BRW.L Regulatory News (BRW)

19 May 2016

Brewin Dolphin Holdings PLC

Interim Management Report

For the Half Year Ended 31 March 2016

Highlights1

1 Continuing operations.

2 These figures have been adjusted to exclude redundancy costs, FSCS levy rebate, onerous contracts, one-off

migration costs, disposal of available-for-sale investment and amortisation of client relationships.

3 See note 7.

BDeclaration of Interim Dividend

The Board declares an interim dividend of 3.85p per share. The interim dividend is payable on 17 June 2016 to shareholders on the register at the close of business on 27 May 2016 with an ex-dividend date of 26 May 2016.

David Nicol, Chief Executive, said:

"The first half saw further growth in our core business as well as continued progress towards achieving our long-term strategic goals. Despite challenging market conditions, we maintained recent growth rates in our discretionary business, while also moving firmly to execution stage on many of the growth initiatives we outlined in 2015.

In the current market context, and given the short-term outflows resulting from business restructuring, the first half reflects a creditable performance. The underlying ability of the business to sustain organic growth, despite the poor market environment, is a reminder of the sound footings on which we are building our growth ambitions. The Group is in hiring mode and focused on a balance of direct and intermediary-led growth to increase discretionary funds by a third over the next five years." 

For further information:

Notes to Editors:

Brewin Dolphin is one of the UK's leading independent providers of discretionary wealth management. We offer award-winning personalised wealth management services that meet the varied needs of over 100,000 account holders, including individuals, charities, and pension funds.

Our focus on discretionary investment management has led to growth in client funds and we now manage £25.9 billion on a discretionary basis. In line with the premium we place on personal relationships, we have built a network of 28 offices across the UK, Channel Islands and the Republic of Ireland, staffed by qualified investment managers and financial planners. We are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients' needs at the core.

Interim Management Report

To the members of Brewin Dolphin Holdings PLC

First half review

The first half saw further growth in our core business as well as continued progress towards achieving our long-term strategic goals. Despite challenging market conditions, we maintained recent growth rates in our discretionary business, while also moving firmly to execution stage on many of the growth initiatives we outlined at our capital markets day in 2015.

Organic discretionary funds growth remained robust in the period, despite the impact of volatile investment markets. Financial planning revenues rose as clients continued to seek our advice-led service. Our intermediaries business continued to grow across both bespoke and model solutions, benefiting from the on-going trend of advice firms outsourcing their investment management needs.

In January, we announced five new appointments to the Executive Committee, increasing the direct participation of client-facing colleagues and redoubling our focus on growth. The new team has reviewed and revalidated our commercial priorities and progress has tangibly accelerated across a variety of growth initiatives.

We have developed and soft launched two new wealth management services; a service for family lawyers and their clients and a service for corporate advisors and their clients. Both will be formally launched in the second half. These professional services propositions will be supported by a dedicated specialist team and a promising pipeline of business is already evident.

Our recently launched 'entry level' non-advised investment service, 'Brewin Portfolio Service', is attracting new funds and is now available beyond the existing client base. Further enhancements to the service are on track to be delivered in the second half, including automated account opening and a fully developed web portal and app.

Our award-winning managed portfolio service is now available on 10 platforms and 94 new adviser firms have signed up to the service in the last six months, as reflected in growth in funds which now stand at £0.9bn. A passive version of the service is due to launch in the second half of the year, along with a direct access platform for this service to further expand accessibility for intermediaries.

Work has also continued on developing our marketing capability and brand awareness to support direct client growth. A structured programme for attracting new and growing existing clients has been implemented which centres on events and content that are specific to each target audience.

The development of our operating model to ensure scalability to support growth continued in the first half. Further restructuring has taken place creating larger client-facing teams and increasing efficiency in portfolio management. The refocusing of the business and run-off of non-core services allowed further rationalisation of our business support functions.

Having completed the rationalisation of our regional office network and established the right culture and organisational structure, we have begun to actively expand our client-facing resources by hiring investment managers and financial planners. In particular, our regional structure allows us to efficiently take advantage of growth opportunities and increase the appeal of the Group to new recruits.

We opened a new office in Cambridge in February, the first stage of growth plans for our South East region.

The volatile market conditions experienced in the second half of the year ended 30 September 2015 intensified in the first half of this financial year, with the FTSE touching multiyear lows in February 2016. This volatility, coupled with an absence of overall growth in equity markets since the peaks of April 2015, provided a challenging backdrop to both business growth and short-term financial performance.

In this context, and given the short-term outflows that result from the recent business restructuring, the results for the first half reflect a creditable performance. In particular, the underlying ability of the business to sustain organic funds inflows, despite the poor market environment, is a reminder of the sound footings on which we are building our growth ambitions.

The sale of Stocktrade completed on 29 April 2016, with disposal proceeds of £14m received. The sale commenced in 2015, aligning with our strategy of focusing on our core wealth management business.

Results and business performance

Adjusted profit before tax for the half year ended 31 March 2016 of £28.4m (H1 2015: £32.4m) was 12.3% lower year-on-year; with an adjusted PBT margin of 20.7% (H1 2015: 22.6%), the fall is primarily attributable to lower other income.

1 Core income is defined as income derived from discretionary investment management, financial planning and execution only.

2 These figures have been adjusted to exclude redundancy costs, FSCS levy rebate, onerous contracts, one-off migration costs, disposal of available-for-sale investment and amortisation of client relationships.

3 Exceptional costs include redundancy costs, FSCS levy rebate, onerous contracts and one-off migration costs.

4 See note 7.

Core income grew 0.9% to £126.1m (H1 2015: £125.0m), in a period of volatile market conditions. The average FTSE WMA Private Investor Series Balanced Portfolio Index was 3,520 on our quarterly billing dates in 2016, compared to 3,612 in 2015, a decrease of 2.5%.

The impact of lower average markets has been offset by organic discretionary funds growth and growth in financial planning. Financial planning income increased by 11.0% to £8.1m (H1 2015: £7.3m).

Income is analysed as follows:

Whilst core income grew, the blended discretionary revenue margin of 87bps has fallen slightly (H1 2015: 88bps) with a change in business mix with intermediaries business becoming a more significant growth area. Transaction volumes remain subdued due to challenging market conditions.

Other income is lower at £11.1m, down 39.7% from H1 2015 (£18.4m), impacted by outflows from our advisory business as the Group continues to focus on higher quality discretionary wealth management services. Trail income of £1.8m (H1 2015: £2.5m) is expected to be fully removed in the second half of the year.

Fixed operating costs remained broadly flat at £86.3m (H1 2015: £85.9m). Variable staff costs declined in line with business performance.

The reduction in adjusted operating profit of 12.1% to £28.2m (H1 2015: £32.1m) was predominantly as a result of lower non-core income.

Profit before tax for the period was £21.5m (H1 2015: £37.2m), a fall of 42.2% compared to H1 2015 which was elevated by a one-off gain of £9.7m.

Exceptional costs of £3.6m (H1 2015: £0.3m credit) included higher redundancy expenses and one-off migration costs.

Amortisation of intangible client relationships reduced by 36.5% to £3.3m (H1 2015: £5.2m).

The interim dividend has been increased to 3.85p per share (2015 interim: 3.75p per share) and will be paid on 17 June 2016.

Funds

The Group continues its strategy of focusing on discretionary wealth and investment management with discretionary funds growing to £25.9bn, up 4.4% in the period. This compares to an increase of 3.9% in the FTSE WMA Private Investor Series Balanced Portfolio Index.

Total funds by service category

Funds flow by service category

Discretionary funds by channel

Continued development of the agent business and model solutions combined with direct organic growth resulted in discretionary funds inflows, excluding transfers, of £1.1bn (H1 2015: £1.1bn). 45% (£0.5bn) of the discretionary inflows were from direct clients; 36% (£0.4bn) from bespoke agent clients and 19% (£0.2bn) from the managed portfolio service. Net discretionary inflows of £0.4bn represent an annualised 3.2% growth rate (H1 2015 4.2%).

Total outflows across all service categories are in line with prior periods; with £0.2bn of elevated outflows resulting from the office restructuring over the last eighteen months.

As anticipated, advisory funds continued to fall with a 22.9% annualised reduction. The rate of outflows is expected to decline over time.

Capital

The Group has a strong balance sheet with cash balances at period end of £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. In accordance with our normal practice, it is intended that the final dividend will be used to reflect full year profitability.

An interim dividend of 3.85p per share is payable on 17 June 2016 to shareholders on the register at the close of business on 27 May 2016 with an ex-dividend date of 26 May 2016.

The variable final dividend will be based on the full year target dividend payout ratio of 60% to 80% adjusted earnings per share.

Going concern

As stated in note 1 to the condensed set of 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 financial statements. In forming their view, the Directors have considered the Group's prospects for a period exceeding 12 months from the date the condensed financial statements are approved.

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 30 to 33 of the 2015 Annual Report and Accounts available via our website www.brewin.co.uk.

Board changes

Stephen Ford stepped down from the Board with effect from 8 January 2016 and the Board is grateful for his significant contribution to Brewin's success over the past 15 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

While investment markets remain challenging into the second half of the financial year, we remain confident in continuing to attract clients to our advice-led core business while also progressing growth initiatives. The Group is in hiring mode and focused on a balance of direct and intermediary-led growth to increase discretionary funds by a third over the next five years.

Condensed Consolidated Income Statement

for the period ended 31 March 2016

Condensed Consolidated Statement of Comprehensive Income

for the period ended 31 March 2016

Condensed Consolidated Statement of Changes in Equity

for the period ended 31 March 2016

Condensed Consolidated Balance Sheet

as at 31 March 2016

Condensed Consolidated Cash Flow Statement

for the period ended 31 March 2016

For the purposes of the cash flow statement, cash and cash equivalents include bank overdrafts.

Notes to the Condensed Set of Financial Statements

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 31 March 2016 should be read in conjunction with the annual audited financial statements of Brewin Dolphin Holdings PLC for the period ended 30 September 2015.

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 amounts of changes in estimates of amounts reported in the annual audited financial statements of Brewin Dolphin Holdings PLC for the period ended 30 September 2015.

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 period ended 30 September 2015.

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.

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 18 May 2016.

A copy of this Interim Financial Report including Condensed Financial Statements for the period ended 31 March 2016 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 30 September 2015 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.

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. 

In December 2014, the Group disposed of its holding of 19,899 shares in Euroclear Plc for a cash consideration of £10,147,000 and recognised a gain on disposal of £9,712,000. £9,565,000 of the gain, gross of deferred tax (£1,913,000), was recycled from the revaluation reserve.

The Group calculates the period income tax expense using the tax rate that would be applicable to the expected total annual earnings.

The calculation of the basic and diluted earnings per share is based on the following data: