Focusing on you A strategic focus Full year results 31 March 2016
Vision statement 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. 1 FY Results: 31 March 2016
What we do 1. Investment Management 3. Financial Planning Services The Investment Management Services The Financial Planning division provides division offers a comprehensive flexible access to financial planning personalised service to private clients advice, working with clients to ensure namely; managing Discretionary that their financial arrangements are portfolios, providing investment advice optimised for their needs and and offering Execution-only services circumstances. It can be delivered covering a wide range of financial stand-alone or in conjunction with the instruments. The team also administers Investment Management Services clients’ investments and cash, including team. ISAs and SIPPs. 2. Asset Management 4. Charles Stanley Direct The Asset Management division provides Charles Stanley Direct provides a direct- pooled solutions and model portfolios to-client investment service, created to for a range of clients. It also houses meet the needs of the modern self- Charles Stanley’s investment research directed investor. Investments are to be capability, covering asset allocation, made online or with telephone support stock selection and collective vehicle in a wide range of funds, shares, gilts selection. It also provides investment and bonds. solutions for institutional investors. 2 FY Results: 31 March 2016
Agenda 1. Key messages 2. Financial results 3. Strategic implementation plan 4. Outlook Appendices 3 FY Results: 31 March 2016
1. Key messages
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 FY Results: 31 March 2016
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 FY Results: 31 March 2016
FY 2016 principal achievements Strategy review completed Strategic Divisions reorganised and reporting hierarchies streamlined to improve accountability and accelerate rate of change Detailed strategic implementation plans developed for each division Balance sheet strengthened through £16.3m equity raising Financial 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 FY Results: 31 March 2016
FY 2016 principal achievements (continued) Completion of client suitability review programme Operational 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 FY Results: 31 March 2016
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 FY Results: 31 March 2016
2. Financial results
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 FY Results: 31 March 2016
Financial summary - losses reduced, balance sheet strengthened 2016 2015 Change FUMA (£bn) 20.5 21.3 (3.8%) Decrease in FUMA in line with market (WMA Balanced Index -3.5%) Core Business Revenues down mainly because of lower trading commission income, interest on Revenue (£m) 136.3 141.0 (3.3%) client cash balances and trail Profit before tax (£m) Overall performance of Core Business relatively flat, with improvements by Asset Investment Management Services 7.9 9.9 (20.2%) Management and Charles Stanley Direct offset by weaker performance from Asset Management (1.0) (2.1) 52.4% Investment Management Services (lower revenues) and Financial Planning Financial Planning (1.3) (0.9) (44.4%) (investment in recruitment of additional financial planners) 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% Reduced losses incurred by held for sale activities due to disposal during the year Adjusting items (4.0) (8.6) 53.5% Adjusting items reduced (prior year included CSD goodwill write down) Reported loss before tax (£m) (0.3) (6.1) 95.1% EPS of Core Business (p) 6.90 5.63 22.6% Although profitability decreased, a lower effective tax rate improved EPS within the Core Business Reported EPS (p) (0.61) (13.46) 95.5% Maintained dividend Dividend per share (p) 5.0 5.0 - Balance sheet, cash and capital adequacy strengthened through £16.3m placing Net assets (£m) 85.4 68.9 23.9% for cash Capital adequacy 151% 107% 41.3% 12 FY Results: 31 March 2016
Funds under Management and Administration - performance in line with market FUMA movement year on year (£bn) 2016 2015 Change 9.4 9.3 1.1% 1.1% growth in Discretionary funds due to new fund inflows Discretionary funds 2.6 3.0 (13.3%) Advisory Managed funds 12.0 12.3 (2.4%) Total Managed 1.7 2.1 (19.0%) Advisory Dealing funds 6.8 6.9 (1.4%) 9.7% increase in Charles Stanley Direct Execution-only Assets Execution Only funds 8.5 9.0 (5.6%) Total Administered Declines across other investment categories attributable to 20.5 21.3 (3.8%) Total FUMA lower market levels, polarisation of service categories toward Discretionary and Execution-only, and weak organic inflows 6,175 6,773 (8.8%) FTSE 100 3,556 3,684 (3.5%) WMA Balanced 13 FY Results: 31 March 2016
Funds under Management and Administration - low levels of inflows and outflows FuMA flows (£bn) 25.0 0.1 1.1 0.3 21.3 20.5 (0.2) (0.2) 20.0 (1.2) (0.7) 6.9 6.8 15.0 2.1 1.7 3.0 2.6 10.0 5.0 9.3 9.4 - Funds at 1 April Net Discretionary Advisory Advisory Dealing Execution-only Lost clients Market Funds at 31 2015 inflow/(outflow) Managed Managed transfers transfers movement March 2016 transfers transfers Discretionary Advisory Managed Advisory Dealing Execution-only 14 FY Results: 31 March 2016
Revenues - pressure on margins 2016 2015 Change £m £m % Fees: Market based fees (excl. trail income) 65.2 64.0 1.9% Investment management and administration fee Administration Based Fee 18.2 16.9 7.7% improvements negated by decline of commission income, trail and interest earned on client cash balances 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: Revenue margins down because increases in fees have Investment Management Services 67bps 70bps (4.3%) not entirely offset lower commission, trail and interest Asset Management 63bps 68bps (7.4%) contribution Charles Stanley Direct 28bps 32bps (12.5%) Bargain numbers: Overall bargain numbers increased but mix change Commission Earning 445,623 463,420 (3.8%) between commission earning and non-commission Zero Commission 314,623 242,483 29.8% earning trades as more clients adopt fee only tariffs All Commission Types 760,246 705,903 7.7% 15 FY Results: 31 March 2016
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