Results presentation for FY 2018 Reported revenue of 150.9m (FY - - PowerPoint PPT Presentation

Results presentation for FY 2018

Page 3 Results presentation for FY 2018

― Reported revenue of £150.9m (FY 2017: £141.6m) ― Reported PBT of £11.4m (FY 2017: £8.8m) ― Core Business1 PBT of £10.9m (FY17: £9.8m) ― Core Business operating margin of 8.8%2 (FY 2017: 7.1%) ― Reported EPS of 17.23p up 40% (FY 2017: 12.35p) Improved profitability ― Cash balances increased 12.3% to £65.6m (FY 2017: £58.4m) ― Regulatory capital resources increased to £74.0m (FY 2017: £61.4m) Balance sheet strengthened ― Total 2018 dividend increased to 8.0p per share (FY 2017: 6.0p) Dividend

1 The Core Business figures represent the results of the Group’s four main operating divisions, excluding held for sale activities and adjusted for one-off items. 2Excluding the charge in respect of share options awarded to employed investment managers associated with their new remuneration arrangements.

Solid progress on all key metrics

Page 4 Results presentation for FY 2018

― Average FuMA up 10.5% ― 94% client satisfaction, 62% Net Promoter Score Group ― Governance overhaul complete ― Staff engagement score improved 73% (FY17: 67%) ― Growth in discretionary funds by 7.7% from new inflows and service upgrades Investment Management Services (IMS) ― Continued implementation of new rate card, c.60% complete ― Client reporting overhauled ― Moved into profit for the year ― IHT Solutions FuMA growth of over 30% Asset Management (AM) ― Complete review of the operating model ― Launched Personal Portfolio Service ― Recruitment programme of new financial planners under way ― Reinvigorated proposition Financial Planning (FP) ― Implementation of new business processing system ― Moved into profit in the second half of FY18 ― Addition of over 13,000 new accounts Charles Stanley Direct (CSD) ― Transfer of over £100m of Group assets to the CSD platform ― Rolled out a completely new CSD mobile app ― Expanded the intermediary sales team ― Rationalised processes and identified efficiencies Support Functions ― Implemented MiFID II and GDPR ― Tight control of costs maintained

Page 6 Results presentation for FY 2018

― Improve business mix ― Complete implementation of new rate card by 31 March 2019 ― Increase dedicated sales resource ― Digitise client interactions ― Standardise operating processes Investment Management Services (IMS) ― Dedicated sales support to be recruited ― Improve access for IMs to portfolio templates ― Focus on model portfolios, fiduciary management and IHT solutions ― Streamline transfers process to Personal Portfolio Services Asset Management (AM) ― Recruit new financial planners ― Attract new clients and build partnership network ― Improve integration with Investment Management Services Financial Planning (FP) ― Drive asset growth via multi-channel digital marketing and internal transfer of execution-only assets ― Deliver enhancements to the App including trading capability ― Automate operations and client user experience Charles Stanley Direct (CSD) ― Streamline the operating model ― Improve usage of IT functionality ― Centralise infrequent processes Support Functions

Page 8 Results presentation for FY 2018

£23.8bn £24.0bn £20.5bn

2018 2017 2016

FuMA (£bn)

↓ -0.8% £12.3bn £11.4bn £9.4bn

2018 2017 2016

Discretionary funds (£bn)

↑ 8% £10.9 £9.8m £4.2m

2018 2017 2016

Core Business PBT (£m) ↑ 11%

8.8% 7.1% 3.1%

2018 2017 2016

Core Business

• perating margin (%)1

17.23p 12.35p 0.61p

2018 2017 2016

Reported basic EPS (p) ↑ 40%

8.0p 6.0p 5.0p

2018 2017 2016

Dividend per share (p)

↑ 33% ↑ 1.7%

1Excluding the charge in respect of share options awarded to employed investment managers associated with their new remuneration arrangements.

Page 9 Results presentation for FY 2018

1Excluding the charge in respect of share options awarded to employed investment managers associated with their new remuneration arrangements.

FY 2018 FY 2017 Change £m £m % Revenue 150.4 138.6 8.5 Expenses (140.1) (129.1) (8.5) Other income 0.2 0.2

• Net finance income

0.4 0.1 300.0 Core Business profit 10.9 9.8 11.2 Adjusting items 0.5 (1.0) 150.0 Reported profit 11.4 8.8 29.6 Core Business operating margin 8.8%1 7.1% Core Business EPS (p) 16.06 15.33 Dividend per share (p) 8.0 6.0

― Average FuMA for the year up 10.5% . Closing FuMA down 0.8% due to weak markets in the last quarter of FY 2018 ― Discretionary funds up 7.9% due to net inflows of £0.4bn and upgrades of advisory services to higher margin discretionary services (£0.6bn) ― Other service classes reduced due to market movements (£0.2bn), transfers to discretionary (£0.6bn) and net

• utflows (£0.9bn)

― CS Direct recorded an increase of 21% to £2.3bn AuA from organic growth and internal transfers ― Inflows from new clients (£1.5bn) were offset by £1.3bn in lost clients, of which £0.3bn related to departed investment managers, and £0.4bn in market movement

Page 10

FY 2018 FY 2017 Change £bn £bn % Discretionary funds 12.3 11.4 7.9 Advisory Managed funds 1.8 2.4 (25.0) Total managed funds 14.1 13.8 2.2 Advisory Dealing funds 1.4 1.8 (22.2) Execution-only funds 8.3 8.4 (1.2) Total administered funds 9.7 10.2 (4.9) Total FuMA 23.8 24.0 (0.8) Average FuMA 24.3 22.0 10.5 FTSE UK Private Investor Balanced Index 4,050 4,122 (1.7)

Results presentation for FY 2018

Page 11

1.5 0.3 1.0 0.4 24.0 23.8 0.0 5.0 10.0 15.0 20.0 25.0 30.0

Funds at 1 April 2017 New clients Net outflows from existing clients Lost clients Market movement Funds at 31 March 2018

FUMA (£bn)

\

Results presentation for FY 2018

1.5 (0.3) (1.0) (0.4) (2.0) (1.5) (1.0) (0.5)

• 0.5

1.0 1.5 2.0 New clients Transfers Net inflow/(outflow) from existing clients Lost clients Market movement Execution-only Advisory Dealing Advisory Managed Discretionary

― Net inflows from new clients were primarily directed to the higher margin discretionary service whilst outflows from lost clients were recorded in the execution-only and discretionary book, partly arising from departing teams

Page 12 Results presentation for FY 2018

― Significant improvement in fee income up 17.2% on prior year driven by higher average FuMA and upgrades to discretionary services ― Commission reduced by 8.7% as a result of a continued shift of clients to fee-only tariffs and lower levels of trading activity in the non-managed book. The impact of reduced commissions primarily affected Investment Management Services resulting in a 1bp decrease in revenue margin

Page 13 Results presentation for FY 2018

FY 2018 FY 2017 Change £m £m % Fees 104.8 89.4 17.2 Commission 43.2 47.3 (8.7) Interest income 2.4 1.9 26.3 Total revenue 150.4 138.6 8.5 Revenue margins: bps bps bps Investment Management Services 64.0 65.0 (1.0) Asset Management 56.0 60.0 (4.0) Charles Stanley Direct 24.0 22.0 2.0 Group 62.0 64.0 (2.0) No. No. % Bargains: Commission earning 446,939 475,023 (5.9) Zero commission 525,378 381,659 37.7 All Commission Types 972,317 856,682 13.5

― Staff costs are up 9.4% primarily due to sharing and share based payments ― Other Expenditure items are up 6.4% due to investment and maintenance in IT infrastructure, in relation to the implementation of regulatory changes, and increased marketing spend ― The headcount reduction is primarily due to teams leaving IMS and streamlining of support staff. We have increased our financial planners as we continue to grow and invest in the business

Page 14 Results presentation for FY 2018

1This represents the charge in respect of share options awarded to certain investment management teams under the revised the remuneration arrangements settled in FY17. 2The calculation of this ratio excludes the IMs share option charge of £2.3m incurred during the year.

FY 2018 FY 2017 Change £m £m Staff costs: Fixed 55.0 51.1 7.6% Variable 43.1 40.7 5.9% IMs share options charge1 2.3

• 100%

Total staff costs 100.4 91.8 9.4% Other costs 39.7 37.3 6.4% Total costs 140.1 129.1 8.5% Fixed staff cost/income ratio 36.6% 36.9% (0.3) Variable staff cost/income ratio2 28.7% 29.4% (0.7) Total cost/income ratio 93.2% 93.1% 0.1 Headcount (number) 835 888 (53)

Page 15 Results presentation for FY 2018

Variable 2.4 Fixed 3.9

1Non-cash share based option arrangements associated with the remuneration agreement settled with our investment managers.

IMs share

• ptions1 2.3

Page 16 Results presentation for FY 2018

10.9 11.4 1.9 0.7 0.5 0.1 1.1 1.0 0.6 2 4 6 8 10 12 14 16

Core Business profit before tax Gain on part sale

• f shares held in

Euroclear PLC Gain on sale of EBS Management PLC Profit on disposal

• f investment in

Runpath Group Limited Recovery on prior years FSCS levy Amortisation of client relationships Impairment of freehold property Accelerated amortisation of leasehold improvements Reported profit before tax

£m

― Cash balances are up 26% with cash inflows from

• perations and proceeds from disposal of AFS

investments ― The defined benefit pension scheme liability fell by £4.0m since 31 Mar 2017 as a result of liabilities extinguished on transfers out of the scheme, investment performance and actuarial gains ― Regulatory capital resources strengthened significantly with the Capital Adequacy Ratio increasing from 127% to 177%

Page 17 Results presentation for FY 2018

FY 2018 FY 2017 Change £m £m % Total intangible assets 19.3 21.2 (9.0) Total other non-current assets 18.6 17.5 6.3 Total non-current assets 37.9 38.7 (2.1) Cash 65.6 52.1 25.9 Assets held for sale

• 9.0

(100.0) Other current assets 178.1 147.2 21.0 Total current assets 243.7 208.3 17.0 Total assets 281.6 247.0 14.0 Total equity 97.8 89.1 9.8 Pensions scheme deficit 6.5 10.5 (38.1) Liabilities held for sale

• 1.6

(100.0) Other liabilities 177.3 145.8 21.6 Total liabilities 183.8 157.9 16.4 Total equity and liabilities 281.6 247.0 14.0 Net assets 97.8 89.1 9.8 Regulatory capital resources 74.0 61.4 20.5 Regulatory capital requirement 41.8 48.3 (13.5)

Page 18 Results presentation for FY 2018

58.4 65.6 12.8 3.8 0.3 3.5 2.8 1.4 1.3 0.7 45 50 55 60 65 70 Cash as at 1 Apr 2017 Dividends paid to equity shareholders Purchase of property, plant and equipment Purchase of available for sale investments Net proceeds from disposal of business Acquisition of intangible assets Cash generated from

• perating activities

Proceeds from disposal

• f available for sale

investments Dividends received Cash as at 31 Mar 2018

£m

Results presentation for FY 2018

 Market conditions remain supportive - FuMA at 31 May 2018 of £25.0bn  Focus for current financial year is on driving top line growth and improving operational efficiency  Rate of progress to achieving 15% profit margin target dependant on effective delivery and level of investments requirement to develop sales channel and streamline operations

Page 22 Results presentation for FY 2018

Page 23 Results presentation for FY 2018

(£0.7bn) £0.1bn

Advisory Managed

New clients Transfers Net inflow/(outflow) from existing clients Lost clients Market movement

£0.6bn £0.4bn (£0.2bn) (£0.7bn) (£0.2bn)

Execution Only

New clients Transfers Net inflow/(outflow) from existing clients Lost clients Market movement

(£0.3bn) (£0.1bn)

Advisory Dealing

New clients Transfers Net inflow/(outflow) from existing clients Lost clients Market movement

• £0.1bn
• £0.4bn

£0.9bn £0.6bn (£0.1bn) (£0.3bn) (£0.2bn)

Discretionary

New clients Transfers Net inflow/(outflow) from existing clients Lost clients Market movement

Page 24 Results presentation for FY 2018

• £0.6bn

+£0.9bn

Please see following pages for further divisional analysis

Page 25 Results presentation for FY 2018

Investment Management Services Asset Management Financial Planning Charles Stanley Direct Core Business £m £m £m £m £m 31 March 2018 Revenue 131.2 7.0 6.3 5.9 150.4 Expenditure (118.0) (6.9) (9.0) (6.2) (140.1) Other income 0.2

• 0.2

Operating profit/(loss) 13.4 0.1 (2.7) (0.3) 10.5 Net finance income and other non-operating income 0.4

• 0.4

Proft/(loss) before tax 13.8 0.1 (2.7) (0.3) 10.9

Page 26 Results presentation for FY 2018

FY 2018 FY 2017 Change £bn £bn % Discretionary 11.2 10.4 7.7 Advisory managed 1.5 2.1 (28.6) Total managed 12.7 12.5 1.6 Advisory dealing 1.4 1.7 (17.7) Execution-only 5.5 6.1 (9.8) Total administered 6.9 7.8 (11.5) Total FuMA 19.6 20.3 (3.4) KPIs: Discretionary funds per CF30 (£m) 49.5 42.6 16.2

Discretionary average account size (£000)

304.4 300.0 1.5 Revenue margins: bps bps Discretionary 85 85

• Advisory managed

68 69 (1) Total managed 83 83

• Advisory dealing

33 34 (1) Execution-only 24 29 (5) Total non-managed 26 30 (4) Total 64 65 (1)

― FuMA decreased 3.4% to £19.6bn as a result of the decline in stock market values experienced in the fourth quarter of the financial year ― Looking at the division’s asset mix, the higher margin Discretionary service is up 7.7% on the prior year driven by net new inflows (£0.4bn) and from service upgrades (£0.6bn) offset by negative market movement of £0.2bn ― Revenues increased 6.0% through a combination of higher average funds, improved assets mix and as a result of the rolling repricing exercise ― Total costs increased by 7.4% to £117.8m due to an increase in staff costs and the Group’s introduction in FY18 of a share option plan for employed investment managers (£2.3m) ― The above factors, and excluding the impact of the charge of the investment managers’ share options, have led to an operating margin for the division of 12.0% (FY2017: 11.9%)

Page 27 Results presentation for FY 2018

FY 2018 FY 2017 Change £m £m % Revenue 131.2 123.8 6.0 Direct costs: Fixed staff costs (20.4) (19.2) (6.3) Variable staff costs (39.4) (36.1) (9.1) IMs share options charge (2.3)

• (100.0)

Other direct operating expenses (11.5) (10.0) (15.0) Other income 0.2 0.2

• Contribution

57.8 58.7 (1.5) Allocated costs (44.4) (44.0) (0.9) Operating profit 13.4 14.7 (8.8) Operating margin 12.0% 11.9% Headcount (number) 389 411 (22)

― The division’s FuM increased by 18.2% to £1.3bn. Primarily due to the model funds and the Inheritance Tax Portfolio ― The division achieved an overall improvement in profitability YoY of £0.4m as it moved from a loss in 2017 to a small profit of £0.1m 2018

Page 28 Results presentation for FY 2018

1Off platform FUM comprises model portfolios on third party platforms and Open Ended Investment Companies (OEICs) or other clients whose assets are held by a third party custodian.

FY 2018 FY 2017 Change £m £m % Revenue 7.0 5.5 27.3 Direct costs (4.5) (3.3) (36.4) Contribution 2.5 2.2 13.6 Allocated costs (2.4) (2.5) 4.0 Operating profit/(loss) 0.1 (0.3) 133.3 KPIs: Revenue margin (bps) 56 60 (4.0) Operating margin 1.4% (5.5%) Headcount (number) 19 19

• FuM - on platform (£bn)

0.9 0.9

• FuM - off platform1(£bn)

0.4 0.2 100.0 FuM (£bn) 1.3 1.1 18.2

Page 29 Results presentation for FY 2018

― The Financial Planning division continued to be restructured with a number of new planners recruited during the period. The ambition for the division is to grow it to represent at least 10% of Group revenues so that it is of sufficient scale and quality to contribute to the Group goal of being a holistic wealth manager ― Revenues increased 26.0% to £6.3m as a result of its new value proposition and pricing model. Revenue per financial planner increased markedly from £268k to £369k providing confidence on the validity of the model, which we will continue to scale up through the recruitment of more financial planners.

FY 2018 FY 2017 Change £m £m % Revenue 6.3 5.0 26.0 Direct costs (6.9) (5.2) (32.7) Contribution (0.6) (0.2) (200.0) Allocated costs (2.1) (2.6) 19.2 Operating loss (2.7) (2.8) 3.6 KPIs:

• No. of financial planners

21 18 3 Revenue per financial planner (£k) 369 268 37.7% Operating margin (42.9%) (56.0%)

― Charles Stanley Direct’s AuA grew by 17.4% to £2.7bn since March 2017 driven by positive market movements, internal transfers from IMS and new client taken on, up 28.6% with the platform now servicing over 50,000 client accounts. Moreover, the division achieved a profit of £0.2 million in the second half.

Page 30 Results presentation for FY 2018

FY 2018 FY 2017 Change £m £m % Revenue 5.9 4.3 37.2 Direct costs (3.3) (3.0) (10.0) Contribution 2.6 1.3 100.0 Allocated costs (2.9) (3.2) 9.4 Operating loss (0.3) (1.9) 84.2 KPIs: AUA growth 17.4% 27.8% Revenue margin (bps) 24 22 2 Operating margin (5.1%) (44.2%) Charles Stanley Direct (£bn) 2.3 1.9 21.1 Charles Stanley Investment Choices (£bn) 0.4 0.4

• AuA (£bn)

2.7 2.3 17.4

Page 31 Results presentation for FY 2018