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Charles Stanley Grp (CAY)

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Thursday 27 November, 2014

Charles Stanley Grp

Half Yearly Report

RNS Number : 1181Y
Charles Stanley Group PLC
27 November 2014
 



CHARLES STANLEY GROUP PLC

RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014

 

Charles Stanley is one of the UK's leading independently owned, full service investment management groups.  Today it announces its preliminary results for the six months ended 30 September 2014.

 

Highlights:

 

·      Total funds £20.2 billion (31 March 2014: £20.1 billion, 30 September 2013: £18.5 billion)

·      Discretionary funds £8.7 billion (31 March 2014: £8.2 billion, 30 September 2013: £6.9 billion)

·      Charles Stanley Direct account holders grew to over 17,500 and revenues up 66.7%

·      Underlying profit before tax £1.5 million (first half 2013/14: £8.0 million)

·      Underlying earnings per share 1.54p (first half 2013/14: 13.74p)

·      Loss before tax £3.9 million (first half profit 2013/14: £4.9 million)

·      Basic earnings per share (7.90p) (first half 2013/14: 8.52p)

·      Maintained interim dividend per share 3.00p (first half 2013/14: 3.00p)

·      Paul Abberley's appointment as Chief Executive (subject to regulatory approval) announced in November 2014

 

Commenting on the results Sir David Howard, Chairman said:

 

"It is disappointing to have to report a loss before tax of £3.9 million and a reduced underlying profit before tax of £1.5 million, not least because this does not reflect the good progress achieved in many areas of the Group. We are investing heavily in a major upgrade of our systems and processes to enhance the proposition to our clients, and in several developments for the future including our award-winning service Charles Stanley Direct. This has impacted on our costs in a period of static markets and revenue.

 

I am delighted that Paul Abberley has accepted the Board's invitation to succeed me as Chief Executive of Charles Stanley, having previously been Chief Executive of Aviva Investors London. Paul brings a fresh perspective to our business and we are committed to restoring our profitability."

 

For further information please contact:

 

Charles Stanley Group PLC

Canaccord Genuity

Peel Hunt LLP

Magnus Wheatley

Martin Green

Guy Wiehahn

Head of Press & Public Relations



Phone: 020 7149 6273

Phone: 020 7523 4619

Phone: 020 7418 8893

 

 

 

 

CHAIRMAN'S STATEMENT

The past six months have been a period of steady development by Charles Stanley against a difficult background. Clients' funds under management and administration increased by 0.5% since 31 March 2014, from £20.1 billion to £20.2 billion, compared to a rise of 0.4% in the FTSE 100 Index. However within these figures the funds under discretionary management increased by 6.1% over the same period, from £8.2 billion to £8.7 billion, while other fund categories - Advisory Managed, Advisory Dealing and Execution-only - declined. This continuing shift in the balance in favour of discretionary managed funds means that at 30 September 2014 they represented 43.1% of the total funds under management and administration compared to 40.8% at our March 2014 year-end.

Group revenues have increased 4.1% to £72.9m (first half-year 2013/14: £70.0m), with notable growth achieved by our Financial Services Division and Charles Stanley Direct, respectively up 20.6% and 66.7%. In our Investment Management Division, which represents 80.4% of Group revenues, there has been a mixed performance, with strong growth of fee income from Managed services offset by lower commission income and a decline in income from Administered clients. This results from a combination of factors. The re-pricing programme to which I drew attention in our interim statement last year reflects enhancements in our service to our clients following the Retail Distribution Review, and a re-balancing of our charging structure with a greater emphasis on investment management fees and less on commission charged on transactions. This in turn has brought about a re-balancing between our different services. The improvement in fee income has been achieved despite the fact that we have suffered, as expected, a small percentage of attrition amongst clients with lower levels of investment assets. This is reflected particularly in the 8.3% reduction in client funds in our advisory dealing service since the March year-end. So the increase in fee income has been driven by a combination of re-pricing, increasing substitution of fees for commission income, and of re-balancing our mix of services.

Against this welcome but marginal improvement in our income, we have experienced a significant increase in our costs to £77.0m (first half-year 2013/14: £65.4m). I referred to this in our last Annual Report, for the year ended 31 March 2014. We have been carrying out a major upgrade of our systems and processes to meet the rising expectations of our clients and our regulators and there has been an increase in headcount to support this. We are very pleased with how this is taking shape and believe that it will add considerable strength - and still greater quality - to our basic proposition to our clients. At the same time we continue to invest in several developments for the future, principally our award-winning web-based direct-to-client service, Charles Stanley Direct.

Consequently we report a loss before tax for the half-year of £3.9 million, compared to a profit of £4.9 million for the first half of the previous year. If the one-off costs are excluded, to give a more meaningful trading result, we show an adjusted profit for the period of £1.5 million, compared with a profit of £8.0 million for the six months to 30 September 2013.

 

DIVIDEND

The Company operates a progressive dividend policy, in light of which and the reported loss for the period, the Directors have decided to maintain an interim dividend at the same level as last year, at 3.00p net per share. The dividend will be paid on 21 January 2015 to shareholders registered on 5 December 2014.

 

THE BOARD

I am delighted at the appointment of Paul Abberley as Chief Executive Officer of the company, subject to regulatory approval. As a result of recent EU legislation, I will be stepping down after a happy but busy 42 years as CEO, managing director and managing partner. I will continue as non-executive chairman of the company.

Paul joined us in June as Chief Investment Officer and has already made a marked impression on the company. Prior to this appointment Paul was the Acting CEO of Aviva Investors and member of the Aviva Group Executive Committee, leading a series of strategic re-alignments with Aviva Investors where he had worked since 2008.

I am particularly grateful to our two Non-Executive Directors, David Pusinelli and Bridget Guerin, who undertook the search and recruitment process, and who interviewed a number of strong candidates from both within and outside the company.

Paul has commenced a strategic review of the business to identify the measures required to enhance the profitability of the Group and drive its long-term growth, and will present to shareholders in due course.

As reported to you previously, just after the year-end, on 9 April 2014, we were delighted to announce the appointment of Anthony Scott, our Head of Investment Management, as a Director.

This has been a very challenging period for all our Directors, both executive and non-executive, particularly with the intense pace of regulatory change in our industry, and I am very grateful for all their guidance and support.

 

THE CHARLES STANLEY TEAM

I should also like to give my thanks, and those of the Board, to everyone in the Charles Stanley team. Our ambitious programme of development and enhancement of our services poses significant challenges, and we are very grateful for the enthusiasm of everyone in the company in tackling these and, despite the dull trading background, in helping to build Charles Stanley into a stronger and even more client-focussed business. 

OUTLOOK

The markets, through the period, have remained trapped in a narrow trading band reflecting the uncertainty that abounds in both the Eurozone and domestically. In the absence of an upturn in trading levels and market volatility our margins are likely to remain under pressure in the second half of the year. For the longer term, I am confident that the investment we are making, both in our traditional investment management business and in Charles Stanley Direct, together with the output from the strategic review which Paul Abberley has commenced, will lead to a further enhancement in the high quality of service to our clients, as well as restoring the company's profitability.

 

Sir David Howard

Chairman

26 November 2014

BUSINESS REVIEW

OVERVIEW

Good progress has been made during the period in increasing Discretionary funds under management, increasing fees and investing in the Group's infrastructure to support future growth; however, overall trading has been disappointing. In part this has been due to subdued market conditions with the FTSE 100 index and FTSE WMA Stock Market Balanced Index respectively up 0.4% and 2.0%, in part due to costs having risen ahead of revenues as the group has been investing for the future, and in part due to the fact that the regulatory costs of providing wealth management services continue to rise.

 

Client funds

Client funds for the Group increased 0.5% over the half year to 30 September 2014. Discretionary managed funds grew strongly by 6.1% as the migration from Advisory and Execution-only services continues. This is summarised below:

 





Change

Change


Sept

Sept

March

Sept

March


2014

2013

2014

2013

2014


£bn

£bn

£bn

%

%

Discretionary

8.7

6.9

8.2

   26.1%

     6.1%

Advisory managed

2.9

2.8

3.0

     3.6%

(3.3%)

Total managed

11.6

9.7

11.2

   19.6%

     3.6%







Advisory dealing

2.2

2.5

2.4

(12.0%)

 (8.3%)

Execution-only

6.4

6.3

6.5

     1.6%

  (1.5%)

Total administered

8.6

8.8

8.9

  (2.3%)

 (3.4%)

Total funds

20.2

18.5

20.1

     9.2%

     0.5%

FTSE 100 Index

6,623

6,462

6,598

     2.5%

     0.4%

WMA Stock Market Balanced Index

3,454

3,294

3,385

     4.9%

     2.0%

 

Trading performance

The increase in Discretionary funds combined with the impact of the revision of our charging structure, implemented toward the end of the last financial year, has been the principal contributor to group fee income increasing 17.8% compared with the half-year ended 30 September 2013. However, commission income declined 15.8%, leading to overall group revenues for the six months ended
30 September 2014, increasing £2.9m to £72.9m (first half year 2013/14: £70.0m).

 



Sept

Sept





2014

2013

Change




£m

£m

£m

%

Revenue






Fees


48.9

     41.5

          7.4

      17.8%

Commission


24.0

      28.5

(4.5)

(15.8%)

Total Revenue


72.9

        70.0

          2.9

        4.1%

Administrative expenses

(77.0)

(65.4)

(11.6)

(17.7%)

Other income


0.1

          0.1

              -

               -

Operating contribution

(4.0)

          4.7

        (8.7)

  (185.1%)

Net interest and finance income

0.1

          0.2

       (0.1)

 (50.0%)

Reported (loss)/profit before tax

(3.9)

          4.9

         (8.8)

 (179.6%)

Add back:






Charles Stanley Direct one-off costs

-

          0.3

(0.3)

               -

FSCS levy


1.6

          1.2

          0.4

      33.3%

Amortisation of intangible assets

1.3

          1.1

          0.2

      18.2%

Leicester branch one-off costs

0.3

          0.5

       (0.2)

(40.0%)

Restructuring costs

2.6

              -

          2.6

               -

Reduction in deferred consideration

(0.4)

              -

       (0.4)

               -

Underlying profit before tax

1.5

          8.0

(6.5)

  (81.3%)

 

While revenues for the period have grown 4.1%, administrative costs excluding adjusting items that total £5.4m (first half year 2013/14: £3.1m) increased 14.9% to £71.6m (first half year 2013/14: £62.3m), resulting in the underlying operating profit for the period falling to £1.5m (first half year 2013/14: £8.0m). As previously reported in the annual accounts, costs have increased due to a combination of business growth, investment in the future of the business and upgrading the quality of the service of our principal business of Discretionary and Advisory investment management. Most notably, staff costs have increased by £6.3m as a result of increased variable staff costs related to revenue growth and increased headcount in both front and back office.

 

DIVISIONAL REVIEW

The Group is organised into four operating divisions: Investment Management Services, Financial Services, Charles Stanley Direct and Charles Stanley Securities. The split of funds, revenues and expenses between the divisions is shown in the following tables and their performance reviewed in more detail below.

 

In order to show more accurately the underlying contribution of each division, a greater proportion of indirect central overheads have been allocated to each division. Prior year comparatives have been restated to reflect the same cost allocation methodology.

 

Funds under management


Sept

Sept

2014

2013

Total

IM Services

Financial Services

Charles Stanley Direct

Total

IM Services

Financial Services

Charles Stanley Direct

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

Discretionary

8.7

8.1

0.6

-

6.9

6.8

0.1

-

Advisory Managed

2.9

2.6

0.3

-

2.8

2.5

0.3

-

Total managed

11.6

10.7

0.9

-

9.7

9.3

0.4

-

Advisory Dealing

2.2

2.2

-

-

2.5

2.5

-

-

Execution-only

6.4

4.9

-

1.5

6.3

5.0

-

1.3

Total administered

8.6

7.1

-

1.5

8.8

7.5

-

1.3

Total funds

20.2

17.8

0.9

1.5

18.5

16.8

0.4

1.3

 

Revenue for six months ended


Sept

Sept


2014

2013


Total

Fees

Commi-ssions

Total

Fees

Commi-ssions


£m

£m

£m

£m

£m

£m

Investment Management Services

58.6

36.8

21.8

57.3

31.4

25.9

Financial Services

7.6

7.4

0.2

6.3

6.1

0.2

Charles Stanley Direct

2.5

2.1

0.4

1.5

1.1

0.4

Charles Stanley Securities

4.2

2.6

1.6

4.9

2.9

2.0


72.9

48.9

24.0

70.0

41.5

28.5

 

Administrative expenses for six months ended


Sept

Sept




2014

2013

Change



£m

£m

£m

%

Investment Management Services

47.8

43.9

3.9

8.9%

Financial Services

8.1

6.3

1.8

28.6%

Charles Stanley Direct

4.4

2.6

1.8

69.2%

Charles Stanley Securities

5.0

4.7

0.3

6.4%







65.3

57.5

7.8

13.6%

Central costs

11.7

7.9

3.8

48.1%


77.0

65.4

11.6

17.7%

 

INVESTMENT MANAGEMENT SERVICES

Funds managed and administered for our Investment Management Services clients and the movements during the half year have been relatively static, increasing 0.6% since 31 March 2014 to £17.8bn at 30 September 2014. As shown in the table below, market movement of 2.3% has compensated for a small net outflow of administered funds which has occurred as a result of the revision to our charging structures implemented at the end of last year which included increased minimums.

 


Managed

Administered

Total

Change


£bn

£bn

£bn

%






Funds at 1 April 2014

                    10.3

                 7.4

    17.7







Clients of new investment managers

                       0.2

              0. 2

     0.4


Net inflow/(outflow) from existing clients

                            0.1

(0.6)

(0.5)


Lost clients

(0.1)

(0.1)

(0.2)







Net inflow/(outflow) of funds

                            0.2

(0.5)

(0.3)

(1.7%)

Market movement

                            0.2

                 0.2

     0.4

      2.3%

Funds at 30 September 2014

                          10.7

             7.1

   17.8

     0.6%

 

Consistent with the marginal increase in fund levels, revenues for the division have increased modestly by 2.3%, though this overall change masks strong growth in the revenues of our Managed business, up 10.2%, offset by a decline of Administered business by 16.4%.

 


Sept

Sept




2014

2013

Change



£m

£m

£m

%

Managed

                            44.3

              40.2

        4.1

   10.2%

Administered

                            14.3

              17.1

(2.8)

(16.4%)

Total income

                         58.6

             57.3

        1.3

     2.3%

Administrative expenses

(47.8)

(43.9)

(3.9)

(8.9%)

Operating contribution

                          10.8

              13.4

(2.6)

(19.4%)

Managed as % of total

                        75.6%

        70.2%



 

There were a number of contributory factors to the good progress made by our Managed business, primarily being strong growth of discretionary funds under management and fees arising therefrom, offset by a lower rate of growth of advisory managed funds and a decline in commissions. These trends have been driven by our continuing focus on encouraging more clients toward a fee paying discretionary service at the expense of charging less commission. Lower commission levels have also resulted from a lower level of dealing activity during the period. Thus on our discretionary book of business, average funds under management increased 20% and fees increased 26.5%, but commission income declined 15.0%.  For the advisory managed book, average funds under management increased 3.8%, fee income 21.4% but commission income fell 16.7%.

 

Overall, our Managed business enjoyed a 10.2% increase in revenues deriving from a 15.4% increase in average funds offset by a 4 basis point decline in margin.

 

Income from managed clients


Sept



Sept





2014



2013



Change


Total

Disc

Adv

Total

Disc

Adv




£m

£m

£m

£m

£m

£m

£m

%

Fees

31.6

24.8

6.8

25.2

19.6

5.6

     6.4

25.4%

Commission

12.7

10.2

2.5

15.0

12.0

3.0

(2.3)

(15.3%)


44.3

35.0

9.3

40.2

31.6

8.6

    4.1

 10.2%


£bn

£bn

£bn

£bn

£bn

£bn

£bn

     %

Average funds

10.5

7.8

2.7

9.1

6.5

2.6

 1.4

15.4%


bp

bp

bp

bp

bp

bp

bp

      %

Revenue margin (%)

0.84

0.90

0.69

0.88

0.97

0.67

0.04

(4.6%)

 

For the Investment Management division as a whole, the encouraging revenue performance from our Managed business was materially offset by a sharp drop in our Administered business whose income declined to £14.3m (first half year 2013/14: £17.1m). As shown in the table below, this decline comprised a £1.0m drop in fee income because of a further reduction in net interest earned on deposits and decline in trail income, and a £1.8m drop in commission income as transaction volumes declined by 22%.

 

Income from administered clients


Sept



Sept






2014



2013



Change


Total

Adv

Exe

Total

Adv

Exe




£m

£m

£m

£m

£m

£m

£m

%

Fees

5.2

1.7

3.5

6.2

2.1

4.1

(1.0)

(16.1%)

Commission

9.1

2.8

6.3

10.9

4.1

6.8

(1.8)

(16.5%)


14.3

4.5

9.8

17.1

6.2

10.9

(2.8)

(16.4%)

 

FINANCIAL SERVICES

Total income for the Financial Services division grew by 20.6% from £6.3m to £7.6m including first time revenues of £0.8m from Charles Stanley Pan Asset which was acquired in December 2013.

 


Sept

Sept




2014

2013

Change



£m

£m

£m

%

Financial planning and wealth management

2.8

2.6

0.2

7.7%

EBS Management PLC

1.2

1.1

0.1

9.1%

Charles Stanley Financial Solutions Limited

1.5

1.6

(0.1)

(6.3%)

Charles Stanley Pan Asset Capital Management Limited

0.8

-

0.8

-

Matterley

1.3

1.0

0.3

30.0%

Total revenue

7.6

6.3

1.3

20.6%

Administrative expenses

(8.1)

(6.3)

(1.8)

28.6%

Operating contribution

(0.5)

-

(0.5)


 

Financial planning and wealth management

The Financial Planning and Wealth Management department has increased its gross revenue by 7.7% over the year. This is a satisfactory result in light of changes in the wealth management industry as trail income is being replaced by adviser charging and customer agreed remuneration. We have addressed many of the issues created by the Retail Distribution Review and believe the business is well placed to benefit from the opportunities that we can foresee including those presented by the changing pension regime.

 

EBS Management PLC

EBS continues to enjoy strong growth of SIPP schemes, up 8% in the year to date, which continues to drive revenues forward. The majority of this growth has been of lower margin white labelled SIPPs. The Government's proposed changes to pension legislation are likely to give rise to further opportunities and challenges in adapting systems to cope, albeit that there remains much in the detail of the Government's proposals to be resolved.

 

Charles Stanley Financial Solutions Limited

Although revenue decreased marginally from £1.6m to £1.5m, the core employee benefits business increased 11% from £1.4m to £1.5m. This increase was achieved partly due to increased Auto Enrolment activity resulting in additional revenue from both existing and new corporate clients, and partly due to a growing number of opportunities from professional introducers; in particular, the exclusive Assurex Global partnership signed in July this year. These developments are helping to counter the likely impact on future revenues of capping of pension charges that will take effect in spring 2015, and the removal of pensions commissions from April 2016.

 

Charles Stanley Pan Asset Capital Management Limited

Charles Stanley Pan Asset made a first-time contribution of revenues for the six months ended 30 September 2014 of £0.8m, having been acquired in December 2013. The team has now been integrated with the rest of the Group's investment management operations which has enabled planned cost savings to be realised.

 

A proportion of the consideration payable for Pan Asset is payable in December 2014 and June 2015, contingent on certain assets under management ("AUM") targets being achieved. In view of the fact that it is unlikely that the target level will be achieved, £0.4m of deferred consideration has been reversed. This has been shown as an adjusting item to underlying profit.

 

Matterley

Matterley, Charles Stanley's fund division, has seen assets increase 2.7% since the beginning of the year with notable performances from the Regular High Income Fund and the International Growth Fund. It was announced on 8 September 2014 that agreement had been reached to sell the Matterley Undervalued Asset Fund to Miton Group. Initial consideration of £0.8m will be paid on completion of the transaction in December.



Sept

March




2014

2014

Growth



£m

£m

%

FP Matterley Regular High Income Fund


66.0

59.5

10.9%

FP Matterley Equity Fund


10.3

10.7

(3.7%)

FP Matterley International Growth Fund


18.8

16.7

12.6%

FP Matterley UK & International Growth Fund


86.6

80.7

7.3%

FP Matterley Undervalued Assets Fund


85.7

92.7

(7.6%)

Total


267.4

260.3

2.7%

 

CHARLES STANLEY DIRECT

Charles Stanley Direct is our full service direct-to-client digital investment platform that combines with existing Group back office settlement and custody for funds, stocks and shares. The new platform has been well received by the market and most recently won the Consumer Platform award for leading innovation at the Aberdeen UK Platform Awards 2014.

 

The quality of client service provision, both digitally and via telephone, has been reflected in the ongoing rapid increase in the number of accounts opened since public launch on 1st March 2013. 3,300 net new accounts have been opened (an increase of 22.9%) in this reporting period, to give total accounts in excess of 17,500 at 30 September 2014. Since 31 March 2014 assets under administration ("AUA") on the platform have increased by 16.8%, standing at £866m. The driver of this growth has been fund/ISA transfer business which generates monthly platform fees.

 

The Charles Stanley Direct division also includes the broadly static books of discount fund broker Garrison, and a white label stockbroking service.

 

The total AUA of the division is £1.5 billion.

 

As a result of the rapid increase in account numbers on the new platform, Charles Stanley Direct's revenues for the period increased 66.7% to £2.5m (first half-year 2013/14: £1.5m). Significant investment is continuing to be made into the platform as the Board believes there are considerable opportunities for rapid growth in the provision of digital direct platform and wealth management services.

 

Revenue


Sept

Sept




2014

2013

Change



£m

£m

£m

%

Fees

        2.1

        1.1

        1.0

   90.9%

Commission

        0.4

        0.4

           -

        -

Total revenue

        2.5

        1.5

        1.0

   66.7%

Administrative expenses

(4.4)

(2.6)

(1.8)

(69.2%)

Operating contribution

(1.9)

(1.1)

(0.8)

(72.7%)

 

CHARLES STANLEY SECURITIES

Charles Stanley Securities, the Group's equity capital markets business focused on the small and mid-cap sector, has experienced lower revenues as a result of reduced secondary commissions in both equity and bond trading and lower corporate finance fees.

 

The division has been involved in raising a total of £77m on behalf of clients during the first half and currently acts for 46 retained clients. The division has a healthy pipeline of both M&A and equity capital market mandates for the second half of the financial year.

 

Revenue


Sept

Sept




2014

2013

Change



£m

£m

£m

%

Fees

         2.6

         2.9

(0.3)

(10.3%)

Commission

         1.6

         2.0

(0.4)

(20.0%)

Total revenue

         4.2

         4.9

(0.7)

(14.3%)

Administrative expenses

(5.0)

(4.7)

(0.3)

(6.4%)

Operating contribution*

(0.8)

         0.2

(1.0)

(500.0%)

 

*The relationship with WG Partners, which made an operating contribution of £0.2m in September 2013, ceased at the beginning of the current financial year.

 

Charles Stanley Group PLC

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

SIX MONTHS ENDED 30 SEPTEMBER 2014

 


 

Unaudited

half-year

30 Sept

Unaudited

half-year 30 Sept

Audited year

31 March



2014

2013

2014


Notes

£'000

£'000

£'000






Continuing operations





Revenue

1

72,898

69,981

149,028

Administrative expenses


(77,062)

(65,435)

(143,440)

Other income


113

120

140











Operating (loss)/profit

3

(4,051)

       4,666

       5,728











Finance income

4

144

          227

          483

Finance costs

4

(38)

(28)

(85)






Net finance income

4

106

          199

          398











(Loss)/profit before tax


(3,945)

       4,865

       6,126

Tax expense

5

347

(1,012)

(1,369)






(Loss)/profit for the period attributable to equity shareholders


(3,598)

       3,853

       4,757






 

 

Earnings per share

 

Basic

 

 

 

 

 

7

 

 

 

 

(7.90p)

 

 

 

 

8.52p

 

 

 

 

10.51p

 

Diluted

 

7

 

(7.86p)

 

8.44p

 

10.42p










The notes on pages 15 to 30 are an integral part of these condensed interim financial statements.

 

Charles Stanley Group PLC

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

SIX MONTHS ENDED 30 SEPTEMBER 2014


Unaudited

Unaudited

Audited

half-year

half-year

year

30 Sept

30 Sept

31 March


2014

2013

2014


£'000

£'000

£'000





(Loss)/profit for the period

(3,598)

3,853

   4,757

Other comprehensive income




Items that will never be reclassified to profit or loss




Revaluation of property, plant and equipment

                -

               -

(67)

Related tax

                -

               -

            16

Re-measurement of the defined benefit obligation

(3,282)

          779

       2,290

Related tax

           675

(329)

(677)


(2,607)

          450

     1,562





Items that are or may be reclassified to profit or loss




Available-for-sale financial assets - net change in fair value

(548)

(70)

  136

Available-for-sale financial assets - reclassified to profit or loss

           540

               -

  140

Related tax

           102

            73

  33


             94

              3

  309

Other comprehensive income for the period, net of tax

(2,513)

          453

1,871

Total comprehensive income for the period attributable to equity shareholders

(6,111)

       4,306

6,628

 

The notes on pages 15 to 30 are an integral part of these condensed interim financial statements.

 

Charles Stanley Group PLC

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

AT 30 SEPTEMBER 2014

 



Unaudited

Unaudited

Audited



30 Sept

30 Sept

31 March



2014

2013

2014


Notes

£'000

£'000

£'000

Assets





Intangible assets and goodwill

8

34,409

33,288

35,286

Property, plant and equipment

9

14,567

13,755

13,749

Deferred tax assets


2,104

1,579

1,282

Available-for-sale financial assets

10

6,860

7,068

7,300

Trade and other receivables


1,486

1,446

1,467

Non-current assets


59,426

57,136

59,084

Trade and other receivables


236,582

380,426

212,737

Financial assets at fair value through profit or loss


70

215

117

Cash and cash equivalents


18,943

27,775

38,567

Current tax assets


201

-

-

Current assets


255,796

408,416

251,421

Total assets


315,222

465,552

310,505

 

The notes on pages 15 to 30 are an integral part of these condensed interim financial statements.

 

Charles Stanley Group PLC

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION (continued)

AT 30 SEPTEMBER 2014








Unaudited

Unaudited

Audited



30 Sept

30 Sept

31 March



2014

2013

2014


Notes

£'000

£'000

£'000

Equity





Ordinary shares

11

11,416

11,310

11,314

Share premium


3,514

2,560

2,597

Revaluation reserve


2,577

2,228

2,483

Retained earnings


56,657

66,223

67,009

Total equity attributable to equity holders of the Company


74,164

82,321

83,403

Non-controlling interests


24

53

24

Total equity


74,188

82,374

83,427

Liabilities





Trade and other payables


-

-

116

Borrowings

12

1,897

2,029

1,970

Employee benefits

13

10,307

8,263

6,933

Non-current liabilities


12,204

10,292

9,019

Trade and other payables


228,680

371,032

217,135

Borrowings

12

150

307

150

Current tax liabilities


-

1,547

774

Current liabilities


228,830

372,886

218,059

Total liabilities


241,034

383,178

227,078

Total equity and liabilities


315,222

465,552

310,505

 

The notes on pages 15 to 30 are an integral part of these condensed interim financial statements.

 

Charles Stanley Group PLC

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

SIX MONTHS ENDED 30 SEPTEMBER 2014


Share capital

Share premium

Re-valuation reserve

Retained earnings

Total

Non-controlling interests

Total equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000









1 April 2013 (audited)

11,309

2,549

2,225

65,882

81,965

53

82,018









Profit for the period

-

-

-

3,853

3,853

-

3,853

Other comprehensive income:








Revaluation of available-for-sale financial assets

-

-

-

-

-

-

-

 - net gain from change in fair values

-

-

(70)

-

(70)

-

(70)

Deferred tax on available-for-sale financial assets

-

-

73

-

73

-

73

Defined benefit plan actuarial gains

-

-

-

779

779

-

779

Deferred tax on defined benefit plan actuarial gains

-

-

-

(329)

(329)

-

(329)

Total other comprehensive income for the period

-

-

3

450

453

-

453









Total comprehensive income for the period

-

-

3

4,303

4,306

-

4,306

Dividends paid

-

-

-

(4,071)

(4,071)

-

(4,071)

Share options:








  value of employee services

-

-

-

109

109

-

109

  issue of shares

1

11

-

-

12

-

12

30 September 2013

(unaudited)

11,310

2,560

2,228

66,223

 82,321

 53

82,374

 

Profit for the period

              -

-

             -

            904

         904

                      -

        904

Other comprehensive income:








Revaluation of property, plant and equipment

             

 

 

-

-

 

 

 

(67)

 

 

 

-

 

 

 

(67)

 

 

 

-

 

 

 

(67)

Deferred tax on property, plant and equipment

              -

-

     16

                -

           16

                      -

          16

Revaluation of available-for-sale financial assets

              -

-

             -

                -

             -

                      -

            -

 - net gain from change in fair values

              -

-

        206

                -

         206

                      -

        206

 - net profit on disposal transferred to profit or loss

              -

-

        140

                -

         140

                      -

        140

Deferred tax on available- for-sale financial assets

              -

-

         (40)

                -

          (40)

                      -

         (40)

Defined benefit plan actuarial gains

              -

-

             -

         1,511

      1,511

                      -

     1,511

Deferred tax on defined benefit plan actuarial gains

              -

-

             -

           (348)

        (348)

                      -

       (348)

Total other comprehensive income for the period

              -

-

        255

         1,163

      1,418

                      -

     1,418

 

 








Total comprehensive income for the period

              -

-

        255

         2,067

      2,322

                   -

     2,322

Dividends paid to equity shareholders

              -

-

             -

        (1,358)

     (1,358)

                      (29)

    (1,387)

Share options:








  value of employee services

              -

-

             -

             77

           77

                      -

          77

  issue of shares

4

37

-

-

41

-

41

31 March 2014 (audited)

      11,314

2,597

      2,483

67,009

83,403

                    24

83,427

Loss for the period

              -

-

-

(3,598)

(3,598)

                      -

 (3,598)

Other comprehensive income:








Revaluation of available-for-sale financial assets

              -

-

-

-

-

                      -

-

 - net loss from change in fair values

              -

-

(548)

-

(548)

                      -

(548)

- net profit on disposal transferred to profit or loss

-

-

540

-

540

-

540

Deferred tax on available-for-sale financial assets

-

-

102

-

102

-

102

Defined benefit plan actuarial loss

              -

-

-

(3,282)

     (3,282)

                      -

  (3,282)

Deferred tax on defined benefit plan actuarial gains

              -

-

-

675

675

                      -

675

Total other comprehensive income for the period

              -

-

94

(2,607)

   (2,513)

                      -

 (2,513)

 

Total comprehensive income for the year

-

-

94

(6,205)

(6,111)

-

(6,111)

Dividends paid

-

-

-

(4,223)

(4,223)

-

(4,223)

Share options:








  value of employee services

-

-

-

76

76

-

  76

  issue of shares

102

917

-

1,019

-

  1,019









30 September 2014 (unaudited)

11,416

3,514

2,577

56,657

74,164

24

74,188

 

The notes on pages 15 to 30 are an integral part of these condensed interim financial statements.

 

Charles Stanley Group PLC

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

SIX MONTHS ENDED 30 SEPTEMBER 2014

 



Unaudited

Unaudited

Audited

Half-year

Half-year

Year



30 Sept

30 Sept

31 March

2014

2013

2014

                                                                   

Notes

£'000

£'000

£'000

Cash flows from operating activities





Cash (absorbed by)/generated from operations

15

(11,224)

(593)

17,184

Interest received


96

189

483

Interest paid


(38)

(28)

(85)

Tax paid                                                         


(672)

(1,124)

(2,384)

Net cash (outflows)/inflows from operating activities


(11,838)

(1,556)

15,198






Cash flows from investing activities





Acquisition of subsidiaries and other businesses


-

-

(1,208)

Acquisition of intangible assets

8

(2,191)

(1,593)

(2,272)

Purchase of property, plant and equipment

9

(2,411)

(7,634)

(10,552)

Purchase of available-for-sale financial assets

10

(211)

(229)

(2,479)

Proceeds from sale of available-for-sale financial assets


191

166

2,644

Dividends received


113

120

140

Net cash used in investing activities


(4,509)

(9,170)

(13,727)






Cash flows from financing activities





Proceeds from issue of ordinary share capital


1,019

12

53

Cash (outflow)/inflow from debt and lease financing


(73)

2,179

2,120

Dividends paid

6

(4,223)

(4,071)

(5,458)

Net cash used in financing activities


(3,277)

(1,880)

(3,285)

Net decrease in cash and cash equivalents


(19,624)

(12,606)

(1,814)

Cash and cash equivalents at start of period


38,567

40,381

40,381

Cash and cash equivalents at end of period


18,943

27,775

38,567

 

 

The notes on pages 15 to 30 are an integral part of these condensed consolidated financial statements.

 

Charles Stanley Group PLC

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

SIX MONTHS ENDED 30 SEPTEMBER 2014

 

1 OPERATING SEGMENTS

The Group has four strategic divisions which are its reportable segments. These segments are the basis on which the Group reports its performance to the Board, which is the Group's chief operating decision maker. The operations of each division are described below:

 

Division

Operations

Investment Management Services

Provision of investment services to individuals, companies, trusts and charities;

Financial Services

SIPP and SSAS administration, employee benefits, financial planning and wealth management;

Charles Stanley Direct

Direct-to-client investment service including online dealing; and

Charles Stanley Securities

Advisory, broking and corporate finance services for smaller and mid-cap UK listed companies

 


Investment Management Services

Financial Services

Charles Stanley Direct

Charles Stanley Securities

Sub-total

Central

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

Six months ended 30 September 2014








Fees








   Investment management

27,928

647

-

-

28,575

-

28,575

   Administration

8,851

6,723

2,135

83

17,792

-

17,792

   Corporate finance

-

-

-

2,565

2,565

-

2,565


36,779

7,370

2,135

2,648

48,932

-

48,932

Commission

21,814

210

400

1,542

23,966

-

23,966

Total Revenue

58,593

7,580

2,535

4,190

72,898

-

72,898

Administrative expenses

(47,827)

(8,127)

(4,376)

(5,027)

(65,357)

(11,705)

(77,062)

Other income

-

-

-

-

-

113

113

Operating contribution

10,766

(547)

(1,841)

(837)

7,541

(11,592)

(4,051)

Segment assets

234,695

10,781

12,106

5,264

262,846

52,376

315,222

Segment liabilities

207,541

1,167

200

2,569

211,477

29,557

241,034

 


Investment Management Services

Financial Services

Charles Stanley Direct

Charles Stanley Securities

Sub-total

Central

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

Six months ended 30 September 2013








Fees








   Investment management

20,961

420

-

-

21,381

-

21,381

   Administration

10,469

5,669

1,125

60

17,323

-

17,323

   Corporate finance

-

-

-

2,808

2,808

-

2,808


31,430

6,089

1,125

2,868

41,512

-

41,512

Commission

25,898

200

338

2,033

28,469

-

28,469

Total Revenue

57,328

6,289

1,463

4,901

69,981

-

69,981

Administrative expenses*

(43,931)

(6,327)

(2,625)

(4,667)

(57,550)

(7,885)

(65,435)

Other income

-

-

-

-

-

120

120

Operating contribution

13,397

(38)

(1,162)

234

12,431

(7,765)

4,666

Segment assets

328,858

8,637

10,768

63,523

411,786

53,766

465,552

Segment liabilities

267,904

472

174

93,019

361,569

21,609

383,178

 

Year ended  31 March 2014








Fees








   Investment management

44,592

885

-

-

45,477

-

45,477

   Administration

20,086

11,983

2,446

109

34,624

-

34,624

   Corporate finance

-

-

-

10,525

10,525

-

10,525


64,678

12,868

2,446

10,634

90,626

-

90,626

Commission

53,203

424

753

4,022

58,402

-

58,402

Total Revenue

117,881

13,292

3,199

14,656

149,028

-

149,028

Administrative expenses*

(93,416)

(14,021)

(5,683)

(12,009)

(125,129)

(18,311)

(143,440)

Other income

-

-

-

-

-

140

140

Operating contribution

24,465

(729)

(2,484)

2,647

23,899

(18,171)

5,728

Segment assets

212,211

12,530

12,115

6,505

243,361

67,144

310,505

Segment liabilities

189,364

1,289

204

2,471

193,328

33,750

227,078

 

*Administrative expenses for prior years have been re-allocated to each division in accordance with the current year.

 

2 EMPLOYEE BENEFIT EXPENSES



30 Sept

30 Sept

31 March



2014

2013

2014



£'000

£'000

£'000

Staff costs for the Group during the period:





Wages and salaries


28,176

24,651

54,240

Social security contributions


2,973

2,874

5,714

Share options - value of employee services


76

109

186

Pension costs





   Defined contribution plans


2,044

1,635

3,418

   Defined benefit plan


460

508

1,104








33,729

29,777

64,662

 

3 OPERATING PROFIT



30 Sept

30 Sept

31 March



2014

2013

2014



£'000

£'000

£'000

The following items have been included in arriving at the results:





Depreciation of property, plant and equipment:





   Owned assets


1,593

1,390

2,707

Amortisation and impairment


3,568

1,126

2,747

Auditors' remuneration:





   Audit/Review of the Company's annual accounts


107

78

73

   Audit of the Company's subsidiaries


18

29

240

   Services relating to taxation


18

19

49

   Other assurance services


-

-

81

   All other services


11

-

628

Gains on financial assets at fair value through profit or loss


48

-

75

Gains on foreign currency exchange


(31)

190

20

Operating lease rentals payable


1,351

897

2,301

Financial Services Compensation Scheme levy


1,646

1,200

1,200






 

4 NET FINANCE INCOME



30 Sept

30 Sept

31 March



2014

2013

2014



£'000

£'000

£'000






   Interest Income


96

189

324

Gains and losses on available-for-sale financial assets


48

38

159

Finance income


144

227

483






   Interest payable on bank borrowings


(2)

(8)

(11)

   Interest payable on other loans


(36)

(20)

(74)

Finance costs 


(38)

(28)

(85)

Net finance income


106

199

398

 

5 TAX EXPENSE



30 Sept

30 Sept

31 March



2014

2013

2014



£'000

£'000

£'000

Analysis of charge in period





Current taxation





   Current period


(301)

1,351

1,835

   Adjustment in respect of prior periods


-

-

3

Deferred taxation





    Origination and reversal of temporary differences





    Current period


(46)

(120)

(191)

    Adjustments in respect of prior periods


-

(219)

(278)








(347)

1,012

1,369

 

The tax credit is lower than the statutory rate as goodwill impairment is disallowable for tax purposes.

 

6 DIVIDENDS PAID



30 Sept

30 Sept

31 March



2014

2013

2014



£'000

£'000

£'000

Final paid of 9.25p per share (2013: 9.00p)


4,223

4,071

4,071

Interim paid of 3.00p per share


-

-

1,358








4,223

4,071

5,429

Amount paid by subsidiary to non-controlling interests in the year


-

-

29

 

The Directors are proposing an interim dividend in respect of the six months ended 30 September 2014 of 3.00p per share which will absorb an estimated £1.4 million of shareholders' funds. It will be paid on 21 January 2015 to shareholders who are on the register of members on 5 December 2014.

 

7 EARNINGS PER SHARE

The directors believe that a more accurate reflection of the performance of the Group's ongoing business is given by the measure of underlying earnings per share. "Underlying earnings" represent earnings before one-off costs, FSCS levy and amortisation of customer relationships. This measure is also followed by the analyst community as a benchmark of the Group's ongoing performance.

 



30 Sept

30 Sept

31 March



2014

2013

2014



No.

No.

No.



000

000

000






Weighted average number of shares in issue in the period


45,567

45,236

45,243

Effect of share options


183

388

420

Diluted weighted average number of shares in issue during the period


45,750

45,624

45,663



£'000

£'000

£'000

Reported earnings attributable to ordinary shareholders


(3,598)

3,853

4,757

Charles Stanley Direct one-off costs


-

270

1,278

Amortisation of intangible assets


1,264

1,126

2,440

Financial Services Compensation Scheme levy


1,646

1,200

1,200

Leicester branch and other acquisition one-off costs


280

477

2,417

Restructuring costs


2,639

-

-

Reduction in deferred consideration


(388)

-

-

Tax on adjusting items


(1,143)

(712)

(1,687)






Underlying earnings attributable to ordinary shareholders (not reviewed)


700

6,214

10,405

Based on reported earnings





   Basic earnings per share


(7.90p)

8.52p

10.51p

   Diluted earnings per share


(7.86p)

8.44p

10.42p

Based on underlying earnings (not reviewed)





   Basic earnings per share


1.54p

13.74p

23.00p

   Diluted earnings per share


1.53p

13.62p

22.79p

 

8 INTANGIBLE ASSETS



Goodwill

Customer relationships

Internally generated software

Total



£'000

£'000

£'000

£'000

Cost






1 April 2014


25,450

21,153

1,540

48,143

Additions


-

685

1,506

2,191

30 September 2014


25,450

21,838

3,046

50,334

Amortisation






1 April 2014


             -

                           12,550

                                          307

   12,857

Amortisation during the period


-

1,007

373

1,380

Impairment during the period


388

-

1,688

30 September 2014


1,300

13,945

680

15,925

Net book value






30 September 2014


24,150

7,893

2,366

34,409

31 March 2014


25,450

8,603

1,233

35,286

 

For the purposes of impairment testing, goodwill has been allocated to the Group's operating divisions as follows:

 



30 Sept

31 March



2014

2014



£'000

£'000

Investment Management Services


9,756

10,556

Financial Services


4,623

5,123

Charles Stanley Direct


8,247

8,247

Charles Stanley Securities


1,524

1,524



24,150

25,450

 

a) Goodwill

The recoverable amounts of goodwill allocated to the Cash Generating Units ("CGU") are determined by first calculating the fair value less costs to sell. If the fair value less cost to sell is found to be lower than the carrying amount the recoverable amount is then determined based on value in use calculations.

 

The fair value less costs to sell calculations are largely based on a percentage of funds under management. Where this approach is not appropriate a turnover multiple is used. The rates used are those implied by recent transactions in the market or where appropriate, similar quoted businesses. When calculating the fair value less cost to sell key assumptions were stress tested to determine whether the calculations were sensitive to a reasonably possible change in these assumptions. No material differences were noted as a result of these stress tests. The value in use calculations use pre-tax cash flow projections based on revenue and expense forecasts covering a five to seven year period.

 

Following the strategic decision to cease providing Execution-only access to traded options, the Group assessed the recoverable amount of the Durlacher business for the six months ended 30 September 2014. As a result, an impairment charge of £0.8 million has been recognised. The impairment charge was allocated fully to goodwill, reducing the Durlacher carrying value to £0.7 million, and is included in administrative expenses in the condensed consolidated interim income statement.

 

The recoverable amount of the Durlacher business was based on its value in use. The key assumptions used in the estimation of value in use were as follows:

 

Discount rate

12%

Growth rate

0%

 

Following a loss in the Charles Stanley Financial Solutions business for the six months ended 30 September 2014, the Group assessed the recoverable amount of the CGU. As a result, an impairment charge of £0.5 million has been recognised. The impairment charge was allocated fully to goodwill, reducing the Charles Stanley Financial Solutions goodwill to £1.9 million, and is included in administrative expenses in the condensed consolidated interim income statement.

 

The recoverable amount of the Charles Stanley Financial Solutions business was based on its fair value less cost to sell using a turnover multiple approach. The key assumptions used in the estimation of fair value less cost to sell were as follows:

 

Costs to sell

10% of turnover

Turnover multiple

1.25

 

Each valuation referred to above would be classified as a level 3 fair value under the IFRS fair value hierarchy as inputs are not based on observable market data.

 

b) Customer relationships

Purchases of customer relationships relate to payments made to investment managers and third parties for the introduction of customer relationships.

 

A proportion of the consideration payable for Pan Asset is contingent on certain AUM targets being achieved. The Group performed a review on the likelihood that the target levels will be achieved. The Group determined that it was unlikely that the targets will be achieved and as a result the deferred consideration payable has been reduced to nil and an impairment charge has been recognised to reduce the Pan Asset Capital Management intangible asset to £1.0 million (from £1.4 million).

 

9 PROPERTY, PLANT & EQUIPMENT



Freehold premises

Long leasehold premises

Short leasehold premises

Office equipment and motor vehicles

Total



£'000

£'000

£'000

£'000

£'000

Cost







1 April 2014


4,929

2,669

9,173

14,867

31,638

Additions


52

-

736

1,623

2,411

30 September 2014


4,981

2,669

9,909

16,490

34,049








Depreciation







1 April 2014


123

1,849

4,952

10,965

17,889

Charge for the period


64

42

544

943

1,593

30 September 2014


187

1,891

5,496

11,908

19,482








Net book value







30 September 2014


4,794

778

4,413

4,582

14,567

31 March 2014


4,806

820

4,221

3,902

13,749

 

10 AVAILABLE-FOR-SALE FINANCIAL ASSETS



Listed

Unlisted




investments

investments

Total



£'000

£'000

£'000

Fair value





   1 April 2014


3,531

3,769

7,300

   Additions


211

-

211

   Disposals


(143)

-

(143)

   Revaluation and impairment in period


(8)

(500)

(508)






30 September 2014


3,591

3,269

6,860

 

At 30 September 2014, the Group revalued and impaired its equity investment in Masterlist. The valuation was based on the Net Asset Value of the operating entity of Masterlist. As a result, the shares owned by the Group have been impaired to nil. The £0.5m impairment charge is included within administrative expenses in the condensed consolidated interim income statement.

 

The Group also assessed the recoverability of the loan it has with Masterlist, which is repayable in 2017. The Group believes that Masterlist still has sufficient access to liquid funds, and will therefore continue to operate as a Going Concern. As a result there is no need for impairment at this time.

 

11 SHARE CAPITAL



30 Sept

30 Sept

31 March



2014

2013

2014



£'000

£'000

£'000






Authorised





80,000,000 ordinary shares of 25p each


20,000

20,000

20,000






Allotted and fully paid





45,665,697 ordinary shares of 25p each


11,416

11,310

11,314






 

As at 30 September 2014 the following options have been granted and remain outstanding in respect of ordinary shares of 25p in the Company under the Company's Save As You Earn Scheme.

 

Date of grant

18 Dec 2013

19 Dec 2012

20 Dec 2011

11 March 2011

Exercisable during the six months commencing

1 Feb 2017

31 Jan 2016

1 Feb 2015

1 May 2014

Number of shares

144,248

166,425

302,434

4,946

Expected price per share

£4.11

£2.48

£2.34

£2.51

Expected fair value of option

£1.26

£0.69

£0.53

£0.79






 

12 BORROWINGS



30 Sept

30 Sept

31 March



2014

2013

2014



£'000

£'000

£'000






Current





   Bank of England base rate redeemable loan


-

157

-

   Bank loan


150

150

150








150

307

150






Non-current





   Bank loan


1,897

2,029

1,970






 

The bank loan is secured by freehold property disclosed in Note 9. The loan is repayable in 20 quarterly instalments with the final balance due on 18 August 2018. It bears interest at 2.75% per annum above the Bank of England base rate (currently 0.5%).

13 EMPLOYEE BENEFITS

The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in independently administered funds.

The Group also sponsors the Charles Stanley & Co. Limited Retirement Benefits Scheme ("the Scheme") which is a funded defined benefit arrangement. A full actuarial valuation of the Scheme was carried out at 13 May 2011 and updated to 30 September 2014 by a qualified actuary, independent of the Scheme's sponsoring employer. The major assumptions used by the actuary are shown below.

 

The Company currently pays into the defined benefit scheme, contributions at the rate of 25.5% of pensionable pay plus £315,000 per annum. This rate is net of member contributions of 3% of pensionable pay (nil for Directors).

 

It is the policy of the Group to recognise all actuarial gains and losses in the year in which they occur outside the income statement and in the statement of comprehensive income.

 

The deficit on defined benefit pension obligations is summarised as follows:



30 Sept

30 Sept

31 March



2014

2013

2014



£'000

£'000

£'000

Fair value of plan assets


29,505

28,031

29,893

Present value of defined benefit obligation


(39,812)

(36,294)

(36,826)

Deficit in scheme


(10,307)

(8,263)

(6,933)






As all actuarial gains and assets are recognised, the deficits shown above are those recognised in the balance sheet.

 

Defined benefit costs recognised in the income statement



30 Sept

30 Sept

31 March



2014

2013

2014



£'000

£'000

£'000

Current service cost


308

365

707

Net interest cost


152

143

397

Total


460

508

1,104

 

The best estimate of contributions (employer and employee) to be paid to the plan for the year ending 31 March 2015 is £745,000 (2014: £827,000).

 

The valuation of the benefit obligations is based on the following key assumptions:



30 Sept

31 March

31 March

31 March

31 March



2014

2014

2013

2012

2011



% per annum

% per annum

% per annum

% per annum

% per annum

Assumptions







Inflation - RPI


3.30

3.40

3.50

3.25

3.40

Salary increases


2.40

3.00

3.00

3.00

3.00

Rate of discount


4.00

4.50

4.45

5.05

5.55

Allowance per pension







   in payment increases:







   lower of RPI and 5% p.a. if less


3.50

3.60

3.50

3.25

3.35

Allowance for revaluation of







   deferred pensions of:







   lower of RPI and 5% p.a. if less


3.30

3.40

3.50

3.25

3.40

 

The Occupational Pensions (Revaluation) Order 2010 issued in July 2010 confirmed the government's intention to move to using the Consumer Price Index ("CPI") rather than the Retail Price Index ("RPI") as the inflation measure for determining the minimum pension increases to be applied to the statutory index-linked features of retirement benefits. Charles Stanley has used RPI in calculating the liability as at 30 September 2014.

 

14 FAIR VALUES AND RISK MANAGEMENT

(a)  Carrying amount versus fair value

The fair value of financial assets and financial liabilities, together with the carrying amounts in the condensed statement of financial position are as follows:


Carrying

Fair


amount

value


£'000

£'000

30 September 2014



Non-current financial assets



Available-for-sale financial assets

6,860

6,860

Trade and other receivables

1,486

1,486





8,346

8,346










Current financial assets



Trade and other receivables

236,582

236,582

Financial assets at fair value through profit and loss

70

70

Cash and cash equivalents

18,943

18,943





255,595

255,595







Non-current financial assets



Borrowings

1,897

1,897













Current financial liabilities



Trade and other payables

228,680

228,680

Borrowings

150

150





228,830

228,830

 

(b)  Financial instruments carried at fair value

Fair value hierarchy

The table below analyses recurring fair value measurements for financial assets. These fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels are defined as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date;

Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset either directly (that is, prices) or indirectly (that is, derived from prices);

 

Level 3 - inputs for assets that are not based on observable market data (that is, unobservable).

 


Level 1

Level 2

Level 3

Total


£'000

£'000

£'000

£'000

30 September 2014





Financial assets measured at fair value





Available-for-sale financial assets

3,591

-

3,269

6,860

Financial assets at fair value





  through profit and loss

70

-

-

70







3,661

-

3,269

6,930






 

There were no transfers between any of the levels of the fair value hierarchy during the six months ended 30 September 2014.

 

(c)  Level 3 fair values

Details of the determination of level 3 fair value measurements are set out below:




Equity Securities:


available-for-sale




£'000

At 1 April 2014 and 30 September 2014

3,269

 

The Group has an established control framework with respect to the measurement of fair values. If one or more significant inputs are not based on observable market data, the instrument is included in level 3. Specific valuation techniques used to value the financial instrument grouped under level 3 include discounting future cash flows and calculating the dividend yield. All valuations performed are presented to the Group Executive Directors for final approval. Significant valuation issues are reported to the Group Audit Committee.

 

Equity securities - available-for-sale

The level 3 balance comprises amounts relating to holdings in unlisted investments. At 30 September 2014 these unlisted investments had a fair value of £3.3 million (31 March 2014: £3.8 million). Included within this balance is the Group's holding of 6,030 Euroclear plc shares with a fair value of £3.1 million (31 March 2014: £3.1 million).

This fair value has been determined using a valuation technique that used significant unobservable inputs.

This was because the shares were not listed on an exchange, and there were no recent observable arm's length transactions in the shares.

30 September 2014

Valuation technique

Significant unobservable inputs

Inter-relationship between significant unobservable inputs and fair value

The Fair Value is determined by considering the Dividend Yield where the expected dividend is determined

Expected dividend growth rate, which includes an adjustment for currency volatility (45%)

The estimated fair value would increase if the expected dividend growth rate was higher

 

For the Euroclear investment a 1% increase/decrease in the expected dividend yield would increase/decrease other comprehensive income in the statement of changes in equity by £20,000 (31 March 2014: £20,000).

 

At 30 September 2014, the Group revalued and impaired its equity investment in Masterlist. The valuation was based on the Net Asset Value of the operating entity of Masterlist. As a result, the shares owned by the Group have been impaired to nil. The £0.5m impairment charge is included within administrative expenses in the condensed consolidated interim income statement.

 

The Group also assessed the recoverability of the loan it has to Masterlist, which is repayable in 2017. The Group believes that Masterlist still has sufficient access to liquid funds, and will therefore continue to operate as a Going Concern. As a result there is no need for impairment at this time.

 

15 RECONCILIATION OF NET PROFIT TO NET CASH (ABSORBED BY)/GENERATED FROM OPERATIONS



30 Sept

30 Sept

31 March



2014

2013

2014



£'000

£'000

£'000

(Loss)/profit before tax


(3,945)

4,865

6,126

Adjustments for:





   Depreciation


1,593

1,390

2,707

   Amortisation and impairment


3,568

1,126

2,747

   Share options - value of employee services


76

109

186

   Retirement benefit scheme


91

66

247

   Dividend income


(113)

(120)

(140)

   Interest income


(96)

(189)

(483)

   Interest expense


38

28

85

   Profit on disposal of available-for-sale financial assets


(48)

(38)

(159)

Changes in working capital:





   (Increase)/decrease in financial assets at fair value through profit or loss


47

(44)

54

   (Increase)/decrease in receivables


(23,864)

(118,812)

48,331

   Increase/(decrease) in payables


11,429

111,026

(42,517)






Cash (absorbed by)/generated from operations


(11,224)

(593)

17,184

 

16 CONTINGENCIES

A competitor company has taken legal action against the Group in relation to staff who chose to leave them and join Charles Stanley. The Group has lodged a strong defence and the Directors believe that any judgement in relation to this action will result in no liability to the Group.

 

A recent ruling by the European Court of Justice indicated that under the European Working Time Directive, 'normal pay' for the purposes of calculating statutory holiday pay, includes contractual commission as well as basic salary. A UK Employment Tribunal is currently considering implications for UK employers under the Working Time Regulations 1998 and a decision is expected later in 2014/2015. The UK Employment Tribunal has ruled, though, that non-guaranteed overtime payments should be included for the purposes of calculating holiday pay entitlements. It is therefore expected that the UK Employment Tribunal will conclude on a similar basis for certain commissions. Based on information and advice to date, the Group does not expect the impact to be material. However, in the event that analysis, judgements and/or appeals are determined to ultimately be different, the Group may be exposed to a material additional liability.

 

17 POST BALANCE SHEET DATE EVENTS

It was announced on 8 September 2014 that agreement had been reached to sell the Matterley Undervalued Asset Fund to Miton Group. Initial consideration of £0.75m will be paid on completion of the transaction in December. Further consideration will be payable subject to the overall level of funds transferred to Miton.

 

18 INVOLVEMENT WITH UNCONSOLIDATED STRUCTURED ENTITIES

The Group holds fund management contracts over various investment funds (all open-ended investment companies). These investment funds invest capital received from investors in a portfolio of assets in order to provide returns to those investors from capital appreciation of those assets, income from those assets or both. The investment funds are financed through the issue of units to the investors. The Group's objective is to generate fees from managing assets on behalf of third parties.

The net assets of each fund are details below:

 

 

Sept


2014


£m



FP Matterley Regular High Income Fund

66.0

FP Matterley Equity Fund

10.3

FP Matterley International Growth Fund

18.8

FP Matterley UK & International Growth Fund

86.6

FP Matterley II Undervalued Fund

85.7

Total

267.4

 

Included in the consolidated statement of financial position is accrued income of £0.30m (2013: £0.15m) relating to fees recognised which have not yet been received. These represent the Group's maximum exposure to loss in the funds.

 

The following table presents the Group's total income from unconsolidated structured entities in the income statement for the half year ended 30 September 2014.

 


Sept


2014


£'000



FP Matterley Regular High Income Fund

267

FP Matterley Equity Fund

39

FP Matterley International Growth Fund

65

FP Matterley UK & International Growth Fund

403

FP Matterley II Undervalued Fund

354

Total

1,128

 

All the above income relates to the annual management charge.

 

19 GENERAL INFORMATION

Charles Stanley Group PLC ("the Company") is the parent company of a group of companies ("the Group") which provides a range of investment and financial services within the United Kingdom.

 

The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in the United Kingdom.

 

The annual consolidated financial statements of the Group at 31 March 2014 are available upon request from the Company's registered office at 25 Luke Street, London, EC2A 4AR or at www.charles-stanley.co.uk/investor-relations.

 

19.1 Basis of preparation

The Group's consolidated financial statements are prepared and presented on a going concern basis and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. These condensed consolidated interim financial statements are prepared and presented in accordance with IAS 34 Interim Financial Reporting and the Disclosure and Transparency Rules issued by the Financial Conduct Authority.

 

The comparative figures for the financial year ended 31 March 2014 are not the Company's statutory accounts for the financial year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors 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.

 

These condensed consolidated interim financial statements were approved by the Board of Directors on 26 November 2014. The Directors assessed the going concern of the Group in light of its current trading performance. The Directors looked at the forecasts covering the 15 month period to 31 December 2015 and applied stress tests for adverse scenarios, which had been determined as part of the ICAAP submission in February 2014. As a result it was determined that the Group has enough liquidity to cover all anticipated payments. The Directors also considered the regulatory capital of the Group and determined that based on the forecasts, the Group has sufficient regulatory capital for the foreseeable future.

 

19.2 Significant accounting policies

Except for the changes below, the Group has consistently followed the same accounting policies, presentation and methods of computation in these condensed consolidated interim financial statements as applied in the Group's consolidated financial statements for the year ended 31 March 2014.

 

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 April 2014.

.

a)         IFRS 10 Consolidated Financial Statements (2011)

As a result of IFRS 10 (2011), the Group has changed its accounting policy for determining whether it has control over, and consequently, consolidates its investees. IFRS 10 (2011) introduces a new control model that focuses on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns. Adoption of IFRS 10 did not change the Group's determination of control over any of its subsidiaries.

b)         IFRS 11 Joint Arrangements

As a result of IFRS 11, the Group has changed its accounting policy for its interests in joint arrangements. Adoption of IFRS 11 has not impacted the Group financial statements as the Group does not have interests in joint arrangements.

c)         IFRS 12 Disclosures of Interests in Other Entities

The Group has adopted the amendments of IFRS 12 relating to the disclosure of interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. As a result, the Group has included disclosures of its holdings in unconsolidated structured entities (see Note 18).

d)         Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36) (2013)

The Group has adopted the amendments to IAS 36 (2013). As a result, the Group has        expanded its disclosures of recoverable amounts when they are based on fair values less         costs of disposals and an impairment is recognised.

 

The Group is assessing the potential impact on its consolidated financial statements resulting from the following new standards, which are currently not yet effective, and they have not yet been endorsed by the EU.

 

a)          IFRS 9 Financial Instruments

IFRS 9 replaces the existing guidance in IAS 39 Financial Instruments: Recognition and measurement. It includes revised guidance on the classification and measurement of financial instruments. IFRS 9 is only effective for annual periods beginning on or after 1 January 2018, with early adoption permitted.

b)         IFRS 15 Revenue from contracts with customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is only effective for periods beginning on or after 1 January 2017, with early adoption permitted.

 

19.3 Principal risks and uncertainties

The principal risks and uncertainties facing the Group in the period to 30 September 2014 are shown in the table below.

 

A full assessment of the risks and uncertainties of the Group can be found on pages 22-26 of the 2014 Annual Report together with the controls and processes used to monitor and mitigate those risks as appropriate.

 

Risk type

Risk

Acquisition risk

Loss from unsuitable and poor acquisitions

Financial risk

Reduction/shortfall in regulatory capital, failure to meet targeted returns

Customer Outcome risk

Customer mistreatment and failing to achieve the right outcome for them

Operational risk

Loss resulting from inadequate or failed internal processes, people and systems

People risk

Loss of key personnel

Credit and counterparty risk

Default by clients and counterparties

Market risk

Loss from fluctuations in asset values, interest rates or exchange rates

Regulatory risk

Loss from regulatory action or public sanction

Reputational risk

Poor service provision and investment performance

Conduct risk

Poor product and service design and/or poor behaviour leading to unsatisfactory client outcomes

 

19.4 Related party transactions

Related party transactions are described on page 136 of the 2014 Annual Report and Financial Statements. No transactions took place during the half-year to 30 September 2014 that would materially affect the financial position or performance of the Group during the period.

19.5 Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, income and expense.

 

Actual results may differ from these estimates.

 

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 March 2014. The following areas were reviewed and there are no other changes to these estimates:

 

Revenue recognition

Fee income receivable is estimated based on current portfolio valuations, historical experience of debt collection and future expectations.

 

Retirement benefit obligations

The Directors requested the Company's actuaries to update their valuation from 31 March 2014 to 30 September 2014. This resulted in an increase in the actuarial deficit of £3.4 million which has been reflected in these financial statements.

 

Available-for-sale financial assets

During the period the investment in Masterlist shares was reviewed based on the net asset value of the operating entity. As a result the investment was revalued to a book value of nil.

No new information has become available that would require a change in the valuation of any further unlisted investments.

 

Legal action

A competitor company has taken legal action against the Group. Charles Stanley has lodged a defence and the Directors believe that no liability will arise to the Group.

 

Goodwill and intangible assets

During the period the Group assessed the recoverable amount of the Durlacher business and the Charles Stanley Financial Solutions business. As a result impairment charges of £0.8 million and £0.5 million respectively were recognised. The impairment charges were allocated fully to goodwill and are included in administrative expenses in the condensed consolidated interim income statement.

 

The Group also performed a review of the deferred consideration payable on the acquisition of Pan Asset Capital Management. As a result the deferred consideration payable has been reduced by £0.4m to nil and an impairment charge has been recognised to reduce the Pan Asset Capital Management intangible asset.

 

It was concluded that no other impairments to the carrying value of goodwill or intangible assets are required.

 

During the period the Group reassessed the useful life of client lists acquired. As a result the Group determined that the useful life of client lists acquired should be in line with client lists that are acquired under a business combination and so the useful life of client lists acquired was changed to 10 years. The impact of this for the current reporting period is that costs are proportionally lower by £0.2m, and this is included within administrative expenses in the condensed consolidated interim income statement.

 

19.6 Forward-looking statements

These condensed consolidated interim financial statements contain certain forward-looking statements which are made by the Directors in good faith based on the information available to them at the time of their approval of the accounts. Forward-looking statements should be treated with caution due to the inherent uncertainties, including economic, regulatory and business risk factors underlying any such forward looking statements. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. The condensed consolidated interim financial statements have been prepared by Charles Stanley Group PLC to provide information to its shareholders and should not be relied upon by any other party or for any other purpose.

 

DIRECTORS' RESPONSIBILITY STATEMENT

The Directors confirm to the best of their knowledge:

 

a)   the interim report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

b)   the interim report includes a fair review of the information required by the Disclosure and Transparency Rules (DTR) 4.2.7R "indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the year".

c)   the interim report includes a fair review of the information required by DTR 4.2.8R"disclosure of related party transactions and changes therein".

 

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties facing the Group for the first half of the financial year are substantially the same as those described in the Report and Accounts for the year ended 31 March 2014. The one addition is the Group now faces regulatory capital risk, i.e. a reduction or shortfall in regulatory capital.

 

On behalf of the Board

 

James Rawlingson

Finance Director

 

26 November 2014

 

INDEPENDENT REVIEW REPORT TO CHARLES STANLEY GROUP PLC

 

INTRODUCTION

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2014 which comprises the condensed consolidated interim income statement, condensed consolidated interim statement of comprehensive income, condensed consolidated interim statement of financial position, condensed consolidated interim statement of changes in equity, condensed consolidated interim statement of cash flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

 

DIRECTORS' RESPONSIBILITIES

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

 

As disclosed in note 1 to the financial statements, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU.

 

OUR RESPONSIBILITY

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

SCOPE OF REVIEW

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2014 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

 

Michael Peck (Senior Statutory Auditor)

for and on behalf of KPMG LLP,

Statutory Auditor

 

Chartered Accountants

15 Canada Square

London, E14 5GL

 

26 November 2014

 

DIRECTORS OF CHARLES STANLEY GROUP PLC

 

Executive

 

Sir David Howard, Bt (Chairman & CEO)

E Michael Clark

Michael R I Lilwall

James H Rawlingson

Gary Teper

Anthony C Scott (appointed 9 April 2014)

 

Pending regulatory approval

Paul Abberley (CEO Designate)

 

Non-executive

 

Bridget E Guerin

David C Pusinelli

 

FINANCIAL CALENDAR

 

27 November 2014                              Results announced

4 December 2014                               Ex-dividend date for interim dividend

5 December 2014                               Record date for interim dividend

21 January 2015                                 Interim dividend paid

June 2015                                          Final results announced


This information is provided by RNS
The company news service from the London Stock Exchange
 
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