24th Dec 2008 07:00
Brewin Dolphin Holdings PLC
(the "Company")
24 December 2008
Final Results for the period to 28 September 2008
The following represents extracts from the Company's Annual Report & Accounts for the period to 28 September 2008. The full Annual Report and Accounts can be accessed via the Company's website at www.brewindolphin.co.uk. Copies are in the process of being posted to shareholders.
Annual Report Page 3
HIGHLIGHTS
|
£10.2bn |
Discretionary funds £10.2 billion at 28 September 2008 (2007: £10.7 billion), a fall of 4.7% which compares to falls of 21.3% and 14.5% of the FTSE 100 Share Index and FTSE APCIMS Private Investors Series Balanced Portfolio Index respectively over the same period. |
|
£206m |
Total income £206 million (2007: £209 million). |
|
£36m |
Profit before tax £36.2 million (2007: £41.7 million). |
|
11.7p |
Earnings per share: Diluted earnings per share 11.7p (2007: 13.8p). Basic earnings per share 12.2p (2007: 14.5p). |
|
7.1p |
The total dividend for the period is 7.1p# per ordinary share (2007: 6.875p##) a 3.3% increase. |
|
Proposed final dividend 3.55p per share up 1.4% against 3.5p per share in 2007. |
# paid September 2008 and payable April 2009, ## paid October 2007 and April 2008
Annual Report Page 4
EXECUTIVE CHAIRMAN'S STATEMENT
In a year characterised by difficult and volatile trading conditions, your Company achieved a relatively resilient performance reflecting the fundamental strengths and scale of the business.
Pre-tax profit for the period to 28 September 2008 was £36 million, some 13% down on last year, against a fall in the FTSE 100 index of 21%. This disguises areas of some material progress, particularly within our mainstream Investment Management business.
As in previous years we have benefited from the arrival of new investment managers and financial planners who have joined the Company. We expect this to continue. During the last year we have opened new offices in Chester and Nottingham and have expanded and relocated our offices in Birmingham, York, Jersey, Dundee, Inverness, Lymington and Newcastle. New teams have joined us in Belfast, Cheltenham, Exeter, Leeds and Taunton and ten new teams have arrived in London during the year.
Overall, as the UK's largest independent private client investment manager focused on long term equity investment, we have a good platform to continue to develop despite the uncertain economic environment.
Investment Management
Investment Management is the largest part of your Group's activities and it has performed well in somewhat adverse market circumstances, increasing both income and profit. Total Funds Under Management have declined from £21.6 billion to £18.7 billion over the year, but most importantly the decline in the discretionary element from £10.7 billion to £10.2 billion is less than 5%, while the decrease in advisory funds has been 22% from £10.9 billion to £8.5 billion more in line with the market. The trend towards our full discretionary management service from advisory continues and has accelerated.
Investment Banking
While last year saw Investment Banking enjoy a record breaking performance, this year has, as highlighted at the half year, been in stark contrast, with income dropping by more than half and operating profit by some 93%. Whilst at first glance this may appear dramatic, the Division still remained profitable and continues to perform favourably in comparison to many of its peer group.
Regulation
As ever, regulation features prominently in the day-to-day workings of your Group and it remains at the forefront of Board Policy to see that the Group meets all the standards and requirements of modern day regulation. Building on the work we did for MiFID last year, this year we have worked hard to ensure that your firm meets the six outcomes of the FSA's Treating Customers Fairly (TCF) project. It is integral to your Group's ethos that we treat our clients fairly.
Re-Branding
As part of the re-branding exercise which was carried out in the Spring of 2008, there is a different appearance to this year's Annual Report and Accounts. We now operate under the single name of Brewin Dolphin in England, Wales, Northern Ireland and the Channel Islands and it is planned that we will also do so in Scotland from the Spring of 2009. We have adopted a new logo and style which we believe is not only fresh and up-to-date, but as importantly, reflects our culture and heritage.
Strategy
Brewin Dolphin remains committed to pursuing its objectives of achieving long term growth and return for shareholders through the provision of a high quality service to all our clients. Pursuit of these objectives will safeguard the interests of all our stakeholders.
Annual Report Page 5
Dividend
The Board is pleased to announce that we are proposing a final dividend of 3.55p, to be approved at the 2009 AGM and payable on 6 April 2009.
The Board
As reported last year, John Hall and Vikram Lall retired at the last Annual General Meeting. Both Simon Miller and Robin Bayford will be standing for re-election at the AGM and I commend them to you.
Conclusion
Once again the results in the year under review have been achieved thanks to the hard work of all the Brewin Dolphin people as well as the continued support of our clients, for which we are extremely grateful.
I believe that your Group has performed well during this period but we cannot consider ourselves immune from stock market conditions and it is likely that this will be reflected in our results for the year ahead. Clearly during these more turbulent times it is as important as ever to keep a grip on cost control and this we are actively doing.
There are many lessons to be learned from the turmoil of recent months. In particular, there is now a wide recognition that debt in whatever sphere must be kept in proportion, which clearly emphasises the importance of equity. We are very fortunate to serve a client base that has a good understanding of stock markets and practices and true long term investments. I believe firmly in the merits and soundness of our business model and that this will help the Company's prospects.
Jamie Matheson
26 November 2008
Annual Report Page 6
BUSINESS REVIEW
Investment Management Report
David McCorkell - Executive Director - Head of Investment Management
It is a great pleasure to report a record year for the Investment Management Division in what has been an unprecedented year for global stock markets.
Investment Management operating profits rose to £29.6 million from £27.7 million, an increase of 7% over the previous period on turnover of £193.7 million, an increase of 8% over the 2007 figure of £179.7 million, a creditable performance considering the market downturn in the second half.
Indices and Value of Funds under Management
|
At 28 |
At 30 |
||
|
September |
September |
||
|
Indices |
2008 |
2007 |
% Change |
|
FTSE APCIMS Private |
|||
|
Investor Series |
|||
|
Balanced Portfolio |
2,586 |
3,029 |
(14.6%) |
|
FTSE 100 |
5,089 |
6,467 |
(21.3%) |
|
Funds |
£ billion |
£ billion |
|
|
Discretionary funds |
|||
|
under management |
10.2 |
10.7 |
(4.7%) |
|
Advisory funds under |
|||
|
management |
8.5 |
10.9 |
(22.0%) |
|
Total managed funds |
18.7 |
21.6 |
(13.4%) |
Total funds under Discretionary Management at the year end were £10.2 billion against £10.7 billion, a fall of 4.7% which compares to falls of 21.3% and 14.6% of the FTSE 100 Share Index and FTSE APCIMS Private Investors Series Balanced Portfolio Index respectively. Funds under Advisory Management were £8.5 billion, a fall of 22%, giving us total funds under management of £18.7 billion, a fall of 13.4% overall. These figures include £1.2 billion of new funds brought in by our new teams.
Financial Performance (£'m)
|
Total |
Operating |
Total |
Operating |
|
|
Income |
Profit |
Income |
Profit |
|
|
2008 |
2008 |
2007 |
2007 |
|
|
Discretionary Portfolio Management |
123.0 |
18.8 |
110.4 |
15.2 |
|
Advisory Portfolio Management |
70.7 |
10.8 |
69.3 |
12.6 |
|
193.7 |
29.6 |
179.7 |
27.8 |
|
It is pleasing to report that fee, interest and other recurring income has increased by 23% in the year, with commission income falling by 7%. Recurring income is now 55% (2007: 49%) of the total income. Significantly this improvement in the quality of our income is not restricted to the discretionary side of the business, advisory fees and other recurring income has increased by 25% to £22 million, 31% of advisory revenue.
The Business
During the period further teams of good quality fund managers have continued to join the Group, along with their clients. In total, 21 new teams have arrived during the period. The largest team consisted of six divisional directors and 18 staff, who joined us in Nottingham where we opened a new office. The smallest team of one divisional director and one assistant arrived in Guernsey in September. We look forward to all these teams making a positive contribution to our results next year.
We now have a total of 660 client executives and investment managers, a net increase of 44 over the period.
Financial Planning has continued to grow with the number of qualified Financial Planners increasing to 63 across the Group. Financial Planning income has increased by 16.5% during the period. It is a strategic objective to provide qualified financial and tax planning advice in or near to all our branches and I am pleased to report that recruitment this period has brought us closer to that goal and to providing a complete wealth management service for all our clients. This strategy has delivered a net increase in pension funds managed around the Group to over £2 billion (£1.9 billion in 2007).
During the period, the roll out of the new Investment Management system, eXimius, was successfully completed. It provides superior investment management tools, individual risk profiling of clients' portfolios and enhanced performance measurements. The next phase of this development will shortly deliver an improved on-line reporting system for our clients.
Stocktrade provides specialist execution-only services to 30 companies in the FTSE 100, a further 130 listed companies, four Building Societies and some 150 Investment Managers and IFAs. Stocktrade has also built up a number of partnerships within the SIPP administration industry. These services, which include both 'Dual Branding' and 'White Labelling' for agents, have grown in popularity as investors have sought alternatives to traditional pension plans and we believe they are set to dominate the personal pension market for some time to come.
Annual Report Page 7
We have enhanced our research department during the period. The team is entirely dedicated to servicing the needs of our clients through focused research into UK and International equities, fixed interest securities, collective investments and structured products. The department analyses and monitors the most appropriate investment vehicles or securities, which our investment managers can assess for their clients' individual needs. Our analysts do not manage client monies and are fully focused on research for the benefit of the Group as a whole.
This year has seen the Financial Services Authority (FSA) introduce its Treating Customers Fairly (TCF) initiative. Whilst we believe we always treat our clients fairly, we now have improved processes in place to demonstrate that we do so and to provide more detailed management information which we will use to improve the efficiency of our business.
I must pay tribute to all our investment managers across the Group who have looked after their clients during such testing times. I must also thank our support staff without whom we would not be able to look after our clients' needs. Existing clients have told us in recent surveys that being able to talk to someone they know and trust is their most important criterion and new clients are joining us having lost confidence in managing their own investments. It is for these reasons that we believe our business model is the right one for the times ahead. We are also fortunate that in principle we are a long only, long term investment house, committed to providing a bespoke and personal service for our clients and to championing the interests of all private investors wherever we can.
Investment Banking Report
Graeme Summers - Director of Brewin Dolphin Limited - Head of Investment Banking
Brewin Dolphin Investment Banking Division provides research, sales and corporate advisory services to over 100 institutional clients and more than 120 quoted companies.
This has been a much more difficult year for our industry than last year as a result of the global financial crisis. Although we are a business with strong risk controls, we have still been impacted by the knock-on effects of this crisis on capital markets. As a result, the Investment Banking Division delivered a significantly reduced contribution to the Group for the period under review.
Weak markets resulted in lower trading commissions than last year. However, the sales and research team still achieved a reasonable performance, as a result of its continuing focus on delivering sound, impartial investment advice to our institutional clients. As an aside, it was pleasing that our research team of 15 analysts was recognised at the 2008 AIM Awards in October, picking up the award for Best AIM Research.
Encouragingly, the number of our corporate clients remained broadly similar to last year, as a result of our focus on building long-term relationships and adding value by providing a professional service and quality advice. However, the substantial drop in the amount of fund-raising activity by quoted companies across all markets reduced the opportunity for corporate fees.
Overall, we believe the results of the division demonstrate a robust performance comparing particularly favourably with the performances of many in our peer group over the same period. The fact that we have been able to achieve these creditable results in such difficult markets is, without doubt, a reflection of the strength of the whole team.
In the second half of the year, we responded in a measured way to market conditions by reducing costs across the division and this has provided a strong platform for the future.
Whilst in the short term, capital markets may continue to be difficult, our highly respected team of professionals will seek to build on its strong credentials, prudent business model and long-term client relationships.
Looking forward, we believe that there are significant opportunities for the business and we will continue with our focused strategy of investing for the future. Our objective is to deliver a meaningful and growing contribution to the Group as markets recover and into the longer term.
Annual Report Page 8
OPERATING AND FINANCIAL REVIEW
Robin Bayford - Finance Director
This review has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for these strategies to succeed. It should not be relied on by any other party for any other purpose. The review contains forward looking statements, these should be treated with caution due to inherent uncertainties associated with such statements.
Business Overview
The Brewin Dolphin Group has one principal operating Company, Brewin Dolphin Limited ("BDL"), which is regulated by the Financial Services Authority ("FSA"). Its main business is that of an Investment Manager with an Investment Banking arm.
Aims, Strategy and Objectives
The Brewin Dolphin Vision and Mission
To be the leading independent Investment Management and Investment Banking business maintaining trust through complete integrity, fair treatment of all our clients and offering a bespoke service which adds value via personal contact.
To grow our business to the benefit of our shareholders by maintaining the quality and increasing the depth of service rendered to our clients.
Objectives
|
● |
Deepen our service offering to our client base. |
|
● |
Expand our branch network. |
|
● |
Build our brand. |
|
● |
Maintain a high level of staff retention. |
Key Performance Indicators ("KPIs")
The main KPIs used by management are:
|
● |
Profit per team. |
|
● |
Team return on funds under management. |
|
● |
Business facing income to salary ratios. |
|
● |
Overheads and business support costs as a percentage of total income. |
|
● |
Staff turnover ratios. |
Performance in Period
|
● |
Profit per business segment is reported on in note 6 to the financial statements and is further explained below. |
|
● |
The aggregate return on funds was as follows: |
|
2008 |
2007 |
2004* |
||
|
Average return on discretionary funds |
1.18% |
1.13% |
1.00% |
|
|
Average return on advisory funds |
0.73% |
0.66% |
0.53% |
|
|
* 2004 figures have been included to provide an appropriate benchmark based on a 5 year view. |
||||
|
● |
Business facing income to salary ratios were as follows: |
|
2008 |
2007 |
2004* |
||
|
Investment management |
4.5 |
4.8 |
4.2 |
|
|
Investment banking |
2.5 |
5.3 |
4.3 |
|
|
* 2004 figures have been included to provide an appropriate benchmark based on a 5 year view. |
||||
Investment Management's business facing salary ratio has fallen due to new teams in their first year bringing in £6.8m of revenue with salary costs of £4m. It is anticipated that these businesses will improve the ratio once fully up and running.
Reduced turnover, due to very difficult market conditions, has adversely affected Investment Banking's ratio.
|
● |
Overheads and business support costs as a percentage of income: |
|
2008 |
2007 |
2004* |
|
|
Total fixed business support costs as a % of income |
19.3% |
15.6% |
18.1% |
|
Total fixed overhead costs as a % of income |
11.6% |
9.6% |
9.8% |
|
* 2004 figures have been included to provide an appropriate benchmark based on a 5 year view. |
|||
Total fixed business support costs and fixed overhead costs as a proportion of income have both increased in the current period due mainly to falling investment banking income and the cost increases highlighted within the Investment Management section below.
|
● |
Staff turnover ratios |
Business facing staff losses were 10% in 2008 (2007:10%) with gains of 21% (2007:18%).
Annual Report Page 9
Targets
On the investment management side of the business the principal target is to grow discretionary funds by 5% p.a. above market movement. This has been exceeded in the year by 16%. On the investment banking side the main aims are to increase the average size of the mandate and grow recurring income; here retainers have increased by 41% in the period to £3m.
Results for the 2008 Financial Period
The Group's total income fell by 1%, pre-tax profits fell by 13% and fully diluted EPS by 15% in the period, against the background of a 21% drop in the FTSE 100 index. Full details are shown in the consolidated income statement and note 6 to the financial statements and a review of each division is included in the Business Review, with further analysis provided below.
Current, Future Performance and Profit Dynamics
The performance in the period, successful re-branding and future prospects are outlined in the Executive Chairman's Statement and the Business Review.
The Group has substantial operational gearing arising from its fixed cost base, mitigated by geared profit share. It is estimated that the Group would break even, after measured cost reductions, other things being equal, at a FTSE 100 index level of 2,500.
Competition and Markets
BDL is the UK's largest independent investment manager and one of the largest regional investment bankers. The investment management market is a growing sector, competition is relatively fragmented and price competition is low.
Resources available to the Group
The Group's main resource is its staff: investment managers, investment banking staff and support staff, see note 7 to the financial statements.
To support our business facing personnel we have a strong research department and up-to-date computer systems, together with offices located around the country, so we are able to give a truly personal service to clients.
Corporate Responsibility
Environment, Health and Safety and Social and Community responsibility issues are covered in the Directors' Report, as are key employment policies which are also dealt with in the Remuneration Report.
Investment Management
The investment management division has grown its total income by 8% to £193.7m in 2008 and operating profits by 7% to £29.6m.
|
This is further analysed as follows: |
||
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
Total income |
193,696 |
179,739 |
|
Salaries |
(67,504) |
(64,831) |
|
Other operating costs |
(64,326) |
(51,791) |
|
Pre-profit share profit |
61,866 |
63,117 |
|
Profit share |
(32,310) |
(35,408) |
|
Operating profit |
29,556 |
27,709 |
|
The above income is further analysed as follows: |
||
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
Fee, interest and other recurring income |
106,960 |
86,274 |
|
Commission |
86,736 |
93,465 |
|
193,696 |
179,739 |
Fee, interest and other recurring income have increased by 23% in the period to 55% of total revenue (2007: 48%), with commission income falling by 7%.
Salary costs in 2007 included a one-off £5 million incentive. £4 million of the underlying salary increase in 2008 is attributable to new teams recruited in the period and the balance relates to extra business support costs and a general 3% salary increase.
The £13 million increase in other operating costs arises from additional computer and communication costs, a new data centre and six new offices, including new premises in Newcastle.
The increase in computer costs was largely due to the introduction of a new front office system, eXimius, including double running costs throughout the period. The old system was successfully turned off in October 2008; costs will now reduce.
Annual Report Page 10
Teams
Investment management is broken down into small profit centres for profit share purposes. Normally the senior members of each team have a shareholding in the Group, which is material to them, so that the long-term interest of the Group is more important than any one year's profit share. Individual team's figures, both as to profit and return on funds, are reported in the Group Management Accounts. It is an absolute rule that a loss in one profit centre does not impinge on other centres; though such losses reduce Group Management's profit share.
New Teams
During the period the Group attracted twenty one new teams; the largest consisting of six divisional directors and eighteen staff and the smallest one divisional director and one assistant. During the period new teams brought in discretionary funds of £880m and advisory funds of £312m. This resulted in £6.8m of additional revenue but a loss of £0.6m. The most successful team brought in revenue of £1.6m, making a profit before tax of £0.5m, and a team joining in the last six months of the financial period made a loss of £0.6m as it built up its numbers. As a rule of thumb, the Group looks to fixed salaries being covered 4 to 5 times by revenue when assessing potential new teams once the teams' clients have been transferred.
Discretionary Investment Management
Discretionary investment management total income has increased by 11% to £123m and operating profits by 24% to £18.8m.
Discretionary funds have decreased by 5% from £10.7bn to £10.2bn, against a market fall of 21%.
Advisory Investment Management
Advisory investment management total income has increased by 2% but operating profits have fallen by 14% to £10.8m.
Advisory funds have decreased by 22% from £10.9bn to £8.5bn in line with the market.
Advisory fees and other recurring income have increased by 25% to £22 million helping to underpin the increase in margin shown above.
Investment Banking
Investment Banking saw total income and operating profits fall by 57% and 93% respectively. This was due to very severe market conditions in 2008.
|
This is further analysed as follows: |
||
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
Total income |
12,799 |
29,540 |
|
Salaries |
(5,113) |
(5,546) |
|
Other operating costs |
(5,781) |
(5,091) |
|
Pre-profit share profit |
1,905 |
18,903 |
|
Profit share |
(907) |
(11,856) |
|
998 |
7,047 |
|
|
Redundancy costs |
(500) |
- |
|
Operating profit |
498 |
7,047 |
In 2008, £500,000 of redundancy costs were incurred in the second half of the period.
This division has a very geared profit share arrangement which is designed to reduce peaks and troughs in operating profit in this more volatile business.
Risks and Uncertainties
The principal risk to the business remains adverse movements in the market in the short term. However, during the period there has been a substantial movement in the mix of funds under management from equity towards cash and bonds which has reduced our dependence on the level of the FTSE 100 Index.
Risks to the business are reviewed and monitored daily by the Investment Management Risk and Controls Committee and the Investment Banking Risks and Controls Committee; they are formally reviewed by the Board twice a year. The Group's risk management policies and procedures are also discussed in the Corporate Governance Statement and financial risks and risk management form part of note 25 to the financial statements.
Annual Report Page 12
OPERATING AND FINANCIAL REVIEW (continued)
Risks and Uncertainties (continued)
At the last Board meeting in October 2008 the following major financial and non financial risks were identified or reconfirmed:
|
Risk Type |
Risk |
Key Mitigators |
|
Credit risk |
Counterparty risk |
Majority of clients are small with an average portfolio size of £350,000. All institutional |
|
transactions are cash against delivery. |
||
|
Trading exposure |
Rigorous internal checks, with formal sign offs on underwritings. |
|
|
The firm never underwrites without full sub-underwriting in place. |
||
|
Strong controls and procedures in place. |
||
|
£2 million limit on principal account trading. |
||
|
Earnings risk |
Loss of front office staff |
Wide staff shareholdings. |
|
Contracts of employment with six months' garden leave. |
||
|
Good profit share. |
||
|
Interest rate risk |
Interest rate risk |
At the period end only £250m of clients' deposits was out on the money market for more than |
|
one month and this was out for under two months. |
||
|
Liquidity risk |
Bank default and other |
Several banks are used to hold both client and firm's money, with levels being constantly |
|
systemic risk |
reviewed. |
|
|
Only bank with major UK clearers and one Irish clearer. The Irish government guarantees deposits |
||
|
in this clearer. |
||
|
Market heavily regulated. |
||
|
Capital Adequacy |
Capital adequacy surplus maintained greater than 50% of regulatory requirement. |
|
|
Large cash balances. |
||
|
Legal and compliance risk |
Data protection |
Systems and controls in place to restrict access to client and employee data including: |
|
Centralised control of client data; |
||
|
Clear desk policy; |
||
|
Data Protection Steering Group; and |
||
|
Secure disposal of sensitive documents. |
||
|
Fast changing regulatory |
Strong compliance and internal audit functions. |
|
|
environment leading to breach of rules |
||
|
New business and |
New Product and Services Department with dedicated staff responsible for the review of new |
|
|
product lines |
products and services. |
|
|
Operational and |
Business continuity |
Large number of branches. |
|
IT risk |
Back up computer site. |
|
|
Two networks. |
||
|
Data integrity |
Change to data requires authorisation. |
|
|
Exception reporting. |
||
|
Electronic dealing errors |
Close management supervision. |
|
|
Electronic solution partially implemented. |
||
|
Internet failure |
Security checks and upgrades on a regular basis. |
|
|
Regular performance of attack and penetration testing. |
||
|
Two back up suppliers. |
||
|
Project control |
Staged reviews of major projects plus Programme Office. |
|
|
Other risk |
Acquisition of new teams |
Strong vetting system for new recruits. |
|
Financial Crime |
Segregation of duties. |
|
|
Authorisation processes. |
||
|
Reputational risk |
Poor investment performance |
Good in-house research. |
|
Peer review. |
||
|
Compliance monitoring. |
||
|
Strong training and appraisal programme. |
||
|
Treating customers fairly embedded into the ethos of the firm. |
||
|
Settlement risk |
Settlement failure |
Experienced management team monitors settlement performance. |
Annual Report Page 13
Dividend
The Board has increased the total dividend for the period to 7.1p# per ordinary share (2007: 6.875p##), a 3.3% increase.
#paid September 2008 and payable April 2009, ##paid October 2007 and April 2008.
Cash Flow and Capital Expenditure
2008 saw a significant £31 million cash outflow. During the period the Group paid three dividends rather than the usual two as we moved the payment of our interim dividend from October back to September where it used to be paid some years ago, resulting in a cash outflow of £21.5 million. £10.7m of cash was spent on acquiring new teams and £15.8m on fixed assets, mainly computer related costs.
The Firm's cash has increased from £38.0m at the period end to £53.5m at the date of approval of this report.
Capital Structure, Treasury Policy, Liquidity and Capital Requirement
At 28 September 2008 the Group had net assets of £125.2m (2007: £115.3m). Net assets excluding goodwill and shares to be issued of £57m (2007: £60m), broadly represent the Group's capital for regulatory purposes. These net assets were largely represented by net cash and cash equivalents of £57m (2007: £87m), including £22m (2007: £19m) of client settlement money. At the period end there was a surplus of net assets for regulatory capital adequacy purposes of £23m (2007: £24m). It is the intention to significantly reduce capital expenditure in 2009.
The Group's treasury policy has been revised during the period to take account of recent economic events. Over the summer both client and firms cash were diversified so that by the period end 48% was with the Bank of Scotland, 45% with Royal Bank of Scotland, 6% with Lloyds TSB and the remaining 1% at the Bank of New York and Euroclear.
£250m of this money was held at 45 days notice, and the rest was held on demand or under 15 days.
Since the period end there has been further diversification so that at the date of this report on shore client money was held 28% Bank of Scotland, 31% Royal Bank of Scotland, 22% Lloyds TSB and 19% Allied Irish Bank. The Group's own money was also spread amongst the banks above.
Our policy is to hold our clients' and Group's money at major UK clearers or at institutions supported by a sovereign guarantee. Our client money is ring fenced under the FSA's client money rules.
Client stock is also ring fenced in our nominee company. Stock is settled via the Crest System which is owned by Euroclear, a highly rated bank, and, in the case of foreign stock, the Bank of New York.
Currency risk is normally insignificant with all transactions matched on a bargain by bargain basis. At the period end net currency exposure was £342,000 (2007: £273,000).
Further details to the Group's approach to capital and liquidity risk management are provided in note 25 to the financial statements.
Post Balance Sheet Events
There were no material post balance sheet events.
Accounting Policies
There were no changes in accounting policies in the period; the introduction of IFRS 7 has led to additional disclosures being provided about financial instruments.
Going Concern
After making appropriate enquiries, the Directors have formed a judgement that there is a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
Robin Bayford
Finance Director
26 November 2008
Annual Report Page 23 (Extract)
Internal Control and Risk Management
The Board undertakes a full review of all aspects of the Group's business, identifies the main risks to the business and identifies the key controls to counter these risks. Day-to-day review and monitoring has been delegated to both the Investment Management Risk Controls Committee ("IMRCC") and Investment Banking Risk and Controls Committee ("IBRCC") of Brewin Dolphin Limited, the activities of which include overseeing and reviewing the control, monitoring and reporting frameworks and related procedures for risk management. The IMRCC committee meets weekly, and the IBRCC monthly.
The Compliance department and Internal Audit carry out regular reviews. The Board considers reputational risk, portfolio performance and the added risk of taking on new teams and business streams. The level, detail and nature of complaints are carefully monitored.
The Directors are responsible for the system of internal control established by the Group, reviewing its effectiveness and reporting to the shareholders that they have done so. They report as follows:
|
i. |
There is an ongoing process for identifying evaluating and managing the significant risks faced by the Group as outlined above. This has been in place for the period under review and up to the date of approval of the annual report and accounts. It |
Annual Report Page 24 (Extract)
|
is regularly reviewed by the Board and accords with the revised Turnbull guidance in the Combined Code. Any system of internal control is designed to highlight and manage rather than to eliminate the risk of failure to achieve business objectives, and can provide only reasonable, and not absolute, assurance against material misstatement or loss. Steps are being taken to embed internal control and risk management further into the operations of the business and to deal with areas of improvement which come to management's and the Board's attention. |
|
|
ii. |
Financial results, key operating statistics and controls are reported to the Board monthly, and variances are followed up vigorously. Monthly reports are received from the compliance and internal audit functions. |
|
iii. |
The Directors have reviewed the Group's system of internal controls and compliance monitoring and believe that these provide assurance that problems have been identified on a timely basis and dealt with appropriately throughout the period under review and up to the date of approval of the annual report and accounts. |
Annual Report Page 31 (Extract)
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
|
1. |
the financial statements, prepared in accordance with IFRS, 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; and |
|
2. |
the Directors' Report, together with information provided in the Executive Chairman's Statement, Business Review and the Operating and Financial Review, includes a fair view 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 the description of the principal risks and uncertainties they face. |
By order of the Board
Executive Chairman
J Matheson
26 November 2008
Annual Report Page 32
The audit report set-out below has been extracted from the Annual Report and Accounts and expresses the auditor's opinion on the full financial statements, not all of which are reproduced in this announcement.
INDEPENDENT AUDITORS' REPORT
Independent Auditors' Report to the members of Brewin Dolphin Holdings PLC
We have audited the group and parent company financial statements (the "financial statements'') of Brewin Dolphin Holdings PLC for the 52 week period ended 28 September 2008, which comprise the Consolidated Income Statement, the Consolidated and Parent Company Statements of Recognised Income and Expense, the Consolidated and Parent Company Balance Sheets, the Consolidated and Parent Company Cash Flow Statements and the related notes 1 to 34. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors' Remuneration Report that is described as having been audited.
This report is made solely to the company's members, as a body, in accordance with section 235 of the Companies Act 1985. 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 auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the financial statements and the part of the Directors' Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the group financial statements, Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the Directors' Report is consistent with the financial statements. The information given in the Directors' Report includes the specific information presented in the Executive Chairman's Statement, the Business Review and the Operating and Financial Review that is cross referenced from the Review of the Business and its Future Development section of the Directors' Report.
In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed.
We review whether the Corporate Governance Statement reflects the company's compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group's corporate governance procedures or its risk and control procedures.
We read the other information contained in the Annual Report as described in the contents section and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any further information outside the Annual Report.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors' Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors' Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors' Remuneration Report to be audited.
Annual Report Page 33
Opinion
In our opinion:
|
● |
the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's affairs as at 28 September 2008 and of its profit for the 52 week period then ended; |
|
● |
the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company's affairs as at 28 September 2008; |
|
● |
the financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the group financial statements, Article 4 of the IAS Regulation; and |
|
● |
the information given in the Directors' Report is consistent with the financial statements. |
Separate opinion in relation to IFRSs
As explained in Note 3a to the group financial statements, the group in addition to complying with its legal obligation to comply with IFRSs as adopted by the European Union, has also complied with the IFRSs as issued by the International Accounting Standards Board.
In our opinion the group financial statements give a true and fair view, in accordance with IFRSs, of the state of the group's affairs as at 28 September 2008 and of its profit for the 52 week period then ended.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors London, United Kingdom
26 November 2008
Annual Report Page 34
CONSOLIDATED INCOME STATEMENT 52 WEEK PERIOD ENDED 28 SEPTEMBER 2008
|
52 weeks to |
Year to |
||
|
28 September |
30 September |
||
|
2008 |
2007 |
||
|
Note |
£'000 |
£'000 |
|
|
Continuing operations |
|||
|
Revenue |
5 |
186,969 |
198,032 |
|
Other operating income |
3g |
19,526 |
11,247 |
|
Total income |
6 |
206,495 |
209,279 |
|
Staff costs |
7 |
(105,834) |
(117,641) |
|
Other operating costs |
(70,607) |
(56,882) |
|
|
6 |
(176,441) |
(174,523) |
|
|
Operating profit |
30,054 |
34,756 |
|
|
Other gains and losses |
8 |
- |
58 |
|
Finance income |
10 |
7,142 |
7,406 |
|
Finance costs |
10 |
(994) |
(564) |
|
Profit before tax |
6 & 9 |
36,202 |
41,656 |
|
Tax |
11 |
(11,127) |
(12,708) |
|
Profit attributable to equity shareholders of the |
|||
|
parent from continuing operations |
29 |
25,075 |
28,948 |
|
Earnings per share |
|||
|
From continuing operations |
|||
|
Basic |
14 |
12.2p |
14.5p |
|
Diluted |
14 |
11.7p |
13.8p |
|
CONSOLIDATED STATEMENT OF RECOGNISED |
|||
|
INCOME AND EXPENSE |
|||
|
52 WEEK PERIOD ENDED 28 SEPTEMBER 2008 |
|||
|
52 weeks to |
Year to |
||
|
28 September |
30 September |
||
|
2008 |
2007 |
||
|
£'000 |
£'000 |
||
|
(Loss)/gain on revaluation of available-for-sale investments |
(900) |
816 |
|
|
Deferred tax credit/(charge) on revaluation of available-for-sale investments |
254 |
(41) |
|
|
Actuarial (loss)/gain on defined benefit pension scheme |
(4,375) |
1,420 |
|
|
Deferred tax credit/(charge) on actuarial (loss)/gain on defined benefit pension scheme |
1,225 |
(620) |
|
|
Current tax credit on share based payments |
568 |
219 |
|
|
Deferred tax (charge)/credit on share based payments |
(1,255) |
220 |
|
|
Net (expense)/income recognised directly in equity |
(4,483) |
2,014 |
|
|
Transfers |
|||
|
Transfer gain on revaluation on sale of available-for-sale investments |
- |
(54) |
|
|
Transfer tax on revaluation on sale of available-for-sale investments |
- |
18 |
|
|
Transfer to profit or loss on sale of available-for-sale investments |
- |
36 |
|
|
(4,483) |
1,978 |
||
|
Profit for period |
25,075 |
28,948 |
|
|
Total recognised income and expense for the period |
|||
|
attributable to equity shareholders of the parent |
20,592 |
30,926 |
|
Annual Report Page 35
|
CONSOLIDATED BALANCE SHEET |
|||
|
AS AT 28 SEPTEMBER 2008 |
|||
|
As at |
As at |
||
|
28 September |
30 September |
||
|
2008 |
2007 |
||
|
Note |
£'000 |
£'000 |
|
|
Assets |
|||
|
Non-current assets |
|||
|
Goodwill |
15 |
93,023 |
65,767 |
|
Property, plant and equipment |
16 |
27,975 |
20,949 |
|
Available-for-sale investments |
18 |
10,626 |
11,526 |
|
Other receivables |
19 |
2,098 |
2,059 |
|
Deferred tax asset |
20 |
- |
542 |
|
Total non-current assets |
133,722 |
100,843 |
|
|
Current assets |
|||
|
Trading investments |
18 |
724 |
1,251 |
|
Trade and other receivables |
19 |
283,404 |
356,385 |
|
Cash and cash equivalents |
21 |
60,546 |
87,946 |
|
Total current assets |
344,674 |
445,582 |
|
|
Total assets |
478,396 |
546,425 |
|
|
Liabilities |
|||
|
Current liabilities |
|||
|
Bank overdrafts |
22 |
3,717 |
543 |
|
Trade and other payables |
23 |
306,855 |
404,873 |
|
Current tax liabilities |
484 |
4,965 |
|
|
Provisions |
32 |
2,068 |
- |
|
Shares to be issued including premium |
24 |
8,233 |
4,504 |
|
Total current liabilities |
321,357 |
414,885 |
|
|
Net current assets |
23,317 |
30,697 |
|
|
Non-current liabilities |
|||
|
Retirement benefit obligation |
26 |
7,964 |
9,735 |
|
Deferred tax liabilities |
20 |
3,993 |
- |
|
Deferred purchase consideration |
24 |
2,960 |
664 |
|
Shares to be issued including premium |
24 |
16,946 |
5,809 |
|
Total non-current liabilities |
31,863 |
16,208 |
|
|
Total liabilities |
353,220 |
431,093 |
|
|
Net assets |
125,176 |
115,332 |
|
|
Equity |
|||
|
Called up share capital |
27 |
2,080 |
2,035 |
|
Share premium account |
29 |
90,145 |
86,968 |
|
Revaluation reserve |
29 |
6,898 |
7,544 |
|
Merger reserve |
29 |
4,562 |
4,562 |
|
Profit and loss account |
29 |
21,491 |
14,223 |
|
Equity attributable to equity holders of the parent |
29 |
125,176 |
115,332 |
Approved by the Board of Directors and authorised for issue on 26 November 2008. Signed on its behalf by
|
J G Matheson |
R A Bayford |
|
Executive Chairman |
Finance Director |
Annual Report Page 36
|
COMPANY BALANCE SHEET |
|||||||
|
AS AT 28 SEPTEMBER 2008 |
|||||||
|
As at |
As at |
||||||
|
28 September |
30 September |
||||||
|
2008 |
2007 |
||||||
|
Note |
£'000 |
£'000 |
|||||
|
Assets |
|||||||
|
Non-current assets |
|||||||
|
Investment in subsidiaries |
17 |
141,052 |
125,160 |
||||
|
Available-for-sale investments |
18 |
- |
- |
||||
|
Other receivables |
19 |
430 |
430 |
||||
|
Total non-current assets |
141,482 |
125,590 |
|||||
|
Current assets |
|||||||
|
Trade and other receivables |
19 |
7,708 |
11,327 |
||||
|
Cash and cash equivalents |
21 |
57 |
182 |
||||
|
Total current assets |
7,765 |
11,509 |
|||||
|
Total assets |
149,247 |
137,099 |
|||||
|
Liabilities |
|||||||
|
Current liabilities |
|||||||
|
Trade and other payables |
23 |
7,357 |
14,222 |
||||
|
Shares to be issued including premium |
24 |
8,233 |
4,504 |
||||
|
Total current liabilities |
15,590 |
18,726 |
|||||
|
Net current liabilities |
(7,825) |
(7,217) |
|||||
|
Non-current liabilities |
|||||||
|
Shares to be issued including premium |
24 |
16,946 |
5,809 |
||||
|
Total non-current liabilities |
16,946 |
5,809 |
|||||
|
Total liabilities |
32,536 |
24,535 |
|||||
|
Net assets |
116,711 |
112,564 |
|||||
|
Equity |
|||||||
|
Called up share capital |
27 |
2,080 |
2,035 |
||||
|
Share premium account |
29 |
90,145 |
86,968 |
||||
|
Revaluation reserve |
29 |
- |
- |
||||
|
Merger reserve |
29 |
4,847 |
4,847 |
||||
|
Profit and loss account |
29 |
19,639 |
18,714 |
||||
|
Equity attributable to equity holders |
29 |
116,711 |
112,564 |
||||
Approved by the Board of Directors and authorised for issue on 26 November 2008. Signed on its behalf by
|
J G Matheson |
R A Bayford |
|
Executive Chairman |
Finance Director |
Annual Report Page 37
COMPANY STATEMENT OF RECOGNISED INCOME AND EXPENSE
52 WEEK PERIOD ENDED 28 SEPTEMBER 2008
|
52 weeks to |
Year to |
|
|
28 September |
30 September |
|
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
Transfers |
||
|
Transfer to profit or loss on sale of available-for-sale investments |
- |
(700) |
|
Profit for period |
14,895 |
13,613 |
|
Total recognised income and expense for the period |
||
|
attributable to equity shareholders |
14,895 |
12,913 |
Annual Report Page 38
CONSOLIDATED CASH FLOW STATEMENT 52 WEEK PERIOD ENDED 28 SEPTEMBER 2008
|
52 weeks to |
Year to |
||
|
28 September |
30 September |
||
|
2008 |
2007 |
||
|
Note |
£'000 |
£'000 |
|
|
Net cash flow from operating activities |
33 |
14,104 |
54,183 |
|
Cash flows from investing activities |
|||
|
Purchase of goodwill |
15 |
(10,681) |
(6,114) |
|
Purchases of property, plant and equipment |
16 |
(15,746) |
(10,106) |
|
Proceeds from sale of available-for-sale investments |
- |
159 |
|
|
Purchases of available-for-sale investments |
- |
(400) |
|
|
Dividend received from available-for-sale investments |
10 |
404 |
322 |
|
Net cash used in investing activities |
(26,023) |
(16,139) |
|
|
Cash flows from financing activities |
|||
|
Dividends paid to equity shareholders |
(21,500) |
(11,279) |
|
|
Proceeds on issue of shares |
2,845 |
2,259 |
|
|
Net cash used in financing activities |
(18,655) |
(9,020) |
|
|
Net (decrease)/increase in cash and cash equivalents |
(30,574) |
29,024 |
|
|
Cash and cash equivalents at the start of period |
87,403 |
58,379 |
|
|
Cash and cash equivalents at the end of period |
56,829 |
87,403 |
|
|
Firm's cash |
38,189 |
68,960 |
|
|
Firm's overdraft |
(3,717) |
(543) |
|
|
Firm's net cash |
34,472 |
68,417 |
|
|
Client settlement cash |
22,357 |
18,986 |
|
|
Net cash and cash equivalents |
56,829 |
87,403 |
|
|
Cash and cash equivalents shown in current assets |
60,546 |
87,946 |
|
|
Bank overdrafts |
(3,717) |
(543) |
|
|
Net cash and cash equivalents |
56,829 |
87,403 |
|
For the purposes of the cash flow statement, cash and cash equivalents include bank overdrafts.
Annual Report Page 39
COMPANY CASH FLOW STATEMENT 52 WEEK PERIOD ENDED 28 SEPTEMBER 2008
|
52 weeks to |
Year to |
||
|
28 September |
30 September |
||
|
2008 |
2007 |
||
|
Note |
£'000 |
£'000 |
|
|
Net cash flow from operating activities |
33 |
18,530 |
9,181 |
|
Cash flows from financing activities |
|||
|
Dividends paid to equity shareholders |
(21,500) |
(11,279) |
|
|
Proceeds on issue of shares |
2,845 |
2,259 |
|
|
Net cash used in financing activities |
(18,655) |
(9,020) |
|
|
Net (decrease)/increase in cash and cash equivalents |
(125) |
161 |
|
|
Cash and cash equivalents at the start of period |
182 |
21 |
|
|
Cash and cash equivalents at the end of period |
57 |
182 |
|
Annual Report Page 40
NOTES TO THE FINANCIAL STATEMENTS
1. General information
Brewin Dolphin Holdings PLC is a company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is given on page 2. The nature of the Group's operations and its principal activities are set out in the Directors' Report. The company is registered in England and Wales.
2. Adoption of new and revised Standards
In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures which is effective for annual reporting periods beginning on or after 1 January 2007, and the related amendment to IAS 1 Presentation of Financial Statements. The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Group's financial instruments and management of capital (see note 25).
At the date of authorisation of these financial statements, the following Standards and Interpretations (relevant to the Group's activities) which have not been applied in these financial statements were in issue but not yet effective (and in some cases not yet endorsed by the EU):
|
IFRS 3 (revised January 2008) |
Business Combinations |
|
IFRS 8 |
Operating Segments |
|
IFRIC 14 |
IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction |
The adoption of IFRS 3 (revised January 2008) in the future will affect the way in which the Group accounts for business combinations after September 2009. When IFRS 8 comes into effect for periods commencing on or after 1 January 2009, it is expected to lead to additional segmental disclosures. The adoption of IFRIC 14 in the future is not currently expected to have a material impact on financial statements of the Group.
3. Significant accounting policies
a. Basis of accounting
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the group financial statements comply with Article 4 of the EU IAS Regulation.
The financial statements of Brewin Dolphin Holdings PLC (the "Company") have also been prepared in accordance with International Financial Reporting Standards (IFRSs).
The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below.
b. Basis of consolidation
The Group accounts consolidate the accounts of Brewin Dolphin Holdings PLC and all its subsidiary undertakings.
The acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired during the period are included in the consolidated income statement from the date of acquisition to the date of disposal.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
In the Company's accounts investments in subsidiary undertakings are stated at cost less any provision for impairment. Dividends received and receivable are credited to the income statement to the extent that they represent a realised profit and loss for the Company.
In accordance with Section 230 of the Companies Act 1985 Brewin Dolphin Holdings PLC has taken advantage of the legal dispensation not to present its own income statement. The amount of the profit for the financial period dealt with in the financial statements of the Company is disclosed in note 12 to the financial statements.
c. Transaction date accounting
All securities transactions entered into on behalf of clients are recorded in the accounts on the date of the transaction
Annual Report Page 41
d. Foreign currencies
The Group's functional currency is Sterling. Foreign currency monetary assets and liabilities have been translated into Sterling at the exchange rates ruling at the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined.
Transactions during the period have been translated into Sterling at the rates ruling at the time the transactions were executed.
All exchange differences are reflected in the income statement, except for any exchange differences arising on any non-monetary assets and liabilities where the changes in fair value are recognised directly in equity.
e. Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents gross commission, investment management fees and investment banking retainers, other fees plus other income, excluding VAT, receivable in respect of the period.
Investment management fees and investment banking retainers are recognised in the period in which the related service is provided and investment management commissions are recognised when the transaction is performed.
Other fees including corporate finance fees and placing commissions are taken to the income statement when payment is contractually due.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.
Dividend income from investments is recognised when the shareholders' rights to receive payment have been established.
f. Operating profit
Operating profit is stated as being profit before finance income, finance costs and tax.
g. Other operating income
Interest receivable and payable on client free money balances is netted to calculate the Group's share of interest receivable and included under the heading "Other operating income".
h. Leases
Annual rentals on operating leases are charged to the income statement on a straight-line basis over the lease term.
Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
i. Share based payments
The Group has applied the requirements of IFRS 2 "Share-based payments". In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments made after 7 November 2002 that were unvested as of 1 January 2005.
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest.
Fair value is measured by use of a Black-Scholes option pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
j. Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Annual Report Page 42
j. Taxation (continued)
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
k. Goodwill
Goodwill represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.
Goodwill includes the value of indivisible customer relationships and customer lists, which cannot be separated from the underlying business combination and separately reliably measured.
Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed.
For the purposes of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal the attributable amount of goodwill is included in the determination of the profit or loss.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.
Future anticipated payments in respect of earnouts are based on the directors' best estimate of the obligations, which are dependent on future performance of the interests acquired. When earnouts are to be settled in cash or share consideration, the fair value of the consideration is obtained by discounting to present value the amounts expected to be payable in the future. The resulting interest charge is included within finance costs.
l. Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any recognised impairment. Depreciation has been provided on the basis of equal annual instalments to write off the cost less estimated residual values of tangible fixed assets over their estimated useful lives as follows:
|
Computer equipment |
3 to 4 years |
|
Office equipment |
4 to 10 years |
|
Leasehold improvements |
over 5 years |
m. Financial instruments
Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
n. Financial assets
Investments are recognised and derecognised on trade date, where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.
Financial assets are classified into the following specified categories: financial assets 'at fair value through profit or loss' (FVTPL), 'held to maturity' investments, 'available-for-sale' financial assets and 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Financial assets at FVTPL
Financial assets are classified as at FVTPL where the financial asset is held-for-trading or it is designated as at FVTPL. A financial asset is classified as held-for-trading if it has been acquired principally for the purpose of selling in the near future.
Annual Report Page 43
n. Financial assets (continued)
Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporate any dividends or interest earned on the financial asset. Their value is determined in the manner described in note 18.
Available-for-sale financial assets
Certain shares held by the Group are classified as being available-for-sale and are stated at fair value. Fair value is determined in the manner described in note 18. Gains and losses are recognised directly in equity in the revaluation reserve with the exception of impairment losses which are recognised directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the revaluation reserve is included in the profit or loss account.
Dividends on available-for-sale equity instruments are recognised in profit and loss when the Group's right to receive payment is established.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments and are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets.
o. Netting of balances
Amounts due to and from counterparties due to settle on balance are shown net where there is a currently enforceable legal right to set off the recognised amounts. Amounts due to and from counterparties due to settle against delivery of stock are shown gross.
p. Financial liabilities and equity
Financial liabilities and equity are classified according to the substance of the contractual arrangements entered into.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'other financial liabilities'. Financial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as at FVTPL.
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
q. Shares to be issued including premium
Shares to be issued represent the Company's best estimate of the amount of ordinary shares in the Company, which are likely to be issued on the successful completion of acquisitions which involve deferred payments in the Company's shares. The sum is discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money and revised annually in the light of actual results. Where shares are due to be issued within a year then the sum is included in current liabilities. Where the team involved has not yet joined, the resultant liability is shown as an amount contracted for but not provided in the accounts.
r. Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state- managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group's obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.
For defined benefit retirement benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside the profit or loss and presented in the statement of recognised income and expense ("SORIE").
Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation, as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.
Annual Report Page 44(Extract)
NOTES TO THE FINANCIAL STATEMENTS (continued)
s. Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
t. Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material.
Annual Report Page 45
6. Segmental information
For management purposes, the Group is divided into two business streams: Investment Management and Investment Banking. These form the basis for the primary segment information reported below. All operations are carried out in the United Kingdom and the Channel Islands.
|
52 week period ended 28 September 2008 |
|||||
|
Discretionary |
Advisory |
Total |
|||
|
Portfolio |
Portfolio |
Investment |
Investment |
||
|
Management Management Management |
Banking |
Group |
|||
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Total income |
122,975 |
70,721 |
193,696 |
12,799 |
206,495 |
|
Operating profit |
18,765 |
10,791 |
29,556 |
498 |
30,054 |
|
Other gains and losses and finance income (net) |
6,148 |
||||
|
Profit before tax |
36,202 |
||||
|
Other information |
|||||
|
Capital expenditure |
15,147 |
599 |
15,746 |
||
|
Depreciation |
8,459 |
126 |
8,585 |
||
|
Share-based payments |
621 |
40 |
661 |
||
|
Segment assets excluding current tax assets |
447,082 |
31,314 |
478,396 |
||
|
Segment liabilities excluding current tax liabilities |
321,422 |
31,314 |
352,736 |
||
|
Year ended 30 September 2007 |
|||||
|
Discretionary |
Advisory |
Total |
|||
|
Portfolio |
Portfolio |
Investment |
Investment |
||
|
Management |
Management |
Management |
Banking |
Group |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Total income |
110,413 |
69,326 |
179,739 |
29,540 |
209,279 |
|
Operating profit |
15,154 |
12,555 |
27,709 |
7,047 |
34,756 |
|
Other gains and losses and finance income (net) |
6,900 |
||||
|
Profit before tax |
41,656 |
||||
|
Other information |
|||||
|
Capital expenditure |
10,055 |
51 |
10,106 |
||
|
Depreciation |
5,981 |
76 |
6,057 |
||
|
Share-based payments |
522 |
85 |
607 |
||
|
Segment assets excluding current tax assets |
398,112 |
148,313 |
546,425 |
||
|
Segment liabilities excluding current tax liabilities |
277,815 |
148,313 |
426,128 |
||
Investment banking profit was reduced by £500,000 of redundancy costs in the second half of 2008.
Annual Report Page 47 (Extract)
|
10. Finance income and finance costs |
||||||||
|
2008 |
2007 |
|||||||
|
52 weeks |
Year |
|||||||
|
£'000 |
£'000 |
|||||||
|
Finance income |
||||||||
|
Interest income on pension plan assets |
159 |
60 |
||||||
|
Dividends from available-for-sale investments |
404 |
322 |
||||||
|
Interest on bank deposits |
6,579 |
7,024 |
||||||
|
7,142 |
7,406 |
|||||||
|
Finance costs |
||||||||
|
Finance cost of deferred consideration |
981 |
515 |
||||||
|
Interest on bank overdrafts |
13 |
49 |
||||||
|
994 |
564 |
|||||||
Annual Report Page 48 (Extract)
|
11. Taxation |
||
|
2008 |
2007 |
|
|
52 weeks |
Year |
|
|
£'000 |
£'000 |
|
|
United Kingdom |
||
|
Current tax |
5,955 |
10,247 |
|
Prior year |
192 |
430 |
|
Overseas tax |
||
|
Current tax |
216 |
297 |
|
Prior year |
5 |
5 |
|
6,368 |
10,979 |
|
|
United Kingdom deferred tax |
||
|
Current year |
5,024 |
2,127 |
|
Prior year |
(265) |
(398) |
|
11,127 |
12,708 |
|
|
United Kingdom corporation tax is calculated at 29% (2007: 30%) of the estimated assessable taxable profit for the period. |
||
|
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. |
||
|
The charge for the period can be reconciled to the profit per the income statement as follows: |
||
|
Profit before tax |
36,202 |
41,656 |
|
Tax at the UK corporation tax rate of 29% (2007: 30%) |
10,499 |
12,497 |
|
Tax effect of expenses that are not deductible in determining taxable profit |
551 |
395 |
|
Tax effect of prior year tax |
197 |
435 |
|
Tax effect of prior year deferred tax |
(265) |
(398) |
|
Tax effect of share-based payments |
162 |
(259) |
|
Tax effect of deferred tax timing differences |
(191) |
(84) |
|
Tax effect of leasehold property depreciation |
174 |
122 |
|
Tax expense |
11,127 |
12,708 |
|
Effective tax rate for the year |
31% |
31% |
|
In addition to the amount charged to the income statement, deferred tax relating to the revaluation of the Group's available-for-sale investments amounting to £(254,000) (2007: £41,000) has been (credited)/charged directly to equity and deferred tax relating to the actuarial gain/(loss) in the defined benefit pension scheme amounting to £1,225,000 (2007: £(620,000)) has been charged/(credited)directly to equity. |
||
Annual Report Page 49
|
13. Dividends |
||
|
2008 |
2007 |
|
|
52 weeks |
Year |
|
|
£'000 |
£'000 |
|
|
Amounts recognised as distributions to equity holders in the period: |
||
|
First interim dividend paid 10 April 2007, 2.875p per share |
- |
5,791 |
|
Second interim dividend paid 25 October 2007, 3.375p per share |
- |
6,869 |
|
Final dividend paid 6 April 2008, 3.5p per share |
7,248 |
- |
|
Interim dividend paid 24 September 2008, 3.55p per share |
7,383 |
- |
|
14,631 |
12,660 |
|
|
Proposed final dividend for the 52 weeks ended 28 September 2008 of 3.55p (2007: 3.5p) per share |
||
|
based on shares in issue at 7 November 2008 (8 November 2007) |
7,388 |
7,124 |
The proposed final dividend for the 52 week period ended 28 September 2008 of 3.55p 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.
|
14. Earnings per share |
||
|
The calculation of the basic and diluted earnings per share is based on the following data: |
||
|
2008 |
2007 |
|
|
'000 |
'000 |
|
|
Number of shares |
||
|
Basic |
||
|
Weighted average number of shares in issue in the period |
206,157 |
201,438 |
|
Diluted |
||
|
Weighted average number of options outstanding for the period |
2,415 |
5,135 |
|
Estimated weighted average number of shares earned |
||
|
under deferred consideration arrangements |
8,527 |
4,712 |
|
Diluted weighted average number of options and shares for the period |
217,099 |
211,285 |
|
Earnings attributable to ordinary shareholders |
||
|
£'000 |
£'000 |
|
|
Profit attributable to equity shareholders of the parent from continuing operations |
25,075 |
28,948 |
|
Finance costs of deferred consideration (note a) |
549 |
311 |
|
Less tax |
(159) |
(93) |
|
Adjusted basic profit for the period and attributable earnings |
25,465 |
29,166 |
|
From continuing operations |
||
|
Basic |
12.2p |
14.5p |
|
Diluted |
11.7p |
13.8p |
a) Finance costs of deferred consideration are added back where the issue of shares is more dilutive than the interest cost saved.
Annual Report Page 58 (Extract)
|
25. Financial instruments and risk management |
||||
|
Overview |
||||
|
The Group has exposure to the following risks from its use of financial instruments: |
||||
|
• |
market risk; |
|||
|
• |
credit risk; |
|||
|
• |
liquidity risk; and |
|||
|
• |
operational risk. |
|||
This note presents information about the Group's exposure to each of the above risks, the Group's policy and processes for measuring and managing risk and the Group's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.
The Board of Directors have overall responsibility for the establishment and oversight of the Group's risk management framework. The Group's risk management considers the major areas of market risk, credit risk, liquidity risk and operational risk. The Board determines the risk appetite and is responsible for the implementation of a risk management framework that recognises the risks faced by the Group. Authority flows from the Board to the Risk Management Committee ("RMC") and from there to specific committees which are integral to the management of risk.
Brewin Dolphin's activities involve the measurement, evaluation, acceptance and management of some degree of risk, or combination of risks. The Board has set a low risk appetite whilst recognising the inevitable risk of being exposed to adverse movements in the stock market.
Annual Report Page 59
25. Financial instruments and risk management (continued)
The Audit Committee oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its role by Internal Audit. The Audit Committee's key role in risk management is the assessment of controls that are in place to mitigate risk and the review of the Risk Management Schedule bi-annually which is prepared by the RMC.
Capital risk management
The capital structures of the Group and Company consist of issued share capital, reserves and retained earnings as disclosed in note 29.
The Group has an Internal Capital Adequacy Assessment Process ("ICAAP"), as required by the Financial Services Authority ("FSA") for establishing the amount of regulatory capital to be held by the Group; Brewin Dolphin Limited ("BDL") is the only regulated entity within the Group.
The ICAAP draws on the Group's Annual Corporate Risk Review which is based on bi-annual risk assessments. It gives consideration to both current and projected financial and capital positions. The ICAAP is updated throughout the year to take account of the bi-annual risk assessments and for any significant changes to business plans and any unexpected issues that may occur. The ICAAP is discussed and approved at a Brewin Dolphin Holdings Board meeting at least annually.
Capital adequacy is monitored daily by management. The Group uses the simplified approach to Credit Risk and the standardised approach for Operational Risk to calculate Pillar 1 requirements. The Group observed the FSA's regulatory requirements throughout the period.
The regulatory capital resources of the principal operating subsidiary, BDL, calculated in accordance with FSA definitions were as follows at the period end:
|
28 September 2008 |
|
|
£'000 |
|
|
Tier 1 capital resources |
|
|
Ordinary share capital |
18,325 |
|
Share premium account |
94,028 |
|
Retained earnings |
2,600 |
|
Shares to be issued |
25,179 |
|
140,132 |
|
|
Deduction - goodwill |
(83,913) |
|
56,219 |
|
|
Tier 2 capital resources |
|
|
Revaluation reserve |
3,236 |
|
Deductions |
- |
|
3,236 |
|
|
Tier 1 plus tier 2 capital resources |
59,455 |
|
Deduction - material holdings |
(4,055) |
|
55,400 |
|
|
Tier 3 capital resources |
472 |
|
Total capital before deductions |
55,872 |
|
Deductions from total capital |
(618) |
|
Total capital resource after deductions |
55,254 |
|
Total capital requirement |
31,653 |
The regulatory capital resources for the Group on a consolidated basis are £55 million with a total capital requirement of £32 million.
There were no changes in the Group's approach for capital management during the period.
Annual Report Page 60
NOTES TO THE FINANCIAL STATEMENTS (continued)
25. Financial instruments and risk management (continued)
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 to the financial statements.
|
Categories of financial instruments |
||
|
Group |
||
|
Carrying value |
||
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
Financial assets |
||
|
Fair value through profit and loss - held for trading |
724 |
1,251 |
|
Loans and receivables (including cash and trade receivables) |
346,048 |
446,390 |
|
Available-for-sale financial assets |
10,626 |
11,526 |
|
357,398 |
459,167 |
|
|
Financial liabilities |
||
|
Amortised cost |
337,916 |
410,679 |
|
337,916 |
410,679 |
|
|
The carrying value approximates to the fair value of the financial assets and liabilities held. |
||
|
Company |
||
|
Carrying value |
||
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
Financial assets |
||
|
Loans and receivables (including cash and trade receivables) |
8,195 |
11,939 |
|
8,195 |
11,939 |
|
|
Financial liabilities |
||
|
Amortised cost |
32,536 |
24,535 |
|
32,536 |
24,535 |
|
|
The carrying value approximates to the fair value of the financial assets and liabilities held. |
||
I. 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 our exposure within the Group's risk appetite whilst accepting the inherent risk of market fluctuations.
The Group acts as an Investment Manager and agency stockbroker within the UK; all trades are matched in the market.
The Group undertakes only limited principal trading on its own behalf; a maximum gross position of £2 million has been set as a limit by the Board. No single trade or accumulative position in any one stock can be in excess of £0.5 million. A hurdle stop loss price is operated in which the stop loss is set at a fixed percentage below the market price. This sets a limit on the maximum possible loss, as the stop loss will be triggered if the market price drops below the level set, resulting in the stock being sold. Conversely, where the market price rises the stop loss price will rise proportionately, to set a new stop loss price, thus protecting any profits. The stop loss position is monitored on average three times a day and is recalculated when necessary. Principal trading positions are monitored daily by the Risk Management Department and closing positions are reported to management. Any breaches of limits are notified immediately to management, as are stop losses, which are enforced.
The Group deals in foreign currencies on a matched basis on behalf of clients, limiting foreign exchange exposure. The total net foreign exchange exposure at the year end was £342,000 (2007: £273,000).
The Group does not hold any derivatives.
There has been no change to the Group's exposure to market risks or the manner in which it manages and measures the risk during the period.
Annual Report Page 61
25. Financial instruments and risk management (continued)
Equity price risk
The Group is exposed to equity risk arising from its available-for-sale investments and those held-for-trading. Equity investments designated as available-for-sale are held for strategic purposes rather than trading purposes and the Group does not actively trade in these 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:
profit for the 52 week period ended 28 September 2008 would have been £37,000/£52,000 higher/lower (2007: £33,000 higher/lower) due to change in the value of held-for-trading investments and available-for-sale investments; and
other equity reserves as at 28 September 2008 would increase by £531,000/decrease by £516,000 (2007: increase/decrease by £576,000) for the Group as a result of the changes in fair value of available-for-sale investments.
The Group's sensitivity to equity prices has not changed significantly from the prior period.
Interest rate risk
The Group is exposed to interest rate risk; this arises because the interest rate paid to its clients on their deposits is linked to the base rate. The Group holds client deposits on both fixed rate short term deposit and on demand. At the period end, £250 million was held on 45 day terms, with the balance of client monies held on demand or repayable within 15 days. At the end of the period a 1% increase in base rate would increase profitability by £200,000 (2007: decrease profitability by £500,000).
II. 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 and cash deposited at banks. The Group uses the simplified approach to calculate credit risk as defined by the FSA. The aim of the Group's approach to credit risk management is to minimise the risk as far as possible.
The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and clients and with collateral held, in the main, in Group nominee companies which helps to mitigate credit risk. The collateral held consists of equity and gilts quoted on recognised exchanges plus cash.
The Group undertakes traded options as part of its service to clients, this is an insignificant part of the Group's business. This business is transacted as principal as per the LIFFE rules, all such transactions are always on a matched basis, clients are required to pledge collateral if they hold option positions, which are monitored on a daily basis.
Maximum exposure
The maximum exposure to credit risk at the end of the reporting period is equal to the balance sheet figure.
Credit exposure
Credit exposure in relation to both client and market transactions is monitored daily. The Group's exposure to large trades is limited with an average bargain size of £35,000; there are additional controls for high value trades.
Impaired assets
The total gross amount of individually impaired assets in relation to trade receivables at the period end was £1,169,500 (2007: £1,202,000). Collateral valued at fair value by the Group in relation to these impaired assets was £34,500 (2007: £2,000). The net difference has been provided as a doubtful debt (see note 19).
Credit quality
Financial assets that are neither past due nor impaired in respect of trade receivables relate mainly to bonds, equity and gilt trades quoted on a recognised exchange, are matched in the market, and are either traded on a cash against documents basis or against a client's portfolio in respect of which any one trade would normally be a small percentage of the client's collateral held in the Group nominee. At the period end no financial assets, that would otherwise be past due or impaired had been renegotiated.
Loans to employees are repayable over 5 to 10 years and are secured against the employees' shareholdings in the Company (see note 19).
The credit risk on liquid funds, cash and cash equivalents is limited due to deposits being held at three major banks with minimum credit rating of "A", assigned by international credit rating agencies. Deposits are managed by the Treasury Department and are reviewed regularly by the Management Committee.
Annual Report Page 62
NOTES TO THE FINANCIAL STATEMENTS (continued)
25. Financial instruments and risk management (continued)
The Group carries out at least an annual review of all its banks' and custodians' credit ratings.
There has been no change to the Group's exposure to credit risk or the manner in which it manages and measures the risk during the period.
III. Liquidity risk
Liquidity risk refers to risk that the Group will be unable to meet its financial obligations as they fall due. The Group maintains adequate cash resources to meet its financial obligations at all times. All client cash deposits are repayable on demand. At 28 September 2008, the Group had access to an overdraft facility of £15 million (2007: £25 million).
As the Group normally deals with the market on cash against document basis, liquidity risk is monitored by daily exception reports of unmatched items past settlement date and managed by the Treasury Department and Credit Control Department, reports are reviewed regularly by the Management Committee.
There has been no change to the Group's exposure to liquidity risk or the manner in which it manages and measures the risk during the period.
The following are the undiscounted cash flows, with the exception of shares to be issued, of financial liabilities based on the earliest date on which the Group can be required to pay.
|
Group |
||||||
|
As at 28 September 2008 |
||||||
|
Up to |
1 month |
3 months |
||||
|
1 month to 3 months |
to 1 year 1 to 5 years |
Over 5 years |
Total |
|||
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Financial liabilities |
||||||
|
Amortised cost |
255,287 |
47,058 |
14,767 |
20,073 |
731 |
337,916 |
|
255,287 |
47,058 |
14,767 |
20,073 |
731 |
337,916 |
|
|
As at 30 September 2007 |
||||||
|
Up to |
1 month |
3 months |
||||
|
1 month |
to 3 months |
to 1 year 1 to 5 years |
Over 5 years |
Total |
||
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Financial liabilities |
||||||
|
Amortised cost |
330,720 |
48,672 |
24,358 |
6,929 |
- |
410,679 |
|
330,720 |
48,672 |
24,358 |
6,929 |
- |
410,679 |
|
|
Company |
||||||
|
As at 28 September 2008 |
||||||
|
Up to |
1 month |
3 months |
||||
|
1 month |
to 3 months |
to 1 year 1 to 5 years |
Over 5 years |
Total |
||
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Financial liabilities |
||||||
|
Amortised cost |
7,357 |
8,233 |
- |
16,298 |
648 |
32,536 |
|
7,357 |
8,233 |
- |
16,298 |
648 |
32,536 |
|
|
As at 30 September 2007 |
||||||
|
Up to |
1 month |
3 months |
||||
|
1 month |
to 3 months |
to 1 year 1 to 5 years |
Over 5 years |
Total |
||
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Financial liabilities |
||||||
|
Amortised cost |
14,222 |
4,304 |
200 |
5,809 |
- |
24,535 |
|
14,222 |
4,304 |
200 |
5,809 |
- |
24,535 |
|
IV. Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes whether due to internal, people and systems risks or from external events, including legal and financial crime risk but does not include strategic, reputation and business risk.
The objective of the Group's approach to operational risk management is to both control and manage the risk in a cost effective manner consistent with the Group's risk appetite. Operational risk is monitored and reported via specific committees that report into the Risk Management Committee.
The Group uses the Standardised Approach under Pillar 1 for regulatory purposes and uses the results of its annual risk management and control review process for risk management and Pillar 2 purposes.
Information disclosure under Pillar 3 of the Capital Requirements Directive will be published on the Group's website before 31 December 2008 at www.brewin.co.uk.
Annual Report Page 68 (Extract)
|
29. Reserves and reconciliation of changes in equity |
||||||
|
Called up |
Share |
|||||
|
share |
premium |
Revaluation |
Merger |
Profit and |
||
|
capital |
account |
reserve |
reserve |
loss account |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Group |
||||||
|
30 September 2006 |
1,995 |
82,755 |
6,805 |
4,562 |
(3,911) |
92,206 |
|
Profit for the period |
- |
- |
- |
- |
28,948 |
28,948 |
|
Dividends |
- |
- |
- |
- |
(12,660) |
(12,660) |
|
Issue of shares |
40 |
4,213 |
- |
- |
- |
4,253 |
|
Revaluation |
- |
- |
816 |
- |
- |
816 |
|
Deferred and current tax on items taken directly to equity |
- |
- |
(41) |
- |
(181) |
(222) |
|
Released on sale of available-for-sale investments |
- |
- |
(36) |
- |
- |
(36) |
|
Share-based payments |
- |
- |
- |
- |
607 |
607 |
|
Actuarial gain on defined benefit pension scheme |
- |
- |
- |
- |
1,420 |
1,420 |
|
30 September 2007 |
2,035 |
86,968 |
7,544 |
4,562 |
14,223 |
115,332 |
|
Profit for the period |
- |
- |
- |
- |
25,075 |
25,075 |
|
Dividends |
- |
- |
- |
- |
(14,631) |
(14,631) |
|
Issue of shares |
45 |
3,177 |
- |
- |
- |
3,222 |
|
Revaluation |
- |
- |
(900) |
- |
- |
(900) |
|
Deferred and current tax on items taken directly to equity |
- |
- |
254 |
- |
538 |
792 |
|
Share-based payments |
- |
- |
- |
- |
661 |
661 |
|
Actuarial loss on defined benefit pension scheme |
- |
- |
- |
- |
(4,375) |
(4,375) |
|
28 September 2008 |
2,080 |
90,145 |
6,898 |
4,562 |
21,491 |
125,176 |
|
Called up |
Share |
|||||
|
share |
premium |
Revaluation |
Merger |
Profit and |
||
|
capital |
account |
reserve |
reserve |
loss account |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Company |
||||||
|
30 September 2006 |
1,995 |
82,755 |
700 |
4,847 |
17,154 |
107,451 |
|
Profit for the period |
- |
- |
- |
- |
13,613 |
13,613 |
|
Dividends |
- |
- |
- |
- |
(12,660) |
(12,660) |
|
Share-based payments |
- |
- |
- |
- |
607 |
607 |
|
Issue of shares |
40 |
4,213 |
- |
- |
- |
4,253 |
|
Released on sale of available-for-sale investments |
- |
- |
(700) |
- |
- |
(700) |
|
30 September 2007 |
2,035 |
86,968 |
- |
4,847 |
18,714 |
112,564 |
|
Profit for the period |
- |
- |
- |
- |
14,895 |
14,895 |
|
Dividends |
- |
- |
- |
- |
(14,631) |
(14,631) |
|
Share-based payments |
- |
- |
- |
- |
661 |
661 |
|
Issue of shares |
45 |
3,177 |
- |
- |
- |
3,222 |
|
28 September 2008 |
2,080 |
90,145 |
- |
4,847 |
19,639 |
116,711 |
Annual Report Page 70
|
NOTES TO THE FINANCIAL STATEMENTS (continued) |
||
|
33. Notes to the cash flow statement |
||
|
2008 |
2007 |
|
|
52 weeks |
Year |
|
|
£'000 |
£'000 |
|
|
Group |
||
|
Operating profit |
30,054 |
34,756 |
|
Adjustments for: |
||
|
Depreciation of property, plant and equipment |
8,585 |
6,057 |
|
Loss on disposal of property, plant and equipment |
135 |
- |
|
Goodwill impairment |
430 |
- |
|
Retirement benefit obligation |
(6,146) |
(4,267) |
|
Share-based payment cost |
661 |
607 |
|
Discounting of shares to be issued |
981 |
515 |
|
Interest income |
6,785 |
6,779 |
|
Interest expense |
(994) |
(564) |
|
Operating cash flows before movements in working capital |
40,491 |
43,883 |
|
Decrease/(Increase) in receivables and trading investments |
73,280 |
(104,674) |
|
(Decrease)/Increase in payables |
(89,528) |
124,132 |
|
Cash generated by operating activities |
24,243 |
63,341 |
|
Tax paid |
(10,139) |
(9,158) |
|
Net cash inflow from operating activities |
14,104 |
54,183 |
|
Company |
||
|
Operating profit |
14,895 |
13,613 |
|
Discounting of shares to be issued |
11 |
- |
|
Operating cash flows before movements in working capital |
14,906 |
13,613 |
|
Decrease/(Increase) in receivables and trading investments |
3,619 |
(4,432) |
|
Increase in payables |
5 |
- |
|
Cash generated by operating activities |
18,530 |
9,181 |
|
Tax paid |
- |
- |
|
Net cash inflow from operating activities |
18,530 |
9,181 |
|
Cash and cash equivalents comprise cash at bank and bank overdrafts. |
||
34. Related party transactions
The captions in the primary financial statements of the parent company include amounts attributable to subsidiaries. These amounts have been disclosed in aggregate in the relevant notes to the financial statements and in detail in the following table:
|
Amounts owed by related parties |
Amounts owed to related parties |
|||
|
2008 |
2007 |
2008 |
2007 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Bell Lawrie White & Co. Limited |
- |
- |
2,436 |
2,436 |
|
Brewin Dolphin Limited |
7,697 |
11,321 |
- |
- |
|
Stocktrade Broking Limited |
- |
- |
4,900 |
4,900 |
|
7,697 |
11,321 |
7,336 |
7,336 |
|
The only effect of related party transactions on the income statement of the parent company was in respect of dividends. The parent company received dividends of £15,000,000 (2007: £13,000,000) from Brewin Dolphin Limited and £16,600 (2007:£nil) from Webrich Limited.
The group companies did not enter into any transactions with related parties who are not members of the Group during the period, save as disclosed elsewhere in these financial statements.
On 8 December 2006, the Company sold to Brewin Dolphin Limited its holding in Euroclear plc shares, at the then net book cost of £9.5 million less notional taxation, a net payment of £6,780,000.
Annual Report Page 71 (Extract)
|
FUNDS |
||
|
At |
At |
|
|
28 September |
30 September |
|
|
2008 |
2007 |
|
|
£ Billion |
£ Billion |
|
|
In Group's nominee or sponsored member |
10.0 |
10.4 |
|
Stock not held in Group's nominee |
0.2 |
0.3 |
|
Discretionary funds under management |
10.2 |
10.7 |
|
In Group's nominee or sponsored member |
6.8 |
8.2 |
|
Other funds where valuations are carried out but |
||
|
where the stock is not under the Group's control |
1.7 |
2.7 |
|
Advisory funds under management |
8.5 |
10.9 |
|
Managed funds |
18.7 |
21.6 |
|
In Group's nominee or sponsored member |
3.7 |
3.2 |
|
Stock not held in Group's nominee |
0.2 |
0.3 |
|
Execution only stock |
3.9 |
3.5 |
|
Total funds |
22.6 |
25.1 |
|
Stock |
||
|
In Group's nominee or sponsored member |
20.5 |
21.8 |
|
Stock not held in Group's nominee |
2.1 |
3.3 |
|
22.6 |
25.1 |
|
Angela Wright
Company Secretary
Brewin Dolphin Holdings PLC
Related Shares:
BRW.L