Final Results

Chief Executive Officer’s report

 

Overview

The new management team referred to in the Chairman`s statement has had a busy year in bringing greater focus to both divisions. This year of transition has resulted in some “one-off” charges which we identify later in the business report and by their very definition will not be repeated. Adjusting for these “one-off” charges operating profitability would have increased over the figures reported for 2013/14.

 

The following changes have either been implemented, or are in the process of being implemented, across the Company: the closure of Private Wealth Management offices in Malvern, Saffron Walden, Norwich and Colchester, and the withdrawal from our authorised representative arrangement in Colwyn Bay. In addition, we have sought to bring greater clarity to the Private Client service offering and in so doing have ceased to offer a traded option service and a corporate share dealing service. We have previously communicated that we are withdrawing from the provision of third party administration and this exit is nearing completion. The resultant loss of assets as a result of the above actions is approximately £220m, yet at a gross margin of approximately 0.1% these changes will have little impact on either revenues or future profits.

 

Corporate Broking

The Corporate Broking division has had a mixed year. Growth was recorded in the number of corporate clients, and in the recurring retainer income that these generate and in secondary commissions. Market making revenue was down on the year as trading activity, in particular in the second half, witnessed a slowdown. Transaction income was significantly below expectations reflecting a number of postponed or cancelled fund raisings and postponed M&A activity. Despite this frustrating outcome much progress has been made in this division and our strategy of focusing upon delivering a full broking service to a growing list of corporate clients remains at the core of our growth plans.

 

Private Wealth Management

This division has undergone significant change during the past year and has continued to grow assets against a background of strong investment performance. During the year Assets Under Management and Advice (AUMA) rose by 8.4%, compared with an index return of 1.3% (UK All Share Index, Capital only).

 

A significant amount of management time has been spent on restructuring this division from both an office location and a client proposition perspective. There remains more work to be done this year in regard to the operating platform and utilising IT better in order to achieve both cost efficiencies and to improve the overall client proposition. We have recruited key investment professionals who can bring with them existing, and generate new, client relationships. Individuals or teams have joined us from Charles Stanley, Canaccord Genuity and Barclays Wealth Management. In addition Robert Race has joined us from Brewin Dolphin. Robert has assumed the role of Head of Manchester Private Clients. We have also opened two new offices; Milton Keynes and our International office on the Isle of Man. A clear objective of opening new offices is that over the medium term assets managed out of these offices need to have the ability to reach at least £200m. After less than a year of being opened each of our new offices are on track to achieve this figure. The full benefit of all of these new recruits will become evident as the year progresses, helping us to achieve our asset growth targets and maintain the strong momentum in the growth of management fee income.

 

Outlook

 

Both divisions of the Company are well placed to continue to build upon the positive momentum achieved during the past year. In the Corporate Broking division the focus will remain on the continued growth in the number of corporate clients and the successful execution of corporate transactions whilst the Private Wealth Management division will continue to focus upon the growth of fee paying discretionary and advisory assets.

 

As well as thanking existing loyal staff for their hard work during the year I would also like to welcome the significant number of highly experienced and talented new colleagues who have joined us this year and who will also contribute to the future growth and success of the firm.

 

Finally, but very importantly, in 2014 we grew our recurring revenue as a percentage of total revenue to 33%. Our target remains 50% but this year’s performance marks the third year of improvement in this key measure of earnings quality. Both divisions have contributed to this growth which encourages me immensely and reinforces my positive outlook for WH Ireland in the year ahead.

 

Richard Killingbeck

Chief Executive Officer

 

 

Overview

The WH Ireland Group has two principal operating subsidiaries, WH Ireland Limited and WH Ireland (IOM) Limited. WH Ireland Limited consists of two business divisions: Private Wealth Management, which provides bespoke wealth management solutions and independent financial advisory services to retail clients; and Corporate Broking which provides corporate finance, advisory and broking services to small and mid-cap corporate clients, and stockbroking and research services to its institutional client base. WH Ireland (IOM) Limited has been established to expand WH Ireland’s private wealth management business by way of an international offering and the entity received its regulatory permissions in February 2014.

Although the Group’s income is predominantly derived from activities conducted in the UK and the Isle of Man, a number of retail, institutional and corporate clients are situated worldwide.

At the year end, the Group had 241 staff (2013: 239) in the United Kingdom and 4 (2013: nil) in the Isle of Man.

Strategy

The Group’s strategic focus remains on continuing to grow our business across the two divisions, with the ultimate objective of becoming the broker of choice in the small and mid-cap company segment and a leading wealth management service provider to retail clients.

The strategy is focused on strengthening our corporate client list and increasing the assets under management in order to achieve the Group’s target of 50% recurring revenue through the generation of wealth management fees and corporate retainer income.

Private Wealth Management

The Private Wealth Management division of WH Ireland incorporates both investment management services and advice on wealth planning. We offer these services from a number of offices across the UK, including; London, Manchester, Cardiff, Bristol, Birmingham, Poole, Lymington and Milton Keynes. Our international clients are serviced from our Isle of Man office.

 

We are strong advocates of a personal, bespoke service to all of our clients on the basis that no one private client has exactly the same requirements as another. As the complexity of financial markets and advice increases we are also able to offer specific wealth planning expertise in areas such as pensions and inheritance planning;  we also work closely with third party advisors in helping our mutual clients achieve their financial goals.

 

WH Ireland is one of the few wealth managers to offer three service investment propositions, namely discretionary, advisory and execution only. Increasingly new clients are joining us under a discretionary mandate but we still have substantial assets in both the advisory and the execution only propositions.

 

The strategy for the ongoing growth in this division is to focus our efforts on building our management fee based assets. This will be achieved by continued personal referrals, selective recruitment of individuals and teams with existing client relationships, and corporate acquisitions of Private Wealth Management businesses. In addition, we are reviewing an investment in our own dedicated business development capability which will complement the sources of funds flow above.

 

Corporate Broking

WH Ireland is one of the largest Nominated Advisers (NOMADs) and Brokers for AIM quoted companies in London. We provide corporate advisory and broking services to 97 Corporate companies, including capital raisings, all aspects of market regulation, acquisition strategy, as well as numerous other general corporate activities. Importantly, the team also benefits from many years of experience in bringing new companies to the public market.

 

WH Ireland’s award-winning Research team provides coverage of our corporate clients, ensuring the investment case is clearly and accurately articulated to the wider investment community. We maintain close contact with both institutional and private client fund managers via our Institutional Sales and Investor Relations teams and help to ensure liquidity in the shares of our corporate clients by offering a market making service. In addition to our London office, we also provide our corporate broking service from offices in Leeds and Bristol.

 

Our corporate client base is spread across the spectrum of industry sectors, including Technology, Consumer, Support Services, Healthcare, Oil & Gas, Mining and Industrials to name a few. Whilst we have continued to focus upon the development and growth of our client base, we have ensured that this is not to the detriment of client service levels. Recurring retainer income is one of the key financial drivers of this division, which helps us mitigate the volatility of transaction income and ensures that we have a stable team in place from which we can continue to build over the coming years. Our success on this metric is demonstrated by the fact that retainer income has risen by 6.7% over the past two years.

 

Given the well-publicised structural changes taking place in the wider market, the division has developed a robust and sustainable platform from which to build. The business is demonstrating strong momentum and we will continue to focus on providing a first class service to all of our clients. As the business grows, we will maintain a selective recruitment policy of hiring experienced individuals to ensure that these high levels of service are maintained. We would anticipate our corporate client list continuing to grow as we attract further quality companies given our differentiated proposition relative to some of our larger competitors.

 

Key Performance Indicators (KPIs)

The Group uses a number of KPIs to monitor its performance against its financial objectives:

 

1.     Ratio of profit before tax to total revenue

		30 November 2014	30 November 2013
		%	%
Ratio of profit before tax to revenue		1.52	5.57

 

2.     Funds under management and advice

		30 November 2014	30 November 2013
		£m	£m
Discretionary assets		722	506
Advisory assets		952	931
Execution only assets		1,018	1,046
Total		2,692	2,483
Less assets relating to discontinued activities:
Third party client administration		(90)	(155)
Appointed Representative assets		(102)	(84)
Other assets		(25)	–
Total		2,475	2,244

This is used as a measure of the potential for revenue generation by type of client assets held in our nominee control.

 

3.     Recurring income streams

		30 November 2014	30 November 2013
		£m	£m
Value of Group recurring income		10.0	8.9

 

This key indicator of business activity includes fee and other ongoing income from retail and corporate clients for the management of their relationship with the Group. This represents an increase of 12.36%, largely influenced by an increase in the number of clients in our Corporate Broking division and an increase in our Private Wealth Management division of the number of clients and value of their assets who pay a fee for our services.

 

4.     Corporate Broking performance

		30 November 2014	30 November 2013
Number of transactions		29	21
Money raised		£56m	£102m
Retained corporate clients		93	87

 

 

A reconciliation of the adjusted operating profit is set out below:

	30 November 2014
	£’000
Operating profit	690
Add back of one off charges:
Restructuring costs	620
Non-recurring legal and regulatory costs	138
Adjusted operating profit	1,448

 

 

A summary of the income statement for the financial year is set out below:

		30 November 2014	30 November 2013
		£’000	£’000
Revenue		30,043	29,653
Administrative expenses		(29,353)	(28,734)
Operating profit		690	919
Other income and charges		(234)	733
Profit before tax		456	1,652
Tax expense		(119)	(516)
Profit after tax		337	1,136

 

Future Outlook

The Board is pleased with the recent changes made across the business which are intended to provide the Group with greater focus to achieve our strategic goals. The recent, and impending, closure of Private Wealth offices and the cessation of peripheral non-core services will bring greater clarity to the service offering and the business will continue to look to grow both organically and through value enhancing acquisition from a more solid foundation.

Dividend

The Board is pleased to announce the Company’s intention to pay a dividend of 2.0p per share at a cost of approximately £477k. Subject to shareholder approval at the upcoming Annual General Meeting, the dividend will be paid on or before 10 April 2015 to those shareholders on the register at the close of business on 13 March 2015.  The ex-dividend date will be 12 March 2015.

Balance Sheet and Capital Structure

Maintaining a strong and liquid balance sheet remains a key business objective for the Board, alongside its regulatory capital requirements. Net assets amounted to £13.4m (2013: £13.1m) and net current assets to £8.0m (2013: £7.8m). The balance sheet is underpinned by the holding of the Group’s freehold building in the Manchester city centre and by the substantial cash balances held to facilitate both the day to day business and growth opportunities.

Risks and Uncertainties

Risk appetite is established by the Board and this is consistently reviewed and monitored by the Board and senior management. The Group, through the operation of its Risk Committee, considers all of the relevant risk management issues and advise the Board as necessary on such matters. The Group maintains a comprehensive risk register, within its agreed risk management framework, which encourages a risk-based approach to the internal controls and management of the Group. In addition to an independent Internal Audit function, the Group hired a new Head of Risk during the year to lead a dedicated Risk function. The Internal Audit and Risk functions coordinate their programme of work with both the Compliance department. The Internal Audit function reports directly to the Group’s Audit Committee.

Liquidity and Capital Risk

Whilst a significant element of the Group’s revenue continues to be transaction driven, the Group’s focus, as outlined above, remains on increasing the recurring element of client driven revenues. The Group continues to look to build its discretionary fee paying client base to better fit the regulatory landscape in which the Group is operating and to reduce the proportion of its income that is linked to transactions.

Whilst the Group has a predominantly fixed cost base, a significant element of which are employment costs that are insensitive to business volumes, the Group has continued to focus on achieving operational efficiencies and reducing the variable costs of the business to maximise profitability and provide operational gearing. A broad range of cost savings have been initiated during the year, the full benefit of which will become evident in the 2014/5 financial year.

In order to mitigate risk and absorb any volatility in its operating results, the Board has continued to ensure that the balance sheet remains robust and suitably liquid, and that sufficient regulatory capital is maintained to allow for a healthy surplus over the regulatory minimum capital requirements. The Group calculates and monitors its regulatory capital requirements on a daily basis.

Operational Risk

Operational risk is the risk of loss to the Group resulting from inadequate or failed internal processes, people and systems, or from external events.

Business continuity risk is the risk that serious damage or disruption may be caused to the business as a result of a breakdown or interruption, from either internal or external sources, in the operating infrastructure of the Group. This risk is mitigated in part by the number of branches across the UK from which the Group operates, and the Group having business continuity and disaster recovery arrangements. These arrangements include business interruption insurance.

The Group seeks to ensure that its risk management framework and control environment is continuously evolving and the Board delegates the day to day monitoring of this to the Risk Committee, chaired by the Head of Risk.

Credit Risk

The Board takes active steps to minimise the incidence of credit losses. This includes formal credit management procedures and the close supervision of credit limits and exposures. Formal credit procedures include the approval of significant client limits, approval of material trades, collateral requirements for trading clients and the proactive management of any overdue accounts.  Additionally, risk assessments are performed on an ongoing basis during the year on all deposit taking banks and custodians.

Regulatory Risk

The Group operates in a highly regulated environment both in the UK and the Isle of Man. The Group has independent Risk, Internal Audit and Compliance departments, resourced with appropriately qualified and experienced individuals. The Directors monitor changes and developments in the regulatory environment and ensure that sufficient resources are made available for the Group to implement any required changes. The impact of the regulatory environment on the Group’s management of its capital is discussed in note 26 of the financial statements.

Resources and Relationships

The Group’s most valuable resource remains its staff and the Group remains committed to retaining and recruiting quality staff that share our culture and vision. Staff at all levels of the business are heavily focused on delivering a quality service to our clients. The Board continues to strive to deliver a service throughout the Group which is in compliance with both the letter and the spirit of the principles of the Financial Conduct Authority.

The Board collates management information to assist in monitoring its non-financial objectives, which include items such as risk appetite monitoring, staff turnover, thematic reviews and client complaints.

 

By order of the Board

 

Dan Cowland

Finance Director