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RNS
Brewin Dolphin Holdings PLC  -  BRW   

Preliminary Results year ended 30 September 2016

Released 07:00 30-Nov-2016

RNS Number : 4835Q
Brewin Dolphin Holdings PLC
30 November 2016
 

30 November 2016

Brewin Dolphin Holdings PLC

Preliminary Results

For the year ended 30 September 2016

·     Total funds of £35.4bn, up 10.6% (FY 2015: £32.0bn). Discretionary funds of £28.9bn, up 16.5% (FY 2015: £24.8bn) 

This compares to an increase of 13.8% in the FTSE 100 Index and a 14.4% increase in the FTSE WMA Private Investor Series Balanced Portfolio Index

Total net discretionary funds inflows, including transfers, of £1.1bn representing an annualised growth rate of 4.4% (2015: 4.6%)

·     Total income stable at £282.4m (2015: £283.7m)

Core1 income up 4.8% to £263.3m (2015: £251.3m)

·     Fee income increased by 1.1% to £190.5m (2015: £188.5m), representing 67.4% of total income (2015: 66.4%); commission income was £71.0m (2015: £71.5m)

Other income in line with expectations at £19.1m (2015: £32.4m)

 

·     Adjusted2 profit before tax of £61.0m (2015: £62.2m)

Adjusted2 profit before tax margin 21.6% (2015: 21.9%)

 

·     Statutory profit before tax of £50.1m (2015: £61.0m, which included a one-off gain of £9.7m)

·     Discontinued operations profit before tax of £14.0m, reflecting receipt of disposal proceeds (2015: £10.4m loss before tax)

·     Adjusted2 earnings per share:

Basic earnings per share of 17.7p (2015: 18.0p)

Diluted earnings per share3 of 16.8p (2015: 17.1p)

      

·     Statutory earnings per share:

Basic earnings per share of 14.4p (2015: 17.7p)

Diluted earnings per share of 13.9p (2015: 17.1p)

 

·     Full year dividend increase of 8.3% to 13.0p (2015:12.0p), final dividend of 9.15p per share (2015: 8.25p per share), an increase of 10.9%

 

·     Strong balance sheet, net cash of £170.8m (2015: £149.8m)

 

*Continuing operations only unless refers to discontinued explicitly.

1 Core income is defined as income derived from discretionary investment management, financial planning and execution only.

2 These figures have been adjusted to exclude redundancy costs, FSCS levy rebate, onerous contracts, one-off migration costs, disposal of available-for-sale investment and amortisation of client relationships.
3 See note 10.

Business Highlights
Delivering on the Growth Strategy: 

·     Record £2.7 billion of core organic gross inflows, including £0.9 billion gross inflows from intermediaries and £0.5 billion of funds into our model portfolios

30% of direct inflows, driven by financial planning

Managed portfolio services funds passed the £1.0 billion milestone, with funds at year end of more than £1.25 billion

·     Launched first professional services propositions

·     Access to Brewin Portfolio Service fully automated

·     Continued investment in leading industry talent

·     Business development capabilities enhanced through focused training initiatives and improved employee engagement levels

·     Upgraded portfolio management systems to increase efficiency and maximise time with clients

David Nicol, Chief Executive, said:

"We have made encouraging progress in 2016. Financial performance has been resilient against the increasingly volatile and uncertain market backdrop. The strategic transition we have undergone over the last few years, focusing on our core services of discretionary investment management and financial advice, coupled with improving operational efficiency is further evident in 2016 in terms of the continued growth in the core business. Good progress has been made against the growth objectives we have set ourselves as part of this strategy, in particular in the development and innovation of existing and new services to meet different client needs.

The near term market outlook is clearly marked by the heightened sense of political and economic uncertainty, both in the UK and elsewhere. Nonetheless, I believe our business, which is financially strong and willing to innovate and adopt new approaches alongside our traditional values, is well placed to withstand any near term downturns whilst remaining focused on implementing our growth plans. In doing this we are confident of capturing future long term growth opportunities."  

Declaration of Final Dividend

The Board declares a final dividend of 9.15p per share. The final dividend is payable on 10 March 2017 to shareholders on the register at the close of business on 17 February 2017 with an ex-dividend date of 16 February 2017.

Board changes

Angela Knight will retire following the Company's forthcoming Annual General Meeting (AGM) on 3 February 2017. She was appointed as a Non-Executive Director in 2007, since when she has served the Group with great distinction. She became Senior Independent Director in 2014, and she will be particularly missed in that capacity. She has agreed to continue her association with the Group by staying on as Chairman of Tilman Brewin Dolphin Limited, our subsidiary in the Republic of Ireland.

Kath Cates, a Non-Executive Director of the Company since 2014, has agreed to replace Angela as Senior Independent Director.

For further information:

Brewin Dolphin Holdings PLC


David Nicol, Chief Executive

Tel: +44 (0)20 7248 4400

Andrew Westenberger, Finance Director

 

Tel: +44 (0)20 7248 4400

 

FTI Consulting


David Waller / Edward Berry

Tel: +44 (0)20 3727 1651/046

Chief Executive's review

Overview

We have made encouraging progress in 2016. Financial performance has been resilient against the increasingly volatile and uncertain market backdrop. The strategic transition we have undergone over the last few years, focusing on our core services of discretionary investment management and financial advice, coupled with improving operational efficiency is further evident in 2016 in terms of the continued growth in the core business. Good progress has been made against the growth objectives we have set ourselves as part of this strategy, in particular in the development and innovation of existing and new services to meet different client needs.

Implementing our growth strategy

During our 2015 Capital Markets Day, we highlighted a number of key initiatives in support of our long-term strategy especially in relation to our strategic objective to grow our revenue.

This saw us start to capitalise on the intensive preparatory work of the previous three years to generate meaningful, long-term organic growth, with a stated aim to grow our core discretionary business by a third within five years.

Progress in 2016 was encouraging. We are delivering higher gross inflows of discretionary funds from new and existing clients and have seen our managed portfolio service pass the £1.0 billion milestone, with funds at year end of more than £1.25 billion.

We achieved this despite the significant challenges we had to face during the year, including the poor market conditions of the first six months and the residual effects of the business restructuring over the last three years. In addition, we have just started to introduce some of the new services we have in planning and development, meaning that positive impact is yet to come.

Increasing focus on expansion

Overall, this was a year when we initiated expansion as we continued to build a culture that is ambitious and focused on achieving growth. We will expand by helping clients to grow and protect their wealth in order to achieve their goals. As such, we added to our UK wide branch network with the opening of a new branch in Cambridge and focused much energy and effort on hiring the best professional talent we could find.

We have segmented and developed client propositions to ensure that our services are relevant to growing numbers of clients. Progress this year includes the development of new professional services propositions, the introduction of client portals for both our core business and the Brewin Portfolio Service, and the streamlining of the client take-on process. We continue to invest in technology to support our strategy and have implemented new HR and financial reporting systems, upgraded our portfolio management and order management systems and automated the unit trust settlement process.

Our investment ethos is based around long term horizons that enable us to consistently generate appropriate returns for clients. We have provided our performance data to Asset Risk Consultants (ARC) for the first time this year, enabling external validation of our risk-weighted performance and giving intermediaries the opportunity to assess our performance against our competitors.

I believe these early results are already confirming that the wealth management sector offers companies with the right strategy and business model significant potential for generating enhanced long term shareholder returns.

Under our approach, long-term client and intermediary relationships based on respect and trust are underpinned by the commitment of our people and the quality of the advice they provide. These qualities give Brewin Dolphin its unique character and strength, and they will continue to be at the heart of how we operate in the future.

Delivering on our promise

We outlined our strategy for growth at our 2015 Capital Markets Day and highlighted a number of initiatives in development, several of which came to fruition in 2016. I would like to look at some of these, starting with those relating to our most valuable asset - our people.

Building on the strength of our culture and our people, rewarding growth and building an engaged workforce

Staff engagement is the key to high performance, and in 2016 we ran our second "Your future, your say" employee survey to measure and benchmark our overall engagement score.

I was very pleased with many aspects of the exercise. First, 83% of our workforce took the trouble to respond. Even more important, the proportion of those who believed positive action would follow the survey's findings rose substantially from 2015, up by 18 percentage points.

This was due to the way in which we had responded to feedback and suggestions made in the previous survey, implementing initiatives to address reported issues. Comments following the second survey included "Overall communication across the business has improved," and "Career development has taken a huge leap forward."

Naturally, I am delighted by such responses, and am also pleased with the improvement of our engagement score to 78%, which is 2% up on 2015 and 3% ahead of our industry benchmark. I am very keen that we continue to take action to improve employee engagement further, as I firmly believe that the stronger it is, the better our overall performance will be.

Hiring the best

We hired a number of new staff during 2016, of the high quality required to deliver our advice-led and goals-focused proposition. By recruiting new professionals across our branch network, we improved ease of access to quality advice for clients across the country.

Enhanced client acquisition

We recognise that growth will come through successfully expanding the proportion of the wealth we manage for increasing numbers of clients. It is therefore important that we give our people the confidence and capacity they need to seek new opportunities for providing advice.

For this reason, we invested significantly during the year in improving the business development capabilities of our people, including sales training and the launch of a LinkedIn-based programme. We also piloted a lead-generation system during the year, readied our new Client Management System to go live in 2017 and strengthened the link between incentives and growth.

Understanding our target clients and their changing needs

We took a major step forward in sharpening our focus on client and intermediary relationships during 2016, when we expanded the Executive Committee to include representatives of client facing disciplines at the most senior level of the Group. Now the voices of both clients and intermediaries are heard even more where our most important strategic decisions are made, enabling us to understand their requirements and points of view as we develop and refine new ways of serving and interacting with them.

Streamlined onboarding and tighter targeting

We made strong progress during 2016 in developing and refining our understanding of client segmentation and their differing needs. This has increasingly enabled us to create more effective and precisely targeted propositions and messaging, including a range of new services such as offering a choice of managed and non-managed funds.

We have responded to client feedback and streamlined and simplified the client onboarding process, reducing the number of documents involved as well as introducing a number of new technology-enabled methods for clients to communicate and transact with us. These include a range of client portals across our services, and automatic account opening and a mobile app for the Brewin Portfolio Service we launched in 2015. We have more innovations on the way, all focused on further strengthening relationships by listening to, understanding and responding to client needs.

Delivering specialist services

We developed new specialist services during the year for solicitors and their clients, partners in law and accountancy firms, and corporate advisers. These have all been positively received, and are the first services to be launched in a growing portfolio targeting a range of special interest groups.

The way in which we created our services indicates the depth to which we immerse ourselves in our clients' worlds, so that we can demonstrate detailed understanding of their needs, their aims and their challenges. For example, when developing services for lawyers, we recruited a highly respected professional from outside the wealth management arena and spent time researching and gaining an in-depth understanding of what family lawyers need from a wealth management advisor. This input has enabled us to see the world through the eyes of lawyers and demonstrate genuine understanding of their needs which has contributed greatly to both the quality of the services we provide and to our credibility within the profession.

Monitoring client feedback

There are numerous ways a business can measure success but one of the most important in a client focused business such as ours is customer satisfaction. With this in mind, we commissioned a client experience survey with the aim of examining client perceptions in order to better identify where our strengths and weaknesses lie, to establish a base from which to judge future performance and to help guide the business going forward.

The top line from the survey is that we have been outstanding in every area, with clients rating their satisfaction with our advisers, wider team, and services all at 8.4/10, well above the 2015 industry benchmarks. The net promoter score is a measure of how many clients would recommend our services to friends which can be a powerful source of new business generation. The score is a balance of those who would recommend our business netted against those who would not measured between -100% and +100%. We scored a positive balance of 44.6% compared to a 2015 financial services industry average of just 4.7%. We have included client satisfaction and the net promoter score in our key performance indicators. 

Improving our brand awareness

Our single-minded focus on helping clients achieve their goals was at the core of the range of content-led and event-based client marketing campaigns we ran during the year.

Designed to attract new clients and grow existing relationships, these centred around messages relating to each target segment. They were, however, all based on the new goals-based brand positioning we finalised and rolled out during the year, which is best expressed in the hard-backed book we published exclusively for Brewin Dolphin clients and prospects. "This isn't about us," it says. "It's about you."

Increasing take up of our integrated wealth management service proposition

As a result of our growing emphasis on advice and our focus on meeting the widest possible range of client needs, the number of clients receiving a service that combines investment management and financial planning grew significantly during 2016.

This is enabling us to take a wider role in the lives of our clients, as it allows us to give them a more comprehensive understanding of their total financial position. For this reason, we are continuing to seek and develop increasing numbers of financial advisers and planning professionals.

Enhancing our regional presence

We built further on our already strong regional presence during the year with the opening of a new office in Cambridge and we continue to seek opportunities where the potential for expanding our business is greatest. We are also focused on building a network of regional "hubs", supported by smaller local offices, to enable larger teams of specialist advisers to offer our full range of advisory services to more people.

Charities

We continued to grow and develop our charity business, maintaining a strong position in the marketplace with a position of no. 6 in the UK charity investment industry.

Focusing on the intermediary channel

We were delighted to see strong growth in our intermediary business during 2016, in terms of both a 15% in fund inflows and more firms than ever before choosing to work with us.

These positive trends were due in no small part to the ongoing impact of our 16-strong national network of highly respected business development managers who are known throughout the industry for the depth of their experience and knowledge. Their value to us and our intermediary partners continues to grow, and they have contributed strongly to Brewin Dolphin becoming one of the UK's most widely used discretionary fund managers.

During 2016, we introduced a more regionally focused management structure for the network, which is helping us to concentrate more efficiently on specific regional needs and opportunities for sharing innovative ideas and best practice.

Our financial performance in 2016

We achieved a good result in the face of considerable uncertainty in the market with adjusted profit before tax from continuing operations of £61.0 million (2015: £62.2 million) and costs being held flat year on year, statutory profit before tax was £50.1 million (2015: £61.0 million). The first half of the financial year was particularly challenging with the FTSE 100 Index dropping to a low in February of 5,537 and then rallying to 6,899 at the end September. 

We made progress against our revenue growth objectives with gross new discretionary funds inflows of £2.4 billion (2015: £2.1 billion) and continued strong inflows into our Model Portfolio service. Net discretionary funds inflows of £1.1 billion were broadly similar to 2015 as they were impacted by outflows linked to previous business restructuring.

Looking ahead

The future shape and direction of the business grows clearer. We know what we are doing, where we are going, what we are good at and how we will continue to provide increasing value as we confidently pursue our growth strategy.

We are excited by the great potential that resides in the closer integration of our investment management and financial planning service propositions. And we are consistently ambitious to innovate - continuing "business as usual" is not enough to derive full value for all our stakeholders. We will continue in particular to actively seek new ways of increasing shareholder value throughout 2017 and in the years ahead.

We will do this not only through introducing new services. We will also ensure that we remain relevant to our clients' and intermediaries' needs in every way, using technology to introduce new communication channels and further support our advisers at an administration level so they can spend more time advising and developing opportunities.

We recognise that the world we live in is complex and prone to geo-political uncertainties. Over more than 250 years, however, we have applied the same calm and confident clarity to address some of history's greatest challenges. Every time we have ensured that the interests of our clients, employees and shareholders are upheld.

Today, we believe as ever that the continuing value of skilled people providing quality advice is the cornerstone of long-term client relationships. With major opportunities for us, I believe our long-term growth prospects have never been stronger.

The near term market outlook is clearly marked by the heightened sense of political and economic uncertainty, both in the UK and elsewhere. Nonetheless, I believe our business, which is financially strong and willing to innovate and adopt new approaches alongside our traditional values, is well placed to withstand any near term downturns whilst remaining focused on implementing our growth plans. In doing this we are confident of capturing future long term growth opportunities.

Finally, all members of the Board and Executive Committee join me in thanking our people - at every level of the organisation - for making such a superb contribution to a strong year for the Group in a challenging environment. Their efforts, commitment and expertise are what will continue to support Brewin Dolphin's success as we deliver together against our growth strategy.

Financial Review

Results for the year

The Group's underlying financial performance for the period ended 30 September 2016 was resilient. Adjusted profit before tax (adjusted PBT), from continuing operations, fell by 1.9% to £61.0 million (2015: £62.2 million) with diluted adjusted earnings per share (adjusted EPS) of 16.8p per share (2015: 17.1p).

The modest fall in adjusted PBT was a result of the total income declining by 0.5% to £282.4 million (2015: £283.7 million) whilst total operating costs remained broadly unchanged at £221.7 million (2015: £222.0 million).

The adjusted PBT margin declined slightly to 21.6% (2015: 21.9%). Statutory profit before tax (PBT) was £50.1 million (2015: £61.0 million), the decline being principally due to the prior year benefiting from a material gain from the sale of the Group's holding in Euroclear plc and higher exceptional charges in 2016 from business restructuring.

We have received sales proceeds of £14.0 million from the sale of Stocktrade, which completed in April. We report the impact of this receipt, the costs of separation and sale-related costs as discontinued operations.

Continuing operations

 


2016
£m

2015
£m

Change

Core1income

263.3

251.3

4.8%

Other income

19.1

32.4

-41.0%

Total income

282.4

283.7

-0.5%





Fixed staff costs

(103.5)

(104.0)

-0.5%

Other operating costs

(69.5)

(69.0)

0.7%

Total fixed operating costs

(173.0)

(173.0)

0.0%

Adjusted2 profit before variable staff costs

109.4

110.7

-1.2%

Variable staff costs

(48.7)

(49.0)

-0.6%

Adjusted2 operating profit

60.7

61.7

-1.6%

Net finance income and other gains and losses

0.3

0.5


Adjusted2 profit before tax

61.0

62.2

-1.9%

Exceptional items3

(4.6)

8.0


Amortisation of client relationships

(6.3)

(9.2)


Profit before tax

50.1

61.0

-17.9%

Taxation

(11.1)

(12.7)


Profit after tax

39.0

48.3


Earnings per share




  Basic earnings per share

14.4p

17.7p


  Diluted earnings per share

13.9p

17.1p


Adjusted4 earnings per share




  Basic earnings per share

17.7p

18.0p

-1.7%

  Diluted earnings per share

16.8p

17.1p

-1.8%

 

1 Core income is defined as income derived from discretionary investment management, financial planning and execution only.

2 These figures have been adjusted to exclude redundancy costs, FSCS levy rebate, onerous contracts, one-off migration costs, amortisation of client relationships and disposal of available-for-sale investment.

3 Exceptional items include redundancy costs FSCS levy rebate, onerous contracts, one-off migration costs and disposal of available-for-sale investment.

4 See note 10.

 

Funds

 

£bn

30 Sept. 2015

Inflows

Outflows

Internal transfers

Net flows

Growth rate

Investment performance

30 Sept. 2016

Change

Discretionary










 Direct

18.8

1.0

(1.2)

0.2

-

0.0%

2.3

21.1

12.2%

 

 Intermediaries

5.3

0.9

(0.3)

-

0.6

11.3%

0.6

6.5

22.6%

 

 MPS

0.6

0.5 

-

-

0.5

83.3%

0.1

1.2

100.0% 

 

 BPS

0.1

-

-

-

-

0.0%

-

0.1

0.0%

 

Total discretionary

24.8

2.4

(1.5)

0.2

1.1

4.4%

3.0

28.9

16.5%

Execution only

3.7

0.3

(0.7)

0.3

(0.1)

-2.7%

(0.1)

3.5

-5.4%

Core funds

28.5

2.7

(2.2)

0.5

1.0

3.5%

2.9

32.4

13.7%

Advisory

3.5

-

(0.4)

(0.5)

(0.9)

-25.7%

0.4

3.0

-14.3%

Total funds

32.0

2.7

(2.6)

-

0.1

0.3%

3.3

35.4

10.6%

 

Indices

 

30 September 2015

 

30 September 2016

 

Change

FTSE WMA Private Investor Series Balanced Portfolio

3,421

 3,915

14.4%

FTSE 100

6,062

 6,899

13.8%

Total funds grew by 10.6% to £35.4 billion (2015: £32.0 billion).

We continued our focus on growing our discretionary service, and we had a record total discretionary funds of £28.9 billion at the end of the period, a 16.5% increase over the previous year (2015: £24.8 billion). The total growth of £4.1 billion resulted from strong positive investment returns of £3.0 billion (2015: £0.3 billion loss) and net inflows of £1.1 billion (2015: £1.1 billion).

Net discretionary inflows equated to an annual growth rate of 4.4%, just below our target of 5% and the prior year's growth of 4.6% but was a good achievement in the difficult market conditions experienced in the first half of the period and immediately around the UK vote to leave the European Union.

Record gross organic external discretionary inflows of £2.4 billion (2015: £2.1 billion) were achieved. This includes strong gross inflows of £1.4 billion (2015: £1.1 billion) from our intermediaries business including both bespoke and model solutions (MPS and BPS), an increase of 27%.

We also maintained our direct discretionary inflows of £1.0 billion (2015: £1.0 billion) as we continued to attract new clients to our core service. 30% (£0.3 billion) of these direct inflows during the period were into our integrated wealth service which combines financial planning advice with investment management. 13% (2015: 10%) of our direct private client discretionary funds are now receiving financial planning advice. As part of the growth initiative for our direct business, we aim to grow this to 30% over the course of the next five years.

As we anticipated, outflows from our discretionary service remained at an elevated level of £1.5 billion (2015: £1.3 billion). This was due to the residual effects of the last of the office restructurings completed at the end of 2015. The elevated rate of outflows has now reached a peak and we expect it to begin to decline over the coming 12 months towards more normal levels. The continued conversion of advisory accounts added £0.2 billion (2015: £0.3 billion) to our discretionary funds.

Between September 2015 and September 2016, the FTSE WMA Private Investor Series Balanced Portfolio index increased by 14.4%, with a particularly strong rise (10%) in the second half of the year.

Execution only funds were £3.5 billion (2015: £3.7 billion), benefiting from positive transfers of £0.3 billion. We no longer offer execution only services on a standalone basis.

Total advisory funds fell by £0.5 billion during the year (2015: £1.9 billion), a 14.3% reduction (2015: 35%) resulting from net outflows of £0.9 billion (2015: £1.7 billion) that were offset by positive investment returns of £0.4 billion. We anticipated this decline given the withdrawal of this service to new clients and our focus on our discretionary service. We successfully retained £0.5 billion into core funds.

Income

Total income fell by 0.5% to £282.4 million (2015: £283.7 million), and is analysed as follows:


2016
£m

2015
£m

Change

Discretionary investment management

235.4

225.5

4.4%

Financial planning

17.5

15.7

11.5%

Execution only

10.4

10.1

3.0%

Core income

263.3

251.3

4.8%





Advisory investment management

15.7

24.4

-35.7%

Trail income

1.5

4.5

-66.7%

Interest

1.9

3.5

-45.7%

Other income

19.1

32.4

-41.0%





Total income

282.4

283.7

-0.5%

Core income increased by 4.8% to £263.3 million (2015: £251.3 million), mainly driven by the higher average discretionary funds level during the year. Core income now represents 93% (2015: 89%) of our total income.

Financial planning income continued to grow, increasing by 11.5% to £17.5 million (2015: £15.7 million).

Execution only income increased slightly by 3.0% to £10.4 million (2015: £10.1 million) as higher transactional commissions offset lower average funds levels.

In line with expectations, other income continued to decline reflecting the ongoing outflows and transfers from advisory funds, the loss of trail income which has now ceased completely and the continued low interest rate environment.

Advisory investment management income fell by 35.7% to £15.7 million (2015: £24.4 million), in line with the reduction of funds.

Fees and commissions

Core fee income now represents 68% of core income. This has increased steadily from 62% in 2013 and 48% in 2010.

Fees from our core services increased by 4.8% to £179.7 million (2015: £171.5 million), with commissions from these services increasing by 3.1% to £66.1 million (2015: £64.1 million). The split of fees and commissions is shown in the table below:


2016
£m

2015
£m

Change

Core fees

179.7

171.5

4.8%

Core commissions

66.1

64.1

3.1%





Advisory fees

10.8

17.0

-36.5%

Advisory commissions

4.9

7.4

-33.8%





Total fees

190.5

188.5

1.1%

Total commissions

71.0

71.5

-0.7%

Financial planning

17.5

15.7

11.5%

Trail income

1.5

4.5

n/a

Interest

1.9

3.5

n/a

Total income

282.4

283.7

-0.5%

 

Income yield

Investment market conditions during the year were mixed, with periods of elevated volatility and uncertainty in the first half of the year followed by a market rally in the fourth quarter. This resulted in lower transactional volumes across all service categories during the first half of the year, although these recovered in the second half in line with the strong rally in equity markets. Overall volumes remained at subdued levels, albeit marginally up on 2015. 


2016
bps

2015
bps

Discretionary

88

89

Advisory

49

57

Execution only

29

28

Overall

78

78

Overall income yield for our investment management services remained in line with 2015 at 78 basis points (bps).

The yield on our core discretionary service declined marginally to 88bps (2015: 89bps). This was a result of an increasing proportion of intermediary-related investment management business, which has a lower fee level than our direct client business.

The yield on our advisory service fell by 8bps to 49bps (2015: 57bps). This was due to a reduction in transactional income and an increase in average client size resulting from the loss of smaller accounts.

Costs

Total fixed operating costs remained flat at £173.0 million (2015: £173.0 million) as the effect of salary inflation was offset by lower average headcount during the year.

Fixed staff costs

Fixed staff costs fell by £0.5 million to £103.5 million (2015: £104.0 million), driven by lower average staff numbers during the year due to increased efficiencies within the business. The total full time headcount fell by 6% to 1,583 as at 30 September 2016 (2015:1,693). There was also a reduction in the costs of temporary staff associated with the now completed implementation and quality assurance phase of the new enhanced client advice process.

Other operating costs

Other operating costs increased by £0.5 million to £69.5 million (2015: £69.0 million) primarily as a result of higher market data costs offset by lower depreciation charges and professional fees.

Variable staff costs

Variable staff costs fell by 0.6% to £48.7 million (2015: £49.0 million),in line with lower income. This expense relates to a combination of cash awards and deferred equity-linked awards, the cost of which is spread over the vesting period.

Exceptional items

Net exceptional costs of £4.6 million in 2016 (2015: net gain of £8.0 million) comprised a number of elements: redundancy costs of £2.7 million (2015: £2.4 million); one-off migration costs of £1.6 million (2015: £nil) relating to the migration to a new third party settlement and custody provider by our Irish subsidiary; and onerous contract costs of £0.3 million (2015: £0.4 million).

In 2015, a £9.7 million gain was recorded from the sale of the Group's stake in Euroclear plc and £1.1 million was received as a result of a levy rebate from the Financial Services Compensation Scheme (FSCS).

Amortisation of client relationships

Amortisation of client relationships decreased to £6.3 million (2015: £9.2 million). This was a result of previously acquired client relationships reaching the end of their amortisation periods.

Taxation

The Group's overall tax rate is a blend of rates which applies in the jurisdictions in which it operates (United Kingdom and Republic of Ireland). 

The adjusted effective tax rate was 21.5% (2015: 20.8%) and the statutory effective rate was 22.2% (2015: 20.9%). The effective tax rate is higher than the UK corporation tax due to the impact of non-allowable expenses such as client entertainment and leasehold improvements, as well as movements in deferred tax rates and overseas subsidiaries taxed at different rates.

See note 7 to the financial statements for a full reconciliation of the income tax expense.

Pension fund

The deficit on the final salary pension scheme increased from £2.9 million to £7.0 million, under IAS 19, large annual fluctuations can occur. The increase in the deficit has been largely driven by a reduction in the discount rate representing the significant fall in corporate bond yields increasing liabilities, offset by an increase in assets which were hedged against falls in gilt yields and cash contributions to the scheme.

The Group continues to make annual contributions of £3 million as part of the recovery plan agreed with the trustees of the Group's Defined Benefit Pension Scheme.

Capital resources and regulatory capital

The Group's financial position remains strong, with net assets of £242.8 million at 30 September 2016 (2015: £219.2 million). Tangible net assets (net assets excluding intangibles and shares to be issued) are £161.8 million (2015: £141.5 million), representing growth of 14% in 2016.

At 30 September 2016, the Group had regulatory capital resources of £164.0 million (2015: £145.3 million). See note 16.

The Group's primary regulator is the Financial Conduct Authority (FCA). FCA rules determine the calculation of the Group's regulatory capital resources and regulatory capital requirements. As required under FCA rules, we perform an Internal Capital Adequacy Assessment Process (ICAAP), which includes performing a range of stress tests to determine the appropriate level of regulatory capital that the Group needs to hold.

The Group's Pillar III disclosures are published annually on our website and provide further details about regulatory capital resources and requirements.

Cash flow and capital expenditure

The Group again generated a good positive cash flow of £20.5 million in the period (2015: £15.0 million). This has resulted in the Group's cash balances increasing to £170.8 million (2015: £149.8 million).

Adjusted EBITDA was £75.6 million (2015: £78.6 million), the fall of 4% was largely a result of lower adjusted PBT. £3.0 million was contributed to the defined benefit pension scheme (2015: £3.0 million). Capital expenditure principally relating to software fell slightly in the year to £6.4 million (2015: £7.6 million).

A net cash inflow from discontinued operations of £5.8 million (2015: £1.7 million) arose from the gain on the sale of Stocktrade. The sale proceeds of £14.0 million were received at the end of April 2016 once the migration of the business was complete. This was offset by settlement in the year of a number of contractual costs relating to the separation of the business previously provided for.

Cash outflow for own share "matching" purchases in the period comprised £6.7 million (2015: £19.8 million) for the Deferred Profit Share Plan (DPSP) and Equity Award Plan, to match the awards made in 2015, all past awards are fully matched. £0.2 million (2015: £0.2 million) of shares were purchased for the Share Incentive Plan.

Shares issued for cash of £0.4 million (2015: £1.9 million) is a result of the issue of shares in relation to Approved Share Options and Nil Paid Shares and is £1.5 million lower than in 2015.

Dividends paid in the period increased by 21.5% to £32.8 million (2015: £27.0 million).


2016
£'m

2015
£'m

Adjusted profit before tax

61.0

62.2

Finance income and costs

(0.3)

(0.5)

Adjusted operating profit (EBIT)

60.7

61.7

Share-based payments

8.4

8.9

Depreciation and amortisation

6.5

8.0

Adjusted EBITDA

75.6

78.6

Pension funding

(3.0)

(3.0)

Capital expenditure

(6.4)

(7.6)

Working capital

(0.6)

(4.2)

Interest and taxation

(8.5)

(10.6)

Exceptional items

(3.1)

5.2

Discontinued operations

5.8

1.7

Shares purchased and disposed of

(6.9)

(20.0)

Shares issued for cash

0.4

1.9

Cash flow pre-dividends

53.3

42.0

Dividends paid

(32.8)

(27.0)

Cash flow

20.5

15.0

Opening firm's cash

149.8

135.1

Exchange and other non-cash movements

0.5

(0.3)

Closing firm's cash

170.8

149.8

 

Going concern

The Group's business activities, performance and position, together with the factors likely to affect its future development, are set out in the Chairman's Statement, Strategic Report and Risk Committee Report within the Annual Report 2016.

Note 16 to the financial statements describes: the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposure to credit risk and liquidity risk.

The Directors believe that the Group is well placed to manage its business risks successfully. The Group's forecasts and projections, taking account of possible adverse changes in trading performance, show that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis for the preparation of the Financial Statements. In forming their view, the Directors have considered the Group's prospects for a period exceeding 12 months from the date when the Financial Statements are approved.

Explanation of adjusted profit before tax and reconciliation to financial statements

We use adjusted PBT and adjusted diluted EPS to measure and report on the underlying financial performance of the Group. Together with the adjusted PBT margin (being adjusted PBT as a percentage of total income), these are useful measures for investors and analysts. Additionally, we use them as key performance indicators (KPIs) for various incentive schemes, including the annual bonuses of Executive Directors and long term incentive plans. 

These adjusted profit measures are calculated based on statutory PBT, as reported in the Financial Statements, adjusted to exclude various items of income or expense. Such adjusted items are typically infrequent or unusual in nature. They can include non-recurring items such as a material one-off gain, including the sale of an available-for-sale asset (like the sale of the Group's holding in Euroclear plc during 2015). They can also be one-off expenses, such as the migration charge suffered this year. Other adjusted-for items of income or expense may, like the redundancy costs and onerous contract charges detailed below, recur from one period to the next. Although these may recur over one or more periods, they are the result of material restructuring decisions and do not represent long-term expenses of the business.

Additionally, the amortisation expense of acquired client relationships is an expense which investors and analysts typically add back when considering PBT or earnings per share (EPS) ratios.

Reconciliation of adjusted profit before tax to statutory profit before tax

 


2016
£m

2015
£m

Change

Adjusted profit before tax

61.0

62.2

-1.9%

Redundancy costs

(2.7)

(2.4)


FSCS levy rebate

-

1.1


One-off migration costs

(1.6)

-


Profit on disposal of available-for-sale investment

-

9.7


Onerous contracts

(0.3)

(0.4)


Total exceptional items

(4.6)

8.0


Amortisation of client relationships

(6.3)

(9.2)


Statutory profit before tax of continuing operations

50.1

61.0

-17.9%

Statutory profit before tax of discontinuing operations

14.0

(10.4)


Statutory profit before tax

64.1

50.6

26.7%

Measuring our progress (adjusted for discontinued operations)

We use key performance indicators (KPIs) to measure the progress and the success of our strategy implementation.

We set out KPIs for each strategic and financial objective below, with a measure of performance to date.

Changes to KPIs

The following KPIs have been removed following an assessment of their ongoing suitability for measuring the success of our strategy implementation:

·     Discretionary income per CF30 - this measure is the same as the discretionary funds per CF30 KPI

·     Revenue growth - this is closely aligned to discretionary funds inflow which is a more appropriate metric

·     Dividend payout ratio - this policy has been fully embedded.

We have introduced new non-financial KPIs to help measure key drivers of revenue growth and efficiency:

·     Net promoter score

·     Overall client satisfaction survey

·     Employee engagement

 

Strategic priority

KPI

FY 2014

FY2015

FY2016

Target / Benchmark

Revenue growth

Discretionary funds inflows

6.6%

4.6%

4.4%

5%

Discretionary service yield

94bps

89 bps

88 bps

n/a

Net promoter score

n/a

n/a

44.6%

4.7%

Overall client satisfaction

n/a

n/a

8.4

7.3

Improved
efficiency

Adjusted1 PBT margin

20.8%

21.9%

21.6%

25%

Average client portfolio

£478,000

£498,000

£590,000

£500,000

Discretionary funds per CF30

£48m

£53m

£64m

£75m

Employee engagement

n/a

76%

78%

n/a

% of managed funds in discretionary service

82%

88%

91%

90%

Capital sufficiency

Capital adequacy ratio

241%

248%

232%

150% (minimum)

Dividend Growth

Adjusted1,2 diluted EPS Growth

11%

7%

-2%

n/a


Dividend growth

15%

21%

8%

n/a

 

1 Excluding redundancy costs, FSCS levy rebate, onerous contracts, amortisation of client relationships, one-off migration costs and disposal of available-for-sale investment.

2 See note 10.

See the 2016 Annual Report for more detail on definition and performance commentary for the KPIs.

Principal Risks and Uncertainties

The overall level of risk we face continues to increase as a result of external market conditions; increasing regulatory standards, with higher financial penalties for failure to comply with these standards; an increasingly uncertain political environment and associated market volatility; and increasing cyber criminality targeting businesses. Our approach is to develop and maintain a strong control framework to identify, monitor and manage the principal risks we face, adequately quantify them and ensure we retain sufficient capital in the business to support our strategy for further growth.

We use a number of high-level risk groups that allow us to identify potential risks. These are:

·     Business and strategic

·     Financial

·     Operational

·     Conduct

·     Regulatory compliance

·     Criminality

·     Investment

Each of these high-level risk groups contains a series of specific risks. As well as ensuring we can identify principal risks and report on them clearly and accurately, this approach allows us to assess robustly the financial resources we need and so helps to protect our clients' interests.

Risk management

It is the responsibility of all our employees to manage risks within their domain. Ultimately, accountability for risk management resides with the Board which is responsible for ensuring that there is an adequate and appropriate Risk Management Framework and culture in place. The Board maintains oversight while delegating the management of these responsibilities to individuals and committees.

An effective Risk Management Framework is a fundamental requirement for good governance and requires every employee within the organisation to adhere to and advocate the risk culture that we set. We follow industry good practice for risk management through the "three lines of defence" model. The first line is the business that owns and manages the risk, the second line is the control functions and the third line is independent assurance provided by internal audit.

The Board regularly assesses the effectiveness of the Group's internal controls. It does so by reviewing and challenging reports from the Audit Committee and Board Risk Committee, and by appraising issues escalated from the business through the Executive Committee. In addition, our Risk and Compliance department and Internal Audit function carry out reviews and report independently to the Audit Committee and the Board Risk Committee.

Risk management objectives

The primary objectives of risk management at Brewin Dolphin are to ensure there is:

·     A strong risk culture that enables employees to identify, monitor, manage and report against the key risks the business faces or may confront as it implements the Group's strategy

·     An appropriate balance between risk and the cost of control

·     A defined risk appetite within which risks are managed

·     A swift and effective response to incidents in order to minimise impact.

Risk culture

The Board drives our risk culture, most particularly in terms of the conduct of our people. We aim to foster a risk-aware culture throughout the business by promoting and encouraging:

·     A distinct and consistent tone from the top, with clear values

·     Clear accountabilities for those managing risk

·     The three lines of defence model

·     Prompt sharing and reporting of risk information

·     A commitment to ethical principles

·     Appropriate levels of conduct and considered risk-taking behaviour

·     Recognition of the importance of knowledge, skill and experience in risk management

·     Members of staff at all levels encouraged to make suggestions for improving processes and controls

·     An acceptance of the importance of the continuous management of risk, including clear accountability for and ownership of specific risks.

2016 developments

The external risk environment has been marked by considerable uncertainty over the past year, particularly since the outcome of the EU referendum vote in June. Throughout 2016, we continued to consider and assess the referendum's impact. Although we are largely a UK domiciled business, it may have an impact on some of our principal risks. The longer-term impacts are still uncertain and we will keep developments under review to ensure we are prepared to address them.

We continued to strengthen and embed our risk framework within the first line of defence during 2016. Work on this will continue into 2017. The focus in 2016 was on financial risk, conduct risk, information security and operational risk. We have improved the quality of our internal risk reporting by incorporating detailed key risk indicators to our risk appetite statements for each of our principal risks. We have also introduced a monthly dashboard to more clearly illustrate the actual position against risk appetite.

Principal risks and uncertainties

The table below details the principal risks and uncertainties we have identified. We have put in place a process to regularly report key risk indicators and identify movements within these principal risks. We also consider emerging risks as part of this process.

Risk description

Principal risks

Key mitigants

BUSINESS AND STRATEGIC

This is the risk that we do not set the right strategic and business objectives or that we fail to deliver against the agreed objectives.

This could include an inability
to introduce or enter into new business lines effectively, to expand organically or through merger/acquisition, or to enhance the effectiveness of our operational infrastructure.

Failure to develop a strategy which can deliver results in changing external market conditions or failure to execute against the agreed Group strategy within the agreed risk appetite.

We have:

·     A strategic plan approved by the Board.

·     A robust governance structure that includes challenge from our independent Non-Executive Directors.

·     A risk appetite that is aligned with our key strategic aims and principal risks, and monitored on a regular basis by our formal governance committees.

·     A control environment that is regularly reviewed by our independent Internal Audit function.

Direction of change:

These risks have increased over the past year as we may have to take on additional risk in order to grow the business, particularly if we pursue opportunities for inorganic growth. We remain confident that we have the proper framework in place to manage this effectively. Brexit concerns have also caused uncertainty in the market which may impact us in the future.

FINANCIAL

These are the risks facing our business in terms of management and control of finances and the effects of external factors such as availability of credit, foreign exchange rates, interest-rate movements and other market exposures that could affect our cash flow, capital and liquidity.

Default by our banking and trading counterparties (credit risk) which could put at risk either our own or our clients' cash deposits or assets.

We have in place:

·      A robust financial risk framework which allows us to set limits for our counterparties.

·      Diversity across our trading and banking counterparties.

·      In-depth due diligence on our banking counterparties, focusing particularly on those holding client money.

·      We additionally monitor their creditworthiness within assessed limits on a daily basis.

·      Similar due diligence on our trading counterparties.

·       We review our trading activities regularly to monitor exposure to our trading counterparties.

·      A Financial Risk Committee, tasked with overseeing this risk, and regular reporting of our position against appetite.

Direction of change:

These risks are slightly increased due to the uncertainty caused by Brexit. This has the potential to make our counterparties slightly more volatile in their profitability, and therefore could negatively impact their credit ratings.

OPERATIONAL

This is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. 

This is a diverse risk as it comprises many different operational areas. We have identified the following as the two main risks: 

·      Technology strategy and change - secure and robust technology systems are not maintained, particularly when seeking to implement change resulting from our growth strategy or new regulatory requirements.

·      People - talented individuals are not attracted or retained impacting service to clients and potentially the level of funds outflows.

We have:

Technology strategy and change

·   A Strategic Projects Committee to oversee business change, which allows projects to be prioritised effectively.

·   Rigorous overview of project delivery.

·   A technology roadmap taking us into 2018.

·   Continual investment in our technology.

People

·   Competitive remuneration and retention plans.

·   Regular succession planning and ongoing reviews of our development plans through which we seek to build strength across our employee base.

·   Appropriate training programmes. 

·   Employee engagement surveys to review our progress and acting positively in areas where we are able to improve.

CONDUCT

This is the risk is that our clients do not receive fair outcomes at all stages of our service delivery as a result of the behaviour of
our employees.

Employees' actions may result in poor outcomes for clients.

 We have:

· Ensured that we set the right tone from the top and have culture awareness initiatives within the Group.

· A conduct risk framework which ensures that this risk receives the focus that it requires.

· A risk based client on-boarding process which ensures that we understand our clients' needs and attitudes to risk.

· Regular reporting of key metrics to provide visibility of outcomes.

· A performance management process to identify and address any instances where the best outcomes for clients are not achieved.

REGULATORY COMPLIANCE

This is the risk of regulatory change negatively impacting the Group or regulatory sanction as a result of failure to comply. 

That we are not compliant with all existing regulation or are unable to understand and implement the wide variety of new regulation and legislation that is continually coming into force.

We have:

·     An established Compliance function that oversees fulfilment of our regulatory requirements and interactions with our key regulators.

·     A Compliance function which works closely with our Strategic Project Committee to ensure that change processes include all necessary regulatory requirements.

·     Legal and Compliance functions which review new regulation and legislation as it is drafted to ensure we are able to comply when it is implemented.

·     We are also active in various industry and trade associations to help influence regulation and legislation, with the aim of ensuring that it is reasonable and commensurate.

CRIMINALITY

This is the risk of criminal activities (including fraud, money laundering and cyber crime) being perpetrated through whatever means, whether externally or internally, by paper, phone or technology.

Cyber risk has been identified in particular as we increase our online presence.

We have:

·      A risk framework which includes information security, data protection and fraud.

·      Cyber Essentials certification.

·      Strong technology and process controls which reduce our exposure to criminal activity.

·      Regular testing of our business continuity, disaster recovery and crisis management plans.

INVESTMENT

This is the risk that we fail to manage our clients' assets in line with the agreed mandate.

That clients suffer poor outcomes as a result of assets not being managed within their agreed mandate.

We have:

·      An Investment Governance Committee which provides product and service governance, including alignment with strategy, appetite for risk and client interests and outcomes. 

·      A dedicated Research department which sets the Group's asset allocation framework.

·      A restricted assets policy to identify those assets not considered to be suitable for clients' portfolios.

·      A risk portfolio tool to monitor whether portfolios are constructed in accordance with a client's risk mandate.

·      Access to ARC metrics to benchmark the performance of our Model Portfolio Service against our peers.

Direction of change:

Our risk exposure to operational, conduct, criminality and investment risk has decreased as we have strengthened our monitoring and oversight activities. We are facing increased regulatory compliance risk as the number of regulatory changes is increasing and often have concurrent timelines.

 

Consolidated Income Statement

Period ended 30 September 2016

 


Note

2016
£'000

2015
£'000

Continuing operations

 

 

 

Revenue

 

280,484

280,196

Other operating income

 

1,866

3,495

Income

 

282,350

283,691

 

 

 

 

Staff costs

 

(152,175)

(152,982)

Redundancy costs

 

(2,780)

(2,432)

FSCS levy rebate

 

-

1,160

Onerous contracts

 

(311)

(433)

Amortisation of intangible assets - client relationships

11

(6,287)

(9,219)

One-off migration costs

 

(1,596)

-

Other operating costs

 

(69,458)

(68,975)

Operating expenses

 

(232,607)

(232,881)

 

 

 

 

Operating profit

 

49,743

50,810

Finance income

5

514

907

Other gains and losses

6

(3)

9,712

Finance costs

5

(192)

(429)

Profit before tax

 

50,062

61,000

Tax

7

(11,095)

(12,729)

Profit for the period from continuing operations

 

38,967

48,271

 

 

 

 

Discontinued operations

 

 

 

Profit/(loss) for the period from discontinued operations

8

11,395

(7,233)

Profit for the period

 

50,362

41,038

 

 

 

 

Attributable to:

 

 

 

Equity holders of the parent

 

50,362

41,038

 

 

50,362

41,038

 

 

 

 

Earnings per share

 

 

 

From continuing operations

 

 

 

Basic

10

14.4p

17.7p

Diluted

10

13.9p

17.1p

 

 

 

 

From continuing and discontinued operations

 

 

 

Basic

10

18.6p

15.0p

Diluted

10

17.9p

14.5p

 

Consolidated Statement of Comprehensive Income

Period ended 30 September 2016

 

 

Note

2016
£'000

2015
£'000

Profit for the period

 

50,362

41,038

Items that will not be reclassified subsequently to profit and loss:

 

 

 

Actuarial (loss)/gain on defined benefit pension scheme

 

(7,031)

2,110

Deferred tax credit/(charge) on actuarial (loss)/gain on defined benefit pension scheme

13

1,109

(422)

 

 

(5,922)

1,688

Items that may be reclassified subsequently to profit and loss:

 

 

 

Reversal of revaluation of available-for-sale investments

 

-

(9,565)

Reversal of deferred tax charge on revaluation of available-for-sale investments

 

-

1,913

Revaluation of available-for-sale investments

14

(30)

-

Deferred tax credit on revaluation of available-for-sale investments

13

6

-

Exchange differences on translation of foreign operations

 

559

(266)

 

 

535

(7,918)

Other comprehensive expense for the period net of tax

 

(5,387)

(6,230)

Total comprehensive income for the period

 

44,975

34,808

 

 

 

 

Attributable to:

 

 

 

Equity holders of the parent

 

44,975

34,808

 

 

44,975

34,808

 

 

Consolidated Balance Sheet

As at 30 September 2016

 

Note

2016
£'000

2015
£'000

Assets

 

 

 

Non-current assets

 

 

 

Intangible assets

11

81,053

86,989

Property, plant and equipment

 

4,822

8,188

Other receivables

 

307

442

Net deferred tax asset

13

7,799

10,605

Total non-current assets

 

93,981

106,224

Current assets

 

 

 

Available-for-sale investments

14

833

140

Trading investments

14

1,093

945

Trade and other receivables

 

218,118

254,041

Cash and cash equivalents

 

170,766

149,839

Total current assets

 

390,810

404,965

Total assets

 

484,791

511,189

 

 

 

 

Liabilities

 

 

 

Current liabilities

 

 

 

Bank overdrafts

 

-

16

Trade and other payables

 

221,945

255,524

Current tax liabilities

 

3,388

2,786

Provisions

15

3,097

7,267

Shares to be issued including premium

 

-

9,304

Total current liabilities

 

228,430

274,897

Net current assets

 

162,380

130,068

 

 

 

 

Non-current liabilities

 

 

 

Defined benefit pension scheme

 

6,952

2,869

Provisions

15

6,600

14,272

Total non-current liabilities

 

13,552

17,141

Total liabilities

 

241,982

292,038

Net assets

 

242,809

219,151

 

 

 

 

Equity

 

 

 

Share capital

 

2,830

2,793

Share premium account

 

151,836

142,135

Own shares

 

(29,294)

(28,153)

Revaluation reserve

 

(24)

-

Merger reserve

 

70,553

70,553

Profit and loss account

 

46,908

31,823

Equity attributable to equity holders of the parent


242,809

219,151

Approved by the Board of Directors and authorised for issue on 29 November 2016

Signed on its behalf by

David Nicol


Andrew Westenberger

Chief Executive


Finance Director

 

Consolidated Statement of Changes in Equity

Period ended 30 September 2016



Attributable to the equity holders of the parent



Share capital
£'000

Share premium account
£'000

Own shares
£'000

Revaluation reserve
£'000

Merger
reserve
£'000

Profit
and loss account
£'000

Total
£'000


At 28 September 2014

 2,745

 139,420

(16,045)

 7,652

 61,380

 16,118

 211,270


Profit for the period

-

-

-

-

-

 41,038

 41,038


Other comprehensive income for the period









Deferred and current tax on other comprehensive income

-

-

-

 1,913

-

 (422)

 1,491


Actuarial gain on defined benefit pension scheme

-

-

-

 -

-

 2,110

 2,110


Reclassification adjustment for gain included in profit

-

-

-

 (9,565)

-

-

(9,565)


Exchange differences on translation of foreign operations

-

-

-

 -

-

 (266)

 (266)


Total comprehensive (expense)/income for the period

-

-

-

 (7,652)

-

 42,460

 34,808


Dividends

-

-

-

 -

-

(26,963)

(26,963)


Issue of share capital

 48

 2,715

-

 -

 9,173

-

 11,936


Own shares acquired in the period

-

 -

(19,999)

-

 -

-

(19,999)


Own shares disposed of on exercise of options

-

 -

 7,891

-

 -

(7,891)

-


Share-based payments

-

 -

 -

-

 -

 8,938

 8,938


Tax on share-based payments

-

-

-

-

 -

 (839)

 (839)


At 30 September 2015

 2,793

 142,135

(28,153)

 -

 70,553

 31,823

 219,151


Profit for the period

-

-

-

 -

-

 50,362

 50,362


Other comprehensive income for the period









Deferred and current tax on other comprehensive income

-

-

-

6

-

 1,109

 1,115


Actuarial loss on defined benefit pension scheme

-

-

-

-

-

(7,031)

(7,031)


Revaluation of available-for-sale investments

-

-

-

 (30)

-

-

 (30)


Exchange differences on translation of foreign operations

-

-

-

 -

-

 559

 559


Total comprehensive (expense)/income for the period

-

-

-

 (24)

-

 44,999

 44,975


Dividends

-

-

-

 -

-

(32,818)

(32,818)


Issue of share capital

 37

 9,701

-

 -

-

-

 9,738


Own shares acquired in the period

-

-

(7,220)

 -

-

-

(7,220)


Own shares disposed of on exercise of options

-

-

 5,853

-

-

(5,853)

-


Own shares disposed of

-

-

 226

-

-

 84

 310


Share-based payments

-

-

-

-

-

 8,387

 8,387


Tax on share-based payments

-

-

-

-

-

 286

 286


 At 30 September 2016

 2,830

 151,836

(29,294)

 (24)

 70,553

 46,908

 242,809

 

Company Balance Sheet

As at 30 September 2016

 

 

Note

2016
£'000

2015
£'000

Assets




Non-current assets

 

 

 

Investment in subsidiaries

 

 191,429

194,305

Other receivables

 

 50

50

Total non-current assets

 

 191,479

194,355

Current assets

 

 

 

Trade and other receivables

 

 46,151

49,306

Cash and cash equivalents

 

686

259

Total current assets

 

 46,837

49,565

Total assets

 

 238,316

243,920

 

 

 

 

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

 12,313

16,363

Current tax liabilities

 

-

531

Shares to be issued including premium

 

-

9,304

Total current liabilities

 

 12,313

26,198

Net current assets

 

 34,524

23,367

 

 

 

 

Total liabilities

 

 12,313

26,198

Net assets

 

 226,003

217,722

 

 

 

 

Equity

 

 

 

Share capital

 

 2,830

2,793

Share premium account

 

 151,836

142,135

Own shares

 

 (29,294)

(28,153)

Merger reserve

 

 70,838

70,838

Profit and loss account

 

 29,793

30,109

Equity attributable to equity holders

 

 226,003

217,722

Approved by the Board of Directors and authorised for issue on 29 November 2016

Signed on its behalf by

 

David Nicol


Andrew Westenberger

Chief Executive


Finance Director

Brewin Dolphin Holdings PLC Company number 2685806

 

Company Statement of Changes in Equity

Period ended 30 September 2016

 

 

 

 

 

Share capital
£'000

Share premium account
£'000

Own shares
£'000

Merger reserve
£'000

Profit and loss account
£'000

Total
£'000

 

At 28 September 2014

2,745

139,420

(16,045)

61,665

21,659

209,444

 

Profit for the period

-

-

-

-

34,366

34,366

 

Total comprehensive income for the period

-

-

-

-

34,366

34,366

 

Dividends

-

-

-

-

(26,963)

(26,963)

 

Issue of share capital

48

2,715

-

9,173

-

11,936

 

Own shares acquired in the period

-

-

(19,999)

-

-

(19,999)

 

Own shares disposed of on exercise of options

-

-

7,891

-

(7,891)

-

 

Share-based payments

-

-

-

-

8,938

8,938

 

At 30 September 2015

2,793

142,135

(28,153)

70,838

30,109

217,722

 

Profit for the period

-

-

-

-

29,884

29,884

 

Total comprehensive income for the period

-

-

-

-

29,884

29,884

 

Dividends

-

-

-

-

(32,818)

(32,818)

 

Issue of share capital

37

9,701

-

-

-

9,738

 

Own shares acquired in the period

-

-

(7,220)

-

-

(7,220)

 

Own shares disposed of on exercise of options

-

-

5,853

-

(5,853)

-

 

Own shares disposed of

-

-

226

-

84

310

 

Share-based payments

-

-

-

-

8,387

8,387

 

At 30 September 2016

2,830

151,836

(29,294)

70,838

29,793

226,003

 

 

Consolidated Cash Flow Statement

Period ended 30 September 2016

 

 

Note

2016
£'000

2015
£'000

Net cash inflow from operating activities

17

 52,033

57,478

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase of intangible assets - client relationships

 

-

(3)

Purchase of intangible assets - software

 

(5,238)

(5,146)

Purchases of property, plant and equipment

 

 (373)

(2,271)

Purchase of available-for-sale investments

 

 (770)

(140)

Proceeds on disposal of discontinued operation

8

 14,000

-

Proceeds on disposal of available-for-sale investments

 

 47

10,147

Net cash from investing activities

 

 7,666

2,587

 

 

 

 

Cash flows from financing activities

 

 

 

Dividends paid to equity shareholders

 

 (32,818)

(26,963)

Purchase of own shares

 

(7,220)

(19,999)

Disposal of own shares

 

310

-

Proceeds on issue of shares

 

433

1,913

Net cash used in financing activities

 

 (39,295)

(45,049)

 

 

 

 

Net increase in cash and cash equivalents

 

 20,404

15,016

 

 

 

 

Cash and cash equivalents at the start of period

 

 149,823

135,113

Effect of foreign exchange rates

 

539

(306)

Cash and cash equivalents at the end of period

 

 170,766

149,823

 

 

 

 

Cash and cash equivalents shown in current assets

 

 170,766

149,839

Bank overdrafts

 

-

(16)

Net cash and cash equivalents

 

 170,766

149,823

For the purposes of the Cash Flow Statement, net cash and cash equivalents include bank overdrafts.

 

Company Cash Flow Statement

Period ended 30 September 2016

 

 

Note

2016
£'000

2015
£'000

Net cash inflow from operating activities

17

 32,502

24,685

 

 

 

 

Cash flows from financing activities

 

 

 

Dividends paid to equity shareholders

 

 (32,818)

(26,963)

Disposal of own shares

 

310

-

Proceeds on issue of shares

 

433

1,913

Net cash used in financing activities

 

 (32,075)

(25,050)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

427

(365)

 

 

 

 

Cash and cash equivalents at the start of period

 

259

624

Cash and cash equivalents at the end of period

 

686

259

 

Notes

1. General information

The financial information contained in this preliminary announcement does not constitute the Group's and the Company's Statutory Financial Statements for the period ended 30 September 2016 within the meaning of section 435 of the Companies Act 2006.

The financial information set out in this preliminary announcement has been extracted from the Group's and the Company's 2016 Annual Report and Accounts, which have been approved by the Board of Directors and agreed with Deloitte LLP, the Company's Auditor. The Auditor's Report was unqualified and did not draw attention to any matters by way of emphasis and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

Whilst the financial information has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRS") the preliminary announcement does not contain sufficient information to comply with IFRS.

The accounting policies used are consistent with those set out in note 3 to the 2015 Annual Report and Accounts which have been delivered to the Registrar of Companies.

The critical accounting judgements and key sources of estimation uncertainty are set out below.

The 2016 Annual Report and Accounts will be posted to shareholders during January 2017.   Copies will be available from the registered office of the Company, 12 Smithfield Street, London EC1A 9BD.  It will also be available on the Company's website www.brewin.co.uk

2. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in the 2015 Annual Report and Accounts, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of the 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.

a. Critical judgements in applying the Group's accounting policies

There have been no critical judgements required in applying the Group's accounting policies in this period, apart from those involving estimations which are detailed separately below.

b. Key sources of estimation uncertainty

i. Goodwill and client relationships

Amortisation of client relationships

The useful economic life over which client relationships are amortised is determined by the expected duration of the client relationships which are determined with reference to past experience of account closures, in particular the average life of those relationships, and future expectations. During the period, client relationships were amortised over a 7 to 15 year period.

The amortisation for the period was £6,287,000 (2015: £9,219,000), a reduction in the average amortisation period by one year would increase the amortisation expense for the period by £2,144,000 (2015: £2,248,000).

Impairment of goodwill and client relationships

Impairment exists when the carrying value of an asset or cash-generating unit ('CGU') exceeds its recoverable amount. The recoverable amount is the higher of its fair value less costs of disposal and its value in use.

For the purposes of impairment testing, the Group values the recoverable amount of goodwill and client relationships at the fair value less costs of disposal. The calculation of the fair value less costs of disposal is based on the valuation of the funds, which make up the relevant intangible asset. A percentage is applied to funds (3% for discretionary funds and 1% for advisory funds) to determine the fair value. These percentages have been based on recent public transactions.

Therefore, the recoverable amount is sensitive to movements in the valuation of funds. The key assumptions used to determine the recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and further explained in note 12.

ii. Defined benefit pension scheme

The calculation of the present value of the defined benefit pension scheme is determined by using actuarial valuations. Management make key assumptions in determining the inputs into the actuarial valuations, which may differ from actual developments in the future. These assumptions are governed by IAS 19 Employee Benefits (revised 2011), and include the determination of the discount rate, life expectancies and future salary increases. Due to the complexities in the valuation, the defined benefit pension scheme obligation is highly sensitive to changes in these assumptions. The detailed assumptions, including a sensitivity analysis, are set out in note 21 to the 2016 Annual Report and Accounts.

iii. Share-based payments

Long-term incentive plan ('LTIP')

During the period, the Group granted its third award under the LTIP. The scheme includes performance based vesting conditions, which impacts the amount of benefit paid. The Group has made assumptions on the likelihood of meeting the performance conditions in determining the expense in the period. The LTIP charge for the period was £337,000 (2015: £669,000).

If all of the performance conditions were assumed to be met; the charge for the period would increase by £1,692,000 (2015: £1,535,000); an absolute increase of 10% in the vesting assumptions would increase the charge for the period by £300,000 (2015: £251,000). Further information on the scheme is disclosed in note 33 to the 2016 Annual Report and Accounts.

iv. Provisions

Onerous leases

The Group recognises a provision for onerous leases of £4,135,000 (2015: £4,069,000). The valuation of an onerous lease is based on the best estimate of the likely future costs discounted to present value. Where the provision is in relation to premises and it is more likely than not that the premises will be sublet, an allowance for sublease income has been included in the valuation. If the assumptions regarding the sublet income are removed, the provision would increase by £6,355,000 (2015: £1,232,000) to £10,490,000 (2015: £5,301,000). Further information is disclosed in note 15.

 

3. Income


2016
£'000

2015
£'000

Continuing operations



Investment management commission income

70,999

71,494

Financial planning and trail income

18,952

20,173

Fees

190,533

188,529

Revenue

280,484

280,196

Other operating income

1,866

3,495

Income from continuing operations

282,350

283,691




Discontinued operations (note 8)



Commission income

2,946

7,455

Trail income

93

310

Fees

310

1,619

Revenue

3,349

9,384

Other operating income

30

303

Income from discontinued operations

3,379

9,687




Income from continuing and discontinued operations

285,729

293,378

 

4. Segmental information

For management reporting purposes the Group currently has a single operating segment: the Investment Management division. This forms the reportable segment of the Group for the period. Please refer to the Consolidated Income Statement and the Consolidated Balance Sheet, for numerical information.

The Group's operations are carried out in the United Kingdom, Channel Islands and the Republic of Ireland. The operations in the Channel Islands and the Republic of Ireland are not material and accordingly geographical segmental disclosures are not included. All segmental income related to external clients.

The accounting policies of the operating segment are the same as those of the Group.

 

5. Finance income and finance costs


Continuing
operations

Discontinued
operations

Total


2016
£'000

2015
£'000

2016
£'000

2015
£'000

2016
£'000

2015
£'000

Finance income







Interest on bank deposits

 514

 907

-

-

 514

 907


 514

 907

-

-

 514

 907








Finance costs







Finance cost of deferred consideration

-

 98

-

-

-

 98

Interest expense on defined benefit pension scheme

 52

 244

-

-

 52

 244

Unwind of discounts on provisions

 75

 46

 134

-

 209

 46

Interest on bank overdrafts

 65

 41

-

-

 65

 41

 

 192

 429

 134

-

 326

 429

 

6. Other gains and losses


2016
£'000

2015
£'000

(Loss)/profit on disposal of available-for-sale investments

(3)

9,712

In 2015, the Group disposed of its holding in Euroclear Plc for a cash consideration of £10,147,000 and recognised a gain on disposal of £9,712,000. £9,565,000 of the gain, gross of deferred tax (£1,913,000), was recycled from the revaluation reserve.

 

7. Income tax expense


Continuing
Operations

Discontinued
Operations

Total


2016
£'000

2015
£'000

2016
£'000

2015
£'000

2016
£'000

2015
£'000

Current tax







United Kingdom:







Charge/(credit) for the period

 8,806

 11,463

 1,355

(1,478)

 10,161

 9,985

Adjustments in respect of prior periods

237

257

 (395)

 -

 (158)

257

Overseas:





 -


(Credit)/charge for the period

 (8)

149

 -

 -

 (8)

149

Adjustments in respect of prior periods

 35

 1

 -

 -

 35

 1

Total current tax

 9,070

 11,870

960

(1,478)

 10,030

 10,392








Deferred tax







United Kingdom:







Charge/(credit) for the period

 2,310

 1,398

 1,675

 (138)

 3,985

 1,260

Adjustments in respect of prior periods

 (285)

 (539)

 -

(1,537)

 (285)

(2,076)

Total deferred tax (see note 13)

 2,025

859

 1,675

(1,675)

 3,700

 (816)








Tax charged/(credited) to the Income Statement

 11,095

 12,729

 2,635

(3,153)

 13,730

 9,576

United Kingdom corporation tax is calculated at 20% (2015: 20.5%) of the estimated assessable taxable profit for the period. The Finance Act 2013 reduced the corporation tax to 20% from 1 April 2015 and Finance Act 2015 maintains that rate until 31 March 2017 (21% applied from 1 April 2014).

Taxation for other jurisdictions is calculated at the relevant prevailing rates in the respective jurisdictions.

The charge for the year can be reconciled to the profit per the Income Statement as follows:


2016
£'000

2015
£'000

Profit before tax on continuing operations

50,062

61,000

Tax at the UK corporation tax rate of 20% (2015: 20.5%)

10,012

12,505

Tax effect of:



Expenses that are not deductible in determining taxable profit

521

1,001

Impact of defined benefit scheme contributions

(99)

(64)

Leasehold property

251

255

Share-based payments

241

(523)

Over provision for tax in previous periods

(13)

(281)

Lower rates in subsidiaries

32

(164)

Impact of deferred tax rate change

150

-

Tax expense for the period

11,095

12,729

Effective tax rate for the year

22.2%

20.9%

There are no material uncertainties within the calculation of corporation tax. The tax provisions are based on tax legislations in the relevant jurisdictions and have not required any judgements or material estimates.

 

8. Discontinued operations

The disposal of Stocktrade (discontinued operation) completed in the period; disposal proceeds of £14,000,000 were received.

The results of the discontinued operation included in the Consolidated Income Statement, were as follows:


2016
£'000

2015
£'000

Revenue

 3,379

9,687

Expenses

(3,339)

(8,413)

Operating profit

 40

1,274

Costs of separation

 (10)

(10,970)

Profit/(loss) before tax

 30

(9,696)

Attributable tax (expense)/credit

 (43)

1,478

Loss after tax

 (13)

(8,218)

Profit on disposal of discontinued operations

 14,000

(690)

Attributable tax (expense)/credit

(2,592)

1,675

Net profit/(loss) attributable to discontinued operations (attributable to the equity holders of the parent)

 11,395

(7,233)

 

Costs of separation consist of the following items:


2016
£'000

2015
£'000

Impairment



- Intangible - see note 11

(345)

(144)

- Tangible

(335)

(136)

Onerous contract release/(charge)

680

(10,288)

Other

(10)

(402)

Total costs of separation

(10)

(10,970)

The discontinued operation contributed the following cash flows included within the Consolidated Cash Flow Statement:


2016
£'000

2015
£'000

Net cash (outflows)/inflows from operating activities

(8,206)

1,732

Net cash flows from investing activities

14,000

-

Net increase in cash and cash equivalents

5,794

1,732

 

9. Dividends


2016
£'000

2015
£'000

Amounts recognised as distributions to equity shareholders in the period:



2014/2015 Final dividend paid 11 March 2016, 8.25p per share (2015: 6.25p per share)

 22,374

16,845

2015/2016 Interim dividend paid 17 June 2016, 3.85p per share (2015: 3.75p per share)

 10,444

10,118


 32,818

26,963




Proposed final dividend for the period ended 30 September 2016 of 9.15p (2015: 8.25p) per share based on shares in issue at 24 November 2016 (24 November 2015)

22,420

22,094

The proposed final dividend for the period ended 30 September 2016 of 9.15p per share is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

Under an arrangement dated 1 April 2011, Computershare Trustees (Jersey) Limited (the 'Trustee') holds 11,460,043 Ordinary Shares representing 4% of the Company's called up share capital in relation to employee share schemes, has agreed to waive all dividends due to the Trustee.

 

10. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:


2016
'000

2015
'000

Number of shares



Basic



Weighted average number of shares in issue in the period

 271,072

272,987

Diluted



Effect of weighted average number of options outstanding for the period

 9,984

10,040

Diluted weighted average number of options and shares for the period

 281,056

283,027

Adjusted1 diluted



Effect of full dilution of employee share options which are contingently issuable or have future
attributable service costs

 4,637

4,727

Adjusted1 diluted weighted average number of options and shares for the period

 285,693

287,754

 

a) Continuing operations


2016
£'000

2015
£'000

Earnings attributable to ordinary shareholders



Basic and diluted profit for the period

38,967

48,271

Disposal of available-for-sale investment

3

(9,712)

Redundancy costs

2,780

2,432

FSCS levy rebate

-

(1,160)

Onerous contracts

311

433

Amortisation of intangible assets - client relationships

6,287

9,219

One-off migration costs

1,596

-

less tax effect of above

(2,042)

(248)

Adjusted basic and diluted profit for the period and attributable earnings

47,902

49,235

 


2016

2015

Earnings per share



Basic

14.4p

17.7p

Diluted

13.9p

17.1p

 


2016

2015

Adjusted2 earnings per share



Basic

17.7p

18.0p

Adjusted1 diluted

16.8p

17.1p

1. The dilutive shares used for this measure differ from that used for statutory dilutive earnings per share; the future value of service costs attributable to employee share options is ignored and contingently issuable shares for Long-term Incentive Plan ('LTIP') options are assumed to fully vest. The Directors have selected this measure as it represents the underlying effective dilution by offsetting the impact to the calculation of basic shares of the purchase of shares by Employee Share Ownership Trust ('ESOT') to satisfy options.

2. Excluding disposal of available-for-sale investment, redundancy costs, FSCS levy rebate, onerous contracts, amortisation of client relationships and one-off migration costs.

 

b) Continuing and discontinued operations


2016
£'000

2015
£'000

Earnings attributable to ordinary shareholders



Basic and diluted profit for the period

50,362

41,038

Disposal of available-for-sale investment

3

(9,712)

Redundancy costs

2,780

2,432

FSCS levy rebate

-

(1,160)

Onerous contracts

311

433

Amortisation of intangible assets - client relationships

6,287

9,219

One-off migration costs

1,596

-

less tax effect of above

(2,042)

(248)

Adjusted basic and diluted profit for the period and attributable earnings

59,297

42,002

 


2016

2015

Earnings per share



Basic

18.6p

15.0p

Diluted

17.9p

14.5p

 


2016

2015

Adjusted2 earnings per share



Basic

21.9p

15.4p

Adjusted1 diluted

20.8p

14.6p

 

c) Discontinued operations

The denominators used are the same as those detailed above for both basic and diluted earnings from continuing operations.


2016

2015

Earnings per share



Basic

4.2p

(2.7)p

Diluted

4.0p

(2.6)p

 


2016

2015

Adjusted2 earnings per share



Basic

4.2p

(2.6)p

Adjusted1 diluted

4.0p

(2.5)p

1. The dilutive shares used for this measure differ from that used for statutory dilutive earnings per share; the future value of service costs attributable to employee share options is ignored and contingently issuable shares for Long-term Incentive Plan ("LTIP") options are assumed to fully vest. The Directors have selected this measure as
it represents the underlying effective dilution by offsetting the impact to the calculation of basic shares of the purchase of shares by Employee Share Ownership Trust ('ESOT') to satisfy options.

2. Excluding disposal of available-for-sale investment, redundancy costs, FSCS levy rebate, onerous contracts, amortisation of client relationships and one-off migration costs.

 

11. Intangible assets


Goodwill
£'000

Client relationships
£'000

Software
costs
£'000

Total
£'000

Cost





At 28 September 2014

 48,637

 108,046

 53,655

 210,338

Additions

 -

 (103)

4,874

4,771

Disposals

 -

 -

(2,704)

(2,704)

Exchange differences

 -

(8)

 -

(8)

Remeasurement of deferred purchase consideration in respect of acquisitions in prior periods

 -

 6

 -

 6

At 30 September 2015

 48,637

 107,941

 55,825

 212,403

Additions

 -

(65)

5,189

5,124

Disposals

 -

 -

(42,808)

(42,808)

Exchange differences

 -

 26

 -

 26

At 30 September 2016

 48,637

 107,902

 18,206

 174,745






Accumulated amortisation and impairment





At 28 September 2014

 -

 69,589

 46,438

 116,027

Amortisation charge for the period

 -

9,219

2,715

 11,934

Eliminated on disposal

 -

 -

(2,688)

(2,688)

Exchange differences

 -

(3)

 -

(3)

Impairment losses for the period (note 8)

 -

 -

 144

 144

At 30 September 2015

 -

 78,805

 46,609

 125,414

Amortisation charge for the period

 -

6,287

4,441

 10,728

Eliminated on disposal

 -

 -

(42,808)

(42,808)

Exchange differences

 -

 13

 -

 13

Impairment losses for the period (note 8)

 -

 -

 345

 345

At 30 September 2016

 -

 85,105

8,587

 93,692






Net book value





At 30 September 2016

 48,637

 22,797

9,619

 81,053

At 30 September 2015

 48,637

 29,136

9,216

 86,989

At 28 September 2014

 48,637

 38,457

7,217

 94,311

 

Client relationship additions are made up as follows:


2016
£'000

2015
£'000

Cash paid for businesses or client relationships acquired in previous periods

-

3

Shares issued in period

9,305

10,023

Other additions

(66)

69

Utilisation of provisions for deferred purchase liability and shares to be issued

(9,304)

(10,198)

Total additions

(65)

(103)

 

The following table splits out the significant client relationship assets:


 Client relationships
£'000

Carrying amount at period end


Midland investment management team 41

558

Tilman Brewin Dolphin Limited2

15,943

Other investment management teams3

6,296


22,797

1. Amortisation period remaining 1 years and 1 month.

2. Amortisation period remaining 9 years 10 months.

3. None of the constituent parts of the goodwill or client relationships relating to the other investment management teams is individually significant in comparison to the total value of goodwill or client relationships respectively.

 

12. Impairment

Goodwill and client relationship impairment testing

The table below shows the goodwill allocated to groups of cash-generating units (CGUs):


Groups of

CGUs
No.

Goodwill
£'000

Carrying amount at period end



Midland Branch 1

1

5,149

Midland Branch 2

1

5,284

Northern Branch 1

1

6,432

South East Branch 1

1

12,800

Other Branches

14

18,972


18

48,637

In accordance with IFRS, the Group performs impairment testing for goodwill on an annual basis or more frequently when there are indications of impairment. For client relationships, impairment testing is performed at each reporting date.

The recoverable amount for each of the CGUs is the fair value less costs of disposal. The fair value is determined by applying percentages to the funds for each CGU. The percentages applied are a Level 2 input based on recent observable market transactions. Discretionary funds are valued at 3% and advisory funds are valued at 1% of assets under management.

 

Sensitivity analysis of the key assumptions

A 10bp absolute change in the value of funds used for the purpose of goodwill impairment testing impacts the valuation of the CGUs collectively by +/- 3.5% or +/- £24 million movement on the estimated value of funds of £682 million of the CGUs which have goodwill balances as at 30 September 2016.

 

13. Net deferred tax asset

In addition to the amount debited to the Income Statement, deferred tax relating to the actuarial loss in the defined benefit pension scheme amounting to £1,109,000 has been credited to other comprehensive income (2015: £422,000 debited to other comprehensive income relating to the actuarial gain). Deferred tax on share-based payments of £221,000 has been debited to profit and loss reserves (2015: £839,000 debited to profit and loss reserves).

The following are the major deferred tax assets/(liabilities) recognised by the Group and movements thereon during the current and prior reporting period:


 Capital allowances
£'000

 Revaluation
£'000

 Other short-term timing differences
£'000

 Defined pension
benefit scheme
£'000

 Share-based payments
£'000

 Capital losses
£'000

 Intangible asset amortisation
£'000

 Total
£'000

At 28 September 2014

 1,890

 (1,913)

 1,772

 1,547

 6,056

 -

(216)

 9,136

Credit/(charge) in the period to the Income Statement

46

 -

136

 (551)

 (100)

 1,537

(251)

817

Charge in the period to the Statement
of Comprehensive Income

 -

 -

 -

 (422)

 -

 -

 -

 (422)

Credit/(charge) in the period to the Statement
of Changes in Equity

 -

1,913

 -

 -

 (839)

 -

 -

 1,074

At 30 September 2015

 1,936

 -

 1,908

574

 5,117

 1,537

(467)

 10,605

Credit/(charge) in the period to the Income Statement

 (210)

 -

 (665)

 (501)

396

 (1,537)

(1,183)

 (3,700)

Credit in the period to the Statement
of Comprehensive Income

 -

6

 -

 1,109

 -

 -

 -

 1,115

Charge in the period to the Statement
of Changes in Equity

 -

 -

 -

 -

 (221)

 -

 -

 (221)

At 30 September 2016

 1,726

6

 1,243

 1,182

 5,292

 -

(1,650)

 7,799

Deferred income taxes are calculated using rates of UK corporate tax expected to be in force at the time assets are realised as follows:

Before 31 March 2017

20%

Between 1 April 2017 and 31 March 2020

19%

After 1 April 2020

17%

The enacted rate applicable for the period ended 30 September 2015 was 20%.

 

14. Investments

Available-for-sale investments


Unlisted investments
£'000

At 28 September 2014

10,000

Additions

140

Disposals

(10,000)

At 30 September 2015

140

Additions

770

Net loss from changes in fair value recognised in equity

(30)

Disposals

(47)

At 30 September 2016

833

 


2016
£'000

2015
£'000

Current assets



Available-for-sale investments



Equity

128

46

Asset-backed security

705

94

Total investments

833

140

The asset-backed security is a USD fixed rate note; due to mature on 23 September 2019. The available-for-sale investments are held at fair value. Further information is disclosed in note 16.

 

Trading investments


Listed investments
£'000

At 30 September 2015

945

At 30 September 2016

1,093

The trading investments are measured at fair value which is determined directly by reference to published prices in an active market where available. They are held in an unregulated subsidiary, Brewin Dolphin MP, whose sole objective is to provide seed capital to the model portfolios managed under an investment mandate by Brewin Dolphin Limited.

 

15. Provisions


Sundry claims and associated costs
£'000

Onerous contracts
£'000

Social Security contributions on
share options
£'000

Leasehold dilapidations
£'000

Total
£'000

At start of period

2,426

14,357

2,501

2,255

21,539

Additions

739

614

832

282

2,467

Utilisation of provision

(1,484)

(9,723)

(902)

(462)

(12,571)

Unwinding of discount

 -

174

 -

35

209

Unused amounts reversed during the period

(659)

(1,114)

 -

(174)

(1,947)

At end of period

1,022

4,308

2,431

1,936

9,697



















Included in current liabilities

1,022

971

1,062

42

3,097

Included in non-current liabilities

-

3,337

1,369

1,894

6,600


1,022

4,308

2,431

1,936

9,697

 

The Group recognises a provision for settlements of sundry claims and associated costs. The timing of the settlements is unknown, but it is expected that they will be resolved within 12 months.

The onerous contracts provision is in respect of both surplus office space and contracts associated with discontinued operations.

The valuation of an onerous contract is based on the best estimate of the likely costs discounted to present value. Where the provision is in relation to premises and it is more likely than not that the premises will be sublet, an allowance for sublease income has been included in the valuation.

Provision of £4.1 million (2015: £4.1 million) has been made for surplus office space, which the Group may not be able to sublet in the short-term. The maximum exposure is the current estimated amount that the Group would have to pay to meet the future obligations under these lease contracts which is approximately £11.3 million as at 30 September 2016 (2015: £6.9 million), if the assumption regarding sublets is removed and the time value of money is ignored. The longest lease term covered by the provision has 16.5 years remaining and accounts for £3.6 million of the provision.

Provision of £0.2 million (2015: £10.3 million) has been made in relation to onerous contracts resulting from discontinued operations. These costs arise over the term of the contract. The contracts covered by the provision have a maximum remaining term of three months, the maximum exposure is £0.2 million, if the time value of money is ignored. During the period settlement has been made in relation to certain contracts.

The Group recognises a provision of £1.9 million (2015: £2.3 million) for leasehold dilapidations. These costs are expected to arise at the end of the lease. The leases covered by the provision have a maximum remaining term of 16.5 years.

See note 2b.iv for key sources of estimation uncertainty impacting the provisions.

 

16. Financial instruments and risk management

Overview

This note presents information about the Group's exposure to each of the financial instrument key risks (market risk, credit risk and liquidity risk), the Group's policy and procedures for measuring and managing risk and the Group's management of capital.

Risk Management

The Board of Directors have overall responsibility for establishing and overseeing the Group's Risk Management Framework and risk appetite.

The Board have established a clear relationship between the Group's strategic objectives and the level of capital which the Board are prepared to place at risk through a Risk Appetite Statement. The Risk Appetite Statement outlines the nature and quantum of risk that the Board wishes the Group to bear (its 'risk appetite') in order to achieve its strategic objectives whilst remaining within all regulatory constraints and its own defined levels of capital and liquidity. The Board reviews the statement and related qualitative and quantitative measures on at least an annual basis to ensure the document continues to reflect the Board's appetite for risk within the context of the environment in which the Group operates.

The Group's Board Risk Committee provides oversight of the adequacy of the Group's Risk Management Framework based on the risks to which the Group is exposed. They monitor how management comply with the Group's risk management policies and procedures. They are assisted in the discharge of this duty by the Group's Risk & Compliance Department which has responsibility for monitoring the overall risk environment of the Group. The Board Risk Committee also regularly monitors exposure against the Group's Risk Appetite.

The Group's Audit Committee is responsible for overseeing the financial statements and working closely with the Board Risk Committee, for both review and oversight of internal controls. The Audit Committee is assisted in the discharge of its obligations by Internal Audit who undertake periodic and ad-hoc reviews on the effectiveness of controls and compliance with risk management policies.

The Group's risk management policies are intended to ensure that risks are identified, evaluated and subject to ongoing monitoring and mitigation (where appropriate).The risk policies also serve to set the appropriate control framework, the adequacy and effectiveness of which is also subject to ongoing testing and review. The aim is to promote a robust risk culture with employees across the Group understanding their role and obligations under the framework.

Capital structure and capital management

The capital structure of the Group and Company consists of issued share capital, reserves and retained earnings as disclosed in the Consolidated and Company Statement of Changes in Equity.

Capital generated from the business is both reinvested in the business to generate future growth and returned to shareholders, principally in the form of dividends. Consideration is given to regulatory capital requirements and to ensure the Group is adequately capitalised to withstand periods of market stress.

There were no changes in the Group's approach to capital management during the period.

Regulatory capital requirements

The Group conducts an Internal Capital Adequacy Assessment Process ('ICAAP'), as required by the Financial Conduct Authority ('FCA') to assess the appropriate amount of regulatory capital to be held by the Group. There are two regulated entities in the Group: Brewin Dolphin Limited ('BDL') regulated by the FCA and Tilman Brewin Dolphin Limited regulated by the Central Bank of Ireland. The Jersey branch of BDL is regulated by the Jersey Financial Services Commission.

The Pillar II capital assessment of the ICAAP is the Board of Directors' opinion of the level of capital the Group should hold against the risks to which the Group is exposed. This takes into the account the Group's Principal Risk Register which is updated on a regular basis. The ICAAP is kept updated throughout the year to take account of changes to the Group's Principal Risks and for any material changes to strategy or business plans. The ICAAP is discussed and approved at a Brewin Dolphin Holdings PLC Board meeting at least annually.

Regulatory capital adequacy is monitored by management. The Group uses the standardised approach to Credit Risk to calculate Pillar I requirements. The Group complied with the FCA's regulatory capital requirements throughout the period.

The regulatory capital resources of the Group were as follows:


2016
£'000

2015
£'000

Share capital

2,830

2,793

Share premium account

151,836

142,135

Own shares

(29,294)

(28,153)

Revaluation reserve

(24)

-

Merger reserve

70,553

70,553

Profit and loss account

46,908

31,823


242,809

219,151

Shares to be issued

-

9,304

Regulatory capital resources before deductions

242,809

228,455

Deduction - Intangible assets (net of deferred tax liability)

(78,746)

(83,076)

Deduction - Free deliveries

(82)

(88)

Total regulatory capital resources after deductions

163,981

145,291

Information disclosure under Pillar 3 of the Capital Requirements Directive will be published on the Group's website before 31 December 2016 at www.brewin.co.uk.

Significant accounting policies

Details of the significant accounting policies, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each financial asset and financial liability, are disclosed in note 3(r) to the 2016 Annual Report and Accounts.

 

Categories of financial instruments

Group


Carrying value


2016
£'000

2015
£'000

Financial assets



Fair value through profit and loss - held for trading

1,093

945

Loans and receivables (including cash and trade receivables)

380,601

395,999

Available-for-sale investments

833

140


382,527

397,084




Financial liabilities



Shares to be issued including premium

-

9,304

Amortised cost

203,791

233,445


203,791

242,749

 

Company


Carrying value


2016
£'000

2015
£'000

Financial assets



Loans and receivables (including cash and trade receivables)

46,887

49,601


46,887

49,601




Financial liabilities



Shares to be issued including premium

-

9,304

Amortised cost

7,356

7,363


7,356

16,667

The carrying value approximates to the fair value of the financial assets and liabilities held.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of the Group's market risk management is to both control and manage exposure within the Group's risk appetite whilst accepting the inherent risk of market fluctuations.

The Group undertakes investment management and stockbroking activities on an agency basis on behalf of its clients. The Group holds financial instruments as principal, but does not trade as principal. All trades are matched in the market (see note 20 to the 2016 Annual Report and Accounts).

The Group transacts foreign currencies deals in order to fulfil our client obligations and any non-sterling costs to our business. Foreign currency exposure is matched intra-day and at the end of each day.

The total net foreign exchange exposure resulting from income yet to be converted to sterling at the year end was a debtor of £537,000 (2015: £495,000).

At the period end Tilman Brewin Dolphin Limited ('TBD') had net assets of £3.6 million (2015: £3.6 million) denominated in its local currency (Euros). The Group is exposed to translation risk in respect of the foreign currency value of the net assets of TBD.

The Group does not hold any derivatives (2015: none).

There has been no change to the Group's exposure to market risks or the manner in which it manages and measures the risk during the period.

Equity price risk

The Group is exposed to equity risk arising from both available-for-sale and held-for-trading investments.

Equity price sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to equity price risk at the reporting date.

If equity prices had been 5% higher/lower:

- Pre-tax profit for the period ended 30 September 2016 would have been £52,000 higher/lower (2015: £47,000 higher/lower) due to changes in the value of held-for-trading investment; and

- Other equity reserves as at 30 September 2016 would increase/decrease by £6,400 (2015: increase/decrease by £2,300) pre-tax for the Group as a result of the changes in fair value of available-for-sale investments.

The Group's sensitivity to equity prices has not changed significantly from the prior period.

Interest rate risk

The Group is exposed to interest rate risk in respect of the Group's cash and in respect of client deposits. The Group holds client deposits on demand and in 30 day notice accounts (variable interest rates). During the period a 1% increase in base rate would have increased pre-tax profitability by £1,068,000 (2015: £939,000).

Credit risk

Credit risk refers to the risk that a client or other counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group's exposure to credit risk arises principally from the settlement of client and market transactions ('settlement risk') and cash deposited at banks.

Settlement risk

Exposures to settlement risk are spread across a large number of counterparties and clients. A delivery versus payment ('DVP') settlement method is also used for the majority of transactions, ensuring that securities and cash are exchanged within a short period of time. Consequently, no residual maturity analysis is presented. The Group also holds collateral in the form of cash, as well as equity and bonds which are quoted on recognised exchanges. This collateral is held, principally, in Group nominee accounts.

Concentration of credit risk

The Group has no significant concentration of credit risk with the exception of cash where the majority is spread across three major banking groups.

Maximum exposure

The maximum exposure to credit risk at the end of the reporting period is equal to the balance sheet figure.

Credit exposure

Credit exposure in relation to settlement risk is monitored daily. The Group's exposure to large trades is limited with an average bargain size in the current period of £15,765 (2015: £11,060); there are additional controls for high value trades.

Impaired assets

The total gross amount of individually impaired assets in relation to trade receivables at the period end was £83,000 (2015: £351,000). Collateral valued at fair value by the Group in relation to these impaired assets was £50,000 (2015: £243,000).This collateral is stock held in the clients' account which per our client terms and conditions can be sold to meet any unpaid liabilities falling due. The net difference has been provided as a doubtful debt (see note 20 to the 2016 Annual Report and Accounts). Note 20 to the 2016 Annual Report and Accounts details amounts past due but not impaired.

Non-impaired assets

Financial assets that are neither past due nor impaired in respect of trade receivables relate mainly to bonds and equity trades quoted on a recognised exchange, are matched in the market, and are either traded on a DVP basis or against a client's portfolio in respect of which any one trade would normally be a small percentage of the client's collateral held in the Group nominee. At the period end no financial assets that would otherwise be past due or impaired had been renegotiated (2015: none).

Loans to employees are repayable over 5 to 10 years (see note 20 to the 2016 Annual Report and Accounts).

The credit risk on liquid funds, cash and cash equivalents, is limited as deposits are diversified across a panel of major banks. This ensures that the Group is not excessively exposed to an individual counterparty. The Group's policy requires cash deposits to be placed with banks with a minimum short-term credit rating of A-2 (S&P)/P-2 (Moody's)/F-2 (Fitch), excluding Tilman Brewin Dolphin Limited. Requirements and limits are reviewed on a regular basis. The Group's allocation of cash and cash equivalents to S&P rating grades has been outlined in the below table:


A-1+

A-1

A-2

Below A-2

Cash and cash equivalents

0.0%

58.3%

41.6%

0.1%

 

The Group maintains a set of Credit Risk policies which are regularly reviewed by the Board. A due diligence review is also performed on all counterparties on an annual basis, at a minimum. The investment of cash is managed by the Treasury Department.

There has been no material change to the Group's exposure to credit risk during the period.

Liquidity risk

Liquidity risk refers to the risk that the Group will be unable to meet its financial obligations as they fall due. The Group maintains adequate cash resources to meet its financial obligations at all times. All client cash deposits are repayable on demand. At 30 September 2016, the Group had access to an unsecured overdraft facility of £10 million (2015: £12 million).

The Group has a Liquidity Policy which is reviewed by the Board regularly. As the Group normally deals with the market on a DVP basis, liquidity risk is monitored by daily exception reports of unmatched items past settlement date.

There has been no change to the Group's exposure to liquidity risk or the manner in which it manages and measures the risk during the period.

The following are the undiscounted cash flows, with the exception of shares to be issued, of financial liabilities based on the earliest date on which the Group can be required to pay.

 

Group

As at 30 September 2016


Up to
1 month
£'000

1 month to
3 months
£'000

3 months
to 1 year
£'000

1 to 5 years
£'000

Over 5 years
£'000

Total
£'000

Financial liabilities







Amortised cost

164,097

25,554

13,078

1,062

-

203,791


164,097

25,554

13,078

1,062

-

203,791

 

As at 30 September 2015


Up to
1 month
£'000

1 month to
3 months
£'000

3 months
to 1 year
£'000

1 to 5 years
£'000

Over 5 years
£'000

Total
£'000

Financial liabilities







Shares to be issued including premium

-

9,304

-

-

 -

9,304

Amortised cost

188,833

26,876

17,135

601

-

233,445


188,833

36,180

17,135

601

-

242,749

 

Company

As at 30 September 2016


Up to
1 month
£'000

1 month to
3 months
£'000

3 months
to 1 year
£'000

1 to 5 years
£'000

Over 5 years
£'000

Total
£'000

Financial liabilities







Amortised cost

7,356

-

-

-

-

7,356


7,356

-

-

-

-

7,356

 

As at 30 September 2015


Up to
1 month
£'000

1 month to
3 months
£'000

3 months
to 1 year
£'000

1 to 5 years
£'000

Over 5 years
£'000

Total
£'000

Financial liabilities







Shares to be issued including premium

-

9,304

-

-

 -

9,304

Amortised cost

7,363

-

-

-

-

7,363


7,363

9,304

-

-

-

16,667

 

Fair value measurement recognised in the statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

- Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities;

- Level 2 fair value measurements are those derived from inputs other than the quoted price included within Level 1 that are observable for the asset or a liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

- Level 3 fair value measurements are those derived from formal valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

Fair value of the Group's financial assets and liabilities that are measured at fair value on a recurring basis

Some of the Group's financial assets and liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and liabilities are determined.


Fair value as at
30 September 2016
£'000

Fair value as at
30 September 2015
£'000


Valuation
technique(s) and
key input(s)

Significant
unobservable
input(s)

Relationship
of unobservable
inputs to fair value

Level 1







Trading investments

1,093

945


Quoted bid prices in an
active market

n/a

n/a

Level 3







Available-for-sale investments - Equity

128

46


The valuation is based on published monthly NAVs
where available.

Where not available the valuation is based on the net assets reported in the latest audited accounts less the intangible assets.A marketability discount
is applied as this investment is highly illiquid.

Marketability discount ranging between 30-50%

As the marketability discount increases the valuation
decreases.

Available-for-sale investments - Asset-backed securities

705

94


The valuation is based on
the discounted expected cash
flows, which is extracted from
the latest audited accounts.

A marketability discount is applied as this investment is highly illiquid.

Marketability discount ranging between 30-50%

As the marketability discount increases the valuation
decreases.

Shares to be issued including premium

-

9,304


The valuation of the consideration is based on actual earnings.
The terms are agreed as part
of each acquisition.

n/a

n/a

Deferred purchase consideration

-

1,284


The valuation of the consideration is based on actual earnings.
The terms are agreed as part
of each acquisition.

n/a

n/a

 

Sensitivity analysis

A sensitivity analysis of the significant unobservable inputs used in valuing the Level 3 financial instruments is set out below:

Financial asset

Assumption

Change in assumption

Impact on valuation

Current assets - Available-for-sale investments - Equity

Marketability discount

Increase by 5%

Decrease by £2,000

Current assets - Available-for-sale investments - Asset-backed securities

Marketability discount

Increase by 5%

Decrease by £54,000

 

Fair value hierarchy

As at 30 September 2016


Level 1
£'000

Level 2
£'000

Level 3
£'000

Total
£'000

Held for trading





Equities

1,093

-

-

1,093

Available-for-sale financial assets





Equities

-

-

128

128

Asset-backed securities

-

-

705

705

Total

1,093

-

833

1,926

 

As at 30 September 2015


Level 1
£'000

Level 2
£'000

Level 3
£'000

Total
£'000

Held for trading





Equities

945

-

-

945

Available-for-sale financial assets





Equities

-

-

46

46

Asset-backed securities

-

-

94

94

Total

945

-

140

1,085

 

Reconciliation of Level 3 fair value measurement of financial assets:

Available-for-sale


Total
£'000

 

Balance at 28 September 2014

10,000

Disposal

(10,000)

Addition

140

Balance at 30 September 2015

140

Disposal

(47)

Net loss from changes in fair value recognised in equity

(30)

Addition

770

Balance at 30 September 2016

833

 

 

The table above only includes financial assets. The only financial liabilities subsequently measured at fair value on level 3 fair value measurement represent shares to be issued and deferred purchase consideration. No gain or loss for the period relating to this has been recognised in profit or loss.

 

17. Notes to the Cash Flow Statement

Group


2016
£'000

2015
£'000

Operating profit from continuing operations

49,743

50,810

Profit/(loss) from discontinued operations

14,030

(10,387)

Adjustments for:



Depreciation of property, plant and equipment

3,505

5,002

Amortisation of intangible assets - client relationships

6,287

9,219

Amortisation of intangible assets - software

4,441

2,715

Impairment of intangible assets and tangible assets

680

280

Loss on disposal of property, plant and equipment


26

Profit on disposal of discontinued operation

(14,000)

-

Defined benefit pension scheme

(3,000)

(3,000)

Share-based payment expense

8,387

8,938

Translation adjustments

(8)

41

Interest income

514

907

Interest expense

(65)

(41)

Operating cash flows before movements in working capital

70,514

64,510

Decrease in payables

(45,478)

(44,349)

Decrease in receivables and trading investments

35,910

48,802

Cash generated by operating activities

60,946

68,963

Tax paid

(8,913)

(11,485)

Net cash inflow from operating activities

52,033

57,478

 

Company


2016
£'000

2015
£'000

Operating profit

29,885

36,314

Operating cash flows before movements in working capital

29,885

36,314

Decrease in payables

(14)

(25)

Decrease/(increase) in receivables and trading investments

3,156

(11,604)

Cash generated by operating activities

33,027

24,685

Tax paid

(525)

-

Net cash inflow from operating activities

32,502

24,685

 

18. Annual General Meeting

The Annual General Meeting will be held at 11.30am on 3 February 2017 at Haberdasher's Hall, 18 West Smithfield, London EC1A 9HQ.

19. Forward-looking statements

This announcement contains certain forward-looking statements with respect to the Brewin Dolphin's Group's financial condition, operations, and business opportunities.  These forward-looking statements represent the Group's expectations or beliefs concerning future events, and involve known and unknown risks and uncertainty that could cause actual results, performance, or events to differ materially from those expressed or implied in such statements.  Past performance cannot be relied on as a guide to future performance.

 


This information is provided by RNS
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Preliminary Results year ended 30 September 2016 - RNS