2nd Dec 2015 07:00
2 December 2015
Brewin Dolphin Holdings PLC
Preliminary Results - for the year ended 30 September 2015
Brewin Dolphin Holdings PLC ("the Company" or "the Group") today announces its preliminary results for the year ended 30 September 2015.
Financial Highlights1
● | Total funds of £32.0bn (2014: £32.5bn). Discretionary funds under management of £24.8bn (2014: £24.0bn), an increase of 3% o Net discretionary inflows of £1.1bn in line with 5% target | |
● | Total income of £283.7m (2014: £280.8m), an increase of 1% o Core income of £251.3m (2014: £238.6m), up 5%
o Fee income increased by 7% to £188.5m (2014: £175.9m), and represents 66% (2014: 63%) of total income; commission income declined by 12% to £71.5m (2014: £81.3m) in line with reduced transaction volumes resulting from ongoing market volatility | |
● | Total operating costs stable at £222.0m (2014: £223.4m) | |
● | Adjusted2 profit before tax £62.2m (20143: £58.4m), up 7% o Adjusted2 profit before tax margin 21.9% (20143: 20.8%)
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● | Statutory profit before tax £61.0m (2014: £6.8m) | |
● | Discontinued operations5 loss before tax £10.4m (2014: profit before tax £1.6m). Disposal proceeds expected in 2016 (see note 11) | |
● | Adjusted2 earnings per share: | |
o | Basic earnings per share of 18.0p (20143: 17.0p) | |
o | Diluted earnings per share4 of 17.1p (20143: 16.0p), an increase of 7% | |
● | Statutory earnings per share: | |
o | Basic earnings per share of 17.7p (20143: 2.0p) | |
o | Diluted earnings per share of 17.1p (20143: 1.9p)
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●
| Full year dividend increased by 21% to 12.0p (2014: 9.9p), final dividend of 8.25p (2014: 6.25p), an increase of 32% | |
● | Strong balance sheet, net cash of £149.8m (2014: £135.1m)
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1 Continuing operations only unless refers to discontinued explicitly. 2 These figures have been adjusted to exclude redundancy costs, FSCS levy rebate, onerous contracts provision, disposal of available-for-sale investment, impairment of intangible assets - software, licence provision and amortisation of client relationships. 3 Restated see notes 2 and 18. 4 See note 13. 5 Relates to Stocktrade.
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Business Highlights
Progress on growth strategy:
· Strong growth in discretionary FUM led by continued success of intermediaries business
· Benefits of integrated advice demonstrated by 21% growth in financial planning income
· Announced a clear strategy to deliver continued growth in direct private client business based on detailed market segmentation analysis
· Implemented enhanced client advice process
· Office consolidation completed - larger teams, more efficient portfolio management
· Launched lower cost investment solutions
· Sale of Stocktrade - business focussed on core wealth and investment management
Declaration of dividend
The Board proposes a final dividend of 8.25p per share, to be approved at the 2016 AGM and payable on 11 March 2016 to shareholders on the register at close of business on 19 February 2016, with an ex-dividend date of 18 February 2016. This takes the total dividend for the year to 12.0p per share.
David Nicol, Chief Executive, said:
"This has been a good year for Brewin Dolphin, as we continued to provide a transparent, convenient service that delivers real value to our clients. This underpinned growth in our core business, our profitability and returns to shareholders."
"Initiatives to enhance key aspects of our business have culminated this year with the renewal of our client advice process and are now substantially complete. Expansion is now firmly on our agenda and we are in a strong position to take advantage of opportunities."
"Trusted, personalised advice to clients and high quality investment management, delivered through a local presence, remain key to our future success. Our people operate in a business with financial strength and genuine scalability and have a genuine commitment to help clients achieve their goals."
"The business is in great shape, with the foundations and resources to pursue our growth ambitions. Our belief in the long-term growth prospects for the industry is stronger than ever."
For further information:
Brewin Dolphin Holdings PLC | |
David Nicol, Chief Executive | Tel: +44 (0)20 7428 4400 |
Andrew Westenberger, Finance Director | Tel: +44 (0)20 7428 4400 |
Andrew Monkhouse, Head of Investor Relations | Tel: +44 (0)20 7428 4400 |
FTI Consulting | |
Paul Marriott | Tel: +44 (0)20 3727 1341 |
Edward Berry | Tel: +44 (0)20 3727 1046 |
A webcast of the presentation to analysts will be available on our investor relations website later this week.
Notes to Editors:
About Brewin Dolphin
Brewin Dolphin is one of the UK's leading independent providers of personalised, discretionary wealth management services. With £28.3 billion in funds under management, we offer award-winning investment management and financial planning services to approximately 100,000 account holders, including individuals, charities, trusts, pension funds and financial intermediaries.
Brewin Dolphin is dedicated to providing the highest levels of client service, helping our clients plan their finances and manage their investments to achieve their long-term goals. Ranging from bespoke, discretionary investment management to retirement planning and tax-efficient investing, we inspire confidence in our clients enabling them to make the right choices and achieve their individual life ambitions.
Our focus on discretionary investment management has led to significant growth in discretionary client funds and we manage £24.8 billion on a discretionary basis.
We currently have 27 offices throughout the UK, Channel Islands and the Republic of Ireland, with qualified investment managers and financial planners, providing our clients with a personal and tailored wealth management service. 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.
We are proud of our success and have the vision and ambition to grow into the UK's leading provider of discretionary wealth management. In 2015, we won the City of London Wealth Management Awards for Best Discretionary Service Award 2015 and the Portfolio Adviser Gold Award for Best Cautious Portfolio Manager 2015. We are committed to building on our strong track record and delivering continued value to both our clients and shareholders.
Chief Executive's Statement
The business is in great shape, with the foundations and resources to pursue our ambitions. We're confident about growth and the value that lies in our core proposition of personalised wealth and investment management. Our people have a deeply held desire to help clients achieve their goals, extensive advisory skills and they operate in a business with financial strength and genuine scalability.
Progress and opportunity
The Group has a number of core strengths which, collectively, provide a sound foundation for future growth. Our success lies in the quality of the advice we provide and the strength of our client relationships, which are mutually reinforcing. Both of these things are rooted in the skills and culture of our people, and as such are difficult to replicate. We benefit from our scale, and being a larger business in a substantial but fragmented sector. This scale gives us the foundations and resources to pursue both our growth ambitions and absorb the impact of regulatory changes. The Group has great potential and is well placed to take advantage of available opportunities and create further value.
In September 2015, we hosted our first capital markets briefing at which we discussed in detail our plans to continue to grow the firm into the UK's leading discretionary wealth manager. I was delighted to welcome so many to the event, to share our vision and ambition about the future as well as introducing some members of our wider management team.
We operate in a dynamic market that presents both opportunities and challenges. We have traditionally served older, wealthier client groups, and there are opportunities to gain more of existing clients' funds and to secure further clients in this group. We are seeing the market evolve as more people seek more advice to better understand the options available to them. These individuals, often younger, are saving and acquiring wealth, and need new approaches and ways of engaging. A constant, however, is the need for personally delivered advice, which has always been at the core of our approach. We also recognise that future clients currently have fewer assets today than a traditional wealth manager might usually address. We are developing different products to attract such high potential clients at an earlier stage in their lives, thereby seeding tomorrow's business and assets. Undoubtedly, the relationship will be supported by technology.
Wealth in the UK continues to grow in tandem with the economic recovery, and we are competing for a greater share of a growing market. Both regulatory and fiscal reforms are driving changes in behaviour, and the UK savings and pensions market is evolving rapidly. The changes under Pensions Freedoms; reduced Lifetime Allowances, and increased ISA allowances, have made the need for advice and guidance all the more pertinent and there is a growing number of people who are seeking wealth management services for the first time. Client behaviour is also changing; clients are more focussed on finding solutions to achieve their goals, rather than focussing solely on investment performance. Our highly personalised approach to wealth and investment management is, we believe, well placed to meet these needs. We also recognise the advice gap and are developing alternative delivery mechanisms to allow us to assist those with smaller portfolios.
Financial performance
Underlying financial performance continues to improve with adjusted profit before tax ('PBT') increasing by 7% to £62.2m (2014: £58.4m), reflecting both the growth in discretionary funds under management ('FUM'), leading to revenue growth despite weak investment market conditions and the benefits of a more efficient business reflected in flat operating costs. The efficiency of the business continues to improve as we invest in our internal processes and systems, and the increased adjusted profit margin to 21.9% from 20.8% in the previous year, illustrates this.
We also continue to meet our financial objectives for maintaining sufficient capital, with regulatory capital resources increasing by £4.2m to £145.3m, and growing our dividend, by 21% to 12.0p per share.
Progress against strategic objectives
Over the course of the year, the business has performed well and made good progress against the strategic objectives.
Growing our revenue
We are making good progress through our focus on generating improved and sustainable organic growth. We understand our current and target clients and their needs, and are developing further services to meet those needs. This involves improving the awareness of our brand with specific target groups, and evolving the services we offer. We have the people, national presence and operating model to deliver effectively. We are focussed on distribution and taking advantage of our scale in delivery, increasing the ability of our advisors to spend more time on client facing activities.
Multiple initiatives are underway to attract new clients and to ensure that we can sustainably achieve the 5% discretionary net inflow target. These include a focus on sales and distribution further driving direct client organic growth, complementing the strong growth rates we are achieving in the intermediaries business. Other initiatives enable increased effort on sales; including a new sales training programme, the deployment of client relationship management tools, and adjustments to the compensation model to incentivise direct client growth.
We focus on providing the best outcome for our clients by understanding their needs. Increasingly, a client sees good performance as their ability to reach their goals and it is our role to help them reach those goals. This relies on delivering the required investment performance and effective financial planning.
We are researching the needs of private clients in greater depth, identifying target client segments where we are well positioned to win business. We have a strong presence in our traditional client base, although there remains room to grow, particularly as wealth passes from generation to generation. We are developing specific approaches for those who are accumulating wealth, through their salaried success or business ownership, and are enhancing our services so that we are well positioned to attract these types of clients.
We continue to enhance the services that we provide to clients. 2015 has seen the roll out and completion of an enhanced client advice process. This provides an impartial assessment of attitude to risk, and is needs, not investment, focussed. This transparent process supports clients in trusting us on a broader range of issues. A survey conducted showed that clients responded positively to the process, with 85% of clients agreeing or strongly agreeing with the statement "the process of reassessing my financial goals was clearly explained and I understood the process".
High quality advice, provided by financial planners, is available in all our offices. They continue to work with a greater number of clients providing advice on investment protection and retirement requirements. This enables us to offer a full service to clients to ensure that they receive the right service for their needs, whether that is our full bespoke discretionary service or access to our model portfolios. Financial planning leads to the firm advising on a greater share of an individual's assets, accelerating the acquisition and retention of FUM.
We are investing in a solution to work with professional services firms as introducers. This segment is currently under-served by the wealth management industry and we aim to exploit this opportunity by strengthening links with lawyers and accountants, broadening the services we offer them. We already work with many law and accountancy firms, providing services to their clients, giving us a strong base from which to grow. Research suggests the market size in this area is considerable.
We have built a strong service for financial intermediaries, or agents, understanding the needs of these clients, and have achieved much success working with over 1,300 adviser firms. We have £5.6bn of Discretionary FUM sourced via intermediaries, and through a dedicated national sales force.
We are expanding our Managed Portfolio Service ('MPS') range and developing our technological capabilities for agents, to make outsourcing more efficient. We are focussed on increasing our market share of new business invested into such model portfolios by advisers.
In April 2015, we launched Brewins Portfolio Service ('BPS') on the BrewinsDirect platform, which widens our offering by providing a non-advisory investment service for clients with smaller sums to invest. This service will evolve, as it grows, and it will help in our offer to attract tomorrow's core clients.
Our national office network is a source of strength allowing us to deliver a personalised service, and providing a local presence, which is key to attracting new business. This is supported by both local and national activities, including the sponsorship of the Chelsea Flower Show and the Goodwood Revival.
We led the way on transparency when the Retail Distribution Review ('RDR') was implemented and continue to do so by providing a clear explanation of fees. We believe that transparency is a clear point of differentiation and opportunity. In August 2015, The Sunday Times named the Group as one of only 11 of the top 100 financial advisers who publish their charges online. We will continue to lead on transparency for our clients.
In 2016, we will update our Client Portal and launch an App for tablets and smartphones, providing convenience and easier access for clients. We are planning to trial Skype for business to provide advice at home for our clients.
Maintaining an efficient operating model
The 'measuring our performance' section of this report shows the five KPIs that are used to measure the progress being made to improve the efficiency of our operating model. I am pleased that all five of the measures are trending in the right direction.
The adjusted PBT margin brings together the other efficiency measures, and confirms the efficiency improvements in both our client facing teams and corporate functions. Further detail is provided in the Results section.
The increase in Discretionary income per CF30, Discretionary FUM per CF30 and average client portfolio size all demonstrate the improvement in productivity of our investment managers and financial planners.
Operating model
We continue to simplify and strengthen our operating model with a view to increasing efficiency and improving client service. An increased focus on primary services, harnessing technology to lower costs and ongoing cost discipline is also a key focus for us in increasing efficiency.
During the year the Brighton office was merged into our Reigate office, and the Norwich office was merged into Ipswich, creating an enlarged East Anglia office. In November 2015, we merged the Taunton office into the Exeter office. We have 27 offices; 25 in the United Kingdom, and offices in Jersey and Dublin. We have created a network from which we can provide larger teams of investment managers integrated with financial planners, enabling us to offer clients a broader range of services.
Focus on primary services
In May 2015, we agreed the sale of Stocktrade, our execution only division, to Alliance Trust Savings Limited for £14 million in cash, payable in full on completion. The sale, which is expected to complete in 2016, is aligned with our strategy of focussing on our core wealth management business.
Technology
The Group's approach to technology is to utilise recognised industry wide software on a modular basis with the appropriate functionality. We have adopted an incremental approach to our technology implementation strategy, seeking to avoid significant customisation, thereby reducing both risk and cost.
Ongoing developments to our technology and infrastructure are key elements drivers of planned further improvements to our efficiency. A strong technology platform will provide benefits internally and externally, freeing up the time of our investment managers and financial planners, and ensuring that we have the ability to support clients and ensure they get the best possible service.
Progress against financial objectives
I am also pleased to report the following progress against our financial objectives.
Maintaining sufficient capital
The Group has a target capital adequacy ratio of a minimum of 150%. The Group met its financial objective of maintaining sufficient capital, with a year end ratio of 248%, compared to 241% the previous year. The stronger ratio arises from a £4.2m increase in regulatory capital resources from £141.1m to £145.3m.
The Group continually assesses the appropriate amount of capital resources, to ensure that it is both well placed to take advantage of opportunities that present themselves, and has an adequate capital buffer against potential risks.
Growing our dividend
The Board is proposing a final dividend of 8.25p per share, bringing the total dividend for the year to 12.0p per share. The total dividend of 12.0p per share represents an increase of 21% on the prior year (2014: 9.9p per share). The payout ratio is 70% of adjusted diluted EPS, and is in line with the dividend policy announced two years ago; a target payout ratio of 60% to 80% of adjusted diluted EPS. The payout ratio of 70% (2014: 62%) is reflective of the Board's confidence in the Group's prospects for further sustainable growth in earnings and ensures that shareholders benefit accordingly from the growth in underlying earnings.
People
We continue to invest in the development of the Group's employees. We are developing a culture which is ambitious and focussed on growth, achieved through collaboration between our investment managers, financial planners and the strengthened corporate functions. We have an active programme of learning and development to ensure our people are equipped with the appropriate skills. Our approach to employee reward recognises their importance to the success of the business; ensuring alignment with our strategy, and the appropriate risk and behavioural accountability. The aim is to ensure participation in the value created by the business.
As part of the drive to engage with employees and understand their needs, and ultimately improve performance, this summer we conducted our first employee engagement survey, called 'Your Future, Your Say', covering a broad range of subjects. This is the beginning of what will be an ongoing project and engagement action plans are being put in place.
Looking ahead
We have achieved a great deal and I am confident that our progress to date in refining our strategy and business model will further help us deliver our long term goals. We are now in a position to capitalise on these achievements and pursue our strategy for strong growth. We are investing in our organic growth strategy, and have plans in place that will enable us to deliver this growth. The Group has great potential, a genuine desire to help clients achieve their goals, extensive advisory and investment management skills, and, together with the advantages of our scale and financial strength, means we are well placed to take advantage of the opportunities to grow the business and create value for all of our stakeholders.
I would like to take this opportunity to thank all my colleagues across the Group for their positive approach and their extraordinary commitment to our clients, particularly during the many internal changes over the past three years. I am extremely grateful for their skill and dedication, and am confident that we are all relishing our future growth prospects.
Results
Results for the year
Underlying financial performance for the period ended 30 September 2015 was good. Adjusted profit before tax, from continuing operations, grew by 7% to £62.2m (2014: £58.4m) and adjusted EPS increased by 7% to 17.1p per share (2014: 16.0p).
Adjusted profit growth was driven by increased income, 1% higher than prior year, together with improving efficiency, reflected by fixed operating costs declining by 1%, and an increase in adjusted PBT margin to 21.9% from 20.8%.
Profit before tax, from continuing operations, increased substantially to £61.0m (2014: £6.8m). In addition to underlying profit growth, the large increase was primarily a result of a non-recurring loss of £33.7m in 2014 relating to the termination of the rollout of a new operating system, a £9.7m gain in 2015 from the sale of the Group's holding in Euroclear plc, and a reduction in the amortisation of client relationships.
In line with the Group's focus on its primary services, the Group announced the sale of Stocktrade, its Execution Only division, in May, with the sale expected to complete in 2016. The underlying operating results of Stocktrade, in both 2015 and 2014, together with the financial impact of separation and sale related costs, are reported as discontinued operations.
A loss before tax of £10.4m in discontinued operations (2014: £1.6m profit before tax), was a result of separation and sale related costs regarding the above Stocktrade transaction being recorded in this year's results (see note 11). The £14m sale proceeds are expected to be recognised in the next financial year.
| 2015£m | 20141£m | Change |
Total income | 283.7 | 280.8 | 1% |
Fixed staff costs | (104.0) | (98.5) | 6% |
Other operating costs | (69.0) | (76.1) | -9% |
Total fixed operating costs | (173.0) | (174.6) | -1% |
Adjusted2 profit before variable staff costs | 110.7 | 106.2 | 4% |
Variable staff costs | (49.0) | (48.8) | 1% |
Adjusted2 operating profit | 61.7 | 57.4 | 7% |
Net finance income | 0.5 | 1.0 |
|
Adjusted2 profit before tax | 62.2 | 58.4 | 7% |
Exceptional items | 8.0 | (38.0) |
|
Amortisation of client relationships | (9.2) | (13.6) |
|
Profit before tax (continuing operations) | 61.0 | 6.8 | 797% |
Taxation | (12.7) | (1.4) |
|
Profit after tax (continuing operations) | 48.3 | 5.4 |
|
Earnings per share |
|
|
|
Basic earnings per share | 17.7p | 2.0p |
|
Diluted earnings per share | 17.1p | 1.9p |
|
Adjusted2 earnings per share1 |
|
|
|
Basic earnings per share | 18.0p | 17.0p |
|
Diluted earnings per share | 17.1p | 16.0p | 7% |
1 Restated see notes 2 and 18.
2 Excluding redundancy costs, FSCS levy rebate, onerous contracts provision, amortisation of client relationships, impairment of intangible assets - software, licence provision and disposal of available-for-sale investment.
Reconciliation of adjusted profit before tax to statutory profit before tax (continuing operations)
| 2015£m | 20141£m | Change |
Adjusted profit before tax | 62.2 | 58.4 | 7% |
Redundancy costs | (2.4) | (2.3) |
|
FSCS levy rebate | 1.1 | - |
|
Termination of new software | - | (33.7) |
|
Profit on disposal of available-for-sale investment | 9.7 | - |
|
Onerous contracts | (0.4) | (2.0) |
|
Total exceptional items | 8.0 | (38.0) |
|
Amortisation of client relationships | (9.2) | (13.6) |
|
Statutory profit before tax of continuing operations | 61.0 | 6.8 | 797% |
1 Restated see notes 2 and 18.
Explanation of adjusted profit before tax and reconciliation to Financial Statements
Adjusted PBT and adjusted diluted EPS are used to measure and report on the underlying financial performance of the Group. Together with the adjusted PBT margin (being adjusted PBT as a percentage of total income), they are useful measures for investors and analysts. Additionally, they are used as key performance indicators for various incentive schemes, including the annual bonuses of Executive Directors and long term incentive plans.
These adjusted profit measures are calculated based on statutory PBT, as reported in the Financial Statements, adjusted to exclude various items of income or expense.
Items adjusted for are typically infrequent or unusual in nature. They include non-recurring items. For example, a material one-off gain, such as the sale of an available-for-sale asset e.g. the sale of the Group's holding in Euroclear plc during the period, and one-off expenses such as the impairment charge suffered in 2014 on the termination of a major software project. Other items of income or expense, adjusted for may recur from one period to the next, such as the redundancy costs and onerous contract charges, detailed below, which have occurred in recent financial years. Although they may recur over one or more periods, they do not represent long-term expenses of the business and are generally the result of material restructuring decisions.
Additionally, the amortisation expense of client relationships acquired is an expense which investors and financial analysts typically add back when considering profit before tax or earnings per share ratios and is therefore adjusted for.
Funds under management
£bn
| 28 September 2014 | Inflows | Outflows | Internal transfers | Net flows | Growth rate % | Investment Performance | 30 September 2015 |
Discretionary | 24.0 | 2.1 | (1.3) | 0.3 | 1.1 | 5% | (0.3) | 24.8 |
Execution only | 3.1 | 0.4 | (0.6) | 1.0 | 0.8 | 26% | (0.2) | 3.7 |
Advisory | 5.4 | - | (0.4) | (1.3) | (1.7) | -31% | (0.2) | 3.5 |
Total funds1 | 32.5 | 2.5 | (2.3) | - | 0.2 | 1% | (0.7) | 32.0 |
Indices | 28 September 2014 | 30 September 2015 | Change |
FTSE WMA Private Investor Series Balanced Portfolio | 3,462 | 3,421 | -1.2% |
FTSE 100 | 6,649 | 6,062 | -8.8% |
1 Continuing operations.
During the year we continued to focus on growing our core discretionary service. Net inflows of £1.1bn (2014: £1.4bn) were achieved, in line with our target of 5% per annum (2014: 7%), and gross external inflows were £2.1bn (2014: £2.3bn).
Further successful development of our intermediaries business, including both bespoke and model solutions, resulted in strong gross inflows of £1.1bn (2014: £0.9bn) as we capitalised further on the trend for intermediaries to outsource their investment management needs.
Direct client inflows of £1.0bn (2014: £1.4bn) were achieved, helped by the inflows of integrated wealth management accounts (£0.2bn). Over 10% of our direct private client discretionary FUM is now receiving financial planning advice, and as part of our growth initiatives for direct business, we aim to grow this to 30% over the course of the next five years.
Taking into account the impact of negative investment returns from the market falls witnessed in the second half of the financial year; the WMA Balanced index fell by 7% from March 2015 to September 2015, further successful conversion of advisory accounts (£0.3bn) and outflows of £1.3bn, total discretionary FUM grew by 3% to £24.8bn from £24.0bn in September 2014.
Total outflows across all service categories, including advisory which was withdrawn for new clients in 2014, declined slightly to £2.3bn (2014: £2.4bn), and we expect the rate of outflows to decline further over time, in particular, as the effects of the recent reduction in the number of offices, become less significant.
Total advisory FUM fell by £1.9bn, a 35% reduction (2014: 22%) principally as a result of net outflows of £1.7bn and negative investment performance of £0.2bn. This decline was anticipated given the withdrawal of this service to new clients and the focus on the discretionary service. However, we successfully retained a much higher proportion of the advisory outflow by converting to continuing discretionary or execution only services. £1.3bn out of £1.7bn (76%) was successfully converted, compared to a conversion rate of 63% in 2014.
Execution only FUM was £3.7bn (2014: £3.1bn), including positive internal transfers of £1.0bn. Execution only services are no longer offered on a standalone basis.
The FUM above excludes Stocktrade, the Group's Execution Only division, which is in the process of being sold. Stocktrade had assets under administration of £3.6bn at 30 September 2015.
Income
Total income increased by 1% to £283.7m (2014: £280.8m) and is analysed as follows:
| 2015£m | 20141£m | Change |
Discretionary investment management | 225.5 | 215.9 | 4% |
Financial planning | 15.7 | 13.0 | 21% |
Execution only | 10.1 | 9.7 | 4% |
Core income | 251.3 | 238.6 | 5% |
Advisory investment management | 24.4 | 31.6 | -23% |
Trail income | 4.5 | 5.2 | -13% |
Interest | 3.5 | 5.4 | -35% |
Other income | 32.4 | 42.2 | -23% |
Total income | 283.7 | 280.8 | 1% |
1 Adjusted for discontinued operations - see note 11.
Core income increased by 5% to £251.3m (2014: £238.6m).The continued focus on the core discretionary service led to income growth of 4% to £225.5m (2014: £215.9m), driven by an increase in the average FUM compared to the prior year, partially offset by a reduction in the income yield.
Financial planning income increased by 21% to £15.7m (2014: £13.0m), as a result of increasing numbers of clients advised by our financial planners.
Execution only income grew by 4% to £10.1m, supported by the inward transfer of £1bn of FUM from the advisory service.
Advisory investment management income fell by 23% to £24.4m (2014: £31.6m), primarily as a result of advisory FUM reducing by 35% to £3.5bn (2014: £5.4bn).
Trail and interest income reduced by 13% and 35% respectively. Trail commission is expected to decline rapidly in advance of the introduction of MiFID II. Net interest income declined as a result of lower interest rates available from our banks.
Fees and commissions
Total income from the discretionary, execution only and advisory services was £260.0m (2014: £257.2m). The split of fees and commissions is shown in the table below:
| 2015£m | 20141£m | Change |
Fees | 188.5 | 175.9 | 7% |
Commissions | 71.5 | 81.3 | -12% |
Total | 260.0 | 257.2 | 1% |
1 Adjusted for discontinued operations - see note 11.
Income yield
Investment market conditions during the year were generally poor, with periods of elevated volatility combining with a lack of clear direction or momentum in the equity markets. The FTSE 100 index was down by 9% over the course of the year, and the WMA Balanced index was 1% lower.
This resulted in generally lower transactional volumes across all service categories and the reduction in overall income yield, for investment management services, by 2bps, to 78bps.
The yield on our core discretionary service further declined marginally as a result of an increasing proportion of agent related investment management business, which has a lower fee level than direct client business.
Transfers of lower yielding advisory business to execution only led to the advisory yield increasing by 4bps to 57bps.
| 2015bps | 2014bps |
Discretionary | 89 | 94 |
Advisory | 57 | 53 |
Execution Only | 28 | 32 |
Overall | 78 | 80 |
Costs
The continuing benefits of the efficiency initiatives of the last three years have resulted in a decline in total fixed operating costs of 1% to £173.0m (2014: £174.6m).
Fixed staff costs
Fixed staff costs rose by 6% to £104.0m (2014: £98.5m). The increase is primarily the result of temporary staff costs associated with the design, testing, implementation and quality assurance of the enhanced client advice process implemented during the year.
Other operating costs
Other operating costs decreased by 9% to £69.0m (2014: £76.1m). Lower property costs resulting from a smaller office network, lower professional fees and a decline in variable costs all contributed to the reduction.
Variable staff costs
Variable staff costs increased by 1% to £49.0m (2014: £48.8m), slightly lower than the rise in adjusted profit before variable staff costs (4%). The expense relates to a combination of cash awards and deferred equity linked awards, the cost of which is spread over the vesting period.
Exceptional items
Net exceptional gains of £8.0m in 2015 (2014: costs of £38.0m), comprised of a number of elements. £9.7m gain from the sale of the Group's investment in Euroclear plc; redundancy costs of £2.4m (2014: £2.3m) and £1.1m income as a result of a levy rebate from the Financial Services Compensation Scheme ('FSCS') (see note 7).
In 2014, £33.7m losses were recognised as a result of the decision to terminate the rollout of a new operating system, and £2.0m (2015: £0.4m) of additional provisions were made in respect of onerous contracts in relation to surplus property resulting from branch closures.
Amortisation of client relationships
Amortisation of client relationships decreased to £9.2m (2014: £13.6 m), as a result of previously acquired client relationships reaching the end of their amortisation periods.
Pension Fund
The deficit on the final salary pension scheme reduced from £7.7m to £2.9m which contributed to an actuarial gain of £2.1m (2014: £1.2m loss). Under IAS 19, large annual fluctuations can occur. The Group has agreed to make additional payment contributions of £3m per annum, as part of the recovery plan agreed with the trustees of the Group's Defined Benefit Pension Scheme.
Capital resources and regulatory capital
The Group's financial position is strong with net assets of £219.2m at 30 September 2015 (2014: £211.3m). Tangible net assets (net assets excluding intangibles and shares to be issued) are £141.5m (2014: £136.2m), and have grown by 4% in 2015.
The Group's primary regulator is the Financial Conduct Authority ('FCA'). The FCA rules determine the calculation of the Group's regulatory capital resources and regulatory capital requirements. Additionally, as required under FCA rules, we perform an Internal Capital Adequacy Assessment Process ('ICAAP') which includes performing a range of stress tests to determine the appropriate level of regulatory capital that the Group needs to hold.
At 30 September 2015, the Group had regulatory capital resources of £145.3m (2014: £141.1m), see note 15.
The Group's Pillar III disclosures are published annually on our website and provide further details about regulatory capital resources and requirements.
Cash flow and capital expenditure
The Group's cash balances increased by £14.7m to £149.8m (2014: £135.1m). The Group generated significant positive cash flow of £15.0m (2014: £21.9m).
Adjusted EBITDA increased by £4.2m to £78.6m. £3m was contributed to the defined benefit pension scheme. Capital expenditure of £7.6m (2014: £10.5m) was spent on the purchase of software and fixed assets. Except for the £3.2m 2014 spend on capitalised software related to the terminated software project, expenditure was largely unchanged. 2015 expenditure includes £4.9m on software which will provide additional functionality for both employees and clients. There was a net outflow of £10.6m (2014: £6.4m) from tax payments, less interest receipts.
Net cash inflows of £5.2m (2014: £5.5m outflows) arose from a number of exceptional items, with £10.2m proceeds from the sale of the stake in Euroclear plc and £1.1m from the FSCS levy rebate, offset by £6.1m outflows from redundancy payments, onerous lease settlements and the settlement of the 2014 licence provision.
Cash outflow for own share 'matching' purchases in the period comprised £19.8m (2014: £7.8m) for the Deferred Profit Share Plan ('DPSP') and Equity Award Plan, including matching the awards made in 2014 and those made in 2012 under the DPSP, all past awards are now fully matched. £0.2m (2014: £0.2m) of shares were purchased for the Share Incentive Plan.
Shares issued for cash of £1.9m is a result of the issue of shares in relation to Approved Share Options and Nil Paid Shares and is £1.1m lower than in 2014.
Dividends paid in the period increased by 17% to £27.0m (2014: £23.1m).
| 2015£m | 2014 £m |
Adjusted profit before tax | 62.2 | 58.4 |
Finance income and costs | (0.5) | (1.0) |
Adjusted operating profit (EBIT) | 61.7 | 57.4 |
Share-based payments | 8.9 | 8.5 |
Depreciation and amortisation | 8.0 | 8.5 |
Adjusted EBITDA | 78.6 | 74.4 |
Pension funding | (3.0) | (3.0) |
Capex | (7.6) | (10.5) |
Working capital | (4.2) | (1.4) |
Interest and taxation | (10.6) | (6.4) |
Exceptional items | 5.2 | (5.5) |
Discontinued operations | 1.7 | 2.4 |
Shares purchased | (20.0) | (8.0) |
Shares issued for cash | 1.9 | 3.0 |
Cash flow pre-dividends | 42.0 | 45.0 |
Dividends paid | (27.0) | (23.1) |
Cash flow | 15.0 | 21.9 |
Opening firm's cash | 135.1 | 113.5 |
Exchange and other non-cash movements | (0.3) | (0.3) |
Closing firm's cash | 149.8 | 135.1 |
Going concern
The Group's business activities, performance and position, together with the factors likely to affect its future development are set out in the Chairman's Statement, Strategic Report and Risk Committee Report within the Annual Report 2015.
The Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to credit risk and liquidity risk are described in note 15 to the 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 the going concern basis for the preparation of the Financial Statements. In forming their view, the Directors have considered the Group's prospects for a period exceeding twelve months from the date the Financial Statements are approved.
Viability Statement
The Directors have assessed the outlook of the Company over a longer period than the twelve months required by the 'Going Concern' statement in accordance with the 2014 UK Corporate Governance Code.
The assessment relied on, the Medium Term Plan ('MTP'); Internal Capital Adequacy Assessment Process ('ICAAP') and evaluation of the Group's principal risks and uncertainties, including those that would threaten its business model, future performance or solvency.
The Group prepares annually, a five year MTP as part of its corporate planning process, which is a financial articulation of the Group's strategy. The Group continually improves the quality of its financial forecasting model, which is predicated on a detailed year one budget and higher-level forecasts for years two to five.
As a matter of good practice and as part of the ICAAP required by the Financial Conduct Authority ('FCA'), the firm performs a variety of stress tests including reverse stress tests. Three stress tests are performed; a market wide stress, a Group specific (idiosyncratic) stress and a combined stress taking into account both market wide and Group specific events. The stress tests are derived through discussions with senior management, after considering the principal risks and uncertainties faced by the Group.
The stress tests enable:
· the Group to model a variety of external and internal events that impact the MTP, identifying the potential impact of stress events on income, costs, cash flow and capital; and
· the Board to assess the effectiveness of any management actions that may be taken to mitigate the impact of the stress events.
The reverse stress tests allow the Board to assess scenarios and circumstances that would render its business model unviable, thereby identifying potential business vulnerabilities and ensuring the development of potential mitigating actions.
Following the assessment of the above, the Board concluded that the viability statement should cover a period of three years. Whilst the directors have no reason to believe that the Group will not be viable over a longer period, from its assessment of the MTP, this period has been chosen because a three year time horizon has a much greater degree of certainty and provides an appropriate longer term outlook.
Taking account of the Group's current position and principal risks and the Board's assessment of the Company's prospects, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over a period of at least three years.
Measuring Our Performance
Key Performance Indicators1 ('KPIs') are used to measure both the progress and success of our strategy implementation. The KPIs for each strategic and financial objective are set out below, with a measure of our performance to date and an indication of potential challenges to success where applicable.
The table below summarises the key performance indicators for each objective, with a measure of our recent performance.
KPI | FY 2013 | FY 2014 | FY 2015 | Target | |
Revenue Growth | Discretionary FUM inflows | 6% | 7% | 5% | 5% |
| Discretionary service yield | 96bps | 94bps | 89bps | n/a |
| Revenue growth | 5% | 2% | 1% | n/a |
Improved Efficiency | Adjusted2,3 PBT margin | 18.5% | 20.8% | 21.9% | 25% + |
| Discretionary income per CF30 | £370k | £443k | £502k | £490k |
| % of managed FUM in Discretionary service | 76% | 82% | 88% | 90% |
| Discretionary FUM per CF30 | £41m | £49m | £55m | £75m |
| Average client portfolio | £420k | £478k | £498k | £500k |
Capital Sufficiency | Capital adequacy ratio | 226% | 241% | 248% | 150% minimum |
Dividend Growth | Dividend payout ratio | 60% | 62% | 70% | 60%-80% |
| Adjusted2,3 EPS growth - diluted | 19% | 11% | 7% | n/a |
| Dividend growth | 20% | 15% | 21% | n/a |
1 Adjusted for discontinued operations - see note 11.
2 Excluding redundancy costs, FSCS levy rebate, onerous contracts provision, amortisation of client relationships, impairment of intangible assets - software, licence provision and disposal of available-for-sale investment.
3 Adjusted for discontinued operations and IFRIC 21 adjustment - see notes 2, 11 and 18.
Changes to KPIs
The KPIs, detailed below, have been removed following an assessment of their ongoing suitability for measuring the success of implementing the strategy.
· Managed Advisory service yield (bps) - this measure is no longer appropriate; the Group's focus is now on the provision of discretionary services.
· Support staff to CF30 ratio - this measure has become less meaningful as efficiency has been achieved in part by reduction of client facing staff and cost control.
The target for the discretionary service yield KPI has been removed, as it was introduced to monitor the roll-out of national pricing across the Group. This initiative was completed during the financial year ended 2014 and so the target has become less meaningful. The KPI, however remains relevant.
Principal Risks and Uncertainties
To ensure a common understanding of risk in the context of the Group's business, the Board have adopted the following risk definition: "Uncertainty of outcome of actions or events that will impact on the business objectives, whether as an opportunity or a threat".
To assist a uniform understanding of risk across the Group, all risks are organised around one of three high level risk groups. These are:
· Strategic and Business
· Financial
· Operational
Each high level risk group contains a series of specific risks to ensure that all risks can be reported clearly and accurately. This also ensures the Group can assess the financial resources it is required to hold against these.
Risk Management
Whilst it is everyone's responsibility to manage risks within their domain, ultimate accountability for risk management resides with the Board, which is responsible for setting the Group's risk appetite and ensuring that there is an adequate and appropriate risk management framework in place. The implementation and delivery of that framework is a collective responsibility across the Group, with senior management, the Group Risk and Compliance Director and the Head of Risk playing pivotal roles in achieving this. The Finance Director has responsibility for the oversight of the management of the Group's financial risks. The Executive Committee has the responsibility for oversight of strategic and business risks and has delegated responsibility to the Risk Management Committee for day to day oversight of financial and operational risk matters.
The Board understands that a clear risk management framework is a fundamental requirement for effective governance. However, for a risk management framework to be effective, it requires every employee within the organisation to adhere to and advocate the risk culture set by the Board.
In pursuit of that aim, the Group has followed industry good practice for risk management governance through the adoption of the 'three lines of defence' model. The Board believes this approach best serves the interests of Brewin Dolphin's clients and other stakeholders by ensuring accountability of management and the proportionate allocation of resource within the oversight and control functions.
The Board regularly assesses the effectiveness of the Group's internal controls through the review and challenge of reports from the Group's Audit Committee and Board Risk Committee, together with the appraisal of issues escalated from the business through the Group's Executive Committee. In addition, the Group's Risk and Compliance Department and Internal Audit independently carry out reviews and report to the Board Audit Committee, Board Risk Committee and the Board.
Objectives of Risk Management
The prime objectives of risk management in the Group are to ensure there is:
· A strong risk culture so that employees are able to identify, assess, manage and report against the key risks to the business and implement the Group's business strategy.
· An appropriate balance between risk and the cost of control.
· A defined risk appetite within which risks are managed.
· A swift and effective response to incidents in order to minimise impact.
Risk Culture
Conduct Risk and the risk culture of the Group are considered by the Board Risk Committee. The Group aims to foster a risk-aware culture throughout the business by promoting:
· A distinct and consistent tone from the top.
· Clear accountabilities for those managing risk.
· Prompt sharing and reporting of risk information.
· A commitment to ethical principles.
· Appropriate levels of conduct and considered risk taking behaviour.
· Recognition of the importance of knowledge, skill and experience in risk management.
· Members of staff at all levels to make suggestions for improving processes, controls etc.
· An acceptance of the importance of continuous management of risk, including clear accountability for and ownership of specific risks.
Risk | Description | Key Mitigators |
Business and Strategic Risk |
|
|
Acquisitions and disposals | The risk that mergers, acquisitions or divestments made by the Group do not achieve stated strategic objectives or give rise to ongoing or previously unidentified liabilities. | · Risk appetite set by the Board · Robust governance and challenge from independent Non-Executive Directors · Independent legal, accounting, regulatory and commercial due diligence · Managing businesses' integration in line with Group strategy once acquired |
Business model | The risk that the Group's business model inadequately meets its objectives or fails to respond to changes in the market resulting in an adverse impact upon sustainable growth, clients or profitability. | · The potential risks and threats to the strategy and business model are considered by the Board Risk Committee and escalated to the Board · Divestment of non-core lines of business
|
Regulatory change | The risk that changes to the regulatory framework the Group operates within materially affects the Group's business model, proposition, overheads or operations. | · Strategy to ensure the business model remains flexible and responsive to changes in the regulatory framework · Risk and Compliance function provide regular updates to the Executive Committee and Board Risk Committee on the impact of upcoming regulatory change · Active dialogue with regulators, the Government and industry bodies |
Client outcomes | The risk that client outcomes are insufficiently considered as part of decision making within the Group's processes leading to poor outcomes for clients. | · Investment Governance Committee provides product and service governance including alignment with strategy, appetite for risk and client interests and outcomes · Conduct Risk Management Framework is being enhanced and is overseen by the Board Risk Committee · Independent monitoring by the Compliance function · Independent Client Services team reporting to the Group Risk and Compliance Director handles client complaints |
Direction of change: Upwards | The level of business and strategic risk faced by the Group has increased over 2014/15, primarily driven by the degree of change in the regulatory and external environments. Internal changes included the launch of BPS on the Brewins Direct platform, which widens our offering by providing a non-advisory investment service for clients with smaller sums to invest, the sale of Stocktrade and changes to the Brewin Dolphin core proposition. These changes are intended to reduce business and strategic risk over the longer term and are critical in reaching the Group's strategic and long term objectives.
| |
Financial Risks |
|
|
Credit and Counterparty, Tax, Liquidity, Market, Pensions | Brewin Dolphin is not materially exposed to any of these risks, but monitors and maintains controls against them. | · A Financial Risk Management Committee has been established to identify, measure and monitor those risks |
Direction of change: Remained the same | There were no material changes to the level of financial risk faced by the Group in 2014/2015. | |
Operational Risks |
|
|
Business change | The risk that business change projects are ineffective, fail to deliver stated objectives, or result in resources being stretched to the detriment of business as usual activities. | · Over-arching governance of business critical programmes provided by Executive and Board · In-house change team reporting to Chief Operating Officer provides strong project management capability |
Business continuity and disasterrecovery | The risk that a physical business continuity event or system failure results in a reduced ability, or inability to perform core business activities or processes. | · Dedicated business continuity function within the Group · Regular testing of business continuity and disaster recovery processes · Escalation protocol in place to facilitate prompt response to material incidents |
Criminality | The risk of unauthorised access to, or external disclosure of, client or company information or assets by any persons internal or external to the Group. | · Dedicated Information Security team reporting to the Group Risk and Compliance Director · IT Risk Framework in place supported by an on-going programme of IT Risk assessments · Whistleblowing policy in place with oversight from the Audit Committee |
Legal and Compliance | The risk of regulatory sanction or legal proceedings as a result of failure to comply with regulatory, statutory or fiduciary requirements, or as a result of a defective transaction. | · Compliance framework in place across the Group which operates to a 'three lines of defence' governance model · Governance and reporting of regulatory risks through the key Client Asset Oversight Committee, Investment Governance Committee and Risk Management Committee · Compliance with legal and regulatory requirements including relevant codes of practice |
Outsourcing and procurement | The risk of third party organisations inadequately or failing to provide or perform the outsourced activities or contractual obligations to the standards required by the Group. The risk of third party suppliers inadequately or failing to supply in accordance with their obligations. | · A Vendor Risk Management Framework in place, overseen by the Vendor Risk Management Committee, a sub-committee of the Risk Management Committee · The framework includes processes to identify and approve all outsource and/or vendor relationships, to perform effective due diligence and requires effective contractual arrangements and service level agreements to be put in place |
People | The risk of loss of key staff, insufficient skilled resources and inappropriate behaviours or actions. | · Performance management framework in place to develop, motivate and retain staff, reward appropriate behaviour |
Processing and systems | The risk that the design or execution of business processes (including dealing) is inadequate or fails to deliver an expected level of service and protection to client or company assets. | · Independent Risk function in place to provide second line review and challenge to operational processes and controls · A framework to identify key risks and controls using Risk and Control Self assessments is carried out on key business processes |
Direction of change: Downwards | The level of Operational Risk has decreased over the past year due to the effective introduction of an enhanced Operational Risk Management Framework and operating system. | |
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.
Company law requires the directors to prepare Financial Statements for each financial year. Under that law the Directors are required to prepare the Group Financial Statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union ('EU') and Article 4 of the IAS Regulation and have also chosen to prepare the parent company Financial Statements under IFRSs as adopted by the EU. Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these Financial Statements, International Accounting Standard 1 requires that Directors:
· properly select and apply accounting policies;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
· make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
Directors' responsibility statement
We confirm that to the best of our knowledge:
· the Financial Statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
· the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
· the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 1 December 2015.
Consolidated Income Statement
Period ended 30 September 2015
| Note | 20151 £'000 | 20141 £'000 |
Continuing operations |
|
|
|
Revenue | 5 | 280,196 | 275,316 |
Other operating income | 5 | 3,495 | 5,443 |
Total income |
| 283,691 | 280,759 |
|
|
|
|
Staff costs |
| (152,982) | (147,345) |
Redundancy costs |
| (2,432) | (2,269) |
FSCS levy rebate | 7 | 1,160 | - |
Onerous contracts | 16 | (433) | (2,005) |
Amortisation of intangible assets - client relationships | 14 | (9,219) | (13,592) |
Impairment of intangible assets - software |
| - | (31,693) |
Licence provisions | 16 | - | (2,034) |
Other operating costs |
| (68,975) | (76,066) |
Operating expenses |
| (232,881) | (275,004) |
|
|
|
|
Operating profit |
| 50,810 | 5,755 |
Finance income | 8 | 907 | 1,549 |
Other gains and losses | 9 | 9,712 | - |
Finance costs | 8 | (429) | (546) |
Profit before tax |
| 61,000 | 6,758 |
Tax | 10 | (12,729) | (1,362) |
Profit for the period from continuing operations |
| 48,271 | 5,396 |
|
|
|
|
Discontinued operations |
|
|
|
(Loss)/profit for the period from discontinued operations | 11 | (7,233) | 1,275 |
Profit for the period |
| 41,038 | 6,671 |
|
|
|
|
Attributable to: |
|
|
|
Equity holders of the parent |
| 41,038 | 6,671 |
|
| 41,038 | 6,671 |
|
|
|
|
Earnings per share |
|
|
|
From continuing operations |
|
|
|
Basic | 13 | 17.7p | 2.0p |
Diluted | 13 | 17.1p | 1.9p |
|
|
|
|
From continuing and discontinued operations |
|
|
|
Basic | 13 | 15.0p | 2.5p |
Diluted | 13 | 14.5p | 2.4p |
1 See notes 1, 2 and 18 (notes 2 and 18 are only applicable to 2014).
Consolidated Statement of Comprehensive Income
Period ended 30 September 2015
| Note | 20151£'000 | 20141£'000 |
Profit for the period |
| 41,038 | 6,671 |
Items that will not be reclassified subsequently to profit and loss: |
|
|
|
Actuarial gain/(loss) on defined benefit pension scheme |
| 2,110 | (1,223) |
Deferred tax (charge)/credit on actuarial gain/(loss) on defined benefit pension scheme | 10 | (422) | 245 |
|
| 1,688 | (978) |
Items that may be reclassified subsequently to profit and loss: |
|
|
|
Reversal of revaluation of available-for-sale investments |
| (9,565) | - |
Reversal of deferred tax charge on revaluation of available-for-sale investments |
| 1,913 | - |
Exchange differences on translation of foreign operations |
| (266) | (302) |
|
| (7,918) | (302) |
Other comprehensive expense for the period |
| (6,230) | (1,280) |
Total comprehensive income for the period |
| 34,808 | 5,391 |
|
|
|
|
Attributable to: |
|
|
|
Equity holders of the parent |
| 34,808 | 5,391 |
|
| 34,808 | 5,391 |
1 See notes 1, 2 and 18 (notes 2 and 18 are only applicable to 2014).
Consolidated Balance Sheet
As at 30 September 2015
| Note | As at30 September 2015£'000 | As at28 September 20141£'000 |
ASSETS |
|
|
|
Non-current assets |
|
|
|
Intangible assets | 14 | 86,989 | 94,311 |
Property, plant and equipment |
| 8,188 | 11,076 |
Available-for-sale investments |
| - | 10,000 |
Other receivables |
| 442 | 1,092 |
Deferred tax asset | 10 | 10,605 | 9,136 |
Total non-current assets |
| 106,224 | 125,615 |
Current assets |
|
|
|
Available-for-sale investments |
| 140 | - |
Trading investments |
| 945 | 912 |
Trade and other receivables |
| 254,041 | 302,065 |
Cash and cash equivalents |
| 149,839 | 136,383 |
Total current assets |
| 404,965 | 439,360 |
Total assets |
| 511,189 | 564,975 |
LIABILITIES |
|
|
|
Current liabilities |
|
|
|
Bank overdrafts |
| 16 | 1,270 |
Trade and other payables |
| 255,524 | 311,146 |
Current tax liabilities |
| 2,786 | 3,888 |
Provisions | 16 | 7,267 | 4,973 |
Shares to be issued including premium |
| 9,304 | 10,068 |
Total current liabilities |
| 274,897 | 331,345 |
Net current assets |
| 130,068 | 108,015 |
Non-current liabilities |
|
|
|
Retirement benefit obligation |
| 2,869 | 7,735 |
Deferred purchase consideration |
| - | 1,271 |
Provisions | 16 | 14,272 | 4,142 |
Shares to be issued including premium |
| - | 9,212 |
Total non-current liabilities |
| 17,141 | 22,360 |
Total liabilities |
| 292,038 | 353,705 |
Net assets |
| 219,151 | 211,270 |
EQUITY |
|
|
|
Called up share capital |
| 2,793 | 2,745 |
Share premium account |
| 142,135 | 139,420 |
Own shares |
| (28,153) | (16,045) |
Revaluation reserve |
| - | 7,652 |
Merger reserve |
| 70,553 | 61,380 |
Profit and loss account |
| 31,823 | 16,118 |
Equity attributable to equity holders of the parent |
| 219,151 | 211,270 |
1 Restated see notes 2 and 18.
Approved by the Board of Directors and authorised for issue on 1 December 2015
Consolidated Statement of Changes in Equity
Period ended 30 September 2015
|
| Attributable to the equity shareholders of the parent |
| ||||||
|
| Calledup sharecapital£'000 | Sharepremium account£'000 | Ownshares£'000 | Revaluation reserve£'000 | Mergerreserve£'000 | Profitand loss account£'000 | Total£'000 |
|
| Balance at 29 September 2013 | 2,712 | 133,341 | (12,734) | 7,652 | 61,380 | 29,294 | 221,645 |
|
| Restatement (see notes 2 and 18) | - | - | - | - | - | (549) | (549) |
|
| Balance at 29 September 2013 (Restated) | 2,712 | 133,341 | (12,734) | 7,652 | 61,380 | 28,745 | 221,096 |
|
| Profit for the period | - | - | - | - | - | 6,671 | 6,671 |
|
| Other comprehensive income for the period |
|
|
|
|
|
|
|
|
| Deferred and current tax on other comprehensive income | - | - | - | - | - | 245 | 245 |
|
| Actuarial loss on defined benefit pension scheme | - | - | - | - | - | (1,223) | (1,223) |
|
| Exchange differences on translation of foreign operations | - | - | - | - | - | (302) | (302) |
|
| Total comprehensive income for the period | - | - | - | - | - | 5,391 | 5,391 |
|
| Dividends | - | - | - | - | - | (23,126) | (23,126) |
|
| Issue of shares | 33 | 6,079 | - | - | - | - | 6,112 |
|
| Own shares acquired in the period | - | - | (7,963) | - | - | - | (7,963) |
|
| Own shares disposed of on exercise of options | - | - | 4,652 | - | - | (4,652) | - |
|
| Share-based payments | - | - | - | - | - | 8,498 | 8,498 |
|
| Tax on share-based payments | - | - | - | - | - | 1,262 | 1,262 |
|
| Balance at 28 September 2014 | 2,745 | 139,420 | (16,045) | 7,652 | 61,380 | 16,118 | 211,270 |
|
| Profit for the period | - | - | - | - | - | 41,038 | 41,038 |
|
| Other comprehensive income for the period |
|
|
|
|
|
|
|
|
| Deferred and current tax on other comprehensive income | - | - | - | 1,913 | - | (422) | 1,491 |
|
| Actuarial gain on defined benefit pension scheme | - | - | - | - | - | 2,110 | 2,110 |
|
| Reclassification adjustment for gain included in profit | - | - | - | (9,565) | - | - | (9,565) |
|
| Exchange differences on translation of foreign operations | - | - | - | - | - | (266) | (266) |
|
| Total comprehensive (expense)/income for the period | - | - | - | (7,652) | - | 42,460 | 34,808 |
|
| Dividends | - | - | - | - | - | (26,963) | (26,963) |
|
| Issue of shares | 48 | 2,715 | - | - | 9,173 | - | 11,936 |
|
| Own shares acquired in the period | - | - | (19,999) | - | - | - | (19,999) |
|
| Own shares disposed of on exercise of options | - | - | 7,891 | - | - | (7,891) | - |
|
| Share-based payments | - | - | - | - | - | 8,938 | 8,938 |
|
| Tax on share-based payments | - | - | - | - | - | (839) | (839) |
|
| Balance at 30 September 2015 | 2,793 | 142,135 | (28,153) | - | 70,553 | 31,823 | 219,151 |
|
Company Balance Sheet
As at 30 September 2015
| Note | As at30 September 2015£'000 | As at28 September 2014£'000 |
ASSETS |
|
|
|
Non-current assets |
|
|
|
Investment in subsidiaries |
| 194,305 | 201,359 |
Other receivables |
| 50 | 250 |
Total non-current assets |
| 194,355 | 201,609 |
Current assets |
|
|
|
Trade and other receivables |
| 49,306 | 38,919 |
Cash and cash equivalents |
| 259 | 624 |
Total current assets |
| 49,565 | 39,543 |
Total assets |
| 243,920 | 241,152 |
|
|
|
|
LIABILITIES |
|
|
|
Current liabilities |
|
|
|
Trade and other payables |
| 16,363 | 12,428 |
Current tax liabilities |
| 531 | - |
Shares to be issued including premium |
| 9,304 | 10,068 |
Total current liabilities |
| 26,198 | 22,496 |
Net current assets |
| 23,367 | 17,047 |
|
|
|
|
Non-current liabilities |
|
|
|
Shares to be issued including premium |
| - | 9,212 |
Total non-current liabilities |
| - | 9,212 |
Total liabilities |
| 26,198 | 31,708 |
Net assets |
| 217,722 | 209,444 |
|
|
|
|
EQUITY |
|
|
|
Called up share capital |
| 2,793 | 2,745 |
Share premium account |
| 142,135 | 139,420 |
Own shares |
| (28,153) | (16,045) |
Merger reserve |
| 70,838 | 61,665 |
Profit and loss account |
| 30,109 | 21,659 |
Equity attributable to equity holders |
| 217,722 | 209,444 |
Approved by the Board of Directors and authorised for issue on 1 December 2015
Company Statement of Changes in Equity
Period ended 30 September 2015
|
| Attributable to the equity shareholders of the company |
| |||||
|
| Calledup sharecapital£'000 | Sharepremium account£'000 | Ownshares£'000 | Mergerreserve£'000 | Profitand loss account£'000 | Total£'000 |
|
| Balance at 29 September 2013 | 2,712 | 133,341 | (12,734) | 61,665 | 26,155 | 211,139 |
|
| Profit for the period | - | - | - | - | 14,784 | 14,784 |
|
| Total comprehensive income for the period | - | - | - | - | 14,784 | 14,784 |
|
| Dividends | - | - | - | - | (23,126) | (23,126) |
|
| Issue of shares | 33 | 6,079 | - | - | - | 6,112 |
|
| Own shares acquired in the period | - | - | (7,963) | - | - | (7,963) |
|
| Own shares disposed of on exercise of options | - | - | 4,652 | - | (4,652) | - |
|
| Share-based payments | - | - | - | - | 8,498 | 8,498 |
|
| Balance at 28 September 2014 | 2,745 | 139,420 | (16,045) | 61,665 | 21,659 | 209,444 |
|
| Profit for the period | - | - | - | - | 34,366 | 34,366 |
|
| Total comprehensive income for the period | - | - | - | - | 34,366 | 34,366 |
|
| Dividends | - | - | - | - | (26,963) | (26,963) |
|
| Issue of shares | 48 | 2,715 | - | 9,173 | - | 11,936 |
|
| Own shares acquired in the period | - | - | (19,999) | - | - | (19,999) |
|
| Own shares disposed of on exercise of options | - | - | 7,891 | - | (7,891) | - |
|
| Share-based payments | - | - | - | - | 8,938 | 8,938 |
|
| Balance at 30 September 2015 | 2,793 | 142,135 | (28,153) | 70,838 | 30,109 | 217,722 |
|
Consolidated Cash Flow Statement
Period ended 30 September 2015
| Note | 20151£'000 | 20141£'000 |
Net cash inflow from operating activities | 17 | 57,478 | 59,968 |
|
|
|
|
Cash flows from investing activities |
|
|
|
Purchase of intangible assets - client relationships |
| (3) | (150) |
Purchase of intangible assets - software |
| (5,146) | (7,450) |
Purchases of property, plant and equipment |
| (2,271) | (2,751) |
Purchase of available-for-sale investments |
| (140) | - |
Proceeds on disposal of available-for-sale investments |
| 10,147 | - |
Dividend received from available-for-sale investments |
| - | 307 |
Net cash used in investing activities |
| 2,587 | (10,044) |
|
|
|
|
Cash flows from financing activities |
|
|
|
Dividends paid to equity shareholders | 12 | (26,963) | (23,126) |
Purchase of own shares |
| (19,999) | (7,963) |
Proceeds on issue of shares |
| 1,913 | 3,048 |
Net cash used in financing activities |
| (45,049) | (28,041) |
|
|
|
|
Net increase in cash and cash equivalents |
| 15,016 | 21,883 |
|
|
|
|
Cash and cash equivalents at the start of period |
| 135,113 | 113,533 |
Effect of foreign exchange rates |
| (306) | (303) |
Cash and cash equivalents at the end of period |
| 149,823 | 135,113 |
|
|
|
|
Cash and cash equivalents shown in current assets |
| 149,839 | 136,383 |
Bank overdrafts |
| (16) | (1,270) |
Net cash and cash equivalents |
| 149,823 | 135,113 |
1 See notes 1, 2 and 18 (notes 2 and 18 are only applicable to 2014).
For the purposes of the cash flow statement, net cash and cash equivalents include bank overdrafts.
Company Cash Flow Statement
Period ended 30 September 2015
| Note | 20151£'000 | 20141£'000 |
Net cash inflow from operating activities | 17 | 24,685 | 20,566 |
|
|
|
|
Cash flows from financing activities |
|
|
|
Dividends paid to equity shareholders | 12 | (26,963) | (23,126) |
Proceeds on issue of shares |
| 1,913 | 3,048 |
Net cash used in financing activities |
| (25,050) | (20,078) |
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
| (365) | 488 |
|
|
|
|
Cash and cash equivalents at the start of period |
| 624 | 136 |
Cash and cash equivalents at the end of period |
| 259 | 624 |
1 See note 1.
Notes to the Financial Statements
1. General information
The consolidated financial statements of Brewin Dolphin Holdings PLC (the 'Company') and its subsidiaries (collectively, the 'Group') for the period ended 30 September 2015 were authorised for issue by the directors on 1 December 2015.
The Company was incorporated in the United Kingdom under the Companies Act 2006. The nature of the Group's operations and its principal activities are set out in the Strategic Report.
The Company is registered in England and Wales. The address of the registered office is 12 Smithfield Street, London EC1A 9BD.
The separate financial statements of the Company are also reported.
The financial statements represent the period from 29 September 2014 to 30 September 2015. The comparatives are for the 52 week period ended 28 September 2014.
The significant accounting policies are disclosed below. The policies for the Group and the Company are consistent unless otherwise stated.
Restatement
During the period, the Group adopted IFRIC 21- 'Levies'. Specific transitional provisions are applicable to first-time application of IFRIC 21. The Group has applied the relevant transitional provisions and restated the comparative amounts on a retrospective basis, see note 2(a) below.
In addition, the Group has changed its accounting policy relating to client settlement cash, consequently the Group has applied IAS 8 - 'Accounting Policies, Changes in Accounting Estimates and Errors' and restated the comparative amounts on a retrospective basis, see note 2(b) below.
2. Application of new and revised International Financial Reporting Standards ('IFRSs') and changes in accounting policy
a. New standards, amendments and interpretations adopted
In the current year, the following new and revised Standards and Interpretations have been adopted. The effect of the adoption of these changes on the consolidated financial statements is described below.
IFRIC 21 'Levies'
IFRIC 21 is effective for annual periods beginning on or after 1 January 2014 and has been applied retrospectively. It is applicable to all levies imposed by financial services regulators under legislation, other than outflows that are within the scope of other standards and fines or other penalties for breaches of legislation. The interpretation clarifies that an entity recognises a liability for a levy when the activity that triggers payment as identified by the relevant legislation occurs.
The trigger that gives rise to the liability to pay the FSCS Levy is that Brewin Dolphin Limited is a company authorised by the FCA at the levy date of 1 July. At this point, the full FSCS Levy is recognised.
The impact of this new interpretation in the current period is to reduce other operating costs by £4,000 and increase profit for the period by £3,000. The impact on prior periods is outlined in note 18.
In addition to adopting the above new interpretation, the following amendments came into effect in the current period:
· Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
· Amendments to IAS 19 Defined Benefit Plans: Employee Contributions
· Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32
· Novation of Derivatives and Continuation of Hedge Accounting - Amendments to IAS 39
· Annual Improvements 2010-2012 Cycle
· Annual Improvements 2011-2013 Cycle
The application of the above amendments had no material effect on the accounts of the Company or Group for the periods presented.
b. Changes in accounting policy
The Group has amended its accounting policy for client settlement cash. Client settlement account balances were previously shown as client settlement cash included within cash and cash equivalents. The accounting policy has been changed to reclassify these balances to either trade and other payables or trade and other receivables, which better reflects the substance of these balances.
The impact of this change in the current period is to reduce cash and cash equivalents by £19.7 million, decrease trade and other payables by £16.6 million, and increase trade and other receivables by £3.1 million. There is no impact on profit for the period. The impact on prior periods is outlined in note 18, firm's cash was not impacted by the change.
c. New standards, amendments and interpretations issued but not effective
|
|
| Effective for period beginning on or after |
IFRS 91 | Financial Instruments |
| 1 January 2018 |
IFRS 10, IFRS 12 and IAS 281 | Amendments to Investment Entities: Applying the Consolidation Exemption |
| 1 January 2016 |
IFRS 111 | Amendments to Accounting for Acquisitions of Interests in Joint Operations |
| 1 January 2016 |
IFRS 141 | Regulatory Deferral Accounts |
| 1 January 2016 |
IFRS 151 | Revenue from Contracts with Customers |
| 1 January 2017 |
IAS 11 | Amendments to Disclosure Initiative |
| 1 January 2016 |
IAS 16 and IAS 381 | Amendments to Clarification of Acceptable Methods of Depreciation and Amortisation |
| 1 January 2016 |
IAS 271 | Amendments to Equity Method in Separate Financial Statements |
| 1 January 2016 |
Annual Improvements to IFRS1 | 2012 - 2014 Cycle |
| 1 January 2016 |
1 These amendments have not yet been endorsed by the EU.
The Directors are currently reviewing the impact of these new standards, amendments and interpretations but do not intend to adopt the standards early.
3. Significant accounting policies
a. Statement of compliance
The consolidated financial statements for both the Group and the Company have been prepared in accordance with International Financial Reporting Standards ('IFRSs') adopted by the European Union, Article 4 of the EU IAS Regulation and Companies Act 2006.
b. Basis of preparation
The consolidated financial statements are presented in pounds sterling, the functional currency of the Company, rounded to the nearest thousand pound (£'000) except where otherwise indicated.
The consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.
c. Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
In accordance with Section 408 of the Companies Act 2006 Brewin Dolphin Holdings PLC has taken advantage of the legal dispensation not to present its own statement of comprehensive income or income statement. The amount of the profit for the financial period dealt with in the financial statements of the Company is disclosed in the Company Statement of Changes in Equity.
d. Going concern
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is contained in the Strategic Report.
e. Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in the income statement as incurred.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs. Changes in the fair value of contingent consideration classified as equity are not recognised.
f. Transaction date accounting
All securities transactions entered into on behalf of clients are recorded in the accounts on the date of the transaction. The underlying investments are not shown in the financial statements of the Group.
g. Foreign currencies
In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the period in which they arise.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity.
h. Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents commissions, investment management fees, renewal commissions and other income, excluding VAT, receivable in respect of the period.
Investment management fees and renewal commissions are recognised in the period in which the related service is provided and commissions are recognised when the transaction is performed.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.
Dividend income from investments is recognised when the shareholders' rights to receive payment have been established.
Dividends received and receivable are credited to the income statement to the extent that they represent a realised profit and loss for the Company.
i. Other operating income
Interest receivable and payable on client free money balances is netted to calculate the Group's share of interest receivable and included under the heading 'Other operating income'.
j. Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and bank overdrafts.
k. Leases
Rentals on operating leases are charged to the income statement on a straight-line basis over the lease term. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a liability. The aggregate benefit of incentives is spread on a straight-line basis over the lease term.
l. Share-based payments
Equity-settled share-based payments to employees are measured at fair value of the equity instruments at the date of grant. The fair value excludes the effect of non market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 31 to the 2015 Annual Report and Accounts.
Fair value is measured by use of the Black-Scholes option pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.
m. Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
n. Investments in subsidiaries
In the Company's accounts investments in subsidiary undertakings are stated at cost less any provision for impairment.
o. Intangible assets
i) Goodwill
Goodwill is initially measured at cost, being the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer's previously held equity interest (if any) in the entity over the net of the identifiable assets and liabilities at the date of acquisition.
Goodwill is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not reversed in a subsequent period (see note 3(v) for the Impairment accounting policy).
When the consideration transferred by the Group is deferred or contingent, this is valued at its acquisition date fair value, and is included in the consideration transferred in a business combination. Changes in the deferred or contingent consideration, which occur in the measurement period, are adjusted retrospectively, with corresponding adjustments to goodwill. Subsequently to the measurement period the deferred and contingent considerations are revised annually at the balance sheet and any corresponding adjustments are posted to the income statement. Such deferred or contingent consideration may be settled in shares (see note 3(t) for the Shares to be issued accounting policy).
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
ii) Client relationships
Intangible assets classified as 'client relationships' are recognised when acquired as part of a business combination or when separate payments are made to acquire funds under management by adding teams of investment managers. Client relationships acquired separately are initially recognised at cost. If acquired as part of a business combination the initial cost of client relationships is the fair value at the acquisition date. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and any accumulated impairment losses.
When separate payments are made to acquire funds under management by adding teams of investment managers, elements of the total consideration may be deferred or contingent. In such cases the cost of the recognised client relationships includes the Company's best estimate of the future consideration likely to be made, discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money, and is revised at each balance sheet date. Such deferred or contingent consideration may be settled in shares (see note 3(t) for the Shares to be issued accounting policy).
Client relationships are amortised over seven to fifteen years, their minimum estimated useful lives.
iii) Computer software
Computer software which is not an integral part of the related hardware is classified as an intangible asset. Costs of acquiring computer software are treated as an intangible asset and amortised over three to ten years, dependent upon the assessment of the expected useful life of the software, on a straight line basis from the date the software is operating as management intended.
Computer software developed internally is separately identified and recognised as an intangible asset if it is part of a specifically authorised project which will give probable future economic benefits over a period and is amortised over three to ten years on a straight line basis from the date the software comes into use, dependent on the assessment of the expected useful life of the software.
The assessment of the expected useful life of computer software is based on the contractual terms or where appropriate past experience of the life of similar assets.
p. Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any recognised impairment. Depreciation has been provided on the basis of equal annual instalments to write off the cost less estimated residual values of tangible fixed assets over their estimated useful lives as follows:
Computer equipment | 3 to 4 years |
Office equipment | 4 to 10 years |
Leasehold improvements | to the earlier of the first break clause of the lease or 10 years |
Motor vehicles | 5 years |
The gain or loss arising on the disposal or scrappage of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
q. Fair value measurement
The Group measures financial instruments and non-financial assets, at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as value in use in IAS 36.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
· Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
· Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset of liability, either directly or indirectly; and
· Level 3 inputs are unobservable inputs for the asset or liability.
r. Financial instruments
Financial assets and financial liabilities are recognised when a Group entity becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
i) Financial assets
Financial assets are classified into the following specified categories:
· financial assets at fair value through profit or loss ('FVTPL');
· available-for-sale financial assets; and
· loans and receivables.
The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Financial assets at FVTPL
Financial assets are classified as FVTPL where the financial asset is held-for-trading or it is designated as FVTPL. A financial asset is classified as held-for-trading if it has been acquired principally for the purpose of selling in the near future.
Financial assets classified as FVTPL are stated at fair value, with any resultant gain or loss on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividends or interest earned on the financial asset and is included in the income statement. The fair value is determined in the manner described in note 3(q).
Available-for-sale financial assets ('AFS')
Certain shares held by the Group are classified as being available-for-sale and are stated at fair value. Fair value is determined in the manner described in note 3(q). Gains and losses are recognised directly in other comprehensive income and accumulated in the revaluation reserve with the exception of impairment losses which are recognised directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the revaluation reserve is reclassified to profit or loss.
Dividends on AFS equity instruments are recognised in profit and loss when the Group's right to receive payment is established.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments and are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets.
For listed and unlisted equity investments classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of the impairment.
When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period. In subsequent periods if the amount of impaired loss decreases, in respect of AFS equity securities, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income.
ii) Financial liabilities and equity
Financial liabilities and equity are classified according to the substance of the contractual arrangements entered into.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial liabilities at FVTPL
Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'other financial liabilities'. Financial liabilities are classified as FVTPL where the financial liability is either held for trading or it is designated as at FVTPL.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the 'other gains and losses' line item in the income statement. Fair value is determined in the manner described in note 3(q).
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
s. Netting of balances
Amounts due to and from counterparties due to settle on balance are shown net where there is a currently enforceable legal right to set off the recognised amounts and an operational intention to settle net. Amounts due to and from counterparties due to settle against delivery of stock are shown gross.
t. Shares to be issued including premium
Shares to be issued represent the Company's best estimate of the amount of ordinary shares in the Company, which are likely to be issued following business combinations or the acquisition of client relationships which involve deferred payments in the Company's shares. The sum payable which will be converted into shares of equivalent value is discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money and is revised annually in the light of actual results. The resulting interest charge from the unwind of the discount is included within finance costs. Where shares are due to be issued within a year the sum is included in current liabilities.
u. Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
For defined benefit retirement benefit schemes, the cost of providing benefits is determined using the Projected Unit Method, with actuarial valuations being carried out at each balance sheet date. Remeasurements comprising actuarial gains and losses and the return on scheme assets (excluding interest) are recognised immediately in the balance sheet with a charge or credit to the Statement of Other Comprehensive Income in the period in which they occur. Remeasurement recorded in the Statement of Other Comprehensive Income is not recycled.
Any past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.
Net interest is calculated by applying a discount rate to the net defined benefit liability or asset.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation, as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.
v. Impairment of tangible and intangible assets
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
Goodwill is tested for impairment at least annually and whenever there is an indication that it may be impaired. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit ('CGU') to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
For the purposes of impairment testing, client relationships and goodwill are allocated to each of the Group's cash-generating units. Fair value is established by valuing clients' funds under management in each of the cash-generating units at the period end; the percentages of funds being used depending on values attributed in recent public transactions for the purchase of advisory and discretionary funds. If the carrying amount relating to any cash-generating unit exceeds the calculated fair value less costs to sell, a value in use is calculated using a discounted cash flow method. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.
If the recoverable amount of any asset other than client relationships or goodwill is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
w. Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).
Where some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that the reimbursement will be received and the amount receivable can be measured reliably.
Onerous contracts
Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.
x. Discontinued operations
A discontinued operation is a component of the Group's business that either has been disposed of or is classified as held for sale.
Components of the Group are classified as held for sale if their carrying amount will be recovered or settled principally through a sale transaction rather than through continuing use. This condition is regarded as being met only when the sale is highly probable and the component is available for immediate sale in its present condition.
Components of the Group classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. No depreciation is charged on businesses classified as held for sale.
4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described in note 3, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of the assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions 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.
a. Critical judgements in applying the Group's accounting policies
i. Recognition of disposal of Stocktrade
In May 2015, the Group signed an agreement to sell its execution-only division, Stocktrade, to Alliance Trust Savings Limited (the 'Purchaser') for £14 million.
As at 30 September 2015, the consideration has not been recognised in the financial statements, since the Group continues to maintain control over the discontinued operation and is exposed to variable returns in the form of income and associated expenses, even though some clients' contracts have transferred to the Purchaser and are being administered on its systems.
The decision not to recognise the consideration is a material critical accounting judgement.
Associated costs of disposal, including onerous contracts and the resultant provisions have been recognised in accordance with IAS 37 'Provisions, Contingent Liabilities and Contingent Assets'.
Refer to note 11 for additional information.
ii. Goodwill and client relationships
The Group assesses whether payments made to newly recruited investment teams under contractual agreements represent payments for the acquisition of client relationships or remuneration for ongoing services provided to the Group. The assessment requires judgement concerning the terms and levels of these payments to determine whether the costs are capitalised or expensed. Payments made for the acquisition of client relationships are capitalised whereas those that are judged to be in relation to the provision of on-going services are expensed in the period in which they are incurred.
During the period the Group expensed £259,000 in relation to the acquisition of client relationships and there has been a net reduction to the client relationship intangible assets of £105,000 relating to the reassessment of deferred purchase consideration liabilities for past acquisitions. In the prior period, the Group capitalised £7,468,000 and expensed £217,000.
b. Key sources of estimation uncertainty
i. Goodwill and client relationships
Amortisation of client relationshipsThe useful economic life over which client relationships are amortised is determined by the expected duration of the client relationships which are determined with reference to past experience of account closures, in particular the average life of those relationships, and future expectations. During the period, client relationships were amortised over a 7 to 15 year period.
The amortisation for the period was £9,219,000 (2014: £13,592,000), a reduction in the average amortisation period by one year would increase the amortisation expense for the period by £834,000 (2014: £1,094,000).
Impairment of goodwill and client relationshipsImpairment exists when the carrying value of an asset or cash-generating unit exceeds its recoverable amount. The recoverable amount is the higher of its fair value less costs of disposal and its value in use.
For the purposes of impairment testing, the Group values the recoverable amount of goodwill and client relationships at the fair value less costs of disposal. The calculation of the fair value less costs of disposal is based on the valuation of the funds under management, which make up the relevant intangible asset. A percentage is applied to funds under management (3% for discretionary funds and 1% for advisory funds) to determine the fair value. These percentages have been based on recent public transactions.
The recoverable amount is sensitive to movements in the valuation of funds under management. The key assumptions used to determine the recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and further explained in note 17 to the 2015 Annual Report and Accounts.
ii. Retirement benefit obligation
The calculation of the present value of the retirement benefit obligation is determined by using actuarial valuations. Management make key assumptions in determining the inputs into the actuarial valuations, which may differ from actual developments in the future. These assumptions are governed by IAS 19 Employee Benefits (revised 2011), and include the determination of the discount rate, life expectancies and future salary increases. Due to the complexities in the valuation, the retirement benefit obligation is highly sensitive to changes in these assumptions. The detailed assumptions are set out in note 27 to the 2015 Annual Report and Accounts.
iii. Share-based payments
Long-term incentive plan ('LTIP')During the period, the Group granted its second additional award under the LTIP. The scheme includes performance based vesting conditions, which impacts the amount of benefit paid. The Group has made assumptions on the likelihood of meeting the performance conditions in determining the expense in the period. The LTIP charge for the period was £669,000; an absolute increase of 10% in the vesting assumptions would increase the charge for the period by £251,000. Further information on the scheme is disclosed in note 31 to the 2015 Annual Report and Accounts.
iv. Provisions
Sundry claims and associated costsThe Group recognises a provision for sundry claims and associated costs. The valuation of the claims is based on the best estimate discounted to present value where the impact of the time value of money is material. Further information is disclosed in note 16. It is not possible to perform a sensitivity analysis on this balance as it is impracticable.
Leasehold dilapidationsThe Group recognises a provision for leasehold dilapidations. The valuation of the leasehold dilapidations is based on the best estimate of the likely cash flows discounted to present value. The estimation also includes assumptions about the split of the total estimation of the cost between dilapidations relating to general wear and tear, specific requirements to replace items, and the removal of leasehold improvements. If the estimate of the likely cash flows used in the calculation of this provision was increased by 10%, the provision would increase by £164,000. Further information is disclosed in note 16.
The leasehold dilapidation provision has increased during the period by £1,200,000. The increase consists of additions of £1,680,000, less utilisations of £232,000 and unused amounts reversed of £248,000. The increase in the provision is primarily attributable to the refinement of the estimation methodology as a result of now being able to make a more reliable estimate.
Onerous leasesThe Group has recognised a provision for onerous leases of £4,069,000 (2014: £5,779,000). The valuation of an onerous lease is based on the best estimate of the likely future costs discounted to present value. Where the provision is in relation to 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. If the assumptions regarding the sublet income are removed, the provision would increase by £1,232,000 to £5,301,000. Further information is disclosed in note 16.
5. Revenue
| 2015£'000 | 2014£'000 |
Continuing operations |
|
|
Investment management commission income | 71,494 | 81,269 |
Financial planning and trail income | 20,173 | 18,180 |
Fees | 188,529 | 175,867 |
| 280,196 | 275,316 |
Other operating income | 3,495 | 5,443 |
Revenue from continuing operations | 283,691 | 280,759 |
|
|
|
Discontinued operations (note 11) |
|
|
Commission income | 7,455 | 7,345 |
Trail income | 310 | 244 |
Fees | 1,619 | 1,469 |
| 9,384 | 9,058 |
Other operating income | 303 | 665 |
Total revenue from discontinued operations | 9,687 | 9,723 |
|
|
|
Total revenue from continuing and discontinued operations | 293,378 | 290,482 |
6. 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 Consolidated Income Statement and the Consolidated Balance Sheet for numerical information.
The Group's operations are carried out in the United Kingdom, Channel Islands and the Republic of Ireland. Income generated in the Republic of Ireland is reported as part of the Investment Management division. All segmental income related to external clients.
The accounting policies of the operating segment are the same as those of the Group.
7. FSCS Levy
In the 2011 Annual Report and Accounts, the Group reported additional levies for the Financial Services Compensation Scheme ('FSCS') totalling £6,058,000. This was the result of the failure of Keydata Investment Services Limited and other intermediaries.
During the current period, the Group received a partial refund of £1,160,000 for the 2011 additional FSCS levies, following the recovery by the FSCS of some of the costs levied in that year.
8. Finance income and finance costs
| 2015£'000 | 2014£'000 |
Finance income |
|
|
Dividends from available-for-sale investments | - | 472 |
Interest on bank deposits | 907 | 1,077 |
| 907 | 1,549 |
|
|
|
Finance costs |
|
|
Finance cost of deferred consideration | 98 | 129 |
Interest expense on defined pension obligation | 244 | 338 |
Unwinding of discount on provisions | 46 | 48 |
Interest on bank overdrafts | 41 | 31 |
| 429 | 546 |
9. Other gains and losses
| 2015£'000 | 2014£'000 |
Profit on disposal of available-for-sale investments | 9,712 | - |
In December 2014, the Group disposed of its holding of 19,899 shares in Euroclear plc for a cash consideration of £10,147,000 and recognised a gain on disposal of £9,712,000. £9,565,000 of the gain, gross of deferred tax (£1,913,000), was recycled from the revaluation reserve.
10. Taxation
| Continuing operations | Discontinued operations | Total | |||
| 2015£'000 | 20141 £'000 | 2015£'000 | 20141 £'000 | 2015£'000 | 20141 £'000 |
United Kingdom |
|
|
|
|
|
|
Current tax | 11,463 | 8,031 | (1,478) | 360 | 9,985 | 8,391 |
Adjustments in respect of prior years | 257 | (50) | - | - | 257 | (50) |
Overseas tax |
|
|
|
|
|
|
Current tax | 149 | 204 | - | - | 149 | 204 |
Adjustments in respect of prior years | 1 | (1) | - | - | 1 | (1) |
| 11,870 | 8,184 | (1,478) | 360 | 10,392 | 8,544 |
United Kingdom deferred tax |
|
|
|
|
|
|
Current year | 1,398 | (6,246) | (138) | - | 1,260 | (6,246) |
Adjustments in respect of prior years | (539) | (576) | (1,537) | - | (2,076) | (576) |
Tax expense for the period | 12,729 | 1,362 | (3,153) | 360 | 9,576 | 1,722 |
1 Restated see notes 2 and 18.
United Kingdom corporation tax is calculated at 20.5% (2014: 22%) of the estimated assessable taxable profit for the period. The Finance Act 2013 reduced the corporation tax to 20% from 1 April 2015 (21% applied from 1 April 2014).
Taxation for other jurisdictions is calculated at the relevant prevailing rates in the respective jurisdictions.
The charge for the year can be reconciled to the profit per the income statement as follows:
| 2015£'000 | 20141 £'000 |
Profit before tax | 61,000 | 6,758 |
Tax at the UK corporation tax rate of 20.5% (2014: 22%) | 12,505 | 1,486 |
Tax effect of: |
|
|
Expenses that are not deductible in determining taxable profit | 1,192 | 1,177 |
Share-based payments | (523) | (1,104) |
Impairment of intangible asset - software | - | 634 |
Over provision for tax in previous years | (281) | (626) |
Lower rates in subsidiaries | (164) | (172) |
Exempt dividend income | - | (33) |
Tax expense for the period | 12,729 | 1,362 |
Effective tax rate for the year | 20.9% | 20.2% |
1 Restated see notes 2 and 18.
Deferred tax asset/(liability)
In addition to the amount debited to the income statement, deferred tax relating to the actuarial gain in the defined benefit pension scheme amounting to £422,000 has been debited to other comprehensive income (2014: £245,000 credited to other comprehensive income relating to the actuarial loss). Deferred tax on share-based payments of £839,000 has been debited to profit and loss reserves (2014: £1,262,000 credited to profit and loss reserves).
The following are the major deferred tax assets/(liabilities) recognised by the Group and movements thereon during the current and prior reporting period:
| Capital allowances£'000 | Revaluation£'000 | Other short-term timing differences£'000 | Retirement benefit obligation£'000 | Share-based payments£'000 | Capital losses£'000 | Intangible asset amortisation£'000 | Total£'000 |
Group |
|
|
|
|
|
|
|
|
At 29 September 2013 | 1,851 | (1,913) | 1,151 | 1,835 | 3,993 | - | (6,245) | 672 |
Credit/(charge) in the period to the income statement | 39 | - | 621 | (533) | 801 | - | 6,029 | 6,957 |
Credit/(charge) in the period to the statement of comprehensive income | - | - | - | 245 | - | - | - | 245 |
Credit/(charge) in the period to the statement of changes in equity | - | - | - | - | 1,262 | - | - | 1,262 |
At 28 September 20141 | 1,890 | (1,913) | 1,772 | 1,547 | 6,056 | - | (216) | 9,136 |
Credit/(charge) in the period to the income statement | 46 | - | 136 | (551) | (100) | 1,537 | (251) | 817 |
Credit/(charge) in the period to the statement of comprehensive income | - | - | - | (422) | - | - | - | (422) |
Credit/(charge) in the period to the statement of changes in equity | - | 1,913 | - | - | (839) | - | - | 1,074 |
At 30 September 2015 | 1,936 | - | 1,908 | 574 | 5,117 | 1,537 | (467) | 10,605 |
1 Restated see notes 2 and 18.
Deferred income taxes are calculated using an expected rate of corporation tax in the UK of 20% (2014: 20%).
The Group has recognised a deferred tax asset in the period in relation to previously unused capital tax losses of £7,686,000 relating to the disposal of the Corporate Advisory and Broking division in 2012, available for offset against future capital profits, as it is now considered probable that there will be future taxable capital profits available.
11. Discontinued operations
On 14 May 2015, the Group announced the decision to dispose of its Stocktrade business for £14 million in cash, payable in full upon completion. The disposal is expected to complete in 2016. As at 30 September 2015, the consideration for the disposal has not been recognised (see note 4a(i)).
The results of the discontinued operation, included in the consolidated income statement, were as follows:
| 2015£'000 | 2014£'000 |
Revenue (note 5) | 9,687 | 9,723 |
Expenses | (8,413) | (8,088) |
Operating profit | 1,274 | 1,635 |
Costs of separation* | (11,661) | - |
(Loss)/profit before tax | (10,387) | 1,635 |
Attributable tax credit/(expense) | 3,154 | (360) |
Net (loss)/profit attributable to discontinued operations (attributable to the equity holders of the parent) | (7,233) | 1,275 |
* Costs of separation includes a £10.3 million provision (see note 16) in relation to onerous contracts where it has been determined that the future economic costs exceed the expected future benefits of the contracts and £0.3 million for intangible and tangible asset impairment, based on a value in use calculation. It is expected that there will be additional separation costs recognised in future periods including the write off of the value in use of the intangible and tangible assets. The carrying value of these assets at 30 September 2015 is £2.0 million.
Stocktrade contributed the following cash flows included within the consolidated cash flow statement:
Net cash flows from operating activities | 2015£'000 | 2014£'000 |
Net cash flows from operating activities | 1,732 | 2,376 |
Net cash flows from investing activities | - | - |
Net cash flows from financing activities | - | - |
Net increase in cash and cash equivalents | 1,732 | 2,376 |
12. Dividends
| 2015£'000 | 2014£'000 |
Amounts recognised as distributions to equity shareholders in the period: |
|
|
2013/2014 Final dividend paid 23 March 2015, 6.25p per share (2014: 5.05p per share) | 16,845 | 13,438 |
2014/2015 Interim dividend paid 26 June 2015, 3.75p per share (2014: 3.65p per share) | 10,118 | 9,688 |
| 26,963 | 23,126 |
|
|
|
Proposed final dividend for the period ended 30 September 2015 of 8.25p (2014: 6.25p) per share based on shares in issue at 24 November 2015 (24 November 2014) | 22,094 | 16,632 |
The proposed final dividend for the period ended 30 September 2015 of 8.25p per share is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
Under an arrangement dated 1 April 2011, Computershare Trustees (Jersey) Limited (the 'Trustee') holds 11,482,546 Ordinary Shares representing 4.1% of the Company's called up share capital in relation to employee share schemes, has agreed to waive all dividends due to the Trustee.
13. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
| 2015'000 | 2014 '000 |
Number of shares |
|
|
Basic |
|
|
Weighted average number of shares in issue in the period | 272,987 | 268,399 |
Diluted |
|
|
Effect of weighted average number of options outstanding for the period | 10,040 | 11,726 |
Effect of estimated weighted average number of shares earned under deferred consideration arrangements | - | 2,635 |
Diluted weighted average number of options and shares for the period | 283,027 | 282,760 |
Adjusted2 diluted |
|
|
Effect of full dilution of employee share options which are contingently issuable or have future attributable service costs | 4,727 | 2,196 |
Adjusted2 diluted weighted average number of options and shares for the period | 287,754 | 284,956 |
a) Continuing operations
| 2015£'000 | 20141 £'000 |
Basic earnings attributable to the equity holders of the parent |
|
|
Profit for the period | 48,271 | 5,396 |
Disposal of available-for-sale investment | (9,712) | - |
Redundancy costs | 2,432 | 2,269 |
FSCS levy rebate | (1,160) | - |
Onerous contracts provision | 433 | 2,005 |
Amortisation of intangible assets - client relationships | 9,219 | 13,592 |
Impairment of intangible assets - software | - | 31,693 |
Licence provision | - | 2,034 |
less tax effect of above | (248) | (11,350) |
Adjusted3 basic earnings for the period | 49,235 | 45,639 |
| 2015£'000 | 20141 £'000 |
Diluted earnings attributable to the equity holders of the parent |
|
|
Profit for the period | 48,271 | 5,396 |
Finance costs of deferred consideration4 | - | 117 |
less tax | - | (26) |
Diluted earnings for the period | 48,271 | 5,487 |
Disposal of available-for-sale investment | (9,712) | - |
Redundancy costs | 2,432 | 2,269 |
FSCS levy rebate | (1,160) | - |
Onerous contracts provision | 433 | 2,005 |
Amortisation of intangible assets - client relationships | 9,219 | 13,592 |
Impairment of intangible assets - software | - | 31,693 |
Licence provision | - | 2,034 |
less tax effect of above | (248) | (11,350) |
Adjusted3 diluted earnings for the period | 49,235 | 45,730 |
| 2015£'000 | 20141 £'000 |
Earnings per share |
|
|
Basic | 17.7p | 2.0p |
Diluted | 17.1p | 1.9p |
| 2015£'000 | 20141 £'000 |
Adjusted3 earnings per share |
|
|
Basic | 18.0p | 17.0p |
Adjusted2 diluted | 17.1p | 16.0p |
b) Continuing and discontinued operations
| 2015£'000 | 20141 £'000 |
Basic earnings attributable to the equity holders of the parent |
|
|
Profit for the period | 41,038 | 6,671 |
Disposal of available-for-sale investment | (9,712) | - |
Redundancy costs | 2,432 | 2,269 |
FSCS levy rebate | (1,160) | - |
Onerous contracts provision | 433 | 2,005 |
Amortisation of intangible assets - client relationships | 9,219 | 13,592 |
Impairment of intangible assets - software | - | 31,693 |
Licence provision | - | 2,034 |
less tax effect of above | (248) | (11,350) |
Adjusted3 basic earnings for the period | 42,002 | 46,914 |
| 2015£'000 | 20141 £'000 |
Diluted earnings attributable to the equity holders of the parent |
|
|
Profit for the period | 41,038 | 6,671 |
Finance costs of deferred consideration4 | - | 117 |
less tax | - | (26) |
Diluted earnings for the period | 41,038 | 6,762 |
Disposal of available-for-sale investment | (9,712) | - |
Redundancy costs | 2,432 | 2,269 |
FSCS levy rebate | (1,160) | - |
Onerous contracts provision | 433 | 2,005 |
Amortisation of intangible assets - client relationships | 9,219 | 13,592 |
Impairment of intangible assets - software | - | 31,693 |
Licence provision | - | 2,034 |
less tax effect of above | (248) | (11,350) |
Adjusted3 diluted earnings for the period | 42,002 | 47,005 |
| 2015£'000 | 20141 £'000 |
Earnings per share |
|
|
Basic | 15.0p | 2.5p |
Diluted | 14.5p | 2.4p |
| 2015£'000 | 20141 £'000 |
Adjusted3 earnings per share |
|
|
Basic | 15.4p | 17.5p |
Adjusted2 diluted | 14.6p | 16.5p |
c) Discontinued operations
The denominators used are the same as those detailed above for both basic and diluted earnings from continuing operations.
| 2015£'000 | 20141 £'000 |
Earnings per share |
|
|
Basic | (2.7p) | 0.5p |
Diluted | (2.6p) | 0.5p |
| 2015£'000 | 20141 £'000 |
Adjusted3 earnings per share |
|
|
Basic | (2.6p) | 0.5p |
Adjusted2 diluted | (2.5p) | 0.5p |
1 Restated see notes 2 and 18.
2 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.
3 Excluding disposal of available-for-sale investment, redundancy costs, FSCS levy rebate, onerous contracts provision, amortisation of client relationships, impairment of intangible assets - software and licence provision.
4 Finance costs of deferred consideration are added back where the issue of shares is more dilutive than the interest cost saved.
14. Intangible assets
| Goodwill£'000 | Client relationships£'000 | Softwarecosts£'000 | Total£'000 |
Group |
|
|
|
|
At 29 September 2013 | 48,637 | 100,578 | 46,615 | 195,830 |
Additions | - | (53) | 7,042 | 6,989 |
Disposals | - | - | (2) | (2) |
Exchange differences | - | (11) | - | (11) |
Remeasurement of deferred purchase consideration in respect of acquisitions in prior periods | - | 7,532 | - | 7,532 |
At 28 September 2014 | 48,637 | 108,046 | 53,655 | 210,338 |
Additions | - | (103) | 4,874 | 4,771 |
Disposals | - | - | (2,704) | (2,704) |
Exchange differences | - | (8) | - | (8) |
Remeasurement of deferred purchase consideration in respect of acquisitions in prior periods | - | 6 | - | 6 |
At 30 September 2015 | 48,637 | 107,941 | 55,825 | 212,403 |
|
|
|
|
|
Accumulated amortisation and impairment |
|
|
|
|
At 29 September 2013 | - | 55,997 | 12,385 | 68,382 |
Amortisation charge for the period | - | 13,592 | 2,360 | 15,952 |
Impairment losses for the period | - | - | 31,693 | 31,693 |
At 28 September 2014 | - | 69,589 | 46,438 | 116,027 |
Amortisation charge for the period | - | 9,219 | 2,715 | 11,934 |
Eliminated on disposal | - | - | (2,688) | (2,688) |
Exchange differences | - | (3) | - | (3) |
Impairment losses for the period (note 11) | - | - | 144 | 144 |
At 30 September 2015 | - | 78,805 | 46,609 | 125,414 |
|
|
|
|
|
Net book value |
|
|
|
|
At 30 September 2015 | 48,637 | 29,136 | 9,216 | 86,989 |
At 28 September 2014 | 48,637 | 38,457 | 7,217 | 94,311 |
At 29 September 2013 | 48,637 | 44,581 | 34,230 | 127,448 |
15. Financial instruments and risk management
Overview
This note presents information about the Group's exposure to each of the financial instrument key risks (market risk, credit risk and liquidity risk), the Group's policy and procedures for measuring and managing risk and the Group's management of capital.
Risk Management
The Board of Directors have overall responsibility for establishing and overseeing the Group's risk management framework and risk appetite.
The Board have established a clear relationship between the Group's strategic objectives and the level of capital which the Board are prepared to place at risk through a risk appetite statement. The risk appetite statement outlines the nature and quantum of risk that the Board wishes the Group to bear (its 'risk appetite') in order to achieve its strategic objectives whilst remaining within all regulatory constraints and its own defined levels of capital and liquidity. The Board reviews the statement and related qualitative and quantitative measures on at least an annual basis to ensure the document continues to reflect the Board's appetite for risk within the context of the environment the Group operates within.
The Group's Board Risk Committee provides oversight of the adequacy of the Group's risk management framework based on the risks to which the Group is exposed. They monitor how management comply with the Group's risk management policies and procedures. They are assisted in the discharge of this duty by the Group's Risk & Compliance Department which has responsibility for monitoring the overall risk environment of the Group. The Board Risk Committee also regularly monitors exposure against the Group's Risk Appetite.
The Group's Audit Committee is responsible for overseeing the financial statements and working closely with the Board Risk Committee, for both review and oversight of internal controls. The Audit Committee is assisted in the discharge of its obligations by Internal Audit who undertake periodic and ad-hoc reviews on the effectiveness of controls and compliance with risk management policies.
The Group's risk management policies are intended to ensure that risks are identified, evaluated and subject to ongoing monitoring and mitigation (where appropriate). The risk policies also serve to set the appropriate control framework, the adequacy and effectiveness of which is also subject to ongoing testing and review. The aim is to promote a robust risk culture with employees across the Group understanding their role and obligations under the framework.
Capital structure and capital management
The capital structure of the Group and Company consists of issued share capital, reserves and retained earnings as disclosed in the Consolidated and Company Statement of Changes in Equity.
Capital generated from the business is both reinvested in the business to generate future growth and returned to shareholders, principally in the form of dividends. Consideration is given to regulatory capital requirements and to ensure the Group is sufficiently robust to withstand periods of market stress.
There were no changes in the Group's approach to capital management during the period.
Regulatory capital requirements
The Group conducts an Internal Capital Adequacy Assessment Process ('ICAAP'), as required by the Financial Conduct Authority ('FCA') to assess the appropriate amount of regulatory capital to be held by the Group. There are two regulated entities in the Group: Brewin Dolphin Limited ('BDL') regulated by the FCA and Tilman Brewin Dolphin Limited regulated by the Central Bank of Ireland. The Jersey branch of BDL is regulated by the Jersey Financial Services Commission.
The Pillar II capital assessment of the ICAAP is the Board of Directors' opinion of the level of capital the Group should hold against the risks to which the Group is exposed. This takes into the account the Group's Principal Risk Register which is updated on a regular basis. The ICAAP is kept updated throughout the year to take account of changes to the Group's Principal Risks and for any material changes to strategy or business plans. The ICAAP is discussed and approved at a Brewin Dolphin Holdings PLC Board meeting at least annually.
Regulatory capital adequacy is monitored by management. The Group uses the standardised approach to Credit Risk to calculate Pillar I requirements. The Group complied with the FCA's regulatory capital requirements throughout the period.
The regulatory capital resources of the Group were as follows:
| 2015£'000 | 20141 £'000 |
Called up share capital | 2,793 | 2,745 |
Share premium account | 142,135 | 139,420 |
Own shares | (28,153) | (16,045) |
Revaluation reserve | - | 7,652 |
Merger reserve | 70,553 | 61,380 |
Profit and loss account | 31,823 | 16,822 |
| 219,151 | 211,974 |
Shares to be issued | 9,304 | 19,280 |
Regulatory capital resources before deductions | 228,455 | 231,254 |
Deduction - Intangible assets (net of deferred tax liability) | (83,076) | (90,019) |
Deduction - Free deliveries | (88) | (172) |
Total regulatory capital resources after deductions | 145,291 | 141,063 |
1 The comparative balances have not been restated for the impact of the adjustments in notes 2 and 18, as these adjustments do not impact previously reported regulatory capital resources.
Information disclosure under Pillar 3 of the Capital Requirements Directive will be published on the Group's website before 31 December 2015 at www.brewin.co.uk.
Significant accounting policies
Details of the significant accounting policies, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each financial asset and financial liability, are disclosed in note 3(r) to the financial statements.
Categories of financial instruments
| Carrying value | |
| 2015£'000 | 20141 £'000 |
Group |
|
|
Financial assets |
|
|
Fair value through profit and loss - held for trading | 945 | 912 |
Loans and receivables (including cash and trade receivables) | 395,999 | 450,581 |
Available-for-sale investments | 140 | 10,000 |
| 397,084 | 461,493 |
|
|
|
Financial liabilities |
|
|
Shares to be issued including premium | 9,304 | 19,280 |
Amortised cost | 233,445 | 287,650 |
| 242,749 | 306,930 |
1 Restated see notes 2 and 18.
| Carrying value | |
| 2015£'000 | 2014 £'000 |
Company |
|
|
Financial assets |
|
|
Loans and receivables (including cash and trade receivables) | 49,601 | 39,779 |
| 49,601 | 39,779 |
|
|
|
Financial liabilities |
|
|
Shares to be issued including premium | 9,304 | 19,280 |
Amortised cost | 7,363 | 7,390 |
| 16,667 | 26,670 |
The carrying value approximates to the fair value of the financial assets and liabilities held.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of the Group's market risk management is to both control and manage exposure within the Group's risk appetite whilst accepting the inherent risk of market fluctuations.
The Group undertakes investment management and stockbroking activities on an agency basis on behalf of its clients. The Group holds financial instruments as principal, but does not trade as principal. All trades are matched in the market (see note 20 to the 2015 Annual Report and Accounts).
The Group deals in foreign currencies on a matched basis on behalf of clients, limiting foreign exchange exposure. The total net foreign exchange exposure resulting from income yet to be converted to sterling at the year end was a debtor of £495,000 (2014: £122,000).
At the period end Tilman Brewin Dolphin Limited ('TBD') had net assets of £3.6 million (2014: £4.7 million) denominated in its local currency (Euros). The Group is exposed to translation risk in respect of the foreign currency value of the net assets of TBD.
The Group does not hold any derivatives (2014: none).
There has been no change to the Group's exposure to market risks or the manner in which it manages and measures the risk during the period.
Equity price risk
The Group is exposed to equity risk arising from its available-for-sale investments and those held-for-trading. Equity investments designated as non-current available-for-sale investments are held for strategic purposes rather than trading purposes and the Group does not actively trade in these investments.
Equity price sensitivity analysis
The sensitivity analyses below have been determined based on the exposure to equity price risk at the reporting date.
If equity prices had been 5% higher/lower:
· Pre-tax profit for the period ended 30 September 2015 would have been £47,000 higher/lower (2014: £45,600 higher/lower) due to changes in the value of held-for-trading investment; and
· Other equity reserves as at 30 September 2015 would increase/decrease by £2,300 (2014: increase/decrease by £500,000) pre-tax for the Group as a result of the changes in fair value of available-for-sale investments.
The Group's sensitivity to equity prices has not changed significantly from the prior period.
Interest rate risk
The Group is exposed to interest rate risk in respect of the Group's cash and in respect of client deposits. The Group holds client deposits on demand (variable interest rate). At the end of the period a 1% increase in base rate would have increased pre-tax profitability by £939,000 (2014: £784,000).
Credit risk
Credit risk refers to the risk that a client or other counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group's exposure to credit risk arises principally from the settlement of client and market transactions ('settlement risk') and cash deposited at banks.
Settlement riskExposures to settlement risk are spread across a large number of counterparties and clients. A delivery versus payment ('DVP') settlement method is also used for the majority of transactions, ensuring that securities and cash are exchanged within a short period of time. Consequently, no residual maturity analysis is presented. The Group also holds collateral in the form of cash, as well as equity and bonds which are quoted on recognised exchanges. This collateral is held, principally, in Group nominee accounts.
Concentration of credit riskThe Group has no significant concentration of credit risk with the exception of cash where the majority is spread across four major banks.
Maximum exposureThe maximum exposure to credit risk at the end of the reporting period is equal to the balance sheet figure.
Credit exposureCredit exposure in relation to settlement risk is monitored daily. The Group's exposure to large trades is limited with an average bargain size in the current period of £11,060 (2014: £11,700); there are additional controls for high value trades.
Impaired assetsThe total gross amount of individually impaired assets in relation to trade receivables at the period end was £351,000 (2014: £437,000). Collateral valued at fair value by the Group in relation to these impaired assets was £243,000 (2014: £240,000). This collateral is stock held in the clients' account which per our client terms and conditions can be sold to meet any unpaid liabilities falling due. The net difference has been provided as a doubtful debt (see note 21 to the 2015 Annual Report and Accounts). Note 21 to the 2015 Annual Report and Accounts also details amounts past due but not impaired.
Non-impaired assetsFinancial assets that are neither past due nor impaired in respect of trade receivables relate mainly to bonds and equity trades quoted on a recognised exchange, are matched in the market, and are either traded on a DVP basis or against a client's portfolio in respect of which any one trade would normally be a small percentage of the client's collateral held in the Group nominee. At the period end no financial assets that would otherwise be past due or impaired had been renegotiated (2014: none).
Loans to employees are repayable over 5 to 10 years (see note 21 to the 2015 Annual Report and Accounts).
The credit risk on liquid funds, cash and cash equivalents, is limited as deposits are diversified across a panel of major banks. This ensures that the Group is not excessively exposed to an individual counterparty. The Group's policy requires cash deposits to be placed with banks with a minimum short-term credit rating of A-2 (S&P) / P-2 (Moody's) / F-2 (Fitch), excluding Tilman Brewin Dolphin Limited. Requirements and limits are reviewed on a regular basis. The Group's allocation of cash and cash equivalents to S&P rating grades has been outlined in the below table:
| A-1+ | A-1 | A-2 | Below A-2 |
Cash and cash equivalents | 0.2% | 67.2% | 30.8% | 1.8%* |
* Held by Tilman Brewin Dolphin Limited.
The Group maintains a set of Credit Risk policies which are regularly reviewed by the Board. A due diligence review is also performed on all counterparties on an annual basis, at a minimum. The investment of cash is managed by the Treasury Department.
There has been no material change to the Group's exposure to credit risk during the period.
Liquidity risk
Liquidity risk refers to the risk that the Group will be unable to meet its financial obligations as they fall due. The Group maintains adequate cash resources to meet its financial obligations at all times. All client cash deposits are repayable on demand. At 30 September 2015, the Group had access to an unsecured overdraft facility of £12 million (2014: £15 million).
The Group has a Liquidity Policy which is reviewed by the Board regularly. As the Group normally deals with the market on a DVP basis, liquidity risk is monitored by daily exception reports of unmatched items past settlement date and managed by the Credit Control Department.
There has been no change to the Group's exposure to liquidity risk or the manner in which it manages and measures the risk during the period.
The following are the undiscounted cash flows, with the exception of shares to be issued, of financial liabilities based on the earliest date on which the Group can be required to pay.
As at 30 September 2015
| Up to1 month£'000 | 1 month to3 months£'000 | 3 monthsto 1 year£'000 | 1 to 5years£'000 | Over 5years£'000 | Total£'000 |
Group |
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
Shares to be issued including premium | - | 9,304 | - | - | - | 9,304 |
Amortised cost | 188,833 | 26,876 | 17,135 | 601 | - | 233,445 |
| 188,833 | 36,180 | 17,135 | 601 | - | 242,749 |
As at 28 September 2014
| Up to1 month£'000 | 1 month to3 months£'000 | 3 monthsto 1 year£'000 | 1 to 5years£'000 | Over 5years£'000 | Total£'000 |
Group |
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
Shares to be issued including premium | - | 10,068 | - | 9,212 | - | 19,280 |
Amortised cost1 | 240,383 | 28,305 | 18,789 | 173 | - | 287,650 |
| 240,383 | 38,373 | 18,789 | 9,385 | - | 306,930 |
1 Restated see notes 2 and 18.
As at 30 September 2015
| Up to1 month£'000 | 1 month to3 months£'000 | 3 monthsto 1 year£'000 | 1 to 5years£'000 | Over 5years£'000 | Total£'000 |
Company |
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
Shares to be issued including premium | - | 9,304 | - | - | - | 9,304 |
Amortised cost | 7,363 | - | - | - | - | 7,363 |
| 7,363 | 9,304 | - | - | - | 16,667 |
As at 28 September 2014
| Up to1 month£'000 | 1 month to3 months£'000 | 3 monthsto 1 year£'000 | 1 to 5years£'000 | Over 5years£'000 | Total£'000 |
Company |
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
Shares to be issued including premium | - | 10,068 | - | 9,212 | - | 19,280 |
Amortised cost | 7,390 | - | - | - | - | 7,390 |
| 7,390 | 10,068 | - | 9,212 | - | 26,670 |
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 market 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.
| Fair value as at 30 September 2015£'000 | Fair value as at 28 September 2014 £'000 | Valuation technique(s) and key input(s) | Significant unobservableinput(s) | Relationship of unobservable inputs to fair value |
Level 1 |
|
|
|
|
|
Trading investments | 945 | 912 | Quoted bid prices in an active market | n/a | n/a |
Level 3 |
|
|
|
|
|
Available-for-sale investments - Equity | 46 | - | The valuation is based on published monthly NAVs. | n/a | n/a |
Available-for-sale investments - Debt | 94 | - | 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. |
Shares to be issued including premium | 9,304 | 19,280 | The valuation of the consideration is based on actual earnings. The terms are agreed as part of each acquisition. | n/a | n/a |
Deferred purchase consideration | 1,284 | 1,402 | The valuation of the consideration is based on actual earnings. The terms are agreed as part of each acquisition. | n/a | n/a |
Sensitivity analysis
A sensitivity analysis of the significant unobservable inputs used in valuing the Level 3 financial instruments is set out below:
Financial asset/financial liability | Assumption | Change in assumption | Impact on valuation |
Current assets - Available-for-sale investments - Equity | Marketability discount | Increase by 5% | Decrease by £7,000 |
The valuation of the shares to be issued including premium and deferred purchase consideration is based on actual performance, not on assumptions. Therefore, no sensitivity analysis has been performed.
Fair value hierarchy
As at 30 September 2015
| Level 1£'000 | Level 2£'000 | Level 3£'000 | Total£'000 |
Held for trading |
|
|
|
|
Equities | 945 | - | - | 945 |
Available-for-sale financial assets |
|
|
|
|
Equities | - | - | 46 | 46 |
Asset-backed securities | - | - | 94 | 94 |
Total | 945 | - | 140 | 1,085 |
| Level 1£'000 | Level 2£'000 | Level 3£'000 | Total£'000 |
Held for trading |
|
|
|
|
Equities | 912 | - | - | 912 |
Available-for-sale financial assets |
|
|
|
|
Equities | - | - | 10,000 | 10,000 |
Total | 912 | - | 10,000 | 10,912 |
Reconciliation of Level 3 fair value measurement of financial assets:
Available-for-sale
| Unquoted equities£'000 |
Balance at 28 September 2014 | 10,000 |
Disposal | (10,000) |
Addition | 140 |
Balance at 30 September 2015 | 140 |
The table above only includes financial assets. The only financial liabilities subsequently measured at fair value on level 3 fair value measurement represent shares to be issued and deferred purchase consideration. No gain or loss for the period relating to this has been recognised in profit or loss.
16. Provisions
| License provision£'000 | Sundry claims and associated costs£'000 | Onerous contracts£'000 | Social security contributions on share options£'000 | Leasehold dilapidations£'000 | Total£'000 |
At start of period | 1,429 | 1,907 | 5,779 | 3,220* | 1,055* | 13,390 |
Additions | - | 2,203 | 11,641 | 815 | 1,680 | 16,339 |
Utilisation of provision | (1,429) | (356) | (2,187) | (1,534) | (232) | (5,738) |
Unwinding of discount | - | - | 46 | - | - | 46 |
Unused amounts reversed during the period | - | (1,328) | (922) | - | (248) | (2,498) |
At end of period | - | 2,426 | 14,357 | 2,501 | 2,255 | 21,539 |
|
|
|
|
|
|
|
Provisions |
|
|
|
|
|
|
Included in current liabilities | - | 2,426 | 2,743 | 1,353 | 745 | 7,267 |
Included in non-current liabilities | - | - | 11,614 | 1,148 | 1,510 | 14,272 |
| - | 2,426 | 14,357 | 2,501 | 2,255 | 21,539 |
* In the prior period, the provision for leasehold dilapidations and social security contributions on share options were included in trade and other payables. During the current period, these have been reclassified to provisions to better reflect the nature of these balances.
The Group recognises a provision for settlements of sundry claims and associated costs; settlement of £0.7m (2014: £nil) has been made since the balance sheet date. The timing of the settlement of the remaining balance is unknown, but it is expected that they will be resolved within twelve months of the year end.
The onerous contracts provision is in respect of both surplus office space and contracts associated with discontinued operations.
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 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 £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 £6.9 million as at 30 September 2015 (2014: £14.4 million), if the assumption regarding sub-lets is removed and the time value of money is ignored. The longest lease term covered by the provision has eighteen years remaining and accounts for £3.6 million of the provision.
Provision of £10.3 million has been made in relation to onerous contracts resulting from discontinued operations (see note 11). These costs arise over the term of the contract. The contracts covered by the provision have a maximum remaining term of eight years, the maximum exposure is £10.7 million, if the time value of money is ignored.
The Group recognises a provision of £2.3 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 eighteen years.
17. Notes to the cash flow statement
| 2015£'000 | 20141£'000 |
Group |
|
|
Operating profit from continuing operations | 50,810 | 5,755 |
(Loss)/profit from discontinued operations | (10,387) | 1,635 |
Adjustments for: |
|
|
Depreciation of property, plant and equipment | 5,002 | 5,371 |
Amortisation of intangible assets - client relationships | 9,219 | 13,592 |
Amortisation of intangible assets - software | 2,715 | 2,360 |
Impairment of intangible assets and tangible assets | 280 | 31,693 |
Loss on disposal of property, plant and equipment | 26 | 653 |
Loss on disposal of intangible asset - purchased software | - | 2 |
Retirement benefit obligation | (3,000) | (3,003) |
Share-based payment expense | 8,938 | 8,498 |
Translation adjustments | 41 | (3) |
Interest income | 907 | 1,077 |
Interest expense | (41) | (31) |
Operating cash flows before movements in working capital | 64,510 | 67,599 |
(Decrease)/increase in payables | (44,349) | 39,585 |
Decrease/(increase) in receivables and trading investments | 48,802 | (39,778) |
Cash generated by operating activities | 68,963 | 67,406 |
Tax paid | (11,485) | (7,438) |
Net cash inflow from operating activities | 57,478 | 59,968 |
1 Restated see notes 2 and 18.
| 2015£'000 | 2014£'000 |
Company |
|
|
Operating profit | 36,314 | 14,785 |
Adjustments for: |
|
|
Unwind of discount of shares to be issued | - | 27 |
Operating cash flows before movements in working capital | 36,314 | 14,812 |
(Decrease)/increase in payables | (25) | 37 |
(Increase)/decrease in receivables and trading investments | (11,604) | 5,717 |
Net cash inflow from operating activities | 24,685 | 20,566 |
18. Restatement of prior period information
As disclosed in note 2, the Group adopted IFRIC 21 'Levies' on 29 September 2014 and amended its accounting policy for client settlement cash.
These amendments have resulted in the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Balance Sheet and the Consolidated Cash Flow Statement being restated.
The amount of the restatement for each financial statement line item affected by retrospective application of IFRIC 21 and change of accounting policy for client settlement cash is set out below:
| As reported 52 weeks to 28 September 20141£'000 | Adjustment IFRIC 21£'000 | Adjustment client settlementcash£'000 | Restated 52 weeks to 28 September 2014£'000 |
Consolidated Income Statement |
|
|
|
|
Other operating costs | (75,813) | (253) | - | (76,066) |
Operating expenses | (274,751) | (253) | - | (275,004) |
Operating profit | 6,008 | (253) | - | 5,755 |
Profit before tax | 7,011 | (253) | - | 6,758 |
Tax | (1,460) | 98 | - | (1,362) |
Profit for the period from continuing operations | 5,551 | (155) | - | 5,396 |
Profit for the period | 6,826 | (155) | - | 6,671 |
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic | 2.0p | - | - | 2.0p |
Diluted | 1.9p | - | - | 1.9p |
|
|
|
|
|
Adjusted2 earnings per share |
|
|
|
|
Basic | 17.0p | - | - | 17.0p |
Diluted3 | 16.0p | - | - | 16.0p |
|
|
|
|
|
Consolidated Statement of Comprehensive Income |
|
|
|
|
Profit for the period | 6,826 | (155) | - | 6,671 |
Total comprehensive income for the period | 5,546 | (155) | - | 5,391 |
1 Restated for discontinued operations, see note 11.
2 These figures have been adjusted to exclude redundancy costs, FSCS levy rebate, onerous contracts provision, impairment of intangible assets - software, licence provision and amortisation of client relationships.
3 See note 13.
| As reportedas at28 September 2014£'000 | Adjustment IFRIC 21£'000 | Adjustment client settlementcash£'000 | Restatedas at28 September 2014£'000 |
Consolidated Balance Sheet |
|
|
|
|
Deferred tax asset | 8,959 | 177 | - | 9,136 |
Total non-current assets | 125,438 | 177 | - | 125,615 |
Trade and other receivables | 297,322 | (865) | 5,608 | 302,065 |
Cash and cash equivalents |
|
|
|
|
- Firm's cash | 136,383 | - | - | 136,383 |
- Client settlement cash | 21,687 | - | (21,687) | - |
Total cash and cash equivalents | 158,070 | - | (21,687) | 136,383 |
Total current assets | 456,304 | (865) | (16,079) | 439,360 |
Total assets | 581,742 | (688) | (16,079) | 564,975 |
Trade and other payables | 327,225 | - | (16,079) | 311,146 |
Current tax liabilities | 3,872 | 16 | - | 3,888 |
Total current liabilities | 347,408 | 16 | (16,079) | 331,345 |
Net current assets | 108,896 | (881) | - | 108,015 |
Total liabilities | 369,768 | 16 | (16,079) | 353,705 |
Net assets | 211,974 | (704) | - | 211,270 |
Profit and loss account | 16,822 | (704) | - | 16,118 |
Equity attributable to equity holders of the parent | 211,974 | (704) | - | 211,270 |
| As reported52 weeks to28 September 2014£'000 | Adjustment IFRIC 21£'000 | Adjustment client settlementcash£'000 | Restated52 weeks to28 September 2014£'000 |
Consolidated Cash Flow Statement |
|
|
|
|
Net cash inflow from operating activities | 61,354 | - | (1,386) | 59,968 |
Net increase in cash and cash equivalents | 23,269 | - | (1,386) | 21,883 |
Cash and cash equivalents at the start of period | 133,834 | - | (20,301) | 113,533 |
Cash and cash equivalents at the end of period | 156,800 | - | (21,687) | 135,113 |
Cash and cash equivalents shown in current assets | 158,070 | - | (21,687) | 136,383 |
Net cash and cash equivalents | 156,800 | - | (21,687) | 135,113 |
The impact of retrospective application on each component of equity is shown in the Consolidated Statement of Changes in Equity. As at 29 September 2013, the profit and loss account was restated by £549,000, which was the result of IFRIC 21. There was no impact on equity as a result of the change in accounting policy for client settlement cash.
19. Annual General Meeting
The Annual General Meeting will be held at 11.30am on 5 February 2016 at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED
20. Availability of Annual Report
The Annual Report will be posted to shareholders during January 2016. Copies will be available from the registered office of the Company, 12 Smithfield Street, London EC1A 9BD. It will also be available on the Company's website www.brewin.co.uk.
21. Forward-looking statements
This announcement contains certain forward-looking statements with respect to the Brewin Dolphin's Group's financial condition, operations, and business opportunities. These forward-looking statements represent the Group's expectations or beliefs concerning future events, and involve known and unknown risks and uncertainty that could cause actual results, performance, or events to differ materially from those expressed or implied in such statements. Past performance cannot be relied on as a guide to future performance.
22. Financial information
The financial information set out in this preliminary announcement has been extracted from the Group's and the Company's Financial Statements, which have been approved by the Board of Directors and agreed with the Company's Auditor. The financial information set out above does not constitute the Group's and the Company's Statutory Financial Statements for the period ended 30 September 2015.
Related Shares:
BRW.L