Annual Report and Accounts 2013 Annual Report and Accounts 2013 Brewin Dolphin Holdings PLC, 12 Smithfield Street, London EC1A 9BD T 020 7246 1000 F 020 3201 3001 W brewin.co.uk E [email protected] Brewin Dolphin provides a range of investment management, financial advice and execution only services in the UK and Eire. “Our priorities are clear. They are to reinforce our high standard of service to clients and ensure an improved return to shareholders. Discretionary Investment Management is currently the core of our business model and our mission is to provide a compelling and consistent offering, relevant to all our clients. Over the past decade we have evolved from a stockbroker into a private client investment manager. Our evolution must continue as we strive to become the leading provider of personal Discretionary Wealth Management in the UK.” David Nicol, Chief Executive Investment proposition • Strong client relationships with a long-term track record of personalised service • Growth market with good long-term prospects • New management team with clear goals and a strategy to achieve them • Our strategy will generate value for all stakeholders We are already creating value in 2013 • Total income grew by 9% to £283.7m • Adjusted profit before tax grew by 22% to £52.3m • Adjusted profit margin increased from 16.5% to 18.5% • Discretionary funds under management (FUM) grew by 17% to £21.3bn • Adjusted earnings per share (EPS) grew by 19.2% to 14.9p (2012: 12.5p) • Full year dividend increased by 20% to 8.6p • Total Shareholder Return was 63% Contents Business review Section 1 Business review Financial Highlights 02 Business Highlights 03 Chairman’s Statement 04 Overview of the Business and Strategy 06 Strategic Report 08 A. Business Description 09 B. Market Environment 10 C. Objectives and Strategy 11 D. Progress Report 12 E. Results for the Year 18 F. Principal Risks and Uncertainties 27 G. Future Developments 31 H. Corporate Responsibility 31 Section 2 Governance Report & Directors’ Directors and their Biographies 32 Directors’ Report 34 Corporate Responsibility 36 Corporate Governance 39 Risk Committee Report 44 Audit Committee Report 46 Directors’ Remuneration Report 49 Directors’ Responsibilities 66 Section 3 Financial Statements Independent Auditor’s Report 67 Consolidated Income Statement 70 Consolidated Statement of Comprehensive Income 71 Consolidated Balance Sheet 72 Consolidated Statement of Changes in Equity 73 Company Balance Sheet 74 Company Statement of Changes in Equity 75 Consolidated Cash Flow Statement 76 Company Cash Flow Statement 77 Notes to the Financial Statements 78 Section 4 Information Other Five Year Record 120 Shareholders at 11 November 2013 121 Appendix – Calculation of KPIs 122 Directors, Secretary and Officers 123 Branch Address List 124 01 Financial Highlights Total adjusted income £283.7m Adjusted2 profit before tax £52.3m 2013 2013 20121 £260.4m 2012 £42.9m 9.0% increase 22.0% increase Total income £283.7m Profit before tax £28.6m 2013 2013 2012 £269.5m 2012 £29.9m 5.3% increase 4.4% decrease Adjusted2 earnings per share Basic earnings per share 15.8p Diluted earnings per share 14.9p 2013 2013 2012 13.2p 2012 12.5p 19.7% increase 19.2% increase Earnings per share Basic earnings per share 8.5p Diluted earnings per share 8.0p 2013 2013 2012 9.1p 2012 8.6p Final dividend Full year dividend 5.05p 40% increase 8.6p 20% increase The Board is implementing a new dividend policy from 2014 based on a target dividend payout ratio of between 60-80% of adjusted earnings per share. 1 The September 2012 income figure has been adjusted to exclude shared revenue which prior to the Retail Distribution Review (“RDR”) At 29 September 2013 At 30 September 2012 was recorded as income for Brewin Dolphin with a corresponding operating expense apportioning the income to external parties. 2 These figures have been adjusted to exclude redundancy costs, additional FSCS levy, onerous contracts provision, amortisation of client relationships and disposal of available–for–sale investments. 02 Brewin Dolphin Holdings PLC Annual Report and Accounts 2013 Business Highlights Business review Strategy 2 Adjusted profit margin 18.5% We are now two and a half years into the transformation 2013 and growth strategy announced in 2011. This strategy has 2012 16.5% two main priorities: continued strong growth and increased efficiency. These priorities are underpinned by a series of initiatives to transform the business, ensuring it is best placed to enhance client service, meet regulatory demands and generate shareholder returns. To improve shareholder returns and value, we have added two further strategic priorities: Discretionary funds £21.3bn 1) ensuring we maintain sufficient capital to deliver our strategy; and 2013 2) aligning dividend growth with underlying earnings. 2012 £18.2bn This year we announced a new operating margin target of 25%, which we aim to achieve by the end of the financial year 2016. Total managed funds £28.2bn Capital 2013 2012 £25.9bn We successfully raised £38.6m through an equity placing in May 2013 to improve our capital strength and investment capacity. This will allow us to accelerate the strategy, capitalise on our competitive position and drive future growth in earnings and shareholder returns. Management Team The Board of the Company has been restructured with the appointment of three new Executive Directors, David Nicol – Chief Executive, Andrew Westenberger – Finance Director and Stephen Ford – Head of Investment Management who have joined fellow Executive Director, Michael Williams. The new management team has been in place since March. They are intent on expanding the business to take advantage of the opportunities they perceive in the much changed market environment today. The management team has thoroughly reviewed and refocused the 2011 Strategic Plan. At 29 September 2013 At 30 September 2012 03 Chairman’s Statement Dear Shareholder, The UK Corporate Governance Code also requires that the boards of listed businesses should have at least an equal 2013 has been a year of significant change for Brewin number of independent Non-Executive Directors excluding Dolphin. This has encompassed a comprehensive review the Chairman. of every aspect of the way in which the Group operates and has resulted in a series of actions which have materially There are four Non-Executive Directors on the Board, strengthened its position as one of the UK’s leading excluding me. Jock Worsley retires from the Board at the independent wealth managers with in excess of 100,000 AGM in February 2014 after 10 years of service. He has clients and £28 billion under management. been Chairman of the Audit Committee and was appointed Senior Independent Director at the end of March 2013. Board changes His wise counsel will be greatly missed. Ian Dewar, who Jamie Matheson, my predecessor, retired at the end of was appointed to the Board on the 15 November 2013, March and I would once more like to pay tribute to his long will succeed Jock as Chairman of the Audit Committee. and successful tenure. Henry Algeo, Ben Speke, Barry Angela Knight will become Senior Independent Director. Howard and Sarah Soar stood down at the same time. We will seek to recruit one more Non-Executive Director David McCorkell retired in October 2012 and Robin Bayford during the current year. Brewin Dolphin will then be fully in December 2012. In October 2013 Angela Wright retired compliant with the UK Corporate Governance Code. as Company Secretary and continues to work for Brewin Dolphin as Group Chief Accountant. I should like to record Biographies of each director are contained on the Board’s appreciation of their substantial contribution to pages 32 and 33.1 the Group over many years. Running the business Following these changes the Board has been reshaped and The Boards of Brewin Dolphin Holdings PLC and Brewin this process continues. In accordance with the UK Corporate Dolphin Limited, the principal operating company, are now Governance Code, the roles of Chairman and CEO have identical, although their respective roles are slightly different. been split. I was appointed Non-Executive Chairman, The smaller board format serves the business effectively David Nicol became Chief Executive, Stephen Ford was and allows for more focused discussion. appointed Head of Investment Management and together with Andrew Westenberger, the new Finance Director, The business is run on a day to day basis by the Chief and Michael Williams, they are the four key executives in Executive supported by an Executive Committee. There the firm. These appointments have been accompanied by are four Board committees, Audit, Risk, Remuneration and other management changes designed to create greater Nomination. Each of these is chaired by an Independent accountability and clearer lines of responsibility. Non-Executive Director. 1 Biography of Ian Dewar will be included in the notice of AGM. 04 Brewin Dolphin Holdings PLC Annual Report and Accounts 2013 Business review Our focus remains unchanged. It is to promote continued strong growth and increased efficiency, thereby ensuring improved returns to shareholders. These are the pillars upon which decisions will be made. Focus The plan has been structured to take into account best Our focus remains unchanged. It is to promote continued practice guidelines from institutional shareholders and strong growth and increased efficiency, thereby ensuring shareholder representative bodies. improved returns to shareholders. These are the pillars upon which decisions will be made. Dividend The Board is proposing a final dividend of 5.05p per share, The UK wealth management sector has been the focus to be paid on 28 March 2014 to shareholders on the register of much attention over the past year. The impact of the on 28 February 2014. This will bring the total dividend for Retail Distribution Review (‘RDR’) which came into effect in the period to 8.6p per share (2012: 7.15p).