17th May 2017 07:00
17 May 2017
Brewin Dolphin Holdings PLC
Interim Management Report
For the Half Year Ended 31 March 2017
Highlights1
· Another strong period of organic fund inflows as we continue to deliver against our strategic plan.
· Total funds stood at £37.8bn, as at 31 March 2017, an increase of 6.8% (FY 2016: £35.4bn).
o Discretionary funds of £31.5bn, increased by 9.4% (FY 2016: £28.8bn).
o This compares to an increase of 6.1% in the FTSE 100 Index and a 5.4% increase in the MSCI WMA Private Investor Balanced Index.
o Record net discretionary funds inflows, including transfers, of £1.1bn (H1 2016: £0.4bn) representing an annualised growth rate of 7.6% (H1 2016: 3.2%, FY 2016: 4.4%).
· Total income for the period of £147.4m (H1 2016: £137.2m).
o Core2 income of £140.3m increased by 11.3% (H1 2016: £126.1m).
o Fee income of £104.7m (H1 2016: £92.7m), increased by 12.9% representing 71.0% of total income (H1 2016: 67.6%); commission income was £33.0m (H1 2016: £33.4m).
· Adjusted3,5 profit before tax of £32.4m increased by 14.1% (H1 2016: £28.4m).
o Adjusted3,5 profit before tax margin 22.0% (H1 2016: 20.7%).
· Statutory profit before tax of £28.4m, 32.1% higher than H1 2016 (£21.5m).
· Adjusted3 earnings per share:
o Basic earnings per share increased by 13.1% to 9.5p (H1 2016: 8.4p).
o Diluted earnings per share4 increased by 15.2% to 9.1p (H1 2016: 7.9p).
· Statutory earnings per share:
o Basic earnings per share of 8.2p (H1 2016: 6.3p).
o Diluted earnings per share of 7.9p (H1 2016: 6.1p).
· Interim dividend of 4.25p per share announced, an increase of 10.4% (H1 2016: 3.85p per share).
· Successful acquisition of Duncan Lawrie Asset Management reflecting progress towards our growth strategy and strategic objectives.
1 Continuing operations.
2 Core income is defined as income derived from discretionary investment management, financial planning, Brewin Portfolio Service ("BPS") and execution only services.
3 These figures have been adjusted to exclude redundancy costs - £0.1m (H1 2016: £1.9m), onerous contracts - £0.1m (H1 2016: £0.3m), amortisation of client relationships - £2.6m (H1 2016: £3.3m), one-off migration costs - £nil (H1 2016: £1.5m), acquisition costs - £1.2m (H1 2016: £nil) and disposal of available-for-sale investments - £nil (H1 2016: £0.0m).
4 See note 6.
5 See Annual Report and Accounts 2016 page 42 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 4.25p per share. The interim dividend is payable on 16 June 2017 to shareholders on the register at the close of business on 26 May 2017 with an ex-dividend date of 25 May 2017.
David Nicol, Chief Executive, said:
"The Group has had a successful first half of 2017 in a period with a favourable market environment. The delivery against our growth strategy has contributed to an excellent financial performance, with underlying earnings growth of 14.1%. We are exceeding the organic growth targets we set as net inflows into our core discretionary service were £1.1bn, in the period, a record and helping drive year-on-year growth of 22.1% in discretionary funds.
In particular we are capturing the near-term growth opportunities in intermediary business as a direct result of current growth initiatives which are delivering tangible results. Whilst continuing to invest in other initiatives aimed at driving further longer term growth. The strength of our business and confidence in our strategy helped us in the successful acquisition of Duncan Lawrie Asset Management Limited during the period, which has been financed by surplus capital reserves and cements our position as a market leading discretionary wealth manager."
For further information:
Brewin Dolphin
David Nicol, Chief Executive Tel: +44 (0)20 7248 4400
Andrew Westenberger, Finance Director Tel: +44 (0)20 7248 4400
FTI
David Waller Tel: +44 (0)20 3727 1651
Ed Berry Tel: +44 (0)20 3727 1046
Notes to Editors:
About Brewin Dolphin
Brewin Dolphin is one of the UK's leading independent providers of discretionary wealth management.
Our focus on discretionary investment management has led to growth in client funds and we now manage £31.5 billion on a discretionary basis. In line with the premium we place on personal relationships, we have built a network of offices across the UK, Channel Islands and the Republic of Ireland, 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.
Interim Management Report
To the members of Brewin Dolphin Holdings PLC
First half review
The business has made very good progress during the first half of financial year 2017, against a favourable investment market backdrop. Adjusted diluted earnings per share has increased by 15.2% compared to the comparative period last year.
Total funds in our core discretionary service grew by 9.4% in the half to £31.5bn, with record net inflows and positive returns generated for our clients. As a result our discretionary funds are 22.1% higher than 12 months ago representing an annualised growth rate of 7.6%.
We continued to see strong growth in our intermediaries services, both Managed Portfolio Services ("MPS") and bespoke portfolios, during the first half, with £0.9bn of combined net inflows achieved (H1 2016: £0.5bn), representing an annualised growth rate of 23.4%.
Our success and current strong growth in our intermediary discretionary business reflects not only the current exceptionally high levels of demand but also the impact of our strategic initiatives. These include developing our service to meet the needs of agent clients and a structured, focused approach to sales. Favourable market dynamics such as pension freedoms and transfers from defined benefit pensions, coupled with the continuing trend for independent advisers to outsource investment management to better manage regulatory compliance is driving higher demand for these services.
The growth in MPS has been exceptionally strong, with £0.5bn of net inflows in the first half, double the net inflow of 2016. We now manage £1.8bn for intermediaries across 11 investment platforms. To support this growth, investment continued in this half with the further enhancement of the existing product range and work is ongoing to further expand across broader investment mandates.
In addition to attracting business from new advisers, the majority of the business arose from existing relationships developed over the past couple of years. We now have active relationships with over 1,500 intermediaries, approximately 350 of whom use both the MPS and bespoke discretionary service.
Net inflows into our direct discretionary service were £0.2bn compared to H1 2016 which saw net outflows of £0.1bn. Gross inflows half on half remained stable at £0.5bn, with approximately one-third of this into our integrated wealth management service.
Increasing integration of financial planning, alongside our traditional strength in discretionary investment management, is key to our longer term organic growth targets for direct advised business and it is encouraging to see an increasing amount of inflows also receiving financial planning advice. Over 16% of direct private client funds now receive our wealth management service which combines our financial planning and investment management services.
Our strategy, set out at the end of 2015, focuses on generating improved and sustainable organic growth across the range of our services, capitalising on our core competencies of offering advice and investment solutions in a personalised relationship-based model. Key to the strategy is the segmentation of the market and client needs, enhancement and development of our services and a clearer focus on distribution, supported by improved processes and technology both to create more capacity and enhance client service.
In addition to the development of our intermediary services, as outlined above, the first half saw the launch of a passive-based version of our award-winning MPS and front end technology enhancements to provide advisers with improved client reporting and bespoke discretionary services.
We have continued to expand our client facing headcount during the first half, to create capacity for future growth, with a focus on increasing our financial planning resource, a key initiative to help drive growth in direct private client business.
The full automation of client take on and service for our non-advised investment service, Brewin Portfolio Service, was completed during the half.
We have also begun to explore the development of a new advice/planning led service aimed at providing a cost effective way for clients with less complex needs to receive quality advice and investments solutions at a competitive price.
We continued with targeted expansion and in April we opened a new office in Truro, Cornwall, developing our regional capacity in the South West region.
Work continued on improving operational efficiency with improved key business processes and upgrades to our technology, in particular around portfolio management and client reporting, with the aim of creating additional capacity for growth. This is demonstrated by our adjusted profit before tax margin gradually increasing from 20.7% to 22.0%.
We are progressing well in preparing our processes and systems for the introduction of the Markets in Financial Instruments Directive II ("MiFID II") in 2018.
The acquisition of Duncan Lawrie Asset Management Limited ("DLAM") announced in December 2016, completed on 10 May 2017. This was financed by surplus capital reserves and will increase the Group's total funds by c.£0.7bn. The acquisition supports the Group's commitment to become the UK's leading provider of personalised wealth and investment management services and represents a sound cultural fit. The Group will benefit from the addition of experienced investment and wealth managers to its London and Bristol offices, as well as the strong private client relationships of DLAM.
Results and business performance
Adjusted profit before tax of £32.4m increased by 14.1% (H1 2016: £28.4m) for the half year ended 31 March 2017, as a result of growth in total income of 7.4% and an improved adjusted operating margin of 22.0% (H1 2016: 20.6%).
Profit before tax for the period was £28.4m (H1 2016: £21.5m), an increase of 32.1% compared to H1 2016 reflecting lower exceptional costs and lower amortisation of previously acquired client relationships.
Unaudited period to31 March2017 | Unaudited period to31 March2016 | Change | |
Continuing operations |
| ||
| £'m | £'m |
|
Core1 income | 140.3 | 126.1 | 11.3% |
Other income | 7.1 | 11.1 | -36.0% |
Total income | 147.4 | 137.2 | 7.4% |
|
|
|
|
Fixed staff costs | (55.1) | (53.1) | 3.8% |
Other operating costs | (34.5) | (33.2) | 3.9% |
Total fixed operating costs | (89.6) | (86.3) | 3.8% |
|
|
|
|
Adjusted profit before variable staff costs2,5 | 57.8 | 50.9 | 13.6% |
Variable staff costs | (25.4) | (22.7) | 11.9% |
Adjusted operating profit2 | 32.4 | 28.2 | 14.9% |
Net finance income and other gains and losses | - | 0.2 |
|
Adjusted profit before tax2,5 | 32.4 | 28.4 | 14.1% |
Exceptional items3 | (1.4) | (3.6) |
|
Amortisation of client relationships | (2.6) | (3.3) |
|
Profit before tax | 28.4 | 21.5 | 32.1% |
Taxation | (6.1) | (4.3) |
|
Profit after tax | 22.3 | 17.2 |
|
|
|
|
|
Earnings per share |
|
|
|
Basic earnings per share | 8.2p | 6.3p | 30.2% |
Diluted earnings per share | 7.9p | 6.1p | 29.5% |
Adjusted4 earnings per share |
|
|
|
Basic earnings per share | 9.5p | 8.4p | 13.1% |
Diluted earnings per share | 9.1p | 7.9p | 15.2% |
1 Core income is defined as income derived from discretionary investment management, financial planning, Brewin Portfolio Service ("BPS") and execution only services.
2 These figures have been adjusted to exclude redundancy costs - £0.1m (H1 2016: £1.9m), onerous contracts - £0.1m (H1 2016: £0.3m), amortisation of client relationships - £2.6m (H1 2016: £3.3m), one-off migration costs - £nil (H1 2016: £1.5m), acquisition costs - £1.2m (H1 2016: £nil) and disposal of available-for-sale investments - £nil (H1 2016: £0.0m).
3 Exceptional costs include redundancy costs, onerous contracts, one-off migration costs and acquisition costs.
4 See note 6.
5 See Annual Report and Accounts 2016 page 42 for explanation of adjusted profit before tax and why the adjusted measures have been chosen.
Income
Core income grew 11.3% to £140.3m (H1 2016: £126.1m) supported by continued organic funds growth, positive investment returns and continued growth in financial planning income.
Income is analysed as follows:
Unaudited period to31 March2017 | Unaudited period to31 March2016 | Change | |
£'m | £'m | ||
Discretionary investment management | 125.2 | 112.3 | 11.5% |
Financial planning | 9.5 | 8.1 | 17.3% |
BPS | 0.5 | 0.4 | 25.0% |
Execution only | 5.1 | 5.3 | -3.8% |
Core income | 140.3 | 126.1 | 11.3% |
|
|
|
|
Advisory investment management | 6.9 | 8.1 | -14.8% |
Trail income | - | 1.8 | -100.0% |
Interest | 0.2 | 1.2 | -83.3% |
Other income | 7.1 | 11.1 | -36.0% |
|
|
| |
Total income | 147.4 | 137.2 | 7.4% |
The Group continues to focus on discretionary wealth management services with core income now more than 95% of total income.
Discretionary investment management income grew 11.5% to £125.2m (H1 2016: £112.3m) with strong fee income growth and broadly flat commission levels.
Financial planning income increased by 17.3% to £9.5m (H1 2016: £8.1m).
Other income reduced by £4.0m to £7.1m (H1 2016: £11.1m) impacted by slowing but continued outflows from our advisory business, the loss of trail income and the continued low interest rate environment.
Fees and Commissions
Unaudited period to31 March2017 | Unaudited period to31 March2016 | Change | |
£'m | £'m | ||
Core fees1 | 99.9 | 87.0 | 14.8% |
Core commissions | 30.9 | 31.0 | -0.3% |
Advisory fees | 4.8 | 5.7 | -15.8% |
Advisory commissions | 2.1 | 2.4 | -12.5% |
Total fees | 104.7 | 92.7 | 12.9% |
Total commissions | 33.0 | 33.4 | -1.2% |
Financial planning | 9.5 | 8.1 | 17.3% |
Other income | 0.2 | 3.0 | -93.3% |
Total income | 147.4 | 137.2 | 7.4% |
|
1The average MSCI WMA Private Investor Balanced Index was 1,519 on our quarterly billing dates for H1 2017, compared to 1,303 for H1 2016, an increase of 16.6%.
Core fee income grew by 14.8% to £99.9m (H1 2016: £87.0m) in line with growth in funds. Core commission income declined marginally to £30.9m (H1 2016: £31.0m) despite the growth in funds as a result of lower transaction volumes in the period.
Costs
Fixed operating costs have increased by 3.8% to £89.6m (H1 2016: £86.3m).
Fixed staff costs increased by 3.8% to £55.1m (H1 2016: £53.1m) as a result of pay rises and higher cost of sales from the strong intermediary net inflows from H1, offset partially by lower year on year employee numbers. Total employee numbers increased by 11 to 1,594 in the first half, although average headcount remained below H1 2016.
Variable staff costs have increased in line with business performance.
Other operating costs increased by 3.9% to £34.5m (H1 2016: £33.2m), primarily as a result of higher premises costs, following rent reviews and coupled with above inflationary increases in market data contracts, augmented by the effect of weaker sterling to USD exchange rates.
Exceptional costs of £1.4m (H1 2016: £3.6m) are predominantly one-off costs relating to the acquisition of Duncan Lawrie Asset Management Limited.
Amortisation of intangible client relationships reduced by 21.2% to £2.6m (H1 2016: £3.3m).
Funds
The first six months of the year saw both record gross discretionary funds inflows of £1.6bn (H1 2016: £1.1bn, FY 2016: £2.4bn) and reducing gross outflows of £0.6bn equivalent to a 4.2% annualised outflow rate (FY 2016: 6.0%).
Total funds by service category
Change | |||||
£'bn | 31 March 2016 | 30 September2016 | 31 March2017 | Last12 months | Last6 months |
Discretionary | |||||
Direct | 19.2 | 21.1 | 22.4 | 16.7% | 6.2% |
Intermediaries | 5.7 | 6.5 | 7.3 | 28.1% | 12.3% |
MPS | 0.9 | 1.2 | 1.8 | 100.0% | 50.0% |
Total discretionary | 25.8 | 28.8 | 31.5 | 22.1% | 9.4% |
BPS | 0.1 | 0.1 | 0.1 | 0.0% | 0.0% |
Execution only | 3.6 | 3.5 | 3.4 | -5.6% | -2.9% |
Core funds | 29.5 | 32.4 | 35.0 | 18.6% | 8.0% |
Advisory | 3.3 | 3.0 | 2.8 | -15.2% | -6.7% |
Total funds | 32.8 | 35.4 | 37.8 | 15.2% | 6.8% |
Indices | |||||
MSCI WMA Private Investor Balanced Index | 1,318 | 1,457 | 1,536 | 16.5% | 5.4% |
FTSE 100 | 6,175 | 6,899 | 7,323 | 18.6% | 6.1% |
Funds flow by service category
£'bn | 30 Sept2016 | Inflows | Outflows | Internal transfers | Net flows | Growth rate* | Investment performance | 31 March2017 |
Discretionary | ||||||||
Direct | 21.1 | 0.5 | (0.4) | 0.1 | 0.2 | 1.9% | 1.1 | 22.4 |
Intermediaries | 6.5 | 0.6 | (0.2) | - | 0.4 | 12.3% | 0.4 | 7.3 |
MPS | 1.2 | 0.5 | - | - | 0.5 | 83.3% | 0.1 | 1.8 |
Total discretionary | 28.8 | 1.6 | (0.6) | 0.1 | 1.1 | 7.6% | 1.6 | 31.5 |
BPS | 0.1 | - | - | - | - | 0.0% | - | 0.1 |
Execution only | 3.5 | 0.2 | (0.5) | 0.1 | (0.2) | (10.8%) | 0.1 | 3.4 |
Core funds | 32.4 | 1.8 | (1.1) | 0.2 | 0.9 | 5.5% | 1.7 | 35.0 |
Advisory | 3.0 | - | (0.1) | (0.2) | (0.3) | (20.0%) | 0.1 | 2.8 |
Total funds | 35.4 | 1.8 | (1.2) | - | 0.6 | 3.4% | 1.8 | 37.8 |
* annualised |
Total discretionary funds grew 9.4% driven by record gross funds inflows and a more normalised level of outflows. Discretionary net funds inflows of £1.1bn (FY 2016: £1.1bn, H1 2016: £0.4bn) resulted from strong gross inflows of £1.6bn and gross outflows of £0.6bn. Annualised growth from discretionary funds was 7.6% (H1 2016: 3.2%) with positive net inflows in all discretionary services.
Direct discretionary funds grew by 6.2% resulting from £0.5bn of gross funds inflows and outflows slowing significantly. The intermediaries and MPS business continued to grow solidly representing 81.8% (£0.9bn) of net discretionary funds inflows in the period.
Execution only funds fell by £0.1bn in the period, primarily due to loss of certain large accounts, in the first quarter of the year, with very low associated fee income loss. The rate of advisory funds net outflows has declined but remains at a 20.0% annualised rate, however the majority of this fall was retained within other service categories.
Capital
The Group has a strong balance sheet with cash balances at period end of £152.3m (H1 2016: £117.4m). These underpin its regulatory capital resources which continue to be in significant surplus to requirements.
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. It is intended that the final dividend will be based on the full year target dividend payout ratio of 60% to 80% of adjusted earnings per share.
The interim dividend has been increased to 4.25p per share (2016 interim: 3.85p per share) and will be payable on 16 June 2017 to shareholders on the register at the close of business on 26 May 2017 with an ex-dividend date of 25 May 2017.
Going concern
As stated in note 1 to the condensed 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 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 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 33 to 37 of the 2016 Annual Report and Accounts available on our website www.brewin.co.uk.
Board changes
Angela Knight retired from the Board with effect from 3 February 2017 and the Board is grateful for her significant contribution to the Group's success over the past ten years. All of the Non-Executive Directors are considered by the Company to be independent and the Board is fully compliant with the UK Corporate Governance Code with respect to Board composition.
Outlook
We remain confident in the prospects for continued long-term growth in our business, despite the backdrop of political uncertainty in the UK, from the forthcoming General Election and the EU exit negotiations beyond. The underlying structural trends driving demand for our client relationship based advice services are well established.
We continue to invest time and resource on our strategic initiatives to deliver our growth targets.
David Nicol
Chief Executive
16 May 2017
Condensed Consolidated Income Statement
for the period ended 31 March 2017
Unaudited period to31 March2017 | Unaudited period to31 March2016 | Auditedperiod to30 September2016 | ||
Note | £'000 | £'000 | £'000 | |
Continuing operations | ||||
Revenue | 147,185 | 136,031 | 280,484 | |
Other operating income | 229 | 1,217 | 1,866 | |
Income | 147,414 | 137,248 | 282,350 | |
Staff costs | (80,496) | (75,789) | (152,175) | |
Redundancy costs | (104) | (1,885) | (2,780) | |
Onerous contracts | (142) | (315) | (311) | |
Amortisation of intangible assets - client relationships | 8 | (2,616) | (3,262) | (6,287) |
One-off migration costs | - | (1,468) | (1,596) | |
Acquisition costs | (1,159) | - | - | |
Other operating costs | (34,494) | (33,157) | (69,458) | |
Operating expenses | (119,011) | (115,876) | (232,607) | |
Operating profit | 28,403 | 21,372 | 49,743 | |
Finance income | 4 | 102 | 258 | 514 |
Other gains and losses | - | (3) | (3) | |
Finance costs | 4 | (123) | (110) | (192) |
Profit before tax | 28,382 | 21,517 | 50,062 | |
Tax | 5 | (6,065) | (4,354) | (11,095) |
Profit for the period from continuing operations | 22,317 | 17,163 | 38,967 | |
Discontinued operations | ||||
Profit for the period from discontinued operations | 16 | - | 36 | 11,395 |
Profit for the period | 22,317 | 17,199 | 50,362 | |
Attributable to: | ||||
Equity holders of the parent | 22,317 | 17,199 | 50,362 | |
22,317 | 17,199 | 50,362 | ||
Earnings per share | ||||
From continuing operations | ||||
Basic | 6 | 8.2p | 6.3p | 14.4p |
Diluted | 6 | 7.9p | 6.1p | 13.9p |
From continuing and discontinued operations | ||||
Basic | 6 | 8.2p | 6.3p | 18.6p |
Diluted | 6 | 7.9p | 6.1p | 17.9p |
Condensed Consolidated Statement of Comprehensive Income
for the period ended 31 March 2017
Unaudited period to31 March2017 | Unaudited period to31 March2016 | Auditedperiod to30 September2016 | |
£'000 | £'000 | £'000 | |
Profit for the period | 22,317 | 17,199 | 50,362 |
Items that will not be reclassified subsequently to profit and loss: | |||
Actuarial gain/(loss) on defined benefit pension scheme | 9,061 | 2,336 | (7,031) |
Deferred tax (charge)/credit on actuarial gain/(loss) on defined benefit pension scheme | (2,142) | (420) | 1,109 |
6,919 | 1,916 | (5,922) | |
Items that may be reclassified subsequently to profit and loss: | |||
Revaluation of available-for-sale investments | 31 | (1) | (30) |
Deferred tax (charge)/credit on revaluation of available-for-sale investments | (6) | - | 6 |
Exchange differences on translation of foreign operations | (45) | 201 | 559 |
(20) | 200 | 535 | |
Other comprehensive income/(expense) for the period net of tax | 6,899 | 2,116 | (5,387) |
Total comprehensive income for the period | 29,216 | 19,315 | 44,975 |
Attributable to: | |||
Equity holders of the parent | 29,216 | 19,315 | 44,975 |
29,216 | 19,315 | 44,975 |
Condensed Consolidated Statement of Changes in Equity
for the period ended 31 March 2017
Attributable to the equity holders of the parent | |||||||
Share capital | Share premium account | Own shares | Revaluation reserve | Merger reserve | Profit and loss account | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Audited balance at 30 September 2015 | 2,793 | 142,135 | (28,153) | - | 70,553 | 31,823 | 219,151 |
Profit for the period | - | - | - | - | - | 17,199 | 17,199 |
Other comprehensive income for the period | |||||||
Deferred and current tax on other comprehensive income | - | - | - | - | - | (420) | (420) |
Actuarial gain on defined benefit scheme | - | - | - | - | - | 2,336 | 2,336 |
Revaluation of available-for-sale investments | - | - | - | (1) | - | - | (1) |
Exchange differences on translation of foreign operations | - | - | - | - | - | 201 | 201 |
Total comprehensive (expense)/income for the period | - | - | - | (1) | - | 19,316 | 19,315 |
Dividends | - | - | - | - | - | (22,374) | (22,374) |
Issue of share capital | 37 | 9,644 | - | - | - | - | 9,681 |
Own shares acquired in the period | - | - | (7,141) | - | - | - | (7,141) |
Own shares disposed of on exercise of options | - | - | 5,039 | - | - | (5,039) | - |
Own shares disposed of | - | - | 226 | - | - | 84 | 310 |
Share-based payments | - | - | - | - | - | 3,996 | 3,996 |
Tax on share-based payments | - | - | - | - | - | (598) | (598) |
Unaudited balance at 31 March 2016 | 2,830 | 151,779 | (30,029) | (1) | 70,553 | 27,208 | 222,340 |
Profit for the period | - | - | - | - | - | 33,163 | 33,163 |
Other comprehensive income for the period | |||||||
Deferred and current tax on other comprehensive income | - | - | - | 6 | - | 1,529 | 1,535 |
Actuarial loss on defined benefit pension scheme | - | - | - | - | - | (9,367) | (9,367) |
Revaluation of available-for-sale investments | - | - | - | (29) | - | - | (29) |
Exchange differences on translation of foreign operations | - | - | - | - | - | 358 | 358 |
Total comprehensive (expense)/income for the period | - | - | - | (23) | - | 25,683 | 25,660 |
Dividends | - | - | - | - | - | (10,444) | (10,444) |
Issue of share capital | - | 57 | - | - | - | - | 57 |
Own shares acquired in the period | - | - | (79) | - | - | - | (79) |
Own shares disposed of on exercise of options | - | - | 814 | - | - | (814) | - |
Share-based payments | - | - | - | - | - | 4,391 | 4,391 |
Tax on share-based payments | - | - | - | - | - | 884 | 884 |
Audited balance at 30 September 2016 | 2,830 | 151,836 | (29,294) | (24) | 70,553 | 46,908 | 242,809 |
Profit for the period | - | - | - | - | - | 22,317 | 22,317 |
Other comprehensive income for the period | |||||||
Deferred and current tax on other comprehensive income | - | - | - | (6) | - | (2,142) | (2,148) |
Actuarial gain on defined benefit pension scheme | - | - | - | - | - | 9,061 | 9,061 |
Revaluation of available-for-sale investments | - | - | - | 31 | - | - | 31 |
Exchange differences on translation of foreign operations | - | - | - | - | - | (45) | (45) |
Total comprehensive income for the period | - | - | - | 25 | - | 29,191 | 29,216 |
Dividends | - | - | - | - | - | (24,996) | (24,996) |
Issue of share capital | 3 | 432 | - | - | - | - | 435 |
Own shares acquired in the period | - | - | (5,741) | - | - | - | (5,741) |
Own shares disposed of on exercise of options | - | - | 8,493 | - | - | (8,493) | - |
Share-based payments | - | - | - | - | - | 4,149 | 4,149 |
Tax on share-based payments | - | - | - | - | - | 551 | 551 |
Unaudited balance at 31 March 2017 | 2,833 | 152,268 | (26,542) | 1 | 70,553 | 47,310 | 246,423 |
Condensed Consolidated Balance Sheet
as at 31 March 2017
Unauditedas at31 March2017 | Unauditedas at31 March2016 | Auditedas at30 September2016 | ||
Notes | £'000 | £'000 | £'000 | |
Assets | ||||
Non-current assets | ||||
Intangible assets | 8 | 76,462 | 84,003 | 81,053 |
Property, plant and equipment | 9 | 3,975 | 5,972 | 4,822 |
Other receivables | 288 | 395 | 307 | |
Defined benefit pension scheme | 12 | 3,541 | 927 | - |
Net deferred tax asset | 4,818 | 10,420 | 7,799 | |
Total non-current assets | 89,084 | 101,717 | 93,981 | |
Current assets | ||||
Available-for-sale investments | 10 | 867 | 820 | 833 |
Trading investments | 10 | 1,170 | 978 | 1,093 |
Trade and other receivables | 225,035 | 225,789 | 218,118 | |
Cash and cash equivalents | 152,303 | 117,856 | 170,766 | |
Total current assets | 379,375 | 345,443 | 390,810 | |
Total assets | 468,459 | 447,160 | 484,791 | |
Liabilities | ||||
Current liabilities | ||||
Bank overdrafts | - | 479 | - | |
Trade and other payables | 208,490 | 203,907 | 221,945 | |
Current tax liabilities | 4,457 | 5,195 | 3,388 | |
Provisions | 11 | 2,759 | 9,063 | 3,097 |
Total current liabilities | 215,706 | 218,644 | 228,430 | |
Net current assets | 163,669 | 126,799 | 162,380 | |
Non-current liabilities | ||||
Defined benefit pension scheme | 12 | - | - | 6,952 |
Provisions | 11 | 6,330 | 6,176 | 6,600 |
Total non-current liabilities | 6,330 | 6,176 | 13,552 | |
Total liabilities | 222,036 | 224,820 | 241,982 | |
Net assets | 246,423 | 222,340 | 242,809 | |
Equity | ||||
Share capital | 13 | 2,833 | 2,830 | 2,830 |
Share premium account | 13 | 152,268 | 151,779 | 151,836 |
Own shares | (26,542) | (30,029) | (29,294) | |
Revaluation reserve | 1 | (1) | (24) | |
Merger reserve | 70,553 | 70,553 | 70,553 | |
Profit and loss account | 47,310 | 27,208 | 46,908 | |
Equity attributable to equity holders of the parent | 246,423 | 222,340 | 242,809 |
Condensed Consolidated Cash Flow Statement
for the period ended 31 March 2017
Unaudited period to31 March2017 | Unaudited period to31 March2016 | Auditedperiod to30 September2016 | ||
Note | £'000 | £'000 | £'000 | |
Net cash inflow/(outflow) from operating activities | 15 | 13,006 | (456) | 52,033 |
Cash flows from investing activities | ||||
Purchase of intangible assets - software | (988) | (2,501) | (5,238) | |
Purchases of property, plant and equipment | (144) | (211) | (373) | |
Purchase of available-for-sale investments | (18) | (722) | (770) | |
Proceeds on disposal of discontinued operation | - | - | 14,000 | |
Proceeds on disposal of available-for-sale investments | 15 | 38 | 47 | |
Net cash (used in)/from investing activities | (1,135) | (3,396) | 7,666 | |
Cash flows from financing activities | ||||
Dividends paid to equity shareholders | 7 | (24,996) | (22,374) | (32,818) |
Purchase of own shares | (5,741) | (7,141) | (7,220) | |
Disposal of own shares | - | 310 | 310 | |
Proceeds on issue of shares | 435 | 376 | 433 | |
Net cash used in financing activities | (30,302) | (28,829) | (39,295) | |
Net (decrease)/increase in cash and cash equivalents | (18,431) | (32,681) | 20,404 | |
Cash and cash equivalents at the start of period | 170,766 | 149,823 | 149,823 | |
Effect of foreign exchange rates | (32) | 235 | 539 | |
Cash and cash equivalents at the end of period | 152,303 | 117,377 | 170,766 | |
Cash and cash equivalents shown in current assets | 152,303 | 117,856 | 170,766 | |
Bank overdrafts | - | (479) | - | |
Net cash and cash equivalents at the end of period | 152,303 | 117,377 | 170,766 |
For the purposes of the cash flow statement, cash and cash equivalents include bank overdrafts.
Notes to the Condensed Consolidated Set of Financial Statements
1. Accounting policies
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 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 set of financial statements included in this Interim Financial Report for the period ended 31 March 2017 should be read in conjunction with the annual audited financial statements of Brewin Dolphin Holdings PLC for the year ended 30 September 2016.
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.
Significant accounting policies and use of estimates and judgements
The preparation of interim 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 2016.
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 year ended 30 September 2016.
Several other new standards and amendments apply for the first time during the period; they do not impact the annual consolidated financial statements of the Group or the interim condensed consolidated financial statements of the Group.
2. 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 was approved for issue on 16 May 2017.
A copy of this Interim Financial Report including Condensed Financial Statements for the period ended 31 March 2017 is available at the Company's registered office and on the Company's investor relations website (www.brewin.co.uk).
The information for the period ended 30 September 2016 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.
3. Segmental information
For management reporting purposes the Group currently has a single operating segment. 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.
4. Finance income and costs
Unaudited period to31 March2017 | Unauditedperiod to31 March2016 | Auditedperiod to30 September2016 | |
£'000 | £'000 | £'000 | |
Continuing operations | |||
Finance income | |||
Interest on bank deposits | 102 | 258 | 514 |
102 | 258 | 514 | |
Finance costs | |||
Interest expense on defined pension obligation | 68 | 40 | 52 |
Unwind of discounts on provisions | 20 | 39 | 75 |
Negative interest and interest on bank overdrafts | 35 | 31 | 65 |
123 | 110 | 192 | |
Discontinued operations | |||
Finance costs | |||
Unwind of discounts on provisions | - | 72 | 134 |
- | 72 | 134 | |
Continuing and discontinued operations | |||
Finance income | |||
Interest on bank deposits | 102 | 258 | 514 |
102 | 258 | 514 | |
Finance costs | |||
Interest expense on defined pension obligation | 68 | 40 | 52 |
Unwind of discounts on provisions | 20 | 111 | 209 |
Interest on bank overdrafts | 35 | 31 | 65 |
123 | 182 | 326 |
5. Taxation
The Group calculates the period income tax expense using the tax rate that would be applicable to the expected total annual earnings.
Unaudited period to31 March2017 | Unauditedperiod to31 March2016 | Auditedperiod to30 September2016 | |
£'000 | £'000 | £'000 | |
Continuing operations | |||
Current tax | |||
United Kingdom: | |||
Charge for the period | 4,833 | 4,915 | 8,806 |
Adjustments in respect of prior periods | (49) | 318 | 237 |
Overseas: | |||
Charge/(credit) for the period | 28 | (79) | (8) |
Adjustments in respect of prior periods | (1) | 33 | 35 |
Total current tax continuing operations | 4,811 | 5,187 | 9,070 |
Deferred tax | |||
United Kingdom: | |||
Charge for the period | 1,205 | 441 | 2,310 |
Adjustments in respect of prior periods | 49 | (1,274) | (285) |
Total deferred tax continuing operations | 1,254 | (833) | 2,025 |
Tax charged to the income statement continuing operations | 6,065 | 4,354 | 11,095 |
Discontinued operations | |||
Current tax | |||
United Kingdom: | |||
Charge for the period | - | 194 | 1,355 |
Adjustments in respect of prior periods | - | - | (395) |
Total current tax discontinued operations | - | 194 | 960 |
Deferred tax | |||
United Kingdom: | |||
Charge for the period | - | - | 1,675 |
Total deferred tax discontinued operations | - | - | 1,675 |
Tax charged to the income statement discontinued operations | - | 194 | 2,635 |
Continuing and discontinued operations | |||
Current tax | |||
United Kingdom: | |||
Charge for the period | 4,833 | 5,109 | 10,161 |
Adjustments in respect of prior periods | (49) | 318 | (158) |
Overseas: | |||
Charge for the period | 28 | (79) | (8) |
Adjustments in respect of prior periods | (1) | 33 | 35 |
Total current tax continuing and discontinued operations | 4,811 | 5,381 | 10,030 |
Deferred tax | |||
United Kingdom: | |||
Charge for the period | 1,205 | 441 | 3,985 |
Adjustments in respect of prior periods | 49 | (1,274) | (285) |
Total deferred tax continuing and discontinued operations | 1,254 | (833) | 3,700 |
Tax charged to the income statement continuing and discontinued operations | 6,065 | 4,548 | 13,730 |
6. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Unaudited period to31 March2017 | Unaudited period to31 March2016 | Auditedperiod to30 September2016 | ||||
'000 | '000 | '000 | ||||
Number of shares | ||||||
Basic | ||||||
Weighted average number of shares in issue in the period | 272,442 | 270,929 | 271,072 | |||
Diluted | ||||||
Effect of weighted average number of options outstanding for the period | 8,701 | 9,345 | 9,984 | |||
Diluted weighted average number of options and shares for the period | 281,143 | 280,274 | 281,056 | |||
Adjusted1 diluted | ||||||
Effect of full dilution of employee share options which are contingently issuable or have future attributable service costs | 5,265 | 6,279 | 4,637 | |||
Adjusted1 diluted weighted average number of options and shares for the period | 286,408 | 286,553 | 285,693 | |||
a) Continuing operations | ||||||
£'000 | £'000 | £'000 | ||||
Earnings attributable to ordinary shareholders | ||||||
Basic and diluted profit for the period | 22,317 | 17,163 | 38,967 | |||
Redundancy costs | 104 | 1,885 | 2,780 | |||
Onerous contracts costs | 142 | 315 | 311 | |||
Amortisation of intangible assets - client relationships | 2,616 | 3,262 | 6,287 | |||
Acquisition costs | 1,159 | - | - | |||
One-off migration costs | - | 1,468 | 1,596 | |||
Disposal of available-for-sale investments | - | 3 | 3 | |||
less tax effect of above | (398) | (1,387) | (2,042) | |||
Adjusted basic and diluted profit for the period and attributable earnings | 25,940 | 22,709 | 47,902 | |||
Earnings per share | ||||||
Basic | 8.2p | 6.3p | 14.4p | |||
Diluted | 7.9p | 6.1p | 13.9p | |||
Adjusted2 earnings per share | ||||||
Basic | 9.5p | 8.4p | 17.7p | |||
Adjusted1 diluted | 9.1p | 7.9p | 16.8p | |||
b) Continuing and discontinued operations | ||||||
Unaudited period to31 March2017 | Unaudited period to31 March2016 | Auditedperiod to30 September2016 | ||||
£'000 | £'000 | £'000 | ||||
Earnings attributable to ordinary shareholders | ||||||
Basic and diluted profit for the period | 22,317 | 17,199 | 50,362 | |||
Redundancy costs | 104 | 1,885 | 2,780 | |||
Onerous contracts | 142 | 315 | 311 | |||
Amortisation of intangible assets - client relationships | 2,616 | 3,262 | 6,287 | |||
Acquisition costs | 1,159 | - | - | |||
One-off migration costs | - | 1,468 | 1,596 | |||
Disposal of available-for-sale investments | - | 3 | 3 | |||
less tax effect of above | (398) | (1,387) | (2,042) | |||
Adjusted basic profit for the period and attributable earnings | 25,940 | 22,745 | 59,297 | |||
Earnings per share | ||||||
Basic | 8.2p | 6.3p | 18.6p | |||
Diluted | 7.9p | 6.1p | 17.9p | |||
Adjusted2 earnings per share | ||||||
Basic | 9.5p | 8.4p | 21.9p | |||
Adjusted1 diluted | 9.1p | 7.9p | 20.8p | |||
c) Discontinued operations | ||||||
The denominators used are the same as those detailed above for both basic and diluted earnings from continuing operations. | ||||||
Earnings per share | ||||||
Basic | 0.0p | 0.0p | 4.2p | |||
Diluted | 0.0p | 0.0p | 4.0p | |||
Adjusted2 earnings per share | ||||||
Basic | 0.0p | 0.0p | 4.2p | |||
Adjusted1 diluted | 0.0p | 0.0p | 4.0p | |||
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 redundancy costs, onerous contracts, amortisation of client relationships, acquisition costs, one-off migration costs and disposal of available-for-sale investments. | ||||||
7. Dividends
Unaudited period to31 March2017 | Unauditedperiod to31 March2016 | Auditedperiod to30 September2016 | |
£'000 | £'000 | £'000 | |
Amounts recognised as distributions to equity shareholders in the period: | |||
Final dividend paid 10 March 2017, 9.15p per share (2016: 8.25p per share) | 24,996 | 22,374 | 22,374 |
Interim dividend paid 17 June 2016, 3.85p per share | - | - | 10,444 |
24,996 | 22,374 | 32,818 | |
An interim dividend of 4.25p per share was declared by the Board on 16 May 2017 and has not been included as a liability as at 31 March 2017. This interim dividend will be paid on 16 June 2017 to shareholders on the register at the close of business on 26 May 2017 with an ex-dividend date of 25 May 2017.
8. Intangible assets
Goodwill | Client relationships | Software | Total | |
£'000 | £'000 | £'000 | £'000 | |
Cost | ||||
At 30 September 2015 (Audited) | 48,637 | 107,941 | 55,825 | 212,403 |
Additions | - | (21) | 2,737 | 2,716 |
Disposals | - | - | - | - |
Exchange differences | - | 11 | - | 11 |
At 31 March 2016 (Unaudited) | 48,637 | 107,931 | 58,562 | 215,130 |
Additions | - | (44) | 2,452 | 2,408 |
Disposals | - | - | (42,808) | (42,808) |
Exchange differences | - | 15 | - | 15 |
At 30 September 2016 (Audited) | 48,637 | 107,902 | 18,206 | 174,745 |
Additions | - | 119 | 616 | 735 |
Disposals | - | - | - | - |
Exchange differences | - | (2) | - | (2) |
At 31 March 2017 (Unaudited) | 48,637 | 108,019 | 18,822 | 175,478 |
Accumulated amortisation and impairment | ||||
At 30 September 2015 (Audited) | - | 78,805 | 46,609 | 125,414 |
Amortisation charge for the period | - | 3,262 | 2,101 | 5,363 |
Eliminated on disposal | - | - | - | - |
Exchange differences | - | 5 | - | 5 |
Impairment losses for the period | - | - | 345 | 345 |
At 31 March 2016 (Unaudited) | - | 82,072 | 49,055 | 131,127 |
Amortisation charge for the period | - | 3,025 | 2,340 | 5,365 |
Eliminated on disposal | - | - | (42,808) | (42,808) |
Exchange differences | - | 8 | - | 8 |
Impairment losses for the period | - | - | - | - |
At 30 September 2016 (Audited) | - | 85,105 | 8,587 | 93,692 |
Amortisation charge for the period | - | 2,616 | 2,709 | 5,325 |
Eliminated on disposal | - | - | - | - |
Exchange differences | - | (1) | - | (1) |
At 31 March 2017 (Unaudited) | - | 87,720 | 11,296 | 99,016 |
Net book value | ||||
At 31 March 2017 (Unaudited) | 48,637 | 20,299 | 7,526 | 76,462 |
At 30 September 2016 (Audited) | 48,637 | 22,797 | 9,619 | 81,053 |
At 31 March 2016 (Unaudited) | 48,637 | 25,859 | 9,507 | 84,003 |
At 30 September 2015 (Audited) | 48,637 | 29,136 | 9,216 | 86,989 |
9. Property, plant and equipment
Leasehold Improvements | Office Equipment | MotorVehicles | Computer Equipment | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | |
Cost | |||||
At 30 September 2015 (Audited) | 13,003 | 13,150 | 30 | 43,666 | 69,849 |
Additions | 66 | 54 | - | 105 | 225 |
Exchange differences | 13 | 40 | 2 | - | 55 |
Disposals | - | - | (32) | - | (32) |
At 31 March 2016 (Unaudited) | 13,082 | 13,244 | - | 43,771 | 70,097 |
Additions | 132 | 84 | - | 22 | 238 |
Exchange differences | 18 | 51 | 3 | - | 72 |
Disposals | (42) | (87) | (3) | (9,680) | (9,812) |
At 30 September 2016 (Audited) | 13,190 | 13,292 | - | 34,113 | 60,595 |
Additions | 24 | 40 | - | 97 | 161 |
Exchange differences | (3) | (8) | - | - | (11) |
Disposals | - | (6) | - | - | (6) |
At 31 March 2017 (Unaudited) | 13,211 | 13,318 | - | 34,210 | 60,739 |
Accumulated depreciation and impairment | |||||
At 30 September 2015 (Audited) | 8,685 | 11,988 | 27 | 40,961 | 61,661 |
Charge for the period | 684 | 366 | - | 1,059 | 2,109 |
Exchange differences | 13 | 34 | 2 | - | 49 |
Impairment of assets | - | - | - | 335 | 335 |
Eliminated on disposal | - | - | (29) | - | (29) |
At 31 March 2016 (Unaudited) | 9,382 | 12,388 | - | 42,355 | 64,125 |
Charge for the period | 583 | 276 | - | 537 | 1,396 |
Exchange differences | 17 | 44 | 3 | - | 64 |
Eliminated on disposal | (42) | (87) | (3) | (9,680) | (9,812) |
At 30 September 2016 (Audited) | 9,940 | 12,621 | - | 33,212 | 55,773 |
Charge for the period | 500 | 240 | - | 265 | 1,005 |
Exchange differences | (2) | (6) | - | - | (8) |
Eliminated on disposal | - | (6) | - | - | (6) |
At 31 March 2017 (Unaudited) | 10,438 | 12,849 | - | 33,477 | 56,764 |
Net book value | |||||
At 31 March 2017 (Unaudited) | 2,773 | 469 | - | 733 | 3,975 |
At 30 September 2016 (Audited) | 3,250 | 671 | - | 901 | 4,822 |
At 31 March 2016 (Unaudited) | 3,700 | 856 | - | 1,416 | 5,972 |
At 30 September 2015 (Audited) | 4,318 | 1,162 | 3 | 2,705 | 8,188 |
10. Investments
Trading investments (Level 1)
Listed investments | |
£'000 | |
At 31 March 2017 (Unaudited) | 1,170 |
At 30 September 2016 (Audited) | 1,093 |
At 31 March 2016 (Unaudited) | 978 |
At 30 September 2015 (Audited) | 945 |
The trading investments are measured at fair value which 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.
Available-for-sale investments (Level 3)
Unauditedas at31 March2017 | Unauditedas at31 March2016 | Auditedas at30 September2016 | |
£'000 | £'000 | £'000 | |
At start of period | 833 | 140 | 140 |
Additions | 18 | 722 | 770 |
Net gain/(loss) from changes in fair value recognised in equity | 31 | (1) | (30) |
Disposals | (15) | (41) | (47) |
At end of period | 867 | 820 | 833 |
Current assets | |||
Available-for-sale investments | |||
- Equity | 127 | 106 | 128 |
- Asset-backed security | 740 | 714 | 705 |
Total investments | 867 | 820 | 833 |
The asset-backed security is a USD fixed rate note, due to mature on 23 September 2019. The available-for-sale investments are held at fair value.
Fair value measurement recognised in the statement of financial position
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from 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 fair value measurements are those derived from formal valuation techniques that include inputs 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 basis
Some of the Group's financial assets and liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and liabilities are determined.
Unaudited fair valueas at31 March 2017£'000 | Unaudited fair value as at31 March 2016£'000 | Audited fair value as at30 September 2016£'000 | Valuation technique(s)and key input(s) | Significant unobservable input(s) | Relationship of unobservable inputs to fair value | |
Level 1 | ||||||
Trading investments | 1,170 | 978 | 1,093 | Quoted bid prices in an active market | n/a | n/a |
Level 3 | ||||||
Available-for-sale investments - Equity | 127 | 106 | 128 | The valuation is based on published monthly NAVs where available.
Where not available the valuation is based on the net assets reported in the latest audited accounts less the intangible assets.
A marketability discount is applied as this investment is highly illiquid. | Marketability discount ranging between 30-50% | As the marketability discount increases the valuation decreases. |
Available-for-sale investments - Asset-backed securities | 740 | 714 | 705 | The valuation is based on the discounted expected cash flows, which is extracted from the latest audited accounts.A marketability discount is applied as this investment is highly illiquid. | Marketability discount ranging between 30-50% | As the marketability discount increases the valuation decreases. |
Sensitivity analysis
A sensitivity analysis of the significant unobservable inputs used in valuing the Level 3 financial instruments is set out below:
Financial asset | Assumption | Change in assumption | Impact on valuation | |||
Current assets - Available-for-sale investments - Equity | Marketability discount | Increase by 5% | Decrease by £2,000 | |||
Current assets - Available-for-sale investments - Asset-backed securities | Marketability discount | Increase by 5% | Decrease by £57,000 | |||
11. Provisions
Sundry claims and associated costs | Onerous contracts | Social Security contributions on share options | Leasehold dilapidations | Unauditedperiod to31 March2017 | Unaudited period to31 March2016 | Auditedperiod to 30 September 2016 | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
At start of period | 1,022 | 4,308 | 2,431 | 1,936 | 9,697 | 21,539 | 21,539 |
Additions | 273 | 142 | 863 | 38 | 1,316 | 1,616 | 2,467 |
Utilisation of provision | (152) | (750) | (657) | - | (1,559) | (6,852) | (12,571) |
Unwinding of discount | - | 11 | - | 9 | 20 | 111 | 209 |
Unused amounts reversed during the period | (318) | - | (24) | (43) | (385) | (1,175) | (1,947) |
At end of period | 825 | 3,711 | 2,613 | 1,940 | 9,089 | 15,239 | 9,697 |
Included in current liabilities | 825 | 486 | 1,405 | 43 | 2,759 | 9,063 | 3,097 |
Included in non-current liabilities | - | 3,225 | 1,208 | 1,897 | 6,330 | 6,176 | 6,600 |
825 | 3,711 | 2,613 | 1,940 | 9,089 | 15,239 | 9,697 |
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.
Provision of £3.7 million (30 September 2016: £4.1 million) has been made for surplus office space, which the Group may not be able to sublet in the short-term. The maximum exposure is the current estimated amount that the Group would have to pay to meet the future obligations under these lease contracts which is approximately £11.0 million as at 31 March 2017 (30 September 2016: £11.3 million), if the assumption regarding future sublets is removed and the time value of money is ignored. The longest lease term covered by the provision has 16 years remaining and accounts for £3.4 million of the provision.
Provision of £nil million (30 September 2016: £0.2 million) has been made in relation to onerous contracts resulting from discontinued operations.
The Group recognises a provision of £1.9 million (30 September 2016: £1.9 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 16 years.
12. Defined benefit scheme
The main financial assumptions used in calculating the Group's defined benefit scheme are as follows:
As at31 March2017 | As at31 March2016 | As at30 September 2016 | |
Discount rate | 2.60% | 3.60% | 2.20% |
RPI Inflation assumption | 3.30% | 3.10% | 3.10% |
CPI Inflation assumption | 2.30% | 2.10% | 2.10% |
Rate of increase in salaries | 3.30% | 3.10% | 3.10% |
LPI Pension Increases | 3.20% | 3.00% | 3.00% |
Average assumed life expectancies for members on retirement at age 65. | |||
Retiring today | |||
Males | 88.8 years | 88.6 years | 88.7 years |
Females | 90.0 years | 89.9 years | 88.9 years |
Retiring in 20 years' time | |||
Males | 90.5 years | 89.9 years | 90.4 years |
Females | 91.8 years | 91.4 years | 91.7 years |
A full actuarial valuation was carried out as at 31 December 2014 and the results of this valuation have been updated to 31 March 2017 by a qualified independent actuary.
13. Called up share capital
The following movements in share capital occurred during the period:
Date | No. of Fully Paid Shares | Exercise/ Issue Price(pence) | Sharecapital | Share premium account | Total | |
£'000 | £'000 | £'000 | ||||
At 30 September 2016 | 283,026,606 | 2,830 | 151,836 | 154,666 | ||
Issue of options | Various | 271,476 | 103.5p-175.25p | 3 | 432 | 435 |
At 31 March 2017 | 283,298,082 | 2,833 | 152,268 | 155,101 |
14. Share-based payments
In December 2016, 1,226,504 share options were granted to senior executives and the Directors under the Long Term Incentive Plan ('LTIP'). The options vest on the third anniversary of the date of grant provided certain performance conditions and targets, set prior to the grant, have been met. If the performance conditions are not met the options lapse. The fair value at grant date is estimated using a Black-Scholes model, taking into account the terms and conditions upon which the options were granted. There is no cash settlement of the options. The fair value of options granted during the period ended 31 March 2017 was estimated on the date of grant using the following assumptions:
Weighted average share price | 287.4p |
Weighted average exercise price | 0.0p |
Expected volatility | 35.00% |
Expected life (yrs) | 3 |
Risk free rate | 0.76% |
Expected dividend yield | 5.73% |
The Group recognised total expenses in the period of £4,149,000 (31 March 2016: £3,996,000, 30 September 2016: £8,387,000) related to equity-settled share-based payment transactions.
15. Note to the cash flow statement
Unaudited period to31 March2017 | Unauditedperiod to31 March2016 | Auditedperiod to30 September2016 | |
£'000 | £'000 | £'000 | |
Operating profit from continuing operations | 28,403 | 21,372 | 49,743 |
Adjustments for: | |||
Profit from discontinued operations | - | 230 | 14,030 |
Depreciation of property, plant and equipment | 1,005 | 2,109 | 3,505 |
Amortisation of intangible assets - client relationships | 2,616 | 3,262 | 6,287 |
Amortisation of intangible assets - software | 2,709 | 2,101 | 4,441 |
Impairment of intangible assets and tangible assets | - | 680 | 680 |
Loss on disposal of property, plant and equipment | - | 3 | - |
Profit on disposal of discontinued operation | - | - | (14,000) |
Defined benefit scheme | (1,500) | (1,500) | (3,000) |
Share-based payment expense | 4,149 | 3,996 | 8,387 |
Translation adjustments | (11) | (34) | (8) |
Interest income | 102 | 258 | 514 |
Interest expense | (35) | (31) | (65) |
Operating cash flows before movements in working capital | 37,438 | 32,446 | 70,514 |
Decrease in payables and provisions | (13,852) | (58,204) | (45,478) |
(Increase)/decrease in receivables and trading investments | (6,975) | 28,266 | 35,910 |
Cash generated by operating activities | 16,611 | 2,508 | 60,946 |
Tax paid | (3,605) | (2,964) | (8,913) |
Net cash inflow/(outflow) from operating activities | 13,006 | (456) | 52,033 |
Cash and cash equivalents comprise cash at bank and bank overdrafts.
16. Discontinued operations
The disposal of Stocktrade (discontinued operation) completed in the year to 30 September 2016. The results of the discontinued operation, included in the Consolidated Income Statement, were as follows:
Unaudited period to31 March2017 | Unauditedperiod to31 March2016 | Auditedperiod to30 September2016 | |
£'000 | £'000 | £'000 | |
Revenue | - | 3,234 | 3,379 |
Expenses | - | (2,691) | (3,339) |
Operating profit | - | 543 | 40 |
Costs of separation | - | (313) | (10) |
Profit before tax | - | 230 | 30 |
Attributable tax expense | - | (194) | (43) |
Profit/(loss) after tax | - | 36 | (13) |
Profit on disposal of discontinued operations | - | - | 14,000 |
Attributable tax expense | - | - | (2,592) |
Net profit attributable to discontinued operations (attributable to the equity holders of the parent) | - | 36 | 11,395 |
Costs of separation consist of the following items:
Unaudited period to31 March2017 | Unauditedperiod to31 March2016 | Auditedperiod to30 September2016 | |
£'000 | £'000 | £'000 | |
Impairment | |||
- Intangible - see note 8 | - | (345) | (345) |
- Tangible - see note 9 | - | (335) | (335) |
Onerous contract release | - | 448 | 680 |
Other | - | (81) | (10) |
Total costs of separation | - | (313) | (10) |
Stocktrade contributed the following cash flows included within the Consolidated Cash Flow Statement:
Unaudited period to31 March2017 | Unauditedperiod to31 March2016 | Auditedperiod to30 September2016 | |
£'000 | £'000 | £'000 | |
Net cash outflows from operating activities | - | (2,490) | (8,206) |
Net cash flows from investing activities | - | - | 14,000 |
Net (decrease)/increase in cash and cash equivalents | - | (2,490) | 5,794 |
17. Related party transactions
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 2016 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.
18. Post balance sheet events
On 19 December 2016, the Group announced that its wholly owned principal operating subsidiary, Brewin Dolphin Limited had agreed to acquire the UK private client investment management business of Duncan Lawrie through the acquisition of Duncan Lawrie Asset Management Limited. The transaction completed on 10 May 2017 for a cash consideration of £28.0m and will be subject to an amendment for working capital.
Cautionary statement
The Interim Management Report (the 'IMR') for the period ended 31 March 2017 has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The IMR should not be relied on by any other party or for any other purpose.
The IMR contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.
Statement of Directors' Responsibilities
The Directors confirm that to the best of their knowledge:
a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;
b) the interim management report includes a fair view of the information required by Disclosure and Transparency Rules ('DTR') 4.2.7 R (indication of important events during the period ended 31 March 2017 and their impact on the condensed set of financial statements; and description of principal risks and uncertainties for the remaining six months of the year); and
c) the interim management report includes a fair view of the information required by DTR 4.2.8R (disclosures of related parties' transactions and changes therein).
By order of the Board
David Nicol |
Chief Executive 16 May 2017 |
Independent Review Report to Brewin Dolphin Holdings PLC
We have been engaged by the company to review the condensed set of financial statements in the interim financial report for the period ended 31 March 2017 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated balance sheet, the condensed consolidated cash flow statement and related notes 1 to 18. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. 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.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the period ended 31 March 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
16 May 2017
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