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RNS
Charles Stanley Group PLC  -  CAY   

Interim Results

Released 07:00 22-Nov-2018

RNS Number : 1342I
Charles Stanley Group PLC
22 November 2018
 

22 November 2018

Charles Stanley Group PLC

("Charles Stanley" or "Group" or "Company")

 

Interim results for the six months ended 30 September 2018

 

Charles Stanley Group PLC today announces its interim results for the six months ended 30 September 2018.

 

Financial highlights:

·      Continued revenue growth across all divisions, with Core Business revenue up 5.0% to £77.7 million (H1 2018: £74.0 million)

·    Funds under Management and Administration ("FUMA") increased by 5.0% to £25.0 billion (FY 2018: £23.8 billion), with Discretionary funds up by 7.3% to £13.2 billion

·      Core Business1 profit before tax up 5.6% to £5.7 million (H1 2018: £5.4 million)

·      Core Business profit margin2 improved to 9.3% (H1 2018: 8.4%)

·      Robust balance sheet, with net assets of £102.8 million and cash balances of £67.0 million

·    Regulatory capital resources up 16.2% to £75.5 million (H1 2018: £65.0 million) improving capital adequacy ratio to 193% (H1 2018: 177%)

·      Interim dividend increased by 10% to 2.75 pence per share (H1 2018: 2.50 pence per share)

 

Operational highlights:

·      Charles Stanley Direct now profitable

·      Further progress with the implementation of revised pricing structures

·      Continued investment in the expansion of the Financial Planning division

·     Improvement in our digital offering further enhancing the client user experience with the launch of new apps and a significant upgrade of the website

·      Growth of the intermediary sales team and distribution capabilities

·      Launched a central remuneration scheme to ensure operational gearing flows through from the enhanced sales capability

 

Paul Abberley, Chief Executive Officer, commented:

"The first half of the financial year delivered another solid set of results. Our turnaround strategy is starting to bear fruits with funds, revenues and profits from the Core Business all increasing on the prior period. I am also pleased to state that all four of our operating divisions reported higher revenues. Two of those divisions, Financial Planning and Charles Stanley Direct, saw robust increases - up 20.7% and 34.6% respectively.

 

Whilst the progression of our revenues and profit margin has been pleasing, we are fully focused on increasing the rate of improvement. In tandem with the efforts to improve the rate of top line growth by building higher margin assets and implementing revised pricing structures, we are also sharpening our investment capabilities in marketing and sales. In addition, we have identified several core programmes to improve operating efficiency in both the front and back offices.

 

Subject to market conditions and the level of trading activity, we expect to make continued progress in the second half of the financial year and remain fully committed to our vision of transforming Charles Stanley into the UK's leading wealth manager."

 

 

1The Core Business figures represent the results of the Group's four main operating divisions, excluding held for sale activities and adjusting items.

2The Core Business profit margin, excluding the charge in respect of share options awarded to certain investment management teams under the revised remuneration arrangements.

 

 

Charles Stanley Group PLC LEI: 213800LBSEGKE5MCYC90

 

For further information, please contact:

Charles Stanley

Siobhan Griffiths

Via Newgate Communications

Canaccord Genuity

David Tyrrell

020 7523 4677

Peel Hunt

Guy Wiehahn

020 7418 8893

Newgate Communications

Adam Lloyd

020 3757 6884

charlesstanley@newgatecomms.com

 

Notes to editors:

Charles Stanley traces its origins back directly to 1792 and is one of the oldest firms on the London Stock Exchange. Charles Stanley today provides holistic wealth management services to private clients, charities and smaller institutions. These are delivered by over 350 professionals located in 22 offices throughout the UK, both direct to clients and to intermediaries. Our services include investment portfolio management and financial planning, supported by in-house administration to enhance the quality of service provided. In addition, Charles Stanley Direct provides an award winning direct to customer execution-only dealing platform for equities and funds.

 

 

Financial highlights:

 

H1 2019

H1 2018

Profit before tax from Core Business (£m)

5.7

5.4

Reported profit before tax (£m)

5.1

6.9

Basic earnings per share from Core Business (p)

9.27

7.75

Reported basic earnings per share (p)

8.31

10.87

Dividend per share (p)

2.75

2.50

 

 

Business highlights:

 

 

H1 2019

H1 2018

FuMA (£bn)

25.0

24.3

Discretionary funds (£bn)

13.2

12.1

Core Business revenue (£m)

77.7

74.0

 

 

Core Business revenue by division:

 

 

H1 2019

H1 2018

Investment Management Services (£m)1

66.9

65.2

Asset Management (£m)1

3.8

3.3

Financial Planning (£m)

3.5

2.9

Charles Stanley Direct (£m)

3.5

2.6

 

 

Financial calendar:

 

Ex-dividend date for interim dividend

13 December 2018

Interim dividend record date

14 December 2018

Interim dividend payment date

18 January 2019

 

1The H1 2018 figures have been restated to reflect the transfer of an investment management team from Asset Management to Investment Management Services during FY 2018.

 

 

 

 

 

 

 

 

Interim management report

 

First half review

The first half of the financial year delivered another solid set of financial results. FuMA have grown 5.0% since the year end to £25.0 billion, revenues increased by an equivalent percentage to £77.7 million (H1 2018: £74.0 million) and profits from the Core Business have increased at a marginally higher rate to £5.7 million (H1 2018: £5.4 million). In the prior year the Group had exceptional gains of £2.6 million from the disposal of non-core activities and corporate investments which have not been repeated. Consequently the reported profit before tax of £5.1 million
is lower than the prior year comparative of £6.9 million.

 

In overall terms the growth of FuMA has largely mirrored that of the market, with the MSCI WMA Private Investor Balanced Index having increased 5.5%. Underlying the overall increase, we continue to see a shift toward our discretionary service, which grew 7.3% whilst the lower margin Advisory Managed and Advisory Dealing services were respectively down 5.6% and flat. Execution-only increased by 4.8% with Charles Stanley Direct, our digital platform, continuing to outperform, up 12.4%.

 

The continuing shift toward discretionary funds helped contribute to an increase in the Group's blended revenue margin from 62bps to 63bps. The improvement in the revenue margin has to some extent been assisted by increased interest earned on cash balances which has partially offset declines in trading commissions following their long term downward trend. This, combined with the overall increase in FuMA led to revenues increasing to £77.7 million. Pleasingly, all four operating divisions reported higher turnover with particularly strong showings from two of our smaller divisions, Financial Planning and Charles Stanley Direct, up 20.7% and 34.6% respectively.

 

Core Business costs during the period have grown broadly in line with revenues, in total up 4.9% to £72.4 million (H1 2018: £69.0 million). The majority of this increase was accounted for by front office staff costs, which include a £1.5 million (H1 2018: £0.8 million) non-cash charge in respect of share options awarded to certain investment management teams part way through the prior year.

 

We have a medium term target of achieving a 15% profit before tax margin and these results show further progress in that regard. The Core Business pre-tax margin was 9.3% (H1 2018: 8.4%), excluding the share option charge referred to above.

 

Accelerating our progress

The reorganisation of the business in recent years has laid the foundations for future growth. Notably we continue to achieve above industry average client satisfaction, with our latest survey scoring 94% of clients highly satisfied. This is at the heart of what we strive for. For example, we noted from the latest survey that our digital services were highlighted as an area for improvement. In response to this, we released a new MyCS website and app for private clients which significantly enhance the user experience. Further evidence of our commitment to improve our digital offering is our stated intention to reinvest around half of the incremental revenue generated from the recent increase in the Charles Stanley Direct fund platform fee back into further developing the platform.

 

Secondly, we have a highly engaged workforce who recognise the need for change across the Group and are participating in helping to make it happen. This is essential because there still remains much to be done. Whilst the progression of our revenues and margin has been pleasing, management is fully focused on increasing the rate of improvement which has been slower than had been originally hoped. There are two main strands to the focus, driving top line revenue growth whilst improving operational efficiency and in turn harnessing operational gearing.

 

To drive revenues, in September we successfully implemented a new charging structure in Charles Stanley Direct and expect to complete the three-year repricing exercise of our Investment Management Services division by 31 March 2019. We are continuing to grow our intermediary sales team and hope to announce shortly the appointment of a Group Head of Distribution to bring greater focus to our overall sales effort. A central initiative for remuneration has been launched alongside this, to ensure we are capturing the operational gearing that should flow from this enhanced sales capability. We expect the continuing shift away from Advisory Managed and Dealing services to Discretionary services also to drive revenues by improving the mix.

 

In tandem with the efforts to drive the rate of top-line growth, we have also identified a number of core programmes to improve operating efficiency in both front and back offices. These include a restructuring and cleansing of our data to exploit fully our technology, delivering a streamlined standard work flow to our front and middle offices and developing more granular business plans for each business unit, which have previously only been formulated at a divisional level. Whilst there are likely to be one-off costs to affect some of the changes in contemplation, the implementation should not only proportionately reduce ongoing cost and risk, but also give our front office teams more time to focus their attention on both existing and potential new clients.

 

To summarise, we expect the combination of FuMA growth, revenue margin improvement through repricing and asset mix change, and a strong cost discipline will drive the Group towards its stated target of achieving a 15% Core Business profit margin.

 

Outlook

Concern that the upward leg of the economic cycle is about to end was brought into focus in October. Rising interest rates in the US, already unnerved by ongoing trade tensions, unresolved Brexit negotiations and Italy at odds with the EU about its budget, triggered a sharp fall in stock markets. This led to a decline in our FuMA to £23.8 billion as at 31 October 2018.

           

The main way economies are taken into recession is through undue monetary tightening by a central bank, possibly allied to problems in a commercial banking system. This usually happens when central banks think they have been too lenient for too long, and have allowed inflation to get a hold again. There is little evidence that inflation is yet a major prospect in the advanced economies, with most of them reporting inflation around central bank targets. In the past, further economic growth might have pushed up wages and prices more rapidly, but today a global market with plenty of surplus labour and spare capacity to make goods seems to be keeping these pressures under control. On balance, therefore, we retain a positive view for world economies and markets over the next 12 to 18 months.

 

Subject to market conditions, and the level of trading activity in particular, we expect to make continued progress in the second half and remain fully committed to our vision of transforming Charles Stanley into the UK's leading wealth manager.

 

 

Paul Abberley

Chief Executive Officer

 

Ben Money-Coutts

Chief Financial Officer

 

21 November 2018

 

 

 

 

 

Group results and performance

The Board considers the Core Business profit before tax and earnings per share to be a better reflection of the Group's underlying business performance than the statutory figures reported in the consolidated financial statements. The tables below show the results for the current and prior period for the Core Business, the held for sale activities (EBS Management PLC was disposed of on 31 May 2017), and various adjusting items which are excluded so as not to distort the underlying performance and are explained later in this report.

 

 

Core

Held

Adjusting

Reported

 

Business

for sale

items

performance

 

£m

£m

£m

£m

Six months ended 30 September 2018

 

 

 

 

Revenue

77.7

-

-

77.7

Expenditure

(72.4)

-

(0.6)

(73.0)

Other income and net finance income

0.4

 -

 -

0.4

Profit/(loss) before tax

5.7

 -

(0.6)

5.1

Tax (expense)/credit

(1.0)

 -

0.1

(0.9)

Profit/(loss) after tax

4.7

 -

(0.5)

4.2

 

 

 

 

 

Profit before tax margin1

9.3

-

-

6.6

Basic earnings per share (p)

9.27

-

-

8.31

 

 

 

 

 

Six months ended 30 September 2017

 

 

 

 

Revenue

74.0

0.6

-

74.6

Expenditure

(69.0)

(0.6)

(1.1)

(70.7)

Other income and net finance income

0.4

 -

 2.6

3.0

Profit before tax

5.4

 -

1.5

6.9

Tax (expense)/credit

(1.4)

 -

0.1

(1.3)

Profit after tax

4.0

 -

1.6

5.6

 

 

 

 

 

Profit before tax margin1

8.4

-

-

9.2

Basic earnings per share (p)

7.75

-

-

10.87

1The Core Business profit margin, excluding the charge in respect of share options awarded to certain investment management teams under the revised remuneration arrangements. A full six month charge was incurred in this period for the first time.

  

 

 

Funds under Management and Administration

The primary driver of the Group's revenue is the level of FuMA. These stood at £25.0 billion at 30 September 2018 up 5.0% on the prior year end. This increase largely reflects the market performance during the period with the MSCI WMA Private Investor Balanced Index increasing by 5.5%.

 

 

30 September

2018

31 March 2018

Change

 

£bn

£bn

 %

 

 

 

 

Discretionary funds

13.2

12.3

7.3

Advisory Managed funds

1.7

1.8

(5.6)

Total managed funds

14.9

14.1

5.7

Advisory Dealing funds

1.4

1.4

-

Execution-only funds

8.7

8.3

4.8

Total administered funds

10.1

9.7

4.1

Total Funds under Management and Administration

25.0

23.8

5.0

 

 

 

 

MSCI WMA Private Investor Balanced Index

1,612

1,527

5.5

 

The growth in FuMA has largely been recorded in Discretionary and Execution-only services. Discretionary funds increased by 7.3% reaching £13.2 billion and are now representing 53% of total FuMA. The increase in Discretionary funds comprised a combination of market growth, net new inflows and upgrades of existing clients from Advisory services. Similarly, Execution-only assets have risen by 4.8% with our on-line platform Charles Stanley Direct registering an increase of 12.4% during the first half of the financial year.

 

The Investment Management Services division manages 83.2% of the total FuMA held across the four fund categories. Charles Stanley Direct administers 12.0% of assets; £2.6 billion through the online platform and £0.4 billion through the telephone execution service. The remaining 4.8% of assets are managed by the Asset Management division predominantly held in model portfolios, inheritance tax solutions and fiduciary management mandates.

 

Inflows from new clients of £0.6 billion were largely offset by outflows from existing (£0.4 billion) and lost (£0.3 billion) clients, with the £1.2 billion net increase in FuMA since 31 March 2018 predominantly driven by positive market performance of £1.3 billion.

 

Core Business revenue

Revenue from the Core Business grew by 5.0% to £77.7 million. The change in composition of the Group's revenue continued, with an increase in the proportion represented by fees, now 70.4%.

 

All of the operating divisions reported higher revenues than in the first half of 2018. In absolute terms, the main increase in the Group's revenue was generated by the Investment Management Services division, which grew revenues by £1.7 million through a combination of higher fees and interest offsetting lower commission. The three smaller divisions all recorded strong progress in revenues; Charles Stanley Direct up 34.6%, Financial Planning up 20.7% and Asset Management up 15.2%; reflecting the positive momentum in these activities.

 

Core Business expenditure

Core Business expenditure increased by £3.4 million (4.9%) on prior year to £72.4 million.

 

Staff costs represent the majority of the Group's expenditure. Of the £4.4 million additional staff spend in the period, £1.4 million relates to variable formulaic staff costs associated with higher revenues, £0.6 million from higher training and contractor costs and £0.7 million is due to a full six- month charge associated with share options granted to certain investment management teams under the revised remuneration arrangements part way through last year.

 

Core Business pre-tax profit

The Core Business pre-tax profit increased from £5.4 million to £5.7 million, representing a margin of 9.3% (H1 2018: 8.4%) adjusting for the non-cash share-based option arrangements referred to above. With the exception of the Financial Planning division, where costs have increased as we have invested in its capacity, all areas of the business have generated a profit, including Charles Stanley Direct. Whilst this shows an ability to generate sustainable profits, there is still a long journey ahead to meet and exceed our stated medium-term target for the Group of achieving a 15% pre-tax profit margin. Accordingly, the immediate focus is to identify methods for improving productivity in both the front and back offices whilst continuing to scale our holistic wealth management offering.

 

 

Investment Management Services

Asset Management

Financial Planning

Charles Stanley Direct

Core Business

 

£m

£m

£m

£m

£m

Six months ended 30 September 2018

 

 

 

 

Revenue

66.9

3.8

3.5

3.5

77.7

Direct fixed staff costs

(9.9)

(1.0)

(2.4)

(0.7)

(14.0)

Direct variable staff costs

(22.0)

(0.6)

(0.7)

-

(23.3)

Other direct operating expenses

(6.4)

(0.8)

(0.9)

(0.9)

(9.0)

Allocated costs

(21.8)

(1.4)

(1.2)

(1.7)

(26.1)

Operating profit/(loss)

6.8

-

(1.7)

0.2

5.3

Net finance and other non-operating income

0.2

0.2

 -

 -

0.4

Profit/(loss) before tax

7.0

0.2

(1.7)

0.2

5.7

 

 

 

 

 

 

Six months ended 30 September 2017

 

 

 

 

Revenue

65.2

3.3

2.9

2.6

74.0

Direct fixed staff costs

(9.8)

(0.8)

(1.7)

(0.6)

(12.9)

Direct variable staff costs

(20.1)

(0.6)

(0.8)

-

(21.5)

Other direct operating expenses

(6.0)

(0.7)

(0.6)

(1.2)

(8.5)

Allocated costs

(22.4)

(1.2)

(1.0)

(1.5)

(26.1)

Other income

0.2

 -

 -

 -

0.2

Operating profit/(loss)

7.1

-

(1.2)

(0.7)

5.2

Net finance and other non-operating income

0.2

 -

 -

 -

0.2

Profit/(loss) before tax

7.3

-

(1.2)

(0.7)

5.4

 

Adjusting items

To calculate the Core Business results the following adjusting items have been added back/deducted:

 

2018

2017

 

£m

£m

Reported profit before tax

5.1

6.9

Amortisation of client relationships

0.6

0.5

Other one of (gains)/charges1

-

(2.0)

Core Business profit before tax

5.7

5.4

 

1For details of adjusting items for the prior period, please refer to the Interim report and accounts for the six months ended 30 September 2017

  

 

Amortisation of client relationships: (£0.6 million credit)

Payments made for the introduction of customer relationships that are deemed to be intangible assets are capitalised and amortised over their useful life, which has been assessed to be 10 years. This amortisation charge has been excluded from the Core Business profit since it is a significant non-cash item which investors and analysts typically add back when considering profit before tax or earnings per share ratios.

 

Taxation

The corporation tax charge for the period was £0.9 million (H1 2018: £1.3 million) representing an effective tax rate of 17.2% (H1 2018: 19.6%). The reduction in the effective tax rate compared to the prior period is primarily due high levels of non-taxable income in the prior year and the recognition of deferred tax assets in the current period.

 

Earnings per share

The Group's reported basic earnings per share for the year were 8.31 pence (H1 2018: 10.87 pence). The Core Business basic earnings per share increased 19.6% to 9.27 pence from 7.75 pence in the first half of 2018.

 

Dividends

Consistent with our previously declared progressive dividend policy, the Board has declared an interim dividend of 2.75 pence per share (H1 2018: 2.5 pence per share) which will be paid on 18 January 2019 to shareholders on the register 14 December 2018.

 

Financial position

The Group improved its already strong financial position with total net assets at 30 September 2018 of £102.8 million (31 March 2018: £97.8 million). The principal balance sheet movements were an increase in the Group's cash reserves to £67.0 million (31 March 2018: £65.6 million), primarily as a result of cash generated from operations, and a £3.7 million reduction in the deficit attributable to the Group's defined benefit pension scheme.

 

Regulatory capital

Charles Stanley & Co. Limited, the Group's main operating subsidiary, is an IFPRU 125k Limited Licence Firm regulated by the FCA. In view of this, the Group is classified as a regulated group and subject to the same regime.

 

The Group monitors a range of capital and liquidity statistics on a daily, weekly and monthly basis. At 30 September 2018 the Group had regulatory capital resources of £75.5 million (H1 2018: £65.0 million). Our capital adequacy ratio has improved to 193% (FY 2018: 177%).

 

As required under FCA rules, the Group maintains an Internal Capital Adequacy Assessment Process (ICAAP), which includes performing a range of stress tests to determine the appropriate level of regulatory capital and liquidity that the Group needs to hold. The last review of the ICAAP conducted and signed off by the Board was in October 2018. Regulatory capital forecasts are performed monthly and take into account expected dividends and intangible asset acquisitions and disposals as well as budgeted and forecast trading results.

 

The Group's Pillar III disclosures are published annually on the Group's website (charles-stanley.co.uk) and provide further details about the Group's regulatory capital resources and requirements.

  

 

 

Condensed consolidated income statement

Six months ended 30 September 2018

 

Notes

 Unaudited H1 2019

Unaudited H1 2018

Audited FY 2018

 

£000

£000

£000

 

 

 

 

 

Revenue

3

77,699

74,580

150,860

Administrative expenses

3

(73,042)

(70,686)

(142,146)

Other income

3

78

184

278

Operating profit

 

4,735

4,078

8,992

Loss on disposal of property, plant and equipment

 

-

(7)

(45)

Gain on sale of business

 

-

707

707

Gain on sale of corporate investments

 

-

1,930

2,463

Impairment of freehold property

 

-

-

(995)

Finance income

 

382

171

343

Finance costs

 

(23)

(27)

(18)

Net finance and other non-operating income

 

359

2,774

2,455

Profit before tax

 

5,094

6,852

11,447

Tax expense

6

(874)

(1,343)

(2,715)

Profit for the period attributable to owners of the Parent Company

 

4,220

5,509

8,732

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

Basic

4

8.31p

10.87p

17.23p

Diluted

4

8.15p

10.73p

16.93p

 

 

 

Condensed consolidated statement of comprehensive income

Six months ended 30 September 2018

 

 

 

 Unaudited H1 2019

Unaudited H1 2018

Audited FY 2018

 

 

£000

£000

£000

 

 

Profit for the period

4,220

5,509

8,732

 

Other comprehensive income

 

 

 

 

Items that will never be reclassified to profit or loss

 

 

 

 

Remeasurement of the defined benefit scheme obligation

1,152

1,160

3,863

 

Related tax

(195)

(186)

(657)

 

Revaluation of freehold properties

-

-

208

 

Related tax

-

-

(17)

 

Fair value through other comprehensive income - unrealised gains and losses

35

-

-

 

 

992

974

3,397

 

Items that are or may be reclassified to profit or loss

 

 

 

 

Available-for-sale financial assets - unrealised gains or losses

-

562

494

 

Available-for-sale financial assets - realised gains and losses reclassified to profit or loss

-

(2,345)

(2,863)

 

Related tax

-

359

398

 

 

-

(1,424)

(1,971)

 

Other comprehensive income for the period, net of tax

992

(450)

1,426

 

Total comprehensive income for the period attributable to owners of the Parent Company

5,212

5,059

10,158

 

 

 

 

Condensed consolidated statement of financial position

Six months ended 30 September 2018

 

 

Notes

 Unaudited H1 2019

Unaudited H1 2018

Audited FY 2018

Assets

 

£000

£000

£000

Intangible assets

7

18,997

20,206

19,293

Property, plant and equipment

 

9,093

10,079

9,680

Net deferred tax asset

 

2,280

1,764

2,075

Financial assets at fair value through other comprehensive income

 

1,723

-

-

Financial assets at amortised cost

 

1,010

-

-

Available-for-sale financial assets

 

-

5,833

5,819

Trade and other receivables

 

-

922

945

Non-current assets

 

33,103

38,804

37,812

Trade and other receivables

 

145,346

108,888

178,024

Financial assets at fair value through profit or loss

 

2,292

53

100

Available-for-sale financial assets

 

-

864

-

Cash and cash equivalents

 

66,985

56,554

65,639

Current assets

 

214,623

166,359

243,763

Total assets

 

247,726

205,163

281,575

Equity

 

 

 

 

Share capital

 

12,691

12,674

12,686

Share premium

 

4,617

4,440

4,564

Own shares

 

(78)

(95)

(95)

Revaluation reserve

 

1,474

1,954

1,598

Merger relief reserve

 

15,167

15,167

15,167

Retained earnings

 

68,912

58,656

63,842

Equity attributable to owners of the Parent Company

 

102,783

92,796

97,762

Non-controlling interests

 

24

24

24

Total equity

 

102,807

92,820

97,786

Liabilities

 

 

 

 

Employee benefits

 

5,156

8,827

6,460

Provisions

 

1,915

1,699

1,813

Non-current liabilities

 

7,071

10,526

8,273

Trade and other payables

 

134,007

98,176

171,666

Current tax liabilities

 

1,298

663

1,214

Provisions

 

2,543

2,978

2,636

Current liabilities

 

137,848

101,817

175,516

Total liabilities

 

144,919

112,343

183,789

Total equity and liabilities

 

247,726

205,163

281,575

 

 

The financial statements were approved and authorised for issue by the Board of Charles Stanley Group PLC (company number 48796) on 21 November 2018.

 

Condensed consolidated statement of changes in equity

Six months ended 30 September 2018

 

Share capital

Share premium

Own shares

Re-valuation

 reserve

Merger relief reserve

Retained earnings

Total

Non-controlling interests

Total equity

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

31 March 2018

12,686

4,564

(95)

1,598

15,167

63,842

97,762

24

97,786

Adjustment on initial application of IFRS 15

-

-

-

-

-

579

579

-

579

Adjustment on initial application of IFRS 9

-

-

-

(159)

-

152

(7)

-

(7)

Profit for the period

-

-

-

-

-

4,220

4,220

-

4,220

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Financial assets at fair value through other comprehensive income:

 

 

 

 

 

 

 

 

 

- unrealised gains and losses

-

-

-

35

-

-

35

-

35

Remeasurement of defined benefit scheme liability:

 

 

 

 

 

 

 

 

 

- actuarial gain in the period

-

-

-

-

-

1,152

1,152

-

1,152

- deferred tax movement on scheme liability

-

-

-

-

-

(195)

(195)

-

(195)

Total other comprehensive income for the period

-

-

-

35

-

957

992

-

992

Total comprehensive income for the period

-

-

-

35

-

5,177

5,212

-

5,212

Dividends paid

-

-

-

-

-

(2,791)

(2,791)

-

(2,791)

Share transfer to employees

-

-

17

-

-

(17)

-

-

-

Share-based payments:

 

 

 

 

 

 

 

 

 

- value of employee services

-

-

-

-

-

1,970

1,970

-

1,970

- issue of shares

5

53

-

-

-

-

58

-

58

30 September 2018 (unaudited)

12,691

4,617

(78)

1,474

15,167

68,912

102,783

24

102,807

 

 

 

 

 

Condensed consolidated statement of changes in equity

Six months ended 30 September 2017

 

Share capital

Share premium

Own shares

Re-valuation

 reserve

Merger relief reserve

Retained earnings

Total

Non-controlling interests

Total equity

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

1 April 2017

12,672

4,429

-

3,378

15,167

53,424

89,070

24

89,094

Profit for the period

-

-

-

-

-

5,509

5,509

-

5,509

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Revaluation of available-for-sale financial assets:

 

 

 

 

 

 

 

 

 

- unrealised gains and losses

-

-

-

562

-

-

562

-

562

- realised gains and losses transferred to profit and loss

-

-

-

(2,345)

-

-

(2,345)

-

(2,345)

Deferred tax on available-for-sale financial assets

-

-

-

359

-

-

359

-

359

Remeasurement of defined benefit scheme liability:

 

 

 

 

 

 

 

 

 

- actuarial gain in the period

-

-

-

-

-

1,160

1,160

-

1,160

- deferred tax movement on scheme liability

-

-

-

-

-

(221)

(221)

-

(221)

- current tax relief

-

-

-

-

-

35

35

-

35

Total other comprehensive income for the period

-

-

-

(1,424)

-

974

(450)

-

(450)

Total comprehensive income for the period

-

-

-

(1,424)

-

6,483

5,059

-

5,059

Dividends paid

-

-

-

-

-

(2,281)

(2,281)

-

(2,281)

Own shares acquired

-

-

(95)

-

-

-

(95)

-

(95)

Share-based payments:

 

 

 

 

 

 

 

 

 

- value of employee services

-

-

-

-

-

1,030

1,030

-

1,030

- issue of shares

2

11

-

-

-

-

13

-

13

30 September 2017 (unaudited)

12,674

4,440

(95)

1,954

15,167

58,656

92,796

24

92,820

 

Condensed consolidated statement of changes in equity

Six months ended 31 March 2018

 

Share capital

Share premium

Own shares

Re-valuation

 reserve

Merger relief reserve

Retained earnings

Total

Non-controlling interests

Total equity

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

1 October 2017 (unaudited)

12,674

4,440

(95)

1,954

15,167

58,656

92,796

24

92,820

Profit for the period

-

-

-

-

-

3,223

3,223

-

3,223

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Revaluation of available-for-sale financial assets:

 

 

 

 

 

 

 

 

 

- unrealised gains and losses

-

-

-

(68)

-

-

(68)

-

(68)

- realised gains and losses transferred to profit or loss

-

-

-

(518)

-

-

(518)

-

(518)

Deferred tax on available-for-sale financial assets

-

-

-

39

-

-

39

-

39

Revalutaion of freehold property

-

-

-

208

-

-

208

-

208

Deferred tax on revalutaion of freehold property

-

-

-

(17)

-

-

(17)

-

(17)

Remeasurement of defined benefit scheme liability:

 

 

 

 

 

 

 

 

 

- actuarial gain in the period

-

-

-

-

-

2,703

2,703

-

2,703

- deferred tax movement on scheme liability

-

-

-

-

-

(436)

(436)

-

(436)

- current tax relief

-

-

-

-

-

(35)

(35)

-

(35)

Total other comprehensive income for the period

-

-

-

(356)

-

2,232

1,876

-

1,876

Total comprehensive income for the period

-

-

-

(356)

-

5,455

5,099

-

5,099

Dividends paid

-

-

-

-

-

(1,265)

(1,265)

-

(1,265)

Share-based payments:

 

 

 

 

 

 

 

 

 

- value of employee services

-

-

-

-

-

996

996

-

996

- issue of shares

12

124

-

-

-

-

136

-

136

31 March 2018 (audited)

12,686

4,564

(95)

1,598

15,167

63,842

97,762

24

97,786

 

Condensed consolidated statement of cash flows

Six months ended 30 September 2018

 

 

 

 Unaudited H1 2019

Unaudited H1 2018

Audited FY 2018

 

Notes

£000

£000

£000

Cash flows from operating activities

 

 

 

 

 

Cash generated from operating activities

9

4,316

2,694

15,485

Interest received

 

260

171

297

Interest paid

 

(23)

(27)

(18)

Tax paid

 

(1,226)

(1,387)

(2,985)

Net cash from operating activities

 

3,327

1,451

12,779

Cash flows from investing activities

 

 

 

 

Acquisition of intangible assets

 

(150)

(355)

(676)

Purchase of property, plant and equipment

 

(221)

(622)

(2,796)

Purchase of financial assets

 

(1,500)

(1,008)

(1,429)

Proceeds from sale of property, plant and equipment

 

-

-

22

Proceeds from sale of financial assets

 

2,545

2,094

3,780

Net cash outflow from disposal of business

 

-

(1,256)

(1,256)

Dividends received

 

78

184

278

Net cash generated/(used in) from investing activities

 

752

(963)

(2,077)

Cash flows from financing activities

 

 

 

 

Proceeds from issue of ordinary share capital

 

58

13

149

Purchase of ordinary shares for employee share schemes

 

-

(95)

(95)

Dividends paid

 

(2,791)

(2,281)

(3,546)

Net cash used in financing activities

 

(2,733)

(2,363)

(3,492)

Net increase/(decrease) in cash and cash equivalents

 

1,346

(1,875)

7,210

Cash and cash equivalents at start of period

 

65,639

58,429

58,429

Cash and cash equivalents at end of period

 

66,985

56,554

65,639

 

 

 

 

 

1. General information

The condensed consolidated financial statements included in this Interim financial report has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (IAS 34), as adopted by the European Union, and with the Disclosure and Transparency Rules (DTR) of the UK Financial Conduct Authority. The information in this Interim financial report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.

 

The condensed set of financial statements included in this Interim financial report for the period ended 30 September 2018 should be read in conjunction with Charles Stanley Group PLC's Annual report and accounts for the year ended 31 March 2018. A copy of the statutory accounts for that period has been delivered to the Registrar of Companies. The auditor reported on those accounts. Their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

The Interim report and accounts for the six month ended 30 September 2018 will be available in December from the registered office of the Company at 55 Bishopsgate, London, EC2N 3AS. It will also be available on the Company's website www.charles-stanley.co.uk

  

 

2. Application of new and revised IFRSs and changes in accounting policy

The accounting policies adopted in the preparation of the condensed consolidated financial statements are consistent with those followed in the preparation of the Group's Annual report and accounts for the year ended 31 March 2018, except for the mandatory standards and amendments that had an effective date prior to the start of the six month period. Aside from the adoption of IFRSs 9 and 15, which are described below, none of the new mandatory standards nor amendments had a material impact on the reported financial position or performance of the Group. The changes in accounting policies will also be reflected in the Group's consolidated financial statements for the year ended 31 March 2019.

 

A number of new standards and amendments to standards and interpretations are effective for periods beginning on or after 1 April 2019. These new standards are not applicable to these financial statements and they are not expected to have a material impact when they become effective, with the exception of IFRS 16 Leases, the impact of which is detailed below. The Group plans to apply these standards and amendments in the reporting period in which they become effective.

 

2.1 Changes in accounting policies - IFRS 9 Financial Instruments

In the current period the Group has applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments. IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new requirements for the:

I. Classification and measurement of financial assets and financial liabilities

II. Impairment for financial assets

III. General hedge accounting

 

The date of initial application is 1 April 2018. The Group has elected not to restate comparatives, and to recognise the impact of the new accounting requirements in opening retained earnings on the date of adoption as set out below. Accordingly the comparatives presented do not reflect the accounting requirements of IFRS 9 but rather those of IAS 39. On application of IFRS 9 the Group has recognised an increase in retained earnings, and corresponding decrease in revaluation reserve, of £0.2 million representing gains recognised in other comprehensive income in respect of financial assets now classified as fair value through profit and loss. The impact on the Income statement for the period is an additional £0.2 million of gains have been included in finance income which would have previously been recognised in other comprehensive income. 

 

2.1.1 Classification and measurement of financial assets

The basis of classification for financial assets under IFRS 9 has changed from those of IAS 39. Under IFRS 9 financial assets are classified as; amortised cost, fair value through profit or loss, or fair value through other comprehensive income which replace the IAS 39 categories of available-for-sale, loans and receivables and held to maturity. The new classification and measurement for the Group's financial assets on 1 April 2018, are set out in the table below.

 

 

IAS 39 classification

Carrying value under IAS 39 as at 31 March 2018

£000

IFRS 9 classification

Carrying value under IFRS 9 as at 1 April 2018

£000

Listed model investment portfolios

 

Available-for-sale

 

2,127

Fair value through profit and loss

 

2,127

Government gilts

Available-for-sale

 

2,004

 

Amortised cost

 

1,997

Unlisted equity investments

Available-for-sale

1,688

 

Fair value through other comprehensive income

 

1,688

Listed equity investments

Fair value through profit and loss

 

100

 

Fair value through profit and loss

 

100

 

Under the new financial asset categories the Group's treatment of gains and losses has changed when compared to the Group's previous accounting policy. Under IAS 39 the Group elected for all gains and losses on available-for-sale financial assets to be recognised in other comprehensive income and presented in the revaluation reserve until they were realised. Under the requirements of IFRS 9 the Group's financial assets held in model portfolios, the objective of which is to demonstrate that the Group's investment strategies are successful, are classified as fair value through profit or loss based on judgements required by IFRS 9 on the nature of the business model under which financial assets are managed. This has resulted in net gains being included in the income statement for the period, instead of in other comprehensive income. The revaluation reserve attributable to assets newly classified as fair value through profit or loss and fair value through other comprehensive income has been transferred to retained earnings on application of IFRS 9, whilst the fair value gains previously recognised on government gilts have been reversed. Gains recognised on fair value through other comprehensive income financial assets will never be recognised in the income statement.

2.1.2 Classification and measurement of financial liabilities

The classification and measurement of financial liabilities remains unchanged from IAS 39, therefore there has been no impact on the Group's financial liabilities on adoption of the new standard.

 

2.1.3 Impairment for financial assets

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

 

As at 1 April 2018, the Directors of the Company reviewed and assessed the Group's existing assets for impairment using reasonable and supportable information that is available without undue cost or effort in accordance with the requirements of IFRS 9 to determine the credit risk of the respective items at the date they were initially recognised.

 

In respect of IFRS 9, whether each significant class of the Group's financial assets is classified as amortised cost, fair value through profit or loss or fair value through other comprehensive income, the expected credit loss model has been applied. No additional impairments have been recognised on application of IFRS 9 as no material defaults are anticipated within the next 12 months.

 

2.1.4 Hedge accounting

IFRS 9 incorporates new hedge accounting requirements. The Group does not carry out, and does not currently intend to carry out, any material hedging activities which would be accounted for in accordance with IFRS 9.

 

2.2 Changes in accounting policies - IFRS 15 Revenue from Contracts with Customers

In the current period the Group has adopted IFRS 15 Revenue from Contracts with Customers. The Group has elected not to restate comparative information from prior periods upon adoption, instead transitional adjustments have been recognised in opening retained earnings on 1 April 2018. Accordingly, the comparative information presented does not reflect the accounting requirements of IFRS 15 but rather those of IAS 18.

 

IFRS 15 outlines a single comprehensive model for revenue arising from contracts with customers and supersedes existing revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.

 

The core principle of IFRS 15 is that an entity recognises revenue to reflect the transfer of goods or services to a customer, measured as an amount that the entity expects to be entitled to in exchange for those goods or services. In addition to the guidance on recognising revenue from contracts with customers, IFRS 15 also prescribes the treatment of costs associated with obtaining contracts where they are not within the scope of another standard.

 

2.2.1 Impact on revenue recognition

On application of IFRS 15 the Group has considered its three main revenue categories:

I. Investment management fees

II. Administration fees

III. Commission

 

The Group has applied the five-step model set out in IFRS 15 to its customer contracts. For each identified contract, the Group has analysed the various specific services which are provided. Where contracts with customers promise to deliver more than one of these distinct services, each individual service has a single performance obligation for which revenue is recognised independently of other services when the service is delivered. The transaction price for each service is separately set out in the contract. On this basis, there has been no material impact on the Group's revenue recognition in

this period, when compared to revenue that would have been reported in the period under IAS 18. As the Group's revenue recognition policies are unchanged there has been no impact on opening reserves. No additional performance obligations have been recognised in contracts with customers and there have been no changes in timing of recognition of revenue.

 

2.2.2 Capitalisation of costs previously expensed

IFRS 15 also prescribes that the incremental costs of obtaining a contract with a customer shall be recognised as an asset if the entity expects to recover those costs. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. For the Group, this changes the historic treatment of payments made to investment managers for introducing customer relationships to the Group. Under IFRS 15, all these payments will be capitalised if they are expected to be recovered. Previously, these payments were capitalised if made within the first 12 months of an investment manager joining the Group and payments made after the initial 12 months were expensed immediately to the income statement. On application of IFRS 15 the Group has recognised an increase in opening retained earnings of £0.6 million, representing £0.8 million capitalised costs which

had been previously expensed less £0.1 million of accumulated amortisation on the newly capitalised assets and £0.1 million in respect of deferred tax. For more details see note 7. The impact on the Income statement for the six-month period is an additional amortisation expense of £0.04 million on assets capitalised on application of the standard.

 

2.3 Standards not yet mandatorily effective - IFRS 16 Leases

IFRS 16 replaces IAS 17 Leases for annual periods commencing on or after 1 January 2019. The Group does not intend to adopt this standard early. IFRS 16 introduces a single, on-balance sheet accounting model for lessees and eliminates the classification of leases as either operating or finance leases. There are recognition exemptions for short-term leases and leases of low-value items.

 

On transition to IFRS 16, the Group is most likely to apply the modified retrospective approach with optional practical expedients.

 

The Group has performed a preliminary review of the impact of adopting IFRS 16 and concluded that its primary impact will be in respect of the Group's various leasehold offices. These leases will need to be shown in the statement of financial position, with a right of use asset and associated lease liability being recognised. These changes are expected to be material to the financial statements of the Group, but the full impact will not be quantifiable until the application date when the Group can accurately assess its incremental cost of borrowings. The Group had non-cancellable undiscounted operating lease commitments at 30 September 2018 of £21.7 million.

3. Operating segments

The Group has four operating divisions, representing the Core Business, which are its reportable segments. These segments are the basis on which the Group reports its performance to the Chief Executive Officer, who is the Group's chief operating decision-maker.

 

 

Investment Management Services

Asset Management

Financial

Planning

Charles Stanley Direct

Support Functions

Total

 

£000

£000

£000

£000

£000

£000

Six months ended 30 September 2018

 

 

 

 

 

Investment management fees

719

-

-

43,971

Administration fees

7,473

1,091

2,734

2,747

-

14,045

Total fees

48,514

3,302

3,453

2,747

-

58,016

Commission

18,414

511

6

752

-

19,683

Total revenue

66,928

3,813

3,459

3,499

-

77,699

Administrative expenses

(38,380)

(2,451)

(4,068)

(1,588)

(26,555)

(73,042)

Other income

45

29

2

2

-

78

Operating contribution

28,593

1,391

(607)

1,913

(26,555)

4,735

Allocated costs

(22,177)

(1,416)

(1,249)

(1,713)

26,555

-

Operating profit/(loss)1

6,416

(25)

(1,856)

200

-

4,735

Segment assets

240,099

487

610

6,236

294

247,726

Segment liabilities

143,555

135

551

678

-

144,919

 

1 The operating profit/(loss) per the above table is different to that presented in the divisional analysis within the Interim management report as the above table includes adjusting items which are excluded from the Core Business analysis. 

 

 

3. Operating segments (continued)

 

 

Investment Management Services3

Asset Management3

Financial Planning2

Charles Stanley Direct

Support Functions

Total

 

£000

£000

£000

£000

£000

£000

Six months ended 30 September 2017

 

 

 

 

 

Investment management fees

38,059

2,182

615

-

-

40,856

Administration fees

5,959

664

2,850

1,902

-

11,375

Total fees

44,018

2,846

3,465

1,902

-

52,231

Commission

21,152

460

16

721

-

22,349

Total revenue

65,170

3,306

3,481

2,623

-

74,580

Administrative expenses

(35,926)

(2,039)

(3,588)

(1,806)

(27,327)

(70,686)

Other income

184

-

-

-

-

184

Operating contribution

29,428

1,267

(107)

817

(27,327)

4,078

Allocated costs

(23,588)

(1,195)

(1,081)

(1,460)

27,327

-

Operating profit/(loss)1

5,843

72

(1,188)

(643)

-

4,078

Segment assets

191,783

487

5,133

7,466

294

205,163

Segment liabilities

108,215

115

2,241

1,772

-

112,343

 

1 The operating profit/(loss) per the above table is different to that presented in the divisional analysis within the Interim management report as the above table includes adjusting items which are excluded from the Core Business analysis.

 

2The revenues and costs of EBS Management PLC are included within the Financial Planning division up to 31 May 2017, when the disposal was completed.  

 

3The H1 2018 figures have been restated to reflect the transfer of an investment management team from Asset Management to Investment Management Services during 2018 in order to provide more appropriate reporting. 

 

 

3. Operating segments (continued)

 

 

Investment Management Services

Asset Management

Financial Planning2

Charles Stanley Direct

Support Functions

Total

 

£000

£000

£000

£000

£000

£000

Year ended 31 March 2018

 

 

 

 

 

 

Investment management fees

1,302

-

-

82,915

Administration fees

13,274

1,643

5,530

4,332

-

24,779

Total fees

90,492

6,038

6,832

4,332

-

107,694

Commission

40,738

900

25

1,503

-

43,166

Total revenue

131,230

6,938

6,857

5,835

-

150,860

Administrative expenses

(73,538)

(4,404)

(7,277)

(3,407)

(53,520)

(142,146)

Other income

233

45

-

-

-

278

Operating contribution

57,925

2,579

(420)

2,428

(53,520)

8,992

Allocated costs

(46,051)

(2,412)

(2,193)

(2,864)

53,520

-

Operating profit/(loss)1

11,874

167

(2,613)

(436)

-

8,992

Segment assets

269,316

487

5,123

6,355

294

281,575

Segment liabilities

180,769

262

2,623

135

-

183,789

 

1 The operating profit/(loss) per the above table is different to that presented in the divisional analysis within the Interim management report as the above table includes adjusting items which are excluded from the Core Business analysis.

 

2 The revenues and costs of EBS Management PLC are included within the Financial Planning division up to 31 May 2017, when the disposal was completed.  

4. Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to equity holders of the Parent Company by the weighted average number of ordinary shares in issue during the period.

 

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares to assume exercise of all potentially dilutive share options.

 

 

 Unaudited H1 2019

Unaudited H1 2018

Audited FY 2018

 

pence

pence

pence

Earnings per share

 

 

 

Basic earnings per share

8.31

10.87

17.23

Diluted earnings per share

8.15

10.73

16.93

 

The Directors believe that a truer reflection of the performance of the Group's underlying business is given by the measure of Core Business earnings per share, which is presented in the Interim management report. This measure is also followed by the analyst community as a benchmark of the Group's underlying performance.

 

 

Unaudited H1 2019

Unaudited H1 2018

Audited FY 2018

 

£000

£000

£000

Earnings

 

 

 

Earnings used in the calculation of basic earnings per share and diluted earnings per share

4,220

5,509

8,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited H1 2019

Unaudited H1 2018

Audited FY 2018

 

Number of shares

 

 

 

 

Weighted average number of ordinary shares used in the calculation of basic earnings per share

50,753

50,680

50,682

 

Effect of potentially dilutive share options

1,057

663

881

 

Weighted average number of ordinary shares used in the calculation of diluted earnings per share

51,810

51,343

51,563

 

               

 

 

 

5. Employee benefits

The Group also sponsors the Charles Stanley & Co. Limited Retirement Benefits Scheme, which is a funded defined benefit arrangement. This is a separate, trustee-administered fund holding the scheme assets to meet long-term pension liabilities of the scheme members.

 

Amounts included in the condensed consolidated statement of financial position

 

Unaudited H1 2019

Unaudited H1 2018

Audited FY 2018

 

 

 

 

 

Fair value of scheme assets

20,327

19,974

19,897

 

Present value of defined benefit obligation

(25,483)

(28,801)

(26,357)

 

Deficit in scheme

(5,156)

(8,827)

(6,460)

 

Liability in the condensed consolidated statement of financial position

(5,156)

(8,827)

(6,460)

 

 

Significant actuarial assumptions

 

Unaudited H1 2019

Unaudited H1 2018

Audited FY 2018

 

%

%

%

 

Inflation - Consumer Price Index (CPI)

2.40

2.40

2.30

 

Rate of discount

2.80

2.70

2.60

 

Allowance for pension payment increases of CPI

(or 5% p.a. if less than CPI, minimum 3% p.a.)

3.00

3.00

3.00

 

Allowance for revaluation if deferred pensions of CPI

(or 5% p.a. if less than CPI)

2.40

2.40

2.30

 

 

The mortality assumptions adopted at 30 September 2018 are 100% (30 September 2017 and 31 March 2018: 100%) of the standard tables S2PxA, Year of Birth, no age rating for males and females, projected using CMI_2015 converging to 1.00% p.a. These imply the following 100% life expectancies at age 65:

 

Unaudited H1 2019

Unaudited H1 2018

Audited FY 2018

 

%

%

%

 

Male retiring in current year

21.8

21.9

21.9

 

Female retiring in current year

23.7

23.7

23.8

 

Male retiring in twenty years

22.8

23.0

23.3

 

Female retiring in twenty years

24.9

25.0

25.5

 

 

 

 

6. Income taxes

 

Tax recognised in the condensed consolidated income statement

 

 

Unaudited H1 2019

Unaudited H1 2018

Audited FY 2018

 

£000

£000

£000

Current taxation

 

 

 

Current period expense

1,323

1,091

2,703

Adjustment in respect of prior periods

(2)

-

501

 

1,321

1,091

3,204

Deferred taxation

 

 

 

(Credit)/expense for the period

(426)

252

(336)

Adjustment in respect of prior periods

(21)

-

(153)

 

(447)

252

(489)

Total tax expense

874

1,343

2,715

 

In addition to amounts charged to the condensed consolidated income statement, deferred tax of £nil relating to the revaluation of fair value through other comprehensive income financial assets has been credited directly to equity (30 September 2017 and 31 March 2018: £0.4 million credit for available-for-sale financial assets). A further credit of £nil (30 September 2017 £nil and 31 March 2018: £0.02 million) in relation to deferred tax on revaluation of freehold property has been recognised directly to equity.

 

Current tax of £0.01 million has been credited directly to equity (30 September 2017: £0.04 million and 31 March 2018: £nil) and deferred tax of £0.4 million has been credited directly to equity (30 September 2017: £0.2 million credit and 31 March 2018: £0.07 million charge) and £0.2 million charged (30 September 2017: £nil and 31 March 2018: £nil) in respect of the defined benefit scheme and share option plans respectively.

 

Legislation to reduce the UK corporation tax rate to 17% from 1 April 2020 was substantively enacted in September 2016. The deferred tax asset at 30 September 2018 has been calculated based on the rate expected to apply when the relevant timing differences are forecast to unwind.

  

 

7. Intangible assets

 

 

 

 

Internally

 

 

 

Customer

generated

 

 

Goodwill

relationships

software

Total

Cost

£000

£000

£000

£000

At 1 October 2017

20,213

23,625

7,300

51,138

Additions

-

150

171

321

At 31 March 2018

20,213

23,775

7,471

51,459

Adjustment on application of IFRS 15

-

786

-

786

Additions

-

150

-

150

At 30 September 2018

20,213

24,711

7,471

52,395

Amortisation

 

 

 

 

At 1 October 2017

6,161

19,223

5,548

30,932

Charge for the period

-

549

685

1,234

At 31 March 2018

6,161

19,772

6,233

32,166

Adjustment on application of IFRS 15

-

89

-

89

Charge for the period

-

597

546

1,143

At 30 September 2018

6,161

20,458

6,779

33,398

Net book value

 

 

 

 

At 30 September 2018 (unaudited)

14,052

4,253

692

18,997

At 31 March 2018 (audited)

14,052

4,003

1,238

19,293

At 30 September 2017 (unaudited)

14,052

4,402

1,752

20,206

 

None of the intangible assets have been pledged as security.

 

Goodwill is allocated to the Group's operating divisions as follows:

 

Unaudited H1 2019

Unaudited H1 2018

Audited

FY 2018

Goodwill

£000

£000

£000

Investment Management Services

8,805

8,805

8,805

Charles Stanley Direct

5,247

5,247

5,247

 

14,052

14,052

14,052

 

7.1 Goodwill

The recoverable amount of goodwill allocated to a CGU1 is determined initially by calculating the CGU's fair value less costs to sell. If this is lower than the carrying amount or is not determinable, a value in use calculation is also prepared.

 

Fair value less cost to sell is calculated largely based on a percentage of FuMA. Where this approach is not appropriate, a turnover multiple is used. Fair value less costs to sell is calculated largely based on a percentage of FuMA (between 1.50% and 3.26%). The rates used in the fair value less cost to sell calculations are those implied by recent transactions in the market or, where appropriate, based on publicly available information for similar businesses. The inputs into fair value less costs to sell calculations are considered to be level 3 in the fair value hierarchy. The valuation techniques for calculating the recoverable amount are consistent with those used in prior periods.

 

At 30 September 2018, fair value less cost to sell was higher than the carrying value for each CGU when applying the percentage at the lower end of the range to FuMA. In validating the value in use determined for the CGUs, the Group performed a sensitivity analysis on the percentage of FuMA used. The Group believes that reasonably possible changes in this assumtion would not cause an impairment loss to be recognised for any of the CGUs. Therefore, no value in use calculations have been prepared. Hence, no impairment charge has been recognised in the consolidated income statement.

1Cash Generating Unit

 

7.1.1 Investment Management Services

The goodwill attributed to the Investment Management Services division of £8.8 million is represented by six underlying CGUs comprising acquired investment management teams in different locations across the UK. The largest CGUs are Edinburgh and Birmingham which represent 49% and 26% of the total goodwill held by the division respectively. The recoverable amount of goodwill related to Investment Management Services was assessed using fair value less costs to sell for the period ended 30 September 2018.

 

7.1.2 Charles Stanley Direct

The recoverable amount of goodwill relating to Charles Stanley Direct was assessed using fair value less costs to sell for the period ended 30 September 2018. The recoverable amount was determined to be higher than the carrying amount of the CGU and therefore the goodwill carrying value is adequately supported.

 

7.2 Customer relationships

Purchases of customer relationships relate to payments made to investment managers and third parties for the introduction of customer relationships.

 

7.3 Internally generated software

Internally generated software is software designed, developed and commercialised by the Group.

 

8. Dividends

The following dividends were declared and paid by the Parent Company during the period:

 

 

Unaudited H1 2019

Unaudited H1 2018

Audited

FY 2018

 

£000

£000

£000

Final dividend paid for 2017: 4.5p per share

-

2,281

2,281

Interim dividend paid for 2018: 2.5p per share

-

-

1,265

Final dividend paid for 2018: 5.5p per share

2,791

-

-

 

2,791

2,281

3,546

 

An interim dividend of 2.75 pence per share was declared by the Board on 21 November 2018. This will be payable on 18 January 2019 to registered shareholders at 14 December 2018.

 

 

9. Reconciliation of net profit to cash generated from operations

 

 

Unaudited H1 2019

Unaudited H1 2018

Audited

FY 2018

 

£000

£000

£000

Profit before tax

5,094

6,852

11,447

Adjustments for:

 

 

 

Depreciation

808

1,443

2,256

Amortisation of intangible assets

1,143

1,369

2,603

Impairment of freehold property

-

-

995

Share-based payments - value of employee services

1,888

1,030

2,026

Retirement benefit scheme

(152)

(541)

(205)

Dividend income

(78)

(184)

(278)

Interest income

(260)

(171)

(297)

Interest expense

23

27

18

Profit on disposal of financial assets

(41)

(1,957)

(2,471)

Loss on disposal of property, plant and equipment

-

7

45

Gain on disposal of business

-

(707)

(707)

Changes in working capital:

 

 

 

(Increase)/decrease in financial assets at fair value through profit or loss

(82)

20

(27)

Increase in provisions

9

-

-

Decrease/(increase) in receivables

33,623

37,716

(33,470)

(Increase)/decrease in payables

(37,659)

(42,210)

33,550

Net cash inflow from operations

4,316

2,694

15,485

 

10. Subsequent events

There were no material adjusting events prior to the date of this announcement.

 

The recent High Court ruling in the Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank Plc equalisation case requires defined benefit pension schemes to equalise Guaranteed Minimum Pension benefits for men and women. There is currently significant uncertainty on the financial impact of the ruling for the Group in relation the Charles Stanley Retirement Benefit Scheme's liabilities. The Group, alongside the Scheme's Trustees, actuaries and legal advisers, is undertaking a full recalculation of its Guaranteed Minimum Pension benefits. In the event that the Scheme's liabilities are assessed to have increased as a result of this ruling, the additional liability will be recognised in the second half of the financial year.

 

 

 

 

 

 

 

 

 

 

Forward-looking statements

The Interim management report for the six months ended 30 September 2018 has been prepared to provide information to shareholders to assess the current position and future potential of Charles Stanley Group. It contains certain forward-looking statements with respect to the Group's financial condition, operations and business opportunities. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. Any forward-looking statement is made in good faith based on information available to the Directors at the time of their approval of this report. Past performance cannot be relied on as a guide to future performance.

 

Directors' responsibilities

We confirm that to the best of our knowledge:

a) The condensed set of financial statements has been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting as adopted by the European Union (EU)

b) The Interim management report includes a fair review of the information required by: i) DTR 4.2.7R of the disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties facing the Group for the remaining six months of the financial year; and ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

By order of the Board

Julie Ung

Company Secretary

21 November 2018

 

Independent review report to Charles Stanley Group PLC

Conclusion

We have been engaged by Charles Stanley Group PLC (the "Company") to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of changes in equity, condensed consolidated statement of cash flows and the related explanatory notes.

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. The Directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.

 

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this 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 for our review work, for this report, or for the conclusions we have reached.

 

Simon Ryder

For and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

London

E14 5GL

21 November 2018

 


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Interim Results - RNS