Interim Financial Report

28 May 2014

Brewin Dolphin Holdings PLC

Interim Financial Report

For the Half Year Ended 30 March 2014

Highlights

1 These figures have been adjusted to exclude redundancy costs, additional FSCS levy, onerous lease contracts provision and amortisation of client relationships.

Declaration of Interim Dividend

The Board declares an interim dividend of 3.65p per share. The interim dividend is payable on 4 July 2014 to shareholders on the register at the close of business on 6 June 2014 with an ex-dividend date of 4 June 2014.

David Nicol, Chief Executive said

"The Group has made good financial and operational progress over the first half of 2014. The process of streamlining the business is on track and this is reflected in the significant progress made towards the adjusted profit before tax margin target of 25%. It is encouraging to see the rationalisation of the business model begin to bear fruit as organic growth is achieved.

We are committed to continued improvement and strengthening of the business and will continue to make the difficult decisions necessary to achieve this as evidenced by the refocused systems priorities. The streamlining of the business through improved operating processes and clearer focus on core services should not only secure further shareholder returns, but also substantially reduce risk."

For further information

David Nicol, Chief Executive

Brewin Dolphin Holdings PLC

020 7248 4400

Andrew Westenberger, Finance Director

Brewin Dolphin Holdings PLC

020 7248 4400

Matthew Sims, Director of Investor Relations

Brewin Dolphin Holdings PLC

020 7248 4400

Andrew Hayes/Wendy Baker

Hudson Sandler 

020 7796 4133

Interim Management Report

To the members of Brewin Dolphin Holdings PLC

Results for the 6 months ended 30 March 2014

The strong underlying results for the half year ended 30 March 2014 reflect the progress the Group has made on delivering against its strategic objectives. Adjusted profit before tax grew by 25% to £29.7 million (31 March 2013: £23.7 million) and adjusted diluted EPS grew by 21% to 8.6 pence per share from 7.1 pence in March 2013.

Growth in adjusted profit before tax was driven by increased income, 5% higher than prior year, together with improving efficiency as reflected by the increase in adjusted profit before tax margin to 20.3% (31 March 2013: 17.1%).

1 Core income is defined as income derived from fees and commissions charged on management and/or advice and execution activities relating to client portfolios. 

2These figures have been adjusted to exclude redundancy costs, additional FSCS levy, onerous lease contracts provision and amortisation of client relationships.

Overall income growth resulted primarily from increasing core income, up 13% to £134.4 million (31 March 2013: £118.6 million). Against a backdrop of stronger equity markets, with average levels in H1 2014 being 6% higher than the same period last year, this was achieved from continued growth in new funds managed within our discretionary service. Income from other services remained flat against the same period last year, with the loss of advisory client funds resulting from the remaining service and pricing reviews being offset by the retention of funds at new standardised fee rates.

Other income continued to fall, to £11.9 million, down 42% (31 March 2013: £20.4 million) as a result of declining margins on cash deposits and a further £6.1 million reduction in trail income following the continued move away from trail paying unit trusts post RDR.

On-going initiatives to improve business efficiency by standardising operating processes and restructuring the business, together with strong cost discipline, resulted in a decline in total fixed operating costs of 4% from the same period last year.

Total fixed operating costs declined by 4% to £91.7 million, from £95.5 million in the same period last year.

Control over fixed salary cost inflation combined with reduced headcount from restructuring central functions and elements of the branch network in 2013 resulted in a 4% decline in salary costs to £51.3 million (31 March 2013: £53.4 million). This was despite increasing staff costs associated with the integration of major new technology systems in the period.

Other operating costs also declined 4% from £42.1 million in the same period last year to £40.4 million. Control over discretionary expenditure, lower depreciation from capital expenditure combined with reduced property costs resulting from branch consolidations, more than offset higher technology related costs from new system implementations and higher legal and professional fees.

Variable staff costs in the period grew in line with higher income and profit performance.

Exceptional costs in the period declined to £8.3 million from £16.9 million in the same period last year. This decline was the result of significantly lower charges taken in the period relating to redundancy costs from further restructuring and updated estimates of onerous contract provisions required.

Funds under management

Total managed/advised funds increased by 1.8% in the period to £28.7 billion from £28.2 billion in September 2013.

The strategy of focusing on our discretionary service whilst completing the remaining reviews of advisory services is reflected in the on-going growth in discretionary funds and net outflows from advisory funds.

Discretionary funds increased by 7% in the period, including £0.6 billion of net new funds, an annualised rate of 6%, above our target of achieving 5% per annum new funds growth. Discretionary funds under management now represent 79% (September 2013: 76%) of total managed/advised funds.

As reported at September 2013, approximately 40% of our managed advisory business was still due to move onto new standard national pricing structures, with the intention that this would be completed by the end of 2014. The completion of this move will bring the yield received for this service to a more sustainable level of approximately 75 bps from the 56 bps earned in 2013. Further progress on this initiative has been achieved in the period, taking the yield up to 61 bps for the six months ended 30 March 2014, although some delays have occurred as a result of ensuring that client communication was fair and appropriate. This work is still planned to be completed by the end of 2014.

Work has progressed in the period on developing and introducing an enhanced investment process in order to improve client experience. The roll out is now underway.

In addition, progress has been made on the various initiatives announced in September 2013 to support ongoing growth in client services managed within our discretionary service, such as the launch of a new website, various marketing initiatives and a refocused intermediary agent sales team.

The funds we hold in relation to our execution only business have grown by 10% to £7.4 billion.

Update on technology

As previously reported at the full year 2013 results, the first stage of the planned implementation of the JHC Figaro software ("Figaro") into Stocktrade, our execution only service, took place in September 2013.

The initiative to implement Figaro as a new core system for the Group's business was launched in 2011 aiming to achieve material cost saving opportunities through lower support headcount and lower technology operating costs. If achieved these benefits would have led to the improvement in the Group's operating margin from 15% to a planned 20%. By the end of 2012, as reported at the time, it became evident that the project was experiencing delays in design, configuration and testing.

Following the management changes in March 2013 an initial review of the project concluded that the implementation of Figaro was achievable. New project management was put in place, and simpler, standardised and consistent business operating processes were defined.

As a result of the review the management team were able to announce in May 2013 that the design work was largely complete and a new de-risked implementation plan was put in place commencing in the final quarter of 2013. This plan involved a first phase implementation into Stocktrade in order to more securely test the new system.

Following the implementation into Stocktrade initial benefits were experienced by way of improved client accessibility. However, a number of issues with the functionality and robustness of the software were uncovered. These are continuing to take additional time and resource to address. An ongoing deterioration in the Group's assessment of the project, post the H1 2014 period end, led the Board to undertake a full review of the plans to roll out Figaro more broadly across the Group.

As a result of the investigation into the underlying causes of these issues, the Board concluded in May 2014 that although Figaro is an acceptable solution for Stocktrade, it no longer believes it would be an appropriate operating system for the Group's discretionary wealth management business or to support the Group's strategic aims and new margin target of 25% by 2016. Accordingly, it was announced on 13 May 2014 that the project to develop and roll out Figaro to the rest of the business would be terminated.

The financial impact of this post balance sheet date decision is set out in note 17.

In December 2013 it was indicated that a further £20 million of capital expenditure on software development projects was anticipated over the following 18 months, including the project to roll out Figaro to the whole business. As a result of the decision discussed above there will be no increment to the Group's forecast capital expenditure for 2014 to 2016.

As disclosed in note 8, £4.5 million of capital expenditure (31 March 2013: £9.1 million) was incurred during the period on these projects, of which £3.3 million was on Figaro. Total capitalised software at 30 March 2014 was £37.5 million, of which approximately £36.0 million related to development projects. Within this, capitalised costs on the development of the Figaro system at 31 March 2014 were £33.2 million.

The decision to terminate the Figaro implementation was difficult to make, but one which the Board believes is correct and in shareholders', clients', and employees' long-term interests. The Board concluded that continued implementation would not support its 25% margin target and present the business with unacceptable risks and that a better, more achievable solution is to use existing technology architecture, with some additional enhancements. The current systems are well established and supported while continuing to deal with our high business levels.

As evidenced by the progress already achieved in the last 18 months, margin improvement is being brought about by change in the business and its key operating processes. Technology solutions via selective new and upgraded systems will be enabling elements of, but not be the primary driver of continuing improvement.

Strategy

The strategic aim of the Group remains unchanged and is focused on meeting the objectives that were put in place three years ago and have been reaffirmed by the current executive team. The strategic priorities of this strategy are:

Delivering on this strategy requires the simplification of a complex business, standardising operational processes and taking tough decisions with a view to delivering long-term shareholder value. This process continues, and there is much still to be done.

The demand for high quality, trusted, face to face advice is rising. Brewin Dolphin has an experienced network, a strong organisation and brand, and an executive team committed to driving through the necessary change to strengthen the business in order to be able to benefit from this trend.

Capital

The Group continues to have a strong balance sheet with cash balances at period end of £109 million. These underpin its regulatory capital resources which continue to be in significant surplus to requirements.

The non-cash impairment charge resulting from the decision to end the roll out of the Figaro operating system to the Group's Discretionary Wealth Management business will not impact the Group's regulatory capital position, since intangible assets do not form part of the Group's regulatory capital base.

Dividend

The Group's dividend policy is to grow dividends in line with underlying adjusted earnings. A new dividend policy was announced in December 2013 to target a total annual payout rate of 60 - 80% of adjusted earnings per share. Further it was indicated that the final dividend would be used to reflect full year profitability, as is our normal practice. Accordingly, an interim dividend of 3.65 pence per share will be paid on 4 July 2014 to shareholders on the register on 6 June 2014.

The variable final dividend will be based on the full year target dividend payout ratio of 60% to 80% adjusted earnings per share. 

Board

The Board has been strengthened with the appointment of additional non-executive directors to the Board. Ian Dewar was appointed to the Board on 15 November 2013 and became Chair of the Audit Committee following Jock Worsley's retirement at the AGM in February 2014. Paul Wilson was appointed to the Board on 9 December 2013 and became Chairman of the Remuneration Committee following the AGM in February 2014. Caroline Taylor was appointed to the Board on 21 May 2014. All of the non-executive directors are considered by the Company to be independent and the Board is now fully compliant with the UK Corporate Governance Code with respect to Board composition.

Going concern

As stated in note 2 to the condensed set of financial statements, the directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of time not less than 12 months from the date of this report. Accordingly, the directors continue to adopt a going concern basis in preparing the condensed financial statements.

Principal risks and uncertainties

The Directors consider that the nature of the principal risks and uncertainties which may have a material effect on the Group's performance during the remainder of its financial year remain unchanged from those identified on pages 27 to 30 of the 2013 Annual Report and Accounts available via our website www.brewin.co.uk.

Outlook

Over the last six months the economic backdrop has continued to improve. The combination of economic policy and historically low interest rates has underpinned growth in investment markets. Key indicators on growth and employment look positive for the future despite lacklustre Eurozone growth.

The Chancellor of the Exchequer and the Minister for Work and Pensions have put in place a strategy to modernise UK pensions. It is too early to predict the eventual impact of the Budget on the Group's funds under management. However, it was a Budget for savers and investors, and was welcomed by our clients.

These results build on the positive trends of the last twelve months, and it is encouraging to see the rationalisation of the business model begin to bear fruit as organic growth is achieved. Tackling the Group's legacy issues will take time. We are committed, however, to ongoing improvement and strengthening of the business and will continue to make the difficult decisions necessary to achieve this, as evidenced by the refocused systems priorities. The streamlining of the business through improved operating processes and a clearer focus on core services, together with this ongoing strengthening, should not only secure further shareholder returns, but also substantially reduce risk. These twin objectives remain management's priority.

David Nicol

Chief Executive

27 May 2014

Condensed Consolidated Income Statement

for the 26 week period ended 30 March 2014

Condensed Consolidated Statement of Comprehensive Income

for the 26 week period ended 30 March 2014

Condensed Consolidated Statement of Changes in Equity

for the 26 week period ended 30 March 2014

Condensed Consolidated Balance Sheet

as at 30 March 2014

Condensed Consolidated Cash Flow Statement

for the 26 week period ended 30 March 2014

For the purposes of the cash flow statement, cash and cash equivalents include bank overdrafts.

Notes to the Condensed Set of Financial Statements

Brewin Dolphin Holdings PLC (the "Company") is a public limited company incorporated in the United Kingdom. The shares of the Company are listed on the London Stock Exchange. The address of its registered office is 12 Smithfield Street, London EC1A 9BD. This Interim Financial Report was approved for issue on 27 May 2014.

A copy of this Interim Financial Report including Condensed Financial Statements for the26 week period ended 30 March 2014 is available at the Company's registered office and on the Company's investor relations website.

The information for the 52 week period ended 29 September 2013 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Basis of preparation

The annual financial statements of Brewin Dolphin Holdings PLC are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The condensed set of financial statements included in this Interim Financial Report for the26 week period ended 30 March 2014 should be read in conjunction with the annual audited financial statements of Brewin Dolphin Holdings PLC for the 52 week period ended29 September 2013.

The condensed set of financial statements included in this Interim Financial Report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting", as adopted by the European Union and the Interim Financial Report has been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority.

Going concern

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly they continue to adopt the going concern basis in preparing the condensed financial statements.

Changes in accounting policy and disclosure

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements for the 52 week period ended 29 September 2013 with the exception set out below.

IAS 19 (Revised) has been applied retrospectively in accordance with IAS 8 'Accounting Policies, Changes in Accounting Estimates And Errors' and has led to the restatement of prior period amounts. The impact of adopting IAS 19 (Revised) on the Group's financial statements is for the interest costs on Scheme liabilities and expected return on Scheme assets in the income statement to be replaced with a single net interest cost item calculated by applying the discount rate assumption to the net defined benefit asset or liability. The impact of the restatement is set out in note 16.

There have been no related party transactions that have taken place in the period that have materially affected the financial position or the performance of the Group during the period and no changes to related party transactions from those disclosed in the 2013 Annual Report and Accounts available via our website www.brewin.co.uk that could have a material effect on the financial position or the performance of the Group. Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed. There were no other transactions with related parties which were not part of the Group during the period, with the exception of remuneration paid to key management personnel.

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

During the period the Group spent £0.3 million (26 weeks to 31 March 2013: £0.6 million, 52 weeks to 29 September 2013: £2.0 million) on leasehold improvements, £1.1 million (26 weeks to 31 March 2013: £0.8 million, 52 weeks to 29 September 2013: £1.3 million) on computer equipment and £0.2 million (26 weeks to 31 March 2013: £0.3 million, 52 weeks to 29 September 2013: £1.2 million) on office equipment. The depreciation charge for the period was £3.0m (31 March 2013: £2.9m, 29 September 2013: £5.6m).

The unlisted available-for-sale investments is Euroclear plc (31 March 2013: Euroclear plc and N+1 Singer Ltd).

The holding in Euroclear plc is as a result of a £431,000 strategic investment in Crest, the London based settlement system. Crest was taken over by Euroclear plc. The Group holds 19,899 ordinary shares of Euroclear plc's share capital (0.55%). As at 29 September 2013, the Directors updated their valuation of the Group's holding in Euroclear plc; the valuation is £10 million (31 March 2013: £6 million, 29 September 2013: £10 million). This valuation takes into account a number of different valuation methods including dividend yield.

Investments are measured at fair value which is determined directly by reference to published prices in an active market where available.

The timing of settlements in relation to sundry claims and associated costs cannot be accurately forecast; settlement of £nil (31 March 2013: £0.3m, 29 September 2013: £nil) has been made since the balance sheet date. The onerous lease contracts provision of £5m is principally in respect of surplus office space which the Group may not be able to sublet in the short term.

The Group acquires investment businesses and teams of investment managers, bringing with them funds under management (the latter classified as the intangible asset client relationships) on deferred purchase terms based on the value of income introduced over, normally, a three year period. The payment is normally made in ordinary shares and these shares typically have to be held for a further three years. At the discretion of the Board these shares can be purchased in the market rather than issued. The estimated likely cost of these shares has been updated at the half year in light of actual results of previously acquired business teams and to include new acquisitions.

The main financial assumptions used in calculating the Group's retirement benefit obligation are as follows:

A full actuarial valuation was carried out as at 1 January 2012 and the results of this valuation have been updated to 30 March 2014 by a qualified independent actuary.

The following movements in share capital occurred during the period: