TIDMCAY
RNS Number : 1893R
Charles Stanley Group PLC
13 June 2018
13 June 2018
Charles Stanley Group PLC
Results for the year ended 31 March 2018
Charles Stanley Group PLC ('the Group') or ('Charles Stanley')
today announces its preliminary results for the year ended 31 March
2018:
Financial highlights:
-- Discretionary funds up by 7.9% to GBP12.3 billion (2017: GBP11.4 billion)
-- Reported revenue of GBP150.9 million (2017: GBP141.6 million), with growth in all divisions
-- Reported profit before tax of GBP11.4 million (2017: GBP8.8 million)
-- Core Business(1) profit before tax of GBP10.9 million (GBP2017: GBP9.8 million)
-- Core Business operating margin improved to 8.8%(2) (2017: 7.1%)
-- Reported basic earnings per share up 40% to 17.23 pence (2017: 12.35 pence)
-- Total 2018 dividend increased 33.3% to 8.0 pence per share (2017: 6.0 pence per share)
-- Balance sheet strengthened - Group cash balance increased
12.3% to GBP65.6 million (2017: GBP58.4 million) and regulatory
capital resources up 21% to GBP74.0 million (2017: GBP61.4
million)
Operational highlights:
-- Maintained upper quartile client satisfaction and staff engagement scores
-- Delivered a series of initiatives enhancing client service and improving capacity
-- New governance framework fully implemented and enterprise risk framework refreshed
-- Disposal of non-core activities completed
Paul Abberley, Chief Executive Officer, commented:
"2018 has been another year of progress for Charles Stanley. We
completed the disposal of non-core activities, further built
profitability and began to scale the business. The Group's
transformation continues apace as we implement our strategy and
deliver progress in the underlying key metrics. That said, we
recognise the need to accelerate the improvement in our financial
metrics to match what is being delivered qualitatively across the
business.
The focus for the 2019 financial year will be on driving top
line revenue growth whilst improving operational efficiency and in
turn harnessing operational gearing. I am confident that we will
continue to make meaningful progress toward attaining our target
15% operating margin. The speed with which we attain it will in
part be dependent upon the pace of investment to develop sales
channels and standardise processes, and in part on how quickly the
Group assimilates change."
(1) The Core Business figures represent the results of the
Group's four main operating divisions, excluding held for sale
activities and adjusted for one-off items.
(2) The Core Business operating margin, excluding the charge in
respect of share options awarded to certain investment management
teams under the revised remuneration arrangements settled last
year.
The information communicated in this announcement contains
inside information for the purposes of Article 7 of Regulation
596/2014
Charles Stanley Group PLC LEI: 213800LBSEGKE5MCYC90
For further information, please contact:
Charles Stanley Canaccord Genuity Peel Hunt Redleaf Communications
Joanne Higginson Andrew Buchanan Guy Wiehahn Charlie Geller
Via Redleaf 020 7523 4661 020 7418 020 7382 4730
Communication 8893 CScapitalmarkets@redleafpr.com
Notes to editors:
Charles Stanley traces its origins back directly to 1792 and is
one of the oldest firms on the London Stock Exchange. Charles
Stanley today provides holistic wealth management services to
private clients, charities and smaller institutions. These are
delivered by over 400 professionals located in 22 offices
throughout the UK, both direct to clients and to intermediaries.
Our services include investment portfolio management and financial
planning, supported by in-house administration to enhance the
quality of service provided. In addition, Charles Stanley Direct
provides an award winning direct to customer execution-only dealing
platform for equities and funds.
Financial highlights:
2018 2017
Profit before tax from Core Business (GBPm) 10.9 9.8
Reported profit/(loss) before tax (GBPm) 11.4 8.8
Basic earnings per share from Core Business
(p) 16.06 15.33
Reported basic earnings per share (p) 17.23 12.35
Dividend per share (p) 8.0 6.0
--------------------------------------------- ------ ------
Business highlights:
2018 2017
FuMA(1,2) (GBPbn) 23.8 24.0
Discretionary funds (GBPbn) 12.3 11.4
Core Business revenue (GBPm) 150.4 138.6
------------------------------ ------ ------
Core Business revenue by division:
2018 2017
Investment Management Services (GBPm)(3) 131.2 123.8
Asset Management (GBPm)(3) 7.0 5.5
Financial Planning (GBPm) 6.3 5.0
Charles Stanley Direct (GBPm) 5.9 4.3
------------------------------------------ ------ ------
Financial calendar:
Ex-dividend date for final dividend 28 June
2018
Final dividend record date 28 June
2018
Deadline for elections under DRIP(4) 10 July
2018
Annual General Meeting 24 July
2018
Final dividend payment date 31 July
2018
------------------------------------- --------
(1) Funds under Management and Administration.
(2) The Group's FuMA as at 31 May 2018 were GBP25.0 billion.
(3) The 2017 figures have been restated to reflect the transfer
of an investment management team from Asset Management to
Investment Management Services during 2018 in order to provide more
appropriate reporting.
(4) Dividend Reinvestment Plan.
Chairman's statement
It is pleasing to report that 2018 has been another year of
progress for Charles Stanley. This has been a year in which we
completed the rationalisation of the Group's non-core activities
and began to scale our holistic wealth management services to
continue the improvement in profitability.
Financial results
The Group's reported revenue for the year ended 31 March 2018
was up 6.6% to GBP150.9 million. Reported profit before tax was up
30% on last year at GBP11.4 million.
Beneath the headline movements, the quality of business also
improved. Total Funds under Management and Administration (FuMA) at
31 March 2018 were GBP23.8 billion with Discretionary funds
reaching a new record of GBP12.3 billion, up 7.9%, despite a
deterioration in market conditions experienced in the last quarter
of the financial year. This reflects the Group's focus on growing
its discretionary management service. At the same time our
award-winning digital execution-only platform Charles Stanley
Direct grew its Assets under Administration (AUA) by 21.1% in the
year and moved into a profit in the second half.
The Group's cash position remained strong, ending the year 12.3%
higher at GBP65.6 million.
Governance
To ensure that we are executing our strategic plan efficiently,
we took steps to refresh Charles Stanley's governance. We produced
clear mandates for each of our Boards and Committees; we filled
skills gaps and improved our management information. Taken
together, the restructuring we have put in place over the course of
the year has significantly enhanced our strategic control.
Risk
Of course, no strategy is without risk, and we have devoted
particular attention to managing this. We refreshed the enterprise
risk framework to ensure that arising threats are even more closely
monitored and managed. Specifically, we have reviewed in detail our
tolerance for risk, which is set out in our Risk Appetite Statement
(RAS), and progress is flagged in our regular risk reporting.
Culture
Underpinning our risk management is the Group's culture. It
gives me great pleasure to announce that the 2017 staff engagement
survey produced a top quartile engagement score of 73%. Coupled
with the Group's strong client centric ethos, nothing better
illustrates the responsible approach by our team of professionals
to improving the business. At this point I would like to thank our
staff for their dedication and effort during the year.
Board changes
This has been another very demanding year for the Board, and I
should like to pay tribute to all our directors for their
significant contribution to our success. Paul Abberley, our Chief
Executive Officer, leads a very professional team, and on behalf of
our shareholders I should like to thank him, our Chief Financial
Officer, Ben Money-Coutts and the Head of our Investment Management
Services division, Gary Teper, as well as the members of our
Executive Committee, for driving the Group forward.
As previously announced, David Pusinelli stepped down as a
Non-Executive Director on 27 July 2017, and on behalf of the Board
I pass on our warmest gratitude for his contribution to the Group.
Andrew Didham, who chairs our principal trading subsidiary, Charles
Stanley & Co. Ltd, has replaced David as Senior Independent
Non-Executive Director of Charles Stanley Group PLC.
We are delighted with the appointment of two further senior
industry figures as Independent Non-Executive Directors who
complement the existing team and bring our total Independent
Non-Executive Directors to a team of four.
Hugh Grootenhuis joined the Group on 7 September 2017.
Previously, Hugh was Chief Executive of Waverton Investment
Management.
Marcia Campbell was appointed on 16 October 2017. Formerly,
Marcia was Group Operations Director and CEO Asia Pacific at
Standard Life.
Both appointments followed a rigorous selection process
facilitated by independent consultants and were subject to the
FCA's approval. Together, Hugh and Marcia bring valuable industry
knowledge and expertise and are working with the rest of the Board
and the Executive Committee to deliver our vision of becoming the
UK's leading wealth manager.
Dividend
We have previously communicated the Group's progressive dividend
policy. Based on the achieved financial results, the Board is
recommending a final dividend of 5.5 pence per share. Taken
together with the interim dividend of 2.5 pence per share, this
equates to a total dividend for the year of 8.0 pence per share
which is an increase of 33.3% on the prior year.
Outlook
Rising inflation implies that growth in the global economy is
nearing the peak of the cycle. This leads us to expect greater
volatility and lower returns going forward.
In the UK, political risk adds an extra dimension. Uncertainties
around Brexit continue to give rise to greater economic volatility
in the UK, at least in the short term. The threat of global trade
barriers being raised as a result of US policy is also a concern.
On the other hand, with around 70% of the FTSE-100 companies'
revenues derived from abroad, sterling weakness would boost market
returns. Finally, positive EPS momentum and attractive valuations
give further cause for cautious optimism on a UK-centric view.
Combined, the global and UK outlooks provide a reasonably
favourable backdrop for our transformation programme and should
bring growth in revenues, profits and margins if well executed,
which in turn will support our progressive dividend policy and thus
generate long-term shareholder value.
Sir David Howard
Chairman
12 June 2018
Chief Executive Officer's report
The transformation of our Group continues apace as we implement
our strategy, evidenced by further progress in our key metrics.
While this includes growth in our underlying financial performance,
we need to ensure this broad-based progress also powers
acceleration in our profitability.
Financial performance
I am pleased to report that the Group continues to deliver
improvement in profitability. Profit from the Core Business of
GBP10.9 million represents a GBP1.1 million or 11.2% increase on
the previous year. Core Business earnings per share increased by
4.8% to 16.06 pence.
That said, we recognise the need to accelerate the improvement
in our financial metrics to match the quality of what is being
delivered qualitatively across the business.
Strategy implementation
At the start of financial year 2018, we completed the disposal
of non-core activities thus enabling us to focus exclusively on our
full-service holistic wealth management business. With appropriate
incentive structures in place, our objective has been to invigorate
asset growth and improve operational efficiency.
New asset inflows of GBP1.5 billion were recorded during the
year, with over half placed in discretionary mandates. Service
level reviews with our clients led to a further GBP1.0 billion of
advisory mandates moving to discretionary or execution-only
services. While service types will be matched with client needs, my
perception is that clients are drawn increasingly to discretionary
services and it is gratifying that our business mix shifts
inexorably in that direction.
Inflows were partly offset though by client losses as we
continued to consolidate our investment management teams. Overall,
and together with streamlining our client charging structure, these
trends have proven revenue enhancing. There is more to be done. We
have an excellent proposition, frequently acknowledged by our
clients, but we need to become more effective in delivering these
services to new clients.
Turning to operational efficiency we have delivered a series of
initiatives which have both enhanced client service and improved
capacity. These include improved digital access, completely
redesigned portfolio valuation reports and enhanced delivery of
investment research to our investment managers.
More broadly, we have embedded our wholly new governance and
administration architecture, which both transforms our broad
risk-management effectiveness and underpins strong client outcomes.
This is not cost free however and when combined with a substantial
agenda of new regulation, does limit the financial impact of the
new business flows. However, with much of this work behind us, we
can increase the operational gearing of the business.
The year ahead
The focus for the 2019 financial year will be on driving top
line revenue growth whilst improving operational efficiency and in
turn harnessing operational gearing.
As the balance of revenues shifts from commission to fees the
Group is more exposed to stock market volatility, which can be
expected to be more frequent given the stage of the global economic
cycle. Regulatory change will continue to absorb key resources.
So as ever, headwinds are likely. That said, I approach the
current financial year with quiet optimism. Continuing the
commercial transformation of the firm while sustaining high and
stable levels of customer service will not be easy, but our staff
are focused and determined to deliver our vision
of becoming the leading UK wealth manager.
Paul Abberley
Chief Executive Officer
12 June 2018
The Chief Financial Officer's review of the year
Charles Stanley achieved growth in both revenues and profits
during 2018 and the balance sheet continued to strengthen. We
exited the last of our non-core activities at the beginning of the
year and all our ongoing divisions contributed to the improved
performance.
Overview of 2018 full year results
The Group's reported revenues for 2018 were GBP150.9 million,
representing an increase of 6.6% (GBP9.3 million) on the prior
year. Revenues for the Core Business (comprising the Investment
Management Services, Asset Management, Financial Planning and
Charles Stanley Direct divisions) were up 8.5% to GBP150.4 million,
predominantly driven by higher investment management fees. This
increase in revenues was offset by a loss of income from EBS
Management PLC (EBS) following the completion of its disposal at
the end of May 2017.
Overall expenditure increased by 3.9% (GBP5.4 million) to
GBP142.2 million (2017: GBP136.8 million). During the course of the
year, the Group recognised a number of one-off gains and losses
shown within net finance income and other non-operating income of
GBP2.5 million (2017: GBP3.8 million). These mainly comprised gains
realised from the sale of EBS (GBP0.7 million) and certain
corporate investments (GBP2.4 million), off-set by a one-off
impairment charge on one of the Group's freehold properties (GBP1.0
million). Details of these one-off items are set out later on in
this section.
The above factors contributed to the Group achieving a reported
profit before tax of GBP11.4 million representing a 29.5% increase
on the prior year reported profit of GBP8.8 million.
The adjusted profit before tax from the Core Business of GBP10.9
million is 11.2% ahead of the GBP9.8 million profit achieved in the
previous financial year, demonstrating reasonable progress.
The Core Business profit before tax margin was of 7.2% (2017:
7.1%). This improvement is certainly less than we had hoped, though
to some extent performance was hampered by the charge in respect of
non-cash, share-based option arrangements associated with the
remuneration agreement settled with our investment management
teams. Excluding this charge the underlying margin was 8.8%.
Funds under Management and Administration
The Group's revenue is substantially driven by the level of its
FuMA. These stood at GBP23.8 billion at 31 March 2018, representing
a 0.8% decrease from the GBP24.0 billion held at 31 March 2017.
During the same period the market movement as measured by the FTSE
UK Private Investor Balanced Index was down 1.7%.
Of course these figures simply represent the point in time
levels of FuMA. By comparison, average FuMA during the year were
GBP24.3 billion, a 10.5% increase on the previous year.
FuMA movement
2018 2017 Change
GBPbn GBPbn %
As at 31 March
Discretionary funds 12.3 11.4 7.9
Advisory Managed funds 1.8 2.4 (25.0)
Total managed funds 14.1 13.8 2.2
------------------------------------------------- ------ ------ -------
Advisory Dealing funds 1.4 1.8 (22.2)
Execution-only funds 8.3 8.4 (1.2)
Total administered funds 9.7 10.2 (4.9)
------------------------------------------------- ------ ------ -------
Total Funds under Management and Administration 23.8 24.0 (0.8)
------------------------------------------------- ------ ------ -------
FTSE UK Private Investor Balanced Index 4,050 4,122 (1.7)
------------------------------------------------- ------ ------ -------
Discretionary funds were up GBP0.9 billion or 7.9%, continuing
the trend seen in recent years where the Group has focused on
building scale in this service category. This increase is partly
driven by net inflows from new clients and partially from upgrading
existing Advisory Managed clients.
Whilst Execution-only funds fell 1.2% overall, our online
execution-only platform Charles Stanley Direct continues to
outperform and increased its AUA by 21.1% to GBP2.3 billion.
Advisory Dealing and brokered Execution-only funds have both
reduced on prior year as investment managers continue to focus more
on managed accounts and transfer smaller accounts to Charles
Stanley Direct. The Group expects this polarisation into
Discretionary and online execution-only services to continue.
Inflows from new clients of GBP1.5 billion were offset by
outflows from existing (GBP0.3 billion) and lost (GBP1.0 billion)
clients, and negative market performance of GBP0.4 billion,
resulting in a GBP0.2 billion net decrease in FuMA since 31 March
2017.
Results and performance
The Group's financial performance for the year ended 31 March
2018 and for the prior year are summarised in the tables below.
These tables show the results of the Core Business, the held for
sale activities (EBS Management PLC disposed on 31 May 2017), and
various adjusting items which are added back to arrive at the Core
Business results so as not to distort underlying performance,
details of which are set out later in this section.
Core Held Adjusting Reported
Business for sale items performance
GBPm GBPm GBPm GBPm
31 March 2018
Revenue 150.4 0.5 - 150.9
Expenses (140.1) (0.5) (1.6) (142.2)
Other income 0.2 - - 0.2
------------------------------ --------- --------- ---------- ------------
Operating profit/(loss) 10.5 - (1.6) 8.9
Net finance income and
other non-operating income 0.4 - 2.1 2.5
------------------------------ --------- --------- ---------- ------------
Profit before tax 10.9 - 0.5 11.4
Tax (expense)/credit (2.8) - 0.1 (2.7)
------------------------------ --------- --------- ---------- ------------
Profit after tax 8.1 - 0.6 8.7
------------------------------ --------- --------- ---------- ------------
Basic earnings per share (p) 16.06 - - 17.23
------------------------------ --------- --------- ---------- ------------
31 March 2017
Revenue 138.6 3.0 - 141.6
Expenses (129.1) (3.0) (4.7) (136.8)
Other income 0.2 - - 0.2
------------------------------ --------- --------- ---------- ------------
Operating profit/(loss) 9.7 - (4.7) 5.0
Net finance income and
other non-operating income 0.1 - 3.7 3.8
------------------------------ --------- --------- ---------- ------------
Profit/(loss) before tax 9.8 - (1.0) 8.8
Tax expense (2.0) - (0.5) (2.5)
------------------------------ --------- --------- ---------- ------------
Profit/(loss) after tax 7.8 - (1.5) 6.3
------------------------------ --------- --------- ---------- ------------
Basic earnings per share (p) 15.33 - - 12.35
------------------------------ --------- --------- ---------- ------------
Core Business revenues
Revenues from the Core Business grew by 8.5% (GBP11.8 million)
to GBP150.4 million in 2018. The change in composition of the
Group's revenues compared to the prior year saw the continued
increase in the proportion represented by fees, now 68.9%.
Core Business expenditure
Expenditure within the Core Business has increased by GBP11.0
million (8.5%) on prior year to GBP140.1 million.
The Group's single largest cost is staff costs and these
increased by GBP1.8 million on the fixed element and GBP7.0 million
on the variable element. Fixed employment costs increased
principally due to a number of new hires within the management team
of the Investment Management Services division and within the
Financial Planning division.
The increase in the variable staff costs is mainly driven by
reward for higher revenues in the year (GBP4.4 million) and by the
charge associated with share options granted to certain investment
management teams under the revised remuneration arrangements
settled last year (GBP2.3 million).
IT & Communications are GBP0.9 million higher compared to
prior year. Additional project-related costs worked on during the
year, in particular MiFiD II, contributed to this. Marketing and
entertainment costs have risen by GBP1.1 million representing
additional spend on marketing campaigns and brand awareness
initiated by the Group to promote new business.
Core Business pre-tax profit
The Core Business pre-tax profit increased from GBP9.8 million
to GBP10.9 million, representing a margin of 7.2% (2017: 7.1%).
Whilst this continues to show some progress on prior years, it is
still a long way from our stated medium-term target of 15%. To
achieve this, the Group will seek to continue to increase
discretionary assets in its Investment Management Services
division, the model portfolios in the Asset Management division,
online execution-only funds in Charles Stanley Direct and Financial
Planning revenues in that division, whilst across the business
improving productivity in both the front office and back
office.
Divisional review
The table below shows the Core Business results broken into the
Group's four main operating divisions: Investment Management
Services, Asset Management, Financial Planning and Charles Stanley
Direct.
Investment Asset Management Financial Charles Core Business
Management Planning Stanley
Services Direct
GBPm GBPm GBPm GBPm GBPm
31 March 2018
Revenue 131.2 7.0 6.3 5.9 150.4
Expenditure (118.0) (6.9) (9.0) (6.2) (140.1)
Other income 0.2 - - - 0.2
------------------------- ------------ ----------------- ---------- --------- --------------
Operating profit/(loss) 13.4 0.1 (2.7) (0.3) 10.5
Net finance income 0.4 - - - 0.4
Profit/(loss)
before tax 13.8 0.1 (2.7) (0.3) 10.9
------------------------- ------------ ----------------- ---------- --------- --------------
31 March 2017(1)
Revenue 123.8 5.5 5.0 4.3 138.6
Expenditure (109.3) (5.8) (7.8) (6.2) (129.1)
Other income 0.2 - - - 0.2
------------------------- ------------ ----------------- ---------- --------- --------------
Operating profit/(loss) 14.7 (0.3) (2.8) (1.9) 9.7
Net finance income 0.1 - - - 0.1
Profit/(loss)
before tax 14.8 (0.3) (2.8) (1.9) 9.8
------------------------- ------------ ----------------- ---------- --------- --------------
(1) The 2017 figures have been restated to reflect the transfer
of an investment management team from Asset Management to
Investment Management Services during 2018 in order to provide more
appropriate reporting.
Investment Management Services
Trading review
The financial performance of the Investment Management Services
division is largely driven by the value and mix of FuMA, the
revenue margin earned on these assets and the operating costs
associated with managing them comprising both fixed and variable
costs.
2018 2017
GBPbn GBPbn
FuMA 19.6 20.3
------------------------------------------------ ---------- ----------
2018 2017
GBPm GBPm
Revenue 131.2 123.8
Direct costs:
Fixed staff costs (20.4) (19.2)
Variable staff costs (39.4) (36.1)
IMs share option charge (2.3) -
Other direct operating expenses (11.5) (10.0)
Other income 0.2 0.2
------------------------------------------------ ---------- ----------
Contribution 57.8 58.7
Allocated costs (44.4) (44.0)
Operating profit 13.4 14.7
------------------------------------------------ ---------- ----------
KPIs: 2018 2017
Discretionary funds per CF30 GBP49.5m GBP42.6m
Discretionary funds as a percent of total FuMA 64.8% 61.1%
Discretionary average client account size GBP304k GBP300k
Discretionary revenue margin 85bps 85bps
Total revenue margin 64bps 65bps
Staff costs to revenue ratio(1) 45.6% 44.7%
Other costs to revenue ratio 42.6% 43.6%
Operating margin(1) 12.0% 11.9%
------------------------------------------------ ---------- ----------
(1) Excluding the charge for the investment managers' share
options
The division's FuMA decreased by 3.4% to GBP19.6 billion as a
result of the decline in stock market values experienced in the
fourth quarter of the financial year.
Looking at the division's asset mix, the higher margin
Discretionary service is up 7.7% on the prior year driven by net
new inflows (GBP0.4 billion) and from service upgrades (GBP0.6
billion) offset by negative market movement of GBP0.2 billion. This
has also contributed to a higher discretionary funds per CF30 of
GBP49.5 million, a key measure for the division.
The other service levels have all decreased during the year as
the division focuses on growing its Discretionary assets and
restructuring its legacy Execution-only book. As part of this
exercise, the division has transferred GBP0.1 billion of assets to
the Charles Stanley Direct platform.
Revenues for the division increased by 6.0% through the
combination of higher average fund levels, improved assets mix and
the benefits of the rolling repricing exercise. We continue to see
a switch from commission income to investment management fees as
more clients elect for a clean fee-only charge.
The division's total costs increased by 8.0% during the year to
GBP118.0 million. The principal reason for this was an increase in
staff costs, up 8.1%. Variable staff compensation increased by
GBP3.3 million or 9.1% as a result of the overall growth in
revenue. Moreover, during the year the Group introduced a share
option plan for employed investment managers in consideration for
them agreeing to a change in their contractual terms. The non-cash
cost of these options is being amortised over the three years to
June 2020 and the charge recognised in 2018, which has not been
treated as exceptional, was GBP2.3 million.
The above factors, and excluding the impact of the charge of the
investment managers' share options, have led to an operating margin
for the division of 12.0% (2017: 11.9%).
Asset Management
Trading review
The Asset Management division's performance is driven by Funds
under Management (FuM) and the revenue margin earned on these
assets.
2018 2017
GBPbn GBPbn
FuM - on platform 0.9 0.9
FuM - off platform(1) 0.4 0.2
FuM - total 1.3 1.1
----------------------- ------ ------
(1) Off platform FuM comprises model portfolios on third party
platforms and Open Ended Investment Companies (OEICs) or other
clients whose assets are held by a third party custodian.
2018 2017
GBPm GBPm
Revenue 7.0 5.5
Direct costs:
Fixed staff costs (1.7) (1.5)
Variable staff costs (1.2) (1.1)
Other direct operating expenses (1.6) (0.7)
--------------------------------- ------- -------
Contribution 2.5 2.2
Allocated costs (2.4) (2.5)
Operating profit/(loss) 0.1 (0.3)
--------------------------------- ------- -------
KPIs: 2018 2017
Revenue margin(2) 56bps 60bps
Operating margin 1.4% (5.5%)
--------------------------------- ------- -------
(2) Revenue margin calculated on total average funds (including
both on and off platform FuM).
The division's FuM increased by 18.2% to GBP1.3 billion. The
main increase was recorded within the model funds and the
Inheritance Tax Portolfio service driven from a combination of net
inflows and investment performance.
The Asset Management division achieved an overall improvement in
profitability year-on-year of GBP0.4 million as it moved from a
loss in 2017 to a small profit of GBP0.1 million in 2018. This was
a direct result of its revenue increasing 27.3% but its total costs
by 19.0%.
During the year the Asset Management division established a
range of risk-rated funds for the launch of Charles Stanley's
Personal Portfolio Service. This service is designed with our
smaller clients in mind for whom a full discretionary service is
not economic. Until the funds reach critical mass, estimated at
approximately GBP100 million, their operational costs are being
subsidised to keep them to an acceptable level for investors. In
the current year the cost to the division was GBP0.6 million. At 31
March 2018 there was GBP43 million invested in the funds and focus
will be given in the current year to grow these further.
Financial Planning
Trading review
The principal driver of the Financial Planning division's
performance is its revenue per financial planner.
2018 2017
GBPm GBPm
Revenue 6.3 5.0
Direct costs:
Fixed staff costs (3.9) (3.5)
Variable staff costs (1.5) (0.6)
Other direct operating expenses (1.5) (1.1)
-------- --------
Contribution (0.6) (0.2)
Allocated costs (2.1) (2.6)
Operating loss (2.7) (2.8)
-------- --------
KPIs: 2018 2017
Number of financial planners 21 18
Revenue per financial planner(1) GBP369k GBP268k
Operating margin (42.9%) (56.0%)
---------------------------------- -------- --------
(1) This calculation is based on annualised revenues divided by
average number of financial planners in the year.
Financial Planning's revenues increased 26.0% to GBP6.3 million
as a direct result of its roll-out of a new value proposition and
pricing model for clients. Encouragingly the revenues per financial
planner (based on annualised figures to take account of people who
left and joined during the year) increased markedly from GBP268,000
to GBP369,000. These figures give us confidence in the validity of
the model which we will continue to scale up through the
recruitment of more financial planners.
Looking forward, our ambition for the division is to grow it to
represent at least 10% of the Group's revenues. At this level, it
will be of sufficient scale to contribute to the Group's goal of
being a holistic wealth manager. The additional investment required
to recruit new financial planners to meet this goal is likely to
lead to an increase in the division's losses in the near term. This
is for two reasons.
First because of the cost of recruitment. Secondly because it
typically takes a period of 18 to 24 months for a new financial
planner to get their revenues up to our target levels which
historically have been set, on average, at GBP300,000, but have now
been moved to GBP350,000. In the longer term we believe this
investment will lead to greater asset inflows, greater share of
wallet, enhanced customer retention and better defensibility of
revenue margins because the service meets a fundamental client
demand. In the process we expect it to enhance the Group's
profitability and quality of earnings.
Charles Stanley Direct
Trading review
Charles Stanley Direct's financial performance is driven by the
value of Assets under Administration (AuA) on which a platform fee
is charged and by the number of commission-earning bargains
undertaken by clients.
2018 2017
GBPbn GBPbn
AuA
Charles Stanley Direct 2.3 1.9
Charles Stanley Investment Choices 0.4 0.4
Total 2.7 2.3
------------------------------------ ------ ------
The division's AuA grew by 17.4% to GBP2.7 billion (2017: GBP2.3
billion). The assets on the Charles Stanley Direct online platform
increased by 21.1% from GBP1.9 billion to GBP2.3 billion during the
year. The significant uplift was driven by new client take-on of
GBP0.3 billion and internal transfers primarily from the Investment
Management Services division of GBP0.1 billion. The platform now
services over 50,000 accounts. Charles Stanley Investment Choices,
our paper-based fund broking business, maintained its assets over
the year.
2018 2017
GBPm GBPm
Revenue 5.9 4.3
Direct costs:
Fixed staff costs (1.3) (1.5)
Variable staff costs - (0.1)
Other direct operating expenses (2.0) (1.4)
--------------------------------- ------ ------
Contribution 2.6 1.3
Allocated costs (2.9) (3.2)
Operating loss (0.3) (1.9)
--------------------------------- ------ ------
KPIs: 2018 2017
AuA growth 17.4% 27.8%
Revenue margin 24bps 22bps
Operating margin (5.1%) (44.2%)
------------------ ------- --------
Charles Stanley Direct continues to make very encouraging
progress and although it reported a small loss for the year of
GBP0.3 million, it achieved a profit of GBP0.2 million in the
second half. This was driven by a combination of ongoing growth in
its customers and AuA on a relatively static cost base.
The main focus for the division in the near term is to enhance
further the platform's mobile application and improve its website
interface creating a full digital experience for both existing and
new customers.
Support Functions
The costs incurred by the Group's Support Functions are either
charged directly to the four main operating divisions, such as for
market data costs, or recharged as an allocated cost. Ongoing costs
for all Support Functions were GBP49.1 million in 2018, reflecting
a marginal net increase of 0.6% on the prior year. The main
increase was in respect of project-related spend including GBP0.8
million for the implementation of MiFiD II and GDPR. Cost
reductions in other areas, notably professional fees, marketing and
administration expenses, helped minimise the overall increase in
the Support Functions costs.
Looking forward, we see further opportunities to reduce Support
Functions' operating costs by reviewing and streamlining process
flows between the front to middle and back office functions.
Conversely, we expect to see continued cost pressure in a number of
areas including IT and regulation whilst also increasing spend on
marketing and training.
Held for sale activities - EBS Management PLC (EBS)
The Group completed the sale of EBS to Embark Group Limited on
31 May 2017. Consequently, two months' worth of trading activities
are included within the 2018 results compared to a full year of
trading in 2017. For this purpose, it is being presented as held
for sale and stripped out from the Core Business year-on-year
results comparison. However, in both years, EBS broke even and
therefore has no impact on the Core Business profit comparison.
Adjusting items
The Board considers the Core Business profit before tax and
earnings per share to be a better reflection of underlying business
performance than the statutory figures reported in the consolidated
financial statements. To calculate the Core Business results the
Board has excluded certain adjusting items totalling a net credit
of GBP0.5 million. An explanation of these adjusting items,
together with a reconciliation of profits, is provided below:
2018 2017
GBPm GBPm
Reported profit before tax 11.4 8.8
Gain on part sale of shares held in Euroclear (1.9) -
PLC
Gain on sale of EBS Management PLC (0.7) -
Profit on disposal of investment in Runpath
Group Limited (0.5) (0.4)
Recovery on prior years FSCS levy(1) (0.1) -
Amortisation of client relationships(1) 1.1 1.6
Impairment of freehold property 1.0 -
Accelerated amortisation of leasehold improvements(1) 0.6 -
London office rationalisation:
1. Net gain on surrender of long term lease - (3.2)
2. Overlapping rent and occupancy costs(1) - 3.1
3. Dilapidations(1) - (0.1)
Impairment of intangible assets - 0.7
Refund of under-recovered VAT in prior years(1) - (0.7)
Net credit/(charge) from adjusting items (0.5) 1.0
------------------------------------------------------- ------ ------
Profits from held for sale activities - -
------------------------------------------------------- ------ ------
Core Business profit before tax 10.9 9.8
------------------------------------------------------- ------ ------
(1) These adjusting items are included within administrative
expenses in the consolidated income statement.
Gain on part sale of shares held in Euroclear PLC: (GBP1.9
million credit)
In April 2017, the Group participated in a share buy-back tender
offer by Euroclear PLC. This resulted in the sale of approximately
60% of the Group's holding in Euroclear PLC, giving rise to a
profit on disposal of GBP1.9 million.
Gain on sale of EBS Management PLC: (GBP0.7 million credit)
On 31 May 2017, the Group completed the disposal of EBS
Management PLC to Embark Group Limited for an initial cash
consideration of GBP2.0 million and a deferred consideration of up
to GBP2.0 million payable on the first and second anniversary of
the completion date. A profit on disposal of GBP0.7 million was
recognised from the transaction.
Profit on disposal of investment in Runpath Group Limited:
(GBP0.5 million credit)
In October 2017, the Group entered into a sale and purchase
agreement to dispose of its remaining holding in Runpath Group
Limited to Experian for a consideration of GBP0.8 million resulting
in an overall gain of GBP0.5 million.
Recovery on prior year FSCS levy: (GBP0.1 million credit)
During the year the Group received a refund of GBP0.1 million in
respect of compensation paid in 2011 in connection with the KeyData
case.
Amortisation of client relationships: (GBP1.1 million
charge)
Payments made for the introduction of customer relationships
that are deemed to be intangible assets are capitalised and
amortised over their useful life, which has been assessed to be 10
years. This amortisation charge has been excluded from the Core
Business profit since it is a significant non-cash item.
Impairment of freehold property: (GBP1.0 million charge)
In accordance with IAS 16, the Group carried out an independent
valuation of its freehold properties during the year. The updated
valuation of one of these properties indicated that its fair value
was impacted by the location and current condition of the building
and was below the carrying value in the books. This resulted in a
one-off impairment charge to the profit and loss account of GBP1.0
million.
Accelerated amortisation of leasehold improvements: (GBP0.6
million charge)
Following the recognition of leasehold dilapidations in respect
of the Group's London headquarters in the year ended 31 March 2017,
the Group undertook a review of its branch network and obligations
for dilapidations. Consequently, a provision of GBP0.9 million for
leasehold dilapidations in respect of the Group's branch network
was recognised in the statement of financial position, with a
corresponding amount shown as an addition to leasehold
improvements. The charge of GBP0.6 million recognised in the year
represents the accelerated depreciation of these leasehold
improvements, for the expired portion of the various branch leases
relating to prior years and therefore is shown as an adjusting
item.
Taxation
The corporation tax charge for the year was GBP2.7 million
(2017: GBP2.5 million) representing an effective tax rate of 23.7%
(2017: 28.4%). The prior year effective tax rate was higher due to
the disposal of fixed assets not allowable for tax purposes
following the London office relocation. A detailed reconciliation
between the standard and effective rate of corporation tax is
provided in note 12 of the Consolidated financial statements.
Earnings per share
The Group's reported basic earnings per share for the year were
17.23 pence (2017: 12.35 pence). The Core Business basic earnings
per share increased from 15.33 pence to 16.06 pence in 2018.
Dividends
The Board has proposed a final dividend of 5.5 pence per share
(2017: 4.5 pence per share). Taking into account the interim
dividend of 2.5 pence per share, this results in a total dividend
for the year of 8.0 pence per share (2017: 6.0 pence per share), an
increase of 33.3%. The proposed total dividend is 2.2x times
covered by basic reported earnings and 2.1x times covered by basic
Core Business earnings. The recommended final dividend is subject
to shareholders' approval, which will be sought
at the Company's Annual General Meeting on 24 July 2018.
Financial position
The Group maintained its strong financial position with total
net assets at 31 March 2018 of GBP97.8 million (2017: GBP89.1
million) including GBP65.6 million of cash resources.
The Group operates a defined benefit pension scheme which was
closed to new members in 1998 and also closed to further accruals
for the remaining 25 active members at 31 March 2016. The most
recent actuarial assessment of the Group's defined benefit scheme's
liabilities shows a deficit at 31 March 2018 of GBP6.5 million (31
March 2017: GBP10.5 million). The reduction in the scheme's deficit
is attributable to a combination of liabilities extinguished on
transfers out of the scheme, investment performance, actuarial
gains and contributions made by the Group to the scheme.
Regulatory capital resources
Charles Stanley & Co. Limited, the Group's main operating
subsidiary, is an IFPRU 125k Limited Licence Firm regulated by the
FCA. In view of this, the Group is classified as a regulated group
and subject to the same regime.
At 31 March 2018, the Group had regulatory capital resources of
GBP74.0 million (2017: GBP61.4 million):
2018 2017
GBPm GBPm
Ordinary share capital 12.6 12.7
Share premium 4.6 4.4
Retained earnings 61.1 51.1
Other reserves 15.2 16.0
Regulatory adjustments (19.5) (22.8)
Total regulatory capital resources 74.0 61.4
------------------------------------ ------- -------
The Group monitors a range of capital and liquidity statistics
on a daily, weekly and monthly basis.
As required under FCA rules, the Group maintains an Internal
Capital Adequacy Assessment Process (ICAAP), which includes
performing a range of stress tests to determine the appropriate
level of regulatory capital and liquidity that the Group needs to
hold. The last review of the ICAAP conducted and signed off by the
Board was in November 2017. Regulatory capital forecasts are
performed monthly and take into account expected dividends and
intangible asset acquisitions and disposals as well as budgeted and
forecast trading results.
The Group's Pillar III disclosures are published annually on the
Group's website (www.charles-stanley.co.uk) and provide further
details about the Group's regulatory capital resources and
requirements.
Financial outlook
Since the year end the markets have recovered strongly and our
FuMA stood at GBP25.0 billion at the end of May 2018. If these
conditions persist then they should provide a helpful tailwind for
an improving performance.
The financial challenge for the Group, both for the 2019
financial year and beyond, is to achieve a greater rate of organic
growth of funds under management, to improve the revenues we
achieve from these assets and to translate more of this top line
growth into bottom line profit. Whilst we achieved many important
milestones in 2018 and overall made good financial progress, the
increase in the operating margin from 7.1% to 8.8% (excluding the
charge in respect of investment managers share options) was less
than we had expected.
There are three principal reasons for this. Firstly, we are
having to invest to ensure we are capable of delivering profitable
future growth. This has a near term cost but a longer term payback.
An example of this dynamic is the investment made in our Financial
Planning division, both in the form of replacing the operating
system and in the recruitment of new financial planners. Secondly,
we have had to invest to ensure compliance with incoming regulatory
standards. Although this is an ongoing feature for the industry as
a whole, the 2018 financial year was particularly active with MiFID
II and GDPR. The Governance overhaul referred to in the Chairman's
statement also alluded to this. Thirdly, we have been reviewing the
way we process business, both in the front and back offices, with a
view to standardising many activities and maximising what we
already have.
This process review is an ongoing major project, the benefits of
which we believe will be to create more capacity in the Group,
improve productivity and also make future development cycles
quicker and cheaper because we will have less complexity to deal
with than is currently the case. For example, we are looking to
bring together the separate Charles Stanley and Charles Stanley
Direct online platforms so that the underlying code is common and
the user experience, whether via a PC or an App, is both the same
and improved. Not only should this help us attract more new clients
to Charles Stanley Direct, but also enable us to convert many
managed clients online for communication and reporting
purposes.
To summarise, we are confident that we will continue to make
meaningful progress toward attaining our target 15% operating
margin. This will be achieved by a combination of revenue growth
and productivity gains. The speed with which we attain it will in
part be dependent upon the pace of investment to develop sales
channels and standardise processes, and in part on how quickly the
Group assimilates change. With an engaged workforce we believe we
can achieve a lot more and this is what we will pursue.
Risk management and principal risks
The Group's risk management framework is a fundamental component
of the operating model and is embedded across all processes and
controls. This section sets out an assessment of the principal
risks relevant to the Group's long-term performance, which is then
followed with the Director's Viability statement covering the three
years to 31 March 2021.
The Chief Risk Officer (CRO), under the supervision of the Risk
Committee, has the principal responsibility for risk awareness,
monitoring and management across all areas of the business.
Charles Stanley's approach to risk management is documented in
the Group Risk Policy and the Risk
Appetite Statement (RAS), which is reviewed, challenged and
approved by the Board on an annual basis. The RAS takes into
consideration the Group's strategic objectives, strategy and
business plans, and underpins the implementation of robust risk
monitoring and risk reporting processes which
continue to evolve.
The RAS sets out the Group's tolerance to various types of risk
and includes both quantitative and qualitative measures against
which Management and the Board monitor risk on a periodic
basis.
The Board has carried out a robust assessment of the principal
risks of the Group including those that may threaten its business
model, performance, solvency and liquidity. The Board agrees that
the information it receives allows it to monitor and review the
efficiency of the Group's Internal Control Framework in line with
the FRC's guidance relating to Risk Management and Internal Control
presented in the UK Corporate Governance code covering all material
controls, including financial, operational and compliance
controls.
Principal risks Key mitigants and controls
Business Model and Strategy The Group Chief Risk Officer participates
The risk that the business in the setting of Group strategic
model and strategy do not plans from the beginning and has
respond in an optimal manner a voice from the early stage of
to changing market conditions strategy development.
such that sustainable growth,
market share or profitability As part of the strategy setting
is adversely impacted. process, the Board is provided with
a summary outlining the risks to
the business model including an
analysis of internal and external
pressures on the Group strategy
and the potential threats to its
business model.
The report is presented to the Executive
Committee and the Board alongside
the proposed business plan to support
the decision making.
Financial Strength Risk To achieve our financial goals,
Failing to maintain financial a series of risk appetite limits
strength in order to support have been set around operating margin,
business objectives, meet cash balances, regulatory capital
regulatory capital requirements, and dividend cover.
and provide shareholders
with an acceptable return. These are monitored by the Board
on a regular basis.
The Group is exposed to interest
rate movements directly through
its variable rate assets and liabilities.
This is tracked by reporting on
exposure levels at the Treasury
Committee.
Credit and Counterparty Charles Stanley does not offer any
Risk formal lines of credit to clients.
The potential failure of The Group however has an exposure
clients or counterparties to counterparty failures and late
to fulfil their contractual payment and settlement. It therefore
obligations. establishes clear risk appetite
limits for client and Group cash
placed and maintained with authorised
institutions and for trading purposes
which must be adhered to by the
business.
The Group's Treasury Committee
is responsible for the initial assessment
and ongoing monitoring of deposit-taking
counterparties. The following criteria
govern how the Group's credit and
counterparty risk is managed:
- Assets will only be placed and
maintained with counterparties deemed
to be financially sound
- Client and Group cash held at
any individual counterparty should
not exceed its respective limit
set by the Treasury Committee unless
written approval has been provided
Counterparty limits for the purpose
of trading are set by the Market
Exposure Committee (MEC):
- Counterparties with no set trading
limits should be assessed on an
individual basis on the day of the
trade by the MEC
- Breaches of any counterparty
trading limits without approval
must be escalated immediately to
the MEC.
Market risk Charles Stanley does not hold any
The risk of losses arising proprietary positions other than
as a result of exposure those arising from incidental dealing
to market movements, including errors. The Group does hold some
foreign exchange and interest investments within model portfolios
rates. for the purpose of establishing
and maintaining an auditable track
record for these models, however
this exposure is not seen as material
and therefore reflects minimal market
risks. Any Market risk arising from
incidental dealing errors are captured
as operational losses.
The majority of the Group's cash
is kept in GBP across a number of
banks. Limited foreign currency
is held only to facilitate settlement
and dealing activity on behalf of
clients. The Treasury Committee
manages the Group's account balances
both in GBP and foreign currencies
to our requirements and limits exposures
to the Group's operational needs.
Liquidity Risk Charles Stanley's Liquidity risk
The risk that the Group, is overwhelmingly short-term in
although solvent, either nature and arises predominantly
does not have available from the settlement of trades within
sufficient financial resources the stockbroking business. The Treasury
to enable it to meet its Committee operates within strict
obligations as they fall policies and procedures approved
due, or can only secure by the Board to manage the Group's
such resources at excessive liquidity risk. These include:
cost.
- The Group ensuring that all legal
entities have sufficient funds to
meet their liabilities as they fall
due, with surplus cash transferred
on a monthly basis to Charles Stanley
& Co. Limited.
- Utilising financial instruments,
which include borrowings, cash and
liquid resources, and various items
including trade debtors and trade
creditors that arise directly from
its operations. The credit quality
of counterparties is reviewed frequently
and we limit aggregate credit exposures
accordingly.
The Group has, for many years, not
used overdraft facilities for working
capital purpose as it has not required
such a facility.
Pension Risk Charles Stanley continues to support
The risk that the cost of a defined benefit pension scheme
the Group's defined benefit ("the scheme") which is closed to
pension scheme increases, new members and ceased accruing
or its valuation affects for existing members in April 2016.
dividends, reserves and It is reviewed regularly for viability
capital. This would materialise and to remain within an agreed deficit
when the pension obligations level.
exceed the assets set aside
to cover them. Through a combination of investment
performance, transfers out from
the scheme and the introduction
of liability driven investments,
the scheme's deficit has reduced
from GBP10.5 million as at 31 March
2017 to GBP6.5 million as at 31
March 2018. The Group is working
closely with the trustees of the
scheme to reduce the deficit further
and, where possible, match investments
with future liabilities.
Operational and IT Infrastructure Charles Stanley has constructed
Risk its framework of internal controls
A material failure of business to minimise the risk of unanticipated
processes or IT infrastructure financial loss or damage to its
may result in unanticipated reputation. However, no system of
financial loss of reputational internal control can completely
damage. eliminate the risk of error, financial
loss, fraudulent actions or reputational
damage. The Group records and monitors
operational losses and near misses
which are reviewed at the Enterprise
Risk Committee, with reporting to
the Joint Risk Committee and the
Board, where required.
Insurance cover is in place and
reviewed on an annual basis to ensure
that there is an appropriate amount
of cover to manage the impact of
operational losses against capital
reserves.
The continuing incidence of low
level technical and operational
issues are driving the Groups risk
exposure up. Charles Stanley's strategic
change programme and its plans to
continue growing the business also
inherently lead to an increase to
the operational risk profile of
the Group, which will continue to
invest in its system capabilities
and business processes to ensure
that it meets the expectations of
its customers, complies with regulatory,
legal and financial reporting requirements,
and mitigates the risk of loss or
reputational damage from operational
risk events and
external threats.
IT Security and Cyber Security Charles Stanley has limited appetite
Risk for unauthorised or
The risk that Charles Stanley's inappropriate access to its IT systems
system infrastructure is due to the potential disruption
breached by external counterparties to its business operations, adverse
with or without malicious customer impacts and damage to its
intention. Possible breaches reputation. Similarly, the Group
could involve data theft, wishes to minimise the threat to
ransomware or a shutdown its business activities from third
of systems. party actions such as denial of
service attacks.
Alongside setting a framework to
prevent and detect unauthorised
access attempts to its business
systems, Charles Stanley seeks to
ensure that the systems are resilient
to current and emerging threats
and maintains a rolling programme
of activity which is informed by
the day-to-day experience, threat
intelligence and any emerging vulnerabilities
identified.
People and Conduct Risk The Group recognises that its reputation
The risk that clients or and financial success is dependent
the wider market, as opposed on the performance and conduct of
to the firm, suffer detriment its staff. Charles Stanley's client-centric
as a result of the Group's culture is founded on the Group's
services, products or activities. core values of being Caring, Fair
and Progressive. It is committed
to delivering good outcomes for
clients by communicating effectively
and providing products and services
that meet their needs throughout
the customer journey. It acts with
integrity in the market, and operates
in line with the agreed strategy
and within the risk appetite.
Eighteen Conduct Outcomes have
been identified and will be monitored
and reported via various metrics
through to the Conduct dashboards.
A Conduct and Culture Committee
has been instituted in May 2017
to provide enhanced oversight.
All clients are risk profiled to
ensure that we clearly define, agree
and manage our clients' portfolios
in accordance with these risk profiles,
investment objectives and capacity
for loss. Suitability is a major
focus which has quality assurance
processes in place to assess suitability
reviews performed by our staff.
Careful monitoring of investment
decision-making against the risk
profile helps ensure that we achieve
appropriate and suitable outcomes
for our clients.
Legal & Regulatory Risk The Group has built a reputation
The risk of breaching, or as a high-quality provider of wealth
non-compliance with, regulations management services. This has been
and restrictions enforced carefully developed over many years.
on the industry and the The risk is monitored and managed
Group, resulting in regulatory by emphasis on compliance with all
censure and/or fines. aspects of relevant regulation,
including those of the FCA.
There remains a significant regulatory
change agenda with the Senior Managers
and Certification Regime (SMCR),
the Markets in Financial Instruments
Directive (MIFID II), the Packaged
Retail Investment and Insurance-based
Products (PRIIPS) and the General
Data Protection Regulation (GDPR)
which came into force on 25 May
2018. The Group ran a programme
to ensure all policies, operating
procedures and processes are compliant
with the new data protection requirements.
While in the longer term, although
the UK exit from the EU will potentially
lead to a rewriting of some legislation,
most EU legislation is being transposed
into UK law.
Charles Stanley monitors changes
in the regulatory and legal agenda
and has formal projects for major
changes to ensure their successful
implementation.
Viability statement
In accordance with the revised UK Corporate Governance Code, the
Directors have carried out a robust assessment of the prospects of
the Group over the three-year period from 31 March 2018 to 31 March
2021. The of the Group's viability over a three-year time period is
in alignment with the Group's strategy, budgeting process and the
scenarios set out in the ICAAP.
The Directors consider a three-year time horizon appropriate as
it is most meaningful in planning the Group's long-term strategy; a
five-year horizon would stretch forecasting inputs and assumptions
beyond a realistic threshold.
In assessing the future viability of the overall business, the
Directors have considered the corporate strategy and the changes
within the business executed in the last two years, including the
significant business divisional restructuring and changes to reward
arrangements. They have also considered the business environment of
the Group and the potential threats to its business model arising
from progressive technological, sectorial, demographic and
regulatory changes.
The Board oversees the Group's principal risks (see the Risk
Committee report in the Governance section of the Annual report and
accounts) and is accountable for the Group's risk management
by:
-- Overseeing the processes and procedures to monitor and
mitigate the principal risks
-- Reviewing high level management information from key departments
which monitor whether the Group is operating within the
parameters set out in the RAS linked to the principal risks
-- Deciding the appropriate actions if any of the Group's
risk appetites are breached.
On a detailed level, extensive management information is
analysed by the Enterprise Risk Committee (ERC) which meets monthly
and oversees operational risk across the Group by:
-- Monitoring quantitative and qualitative management information
across the Group to highlight areas of risk which require
enhanced or additional controls
-- Delegating to the appropriate committees any issues raised
as part of the management information which require further
action
-- Carrying out annual 'deep dive' risk analysis for each
area of the firm including reviewing and challenging departments
on their Risk and Control Self Assessment ("RCSA") which
are discussed by the Committee and department heads
-- Reviewing the reports of the internal and external auditors
concerning systems and controls, reviewing the resolution
of proposed control enhancements and monitoring any remaining
open issues.
The Risk Committee has oversight of the above processes,
ensuring the monitoring and escalation procedures are operating
effectively and completed in a timely manner (see Risk Committee
report in the Governance section of the Annual report and
accounts).
The Board reviews and challenges the Group's three-year
strategic plan against the principal risks at least annually.
Stress tests are applied to the base case projections by applying
multiple shock events. These stresses have been derived from
workshops attended by Senior Management, with the use of external
events to substantiate the Board's comfort level that the shock
events are sufficiently severe and appropriate.
The Group undertakes an ICAAP which is a detailed process owned
and overseen by the CSG Board. This includes an assessment of:
-- the Group's processes, strategies and systems
-- the major sources of risks faced by the Group that may impact
its ability to meet its obligations
-- the results of internal stress testing of these risks
-- the amounts and types of financial resources and internal
capital, including own funds and liquidity resources, and whether
these are adequate both as to amount and quality to ensure that
there is not significant risk that its liabilities cannot be met as
they fall due.
Scenario analysis and stress testing are performed as part of
the ICAAP to assess the Group's exposure to a range of extreme but
plausible situations, as well as an assessment of the Group's
wind-down scenarios. There is also a review of the reverse stress
tests which would cause the Group's business model to become
unviable.
Based on the results of the latest ICAAP, the Board believes
that, by taking the projected actions to reduce expenditure and, if
required, dividends, the Group's business model is resilient and
holds sufficient capital to survive a range of severe but plausible
scenarios.
Given the extensive controls and procedures in place, the
Directors are of the opinion that it is reasonable to conclude that
the Group has sufficient resources to meet its obligations and
continue business operations over the assessed three-year
period.
Consolidated income statement
Year ended 31 March 2018
Notes 2018 2017
GBP000 GBP000
Revenue 4 150,860 141,630
Administrative expenses 4 (142,146) (136,122)
Impairment of goodwill 4 - (650)
Other income 4 278 186
Operating profit 8,992 5,044
--------------------------------------- ------ ---------- ----------
Gain on surrender of lease - 5,550
Loss on disposal of fixed assets (45) (2,199)
Gain on sale of business 707 148
Gain on sale of corporate investments 2,463 423
Impairment of corporate loans - (500)
Impairment of freehold property (995) -
Finance income 343 397
Finance costs (18) (64)
Net finance and other non-operating
income 2,455 3,755
--------------------------------------- ------ ---------- ----------
Profit before tax 11,447 8,799
Tax expense 6 (2,715) (2,539)
Profit for the period attributable
to owners of the Parent Company 8,732 6,260
--------------------------------------- ------ ---------- ----------
Earnings per share
Basic 5 17.23p 12.35p
Diluted 5 16.93p 12.34p
--------------------------------------- ------ ---------- ----------
Consolidated statement of comprehensive income
Year ended 31 March 2018
2018 2017
GBP000 GBP000
Profit for the period 8,732 6,260
Other comprehensive income
Items that will never be reclassified
to profit or loss
Remeasurement of the defined benefit
scheme obligation 3,863 (1,093)
Related tax (657) 81
3,206 (1,012)
-------------------------------------------- -------- ----------
Items that are or may be reclassified
to profit or loss
Available-for-sale financial assets -
unrealised gains or losses 494 737
Available-for-sale financial assets -
realised gains and losses reclassified
to profit or loss (2,863) 170
Related tax 398 (195)
-------------------------------------------- -------- ----------
(1,971) 712
-------------------------------------------- -------- ----------
Items that will not be reclassified to
profit or loss
Revaluation of freehold properties 208 -
Related tax (17) -
191 -
-------------------------------------------- -------- ----------
Other comprehensive income for the period,
net of tax 1,426 (300)
-------------------------------------------- -------- ----------
Total comprehensive income for the period
attributable to owners of the Parent
Company 10,158 5,960
-------------------------------------------- -------- ----------
Consolidated statement of financial position
As at 31 March 2018
Notes 2018 2017
Assets GBP000 GBP000
Intangible assets 7 19,293 21,220
Property, plant and equipment 9,680 9,976
Net deferred tax asset 2,075 1,878
Available-for-sale financial assets 5,819 5,626
Trade and other receivables 945 -
Non-current assets 37,812 38,700
------------------------------------- ------ -------- --------
Trade and other receivables 178,024 144,673
Financial assets at fair value
through profit or loss 100 73
Available-for-sale financial assets - 2,450
Assets held for sale - 8,965
Cash and cash equivalents 65,639 52,101
Current assets 243,763 208,262
------------------------------------- ------ -------- --------
Total assets 281,575 246,962
------------------------------------- ------ -------- --------
Equity
Share capital 12,686 12,672
Share premium 4,564 4,429
Own shares (95) -
Revaluation reserve 1,598 3,378
Merger relief reserve 15,167 15,167
Retained earnings 63,842 53,424
------------------------------------- ------ -------- --------
Equity attributable to owners
of the Parent Company 97,762 89,070
Non-controlling interests 24 24
Total equity 97,786 89,094
------------------------------------- ------ -------- --------
Liabilities
Employee benefits 6,460 10,528
Provisions 1,813 1,108
Non-current liabilities 8,273 11,636
------------------------------------- ------ -------- --------
Trade and other payables 171,666 141,509
Current tax liabilities 1,214 994
Provisions 2,636 2,162
Liabilities held for sale - 1,567
Current liabilities 175,516 146,232
Total liabilities 183,789 157,868
------------------------------------- ------ -------- --------
Total equity and liabilities 281,575 246,962
------------------------------------- ------ -------- --------
Approved and authorised for issue by the Board on 12 June
2018.
Consolidated statement of changes in equity
Year ended 31 March 2018
Merger
Share Share Own Re-valuation relief Retained Non-controlling Total
capital premium shares reserve reserve earnings Total interests equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
1 April 2017 12,672 4,429 - 3,378 15,167 53,424 89,070 24 89,094
Profit for the year - - - - - 8,732 8,732 - 8,732
---------------------------------------------------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Other comprehensive income:
Revaluation of available-for-sale
financial assets:
- unrealised gains and losses - - - 494 - - 494 - 494
* realised gains and losses transferred to profit or
loss - - - (2,863) - - (2,863) - (2,863)
Deferred tax on available-for-sale
financial assets - - - 398 - - 398 - 398
Revalutaion of freehold property - - - 208 - - 208 - 208
Deferred tax on revalutaion of
freehold property - - - (17) - - (17) - (17)
Remeasurement of defined benefit
scheme liability:
- actuarial gain in the year - - - - - 3,863 3,863 - 3,863
- deferred tax movement on scheme
liability - - - - - (657) (657) - (657)
Total other comprehensive income
for the year - - - (1,780) - 3,206 1,426 - 1,426
---------------------------------------------------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Total comprehensive income for
the year - - - (1,780) - 11,938 10,158 - 10,158
---------------------------------------------------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Dividends paid - - - - - (3,546) (3,546) - (3,546)
Own shares acquired - - (95) - - - (95) - (95)
Share-based payments:
- value of employee services - - - - - 2,026 2,026 - 2,026
- issue of shares 14 135 - - - - 149 - 149
31 March 2018 12,686 4,564 (95) 1,598 15,167 63,842 97,762 24 97,786
---------------------------------------------------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Consolidated statement of changes in equity
Year ended 31 March 2017
Merger
Share Share Re-valuation relief Retained Non-controlling Total
capital premium reserve reserve earnings Total interests equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
1 April 2016 12,669 4,402 2,666 15,167 50,461 85,365 24 85,389
Profit for the year - - - - 6,260 6,260 - 6,260
-------------------- --------- --------- ------------- --------- ---------- -------- ---------------- --------
Other comprehensive
income:
Revaluation of
available-for-sale
financial assets:
- unrealised gains
and losses - - 737 - - 737 - 737
- realised gains
and losses
transferred
or profit and loss - - 170 - - 170 - 170
Deferred tax on
available-for-sale
financial assets - - (195) - - (195) - (195)
Remeasurement of
defined benefit
scheme liability:
- actuarial loss in
the year - - - - (1,093) (1,093) - (1,093)
- deferred tax
movement on scheme
liability - - - - (20) (20) - (20)
- current tax
relief - - - - 101 101 - 101
Total other
comprehensive
income
for the period - - 712 - (1,012) (300) - (300)
-------------------- --------- --------- ------------- --------- ---------- -------- ---------------- --------
Total comprehensive
income for the
period - - 712 - 5,248 5,960 - 5,960
-------------------- --------- --------- ------------- --------- ---------- -------- ---------------- --------
Dividends paid - - - - (2,534) (2,534) - (2,534)
Share-based
payments:
- value of employee
services - - - - 249 249 - 249
- issue of shares 3 27 - - - 30 - 30
31 March 2017 12,672 4,429 3,378 15,167 53,424 89,070 24 89,094
-------------------- --------- --------- ------------- --------- ---------- -------- ---------------- --------
Consolidated statement of cash flows
Year ended 31 March 2018
2018 2017
Notes GBP000 GBP000
Cash flows from operating activities
Cash generated from operating activities 9 15,485 10,688
Interest received 297 195
Interest paid (18) (63)
Tax paid (2,985) (1,367)
Net cash generated from operating
activities 12,779 9,453
------------------------------------------- ------ -------- --------
Cash flows from investing activities
Proceeds from surrender of lease - 5,550
Acquisition of intangible assets (676) (1,089)
Purchase of property, plant and equipment (2,796) (2,562)
Purchase of available-for-sale financial
assets (1,429) (1,842)
Proceeds from disposal of property, 22 -
plant and equipment
Proceeds from sale of available-for-sale
financial assets 3,780 1,642
Net cash (outflow)/inflow from disposal
of business (1,256) 1,180
Dividends received 278 186
Net cash (used in)/generated from
investing activities (2,077) 3,065
------------------------------------------- ------ -------- --------
Cash flows from financing activities
Proceeds from issue of ordinary share
capital 149 30
Purchase of own shares (95) -
Dividends paid (3,546) (2,534)
Net cash used in financing activities (3,492) (2,504)
------------------------------------------- ------ -------- --------
Net increase in cash and cash equivalents 7,210 10,014
------------------------------------------- ------ -------- --------
Cash and cash equivalents at start
of year 58,429 48,415
Cash and cash equivalents at end
of year 65,639 58,429
------------------------------------------- ------ -------- --------
Cash and cash equivalents shown in
current assets 65,639 52,101
Cash classified as assets held for
sale - 6,328
Cash and cash equivalents at end
of year 65,639 58,429
------------------------------------------- ------ -------- --------
1. General information
As required by section 435 of the Companies Act 2006, the Board
confirms that the financial information contained in this
preliminary announcement does not constitute the Group's financial
statements for the year ended 31 March 2018.
The financial information set out in this preliminary
announcement has been extracted from the Group's 2018 Annual Report
and Accounts, which have been approved by the Board of Directors
and agreed with KPMG 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.
While the financial information has been prepared in accordance
with the recognition and measurement criteria of International
Financial Reporting Standards (IFRS) this preliminary announcement
does not contain sufficient information to comply with IFRS.
The accounting policies used are consistent with those set out
in note 2 to the 2017 Annual Report and Accounts which have been
delivered to the Registrar of Companies.
The critical accounting judgements and key sources of estimation
uncertainty are set out below.
The 2018 Annual Report and Accounts will be posted to
shareholders during June 2018. Copies will be available from the
registered office of the Company at 55 Bishopsgate, London, EC2N
3AS. It will also be available on the Company's website
www.charles-stanley.co.uk
2. Application of new and revised IFRSs and changes in
accounting policy
The Group has consistently followed the same accounting
policies, presentation and methods of computation in these
consolidated financial statements as applied in the Group's
consolidated financial statements for the year ended 31 March
2017.
A number of new standards and amendments to standards and
interpretations are effective for periods beginning on or after 1
April 2018. The following new standards are not applicable to these
financial statements but are expected to have an impact when they
become effective. The Group plans to apply these standards in the
reporting period in which they become effective, the comparative
figures will be restated as required by these standards when they
are applied.
2.1 IFRS 9 Financial Instruments
IFRS 9 replaces IAS 39 Financial Instruments: Recognition and
measurement. It includes new guidance on the classification,
measurement and impairment of financial instruments. IFRS 9 is
effective for annual periods commencing on or after 1 January 2018.
The Group has not adopted this standard early.
The Group has conducted an assessment of the impact of adopting
IFRS 9 based on its existing financial instruments and is well
advanced in its classification and measurement of financial assets
under the new standard. The primary impact on the financial
statements is expected to be the change in classification of
financial assets. The Group has not identified any material
differences in the measurement of financial assets.
The IAS 39 categories of available-for-sale, loans and
receivables and held to maturity no longer exist in IFRS 9.
Financial assets will fall into one of three categories: amortised
cost, fair value through profit or loss, or fair value through
other comprehensive income.
Based on the Group's assessment of the new standard:
-- All listed investments currently measured at fair value will
be classified as fair value through profit or loss, except for a
holding of UK government gilts which will be measured at amortised
cost. The impact of this is expected to be immaterial
-- It is expected that an election will be made to recognise
unlisted investments at fair value through other comprehensive
income
-- Trade and other receivables will continue to be measured at
amortised cost
-- Cash and cash equivalents will continue to be measured at
amortised cost
The classification and measurement of financial liabilities
remains unchanged from IAS 39, therefore no impact is anticipated
on the Group's financial liabilities on adoption of the new
standard.
IFRS 9 introduces a new expected credit loss impairment model to
replace the incurred loss model in IAS 39. Based on both past
experience and an assessment of the Group's credit risk exposures
relating to its existing financial instruments, the new impairment
model is not expected to have a material impact on the financial
statements.
2. 2 IFRS 15 Revenue from Contracts with Customers
IFRS 15 outlines a single comprehensive model for revenue
arising from contracts with customers and supersedes existing
revenue recognition guidance including IAS 18 Revenue, IAS 11
Construction Contracts and IFRIC 13 Customer Loyalty Programmes.
IFRS 15 is effective for periods commencing on or after 1 January
2018. The Group has not adopted this standard early.
The core principle of IFRS 15 is that an entity recognises
revenue to reflect the transfer of goods or services to a customer,
measured as an amount that the entity expects to be entitled to in
exchange for those goods or services. In addition to the guidance
on recognising revenue from contracts with customers, IFRS 15 also
prescribes the treatment of costs associated with obtaining
contracts where they are not within the scope of another
standard.
The Group has performed a review of its existing revenue streams
and costs associated with obtaining contracts. Based on this
review, there will be no material impact on the existing Group's
revenue recognition policies. The primary impact of adopting IFRS
15 will be in respect of payments to investment managers for
introducing customer relationships to the Group. These payments are
currently capitalised if paid within 12 months of the investment
manager joining the Group. Payments made after 12 months are
expensed immediately to the income statement. Under IFRS 15 all
costs of this nature, irrespective of when they are paid, will be
capitalised if they are expected to be recovered. The Group has
performed a preliminary assessment of the impact of this change in
policy and estimates that there will be a pre-tax adjustment of
approximately GBP0.6 million to opening retained earnings. There
will be a corresponding increase in intangible assets as a result
of the additional capitalisation of costs previously expensed to
the income statement.
2.3 IFRS 16 Leases
IFRS 16 replaces IAS 17 Leases. It eliminates the classification
of leases as either operating leases or finance leases. Any leases
with more than 12 months' term are to be recognised as an asset in
the statement of financial position with the related future lease
obligations shown as a liability. IFRS 16 is effective for annual
periods commencing on or after 1 January 2019. The Group does not
intend to adopt this standard early.
On transition to IFRS 16, the Group can choose to apply either
the full retrospective transition method, whereby the financial
statements are prepared as if the new standard had always applied,
or the modified retrospective approach with optional practical
expedients.
The Group has performed a preliminary review of the impact of
adopting IFRS 16 and concluded that its primary impact will be in
respect of the Group's various leasehold offices. These leases will
need to be shown in the statement of financial position, with a
right of use asset and associated lease liability being recognised.
Operating lease expenses currently recognised directly in the
income statement will be replaced by depreciation and interest
charges, which for individual leases will result in higher interest
charges in early years of the lease compared to later years. These
changes are expected
to be material to the financial statements of the Group. The
amount of the impact has not yet been quantified, however the Group
had non-cancellable operating lease commitments at 31 March 2018 of
GBP19.7m.
3. Use of judgements and estimates
In the application of the Group's accounting policies, the
Directors are required to make judgements, estimates and
assumptions to determine the carrying amounts of certain assets and
liabilities. The estimates and associated assumptions are based on
the Group's historical experience and other relevant factors.
Actual results may differ from the estimates applied.
Estimates and judgements are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the
revision affects both current and future periods.
3.1 Major sources of estimation and uncertainty in applying the
Group's accounting policies
The following key estimates have been made by the Directors in
applying the Group's accounting policies:
3.1.1 Intangible assets and goodwill
For the purposes of impairment testing, the Company and the
Group assess goodwill and client relationships based on the
recoverable amount of individual units making up the relevant
intangible asset, in accordance with the accounting policy set out
in note 2 of the 2018 Annual report and accounts. Recoverable
amount is calculated based on assumptions which are set out in more
detail in note 7.
It was concluded that no impairments to the carrying value of
goodwill or intangible assets are required.
3.1.2 Retirement benefit obligations
In consultation with an independent actuary, the Parent Company
and the Group make estimates about a number of long-term trends and
market conditions to determine the value of the deficit of its
defined benefit pension scheme. These long-term forecasts and
estimates are highly judgemental and subject to the risk that
actual events may be significantly different from those
forecast.
The valuation performed as at 31 March 2018 resulted in a
decrease in the actuarial deficit of GBP4.0 million which has been
reflected in these Annual report.
3.1.3 Available-for-sale assets
Unlisted available-for-sale financial assets include an
investment in Euroclear PLC. The Directors have estimated the fair
value of this investment based on the latest share buyback process
undertaken by Euroclear PLC in which the Group sold part of its
shareholding.
Further information on the Group's available-for-sale financial
assets is included in note 17 of the 2018 Annual report and
accounts. No new information has become available that would
require a change in the valuation of any further unlisted
investment.
4. Operating segments
The Group has four operating divisions, representing the Core
Business, which are its reportable segments. These segments are the
basis on which the Group reports its performance to the Chief
Executive Officer, who is the Group's chief operating
decision-maker.
Investment Charles
Management Financial Stanley Support
Services Asset Management Planning(2) Direct Functions Total
Year ended GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
31 March 2018
Investment management
fees 77,218 4,395 1,302 - - 82,915
Administration fees 13,274 1,643 5,530 4,332 - 24,779
---------------------------- ------------ ----------------- ------------- --------- ----------- ----------
Total fees 90,492 6,038 6,832 4,332 - 107,694
Commission 40,738 900 25 1,503 - 43,166
Total revenue 131,230 6,938 6,857 5,835 - 150,860
---------------------------- ------------ ----------------- ------------- --------- ----------- ----------
Administrative expenses (73,538) (4,404) (7,277) (3,407) (53,520) (142,146)
Other income 233 45 - - - 278
---------------------------- ------------ ----------------- ------------- --------- ----------- ----------
Operating contribution 57,925 2,579 (420) 2,428 (53,520) 8,992
Allocated costs (46,051) (2,412) (2,193) (2,864) 53,520 -
---------------------------- ------------ ----------------- ------------- --------- ----------- ----------
Operating profit/(loss)(1) 11,874 167 (2,613) (436) - 8,992
Segment assets 269,316 487 5,123 6,355 294 281,575
---------------------------- ------------ ----------------- ------------- --------- ----------- ----------
Segment liabilities 180,769 262 2,623 135 - 183,789
---------------------------- ------------ ----------------- ------------- --------- ----------- ----------
(1) The operating profit/(loss) per the above table is different
to that presented in the divisional analysis within the Review of
the year as the above table includes adjusting items which are
excluded from the Core Business analysis within the Review of the
Year.
(2) The revenues and costs of EBS Management PLC are included
within the Financial Planning division results up to the date of
disposal of EBS Management PLC. The disposal of EBS Management PLC
was completed on 31 May 2017.
4. Operating segments (continued)
Investment Charles
Management Financial Stanley Support
Services(3) Asset Management(3) Planning(2) Direct Functions Total
Year ended GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
31 March 2017
Investment management fees 65,004 3,645 760 - - 69,409
Administration fees 13,490 1,175 7,182 3,067 - 24,914
---------------------------- ------------- -------------------- ------------- --------- ----------- ----------
Total fees 78,494 4,820 7,942 3,067 - 94,323
Commission 45,303 702 25 1,277 - 47,307
Total revenue 123,797 5,522 7,967 4,344 - 141,630
---------------------------- ------------- -------------------- ------------- --------- ----------- ----------
Administrative expenses (65,231) (3,429) (7,365) (3,072) (57,025) (136,122)
Impairment of goodwill - - - - (650) (650)
Other income 186 - - - - 186
---------------------------- ------------- -------------------- ------------- --------- ----------- ----------
Operating contribution 58,752 2,093 602 1,272 (57,675) 5,044
Allocated costs (48,830) (2,369) (3,358) (3,118) 57,675 -
---------------------------- ------------- -------------------- ------------- --------- ----------- ----------
Operating profit/(loss)(1) 9,922 (276) (2,756) (1,846) - 5,044
Segment assets 228,453 196 9,121 9,192 - 246,962
---------------------------- ------------- -------------------- ------------- --------- ----------- ----------
Segment liabilities 148,880 170 6,310 2,508 - 157,868
---------------------------- ------------- -------------------- ------------- --------- ----------- ----------
(1) The operating profit/(loss) per the above table is different
to that presented in the divisional analysis within the Review of
the year as the above table includes adjusting items which are
excluded from the Core Business analysis within the Review of the
Year.
(2) The revenues, costs, assets and liabilities of EBS
Management PLC are included within the Financial Planning division
results. As at 31 March 2017, its assets and liabilities were
classified as held for sale on the consolidated balance sheet. The
disposal of EBS Management PLC was completed on 31 May 2017. See
note 13 of the 2017 Annual Report and Accounts for further
information.
(3) The 2017 figures have been restated to reflect the transfer
of an investment management team from Asset Management to
Investment Management Services during 2018 in order to provide more
appropriate reporting.
5. Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to equity holders of the Parent Company by the
weighted average number of ordinary shares in issue during the
period.
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares to assume exercise of
all potentially dilutive share options.
2018 2017
pence pence
per share per share
Basic earnings per share
Basic earnings per share 17.23 12.35
---------------------------- ---------- ----------
Diluted earnings per share 16.93 12.34
---------------------------- ---------- ----------
The Directors believe that a truer reflection of the performance
of the Group's underlying business is given by the measure of Core
Business earnings per share, which is presented in the Review of
the year. This measure is also followed by the analyst community as
a benchmark of the Group's underlying performance.
2018 2017
GBP000 GBP000
Earnings
Earnings used in the calculation of basic
earnings per share 8,732 6,260
------------------------------------------- ------- -------
2018 2017
GBP000 GBP000
Number of shares
Weighted average number of ordinary shares
used in the calculation of basic earnings
per share 50,682 50,683
Effect of potentially dilutive share options 881 41
Weighted average number of ordinary shares
used in the calculation of diluted earnings
per share 51,563 50,724
---------------------------------------------- ------- -------
6. Income taxes
Tax recognised in the income statement
2018 2017
GBP000 GBP000
Current taxation
Current year expense 2,703 2,283
Adjustment in respect of prior years 501 306
3,204 2,589
-------------------------------------- ------- -------
Deferred taxation
Credit for the year (489) (50)
(489) (50)
-------------------------------------- ------- -------
Total tax expense 2,715 2,539
-------------------------------------- ------- -------
In addition to amounts charged to the consolidated income
statement, a deferred tax credit of GBP0.4 million (2017: GBP0.2
million charge) relating to the revaluation of available-for-sale
financial assets has been recognised directly to equity. A further
credit of GBP0.02 million (2017: GBPnil) in relation to deferred
tax on revaluation of freehold property has been recognised
directly to equity. A current tax credit of GBPnil (2017: GBP0.1
million) and deferred tax charge of GBP0.7 million (2017: GBP0.02
million) in respect of the defined benefit scheme have also been
charged directly to equity.
The deferred tax asset at 31 March 2018 has been calculated
based on the UK corporation tax rate of 17%, as this was
substantively enacted at the balance sheet date.
7. Intangible assets
Internally
Customer generated
Goodwill relationships software Total
Cost GBP000 GBP000 GBP000 GBP000
At 1 April 2016 21,507 23,393 6,088 50,988
Additions - 32 1,057 1,089
Transfer to held for
sale (1,294) - - (1,294)
----------------------- --------- -------------- ----------- --------
At 31 March 2017 20,213 23,425 7,145 50,783
Additions - 350 326 676
At 31 March 2018 20,213 23,775 7,471 51,459
----------------------- --------- -------------- ----------- --------
Amortisation
At 1 April 2016 5,511 17,133 2,944 25,588
Charge for the period - 1,556 1,769 3,325
Impairment 650 - - 650
----------------------- --------- -------------- ----------- --------
At 31 March 2017 6,161 18,689 4,713 29,563
Charge for the period - 1,083 1,520 2,603
At 31 March 2018 6,161 19,772 6,233 32,166
----------------------- --------- -------------- ----------- --------
Net book value
At 31 March 2018 14,052 4,003 1,238 19,293
----------------------- --------- -------------- ----------- --------
At 31 March 2017 14,052 4,736 2,432 21,220
----------------------- --------- -------------- ----------- --------
None of the intangible assets have been pledged as security.
Goodwill is allocated to the Group's operating divisions as
follows:
2018 2017
Goodwill GBP000 GBP000
Investment Management Services 8,805 8,805
Charles Stanley Direct 5,247 5,247
14,052 14,052
------- -------
7.1 Goodwill
The recoverable amount of goodwill allocated to a CGU(1) is
determined initially by calculating the CGU's fair value less costs
to sell. If this is lower than the carrying amount or is not
determinable, a value in use calculation is also prepared.
Fair value less costs to sell is calculated largely based on a
percentage of FuMA (between 0.82% and 2.7%). Where this approach is
not appropriate a turnover multiple is used. The rates used in the
fair value less costs to sell calculations are those implied by
recent transactions in the market or, where appropriate, based on
publicly available information for similar quoted businesses. The
inputs into fair value less costs to sell calculations are
considered to be level 3 in the fair value hierarchy. The valuation
techniques for calculating the recoverable amount are consistent
with those used in prior years.
(1) Cash Generating Unit
7. Intangible assets (continued)
7.1 Goodwill (continued)
At 31 March 2018, fair value less costs to sell was higher than
carrying value for each CGU when applying the percentage at the
lower end of the range to FuMA. Therefore, no value in use
calculations have been prepared. Hence, the no impairment charge
(2017: GBP0.7 million) has been recognised in the consolidated
income statement.
7.1.1 Investment Management Services
The goodwill attributed to the Investment Management Services
division of GBP8.8 million is represented by six underlying CGUs
comprising acquired investment management teams in different
locations across the UK. The largest CGUs are Edinburgh and
Birmingham which represent 49% and 26% of the total goodwill held
by the division respectively. The recoverable amount of goodwill
related to Investment Management Services was assessed using fair
value less costs to sell for the year ended 31 March 2018. The fair
value was determined based on a percentage of FuMA. The recoverable
amount was determined to be higher than the carrying amount of the
CGU and therefore the goodwill carrying value is adequately
supported.
7.1.2 Charles Stanley Direct
The recoverable amount of goodwill relating to Charles Stanley
Direct was assessed using fair value less costs to sell for the
year ended 31 March 2018. The recoverable amount was determined to
be higher than the carrying amount of the CGU and therefore the
goodwill carrying value is adequately supported.
7.2 Customer relationships
Purchases of customer relationships relate to payments made to
investment managers and third parties for the introduction of
customer relationships.
7.3 Internally generated software
Internally generated software is software designed, developed
and commercialised by the Group.
8. Dividends
The following dividends were declared and paid by the Group in
the year:
2018 2017
GBP000 GBP000
Final dividend paid for 2017: 4.5p per share
(2016: 3.5p) 2,281 1,774
Interim dividend paid for 2018: 2.5p per
share (2017: 1.5p) 1,265 760
3,546 2,534
------- -------
A final dividend of 5.5 pence per share has been proposed by the
Directors subject to shareholders' approval at the Annual General
Meeting. Once approved, this will be paid on 31 July 2018 to
shareholders on the Company's register at close of business on 28
June 2018.
9. Reconciliation of net profit to cash generated from
operations
2018 2017
GBP000 GBP000
Profit/(loss) before tax 11,447 8,799
Adjustments for:
Depreciation 2,256 2,112
Amortisation of intangible assets 2,603 3,325
Impairment of goodwill - 650
Impairment of corporate loans - 500
Impairment of freehold property 995 -
Gain on surrender of long-term lease - (5,550)
Share-based payments - value of employee services 2,026 249
Retirement benefit scheme (205) (655)
Dividend income (278) (186)
Interest income (297) (195)
Interest expense 18 63
(Profit)/Loss on disposal of available-for-sale (2,471) -
financial assets
Loss on disposal of property, plant and equipment 45 2,199
Gain on disposal of business (707) (148)
Changes in working capital:
(Increase)/decrease in financial assets at fair
value through profit or loss (27) (1)
(Increase)/decrease in receivables (33,470) 467
Decrease/(increase) in payables 33,550 (941)
Net cash inflow from operations 15,485 10,688
--------------------------------------------------- --------- --------
10. Subsequent events
There were no material adjusting events or events requiring
disclosure prior to the date of this announcement.
11. Forward-looking statements
This announcement has been prepared to provide information to
shareholders to assess the current position and future potential of
Charles Stanley Group. It contains certain forward-looking
statements with respect to the Group's financial condition,
operations, and business opportunities. Forward-looking statements
involve known and unknown risks, uncertainties and other important
factors that could cause actual results to differ materially from
what is expressed or implied by the statements. Any forward-looking
statement is made in good faith based on information available to
the Directors as of the date of the statement. Past performance
cannot be relied on as a guide to future performance.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FKBDKKBKBDAD
(END) Dow Jones Newswires
June 13, 2018 02:00 ET (06:00 GMT)
Charles Stanley (LSE:CAY)
Historical Stock Chart
From Apr 2024 to May 2024
Charles Stanley (LSE:CAY)
Historical Stock Chart
From May 2023 to May 2024