BREWIN DOLPHIN HOLDINGS PLC Interim Financial Report
Contents Highlights 01 Condensed Consolidated Balance Sheet 11 Interim Management Report 02 Condensed Consolidated Cash Flow Statement 12 Condensed Consolidated Income Statement 08 Notes to the Condensed Consolidated Set of Financial Statements 13 Condensed Consolidated Statement of Comprehensive Income 09 Independent Review Report 29 Condensed Consolidated Statement of Changes in Equity 10
Highlights 1 Another strong period of organic fund inflows as we continue to deliver against our strategic plan. Total funds stood at 37.8bn, as at, an increase of 6.8% (FY : 35.4bn). Discretionary funds of 31.5bn, increased by 9.4% (FY : 28.8bn). This compares to an increase of 6.1% in the FTSE 100 Index and a 5.4% increase in the MSCI WMA Private Investor Balanced Index. Record net discretionary funds inflows, including transfers, of 1.1bn (H1 : 0.4bn) representing an annualised growth rate of 7.6% (H1 : 3.2%, FY : 4.4%). Total income for the period of 147.4m (H1 : 137.2m). Core 2 income of 140.3m increased by 11.3% (H1 : 126.1m). Fee income of 104.7m (H1 : 92.7m), increased by 12.9% representing 71.0% of total income (H1 : 67.6%); commission income was 33.0m (H1 : 33.4m). Adjusted 3,5 profit before tax of 32.4m increased by 14.1% (H1 : 28.4m). Adjusted 3,5 profit before tax margin 22.0% (H1 : 20.7%). Statutory profit before tax of 28.4m, 32.1% higher than H1 ( 21.5m). Adjusted 3 earnings per share: Basic earnings per share increased by 13.1% to 9.5p (H1 : 8.4p). Diluted earnings per share 4 increased by 15.2% to 9.1p (H1 : 7.9p). Statutory earnings per share: Basic earnings per share of 8.2p (H1 : 6.3p). Diluted earnings per share of 7.9p (H1 : 6.1p). Interim dividend of 4.25p per share announced, an increase of 10.4% (H1 : 3.85p per share). Successful acquisition of Duncan Lawrie Asset Management reflecting progress towards our growth strategy and strategic objectives. 1. Continuing operations. 2. Core income is defined as income derived from discretionary investment management, financial planning and execution only services. 3. These figures have been adjusted to exclude redundancy costs 0.1m (H1 : 1.9m), onerous contracts 0.1m (H1 : 0.3m), amortisation of client relationships 2.6m (H1 : 3.3m), one-off migration costs nil (H1 : 1.5m), acquisition costs 1.2m (H1 : nil) and disposal of available-for-sale investments nil (H1 : 0.0m). 4. See note 6. 5. See Annual Report and Accounts page 42 for explanation of adjusted profit before tax and why the adjusted measures have been chosen. The Group has had a successful first half of in a period with a favourable market environment. The delivery against our growth strategy has contributed to an excellent financial performance, with underlying earnings growth of 14.1%. We are exceeding the organic growth targets we set as net inflows into our core discretionary service were 1.1bn, in the period, a record and helping drive yearon-year growth of 22.1% in discretionary funds. In particular we are capturing the near-term growth opportunities in intermediary business as a direct result of current growth initiatives which are delivering tangible results. Whilst continuing to invest in other initiatives aimed at driving further longer term growth. The strength of our business and confidence in our strategy helped us in the successful acquisition of Duncan Lawrie Asset Management Limited during the period, which has been financed by surplus capital reserves and cements our position as a market leading discretionary wealth manager. David Nicol, Chief Executive brewin.co.uk 1
Interim Management Report To the members of Brewin Dolphin Holdings PLC First half review The business has made very good progress during the first half of financial year, against a favourable investment market backdrop. Adjusted diluted earnings per share has increased by 15.2% compared to the comparative period last year. Total funds in our core discretionary service grew by 9.4% in the half to 31.5bn, with record net inflows and positive returns generated for our clients. As a result our discretionary funds are 22.1% higher than 12 months ago representing an annualised growth rate of 7.6%. We continued to see strong growth in our intermediaries services, both Managed Portfolio Services ( MPS ) and bespoke portfolios, during the first half, with 0.9bn of combined net inflows achieved (H1 : 0.5bn), representing an annualised growth rate of 23.4%. Our success and current strong growth in our intermediary discretionary business reflects not only the current exceptionally high levels of demand but also the impact of our strategic initiatives. These include developing our service to meet the needs of agent clients and a structured, focused approach to sales. Favourable market dynamics such as pension freedoms and transfers from defined benefit pensions, coupled with the continuing trend for independent advisers to outsource investment management to better manage regulatory compliance is driving higher demand for these services. The growth in MPS has been exceptionally strong, with 0.5bn of net inflows in the first half, double the net inflow of. We now manage 1.8bn for intermediaries across 11 investment platforms. To support this growth, investment continued in this half with the further enhancement of the existing product range and work is ongoing to further expand across broader investment mandates. In addition to attracting business from new advisers, the majority of the business arose from existing relationships developed over the past couple of years. We now have active relationships with over 1,500 intermediaries, approximately 350 of whom use both the MPS and bespoke discretionary service. Net inflows into our direct discretionary service were 0.2bn compared to H1 which saw net outflows of 0.1bn. Gross inflows half on half remained stable at 0.5bn, with approximately one-third of this into our integrated wealth management service. Increasing integration of financial planning, alongside our traditional strength in discretionary investment management, is key to our longer term organic growth targets for direct advised business and it is encouraging to see an increasing amount of inflows also receiving financial planning advice. Over 16% of direct private client funds now receive our wealth management service which combines our financial planning and investment management services. Our strategy, set out at the end of 2015, focuses on generating improved and sustainable organic growth across the range of our services, capitalising on our core competencies of offering advice and investment solutions in a personalised relationship-based model. Key to the strategy is the segmentation of the market and client needs, enhancement and development of our services and a clearer focus on distribution, supported by improved processes and technology both to create more capacity and enhance client service. In addition to the development of our intermediary services, as outlined above, the first half saw the launch of a passive-based version of our award-winning MPS and front end technology enhancements to provide advisers with improved client reporting and bespoke discretionary services. We have continued to expand our client facing headcount during the first half, to create capacity for future growth, with a focus on increasing our financial planning resource, a key initiative to help drive growth in direct private client business. The full automation of client take on and service for our non-advised investment service, Brewin Portfolio Service, was completed during the half. We have also begun to explore the development of a new advice/planning led service aimed at providing a cost effective way for clients with less complex needs to receive quality advice and investments solutions at a competitive price. We continued with targeted expansion and in April we opened a new office in Truro, Cornwall, developing our regional capacity in the South West region. Work continued on improving operational efficiency with improved key business processes and upgrades to our technology, in particular around portfolio management and client reporting, with the aim of creating additional capacity for growth. This is demonstrated by our adjusted profit before tax margin gradually increasing from 20.7% to 22.0%. We are progressing well in preparing our processes and systems for the introduction of the Markets in Financial Instruments Directive II ( MiFID II ) in 2018. The acquisition of Duncan Lawrie Asset Management Limited ( DLAM ) announced in December, completed on 10 May. This was financed by surplus capital reserves and will increase the Group s total funds by c. 0.7bn. The acquisition supports the Group's commitment to become the UK's leading provider of personalised wealth and investment management services and represents a sound cultural fit. The Group will benefit from the addition of experienced investment and wealth managers to its London and Bristol offices, as well as the strong private client relationships of DLAM. 2 Brewin Dolphin Holdings PLC
Results and business performance Adjusted profit before tax of 32.4m increased by 14.1% (H1 : 28.4m) for the half year ended, as a result of growth in total income of 7.4% and an improved adjusted operating margin of 22.0% (H1 : 20.6%). Profit before tax for the period was 28.4m (H1 : 21.5m), an increase of 32.1% compared to H1 reflecting lower exceptional costs and lower amortisation of previously acquired client relationships. Continuing operations m Change Core 1 income 140.3 126.1 11.3% Other income 7.1 11.1-36.0% Total income 147.4 137.2 7.4% m Fixed staff costs (55.1) (53.1) 3.8% Other operating costs (34.5) (33.2) 3.9% Total fixed operating costs (89.6) (86.3) 3.8% Adjusted profit before variable staff costs 2,5 57.8 50.9 13.6% Variable staff costs (25.4) (22.7) 11.9% Adjusted operating profit 2,5 32.4 28.2 14.9% Net finance income and other gains and losses 0.2 Adjusted profit before tax 2,5 32.4 28.4 14.1% Exceptional items 3 (1.4) (3.6) Amortisation of client relationships (2.6) (3.3) Profit before tax 28.4 21.5 32.1% Taxation (6.1) (4.3) Profit after tax 22.3 17.2 Earnings per share Basic earnings per share 8.2p 6.3p 30.2% Diluted earnings per share 7.9p 6.1p 29.5% Adjusted 4 earnings per share Basic earnings per share 9.5p 8.4p 13.1% Diluted earnings per share 9.1p 7.9p 15.2% 1. Core income is defined as income derived from discretionary investment management, financial planning and execution only services. 2. These figures have been adjusted to exclude redundancy costs 0.1m (H1 : 1.9m), onerous contracts 0.1m (H1 : 0.3m), amortisation of client relationships 2.6m (H1 : 3.3m), one-off migration costs nil (H1 : 1.5m), acquisition costs 1.2m (H1 : nil) and disposal of available-for-sale investments nil, (H1 : 0.0m). 3. Exceptional costs include redundancy costs, acquisition costs, onerous contracts and one-off migration costs. 4. See note 6. 5. See Annual Report and Accounts page 42 for explanation of adjusted profit before tax and why the adjusted measures have been chosen. brewin.co.uk 3
Interim Management Report (continued) Income Core income grew 11.3% to 140.3m (H1 : 126.1m) supported by continued organic funds growth, positive investment returns and continued growth in financial planning income. Income is analysed as follows: m m Change Discretionary investment management 125.2 112.3 11.5% Financial planning 9.5 8.1 17.3% BPS 0.5 0.4 25.0% Execution only 5.1 5.3-3.8% Core income 140.3 126.1 11.3% Advisory investment management 6.9 8.1-14.8% Trail income 1.8-100.0% Interest 0.2 1.2-83.3% Other income 7.1 11.1-36.0% Total income 147.4 137.2 7.4% The Group continues to focus on discretionary wealth management services with core income now more than 95% of total income. Discretionary investment management income grew 11.5% to 125.2m (H1 : 112.3m) with strong fee income growth and broadly flat commission levels. Financial planning income increased by 17.3% to 9.5m (H1 : 8.1m). Other income reduced by 4.0m to 7.1m (H1 : 11.1m) impacted by slowing but continued outflows from our advisory business, the loss of trail income and the continued low interest rate environment. Fees and Commissions m m Change Core fees 1 99.9 87.0 14.8% Core commissions 30.9 31.0-0.3% Advisory fees 4.8 5.7-15.8% Advisory commissions 2.1 2.4-12.5% Total fees 104.7 92.7 12.9% Total commissions 33.0 33.4-1.2% Financial planning 9.5 8.1 17.3% Other income 0.2 3.0-93.3% Total income 147.4 137.2 7.4% 1. The average MSCI WMA Private Investor Balanced Index was 1,519 on our quarterly billing dates for H1, compared to 1,303 for H1, an increase of 16.6%. Core fee income grew by 14.8% to 99.9m (H1 : 87.0m) in line with growth in funds. Core commission income declined marginally to 30.9m (H1 : 31.0m) despite the growth in funds as a result of lower transaction volumes in the period. 4 Brewin Dolphin Holdings PLC
Costs Fixed operating costs have increased by 3.8% to 89.6m (H1 : 86.3m). Fixed staff costs increased by 3.8% to 55.1m (H1 : 53.1m) as a result of pay rises and higher cost of sales from the strong intermediary net inflows from H1, offset partially by lower year on year employee numbers. Total employee numbers increased by 11 to 1,594 in the first half, although average headcount remained below H1. Variable staff costs have increased in line with business performance. Other operating costs increased by 3.9% to 34.5m (H1 : 33.2m), primarily as a result of higher premises costs, following rent reviews and coupled with above inflationary increases in market data contracts, augmented by the effect of weaker sterling to USD exchange rates. Exceptional costs of 1.4m (H1 : 3.6m) are predominantly one-off costs relating to the acquisition of Duncan Lawrie Asset Management Limited. Amortisation of intangible client relationships reduced by 21.2% to 2.6m (H1 : 3.3m). Funds The first six months of the year saw both record gross discretionary funds inflows of 1.6bn (H1 : 1.1bn, FY : 2.4bn) and reducing gross outflows of 0.6bn equivalent to a 4.2% annualised outflow rate (FY : 6.0%). Total funds by service category bn Discretionary Change last 12 months Change last 6 months Direct 19.2 21.1 22.4 16.7% 6.2% Intermediaries 5.7 6.5 7.3 28.1% 12.3% MPS 0.9 1.2 1.8 100.0% 50.0% Total discretionary 25.8 28.8 31.5 22.1% 9.4% BPS 0.1 0.1 0.1 0.0% 0.0% Execution only 3.6 3.5 3.4-5.6% -2.9% Core funds 29.5 32.4 35.0 18.6% 8.0% Advisory 3.3 3.0 2.8-15.2% -6.7% Total funds 32.8 35.4 37.8 15.2% 6.8% Indices MSCI WMA Private Investor Balanced Index 1,318 1,457 1,536 16.5% 5.4% FTSE 100 6,175 6,899 7,323 18.6% 6.1% brewin.co.uk 5
Interim Management Report (continued) Funds flow by service category bn 30 Sept Inflows Outflows Internal transfers Net flows Growth rate* Investment performance Discretionary Direct 21.1 0.5 (0.4) 0.1 0.2 1.9% 1.1 22.4 Intermediaries 6.5 0.6 (0.2) 0.4 12.3% 0.4 7.3 MPS 1.2 0.5 0.5 83.3% 0.1 1.8 Total discretionary 28.8 1.6 (0.6) 0.1 1.1 7.6% 1.6 31.5 BPS 0.1 0.0% 0.1 Execution only 3.5 0.2 (0.5) 0.1 (0.2) (10.8%) 0.1 3.4 Core funds 32.4 1.8 (1.1) 0.2 0.9 5.5% 1.7 35.0 Advisory 3.0 (0.1) (0.2) (0.3) (20.0%) 0.1 2.8 Total funds 35.4 1.8 (1.2) 0.6 3.4% 1.8 37.8 * annualised Total discretionary funds grew 9.4% driven by record gross funds inflows and a more normalised level of outflows. Discretionary net funds inflows of 1.1bn (FY : 1.1bn, H1 : 0.4bn) resulted from strong gross inflows of 1.6bn and gross outflows of 0.6bn. Annualised growth from discretionary funds was 7.6% (H1 : 3.2%) with positive net inflows in all discretionary services. Direct discretionary funds grew by 6.2% resulting from 0.5bn of gross funds inflows and outflows slowing significantly. The intermediaries and MPS business continued to grow solidly representing 81.8% ( 0.9bn) of net discretionary funds inflows in the period. Execution only funds fell by 0.1bn in the period, primarily due to loss of certain large accounts, in the first quarter of the year, with very low associated fee income loss. The rate of advisory funds net outflows has declined but remains at a 20.0% annualised rate, however the majority of this fall was retained within other service categories. Capital The Group has a strong balance sheet with cash balances at period end of 152.3m (H1 : 117.4m). These underpin its regulatory capital resources which continue to be in significant surplus to requirements. Dividend The Group s dividend policy is to grow dividends in line with adjusted earnings, with a target payout ratio of 60% to 80% of annual adjusted diluted earnings per share. It is intended that the final dividend will be based on the full year target dividend payout ratio of 60% to 80% of adjusted earnings per share. The interim dividend has been increased to 4.25p per share ( interim: 3.85p per share) and will be payable on 16 June to shareholders on the register at the close of business on 26 May with an ex-dividend date of 25 May. Going concern As stated in note 1 to the condensed set of interim financial statements, the Directors believe that the Group is well placed to manage its business risks successfully. The Group s forecasts and projections, taking account of possible adverse changes in trading performance, show that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt a going concern basis for the preparation of the condensed interim financial statements. In forming their view, the Directors have considered the Group s prospects for a period exceeding twelve months from the date the condensed interim financial statements are approved. 6 Brewin Dolphin Holdings PLC
Principal risks and uncertainties The Directors consider that the nature of the principal risks and uncertainties which may have a material effect on the Group s performance during the remainder of its financial year remain unchanged from those identified on pages 33 to 37 of the Annual Report and Accounts available on our website www.brewin.co.uk. Board changes Angela Knight retired from the Board with effect from 3 February and the Board is grateful for her significant contribution to the Group s success over the past ten years. All of the Non-Executive Directors are considered by the Company to be independent and the Board is fully compliant with the UK Corporate Governance Code with respect to Board composition. Outlook We remain confident in the prospects for continued long-term growth in our business, despite the backdrop of political uncertainty in the UK, from the forthcoming General Election and the EU exit negotiations beyond. The underlying structural trends driving demand for our client relationship based advice services are well established. We continue to invest time and resource on our strategic initiatives to deliver our growth targets. David Nicol Chief Executive 16 May brewin.co.uk 7
Condensed Consolidated Income Statement for the period ended Continuing operations Note 000 000 000 Revenue 147,185 136,031 280,484 Other operating income 229 1,217 1,866 Income 147,414 137,248 282,350 Staff costs (80,496) (75,789) (152,175) Redundancy costs (104) (1,885) (2,780) Onerous contracts (142) (315) (311) Amortisation of intangible assets client relationships 8 (2,616) (3,262) (6,287) One-off migration costs (1,468) (1,596) Acquisition costs (1,159) Other operating costs (34,494) (33,157) (69,458) Operating expenses (119,011) (115,876) (232,607) Operating profit 28,403 21,372 49,743 Finance income 4 102 258 514 Other gains and losses (3) (3) Finance costs 4 (123) (110) (192) Profit before tax 28,382 21,517 50,062 Tax 5 (6,065) (4,354) (11,095) Profit for the period from continuing operations 22,317 17,163 38,967 Discontinued operations Profit for the period from discontinued operations 16 36 11,395 Profit for the period 22,317 17,199 50,362 Attributable to: Equity holders of the parent 22,317 17,199 50,362 22,317 17,199 50,362 Earnings per share From continuing operations Basic 6 8.2p 6.3p 14.4p Diluted 6 7.9p 6.1p 13.9p From continuing and discontinued operations Basic 6 8.2p 6.3p 18.6p Diluted 6 7.9p 6.1p 17.9p 8 Brewin Dolphin Holdings PLC
Condensed Consolidated Statement of Comprehensive Income for the period ended 000 000 000 Profit for the period 22,317 17,199 50,362 Items that will not be reclassified subsequently to profit and loss: Actuarial gain/(loss) on defined benefit pension scheme 9,061 2,336 (7,031) Deferred tax (charge)/credit on actuarial gain/(loss) on defined benefit pension scheme (2,142) (420) 1,109 Items that may be reclassified subsequently to profit and loss: 6,919 1,916 (5,922) Revaluation of available-for-sale investments 31 (1) (30) Deferred tax (charge)/credit on revaluation of available-for-sale investments (6) - 6 Exchange differences on translation of foreign operations (45) 201 559 (20) 200 535 Other comprehensive income/(expense) for the period net of tax 6,899 2,116 (5,387) Total comprehensive income for the period 29,216 19,315 44,975 Attributable to: Equity holders of the parent 29,216 19,315 44,975 29,216 19,315 44,975 brewin.co.uk 9
Condensed Consolidated Statement of Changes in Equity for the period ended 10 Brewin Dolphin Holdings PLC Share capital Attributable to the equity holders of the parent Share premium account Own shares Revaluation reserve Merger reserve Profit and loss account Total 000 000 000 000 000 000 000 balance at 2015 2,793 142,135 (28,153) - 70,553 31,823 219,151 Profit for the period 17,199 17,199 Other comprehensive income for the period Deferred and current tax on other comprehensive income (420) (420) Actuarial gain on defined benefit scheme 2,336 2,336 Revaluation of available-for-sale investments (1) (1) Exchange differences on translation of foreign operations 201 201 Total comprehensive (expense)/income for the period (1) 19,316 19,315 Dividends (22,374) (22,374) Issue of share capital 37 9,644 9,681 Own shares acquired in the period (7,141) (7,141) Own shares disposed of on exercise of options 5,039 (5,039) Own shares disposed of 226 84 310 Share-based payments 3,996 3,996 Tax on share-based payments (598) (598) balance at 2,830 151,779 (30,029) (1) 70,553 27,208 222,340 Profit for the period 33,163 33,163 Other comprehensive income for the period Deferred and current tax on other comprehensive income 6 1,529 1,535 Actuarial loss on defined benefit pension scheme (9,367) (9,367) Revaluation of available-for-sale investments (29) (29) Exchange differences on translation of foreign operations 358 358 Total comprehensive (expense)/income for the period (23) 25,683 25,660 Dividends (10,444) (10,444) Issue of share capital 57 57 Own shares acquired in the period (79) (79) Own shares disposed of on exercise of options 814 (814) Share-based payments 4,391 4,391 Tax on share-based payments 884 884 balance at 2,830 151,836 (29,294) (24) 70,553 46,908 242,809 Profit for the period 22,317 22,317 Other comprehensive income for the period Deferred and current tax on other comprehensive income (6) (2,142) (2,148) Actuarial gain on defined benefit pension scheme 9,061 9,061 Revaluation of available-for-sale investments 31 31 Exchange differences on translation of foreign operations (45) (45) Total comprehensive income for the period 25 29,191 29,216 Dividends (24,996) (24,996) Issue of share capital 3 432 435 Own shares acquired in the period (5,741) (5,741) Own shares disposed of on exercise of options 8,493 (8,493) Share-based payments 4,149 4,149 Tax on share-based payments 551 551 balance at 2,833 152,268 (26,542) 1 70,553 47,310 246,423
Condensed Consolidated Balance Sheet As at Assets as at as at as at Notes 000 000 000 Non-current assets Intangible assets 8 76,462 84,003 81,053 Property, plant and equipment 9 3,975 5,972 4,822 Other receivables 288 395 307 Defined benefit pension scheme 12 3,541 927 Net deferred tax asset 4,818 10,420 7,799 Total non-current assets 89,084 101,717 93,981 Current assets Available-for-sale investments 10 867 820 833 Trading investments 10 1,170 978 1,093 Trade and other receivables 225,035 225,789 218,118 Cash and cash equivalents 152,303 117,856 170,766 Total current assets 379,375 345,443 390,810 Total assets 468,459 447,160 484,791 Liabilities Current liabilities Bank overdrafts 479 Trade and other payables 208,490 203,907 221,945 Current tax liabilities 4,457 5,195 3,388 Provisions 11 2,759 9,063 3,097 Total current liabilities 215,706 218,644 228,430 Net current assets 163,669 126,799 162,380 Non-current liabilities Defined benefit pension scheme 12 6,952 Provisions 11 6,330 6,176 6,600 Total non-current liabilities 6,330 6,176 13,552 Total liabilities 222,036 224,820 241,982 Net assets 246,423 222,340 242,809 Equity Share capital 13 2,833 2,830 2,830 Share premium account 13 152,268 151,779 151,836 Own shares (26,542) (30,029) (29,294) Revaluation reserve 1 (1) (24) Merger reserve 70,553 70,553 70,553 Profit and loss account 47,310 27,208 46,908 Equity attributable to equity holders of the parent 246,423 222,340 242,809 brewin.co.uk 11
Condensed Consolidated Cash Flow Statement for the period ended Note 000 000 000 Net cash inflow/(outflow) from operating activities 15 13,006 (456) 52,033 Cash flows from investing activities Purchase of intangible assets software (988) (2,501) (5,238) Purchases of property, plant and equipment (144) (211) (373) Purchase of available-for-sale investments (18) (722) (770) Proceeds on disposal of discontinued operation 14,000 Proceeds on disposal of available-for-sale investments 15 38 47 Net cash (used in)/from investing activities (1,135) (3,396) 7,666 Cash flows from financing activities Dividends paid to equity shareholders 7 (24,996) (22,374) (32,818) Purchase of own shares (5,741) (7,141) (7,220) Disposal of own shares 310 310 Proceeds on issue of shares 435 376 433 Net cash used in financing activities (30,302) (28,829) (39,295) Net (decrease)/increase in cash and cash equivalents (18,431) (32,681) 20,404 Cash and cash equivalents at the start of period 170,766 149,823 149,823 Effect of foreign exchange rates (32) 235 539 Cash and cash equivalents at the end of period 152,303 117,377 170,766 Cash and cash equivalents shown in current assets 152,303 117,856 170,766 Bank overdrafts (479) Net cash and cash equivalents at the end of period 152,303 117,377 170,766 For the purposes of the cash flow statement, cash and cash equivalents include bank overdrafts. 12 Brewin Dolphin Holdings PLC
Notes to the Condensed Consolidated Set of Financial Statements 1. Accounting policies Basis of preparation The annual financial statements of Brewin Dolphin Holdings PLC are prepared in accordance with International Financial Reporting Standards ( IFRS ) as adopted by the European Union. The condensed set of financial statements included in this Interim Financial Report has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting ( IAS 34 ), as adopted by the European Union and the Interim Financial Report has been prepared in accordance with the Disclosure and Transparency Rules ( DTR ) of the Financial Conduct Authority. The condensed set of financial statements included in this Interim Financial Report for the period ended should be read in conjunction with the annual audited financial statements of Brewin Dolphin Holdings PLC for the year ended. Going concern The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly they continue to adopt the going concern basis in preparing the condensed financial statements. Significant accounting policies and use of estimates and judgements The preparation of interim consolidated financial statements in compliance with IAS 34 requires the use of certain critical accounting judgements and key sources of estimation uncertainty. It also requires the exercise of judgement in applying the Group s accounting policies. There have been no material revisions to the nature and the assumptions used in estimating amounts reported in the annual audited financial statements of Brewin Dolphin Holdings PLC for the year ended. The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group s latest annual audited financial statements for the year ended. Several other new standards and amendments apply for the first time during the period; they do not impact the annual consolidated financial statements of the Group or the interim condensed consolidated financial statements of the Group. 2. General information Brewin Dolphin Holdings PLC (the Company ) is a public limited company incorporated in the United Kingdom. The shares of the Company are listed on the London Stock Exchange. The address of its registered office is 12 Smithfield Street, London, EC1A 9BD. This Interim Financial Report was approved for issue on 16 May. A copy of this Interim Financial Report including Condensed Financial Statements for the period ended is available at the Company s registered office and on the Company s investor relations website (www.brewin.co.uk). The information for the period ended does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that period has been delivered to the Registrar of Companies. The auditor reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. brewin.co.uk 13
Notes to the Condensed Consolidated Set of Financial Statements (continued) 3. Segmental information For management reporting purposes the Group currently has a single operating segment. This forms the reportable segment of the Group for the period. Please refer to the Condensed Consolidated Income Statement and the Condensed Consolidated Balance Sheet, for numerical information. The Group s operations are carried out in the United Kingdom, Channel Islands and the Republic of Ireland. All segmental income related to external clients. The accounting policies of the operating segment are the same as those of the Group. 4. Finance income and costs Continuing operations 000 000 000 Finance income Interest on bank deposits 102 258 514 102 258 514 Finance costs Interest expense on defined pension obligation 68 40 52 Unwind of discounts on provisions 20 39 75 Negative interest and interest on bank overdrafts 35 31 65 123 110 192 Discontinued operations Finance costs Unwind of discounts on provisions 72 134 72 134 Continuing and discontinued operations Finance income Interest on bank deposits 102 258 514 102 258 514 Finance costs Interest expense on defined pension obligation 68 40 52 Unwind of discounts on provisions 20 111 209 Interest on bank overdrafts 35 31 65 123 182 326 14 Brewin Dolphin Holdings PLC
5. Taxation The Group calculates the period income tax expense using the tax rate that would be applicable to the expected total annual earnings. Continuing operations 000 000 000 Current tax United Kingdom: Charge for the period 4,833 4,915 8,806 Adjustments in respect of prior periods (49) 318 237 Overseas: Charge/(credit) for the period 28 (79) (8) Adjustments in respect of prior periods (1) 33 35 Total current tax continuing operations 4,811 5,187 9,070 Deferred tax United Kingdom: Charge for the period 1,205 441 2,310 Adjustments in respect of prior periods 49 (1,274) (285) Total deferred tax continuing operations 1,254 (833) 2,025 Tax charged to the income statement continuing operations 6,065 4,354 11,095 Discontinued operations Current tax United Kingdom: Charge for the period 194 1,355 Adjustments in respect of prior periods (395) Total current tax discontinued operations 194 960 Deferred tax United Kingdom: Charge for the period 1,675 Total deferred tax discontinued operations 1,675 Tax charged to the income statement discontinued operations 194 2,635 brewin.co.uk 15
Notes to the Condensed Consolidated Set of Financial Statements (continued) 5. Taxation (continued) Continuing and discontinued operations 000 000 000 Current tax United Kingdom: Charge for the period 4,833 5,109 10,161 Adjustments in respect of prior periods (49) 318 (158) Overseas: Charge for the period 28 (79) (8) Adjustments in respect of prior periods (1) 33 35 Total current tax continuing and discontinued operations 4,811 5,381 10,030 Deferred tax United Kingdom: Charge for the period 1,205 441 3,985 Adjustments in respect of prior periods 49 (1,274) (285) Total deferred tax continuing and discontinued operations 1,254 (833) 3,700 Tax charged to the income statement continuing and discontinued operations 6,065 4,548 13,730 16 Brewin Dolphin Holdings PLC
6. Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: Number of shares 000 000 000 Basic Weighted average number of shares in issue in the period 272,442 270,929 271,072 Diluted Effect of weighted average number of options outstanding for the period 8,701 9,345 9,984 Diluted weighted average number of options and shares for the period 281,143 280,274 281,056 Adjusted 1 diluted Effect of full dilution of employee share options which are contingently issuable or have future attributable service costs 5,265 6,279 4,637 Adjusted 1 diluted weighted average number of options and shares for the period 286,408 286,553 285,693 a) Continuing operations Earnings attributable to ordinary shareholders 000 000 000 Basic and diluted profit for the period 22,317 17,163 38,967 Redundancy costs 104 1,885 2,780 Onerous contracts costs 142 315 311 Amortisation of intangible assets client relationships 2,616 3,262 6,287 Acquisition costs 1,159 One-off migration costs 1,468 1,596 Disposal of available-for-sale investments 3 3 less tax effect of above (398) (1,387) (2,042) Adjusted basic and diluted profit for the period and attributable earnings 25,940 22,709 47,902 Earnings per share Basic 8.2p 6.3p 14.4p Diluted 7.9p 6.1p 13.9p Adjusted 2 earnings per share Basic 9.5p 8.4p 17.7p Adjusted 1 diluted 9.1p 7.9p 16.8p brewin.co.uk 17
Notes to the Condensed Consolidated Set of Financial Statements (continued) 6. Earnings per share (continued) b) Continuing and discontinued operations Earnings attributable to ordinary shareholders 000 000 000 Basic and diluted profit for the period 22,317 17,199 50,362 Redundancy costs 104 1,885 2,780 Onerous contracts 142 315 311 Amortisation of intangible assets client relationships 2,616 3,262 6,287 Acquisition costs 1,159 One-off migration costs 1,468 1,596 Disposal of available-for-sale investments 3 3 less tax effect of above (398) (1,387) (2,042) Adjusted basic profit for the period and attributable earnings 25,940 22,745 59,297 Earnings per share Basic 8.2p 6.3p 18.6p Diluted 7.9p 6.1p 17.9p Adjusted 2 earnings per share Basic 9.5p 8.4p 21.9p Adjusted 1 diluted 9.1p 7.9p 20.8p c) Discontinued operations The denominators used are the same as those detailed above for both basic and diluted earnings from continuing operations. Earnings per share Basic 0.0p 0.0p 4.2p Diluted 0.0p 0.0p 4.0p Adjusted 2 earnings per share Basic 0.0p 0.0p 4.2p Adjusted 1 diluted 0.0p 0.0p 4.0p 1. The dilutive shares used for this measure differ from that used for statutory dilutive earnings per share; the future value of service costs attributable to employee share options is ignored and contingently issuable shares for Long Term Incentive Plan ( LTIP ) options are assumed to fully vest. The Directors have selected this measure as it represents the underlying effective dilution by offsetting the impact to the calculation of basic shares of the purchase of shares by the Employee Share Ownership Trust ( ESOT ) to satisfy options. 2. Excluding redundancy costs, onerous contracts, amortisation of client relationships, acquisition costs, one-off migration costs and disposal of available-for-sale investments. 18 Brewin Dolphin Holdings PLC
7. Dividends Amounts recognised as distributions to equity shareholders in the period: 000 000 000 Final dividend paid 10 March, 9.15p per share (: 8.25p per share) 24,996 22,374 22,374 Interim dividend paid 17 June, 3.85p per share 10,444 24,996 22,374 32,818 An interim dividend of 4.25p per share was declared by the Board on 16 May and has not been included as a liability as at. This interim dividend will be paid on 16 June to shareholders on the register at the close of business on 26 May with an ex-dividend date of 25 May. brewin.co.uk 19
Notes to the Condensed Consolidated Set of Financial Statements (continued) 8. Intangible assets Cost Client Goodwill relationships Software Total 000 000 000 000 At 2015 () 48,637 107,941 55,825 212,403 Additions (21) 2,737 2,716 Disposals Exchange differences 11 11 At () 48,637 107,931 58,562 215,130 Additions (44) 2,452 2,408 Disposals (42,808) (42,808) Exchange differences 15 15 At () 48,637 107,902 18,206 174,745 Additions 119 616 735 Disposals Exchange differences (2) (2) At () 48,637 108,019 18,822 175,478 Accumulated amortisation and impairment At 2015 () 78,805 46,609 125,414 Amortisation charge for the period 3,262 2,101 5,363 Eliminated on disposal Exchange differences 5 5 Impairment losses for the period 345 345 At () 82,072 49,055 131,127 Amortisation charge for the period 3,025 2,340 5,365 Eliminated on disposal (42,808) (42,808) Exchange differences 8 8 Impairment losses for the period At () 85,105 8,587 93,692 Amortisation charge for the period 2,616 2,709 5,325 Eliminated on disposal Exchange differences (1) (1) At () 87,720 11,296 99,016 Net book value At () 48,637 20,299 7,526 76,462 At () 48,637 22,797 9,619 81,053 At () 48,637 25,859 9,507 84,003 At 2015 () 48,637 29,136 9,216 86,989 20 Brewin Dolphin Holdings PLC
9. Property, plant and equipment Leasehold Improvements Office Equipment Motor Vehicles Computer Equipment Total 000 000 000 000 000 Cost At 2015 () 13,003 13,150 30 43,666 69,849 Additions 66 54 105 225 Exchange differences 13 40 2 55 Disposals (32) (32) At () 13,082 13,244 43,771 70,097 Additions 132 84 22 238 Exchange differences 18 51 3 72 Disposals (42) (87) (3) (9,680) (9,812) At () 13,190 13,292 34,113 60,595 Additions 24 40 97 161 Exchange differences (3) (8) (11) Disposals (6) (6) At () 13,211 13,318 34,210 60,739 Accumulated depreciation and impairment At 2015 () 8,685 11,988 27 40,961 61,661 Charge for the period 684 366 1,059 2,109 Exchange differences 13 34 2 49 Impairment of assets 335 335 Eliminated on disposal (29) (29) At () 9,382 12,388 42,355 64,125 Charge for the period 583 276 537 1,396 Exchange differences 17 44 3 64 Eliminated on disposal (42) (87) (3) (9,680) (9,812) At () 9,940 12,621 33,212 55,773 Charge for the period 500 240 265 1,005 Exchange differences (2) (6) (8) Eliminated on disposal (6) (6) At () 10,438 12,849 33,477 56,764 Net book value At () 2,773 469 733 3,975 At () 3,250 671 901 4,822 At () 3,700 856 1,416 5,972 At 2015 () 4,318 1,162 3 2,705 8,188 brewin.co.uk 21
Notes to the Condensed Consolidated Set of Financial Statements (continued) 10. Investments Trading investments (Level 1) Listed investments 000 At () 1,170 At () 1,093 At () 978 At 2015 () 945 The trading investments are measured at fair value which is determined directly by reference to published prices in an active market where available. They are held in an unregulated subsidiary, Brewin Dolphin MP, whose sole objective is to provide seed capital to the model portfolios managed under an investment mandate by Brewin Dolphin Limited. Available-for-sale investments (Level 3) as at as at as at 000 000 000 At start of period 833 140 140 Additions 18 722 770 Net gain/(loss) from changes in fair value recognised in equity 31 (1) (30) Disposals (15) (41) (47) At end of period 867 820 833 Current assets Available-for-sale investments Equity 127 106 128 Asset-backed security 740 714 705 Total investments 867 820 833 The asset-backed security is a USD fixed rate note, due to mature on 23 September 2019. The available-for-sale investments are held at fair value. Fair value measurement recognised in the statement of financial position The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than the quoted price included within Level 1 that are observable for the asset or a liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair value measurements are those derived from formal valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). 22 Brewin Dolphin Holdings PLC
Fair value of the Group s financial assets and liabilities that are measured at fair value on a recurring basis Some of the Group s financial assets and liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and liabilities are determined. Level 1 fair value as at 000 fair value as at 000 fair value as at Valuation technique(s) 000 and key input(s) Trading investments 1,170 978 1,093 Quoted bid prices in an active market Level 3 Available-for-sale investments Equity Available-for-sale investments Asset-backed securities Significant unobservable input(s) 127 106 128 The valuation is based on published monthly NAVs where available. Where not available the valuation is based on the net assets reported in the latest audited accounts less the intangible assets. A marketability discount is applied as this investment is highly illiquid. Marketability discount ranging between 30%- 50% 740 714 705 The valuation is based on the discounted expected cash flows, which is extracted from the latest audited accounts. A marketability discount is applied as this investment is highly illiquid. n/a Marketability discount ranging between 30%- 50% Relationship of unobservable inputs to fair value n/a As the marketability discount increases the valuation decreases. As the marketability discount increases the valuation decreases. Sensitivity analysis A sensitivity analysis of the significant unobservable inputs used in valuing the Level 3 financial instruments is set out below: Financial asset Assumption Change in assumption Impact on valuation Current assets Available-for-sale investments Equity Marketability discount Increase by 5% Decrease by 2,000 Current assets Available-for-sale investments Asset-backed securities Marketability discount Increase by 5% Decrease by 57,000 brewin.co.uk 23
Notes to the Condensed Consolidated Set of Financial Statements (continued) 11. Provisions Sundry claims and associated costs Onerous contracts Social Security contributions on share options Leasehold dilapidations 000 000 000 000 000 000 000 At start of period 1,022 4,308 2,431 1,936 9,697 21,539 21,539 Additions 273 142 863 38 1,316 1,616 2,467 Utilisation of provision (152) (750) (657) (1,559) (6,852) (12,571) Unwinding of discount 11 9 20 111 209 Unused amounts reversed during the period (318) (24) (43) (385) (1,175) (1,947) At end of period 825 3,711 2,613 1,940 9,089 15,239 9,697 Included in current liabilities 825 486 1,405 43 2,759 9,063 3,097 Included in non-current liabilities 3,225 1,208 1,897 6,330 6,176 6,600 825 3,711 2,613 1,940 9,089 15,239 9,697 The Group recognises a provision for settlements of sundry claims and associated costs. The timing of the settlements is unknown, but it is expected that they will be resolved within 12 months. The onerous contracts provision is in respect of surplus office space. The valuation of an onerous contract is based on the best estimate of the likely costs discounted to present value. Where the provision is in relation to leasehold obligations on premises and it is more likely than not that the premises will be sublet, an allowance for sublease income has been included in the valuation. Provision of 3.7 million ( : 4.1 million) has been made for surplus office space, which the Group may not be able to sublet in the short-term. The maximum exposure is the current estimated amount that the Group would have to pay to meet the future obligations under these lease contracts which is approximately 11.0 million as at ( : 11.3 million), if the assumption regarding future sublets is removed and the time value of money is ignored. The longest lease term covered by the provision has 16 years remaining and accounts for 3.4 million of the provision. Provision of nil million ( : 0.2 million) has been made in relation to onerous contracts resulting from discontinued operations. The Group recognises a provision of 1.9 million ( : 1.9 million) for leasehold dilapidations. These costs are expected to arise at the end of the lease. The leases covered by the provision have a maximum remaining term of 16 years. 24 Brewin Dolphin Holdings PLC
12. Defined benefit scheme The main financial assumptions used in calculating the Group s defined benefit scheme are as follows: As at As at As at Discount rate 2.60% 3.60% 2.20% RPI Inflation assumption 3.30% 3.10% 3.10% CPI Inflation assumption 2.30% 2.10% 2.10% Rate of increase in salaries 3.30% 3.10% 3.10% LPI Pension Increases 3.20% 3.00% 3.00% Average assumed life expectancies for members on retirement at age 65. Retiring today Males 88.8 years 88.6 years 88.7 years Females 90.0 years 89.9 years 88.9 years Retiring in 20 years time Males 90.5 years 89.9 years 90.4 years Females 91.8 years 91.4 years 91.7 years A full actuarial valuation was carried out as at 31 December 2014 and the results of this valuation have been updated to by a qualified independent actuary. 13. Called up share capital The following movements in share capital occurred during the period: Share Share premium No. of capital account Total Fully Paid Exercise/Issue Price Date Shares (pence) 000 000 000 At 283,026,606 2,830 151,836 154,666 Issue of options Various 271,476 103.5p-175.25p 3 432 435 At 283,298,082 2,833 152,268 155,101 brewin.co.uk 25
Notes to the Condensed Consolidated Set of Financial Statements (continued) 14. Share-based payments In December, 1,226,504 share options were granted to senior executives and the Directors under the Long Term Incentive Plan ( LTIP ). The options vest on the third anniversary of the date of grant provided certain performance conditions and targets, set prior to the grant, have been met. If the performance conditions are not met the options lapse. The fair value at grant date is estimated using a Black- Scholes model, taking into account the terms and conditions upon which the options were granted. There is no cash settlement of the options. The fair value of options granted during the period ended was estimated on the date of grant using the following assumptions: Weighted average share price 287.4p Weighted average exercise price 0.0p Expected volatility 35.00% Expected life (yrs) 3 Risk free rate 0.76% Expected dividend yield 5.73% The Group recognised total expenses in the period of 4,149,000 ( : 3,996,000, : 8,387,000) related to equity-settled share-based payment transactions. 15. Note to the cash flow statement 000 000 000 Operating profit from continuing operations 28,403 21,372 49,743 Adjustments for: Profit from discontinued operations 230 14,030 Depreciation of property, plant and equipment 1,005 2,109 3,505 Amortisation of intangible assets client relationships 2,616 3,262 6,287 Amortisation of intangible assets software 2,709 2,101 4,441 Impairment of intangible assets and tangible assets 680 680 Loss on disposal of property, plant and equipment 3 Profit on disposal of discontinued operation (14,000) Defined benefit scheme (1,500) (1,500) (3,000) Share-based payment expense 4,149 3,996 8,387 Translation adjustments (11) (34) (8) Interest income 102 258 514 Interest expense (35) (31) (65) Operating cash flows before movements in working capital 37,438 32,446 70,514 Decrease in payables and provisions (13,852) (58,204) (45,478) (Increase)/decrease in receivables and trading investments (6,975) 28,266 35,910 Cash generated by operating activities 16,611 2,508 60,946 Tax paid (3,605) (2,964) (8,913) Net cash inflow/(outflow) from operating activities 13,006 (456) 52,033 Cash and cash equivalents comprise cash at bank and bank overdrafts. 26 Brewin Dolphin Holdings PLC
16. Discontinued operations The disposal of Stocktrade (discontinued operation) completed in the year to. The results of the discontinued operation, included in the Consolidated Income Statement, were as follows: Revenue Expenses Operating profit Costs of separation Profit before tax 000 000 000 3,234 3,379 (2,691) (3,339) 543 40 (313) (10) 230 30 Attributable tax expense (194) (43) Profit/(loss) after tax 36 (13) Profit on disposal of discontinued operations 14,000 Attributable tax expense (2,592) Net profit attributable to discontinued operations (attributable to the equity holders of the parent) 36 11,395 Costs of separation consist of the following items: Impairment 000 000 000 Intangible see note 8 (345) (345) Tangible see note 9 (335) (335) Onerous contract release 448 680 Other (81) (10) Total costs of separation (313) (10) Stocktrade contributed the following cash flows included within the Consolidated Cash Flow Statement: 000 000 000 Net cash outflows from operating activities (2,490) (8,206) Net cash flows from investing activities 14,000 Net (decrease)/increase in cash and cash equivalents (2,490) 5,794 brewin.co.uk 27