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Rensburg Sheppards (RBG)

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Friday 21 May, 2010

Rensburg Sheppards

Final Results

RNS Number : 2989M
Rensburg Sheppards plc
21 May 2010
 



21 May 2010

Rensburg Sheppards plc

 ('Rensburg Sheppards' or 'the company')

Preliminary Results

 

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

 

Key Points:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 IFRS 2.

 

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

 

 

Steve Elliott, Chief Executive of Rensburg Sheppards, commented:

 

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

 

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

 

 

For further information, please contact:

 


Steve Elliott, Chief Executive

Jonathan Wragg, Finance Director

Rensburg Sheppards plc

 

Tel: 020 7597 1234

Tel: 0114 228 6705

Nick Lyon / Michael Sandler

Hudson Sandler

Tel:  020 7796 4133

 

 

Chairman's statement

 

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

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

Recommended offer

 

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

 

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

Results and dividend

 

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

 

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

 

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

 

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

 

People

 

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

 

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

 

Outlook

 

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

 

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

 

C.G. Clarke

Chairman

 

20 May 2010

 

 

Chief Executive's report

 

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

 

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

 

Rensburg Sheppards Investment Management ('RSIM')

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

Rensburg Fund Management ('RFM')

 

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

 

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

 

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

 

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

   

Group funds under management

 

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

 

Regulation

 

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

 

Outlook

 

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

 

S.M. Elliott

Chief Executive

 

20 May 2010

 

 

Financial review

 

Financial results

 

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

 


Operating profit

Profit before tax


Year ended 31 March

Year ended 31 March


 2010 

2009 

2010 

2009 


£m 

£m 

£m 

£m 



Restated 


Restated 






Unadjusted

25.4 

30.4 

27.0 

30.2 






Adjusting items:





Share-based payments - EBT

0.4 

0.4 

Transaction costs

1.0 

1.0 

Amortisation of client relationships intangible asset

 

5.0 

 

5.6 

 

5.0 

 

5.6 

Profit on disposal of intangible assets

(0.9)

Profit on disposal of subsidiary

(1.9)

Loss on disposal of available-for-sale investments

 

 

 

 

0.1 






Adjusted

31.4 

36.4 

30.2 

36.3 

 

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

 

Key performance indicators ('KPIs')

 

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

 

The group:

 

KPIs:

 


 

Year ended

31 March 2010

Restated

Year ended

31 March 2009

 

 

% change

 

Total funds under management 1

 

£12.90 billion

 

£10.01 billion

 

+28.9%

 

FTSE/APCIMS Balanced index 1

 

2,861.5

 

2,230.5

 

+28.3%

 

FTSE All-Share index 1

 

2,910.2

 

1,984.2

 

+46.7%

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

 

 

+4.9%

 

 

+1.9%

 

 

N/A

 

Underlying operating profit

 

£31.4 million

 

£36.4 million

 

-13.7%

Underlying operating profit as a % of net revenue

 

28.8%

 

33.0%

 

N/A

Underlying basic earnings per share

 

50.1 pence

 

58.8 pence

 

-14.8%

 

1 As at the year end

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

 

Investment management:

 

KPIs:

 


 

Year ended

31 March 2010

Restated

Year ended

31 March 2009

 

 

% change

 

Funds under management 1

 

£11.60 billion

 

£8.93 billion

 

+29.9%

 

FTSE/APCIMS Balanced index 1

 

2,861.5

 

2,230.5

 

+28.3%

 

FTSE All-Share index 1

 

2,910.2

 

1,984.2

 

+46.7%

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

 

 

+6.0%

 

 

+1.4%

 

 

N/A

% of total funds managed on a discretionary basis

 

73.4%

 

72.3%

 

N/A

 

Underlying operating profit

 

£28.2 million

 

£32.2 million

 

-12.4%

Underlying operating profit as a % of net revenue

 

28.2%

 

32.2%

 

N/A

 

1 As at the year end

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

 

Funds under management:

 


Year ended

31 March 2010

£bn

Year ended

31 March 2009

£bn




At 1 April

8.93 

11.48 




Inflows

1.06 

0.86 

Inflows - acquired

0.05 

Outflows

(0.52)

(0.70)

Outflows - exceptional

(0.58)

Market adjustment 1

2.66 

(2.71)




At 31 March

11.60 

8.93 




Underlying rate of net organic growth 2

+6.0%

+1.4%

 

1 Impact of market movement and relative performance

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

 

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

 

Financial performance:

 


 

Year ended 

31 March 2010 

£m 

Restated 

Year ended 

31 March 2009 

£m 




Fees

55.7 

49.7 

Interest from client deposits

6.4 

16.0 

Trail commission

5.0 

5.2 

Other income

4.0 

3.1 

Total net recurring revenue  1

71.1 

74.0 




Commission

25.9 

22.4 

Other income

3.1 

3.6 

Total net non-recurring revenue  1

29.0 

26.0 




Total net revenue  1

100.1 

100.0 




Underlying operating expenses

(71.9)

(67.8)




Underlying operating profit

28.2 

32.2 




Interest (net)

(1.2)

(0.5)




Underlying profit before tax

27.0 

31.7 

 

1 Net of fees and commissions payable to introducers.

 

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

 

Underlying operating expenses:

 


 

Year ended 

31 March 2010 

£m 

Restated 

Year ended 

31 March 2009 

£m 

Staff costs:



- Fixed

35.5 

36.3 

- Variable

19.5 

13.4 

Total staff costs

55.0 

49.7 




Other underlying operating expenses

16.9 

18.1 




Total underlying operating expenses

71.9 

67.8 




Underlying operating expenses as a % of total net revenue

 

71.8%

 

67.8%

 

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

 

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

                                                                                                                  

 

Fund management:

 

KPIs:

 


 

Year ended

31 March 2010

Restated

Year ended

31 March 2009

 

 

% change

 

Funds under management 1

 

£1.30 billion

 

£1.08 billion

 

+20.4%

 

FTSE All-Share index 1

 

2,910.2

 

1,984.2

 

+46.7%

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

 

 

-4.6%

 

 

+5.4%

 

 

N/A

 

Underlying operating profit

 

£3.2 million

 

£4.3 million

 

-25.6%

Underlying operating profit as a % of net revenue

 

36.4%

 

41.7%

 

N/A

 

1 As at the year end

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

 

Funds under management:

 


Year ended

31 March 2010

£bn

Year ended

31 March 2009

£bn




At 1 April

1.08 

1.47 




Inflows

0.30 

0.46 

Outflows

(0.35)

(0.38)

Outflows - exceptional

(0.12)

Market adjustment 1

0.39 

(0.47)




At 31 March

1.30 

1.08 




Underlying rate of net organic growth 2

-4.6%

+5.4%

 

1 Impact of market movement and relative performance

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

 

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

 

Financial performance:

 


 

Year ended 

31 March 2010 

£m 

Restated 

Year ended 

31 March 2009 

£m 




Fees

7.5 

9.0 

Total net recurring revenue 1

7.5 

9.0 




Profit on sale of units of unit trusts

1.3 

1.2 

Other income

0.1 

Total net non-recurring revenue 1

1.3 

1.3 




Total net revenue 1

8.8 

10.3 




Underlying operating expenses

(5.6)

(6.0)




Underlying operating profit

3.2 

4.3 




Interest (net)

0.3 




Underlying profit before tax

3.2 

4.6 

 

1 Net of fees and commissions payable to introducers.

 

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

 

Underlying operating expenses:

 


 

Year ended 

31 March 2010 

£m 

Restated 

Year ended 

31 March 2009 

£m 

Staff costs:



- Fixed

1.7 

1.9 

- Variable

1.5 

1.9 

Total staff costs

3.2 

3.8 




Other underlying operating expenses

2.4 

2.2 




Total underlying operating expenses

5.6 

6.0 




Underlying operating expenses as a % of total net revenue

 

63.6%

 

58.3%

 

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

 

Tax

 

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

 

Dividend

 

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

 

Cash flow

 

The group enjoyed a healthy net cash inflow from its operating activities, after corporation tax payments, of £23.7 million (2009: £27.0 million). The business models operated by the group are such that there is only a minimal timeframe between the charging of fees and commissions to clients and the collection of the associated cash flow. These business models also ensure that the group continues to have negligible exposure to bad debts.

 

The group's investing and financing cash flows for the year principally comprised dividend payments of £11.1 million (2009: £11.1 million), subordinated loan interest and capital repayments of £8.2 million (2009: £13.8 million), the net proceeds from the disposal of a subsidiary of £2.0 million (2009: £nil) and capital expenditure of £1.2 million (2009: £1.8 million).

 

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

 

Capital structure and treasury management

 

At 31 March 2010 the group had net assets of £208.5 million (2009: £197.7 million), which included £172.4 million (2009: £176.5 million) of intangible assets, principally comprising goodwill of £136.4 million (2009: £136.4 million) and client relationships of £34.9 million (2009: £39.4 million).  The group's goodwill and intangible assets have been subject to an impairment review at 31 March 2010, the conclusion of which is that none of these assets is impaired.

 

Throughout the year, the group was financed by equity shareholders' funds which at 31 March 2010 were £208.5 million (2009: £197.7 million), together with debt which comprised a subordinated loan of £33.8 million (2009: £39.4 million). The group maintained the bulk of its cash balance which, net of an overdraft of £1.4 million at 31 March 2010, totalled £76.1 million (2009: £70.9 million) within its regulated trading subsidiaries. The group's own cash balances, along with those placed by Rensburg Sheppards Investment Management ('RSIM') on behalf of its clients are placed by the RSIM treasury department across a spread of highly rated banks. A significant proportion of cash is available on call, thus minimising both credit and liquidity risk. The treasury department acts under the close supervision of a cash and credit management committee ('CCMC') which sets the group's treasury policy and whose membership includes the group chief executive and the group finance director.

 

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

 

At 31 March 2010 the group's subordinated loan, on which a fixed rate of interest of 7.155% per annum is payable, stood at £33.750 million. This represents a reduction of £5.625 million from the balance outstanding at 31 March 2009. Following the end of the financial year, on 6 May 2010 an early repayment of £10.0 million of this debt was made, together with the £5.625 million scheduled to be repaid on that date. Full details of this are provided in note 14.

 

Regulatory capital

 

The group's principal trading entities are all FSA regulated and hence are required at all times to hold certain minimum levels of regulatory capital in accordance with the Capital Requirements Directive ('CRD'). Throughout the year each of the group's regulated entities maintained capital comfortably in excess of that required in accordance with the CRD. The individual capital requirements of each entity, which are determined in detail through the Internal Capital Adequacy Assessment Process ('ICAAP'), were reviewed during the year by the board. 

 

Contingent liability

 

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

 

J.P. Wragg

Finance Director 

 

20 May 2010

 

 

Consolidated income statement

for the year ended 31 March 2010

 

 







Restated

 





2010


2009

 





Year


Year

 





ended


ended

 





31 March


31 March

 



Note


£'000


£'000

 








Revenue





117,970 


118,874 

Fees and commissions payable





(9,110)


(8,539)

Net revenue



2


108,860 


110,335 

Amortisation of intangible assets - client relationships





(4,992)


(5,603)

Transaction costs



3


(983)


Share-based payments - EBT



17



(440)

Other operating expenses





(77,415)


(73,888)

Operating expenses





(83,390)


(79,931)

Operating profit





25,470 


30,404 

Profit on disposal of intangible assets



9


920 


Profit on disposal of subsidiary





1,890 


Loss on disposal of available-for-sale investments





- 


(68)

Finance income



5


1,236 


2,845 

Finance expenses



5


(2,473)


(2,940)

Profit before tax





27,043 


30,241 

Taxation



6


(7,014)


(9,085)

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





20,029 


21,156 









Earnings per share



8













Basic





45.8p


48.5p

Diluted





45.3p


48.4p









 

Consolidated statement of comprehensive income

for the year ended 31 March 2010

 

 







Restated

 





2010


2009

 





Year


Year

 





ended


ended

 





31 March


31 March

 



Note


£'000


£'000

 








Profit for the year





20,029 


21,156 

Other comprehensive income:








Gain/(loss) arising from changes in fair value of available-for-sale investments





713 


(940)

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





- 


34 

Gain arising from change in fair value of property





- 


278 

Tax relating to components of other comprehensive income



6


(154)


502 

Other comprehensive income for the year, net of tax





559 


(126)

Total comprehensive income for the year net of tax, attributable to the equity holders of the company





20,588 


21,030 

 

 

Consolidated statement of changes in equity

for the year ended 31 March 2010

 

 



Capital

Available

Reval-




 

Share

Share

redemption

-for-sale

uation

Other

Retained

Total

 

capital

premium

reserve

reserve

reserve

Reserves

earnings

Equity

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 









At 1 April 2008

4,822 

10,617 

100 

1,460 

973 

130,601 

37,542 

186,115 

Dividends

(11,132)

(11,132)

Share-based payments (restated)

       1,685 

1,685 

Deferred tax on share-based payments

(15)

(15)

Total comprehensive income for the year (restated)

(653)

         527

21,156 

21,030 

Depreciation on revalued property

(17)

17 

At 31 March 2009

4,822 

10,617 

100 

807 

1,483 

130,601 

49,253 

197,683 

Dividends

(11,141)

(11,141)

Issue of shares

40 

42 

Share-based payments

793 

793 

Deferred tax on share-based payments

548 

548 

Total comprehensive income for the year

514 

45 

20,029 

20,588 

Depreciation on revalued property

(17)

17 

At 31 March 2010

4,824 

10,657 

100 

1,321 

1,511 

130,601 

59,499 

208,513 

 

 

Consolidated balance sheet

at 31 March 2010

 

 








2010


2009

 

 




Note




£'000


£'000

 

 











 

Assets











 

Non-current assets











 

Intangible assets




9




172,449 


176,542 

 

Property, plant and equipment




10




4,948 


5,532 

 

Available-for-sale investments








2,193 


1,464 

 

Trade and other receivables




11




444 


 

Deferred tax assets




12




2,095 


1,594 

 









182,129 


185,132 

 












 

Current assets











 

Trade and other receivables








143,399 


133,814 

 

Cash and cash equivalents




13




77,531 


71,217 

 









220,930 


205,031 

 












 

Total assets








403,059 


390,163 

 












 

Liabilities











 

Current liabilities











 

Trade and other payables








(143,313)


(133,093)

 

Subordinated loan




14




(5,625)


(5,625)

 

Provisions




15




(387)


(122)

 

Current tax liabilities








(4,484)


(5,487)

 









(153,809)


(144,327)

 












 

Non-current liabilities











 

Accruals and deferred income







(1,301)


(2,247)

 

Subordinated loan



14




(28,125)


(33,750)

 

Provisions



15




(976)


(592)

 

Deferred tax liabilities



12




(10,335)


(11,564)

 









(40,737)


(48,153)

 












 

Total liabilities








(194,546)


(192,480)

 












 

Net assets








208,513 


197,683 

 












 












 

Equity attributable to the equity holders of the company






















 

Share capital




16




4,824 


4,822 

 

Share premium








10,657 


10,617 

 

Capital redemption reserve








100 


100 

 

Available-for-sale reserve








1,321 


807 

 

Revaluation reserve








1,511 


1,483 

 

Other reserves








130,601 


130,601 

 

Retained earnings








59,499 


49,253 

 

Total equity








208,513 


197,683 

 

 

 

Consolidated cash flow statement

for the year ended 31 March 2010

 

 







Restated

 





2010


2009

 





Year


Year

 





ended


ended

 





31 March


31 March

 

Note




£'000


£'000

Cash flows from operating activities








Profit before taxation





27,043 


30,241 

Adjustments for:








- Amortisation of intangible assets





5,454 


6,049 

- Finance expenses





2,473 


2,940 

- Finance income





(1,236)


(2,845)

- Depreciation





998 


1,008 

Share-based payments





941 


1,685 

Loss on disposal of available-for-sale investments





- 


68 

Profit on disposal of intangible assets





(920)


Profit on disposal of subsidiary





(1,890)


Increase in trade and other receivables





(9,631)


(9,887)

Increase in trade payables and provisions





8,496 


7,161 

Cash generated from operations





31,728 


36,420 

Interest received





1,262 


2,771 

Dividends received





72 


100 

Interest paid





(39)


(25)

Taxation paid





(9,353)


(12,278)

Net cash inflow from operating activities





23,670 


26,988 









Cash flows from investing activities








Purchase of property, plant and equipment





(414)


(1,065)

Purchase of intangible assets - computer software





(815)


(699)

Purchase of available-for-sale investments





(16)


Proceeds from disposal of available-for-sale investments





- 


389 

Proceeds from disposal of intangible assets





169 


Net proceeds from disposal of subsidiary





2,021 


Net cash inflow/(outflow) from investing activities





945 


(1,375)









Cash flows from financing activities








Dividends paid to shareholders





(11,141)


(11,132)

Proceeds from issue of ordinary share capital





42 


Repayment of subordinated loan





(5,625)


(10,625)

Interest paid on subordinated loan





(2,614)


(3,216)

Net cash outflow from financing activities





(19,338)


(24,973)









Net increase in cash and cash equivalents





5,277 


 640 

Cash and cash equivalents at start of year





70,872 


70,232 

Cash and cash equivalents at end of year

13




76,149 


 70,872 









 

 

Notes to the financial statements

 

1. Basis of preparation

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

Change in accounting policies and disclosures

 

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

 

(i) Operating segments

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

 

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

 

(ii) Presentation of financial statements

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

 

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

 

(iii) Share-based payments

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

 

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

 

2. Revenue and segmental information

 

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

 

Year ended 31 March 2010

 


Investment


Fund





 


Management


Management


Eliminations


Group

 


£'000


£'000


£'000


£'000

Revenue









External


103,186 


14,784 



117,970 

Inter-segment


687 



(687)




103,873 


14,784 


(687)


117,970 

Fees and commissions payable


(3,807)


(5,990)


687 


(9,110)

Segmental net revenue


100,066 


8,794 



108,860 










Costs excluding amortisation of client relationship intangible assets and non-operating items:









Staff costs - fixed


(35,472)


(1,749)



(37,221)

Other costs - fixed


(16,909)


(2,335)



(19,244)

Total fixed costs


(52,381)


(4,084)



(56,465)

Staff costs - variable


(19,445)


(1,505)



(20,950)

Total costs


(71,826)


(5,589)



(77,415)










Operating profit before amortisation of client relationship intangible assets and non-operating items


28,240 


3,205 



31,445 

Interest receivable and other finance income


1,216 


20 



1,236 

Interest payable


(2,473)




(2,473)

Profit before tax, amortisation of client relationship intangible assets and non-operating items


26,983 


3,225 



30,208 

Profit on disposal of intangible assets



920 



920 

Profit on disposal of subsidiary


1,890 




1,890 

Amortisation of client relationship intangible assets


(4,992)




(4,992)

Transaction costs


(983)




(983)

Profit before taxation


22,898 


4,145 



27,043 

Taxation


(5,843)


(1,171)



(7,014)

Profit after taxation


17,055 


2,974 



20,029 










Segmental net revenue comprises:









Fees


55,746 


7,489 



63,235 

Commission


25,857 




25,857 

Interest from client deposits


6,373 




6,373 

Trail commission


4,993 




4,993 

Profit on sale of units of unit trusts



1,285 



1,285 

Other income


7,097 


20 



7,117 

Total segmental net revenue


100,066 


8,794 



108,860 










Segmental profit is stated after charging:









Depreciation


997 




998 

Amortisation


5,454 




5,454 










Total segment assets


383,971 


19,088 



403,059 

 

 

Year ended 31 March 2009 (restated)

 


Investment


Fund





 


Management


Management


Eliminations


Group

 


£'000


£'000


£'000


£'000

Revenue









External


102,915 


15,959 



118,874 

Inter-segment


619 



(619)




103,534 


15,959 


(619)


118,874 

Fees and commissions payable


(3,492)


(5,666)


619 


(8,539)

Segmental net revenue


100,042 


10,293 



110,335 










Costs excluding amortisation of client relationship intangible assets and non-operating items:









Staff costs - fixed


(36,299)


(1,894)



(38,193)

Other costs - fixed


(18,115)


(2,245)



(20,360)

Total fixed costs


(54,414)


(4,139)



(58,553)

Staff costs - variable


(13,435)


(1,900)



(15,335)

Total costs


(67,849)


(6,039)



(73,888)










Operating profit before amortisation of client relationship intangible assets and non-operating items


32,193 


4,254 



36,447 

Interest receivable and other finance income


2,462 


383 



2,845 

Interest payable


(2,940)




(2,940)

Profit before tax, amortisation of client relationship intangible assets and non-operating items


31,715 


4,637 



36,352 

Loss on disposal of available-for-sale investments


(68)




(68)

Amortisation of client relationship intangible assets


(5,603)




(5,603)

Share-based payments - EBT


(440)




(440)

Profit before taxation


25,604 


4,637 



30,241 

Taxation


(7,759)


(1,326)



(9,085)

Profit after taxation


17,845 


3,311 



21,156 










Segmental net revenue comprises:









Fees


49,641 


9,042 



58,683 

Commission


22,438 




22,438 

Interest from client deposits


16,011 




16,011 

Trail commission


5,184 




5,184 

Profit on sale of units of unit trusts



1,180 



1,180 

Other income


6,768 


71 



6,839 

Total segmental net revenue


100,042 


10,293 



110,335 










Segmental profit is stated after charging:









Depreciation


1,006 




1,008 

Amortisation


6,049 




6,049 










Total segment assets


366,754 


23,409 



390,163 

 

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

 

3. Transaction costs

 

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

 

4. Disposal of subsidiary

 

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

 

5. Finance income and expenses

 

 








2010


2009

 








Year


Year

 








ended


ended

 








31 March


31 March

 








£'000


£'000







Interest receivable on bank deposits



1,164 


2,745 

Dividends receivable



72 


100 

Finance income



1,236 


2,845 







Interest payable on bank overdrafts



20 


44 

Interest payable on subordinated loan



2,453 


2,896 

Finance expenses



2,473 


2,940 

 

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

 

6. Taxation

 

 








2010


2009

 








Year


Year

 








ended


ended

 








31 March


31 March

 








£'000


£'000

Current tax expense:






United Kingdom corporation tax at 28% (2009:28%)



8,656 


11,029 

Adjustments in respect of prior periods



(306)


(84)




8,350 


10,945 

Deferred tax expense:






Origination and reversal of timing differences



(1,342)


(1,832)

Adjustments in respect of prior periods



6 


(28)

Total tax expense in the income statement



7,014 


9,085 

 

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

 






Restated




2010


2009




Year


Year




ended


ended




31 March


31 March




£'000


£'000







Profit before tax



27,043 


30,241 

Tax expense using the United Kingdom corporation tax rate of 28% (2009: 28%)



7,572 


8,467 

Effects of:






Share-based payments



(113)


397 

Other expenses not tax deductible



405 


361 

Income not chargeable to tax



(550)


(28)

Adjustments to current tax in respect of prior periods



(306)


(84)

Adjustments to deferred tax in respect of prior periods



6 


(28)

Total tax expense in the income statement



7,014 


9,085 

 

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

 




2010


2009




Year


Year




ended


ended




31 March


31 March




£'000


£'000







Property, plant & equipment



45 


249 

Available-for-sale investments



(199)


253 

Tax relating to components of other comprehensive income



(154)


502 

Share-based payments



548 


(15)




394 


487 

 

7. Dividends

 

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

 

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

 








2010


2009

 








Year


Year

 








ended


ended

 








31 March


31 March

 








£'000


£'000






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



7,421 

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



3,711 

Final dividend for the year ended 31 March 2009 of 17.0p per share


7,427 


Interim dividend for the six months ended 30 September 2009 of 8.5p per share


3,714 





11,141 


11,132 

 

8. Earnings per share           

 

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

 

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

 

Diluted earnings per share is the basic earnings per share, adjusted for the effect of the conversion into fully paid shares of the weighted average number of all employee share options outstanding during the year.  The number of additional shares used for the diluted calculation is 520,903 shares (2009: 92,921). Details of contingently issuable shares, which relate to the subordinated loan agreement and are not included in the calculation of basic or diluted earnings per share, are given in note 14.

 



Restated


Year ended 31 March 2010

Year ended 31 March 2009



Basic

Diluted


Basic

Diluted


Earnings

EPS

EPS

Earnings

EPS

EPS


£'000 

Pence

Pence

£'000 

Pence

Pence








Unadjusted earnings and EPS

20,029 

45.8 

45.3 

21,156 

48.5 

48.4 

Amortisation of intangible assets - client relationships

 

4,992 

 

11.4 

 

11.3 

 

5,603 

 

12.8 

 

12.8 

Transaction costs

983 

2.3 

2.3 

Share-based payments - EBT

- 

- 

- 

440 

1.0 

1.0 

Profit on disposal of intangible assets

(920)

(2.1)

(2.1)

Profit on disposal of subsidiary

(1,890)

(4.3)

(4.3)

Loss on disposal of available-for-sale investments

- 

- 

- 

68 

0.1 

0.1 

Tax arising on adjusted items at 28%

(1,317)

(3.0)

(3.0)

(1,588)

(3.6)

(3.6)

Adjusted earnings and EPS

21,877 

50.1 

49.5 

25,679 

58.8 

58.7 

 

 

9. Intangible assets

 

 









 




Client


Computer



 


Goodwill


relationships


software


Total

 


£'000


£'000


£'000


£'000

Cost









At 1 April 2008


136,385 


61,138 


2,229 


199,752 

Additions



120 


699 


819 

At 31 March 2009


136,385 


61,258 


2,928 


200,571 

Additions



546 


815 


1,361 

At 31 March 2010


136,385 


61,804 


3,743 


201,932 










Amortisation









At 1 April 2008



16,272 


1,708 


17,980 

Charged during the year



5,603 


446 


6,049 

At 31 March 2009



21,875 


2,154 


24,029 

Charged during the year



4,992 


462 


5,454 

At 31 March 2010



26,867 


2,616 


29,483 










Net book value









At 31 March 2010


136,385 


34,937 


1,127 


172,449 

At 31 March 2009


136,385 


39,383 


774 


176,542 

At 1 April 2008


136,385 


44,866 


521 


181,772 

 

Additions to client relationships during the year of £546,000 relate to client relationship agreements acquired from Investec Asset Management Limited under the terms of an agreement that was entered into on 18 November 2008.  Details of the consideration payable to Investec Asset Management Limited are set out in note 15.

 

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

 

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

 

10. Property, plant and equipment

 

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

 

11. Trade and other receivables

 

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

 

12.  Deferred tax assets and liabilities

 

Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 28% (2009: 28%). Deferred tax assets have been recognised in respect of all temporary timing differences giving rise to deferred tax assets, as it is considered to be probable that these assets are recoverable in full.

 

Deferred tax assets and liabilities are attributed to the following:

 


      Assets

      Liabilities

      Net


2010 

2009 

2010 

2009 

2010 

2009 


£'000 

£'000 

£'000 

£'000 

£'000 

£'000 








Intangible assets

(9,618)

(10,994)

(9,618)

(10,994)

Property, plant and equipment

458 

465 

(128)

(180)

330 

285 

Available-for-sale investments

- 

(589)

(390)

(589)

(390)

Share-based payments

677 

174 

- 

677 

174 

Provisions, accruals and other payables

960 

955 

- 

960 

955 

Net deferred tax assets/(liabilities)

2,095 

1,594 

(10,335)

(11,564)

(8,240)

(9,970)

 

13. Cash, cash equivalents and bank overdrafts

 

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

 




2010 


2009 




£'000 


£'000 







Cash and cash equivalents



77,531 


71,217 

Bank overdrafts



(1,382)


(345)




76,149 


70,872 

 

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

 

14. Subordinated loan

 

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

 

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

 

The loan is subordinated to all other creditors of the company. For the purposes of the consolidated regulatory capital reporting requirements of the Financial Services Authority ('FSA'), the Rensburg Sheppards group is treated as being part of the Investec group, by virtue of the Investec group's holding of shares of Rensburg Sheppards plc. The Rensburg Sheppards group, as a separate consolidated entity, is not itself subject to the FSA's consolidated regulatory capital requirements by virtue of a waiver granted on 14 August 2009. Should, for any reason, the Rensburg Sheppards group cease to be treated as being part of the Investec group for the purposes of consolidated regulatory capital reporting and instead be subject to the FSA's regulatory capital requirements as a separate consolidated entity, an amount of the loan may be converted into ordinary shares of the company. A conversion would only occur upon the request of the company if, and only to the extent that, there is a shortfall between the actual and required consolidated regulatory capital of the Rensburg Sheppards group. The rate of conversion would be based on the company's average mid-market share price during the three months prior to a conversion. However, where a conversion is required as a consequence of a disposal of shares by the Investec group, or a conversion would otherwise require a member of the Investec group to make a general offer for the company, an alternative instrument, that would enable the company to satisfy the FSA's regulatory capital requirements, would be issued in place of ordinary shares.

 

15. Provisions

 

 



Deferred







 



contingent


Onerous


Property



 



consideration


leases


dilapidations


Total

 



£'000


£'000


£'000


£'000

At 1 April 2009










Current liabilities



57 


65 


-  


122 

Non-current liabilities



63 


232 


297 


592 

 



120 


297 


297 


714 

Charged to the income statement




214 



214 

Capitalised during the year



546 




546 

Utilised during the year




(111)



(111)

At 31 March 2010



666 


400 


297 


1,363 

 

The balances at 31 March 2010 are categorised as follows:

 

 



Deferred







 



contingent


Onerous


Property



 



consideration


leases


dilapidations


Total

 



£'000


£'000


£'000


£'000

 










Current liabilities



300 


87 



387 

Non-current liabilities



366 


313 


297 


976 

At 31 March 2010



666 


400 


297 


1,363 

 

The provision for deferred contingent consideration represents amounts that may become payable in respect of the acquisition of certain client relationship agreements from Investec Asset Management Limited during the year ended 31 March 2009 and 31 March 2010. The amount of the deferred consideration payable is contingent upon the revenues generated by the client relationship agreements during each year ending 31 March following their transfer to the group, until 31 March 2012. The consideration is payable in cash within 30 days of the end of each year ending 31 March. Further details of the transaction to which the deferred contingent consideration relates are set out in notes 9 and 20.

 

The onerous leases provision represents future rentals and running costs of unoccupied leasehold premises to the end of the lease term. All such leases are due to expire during or before 2015.

 

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

 

16. Share capital

 











Nominal

 








Number


value

 








of shares


£'000

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





At 1 April 2008 and 31 March 2009


43,883,500 


4,822 

Issued upon exercise of share options


13,594 


At 31 March 2010


43,897,094 


4,824 

 

17. Share-based payments

 

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

 

18. Contingent assets and liabilities

 

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

 

The special method that RSIM has proposed to HMRC was formally rejected by HMRC during the year ended 31 March 2009, and this decision was upheld following an internal reconsideration of the decision within HMRC.  RSIM has appealed to the VAT tribunal against the decision to reject the proposed special method.  A date for the tribunal hearing is to be set in due course.

 

Pending the outcome of the tribunal hearing and the eventual agreement of a special method, RSIM has applied a rate of input VAT recovery which reflects the rates that applied under the special methods of CSC and the group that were in place at the time of the acquisition of CSC (the 'historic methods') to determine the amount of input VAT that is recoverable on the goods and services it has purchased since May 2005.  VAT that is not recoverable following the application of the historic methods of recovery has been charged to the income statement.

 

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

 

The maximum amount that may become recoverable from HMRC at 31 March 2010 is estimated to be £1.5 million (2009: £1.3 million), representing the difference between the input VAT recoverable under the proposed special method and that recoverable under the historic methods since May 2005.

 

The maximum amount that may become payable to HMRC at 31 March 2010 would arise if RSIM is not ultimately able to obtain HMRC's agreement to a special method and is required to apply the standard method of input VAT recovery.  The standard method is the default method of input VAT recovery, and would result in RSIM recovering input VAT based simply on the value of its income that is subject to VAT, relative to its income that is exempt from VAT.  If the standard method were to be applied retrospectively from May 2005, the additional input VAT and associated interest that would become payable to HMRC at 31 March 2010 is estimated at £3.8 million (2009: £3.3 million), representing the difference between the input VAT recoverable under the historic methods and that recoverable under the standard method.

 

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

 

19. Events after the balance sheet date

 

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

 

20. Related party transactions

 

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

 

The group has a subordinated loan facility with the Investec group, which was entered into on 6 May 2005. The loan formed part of the consideration for the acquisition of Carr Sheppards Crosthwaite Limited on that date. The interest charged on the loan during the year amounted to £2,453,000 (2009: £2,896,000) and interest of £978,000 was payable at 31 March 2010 (2009: £1,139,000). Further details of the subordinated loan facility are set out in note 14.

 

The group leases premises at 2 Gresham Street, London, from the Investec group. The amount payable during the year under the terms of the lease in respect of rent and service charges amounted to £1,364,000 (2009: £1,464,000). £122,000 was outstanding at 31 March 2010 (2009: £122,000).

 

The Investec group provides the group with certain infrastructure services. The amount payable during the year under the  terms of the related agreement amounted to £434,000 (2009: £611,000). £99,000 was outstanding at 31 March 2010 (2009: £396,000).

 

The Investec group has provided internal audit services to the group during the year. The amount payable by the group during the year in respect of these services amounted to £109,000 (2009: £163,000). £57,000 was outstanding at 31 March 2010 (2009: £88,000).

 

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

 

On 18 November 2008, the group entered into an agreement to acquire certain client relationship agreements from Investec Asset Management Limited, a wholly-owned subsidiary of the Investec group. Details of this transaction and the consideration payable to Investec Asset Management Limited are set out in notes 9 and 15.

 

In addition to the transactions with the Investec group set out above, the group contributes to defined contribution pension schemes on behalf of its employees. The group also operates a number of share-based payment arrangements for the purposes of employee remuneration. Details of these transactions are set out in note 17.

 

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

 

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


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