TIDMBRW
RNS Number : 4034G
Brewin Dolphin Holdings PLC
25 November 2020
This announcement contains inside information for the purposes
of the Market Abuse Regulation
25 November 2020
Brewin Dolphin Holdings PLC
Preliminary Management Report
For the Year Ended 30 September 2020
Strong results for the year in challenging markets; well
positioned for the future
Financial highlights
- Strong total discretionary fund inflows of GBP2.8bn (FY 2019:
GBP2.8bn), total discretionary net flows of GBP0.9bn (FY 2019:
GBP1.4bn), representing an annualised growth rate of 2.2%.
- Total funds increased to GBP47.6bn (H1 2020: GBP41.4bn, FY
2019: GBP45.0bn), up 15.0% since 31 March 2020. Excluding funds
from acquisitions of GBP2.7bn, total funds were broadly flat year
on year. Total discretionary funds increased to GBP41.2bn (H1 2020:
GBP35.7bn, FY 2019: GBP40.1bn) including funds from acquisitions
and positive net flows more than offset by negative investment
performance in challenging markets.
- Total income for the period increased by 6.6% to GBP361.4m (FY
2019: GBP339.1m) and includes GBP19.8m from recent acquisitions.
Income was higher in the second half of the year due to higher
commission and fee income due to higher market levels. Financial
planning income grew 20.4% (up from 12.2% last year) to
GBP33.1m.
- Profit before tax and adjusted(1) items increased 4.3% to
GBP78.2m (FY 2019: GBP75.0m).
- Statutory profit before tax of GBP62.1m, 0.8% lower than FY
2019 (GBP62.6m).
- Strong cash balance of GBP180.5m (FY 2019: GBP229.2m). Capital
adequacy ratio of 220% at the year end.
- Adjusted(1,2) earnings per share ('EPS'):
- Diluted EPS broadly flat at 20.4p (FY 2019: 20.5p).
- Basic EPS broadly flat at 21.1p (FY 2019: 21.2p).
- Statutory earnings per share:
- Diluted EPS decreased by 4.2% to 15.9p (FY 2019: 16.6p).
- Basic EPS decreased by 4.1% to 16.3p (FY 2019: 17.0p).
- Final dividend 9.9p per share, taking total to 14.3p per share
(2019 final dividend: 12.0p per share, total 16.4p).
Business progress
- Client management system implemented and starting to realise
some of the client user experience and operational benefits.
- Swift integration of Investec Capital & Investments
(Ireland) Limited: rebranded to Brewin Dolphin Capital &
Investments (Ireland) Limited ('BDCIIL') and migration of clients
and assets completed remotely in April 2020.
- Expanded and trialled a suite of client investment solutions
through the further development of our 1762 from Brewin Dolphin
proposition.
- New technology launched to enhance user-experience for
WealthPilot clients.
- Continued to improve our clients digital experience through
the enhancement of the MyBrewin portal.
Outlook and guidance for FY 2021
- Market conditions remain challenging against economic and
social headwinds. However, we are well placed to capture the
momentum once markets rebound, as clients rely on us for our valued
advice services.
- On track to implement the new custody and settlement system
during Autumn 2021.
- FY 2021 operating costs to grow mid-single digit.
Notes:
1. Adjusted items are amortisation of client relationships and
brand, defined benefit pension scheme past service costs,
acquisition costs, incentivisation awards, onerous contracts and
other gains and losses.
2. See the note 9 to the Financial Statements.
Robin Beer, Chief Executive, said:
"Our objective is to help people build financially sustainable
futures whilst achieving peace of mind. This could not have been
more welcomed by our clients in a year which saw markets fall
during the initial peak of the COVID-19 pandemic. Whilst markets
have recovered from those levels, continued volatility remains a
likelihood until the pandemic is under control. What is evident is
that we could not have achieved our success this year without our
values-based decision making and our client-centric culture.
Adapting quickly to remote working enabled us to continue to
deliver against our strategic objectives and delivered a set of
resilient results.
Looking ahead to FY 2021, we're prioritising our digital agenda,
so we can innovate and explore ways to improve client and advisor
user experiences. Our focus will also be to implement our new
custody and settlement system, which will enable us to realise both
operational and technology benefits. Our sector continues to have
structural growth dynamics and we intend to benefit from these by
enhancing our distribution capability both through our direct and
indirect channels. These priorities will enable us to maintain
relevance through both our propositions and user experience, become
more efficient through improved processes and ensure we are well
placed to capture growth opportunities in challenging markets."
LEI: 213800PS7FS5UYOWAC49
Declaration of Final Dividend
The Board is proposing a final dividend of 9.9p per share, to be
approved at the 2021 AGM and to be paid on 10 February 2021 to
shareholders on the register at the close of business on 8 January
2021 with an ex-dividend date of 7 January 2021.
For further information:
Brewin Dolphin Holdings PLC
Carla Bloom, Head of Investor Camarco
Relations Ben Woodford / Geoffrey Pelham-Lane
Tel: +44 (0)20 7248 4400 Tel: +44 (0) 799 065 3341
The year end results and strategy update presentation will be
held at 9.00am on 25 November 2020 and available to watch via a
video webcast. The audio link can be found on the corporate website
(www.brewin.co.uk/group/investor-relations). Investors and analysts
are also able to dial in to the call using +44 (0) 20 3003
2666.
NOTES TO EDITORS:
About Brewin Dolphin:
Brewin Dolphin is one of the UK and Ireland's leading
independent providers of discretionary wealth management. We
continue to focus on discretionary investment management, and we
manage GBP41.2 billion of funds on a discretionary basis. In line
with the premium we place on personal relationships, we have built
a network of offices across the UK, Channel Islands and the
Republic of Ireland, staffed by qualified investment managers and
financial planners. We are committed to the most exacting standards
of client service, with long-term thinking and absolute focus on
our clients' needs at the core.
CHIEF EXECUTIVE OFFICER'S REVIEW
Our response to the COVID-19 pandemic
While COVID-19 has had a huge impact on the economy and society,
it has brought out the very best of our business. I am very proud
of the way our people have responded to the challenges brought by
the pandemic. We shifted overnight to a remote working model whilst
continuing to provide reassurance to our clients during the
significant market falls in March this year. I am grateful for all
their efforts. As a leadership team we have made decisions based on
our values, and it is at times like this that you realise how
important it is to have the right values. We have supported our
people throughout the crisis, placing no one on furlough nor
utilising Government support schemes. We have continued to support
our communities, making charitable donations and increasing the
number of days our people can spend volunteering. Individual office
teams have embraced the spirit of the times with a series of local
charity fundraising initiatives.
A new role
I was very excited to become CEO, however these were of course
not the circumstances I had envisaged to take over from David
Nicol. However, my familiarity with the business and the six months
transition period made the handover very smooth. I want to thank
David for everything he has done for this Group. We have a unique
client-centric culture, and this gives us a strong foundation on
which to build our business.
Delivering our strategy
Having been a member of the Executive Committee for the last
four years helping shape our strategy, as CEO I am pleased to
report that we have continued to deliver against our four strategic
pillars:
1. More choice for more clients
We have continued to strengthen and broaden our investment
solutions across our client base. We have developed our 1762 from
Brewin Dolphin proposition further, expanding the suite of client
investment solutions. This included the introduction of a liquidity
management service, Lombard lending facilities and the addition of
further investment options across a range of risk profiles, asset
classes and price points.
We have broadened the accessibility of the Brewin Portfolio
Service by reducing the minimum investment to GBP500. This makes it
an even more attractive proposition for people new to investing,
and for those clients putting money away for their children and
grandchildren.
For our intermediary clients, we have broadened our distribution
channels with our 'Powered by Brewin Dolphin' proposition and
recently developed Brewin Dolphin Voyager funds, offering more
investment choice.
2. Further develop our client experience
We have continued to invest in enhancing our client experience,
through the development of platforms providing seamless digital
services to clients. During the year we launched the new digital
platform for WealthPilot. The WealthPilot platform fills a
significant gap in the market and it will enable people to use a
range of financial planning online tools for different scenarios as
they get to grips with how best to manage their finances. After a
successful trial period on a friends and family basis we have been
able to go live with navigated journeys, where users explore the
platform with the support of an adviser. We are also making
additional financial planning hires to help increase the team's
capacity and ensure we can capture our target market.
We have also done a great deal of work this year further
developing our digital capabilities for the Brewin Portfolio
Service. We are about to launch a fully revised onboarding journey,
which is compatible for use across desktop and mobile devices. We
have taken the opportunity to develop our own user experience
platform, which has the potential to be leveraged across other
business areas.
This year we have also enhanced our MyBrewin portal as well as
releasing a new app. This has increased the number of clients using
MyBrewin to view their portfolios. We now have over 90,000 logins a
month and are planning to increase the available functionality in
the coming year.
3. Build a platform for growth
We have made significant progress on our major technology
programmes this year, which will improve the client experience and
drive efficiencies within the business.
We implemented Client Engage, our new client management system
during the pandemic, whilst working remotely. This has involved a
huge amount of work with teams across the business engaged in
testing the system and training our people in the final
preparations for launch. The new system will improve clients'
experience with reduced onboarding times and creates productivity
efficiencies for our client facing staff enabling them to spend
more time with clients. The system is the interface for our digital
applications and will support the acceleration of our digital
roadmap.
We have also continued with the implementation of Avaloq, our
new custody and settlement system. Having taken delivery of the
software, focus has shifted to acceptance testing and business
readiness activities. These activities include building and testing
the technology interfaces and data warehouse. We are now looking to
implement the system during the Autumn of 2021. The replacement of
an aged system will enable a fully integrated technology stack
which is automated, replacing our current manual interfaces. The
benefits of automation and straight through processing, means there
are fewer touch points for our clients' end-to-end onboarding
journey, improved productivity, improved client service, and
reduced manual errors.
Finally, we successfully migrated the acquired assets and
clients of Investec Capital & Investments (Ireland) Limited on
to our existing systems, finalising the process whilst in a remote
working environment.
4. Maintain a culture we are proud of
This year has asked real questions of our culture and I am
delighted that it has risen to the challenge. We believe this
delivers tangible benefits to our business through the hiring,
retention and motivation of our colleagues.
Our talent development programmes have continued, as have our
community responsibility activities, albeit in an adapted form as a
result of the pandemic. We have been active across our diversity
and inclusion agenda. This is an area that we are making real
progress on as we create a business based on equality of
opportunity and in which we encourage a diversity of thought and
background. I personally have found the reverse mentoring programme
focused on race and ethnicity, which all members of the Executive
team have participated in, to have been particularly powerful.
Events like our People Awards, which celebrates individuals who
have been nominated by their colleagues, continue to play an
important part in the special culture we have here. One of the
reasons why we have been able to manage the impact of the pandemic
so well is a result of our culture - people have looked out for
their clients and colleagues, whilst supporting each other
throughout. I am delighted that this year's annual staff survey
returned an engagement score of 90%, especially as it took place
during the summer, and therefore reflects the way in which we
handled a remote working environment.
Outlook
The impact of COVID-19 on the global economy has been dramatic,
creating economic uncertainty and market volatility. Whilst this is
creating more headwinds, the structural growth drivers of our
sector and business remain strong. Our strategic actions mean that
we are well placed to capture these growth dynamics.
We anticipate that 2021 will be a year of continued uncertainty
so we remain disciplined on costs and investments. We expect our
continued investment in our digital capabilities to put us in a
position of strength to remain relevant and to ensure that we
capture changing client requirements. We expect operating costs to
grow mid-single digits, of which half of the rise is expected to be
organic cost inflation and the rest to comprise investment for
future growth.
Our business model is fundamentally resilient and cash
generative. We also know that in times of uncertainty, people look
for expert and trusted financial advice; we are well-placed to help
people with their financial needs in such times. A strong balance
sheet provides clients with confidence in our company's long-term
sustainability and enables us to take advantage of inorganic
opportunities as and when they arise.
FINANCIAL REVIEW
Results and business performance
The Group's financial performance for the year to 30 September
2020 was resilient, delivering organic growth across our business
channels against a backdrop of a pandemic, economic uncertainty and
market volatility.
Profit before tax and adjusted items ('adjusted PBT') was up
4.3% to GBP78.2m (2019: GBP75.0m) reflecting the contributions from
our acquisitions, continued organic growth and the cost savings we
realised within the second half of the year. The adjusted PBT
margin was 21.6% (2019: 22.1%) as the business continues to invest
in its technology infrastructure to support future growth.
Statutory profit before tax ('statutory PBT') was 0.8% lower
than last year at GBP62.1m (2019: GBP62.6m). Statutory PBT margin
for the period was 17.2% (2019: 18.5%).
Adjusted diluted earnings per share ('EPS') was broadly flat at
20.4p (2019: 20.5p). Statutory diluted EPS declined by 4.2% to
15.9p (2019: 16.6p).
2020 2019
GBP'm GBP'm Change
============================================= ======= ======= ========
Income 361.4 339.1 6.6%
Fixed staff costs (139.2) (126.7) 9.9%
Variable staff costs (60.2) (58.2) 3.4%
Other operating costs excluding adjusted(1)
items (82.1) (80.8) 1.6%
============================================= ======= ======= ========
Operating profit before adjusted(1) items 79.9 73.4 8.9%
Net finance costs and other gains and losses (1.7) 1.6 (206.3)%
============================================= ======= ======= ========
Profit before tax and adjusted(1) items 78.2 75.0 4.3%
Adjusted items (16.1) (12.4) 29.8%
============================================= ======= ======= ========
Profit before tax 62.1 62.6 (0.8)%
Taxation (14.1) (14.5) (2.8)%
============================================= ======= ======= ========
Profit after tax 48.0 48.1 (0.2)%
============================================= ======= ======= ========
Earnings per share
Basic earnings per share 16.3p 17.0p (4.1)%
Diluted earnings per share 15.9p 16.6p (4.2)%
Adjusted(2) earnings per share
Basic earnings per share 21.1p 21.2p (0.5)%
Diluted earnings per share 20.4p 20.5p (0.5)%
============================================= ======= ======= ========
1. Adjusted items are amortisation of client relationships and
brand, defined benefit pension scheme past service costs,
acquisition costs, incentivisation awards, onerous contracts and
other gains and losses.
2. See note 9 to the Financial Statements.
Explanation of profit before tax and adjusted items and
reconciliation to Financial Statements
Profit before tax and adjusted items ('adjusted PBT'), adjusted
diluted EPS and adjusted PBT margin ('adjusted measures') are used
to measure and report on the underlying financial performance of
the Group, aiding comparability between reporting periods. The
Board and management use adjusted measures for planning and
reporting. They are also useful measures for investors and
analysts.
Additionally, some of the adjusted performance measures are used
as Key Performance Indicators, as well as for performance measures
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 adjusted to exclude various infrequent or unusual items of
income or expense. The Directors consider such items to be outside
the ordinary course of business. Income or expenditure adjusted for
are shown in the reconciliation below and meet the criteria.
Some adjusted for items of income or expense may, like onerous
contracts costs, recur from one period to the next. Although these
may recur over one or more periods, they are the result of events
or decisions which the Directors consider to be outside the
ordinary course of business, such as material restructuring
decisions to reduce the ongoing cost base of the Group that do not
represent long-term expenses of the business. Likewise, costs
related to acquisitions are also infrequent by their nature and
therefore are excluded. Incentivisation awards costs in relation to
acquisitions that are payable for a predetermined period of time,
are adjusted for on this basis.
Additionally, the amortisation of acquired client relationships
and brand is an expense which investors and analysts typically add
back when considering profit before tax or earnings per share
ratios.
Reconciliation of profit before tax and adjusted items to
statutory profit before tax
2020 2019
GBP'm GBP'm
=========================================================== ====== ======
Profit before tax and adjusted items 78.2 75.0
Adjusted items
=========================================================== ====== ======
Acquisition costs (3.6) (2.3)
Defined benefit pension scheme past service costs - (1.9)
Onerous contracts (0.2) (1.0)
Incentivisation awards (1.2) (0.3)
Amortisation of intangible assets - client relationships
and brand (11.1) (6.9)
=========================================================== ====== ======
Total adjusted items (16.1) (12.4)
=========================================================== ====== ======
Statutory profit before tax 62.1 62.6
=========================================================== ====== ======
Adjusted items for the year were higher at GBP16.1m (2019:
GBP12.4m) and included acquisition costs of GBP3.6m (2019: GBP2.3m)
for the acquisition during the year and higher amortisation of
client relationships of GBP11.1m (2019: GBP6.9m) due to the
acquisitions made in the 2019 calendar year.
Other adjusted items were in relation to incentivisation awards
of GBP1.2m and onerous contracts of GBP0.2m.
Funds
30 30
September Internal Net Growth Investment September
GBP'bn 2019 Inflows Outflows transfers(1) flows rate Acquired performance 2020 Change
=============== ========= ======= ======== ===== ====== ======== =========== ========= ======
Private clients 21.4 1.1 (0.6) (0.7) (0.2) (0.9)% 0.7 (0.3) 21.6 0.9%
Charities &
corporates 4.9 0.3 (0.3) 0.3 0.3 6.1% 0.3 (0.4) 5.1 4.1%
================ ========= ======= ======== ============ ===== ====== ======== =========== ========= ======
Direct
discretionary 26.3 1.4 (0.9) (0.4) 0.1 0.4% 1.0 (0.7) 26.7 1.5%
================ ========= ======= ======== ============ ===== ====== ======== =========== ========= ======
Intermediaries 10.0 0.9 (0.5) (0.1) 0.3 3.0% - (0.2) 10.1 1.0%
MPS 3.8 0.5 - - 0.5 13.2% - 0.1 4.4 15.8%
================ ========= ======= ======== ============ ===== ====== ======== =========== ========= ======
Indirect
discretionary 13.8 1.4 (0.5) (0.1) 0.8 5.8% - (0.1) 14.5 5.1%
================ ========= ======= ======== ============ ===== ====== ======== =========== ========= ======
Total
discretionary 40.1 2.8 (1.4) (0.5) 0.9 2.2% 1.0 (0.8) 41.2 2.7%
================ ========= ======= ======== ============ ===== ====== ======== =========== ========= ======
Execution only 3.9 0.2 (0.5) 0.5 0.2 5.1% 0.5 (0.5) 4.1 5.1%
BPS 0.2 - - - - -% - - 0.2 -%
Advisory 0.8 0.1 (0.1) - - -% 1.2 0.1 2.1 162.5%
================ ========= ======= ======== ============ ===== ====== ======== =========== ========= ======
Total funds 45.0 3.1 (2.0) - 1.1 2.4% 2.7 (1.2) 47.6 5.8%
================ ========= ======= ======== ============ ===== ====== ======== =========== ========= ======
1. Charities and corporates internal transfers includes a
GBP0.3bn reclassification from private clients related to Brewin
Dolphin Wealth Management Limited.
30 September 2019 31 30 Change last Change last
March September 12 months 6 months
GBP'bn 2020 2020
-------------------------------------------- ------------------ ------- ----------- ------------ ------------
Private clients 21.4 18.9 21.6 0.9% 14.3%
Charities & corporates 4.9 4.3 5.1 4.1% 18.6%
-------------------------------------------- ------------ ------------
Direct discretionary 26.3 23.2 26.7 1.5% 15.1%
-------------------------------------------- ------------------ ------- ----------- ------------ ------------
Intermediaries 10.0 8.8 10.1 1.0% 14.8%
MPS 3.8 3.7 4.4 15.8% 18.9%
-------------------------------------------- ------------ ------------
Indirect discretionary 13.8 12.5 14.5 5.1% 16.0%
-------------------------------------------- ------------------ ------- ----------- ------------ ------------
Total discretionary 40.1 35.7 41.2 2.7% 15.4%
-------------------------------------------- ------------------ ------- ----------- ------------ ------------
Execution only 3.9 3.7 4.1 5.1% 10.8%
BPS 0.2 0.2 0.2 0.0% 0.0%
Advisory 0.8 1.8 2.1 162.5% 16.7%
Total funds 45.0 41.4 47.6 5.8% 15.0%
-------------------------------------------- ------------------ ------- ----------- ------------ ------------
Indices
-------------------------------------------- ------------------ ------- ----------- ------------ ------------
MSCI PIMFA Private Investor Balanced Index 1,665 1,423 1,568 (5.8)% 10.2%
FTSE 100 7,408 5,672 5,866 (20.8)% 3.4%
-------------------------------------------- ------------------ ------- ----------- ------------ ------------
Total funds as at 30 September 2020 were up 5.8% over the last
year to GBP47.6bn (2019: GBP45.0bn) and up 15.0% from 31 March
2020. The increase was driven by strong total net fund flows of
GBP1.1bn and acquired funds from BDCIIL of GBP2.7bn. Negative
investment performance of GBP1.2bn due to an unprecedented fall in
markets due to COVID-19, offset positive net flows. The MSCI PIMFA
Private Investor Balanced Index fell by 5.8% and the FTSE 100 Index
fell by 20.8% during the year.
Total discretionary funds as at 30 September 2020 were up 2.7%
at GBP41.2bn (2019: GBP40.1bn) with positive net flows of GBP0.9bn
(2019: GBP1.4bn), representing an annualised growth rate of 2.2%.
Gross fund inflows for the period remained stable at GBP2.8bn
(2019: GBP2.8bn). Total discretionary funds also included GBP1.0bn
from the BDCIIL acquisition.
Direct discretionary positive net flows of GBP0.1bn in the
period (2019: GBP0.3bn) with fund inflows of GBP1.4bn (2019:
GBP1.2bn), were partially offset by transfers and elevated outflows
including low-margin institutional clients of GBP0.1bn. Direct
funds growth benefitted from strong integrated inflows, aided by
the 1762 from Brewin Dolphin proposition and contribution from
BDCIIL. There is continued demand for advice, with c.60% of new
direct private client business taking integrated wealth advice
services.
Indirect discretionary net flows were GBP0.8bn (2019: GBP1.1bn),
remaining relatively strong considering difficult market
conditions, with 62.5% of net flows coming from MPS.
Income
Income increased 6.6% to GBP361.4m (2019: GBP339.1m) and
included GBP19.8m from recent acquisitions. Income was higher in
the second half of the year due to higher commission and fee income
due to higher market levels.
2020 2019 Change
===== ========== ===== ===== ========== ===== ====== ==================
GBPm Fees Commission Total Fees Commission Total Fees Commission Total
======================= ===== ========== ===== ===== ========== ===== ====== ========== ======
Private clients 141.5 65.3 206.8 136.6 58.6 195.2 3.6% 11.4% 5.9%
Charities &
corporates 18.4 3.6 22.0 19.4 2.9 22.3 (5.2)% 24.1% (1.3)%
======================= ===== ========== ===== ===== ========== ===== ====== ========== ======
Direct discretionary 159.9 68.9 228.8 156.0 61.5 217.5 2.5% 12.0% 5.2%
======================= ===== ========== ===== ===== ========== ===== ====== ========== ======
Intermediaries 66.5 1.1 67.6 66.6 1.1 67.7 (0.2)% -% (0.1)%
MPS 11.2 n/a 11.2 9.1 n/a 9.1 23.1% n/a 23.1%
======================= ===== ========== ===== ===== ========== ===== ====== ========== ======
Indirect discretionary 77.7 1.1 78.8 75.7 1.1 76.8 2.6% -% 2.6%
======================= ===== ========== ===== ===== ========== ===== ====== ========== ======
Total discretionary 237.6 70.0 307.6 231.7 62.6 294.3 2.5% 11.8% 4.5%
======================= ===== ========== ===== ===== ========== ===== ====== ========== ======
Financial planning n/a n/a 33.1 n/a n/a 27.5 n/a n/a 20.4%
Execution only 4.6 6.7 11.3 4.1 6.2 10.3 12.2% 8.1% 9.7%
BPS 1.3 n/a 1.3 1.2 n/a 1.2 8.3% n/a 8.3%
Advisory 3.6 1.1 4.7 2.1 0.4 2.5 71.4% 175.0% 88.0%
Other Income n/a n/a 3.4 n/a n/a 3.3 n/a n/a 3.0%
======================= ===== ========== ===== ===== ========== ===== ====== ========== ======
Income 247.1 77.8 361.4 239.1 69.2 339.1 3.3% 12.4% 6.6%
======================= ===== ========== ===== ===== ========== ===== ====== ========== ======
Discretionary income increased by 4.5% to GBP307.6m (2019:
GBP294.3m), driven by higher trading volumes from market volatility
in Q2 20 and Q3 20 with commission income up GBP3.8m (excl.
acquisitions) on prior year.
Financial planning income grew 20.4% to GBP33.1m (2019:
GBP27.5m) primarily due to the growth in 1762 from Brewin Dolphin
alongside the recent financial planning-led acquisitions which
contributed GBP4.0m in the year.
Advisory income up GBP2.2m on FY 2019, driven predominantly by
the acquisition of BDCIIL.
Other income consisting of, inter alia, interest and report
writing income is broadly flat in the year at GBP3.4m. Interest
income reduced to GBP1.3m (2019: GBP2.8m) although higher in the
second half, as interest payments to clients ceased due to a fall
in the base rate. Report writing income is generated by Mathieson
Consulting acquired in H2 2019 and contributed GBP1.1m of other
income (2019: GBP0.5m).
Income margin(1)
2020 2019
==== ========== ===== ==== ========== =====
(bps) Fees Commission Total Fees Commission Total
======================= ==== ========== ===== ==== ========== =====
Private clients 67.4 31.1 98.5 67.0 28.8 95.8
Charities & corporates 37.7 7.2 44.9 40.9 6.1 47.0
======================= ==== ========== ===== ==== ========== =====
Direct discretionary 61.8 26.6 88.4 62.1 24.5 86.6
======================= ==== ========== ===== ==== ========== =====
Intermediaries 67.9 1.1 69.0 69.4 1.1 70.5
MPS 26.5 - 26.5 27.0 - 27.0
======================= ==== ========== ===== ==== ========== =====
Total discretionary 59.7 17.6 77.3 60.8 16.4 77.2
======================= ==== ========== ===== ==== ========== =====
BPS 68.4 - 68.4 68.6 - 68.6
Execution only 11.4 16.4 27.8 10.8 16.2 27.0
Advisory 19.5 6.0 25.5 23.8 4.3 28.1
======================= ==== ========== ===== ==== ========== =====
Overall 53.7 17.0 70.7 55.7 16.1 71.8
======================= ==== ========== ===== ==== ========== =====
1. The income margins are calculated as total income over the
average funds at the end of each fee billing quarter for the
year.
The overall blended margin across all our discretionary services
increased to 77.3bps (2019: 77.2bps), driven by pricing pressure
and tiering within intermediaries offset by greater transactional
commission-based activity.
The margin for direct discretionary business has increased to
88.4bps (2019: 86.6bps) driven by exceptional commission income in
the year.
Both intermediary and MPS margin has declined reflecting a
slight shift in pricing mix as a result of market competition.
The blended margin for MPS has decreased to 26.5bps (2019:
27.0bps) due to the impact of tiering as the MPS funds grow.
Operating costs (excluding adjusted(1) items) and capital
expenditure
2020 2019
GBP'm GBP'm
======================= ======= =======
Staff costs (139.2) (126.7)
Non-staff costs (82.1) (80.8)
======================= ======= =======
Fixed costs (221.3) (207.5)
Variable staff costs (60.2) (58.2)
======================= ======= =======
Total operating costs (281.5) (265.7)
======================= ======= =======
Capital expenditure(2) 35.6 16.7
======================= ======= =======
1. Adjusted items are amortisation of client relationships and
brand, defined benefit pension scheme past service costs,
acquisition costs, incentivisation awards, onerous contracts and
other gains and losses.
2. Excludes GBP1.9m of right of use asset additions.
Total operating costs before adjusted items were up GBP15.8m,
5.9% higher at GBP281.5m (2019: GBP265.7m), with increases
attributable to recent acquisitions of GBP15.2m and other increases
such as FSCS levy as well as inflationary pay rises partially
offset by cost savings in the second half of the financial
year.
Total fixed costs have increased by GBP13.8m to GBP221.3m (2019:
GBP207.5m) with incremental costs through acquisitions totalling
GBP12.7m. Of the GBP12.5m increase in staff costs, GBP7.5m reflects
the impact of acquisitions which included around 100 additional
staff over the period. Excluding acquisitions, staff costs grew
3.9% as a result of annual salary inflation and headcount increases
to support the Group's continued growth including the delivery of
the planned infrastructure projects.
The increase in non-staff costs is attributable to acquisitions
and a GBP2.0m increase in the FSCS levy charged in the year.
Excluding acquisitions, non-staff costs were down GBP4.0m year on
year with significant savings attributable to both the impact of
COVID-19 and management actions. Savings included reduced travel,
entertainment, marketing, a slowdown of hiring, and delayed
non-essential IT projects and office upgrades. With this cost
discipline we were able to save GBP9m, ahead of the cost savings
target of GBP6m-GBP8m set at the half year. Most of these savings
were one-off in nature, however we expect that some travel and
expenses savings will emerge while social distancing is in
place.
Variable staff costs of GBP60.2m (2019: GBP58.2m), which
predominantly includes discretionary profit share were up 3.4%, in
line with the increase in adjusted profit.
We have continued to make good progress on our strategic
projects. Total capital expenditure for the year excluding IFRS 16
related right of use additions was GBP35.6m and included GBP5.3m
spend on our client management system and GBP20.9m on the custody
and settlement system. The implementation delay in our custody and
settlement system, resulted in slightly higher capex spend compared
against our guidance range of GBP30m-GBP33m.
Delivery of the custody and settlement system is expected in the
Autumn of 2021 taking into account the complexities of the
integration in a remote working environment and the extension on
the scope of the project. The initial scope of the project has
expanded following the delivery of our client management system, as
we are adding incremental solutions to improve client experience
and further enhance our regulatory compliance. These solutions
include integration of a new client reporting suite and the
introduction of a new automated client account transfer process
which will drive further benefits.
Looking ahead to next year's cost and capital expenditure, we
anticipate operating costs to grow mid-single digit, half of which
includes inflation and the remaining for investment within the
business. We anticipate our capital expenditure will be around
GBP30m of which GBP19m will be on our custody and settlement system
and GBP3m on property including the fit out of our new London head
office, Cannon Street, and the remainder is in line with our
guidance of a more normal investment spend of GBP8m-GBP10m. This
capital expenditure guidance excludes any right of use asset
additions.
IFRS 16 leases and net finance costs
IFRS 16, the new accounting standard for leases was applicable
to this year's results, it covers operating leases. All of the
properties used by the Group are on operating leases.
The adoption of the accounting standard has resulted in the
Group recognising right of use assets and corresponding lease
liabilities on its balance sheet. Additionally, the standard has
changed the pattern of recognition of costs in relation to these
assets; instead of expensing the rental cost on a straight line
basis within operating expenses, depreciation is recognised on
right of use assets with finance costs recognised in respect of
lease liabilities. This means that operating leases are more
expensive in their earlier years reflecting the finance costs. The
impact of this change in accounting decreased profit before tax by
approximately GBP1.1m in 2020.
Finance costs were GBP2.6m (2019: GBP0.1m), GBP2.3m of the
increase is due to IFRS 16 and the remainder relates to the unwind
of interest costs on provisions. Finance income for the year at
GBP0.9m (2019: GBP1.7m) was lower due to the fall in interest
rates.
Right of use asset additions of GBP1.9m were recognised in the
year for new leases.
Acquisitions
During the year, the Group completed the acquisition of Investec
Capital & Investments (Ireland) Limited, the wealth management
business of Investec Group in Ireland. This cements our position in
the Irish wealth market and provides us the business from which to
grow and expand. The net consideration after adjustments for
surplus capital was EUR43.4m. Assets under management and advice on
acquisition were GBP2.7bn at 31 October 2019. The assets were
transferred to Brewin Dolphin Wealth Management Limited in April
2020 and are now are part of our business in Ireland. The adjusted
profit before tax of the combined entities is GBP5.1m.
Defined benefit pension scheme (the 'Scheme')
The final salary pension scheme surplus has increased to
GBP20.3m (2019: GBP17.4m). An actuarial gain for the year of
GBP1.4m (2019: GBP5.6m) has been recognised.
Under International Accounting Standard 19 ('IAS 19'), large
annual fluctuations can occur. The increase in the surplus has been
driven by contributions to the Scheme, updated post-retirement
mortality assumptions that incorporate the latest mortality
projection models, updated cash commutation assumption and asset
returns have been higher than expected over the year mainly as a
result of hedging assets matching the Scheme's funding liabilities.
These increases were partially offset by an increase in the value
of liabilities reflecting the application of a lower discount rate
as a result of the fall in corporate bond yields.
The Scheme de-risked its investment strategy upon meeting a
secondary funding level target during the year at the end of
November 2019. The investment strategy reflects the Scheme's
liability profile and the Trustees' and Group's attitude to risk.
The Scheme's investment strategy is currently to invest broadly 30%
in higher return seeking assets (e.g. equities, high yielding bonds
etc.), 20% in a cash flow generating corporate bond fund and 50% in
matching assets (e.g. fixed interest gilts and index-linked
gilts).
The Group has a further GBP0.3m of additional contributions to
pay into the Scheme.
Tax
The Group's effective corporation tax rate at 22.7% is higher
than the UK statutory rate of 19%, as a result of disallowable
expenses such as the amortisation of client relationships.
Our effective tax rate is lower than prior year (2019: 23.1%)
due mainly to a reduction in disallowable entertainment expenses
because of COVID-19 restrictions.
Dividend
The Company's policy is to grow dividends in line with adjusted
earnings, with a target payout ratio of between 60% and 80% of
annual adjusted diluted earnings per share. The payout ratio range
has been adopted to provide sufficient flexibility for the Board to
reward shareholders whilst recognising that there may be a
requirement, at times, to retain capital within the Group for
investment to generate enhanced future shareholder returns.
The Board has taken a balanced view on rewarding shareholders in
what has been a strong performance by the Group in the year,
against a challenging backdrop. The Board recognises that it needs
to invest in the business for the future to remain relevant for its
clients in a fast changing world, but also needs to remain prudent
as we envisage some continuous headwinds into next year. As a
result, the Board is proposing a final dividend of 9.9p per share
bringing the total for 2020 to 14.3p per share. (2019 final: 12.0p
per share; total dividend for the 2019 year 16.4p per share). This
represents a payout ratio of 70% of adjusted diluted earnings per
share and is in line with our dividend policy.
Capital resources and regulatory capital
The Group's financial position remains very strong with net
assets of GBP335.0m at 30 September 2020 (2019: GBP337.7m).
At 30 September 2020, the Group had regulatory capital resources
of GBP161.1m (2019: GBP215.9m). Investment in intangible assets
being the main driver of the reduction, see note 10 to the
Financial Statements. The Group's primary regulator is the
Financial Conduct Authority ('FCA'). The FCA's rules determine the
calculation of the Group's regulatory capital resources and
regulatory capital requirements. As required under FCA rules, we
perform an Internal Capital Adequacy Assessment Process ('ICAAP'),
at least annually, which includes performing a range of stress
tests to determine the appropriate level of regulatory capital that
the Group needs to hold.
The Group's Pillar III disclosures are published annually on our
website and provide further details about regulatory capital
resources and requirements.
Capital allocation
The Board is introducing a return on equity (ROE) as a measure
and guide to ensure that we are disciplined in our investments and
to ensure that we achieve appropriate returns. ROE will be measured
across the portfolio of investments and will be a guide to ensure
that we deliver sustainable returns. It will be measured on an
annual basis to ensure that we continue to provide returns on the
capital invested. ROE is defined as adjusted profit after tax
expressed as a percentage of average equity across the year.
Assessment of ROE will be a key consideration for all material
investment decisions, particularly for those related to
acquisitions.
Cash flow
The Group had a cash outflow of GBP48.7m (2019: GBP43.0m inflow)
and total net cash balances of GBP180.5m as at 30 September 2020
(2019: GBP229.2m).
Adjusted EBITDA (see table below) was GBP99.5m (2019: GBP85.1m).
The acquisition of BDCIIL saw a cash outflow of GBP32m. Capital
expenditure of GBP28.9m was significantly higher than last year
(2019: GBP15.3m), supporting the ongoing infrastructure and systems
update. The contribution to the defined benefit pension scheme of
GBP1.3m (2019: GBP2.0m) was lower than last year reflecting the new
contribution rate.
Cash outflow for own share 'matching' purchases in the year of
GBP8.2m to match the awards made in 2019 for the Deferred Profit
Share Plan (DPSP) awards broadly similar to the cost last year.
Shares were also purchased (GBP0.2m) for the Share Incentive
Plan.
Dividends paid in the period increased by 5.2% to GBP48.4m
(2019: GBP46.0m).
2020 2019
GBP'm GBP'm
=============================================================== ======= =======
Profit before tax and adjusted items 78.2 75.0
Finance income and costs 1.7 (1.6)
=============================================================== ======= =======
Operating profit before adjusted items (EBIT) 79.9 73.4
Share-based payments 9.8 7.8
Depreciation and amortisation - excluding client relationships
and brand 9.8 3.9
=============================================================== ======= =======
Adjusted EBITDA 99.5 85.1
Capital expenditure (28.9) (15.3)
Purchase of client relationships - (10.0)
Acquisition of subsidiary (32.0) (2.7)
Acquisition costs (3.6) (2.3)
Proceeds from disposal of investments - 0.8
Pension funding (1.3) (2.0)
Working capital 0.3 (2.4)
Interest and taxation (16.4) (10.9)
Lease payments and interest on lease liabilities (8.8) -
Lease incentive and finance lease receivables 0.6 -
Adjusted items (1.4) (0.9)
Placing of shares - 58.4
Shares purchased and disposed of (8.4) (8.9)
Shares issued for cash 0.1 0.1
=============================================================== ======= =======
Cash flow pre-dividends (0.3) 89.0
Dividends paid (48.4) (46.0)
=============================================================== ======= =======
Cash flow (48.7) 43.0
Opening firm's cash 229.2 186.2
=============================================================== ======= =======
Closing firm's cash 180.5 229.2
=============================================================== ======= =======
KEY PERFORMANCE INDICATORS
Measuring the success of our strategy
Delivery of our strategy is measured through focused and select
KPIs that demonstrate continued progress to build and grow our
business.
Measuring our performance
Key Performance Indicators ('KPIs') are used to measure both the
progress and success of our strategy implementation. The KPIs are
set out below, with a measure of our performance to date and an
indication of potential challenges to success where applicable.
Changes to KPIs
During the year, we have reviewed our measurements to ensure
that they are appropriate for our strategy. Whilst, all the KPIs
remain appropriate, we have amended the description for the
Discretionary funds per CF30 measure to discretionary funds per
Client Facing Certified Person, the population of individuals
captured is the same.
As we are increasingly focused on becoming an advice-led
business, this means that while we continue to be driven by funds
growth, total revenue is a measure that captures the entirety of
the business. We have always monitored revenue so this will form an
additional KPI as part of our focus on growing the business.
Similar to our adjusted diluted EPS there will be no target
provided but this will form part of our remuneration decision
making and will be disclosed and monitored.
KPIs
Strategic KPI FY 2018 FY 2019 FY 2020 Target /
outcome Benchmark
-------------------- ---------------------------- ------- ------- ------- --------------
Discretionary funds
Revenue growth inflows 6.8% 3.7% 2.2% 5%
Net promoter score 44.3% 51.2% 51.0% 38.0%
Overall client satisfaction
(3) 8.5 8.6 8.7 8.4
Adjusted (1) PBT
Improved efficiency margin 23.6% 22.1% 21.6% 25%
Discretionary funds GBP80m GBP81m GBP77m GBP100m
per Client Facing
Certified
Person
Employee engagement 83% 87% 90% 77%
Capital efficiency
& shareholder Capital adequacy
return risk appetite ratio 234% 291% 220% 150% (minimum)
--------------------
Adjusted (1,2) diluted
EPS 21.7p 20.5p 20.4p n/a
Dividend payout ratio 76% 80% 70% 60%-80%
-------------------- ---------------------------- ------- ------- ------- --------------
1. Adjusted items are amortisation of client relationships and
brand, defined benefit pension scheme past service costs,
acquisition costs, incentivisation awards, onerous contracts and
other gains and losses.
2. See note 9 to the Financial Statements.
3. Scored out of 10.
PRINCIPAL RISKS
Managing our risks
Effective risk management is key to the success of delivering
our strategic objectives. Our approach to risk management continues
to evolve as the risk landscape changes; it ensures timely
identification, assessment, and management of the principal risks
to our business.
We have a defined risk appetite which enables us to effectively
manage the potential upside and downside risks of our strategy.
Our principal risks relate to our resilience from an operational
and financial perspective, and our strategic focus including change
management required to build a platform for growth, and innovation
to deliver propositions that continue to meet the needs of our
clients.
The primary objectives of risk management at Brewin Dolphin are
to ensure that there is:
-- A strong risk culture so that employees are able to identify,
assess, manage and report against the risks the business is faced
with;
-- A swift and effective response to risk events and potential
issues in order to minimise impact;
-- A defined risk appetite within which risks are managed;
and
-- An appropriate balance between risk and the cost of
control.
Our approach is to maintain a strong control framework to
identify, monitor and manage the principal risks we face,
adequately quantify them and ensure we retain sufficient capital in
the business to support our strategy.
We assess our principal risks regularly to ensure that our risk
profile is within our risk appetite which is set by the Board.
Annual risk workshops attended by both the Risk Committee and the
Executive Committee are held.
Risk Management Framework
The Board has established a Risk Management Framework to ensure
there is effective risk governance. The Board promotes a strong
risk culture and expects every employee within the Group to adhere
to the high standards established by the Board.
The Board encourages a strong risk 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 escalate events and make
suggestions for improving processes and controls; and
-- An acceptance of the importance of continuous management of
risk, including clear accountability for and ownership of specific
risks.
The benefits of establishing a strong risk culture is evident;
with our employees self-identifying and escalating risk events and
potential issues to mitigate the probability of risks
crystallising.
We follow industry practice for risk management through the
"three lines of defence" model. The first line is the business that
owns and manages the risk, the second consists of the control
functions that monitor and facilitate the implementation of
effective risk management practices, and the third line is
independent assurance provided by internal audit.
The Board reviews the effectiveness of this Risk Management
Framework and undertakes an assessment of the principal and
emerging risks, receiving reports on internal control from the
Audit and Risk Committees and debating key risks for the Group
following more detailed work by the Risk Committee.
The key parties involved in the risk management process within
the Group and their respective responsibilities and an explanation
of how risk management is structured within the Group, is set out
below.
Risk Management Framework
Top Down Risk Management
Board
* Responsible for ensuring there is an adequate and
appropriate risk management framework and culture in
place.
* Sets risk appetite and is responsible for ensuring
alignment with the Group's business strategy.
* Approves the ICAAP.
Risk Committee
* Oversees the Risk Management Framework.
* Assists the Board in its responsibilities for the
integrity of internal control and risk management
systems.
* Recommends the ICAAP to the Board for approval.
Audit Committee
* Assists the Board in gaining assurance as to the
integrity of the financial statements and the
effectiveness of the system of internal controls.
* Monitors the effectiveness and objectivity of
internal and external auditors.
Risk Management Committee
* Executive level committee oversight and monitoring of
the adequacy and effectiveness of the Risk Management
Framework.
* Monitors current and emerging risks and themes.
* Oversees the Group's Policy Framework.
Bottom Up Risk Management
Risk Identification and Assessment
* Risk and Control Self Assessments to identify the key
risks for each department, for business change
activities and for new products and services.
* A horizon scanning forum is in place to identify and
assess emerging risks, and establish ownership for
mitigation and management of those risks.
* Assessment of inherent (pre-control) and residual
risk (post-control).
Risk Mitigation and Management
* Management of events that have a potential or actual
financial, regulatory, operational or client impact.
* Agreeing action plans to mitigate risk issues.
Risk Monitoring and Reporting
* The business community is primarily responsible for
monitoring risks.
* Risk trends are monitored and analysed.
* Key risk indicators are reviewed monthly.
Risk Assurance
* Internal auditors evaluate the adequacy of processes
and systems and test the operating effectiveness of
key controls.
* Control monitoring teams are in place, undertaking
both regular control sampling and thematic reviews.
Responding to risks
-- Resilience has been crucial during 2020, and our crisis
management teams have been in full operation in response to
COVID-19. We have provided continuity of service to our clients,
and evidenced our capability to effectively respond to a crisis
from a people, processes and systems perspective, in addition to
our financial resilience.
-- We held an in depth risk workshop with our Risk Committee and
Executive Committee members, focusing on business risks, e.g. the
risk of losing key staff and clients, and focusing on emerging
trends within the financial sector and broader societal themes,
e.g. sustainability.
-- Financial market uncertainty has significantly increased. We
regularly stress test our funds, profit, cash, and regulatory
capital to understand and plan for situations which could result in
the need to amend our business strategy.
-- Change Management governance and oversight has been a
significant focus during the period as we have completed the
implementation of a new client management system, and are
progressing with the implementation of a new custody and settlement
system.
-- We have successfully implemented a Governance, Risk and
Compliance tool in 2020, aggregating risk-related data into a
single application, providing enhanced analytical capabilities to
identify risk trends, and workflow capabilities to enhance the
efficiency of how we manage risk.
-- The pipeline of regulatory change remains a focus, including
our preparations for a new prudential regime for investment firms,
due to be implemented in summer 2021. In addition, we continue to
be focused on Brexit and have a Brexit Steering Committee in place
to coordinate the Group's preparation for EU withdrawal.
The Directors confirm that we have carried out a robust
assessment of the emerging and principal risks facing the company,
including those that would threaten its business model, future
performance, solvency or liquidity.
Principal Risks and Uncertainties
The tables below detail the principal risks and uncertainties we
have identified, it is not an exhaustive list of all of the risks
the Group faces. We have a process to regularly report key risk
indicators and identify changes in the profile of these principal
risks. We also consider emerging risks as part of this process.
Key to our strategic objectives
RG Revenue growth
IE Improved efficiency
CS Capital efficiency and shareholder return
Business risks
These are the risks that we do not set the right strategy, a
material business decision fails, or external market factors impact
the businesses viability. This could include an inability to
introduce or enter into new business lines effectively, to expand
organically or through merger/acquisition, or to enhance the
effectiveness of our operational infrastructure. In addition to the
principal risk specified, we monitor the external environment and
model the potential impact of different potential geopolitical
scenarios as part of our stress testing programme.
Principal Nature and Primary Mitigating Factors Examples Movement
Risk and Potential Strategic of Risk in the year
Risk Owner Impact Impact Metrics
(s) of the Risk Monitored
------------ -------------- --------- ----------------------------------------------------------- ---------------------------- -------------
1 The risk of RG Client needs
Propositions propositions * Dedicated resources to develop, test and launch new * Number of new clients, are changing
Risk Owners: being service offerings. client pipeline, net flows, and there
Managing uncompetitive funds under management is increasing
Director and not . demand for
of Advice meeting * New service offerings are piloted before broader different
and the needs of rollout. investment
Innovation, our clients, solutions.
and Managing resulting in
Director a failure to * Two key hires recruited into the sustainability team,
of Wealth attract new driving the company's sustainability strategy and
and clients or responsible investment propositions, considering
Investment existing environmental, social and governance factors,
clients including climate change.
leaving, e.g.
risk of not
meeting
increasing
demand for
sustainability
focused
investment
solutions.
------------ -------------- --------- ----------------------------------------------------------- ---------------------------- -------------
2 The risk of RG We have
Acquisitions acquisitions * Acquisitions form part of the Change Management * Income, client and sta significantly
Risk Owner: not achieving Programme governance. ff retention, client progressed
Acquisition strategic complaints. integration
Executive objectives activity
Sponsor or resulting * Post completion metrics are monitored. for the
in acquisitions
unidentified completed
liabilities in the prior
post period.
completion.
------------ -------------- --------- ----------------------------------------------------------- ---------------------------- -------------
Financial risks
These are the risks facing our business in terms of inadequate
or failed management of finances and the risk introduced by
external factors that could have a detrimental impact to our cash
flow, capital and liquidity.
Principal Nature and Primary Mitigating Factors Examples Movement
Risk and Potential Strategic of Risk in the year
Risk Owner Impact Impact Metrics
(s) of the Risk Monitored
------------ -------------- --------- ---------------------------------------------------------- -------------------------------------------------------- ---------------
3 Default by CS The risk
Counterparty our banking * A Financial Risk Management Framework is in place * Proportion of money held per banking counterparty. externally
Risk owner: counterparties which includes managing the Group's exposure to has increased
Chief could put our counterparty credit risk; setting and monitoring due to the
Financial own or our counterparty limits. * Banking counterparty ratings. challenging
Officer client's cash economic
deposits or environment.
assets at risk * Diversity across our banking counterparties. * Changes in the risk profile of banking However,
of loss. counterparties. in response
we have
* Due diligence is undertaken for all banking increased
counterparties. * Credit Default Swap spreads. diversification
of money
held per
* A Financial Risk Committee provides oversight of the banking
Financial Risk Management Framework. counterparty.
------------ -------------- --------- ---------------------------------------------------------- -------------------------------------------------------- ---------------
Operational risks
This is the risk of loss resulting from inadequate or failed
internal processes, people and systems, or from external
events.
Principal Nature and Primary Mitigating Factors Examples Movement
Risk and Potential Strategic of Risk in the year
Risk Owner Impact Impact Metrics
(s) of the Risk Monitored
------------- ------------ --------- ----------------------------------------------------------- ---------------------------------------------------------- --------------
4 This is the CS We have
Regulatory risk that we * Compliance and Legal functions monitor and oversee * We have dashboards in place to monitor each completed
& Legal are not fulfilment of our regulatory and legislative regulatory risk which includes assessment of the actions
Compliance compliant requirements and interactions with our key control environment, regulatory interaction, issues for the
(Risk owner: with all regulators. and breaches. key potential
Chief Risk existing issues
Officer) applicable identified
regulation * We execute against a robust compliance monitoring as a result
and plan, and have strong governance in place to identify of our
legislation, issues and ensure any required actions are completed. governance
which could processes.
lead to However,
regulatory the regulatory
enforcement and legal
action. environment
will be
impacted
by Brexit.
------------- ------------ --------- ----------------------------------------------------------- ---------------------------------------------------------- --------------
5 The risk IE Although
Change that * A Business Change Board with Executive Committee * Project status taking into account risks, issues, we have
Management business and representatives oversee and challenge the change budget, resources, internal and vendor deliverables. successfully
(Risk owners: regulatory management programme. completed
Chief Risk changes are the
Officer not implementation
and Chief delivered. * Change management is centralised within a Change and of a
Operating This could Transformation team. replacement
Officer) restrict the client
firm's management
ability system in
to achieve the period,
its material
strategic reduction
objectives in Change
of revenue Management
growth and risk will
operational be achieved
efficiency. following
replacement
of the custody
and settlement
system.
------------- ------------ --------- ----------------------------------------------------------- ---------------------------------------------------------- --------------
6 This is the CS Increased
Conduct risk of not * Tone from the top sets a culture which puts * Client service reviews. market
(Risk owner: delivering delivering fair outcomes for clients at the core of volatility
Group Head fair the Group's activities/ethos. has
of Investment outcomes * Quality of advice. led to
Governance) for clients. increased
* A conduct risk framework sets our approach to conduct trading
risk governance and the ongoing assessment, * Asset allocation. and changing
monitoring against key metrics and reporting of client
conduct risk. requirements.
* Portfolio turnover.
* A conduct risk dashboard is in place, enabling
detailed monitoring and oversight of conduct risk at * Client complaints.
an individual employee level.
* A risk based client on-boarding process which ensures
that we understand our clients' needs and attitudes
to risk.
* A quality assurance process to identify and address
any instances where the best outcomes for clients are
not achieved.
* Robust investment governance supported by an
Investment Governance Committee and a dedicated
research department.
------------- ------------ --------- ----------------------------------------------------------- ---------------------------------------------------------- --------------
7 This is the CS The external
Resilience risk that * A dedicated Information Security, Data Protection and * Technology resilience and potential vulnerabilities. threat of
(Risk owners: the Operational Resilience team report directly to the operational
Chief Risk Group does Chief Risk Officer. disruption
Officer not have the * Key person dependencies. increases.
and Chief ability to We continue
Operating respond to, * Crisis management scenarios are undertaken with to mature
Officer) recover and external providers to test the roles and * Service disruptions. our approach
learn from responsibilities of the crisis management response to mitigating
operational teams. this risk.
disruption
to core
business * We engage independent parties to act undercover and
activities. simulate attacks.
* We have a third party security specialist in place to
ensure the resilience capabilities of our third
parties.
------------- ------------ --------- ----------------------------------------------------------- ---------------------------------------------------------- --------------
8 The risk of CS Heightened
Fraud unauthorised * All expense payments are requested, approved and * Fraud attempts. external
(Risk owner: gain or administered using a spend management platform with risk,
Chief Risk transfer in built controls. particularly
Officer) of company * Internal process monitoring results. related
or client to cyber,
assets, * Robust controls are in place for the requested change as fraudsters
and the risk of payee bank account details. * Security threats. take advantage
of of the
unauthorised COVID-19
access to, * Threat scanning for potential cyber risks. * Phishing testing results. pandemic.
or
corruption
of * Simulated phishing programme in place to ensure
information. familiarisation with phishing attacks.
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, the Strategic Report and
the report of the Risk Committee.
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 30 to the 2020 Annual Report and
Accounts.
The Directors believe that the Group is well placed to manage
its business risks successfully. The Directors assess the outlook
of the Group by considering its Medium-Term Plan ('MTP') as well as
the results of a range of stress tests. The MTP takes into account
both the COVID-19 pandemic and Brexit and the resultant economic
uncertainty and volatility. The stress tests, including a reverse
stress, enable the modelling of the impact of a variety of external
and internal events on the MTP; identify the potential impact of
stress events on the Group's income, costs, cash flow and capital;
and enable the Directors to assess management's ability to
implement effective management actions that may be taken to
mitigate the impact of the stress events (see note 3bii for detail
in the 2020 Annual Report and Accounts).
These tests demonstrated that the Group has adequate resources,
including cash, 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 12 months from the date on which
the Financial Statements are approved.
Viability statement
The Directors have assessed the outlook of the Group over a
longer period than the 12 months required by the going concern
statement in accordance with the UK Corporate Governance Code.
The assessment is based on the Group's Medium Term Plan ('MTP'),
the Internal Capital Adequacy Assessment Process ('ICAAP') and the
evaluation of the Group's principal risks and uncertainties,
including those risks that could threaten its business model,
future performance or solvency.
The Group maintains a five-year MTP as part of its corporate
planning process, which is a financial articulation of the Group's
strategy. The financial forecasting model is predicated on a
detailed year-one budget and higher level forecasts for years two
to five. As part of preparing the MTP, the Board takes into
consideration the impact of external factors and this year in
particular, the impact of the COVID-19 pandemic and the resulting
economic uncertainty, in the projections.
As a matter of good practice and as part of the ICAAP required
by the Financial Conduct Authority ('FCA'), the Group performs a
range of stress tests including reverse stress tests. These assess
the Group's ability to withstand 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, are
deemed to be severe but plausible, after considering the principal
risks and uncertainties faced by the Group. The scenarios involved
are refreshed on an at least annual basis or sooner if a trigger
event occurs to ensure they remain current.
The stress tests enable the Group to model the impact of a
variety of external and internal events on the MTP; to identify the
potential impact of stress events on the Group's 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.
This enables the identification of potential business
vulnerabilities and the development of potentially mitigating
actions.
As an example, for this year, one of the Group stresses under
the market-wide scenario is based around the impact of the
prolonged inflation experienced in the 1970's which saw global
equities fall approximately 40%. Subsequent management actions
include, inter alia, a significant decrease of dividend payments
over the period and variable remuneration reduced to as minimum as
possible. Following these actions, the resultant outcome ensures
the Group still maintains sufficient net assets and regulatory
resources to operate as a going concern.
In addition, the Group has prepared for UK leaving the European
Union without a withdrawal agreement. Both these analyses do not
present any reason to believe the Group will not remain viable over
the longer term.
Following the assessment of the above, the Board concluded that
the Viability Statement should cover a period of five years. While
the Directors have no reason to believe that the Group will not be
viable over a longer period, this period has been chosen to be
consistent with the MTP used as part of the Group's corporate
planning process.
Taking account of the Group's current position and principal
risks and the Board's assessment of the Group'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 five years.
INDEPENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF BREWIN DOLPHIN
HOLDINGS PLC ON THE PRELIMINARY ANNOUNCEMENT OF BREWIN DOLPHIN
HOLDINGS PLC
As the independent auditor of Brewin Dolphin Holdings PLC we are
required by UK Listing Rule LR 9.7A.1(2)R to agree to the
publication of Brewin Dolphin Holdings PLC's preliminary
announcement statement of annual results for the period ended 30
September 2020.
The directors of Brewin Dolphin Holdings PLC are responsible for
the preparation, presentation and publication of the preliminary
statement of annual results in accordance with the UK Listing
Rules.
We are responsible for agreeing to the publication of the
preliminary statement of annual results, having regard to the
Financial Reporting Council's Bulletin "The Auditor's Association
with Preliminary Announcements made in accordance with UK Listing
Rules".
Status of our audit of the financial statements
Our audit of the annual financial statements of Brewin Dolphin
Holdings PLC is complete and we signed our auditor's report on 24
November 2020. Our auditor's report is not modified and contains no
emphasis of matter paragraph.
Our audit report on the full financial statements sets out the
following key audit matters which had the greatest effect on our
overall audit strategy; the allocation of resources in our audit;
and directing the efforts of the engagement team, together with how
our audit responded to those key audit matters and the key
observations arising from our work:
Revenue recognition
Key audit matter description
As detailed in note 4, revenue comprises investment management
fees of GBP247.2m (2019: GBP232.2m), commissions of GBP77.8m (2019:
GBP66.7m) and other income of GBP36.5m (2019: GBP40.2m).
Investment management fees account for approximately 68% of
total revenue and are based on a percentage of individual clients'
funds under management. There is a risk that incorrect rates or
fund valuations are used to calculate management fees. This risk
increases where amendments are required to be made to system
calculated fees due to the requirement for manual intervention. As
a result, we consider there to be increased risk due to fraud or
error.
How the scope of our audit responded to the key audit matter
We obtained an understanding of and tested the relevant controls
over the calculation of management fees. This included controls
over system generated investment management fees, including
associated IT controls and controls over amendments to client
fees.
We selected a sample of quarterly investment management fee
calculations for individual clients and recalculated the system
generated amount. For a sample of fees, we agreed the rates used to
client contracts and the value of funds under management to third
party sources and challenged the rationale and authorisation of any
amendments to the system generated fee. We reviewed client
communications, new accounts and transfers for a sample of clients
to challenge the completeness of manual fee amendments.
Key observations
Through our testing, we concluded that investment management
fees were appropriately stated for the year ended 30 September
2020.
Impairment of goodwill and client relationships
Key audit matter description
Historically, the group has expanded through acquisitions
leading to the recognition of goodwill and client relationships of
GBP128.1m (2019: GBP103.2m).
As detailed in note 10 intangible assets, client relationships
are reviewed for indicators of impairment at each reporting date in
accordance with IAS 36 and, if an indicator of impairment exists,
an impairment test is performed. Goodwill is tested for impairment
at least annually, whether or not indicators of impairment
exist.
The impairment test requires an estimation of the recoverable
amount for each of the group's cash-generating units ("CGUs") and
where the carrying amount exceeds the recoverable amount an
impairment should be recorded. Where the carrying value exceeds the
recoverable amount, an impairment should be recorded. The
recoverable amount is the higher of its fair value less costs to
sell ("FVLCTS") and its value in use ("VIU").
Management has historically estimated the recoverable amount of
CGUs by calculating the FVLCTS using a multiple of funds under
management by reference to recent market transactions. Due to the
economic uncertainty caused by the COVID-19 pandemic, it was
difficult to estimate a reliable fair value and, therefore,
management's impairment test also used a VIU methodology based on
discounting expected future cash flows. The assumptions used,
including the discount rate and the revenue assumptions in the cash
flow forecasts, are inherently judgemental and, as a result, we
consider there to be an increased risk due to fraud or error.
How the scope of our audit responded to the key audit matter
We obtained an understanding of relevant controls over the
completeness and accuracy of the production of funds under
management data. We also obtained an understanding of the relevant
controls over the impairment test performed by management.
In assessing management's impairment assessment for intangible
assets, we have reviewed their methodology for compliance with the
requirements of IAS 36 "Impairment of Assets" and challenged the
assumptions and judgements made.
We performed the following procedures to challenge the key
assumptions used in the VIU impairment assessment:
-- Supported by our valuation specialists, we challenged
management's discount rate by comparing it to our independently
derived range;
-- Focusing on those assumptions where the impairment test was
most sensitive, we challenged management's assumptions used to
forecast the cash flows of the group's CGUs by reference to recent
trading performance, taking into account the impact of Covid-19 and
the Group's strategy;
-- We compared management's actual results to previous forecasts
to assess their historical forecasting accuracy; and
-- Supported by our valuation specialists, we challenged the
long term growth rate used by comparison to third party
benchmarks.
Additionally we sample tested the completeness and accuracy of
funds under management by CGU and challenged the percentages
management applied to market values of funds under management to
determine the FVLCTS of each CGU. We validated these against
percentages derived from recent public acquisitions of fund
management businesses and the calculated the sensitivity of the
impairment assessment to changes in the percentages applied.
Key observations
Through our testing, we concurred with management's assessment
that no impairments were required to goodwill or client
relationships.
Assumptions underlying the calculation of the pension scheme
liability
Key audit matter description
The group has recognised a defined benefit pension surplus of
GBP20.3m (2019: GBP17.3m surplus). The net surplus comprises assets
of GBP126.1m and liabilities of GBP105.6m.
The calculation of the liability is sensitive to changes in
underlying assumptions and is considered to be a key source of
estimation uncertainty for the group as detailed in note 3.
The key assumptions are the discount rate, inflation rate and
mortality rate where small changes to these assumptions could
result in a material change to the pension liability valuation.
How the scope of our audit responded to the key audit matter
In order to evaluate the appropriateness of the assumptions used
by management, we performed the following procedures:
-- Obtained an understanding of the relevant controls over the review of assumptions;
-- Used our own actuarial experts to make direct enquiries of
the group's actuary to challenge the key actuarial assumptions
adopted in the IAS 19 ("Employee Benefits") pension valuation;
and
-- Compared the discount rate, inflation rate and mortality
assumptions to our independently determined benchmarks derived
using market and other data.
Key observations
Through the work performed, we concluded that the assumptions
underlying the pension scheme liability for the year ended 30
September 2020 were within our independently determined range.
Acquisition accounting for Investec Capital and Investments
(Ireland) Limited ("ICIIL").
Key audit matter description
As set out in note 18, during the period Brewin Dolphin Wealth
Management Limited acquired 100% of Investec Capital and
Investments (Ireland) Limited ("ICIIL"). The acquisition was
accounted for as a business combination, under IFRS 3. The
difference between the fair value of consideration of GBP43.4m and
the fair value of net assets acquired of GBP41.3m including client
relationships intangibles of GBP32.1m, was recognised as goodwill
of GBP2.0m.
As explained in note 3, the determination of the fair value of
net assets acquired including the valuation of client relationships
intangibles and goodwill requires judgement and the use of
assumptions such as revenue assumptions in the cash flow
forecasts.
How the scope of our audit responded to the key audit matter
We performed an independent assessment of the acquisition
accounting to assess whether it is in compliance with IFRS 3, which
included the following:
-- We independently determined the acquisition date, resulting
measurement period and the consideration paid, including deferred
consideration.
-- We evaluated management's identification and assessment of
the separately identifiable assets acquired, including any fair
value adjustments required.
-- We challenged the cash flow forecasts used to estimate the
fair value of client relationship intangibles.
-- We challenged the split of goodwill and client relationships
by benchmarking to other acquisitions in the industry and
evaluating management's approach to determining the fair value of
the client intangibles.
-- We tested the mathematical accuracy of the calculations
performed by management to determine the amounts of client
relationship intangibles and goodwill recognised.
Key observations
Through our testing, we concurred with management's accounting
of the ICIIL acquisition in the period and the valuation of the
intangibles and goodwill arising from the acquisition.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we did not provide a separate opinion on these
matters.
Procedures performed to agree to the preliminary announcement of
annual results
In order to agree to the publication of the preliminary
announcement of annual results of Brewin Dolphin Holdings PLC we
carried out the following procedures:
a) checked that the figures in the preliminary announcement
covering the full year have been accurately extracted from the
audited or draft financial statements and reflect the presentation
to be adopted in the audited financial statements;
b) considered whether the information (including the management
commentary) is consistent with other expected contents of the
annual report;
c) considered whether the financial information in the preliminary announcement is misstated;
d) considered whether the preliminary announcement includes a
statement by directors as required by section 435 of CA 2006 and
whether the preliminary announcement includes the minimum
information required by UKLA Listing Rule 9.7A.1;
e) where the preliminary announcement includes alternative
performance measures ("APMs"), considered whether appropriate
prominence is given to statutory financial information and
whether:
-- the use, relevance and reliability of APMs has been explained;
-- the APMs used have been clearly defined, and have been given
meaningful labels reflecting their content and basis of
calculation;
-- the APMs have been reconciled to the most directly
reconcilable line item, subtotal or total presented in the
financial statements of the corresponding period; and
-- comparatives have been included, and where the basis of
calculation has changed over time this is explained.
f) read the management commentary, any other narrative
disclosures and considered whether they are fair, balanced and
understandable.
Use of our report
Our liability for this report, and for our full audit report on
the financial statements is to the company's members as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for our audit report or this report, or for the
opinions we have formed.
Robert Topley FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
24 November 2020
Consolidated Income Statement
Year ended 30 September 2020
2020 2019
Note GBP'000 GBP'000
========================================================= ==== ========= =========
Revenue 4 359,164 336,301
Other operating income 4 2,283 2,808
========================================================= ==== ========= =========
Income 361,447 339,109
========================================================= ==== ========= =========
Staff costs (199,485) (184,896)
Amortisation of intangible assets - client relationships
and brand 10 (11,072) (6,858)
Defined benefit pension scheme past service costs - (1,909)
Acquisition costs 18 (3,600) (2,337)
Onerous contracts (250) (996)
Incentivisation awards (1,192) (340)
Other operating costs (82,056) (80,812)
========================================================= ==== ========= =========
Operating expenses (297,655) (278,148)
========================================================= ==== ========= =========
Operating profit 63,792 60,961
Finance income 6 907 1,708
Other gains and losses - 1
Finance costs 6 (2,627) (146)
========================================================= ==== ========= =========
Profit before tax 62,072 62,524
Tax 7 (14,117) (14,457)
========================================================= ==== ========= =========
Profit for the year 47,955 48,067
========================================================= ==== ========= =========
Attributable to:
Equity holders of the parent 47,955 48,067
========================================================= ==== ========= =========
47,955 48,067
========================================================= ==== ========= =========
Earnings per share
Basic 9 16.3p 17.0p
Diluted 9 15.9p 16.6p
========================================================= ==== ========= =========
Consolidated Statement of Comprehensive Income
Year ended 30 September 2020
2020 2019
Note GBP'000 GBP'000
========================================================= ==== ======== ========
Profit for the year 47,955 48,067
Items that will not be reclassified subsequently
to profit and loss:
Actuarial gain on defined benefit pension scheme 1,377 5,601
Deferred tax charge on actuarial gain on defined
benefit pension scheme 14 (609) (945)
Fair value (loss)/gain on investments in equity
instruments designated as at fair value through
other comprehensive income (5) 1
Gain on disposal of investments in debt instruments
designated as at fair value through other comprehensive
income - 200
Tax on gain on disposal of investments in debt
instruments designated as at fair value through
other comprehensive income - (38)
========================================================= ==== ======== ========
763 4,819
========================================================= ==== ======== ========
Items that may be reclassified subsequently to
profit and loss:
Loss on cash flow hedge - (24)
Exchange differences on translation of foreign
operations 1,245 (67)
========================================================= ==== ======== ========
1,245 (91)
========================================================= ==== ======== ========
Other comprehensive income for the year net of
tax 2,008 4,728
========================================================= ==== ======== ========
Total comprehensive income for the year 49,963 52,795
========================================================= ==== ======== ========
Attributable to:
Equity holders of the parent 49,963 52,795
========================================================= ==== ======== ========
49,963 52,795
========================================================= ==== ======== ========
Consolidated Balance Sheet
As at 30 September 2020
As at At
1 October 30 September
2020 2019(1) 2019
Note GBP'000 GBP'000 GBP'000
======================================= ==== ======== ========== =============
Assets
Non-current assets
Intangible assets 10 174,717 117,246 117,246
Property, plant and equipment 9,723 10,442 10,659
Right of use assets 11 38,042 43,305 -
Finance lease receivables 1,966 1,181 -
Other receivables 931 688 -
Defined benefit pension scheme 20,324 17,373 17,373
======================================= ==== ======== ========== =============
Total non-current assets 245,703 190,235 145,278
======================================= ==== ======== ========== =============
Current assets
Trade and other receivables 241,939 214,841 216,212
Finance lease receivables 167 118 -
Financial assets at fair value through
other comprehensive income 68 79 79
Financial assets at fair value through
profit or loss 379 373 373
Current tax 3,909 - -
Cash and cash equivalents 180,533 229,199 229,199
======================================= ==== ======== ========== =============
Total current assets 426,995 444,610 445,863
======================================= ==== ======== ========== =============
Total assets 672,698 634,845 591,141
======================================= ==== ======== ========== =============
Liabilities
Trade and other payables 256,036 217,882 220,921
Current tax - 6,035 6,035
Lease liabilities 12 8,316 6,653 -
Provisions 13 4,798 3,829 4,350
======================================= ==== ======== ========== =============
Total current liabilities 269,150 234,399 231,306
======================================= ==== ======== ========== =============
Net current assets 157,845 210,211 214,557
======================================= ==== ======== ========== =============
Non-current liabilities
Trade and other payables 459 832 832
Shares to be issued 3,738 3,668 3,668
Net deferred tax liability 14 9,094 1,376 2,699
Lease liabilities 12 45,265 51,131 -
Provisions 13 9,956 11,549 14,933
======================================= ==== ======== ========== =============
Total non-current liabilities 68,512 68,556 22,132
======================================= ==== ======== ========== =============
Total liabilities 337,662 302,955 253,438
======================================= ==== ======== ========== =============
Net assets 335,036 331,890 337,703
======================================= ==== ======== ========== =============
Equity
Share capital 15 3,032 3,032 3,032
Share premium account 15 58,340 58,238 58,238
Own shares (25,238) (25,214) (25,214)
Hedging reserve - (24) (24)
Revaluation reserve (2) 3 3
Merger reserve 70,553 70,553 70,553
Profit and loss account 228,351 225,302 231,115
======================================= ==== ======== ========== =============
Equity attributable to equity holders
of the parent 335,036 331,890 337,703
======================================= ==== ======== ========== =============
1. Presented following the adoption of IFRS 16 'Leases' - see
notes 2 and 20 for more detail.
Approved by the Board of Directors and authorised for issue on
24 November 2020.
Signed on its behalf by
Robin Beer Siobhan Boylan
Chief Executive Officer Chief Financial Officer
Consolidated Statement of Changes in Equity
Year ended 30 September 2020
Attributable to the equity holders of
the parent
=================== ===== =====================================================================================
Profit
Share and
Share premium Own Hedging Revaluation Merger loss
capital account shares reserve reserve reserve account(1) Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=================== ===== ======== ========= ======== ======== =========== ======== =========== ========
At 30 September
2018 2,834 152,477 (26,060) - 2 70,553 73,931 273,737
=================== ===== ======== ========= ======== ======== =========== ======== =========== ========
Profit for the year - - - - - - 48,067 48,067
Other comprehensive
income
for the year -
Deferred and
current tax
on other
comprehensive
income - - - - - - (983) (983)
Actuarial gain on
defined
benefit pension
scheme - - - - - - 5,601 5,601
Fair value
movement on
investments
in equity
instruments
designated
as at fair value
through
other
comprehensive
income - - - - 1 - - 1
Gain on disposal
of investments
in debt
instruments
designated
as at fair value
through
other
comprehensive
income - - - - - - 200 200
Loss on cash flow
hedge - - - (24) - - - (24)
Exchange
differences on
translation
of foreign
operations - - - - - - (67) (67)
=================== ===== ======== ========= ======== ======== =========== ======== =========== ========
Total comprehensive
(expense)/income
for the year - - - (24) 1 - 52,818 52,795
Dividends 8 - - - - - - (45,986) (45,986)
Issue of share
capital 2 95 - - - - - 97
Placing of shares 196 58,181 - - - - - 58,377
Own shares acquired
in the
year - - (8,898) - - - - (8,898)
Own shares disposed
of on
exercise of
options - - 9,744 - - - (9,744) -
Share-based
payments - - - - - - 7,769 7,769
Share premium
reduction - (152,515) - - - - 152,515 -
Tax on share-based
payments - - - - - - (188) (188)
=================== ===== ======== ========= ======== ======== =========== ======== =========== ========
At 30 September
2019 3,032 58,238 (25,214) (24) 3 70,553 231,115 337,703
=================== ===== ======== ========= ======== ======== =========== ======== =========== ========
Effect of change in
accounting
policy for initial
application
of IFRS 16 20 - - - - - - (5,813) (5,813)
=================== ===== ======== ========= ======== ======== =========== ======== =========== ========
At 1 October 2019 3,032 58,238 (25,214) (24) 3 70,553 225,302 331,890
=================== ===== ======== ========= ======== ======== =========== ======== =========== ========
Profit for the year - - - - - - 47,955 47,955
Other comprehensive
income
for the year
Deferred tax on
other
comprehensive
income 14 - - - - - - (609) (609)
Actuarial gain on
defined
benefit pension
scheme - - - - - - 1,377 1,377
Fair value
movement on
investments
in equity
instruments
designated
as at fair value
through
other
comprehensive
income - - - - (5) - - (5)
Exchange
differences on
translation
of foreign
operations - - - - - - 1,245 1,245
=================== ===== ======== ========= ======== ======== =========== ======== =========== ========
Total comprehensive
(expense)/income
for the year - - - - (5) - 49,968 49,963
Dividends 8 - - - - - - (48,393) (48,393)
Issue of share
capital 15 - 102 - - - - - 102
Own shares acquired
in the
year - - (8,388) - - - - (8,388)
Own shares disposed
of on
exercise of
options - - 8,364 - - - (8,364) -
Share-based
payments - - - - - - 9,779 9,779
Hedge reversal - - - 24 - - - 24
Tax on share-based
payments - - - - - - 59 59
=================== ===== ======== ========= ======== ======== =========== ======== =========== ========
At 30 September
2020 3,032 58,340 (25,238) - (2) 70,553 228,351 335,036
=================== ===== ======== ========= ======== ======== =========== ======== =========== ========
1. A cumulative credit of GBP1,164k has been recognised in the
profit and loss account reserve as at 30 September 2020 for
exchange differences on translation of foreign operations (2019:
GBP81k debit, 2018: GBP14k debit).
Company Balance Sheet
As at 30 September 2020
2020 2019
Note GBP'000 GBP'000
====================================== ==== ======== ========
Assets
Non-current assets
Investment in subsidiaries 238,659 192,215
====================================== ==== ======== ========
Total non-current assets 238,659 192,215
====================================== ==== ======== ========
Current assets
Trade and other receivables 35,042 38,967
Cash and cash equivalents 1,256 47,000
====================================== ==== ======== ========
Total current assets 36,298 85,967
====================================== ==== ======== ========
Total assets 274,957 278,182
====================================== ==== ======== ========
Liabilities
Current liabilities
Trade and other payables 12,419 13,039
====================================== ==== ======== ========
Total current liabilities 12,419 13,039
====================================== ==== ======== ========
Net current assets 23,879 72,928
====================================== ==== ======== ========
Non-current liabilities
Shares to be issued 3,738 3,668
====================================== ==== ======== ========
Total non-current liabilities 3,738 3,668
====================================== ==== ======== ========
Total liabilities 16,157 16,707
====================================== ==== ======== ========
Net assets 258,800 261,475
====================================== ==== ======== ========
Equity
Share capital 15 3,032 3,032
Share premium account 15 58,340 58,238
Own shares (25,238) (25,214)
Hedging reserve (24) (24)
Merger reserve 70,838 70,838
Profit and loss account 151,852 154,605
====================================== ==== ======== ========
Equity attributable to equity holders 258,800 261,475
====================================== ==== ======== ========
Approved by the Board of Directors and authorised for issue on
24 November 2020.
Signed on its behalf by
Robin Beer Siobhan Boylan
Chief Executive Officer Chief Financial Officer
Brewin Dolphin Holdings PLC
Company Number: 02685806
Company Statement of Changes in Equity
Year ended 30 September 2020
Attributable to the equity holders of
the Company
============================ ===== ========================================================================
Share Profit
Share premium Hedging Merger and loss
capital account Own shares reserve reserve account Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================ ===== ======== ========= ========== ======== ======== ========= ========
At 30 September 2018 2,834 152,477 (26,060) - 70,838 50,826 250,915
============================ ===== ======== ========= ========== ======== ======== ========= ========
Profit for the year - - - - - (775) (775)
Other comprehensive income
for the year -
Loss on cash flow hedge - - - (24) - - (24)
============================ ===== ======== ========= ========== ======== ======== ========= ========
Total comprehensive expense
for the year - - - (24) - (775) (799)
Dividends 8 - - - - - (45,986) (45,986)
Issue of share capital 2 95 - - - - 97
Placing of shares 196 58,181 - - - - 58,377
Own shares acquired in the
year - - (8,898) - - - (8,898)
Own shares disposed of on
exercise of options - - 9,744 - - (9,744) -
Share premium reduction - (152,515) - - - 152,515 -
Share-based payments - - - - - 7,769 7,769
============================ ===== ======== ========= ========== ======== ======== ========= ========
At 30 September 2019 3,032 58,238 (25,214) (24) 70,838 154,605 261,475
============================ ===== ======== ========= ========== ======== ======== ========= ========
Profit for the year - - - - - 44,225 44,225
Dividends 8 - - - - - (48,393) (48,393)
Issue of share capital 15 - 102 - - - - 102
Own shares acquired in the
year - - (8,388) - - - (8,388)
Own shares disposed of on
exercise of options - - 8,364 - - (8,364) -
Share-based payments - - - - - 9,779 9,779
============================ ===== ======== ========= ========== ======== ======== ========= ========
At 30 September 2020 3,032 58,340 (25,238) (24) 70,838 151,852 258,800
============================ ===== ======== ========= ========== ======== ======== ========= ========
Consolidated Cash Flow Statement
Year ended 30 September 2020
2020 2019
Note GBP'000 GBP'000
======================================================= ==== ======== ========
Net cash inflow from operating activities 17 77,386 66,647
======================================================= ==== ======== ========
Cash flows from investing activities
Purchase of intangible assets - client relationships - (10,011)
Purchase of intangible assets - software (26,523) (10,064)
Purchase of property, plant and equipment (2,379) (5,249)
Acquisition of subsidiaries (32,029) (2,680)
Proceeds on disposal of financial instruments at
fair value through other comprehensive income 6 799
======================================================= ==== ======== ========
Net cash used in investing activities (60,925) (27,205)
======================================================= ==== ======== ========
Cash flows from financing activities
Dividends paid to equity shareholders 8 (48,393) (45,986)
Purchase of own shares (8,388) (8,898)
Cash flow hedge - (24)
Repayment of lease liabilities 12 (8,765) -
Cash payments from lessees 203 -
Proceeds on issue of shares 15 102 58,474
======================================================= ==== ======== ========
Net cash (used in)/from financing activities (65,241) 3,566
======================================================= ==== ======== ========
Net (decrease)/increase in cash and cash equivalents (48,780) 43,008
======================================================= ==== ======== ========
Cash and cash equivalents at 1 October 229,199 186,222
Effect of foreign exchange rates 114 (31)
======================================================= ==== ======== ========
Cash and cash equivalents at 30 September 180,533 229,199
======================================================= ==== ======== ========
Company Cash Flow Statement
Year ended 30 September 2020
2020 2019
Note GBP'000 GBP'000
===================================================== ==== ======== ========
Net cash inflow from operating activities 17 49,170 33,091
===================================================== ==== ======== ========
Cash flows from investing activities
Capital contribution to subsidiary (45,449) -
===================================================== ==== ======== ========
Net cash used in investing activities (45,449) -
===================================================== ==== ======== ========
Cash flows from financing activities
Dividends paid to equity shareholders 8 (48,393) (45,986)
Cash flow hedge - (24)
Foreign exchange (1,174) -
Proceeds on issue of shares 15 102 58,474
===================================================== ==== ======== ========
Net cash (used in)/from financing activities (49,465) 12,464
===================================================== ==== ======== ========
Net (decrease)/increase in cash and cash equivalents (45,744) 45,555
===================================================== ==== ======== ========
Cash and cash equivalents at 1 October 47,000 1,445
===================================================== ==== ======== ========
Cash and cash equivalents at 30 September 1,256 47,000
===================================================== ==== ======== ========
Notes to the Financial Statements
1. General information
The financial information contained in this preliminary
announcement does not constitute the Group's and the Company's
Statutory Financial Statements for the period ended 30 September
2020 within the meaning of section 435 of the Companies Act
2006.
The financial information set out in this preliminary
announcement has been extracted from the Group's and the Company's
2020 Annual Report and Accounts, which have been approved by the
Board of Directors on 24 November 2020 and agreed with Deloitte
LLP, the Company's Auditor. The Auditor's Report was unqualified
and did not draw attention to any matters by way of emphasis and
did not contain statements under section 498(2) or (3) of the
Companies Act 2006.
Whilst the financial information has been prepared in accordance
with the recognition and measurement criteria of International
Financial Reporting Standards ("IFRS") the preliminary announcement
does not contain sufficient information to comply with IFRS.
The accounting policies used are consistent with those set out
in note 3 to the 2019 Annual Report and Accounts which have been
delivered to the Registrar of Companies, with the exception of 3l.
leases which has been updated following the adoption of IFRS 16
'Leases' , see note 2b below for more information. The revised
accounting policy is set out in note 21. Additionally, there are
new accounting policies for derivative financial instruments and
hedging activities; shares to be issued including premium and
intangible asset - brand, these are also set out in note 21.
The critical accounting judgements and key sources of estimation
uncertainty are set out in note 3.
The 2020 Annual Report and Accounts will be posted to
shareholders during January 2021. 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.
2. Application of new and revised International Financial
Reporting Standards ('IFRSs') and changes in accounting
policies
a. New standards, amendments and interpretations adopted
IFRS 16 'Leases', a new standard, has been applied for the first
time, it replaces IAS 17.
The Group adopted IFRS 16 Leases with effect from 1 October 2019
and elected to apply the standard retrospectively under the
modified retrospective approach with the cumulative effect of
initial application being recognised at 1 October 2019; comparative
information has therefore not been restated.
Further information and changes to significant accounting
policies as a result of the application of the standard for the
first time are described below in note 2b.
b. Changes in accounting policies
There have been no changes to accounting policies in the year
except for the changes described below:
IFRS 16 Leases
IFRS 16 represents a significant change in the principles for
the recognition, measurement, presentation and disclosure of
leases. IFRS 16 requires lessees to account for most leases under a
single lessee accounting model.
Under the single lessee accounting model, a right of use ('ROU')
asset and corresponding lease liability is recognised which
represents future lease payables with movements through the Income
Statement. The movements through the Income Statement are for
depreciation, additions or releases on the liability and unwinding
of the discount for all leases unless the underlying asset has a
low value, or the remaining lease term is less than twelve months
at the date of transition.
Lessor accounting under IFRS 16 is substantially unchanged from
IAS 17. Lessors continue to classify leases as either operating or
finance leases using similar principles as in IAS 17.
Transition
The Group has applied the modified retrospective approach with
the cumulative effect of initial application being recognised at
the transition date; comparative information has therefore not been
restated and continues to be reported under IAS 17.
The Group has used the following practical expedients when
applying the modified retrospective approach to leases previously
classified as operating leases under IAS 17. The Group has:
-- elected to use the transition practical expedient allowing an
entity not to reassess whether a contract is, or contains, a lease
at the date of initial application of the standard;
-- relied on its assessment of whether leases are onerous
immediately before the date of initial application by adjusting the
ROU asset at 1 October 2019 by the amount of provision for onerous
lease rental payments previously recognised under IAS 17 as at 30
September 2019, as an alternative to performing an impairment
review;
-- elected not to recognise the ROU assets and lease liabilities
for leases where the lease term ends within 12 months of the date
of initial application;
-- excluded initial direct costs from the measurement of the
right of use asset at the date of initial application;
-- used hindsight when determining the lease term where the
contract contains options to extend or terminate the lease; and
-- applied a single discount rate to a portfolio of leases with
reasonably similar characteristics.
The Group has chosen not to apply the practical expedient to
account for any associated non-lease components of a lease as a
single arrangement.
Impact
The details of the significant changes are set out below. The
Group is primarily a lessee and is also a sub-lessor for a small
number of property leases that have been identified as onerous.
The adoption of IFRS 16 has had a material impact on the Group's
Consolidated Balance Sheet, in which the Group recognised right of
use assets of GBP43.3m, lease liabilities of GBP57.8m, finance
lease receivables of GBP1.3m, and a negative impact on the Group's
equity of GBP5.8m net of deferred tax assets, onerous provisions
and trade payables and receivables adjustments at 1 October 2019 on
transition.
Details of the quantitative impact of IFRS 16 are provided in
note 20.
Classification and measurement as a lessee
Right of use assets
The right of use assets recognised on adoption have been
calculated as if the standard applied at the commencement of each
lease and are discounted using the borrowing rate at the date of
initial application.
The depreciation charge is recognised in the Income
Statement.
The ROU assets are assessed for impairment annually in
accordance with IAS 36 (incorporating any onerous lease
assessments) and depreciated on a straight-line basis over the
shorter of the expected life of the asset and the lease term,
adjusted for any remeasurements of the lease liability.
Lease liabilities
Leases previously classified as operating leases under IAS 17
have been measured at the present value of the remaining lease
payments on adoption and discounted using an incremental borrowing
rate at the lease commencement date as the interest rate implicit
in the lease is not readily determinable.
After the commencement date, the lease liability recognised will
reduce over time by the lease payments which will be offset by the
unwinding of the liability over the lease term and any amendments
for the impact of any lease modifications. Interest recognised on
the lease liability is included in finance costs in the Income
Statement.
Short-term leases and lease of low value assets
The Group has adopted certain optional recognition exemptions
available under IFRS 16 for short-term (less than 12 months) and
low value (< GBP5,000) leases. These leases continue to be off
balance sheet with rentals charged to the Income Statement on a
straight-line basis over the lease term and are classified as
operating leases.
Classification and measurement as a lessor
Subleases
The Group has identified certain property leases as onerous
where there is surplus office space and in these instances the
Group acts as an intermediate lessor. The Group classifies its
subleases as operating or finance leases by reference to the right
of use asset arising from the head lease (rather than by reference
to the underlying asset) or if the head lease belonging to the
Group is a short-term lease, the subleases are classified as
operating leases.
The Group has reclassified some of its subleases previously
recognised as operating leases under IAS 17 as finance leases under
IFRS 16.
Finance lease receivable
A finance lease receivable has been recognised on adoption and
represents the net investment in the finance sublease.
The lease payments included in the measurement of the net
investment in the finance lease comprises the present value of
fixed payments (including in-substance fixed payments), less any
lease incentives payable for the right to use the underlying asset
during the lease term that are not received at the lease
commencement date.
Any difference between the right of use asset and the net
investment in the sublease is recognised in the Income
Statement.
The lease liabilities relating to the head leases have been
retained on the Balance Sheet and represent the lease payments
payable to the head lessor.
Operating subleases
For subleases which are classified as an operating lease, the
Group has recognised both the lease liability and the right of use
asset relating to the head lease.
Lease income from the operating sublease is recognised in the
Income Statement as other operating income.
c. New standards, amendments and interpretations issued but not effective
The table below sets out changes to accounting standards which
will be effective for periods beginning on or after:
1 January
================================== ============================================== =========
New or revised standards
IFRS 17(1) Insurance Contracts 2023
Amendments
IAS 1(1) - classification Presentation of financial statements' 2023
of liabilities on classification of liabilities
Further amendments - IFRS IFRS 3 Business Combinations; IAS 16 Property, 2022
3; IAS 16; IAS 37; Annual Plant and Equipment - Proceeds before
Improvements Intended Use; IAS 37 Provisions, Contingent
Liabilities and Contingent Assets; Annual
Improvements 2018-2020
IFRS 4 Amendments to IFRS 4 Insurance Contracts 2021
- deferral of IFRS19
Interest Rate Benchmark Amendments to IFRS 9, IAS 39 and IFRS 2021
Reform - phase 2 7, IFRS 4 and IFRS 16
IFRS 16 Leases, Related rent concessions 2020
Conceptual framework references(1) Amendments to References to the Conceptual 2020
Framework in IFRS Standards
IAS 1 and IAS 8 - Definition Presentation of Financial Statements and 2020
of Material(1) Accounting Policies, Changes in Accounting
Estimates and Errors
IFRS 3 - Definition of 2020
a Business Business Combination
Interest Rate Benchmark Amendments to IFRS 9, IAS 39 and IFRS
Reform - phase 1 7, IFRS 4 and IFRS 16 2020
================================== ============================================== =========
1. These amendments have not yet been endorsed by the EU.
The Directors are reviewing the impact of these new standards,
amendments and interpretations and do not intend to adopt the
standards early. It is not currently expected that these will have
a material impact on the financial statements of the Group.
3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are
described in note 3 to the 2020 Annual Report and Accounts, 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 year in which the estimate is revised if the revision affects
only that year, or in the year of the revision and future years if
the revision affects both current and future years.
a. Critical judgements in applying the Group's accounting policies
i. Leases - determining the lease term
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend or terminate the lease. In making this judgement, the Group
evaluates whether it is reasonably certain to exercise the option
to renew or break the lease term.
That is, it considers all relevant factors that create an
economic incentive for it to exercise the renewal and the
circumstances and facts for each lease including past experience to
determine the likely lease term and whether the break option is
likely to be exercised. This includes an assessment on the length
of time remaining before the option is exercisable, current trading
conditions and future trading forecasts on the ongoing
profitability of the business.
After the lease commencement date, the Group reassesses the
lease term if there is a significant event or change in
circumstances that is within its control and affects its ability to
exercise (or not to exercise) the option to renew (for example, a
change in business strategy).
As at 30 September 2020, it has been assumed that all leases
will be until the end of the lease term for the Group.
b. Key sources of estimation uncertainty
i. Acquisitions
As part of any business combination the Group recognises all
assets acquired and liabilities assumed at their acquisition date
fair values, including any separately identifiable intangible
assets such as the client relationship intangibles recognised as
part of the BDCIIL acquisition (as set out in note 18).
The value attributed to the client relationships affects the
amount of goodwill recognised. This value together with the
assessment of useful economic lives, which is based both on past
experience and future expectations, determines the future
amortisation charges. Further, the value determined for the client
relationships asset impacts the deferred tax liability recognised
by the Group.
The valuation gives rise to estimation uncertainty. Certain
assumptions regarding the amount, timing and discounting of future
cash flows have been adopted in order to determine these fair
values. The Group has recognised GBP32.1m of separately
identifiable client relationship intangible assets and goodwill of
GBP2.0m; see notes 10 and 18 for further information.
The table below sets out the approximate impact on the value
recognised for both goodwill and client relationships intangibles
of an increase or decrease of 20% in the:
-- expected cash flows, applied equally over the cash flows in
each period; and
-- the discount rate.
Client
Goodwill relationships
GBP'000 GBP'000
======================== ======== ==============
Expected cash flows:
20% decrease 2,661 (3,041)
20% increase (2,661) 3,041
Expected discount rate:
20% decrease (2,186) 2,498
20% increase 1,979 (2,261)
======================== ======== ==============
ii. Impairment of goodwill, client relationships and brand
Impairment exists when the carrying value of an asset or
cash-generating unit ('CGU') exceeds its recoverable amount. The
recoverable amount is the higher of its fair value less costs to
dispose ('FVLCTD') and its value in use ('VIU').
For the purposes of impairment testing, the Group has
historically valued the recoverable amount of goodwill, client
relationships and brand at the FVLCTD. The calculation of the
FVLCTD is based on the valuation of the funds, which make up the
relevant CGU where appropriate. A percentage is applied to the
funds to determine the fair value. These percentages have been
based on recent public transactions and adjusted to allow for the
current economic uncertainty and volatility due to the COVID-19
pandemic.
However, recognising the challenge of estimating a reliable
FVLCTD in the current uncertain economic environment due to greater
volatility, the Group has also prepared VIU calculations.
For the VIU calculations, the recoverable amount is sensitive to
assumptions applied to future cash flows and the discount rate. A
sensitivity analysis is disclosed in note 10.
iii. Amortisation of client relationships
The 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 year,
client relationships were amortised over periods ranging from 5 to
15 years.
The amortisation for the year was GBP10,933,000 (2019:
GBP6,789,000). A reduction in the average amortisation period by
one year would increase the amortisation expense for the year by
GBP1,862,000 (2019: GBP1,218,000).
iv. Leases - determination of the appropriate rate to discount the lease payments
The Group uses its incremental borrowing rate as the discount
rate for determining its lease liabilities at the lease
commencement date since the rate implicit in the lease cannot be
readily determined. The calculation of the incremental borrowing
rate involves estimation and has been obtained from the Group's
bank to determine the rate on a lease-by-lease basis that the Group
would have to pay to borrow money to purchase the type of assets
being leased. Rates applied are dependent on the entity leasing the
asset and the following factors have been considered:
-- Lease term;
-- Credit risk of the entity; and
-- Level of indebtedness of the entity.
The impact of an increase in the incremental borrowing rates
used for calculating the discount rate in determining the lease
liabilities for all entities on transition to IFRS 16 'Leases' as
at 1 October 2019 is set out below.
Change Impact on Impact on Impact on opening
Estimate in estimate ROU assets lease liabilities retained reserves
=============== =============== =========== ================== ==================
Debit to retained
Incremental 1 percentage Reduce by Reduce by reserves increase
borrowing rate point increase GBP3.2m GBP2.3m by GBP0.9m
=============== =============== =========== ================== ==================
v. Defined benefit pension scheme
The calculation of the present value of the defined benefit
pension scheme is determined by using actuarial valuations.
Management makes key assumptions in determining the inputs into the
actuarial valuations, which may differ from actual experience in
the future. These assumptions are governed by IAS 19 Employee
Benefits, and include the determination of the discount rate, life
expectancies, inflation rates and future salary increases. Due to
the complexities in the valuation, the defined benefit pension
scheme obligation is highly sensitive to changes in these
assumptions. The detailed assumptions, including a sensitivity
analysis, are set out in note 18.
The defined benefit pension scheme has a surplus of
GBP20,324,000 (2019: GBP17,373,000). See note 18 to the 2020 Annual
Report and Accounts 'Defined benefit pension scheme asset
recognition basis' for further detail.
vi. Share-based payments
Long Term Incentive Plan ('LTIP')
Awards are granted under the LTIP. The scheme includes
performance-based vesting conditions, which impact the amount of
benefit paid, such as
-- Average annual net inflows in discretionary funds; and
-- Growth in adjusted diluted EPS over the performance
period.
Assumptions are made on the likelihood of meeting certain
average and stretch targets over the remaining service periods in
determining the expense in the year. The Directors consider that
the LTIP is qualitatively material therefore this is highlighted as
a key source of estimation uncertainty. The charge for the year was
GBP747,000 (2019: GBP415,000).
If all of the performance conditions were assumed to be met, the
charge for the year would increase by GBP3,105,000 (2019:
GBP1,576,000); an increase of 10% in the vesting assumptions would
increase the charge for the year by GBP443,000 (2019:
GBP248,000).
Further information on the scheme is disclosed in note 31 to the
2020 Annual Report and Accounts.
4. Income
Group
The following table presents revenue disaggregated by service
and timing of revenue recognition:
2020 2019
GBP'000 GBP'000
====================================================== ======== ========
Discretionary investment management fee income 237,617 231,711
Discretionary investment management commission income 70,033 62,569
Financial planning income 33,079 27,546
Execution only fee income 4,611 4,105
Execution only commission income(1) 6,684 6,185
Advisory investment management fee income 3,633 2,093
Advisory investment management commission income(1) 1,066 378
BPS(2) investment management fee income 1,335 1,186
Expert witness report service(1) 1,106 528
====================================================== ======== ========
Revenue 359,164 336,301
Other operating income 2,283 2,808
====================================================== ======== ========
Income 361,447 339,109
====================================================== ======== ========
1. Services transferred at a point in time.
2. Brewin Portfolio Service.
2020 2019
GBP'000 GBP'000
======================================== ======== ========
Services transferred at a point in time 8,856 7,091
Services transferred over time 350,308 329,210
======================================== ======== ========
Revenue 359,164 336,301
======================================== ======== ========
Contract balances
The Group does not have contract assets as it does not enter
into contracts where revenue is conditional on the fulfilment of a
contingent event.
Contract liabilities
Contract liabilities relate to the advance consideration
received from customers for services still to be delivered. The
Group derecognises contract liabilities (and recognises revenue)
when it transfers services and satisfies its performance
obligations (see note 22 to the 2020 Annual Report and
Accounts).
Unsatisfied performance obligations
The Group does not have material unsatisfied (or partially
unsatisfied) performance obligations at the reporting date, as the
majority of the Group's performance obligations are satisfied
equally over time.
5. Segmental information
Group
The Group provides a wide range of wealth management services in
the United Kingdom ('UK'), Channel Islands ('CI') and the Republic
of Ireland ('ROI'). The Group's Executive Committee has been
determined to be the chief operating decision maker for the
purposes of making decisions regarding the allocation of resources
and assessing the performance of the identified segments.
For management reporting purposes the Group currently has a
single operating segment: the Wealth Management business. This
forms the reportable segment of the Group for the period and
consequently, the Group's Consolidated Income Statement and
Consolidated Balance Sheet are monitored by the Group's Executive
Committee. The accounting policies of the operating segment are the
same as those of the Group. All segmental income relates to
external clients.
Following the acquisition of BDCIIL on 31 October 2019 (see note
18 for further details), the existing Irish business of the Group
expanded substantially and as a result the Irish business as a
proportion of the Group is now larger, consequently geographical
disclosures are set out below.
Geographical information
For the year ended 30 September 2020
Segmental income statement
UK & CI ROI
business business Group
GBP'000 GBP'000 GBP'000
========================================================= ========== ========= ==========
Revenue 338,098 23,349 361,447
Staff costs (189,189) (10,296) (199,485)
Other operating costs (74,134) (7,922) (82,056)
========================================================= ========== ========= ==========
74,775 5,131 79,906
Amortisation of intangible assets - client relationships
and brand (8,084) (2,988) (11,072)
Acquisition costs - (3,600) (3,600)
Onerous contracts (250) - (250)
Incentivisation awards (258) (934) (1,192)
========================================================= ========== ========= ==========
Operating profit/(loss) 66,183 (2,391) 63,792
Finance income and costs (1,582) (138) (1,720)
========================================================= ========== ========= ==========
Profit/(loss) before tax 64,601 (2,529) 62,072
Tax (14,453) 336 (14,117)
========================================================= ========== ========= ==========
Profit/(loss) after tax 50,148 (2,193) 47,955
========================================================= ========== ========= ==========
Segmental balance sheet
UK & CI ROI
business business Group
GBP'000 GBP'000 GBP'000
================== ========= ========= ========
Net assets 284,386 50,650 335,036
Total assets 612,866 59,832 672,698
Total liabilities 328,480 9,182 337,662
================== ========= ========= ========
6. Finance income and finance costs
Group
2020 2019
GBP'000 GBP'000
================================================== ======== ========
Finance income
Interest income on defined benefit pension scheme 324 294
Interest on lease receivables 92 -
Interest on bank deposits 491 1,414
================================================== ======== ========
907 1,708
================================================== ======== ========
Finance costs
Unwind of discounts on provisions (see note 13) 210 130
Unwind of discounts on shares to be issued 70 10
Interest expense on lease liabilities(1) 2,327 -
Interest on bank overdrafts 20 6
================================================== ======== ========
2,627 146
================================================== ======== ========
1. Following the adoption of IFRS 16 'Leases' interest on lease
liabilities is presented in finance costs.
7. Income tax expense
Group
2020 2019
GBP'000 GBP'000
======================================== ======== ========
Current tax
United Kingdom:
Charge for the year 10,623 13,133
Adjustments in respect of prior years (1,174) (151)
Overseas:
Charge for the year 67 275
Adjustments in respect of prior years (70) 1
======================================== ======== ========
Total current tax 9,446 13,258
======================================== ======== ========
Deferred tax
United Kingdom:
Charge for the year 4,048 1,279
Adjustments in respect of prior years 889 (80)
Overseas:
Charge for the year (266) -
Adjustments in respect of prior years - -
======================================== ======== ========
Total deferred tax (see note 14) 4,671 1,199
======================================== ======== ========
Tax charged to the Income Statement 14,117 14,457
======================================== ======== ========
Finance Act 2020 maintained the UK statutory rate at 19% for
years commencing 1 April 2020 and 1 April 2021.
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:
2020 2019
GBP'000 GBP'000
========================================================== ======== ========
Profit before tax 62,072 62,524
========================================================== ======== ========
Tax at the UK corporation tax rate of 19% (2019: 19%) 11,794 11,880
Tax effect of:
Expenses that are not deductible in determining taxable
profit 1,275 2,687
Leasehold property 163 46
Share-based payments 1,098 285
Over provision for tax in previous years (408) (230)
Lower rates in subsidiaries 142 (147)
Impact of deferred tax rate change 53 (64)
========================================================== ======== ========
Tax expense for the year 14,117 14,457
========================================================== ======== ========
Effective tax rate for the year 22.7% 23.1%
Expenses that are not deductible in determining taxable profit
include amortisation of client relationships and brand, acquisition
costs, hospitality costs and professional fees that are capital in
nature.
There are no material uncertainties within the calculation of
corporation tax. The tax provisions are based on tax legislations
in the relevant jurisdictions and have not required any judgements
or material estimates.
8. Dividends
Group and Company
2020 2019
GBP'000 GBP'000
=========================================================== ======== ========
Amounts recognised as distributions to equity shareholders
in the year:
2019/18 Final dividend paid 12 February 2020, 12.0p
per share (2019: 12.0p per share) 35,401 33,009
2020/19 Interim dividend paid 12 June 2020, 4.4p per
share (2019: 4.4p per share) 12,992 12,977
=========================================================== ======== ========
48,393 45,986
=========================================================== ======== ========
Proposed final dividend for the year ended 30 September
2020 of 9.9p (2019: 12.0p) per share based on shares
in issue at 19 November 2020 (2019: 22 November 2019) 29,242 35,417
=========================================================== ======== ========
The proposed final dividend for the year ended 30 September 2020
of 9.9p 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 7,864,976 Ordinary Shares
representing 2.6% of the Company's called up share capital in
relation to employee share plans, has agreed to waive all dividends
due to the Trustee.
9. Earnings per share
Group
The calculation of the basic and diluted earnings per share is
based on the following data:
2020 2019
'000 '000
========================================================= ======= =======
Number of shares
Basic
Weighted average number of shares in issue in the year 295,012 282,718
Diluted
Effect of weighted average number of options outstanding
for the year 6,110 6,630
========================================================= ======= =======
Diluted weighted average number of options and shares
for the year 301,122 289,348
========================================================= ======= =======
Adjusted(1) diluted
Effect of full dilution of employee share options which
are contingently issuable or have future attributable
service costs 3,664 3,344
========================================================= ======= =======
Adjusted(1) diluted weighted average number of options
and shares for the year 304,786 292,692
========================================================= ======= =======
GBP'000 GBP'000
========================================================= ======= =======
Earnings attributable to ordinary shareholders
Profit for the purpose of basic and diluted earnings
per share 47,955 48,067
Onerous contracts 250 996
Amortisation of intangible assets - client relationships
and brand 11,072 6,858
Defined benefit pension scheme past service costs - 1,909
Acquisition costs 3,600 2,337
Incentivisation awards 1,192 340
Other gains and losses - (1)
less tax effect of above (1,918) (510)
========================================================= ======= =======
Adjusted profit for the purpose of basic and diluted
earnings per share 62,151 59,996
========================================================= ======= =======
Earnings per share
Basic 16.3p 17.0p
========================================================= ======= =======
Diluted 15.9p 16.6p
========================================================= ======= =======
Adjusted(2) earnings per share
Basic 21.1p 21.2p
========================================================= ======= =======
Adjusted(1) diluted 20.4p 20.5p
========================================================= ======= =======
1. The dilutive shares used for this measure differ from that
used for statutory dilutive earnings per share; the future value of
service costs attributable to employee share options is ignored and
contingently issuable shares for Long Term Incentive Plan ('LTIP')
options are assumed to fully vest. The Directors have selected this
measure as it represents the underlying effective dilution by
offsetting the impact to the calculation of basic shares of the
purchase of shares by the Employee Share Ownership Trust ('ESOT')
to satisfy options.
2. Excluding onerous contracts costs, amortisation of client
relationships and brand, acquisition costs, incentivisation awards,
defined benefit pension scheme past service costs and other gains
and losses.
10. Intangible assets
Group
Client Software
Goodwill relationships Brand costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================================== ======== ============== ======== ======== ========
Cost
At 30 September 2018 48,637 133,941 - 19,193 201,771
Additions 4,096 22,716 1,388 11,290 39,490
Exchange differences - (1) - - (1)
======================================== ======== ============== ======== ======== ========
At 30 September 2019 52,733 156,656 1,388 30,483 241,260
Additions 2,064 32,067 - 33,157 67,288
Exchange differences 106 1,670 - - 1,776
======================================== ======== ============== ======== ======== ========
At 30 September 2020 54,903 190,393 1,388 63,640 310,324
======================================== ======== ============== ======== ======== ========
Accumulated amortisation and impairment
losses
At 30 September 2018 - 99,378 - 16,674 116,052
Amortisation charge for the year - 6,789 69 1,105 7,963
Exchange differences - (1) - - (1)
======================================== ======== ============== ======== ======== ========
At 30 September 2019 - 106,166 69 17,779 124,014
Amortisation charge for the year - 10,933 139 417 11,489
Exchange differences - 104 - - 104
======================================== ======== ============== ======== ======== ========
At 30 September 2020 - 117,203 208 18,196 135,607
======================================== ======== ============== ======== ======== ========
Net book value
At 30 September 2020 54,903 73,190 1,180 45,444 174,717
======================================== ======== ============== ======== ======== ========
At 30 September 2019 52,733 50,490 1,319 12,704 117,246
======================================== ======== ============== ======== ======== ========
At 30 September 2018 48,637 34,563 - 2,519 85,719
======================================== ======== ============== ======== ======== ========
Client relationship additions are made up as follows:
2020 2019
GBP'000 GBP'000
============================================================ ======== ========
Cash paid for client relationships acquired in current
year 32,029 11,944
Fair value adjustment 38 -
Cash paid for client relationships acquired in prior
years - 11
Deferred and contingent consideration in the form of
cash for client relationships acquired in the current
year - 7,103
Contingent consideration in the form of shares to be
issued(1) for client relationships acquired in the current
year - 3,658
============================================================ ======== ========
Total additions 32,067 22,716
============================================================ ======== ========
1. Being the fair value of shares to be issued excluding the
unwinding of discounting applied in the period, with this
recognised as finance costs in the Income Statement, see note
6.
Goodwill impairment testing
The tables below show the goodwill allocated to groups of
cash-generating units ('CGUs') and the significant client
relationship assets:
Groups
of CGUs Goodwill
No. GBP'000
====================================== ======== ========
Midland Branch 1 1 5,149
Midland Branch 2 1 5,284
Northern Branch 1 1 6,432
South East Branch 1 1 12,800
BD Ireland 1 2,170
Other Branches 17 23,068
====================================== ======== ========
Carrying amount at 30 September 2020 22 54,903
====================================== ======== ========
Intangible
assets
- client
relationships
GBP'000
============================================================== ==============
Brewin Dolphin Wealth Management Limited(1) 9,414
Brewin Dolphin Capital and Investments (Ireland) Limited(2) 30,645
============================================================== ==============
BD Ireland 40,059
South East investment management team(3) 13,154
Bath branch(4) 16,645
Other investment management teams(5) 3,332
============================================================== ==============
Carrying amount at 30 September 2020 73,190
============================================================== ==============
1. Amortisation period remaining 5 years 10 months.
2. Amortisation period remaining 9 years 1 month.
3. Amortisation period remaining 3 years 7 months.
4. Amortisation period remaining 8 years 10 months.
5. None of the constituent parts of the goodwill or client
relationships relating to the other investment management teams is
individually significant in comparison to the total value of
goodwill or client relationships respectively.
In accordance with IFRS, the Group performs impairment testing
for goodwill on an annual basis, at 30 September, or more
frequently when there are impairment indicators. Client
relationships and brand intangible assets are reviewed for
indicators of impairment at each reporting date.
The impairment review considered the COVID-19 pandemic as a
potential indicator of impairment, consequently, the Group carried
out an exercise as set out in note 3bi to the 2020 Annual Report
and Accounts. The key sources of estimation uncertainty in relation
to the impairment of goodwill, client relationships and brand are
set out in note 3bii above.
Goodwill impairment tests are performed for groups of CGUs at
the branch level. Client relationships and brand impairment testing
is performed for each relevant CGU where there are indicators of
impairment.
To determine whether an asset is impaired, the recoverable
amount of the CGU is compared to its carrying amount. The
recoverable amount is the higher of the fair value less costs to
dispose ('FVLCTD') and the value in use ('VIU').
The estimated FVLCTD for CGUs were based on a percentage of
funds, where appropriate. The percentages applied are inherently
judgemental and were adjusted to reflect the downturn as a result
of COVID-19 pandemic. The estimated FVLCTD for CGUs are therefore a
level 3 measurement based on inputs which are unobservable to
market participants.
The VIU for the CGUs were derived from a discounted cash flow
calculation based on the Group's Medium-Term Plan which reflects
recently observable trends, management expectations and expected
future events, covering a five-year period. Cash flows beyond the
five-year period were extrapolated using long-term growth rates as
estimated for all the CGUs.
Following our assessment, it was determined that none of the
assets held by the Group were impaired.
The principal assumptions underlying the best estimated cash
flow forecasts were as follows:
-- Forecast cash flows and growth rates
Estimated future cash inflows were based on the Group's
Medium-Term Plan which took into consideration the impact of
COVID-19. Overall, it was assumed that fund flows would improve
after 12 months and a growth rate reflecting the expected
investment performance per annum was used as the basis to determine
likely revenue to be generated from the assets and took into
consideration the nature of the CGU. The estimated cash outflows
allowed for inflation.
-- Terminal value
A terminal value calculation was used to estimate the cash flows
after year five using the long-term growth rate of the UK economy
of 2%.
-- Discount rates
An adjusted discount rate of 8%-9.5% was applied to each CGU's
cash flows, this equates to the Group's estimated weighted average
cost of capital ('WACC').
All of the CGUs within the Group have headroom, where the value
in use calculation is in excess of the carrying value.
Sensitivity analysis of the key assumptions
The value in use calculations are sensitive to the forecast
assumptions applied to future cash flows and the discount rate
applied. The client relationships intangible asset that was
recognised on the acquisition of Epoch was the most sensitive to
the revenue growth and discount rate assumptions used in the value
in use calculations.
The value in use for the Bath CGU, calculated using a discount
rate of 8%, would have to decrease by GBP5.5 million, for its
recoverable amount to be equal to the carrying amount.
The following analysis sets out the sensitivity and impact of
changes in assumptions to the Bath CGU:
As at 30 September 2020
Decrease in the
value in use of CGU
Change in assumption GBPm
==================================== ====================
Decrease in forecast operating cash
inflows by a further 5% 3.6
Increase in discount rate by 1.5
percentage points 5.2
==================================== ====================
11. Leases
Group
With the exception of short-term leases and leases of low value
underlying assets, each lease is reflected on the Consolidated
Balance Sheet as a ROU asset and a lease liability.
The Group's ROU assets are in respect of leases for the offices
it occupies. The leases generally have a term ranging from 5 to 15
years. There were four new leases in the year, one of the new
leases replaced an expired lease. The leases require the Group to
keep the properties in a good state of repair and to return the
offices in their original condition at the end of the lease. The
average lease term is 6.3 years.
Right of use assets
Total
GBP'000
=============================================== ========
Cost
At 1 October 2019 43,305
Additions 1,932
Transfer to finance lease receivable (945)
=============================================== ========
At 30 September 2020 44,292
=============================================== ========
Accumulated depreciation and impairment losses
At 1 October 2019 -
Charge for the year 6,250
=============================================== ========
At 30 September 2020 6,250
=============================================== ========
Net book value
At 30 September 2020 38,042
=============================================== ========
At 1 October 2019 43,305
=============================================== ========
Amounts recognised in the Income Statement
2020
GBP'000
======================================= ========
Depreciation expense on ROU assets 6,250
Interest expense on lease liabilities 2,327
Expenses relating to short-term leases 653
Expenses relating to low value assets 25
Income from subleasing ROU assets 572
======================================= ========
Other information
At 30 September 2020, the Group was committed to short-term
leases with a total commitment of GBP378,000.
The total cash outflow for leases recognised as right of use
assets was GBP8,765,000 for the year ended 30 September 2020.
Finance lease receivables are presented in note 16 to the 2020
Annual Report and Accounts and lease liabilities including the
maturity analysis of the lease liabilities are presented in note
12.
The Group had not entered into any leases which are yet to
commence at the end of the reporting period.
12. Lease liabilities
Group
2020
GBP'000
================== ========
Current 8,316
Non-current 45,265
================== ========
Lease liabilities 53,581
================== ========
Maturity analysis of lease payments:
2020
GBP'000
=============================== ========
12 months to 30 September 2021 10,216
12 months to 30 September 2022 9,261
12 months to 30 September 2023 8,095
12 months to 30 September 2024 7,788
12 months to 30 September 2025 7,617
From 1 October 2025 onwards 20,300
=============================== ========
Total lease payments 63,277
Finance charges (9,696)
=============================== ========
Lease liabilities 53,581
=============================== ========
Reconciliation of lease liability:
2020
GBP'000
===================================================================== ========
At 30 September 2019 -
Initial application of IFRS 16 (see note 20) 57,784
===================================================================== ========
At 1 October 2019 57,784
Non-cash:
Addition to ROU assets in exchange for increased lease liabilities 2,235
Unwind of discount 2,327
Cash:
Repayments (8,765)
===================================================================== ========
At 30 September 2020 53,581
===================================================================== ========
The Group does not face a significant liquidity risk from its
lease liabilities.
Lease payments not recognised as a liability are presented in
note 32 operating lease arrangements to the 2020 Annual Report and
Accounts.
13. Provisions
Group
Effect
of change
in accounting
policy
for initial
application
At 30 of IFRS At 1 Unused At 30
September 16 (see October Utilisation Unwinding amounts September
2019 note 20) 2019 Additions of provision of discount reversed 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================= ========== ============== ======== ========= ============= ============ ========= ==========
Sundry claims and
associated
costs 338 - 338 299 (17) - (223) 397
Onerous contracts 4,840 (3,607) 1,233 329 (191) 42 (31) 1,382
Social security
and
levies on share
awards 3,021 - 3,021 974 (1,068) - (122) 2,805
Incentivisation
awards 854 - 854 1,223 (671) 14 - 1,420
Deferred and/or
contingent
consideration 7,888 - 7,888 - (1,367) 108 (42) 6,587
Leasehold
dilapidations 2,342 (298) 2,044 255 (100) 46 (82) 2,163
================= ========== ============== ======== ========= ============= ============ ========= ==========
19,283 (3,905) 15,378 3,080 (3,414) 210 (500) 14,754
================= ========== ============== ======== ========= ============= ============ ========= ==========
Current Non-current
liability liability Total
GBP'000 GBP'000 GBP'000
============================= =========== ============ =========
Sundry claims and associated
costs 397 - 397
Onerous contracts 368 1,014 1,382
Social security and
levies on share awards 1,072 1,733 2,805
Incentivisation awards - 1,420 1,420
Deferred and/or contingent
consideration 2,849 3,738 6,587
Leasehold dilapidations 112 2,051 2,163
============================= =========== ============ =========
At 30 September 2020 4,798 9,956 14,754
============================= =========== ============ =========
The Group recognises provisions for the following:
Sundry claims and associated costs
The timing of the settlements is unknown, but it is expected
that they will be resolved within 12 months.
Onerous contracts
The provision is in respect of surplus office space costs except
for rent which is accounted for under IFRS 16.
The valuation of an onerous contract is based on the best
estimate of the likely costs discounted to present value. Where the
provision is in relation to leasehold obligations on premises and
it is more likely than not that the premises will be sublet, an
allowance for recoverable costs such as service charges from the
subtenant has been included in the valuation. The longest lease
term has 12.5 years remaining.
Social security and levies on share awards
The provision is in respect of Employer's National Insurance and
Apprenticeship Levy on share awards outstanding at the end of the
year. The provision is based on the Group's share price, the amount
of time passed and likelihood of the share awards vesting and
represents the best estimate of the expected future cost.
Incentivisation awards
The provision is in respect of incentivisation awards that are
payable to employees in relation to the retention and acquisition
of funds and is based on the best estimate of the likely future
obligation discounted for the time value of money.
Deferred and/or contingent consideration
The provision is for deferred and/or contingent consideration
relating to the acquisition of both subsidiaries and asset
purchases. It is based on the best estimate of the likely future
obligation discounted for the time value of money.
Leasehold dilapidations
The provision is in respect of the expected dilapidated costs
that will arise at the end of the lease. The leases covered by the
provision have a maximum remaining term of 12.5 years.
14. Net deferred tax 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 GBP609,000 has been debited to other
comprehensive income (2019: GBP945,000 debited to other
comprehensive income relating to the actuarial gain). Deferred tax
on share-based payments of GBP252,000 has been debited to profit
and loss reserves (2019: GBP600,000 debited 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 year:
Group
Other Defined
short-term pension Intangible
Capital timing benefit Share-based Incentivisation asset
allowances Revaluation differences scheme payments awards amortisation Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================ =========== ============ ============ ======== =========== ================ ============= ========
At 30 September
2018 1,268 (1) 927 (1,939) 4,616 95 (825) 4,141
Additions - - - - - - (4,096) (4,096)
Charge in the
year to
the Income
Statement (304) - (99) (69) (313) (64) (350) (1,199)
Charge in the
year to
the Statement
of
Comprehensive
Income - - - (945) - - - (945)
Charge in the
year to
the Statement
of Changes
in Equity - - - - (600) - - (600)
================ =========== ============ ============ ======== =========== ================ ============= ========
At 30 September
2019 964 (1) 828 (2,953) 3,703 31 (5,271) (2,699)
Effect of change
in accounting
policy for
initial
application
of IFRS 16 (see
note
20) - - 1,323 - - - - 1,323
================ =========== ============ ============ ======== =========== ================ ============= ========
At 1 October
2019 964 (1) 2,151 (2,953) 3,703 31 (5,271) (1,376)
Acquired on
acquisition
of subsidiary - - 1,930 - - - - 1,930
Additions - - - - - - (4,008) (4,008)
Exchange rate
movement - - 101 - - - (209) (108)
(Charge)/credit
in the
year to the
Income
Statement (107) - (63) (299) (211) 55 (4,046) (4,671)
Charge in the
year to
the Statement
of
Comprehensive
Income - - - (609) - - - (609)
Charge in the
year to
the Statement
of Changes
in Equity - - - - (252) - - (252)
================ =========== ============ ============ ======== =========== ================ ============= ========
At 30 September
2020 857 (1) 4,119 (3,861) 3,240 86 (13,534) (9,094)
================ =========== ============ ============ ======== =========== ================ ============= ========
Deferred income taxes are calculated using substantially enacted
rates of UK corporate tax expected to be in force at the time
assets are realised, all deferred income taxes are expected to be
realised at 19%.
15. Share capital
Group and Company
2020 2019 2020 2019
No. No. GBP'000 GBP'000
================================= ============ ============ ======== ========
Authorised:
Ordinary shares of 1p each 500,000,000 500,000,000 5,000 5,000
================================= ============ ============ ======== ========
Allotted, issued and fully paid:
Ordinary shares of 1p each 303,234,190 303,171,134 3,032 3,032
================================= ============ ============ ======== ========
During the year the following shares were issued:
Share
Exercise/ Share premium
No. of issue price capital account Total
Date shares (pence) GBP'000 GBP'000 GBP'000
===================== ======== ============ ============ ======== ======== ========
At 1 October 2019 303,171,134 3,032 58,238 61,270
131.3p -
Issue of options Various 63,056 165.7p - 102 102
===================== ======== ============ ============ ======== ======== ========
At 30 September 2020 303,234,190 3,032 58,340 61,372
=============================== ============ ============ ======== ======== ========
16. Risk management
Overview
This note presents information about the Group's exposure to
each of the key risks (market risk, credit risk and liquidity risk)
arising from the use of financial instruments. The Group's policy
and procedures for measuring and managing risk and the Group's
management of capital.
Risk management
The Board of Directors has overall responsibility for
establishing and overseeing the Group's Risk Management Framework
and risk appetite.
The Board has established a clear relationship between the
Group's strategic objectives and its willingness to take risk
through a Risk Appetite Statement. The Risk Appetite Statement is
an expression of limits (qualitative and/or quantitative) giving
clear guidance on 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 in which the Group operates.
The Group's Risk Committee provides oversight of the adequacy of
the Group's Risk Management Framework based on the risks to which
the Group is exposed. It monitors how management complies with the
Group's risk management policies and procedures. It is 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 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 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 management policies
also serve to set the appropriate control framework. 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. Capital adequacy is given a
high level of focus to ensure not only that regulatory capital
requirements are met, but that the Group is sufficiently
capitalised against the risks to which it is currently exposed, as
well as to withstand a range of potential stress events.
There were no changes in the Group's approach to capital
management during the year.
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 active regulated entities in
the Group: Brewin Dolphin Limited ('BDL') regulated by the FCA and
Brewin Dolphin Wealth Management Limited regulated by the Central
Bank of Ireland. The Jersey branch of BDL is regulated by the
Jersey Financial Services Commission. There is one further
regulated entity in the Group, Brewin Dolphin Capital &
Investments (Ireland) Limited acquired on 31 October 2019; the
trade from this entity was hived up to Brewin Dolphin Wealth
Management Limited during the year to 30 September 2020.
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. The ICAAP is kept
updated throughout the year to take account of changes to the
profile of the risks facing the Group 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 year.
The regulatory capital resources of the Group were as
follows:
2020 2019
GBP'000 GBP'000
============================================================== ========= =========
Share capital 3,032 3,032
Share premium account 58,340 58,238
Own shares (25,238) (25,214)
Hedging reserve - (24)
Revaluation reserve (2) 3
Merger reserve 70,553 70,553
Profit and loss account 228,351 231,115
============================================================== ========= =========
335,036 337,703
Shares to be issued 3,738 3,668
============================================================== ========= =========
Regulatory capital resources before deductions 338,774 341,371
Deduction - Intangible assets (net of deferred tax liability) (161,183) (111,042)
Deduction - Defined benefit pension scheme asset (net
of deferred tax liability) (16,463) (14,420)
Deduction - Free deliveries (10) (11)
============================================================== ========= =========
Total regulatory capital resources after deductions
at 30 September 161,118 215,898
============================================================== ========= =========
Information disclosure under Pillar 3 of the Capital
Requirements Directive will be published on the Group's website
before 31 December 2020 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(s)
to the 2020 Annual Report and Accounts.
Categories of financial instruments
Group
Carrying value
==================
2020 2019
GBP'000 GBP'000
========================================================= ======== ========
Financial assets
Financial assets at FVTOCI 68 79
Financial assets at FVTPL 379 373
Non-current finance lease receivables 1,966 -
Current finance lease receivables 167 -
Non-current receivables 931 -
Current loans and receivables 239,096 206,494
Cash and cash equivalents 180,533 229,199
========================================================= ======== ========
At 30 September 423,140 436,145
========================================================= ======== ========
Financial liabilities
Shares to be issued including premium 3,738 3,668
Financial liabilities at FVTPL - deferred and contingent
consideration 6,587 7,888
Amortised cost 291,093 202,924
========================================================= ======== ========
At 30 September 301,418 214,480
========================================================= ======== ========
Company
Carrying value
==================
2020 2019
GBP'000 GBP'000
====================================== ======== ========
Financial assets
Current loans and receivables 35,042 38,967
Cash and cash equivalents 1,256 47,000
====================================== ======== ========
At 30 September 36,298 85,967
====================================== ======== ========
Financial liabilities
Shares to be issued including premium 3,738 3,668
Amortised cost 7,334 7,346
====================================== ======== ========
At 30 September 11,072 11,014
====================================== ======== ========
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 trades 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 19 to the 2020 Annual Report and Accounts).
The Group transacts foreign currency deals in order to fulfil
our client obligations and any non-sterling costs to our business.
Foreign currency exposure is matched intra-day and at the end of
each day.
The total net foreign exchange exposure resulting from income
yet to be converted to sterling at the year end was a debtor of
GBP870,000 (2019: GBP804,000).
The Group is exposed to translation risk in respect of the
foreign currency value of the net assets of Brewin Dolphin Wealth
Management Limited ('BDWM') and its subsidiary Brewin Dolphin
Capital & Investments (Ireland) Limited acquired on 31 October
2019 (see note 18 for details), both based in the Republic of
Ireland, together 'Brewin Dolphin Ireland'. At the year end Brewin
Dolphin Ireland had net assets of GBP50.6 million (2019: GBP5.1
million) denominated in its local currency (Euros).
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
year with the exception of the cash flow hedge detailed below.
Cash flow hedge
The Group has not undertaken any cash flow hedges in the current
year. In the prior year, the Group undertook a short term cash flow
hedge for EUR52.0 million (see below) to mitigate foreign exchange
risk, ahead of the completion of the acquisition of Investec
Capital & Investments (Ireland) Limited (see note 18). This was
the only derivative held during 2019.
Equity price risk
The Group is exposed to equity price risk arising from both
FVTOCI and FVTPL investments (see note 20 to the 2020 Annual Report
and Accounts).
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 year ended 30 September 2020 would
have been GBP1,900 higher/lower (2019: GBP18,650 higher/lower) due
to changes in the fair value of financial assets at fair value
through profit or loss; and
-- Other equity reserves as at 30 September 2020 would
increase/decrease by GBP4,300 (2019: increase/decrease by GBP3,900)
pre-tax for the Group as a result of the changes in fair value of
financial assets through other comprehensive income.
The Group's sensitivity to equity prices has not changed
significantly from the prior year.
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 and firm deposits on demand and in 30 to 95 day notice
accounts. Client deposits are fully segregated from the Group's
deposits and held in separate accounts. During the year a 0.25%
increase in base rate would have increased pre-tax profit by
GBP272,000 (2019: 1% increase in base rate GBP1,159,000).
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.
The Company has credit risk resulting from intercompany balances
held with its subsidiaries; these are reviewed for impairment at
each reporting date.
Settlement risk
Exposures 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 risk
The Group has no significant concentration of credit risk with
the exception of cash. The Group utilises a panel of five
internally approved major banking groups and the majority of cash
is currently spread across all five on the panel.
Maximum exposure
The maximum exposure to credit risk at the end of the reporting
year is equal to the Balance Sheet figure.
Credit exposure
Credit 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 year of GBP16,971 (2019:
GBP16,403).
Impaired assets
The total gross amount of individually impaired assets in
relation to trade receivables at the year end was GBP392,000 (2019:
GBP179,000). Collateral valued at fair value by the Group in
relation to these impaired assets was GBP59,000 (2019: GBP136,000).
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 an
allowance for credit impaired assets (see note 19 to the 2020
Annual Report and Accounts). Note 19 to the 2020 Annual Report and
Accounts details amounts past due but not impaired.
Non-impaired assets
Financial 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, which are matched in the
market, and are either traded on a Delivery Versus Payment 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 by the Group's nominees. At the year end no financial assets
that would otherwise be past due or impaired had been renegotiated
(2019: none).
Loans to employees are repayable over a maximum of three years
(see note 19 to the 2020 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 long-term credit rating of
A- (S&P)/A3 (Moody's)/A- (Fitch), excluding Brewin Dolphin
Wealth Management Limited and its subsidiaries. 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:
Below
AA A+ A A- A-
========================== ==== ===== ===== ===== =====
Cash and cash equivalents 0.4% 40.5% 34.9% 17.2% 7.0%
========================== ==== ===== ===== ===== =====
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 team.
There has been no material change to the Group's exposure to
credit risk during the year.
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. When investing cash belonging to the Group or its
clients, the focus is on security of principal and the maintenance
of liquidity. Client money is held in segregated client bank
accounts with strict limits on deposit tenors, in accordance within
regulatory guidelines designed to minimise liquidity risk.
The Group has a Liquidity Policy which is reviewed by the Board
regularly. The Group's intention at all times is to operate with an
amount of liquid resources which provides significant headroom
above that required to meet its obligations. Group cash resources
are monitored on a daily basis through position reports and
liquidity requirements are analysed over a variety of forecast
horizons. Liquidity stress tests are regularly conducted to ensure
ongoing liquidity adequacy, and a Contingency Funding Plan is also
maintained to provide backup liquidity in the unlikely event of a
severe liquidity stress event.
At 30 September 2020, the Group had access to a revolving credit
facility of GBP10 million which is undrawn (2019: GBP10
million).
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 year.
Group
The following are the undiscounted cash flows of financial
liabilities based on the earliest date on which the Group can be
required to pay.
At 30 September 2020
1 month 3 months
Up to to to 1 to 5 Over
1 month 3 months 1 year years 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================= ======== ========= ======== ======== ======== ========
Financial liabilities
Shares to be issued including
premium - - - 3,875 - 3,875
Financial liabilities at
FVTPL - deferred and contingent
consideration - - 2,859 3,875 - 6,734
Amortised cost 181,387 34,564 29,900 34,641 20,300 300,792
================================= ======== ========= ======== ======== ======== ========
181,387 34,564 32,759 42,391 20,300 311,401
================================= ======== ========= ======== ======== ======== ========
At 30 September 2019
1 month 3 months
Up to to to 1 to 5 Over
1 month 3 months 1 year years 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================= ======== ========= ======== ======== ======== ========
Financial liabilities
Shares to be issued including
premium - - - 3,875 - 3,875
Financial liabilities at
FVTPL - deferred and contingent
consideration - - 1,409 6,734 - 8,143
Amortised cost 150,044 31,808 19,920 1,152 - 202,924
================================= ======== ========= ======== ======== ======== ========
150,044 31,808 21,329 11,761 - 214,942
================================= ======== ========= ======== ======== ======== ========
Company
The following are the undiscounted cash flows of financial
liabilities based on the earliest date on which the Company can be
required to pay.
At 30 September 2020
1 month 3 months
Up to to to 1 to 5 Over
1 month 3 months 1 year years 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ======== ========= ======== ======== ======== ========
Financial liabilities
Shares to be issued including
premium - - - 3,875 - 3,875
Amortised cost 7,334 - - - - 7,334
============================== ======== ========= ======== ======== ======== ========
7,334 - - 3,875 - 11,209
============================== ======== ========= ======== ======== ======== ========
At 30 September 2019
1 month 3 months
Up to to to 1 to 5 Over
1 month 3 months 1 year years 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ======== ========= ======== ======== ======== ========
Financial liabilities
Shares to be issued including
premium - - - 3,875 - 3,875
Amortised cost 7,346 - - - - 7,346
============================== ======== ========= ======== ======== ======== ========
7,346 - - 3,875 - 11,221
============================== ======== ========= ======== ======== ======== ========
Fair value measurement recognised on the Balance Sheet
The following table provides an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which
the fair value is observable:
-- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
-- Level 2 fair value measurements are those derived from inputs
other than the quoted price included within Level 1 that are
observable for the asset or a liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
-- Level 3 fair value measurements are those derived from formal
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
Fair value of the Group's financial assets and liabilities that
are measured at fair value on a recurring basis
Some of the Group's financial assets and liabilities are
measured at fair value at the end of each reporting period. The
following table gives information about how the fair values of
these financial assets and liabilities are determined.
Fair value Fair value
as at as at Relationship
30 September 30 September Significant of unobservable
2020 2019 Valuation technique(s) unobservable inputs to
GBP'000 GBP'000 and key input(s) input(s) fair value
=========== ============= ============= ============================== ================ ====================
Level 1
=========== ============= ============= ============================== ================ ====================
Financial
assets at Quoted bid prices in
FVTPL 379 373 an active market. n/a n/a
=========== ============= ============= ============================== ================ ====================
Level 3
=========== ============= ============= ============================== ================ ====================
Financial
assets at The valuation is based
FVTOCI - on published monthly
Equity 37 48 NAVs. n/a n/a
=========== ============= ============= ============================== ================ ====================
The valuation is based
on the net assets as
presented in the most
recent audited financial
Financial statements of the company. Marketability As the marketability
assets at A marketability discount discount discount increases
FVTOCI - is applied as this investment ranging between the valuation
Equity 31 31 is highly illiquid. 30-50%. decreases.
=========== ============= ============= ============================== ================ ====================
Sensitivity analysis
A sensitivity analysis of the significant unobservable inputs
used in valuing the Level 3 financial instruments is set out
below:
Financial asset Assumption Change in assumption Impact on valuation
========================== ============= ==================== ====================
Current assets - financial Marketability
assets at FVTOCI - Equity discount Increase by 5% Decrease by GBP4,300
========================== ============= ==================== ====================
Fair value hierarchy
At 30 September 2020
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
=========================== ======== ======== ======== ========
Financial assets at FVTPL
Equities 379 - - 379
Financial assets at FVTOCI
Equities - - 68 68
=========================== ======== ======== ======== ========
Total 379 - 68 447
=========================== ======== ======== ======== ========
At 30 September 2019
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
=========================== ======== ======== ======== ========
Financial assets at FVTPL
Equities 373 - - 373
Financial assets at FVTOCI
Equities - - 79 79
=========================== ======== ======== ======== ========
Total 373 - 79 452
=========================== ======== ======== ======== ========
Reconciliation of Level 3 fair value measurement of financial
assets:
Financial assets at FVTOCI
Total
GBP'000
========================================================= ========
Balance at 30 September 2018 676
Net gain from changes in fair value recognised in equity 1
Disposals (598)
========================================================= ========
Balance at 30 September 2019 79
Net loss from changes in fair value recognised in equity (5)
Disposals (6)
========================================================= ========
Balance at 30 September 2020 68
========================================================= ========
17. Notes to the Cash Flow Statement
Group
2020 2019
GBP'000 GBP'000
=========================================================== ======== ========
Operating profit 63,792 60,961
Adjustments for:
Depreciation of property, plant and equipment 3,114 2,823
Depreciation of right of use assets 6,250 -
Amortisation of intangible assets - client relationships
and brand 11,072 6,858
Amortisation of intangible assets - software 417 1,105
Defined benefit pension scheme past service costs - 1,909
Defined benefit pension scheme cash contributions (1,250) (1,979)
Share-based payment expense 9,779 7,769
Translation adjustments 303 (31)
Lease incentive 442 -
Interest income 491 1,414
Interest expense (20) (16)
=========================================================== ======== ========
Operating cash flows before movements in working capital 94,390 80,813
Increase in payables and provisions 27,237 43,227
Decrease in receivables and trading investments (27,347) (45,084)
=========================================================== ======== ========
Cash generated by operating activities 94,280 78,956
Tax paid (16,894) (12,309)
=========================================================== ======== ========
Net cash inflow from operating activities 77,386 66,647
=========================================================== ======== ========
There are no liabilities due to financing activities other than
lease liabilities, a reconciliation of which is provided in note
12.
Company
2020 2019
GBP'000 GBP'000
========================================================= ======== ========
Operating profit/(loss) 45,410 (799)
========================================================= ======== ========
Operating cash flows before movements in working capital 45,410 (799)
Interest income 5 26
Interest expense (16) -
(Decrease)/increase in payables (154) 152
Decrease in receivables and trading investments 3,925 33,712
========================================================= ======== ========
Cash generated by operating activities 49,170 33,091
Tax paid - -
========================================================= ======== ========
Net cash inflow from operating activities 49,170 33,091
========================================================= ======== ========
18. Business combinations
Group
2020
a. Investec Capital & Investments (Ireland) Limited
On 31 October 2019, Brewin Dolphin Wealth Management Limited
('BDWM'), a subsidiary, based in the Republic of Ireland, completed
the acquisition of Investec Capital & Investments (Ireland)
Limited ('ICIIL') the wealth management business of Investec Group
in the Republic of Ireland. The acquired entity has been renamed
Brewin Dolphin Capital and Investments (Ireland) Limited
('BDCIIL'). BDCIIL was acquired to meet the delivery of the Group's
strategic objectives by expanding the Group's presence and scale in
Ireland.
The acquisition has been accounted for using the acquisition
method. Details of the purchase consideration, the fair value of
the net assets and intangible assets acquired, and the net cash
outflow arising on acquisition are as follows:
Purchase consideration:
GBP'000
============================= =======
Cash paid 32,029
Net assets acquired for cash 11,335
============================= =======
Total purchase consideration 43,364
============================= =======
The fair values of the assets and liabilities recognised as a
result of the acquisition are provisional and may be subject to
change during the measurement period:
Amounts recognised:
GBP'000
============================================= =======
Non-current assets
Intangible asset - client relationships(1) 32,067
Current assets
Trade and other receivables 8,316
Cash and cash equivalents 14,102
Current liabilities
Trade and other payables (7,773)
Cash and cash equivalents (1,380)
Non-current liabilities (4,008)
============================================= =======
Identifiable net assets acquired 41,324
============================================= =======
Goodwill 2,040
1. The fair value of BDCIIL's client relationship intangible
assets on consolidation has been measured using a multi-period
excess earnings method. The model uses estimates of client
longevity and the level of both funds and activity driving income
to derive a forecast series of cash flows, which are discounted to
a present value to determine the fair value of the client
relationships acquired.
The goodwill balance comprises:
-- the excess of the fair value of the assets acquired
(excluding the deferred tax liability) over the consideration paid
which was negative; and
-- the value of the deferred tax liability arising on
recognition of the client relationship intangible asset on
acquisition.
Net cash outflow arising on acquisition:
GBP'000
===================================== ========
Consideration paid in cash 43,364
Less: Net assets acquired for cash (11,335)
===================================== ========
Total net cash outflow(1) 32,029
===================================== ========
1. Shown in the line item "Acquisition of subsidiaries" within
the Consolidated Cash Flow Statement.
i. Acquisition-related costs
Acquisition-related costs of GBP3,600,000 have been recognised
as an expense in the Income Statement (2019: GBP1,734,000).
ii. Revenue and net profit
The acquired business contributed revenues of GBP13,491,000 and
profit after tax of GBP2,201,000 to the Group for the period from
31 October 2019 to 30 September 2020 excluding the impact of the
amortisation for the client relationships recognised on
acquisition. If the acquisition had occurred on 1 October 2019,
consolidated revenue and consolidated profit after tax for the year
would have been GBP1,226,500 and GBP200,100 higher respectively,
excluding the impact of the amortisation for the client
relationships recognised on acquisition.
2019
a. Aylwin Limited
On 11 March 2019, the Group's principal operating subsidiary,
Brewin Dolphin Limited, acquired 100% of the ordinary share capital
of Aylwin Limited ('Aylwin'), an unlisted company based in Surrey
which specialises in the provision of financial planning
services.
Aylwin was acquired to expand the Group's financial planning
activities in Southern England and contribute to the delivery of
the Group's strategic objectives. In turn, Aylwin's clients will
benefit from access to Brewin Dolphin's broader product and service
offering.
The acquisition has been accounted for using the acquisition
method. Details of the purchase consideration, the fair value of
the net assets and intangible assets acquired, and the net cash
outflow arising on acquisition are as follows:
Purchase consideration:
GBP'000
====================================== =======
Cash paid 1,944
Net assets acquired for cash 428
Deferred consideration (see ii below) 1,968
====================================== =======
Total purchase consideration 4,340
====================================== =======
The fair values of the assets and liabilities recognised as a
result of the acquisition are provisional and may be subject to
change during the measurement period:
Amounts recognised:
GBP'000
============================================= =======
Non-current assets
Intangible asset - client relationships(1) 3,912
Current assets
Trade and other receivables 133
Cash and cash equivalents 511
Current liabilities
Trade and other payables (216)
Non-current liabilities (665)
============================================= =======
Identifiable net assets acquired 3,675
Goodwill 665
1. The fair value of Aylwin's client relationship intangible
assets has been measured using a multi-period excess earnings
method. The model uses estimates of client longevity and the level
of activity driving commission income to derive a forecast series
of cash flows, which are discounted to a present value to determine
the fair value of the client relationships acquired.
Net cash outflow arising on acquisition:
GBP'000
===================================== =======
Consideration paid in cash 2,372
Less: net assets acquired for cash (428)
===================================== =======
Total net cash outflow(1) 1,944
===================================== =======
1. Shown in the line item 'Acquisition of subsidiaries' within
the Consolidated Cash Flow Statement.
i. Acquisition-related costs
Acquisition-related costs amounting to GBP73,800 have been
recognised as an expense in the Income Statement for the year ended
30 September 2019.
ii. Deferred consideration
The deferred consideration comprises two cash payments of GBP1
million each, due on the first and second completion anniversaries.
The fair value of the deferred consideration payments has been
estimated to be GBP1,944,000 after calculating the present value of
the future cash flows.
iii. Revenue and profit contribution
Aylwin contributed revenues of GBP645,000 and profit after tax
of GBP130,000 to the Group for the period from 12 March 2019 to 30
September 2019. If the acquisition had occurred on 1 October 2018,
consolidated revenue and consolidated profit after tax for the year
to 30 September 2019 would have been GBP1,257,000 and GBP265,000
higher respectively.
Aylwin contributed revenues of GBP66,000 and profit after tax of
GBP29,000 to the Group for the period from 12 March 2019 to 31
March 2019.
b. Mathieson Consulting Limited ('MC')
On 1 April 2019, Brewin Dolphin Limited acquired 100% of the
ordinary share capital of MC, a consultancy business, that provides
an expert witness report service covering pensions. MC was acquired
to expand the Group's professional service offering and contribute
to the delivery of the Group's strategic objectives.
The acquisition has been accounted for using the acquisition
method. Details of the purchase consideration, the fair value of
the net assets and intangible assets acquired, and the net cash
outflow arising on acquisition are as follows:
Purchase consideration:
GBP'000
====================================== =======
Cash paid 736
Net assets acquired for cash 413
Deferred consideration (see ii below) 652
====================================== =======
Total purchase consideration 1,801
====================================== =======
The fair values of the assets and liabilities recognised as a
result of the acquisition are provisional and may be subject to
change during the measurement period:
GBP'000
================================= =======
Non-current assets
Property, plant and equipment 12
Intangible asset - brand(1) 1,388
Current assets
Trade and other receivables 192
Cash and cash equivalents 362
Current liabilities
Trade and other payables (153)
Non-current liabilities (236)
================================= =======
Identifiable net assets acquired 1,565
Goodwill 236
1. The fair value of MC's brand intangible asset has been
measured using a multi-period excess earnings method. The model
uses the expected level of activity driving commission income to
derive a forecast series of cash flows, which are discounted to a
present value to determine the fair value of the brand
acquired.
Net cash outflow arising on acquisition:
GBP'000
===================================== =======
Consideration paid in cash 1,149
Less: net assets acquired for cash (413)
===================================== =======
Total net cash outflow(1) 736
===================================== =======
1. Shown in the line item 'Acquisition of subsidiaries' within
the Consolidated Cash Flow Statement.
i. Acquisition-related costs
Acquisition-related costs amounting to GBP68,300 have been
recognised as an expense in the Income Statement for the year ended
30 September 2019.
ii. Deferred consideration
The deferred consideration comprises three payments, on each of
the first three completion anniversaries. The fair value of the
payments has been estimated to be GBP652,000 after calculating the
present value of the future cash flows.
iii. Revenue and profit contribution
MC contributed revenues of GBP528,000 and profit after tax of
GBP57,000 to the Group for the period from 1 April 2019 to 30
September 2019. If the acquisition had occurred on 1 October 2018,
consolidated revenue and consolidated profit after tax for the year
to 30 September 2019 would have been GBP1,031,000 and GBP120,000
higher respectively.
c. Epoch
On 9 August 2019, Brewin Dolphin Limited acquired the assets and
staff of Epoch Wealth Management LLP, an IFA firm based in Bath,
for an initial payment of GBP10.0 million, an estimated deferred
consideration of GBP1.5 million and an estimated contingent
consideration of GBP7.75 million which is subject to performance
conditions. The acquisition is expected to increase the Group's
market share.
The acquisition has been accounted for using the acquisition
method. Details of the purchase consideration, the fair value of
the net assets and intangible assets acquired, and the net cash
outflow arising on acquisition are as follows:
Purchase consideration:
GBP'000
======================================== =======
Cash paid 10,000
Contingent consideration (see ii below) 8,792
======================================== =======
Total purchase consideration 18,792
======================================== =======
The fair values of the assets and liabilities recognised as a
result of the acquisition are provisional and may be subject to
change during the measurement period:
GBP'000
============================================= =======
Non-current assets
Intangible asset - client relationships(1) 18,792
Non-current liabilities (3,195)
============================================= =======
Identifiable net assets acquired 15,597
Goodwill 3,195
1. The fair value of Epoch's client relationship intangible
assets has been measured using a multi-period excess earnings
method. The model uses estimates of client longevity and the level
of activity driving commission income to derive a forecast series
of cash flows, which are discounted to a present value to determine
the fair value of the client relationships acquired.
Net cash outflow arising on acquisition:
GBP'000
=========================== =======
Consideration paid in cash 10,000
=========================== =======
Total net cash outflow(1) 10,000
=========================== =======
1. Shown in the line item 'Purchase of intangible assets -
client relationships' within the Consolidated Cash Flow
Statement.
i. Acquisition-related costs
Acquisition-related costs of GBP461,000 have been recognised as
an expense in the Income Statement for the year ended 30 September
2019.
ii. Contingent consideration
The contingent consideration comprises three separate payments.
The estimated first contingent consideration comprises a single
cash payment due 18 months following the acquisition date. The fair
value of the payment has been estimated to be GBP1,476,000 after
calculating the present value of the future cash flows. The
estimated second contingent consideration has been fair valued at
GBP7,316,000 and will be settled in both cash and the Company's
shares, upon satisfaction of the performance conditions. This
contingent consideration is payable at the end of the twelve-month
performance period to 30 September 2022; the measurement of
performance can be delayed under certain circumstances by the
seller. A third contingent consideration will be settled in both
cash and the Company's shares at the end of 30 September 2024 if
performance conditions are met. As at 30 September 2019, it is not
expected that this contingent consideration will be payable,
therefore it has been estimated as GBPnil.
iii. Acquired tangible assets and other assets
The fair value of the acquired Property, Plant and Equipment and
other assets is GBPnil.
iv. Revenue and net profit
The acquired business contributed revenues of GBP618,000 and
profit after tax of GBP130,000 to the Group for the period from 9
August 2019 to 30 September 2019. If the acquisition had occurred
on 1 October 2018, consolidated revenue and consolidated profit
after tax for the year to 30 September 2019 would have been
GBP4,339,000 and GBP467,000 higher respectively.
19. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation. The primary
statements of the Company include amounts attributable to
subsidiaries. These amounts have been disclosed in aggregate in the
relevant notes to the financial statements of the Company and in
detail in the following table:
Amounts owed Amounts owed
by related parties to related parties
===================== =====================
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
================================ ========== ========= ========== =========
Bell Lawrie White & Co. Limited - - 2,434 2,434
Brewin Dolphin Limited 35,042 38,967 - -
Brewin Broking Limited - - 4,900 4,900
================================ ========== ========= ========== =========
35,042 38,967 7,334 7,334
================================ ========== ========= ========== =========
All amounts owed by related parties are interest free and
repayable on demand.
The only effect of related party transactions on the profit and
loss of the Company was in respect of dividends. The Company
received dividends of GBP45,500,000 (2019: GBPnil) from Brewin
Dolphin Limited and GBPnil (2019: GBP1,067,250) from Brewin Dolphin
Wealth Management Limited.
The Group companies did not enter into any transactions with
related parties who are not members of the Group during the year,
save as disclosed elsewhere in these financial statements.
All amounts outstanding with related parties are unsecured and
will be settled in cash. No guarantees have been given or
received.
No provisions have been made for doubtful debts in respect of
the amounts owed by related parties.
Remuneration of key management personnel ('KMP')
Key management personnel are responsible for planning, directing
and controlling the activities of the Group. Key management
personnel for the Group have been determined to be the Directors
and members of the Executive Committee.
The remuneration expense for key management personnel is as
follows:
2020 2019
GBP'000 GBP'000
======================================= ======== ========
Short-term employee benefits 4,646 4,968
Post-employment benefits 22 16
Share-based payment:
Lapses where KMP have left the Group (109) -
Continuing KMP 1,221 1,047
======================================= ======== ========
5,780 6,031
======================================= ======== ========
The remuneration of individual Directors is set out in the
Directors' Remuneration Report in the 2020 Annual Report and
Accounts in addition to the disclosure above.
A number of the Group's key management personnel and their close
family members make use of the services provided by companies
within the Group. Charges for such services are made at various
staff rates.
Directors' transactions
There are no contracts, loans to Directors or other related
party transactions with Directors.
20. Impact of application of IFRS 16 Leases
Group
The Group adopted IFRS 16 from 1 October 2019. In accordance
with the transition requirements of IFRS 16, comparative
information for 2019 has not been restated.
The adoption of IFRS 16 has resulted in a significant increase
in the Group's reported assets and liabilities on its Consolidated
Balance Sheet. The depreciation (of the ROU asset) and interest
charges (unwind of the discounted lease liability) have replaced
the lease costs charged to other operating costs in the Income
Statement on a straight-line basis under the previous standard (IAS
17).
The application of IFRS 16 has had no impact on the consolidated
cash flows of the Group except that lease payments and associated
interest payments are shown within financing activities rather than
net cash flows from operating activities and include interest
received and cash payments from lessees. There has been no impact
on the basic and diluted earnings per share for the Group.
Impact on the Consolidated Balance Sheet as at 1 October
2019
The table below show the amount of adjustment for each financial
statement line item affected by the initial application of IFRS
16.
At At
30 September 1 October
2019 Adjustments 2019
GBP'000 GBP'000 GBP'000
====================================== ============== ============ ===========
Property, plant and equipment 10,659 (217) 10,442
====================================== ============== ============ ===========
Right of use assets - 43,305 43,305
====================================== ============== ============ ===========
Non-current other receivables - 688 688
====================================== ============== ============ ===========
Non-current finance lease receivables - 1,181 1,181
====================================== ============== ============ ===========
Total non-current assets 145,278 44,957 190,235
====================================== ============== ============ ===========
Current trade and other receivables 216,212 (1,371) 214,841
====================================== ============== ============ ===========
Current finance lease receivables - 118 118
====================================== ============== ============ ===========
Total current assets 445,863 (1,253) 444,610
====================================== ============== ============ ===========
Total assets 591,141 43,704 634,845
====================================== ============== ============ ===========
Current trade and other payables 220,921 (3,039) 217,882
====================================== ============== ============ ===========
Current lease liabilities - 6,653 6,653
====================================== ============== ============ ===========
Current provisions 4,350 (521) 3,829
====================================== ============== ============ ===========
Total current liabilities 231,306 3,093 234,399
====================================== ============== ============ ===========
Net current assets 214,557 (4,346) 210,211
====================================== ============== ============ ===========
Net deferred tax liability 2,699 (1,323) 1,376
====================================== ============== ============ ===========
Non-current lease liabilities - 51,131 51,131
====================================== ============== ============ ===========
Non-current provisions 14,933 (3,384) 11,549
====================================== ============== ============ ===========
Total non-current liabilities 22,132 46,424 68,556
====================================== ============== ============ ===========
Total liabilities 253,438 49,517 302,955
====================================== ============== ============ ===========
Net assets 337,703 (5,813) 331,890
====================================== ============== ============ ===========
Profit and loss account 231,115 (5,813) 225,302
====================================== ============== ============ ===========
Total equity 337,703 (5,813) 331,890
====================================== ============== ============ ===========
ROU assets
These assets (see note 11) represent the Group's contractual
right to access an identified asset under the terms of the lease
contract.
Finance lease receivables
Amounts due from lessees under finance leases are recognised as
finance lease receivables (see note 16 to the 2020 Annual Report
and Accounts) and represent the Group's net investment in the
finance sublease.
Lease liabilities
The liabilities represent the Group's contractual obligation to
minimum lease payments during the lease term. Any liability payable
in the next 12 months is recognised in current liabilities and all
other liabilities are recognised in non-current liabilities.
To measure the lease liabilities, the remaining lease payments
were discounted using a weighted average incremental borrowing rate
of 3.9%. See note 3b(iv) for an explanation of the determination of
the incremental borrowing rate.
The table below reconciles the operating lease commitments as at
30 September 2019 disclosed in note 32 to the 2020 Annual Report
and Accounts and the lease liability recognised at the date of
initial application of IFRS 16.
GBP'000
================================================= ========
Operating lease commitments at 30 September 2019 69,881
Short-term leases and low value leases (363)
Effect of discounting the above amounts (11,734)
================================================= ========
Lease liabilities recognised at 1 October 2019 57,784
================================================= ========
Current liability 6,653
Non-current liability 51,131
================================================= ========
Lease liabilities recognised at 1 October 2019 57,784
================================================= ========
Deferred tax
A deferred tax asset has been recognised and represents the
temporary corporation taxation timing difference on the transition
adjustment taken to reserves.
Trade and other payables/trade and other receivables and
provisions
The adjustments to these balances are in relation to lease
incentives, onerous property provisions, dilapidation provisions
and certain lease incentives which were recognised on the
Consolidated Balance Sheet under IAS 17. These items are now
reflected in either the ROU assets or lease liabilities.
Retained earnings
The impact on opening retained reserves on the initial
application of IFRS 16 was to reduce reserves by GBP5,813,000.
Impact on the Consolidated Income Statement for the year ended
30 September 2020
The Group recognised lease liability finance costs of
GBP2,327,000 for the year; depreciation expense of GBP6,250,000 for
the ROU assets (see note 11); and rental income of GBP572,000 from
operating subleases (shown in note 4 within other operating
income).
For the year ended 30 September 2019, the Group recognised
rental costs of GBP8,041,000 in accordance with IAS 17.
21. Revised accounting policy for leases
Leases
The Group has applied IFRS 16 as described in note 2b and
comparative information has not been restated. The details of
accounting policies under both IAS 17 and IFRS 16 are presented
separately below.
The Group is primarily a lessee of property and is also a
sub-lessor for a small number of property leases.
Policies applicable from 1 October 2019
(a) The Group as a lessee
For any new contracts entered into on or after 1 October 2019,
the Group considers whether a contract is, or contains a lease by
assessing whether the contract meets three key criteria which
are:
-- the contract contains an identified asset, which is either
explicitly identified in the contract or implicitly specified by
being identified at the time the asset is made available to the
Group;
-- the Group has the right to obtain substantially all of the
economic benefits from use of the identified asset throughout the
period of use, considering its rights within the defined scope of
the contract; and
-- the Group has the right to direct the use of the identified
asset throughout the period of use.
Right of use assets ('ROU')
The Group recognises right of use assets at the commencement
date of the lease (i.e. the date the underlying asset is available
for use). Right of use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of the right of
use assets includes the initial amounts of the corresponding lease
liabilities recognised, initial direct costs incurred, and lease
payments made at or before the commencement date less any lease
incentives received.
An estimate of any costs to return the leasehold asset to the
condition required by the contract is included in the related ROU
asset and a corresponding provision is recognised.
The depreciation charge is recognised in the Income Statement
and is calculated over the shorter of the ROU's useful life and the
lease term on a straight-line basis from the commencement date of
the lease.
The ROU assets are assessed for impairment annually
(incorporating any onerous lease assessments).
Lease liabilities
At the commencement date of a lease, the Group recognises lease
liabilities measured at the present value of lease payments to be
made over the lease term. Lease payments included in the
measurement of the lease liability comprises the following items,
where applicable:
-- fixed payments less any lease incentives receivable;
-- variable lease payments that depend on an index or rate,
initially measured using the index or rate at the commencement
date;
-- the amount expected to be payable by the lessee under
residual value guarantees;
-- the exercise price of purchase options, if the lease term
reflects the exercise of an option to terminate the lease; and
-- payments of penalties for terminating the lease, if the lease
term reflects the exercise of an option to terminate the lease.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the lease liabilities
are reduced for payments made and increased for interest. Interest
recognised on the lease liability is included in finance costs in
the Income Statement.
The carrying amount of lease liabilities is remeasured if there
is a modification, a change in the lease term, a change in the
in-substance fixed lease payments or a change in the assessment to
purchase the underlying asset. On remeasurement of the lease
liability, the corresponding adjustment is reflected in the ROU
asset, if the ROU asset is already reduced to nil, the adjustment
is recognised in the Income Statement.
Short-term leases and lease of low value assets
The Group has adopted certain optional recognition exemptions
available under IFRS 16 for short-term (less than 12 months) and
low value (< GBP5,000) leases. These leases are held off balance
sheet with rentals charged to the Income Statement on a
straight-line basis over the lease term and are classified as
operating leases. 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.
(b) The Group as an intermediate lessor
Subleases
The Group acts as an intermediate lessor in respect of surplus
office space, in which the Group classifies its subleases either as
an operating or finance lease by reference to the right of use
asset arising from the head lease (rather than by reference to the
underlying asset) or if the head lease belonging to the Group is a
short-term lease, the sublease is classified as an operating lease.
The Group accounts for the head lease and the sublease as two
separate contracts.
Finance lease receivable
Amounts due from lessees under finance leases are recognised as
a finance lease receivable and represent the Group's net investment
in the finance sublease.
Any difference between the right of use asset and the net
investment in the sublease is recognised in the Income
Statement.
The Group applies the discount rate used for the head lease
(adjusted for any initial direct costs associated with the
sublease) to measure the net investment in the sublease.
Finance lease income is allocated to accounting periods so as to
reflect the constant periodic rate of return on the Group's net
investment outstanding in respect of the leases.
Any allowances for expected credit losses are recognised against
finance lease receivables as required by IFRS 9, if applicable.
The lease liabilities relating to the head leases are retained
on the Balance Sheet and represent the lease payments payable to
the head lessor.
Operating subleases
For subleases which are classified as an operating lease, the
Group recognises both the lease liability and the ROU asset
relating to the head lease. Rental income from the operating
sublease is recognised in the Income Statement as other operating
income on a straight-line basis over the term of the relevant
sublease.
Initial direct costs incurred in negotiating and arranging an
operating lease are added to the carrying amount of the leased
asset and recognised on a straight-line basis over the lease
term.
Policies applicable prior to 1 October 2019
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.
22. Annual General Meeting
The Annual General Meeting will be broadcast via a webinar on
Friday 5 February 2021 at 11:30 am and we encourage shareholders to
watch and listen to the AGM proceedings.
23. 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.
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END
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