Margin progression and technology initiatives

Brewin Dolphin Holdings PLC ("Brewin Dolphin" or the "Group")1

Update on margin progression and technology initiatives

As previously communicated at the full year 2013 results, Brewin Dolphin has implemented the first stage of the JHC Figaro ("FIGARO") software into Stocktrade, its execution-only service. The implementation has uncovered a number of issues with the functionality and robustness of the software that are taking additional time and resource to address. As a result of these issues the Board has undertaken a full review of plans to roll out FIGARO more broadly across the Group and determined that, although it will be an acceptable solution for Stocktrade, it is no longer believed to be an appropriate operating system for the Group's Discretionary Wealth Management business.

The implementation of FIGARO commenced in 2011 under the previous executive team as part of an initiative to improve operational efficiency by streamlining business processes and thereby help improve the Group's operating margin from 15% to 20%.

Following the Stocktrade implementation, the Board does not believe that the roll out of FIGARO into the Discretionary Wealth Management business would be in shareholder and clients' best interests; furthermore it would not help drive future efficiency gains. The Board believes that existing software deployed in the wealth management business can be upgraded to current versions commercially available, and that with appropriate enhancements will better support the strategy of seeking further efficiencies. Further, the Board believes this can be achieved without additional capital expenditure beyond that already budgeted and with lower risk to the Group.

Accordingly, the Board today announces that it has taken the decision to cease the project to continue to develop and roll out FIGARO to the rest of the business. The implementation of other client service systems currently underway are unaffected by this decision and remain a key part of Brewin Dolphin's IT strategy.

The financial impact of the decision is as follows:

Ø It is expected that a circa £32 million exceptional pre-tax impairment charge will be taken in H2 2014. This will be a non-cash item, with no impact on the Group's regulatory capital position or adjusted Profit Before Tax ("PBT") 

Ø There is a need for the Group to address payments of circa £15 million pre-tax over the next ten years which, under the original contracts, may be payable following implementation into the Discretionary Wealth Management business. The Group is engaged in negotiations to vary and settle these arrangements

Ø There will be no change to the Group's existing publicly announced target to achieve a 25% operating margin run rate by the end of 2016

Ø There will be no increment to the Group's forecast capital expenditure for 2014 to 2016

Ø There will be no change to the stated dividend policy

At the Interim Results in May 2013, the Board anticipated that the 20%+ operating margin target would be achieved in financial year 2015 and the new executive team committed to a new target of >25% operating margin run rate by the end of 2016.

Significant progress has now been made towards achieving the 25% target through a series of initiatives to transform the business and improve operational efficiency.

In particular, the Board is pleased to announce that the adjusted PBT margin for H1 2014 is expected to be in excess of 20% (FY 2013 18.5%, H1 2013 17.1%).

The Board believes the decision to cease the roll out of FIGARO is in the best commercial interests of the Group. Moreover, it remains confident that the 2016 operating margin target will be achieved through on-going business improvements.

A further update will be provided in conjunction with the Interim Results on May 28th.

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Notes for editors