Final Results

RNS Number : 2989M

Rensburg Sheppards plc

21 May 2010

 



21 May 2010

Rensburg Sheppards plc

 ('Rensburg Sheppards' or 'the company')

Preliminary Results

Rensburg Sheppards, the investment management group, today announces its preliminary results for the year ended 31 March 2010

Key Points:

·     Profit before tax of £27.0 million (2009 restated: £30.2 million*)

·     Adjusted** profit before tax of £30.2 million (2009 restated: £36.3 million*)

·     Basic earnings per share of 45.8p (2009 restated: 48.5p*)

·     Adjusted** basic earnings per share of 50.1p (2009 restated: 58.8p*)

·     Underlying rate of net organic growth in funds under management of 4.9% (2009: 1.9%)

·     Group funds under management at 31 March 2010 of £12.90 billion (2009: £10.01 billion)

* As restated following a change in accounting policy resulting from the implementation of the amendment to

 IFRS 2.

** Before transaction costs relating to the current offer for the company, amortisation of the client relationships intangible asset, profit on disposal of intangible assets, profit on disposal of subsidiary, loss on disposal of available-for-sale investments and share-based charges relating to the Employee Benefit Trust ('EBT'). These items amount to a net charge before tax of £3.2 million (2009: £6.1 million) and a net charge after tax of £1.8 million (2009: £4.5 million).

Steve Elliott, Chief Executive of Rensburg Sheppards, commented:

"In an operating environment that has remained challenging, it is pleasing to report a creditable financial performance. In particular, the underlying rate of net organic growth in funds under management of near 5% was a significant improvement and we remain focussed on growing our client base and, from this, our funds under management and revenue.

The board has recommended the offer from Investec to our shareholders, as we believe that being part of Investec will reinforce the strong momentum of our business and provide both our clients and staff the benefits of being part of a large and well respected international financial services group"

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

Chairman's statement

The overriding feature of all financial markets during the past two years has been extreme volatility and this continued apace in our financial year that closed on 31 March 2010.  Whilst short term investors sometimes have opportunities to take advantage of sharp market movements, they inevitably face potential pitfalls also; our declared policy of always taking a medium to longer-term view in the management of our clients' portfolios has been particularly beneficial in the rapidly moving markets caused by the economic turbulence of the past two to three years.  

Reflecting on the outlook as I saw it in the closing words of my previous annual statement, I wrote that it was reasonable to hope that the concerted policy stimuli applied by governments and central banks would successfully avert a global slump and usher in a gradual economic recovery, allied to which equity markets could be restored to a growth path.  Thankfully, this hope became a reality as over the remainder of 2009 and the first quarter of 2010 equity markets staged a dramatic recovery. Between 1 April 2009 and 31 March 2010 the FTSE 100 index rose by 44.7% to end our financial year at 5,680. This recovery has translated positively in the results that follow, with profitability increasing as the year progressed.

Recommended offer

Before turning to the details of the results for the financial year, it is appropriate to comment on the offer from Investec plc ('Investec') and the potential removal of Rensburg Sheppards (subject to the passing by shareholders of the appropriate resolutions) from the list of publicly quoted companies. The group was first quoted on the Unlisted Securities Market ('USM') in 1988 with a market capitalisation of approximately £9 million under its then name of BWD Securities PLC. A full listing on the London Stock Exchange followed in 1994.  Little did I realise when I was fortunate to have been invited to join the board as a non-executive director in 1999 that a decade or so later the company would be under offer to become part of a major banking and wealth management group of the size and reputation of Investec. It is to the great credit of all those who have worked over the years in what is now known as Rensburg Sheppards, that Investec has chosen to move from owning a little under 50% to taking full control.  It is, however, also relevant to stress that whilst our ownership is likely to change, our identity will not, nor will our management team and for our clients it will most certainly be 'business as usual.'

It was on 30 March 2010 that the independent directors of Rensburg Sheppards and the board of directors of Investec announced that they had agreed the terms of a recommended all share offer under which Investec would acquire the entire issued and to be issued ordinary share capital of the company not already owned by Investec ('the Offer'). On 26 April 2010 full details of the Offer were circulated to all shareholders for their consideration, which included notice of the court and general meetings of shareholders to vote on the Offer, which have been convened to commence at 11.00 a.m. on 1 June 2010. 
 

Results and dividend

For the year ended 31 March 2010, reported profit before tax decreased by 10.6% to £27.0 million (2009 restated: £30.2 million), whilst basic earnings per share decreased by 5.6% to 45.8p (2009 restated: 48.5p).  The restatement of the 2009 results reflects a £0.3 million reduction in the profit before tax of that year which arose from a change to accounting standards, and is explained in note 1 below.

Adjusting for the specific items detailed at the start of the Financial Review which follows further on, together with their associated tax consequences, gives underlying profit before tax of £30.2 million (2009 restated: £36.3 million) and underlying basic earnings per share of 50.1p (2009 restated: 58.8p), representing decreases of 16.8% and 14.8% respectively.

Given the operating environment, including in particular the significant adverse effect on revenue from the continued very low UK base interest rate, the board considers these results to be commendable.

A maintained interim dividend of 8.5p per ordinary share was declared at the half-year. As set out in the Offer document, the directors are not recommending a final dividend for the year ended 31 March 2010, however, subject to the Offer proceeding, Rensburg Sheppards shareholders will become entitled to Investec's final dividend in respect of its year ended 31 March 2010.  Based on the terms of the Offer and Investec's final dividend of 8.0 pence per share announced on 20 May 2010, this equates to a final dividend of 13.04 pence per Rensburg Sheppards share. 

People

As detailed in our half-yearly financial report on 18 November 2009, the board was pleased to announce the appointments of Judy Price, Simon Kaye and Tom Street as executive directors of the company, effective from 1 December 2009. Judy, Simon and Tom are all long-serving employees of Rensburg Sheppards Investment Management who each have considerable experience of operating successfully within the investment management arena.    

Despite the welcome recovery in the financial markets over the past year, the operating environment has remained challenging. I would like to thank all of the group's employees for their achievements in ensuring the business has continued to progress during this period. 

Outlook

With the commencement of the new financial year, the recovery in global markets has faltered somewhat. This has been prompted by volatility in sovereign debt emanating from the Greek financial crisis. In this period, European politics has therefore largely overshadowed the UK election result, but investors appear to have formed a reasonably favourable first impression of the coalition government.

Whilst acknowledging that there remain issues of concern for investors in the UK and world economies, we remain confident in the prospects for this group to deliver underlying growth over the longer term.

C.G. Clarke

Chairman

20 May 2010

Chief Executive's report

The close of our reporting period on 31 March 2009 occurred some three weeks after global stock markets reached their 'credit-crunch' lows, the culmination of a dispiriting eighteen month period that had seen a complete change in the landscape for investors.In stark contrast, the strength and speed of the subsequent equity market recovery over the financial year now being reported on has undoubtedly exceeded the expectations of most investors.

Through this changing, albeit improving, backdrop of the past year, the group has continued to move forward and achieve underlying organic growth and deliver resilient financial results.  The principal contributor to this performance has been the considerable efforts of everyone working across the group to continue to provide the best outcome for both our clients and the business. 

Rensburg Sheppards Investment Management ('RSIM')

Discretionary funds under management at 31 March 2010 were £8.52 billion (2009: £6.46 billion), an increase of 31.9% over the year. Non-discretionary funds increased by 24.7% over the year to £3.08 billion (2009: £2.47 billion). This gave rise to total funds under management at 31 March 2010 of £11.60 billion, compared with £8.93 billion at 31 March 2009. The proportion of RSIM's funds managed on a discretionary basis has increased to 73.4% (2009: 72.3%), marking yet a further step towards our stated target of 75%.

The increase in RSIM's total funds under management over the year of 29.9% compares with the corresponding increase in the FTSE/APCIMS Private Investors Balanced index of 28.3%.

The implied annual rate of net organic growth in funds under management achieved for the year, excluding acquired inflows and exceptional outflows, was 6.0%. This represents a marked improvement from the 1.4% achieved in the prior year and is modestly ahead of our longer-term target of a rolling average net organic growth rate of 5%.   

In November 2009 we extended our operation in Scotland with the appointment of eight experienced investment managers to be based in our Edinburgh office. Whilst it is still early days, we are very pleased with the level of new funds to manage that these appointments have already attracted into this office.

Funds managed under RSIM's well established intermediary services have exhibited strong growth over the past year. This distribution channel is one which we see presenting increasing opportunities for future growth as, in particular, the changes to the business models of intermediaries being brought about by the forthcoming Retail Distribution Review ('RDR') are already starting to take effect.    

We have continued to build our SIPP funds under management over the past year, and whilst acknowledging the potentially adverse impact of the proposals announced by the Chancellor of the Exchequer in the budget in April 2009, we continue to believe that revenues from the investment management and administration of SIPPs will, over time, become an increasingly important revenue stream for RSIM. As in the prior year, our dedicated charity business remains the second largest manager of segregated charity accounts by number (source: Charity Finance magazine, November 2009).

The integration of the financial planning business into the core investment management business was completed during the year and we are confident that this will enhance further our service levels to our clients and will attract additional new business across RSIM's wider service offering.

The need to position ourselves better within our target market by improving our name awareness is an issue we have recognised for some time.  In the first quarter of 2010 we appointed a chief marketing officer to drive our marketing strategy, including raising awareness of the business and the services it is able to offer to the growing number of potential clients who, in today's rapidly changing and increasingly complex financial world, could well benefit from our professional services and advice.
 

On 30 December 2009 RSIM disposed of its wholly owned subsidiary Mayflower Management Company Limited ('Mayflower'). Mayflower's sole activity was to manage a charity property fund which, at disposal, had discretionary assets under management of £299 million. This disposal was completed for a cash consideration of £1.9 million plus the negligible net assets of Mayflower. The ensuing profit on disposal of £1.9 million is anticipated to be free of corporation tax. 

Rensburg Fund Management ('RFM')

Gross unit trust sales for the year totalled £308 million (2009: £400 million) which, after allowing for redemptions, resulted in net sales of units for the year of £8 million (2009: £30 million), representing 1.0% of the value of the opening unit trust funds under management. After allowing for discounts and commissions payable, the net redemptions for the year gave rise to a net outflow from the trusts, excluding exceptional outflows arising from the disposal of the Corporate Bond trust, of £7 million (2009: net inflow of £15 million).  Despite this small net outflow, the recovery in the markets meant the value of RFM's retail unit trust funds under management increased by 20.8% over the year to £0.93 billion (2009: £0.77 billion).

During July 2009, RFM disposed of its Corporate Bond trust. This generated a profit on disposal of £0.92 million, representing the directors' estimate of RFM's share of the net income from this trust which will be received over the three years subsequent to the disposal, in accordance with the terms of the sale agreement.

At 31 March 2010, RFM managed £371 million in its single segregated mandate (2009: £312 million). Combining the unit trusts and the segregated mandate, total assets managed by RFM were £1.30 billion (2009: £1.08 billion). This represents an increase of 20.4%, or if the disposed of Corporate Bond trust (which stood at £98.7 million at 31 March 2009) is excluded, an annual increase of 32.5% compared with an increase in the FTSE All-Share index of 46.7%.

Following the end of the financial year, RFM has been advised that in the near future the segregated mandate that it has managed for a number of years (as part of a larger arrangement involving a number of fund managers) is, unfortunately, to revert to being managed in-house.       

Group funds under management

Combining RSIM and RFM brings the group's total funds under management as at 31 March 2010 to £12.90 billion (2009: £10.01 billion), representing an increase of 28.9%.

Regulation

The Retail Distribution Review, which is to be implemented in 2012, continues to be the key regulatory change affecting the group. Considerable effort is ongoing across the group to ensure we are fully prepared for both the challenges and opportunities this presents.

Outlook

Our primary objective remains to grow our client base and, from this, our funds under management and revenue. We will continue to employ the people appropriate for the business and its clients and ensure that our business models remain resilient and possess the flexibility to adjust, as necessary, through this recovery period and beyond.  As we have done historically, we will ensure that we balance our funds under management and income growth aspirations with sensible cost control. By focussing on these areas, together with the benefits that will follow from any sustained recovery in the UK and world financial markets, we believe the group is well placed for the future. 

S.M. Elliott

Chief Executive

20 May 2010

Financial review

Financial results

From revenue (net of fees and commissions payable to introducers) of £108.9 million (2009: £110.3 million), the group's reported profit before tax for the year ended 31 March 2010 was £27.0 million (2009 restated: £30.2 million). After adjusting for the items set out below, the resulting adjusted profit before tax was £30.2 million (2009 restated: £36.3 million), a year on year decrease of 16.8%. It continues to be the directors' opinion that this adjusted measure of profit before tax and those of operating profit and earnings also given below, represent better measures of the group's underlying financial performance.

	Operating profit		Profit before tax
	Year ended 31 March		Year ended 31 March
	2010	2009	2010	2009
	£m	£m	£m	£m
		Restated		Restated
Unadjusted	25.4	30.4	27.0	30.2
Adjusting items:
Share-based payments - EBT	-	0.4	-	0.4
Transaction costs	1.0	-	1.0	-
Amortisation of client relationships intangible asset	5.0	5.6	5.0	5.6
Profit on disposal of intangible assets	-	-	(0.9)	-
Profit on disposal of subsidiary	-	-	(1.9)	-
Loss on disposal of available-for-sale investments	-	-	-	0.1
Adjusted	31.4	36.4	30.2	36.3

Reported basic earnings per share were 45.8p (2009 restated: 48.5p) and on the basis of adjusting for the items detailed above, together with the associated tax consequences of these adjustments, the adjusted basic earnings per share were 50.1p (2009 restated: 58.8p), a year on year decrease of 14.8%.

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 set out in the table above.

The group:

KPIs:

	Year ended 31 March 2010	Restated Year ended 31 March 2009	% change
Total funds under management 1	£12.90 billion	£10.01 billion	+28.9%
FTSE/APCIMS Balanced index 1	2,861.5	2,230.5	+28.3%
FTSE All-Share index 1	2,910.2	1,984.2	+46.7%
Underlying rate of net organic growth in total funds under management 2	+4.9%	+1.9%	N/A
Underlying operating profit	£31.4 million	£36.4 million	-13.7%
Underlying operating profit as a % of net revenue	28.8%	33.0%	N/A
Underlying basic earnings per share	50.1 pence	58.8 pence	-14.8%

1 As at the year end

2 Net organic inflows less outflows (excluding acquired inflows and exceptional outflows) as a percentage of opening funds under management

Investment management:

KPIs:

	Year ended 31 March 2010	Restated Year ended 31 March 2009	% change
Funds under management 1	£11.60 billion	£8.93 billion	+29.9%
FTSE/APCIMS Balanced index 1	2,861.5	2,230.5	+28.3%
FTSE All-Share index 1	2,910.2	1,984.2	+46.7%
Underlying rate of net organic growth in total funds under management 2	+6.0%	+1.4%	N/A
% of total funds managed on a discretionary basis	73.4%	72.3%	N/A
Underlying operating profit	£28.2 million	£32.2 million	-12.4%
Underlying operating profit as a % of net revenue	28.2%	32.2%	N/A

1 As at the year end

2 Net organic inflows less outflows (excluding acquired inflows and exceptional outflows) as a percentage of opening funds under management

Funds under management:

	Year ended 31 March 2010 £bn	Year ended 31 March 2009 £bn
At 1 April	8.93	11.48
Inflows	1.06	0.86
Inflows - acquired	0.05	-
Outflows	(0.52)	(0.70)
Outflows - exceptional	(0.58)	-
Market adjustment 1	2.66	(2.71)
At 31 March	11.60	8.93
Underlying rate of net organic growth 2	+6.0%	+1.4%

1 Impact of market movement and relative performance

2 Net organic inflows less outflows (excluding acquired inflows and exceptional outflows) as a percentage of opening funds under management

The exceptional outflows represent the disposal of Mayflower Management Company which managed a charity property fund, together with the loss of two longstanding atypical discretionary mandates of an institutional nature which, when all combined, represented £583 million of funds under management, but in income terms were low yielding.

Financial performance:

	Year ended  31 March 2010  £m	Restated  Year ended  31 March 2009  £m
Fees	55.7	49.7
Interest from client deposits	6.4	16.0
Trail commission	5.0	5.2
Other income	4.0	3.1
Total net recurring revenue  1	71.1	74.0
Commission	25.9	22.4
Other income	3.1	3.6
Total net non-recurring revenue  1	29.0	26.0
Total net revenue  1	100.1	100.0
Underlying operating expenses	(71.9)	(67.8)
Underlying operating profit	28.2	32.2
Interest (net)	(1.2)	(0.5)
Underlying profit before tax	27.0	31.7

1 Net of fees and commissions payable to introducers.

The 12.1% rise in fee income primarily reflects the increase in portfolio values experienced over the year as markets recovered, combined with the benefit of the net underlying organic growth detailed above. The 60% reduction in interest from client deposits was driven by the historically low UK bank base rate of 0.5% that prevailed throughout the whole of the financial year. Commission income was 15.6% above the prior year, reflecting greater activity in the second half of the year as the market recovery gathered further momentum.

Underlying operating expenses:

	Year ended  31 March 2010  £m	Restated  Year ended  31 March 2009  £m
Staff costs:
- Fixed	35.5	36.3
- Variable	19.5	13.4
Total staff costs	55.0	49.7
Other underlying operating expenses	16.9	18.1
Total underlying operating expenses	71.9	67.8
Underlying operating expenses as a % of total net revenue	71.8%	67.8%

Fixed staff costs reduced modestly year on year, a consequence of the redundancy programme undertaken in the early part of the year. The significant rise in variable staff costs represents increased incentive payments that follow on directly from the rise in incentivised revenue (which excludes revenue from interest from client deposits). The significant proportion of total costs which the variable staff costs represent continues to provide a strong element of protection to profitability in times of reduced revenue. 

Other underlying operating expenses, a significant proportion of which are fixed in nature, decreased by 6.6%. This was achieved by reducing the discretionary element of expenditure as the sharp market downturn which commenced in autumn 2008 gathered momentum.

Fund management:

KPIs:

	Year ended 31 March 2010	Restated Year ended 31 March 2009	% change
Funds under management 1	£1.30 billion	£1.08 billion	+20.4%
FTSE All-Share index 1	2,910.2	1,984.2	+46.7%
Underlying rate of net organic growth in total funds under management 2	-4.6%	+5.4%	N/A
Underlying operating profit	£3.2 million	£4.3 million	-25.6%
Underlying operating profit as a % of net revenue	36.4%	41.7%	N/A

1 As at the year end

2 Net organic inflows less outflows (excluding exceptional outflows) as a percentage of opening funds under management

Funds under management:

	Year ended 31 March 2010 £bn	Year ended 31 March 2009 £bn
At 1 April	1.08	1.47
Inflows	0.30	0.46
Outflows	(0.35)	(0.38)
Outflows - exceptional	(0.12)	-
Market adjustment 1	0.39	(0.47)
At 31 March	1.30	1.08
Underlying rate of net organic growth 2	-4.6%	+5.4%

1 Impact of market movement and relative performance

2 Net organic inflows less outflows (excluding exceptional outflows) as a percentage of opening funds under management

The exceptional outflow represents the disposal of the Corporate Bond trust part way through the year. 

Financial performance:

	Year ended  31 March 2010  £m	Restated  Year ended  31 March 2009  £m
Fees	7.5	9.0
Total net recurring revenue 1	7.5	9.0
Profit on sale of units of unit trusts	1.3	1.2
Other income	-	0.1
Total net non-recurring revenue 1	1.3	1.3
Total net revenue 1	8.8	10.3
Underlying operating expenses	(5.6)	(6.0)
Underlying operating profit	3.2	4.3
Interest (net)	-	0.3
Underlying profit before tax	3.2	4.6

1 Net of fees and commissions payable to introducers.

Fee income decreased by 16.7%, contributed to by the disposal of the Corporate Bond trust in July 2009, increased trail commission payments and the modest net outflow in funds detailed in the table above. The profit arising from the sale of units of unit trusts remained broadly flat, as the opportunities for re-cycling of units, where inflows and outflows crossed, were maintained.

Underlying operating expenses:

	Year ended  31 March 2010  £m	Restated  Year ended  31 March 2009  £m
Staff costs:
- Fixed	1.7	1.9
- Variable	1.5	1.9
Total staff costs	3.2	3.8
Other underlying operating expenses	2.4	2.2
Total underlying operating expenses	5.6	6.0
Underlying operating expenses as a % of total net revenue	63.6%	58.3%

The 21.1% reduction in variable staff costs represents reduced incentive payments that correspond with lower revenues. The majority of other underlying operating expenses are fixed in nature.

Tax

The effective tax rate for the year is 25.9% (2009 restated: 30.1%) calculated as the total tax charge of £7.0 million (2009: £9.1 million) divided by the profit before tax of £27.0 million (2009 restated: £30.2 million). A full reconciliation of the tax charge, which explains why the effective rate of tax is lower than the UK standard rate of 28%, is set out in note 6.

Dividend

A maintained interim dividend of 8.5p per ordinary share was declared at the half-year. As set out in the Offer document, the directors are not recommending a final dividend for the year ended 31 March 2010, however, subject to the Offer proceeding, Rensburg Sheppards shareholders will become entitled to Investec's final dividend in respect of the year ended 31 March 2010.  Based on the terms of the Offer and Investec's final dividend of 8.0 pence per share announced on 20 May 2010, this equates to a final dividend of 13.04 pence per Rensburg Sheppards share. 

Cash flow

The group enjoyed a healthy net cash inflow from its operating activities, after corporation tax payments, of £23.7 million (2009: £27.0 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 principally comprised dividend payments of £11.1 million (2009: £11.1 million), subordinated loan interest and capital repayments of £8.2 million (2009: £13.8 million), the net proceeds from the disposal of a subsidiary of £2.0 million (2009: £nil) and capital expenditure of £1.2 million (2009: £1.8 million).

The net result of the operating, investing and financing cash flows was an overall increase in the group's cash balances for the year to £76.1m (2009: £70.9 million), a rise of £5.2 million (2009: £0.6 million).

Capital structure and treasury management

At 31 March 2010 the group had net assets of £208.5 million (2009: £197.7 million), which included £172.4 million (2009: £176.5 million) of intangible assets, principally comprising goodwill of £136.4 million (2009: £136.4 million) and client relationships of £34.9 million (2009: £39.4 million).  The group's goodwill and intangible assets have been subject to an impairment review at 31 March 2010, 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 2010 were £208.5 million (2009: £197.7 million), together with debt which comprised a subordinated loan of £33.8 million (2009: £39.4 million). The group maintained the bulk of its cash balance which, net of an overdraft of £1.4 million at 31 March 2010, totalled £76.1 million (2009: £70.9 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 call, 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.

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

At 31 March 2010 the group's subordinated loan, on which a fixed rate of interest of 7.155% per annum is payable, stood at £33.750 million. This represents a reduction of £5.625 million from the balance outstanding at 31 March 2009. Following the end of the financial year, on 6 May 2010 an early repayment of £10.0 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 14.

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'). Throughout the year 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 are determined in detail through the Internal Capital Adequacy Assessment Process ('ICAAP'), were reviewed during the year by the board. 

Contingent liability

The contingent liability previously reported which is centred upon the amount of input VAT that Rensburg Sheppards Investment Management Limited can recover remains. Full details of this issue are provided in note 18.

J.P. Wragg

Finance Director 

20 May 2010

Consolidated income statement

for the year ended 31 March 2010

							Restated
					2010		2009
					Year		Year
					ended		ended
					31 March		31 March
			Note		£'000		£'000
Revenue					117,970		118,874
Fees and commissions payable					(9,110)		(8,539)
Net revenue			2		108,860		110,335
Amortisation of intangible assets - client relationships					(4,992)		(5,603)
Transaction costs			3		(983)		-
Share-based payments - EBT			17		-		(440)
Other operating expenses					(77,415)		(73,888)
Operating expenses					(83,390)		(79,931)
Operating profit					25,470		30,404
Profit on disposal of intangible assets			9		920		-
Profit on disposal of subsidiary					1,890		-
Loss on disposal of available-for-sale investments					-		(68)
Finance income			5		1,236		2,845
Finance expenses			5		(2,473)		(2,940)
Profit before tax					27,043		30,241
Taxation			6		(7,014)		(9,085)
Profit for the year attributable to the equity holders of the company					20,029		21,156
Earnings per share			8
Basic					45.8p		48.5p
Diluted					45.3p		48.4p

Consolidated statement of comprehensive income

for the year ended 31 March 2010

							Restated
					2010		2009
					Year		Year
					ended		ended
					31 March		31 March
			Note		£'000		£'000
Profit for the year					20,029		21,156
Other comprehensive income:
Gain/(loss) arising from changes in fair value of available-for-sale investments					713		(940)
Loss on disposal of available-for-sale investments transferred to the income statement					-		34
Gain arising from change in fair value of property					-		278
Tax relating to components of other comprehensive income			6		(154)		502
Other comprehensive income for the year, net of tax					559		(126)
Total comprehensive income for the year net of tax, attributable to the equity holders of the company					20,588		21,030

Consolidated statement of changes in equity

for the year ended 31 March 2010

			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 2008	4,822	10,617	100	1,460	973	130,601	37,542	186,115
Dividends	-	-	-	-	-	-	(11,132)	(11,132)
Share-based payments (restated)	-	-	-	-	-	-	1,685	1,685
Deferred tax on share-based payments	-	-	-	-	-	-	(15)	(15)
Total comprehensive income for the year (restated)	-	-	-	(653)	527	-	21,156	21,030
Depreciation on revalued property	-	-	-	-	(17)	-	17	-
At 31 March 2009	4,822	10,617	100	807	1,483	130,601	49,253	197,683
Dividends	-	-	-	-	-	-	(11,141)	(11,141)
Issue of shares	2	40	-	-	-	-	-	42
Share-based payments	-	-	-	-	-	-	793	793
Deferred tax on share-based payments	-	-	-	-	-	-	548	548
Total comprehensive income for the year	-	-	-	514	45	-	20,029	20,588
Depreciation on revalued property	-	-	-	-	(17)	-	17	-
At 31 March 2010	4,824	10,657	100	1,321	1,511	130,601	59,499	208,513

Consolidated balance sheet

at 31 March 2010

								2010		2009
				Note				£'000		£'000
Assets
Non-current assets
Intangible assets				9				172,449		176,542
Property, plant and equipment				10				4,948		5,532
Available-for-sale investments								2,193		1,464
Trade and other receivables				11				444		-
Deferred tax assets				12				2,095		1,594
								182,129		185,132
Current assets
Trade and other receivables								143,399		133,814
Cash and cash equivalents				13				77,531		71,217
								220,930		205,031
Total assets								403,059		390,163
Liabilities
Current liabilities
Trade and other payables								(143,313)		(133,093)
Subordinated loan				14				(5,625)		(5,625)
Provisions				15				(387)		(122)
Current tax liabilities								(4,484)		(5,487)
								(153,809)		(144,327)
Non-current liabilities
Accruals and deferred income								(1,301)		(2,247)
Subordinated loan				14				(28,125)		(33,750)
Provisions				15				(976)		(592)
Deferred tax liabilities				12				(10,335)		(11,564)
								(40,737)		(48,153)
Total liabilities								(194,546)		(192,480)
Net assets								208,513		197,683
Equity attributable to the equity holders of the company
Share capital				16				4,824		4,822
Share premium								10,657		10,617
Capital redemption reserve								100		100
Available-for-sale reserve								1,321		807
Revaluation reserve								1,511		1,483
Other reserves								130,601		130,601
Retained earnings								59,499		49,253
Total equity								208,513		197,683

Consolidated cash flow statement

for the year ended 31 March 2010

							Restated
					2010		2009
					Year		Year
					ended		ended
					31 March		31 March
	Note				£'000		£'000
Cash flows from operating activities
Profit before taxation					27,043		30,241
Adjustments for:
- Amortisation of intangible assets					5,454		6,049
- Finance expenses					2,473		2,940
- Finance income					(1,236)		(2,845)
- Depreciation					998		1,008
Share-based payments					941		1,685
Loss on disposal of available-for-sale investments					-		68
Profit on disposal of intangible assets					(920)		-
Profit on disposal of subsidiary					(1,890)		-
Increase in trade and other receivables					(9,631)		(9,887)
Increase in trade payables and provisions					8,496		7,161
Cash generated from operations					31,728		36,420
Interest received					1,262		2,771
Dividends received					72		100
Interest paid					(39)		(25)
Taxation paid					(9,353)		(12,278)
Net cash inflow from operating activities					23,670		26,988
Cash flows from investing activities
Purchase of property, plant and equipment					(414)		(1,065)
Purchase of intangible assets - computer software					(815)		(699)
Purchase of available-for-sale investments					(16)		-
Proceeds from disposal of available-for-sale investments					-		389
Proceeds from disposal of intangible assets					169		-
Net proceeds from disposal of subsidiary					2,021		-
Net cash inflow/(outflow) from investing activities					945		(1,375)
Cash flows from financing activities
Dividends paid to shareholders					(11,141)		(11,132)
Proceeds from issue of ordinary share capital					42		-
Repayment of subordinated loan					(5,625)		(10,625)
Interest paid on subordinated loan					(2,614)		(3,216)
Net cash outflow from financing activities					(19,338)		(24,973)
Net increase in cash and cash equivalents					5,277		640
Cash and cash equivalents at start of year					70,872		70,232
Cash and cash equivalents at end of year	13				76,149		70,872

Notes to the financial statements

1. Basis of preparation

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 2010. The financial information for the year ended 31 March 2009 is derived from the statutory accounts for that year (after taking into account the restatement set out below) which have been delivered to the registrar of companies. The auditor has reported on the accounts for the year ended 31 March 2009; its report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report and (iii) did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The financial information for the year ended 31 March 2010 is unaudited and statutory accounts for that year will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the registrar of companies in due course.

Change in accounting policies and disclosures

The accounting policies applied are the same as those applied by the group in its consolidated financial statements for the year ended 31 March 2009, other than with regard to changes in accounting policies and disclosures that have been applied during the year as a result of changes to International Financial Reporting Standards, as set out below.

(i) Operating segments

IFRS 8 Operating segments became effective for the group on 1 April 2009.  The group has applied the requirements of the standard in determining its operating segments and the information disclosed regarding those segments.  The segmental disclosure set out in note 2 is based on the financial information that is presented to the board of Rensburg Sheppards plc, which represents the chief operating decision maker of the group.  Following the implementation of IFRS 8, the group continues to have two operating segments, being the investment management segment and the fund management segment. 

Comparative information has been restated in accordance with the transitional requirements of IFRS 8.  The change of accounting policy that has arisen as a result of this standard relates only to presentation and disclosure, and there is no effect on profit after tax or earnings per share.

(ii) Presentation of financial statements

IAS 1 (revised 2007) Presentation of financial statements became effective for the group on 1 April 2009.  As a result, the group has presented a consolidated statement of changes in equity and a consolidated statement of comprehensive income.  The consolidated statement of changes in equity reconciles the carrying value of each component of equity at the beginning and end of the year.  The statement of comprehensive income comprises items of income and expenditure other than those recognised in the income statement.

Comparative information has been re-presented on a basis consistent with that for the year ended 31 March 2010.  The change of accounting policy that has arisen as a result of the revised standard relates only to presentation of information, and there is no effect on profit after tax or earnings per share.

(iii) Share-based payments

An amendment to IFRS 2 Share-based payment - vesting conditions and cancellations became effective for the group on 1 April 2009.  The amendment changes the definition of vesting conditions in respect of employee share option schemes.  Following the adoption of the amendment, the requirement to save is now considered to be a vesting condition that should be taken into account when calculating the fair value at the date of grant.  In addition, where an employee decides to withdraw from a share option scheme, their withdrawal is treated as a cancellation of the award.  As a result, any remaining share-based charge that would have been recognised over the remaining vesting period is recognised in full at the time of cancellation.

The amendment has been applied retrospectively, in accordance with its transitional provisions.  Comparative information in respect of the year ended 31 March 2009 has been restated accordingly.  The financial effect is to increase operating expenses and reduce profit after tax by £253,000 for the year ended 31 March 2009.  Basic earnings per share have reduced by 0.5 pence per share in respect of the year ended 31 March 2009.  There is no material financial effect on earlier periods, and hence no additional balance sheet prior to that at 31 March 2009 has been presented.  Profit after tax and basic earnings per share for the year ended 31 March 2010 are £253,000 and 0.5 pence per share greater respectively as a result of the implementation of the amendment during the period.

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 2010

		Investment		Fund
		Management		Management		Eliminations		Group
		£'000		£'000		£'000		£'000
Revenue
External		103,186		14,784		-		117,970
Inter-segment		687		-		(687)		-
		103,873		14,784		(687)		117,970
Fees and commissions payable		(3,807)		(5,990)		687		(9,110)
Segmental net revenue		100,066		8,794		-		108,860
Costs excluding amortisation of client relationship intangible assets and non-operating items:
Staff costs - fixed		(35,472)		(1,749)		-		(37,221)
Other costs - fixed		(16,909)		(2,335)		-		(19,244)
Total fixed costs		(52,381)		(4,084)		-		(56,465)
Staff costs - variable		(19,445)		(1,505)		-		(20,950)
Total costs		(71,826)		(5,589)		-		(77,415)
Operating profit before amortisation of client relationship intangible assets and non-operating items		28,240		3,205		-		31,445
Interest receivable and other finance income		1,216		20		-		1,236
Interest payable		(2,473)		-		-		(2,473)
Profit before tax, amortisation of client relationship intangible assets and non-operating items		26,983		3,225		-		30,208
Profit on disposal of intangible assets		-		920		-		920
Profit on disposal of subsidiary		1,890		-		-		1,890
Amortisation of client relationship intangible assets		(4,992)		-		-		(4,992)
Transaction costs		(983)		-		-		(983)
Profit before taxation		22,898		4,145		-		27,043
Taxation		(5,843)		(1,171)		-		(7,014)
Profit after taxation		17,055		2,974		-		20,029
Segmental net revenue comprises:
Fees		55,746		7,489		-		63,235
Commission		25,857		-		-		25,857
Interest from client deposits		6,373		-		-		6,373
Trail commission		4,993		-		-		4,993
Profit on sale of units of unit trusts		-		1,285		-		1,285
Other income		7,097		20		-		7,117
Total segmental net revenue		100,066		8,794		-		108,860
Segmental profit is stated after charging:
Depreciation		997		1		-		998
Amortisation		5,454		-		-		5,454
Total segment assets		383,971		19,088		-		403,059

Year ended 31 March 2009 (restated)

		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
Costs excluding amortisation of client relationship intangible assets and non-operating items:
Staff costs - fixed		(36,299)		(1,894)		-		(38,193)
Other costs - fixed		(18,115)		(2,245)		-		(20,360)
Total fixed costs		(54,414)		(4,139)		-		(58,553)
Staff costs - variable		(13,435)		(1,900)		-		(15,335)
Total costs		(67,849)		(6,039)		-		(73,888)
Operating profit before amortisation of client relationship intangible assets and non-operating items		32,193		4,254		-		36,447
Interest receivable and other finance income		2,462		383		-		2,845
Interest payable		(2,940)		-		-		(2,940)
Profit before tax, amortisation of client relationship intangible assets and non-operating items		31,715		4,637		-		36,352
Loss on disposal of available-for-sale investments		(68)		-		-		(68)
Amortisation of client relationship intangible assets		(5,603)		-		-		(5,603)
Share-based payments - EBT		(440)		-		-		(440)
Profit before taxation		25,604		4,637		-		30,241
Taxation		(7,759)		(1,326)		-		(9,085)
Profit after taxation		17,845		3,311		-		21,156
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
Total segmental net revenue		100,042		10,293		-		110,335
Segmental profit is stated after charging:
Depreciation		1,006		2		-		1,008
Amortisation		6,049		-		-		6,049
Total segment assets		366,754		23,409		-		390,163

Of the segmental net revenue shown above, fees, interest from client deposits, trail commission and certain amounts within other income are deemed to be recurring in nature.  Recurring income amounted to £71,083,000 in respect of the Investment Management segment (2009: £74,046,000) and £7,489,000 in respect of the Fund Management segment (2009: £9,042,000).

3. Transaction costs

Transaction costs comprise professional fees and other costs incurred by the group which are directly attributable to the offer made by Investec plc to acquire the entire share capital of Rensburg Sheppards plc, which was announced on 30 March 2010.  The costs recognised during the year ended 31 March 2010 represent those costs to which the group was committed at 31 March 2010.  Additional costs relating to the transaction will be recognised in the subsequent financial year as the group's commitment to further costs arises.

4. Disposal of subsidiary

On 30 December 2009 the group disposed of Mayflower Management Company Limited, a wholly owned subsidiary.  The subsidiary formed part of the investment management segment and the directors do not consider that the company represented a separate major line of business to the group and accordingly have not classified it as a discontinued operation.  The profit arising on the disposal was £1,890,000.

5. Finance income and expenses

								2010		2009
								Year		Year
								ended		ended
								31 March		31 March
								£'000		£'000
Interest receivable on bank deposits								1,164		2,745
Dividends receivable								72		100
Finance income								1,236		2,845
Interest payable on bank overdrafts								20		44
Interest payable on subordinated loan								2,453		2,896
Finance expenses								2,473		2,940

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

6. Taxation

								2010		2009
								Year		Year
								ended		ended
								31 March		31 March
								£'000		£'000
Current tax expense:
United Kingdom corporation tax at 28% (2009:28%)								8,656		11,029
Adjustments in respect of prior periods								(306)		(84)
								8,350		10,945
Deferred tax expense:
Origination and reversal of timing differences								(1,342)		(1,832)
Adjustments in respect of prior periods								6		(28)
Total tax expense in the income statement								7,014		9,085

The tax charge for the year and the amount calculated by applying the standard United Kingdom corporation tax rate of 28% (2009: 28%) to the profit before tax per the income statement can be reconciled as follows:

					Restated
			2010		2009
			Year		Year
			ended		ended
			31 March		31 March
			£'000		£'000
Profit before tax			27,043		30,241
Tax expense using the United Kingdom corporation tax rate of 28% (2009: 28%)			7,572		8,467
Effects of:
Share-based payments			(113)		397
Other expenses not tax deductible			405		361
Income not chargeable to tax			(550)		(28)
Adjustments to current tax in respect of prior periods			(306)		(84)
Adjustments to deferred tax in respect of prior periods			6		(28)
Total tax expense in the income statement			7,014		9,085

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

			2010		2009
			Year		Year
			ended		ended
			31 March		31 March
			£'000		£'000
Property, plant & equipment			45		249
Available-for-sale investments			(199)		253
Tax relating to components of other comprehensive income			(154)		502
Share-based payments			548		(15)
			394		487

7. Dividends

The group announced on 30 March 2010 that, following the offer made by Investec plc to acquire the entire share capital of the company and subject to that offer proceeding, no final dividend would be paid in respect of the year ended 31 March 2010.  Instead, the shares of Investec plc to be issued to shareholders of Rensburg Sheppards plc pursuant to the offer will rank for the final dividend payable by Investec plc in respect of its financial year ended 31 March 2010. 

Dividends of the group have been recognised in the periods set out below:

								2010		2009
								Year		Year
								ended		ended
								31 March		31 March
								£'000		£'000
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
Final dividend for the year ended 31 March 2009 of 17.0p per share								7,427		-
Interim dividend for the six months ended 30 September 2009 of 8.5p per share								3,714		-
								11,141		11,132

8. Earnings per share           

Basic earnings per share is calculated with reference to earnings for shareholders of £20,029,000 (2009 restated: £21,156,000) and the weighted average number of shares in issue during the year of 43,699,989 (2009: 43,659,112).

The directors believe that the provision of additional earnings per share figures, which exclude certain items of income and expenditure, better represent underlying business performance. The effect of these adjustments on earnings and basic earnings per share is as follows:

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 520,903 shares (2009: 92,921). 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 14.

				Restated
	Year ended 31 March 2010			Year ended 31 March 2009
		Basic	Diluted		Basic	Diluted
	Earnings	EPS	EPS	Earnings	EPS	EPS
	£'000	Pence	Pence	£'000	Pence	Pence
Unadjusted earnings and EPS	20,029	45.8	45.3	21,156	48.5	48.4
Amortisation of intangible assets - client relationships	4,992	11.4	11.3	5,603	12.8	12.8
Transaction costs	983	2.3	2.3	-	-	-
Share-based payments - EBT	-	-	-	440	1.0	1.0
Profit on disposal of intangible assets	(920)	(2.1)	(2.1)	-	-	-
Profit on disposal of subsidiary	(1,890)	(4.3)	(4.3)	-	-	-
Loss on disposal of available-for-sale investments	-	-	-	68	0.1	0.1
Tax arising on adjusted items at 28%	(1,317)	(3.0)	(3.0)	(1,588)	(3.6)	(3.6)
Adjusted earnings and EPS	21,877	50.1	49.5	25,679	58.8	58.7

9. Intangible assets

				Client		Computer
		Goodwill		relationships		software		Total
		£'000		£'000		£'000		£'000
Cost
At 1 April 2008		136,385		61,138		2,229		199,752
Additions		-		120		699		819
At 31 March 2009		136,385		61,258		2,928		200,571
Additions		-		546		815		1,361
At 31 March 2010		136,385		61,804		3,743		201,932
Amortisation
At 1 April 2008		-		16,272		1,708		17,980
Charged during the year		-		5,603		446		6,049
At 31 March 2009		-		21,875		2,154		24,029
Charged during the year		-		4,992		462		5,454
At 31 March 2010		-		26,867		2,616		29,483
Net book value
At 31 March 2010		136,385		34,937		1,127		172,449
At 31 March 2009		136,385		39,383		774		176,542
At 1 April 2008		136,385		44,866		521		181,772

Additions to client relationships during the year of £546,000 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.  Details of the consideration payable to Investec Asset Management Limited are set out in note 15.

During the year, the group transferred the management of its Corporate Bond unit trust to Gartmore Fund Managers Limited ('Gartmore').  The right to manage the trust represented an intangible asset.  The asset had a carrying value of nil at the date of its disposal, by virtue of it having been generated internally.  The profit on disposal and total consideration is estimated at £920,000 based on the directors' best estimate of the group's share of the net income of the trust over the three years subsequent to disposal, in accordance with the terms of the sale agreement.  A total of £169,000 was received during the year ended 31 March 2010.

The carrying values of intangible assets are subject to an annual impairment review.  The directors have considered whether there are any indications that the intangible assets may have become impaired in the period following the latest annual impairment review, and have concluded that there are no indications of impairment either at 31 March 2010 or the date of this report.

10. Property, plant and equipment

During the year ended 31 March 2010, the group acquired assets with a cost of £414,000 (2009: £1,065,000).  No assets were disposed of during the year ended 31 March 2010 (2009: assets with a cost of £226,000 and a carrying value of nil were disposed of, with no profit or loss arising on disposal).

11. Trade and other receivables

Trade and other receivables presented within non-current assets comprise the directors' estimate of amounts receivable after more than one year from Gartmore, in respect of the transfer of the management of the Corporate Bond Trust during the year, as set out in note 9.

12.  Deferred tax assets and liabilities

Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 28% (2009: 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
	2010	2009	2010	2009	2010	2009
	£'000	£'000	£'000	£'000	£'000	£'000
Intangible assets	-	-	(9,618)	(10,994)	(9,618)	(10,994)
Property, plant and equipment	458	465	(128)	(180)	330	285
Available-for-sale investments	-	-	(589)	(390)	(589)	(390)
Share-based payments	677	174	-	-	677	174
Provisions, accruals and other payables	960	955	-	-	960	955
Net deferred tax assets/(liabilities)	2,095	1,594	(10,335)	(11,564)	(8,240)	(9,970)

13. 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.

			2010		2009
			£'000		£'000
Cash and cash equivalents			77,531		71,217
Bank overdrafts			(1,382)		(345)
			76,149		70,872

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

14. Subordinated loan

The subordinated loan facility is provided by Investec Bank (UK) Limited.  The loan capital outstanding at 31 March 2010 and 31 March 2009 attracts a fixed rate of interest of 7.155% per annum and is payable every six months in May and November.  The outstanding facility is due for repayment in annual instalments of £5,625,000, payable in May each year until 2015.  Early redemption of part or all of the outstanding facility is permitted at any time from May 2010.

During the year, £5,625,000 of the facility was paid on 6 May 2009, in accordance with the repayment schedule of the loan agreement.  Since the balance sheet date of 31 March 2010, the company has made a further scheduled repayment of £5,625,000 of the facility on 6 May 2010, and an early repayment ahead of schedule of £10,000,000 on the same date.  No penalty or additional costs have been incurred as a result of the early repayment.

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 by virtue of a waiver granted on 14 August 2009. 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 the Investec group, 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.

15. Provisions

			Deferred
			contingent		Onerous		Property
			consideration		leases		dilapidations		Total
			£'000		£'000		£'000		£'000
At 1 April 2009
Current liabilities			57		65		-		122
Non-current liabilities			63		232		297		592
			120		297		297		714
Charged to the income statement			-		214		-		214
Capitalised during the year			546		-		-		546
Utilised during the year			-		(111)		-		(111)
At 31 March 2010			666		400		297		1,363

The balances at 31 March 2010 are categorised as follows:

			Deferred
			contingent		Onerous		Property
			consideration		leases		dilapidations		Total
			£'000		£'000		£'000		£'000
Current liabilities			300		87		-		387
Non-current liabilities			366		313		297		976
At 31 March 2010			666		400		297		1,363

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 and 31 March 2010. 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 9 and 20.

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 2015.

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.

16. Share capital

										Nominal
								Number		value
								of shares		£'000
Allotted, called up and fully paid ordinary shares of 10 90/91 pence each
At 1 April 2008 and 31 March 2009								43,883,500		4,822
Issued upon exercise of share options								13,594		2
At 31 March 2010								43,897,094		4,824

17. Share-based payments

The total charge for the year relating to employee share-based payment schemes was £941,000 (2009 restated: £1,685,000), all of which related to equity-settled share-based payment transactions. None of this charge related to the EBT (2009: £440,000).

18. Contingent assets and liabilities

The group's principal trading subsidiary, Rensburg Sheppards Investment Management Limited ('RSIM'), is continuing to seek 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.  A date for the tribunal hearing is to be set in due course.

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 2010 is estimated to be £1.5 million (2009: £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 2010 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 2010 is estimated at £3.8 million (2009: £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 reflect accurately 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.

19. Events after the balance sheet date

On 6 May 2010, £5,625,000 of the subordinated loan, the details of which are set out in note 14, was repaid in accordance with the repayment schedule. In addition, on the same date the company made a further repayment of £10,000,000 of the loan ahead of schedule.  No penalties or additional costs have been incurred as a result of this early repayment.  As a result of the repayments made since 31 March 2010, the outstanding capital balance of the loan has reduced to £18,125,000.

20. 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 £2,453,000 (2009: £2,896,000) and interest of £978,000 was payable at 31 March 2010 (2009: £1,139,000). Further details of the subordinated loan facility are set out in note 14.

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 £1,364,000 (2009: £1,464,000). £122,000 was outstanding at 31 March 2010 (2009: £122,000).

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 £434,000 (2009: £611,000). £99,000 was outstanding at 31 March 2010 (2009: £396,000).

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 £109,000 (2009: £163,000). £57,000 was outstanding at 31 March 2010 (2009: £88,000).

Transactions are also undertaken with Investec in the course of the group's normal business. Commission totalling £605,000 relating to business introduced (2009: £704,000) was paid to the Investec group during the year. Trail commission of £202,000 (2009: £30,000) was received from the Investec group. No amounts were payable to, or receivable from, Investec at 31 March 2010 (2009: £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 9 and 15.

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 17.

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 URAVRRSAVUAR