit or loss ' or ' other financial liabilities ' .
Financial liabilities are derecognised when, and only when, the group’s obligations are discharged, cancelled, or they expire.
Equity instruments issued by the parent company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer payable at the discretion of the company.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to fair value at each reporting end date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial asset, whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are classified as current.
Derivatives embedded in other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value through profit or loss .
The tax expense represents the sum of the tax currently payable and deferred tax.
At inception, the group assesses whether a contract is , or contains , a lease within the scope of IFRS 16. A contract is , or contains , a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Where a tangible asset is acquired through a lease, the group recognises a right-of-use asset and a lease liability at the lease commencement date. Right-of-use assets are included within property, plant and equipment, apart from those that meet the definition of investment property .
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date plus any initial direct costs and an estimate of the cost of obligations to dismantle, remove, refurbish or restore the underlying asset and the site on which it is located, less any lease incentives received.
The lease liability is initially measured at the present value of the lease payments that are unpaid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the group 's incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise fixed payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee, and the cost of any options that the group is reasonably certain to exercise, such as the exercise price under a purchase option, lease payments in an optional renewal period, or penalties for early termination of a lease.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in : future lease payments arising from a change in an index or rate; the group 's estimate of the amount expected to be payable under a residual value guarantee; or the group 's assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The group has elected not to recognise right-of-use assets and lease liabilities for short-term leases of machinery that have a lease term of 12 months or less, or for leases of low-value assets including IT equipment. The payments associated with these leases are recognised in profit or loss on a straight-line basis over the lease term.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of subsidiary entities. A subsidiary is defined as an entity over which the company has control. Control is achieved when the company has power over an entity, is exposed to, or has rights to, variable returns from its involvement with the entity, and has the ability to use its power to affects its returns.
Consolidation of a subsidiary begins when the company obtains control and ceases when control is lost. The company reassesses whether or not it controls an entity if facts and circumstances indicate that there are changes to one or more of the three control elements listed above.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the group are eliminated on consolidation. Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used into line with the group’s accounting policies.
In the application of the company’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, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are outlined below.
The directors have judged expected credit losses associated with trade receivable balances to be low risk and simple in nature, due to both the relatively low risk profile of the majority of the Group's clients.
Amounts recoverable from related party undertakings are repayable on demand. The directors have assessed different scenarios relating to the recoverability and possibility of default from the amount recoverable from subsidiary undertakings. The directors assessed expected future cash flows compared to the carrying value of the receivable and using experience and knowledge of group operations have assigned a level of probability to the different expected credit loss scenarios.
The average monthly number of persons (including directors) employed by the group during the year was:
Their aggregate remuneration comprised:
Government grants were received in relation to the Coronavirus Job Retention Scheme provided by the UK Government.
The charge for the year can be reconciled to the (loss)/profit per the income statement as follows:
Details of the company's subsidiaries at 30 June 2022 are as follows:
* Alquity (Asia) Limited is a 100% owned subsidiary of Alquity Investment Management Limited.
Goodwill represents the excess consideration over the fair value of the investment in subsidiaries.
In the opinion of the directors, there has been no indication of impairment in the year.
The Company held no tangible fixed assets during the period.
The following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current and prior reporting period.
An unsecured loan note for £3,750,000 was issued on 5 April 2013 to Alquity Group Limited as part of the consideration for the acquisition of Alquity Investment Management Limited. The loan is subordinated and interest free. Repayment is in tranches and will be determined by the Board. At 30 June 2022, £1,814,491 (2021: £2,246,005) was outstanding and included in the above aggregate loans payable balance.
The loan is repayable in full either upon the sale of the entire share capital of the company for full value on an arms-length basis; or a flotation of the company on a recognised stock exchange.
An unsecured loan facility for $1,500,000 was agreed with Paul Robinson on 28 November 2013. The loan facility may be drawn down as required and in a currency of USD, GBP or EUR as per the lenders preference. Repayment is to be made in USD. The facility does not have a fixed term but the borrower will make reasonable efforts to repay the lender in full upon sufficient funds becoming available for repayment by the Borrower. All amounts drawn down under the facility together with interest accrued thereon shall be repaid immediately in full in the event of the sale of the Borrower. Repayment will be made to the extent that the business will continue to hold more than 7 months regulatory capital, £128,456 (2021: £128,456) was outstanding and included in the above aggregate loans payable balance.
£3,060,000 of convertible loan notes were issued on 17 November 2020 as part of the Futures Fund loan scheme. The notes were converted into 10,206,066 ordinary shares of the company during the year. The conversion price was at a 20% discount to the market value share price at the date of the conversion.
Interest at 8% per annum was accrued until conversion and converted at par.
All ordinary shares rank equally with regard to the company's residual assets. Preference shares are zero coupon shares and no right to vote. Ordinary A, Preferred Ordinary and Investment B shares hold no voting rights but have the rights to dividends and distributions. Founder shares have no right to dividends but hold the right to appoint directors and vote.
The company operates an equity-settled share based remunerations scheme for their employees. This is an EMI share scheme that all employees are allowed to participate in.
The weighted average share price at the date of exercise for share options exercised during the year was £0.31 (2021 - £0).
The options outstanding at 30 June 2022 had an exercise price ranging from £0.00001 to £0.61. and a remaining contractual life of up to 4 years.
During the year, options were granted on 09 October 2021. The weighted average fair value of the options on the measurement date was £0.08 per share. During 2021, options were granted with a weighted average fair values at the measurement date of £0.08. In both years, the fair values were assessed by reference to market prices.
No share option charge has been recognised in the financial statements as it is not considered material to either the company or group.
The group’s primary objectives when managing capital are to safeguard the group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders in future years, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost. As the group is part of a larger group, the group’s sources of additional capital and policies for distribution of excess capital may also be affected by the larger group’s capital management objectives.
The group defines ‘capital’ as including all components of equity. Accordingly, the capital balance for the group as at 30 June 2022 is £ 2,459, 631 (2021: £2,459,631).
The group’s capital structure is regularly reviewed and managed with due regard to the capital management practices of the larger group to which the group belongs.
Adjustments are made to the capital structure in light of changes in economic conditions affecting the group, to the extent that these do not conflict with the directors’ fiduciary duties towards the group.
In addition, as AIML is a licensed corporation registered under the Financial Conduct Authority (the FCA) in the UK, the group is also subject to a minimum capital requirement. The group monitors its compliance with the requirement on a daily basis.
During the current financial year, the group’s strategy, which was unchanged from last year, was to maintain a higher capital level than regulatory requirement of the FCA. The group reviews its capital adequacy and structure regularly to ensure regulatory capital requirements are met, adequate funds are available to support business operation and growth, and excess capital is distributed to its holding company.
Credit risk
The group provides sales, marketing and operational services to the Alquity Fund and also funds managed by what was the immediate holding company, a company under common control. In addition there is a fee paid by CalPERs related to the investment management services for our mandate with them. Receivables are mainly from these sources. Hence, the exposure to credit risk is not considered to be significant as the companies (including the former immediate holding company) are all owned ultimately by the same shareholder. No amounts receivable are past due or impaired.
The group’s maximum exposure to credit risk is represented by its trade receivables and cash balances, which are usually paid within 30 working days. The balances represent number of days from the date of invoice. Of the £120,236 trade receivables balance, £31,436 of this is over 30 days old. No impairment has been recognised. Given the credit terms, the balances outside the current category are not deemed past due.
Historically, the group does not have a default rate. The group would typically recognise a provision against the trade receivables balance once the balance is over 60 days old.
Liquidity risk
The group's policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term.
None of the group's contracted maturities bear interest. £1,056,998 (2021: £1,167,544) is payable within one year.
Interest rate risk
The group’s cash and cash equivalents are primarily invested at short-term market interest rates. Consequently, changes in interest rates would have insignificant impact on the company’s losses and retained losses.
Foreign currency risk
As the group’s cash at bank, other receivables and payables are denominated predominantly in British Pounds Sterling and US$, changes in foreign currency rates should have limited impact on the group’s losses and retained losses.
G roup
The group considers transactions with its senior management as related party transactions. Senior management are considered to be directors of Alquity UK Limited who manage the main operating activities of the group. Except for the emoluments disclosed in note 7 and the loan from Paul Robinson disclosed below, there are no transactions, arrangements and agreements made for persons who were directors of Alquity UK Limited during the year.
The group has entered into the following transactions with related parties during the year:
The g roup received fee income of £112,787 (2021: £119,482) from Alquity Group Limited, as a company under common control. There is a £104,980 (2021: £83,128) outstanding from Alquity Group at 30 June 2022. The company also has a loan balance due from Alquity Group Limited at 30 June 2022 of £519,013 (2021: £519,013). No interest is charged on this loan.
Included in non-current liabilities is a loan of £1,614,858 (2021: £2,094,430) from Alquity Group Limited, a company under common control.
Included in non-current liabilities is a loan of £128,456 (2021: £128,456) from Paul Robinson, the ultimate controlling party. Interest, which is charged on this loan at 7.5% per annum, is rolled up into the principal. In the current year £nil (2021: £1,450,000) was repaid.
The group received fee income of £1,156,579 (2021: £753,896) from Alquity SICAV, a company of which Paul Robinson is also a director. There is £182,767 (2021: £137,599) due to Alquity SICAV at 30 June 2022. No interest is charged on this loan.
During the year the group made donations totalling £124,363 (2021: £86,582) to the Alquity Transforming Lives Foundation, an entity under mutual control. At the reporting date the group owed £380,107 (2021: £329,688) to this entity.
Company
During the year Alquity UK limited, the parent entity, subscripted to a share issue in Alquity Investment Management Limited totaling £600,000 (2021: £3,060,000). At the reporting date £3,450,440 (2021: £3,289,280) was due to Alquity Investment Management Limited. No interest is charged on this loan.
After the reporting date, Alquity UK Limited issued 3,658,537 preferred ordinary shares to Alquity Group Limited at 41p per share in a debt for equity swap.
Also after the reporting date, the intercompany debtor due to Alquity UK Limited by Alquity Investment Management Limited was formalised into loan agreements and is now due for repayment on 23 September 2032.