Interim Management Report

10 May 2019

Brewin Dolphin Holdings PLC

Interim Management Report

For the Half Year Ended 31 March 2019

David Nicol, Chief Executive, said: 

“In the first half of 2019, the Group has continued to deliver strong and resilient organic growth, even with the backdrop of volatile market conditions. This is demonstrated by the strength of our discretionary funds flows. Our strategy of focusing on our advice-led wealth management service in the direct market continues to deliver results.

We are investing in our business to support future long-term growth. Over the past few months we have announced the replacement of our core custody and settlement system and a number of acquisitions. These initiatives are laying the foundations for long-term growth and will ensure that we are well placed to capture market opportunities.”

Highlights

- Another period of strong organic funds inflows with the Group making progress on its strategic plan.

- Total funds were £42.4bn (H1 2018: £39.7bn, FY 2018: £42.8bn).

- In the six months to 31 March 2019, the MSCI WMA Private Investor Balanced Index fell by 1.6% and the FTSE 100 Index fell by 3.1%.

- Discretionary funds of £37.5bn (FY 2018: £37.6bn) reflect continued organic growth offset by investment performance.

- Net inflows of discretionary funds, including transfers, of £0.8bn (H1 2018: £1.3bn) represent an annualised growth rate of 4.3% (H1 2018: 7.7%).

- Total income for the period increased marginally to £162.3m (H1 2018: £161.8m) due to largely flat average funds over the period.

- Total costs of £127.6m excluding adjusted1,3 items (H1 2018: £123.3m), 3.5% increase in-line with expectations from spending on growth initiatives and infrastructure projects.

- Profit before tax and adjusted1,3 items of £35.6m, 8.2% lower than H1 2018 (£38.8m).

- Statutory profit before tax of £29.7m, 12.9% lower than H1 2018 (£34.1m).

- Adjusted1,3 earnings per share:

- Diluted earnings per share2 decreased by 8.3% to 9.9p (H1 2018: 10.8p).

- Basic earnings per share decreased by 9.7% to 10.2p (H1 2018: 11.3p).

- Statutory earnings per share:

- Diluted earnings per share of 8.1p (H1 2018: 9.4p).

- Basic earnings per share of 8.3p (H1 2018: 9.7p).

- Interim dividend of 4.4p per share announced (2018 interim: 4.4p per share).

1. Adjusted items are amortisation of client relationships - £3.3m (H1 2018: £4.0m), defined benefit pension scheme past service costs - £1.9m (H1 2018: £nil), acquisition costs - £0.5m (H1 2018: £nil), incentivisation awards £0.2m (H1 2018: £0.6m), onerous contracts - £(0.04)m (H1 2018: £0.4m) and FSCS levy refund £nil (H1 2018: £0.3m).

2. See note 8.

3. See Group's 2018 Annual Report and Accounts page 34 for explanation of adjusted profit before tax and why the adjusted measures have been chosen.

Declaration of Interim Dividend

The Board declares an interim dividend of 4.4p per share. The interim dividend is payable on 14 June 2019 to shareholders on the register at the close of business on 24 May 2019 with an ex-dividend date of 23 May 2019.

LEI: 213800PS7FS5UYOWAC49

For further information:

NOTES TO EDITORS: Brewin Dolphin is a UK FTSE 250 provider of discretionary wealth management. The Group offers award-winning personalised wealth management services that meet the varied needs of our clients. Our services range from bespoke, discretionary investment management to retirement planning and tax-efficient investing. We have a network of offices across the UK, Jersey and Dublin, staffed by qualified investment managers and financial planners. We are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients' needs at the core.

First half review

The business has performed well and remained very resilient in the first half of 2019 against a more volatile market backdrop, particularly in the first quarter. Adjusted diluted earnings per share was 9.9p (H1 2018: 10.8p) against a strong comparative period last year. Statutory diluted earnings per share was 8.1p (H1 2018: 9.4p).

Total discretionary funds were £37.5bn (FY 2018: £37.6bn) with £1.0bn of net new discretionary flows offset by investment performance. The annualised growth rate for net discretionary funds flows, including transfers, was 4.3% in the period against our 5% target.

Direct discretionary net new flows increased to £0.4bn (HY 2018: £0.1bn) demonstrating that our strategy to grow this business through our advice-led integrated wealth management service is starting to pay off. Inflows into this service were 40% of total direct discretionary gross funds inflows, up from 30% in 2018.

Net inflows, excluding transfers, in the intermediary channel were lower at £0.3bn (HY 2018: £0.7bn) attributable to continued economic uncertainty, leading to subdued client activity. Additionally, market trends show that defined benefit pension scheme transfers were lower this period, reducing intermediaries client flows further. However, sustained net flows in our managed portfolio service ('MPS') of £0.3bn were in line with last year (HY 2018: £0.3bn). As part of our intermediary strategy, to broaden our MPS distribution channels, we have entered into three new partnerships in different target market segments.

We continue to develop our spectrum and complexity of client advice to support current and prospective client needs. We have made good progress in our newer initiatives of BPS, WealthPilot and 1762 from Brewin Dolphin. Our office in the West End (1762 from Brewin Dolphin) continues to make progress and we have seen some excellent new hires, all of whom have been attracted by our proposition and ambitious growth plans.

We have undertaken some targeted inorganic growth and acquired two businesses. The first, Aylwin Limited, a financial planning business, strengthens our capabilities in Southern England. The business has relocated to our new office in Winchester consolidating with our Bournemouth branch. The second, Mathieson Consulting Limited, a consultancy business providing an expert witness report service covering pension valuations, expands the Group's professional service offering, complementing the core business.

In addition, we signed an agreement on 26 April 2019 to acquire the assets and staff of Epoch Wealth Management LLP, a financial planning led business in Bath, with total assets under advice of £0.5bn, for an initial payment of £10.0m and an estimated deferred consideration of £9.0m which is subject to performance conditions. The 38 employees of the business will transfer to the Group on completion. This will increase our footprint and advice-led capability in this part of the country.

To support our growth strategy we need to ensure that we have the operational infrastructure to grow. Our new client management system, Client Engage, is expected to go live in the second half of 2019. We have commenced the project to replace our core settlement and custody system. This upgrade will take up to two years to complete and the total project costs will be approximately £35.0m, a mix of internal and external costs. These two initiatives will provide a more efficient platform, reduce the cost of change, improve operational risk management and allow the business to achieve its growth ambitions.

We are expecting to sign an agreement to lease new larger premises in the near future as we are expanding beyond the capacity of our current head office which is leased until February 2026. The new lease will be for 15 years and is expected to commence in August 2021 with relocation to the new premises by July 2022. We expect the net ongoing future running costs of the new office would be similar to staying in our current head office, and it will provide an improved environment for our clients and colleagues. The Group is expecting to recognise a provision in the region of £6m-£10m when the current head office lease becomes onerous, this is likely to be recognised between the lease commencement date and the relocation date.

Results and business performance

Profit before tax and adjusted items of £35.6m was 8.2% lower than the first six months last year (H1 2018: £38.8m). This reflects broadly flat income as a result of volatile markets in the first quarter, followed by a rebound in the second quarter impacting the value of funds, and higher costs as the Group continues to invest in growth initiatives and its infrastructure.

Statutory profit before tax for the period was 12.9% lower than last year at £29.7m (H1 2018: £34.1m), including a one-off £1.9m defined benefit pension scheme past service cost in relation to Guaranteed Minimum Pensions (see note 12). If this is excluded, statutory profit before tax would be 7.3% lower than H1 2018.

1. Adjusted items are amortisation of client relationships - £3.3m (H1 2018: £4.0m), defined benefit pension scheme past service costs - £1.9m (H1 2018: £nil),acquisition costs - £0.5m (H1 2018: £nil), incentivisation awards £0.2m (H1 2018: £0.6m), onerous contracts - £(0.04)m (H1 2018: £0.4m) and FSCS levy refund £nil (H1 2018: £0.3m).

2. See note 8.

3. See Group's 2018 Annual Report and Accounts page 34 for explanation of adjusted profit before tax and why the adjusted measures have been chosen.

Funds

Total funds were £42.4bn at 31 March 2019 (H1 2018: £39.7bn, FY 2018: £42.8bn); driven by continued strong net fund flows of £0.8bn, £0.2bn higher than H2 2018 (H1 2018: £0.9bn) offset by negative investment performance due to mixed market conditions.

Total funds by service category

1. Intermediary services.

Funds flow by service category1

1. The funds figures are rounded to one decimal place and therefore may not always cast.

2. Intermediary services.

Total discretionary funds were £37.5bn (H1 2018: £34.3bn, FY 2018: £37.6bn) with strong net flows of £0.8bn (H1 2018: £1.3bn, H2 2018: £1.0bn) offset by negative investment performance. The annualised growth rate for discretionary funds was 4.3% against our 5.0% target. Net flows during 2018 benefitted from significant transfers from the advisory managed service.

The first six months of the year have seen direct discretionary net new flows of £0.4bn (H1 2018: £0.1bn, H2 2018: £0.1bn); gross inflows were £0.6bn (H1 2018: £0.5bn) as we continued to see the benefits of offering our combined financial planning and investment management proposition and low gross outflows of £0.2bn in the period (H1 2018: £0.4bn).

Indirect discretionary net flows were lower at £0.5bn (H1 2018: £0.9bn, H2 2018: £0.7bn), as continued market uncertainty, resulted in subdued client activity which has impacted intermediaries net flows across the industry.

Execution only funds remain stable at £3.8bn with total net flows offset by investment performance. Advisory funds continue to fall with £0.2bn transferred into other service categories.

Income

Income of £162.3m was marginally higher than H1 2018 (£161.8m) with lower income in the first quarter offset by market recovery and continued positive net flows in the second quarter.

Income is analysed as follows:

Discretionary income increased by 1.7% to £140.6m (H1 2018: £138.2m), reflecting flat average funds in the six months to 31 March 2019.

Financial planning income grew 3.3% to £12.6m (H1 2018: £12.2m) and has been impacted by market conditions over the period.

Advisory income was lower following the substantial transfer of advisory managed funds into other services in the Group during 2018, particularly discretionary investment management.

Other income rose by £0.8m to £1.9m due to increased interest rates received on client money balances following the Bank of England Base Rate rise in August 2018. The impact of this over the six month period was offset by the decision to resume paying interest to clients on these balances from January 2019.

Costs

Total operating costs before adjusted items were 3.5% higher at £127.6m (H1 2018: £123.3m).

Our total fixed costs have increased by £6.8m to £101.0m (H1 2018: £94.2m). These comprised of £63.2m of fixed staff costs (H1 2018; £57.8m) and £37.8m of other operating costs before adjusted items (H1 2018: £36.4m). The increase in total fixed costs has been driven by growth initiatives and infrastructure projects of £8.6m, £3.3m higher than H1 2018 (£5.3m). The remaining increase reflects higher BAU costs such as salary inflation, recruitment and non-staff costs offset by lower cost of sales from reduced intermediary net inflows compared to H1 2018.

Variable staff costs, in the form of profit share, were 8.6% lower, in line with the fall in operating profit before adjusted items.

Adjusted items of £5.9m (H1 2018: £4.7m) include a one-off expense for past service costs for the defined benefit pension scheme of £1.9m (see note 12) and acquisition related costs of £0.5m. Amortisation of intangible client relationships fell by £0.7m, to £3.3m as previously acquired client relationships reached the end of their amortisation periods.

Post balance sheet events

There have been a number of post balance sheet events. The events included acquisitions and the signing of an agreement with Avaloq UK Limited to replace our core custody and settlement system. See above and note 21 for further details.

Capital

The Group has a strong balance sheet with cash balances at period end of £138.8m (H1 2018: £142.0m). These underpin its strong regulatory capital resources.

Dividend

The Group's dividend policy is to grow dividends in line with adjusted earnings, with a target payout ratio of 60% to 80% of annual adjusted diluted earnings per share. The interim dividend has been maintained at 4.4p per share (2018 interim: 4.4p per share) and will be payable on 14 June 2019 to shareholders on the register at the close of business on 24 May 2019 with an ex-dividend date of 23 May 2019.

Share premium reduction

A capital reduction was approved by shareholders at the Annual General Meeting held on 1 February 2019. This has been reflected in the condensed consolidated interim financial statements (see note 15).

Going concern

As stated in note 2 to the condensed consolidated set of interim financial statements, the Directors believe that the Group is well placed to manage its business risks successfully. The Group's forecasts and projections, taking account of possible adverse changes in trading performance, show that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt a going concern basis for the preparation of the condensed consolidated interim financial statements. In forming their view, the Directors have considered the Group's prospects for a period exceeding twelve months from the date the condensed consolidated interim financial statements are approved.

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 31 and 32 of the Group's 2018 Annual Report and Accounts available on our website www.brewin.co.uk.

Board changes

Siobhan Boylan joined the Group in early February 2019 and was appointed as an Executive Director on 4 March 2019.

Outlook

The Group has had a strong first half and continues to demonstrate good performance. We continue to see positive momentum and are delivering against our strategic priorities. The recent corporate activities have strengthened our position in several key geographic areas. These along with our investments in infrastructure are creating foundations for future growth.

David Nicol

Chief Executive

9 May 2019

Condensed Consolidated Income Statement

for the six months ended 31 March 2019

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 31 March 2019

Condensed Consolidated Balance Sheet

as at 31 March 2019

1. Presented following the adoption of IFRS 9 'Financial Instruments' - see notes 3 and 19 for more detail.

Condensed Consolidated Statement of Changes in Equity

for the six months ended 31 March 2019

Condensed Consolidated Cash Flow Statement

for the six months ended 31 March 2019

1. See note 19 for previous classification under IAS 39.

Notes to the Condensed Consolidated Set of Financial Statements

1. General information

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 of Brewin Dolphin Holdings PLC and its subsidiaries (collectively, the Group) was approved for issue by its directors on 9 May 2019.

A copy of this Interim Financial Report including the Condensed Consolidated Financial Statements for the period ended 31 March 2019 is available at the Company's registered office and on the Company's investor relations website (www.brewin.co.uk).

The comparative information for the period ended 30 September 2018 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that period has been delivered to the Registrar of Companies. The auditor reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

2. Basis of preparation

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

The condensed consolidated set of financial statements included in this Interim Financial Report for the six months ended 31 March 2019 should be read in conjunction with the annual audited financial statements of Brewin Dolphin Holdings PLC for the year ended 30 September 2018.

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.

(i) 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 consolidated financial statements.

(ii) Significant accounting policies and use of estimates and judgements

The same accounting policies, presentation and methods of computation are followed in the condensed consolidated set of financial statements as applied in the Group's latest annual audited financial statements for the year ended 30 September 2018, except for the adoption of new and amended standards as set out in (iii) below.

The preparation of interim condensed consolidated financial statements in compliance with IAS 34 requires the use of certain critical accounting judgements and key sources of estimation uncertainty. It also requires the exercise of judgement in applying the Group's accounting policies. There have been no material revisions to the nature and the assumptions used in estimating amounts reported in the annual audited financial statements of Brewin Dolphin Holdings PLC for the year ended 30 September 2018.

(iii) New standards, interpretations and amendments adopted during the current period

During this reporting period the following standards have been applied for the first time:

- IFRS 15 'Revenue from Contracts with Customers'; and

- IFRS 9 'Financial Instruments'.

Both standards were adopted from 1 October 2018 and under the transition methods chosen, comparative information has not been restated, however, the Balance Sheet has been reclassified. Further information and changes to significant accounting policies as a result of the application of these standards for the first time are described below in note 3.

The Group adopted the amendments to IFRS 2 Classification and Measurement of Share Based Payments Transactions in the current period. This did not result in a significant impact on the amounts reported in these condensed consolidated financial statements.

(iv) Future significant new standards, amendments and interpretations issued but not effective

IFRS 16 'Leases'

IFRS 16 supersedes IAS 17 Leases and was endorsed by the European Union during 2017. The standard is effective for periods commencing on or after 1 January 2019 and will first be applicable to the Group's accounting period ending 30 September 2020. IFRS 16 represents a significant change in the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single lessee accounting model.

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

Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in IAS 17.

Transition

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

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

- the modified retrospective approach with optional practical expedients.

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

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

Impact

The Group is primarily a lessee and is also a sub-lessor for a small number of property leases that have been identified as onerous.On adoption, lease agreements will give rise to both a ROU asset and a lease liability which represents the present value obligation of future lease payments.

The ROU asset will be assessed for impairment annually (incorporating any onerous lease assessments) and will be depreciated on a straight-line basis over the shorter of the expected life of the asset and the lease term, adjusted for any remeasurements of the lease liability. The depreciation charge will be recognised in the Income Statement.

The lease liability will be reduced by lease payments, offset by the unwinding of the liability over the lease term and amended for the impact of any lease modifications. Interest recognised on the lease liability will be charged to the Income Statement.

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

The Group has identified certain property leases as onerous where there is surplus office space. For some of the onerous property leases, it sublets this surplus space and in these instances the Group acts as an intermediate lessor in the sublease. Under IFRS 16, the Group will recognise any sublease income as other operating income whereas, under IAS 37, sublease income is recognised against the onerous lease provision.

The process of collecting the required data and identification of leases which fall within the scope of the standard is complete. The assessment of the accounting impact of the new standard is ongoing and therefore, it is not yet practicable to provide a reliable estimate of the financial impact on the Group's consolidated results.

However, from the assessment to date, the Directors expect that the implementation of the new standard will have a material impact on the consolidated results of the Group. The Group had non-cancellable operating lease commitments of £74.7 million as at 30 September 2018 (see note 29 to the Group's 2018 Annual Report and Accounts).

3. Changes in significant accounting policies

The Group has consistently applied the accounting policies to all periods presented in these condensed consolidated interim financial statements as those applied in the Group's consolidated financial statements for the year ended 30 September 2018, except for the changes described below:

(i) IFRS 15 'Revenue from Contracts with Customers'

IFRS 15 replaced IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The core principle of IFRS 15 is that revenue reflects the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled.

Revenue is recognised in accordance with a principle based five-step model applied to all contracts with customers. The model determines when and how much revenue to recognise. Revenue is recognised when (or as) an entity satisfies a performance obligation by transferring promised goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether performance obligations expressed in the customer contracts are fulfilled, revenue is recognised either over time, in a manner that best reflects the entity's performance of those obligations, or at a point in time, when control of the goods or services is transferred to the customer. Any incremental cost of obtaining a customer contract is capitalised if that cost is expected to be recovered.

Transition

The Group has applied IFRS 15 using the cumulative effect method, by recognising the cumulative effect of initially applying IFRS 15 as an adjustment to the opening balance of equity at 1 October 2018; there have been no adjustments to opening retained reserves on transition. The comparative information has not been adjusted and continues to be reported under IAS 18.

Impact

The details of the significant changes and the conclusions adopted by the Group in applying the requirements of IFRS 15 to determine the transaction price and performance obligations specified in contracts with customers are explained below.

Revenue is measured based on the consideration specified in customer contracts, excluding amounts collected on behalf of third parties, that the Group is entitled to in exchange for transferring services to a customer. Where a contract contains variable consideration and provides the services over time the Group estimates the amount to which it is entitled under the contract. The Group constrains the estimate where there is a risk of significant revenue reversal and reassesses this estimate at the end of the relevant billing period when the variable consideration amount is known.

The Group has considered when its services are delivered in determining when revenue is recognised. Its services are delivered both over time and at a point in time.

The Group has assessed all the services expressed in its contracts with customers and has identified several series of distinct services that are substantially the same and have the same pattern of transfer to the customer. All the services are highly interrelated and interdependent and are integrated to provide an overall service to the customer. The assessment identified bundles of services that constitute separate performance obligations of which two performance obligations are satisfied at a point in time and the rest over time.

For performance obligations that are satisfied over time the Group measures progress towards complete satisfaction of the performance obligations equally overtime. It recognises income when the relevant performance obligation has been satisfied as the customer simultaneously receives and consumes the benefits of the services. For the performance obligations for services that are delivered at a point in time, the Group satisfies the performance obligations at the point of delivery and is simultaneously entitled to the revenue.

See note 4 on income and note 20 covering the revised revenue recognition accounting policy for further information on the performance obligations and timing of revenue recognition.

The Group has assessed if payments to employees under various reward schemes meet the new criteria for capitalising incremental costs under IFRS 15. The Group has determined that it does not currently make incremental payments to employees to secure investment management or financial planning contracts. Consequently, none of the awards made under these schemes should be capitalised and the costs of these awards will continue to be expensed through staff costs.

The Group does not have any financing arrangements in any of its contracts with customers and has adopted the practical expedient not to account for significant financing arrangements in any of its contracts with customers where consideration is received for services rendered within 12 months.

The revenue recognition accounting policy set out in note 20 will replace the revenue accounting policy (note 3h) as set out in the Group's 2018 Annual Report and Accounts. The accounting policies relating to interest income and dividend income will be retained separately from note 3h of the Group's 2018 Annual Report and Accounts.

(ii) IFRS 9 Financial Instruments

IFRS 9 is effective for periods commencing on or after 1 January 2018 and replaces IAS 39 Financial Instruments: Recognition and Measurement. The standard addresses classification, measurement and derecognition of financial assets and liabilities by introducing a new principle-based approach driven by the cash flow characteristics of the asset and the business model in which it is held. It also replaces the 'incurred loss' approach for impairment of financial assets under IAS 39 to a more forward looking 'expected credit loss' model. Under IFRS 9, the general hedge accounting requirements align hedge accounting more closely with risk management practices.

Transition

The Group has taken advantage of the exemption from restating comparative information for prior periods with respect to classification and measurement (including impairment) requirements. Under the exemption differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves as at 1 October 2018.

Impact

The details of the significant changes are set out below. Details of the quantitative impact of IFRS 9 are provided in note 19.

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

The basis of classification for financial liabilities under IFRS 9 remains unchanged from under IAS 39 except for those designated at FVTPL. The Group has continued to classify all financial liabilities at amortised cost under IFRS 9, with no impact on measurement.

The following table shows the original measurement categories under IAS 39 and the new measurement categories and identified business models under IFRS 9 for each class of the Group's financial assets as at 1 October 2018. The majority of the Group's financial assets as at 1 October 2018 were managed within business models whose objective is solely to collect contractual cash flows (held to collect), expect for those specified below:

The requirements for derecognition of financial assets and liabilities are broadly unchanged from IAS 39.

Impairment of financial assets

IFRS 9 makes fundamental changes to the impairment of financial assets measured at amortised cost or at fair value through other comprehensive income, lease receivables and certain commitments to extend credit and financial guarantee contracts. It is no longer necessary for a credit event to have occurred before credit losses are recognised. Instead, under IFRS 9, an entity always accounts for expected credit losses (ECLs), and any changes in those ECLs. The ECL approach requires an allowance to be established upon initial recognition of an asset reflecting the level of losses anticipated after having regard to the Group's historical credit loss experience and its expectation of future economic conditions.

The Group has applied a simplified approach to determine ECLs for trade receivables as permitted by IFRS 9. It has adopted the practical expedient to use a single loss-rate approach to determine lifetime expected credit losses since the Group has historically experienced low levels of bad debts from its trade debtors which are short term and do not contain significant financing components.

Applying the single loss-rate approach as at 1 October 2018 would have resulted in an immaterial ECL provision, consequently opening reserves have not been adjusted.

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.

Impairment losses for financial assets (including trade debtors) are charged to the Income Statement.

4. Income

The following table presents revenue disaggregated by service and timing of revenue recognition:

1. Services transferred at a point in time

2. Brewin Portfolio Service

Contract balances

The Group does not have contract assets as it does not enter into contracts where revenue is conditional on the fulfilment of a contingent event.

Contract liabilities

Contract liabilities relate to the advance consideration received from customers for services still to be delivered. The Group derecognises contract liabilities (and recognises revenue) when it transfers services and satisfies its performance obligations.

Unsatisfied performance obligations

The Group does not have material unsatisfied (or partially unsatisfied) performance obligations at the reporting date, as the majority of the Group's performance obligations are satisfied equally over time.

5. Segmental information

For management reporting purposes the Group currently has a single operating segment: the Wealth Management business. This forms the reportable segment of the Group for the period. Please refer to the Condensed Consolidated Income Statement and the Condensed Consolidated Balance Sheet, for numerical information.

The Group's operations are carried out in the United Kingdom, Channel Islands and the Republic of Ireland. All segmental income related to external clients.

The accounting policies of the operating segment are the same as those of the Group.

6. Finance income and finance costs

7. Taxation

The Group calculates the period income tax expense using the tax rate that would be applicable to the expected total annual earnings.

8. Earnings per share

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

1. The dilutive shares used for this measure differ from that used for statutory dilutive earnings per share; the future value of service costs attributable to employee share options is ignored and contingently issuable shares for Long-term Incentive Plan ('LTIP') options are assumed to fully vest. The Directors have selected this measure as it represents the underlying effective dilution by offsetting the impact to the calculation of basic shares of the purchase of shares by the Employee Share Ownership Trust ('ESOT') to satisfy options.

2. Excluding onerous contracts costs, amortisation of client relationships, defined benefit pension scheme past service costs, acquisition costs, incentivisation awards, FSCS levy refund and other gains and losses.

9. Dividends

An interim dividend of 4.4p per share was declared by the Board on 9 May 2019 and has not been included as a liability as at 31 March 2019. This interim dividend will be paid on 14 June 2019 to shareholders on the register at the close of business on 24 May 2019 with an ex-dividend date of 23 May 2019.

10. Intangible assets

11. Property, plant and equipment

12. Defined benefit pension scheme

The main financial assumptions used in calculating the Group's defined benefit pension scheme are as follows:

The value of the defined benefit pension liability as at 31 March 2019 was estimated in accordance with International Accounting Standard 19 by a qualified independent actuary. The latest full actuarial funding valuation was carried out as at 31 December 2017.

As a result of the High Court ruling in respect of the equalisation of Guaranteed Minimum Pensions ('GMP') for Lloyds Banking Group pension schemes, a charge for past service costs of £1,909,000 has been recognised in the Group's Income Statement for the six months to 31 March 2019.

13. Financial instruments

Financial assets at fair value through other comprehensive income ('FVTOCI')1

Level 3

1. See note 19 for previous classification under IAS 39.

The asset-backed security is a USD fixed rate note, due to mature on 23 September 2019.

Financial assets at fair value through profit and loss ('FVTPL')1

Level 1

1. See note 19 for previous classification under IAS 39.

The fair value of financial assets at FVTPL is determined directly by reference to published prices in an active market where available. They are held in an unregulated subsidiary, Brewin Dolphin MP, whose sole objective is to provide seed capital to the model portfolios managed under an investment mandate by Brewin Dolphin Limited.

Fair value measurement recognised on the Balance Sheet

The table below provides an analysis of the fair value measurement of financial instruments which are grouped into Levels 1 to 3 of the fair value hierarchy based on the degree to which the fair value is observable:

- Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities;

- Level 2 inputs other than the quoted price included within Level 1 that are observable for the asset or a liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

- Level 3 inputs which include formal valuation techniques for the asset or liability that are not based on observable market data (unobservable inputs).

Fair value of the Group's financial assets and liabilities that are measured at fair value on a recurring basis1

The following table gives information about how the fair values of the Group's financial assets and liabilities are determined at the end of each reporting period.

1. See note 19 for previous classification under IAS 39.

Sensitivity analysis1

A sensitivity analysis of the significant unobservable inputs used in valuing the Level 3 financial instruments is set out below:

1. See note 19 for previous classification under IAS 39.

14. Provisions

The Group recognises a provision for settlements of sundry claims and associated costs. The timing of the settlements is unknown, but it is expected that they will be resolved within 12 months.

The onerous contracts provision is in respect of surplus office space. The valuation of an onerous contract is based on the best estimate of the likely costs discounted to present value. Where the provision is in relation to leasehold obligations on premises and it is more likely than not that the premises will be sublet, an allowance for sublease income has been included in the valuation.

A provision of £4.1 million (30 September 2018: £4.7 million) has been recognised for surplus office space which the Group may not be able to sublet in the short term. The maximum exposure is approximately £8.7 million as at 31 March 2019 (30 September 2018:£9.8 million) and represents the current estimated amount that the Group would have to pay to meet the future obligations under these lease contracts if the assumption regarding future uncommitted sublets is removed and the time value of money is ignored. The longest lease term has 14 years remaining and accounts for £7.1 million of the maximum exposure.

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

The provision recognised for acquisition related payments is in respect of both incentivisation awards and deferred consideration payable for the acquisition of client relationships. The incentivisation award provision is £0.7 million (30 September 2018: £0.5 million) and is payable to employees in relation to the retention and acquisition of funds and is based on the best estimate of the likely future obligation discounted for the time value of money. The deferred consideration provision is £2.2 million (30 September 2018: £0.2m) and is based on the best estimate of the likely future obligation discounted for the time value of money.

The Group has made a provision of £2.2 million (30 September 2018: £2.1 million) for leasehold dilapidations. These costs are expected to arise at the end of the lease. The leases covered by the provision have a maximum remaining term of 14 years.

15. Called up share capital

The following movements in share capital occurred during the period: