9th Jun 2005 07:00
Charles Stanley Group PLC09 June 2005 9 June 2005 CHARLES STANLEY GROUP PLC RESULTS FOR THE YEAR ENDED 31 MARCH 2005 Charles Stanley, a major independent stockbroker, announces its preliminaryresults for the year ended 31 March 2005. Highlights: • Turnover up 14% to £78.0 million (2004: £68.2 million) • Profit before tax, amortisation and gain on fixed assets up 26% to £ 10.2 million (2004: £8.1 million) • Profit before tax up 27% to £8.4 million (2004: £6.6 million) • Funds under management up £1 billion to £7.7 billion (2004: £6.7 billion) • Earnings per share (excl. amortisation ) up 25% to 16.03p (2004: 12.82p) • Final dividend 4.15p (2004: 3.75p) • Acquisitions of Tozer Wingate and Sutherlands Group Limited completed Sir David Howard, Chairman, commented: "During the year we have pressed forwardactively with our strategy of building the company, both by the introduction ofnew services and by making carefully-chosen acquisitions. Against the backgroundof indifferent market conditions we believe that our results for the latest yeardemonstrate the success of this strategy. "The fundamentals of the company are sound, and our increasing reliance onfee-based income makes us less dependant on the unpredictable volatility ofStock Exchange trading volumes. The business is continuing to grow, and unlesseconomic conditions deteriorate I look forward to the year ahead with a degreeof optimism." For further information please contact: Charles Stanley Group PLC Bridgewell Tavistock Securities CommunicationsSir David Howard, Chairman Ben Money-Coutts Jeremy CareyPeter A Hurst, Finance Director David FoxmanDirectorMichael Lilwall, DirectorPhone: 020 7739 8200 Phone 020 7003 3124 Phone: 020 7920 3150Fax: 020 7953 2948 Chairman's Statement I am pleased to announce that the Group's income for the year ended 31 March2005 rose by 14% to reach a new record of £78.0 million (2004: £68.2 million).Although external fees and charges have continued to rise we have exercisedtight management over those costs that lie within our control. In consequence,profit before tax, amortisation and investment gains - our operating profit -rose 26% from £8.1 million to £10.2 million. Profit before tax, but afteramortisation and investment gains, was £8.4 million (2004: £6.6 million). Against a background of reduced UK stock exchange retail trading volumes wecontinued to build our market share and to increase our average income pertransaction. By doing so we have achieved a small increase in total commissionincome compared with the figure last year. However the significant uplift in ouroverall revenue came from fee income, which continued to grow - by 36% in thelatest year. Fee income across the Group now represents a healthy 38% of ourtotal income, reflecting our long-term policy of increasing the proportion ofour revenues derived from this form of income. For the year ended 31 March 2000,by way of comparison, the percentage of fee income to total revenue was only17%, less than half what we now have achieved. The investment funds which we manage for clients, or for which we providefee-charging administrative services, rose during the year to £7.7 billion from£6.7 billion (2004). Net assets at the year-end rose to £45.5 million (2004: £40.6 million), and ourcash balances were also higher at £44.2 million (2004: 34.0 million). During the year we have pressed forward actively with our strategy of buildingthe company, both by the introduction of new services and by makingcarefully-chosen acquisitions. Against the background of indifferent marketconditions we believe that our results for the latest year demonstrate thesuccess of this strategy. In view of these results we propose increasing the final dividend to 4.15p(2004: 3.75p). Taken together with the increase in the interim dividend paidlast December the total dividend for the year will thus have risen by 10.5% to5.25p (2004: 4.75p). The dividend will be paid on 29 July 2005 to shareholdersregistered on 8 July 2005. Over the past ten years the compound rate of increase in the dividend hasaveraged 24% per annum. Our Strategy The latest year has seen a further dramatic stage in the process ofconsolidation amongst private client stockbroking companies. By contrast CharlesStanley has developed, over the years, by steadily building its market shareboth organically and by a process of small but complementary acquisitions. Weplace considerable emphasis on the skill and resources that we need to selectand execute these acquisitions. With careful planning of improvements to the quality of our service, launches ofnew products and services, and efficiently executed integration of acquisitions- and above all by paying close attention to the needs of our clients - CharlesStanley has built its position within the small group of large traditionalstockbroking companies. We operate in one of the most heavily regulated industries in the UK, butregulatory costs and pressures have been only part of the story in this processof consolidation. Though our traditions of skill, experience and personal carefor the client remain embedded in our culture, the way in which largertraditional stockbroking firms are organised has undergone radicalre-structuring. In previous Chairman's Statements I have referred repeatedly tothis process of almost continuous change in our industry. Companies that havemanaged this process successfully - and which continue to do so - are betterplaced for the future. Review of the Year The total number of transactions by private clients on the London Stock Exchangefell by 12% in the year ended 31 March 2005 compared with the previous year.Charles Stanley, by contrast, experienced a reduction of about 4% in its privateclient transactions, and as a consequence our market share of private clientbusiness rose from 5.45% to 5.92%. This outperformance reflects our policy ofsteady acquisition, as well as organic growth. Over the same period we saw asignificant increase in the volume of our institutional transactions. Thecombined effect was to lift our commission income to £47.9 million (2004: £46.1million). While we were able to maintain the level of commission income, our fee incomegrew significantly. From a figure of £22.0 million for 2004, itself a sharpincrease on the year before, our fee income rose by a further 36% to £30.0million. Thus while commission income remains the principal influence on ourrevenue the proportion arising from less volatile fee-based business continuesto grow. Average costs continue to rise: a proportion is represented by external fees andcharges, such as trading and settlement fees, which are unavoidable. But so toois the rise in costs incurred by our programme of continuous improvements in ourservices to clients. Margins therefore remain under pressure. The profit of£10.2 million, before tax, amortisation and the sale of fixed assets representsa margin of 13% of turnover, compared with 12% for 2004 - still below our targetmargin level of 15%, but a result which we view as very satisfactory. In my statement last year I referred to our review which had led to arestructuring of our fee-based investment management service. More precisecategorisation of our clients, in line with their investment objectives andrequirements, and a more carefully tailored service to meet these requirements,has led to a more focussed charging structure for ongoing investment management.I paid tribute last year to the directors and staff who led and implemented thisextensive re-structuring. We have continued to develop this during the pasttwelve months, with conspicuous success, and to the satisfaction of our clients.Again my thanks are due to all concerned in this exercise. Our investment management fee income during the year rose to £10.6 million(2004: £7.7 million). Every year I say a special word about the success of our PEPs and ISAs. Clients'funds which we hold in PEPs and ISAs now comfortably exceed £1 billion. Eventhough the 10% income tax credit on dividends is no longer reclaimable withinPEPs and ISAs, these remain an attractive and efficient medium for investment bymany private individuals. Corporate Finance and Corporate Broking Our corporate advisory and broking division has enjoyed another excellent year,building considerably on the achievements of last year. A further six corporateclients have been added since the half year, taking our retained client base to50 companies. During the year, the team advised on 10 transactions valued at £150 million and,in addition, raised a further £95 million on behalf of clients. Corporatefinance fees increased 38%, rising to £5.1 million (2004: £3.7 million). The institutional broking side also had a good year, with revenues of £8.4million (2004: £7.6 million). Pensions, Personal and Corporate Financial Planning The enlarged Pensions, Personal and Corporate Financial Planning Divisionenjoyed another very successful year, generating revenue of £3.2 million (2004:£1.9 million). EBS, the specialist SIPP and SSAS provider acquired in July 2003completed its first full year of trading within the Group. As many commentatorshave observed the count down to "A" Day will bring significant changes andopportunities in the SIPP market which we believe we will be able to take fulladvantage of. I would particularly like to draw shareholders' attention to the launch of ournew Self-Invested Pension Plan, the Alpha SIPP. This brings together ourcapabilities both as a Revenue & Customs-recognised SIPP administrator and as aninvestment manager. The Alpha SIPP is competitively priced and has been designedto make pension self-investment as simple as possible. We share the widely-heldview that SIPPs will play an increasingly important role for individualsplanning their financial future. Acquisitions In my statement for the half-year to 30 September 2004 I referred to theacquisition of Tozer Wingate, in August last year. This is a benefit consultancybusiness located close to our significant stockbroking business in Plymouth. Ourpersonal and corporate financial planning business has been steadily expandingin recent years, with a number of complementary acquisitions, both in London andin conjunction with some of our larger branch offices, and Tozer Wingate fitsneatly into this pattern. I also mentioned that we were in talks with Sutherlands Group Ltd and wesubsequently completed this acquisition in November 2004. Sutherlands, based inLondon and Edinburgh has a considerable reputation for its research and dealingin bonds. This is an area which we believe can be expanded within our range ofservices to both our institutional and private client base. We announced in February this year that we had entered into non-binding heads ofagreement with Rowan Dartington Limited. These talks continue. We are very pleased to have been joined since the year end by two seniorinvestment managers who will significantly enhance our core discretionary fundmanagement business. We continue to seek out senior talented individuals tobuild up this aspect of our business, within the attractive cultural environmentthat we offer at Charles Stanley. Split Capital Investment Trusts The long-running saga of split capital investment trusts has moved a littlenearer resolution during the year, with the welcome announcement of acompensation fund for investors in certain of these investment trusts. This isfunded by a number of firms who played some role in designing, managing ormarketing them.We are not one of the firms that are funding the compensation scheme and weremain of the view that no provision is required. The Charles Stanley team This has been another very busy year for all of us at Charles Stanley, and it ispleasing to be rewarded for this with a record income figure. This has beenachieved in difficult market conditions, and against a background of a blizzardof directives and new regulations. Many of us in the firm participate in a rangeof industry activity - in trade associations and working parties, often in closecollaboration with our regulators. We have won further awards during the yearfor the quality of our service. To achieve these results relies so much not juston the skill and experience of our team at Charles Stanley, but on thecommitment and dedication of everyone within the team. So, as in previous years,I should like to offer warmest thanks to everyone who has contributed so much toour success. Outlook Prospects for the current financial year are difficult to assess, withcontinuing concerns over the economy both at home and in the developed world.There are predictions of rising inflation, conflicting with reports of adownturn in consumer spending. There are mixed messages on the future directionof interest rates, and whether or not growth is slowing. And there is the addeduncertainty of political upheaval and economic slowdown in the European Unionfollowing the results of the referendums in the Netherlands and France. There are always uncertainties at this early stage of our year, when I report toshareholders, but this year perhaps more than ever. However the fundamentals ofthe company are sound and our increasing reliance on fee-based income makes usless dependant on the unpredictable volatility of Stock Exchange tradingvolumes. The business is continuing to grow, and unless economic conditionsdeteriorate I look forward to the year ahead with a degree of optimism. CHARLES STANLEY GROUP PLC Consolidated Profit and Loss Account Year ended 31 March 2005 2005 2004 Note £'000 £'000 £'000 £'000 TURNOVER 2Continuing operations 76,987 66,218Acquisitions 1,034 1,946 -------- -------- 78,021 68,164Operating expenses (67,437) (58,882)Depreciation and amortisation (4,336) (3,819) ------- --------- (71,773) (62,701) -------- -------- OPERATING PROFIT/(LOSS) 4Continuing operations 6,365 5,145Acquisitions (117) 318 ------- --------- 6,248 5,463Profit on sale of fixed assets -continuing operations 257 74 -------- -------- 6,505 5,537Income from fixed asset investment 438 - Interest receivable 1,605 1,100Interest payable 5 (118) (55) --------- ---------Profit on ordinary activitiesbeforegoodwill amortisation and profit on sale 10,230 8,102of fixed assetsGoodwill amortisation (2,057) (1,594) ------- --------- Operating profit and interest 8,173 6,508before taxProfit on sale of fixed assets 257 74 ------- --------- PROFIT BEFORE TAX 8,430 6,582Taxation 6 (3,723) (2,773) -------- -------- 4,707 3,809Minority interests (9) - -------- --------PROFIT ATTRIBUTABLE TO SHAREHOLDERS 4,698 3,809Dividends 7 (2,213) (2,002) -------- -------- TRANSFER TO RESERVES 2,485 1,807 ======== ======== Earnings Per Share 2005 2004 Basic Diluted Basic Diluted Based on profit for the year 8 11.15p 10.66p 9.04p 8.64p ======= ======== ========= ======== Excluding goodwill amortisation 8 16.03p 15.32p 12.82p 12.26p ======= ======== ========= ======== Based on historical cost profitfor the 8 13.68p 13.08p 9.02p 8.62pyear ======= ======== ========= ======== Statement of Total Recognised Gains and Losses 2005 2004 £'000 £'000 Profit for the year 4,698 3,809Unrealised gains on investments 2,406 579 -------- --------- TOTAL RECOGNISED GAINS AND LOSSES RELATING TO THE YEAR 7,104 4,388 ======== ========= Note of Historical Cost Profits and Losses 2005 2004 £'000 £'000Reported profit on ordinary activities before taxation 8,430 6,582Realisation of investment revaluation profit/(loss) ofprevious years 1,070 (9) -------- --------- Historical cost profit on ordinary activities before taxation 9,500 6,573 ======== =========Historical cost profit for the year retained after taxation,minority interests and dividends 3,555 1,798 ======== ========= CHARLES STANLEY GROUP PLC Consolidated Balance Sheet 31 March 2005 2005 2004 Notes £'000 £'000 FIXED ASSETSIntangible 13,518 11,846Tangible 5,995 5,493Investments 9 4,787 3,670 -------- --------- 24,300 21,009 -------- --------- CURRENT ASSETSDebtors 10 232,055 171,489Listed Investments 1,108 908Cash at bank and in hand 44,234 33,993 -------- --------- 277,397 206,390CREDITORS: due within one year 11 (254,348) (185,165) -------- --------- NET CURRENT ASSETS 23,049 21,225 -------- --------- TOTAL ASSETS LESS CURRENT LIABILITIES 47,349 42,234 CREDITORS: due after one year 12 (1,679) (1,418)Minority Interests (203) (244) -------- --------- NET ASSETS 45,467 40,572 ======== ========= CAPITAL AND RESERVESCalled up share capital 13 10,538 10,537Share premium account 3 -Revaluation reserve 4,089 2,675Profit and loss account 30,837 27,360 -------- --------- EQUITY SHAREHOLDERS' FUNDS 14 45,467 40,572 ======== ========= Net Asset Value per Share 107.87p 96.26p ======== ========= CHARLES STANLEY GROUP PLC Consolidated Cash Flow Statement Year ended 31 March 2005 2005 2004 Notes £'000 £'000 NET CASH INFLOW FROM OPERATING ACTIVITIES 15 18,258 13,814Returns on investments and servicing of finance 1,925 1,045Taxation (3,489) (930)Capital expenditure and financial investment (1,197) (1,997)Acquisitions (2,802) (1,961)Equity dividends paid (2,044) (1,897) ------- --------- 10,651 8,074 Management of liquid resources (200) (586) FINANCINGDecrease in debt (214) (443)Issue of share capital 4 - ------- --------- Increase in cash in the year 10,241 7,045 ======= ========= RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDSIncrease in cash in the year 10,241 7,045Cash used to increase liquid resources 200 586Cash outflow from change in debt and lease financing 214 443 ------- --------- 10,655 8,074New finance leases (38) (620) ------- --------- Movement in net funds in the year 10,617 7,454Net funds at 1 April 34,399 26,945 ------- --------- Net funds at 31 March 45,016 34,399 ======= ========= CHARLES STANLEY GROUP PLC NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 MARCH 2005 1 BASIS OF PREPARATION The results are an abridged extract from the financial statements for the yearended 31 March 2005, which have not yet been delivered to the Registrar ofCompanies. The auditors' report on the full financial statements has yet to besigned.The results have been prepared on a basis consistent with the accountingpolicies set out on pages 35 and 36 of Charles Stanley Group PLC's annual reportand financial statements for the year ended 31 March 2004. These preliminaryfinancial statements should therefore be read in conjunction with the 2004annual report and financial statements.The financial information as set out in this report is unaudited and does notcomprise statutory accounts for the purposes of Section 240 of the Companies Act1985.The comparative figures for the year ended 31 March 2004 have been taken from,but do not constitute, the Company's statutory financial statements for thatfinancial year. Those financial statements have been reported on by theCompany's auditors and delivered to the Registrar of Companies. The report wasunqualified. 2 TURNOVER Turnover is derived from stockbroking operations in the United Kingdom analysedas follows: 2005 2004 Continuing Continuing Operations Acquisitions Operations Acquisitions £'000 £'000 £'000 £'000Commission 47,249 721 45,195 946Investmentmanagementfees 10,556 - 7,714 -Administrationcharges 14,024 313 9,602 1,000Corporatefinance fees 5,158 - 3,707 - -------- --------- --------- --------- 76,987 1,034 66,218 1,946 ======== ========= ========= ========= 3 PARTICULARS OF STAFF The average number of persons employed (including Directors) during the year was485 (2004: 459). 2005 2004 £'000 £'000Staff costs:Wages and salaries 21,401 17,978Social security costs 2,394 1,965Other pension costs 2,116 1,872 ------- --------- 25,911 21,815 ======== ========= 4 OPERATING PROFIT/(LOSS)Operating profit is stated after charging:Depreciation on owned assets 2,108 1,887Depreciation on assets held under finance leases 171 338Goodwill amortisation 2,057 1,594Auditors' remunerationAudit services 101 87Further assurance services (including "due diligence" work) 27 43Tax services 36 70Operating lease rentals 1,210 1,028Cost of moving the Edinburgh office 444 - ======== ========= 5 INTEREST PAYABLE 2005 2004 £'000 £'000 On bank loans and overdrafts 13 34Finance lease interest 22 15On convertible loans 83 6 -------- --------- 118 55 ======== ========= 6 TAX ON PROFIT ON ORDINARY ACTIVITIES Current taxation:UK corporation tax at 30% (2004: 30%) 3,777 2,630Adjustment in respect of prior periods (54) 143 --------- --------- 3,723 2,773 ========= ========= 7 DIVIDENDS Interim paid of 1.10p per share (2004: 1.00p) 463 421Proposed final of 4.15p per share (2004: 3.75p) 1,750 1,581 --------- --------- 2,213 2,002 ========= ========= The directors have recommended a final dividend of 4.15p per share. This will bepaid on 29 July 2005 to shareholders registered on 8 July 2005. The ordinaryshares are expected to be quoted ex dividend on 6 July 2005. 8 EARNINGS PER SHARE 2005 2004 No. No.BasicWeighted average number of shares in issue in theyear 42,151,469 42,149,378DilutedWeighted average number of options outstanding forthe year 1,801,985 1,921,125Convertible loan stock 129,438 - --------- --------- Diluted weighted average number of shares in issuein the year 44,082,892 44,070,503 ========= ========= £'000 £'000 Profit for the year before goodwill 6,755 5,403Goodwill amortisation (2,057) (1,594) --------- --------- Profit for the year 4,698 3,809Realisation of investment revaluation losses ofprevious years 1,070 (9) --------- --------- Historical cost profit for the year 5,768 3,800 ========= ========= 9 FIXED ASSET INVESTMENTS Listed Unlisted investments investments Total £'000 £'000 £'0001 April 2004Cost 696 305 1,001Revaluation surplus 2,669 - 2,669 ---------- --------- --------- Book value 3,365 305 3,670Additions 98 - 98Disposals (1,387) - (1,387)Revaluation in year 345 2,061 2,406 ---------- --------- --------- 31 March 2005 2,421 2,366 4,787 ---------- --------- --------- Cost 394 305 699Revaluation 2,027 2,061 4,088 ========== ========= ========= Listed investments include shares in the London Stock Exchange. During the year242,857 shares were sold for £1.2 million leaving 400,000 shares as at 31 March2005. Unlisted investments include the Group's holding of 6,030 shares in Euroclearplc. Following the takeover of Crest by Euroclear plc the Directors valued thisholding at £2.2 million as at 31 March 2005. This valuation reflects the Group'sshare of net assets discounted for marketability. 10 DEBTORS 2005 2004 £'000 £'000Trade debtors 229,897 170,037Other debtors 630 332Prepayments 1,528 1,120 --------- --------- 232,055 171,489 ========= ========= 11 CREDITORS: amounts due within one year 2005 2004 £'000 £'000Trade creditors 239,826 173,879Redeemable loan notes 797 300Obligations under finance leases 194 209Corporation tax 2,250 2,016Other taxes and social security 2,100 1,680Other creditors 3,121 2,727Accruals and deferred income 4,310 2,773Proposed dividend 1,750 1,581 --------- --------- 254,348 185,165 ========= ========= 12 CREDITORS: amounts due after one year 2005 2004 £'000 £'000Redeemable loan notes 468 -Obligations under finance leases 132 293Other creditors 1,079 1,125 --------- --------- 1,679 1,418 ========= ========= 13 CALLED UP SHARE CAPITAL 2005 2004 £'000 £'000Authorised:80,000,000 ordinary shares of 25p each 20,000 20,000 ========= =========Allotted and fully paid:42,153,753 (2004: 42,149,378) ordinary shares of 25p each 10,538 10,537 ========= ========= On 31 March 2005 the following options have been granted and remain outstandingin respect of ordinary shares of 25p in the Company under the Company's Save AsYou Earn Scheme. No. of shares Option priceGrant dated 11 July 2001 51,023 £2.87 ========= ========= Options are exercisable during the six monthscommencing 1 September 2006. Grant dated 2 January 2003 1,801,985 £0.96 ========= ========= Options are exercisable during the six months commencing 1 February 2008. During the year 4,375 ordinary shares were issued fully paid for cash at 96peach following the exercise of options by a former employee. 14 RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS 2005 2004 £'000 £'000Profit for the year 4,698 3,809Other recognised gains 2,406 579Dividends (2,213) (2,002)Issue of share capital 4 - --------- --------- Net increase in shareholders' funds 4,895 2,386Opening shareholders' funds 40,572 38,186 --------- --------- Closing shareholders' funds 45,467 40,572 ========= ========= 15 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATINGACTIVITIES 2005 2004 £'000 £'000Operating profit 6,248 5,463Amounts written off investments - (61)Depreciation charges 2,279 2,225Goodwill amortisation 2,057 1,594Investment acquired in lieu of fees - (115)(Increase)/decrease in debtors (60,566) 7,407Increase/(decrease) in creditors 68,240 (2,699) --------- --------- Net cash inflow from operating activities 18,258 13,814 ========= ========= 16 PENSION COSTS The Group operates a defined contribution pension scheme. The assets of thescheme are held separately from those of the Group in independently administeredfunds. The group also operates a pension scheme providing benefits based on finalpensionable pay. The assets of the scheme are held separately from those of theGroup, in cash and equity investments. This scheme is closed to new entrants.The following table summarises the impact that full implementation of FinancialReporting Standard 17 - Retirement Benefits would have on net assets. 2005 2004 £'000 £'000 Assets 13,982 12,695Liabilities (14,140) (12,591) --------- --------- Net pension (liability)/asset (158) 104Net assets excluding pension (liability)/asset 45,467 40,572 --------- --------- Net assets including pension (liability)/asset 45,309 40,676 ========= ========= 17 REPORT AND ACCOUNTS Copies of the Annual Report and Accounts will be despatched shortly toshareholders. The Annual General Meeting will be held on 20 July 2005. FUNDS UNDER MANAGEMENT AND ADMINISTRATION 2005 2004 £ billion £ billionDiscretionary funds under management In Group's nominee or sponsored member 1.4 1.2 ---- ----Advisory portfolio funds under managementIn Group's nominee or sponsored member 1.6 1.4Not held in Group's nominee 0.5 0.5 ---- --- 2.1 1.9 ---- ---Total managed funds 3.5 3.1 ---- ---Advisory dealing fundsIn Group's nominee or sponsored member 1.9 1.5Execution only fundsIn Group's nominee or sponsored member 2.3 2.1 ---- ----Total administered funds 4.2 3.6 ---- ----Total funds under management and administration 7.7 6.7 ==== ==== This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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