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RNS
Brewin Dolphin Holdings PLC  -  BRW   

2018 Preliminary Results

Released 07:00 28-Nov-2018

RNS Number : 6936I
Brewin Dolphin Holdings PLC
28 November 2018
 

LEI:  213800PS7FS5UYOWAC49

 

28 November 2018

Brewin Dolphin Holdings PLC

 

Preliminary Report

For the Year Ended 30 September 2018

 

Financial Highlights

 

Another successful year for the Group, with our robust business model underpinning a strong financial performance and supporting the delivery of our strategy.

·     Total funds of £42.8bn, an increase of 6.7% (FY 2017: £40.1bn).

·     Discretionary funds of £37.6bn, an increase of 11.2% (FY 2017: £33.8bn).

Net discretionary funds inflows, including transfers, of £2.3bn (FY 2017: £2.3bn) equalled the record inflows from the prior year and represents an annualised growth rate of 6.8% (FY 2017: 8.0%).

·     Total income for the period of £329.0m (FY 2017: £304.5m).

Core1 income of £319.7m increased by 9.9% (FY 2017: £291.0m).

Core fee income excluding financial planning of £229.2m (FY 2017: £207.9m), increased by 10.2% and represents 71.7% of total core income (FY 2017: 71.4%); core commission income increased to £66.0m (FY 2017: £62.3m) due to increased volumes and higher average trade values.

Financial planning income grew 17.8% to £24.5m (FY 2017: £20.8m) with recurring income growing strongly.

·     Adjusted2 profit before tax of £77.5m increased by 10.7%3 (FY 2017: £70.0m).

Our disciplined and efficient approach to the initiatives outlined in 2017 is reflected in an improved adjusted2 profit before tax margin of 23.6% (FY 2017: 23.0%).

·     Statutory profit before tax of £68.5m, 18.9%3 higher than FY 2017 (£57.6m).

Statutory profit before tax margin of 20.8% (FY 2017: 18.9%).

·     Adjusted2 earnings per share:

Basic earnings per share increased by 9.8% to 22.5p (FY 2017: 20.5p).

Diluted earnings per share4 increased by 10.7% to 21.7p (FY 2017: 19.6p).

·     Statutory earnings per share:

Basic earnings per share of 19.5p (FY 2017: 16.5p).

Diluted earnings per share of 18.9p (FY 2017: 16.0p).

·     Full year dividend increase of 9.3% to 16.4p (2017: 15.0p), final dividend of 12.0p per share (2017: 10.75p per share) an increase of 11.6%.

 

1 Core income is defined as income derived from discretionary investment management, financial planning, Brewin Portfolio Service ("BPS") and execution only services.

2 See Financial Review for a reconciliation of adjusted profit before tax to statutory profit before tax and an explanation of adjusted performance measures.

3 Excluding the impact of the H2 2017 acquisition, adjusted profit before tax increased by 7.5% and statutory profit before tax increased by 14.9%

4 See note 9.

 

Business Highlights

 

·     Continued strong funds growth, driven by another year of positive net inflows and the full year effect of the H2 2017 acquisition.

·     Positive direct discretionary net flows and the depth of our intermediaries' relationships delivering long term funds growth.

·     Targeted investments in people, infrastructure and innovation.

·     Balance sheet remains strong, underpinning the delivery of our growth strategy.

 

Declaration of Final Dividend

The Board is proposing a final dividend of 12.0p per share, to be approved at the 2019 AGM and to be paid on 6 February 2019 to shareholders on the register at the close of business on 11 January 2019 with an ex-dividend date of 10 January 2019.

David Nicol, Chief Executive, said:

"2018 was another successful year for the Group, proving the continued value of our personalised advice-led model. Above target organic fund inflows have led to strong earnings and dividend growth.  The investment in our services, people and technology are delivering results and we have broadened our range of services so we can capture future growth opportunities. At a time of uncertainty we remain confident in our growth prospects."

For further information:

Brewin Dolphin Holdings PLC

 

David Nicol, Chief Executive

Tel: +44 (0)20 7248 4400

 

 

FTI Consulting

 

John Waples / Edward Berry

Tel: +44 (0)20 3727 1515 / 1040

 

 

CHIEF EXECUTIVE'S REVIEW

2018 was another successful year for the business, during which the ongoing strength of our business model continued to support our ability to deliver against our strategy. In particular, it was a period of continued substantial growth during which we increased the number of clients whose investment and advice needs we care for, as well as the amount of wealth we manage on their behalf.

During 2018, our focus was on three broad areas, underpinned by our disciplined approach, that are fundamental to our strategy:

-      Growth;

-      Innovation; and

-      Efficiency.

Growth continues to be at the top of our agenda. We are hiring and developing the most talented people we can find, ensuring they are fully engaged with our culture and values. We are working hard to grow the business, leveraging innovation to deepen existing client and intermediary relationships and to win new relationships for the Group.

This was primarily a year of disciplined implementation, when we put into action many of the initiatives announced in 2017 including the launch of 1762 from Brewin Dolphin, our advice-led proposition for clients with more sophisticated and complex needs, and WealthPilot, our new low-cost simplified wealth planning and investment advice service.

In particular, the significant investment in our innovative proposition for clients with complex needs has enabled us to recruit high-quality client-facing advisers who recognise that companies that do not offer advice cannot support clients as well as we can.

We focused on improving efficiency largely through investing in upgraded technology and streamlining services.

By focusing on growth, innovation and efficiency we were able to take advantage of market opportunities surrounding the growing need for advice.

Our results demonstrate the continuing success of our strategy, particularly in relation to our Key Performance Indicators around growth and efficiency. It was a period of strong organic fund inflows, with total funds growing during the year to a record £42.8 billion. Discretionary fund growth was particularly strong, due to the ongoing demand for advice resulting from pension freedom legislation. As a result, we achieved a net new discretionary funds growth rate of 6.8% during the year, once again well ahead of our 5% annual target. We, therefore, remain on target to meet the plan we announced in 2015 to increase discretionary funds by one third from net new funds alone by 2020.

Adjusted profit before tax exceeded last year's, increasing by 10.7% to £77.5 million. Statutory profit before tax grew by 18.9% to £68.5 million. Both profit before tax measures benefitted from a full year's contribution from the acquisition in May 2017 (see Financial Review).

Our growth during 2018 was underpinned by our working environment, culture and values that determine how we do business - "Genuine, Expert, Ambitious". Once again, a strong client satisfaction score of 8.5 out of 10, 4.9% above our industry benchmark, demonstrated that our people are meeting our clients' expectations.

I look forward to working with our new Finance Director in early 2019. Siobhan Boylan's experience of the financial services industry includes senior roles at Legal & General Investment Management and Aviva. She will bring us in-depth knowledge of the industry, as well as her management and technical skills, at an important stage in our growth strategy.

Growth and innovation

The ability to innovate is a fundamental driver of our growth strategy. In order to do so, we need the right talent in the right areas of the organisation to develop and deliver services in a way that enables us to create and build close, long-lasting relationships with clients and intermediaries.

Talent

Investing in talent is critical to the continued growth of our business. It enables us to respond to market opportunities.

During the year, we grew our headcount by 85 individuals, a meaningful number of whom deal with and support clients. Recruiting experienced professionals creates opportunities to attract new clients. Incremental hires were appointed at all levels in the Group to help us make and sustain the improvements in infrastructure, systems and processes that are necessary to provide us with a solid platform for growth.

Our recruitment strategy is informed by our fundamental understanding that clients are not always seeking investment management alone, but increasingly require expert financial advice tailored to their personal circumstances. Financial planning services are a primary source of competitive advantage. Our investments in this area helped to drive an increase of 17.8% in our advice-related business (financial planning) during 2018.

Similarly, our high retention of client-facing specialists supports our client retention levels and protects us against the risk of client attrition.

As well as recruiting new people, we invested during the year in training and development to support our existing personnel in an advice-focused market place. The competence of these individuals, who comprise the public face of Brewin Dolphin, is of major importance to us. We are, therefore, committed to continuing our investments in this area. We launched a new programme to equip our people to have richer client conversations in a MiFID II environment, ensuring that clients fully understand the value of our services.

Following the success of the first year's intake of our Financial Planning Academy, part-funded by the Apprenticeship Levy, the second annual intake of trainees have joined the academy. This provides a structured programme of high-calibre learning for people wishing to become para-planners and will provide us with a sufficient flow of qualified individuals to meet our objectives in this area.

We also ran the second year of our bespoke Executive Leadership Programme, developed in-house to prepare talented people to reach and perform strongly at the highest levels of the organisation.
 

Such initiatives run in parallel with our succession-planning programme, through which we seek to identify at every level of the organisation those people with the ability and ambition to become our leaders of the future.

Direct clients

We continue to grow our private client and charities businesses. In the 2017 Annual Report, I referred to a number of new or future initiatives that we have either launched or developed further during 2018.

Perhaps the most exciting of these is 1762 from Brewin Dolphin, our innovative new advice-led proposition that is designed to meet the requirements of clients with more sophisticated and complex needs.

We opened a new office in London's West End in August with an initial staff of 17. This is allowing the new proposition to be delivered in an entrepreneurial, standalone environment with direct input from our clients to inform the development of the service. This innovative proposition has struck a chord in the market place, and we are hiring at a faster rate than originally expected. We are delighted with the quality of the hires we have made, whom we are expecting to be a strong source of new client acquisition. The development of this service is already adding a new dimension to our brand, together with the opportunity to generate income growth.

We continue to develop WealthPilot, the low-cost simplified advice platform we launched in 2017. It is delivered by qualified advisers over the phone, by Skype or face-to-face. Investment to date has been modest, but we have started to introduce the service outside of London into the branch network, initially in Manchester and more recently in Edinburgh. WealthPilot is allowing clients to access our advice-led service with lower investment levels. It also affords us an opportunity to identify higher value clients who are more suited to our core services. We continue to evaluate a technology platform to support this service.

Many of our managed advisory clients moved to our discretionary service during the year. This is discussed in more detail under 'Efficiency' (below).

We also continued to explore how best to develop our professional services offerings. We are currently working on a number of initiatives in this area, including the partnership with the Law Society of Scotland that we announced in July. This will enable us to gain access both to the firms themselves and to their underlying clients.

Our non-advised Brewin Portfolio Service ('BPS') solution enables us to meet the needs of more clients. The service continued to grow during the year, there are now over 4,000 accounts investing in our BPS funds.

We are one of the larger charity fund management firms in the UK and one of a few with real charity specialists located close to their clients, whilst being part of a wider co-ordinated team. Our specialist Charity Team of over 40 professionals is based across nine Brewin Dolphin offices. The team delivers personalised investment management, advising on and managing investments for charities within the wider financial plan of each organisation.

We regularly hold both seminars and conferences which bring together charities with regulators, auditors and lawyers assisting charity staff, and trustees in fulfilling their duties.

Branch network

We announced in September that we will move our Bournemouth office to Winchester. From here, we will tap into new opportunities in the central and northern parts of Hampshire, while continuing to serve our clients along the south coast. With the opening of our office in London's West End, our network now stands at 30 offices.

We continue to consider our options with respect to our London headquarters and regularly evaluate our office footprint around the UK.

Indirect clients

During the year, we achieved strong growth in our intermediary channel, across both our bespoke discretionary service and our Managed Portfolio Service ('MPS'). Much of this growth was due to the focus of our business development teams taking a more analytical approach to establish precisely what intermediaries and their clients need and want from us.

As a result, they were able to engage successfully with new intermediaries and deepen existing relationships. By the year end, we were dealing regularly with over 1,700 intermediaries, ranging from large national firms to sole traders.

Our branch network is an important source of competitive advantage in this regard, enabling us to develop close and mutually supportive intermediary relationships at a local level. The opening of our new office in the West End of London will serve to strengthen intermediary relationships in the capital.

We recognised that our MPS had reached a scale that allowed the transition of relevant assets into four new 'manager of manager' funds during the year. Our intermediary clients now benefit from the reduced third party fees associated with large mandates rather than pooled retail funds.

We have seen growth in MPS Passive Plus, the service extension we launched last year and we continue to explore additional ways of expanding MPS.

We are aware that significant changes to the dynamics of the IFA market in the UK are likely over the next few years. Monitoring IFA opinions about the future of their businesses and the market as a whole is an important element of our wider risk-management programme. This helps us to understand changes in their business models, so we can adapt our propositions to meet these demands.

Communications

Innovation extends beyond the services we provide to also improve the ways in which we communicate with our clients, prospective clients and intermediary partners.

During 2018, we carried out a major refresh of our website. Its simpler design makes it easier for potential clients to understand how we can help them and begin a conversation with us.

Research into client preferences showed they are keen for us to share with them more of our knowledge about trends and what affects investment decisions. We have issued a series of topical guides on matters of interest and placed a series of advice-based articles in the national press which were well received.

We also launched a journal called Antenna, designed to cater for those clients wishing to understand more about the fundamental forces at play that do most to drive economic trends. The first issue focused on artificial intelligence, and the second will cover the subject of water security.

Culture and values

Our people contributed strongly to the identification of our Group values in 2016, to reflect an organisation that they recognised. The values they identified were:

Genuine: heartfelt advice, delivered by people who care

Expert: skilfully facilitating important decisions

Ambitious: making more of life's opportunities

Today, these values demonstrably resonate with our people and contribute to the low staff turnover that enables us to grow our business. They also support the quality of service our clients receive and enable us to attract high-calibre professionals who genuinely wish to make a positive difference for their clients. Critically, they accurately reflect the Brewin Dolphin culture, which shapes and directs how our people work and behave.

During 2018, we held the first Brewin Dolphin People Awards as part of our ongoing process to ensure that the cultural development of our people is embedded in the organisation. These recognised the contribution of employees from across the organisation to 'living' each of our values, in three award categories. There was a further award category for people who excelled in Corporate Responsibility.

Efficiency

Improving our efficiency is one of the four strategic objectives (see KPIs below) driving our growth strategy. During the year, we focused on actions and investments in several areas that are designed to enhance efficiency and so increase the value and returns of our activities.

Streamlining services

The Group has withdrawn its advisory dealing service (with the exception of our Jersey office clients). Additionally, we are revising the pricing of our advisory managed service to reflect the higher cost of provision following recent regulatory changes, this service has not been available to new clients for several years. This has resulted in substantial advisory funds transferring into other services within the Group, this included £0.9 billion of transfers from the advisory managed service to direct discretionary.

The transfer of advisory funds is already proving to be a driver of efficiency and value thanks to the enhanced cost-efficiencies involved in the move. We will continue to service all remaining advisory managed clients where it is a suitable service for them and they do not wish to change services. Currently, such clients represent only 2.3% of the total value of our funds.

Investments in technology

We have a clear vision of our technological priorities and development path. During the year, we made a number of investments in this area, and continue to explore further investments in a broad range of technologies and processes to support our business.

A complete technology workspace and communications refresh in Autumn 2017 has aided and increased collaborative working across the Group, both enhancing the general working environment and promoting agile working. The refresh was highly successful, contributing to a 16.4% increase in the proportion of people giving a positive confirmation to the statement in the staff engagement survey: "I have the equipment and resources I need to do my work properly". This was the single biggest percentage rise for any statement in our most recent employee engagement survey.

We have undertaken a significant programme of work this year to prepare for the commissioning of a new Client Management System.

Technology is a key enabler of effective communication with our clients. During the year, we launched our new client portal, MyBrewin, which is now enabling our clients to view their portfolios and valuations online. We will continue to upgrade and enhance the portal over future years.

Our core custody and settlement system is nearing the end of its useful life and will need to be replaced. A process is currently underway to identify a suitable vendor, and we anticipate announcing our final selection during the first quarter of 2019. This will be a major investment and we are fully confident that it will support the long-term growth and sustained success of our business.

 

Looking ahead: 2019 and beyond

Despite the many geopolitical uncertainties in the world around us, our ambition remains to continue pursuing our growth strategy. We will therefore continue throughout 2019 and the years ahead to invest in a disciplined manner in our talent and enabling technologies that underpin our ability to deliver against our growth and efficiency objectives.

The most significant future financial investment, at this time, will be the replacement of our core custody and settlement system. This is likely to span two years.

Changing consumer habits, market dynamics, technological innovation and competitor activity mean the need for change and improvement is continuous. Regulation remains of high importance, with MiFID II continuing to be a key focus and new challenges such as the Senior Managers and Certification Regime ('SMCR') coming into force.

With respect to Brexit, we are prepared to take all necessary and appropriate measures to address any eventualities that emerge, for our employees, clients and the business as a whole. We are well positioned to withstand market-wide stresses triggered by Brexit.

Meanwhile, we believe that we are well placed to grasp the market opportunities presented by factors like pension freedoms and the growing need for advice. We are confident that our business model, scale and focus mean we are in an ideal position to capture future growth opportunities.

 

David Nicol

Chief Executive Officer

27 November 2018

 

 

 

Financial Review

Results for the year

The Group's financial performance for the year to 30 September 2018 was strong.

Statutory profit before tax ('statutory PBT') was 18.9% higher than last year at £68.5 million (2017: £57.6 million) and included a whole year's contribution from the H2 2017 acquisition. Statutory PBT margin for the period increased to 20.8% (2017: 18.9%).

Adjusted profit before tax ('adjusted PBT') increased by 10.7% to £77.5 million (2017: £70.0 million) driven by continued strong discretionary funds inflows and the full year effect of the H2 2017 acquisition. Adjusted diluted earnings per share ('EPS') was 21.7p (2017: 19.6p), also an increase of 10.7%.

The rise in adjusted PBT was due to income growth of 8.0% to £329.0 million (2017: £304.5 million) offset by fixed operating costs growth of 6.9%. This led to an increase in the adjusted PBT margin to 23.6% (2017: 23.0%).

Excluding the impact of the H2 2017 acquisition (see below for further details), adjusted PBT increased by 7.5% and statutory PBT increased by 14.9%.

 

2018
£m

2017
£m

Change

Core1 income

319.7

 291.0

9.9%

Other income

9.3

 13.5

(31.1%)

Total income

329.0

 304.5

8.0%

Fixed staff costs

 (117.1)

(110.2)

6.3%

Other operating costs

 (77.5)

(71.8)

7.9%

Total fixed operating costs

 (194.6)

(182.0)

6.9%

Adjusted2 profit before variable staff costs

134.4

 122.5

9.7%

Variable staff costs

 (57.7)

(52.5)

9.9%

Adjusted2 operating profit

76.7

 70.0

9.6%

Net finance income and other gains and losses

0.8

 -

 

Adjusted2 profit before tax

77.5

70.0

10.7%

Adjusted items3

 (1.4)

(5.7)

 

Amortisation of client relationships

 (7.6)

(6.7)

 

Profit before tax

68.5

 57.6

18.9%

Taxation

 (15.0)

(12.5)

 

Profit after tax

53.5

 45.1

 

Earnings per share

 

 

 

Basic earnings per share

19.5p

16.5p

18.2%

Diluted earnings per share

18.9p

16.0p

18.1%

Adjusted4 earnings per share

 

 

 

Basic earnings per share

22.5p

20.5p

9.8%

Diluted earnings per share

21.7p

19.6p

10.7%

1    Core income is defined as income derived from discretionary investment management, financial planning, Brewin Portfolio Service ('BPS') and execution only services.

2    These figures have been adjusted to exclude redundancy costs, onerous contracts, amortisation of client relationships, acquisition costs, incentivisation awards, FSCS levy refund and impairment/disposal of available-for-sale investments.

3    Adjusted items include redundancy costs, onerous contracts, acquisition costs, incentivisation awards, FSCS levy refund and impairment/disposal of available-for-sale investments.

4    See note 9.

Explanation of adjusted profit before tax and reconciliation to Financial Statements

We use adjusted PBT, adjusted diluted EPS and adjusted PBT margin ('adjusted measures') to measure and report on the underlying financial performance of the Group, aiding comparability between reporting periods. The Board and management use adjusted measures for planning and reporting. They are also useful measures for investors and analysts.

Additionally, we use some of the adjusted performance measures as Key Performance Indicators, as well as for performance measures 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 adjusted to exclude various infrequent or unusual items of income or expense. The Directors consider such items to be outside the ordinary course of business. Income or expenditure adjusted for include incentivisation awards, onerous contract costs, acquisition costs, impairment of available-for-sale assets, redundancy costs and the FSCS levy refund of an expense previously excluded from adjusted measures.

Some adjusted-for-items of income or expense may, like redundancy costs or onerous contracts costs, recur from one period to the next. Although these may recur over one or more periods, they are the result of events or decisions which the Directors consider to be outside the ordinary course of business, such as material restructuring decisions to reduce the ongoing cost base of the Group that do not represent long-term expenses of the business. Incentivisation awards costs in relation to acquisitions that are payable for a predetermined period of time, are adjusted for on this basis.

Additionally, the amortisation of acquired client relationships is an expense which investors and analysts typically add back when considering profit before tax or earnings per share ratios.
 

Reconciliation of adjusted profit before tax to statutory profit before tax

 

2018
£m

2017
£m

Change

Adjusted profit before tax

77.5

 70.0

10.7%

Incentivisation awards

 (1.3)

 (1.3)

 

Onerous contracts

 (0.2)

 (2.0)

 

Impairment of available-for-sale assets

 (0.2)

 -

 

FSCS levy refund

 0.3

 -

 

Acquisition costs

 -

 (1.7)

 

Redundancy costs

 -

 (0.7)

 

Total adjusted items

 (1.4)

(5.7)

 

Amortisation of client relationships

 (7.6)

(6.7)

 

Statutory profit before tax

68.5

 57.6

18.9%

Impact of the H2 2017 acquisition

In May 2017 the Group acquired Duncan Lawrie Asset Management Limited and had 4.5 months contribution in the financial year ended 30 September 2017. The acquisition contributed £6.5 million of income to 2018 (2017: £2.5 million) and £4.7 million (2017: £1.6 million) of adjusted PBT after associated staff costs of £1.4 million (2017: £0.6 million) and administrative, overhead and variable costs of £0.4 million (2017: £0.3 million). This resulted in incremental adjusted diluted EPS of 1.5p (2017: 0.5p).

The impact on statutory PBT for the year was a loss of £0.2 million (2017: £2.8 million loss) and a reduction of 0.1p (2017: 1.0p reduction) to statutory diluted EPS after the costs of incentivisation awards and amortisation attributable to the acquisition, both of which are excluded from the adjusted measures.

Funds

£bn

30 September
2017

Inflows

Outflows

Internal
transfers

Net
flows

Growth
rate

Investment
performance

30 September
2018

Change

Private clients

18.9

0.9

(0.8)

0.5

 0.6

3.2%

0.9

20.4

7.9%

Charities & corporates

4.5

0.2

(0.1)

-

 0.1

2.2%

0.1

4.7

4.4%

Direct discretionary

23.4

1.1

(0.9)

0.5

 0.7

3.0%

1.0

25.1

7.3%

Intermediaries

8.1

1.5

(0.4)

(0.1)

 1.0

12.3%

0.4

9.5

17.3%

MPS

2.3

0.6

-

-

 0.6

26.1%

0.1

3.0

30.4%

Indirect discretionary

10.4

2.1

(0.4)

(0.1)

 1.6

15.4%

0.5

12.5

20.2%

Total discretionary

33.8

3.2

(1.3)

0.4

 2.3

6.8%

1.5

37.6

11.2%

BPS

0.1

-

-

-

-

0.0%

-

0.1

0.0%

Execution only

3.5

0.3

(0.6)

0.9

 0.6

17.1%

 (0.2)

3.9

11.4%

Core funds

37.4

3.5

(1.9)

1.3

 2.9

7.8%

 1.3

41.6

11.2%

Advisory

2.7

-

(0.1)

(1.3)

 (1.4)

(51.9)%

 (0.1)

1.2

(55.6)%

Total funds

40.1

3.5

(2.0)

-

 1.5

3.7%

 1.2

42.8

6.7%

 

Indices

30 September
2017

30 September
2018

Change

MSCI WMA Private Investor Balanced Index

1,545

1,612

4.3%

FTSE 100 Index

7,373

7,510

1.9%

 

Total funds grew by 6.7% to £42.8 billion at 30 September 2018 (2017: £40.1 billion) driven by net new funds growth of £1.5 billion and investment performance of £1.2 billion.

Core funds grew by 11.2% (2017: 13.3% excluding acquired funds) with approximately 70% of the growth stemming from net new funds of £2.9 billion, including £0.7 billion from direct discretionary clients (including internal transfers, see below) and £1.6 billion from indirect clients.

Total discretionary funds grew 11.2% to reach £37.6 billion (2017: £33.8 billion) due to continuing strong gross inflows of £3.2 billion (2017: £3.4 billion) and stable outflows of £1.3 billion (2017: £1.2 billion). Net funds growth of £2.3 billion represents a growth rate of 6.8% (2017: 8.0%) above the Group's 5% target. Discretionary net fund flows have this year seen significant internal service transfers from our non-core advisory service of £0.9 billion.

Total direct discretionary funds increased to £25.1 billion (2017: £23.4 billion) representing growth of 7.3% (2017: 10.9%). This was driven by record direct inflows of £1.1 billion (2017: £1.0 billion) and investment performance. Outflows remained stable at £0.9 billion but at a lower rate of 3.8% compared to 4.3% last year.

Private clients direct discretionary funds are 81.3% of our direct discretionary funds. These grew by 7.9% in the year with 40% (2017: 33%) of the gross inflows originating from our advice-led wealth management service. This service is gaining traction, now accounting for 18% of direct private client funds (2017: 15%).

Net funds flows from direct discretionary charities and corporates were broadly similar to last year, growing by 4.4% to £4.7 billion (2017: £4.5 billion).

Indirect discretionary funds grew 20.2% to £12.5 billion (2017: £10.4 billion) with net fund flows of £1.6 billion (2017: £2.1 billion). Gross inflows of £1.5 billion into our bespoke discretionary service were in line with last year, offset by slightly higher outflows. Our MPS now manages £3.0 billion and represents 8.0% (2017: 6.8%) of our discretionary funds.

Execution only funds were £3.9 billion, £0.4 billion higher than last year. This increase resulted mostly from transfers from advisory managed funds and the withdrawal of the advisory dealing service at the start of the year.

Advisory funds fell by £1.5 billion in the year to £1.2 billion (2017: £2.7 billion) of which £1.3 billion has been retained and transferred into the core business, as explained above.

Income

Total income increased by 8.0% to £329.0 million (2017: £304.5 million) and is analysed as follows:

 

2018
£m

 2017
£m

Change

Private clients

 189.1

 176.4

7.2%

Charities & corporates

 22.5

 21.8

3.2%

Direct discretionary

 211.6

 198.2

6.8%

Intermediaries

 64.2

 55.3

16.1%

MPS

 7.6

 5.3

43.4%

Indirect discretionary

 71.8

 60.6

18.5%

Total discretionary

 283.4

 258.8

9.5%

Financial planning

 24.5

 20.8

17.8%

BPS

 1.1

 1.0

10.0%

Execution only

 10.7

 10.4

2.9%

Core income

 319.7

 291.0

9.9%

Advisory

 6.5

 12.9

(49.6)%

Interest

 2.8

 0.6

366.7%

Total other income

 9.3

 13.5

(31.1)%

Total income

 329.0

 304.5

8.0%

 

Core income grew 9.9% to £319.7 million (2017: £291.0 million) once again driven by strong core funds growth of 11.2% (2017: 15.4%). Core income now represents 97.2% (2017: 95.6%) of total income, the improvement is due to the Group's continued focus on discretionary funds and the transfer of a substantial portion of advisory funds into the discretionary service during the year (see the Funds narrative above for further detail).

Income from direct discretionary private clients grew 7.2% (2017: 6.3%) with growth in both our client base and client funds.

Income from our indirect discretionary business grew by 18.5% (2017: 23.9%) due to continued strong net funds inflows from both new and existing intermediary clients. MPS income grew by 43.4% in the year to £7.6 million (2017: £5.3 million) with the business continuing to attract significant inflows.

Financial planning income increased by 17.8% to £24.5 million (2017: £20.8 million) reflecting the continued growth in clients take up of our advice-led wealth management service. As discussed in the Chief Executive review, this is an area of focus for the Group's growth strategy.

Total other income reduced by £4.2 million to £9.3 million (2017: £13.5 million). Advisory income fell by £6.4 million as a result of the substantial transfer of advisory funds into discretionary funds and our execution only service. Interest income benefitted from the increase in base rates during the year.

 

Fees and commissions

Core fee income was 10.2% higher at £229.2 million (2017: £207.9 million) in line with the growth in core funds. Increased volumes and higher average trade values resulted in core commission income increasing by 5.9% to £66.0 million (2017: £62.3 million).

Core fee income now represents 72% of core income and has increased steadily from 48% in 2010 and 62% in 2013. The split of fees and commissions is shown in the table below:

 

2018

2017

Change

£m

Fees

Commission

Total

Fees

Commission

Total

Fees

Commission

Total

Private clients

133.5

55.6

189.1

125.3

51.1

176.4

6.5%

8.8%

7.2%

Charities & corporates

19.5

3.0

22.5

18.8

3.0

21.8

3.7%

- %

3.2%

Direct discretionary

153.0

58.6

211.6

144.1

54.1

198.2

6.2%

8.3%

6.8%

Intermediaries

63.1

1.1

64.2

53.7

1.6

55.3

17.5%

(31.3)%

16.1%

MPS

7.6

-

7.6

5.3

-

5.3

43.4%

 -

43.4%

Indirect discretionary

70.7

1.1

71.8

59.0

1.6

60.6

19.8%

(31.3)%

18.5%

Total discretionary

223.7

59.7

283.4

203.1

55.7

258.8

10.1%

7.2%

9.5%

BPS

1.1

-

1.1

1.0

-

1.0

10.0%

-

10.0%

Execution only

4.4

6.3

10.7

3.8

6.6

10.4

15.8%

(4.5)%

2.9%

Core income excluding financial planning

229.2

66.0

295.2

207.9

62.3

270.2

10.2%

5.9%

9.3%

Financial planning

n/a

n/a

24.5

n/a

n/a

20.8

n/a

n/a

17.8%

Core income

n/a

n/a

319.7

n/a

n/a

291.0

n/a

n/a

9.9%

Income yield1

 

2018

2017

(bps)

Fees

Commission

Total

Fees

Commission

Total

Private clients

67.8

 28.2

96.0

68.6

 28.0

96.6

Charities & corporates

42.2

 6.5

48.7

42.5

 7.1

49.6

Direct discretionary

62.9

 24.1

87.0

63.7

 23.9

87.6

Intermediaries

70.5

 1.3

71.8

71.9

 2.2

74.1

MPS

27.9

-

27.9

27.7

-

27.7

Total discretionary

62.1

 16.6

78.7

63.5

 17.4

80.9

BPS

70.3

-

70.3

70.2

-

70.2

Execution only

11.4

 16.5

27.9

11.3

 18.9

30.2

Advisory

29.2

 10.9

40.1

32.6

 13.6

46.2

Overall

56.2

 16.3

72.5

56.6

 17.2

73.8

1    Income yield is calculated as total income over the average funds at the end of each quarter in the year.

The blended yield across all our discretionary services was 78.7bps (2017: 80.9bps), with the marginal decrease attributable to the majority of fund growth coming from our lower priced intermediary and MPS channels. Additionally, as funds have grown, through both net flows and investment performance, portfolios have increased in size and moved into lower priced fee bands.

The bespoke intermediaries yield reduced to 71.8bps (2017: 74.1bps) as our intermediaries' clients continued to benefit from lower priced volume-based fee tiers.

The yield on our execution only business fell 2.3bps to 27.9bps. The advisory business yield declined to 40.1bps (2017: 46.2bps) reflecting reduced commission income and the transfer of higher yielding clients into our discretionary channel.

Costs

Total fixed operating costs increased by 6.9% to £194.6 million in the year (2017: £182.0 million).

Fixed staff costs

Fixed staff costs increased by 6.3% to £117.1 million (2017: £110.2 million) primarily driven by increased head count to support the growth of the business, including new initiatives, and expanding our change and technology capability. Inflationary pay rises were offset by lower cost of sales in relation to intermediary inflows.

Permanent headcount grew by a net 85 to 1,699 up from 1,614 at the end of last year.

Other operating costs

Other operating costs increased by £5.7 million to £77.5 million, attributable to investment in the new West End office from February; an increase in the regular FSCS levy; increased costs of business promotion/marketing and higher regulatory related costs arising from MiFID II reporting requirements and GDPR.

Variable staff costs

Variable staff costs include profit share for the current year, share based payments related costs for prior years' deferred profit share awards and long term incentive awards. Profit share increased broadly in line with the increase in adjusted PBT before variable staff costs. 

Adjusted items

Net adjusted items for the year were lower at £1.4 million (2017: £5.7 million). Last year's adjusted items included acquisition costs (£1.7 million), higher onerous contracts costs (£2.0 million) and redundancy costs resulting from restructuring, these costs did not occur again this year.

During the year the Group assigned approximately one-third of the onerous space in our Newcastle premises and achieved a sublet for the onerous office space in Edinburgh which necessitated additional space being given up in the office to achieve the sublet.

Amortisation of client relationships

Amortisation of client relationships increased to £7.6 million (2017: £6.7 million). This included a full year of amortisation of client relationships from the H2 2017 acquisition of £3.6 million (2017: £1.4 million), which was partially offset by previously acquired client relationships reaching the end of their amortisation periods.

Defined benefit pension scheme

The final salary pension scheme surplus has increased to £11.4 million (2017: £4.5 million). The actuarial gain for the year was
£3.8 million (2017: £8.6 million). Under International Accounting Standard 19 ('IAS 19'), large annual fluctuations can occur. The increase in the surplus has largely been driven by contributions to the Scheme and changes in investment market conditions. In particular, corporate bond yields increased over the year, with the discount rate increasing to reflect this rise. This served to decrease the present value of liabilities. Updated post-retirement mortality assumptions that incorporate the latest mortality projection models also increased the surplus. These increases were partially offset by lower than expected asset returns.

The Group completed and agreed the tri-annual valuation in December 2017. At the 2014 valuation, it was agreed that the Group would pay annual contributions of £3.0 million per annum until February 2019; a further £1.25 million remains to be paid under this agreement. As part of the most recent valuation, the Group has agreed to pay additional contributions of £1.25 million per annum until December 2020 (see note 17 to the 2018 Annual Report and Accounts for further detail).

As a result of the High Court ruling in respect of the equalisation of Guaranteed Minimum Pensions ('GMP') for Lloyds Banking Group pension schemes, a charge will be recognised in the Group's Income Statement in the year ending 30 September 2019 relating to our final salary pension scheme.  Whilst detailed analysis of the impact is ongoing, we do not expect the charge to be material.

Dividend

In determining the level of dividend in any year, the Board considers a number of factors including: the level of distributable reserves; the future cash commitments and investments needed to sustain the long-term growth of the Group; the level of dividend cover; and anticipated regulatory capital requirements.

The Company is the parent company of the Group and is a non-trading investment holding company. It derives its distributable reserves from dividends received from its subsidiaries, of which Brewin Dolphin Limited is the principal operating subsidiary. Before the Board proposes any interim or final dividends it satisfies itself that there will be sufficient distributable reserves in the Company at the respective payment dates. The distributable reserves of the Company comprise £38.4 million of the merger reserve and the majority of the balance on the profit and loss reserve.

The Group is well positioned to continue funding dividend payments in accordance with its policy. The ability to maintain future dividends will be influenced by a number of the principal risks identified that could adversely impact the performance of the Group.

Furthermore, with the current cash resources available to the Group, we continue to be well positioned to support our strategy. Further details of the Group's cash flow can be found below. The majority of the cash resources are held by the principal operating subsidiary Brewin Dolphin Limited.

A resolution is to be proposed at the AGM to cancel the share premium account to create additional distributable reserves. This will provide the Company with greater headroom and flexibility in the future for the paying of ordinary course dividends. It is not currently intended to use the additional distributable reserves created to deviate from the Group's established dividend policy.

Capital resources and regulatory capital

The Group's financial position remains strong with net assets increasing to £273.7 million at 30 September 2018 (2017: £262.6 million). This resulted from both profit retention and the actuarial gain on the defined benefit pension scheme. Tangible net
assets (net assets excluding intangibles) are £188.0 million (2017: £166.8 million) of which £186.2 million (2017: £170.0 million) is represented by cash.

At 30 September 2018, the Group had regulatory capital resources of £180.8 million (2017: £165.2 million), see note 14 to these Financial Statements. The Group's primary regulator is the Financial Conduct Authority ('FCA'). The FCA's 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 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 had a net cash inflow for the period of £16.2 million (2017: £0.9 million outflow) and total net cash balances of
£186.2 million as at 30 September 2018 (2017: £170.0 million).

Adjusted EBITDA (see table below) was £92.0 million (2017: £85.2 million). During the year £3.0 million was contributed to the defined benefit pension scheme (2017: £3.0 million). Capital expenditure of £8.3 million (including the purchase of equipment for the workspace refresh, software costs for the new CMS system which is in development and the fit out of the new West End office) was significantly higher than last year (2017: £2.0 million).

Cash outflow for own share 'matching' purchases in the period was £13.5 million (2017: £5.8 million). This included the purchase of shares to cover the Long Term Incentive Plan ('LTIP') awards granted in December 2014, 2015 and 2016, as well as the matching of the Deferred Profit Share Plan ('DPSP') 2017 award. All past awards are largely matched except the December 2017 LTIP awards. Shares were also purchased (£0.2 million) for the Share Incentive Plan.

Cash inflow from shares issued in the period in relation to Approved Share Options was £0.2 million (2017: £0.5 million).

Dividends paid in the period increased by 13.7% to £41.6 million (2017: £36.6 million).

 

2018
£'m

2017
£'m

Adjusted profit before tax

 77.5

 70.0

Finance income and costs

(0.8)

-

Adjusted operating profit (EBIT)

 76.7

 70.0

Share-based payments

 8.9

 8.1

Depreciation and amortisation

 6.4

 7.1

Adjusted EBITDA

 92.0

 85.2

Pension funding

(3.0)

(3.0)

Capex

(8.3)

(2.0)

Purchase/proceeds on disposal trading investments

(0.3)

 1.1

Working capital

 5.0

(1.0)

Interest and taxation

(11.6)

(9.7)

Acquisition of subsidiary

 -

(25.5)

Adjusted items

(2.7)

(2.2)

Acquisition costs

 -

(1.7)

Discontinued operations

 -

(0.2)

Shares purchased and issued

(13.5)

(5.8)

Shares issued for cash

 0.2

 0.5

Cash flow pre-dividends

 57.8

 35.7

Dividends paid

(41.6)

(36.6)

Cash flow

 16.2

(0.9)

Opening cash

 170.0

 170.8

Exchange and other non-cash movements

 -

 0.1

Closing cash

 186.2

 170.0

 

KEY PERFORMANCE INDICATORS

Key Performance Indicators ('KPIs') are used to measure both the progress and the success of our strategy implementation. The KPIs for each strategic and financial objective are set out below, with a measure of our performance to date and an indication of potential challenges to success where applicable.

Changes to KPIs

During the year, the targets were reset for the KPIs listed below, where both original targets had been met in the previous year. Both KPIs remain relevant:

-      Discretionary funds per CF30 from £75 million to £100 million.

-      Average client portfolio, the target of £500,000 has been removed, recognising the change in dynamics of our advice-led business model. It will, however, continue to be used as an efficiency metric.

Additionally, the KPIs for dividend growth have been re-presented to be absolute measures rather than growth percentages; this is considered to be a better performance metric.

Strategic priority

KPI

FY 2016

FY 2017

FY 2018

Target / Benchmark

Revenue growth

Discretionary funds inflows

4.4%

8.0%

6.8%

5%

Discretionary service yield

88 bps

81bps

79bps

n/a

Net promoter score

44.6%

47.9%

44.3%

28.5%

Overall client satisfaction3

8.4

8.5

8.5

8.1

Improved efficiency

Adjusted1 PBT margin

21.6%

23.0%

23.6%

25%

Average client portfolio

£590,000

£659,000

£690,000

n/a

Discretionary funds per CF30

£64m

£75m

£80m

£100m

Employee engagement

78%

82%

83%

76%

Capital sufficiency

Capital adequacy ratio

232%

232%

234%

150% (minimum)

Dividend growth

Adjusted1,2 diluted EPS

16.8p

19.6p

21.7p

n/a

Dividend

13.0p

15.0p

16.4p

n/a

1.   Excluding redundancy costs, onerous contracts, amortisation of client relationships, acquisition costs, incentivisation awards, FSCS levy refund and impairment/disposal of

available-for-sale investments.

2.   See note 9.

3.   Scored out of 10.

 

 

PRINCIPAL RISKS and uncertainties

Effective risk management is key to the success of delivering our strategic objectives. Our risk culture continues to strengthen; it ensures identification, assessment, and management of the principal risks to our business.

We have a defined risk appetite which enables us to effectively manage the potential upside and downside risks of our business strategy.

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

-      A strong risk culture so that employees are able to identify, assess, manage and report against the risks the business is faced with;

-      A swift and effective response to incidents in order to minimise impact; and

-      An appropriate balance between risk and the cost of control.

Our approach is to 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 growth.

We assess our principal risks regularly to ensure that our risk profile is within our risk appetite which is set by the Board. Annual risk workshops are attended by both the Risk Committee and the Executive Committee.

We carry out a robust assessment of the principal risks facing the Group, including those that would threaten our business model, future performance, solvency or liquidity.

We categorise risks into risk groups covering potential impacts to clients, revenue, capital and reputation. The three risk groups are:

-      Business risks

-      Financial risks

-      Operational risks

Our risk management process involves the identification and assessment of specific risks within these risk groups, mitigation and management of these risks, and monitoring and reporting against these risks, which provides the foundation to enable us to deliver against our strategic objectives.

Risk Management Framework

The Board has established a Risk Management Framework to ensure there is effective risk governance. The Board promotes a strong risk culture and expects every employee within the Group to adhere to the high standards established by the Board.

The Board encourages a strong risk culture throughout the business by promoting:

-      A distinct and consistent tone from the top

-      Clear accountabilities for those managing risk

-      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 to escalate events and make suggestions for improving processes and controls

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

The benefits of establishing a strong risk culture is evident; with our employees self-identifying and escalating risk events and potential issues to mitigate the probability of risks crystallising.

We follow industry 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 consists of the functions that monitor and facilitate the implementation of effective risk management practices, and the third line is independent assurance provided by internal audit.

The Board reviews the effectiveness of this Risk Management Framework, receiving reports on internal control from the Audit and Risk Committees and debating key risks for the Group following more detailed work by the Risk Committee.

The key parties involved in the risk management process within the Group, and their respective responsibilities and an explanation of how risk management is structured within the Group, are set out below.

 

 

Top Down Risk Management

Board

·      Responsible for ensuring there is an adequate and appropriate risk management framework and culture in place.

·      Sets risk appetite and is responsible for ensuring alignment with the Group's business strategy.

Risk Committee

·      Oversees the Risk Management Framework.

·      Assists the Board in its responsibilities for the integrity of internal control and risk management systems.

Audit Committee

·      Assists the Board in gaining assurance as to the integrity of the financial statements and the effectiveness of the system of internal controls.

·      Monitors the effectiveness and objectivity of internal and external auditors.

Risk Management Committee

·      Executive level committee oversight and monitoring of the adequacy and effectiveness of the Risk Management Framework.

·      Monitors current and emerging risks and themes.

·      Oversees the Group's Policy Framework.

 

Bottom Up Risk Management

Risk Identification and Assessment

·      Risk and Control Self Assessments to identify the key risks for each department and for business change activities.

·      Assessment of inherent (pre-control) and residual risk (post-control).

Risk Mitigation and Management

·      Management of events that have a potential or actual financial, regulatory, operational or client impact.

·      Agreeing action plans to mitigate risk issues.

Risk Monitoring and Reporting

·      The business community is primarily responsible for monitoring risks.

·      Risk trends are monitored and analysed.

·      Key risk indicators are reviewed monthly.

Risk Assurance

·      Internal auditors evaluate the adequacy of processes and systems, and test the operating effectiveness of key controls.

 

 

Responding to risks

-      Financial market uncertainty continues as geopolitical risk remains heightened, particularly in the US and China, and the risk of a no deal Brexit remains. We model severe geopolitical scenarios to stress test funds, profit, cash and regulatory capital. As a UK-based entity, this uncertainty and resulting increased levels of market volatility may impact on some of our principal risks. We are closely following the Brexit negotiations and we are continuing to assess the ongoing impact of these on our principal risks over time. We are making preparations to ensure the Group is well positioned to mitigate any adverse risks arising in worst case scenarios. We have a Brexit Steering Committee in place to coordinate the firm's preparation for the UK's withdrawal from the EU.

-      We have centralised the resources and management of all business and regulatory change initiatives within a Change and Transformation team, enhancing oversight and governance, thereby mitigating the associated risks.

-      The pipeline of regulatory change continues to be significant. We have focused resources on implementing new regulatory requirements for MiFID II, 4th Anti-Money Laundering Directive and GDPR, and we are preparing for the Senior Managers & Certification Regime requirements, which begin to come into effect in December 2019.

-      To continue to reduce conduct risk, we have developed an application which aligns and aggregates portfolio metrics into a monitoring dashboard. This enables enhanced oversight by our governance committees, and real time monitoring by our Regional Directors and Heads of Office.

-      To test our operational resilience, we have conducted crisis management exercises, business continuity and work area recovery site tests, and IT disaster recovery tests. Our crisis management exercises involve our Crisis Management and Incident Management teams who test our strategic, tactical and operational responses to potential scenarios which could have major business impacts. Our current focus is on further developing our vendor resilience strategy.

-      An in-depth risk workshop was conducted with our Risk Committee and Executive Committee members in the period to review the risks facing the Group.

-      Monitoring of the risk appetite for each of the key risks continues to be developed and includes both a calculated risk score and a qualitative risk owner assessment.

-      During 2019 we will be focusing on the alignment and aggregation of all risk-related data into a single application, to enable further enhancement of our risk monitoring and reporting.

Principal risks and uncertainties

The tables below detail the principal risks and uncertainties we have identified. It is not an exhaustive list of all of the risks the Group faces. We have a process to regularly report key risk indicators and identify changes in the profile of these principal risks. We also consider emerging risks as part of this process. In addition to the principal risks identified, we monitor the external environment and model the potential impact of different potential geopolitical scenarios as part of our stress testing programme.

Key to our strategic objectives

RG Revenue growth

IE Improved efficiency

CS Capital sufficiency

Business risks

These are the risks that we do not set the right strategy, a material business decision fails, or external market factors impact the viability of the business. 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.

Nature and potential impact of the risk

Primary strategic impact

Mitigating factors to reduce risk

Examples of
risk metrics

Movement in
the year

1 Business
strategy: propositions

(Risk owners:
Private Clients Managing Director; Financial Planning Managing Director;
and Investment Solutions and Distribution
Managing Director)

The risk of our service offerings not meeting the evolving needs of our clients, resulting in existing clients leaving and failure to attract new clients. This could result in reduced revenue.

RG

- A strategic plan approved by the Board.

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

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

- Dedicated resources to develop, test and launch new service offerings.

- Net new inflows per service offering vs target.

We have commenced development of
new propositions.

 

Financial risks

These are the risks facing our business in terms of inadequate or failed management of finances and the risk introduced by external factors that could have a detrimental impact on our cash flow, capital and liquidity.

Nature and potential impact of the risk

Primary strategic impact

Mitigating factors to reduce risk

Examples of
risk metrics

Movement in
the year

2 Counterparty default

(Risk owner: Finance Director)

Default by our banking counterparties could put our own or our clients' cash deposits or assets at risk of loss.

CS

- A Financial Risk Management Framework is in
place which includes managing the Group's exposure to counterparty credit risk, setting and monitoring counterparty limits.

- Diversity across our banking counterparties.

- Due diligence is undertaken for all banking counterparties.

- A Financial Risk Committee provides oversight of the Financial Risk Management Framework

- Proportion of money held per banking counterparty.

- Banking counterparty
credit ratings.

- Changes in the risk profile of banking counterparties.

tu

Financial risks remain at a similar level to last year.

Operational risks

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

Principal risk and risk
owner(s)

Nature and potential impact of the risk

Primary strategic impact

Mitigating factors to reduce risk

Examples of
risk metrics

Movement in
the year

3 Regulatory
& legal
compliance

(Risk owner:
Chief Risk Officer)

This is the risk that
we are not compliant with all applicable regulation and legislation, which could lead to regulatory enforcement action.

CS

- Compliance and Legal functions monitor and oversee fulfilment of our regulatory and legislative requirements and interactions with our key regulators.

- We have an established control environment, monitoring processes and governance in place to identify issues and ensure any required actions are completed.

- We have built dashboards to monitor each regulatory risk which include assessment of the control environment, regulatory interaction, issues and breaches.

tu

The risk continues to be driven by new regulatory requirements.

4 Change management

(Risk owners:
Chief Risk
Officer and Chief Operating Officer)

The risk that business and regulatory changes are not delivered. This could restrict the firm's ability to achieve its strategic objectives of revenue growth and operational efficiency.

IE

- Change management is centralised within a Change and Transformation team.

- A Change and Transformation Steering Group with senior representatives across the business reviews prioritisation, progress, issues and risks across the change programme.

- Project status taking into account risks, issues, resourcing and vendor deliverables.

We have embarked on new initiatives to achieve strategic objectives. Increased resources and enhanced governance processes have been put in place in response to the increased risk that the new initiatives present.

5 Conduct

(Risk owner:
Investment Solutions and Distribution Managing Director)

This is the risk of
not delivering fair outcomes for clients. This could create a financial impact for both clients and
the firm.

CS

- Tone from the top sets a culture which puts delivering fair outcomes for clients at the core
of the Group's activities/ethos.

- A conduct risk framework sets our approach
to conduct risk governance and the ongoing assessment, monitoring against key metrics and reporting of conduct risk.

- A conduct risk dashboard is in place, enabling detailed monitoring and oversight of conduct risk at an individual employee level.

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

- A quality assurance process to identify and address any instances where the best outcomes for clients are not achieved.

- Robust investment governance supported by:

-           an investment governance committee;

-           a dedicated research department to set the Group's asset allocation framework; and

-           a restricted assets policy to prevent investment in unsuitable assets.

- Transaction analysis.

- Client complaints.

- Asset allocation.

We have implemented enhanced monitoring and oversight of this risk through implementation of an application which aggregates portfolio metrics into a dashboard used by the business.

6 Criminality and resilience

(Risk owner:
Chief Risk Officer)

The increasing external risk of criminality and the difficulty of complete prevention are recognised, as the volume and sophistication of information security threats (cyber risk) and fraud attempts across industries increase. This could result in the theft of data or money.

CS

- We have a dedicated risk management function within Information Technology, which assesses and validates the design and effectiveness of the technology controls that we employ to protect our technology infrastructure.

- Dedicated Information Security and Data Protection team report directly to the Chief Risk Officer.

- Regular testing of our business continuity plans.

- Crisis management scenarios are undertaken with external providers to test the roles and responsibilities of the crisis management response teams.

- Fraud attempts.

- System vulnerabilities.

- Security breaches.

We have implemented enhancements to our controls in response to the continued external threat to reduce the risk.

 

Viability statement

The Directors have assessed the outlook of the Group over a longer period than the 12 months required by the going concern statement in accordance with the UK Corporate Governance Code.

The assessment is based on the Group's Medium Term Plan ('MTP'), the Internal Capital Adequacy Assessment Process ('ICAAP') and the evaluation of the Group's principal risks and uncertainties, including those risks that could threaten its business model, future performance or solvency.

The Group maintains a five-year MTP as part of its corporate planning process, which is a financial articulation of the Group's strategy. The financial forecasting model is predicated on a detailed year-one budget and higher level forecasts for years two to five.

As a matter of good practice and as part of the ICAAP required by the Financial Conduct Authority ('FCA'), the Group performs a range of stress tests including reverse stress tests. These assess the Group's ability to withstand a market-wide stress, a Group- specific (idiosyncratic) stress and a combined stress taking into account both market-wide and Group-specific events. The stress tests are derived through discussions with senior management, after considering the principal risks and uncertainties faced by the Group, and the scenarios involved are refreshed on an annual basis to ensure they remain current.

The stress tests enable the Group to model the impact of a variety of external and internal events on the MTP; to identify the potential impact of stress events on the Group's income, costs, cash flow and capital; and the Board to assess the effectiveness of any management actions that may be taken to mitigate the impact of the stress events.

The reverse stress tests allow the Board to assess scenarios and circumstances that would render its business model unviable. This enables the identification of potential business vulnerabilities and the development of potentially mitigating actions.

Throughout the year the Group has continued to evaluate the potential risks and opportunities of the UK leaving the European Union. Although there still remains uncertainty on the final outcome of the negotiations, a range of potential scenarios have been considered and the potential impacts on our clients, the Group and the wider industry have been assessed. This analysis does not present any reason to believe the Group will not remain viable over the longer term. The Group will continue to engage with industry bodies, regulators and clients to further understand these impacts and manage the associated risks.

Following the assessment of the above, the Board concluded that the Viability Statement should cover a period of five years. While the Directors have no reason to believe that the Group will not be viable over a longer period, this period has been chosen to be consistent with the MTP used as part of the Group's corporate planning process.

Taking account of the Group's current position and principal risks and the Board's assessment of the Group's prospects, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over a period of at least five years.

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, the Strategic Report and the report of the Risk Committee of the 2018 Annual Report & Accounts.

 

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 are described in note 14 to these Financial Statements.

 

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 of at least 12 months from the date on which the Financial Statements are approved.

 

Statement of Directors' responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare such financial statements for each financial year. Under that law the Directors are required to prepare the Group Financial Statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union and Article 4 of the IAS and have also chosen to prepare the parent company Financial Statements under IFRSs adopted by the EU. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing the parent company financial statements, the Directors are required to:

-      select suitable accounting policies and then apply them consistently;

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

-      prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

In preparing the Group Financial Statements, International Accounting Standard 1 requires that Directors:

-      properly select and apply accounting policies;

-      present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;

-      provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

-      make an assessment of the Company's ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Directors' responsibility statement

We confirm that to the best of our knowledge:

-      the Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;

-      the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the Principal Risks and Uncertainties that they face; and

-      the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

This responsibility statement was approved by the Board of Directors on 27 November 2018 and is signed on its behalf by

David Nicol

Chief Executive

 

INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF BREWIN DOLPHIN HOLDINGS PLC ON THE PRELIMINARY ANNOUNCEMENT OF BREWIN DOLPHIN HOLDINGS PLC

 

As the independent auditor of Brewin Dolphin Holdings PLC we are required by UK Listing Rule LR 9.7A.1(2)R to agree to the publication of Brewin Dolphin's preliminary announcement statement of annual results for the period ended 30 September 2018.

The directors of Brewin Dolphin Holdings PLC are responsible for the preparation, presentation and publication of the preliminary statement of annual results in accordance with the UK Listing Rules.

 

We are responsible for agreeing to the publication of the preliminary statement of annual results, having regard to the Financial Reporting Council's Bulletin "The Auditor's Association with Preliminary Announcements made in accordance with UK Listing Rules".

 

Status of our audit of the financial statements

Our audit of the annual financial statements of Brewin Dolphin Holdings PLC is complete and we signed our auditor's report on 27 November 2018. Our auditor's report is not modified and contains no emphasis of matter paragraph.

 

Our audit report on the full financial statements sets out the following key audit matters which had the greatest effect on our overall audit strategy; the allocation of resources in our audit; and directing the efforts of the engagement team, together with how our audit responded to those key audit matters and the key observations arising from our work:

 

Revenue recognition

Description

As detailed in the summary of significant accounting policies in note 3, revenue comprises investment management fees of £233.9m (2017: £217.1m), commissions of £67.8m (2017: £66.0m) and other income of £27.3m (2017: £21.4m).

 

Investment management fees account for approximately 71% of total revenue and are based on a percentage of individual clients' funds under management. There is a risk that incorrect rates or fund valuations are used to calculate management fees. This risk increases where amendments are required to be made to system calculated fees due to the requirement for manual intervention. We have also identified this as a risk relating to fraud.

How the scope of our audit responded

 

We evaluated the design and implementation and tested the operating effectiveness of controls over the calculation of management fees. This included controls over system generated investment management fees, including associated IT controls and controls over amendments to client fees.

 

We selected a sample of quarterly investment management fee calculations for individual clients and recalculated the system generated amount. We agreed a sample of the rates used to client contracts and the value of funds under management to third party sources including the rationale and authorisation of any amendments to the system generated fee. We reviewed client communications for a sample of clients to challenge the completeness of manual fee amendments.

Key observations

Through our testing, we concluded that management fees were appropriately stated for the year ended 30 September 2018.

Intangible assets: client relationships and goodwill

Description

 

 

Historically, the group has expanded through acquisitions leading to the recognition of goodwill and client relationships of £83.2m (2017: £90.5m).

 

Client relationships are reviewed for indicators of impairment at each reporting date and, if an indicator of impairment exists, an impairment test is performed. Goodwill is tested for impairment at least annually, whether or not indicators of impairment exist.

 

The impairment test requires an estimation of the recoverable amount for each of the group's cash-generating units ("CGUs") and where the carrying amount exceeds the recoverable amount an impairment should be recorded. This assessment is based on estimates of the fair value less costs to sell of CGUs based on a percentage of funds under management ("FUM"). The percentages used are inherently judgemental. We have also identified this as a risk relating to fraud.

 

Given the amortisation of client relationships and growth in FUM, the impairment tests at the balance sheet date were not sensitive to reasonably possible changes in the percentages applied to FUM. Consequently, management has determined that the estimation of the percentages applied to FUM is no longer a "key source of estimation uncertainty". However, given the size of the balance, the level of management judgement in the overall impairment assessment and the amount of audit effort in this area, we still consider this to be a key audit matter.

How the scope of our audit responded

We evaluated the design and implementation and tested the operating effectiveness of controls over the production of funds under management data, designed to ensure its completeness and accuracy.

 

In assessing management's impairment assessment for intangible assets, we have reviewed their methodology for compliance with the requirements of IAS 36 "Impairment of Assets" and challenged the assumptions and judgements made.

 

This included challenging the percentages management applied to market values of FUM to determine fair value, and validating these against percentages derived from recent public acquisitions of fund management businesses and the sensitivity of the impairment assessment to changes in the percentages applied.

Key observations

Through our testing, we concurred with management's assessment that no impairments were required to goodwill or client relationships. We also concurred with management's judgement that the percentages applied to FUM are no longer a key source of estimation uncertainty.

Assumptions underlying the calculation of the pension scheme liability

Description

The group has recognised a defined benefit pension surplus of £11.4m (2017: £4.5m surplus). The net surplus comprises assets of £106.9m and liabilities of £95.5m.

 

The calculation of the liability is sensitive to changes in underlying assumptions and is considered to be a key source of estimation uncertainty for the group as detailed in note 3.

 

The key assumptions are the discount rate, inflation rate and mortality rate where small changes to these assumptions could result in a material change to the pension liability valuation.

How the scope of our audit responded

 

In order to evaluate the appropriateness of the assumptions used by management, we assessed the design and implementation of controls over the review of assumptions and used our own actuarial experts to make direct enquiries of the group's actuary and review the key actuarial assumptions adopted in the IAS 19 ("Employee Benefits") pension valuation. In particular we compared the discount rate, inflation rate and mortality assumptions to our independently determined benchmarks derived using market and other data.

Key observations

 

Through the work performed, we concluded that the assumptions underlying the pension scheme liability for the year ended 30 September 2018 were appropriate.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we did not provide a separate opinion on these matters.

Procedures performed to agree to the preliminary announcement of annual results

In order to agree to the publication of the preliminary announcement of annual results of Brewin Dolphin Holdings PLC we carried out the following procedures:

(a)  checked that the figures in the preliminary announcement covering the full year have been accurately extracted from the audited or draft financial statements and reflect the presentation to be adopted in the audited financial statements;

(b)  considered whether the information (including the management commentary) is consistent with other expected contents of the annual report;

(c)  considered whether the financial information in the preliminary announcement is misstated;

(d)  considered whether the preliminary announcement includes a statement by directors as required by section 435 of CA 2006 and whether the preliminary announcement includes the minimum information required by UKLA Listing Rule 9.7A.1;

(e)  where the preliminary announcement includes alternative performance measures ("APMs"), considered whether appropriate prominence is given to statutory financial information and whether:

·      the use, relevance and reliability of APMs has been explained;

·      the APMs used have been clearly defined, and have been given meaningful labels reflecting their content and basis of calculation;

·      the APMs have been reconciled to the most directly reconcilable line item, subtotal or total presented in the financial statements of the corresponding period; and

·      comparatives have been included, and where the basis of calculation has changed over time this is explained.

(f)   read the management commentary, any other narrative disclosures and any final interim period figures and considered whether they are fair, balanced and understandable.

Use of our report

Our liability for this report, and for our full audit report on the financial statements is to the company's members as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for our audit report or this report, or for the opinions we have formed.

 

Robert Topley FCA (Senior statutory auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

London, United Kingdom

27 November 2018

 

 

Consolidated Income Statement

Year ended 30 September 2018

 

Note

2018
£'000

2017
£'000

Revenue

4

 326,226

303,896

Other operating income

4

 2,801

568

Income

 

 329,027

304,464

 

 

 

 

Staff costs

 

(174,822)

(162,689)

Redundancy costs

 

 -

(742)

Onerous contracts

 

 (170)

(1,969)

Amortisation of intangible assets - client relationships

 10

(7,619)

(6,650)

Acquisition costs

 

 -

(1,683)

Incentivisation awards

 

(1,318)

(1,297)

FSCS levy refund

 

288

-

Other operating costs

 

(77,506)

(71,766)

Operating expenses

 

(261,147)

(246,796)

 

 

 

 

Operating profit

 

 67,880

57,668

Finance income

6

903

161

Other gains and losses

 

 (162)

2

Finance costs

6

 (117)

(188)

Profit before tax

 

 68,504

57,643

Tax

7

(15,008)

(12,490)

Profit for the year

 

 53,496

45,153

 

 

 

 

Attributable to:

 

 

 

Equity holders of the parent

 

 53,496

45,153

 

 

 53,496

45,153

 

 

 

 

Earnings per share

 

 

 

Basic

9

19.5p

16.5p

Diluted

9

18.9p

16.0p

 

 

Consolidated Statement of Comprehensive Income

Year ended 30 September 2018

 

Note

2018
£'000

2017
£'000

Profit for the year

 

53,496

45,153

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

 

 

 

Actuarial gain on defined benefit pension scheme

 

3,765

8,558

Deferred tax charge on actuarial gain on defined benefit pension scheme

11

(577)

(1,383)

 

 

3,188

7,175

Items that may be reclassified subsequently to profit and loss:

 

 

 

Revaluation of available-for-sale investments

12

2

(75)

Reversal of revaluation of available-for-sale investments

12

106

-

Deferred tax (charge)/credit on revaluation of available-for-sale investments

11

(21)

14

Exchange differences on translation of foreign operations

 

35

92

 

 

122

31

Other comprehensive income for the year net of tax

 

3,310

7,206

Total comprehensive income for the year

 

56,806

52,359

 

 

 

 

Attributable to:

 

 

 

Equity holders of the parent

 

56,806

52,359

 

 

56,806

52,359

 

 

Consolidated Balance Sheet

As at 30 September 2018

 

 

Note

2018
£'000

2017
£'000

Assets

 

 

 

Non-current assets

 

 

 

Intangible assets

10

85,719

95,791

Property, plant and equipment

 

8,110

3,840

Other receivables

 

-

200

Defined benefit pension scheme

 

11,408

4,487

Net deferred tax asset

11

4,141

6,743

Total non-current assets

 

109,378

111,061

Current assets

 

 

 

Available-for-sale investments

12

676

736

Trading investments

12

356

36

Trade and other receivables

 

171,145

243,144

Cash and cash equivalents

 

186,222

169,995

Total current assets

 

358,399

413,911

Total assets

 

467,777

524,972

 

 

 

 

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

176,104

244,652

Current tax liabilities

 

5,352

4,993

Provisions

13

3,424

3,755

Total current liabilities

 

184,880

253,400

Net current assets

 

173,519

160,511

Non-current liabilities

 

 

 

Trade and other payables1

 

926

657

Provisions

13

8,234

8,339

Total non-current liabilities

 

9,160

8,996

Total liabilities

 

194,040

262,396

Net assets

 

273,737

262,576

 

 

 

 

Equity

 

 

 

Share capital

 

2,834

2,833

Share premium account

 

152,477

152,320

Own shares

 

(26,060)

(25,921)

Revaluation reserve

 

2

(85)

Merger reserve

 

70,553

70,553

Profit and loss account

 

73,931

62,876

Equity attributable to equity holders of the parent

 

273,737

262,576

1. In the prior year, non-current liabilities were included in current liabilities.

 

Approved by the Board of Directors and authorised for issue on 27 November 2018.

Signed on its behalf by

David Nicol

Chief Executive

 

 

Consolidated Statement of Changes in Equity

Year ended 30 September 2018

 

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 30 September 2016

2,830

151,836

 (29,294)

(24)

70,553

46,908

242,809

Profit for the year

-

-

-

-

-

45,153

45,153

Other comprehensive income for the year

 

 

 

 

 

 

 

Deferred and current tax on other comprehensive income

-

-

-

14

-

 (1,383)

 (1,369)

Actuarial gain on defined benefit pension scheme

-

-

-

-

-

8,558

8,558

Revaluation of available-for-sale investments

-

-

-

(75)

-

-

(75)

Exchange differences on translation of foreign operations

-

-

-

-

-

 92

 92

Total comprehensive (expense)/income for the year

-

-

-

(61)

-

52,420

52,359

Dividends

-

-

-

-

-

 (36,614)

 (36,614)

Issue of share capital

 3

 484

-

-

-

-

 487

Own shares acquired in the year

-

-

 (5,807)

-

-

-

 (5,807)

Own shares disposed of on exercise of options

-

-

9,180

-

-

 (9,180)

-

Share-based payments

-

-

-

-

-

8,052

8,052

Tax on share-based payments

-

-

-

-

-

1,290

1,290

At 30 September 2017

2,833

152,320

(25,921)

(85)

70,553

62,876

262,576

Profit for the year

-

-

-

-

-

53,496

53,496

Other comprehensive income for the year

 

 

 

 

 

 

 

Deferred and current tax on other comprehensive income

-

-

-

(21)

-

(577)

(598)

Actuarial gain on defined benefit pension scheme

-

-

-

-

-

3,765

3,765

Revaluation of available-for-sale investments

-

-

-

108

-

-

 108

Exchange differences on translation of foreign operations

-

-

-

-

-

 35

 35

Total comprehensive income for the year

-

-

-

87

-

56,719

56,806

Dividends

-

-

-

-

-

(41,599)

(41,599)

Issue of share capital

 1

 157

-

-

-

-

 158

Own shares acquired in the year

-

-

(13,507)

-

-

-

(13,507)

Own shares disposed of on exercise of options

-

-

13,368

-

-

(13,368)

-

Share-based payments

-

-

-

-

-

8,915

8,915

Tax on share-based payments

-

-

-

-

-

 388

 388

At 30 September 2018

2,834

152,477

(26,060)

2

70,553

73,931

273,737

 

 

Company Balance Sheet

As at 30 September 2018

 

 

 

2018
£'000

2017
£'000

Assets

 

 

 

Non-current assets

 

 

 

Investment in subsidiaries

 

 188,491

192,020

Total non-current assets

 

 188,491

192,020

Current assets

 

 

 

Trade and other receivables

 

 72,679

53,802

Cash and cash equivalents

 

 1,445

433

Total current assets

 

 74,124

54,235

Total assets

 

 262,615

246,255

 

 

 

 

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

 11,700

10,700

Total current liabilities

 

 11,700

10,700

Net current assets

 

 62,424

43,535

 

 

 

 

Total liabilities

 

 11,700

10,700

Net assets

 

 250,915

235,555

 

 

 

 

Equity

 

 

 

Share capital

 

 2,834

2,833

Share premium account

 

 152,477

152,320

Own shares

 

(26,060)

(25,921)

Merger reserve

 

 70,838

70,838

Profit and loss account

 

 50,826

35,485

Equity attributable to equity holders

 

 250,915

235,555

 

Approved by the Board of Directors and authorised for issue on 27 November 2018.

Signed on its behalf by

David Nicol

Chief Executive

Brewin Dolphin Holdings PLC
Company Number: 02685806

 

 

Company Statement of Changes in Equity

Year ended 30 September 2018

 

Attributable to the equity holders of the Company

 

Share capital
£'000

Share premium account
£'000

Own
shares
£'000

Merger reserve
£'000

Profit and loss
account
£'000

Total
£'000

At 30 September 2016

2,830

151,836

(29,294)

70,838

29,793

226,003

Profit for the year

-

-

-

-

43,434

43,434

Total comprehensive income for the year

-

-

-

-

43,434

43,434

Dividends

-

-

-

-

(36,614)

(36,614)

Issue of share capital

3

484

-

-

-

487

Own shares acquired in the year

-

-

(5,807)

-

-

(5,807)

Own shares disposed of on exercise of options

-

-

9,180

-

(9,180)

-

Share-based payments

-

-

-

-

8,052

8,052

At 30 September 2017

2,833

152,320

(25,921)

70,838

35,485

235,555

Profit for the year

-

-

-

-

61,393

61,393

Total comprehensive income for the year

-

-

-

-

61,393

61,393

Dividends

-

-

-

-

(41,599)

(41,599)

Issue of share capital

1

157

-

-

-

158

Own shares acquired in the year

-

-

(13,507)

-

-

(13,507)

Own shares disposed of on exercise of options

-

-

13,368

-

(13,368)

-

Share-based payments

-

-

-

-

8,915

8,915

At 30 September 2018

2,834

152,477

(26,060)

70,838

50,826

250,915

 

 

Consolidated Cash Flow Statement

Year ended 30 September 2018

 

Note

2018
£'000

2017
£'000

Net cash inflow from operating activities

15

 79,705

67,463

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase of intangible assets - client relationships

 

 (121)

-

Purchase of intangible assets - software

 

(1,076)

(1,437)

Purchases of property, plant and equipment

 

(7,081)

(589)

Purchase of available-for-sale investments

 

 -

(18)

Purchase of trading investments

 

 (300)

-

Acquisition of subsidiary

 

 -

(25,500)

Proceeds on disposal of trading investments

 

 -

1,149

Proceeds on disposal of available-for-sale investments

 

6

42

Net cash used in investing activities

 

(8,572)

(26,353)

 

 

 

 

Cash flows from financing activities

 

 

 

Dividends paid to equity shareholders

 

(41,599)

(36,614)

Purchase of own shares

 

(13,507)

(5,807)

Proceeds on issue of shares

 

158

487

Net cash used in financing activities

 

(54,948)

(41,934)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

 16,185

(824)

 

 

 

 

Cash and cash equivalents at 1 October

 

 169,995

170,766

Effect of foreign exchange rates

 

42

53

Cash and cash equivalents at 30 September

 

 186,222

169,995

 

 

Company Cash Flow Statement

Year ended 30 September 2018

 

Note

2018
£'000

2017
£'000

Net cash inflow from operating activities

15

 42,453

35,874

 

 

 

 

Cash flows from financing activities

 

 

 

Dividends paid to equity shareholders

 

(41,599)

(36,614)

Proceeds on issue of shares

 

158

487

Net cash used in financing activities

 

(41,441)

(36,127)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

 1,012

(253)

 

 

 

 

Cash and cash equivalents at 1 October

 

433

686

Cash and cash equivalents at 30 September

 

 1,445

433

 

 

Notes to the Financial Statements

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 2018 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 2018 Annual Report and Accounts, which have been approved by the Board of Directors on 27 November 2018 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 2017 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 in note 3.

The 2018 Annual Report and Accounts will be posted to shareholders during January 2019. 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.     Application of new and revised International Financial Reporting Standards ('IFRSs') and changes in accounting policies

a. New standards, amendments and interpretations adopted

The following new and revised standards and interpretations have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements:

-      Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12)

-      Disclosure Initiative (Amendments to IAS 7)

b. Changes in accounting policies

There have been no changes to accounting policies in the year.

c. New standards, amendments and interpretations issued but not effective

The table below sets out changes to accounting standards which will be effective for periods beginning on or after:

 

 

Effective
for period beginning
on or after
1 January

New or revised standards

 

 

IFRS 9

Financial Instruments

2018

IFRS 15

Revenue from Contracts with Customers

2018

IFRS 16

Leases

2019

IFRS 171

Insurance Contracts

2021

New or revised interpretations

 

 

IFRIC 22

Foreign Currency Transactions and Advance Consideration

2018

IFRIC 231

Uncertainty over Income Tax Treatments

2019

Amendments

 

 

IFRS 15

Clarifications to Revenue from Contracts with Customers

2018

IFRS 2

Amendments to Classification and Measurement of Share-based Payment Transactions

2018

IFRS 4

Amendments to Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts'

2018

IAS 40

Amendments to Transfers of Investment Property

2018

Annual Improvements to IFRS

2014-2016 Cycle: Makes amendments to the following standards: IFRS1 and IAS 28

2018

IFRS 9

Prepayment Features with Negative Compensation

2019

IAS 281

Long-term Interests in Associates and Joint Ventures

2019

Annual Improvements to IFRS1

Annual Improvements to IFRS Standards 2015-2017 Cycle

2019

IAS 191

Plan Amendment, Curtailment or Settlement

2019

Conceptual framework references1

Amendments to References to the Conceptual Framework in IFRS Standards

2020

1.   These amendments have not yet been endorsed by the EU.

The Directors are reviewing the impact of these new standards, amendments and interpretations and do not intend to adopt the standards early. It is not currently expected that these will have a material impact on the financial statements of the Group except as noted below.

The Directors have reviewed the impact of IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers' on the consolidated financial statements and have estimated the impact of adopting these new standards. The impact of IFRS 16 'Leases' is still being assessed by the Group and reliable estimates cannot be made at this stage. The impacts on the consolidated financial statements of the Group are explained below.

IFRS 15 'Revenue from Contracts with Customers'

IFRS 15 is effective for periods commencing on or after 1 January 2018 and will be applicable to the Group's accounting period ending 30 September 2019. The standard was endorsed by the EU during 2016 and supersedes existing revenue recognition standards, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.

The core principle of IFRS 15 is that revenue reflects the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled.

The standard establishes a principle based five-step model to be applied to all contracts with customers for recognising revenue:

(1)           identify the contract with the customer;

(2)           identify the performance obligations in the contract;

(3)           determine the transaction price;

(4)           allocate the transaction price to the performance obligations in the contract; and

(5)           recognise revenue when or as the entity satisfies a performance obligation.

The model determines when and how much revenue to recognise. Revenue is recognised when an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether performance obligations expressed in the customer contracts are fulfilled, revenue is recognised either over time, in a manner that best reflects the entity's performance of those obligations, or at a point in time, when control of the goods or services is transferred to the customer. IFRS 15 is more prescriptive in terms of its recognition criteria, with certain specific requirements in respect of variable consideration such that it is only recognised where the amount of revenue would not be subject to significant future reversals. It also requires that the incremental cost of obtaining a customer contract should be capitalised if that cost is expected to be recovered. New disclosure requirements are also introduced.

Transition

The Group will adopt IFRS 15 using the cumulative effect method, by recognising the cumulative effect of initially applying IFRS 15 as an adjustment to the opening balance of equity at 1 October 2018. The comparative information will not be adjusted and will continue to be reported under IAS 18.

Impact

The Group has completed its assessment of the impact of adopting IFRS 15 which included reviewing all contracts it has with its customers to identify performance obligations and the timing of transfer of control of its services to the customer and reviewing incremental payments made to secure customer contracts.

Given the straightforward nature of the Group's revenue streams and the absence of significant judgement required in determining the timing of transfer of control of services, the adoption of IFRS 15 will not have a material impact on the amount and timing of revenue recognised in the Group's financial statements. No adjustments to opening retained earnings are expected on transition following adoption of IFRS 15.

IFRS 9 'Financial Instruments'

IFRS 9 is effective for periods commencing on or after 1 January 2018 and will be applicable to the Group's accounting period ending 30 September 2019. The standard was endorsed by the EU in 2016 and replaces IAS 39 'Financial Instruments: Recognition and Measurement'.

IFRS 9 addresses classification, measurement and derecognition of financial assets and liabilities by introducing a new principle-based approach driven by the cash flow characteristics of the asset and the business model in which it is held. It also replaces IAS 39's 'incurred loss' approach to impairment of financial assets with a more forward looking 'expected loss' model. IFRS 9 reforms the approach to general hedge accounting, aligning the accounting treatment with an entity's risk management activities. The Group does not use hedge accounting and so this element of the new standard is not applicable.

Transition

The Group will adopt IFRS 9 by recognising the cumulative effect of initially applying IFRS 9 as an adjustment to the opening balance of equity at 1 October 2018. The comparative information will not be adjusted and will continue to be reported under IAS 39.

Impact

The Group has completed its assessment of the impact of adopting IFRS 9 and determined that application of the new standard will neither have a material impact on the Group financial statements nor result in a material adjustment to opening retained earnings.

Classification and measurement

IFRS 9 requires financial assets to be classified into one of the following three measurement categories: amortised cost, fair value through other comprehensive income ('FVTOCI') and fair value through profit or loss ('FVTPL'). The held to maturity, loans and receivables and available-for-sale categories available under IAS 39 have been withdrawn. Classification is made on the basis of the objectives of the entity's business model for managing its financial assets and the contractual cash flow characteristics of the instruments.

Amortised cost

Financial assets will be measured at amortised cost if they are held within a business model the objective of which is to hold financial assets in order to collect contractual cash flows, and their contractual cash flows represent solely payments of principal and interest.

FVTOCI

Financial assets will be measured at FVTOCI if they are held within a business model the objective of which is achieved by both collecting contractual cash flows and selling financial assets and their contractual cash flows represent solely payments of principal and interest.

FVTPL

Financial assets not falling into either of these two classifications and all equity instruments (unless designated at inception to fair value through other comprehensive income) will be measured at FVTPL.

Impairment

IFRS 9 replaces the IAS 39 'incurred loss' impairment approach with an 'expected credit loss' ('ECL') approach meaning there no longer needs to be a triggering event in order to recognise impairment losses.

The revised approach requires an entity to recognise a loss allowance for expected credit losses on all debt-type financial assets that are not measured at fair value through profit or loss, this includes lease receivables, contract assets and loan commitments and financial guarantee contracts to which the impairment requirements of IFRS 9 apply.

The ECL approach requires an expected credit loss allowance to be established upon initial recognition of an asset reflecting the level of losses anticipated after having regard to the Group's historical credit loss experience and its expectation of reasonable and supportable future economic conditions that incorporate more forward-looking information.

The ECL model has three stages. Entities are required to recognise a 12-month expected loss allowance on initial recognition (stage 1) and a lifetime expected loss allowance when there has been a significant increase in credit risk since initial recognition (stage 2). Stage 3 requires objective evidence that an asset is credit-impaired, which is similar to the guidance on incurred losses in IAS 39, and then a lifetime expected loss allowance is recognised.

The Group will apply the practical expedient permissible under IFRS 9 to use the simplified approach to determine lifetime expected credit losses for trade debtors which will be based on actual credit loss experience over the recent past and future expectation. The Group's trade debtors are short term and do not contain significant financing components.

IFRS 16 'Leases'

IFRS 16 was issued in January 2016 and is effective for periods beginning on or after 1 January 2019. The standard was endorsed by the EU during 2016 and supersedes IAS 17 the existing lease standard. The standard will first be applicable to the Group's accounting period ending 30 September 2020.

The standard represents a significant change in the accounting and reporting of leases for lessees as it provides a single lessee accounting model that replaces the current model where leases are either recognised as a finance or operating lease.

Under the single lessee model, a right of use asset and corresponding lease liability will be recognised which represents future lease payables, with movements through the Income Statement representing depreciation, additions or releases on the liability and unwinding of the discount for all leases unless the underlying asset has a low value or the remaining lease term is less than twelve months at the date of transition.

Accounting requirements for lessors are substantially unchanged from IAS 17 'Leases'.

Transition

On transition to IFRS 16, the Group can choose to apply one of two transition methods:

-      the full retrospective transition method, whereby IFRS 16 is applied to all its contracts as if it had always applied; or

-      the modified retrospective approach with optional practical expedients.

Impact

The Group is primarily a lessee and is also a sub-lessor for a small number of property leases that have been identified as onerous.

On adoption, lease agreements will give rise to both a right of use asset ('ROU') and a lease liability which represents the present value obligation of future lease payments. The ROU asset will be assessed for impairment annually (incorporating any onerous lease assessments) and will be depreciated on a straight-line basis over the shorter of the expected life of the asset and the lease term, adjusted for any remeasurements of the lease liability. The depreciation charge will be recognised in the Income Statement. The lease liability will be reduced by lease payments, offset by the unwinding of the liability over the lease term and amended for the impact of any lease modifications. Interest recognised on the lease liability will be charged to the Income Statement.

The adoption of IFRS 16 will result in a significant gross-up of the Group's reported assets and liabilities on the Balance Sheet. The depreciation (of the ROU asset) and interest charges (unwind of the discounted lease liability) will replace the lease costs currently charged to other operating costs in the Income Statement on a straight-line basis. This will result in a change to the profile of the charge recognised in the Income Statement over the life of the lease; higher expenses will be recognised in earlier years of the lease, with a reduction in the annual expenses in the later years of the lease owing to the application of the actuarial method of accounting for the lease liability.

An assessment of the impact of the new standard is currently being undertaken to assess the accounting impacts of the change, and the necessary changes to systems and processes. The process of collecting the required data and identification of leases which fall within the scope of the standard is complete.

The Group has considered the available transition options and has decided to apply the modified retrospective approach and the practical expedient that allows an entity not to reassess whether a contract is, or contains, a lease at the date of initial application of the standard.

The Group will adopt certain optional exemptions available under IFRS 16 for short-term (less than 12 months) and low-value leases. These leases will continue to be off balance sheet with rentals charged to the Income Statement on a straight-line basis over the lease term.

It is not yet practicable to provide a reliable estimate of the financial impact on the Group's consolidated results. However, from the assessment to date, the Directors expect implementation of the new standard will have a material impact on the consolidated results of the Group. The Group has non-cancellable operating lease commitments of £74.7 million, see note 29 to the 2018 Annual Report and Accounts.

3.     Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 3, 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 year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.

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.  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 year, client relationships were amortised over periods ranging from 5 to 15 years.

The amortisation for the year was £7,619,000 (2017: £6,650,000). A reduction in the average amortisation period by one year would increase the amortisation expense for the year by £1,583,000 (2017: £2,154,000).

ii. Defined benefit pension scheme

The calculation of the present value of the defined benefit pension scheme is determined by using actuarial valuations. Management makes 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, and include the determination of the discount rate, life expectancies, inflation rates 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 17 to the 2018 Annual Report and Accounts.

The defined benefit pension scheme has a surplus of £11,408,000 (2017: £4,487,000). See note 17 'Defined benefit pension scheme asset recognition basis' to the 2018 Annual Report and Accounts for further detail.

iii. Share-based payments

Long Term Incentive Plan ('LTIP')

Awards are granted under the LTIP. The scheme includes performance-based vesting conditions, which impact the amount of benefit paid, such as

-      Average annual net inflows in discretionary funds; and

-      Growth in adjusted diluted EPS over the performance period.

Assumptions are made on the likelihood of meeting certain average and stretch targets over the remaining service periods in determining the expense in the year. The directors consider that the LTIP is qualitatively material. The charge for the year was £1,830,000 (2017: £795,000).

If all of the performance conditions were assumed to be met; the charge for the year would increase by £519,000 (2017: £637,000); an absolute increase of 10% in the vesting assumptions would increase the charge for the year by £295,000 (2017: £225,000).

Further information on the scheme is disclosed in note 28 to the 2018 Annual Report and Accounts.

iv. Provisions

Onerous leases

The Group recognises a provision for several onerous property leases of £4,664,000 (2017: £5,367,000). 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. The ultimate amount of the provision is dependent on the timing of any sublet and the associated terms of the sublet achieved.

If the assumptions regarding unconfirmed sublet income are removed, the provision would increase by £3,917,000 (2017: £7,958,000) to £8,581,000 (2017: £12,094,000). A delay of one year to the assumed sublets would increase the onerous lease provision and Income Statement expense for the year by £1,259,000 (2017: £973,000). Further information is disclosed in note 22 to the 2018 Annual Report and Accounts.

4.     Income

Group

 

2018
£'000

2017
£'000

Discretionary investment management fee income

223,697

203,172

Discretionary investment management commission income

59,725

55,677

Execution only custody fee income

4,352

3,894

Execution only commission income

6,301

6,482

Advisory investment management fee income

4,752

9,073

Advisory investment management commission income

1,776

3,810

BPS1 investment management fee income

1,101

999

Financial planning income

24,522

20,789

Revenue

326,226

303,896

Other operating income

2,801

568

Income

329,027

304,464

1.   Brewin Portfolio Service.

5.     Segmental information

Group

For management reporting purposes the Group currently has a single operating segment: the Wealth Management division. This forms the reportable segment of the Group for the year. 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.

6.     Finance income and finance costs

Group

 

2018
£'000

2017
£'000

Finance income

 

 

Interest income on defined benefit pension scheme

 156

-

Interest on bank deposits

 747

 161

 

 903

 161

 

 

 

Finance costs

 

 

Interest expense on defined benefit pension scheme

-

 119

Unwind of discounts on provisions

 102

 58

Interest on bank overdrafts

 15

 11

 

 117

 188

7.     Income tax expense

Group

 

2018
£'000

2017
£'000

Current tax

 

 

United Kingdom:

 

 

Charge for the year

13,074

11,594

Adjustments in respect of prior years

 211

 (157)

Overseas:

 

 

Charge for the year

 260

 309

Adjustments in respect of prior years

 -

 (8)

Total current tax

13,545

11,738

 

 

 

Deferred tax

 

 

United Kingdom:

 

 

Charge for the year

1,743

 705

Adjustments in respect of prior years

 (280)

 47

Total deferred tax (see note 11)

1,463

 752

 

 

 

Tax charged to the Income Statement

15,008

12,490

 

United Kingdom corporation tax is calculated at 19.0% (2017: 19.5%) of the estimated taxable profit for the year. The Finance Act 2015 applied a 20% rate up to 31 March 2017 and Finance (No.2) Act 2015 reduced the rate applicable thereafter to 19%. The Finance Act 2016 reduces the rate still further from 1 April 2020 to 17%.

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:

 

2018
£'000

2017
£'000

Profit before tax

68,504

57,643

Tax at the UK corporation tax rate of 19% (2017: 19.5%)

13,016

11,240

Tax effect of:

 

 

Expenses that are not deductible in determining taxable profit

1,776

1,396

Leasehold property

170

197

Share-based payments

222

(162)

Over provision for tax in previous years

(69)

(118)

Lower rates in subsidiaries

(141)

(154)

Impact of deferred tax rate change

34

91

Tax expense for the year

15,008

12,490

Effective tax rate for the year

21.9%

21.7%

 

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.     Dividends

Group and Company

 

2018
£'000

2017
£'000

Amounts recognised as distributions to equity shareholders in the year:

 

 

2016/17 Final dividend paid 7 February 2018, 10.75p per share (2017: 9.15p per share)

 29,516

24,996

2017/18 Interim dividend paid 15 June 2018, 4.4p per share (2017: 4.25p per share)

 12,083

11,618

 

 41,599

36,614

 

 

 

Proposed final dividend for the year ended 30 September 2018 of 12.0 (2017: 10.75p) per share based on shares in issue at 22 November 2018 (2017: 23 November 2017)

32,998

29,430

 

The proposed final dividend for the year ended 30 September 2018 of 12.0p 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 8,491,582 Ordinary Shares representing 3.0% of the Company's called up share capital in relation to employee share plans, has agreed to waive all dividends due to the Trustee.

9. Earnings per share

Group

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

 

2018
'000

2017
'000

Number of shares

 

 

Basic

 

 

Weighted average number of shares in issue in the year

274,484

272,840

Diluted

 

 

Effect of weighted average number of options outstanding for the year

8,262

10,162

Diluted weighted average number of options and shares for the year

282,746

283,002

Adjusted1 diluted

 

 

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

2,186

2,406

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

284,932

285,408

 

 

2018
£'000

2017
£'000

Earnings attributable to ordinary shareholders

 

 

Profit for the purpose of basic and diluted earnings per share

53,496

45,153

Redundancy costs

-

742

Onerous contracts

170

1,969

Amortisation of intangible assets - client relationships

7,619

6,650

Acquisition costs

-

1,683

Incentivisation awards

1,318

1,297

FSCS levy refund

(288)

-

Impairment/disposal of available-for-sale investments

162

(2)

less tax effect of above

(683)

(1,481)

Adjusted profit for the purpose of basic and diluted earnings per share

61,794

56,011

 

 

2018

2017

Earnings per share

 

 

Basic

19.5p

16.5p

Diluted

18.9p

16.0p

 

 

 

Adjusted2 earnings per share

 

 

Basic

22.5p

20.5p

Adjusted1 diluted

21.7p

19.6p

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 the Employee Share Ownership Trust ('ESOT') to satisfy options.

2.   Excluding redundancy costs, onerous contracts, amortisation of client relationships, acquisition costs, incentivisation awards, FSCS levy refund and impairment/disposal of available-for-sale investments.

 

10.  Intangible assets

Group

 

Goodwill
£'000

Client relationships
£'000

Software
costs
£'000

Total
£'000

Cost

 

 

 

 

At 30 September 2016

48,637

 107,902

18,206

174,745

Additions

-

 25,708

 879

26,587

Exchange differences

-

3

-

 3

At 30 September 2017

48,637

 133,613

19,085

201,335

Additions

-

325

1,076

1,401

Exchange differences

-

3

-

 3

Disposals

-

 -

(968)

(968)

At 30 September 2018

48,637

 133,941

19,193

201,771

 

 

 

 

 

Accumulated amortisation and impairment losses

 

 

 

 

At 30 September 2016

-

 85,105

8,587

93,692

Amortisation charge for the year

-

 6,650

5,200

11,850

Exchange differences

-

2

-

 2

At 30 September 2017

-

 91,757

13,787

105,544

Amortisation charge for the year

-

 7,619

3,855

11,474

Exchange differences

-

2

-

 2

Disposals

-

 -

(968)

(968)

At 30 September 2018

-

 99,378

16,674

116,052

 

 

 

 

 

Net book value

 

 

 

 

At 30 September 2018

48,637

 34,563

2,519

85,719

At 30 September 2017

48,637

 41,856

5,298

95,791

At 30 September 2016

48,637

 22,797

9,619

81,053

 

Client relationship additions are made up as follows:

 

2018
£'000

2017
£'000

Cash paid for client relationships acquired in current year

121

25,500

Deferred consideration for client relationships acquired in the current year

208

-

Adjustment to client relationships acquired in prior years

(4)

208

Total additions

325

25,708

 

The following table splits out the significant client relationship assets:

 

£'000

Carrying amount at year end

 

Tilman Brewin Dolphin Limited1

12,667

South East investment management team 22

20,450

Other investment management teams3

1,446

 

34,563

1.   Amortisation period remaining 7 years 10 months.

2.   Amortisation period remaining 5 years 7 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.

 

Goodwill 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 year 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. Client relationships are reviewed for indicators of impairment at each reporting date. See note 3u to the 2017 Annual Report and Accounts for further details.

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%.

Sensitivity analysis of the key assumptions

All of the CGUs within the Group have sufficient headroom (i.e. where the recoverable amount of the CGU is in excess of the carrying value), such that they are insensitive to all reasonable possible changes to the value of funds used for the purpose of goodwill impairment testing.

11.  Net deferred tax asset

In addition to the amount debited to the Income Statement, deferred tax relating to the actuarial gain in the defined benefit pension scheme amounting to £577,000 has been debited to other comprehensive income (2017: £1,383,000 debited to other comprehensive income relating to the actuarial gain). Deferred tax on share-based payments of £541,000 has been debited to profit and loss reserves (2017: £1,065,000 credited 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 year:

Group

 

 Capital allowances
£'000

 Revaluation
£'000

 Other short-term timing differences
£'000

 Defined pension benefit scheme
£'000

 Share-based payments
£'000

Incentivisation awards
£'000

 Intangible asset amortisation
£'000

 Total
£'000

At 30 September 2016

1,726

6

1,243

1,182

5,292

 -

(1,650)

 7,799

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

 (157)

 -

 (342)

 (562)

 (204)

 -

 513

 (752)

Credit/(charge) in the year to the Statement of Comprehensive Income

 -

14

 -

(1,383)

 -

 -

 -

(1,369)

Credit in the year to the Statement of Changes in Equity

 -

 -

 -

 -

1,065

 -

 -

 1,065

At 30 September 2017

1,569

20

 901

 (763)

6,153

 -

(1,137)

 6,743

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

 (301)

 -

 26

 (599)

 (996)

 95

 312

(1,463)

Charge in the year to the Statement of Comprehensive Income

 -

 (21)

 -

 (577)

 -

 -

 -

 (598)

Charge in the year to the Statement of Changes in Equity

 -

 -

 -

 -

 (541)

 -

 -

 (541)

At 30 September 2018

1,268

 (1)

 927

(1,939)

4,616

 95

 (825)

 4,141

 

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

Between 1 April 2017 and 31 March 2020             19%
After 1 April 2020                                                   17%

 

12.  Investments

Group

Available-for-sale investments

 

Unlisted investments
£'000

At 30 September 2016

833

Additions

18

Net loss from changes in fair value recognised in equity

(75)

Disposals

(40)

At 30 September 2017

736

Impairment

(162)

Net gain from changes in fair value recognised in equity

2

Reversal of accumulated fair value losses recognised in equity on impairment

106

Disposals

(6)

At 30 September 2018

676

 

 

2018
£'000

2017
£'000

Equity

90

95

Asset-backed security

586

641

Total available-for-sale investments

676

736

 

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 14.

Trading investments

 

2018
£'000

2017
£'000

Listed investments

356

36

Total trading investments

356

36

 

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.

 

13.  Provisions

Group

 

At 30 September 2017
£'000

Additions
£'000

Utilisation of provision
£'000

Unwinding of discount
£'000

Unused amounts reversed
£'000

At 30 September 2018
£'000

Sundry claims and associated costs

587

620

(227)

-

(234)

746

Onerous contracts

5,367

755

(1,496)

38

-

4,664

Social security and levies on share awards

3,474

1,420

(1,385)

-

(54)

3,455

Acquisition related payments

622

1,518

(1,466)

32

-

706

Leasehold dilapidations

2,044

111

(44)

32

(56)

2,087

 

12,094

4,424

(4,618)

102

(344)

11,658

 

 

Current
liability
£'000

Non-current liability
£'000

Total
£'000

Sundry claims and associated costs

746

-

746

Onerous contracts

838

3,826

4,664

Social security and levies on share awards

1,606

1,849

3,455

Acquisition related payments

106

600

706

Leasehold dilapidations

128

1,959

2,087

At 30 September 2018

3,424

8,234

11,658

 

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 at 30 September 2018 is in respect of surplus office space. 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 leasehold obligations on 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.

A provision of £4.7 million (30 September 2017: £5.4 million) has been recognised for surplus office space which the Group may not be able to sublet in the short term. The maximum exposure is approximately £9.8 million as at 30 September 2018 (30 September 2017: £13.4 million) and represents the current estimated amount that the Group would have to pay to meet the future obligations under these lease contracts if the assumption regarding future uncommitted sublets is removed and the time value of money is ignored. The longest lease term has 14.5 years remaining and accounts for £7.9 million of the maximum exposure.

The Group has made a provision of £2.1 million (30 September 2017: £2.0 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 14.5 years.

The social security and levies on share awards provision is in respect of Employer's National Insurance and Apprenticeship Levy on awards outstanding at the end of the year. The provision is based on the Group's share price, the amount of time passed and likelihood of the share awards vesting and represents the best estimate of the expected future cost.

The provision recognised for acquisition related payments is in respect of both incentivisation awards and deferred consideration payable for the acquisition of client relationships. The incentivisation award provision is £0.5 million (30 September 2017: £0.6 million) and is payable to employees in relation to the retention and acquisition of funds and is based on the best estimate of the likely future obligation discounted for the time value of money. The deferred consideration provision is £0.2 million (30 September 2017: £nil) and is based on the best estimate of the likely future obligation discounted for the time value of money.

See note 3b.iv. for key sources of estimation uncertainty impacting the provisions.

 

14.  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 has overall responsibility for establishing and overseeing the Group's Risk Management Framework and risk appetite.

The Board has established a clear relationship between the Group's strategic objectives and its willingness to take risk through a Risk Appetite Statement. The Risk Appetite Statement is an expression of limits (qualitative and/or quantitative) giving clear guidance on 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 Risk Committee provides oversight of the adequacy of the Group's Risk Management Framework based on the risks to which the Group is exposed. It monitors how management complies with the Group's risk management policies and procedures. It is 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 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 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 management policies also serve to set the appropriate control framework. 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. Capital adequacy is given a high level of focus to ensure not only that regulatory capital requirements are met, but that the Group is sufficiently capitalised against the risks to which it is currently exposed, as well as to withstand a range of potential stress events.

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

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 active 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. The ICAAP is kept updated throughout the year to take account of changes to the profile of the risks facing the Group 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 year.

The regulatory capital resources of the Group were as follows:

 

2018
£'000

2017
£'000

Share capital

2,834

2,833

Share premium account

152,477

152,320

Own shares

(26,060)

(25,921)

Revaluation reserve

2

(85)

Merger reserve

70,553

70,553

Profit and loss account

73,931

62,876

Regulatory capital resources before deductions

273,737

262,576

Deduction - Intangible assets (net of deferred tax liability)

(83,476)

(93,519)

Deduction - Defined benefit pension scheme asset (net of deferred tax liability)

(9,469)

(3,724)

Deduction - Free deliveries

(14)

(107)

Total regulatory capital resources after deductions at 30 September

180,778

165,226

 

Information disclosure under Pillar 3 of the Capital Requirements Directive will be published on the Group's website before 31 December 2018 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 2017 Annual Report and Accounts.

Categories of financial instruments

Group

 

Carrying value

 

2018
£'000

2017
£'000

Financial assets

 

 

Available-for-sale investments

676

736

Fair value through profit and loss - held-for-trading

356

36

Non-current loans and receivables

-

200

Current loans and receivables

162,656

235,506

Cash and cash equivalents

186,222

169,995

At 30 September

349,910

406,473

 

 

 

Financial liabilities

 

 

Amortised cost

156,364

225,865

At 30 September

156,364

225,865

 

Company

 

Carrying value

 

2018
£'000

2017
£'000

Financial assets

 

 

Current loans and receivables

72,679

53,802

Cash and cash equivalents

1,445

433

At 30 September

74,124

54,235

 

 

 

Financial liabilities

 

 

Amortised cost

7,334

7,397

At 30 September

7,334

7,397

 

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 trades 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 16 to the 2018 Annual Report and Accounts).

The Group transacts foreign currency 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 £687,000 (2017: £497,000).

The Group is exposed to translation risk in respect of the foreign currency value of the net assets of Tilman Brewin Dolphin Limited ('TBD'). At the year end TBD had net assets of £4.7 million (2017: £4.3 million) denominated in its local currency (Euros).

The Group does not hold any derivatives (2017: 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 year.

Equity price risk

The Group is exposed to equity price 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 year ended 30 September 2018 would have been £17,750 higher/lower (2017: £1,800 higher/lower) due to changes in the value of held-for-trading investment; and

-      Other equity reserves as at 30 September 2018 would increase/decrease by £4,500 (2017: increase/decrease by £4,800) 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 year.

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 year a 1% increase in base rate would have increased pre-tax profit by £1,040,000 (2017: £1,044,000).

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 four major banking groups.

Maximum exposure

The maximum exposure to credit risk at the end of the reporting year 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 year of £16,633 (2017: £15,702).

Impaired assets

The total gross amount of individually impaired assets in relation to trade receivables at the year end was £209,000 (2017: £228,000). Collateral valued at fair value by the Group in relation to these impaired assets was £180,000 (2017: £190,000). 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 16 to the 2018 Annual Report and Accounts). Note 16 to the 2018 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 year end no financial assets that would otherwise be past due or impaired had been renegotiated (2017: none).

Loans to employees are repayable over a maximum of 3 years (see note 16 to the 2018 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

-%

67.0%

30.6%

2.4%

 

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 Team.

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

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. When investing cash belonging to the Group or its clients, the focus is on security of principal and the maintenance of liquidity. Client money is held in segregated client bank accounts with strict limits on deposit tenors, in accordance within regulatory guidelines designed to minimise liquidity risk.

The Group has a Liquidity Policy which is reviewed by the Board regularly. The Group's intention, at all times is to operate with an amount of liquid resources which provides significant headroom above that required to meet its obligations. Group cash resources are monitored on a daily basis through position reports and liquidity requirements are analysed over a variety of forecast horizons. Liquidity stress tests are regularly conducted to ensure ongoing liquidity adequacy, and a Contingency Funding Plan is also maintained to provide backup liquidity in the unlikely event of a severe liquidity stress event.

At 30 September 2018, the Group had access to an unsecured overdraft facility of £10 million (2017: £10 million).

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 year.

Group

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

At 30 September 2018

 

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

105,951

33,003

16,484

926

-

156,364

 

105,951

33,003

16,484

926

-

156,364

 

As at 30 September 2017

 

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

179,711

29,885

15,612

657

-

225,865

 

179,711

29,885

15,612

657

-

225,865

Company

The following are the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay.

At 30 September 2018

 

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

7,334

-

-

-

-

7,334

 

7,334

-

-

-

-

7,334

As at 30 September 2017

 

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

7,397

-

-

-

-

7,397

 

7,397

-

-

-

-

7,397

 

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 2018
£'000

Fair value as at 30 September 2017
£'000

Valuation
technique(s) and
key input(s)

Significant
unobservable
input(s)

Relationship
of unobservable
inputs to fair value

Level 1

 

 

 

 

 

Trading investments

356

36

Quoted bid prices in an active market

n/a

n/a

Level 3

 

 

 

 

 

Available-for-sale investments - Equity

59

63

The valuation is based on published monthly NAVs.

Marketability discount up to 30%.

As the marketability discount increases the valuation decreases.

Available-for-sale investments - Equity

31

32

The valuation is based on the net assets as presented in the most recent audited financial statements of the company.

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

586

641

The valuation is based on the fair value of the loan notes as presented in the most recent audited financial statements of the company.

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.

Fair value measurement recognised on the Balance Sheet

The table above 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 markets 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).

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 £2,400

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

Marketability discount

Increase by 5%

Decrease by £45,000

Fair value hierarchy

At 30 September 2018

 

Level 1
£'000

Level 2
£'000

Level 3
£'000

Total
£'000

Held-for-trading

 

 

 

 

Equities

356

-

-

356

Available-for-sale financial assets

 

 

 

 

Equities

-

-

90

90

Asset-backed securities

-

-

586

586

Total

356

-

676

1,032

 

As at 30 September 2017

 

Level 1
£'000

Level 2
£'000

Level 3
£'000

Total
£'000

Held-for-trading

 

 

 

 

Equities

36

-

-

36

Available-for-sale financial assets

 

 

 

 

Equities

-

-

95

95

Asset-backed securities

-

-

641

641

Total

36

-

736

772

Reconciliation of Level 3 fair value measurement of financial assets:

Available-for-sale financial assets

 

Total
£'000

Balance at 30 September 2016

833

Additions

18

Net loss from changes in fair value recognised in equity

(75)

Disposals

(40)

Balance at 30 September 2017

736

Impairment

(162)

Reversal of accumulated fair value losses recognised in equity on impairment

106

Net gain from changes in fair value recognised in equity

2

Disposals

(6)

Balance at 30 September 2018

676

15.  Notes to the Cash Flow Statement

Group

 

2018
£'000

2017
£'000

Operating profit

67,880

57,668

Adjustments for:

 

 

Depreciation of property, plant and equipment

2,468

1,917

Amortisation of intangible assets - client relationships

7,619

6,650

Amortisation of intangible assets - software

3,855

5,200

Loss on disposal of fixed assets

20

40

Defined benefit pension scheme

(3,000)

(3,000)

Share-based payment expense

8,915

8,052

Translation adjustments

(8)

40

Interest income

747

161

Interest expense

(15)

(11)

Operating cash flows before movements in working capital

88,481

76,717

(Decrease)/increase in payables and provisions

(68,695)

25,662

Decrease/(increase) in receivables and trading investments

72,179

(25,011)

Cash generated by operating activities

91,965

77,368

Tax paid

(12,260)

(9,905)

Net cash inflow from operating activities

79,705

67,463

Company

 

2018
£'000

2017
£'000

Operating profit

61,393

43,434

Operating cash flows before movements in working capital

61,393

43,434

(Decrease)/increase in payables

(63)

41

(Increase)/decrease in receivables and trading investments

(18,877)

(7,601)

Cash generated by operating activities

42,453

35,874

Tax paid

-

-

Net cash inflow from operating activities

42,453

35,87

 

16.  Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. The primary statements of the Company include amounts attributable to subsidiaries. These amounts have been disclosed in aggregate in the relevant notes to the financial statements of the Company and in detail in the following table:

 

Amounts owed
by related parties

Amounts owed
to related parties

 

2018
£'000

2017
£'000

2018
£'000

2017
£'000

Bell Lawrie White & Co. Limited

-

-

2,434

2,434

Brewin Dolphin Limited

72,679

53,802

-

-

Brewin Broking Limited

-

-

4,900

4,900

 

72,679

53,802

7,334

7,334

 

All amounts owed by related parties are interest free and repayable on demand.

The only effect of related party transactions on the profit and loss of the Company was in respect of dividends. The Company received dividends of £60,500,000 (2017: £42,500,000) from Brewin Dolphin Limited and £1,001,650 (2017: £976,800) from Tilman Brewin Dolphin Limited.

The Group companies did not enter into any transactions with related parties who are not members of the Group during the year, save as disclosed elsewhere in these financial statements.

All amounts outstanding with related parties are unsecured and will be settled in cash. No guarantees have been given or received.

No provisions have been made for doubtful debts in respect of the amounts owed by related parties.

Directors' transactions

There are no contracts, loans to Directors or other related party transactions with Directors.

17.  Annual General Meeting

The Annual General Meeting will be held at 11.30am on 1 February 2019 at Haberdasher's Hall, 18 West Smithfield, London EC1A 9HQ.

18. 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.

 


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2018 Preliminary Results - RNS