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TIDMCAY
RNS Number : 3319F
Charles Stanley Group PLC
14 June 2012
CHARLES STANLEY GROUP PLC
RESULTS FOR THE YEAR ENDED 31 MARCH 2012
Charles Stanley is one of the UK's leading independently owned, full service stockbroking and investment management groups, advising on substantial funds. Today it announces its preliminary results for the year ended 31 March 2012.
Highlights:
-- Funds under management and administration GBP15.4 billion (2011: GBP14.5 billion) 6% increase
-- Revenue for the year GBP119.6 million (2011: GBP125.6 million) 5% decrease
-- Fees for the year GBP67.4 million (2011: GBP62.3 million) 8% increase
-- Reported profit before tax GBP8.5 million (2011: GBP13.4 million) 37% decrease
-- Adjusted profit before tax GBP12.5 million (2011: GBP17.7 million) 29% decrease
-- Reported earnings per share 13.12p (2011: 21.42p) 39% decrease
-- Adjusted earnings per share 19.84p (2011: 28.39p) 30% decrease
-- Total dividend 11.25p (2011: 10.75p) 5% increase
-- Acquisition of Jobson James Financial Services Limited in May 2011
-- We continue to attract good quality investment managers, individually and in teams, with substantial funds under management
Commenting on the results for the latest year, Sir David Howard, chairman, said:
"Our results have been achieved against the background of the most challenging economic and market conditions. While our commission income has fallen back sharply our fee income has improved significantly and we have achieved a marked increase in funds under management. Looking ahead, my confidence this year is inevitably more muted, but your company remains in good shape to weather this economic storm, thanks to our management culture of prudence that is reflected in a balance sheet which is both highly liquid and well capitalised."
For further information please contact:
Charles Stanley Group Canaccord Genuity Peel Hunt LLP
PLC
Sir David Howard, Chairman Martin Green Guy Wiehahn
James Rawlingson,
Finance Director
Phone: 020 7739 8200 Phone: 020 7523 Phone: 020 7418
4619 8893
Magnus Wheatley
Head of Press & Public Relations
Phone 020 7149 6273
CHAIRMAN'S STATEMENT
Charles Stanley Group announces that revenue for the year ended 31 March 2012 was GBP119.6 million compared to the record figure of GBP125.6 million for the previous year. This has been achieved against the background of the most challenging economic and market conditions. Profit before tax was GBP8.5 million (2010-11: GBP13.4 million). The adjusted profit before tax was GBP12.5 million (2010-11: GBP17.7 million). This figure for adjusted pre-tax profit excludes the effect of amortisation and another very substantial payment to the Financial Services Compensation Scheme.
At the half-year we reported a marginal improvement in revenue compared with the first half of the previous year, and a 29% decline in profit before tax. Since then economic conditions have retreated back into recession at home, and uncertainty has re-doubled in Europe. This severely affected the propensity of our clients to undertake Stock Exchange transactions, and in January of this year we announced a sharp decline in commission income in our third quarter, to 31 December 2011, compared to the equivalent period of the previous year. This downturn has continued, but less aggressively, into our fourth quarter, from January to March this year.
It is particularly noteworthy that at the same time our fee income has continued to improve significantly, with a 12% increase in our fee income for investment management, and a 7% increase in income from administrative fees. This has gone a long way to mitigate the decline in commission income arising from clients' transactions.
It is also pleasing that we have achieved another significant increase in funds under management and administration especially as this was delivered in hostile market conditions. These rose by 6.0% during the period from GBP14.50 billion to GBP15.37 billion. Within this figure the funds under discretionary and advisory management rose by 7.8% from GBP7.20 billion to GBP7.76 billion and the funds under discretionary management alone have risen by 9.0% from GBP4.61 billion to GBP5.02 billion. This compares with a decline in the FTSE 100 Share Index over the same period of 2.4% and an increase in the APCIMS Balanced Portfolio Index - our principal benchmark - of 0.5%. The increase in funds under management is made up of market performance averaging 0.6% across clients' portfolios, and 7.2% in net incoming funds. Clients' discretionary funds now represent 64.7% of total managed funds, compared to 64.0% at 31 March 2011 and 61.2% at 31 March 2010.
During the year we have continued to attract high quality investment managers and brokers, individually and in teams, with substantial funds under management.
Jobson James Financial Services Limited, which we acquired in May 2011, has settled into the Group well and is now producing a positive contribution to our results.
In November last year we increased the interim dividend for 2011-12 by 10% to 2.75p net per share and we indicated at that time our intention to try and balance the gap between the interim and final dividends. In the light of these results the Directors now recommend an increase in the final dividend of 3.03%, from 8.25p to 8.50p net per share. Taken together with the interim dividend this will represent an increase of 4.67% in the total dividend for the year, at 11.25p (2010-11: 10.75p). The final dividend will be paid on 3 August 2012 to shareholders registered on 29 June 2012.
Business Review
A more detailed analysis of our performance over the past year is set out in the Business Review and the Operating and Financial Review, which follow this statement. The Private Client and the Financial Planning divisions have performed well in view of the severity of the conditions which have been the most challenging of all since the start of the global economic collapse three years ago. Our Securities division, too, has experienced another very difficult year. The market for corporate activity remains very muted, and the Group is far from alone in suffering from this.
We have made, and continue to make, savings in this area, and indeed throughout the Group more widely. But we recognise that, of all our different business streams, this is perhaps the most volatile. We have a first-class securities team which has made a substantial contribution to the Group in the past, and we believe that it will do so again. Our business model, as I have explained to shareholders in the past, is to build Charles Stanley on a broad waterfront across the financial sector, and we remain fully committed to supporting and developing our securities activities. Longer-term we anticipate that this should return to profitability when the market recovers, as it surely will. In the shorter-term, while present conditions continue, our aim is that it should retain its full functionality but seek to operate at break-even, if not better.
Financial Services Compensation Scheme
I complained strongly in my statement last year about the Financial Services Compensation Scheme, which requires your Company to fund compensation to clients of failed investment firms in wholly unrelated areas of business. In 2009-10 the bill for your company was GBP686,000, in 2010-11 it was GBP2.6 million, and in the latest year the figure is GBP1.6 million.
This represents a very substantial slice of our pre-tax profit. It was to be expected that increasingly aggressive regulatory oversight and intervention in the investment industry would follow in the wake of the economic and market failure which has stalked the global economy since 2008. This intense regulatory pressure across the financial services sector places a great burden on our resources, both financially and in the diversion of management resources. But there is little evidence that the increasingly intrusive and burdensome micro-management of investment companies has been successful in staving off some egregious examples of fraud and mismanagement, the cost of which is spread across the shareholders in financial service companies.
Corporate Governance
The present board structure of the Group and its major subsidiary, Charles Stanley & Co. Limited, was put in place 15 years ago, following a transformational acquisition. We think that this has served our shareholders very well - in a period when the Group has grown substantially in size.
We recognise that our governance structure must grow with our business in order to remain appropriate and effective. Accordingly we are re-shaping the board of our main trading subsidiary, Charles Stanley & Co. Limited, with a number of planned internal promotions. At the same time, after a lengthy and testing search, and with the help of leading consultants, we have identified two non-executive Directors for appointment to the board of Charles Stanley Group PLC. These are all subject to the approval of the FSA. Full details will be announced as soon as these appointments can be confirmed.
The Charles Stanley team
What you see with these results is only the outward sign of a huge amount of dedicated and conscientious effort by everyone in the Charles Stanley team. As ever, our primary focus remains firmly directed towards our most valuable asset - our clients - and we concentrate our energies on upholding, and wherever possible raising still further, our standard of care. In challenging economic and market conditions this calls for even greater effort, and I am sure that shareholders would wish me to thank everyone in the Charles Stanley team for all the hard work that they have contributed so well during the year.
Outlook
There is very little that I can add to the widely-publicised economic events that are overwhelming us all. The downturn has now lasted longer than that of the Great Crash in 1929, and until the problems of the eurozone are resolved it is hard to see how things can turn round again.
Despite this the corporate sector has continued to perform strongly, and dividends have continued to rise. But the stock market has remained flat throughout the past year and is now drifting downwards again.
The uncertainty over the future of the euro, the problems of Greece and Spain, and the implications of a total or partial collapse of the eurozone are all overhanging our economy and our markets.
Until this uncertainty is resolved, it is difficult to see what would trigger an upturn from the present depressed level of financial activity. At the same time I expect the regulatory pressures to continue to exert a downward influence on markets - with more demands on the Financial Services Compensation Fund, as a straight-through cost to our shareholders, more Directives from Europe and increasingly aggressive extra-territorial legislation from the United States.
At this point I usually express cautious optimism about the year ahead, but this year my confidence is inevitably more muted. Despite this I would point out that your Company remains in good shape to address this adverse environment. It is no accident of course that we are so well positioned, not just to weather this economic storm but to gain competitive advantage from it, thanks to our management culture of prudence that is reflected in a balance sheet which is both highly liquid and well capitalised.
This mix of prudent management culture and strong balance sheet has once again this year produced a pleasingly low rate of operational losses. I am sure that this is recognised by our clients, which, together with the quality of our service, explains why our client numbers continue to grow, as do our funds under management, in even the harshest of economic times.
Sir David Howard
Chairman
14 June 2012
BUSINESS REVIEW
The Group is organised into three operating divisions: Private Clients, Financial Services and Charles Stanley Securities. The split of revenue over these three divisions is shown in the following table:
2012 2011 2010 2009 2008
GBPm GBPm GBPm GBPm GBPm
Private Clients 100.5 106.0 96.2 84.5 83.8
Financial Services 11.6 9.4 8.4 6.6 5.8
Charles Stanley Securities 7.5 10.2 10.4 10.7 15.9
Total revenue 119.6 125.6 115.0 101.8 105.5
Private Clients as
% of total 84.0% 84.4% 83.6% 83.0% 79.4%
And funds are split as follows:
Private Financial Private Financial
2012 Clients Services 2011 Clients Services
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
Managed funds 7.76 7.41 0.35 7.20 7.10 0.10
Non-managed funds 7.61 7.15 0.46 7.30 6.84 0.46
15.37 14.56 0.81 14.50 13.94 0.56
Private Clients
The core of our business is our Private Client division. This division provides investment management services to private investors, charities, and trusts from 33 branches and offices.
The services provided cover a number of different areas including:
Managed discretionary portfolio management; advisory portfolio management;
Non-managed advisory share dealing;
execution only share dealing.
We charge for our services in two main ways:
- management and administration fees based on a percentage of funds and
- commission on transactions undertaken on behalf of clients.
At the half-year revenue was slightly ahead of the same period the previous year. But market sentiment collapsed in the autumn resulting in a sharp fall in transaction volumes. This led to a drop in commission income of GBP8.6 million from GBP56.0 million to GBP47.4 million. Fee income increased over the same period by 6.2% but this was not sufficient to offset the reduction in commission resulting in a 5.2% fall in total income from GBP106.0 million to GBP100.5 million.
2012 2011 2010 2009 2008
GBPm GBPm GBPm GBPm GBPm
Commission 47.4 56.0 54.8 46.0 48.5
Recurring fees 53.1 50.0 41.4 38.5 35.2
Total income 100.5 106.0 96.2 84.5 83.7
Fees as % of
total 52.8% 47.2% 43.0% 45.6% 42.0%
This had a greater impact on our non-managed than on our managed business as commission accounts for a higher proportion of the revenue generated by non-managed clients.
2012 2011 2010 2009 2008
GBPm GBPm GBPm GBPm GBPm
Managed 63.5 61.9 53.7 45.2 44.4
Non-managed 37.0 44.1 42.5 39.3 39.4
Total income 100.5 106.0 96.2 84.5 83.8
Managed as %
of total 63.2% 58.3% 55.8% 53.5% 53.0%
Fees are charged based on a percentage of funds held. During the year total funds under management and administration increased by 4.4% compared with a decrease in the FTSE 100 Index of 2.4% and an increase in the APCIMS Balanced Portfolio Index of 0.5%. The Group continues to attract discretionary funds, and we are pleased to see such funds now account for 33.9% of funds under management and administration (2011: 32.5%).
2012 2011 Change
GBP billion GBP billion %
Discretionary funds under management 4.94 4.53 9.0%
Advisory managed funds 2.47 2.57 (3.9%)
-------------------------------------- ------------ ------------ -------
Total managed funds 7.41 7.10 4.4%
Advisory dealing funds 3.03 3.03 -
Execution only funds 4.12 3.81 8.1%
Total administered funds 7.15 6.84 4.5%
-------------------------------------- ------------ ------------ -------
Total funds under management
and administration 14.56 13.94 4.4%
Included in this increase in funds were additional ISA subscriptions during the year of GBP151 million (2011: GBP142 million) of which GBP94 million (2011: GBP84 million) were under management and GBP57 million (2011: GBP58 million) under administration.
Managed clients
Funds under management have increased by 4.4% as shown in the table below.
Discretionary Advisory
managed managed Total Change
GBP bn GBP bn GBPbn %
Funds at 1 April 2011 4.53 2.57 7.10
Inflows
New clients of existing
investment managers 0.37 0.07 0.44
Clients of new investment
managers 0.07 0.02 0.09
Organic - new funds from
existing clients 0.45 0.20 0.65
---------------------------- -------------- --------- -------- --------
Total inflows 0.89 0.29 1.18 16.6%
Outflows
Lost clients (0.28) (0.27) (0.55)
Organic - withdrawal of
funds by existing clients (0.23) (0.13) (0.36)
---------------------------- -------------- --------- -------- --------
Total outflows (0.51) (0.40) (0.91) (12.8%)
---------------------------- -------------- --------- -------- --------
Net inflow of funds 0.38 (0.11) 0.27 3.8%
---------------------------- -------------- --------- -------- --------
Market movement 0.03 0.01 0.04 0.6%
Funds at 31 March 2012 4.94 2.47 7.41
% increase year on year 9.0% (3.9%) 4.4%
Over 40% of our managed funds are held for in accounts with portfolios greater than GBP1 million as shown in the following table.
Account size by value %
Greater than GBP1 million 41.9
Between GBP500,000 and GBP1
million 19.7
Between GBP250,000 and GBP500,000 19.0
Between GBP100,000 and GBP250,000 14.9
Between GBP50,000 and GBP100,000 3.4
Less than GBP50,000 1.1
The increase in funds under management has followed through into an increase of 12.4% in recurring fees.
2012 Disc Adv 2011 Disc Adv Change
GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Commission 25.3 17.8 7.5 27.8 18.9 8.9 (2.5) (9.0%)
Recurring fees 38.2 27.4 10.8 34.0 23.5 10.5 4.2 12.4%
63.5 45.2 18.3 61.8 42.4 19.4 1.7 2.8%
Average funds
under management
GBPbn 7.26 4.74 2.52 6.77 4.25 2.52 0.49 7.2%
Revenue margin
- basis points 0.87 0.95 0.72 0.91 0.99 0.77 (0.04) (4.4%)
Non-managed clients
Funds under administration have increased by 4.5%.
Total Advisory Execution
dealing only
GBPbn GBP bn GBP bn
At 1 April 2011 6.84 3.03 3.81
Net outflow of funds (0.12) (0.07) (0.05)
Net organic growth 0.39 0.05 0.34
Market movement 0.04 0.02 0.02
------------------------- ------- --------- ----------
At 31 March 2012 7.15 3.03 4.12
% increase year on year 4.5% - 8.1%
Net organic growth represents an inflow of funds from existing clients.
2012 2011
Total Adv Exe Total Adv Exe Change
GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
Commission 22.1 10.7 11.4 28.2 14.3 13.9 (6.1) (21.6%)
Recurring fees 14.9 6.3 8.6 15.8 6.6 9.2 (0.9) (5.7%)
---------------- ------- ----- ----- ------- ----- ----- -------- --------
37.0 17.0 20.0 44.0 20.9 23.1 (7.0) (15.9%)
Michael Clark
Director of Private Client Stockbroking
Financial Services
The division includes EBS Management PLC ("EBS"), a SIPP administration services provider, Garrison Investment Analysis Limited ("Garrison"), a discount financial intermediary, CS Financial Solutions Limited ("CS Financial Solutions"), an employee benefits provider. During the year Jobson James Financial Services Limited ("Jobson James") was acquired and this will be integrated within the existing Charles Stanley Financial Planning and Wealth Management areas. Within this division as well, the Matterley Fund Management business has been consolidated over the past 12 months.
Total income for the division grew to GBP11.6 million from GBP9.4 million.
2012 2011 2010 2009 2008
GBPm GBPm GBPm GBPm GBPm
Financial Planning 2.5 2.2 2.3 2.1 2.1
EBS 2.0 1.9 1.8 1.7 1.6
Garrison 1.6 1.6 1.6 1.7 2.1
CS Financial Solutions 3.2 3.3 2.8 1.1 -
Funds management - Matterley 0.7 0.4 - - -
Jobson James 1.6 - - - -
Total revenue 11.6 9.4 8.5 6.6 5.8
The comparative figures for 2011 have been adjusted to take account of the transfer of the benefit consultancy business based in Plymouth from Financial Planning to CS Financial Solutions in 2012
Financial Planning
The department produced a strong performance for the year with gross revenue of GBP2.5 million, representing an increase of 13.6% year-on-year.
The financial planning and wealth management service is offered out of offices in London, Southampton, Leeds and Edinburgh, as well as our subsidiaries in Liverpool, Plymouth and Birmingham.
Financial planning and wealth management teams have again put in a solid performance with increased revenues and are beginning to achieve more success with access to managing other intermediary assets.
EBS
Revenue increased during the year to GBP2.0 million from GBP1.9 million which reflects the income on the increased SIPP business introduced through Charles Stanley, the white label products and the third party administration product launched last year. The SIPPs under administration total 4,195 compared with 2,977 at the end of March 2011. This results in a net increase of 1,218 SIPPs. Over 800 of the new SIPPs have come via the third party administration route which finally launched late May 2011. The business has shown promise with numbers increasing month on month to the end of the tax year 2012.
We reported last year that HMRC had simplified the contribution rules to SIPPs and this has been reflected in a marked increase in average contributions received over the last twelve months.
We are supporting the Government's Apprentice Scheme with our initial apprentice having been offered and accepted a full-time role. We have just taken on another apprentice with a further candidate being considered for general administration duties. We are delighted to be able to participate in this initiative.
Garrison
New business was up 21% on the previous year though revenues overall were static. Cost cutting measures helped to maintain margins in a competitive environment. The loyalty bonus, which we will continue to offer, has now completed its second year and has proved successful in retaining existing clients.
CS Financial Solutions
CS Financial Solutions revenues have remained steady at GBP3.2 million for the year to March 2012 versus GBP3.3 million for the 12 months to March 2011. The process of amalgamating all of the Group's benefit consultancy business within this Company is now complete with the transfer of the business in our Plymouth office from Financial Planning. We now look forward to offering a uniform employee benefits service across our geographical reach.
Funds management - Matterley
During the year Charles Stanley's unit trust management department, Matterley, saw its funds under management grow from GBP130.6 million to GBP150.9 million. This growth of 15.5% in AUM compares to a fall of 2.4% in the FTSE 100 Index over the same period.
The department has now moved to a single unified administration structure with all of the funds on the IFDS platform, and this gives us an effective base to continue to develop, market and grow the business.
Each of our funds is either top quartile or second quartile over 1 year, and four out of five of the funds are rating A or better by Citywire. The Undervalued Assets fund is in the top decile of funds when compared against its peer group over the last 3 years.
2012 2011 Growth
GBPm GBPm
IM Matterley Regular High Income
Fund 42.8 40.8 4.9%
IM Matterley Equity Fund 8.3 7.7 7.8%
IM Matterley International Growth
Portfolio 15.2 18.7 (18.7%)
IM Matterely UK & International
Fund 48.6 36.8 32.1%
IM Matterley Undervalued Assets
Fund 36.1 26.7 35.2%
Quartile ranking over 1 year 3 years 5 years
IM Matterley Regular High Income
Fund 1 2 1
IM Matterley Equity Fund 1 1 -
IM Matterley International Growth
Portfolio 2 4 2
IM Matterely UK & International
Fund 1 2 -
IM Matterley Undervalued Assets
Fund 2 1 -
Jobson James
Charles Stanley, in May 2011, acquired Jobson James and is now integrating it into the enlarged Group and this is on track to enhance their client proposition with the implementation of a Wealth Management Service combining investment management and financial planning. It is anticipated that we will enhance revenues and profits through streamlining this process.
During the year, revenues were slightly reduced from GBP1.9 million to GBP1.8 million due in the main to difficult market conditions. However, funds under advice increased from GBP223 million to GBP245 million and with that recurring revenues were ahead of budget.
Our preparation and proposition for the Retail Distribution Review ("RDR") are on track and we see a bright future with huge potential for us to capitalise on the opportunities which lie ahead.
Charles Stanley Securities
Charles Stanley Securities, the Group's equity capital markets business focussed on providing advisory, broking and research services to the small and mid-cap sector, together with the Sutherlands agency bond trading business, continued to experience challenging market conditions during the year. This had an adverse impact on trading volumes and restricted opportunities for completing corporate finance transactions with institutional commissions generated declining by 36.6% and corporate finance revenue down by 4.7%.
2012 2011
GBPm GBPm
Commission 4.4 7.0
Fees 3.1 3.2
------------ ------ ------
Total 7.5 10.2
Following discussions with a number of our institutional and corporate clients, and in order to better align the division with the structural changes in the UK broking market and requirements of our clients, Charles Stanley Securities has undertaken some restructuring to refocus on its core strengths. The strategy is to ensure that Charles Stanley Securities remains focussed on providing high quality advisory and broking services relevant to its corporate and institutional clients in the small and mid-cap sector.
In the last six months Charles Stanley Securities has been appointed to act on a retained basis for seven new corporate clients and it currently has an encouraging pipeline of new business opportunities.
The Board remains committed to maintaining its presence in the small and mid-cap broking sector. The broking sector has recently experienced considerable consolidation and the Board believes that opportunities remain for a securities business which has a reputation for providing high quality advice and service to its clients.
WG Partners, a specialist team advising companies in the Healthcare and Technology Sectors on corporate finance, M&A and capital raising options, commenced trading under the regulatory umbrella of Charles Stanley in 2011. WG Partners offers a complementary offering to CS Securities' institutional and corporate broking business. WG Partners is currently retained by four companies and advising on a number of corporate transactions.
Michael Lilwall
Director
OPERATING AND FINANCIAL REVIEW
During 2012 total revenue for the Group decreased by 4.8% to GBP119.6 million from GBP125.6 million. Reported profit for the year of GBP8.5 million is stated after amortisation of GBP2.4 million (2011: GBP1.7 million) and FSCS levy of GBP1.6 million (2011: GBP2.6 million).
The financial impact of the FSCS levy, which arises from other industry failures, is wholly outside our control.
2012 2011 Change
GBPm GBPm GBPm %
Revenue 119.6 125.6 (6.0) (4.8%)
Administrative expenses (111.6) (112.7) 1.1 1.0%
Other income 0.1 0.1 - -
-------------------------- -------- -------- ------- --------
Operating profit 8.1 13.0 (4.9) (37.7%)
Net interest and finance
income 0.4 0.4 - -
Reported profit 8.5 13.4 (4.9) (36.6%)
Ratio to revenue 7.0% 10.7%
Add back:
FSCS Levy 1.6 2.6 1.0
Amortisation of client
relationships 2.4 1.7 (0.7)
Adjusted profit 12.5 17.7 (5.2) (29.4%)
Ratio to revenue 10.4% 14.1%
Revenue by division for the year is summarised below:
2012 2011 Change
GBPm GBPm GBPm %
Private Client 100.5 106.0 (5.5) (5.2%)
Financial Services 11.6 9.4 2.2 23.4%
Charles Stanley Securities 7.5 10.2 (2.7) (26.5%)
Total 119.6 125.6 (6.0) (4.8%)
The Group seeks, over time, to alter the balance between commission and fee income increasingly in favour of fees. In 2011-12 the proportion of fee income (excluding corporate finance fees) to total revenue was 54.0% compared to 47.2% in 2010-11 and 43.4% the previous year.
Administrative expenses
Administrative expenses are summarised below:
2012 2011 Change
GBPm GBPm GBPm %
Staff costs 54.4 50.2 (4.2) (8.3%)
Depreciation 2.1 2.2 0.1 4.5%
Amortisation of intangible assets 2.4 1.7 (0.7) (44.2%)
Other costs 51.1 56.0 4.9 8.8%
----------------------------------- ------ ------ ------- --------
Total before FSCS levy 110.0 110.1 0.1 0.1%
FSCS Levy 1.6 2.6 1.0 38.5%
----------------------------------- ------ ------ ------- --------
Total 111.6 112.7 1.1 1.0%
Allocated to:
Private Client division 62.0 63.9 1.9 3.0%
Financial Services 10.4 9.2 (1.2) (13.0%)
Charles Stanley Securities 8.1 9.2 1.1 12.0%
----------------------------------- ------ ------ ------- --------
Total allocated to divisions
and other income 80.5 82.3 1.8 2.2%
Unallocated 31.1 30.4 (0.7) (2.3%)
----------------------------------- ------ ------ ------- --------
111.6 112.7 1.1 1.0%
Total costs before the FSCS Levy of GBP1.6 million have remained steady at GBP110.0 million. Staff costs are analysed in note 4. These have increased by 8.3% to GBP54.4 million from GBP50.2 million and represent 48.7% of our total costs (2011: 44.5%). Average employee numbers have risen by 6.6% to 796 from 747. During the year we recruited additional staff to strengthen our compliance and control functions.
For management purposes costs are allocated to divisions by direct attribution and this is shown in note 2.
Salary costs of client facing staff have risen and the ratio of the number of times these salaries are covered by revenue has changed.
2012 2011 Change
GBPm GBPm GBPm %
Client facing staff salaries 27.6 25.1 2.5 10.0%
Total income to salary ratio 4.3 5.0 (0.7) (14.0%)
Non-salary fixed costs have decreased slightly relative to revenue as follows:
2012 2011 Change %
Business support costs as %
of revenue 15.9% 17.3% 1.4% 8.1%
Overhead costs as % of revenue 11.0% 10.3% (0.7%) (6.8%)
-------------------------------- ------ ------ ------- -------
Total general fixed costs as
% of income 26.9% 27.6% 0.7% 2.5%
Interest receivable of GBP0.4 million (2011: GBP0.4 million) includes interest on bank deposits and interest earned from interest bearing available for sale investments. The Group's cash balances stood at GBP41.9 million as at 31 March 2012 (2011: GBP45.5 million). Interest rates have been held by the Bank of England at 0.5% for the year.
The tax charge of GBP2.6 million is analysed in note 7. This represents 30.6% of the Group's profit before tax of GBP8.5 million (2011: 29.1% of GBP13.4 million). The effective rate is higher than the UK standard rate of 26.0% due to differences between accounting and taxation treatment of certain items, and the effects of prior year taxation adjustments.
Earnings per share after one-off costs were13.12p (2011: 21.42p). There was a slight dilution at 31 March 2012 of earnings giving diluted earnings per share of 13.08p. Further details on earnings per share are explained in note 8.
As indicated in the Chairman's Statement the final dividend for the year is recommended to be 8.50p in addition to the interim dividend of 2.75p giving a total dividend for the year of 11.25p.
At 31 March 2012 the Group had net assets of GBP81.6 million (2011: GBP82.1 million) equivalent to GBP1.80 per share (2011: GBP1.82 per share).
We monitor our performance against our financial objectives by using the following key performance indicators:
Indicator Description 2012 2011 % change
Ratio of operating
Ratio of adjusted profit before amortisation
operating profit and FSCS levy as
to revenue a percentage of revenue 10.1% 13.8% (26.8%)
----------------------------- ---------- ---------- ----------
Profit before gains
or losses on available
for sale financial
assets, amortisation
Ratio of adjusted and FSCS levy as
profit to revenue a percentage of revenue 10.4% 14.1% (26.2)%
----------------------------- ---------- ---------- ----------
Earnings before gains
or losses on available
for sale financial
assets, amortisation
and FSCS levy divided
by weighted average
Adjusted earnings shares in issue during
per share the year 19.84p 28.39p (30.1%)
----------------------------- ---------- ---------- ----------
Funds under management Valuation of client
and administration assets at the year-end GBP15.4bn GBP14.5bn 6.0%
----------------------------- ---------- ---------- ----------
Valuation of discretionary
Discretionary client assets at
funds under management the year-end GBP5.0bn GBP4.6bn 8.9%
----------------------------- ---------- ---------- ----------
Ratio of staff leavers
to average staff
Staff turnover during the year 12.3% 11.9% (3.4%)
----------------------------- ---------- ---------- ----------
Value of non-commission
income for Private
Fees Clients GBP53.1m GBP50.0m 6.2%
----------------------------- ---------- ---------- ----------
James Rawlingson
Finance Director
14 June 2012
Charles Stanley Group PLC
CONDENSED CONSOLIDATED INCOME STATEMENT
YEAR ENDED 31 MARCH 2012
2012 2011
Notes GBP'000 GBP'000
Continuing operations
Revenue 2 119,636 125,573
Administrative expenses (111,663) (112,687)
Other income 3 89 63
Operating profit 5 8,062 12,949
Finance income 6 449 444
Finance costs 6 (67) (53)
Gains and losses on available for sale
financial assets 6 34 37
Gains on disposal of property, plant
and equipment 6 4 -
---------------------------------------- ------ ---------- ----------
Profit before tax 8,482 13,377
Tax expense 7 (2,553) (3,857)
---------------------------------------- ------ ---------- ----------
Profit for the year attributable to
equity shareholders 5,929 9,520
Earnings per share
Based on reported profit for the year
Basic 8 13.12p 21.42p
--------------------------------------- ------- -------
Diluted 8 13.08p 21.40p
--------------------------------------- ------- -------
Charles Stanley Group PLC
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 MARCH 2012
2012 2011
GBP'000 GBP'000
Profit for the year 5,929 9,520
Other comprehensive income
Revaluation of property - 29
Gains and losses on available for sale financial
assets 2 (1,266)
Deferred tax on available for sale financial
assets 28 377
Retirement benefit scheme actuarial deficit (2,705) 1,433
Deferred tax on retirement benefit scheme actuarial
deficit 582 (515)
------------------------------------------------------ -------- --------
Other comprehensive income net of tax (2,093) 58
Total comprehensive income for the year attributable
to equity shareholders 3,836 9,578
Charles Stanley Group PLC
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 MARCH 2012
2012 2011
Notes GBP'000 GBP'000
Assets
Non-current assets
Intangible assets 10 34,604 34,126
Property, plant and equipment 11 6,832 6,216
Deferred tax assets 12 922 534
Available for sale financial assets 13 5,493 5,223
Trade and other receivables 14 1,219 1,431
----------------------------------------- ------ --------- ---------
Total non-current assets 49,070 47,530
Current assets
Trade and other receivables 14 267,315 224,720
Financial assets at fair value through
profit and loss 211 170
Cash and cash equivalents 15 41,910 45,540
----------------------------------------- ------ --------- ---------
Total current assets 309,436 270,430
Total assets 358,506 317,960
Charles Stanley Group PLC
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)
AT 31 MARCH 2012
2012 2011
Notes GBP'000 GBP'000
Equity
Ordinary shares 16 11,308 11,265
Share premium 16 2,545 2,491
Revaluation reserve 1,493 1,463
Retained earnings 66,283 66,852
------------------------------------- ------ --------- ---------
Total equity attributable to equity
holders of the Company 81,629 82,071
Non-controlling interests 53 53
------------------------------------- ------ --------- ---------
Total equity 81,682 82,124
Liabilities
Non-current liabilities
Trade and other payables 17 500 -
Retirement benefit obligations 19 5,936 3,357
------------------------------------- ------ --------- ---------
Total non-current liabilities 6,436 3,357
Current liabilities
Trade and other payables 17 269,517 230,613
Borrowings 18 157 94
Current tax liabilities 714 1,772
------------------------------------- ------ --------- ---------
Total current liabilities 270,388 232,479
Total liabilities 276,824 235,836
------------------------------------- ------ --------- ---------
Total equity and liabilities 358,506 317,960
Charles Stanley Group PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 MARCH 2012
Share Share Revaln Retained Minority
capital premium reserve earnings Total interests Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
1 April 2010 11,136 1,772 2,323 58,097 73,328 97 73,425
---------------------------- --------- --------- --------- ---------- --------- ----------- ---------
Profit for the year - - - 9,520 9,520 - 9,520
---------------------------- --------- --------- --------- ---------- --------- ----------- ---------
Other comprehensive
income:
Revaluation of property - - 29 - 29 - 29
Gains and losses
on available for
sale financial assets - - (1,266) - (1,266) - (1,266)
Deferred tax on available
for sale financial
assets - - 377 - 377 - 377
Retirement benefit
scheme actuarial
gain - - - 1,433 1,433 - 1,433
Deferred tax on retirement
benefit scheme actuarial
deficit - - - (515) (515) - (515)
---------------------------- --------- --------- --------- ---------- --------- ----------- ---------
Total other comprehensive
income for the year - - (860) 918 58 - 58
---------------------------- ---------
Total comprehensive
income for the year - - (860) 10,438 9,578 - 9,578
Dividends paid (1,729) (1,729) - (1,729)
Change in ownership
of subsidiary - - - - - (44) (44)
Scrip dividend 43 (43) - - - - -
Share options - value
of employee services - - - 46 46 - 46
Share options - issue
of shares 77 686 - - 763 - 763
Conversion of loan
notes 9 76 - - 85 - 85
31 March 2011 11,265 2,491 1,463 66,852 82,071 53 82,124
---------------------------- --------- --------- --------- ---------- --------- ----------- ---------
Profit for the year - - - 5,929 5,929 - 5,929
---------------------------- --------- --------- --------- ---------- --------- ----------- ---------
Other comprehensive
income:
Gains and losses
on available for
sale financial assets - - 2 - 2 - 2
Deferred tax on available
for sale financial
assets - - 28 - 28 - 28
Retirement benefit
scheme actuarial
deficit - - - (2,705) (2,705) - (2,705)
Deferred tax on retirement
benefit scheme actuarial
deficit - - - 582 582 - 582
---------------------------- --------- --------- --------- ---------- --------- ----------- ---------
Total other comprehensive
income for the year - - 30 (2,123) (2,093) - (2,093)
---------------------------- --------- --------- --------- ---------- --------- ----------- ---------
Total comprehensive
income for the year - - 30 3,806 3,836 - 3,836
Dividends paid (4,514) (4,514) - (4,514)
Scrip dividend 33 (33) - - - - -
Share options - value
of employee services - - - 139 139 - 139
Share options - issue
of shares 3 29 - - 32 - 32
Conversion of loan
notes 7 58 - - 65 - 65
31 March 2012 11,308 2,545 1,493 66,283 81,629 53 81,682
Charles Stanley Group PLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 MARCH 2012
2012 2011
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 20 9,612 18,015
Interest received 6 449 444
Interest paid 6 (67) (53)
Tax paid (3,470) (3,906)
-------------------------------------------------- ------ -------- --------
Net cash inflow from operating activities 6,524 14,500
-------------------------------------------------- ------ -------- --------
Cash flows from investing activities
Acquisition of subsidiaries and other businesses (1,352) (800)
Acquisition of intangible assets (1,632) (1,001)
Purchase of property, plant and equipment 11 (2,678) (2,346)
Proceeds from sale of property, plant and
equipment 6 18
Purchase of available for sale financial
assets 13 (498) (320)
Proceeds from sale of available for sale
financial assets 264 297
Dividends received 3 89 63
-------------------------------------------------- ------ -------- --------
Net cash used in investing activities (5,801) (4,089)
-------------------------------------------------- ------ -------- --------
Cash flows from financing activities
Net proceeds from issue of ordinary share
capital 16 32 763
Cash inflow/(outflow) from change in debt
and lease financing 129 (522)
Dividends paid to equity shareholders 9 (4,514) (1,729)
-------------------------------------------------- ------ -------- --------
Net cash used in financing activities (4,353) (1,488)
-------------------------------------------------- ------ -------- --------
Net (decrease)/increase in cash and cash
equivalents (3,630) 8,923
Cash and cash equivalents at start of year 45,540 36,617
-------------------------------------------------- ------ -------- --------
Cash and cash equivalents at end of year 15 41,910 45,540
Charles Stanley Group PLC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
YEAR ENDED 31 MARCH 2012
1 GENERAL INFORMATION
Charles Stanley Group PLC and its subsidiaries provide investment services within the UK.
The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is 25 Luke Street, London EC2A 4AR. This condensed consolidated financial information was approved by the Board for issue on 14 June 2012.
Cautionary statement
The Chairman's Statement, Business Review and Operating and Financial Review which form part of the preliminary announcement for the year ended 31 March 2012 have been prepared to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. They should not be relied on by any other party or for any other purpose. These reviews contain certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.
Basis of preparation The financial information set out in these financial statements does not constitute the Company's statutory accounts for the years ended 31 March 2012 or 2011. Statutory accounts for 2011 have been delivered to the Registrar of Companies, and those for 2012 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The results have been prepared on a basis consistent with the accounting policies set out in the statutory financial statements for the year ended 31 March 2011 except as explained below. The condensed financial information as set out in this report is unaudited and does not comprise statutory accounts for the purposes of the Companies Act 2006.
The comparative figures for the year ended 31 March 2011 have been taken from, but do not constitute, the Group's statutory financial statements for that financial year. Those financial statements have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report was unqualified.
Going concern
The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less that 12 months from the date of this report. Accordingly they continue to adopt the going concern basis in presenting and preparing the financial statements.
Adjusted profit before income tax and adjusted earnings
The Board believes that a truer reflection of the performance of the Group's on-going business is given by the measure "Adjusted profit before tax", which represents operating profit plus net interest but excludes gains and losses on available for sale financial assets, amortisation of customer relationships and one-off costs. The table below reconciles these measures to the consolidated income statement
2012 2011
GBP'000 GBP'000 GBP'000 GBP'000
Reported profit before tax 8,482 13,377
Exclude:
Gains and losses on available for
sale financial assets (34) (37)
Gains on disposal of property, plant (4) -
and equipment
Amortisation and impairment of customer
relationships 2,450 1,740
Financial Services Compensation Scheme
Levy 1,688 2,600
4,100 4,303
----------------------------------------- -------- -------- -------- --------
Adjusted profit before tax 12,582 17,680
Tax expense (2,553) (3,857)
Add tax on excluded items (1,066) (1,205)
----------------------------------------- -------- -------- -------- --------
Adjusted tax expense (3,619) (5,062)
----------------------------------------- -------- -------- -------- --------
Adjusted earnings 8,963 12,618
Adjusted basic earnings per share 19.84p 28.39p
Changes in accounting policy and disclosure
The same accounting policies, presentation and methods of computation are followed in these financial statements as applied in the Group's financial statements for the year ended 31 March 2011 except as described below.
The Group has adopted the following new and revised Standards and Interpretations in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements:
-- IAS 24 'Related Party Disclosures' (revised 2009).
The following amendments were made as part of 'Improvements to IFRS' (2010):
-- Amendments to IFRS 7 'Financial Instruments':
-- Amendments to IAS 1 'Presentation of Financial Statements':
-- Amendments to IAS 34 Interim Financial Reporting'.
Amendments to IFRIC 14 'Prepayments of a Minimum Funding Requirement' have been adopted in the current year but have had no material impact on these financial statements.
A number of new standards and interpretations have been issued with effective dates after the date of these financial statements. These changes are currently being assessed and the Directors do not anticipate that the adoption of these standards and interpretations will materially impact the Group's financial statements in the period of initial application although there could be revised and additional disclosures. The Group plans to apply these standards, once endorsed, in the first reporting period that commences after the effective date.
IAS 19 'Employee Benefits' is not yet adopted by the EU but is expected to become mandatory for the Group's consolidated financial statements for the year ending 31 March 2014. The amendments to IAS 19, if applied for the year ended 31 March 2012, would reduce profit after tax by approximately GBP154,000 and increase actuarial gains in other comprehensive income by the same amount. There would be no effect on total equity. The Group does not plan to adopt this standard early.
Endorsed and available for early adoption Effective date
None
IFRS not yet endorsed by EU
to IAS 1 'Presentation of Financial Statements 1 July 2012
- Presentation of Items of Other Comprehensive
Income'
IFRS 10 'Consolidated Financial Statements' 1 January 2013
IFRS 11 'Joint Arrangements' 1 January 2013
IFRS 12 'Disclosure of Interests in Other Entities' 1 January 2013
IFRS 13 'Fair Value Measurement' 1 January 2013
IAS 19 'Employee Benefits' (revised 2011) 1 January 2013
IAS 27 'Consolidated and Separate Financial 1 January 2013
Statements' (revised 2011)
IAS 28 'Investments in Associates' (revised 1 January 2013
2011)
Amendments to IFRS 7 'Financial Instruments: 1 January 2013
Disclosures - Offsetting Financial Assets and
Financial Liabilities'
Amendments to IAS 32 'Financial Instruments: 1 January 2014
Presentation - Offsetting Financial Assets
and Financial Liabilities'
IFRS 9 'Financial Instruments' (2010) 1 January 2015
Related party transactions
Transactions between the Parent Company and its subsidiaries have been eliminated on consolidation and are not disclosed. The Parent Company received GBP2.2 million (2011: GBP2.2 million) in dividends and GBP2.75 million (2011: GBP2.4 million) in management charges from its subsidiaries during the year.
Principal risks and uncertainties
The Directors consider that the nature of the principal risks and uncertainties which may have a material effect on the Group's performance remain unchanged from those identified in the financial statements for the year ended 31 March 2011. In summary the major risks identified were:
Credit risk - risk of loss through default by counterparty;
Market risk - risk that arises from fluctuations in values of, or income from, assets or in interest or exchange rates;
Operational risk - risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. In particular we pay attention to employment risk which is mitigated by employment contract provisions and competitive remuneration packages;
Liquidity risk - risk that the Group, although solvent, does not have available sufficient financial resources to enable it to meet its obligations;
Business risk - risk exposure to macroeconomic, geopolitical, regulatory and other external risks;
Regulatory risk - risk of loss resulting from breach of FSA rules; and
Reputational risk - risk of damage to client base leading to financial loss.
2 SEGMENT INFORMATION
For management purposes the Group is organised into three divisions - Private Clients, Financial Services and Charles Stanley Securities. The principal activity of the private client division is the provision of investment management services to individuals, trusts and charities. The financial services division includes a SIPP administrator, a discount financial intermediary, employee benefits provider and financial planning and wealth management areas. Charles Stanley Securities is the Group's advisory, broking and corporate finance arm for smaller and mid cap UK listed companies. Sales between segments are carried out at arm's length. All of the Group's activities are undertaken in the United Kingdom.
Private Charles
Client Financial Stanley Sub-total Central
Division Services Securities costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31 March
2012
Commission 47,400 332 4,425 52,157 - 52,157
------------------------- ---------- ----------- ------------ ----------- --------- ----------
Fees
Investment management 30,187 549 - 30,736 - 30,736
Administration 22,884 10,781 278 33,943 - 33,943
Corporate finance - - 2,800 2,800 - 2,800
53,071 11,330 3,078 67,479 - 67,479
------------------------- ---------- ----------- ------------ ----------- --------- ----------
Total revenue 100,471 11,662 7,503 119,636 - 119,636
Administrative expenses (61,992) (10,447) (8,121) (80,560) (31,103) (111,663)
Other income - - - - 89 89
Operating profit 38,479 1,215 (618) 39,076 (31,014) 8,062
Segment assets 268,631 14,655 14,271 297,557 60,949 358,506
------------------------- ---------- ----------- ------------ ----------- --------- ----------
Segment liabilities 241,891 999 15,865 258,755 18,069 276,824
------------------------- ---------- ----------- ------------ ----------- --------- ----------
Year ended 31 March
2011
Commission 56,016 310 6,977 63,303 - 63,303
------------------------- ---------- ----------- ------------ ----------- --------- ----------
Fees
Investment management 26,999 373 - 27,372 - 27,372
Administration 22,953 8,715 304 31,972 - 31,972
Corporate finance - - 2,926 2,926 - 2,926
49,952 9,088 3,230 62,270 - 62,270
------------------------- ---------- ----------- ------------ ----------- --------- ----------
Total revenue 105,968 9,398 10,207 125,573 - 125,573
Administrative expenses (63,882) (9,201) (9,182) (82,265) (30,422) (112,687)
Other income - - - - 63 63
Operating profit 42,086 197 1,025 43,308 (30,359) 12,949
Segment assets 234,967 14,317 6,763 256,047 61,913 317,960
------------------------- ---------- ----------- ------------ ----------- --------- ----------
Segment liabilities 214,012 - 6,354 220,366 15,470 235,836
------------------------- ---------- ----------- ------------ ----------- --------- ----------
3 OTHER INCOME
2012 2011
GBP'000 GBP'000
Dividend income on available for sale financial
assets 89 63
4 EMPLOYEE BENEFIT EXPENSE
The average number of persons employed (including Directors) during the year was 796 (2011: 747).
2012 2011
GBP'000 GBP'000
Staff costs for the Group during the year:
Wages and salaries 45,593 42,245
Social security costs 4,824 4,084
Share options - value of employee services 139 46
Pension costs - defined contribution plans 3,004 2,995
Pension costs - defined benefit plan 816 854
-------------------------------------------- -------- --------
54,376 50,224
5 OPERATING PROFIT
The following items have been included in arriving at operating profit:
2012 2011
GBP'000 GBP'000
Depreciation of property, plant and equipment:
- owned assets 2,067 2,204
- assets held under finance leases 3 7
Amortisation and impairment of customer relationships 2,450 1,740
Auditors' remuneration:
- audit of the Company's annual accounts 35 20
- audit of the Company's subsidiaries 220 175
- services relating to taxation 62 70
- all other services 28 25
Operating lease rentals payable 2,308 1,961
Financial Services Compensation Scheme Levy 1,688 2,600
6 FINANCE INCOME - NET
2012 2011
GBP'000 GBP'000
Interest income 449 444
---------------------------------------------------- --------- ----------
Interest expense:
Interest payable on bank borrowings (14) (5)
Interest payable on other loans (52) (47)
Interest payable on finance leases (1) (1)
---------------------------------------------------- --------- ----------
Interest payable and similar charges (67) (53)
---------------------------------------------------- --------- ----------
Gains and losses on available for sale financial
assets 34 37
Gains on disposal of property, plant and equipment 4 -
---------------------------------------------------- --------- ----------
Finance income - net 420 428
7 TAX EXPENSE
2012 2011
GBP'000 GBP'000
Current taxation:
- Continuing operations 2,393 3,954
- Adjustment in respect of prior years (62) 59
Deferred taxation:
Origination and reversal of temporary differences:
- Continuing operations 16 (156)
- Adjustment in respect of prior years 206 -
---------------------------------------------------- -------- --------
2,553 3,857
The tax charge for the year is higher than the standard rate
of corporation tax in the UK of 26% (2011: 28%). The differences
are explained below.
2012 2011
GBP'000 GBP'000
Profit before tax 8,482 13,377
Profit multiplied by the rate of corporation
tax of 26% (2011: 28%) 2,205 3,746
---------------------------------------------------- -------- --------
Tax effects of:
Income not subject to tax (57) (13)
Expenses not allowed for tax 253 163
Adjustments in respect of prior years 144 59
Change in tax rate (1) 17
Other adjustments 9 (115)
---------------------------------------------------- -------- --------
348 111
Tax charge for the year 2,553 3,857
8 EARNINGS PER SHARE
2012 2011
No. No.
000 000
Weighted average number of shares in issue
in the year 45,173 44,447
Effect of share options 140 44
------------------------------------------------------- -------- --------
Diluted weighted average number of shares
in issue in the year 45,313 44,491
GBP'000 GBP'000
Reported earnings attributable to ordinary
shareholders 5,929 9,520
Gains and losses on available for sale financial
assets (34) (37)
Gains on disposal of property, plant and equipment (4) -
Amortisation and impairment of customer relationships 2,450 1,740
Financial Services Compensation Scheme Levy 1,688 2,600
Tax on adjusting items (1,066) (1,205)
------------------------------------------------------- -------- --------
Adjusted earnings attributable to ordinary
shareholders 8,963 12,618
Based on reported earnings
Basic earnings per share 13.12p 21.42p
Diluted earnings per share 13.08p 21.40p
Based on adjusted earnings
Basic earnings per share 19.84p 28.39p
Diluted earnings per share 19.78p 28.36p
9 DIVIDENDS PAID
Amounts recognised as distributions to equity shareholders in the year:
2012 2011
GBP'000 GBP'000
Final paid for 2011: 8.25p per share (2010:
2.25p) 3,270 828
Interim paid for 2012: 2.75p per share (2011:
2.50p) 1,244 901
4,514 1,729
In addition, the Directors are proposing a final dividend in respect of the year ended 31 March 2012 of 8.50p per share which will absorb an estimated GBP3.8 million of shareholders' funds. It will be paid on 3 August 2012 to shareholders who are on the register of members on 29 June 2012.
10 INTANGIBLE ASSETS
Customer relationships
Goodwill GBP'000 Total
GBP'000 GBP'000
Cost
1 April 2010 25,450 13,819 39,269
Acquisitions - 438 438
31 March 2011 25,450 14,257 39,707
Acquisitions - 2,928 2,928
As at 31 March 2012 25,450 17,185 42,635
Amortisation
1 April 2010 - 3,841 3,841
Amortisation during year - 1,740 1,740
31 March 2011 - 5,581 5,581
Amortisation during the
year - 2,300 2,300
Impairment - 150 150
31 March 2012 - 8,031 8,031
Net book value
31 March 2012 25,450 9,154 34,604
31 March 2011 25,450 8,676 34,126
31 March 2010 25,450 9,978 35,428
None of the intangible assets have been pledged as security.
During the year an investment manager left together with a number of clients that had formed part of one of these lists. A review was carried out resulting in an impairment of GBP150,000.
Impairment tests for goodwill
Goodwill is allocated to groups of cash generating units (CGUs) according to operating division as follows:
2012 2011
GBP'000 GBP'000
Private Client division 10,618 10,618
Financial Services division 13,308 13,308
Charles Stanley Securities 1,524 1,524
25,450 25,450
The recoverable amount of an individual CGU is determined by first calculating the fair value less costs to sell. When calculating the fair value less cost to sell key assumptions were stress tested to determine whether the calculations were sensitive to a reasonably possible change in these assumptions.
Where the fair value less cost to sell is lower than the carrying amount the recoverable amount is then determined based on value in use calculations. These calculations use pre-tax cash flow projections based on revenue and expense forecasts covering a five to seven year period. The main assumptions used in the forecast period are:
Growth rate 5% Inflation 3% Discount rate 10-16%
Management determined revenue and expense budgets based on past performance and its expectations of market developments. The discount rate used relates to the risk of not achieving the projected income stream due to risks inherent in the industry the Group operates in. The rate used reflects current market assessments of these risks. Based on these calculations there was no impairment to goodwill at 31 March 2012.
11 PROPERTY, PLANT AND EQUIPMENT
Office
equipment
Freehold Long leasehold Short leasehold and motor
premises premises premises vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
1 April 2010 474 2,012 5,345 9,996 17,827
Additions 76 115 544 1,611 2,346
Revaluations 29 - - - 29
Disposals - - - (1,782) (1,782)
--------------------- ---------- --------------- ---------------- ----------- --------
31 March 2011 579 2,127 5,889 9,825 18,420
Acquisition - - - 10 10
Additions 36 234 692 1,716 2,678
Disposals - - - (443) (443)
--------------------- ---------- --------------- ---------------- ----------- --------
31 March 2012 615 2,361 6,581 11,108 20,665
--------------------- ---------- --------------- ---------------- ----------- --------
Depreciation
1 April 2010 50 1,654 3,132 6,921 11,757
Charge for the year 10 21 524 1,656 2,211
Disposals - - - (1,764) (1,764)
--------------------- ---------- --------------- ---------------- ----------- --------
31 March 2011 60 1,675 3,656 6,813 12,204
Charge for the year 13 46 565 1,446 2,070
Disposals - - - (441) (441)
31 March 2012 73 1,721 4,221 7,818 13,833
--------------------- ---------- --------------- ---------------- ----------- --------
Net book value
31 March 2012 542 640 2,360 3,290 6,832
31 March 2011 519 452 2,233 3,012 6,216
31 March 2010 424 358 2,213 3,075 6,070
Fixed assets include fully depreciated assets costing GBP7.5 million (2011: GBP5.5 million).
Freehold premises include GBP394,000 for a freehold property that was valued at 31 May 2007 at the current market value by GVA Grimley, a firm of independent chartered surveyors. The historical cost of the freehold was GBP189,321. The Directors consider that the value in use of the property approximates its carrying value.
The Group leases various vehicles and equipment under non-cancellable finance lease agreements. The lease terms are between one and three years, and ownership of assets lie within the Group. Office equipment and motor vehicles include the following amounts where the Group is a lessee under a finance lease:
2012 2011
GBP'000 GBP'000
Cost - capitalised finance leases 145 92
Accumulated depreciation (122) (65)
Net book value 23 27
12 DEFERRED TAX ASSETS/(LIABILITIES)
Retirement Other timing
benefit Capital differences
Revaluation liability allowances GBP'000 Total
GBP '000 GBP'000 GBP'000 GBP'000
1 April 2010 (912) 1,389 39 - 516
(Credit)/charge to
statement of comprehensive
income 377 (515) - - (138)
Charge/(credit) to
income statement - - (89) 245 156
----------------------------- ------------- ----------- ------------ ------------- ---------
31 March 2011 (535) 874 (50) 245 534
Credit to statement
of comprehensive income 28 582 - - 610
Charge to income statement - (31) (81) (110) (222)
----------------------------- ------------- ----------- ------------ ------------- ---------
31 March 2012 (507) 1,425 (131) 135 922
In preparing these financial statements UK deferred tax assets and liabilities have been calculated at 24% where the temporary timing difference is expected to reverse after 1 April 2012.
13 AVAILABLE FOR SALE FINANCIAL ASSETS
Listed investments Unlisted
investments Total
GBP'000 GBP'000 GBP'000
1 April 2010 3,016 3,410 6,426
Additions 320 - 320
Disposals (257) - (257)
Revaluation in year 50 (1,316) (1,266)
31 March 2011 3,129 2,094 5,223
Additions 498 - 498
Disposals (230) - (230)
Revaluation in year 2 - 2
31 March 2012 3,399 2,094 5,493
The fair value of listed investments is determined by reference to quoted prices on active markets.
Listed investments include a GBP2.0 million holding in Gilts which is pledged to Fortis Global Clearing NV.
Unlisted investments include the Group's holding of 6,030 shares in Euroclear plc for which no observable market data is available as to its value. The Directors believe that it is appropriate to value this holding on a dividend yield basis.
Previous revaluation now realised on disposal amounted to GBP11,000 (2011: GBP28,000).
14 TRADE AND OTHER RECEIVABLES
2012 2011
GBP'000 GBP'000
Current:
Trade receivables 261,616 220,385
Other receivables 2,977 2,203
Prepayments and accrued income 2,722 2,132
-------------------------------- ---------- ----------
267,315 224,720
Non-current:
Other receivables 215 246
Prepayments and accrued income 1,004 1,185
-------------------------------- ---------- ----------
1,219 1,431
15 CASH AND CASH EQUIVALENTS
2012 2011
GBP'000 GBP'000
Cash at bank and in hand 41,910 45,540
16 CALLED UP SHARE CAPITAL AND SHARE PREMIUM
Number Ordinary Share premium
of shares shares GBP'000 Total
'000 GBP'000 GBP'000
Authorised shares with a par
value of 25p each 80,000 20,000 - 20,000
Allotted and fully paid:
1 April 2010 44,548 11,136 1,772 12,908
Scrip dividend 170 43 (43) -
Exercise of share options 308 77 686 763
Conversion of loan notes 34 9 76 85
------------------------------ ----------- --------- -------------- ---------
31 March 2011 45,060 11,265 2,491 13,756
Scrip dividend 136 33 (33) -
Exercise of share options 13 3 29 32
Conversion of loan notes 26 7 58 65
31 March 2012 45,235 11,308 2,545 13,853
During the year 136,007 (2011: 169,716) ordinary shares were issued fully paid as scrip dividends.
During the year 13,281 ordinary shares were issued fully paid for cash at GBP2.48 each following the exercise of options by employees. These shares had a nominal value of GBP3,320 and a total consideration of GBP29,617.
On 30 September 2011 26,135 ordinary shares were issued fully paid at GBP2.48 each in respect of convertible loan notes of GBP65,000.
Share options and share based payment
At 31 March 2012 the following options have been granted and remain outstanding in respect of ordinary shares of 25p in the Group under the Group's Save As You Earn Scheme.
Date of grant 20 Dec 11 11 Mar 2011
Exercisable during the six months commencing 1 Feb 2015 1 May 2014
Number of shares 393,930 496,346
Exercise price per share GBP2.34 GBP2.51
Expected fair value of option GBP0.53 GBP0.79
The fair value of the options has been calculated using a Black-Scholes model with the following inputs. Expected volatility is based on the historical share price volatility.
Share price at date of grant GBP2.63 GBP3.15
Expected life 3.0 years 3.0 years
Expected volatility 33.78% 28.57%
Risk free rate 0.51% 1.73%
Expected dividend yield 4.18% 3.10%
The Group recognised total expenses of GBP139,000 (2011: GBP46,000) related to equity-settled share-based payment transactions.
17 TRADE AND OTHER PAYABLES
2012 2011
GBP'000 GBP'000
Current:
Trade payables 257,756 220,308
Other taxes and social security 2,215 2,559
Other payables 4,381 3,068
Accruals and deferred income 5,165 4,678
----------------------------------------- -------- --------
269,517 230,613
Non-current:
Other payables - deferred consideration 500 -
18 BORROWINGS
2012 2011
GBP'000 GBP'000
Current:
Bank of England base rate redeemable loan 157 -
4.5% convertible redeemable loan note - 80
Obligations under finance leases - 14
157 94
The Bank of England base rate redeemable loan note is redeemable on demand. On 30 September 2011 GBP15,000 of the 4.5% fixed rate convertible redeemable unsecured loan note 2011 was redeemed and GBP65,000 was converted into fully paid ordinary shares at GBP2.48 per share. There was no material equity component in the convertible loan note.
19 RETIREMENT BENEFIT OBLIGATIONS
The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in independently administered funds.
The Group also sponsors the Charles Stanley & Co Ltd Retirement Benefits Scheme ("the Scheme"), which is a funded defined benefit arrangement. A full actuarial valuation of the Scheme was carried out at 13 May 2008 and updated to 31 March 2012 by a qualified actuary, independent of the Scheme's sponsoring employer. The major assumptions used by the actuary are shown below.
The Company currently pays contributions at the rate of 24.3% of pensionable pay plus GBP243,000 per annum. This rate is net of member contributions of 3% of pensionable pay (nil for Directors).
It is the policy of the Group to recognise all actuarial gains and losses in the year in which they occur outside the income statement and in the statement of comprehensive income.
Present values of defined benefit obligations, fair value of assets and deficit
2012 2011 2010 2009 2008
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fair value of the Scheme's
assets 26,197 24,836 21,696 16,163 17,956
Present value of defined
benefit obligation (32,133) (28,193) (26,652) (20,057) (19,908)
Deficit in scheme (5,936) (3,357) (4,956) (3,894) (1,952)
---------------------------- ---------- ---------- ---------- ---------- ----------
As all actuarial gains and assets are recognised, the deficits shown above are those recognised in the balance sheet.
Reconciliation of opening and closing balances of the fair value of plan assets
2012 2011
GBP'000 GBP'000
Fair value of assets at start of year 24,836 21,696
Expected return on assets 1,535 1,409
Actuarial (losses)/gains (725) 805
Contributions by employer 942 1,020
Contributions by plan participants 75 77
Benefits paid, death in service insurance premiums
and expenses (466) (171)
Fair value of assets at end of year 26,197 24,836
---------------------------------------------------- -------- --------
Reconciliation of opening and closing balances of the present value of the defined benefit obligation
2012 2011
GBP'000 GBP'000
Defined benefit obligation at start of year 28,193 26,652
Total employer current service cost 772 737
Interest cost 1,579 1,526
Employee contributions 75 77
Actuarial loss/(gain) 1,980 (628)
Benefits paid, death in service insurance premiums
and expenses (466) (171)
Defined benefit obligation at end of year 32,133 28,193
---------------------------------------------------- -------- --------
Total expense recognised in the income statement
2012 2011
GBP'000 GBP'000
Current service cost 772 737
Interest on pension scheme liabilities 1,579 1,526
Expected return on pension scheme assets (1,535) (1,409)
Total expense 816 854
------------------------------------------ -------- --------
Gains/(losses) recognised in statement of comprehensive income
2012 2011
GBP'000 GBP'000
Difference between expected and actual return
on scheme assets:
Amount (725) 805
Percentage of scheme assets (3%) 3%
Experience gains and losses arising on the
scheme liabilities:
Amount 473 1,049
Percentage of present value of scheme liabilities 2% 4%
Effects of changes in the demographic and financial
assumptions underlying the present value of
the scheme liabilities:
Amount (2,453) (421)
Percentage of present value of scheme liabilities (8%) (1%)
------------------------------------------------------- -------- --------
Total amount recognised in statement of comprehensive
income:
Amount (2,705) 1,433
Percentage of present value of scheme liabilities (8%) 5%
------------------------------------------------------- -------- --------
The cumulative amount of actuarial losses recognised in the statement of comprehensive income since adoption of IAS19 is GBP6.7 million (2011: GBP4.0 million).
Assets
2012 2011 2010 2009 2008
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Equities 14,343 12,638 10,291 7,671 9,142
Bonds 5,973 7,481 9,770 7,528 2,921
Other 5,881 4,717 1,635 964 5,893
---------- -------- -------- -------- -------- --------
26,197 24,836 21,696 16,163 17,956
---------- -------- -------- -------- -------- --------
The assets include a small holding in Charles Stanley Group.
Expected long term rates of return
The expected return on bonds is determined by reference to UK long dated gilt and bond yields at the balance sheet date. The expected rate of return on equities has been determined by setting an appropriate risk premium above gilt/bond yields having regard to market conditions at the balance sheet date.
The expected long term rates of return are as follows:
2012 2011 2010 2009 2008
Equities 7.50% 7.50% 6.75% 6.75% 7.25%
Bonds 5.55% 5.50% 4.75% 4.75% 6.35%
Cash 3.25% 4.30% 4.00% 4.00% 4.25%
Overall for scheme 6.10% 6.36% 5.65% 5.65% 6.12%
-------------------- ------ ------ ------ ------ ------
Assumptions
2012 2011 2010 2009 2008
% per % per % per % per annum % per annum
annum annum annum
Inflation - RPI 3.25 3.40 3.50 3.10 3.70
Salary increases 3.00 3.00 3.00 3.00 3.00
Rate of discount 5.05 5.55 5.66 6.50 6.35
Allowance for pension in
payment increases of RPI
or 5% p.a. if less 3.25 3.35 3.45 3.05 3.65
Allowance for revaluation
of deferred pensions of
RPI or 5% p.a. if less 3.25 3.40 3.50 3.10 3.70
--------------------------- ------- ------- ------- ------------ ------------
The Occupational Pensions (Revaluation) Order 2010 issued in July 2010 confirmed the government's intention to move to using the Consumer Price Index ("CPI") rather than the Retail Price Index ("RPI") as the inflation measure for determining the minimum pension increases to be applied to the statutory index-linked features of retirement benefits. For 2012 Charles Stanley has used RPI in calculating the liability for 2012.
The mortality assumptions adopted at 31 March 2012 imply the following life expectations at age 65:
Male retiring at age 65 in 2012 22.5 years
Female retiring at age 65 in 2012 24.6 years
Male retiring at age 65 in 2032 24.8 years
Female retiring at age 65 in 2032 27.0years
Best estimate of contributions to be paid to plan for the year ending 31 March 2013
The best estimate of contributions (employer and employee) to be paid to the plan for the year ending 31 March 2013 is GBP933,000 (2012: GBP1,020,000).
20 RECONCILIATION OF NET PROFIT TO CASH GENERATED FROM OPERATIONS
2012 2011
GBP'000 GBP'000
Profit before tax 8,482 13,377
Adjustments for:
Depreciation 2,070 2,211
Amortisation of intangible assets 2,300 1,740
Impairment of intangible assets 150 -
Write back of deferred consideration - (454)
Share options - value of employee services 139 46
Retirement Benefit Scheme (126) (166)
Dividend income (89) (63)
Interest income (449) (444)
Interest expense 67 53
Profit on disposal of property, plant and equipment (4) -
Profit on disposal of available for sale financial
assets (34) (37)
Changes in working capital:
Increase in financial assets at fair value through
profit and loss (41) (95)
Increase in receivables (42,222) (36,537)
Increase in payables 39,369 38,384
----------------------------------------------------- --------- ----------
Cash generated from operations 9,612 18,015
21 LEASE COMMITMENTS
Operating leases
2012 2011
GBP'000 GBP'000
Total commitments under leases at 31 March
were:
Operating leases - Land and buildings
Not later than one year 2,030 2,099
Later than one but not later than five years 5,498 6,467
Later than five years 1,823 2,702
--------------------------------------------------------- -------- --------
9,351 11,268
22 ACQUISITION OF SUBSIDIARY
On 13 May 2011 the Group completed the acquisition of 100% of the issued share capital of Jobson James Financial Services Limited, a financial planning business and wealth manager based in Birmingham. The acquisition will contribute to Charles Stanley's strategic positioning of building a stronger presence in the Midlands.
Details of net assets acquired are as follows:
GBP'000
Cash consideration:
Paid on date of acquisition 1,550
Paid in September 2011 225
Deferred consideration - payable in
May 2012 250
* payable in August 2013 250
* payable in February 2014 250
------------------------------------------------------------------- ---------
Total cash consideration 2,525
Fair value of assets acquired:
Intangible assets - customer relationships 2,257
Property, plant and equipment 10
Trade receivables 161
Cash and cash equivalents 423
Trade payables (245)
Current tax liabilities (81)
2,525
The last two deferred consideration payments are contingent on performance. Depending on performance payments could range between zero and GBP500,000 - the fair value that the Directors expect to pay. There were no material differences between book value and fair value of net tangible assets. The fair value of intangible assets is based on an internal cash flow model. Post acquisition revenues to 31 March 2012 were GBP1.6 million and post acquisition profits to 31 March 2012 were GBP46,000. If Jobson James Financial Services Limited had been a member of the Group since 1 April 2011 revenues would have been GBP279,000 higher and profit before tax GBP12,000 higher.
23 EVENTS AFTER THE END OF THE REPORTING PERIOD
The Financial Services Compensation Scheme ("FSCS") announced in their April 2012 Outlook Statement that they propose to raise GBP265 million across all sub-classes for 2012/13 and it anticipates additional compensation costs to the investment management sector to cover the as yet unquantifiable claims relating to MF Global, Worldspread and CF Arch Cru. The Directors expect the FSCS levy for 2013 to be at a similar level to 2012. Except for this there have been no material events occurring between the end of the reporting period and the date of signing this report.
This information is provided by RNS
The company news service from the London Stock Exchange
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