Brewin Dolphin Holdings plc
Annual Report 2009

Plain-text annual report

Aberdeen Belfast Birmingham Bradford Brighton Cardiff Cheltenham Chester Dorchester Dumfries Dundee Edinburgh Elgin Exeter Glasgow Guernsey Hereford Inverness Jersey Keswick Leeds Leicester Lincoln Llandudno London Lymington Manchester Marlborough Newcastle Norwich Nottingham Oxford Plymouth Reigate Stoke-on-Trent Swansea Taunton Teesside Truro York Brewin Dolphin Holdings PLC 12 Smithfield Street London EC1A 9BD T 0845 213 1000 F 0845 213 1001 W brewin.co.uk E info@brewin.co.uk A N N U A L R E P O R T A N D A C C O U N T S 2 0 0 9 ANNUAL REPORT AND ACCOUNTS 2009 (cid:115)(cid:0) (cid:37)(cid:76)(cid:71)(cid:73)(cid:78) (cid:115)(cid:0) (cid:41)(cid:78)(cid:86)(cid:69)(cid:82)(cid:78)(cid:69)(cid:83)(cid:83) (cid:33)(cid:66)(cid:69)(cid:82)(cid:68)(cid:69)(cid:69)(cid:78)(cid:0)(cid:115) (cid:36)(cid:85)(cid:78)(cid:68)(cid:69)(cid:69)(cid:0)(cid:115) (cid:39)(cid:76)(cid:65)(cid:83)(cid:71)(cid:79)(cid:87)(cid:0)(cid:115) (cid:115)(cid:0) 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(cid:45)(cid:65)(cid:82)(cid:76)(cid:66)(cid:79)(cid:82)(cid:79)(cid:85)(cid:71)(cid:72) (cid:115)(cid:0) (cid:44)(cid:79)(cid:78)(cid:68)(cid:79)(cid:78) (cid:115)(cid:0) (cid:50)(cid:69)(cid:73)(cid:71)(cid:65)(cid:84)(cid:69) (cid:52)(cid:65)(cid:85)(cid:78)(cid:84)(cid:79)(cid:78)(cid:0)(cid:115) (cid:37)(cid:88)(cid:69)(cid:84)(cid:69)(cid:82)(cid:0)(cid:115) (cid:34)(cid:82)(cid:73)(cid:71)(cid:72)(cid:84)(cid:79)(cid:78)(cid:0)(cid:115) (cid:44)(cid:89)(cid:77)(cid:73)(cid:78)(cid:71)(cid:84)(cid:79)(cid:78)(cid:0)(cid:115) (cid:115)(cid:0) (cid:36)(cid:79)(cid:82)(cid:67)(cid:72)(cid:69)(cid:83)(cid:84)(cid:69)(cid:82) (cid:48)(cid:76)(cid:89)(cid:77)(cid:79)(cid:85)(cid:84)(cid:72)(cid:0)(cid:115) (cid:115)(cid:0) (cid:52)(cid:82)(cid:85)(cid:82)(cid:79) (cid:39)(cid:85)(cid:69)(cid:82)(cid:78)(cid:83)(cid:69)(cid:89)(cid:0)(cid:115) (cid:115)(cid:0) (cid:42)(cid:69)(cid:82)(cid:83)(cid:69)(cid:89) Branch Address List Aberdeen Blenheim House Fountainhall Road Aberdeen, AB15 4DT Telephone: 01224 267900 Belfast Waterfront Plaza 8 Laganbank Road Belfast BT1 3LY Telephone: 028 9044 6000 Birmingham 9 Colmore Row Birmingham B3 2BJ Telephone: 0121 236 7000 Bradford Auburn House 8 Upper Piccadilly Bradford BD1 3NU Telephone: 01274 728866 Brighton Invicta House Trafalgar Place Brighton, BN1 4FY Telephone: 0845 213 1190 Cardiff Sutherland House Castlebridge Cowbridge Road East Cardiff, CF11 9BB Telephone: 029 2034 0100 Cheltenham The Lypiatts Lansdown Road Cheltenham GL50 2JA Telephone: 01242 577677 Chester Liverpool House 47 Lower Bridge Street Chester CH1 1RS Telephone: 01244 353900 Dorchester Hamilton House 6 Nantillo Street Poundbury, Dorchester Dorset, DT1 3WN Telephone: 01305 215770 Dumfries 43 Buccleuch Street Dumfries DG1 2AB Telephone: 01387 252361 Dundee 31-32 City Quay Camperdown Street Dundee, DD1 3JA Telephone: 01382 317200 Edinburgh PO Box No. 8 7 Drumsheugh Gardens Edinburgh, EH3 7QH Telephone: 0131 225 2566 Elgin 26 Hay Street Elgin, IV30 1NQ Telephone: 01343 548344 Exeter Vantage Point Woodwater Park Pynes Hill, Exeter EX2 5FD Telephone: 01392 440450 Glasgow 48 St. Vincent Street Glasgow G2 5TS Telephone: 0141 221 7733 Guernsey St Peter Port House Saumarez Street, St Peter Port Guernsey, GY1 2PT Telephone: 01481 736682 Hereford 36 Bridge Street Hereford, HR4 9DG Telephone: 01492 364300 Inverness Lyle House Fairways Business Park Inverness IV2 6AA Telephone: 01463 225888 Jersey Kingsgate House 55 The Esplanade St Helier Jersey, JE2 3QB Telephone: 01534 703118 Keswick 42 St John Street Keswick, Cumbria CA12 5AF Telephone: 01768 781960 Leeds 34 Lisbon Street Leeds, LS1 4LX Telephone: 0113 245 9341 Leicester Two Colton Square Leicester LE1 1QF Telephone: 0116 242 0700 Lincoln Olympic House Doddington Road Lincoln LN6 3SE Telephone: 01522 503000 Llandudno 59 Madoc Street Llandudno North Wales LL30 2TW Telephone: 01492 874391 London 12 Smithfield Street London EC1A 9BD Telephone: 0207 248 4400 Lymington West Barn Efford Park Milford Road Lymington, SO41 0JD Telephone: 01590 674288 Manchester PO Box 512 National House 36 St Ann Street Manchester, M2 7LE Telephone: 0161 839 4222 Marlborough Cross Keys House The Parade Marlborough Wiltshire, SN8 1NE Telephone: 01672 519600 Newcastle Time Central 30-34 Gallowgate Newcastle upon Tyne NE1 4SR Telephone: 0191 279 7300 Norwich Jacquard House Old Bank of England Court Queen Street Norwich, NR2 4SX Telephone: 01603 767776 Nottingham Waterfront House Waterfront Plaza Nottingham, NG2 2DQ Telephone: 0115 852 5580 Oxford 4 King Edward Street Oxford, OX1 4HS Telephone: 01865 255750 Plymouth Ashleigh Court Ashleigh Way Langage Business Park Plymouth, PL7 5JX Telephone: 01752 334650 Reigate Park House 77 Bell Street Reigate Surrey, RH2 7AN Telephone: 01737 223722 Stoke-on-Trent Highpoint Festival Park Stoke-on-Trent, ST1 5BG Telephone: 01782 764000 Swansea Axis 6 Axis Court Mallard Way Swansea Vale Swansea SA7 0AJ Telephone: 01792 763960 Taunton 2 Mendip House High Street Taunton Somerset, TA1 3SX Telephone: 01823 340320 Teesside Progress House Fudan Way Teesdale Stockton-on-Tees TS17 6EN Telephone: 01642 608855 Truro Unit 14 Indian Queens Trading Estate, Warren Road Indian Queens, St Columb Cornwall, TR9 6TL Telephone: 0845 2131500 York Apollo House Eboracum Way Heworth Green York, YO31 7RE Telephone: 01904 520167 Stocktrade — Execution Only On-Line Broker 81 George Street Edinburgh EH2 3ES Telephone: 0131 240 0400 Web: www.stocktrade.co.uk The paper used in this report for the cover and review section consists of 50% recycled paper, the paper used for the accounts section is 100% recycled paper. Both mill and printer are FSC certified, our printer is also “Carbon Neutral” accredited. Contents Directors, Secretary and Officers Highlights Executive Chairman’s Statement Business Review Operating and Financial Review Directors and Their Biographies Directors’ Report Corporate Governance Directors’ Remuneration Report Directors’ Responsibilities Independent Auditors’ Report Consolidated Income Statement Consolidated Statement of Recognised Income and Expense Consolidated Balance Sheet Company Balance Sheet Company Statement of Recognised Income and Expense Consolidated Cash Flow Statement Company Cash Flow Statement Notes to the Financial Statements Five Year Record Funds Shareholders at 10 November 2009 Branch Address List 02 03 04 06 08 14 16 20 26 32 33 34 34 35 36 37 38 39 40 74 75 76 77 “BREWIN DOLPHIN HAS BEEN ABLE TO SAIL A RELATIVELY STEADY COURSE THROUGH SOME PRETTY ROUGH SEAS” Directors, Secretary and Officers Directors (including Committee Membership) Executive Directors Jamie Graham Matheson, FSI Robin Alec Bayford, FCA Barry Mark Howard Christopher David Legge* David William McCorkell Sarah Jane Spencer Soar Ian Benjamin Speke Simon Jonathan Henry Still, FInstD* Michael John Ross Williams *(Retired 25 September 2009) Non-Executive Directors Executive Chairman Finance Director Head of Regulation Head of Investment Management Chief Operating Officer William Nicholas Hood, CBE Angela Ann Knight, CBE Sir Stephen Mark Jeffrey Lamport, KCVO, DL Simon Edward Callum Miller Francis Edward (Jock) Worsley, OBE, FCA Senior Independent Director and Deputy Chairman (a) Member of the Audit Committee; (n) Member of the Nomination Committee; (r) Member of the Remuneration Committee. Committees (a) (n) (r) (a) (a) (n) (r) (a) (n) (r) Secretary Company Registration Number Registered Office Angela Wright, FCCA 2685806 (England and Wales) 12 Smithfield Street, London EC1A 9BD T: 0845 213 1000 (UK only) / + 44 20 7248 4400 (International) www.brewin.co.uk www.stocktrade.co.uk Officers and Advisors Registrars Equiniti Limited PO Box 4630, Aspect House, Pentland House (2nd Floor) Spencer Road, Lancing, West Sussex, BN99 6DA 8 Lochside Avenue Edinburgh, EH12 9DJ Principal Bankers Bank of Scotland Corporate Finance Advisors West Hill Corporate Finance Ltd 60 Lombard Street London EC3V 9EA Solicitors Lawrence Graham LLP 4 More London Riverside London, SE1 2AU Auditors Deloitte LLP Hill House 1 Little New Street London, EC4A 3TR Joint Stockbrokers: Canaccord Adams Limited Cardinal Place 7th Floor, 80 Victoria Street London, SW1E 5JL Joint Stockbrokers: Arden Partners Nicholas House 3 Laurence Pountney Hill London, EC4R 0EU 02 Brewin Dolphin Holdings PLC Highlights £212.3m Total income £212.3 million (2008: £206.5 million). £11.8bn Discretionary funds £11.8 billion at 27 September 2009 (2008: £10.2 billion), an increase of 15.7% which compares to a fall of 0.1% in the FTSE 100 Share Index. £32.1m £21.9m 7.4p 10.8p 7.1p Profit excluding amortisation of intangible asset - client relationships and redundancy costs and before tax £32.1 million (2008: £36.8 million). Profit before tax £21.9 million (2008: £32.0 million). Earnings per share: – Basic earnings per share 7.4p (2008: 10.7p). – Diluted earnings per share 7.2p (2008: 10.3p). Earnings per share excluding amortisation of intangible asset - client relationships and redundancy costs: – Basic earnings per share 10.8p (2008: 12.4p). – Diluted earnings per share 10.6p (2008: 11.9p). The total dividend for the period is 7.1p per ordinary share (2008: 7.1p). Proposed final dividend 3.55p per share (2008: 3.55p) Annual Report and Accounts 2009 03 Executive Chairman’s Statement In a year which has seen financial markets across the globe go through perhaps the most difficult times in living memory, I am pleased to report that Brewin Dolphin has been able to sail a relatively steady course through some pretty rough seas. I believe this gives shareholders grounds for continued confidence in the fundamental strengths and resilience of the business. Total income for the year to 27 September 2009 was £212.3 million, 2.8% up on last year, against a fall in the FTSE 100 average level across each financial year of 21.6%. Pre-tax profits excluding redundancy costs and amortisation of the intangible asset – client relationships were £32.1 million, 12.7% down on last year. Pre-tax profits were £21.9 million. Investment Management Our mainstream Investment Management business continued to make material progress, adding substantially to our funds under management. Investment Management is by far and away the largest part of your Group’s activities and once again performed well in an extraordinarily turbulent year. Indeed it has been gratifying to note that the business has seen a material inflow of funds during the period reflecting a combination of our clients’ confidence in our business and our ability to provide clear and straight forward long term investment strategies. The division’s income rose by 5.3% during the period and profits (excluding redundancy costs and amortisation of client relationships) by 3.1%. Total funds under management increased from £18.7bn to £20.5bn, a 9.6% increase with, most importantly, discretionary funds rising by 15.7%. During the same period the FTSE100 index fell by 0.1% and the FTSE APCIMS Private Investor Series Balanced Portfolio rose by 2.1%. We have continued to benefit from the arrival of new Investment Managers and Financial Planners and I would anticipate this being a feature again in the coming year. We now have a network of forty offices throughout the UK providing good national coverage. While I should not rule out one or two further new openings, it is your Board’s intention that the main thrust of future growth within the UK be centred on the existing offices as we leverage the network now in place. In parallel with this we continue to put special emphasis on the maintenance and development of our business support operations to improve further our efficiency and our client services. Investment Banking Despite operating in a very tough trading environment, our Investment Banking division importantly remained profitable, reflecting the flexibility of its business model. A year ago the outlook for our Investment Banking division was somewhat uncertain but we remained confident that the short term impact would be containable. Having reported an operating loss of £0.8 million at the interim stage (excluding redundancy costs), the division has been able to end the year in the black. Trading activity and the level of enquiries that are being received suggest that the outlook for the current year is somewhat more encouraging. Dividend The Board is proposing a final dividend of 3.55p, to be approved at the 2010 AGM and payable on 1 April 2010. Regulation The events of the last two years mean that the role of regulation in the affairs of your Group will remain significant and it continues to be very much the policy of your Board to see that the Group fully meets the standards and requirements of modern day regulation. In this ever evolving environment it is important that your Board keeps the Group’s level of capital adequacy under review. Board Changes Nick H ood, David McCorkell, Michael Williams and Jock Worsley will be standing for re-election at the AGM and I commend them to you. Two Directors retired from the Board at the year end, Christopher Legge and Simon Still. Simon Still joined the Group at the time of the acquisition of Wise Speke and the Board in 2001 as Chief Operating Officer. Simon was responsible for our business support operations. This part of the Group is very often less visible than the client facing side, but its contribution to client service should not be underestimated. I would like to put on record the Board’s appreciation of Simon’s efforts in charge of this part of the Group. Christopher Legge remains actively involved in managing clients affairs – albeit no longer every day of the week. As a relative newcomer to the Group it is not easy for me to put into words adequately Christopher’s contribution over nearly 50 years. He is very much one of the founding fathers of Brewin Dolphin and his 04 Brewin Dolphin Holdings PLC passionate belief in behaving with the utmost integrity and looking after the best interests of clients is a fine legacy that he leaves us. Christopher’s contribution at Board level has been invaluable and he has never failed to deliver a reasoned, always valuable and not infrequently passionate point of view. I thank both these gentlemen for their contribution to the affairs of your Group. Strategy and Re-branding Brewin Dolphin’s strategy remains to grow our business to the benefit of our shareholders by maintaining the quality and increasing the depth of service to our clients. Following our re-branding last year and the amalgamation of our divisions under the Brewin Dolphin name, we have this year sponsored a number of events which have raised significant sums for charity. The most notable of these was our sponsorship of Sir Ranulph Fiennes third and successful attempt to climb Everest which helped him reach his goal of raising a remarkable £3m for Marie Curie Cancer Care. Outlook The performance for the year is the result of the hard work of Brewin Dolphin people and the continued support of our clients, for which we are extremely grateful. I believe the results achieved by your Group give justifiable cause for pride, particularly given the extraordinary circumstances of the last year. As a firm we have always believed in the merits of long term prudent equity based investment and have never lost sight of the merits of dividend as a sound method of return to investors. This approach has played no small part in allowing us to grow funds under management this year. I believe the debt culture, so prevalent in the last decade, is at last being seen for what it is, so its diminution continues to bode well for our Group. Current trading continues to be satisfactory although we should not assume that the economic woes of this country and the rest of the world are completely behind us. Your Board remains confident about the future prospects of Brewin Dolphin. Jamie Matheson 1 December 2009 “WE HAVE ALWAYS BELIEVED IN LONG TERM PRUDENT EQUITY BASED INVESTMENT AND....THE MERITS OF DIVIDEND AS A SOUND METHOD OF RETURN TO INVESTORS” Annual Report and Accounts 2009 05 Business Review Inves tment Management Report By D W McCorkell – Executive Director – Head of Investment Management Financial Performance It is a pleasure to report a record year for the Investment Management Division in what has proved to be one of the most interesting years for global stock markets. Discretionary Portfolio Management Advisory Portfolio Management Total Income 2009 £ million Operating Profit† 2009 £ million Total Income 2008 £ million Operating Profit† 2008 £ million 128.8 75.2 204.0 19.4 11.2 30.6 123.0 70.7 193.7 18.9 10.8 29.7 Investment Management’s operating profits excluding redundancy costs and amortisation of client relationships rose to £30.6 million from £29.7 million, an increase of 3.1%. Total income rose to £204.0 million, an increase of 5.3% over the 2008 figure of £193.7 million, an excellent performance considering market conditions during the year. Indices and Values of Funds under Management (“FUM”) Indices FTSE APCIMS Private Investor Series Balanced Portfolio FTSE 100 At 27 September 2009 At 28 September 2008 % Change 2,640 5,082 2,586 5,089 2.1% -0.1% Funds Under Management £ billion £ billion Discretionary funds Advisory funds Total managed funds 11.8 8.7 20.5 10.2 8.5 18.7 15.7% 2.4% 9.6% Total funds under Discretionary Management at the year end were £11.8 billion against £10.2 billion last year, a rise of 15.7%, which compares to a fall of 0.1% in the FTSE100 Share Index and a rise of 2.1% in the FTSE APCIMS Private Investors Services Balanced Portfolio Index. Funds under Advisory Management were £8.7 billion, a rise of 2.4% over the year, giving total funds under management of £20.5 billion, a rise of 9.6% overall. The figures include £127 million of new funds brought in by new teams who joined in the year. The teams who joined us in 2008 have introduced £1.3 billion of Discretionary funds and £0.7 billion of Advisory funds since they arrived. † excluding redundancy costs and amortisation of client relationships. Fees, interest and other recurring income has increased by 4% in the year, with commission income increasing by 7%. Recurring income is 54% (2008: 55%) of total income. The trend towards an increasing level of Discretionary Management continues but the exceptionally high level of activity seen during the year has resulted in this modest increase in the proportion of non-recurring income. The Bus iness During the year, we have added six new Investment Management teams to the Group. Four of these teams joined our offices in London, Teesside, Leeds and Guernsey. The largest team, consisting of four Divisional Directors and three staff joined us in Brighton where we have opened a new office. In January 2010, our Eastbourne office will relocate to join this new team in Brighton. The other new branch opening during the year was in Truro, where the total number of staff is six, including two Divisional Directors. In addition, we have relocated part of our business support operations from London and Leicester to new and much more efficient premises in Edinburgh. Following the retirement of a number of Senior Investment Managers, we now have a total of 643 Client Executives and Investment Managers. We thank all of them for their contribution over many years and wish them a long and happy retirement. We have developed our Graduate Trainee Programme, with the largest ever number of Graduates starting the programme this September. All of last year’s graduates completed the programme and have now joined teams around the Group. Financial Planning continues to be an important area of our business. Economic uncertainty has resulted in many clients undertaking a full financial review with our Financial Planning teams and their usual Investment Managers. We have 61 qualified Financial Planners across the Group, with clients of all branches having access to their advice. 06 Brewin Dolphin Holdings PLC Investment Ban king Report By G Summers – Director of Brewin Dolphin Limited – Head of Investment Banking The financial period under review was extremely challenging, with a further deterioration in conditions in capital markets around the world. The UK small and mid cap market place suffered more than most with a further significant drop in corporate activity and trading, as access to both debt and equity capital became severely constrained. However, it is pleasing to report despite these testing conditions that the Investment Banking team managed to come through the year making a small profit, maintaining its unbroken track record of profitability. Though it is still early days there are signs that capital markets have begun to recover. We are cautiously optimistic that this will be sustained. The Investment Banking division has a team of sixty professionals specialising in six core sectors: Consumer; Healthcare; Industrials; IT; Resources and Support Services. Our Research, Sales and Trading team is well regarded in the City and team members enjoy independent recognition in surveys such as Extel and Starmine. Our Corporate Broking and Advisory team continues to offer innovative solutions and best advice to our corporate clients. We have recruited two more experienced analysts during the year and a new director in corporate finance to complement our existing teams. We have appointed a new Head of Equities and a new Head of Corporate Finance. The business is firmly committed to our core values of diligence and integrity which together help us deliver a valued service to our clients. This approach has enabled us to come through the recent difficult markets with an enhanced reputation and should ensure that we continue to build on our very solid foundations, into the medium term and beyond. The Financial Services Authority (“FSA”) will publish the Retail Distribution Review (“RDR”) early next year and after a final period of consultation, it will be implemented at the end of 2012. The RDR will affect the way we do our business and will require Investment Managers to have a minimum level of qualifications and to enter our continual professional development programme. We have enhanced our training and competence systems so that all our Investment Managers meet these requirements. We have continued to grow our Business Development Team which introduces Brewin Dolphin services to Independent Financial Advisors (“IFAs”) and other Professional Intermediaries in the UK. In the period, this team has introduced £235 million of new FUM. Further enhancement to the services we provide for intermediaries and their clients, particularly in light of the RDR, will be introduced in 2010. Management of charities’ assets is a growing part of our business. At the year end charitable FUM had risen to £1.5 billion from £1.3 billion in September 2008. A specialist Charity Investment Management Team now provides services throughout the UK. We have also seen a significant increase in our FUM in various ‘tax wrappers’ with £2.3 billion now in Offshore Bonds, SIPPs and other self invested pension schemes. We are delighted to report that we have won several awards this year, importantly, the Shares Magazine Award for Best Discretionary Stockbroker 2009. At the Daily Telegraph Wealth Management Awards we were very proud that a senior member of our operations team won the Award for exceptional performance in Business Support and our Perspective newsletter the Best Market Newsletter category. We have developed our web presence and will improve it further to increase the variety and depth of our online services for clients and intermediaries. It is important for us to ensure that our basic online services are always stable and reliable prior to considering additional functionality. We are working to increase the online access and range of reports we provide for our clients. The strength of our business model has been demonstrated throughout this difficult period. We have seen significant inflows of new business and clients often tell us how important it is to be able to talk to a real person whom they know and trust. I would like to thank all our Investment Managers and support staff for the enormous efforts they have made in looking after our clients so well during one of the most extraordinary years in stock market history. Annual Report and Accounts 2009 07 Operating and Financial Review This review has been prepared solely to provide additional information to shareholders to assess the Group’s strategies and the potential for these strategies to succeed. It should not be relied on by any other party for any other purpose. The review contains forward looking statements; these should be treated with caution due to inherent uncertainties associated with such statements. Business Overview The Brewin Dolphin Group has one principal operating company, Brewin Dolphin Limited (“BDL”), which is regulated by the Financial Services Authority (“FSA”). BDL’s main business is that of an Investment Manager with an Investment Banking arm. Results for 2009 Financial Year The performance in the period is set out below: 2008 (Restated) % Change 5,750 -21.6% FTSE 100 average for year Total income Salaries Other operating costs Profit before profit share¥ Profit share Operating profit¥ Net finance income Profit before tax¥ Redundancy costs Intangible asset client relationships amortisation Profit before tax Taxation Interim and final dividend for the year Earnings per share Basic earning per share Diluted earnings per share Earnings per share¥ Basic earning per share Diluted earnings per share 2009 4,506 £’000 212,312 (75,552) (78,873) 57,887 (27,211) 30,676 1,467 32,143 (3,638) (6,566) 21,939 (6,404) £’000 206,495 (71,983) (70,607) 63,905 (33,217) 30,688 6,148 36,836 (634) (4,244) 31,958 (9,939) (15,060) (14,771) 475 7,248 7.4p 7.2p 10.8p 10.6p 10.7p 10.3p 12.4p 11.9p 2.8% 5.0% 11.7% -9.4% -18.1% 0.0% -76.1% -12.7% -31.4% -30.8% -30.1% -12.9% -10.9% ¥ excluding redundancy costs and amortisation of client relationships. We have outperformed the market with operating profit (excluding amortisation of client relationships and redundancy costs) maintained. Falling interest rates have changed this to a 12.7% fall in profit after interest costs on the above adjusted basis and a 10.9% fall at the diluted earnings per share level. 08 Brewin Dolphin Holdings PLC The redundancy costs will bring with them efficiencies as they arise from transferring business support functions in London and Leicester to our new Edinburgh business support site, as well as a number of early retirements in the front office, where clients have been passed down to younger members of the teams. Amortisation of client relationships is a new accounting policy for the Group and our comparatives have been restated accordingly as set out in note 4 to the financial statements and the section on accounting policies towards the end of this review. The majority of amortisation is over seven years, the normal lock in period for the newly acquired teams. This is in line with our previous policy under UK GAAP, under which goodwill was amortised prior to 2005. It is estima ted that the cost of the £2bn funds bought in by the teams joining in 2008 was 1.3% of funds, against an industry benchmark figure for third party acquisition of funds of 3%. In most cases clients are extremely loyal to their fund managers and impairment only happens if a team leaves. Since 1987, when BDL was incorporated, only 4 substantial private client teams have left the Group, whilst well over 100 have joined. Referral from existing clients is our best source of new business and we are able to trace many clients back generations. Thus, in practice, client relationships grow through referrals from year to year rather than diminish. Therefore, like our peers, we will from now onwards quote our headline result figures pre and post the non cash item of amortisation of client relationships, as we did when goodwill was amortised prior to the adoption of IFRS. Profit before tax, after taking into account amortisation and redundancy costs, was down 31%, with basic earnings per share down 31% and fully diluted earnings per share down 30%. Aims, Strategy and Objectives The Brewin Dolphin Vision To be the leading independent Investment Management and Investment Banking business maintaining trust through complete integrity, fair treatment of all our clients and offering a bespoke service which adds value via personal contact. Mission To grow our business to the benefit of our shareholders by maintaining the quality and increasing the depth of service rendered to our clients. Objectives (cid:127) Protect, retain and nurture our people through a professional training programme and effective performance management alongside a quality recruitment policy. (cid:127) Maintain, protect and build our reputation by delivering what we promise through the provision of competent staff, reliable systems, efficient administration and superior client service. (cid:127) Build the Brewin Dolphin brand so that it is dynamic and (cid:127) (cid:127) synonymous with business growth across all our activities. Establish a Group approach to develop and grow the client base organically through the broadening of the service offering. Influence and successfully embed regulation with the implementation of policies and processes that are flexible enough to maximise all business opportunities. Key Performance Indicators (KPIs) The main KPIs used by management are: (cid:127) Profit per team. We maintain individual team profit and loss accounts for 144 teams (2008: 138). This enables the Group to monitor front office performance closely, brings the discipline of peer pressure and passes management responsibility to heads of teams. Team return on funds under management. This again enables the Group to monitor front office performance closely, brings the discipline of peer pressure and passes management responsibility to heads of teams. (cid:127) (cid:127) Business facing income to salary ratios. This again enables the Group to monitor front office performance closely, brings the discipline of peer pressure and passes management responsibility to heads of teams. (cid:127) Overheads and b usiness support costs as a percentage of total income. This brings similar controls as those above to the overhead element of the Group. Over the cycle the aim is to improve these ratios and drive overheads down while allowing for growth in the business. However, on a year to year basis cyclical revenue can result in adverse movements. (cid:127) Staff turnover ratio. A low level of leavers, especially from the front office, is an indication of staff satisfaction. These KPIs can be measured as follows: (cid:127) The aggregate team operating profit pre redundancy costs and amortisation of client relationships was as follows: 2009 £’000 2008 £’000 2007 £’000 2005* £’000 Operating profit pre redundancy costs and amortisation of client relationships 30,676 30,688 35,702 20,299 * 2005 figures have been included to provide an appropriate benchmark based on a 5 year view. Detailed team performance was patchy. Our bond team did very well as did some of the teams recruited in 2008 though others took longer to come on stream. Generally, longer established teams results fell back with the market. The aggregate return on funds under management was as follows: 2009 excluding one off interest income 2009 2008 2007 2005* Average return on discretionary funds Average return on advisory funds 1.23% 1.27% 1.18% 1.13% 1.11% 0.93% 0.96% 0.73% 0.66% 0.63% * 2005 figures have been included to provide an appropriate benchmark based on a 5 year view. The improvement seen over the last few years continues. (cid:127) Business facing income to fixed salary ratios were as follows: Investment management Investment banking 3.9 2.1 4.5 2.5 4.8 5.3 4.2 3.4 2009 2008 2007 2005* * 2005 figures have been included to provide an appropriate benchmark based on a 5 year view. The fall in the ratio for Investment Management reflects the fall in markets which has meant that income per head has fallen. On the investment banking side, despite salary costs being reduced by 22%, income fell further. (cid:127) Overhea ds and business support costs as a percentage of income: 2009 2008 2007 2005* Total fixed business support costs as a % of income Total fixed overhead costs as a % of income 21.3% 19.3% 15.6% 18.2% 12.6% 11.6% 9.6% 10.3% * 2005 figures have been included to provide an appropriate benchmark based on a 5 year view. Total fixed business support costs and fixed overhead costs as a proportion of income have both increased in the current period due to fixed business support costs rising by 8.7% and fixed overhead costs by 6.8% while total income only increased by 2.8%. This reflects the underlying growth of the Group and the real increase in the number of branches and teams over the last two year period necessitating a bigger infrastructure. (cid:127) Staff turnover ratios Business facing staff losses were 9% in 2009 (2008: 10%) with gains of 8% (2008: 21%). The year saw a number of amicable early retirements which largely explains the relatively high loss of staff. A two man team was also lost in the year. Targets On the Investment Management side of the business the principal target is to grow discretionary funds by 5% p.a. above market movement. This year we have exceeded the market by 16% (2008: 16%). On the investment banking side the main aims are to increase the average size of the mandate and grow recurring income; here retainers decreased in the year by 9% to £2.7m after increasing in 2008 by 41%. Current, Future Performance and Profit Dynamics The performance in the period is outlined in the Executive Chairman’s Statement and the Business Review. The Group has substantial operational gearing arising from its fixed cost base, mitigated by geared profit share. It is estimated that the Group would break even, after measured cost reductions, other things being equal, at an index level of 2,500 (2008: 2,500). Competition and Markets BDL is one of the UK’s largest independent investment managers and one of the largest regional investment bankers. The investment management market is a growing sector, competition is relatively fragmented and price competition is low. Annual Report and Accounts 2009 09 Operating and Financial Review (continued) Resources Available to the Group The Group’s main resource is its staff: investment managers; investment banking staff and support staff; see note 8 to the financial statements. Discretionary Investment Management Discretionary investment management total income has increased by 4.7% to £128.8m and operating profits pre redundancy costs and amortisation of client relationships by 3.1% to £19.4m. To support our business facing personnel we have a strong research department and up-to-date computer systems, together with 40 offices located around the country thus are able to give a truly personal service to clients. Corporate Responsibility Environmental, Health and Safety and Social and Community responsibility issues are covered in the Directors’ Report, as are key employment policies which are also dealt with in the Remuneration Report. Investment Manag ement The Investment Management division has grown its total income by 5.3% to £204m in 2009 and operating profits pre redundancy costs and amortisation of client relationships by 3.1% to £30.6m. This is further analysed as follows: Discretionary funds have increased by 15.7% from £10.2bn to £11.8bn, against a market fall of 0.1% in the FTSE 100 index; this shows real growth of 15.8%. Advisory Investment Management Advisory investment management total income has increased by 6.4% to £75.2m and operating profits pre redundancy costs and amortisation of client relationships increased by 3.0% to £11.2m. Advisory funds have increased by 2.4% from £8.5bn to £8.7bn; real growth of 2.5%. Investment Banking Investmen t Banking saw total income and operating profits fall by 35% and 92% respectively. This was due to severe market conditions in 2009. This is further analysed as follows: Total income Salaries Other operating costs Profit before profit share Profit share 30,601 29,690 Operating profit excluding redundancy costs and amortisation of client relationships 2009 £’000 8,297 (3,990) (4,161) 146 (71) 75 2008 £’000 12,799 (5,113) (5,781) 1,905 (907) 998 This division has a very geared profit share arrangement which is designed to reduce peaks and troughs in operating profit in this more volatile business. Risks and Uncertainties The principal risk to the business remains adverse movements in the market in the short term. However, during 2008 there was a substantial movement in the mix of funds under management from equity towards cash and bonds, which has reduced our dependence on the level of the FTSE 100 Index. Currently about 75% of client’s funds under management is invested in equities and the balance in cash and bonds. Risks to the business are reviewed and monitored by the Investment Management Risk and Controls Committee and the Investment Banking Risks and Controls Committee; they are formally reviewed by the Board twice a year. The Group’s risk management policies and procedures are also discussed in the Corporate Governance Statement and financial risks and risk management form part of note 25 to the financial statements. Total income Salaries Other operating costs Profit before profit share Profit share Operating profit excluding redundancy costs and amortisation of client relationships The above income is further analysed as follows: Fee, interest and other recurring income Commission 2009 £’000 204,015 (71,562) (74,712) 57,741 (27,140) 2008 £’000 193,696 (67,370) (64,326) 62,000 (32,310) 2009 £’000 111,049 92,966 2008 £’000 106,960 86,736 204,015 193,696 Fee, interest and other recurring income have increased by 4% (2008: 23%) in the period to 54% of total revenue (2008: 55%). Commission increased by 7%. Teams Investment Management is broken down into small profit centres (143 teams) for profit share purposes. Normally the senior members of each team have a shareholding in the Group, which is material to them, so that the long-term interest of the Group is more important than any one year’s profit share. Individual team figures, both as to profit and return on funds, are reported in the Group Management Accounts. It is an absolute rule that a loss in one profit centre does not impinge on other centres; although such losses do reduce Group Management’s profit share. New Teams During the period the Group attracted 6 new teams (2008: 21). During the period new teams brought in discretionary funds of £80m and advisory funds of £47m. The funds introduced by the 2008 teams now stand at £2bn split between discretionary - £1.3bn and advisory - £0.7bn. The 2009 teams increased revenue by £1.7m but made losses in their first year of £0.4m. The 2008 teams made a profit of £1.5m in the current year. As a rule of thumb, the Group looks to fixed salaries being covered 4 to 5 times by revenue when assessing potential new teams once the teams’ clients have been transferred. 10 Brewin Dolphin Holdings PLC Annual Report and Accounts 2008 Annual Report and Accounts 2009 Annual Report and Accounts 2009 11 11 11 Mount Everest, Nuptse Ridge Operating and Financial Review (continued) Risks and Uncertainties (continued) At the Board m eeting in October 2009 the following major financial and non financial risks were identified or reconfirmed: Risk Type Credit risk Risk Counterparty risk Trading exposure Earnings risk Loss of front office staff Interest rate risk Interest rate risk Liquidity risk Bank default and other systemic risk Key Mitigators Majority of clients are small with an average portfolio size of £350,000. All institutional transactions are cash against delivery. Rigorous internal checks, with formal sign offs on underwritings. The firm never underwrites without full sub-underwriting in place. Strong controls and procedures in place. £2 million limit on principal account trading. Wide staff shareholdings. Contracts of employment with six months’ garden leave. Good profit share. At the period end only £100m of clients’ deposits was out on the money market for more than one month and this was for under two months. Several banks are used to hold both clients’ and firm’s money; with levels being constantly reviewed. Only bank with major UK clearers and one Irish clearer. The Irish government guarantees deposits in this clearer. Market heavily regulated. Capital Adequacy Capital adequacy surplus maintained greater than regulatory requirement. Large cash balances. Legal and compliance risk Data protection Systems and controls in place to restrict access to client and employee data including: Centralised control of client data; Clear desk policy; Data Protection Steering Group; and Secure disposal of sensitive documents. Fast changing regulatory environment leading to breach of rules Strong compliance and internal audit functions. Operational and IT risk New business and product lines Business continuity Data integrity Electronic dealing errors Internet failure New Product and Services Department with dedicated staff responsible for the review of new products and services. Large number of branches. Back up computer site. Two networks. Change to data requires authorisation. Exception reporting. Close management supervision. Electronic solution partially implemented. Security checks and upgrades on a regular basis. Regular performance of attack and penetration testing. Two back up suppliers. Other risk Acquisition of new teams Strong vetting system for new recruits. Project control Staged reviews of major projects plus Programme Office. Financial Crime Segregation of duties. Authorisation processes. Pension obligation risk Capital adequacy risk from swings in defined benefit scheme liability Reputational risk Poor investment performance Dialogue with Pension Trustees and Regulator. Good in-house research. Peer review. Compliance monitoring. Strong training and appraisal programme. Treating customers fairly embedded into the ethos of the firm. Settlement risk Settlement failure Experienced management team monitors settlement performance. 12 Brewin Dolphin Holdings PLC “DURING THE PERIOD THE GROUP ATTRACTED 6 NEW TEAMS. THE FUNDS INTRODUCED BY THE 2008 TEAMS NOW STAND AT £2BN” Dividend The B oard has maintained the total dividend for the period at 7.1p per ordinary share (2008: 7.1p). Cash Flow and Capital Expenditure 2009 saw a net cash inflow of £8.2m (2008: £30.6m net cash outflow). There was a £37.4m inflow of funds from operating activities. £6.3m of cash was spent on acquiring teams of investment managers and their client relationships (2008: £10.7m) and £9.5m on computer software and other, mainly computer related, fixed assets (2008: £15.8m). Dividends paid in the period came to £15.0m (2008: £21.5m). Capital Structure, Treasury Policy, Liquidity and Capital Requirement At 27 September 2009 the Group had net assets of £118.2m (2008: £119.9m). Net assets excluding intangible assets and shares to be issued of £51m (2008: £59m) broadly represent the Group’s capital for regulatory purposes. These net assets were largely represented by net cash and cash equivalents of £65m (2008: £57m), including £26m (2008: £22m) of client settlement money. During the period the FSA has issued BDL with individual capital guidance which has increased our Pillar 2 requirement by £9m. For the Group, at the period end there was a surplus of net assets for regulatory capital adequacy purposes of £11m (2008 Restated: £25m). We are currently in discussions with the trustees of the Brewin Dolphin defined benefit pension scheme to agree a new level of annual pension contributions in the light of the likely deficit from the updating of 2008 actuarial valuation; which will further reduce this surplus of regulatory capital. Clients’ and firm’s cash are diversified so that at the period end 40% was with the Bank of Scotland, 27% with Royal Bank of Scotland, 13% with Lloyds Banking Group, 20% with the Allied Irish Bank and the remainder with Bank of New York and Euroclear. £100m of clients’ cash was held at 40 days notice, and the rest was held on demand. Our policy is to hold our clients’ and Group’s money at major UK clearers or at institutions supported by a sovereign guarantee. Our client money is ring fenced under the FSA’s client money rules. Client stock is also ring fenced in our nominee companies. Stock is settled via the Crest System which is owned by Euroclear, a highly rated bank, and, in the case of foreign stock, the Bank of New York. Currency risk is normally insignificant with all transactions matched on a bargain by bargain basis. At the period end net currency exposure was a creditor of £673,000 (2008: £342,000 debtor). Further details to the Group’s approach to capital and liquidity risk management are provided in note 25 to the financial statements. Post Balance Sheet Events There have been no material post balance sheet events. Accounting Policies There were no changes in accounting policies save that as set out in note 4. We have retrospectively changed an accounting policy, so that payments to acquire teams of investment managers, bringing with them funds under management, are now classified as the intangible asset, “client relationships”, rather than goodwill. This change was decided on by the Board after a long and constructive dialogue with the Financial Reporting Review Panel, and brings us into line with our peers; see note 4 to the financial statements. Robin Bayford Finance Director 1 December 2009 Annual Report and Accounts 2009 13 Directors and their Biographies 01 04 07 10 02 05 08 11 03 06 09 12 14 Brewin Dolphin Holdings PLC 01 Jamie Graham Matheson, FSI Executive Chairman — Aged 55 Jamie Matheson started his career in 1972 at Parsons & Co. remaining with that firm through its various evolutionary stages until January 1996, when he joined the Group as a Glasgow divisional director. Upon joining the Board in 2002, he was responsible for the Group’s Corporate Broking activities until 2005. He was a Non-Executive Director of Scottish Radio Holdings plc from 2000 until its takeover by EMAP and is currently a Non- Executive Director of Bluehone AIM VCT2 plc and STV Group plc. 02 William Nicholas Hood, CBE Deputy Chairman and Senior Independent Director — Aged 73 Nick Hood was appointed to the Board in April 2000. He was Chairman of Wessex Water 1987 to 1999 and led the privatisation. He is a member of The Prince of Wales Council for the Duchy of Cornwall and Chairman of Walk the Walk. 03 Robin Alec Bayford, FCA Finance Director — Aged 60 Robin Bayford graduated from Cambridge University. He was a manager at Ernst & Young and was Group Financial Controller at AGB Research PLC, prior to joining a subsidiary of The Scandinavian Bank in 1989. He joined the board of Brewin Dolphin & Co. in 1990. In 1991, he took up full time employment with Brewin Dolphin & Co. as Finance Director and helped to organise the Buy-out in 1992. 04 Barry Howard Head of Regulation — Aged 47 05 Angela Ann Knight, CBE Non-Executive Director — Aged 58 Barry Howard is Head of Regulation of Brewin Dolphin Holdings PLC. He started his career training as a management accountant with Flight Refuelling in 1980 and his City career with Hoare Govett in 1985. Since that time, Barry has worked at the London Stock Exchange, the Financial Services Authority and at stockbroking and fund management companies. He joined Brewin Dolphin in October 2002, was made a Director of the operating company, Brewin Dolphin Limited, in September 2003 and was appointed a Director to the Holdings Board in October 2007. Angela Knight from 1987 to 1992 was a Councillor and Chief Whip on Sheffield City Council. She entered Parliament in 1992 as MP for Erewash and was Economic Secretary to the Treasury between 1995 and 1997. She was Chief Executive of The Association of Private Client Investment Managers and Stockbrokers from September 1997 to December 2006. Angela is currently Chief Executive of the British Bankers Association and a non-executive Director on the Boards of the Financial Services Skills Council and International Financial Services London. 06 Sir Stephen Mark Jeffrey Lamport, KCVO Non-Executive Director — Aged 57 Sir Stephen served in the Diplomatic Service from 1974 to 1993. In March 1993, he joined The Prince of Wales’s Household as Deputy Private Secretary and was appointed Private Secretary and Treasurer to The Prince of Wales in October 1996. From October 2002 to December 2007, he was Group Director for Public Policy and Government Affairs for The Royal Bank of Scotland. In August 2008 he was appointed Receiver-General of Westminster Abbey. He was appointed KCVO in 2002. He is Deputy Lieutenant for Surrey and sits on a number of Boards for charitable organisations. 07 David William McCorkell Head of Investment Management — Aged 54 08 Simon Edward Callum Miller Non-Executive Director — Aged 57 09 Sarah Soar Executive Director — Aged 47 David McCorkell joined Bell Lawrie in 1986, prior to this he worked for the family grain business in Northern Ireland. He became a Director of Bell Lawrie in 1989, Director of Brewin Dolphin Limited in 2003 and joined the Holdings Board in 2006. David was appointed Head of Investment Management in October 2007. He was appointed a Non-Executive Director of the Association of Private Client Investment Managers in September 2009. Simon Miller read law at Cambridge and was called to the bar in 1975. Since 1994 he has been Chairman of Dunedin Capital Partners. He is also Chairman of Artemis Alpha Trust, Noble AIM VCT, and JPMorgan Elect and a Director of Dunedin Enterprise Investment Trust. 10 Ian Benjamin Speke Executive Director — Aged 59 11 Michael John Ross Williams Executive Director — Aged 62 Ben Speke joined Wise Speke in 1973 continuing a long family involvement. In 1974 he joined the London jobbers Pinchin Denny and subsequently moved to Hoare Govett. In 1980 he rejoined Wise Speke and became a Director in 1987. In 1999 after Wise Speke became part of the Group he became Head of the Newcastle office. In 2000 he joined the Brewin Dolphin Holdings PLC Board and is a member of the Group’s Regional Managing Directors Committee. He is also responsible for Group training and health and safety. Michael Williams joined Brewin Dolphin & Co. in 1968 and became a partner in 1978. He has consistently been involved in portfolio management. He joined the Board on incorporation in 1987 and is responsible for the Group’s legal matters and for the Associates of Brewin Dolphin Limited. Sarah Soar has a degree in Marine Biology and Zoology. She joined Brewin Dolphin in 1984 and in 1991 left to join another firm but returned in 1994, bringing colleagues to form a new Marlborough branch for the Group. She is Regional Managing Director for London and the Southern branches and Business Development Director for the Group. Sarah became a director of Brewin Dolphin Limited in 2003 and joined the Brewin Dolphin Holdings PLC Board in October 2007. Sarah is Chairman of the Governors of St Francis School, Pewsey. 12 Francis Edward (Jock) Worsley, OBE, FCA Non-Executive Director — Aged 68 Jock Worsley was appointed to the Board in September 2003. He was a founder of the Financial Training Company and its Executive Chairman from 1972 until 1993. He has been President of the Institute of Chartered Accountants of England and Wales, Deputy Chairman of Lautro, a member of the Building Societies Commission and Independent Complaints Commissioner for SIB and the FSA. He was Chairman of the Cancer Research Campaign from 1998 until its merger in 2002 with the Imperial Cancer Research Fund. He is the Non-Executive Chairman of Lloyds Members Agency Services Ltd Annual Report and Accounts 2009 15 Directors’ Report The Directors present the ir report and the audited accounts for the 52 week period ended 27 September 2009. The comparative figures are for the 52 week period ended 28 September 2008. Principal Activity The principal activity of Brewin Dolphin Holdings PLC and its subsidiaries (the “Group”) is that of Investment Management, with an Investment Banking division. The principal activity of Brewin Dolphin Holdings PLC (the “Company”) is that of a holding company. Branches Operations are carried out in the UK and the Channel Islands. Details of branches are set out on page 77. Review of the Business and its Future Development Accompanying this Directors’ Report are the Executive Chairman’s Statement, Business Review, Operating and Financial Review, Corporate Governance Report and Directors’ Remuneration Report. A review of the business and its future development including the principal risks and uncertainties facing the Group, are set out in the Business Review on page 6 and the Operating and Financial Review on page 8. Going Concern The Group’s business activities, performance and position, together with the factors likely to affect its future development, are set out in the Business Review and the Operating and Financial Review which also describes the financial position of the Group including its liquidity position and borrowing facilities. The Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to credit risk and liquidity risk are described in note 25. The Directors believe that the Group is well placed to manage its business risks successfully. The Group’s forecasts and projections, taking account of possible adverse changes in trading performance, show that the Group should be able to operate within the level of its current financing arrangements. Accordingly, the Directors continue to adopt the going concern basis for the preparation of the financial statements. Results and Dividends The results of the Group are set out in detail on page 34. The Company paid a final dividend and an interim dividend during the period, as detailed in note 13 to the financial statements. A final dividend of 3.55 pence per ordinary share is proposed and if approved, will be payable on 1 April 2010 to shareholders on the register at close of business on 12 March 2010. Capital Structure Movements in the Company’s share capital are set out in note 27 to the financial statements which includes the rights and obligations attaching to shares and restrictions on the transfer of shares. With regard to the appointment and replacement of directors, the Company is governed by its Articles of Association, the Combined Code, the Companies Act 2006 and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of Directors are described in the Corporate Governance Report on page 20. The Company has, over the last three year period, issued a total of 2.4% of its issued share capital of ordinary shares in relation to the acquisition of businesses. Financial Instruments and Risk Management Disclosures regarding financial instruments are provided within the Operating and Financial Review and note 25 to the financial statements. Note 25 also contains details of risks and risk management. Corporate Governance The Corporate Governance report on pages 20 to 24 forms part of the Directors’ Report. Directors The Directors are listed on page 2. Biographies of the Directors are given on page 15. Directors’ Interests in Shares and Substantial Shareholdings The interests of the Directors in the shares of the Company are set out on page 28 and 29 in the Directors’ Remuneration Report. The interests of substantial shareholders and Directors are set out on page 76. Directors’ Indemnities The Company has made qualifying third party indemnity provisions for the benefit of its directors during the period and these remain in force at the date of this report. 16 Brewin Dolphin Holdings PLC Notifiable Interests As at 10 November 2009 the Company had been notified of the interests shown below in the voting rights of the Company since 7 November 2008. Name Date Notified Interest in ordinary shares %of voting rights Aberforth Partners LLP 20-Oct-09 10,350,600 4.800% BT Pension Scheme Trustees Ltd 14-Oct-09 6,540,872 3.031% Hermes Focus Asset Management Ltd 18-Sep-09 6,792,197 3.150% Standard Life Investments Ltd 17-Aug-09 11,077,887 5.143% Aegon UK Group of Companies 24-Jun-09 10,881,041 5.060% Legal & General Group Plc 01-Dec-08 8,563,901 3.990% Training and Development The continuing development of our people through professional sponsorship and regular training continues to be a priority for the Board. The Training and Competence team, through a network of Regional Training Managers, provides ongoing support for all individuals by giving access to a wide range of learning activities presented by highly qualified trainers as well as increasingly using more flexible methods such as e-learning. Everybody has the opportunity to identify any training needs with their line manager through the development review process, and the training team provides robust support for a range of continuing professional development (CPD) activity. The Director responsible for Training and Development through out the financial year was Ben Speke. Annual General Meeting The Annual General Meeting (“AGM”) will be held at 12 noon on 26 February 2010 at Merchant Taylors’ Hall, 30 Threadneedle Street, London, EC2R 8JB. Purchase of Own Shares At the Annual General Meeting on 27 February 2009 shareholders approved a resolution for the Company to make purchases of its own shares to a maximum number of 21,181,528 ordinary shares. This resolution remains valid until the conclusion of the next Annual General Meeting on 26 February 2010. As at 1 December 2009 the Directors had not used this authority. Employees The average number of persons, including Directors, employed by the Group and their remuneration, is set out in note 8 to the financial statements. Employment Policies Our employees are vital to the continued success of the Group. The Group and our employees are committed to treating our clients fairly. Employees are encouraged to identify with, and to become involved with, the financial performance of the Group and service to clients by extensive profit sharing and bonus arrangements. In addition, the employees own approximately 23% of the Group. Communication Communication with our employees is essential. Employees are kept informed of and consulted regularly on key issues affecting them and the Group by the intranet and Group meetings around the country - which include question and answer sessions and email where appropriate. In addition, management accounts are widely distributed. The Brewin Dolphin Graduate Trainee Scheme continues to provide a structured and wide ranging programme for new entrants to Investment Management and 2009/10’s intake is our largest to date. Our key challenge presently is the Retail Distribution Review (RDR) and we have been very active in putting in place a range of learning activities to ensure that our people are ready for the increasing professional requirements required. Equal Opportunities The Group has a strong commitment to maintaining a working environment based on equality and diversity. All employment decisions are made irrespective of colour, race, age, nationality, ethnic or national origin, sex, mental or physical disabilities, marital status or sexual preference. For employees who may have a disability, the Group ensures that procedures and equipment are in place to aid them. For the purposes of training, career development and promotion, all employees are treated in the same way. Disabled Employees Applications for employment by disabled persons are always fully considered, bearing in mind the aptitude of the applicant concerned. In the event of employees becoming disabled every effort is made to ensure that their employment within the Group continues and that appropriate training is arranged and suitable equipment is supplied in order that they can continue in their role. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees. Benefits The Group is proud of the attractive benefits available to Annual Report and Accounts 2009 17 Directors’ Report (continued) employees. All employees are allowed to participate in our interest free loan facility in respect of an annual season ticket for travelling to and from work. In addition, all staff have the option of joining our private medical insurance scheme. The Group offers a flexible benefits package for senior staff which includes permanent health insurance and a company car facility. The Group recognises the need for an appropriate work/life balance for employees which not only improves morale within the Group, but helps to retain employees. We are proud to report a low employee turnover. Employee Assistance Programme We understand there may be times when employees need specialist advice on employment, personal, financial or legal matters. To support them and their immediate families we provide them with free access to a confidential 24 hour helpline, where they can speak with specialist information consultants and counsellors. Pensions The Group has a normal retirement age of 65. All permanent employees are invited to join the senior staff pension scheme after successful completion of their probation period. Other than those employees participating in our flexible benefits package, members of the senior staff pension scheme receive an employer contribution of 6% of gross salary into the scheme. Linda Cartwright is the Personnel Director of Brewin Dolphin Limited and reports to Robin Bayford, the Board Director with responsibility for Human Resources. Charitable and Political Donations The Group made charitable donations of £64,100 during the period (2008: £61,127). No political donations were made during the period (2008: £nil). Community Policy Due to the success of the North East’s branches involvement in the Young Professionals Forum – a networking channel for young business people in the Region, the Edinburgh office decided to follow suit and set up a forum in Scotland. They identified the lack of opportunities for young professionals in the early stages of their career and the aim of the new group is to host regular events offering a platform for likeminded professionals to socialise and network in a relaxed environment. This Edinburgh Forum has now attracted over 700 members. Throughout the Group we also have a policy of providing work experience placements for students in our branches. Creditor Payment Policy It is the Group’s policy to settle all of its trading transactions on the agreed settlement date; this policy extends to other trade creditors whose terms are normally 28 days. On average, creditors were paid within 10 days in 2009 and 2008. Environmental and Ethical Matters The Group believes firmly in the importance of conducting its business in a responsible and sustainable way, sensitive to the developing needs and expectations of society at large. Sarah Soar has taken over responsibility from Simon Still following his retirement in September 2009 as the Director responsible for environmental matters. The Board has reviewed areas where there may be environmental risk from direct actions by the Group. This risk is considered to be minimal, as in all cases the Group’s offices are located in towns and its activities are desk based. Nearly all the premises are leasehold and our landlords are encouraged, when replacing equipment or for the services that they supply to us, to ensure that environmental issues are considered. However, we are undertaking a review on energy consumption with our landlords to establish a baseline for future years. Charitable Fundraising Throughout the year our branches have organised and been involved in a range of fundraising events for local and national charities, raising a combined total of £140,882. The Group has contributed to all these great efforts, which have included numerous participants in the Race for Life; the Great North Run and the London Marathon and one colleague in Edinburgh who completed the Marathon De Sables, a 150 mile run through the Sahara Desert. The Group’s major suppliers mainly provide market data and computer hardware and software. We ensure that appropriate environmental considerations are considered when a new supplier is chosen. We have also completed a piece of work with external consultants to minimise our computer footprint through virtualisation or consolidation of services wherever possible. As equipment is replaced this will be implemented according to this policy. The Company has a policy of matching the fundraising efforts of our employees up to a specified limit and of contributing to the appeals of our charity clients. The Group also operates a Give As You Earn Scheme and actively encourages employees to participate. Many of our Divisional Directors provide pro bono director and trustee services for charities. Sponsorship The Group sponsors a number of sporting and charitable events throughout the Country. Notably this year we sponsored Sir Ranulph Fiennes’ successful Everest climb and helped him raise over £3 million for Marie Curie Cancer care. As usual the Group also sponsored the Scottish Schools Cup, the Royal Solent Regatta and the Ulster Youth Rugby League. Many of our branches sponsored their local organisations and events including the Wiltshire Jazz Festival, Taunton Flower Show and the summer music society of Dorset. We have changed our travel consultants during the latter part of the year and in future years we will be able to report on the carbon equivalents on various forms of transport used by the Group. We have reduced the use of paper wherever possible by encouraging double sided printing, electronic communications with our shareholders and our clients, the use of the internet and internally by the widespread use of the i ntranet and email communication. We encourage colleagues not to print out emails. The majority of waste paper is recycled. All paper is produced in accordance with the Forest Stewardship Council and where possible the materials used are made up of 50% recycled and 50% virgin wood fibre for our reports, client reports, letterhead and marketing materials. Our printer and manufacturing mill remain environmentally accredited and are certified according to ISO 14001, ISO 9001 and OHSAS 18001 standards. Our printers are carbon neutral. 18 Brewin Dolphin Holdings PLC “THE COMPANY HAS A POLICY OF MATCHING THE FUNDRAISING EFFORTS OF OUR EMPLOYEES . . . AND OF CONTRIBUTING TO THE APPEALS OF OUR CHARITY CLIENTS” Overseas call centres are not used. The Group’s environmental policy is on our website. While the Group’s overall investment policy is solely concerned with obtaining the best return for clients, it is our policy to construct portfolios which take into account the personal preferences of our clients in relation to ethical and environmental matters. We have a specialist Ethical Investment Service. In providing this service we have enlisted the help of EIRIS, who since 1983 have been helping investors choose shares on ethical grounds. There are three levels of service provided: (cid:127) Ethical Collective Portfolio - a fund-based approach for investors wishing to spread their risk. In this service the principal investments are unit or investment trusts investing in ethical companies. The emphasis of each may be different but we aim to provide a balanced portfolio of investments which complement each other and provide exposure to different asset classes for our clients. This is a discretionary service option. (cid:127) Brewin Dolphin Ethical Portfolio - a facility for investors wishing to avoid the negative criteria, or even encourage the positive ethical contribution, of a particular sector or invest within their broader investment portfolio, without necessarily impacting on all of their investments - an ethical “pick and mix”. In this service we have established a number of benchmark criteria for measuring the positive or negative ethical impact of specific sectors, thereby creating a “black” or “white” list for the purposes of investment selection. This service can either be run on a discretionary or advisory basis. (cid:127) Individual Ethical Portfolio - a customised, in-depth service for clients with detailed ethical requirements and whose portfolios need to be constructed or screened with reference to specific and detailed ethical criteria. In this instance an in-depth questionnaire is completed by the client at the outset. As implied, this service allows individual clients effectively to select their own ethical criteria, which are then used as the focus for selecting the individual investments in the client’s portfolio. This option is only available as a discretionary service. Health and Safety The Group has a Health and Safety at Work Policy which is reviewed annually by the Board. The Group Board Executive Director responsible for health and safety throughout the financial year was Ben Speke. The Group is committed to the health and safety of its employees, clients, sub-contractors and others who may be affected by our work activities. The Group evaluates the risks to health and safety in the business and manages this through an effective Health and Safety Management System. The Group provides necessary information, instruction, training and supervision to ensure that employees are able to discharge their duties effectively. The Health and Safety Management System used by the Group ensures compliance with all applicable legal and regulatory requirements and internal standards and seeks, by continuous improvement, to develop health and safety performance. Auditors Each of the persons who is a Director at the date of approval of this annual report confirms that: (cid:127) (cid:127) so far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and the Director has taken all steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. Deloitte LLP have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. By order of the Board Brewin Dolphin Holdings plc – no. 2685806 Angela Wright Secretary 1 December 2009 Annual Report and Accounts 2009 19 Corporate Governance The Directo rs are committed to a high standard of corporate governance and to compliance with the best practice provisions of the Combined Code on Corporate Governance issued in 2008 by the Financial Reporting Council (“the Combined Code”) for which the Board is accountable to the shareholders. The following statement and the Directors’ Remuneration Report on page 26 explain how the principles set out in the Combined Code have been applied by the Group and details the Group’s compliance with the Combined Code provisions for the year. The Board At the end of the year the Board had twelve members, comprising seven Executive Directors and five Non-Executive Directors. During the year Christopher Legge and Simon Still retired; their resignations were accepted by the Board at close of business on 25 September 2009. Biographies of all the current Directors are presented on page 15, all of whom have served throughout the year. One third of the Board is required to be re-elected each year. Each of the Non-Executive Directors is considered by the Board to be independent. Directors’ meeting attendance Board Audit Committee Remuneration Committee Nomination Committee Total Meetings Held J Matheson R Bayford B Howard D McCorkell S Soar I Speke M Williams W Hood A Knight S Lamport S Miller F Worsley S Still C Legge 11 11 11 11 11 11 11 11 10 10 8 11 11 9 9 5 – – – – – – – 5 – 3 5 5 – – 3 – – – – – – – 3 – – 2 3 – – 2 – – – – – – – 2 – – 2 2 – – The Non-Executive Directors meet with the Executive Chairman prior to most Board meetings. On four occasions during the period the Non-Executive Directors met on their own. The Board maintains a schedule of matters reserved for the Board which is reviewed annually by the Company Secretary. The specific responsibilities retained by the Board include: establishing Group strategy and approving the annual budget; reviewing the Group’s operational and financial performance; approving major acquisitions, divestments and capital expenditure; reviewing the Group’s systems of control and risk management; approving appointments to the Board and the Company Secretary; approving policies relating to Directors’ remuneration and the severance of Directors’ contracts; and ensuring that a reasonable discourse occurs with shareholders. Appropriate training and induction is made available to newly appointed directors, taking into account any previous experience they may already have as a director of a public limited company or otherwise. Training sessions are carried out for the entire Board when appropriate. Executive members of the Board have to date been appointed from within the Group and have served on the Brewin Dolphin Limited Board prior to appointment. The Roles of the Executive Chairman and Non-Executive Deputy Chairman The Executive Chairman, Jamie Matheson, has four direct reports: Finance Director, Robin Bayford; Head of Investment Management, David McCorkell; Head of Regulation, Barry Howard and Head of Investment Banking, Graeme Summers. There is a clear division of duties between the Executive Chairman and the Non-Executive Deputy Chairman, with terms of reference that have been clearly defined in writing and are reviewed annually and agreed by the Board. This ensures that a clear balance of power and authority is present. Re-appointment of Executive and Non-Executive Directors William Nicholas Hood, David William McCorkell, Michael John Ross Williams and Francis Edward (Jock) Worsley all retire by rotation and, being eligible, offer themselves for re-election. It is the view of the Board that David McCorkell and Michael Williams continue to perform effectively and it is appropriate for them to continue to serve as Directors of the Company. The roles of Nick Hood and Jock Worsley as Non-Executive Directors have been reviewed and it is the view of the Board that they continue to make a valuable contribution to the Board both demonstrating commitment to their roles. Directors’ Conflicts of Interest A new statutory duty on directors to avoid conflicts of interest with the Company came into force in October 2008. The Company’s Articles of Association, adopted in July 2008, allow the directors to authorise conflicts of interest, and the Board has adopted a policy and effective procedures for managing and, where appropriate, 20 Brewin Dolphin Holdings PLC 21 21 Annual Report and Accounts 2009Brighton Pier Annual Report and Accounts 2009 Brighton Pavillion Corporate Governance (continued) approving conflicts or potential conflicts of interest. This is a recurring Agenda item at all Board meetings and gives each Director the opportunity to raise any conflict of interest they may have, or to update the Board on any change to a previous conflict of interest already lodged. A Register of Conflicts is held by the Company Secretary and referred to when decisions are made. A log of all conflicts raised is maintained and updated accordingly. All Directors are aware that it is their responsibility to raise and update any conflicts of interest they may have. The Audit Committee met five times during the period under review and all meetings were fully attended by all members, with the exception of Sir Stephen Lamport who sent his apologies on two occasions. The Audit Committee maintains a formal calendar of items that are to be considered at each committee meeting and within the annual audit cycle, to ensure that its work is in line with the requirements of the Code. Committees of the Board The Board has three standing committees: the Nominations Committee; the Audit Committee and the Remuneration Committee. These committees have written terms of reference, which are reviewed regularly and any amendments approved by the Board. Membership of the committees is as set out on page 2. The terms of reference of the Committees can be viewed on the Company’s website, together with Committee membership. Sight of all Directors’ contracts, or, in the case of Non-Executive Directors, letters of appointment, can be obtained via the Company Secretary. All the Committees are able to call on independent professional advisers if they consider it necessary. Nominations Committee The members of the Nomination Committee are Nick Hood (Chairman), Jock Worsley and Simon Miller. The Nominations Committee is responsible for the Board’s succession planning. The Nominations Committee met twice during the year and both meetings were fully attended by all members. Remuneration Committee The Remuneration Committee is chaired by Nick Hood and the other members are Simon Miller and Jock Worsley. There were three meetings of the Remuneration Committee during the year and it was fully attended by all members, save that Simon Miller sent his apologies on one occasion. The Directors’ Remuneration Report is presented on page 26, which gives further information. Audit Committee The members of the Audit Committee are Jock Worsley (Chairman), Nick Hood, Simon Miller and Sir Stephen Lamport. The Finance Director, Head of Regulation, the Head of Internal Audit and the Company Secretary normally attend all Audit Committee meetings at the Committee’s request. The Board is satisfied that at least one member of the Audit Committee has recent and relevant financial experience. The Audit Committee is responsible for: • monitoring of the work of both the Internal Audit Department and Risk Management Department; • • • considering the reports received from the Compliance Department and Risk Management Departments; reviewing the Company’s procedures for handling allegations from whistleblowers and for detecting fraud; and reviewing the scope and findings of the reports from the external auditors and the Group’s interim and annual financial statements prior to their submission to the Board. During the year, the Audit Committee discharged its responsibilities as set out in its terms of reference by undertaking the following work: • • reviewing the Annual Report and Financial Statements and the Interim Report. In doing so, the Committee reviewed significant accounting policies, financial reporting issues and judgements and reports from the external auditors; reviewing the effectiveness of the external audit process, the external auditors’ strategy and plan for the audit and the qualifications, expertise, resources and independence of the external auditors; • reviewing and approving the internal auditor’s annual plan and reviewing all reports from internal audits; • reviewing regular reports from the Group’s Head of Regulation; • receiving regular reports from the Group’s Risk Management Committee; 22 Brewin Dolphin Holdings PLC (cid:127) (cid:127) reviewing the Group’s ICAAP and Group’s annual Corporate Risk Review; reviewing and agreeing the scope of the audit work to be undertaken by the external auditors and the fees to be paid to the external auditors; and (cid:127) reviewing the Audit Committee’s own terms of reference. The external auditors meet privately with the Audit Committee at least twice a year without senior executive management being present. Auditors’ Independence The Board uses the auditors for audit and related activities. It generally does not use the auditors for non-audit services unless there are appropriate reasons for doing so, thereby retaining their objectivity and independence. An analysis of auditors’ remuneration is provided in note 9 to the financial statements.The majority of tax advisory and similar work is carried out by another major accountancy firm. It is the policy of the Boa rd formally to review the appointment of auditors every six years; a review was last carried out in 2007. The Audit Committee recommended to the Board that the reappointment of the auditors be proposed to the shareholders at the 2010 AGM. Company Secretary The Company Secretary is responsible for advising the Board on all Corporate Governance matters as well as ensuring good information flows within the Board and its Committees. All Directors have access to the services of the Company Secretary and may take, if necessary, independent, professional advice at the Company’s expense. Insurance The Company maintains appropriate insurance cover in respect of litigation against the Directors. Board Evaluation An annual evaluation of the Board’s performance and that of its sub-committees, individual Directors and Chairman is undertaken. Each Director receives a Board Performance Evaluation Questionnaire and separate committee performance evaluation forms where appropriate for use in assessing the Board’s own performance and that of its Committees. The responses to the questionnaires were considered and discussed with the Chairman. A report was prepared on the results of the evaluation process and considered by the Board at its meeting in September 2009. No major changes were implemented as a result of this review. The Deputy Chairman as Senior Independent Director carried out a review of the Chairman. Relationship with Shareholders The Company places a great deal of importance on communication with shareholders and aims to keep shareholders informed by regular communication. The Group’s Executive Chairman, Head of Investment Management and Finance Director meet regularly with the Group’s institutional investors and the Group’s website is kept up-to-date covering all corporate activity. The Company recognises the importance of ensuring effective communication with all of its shareholders. The Company welcomes all shareholders to its AGM, with the opportunity to ask questions formally at the meeting or more informally afterwards. The Company’s policy is to announce the number of proxy votes cast on resolutions at the AGM. For shareholders who are clients of Brewin Dolphin Limited and who hold their shares in one of our nominee accounts, we provide an on-line voting service on the Group website for shareholders to vote before our AGM. Internal Control and Risk Management The Board undertakes a full review of all aspects of the Group’s business, identifies the main risks to the business and identifies the key controls to counter these risks. Day-to-day review and monitoring has been delegated to both the Investment Management Risk Controls Committee (“IMRCC”) and Investment Banking Risk and Controls Committee (“IBRCC”) of Brewin Dolphin Limited, the activities of which include overseeing and reviewing the control, monitoring and reporting frameworks and related procedures for risk management. The IMRCC committee meets weekly, and the IBRCC monthly. Annual Report and Accounts 2009 23 Corporate Governance (continued) The Compliance department and Internal Audit carry out regular reviews. The Board considers reputational risk, portfolio performance and the added risk of taking on new teams and business streams. The level, detail and nature of complaints are carefully monitored. Compliance with the Combined Code The Directors consider that the Company has been in full compliance with the provisions set out in the Combined Code throughout the period ended 27 September 2009, except as described below: • • The Executive Chairman did not, on appointment, meet the independence criteria set out in the Code since he had previously been an employee and an Executive Director of the Company. To ensure that there is a clear balance of power and authority an Independent Non-Executive Deputy Chairman was appointed. There is clear division of duties between the Executive Chairman and the Independent Non-Executive Deputy Chairman with written terms of reference. In designing schemes of performance-related remuneration, the remuneration committee does not fully follow the provisions in Schedule A to the Code in that in respect of annual bonus payments paid to executive directors upper limits are not set, nor are predetermined performance criteria applied. This reflects the culture of the Group which is to pay to income producing and senior management employees a significant element of their remuneration by way of incentive and not to dis-incentivise any employee through the capping of potential incentives. It also recognises the application of predetermined performance criteria is not practical for all executive directors, given the nature of both the business and their individual roles. Angela Wright Secretary 1 December 2009 The Directors are responsible for the system of internal control established by the Group, reviewing its effectiveness and reporting to the shareholders that they have done so. They report as follows: i. ii. iii. There is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group as outlined above. This has been in place for the period under review and up to the date of approval of the annual report and accounts. It is regularly reviewed by the Board and accords with the revised Turnbull guidance in the Combined Code. Any system of internal control is designed to highlight and manage rather than to eliminate the risk of failure to achieve business objectives, and can provide only reasonable, and not absolute, assurance against material misstatement or loss. Steps are being taken to embed internal control and risk management further into the operations of the business and to deal with areas of improvement which come to management’s and the Board’s attention. Financial results, key operating statistics and controls are reported to the Board monthly, and variances are followed up vigorously. Monthly reports are received from the compliance and internal audit functions. The Directors have reviewed the Group’s system of internal controls and compliance monitoring and believe that these provide assurance that problems have been identified on a timely basis and dealt with appropriately throughout the period under review and up to the date of approval of the annual report and accounts. iv. There is a whistleblowing policy detailing the internal or external procedures through which employees are able to raise any concerns. Model Code The Company has its own internal dealing rules which extend the FSA Listing Rules Model Code provisions to all employees. 24 Brewin Dolphin Holdings PLC 25 25 Annual Report and Accounts 2009Truro Cathedral Annual Report and Accounts 2009 Directors’ Remuneration Report T his report has been prepared in accordance with Schedule 8 to the Accounting Regulations under the Companies Act 2006 (the “Act”). The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board has applied the principles relating to Directors’ remuneration in the Combined Code. As required by the Act, a resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the financial statements will be approved. The Act requires the auditors to report to the Company’s members on certain parts of the Directors’ Remuneration Report and to state whether in their opinion those parts of the report have been properly prepared in accordance with the Accounting Regulations. The report labels those parts that are audited. The members of the Remuneration Committee are as set out on page 2. The Remuneration Committee also compares these salaries to the remuneration of other senior employees within the Group including the other Executive Directors. The working of this policy can be seen in the table below so that all Directors are remunerated within the same framework. For Messrs Legge and Williams their profit participation has been determined solely by reference to their own team’s performance on a strict formula in line with other investment managers or corporate financiers within the Group. Teams normally share 30% to 40% of profit after paying a full contribution to Group overheads. The members of the team, depending on individual performance, determine the split of profit share within the team. The profit share percentage can rise to 45% on the margin or be as little as 20% depending on pre determined formulae based on total team salaries. For the Investment Banking Division profit share can increase to 60% on the margin. The Remuneration Committee consists solely of Independent Non-Executive Directors. None of the Remuneration Committee members has any personal financial interests (other than as shareholders), conflicts of interest arising from cross Directorships or day-to-day involvement in running the business. The Executive Chairman attends part of the meetings of the Remuneration Committee but not when his own remuneration is discussed. The Finance Director provides factual and statistical information to the Remuneration Committee, which in turn can call for external reports and assistance. No Director plays any part in any discussion about his or her own remuneration. Policy on Remuneration of Executive Directors The remuneration of Executive Directors is awarded by reference to the performance of the Group and the Executive Directors contribution to enhancing future growth. The Remuneration Committee reviews the basic salaries of the Executive Directors together with their profit participation (with the exception of the profit share for C Legge and M Williams, see below) based on a number of factors including work undertaken and comparable salaries. C Legge retired on 25 September 2009. In assessing all aspects of pay and benefits, the Remuneration Committee compares packages offered by similar investment management companies. These companies are chosen having regard to: i. ii. the size of the company - its turnover and numbers of employees; and its growth pattern. 26 Brewin Dolphin Holdings PLC The movement in Executive Directors’ remuneration in 2009 reflects the incidence of Group and team performance and is set out below: (Audited) Executives remunerated on the results of the Group J G Matheson R A Bayford J P Hall** B M Howard D W McCorkell S J S Soar I B Speke S J H Still* Executives remunerated on their own profit centres results C D Legge* M J R Williams Non-Executives W N Hood A A Knight V Lall** Sir S M J Lamport S E C Miller F E Worsley Total Total 2008 * retired 25 September 2009 ** retired 22 February 2008 Salary and fees £’000 Benefits in kind £’000 Profit share taken as pension £’000 Profit share £’000 Basic pension contributions £’000 Total £’000 Total 2009 £’000 Total 2008 £’000 200 159 – 180 156 145 118 183 167 128 55 34 – 34 49 61 4 3 – 11 3 7 2 6 3 2 – – – – – – 385 325 – 265 277 200 200 73 199 375 – – – – – – – 6 – – 4 – – 30 – – – – – – – – 589 493 – 456 440 352 320 292 369 505 55 34 – 34 49 61 54 24 –– 3 26 7 30 – – 20 – – –– – – – 643 517 459 466 359 350 292 369 525 55 34 34 49 61 698 583 98 492 505 408 326 355 394 651 54 34 14 34 49 41 1,669 1,747 41 41 2,299 2,285 40 501 4,049 4,574 164 162 4,213 4,736 4,736 Executive Directors’ main pension entitlement is via a defined contribution scheme. The following Directors were also in the Brewin Dolphin Limited Staff Scheme (defined benefit scheme), their entitlement under the scheme being as follows: Accrued pension entitlement at 27 September 2009* £’000 Increase in accrued pension (implicitly including inflation) £ Transfer value of accrued pension at 27 September 2009 £’000 Transfer value of accrued pension entitlement at 28 September 2008 £’000 Change in transfer value over year less members’ contributions made £’000 Increase in accrued pension (explicitly excluding pension less inflation*) £ Transfer value of increase in accrued member’s contributions over year to 27 September 2009 £’000 Cost to Group over and above members contributions where still accruing service in the Scheme £’000 – – 12 7 13 14 – – 1,034 261 497 1,059 – – 223 98 230 223 212 125 232 87 206 196 – – 16 12 24 24 – – 464 – – 429 – – 9 – – 3 – – – – – 6 (Audited) J P Hall 3 V Lall 3 C D Legge 1 D W McCorkell I B Speke 2 M J R Williams 2 1 The 2008 disclosures for C D Legge have been reworked to reflect his opt-out from the Scheme with effect from 5 April 2006. 2 For these members, the increase in accrued pension has been subject to a minimum of zero to reflect their leaving benefit underpin as at 1 April 2004. 3 retired 22 February 2008. * An inflation adjustment of 5.0% has been excluded from the increase to the accrued pension. Annual Report and Accounts 2009 27 Directors’ Remuneration Report (continued) Shareholder Information Dire ctors’ shareholdings are as follows as at 27 September 2009 and 28 September 2008: There were no changes in Directors’ shareholdings between 28 September 2009 and 1 December 2009. (see also page 76). Fully paid ordinary 1 pence shares: 2009 Fully paid 838,761 65,000 68,092 4,500 – 466,621 653,059 20,000 224,022 360,287 – 965,336 18,000 2008 Fully paid 838,761 45,000 68,092 – 2,603,923 466,621 653,059 10,000 224,422 360,287 277,010 965,336 10,000 3,683,678 6,522,511 Price £1.010 £1.845 £1.625 £1.040 £1.086 £1.010 £1.570 £1.845 £1.625 £1.040 £1.086 Latest repayment date May 2012 December 2013 December 2014 July 2015 December 2015 May 2012 December 2012 December 2013 December 2014 July 2015 December 2015 £1.625 December 2014 2009 Nil Paid 49,504 27,100 15,384 24,038 9,208 2008 Nil Paid 49,504 27,100 15,384 24,038 – 125,234 116,026 9,900 6,369 5,420 15,384 24,038 9,208 70,319 – – 9,900 6,369 5,420 15,384 24,038 – 61,111 15,384 15,384 Directors R A Bayford 1 W N Hood B M Howard S M J Lamport C D Legge 2 J G Matheson D W McCorkell S E C Miller S J S Soar I B Speke S J H Still 3 M J R Williams F E Worsley 1 includes 12,198 non beneficial. 2 retired 25 September 2009, on retirement C D Legge held 2,620,923 fully paid ordinary shares. 3 retired 25 September 2009, on retirement S J H still held 277,010 fully paid ordinary shares. In addition, Directors held the following nil paid shares: B M Howard Total S J S Soar Total S J H Still** Total ** retired 25 September 2009, on retirement S J H Still held 15,384 nil paid ordinary shares. 28 Brewin Dolphin Holdings PLC Share Options (Audited) Directors Interests in Share Option Schemes Name Scheme Date of Grant Exercise Price No of options at 29 September 2008 No of options issued No of options exercised No of options at 27 September 2009 Value over exercise price when exercised / at the end of the period £ Value over exercise price at the start of the period £ Exercisable from Exercisable to B M Howard 1994 approved executive share option scheme 05/12/2003 Senior employee matching share purchase scheme 26/05/2005 2004 approved share option plan 05/12/2005 Senior employee matching share purchase scheme 18/12/2006 2004 approved share option plan 29/11/2007 Senior employee matching share purchase scheme 14/12/2007 Senior employee matching share purchase scheme 24/07/2008 Senior employee matching share purchase scheme 12/12/2008 Total 81.30p 101.00p 145.00p 184.50p 168.00p 162.50p 104.00p 108.60p 6,000 49,504 4,000 27,100 10,925 15,384 24,038 – – – – – – – – 9,208 136,951 9,208 I B Speke 1994 approved executive share option scheme 05/06/2000 167.50p Total J G Matheson 1994 approved executive share option scheme 05/12/2003 81.30p Total S J H Still* Senior employee matching share purchase scheme 26/05/2005 Senior employee matching share purchase scheme 14/12/2007 Total S J S Soar 1994 approved executive share option scheme 1994 approved executive share option scheme 1994 approved executive share option scheme 05/06/2000 04/06/2001 12/12/2002 Senior employee matching share purchase scheme 19/12/2003 Senior employee matching share purchase scheme 26/05/2005 Senior employee matching share purchase scheme 19/12/2005 Senior employee matching share purchase scheme 18/12/2006 Senior employee matching share purchase scheme 14/12/2007 Senior employee matching share purchase scheme 24/07/2008 Senior employee matching share purchase scheme 12/12/2008 101.00p 162.50p 167.50p 139.00p 37.50p 82.30p 101.00p 157.00p 184.50p 162.50p 104.00p 108.60p Total * retired 25 September 2009 17,500 17,500 4,000 4,000 24,752 15,384 40,136 9,000 9,000 2,500 30,376 9,900 6,369 5,420 15,384 24,038 – – – – – – – – – – – – – – – – – 9,208 111,987 9,208 – – – – – – – – – – – – – – – – – – – – – – – – – – – 6,000 49,504 4,000 27,100 10,925 15,384 24,038 9,208 4,812 29,950 660 – – – 2,697 05/12/2008 05/12/2013 12,500 26/05/2009 26/05/2012 – – – – 05/12/2010 05/12/2015 18/12/2010 18/12/2013 29/11/2012 29/11/2017 14/12/2012 14/12/2015 13,822 4,871 5,348 24/07/2012 24/07/2015 – 12/12/2012 12/12/2015 146,159 54,115 20,545 17,500 17,500 4,000 4,000 24,752 15,384 40,136 9,000 9,000 2,500 30,376 9,900 6,369 5,420 15,384 24,038 9,208 – – 3,208 3,208 05/06/2005 05/06/2010 – – 1,798 05/12/2008 05/12/2013 1,798 14,975 6,250 26/05/2009 26/05/2012 – – 14/12/2012 14/12/2015 14,975 6,250 – 2,025 3,100 24,058 5,990 287 – – 13,822 4,871 – – 05/06/2005 05/06/2010 04/06/2006 04/06/2011 2,219 12/12/2007 12/12/2012 13,350 19/12/2007 19/12/2010 2,500 26/05/2009 26/05/2012 – – – 19/12/2009 19/12/2012 18/12/2010 18/12/2013 14/12/2012 14/12/2015 5,348 24/07/2012 24/07/2015 – 12/12/2012 12/12/2015 121,195 54,153 23,417 Annual Report and Accounts 2009 29 Directors’ Remuneration Report (continued) Terms of the Option Schemes (Audited) The Group’s two approved employee option schemes were adopted in 1994 and 2004 respectively. An unapproved option scheme was adopted in 2000 currently no options are in issue under this scheme. The approved and unapproved option schemes have the same performance criteria, namely that the year on year growth in annual fee income charged on portfolios shall not be less than 10% per annum compound or a 33% increase in annual fees over a three year period. Under the above schemes the number of options over ordinary shares may not exceed 10% of the Company’s ordinary share capital over a ten year period. The approved and unapproved options are exercisable from five to ten years from grant. The senior employee matching share purchase scheme is additional to the above schemes and allows a further 5% issue of options over a ten year period, provided that a similar number of shares are subscribed for by senior executives at the price the options are issued. These shares are issued nil paid but have to be subscribed for at the earlier of the exercise of the matching option, the sale of the shares, the employee leaving the Group, or after seven years. The options can be exercised within four to seven years. There are two strict performance criteria for the options to be exercised involving both the client executive team’s profitability and Group earnings per share exceeding the growth in the retail price index by 4% compound and 2% compound respectively. This is a criteria thought to be realistic but not easy to achieve. The Group operates in a cyclical business, and over a seven year period there will be downturns, but the compound rate of return means that the hurdle increases over time. The incentive is designed to be long term and is matched by an equal commitment with considerable risk by the employee. Options are only granted once an employee has been with the Group for two years and are awarded with the aim of increasing share ownership of those employees that do not have a significant shareholding in the Group. There is no intention of issuing any options under the senior employee matching purchase share scheme or the unapproved option scheme in the forthcoming year. Policy on External Appointments The Group encourages external appointments at a senior level. Directors’ fees arising from external appointments are either paid to the Group or taken into account in assessing the overall executives’ remuneration package. J G Matheson is a Non-Executive Director of Bluehone AIM VCT2 plc and during 2009 received remuneration of £11,000 for the financial period ended 30 November 2009 (2008: £11,000). J G Matheson is a Non-Executive Director of STV Group plc; during 2009 he received remuneration of £35,000 for the financial period ended 31 December 2009 (2008: £32,000 includes committee fee of £5,000). S J H Still received nil remuneration for external appointments (2008: £15,000 – resigned July 2008). The remuneration above was paid directly to the individual directors. Group Policy on Contracts of Service All senior executives including Executive Directors have substantially identical six-month rolling contracts. There are no exceptional termination provisions for either senior executives or Executive Directors. All contracts include six-month garden leave clauses, which are vigorously enforced. If Directors were allowed to leave without going on garden leave within the six-month notice period, the normal policy would be to only pay them for the period worked. Profit share is never paid to any employee who has indicated that they will be leaving except in the case of ill health or retirement when exceptions can be made. Directors’ contracts of service which include details of remuneration are made available for inspection at the Annual General Meeting. The commencement dates of the executive contracts are as follows: R A Bayford B M Howard J G Matheson D W McCorkell I B Speke S J S Soar M J R Williams January 2000 April 2003 May 2005 January 2000 August 1998 January 2000 March 2000 Non-Executive Directors’ Remuneration The Board determines the level of non-executive fees. Non–Executive Directors have three year letters of appointment. Material Contracts with Directors There were no material contracts between the Group and the Directors other than the loans outstanding for nil paid shares for B Howard and S Soar as part of the Senior Employee Matching Purchase Share Scheme. Simon Still on retirement had an outstanding loan for nil paid shares as part of the Senior Employee 30 Brewin Dolphin Holdings PLC Matching Purchase Share Scheme. The Directors undertake transactions in stocks and shares in the ordinary course of the Group’s business for their own account. The transactions are not material to the Group in the context of its operations. £nil was outstanding in respect of these transactions at 27 September 2009 and 28 September 2008. Policy on Remuneration of other Senior Executives The Remuneration Committee approves any change to profit share schemes throughout the Group. These schemes are progressively geared on set formulae depending on the nature of the business undertaken. Performance Graph The Graph be low shows the Company’s total shareholder return (TSR) against that of the FTSE 250 Speciality and Other Finance Index; the sector in which the Company is included. TSR is calculated assuming dividends are reinvested on receipt. (cid:27)(cid:23)(cid:23) (cid:26)(cid:28)(cid:23) (cid:26)(cid:23)(cid:23) (cid:25)(cid:28)(cid:23) (cid:25)(cid:23)(cid:23) (cid:24)(cid:28)(cid:23) (cid:24)(cid:23)(cid:23) (cid:28)(cid:23) (cid:25)(cid:23)(cid:23)(cid:27) (cid:25)(cid:23)(cid:23)(cid:28) (cid:25)(cid:23)(cid:23)(cid:29) (cid:25)(cid:23)(cid:23)(cid:30) (cid:25)(cid:23)(cid:23)(cid:31) (cid:25)(cid:23)(cid:23)(cid:32) (cid:41)(cid:89)(cid:76)(cid:94)(cid:80)(cid:85)(cid:3)(cid:43)(cid:86)(cid:83)(cid:87)(cid:79)(cid:80)(cid:85)(cid:3)(cid:20)(cid:3)(cid:59)(cid:54)(cid:59)(cid:3)(cid:57)(cid:76)(cid:91)(cid:92)(cid:89)(cid:85)(cid:3)(cid:48)(cid:85)(cid:75) (cid:45)(cid:59)(cid:58)(cid:44)(cid:3)(cid:25)(cid:28)(cid:23)(cid:3)(cid:20)(cid:3)(cid:59)(cid:54)(cid:59)(cid:3)(cid:57)(cid:76)(cid:91)(cid:92)(cid:89)(cid:85)(cid:3)(cid:48)(cid:85)(cid:75) Share Price At 27 September 2009 the Company’s share price was 161.5p (2008:126.25p). The highest price in the period was 163.5p and the lowest 93.00p. Nick Hood Chairman of Remuneration Committee 1 December 2009 Annual Report and Accounts 2009 31 Directors’ Responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Directors’ Responsibility Statement We confirm that to the best of our knowledge: 1. 2. the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and the management report, which is incorporated into the Directors’ Report together with the information provided in the Executive Chairman’s Statement, the Business Review and the Operating and Financial Review, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. By order of the Board J Matheson Executive Chairman 1 December 2009 Robin Bayford Finance Director Company law requires the directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the parent company financial statements under IFRSs as adopted by the EU. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, International Accounting Standard 1 requires that Directors: • • • properly select and apply accounting policies; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and • make an assessment of the Company’s ability to continue as a going concern. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 32 Brewin Dolphin Holdings PLC Inde pendent Auditors’ Report to the members of Brewin Dolphin Holdings PLC We have audited the financial statements of Brewin Dolphin Holdings PLC for the 52 week period ended 27 September 2009 which comprise the Consolidated Income Statement, the Consolidated Statement of Recognised Income and Expense, the Consolidated Balance Sheet, the Company Balance Sheet, the Company Statement of Recognised Income and Expense, the Consolidated and Company Cash Flow Statements and the related notes 1 to 34. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with sections 495, 496 and 497 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of Directors and Auditors As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the Audit of the Financial Statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on Financial Statements In our opinion: • • • the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 27 September 2009 and of the group’s profit for the 52 week period then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and Independent Auditors’ Report • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. Separate Opinion in relation to IFRSs as issued by the IASB As explained in note 3 to the Group financial statements, the Group in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB). In our opinion the Group financial statements comply with IFRSs as issued by the IASB. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • • • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreemen t with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: • • the directors’ statement contained within the Directors’ Report in relation to going concern; and the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review. Simon Hardy (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors London, United Kingdom 1 December 2009 Annual Report and Accounts 2009 33 Consolidated Income Statement 52 week period ended 27 September 2009 Continuing operations Revenue Other operating income Total income Staff costs Redundancy costs Amortisation of intangible assets - client relationships Other operating costs Operating expenses Operating profit Finance income Finance costs Profit before tax Tax 52 weeks to 27 September 2009 £’000 (Restated) 52 weeks to 28 September 2008 £’000 187,241 25,071 212,312 (102,763) (3,638) (6,566) (78,873) (191,840) 20,472 2,435 (968) 21,939 (6,404) 186,969 19,526 206,495 (105,200) (634) (4,244) (70,607) (180,685) 25,810 7,142 (994) 31,958 (9,939) Note 6 3g 7 8 8 15 10 10 7 & 9 11 Profit attributable to equity shareholders of the parent from continuing operations 15,535 22,019 Earnings per share From continuing operations Basic Diluted 14 14 7.4p 7.2p 10.7p 10.3p Consolidated Statement of Recognised Income and Expense 52 week period ended 27 September 2009 52 weeks to 27 September 2009 £’000 Note (Restated) 52 weeks to 28 September 2008 £’000 Loss on revaluation of available-for-sale investments Deferred tax credit on revaluation of available-for-sale investments Actuarial loss on defined benefit pension scheme Deferred tax credit on actuarial loss on defined benefit pension scheme Current tax credit on share-based payments Deferred tax charge on share-based payments Net expense recognised directly in equity Profit for period Total recognised income and expense for the period attributable to equity shareholders of the parent Effects of change in accounting policy attributable to equity shareholders of the parent 4 (17) 4 (9,556) 2,676 63 (75) (6,905) 15,535 8,630 – 8,630 (900) 254 (4,375) 1,225 568 (1,255) (4,483) 22,019 17,536 (2,227) 15,309 34 Brewin Dolphin Holdings PLC Consolidated Balance Sheet As at 27 September 2009 As at 27 September 2009 £’000 Note (Restated) As at 28 September 2008 £’000 Assets Non-current assets Intangible assets Property, plant and equipment Available-for-sale investments Other receivables Deferred tax asset Total non-current assets Current assets Trading investments Trade and other receivables Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Bank overdrafts Trade and other payables Current tax liabilities Provisions Shares to be issued including premium Total current liabilities Net current assets Non-current liabilities Retirement benefit obligation Deferred tax liabilities Deferred purchase consideration Provisions Shares to be issued including premium Total non-current liabilities Total liabilities Net assets Equity Called up share capital Share premium account Revaluation reserve Merger reserve Profit and loss account Equity attributable to equity holders of the parent Approved by the Board of Directors and authorised for issue on 1 December 2009. Signed on its behalf by J G Matheson Executive Chairman R A Bayford Finance Director 15 16 18 19 20 18 19 21 22 23 32 24 26 20 24 32 24 27 29 29 29 29 29 89,605 22,260 10,609 2,269 852 85,685 27,975 10,626 2,098 – 125,595 126,384 644 441,290 69,271 511,205 636,800 4,289 468,619 1,715 1,871 5,056 481,550 29,655 16,253 – 3,221 172 17,385 37,031 518,581 118,219 2,122 94,140 6,885 4,562 10,510 724 283,404 60,546 344,674 471,058 3,717 306,855 484 2,068 8,233 321,357 23,317 7,964 1,938 2,960 – 16,946 29,808 351,165 119,893 2,080 90,145 6,898 4,562 16,208 118,219 119,893 Annual Report and Accounts 2009 35 As at 27 September 2009 £’000 As at 28 September 2008 £’000 Note 17 19 19 21 23 24 24 27 29 29 29 29 141,719 329 142,048 3,739 291 4,030 141,052 430 141,482 7,708 57 7,765 146,078 149,247 7,352 5,056 12,408 (8,378) 17,385 17,385 29,793 7,357 8,233 15,590 (7,825) 16,946 16,946 32,536 116,285 116,711 2,122 94,140 4,847 15,176 2,080 90,145 4,847 19,639 116,285 116,711 Company Balance Sheet As at 27 September 2009 Assets Non-current assets Investment in subsidiaries Other receivables Total non-current assets Current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Trade and other payables Shares to be issued including premium Total current liabilities Net current liabilities Non-current liabilities Shares to be issued including premium Total non-current liabilities Total liabilities Net assets Equity Called up share capital Share premium account Merger reserve Profit and loss account Equity attributable to equity holders Approved by the Board of Directors and authorised for issue on 1 December 2009. Signed on its behalf by J G Matheson Executive Chairman R A Bayford Finance Director 36 Brewin Dolphin Holdings PLC Company Statement of Recognised Income and Expense 52 week period ended 27 September 2009 Profit for period Total recognised income and expense for the period attributable to equity shareholders 52 weeks to 27 September 2009 £’000 52 weeks to 28 September 2008 £’000 9,878 9,878 14,895 14,895 Annual Report and Accounts 2009 37 Consolidated Cash Flow Statement 52 week period ended 27 September 2009 Net cash inflow from operating activities Cash flows from investing activities Purchase of intangible assets - goodwill Purchase of intangible assets - client relationships Purchase of intangible assets - software Purchases of property, plant and equipment Dividend received from available-for-sale investments Net cash used in investing activities Cash flows from financing activities Dividends paid to equity shareholders Proceeds on issue of shares Net cash used in financing activities Note 33 15 15 15 16 10 52 weeks to 27 September 2009 £’000 (Restated) 52 weeks to 28 September 2008 £’000 37,389 14,104 (987) (5,360) (5,088) (4,443) 352 (15,526) (15,027) 1,317 (13,710) – (10,681) – (15,746) 404 (26,023) (21,500) 2,845 (18,655) Net increase/(decrease) in cash and cash equivalents 8,153 (30,574) Cash and cash equivalents at the start of period 56,829 87,403 Cash and cash equivalents at the end of period 64,982 56,829 Firm’s cash Firm’s overdraft Firm’s net cash Client settlement cash Net cash and cash equivalents Cash and cash equivalents shown in current assets Bank overdrafts Net cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents include bank overdrafts. 43,118 (4,289) 38,829 26,153 64,982 69,271 (4,289) 64,982 38,189 (3,717) 34,472 22,357 56,829 60,546 (3,717) 56,829 38 Brewin Dolphin Holdings PLC Company Cash Flow Statement 52 week period ended 27 September 2009 Net cash inflow from operating activities Cash flows from financing activities Dividends paid to equity shareholders Proceeds on issue of shares Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the start of period Cash and cash equivalents at the end of period 52 weeks to 27 September 2009 £’000 52 weeks to 28 September 2008 £’000 13,944 18,530 Note 33 (15,027) 1,317 (13,710) 234 57 291 (21,500) 2,845 (18,655) (125) 182 57 Annual Report and Accounts 2009 39 Notes to the Financial Statements 1. General information Brewin Dolphin Holdings PLC is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given on page 2. The nature of the Group’s operations and its principal activities are set out in the Directors’ Report. The company is registered in England and Wales. 2. Adoption of new and revised standards Two Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are: IFRIC 11 “IFRS 2 – Group and Treasury Share Transactions”, IFRIC 14 and “IAS 19 – The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction”. The adoption of these Interpretations has not led to any changes in the Group’s accounting policies or financial statements. During the year there was a change in accounting policy, see note 4. At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU): IAS 24 (revised Nov. 2009) Amendment to IAS 32 (Oct. 2009) Amendments to IFRS 1 (Jul. 2009) IFRS for SMEs Amendments to IFRS 2 (Jun. 2009) Improvements to IFRSs 2009 (Apr. 2009) Amendments to IFRIC 9 and IAS 39 (Mar. 2009) Amendments to IFRS 7 (Mar. 2009) IFRS 1 (revised Nov. 2008) IFRS 3 (revised Jan. 2008) Amendment to IAS 23 (Mar. 2007) Amendments to IAS 1 (Sept. 2007) Amendments to IAS 27 (Jan. 2008) Amendment to IFRS 2 (Jan. 2008) Amendments to IAS 32 and IAS 1 (Feb. 2008) Amendments to IFRS 1 and IAS 27 Improvements to IFRSs 2008 (May 2008) Amendment to IAS 39 (Jul. 2008) IFRS 8 Amendments to IFRIC 9 and IAS 39 (Mar. 2009) IFRIC 12 IFRIC 13 IFRIC 15 IFRIC 16 IFRIC 17 IFRIC 18 Related Party Disclosures Classification of Rights Issues Additional Exemptions for First-time Adopters IFRS for small and medium-sized entities Group Cash-settled Share-based Payment Transactions Improvements to IFRSs 2009 Embedded Derivatives Improving Disclosures about Financial Instruments First-time Adoption of International Financial Reporting Standards Business Combinations Borrowing Costs Presentation of Financial Statements Consolidated and Separate Financial Statements Vesting Conditions and Cancellations Puttable Financial Instruments and Obligations Arising on Liquidation Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate Improvements to IFRSs 2008 Eligible Hedged Items Operating Segments Embedded Derivatives Service Concession Arrangements Customer Loyalty Programmes Agreements for the Construction of Real Estate Hedges of a Net Investment in a Foreign Operation Distributions of Non-cash Assets to Owners Transfers of Assets from Customers Adoption of these Standards and Interpretations is not expected to have a material impact on the financial statements of the Group except for the treatment of the acquisition of subsidiaries when IFRS 3 (revised January 2008) comes into effect on any business combinations arising in the next financial period. When IFRS 8 comes into effect for periods commencing on or after 1 January 2009, it is not expected to lead to additional segmental disclosures. 3. Significant accounting policies a. Basis of accounting The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation. The financial statements of the Company have also been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below. As discussed in the Directors’ Report, the Directors believe that the Group is well placed to manage its business risks successfully. The Group’s forecasts and projections, taking account of possible adverse changes in trading performance, show that the Group should be able to operate within the level of its current financing arrangements. Accordingly, the Directors continue to adopt the going concern basis for the preparation of the financial statements. 40 Brewin Dolphin Holdings PLC b. Basis of consolidation The Group accounts consolidate the accounts of Brewin Dolphin Holdings PLC and all its subsidiary undertakings. The acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired during the period are included in the consolidated income statement from the date of acquisition to the date of disposal. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. In the Company’s accounts investments in subsidiary undertakings are stated at cost less any provision for impairment. Dividends received and receivable are credited to the income statement to the extent that they represent a realised profit and loss for the Company. In accordance with Section 408 of the Companies Act 2006 Brewin Dolphin Holdings PLC has taken advantage of the legal dispensation not to present its own income statement. The amount of the profit for the financial period dealt with in the financial statements of the Company is disclosed in note 12 to the financial statements. c. Transaction date accounting All securities transactions entered into on behalf of clients are recorded in the accounts on the date of the transaction. d. Foreign currencies The Group’s functional currency is Sterling. Foreign currency monetary assets and liabilities have been translated into Sterling at the exchange rates ruling at the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Transactions during the period have been translated into Sterling at the rates ruling at the time the transactions were executed. All exchange differences are reflected in the income statement, except for any exchange differences arising on any non-monetary assets and liabilities where the changes in fair value are recognised directly in equity. e. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents gross commission, investment management fees and investment banking retainers, other fees plus other income, excluding VAT, receivable in respect of the period. Investment management fees and investment banking retainers are recognised in the period in which the related service is provided and investment management commissions are recognised when the transaction is performed. Other fees including corporate finance fees and placing commissions are taken to the income statement when payment is contractually due. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. f. Operating profit Operating profit is stated as being profit before finance income, finance costs and tax. g. Other operating income Interest receivable and payable on client free money balances is netted to calculate the Group’s share of interest receivable and included under the heading “Other operating income”. h. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and bank overdrafts. Leases i. Annual rentals on operating leases are charged to the income statement on a straight-line basis over the lease term. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. j. Share-based payments The Group has applied the requirements of IFRS 2 “Share-based payments”. In accordance with IFRS 1, IFRS 2 has been applied to all grants of equity instruments made after 7 November 2002 that were unvested as of 1 January 2005. Annual Report and Accounts 2009 41 Notes to the Financial Statements (continued) j. Share-based payments (continued) The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share- based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. Fair value is measured by use of a Black-Scholes option pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. k. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Intangible assets l. i) Goodwill Goodwill represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit and loss and is not reversed. Elements of the total cost of an acquisition may be deferred or contingent. In such cases the cost of the acquisition indicates the Company’s best estimate of the future consideration likely to be made, discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money, and is revised at each balance sheet date, potentially leading to adjustments in the value of goodwill balances. Such deferred or contingent consideration may be settled in shares (see note 3(r)). On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. ii) Client relationships Intangible assets classified as “client relationships” are recognised when acquired as part of a business combination or when separate payments are made to acquire funds under management by adding teams of investment managers. Client relationships are initially recognised at cost and are subsequently measured at cost less accumulated amortisation and any accumulated impairment losses. If acquired as part of a busi ness combination the initial cost of client relationships is the fair value at the acquisition date. When separate payments are made to acquire funds under management by adding teams of investment managers, elements of the total consideration may be deferred or contingent. In such cases the cost of the recognised client relationships includes the Company’s best estimate of the future consideration likely to be made, discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money, and is revised at each balance sheet date. Such deferred or contingent consideration may be settled in shares (see note 3(r)). Client relationships are amortised over seven to fifteen years, their minimum estimated useful lives. 42 Brewin Dolphin Holdings PLC Intangible assets (continued) Computer software l. iii) Computer software which is not an integral part of the related hardware is classified as an intangible asset. Costs of acquiring computer software are treated as an intangible asset and amortised over four years on a straight line basis from the date the software comes into use. Computer software developed internally is separately identified and recognised as an intangible asset if it is part of a specifically authorised project which will give probable future economic benefits over a period of not less than four years, and is amortised over four years on a straight line basis from the date the software comes into use. m. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any recognised impairment. Depreciation has been provided on the basis of equal annual instalments to write off the cost less estimated residual values of tangible fixed assets over their estimated useful lives as follows: Computer equipment Office equipment Leasehold improvements 3 to 4 years 4 to 10 years over 5 years n. Financial instruments Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. o. Financial assets Investments are recognised and derecognised on trade date, where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held to maturity’ investments, ‘available-for-sale’ financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets at FVTPL Financial assets are classified as at FVTPL where the financial asset is held-for-trading or it is designated as at FVTPL. A financial asset is classified as held-for-trading if it has been acquired principally for the purpose of selling in the near future. Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporate any dividends or interest earned on the financial asset. Their value is determined in the manner described in note 18. Available-for-sale financial assets Certain shares held by the Group are classified as being available-for-sale and are stated at fair value. Fair value is determined in the manner described in note 18. Gains and losses are recognised directly in equity in the revaluation reserve with the exception of impairment losses which are recognised directly in profit or loss. Where the investment is disposed of or is determin ed to be impaired, the cumulative gain or loss previously recognised in the revaluation reserve is included in profit or loss for the period. Dividends on available-for-sale equity instruments are recognised in profit and loss when the Group’s right to receive payment is established. Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments and are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets. p. Netting of balances Amounts due to and from counterparties due to settle on balance are shown net where there is a currently enforceable legal right to set off the recognised amounts. Amounts due to and from counterparties due to settle against delivery of stock are shown gross. Annual Report and Accounts 2009 43 Notes to the Financial Statements (continued) q. Financial liabilities and equity Financial liabilities and equity are classified according to the substance of the contractual arrangements entered into. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Financial liabilities Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’. Financial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as at FVTPL. Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. r. Shares to be issued including premium Shares to be issued represent the Company’s best estimate of the amount of ordinary shares in the Company, which are likely to be issued following business combinations or the acquisition of client relationships which involve deferred payments in the Company’s shares. The sum is discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money and is revised annually in the light of actual results. The resulting interest charge from the unwind of the discount is included within finance costs. Where shares are due to be issued within a year then the sum is included in current liabilities. Where the team of investment managers, bringing with them funds under management, have not yet joined and the client relationships assets have not been brought into use, the resultant liability is shown as an amount contracted for but not provided in the accounts. s. Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state- managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme. For defined benefit retirement benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside the profit or l oss and presented in the statement of recognised income and expense (“SORIE”). Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation, as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme. Impairment of tangible and intangible assets t. At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Goodwill is tested for impairment at least annually. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. For the purposes of impairment testing, client relationships and goodwill are allocated to each of the Group’s cash-generating units. Fair value is established by valuing clients’ funds under management in each of the cash-generating units based on the value of funds under management at the period end; the percentages of funds being used depending on values attributed in recent public transactions for the purchase of advisory and discretionary funds. If the carrying amount relating to any cash-generating unit exceeds the calculated fair value less costs to sell, a value in use is calculated using a discounted cash flow method. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. If the recoverable amount of any asset other than client relationships or goodwill is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. 44 Brewin Dolphin Holdings PLC u. Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material. 4. Change in accounting policy After a long and constructive dialogue with the Financial Reporting Review Panel the Group has considered the additional clarification which the forthcoming standard IFRS 3 (2008) brings to the recognition of intangible assets and the various practices currently applied by other firms in the purchase of investment management businesses, and has retrospectively changed its accounting policy. Payments to acquire teams of investment managers, bringing with them funds under management, have been re-classified as the intangible asset – client relationships, rather than goodwill. Similarly intangible assets representing client relationships acquired as part of business combinations have been recognised separately to goodwill. The new accounting policy is considered preferable as it brings us into line with our peers and is more transparent. This new accounting policy has been applied r etrospectively from the date of the Group’s transition to IFRS and the comparative figures for 2008 in these financial statements have been restated. Opening retained earnings as at 1 October 2007 have been reduced by £2.2m after deferred taxation which is the cumulative amount of the adjustment relating to periods prior to 2008. The main changes to our financial statements are presented below: Profit before tax and amortisation Amortisation of the intangible asset - client relationships Profit before tax Taxation Profit after taxation Basic earning per share post amortisation Fully diluted earning per share post amortisation Net assets Intangible assets Goodwill Client relationships 2009 Prior to change of accounting policy £’000 2009 Following change of accounting policy £’000 28,505 – 28,505 (8,242) 20,263 9.6p 9.4p 28,505 (6,566) 21,939 (6,404) 15,535 7.4p 7.2p 2009 Prior to change of accounting policy £’000 2009 Following change of accounting policy £’000 128,230 118,219 99,095 – 99,095 48,438 36,753 85,191 2008 2008 Previously reported £’000 36,202 – 36,202 (11,127) 25,075 12.2p 11.7p As restated £’000 36,202 (4,244) 31,958 (9,939) 22,019 10.7p 10.3p 2008 2008 Previously reported £’000 125,176 93,023 – 93,023 As restated £’000 119,893 48,376 37,309 85,685 Deferred tax asset / (liability) (3,041) 852 (3,993) (1,938) Annual Report and Accounts 2009 45 Notes to the Financial Statements (continued) 5. Critical accounting judgements and key sources of estimation uncertainty The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities and profits and losses. Evaluation of the accounting judgements takes into account historical experience as well as future expectations. Retirement benefit obligation In conjunction with the Group’s Actuary, the Group makes estimates about a range of long term trends, including life expectancy. These estimates are governed by the rules set out in IAS 19 Employee Benefits which inevitably lead to significant swings in the pension deficit from year to year, as long term interest rates change and short term market movements affect asset valuations. The detailed assumptions are set out in note 26. Shares to be issued including premium and def erred purchase consideration The Group includes within these headings its best estimate discounted to present value of the ultimate sum which will be paid for businesses or client relationships under deferred purchase agreements. This is inevitably judgemental and depends on events which transpire over periods up to five years. Market conditions are an important factor. Impairment of goodwill and client relationships For the purposes of impairment testing, the Group values goodwill and client relationships based on the valuation of individual units making up the relevant intangible asset. For an investment management business this is normally based on the value of funds under management at the period end; the percentages of funds being used depending on values attributed in recent public transactions for the purchase of advisory and discretionary funds. A price earnings basis is used where more appropriate. Valuation of investment in Euroclear plc The fair valuation of the Group’s investment in Euroclear plc is based upon the Group’s share of net assets, dividend yield and the prices of similar quoted companies discounted for marketability. This calculation inevitably includes a number of areas of judgement. 6. Revenue Commission income Financial planning and trail income Investment banking fees and retainers Investment management fees 2009 £’000 52 weeks 90,650 20,225 8,297 68,069 2008 £’000 52 weeks 87,471 21,009 9,410 69,079 187,241 186,969 46 Brewin Dolphin Holdings PLC 7. Segmental information For management purp oses, the Group is divided into two business streams: Investment Management and Investment Banking. These form the basis for the primary segment information reported below. All operations are carried out in the United Kingdom and the Channel Islands. All segment income relates to external clients. 52 week period ended 27 September 2009 Discretionary Portfolio Management £’000 Advisory Portfolio Management £’000 Total Investment Management £’000 Investment Banking £’000 Group £’000 Total income 128,790 75,225 204,015 8,297 212,312 Operating profit before redundancy costs and amortisation of client relationships Redundancy costs Amortisation of client relationships Operating profit Finance income (net) Profit before tax Other Information Capital expenditure Depreciation Amortisation of intangible asset – software Share-based payments Segment assets excluding current tax assets Segment liabilities excluding current tax liabilities 52 week period ended 28 September 2008 (Restated) 19,428 11,173 30,601 (3,393) (6,566) 75 (245) – 4,404 9,982 674 652 39 171 – 34 567,683 447,749 69,117 69,117 Discretionary Portfolio Management £’000 Advisory Portfolio Management £’000 Total Investment Management £’000 Investment Banking £’000 30,676 (3,638) (6,566) 20,472 1,467 21,939 4,443 10,153 674 686 636,800 516,866 Group £’000 Total income 122,975 70,721 193,696 12,799 206,495 Operating profit before redundancy costs and amortisation of client relationships Redundancy costs Amortisation of client relationships 18,845 10,845 29,690 (134) (4,244) 998 (500) – Operating profit Finance income (net) Profit before tax Other Information Capital expenditure Depreciation Share-based payments Segment assets excluding current tax assets Segment liabilities excluding current tax liabilities 15,147 8,459 621 439,744 319,367 30,688 (634) (4,244) 25,810 6,148 31,958 15,746 8,585 661 599 126 40 31,314 31,314 471,058 350,681 Annual Report and Accounts 2009 47 Notes to the Financial Statements (continued) 8. Staff costs and related party transactions Group The average monthly number of employees including Directors by category was: Investment Management Investment Banking Business Support The aggregate payroll costs were as follows including Directors: Wages and salaries Social security costs Share-based payments Termination benefits - redundancy costs Other pension costs The Company does not have any employees (2008: nil). 2009 52 Weeks No. 2008 52 Weeks No. 941 60 667 1,668 £’000 81,363 9,661 686 3,638 11,053 913 76 665 1,654 £’000 85,476 9,724 661 634 9,339 106,401 105,834 Remuneration of key management personnel The remuneration of the directors, who are the key management personnel of the Group, is set out in the Directors’ Remuneration Report on page 26. Directors’ transactions Material contracts with Directors and loans to Directors are shown in the Directors’ Remuneration Report on page 30; there are no other related party transactions with Directors. 48 Brewin Dolphin Holdings PLC 9. Profit for the period Profit for the period has been arrived at after charging/(crediting): Net foreign exchange gains Depreciation of property, plant and equipment (note 16) Amortisation of intangible assets – client relationships (note 15) Impairment of intangible assets – client relationships (note 15) Amortisation of intangible assets – software (note 15) Staff costs (note 8) Other pension costs (note 8) Defined benefit scheme – including death in service contributions Defined contribution scheme Reversal of impairment of trade receivables Auditors’ remuneration (see analysis below) Analysis of auditors’ remuneration Fees payable to the Company’s auditors for the audit of the Company’s annual accounts Fees payable to the Company’s auditors and their associates for other services to the Group: the audit of the Company’s subsidiaries pursuant to legislation (including additional cost relating to 2008 audit) Other services pursuant to legislation Interim review Regulatory audit work Tax services Information technology services Corporate finance services Other services Assurance services for external parties AAF 01/06 – controls assurance report Accounting and regulatory advice 10. Finance income and finance costs Finance income Interest income on pension plan assets Dividends from available-for-sale investments Interest on bank deposits Finance costs Finance cost of deferred consideration Interest expense on defined benefit obligation Interest on bank overdrafts 2009 52 Weeks £’000 (720) 10,153 6,566 230 674 106,401 2008 52 Weeks £’000 (603) 8,585 4,244 430 – 105,834 1,977 9,076 (443) 607 55 214 70 23 50 20 175 607 40 30 46 55 74 482 8,857 (65) 502 55 180 70 95 47 – 55 502 40 30 – 55 – 2009 52 Weeks £’000 2008 52 Weeks £’000 – 352 2,083 2,435 509 412 47 968 159 404 6,579 7,142 981 – 13 994 Annual Report and Accounts 2009 49 Notes to the Financial Statements (continued) 11. Taxation United Kingdom Current tax Prior year Overseas tax Current tax Prior year United Kingdom deferred tax Current year Prior year 2009 52 Weeks £’000 (Restated) 2008 52 Weeks £’000 5,931 667 174 (246) 6,526 531 (653) 6,404 5,955 192 216 5 6,368 3,836 (265) 9,939 United Kingdom corporation tax is calculated at 28% (2008: 29%) of the estimated assessable taxable profit for the period. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The charge for the year can be reconciled to the profit per the income statement as follows: Profit before tax 21,939 31,958 Tax at the UK corporation tax rate of 28% (2008: 29%) Tax effect of expenses that are not deductible in determining taxable profit Tax effect of prior year tax Tax effect of prior year deferred tax Tax effect of share-based payments Tax effect of deferred tax timing differences Tax effect of leasehold property depreciation Tax effect of prior year leasehold property allowances Tax expense Effective tax rate for the year 6,143 493 532 (653) (196) (83) 279 (111) 6,404 29% 9,268 551 197 (265) 162 (148) 174 – 9,939 31% In addition to the amount charged to the income statement, deferred tax relating to the revaluation of the Group’s available-for-sale investments amounting to £4,000 (2008: £254,000) has been credited directly to equity and deferred tax relating to the actuarial loss in the defined benefit pension scheme amounting to £2,676,000 (2008: £1,225,000) has been credited directly to equity. Deferred tax on share-based payments of £75,000 (2008: £1,255,000) has been credited directly to equity. 12. Profit attributable to equity shareholders of the parent Profit after taxation dealt with in the accounts of the Company 2009 52 Weeks £’000 9,878 2008 52 Weeks £’000 14,895 50 Brewin Dolphin Holdings PLC 13. Dividends Amounts recognised as distributions to equity shareholders in the period: Final dividend paid 6 April 2009, 3.55p per share (2008: 3.5p per share) Interim dividend paid 25 September 2009, 3.55p per share (2008: 3.55p per share) Proposed final dividend for the 52 weeks ended 27 September 2009 of 3.55p (2008: 3.55p) per share based on shares in issue at 10 November 2009 (7 November 2008) 2009 52 Weeks £’000 2008 52 Weeks £’000 7,504 7,523 15,027 7,248 7,383 14,631 7,537 7,388 The proposed final dividend for the 52 week period ended 27 September 2009 of 3.55p per share is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. 14. Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: Number of shares Basic Weighted average number of shares in issue in the period Diluted Weighted average number of options outstanding for the period Estimated weighted average number of shares earned under deferred consideration arrangements 2009 ’000 (Restated) 2008 ’000 210,940 206,157 1,271 6,555 2,415 8,527 Diluted weighted average number of options and shares for the period 218,766 217,099 Earnings attributable to ordinary shareholders Profit attributable to equity shareholders of the parent from continuing operations Redundancy costs less tax Amortisation of intangible assets – client relationships less tax Adjusted basic profit for the period and attributable earnings excluding redundancy costs and amortisation of client relationships Profit attributable to equity shareholders of the parent from continuing operations Finance costs of deferred consideration (note a) less tax Adjusted fully diluted profit for the period and attributable earnings Redundancy costs less tax Amortisation of intangible assets – client relationships less tax Adjusted fully diluted profit for the period and attributable earnings excluding redundancy costs and amortisation of client relationships From continuing operations Basic Diluted From continuing operations excluding redundancy costs and amortisation of client relationships Basic Diluted £’000 15,535 3,638 (1,019) 6,566 (1,838) 22,882 15,535 277 (78) 15,734 3,638 (1,019) 6,566 (1,838) £’000 22,019 634 (184) 4,244 (1,188) 25,525 22,019 549 (159) 22,409 634 (184) 4,244 (1,188) 23,081 25,915 7.4p 7.2p 10.8p 10.6p 10.7p 10.3p 12.4p 11.9p a) Finance costs of deferred consideration are added back where the issue of shares is more dilutive than the interest cost saved. The numerators for the purposes of calculating both basic and diluted earnings per share have been adjusted following the change in accounting policy described in note 4. Annual Report and Accounts 2009 51 Notes to the Financial Statements (continued) 15. Intangible assets Group Cost As previously reported at 30 September 2007 Prior period adjustment (note 4) As restated at 1 October 2007 Additions Revaluation of shares to be issued and deferred purchase consideration in respect of acquisitions in prior periods (note 24) At 28 September 2008 Additions Revaluation of shares to be issued and deferred purchase consideration in respect of acquisitions in prior periods (note 24) At 27 September 2009 Accumulated amortisation and impairment As previously reported at 30 September 2007 Prior period adjustment (note 4) As restated at 1 October 2007 Amortisation charge for the period Impairment losses for the period At 28 September 2008 Amortisation charge for the period Impairment losses for the period At 27 September 2009 Goodwill £’000 Client relationships £’000 Software development costs £’000 Purchased software £’000 65,767 (18,052) 47,715 166 495 48,376 62 – 18,052 18,052 25,045 1,980 45,077 5,663 – 577 48,438 51,317 – – – – – – – – – – 3,094 3,094 4,244 430 7,768 6,566 230 14,564 – – – – – – 391 – 391 – – – – – – 49 – 49 Total £’000 65,767 – 65,767 25,211 2,475 93,453 10,813 – – – – – – 4,697 – 577 4,697 104,843 – – – – – – 625 – 625 – 3,094 3,094 4,244 430 7,768 7,240 230 15,238 The £230,000 client relationships impairment loss in the period related to two cash generating units within the Investment Management Division. (2008: £430,000 - £340,000 two cash generating units within Investment Management and £90,000 one cash generating unit within Investment Banking). Net book value At 27 September 2009 At 28 September 2008 At 1 October 2007 (Restated) 48,438 48,376 47,715 36,753 37,309 14,958 342 4,072 – – – – 89,605 85,685 62,673 52 Brewin Dolphin Holdings PLC 15. Intangible assets (continued) Additions are made up as follows: 2009 Cash paid for additions in period Deferred purchase liability Value of shares to be issued* Cash paid for businesses or client relationships acquired in previous periods Utilisation of provisions for deferred purchase liability and shares to be issued (note 24) Shares issued in period (note 27) Adjustments to prior year acquisitions Total additions 2008 Cash paid for additions in period Deferred purchase liability Value of shares to be issued* Shares issued in period Goodwill £’000 Client relationships £’000 Software development costs £’000 Purchased software £’000 Total £’000 6,597 412 2,814 9,823 4,838 (6,568) 2,720 990 391 – – 391 – – – – 4,697 – – 4,697 – – – – 391 4,697 10,813 – – – – – – – – – – 10,681 2,183 12,181 166 25,211 – – – – 1,509 412 2,814 4,735 987 3,851 (2,425) 1,500 62 62 – – – 166 166 (4,143) 1,220 928 5,663 10,681 2,183 12,181 – 25,045 * The number of shares issuable will be determined by the share price at the date of issue. If the shares had been issued at the end of the period the number of shares issued would have been 1,742,415 (2008: 9,648,317) ordinary 1 pence shares. Analysis of goodwill and client relationships Carrying amount at period end South East investment management team Midland investment management team 1 Midland investment management team 2** Midland investment management team 3 Other investment management teams ~ Goodwill £’000 9,987 5,153 – 5,289 28,009 48,438 Client relationships £’000 – – 5,066 – 31,687 36,753 Total £’000 9,987 5,153 5,066 5,289 59,696 85,191 **Amortisation period remaining 6 years. ~ None of the constituent parts of the goodwill or client relationships relating to the other investment management teams is individually significant in comparison to the total value of goodwill or client relationships respectively. Annual Report and Accounts 2009 53 Notes to the Financial Statements (continued) 16. Property, plant and equipment Group Leasehold Improvements £’000 Office Equipment £’000 Computer Equipment £’000 Cost At 1 October 2007 Additions Disposals At 28 September 2008 Additions Disposals At 27 September 2009 Depreciation At 1 October 2007 Charge for the period Eliminated on disposal At 28 September 2008 Charge for the period Eliminated on disposal At 27 September 2009 Net book value At 27 September 2009 At 28 September 2008 At 1 October 2007 4,177 3,381 (533) 7,025 891 (28) 7,888 1,989 764 (447) 2,306 998 (25) 3,279 4,609 4,719 2,188 5,939 2,089 (868) 7,160 459 – 7,619 3,678 1,023 (820) 3,881 1,347 – 5,228 2,391 3,279 2,261 54,020 10,276 (1) 64,295 3,093 (2) 67,386 37,520 6,798 – 44,318 7,808 – 52,126 15,260 19,977 16,500 Total £’000 64,136 15,746 (1,402) 78,480 4,443 (30) 82,893 43,187 8,585 (1,267) 50,505 10,153 (25) 60,633 22,260 27,975 20,949 17. Subsidiaries The following are the Grou p’s principal subsidiary undertakings, all of which are included in the consolidated financial statements: Name Brewin Dolphin Limited Brewin Nominees Limited Brewin Dolphin MP Country of registration Trade England & Wales England & Wales England & Wales Investment Manager Nominee Company Investment Manager North Castle Street (Nominee) Limited Scotland Nominee Company Company At start of period Change in investment in Brewin Dolphin Limited Capital contribution to Brewin Dolphin Limited re share-based payments At end of period Class of share capital Ordinary Ordinary A Ordinary B Ordinary Ordinary 2009 £’000 141,052 (19) 686 141,719 Percentage of voting rights held 100% 100% 100% 100% 100% 2008 £’000 125,160 15,231 661 141,052 54 Brewin Dolphin Holdings PLC 18. Investments Available-for-sale investments Group At 1 October 2007 Net gains from changes in fair value recognised in equity At 28 September 2008 Net gains from changes in fair value recognised in equity At 27 September 2009 Listed investments £’000 Unlisted investments £’000 1,526 (900) 626 (17) 609 10,000 – 10,000 – 10,000 Total £’000 11,526 (900) 10,626 (17) 10,609 Unlisted available-for-sale investments represent the Group’s holding of 19,899 ordinary shares in Euroclear plc. This holding represents 0.52% of Euroclear plc’s shares. As at 27 September 2009 the Directors updated their valuation of the Group’s holding in Euroclear plc; the valuation remains at £10 million. This valuation took into account the Group’s share of net assets, dividend yield and the prices of similar quoted companies discounted for marketability. Trading investments Group Fair value At 28 September 2008 At 27 September 2009 Listed investments £’000 Unlisted investments £’000 724 644 – – Total £’000 724 644 Investments are measured at fair value which is determined directly by reference to published prices in an active market where available. During the period the Group realised gains from trading investments of £1,312,000 (2008: £1,308,000). At the period end losses recognised on investments not yet sold were £1,000 (2008: £35,000). 19. Other financial assets Trade and other receivables Group Non-current: other receivables Loans – see (i) below Current: trade and other receivables Trade debtors Other debtors Prepayments and accrued income 2009 £’000 2,269 2,269 411,935 1,978 27,377 441,290 2008 £’000 2,098 2,098 249,633 3,275 30,496 283,404 (i) £2,269,000 (2008: £2,098,000) represents loans to staff under the Group share schemes which are repayable in more than one year. The loans are secured on the Company’s shares. The Directors believe that these balances are fully recoverable. Annual Report and Accounts 2009 55 Notes to the Financial Statements (continued) 19. Other financial assets (continued) Company Non-current: other receivables Loans Current: trade and other receivables Prepayments and accrued income Amounts due from subsidiary undertakings 2009 £’000 329 329 20 3,719 3,739 2008 £’000 430 430 11 7,697 7,708 The Directors consider that the carrying amount of the trade and other receivables approximates to their fair value. Any trade debtor in relation to client balances which are older than ninety days are provided for unless collateral is held. Trade debtors relate to either market or client transactions and are considered to be past due once the date for settlement has passed. The date for settlement is determined when the trade is booked. It is expected that some transactions may become past due in the normal course of business. Fees owed by clients are considered to be past due when they remain unpaid after 30 days after the relevant billing date. The maximum exposure to credit risk is the carrying value as above. Ageing of past due but not impaired trade debtors Not past due Up to 15 days past due 16 to 30 days past due 31 to 45 days past due More than 45 days past due Individually impaired trade debtors Individually impaired trade debtors Provision for doubtful debts Trade debtors Movements in provision for doubtful debts At start of period Net release to the income statement At end of period No other financial assets of the Group or the Company, other than doubtful debts, are impaired. 2009 £’000 399,535 10,631 467 376 798 411,807 820 (692) 128 2008 £’000 239,299 8,016 746 685 853 249,599 1,169 (1,135) 34 411,935 249,633 1,135 (443) 692 1,200 (65) 1,135 56 Brewin Dolphin Holdings PLC 20. Deferred tax asset/(liability) Capital allowances £’000 Revaluation £’000 Other short term timing differences £’000 Retirement benefit obligation £’000 Share based payments £’000 Intangible asset amortisation £’000 Group Previously reported 30 September 2007 Prior period adjustment (note 4) As restated at 1 October 2007 Credit/(charge) in the period to the income statement Credit/(charge) in the period to the statement of recognised income and expense At 28 September 2008 Credit/(charge) in the period to the income statement Credit/(charge) in the period to the statement of recognised income and expense At 27 September 2009 65 – 65 (10) – 55 1,569 – 1,624 (2,938) – (2,938) – 254 (2,684) – 4 (2,680) 2,951 – 2,951 (714) – 2,237 (508) – 1,729 2,726 – 2,726 (1,721) 1,225 2,230 (355) 2,676 4,551 21. Cash and cash equivalents Group Firm’s cash Client settlement cash Company Firm’s cash 1,871 – 1,871 (266) (1,255) 350 265 (12) 603 2009 £’000 43,118 26,153 69,271 291 291 Client settlement cash is held in segregated client accounts and is not available for use in the business. Cash and cash equivalents comprises cash at banks. At the balance sheet date there were also deposits for clients, not included in the consolidated balance sheet, which were held in segregated client bank accounts amounting to £1,512,468,094 (2008: £1,586,497,156). 22. Bank overdrafts Group Bank overdrafts Bank overdrafts are unsecured and repayable on demand. 2009 £’000 4,289 4,289 (4,133) 867 (3,266) (860) – (4,126) (849) – (4,975) 852 Total £’000 542 867 1,409 (3,571) 224 (1,938) 122 2,668 2008 £’000 38,189 22,357 60,546 57 57 2008 £’000 3,717 3,717 Annual Report and Accounts 2009 57 Notes to the Financial Statements (continued) 23. Other financial liabilities Trade and other payables Current Group Trade creditors Other creditors Other taxes and social security Accruals and deferred income Deferred purchase consideration (note 24) Company Other creditors Amounts payable to subsidiary undertakings 2009 £’000 2008 £’000 421,554 5,970 3,670 36,339 1,086 468,619 16 7,336 7,352 239,132 4,573 4,847 57,438 865 306,855 21 7,336 7,357 Trade creditors relate to either market or client transactions; the date for settlement is determined when the trade is booked. Other trade and other payable balances principally comprise amounts outstanding for ongoing costs. The directors consider that the carrying amount of trade and other payables approximates to their fair value. 24. Shares to be issued including premium and other d eferred purchase liabilities The Group acquires investment businesses and teams of investment managers, bringing with them funds under management (the latter classified as the intangible asset client relationships) on deferred purchase terms based on the value of income introduced over, normally, a three year period. The payment is normally made in ordinary shares and these shares typically have to be held for a further three years. At the discretion of the Board these shares can be purchased in the market rather than issued. The estimated likely cost of these shares is reassessed annually, see notes 3(r) and 5. At the period end there was a net upward assessment of £0.6m (2008: net upward £2.5m). These adjustments are inevitably subjective and dependent on events, influenced by market conditions. The other side of the liability is recorded in intangible assets, goodwill and/or client relationships, depending on the type of acquisition (see note 15). Each individual transaction has a cap as to the maximum value that could be paid out. The value of the cap is always set at a value substantially above what it is expected will be paid out. The total value of these caps is £12m (2008: £15m) for shares to be issued within one year, £93.7m (2008: £83m) for shares to be issued from one to five years, with a further potential of £2m (2008: £3m) in relation to expenditure contracted for but not provided in the accounts which would be payable in 2012/13. In the event of the Group being acquired by a third party, provisions exist to renegotiate the deferred purchase consideration into the shares of the acquiring entity, or for the deferred settlement period to be truncated. 58 Brewin Dolphin Holdings PLC 24. Shares to be issued including premium and other d eferred purchase liabilities (continued) As at 27 September 2009 Deferred consideration relating to acquisitions Current liability Payments relating to 7 cash generating units Non-current liability Payments relating to 12 cash generating units payable in 2010/11 Payments relating to 7 cash generating units payable in 2011/12 Payments relating to 4 cash generating units payable in 2012/13 Payments relating to 2 cash generating units payable in 2013/14 Shares to be issued including premium (Group & Company) £’000 Deferred Purchase Consideration (Group only) £’000 5,056 5,056 6,621 5,529 3,728 1,507 17,385 1,086 1,086* 1,794 708 477 242 3,221 Total £’000 6,142 6,142 8,415 6,237 4,205 1,749 20,606 Total current and non-current liability 22,441 4,307 26,748 Expenditure contracted for but not provided in the accounts Due after more than one year 2012/13 1,100 – 1,100 Reconciliation of movement in total of current and non-current liabilities Balance as at 29 September 2008 On acquisitions in the period Adjustment to prior year acquisitions (see notes 3(r) and 15) Unwind of discount charged to the income statement Utilised in period Balance as at 27 September 2009 25,179 2,814 (141) 484 (5,895) 22,441 3,825 412 718 25 (673) 4,307 29,004 3,226 577 509 (6,568) 26,748 * Current liability for Deferred Purchase Consideration is included in the consolidated balance sheet within Trade and other payables. Annual Report and Accounts 2009 59 Notes to the Financial Statements (continued) 24. Shares to be issued including premium and other d eferred purchase liabilities (continued) As at 28 September 2008 Deferred consideration relating to acquisitions Current liability Payments relating to 10 cash generating units Non-current liability Payments relating to 6 cash generating units payable in 2009/10 Payments relating to 12 cash generating units 2010/11 Payments relating to 7 cash generating units payable in 2011/12 Payments relating to 3 cash generating units payable in 2012/13 Payments relating to 1 cash generating unit payable in 2013/14 Shares to be issued inc.premium (Group & Company) £’000 Deferred Purchase Consideration (Group only) £’000 8,233 8,233 3,037 5,752 4,832 2,677 648 16,946 865 865 316 1,599 619 343 83 2,960 Total £’000 9,098 9,098 3,353 7,351 5,451 3,020 731 19,906 Total current and non-current liability 25,179 3,825 29,004 Expenditure contracted for but not provided in the accounts Due within one year Due within more than one year 2011/2012 Reconciliation of movement in total of current and non-current liabilities Balance as at 1 October 2007 On acquisitions in the period Adjustment to prior year acquisitions (see notes 3(r) and 15) Unwind of discount charged to the income statement Payments made Balance as at 28 September 2008 25. Financial instruments and risk management Overview The Group has exposure to the following risks from its use of financial instruments: • market risk; • • • credit risk; liquidity risk; and operational risk. – 2,000 10,313 12,181 2,042 853 (210) 25,179 75 – 1,081 2,393 433 128 (210) 3,825 75 2,000 11,394 14,574 2,475 981 (420) 29,004 This note presents information about the Group’s exposure to each of the above risks, the Group’s policy and processes for measuring and managing risk and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. The Board of Directors have overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management considers the major areas of market risk, credit risk, liquidity risk and operational risk. The Board determines the risk appetite and is responsible for the implementation of a risk management framework that recognises the risks faced by the Group. Authority flows from the Board to the Risk Management Committee (“RMC”) and from there to specific committees which are integral to the management of risk. Brewin Dolphin’s activities involve the measurement, evaluation, acceptance and management of some degree of risk, or combination of risks. The Board has set a low risk appetite whilst recognising the inevitable risk of being exposed to adverse movements in the stock market. 60 Brewin Dolphin Holdings PLC 25. Financial instruments and risk management (continued) The Audit Committee oversees how management monito rs compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its role by Internal Audit. The Audit Committee’s key role in risk management is the assessment of controls that are in place to mitigate risk and the review of the Risk Management Schedule bi-annually which is prepared by the RMC. Capital risk management The capital structure of the Group and Company consists of issued share capital, reserves and retained earnings as disclosed in note 29. The Group has an Internal Capital Adequacy Assessment Process (“ICAAP”), as required by the Financial Services Authority (“FSA”) for establishing the amount of regulatory capital to be held by the Group; Brewin Dolphin Limited (“BDL”) is the only regulated entity within the Group. The ICAAP draws on the Group’s Annual Corporate Risk Review which is based on bi-annual risk assessments. It gives consideration to both current and projected financial and capital positions. The ICAAP is updated throughout the year to take account of the bi-annual risk assessments and for any significant changes to business plans and any unexpected issues that may occur. The ICAAP is discussed and approved at a Brewin Dolphin Holdings PLC Board meeting at least annually. Capital adequacy is monitored daily by management. The Group uses the simplified approach to Credit Risk and the standardised approach for Operational Risk to calculate Pillar 1 requirements. The Group observed the FSA’s regulatory requirements throughout the period. The regulatory capital resources of the Group calculated in accordance with FSA definitions were as follows: Tier 1 capital resources Ordinary share capital Share premium account Retained earnings* Merger reserve Shares to be issued Deduction – Intangible assets Tier 2 capital resources Revaluation reserve Deductions Tier 1 plus tier 2 capital resources Deduction – Material holdings Total capital before deductions Deductions from total capital Total capital resources after deductions 27 September 2009 £’000 (Restated) 28 September 2008 £’000 2,122 94,140 18,612 4,562 22,441 141,877 (89,605) 52,272 6,885 – 6,885 59,157 (4,084) 55,073 (579) 54,494 2,080 90,145 18,342 4,562 25,179 140,308 (85,685) 54,623 6,898 – 6,898 61,521 (3,848) 57,673 (618) 57,055 Total capital requirement 43,659 31,653 * includes adjustment for defined pension liability in accordance with FSA rules. There were no changes in the Group’s approach for capital management during the period. Annual Report and Accounts 2009 61 Notes to the Financial Statements (continued) 25. Financial instruments and risk management (continued) Significant accounting policies Details of the sig nificant accounting policies, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each financial asset and financial liability, are disclosed in note 3 to the financial statements. Categories of financial instruments Group Financial assets Fair value through profit and loss – held for trading Loans and receivables (including cash and trade receivables) Available-for-sale financial assets Financial liabilities Amortised cost Company Financial assets Loans and receivables (including cash and trade receivables) Financial liabilities Amortised cost Carrying value 2009 £’000 644 512,830 10,609 524,083 2008 £’000 724 346,048 10,626 357,398 496,562 496,562 337,916 337,916 Carrying value 2009 £’000 4,359 4,359 2008 £’000 8,195 8,195 29,793 29,793 32,536 32,536 The carrying value approximates to the fair value of the financial assets and liabilities held. I. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of the Group’s market risk management is to both control and manage our exposure within the Group’s risk appetite whilst accepting the inherent risk of market fluctuations. The Group acts as an Investment Manager and agency stockbroker within the UK; all trades are matched in the market. The Group undertakes only limited principal trading on its own behalf; a maximum gross position of £2 million has been set as a limit by the Board. No single trade or accumulative position in any one stock can be in excess of £0.5 million. A hurdle stop loss price is operated in which the stop loss is set at a fixed percentage below the market price. This sets a limit on the maximum possible loss, as the stop loss will be triggered if the market price drops below the level set, resulting in the stock being sold. Conversely, where the market price rises the stop loss price will rise proportionately, to set a new stop loss price, thus protecting any profits. The stop loss position is monitored on average three times a day and is recalculated when necessary. Principal trading positions are monitored daily by the Risk Management Department and closing positions are reported to management. Any breaches of limits are notified immediately to management, as are stop losses, which are enforced. The Group policy is to never underwrite without full sub-underwriting in place. The Group deals in foreign currencies on a matched basis on behalf of clients, limiting foreign exchange exposure. The total net foreign exchange exposure at the year end was a creditor of £673,000 (2008: £342,000 debtor). The Group does not hold any derivatives. There has been no change to the Group’s exposure to market risks or the manner in which it manages and measures the risk during the period. 62 Brewin Dolphin Holdings PLC 25. Financial instruments and risk management (continued) Equity price risk The Group is exposed to equity risk a rising from its available-for-sale investments and those held-for-trading. Equity investments designated as available-for-sale are held for strategic purposes rather than trading purposes and the Group does not actively trade in these investments. Equity price sensitivity analysis The sensitivity analyses below have been determined based on the exposure to equity price risk at the reporting date. If equity prices had been 5% higher/lower: (cid:127) (cid:127) profit for the 52 week period ended 27 September 2009 would have been £29,000/£27,000 higher/lower (2008: £37,000/£52,000 higher/lower) due to change in the value of held-for-trading investments and available-for-sale investments; and other equity reserves as at 27 September 2009 would increase/decrease by £528,000 (2008: increase by £531,000/decrease by £516,000) for the Group as a result of the changes in fair value of available-for-sale investments. The Group’s sensitivity to equity prices has not changed significantly from the prior period. Interest rate risk The Group is exposed to interest rate risk; this arises because the interest rate paid to its clients on their deposits is linked to the base rate. The Group holds client deposits on both fixed rate short term deposit and on demand. At the period end, £100 million was held on 40 day terms, with the balance of client monies held on demand. At the end of the period a 1% increase in base rate would increase profitability by £390,000 (2008: increase profitability by £200,000). II. Credit risk Credit risk refers to the risk that a client or other counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group’s exposure to credit risk arises principally from the settlement of client and market transactions and cash deposited at banks. The Group uses the simplified approach to calculate credit risk as defined by the FSA. The aim of the Group’s approach to credit risk management is to minimise the risk as far as possible. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and clients and with collateral held, in the main, in Group nominee companies which helps to mitigate credit risk. The collateral held consists of equity and gilts quoted on recognised exchanges plus cash. The Group undertakes traded options as part of its service to clients, this is an insignificant part of the Group’s business. This business is transacted as principal as per the LIFFE rules, all such transactions are always on a matched basis, clients are required to pledge collateral if they hold option positions, which are monitored on a daily basis. Maximum exposure The maximum exposure to credit risk at the end of the reporting period is equal to the balance sheet figure. Credit exposure Credit exposure in relation to both client and market transactions is monitored daily. The Group’s exposure to large trades is limited with an average bargain size of £35,000; there are additional controls for high value trades. Impaired assets The total gross amount of individually impaired assets in relation to trade receivables at the period end was £820,000 (2008: £1,169,500). Collateral valued at fair value by the Group in relation to these impaired assets was £128,000 (2008: £34,500). The net difference has been provided as a doubtful debt (see note 19). Credit quality Financial assets that are neither past due nor impaired in respect of trade receivables relate mainly to bonds, equity and gilt trades quoted on a recognised exchange, are matched in the market, and are either traded on a cash against documents basis or against a client’s portfolio in respect of which any one trade would normally be a small percentage of the client’s collateral held in the Group nominee. At the period end no financial assets, that would otherwise be past due or impaired had been renegotiated. Loans to employees are repayable over 5 to 10 years and are secured against the employees’ shareholdings in the Company (see note 19). The credit risk on liquid funds, cash and cash equivalents is limited due to deposits being held at three major banks with minimum credit rating of “A”, assigned by international credit rating agencies. Deposits are managed by the Treasury Department and are reviewed regularly by the Management Committee. Annual Report and Accounts 2009 63 Notes to the Financial Statements (continued) 25. Financial instruments and risk management (continued) The Group carries out at least an annual review of all its banks’ and custodians’ credit ratings. There has been no change to the Group’s exposure to credit risk or the manner in which it manages and measures the risk during the period. III. Liquidity risk Liquidity risk refers to risk that the Group will be unable to meet its financial obligations as they fall due. The Group maintains adequate cash resources to meet its financial obligations at all times. All client cash deposits are repayable on demand. At 27 September 2009, the Group had access to an overdraft facility of £15 million (2008: £15 million). As the Group normally deals with the market on cash against document basis, liquidity risk is monitored by daily exception reports of unmatched items past settlement date and managed by the Treasury Department and Credit Control Department, reports are reviewed regularly by the Management Committee. There has been no change to the Group’s exposure to liquidity risk or the manner in which it manages and measures the risk during the period. The following are the undiscounted cash flows, with the exception of shares to be issued, of financial liabilities based on the earliest date on which the Group can be required to pay. Group As at 27 September 2009 Financial liabilities Amortised cost As at 28 September 2008 Financial liabilities Amortised cost Company As at 27 September 2009 Financial liabilities Amortised cost As at 28 September 2008 Financial liabilities Amortised cost 64 Brewin Dolphin Holdings PLC Up to 1 month £’000 1 month to 3 months £’000 3 months to 1 year £’000 1 to 5 years £’000 Over 5 years £’000 Total £’000 407,357 407,357 44,035 44,035 24,365 24,365 20,805 20,805 – – 496,562 496,562 Up to 1 month £’000 1 month to 3 months £’000 3 months to 1 year £’000 1 to 5 years £’000 Over 5 years £’000 Total £’000 255,287 255,287 47,058 47,058 14,767 14,767 20,073 20,073 731 731 337,916 337,916 Up to 1 month £’000 1 month to 3 months £’000 3 months to 1 year £’000 1 to 5 years £’000 Over 5 years £’000 7,352 7,352 5,056 5,056 – – 17,385 17,385 – – Up to 1 month £’000 1 month to 3 months £’000 3 months to 1 year £’000 1 to 5 years £’000 Over 5 years £’000 7,357 7,357 8,233 8,233 – – 16,298 16,298 648 648 Total £’000 29,793 29,793 Total £’000 32,536 32,536 25. Financial instruments and risk management (continued) IV. Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes whether due to internal, people and systems risks or from external events, including legal and financial crime risk but does not include strategic, reputation and business risk. The objective of the Group’s approach to operational risk management is to both control and manage the risk in a cost effective manner consistent with the Group’s risk appetite. Operational risk is monitored and reported via specific committees that report into the Risk Management Committee. The Group uses the Standardised Approach under Pillar 1 for regulatory purposes and uses the results of its annual risk management and control review process for risk management and Pillar 2 purposes. Information disclosure under Pillar 3 of the Capital Requirements Directive will be published on the Group’s website before 31 December 2009 at www.brewin.co.uk. 26. Retirement benefit obligation The Group oper ates a registered Defined Contribution Scheme (the Brewin Dolphin Senior Staff Pension Fund) and a registered Defined Benefit Scheme (the Brewin Dolphin Limited RBS) in the UK which both offer pensions in retirement and death benefits to members. The disclosures provided are in respect of the Defined Benefit Scheme only. Pension benefits are related to the members’ final salary at retirement and their length of service. Since 1 April 2003 the Scheme has been closed to new members. Members under age 55 at 1 April 2004 ceased to accrue further service in the Brewin Dolphin Limited RBS from that date. Contributions to the Scheme for the period beginning 28 September 2009 are expected to be £1.3m plus the member contributions for those members still accruing service. The Group has opted to recognise all actuarial gains and losses immediately via the Statement of Recognised Income and Expenditure (SORIE). A full actuarial valuation of the scheme was carried out as at 31 December 2005 and a further full actuarial valuation is currently in the process of being carried out. The former has been updated to 27 September 2009 by a qualified independent actuary. The major assumptions used by the actuary were (in nominal terms) as follows: Discount rate Rate of salary increase Rate of increase to pensions in payment Rate of inflation Average assumed life expectancies for members on retirement at age 65. Existing pensioners Males Females Future pensioners Males Females As at 27 September 2009 As at 28 September 2008 5.60% 3.00% 3.00% 3.00% 7.00% 3.60% 3.60% 3.60% 87.4 years 88.9 years 88.6 years 90.0 years 87.0 years 89.8 years 88.1 years 90.9 years In order to determine the expected return on Scheme assets, it is assumed that the returns available on equities will exceed those available from gilts by 3.5% per annum. This is 1.0% per annum greater than the out-performance allowance used for the funding valuation. Under IAS 19, the expected return on assets does not affect the surplus/deficit to be disclosed but will determine the IAS 19 pension cost for the next accounting period. Annual Report and Accounts 2009 65 Notes to the Financial Statements (continued) 26. Retirement benefit obligation (continued) The assets in the Scheme and the expected rates of return were: Equities Bonds Other Total plan assets The actual return on assets over the period was: Present value of defined obligation: Funded plans Unfunded plans Total Present value of unfunded obligations Net liability in balance sheet Long-term rate of return expected at 27 September 2009 7.60% 4.60% 0.50% Long-term rate of return expected at 28 September 2008 8.10% 5.10% 5.00% Value at 27 September 2009 £’000 26,461 12,108 1,027 39,596 2,324 55,849 – 55,849 16,253 16,253 Value at 28 September 2008 £’000 27,533 11,676 573 39,782 (8,410) 47,746 – 47,746 7,964 7,964 66 Brewin Dolphin Holdings PLC 26. Retirement benefit obligation (continued) Reconciliation of opening and closing balances of the p resent value of the defined benefit obligation Benefit obligation at beginning of period Service cost Interest cost Contributions by scheme participants Actuarial loss/(gain) Benefits paid Curtailments and settlements Benefit obligation at end of period Reconciliation of opening and closing balances of the fair value of plan assets Fair value of plan assets at beginning of period Expected return on plan assets Actuarial gain/(loss) Contributions by employers Contributions by plan participants Benefits paid Curtailments and settlements Fair value of plan assets at end of period The amounts recognised in the income statement are: Current service cost Interest on obligation Expected return on plan assets Curtailments and settlements Total expense/(income) Actuarial losses to be shown in SORIE Actuarial losses 2009 £’000 47,746 174 3,178 229 9,114 (874) (3,718) 55,849 39,782 2,766 (442) 2,444 229 (874) (4,309) 39,596 174 3,178 (2,766) 591 1,177 (9,556) (9,556) Cumulative losses recognised in SORIE (16,428) History of scheme assets, obligations and experience adjustments 2008 £’000 57,684 378 3,203 258 (7,397) (993) (5,387) 47,746 47,949 3,362 (11,772) 5,602 258 (993) (4,624) 39,782 378 3,203 (3,362) (763) (544) (4,375) (4,375) (6,872) Present value of defined benefit obligation Fair value of scheme assets Deficit in the scheme Total actuarial gains and losses arising on scheme liabilities Total actuarial gains and losses as a percentage of scheme liabilities Experience adjustments arising on scheme liabilities Experience adjustments as a percentage of scheme liabilities Changes in assumptions underlying the present value of the liabilities Changes in assumptions as a percentage of scheme liabilities Experience adjustments arising on scheme assets Experience adjustments as a percentage of scheme assets As at 27/09/2009 £’000 As at 28/09/2008 £’000 As at 30/09/2007 £’000 As at 30/09/2006 £’000 As at 30/09/2005 £’000 55,849 39,596 (16,253) 9,114 16% 273 0% 8,841 16% (442) -1% 47,746 39,782 (7,964) (7,397) -15% 542 1% (7,940) -17% (11,772) -30% 57,684 47,949 (9,735) (1,542) -3% 278 0% (1,820) -3% (122) 0% 56,315 40,893 (15,422) 49,158 36,221 (12,937) 4,558 8% 2,543 5% 2,015 4% 1,307 3% 4,332 9% (89) 0% 4,421 9% 3,666 10% Annual Report and Accounts 2009 67 2008 £’000 5,000 2,080 – – – – – – – – 2,080 Total £’000 2,720 641 Notes to the Financial Statements (continued) 27. Called up share capital Group and Company Authorised: Ordinary shares of 1p each Ordinary shares of 1p each Allotted, issued and fully paid: Allotted, issued Dec 2004 at 103.3p, nil paid last subscription date Dec 2011 Allotted, issued May 2005 at 101p, nil paid last subscription date Dec 2012 Allotted, issued Dec 2005 at 157p, nil paid last subscription date Dec 2012 Allotted, issued Dec 2006 at 185.5p, nil paid last subscription date Dec 2013 Allotted, issued Jun 2007 at 217.5p, nil paid last subscription date Jun 2014 Allotted, issued Dec 2007 at 162.5p, nil paid last subscription date Dec 2014 Allotted, issued Jul 2008 at 104p, nil paid last subscription date Jun 2015 Allotted, issued Dec 2008 at 108.6p, nil paid last subscription date Dec 2015 2009 No. 2008 No. 500,000,000 500,000,000 212,293,167 208,109,706 653,411 59,404 503,155 474,250 466,618 750,684 798,051 – 212,966 59,404 461,756 439,020 452,827 704,535 788,436 359,112 215,771,223 211,815,279 2009 £’000 5,000 2,122 – – – – – – – – 2,122 During the period the following shares were issued: Date Price £ Reason No of shares issued Nominal value £’000 Share premium £’000 November 2008 Various 586,629 previously nil paid shares now paid up December 2008 Costs of issue 0.98 Settlement of deferred consideration 0.30 to 1.45 Options 2,774,802 822,030 0.823 to 2.175 Now paid up – 1.086 Nil paid under matching share purchase scheme 359,112 – 28 8 6 – – 2,692 633 694 700 – (24) – (24) 3,955,944 42 3,995 4,037 68 Brewin Dolphin Holdings PLC 27. Called up share capital (continued) The following options have been granted and remain outstanding: Approved share option Approved share option Approved share option Approved share option Approved share option Unapproved share option# Approved share option Unapproved share option# Unapproved share option# Approved share option Unapproved share option# Unapproved share option# Approved share option Unapproved share option# Unapproved share option# Approved share option Unapproved share option# Unapproved share option# Approved share option Unapproved share option# Total options outstanding Exercise price Grant date 71.5p 167.5p 139p 37.5p 81.3p 82.3p 98p 103.3p 101p 145p 157p 179.8p 175.25p 184.5p 217.5p 168p 162.5p 104p 103.5p 108.6p April 1998 June 2000 June 2001 December 2002 December 2003 December 2003 December 2004 December 2004 May 2005 December 2005 December 2005 May 2006 November 2006 December 2006 June 2007 November 2007 December 2007 July 2008 November 2008 December 2008 2009 No – 644,900 548,500 252,165 533,367 212,631 704,708 464,650 84,156 781,544 499,971 16,689 943,679 463,410 457,424 836,758 738,378 807,666 747,518 359,112 2008 No 10,000 692,900 569,500 482,415 811,190 224,781 760,708 793,776 84,156 823,544 519,078 16,689 983,679 474,250 462,021 875,258 744,531 807,666 – – 10,097,226 10,136,142 # Under the senior employee matching share purchase scheme. Certain options lapsed during the year on personnel leaving the Group. Further details of the terms of the options and the senior employee matching share purchase scheme are given in the Directors’ Remuneration Report. The rights and obligations attached to the ordinary shares of 1 pence each in the Company are as follows: (cid:127) (cid:127) (cid:127) In terms of voting every member who is present in person or by proxy at a general meeting of the Company shall have one vote on a show of hands and one vote for every share held on a poll. As regards dividends, all shares in issue at the period end rank pari passu for dividends. Shareholders shall be entitled to receive dividends following declaration by the Company. Dividends are not payable in respect of the 3,478,056 (2008: 3,705,573) nil paid shares held by the Trustees in Brewin Dolphin Holdings PLC Employee Share Ownership Trust (the “Trust”). Employees are restricted from any transfer of shares of the Company that would result in a change in beneficial holding during the period between the end of the Group’s financial year end each year and the date on which the Group announces its preliminary final results. This restriction also applies during the period between the end of the Group’s financial half-year and the announcement of the Group’s half year results. Further restrictions may apply under the Disclosure and Transparency rules of the Financial Services Authority in respect of certain employees. (cid:127) There are no special rights for the ordinary shares in relation to control of the Company. On takeover, the following criteria will apply to the option schemes: (cid:127) (cid:127) (cid:127) Approved share option schemes: under the 1994 scheme options can be exercised within three months of such control being obtained; they will automatically lapse at the end of the period. Under the 2004 approved scheme options can be exercised within 30 days of control being obtained. The options will lapse after six months. 2002 senior employee matching share scheme: options can be exercised within six months of the takeover, after such period the options will lapse. 2000 unapproved executive share option scheme: options can be exercised within six months of control being obtained, after such period any unexercised options will lapse. All nil paid shares are held in the Trust up until they become fully paid shares. Nil paid shares are issued as part of the Senior Employee Matching Purchase Scheme, details of which are set out on page 30 of the Directors Remuneration Report and also note 28. The issue of nil paid shares to the Trust does not reduce shareholders’ funds as the individuals subscribe at the market value on the day of issue. Annual Report and Accounts 2009 69 Notes to the Financial Statements (continued) 28. Share-based payments The Group has a number of share incentive plans for the granting of non-transferable options to employees. The details of the plans are as follows: Exercise Price Vesting Period Exercisable Expiry Date 2004 Approved Share Option Plan The mid market average on the 3 dealing days immediately preceding date of grant After the third anniversary of the date of grant provided the performance condition has been met with an opportunity for retesting after one further year 5 to 10 years from date of grant The tenth anniversary of the date of grant 1994 Approved Executive Share Option Scheme The mid market average on the 3 dealing days immediately preceding date of grant From the fifth anniversary of the date of grant subject to the performance conditions being met 5 to 10 years from date of grant The tenth anniversary of the date of grant 2002 Senior Employee Matching Share Scheme The average closing mid market price on the 3 dealing days immediately preceding date of grant Matching Option: From the fourth anniversary of the date of grant, upon the payment in full for the Purchased Shares to which the Matching Option relates and subject to satisfaction of a performance condition determined prior to the date of grant 2000 Unapproved Executive Share Option Scheme 4 to 7 years from date of grant The seventh anniversary of the date of grant The average closing mid market price on the 3 dealing days immediately preceding date of grant From the fifth anniversary of the date of grant subject to the performance conditions being met 5 to 10 years from date of grant The tenth anniversary of the date of grant Details of the share options outstanding during the period ended 27 September 2009 are as follows: Outstanding at the beginning of the period Granted during the period Forfeited during the period Exercised during the period Expired during the period Outstanding at the end of the period Exercisable at the end of the period 1994 Approved Option Scheme 1,293,605 – (20,917) (487,156) – Weighted Average Exercise Price (pence) 64.97 – 71.00 61.04 – 2004 Approved Option Scheme 3,459,878 757,518 (147,500) (39,000) – Weighted Average Exercise Price (pence) 149.51 103.50 149.96 102.82 – 2002 Senior Employee Matching Share Purchase Scheme 4,110,259 359,112 (89,099) (292,874) – Weighted Average Exercise Price (pence) 142.78 109.25 134.48 102.43 – 785,532 67.24 4,030,896 141.29 4,087,398 142.91 – – – – 169,401 103.30 The table above and the one following exclude all options issued prior to November 2002. Details of the share options outstanding during the period ended 28 September 2008 were as follows: Weighted Average Exercise Price (pence) Weighted Average Exercise Price (pence) 2000 Unapproved Option Scheme Weighted Average Exercise Price (pence) 1998 SAYE Scheme 142.87 169.00 152.04 1,779,685 – (21,622) 98.00 (1,758,063) – – 55.56 – 89.79 55.14 – – – 100,000 – – (100,000) – – – 33.50 – – 33.50 – – – 2002 Senior Employee Matching Share Purchase Scheme 3,467,756 1,576,809 (229,581) (704,725) – Weighted Average Exercise Price (pence) 134.65 135.93 158.62 82.30 – 4,110,259 142.78 – – Outstanding at the beginning of the period Granted during the period Forfeited during the period Exercised during the period Expired during the period 1994 Approved Option Scheme 1,635,505 – (27,150) (314,750) – Weighted Average Exercise Price (pence) 60.12 – 68.80 39.45 – 2004 Approved Option Scheme 2,650,620 897,758 (82,500) (6,000) – Outstanding at the end of the period 1,293,605 64.97 3,459,878 149.51 Exercisable at the end of the period – – – – – – 70 Brewin Dolphin Holdings PLC 28. Share-based payments (continued) The weighted average share price at the date of exercise for share options exercised during the period was 136p (2008: 157p). The options outstanding at 27 September 2009 had a weighted average exercise price of 135p (2008: 134p), and a weighted average remaining contractual life of 1.2 years (2008: 1.4 years). During the 52 week period ended 27 September 2009 options were granted on 28 November 2008 and 12 December 2008. The aggregate of the estimated fair value of the options granted on these dates is £509,533. During the 52 week period ended 28 September 2008 options were granted on 29 November 2007, 14 December 2007 and 24 July 2008; the aggregate of the estimated fair value of the options granted on these dates was £1,258,484. The inputs into the Black-Scholes model used for the purposes of determining fair value of options were as follows: 1994 Approved Option Scheme 2002 Senior Employee Matching Share Purchase Scheme 2004 Approved Option Scheme Weighted average share price Weighted average exercise price Expected volatility Expected life (yrs) Risk free rate Expected dividend yield 59.40 59.40 52% 5.00 4.5% 1.2% 145.08 144.92 39% 5.00 4.4% 2.8% Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous year. The Group recognised total expenses of £686,000 (2008: £661,000) related to equity-settled share-based payment transactions. 29. Reserves and reconciliation of changes in equity Called up share capital £’000 Share premium Revaluation reserve account £’000 £’000 Merger Profit and reserve loss account £’000 £’000 Group Previously reported 30 September 2007 Prior year adjustment (note 4) As restated 30 September 2007 Profit for the period Dividends Issue of shares Revaluation Deferred and current tax on items taken directly to equity Share-based payments Actuarial loss on defined benefit pension scheme 28 September 2008 Profit for the period Dividends Issue of shares Revaluation Deferred and current tax on items taken directly to equity Share-based payments Actuarial loss on defined benefit pension scheme 2,035 – 2,035 – – 45 – – – – 2,080 – – 42 – – – – 86,968 – 86,968 – – 3,177 – – – – 90,145 – – 3,995 – – – – 7,544 – 7,544 – – – (900) 254 – – 6,898 – – – (17) 4 – – 4,562 – 4,562 – – – – – – – 4,562 – – – – – – – 14,223 (2,227) 11,996 22,019 (14,631) – – 538 661 (4,375) 16,208 119,893 15,535 (15,027) – – 2,664 686 (9,556) 15,535 (15,027) 4,037 (17) 2,668 686 (9,556) 27 September 2009 2,122 94,140 6,885 4,562 10,510 118,219 136.01 135.63 38% 4.00 4.6% 3.1% Total £’000 115,332 (2,227) 113,105 22,019 (14,631) 3,222 (900) 792 661 (4,375) Called up share capital £’000 Share premium Revaluation reserve account £’000 £’000 Merger Profit and reserve loss account £’000 £’000 Company 30 September 2007 Profit for the period Dividends Share-based payments Issue of shares 28 September 2008 Profit for the period Dividends Share-based payments Issue of shares 27 September 2009 2,035 – – – 45 2,080 – – – 42 86,968 – – – 3,177 90,145 – – – 3,995 2,122 94,140 – – – – – – – – – – – Total £’000 112,564 14,895 (14,631) 661 3,222 18,714 14,895 (14,631) 661 – 19,639 116,711 9,878 (15,027) 686 – 9,878 (15,027) 686 4,037 4,847 – – – – 4,847 – – – – 4,847 15,176 116,285 Annual Report and Accounts 2009 71 Notes to the Financial Statements (continued) 30. Financial commitments The Group recognised operating leases payments as an expense in the year as follows: Lease payments 2009 2008 Land and buildings £’000 Hire of equipment £’000 4,039 4,039 1,808 1,808 Land and buildings £’000 3,221 3,221 Hire of equipment £’000 2,350 2,350 At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: Operating leases which expire: Not later than one year Later than one year not later than five years Later than five years 2009 2008 Land and buildings £’000 Hire of equipment £’000 Land and buildings £’000 Hire of equipment £’000 4,339 15,984 27,700 48,023 1,745 1,356 – 3,101 4,145 15,701 27,684 47,530 1,960 2,988 – 4,948 The Group had significant operating lease arrangements with respect to the premises it occupies, computer hardware and office equipment including photocopiers and franking machines. 31. Capital commitments Expenditure contracted for but not provided in these accounts Expenditure authorised by the directors but not contracted for 32. Provisions At start of period Additions Utilisation of provision Unused amounts reversed during the period At end of period Provisions Included in current liabilities Included in non-current liabilities 2009 £’000 300 500 2009 £’000 Total 2,068 1,493 (1,243) (275) 2,043 1,871 172 2,043 2008 £’000 750 2,000 2008 £’000 Sundry claims – 2,068 – – 2,068 2,068 – 2,068 2009 £’000 Sundry claims 2,068 1,184 (1,243) (275) 1,734 1,734 – 1,734 2009 £’000 Vacant Property – 309 – – 309 137 172 309 The provisions relate to sundry claims against the Group and the future cost of vacant property. Where there are sundry claims against the Group the estimated liability has been included above with the related insurance debtor of £326,000 (2008: £1,172,000) included in other debtors. The timing of settlements cannot be accurately forecast; settlement of £1,910 (2008: £159,000) has been made since the balance sheet date. 72 Brewin Dolphin Holdings PLC 33. Notes to the cash flow statement Group Operating profit as previously reported Prior period adjustment (note 4) Operating profit Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets - client relationships Amortisation of intangible assets - software Loss on disposal of property, plant and equipment Intangible asset impairment Retirement benefit obligation Share-based payment cost Unwind of discount of shares to be issued and deferred purchase consideration Interest income Interest expense Operating cash flows before movements in working capital Decrease in receivables and trading investments Decrease in payables Cash generated by operating activities Tax paid Net cash inflow from operating activities Company Operating profit Unwind of discount of shares to be issued and deferred purchase consideration Operating cash flows before movements in working capital Decrease in receivables and trading investments (Decrease)/Increase in payables Cash generated by operating activities Tax paid Net cash inflow from operating activities Cash and cash equivalents comprise cash at bank and bank overdrafts. 52 weeks to 27 September 2009 £’000 (Restated) 52 weeks to 28 September 2008 £’000 30,054 (4,244) 25,810 8,585 4,244 – 135 430 (6,146) 661 981 6,785 (994) 40,491 73,280 (89,528) 24,243 (10,139) 14,104 14,895 11 14,906 3,619 5 18,530 – 18,530 20,472 10,153 6,566 674 5 230 (1,267) 686 509 2,083 (968) 39,143 161,518 (157,976) 42,685 (5,296) 37,389 9,878 – 9,878 4,070 (4) 13,944 – 13,944 34. Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. The captions in the primary statements of the Company include amounts attributable to subsidiaries. These amounts have been disclosed in aggregate in the relevant notes to the financial statements and in detail in the following table: Bell Lawrie White & Co. Limited Brewin Dolphin Limited Stocktrade Broking Limited Amounts owed by related parties Amounts owed to related parties 2009 £’000 – 3,719 – 3,719 2008 £’000 – 7,697 – 7,697 2009 £’000 2,436 – 4,900 7,336 2008 £’000 2,436 – 4,900 7,336 All amounts owed by related parties are interest free and repayable on demand. The only effect of related party transactions on the profit and loss of the Company was in respect of dividends. The Company received dividends of £10,000,000 (2008: £15,000,000) from Brewin Dolphin Limited and £nil (2008: £16,600) from Webrich Limited. The Group companies did not enter into any transactions with related parties who are not members of the Group during the period, save as disclosed elsewhere in these financial statements. Annual Report and Accounts 2009 73 Five Year Record Continuing operations Revenue Other operating income Total income Staff costs Redundancy costs/exceptional item (2005) Amortisation of intangible assets – client relationships Other operating costs 2009 £’000 187,241 25,071 212,312 (102,763) (3,638) (6,566) (78,873) 2008 £’000 186,969 19,526 206,495 (105,200) (634) (4,244) (70,607) Restated 2007 £’000 198,032 11,247 209,279 (116,695) (946) (1,774) (56,882) 2006 £’000 164,594 9,044 173,638 (91,621) – (992) (55,166) 2005 £’000 136,563 8,097 144,660 (78,293) (6,831) (315) (46,068) Operating expenses (191,840) (180,685) (176,297) (147,779) (131,507) Profit on ordinary activities before redundancy costs/ exceptional item (2005) and intangible asset amortisation of client relationships Intangible asset client relationship amortisation Redundancy costs/exceptional item (2005) Operating profit Net finance income Profit before tax Tax 30,676 (6,566) (3,638) 20,472 1,467 21,939 (6,404) 30,688 (4,244) (634) 25,810 6,148 31,958 (9,939) 35,702 (1,774) (946) 32,982 6,900 39,882 (12,211) 26,851 (992) – 25,859 5,199 31,058 (9,748) 20,299 (315) (6,831) 13,153 4,301 17,454 (5,461) Profit attributable to equity shareholders of the parent from continuing operations 15,535 22,019 27,671 21,310 11,993 Dividend per share (2007 to 2005 rebased to current pattern) 7.1p 7.1p 6.875p 5.625p 5p Earnings per share From continuing operations excluding redundancy costs and amortisation of client relationships and exceptional item. Basic Diluted 10.8p 10.6p 12.4p 11.9p 14.5p 13.8p 11.1p 10.6p 8.7p 8.3p 74 Brewin Dolphin Holdings PLC In Group’s nominee or sponsored member Stock not held in Group’s nominee Discretionary funds under management In Group’s nominee or sponsored member Other funds where valuations are carried out but where the stock is not under the Group’s control Advisory funds under management Managed funds In Group’s nominee or sponsored member Stock not held in Group’s nominee Execution only stock Total funds Stock In Group’s nominee or sponsored member Stock not held in Group’s nominee Funds At 27 September 2009 £ Billion At 28 September 2008 £ Billion 11.6 0.2 11.8 7.2 1.5 8.7 20.5 3.7 0.4 4.1 24.6 22.5 2.1 24.6 10.0 0.2 10.2 6.8 1.7 8.5 18.7 3.7 0.2 3.9 22.6 20.5 2.1 22.6 Annual Report and Accounts 2009 75 Shareholders at 10 November 2009 There were no changes in Directors’ shareholdings between 28 September 2009 and 1 December 2009. Directors R A Bayford * W N Hood B M Howard S M J Lamport J G Matheson D W McCorkell S E C Miller S J S Soar I B Speke M J R Williams F E Worsley Other employees of the Group Employee Ownership Institutions BlackRock Investment Management Aberforth Partners Aegon Asset Management Standard Life Investments Legal & General Investment Management Schroder Investment Management Hermes Investment Management Other Total * Includes 12,198 non beneficial # Nil paid and fully paid Number of ordinary shares and options % Voting equity after exercise of options Number of ordinary shares# % Voting equity prior to exercise of options 838,761 65,000 339,485 4,500 470,621 653,059 20,000 415,536 377,787 965,336 18,000 838,761 65,000 193,326 4,500 466,621 653,059 20,000 294,341 360,287 965,336 18,000 4,168,085 1.8% 3,879,231 58,722,427 62,890,512 26.0% 27.8% 48,929,825 52,809,056 14,769,344 12,621,517 10,956,349 10,587,900 8,910,081 8,889,349 8,381,042 87,862,355 6.5% 5.6% 4.9% 4.7% 3.9% 3.9% 3.7% 39.0% 14,769,344 12,621,517 10,956,349 10,587,900 8,910,081 8,889,349 8,831,042 87,862,355 1.8% 22.7% 24.5% 6.8% 5.8% 5.1% 4.9% 4.1% 4.1% 3.9% 40.8% 225,868,449 100.0% 215,786,993 100.0% At 27 September 2009 the Company’s share price was 161.5p (28 September 2008: 126.25p). The highest price in the 52 week period ended 27 September 2009 was 163.5p and the lowest 93p. 76 Brewin Dolphin Holdings PLC (cid:115)(cid:0) (cid:37)(cid:76)(cid:71)(cid:73)(cid:78) (cid:115)(cid:0) (cid:41)(cid:78)(cid:86)(cid:69)(cid:82)(cid:78)(cid:69)(cid:83)(cid:83) (cid:33)(cid:66)(cid:69)(cid:82)(cid:68)(cid:69)(cid:69)(cid:78)(cid:0)(cid:115) (cid:36)(cid:85)(cid:78)(cid:68)(cid:69)(cid:69)(cid:0)(cid:115) (cid:39)(cid:76)(cid:65)(cid:83)(cid:71)(cid:79)(cid:87)(cid:0)(cid:115) (cid:115)(cid:0) (cid:37)(cid:68)(cid:73)(cid:78)(cid:66)(cid:85)(cid:82)(cid:71)(cid:72) (cid:36)(cid:85)(cid:77)(cid:70)(cid:82)(cid:73)(cid:69)(cid:83)(cid:0)(cid:115) (cid:115)(cid:0) (cid:46)(cid:69)(cid:87)(cid:67)(cid:65)(cid:83)(cid:84)(cid:76)(cid:69) (cid:34)(cid:69)(cid:76)(cid:70)(cid:65)(cid:83)(cid:84)(cid:0)(cid:115) (cid:115)(cid:0) (cid:43)(cid:69)(cid:83)(cid:87)(cid:73)(cid:67)(cid:75) (cid:115)(cid:0) (cid:52)(cid:69)(cid:69)(cid:83)(cid:83)(cid:73)(cid:68)(cid:69) (cid:115)(cid:0) (cid:57)(cid:79)(cid:82)(cid:75) (cid:34)(cid:82)(cid:65)(cid:68)(cid:70)(cid:79)(cid:82)(cid:68)(cid:0)(cid:115) (cid:115)(cid:0) (cid:44)(cid:69)(cid:69)(cid:68)(cid:83) (cid:115)(cid:0) (cid:45)(cid:65)(cid:78)(cid:67)(cid:72)(cid:69)(cid:83)(cid:84)(cid:69)(cid:82) (cid:44)(cid:76)(cid:65)(cid:78)(cid:68)(cid:85)(cid:68)(cid:78)(cid:79)(cid:0)(cid:115) (cid:115)(cid:0) (cid:35)(cid:72)(cid:69)(cid:83)(cid:84)(cid:69)(cid:82) (cid:51)(cid:84)(cid:79)(cid:75)(cid:69)(cid:13)(cid:79)(cid:78)(cid:13)(cid:52)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:115) (cid:115)(cid:0) (cid:44)(cid:73)(cid:78)(cid:67)(cid:79)(cid:76)(cid:78) (cid:115)(cid:0) (cid:46)(cid:79)(cid:84)(cid:84)(cid:73)(cid:78)(cid:71)(cid:72)(cid:65)(cid:77) (cid:44)(cid:69)(cid:73)(cid:67)(cid:69)(cid:83)(cid:84)(cid:69)(cid:82)(cid:0)(cid:115) (cid:115)(cid:0) (cid:34)(cid:73)(cid:82)(cid:77)(cid:73)(cid:78)(cid:71)(cid:72)(cid:65)(cid:77) (cid:46)(cid:79)(cid:82)(cid:87)(cid:73)(cid:67)(cid:72)(cid:0)(cid:115) (cid:115)(cid:0) (cid:40)(cid:69)(cid:82)(cid:69)(cid:70)(cid:79)(cid:82)(cid:68) (cid:35)(cid:72)(cid:69)(cid:76)(cid:84)(cid:69)(cid:78)(cid:72)(cid:65)(cid:77)(cid:0)(cid:115) (cid:115)(cid:0) (cid:47)(cid:88)(cid:70)(cid:79)(cid:82)(cid:68) (cid:51)(cid:87)(cid:65)(cid:78)(cid:83)(cid:69)(cid:65)(cid:0)(cid:115) (cid:35)(cid:65)(cid:82)(cid:68)(cid:73)(cid:70)(cid:70)(cid:0)(cid:115) (cid:115)(cid:0) (cid:45)(cid:65)(cid:82)(cid:76)(cid:66)(cid:79)(cid:82)(cid:79)(cid:85)(cid:71)(cid:72) (cid:115)(cid:0) (cid:44)(cid:79)(cid:78)(cid:68)(cid:79)(cid:78) (cid:115)(cid:0) (cid:50)(cid:69)(cid:73)(cid:71)(cid:65)(cid:84)(cid:69) (cid:52)(cid:65)(cid:85)(cid:78)(cid:84)(cid:79)(cid:78)(cid:0)(cid:115) (cid:37)(cid:88)(cid:69)(cid:84)(cid:69)(cid:82)(cid:0)(cid:115) (cid:34)(cid:82)(cid:73)(cid:71)(cid:72)(cid:84)(cid:79)(cid:78)(cid:0)(cid:115) (cid:44)(cid:89)(cid:77)(cid:73)(cid:78)(cid:71)(cid:84)(cid:79)(cid:78)(cid:0)(cid:115) (cid:115)(cid:0) (cid:36)(cid:79)(cid:82)(cid:67)(cid:72)(cid:69)(cid:83)(cid:84)(cid:69)(cid:82) (cid:48)(cid:76)(cid:89)(cid:77)(cid:79)(cid:85)(cid:84)(cid:72)(cid:0)(cid:115) (cid:115)(cid:0) (cid:52)(cid:82)(cid:85)(cid:82)(cid:79) (cid:39)(cid:85)(cid:69)(cid:82)(cid:78)(cid:83)(cid:69)(cid:89)(cid:0)(cid:115) (cid:115)(cid:0) (cid:42)(cid:69)(cid:82)(cid:83)(cid:69)(cid:89) Branch Address List Aberdeen Blenheim House Fountainhall Road Aberdeen, AB15 4DT Telephone: 01224 267900 Belfast Waterfront Plaza 8 Laganbank Road Belfast BT1 3LY Telephone: 028 9044 6000 Birmingham 9 Colmore Row Birmingham B3 2BJ Telephone: 0121 236 7000 Bradford Auburn House 8 Upper Piccadilly Bradford BD1 3NU Telephone: 01274 728866 Brighton Invicta House Trafalgar Place Brighton, BN1 4FY Telephone: 0845 213 1190 Cardiff Sutherland House Castlebridge Cowbridge Road East Cardiff, CF11 9BB Telephone: 029 2034 0100 Cheltenham The Lypiatts Lansdown Road Cheltenham GL50 2JA Telephone: 01242 577677 Chester Liverpool House 47 Lower Bridge Street Chester CH1 1RS Telephone: 01244 353900 Dorchester Hamilton House 6 Nantillo Street Poundbury, Dorchester Dorset, DT1 3WN Telephone: 01305 215770 Dumfries 43 Buccleuch Street Dumfries DG1 2AB Telephone: 01387 252361 Dundee 31-32 City Quay Camperdown Street Dundee, DD1 3JA Telephone: 01382 317200 Edinburgh PO Box No. 8 7 Drumsheugh Gardens Edinburgh, EH3 7QH Telephone: 0131 225 2566 Elgin 26 Hay Street Elgin, IV30 1NQ Telephone: 01343 548344 Exeter Vantage Point Woodwater Park Pynes Hill, Exeter EX2 5FD Telephone: 01392 440450 Glasgow 48 St. Vincent Street Glasgow G2 5TS Telephone: 0141 221 7733 Guernsey St Peter Port House Saumarez Street, St Peter Port Guernsey, GY1 2PT Telephone: 01481 736682 Hereford 36 Bridge Street Hereford, HR4 9DG Telephone: 01492 364300 Inverness Lyle House Fairways Business Park Inverness IV2 6AA Telephone: 01463 225888 Jersey Kingsgate House 55 The Esplanade St Helier Jersey, JE2 3QB Telephone: 01534 703118 Keswick 42 St John Street Keswick, Cumbria CA12 5AF Telephone: 01768 781960 Leeds 34 Lisbon Street Leeds, LS1 4LX Telephone: 0113 245 9341 Leicester Two Colton Square Leicester LE1 1QF Telephone: 0116 242 0700 Lincoln Olympic House Doddington Road Lincoln LN6 3SE Telephone: 01522 503000 Llandudno 59 Madoc Street Llandudno North Wales LL30 2TW Telephone: 01492 874391 London 12 Smithfield Street London EC1A 9BD Telephone: 0207 248 4400 Lymington West Barn Efford Park Milford Road Lymington, SO41 0JD Telephone: 01590 674288 Manchester PO Box 512 National House 36 St Ann Street Manchester, M2 7LE Telephone: 0161 839 4222 Marlborough Cross Keys House The Parade Marlborough Wiltshire, SN8 1NE Telephone: 01672 519600 Newcastle Time Central 30-34 Gallowgate Newcastle upon Tyne NE1 4SR Telephone: 0191 279 7300 Norwich Jacquard House Old Bank of England Court Queen Street Norwich, NR2 4SX Telephone: 01603 767776 Nottingham Waterfront House Waterfront Plaza Nottingham, NG2 2DQ Telephone: 0115 852 5580 Oxford 4 King Edward Street Oxford, OX1 4HS Telephone: 01865 255750 Plymouth Ashleigh Court Ashleigh Way Langage Business Park Plymouth, PL7 5JX Telephone: 01752 334650 Reigate Park House 77 Bell Street Reigate Surrey, RH2 7AN Telephone: 01737 223722 Stoke-on-Trent Highpoint Festival Park Stoke-on-Trent, ST1 5BG Telephone: 01782 764000 Swansea Axis 6 Axis Court Mallard Way Swansea Vale Swansea SA7 0AJ Telephone: 01792 763960 Taunton 2 Mendip House High Street Taunton Somerset, TA1 3SX Telephone: 01823 340320 Teesside Progress House Fudan Way Teesdale Stockton-on-Tees TS17 6EN Telephone: 01642 608855 Truro Unit 14 Indian Queens Trading Estate, Warren Road Indian Queens, St Columb Cornwall, TR9 6TL Telephone: 0845 2131500 York Apollo House Eboracum Way Heworth Green York, YO31 7RE Telephone: 01904 520167 Stocktrade — Execution Only On-Line Broker 81 George Street Edinburgh EH2 3ES Telephone: 0131 240 0400 Web: www.stocktrade.co.uk The paper used in this report for the cover and review section consists of 50% recycled paper, the paper used for the accounts section is 100% recycled paper. Both mill and printer are FSC certified, our printer is also “Carbon Neutral” accredited. Aberdeen Belfast Birmingham Bradford Brighton Cardiff Cheltenham Chester Dorchester Dumfries Dundee Edinburgh Elgin Exeter Glasgow Guernsey Hereford Inverness Jersey Keswick Leeds Leicester Lincoln Llandudno London Lymington Manchester Marlborough Newcastle Norwich Nottingham Oxford Plymouth Reigate Stoke-on-Trent Swansea Taunton Teesside Truro York Brewin Dolphin Holdings PLC 12 Smithfield Street London EC1A 9BD T 0845 213 1000 F 0845 213 1001 W brewin.co.uk E info@brewin.co.uk A N N U A L R E P O R T A N D A C C O U N T S 2 0 0 9 ANNUAL REPORT AND ACCOUNTS 2009 

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