CAY.L Regulatory News (CAY)

12 Jun 2008 07:00



12 June 2008

CHARLES STANLEY GROUP PLC

RESULTS FOR THE YEAR ENDED 31 MARCH 2008

Charles Stanley is one of the UK's leading independent full service stockbroking, corporate finance and wealth management groups. Today it announces its preliminary results for the year ended 31 March 2008.

Highlights:

Funds under management and administration up by £0.4 billion (4%) to £11.0 billion (2007: £10.6 billion)

Discretionary funds under management up by £0.5 billion (19%) to £3.1 billion (2007: £2.6 billion)

Total dividend up by 6% to 8.60p (2007: 8.10p)

New branches opened in Exeter, Guildford and Bristol

Acquisition of Garrison Investment Analysis Ltd

Acquisition of Truro Stockbrokers and the private client business of Insinger de Beaufort and the opening of a new branch in Leeds, after the year end

Commenting on the outlook Sir David Howard, Chairman said:

"Charles Stanley is pleased to report a resilient performance against what became an increasingly challenging background during the past year. Charles Stanley is a very broadly-based and deep rooted business, and in such circumstances we have been able to build the Group by careful acquisition."

For further information please contact: 

CHAIRMAN'S STATEMENT

In announcing our results for the year ended 31 March 2008 Charles Stanley Group is pleased to report a

resilient performance against the challenging background of the past year. Our income in the 12 month

rose by 7.5% from £98.2 million in the year ended 31 March 2007 to a new record of £105.6 million. While we report our profit before tax for the year at £12.4 million compared with £17.6 million for 2006-07, the

difference is attributable to one-off costs of our programme of acquisition activity, and to the difference in

the value of investment disposals. If these two factors are left out of account for both years we would now be reporting a pre-tax profit of £16.7 million for the latest year compared with £17.2 million for 2006-07.

At 31 March 2008 the investment funds which we manage or administer for clients have risen from £10.6 billion at the beginning of the year to £11.0 billion. Within this figure the funds which we manage on a discretionary basis for clients have risen from £2.6 billion to £3.1 billion.

Our acquisition programme has continued during the year. I reported in my statement to shareholders last

year that, just after the year-end, we had completed the acquisition of our new Exeter office and had been

joined by a substantial team of stockbrokers in Guildford and another in London. We announced in June

2007 that we had purchased 75.1% of Garrison Investment Analysis Ltd, a leading financial intermediary

based in Beverley, East Yorkshire, for approximately £6 million, with an agreement to purchase the

balance for approximately £2 million in 2009. We reached agreement on 4 April 2008, to purchase Truro

Stockbrokers who will join us at the end of July 2008. Subsequently on 18 April 2008 we agreed to

purchase the private client business of Insinger de Beaufort Ltd which is based in London and will be

joining us at the end of June 2008.

Despite significant acquisition activity, we have maintained a strong cash balance, which at 31 March 2008 stood at £32.5 million (31 March 2007: £42.3 million).

In the light of these results we propose increasing the final dividend from 6.25p per share to 6.50p. Taken together with the increased interim dividend of 2.10p this will make a total dividend for the year of 8.60p, an increase of 6.2% on last year's total dividend of 8.10p. The dividend will be paid on 7 August 2008 to shareholders registered on 11 July 2008.

Review of the year

Charles Stanley Group provides a comprehensive range of investment, wealth management and financial planning services to retail, institutional and corporate clients. We continued to expand and develop these services during the year.

Traditionally a stockbroking business reliant on commission income, we have been steadily re-balancing

our revenue stream in favour of fees. In the latest year fee income represented 44.2% of total revenue,

compared to 39.1% in 2006-07 and 37.7% in 2005-06.

The volume of private client stock exchange transactions, nationally, has continued to drift during the year,

and our own volume, at 2.2% lower than in 2006-07, mirrors the general trend. However, the rising value of

our clients' transactions reduced the impact of this, and our private client commission income was almost unchanged, at some 0.4% lower, at £48.6 million compared to £48.8 million in 2006-07.

By contrast, our investment management and administration fees again moved ahead strongly. A detailed analysis of the funds which we manage or administer for clients is shown below. This reflects two of our key objectives, to grow the total figure of funds under management and administration, and to re-balance the composition increasingly in favour of discretionary management. The overall figure for funds under management and administration grew by 3.8% from £10.6 billion to £11.0 billion, and within this figure the discretionary funds increased by 19.2% from £2.6 billion to £3.1 billion. Of the March 2008 total, some £1.1 billion represents funds transferred to us on the acquisition of new businesses. The balance of the funds declined in value during the year by 6.6%, which compares favourably with a decline over the same period of 9.6% in the FTSE-100 Index and of 10.9% in the FT All Share Index.

During the year we have undertaken a major review of our fee and commission-charging structures, and changes will be phased in over a two-year period. This is intended to simplify our charging arrangements, given the range of legacy rates that we have acquired over the years, and to provide greater clarity for our clients. One consequence of aligning our charges more accurately to the growing depth and breadth of the bespoke service that we provide is that we look to increase the fee margin further.

The value of clients' investment assets for which we charge administration rather than investment management fees remained stable at £5.0 billion. Thanks to continuing growth in the services that we offer, both organically and by way of acquisition (for example Garrison Investment Analysis Ltd), our administration fee income increased by 28.8% from £17.0 million to £21.9 million.

Our financial services department, which comprises EBS (Pensions Administration), Garrison Investment Analysis, Financial Planning and Benefit Consultancy, has shown a further year of growth with revenues rising to £8.4 million compared with £5.9 million in the prior year.

This has been a year of transition within the department with a considerable change in the way that the business is now being transacted given the changes in legislation over the past year. These changes have meant that considerably less business is now being transacted through life companies and the focus of the department has been targeted towards asset gathering and pensions, with long term income streams as opposed to initial commissions from product.

Garrison Investment Analysis was acquired during June 2007 and in the 10 months since acquisition contributed £2.1 million of revenue and an excellent operating margin.

EBS has had a good year in terms of SIPP take on with over 400 SIPPs being added during the period, bringing the total to nearly 2,000 at the year end. £79 million of transfers were made into the SIPPs we control together with contributions of over £25 million.

Charles Stanley Securities

Charles Stanley Securities, our small and mid cap advisory and institutional broking division, had another good year, particularly in light of the more challenging stock market environment for small cap equity fund raisings. Revenues for the year were similar to the prior year at £13.6m (2007: £13.9m).

23 transactions were completed during the period, including 4 IPO's, 6 secondary fund raisings, 1 pre-IPO and 12 advisory based transactions. Our retained client list is now 51 companies.

During the same period, we have continued to expand further the scale of research coverage of non-house stocks to grow the level of secondary commission.

MiFID and Basel 2

My previous statements have outlined the very extensive work programme for implementing the new European Union Directive requirements for financial businesses, known as "MiFID", and for the changes in regulatory financial requirements known collectively as "Basel 2". MiFID duly came into force in November 2007, following, in our case, a very heavy programme of client contact and systems changes. I should like to reiterate the thanks that I expressed when we issued our half-year figures, last November, for the excellent and good-humoured response by our clients, and for the great efforts by so many of our staff in making this exercise a success. 

Changes to our Articles of Association

In addition to the usual resolutions for consideration at our forthcoming Annual General Meeting you will find an additional resolution which seeks your support for a number of minor changes which are required, or made possible, by the Companies Act 2006. The notes at the back of our Annual Report explain these changes in more detail.

The quality of our service

Charles Stanley continues to grow, with more people and branches, and an increasing range of services

to discerning investors. We have been delighted to welcome many more clients during 2007-08. The

emphasis throughout is on the quality of our service. Our resilience in difficult market conditions is

testament to the strength of the individual relationships with our clients which are at the heart of our

business. This was reinforced by two further significant awards that we received during the year, the

Shares Magazine Award for Best Discretionary Stockbroker, 2007, and the Investors Chronicle Award for

Best Execution Stockbroker for Financial Security, 2007.

These results reflect another year of hard work and dedication from everyone at Charles Stanley. Once

again, on behalf of shareholders, I express thanks to everyone who has contributed so strongly to these

results. 

Outlook

When I reported to you this time last year I said that I was surprised that, on the whole, things had turned out better than I had expected. The latest year, by contrast, has turned out rather worse than I had hoped. The bursting of the credit bubble, with unrestrained lending to some unsuitable borrowers, has led to a shock reaction in which the freezing of credit has brought parts of the economic system close to a stand-still. The effects are now working through to the broader economy, and it is impossible at this stage to tell how long or how deep the adverse impact will be. 

The way in which we respond to the deterioration in economic conditions is equally important. Charles Stanley is a very broadly-based and deep-rooted business, and in such circumstances we have been able to build the company by careful acquisition. 

But, as in the past, this requires us to take a medium to long-term view. While trading in the first two

months of the current year is in line with our expectations I cannot predict whether, over the year ahead,

background conditions are going to improve, stay as they are, or get worse. In the circumstances I can

only re-iterate that we have a sound business, we are well capitalised and we have a large and loyal

clientele, and we are well-placed both for a down-turn and for the eventual recovery.

Sir David Howard

Chairman

CHARLES STANLEY GROUP PLC

FUNDS UNDER MANAGEMENT AND ADMINISTRATION

Charles Stanley Group PLC

Consolidated Income Statement

Year ended 31 March 2008

Earnings per Share 

Statement of Recognised Income and Expense

Charles Stanley Group PLC

Consolidated Balance Sheet

31 March 2008

Charles Stanley Group PLC

Consolidated Cash Flow Statement

Year ended 31 March 2008

Charles Stanley Group PLC

Notes to the Financial Statements

General information

Basis of preparation

The results are an abridged extract from the financial statements for the year ended 31 March 2008, which have not yet been delivered to the Registrar of Companies. The auditors' report on the full financial statements has yet to be signed.

The results have been prepared on a basis consistent with the accounting policies set out in the statutory financial statements for the year ended 31 March 2007. The financial information as set out in this report is unaudited and does not comprise statutory accounts for the purposes of Section 240 of the Companies Act 1985. 

The comparative figures for the year ended 31 March 2007 have been taken from, but do not constitute, the Company's statutory financial statements for that financial year. Those financial statements have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report was unqualified.

1 Underlying profit before tax and underlying earnings

The Board believes that a truer reflection of the performance of the Group's on-going business is given by the measure "Underlying Profit before Tax", which represents operating profit plus net interest but excludes profit on the disposal of available for sale investments, and the measure "Underlying Earnings", which represents underlying profit before tax less tax expense. These measures are also followed by the analyst community as benchmarks for the Group's on-going performance. The table below reconciles these measures to the reported income statement.

2 Revenue

3 Staff costs

The average number of persons employed (including Directors) during the year was 625 (2007: 555).

4 Operating profit

The following items have been included in arriving at operating profit:

5 Finance income - net

6 Taxation

7 Earnings per share

8 Dividends paid

In addition, the Directors are proposing a final dividend in respect of the year ended 31 March 2008 of 6.50p per share which will absorb an estimated £2.87 million of shareholders' funds. It will be paid on 7 August 2008 to shareholders who are on the register of members on 11 July 2008.

9 Goodwill

10 Intangible assets

11 Property, plant and equipment

12 Available for sale investments

13 Trade and other receivables

14 Cash and cash equivalents

At the balance sheet date there were also deposits for clients, not included in the consolidated balance sheet, which were held in trust in segregated bank accounts, amounting to £996 million (2007: £741 million).

15 Financial liabilities

16 Trade and other payables

17 Called up share capital

During the year 1,594,446 ordinary shares were issued fully paid for cash at 96p each and 4,703 ordinary shares were issued fully paid for cash at 287p each following the exercise of options by employees.

During the year part of the 4.5% convertible redeemable loan notes were redeemed and 148,374 ordinary shares were issued fully paid at £2.48 each.

On 31 March 2008 the following options have been granted and remain outstanding in respect of ordinary shares of 25p in the company under the company's Save As You Earn Scheme.

18 Reserves

19 Statement of changes in shareholders' equity

20 Reconciliation of net profit to cash generated from operations