TIDMCAY
RNS Number : 9482Z
Charles Stanley Group PLC
27 May 2021
27 May 2021
CAY.L
Charles Stanley Group PLC
("Charles Stanley" or "the Company" or "the Group")
Final results for the year ended 31 March 2021
Resilient Results and Encouraging Outlook
Key Points
Summary
-- Resilient performance and good progress made in delivering
strategy despite pandemic challenges
Financial:
-- Record level of Funds under Management and Administration
("FuMA") up 26.7% at year end to GBP25.6bn (2020: GBP20.2bn)
-- Revenue stable at GBP171.2m (2020: GBP173.0m) despite
a 68.8% reduction in interest income and lower average
FuMA at GBP23.2bn (2020: GBP24.2bn), which reflected stock
market disruption
-- Revenue margin improved to 74bps (2020: 72bps)
-- Record revenues for Financial Planning of GBP10.0m (2020:
GBP8.7m), up 14.9%
-- Underlying(1) profit before tax of GBP17.2m (2020: GBP19.3m)/
Reported profit before tax of GBP13.4m (2020: GBP17.3m)
-- Underlying(1) profit margin(2) of 10.0% (2020: 11.7%)
-- Underlying(1) EPS of 26.44p per share (2020: 31.41 pence
per share)/ Reported EPS of 20.16 pence per share (2020:
28.03 pence per share)
-- Balance sheet strengthened - cash balances up 12.7% to
GBP105.4m at year end (2020: GBP93.5m)
- net assets up 5.8% to GBP123.3m at year end (2020:
GBP116.5m)
- regulatory capital solvency ratio of 185% (2020:
189%) with capital resources of GBP100.6m (2020:
GBP94.1m)
-- Final dividend of 9.0p per share proposed, increasing
the total dividend by 33.3% to 12.0p per share (2020:
9.0p per share)
1 Underlying profit before tax and earnings per share excludes
exceptional restructuring costs, non-cash share options
and the amortisation of client lists.
2. This underlying pre-tax margin is based on the underlying
profit before tax excluding the charge in respect of non-cash
share options awarded to certain investment management
teams under revised remuneration arrangements settled
in 2017, expressed as a percentage of revenues.
Operational:
-- Effective transition to home working with high customer
service levels maintained
- client satisfaction score of 89% across all divisions
- 'Best Customer Service' award from Boring Money 2021
for Charles Stanley Direct
-- Ongoing transformation and restructuring programme has
delivered further operational gains
- IT infrastructure outsourcing completed, with digital
strategy in place to enhance client proposition
-- Partnership with MSCI to assign ESG scores to portfolios
-- New Central Financial Services division to be established
in new financial year to address client needs for simplified
advice as opposed to full service discretionary management
- division will incorporate model portfolio services,
foundation financial planning and execution-only services
Outlook:
-- Trading conditions are expected to remain positive
-- The Group remains well-positioned to continue delivering
its growth and efficiency initiatives , supported by a
strong balance sheet, with no debt and good cash flows
Paul Abberley, Chief Executive Officer, commented:
"Revenues and profits were inevitably impacted by market
conditions but the results highlight the resilience of the
business. This is a strong performance given the prevailing
economic circumstances.
Our transformation and restructuring programme has resulted in
continued operational efficiencies and productivity so we are
coming out of the pandemic strategically and operationally
stronger.
As we move through the new financial year, we will be continuing
with our growth and efficiency initiatives. In particular the
creation of a new division, Central Financial Services, to address
client needs not currently met in the marketplace is important.
We look forward to the coming year, confident of further
strategic and operational progress, and expect stock market
sentiment to remain positive."
Charles Stanley Group PLC LEI: 213800LBSEGKE5MCYC90
For further information, please contact:
Charles Stanley Canaccord Genuity Peel Hunt KTZ Communications
Siobhan Griffiths Emma Gabriel Andrew Buchanan Katie Tzouliadis
Via KTZ Communication 020 7523 8309 020 3597 8680 020 3178 6378
Notes to editors:
Charles Stanley provides holistic wealth management services to
private clients, charities, trusts and institutions. Its origins
trace back to 1792 and it is one of the oldest firms on the London
Stock Exchange. The Company has a national presence, with 26
locations and over 800 professionals. Its wealth management
services are provided direct to clients and to intermediaries.
Financial highlights:
2021 2020
Underlying profit before tax (GBPm) 17.2 19.3
Reported profit before tax (GBPm) 13.4 17.3
Underlying earnings per share (p) 26.44 31.41
Reported basic earnings per share (p) 20.16 28.03
Dividend per share (p) 12.0 9.0
--------------------------------------- ------ ------
Business highlights:
2021 2020
FuMA(1) (GBPbn) 25.6 20.2
Discretionary funds (GBPbn) 15.2 12.0
Revenue (GBPm) 171.2 173.0
Total net assets (GBPm) 123.3 116.5
Cash balances (GBPm) 105.4 93.5
----------------------------- ------ ------
Revenue by division:
2021 2020
Investment Management Services (GBPm) 151.6 154.8
Financial Planning (GBPm) 10.0 8.7
Charles Stanley Direct (GBPm) 9.6 9.5
--------------------------------------- ------ ------
Financial calendar:
Results announcement 27 May
2021
Ex-dividend date for final dividend 10 June
2021
Final dividend record date 11 June
2021
Deadline for elections under DRIP(2) 18 June
2021
Annual General Meeting 12 July
2021
Final dividend payment date 19 July
2021
------------------------------------- --------
(1) Funds under Management and Administration.
(2) Dividend Reinvestment Plan.
Chairman's statement
Despite an unprecedented external environment, Charles Stanley
has delivered a resilient set of results. We made good progress in
delivering our strategy whilst maintaining and improving upon
delivery of our high touch, personal service to clients.
The past year has been dominated by the COVID-19 pandemic, which
resulted in unprecedented emergency measures by governments. I am
proud of the Group's exemplary response to this critical situation.
Our IT department in particular has ensured the firm's operations
have been unaffected as we moved to ensure staff safety while
maintaining the smooth running of all our services for clients. We
are pleased not to have needed to furlough any staff or use
Government funding schemes during the year.
It is difficult to predict the full long-term impact of the
COVID-19 pandemic on the UK economy and investment markets.
However, the past year has demonstrated both the resilience of our
business model - our people, systems and clients - and the Group's
capacity to innovate and change.
Financial results
Funds under Management and Administration (FuMA) increased by
26.7% to GBP25.6 billion as at 31 March 2021 (2020: GBP20.2
billion). This represents an increase to the level seen before the
COVID-19 pandemic which affected global markets during the last
quarter of the prior financial year. The Group's average FuMA for
the year was marginally lower at GBP23.2 billion (2020: GBP24.2
billion).
Reflecting lower average FuMA, Group revenues for the year ended
31 March 2021 declined by 1.0% to GBP171.2 million (2020: GBP173.0
million). Fee and commission income increased by 0.8% for
Investment Management Services, but overall revenues for the
division declined by 2.1% to GBP151.6 million (2020: GBP154.8
million) due to lower interest income. Financial Planning delivered
a strong improvement with revenues up 14.9% to GBP10.0 million
(2020: GBP8.7 million); and Charles Stanley Direct increased its
revenues by 1.1% to GBP9.6 million (2020: GBP9.5 million) thanks to
trading commissions up 60%, more than offsetting lower interest
income.
Reported profit before tax decreased by 22.5% to GBP13.4 million
(2020: GBP17.3 million), whereas underlying profit before tax
decreased by 10.9% to GBP17.2 million (2020: GBP19.3 million).
The Group's cash balances remained strong, ending the year 12.7%
higher at GBP105.4 million (2020: GBP93.5 million). Likewise, our
regulatory capital solvency ratio is robust at 185%.
Governance
Adherence to regulatory standards and the management of conduct
risk have remained our priorities. This helps to ensure excellent
client outcomes and to demonstrate transparency and value to our
clients. Our strong Governance structure has enabled us to invest
the significant resources needed to meet the complexities of the
evolving regulatory agenda, such as those relating to ESG,
Stewardship, Product Governance and the incoming prudential regime
for investment firms.
Risk
Our 'three lines of defence' model, which enables us to
continuously manage risk and improve systems and controls across
the firm, has served us well over the last tumultuous year. Working
alongside this, we continued to identify the risks facing the
Group, and to manage them to ensure we maintained sufficient
capital. We worked to strengthen our operational resilience in the
face of disruption and continued to prioritise cyber security in
response to an increase in financial crime during lockdown.
Culture
In a year dominated by the global health emergency, the
wellbeing of our staff has been a top priority. I am pleased to
report that the year's staff engagement survey showed an
improvement in our staff engagement score, which rose to an upper
quartile score of 79% from 75%. The number of women in senior roles
also increased again to 37.1% from 36.6%. This is a significant
change from the figure of 28% when we signed the HM Treasury Women
in Finance Charter in 2017.
In alignment with our values, we rose to the challenges
presented by COVID-19 by building on our work in the communities in
which we operate. We established the CS Community, which provided
practical support for vulnerable clients and maintained and created
connections during a period of significant disruption.
Board changes
Having joined the Board in 2012, Bridget Guerin stepped down as
Non-Executive Director on 30 September 2020 and she left with our
thanks and best wishes for the future. We were delighted to welcome
Anna Troup, who joined as Non-Executive Director on 1 October
2020.
Dividend
The Board is pleased to recommend a final dividend of 9.0 pence
per share (2020: 6.0 pence per share). Together with the interim
dividend of 3.0 pence per share, this takes the total dividend for
the year to 12.0 pence per share, an increase of 33.3% on the prior
year (2020: 9.0 pence per share).
Outlook
With Brexit behind us, the vaccine rollout providing glimmers of
light at the end of the pandemic tunnel and strong pro-cyclical
policy support over the next 12-18 months envisaged, we may see the
strongest global growth since the 1980s. Market sentiment is
improving as the prospects for corporate earnings remain positive
and central bank policy accommodation is likely to continue until
there is clear evidence of a self-sustaining recovery.
The future direction of our marketplace is positive, with some
people using lockdown to get into a better financial position by
paying down debt and saving and investing. While recognising the
considerable external risks that remain, we are cautiously
optimistic that demand for wealth management services will continue
to be buoyant, creating positive long-term prospects for
growth.
Charles Stanley's transformation programme is well underway and
we are in a good position to drive greater efficiencies and to
develop new methods of engaging with and supporting existing and
new clients, as the need for advice continues. The creation of the
new Central Financial Services division is another step forward
with this goal.
The Group continues to generate good cash flows, carries no
debt, has a healthy balance sheet and a high level of regulatory
capital resources.
Finally, on behalf of the Board, I would like to extend our
thanks to all our staff for their contribution to these excellent
results, particularly in the face of exceptionally difficult
conditions.
Sir David Howard
Chairman
26 May 2021
Chief Executive Officer's report
I am encouraged by our progress and resilient performance amidst
global disruption, and would like to pay tribute to the
adaptability and focus of my colleagues who have risen to the many
challenges
presented over the last year. This dedication, together with our
continued strategic momentum, leaves us very well positioned for
the year ahead.
We entered the crisis with significant momentum which enabled us
to continue to deliver the initiatives we had planned over the
period and to continue to innovate across the firm. By acting with
speed and flexibility we were able to continue serving our clients
effectively and have emerged a stronger and more resilient
business. Indeed, one of the unexpected consequences of the
pandemic has been finding new ways to serve our clients more
efficiently.
Financial performance
Revenues and profits were inevitably impacted by market
conditions, but the results highlight the resilience of the
business and were ahead of market expectations. Underlying profit
before tax decreased by 10.9% year on year to GBP17.2 million
(2020: GBP19.3 million) and underlying
earnings per share (EPS) by 15.8% to 26.44 pence (2020: 31.41
pence).
On a reported basis, profit before tax was GBP13.4 million
(2020: GBP17.3 million) and earnings per share was 20.16 pence
(2020: 28.03 pence).
We remain focused on translating the high standard of
qualitative delivery across the business into strong financial
results within the current financial year.
Strategy implementation
We have made encouraging progress during a testing year. Our
transformation and restructuring programme has resulted in
continued operational efficiencies and improved productivity so we
are coming out of the pandemic strategically and operationally
stronger.
While we are known for our high quality personal service, we
also recognise the opportunity to serve that client segment for
whom cost, technology and known outcomes take priority.
Additionally, we felt it important to help provide a simplified
advice offering to those clients seeking a service between full
Discretionary investment management and Execution-Only. To address
this growing sector of the market, we have created a new division
called Central Financial Services which includes both existing and
new offerings for which the central value proposition is outcome
focused.
We have completed the outsourcing of our ICT infrastructure and
prioritised further investment in technology. A digital strategy
has been developed to provide a framework for our broad range of
digital initiatives, both in progress and planned. These are
creating efficiencies and boosting functionality, from improving
our client experience to helping us move to a hybrid working model
and upgrading systems for our client-facing professionals.
We are pleased to report that we have improved on our metrics to
be the UK's leading wealth manager with increased levels of client
satisfaction, higher staff engagement scores, and continued
delivery of top quartile shareholder returns.
We successfully adapted to a dramatically different working
environment and no employees were furloughed or made redundant as a
result of COVID-19. We are planning our roadmap and model for a
gradual return to the workplace, while recognising that patterns of
traditional work and interactions with clients may not
fundamentally change in the near future. We intend to retain and
embed many of the positive learnings that emerged during our
navigation of the pandemic.
Delivering exceptionally high levels of bespoke client service
through our Investment Management and Financial Planning teams
remains our central focus. Complementing these, Central Financial
Services brings a suite of centrally-managed products and services
under one umbrella.
As part of our strategy to centralise systems and processes, we
launched a comprehensive, centrally-led learning and development
programme, aligned with the delivery of our corporate strategy and
objectives.
We have always considered non-financial factors in our
investment decision-making and we have enhanced this by partnering
with MSCI, allowing us to assign an ESG score to our portfolios.
Use of our competitively priced Model Portfolio Service continues
to rise and we have added ESG ratings, underpinning our commitment
to advisers who are seeking greater value for money, while
responding to changing client needs.
We have maintained our unrelenting scrutiny on costs and
efficiencies, and looking ahead, we remain focused on our financial
resilience and high levels of liquidity. We look forward to the
coming year with confidence, as we emerge through the pandemic
stronger and well placed to help our clients navigate the
uncertainties ahead.
Paul Abberley
Chief Executive Officer
26 May 2021
Chief Financial Officer's review of the year
Charles Stanley delivered a resilient performance, exemplifying
the strength of the business model and quality of client service.
Fee and commission revenues were ahead of the prior year despite
lower average FuMA, while underlying profit declined marginally due
to lower interest income.
Overview of financial year 2021 results
The Group's reported revenues for the year remained stable at
GBP171.2 million (2020: GBP173.0 million), despite lower average
FuMA. Fee income rose 3.2% and commission income by 1.5%,
substantially offsetting a 68.8% reduction in interest income due
to lower base rates.
Underlying expenditure was little changed at GBP153.7 million
(2020: GBP153.2 million). Rising costs associated with IT and
professional fees were offset by lower variable compensation. Total
net finance costs of GBP0.8 million have been recognised, primarily
due to finance lease costs.
Underlying profits decreased by 10.9% to GBP17.2 million (2020:
GBP19.3 million) and the underlying pre-tax profit margin from
11.7% to 10.0%.
Exceptional expenditure, accounted for as adjusting items,
amounted to GBP3.8 million (2020: GBP2.0 million). Impairments were
recognised in respect of freehold property (GBP0.6 million) and
intangible client relationships (GBP0.7 million). As with prior
years, the ongoing amortisation of client relationships was treated
as an adjusting item, accounting for GBP1.3 million (2020: GBP1.2
million), while expenditure related to the transformation projects
was GBP1.3 million (2020: GBP3.5 million).
Reported profit before tax (PBT) for the financial year was
GBP13.4 million (2020: GBP17.3 million). The reported profit margin
was 7.8% (2020: 10.0%).
Despite lower levels of profit, the Group's balance sheet has
continued to strengthen. At year end, the Group had net assets of
GBP123.3 million (2020: GBP116.5 million), cash of GBP105.4 million
(2020: GBP93.5 million including Treasury Bills) and regulatory
capital resources at 185% of the requirement.
Funds under Management and Administration
The Group's revenue is substantially driven by the level of its
FuMA. Average FuMA for the year was 4.1% lower than the prior year
at GBP23.2 billion (2020: GBP24.2 billion), reflecting the stressed
market conditions during the COVID-19 pandemic. A gradual recovery
in markets from the level of FuMA at the beginning of the financial
year was accelerated by positive news surrounding vaccines in the
second half. This led to Group FuMA increasing year on year by
26.7% and finishing at a record level of GBP25.6 billion at 31
March 2021 (2020: GBP20.2 billion).
FuMA movement
2021 2020 Change
GBPbn GBPbn %
As at 31 March
Discretionary funds 15.2 12.0 26.7
Advisory Managed funds 1.3 1.2 8.3
Total managed funds 16.5 13.2 25.0
------------------------------------------------- ------ ------ -------
Advisory Dealing funds 1.2 1.0 20.0
Execution-only funds 7.9 6.0 31.7
Total administered funds 9.1 7.0 30.0
------------------------------------------------- ------ ------ -------
Total Funds under Management and Administration 25.6 20.2 26.7
------------------------------------------------- ------ ------ -------
MSCI PIMFA Private Investor Balanced
Index 1,704 1,423 19.7
------------------------------------------------- ------ ------ -------
Group results and performance
The following tables show the Group's financial performance for
the year ended 31 March 2021 and for the prior year, reconciling
the underlying performance to the statutory reported results. The
Board primarily considers underlying measures when assessing the
performance of the Group.
Underlying Adjusting Reported
Performance items performance
GBPm GBPm GBPm
31 March 2021
Revenue 171.2 - 171.2
Expenses (153.7) (3.3) (157.0)
-------------------------- ------------ ---------- ------------
Operating profit/(loss) 17.5 (3.3) 14.2
Net finance and other
non-operating costs (0.3) (0.5) (0.8)
-------------------------- ------------ ---------- ------------
Profit/(loss) before tax 17.2 (3.8) 13.4
Tax (expense)/credit (3.5) 0.6 (2.9)
-------------------------- ------------ ---------- ------------
Profit/(loss) after tax 13.7 (3.2) 10.5
-------------------------- ------------ ---------- ------------
Basic earnings per share
(p) 26.44 - 20.16
-------------------------- ------------ ---------- ------------
Pre-tax profit margin(1)
(%) 10.0 - 7.8
-------------------------- ------------ ---------- ------------
31 March 2020
Revenue 173.0 - 173.0
Expenses (153.2) (2.0) (155.2)
Other income 0.1 - 0.1
-------------------------- ------------ ---------- ------------
Operating profit/(loss) 19.9 (2.0) 17.9
Net finance and other
non-operating costs (0.6) - (0.6)
-------------------------- ------------ ---------- ------------
Profit/(loss) before tax 19.3 (2.0) 17.3
Tax (expense)/credit (3.4) 0.3 (3.1)
-------------------------- ------------ ---------- ------------
Profit/(loss) after tax 15.9 (1.7) 14.2
-------------------------- ------------ ---------- ------------
Basic earnings per share
(p) 31.41 - 28.03
-------------------------- ------------ ---------- ------------
Pre-tax profit margin(1)
(%) 11.7 - 10.0
-------------------------- ------------ ---------- ------------
1. In the prior year, the underlying pre-tax profit margin was
adjusted for non-cash share-based option arrangements awarded to
certain investment management teams under revised remuneration
arrangements settled in 2017. This is based on the underlying
profit before tax of GBP17.2 million (2020: GBP19.3 million)
adjusted for a charge of nil (2020: GBP1.0million).
2.
Revenue
Revenues fell marginally by 1.0% in the year to GBP171.2 million
(2020: GBP173.0 million). Increases in fee income, particularly
related to administration fees and financial planning fees,
combined with exceptional commission income, contributed to the
resilient performance. Given that average FuMA during the year was
4.1% lower and that interest income fell by 68.8%, this represents
a strong result.
Revenue excluding interest and other income was GBP167.4 million
for the year, up GBP4.5 million (2.8%) from GBP162.9 million in the
prior year. The change in the composition of the Group's revenues
is shown in the table below. Fee income now accounts for 74.2% of
Group revenues and grew by 3.2% over the year to GBP127.1 million.
Commission income grew by 1.3% to GBP40.3 million and represents
23.5% of Group revenues.
2021 2020
GBPm GBPm
Fees 127.1 123.1
Commission 40.3 39.8
Interest and other income 3.8 10.1
--------------------------- ------ ------
Total 171.2 173.0
--------------------------- ------ ------
Underlying expenditure
Underlying expenditure was flat overall, increasing by a modest
GBP0.5 million (0.3%) on the prior year to GBP153.7 million (2020:
GBP153.2 million). Staff-related costs fell by GBP3.9 million due
to a reduction in variable compensation (GBP4.2 million lower),
share-based payments (GBP1.0 million lower), contractor costs
(GBP0.2 million lower) and an increase in fixed compensation
(GBP1.5 million higher). Non-staff costs increased by GBP4.4
million, principally due to rising IT costs (GBP4.7 million higher)
and a GBP1.1 million increase in the Financial Services
Compensation Scheme (FSCS) Levy. Other non-staff costs fell by
GBP1.4 million.
Underlying pre-tax profit
Underlying profit before tax decreased to GBP17.2 million (2020:
GBP19.3 million) largely as a result of the lower revenues
associated with interest income.
Adjusting items
The Board considers underlying profit before tax and earnings
per share when assessing the performance of the Group. To calculate
the underlying results, the Board has excluded certain adjusting
items totalling a net charge of GBP3.8 million (2020: GBP2.0
million). An explanation of these adjusting items, together with a
reconciliation of profits, is provided below:
2021 2020
GBPm GBPm
Underlying profit before tax 17.2 19.3
Restructuring costs (1.3) (3.5)
Amortisation of client relationships(1) (1.3) (1.2)
Impairment of client relationships (0.7) -
Fair value adjustment of contingent consideration 0.1 -
Impairment of freehold property (0.6) -
Net other one-off gains in the prior year - 2.7
Net charge from adjusting items (3.8) (2.0)
--------------------------------------------------- ------ ------
Reported profit before tax 13.4 17.3
--------------------------------------------------- ------ ------
(1) These adjusting items are included within administrative
expenses in the consolidated income statement.
2021 2020
GBPm GBPm
Reported operating profit 14.2 17.9
Depreciation 4.3 4.1
Amortisation 1.3 1.5
Earnings before interest, tax, depreciation
and amortisation (EBITDA) 19.8 23.5
--------------------------------------------- ----- -----
Restructuring costs (GBP1.3 million charge)
As part of the Group's stated objectives, the Group continues to
undertake a number of initiatives to improve productivity and
operational efficiency. As previously announced, these are focused
on three elements: IT, front office and middle office. Costs to
date on these projects have been removed from underlying results
and are reported separately on the consolidated income statement as
exceptional charges.
Total restructuring costs for FY 2021 amounted to GBP1.3
million, taking the total incurred on the projects over the past
two years to GBP4.8 million. The majority of costs to date were
provided for in the prior year, particularly in relation to the
outsourcing of our IT infrastructure. A successful transition of
services was carried out in June 2020, though some additional costs
were incurred in the current year. These have arisen because the
COVID-19 pandemic has delayed the completion of the planned
migration of data centres, which in turn has led to higher than
planned double running costs. Savings generated from the
restructuring were GBP1.2 million and annualised are GBP2.5
million.
Our project to embed continuous improvement in front office
performance is largely complete. However, the third aspect, to
drive operational efficiency through standardisation of process,
remains a work in progress. This is the most complex project, being
a joint endeavour between the front and middle offices, which in
the first instance involved the creation of a centralised middle
office, defining operable standard practices, developing systems
and providing training to support its uptake and generating
comprehensive management information to track progress and drive
further improvement. The majority of this foundation work, which
required investment, has now been completed. The next stage is to
drive cost savings. We expect further exceptional costs of GBP1.6
million for the remainder of the programme. We remain on track to
deliver overall annualised benefits of GBP4.5 million although the
full fruits may not be seen until FY 2024.
Amortisation of client relationships (GBP1.3 million charge)
Payments made for the introduction of client 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 underlying
profit since it is a significant non-cash item.
Impairment of client relationships (GBP0.7 million charge)
An impairment charge has been made for client relationships
associated with the Myddleton Croft Limited cash generating unit
(CGU). The impairment was recognised due to a reduction in the
CGU's FuMA since acquisition.
Fair value adjustment for contingent consideration (GBP0.1
million credit)
Contingent consideration comprises amounts payable for the
acquisition of Myddleton Croft Limited, which was completed in FY
2020. The fair value is determined based on future forecasts and
multiples set out in the Sale and Purchase Agreement. This is
revised each reporting period, with changes in the fair value
recognised in the consolidated income statement.
Impairment of freehold property (GBP0.6 million charge)
The Group carried out an independent valuation of its freehold
property in line with the accounting policy to assess the fair
value of assets held under the revaluation model periodically.
Impairment charges were recognised in the consolidated income
statement in respect of two properties, whereby the carrying value
of the property exceeded the fair value.
Net other one-off gains in prior year (GBP2.7 million
credit)
The net gain of GBP2.7 million recognised as an adjusting item
in the prior financial year consisted of a credit recognised in
respect of Investment Management Services non-cash share options
that were deemed unlikely to vest (GBP3.0 million credit) and an
impairment to goodwill (GBP0.3 million charge).
Current divisional structure reviews
The tables below show the underlying results broken into the
Group's three main historic operating divisions: Investment
Management Services, Charles Stanley Direct and Financial Planning.
This represents the operating divisions reported to the Board
throughout the current and prior financial year.
Investment Financial Charles Underlying
Management Planning Stanley performance
Services Direct
GBPm GBPm GBPm GBPm
31 March 2021
Revenue 151.6 10.0 9.6 171.2
Expenditure (131.1) (14.1) (8.5) (153.7)
------------------------- ------------ ---------- --------- -------------
Operating profit/(loss) 20.5 (4.1) 1.1 17.5
Net finance and
other
non-operating costs (0.3) - - (0.3)
Profit/(loss) before
tax 20.2 (4.1) 1.1 17.2
------------------------- ------------ ---------- --------- -------------
Investment Financial Charles Underlying
Management Planning Stanley performance
Services Direct
GBPm GBPm GBPm GBPm
31 March 2020
Revenue 154.8 8.7 9.5 173.0
Expenditure (131.5) (13.8) (7.9) (153.2)
Other income 0.1 - - 0.1
------------------------- ------------ ---------- --------- -------------
Operating profit/(loss) 23.4 (5.1) 1.6 19.9
Net finance and
other
non-operating costs (0.6) - - (0.6)
Profit/(loss) before
tax 22.8 (5.1) 1.6 19.3
------------------------- ------------ ---------- --------- -------------
Investment Management Services
Trading review
The financial performance of the Investment Management Services
division is determined 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.
2021 2020
GBPbn GBPbn
Average FuMA 19.6 20.7
------------------------------------------------ ---------- ----------
2021 2020
GBPm GBPm
Revenue 151.6 154.8
Direct costs:
Fixed staff costs (20.6) (20.9)
Variable staff costs (44.8) (48.2)
IMs share option charge - (1.0)
Other direct operating expenses (14.9) (12.4)
Other income - 0.1
------------------------------------------------ ---------- ----------
Contribution 71.3 72.4
Allocated costs (50.8) (49.0)
Operating profit 20.5 23.4
------------------------------------------------ ---------- ----------
KPIs: 2021 2020
Average discretionary funds per Certification GBP77.0m GBP61.3m
Staff
Discretionary funds as a percentage of total
FuMA 70.7% 69.8%
Discretionary average client account portfolio GBP372k GBP294k
size
Discretionary revenue margin 87bps 87bps
Total revenue margin 77bps 75bps
Staff costs to revenue ratio(1) 43.1% 44.6%
Other costs to revenue ratio 43.3% 39.6%
Operating margin(1) 13.5% 15.8%
------------------------------------------------ ---------- ----------
(1) Excluding the effect of charges for the investment managers'
share options. As per the Direct costs analysis, the charge for the
current year was nil (2020: GBP1.0 million), therefore impacting FY
2020 but not FY 2021.
Reflecting market conditions during the year, the division's
average FuMA decreased by 5.3% to GBP19.6 billion (2020: GBP20.7
billion). Despite this reduction, overall revenues for the year
only reduced by 2.1%, as fee and commission income grew by 1.0% to
GBP149.2 million (2020: GBP147.7 million), helping mitigate a
GBP4.8 million reduction of interest income. Revenue margins
remained comparable to the prior year. In comparison to average
FuMA, the division's total FuMA of GBP21.5 billion at 31 March 2021
was up 25.0% compared to the prior year, leaving it well placed for
the new financial year.
The division's total costs decreased marginally by 0.3% to
GBP131.1 million, with lower staff costs compensating for higher
other operating costs.
As a result of lower revenues, the division's overall operating
margin decreased to 13.5% (2020: 15.8%).
Discretionary funds continue to represent a high and growing
proportion of the division's FuMA, accounting for 70.7% (2020:
69.8%). The number of certification staff within the division was
stable and therefore growth in the average size of Discretionary
client accounts and the average Discretionary funds is encouraging
for improving operational efficiency of the division.
Financial Planning
Trading review
The Group has continued to invest in its Financial Planning
division as a core component of its wealth management offering to
clients. This has led to revenues (excluding investment management
fees, which are credited to the Investment Management Services
division) growing by 14.9%. A reduction in total direct costs,
coupled with rising revenue, has led to an improved contribution.
After the absorption of a larger share of central overheads, a
lower reported operating loss of GBP4.1 million (2020: GBP5.1
million) was achieved.
2021 2020
GBPm GBPm
Revenue 10.0 8.7
Direct costs:
Fixed staff costs (7.2) (6.7)
Variable staff costs (1.4) (1.7)
Other direct operating expenses (1.8) (2.2)
-------------------------------------- -------- --------
Contribution (0.4) (1.9)
Allocated costs (3.7) (3.2)
-------------------------------------- --------
Operating loss (4.1) (5.1)
-------------------------------------- -------- --------
KPIs: 2021 2020
Average number of financial planners 29 27
Revenue per financial planner (1) GBP338k GBP330k
Operating margin (41.0%) (58.6%)
-------------------------------------- -------- --------
(1) This calculation is based on annualised revenues divided by
average number of financial planners in the year.
Financial Planning's loss has been anticipated as a near-term
consequence of investment in the recruitment of financial planners,
as illustrated by rising fixed staff costs. Once full productivity
is achieved, the Group should benefit from greater asset inflows,
greater share of wallet and enhanced client retention as the
service satisfies a fundamental client demand. In turn, this should
lead to the division generating profits.
Despite the operating loss position, there have been
improvements in the cross-selling between Financial Planning and
Investment Management Services. FuMA held in Investment Management
Services, introduced by Financial Planning, grew by 42.9% in FY
2021 from GBP0.7 billion to GBP1.0 billion. These funds have
contributed GBP5.4 million of revenues for the Investment
Management Services division.
Charles Stanley Direct
Trading review
As an online platform, Charles Stanley Direct's financial
performance is highly operationally geared both to the value of
Assets under Administration (AuA) on the platform and to interest
rates. Owing to the reduction in central bank base rates, interest
income fell by 71.4% from GBP2.1 million to GBP0.6 million. Despite
this, overall revenues increased by GBP0.1 million to GBP9.6
million as a result of significantly higher commission income of
58.8%, arising from a 62% increase in equity trading activity.
2021 2020
GBPm GBPm
Revenue 9.6 9.5
Direct costs:
Fixed staff costs (0.9) (0.9)
Variable staff costs - (0.2)
Other direct operating expenses (3.2) (2.9)
--------------------------------- ------ ------
Contribution 5.5 5.5
Allocated costs (4.4) (3.9)
Operating profit 1.1 1.6
--------------------------------- ------ ------
KPIs: 2021 2020
AuA GBP3.8bn GBP2.7bn
AuA growth 40.7% (10.0%)
Average AuA GBP3.3bn GBP3.1bn
Revenue margin 29bps 30bps
Operating margin 11.5% 16.8%
------------------ --------- ---------
Average AuA increased by 6.5% to GBP3.3 billion (2020: GBP3.1
billion). At 31 March 2021 the division's assets had grown by 40.7%
compared to 31 March 2020. The FTSE All Share index increased by
23.3% over the same period.
While Charles Stanley Direct's overall contribution to group
profits remained flat at GBP5.5 million, an increase in allocated
costs resulted in lower operating profit of GBP1.1 million (2020:
GBP1.6 million).
AuA are largely dominated by client holdings in ISAs and
Investment Accounts, which jointly account for 78.6% (2020: 73.9%)
of funds held by the division.
New divisional structure reviews
As set out in the Strategic report, immediately following the
financial year end the Group carried out a reorganisation of its
front office divisions to reflect a new operating structure. The
tables below show the underlying results broken into the Group's
three new operating divisions as restructured: Investment
Management Services, Financial Planning Services and Central
Financial Services.
These divisions will represent the main operating divisions and
operating segments of the Group for reporting periods beginning on
and after 1 April 2021. The following tables are shown to
illustrate how the results would appear under the new model if it
had been in place last year:
Investment Financial Central Underlying
Management Planning Financial performance
Services(1) Services(2) Services
(3)
GBPm GBPm GBPm GBPm
31 March 2021
Revenue 138.6 10.0 22.6 171.2
Expenditure (122.1) (14.1) (17.5) (153.7)
------------------------------- ------------- ------------- ----------- -------------
Operating profit/(loss) 16.5 (4.1) 5.1 17.5
Net finance and
other
non-operating (costs)/income (0.4) - 0.1 (0.3)
Profit/(loss) before
tax 16.1 (4.1) 5.2 17.2
------------------------------- ------------- ------------- ----------- -------------
Investment Financial Central Underlying
Management Planning Financial performance
Services(1) Services(2) Services
(3)
GBPm GBPm GBPm GBPm
31 March 2020
Revenue 141.9 8.7 22.4 173.0
Expenditure (121.1) (13.8) (18.3) (153.2)
Other income 0.1 - - 0.1
------------------------- ------------- ------------- ----------- -------------
Operating profit/(loss) 20.9 (5.1) 4.1 19.9
Net finance and
other
non-operating costs (0.6) - - (0.6)
Profit/(loss) before
tax 20.3 (5.1) 4.1 19.3
------------------------- ------------- ------------- ----------- -------------
(1) Investment Management Services division excludes performance
of Asset Management services and other miscellaneous services,
which have transferred to the Central Financial Services division.
The results of the new Investment Management Services division
therefore differ from the historic Investment Management Services
division.
(2) Financial Planning Services division is unchanged from the
previous structure and therefore the results are the same as the
current divisional analysis.
(3) Central Financial Services division comprises Charles
Stanley Direct, the Telephone Execution-only service and Asset
Management operations previously rolled up into Investment
Management Services, and the newly-launched Foundation Planning
service.
Support Functions
The costs incurred by the Group's Support Functions are either
charged directly to the three main operating divisions, or
recharged as an allocated cost. Support Functions' costs were
GBP56.0 million (2020: GBP52.6 million), reflecting an increase of
6.5% on the prior year. The main drivers of the increase were
rising IT costs associated with continuing digitalisation of the
business and the outsourcing of the IT support function.
Taxation
The corporation tax charge for the year was GBP2.9 million
(2020: GBP3.1 million), representing an effective tax rate of 21.6%
(2020: 17.9%). 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 was
20.16 pence (2020: 28.03 pence). The underlying basic earnings per
share decreased from 31.41 pence to 26.13 pence.
Financial position
The Group maintained its strong financial position with total
net assets at 31 March 2021 of GBP123.3 million (2020: GBP116.5
million). Cash and cash equivalents amounted to GBP105.4 million
(2020: GBP93.5 million, including GBP5.0 million of Treasury
Bills).
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 showed a reduced deficit at 31 March 2021 of GBP3.2
million (2020: GBP5.1 million). The decrease in the scheme's
deficit is attributable to changes in actuarial assumptions,
investment performance and contributions made by the Group to the
scheme.
Regulatory capital resources
Charles Stanley & Co. Limited (CSC), 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 2021,
the Group had regulatory capital resources of GBP100.6 million
(2020: GBP94.1 million) and its regulatory capital solvency ratio
stood at 185% (2020: 189%).
2021 2020
GBPm GBPm
Ordinary share capital(1) 12.3 12.5
Share premium 5.2 5.2
Retained earnings (net of dividends) 85.9 77.1
Other reserves 15.2 15.2
Regulatory adjustments(2) (18.0) (15.9)
Total regulatory capital resources 100.6 94.1
-------------------------------------- ------- -------
(1) This represents ordinary share capital less own shares
acquired by the Employee Benefit Trust (EBT), which are treated as
a deduction from equity. The ordinary share capital for regulatory
capital purposes has reduced in FY 2021 compared to FY 2020 as a
result of additional share purchases made by the EBT.
(2) Regulatory adjustments include deductions for intangible
assets, revaluation reserves and certain deferred tax assets.
The Group monitors a range of capital and liquidity statistics
on a daily, weekly and monthly basis.
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 full review of the
ICAAP conducted and signed off by the Board was in September 2020.
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 (charles-stanley.co.uk) which provides further
details about the Group's regulatory capital resources and
requirements.
Financial outlook
There is some light at the end of the pandemic tunnel although
the situation varies tremendously on a country by country basis.
Within the UK restrictions have begun to be lifted. With a backdrop
of strongly pro-cyclical policy support, over the next 12-18 months
we may well see the strongest global growth for decades. Against
this background investors are naturally worried that a cyclical
rise in inflation could become more sustained and the recent rise
in government borrowing costs could begin to unsettle equity
markets more broadly. However, we consider that the prospects for
corporate earnings, with a generally benign central bank framework,
may lead to an improvement in market values over the next year.
Since the financial year end, markets have increased marginally
leading to a 3.9% rise in FuMA to GBP26.6 billion as at 30 April
2021. There has been little market volatility leading to marginally
lower commission income compared with the same period last year. We
do not expect to see any significant change in interest rates and,
accordingly, do not expect any recovery in this revenue stream for
the next financial year.
We are also navigating through any return to office working and
this will, to a large extent, be decided by government advice and
requirements. We have demonstrated that remote working leads to
innovative client service and we expect this trend to continue
alongside more traditional forms of engagement. We do not expect to
see a full return to the office environment, nor will staff be
expected to remain at home. It is rather more likely that a hybrid
model will evolve, and this will be to the benefit of both clients
and staff. While remote working has engendered greater flexibility
for the Group, there
is a risk that long-term collaboration is not as effective
without face-to-face meetings. We are also actively exploring
opportunities to rationalise our real estate where and when it is
practicable to do so, although the fruits may not be seen within
the next financial year owing to the timing of when leases fall for
renewal.
It is, therefore, with a degree of cautious optimism that we
approach the current year. Absent a major resurgence of COVID-19
and further lockdown, markets appear well supported. We have a
strategy for developing top-line growth supported by the launch of
the Central Financial Services division and accompanying Group
digital roadmap. The IT reorganisation is expected to be completed
by the autumn and attention is being given to driving efficiencies
from the standardisation programme. While continued investment is
required across the Group and inflationary cost pressures are
mounting, we can look forward to the long-term future with
confidence.
Dividends
The Board's objective is to maintain a progressive dividend
policy and 2x cover over the cycle. Last year and in light of the
prevailing market outlook, the Board constrained the total dividend
to 9p per share, which was 3.1x covered by reported earnings.
Trading for the past year has been much better than initially
anticipated and the Group's resources have continued to strengthen.
Furthermore, the current outlook is stable. Accordingly, the Board
proposes a final dividend of 9.0 pence per share (2020: 6.0 pence
per share). Considering the interim dividend of 3.0 pence per
share, this results in a total dividend for the year of 12.0 pence
per share (2020: 9.0 pence per share). The proposed total dividend
is 1.68 times covered by basic reported earnings and 2.20 times
covered by basic underlying earnings. The recommended final
dividend is subject to shareholders' approval, which will be sought
at the Company's Annual General Meeting (AGM) on 12 July 2021.
Risk management and principal risks
The Group's risk management framework is designed to enable
Senior Management and the Board to draw assurance that risks are
being appropriately identified and managed in line with our risk
appetite.
We deploy a 'three lines of defence' risk governance model,
whereby the business is responsible for risk taking within the
parameters of our risk appetite and accountable for managing risks
in line with our risk policies. The control functions led by the
Chief Risk Officer and Head of Compliance provide objective
challenge and guidance on risk matters, with Group Internal Audit
providing independent assurance on the effectiveness of business
risk management and the overall operation of the risk
framework.
The core elements of our risk framework are set out below.
Governance and Responsibility framework
The Board is committed to high standards of corporate
governance, which it considers are critical to business integrity
and to maintaining shareholders' confidence that Charles Stanley is
a well-managed and responsible Company. In order to ensure the
highest standards of corporate governance are observed, the Company
operates within a Governance Framework as set out in the Governance
introduction of the Annual Report and Accounts.
The Board is ultimately accountable for risk management and
regularly considers the most significant risks and emerging threats
to the group's strategy and objectives. In addition, the Group's
risk and audit committees exercise further oversight of and
challenge to existing risk management and internal control. The
Board delegates day-to-day responsibility for managing risk across
the business to the Chief Executive Officer and the Executive
committees.
Risk culture
The Board is responsible for setting a strong risk culture with
a clear and consistent tone from the top and, through our Senior
Management team, encouraging appropriate behaviours and
collaboration on managing risks across the business. Risk
management is accepted as being part of everyone's day-to-day
responsibilities and is linked to performance.
Risk management framework and appetite
Charles Stanley's approach to risk management is documented in
the Group Risk Policy and the Risk Appetite Statements (RAS), which
are challenged and approved by the Board on an annual basis. The
RAS takes into consideration the Group's strategic objectives and
business plans. It underpins the implementation of robust risk
monitoring and reporting.
Risk identification and assessment
Review Process
Charles Stanley operates a risk identification and assessment
process under which all our businesses regularly consider changes
in the profile of existing emerging risks. The assessment process
evaluates the risks that are inherent in our business processes and
products and as well as those presented from changes in the
environments in which we operate.
Scenario planning and stress testing
Charles Stanley undertakes regular scenario analysis of emerging
and uncertain future events to assess possible outcomes and to
develop proactive management responses in order to strengthen its
operational and financial resilience.
Stress tests include consideration of severe but plausible
events or changes in economic circumstances that could impact the
viability of the firm and defining proportionate management
responses to avoid or reduce the impact or occurrence of the
underlying risks.
Internal Capital Adequacy and Liquidity Assessment
The Board and Senior Management are actively involved in a
continuous risk assessment process as part of our risk management
framework, supported by the ICAAP and Liquidity Management
Framework, which assesses the risks to which Charles Stanley is
exposed and an evaluation of the sufficiency of resources to
sustain the business strategy over the horizon of the Group
plan.
Risk management information
Charles Stanley's risk management information framework is
structured to report and support the review of ongoing and emerging
risks and assess actual risk positions relative to the risk limits
and targets that we set.
Risk oversight
The Group's Chief Risk Officer and his team, who are independent
of the business line, support the Board and its Risk Committee in
articulating acceptable risk taking and ensuring the effective
operation of our risk and capital framework. This includes ongoing
assessment of the Group's capital requirements to confirm that they
meet regulatory solvency requirements.
The Group Chief Risk Officer also provides objective challenge
and guidance on a range of risk matters to business managers,
including the risks implicit in product developments, business
transactions and new products or services, and strategies for
managing risks in line with the Group's overall risk appetite.
Responding to COVID-19
Given our agile operating model, strong capital and liquidity
position, the Group has continued to provide a high level of
service to our clients, while ensuring the wellbeing and safety of
our staff during the global pandemic.
With the hope of a successful vaccination campaign and a gradual
return to some form of normality in the UK, the business is
reviewing the future working arrangements for our staff with a view
to maximising business opportunities while retaining a robust
process and control oversight.
Emerging risks
Emerging risks, including legislative and regulatory change,
which have the potential to impact the Group and delivery of our
strategic objectives, are monitored through our watch list. During
the year, the Executive Committee continued to recognise and
respond to a number of emerging risks and threats to the financial
services sector and to our business.
While the threat of prolonged economic uncertainty appears to
have receded with the roll-out of the COVID-19 vaccine and the
Brexit trade deal agreed with the EU, the Group's view is that we
can reasonably expect current market conditions and uncertainties
to remain throughout 2021.
The Board and Executive Committee members also recognise that
actions will be required to implement the new prudential regime for
investment firms in 2022 which will introduce new requirements and
may require some adjustments to our business model and remuneration
model. We will also need to better understand longer-term climate
change risks, both physical and transitional, along with
sustainability risks associated with our strategy, business model
and operations.
Whilst evolving risks currently remain stable they continue to
include cyber threats, changing regulatory expectations and further
scenarios potentially arising from geopolitical developments, along
with continuing tensions and uncertainty around global trade.
Principal risks
Business Model and Strategy
The risk that the business model and strategy do not respond
in an optimal manner to changing market conditions such that
sustainable growth, market share or profitability are adversely
impacted.
Oversight Key mitigants and controls Example of Metrics
-------------------------------------------------------------------- ----------------------------------
Board
* Stress testing and reverse stress testing are * Strategic KPIs
undertaken as part of the ICAAP to assess their
impacts on the business model and strategy
* Revenues and budgets
* The Board considers emerging and top risks to the
business as part of the Group's strategic plans
-------------------------------------------------------------------- ----------------------------------
Trend
* Apart from the creation of the new Central Financial
Services division, no material changes have been made
to the business model and strategy
-------------------------------------------------------------------- ----------------------------------
Financial strength
The risk that the Group fails to maintain sufficient financial
strength in order to support business objectives, meet regulatory
capital requirements and provide shareholders with an acceptable
return.
Oversight Key mitigants and controls Example of Metrics
-------------------------------------------------------------------- ----------------------------------
Board
* To achieve our financial goals, a series of risk * Operating margin
appetite limits have been set which are monitored by
the Board on a regular basis
* Regulatory capital
* Target dividend cover
-------------------------------------------------------------------- ----------------------------------
Trend
* While the Group's financial results were impacted by
the COVID-19 crisis, the business has performed
resiliently with both revenue and profits at
encouraging levels. The Group has maintained a strong
financial position
-------------------------------------------------------------------- ----------------------------------
Liquidity
The risk that the Group, although solvent, either does not
have available sufficient financial resources to enable it
to meet its obligations as they fall due, or can only secure
such resources at excessive cost.
Oversight Key mitigants and controls Example of Metrics
-------------------------------------------------------------------- ----------------------------------
Treasury
Committee * The Group ensures that all legal entities have * Amount of cash on call
sufficient funds to meet their liabilities as they
fall due
* Daily cash flow monitoring
* Liquidity risk framework and stress testing
* Contingency funding plans
-------------------------------------------------------------------- ----------------------------------
Trend
* The Group's available liquid resources have continued
to improve and were GBP67.4 million at 31 March 2021
with no borrowings
-------------------------------------------------------------------- ----------------------------------
Market
The risk of losses arising as a result of exposure to market
movements, including foreign exchange and interest rates.
Oversight Key mitigants and controls Example of Metrics
------------------------------------------------------------ ----------------------------------------------------------
Treasury
Committee * Charles Stanley does not hold any proprietary * Foreign current exposures
positions other than a limited investment portfolio
in its own name for the purpose of operating a model
portfolio * Interest rate modelling
* 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
and to make payments to foreign suppliers.
------------------------------------------------------------ ----------------------------------------------------------
Trend
* Group's market exposure risk is limited and remains
constant
------------------------------------------------------------ ----------------------------------------------------------
Credit and counterparty
The risk that clients or counterparties fail to fulfil their
contractual obligations.
Oversight Key mitigants and controls Example of Metrics
------------------------------------------------------------ ----------------------------------------------------------
Treasury
Committee/ * Charles Stanley does not offer any formal lines of * Banking counterparties diversification
Market credit to clients, therefore its exposure to credit
Exposure risk resides in the failure of its clients and
Committee counterparties to fulfil their contractual * Trading counterparties exposure limits
(MEC) obligations
* Aggregated defined exposure limit
* Assets will only be placed and maintained with
authorised institutions
* Daily trading volume
* Trading counterparties reviewed annually and given
defined exposure limits which are monitored by the
MEC
* Breaches of any counterparty trading limits without
approval must be escalated immediately to the MEC
------------------------------------------------------------ ----------------------------------------------------------
Trend
* Strong internal controls mitigate the exposure to
failing counterparties, therefore the risk remains
constant despite the heightened levels of market
activity in recent month
------------------------------------------------------------ ----------------------------------------------------------
Pension Obligation
The risk that the cost of the Group's defined benefit pension
scheme ("the scheme") increases, or its valuation affects dividends,
reserves and capital. This would materialise when the pension
obligations exceed the assets set aside to cover them.
Oversight Key mitigants and controls Example of Metrics
------------------------------------------------------------ ----------------------------------------------------------
Board
* The scheme is closed to new members and ceased * Defined benefit scheme deficit
accruing for existing members at 31 March 2016. It is
reviewed regularly for viability and to remain within
an agreed deficit level * Funding level
* The Group works closely with the trustees of the
scheme to reduce the deficit and, where possible,
match investments with future liabilities
------------------------------------------------------------ ----------------------------------------------------------
Trend
* The trend is down due to contributions made by the
company, Cash Equivalent Transfer Values (CETVs) and
investment performance. Over recent years, the
deficit has been gradually reducing as the agreed
upon deficit reduction programme and flight path have
been followed
------------------------------------------------------------ ----------------------------------------------------------
Operational Resilience and IT infrastructure
The risk that a material failure of business processes or IT
infrastructure may result in unanticipated financial loss,
harm to clients or reputational damage.
Oversight Key mitigants and controls Example of Metrics
------------------------------------------------------------ ----------------------------------------------------------
Board Risk
Committee/ * Operational resilience framework in place to maintain * Dealing losses
Enterprise the continuity of important business services
Risk
Committee * Operational losses
* Proactive identification, mitigation and oversight of
non-financial risks
* BCP tests
* Constructed framework of internal controls to
minimise the risk of unanticipated financial loss or * Penetration testing
potential harm
* ICT service availability
* 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 * 50+ risk indicators across all operational risks
------------------------------------------------------------ ----------------------------------------------------------
Trend
* The Group's Operational and IT infrastructure has
been extremely resilient throughout the current
pandemic. However, the potential risk of operational
disruption from the planned data centre migration and
changes to the working practices mean that the risk
remains stable
------------------------------------------------------------ ----------------------------------------------------------
IT Security and Cyber Security
The risk that Charles Stanley's system infrastructure is breached
by external counterparties with or without malicious intention.
Possible breaches could involve data theft, ransomware or a
shutdown of systems.
Oversight Key mitigants and controls Example of Metrics
------------------------------------------------------------ ----------------------------------------------------------
Board Risk
Committee/ * A set framework to prevent and detect unauthorised * Phishing tests
Enterprise access attempts to the Group's business systems
Risk
Committee * Anti-virus and system patching
* Develop systems which are resilient to current and
emerging threats and maintains a rolling programme of
activity which is informed by the day-to-day * 50+ risk indicators across all operational risks
experience, threat intelligence and any emerging
vulnerabilities identified
------------------------------------------------------------ ----------------------------------------------------------
Trend
* Rise of external threats and attempted attacks across
the industry
------------------------------------------------------------ ----------------------------------------------------------
People and Conduct
The risk that clients or the wider market, as opposed to the
Group, suffer detriment as a result of the Group's services,
products or activities.
Oversight Key mitigants and controls Example of Metrics
------------------------------------------------------------ ----------------------------------------------------------
Board Risk
Committee/ * Conduct & Culture Committee was instituted to provide * 18 conduct outcomes and 43 underlying risk measures
Conduct enhanced oversight
& Culture
Committee
* 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
* Careful monitoring of investment decision-making
against the risk profile ensures that we achieve
appropriate and suitable outcomes for our clients
* Comprehensive programme of staff training
------------------------------------------------------------ ----------------------------------------------------------
Trend
* Risk remains constant as we continue to embed the
Group's core values and the new Senior Manager &
Certification Regime (SMCR)
------------------------------------------------------------ ----------------------------------------------------------
Legal and Regulatory
The risk that clients or the wider market, as opposed to the
Group, suffer detriment as a result of the Group's services,
products or activities.
Oversight Key mitigants and controls Example of Metrics
------------------------------------------------------------ ----------------------------------------------------------
Board Risk
Committee/ * The risk is monitored and managed by emphasis on * Timeliness of regulatory returns
Enterprise compliance with all aspects of relevant regulation,
Risk including those of the FCA
Committee * Breach and complaints logs and monitoring
* Charles Stanley monitors changes in the regulatory
and legal agenda and has formal projects for major * Compensation payouts
changes to ensure their successful implementation
* Litigation cases
* The Group runs programmes to ensure all policies,
operating procedures and processes are compliant with
any new significant regulatory change requirements
------------------------------------------------------------ ----------------------------------------------------------
Trend
* The ongoing regulatory change environment including
the introduction of the new Investment Firm
Prudential Regime (IFPR) means that this risk remains
constant.
------------------------------------------------------------ ----------------------------------------------------------
Assessment of the Group's prospects and Viability statement
The Board aims to maintain and build a sustainable wealth
management business over the long term. The Board monitors a
three-year strategic plan that provides a robust planning tool
against which strategic decisions are made. This plan was discussed
at the Board's strategy meeting in February 2021, and approved on
24 April 2021.
The Group has demonstrated strong capital and liquidity
resilience throughout the pandemic and remains well positioned. We
have a strong balance sheet, with no debt and good cash flows.
However, the effects of the pandemic will be with us for some time
and uncertainties will continue as the government continues to
relax social distancing and the enforced closures of certain
business and social facilities, as the support measures of the
government and Bank of England start to reduce, and as new variants
of COVID-19 may continue to emerge.
The Directors have assessed the viability of the Group for a
period greater than the 12 months required by the going concern
statement. The Directors performed the assessment by reference to
the three-year plan to 31 March 2024. Three-years is considered
appropriate as it represents the period covered by the detailed
business plan, prepared annually on a rolling three-year basis.
The Board has reviewed detailed papers prepared by Management
that consider the Group's expected future profitability, dividend
policy, capital position and liquidity, both as they are expected
to be and under more severely stressed conditions. The stressed
scenarios reviewed include both a prolonged three year downturn in
capital markets and, separately, a resurgence of the COVID-19
pandemic. Unrelated idiosyncratic liquidity stress tests have been
overlaid as well. The Directors also considered what Management
actions could be taken in such circumstances, including reducing
discretionary expenditure where practicable to do so. It was
determined that the Group has sufficient liquidity to cover all
anticipated payments during that period.
The base case scenario for these stress tests were built on FuMA
levels as at 31 March 2021 and included single digit net organic
growth, no market growth and rising general overheads. The first
stress scenario anticipated a severe fall in market levels with
only a gradual recovery in years two and three, impacting
significantly on revenue from market-based fees as well as
commission and administrative income. Interest income was also
modelled to be negligible. Before any management actions are
taken
the Group would retain adequate liquidity and solvency
throughout and post-management actions the Group would be expected
to return to profitability in the second year and retain liquidity,
solvency and a regulatory capital surplus in excess of the current
requirement throughout the three year period modelled. A second
stress scenario was carried out modelling a less severe initial
fall in markets, followed by a modest recovery then curtailed by a
second dip. Post-management actions, the Group's capital surplus,
liquidity and solvency would be maintained.
The assumptions upon which the scenarios were modelled are based
on Management's own judgements, taking account of external
research, including a more pessimistic view than taken by the
'Rates Down' guidance provided by the Bank of England. The Board
has also reviewed the management actions that could be taken in
these scenarios.
The Board has taken account of reports from Management
concerning the operational resilience of the business which have
been updated to reflect the switch to remote home working in
compliance with government advice. The Board is satisfied that the
business can successfully operate in these conditions as it has
demonstrated since mandatory social distancing measures came into
force in March 2020. The majority of our staff are now working from
home, and our material outsourced suppliers continue to provide
their services - and we believe can continue to do so for an
indefinite period.
Finally, the Board has reviewed a reverse stress test analysis
to consider the length and depth that a recession would have to
reach to cause the Group to cease to be viable.
For the purpose of assessing the Group's viability, the
Directors have performed a robust assessment of the Group's
emerging principal risks where the impact of possible adverse
developments could be of such speed and severity to present a shock
to the Group's financial position. The risks considered are
detailed in the Principal risks and uncertainties section on pages
21 to 24. The Directors have also considered:
-- the quantity and quality of capital resources available to
support the delivery of the Group's objectives including
consideration of the effects of a changing regulatory landscape
together with the effect of the Group's capital contingency plan to
restore the capital position in scenarios of capital headwinds
-- the changes within the business executed in the last three
years, including the significant business restructuring, and the
planned changes over the coming 12 months
-- the annual information risk assessment together with the
technology roadmap for improvements in the technology
environment.
Based on the work performed and actions already taken by
Management to respond to the COVID-19 pandemic, the Directors
believe that the Group has adequate resources to continue in
operational existence for the period of at least 12 months from the
date of signing these accounts and therefore operate as a going
concern.
Furthermore, the Directors have a reasonable expectation that
the Group will be able to continue in operation as a viable entity
and meet its liabilities as they fall due over a period of at least
three years.
Consolidated income statement
Year ended 31 March 2021
Notes 2021 2020
GBP000 GBP000
Revenue 4 171,150 173,014
Administrative expenses 4 (154,948) (151,413)
Restructuring costs 5 (1,336) (3,472)
Impairment of intangible assets 9 (700) (349)
Other income 4 29 115
Operating profit 14,195 17,895
------------------------------------- ------ ---------- ----------
Loss on disposal of property, plant
and equipment (31) (18)
Impairment of freehold property (645) -
Fair value adjustment of contingent
consideration 121 -
Finance income 520 429
Finance costs (799) (984)
Net finance and other non-operating
income (834) (573)
------------------------------------- ------ ---------- ----------
Profit before tax 13,361 17,322
Tax expense 8 (2,888) (3,072)
Profit for the period attributable
to owners of the Parent Company 10,473 14,250
------------------------------------- ------ ---------- ----------
Earnings per share
Basic 6 20.16p 28.03p
Diluted 6 19.97p 27.51p
------------------------------------- ------ ---------- ----------
The results for each year relate to continuing activities. There
were no discontinued operations in either the current year or the
prior year.
Consolidated statement of comprehensive income
Year ended 31 March 2021
2021 2020
GBP000 GBP000
Profit for the period 10,473 14,250
Other comprehensive income
Items that will never be reclassified
to profit or loss
Remeasurement of the defined benefit
scheme obligation 1,449 1,379
Related tax (275) (121)
Fair value through other comprehensive
income financial assets - unrealised
gains and losses 1 1,896
Fair value through other comprehensive (925) -
income financial assets - realised loss
Related tax - deferred 815 (382)
Related tax - current (625) -
Other comprehensive income for the period,
net of tax 440 2,772
-------------------------------------------- ------- ---------
Total comprehensive income for the period
attributable to owners of the Parent
Company 10,913 17,022
-------------------------------------------- ------- ---------
Consolidated statement of financial position
As at 31 March 2021
Notes 2021 2020
Assets GBP000 GBP000
Intangible assets 9 18,475 20,013
Property, plant and equipment 14,526 18,175
Net deferred tax asset 1,314 1,182
Financial assets at fair value
through other comprehensive income 102 4,482
Financial assets at amortised
cost - 507
Non-current assets 34,417 44,359
-------------------------------------- ------ -------- --------
Trade and other receivables 230,662 203,838
Financial assets at fair value
through profit or loss 1,904 1,492
Financial assets at amortised
cost - 4,997
Cash and cash equivalents 105,387 88,477
Current tax assets 126 71
Current assets 338,079 298,875
-------------------------------------- ------ -------- --------
Total assets 372,496 343,234
-------------------------------------- ------ -------- --------
Equity
Share capital 13,029 12,784
Share premium 5,207 5,170
Own shares (724) (334)
Revaluation reserve 39 3,503
Merger relief reserve 15,167 15,167
Retained earnings 90,591 80,194
-------------------------------------- ------ -------- --------
Equity attributable to owners
of the Parent Company 123,309 116,484
Non-controlling interests 24 24
Total equity 123,333 116,508
-------------------------------------- ------ -------- --------
Liabilities
Employee benefits 3,198 5,080
Non-current trade and other payables - 404
Non-current lease liabilities 10 6,599 9,718
Non-current provisions 2,011 1,983
Non-current liabilities 11,808 17,185
-------------------------------------- ------ -------- --------
Trade and other payables 233,652 205,465
Current lease liabilities 10 3,087 2,825
Current provisions 616 1,251
Current liabilities 237,355 209,541
Total liabilities 249,163 226,726
-------------------------------------- ------ -------- --------
Total equity and liabilities 372,496 343,234
-------------------------------------- ------ -------- --------
The financial statements were approved and authorised for issue
by the Board of Charles Stanley Group PLC (company number 48796) on
26 May 2021.
Consolidated statement of changes in equity
Year ended 31 March 2021
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 2020 12,784 5,170 (334) 3,503 15,167 80,194 116,484 24 116,508
--------------------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Profit for the year - - - - - 10,473 10,473 - 10,473
--------------------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Other comprehensive
income:
Financial assets at fair
value
through other
comprehensive income:
- unrealised gains and
losses - - - 1 - - 1 - 1
- realised gains and
losses - - - (925) - - (925) - (925)
- related deferred tax - - - 815 - - 815 - 815
* related current tax - - - (625) - - (625) - (625)
Remeasurement of defined
benefit
scheme liability:
- actuarial gain in the
year - - - - - 1,449 1,449 - 1,449
- related deferred tax - - - - - (275) (275) - (275)
Total other comprehensive
income
for the year - - - (734) - 1,174 440 - 440
--------------------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Total comprehensive income
for
the year - - - (734) - 11,647 10,913 - 10,913
--------------------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Dividends paid - - - - - (4,688) (4,688) - (4,688)
Transfer between reserves - - - (2,730) - 2,730 - - -
Unclaimed dividends - - - - - 13 13 - 13
Shares transfer to
employees - - 57 - - (57) - - -
Own shares acquired - - (447) - - - (447) - (447)
Share-based payments:
- value of employee
services - - - - - 760 760 - 760
- issue of shares 245 37 - - - - 282 - 282
- related deferred tax - - - - - (8) (8) - (8)
31 March 2021 13,029 5,207 (724) 39 15,167 90,591 123,309 24 123,333
--------------------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Consolidated statement of changes in equity
Year ended 31 March 2020
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 2019 12,692 4,625 (201) 1,989 15,167 72,134 106,406 24 106,430
--------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Adjustment on
initial
application
of IFRS 16 - - - - - (1,043) (1,043) - (1,043)
--------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Profit for the
year - - - - - 14,250 14,250 - 14,250
--------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Other
comprehensive
income:
Financial
assets at fair
value
through other
comprehensive
income:
- unrealised
gains and
losses - - - 1,896 - - 1,896 - 1,896
- related
deferred tax - - - (382) - - (382) - (382)
Remeasurement
of defined
benefit
scheme
liability:
- actuarial
gain in the
year - - - - - 1,379 1,379 - 1,379
- related
deferred tax - - - - - (121) (121) - (121)
Total other
comprehensive
income
for the year - - - 1,514 - 1,258 2,772 - 2,772
--------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Total
comprehensive
income for
the year - - - 1,514 - 15,508 17,022 - 17,022
--------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Dividends paid - - - - - (4,574) (4,574) - (4,574)
Unclaimed
dividends - - - - - 12 12 - 12
Shares
transfer to
employees - - 80 - - (80) - - -
Own shares
acquired - - (213) - - - (213) - (213)
Share-based
payments:
- value of
employee
services - - - - - (1,783) (1,783) - (1,783)
- issue of
shares 92 545 - - - - 637 - 637
- related
deferred tax - - - - - 20 20 - 20
31 March 2020 12,784 5,170 (334) 3,503 15,167 80,194 116,484 24 116,508
--------------- -------- -------- ------- ------------- -------- --------- -------- ---------------- --------
Consolidated statement of cash flows
Year ended 31 March 2021
2021 2020
Notes GBP000 GBP000
Cash flows from operating activities
Cash generated from operating activities 12 21,597 25,849
Interest received 139 539
Interest paid - (60)
Tax paid (3,260) (3,801)
Net cash generated from operating
activities 18,476 22,527
------------------------------------------- ------ -------- ---------
Cash flows from investing activities
Acquisition of subsidiary - (1,785)
Acquisition of intangible assets (617) (676)
Purchase of property, plant and equipment (1,582) (1,570)
Purchase of financial assets (976) (40,904)
Proceeds from disposal of property,
plant and equipment 381 50
Proceeds from sale of financial assets 9,903 47,081
Dividends received 29 115
Net cash generated from investing
activities 7,138 2,311
------------------------------------------- ------ -------- ---------
Cash flows from financing activities
Proceeds from issue of ordinary share
capital 282 637
Purchase of own shares (447) (213)
Interest paid (799) (924)
Payment of lease liabilities (3,052) (2,498)
Dividends paid (4,688) (4,574)
Net cash used in financing activities (8,704) (7,572)
------------------------------------------- ------ -------- ---------
Net increase in cash and cash equivalents 16,910 17,266
------------------------------------------- ------ -------- ---------
Cash and cash equivalents at start
of year 88,477 71,211
------------------------------------------- ------ -------- ---------
Cash and cash equivalents at end
of year 105,387 88,477
------------------------------------------- ------ -------- ---------
The results for each year relate to continuing activities. There
were no discontinued operations in either the current year or the
prior year.
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 2021.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 March 2021 or
2020 but is derived from those accounts. Statutory accounts for
2020 have been delivered to the registrar of companies, and those
for 2021 will be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified, (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
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 2020 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 2021 Annual Report and Accounts will be posted to
shareholders during June 2021. 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. Basis of preparation and significant accounting policies
2. 1 Changes in accounting policies
The accounting policies adopted in the preparation of the
Group's Annual report and accounts are as set out above. They are
consistent with those followed in the preparation of the Group's
Annual report and accounts for the year ended 31 March 2020, except
for the mandatory standards and amendments that had an effective
date as of 1 April 2020.
2. 2 Changes in accounting standards
During the year, none of the new mandatory standards nor
amendments to existing IFRS standards had a material impact on the
reported financial position or performance of the Group.
Following the UK's exit from the EU on 1 January 2021, the Group
is required to report under UK-adopted IFRS as adopted and endorsed
by The UK Endorsement Board (UKEB). The Group will report under
UK-adopted IFRS from 1 April 2021. We do not anticipate any
material changes.
A number of new standards and amendments to standards and
interpretations are effective for periods beginning on or after 1
April 2021. These new standards are not applicable to these
financial statements and they are not expected to have a material
impact when they become effective. The Group plans to apply these
standards and amendments in the reporting period in which they
become effective.
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 Goodwill and intangible assets
For the purposes of impairment testing, the Parent Company and
the Group assess goodwill and client relationships based on the
recoverable amount of individual units making up the relevant
intangible asset. The recoverable amount is calculated based on
assumptions which are set out in more detail in note 9. There are
no significant estimation uncertainties which could otherwise lead
to a material adjustment in future periods.
An impairment of GBP0.7 million was recognised in the period in
respect of a client relationship CGU. No further impairments
occurred for other CGUs for intangible assets or goodwill in the
period.
3.1.2 Retirement benefit obligations
In consultation with an independent actuary, the Group makes
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 2021 resulted in a
decrease in the actuarial deficit to GBP3.2 million which has been
reflected in these financial statements. The decrease in the
deficit was caused by investment performance, changes in the
actuarial assumptions and contributions made to the scheme during
the year.
One of the key estimates applied is the long-term gap between
the rate of the Consumer Prices Index (CPI) and the Retail Prices
Index (RPI) inflation indices. Historically the gap has been
assumed to be 0.9%, however because of proposed changes to the
calculation of RPI published by the UK government in September 2019
to take effect sometime between 2025 and 2030, the Directors
believe a more appropriate estimate of the gap to use is now 0.5%.
This reflects the Directors' belief that alignment of RPI to CPI
will occur by 2030 and that the gilt market is fully pricing in
such alignment.
3.1.3 Share-based payments
The Group participates in a number of equity-settled share-based
payment arrangements with its employees, as detailed in note 10 of
the Annual Report and Accounts. When such awards are made, the fair
value at grant date serves as the basis for calculating the staff
costs.
The vesting conditions attached to the awards are subject to
specific non-market performance conditions. The expense in respect
of each arrangement is recognised over the vesting period, based on
an estimate of the number of awards expected to vest. The estimate
of awards expected to vest is revised at each reporting date and
the cumulative charge is updated.
3.1.4 Revaluation of freehold properties
The Group periodically revalues its freehold properties in
accordance with its accounting policy. The Group obtained
professional valuations from independent chartered surveyors during
the year. The methodology and appraisal basis for valuing the
properties is not considered to be a significant estimation
uncertainty, which could otherwise lead to a material adjustment in
future periods.
3.2 Key accounting judgements in applying the Group's accounting
policies
The Directors' do not consider there are any key accounting
judgements impacting the financial statements.
4. Operating segments
The Group has three operating divisions, representing the
underlying performance, 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
Management Financial Charles Stanley Support
Services Planning Direct Functions(3) Total
Year ended 31 March 2021 GBP000 GBP000 GBP000 GBP000 GBP000
Investment management fees 93,670 2,146 - - 95,816
Administration fees 20,215 7,876 6,862 - 34,953
------------------------------ ------------ ---------- ---------------- -------------- ----------
Total fees 113,885 10,022 6,862 - 130,769
Commission 37,670 10 2,701 - 40,381
Total revenue 151,555 10,032 9,563 - 171,150
------------------------------ ------------ ---------- ---------------- -------------- ----------
Administrative expenses(1,4) (80,613) (10,735) (4,080) (61,556) (156,984)
Other income 29 - - - 29
------------------------------ ------------ ---------- ---------------- -------------- ----------
Operating contribution 70,971 (703) 5,483 (61,556) 14,195
Allocated costs (53,467) (3,725) (4,364) 61,556 -
------------------------------ ------------ ---------- ---------------- -------------- ----------
Operating profit/(loss)(2) 17,504 (4,428) 1,119 - 14,195
Segment assets 366,337 202 5,663 294 372,496
------------------------------ ------------ ---------- ---------------- -------------- ----------
Segment liabilities 247,733 1,430 - - 249,163
------------------------------ ------------ ---------- ---------------- -------------- ----------
Notes
1 . Administrative expenses include GBP1.3 million of
restructuring costs, GBP1.3 million of amortisation of client
relationships and GBP0.7 million of impairments to intangible
assets.
2. The operating profit/(loss) as per the table above is
different to that presented in the divisional analysis within the
Review of the year as the table above
includes adjusting items which are excluded from the underlying
performance analysis.
3. Support function costs are allocated to the respective
divisions based on proportions agreed by the Directors, which
reflect utilisation.
4. Impairments to intangible assets of GBP0.7 million (2020:
GBP0.3 million) are allocated to the Investment Management Services
segment .
Immediately following the financial year end, the Group carried
out a reorganisation of its front office divisions to reflect a new
operating structure. For reporting periods on or after 1 April
2021, three new divisions (Investment Management Services,
Financial Planning Services and Central Financial Services) will
represent the main operating divisions and the reportable operating
segments of the Group.
4. Operating segments (continued)
Investment
Management Financial Charles Stanley Support
Services Planning Direct Functions(3) Total
Year ended 31 March 2020 GBP000 GBP000 GBP000 GBP000 GBP000
Investment management fees 92,853 2,006 - - 94,859
Administration fees 23,922 6,683 7,763 - 38,368
------------------------------ ------------ ---------- ---------------- -------------- ----------
Total fees 116,775 8,689 7,763 - 133,227
Commission 38,093 7 1,687 - 39,787
Total revenue 154,868 8,696 9,450 - 173,014
------------------------------ ------------ ---------- ---------------- -------------- ----------
Administrative expenses(1,4) (82,463) (10,599) (4,056) (58,116) (155,234)
Other income 115 - - - 115
------------------------------ ------------ ---------- ---------------- -------------- ----------
Operating contribution 72,520 (1,903) 5,394 (58,116) 17,895
Allocated costs (51,053) (3,202) (3,861) 58,116 -
------------------------------ ------------ ---------- ---------------- -------------- ----------
Operating profit/(loss)(2) 21,467 (5,105) 1,533 - 17,895
Segment assets 337,183 201 5,556 294 343,234
------------------------------ ------------ ---------- ---------------- -------------- ----------
Segment liabilities 225,390 1,336 - - 226,726
------------------------------ ------------ ---------- ---------------- -------------- ----------
Notes
1. Administrative expenses include GBP3.5 million of
restructuring costs, GBP3.0 million of Investment Management
Services non-cash share credit, GBP1.2 million of amortisation of
client relationships and GBP0.3 million of impairments to
intangible assets.
2. The operating profit/(loss) as per the table above is
different to that presented in the divisional analysis within the
Review of the year as the table above includes adjusting items
which are excluded from the underlying performance analysis.
3. Support function costs are allocated to the respective
divisions based on proportions agreed by the Directors, which
reflect utilisation.
4. Impairments to intangible assets of GBP0.3 million are
allocated to the Investment Management Services segment.
5. Restructuring costs
The Group is undertaking a transformation programme to improve
sales and productivity. As part of this programme the following
exceptional costs are included in the consolidated income
statement:
2021 2020
GBP000 GBP000
Redundancy costs 56 1,613
External consultants - contract staff 840 991
IT and communications 339 667
Legal and professional fees 101 201
--------------------------------------- ------- -------
1,336 3,472
--------------------------------------- ------- -------
6. 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
year.
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares to assume exercise of
all potentially dilutive share options.
2021 2020
pence pence
per share per share
Earnings per share
Basic earnings per share 20.16 28.03
---------------------------- ---------- ----------
Diluted earnings per share 19.97 27.51
---------------------------- ---------- ----------
The Directors consider both reported and underlying earnings per
share of the Group. Underlying earnings per share 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.
The earnings and weighted average number of shares used in the
calculation of basic and diluted earnings per share is shown
below:
2021 2020
GBP000 GBP000
Earnings
Earnings used in the calculation of basic
earnings per share and diluted earnings per
share 10,473 14,250
---------------------------------------------- ------- -------
2021 2020
000 000
Number of shares
Weighted average number of ordinary shares
used in the calculation of basic earnings
per share 51,943 50,837
Effect of potentially dilutive share options 495 971
Weighted average number of ordinary shares
used in the calculation of diluted earnings
per share 52,438 51,808
---------------------------------------------- ------- -------
All amounts related to continuing operations. There were no
discontinued operations in the current year or in the prior
year.
7. Employee benefits
The Group sponsors the Charles Stanley & Co. Limited
Retirement Benefits Scheme, which is a funded defined benefit
arrangement. This is a separate trustee-administered fund, holding
the scheme's assets to meet long-term pension liabilities of the
scheme's members.
Amounts included in the consolidated statement of financial
position
2021 2020
GBP000 GBP000
Fair value of scheme assets 21,357 22,162
Present value of defined benefit obligation (23,693) (27,242)
Impact of asset ceiling (862) -
Deficit in scheme and Liability in
the consolidated statement of financial
position (3,198) (5,080)
---------------------------------------------- --------- ---------
Significant actuarial assumptions
2021 2020
% %
Inflation - Consumer Price Index (CPI) 2.80 2.20
Discount rate 2.10 2.40
Allowance for pension payment increases
of CPI
(or 5% p.a. if less than CPI, minimum
3% p.a.) 3.50 3.30
Allowance for revaluation if deferred
pensions of CPI
(or 2.5% p.a. if less than CPI) 2.50 2.20
Allowance for commutation of pension 50.00 -
for cash at retirement
------------------------------------------ ------ -----
The mortality assumptions adopted at 31 March 2021 are 95%
(2020: 100%) of the standard tables 'S3PMA / S3PFA_M', Year of
Birth, no age rating for males and females, projected using figures
from the Continuous Mortality Investigation (CMI) 2020 converging
to 1.25% p.a. While COVID-19 has had an impact on mortality in
2020, the impact on future mortality trends is currently unknown.
These imply the following life expectancies at age 65:
2021 2020
Male retiring in current year 22.5 21.6
Female retiring in current year 24.2 23.5
Male retiring in twenty years 23.8 22.6
Female retiring in twenty years 25.7 24.7
---------------------------------- ----- -----
8. Income taxes
Tax recognised in the consolidated income statement
2021 2020
GBP000 GBP000
Current taxation
Expense for the year 2,291 2,790
Expense/(credit) in respect of prior years 197 (45)
2,488 2,745
-------------------------------------------- ------- -------
Deferred taxation
Expense for the year 423 340
Credit in respect of prior years (23) (13)
400 327
-------------------------------------------- ------- -------
Total tax expense 2,888 3,072
-------------------------------------------- ------- -------
Deferred tax is calculated using the rate expected to apply when
the relevant timing differences are forecast to unwind. A deferred
tax rate of 19% has been applied, being the latest substantively
enacted corporation tax rate as at 31 March 2021.
In the Spring Budget 2021, the government announced that the UK
corporation tax rate will increase to 25% from 1 April 2023. This
will have a consequential effect on the Group's future tax charge.
If this rate had been substantively enacted at 31 March 2021, the
deferred tax asset would have increased by GBP0.4 million.
9. Intangible assets
Internally
Client generated
Goodwill relationships software Total
Cost GBP000 GBP000 GBP000 GBP000
At 1 April 2019 20,213 24,937 7,471 52,621
Additions - 3,452 90 3,542
At 31 March 2020 20,213 28,389 7,561 56,163
Additions - 503 - 503
Disposals - - (7,278) (7,278)
At 31 March 2021 20,213 28,892 283 49,388
----------------------------- --------- -------------- ----------- --------
Amortisation and impairment
At 1 April 2019 6,161 20,958 7,163 34,282
Impairment charge during
the year 349 - - 349
Amortisation charge for
the year - 1,195 324 1,519
At 31 March 2020 6,510 22,153 7,487 36,150
Impairment charge during
the year - 700 - 700
Amortisation charge for
the year - 1,291 50 1,341
Disposals - - (7,278) (7,278)
At 31 March 2021 6,510 24,144 259 30,913
----------------------------- --------- -------------- ----------- --------
Net book value
At 31 March 2021 13,703 4,748 24 18,475
----------------------------- --------- -------------- ----------- --------
At 31 March 2020 13,703 6,236 74 20,013
----------------------------- --------- -------------- ----------- --------
None of the intangible assets have been pledged as security.
Goodwill is allocated to the Group's operating divisions as
follows:
2021 2020
Goodwill GBP000 GBP000
Investment Management Services 8,456 8,456
Charles Stanley Direct 5,247 5,247
13,703 13,703
------- -------
9.1 Goodwill
The recoverable amount of goodwill allocated to a CGU 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, which is determined by the consideration paid
as a percentage of FuMA in recent transactions in the market. At 31
March 2021 this was determined to be 2.26%. The percentage has
increased compared to the prior year as additional market
transactions have occurred with greater consideration paid as a
percentage of FuMA. 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.
9. Intangible assets (continued)
Only directly attributable assets or liabilities related to the
Group are allocated to CGUs in the assessment of the fair value of
each CGU. Specifically, FuMA associated with the CGU is allocated
to the assessment along with specific identifiable assets.
9.1.1 Investment Management Services
The goodwill attributed to this division is represented by five
CGUs comprising acquired investment management teams in different
locations across the UK. Two of the largest CGUs (Edinburgh and
Robson Cotterell) represent 51% and 27% of the carrying value of
the goodwill held by the division.
The recoverable amount was assessed using fair value less costs
to sell for the year ended 31 March 2021, based on a percentage of
FuMA (2.26%), being the lower end of Management's estimations. The
Eastbourne CGU had the lowest headroom, of GBP1.5 million, between
the carrying value and the recoverable amount. FuMA associated with
this CGU would need to fall by more than 30% under the current
method before an impairment would be recognised.
The recoverable amount of all CGUs was determined to be higher
than the carrying amounts and therefore the goodwill carrying value
is adequately supported.
9.1.2 Charles Stanley Direct
The goodwill attributed to this division is represented by two
CGUs comprising acquired execution-only services. The largest CGU
(CSIC) represents 93% of the carrying value.
The recoverable amount of goodwill relating to Charles Stanley
Direct was assessed primarily using fair value less costs to sell
for the year ended 31 March 2021, consistent with the valuation
method in prior years. Fair value less costs to sell was determined
based on a price paid per billion of FuMA in recent market
transactions. The range observed was GBP2.5 million to GBP10.3
million paid per GBP1.0 billion of assets. Owing to the lack of
comparable transactions in the market, in terms of product range,
size of acquisition and stage of development cycle for Charles
Stanley Direct, a secondary valuation was carried out to determine
the value in use of the goodwill associated with the CGU. The value
in use was based on the Group's latest outer year forecasts for the
CGU, covering a period of five years. Cashflows across this period
were anticipated to rise as a result of a 5% annual growth rate in
the level of AuA attributed to the CGU. An assessment was made on a
profit before tax basis and profit before overhead cost allocation
from the Group. A discount rate of 9.6% was determined by
calculating the weighted average cost of capital, with reference to
data from peer listed companies.
Under both valuation methods, the recoverable amount was
determined to be higher than the carrying amount for the CGUs and
therefore the carrying value is adequately supported.
9.2 Client relationships
Client relationships relate to payments made to investment
managers and third parties for the introduction of client
relationships. Client relationships also arise on business
combinations. The fair value was determined based on a percentage
of FuMA (2.26%) of investment managers who have received payments.
The fair value of those acquired in business combinations is based
on the discounted cash flow model.
As an amortising asset, an impairment assessment is required
only when an impairment trigger has been identified. The assessment
is carried out by comparing the carrying value of each relationship
and the remaining consideration that the Group expects to receive
for services which are derived from the client relationships. The
recoverable amount is calculated based on fair value less costs to
sell using FuMA multiples derived from recent market transactions.
Where necessary a value in use calculation is carried out to
support the assessment.
9. Intangible assets (continued)
An impairment charge of GBP0.7 million has been recognised in
the year relating to the Myddleton Croft CGU due to a reduction in
the CGU's FuMA, resulting in the carrying value exceeding the
recoverable amount. Except for the above, the recoverable amount of
all other CGUs was determined to be higher than the carrying amount
and therefore the carrying value is adequately supported.
9.3 Internally generated software
Internally generated software is software designed, developed
and commercialised by the Group. During the period, fully
depreciated assets relating to internally generated software were
written off as part of a review of the intangible asset register.
These are illustrated as equal and opposite disposals of cost and
disposals of accumulated amortisation of GBP7.3 million, resulting
in no effect on the net book value.
9.4 Sensitivity
Given the continuing uncertainty relating to COVID-19,
additional sensitivity was applied to FuMA at 31 March 2021 levels.
While markets have largely recovered since the height of the
pandemic, the additional sensitivity was applied to gain comfort
over the impact of volatile markets on the fair value less costs to
sell of each CGU.
In respect of Goodwill associated with Investment Management
Services, when assessing the carrying value as a percentage of FuMA
at 2.26%, the value of FuMA for the CGUs would have to fall by more
than 30% before the carrying value would exceed the recoverable
amount.
For Client relationship intangibles, there are a significant
number of relationships and CGUs associated with the overall
balance, with a wide range of carrying values. Applying reductions
of up to 30% to the fair value less costs to sell of each CGU
resulted in no indications of impairment. This additional
sensitivity analysis concluded that sufficient headroom existed
between carrying values and the threshold for impairment to the
relevant CGUs and client relationships.
In respect of Goodwill associated with Charles Stanley Direct,
we applied sensitivity analysis to the asset values from recent
market transactions, which were used to determine the fair value of
the CGU. Various scenarios were modelled, with the impact of a 40%
reduction in the price paid per GBP1.0 billion of assets applied
against the average price paid of GBP7.3 million in recent market
transactions. The carrying value of the CGU was adequately
supported. Sensitivity was also applied to the value in use test
inputs, primarily in relation to the discount rate, which was
modelled between 4% and 24% to reflect
stressed scenarios. In all scenarios the net present value of
the value in use exceeded the carrying value.
10. Leases - the Group as a lessee
The Group has entered various leases in respect of property as a
lessee. Lease terms are negotiated on an individual basis and
contain a wide range of different terms and conditions. Leases
typically run for a period of 5 to 10 years, with an option to
renew the lease after that date. Extension and termination options
are included in a number of leases to maximise operational
flexibility when managing the assets of the Group. The majority of
extension and termination options held are exercisable by the Group
and not by the lessor. None of the properties are sub-let by the
Group. Other than property, there are no further classes of assets
that are leased by the Group.
10.1 Amounts recognised in the consolidated statement of
financial position
2021 2020
GBP000 GBP000
Non-current asset
Property right-of-use assets 7,993 10,381
------------------------------ ------- -------
7,993 10,381
------------------------------ ------- -------
Lease liabilities
Current 3,087 2,825
Non-current 6,599 9,718
------------------------------ ------- -------
9,686 12,543
------------------------------ ------- -------
10.2 Lease liabilities - contractual undiscounted cash flow
maturity analysis
2021 2020
GBP000 GBP000
Less than one year 3,688 3,545
Once to five years 6,455 9,977
More than five years 924 1,074
-------------------------------------------- ------- -------
Total undiscounted lease liabilities at 31
March 11,067 14,596
-------------------------------------------- ------- -------
10.3 Amounts recognised in the consolidated income statement
2021 2020
GBP000 GBP000
Depreciation 2,574 2,416
Interest expense 769 924
------------------ ------- -------
3,343 3,340
------------------ ------- -------
10.4 Changes in liabilities from financing activities
2021 2020
GBP000 GBP000
Balance at 1 April 2,574 2,416
New leases 195 770
Interest expense 769 924
Interest paid (769) (924)
Payment of lease liabilities (3,052) (2,478)
------------------------------ -------- --------
Balance at 31 March 9,686 12,543
------------------------------ -------- --------
11. Dividends
The following dividends were declared and paid by the Parent
Company in the year:
2021 2020
GBP000 GBP000
Final dividend paid for 2020: 6.0p per share
(2019: 6.0p) 3,125 3,047
Interim dividend paid for 2021: 3.0p per
share (2020: 3.0p) 1,563 1,527
4,688 4,574
------- -------
A final dividend of 9.0 pence per share was recommended by the
Board on 26 May 2021. This will be payable on 19 July 2021 to
registered shareholders as at 10 June 2021 subject to shareholder
approval at the Annual General Meeting to be held on 12 July
2021.
Dividends are payable from the Parent Company's distributable
reserves which comprise the sum of retained earnings adjusted for
charges in respect of outstanding share-based payment arrangements
and own shares.
12. Reconciliation of net profit to cash generated from
operations
2021 2020
GBP000 GBP000
Profit before tax 13,361 17,322
Adjustments for:
Depreciation of property, plant and equipment 4,273 4,117
Amortisation and impairment of intangible assets 2,041 1,869
Impairment of freehold property 608 -
Share-based payments - value of employee services 760 (1,783)
Retirement benefit scheme - charge 116 151
Dividend income (29) (115)
Interest income (139) (539)
Interest expense 799 985
Profit on disposal of financial assets (90) (89)
Gain on disposal of property, plant and equipment (31) (18)
Changes in working capital:
Unrealised (gains)/losses on financial assets
at fair value through profit or loss (288) 154
Increase in receivables (26,824) (12,440)
Increase in payables 27,040 16,235
Net cash inflow from operations 21,597 25,849
--------------------------------------------------- --------- ---------
13. Subsequent events
There were no material adjusting events prior to the date of
signing this report.
14. 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.
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END
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