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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Charles Stanley Group Plc | LSE:CAY | London | Ordinary Share | GB0006556046 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 512.50 | 510.00 | 515.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
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:
Hot Features
Premium
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
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