Interim Results

18 November 2021

CAY.L

Charles Stanley Group PLC

("Charles Stanley" or "the Company" or "the Group")

Interim results for the six months ended 30 September 2021

Key Points

Financial:

Offer by Raymond James

Outlook:

Paul Abberley, Chief Executive Officer of Charles Stanley group plc, commented:

"The Group has performed well, aided by the improvement in investor confidence following the onset of the coronavirus vaccination programme and global economic recovery. We are continuing with initiatives to enhance our customer proposition, including a streamlined digital offering. The recommended Offer by Raymond James is expected to conclude in December 2021, subject to FCA and Court approvals. We remain confident that our acquisition by Raymond James will bring benefits for clients and staff and create new opportunities for the business to flourish. We look forward to the future with optimism."

Charles Stanley Group PLC LEI: 213800LBSEGKE5MCYC90

For further information, please contact:

Notes to editors:

Charles Stanley provides holistic wealth management services to private clients, charities, trusts and institutions. Its origins trace back to 1792 and it is one of the oldest firms on the London Stock Exchange. The Company has a national presence, with 26 locations and over 800 professionals. Its wealth management services are provided direct to clients and to intermediaries.

Cautionary Statement

The Interim management report for the six months ended 30 September 2021 has been prepared to provide information to shareholders to assess the current position and future potential of Charles Stanley Group PLC. It contains certain forward-looking statements with respect to the Group's financial condition, operations and business opportunities. These forward-looking statements involve risks and uncertainties that could cause the actual results of operations, financial condition, liquidity, dividend policy and the development of the industry in which the Group operates to differ materially from the impression created by the forward-looking statements. Any forward-looking statement is made in good faith based on information available to the Directors at the time of their approval of this report. Past performance cannot be relied on as a guide to future performance.

Publication on website

A copy of this announcement and the documents required to be published pursuant to Rule 26.1 and Rule 26.2 of the City Code on Takeovers and Mergers (the "Code") will be made available (subject to certain restrictions relating to persons resident in Restricted Jurisdictions (as defined in the Scheme Document)), free of charge, at charles-stanley.co.uk/recommended-offer-for-charles-stanley by no later than 12 noon on the Business Day following the date of this announcement.

Neither the contents of the website nor the content of any other website accessible from hyperlinks on such website is incorporated into, or forms part of, this announcement.

Interim management report

First half review

The new financial year started strongly, with investor confidence greatly improved following the commencement of the rollout of the COVID-19 vaccination programme and the onset of global economic recovery.

The Group performed very well against this backdrop. Total revenues rose by 12.2% to £91.9 million (H1 2021: £81.9 million) and underlying profit before tax increased by 40.9% to £9.3 million (H1 2021: £6.6 million). The reported profit before tax declined marginally to £4.7 million (H1 2021: £4.8 million) but included exceptional items relating to the Offer by Raymond James.

Revenues and FuMA

Revenues grew significantly, continuing the progress made in the second half of the prior year as markets recovered from the immediate shock of the COVID-19 outbreak. All three divisions delivered growth, and higher fee and administration income more than offset reduced commission and interest income, which respectively reflected less volatile markets and the Bank of England's cut in interest rates.

FuMA at £27.4 billion at the end of the first half of the financial year was 7.0% higher than at 31 March 2021 when it stood at £25.6 billion. Average FuMA for the first half was £27.0 billion, 22.2% higher than during the same period last year (H1 2021: £22.1 billion).

Expenditure

We have continued to keep a firm control of underlying expenditure. Overall it increased by £7.2 million to £82.4 million (H1 2021: £75.2 million), of which £5.9 million was attributable to increased variable remuneration.

Underlying costs excluding staff costs rose by £1.5 million. This rise principally reflected a full six months of outsourced IT costs, which amounted to £0.9 million. This followed the outsourcing of IT infrastructure maintenance was outsourced part way through the first half of FY 2021 whereas we have had a full six months of such costs in the current period. We are also in the process of enhancing the digital proposition for clients which has resulted in additional expenditure in the period.

Approximately £4.6 million of exceptional costs have been incurred during the period (H1 2021: £1.8 million). £4.0 million of these exceptional items are attributable to costs incurred and accrued in relation to the Offer by Raymond James. This includes a non-cash charge of £3.0 million accounted for under IFRS 2 Share-based payments, being the assessed cost for the period of options expected to vest as a result of the acquisition. In the event the transaction does not complete this charge will be reversed. The Group also incurred £0.7 million of exceptional costs arising from the completion of the business transformation projects that we have reported on previously. These projects were largely completed by the reporting date and future benefits will be reported within the Group's underlying results. The balance of £0.1 million is accounted for by the amortisation of client relationships (£0.6 million) offset by a £0.7 million gain on the sale of a freehold property.

Balance sheet and regulatory capital

The Group's balance sheet remains strong, with total net assets at 30 September 2021 increased by 2.8% to £126.7 million (31 March 2021: £123.3 million), which includes £93.4 million of cash (31 March 2021: £105.4 million).

Following an injection of £4.1 million into the Group's Defined Benefits Pension Scheme in July 2021, the Scheme is now in surplus and its portfolio assets have been rebalanced to match the expected liabilities development.

At 30 September 2021, the Group had regulatory capital resources of £103.7 million (H1 2021: £92.8 million and FY 2021: £100.6 million). Our capital solvency ratio has increased to 199% (H1 2021: 174% and FY 2021: 185%).

Dividend

The Board is pleased to declare an interim dividend of 4.0 pence per share (H1 2021: 3.0 pence per share). This will be paid in the event that the acquisition of the Company by Raymond James has not been sanctioned by the Court by 10 December 2021 and will be paid on 14 January 2022 to shareholders on the register on 10 December 2021.

Raymond James

On 29 July 2021 the Directors of Charles Stanley and Raymond James announced that they had reached an agreement on the terms of a recommended acquisition by Raymond James of Charles Stanley to be effected by way of scheme of arrangement (the "Scheme"). The Scheme was approved by shareholders on 16 September 2021. At the time of writing, completion of the Scheme remains subject to both FCA approval and sanction by the Court. It is our current expectation that these conditions will be met and the transaction will complete in December 2021.

Any updates to the expected timetable, including the time and date of the Court hearing to sanction the Scheme once confirmed, will be announced through a Regulatory Information Service.

Outlook The outlook for global economic growth in the near-term remains very positive as major economies worldwide continue their recovery from the coronavirus pandemic. However, there are also uncertainties ahead, particularly around the outlook for inflation and consumer confidence. Although global equity market sentiment remains bullish, investors are nervous of the potential uncertainties.

The Group is well-positioned for ongoing growth. We are continuing with initiatives to enhance our customer proposition and to support growth plans. We are also confident that the proposed acquisition by Raymond James will bring benefits for staff and clients and create new opportunities for the business to flourish.

We look forward to the future with optimism.

Paul Abberley, Chief Executive Officer

Ben Money-Coutts, Chief Financial Officer 

Group results and performance

The following tables show the Group's financial performance for the six months ended 30 September 2021 and for the prior period. These reconcile the underlying results, which the Board considers the best reflection of the Group's performance, to the statutory reported results. The difference comprises adjusting items, which are stripped out of the underlying results so as not to distort the underlying performance.

Funds under Management and Administration

The Group's revenue is substantially driven by the level of its FuMA. These stood at £27.4 billion at 30 September 2021, representing a 7.0% increase from £25.6 billion at 31 March 2021.

Growth in FuMA since 31 March 2021 has been attributable to investment performance which outstripped the benchmark MSCI WMA Private Investor Balanced Index by 2.5%.

The mix of FuMA has remained broadly in line with 31 March 2021, with Discretionary funds representing the largest proportion at 59.5% (31 March 2021: 59.4%). Administered funds, which typically have a higher equity component than managed accounts, saw the highest growth with an increase during the period of 7.7%.

Revenue

Fee income increased by £11.3 million reflecting the higher average FuMA compared to H1 2021. The asset mix remained closely aligned to the prior year. Administration fees have increased by £1.6 million, primarily due to improved Financial Planning Services revenues of £1.4 million. Commission income decreased by £0.1 million reflecting lower market volatility. Interest income decreased by £1.2 million on the prior period. The main reason for the decrease was that average rates were reduced following Bank of England cuts in March 2020 to 0.1%. These charges were not passed on by the banks in full until July 2020, whereas we saw a full period of low rates in H1 2022.

Underlying expenditure

Underlying expenditure increased by £7.2 million (9.6%) on the prior year to £82.4 million.

Overall employment costs are up £5.6 million, largely due to higher variable compensation reflecting higher revenues and underlying profits. Fixed compensation has fallen fractionally, reflecting the impact of personnel changes during the period.

IT, communications and market data costs have increased by £1.1 million. This mainly reflected a full period of outsource costs in H1 2022 following the outsourcing of IT infrastructure in H1 2021. We have also incurred development costs for the enhanced client digital offering. FSCS levy charges remained at a similar level to H1 2021 and, as with last year, we have incurred a full year's charge in the first half of the financial year. Other non-staff costs rose slightly compared to the prior year.

Underlying pre-tax profit

The underlying pre-tax profit rose from £6.6 million to £9.3 million, an increase of 40.9%, and the underlying pre-tax profit margin increased to 10.1% (H1 2021: 8.1%). Investment Management Services increased both profit levels and margins. Financial Planning Services reported a 31.1% increase in revenue, a positive contribution for the first time and a 41.7% reduction in the level of its overall losses after central cost allocations, a trend we expect to continue as the benefit of historic investment in additional financial planners flows through. Central Financial Services saw a reduction both in profits and margins despite a rise in fee revenues due to the investment being made to develop the division.

Adjusting items

To calculate the underlying performance the Board has excluded certain adjusting items. A reconciliation between underlying profit before tax and reported profit before tax is provided below:

Restructuring costs (H1 2022: £0.7 million charge)

As part of the Group's stated objectives, the Group continues to undertake a number of initiatives to improve productivity and operational efficiency. A number of key programmes are being implemented, which have given rise to exceptional charges. One-off costs incurred to date on these projects have been removed from underlying results and are being reported separately on the consolidated income statement. Total restructuring costs for H1 2022 amounted to £0.7 million.

Amortisation of client relationships (H1 2022: £0.6 million charge)

Payments made for the introduction of client relationships that are deemed to be intangible assets are capitalised and amortised over their useful life, which has been assessed to be 10 years. This amortisation charge has been excluded from the underlying profit since it is a significant non-cash item that investors and analysts typically add back when considering underlying profitability and cash generation.

Gain on sale of freehold property (H1 2022: £0.7 million credit)

In July 2021 we completed the sale of our Chelmsford freehold property. This resulted in a £0.7 million gain compared to the book cost of £2.3 million.

Share-based payments in relation to acquisition by Raymond James (H1 2022: £3.0 million charge)

Various share options are expected to crystallise as a result of the acquisition by Raymond James. These have been accounted for under IFRS 2 Share-based payments because the share schemes will mostly be allowed to vest in full, with an accelerated vesting timetable being agreed if the transaction completes. The charges relate to the Performance Share Plan (£2.6 million), the Restricted Share Unit Plan (£0.1 million) and the Deferred Share Awards Plan (£0.3 million). In the event that the acquisition does not proceed, the Directors expect that this charge will be reversed.

Professional fees in relation to acquisition by Raymond James (H1 2022: £1.0 million charge)

We have incurred charges to date from external advisers, primarily in relation to legal fees.

Net other one-off charges in prior year (H1 2021: £0.6 million charge)

The net charge of £0.6 million recognised as an adjusting item in the prior financial year consisted of an impairment of Goodwill (£0.7 million charge) and a fair value adjustment for contingent consideration in relation to the acquisition of Myddleton Croft (£0.1 million credit).

Taxation

The corporation tax charge for the period was £1.1 million (H1 2021: £1.1 million) representing an effective tax rate of 23.4% (H1 2021: 22.9%).

Earnings per share

The Group's reported basic earnings per share for the period were 6.99 pence (H1 2021: 7.06 pence). The underlying basic earnings per share increased 46.1% to 14.52 pence (H1 2021: 9.94 pence).

Dividends

The Board has declared an interim dividend of 4.0 pence per share (H1 2021: 3.0 pence per share). This will be paid in the event that the Scheme relating to the acquisition of the Company by Raymond James has not been sanctioned by the Court by 10 December 2021, and will be paid on 14 January 2022 to shareholders on the register on 10 December 2021.

Financial position

The Group has maintained its strong financial position with total net assets at 30 September 2021 of £126.7 million (31 March 2021: £123.3 million). Cash balances at that date were £93.4 million (31 March 2021: £105.4 million).

Regulatory capital

Charles Stanley & Co. Limited, the Group's main operating subsidiary, is an IFPRU 125k Limited Licence Firm regulated by the FCA. In view of this, the Group is classified as a regulated group and is subject to the same regime.

The Group monitors a range of capital and liquidity statistics on a daily, weekly and monthly basis.

At 30 September 2021, the Group had regulatory capital resources of £103.7 million (H1 2021: £92.8 million and FY 2021: £100.6 million). Our capital solvency ratio has increased to 199% (H1 2021: 174% and FY 2021: 185%), primarily due to the elimination of the defined benefit pension scheme liability. It remains well in excess of the requirement and the Board's internal risk appetite.

As required under FCA rules, the Group maintains an Internal Capital Adequacy Assessment Process (ICAAP), which includes performing a range of stress tests to determine the appropriate level of regulatory capital and liquidity that the Group needs to hold. The last review of the ICAAP conducted and signed off by the Board was in September 2021. This review resulted in updates to the operational risks, stress testing and reverse stress testing. Regulatory capital forecasts are performed monthly and take into account expected dividends, intangible asset movements, as well as budgeted and forecast trading results. The Group's Pillar III disclosures are published annually on the Group's website (charles-stanley.co.uk) and provide further details about the Group's regulatory capital resources and requirements.

Condensed consolidated income statement

Six months ended 30 September 2021

The results for each period relate to continuing operations. There were no discontinued operations in either the current or any of the periods presented. 

Condensed consolidated statement of comprehensive income

Six months ended 30 September 2021

Condensed consolidated statement of financial position

As at 30 September 2021

The financial statements were approved and authorised per issue by the board of Charles Stanley Group PLC (company number 48796) on 17 November 2021.

Condensed consolidated statement of changes in equity

Six months ended 30 September 2021

Condensed consolidated statement of changes in equity

Condensed consolidated statement of changes in equity

Condensed consolidated statement of cash flows

Six months ended 30 September 2021

The cash flows for each period relate to continuing operations. There were no discontinued operations in any of the periods presented. 

1. General information

Charles Stanley Group PLC (the Company) is the Parent Company of the Charles Stanley group of companies (the Group).

The Company is a public limited company which is listed on the London Stock Exchange and is domiciled in the United Kingdom. The Company is registered in England and Wales. The address of its registered office is 55 Bishopsgate, London EC2N 3AS, UK.

2 Significant accounting policies and application of new and revised IFRSs

The accounting policies and presentation of figures adopted in the preparation of the condensed consolidated financial statements are consistent with those followed in the preparation of the Group's Annual Report and Accounts for the year ended 31 March 2021, except for the mandatory standards and amendments that had an effective date on the start of the six-month period.

There were no new mandatory standards or amendments to existing standards effective in the six-month reporting period to 30 September 2021.

Following the UK's exit from the EU on 1 January 2021, the Group is required to report under UK-adopted IFRS as adopted and endorsed by The UK Endorsement Board (UKEB). The Group will report under UK-adopted IFRS from 1 April 2021. We do not anticipate any material changes.

A number of new standards and amendments to standards and interpretations are effective for periods beginning on or after 1 April 2021. These new standards are not applicable to these financial statements and they are not expected to have a material impact when they become effective. The Group plans to apply these standards and amendments in the reporting period in which they become effective.

3. Use of judgements and estimates

In the application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions to determine the carrying amounts of certain assets and liabilities. The estimates and associated assumptions are based on the Group's historical experience and other relevant factors. Actual results may differ from the estimates applied.

Estimates and judgements are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

3.1 Major sources of estimation and uncertainty in applying the Group's accounting policies

The following key estimates have been made by the Directors in applying the Group's accounting policies:

3.1.1 Goodwill and intangible assets

For the purposes of impairment testing, the Parent Company and the Group assess Goodwill and client relationships based on the recoverable amount of the Cash Generating Unit's (CGU) making up the relevant intangible asset. The recoverable amount is calculated based on assumptions which are set out in more detail in note 10. Sensitivity analysis is also set out in note 10. No impairment to the carrying value of Goodwill was required in the period. An impairment charge of £0.1 million was recognised in respect of a client relationship CGU in the period.

3.1.2 Retirement benefit obligations

In consultation with an independent actuary, the Group makes estimates about a number of long-term trends and market conditions to determine the value of the surplus or deficit of its defined benefit pension scheme. These long-term forecasts and estimates are highly judgmental and subject to the risk that actual events may be significantly different from those forecast.

The valuation performed as at 30 September 2021 resulted in a change from an actuarial deficit as at 31 March 2021 to an actuarial surplus of £1.7 million which has been reflected in these financial statements.

3.1.3 Share-based payments

The Group participates in a number of equity-settled share-based payment arrangements with its employees. When such awards are made, the fair value at grant date serves as the basis for calculating the staff costs. The vesting conditions attached to the awards are subject to specific non-market performance conditions and it is expected that, as has been agreed by the Board and Raymond James, a number will vest as a result of the acquisition of the Company by Raymond James.

The expense in respect of each arrangement is recognised over the expected vesting period and the number anticipated to vest. These estimates are revised at each reporting date and the cumulative charge is updated. The recommended Offer by Raymond James for Charles Stanley, which is currently expected to complete in December 2021, has given rise to a substantial increase in the estimation of both the number of share options and the acceleration of the time period over which they will vest. Details of the estimates applied can be found in note 7.

3.2 Key accounting judgements in applying the Group's accounting policies

The Directors do not consider there are any key accounting judgements impacting the financial statements.

4. Operating segments

The Group has three operating divisions which are its reportable segments and represent the underlying performance. These segments are the basis on which the Group reports its performance to the Chief Executive Officer, who is the Group's chief operating decision-maker.

Immediately following the financial year end, the Group carried out a reorganisation of its front office divisions to reflect a new operating structure as shown below. For reporting periods on or before 31 March 2021, the divisions were Investment Management Services, Financial Planning Services and Charles Stanley Direct which represented the main operating divisions and the reportable operating segments of the Group.

Notes

1. Administrative expenses include £0.7 million of restructuring costs, £0.8 million of amortisation of intangible assets and £0.1 million of impairment to client relationships.

2. The operating profit/(loss) as per the above table is different to that presented in the divisional analysis included within the Interim management report as the table above includes adjusting items which are excluded from the underlying analysis.

3. Support Functions' costs are allocated to the respective divisions based on proportions agreed by the Directors, which reflect utilisation.

4. Impairments to intangible assets of £0.1 million (2021: £0.7 million) are allocated to the Investment Management Services segment.

4. Operating segments (continued)

Notes

1. Administrative expenses include £0.6 million of restructuring costs, £0.6 million of amortisation of intangible assets and a £0.7 million credit for non-cash share options.

2. The operating profit/(loss) as per the above table is different to that presented in the divisional analysis included within the Interim management report as the table above includes adjusting items which are excluded from the underlying analysis.

3. Support Functions' costs are allocated to the respective divisions based on proportions agreed by the Directors, which reflect utilisation.

4. Impairments to intangible assets of £0.7 million (2020: £0.3 million) are allocated to the Investment Management Services segment.

4. Operating segments (continued)

Notes

1. Administrative expenses include £1.3 million of restructuring costs, £1.3 million of amortisation of intangible assets and £0.7 million of impairments to intangible assets.

2. The operating profit/(loss) as per the above table is different to that presented in the divisional analysis included within the Annual report and accounts, as the table above includes adjusting items which are excluded from the underlying analysis.

3. Support Functions' costs are allocated to the respective divisions based on proportions agreed by the Directors, which reflect utilisation.

4. Impairments to intangible assets of £0.7 million (2020: £0.3 million) are allocated to the Investment Management Services segment.

5. Restructuring costs

The Group is undertaking a transformation programme to improve sales and productivity. As part of this programme the following one-off exceptional costs are included in the condensed consolidated income statement:

6. Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to equity holders of the Parent Company by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares to assume exercise of all potentially dilutive share options.

The Directors believe that a truer reflection of the performance of the Group's underlying business is given by the measure of underlying earnings per share which is presented in the Interim management report. This measure is also followed by the analyst community as a benchmark of the Group's underlying performance.

The earnings and weighted average number of shares used in the calculation of basic and diluted earnings per share is shown below:

All amounts related to continuing operations. There were no discontinued operations in any of the periods presented.

7. Share-based payment arrangements

The Group has a number of share-based payment arrangements, the costs of which are accounted for under IFRS 2. The accounting standard requires share-based payments to be recognised in the financial statements at fair value, where the estimate of that fair value is based on the most likely outcome of any performance conditions and vesting period.

Due to the announcement of the recommended acquisition of Charles Stanley Group by Raymond James, the majority of the share schemes will be allowed to vest in full and all such awards (except for the Save As You Earn scheme) structured as options will be accelerated so as to be automatically exercised upon the scheme being sanctioned by the Court, and as the Board considers there is a high degree of probability that the scheme will be sanctioned by the Court, we have accounted for additional and accelerated vesting period charges. In the unlikely event that the acquisition does not complete, that part of the charge that is conditional on completion will be reversed in a future period. Details of each share-based payment arrangement are as follows:

7.1 Deferred Equity Plan (equity-settled)

The Deferred Equity Plan is only open to Executive Directors and certain senior managers. Nil-cost options are granted under the plan for any annual bonus amounts deferred into shares, in accordance with the Group's remuneration policy. Options ordinarily vest over periods of between one and three years and have a contractual life of five years. There are no performance conditions attached to options granted under the plan.

A total of 260,956 options were granted under the Deferred Equity Plan from June 2017 to July 2021, of which 232,530 remain to vest or be exercised. As these awards are nil-cost options, the grant date fair value was deemed to be between £2.56 and £3.85 over the years.

7.2 Performance Share Plan (equity-settled)

The Performance Share Plan is only open to Executive Directors and certain senior managers. Nil-cost options are awarded annually under the plan and ordinarily vest over a period of three years based on specific performance targets. The contractual life of the options is five years.

A total of 1,083,578 options were granted under the Performance Share Plan between June 2017 and July 2020, of which 1,070,078 remain to vest. As these awards are nil-cost options with an entitlement to dividends during the vesting period, the grant date fair value was deemed to be between £2.56 and £3.63 over the years.

7.3 Investment Managers Share Plan (equity-settled)

The Investment Managers Share Plan is a one-off share scheme which granted 2,415,725 options to investment managers on 15 June 2017. During the period 935,365 options were exercised, which vested upon publication of the Annual report and accounts for the year ended 31 March 2020.

The remaining options will only vest if the pre-tax profit margin of the employed investment management teams collectively is 15% or more in the year ending 31 March 2022. The current expectation is that this condition will not be met and therefore no accumulated expense has been recognised. It has been further determined by the Remuneration Committee that these options will lapse in full on completion of the acquisition by Raymond James.

7.4 Save As You Earn (equity-settled)

The SAYE scheme is open to all employees. Options are granted under the scheme at a 20% discount to the mid-market closing price for the three days preceding the grant date and ordinarily have a three-year vesting period. The options are exercisable for a period of six months after vesting and are not subject to any performance conditions.

7.5 Share Incentive Plan

The Share Incentive Plan is open to all employees, enabling them to purchase shares in the Parent Company out of their pre-tax salary.

7. Share-based payment arrangements (continued)

7.6 Restricted Share Unit Plan (equity-settled)

The Restricted Share Unit Plan is only open to Executive Directors and certain senior managers. Nil-cost options are awarded annually under the plan and ordinarily vest over a period of three years based on specific performance targets. The contractual life of the options is five years.

A total of 335,732 options were granted under the scheme in July 2021, of which 55,955 options are expected to vest if the Offer expects to complete by the expected date. As these awards are over nil-cost options with an entitlement to dividends during the vesting period, the grant date fair value was deemed to be £5.13, being the share price at that date.

8. Employee benefits

Amounts included in the condensed consolidated statement of financial position

Significant actuarial assumptions

The mortality assumptions adopted at 30 September 2021 are 95% (30 September 2020: 100% and 31 March 2021: 95%) of the standard tables S3PMA, Year of Birth, no age rating for males and females, projected using CMI_2020 converging to 1.25% p.a. These imply the following life expectancies at age 65:

9. Income taxes

Tax recognised in the condensed consolidated income statement

Deferred tax is calculated using the rate expected to apply when the relevant timing differences are forecast to unwind.

The Finance Act 2021 introduced a 25% tax rate on UK profits arising after 1 April 2023. As a result, UK deferred tax assets and liabilities previously recognised at 19% have been revalued to the appropriate tax rate which is expected to be in force when the deferred tax asset or liability is forecast to unwind.

During the period, the group's IFRS 2 accounting charges in respect of share-based compensation were accelerated as a result of the vesting and exercise dates of the awards being brought forward. In addition to this, the share price of the group increased significantly during the period. As a result, the deferred tax asset in relation to these awards has also increased significantly, reflecting the estimated part 12 deduction available on exercise of the awards.

In line with IAS 12, the group is permitted to recognise a deferred tax asset within the income statement in respect of share-based compensation awards up to the cumulative IFRS 2 charge of each award, with any excess deferred tax asset recognised within equity.

10. Intangible assets

None of the intangible assets have been pledged as security.

Goodwill is allocated to the Group's divisions as follows:

10. Intangible assets (continued)

10.1 Goodwill

The recoverable amount of Goodwill allocated to a CGU is determined initially by calculating the CGU's fair value less costs to sell. If this is lower than the carrying amount or is not determinable, a value in use calculation is also prepared.

Fair value less costs to sell is calculated based on a percentage of FuMA, which is determined by the consideration paid as a percentage of FuMA in recent transactions in the market. At 30 September 2021 this was determined to be 2.47%. The inputs into fair value less costs to sell calculations are considered to be level 3 in the fair value hierarchy. The valuation techniques for calculating the recoverable amount are consistent with those used in prior years.

No value in use calculations have been prepared for other CGUs on the basis that the fair value less costs to sell was greater than the carrying amount. No other assets or liabilities related to the Group are allocated to CGUs in the assessment of the fair value of each CGU.

10.1.1 Investment Management Services

The Goodwill attributed to this division is represented by four CGUs, comprising acquired investment management teams in different locations across the UK. The largest CGUs are Edinburgh and Robson Cotterell, representing 51% and 27% respectively of the carrying value of the Goodwill held by the division.

The recoverable amount was assessed using fair value less costs to sell for the period ended 30 September 2021, based on a percentage of FuMA, being the lower end of management's estimations. The Eastbourne CGU had the lowest headroom of £1.9 million, between the carrying value and the recoverable amount. FuMA associated with this CGU would need to fall by over 30% under the current method before an impairment would be recognised.

10.1.2 Charles Stanley Direct

The Goodwill attributed to this division is represented by two CGUs comprising acquired Execution-only services. The largest CGU (Charles Stanley Investment Choices) represents 93% of the carrying value.

The recoverable amount of Goodwill relating to Charles Stanley Direct was assessed using fair value less costs to sell for the period ended 30 September 2021. Fair value less costs to sell was determined based on a price paid per billion of FuMA in recent market transactions. The range observed was £2.5 million to £10.3 million paid per £1.0 billion of assets. The recoverable amount was determined to be higher than the carrying amount of the CGU and therefore the Goodwill carrying value is adequately supported.

10.2 Client relationships

Client relationships relate to payments made to investment managers and third parties for the introduction of client relationships. Client relationships also arise on business combinations. The fair value was determined based on a percentage of FuMA of investment managers who have received payments. The fair value of those acquired in business combinations is based on the discounted cash flow model.

As an amortising asset, an impairment assessment is required only when an impairment trigger has been identified. The assessment is carried out by comparing the carrying value of each relationship and the remaining consideration that the Group expects to receive for services which are derived from the client relationships. The recoverable amount is calculated based on fair value less costs to sell using FuMA multiples derived from recent market transactions. Where necessary a value in use calculation is carried out to support the assessment.

An impairment charge of £0.1 million has been recognised in the period to 30 September 2021 relating to a client list CGU, reducing the carrying value of this to nil. The reason for the impairment is due to the loss of the investment manager, resulting in the carrying value exceeding the recoverable amount. Except for the above, the recoverable amount of all other CGUs was determined to be higher than the carrying amounts and therefore the carrying value is adequately supported.

10.3 Sensitivity

To assess the impact of potentially volatile markets on our assessment, the additional sensitivity was applied to gain comfort over the impact of volatile markets on the fair value less costs to sell of each CGU.

In respect of Goodwill associated with Investment Management Services, when assessing the carrying value as a percentage of FuMA at 2.47%, the value of FuMA for the CGUs would have to fall by more than 30% before the carrying value would exceed the recoverable amount. For client relationship intangibles, there are a significant number of relationships associated with the overall balance with a wide range of carrying values. The additional sensitivity analysis concluded that sufficient headroom existed between carrying values and the threshold for impairment to the relevant CGUs for client relationships.

In respect of Goodwill associated with Charles Stanley Direct, we applied sensitivity analysis to the asset values from recent market transactions which were used to determine the fair value of the CGU. A range of scenarios were modelled, with the impact of a 40% reduction in the price paid per £1 billion of assets applied against the average price paid of £7.3 million in recent market transactions. The carrying value of the CGU was adequately supported.

10.4 Internally generated software

Internally generated software is software designed, developed and commercialised by the Group.

11. Dividends

The following dividends were declared and paid by the Parent Company in the year:

An interim dividend of 4.0 pence per share was declared by the Board on 17 November 2021. In the event that the Scheme to effect the proposed acquisition of the Company by Raymond James has not been sanctioned by the Court by 10 December 2021, the interim dividend will be payable on 14 January 2022 to shareholders on the register as at 10 December 2021.

Dividends are payable from the Parent Company's distributable reserves which comprise retained earnings adjusted for charges in respect of outstanding share-based payment arrangements and the merger relief reserve.

12. Reconciliation of net profit to cash generated from operations

13. Contingent liabilities

The Group is exposed to the risk of legal matters which could give rise to the need to recognise provisions, or in the case they do not qualify for the recognition of a provision, to disclose contingent liabilities. Currently, the Group are in an Offer period in relation to the acquisition of Charles Stanley by Raymond James UK Wealth Management Holdings Ltd, therefore, the Group is exposed to £3.5 million (exc. VAT) of professional fees in relation to the completion of the deal.

14. Subsequent events

During the period, a cash Offer was made by Raymond James UK Wealth Management Holdings Ltd to acquire Charles Stanley, to be effected by means of a scheme of arrangement. The scheme was approved by shareholders on 16 September 2021. Completion of the transaction remains subject to change in control consent from the FCA and to sanction by the Court. On 5 October 2021 the capital of the Company was reduced by £0.02 million following the cancellation of 84,988 shares represented by share warrants to bearer, as confirmed by an order of the High Court of England and Wales.

Cautionary statement

The Interim management report for the six months ended 30 September 2021 has been prepared to provide information to shareholders to assess the current position and future potential of Charles Stanley Group PLC. It contains certain forward-looking statements with respect to the Group's financial condition, operations and business opportunities. These forward-looking statements involve risks and uncertainties that could cause the actual results of operations, financial condition, liquidity, dividend policy and the development of the industry in which the Group operates to differ materially from the impression created by the forward-looking statements. Any forward-looking statement is made in good faith based on information available to the Directors at the time of their approval of this report. Past performance cannot be relied on as a guide to future performance.