Charles Stanley Interim Results Presentation Six months ended 30 - - PowerPoint PPT Presentation

Charles Stanley Interim Results Presentation

Six months ended 30 September 2019

21 November 2019

Agenda

• 1. Interim Results for the six months ended 30 September 2019
• 2. Business transformation and outlook

Appendices

Ben Money-Coutts

Chief Financial Officer

Paul Abberley

Chief Executive Officer

• 1. Financial results
• 2. Business transformation and
• utlook

Growth in top line revenues has contributed to an increase in underlying profit up 71.9% to £9.8m (H1 2019: £5.7m)

Ben Money-Coutts Chief Financial Officer

H1 2020 – Progress of key financial metrics

 FuMA stood at £24.6bn at 30 September 2019 representing a 2.1% increase from £24.1bn at 31 March 2019  Discretionary assets increased by £0.8bn or 6.1% to £13.9bn in H1 2020 and now represent 56.5% of total FuMA  Charles Stanley Direct up 6.7% to £3.2bn (FY 2019: £2.7bn)  Advisory Managed, Dealing and Execution-only experienced marginal declines

Steady improvement of FuMA

 Revenues grew by 9.9% to £85.4m (H1 2019: £77.7m)  Underlying1 profit before tax up 71.9% to £9.8m(H1 2019: £5.7m)  Underlying1 profit margin2 up 190bps to 11.2% (H1 2019: 9.3%)  Reported profit before tax up 58.8% to £8.1m (H1 2019: £5.1m)  Interim dividend increased by 9.1% to 3.0 pence per share (H1 2019: 2.75 pence per share)

Good growth in revenues, profits, margin and dividend

 Net assets £110.1m, of which £77.9m3 is cash  Regulatory capital solvency ratio at 206%

Strong balance sheet

13.2 13.1 13.9 8.7 8.2 8.0 1.7 1.5 1.5 1.4 1.3 1.2 25.0 24.1 24.6

H1 19 FY 19 H1 20

Advisory Dealing Advisory Managed Execution-only Discretionary Page 3

FuMA (£bn)

3.00p 2.75p 2.50p H1 20 H1 19 H1 18

Dividend per share (p)

1 The underlying figures represent the Group results excluding adjusting items 2 This represents the underlying profit as defined in note 1 above and excluding the charge in respect of non-cash share options awarded to certain investment management

teams under the revised remuneration arrangements settled in 2017, expressed as a percentage of the underlying revenues

3 Cash includes both cash and cash equivalents of £67.9m and Treasury Bills reported as financial assets at amortised cost of £10m

11.2% 9.3% 8.4% H1 20 H1 19 H1 18

Underlying1 profit margin2

Underlying profit before tax history – good half year performance

Page 4

£4.8m £3.9m £5.4m £5.7m £9.8m (£1.5m) £5.6m £5.6m £5.9m £3.3m £9.5m £11.0m £11.6m £9.8m

(£3.0m) (£1.0m) £1.0m £3.0m £5.0m £7.0m £9.0m £11.0m £13.0m

FY 16 FY 17 FY 18 FY 19 H1 20 H2 H1

FuMA as at 30 September 2019 - up 2.1%

Page 5

 Discretionary funds grew 6.1%  The acquisition of Myddleton Croft Limited

• n 1 August 2019

contributed £0.1bn to FuMA  CS Direct achieved a 6.7% increase in FuMA to £3.2bn  Other service categories experienced marginal declines

Discretionary Advisory Managed Advisory Dealing Execution

• nly

Total £bn £bn £bn £bn £bn Funds at 1 April 2019 13.1 1.5 1.3 8.2 24.1 New clients 0.3

• - 0.1 0.4

Service level transfers

• -

(0.1) 0.1

• Net outflow from existing clients

(0.1)

• -

(0.3) (0.4) Lost clients (0.3) (0.1) (0.1) (0.4) (0.9) Net organic outflows (0.1) (0.1) (0.2) (0.5) (0.9) Investment performance 0.9 0.1 0.1 0.3 1.4 Funds at 30 September 2019 13.9 1.5 1.2 8.0 24.6 Percentage change in the period 6.1%

• (7.7%)

(2.4%) 2.1%

Financial summary

Page 6

 Strong growth in revenues coupled with good cost discipline has led to a material increase in both the underlying profit before tax and profit margin  Underlying1 profit margin2 increased to 11.2% (H1 2019: 9.3%)  Adjusting items represent restructuring costs (£1.2m) and amortisation of client lists (£0.5m)  Lower effective tax rate of 16.2% (H1 2019: 17.2%) primarily due to the utilisation of tax losses acquired with Pan Asset

1 The underlying figures represent the Group’s results excluding adjusting items 2 This represents the underlying profit as defined in note 1 above and excludes the charge in respect of non-cash share options awarded to certain investment management teams under the revised remuneration

arrangements settled in 2017, expressed as a percentage of the underlying revenues

3 Refer to appendices for a breakdown of the adjusting items

H1 2020 H1 2019 Change £m £m Revenue 85.4 77.7 9.9% Expenses (75.4) (72.4) (4.1%) Net finance income and other non-op income (0.2) 0.4 (150.0%) Underlying1 profit before tax 9.8 5.7 71.9% Adjusting items3 (1.7) (0.6) (183.3%) Profit before tax 8.1 5.1 58.8% Tax expense (1.3) (0.9) (44.4%) Profit after tax 6.8 4.2 61.9% Underlying profit margin2 11.2% 9.3% Underlying EPS 16.13p 9.27p 74.0% Reported EPS 13.36p 8.31p 60.8% Dividend per share 3.00p 2.75p 9.1%

Revenue up 9.9%

Page 7

Revenue growth in all divisions Increase in fee income compensating for declining commissions Improvement in revenue margins due to completion

• f repricing, service mix

change and growth of Financial Planning revenues

H1 2020 H1 2019 Change £m £m Investment Management Services 77.0 70.7 8.9% Charles Stanley Direct 4.5 3.5 28.6% Financial Planning 3.9 3.5 11.4% 85.4 77.7 9.9% H1 2020 H1 2019 Change £m £m Fees 61.1 54.7 11.7% Commission 19.1 19.7 (3.0%) Interest income 5.2 3.3 57.6% 85.4 77.7 9.9% H1 2020 H1 2019 Change bps bps bps Investment Management Services1 73.3 65.7 7.6 Charles Stanley Direct 28.9 23.9 5.0 Group 69.9 62.7 7.2

1 The H1 2019 figures have been restated to reflect the amalgamation of the Asset Management division into the Investment Management Services division with effect from 1 April 2019

Underlying expenditure well controlled

Page 8

 Underlying expenditure increased by 4.1% to £75.4m  Fixed staff cost increased by £1.4m to £26.5m due mainly to the recruitment of additional financial planners to grow that division  Variable staff costs increased by £1.1m to £28.7m as a result of higher variable compensation of £2.2m increasing in line with higher profits and contractor costs rose £0.6m, offset by a one-off reduction of £1.7m in the non-cash charge for the share option scheme for investment managers  Non-staff costs increased by £0.5m to £20.2m due to a doubling of the FSCS levy to £2.1m. This cost is

• utside the Company’s control.

Other non-staff costs reduced

Front office divisions Support Functions H1 2020 Total H1 2019 Total £m £m £m £m Fixed staff costs (14.3) (12.2) (26.5) (25.1) Variable staff costs (23.9) (4.8) (28.7) (27.6) Other direct costs (9.0) (11.2) (20.2) (19.7) (47.2) (28.2) (75.4) (72.4) Fixed staff cost/income ratio 31.0% 32.3% Variable staff cost/income ratio 33.6% 35.5% Other direct costs/income ratio 23.7% 25.4% Closing headcount 869 849

Divisional breakdown

Page 9

 Profitability of IMS and CSD divisions improved substantially due to higher revenues from relatively stable cost base  Financial Planning revenues up 11.4% but as expected costs up 21.1% due to recruitment of additional financial planners (numbers up 28.5%) and 33% increase in central cost absorption. Management remain confident the division will move into profit once new planners’ revenues per capita meet target of £350k

Six months ended 30 September 2019 Investment Management Services1 Charles Stanley Direct Financial Planning Total Revenue 77.0 4.5 3.9 85.4 Direct fixed staff costs (10.7) (0.5) (3.1) (14.3) Direct variable staff costs (23.2)

• (0.7)

(23.9) Other direct operating expenses (6.7) (1.4) (0.9) (9.0) Allocated costs (24.7) (1.9) (1.6) (28.2) Operating profit/(loss) 11.7 0.7 (2.4) 10.0 Net finance and other non-operating income (0.2)

• (0.2)

Profit/(loss) before tax 11.5 0.7 (2.4) 9.8 Six months ended 30 September 2018 Profit/(loss) before tax 7.2 0.2 (1.7) 5.7

1The H1 2019 figures have been restated to reflect the amalgamation of the Asset Management division into the Investment Management Services division with effect from 1 April 2019

Strong Balance sheet – Net assets £110.1m

Page 10

 The principal balance sheet movement was accounted for by the application of IFRS 16 leases for the first time. This resulted in property right-of-use assets being brought onto the balance sheet of £12.7m together with lease liabilities of £13.7m  Capital adequacy ratio 206% marginally reduced since year end due to increased intangible assets following acquisition of Myddleton Croft  Pension deficit decreased by £0.3m to £6.5m  Strong cash reserves of £77.9m. Cash reduced during the period by £3.3m largely due to net working capital increasing by £7.8m plus the initial consideration paid for Myddleton Croft of £0.9m offsetting cash generated from

• perating activities of £3.0m

H1 2020 FY 2019 Change £m £m Total intangible assets 20.2 18.3 10.4% Total tangible non-current assets 25.9 14.5 78.6% Non-current assets 46.1 32.8 40.5% Cash and treasury bills 77.9 81.2 (4.1%) Other current assets 160.6 193.5 (17.0%) Total net current assets 238.5 274.7 (13.2%) Total assets 284.6 307.5 (7.4%) Total equity 110.1 106.4 3.5% Pension scheme deficit 6.5 6.8 (4.4%) Other liabilities 168.0 194.3 (13.5%) Total liabilities 174.5 201.1 (13.2%) Total equity and liabilities 284.6 307.5 (7.4%) Net assets 110.1 106.4 3.5% Return on capital employed1 12.5% 8.2% Regulatory capital resouces 81.1 82.9 (2.2%) Regulatory capital requirement 39.4 38.7 1.8% Capital adequacy ratio 206% 214%

1 Return on capital employed represents reported operating profit for FY 18 and FY 19, as shown on page 14, and rolling 12 month profit for H1 20 divided by capital employed (total assets less current liabilities as at the reporting period)

• 1. Financial results
• 2. Business transformation

and outlook

Restructuring programme on course

Paul Abberley Chief Executive Officer

Progress toward achieving 15% underlying pre-tax profit margin

Grow average FuMA from FY 2018 average of £24.3bn by between 13% and 15% Achieve a blended revenue margin of 66bps to 68bps Reduce non-variable costs as a percentage of revenue to below 55%

Operating Lever Medium term objective FY 2020 Progress Actions taken

Average FuMA for H1 2020 was slightly higher at £24.4bn (FY 2019: £24.3bn) Limited progress Group blended revenue margin improved to 69.8bps (H1 2019: 62.7bps) Exceeded target Non-variable costs in H1 2020 were 54.7% of revenue (H1 2019: 57.7%) On track

Page 12

Group Head of Distribution appointed, team reorganised and clear targets set Completion of our repricing programme, change in asset mix and continued growth of advisory fees from the Financial Planning division Transformation programme on course to improve sales and restructure the operating model to increase productivity

Business transformation

 Actions in H1 2020:

• Core management team reorganised
• Sales and distribution refocused
• Middle Office created
• Detailed planning for restructuring of IT infrastructure completed
• Tailored solutions to improve profitability of investment management teams enacted

 £1.2m of restructuring costs incurred in the first half expected to yield £0.8m of annualised saving. In addition, headcount reductions in the IMS division expected to yield a further £0.8m of annualised savings  Focus for H2 2020 will be on:

• Improving the clarity of our client proposition and sales channels
• Generating efficiencies from the creation of a single Middle Office
• Seeking other operational efficiencies across the Group through standardisation
• Implementing IT infrastructure re-organisation

 Restructuring costs in H2 2020 expected to dampen rate of progress of the reported profit but improve longer term underlying profitability  Previous guidance for total costs of restructuring of £9.5m over a two to three year implementation period yielding annualised benefits of £4.5m remains  Actions in H1 2020:

• Core management team reorganised
• Sales and distribution refocused
• Middle Office created
• Detailed planning for restructuring of IT infrastructure completed
• Tailored solutions to improve profitability of investment management teams enacted

 £1.2m of restructuring costs incurred in the first half expected to yield £0.8m of annualised saving. In addition, headcount reductions in the IMS division expected to yield a further £0.8m of annualised savings  Focus for H2 2020 will be on:

• Improving the clarity of our client proposition and sales channels
• Generating efficiencies from the creation of a single Middle Office
• Seeking other operational efficiencies across the Group through standardisation
• Implementing IT infrastructure re-organisation

 Restructuring costs in H2 2020 expected to dampen rate of progress of the reported profit but improve longer term underlying profitability  Previous guidance for total costs of restructuring of £9.5m over a two to three year implementation period yielding annualised benefits of £4.5m remains

Page 13

Outlook

 Underlying business expected to make steady progress expected in H2 2020  Progress on implementation of Transformation programme anticipated to gather pace during H2 2020  Restructuring costs in H2 2020 expected to dampen rate of progress of the reported profit but improve longer term underlying profitability  Underlying business expected to make steady progress expected in H2 2020  Progress on implementation of Transformation programme anticipated to gather pace during H2 2020  Restructuring costs in H2 2020 expected to dampen rate of progress of the reported profit but improve longer term underlying profitability

Page 14

• 1. Financial results
• 2. Business transformation

and outlook

Appendices

Change in FuMA by service type in H1 2020

Page 16

0.3 (0.1) (0.3) 0.9

Discretionary

New clients Transfers Net outflow from existing clients Lost clients Market movement

+0.8bn

(0.1) (0.1) 0.1

Advisory Dealing

Transfers Lost clients Market movement

(0.1bn)

0.1 0.1 (0.3) (0.4) 0.3

Execution‐only

New clients Transfers Net outflow from existing clients Lost clients Market movement

(0.2bn)

(0.1) 0.1

Advisory Managed

Lost clients Market movement

+/‐bn

1 The H1 2019 figures have been restated to reflect the amalgamation of

the Asset Management division into the Investment Management Services division with effect from 1 April 2019

2 The figures represent the results excluding adjusting items and

excluding the charge in respect of non-cash share options awarded to certain investment management teams under the revised remuneration arrangements settled in 2017

Investment Management Services1 – Divisional performance

Page 17

 Divisional revenue increased by 8.9%, driven primarily by an increase in the overall revenue following completion of the repricing exercise  7% increase in overall revenue margin to 73 bps (H1 2019: 66 bps)  Improved business mix; upgrading clients to a Discretionary service where appropriate  Profit before tax up 72.1% to £11.7m

H1 2020 H1 20191 Change £m £m Fee 54.9 49.5 10.9% Commission 18.4 18.9 (2.6%) Interest 3.7 2.3 60.9% Revenue 77.0 70.7 8.9% Contribution2 11.7 30.0 (61.0%) Profit before tax2 11.7 6.8 72.1% Investment managers share option charge (0.2) 1.5 (113.3%) Profit before tax excluding share option charge 11.5 8.3 38.6% Contribution margin2 15.2% 42.4% Profit margin excluding share option charge 14.9% 11.7% Closing headcount 385 401 (16) Discretionary (£bn) 13.9 13.2 5.3% Advisory managed (£bn) 1.1 1.4 (21.4%) Total managed (£bn) 15.0 14.6 2.7% Advisory dealing (£bn) 1.2 1.4 (14.3%) Execution-only (£bn) 4.8 5.7 (15.8%) Total administered (£bn) 6.0 7.1 (15.5%) Total FuMA (£bn) 21.0 21.7 (3.2%) Average discretionary account portfolio size (£000) 344.2 337.4 2.0% 12 month average Discretionary funds per CF30 (£m) 52.7 47.9 10.0% Revenue margins: bps bps Discretionary 87 81 6 Advisory managed 73 69 4 Managed 86 80 6 Advisory dealing 42 30 12 Execution-only 31 23 8 Administered 33 24 9 Total 73 66 7

Charles Stanley Direct – Divisional performance

Page 18

 Funds under administration grew 6.7% to £3.2bn (H1 2019: £3.0bn)  Divisional revenue grew 28.6% driven through the increase of the division’s AuA by attracting new customers and revised charging structure which was introduced in September 2018  The division reported a profit of £0.7m, an increase of 250%

H1 2020 H1 2019 Change £m £m Revenue 4.5 3.5 28.6% Contribution 0.7 1.9 (63.2%) Profit before tax 0.7 0.2 250.0% Revenue margin (bps) 29 24 5 Contribution margin 15.6% 54.3% (38.7%) Profit margin 15.6% 5.7% 9.9% Charles Stanley Direct (£bn) 2.8 2.6 15.3% Charles Stanley Investment Choices (£bn) 0.4 0.4 (7.2%) AuA (£bn) 3.2 3.0 6.7%

Financial Planning – Divisional performance

Page 19

 The Group continues to invest in the Financial Planning division as a key element in providing clients a holistic wealth management service  Revenues up 11.4% to £3.9m  Recently ranked in 6th position in FT Adviser magazine’s list of Top 100 financial advisers  As expected, losses in the period increased due to recruitment of financial planners  Target revenues per financial planner £350k per annum (excluding investment management fees)  We remain confident that the division will be profitable as the new Financial Planners develop their book of business

H1 2020 H1 2019 Change £m £m Revenue 3.9 3.5 11.4% Contribution (2.4) (0.5) (380.0%) Loss before tax (2.4) (1.7) (41.2%) Contribution margin (61.5%) (14.3%) (47.3%) Margin (61.5%) (48.6%) (12.9%) Closing number of financial planners 27 21 6 Revenue per financial planner (£k) 329 333 (1.3%)

Adjusting items

Page 20

 Restructuring costs of £1.2m mainly relate to the management reorganisation announced on 1 May 2019. Annualised savings arising from this reorganisation £0.8m  Amortisation of client relationships is treated as an adjusting item in common with industry practice since it is a non-cash cost

1 The H1 2019 figures have been restated to reflect the amalgamation of the Asset Management division into the Investment Management Services division with effect from 1 April 2019

Investment Management Services1 Charles Stanley Direct Financial Planning H1 2020 Total H1 2019 Total Restructuring costs 1.0 0.2

• 1.2
• Amortisation of client relationships

0.4

• 0.1

0.5 0.6 Adjusting items 1.4 0.2 0.1 1.7 0.6

Reconciliation of Cash1 movement

Page 21

81.2 (1.2) (3.0) (1.4) (0.2) 1.0 1.5 77.9

40 45 50 55 60 65 70 75 80 85

Cash as at 1 Apr 2019 Purchase of fixed assets Dividends paid Acquisition of intangible assets Purchase of ordinary shares Net proceeds from sale

• f financial assets

Net cash from

• perating activities

Cash as at 30 Sep 2019 £m

1 Cash includes both cash and cash equivalents of £67.9m and Treasury Bills reported as financial assets at amortised cost of £10m

Disclaimer

The information contained in this document has been prepared by Charles Stanley Group PLC (the ‘Group’ or ‘Company’) and is valid at 21 November 2019. This document does not constitute or form part of any offer for sale or solicitation of any offer to buy

• r subscribe for any shares in the Company nor shall it form the basis of or be relied on in connection with, or act as any

inducement to enter into, any contract or commitment whatsoever. No reliance may be placed for any purpose whatsoever on the information or opinions contained in this document, the presentation or the completeness, accuracy or fairness. Certain statements in this document are forward-looking statements which are based on the Group’s expectations, intentions and projections regarding its future performance, anticipated events or trends and other matters that are not historical facts. These forward-looking statements which may use words such as ‘aim’, ‘target’, ‘anticipate’, ‘believe’, ‘intend’, ‘estimate’, ‘expect’ and words of similar meaning, including all matters that are not historical facts. These forward-looking statements involve risks and uncertainties that could cause the actual results of operations, financial condition, liquidity, dividend policy and the development of the industry in which the Group operates to differ materially from the impression created by the forward-looking

• statements. These statements are not guarantees of future performance and are subject to known and unknown risks,

uncertainties and other factors that could cause results to differ materially from those expressed or implied by such forward- looking statements. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. The Group undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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