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Brewin Dolphin Hldgs (BRW)

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Friday 15 January, 2010

Brewin Dolphin Hldgs

Extracts from Annual Report &

RNS Number : 6246F
Brewin Dolphin Holdings PLC
15 January 2010
 



15 January 2010


Brewin Dolphin Holdings PLC

(the "Company")



Extracts from the Company's Annual Report & Accounts for the period to 27 September 2009


The following represents extracts from the Company's Annual Report & Accounts for the period to 27 September 2009. The full Annual Report and Accounts can be accessed via the Company's website at www.brewindolphin.co.uk. Copies are in the process of being posted to shareholders.


Annual Report Page 3 


HIGHLIGHTS 

£212.3m

Total income £212.3 million (2008: £206.5 million).

£11.8bn

Discretionary funds £11.8 billion at 27 September 2009 (2008: £10.2 billion),an increase of 15.7% which compares to a fall of 0.1% in the FTSE 100 Share Index. 

£32.1m

Profit excluding amortisation of intangible asset - client relationships and redundancy costs and before tax £32.1 million (2008: £36.8 million).

£21.9m

Profit before tax £21.9 million (2008: £32.0 million).

7.4p

Earnings per share:

 

- Basic earnings per share 7.4p (2008: 10.7p).

 

- Diluted earnings per share 7.2p (2008: 10.3p).

10.8p

Earnings per share excluding amortisation of intangible asset - client relationships and redundancy costs:

 

- Basic earnings per share 10.8p (2008: 12.4p).

 

- Diluted earnings per share 10.6p (2008: 11.9p).

7.1p

The total dividend for the period is 7.1p per ordinary share (2008: 7.1p).

 

Proposed final dividend 3.55p per share (2008: 3.55p)



Annual Report Page 4

EXECUTIVE CHAIRMAN'S STATEMENT


In a year which has seen financial markets across the globe go through perhaps the most difficult times in living memory, I am pleased to report that Brewin Dolphin has been able to sail a relatively steady course through some pretty rough seas. I believe this gives shareholders grounds for continued confidence in the fundamental strengths and resilience of the business.


Total income for the year to 27 September 2009 was £212.3 million, 2.8% up on last year, against a fall in the FTSE 100 average level across each financial year of 21.6%. Pre-tax profits excluding redundancy costs and amortisation of the intangible asset - client relationships were £32.1 million, 12.7% down on last year. Pre-tax profits were £21.9 million.


Investment Management

Our mainstream Investment Management business continued to make material progress, adding substantially to our funds under management.


Investment Management is by far and away the largest part of your Group's activities and once again performed well in an extraordinarily turbulent year. Indeed it has been gratifying to note that the business has seen a material inflow of funds during the period reflecting a combination of our clients' confidence in our business and our ability to provide clear and straight forward long term investment strategies. The division's income rose by 5.3% during the period and profits (excluding redundancy costs and amortisation of client relationships) by 3.1%. Total funds under management increased from £18.7bn to £20.5bn, a 9.6% increase with, most importantly, discretionary funds rising by 15.7%. During the same period the FTSE100 index fell by 0.1% and the FTSE APCIMS Private Investor Series Balanced Portfolio rose by 2.1%.


We have continued to benefit from the arrival of new Investment Managers and Financial Planners and I would anticipate this being a feature again in the coming year. We now have a network of forty offices throughout the UK providing good national coverage. While I should not rule out one or two further new openings, it is your Board's intention that the main thrust of future growth within the UK be centred on the existing offices as we leverage the network now in place. In parallel with this we continue to put special emphasis on the maintenance and development of our business support operations to improve further our efficiency and our client services.


Investment Banking

Despite operating in a very tough trading environment, our Investment Banking division importantly remained profitable, reflecting the flexibility of its business model.


A year ago the outlook for our Investment Banking division was somewhat uncertain but we remained confident that the short term impact would be containable. Having reported an operating loss of £0.8 million at the interim stage (excluding redundancy costs), the division has been able to end the year in the black. Trading activity and the level of enquiries that are being received suggest that the outlook for the current year is somewhat more encouraging.


Dividend

The Board is proposing a final dividend of 3.55p, to be approved at the 2010 AGM and payable on 1 April 2010.


Regulation

The events of the last two years mean that the role of regulation in the affairs of your Group will remain significant and it continues to be very much the policy of your Board to see that the Group fully meets the standards and requirements of modern day regulation. In this ever evolving environment it is important that your Board keeps the Group's level of capital adequacy under review.


Board Changes

Nick Hood, David McCorkell, Michael Williams and Jock Worsley will be standing for re-election at the AGM and I commend them to you.


Two Directors retired from the Board at the year end, Christopher Legge and Simon Still. Simon Still joined the Group at the time of the acquisition of Wise Speke and the Board in 2001 as Chief Operating Officer. Simon was responsible for our business support operations. This part of the Group is very often less visible than the client facing side, but its contribution to client service should not be underestimated. I would like to put on record the Board's appreciation of Simon's efforts in charge of this part of the Group.


Christopher Legge remains actively involved in managing clients affairs - albeit no longer every day of the week. As a relative newcomer to the Group it is not easy for me to put into words adequately Christopher's contribution over nearly 50 years. He is very much one of the founding fathers of Brewin Dolphin and his

Annual Report Page 5


passionate belief in behaving with the utmost integrity and looking after the best interests of clients is a fine legacy that he leaves us. Christopher's contribution at Board level has been invaluable and he has never failed to deliver a reasoned, always valuable and not infrequently passionate point of view. I thank both these gentlemen for their contribution to the affairs of your Group.


Strategy and Re-branding

Brewin Dolphin's strategy remains to grow our business to the benefit of our shareholders by maintaining the quality and increasing the depth of service to our clients. Following our re-branding last year and the amalgamation of our divisions under the Brewin Dolphin name, we have this year sponsored a number of events which have raised significant sums for charity. The most notable of these was our sponsorship of Sir Ranulph Fiennes third and successful attempt to climb Everest which helped him reach his goal of raising a remarkable £3m for Marie Curie Cancer Care.


Outlook

The performance for the year is the result of the hard work of Brewin Dolphin people and the continued support of our clients, for which we are extremely grateful. I believe the results achieved by your Group give justifiable cause for pride, particularly given the extraordinary circumstances of the last year. As a firm we have always believed in the merits of long term prudent equity based investment and have never lost sight of the merits of dividend as a sound method of return to investors. This approach has played no small part in allowing us to grow funds under management this year. I believe the debt culture, so prevalent in the last decade, is at last being seen for what it is, so its diminution continues to bode well for our Group.


Current trading continues to be satisfactory although we should not assume that the economic woes of this country and the rest of the world are completely behind us. Your Board remains confident about the future prospects of Brewin Dolphin.


Jamie Matheson


1 December 2009



Annual Report Page 6

BUSINESS REVIEW

Investment Management Report

By D W McCorkell - Executive Director - Head of Investment Management


It is a pleasure to report a record year for the Investment Management Division in what has proved to be one of the most interesting years for global stock markets.


Investment Management's operating profits excluding redundancy costs and amortisation of client relationships rose to £30.6 million from £29.7 million, an increase of 3.1%. Total income rose to £204.0 million, an increase of 5.3% over the 2008 figure of £193.7 million, an excellent performance considering market conditions during the year.


Indices and Values of Funds under Management ("FUM")







At 27

At 28



September

September


Indices

2009

2008

% Change

FTSE APCIMS Private Investor Series Balanced Portfolio

2,640

2,586

2.10%

FTSE 100

5,082

5,089

-0.10%

Funds Under Management

£ billion

£ billion

 

Discretionary funds

11.8

10.2

15.70%

Advisory funds

8.7

8.5

2.40%

Total managed funds

20.5

18.7

9.60%


Total funds under Discretionary Management at the year end were £11.8 billion against £10.2 billion last year, a rise of 15.7%, which compares to a fall of 0.1% in the FTSE100 Share Index and a rise of 2.1% in the FTSE APCIMS Private Investors Services Balanced Portfolio Index. Funds under Advisory Management were £8.7 billion, a rise of 2.4% over the year, giving total funds under management of £20.5 billion, a rise of 9.6% overall. The figures include £127 million of new funds brought in by new teams who joined in the year. The teams who joined us in 2008 have introduced £1.3 billion of Discretionary funds and £0.7 billion of Advisory funds since they arrived.


Financial Performance





Total

Operating

Total

Operating


Income

Profit

Income

Profit


2009

2009

2008

2008

 

£ million

£ million

£ million

£ million

Discretionary Portfolio Management

128.8

19.4

123

18.9

Advisory Portfolio Management

75.2

11.2

70.7

10.8

 

204

30.6

193.7

29.7



† excluding redundancy costs and amortisation of client relationships.


Fees, interest and other recurring income has increased by 4% in the year, with commission income increasing by 7%. Recurring income is 54% (2008: 55%) of total income. The trend towards an increasing level of Discretionary Management continues but the exceptionally high level of activity seen during the year has resulted in this modest increase in the proportion of non-recurring income.


The Business

During the year, we have added six new Investment Management teams to the Group. Four of these teams joined our offices in London, Teesside, Leeds and Guernsey. The largest team, consisting of four Divisional Directors and three staff joined us in Brighton where we have opened a new office. In January 2010, our Eastbourne office will relocate to join this new team in Brighton. The other new branch opening during the year was in Truro, where the total number of staff is six, including two Divisional Directors. In addition, we have relocated part of our business support operations from London and Leicester to new and much more efficient premises in Edinburgh.


Following the retirement of a number of Senior Investment Managers, we now have a total of 643 Client Executives and Investment Managers. We thank all of them for their contribution over many years and wish them a long and happy retirement. We have developed our Graduate Trainee Programme, with the largest ever number of Graduates starting the programme this September. All of last year's graduates completed the programme and have now joined teams around the Group.

Financial Planning continues to be an important area of our business. Economic uncertainty has resulted in many clients undertaking a full financial review with our Financial Planning teams and their usual Investment Managers. We have 61 qualified Financial Planners across the Group, with clients of all branches having access to their advice.


Annual Report Page 7


The Financial Services Authority ("FSA") will publish the Retail Distribution Review ("RDR") early next year and after a final period of consultation, it will be implemented at the end of 2012. The RDR will affect the way we do our business and will require Investment Managers to have a minimum level of qualifications and to enter our continual professional development programme. We have enhanced our training and competence systems so that all our Investment Managers meet these requirements.

We have continued to grow our Business Development Team which introduces Brewin Dolphin services to Independent Financial Advisors ("IFAs") and other Professional Intermediaries in the UK. In the period, this team has introduced £235 million of new FUM. Further enhancement to the services we provide for intermediaries and their clients, particularly in light of the RDR, will be introduced in 2010.

Management of charities' assets is a growing part of our business. At the year end charitable FUM had risen to £1.5 billion from £1.3 billion in September 2008. A specialist Charity Investment Management Team now provides services throughout the UK. We have also seen a significant increase in our FUM in various 'tax wrappers' with £2.3 billion now in Offshore Bonds, SIPPs and other self invested pension schemes.

We are delighted to report that we have won several awards this year, importantly, the Shares Magazine Award for Best Discretionary Stockbroker 2009. At the Daily Telegraph Wealth Management Awards we were very proud that a senior member of our operations team won the Award for exceptional performance in Business Support and our Perspective newsletter the Best Market Newsletter category.

We have developed our web presence and will improve it further to increase the variety and depth of our online services for clients and intermediaries. It is important for us to ensure that our basic online services are always stable and reliable prior to considering additional functionality. We are working to increase the online access and range of reports we provide for our clients.

The strength of our business model has been demonstrated throughout this difficult period. We have seen significant inflows of new business and clients often tell us how important it is to be able to talk to a real person whom they know and trust. I would like to thank all our Investment Managers and support staff for the enormous efforts they have made in looking after our clients so well during one of the most extraordinary years in stock market history.

Investment Banking Report

By G Summers - Director of Brewin Dolphin Limited - Head of Investment Banking

The financial period under review was extremely challenging, with a further deterioration in conditions in capital markets around the world. The UK small and mid cap market place suffered more than most with a further significant drop in corporate activity and trading, as access to both debt and equity capital became severely constrained.

However, it is pleasing to report despite these testing conditions that the Investment Banking team managed to come through the year making a small profit, maintaining its unbroken track record of profitability. Though it is still early days there are signs that capital markets have begun to recover. We are cautiously optimistic that this will be sustained.

The Investment Banking division has a team of sixty professionals specialising in six core sectors: Consumer; Healthcare; Industrials; IT; Resources and Support Services. Our Research, Sales and Trading team is well regarded in the City and team members enjoy independent recognition in surveys such as Extel and Starmine. Our Corporate Broking and Advisory team continues to offer innovative solutions and best advice to our corporate clients.

We have recruited two more experienced analysts during the year and a new director in corporate finance to complement our existing teams. We have appointed a new Head of Equities and a new Head of Corporate Finance.

The business is firmly committed to our core values of diligence and integrity which together help us deliver a valued service to our clients. This approach has enabled us to come through the recent difficult markets with an enhanced reputation and should ensure that we continue to build on our very solid foundations, into the medium term and beyond.

Annual Report Page 8

OPERATING AND FINANCIAL REVIEW


This review has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for these strategies to succeed. It should not be relied on by any other party for any other purpose. The review contains forward looking statements; these should be treated with caution due to inherent uncertainties associated with such statements.

Business Overview

The Brewin Dolphin Group has one principal operating company, Brewin Dolphin Limited ("BDL"), which is regulated by the Financial Services Authority ("FSA"). BDL's main business is that of an Investment Manager with an Investment Banking arm.

Results for 2009 Financial Year

The performance in the period is set out below:




2008



2009

(Restated)

% Change

FTSE 100 average for year

4,506

5,750

-21.6%


£'000

£'000


Total income

212,312

206,495

2.8%

Salaries

(75,552)

(71,983)

5.0%

Other operating costs

(78,873)

(70,607)

11.7%

Profit before profit share¥

57,887

63,905

-9.4%

Profit share

(27,211)

(33,217)

-18.1%

Operating profit¥

30,676

30,688

0.0%

Net finance income

1,467

6,148

-76.1%

Profit before tax¥

32,143

36,836

-12.7%

Redundancy costs

(3,638)

(634)


Intangible asset client




relationships amortisation

(6,566)

(4,244)


Profit before tax

21,939

31,958

-31.4%

Taxation

(6,404)

(9,939)


Interim and final dividend




for the year

(15,060)

(14,771)



475

7,248






Earnings per share




Basic earning per share

7.4p

10.7p

-30.8%

Diluted earnings per share

7.2p

10.3p

-30.1%

Earnings per share¥




Basic earning per share

10.8p

12.4p

-12.9%

Diluted earnings per share

10.6p

11.9p

-10.9%


¥ excluding redundancy costs and amortisation of client relationships.


We have outperformed the market with operating profit (excluding amortisation of client relationships and redundancy costs) maintained. Falling interest rates have changed this to a 12.7% fall in profit after interest costs on the above adjusted basis and a 10.9% fall at the diluted earnings per share level.

The redundancy costs will bring with them efficiencies as they arise from transferring business support functions in London and Leicester to our new Edinburgh business support site, as well as a number of early retirements in the front office, where clients have been passed down to younger members of the teams.

Amortisation of client relationships is a new accounting policy for the Group and our comparatives have been restated accordingly as set out in note 4 to the financial statements and the section on accounting policies towards the end of this review. The majority of amortisation is over seven years, the normal lock in period for the newly acquired teams. This is in line with our previous policy under UK GAAP, under which goodwill was amortised prior to 2005.

It is estimated that the cost of the £2bn funds bought in by the teams joining in 2008 was 1.3% of funds, against an industry benchmark figure for third party acquisition of funds of 3%.

In most cases clients are extremely loyal to their fund managers and impairment only happens if a team leaves. Since 1987, when BDL was incorporated, only 4 substantial private client teams have left the Group, whilst well over 100 have joined. Referral from existing clients is our best source of new business and we are able to trace many clients back generations. Thus, in practice, client relationships grow through referrals from year to year rather than diminish.

Therefore, like our peers, we will from now onwards quote our headline result figures pre and post the non cash item of amortisation of client relationships, as we did when goodwill was amortised prior to the adoption of IFRS.

Profit before tax, after taking into account amortisation and redundancy costs, was down 31%, with basic earnings per share down 31% and fully diluted earnings per share down 30%.

Aims, Strategy and Objectives


The Brewin Dolphin Vision

To be the leading independent Investment Management and Investment Banking business maintaining trust through complete integrity, fair treatment of all our clients and offering a bespoke service which adds value via personal contact.

Mission

To grow our business to the benefit of our shareholders by maintaining the quality and increasing the depth of service rendered to our clients.


Annual Report Page 9

Objectives

● Protect, retain and nurture our people through a professional training programme and effective performance management alongside a quality recruitment policy. 

● Maintain, protect and build our reputation by delivering what we promise through the provision of competent staff, reliable systems, efficient administration and superior client service. 

● Build the Brewin Dolphin brand so that it is dynamic and synonymous with business growth across all our activities. 

● Establish a Group approach to develop and grow the client base organically through the broadening of the service offering. 

● Influence and successfully embed regulation with the implementation of policies and processes that are flexible enough to maximise all business opportunities. 


Key Performance Indicators (KPIs)

The main KPIs used by management are:


● Profit per team. We maintain individual team profit and loss accounts for 144 teams (2008: 138). This enables the Group to monitor front office performance closely, brings the discipline of peer pressure and passes management responsibility to heads of teams. 

●Team return on funds under management. This again enables the Group to monitor front office performance closely, brings the discipline of peer pressure and passes management responsibility to heads of teams. 

● Business facing income to salary ratios. This again enables the Group to monitor front office performance closely, brings the discipline of peer pressure and passes management responsibility to heads of teams. 

● Overheads and business support costs as a percentage of total income. This brings similar controls as those above to the overhead element of the Group. Over the cycle the aim is to improve these ratios and drive overheads down while allowing for growth in the business. However, on a year to year basis cyclical revenue can result in adverse movements. 

● Staff turnover ratio. A low level of leavers, especially from the front office, is an indication of staff satisfaction. 


These KPIs can be measured as follows: 


● The aggregate team operating profit pre redundancy costs and amortisation of client relationships was as follows: 



2009

2008

2007

2005*


£'000

£'000

£'000

£'000

Operating profit pre redundancy costs





and amortisation of client relationships

30,676

30,688

35,702

20,299


* 2005 figures have been included to provide an appropriate benchmark based on a 5 year view.


Detailed team performance was patchy. Our bond team did very well as did some of the teams recruited in 2008 though others took longer to come on stream. Generally, longer established teams results fell back with the market.


The aggregate return on funds under management was as follows:



2009






excluding one






off interest






income

2009

2008

2007

2005*

Average return on






discretionary funds

1.23%

1.27%

1.18%

1.13%

1.11%

Average return on






advisory funds

0.93%

0.96%

0.73%

0.66%

0.63%


* 2005 figures have been included to provide an appropriate benchmark based on a 5 year view.


The improvement seen over the last few years continues.

 


● Business facing income to fixed salary ratios were as follows:



2009

2008

2007

2005*


Investment management

3.9

4.5

4.8

4.2


Investment banking

2.1

2.5

5.3

3.4


* 2005 figures have been included to provide an appropriate benchmark based on a 5 year view.


The fall in the ratio for Investment Management reflects the fall in markets which has meant that income per head has fallen.


On the investment banking side, despite salary costs being reduced by 22%, income fell further.



● Overheads and business support costs as a percentage of income:









2009

2008

2007

2005*


Total fixed business support






costs as a % of income

21.3%

19.3%

15.6%

18.2%


Total fixed overhead costs as a






% of income

12.6%

11.6%

9.6%

10.3%


* 2005 figures have been included to provide an appropriate benchmark based on a 5 year view.


Total fixed business support costs and fixed overhead costs as a proportion of income have both increased in the current period due to fixed business support costs rising by 8.7% and fixed overhead costs by 6.8% while total income only increased by 2.8%. This reflects the underlying growth of the Group and the real increase in the number of branches and teams over the last two year period necessitating a bigger infrastructure.



● Staff turnover ratios


Business facing staff losses were 9% in 2009 (2008: 10%) with gains of 8% (2008: 21%). The year saw a number of amicable early retirements which largely explains the relatively high loss of staff. A two man team was also lost in the year. 


Targets

On the Investment Management side of the business the principal target is to grow discretionary funds by 5% p.a. above market movement. This year we have exceeded the market by 16% (2008: 16%). On the investment banking side the main aims are to increase the average size of the mandate and grow recurring income; here retainers decreased in the year by 9% to £2.7m after increasing in 2008 by 41%.

Current, Future Performance and Profit Dynamics

The performance in the period is outlined in the Executive Chairman's Statement and the Business Review.


The Group has substantial operational gearing arising from its fixed cost base, mitigated by geared profit share. It is estimated that the Group would break even, after measured cost reductions, other things being equal, at an index level of 2,500 (2008: 2,500).

Competition and Markets

BDL is one of the UK's largest independent investment managers and one of the largest regional investment bankers. The investment management market is a growing sector, competition is relatively fragmented and price competition is low.


Annual Report Page 10

OPERATING AND FINANCIAL REVIEW (continued)


Resources Available to the Group

The Group's main resource is its staff: investment managers; investment banking staff and support staff; see note 8 to the financial statements.

To support our business facing personnel we have a strong research department and up-to-date computer systems, together with 40 offices located around the country thus are able to give a truly personal service to clients.

Corporate Responsibility

Environmental, Health and Safety and Social and Community responsibility issues are covered in the Directors' Report, as are key employment policies which are also dealt with in the Remuneration Report.

Investment Management

The Investment Management division has grown its total income by 5.3% to £204m in 2009 and operating profits pre redundancy costs and amortisation of client relationships by 3.1% to £30.6m.

This is further analysed as follows:




2009

2008


£'000

£'000

Total income

204,015

193,696

Salaries

(71,562)

(67,370)

Other operating costs

(74,712)

(64,326)

Profit before profit share

57,741

62,000

Profit share

(27,140)

(32,310)

Operating profit excluding redundancy costs and



amortisation of client relationships

30,601

29,690

The above income is further analysed as follows:




2009

2008


£'000

£'000

Fee, interest and other recurring income

111,049

106,960

Commission

92,966

86,736


204,015

193,696


Fee, interest and other recurring income have increased by 4% (2008: 23%) in the period to 54% of total revenue (2008: 55%). Commission increased by 7%.

Teams

Investment Management is broken down into small profit centres (143 teams) for profit share purposes. Normally the senior members of each team have a shareholding in the Group, which is material to them, so that the long-term interest of the Group is more important than any one year's profit share. Individual team figures, both as to profit and return on funds, are reported in the Group Management Accounts. It is an absolute rule that a loss in one profit centre does not impinge on other centres; although such losses do reduce Group Management's profit share.

New Teams

During the period the Group attracted 6 new teams (2008: 21). During the period new teams brought in discretionary funds of £80m and advisory funds of £47m. The funds introduced by the 2008 teams now stand at £2bn split between discretionary - £1.3bn and advisory - £0.7bn. The 2009 teams increased revenue by £1.7m but made losses in their first year of £0.4m. The 2008 teams made a profit of £1.5m in the current year. As a rule of thumb, the Group looks to fixed salaries being covered 4 to 5 times by revenue when assessing potential new teams once the teams' clients have been transferred.


Discretionary Investment Management

Discretionary investment management total income has increased by 4.7% to £128.8m and operating profits pre redundancy costs and amortisation of client relationships by 3.1% to £19.4m.

Discretionary funds have increased by 15.7% from £10.2bn to £11.8bn, against a market fall of 0.1% in the FTSE 100 index; this shows real growth of 15.8%.

Advisory Investment Management

Advisory investment management total income has increased by 6.4% to £75.2m and operating profits pre redundancy costs and amortisation of client relationships increased by 3.0% to £11.2m.

Advisory funds have increased by 2.4% from £8.5bn to £8.7bn; real growth of 2.5%.

Investment Banking

Investment Banking saw total income and operating profits fall by 35% and 92% respectively. This was due to severe market conditions in 2009.

This is further analysed as follows:




2009

2008


£'000

£'000

Total income

8,297

12,799

Salaries

(3,990)

(5,113)

Other operating costs

(4,161)

(5,781)

Profit before profit share

146

1,905

Profit share

(71)

(907)

Operating profit excluding redundancy costs and



amortisation of client relationships

75

998

 

This division has a very geared profit share arrangement which is designed to reduce peaks and troughs in operating profit in this more volatile business.


Risks and Uncertainties

The principal risk to the business remains adverse movements in the market in the short term. However, during 2008 there was a substantial movement in the mix of funds under management from equity towards cash and bonds, which has reduced our dependence on the level of the FTSE 100 Index. Currently about 75% of client's funds under management is invested in equities and the balance in cash and bonds.

Risks to the business are reviewed and monitored by the Investment Management Risk and Controls Committee and the Investment Banking Risks and Controls Committee; they are formally reviewed by the Board twice a year. The Group's risk management policies and procedures are also discussed in the Corporate Governance Statement and financial risks and risk management form part of note 25 to the financial statements.


Annual Report Page 12

OPERATING AND FINANCIAL REVIEW (continued)

At the Board meeting in October 2009 the following major financial and non financial risks were identified or reconfirmed:


Risks and Uncertainties (continued)

Risk Type

Risk

Key Mitigators

Credit risk

Counterparty risk

Majority of clients are small with an average portfolio size of £350,000. All institutional transactions



are cash against delivery.


Trading exposure

Rigorous internal checks, with formal sign offs on underwritings.



The firm never underwrites without full sub-underwriting in place.



Strong controls and procedures in place.



£2 million limit on principal account trading.

Earnings risk

Loss of front office staff

Wide staff shareholdings.



Contracts of employment with six months' garden leave.



Good profit share.

Interest rate risk

Interest rate risk

At the period end only £100m of clients' deposits was out on the money market for more than one



month and this was for under two months.

Liquidity risk

Bank default and other

Several banks are used to hold both clients' and firm's money; with levels being constantly reviewed.


systemic risk

Only bank with major UK clearers and one Irish clearer. The Irish government guarantees deposits in



this clearer.



Market heavily regulated.


Capital Adequacy

Capital adequacy surplus maintained greater than regulatory requirement.



Large cash balances.

Legal and compliance risk

Data protection

Systems and controls in place to restrict access to client and employee data including:



Centralised control of client data;



Clear desk policy;



Data Protection Steering Group; and



Secure disposal of sensitive documents.


Fast changing regulatory environment

Strong compliance and internal audit functions.


leading to breach of rules



New business and

New Product and Services Department with dedicated staff responsible for the review of new


product lines

products and services.

Operational and

Business continuity

Large number of branches.

IT risk


Back up computer site.



Two networks.


Data integrity

Change to data requires authorisation.



Exception reporting.


Electronic dealing errors

Close management supervision.



Electronic solution partially implemented.


Internet failure

Security checks and upgrades on a regular basis.



Regular performance of attack and penetration testing.



Two back up suppliers.


Project control

Staged reviews of major projects plus Programme Office.

Other risk

Acquisition of new teams

Strong vetting system for new recruits.


Financial Crime

Segregation of duties.



Authorisation processes.

Pension obligation risk

Capital adequacy risk from swings in

Dialogue with Pension Trustees and Regulator.


defined benefit scheme liability


Reputational risk

Poor investment performance

Good in-house research.



Peer review.



Compliance monitoring.



Strong training and appraisal programme.



Treating customers fairly embedded into the ethos of the firm.

Settlement risk

Settlement failure

Experienced management team monitors settlement performance.


Annual Report Page 13

Dividend

The Board has maintained the total dividend for the period at 7.1p per ordinary share (2008: 7.1p).

Cash Flow and Capital Expenditure

2009 saw a net cash inflow of £8.2m (2008: £30.6m net cash outflow). There was a £37.4m inflow of funds from operating activities. £6.3m of cash was spent on acquiring teams of investment managers and their client relationships (2008: £10.7m) and £9.5m on computer software and other, mainly computer related, fixed assets (2008: £15.8m). Dividends paid in the period came to £15.0m (2008: £21.5m).

Capital Structure, Treasury Policy, Liquidity and Capital Requirement

At 27 September 2009 the Group had net assets of £118.2m (2008: £119.9m). Net assets excluding intangible assets and shares to be issued of £51m (2008: £59m) broadly represent the Group's capital for regulatory purposes. These net assets were largely represented by net cash and cash equivalents of £65m (2008: £57m), including £26m (2008: £22m) of client settlement money. During the period the FSA has issued BDL with individual capital guidance which has increased our Pillar 2 requirement by £9m. For the Group, at the period end there was a surplus of net assets for regulatory capital adequacy purposes of £11m (2008 Restated: £25m). We are currently in discussions with the trustees of the Brewin Dolphin defined benefit pension scheme to agree a new level of annual pension contributions in the light of the likely deficit from the updating of 2008 actuarial valuation; which will further reduce this surplus of regulatory capital.

Clients' and firm's cash are diversified so that at the period end 40% was with the Bank of Scotland, 27% with Royal Bank of Scotland, 13% with Lloyds Banking Group, 20% with the Allied Irish Bank and the remainder with Bank of New York and Euroclear.

£100m of clients' cash was held at 40 days notice, and the rest was held on demand.

Our policy is to hold our clients' and Group's money at major UK clearers or at institutions supported by a sovereign guarantee. Our client money is ring fenced under the FSA's client money rules.

Client stock is also ring fenced in our nominee companies. Stock is settled via the Crest System which is owned by Euroclear, a highly rated bank, and, in the case of foreign stock, the Bank of New York.

Currency risk is normally insignificant with all transactions matched on a bargain by bargain basis. At the period end net currency exposure was a creditor of £673,000 (2008: £342,000 debtor).

Further details to the Group's approach to capital and liquidity risk management are provided in note 25 to the financial statements.

Post Balance Sheet Events

There have been no material post balance sheet events.

Accounting Policies

There were no changes in accounting policies save that as set out in note 4. We have retrospectively changed an accounting policy, so that payments to acquire teams of investment managers, bringing with them funds under management, are now classified as the intangible asset, "client relationships", rather than goodwill.

This change was decided on by the Board after a long and constructive dialogue with the Financial Reporting Review Panel, and brings us into line with our peers; see note 4 to the financial statements.

Robin Bayford

Finance Director

1 December 2009


Annual Report Page 23 (Extract)


Internal Control and Risk Management

The Board undertakes a full review of all aspects of the Group's business, identifies the main risks to the business and identifies the key controls to counter these risks. Day-to-day review and monitoring has been delegated to both the Investment Management Risk Controls Committee ("IMRCC") and Investment Banking Risk and Controls Committee ("IBRCC") of Brewin Dolphin Limited, the activities of which include overseeing and reviewing the control, monitoring and reporting frameworks and related procedures for risk management. The IMRCC committee meets weekly, and the IBRCC monthly.


Annual Report Page 24 (Extract)


The Compliance department and Internal Audit carry out regular reviews. The Board considers reputational risk, portfolio performance and the added risk of taking on new teams and business streams. The level, detail and nature of complaints are carefully monitored.

The Directors are responsible for the system of internal control established by the Group, reviewing its effectiveness and reporting to the shareholders that they have done so. They report as follows:


i. There is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group as outlined above. This has been in place for the period under review and up to the date of approval of the annual report and accounts. It is regularly reviewed by the Board and accords with the revised Turnbull guidance in the Combined Code. Any system of internal control is designed to highlight and manage rather than to eliminate the risk of failure to achieve business objectives, and can provide only reasonable, and not absolute, assurance against material misstatement or loss. Steps are being taken to embed internal control and risk management further into the operations of the business and to deal with areas of improvement which come to management's and the Board's attention. 


ii. Financial results, key operating statistics and controls are reported to the Board monthly, and variances are followed up vigorously. Monthly reports are received from the compliance and internal audit functions. 


iii. The Directors have reviewed the Group's system of internal controls and compliance monitoring and believe that these provide assurance that problems have been identified on a timely basis and dealt with appropriately throughout the period under review and up to the date of approval of the annual report and accounts. 


iv. There is a whistleblowing policy detailing the internal or external procedures through which employees are able to raise any concerns. 



Annual Report Page 32 (Extract)


Directors' Responsibility Statement


We confirm that to the best of our knowledge:


1.  the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and 


2.  the management report, which is incorporated into the Directors' Report together with the information provided in the Executive Chairman's Statement, the Business Review and the Operating and Financial Review, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 


By order of the Board






J Matheson

Robin Bayford

Executive Chairman    

Finance Director

1 December 2009


Annual Report Page 33

The audit report set-out below has been extracted from the Annual Report and Accounts and expresses the auditor's opinion on the full financial statements, not all of which are reproduced in this announcement.


INDEPENDENT AUDITORS' REPORT

Independent Auditors' Report to the members of Brewin Dolphin Holdings PLC

We have audited the financial statements of Brewin Dolphin Holdings PLC for the 52 week period ended 27 September 2009 which comprise the Consolidated Income Statement, the Consolidated Statement of Recognised Income and Expense, the Consolidated Balance Sheet, the Company Balance Sheet, the Company Statement of Recognised Income and Expense, the Consolidated and Company Cash Flow Statements and the related notes 1 to 34. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.


This report is made solely to the company's members, as a body, in accordance with sections 495, 496 and 497 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' 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 and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.


Respective Responsibilities of Directors and Auditors

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.


Scope of the Audit of the Financial Statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's and the parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.


Opinion on Financial Statements

In our opinion:


● the financial statements give a true and fair view of the state of the Group's and of the parent company's affairs as at 27 September 2009 and of the group's profit for the 52 week period then ended; 

● the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; 

● the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and 

● the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. 


Separate Opinion in relation to IFRSs as issued by the IASB

As explained in note 3 to the Group financial statements, the Group in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB).


In our opinion the Group financial statements comply with IFRSs as issued by the IASB.


Opinion on other matters prescribed by the Companies Act 2006

In our opinion:


● the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and 


● the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 


Matters on which we are required to report by exception

We have nothing to report in respect of the following:


Under the Companies Act 2006 we are required to report to you if, in our opinion:

● adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or 

● the parent company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or 

● certain disclosures of directors' remuneration specified by law are not made; or 

● we have not received all the information and explanations we require for our audit. 


Under the Listing Rules we are required to review:

● the directors' statement contained within the Directors' Report in relation to going concern; and 

● the part of the Corporate Governance Statement relating to the company's compliance with the nine provisions of the June 2008 Combined Code specified for our review. 

Simon Hardy (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors LondonUnited Kingdom

1 December 2009


Annual Report Page 34

Consolidated Income Statement




52 week period ended 27 September 2009






(Restated)



52 weeks to

52 weeks to



27 September

28 September



2009

2008


Note

£'000

£'000

Continuing operations




Revenue

6

187,241

186,969

Other operating income

3g

25,071

19,526





Total income

7

212,312

206,495





Staff costs

8

(102,763)

(105,200)

Redundancy costs

8

(3,638)

(634)

Amortisation of intangible assets - client relationships

15

(6,566)

(4,244)

Other operating costs


(78,873)

(70,607)





Operating expenses


(191,840)

(180,685)





Operating profit


20,472

25,810

Finance income

10

2,435

7,142

Finance costs

10

(968)

(994)





Profit before tax

7 & 9

21,939

31,958

Tax

11

(6,404)

(9,939)





Profit attributable to equity shareholders of the




parent from continuing operations


15,535

22,019





Earnings per share




From continuing operations




Basic

14

7.4p

10.7p





Diluted

14

7.2p

10.3p









Consolidated Statement of Recognised Income and Expense

52 week period ended 27 September 2009



52 weeks to


(Restated) 

52 weeks to




27 September

28 September




2009

2008



Note

£'000

£'000


Loss on revaluation of available-for-sale investments


(17)

(900)


Deferred tax credit on revaluation of available-for-sale investments


4

254


Actuarial loss on defined benefit pension scheme


(9,556)

(4,375)


Deferred tax credit on actuarial loss on defined benefit pension scheme


2,676

1,225


Current tax credit on share-based payments


63

568


Deferred tax charge on share-based payments


(75)

(1,255)






Net expense recognised directly in equity


(6,905)

(4,483)






Profit for period


15,535

22,019






Total recognised income and expense for the period attributable to equity





shareholders of the parent


8,630

17,536






Effects of change in accounting policy attributable to equity shareholders





of the parent

4

-

(2,227)








8,630

15,309









Annual Report Page 35

Consolidated Balance Sheet


As at 27 September 2009





(Restated)



As at

As at



27 September

28 September



2009

2008


Note

£'000

£'000

Assets








Non-current assets








Intangible assets

15

89,605

85,685

Property, plant and equipment

16

22,260

27,975

Available-for-sale investments

18

10,609

10,626

Other receivables

19

2,269

2,098

Deferred tax asset

20

852

-





Total non-current assets


125,595

126,384






Current assets








Trading investments

18

644

724

Trade and other receivables

19

441,290

283,404

Cash and cash equivalents

21

69,271

60,546





Total current assets


511,205

344,674






Total assets


636,800

471,058






Liabilities








Current liabilities








Bank overdrafts

22

4,289

3,717

Trade and other payables

23

468,619

306,855

Current tax liabilities


1,715

484

Provisions

32

1,871

2,068

Shares to be issued including premium

24

5,056

8,233





Total current liabilities


481,550

321,357






Net current assets


29,655

23,317






Non-current liabilities








Retirement benefit obligation

26

16,253

7,964

Deferred tax liabilities

20

-

1,938

Deferred purchase consideration

24

3,221

2,960

Provisions

32

172

-

Shares to be issued including premium

24

17,385

16,946





Total non-current liabilities


37,031

29,808






Total liabilities


518,581

351,165






Net assets


118,219

119,893





Equity








Called up share capital

27

2,122

2,080

Share premium account

29

94,140

90,145

Revaluation reserve

29

6,885

6,898

Merger reserve

29

4,562

4,562

Profit and loss account

29

10,510

16,208





Equity attributable to equity holders of the parent

29

118,219

119,893





Approved by the Board of Directors and authorised for issue on 1 December 2009. Signed on its behalf by


J G Matheson

R A Bayford

Executive Chairman

Finance Director


Annual Report Page 36

Company Balance Sheet




As at 27 September 2009






As at

As at



27 September

28 September



2009

2008


Note

£'000

£'000

Assets








Non-current assets








Investment in subsidiaries

17

141,719

141,052

Other receivables

19

329

430





Total non-current assets


142,048

141,482





Current assets




Trade and other receivables

19

3,739

7,708

Cash and cash equivalents

21

291

57





Total current assets


4,030

7,765





Total assets


146,078

149,247





Liabilities








Current liabilities








Trade and other payables

23

7,352

7,357

Shares to be issued including premium

24

5,056

8,233





Total current liabilities


12,408

15,590





Net current liabilities


(8,378)

(7,825)





Non-current liabilities








Shares to be issued including premium

24

17,385

16,946





Total non-current liabilities


17,385

16,946





Total liabilities


29,793

32,536





Net assets


116,285

116,711





Equity








Called up share capital

27

2,122

2,080

Share premium account

29

94,140

90,145

Merger reserve

29

4,847

4,847

Profit and loss account

29

15,176

19,639





Equity attributable to equity holders

29

116,285

116,711






Approved by the Board of Directors and authorised for issue on 1 December 2009.


Signed on its behalf by


J G Matheson

R A Bayford

Executive Chairman

Finance Director


Annual Report Page 37

Company Statement of Recognised Income and Expense 52 week period ended 27 September 2009




52 weeks to

52 weeks to


27 September

28 September


2009

2008


£'000

£'000

Profit for period

9,878

14,895





Total recognised income and expense for the period attributable to equity shareholders

9,878

14,895






Annual Report Page 38

Consolidated Cash Flow Statement




52 week period ended 27 September 2009




(Restated)



52 weeks to

52 weeks to



27 September

28 September



2009

2008


Note

£'000

£'000

Net cash inflow from operating activities

33

37,389

14,104





Cash flows from investing activities




Purchase of intangible assets - goodwill

15

(987)

-

Purchase of intangible assets - client relationships

15

(5,360)

(10,681)

Purchase of intangible assets - software

15

(5,088)

-

Purchases of property, plant and equipment

16

(4,443)

(15,746)

Dividend received from available-for-sale investments

10

352

404





Net cash used in investing activities


(15,526)

(26,023)





Cash flows from financing activities








Dividends paid to equity shareholders


(15,027)

(21,500)

Proceeds on issue of shares


1,317

2,845





Net cash used in financing activities


(13,710)

(18,655)









Net increase/(decrease) in cash and cash equivalents


8,153

(30,574)









Cash and cash equivalents at the start of period


56,829

87,403









Cash and cash equivalents at the end of period


64,982

56,829





Firm's cash


43,118

38,189

Firm's overdraft


(4,289)

(3,717)





Firm's net cash


38,829

34,472

Client settlement cash


26,153

22,357





Net cash and cash equivalents


64,982

56,829





Cash and cash equivalents shown in current assets


69,271

60,546

Bank overdrafts


(4,289)

(3,717)





Net cash and cash equivalents


64,982

56,829






For the purposes of the cash flow statement, cash and cash equivalents include bank overdrafts.

Annual Report Page 39


Company Cash Flow Statement

52 week period ended 27 September 2009



52 weeks to

52 weeks to



27 September

28 September



2009

2008


Note

£'000

£'000

Net cash inflow from operating activities

33

13,944

18,530





Cash flows from financing activities




Dividends paid to equity shareholders


(15,027)

(21,500)

Proceeds on issue of shares


1,317

2,845





Net cash used in financing activities


(13,710)

(18,655)









Net increase/(decrease) in cash and cash equivalents


234

(125)





Cash and cash equivalents at the start of period


57

182





Cash and cash equivalents at the end of period


291

57







Annual Report Page 40

NOTES TO THE FINANCIAL STATEMENTS


1. General information

Brewin Dolphin Holdings PLC is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given on page 2. The nature of the Group's operations and its principal activities are set out in the Directors' Report. The company is registered in England and Wales.


2. Adoption of new and revised standards

Two Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are: IFRIC 11 "IFRS 2 - Group and Treasury Share Transactions", IFRIC 14 and "IAS 19 - The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction". The adoption of these Interpretations has not led to any changes in the Group's accounting policies or financial statements.


During the year there was a change in accounting policy, see note 4.


At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):


IAS 24 (revised Nov. 2009)

Related Party Disclosures

Amendment to IAS 32 (Oct. 2009)

Classification of Rights Issues

Amendments to IFRS 1 (Jul. 2009)

Additional Exemptions for First-time Adopters

IFRS for SMEs

IFRS for small and medium-sized entities

Amendments to IFRS 2 (Jun. 2009)

Group Cash-settled Share-based Payment Transactions

Improvements to IFRSs 2009 (Apr. 2009)

Improvements to IFRSs 2009

Amendments to IFRIC 9 and IAS 39 (Mar. 2009)

Embedded Derivatives

Amendments to IFRS 7 (Mar. 2009)

Improving Disclosures about Financial Instruments

IFRS 1 (revised Nov. 2008)

First-time Adoption of International Financial Reporting Standards

IFRS 3 (revised Jan. 2008)

Business Combinations

Amendment to IAS 23 (Mar. 2007)

Borrowing Costs

Amendments to IAS 1 (Sept. 2007)

Presentation of Financial Statements

Amendments to IAS 27 (Jan. 2008)

Consolidated and Separate Financial Statements

Amendment to IFRS 2 (Jan. 2008)

Vesting Conditions and Cancellations

Amendments to IAS 32 and IAS 1 (Feb. 2008)

Puttable Financial Instruments and Obligations Arising on Liquidation

Amendments to IFRS 1 and IAS 27

Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

Improvements to IFRSs 2008 (May 2008)

Improvements to IFRSs 2008

Amendment to IAS 39 (Jul. 2008)

Eligible Hedged Items

IFRS 8

Operating Segments

Amendments to IFRIC 9 and IAS 39 (Mar. 2009)

Embedded Derivatives

IFRIC 12

Service Concession Arrangements

IFRIC 13

Customer Loyalty Programmes

IFRIC 15

Agreements for the Construction of Real Estate

IFRIC 16

Hedges of a Net Investment in a Foreign Operation

IFRIC 17

Distributions of Non-cash Assets to Owners

IFRIC 18

Transfers of Assets from Customers


Adoption of these Standards and Interpretations is not expected to have a material impact on the financial statements of the Group except for the treatment of the acquisition of subsidiaries when IFRS 3 (revised January 2008) comes into effect on any business combinations arising in the next financial period. When IFRS 8 comes into effect for periods commencing on or after 1 January 2009, it is not expected to lead to additional segmental disclosures.


3. Significant accounting policies.

Basis of accounting

The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.


The financial statements of the Company have also been prepared in accordance with International Financial Reporting Standards (IFRSs).


The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below.


As discussed in the Directors' Report, the Directors believe that the Group is well placed to manage its business risks successfully. The Group's forecasts and projections, taking account of possible adverse changes in trading performance, show that the Group should be able to operate within the level of its current financing arrangements. Accordingly, the Directors continue to adopt the going concern basis for the preparation of the financial statements.


Annual Report Page 41

b. Basis of consolidation

The Group accounts consolidate the accounts of Brewin Dolphin Holdings PLC and all its subsidiary undertakings.


The acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired during the period are included in the consolidated income statement from the date of acquisition to the date of disposal.


Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.


All intra-group transactions, balances, income and expenses are eliminated on consolidation.


In the Company's accounts investments in subsidiary undertakings are stated at cost less any provision for impairment. Dividends received and receivable are credited to the income statement to the extent that they represent a realised profit and loss for the Company.


In accordance with Section 408 of the Companies Act 2006 Brewin Dolphin Holdings PLC has taken advantage of the legal dispensation not to present its own income statement. The amount of the profit for the financial period dealt with in the financial statements of the Company is disclosed in note 12 to the financial statements.


c. Transaction date accounting

All securities transactions entered into on behalf of clients are recorded in the accounts on the date of the transaction.


d. Foreign currencies

The Group's functional currency is Sterling. Foreign currency monetary assets and liabilities have been translated into Sterling at the exchange rates ruling at the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined.


Transactions during the period have been translated into Sterling at the rates ruling at the time the transactions were executed.


All exchange differences are reflected in the income statement, except for any exchange differences arising on any non-monetary assets and liabilities where the changes in fair value are recognised directly in equity.


e. Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents gross commission, investment management fees and investment banking retainers, other fees plus other income, excluding VAT, receivable in respect of the period.


Investment management fees and investment banking retainers are recognised in the period in which the related service is provided and investment management commissions are recognised when the transaction is performed.


Other fees including corporate finance fees and placing commissions are taken to the income statement when payment is contractually due.


Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.


Dividend income from investments is recognised when the shareholders' rights to receive payment have been established.


f. Operating profit

Operating profit is stated as being profit before finance income, finance costs and tax.


g. Other operating income

Interest receivable and payable on client free money balances is netted to calculate the Group's share of interest receivable and included under the heading "Other operating income".


h. Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and bank overdrafts.


i. Leases

Annual rentals on operating leases are charged to the income statement on a straight-line basis over the lease term.


Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.


j. Share-based payments

The Group has applied the requirements of IFRS 2 "Share-based payments". In accordance with IFRS 1, IFRS 2 has been applied to all grants of equity instruments made after 7 November 2002 that were unvested as of 1 January 2005.



Annual Report Page 42 

NOTES TO THE FINANCIAL STATEMENTS (continued)


j. Share-based payments (continued)

The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest.


Fair value is measured by use of a Black-Scholes option pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.


k. Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.


The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.


Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.


The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.


Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.


l. Intangible assets i)

Goodwill

Goodwill represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit and loss and is not reversed.


Elements of the total cost of an acquisition may be deferred or contingent. In such cases the cost of the acquisition indicates the Company's best estimate of the future consideration likely to be made, discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money, and is revised at each balance sheet date, potentially leading to adjustments in the value of goodwill balances. Such deferred or contingent consideration may be settled in shares (see note 3(r)).


On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.


Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.


ii) Client relationships

Intangible assets classified as "client relationships" are recognised when acquired as part of a business combination or when separate payments are made to acquire funds under management by adding teams of investment managers. Client relationships are initially recognised at cost and are subsequently measured at cost less accumulated amortisation and any accumulated impairment losses. If acquired as part of a business combination the initial cost of client relationships is the fair value at the acquisition date.


When separate payments are made to acquire funds under management by adding teams of investment managers, elements of the total consideration may be deferred or contingent. In such cases the cost of the recognised client relationships includes the Company's best estimate of the future consideration likely to be made, discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money, and is revised at each balance sheet date. Such deferred or contingent consideration may be settled in shares (see note 3(r)).


Client relationships are amortised over seven to fifteen years, their minimum estimated useful lives.


Annual Report Page 43 

l. Intangible assets (continued) 

iii) Computer software 

Computer software which is not an integral part of the related hardware is classified as an intangible asset. Costs of acquiring computer software are treated as an intangible asset and amortised over four years on a straight line basis from the date the software comes into use. Computer software developed internally is separately identified and recognised as an intangible asset if it is part of a specifically authorised project which will give probable future economic benefits over a period of not less than four years, and is amortised over four years on a straight line basis from the date the software comes into use. 


m. Property, plant and equipment 

Property, plant and equipment is stated at cost less accumulated depreciation and any recognised impairment. Depreciation has been provided on the basis of equal annual instalments to write off the cost less estimated residual values of tangible fixed assets over their estimated useful lives as follows:


Computer equipment

3 to 4 years

Office equipment

4 to 10 years

Leasehold improvements

over 5 years



n. Financial instruments

Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.


o. Financial assets

Investments are recognised and derecognised on trade date, where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.


Financial assets are classified into the following specified categories: financial assets 'at fair value through profit or loss' (FVTPL), 'held to maturity' investments, 'available-for-sale' financial assets and 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.


Financial assets at FVTPL

Financial assets are classified as at FVTPL where the financial asset is held-for-trading or it is designated as at FVTPL. A financial asset is classified as held-for-trading if it has been acquired principally for the purpose of selling in the near future.


Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporate any dividends or interest earned on the financial asset. Their value is determined in the manner described in note 18.


Available-for-sale financial assets

Certain shares held by the Group are classified as being available-for-sale and are stated at fair value. Fair value is determined in the manner described in note 18. Gains and losses are recognised directly in equity in the revaluation reserve with the exception of impairment losses which are recognised directly in profit or loss.


Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the revaluation reserve is included in profit or loss for the period.


Dividends on available-for-sale equity instruments are recognised in profit and loss when the Group's right to receive payment is established.


Loans and receivables

Trade receivables, loans, and other receivables that have fixed or determinable payments and are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.


Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets.


p. Netting of balances

Amounts due to and from counterparties due to settle on balance are shown net where there is a currently enforceable legal right to set off the recognised amounts. Amounts due to and from counterparties due to settle against delivery of stock are shown gross.


Annual Report Page 44

NOTES TO THE FINANCIAL STATEMENTS (continued)


q. Financial liabilities and equity

Financial liabilities and equity are classified according to the substance of the contractual arrangements entered into.


Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.


Financial liabilities

Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'other financial liabilities'. Financial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as at FVTPL.


Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.


r. Shares to be issued including premium

Shares to be issued represent the Company's best estimate of the amount of ordinary shares in the Company, which are likely to be issued following business combinations or the acquisition of client relationships which involve deferred payments in the Company's shares. The sum is discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money and is revised annually in the light of actual results. The resulting interest charge from the unwind of the discount is included within finance costs. Where shares are due to be issued within a year then the sum is included in current liabilities. Where the team of investment managers, bringing with them funds under management, have not yet joined and the client relationships assets have not been brought into use, the resultant liability is shown as an amount contracted for but not provided in the accounts.


s. Retirement benefit costs

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state- managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group's obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.


For defined benefit retirement benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur.


They are recognised outside the profit or loss and presented in the statement of recognised income and expense ("SORIE").


Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.


The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation, as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.


t. Impairment of tangible and intangible assets

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Goodwill is tested for impairment at least annually. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.


Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.


For the purposes of impairment testing, client relationships and goodwill are allocated to each of the Group's cash-generating units. Fair value is established by valuing clients' funds under management in each of the cash-generating units based on the value of funds under management at the period end; the percentages of funds being used depending on values attributed in recent public transactions for the purchase of advisory and discretionary funds. If the carrying amount relating to any cash-generating unit exceeds the calculated fair value less costs to sell, a value in use is calculated using a discounted cash flow method. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.


If the recoverable amount of any asset other than client relationships or goodwill is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount.


An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.


Annual Report Page 45

u. Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material.


4. Change in accounting policy

After a long and constructive dialogue with the Financial Reporting Review Panel the Group has considered the additional clarification which the forthcoming standard IFRS 3 (2008) brings to the recognition of intangible assets and the various practices currently applied by other firms in the purchase of investment management businesses, and has retrospectively changed its accounting policy. Payments to acquire teams of investment managers, bringing with them funds under management, have been re-classified as the intangible asset - client relationships, rather than goodwill. Similarly intangible assets representing client relationships acquired as part of business combinations have been recognised separately to goodwill. The new accounting policy is considered preferable as it brings us into line with our peers and is more transparent.


This new accounting policy has been applied retrospectively from the date of the Group's transition to IFRS and the comparative figures for 2008 in these financial statements have been restated.


Opening retained earnings as at 1 October 2007 have been reduced by £2.2m after deferred taxation which is the cumulative amount of the adjustment relating to periods prior to 2008.


The main changes to our financial statements are presented below:






2009

2009

2008

2008


Prior to

Following




change of

change of




accounting

accounting

Previously



policy

policy

reported

As restated


£'000

£'000

£'000

£'000

Profit before tax and amortisation

28,505

28,505

36,202

36,202

Amortisation of the intangible asset - client relationships

-

(6,566)

-

(4,244)





Profit before tax

28,505

21,939

36,202

31,958

Taxation

(8,242)

(6,404)

(11,127)

(9,939)





Profit after taxation

20,263

15,535

25,075

22,019





Basic earning per share post amortisation

9.6p

7.4p

12.2p

10.7p





Fully diluted earning per share post amortisation

9.4p

7.2p

11.7p

10.3p






2009

2009

2008

2008


Prior to

Following




change of

change of




accounting

accounting

Previously



policy

policy

reported

As restated


£'000

£'000

£'000

£'000

Net assets

128,230

118,219

125,176

119,893





Intangible assets





Goodwill

99,095

48,438

93,023

48,376

Client relationships

-

36,753

-

37,309






99,095

85,191

93,023

85,685





Deferred tax asset / (liability)

(3,041)

852

(3,993)

(1,938)







Annual Report Page 47

7. Segmental information

For management purposes, the Group is divided into two business streams: Investment Management and Investment Banking. These form the basis for the primary segment information reported below. All operations are carried out in the United Kingdom and the Channel Islands. All segment income relates to external clients.


52 week period ended 27 September 2009

Discretionary

Advisory

Total




Portfolio

Portfolio

Investment

Investment



Management

Management

Management

Banking

Group


£'000

£'000

£'000

£'000

£'000

Total income

128,790

75,225

204,015

8,297

212,312





Operating profit before redundancy costs and






amortisation of client relationships

19,428

11,173

30,601

75

30,676

Redundancy costs



(3,393)

(245)

(3,638)

Amortisation of client relationships



(6,566)

-

(6,566)





Operating profit





20,472

Finance income (net)





1,467





Profit before tax





21,939





Other Information






Capital expenditure



4,404

39

4,443

Depreciation



9,982

171

10,153

Amortisation of intangible asset - software



674

-

674

Share-based payments



652

34

686

Segment assets excluding current tax assets



567,683

69,117

636,800





Segment liabilities excluding current tax liabilities



447,749

69,117

516,866





52 week period ended 28 September 2008 (Restated)

Discretionary

Advisory

Total




Portfolio

Portfolio

Investment

Investment



Management

Management

Management

Banking

Group


£'000

£'000

£'000

£'000

£'000

Total income

122,975

70,721

193,696

12,799

206,495





Operating profit before redundancy costs and






amortisation of client relationships

18,845

10,845

29,690

998

30,688

Redundancy costs



(134)

(500)

(634)

Amortisation of client relationships



(4,244)

-

(4,244)





Operating profit





25,810

Finance income (net)





6,148





Profit before tax





31,958





Other Information






Capital expenditure



15,147

599

15,746

Depreciation



8,459

126

8,585

Share-based payments



621

40

661

Segment assets excluding current tax assets



439,744

31,314

471,058





Segment liabilities excluding current tax liabilities



319,367

31,314

350,681









Annual Report Page 49 (Extract)

10. Finance income and finance costs









2009

2008





52 Weeks


52 Weeks





£'000


£'000


Finance income







Interest income on pension plan assets



-

159


Dividends from available-for-sale investments

352

404


Interest on bank deposits

2,083

6,579












2,435

7,142









Finance costs







Finance cost of deferred consideration

509

981


Interest expense on defined benefit obligation

412


-


Interest on bank overdrafts

47

13












968

994



Annual Report Page 50 (Extract)

11. Taxation





(Restated)


2009

2008


52 Weeks

52 Weeks


£'000

£'000

United Kingdom



Current tax

5,931

5,955

Prior year

667

192

Overseas tax



Current tax

174

216

Prior year

(246)

5





6,526

6,368

United Kingdom deferred tax



Current year

531

3,836

Prior year

(653)

(265)





6,404

9,939



United Kingdom corporation tax is calculated at 28% (2008: 29%) of the estimated assessable taxable profit for the period.


Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.


The charge for the year can be reconciled to the profit per the income statement as follows:


Profit before tax

21,939

31,958





Tax at the UK corporation tax rate of 28% (2008: 29%)

6,143

9,268

Tax effect of expenses that are not deductible in determining taxable profit

493

551

Tax effect of prior year tax

532

197

Tax effect of prior year deferred tax

(653)

(265)

Tax effect of share-based payments

(196)

162

Tax effect of deferred tax timing differences

(83)

(148)

Tax effect of leasehold property depreciation

279

174

Tax effect of prior year leasehold property allowances

(111)

-




Tax expense

6,404

9,939




Effective tax rate for the year

29%

31%


In addition to the amount charged to the income statement, deferred tax relating to the revaluation of the Group's available-for-sale investments amounting to £4,000 (2008: £254,000) has been credited directly to equity and deferred tax relating to the actuarial loss in the defined benefit pension scheme amounting to £2,676,000 (2008: £1,225,000) has been credited directly to equity. Deferred tax on share-based payments of £75,000 (2008: £1,255,000) has been credited directly to equity.


Annual Report Page 51


13. Dividends




2009

2008


52 Weeks

52 Weeks


£'000

£'000

Amounts recognised as distributions to equity shareholders in the period:



Final dividend paid 6 April 2009, 3.55p per share (2008: 3.5p per share)

7,504

7,248

Interim dividend paid 25 September 2009, 3.55p per share (2008: 3.55p per share)

7,523

7,383





15,027

14,631




Proposed final dividend for the 52 weeks ended 27 September 2009 of 3.55p (2008: 3.55p)



per share based on shares in issue at 10 November 2009 (7 November 2008)

7,537

7,388





The proposed final dividend for the 52 week period ended 27 September 2009 of 3.55p per share is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.


14. Earnings per share



The calculation of the basic and diluted earnings per share is based on the following data:





(Restated)


2009

2008


'000

'000

Number of shares



Basic



Weighted average number of shares in issue in the period

210,940

206,157

Diluted



Weighted average number of options outstanding for the period

1,271

2,415

Estimated weighted average number of shares earned under deferred consideration



arrangements

6,555

8,527




Diluted weighted average number of options and shares for the period

218,766

217,099




Earnings attributable to ordinary shareholders




£'000

£'000

Profit attributable to equity shareholders of the parent from continuing operations

15,535

22,019

Redundancy costs

3,638

634

less tax

(1,019)

(184)

Amortisation of intangible assets - client relationships

6,566

4,244

less tax

(1,838)

(1,188)




Adjusted basic profit for the period and attributable earnings excluding redundancy



costs and amortisation of client relationships

22,882

25,525




Profit attributable to equity shareholders of the parent from continuing operations

15,535

22,019

Finance costs of deferred consideration (note a)

277

549

less tax

(78)

(159)




Adjusted fully diluted profit for the period and attributable earnings

15,734

22,409

Redundancy costs

3,638

634

less tax

(1,019)

(184)

Amortisation of intangible assets - client relationships

6,566

4,244

less tax

(1,838)

(1,188)




Adjusted fully diluted profit for the period and attributable earnings excluding



redundancy costs and amortisation of client relationships

23,081

25,915




From continuing operations



Basic

7.4p

10.7p




Diluted

7.2p

10.3p




From continuing operations excluding redundancy costs and amortisation of client relationships



Basic

10.8p

12.4p




Diluted

10.6p

11.9p





a) Finance costs of deferred consideration are added back where the issue of shares is more dilutive than the interest cost saved.


The numerators for the purposes of calculating both basic and diluted earnings per share have been adjusted following the change in accounting policy described in note 4.



Annual Report Page 60 (Extract)

25. Financial instruments and risk management

Overview

The Group has exposure to the following risks from its use of financial instruments:


market risk;

credit risk;

liquidity risk; and

operational risk.



This note presents information about the Group's exposure to each of the above risks, the Group's policy and processes for measuring and managing risk and the Group's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.


The Board of Directors have overall responsibility for the establishment and oversight of the Group's risk management framework. The Group's risk management considers the major areas of market risk, credit risk, liquidity risk and operational risk. The Board determines the risk appetite and is responsible for the implementation of a risk management framework that recognises the risks faced by the Group. Authority flows from the Board to the Risk Management Committee ("RMC") and from there to specific committees which are integral to the management of risk.


Brewin Dolphin's activities involve the measurement, evaluation, acceptance and management of some degree of risk, or combination of risks. The Board has set a low risk appetite whilst recognising the inevitable risk of being exposed to adverse movements in the stock market.


Annual Report Page 61

25. Financial instruments and risk management (continued)

The Audit Committee oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its role by Internal Audit. The Audit Committee's key role in risk management is the assessment of controls that are in place to mitigate risk and the review of the Risk Management Schedule bi-annually which is prepared by the RMC.


Capital risk management

The capital structure of the Group and Company consists of issued share capital, reserves and retained earnings as disclosed in note 29.


The Group has an Internal Capital Adequacy Assessment Process ("ICAAP"), as required by the Financial Services Authority ("FSA") for establishing the amount of regulatory capital to be held by the Group; Brewin Dolphin Limited ("BDL") is the only regulated entity within the Group.


The ICAAP draws on the Group's Annual Corporate Risk Review which is based on bi-annual risk assessments. It gives consideration to both current and projected financial and capital positions. The ICAAP is updated throughout the year to take account of the bi-annual risk assessments and for any significant changes to business plans and any unexpected issues that may occur. The ICAAP is discussed and approved at a Brewin Dolphin Holdings PLC Board meeting at least annually.


Capital adequacy is monitored daily by management. The Group uses the simplified approach to Credit Risk and the standardised approach for Operational Risk to calculate Pillar 1 requirements. The Group observed the FSA's regulatory requirements throughout the period.


The regulatory capital resources of the Group calculated in accordance with FSA definitions were as follows:




(Restated)


27 September

28 September


2009

2008


£'000

£'000

Tier 1 capital resources



Ordinary share capital

2,122

2,080

Share premium account

94,140

90,145

Retained earnings*

18,612

18,342

Merger reserve

4,562

4,562

Shares to be issued

22,441

25,179






141,877

140,308

Deduction - Intangible assets

(89,605)

(85,685)





52,272

54,623




Tier 2 capital resources



Revaluation reserve

6,885

6,898

Deductions

-

-





6,885

6,898




Tier 1 plus tier 2 capital resources

59,157

61,521

Deduction - Material holdings

(4,084)

(3,848)





Total capital before deductions

55,073

57,673

Deductions from total capital

(579)

(618)




Total capital resources after deductions

54,494

57,055




Total capital requirement

43,659

31,653






* includes adjustment for defined pension liability in accordance with FSA rules. There were no changes in the Group's approach for capital management during the period.



Annual Report Page 62

NOTES TO THE FINANCIAL STATEMENTS (continued)


25. Financial instruments and risk management (continued)

Significant accounting policies


Details of the significant accounting policies, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each financial asset and financial liability, are disclosed in note 3 to the financial statements.


Categories of financial instruments



Group




Carrying value


2009

2008


£'000

£'000

Financial assets







Fair value through profit and loss - held for trading

644

724

Loans and receivables (including cash and trade receivables)

512,830

346,048

Available-for-sale financial assets

10,609

10,626





524,083

357,398




Financial liabilities



Amortised cost

496,562

337,916





496,562

337,916




Company




Carrying value


2009

2008


£'000

£'000

Financial assets







Loans and receivables (including cash and trade receivables)

4,359

8,195





4,359

8,195




Financial liabilities







Amortised cost

29,793

32,536





29,793

32,536




The carrying value approximates to the fair value of the financial assets and liabilities held.




I. Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of the Group's market risk management is to both control and manage our exposure within the Group's risk appetite whilst accepting the inherent risk of market fluctuations.


The Group acts as an Investment Manager and agency stockbroker within the UK; all trades are matched in the market.


The Group undertakes only limited principal trading on its own behalf; a maximum gross position of £2 million has been set as a limit by the Board. No single trade or accumulative position in any one stock can be in excess of £0.5 million. A hurdle stop loss price is operated in which the stop loss is set at a fixed percentage below the market price. This sets a limit on the maximum possible loss, as the stop loss will be triggered if the market price drops below the level set, resulting in the stock being sold. Conversely, where the market price rises the stop loss price will rise proportionately, to set a new stop loss price, thus protecting any profits. The stop loss position is monitored on average three times a day and is recalculated when necessary. Principal trading positions are monitored daily by the Risk Management Department and closing positions are reported to management. Any breaches of limits are notified immediately to management, as are stop losses, which are enforced.


The Group policy is to never underwrite without full sub-underwriting in place.


The Group deals in foreign currencies on a matched basis on behalf of clients, limiting foreign exchange exposure. The total net foreign exchange exposure at the year end was a creditor of £673,000 (2008: £342,000 debtor).


The Group does not hold any derivatives.


There has been no change to the Group's exposure to market risks or the manner in which it manages and measures the risk during the period.


Annual Report Page 63

25. Financial instruments and risk management (continued)

Equity price risk


The Group is exposed to equity risk arising from its available-for-sale investments and those held-for-trading. Equity investments designated as available-for-sale are held for strategic purposes rather than trading purposes and the Group does not actively trade in these investments.


Equity price sensitivity analysis


The sensitivity analyses below have been determined based on the exposure to equity price risk at the reporting date.


If equity prices had been 5% higher/lower:


  • profit for the 52 week period ended 27 September 2009 would have been £29,000/£27,000 higher/lower (2008: £37,000/£52,000 higher/lower) due to change in the value of held-for-trading investments and available-for-sale investments; and 

  • other equity reserves as at 27 September 2009 would increase/decrease by £528,000 (2008: increase by £531,000/decrease by £516,000) for the Group as a result of the changes in fair value of available-for-sale investments. 


The Group's sensitivity to equity prices has not changed significantly from the prior period.


Interest rate risk

The Group is exposed to interest rate risk; this arises because the interest rate paid to its clients on their deposits is linked to the base rate. The Group holds client deposits on both fixed rate short term deposit and on demand. At the period end, £100 million was held on 40 day terms, with the balance of client monies held on demand. At the end of the period a 1% increase in base rate would increase profitability by £390,000 (2008: increase profitability by £200,000).


II. Credit risk

Credit risk refers to the risk that a client or other counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group's exposure to credit risk arises principally from the settlement of client and market transactions and cash deposited at banks. The Group uses the simplified approach to calculate credit risk as defined by the FSA. The aim of the Group's approach to credit risk management is to minimise the risk as far as possible.


The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and clients and with collateral held, in the main, in Group nominee companies which helps to mitigate credit risk. The collateral held consists of equity and gilts quoted on recognised exchanges plus cash.


The Group undertakes traded options as part of its service to clients, this is an insignificant part of the Group's business. This business is transacted as principal as per the LIFFE rules, all such transactions are always on a matched basis, clients are required to pledge collateral if they hold option positions, which are monitored on a daily basis.


Maximum exposure

The maximum exposure to credit risk at the end of the reporting period is equal to the balance sheet figure.


Credit exposure

Credit exposure in relation to both client and market transactions is monitored daily. The Group's exposure to large trades is limited with an average bargain size of £35,000; there are additional controls for high value trades.


Impaired assets

The total gross amount of individually impaired assets in relation to trade receivables at the period end was £820,000 (2008: £1,169,500). Collateral valued at fair value by the Group in relation to these impaired assets was £128,000 (2008: £34,500). The net difference has been provided as a doubtful debt (see note 19).


Credit quality

Financial assets that are neither past due nor impaired in respect of trade receivables relate mainly to bonds, equity and gilt trades quoted on a recognised exchange, are matched in the market, and are either traded on a cash against documents basis or against a client's portfolio in respect of which any one trade would normally be a small percentage of the client's collateral held in the Group nominee. At the period end no financial assets, that would otherwise be past due or impaired had been renegotiated.


Loans to employees are repayable over 5 to 10 years and are secured against the employees' shareholdings in the Company (see note 19).


The credit risk on liquid funds, cash and cash equivalents is limited due to deposits being held at three major banks with minimum credit rating of "A", assigned by international credit rating agencies. Deposits are managed by the Treasury Department and are reviewed regularly by the Management Committee.


Annual Report Page 64

 NOTES TO THE FINANCIAL STATEMENTS (continued)


25. Financial instruments and risk management (continued)

The Group carries out at least an annual review of all its banks' and custodians' credit ratings.


There has been no change to the Group's exposure to credit risk or the manner in which it manages and measures the risk during the period.


III. Liquidity risk

Liquidity risk refers to risk that the Group will be unable to meet its financial obligations as they fall due. The Group maintains adequate cash resources to meet its financial obligations at all times. All client cash deposits are repayable on demand. At 27 September 2009, the Group had access to an overdraft facility of £15 million (2008: £15 million).


As the Group normally deals with the market on cash against document basis, liquidity risk is monitored by daily exception reports of unmatched items past settlement date and managed by the Treasury Department and Credit Control Department, reports are reviewed regularly by the Management Committee.


There has been no change to the Group's exposure to liquidity risk or the manner in which it manages and measures the risk during the period.


The following are the undiscounted cash flows, with the exception of shares to be issued, of financial liabilities based on the earliest date on which the Group can be required to pay.


Group







As at 27 September 2009








Up to

1 month

3 months to





1 month

to 3 months

1 year

1 to 5 years

Over 5 years

Total


£'000

£'000

£'000

£'000

£'000

£'000

Financial liabilities











Amortised cost

407,357

44,035

24,365

20,805

-

496,562









407,357

44,035

24,365

20,805

-

496,562








As at 28 September 2008








Up to

1 month

3 months to





1 month to 3 months

1 year 1 to 5 years

Over 5 years

Total


£'000

£'000

£'000

£'000

£'000

£'000

Financial liabilities











Amortised cost

255,287

47,058

14,767

20,073

731

337,916









255,287

47,058

14,767

20,073

731

337,916








Company







As at 27 September 2009








Up to

1 month

3 months to





1 month

to 3 months

1 year

1 to 5 years

Over 5 years

Total


£'000

£'000

£'000

£'000

£'000

£'000

Financial liabilities











Amortised cost

7,352

5,056

-

17,385

-

29,793









7,352

5,056

-

17,385

-

29,793








As at 28 September 2008








Up to

1 month

3 months to





1 month

to 3 months

1 year

1 to 5 years

Over 5 years

Total


£'000

£'000

£'000

£'000

£'000

£'000

Financial liabilities











Amortised cost

7,357

8,233

-

16,298

648

32,536









7,357

8,233

-

16,298

648

32,536









Annual Report Page 65 (Extract)

25. Financial instruments and risk management (continued)

IV. Operational risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes whether due to internal, people and systems risks or from external events, including legal and financial crime risk but does not include strategic, reputation and business risk.


The objective of the Group's approach to operational risk management is to both control and manage the risk in a cost effective manner consistent with the Group's risk appetite. Operational risk is monitored and reported via specific committees that report into the Risk Management Committee.


The Group uses the Standardised Approach under Pillar 1 for regulatory purposes and uses the results of its annual risk management and control review process for risk management and Pillar 2 purposes.


Information disclosure under Pillar 3 of the Capital Requirements Directive will be published on the Group's website before 31 December 2009 at www.brewin.co.uk.


Annual Report Page 71 (Extract)

29. Reserves and reconciliation of changes in equity








Called up

Share






share

premium

Revaluation

Merger

Profit and



capital

account

reserve

reserve

loss account

Total


£'000

£'000

£'000

£'000

£'000

£'000

Group











Previously reported 30 September 2007

2,035

86,968

7,544

4,562

14,223

115,332

Prior year adjustment (note 4)

-

-

-

-

(2,227)

(2,227)

As restated 30 September 2007

2,035

86,968

7,544

4,562

11,996

113,105

Profit for the period

-

-

-

-

22,019

22,019

Dividends

-

-

-

-

(14,631)

(14,631)

Issue of shares

45

3,177

-

-

-

3,222

Revaluation

-

-

(900)

-

-

(900)

Deferred and current tax on items taken directly to equity

-

-

254

-

538

792

Share-based payments

-

-

-

-

661

661

Actuarial loss on defined benefit pension scheme

-

-

-

-

(4,375)

(4,375)





28 September 2008

2,080

90,145

6,898

4,562

16,208

119,893








Profit for the period

-

-

-

-

15,535

15,535

Dividends

-

-

-

-

(15,027)

(15,027)

Issue of shares

42

3,995

-

-

-

4,037

Revaluation

-

-

(17)

-

-

(17)

Deferred and current tax on items taken directly to equity

-

-

4

-

2,664

2,668

Share-based payments

-

-

-

-

686

686

Actuarial loss on defined benefit pension scheme

-

-

-

-

(9,556)

(9,556)








27 September 2009

2,122

94,140

6,885

4,562

10,510

118,219









Called up

Share






share

premium

Revaluation

Merger

Profit and



capital

account

reserve

reserve

loss account

Total


£'000

£'000

£'000

£'000

£'000

£'000

Company







30 September 2007

2,035

86,968

-

4,847

18,714

112,564

Profit for the period

-

-

-

-

14,895

14,895

Dividends

-

-

-

-

(14,631)

(14,631)

Share-based payments

-

-

-

-

661

661

Issue of shares

45

3,177

-

-

-

3,222





28 September 2008

2,080

90,145

-

4,847

19,639

116,711








Profit for the period

-

-

-

-

9,878

9,878

Dividends

-

-

-

-

(15,027)

(15,027)

Share-based payments

-

-

-

-

686

686

Issue of shares

42

3,995

-

-

-

4,037








27 September 2009

2,122

94,140

-

4,847

15,176

116,285













Annual Report Page 73 (Extract)

33. Notes to the cash flow statement





(Restated)


52 weeks to

52 weeks to


27 September

28 September


2009

2008


£'000

£'000

Group







Operating profit as previously reported


30,054

Prior period adjustment (note 4)


(4,244)





Operating profit

20,472

25,810

Adjustments for:



Depreciation of property, plant and equipment

10,153

8,585

Amortisation of intangible assets - client relationships

6,566

4,244

Amortisation of intangible assets - software

674

-

Loss on disposal of property, plant and equipment

5

135

Intangible asset impairment

230

430

Retirement benefit obligation

(1,267)

(6,146)

Share-based payment cost

686

661

Unwind of discount of shares to be issued and deferred purchase consideration

509

981

Interest income

2,083

6,785

Interest expense

(968)

(994)





Operating cash flows before movements in working capital

39,143

40,491

Decrease in receivables and trading investments

161,518

73,280

Decrease in payables

(157,976)

(89,528)





Cash generated by operating activities

42,685

24,243

Tax paid

(5,296)

(10,139)




Net cash inflow from operating activities

37,389

14,104




Company







Operating profit

9,878

14,895

Unwind of discount of shares to be issued and deferred purchase consideration

-

11





Operating cash flows before movements in working capital

9,878

14,906

Decrease in receivables and trading investments

4,070

3,619

(Decrease)/Increase in payables

(4)

5





Cash generated by operating activities

13,944

18,530

Tax paid

-

-




Net cash inflow from operating activities

13,944

18,530




Cash and cash equivalents comprise cash at bank and bank overdrafts.



    

34. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. The captions in the primary statements of the Company include amounts attributable to subsidiaries. These amounts have been disclosed in aggregate in the relevant notes to the financial statements and in detail in the following table:



Amounts owed by related parties

Amounts owed to related parties


2009

2008

2009

2008


£'000

£'000

£'000

£'000

Bell Lawrie White & Co. Limited

-

-

2,436

2,436

Brewin Dolphin Limited

3,719

7,697

-

-

Stocktrade Broking Limited

-

-

4,900

4,900







3,719

7,697

7,336

7,336







All amounts owed by related parties are interest free and repayable on demand.


The only effect of related party transactions on the profit and loss of the Company was in respect of dividends. The Company received dividends of £10,000,000 (2008: £15,000,000) from Brewin Dolphin Limited and £nil (2008: £16,600) from Webrich Limited.


The Group companies did not enter into any transactions with related parties who are not members of the Group during the period, save as disclosed elsewhere in these financial statements.


Annual Report Page 75



 

FUNDS




At

At


27 September

28 September


2009

2008


£ Billion

£ Billion

In Group's nominee or sponsored member

11.6

10.0

Stock not held in Group's nominee

0.2

0.2




Discretionary funds under management

11.8

10.2




In Group's nominee or sponsored member

7.2

6.8

Other funds where valuations are carried out but



where the stock is not under the Group's control

1.5

1.7





Advisory funds under management

8.7

8.5




Managed funds

20.5

18.7




In Group's nominee or sponsored member

3.7

3.7

Stock not held in Group's nominee

0.4

0.2





Execution only stock

4.1

3.9




Total funds

24.6

22.6




Stock



In Group's nominee or sponsored member

22.5

20.5

Stock not held in Group's nominee

2.1

2.1





24.6

22.6







Angela Wright

Company Secretary

Brewin Dolphin Holdings PLC

15 January 2010




This information is provided by RNS
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