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Rensburg Sheppards (RBG)

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Wednesday 10 June, 2009

Rensburg Sheppards

Final Results

RNS Number : 6360T
Rensburg Sheppards plc
10 June 2009
 



10 June 2009

Rensburg Sheppards plc

 ('Rensburg Sheppards' or 'the company') 

Preliminary Results 


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


Key Points:


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


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


  • Basic earnings per share of 49.0p (200847.9p) 


  • Adjusted* basic earnings per share of 59.4p (200865.4p)


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


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


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


Steve Elliott, Chief Executive of Rensburg Sheppards, commented:


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


An analysts' meeting will be held today at 9.30 am at the offices of Hudson Sandler, 29 Cloth Fair, LondonEC1A 7NN.


For further information, please contact:



Steve Elliott, Chief Executive

Jonathan Wragg, Finance Director

Rensburg Sheppards plc


Tel: 020 7597 1234

Nick Lyon / James White 

Hudson Sandler

Tel: 020 7796 4133



Chairman's statement


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


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


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


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


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


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


Results and dividend


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


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


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


People


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


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


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


Outlook


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



C.G. Clarke


Chairman  




9 June 2009




Chief Executive's report


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


Rensburg Sheppards Investment Management ('RSIM')


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


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


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


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


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

  

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


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


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


Rensburg Fund Management ('RFM') 


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


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


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


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

   

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


Group funds under management


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


Regulation


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


Outlook


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


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



S.M. Elliott

Chief Executive  


9 June 2009



Financial review


Financial results


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


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


Key performance indicators ('KPIs')


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


The group:


KPIs:



Year ended 

31 March 2009

Year ended 

31 March 2008


% change


Total funds under management 1


£10.01 billion


£12.95 billion


-22.7%


FTSE/APCIMS Balanced index 1


2,230.5


2,801.8


-20.4%


FTSE All-Share index 1


1,984.2


2,927.1


-32.2%

Underlying rate of net organic growth in total funds under management 2



+1.9%



-0.5%



N/A


Underlying operating profit


£36.7 million


£42.0 million


-12.6%

Underlying operating profit as a % of net revenue


33.3%


34.6%


N/A

Underlying basic earnings per share


59.4 pence


65.4 pence


-9.2%


1 As at the year end

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


Investment management:


KPIs:



Year ended 

31 March 2009

Year ended 

31 March 2008


% change


Funds under management 1


£8.93 billion


£11.48 billion


-22.2%


FTSE/APCIMS Balanced index 1


2,230.5


2,801.8


-20.4%


FTSE All-Share index 1


1,984.2


2,927.1


-32.2%

Underlying rate of net organic growth in total funds under management 2



+1.4%



-0.3%



N/A

% of total funds managed on a discretionary basis


72.3%


70.0%


N/A


Underlying operating profit


£32.4 million


£35.8 million


-9.5%

Underlying operating profit as a % of net revenue


32.4%


33.4%


N/A


1 As at the year end

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


Funds under management:



2009 

£bn 

2008 

£bn 




At 1 April

11.48 

12.64 




Inflows

0.86 

0.80 

Outflows

(0.70)

(0.84)

Market adjustment 1

(2.71)

(1.12)




At 31 March

8.93 

11.48 




Underlying rate of net organic growth 2

+1.4%

-0.3%


1 Impact of market movement and relative performance

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


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


Financial performance:



Year ended  

31 March 2009 

£m 

Year ended  

31 March 2008 

£m 




Fees

49.7 

57.3 

Interest from client deposits

16.0 

12.5 

Trail commission

5.2 

5.4 

Other income

3.1 

3.9 

Total net recurring revenue  1

74.0 

79.1 




Commission

22.4 

24.0 

Other income

3.6 

4.1 

Total net non-recurring revenue  1

26.0 

28.1 




Total net revenue  1

100.0 

107.2 




Underlying operating expenses 

(67.6)

(71.4)




Underlying operating profit 

32.4 

35.8 




Interest (net) 

(0.4)

(1.2)




Underlying profit before tax 

32.0 

34.6 


1 Net of fees and commissions payable to introducers.


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


Underlying operating expenses:



Year ended  

31 March 2009 

£m 

Year ended  

31 March 2008 

£m 

Staff costs:



- Fixed

36.1 

35.8 

- Variable

13.5 

17.9 

Total staff costs

49.6 

53.7 




Other underlying operating expenses

18.0 

17.7 




Total underlying operating expenses

67.6 

71.4 




Underlying operating expenses as a % of total net revenue


67.6%


66.6%


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


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



Fund management:


KPIs:



Year ended 

31 March 2009

Year ended 

31 March 2008


% change


Funds under management 1


£1.08 billion


£1.47 billion


-26.5%


FTSE All-Share index 1


1,984.2


2,927.1


-32.2%

Underlying rate of net organic growth in total funds under management 2



+5.4%



-1.7%



N/A


Underlying operating profit


£4.3 million


£6.2 million


-30.6%

Underlying operating profit as a % of net revenue


41.7%


44.0%


N/A


1 As at the year end

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


Funds under management:



2009 

£bn 

2008 

£bn 




At 1 April

1.47 

1.76 




Inflows

0.46 

0.49 

Outflows

(0.38)

(0.52)

Market adjustment 1

(0.47)

(0.26)




At 31 March

1.08 

1.47 




Underlying rate of net organic growth 2

+5.4%

-1.7%


1 Impact of market movement and relative performance

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


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


Financial performance:



Year ended 

31 March 2009 

£m 

Year ended 

31 March 2008 

£m 




Fees

9.0 

11.9 

Total net recurring revenue 1

9.0 

11.9 




Profit on sale of units of unit trusts

1.2 

2.1 

Other income

0.1 

0.1 

Total net non-recurring revenue 1

1.3 

2.2 




Total net revenue 1

10.3 

14.1 




Underlying operating expenses

(6.0)

(7.9)




Underlying operating profit

4.3 

6.2 




Interest (net)

0.3 

0.7 




Underlying profit before tax

4.6 

6.9 


1 Net of fees and commissions payable to introducers.


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


Underlying operating expenses:



Year ended 

31 March 2009 

£m 

Year ended 

31 March 2008 

£m 

Staff costs:



- Fixed

1.9 

1.7 

- Variable

1.9 

3.4 

Total staff costs

3.8 

5.1 




Other underlying operating expenses

2.2 

2.8 




Total underlying operating expenses

6.0 

7.9 




Underlying operating expenses as a % of total net revenue


58.3%


56.0%


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


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


Tax


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


Dividend 


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


Cash flow


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


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


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


Capital structure and treasury management


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


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


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


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


Regulatory capital


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

 

Contingent liability


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



J.P.Wragg

Finance Director  


9 June 2009



Consolidated income statement

for the year ended 31 March 2009







2009


2008






Year


Year






ended


ended






31 March


31 March


Note




£'000


£'000









Revenue





118,87


132,928 

Fees and commissions payable





(8,539)


(11,646)

Net revenue

2




110,335 


121,282 

Share-based payments - EBT

13




(440)


(4,653)

Amortisation of intangible assets - client relationships





(5,603)


(5,603)

Other operating expenses





(73,635)


(79,326)

Operating expenses





(79,678)


(89,582)

Operating profit





30,657 


31,700 

Loss on disposal of available-for-sale investments





(68)


Finance income

3




2,845 


3,284 

Finance expenses

3




(2,940)


(3,771)

Profit before tax





30,494 


31,213 

Taxation

4




(9,085)


(10,324)

Profit for the year attributable to the equity holders of the company





21,409 


20,889 









Earnings per share

6















Basic





49.0p


47.9p

Diluted





48.9p


47.8p











Consolidated balance sheet

at 31 March 2009










2009


2008





Note




£'000


£'000












Assets











Non-current assets











Intangible assets




7




176,542 


181,772 

Property, plant and equipment








5,532 


5,197 

Available-for-sale investments








1,464 


2,827 

Deferred tax assets




8




1,594 


1,372 









185,132 


191,168 












Current assets











Trade and other receivables








133,814 


123,953 

Cash and cash equivalents




9




71,217 


71,464 









205,031 


195,417 












Total assets








390,163 


386,585 












Liabilities











Current liabilities











Trade and other payables








(133,093)


(127,981)

Subordinated loan




10




(5,625)


(5,625)

Provisions




11




(122)


(56)

Current tax liabilities








(5,487)


(6,820)









(144,327)


(140,482)












Non-current liabilities











Accruals and deferred income







(2,247)


(1,373)

Subordinated loan



10




(33,750)


(44,375)

Provisions 



11




(592)


(551)

Deferred tax liabilities



8




(11,564)


(13,689)









(48,153)


(59,988)












Total liabilities








(192,480)


(200,470)












Net assets








197,683 


186,115 























Equity attributable to the equity holders of the company






















Share capital




12,14




4,822 


4,822 

Share premium




14




10,617 


10,617 

Capital redemption reserve




14




100 


100 

Available-for-sale reserve




14




807 


1,460 

Revaluation reserve




14




1,483 


973 

Other reserves




14




130,601 


130,601 

Retained earnings




14




49,253 


37,542 

Total equity








197,683 


186,115 



Consolidated cash flow statement

for the year ended 31 March 2009







2009


2008






Year


Year






ended


ended






31 March


31 March


Note




£'000


£'000

Cash flows from operating activities








Profit before taxation





30,494 


31,213 

Adjustments for:








- Amortisation of intangible assets





6,049 


6,198 

- Finance expenses





2,940 


3,771 

- Finance income





(2,845)


(3,284)

- Depreciation





1,008 


900 

Share-based payments





1,432 


5,557 

Loss on disposal of available-for-sale investments





68 


(Increase)/decrease in trade and other receivables





(9,887)


6,440 

Increase in trade payables and provisions





7,161 


2,674 

Cash generated from operations





36,42


53,469 

Interest received





2,771 


3,261 

Dividends received





100 


82 

Interest paid





(25)


(44)

Taxation paid





(12,278)


(10,964)

Net cash inflow from operating activities





26,988 


45,804 









Cash flows from investing activities








Purchase of property, plant and equipment





(1,065)


(675)

Purchase of intangible software





(699)


(369)

Proceeds from disposal of available-for-sale investments





389 


Net cash outflow from investing activities





(1,375)


(1,044)









Cash flows from financing activities








Dividends paid to shareholders





(11,132)


(10,258)

Proceeds from issue of ordinary share capital






14 

Repayment of subordinated loan





(10,625)


(10,000)

Interest paid on subordinated loan





(3,216)


(3,987)

Redemption of loan notes






(72)

Net cash outflow from financing activities





(24,973)


(24,303)









Net increase in cash and cash equivalents





 640 


20,457 

Cash and cash equivalents at start of year





70,232 


49,775 

Cash and cash equivalents at end of year

9




 70,872 


70,232 











Consolidated statement of recognised income and expense

for the year ended 31 March 2009







2009


2008






Year


Year






ended


ended






31 March


31 March






£'000


£'000

Revaluation of available-for-sale investments








- (loss)/gain arising from changes in fair value





(940)


265 

- loss on disposal transferred to the income statement





34 


Deferred tax on revaluation of available-for-sale investments








- on loss/(gain) arising from changes in fair value





263 


(80)

- on loss on disposal transferred to the income statement





(10)


- movement in deferred tax arising from change of tax rate






46 

Revaluation of property








- surplus arising from change in fair value





278 


Deferred tax on revalued property








- on surplus arising from change in fair value





(78)


- on change in tax base cost





327 


- movement in deferred tax arising from change of tax rate






27 

Net (expense)/income recognised directly in equity





(126)


258 

Profit for the year





21,409 


20,889 

Total recognised income and expense for the year attributable to the equity holders of the company





21,283 


21,147 



Notes to the financial statements


1. Basis of preparation


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


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


2. Revenue and segmental information


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


Year ended 31 March 2009


Investment


Fund






Management


Management


Eliminations


Group


£'000


£'000


£'000


£'000

Revenue








External

102,915 


15,959 



118,874 

Inter-segment

619 



(619)



103,53


15,959 


(619)


118,874 

Fees and commissions payable

(3,492)


(5,666)


619 


(8,539)

Segmental net revenue

100,042 


10,293 



110,335 









Share-based payments - EBT

(440)




(440)

Amortisation of intangible assets - client relationships

(5,603)




(5,603)

Other operating expenses

(67,603)


(6,032)



(73,635)

Segmental operating expenses

(73,646)


(6,032)



(79,678)









Segmental operating profit

26,396 


4,261 



30,657 

Loss on disposal of available-for-sale investments

(68)




(68)

Finance income

2,462 


383 



2,845 

Finance expenses

(2,940)




(2,940)

Profit before tax

25,850 


4,644 



30,494 









Segmental net revenue comprises:








Fees

49,64


9,042 



58,68

Commission

22,438 




22,438 

Interest from client deposits

16,011 




16,011 

Trail commission

5,184 




5,184 

Profit on sale of units of unit trusts


1,180 



1,180 

Other income

6,768 


71 



6,839 


100,04


10,293 



110,33









Other segmental items:








Segmental assets (excluding taxation)

365,165 


23,404 



388,569 

Segmental liabilities (excluding taxation)

(158,997)


(16,432)



(175,429)

Capital expenditure

1,065 




1,065 

Acquisition of intangible assets

81




81

Depreciation and amortisation

7,056 




7,057 



Year ended 31 March 2008


Investment


Fund






Management


Management


Eliminations


Group


£'000


£'000


£'000


£'000

Revenue








External

110,546 


22,382 



132,928 

Inter-segment

716 



(716)



111,262 


22,382 


(716)


132,928 

Fees and commissions payable

(4,082)


(8,280)


716 


(11,646)

Segmental net revenue

107,180 


14,102 



121,282 









Share-based payments - EBT

(4,653)




(4,653)

Amortisation of intangible assets - client relationships

(5,603)




(5,603)

Other operating expenses

(71,412)


(7,914)



(79,326)

Segmental operating expenses

(81,668)


(7,914)



(89,582)









Segmental operating profit

25,512 


6,188 



31,700 

Finance income

2,578 


706 



3,284 

Finance expenses

(3,771)




(3,771)

Profit before tax

24,319 


6,894 



31,213 









Segmental net revenue comprises:








Fees

57,307 


11,934 



69,241 

Commission

23,993 




23,993 

Interest from client deposits

12,483 




12,483 

Trail commission

5,436 




5,436 

Profit on sale of units of unit trusts


2,089 



2,089 

Other income

7,961 


79 



8,040 


107,180 


14,102 



121,282 









Other segmental items:








Segmental assets (excluding taxation)

362,900 


22,313 



385,213 

Segmental liabilities (excluding taxation)

(164,752)


(15,209)



(179,961)

Capital expenditure

675 




675 

Acquisition of intangible assets

369 




369 

Depreciation and amortisation

7,095 




7,098 


3. Finance income and expenses










2009


2008









Year


Year









ended


ended









31 March


31 March









£'000


£'000







Interest receivable on bank deposits



2,745 


3,202 

Dividends receivable



100 


82 

Finance income



2,845 


3,284 







Interest payable on bank overdrafts and loan notes



44 


43 

Interest payable on subordinated loan



2,896 


3,728 

Finance expenses



2,940 


3,771 


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


4Taxation










2009


2008









Year


Year









ended


ended









31 March


31 March









£'000


£'000

Current tax expense:






United Kingdom corporation tax at 28% (2008: 30%) 



11,029 


13,098 

Adjustments in respect of prior periods



(84)


14 




10,945 


13,112 

Deferred tax expense:






Origination and reversal of timing differences



(1,832)


(2,646)

Adjustments in respect of prior periods



(28)


(142)

Total tax expense in the income statement



9,085 


10,324 


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





2009


2008




Year


Year




ended


ended




31 March


31 March




£'000


£'000







Profit before tax



30,494 


31,213 

Tax expense using the United Kingdom corporation tax rate of 28% (2008: 30%)



8,538 


9,364 

Effects of:






Share-based payments



326 


1,600 

Other expenses not tax deductible



361 


321 

Income not chargeable to tax



(28)


(27)

Adjustments to current tax in respect of prior periods



(84)


14 

Adjustments to deferred tax in respect of prior periods



(28)


(142)

Effect of change of tax rate




(806)

Total tax expense in the income statement



9,085 


10,324 


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





2009


2008




Year


Year




ended


ended




31 March


31 March




£'000


£'000







Property, plant & equipment



249 


27 

Available-for-sale investments



253 


(34)

Share-based payments



(15)


(37)




487 


(44)


5. Dividends


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










2009


2008









Year


Year









ended


ended









31 March


31 March









£'000


£'000






Final dividend for the year ended 31 March 2007 of 15.0p per share



6,548 

Interim dividend for the six months ended 30 September 2007 of 8.5p per share



3,710 

Final dividend for the year ended 31 March 2008 of 17.0p per share


7,421 


Interim dividend for the six months ended 30 September 2008 of 8.5p per share


3,711 





11,132 


10,258 


6. Earnings per share    


Basic earnings per share is calculated with reference to earnings for shareholders of £21,409,000 (2008£20,889,000) and the weighted average number of shares in issue during the year of 43,659,112 (200843,651,919). Adjusted earnings per share before amortisation of the client relationships intangible asset, share-based payments relating to the EBT and the loss on disposal of available-for-sale investments is calculated with reference to earnings for shareholders of £25,932,000 (2008£28,567,000).


Diluted earnings per share is the basic earnings per share, adjusted for the effect of the conversion into fully paid shares of the weighted average number of all employee share options outstanding during the year. The number of additional shares used for the diluted calculation is 92,921 shares (200850,972). Details of contingently issuable shares, which relate to the subordinated loan agreement and are not included in the calculation of basic or diluted earnings per share, are given in note 10.


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



Year ended 31 March 2009

Year ended 31 March 2008



Basic

Diluted


Basic

Diluted


Earnings

EPS

EPS

Earnings

EPS

EPS


£'000 

pence

pence 

£'000 

pence

pence








Unadjusted earnings and EPS

21,409 

49.0 

48.9 

20,889 

47.9 

47.8 

Share-based payments - EBT

440 

1.0 

1.0 

4,653 

10.7 

10.6 

Amortisation of intangible assets - client relationships

5,603 

12.8 

12.8 

5,603 

12.8 

12.8 

Loss on disposal of available-for-sale investments

68 

0.2 

0.2 

Tax arising on adjusted items at 28% (2008: 30%)

(1,588)

(3.6)

(3.6)

(1,681)

(3.9)

(3.8)

Effect on tax arising on adjusted items following change in rate of taxation

(897)

(2.1)

(2.0)

Adjusted earnings and EPS

25,932 

59.4 

59.3 

28,567 

65.4 

65.4 


7Intangible assets


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




2009


2008



£'000


£'000






Goodwill


136,385 


136,385 

Client relationships


39,383 


44,866 

Software


774 


521 



176,542 


181,772 


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


8. Deferred tax assets and liabilities


Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 28% (200828%). Deferred tax assets have been recognised in respect of all temporary timing differences giving rise to deferred tax assets, as it is considered to be probable that these assets are recoverable in full.


Deferred tax assets and liabilities are attributed to the following:



   Assets

   Liabilities

   Net


2009 

2008 

2009 

2008 

2009 

2008 


£'000 

£'000 

£'000 

£'000 

£'000 

£'000 








Intangible assets

(10,994)

(12,563)

(10,994)

(12,563)

Property, plant and equipment

465 

454 

(180)

(438)

285 

16 

Available-for-sale investments

(390)

(643)

(390)

(643)

Trade and other receivables

(45)

(45)

Share-based payments

174 

114 

174 

114 

Provisions, accruals and other payables

955 

804 

955 

804 

Net deferred tax assets/(liabilities)

1,594 

1,372 

(11,564)

(13,689)

(9,970)

(12,317)


9. Cashcash equivalents and bank overdrafts


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





2009 


2008 




£'000 


£'000 







Cash and cash equivalents



71,217 


71,464 

Bank overdrafts



(345)


(1,232)




70,872 


70,232 


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


10. Subordinated loan


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


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


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


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


11. Provisions





Deferred










contingent


Onerous


Property






consideration


leases


dilapidations


Total




£'000


£'000


£'000


£'000

At 1 April 2008










Current liabilities




56 


 


56 

Non-current liabilities




254 


297 


551 





310 


297 


607 

Charged to the income statement




64 



64 

Capitalised during the year



120 




120 

Utilised during the year




(60)



(60)

Released during the year




(17)



(17)

At 31 March 2009



120 


297 


297 


714 


The balances at 31 March 2009 are categorised as follows:





Deferred










contingent


Onerous


Property






consideration


leases


dilapidations


Total




£'000


£'000


£'000


£'000











Current liabilities



57 


65 



122 

Non-current liabilities



63 


232 


297 


592 

At 31 March 2009



120 


297 


297 


714 


The provision for deferred contingent consideration represents amounts that may become payable in respect of the acquisition of certain client relationship agreements from Investec Asset Management Limited during the year ended 31 March 2009. The amount of the deferred consideration payable is contingent upon the revenues generated by the client relationship agreements during each year ending 31 March following their transfer to the group, until 31 March 2012. The consideration is payable in cash within 30 days of the end of each year ending 31 March. Further details of the transaction to which the deferred contingent consideration relates are set out in notes 716 and 17.


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


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


12. Share capital












Nominal









Number


value









of shares


£'000

Authorised ordinary shares of 10 90/91 pence each







At 1 April 200731 March 2008 and 31 March 2009




54,600,000 


6,000 












Allotted, called up and fully paid ordinary shares of 10 90/91 pence each





At 1 April 2007


43,881,382 


4,822 

Exercise of share options


2,118 


At 31 March 2008 and 31 March 2009


43,883,500 


4,822 


13. Share-based payments


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


14Reconciliation of changes in shareholders' equity





Capital

Available

Reval-





Share

Share

redemption

-for-sale

uation

Other

Retained

Total


capital

premium

reserve

reserve

reserve

reserves

earnings

equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000










At 1 April 2007

4,822 

10,603 

100 

1,234 

959 

130,601

21,373 

169,692 

Profit after taxation

20,889 

20,889 

Dividends

(10,258)

(10,258)

Issue of shares

14 

14 

Share-based payments

5,557 

5,557 

Deferred tax on share-based payments

(37)

(37)

Gain arising on available-for-sale investments

265 

265 

Deferred tax on available-for-sale investments

(80)

(80)

Movement in deferred tax arising from change of tax rate

41 

27 

73 

Depreciation on revalued property

(13)

13 

At 31 March 2008

4,822 

10,617 

100 

1,460 

973 

130,601 

37,542 

186,115 

Profit after taxation

21,409 

21,409 

Dividends

(11,132)

(11,132)

Share-based payments

1,432 

1,432 

Deferred tax on share-based payments

(15)

(15)

Loss arising on available-for-sale investments

(940)

(940)

Deferred tax on available-for-sale investments

263 

263 

Loss on disposal of available-for-sale investments transferred to the income statement

3

3

Deferred tax on disposal of available-for-sale investments transferred to the income statement

(10)

 - 

(10)

Revaluation of property

278 

278 

Deferred tax on revaluation of property

(78)

(78)

Deferred tax on change in tax base cost of revalued property

- 

327 

- 

327 

Depreciation on revalued property

(17)

17 

At 31 March 2009

4,822 

10,617 

100 

807 

1,483 

130,601 

49,253 

197,683 


15. Contingent assets and liabilities


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


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


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


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


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


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


16. Events after the balance sheet date


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


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


As set out in notes 711 and 17, the group entered into an agreement to acquire certain client relationship agreements from Investec Asset Management Limited on 18 November 2008. In accordance with this agreement, the transfer of the client relationship agreements to the group has continued since 31 March 2009. It is estimated that the intangible assets and the associated provision for deferred contingent consideration that will arise as a result of the transfer of agreements since 31 March 2009 will each amount to approximately £400,000.


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


17. Related party transactions


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


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


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


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


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


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


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


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


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


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