Final Results

RNS Number : 6360T

Rensburg Sheppards plc

10 June 2009

 



10 June 2009

Rensburg Sheppards plc

 ('Rensburg Sheppards' or 'the company') 

Preliminary Results 

Rensburg Sheppards, the investment led wealth management group, today announces its preliminary results for the year ended 31 March 2009 

Key Points:

• Profit before tax of £30.5 million (2008: £31.2 million)

• Adjusted* profit before tax of £36.6 million (2008: £41.5 million)

• Basic earnings per share of 49.0p (2008: 47.9p) 

• Adjusted* basic earnings per share of 59.4p (2008: 65.4p)

• Recommended final dividend maintained at 17p, making an unchanged total dividend for the year of 25.5p

• Group funds under management at 31 March 2009 of £10.01 billion (2008: £12.95 billion) 

* Before amortisation of the client relationships intangible asset, share-based charges relating to the Employee Benefit Trust ('EBT') and the loss on disposal of available-for-sale investments. These items amount to a net charge before tax of £6.1 million (2008: £10.3 million) and a net charge after tax of £4.5 million (2008: £7.7 million).

Steve Elliott, Chief Executive of Rensburg Sheppards, commented:

''In a difficult market I believe these results are a creditable reflection of the fundamental strength of the Rensburg Sheppards' business model and of the quality of service we provide our clients. We remain well placed to weather the current market conditions and to exploit the business opportunities which can occur during uncertain times.''

An analysts' meeting will be held today at 9.30 am at the offices of Hudson Sandler, 29 Cloth Fair, London, EC1A 7NN.

For further information, please contact:
Steve Elliott, Chief Executive Jonathan Wragg, Finance Director Rensburg Sheppards plc	Tel: [phone]
Nick Lyon / James White  Hudson Sandler	Tel: [phone]

Chairman's statement

Instead of starting, as is my normal practice, and indeed that of most company chairmen, with a commentary on the results for the year under review, I feel shareholders deserve an explanation for my contention at the end of last year's statement that financial markets appeared to have stabilised somewhat.

If I have learned one thing in over forty years in investment management it is that those who make predictions can look quite foolish quite quickly, and shareholders will not need reminding that 2008 was a far worse year for the economy than that envisaged, and with hindsight it is now all too clear that the scale of the banking crisis and the impact of the subsequent credit crunch was way beyond the expectations of most of us.

Any shareholder who is reading this statement without having already examined our results might by now be expecting some poor figures for the year under review. This is most definitely not the case and great credit is due to everyone involved for the achievement of profits which, given the adverse market conditions, we believe compare very well with those for the previous year.

As is clear from my opening comments, as 2008 progressed and 2009 began, markets were very nervous and volatile, and generally in decline, even though at the start of our financial year last April equity markets rallied out of relief that bankruptcy of the investment bank Bear Stearns had been averted. This respite proved short-lived, however, as the subsequent rise in oil prices to a record level of over $140 per barrel, followed by the failure of the US investment bank Lehman Brothers in September turned what was expected to be a gradual cyclical downturn into an uncontrolled collapse in financial and economic confidence, leaving few major financial institutions unscathed by concerns about capital adequacy or access to funding. 

The aftermath of the autumn banking crisis saw an abrupt dislocation in economic activity worldwide, as trade finance dried up and consumers and companies alike put off spending decisions until the outlook became less uncertain. Equity markets plunged to new lows during early March 2009, as the drumbeat of poor economic news and earnings reports weighed heavily on sentiment.

In order to prevent this erosion of confidence from becoming self-fulfilling, central banks and governments around the world have lowered interest rates to reduce the burden of debt servicing, increased budget deficits to support demand and implemented an unprecedented range of measures to support market liquidity. Although it is too early to judge the success of these measures, there have recently been signs that the period of free-fall has drawn to an end, allowing equity markets to recoup their early 2009 losses, although it is likely to require confirmation of an economic recovery before the falls suffered in 2008 are reversed to a material extent.  

Results and dividend

For the year ended 31 March 2009, reported profit before tax decreased by 2.2% to £30.5 million (2008: £31.2 million), whilst in contrast basic earnings per share, which benefited from the 2% reduction in the corporation tax rate, increased by 2.3% to 49.0p (2008: 47.9p).  

Adjusting for amortisation of the client relationships intangible asset, share-based charges relating to the Employee Benefit Trust ('EBT') and the loss on disposal of available-for-sale investments, together with their associated tax consequences, gives underlying profit before tax of £36.6 million (2008: £41.5 million) and underlying basic earnings per share of 59.4p (2008: 65.4p), representing decreases of 11.8% and 9.2% respectively. As noted in my opening comments, the board believes these results to be creditable, with profitability being achieved in each of the group's operating segments of investment management and fund management throughout the full year.

The board remains confident that the group is well placed to weather the current difficult market conditions and in reflecting this, the directors recommend maintaining a final dividend of 17p per ordinary share. This final dividend will be payable on 7 August 2009 to all shareholders on the register at the close of business on 17 July 2009. When added to the interim dividend of 8.5p per ordinary share (2008: 8.5p), this brings the total dividends in respect of the year to an unchanged 25.5p per ordinary share. 

People

On 29 July 2008, after six years' service, Andrew Tyrie stepped down from the board and the position of senior independent non-executive director. At that point, Michael Haan, who joined the board in November 2005 as a non-executive director, succeeded Andrew in the role of the senior independent non-executive director. 

On 4 November 2008, following a detailed search process, the board was pleased to announce the appointments of Isla Smith and Robert Lister as independent non-executive directors. 

In reflecting on what has undoubtedly been one of the most challenging years in living memory for those employed in the investment management industry, I would like formally to record the board's thanks to all of the group's staff for their tremendous efforts in delivering the results now being reported.

Outlook

At economic turning points, it is not uncommon for signals to be mixed so investors are likely to be buffeted by the ebb and flow of data releases in coming months. We fully anticipate the near-term to remain challenging for markets but ultimately we are hopeful that the concerted policy stimuli applied by governments and central banks, including those of the UK, will successfully avert a slump and usher in a gradual economic recovery. As this unfolds, investor confidence is likely to rebuild further and restore equity markets to a growth path benefiting the Rensburg Sheppards group over the longer-term.

C.G. Clarke
Chairman
9 June 2009

Chief Executive's report

This financial year has been characterised by a dramatic fall in the UK and world financial markets, coupled with a sharp decline in the UK bank base rate to levels not seen previously. These factors combined to make for an increasingly harsh operating environment as the year progressed, yet the results we are now announcing demonstrate the fundamental strength and resilience of our business model, and are testament to the considerable efforts of everyone working across the Rensburg Sheppards group.  

Rensburg Sheppards Investment Management ('RSIM')

Discretionary funds under management at 31 March 2009 were £6.46 billion (2008: £8.04 billion), a decrease of 19.7% over the year. Non-discretionary funds decreased by 28.2% over the year to £2.47 billion (2008: £3.44 billion). This gave rise to total funds under management at 31 March 2009 of £8.93 billion, compared with £11.48 billion at 31 March 2008. The proportion of RSIM's funds managed on a discretionary basis has increased to 72.3% (2008: 70.0%), which marks a further step towards our stated target of 75%. 

The decrease in RSIM's total funds under management over the year of 22.2% compares with the corresponding decreases in the FTSE/APCIMS Private Investors Balanced index of 20.4% and in the FTSE All-Share index of 32.2%.

The implied rate of net organic growth in funds under management achieved for the year was 1.4%. Whilst this represents a welcome improvement from the net organic outflow of 0.3% in the prior year and growth of 0.8% disclosed for the first half of the current year, we continue to strive to improve this further by growing our client base and the share of each individual client's total wealth that we manage. 

During the year we have seen an increased number of experienced client-facing personnel, both investment managers and financial planners, joining our offices across the country, and the benefit of this is now starting to be felt. A positive consequence for us of the recent turmoil in the financial markets is the increased opportunity this has given to recruit such high calibre individuals. Our management structure has been strengthened to ensure the business has sufficient flexibility to adapt to the changing environment and to manage unpredictable events. We consider that in times of adversity business opportunities present themselves and we continue to review these as our structure is now well established and scalable.  

Our financial planning offering has been extended across the UK, as we consider an integrated approach will assist in ensuring that we secure our existing funds and also attract new funds to manage. RSIM has adopted a multi-distribution channel focussing on its key markets: intermediary, UK private clients, international private clients and UK charities. Our charity business is now the second largest manager of segregated charitable portfolios by number (source: Charity Finance magazine, November 2008).  UK private clients remain the largest portion of our business where we provide a personalised, tailored service to meet clients' investment and risk objectives.

Efforts towards building the Rensburg Sheppards Investment Management brand have continued throughout the year and we will continue to work towards achieving an improved awareness of the business amongst our target markets, whilst remaining mindful of the need to balance this with appropriate cost control.

Although we continually seek to align the cost base of the business with the prevailing economic environment, the exceptional events of last autumn led us to increase our focus on cost management. We have continued to invest in areas identified as key to maintaining the longer-term development of the business, whilst selectively reducing expenditure in other more discretionary areas. The resulting savings will assist us in charting our way through the current difficult conditions and leave our cost base well positioned for a recovery.  

During April 2009, shortly following the end of our financial year, the budget was presented by the Chancellor of the Exchequer. This contained proposals which will, if implemented, increase the tax burden on a portion of RSIM's clients. We do not, however, consider that in overall terms these changes will have a material impact on the business.  

Rensburg Fund Management ('RFM') 

Against a general backdrop for unit trust managers of equity markets falling heavily and widespread net redemptions, RFM has delivered a commendable performance for the year.  

Gross unit trust sales for the year totalled £400 million (2008: £464 million) which, after allowing for redemptions, resulted in net sales of units for the year of £30 million (2008: £34 million), representing 2.8% of the value of the opening funds under management. This level of net sales, which were well spread over the trusts managed by RFM, is considered to be a strong performance relative to the wider UK market. After allowing for discounts and commissions payable, the net sales for the year gave rise to a net inflow into the trusts of £15 million (2008: £12 million). The value of RFM's retail unit trust funds under management declined by 28.7% over the year to £0.77 billion (2008: £1.08 billion), which compares favourably with the corresponding fall of 32.2% in the FTSE All-Share index, after excluding the benefit from the net inflows already referred to.

At 31 March 2009, RFM managed £312 million in its single segregated mandate (2008: £392 million). Taking both the unit trusts and the segregated mandate, total assets managed by RFM were £1.08 billion (2008: £1.47 billion), representing a decrease of 26.5%. 

RFM migrated to a new outsourced administrator in March 2008. This was a major operational project for the business and it is pleasing to report that the migration bedded down well in the early part of the financial year. The benefits of this move, both financial and otherwise, have been clearly felt across the business.  

Following the end of the financial year, it was announced on 27 May 2009 that RFM had, subject to unitholder and regulatory approval, reached an agreement to transfer the management of its corporate bond trust to Gartmore Fund Managers Limited. This allows RFM to concentrate on its niche of UK equity investment management. Under the terms of the transaction, RFM will receive a share of the annual management fee generated by the corporate bond trust for the three years following the formal transfer of the trust. At 31 March 2009, the corporate bond trust had assets of £98.7 million.  

Group funds under management

Combining RSIM and RFM brings the group's total funds under management as at 31 March 2009 to £10.01 billion (2008: £12.95 billion), representing a decrease of 22.7%.

Regulation

The group continues to allocate significant resources in planning and implementing all new regulatory requirements to a high standard across the organisation. In particular, this year has seen much effort directed towards embedding the FSA's Treating Customers Fairly ('TCF') initiative, which included the improvement of the group's processes in order to demonstrate better that we do treat our clients fairly. Looking forward over the coming year, the implications and potential opportunities arising from the forthcoming Retail Distribution Review will be the key regulatory change towards which resources will be targeted. In addition, we expect to see an increasing focus by the FSA on thematic reviews.  

Outlook

Since the start of the new financial year financial markets have risen. We remain mindful though of the fact that it is not possible to predict accurately the timing of any sustainable recovery. Opportunities to attract new clients and to offer wider services to existing clients clearly remain and we will focus on these opportunities, together with the continued careful management of our cost base. This focus will ensure we can successfully navigate through the present difficult conditions and place the group in a strong position to benefit from a future upturn in the economic environment.  

At Rensburg Sheppards we remain committed to our philosophy, culture and values so that the organisation meets its obligations to its clients, stakeholders and employees. 

S.M. Elliott

Chief Executive

9 June 2009

Financial review

Financial results

From revenue (net of fees and commissions payable to introducers) of £110.3 million (2008: £121.3 million), the group's reported profit before tax for the year ended 31 March 2009 was £30.5 million (2008: £31.2 million). After removing a net charge totalling £6.1 million (2008: £10.3 million) in respect of the amortisation of the client relationships intangible asset, share-based charges relating to the Employee Benefit Trust ('EBT') and the loss on disposal of available-for-sale investments, the resulting adjusted profit before tax was £36.6 million (2008: £41.5 million), a year on year decrease of 11.8%. It continues to be the directors' opinion that this adjusted measure of profit before tax and that of earnings given below represent better measures of the group's underlying financial performance. 

Reported basic earnings per share were 49.0p (2008: 47.9p) and on the basis of adjusting for the items detailed in the above paragraph, together with the associated tax consequences of these adjustments, the adjusted basic earnings per share were 59.4p (2008: 65.4p), a year on year decrease of 9.2%. The earnings per share in the current year have benefited from the reduction in the rate of UK corporation tax from 30% to 28%.

Key performance indicators ('KPIs')

The principal KPIs used by management for the group as a whole, and also for each of the two individual business segments that make up the group, are provided below. In addition, information of a financial nature considered important to understanding the business is provided with accompanying commentary on the key issues. Where figures are described as 'underlying', this is after adjusting, where appropriate, for the items referred to in the opening paragraph of this financial review.

The group:

KPIs:

	Year ended  31 March 2009	Year ended  31 March 2008	% change
Total funds under management 1	£10.01 billion	£12.95 billion	-22.7%
FTSE/APCIMS Balanced index 1	2,230.5	2,801.8	-20.4%
FTSE All-Share index 1	1,984.2	2,927.1	-32.2%
Underlying rate of net organic growth in total funds under management 2	+1.9%	-0.5%	N/A
Underlying operating profit	£36.7 million	£42.0 million	-12.6%
Underlying operating profit as a % of net revenue	33.3%	34.6%	N/A
Underlying basic earnings per share	59.4 pence	65.4 pence	-9.2%

1 As at the year end

2 Net organic inflow/(outflow) valued at the date of transfer in/(out) as a % of opening funds under management

Investment management:

KPIs:

	Year ended  31 March 2009	Year ended  31 March 2008	% change
Funds under management 1	£8.93 billion	£11.48 billion	-22.2%
FTSE/APCIMS Balanced index 1	2,230.5	2,801.8	-20.4%
FTSE All-Share index 1	1,984.2	2,927.1	-32.2%
Underlying rate of net organic growth in total funds under management 2	+1.4%	-0.3%	N/A
% of total funds managed on a discretionary basis	72.3%	70.0%	N/A
Underlying operating profit	£32.4 million	£35.8 million	-9.5%
Underlying operating profit as a % of net revenue	32.4%	33.4%	N/A

1 As at the year end

2 Net organic inflow/(outflow) valued at the date of transfer in/(out) as a % of opening funds under management

Funds under management:

	2009  £bn	2008  £bn
At 1 April	11.48	12.64
Inflows	0.86	0.80
Outflows	(0.70)	(0.84)
Market adjustment 1	(2.71)	(1.12)
At 31 March	8.93	11.48
Underlying rate of net organic growth 2	+1.4%	-0.3%

1 Impact of market movement and relative performance

2 Net organic inflow/(outflow) valued at the date of transfer in/(out) as a % of opening funds under management

Whilst a positive net inflow of funds was achieved, the well publicised significant deterioration in market levels as the year progressed explains the marked fall in funds under management over the year.  

Financial performance:

	Year ended   31 March 2009  £m	Year ended   31 March 2008  £m
Fees	49.7	57.3
Interest from client deposits	16.0	12.5
Trail commission	5.2	5.4
Other income	3.1	3.9
Total net recurring revenue  1	74.0	79.1
Commission	22.4	24.0
Other income	3.6	4.1
Total net non-recurring revenue  1	26.0	28.1
Total net revenue  1	100.0	107.2
Underlying operating expenses	(67.6)	(71.4)
Underlying operating profit	32.4	35.8
Interest (net)	(0.4)	(1.2)
Underlying profit before tax	32.0	34.6

1 Net of fees and commissions payable to introducers.

The 13.3% decline in fee income primarily reflects the fall in portfolio values experienced over the year as markets deteriorated. The 28% rise in interest from client deposits was driven by a combination of increased client liquidity and a sharp, but temporary, rise in margins achievable in the second half of the financial year; in the environment we currently face of exceptionally low interest rates, this source of income is expected to decline significantly. Commission income was 93.3% of the prior year, holding up well against the difficult backdrop and having risen slightly in the second, generally more challenging, half of the year. 

Underlying operating expenses:

	Year ended   31 March 2009  £m	Year ended   31 March 2008  £m
Staff costs:
- Fixed	36.1	35.8
- Variable	13.5	17.9
Total staff costs	49.6	53.7
Other underlying operating expenses	18.0	17.7
Total underlying operating expenses	67.6	71.4
Underlying operating expenses as a % of total net revenue	67.6%	66.6%

Fixed staff costs increased by less than 1% reflecting a modest pay review in April 2008 together with a broadly unchanged total headcount. The 24.6% reduction in variable staff costs represents reduced incentive payments that correspond with reduced revenues. The significant proportion of total costs which the variable staff costs represent provides a strong element of protection to profitability in times of reduced revenue.  Subsequent to the end of the financial year, a programme of redundancies has been undertaken within RSIM, which has resulted in a reduction in RSIM's headcount of approximately 6%. Whilst this reduction in headcount will only result in a modest reduction in the overall level of staff costs going forward, it will have the effect of increasing the relative portion of staff costs that represent variable, rather than fixed, costs and will also ensure that we continue to appropriately reward the business's key income producers. The cost of the programme is not considered to be material.

Other underlying operating expenses, a significant proportion of which are relatively fixed in nature, increased by 1.7%. This included additional discretionary spend on marketing that was initiated ahead of the autumn downturn.

Fund management:

KPIs:

	Year ended  31 March 2009	Year ended  31 March 2008	% change
Funds under management 1	£1.08 billion	£1.47 billion	-26.5%
FTSE All-Share index 1	1,984.2	2,927.1	-32.2%
Underlying rate of net organic growth in total funds under management 2	+5.4%	-1.7%	N/A
Underlying operating profit	£4.3 million	£6.2 million	-30.6%
Underlying operating profit as a % of net revenue	41.7%	44.0%	N/A

1 As at the year end

2 Net organic inflow/(outflow) valued at the date of transfer in/(out) as a % of opening funds under management

Funds under management:

	2009  £bn	2008  £bn
At 1 April	1.47	1.76
Inflows	0.46	0.49
Outflows	(0.38)	(0.52)
Market adjustment 1	(0.47)	(0.26)
At 31 March	1.08	1.47
Underlying rate of net organic growth 2	+5.4%	-1.7%

1 Impact of market movement and relative performance

2 Net organic inflow/(outflow) valued at the date of transfer in/(out) as a % of opening funds under management

Net positive inflows of funds to manage were achieved in the year compared to a modest net outflow in the prior year. Despite this, the total funds under management reduced over the year by 26.5% as equity markets moved sharply lower. 

Financial performance:

	Year ended  31 March 2009  £m	Year ended  31 March 2008  £m
Fees	9.0	11.9
Total net recurring revenue 1	9.0	11.9
Profit on sale of units of unit trusts	1.2	2.1
Other income	0.1	0.1
Total net non-recurring revenue 1	1.3	2.2
Total net revenue 1	10.3	14.1
Underlying operating expenses	(6.0)	(7.9)
Underlying operating profit	4.3	6.2
Interest (net)	0.3	0.7
Underlying profit before tax	4.6	6.9

1 Net of fees and commissions payable to introducers.

Fee income decreased by 24.4%, a consequence of the reduction in funds under management. Whilst gross sales of units of unit trusts reduced by 13.8%, the profit arising from these sales fell by 42.9%. This reflected lower margins as the opportunities for re-cycling of units within individual trusts diminished. 

Underlying operating expenses:

	Year ended  31 March 2009  £m	Year ended  31 March 2008  £m
Staff costs:
- Fixed	1.9	1.7
- Variable	1.9	3.4
Total staff costs	3.8	5.1
Other underlying operating expenses	2.2	2.8
Total underlying operating expenses	6.0	7.9
Underlying operating expenses as a % of total net revenue	58.3%	56.0%

The 44.1% reduction in variable staff costs represents reduced incentive payments that correspond with lower revenues. 

The 21.4% decrease in other operating expenses was achieved from the switch of outsourced administrator at the end of the previous financial year coupled with careful cost control in discretionary areas. 

Tax

The effective tax rate for the year is 29.8% (2008: 33.0%) calculated as the total tax charge of £9.1 million (2008: £10.3 million) divided by the profit before tax of £30.5 million (2008: £31.2 million). A full reconciliation of the tax charge, which explains why the effective rate of tax is higher than the UK standard rate of 28% (2008: 30%), is set out in note 4. 

Dividend 

An interim dividend of 8.5p per share (2008: 8.5p) was paid to shareholders on 6 February 2009 and the board is recommending a maintained final dividend of 17p per share payable on 7 August 2009. This results in an unchanged total payment in respect of the year of 25.5p. In determining the dividend, the directors consider, in particular, the requirement for the group to ensure that it retains adequate levels of working capital and regulatory capital for the foreseeable future, the group's commitment to repay its subordinated loan and the need to retain adequate reserves for re-investment towards the future growth of the business. In accordance with current accounting standards, the final dividend of 17p has not been recognised in these financial results, but has been disclosed as a post balance sheet event in note 16.

Cash flow

Despite the increasingly difficult operating environment, the group enjoyed a healthy net cash inflow from its operating activities, after corporation tax payments, of £27.0 million (2008: £45.8 million). The business models operated by the group are such that there is only a minimal timeframe between the charging of fees and commissions to clients and the collection of the associated cash flow. These business models also ensure that the group continues to have negligible exposure to bad debts.

The group's investing and financing cash flows for the year comprised dividend payments of £11.1 million (2008: £10.3 million), subordinated loan interest and capital repayments of £13.8 million (2008: £14.0 million), capital expenditure of £1.8 million (2008: £1.0 million), and proceeds from the disposal of available-for-sale investments of £0.4 million (2008: £nil).

The net result of the operating, investing and financing cash flows was an overall increase in the group's cash balances for the year of £0.6 million (2008: £20.5 million). 

Capital structure and treasury management

At 31 March 2009 the group had net assets of £197.7 million (2008: £186.1 million), which included £176.5 million (2008: £181.8 million) of intangible assets, principally comprising goodwill of £136.4 million (2008: £136.4 million) and client relationships of £39.4 million (2008: £44.9 million).  The group's goodwill and intangible assets have been subject to an impairment review at 31 March 2009, the conclusion of which is that none of these assets is impaired.

Throughout the year, the group was financed by equity shareholders' funds which at 31 March 2009 were £197.7 million (2008: £186.1 million), together with debt which comprised a subordinated loan of £39.4 million (2008: £50.0 million). The group maintained the bulk of its cash balance which, net of an overdraft of £0.3 million at 31 March 2009, totalled £70.9 million (2008: £70.2 million) within its regulated trading subsidiaries. The group's own cash balances, along with those placed by Rensburg Sheppards Investment Management ('RSIM') on behalf of its clients, are placed by the RSIM treasury department across a spread of highly rated banks. A significant proportion of cash is available on instant access, thus minimising both credit and liquidity risk. The treasury department acts under the close supervision of a cash and credit management committee ('CCMC') which sets the group's treasury policy and whose membership includes the group chief executive and the group finance director. Recognising the economic operating environment, the CCMC met with increased frequency during the period. This led to a further tightening of the group's treasury policies.

The nature of the group's business has continued to be such that currency risk was insignificant. 

The group's subordinated loan was originally scheduled to be repayable in equal annual instalments of £7.5 million commencing May 2008 and ending May 2015. Previously, repayments of capital in relation to this loan had been made ahead of schedule and on 6 May 2008 an additional early repayment of £5.0 million of this debt was made, together with the £5.625 million scheduled to be repaid on that date. Full details of this are provided in note 10.

Regulatory capital

The group's principal trading entities are all FSA regulated and hence are required at all times to hold certain minimum levels of regulatory capital in accordance with the Capital Requirements Directive ('CRD'), a European Directive which came fully into effect from 1 January 2008. Throughout the period each of the group's regulated entities maintained capital comfortably in excess of that required in accordance with the CRD. The individual capital requirements of each entity, which were determined in detail through the Internal Capital Adequacy Assessment Process ('ICAAP'), were reviewed during autumn 2008 by the FSA as part of its routine ARROW inspection programme. 

Contingent liability

The contingent liability reported on 19 November 2008 within our half-yearly results for the six months ended 30 September 2008 remains. Full details of this issue, which is centred upon the amount of input VAT that Rensburg Sheppards Investment Management Limited can recover, is provided in note 15. 

J.P.Wragg

Finance Director

9 June 2009

Consolidated income statement

for the year ended 31 March 2009

					2009		2008
					Year		Year
					ended		ended
					31 March		31 March
	Note				£'000		£'000
Revenue					118,874		132,928
Fees and commissions payable					(8,539)		(11,646)
Net revenue	2				110,335		121,282
Share-based payments - EBT	13				(440)		(4,653)
Amortisation of intangible assets - client relationships					(5,603)		(5,603)
Other operating expenses					(73,635)		(79,326)
Operating expenses					(79,678)		(89,582)
Operating profit					30,657		31,700
Loss on disposal of available-for-sale investments					(68)		-
Finance income	3				2,845		3,284
Finance expenses	3				(2,940)		(3,771)
Profit before tax					30,494		31,213
Taxation	4				(9,085)		(10,324)
Profit for the year attributable to the equity holders of the company					21,409		20,889
Earnings per share	6
Basic					49.0p		47.9p
Diluted					48.9p		47.8p

Consolidated balance sheet

at 31 March 2009

								2009		2008
				Note				£'000		£'000
Assets
Non-current assets
Intangible assets				7				176,542		181,772
Property, plant and equipment								5,532		5,197
Available-for-sale investments								1,464		2,827
Deferred tax assets				8				1,594		1,372
								185,132		191,168
Current assets
Trade and other receivables								133,814		123,953
Cash and cash equivalents				9				71,217		71,464
								205,031		195,417
Total assets								390,163		386,585
Liabilities
Current liabilities
Trade and other payables								(133,093)		(127,981)
Subordinated loan				10				(5,625)		(5,625)
Provisions				11				(122)		(56)
Current tax liabilities								(5,487)		(6,820)
								(144,327)		(140,482)
Non-current liabilities
Accruals and deferred income								(2,247)		(1,373)
Subordinated loan				10				(33,750)		(44,375)
Provisions				11				(592)		(551)
Deferred tax liabilities				8				(11,564)		(13,689)
								(48,153)		(59,988)
Total liabilities								(192,480)		(200,470)
Net assets								197,683		186,115
Equity attributable to the equity holders of the company
Share capital				12,14				4,822		4,822
Share premium				14				10,617		10,617
Capital redemption reserve				14				100		100
Available-for-sale reserve				14				807		1,460
Revaluation reserve				14				1,483		973
Other reserves				14				130,601		130,601
Retained earnings				14				49,253		37,542
Total equity								197,683		186,115

Consolidated cash flow statement

for the year ended 31 March 2009

					2009		2008
					Year		Year
					ended		ended
					31 March		31 March
	Note				£'000		£'000
Cash flows from operating activities
Profit before taxation					30,494		31,213
Adjustments for:
- Amortisation of intangible assets					6,049		6,198
- Finance expenses					2,940		3,771
- Finance income					(2,845)		(3,284)
- Depreciation					1,008		900
Share-based payments					1,432		5,557
Loss on disposal of available-for-sale investments					68		-
(Increase)/decrease in trade and other receivables					(9,887)		6,440
Increase in trade payables and provisions					7,161		2,674
Cash generated from operations					36,420		53,469
Interest received					2,771		3,261
Dividends received					100		82
Interest paid					(25)		(44)
Taxation paid					(12,278)		(10,964)
Net cash inflow from operating activities					26,988		45,804
Cash flows from investing activities
Purchase of property, plant and equipment					(1,065)		(675)
Purchase of intangible software					(699)		(369)
Proceeds from disposal of available-for-sale investments					389		-
Net cash outflow from investing activities					(1,375)		(1,044)
Cash flows from financing activities
Dividends paid to shareholders					(11,132)		(10,258)
Proceeds from issue of ordinary share capital					-		14
Repayment of subordinated loan					(10,625)		(10,000)
Interest paid on subordinated loan					(3,216)		(3,987)
Redemption of loan notes					-		(72)
Net cash outflow from financing activities					(24,973)		(24,303)
Net increase in cash and cash equivalents					640		20,457
Cash and cash equivalents at start of year					70,232		49,775
Cash and cash equivalents at end of year	9				70,872		70,232

Consolidated statement of recognised income and expense

for the year ended 31 March 2009

					2009		2008
					Year		Year
					ended		ended
					31 March		31 March
					£'000		£'000
Revaluation of available-for-sale investments
- (loss)/gain arising from changes in fair value					(940)		265
- loss on disposal transferred to the income statement					34		-
Deferred tax on revaluation of available-for-sale investments
- on loss/(gain) arising from changes in fair value					263		(80)
- on loss on disposal transferred to the income statement					(10)		-
- movement in deferred tax arising from change of tax rate					-		46
Revaluation of property
- surplus arising from change in fair value					278		-
Deferred tax on revalued property
- on surplus arising from change in fair value					(78)		-
- on change in tax base cost					327		-
- movement in deferred tax arising from change of tax rate					-		27
Net (expense)/income recognised directly in equity					(126)		258
Profit for the year					21,409		20,889
Total recognised income and expense for the year attributable to the equity holders of the company					21,283		21,147

Notes to the financial statements

1. Basis of preparation

The group financial statements consolidate those of the company and its subsidiaries (together referred to as 'the group'). The financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the European Union ('adopted IFRS'). A summary of the group's significant accounting policies will be included in the 2009 Report & Financial Statements.

The financial information contained in this announcement does not constitute the company's statutory accounts for the years ended 31 March 2009 or 31 March 2008 but is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies, and those for 2009 will be delivered following the company's annual general meeting. The independent auditor has reported on those accounts; its reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985.  

2. Revenue and segmental information

For management purposes, the group is organised into two business segments, being Investment Management and Fund Management.  This organisation reflects the differing nature of each segment's services, client base and risk profile. The principal activity of the investment management segment is the provision of investment management services to private clients, pension funds and charities. The fund management segment manages unit trusts and segregated mandates. Transactions between the two business segments are undertaken on an arm's length basis on normal commercial terms. All of the group's activities are undertaken in the United Kingdom and hence relate to a single geographical segment.

Year ended 31 March 2009

	Investment		Fund
	Management		Management		Eliminations		Group
	£'000		£'000		£'000		£'000
Revenue
External	102,915		15,959		-		118,874
Inter-segment	619		-		(619)		-
	103,534		15,959		(619)		118,874
Fees and commissions payable	(3,492)		(5,666)		619		(8,539)
Segmental net revenue	100,042		10,293		-		110,335
Share-based payments - EBT	(440)		-		-		(440)
Amortisation of intangible assets - client relationships	(5,603)		-		-		(5,603)
Other operating expenses	(67,603)		(6,032)		-		(73,635)
Segmental operating expenses	(73,646)		(6,032)		-		(79,678)
Segmental operating profit	26,396		4,261		-		30,657
Loss on disposal of available-for-sale investments	(68)		-		-		(68)
Finance income	2,462		383		-		2,845
Finance expenses	(2,940)		-		-		(2,940)
Profit before tax	25,850		4,644		-		30,494
Segmental net revenue comprises:
Fees	49,641		9,042		-		58,683
Commission	22,438		-		-		22,438
Interest from client deposits	16,011		-		-		16,011
Trail commission	5,184		-		-		5,184
Profit on sale of units of unit trusts	-		1,180		-		1,180
Other income	6,768		71		-		6,839
	100,042		10,293		-		110,335
Other segmental items:
Segmental assets (excluding taxation)	365,165		23,404		-		388,569
Segmental liabilities (excluding taxation)	(158,997)		(16,432)		-		(175,429)
Capital expenditure	1,065		-		-		1,065
Acquisition of intangible assets	819		-		-		819
Depreciation and amortisation	7,056		1		-		7,057

Year ended 31 March 2008

	Investment		Fund
	Management		Management		Eliminations		Group
	£'000		£'000		£'000		£'000
Revenue
External	110,546		22,382		-		132,928
Inter-segment	716		-		(716)		-
	111,262		22,382		(716)		132,928
Fees and commissions payable	(4,082)		(8,280)		716		(11,646)
Segmental net revenue	107,180		14,102		-		121,282
Share-based payments - EBT	(4,653)		-		-		(4,653)
Amortisation of intangible assets - client relationships	(5,603)		-		-		(5,603)
Other operating expenses	(71,412)		(7,914)		-		(79,326)
Segmental operating expenses	(81,668)		(7,914)		-		(89,582)
Segmental operating profit	25,512		6,188		-		31,700
Finance income	2,578		706		-		3,284
Finance expenses	(3,771)		-		-		(3,771)
Profit before tax	24,319		6,894		-		31,213
Segmental net revenue comprises:
Fees	57,307		11,934		-		69,241
Commission	23,993		-		-		23,993
Interest from client deposits	12,483		-		-		12,483
Trail commission	5,436		-		-		5,436
Profit on sale of units of unit trusts	-		2,089		-		2,089
Other income	7,961		79		-		8,040
	107,180		14,102		-		121,282
Other segmental items:
Segmental assets (excluding taxation)	362,900		22,313		-		385,213
Segmental liabilities (excluding taxation)	(164,752)		(15,209)		-		(179,961)
Capital expenditure	675		-		-		675
Acquisition of intangible assets	369		-		-		369
Depreciation and amortisation	7,095		3		-		7,098

3. Finance income and expenses

								2009		2008
								Year		Year
								ended		ended
								31 March		31 March
								£'000		£'000
Interest receivable on bank deposits								2,745		3,202
Dividends receivable								100		82
Finance income								2,845		3,284
Interest payable on bank overdrafts and loan notes								44		43
Interest payable on subordinated loan								2,896		3,728
Finance expenses								2,940		3,771

None of the finance income and expenses shown above relate to impaired assets.

4. Taxation

								2009		2008
								Year		Year
								ended		ended
								31 March		31 March
								£'000		£'000
Current tax expense:
United Kingdom corporation tax at 28% (2008: 30%)								11,029		13,098
Adjustments in respect of prior periods								(84)		14
								10,945		13,112
Deferred tax expense:
Origination and reversal of timing differences								(1,832)		(2,646)
Adjustments in respect of prior periods								(28)		(142)
Total tax expense in the income statement								9,085		10,324

The tax charge for the year and the amount calculated by applying the standard United Kingdom corporation tax rate of 28% (2008: 30%) to the profit before tax per the income statement can be reconciled as follows:

			2009		2008
			Year		Year
			ended		ended
			31 March		31 March
			£'000		£'000
Profit before tax			30,494		31,213
Tax expense using the United Kingdom corporation tax rate of 28% (2008: 30%)			8,538		9,364
Effects of:
Share-based payments			326		1,600
Other expenses not tax deductible			361		321
Income not chargeable to tax			(28)		(27)
Adjustments to current tax in respect of prior periods			(84)		14
Adjustments to deferred tax in respect of prior periods			(28)		(142)
Effect of change of tax rate			-		(806)
Total tax expense in the income statement			9,085		10,324

The following amounts of deferred tax have been recognised directly in equity:

			2009		2008
			Year		Year
			ended		ended
			31 March		31 March
			£'000		£'000
Property, plant & equipment			249		27
Available-for-sale investments			253		(34)
Share-based payments			(15)		(37)
			487		(44)

5. Dividends

The final dividend proposed for the year ended 31 March 2009 of 17.0p per share is payable on 7 August 2009 to shareholders on the register as at the close of business on 17 July 2009. In accordance with the group's accounting policies and the requirements of IAS 10 Events after the balance sheet date, this dividend has not been recognised as a liability at 31 March 2009. Dividends have been recognised in the periods set out below:

								2009		2008
								Year		Year
								ended		ended
								31 March		31 March
								£'000		£'000
Final dividend for the year ended 31 March 2007 of 15.0p per share								-		6,548
Interim dividend for the six months ended 30 September 2007 of 8.5p per share								-		3,710
Final dividend for the year ended 31 March 2008 of 17.0p per share								7,421		-
Interim dividend for the six months ended 30 September 2008 of 8.5p per share								3,711		-
								11,132		10,258

6. Earnings per share    

Basic earnings per share is calculated with reference to earnings for shareholders of £21,409,000 (2008: £20,889,000) and the weighted average number of shares in issue during the year of 43,659,112 (2008: 43,651,919). Adjusted earnings per share before amortisation of the client relationships intangible asset, share-based payments relating to the EBT and the loss on disposal of available-for-sale investments is calculated with reference to earnings for shareholders of £25,932,000 (2008: £28,567,000).

Diluted earnings per share is the basic earnings per share, adjusted for the effect of the conversion into fully paid shares of the weighted average number of all employee share options outstanding during the year. The number of additional shares used for the diluted calculation is 92,921 shares (2008: 50,972). Details of contingently issuable shares, which relate to the subordinated loan agreement and are not included in the calculation of basic or diluted earnings per share, are given in note 10.

The directors believe that the provision of additional earnings per share figures, in particular before amortisation of the client relationships intangible asset, share-based payments relating to the EBT and the loss on disposal of available-for-sale investments better represent underlying business performance. The effect of these adjustments on earnings and basic earnings per share is as follows:

	Year ended 31 March 2009			Year ended 31 March 2008
		Basic	Diluted		Basic	Diluted
	Earnings	EPS	EPS	Earnings	EPS	EPS
	£'000	pence	pence	£'000	pence	pence
Unadjusted earnings and EPS	21,409	49.0	48.9	20,889	47.9	47.8
Share-based payments - EBT	440	1.0	1.0	4,653	10.7	10.6
Amortisation of intangible assets - client relationships	5,603	12.8	12.8	5,603	12.8	12.8
Loss on disposal of available-for-sale investments	68	0.2	0.2	-	-	-
Tax arising on adjusted items at 28% (2008: 30%)	(1,588)	(3.6)	(3.6)	(1,681)	(3.9)	(3.8)
Effect on tax arising on adjusted items following change in rate of taxation	-	-	-	(897)	(2.1)	(2.0)
Adjusted earnings and EPS	25,932	59.4	59.3	28,567	65.4	65.4

7. Intangible assets

The carrying values of intangible assets at 31 March are as follows:

		2009		2008
		£'000		£'000
Goodwill		136,385		136,385
Client relationships		39,383		44,866
Software		774		521
		176,542		181,772

Additions to client relationships during the year amounted to £120,000 at cost and relate to client relationship agreements acquired from Investec Asset Management Limited under the terms of an agreement that was entered into on 18 November 2008. The transfer of the client relationship agreements is subject to the consent of each client to which the agreements relate. Subject to this consent, the transfer to the group of individual client relationship agreements will be completed during the period between 18 November 2008 and 31 October 2009. The additions of £120,000 represent the transfer of those client agreements that had been completed at 31 March 2009. Further transfers have been completed since 31 March 2009 in respect of the majority of the remaining client relationship agreements to which the transaction relates and details of these transfers are set out in note 16. Details of the consideration payable to Investec Asset Management Limited are set out in note 11.

8. Deferred tax assets and liabilities

Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 28% (2008: 28%). Deferred tax assets have been recognised in respect of all temporary timing differences giving rise to deferred tax assets, as it is considered to be probable that these assets are recoverable in full.

Deferred tax assets and liabilities are attributed to the following:

	Assets		Liabilities		Net
	2009	2008	2009	2008	2009	2008
	£'000	£'000	£'000	£'000	£'000	£'000
Intangible assets	-	-	(10,994)	(12,563)	(10,994)	(12,563)
Property, plant and equipment	465	454	(180)	(438)	285	16
Available-for-sale investments	-	-	(390)	(643)	(390)	(643)
Trade and other receivables	-	-	-	(45)	-	(45)
Share-based payments	174	114	-	-	174	114
Provisions, accruals and other payables	955	804	-	-	955	804
Net deferred tax assets/(liabilities)	1,594	1,372	(11,564)	(13,689)	(9,970)	(12,317)

9. Cash, cash equivalents and bank overdrafts

For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, deposits with banks and financial institutions with a maturity of up to three months and bank overdrafts repayable on demand.

			2009		2008
			£'000		£'000
Cash and cash equivalents			71,217		71,464
Bank overdrafts			(345)		(1,232)
			70,872		70,232

The carrying value of cash, cash equivalents and bank overdrafts approximates to their fair value.

10. Subordinated loan

The company entered into a £60 million subordinated loan agreement with Investec 1 Limited on 6 May 2005. The loan formed part of the consideration for the acquisition of Carr Sheppards Crosthwaite Limited. The original facility of £60 million comprises £45 million on which a fixed rate of interest of 7.155% per annum is payable, and £15 million on which a floating rate is payable, being 2.25% above LIBOR. Interest is payable every six months in May and November. Under the terms of the loan agreement, the facility is due for repayment in eight equal annual instalments from May 2008 to May 2015, subject to the company having the option to redeem part or all of the floating rate debt at any time during the term of the facility. Early redemption of part or all of the fixed rate debt is permitted at any time from May 2010.

The balance of the facility outstanding at 31 March 2009 of £39,375,000 (2008: £50,000,000) consists entirely of fixed rate debt (2008: £45,000,000 fixed rate debt and £5,000,000 floating rate debt). On 6 May 2008, the company repaid the remaining balance of the floating rate debt of £5,000,000 ahead of schedule. The first instalment of £5,625,000 in respect of the fixed rate debt was also paid on 6 May 2008, in accordance with the repayment schedule of the loan agreement. 

The loan is subordinated to all other creditors of the company. For the purposes of the consolidated regulatory capital reporting requirements of the Financial Services Authority ('FSA'), the Rensburg Sheppards group is treated as being part of the Investec group, by virtue of the Investec group's holding of shares of Rensburg Sheppards plc. The Rensburg Sheppards group, as a separate consolidated entity, is not itself subject to the FSA's consolidated regulatory capital requirements. Should, for any reason, the Rensburg Sheppards group cease to be treated as being part of the Investec group for the purposes of consolidated regulatory capital reporting and instead be subject to the FSA's regulatory capital requirements as a separate consolidated entity, an amount of the loan may be converted into ordinary shares of the company. A conversion would only occur upon the request of the company if, and only to the extent that, there is a shortfall between the actual and required consolidated regulatory capital of the Rensburg Sheppards group. The rate of conversion would be based on the company's average mid-market share price during the three months prior to a conversion. However, where a conversion is required as a consequence of a disposal of shares by Investec 1 Limited, or a conversion would otherwise require a member of the Investec group to make a general offer for the company, an alternative instrument, that would enable the company to satisfy the FSA's regulatory capital requirements, would be issued in place of ordinary shares.

The comparative figures for the subordinated loan at 31 March 2008 have been re-presented, such that the amount payable within one year is classified within current liabilities.

11. Provisions

			Deferred
			contingent		Onerous		Property
			consideration		leases		dilapidations		Total
			£'000		£'000		£'000		£'000
At 1 April 2008
Current liabilities			-		56		-		56
Non-current liabilities			-		254		297		551
			-		310		297		607
Charged to the income statement			-		64		-		64
Capitalised during the year			120		-		-		120
Utilised during the year			-		(60)		-		(60)
Released during the year			-		(17)		-		(17)
At 31 March 2009			120		297		297		714

The balances at 31 March 2009 are categorised as follows:

			Deferred
			contingent		Onerous		Property
			consideration		leases		dilapidations		Total
			£'000		£'000		£'000		£'000
Current liabilities			57		65		-		122
Non-current liabilities			63		232		297		592
At 31 March 2009			120		297		297		714

The provision for deferred contingent consideration represents amounts that may become payable in respect of the acquisition of certain client relationship agreements from Investec Asset Management Limited during the year ended 31 March 2009. The amount of the deferred consideration payable is contingent upon the revenues generated by the client relationship agreements during each year ending 31 March following their transfer to the group, until 31 March 2012. The consideration is payable in cash within 30 days of the end of each year ending 31 March. Further details of the transaction to which the deferred contingent consideration relates are set out in notes 7, 16 and 17.

The onerous leases provision represents future rentals and running costs of unoccupied leasehold premises to the end of the lease term. All such leases are due to expire during or before 2018.

The provision for property dilapidation costs reflects the obligations that the group has to reinstate leasehold properties to their original condition prior to the expiry of the relevant lease. The leases held on these properties expire in the period up to 2018.

12. Share capital

										Nominal
								Number		value
								of shares		£'000
Authorised ordinary shares of 10 90/91 pence each
At 1 April 2007, 31 March 2008 and 31 March 2009								54,600,000		6,000
Allotted, called up and fully paid ordinary shares of 10 90/91 pence each
At 1 April 2007								43,881,382		4,822
Exercise of share options								2,118		-
At 31 March 2008 and 31 March 2009								43,883,500		4,822

13. Share-based payments

The total charge for the year relating to employee share-based payment schemes was £1,432,000 (2008: £5,557,000), all of which related to equity-settled share-based payment transactions. This charge comprised £440,000 relating to the EBT (2008: £4,653,000) and £992,000 in respect of the group's other share and share option schemes (2008: £904,000). No further charges in respect of the EBT will be incurred.

14. Reconciliation of changes in shareholders' equity

			Capital	Available	Reval-
	Share	Share	redemption	-for-sale	uation	Other	Retained	Total
	capital	premium	reserve	reserve	reserve	reserves	earnings	equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 April 2007	4,822	10,603	100	1,234	959	130,601	21,373	169,692
Profit after taxation	-	-	-	-	-	-	20,889	20,889
Dividends	-	-	-	-	-	-	(10,258)	(10,258)
Issue of shares	-	14	-	-	-	-	-	14
Share-based payments	-	-	-	-	-	-	5,557	5,557
Deferred tax on share-based payments	-	-	-	-	-	-	(37)	(37)
Gain arising on available-for-sale investments	-	-	-	265	-	-	-	265
Deferred tax on available-for-sale investments	-	-	-	(80)	-	-	-	(80)
Movement in deferred tax arising from change of tax rate	-	-	-	41	27	-	5	73
Depreciation on revalued property	-	-	-	-	(13)	-	13	-
At 31 March 2008	4,822	10,617	100	1,460	973	130,601	37,542	186,115
Profit after taxation	-	-	-	-	-	-	21,409	21,409
Dividends	-	-	-	-	-	-	(11,132)	(11,132)
Share-based payments	-	-	-	-	-	-	1,432	1,432
Deferred tax on share-based payments	-	-	-	-	-	-	(15)	(15)
Loss arising on available-for-sale investments	-	-	-	(940)	-	-	-	(940)
Deferred tax on available-for-sale investments	-	-	-	263	-	-	-	263
Loss on disposal of available-for-sale investments transferred to the income statement	-	-	-	34	-	-	-	34
Deferred tax on disposal of available-for-sale investments transferred to the income statement	-	-	-	(10)	-	-	-	(10)
Revaluation of property	-	-	-	-	278	-	-	278
Deferred tax on revaluation of property	-	-	-	-	(78)	-	-	(78)
Deferred tax on change in tax base cost of revalued property	-	-	-	-	327	-	-	327
Depreciation on revalued property	-	-	-	-	(17)	-	17	-
At 31 March 2009	4,822	10,617	100	807	1,483	130,601	49,253	197,683

15. Contingent assets and liabilities

The group's principal trading subsidiary, Rensburg Sheppards Investment Management Limited ('RSIM'), is seeking to agree a basis with HM Revenue & Customs ('HMRC') on which to determine the amount of input VAT it can recover on the goods and services it purchases. Once agreed, this basis of recovery of input VAT, known as a partial exemption special method ('special method') will be applied retrospectively from May 2005, being the point at which the group acquired Carr Sheppards Crosthwaite Limited ('CSC'). The special methods that existed and were applied by the group and CSC prior to May 2005, and had been agreed with HMRC, ceased as a result of the acquisition, and it became necessary to agree a special method with HMRC for the enlarged business.

The special method that RSIM has proposed to HMRC was formally rejected by HMRC during the year ended 31 March 2009, and this decision was upheld following an internal reconsideration of the decision within HMRC. RSIM has appealed to the VAT tribunal against the decision to reject the proposed special method, and a date for the tribunal hearing is currently awaited. Pending the outcome of the tribunal hearing and the eventual agreement of a special method, RSIM has applied a rate of input VAT recovery which reflects the rates that applied under the special methods of CSC and the group that were in place at the time of the acquisition of CSC (the 'historic methods') to determine the amount of input VAT that is recoverable on the goods and services it has purchased since May 2005. VAT that is not recoverable following the application of the historic methods of recovery has been charged to the income statement.

As noted above, once a special method has been agreed between RSIM and HMRC, it will be applied retrospectively from May 2005. Any difference between the input VAT recoverable under the agreed special method and that which has been treated as recoverable under the historic methods during the period since May 2005 will be payable to, or receivable from, HMRC, and will be charged or credited accordingly to the income statement.

The maximum amount that may become recoverable from HMRC at 31 March 2009 is estimated to be £1.3 million, representing the difference between the input VAT recoverable under the proposed special method and that recoverable under the historic methods since May 2005.

The maximum amount that may become payable to HMRC at 31 March 2009 would arise if RSIM is not ultimately able to obtain HMRC's agreement to a special method and is required to apply the standard method of input VAT recovery. The standard method is the default method of input VAT recovery, and would result in RSIM recovering input VAT based simply on the value of its income that is subject to VAT, relative to its income that is exempt from VAT. If the standard method were to be applied retrospectively from May 2005, the additional input VAT and associated interest that would become payable to HMRC at 31 March 2009 is estimated at £3.3 million, representing the difference between the input VAT recoverable under the historic methods and that recoverable under the standard method.

The standard method is not considered by the group to represent a fair and reasonable basis of input VAT recovery, as it does not accurately reflect the way in which the group's activities consume costs. In addition, the standard method is not consistent with the rates of VAT recovery applicable previously to either CSC or the group, nor is it believed to be representative of the rates of recovery common amongst businesses that are comparable in nature to RSIM. For these reasons, RSIM will continue to pursue the agreement of its proposed special method.

16. Events after the balance sheet date

On 6 May 2009, £5.625 million of the subordinated loan, the details of which are set out in note 10, was repaid in accordance with the repayment schedule. 

On 9 June 2009, the directors proposed a final dividend in respect of the year ended 31 March 2009 of 17.0 pence per share. Subject to the approval of shareholders at the forthcoming annual general meeting, which is to be held on 28 July 2009, the dividend will be payable on 7 August 2009 to shareholders on the register at the close of business on 17 July 2009.

As set out in notes 7, 11 and 17, the group entered into an agreement to acquire certain client relationship agreements from Investec Asset Management Limited on 18 November 2008. In accordance with this agreement, the transfer of the client relationship agreements to the group has continued since 31 March 2009. It is estimated that the intangible assets and the associated provision for deferred contingent consideration that will arise as a result of the transfer of agreements since 31 March 2009 will each amount to approximately £400,000.

On 26 May 2009 the group entered into an agreement to transfer the management of its corporate bond unit trust to Gartmore Fund Managers Limited, subject to unitholder and regulatory approvals. Under the terms of the transaction, the group will receive a share of the annual management fee generated by the corporate bond trust for the three years following the completion of the transfer of the trust to Gartmore Fund Managers Limited. At 31 March 2009, the corporate bond trust had assets of £98.7 million. The financial effect on the group of this transaction is not expected to be material. 

17. Related party transactions

The directors of the group represent the key management. The directors of the group include B. Kantor and S. Koseff, both of whom are also directors of Investec plc. The transactions set out below have taken place with Investec plc or its subsidiary companies ('the Investec group') during the year.

The group has a subordinated loan facility with the Investec group, which was entered into on 6 May 2005. The loan formed part of the consideration for the acquisition of Carr Sheppards Crosthwaite Limited on that date. The interest charged on the loan during the year amounted to £2,896,000 (2008: £3,728,000) and interest of £1,139,000 was payable at 31 March 2009 (2008: £1,459,000). Further details of the subordinated loan facility are set out in note 10.

The group leases premises at 2 Gresham Street London from the Investec group. The amount payable during the year under the terms of the lease in respect of rent and service charges amounted to £1,464,000 (2008: £1,115,000). £122,000 was outstanding at 31 March 2009 (2008: £nil).

The Investec group provides the group with certain infrastructure services. The amount payable during the year under the  terms of the related agreement amounted to £611,000 (2008: £781,000). £396,000 was outstanding at 31 March 2009 (2008: £199,000).

The Investec group has provided internal audit services to the group during the year. The amount payable by the group during the year in respect of these services amounted to £163,000 (2008: £248,000). £88,000 was outstanding at 31 March 2009 (2008: £nil).

On 18 November 2008, the group entered into an agreement to acquire certain client relationship agreements from Investec Asset Management Limited, a wholly-owned subsidiary of the Investec group. Details of this transaction and the consideration payable to Investec Asset Management Limited are set out in notes 7, 11 and 16.

In addition to the transactions with the Investec group set out above, the group contributes to defined contribution pension schemes on behalf of its employees. The group also operates a number of share-based payment arrangements for the purposes of employee remuneration. Details of these transactions are set out in note 13.

Directors, and all employees of the group, are eligible to receive investment management services from the group at discounted staff rates.

All of the transactions with related parties set out above have been undertaken on an arm's length basis in the normal course of business. None of the amounts outstanding are impaired or are subject to securities or guarantees. All amounts outstanding are due for settlement in cash.

 

END

 

 

FR UKANRKKRNRAR