Focusing on you. A strategic focus. Full year results 31 March 2016

Transcription

1 Focusing on you A strategic focus Full year results 31 March 2016

2 Vision statement Our vision is to become the UK s leading wealth manager by We define leading in terms of quality rather than quantity; we do not seek necessarily to become the biggest, but rather the best wealth manager in the UK. 1

3 What we do 1. Investment Management Services The Investment Management Services division offers a comprehensive personalised service to private clients namely; managing Discretionary portfolios, providing investment advice and offering Execution-only services covering a wide range of financial instruments. The team also administers clients investments and cash, including ISAs and SIPPs. 3. Financial Planning The Financial Planning division provides flexible access to financial planning advice, working with clients to ensure that their financial arrangements are optimised for their needs and circumstances. It can be delivered stand-alone or in conjunction with the Investment Management Services team. 2. Asset Management 4. Charles Stanley Direct The Asset Management division provides pooled solutions and model portfolios for a range of clients. It also houses Charles Stanley s investment research capability, covering asset allocation, stock selection and collective vehicle selection. It also provides investment solutions for institutional investors. Charles Stanley Direct provides a directto-client investment service, created to meet the needs of the modern selfdirected investor. Investments are to be made online or with telephone support in a wide range of funds, shares, gilts and bonds. 2

4 Agenda 1. Key messages 2. Financial results 3. Strategic implementation plan 4. Outlook Appendices 3

5 1. Key messages

6 Key messages Decline in profitability arrested and continued strong stewardship of financial resources Implementation of strategic plan proceeding Well positioned to build on progress made, offering a broad personalised service to our clients 5

7 Strategic overview Charles Stanley aims to become the UK s leading wealth manager by 2020, focused on client satisfaction, employee engagement and producing a strong financial performance The Company will deliver holistic wealth management incorporating Investment Management, Asset Management, Financial Planning and Charles Stanley Direct It remains committed to a full service offering with a personalised approach targeted at achieving high levels of client satisfaction 6

8 FY 2016 principal achievements Strategic Strategy review completed Divisions reorganised and reporting hierarchies streamlined to improve accountability and accelerate rate of change Detailed strategic implementation plans developed for each division Financial Balance sheet strengthened through 16.3m equity raising Prior year pre tax losses significantly reduced, 2016: 0.3m (2015: 6.1m) Asset Management, Financial Planning and Charles Stanley Direct put on a path to profitability Loss-making non-core activities sold (Charles Stanley Securities and Charles Stanley Financial Solutions) Exceptional charges reduced, 2016: 4.0m (2015: 8.6m) 7

9 FY 2016 principal achievements (continued) Operational Completion of client suitability review programme Revised interim variable remuneration arrangements agreed with Investment Management team for financial year 2017 Brand relaunched Defined benefit pension scheme closed to future service accruals 8

10 Key challenges Difficult market conditions provided headwinds to trading, exemplified by 8.8% decline of FTSE 100 Slow organic fund inflows Concluding the variable remuneration consultation process has taken longer than originally anticipated. It is expected this will happen shortly The Group s ability to handle the scale and complexity of change is improving. 9

11 2. Financial results

12 FY 2016 financial headlines Funds under management and administration down 3.8% to 20.5bn (2015: 21.3bn) Revenues from Core Business down 3.3% to 136.3m (2015: 141.0m) Market headwinds: FTSE 100 down 8.8% Investment management and financial planning fees up, but lower levels of commission income, interest and trail Profit before tax of Core Business down 4.5% to 4.2m (2015: 4.4m) 2.0m decline in profit of Investment Management Services division due to lower revenues 0.4m increase in loss of Financial Planning due to investment in front office staff 1.1m improvement of performance by both Asset Management and Charles Stanley Direct Group reported loss significantly reduced to 0.3m (2015: 6.1m) Exceptional costs reduced to 4.0m (2015 : 8.6m) Reduction of losses from activities held for sale to 0.5m (2015: 1.8m) Balanced sheet strengthened Net cash 48.1m (2015: 28.5m) Capital adequacy 151% (2015: 107%) Dividend maintained at 5.0p (2015: 5.0p) 11

13 Financial summary - losses reduced, balance sheet strengthened Change FUMA ( bn) (3.8%) Core Business Revenue ( m) (3.3%) Profit before tax ( m) Investment Management Services (20.2%) Asset Management (1.0) (2.1) 52.4% Financial Planning (1.3) (0.9) (44.4%) Charles Stanley Direct (1.4) (2.5) 44.0% Profit before tax of Core Business ( m) (4.5%) Held for sale (0.5) (1.9) 73.7% Adjusting items (4.0) (8.6) 53.5% Reported loss before tax ( m) (0.3) (6.1) 95.1% EPS of Core Business (p) % Reported EPS (p) (0.61) (13.46) 95.5% Dividend per share (p) Net assets ( m) % Capital adequacy 151% 107% 41.3% Decrease in FUMA in line with market (WMA Balanced Index -3.5%) Revenues down mainly because of lower trading commission income, interest on client cash balances and trail Overall performance of Core Business relatively flat, with improvements by Asset Management and Charles Stanley Direct offset by weaker performance from Investment Management Services (lower revenues) and Financial Planning (investment in recruitment of additional financial planners) Reduced losses incurred by held for sale activities due to disposal during the year Adjusting items reduced (prior year included CSD goodwill write down) Although profitability decreased, a lower effective tax rate improved EPS within the Core Business Maintained dividend Balance sheet, cash and capital adequacy strengthened through 16.3m placing for cash 12

14 Funds under Management and Administration - performance in line with market FUMA movement year on year ( bn) Change Discretionary funds % Advisory Managed funds (13.3%) Total Managed (2.4%) Advisory Dealing funds (19.0%) Execution Only funds (1.4%) Total Administered (5.6%) 1.1% growth in Discretionary funds due to new fund inflows 9.7% increase in Charles Stanley Direct Execution-only Assets Total FUMA (3.8%) FTSE 100 6,175 6,773 (8.8%) WMA Balanced 3,556 3,684 (3.5%) Declines across other investment categories attributable to lower market levels, polarisation of service categories toward Discretionary and Execution-only, and weak organic inflows 13

15 Funds under Management and Administration - low levels of inflows and outflows FuMA flows ( bn) (0.2) (0.2) (1.2) (0.7) Funds at 1 April 2015 Net inflow/(outflow) Discretionary Managed transfers Advisory Managed transfers Advisory Dealing transfers Execution-only transfers Lost clients Discretionary Advisory Managed Advisory Dealing Execution-only Market movement Funds at 31 March

16 Revenues - pressure on margins Change m m % Fees: Market based fees (excl. trail income) % Administration Based Fee % Trail income (46.2%) Total fees % Commission (6.4%) Interest (31.4%) Revenue (3.3%) Revenue margins: Investment Management Services 67bps 70bps (4.3%) Asset Management 63bps 68bps (7.4%) Charles Stanley Direct 28bps 32bps (12.5%) Investment management and administration fee improvements negated by decline of commission income, trail and interest earned on client cash balances Revenue margins down because increases in fees have not entirely offset lower commission, trail and interest contribution Bargain numbers: Commission Earning 445, ,420 (3.8%) Zero Commission 314, , % All Commission Types 760, , % Overall bargain numbers increased but mix change between commission earning and non-commission earning trades as more clients adopt fee only tariffs 15

17 Core Business operating expenses - improved cost control Core Business operating expenses ( m) (3.9) (0.7) (2.2) Expenses incurred by the Core Business areas fell 3.3%. The bulk of the savings were achieved by reducing remuneration costs, down 3.9 million, driven by a 7.2% reduction in headcount to 976 employees (2015: 1,052 employees). Administration costs were reduced by 2.2 million as revenue sharing payments to third parties fell by 1.3 million and an increase in the VAT recovery rate resulted in a 0.7 million improvement year on year. 1.5m increase in IT costs due to higher software development expenditure Core Business costs 2015 Remuneration costs IT costs Establishment costs Professional fees Marketing costs Admin costs Core Business costs

18 Core Business profitability- stable year on year Core Business profit ( m) (0.1) (3.2) - (1.0) 2015 profit before tax (1.6) Fees Commission Interest Remuneration costs Other costs Finance and other income 2016 profit before tax 17

19 Reported loss before tax - significant improvement achieved Change m m % Core Business profit before tax (3.3%) Loss attributable to held for sale activities (0.5) (1.9) 73.7% Adjusting items Amortisation of client relationships (1.6) (1.8) 11.1% Transition bonus top-up accrual (1.4) - 0.0% Dilapidations (0.8) - 0.0% Exceptional professional fees (0.8) - 0.0% Impairment of intangibles (0.4) (7.9) 94.9% Restructuring costs - (0.1) 100.0% Profit on disposal of Matterley (83.3%) Undervalued Asset Fund Defined benefit pension scheme credit % Reported loss before tax (0.3) (6.1) 95.1% Reduction in losses attributable to held for sale activities following sale of Charles Stanley Securities to Panmure Gordon in July Full year loss of 0.9m incurred by Charles Stanley Financial Solutions, which was sold immediately post year end. Bonus accrual as part of interim remuneration agreement Head Office move and London property footprint rationalisation Fees on Placing and business disposals Write down against Charles Stanley Financial Solutions Final deferred consideration Impact of change of inflation assumption from RPI to CPI 18

20 Reported profit to Core Business profit - adjusting items Profit reconciliation ( m) (0.2) (0.8) (1.0) (0.3) Reported loss Loss on held for sale businesses (CSS and CSFS) Amortisation of Transition bonus client relationships accrual Dilapidations Exceptional professional fees Impairment of intangibles Profit on disposal of Matterley Undervalued Asset Fund Defined benefit pension scheme credit Core Business profit Adjusting items 19

21 Balance sheet - strengthened through fund raising Change m m % Goodwill and customer relationships (4.3%) Software % Total intangible assets (2.7%) Fixed assets (19.5%) Other non-current assets (1.0%) Total tangible non-current assets (11.6%) Net cash % Working capital (0.3) 1.7 (117.6%) Assets held for sale (59.5%) Total net current assets % Pension deficit (22.9%) Mortgage (100.0%) Total non-current liabilities (32.2%) No new teams acquired during 2016 Ongoing investment in software Depreciation in excess of capital expenditure 15.8m (net) Placing for cash, proceeds from disposals and reduced working capital improved cash balances 19.6m Reduction in AHS due to sale of Charles Stanley Securities. Year end balance attributable to Charles Stanley Financial Solutions which was sold on 1 April 2016 Pension deficit reduced due to movements in actuarial assumptions Mortgage repaid in December 2016 Net assets % Net tangible assets % Regulatory capital resouces % 20 Regulatory capital resources strengthened through Placing

22 Cash flow - also improved Cash flow movements ( m) (2.5) (0.3) (0.5) (2.0) (1.6) Opening (1st Apr 2015) Adjusted operating profit Capex Borrowings Dividends Share placement Sale of buiness Acquisition of intangible assets Working capital Cash classified as assets held for sale Closing (31st Mar 2016) * The 16.6m share inflow consisted of 16.3m private placing and 0.3m SAYE option exercise 21

23 Financial KPI s - progress Business growth FUMA ( bn) Core Business revenue growth (3.3%) 4.9% Operating efficiency IMS Managed funds per CF30 ( m) Revenues per Financial Planner ( 000) Reported staff costs / revenue 68.6% 68.8% Reported total costs / revenue 100.5% 104.9% Balance sheet strength Capital adequacy ratio 151% 107% Shareholder returns Core Business EPS (pence per share) Reported EPS (pence per share) (0.6) (13.5) Dividend (pence per share) Dividend growth - (59.3%) Dividend cover (times) (0.1) (2.7) Return on Capital Employed (0.3%) (7.2%) 22

24 3. Strategic implementation plan

25 Strategic implementation - actions for FY 2017 Group Q1 Q2 Q3 Q4 Completion of detailed divisional strategy implementation plans Project resource prioritisation agreed Investment Management Services Variable remuneration arrangements delivered Implementation of revised rate card 3 year phase in Invigorate sales and marketing channels Asset Management Restructure investment process Refinement of product range Develop and launch smaller client solution Financial Planning Revise operating and pricing models Increase integrations between Financial Planning and Investment Management Services Launch 3 rd party marketing programme 24

26 Strategic implementation- actions for FY 2017 Charles Stanley Direct Q1 Q2 Q3 Q4 New website with streamlined on-boarding Review of pricing policy Enhanced digital marketing strategy Central Functions Head office move and London offices rationalisation Focus on process standardisation and scale to improve operating efficiencies and reduce costs Multi-year project Mobilise the workforce towards full implementation of the strategy Ongoing cultural shift Development of improved governance framework and management information to improve speed and quality of decision making 25

27 4. Outlook

28 Outlook Strategy in place to deliver sustainable growth; now focused on implementing it Initial timeframes may be extended due to ongoing adverse market conditions and time invested in getting the right remuneration structure Achievement of 15% operating margin still regarded as attainable but likely to take months longer than originally anticipated in the absence of a significant market rally Potential trade-off between pace of change and short term profitability Opportunities available to drive the business forward and build on the channels to market Structure in place to deliver the range of services that customers need, through a personalised approach 27

29 Appendices Divisional information

30 Core Business - divisional breakdown Investment Management Services Asset Management Financial Planning Charles Stanley Direct Core Business m m m m m 31 March 2016 Revenue Expenses ( 112.4) ( 6.5) ( 7.2) ( 6.2) ( 132.3) Other income ( 0.1) Operating profit / (loss) 7.8 ( 1.0) ( 1.3) ( 1.3) 4.2 Net finance income Gain on sale of business ( 0.1) ( 0.1) Profit / (loss) before tax 7.9 ( 1.0) ( 1.3) ( 1.4) March 2015 Profit / (loss) before tax 9.9 ( 2.1) ( 0.9) ( 2.5) 4.4 Change ( 2.0) 1.1 ( 0.4) 1.1 ( 0.2) 29

31 Investment Management Services - FUMA 30 IMS FUMA Change Discretionary ( bn) Advisory Managed ( bn) (14.8%) Total Managed ( bn) (3.6%) Advisory Dealing ( bn) (15.0%) Execution only ( bn) (5.7%) Total (5.4%) Average managed funds per CF30 ( m) (1.2%) Average FUMA per CF30 ( m) (3.1%) IMS Managed fund bandings 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 40.7% 24.5% 19.0% 12.6% 3.2% Managed funds 8.5% 16.3% 25.5% 30.9% 18.8% Managed clients IMS Administered fund bandings 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 46.4% 18.2% 12.7% 11.8% 10.9% Administered funds 2.9% 19.4% 6.0% 11.3% 60.4% Administered clients

32 Investment Management Services - Revenue Change Revenue Managed ( m) (1.4%) Administered ( m) (16.4%) Other ( m) % Total revenue ( m) (4.2%) Revenue margins Discretionary (bps) (3.4%) Advisory Managed (bps) (2.9%) Managed (bps) (2.4%) Advisory Dealing (bps) (20.0%) Execution Only (bps) (12.5%) Administered (bps) (15.0%) Total (bps) (4.3%) 31

33 Investment Management Services - Cost analysis IMS operating costs Change Cost/income ratio 93.7% 92.4% 1.4% Headcount (number) (8.1%) IMS operating costs 2016 ( m) IMS operating costs 2015 ( m) Fixed Fixed Variable Variable Other direct operating expenses Allocated costs Other direct operating expenses Allocated costs 32

34 Investment Management Services - Financial performance Change m m % Fees (0.7%) Commission (6.7%) Interest (36.4%) Revenue (4.3%) Direct costs (68.0) (73.8) 7.9% Other income Contribution % Allocated costs (44.4) (42.0) (5.7%) Operating Profit/(loss) (20.4%) Contribution margin 43.5% 41.3% Operating margin 6.5% 7.8% 33

35 Asset Management - Assets and financial performance Asset Management FUMA Change FUMA ( bn) % Revenue Margin (bps) (7.4%) Asset Management financial performance Change m m % Revenue % Direct costs (6.9) (6.7) (3.0%) Other income Contribution (1.4) (1.6) 12.5% Allocated costs 0.4 (0.5) 180.0% Operating Profit/(loss) (1.0) (2.1) 52.4% Contribution margin (25.5%) (31.4%) Operating margin (18.2%) (41.2%) 34

36 Asset Management- Cost analysis Asset Management operating costs Change Cost/income ratio 118.2% 141.2% (16.3%) Headcount (number) (2.3%) AM operating costs 2016 ( m) AM operating costs 2015 ( m) (0.4) Fixed 0.5 Fixed Variable Other direct operating expenses Allocated costs Variable Other direct operating expenses Allocated costs 35

37 Financial Planning Financial planner performance Change % Revenue ( m) % Financial planners (number) % Revenue per financial planner ( 000) % Financial Planning financial performance Change m m % Revenue % Direct costs (5.0) (4.6) (8.7%) Other income (0.1) - - Contribution (18.2%) Allocated costs (2.2) (2.0) (10.0%) Operating Profit/(loss) (1.3) (0.9) (44.4%) Contribution margin 15.0% 19.3% Operating margin (21.7%) (15.8%) 36

38 Charles Stanley Direct Change % Charles Stanley Direct platform ( bn) % Garrison ( bn) % Funds under administration ( bn) % No. of platform client accounts 31 March 28,537 22, % 37

39 Charles Stanley Direct Charles Stanley Direct financial performance Change m m % Revenue Direct costs (2.8) (4.8) 41.7% Other income Contribution Allocated costs (3.4) (2.5) (36.0%) Operating Profit/(loss) (1.4) (2.5) 44.0% Revenue margin (bps) (12.6%) Contribution margin 41.7% 0.0% Operating margin (29.2%) (52.1%) 38

40 Core Business - cost breakdown Core Business operating costs Change m m % Staff costs Fixed (2.1%) Variable (6.3%) Total staff costs (4.0%) Other direct operating expenses (17.1%) Total direct costs (6.1%) Central costs % Total costs (3.4%) Fixed staff cost/income ratio 37.6% 37.1% 1.3% Variable staff cost/income ratio 30.6% 31.6% (3.2%) Total cost/income ratio 97.1% 97.1% 0.0% Headcount (number) (8.1%) 1 Staff costs include both employee costs and those relating to Associate (self-employed) investment managers. 39

41 Core Business - Expenses Expenses breakdown ( m) FY ' FY ' % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FIXED STAFF COSTS VARIABLE STAFF COSTS IT COSTS ESTABLISHMENT COSTS PROFESSIONAL FEES MARKETING COSTS ADMIN COSTS 40

42 Reconciliation of presentation of Core Business performance to Statutory performance Core Business and Statutory profitability Core Business Charles Stanley Financial Solutions (a) Adjusting items Statutory continuing operations Statutory discontinued operation: Charles Stanley Securities (b) Statutory Group Held for sale (a + b) m m m m m m m Revenue Expenses (132.3) (3.2) (3.9) (139.4) (2.7) (142.1) (5.9) Other income (0.9) (3.9) (0.6) 0.3 (0.3) (0.6) Finance income & gain on sale - - (0.1) (0.1) Profit before tax 4.2 (0.9) (4.0) (0.7) 0.4 (0.3) (0.5) Tax (0.7) (0.1) - (0.1) Profit after tax 3.5 (0.9) (3.2) (0.6) 0.3 (0.3) (0.6) The presentation of the Core Business results excludes Charles Stanley Securities (sold July 2015) and Charles Stanley Financial Solutions (sold April 2016), which were treated as held for sale during the year. By comparison, the statutory presentation of the Group s consolidated income statement, under accounting rules, treats Charles Stanley Financial Solutions as a continuing activity whereas Charles Stanley Securities is treated as a discontinued operation and disclosed separately. 41