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Brewin Dolphin Hldgs (BRW)

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Monday 17 January, 2011

Brewin Dolphin Hldgs

Extracts from Annual Report &

RNS Number : 5944Z
Brewin Dolphin Holdings PLC
17 January 2011
 



Brewin Dolphin Holdings PLC

(the "Company")

 

 

17 January 2011

 

Extracts from the Company's Annual Report & Accounts for the period to 26 September 2010

 

The following represents extracts from the Company's Annual Report & Accounts for the period to 26 September 2010.  The full Annual Report and Accounts can be accessed via the Company's website at www.brewin.co.uk. Copies are in the process of being posted to shareholders.

 

Annual Report Page 3

highlights

Total managed funds £23.2 billion at 26 September 2010 (27 September 2009: £20.5 billion).

 

Discretionary funds £14.0 billion at 26 September 2010 (27 September 2009: £11.8 billion).

 

Total income £250.9 million (27 September 2009: £212.3 million) an increase of 18%.

 

Profit before tax £31.4 million (27 September 2009: £21.9 million) a 43% increase.

 

Profit before tax excluding redundancy costs, contract renewal payments and amortisation of client relationships £40.2 million (27 September 2009: £32.1 million) a 25% increase.

 

Earnings per share:


-

Basic earnings per share 9.7p (27 September 2009: 7.4p) an increase of 31%.


-

Diluted earnings per share 9.5p (27 September 2009: 7.2p) an increase of 32%.

 

Earnings per share excluding redundancy costs, contract renewal payments and amortisation of client relationships:


-

Basic earnings per share 12.5p (27 September 2009: 10.8p) an increase of 16%.


-

Diluted earnings per share 12.3p (27 September 2009: 10.6p) an increase of 16%.

 

The total dividend for the period is 7.1p per ordinary share (2009: 7.1p).

Proposed final dividend 3.55p per share (2009: 3.55p).

 

Annual Report Page 4


Business Review: Executive Chairman's Statement

By comparison with recent years financial markets proved relatively stable over the year to 26 September 2010. In this environment Brewin Dolphin continued to make steady progress.

Total income for the year was £250.9 million, up 18% on last year. Pre tax profit excluding redundancy costs, contract renewal payments and the amortisation of client relationships was £40.2 million, up 25% on last year. Pre tax profit was up 43% at £31.4 million. This improved performance was achieved despite a material rise in the costs of regulation. We do not at this stage expect a rise of such magnitude in the current year. In the meantime, it is your Board's intention to seek out means whereby some of these cost rises may be mitigated.

Investment Management

It was another year of useful progress for our Investment Management business which represented 96% of Group turnover. The Division proved resilient in the turbulent market conditions seen in the 2009 financial year and has made material progress in more recent steadier times. While we do not take this for granted, we are conscious that this gives our clients added confidence in our approach. We continue to believe strongly in the merits of long term equity investment with proper recognition of the value of dividends.

The Division's income rose by 18% during the period and profits excluding redundancy costs, contract renewal payments and the amortisation of client relationships by 25%. Total Funds under Management increased from £20.5 billion to £23.2 billion, a 13% increase largely reflecting a rise of 19% in discretionary funds. During the same period the FTSE 100 index rose by 10% and the FTSE APCIMS Private Investor Series Balanced Portfolio by 8%. While the dramatic influx in new Investment Managers and Financial Planners of three years ago was exceptional we continue to enjoy a steady flow of newcomers to the firm.

As I have said before, our network of offices is now of a size to give us comprehensive coverage of most of the UK, and is therefore unlikely to be expanded significantly. We opened one new branch during the year in Shrewsbury and we were joined by new Investment Managers in other offices, in line with your Board's declared policy of further strengthening our existing network.

It remains a Board priority to continue to develop improved operational systems and to deepen our services to clients. By way of example we have in recent weeks successfully launched a new on-line valuation and reporting service, as promised in our Interim Report in May.

Corporate Advisory & Broking

After achieving a profit last year against a quite torrid background, our Corporate Advisory & Broking division was able to return an operating profit of £1.5m this year. This is all the more satisfactory given that the level of corporate activity throughout the year was consistently lower than had been expected.

Dividend

The Board is proposing a final dividend of 3.55p per share to be approved at the AGM in February 2011 and paid on 5 April 2011. This will bring the total dividend for the period to 7.1p in line with the dividend paid last year.

Regulation

Your Board believes that the impact of regulation upon the business is unlikely to reduce in the foreseeable future. It is our view that we have a duty to participate fully in any forums that can influence the shape of future regulation. In particular we remain concerned about the "one size fits all" approach which is more appropriate to businesses that merely sell financial products rather than businesses like ours whose principal activity is providing advice and service to our clients.

Board Changes

There has been one change to the composition of the Board during the year with the appointment of Henry Algeo in July. He is the Regional Managing Director for Scotland and the North West and brings to the Board a wealth of experience both in practice and operations. Our Deputy Chairman and Senior Independent Non Executive Director, Nick Hood has indicated his intention to retire from the Board at our AGM in February 2012.

 

Annual Report Page 5

 

Strategy

It remains your Board's strategy to continue to grow the business for the benefit of our shareholders by maintaining the quality and increasing the depth of our service to our clients. I do not anticipate any material changes to the structure of our UK network but we will pursue all suitable opportunities to strengthen it further. This will be done in conjunction with the promotion of our single Brewin Dolphin brand, which was adopted groupwide in March 2009. A number of new initiatives were undertaken during the year, and in particular I would like to highlight our sponsorship of the Motor Neurone Disease garden at this year's Chelsea Flower Show. We were delighted that the garden enjoyed a visit from Her Majesty The Queen.

Outlook

This year's results reflect the hard work of our people and the very significant support of our clients. Our growth plans continue to be built around an unstinting focus on high levels of service and the ability to attract new clients that this reputation provides. It would be foolhardy to rule out further unforeseen market events, but it would appear that there is a growing realisation that prudent financial management and the merits of equity over debt finance are a fundamental key to economic growth. In particular we believe that this view is strongly held in the UK and this leads us to look to the future with optimism.

Jamie Matheson

30 November 2010

 

 

Annual Report Page 6

Business Review: Investment Management

It is very encouraging to report another record year for the Investment Management Division in what has been a good year for global stock markets.

Investment Management has seen its total income grow by 18% to £240m in 2010 and operating profits excluding redundancy costs, contract renewal expense and amortisation of client relationships rose by 25% to £38.3m.

This is analysed as follows:

 

2010
£'000

2009
£'000

Total income

240,012

204,015

Salaries

(80,786)

(71,562)

Other operating costs

(87,921)

(74,712)

Profit before profit share

71,305

57,741

Profit share

(33,031)

(27,140)

Operating profit excluding redundancy costs, contract renewal payments and amortisation of client relationships

38,274

30,601

 

Income comprises:

 

2010
£'000

2009
£'000

Fee, interest and other recurring income

138,087

111,049

Commission

101,925

92,966

Total income

240,012

204,015

 

Split of income between discretionary and advisory portfolio management:

 

Total Income
2010
£ million

Operating Profit
2010
£ million

Total Income
2009
£ million

Operating Profit
2009
£ million

Discretionary Portfolio Management

157.2

25.1

128.8

19.4

Advisory Portfolio Management

82.8

13.2

75.2

11.2


240.0

38.3

204.0

30.6

 

Fees, interest and other recurring income have increased by 24% (2009: 4%) to 57% of total revenue (2009: 54%) whilst commission increased by 10% (2009: 7%). The trend towards Discretionary Management persists and the level of recurring income continues to grow.

Funds under Management ("FUM")

 

Advisory
funds

Discretionary

funds

Total managed funds

% increase in funds year on year

5.7%

18.6%

13.2%






£ billion

£ billion

£ billion

Value of funds at 27 September 2009

8.7

11.8

20.5

Inflows

0.7

1.6

2.3

Outflows

(0.4)

(0.3)

(0.7)

Transfers

(0.1)

 0.1

-

Market movement

0.3

 0.8

  1.1

Value of funds at 26 September 2010

9.2

14.0

23.2

 

Total funds under our Discretionary Management were £14.0 billion at the year end against £11.8 billion last year, a rise of 18.6%. Funds under Advisory Management were £9.2 billion, a rise of 5.7% over the year, giving total funds under management of £23.2 billion, an overall increase of 13.2%. I am very pleased to report an inflow of new FUM of £2.3 billion of which 70% was under discretionary mandates.

During the period the FTSE 100 Share Index and the FTSE APCIMS Private Investor Series Balanced Portfolio Index increased by 10.2% and 7.7% respectively.

The Business

During the year we have added four new Investment Management teams to the Group. The largest team consists of eleven Divisional Directors and staff who joined us in Shrewsbury, where we have opened a new branch. Our offices in Guernsey, Reigate, Stoke and Taunton have all relocated to new larger premises.

Annual Report Page 7

 

We currently have a total of 657 FSA Approved Persons of which 628 are FSA Registered CF30 Client Executives and Investment Managers around the country. We thank them all and their support staff for their dedication to their clients and their considerable contributions to the business over the last year.

The Retail Distribution Review ("RDR"), expected to be implemented at the end of 2012, will require all investment
advisers throughout the industry to achieve minimum professional qualifications and this is a measure we support. The majority of our Investment Managers are already qualified well above these minimum levels and we have implemented a training programme to ensure that all our client executives surpass these minimum requirements by 2012.

Other aspects of the RDR are still to be confirmed and we remain in discussion with Regulators and Parliamentarians about particular details. There is little doubt that the measure as a whole will again change the way we do business and add to our cost burden.

We have seen considerable successes flowing from our Business Development department's efforts. The team which introduces Brewin Dolphin services to Independent Financial Advisers ("IFAs") and other professional intermediaries around the UK, is now well established and has introduced over £380 million of new business in the year, a 55% increase on last year. We are also delighted to report that we have won Citywire's Advisers Choice Award for the best Large Wealth Management Firm, as voted for by professional intermediaries.

During the year, we embarked on our first national advertising campaign to raise our brand awareness following our move to one name in March 2009. The analysis of the campaign shows that it was successful. It also brought in new business leads.

A new website was launched, in 2010 each branch having its own micro site giving details and biographies of the Investment Managers and other news and events in each area. We have also just launched a new and improved on-line valuation and reporting service and it is our intention to increase further electronic contact and functionality for our clients in the coming year.

Our team of research analysts has grown during the period and their services for our Investment Managers and other professional advisers have developed considerably. We were delighted that this team won the Investment Week Award for Best Discretionary Research in 2010.

Recognising the increasing requirements of Trustees of charitable funds, we have strengthened our specialist team of charity advisers and now have 18 Investment Managers throughout the U.K. We manage over £1.7 billion of charitable funds and were included in the UK Top Ten charity fund managers in Charity Finance's 2010 Annual Survey.

Our business model, where qualified Investment Managers give personal advice and bespoke portfolio management to private investors and trustees, face to face and wherever they are, continues to be successful and is attracting record amounts of new business to the Group. We are determined not to be thwarted by increasing amounts of regulation and to be able to continue to provide these levels of service to our clients.

 

David McCorkell

Executive Director

Head of Investment Management

 

 

 

 

 

Annual Report Page 8

Business Review: Corporate Advisory & BRoking

The last financial year for the Division has continued to be characterised by difficult trading conditions in capital markets. Despite this, we are pleased to report that the Division's contribution to the Group improved from the low base of the previous year. This maintains our track record of unbroken profits.

Total income and operating profits excluding redundancy costs and contract renewal payments increased by 31% and 20 times respectively.

This is analysed as follows:

 

2010
£'000

2009
£'000

Total income

10,877

8,297

Salaries

(4,401)

(3,990)

Other operating costs

(4,173)

(4,161)

Profit before profit share

2,303

146

Profit share

(758)

(71)

Operating profit excluding redundancy costs, contract renewal payments

1,545

75

 

Our Sales, Trading and Research teams performed well in a very competitive market place, due to their continued commitment to identifying and transacting value-added investment ideas for our institutional fund manager clients.

Despite low levels of equity fundraising activity, the Corporate Advisory and Broking team delivered a similarly robust performance during the period. The team adapted well to the difficult conditions and delivered over 70% of corporate income from Merger and Acquisition activity and other services such as Debt Advisory.

We currently have 91 corporate clients. This number is unchanged from the previous year, despite a number of clients having been taken over or delisting in the period.

Of these clients, 48 are quoted on the Official List with an average market capitalisation of £241m and 37 on AIM with an average market capitalisation of £44m. The balance comprises a small number of private companies.

Encouragingly, there appears to have been a general recovery in confidence in capital markets over the last month or so. Whilst it is still early days, we are as a team cautiously optimistic that this may provide a platform for a sustained recovery and a return to more favourableconditions.

Graeme Summers

Director of Brewin Dolphin Limited

Head of Corporate Advisory & Broking

 

 

Annual Report Page 9

Business Review: Aims, Strategy And Objectives

The Brewin Dolphin Vision

To be the leading independent Investment Management and Corporate Advisory & Broking business maintaining trust through complete integrity, fair treatment of all our clients and offering a bespoke service which adds value through 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. 



Objectives

Protect, retain and nurture our people and the application of knowledge through a quality recruitment policy, professional training programme and effective performance management.

Maintain, protect and build on 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.

 

Annual Report Page 10


Business Review: Key Performance Indicators ("KPIS")

The main KPIs used by management are:

Profit per team. We maintain individual team profit and loss accounts for 149 teams (2009: 144). 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.

 

Measurement of KPIs

 

The aggregate team operating profit excluding redundancy costs, contract renewal payments and amortisation of client relationships was as follows:

 


 

2010

£'000

2009

£'000

2008

£'000


Operating profit excluding redundancy costs, contract renewal payments and amortisation of client relationships

39,819

30,676

30,668

 

       Detailed team performance was strong with operating profit up 30%.

 

The aggregate team return on funds under management was as follows:

 


 

2010

2009

excluding one off

interest

income

2009

2008


Average team return on discretionary funds

1.21%

1.23%

1.27%

1.18%


Average team return on advisory funds

0.92%

0.93%

0.96%

0.73%

 

       This year has seen a slight fall in returns, we predict this will continue in to 2011.

 

Business facing income to fixed salary ratios were as follows:

 

 


 

2010

2009

2008


Investment Management

4.5

3.9

4.5


Corporate Advisory & Broking

2.5

2.1

2.5


           

       A return to 2008 levels with the improvement in income due to market movement and organic growth.

 

Overheads and business support costs as a percentage of income were as follows:

 

 


 

2010

2009

2008


Total fixed business support costs as a % of income

19.0%

21.3%

19.3%


Total fixed overhead costs as a % of income

12.2%

12.6%

11.6%

 

      Overhead and business support costs remain disappointingly high, arising largely from the increased cost of regulation eating into revenue gains.

Staff turnover ratios

    Business facing staff losses were 8% in 2010 (2009: 9%) with gains of 14% (2009: 8%).

Targets

On the Investment Management side of the business the principal target is to grow discretionary funds by 5% p.a. above market movement shown by the FTSE 100 index. This year we have exceeded the market by 8% (2009: 16%).

On the Corporate Advisory & Broking side the main aims are to increase the average size of the mandate and grow recurring income. In the difficult economic environment we have suffered over the last two years, these targets have not been met. Retainers in the year decreased by a further 9%, following a 9% fall in 2009.

Annual Report Page 12

Business Review: Finance

The Group

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 a Corporate Advisory & Broking division.

Competition and Markets

BDL is one of the UK's largest independent Investment Managers with a small Corporate Advisory & Broking arm. The investment management market is a growing sector, competition is relatively fragmented and price competition is low.



Results for 2010 Financial Year

The performance in the period is set out below:

 

2010

2009

% Change

Average indices for the year




FTSE 100

5,319

4,506

18.0%

FTSE APCIMS Private Investor Series Balanced Portfolio

2,739

2,434

12.5%


£'000

£'000


Total income

250,889

212,312

18.2%

Salaries

(85,187)

(75,552)

12.8%

Other operating costs

(92,094)

(78,873)

16.8%

Profit before profit share¥

73,608

57,887

27.2%

Profit share

(33,789)

(27,211)

24.2%

Operating profit¥

39,819

30,676

29.8%

Net finance income and other gains and losses

345

1,467

-76.5%

Profit before tax¥

40,164

32,143

25.0%

Redundancy costs

(253)

(3,638)


Contract renewal payments (see below)

(2,191)

-


Amortisation of client relationships

(6,349)

(6,566)


Profit before tax

31,371

21,939

43.0%

Taxation

(9,818)

(6,404)


Profit after tax

21,553

15,535


Interim and proposed final dividend for the year

(16,239)

(15,060)



5,314

475


Earnings per share




Basic earning per share

9.7p

7.4p

31.1%

Diluted earnings per share

9.5p

7.2p

31.9%

Earnings per share¥




Basic earning per share

12.5p

10.8p

15.7%

Diluted earnings per share

12.3p

10.6p

16.0%

¥ excluding redundancy costs, contract renewal payments and amortisation of client relationships

 

We have outperformed the market movement as shown above with operating profit (excluding redundancy costs, contract renewal payments and amortisation of client relationships) up 30%. Diluted earnings per share, after taking into account the December 2009 placing, on a similar basis, are up 16%.

Profit before tax shows a 43% increase and standard diluted earnings per share are up 32%.

Contract Renewal Payments and Deferred Profit Share Plan

Once every ten years, the Group updates its employment contracts to take account of changes in employment law and remuneration practices. All staff received new contracts in December 2009 and these have been signed and returned by 99.8% of staff.

In addition, this year contracts include a new provision for business facing staff that 1/3 of profit share above £50,000 has to be paid in deferred shares under the new deferred profit share plan (see Directors' Remuneration Report). These shares have to be held for a minimum of three years and will be forfeited if an employee moves to a competitor in the three year period.

This scheme is designed to strengthen share ownership by the Group. The Directors believe that these new contracts combined with greater share ownership will strengthen the Group in the interest of shareholders. This year 172 staff have been awarded such shares to the value of £4.2m and a further 22 staff have voluntarily taken an extra part of their profit share in deferred shares to the value of £1.0m.

While the Directors have the ability to meet the Group's liability by issuing new ordinary shares at the end of the three year period, it is currently the intention to recommend to our Trustees to buy the shares in the market to avoid dilution.

Available for Sale Investments

This year the Group found it necessary to write down such investments.

Our investment in PLUS Markets Group PLC has been written down to its fair value of £114,000, with a resulting charge to profit in the year of £495,000. The original investment in PLUS Markets Group PLC was strategic and designed to reduce the then monopoly of the London Stock Exchange. In this it was a success but now there is intense competition in this market and the value of PLUS Markets Group PLC itself has fallen.

The investment in Euroclear plc came to us via a £431,000 strategic investment in Crest, the London based settlement system. Crest was taken over by Euroclear and our resultant stake in Euroclear is 0.52% of its share capital. In 2005, with the introduction of IFRS, we valued Euroclear, based largely on our share of its net assets, at £8.5m and over the years, on this basis tempered by dividend yield, our valuation was increased to £10m. At the time of Euroclear's last accounts in December 2009 our

 

Annual Report Page 13

 

share of net assets was £14m. However, Euroclear recorded a loss in 2009 and cut its dividend from €20.49 per share to €11.46. After taking internal professional advice, it was felt appropriate to value Euroclear on a dividend yield basis and therefore the investment has been valued at £6m representing a £4m reduction in fair value which has been taken through the revaluation reserve.

Pension Fund

The actuarial loss on the pension fund this year was £1.9 million (2009: £9.5 million). Under IAS19, large annual fluctuations will occur. If long term interest rates increase this loss should reverse. This year, the Group has agreed to make additional pension contributions of £3 million per annum with the aim of paying the deficit off over the next 8 years.

Profit Dynamics

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 (2009: 2,500).

Resources available to the Group

The Group's main resource is its staff: Investment Managers; Corporate Advisory & Broking staff; and support staff including research staff (see note 7 to the financial statements) located in 41 offices around the U.K.

Investment Management is broken down into small profit centres (149 teams, (2009:143)) 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.

The Corporate Advisory & Broking division is organised into one profit centre located across five sites.

Significant Relationships

No client provides more than 2% of the Group's revenue. The Group has two main suppliers of computer software.

Corporate Responsibility

Environmental, Health and Safety, Social and Community responsibility and Employment Issues are discussed in the Directors' Report, also key employment policies are dealt with in the Directors' Remuneration Report.

Dividend

The Board has maintained the total dividend for the period at 7.1p per ordinary share (2009: 7.1p).

Cash Flow and Capital Expenditure

2010 saw a net cash inflow of £21.9m (2009: £8.2m net cash outflow). There was a £45.1m (2009: £37.4m) inflow of funds from operating activities. £8.3m (2009: £6.3m) of cash was spent on acquiring teams of Investment Managers and their client relationships, and £13.6m (2009: £9.5m) on computer software and other, mainly computer related, fixed assets. Dividends paid in the period came to £16.0m (2009: £15.0m).

In December 2009 £14.3m was raised by a placing of 10,590,764 of the Company's ordinary shares (see Directors' Report page 18).

In March 2010 £4m was paid into the staff pension fund as part of an agreed deficit reduction plan.

Capital Structure, Treasury Policy, Liquidity and Capital Requirement

At 26 September 2010 the Group had net assets of £141.6m (2009: £118.2m). Net assets excluding intangible assets and shares to be issued of £65m (2009: £51m) broadly represent the Group's capital for regulatory purposes. These net assets were largely represented by net cash and cash equivalents of £87m (2009: £65m), including £25m (2009: £26m) of client settlement money. The Group, has an agreed overdraft facility of £15m (2009: £15m). At the period end the Group had a surplus of net assets for regulatory capital adequacy purposes of £24.3m (2009: £11m). This will reduce by £5m when shares are purchased under the Deferred Profit Share Plan in December (see Directors' Remuneration Report).

Our policy is to hold our clients' and Group's money only at major UK clearers. 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, not withstanding our comments above, a highly rated bank, and, in the case of foreign stock, the Bank of New York.

Market risk, foreign currency risk, liquidity risk, interest rate risk, and credit risk are small and set out in detail in note 25 to the financial statements.

Post Balance Sheet Events

There have been no material post balance sheet events.

 

Annual Report Page 14

Business Review: Finance (continued)

Accounting Policies

There were no changes in accounting policies during the year.

Going Concern

The Group's business activities, performance and position, together with the factors likely to affect its future development, are set out in this Business Review which also describes the financial position of the Group including its liquidity position and borrowing facilities.

The Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to credit risk and liquidity risk are described in note 25 to the financial statements.

The Directors believe that the Group is well placed to manage its business risks successfully. The Group's forecasts and projections, taking account of possible adverse changes in trading performance, show that the Group 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.

 

Robin Bayford

Finance Director

30 November 2010

 

Business Review: Cautionary Statement 

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 statements are made by the Directors in good faith based on information available to them up to the time of the approval of these reports and should be treated with caution due to inherent uncertainties associated with such statements. The Directors, in preparing this Business Review have complied with s417 of the Companies Act 2006.

 

Annual Report Page 15

Business Review: Risks and Uncertainties

 

Risks to the business are reviewed and monitored by the Investment Management Risk and Controls Committee and the Corporate Advisory and Broking 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. The principal risk to the business remains adverse movements in the market in the short term.

At the Board meeting in October 2010 the following major financial and non financial risks were identified or reconfirmed:

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.

Earnings risk

Loss of client facing 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 £200m of clients' deposits was out on term.

Liquidity risk

Bank default and other systemic risk

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

Only bank with major UK clearers.

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 Policy and Data Protection Steering Group; and

Secure disposal of sensitive documents.


Fast changing regulatory environment leading to breach of rules

Strong compliance and internal audit functions.


New business and product lines

New business and product lines reviewed by the Project Boards.

Operational and IT risk

Business continuity

Large branch network.

Back up computer site.

Main server located outside London.


Data integrity

Change to data requires authorisation.

Data Architecture Team.

Exception reporting.


Electronic dealing errors

Close management supervision. Multiple validation on equity trading platform. Electronic solution partially implemented.


Supplier capacity

Service Level agreements.

Continuous review of suppliers.


Project control

Two project boards to perform analysis of project plans, approval and cost control.

ICT Programme Office.

Other risk

Financial Crime

Segregation of duties.

Authorisation processes.


Acquisition of new teams

Strong vetting system for new recruits.

Reputational risk

Poor investment performance

Good in-house research.

Business standards team.

Compliance monitoring.

Strong training and appraisal programme.

Treating customers fairly embedded into the ethos of the firm.


Adverse publicity

Media Policy, only authorised employees may communicate with the media.

Monitor media coverage.

Settlement risk

Settlement failure

Experienced management team monitors settlement performance.

Alternative settlement bank.

Liquidity Policy & Contingency Funding Plan.

 

 

Annual Report Page 25

 

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 the Investment Management Risk and Controls Committee ("IMRCC") and Corporate Advisory & Broking Risk and Controls Committee ("CABRCC") of Brewin Dolphin Limited, the activities of which include overseeing and

 

Annual Report Page 26

 

 

reviewing the controls, monitoring and reporting frameworks and related procedures for risk  management. The IMRCC committee meets weekly, and the CABRCC monthly.

The Regulation & Risk department and Internal Audit carry out regular reviews. During the year, a Business Continuity Manager was appointed and has been undertaking a thorough review of business continuity across the business, this process is ongoing. Full details of the risks considered by the Board are set out in the Business Review: Finance on page 12.

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 Regulation & Risk 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. The Audit Committee assists the Board in discharging its review responsibilities.

iv.

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

 

Annual Report Page 38

Directors' Responsibilities

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the parent company financial statements under IFRSs as adopted by the EU. Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the directors are required to:

properly select and apply accounting policies;

present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

make an assessment of the Company's ability to continue as a going concern.

 

The directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

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 Business 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

30 November 2010


 

 

Annual Report Page 40

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 26 September 2010 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Company Balance Sheet, the Company Statement of Changes in Equity, the Company Statement of Comprehensive Income, 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 Chapter 3 of Part 16 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 26 September 2010 and of the group's profit for the 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 period 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

London, United Kingdom

 



Annual Report Page 41

CONSOLIDATED INCOME STATEMENT

52 Week period ended 26 September 2010


Note

 52 weeks to
26 September 2010
 £'000

52 weeks to
27 September 2009
£'000

Continuing operations




Revenue

5

234,890

187,241

Other operating income

3h

15,999

 25,071

Total income

6

250,889

212,312





Staff costs

7

(121,167)

(102,763)

Redundancy costs

7

 (253)

(3,638)

Amortisation of intangible assets - client relationships

15

(6,349)

(6,566)

Other operating costs


(92,094)

(78,873)

Operating expenses


(219,863)

(191,840)





Operating profit


31,026

 20,472

Finance income

9

 1,293

 2,435

Other gains and losses

10

 (495)

-

Finance costs

9

 (453)

 (968)

Profit before tax

6 & 8

31,371

 21,939

Tax

11

(9,818)

(6,404)

Profit for the period


21,553

 15,535





Attributable to:




Equity shareholders of the parent from continuing operations


21,553

 15,535



21,553

 15,535





Earnings per share




From continuing operations




Basic

14

9.7p

7.4p

Diluted

14

9.5p

7.2p


 

Consolidated Statement of Comprehensive Income

52 Week period ended 26 September 2010

 


 52 weeks to
26 September 2010
 £'000

52 weeks to
27 September 2009
£'000

Profit for the period

21,553

15,535

Loss on revaluation of available-for-sale investments

(4,000)

(17)

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

 1,177

4

Actuarial loss on defined benefit pension scheme

(1,878)

(9,556)

Deferred tax credit on actuarial loss on defined benefit pension scheme

507

2,676

Other comprehensive expense for the period

(4,194)

(6,893)

Total comprehensive income for the period

17,359

8,642

Attributable to:



Equity shareholders of the parent

17,359

8,642


17,359

8,642

 

Annual Report Page 42

 

CONSOLIDATED balance sheet

As at 26 September 2010


Note

 As at
26 September 2010
 £'000

As at
27 September 2009
£'000

Assets




Non-current assets




Intangible assets

15

91,114

 89,605

Property, plant and equipment

16

19,384

 22,260

Available-for-sale investments

18

 6,114

 10,609

Other receivables

19

 2,306

 2,269

Deferred tax asset

20

 1,097

852

Total non-current assets


120,015

125,595





Current assets




Trading investments

18

632

644

Trade and other receivables

19

331,423

441,290

Cash and cash equivalents

21

87,921

 69,271

Total currents assets


419,976

511,205

Total assets


539,991

636,800





Liabilities




Current liabilities




Bank overdrafts

22

 1,046

 4,289

Trade and other payables

23

359,086

468,619

Current tax liabilities


 4,433

 1,715

Provisions

32

 5,420

 1,871

Shares to be issued including premium

24

438

 5,056

Total current liabilities


370,423

481,550

Net current assets


49,553

 29,655





Non-current liabilities




Retirement benefit obligation

26

12,498

 16,253

Deferred purchase consideration

24

 1,749

 3,221

Provisions

32

44

172

Shares to be issued including premium

24

13,661

 17,385

Total non-current liabilities


27,952

 37,031

Total liabilities


398,375

518,581

Net assets


141,616

118,219





Equity




Called up share capital

27

 2,270

 2,122

Share premium account

27

113,612

 94,140

Own shares

28

 (101)

-

Revaluation reserve


 4,062

 6,885

Merger reserve


 4,562

 4,562

Profit and loss account


17,211

 10,510

Equity attributable to equity holders of the parent


141,616

118,219

 

Approved by the Board of Directors and authorised for issue on 30 November 2010

Signed on its behalf by

J G Matheson

R A Bayford

Executive Chairman

Finance Director

 

 

 

Annual Report Page 43

CONSOLIDATED statement of changes in equity

52 Week period ended 26 September 2010

 


Attributable to the equity shareholders of the parent


Called up share
capital
£'000

Share premium account £'000

Own
shares
£'000

Revaluation reserve £'000

Merger reserve  £'000

Profit and loss
account £'000

Total
 £'000









Balance at 28 September 2008

2,080

 90,145

-

6,898

4,562

 16,208

119,893

Profit for the period

-

-

-

-

-

 15,535

15,535

Other comprehensive income for the period








 Deferred and current tax on other comprehensive income

-

-

-

 4

-

 2,676

2,680

 Actuarial loss on defined benefit pension scheme

-

-

-

-

-

(9,556)

(9,556)

 Revaluation of available-for-sale investments

-

-

-

 (17)

-

-

 (17)

Total comprehensive income for the period

-

-

-

 (13)

-

 8,655

8,642

Dividends

-

-

-

-

-

(15,027)

 (15,027)

Issue of share capital

 42

 3,995

-

-

-

-

4,037

Share-based payments

-

-

-

-

-

686

 686

Current tax credit on share-based payments

-

-

-

-

-

63

63

Deferred tax charge on share-based payments

-

-

-

-

-

(75)

 (75)

Balance at 27 September 2009

2,122

 94,140

-

6,885

4,562

 10,510

118,219

Profit for the period

-

-

-

-

-

 21,553

21,553

Other comprehensive income for the period








 Deferred and current tax on other comprehensive income

-

-

-

1,177

-

507

1,684

 Actuarial loss on defined benefit pension scheme

-

-

-

-

-

(1,878)

(1,878)

 Revaluation of available-for-sale investments

-

-

-

 (4,000)

-

-

(4,000)

Total comprehensive income for the period

-

-

-

 (2,823)

-

 20,182

17,359

Dividends

-

-

-

-

-

(16,038)

 (16,038)

Issue of shares

 148

 19,472

-

-

-

-

19,620

Own shares acquired in the period

-

-

(101)

-

-

-

 (101)

Share-based payments

-

-

-

-

-

 2,679

2,679

Current tax credit on share-based payments

-

-

-

-

23

23

Deferred tax charge on share-based payments

-

-

-

-

-

(145)

 (145)

Balance at 26 September 2010

2,270

 113,612

(101)

4,062

4,562

 17,211

141,616

 

 

Annual Report Page 44

COMPANY BALANCE SHEET

As at 26 September 2010

 


Note

As at
26 September 2010
 £'000

As at
27 September 2009
£'000

Assets




Non-current assets




Investment in subsidiaries

17

140,702

141,719

Other receivables

19

329

329

Total non-current assets


141,031

142,048





Current assets




Trade and other receivables

19

12,242

 3,739

Cash and cash equivalents

21

621

291

Total currents assets


12,863

 4,030

Total assets


153,894

146,078





Liabilities




Current liabilities




Trade and other payables

23

 7,447

 7,352

Shares to be issued including premium

24

438

 5,056

Total current liabilities


 7,885

 12,408

Net current assets/(liabilities)


 4,978

(8,378)





Non-current liabilities




Shares to be issued including premium

24

13,661

 17,385

Total non-current liabilities


13,661

 17,385

Total liabilities


21,546

 29,793

Net assets


132,348

116,285





Equity




Called up share capital

27

 2,270

 2,122

Share premium account

27

113,612

 94,140

Own shares

28

 (101)

-

Merger reserve


 4,847

 4,847

Profit and loss account


11,720

 15,176

Equity attributable to equity holders


132,348

116,285

 

Approved by the Board of Directors and authorised for issue on 30 November 2010

Signed on its behalf by

J G Matheson

R A Bayford

Executive Chairman

Finance Director

 

Annual Report Page 45

company statement of changes in equity

52 Week period ended 26 September 2010


Attributable to the equity shareholders of the parent


Called
up share capital
 £'000

Share premium account
 £'000

Own
shares
 £'000

Merger reserve
£'000

Profit
and loss account

 £'000

Total
 £'000








Balance at 28 September 2008

2,080

 90,145

-

4,847

19,639

 116,711

Profit for the period

-

-

-

-

9,878

 9,878

Total comprehensive income for the period

-

-

-

-

9,878

 9,878

Dividends

-

-

-

-

 (15,027)

(15,027)

Issue of share capital

 42

 3,995

-

-

-

 4,037

Share-based payments

-

-

-

-

 686

686

Balance at 27 September 2009

2,122

 94,140

-

4,847

15,176

 116,285

Profit for the period

-

-

-

-

9,903

 9,903

Total comprehensive income for the period

-

-

-

-

9,903

 9,903

Dividends

-

-

-

-

 (16,038)

(16,038)

Issue of shares

 148

 19,472

-

-

-

 19,620

Own shares acquired in the period

-

-

(101)

-

-

(101)

Share-based payments

-

-

-

-

2,679

 2,679

Balance at 26 September 2010

2,270

 113,612

(101)

4,847

11,720

 132,348

 

Company Statement of Comprehensive Income

52 Week period ended 26 September 2010

 


 52 weeks to
26 September 2010
 £'000

52 weeks to
27 September 2009
£'000




Profit for period

 9,903

9,878

Total comprehensive income for the period

 9,903

9,878

 

Annual Report Page 46

consolidated cash flow statement

52 Week period ended 26 September 2010


Note

 52 weeks to
26 September 2010
£'000

52 weeks to
27 September 2009
£'000

Net cash inflow from operating activities

33

45,114

37,389





Cash flows from investing activities




Purchase of intangible assets - goodwill

15

 (268)

 (987)

Purchase of intangible assets - client relationships

15

(8,048)

(5,360)

Purchase of intangible assets - software

15

(5,982)

(5,088)

Purchases of property, plant and equipment

16

(7,669)

(4,443)

Dividend received from available-for-sale investments

9

188

352

Net cash used in investing activities


(21,779)

(15,526)





Cash flows from financing activities




Dividends paid to equity shareholders


(16,038)

(15,027)

Purchase of own shares

28

(101)

-

Proceeds on issue of shares


14,697

 1,317

Net cash used in financing activities


(1,442)

(13,710)





Net increase in cash and cash equivalents


21,893

 8,153





Cash and cash equivalents at the start of period


64,982

 56,829





Cash and cash equivalents at the end of period


86,875

 64,982





Firm's cash


62,886

43,118

Firm's overdraft


(1,046)

(4,289)

Firm's net cash


61,840

38,829

Client settlement cash


25,035

26,153

Net cash and cash equivalents


86,875

64,982





Cash and cash equivalents shown in current assets


87,921

69,271

Bank overdrafts


(1,046)

(4,289)

Net cash and cash equivalents


86,875

64,982

 

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

 

Annual Report Page 47

company cash flow statement

52 Week period ended 26 September 2010


 Note

 52 weeks to
26 September 2010
 £'000

52 weeks to
27 September 2009
£'000

Net cash inflow from operating activities

33

 1,671

 13,944

Cash flows from financing activities




Dividends paid to equity shareholders


(16,038)

(15,027)

Proceeds on issue of shares


14,697

 1,317

Net cash used in financing activities


(1,341)

(13,710)





Net increase in cash and cash equivalents


330

234





Cash and cash equivalents at the start of period


291

57

Cash and cash equivalents at the end of period


621

291

 

 

 

Annual Report Page 48

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 and Business Review. The company is registered in England and Wales.

2. Adoption of new and revised standards

In the current year, the following new and revised Standards and Interpretations have been adopted and may have affected the amounts reported in these financial statements.

lAS 1 Presentation of Financial Statements
(revised 2007)

lAS 1 (2007) has introduced a number of changes in the format and content of the financial statements. The standard requires the presentation of a statement of changes in equity as a primary statement separate from the income statement and an additional statement of comprehensive income. As a result a consolidated statement of changes in equity has been included in the primary statements. Comparative information has been re-presented on a consistent basis.

IFRS 8 Operating Segments

The standard requires operating segments to be identified on the basis of internal reports about components of the Group that are used by the chief operating decision maker to allocate resources to the segments and to assess their performance. The format of segmental disclosure set out in note 6 remains unchanged from previous disclosures as it is based on the financial information reported to the board of Brewin Dolphin Holdings PLC, the chief operating decision maker.

International Financial Reporting Standard 3 "Business Combinations" (revised 2008) and International Accounting Standard 27 "Consolidated and Separate Financial Statements" (revised 2008).

These standards require that acquisition costs which would have previously been included in Goodwill be included in operating expenses as they are incurred. Any changes in the cost of an acquisition, including contingent consideration, resulting from events after the date of acquisition are recognised in profit or loss; previously such changes resulted in an adjustment to Goodwill. Any adjustments to contingent consideration for acquisitions made prior to 28 September 2009 which result in an adjustment to Goodwill continue to be accounted for under IFRS 3 (2004) for which accounting policies can be found in the Group's 2009 Annual Report and Accounts. These changes in accounting policy have had no impact in the current period as there have not been any business combinations in the period.

Revision to International Financial Reporting Standard 2 "Share-based payments - vesting conditions and cancellations".

The amendments clarify the definition of vesting conditions, introduce the concept of 'non-vesting' conditions and clarify the accounting treatment for cancellations. This has had no impact in the current period.

Improving Disclosures about Financial Instruments (Amendments to IFRS 7 Financial Instruments: Disclosures)

 

The amendments to IFRS 7 expand the disclosures required in respect of fair value measurements and liquidity risk. The Group has elected not to provide comparative information for these expanded disclosures in the current year in accordance with the transitional reliefs offered in these amendments.

 

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):

IFRS 1 (amended)/IAS 27 (amended)

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

lAS 28 (revised 2008)

Investments in Associates

IFRIC 17 Improvements to IFRSs (April 2009)

Distributions of Non-cash Assets to Owners

IAS 32 (amended)

Financial instruments: Presentation

IAS 36 (amended)

Impairment of assets

IAS 39 (amended)

Financial instruments: Recognition and measurement

IFRS 2 (amended)

Share-based payments

IFRS 9 

Financial instruments - Classification and measurement

IFRIC 19

Extinguishing financial liabilities with equity instruments

IAS 17 (amended)

Leases

IAS 7 (amended)

Statement of Cash Flows

Improvements to IFRS (Issued by IASB in May 2010)


 

Adoption of these Standards and Interpretations is not expected to have a material impact on the financial statements of the Group.

Annual Report Page 49

3. Significant accounting policies

a. 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. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies adopted are set out below.

b. Going concern

As discussed in the Business Review, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly they continue to adopt the going concern basis in preparing the financial statements.

c. Basis of consolidation

The consolidated financial statements incorporate the financial statements 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.

d. Transaction date accounting

All securities transactions entered into on behalf of clients are recorded in the accounts on the date of the transaction. The underlying investments are not held on the financial statements of the Group.

e. 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.

f. Revenue recognition

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

Investment management fees, renewal commissions and corporate advisory & broking 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.

 

Annual Report Page 50

Notes to the Financial Statements (continued)

g. Operating profit

Operating profit is stated as being profit before finance income, finance costs, other gains/losses and tax.

h. 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".

i. Cash and cash equivalents

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

j. 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.

k. 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.

The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value of the equity instruments 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.

l. Taxation

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

Current 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

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.

m. 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 3s). This policy relates to acquisitions to date which are accounted for under IFRS 3(2004). It is noted that future acquisitions will be accounted for under IFRS 3(2008), and per the requirements of this standard revisions for contingent consideration for goodwill will be accounted for as an expense through the income statement.

 

 

Annual Report Page 51

m. Intangible assets (continued)

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(s)).

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

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.

n. 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 instalmentsto 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

to first break clause of lease

 

o. 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.

p. 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.

 

Annual Report Page 52

 

Notes to the Financial Statements (continued)

p. Financial assets (continued)

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 the profit or loss account.

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 and that the value of these cash flows has been permanently reduced. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets.

q. 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 and an operational intention to settle net. Amounts due to and from counterparties due to settle against delivery of stock are shown gross.

r. 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.

s. 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.

t. 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 other comprehensive income.

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.

 

Annual Report Page 53

t. Retirement benefit costs (continued)

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.

u. 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.

v. 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.

Where some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that the reimbursement will be received and the amount receivable can be measured reliably.

4. Critical accounting judgements and key sources of estimation uncertainty

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities and profits and losses. Evaluation of the accounting judgements takes into account historical experience as well as future expectations.

Retirement benefit obligation

In conjunction with the Group's Actuary, the Group makes estimates about a range of long term trends, including life expectancy. These estimates are governed by the rules set out in IAS 19 Employee Benefits which inevitably lead to significant swings in the pension deficit from year to year, as long term interest rates change and short term market movements affect asset valuations. The detailed assumptions are set out in note 26.

Shares to be issued including premium and deferred purchase consideration

The Group includes within these headings its best estimate discounted to present value of the ultimate sum which will be paid for businesses or client relationships under deferred purchase agreements. This is inevitably judgemental and depends on events which transpire over periods up to five years. Market conditions are an important factor.

Impairment of goodwill and client relationships

For the purposes of impairment testing, the Group values goodwill and client relationships based on the valuation of individual units making up the relevant intangible asset. For an investment management business this is normally 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. A price earnings basis is used where more appropriate.

Valuation of investment in Euroclear plc

The fair valuation of the Group's investment in Euroclear plc is based upon dividend yield and the prices of similar quoted companies.

 

Annual Report Page 54

6. Segmental information

For management purposes, the Group is divided into two business streams: Investment Management and Corporate Advisory & Broking (formerly Investment Banking). These form the reportable segments of the Group.

All operations are carried out in the United Kingdom and the Channel Islands. All segment income relates to external clients.

52 week period ended 26 September 2010







Discretionary Portfolio Management

Advisory Portfolio Management

Total Investment Management

Corporate Advisory & Broking

Group


 £'000

 £'000

 £'000

 £'000

 £'000

 157,233

 82,779

 240,012

 10,877

 250,889







Operating profit excluding redundancy costs, contract renewal payments and amortisation of client relationships

 25,073

 13,201

 38,274

1,545

 39,819

Contract renewal payments (see note 14)



(2,090)

(101)

(2,191)

Redundancy costs



(135)

(118)

(253)



(6,349)

-

(6,349)

Operating profit





 31,026

Finance income (net)





840





(495)

Profit before tax





 31,371







Other Information






Capital expenditure



 13,558

93

 13,651

Depreciation



 10,358

123

 10,481

Amortisation of intangible asset - software



 1,797

11

 1,808

Share-based payments



 2,647

32

 2,679









506,578

 33,413

 539,991


332,577

 33,413

 365,990

 

 

Annual Report Page 55

6.Segmental information (continued)

 







 Discretionary Portfolio Management

 Advisory Portfolio Management

 Total Investment Management

 Corporate Advisory & Broking

 Group


 £'000

 £'000

 £'000

 £'000

 £'000

 128,790

 75,225

 204,015

8,297

 212,312







 19,428

 11,173

 30,601

 75

 30,676



(3,393)

(245)

(3,638)



(6,566)

-

(6,566)





 20,472





 1,467





 21,939








 4,404

39

 4,443



 9,982

171

 10,153



674

-

674



652

34

686









 567,683

 69,117

 636,800


 447,749

 69,117

 516,866

 

 

Annual Report Page 57

9. Finance income and finance costs


2010

2009


52 Weeks

52 Weeks


 £'000

 £'000

Finance income



Dividends from available-for-sale investments

 188

 352

Interest on bank deposits

1,105

2,083


1,293

2,435




Finance costs



Finance cost of deferred consideration

 24

 509

Interest expense on defined pension obligation

 366

 412

Interest on bank overdrafts

 63

 47


 453

 968

 

10. Other gains and losses


2010

2009


52 Weeks

52 Weeks


£'000

£'000




 495

-

 

11. Taxation


2010

2009


52 Weeks

52 Weeks


 £'000

 £'000

United Kingdom



Current tax

8,711

5,931

Prior year

(363)

 667

Overseas tax



Current tax

 153

 174

Prior year

 -

(246)


8,501

6,526

United Kingdom deferred tax



Current year

1,142

 531

Prior year

 175

(653)


9,818

6,404

 

United Kingdom corporation tax is calculated at 28% (2009: 28%) of the estimated assessable taxable profit for the period.

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

 

Annual Report Page 58

11. Taxation (continued)

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


2010
52 Weeks
£'000

2009
52 Weeks
£'000

Profit before tax

31,371

21,939

Tax at the UK corporation tax rate of 28% (2009: 28%)

8,784

6,143

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

 474

 493

Tax effect of prior year tax

(363)

 532

Tax effect of prior year deferred tax

 175

(653)

Tax effect of share-based payments

 342

(196)

Tax effect of deferred tax timing differences

 95

 (83)

Tax effect of leasehold property depreciation

 320

 279

Tax effect of prior year leasehold property allowances

 -

(111)

Tax effect of change in tax rate on deferred tax

 (9)

 -

Tax expense

9,818

6,404

Effective tax rate for the year

31%

29%

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 £1,177,000 (2009: £4,000) has been credited directly to equity and deferred tax relating to the actuarial loss in the defined benefit pension scheme amounting to £507,000 (2009: £2,676,000) has been credited directly to equity. Deferred tax on share-based payments of £145,000 (2009: £75,000) has been credited directly to equity.

 



Annual Report Page 58

13. Dividends


2010

2009


52 Weeks

52 Weeks


£'000

£'000

Amounts recognised as distributions to equity shareholders in the period:






Final dividend paid 1 April 2010, 3.55p per share (2009: 3.55p per share)

7,975

7,504

Interim dividend paid 22 September 2010, 3.55p per share (2009: 3.55p per share)

8,063

7,523


16,038

15,027




Proposed final dividend for the 52 weeks ended 26 September 2010 of 3.55p (2009: 3.55p) per share based on shares in issue at 8 November 2010 (10 November 2009)

8,176

7,537

 

The proposed final dividend for the 52 week period ended 26 September 2010 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.

 

Annual Report Page 59

14. Earnings per share

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


2010

2009

Number of shares

'000

'000

Basic



Weighted average number of shares in issue in the period

 223,193

 210,940

Diluted



Weighted average number of options outstanding for the period

1,486

1,271

Estimated weighted average number of shares earned under deferred consideration arrangements

3,628

6,555

Diluted weighted average number of options and shares for the period

 228,307

 218,766




Earnings attributable to ordinary shareholders




£'000

£'000

Profit for the period

21,553

15,535

Redundancy costs

 253

3,638

less tax

 (71)

 (1,019)

Contract renewal payment (Note b)

2,191

-

less tax

(613)

-

Amortisation of intangible assets - client relationships

6,349

6,566

less tax

 (1,778)

 (1,838)

Adjusted basic profit for the period and attributable earnings excluding redundancy costs, contract renewal payments and amortisation of client relationships

27,884

22,882




Profit for the period

21,553

15,535

Finance costs of deferred consideration (Note a)

 203

 277

less tax

 (57)

 (78)

Adjusted fully diluted profit for the period and attributable earnings

21,699

15,734

Redundancy costs

 253

3,638

less tax

 (71)

 (1,019)

Contract renewal payment (Note b)

2,191

 -

less tax

(613)

 -

Amortisation of intangible assets - client relationships

6,349

6,566

less tax

 (1,778)

 (1,838)

Adjusted fully diluted profit for the period and attributable earnings excluding redundancy costs, contract renewal payments and amortisation of client relationships

28,030

23,081




From continuing operations



Basic

9.7p

7.4p

Diluted

9.5p

7.2p




From continuing operations excluding redundancy costs, contract renewal payments and

amortisation of client relationships

Basic

12.5p

10.8p

Diluted

12.3p

10.6p

 

a)

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

b)

Once every ten years, the Group reissues its contracts to all personnel; the cost of this is shown within staff costs.

 

Annual Report Page 68

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 Committee 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 69

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 the Consolidated Statement of Changes in Equity.

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 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:


 26 September 2010

 27 September

              2009


 £'000

 £'000

Tier 1 capital resources



Ordinary share capital

 2,270

 2,122

Share premium account

 113,612

 94,140

Own shares held

(101)

-

Retained earnings

 17,211

18,612*

Merger reserve

 4,562

 4,562

Shares to be issued

 14,099

 22,441


 151,653

 141,877

Deduction - Intangible assets

(91,114)

(89,605)


 60,539

 52,272




Tier 2 capital resources



Revaluation reserve

 4,062

 6,885

Deductions

-

-


 4,062

 6,885




Tier 1 plus tier 2 capital resources

 64,601

 59,157

Deduction - Material holdings

-

(4,084)

Total capital before deductions

 64,601

 55,073

Deductions from total capital

(641)

(579)

Total capital resources after deductions

 63,960

 54,494

 

* includes adjustment for defined pension liability in accordance with FSA rules.

∞ During 2010, the Group varied the FSA permissions of its principal trading company Brewin Dolphin Limited which is now a BIPRU €125k Limited Licence Firm previously it was a BIPRU €730k Full Scope Firm.

There were no changes in the Group's approach for capital management during the period.

 

Annual Report Page 70

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


2010

2009


£'000

£'000

Financial assets



Fair value through profit and loss - held for trading

632

644

Loans and receivables (including cash and trade receivables)

421,650

512,830

Available-for-sale financial assets

 6,114

 10,609


428,396

524,083




Financial liabilities



Amortised cost

377,775

496,562


377,775

496,562

 

Company


Carrying value


2010

2009


£'000

£'000

Financial assets



Loans and receivables (including cash and trade receivables)

 13,192

 4,359


 13,192

 4,359




Financial liabilities



Amortised cost

 21,452

 29,793


 21,452

 29,793

 

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

Fair value measurement recognised in the statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

Level 1 at fair value measurement are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities;

Level 2 fair value measurement are those derived from inputs other than the quoted price included within Level 1 that are observable for the asset or a liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 fair value measurements are those derived from formal valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 


Level 1

Level 2

Level 3

Total


£'000

£'000

£'000

£'000

Held for trading





Quoted equities

632

-

-

632

Available-for-sale financial assets





Quoted equities

114

-

-

114

Unquoted equities

-

-

 6,000

 6,000

Total

746

-

 6,000

 6,746

 

There were no transfers between and Level 1 and 2 during the year.

 

Annual Report Page 71

25. Financial instruments and risk management (continued)

Reconciliation of Level 3 fair value measurement of financial assets:



Available-for-sale



Unquoted equities


£'000

Balance at 27 September 2009

 10,000

Total gains or losses:


in other comprehensive income

(4,000)

Balance at 26 September 2010

 6,000

 

The table above only includes financial assets.There were no financial liabilities subsequently measured at fair value on Level 3 fair value measurement basis.

All gains and losses included in other comprehensive income relate to unquoted equity held at the balance sheet date and are reported as "Loss on Revaluation of available-for-sale investments".

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 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 debtor of £334,000 (2009: £673,000 creditor).

The Group does not hold any derivatives (2009: none).

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 except for the variation in the Group's FSA permissions which means it no longer undertakes principal trading on its own account.

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 26 September 2010 would have been £31,000 higher/lower (2009: £29,000/£27,000 higher/lower) due to change in the value of held-for-trading investments and available-for-sale investments; and

other equity reserves as at 26 September 2010 would increase/decrease by £306,000/£300,000 (2009: increase/decrease by £528,000) 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 in respect of the Group's cash and in respect of client deposits. The latter 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 end of the period a 1% increase in base rate would increase profitability by £314,000 (2009: increase profitability by £390,000).

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.

 

Annual Report Page 72

25. Financial instruments and risk management (continued)

Exposure to credit risk is 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 has no significant concentration of credit risk with the exception of cash which is spread across three major banks.

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 in the current period of £41,000; 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 £908,000 (2009: £820,000). Collateral valued at fair value by the Group in relation to these impaired assets was £137,000 (2009: £128,000). This collateral is stock held in the clients' account which per our client terms and conditions can be sold to meet any unpaid liabilities falling due. The net difference has been provided as a doubtful debt (see note 19). Note 19 also details amounts past due but not impaired.

 

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 (2009: none).

 

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 ratings of "A", assigned by international credit rating agencies. Deposits are managed by the Treasury Department and are reviewed regularly by the Management Committee.

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 26 September 2010, the Group had access to an overdraft facility of £15 million (2009: £15 million).

The Group has a Liquidity Policy which is reviewed by the Board annually. 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.

 

Annual Report Page 73

25. Financial instruments and risk management (continued)

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 26 September 2010







Up to
1 month
£'000

1 month
to 3 months
£'000

3 months
to 1 year
£'000

1 to 5 years
£'000

Over 5 years
£'000

Total
£'000

Financial liabilities







Amortised cost

307,754

 54,045

106

 15,870

-

377,775


307,754

 54,045

106

 15,870

-

377,775

 

As at 27 September 2009








Up to
1 month
£'000

1 month
to 3 months
£'000

3 months
to 1 year
£'000

1 to 5 years
£'000

Over 5 years
£'000

Total
£'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

 

Company














As at 26 September 2010







Up to
1 month
£'000

1 month
to 3 months
£'000

3 months
to 1 year
£'000

1 to 5 years
£'000

Over 5 years
£'000

Total
£'000

Financial liabilities







Amortised cost

 7,353

438

-

 13,661

-

 21,452


 7,353

438

-

 13,661

-

 21,452








As at 27 September 2009







Up to
1 month
£'000

1 month
to 3 months
£'000

3 months
to 1 year
£'000

1 to 5 years
£'000

Over 5 years
£'000

Total
£'000


Financial liabilities







Amortised cost

 7,352

 5,056

-

 17,385

-

 29,793


 7,352

 5,056

-

 17,385

-

 29,793

 

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 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 2010 at www.brewin.co.uk.

 

Annual Report Page 81

33. Notes to the cash flow statement


52 weeks to
26 September 2010

52 weeks to
27 September 2009


£'000

£'000

Group



Operating profit

31,026

20,472

Adjustments for:



Depreciation of property, plant and equipment

10,481

10,153

Amortisation of intangible assets - client relationships

6,349

6,566

Amortisation of intangible assets - software

1,808

 674

Loss on disposal of property, plant and equipment

64

 5

Intangible asset impairment

-

 230

Retirement benefit obligation

(5,633)

(1,267)

Share-based payment cost

2,679

686

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

24

 509

Interest income

1,105

2,083

Interest expense

(453)

(968)

Operating cash flows before movements in working capital

47,450

39,143

(Increase)/Decrease in receivables and trading investments

(106,395)

161,518

Increase/(Decrease) in payables

109,775

(157,976)

Cash generated by operating activities

50,830

42,685

Tax paid

(5,716)

(5,296)

Net cash inflow from operating activities

45,114

37,389




Company



Operating profit

9,903

9,878

Operating cash flows before movements in working capital

9,903

9,878

(Increase)/Decrease in receivables and trading investments

(8,232)

4,070

Increase/(Decrease) in payables

-

 (4)

Cash generated by operating activities

1,671

13,944

Tax paid

-

-

Net cash inflow from operating activities

1,671

13,944

 

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

 

Annual Report Page 82

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


2010

2009

2010

2009


£'000

£'000

£'000

£'000

-

-

2,436

2,436

Brewin Dolphin Limited

12,235

3,719

-

-

Stocktrade Broking Limited

-

-

4,900

4,900


12,235

3,719

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 (2009: £10,000,000) from Brewin Dolphin 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 84

FUNDS

 


At
26 September 2010

 £ Billion

At
27 September 2009

 £ Billion

 13.8

 11.6

Stock not held in Group's nominee

 0.2

 0.2

Discretionary funds under management

 14.0

 11.8




In Group's nominee or sponsored member

 7.7

 7.2

Other funds where valuations are carried out but  

where the stock is not under the Group's control

 1.5

 1.5

Advisory funds under management

 9.2

 8.7

Managed funds

 23.2

 20.5




In Group's nominee or sponsored member

 4.0

 3.7

Stock not held in Group's nominee

 0.3

 0.4

Execution only stock

 4.3

 4.1

Total funds

 27.5

 24.6




Stock



In Group's nominee or sponsored member

 25.5

 22.5

Stock not held in Group's nominee

 2.0

 2.1


 27.5

 24.6

 

 

 

Angela Wright

Company Secretary

Brewin Dolphin Holdings PLC

17 January 2011

 


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