A strategic focus Full year results 31 March 2016 Vision statement - - PowerPoint PPT Presentation

Full year results 31 March 2016

A strategic focus

Focusing on you

Vision statement

FY Results: 31 March 2016

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Our vision is to become the UK’s leading wealth manager by 2020. 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.

What we do

FY Results: 31 March 2016

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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.

• 1. Investment Management

Services

The Financial Planning division provides flexible access to financial planning advice, working with clients to ensure that their financial arrangements are

• ptimised for their needs and
• circumstances. It can be delivered

stand-alone or in conjunction with the Investment Management Services team.

• 3. Financial Planning

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.

• 2. Asset Management

Charles Stanley Direct provides a direct- to-client investment service, created to meet the needs of the modern self- directed investor. Investments are to be made online or with telephone support in a wide range of funds, shares, gilts and bonds.

• 4. Charles Stanley Direct

Agenda

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

• 1. Key messages

Key messages

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• 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

Strategic overview

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• 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

FY 2016 principal achievements

FY Results: 31 March 2016

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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)

FY 2016 principal achievements (continued)

FY Results: 31 March 2016

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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

Key challenges

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• 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.

• 2. Financial results

FY 2016 financial headlines

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• 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)

Financial summary - losses reduced, balance sheet strengthened

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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

2016 2015 Change FUMA (£bn) 20.5 21.3 (3.8%) Core Business Revenue (£m) 136.3 141.0 (3.3%) Profit before tax (£m) Investment Management Services 7.9 9.9 (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) 4.2 4.4 (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) 6.90 5.63 22.6% Reported EPS (p) (0.61) (13.46) 95.5% Dividend per share (p) 5.0 5.0

• Net assets (£m)

85.4 68.9 23.9% Capital adequacy 151% 107% 41.3%

Funds under Management and Administration

• performance in line with market

FY Results: 31 March 2016

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1.1% growth in Discretionary funds due to new fund inflows 9.7% increase in Charles Stanley Direct Execution-only Assets Declines across other investment categories attributable to lower market levels, polarisation of service categories toward Discretionary and Execution-only, and weak organic inflows

FUMA movement year on year (£bn) 2016 2015 Change Discretionary funds 9.4 9.3 1.1% Advisory Managed funds 2.6 3.0 (13.3%) Total Managed 12.0 12.3 (2.4%) Advisory Dealing funds 1.7 2.1 (19.0%) Execution Only funds 6.8 6.9 (1.4%) Total Administered 8.5 9.0 (5.6%) Total FUMA 20.5 21.3 (3.8%) FTSE 100 6,175 6,773 (8.8%) WMA Balanced 3,556 3,684 (3.5%)

Funds under Management and Administration

• low levels of inflows and outflows

FY Results: 31 March 2016

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9.3 9.4 3.0 2.6 2.1 1.7 6.9 6.8 21.3 1.1 0.1 (0.2) (0.2) 0.3 (1.2) (0.7) 20.5

• 5.0

10.0 15.0 20.0 25.0

Funds at 1 April 2015 Net inflow/(outflow) Discretionary Managed transfers Advisory Managed transfers Advisory Dealing transfers Execution-only transfers Lost clients Market movement Funds at 31 March 2016

FuMA flows (£bn)

Discretionary Advisory Managed Advisory Dealing Execution-only

Revenues - pressure on margins

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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 Overall bargain numbers increased but mix change between commission earning and non-commission earning trades as more clients adopt fee only tariffs

2016 2015 Change £m £m % Fees: Market based fees (excl. trail income) 65.2 64.0 1.9% Administration Based Fee 18.2 16.9 7.7% Trail income 2.8 5.2 (46.2%) Total fees 86.2 86.1 0.1% Commission 46.6 49.8 (6.4%) Interest 3.5 5.1 (31.4%) Revenue 136.3 141.0 (3.3%) Revenue margins: Investment Management Services 67bps 70bps (4.3%) Asset Management 63bps 68bps (7.4%) Charles Stanley Direct 28bps 32bps (12.5%) Bargain numbers: Commission Earning 445,623 463,420 (3.8%) Zero Commission 314,623 242,483 29.8% All Commission Types 760,246 705,903 7.7%

Core Business operating expenses - improved cost control

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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.

136.9 (3.9) 1.5 0.4 0.3 (0.7) (2.2) 132.3 130.0 131.0 132.0 133.0 134.0 135.0 136.0 137.0 138.0

Core Business costs 2015 Remuneration costs IT costs Establishment costs Professional fees Marketing costs Admin costs Core Business costs 2016

Core Business operating expenses (£m)

Core Business profitability- stable year on year

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4.4 0.1 (3.2) (1.6) 3.9 0.7 (0.1) 4.2 (1.0)

• 1.0

2.0 3.0 4.0 5.0 2015 profit before tax Fees Commission Interest Remuneration costs Other costs Finance and

• ther income

2016 profit before tax

Core Business profit (£m)

Reported loss before tax - significant improvement achieved

FY Results: 31 March 2016

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Reduction in losses attributable to held for sale activities following sale of Charles Stanley Securities to Panmure Gordon in July 2015. 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

2016 2015 Change £m £m % Core Business profit before tax 4.2 4.4 (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 Undervalued Asset Fund 0.2 1.2 (83.3%) Defined benefit pension scheme credit 0.8

• 0.0%

Reported loss before tax (0.3) (6.1) 95.1%

Reported profit to Core Business profit - adjusting items

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(0.3) 0.5 1.6 1.4 0.8 0.8 0.4 (0.2) (0.8) 4.2 (1.0)

• 1.0

2.0 3.0 4.0 5.0 6.0

Reported loss Loss on held for sale businesses (CSS and CSFS) Amortisation of client relationships Transition bonus accrual Dilapidations Exceptional professional fees Impairment of intangibles Profit on disposal

• f Matterley

Undervalued Asset Fund Defined benefit pension scheme credit Core Business profit Adjusting items

Profit reconciliation (£m)

Balance sheet - strengthened through fund raising

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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 Regulatory capital resources strengthened through Placing

2016 2015 Change £m £m % Goodwill and customer relationships 22.3 23.3 (4.3%) Software 3.1 2.8 10.7% Total intangible assets 25.4 26.1 (2.7%) Fixed assets 10.7 13.3 (19.5%) Other non-current assets 9.9 10.0 (1.0%) Total tangible non-current assets 20.6 23.3 (11.6%) Net cash 48.1 28.5 68.8% Working capital (0.3) 1.7 (117.6%) Assets held for sale 1.7 4.2 (59.5%) Total net current assets 49.5 34.4 43.9% Pension deficit 10.1 13.1 (22.9%) Mortgage

• 1.8

(100.0%) Total non-current liabilities 10.1 14.9 (32.2%) Net assets 85.4 68.9 23.9% Net tangible assets 60.0 42.8 40.2% Regulatory capital resouces 57.0 37.7 51.2%

Cash flow - also improved

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* The £16.6m share inflow consisted of £16.3m private placing and £0.3m SAYE option exercise 28.5 5.6 (0.5) (2.0) (1.6) 16.6 1.6 (2.5) 2.7 (0.3) 48.1

• 10.0

20.0 30.0 40.0 50.0 60.0 Opening (1st Apr 2015) Adjusted

• perating

profit Capex Borrowings Dividends Share placement Sale of buiness Acquisition

• f

intangible assets Working capital Cash classified as assets held for sale Closing (31st Mar 2016)

Cash flow movements (£m)

Financial KPI’s - progress

FY Results: 31 March 2016

22 2016 2015 Business growth FUMA (£bn) 20.5 21.3 Core Business revenue growth (3.3%) 4.9% Operating efficiency IMS Managed funds per CF30 (£m) 40.8 41.3 Revenues per Financial Planner (£000) 222.2 211.1 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) 6.9 5.6 Reported EPS (pence per share) (0.6) (13.5) Dividend (pence per share) 5.0 5.0 Dividend growth

• (59.3%)

Dividend cover (times) (0.1) (2.7) Return on Capital Employed (0.3%) (7.2%)

• 3. Strategic

implementation plan

Strategic implementation - actions for FY 2017

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Group Completion of detailed divisional strategy implementation plans Project resource prioritisation agreed Investment Management Services Variable remuneration arrangements delivered Implementation of revised rate card 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 3rd party marketing programme Q1 Q2 Q4 Q3 3 year phase in

Q1

Strategic implementation- actions for FY 2017

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Charles Stanley Direct 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 Mobilise the workforce towards full implementation of the strategy Development of improved governance framework and management information to improve speed and quality of decision making Q2 Q4 Q3 Multi-year project Ongoing cultural shift

• 4. Outlook

Outlook

FY Results: 31 March 2016

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• 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 12-18 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

Appendices Divisional information

Core Business - divisional breakdown

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Investment Management Services Asset Management Financial Planning Charles Stanley Direct Core Business £m £m £m £m £m 31 March 2016 Revenue 120.0 5.5 6.0 4.8 136.3 Expenses ( 112.4) ( 6.5) ( 7.2) ( 6.2) ( 132.3) Other income 0.2

• ( 0.1)

0.1 0.2 Operating profit / (loss) 7.8 ( 1.0) ( 1.3) ( 1.3) 4.2 Net finance income 0.1

• 0.1

Gain on sale of business

• ( 0.1)

( 0.1) Profit / (loss) before tax 7.9 ( 1.0) ( 1.3) ( 1.4) 4.2 31 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)

Investment Management Services - FUMA

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IMS FUMA 2016 2015 Change Discretionary (£bn) 8.5 8.5

• Advisory Managed (£bn)

2.3 2.7 (14.8%) Total Managed (£bn) 10.8 11.2 (3.6%) Advisory Dealing (£bn) 1.7 2.0 (15.0%) Execution only (£bn) 5.0 5.3 (5.7%) Total 17.5 18.5 (5.4%) Average managed funds per CF30 (£m) 40.8 41.3 (1.2%) Average FUMA per CF30 (£m) 66.0 68.1 (3.1%)

3.2% 18.8% 12.6% 30.9% 19.0% 25.5% 24.5% 16.3% 40.7% 8.5% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Managed funds Managed clients

IMS Managed fund bandings

10.9% 60.4% 11.8% 11.3% 12.7% 6.0% 18.2% 19.4% 46.4% 2.9% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Administered funds Administered clients

IMS Administered fund bandings

Investment Management Services - Revenue

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2016 2015 Change Revenue Managed (£m) 87.6 88.8 (1.4%) Administered (£m) 23.9 28.6 (16.4%) Other (£m) 8.5 7.9 7.6% Total revenue (£m) 120.0 125.3 (4.2%) Revenue margins Discretionary (bps) 84 87 (3.4%) Advisory Managed (bps) 68 70 (2.9%) Managed (bps) 80 82 (2.4%) Advisory Dealing (bps) 32 40 (20.0%) Execution Only (bps) 35 40 (12.5%) Administered (bps) 34 40 (15.0%) Total (bps) 67 70 (4.3%)

Investment Management Services - Cost analysis

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IMS operating costs 2016 2015 Change Cost/income ratio 93.7% 92.4% 1.4% Headcount (number) 464 505 (8.1%)

20.5 36.7 10.8 44.4

IMS operating costs 2016 (£m)

Fixed Variable Other direct operating expenses Allocated costs 21.5 40.1 12.2 42.0

IMS operating costs 2015 (£m)

Fixed Variable Other direct operating expenses Allocated costs

Investment Management Services - Financial performance

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2016 2015 Change £m £m % Fees 72.4 72.9 (0.7%) Commission 44.8 48.0 (6.7%) Interest 2.8 4.4 (36.4%) Revenue 120.0 125.4 (4.3%) Direct costs (68.0) (73.8) 7.9% Other income 0.2 0.2

• Contribution

52.2 51.8 0.8% Allocated costs (44.4) (42.0) (5.7%) Operating Profit/(loss) 7.8 9.8 (20.4%) Contribution margin 43.5% 41.3% Operating margin 6.5% 7.8%

Asset Management - Assets and financial performance

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Asset Management FUMA 2016 2015 Change FUMA (£bn) 0.8 0.7 14.3% Revenue Margin (bps) 63 68 (7.4%) Asset Management financial performance 2016 2015 Change £m £m % Revenue 5.5 5.1 7.8% 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%)

Asset Management- Cost analysis

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Asset Management operating costs 2016 2015 Change Cost/income ratio 118.2% 141.2% (16.3%) Headcount (number) 42 43 (2.3%)

3.7 1.3 1.9 (0.4)

AM operating costs 2016 (£m)

Fixed Variable Other direct operating expenses Allocated costs 3.5 0.9 2.3 0.5

AM operating costs 2015 (£m)

Fixed Variable Other direct operating expenses Allocated costs

Financial Planning

FY Results: 31 March 2016

36 Financial planner performance 2016 2015 Change % Revenue (£m) 6.0 5.7 5.3% Financial planners (number) 27 27 0.0% Revenue per financial planner (£000) 222.2 211.1 5.3% Financial Planning financial performance 2016 2015 Change £m £m % Revenue 6.0 5.7 5.3% Direct costs (5.0) (4.6) (8.7%) Other income (0.1)

• Contribution

0.9 1.1 (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%)

Charles Stanley Direct

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2016 2015 Change % Charles Stanley Direct platform (£bn) 1.4 1.2 16.7% Garrison (£bn) 0.4 0.4 0.0% Funds under administration (£bn) 1.8 1.6 12.5%

• No. of platform client accounts 31 March

28,537 22,051 29.4%

Charles Stanley Direct

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Charles Stanley Direct financial performance 2016 2015 Change £m £m % Revenue 4.8 4.8

• Direct costs

(2.8) (4.8) 41.7% Other income

• Contribution

2.0

• Allocated costs

(3.4) (2.5) (36.0%) Operating Profit/(loss) (1.4) (2.5) 44.0% Revenue margin (bps) 28 32 (12.6%) Contribution margin 41.7% 0.0% Operating margin (29.2%) (52.1%)

Core Business - cost breakdown

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Core Business operating costs 2016 2015 Change £m £m % Staff costs Fixed 51.2 52.3 (2.1%) Variable 41.7 44.5 (6.3%) Total staff costs 1 92.9 96.8 (4.0%) Other direct operating expenses 15.0 18.1 (17.1%) Total direct costs 107.9 114.9 (6.1%) Central costs 24.4 22.0 10.9% Total costs 132.3 136.9 (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) 464 505 (8.1%)

1 Staff costs include both employee costs and those relating to Associate (self-employed)

investment managers.

Core Business - Expenses

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51.2 52.3 41.7 44.5 12.0 10.5 7.3 6.9 8.9 8.6 2.3 3.0 8.9 11.1 132.3 136.9 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY '16 FY '15

Expenses breakdown (£m)

FIXED STAFF COSTS VARIABLE STAFF COSTS IT COSTS ESTABLISHMENT COSTS PROFESSIONAL FEES MARKETING COSTS ADMIN COSTS

Reconciliation of presentation of Core Business performance to Statutory performance

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Core Business and Statutory profitability Core Business Charles Stanley Financial Solutions (a) Adjusting items Statutory continuing

• perations

Statutory discontinued

• peration: Charles Stanley

Securities (b) Statutory Group Held for sale (a + b) £m £m £m £m £m £m £m Revenue 136.3 2.3

• 138.6

3.0 141.6 5.3 Expenses (132.3) (3.2) (3.9) (139.4) (2.7) (142.1) (5.9) Other income 0.2

• 0.2
• 0.2
• 4.2

(0.9) (3.9) (0.6) 0.3 (0.3) (0.6) Finance income & gain on sale

• (0.1)

(0.1) 0.1

• 0.1

Profit before tax 4.2 (0.9) (4.0) (0.7) 0.4 (0.3) (0.5) Tax (0.7)

• 0.8

0.1 (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.