David Nicol, Chief Executive, said:
“In the first half of 2019, the Group has continued to deliver strong and resilient organic growth, even with the backdrop of volatile market conditions. This is demonstrated by the strength of our discretionary funds flows. Our strategy of focusing on our advice-led wealth management service in the direct market continues to deliver results.
We are investing in our business to support future long-term growth. Over the past few months we have announced the replacement of our core custody and settlement system and a number of acquisitions. These initiatives are laying the foundations for long-term growth and will ensure that we are well placed to capture market opportunities.”
Highlights
– Another period of strong organic funds inflows with the Group making progress on its strategic plan.
– Total funds were £42.4bn (H1 2018: £39.7bn, FY 2018: £42.8bn).
– In the six months to 31 March 2019, the MSCI WMA Private Investor Balanced Index fell by 1.6% and the FTSE 100 Index fell by 3.1%.
– Discretionary funds of £37.5bn (FY 2018: £37.6bn) reflect continued organic growth offset by investment performance.
– Net inflows of discretionary funds, including transfers, of £0.8bn (H1 2018: £1.3bn) represent an annualised growth rate of 4.3% (H1 2018: 7.7%).
– Total income for the period increased marginally to £162.3m (H1 2018: £161.8m) due to largely flat average funds over the period.
– Total costs of £127.6m excluding adjusted1,3 items (H1 2018: £123.3m), 3.5% increase in-line with expectations from spending on growth initiatives and infrastructure projects.
– Profit before tax and adjusted1,3 items of £35.6m, 8.2% lower than H1 2018 (£38.8m).
– Statutory profit before tax of £29.7m, 12.9% lower than H1 2018 (£34.1m).
– Adjusted1,3 earnings per share:
– Diluted earnings per share2 decreased by 8.3% to 9.9p (H1 2018: 10.8p).
– Basic earnings per share decreased by 9.7% to 10.2p (H1 2018: 11.3p).
– Statutory earnings per share:
– Diluted earnings per share of 8.1p (H1 2018: 9.4p).
– Basic earnings per share of 8.3p (H1 2018: 9.7p).
– Interim dividend of 4.4p per share announced (2018 interim: 4.4p per share).
1. Adjusted items are amortisation of client relationships – £3.3m (H1 2018: £4.0m), defined benefit pension scheme past service costs – £1.9m (H1 2018: £nil), acquisition costs – £0.5m (H1 2018: £nil), incentivisation awards £0.2m (H1 2018: £0.6m), onerous contracts – £(0.04)m (H1 2018: £0.4m) and FSCS levy refund £nil (H1 2018: £0.3m).
2. See note 8.
3. See Group's 2018 Annual Report and Accounts page 34 for explanation of adjusted profit before tax and why the adjusted measures have been chosen.
Declaration of Interim Dividend
The Board declares an interim dividend of 4.4p per share. The interim dividend is payable on 14 June 2019 to shareholders on the register at the close of business on 24 May 2019 with an ex-dividend date of 23 May 2019.
LEI: 213800PS7FS5UYOWAC49
For further information:
|
Brewin Dolphin Holdings PLC David Nicol, Chief Executive Tel: +44 (0)20 7248 4400 |
Camarco Ben Woodford / Jane Glover Tel: +44 (0)20 3757 4990 |
NOTES TO EDITORS: Brewin Dolphin is a UK FTSE 250 provider of discretionary wealth management. The Group offers award-winning personalised wealth management services that meet the varied needs of our clients. Our services range from bespoke, discretionary investment management to retirement planning and tax-efficient investing. We have a network of offices across the UK, Jersey and Dublin, staffed by qualified investment managers and financial planners. We are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients' needs at the core.
First half review
The business has performed well and remained very resilient in the first half of 2019 against a more volatile market backdrop, particularly in the first quarter. Adjusted diluted earnings per share was 9.9p (H1 2018: 10.8p) against a strong comparative period last year. Statutory diluted earnings per share was 8.1p (H1 2018: 9.4p).
Total discretionary funds were £37.5bn (FY 2018: £37.6bn) with £1.0bn of net new discretionary flows offset by investment performance. The annualised growth rate for net discretionary funds flows, including transfers, was 4.3% in the period against our 5% target.
Direct discretionary net new flows increased to £0.4bn (HY 2018: £0.1bn) demonstrating that our strategy to grow this business through our advice-led integrated wealth management service is starting to pay off. Inflows into this service were 40% of total direct discretionary gross funds inflows, up from 30% in 2018.
Net inflows, excluding transfers, in the intermediary channel were lower at £0.3bn (HY 2018: £0.7bn) attributable to continued economic uncertainty, leading to subdued client activity. Additionally, market trends show that defined benefit pension scheme transfers were lower this period, reducing intermediaries client flows further. However, sustained net flows in our managed portfolio service ('MPS') of £0.3bn were in line with last year (HY 2018: £0.3bn). As part of our intermediary strategy, to broaden our MPS distribution channels, we have entered into three new partnerships in different target market segments.
We continue to develop our spectrum and complexity of client advice to support current and prospective client needs. We have made good progress in our newer initiatives of BPS, WealthPilot and 1762 from Brewin Dolphin. Our office in the West End (1762 from Brewin Dolphin) continues to make progress and we have seen some excellent new hires, all of whom have been attracted by our proposition and ambitious growth plans.
We have undertaken some targeted inorganic growth and acquired two businesses. The first, Aylwin Limited, a financial planning business, strengthens our capabilities in Southern England. The business has relocated to our new office in Winchester consolidating with our Bournemouth branch. The second, Mathieson Consulting Limited, a consultancy business providing an expert witness report service covering pension valuations, expands the Group's professional service offering, complementing the core business.
In addition, we signed an agreement on 26 April 2019 to acquire the assets and staff of Epoch Wealth Management LLP, a financial planning led business in Bath, with total assets under advice of £0.5bn, for an initial payment of £10.0m and an estimated deferred consideration of £9.0m which is subject to performance conditions. The 38 employees of the business will transfer to the Group on completion. This will increase our footprint and advice-led capability in this part of the country.
To support our growth strategy we need to ensure that we have the operational infrastructure to grow. Our new client management system, Client Engage, is expected to go live in the second half of 2019. We have commenced the project to replace our core settlement and custody system. This upgrade will take up to two years to complete and the total project costs will be approximately £35.0m, a mix of internal and external costs. These two initiatives will provide a more efficient platform, reduce the cost of change, improve operational risk management and allow the business to achieve its growth ambitions.
We are expecting to sign an agreement to lease new larger premises in the near future as we are expanding beyond the capacity of our current head office which is leased until February 2026. The new lease will be for 15 years and is expected to commence in August 2021 with relocation to the new premises by July 2022. We expect the net ongoing future running costs of the new office would be similar to staying in our current head office, and it will provide an improved environment for our clients and colleagues. The Group is expecting to recognise a provision in the region of £6m-£10m when the current head office lease becomes onerous, this is likely to be recognised between the lease commencement date and the relocation date.
Results and business performance
Profit before tax and adjusted items of £35.6m was 8.2% lower than the first six months last year (H1 2018: £38.8m). This reflects broadly flat income as a result of volatile markets in the first quarter, followed by a rebound in the second quarter impacting the value of funds, and higher costs as the Group continues to invest in growth initiatives and its infrastructure.
Statutory profit before tax for the period was 12.9% lower than last year at £29.7m (H1 2018: £34.1m), including a one-off £1.9m defined benefit pension scheme past service cost in relation to Guaranteed Minimum Pensions (see note 12). If this is excluded, statutory profit before tax would be 7.3% lower than H1 2018.
|
|
Unaudited six months to |
Unaudited six months to |
Change |
|
Income |
162.3 |
161.8 |
0.3% |
|
Fixed staff costs |
(63.2) |
(57.8) |
9.3% |
|
Variable staff costs |
(26.6) |
(29.1) |
(8.6)% |
|
Other operating costs excluding adjusted1 items |
(37.8) |
(36.4) |
3.8% |
|
Operating profit before adjusted1,3 items |
34.7 |
38.5 |
(9.9)% |
|
Net finance costs and other gains and losses |
0.9 |
0.3 |
200.0% |
|
Profit before tax and adjusted1,3 items |
35.6 |
38.8 |
(8.2)% |
|
Adjusted1,3 items |
(5.9) |
(4.7) |
25.5% |
|
Profit before tax |
29.7 |
34.1 |
(12.9)% |
|
Tax |
(6.9) |
(7.5) |
(8.0)% |
|
Profit after tax |
22.8 |
26.6 |
(14.3)% |
|
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic earnings per share |
8.3p |
9.7p |
(14.4)% |
|
Diluted earnings per share |
8.1p |
9.4p |
(13.8)% |
|
Adjusted2 earnings per share |
|
|
|
|
Basic earnings per share |
10.2p |
11.3p |
(9.7)% |
|
Diluted earnings per share |
9.9p |
10.8p |
(8.3)% |
1. Adjusted items are amortisation of client relationships – £3.3m (H1 2018: £4.0m), defined benefit pension scheme past service costs – £1.9m (H1 2018: £nil),
acquisition costs – £0.5m (H1 2018: £nil), incentivisation awards £0.2m (H1 2018: £0.6m), onerous contracts – £(0.04)m (H1 2018: £0.4m) and FSCS levy refund £nil (H1 2018: £0.3m).
2. See note 8.
3. See Group's 2018 Annual Report and Accounts page 34 for explanation of adjusted profit before tax and why the adjusted measures have been chosen.
Funds
Total funds were £42.4bn at 31 March 2019 (H1 2018: £39.7bn, FY 2018: £42.8bn); driven by continued strong net fund flows of £0.8bn, £0.2bn higher than H2 2018 (H1 2018: £0.9bn) offset by negative investment performance due to mixed market conditions.
Total funds by service category
|
£'bn |
31 March |
30 September 2018 |
31 March |
Change last |
Change last |
|
Private clients |
18.8 |
20.4 |
20.1 |
6.9% |
(1.5)% |
|
Charities & corporates |
4.4 |
4.7 |
4.7 |
6.8% |
0.0% |
|
Direct discretionary |
23.2 |
25.1 |
24.8 |
6.9% |
(1.2)% |
|
Intermediaries |
8.5 |
9.5 |
9.5 |
11.8% |
0.0% |
|
MPS |
2.6 |
3.0 |
3.2 |
23.1% |
6.7% |
|
Indirect1 discretionary |
11.1 |
12.5 |
12.7 |
14.4% |
1.6% |
|
Total discretionary |
34.3 |
37.6 |
37.5 |
9.3% |
(0.3)% |
|
Execution only |
3.7 |
3.9 |
3.8 |
2.7% |
(2.6)% |
|
BPS |
0.1 |
0.1 |
0.2 |
100.0% |
100.0% |
|
Advisory |
1.6 |
1.2 |
0.9 |
(43.8)% |
(25.0)% |
|
Total funds |
39.7 |
42.8 |
42.4 |
6.8% |
(0.9)% |
|
|
|
|
|
|
|
|
Indices |
|
|
|
|
|
|
MSCI WMA Private Investor Balanced Index |
1,527 |
1,612 |
1,587 |
3.9% |
(1.6)% |
|
FTSE 100 |
7,057 |
7,510 |
7,279 |
3.1% |
(3.1)% |
1. Intermediary services.
Funds flow by service category1
|
£'bn |
30 September 2018 |
Inflows |
Outflows |
Internal transfers |
Net flows |
Annualised growth rate |
Investment performance |
31 March 2019 |
Change |
|
Private clients |
20.4 |
0.5 |
(0.2) |
(0.1) |
0.2 |
2.0% |
(0.5) |
20.1 |
(1.5)% |
|
Charities & corporates |
4.7 |
0.1 |
– |
– |
0.1 |
4.3% |
(0.1) |
4.7 |
0.0% |
|
Direct discretionary |
25.1 |
0.6 |
(0.2) |
(0.1) |
0.3 |
2.4% |
(0.6) |
24.8 |
(1.2)% |
|
Intermediaries |
9.5 |
0.5 |
(0.2) |
(0.1) |
0.2 |
4.2% |
(0.2) |
9.5 |
0.0% |
|
MPS |
3.0 |
0.3 |
– |
– |
0.3 |
20.0% |
(0.1) |
3.2 |
6.7% |
|
Indirect2discretionary |
12.5 |
0.8 |
(0.2) |
(0.1) |
0.5 |
8.0% |
(0.3) |
12.7 |
1.6% |
|
Total discretionary |
37.6 |
1.4 |
(0.4) |
(0.2) |
0.8 |
4.3% |
(0.9) |
37.5 |
(0.3)% |
|
Execution only |
3.9 |
0.1 |
(0.3) |
0.4 |
0.2 |
10.3% |
(0.3) |
3.8 |
(2.6)% |
|
BPS |
0.1 |
– |
– |
– |
– |
0.0% |
– |
0.2 |
100.0% |
|
Advisory |
1.2 |
– |
– |
(0.2) |
(0.2) |
(33.3)% |
(0.1) |
0.9 |
(25.0)% |
|
Total funds |
42.8 |
1.5 |
(0.7) |
– |
0.8 |
3.7% |
(1.3) |
42.4 |
(0.9)% |
1. The funds figures are rounded to one decimal place and therefore may not always cast.
2. Intermediary services.
Total discretionary funds were £37.5bn (H1 2018: £34.3bn, FY 2018: £37.6bn) with strong net flows of £0.8bn (H1 2018: £1.3bn, H2 2018: £1.0bn) offset by negative investment performance. The annualised growth rate for discretionary funds was 4.3% against our 5.0% target. Net flows during 2018 benefitted from significant transfers from the advisory managed service.
The first six months of the year have seen direct discretionary net new flows of £0.4bn (H1 2018: £0.1bn, H2 2018: £0.1bn); gross inflows were £0.6bn (H1 2018: £0.5bn) as we continued to see the benefits of offering our combined financial planning and investment management proposition and low gross outflows of £0.2bn in the period (H1 2018: £0.4bn).
Indirect discretionary net flows were lower at £0.5bn (H1 2018: £0.9bn, H2 2018: £0.7bn), as continued market uncertainty, resulted in subdued client activity which has impacted intermediaries net flows across the industry.
Execution only funds remain stable at £3.8bn with total net flows offset by investment performance. Advisory funds continue to fall with £0.2bn transferred into other service categories.
Income
Income of £162.3m was marginally higher than H1 2018 (£161.8m) with lower income in the first quarter offset by market recovery and continued positive net flows in the second quarter.
Income is analysed as follows:
|
|
Unaudited six months to |
Unaudited six months to |
Change |
||||||
|
£'m |
Fees |
Commission |
Total |
Fees |
Commission |
Total |
Fees |
Commission |
Total |
|
Private clients |
66.0 |
26.6 |
92.6 |
66.0 |
26.3 |
92.3 |
0.0% |
1.1% |
0.3% |
|
Charities and corporates |
9.6 |
1.3 |
10.9 |
9.8 |
1.5 |
11.3 |
(2.0)% |
(13.3)% |
(3.5)% |
|
Direct discretionary |
75.6 |
27.9 |
103.5 |
75.8 |
27.8 |
103.6 |
(0.3)% |
0.4% |
(0.1)% |
|
Intermediaries |
32.4 |
0.5 |
32.9 |
30.5 |
0.6 |
31.1 |
6.2% |
(16.7)% |
5.8% |
|
MPS |
4.2 |
– |
4.2 |
3.5 |
– |
3.5 |
20.0% |
n/a |
20.0% |
|
Indirect discretionary |
36.6 |
0.5 |
37.1 |
34.0 |
0.6 |
34.6 |
7.6% |
(16.7)% |
7.2% |
|
Total discretionary |
112.2 |
28.4 |
140.6 |
109.8 |
28.4 |
138.2 |
2.2% |
0.0% |
1.7% |
|
Financial planning |
n/a |
n/a |
12.6 |
n/a |
n/a |
12.2 |
n/a |
n/a |
3.3% |
|
Execution only |
2.2 |
3.1 |
5.3 |
2.2 |
3.2 |
5.4 |
0.0% |
(3.1)% |
(1.9)% |
|
BPS |
0.6 |
– |
0.6 |
0.5 |
– |
0.5 |
20.0% |
n/a |
20.0% |
|
Advisory |
1.1 |
0.2 |
1.3 |
3.1 |
1.3 |
4.4 |
(64.5)% |
(84.6)% |
(70.5)% |
|
Other income |
n/a |
n/a |
1.9 |
n/a |
n/a |
1.1 |
n/a |
n/a |
72.7% |
|
Income |
n/a |
n/a |
162.3 |
n/a |
n/a |
161.8 |
n/a |
n/a |
0.3% |
Discretionary income increased by 1.7% to £140.6m (H1 2018: £138.2m), reflecting flat average funds in the six months to 31 March 2019.
Financial planning income grew 3.3% to £12.6m (H1 2018: £12.2m) and has been impacted by market conditions over the period.
Advisory income was lower following the substantial transfer of advisory managed funds into other services in the Group during 2018, particularly discretionary investment management.
Other income rose by £0.8m to £1.9m due to increased interest rates received on client money balances following the Bank of England Base Rate rise in August 2018. The impact of this over the six month period was offset by the decision to resume paying interest to clients on these balances from January 2019.
Costs
Total operating costs before adjusted items were 3.5% higher at £127.6m (H1 2018: £123.3m).
Our total fixed costs have increased by £6.8m to £101.0m (H1 2018: £94.2m). These comprised of £63.2m of fixed staff costs (H1 2018; £57.8m) and £37.8m of other operating costs before adjusted items (H1 2018: £36.4m). The increase in total fixed costs has been driven by growth initiatives and infrastructure projects of £8.6m, £3.3m higher than H1 2018 (£5.3m). The remaining increase reflects higher BAU costs such as salary inflation, recruitment and non-staff costs offset by lower cost of sales from reduced intermediary net inflows compared to H1 2018.
Variable staff costs, in the form of profit share, were 8.6% lower, in line with the fall in operating profit before adjusted items.
Adjusted items of £5.9m (H1 2018: £4.7m) include a one-off expense for past service costs for the defined benefit pension scheme of £1.9m (see note 12) and acquisition related costs of £0.5m. Amortisation of intangible client relationships fell by £0.7m, to £3.3m as previously acquired client relationships reached the end of their amortisation periods.
Post balance sheet events
There have been a number of post balance sheet events. The events included acquisitions and the signing of an agreement with Avaloq UK Limited to replace our core custody and settlement system. See above and note 21 for further details.
Capital
The Group has a strong balance sheet with cash balances at period end of £138.8m (H1 2018: £142.0m). These underpin its strong regulatory capital resources.
Dividend
The Group's dividend policy is to grow dividends in line with adjusted earnings, with a target payout ratio of 60% to 80% of annual adjusted diluted earnings per share. The interim dividend has been maintained at 4.4p per share (2018 interim: 4.4p per share) and will be payable on 14 June 2019 to shareholders on the register at the close of business on 24 May 2019 with an ex-dividend date of 23 May 2019.
Share premium reduction
A capital reduction was approved by shareholders at the Annual General Meeting held on 1 February 2019. This has been reflected in the condensed consolidated interim financial statements (see note 15).
Going concern
As stated in note 2 to the condensed consolidated set of interim financial statements, the Directors believe that the Group is well placed to manage its business risks successfully. The Group's forecasts and projections, taking account of possible adverse changes in trading performance, show that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt a going concern basis for the preparation of the condensed consolidated interim financial statements. In forming their view, the Directors have considered the Group's prospects for a period exceeding twelve months from the date the condensed consolidated interim financial statements are approved.
Principal risks and uncertainties
The Directors consider that the nature of the principal risks and uncertainties which may have a material effect on the Group's performance during the remainder of its financial year remain unchanged from those identified on pages 31 and 32 of the Group's 2018 Annual Report and Accounts available on our website www.brewin.co.uk.
Board changes
Siobhan Boylan joined the Group in early February 2019 and was appointed as an Executive Director on 4 March 2019.
Outlook
The Group has had a strong first half and continues to demonstrate good performance. We continue to see positive momentum and are delivering against our strategic priorities. The recent corporate activities have strengthened our position in several key geographic areas. These along with our investments in infrastructure are creating foundations for future growth.